Park Electrochemical (PKE) Q3 Earnings Conference Call Transcript


Logo of jester cap with thought bubble with words 'Fool Transcripts' below it

Image source: The Motley Fool.

Park Electrochemicals (NYSE: PKE)
Q3 Earnings Conference Call
Jan. 4, 2018 8:00 a.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Good morning. My name is LaToya, and I’ll be your conference operator today. At this time, I’d like to welcome everyone to the Park Electrochemical Corp Third-Quarter Fiscal Year 2018 Earnings Release Conference Call and Investor Presentation. All lines have been placed on mute to prevent any background noise.

After the speakers’ remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press the *, then number 1 on your telephone keypad. If you would like to withdraw your question, please press the # key. Thank you.At this time, I will turn the call over to Mr.

Brian Shore, chairman and chief executive officer. Mr. Shore, you may begin.

Brian Shore — Chairman and Chief Executive Officer

Thank you, operator. This is Brian Shore. Good morning, everybody, Happy New Year. I have with me Matt Farabaugh, who is our CFO, actually not physically with me, our office is closed today because of the storm, so we’re both at remote locations.

So if we seem like we’re not connected as usual, that would be the reason. So, a couple of housekeeping things here. Again, the office is closed, so if you want to contact our office, the best thing to do would be email Martina. Her email address is provided right at the top of the news release, so you can contact her that way.

10 stocks we like better than Park Electrochemical
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor , has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now… and Park Electrochemical wasn’t one of them! That’s right — they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of January 2, 2018

Also on our website is a presentation as well as the supplemental financial information. Now, as you know, you veterans anyway, Matt normally would read through the supplemental financial information. Well, we’re not going to do that today just because we have so much to cover. So, the supplemental financial information is on our website, it’s posted, you can take a look at it there.

This information is also — you can also find supplemental financial information as well as a presentation at So, why don’t we get started? This is still Bryan. Let me just spend a couple of minutes before we go to the presentation and talk about third quarter. So, electronics, let’s talk about electronics first.

So, we ‘ve talked many times about the process of getting qualified in 4.5 to 5G programs, with our Meteorwave product line in particular. I think or our guys have done a really great job, Chris, Tony, Mark, in Asia, in particular. Think you’re doing a wonderful job. And we’re on many, many programs.

Now, the issue was of course that we can’t force 4.5 and 5G to happen more quickly than it does. This is for infrastructure, this is for infrastructure equipment, 4.5 and 5G infrastructure. So, at this point, we’re starting to see some movement up, which is good news, and this last couple of months some movement up with our Meteorwave product line in particular but we don’t feel like that 4.5 to 5G is really ramping to production yet. This is maybe prototyping maybe some [Inaudible] units, that kind of thing.

But the key thing is we’re on the program. So, when 4.5 to 5G do ramp up, we will see the benefit of that. I don’t think it’s a matter of if, I don’t think anybody doubts that 4.5 to 5G will happen. I think it’s a matter of when.

You can talk to a lot of different people with different opinions. Some people even think that maybe the end of this calendar year we’ll start to see some ramp-up of 4.5 and 5G.The other thing to talk about in electronics quickly is restructuring. Really it hasn’t been executed very well. We got behind the power curve in the summer, we got off to a bad start.

We’re clawing our way back. I think we’re doing much better. We seem to have it under control but it was really not so good, kind of messing the third quarter because we had, really didn’t get off to a very good start in the second quarter. So I think we’ll do OK, but it’s unfortunate that it did not go well.

Restructuring, I’m talking about the restructuring out west, with Arizona, California, of course. So those two things are probably the big story with electronics in Q3.Aerospace is doing well, doing fine, I think. The difference between Q2 and Q3 in aerospace is ablatives and we talked about ablatives last month. Ablative materials are very high-temperature, specialty materials that go into rocket nozzles.

In this case, it’s for the Atlas V and also for the PAC-3, which is the latest generation of the Patriot missiles, and the business with ablatives is kind of lumpy. So, in the second quarter, it was actually $1.5 million more than the third quarter and the fourth quarter probably about the same as the third quarter. So, that really explains 100% of the difference in the revenue for aerospace between Q2 and Q3. And that’s not unexpected.

It’s not a sign of anything other than that’s the nature of ablatives. The rest of business, I think, is doing well and moving in the right direction. So, why don’t we go back to the presentation. Again, it’s posted on our website.

You will also get access at There’s a lot of information to cover. So, we’ll just get right into it. And I’ll try to remember to give you the heads-ups on the pages as I turn the pages.

I actually just have a print-out of it. I’m not looking at it on my computer screen.So, the second and third page of the presentation, that’s our cautionary language, risk factors, and I would encourage you to read the risk factors when you have a chance. There’s some new risk factors on Slide 3, actually, regarding aerospace and I’d encourage you to read them. And if you have any questions about them, or you want to discuss them further, please give us a call [Inaudible] talk through the risk factors for you.OK.

Now, why don’t we go to Slide 4, which is financial highlights. So, we’ve been saying for a while, if and when the tax law is passed, that we would pay off the loan, and then we’d do something special for shareholders and we like to keep our word, of course. We’ll discuss the impact of the tax law, the new tax law [Inaudible] at the end of the presentation but for now first item is, we paid off our loan in full. That was yesterday.

We didn’t take a lot of time to do that. That was a $68.5 million balance remaining at the time. And we also have declared a dividend of $3 per share. That’s a total dividend of $60.7 million.

As you can see here, it’s a special dividend.So, a couple of things about this dividend. This is not a return-on-capital dividend, it’s taxable. We wanted to make it return-on-capital dividend but the way the new tax law operates, it prevented us from doing that because, I’m a little out of my element here, but based upon the operation of the new tax law, the overseas earnings were attributed to our accumulated earnings and profits, which, therefore, make a return-on-capital not possible. As you remember from the past, the way a return-on-capital dividend works is if you have zero accumulated earnings and profits, then the dividend goes to reduce your basis [Inaudible] stock rather than to be a current taxable item.

Also, a buyback, I just want to comment, a buyback’s not possible for Park this time [Inaudible] a process. We’ll get to that in a minute. Maybe some of you have read it already but while we’re in the process, it would not be proper, it would not be legal for us to do any kind of buyback, whether it be a open-market program or a tender offer. I’m not saying we would have done if not this restriction.

I’m just saying there’s a restriction and you should be aware of it.The third item, just a little history here for you, more perspective maybe. So, based upon this $3 per-share dividend, we also declared a regular quarterly $0.10 per-share dividend on December 19. If you take into account those two dividends, Park will have paid $412 million in cash dividends since fiscal 2005 and that would equal $20.10 per share. That’s just since fiscal 2005, $20.10 a share.

Now, I was planning to tell you that that $20.10 a share is higher than the current stock price but it was as of the close yesterday. I think the stock moved up a little bit so that no longer will be the case.Let’s go on to Slide 5. So, this is our big news item for Park, of course, a very big news item. So, we decided to initiate a strategic evaluation of our electronics business, which includes a potential sale of that business.

We retained Greenhill and Company, which is an investment banking firm, to help us with the strategic evaluation and possible sale of electronics, and we plan to complete the strategic evaluation during our second quarter of next year, ’19. That would be the quarter, that would be the, what, June-July August months? But no specific timetable has been set. And of course there’s no [Inaudible] that anything will happen, a sale or anything else, as a result of the strategic evaluation.Let’s go on to Slide 6. Park’s iconic electronics business, sometimes known as Nelco, what does it do? It develops and manufactures high-technology digital RF/microwave printed circuit materials and it’s principally for infrastructure, service provider infrastructure, and this would be like internet infrastructure, enterprise, which means, like, networking, military, aerospace, [Inaudible] test.

Semiconductor test is a niche market for us but it’s a very nice market. So, next item, on Slide 6, I’m sure many of you know these things but bear with me. Our electronic business is global. We have operations in Singapore, France, California, and Arizona, R&D in Singapore and Arizona.

And [Inaudible] we had our 60th anniversary, Park’s 60th anniversary. You may remember some of the historical stuff but we are very [Inaudible] beginning for our electronics business. Park was found in 1954. In 1961, my father and Tony Chiesa had found some bankrupt concern on the docks in Stamford, Connecticut and it was in bankruptcy.

Legend is that we paid $200,000 for it although I think my father said we paid too much as I recall. And that’s how Nelco, our electronics business, was started way back in ’61. Very much innovation, the company wasn’t a company that had a lot of money in its early days. Innovation was the calling card, including the development of multiple-layer circuit boards in 1962.

My understanding is that was done for Lockheed Sunnyvale. Houston wanted to take weight out of some heavy-lift rockets, maybe for ICBMs, and I believe that was the first multiple-layer circuit board ever made. I can prove we actually did multiple-layer circuit boards in ’62. People might debate whether that was the first, but I think it might be the first.

So, many innovations, lots of magic, [Inaudible] of the electronics business, Park’s electronics business. Slide 7. So, our electronics business, something built from nothing. We [Inaudible] lasting value no matter what we do, and that’s what we do with our electronics business.

How do we do that? It’s not rocket science. We didn’t need to go to business school for this. We stick to our principles, integrity and humility. Those are our two key principles.

We work very hard but more than that, perseverance. What perseverance means is that we just stick with it. We go through thick and thin, all kind of obstacles we need to overcome, setbacks, problems, failures, we just keep going and going and going. And with that kind of mindset, of never quitting, never dying, it’s amazing what one can accomplish.

This business, wonderful products, wonderful technology, especially very wonderful people, it’s a very special business, in my opinion.Let’s go on to Slide 8. So, why would we consider selling electronics, our electronics business? Well, Park is a small company with limited folks and resources by design. In other words, that’s what we want — we don’t want to be a big company. We want to be small and agile, flexible, not large or bureaucratic.

Other companies, they’re large and bureaucratic, they have other strengths. Our strength as a smaller company is to be flexible, responsive, and agile. So, we want that. That’s by design.

We’re not looking to build a larger organization.It turns out that the electronics industry and aerospace industry are quite different and they have different technologies, very different markets. So, it’s become more and more difficult for Park as a small company to do justice to both the businesses which is not fair because we’re kind of not doing the best job we could [Inaudible] with two businesses in very different markets.So, let’s go on to the third bulllet item. So, as part of this process that we’re talking about, we’re looking for a new owner for electronics business which has the resources, both human and financial, the focus and capability to enhance and develop the full potential of our electronics business and provide it with the future it deserves. Again, we [Inaudible] not really equipped to do that as a small company, to do that for both electronics and for aerospace.

We understand that if we find a new owner, they’re not going to run the company the way we do — that’s not how it works. But we need to find a company that we respect, that has important principles and that is a company that would be committed and dedicated to our electronics business. So we’ll look for transaction which is in the best interest of our investors, of our electronics business, and our electronics business people, and the customers and OEMs of our electronics business. We’re looking for the right equation here.

We’re not looking to just do something quick. We want to do something that’s right for everybody concerned. So, my opinion again is if we do sell our electronics business, the buyer will be very a fortunate company to own such a wonderful and special business.Let’s move on to Slide 9. Let’s talk about our aerospace business for a little while and it becomes a little bit more relevant or [Inaudible] important that we do that anyway [Inaudible] if we sell our electronics business, then Park will become aerospace-only company.

So, what does our aerospace business do? By the way, let’s look at the pictures on the bottom right of the page, Slide 9 we’re on. That’s the picture of our facility in Newton, Kansas, which was a farm field 10 years ago. The building on the left is our main manufacturing facility. The small building on the right, that’s where we have our [Inaudible] operations [Inaudible] to do development and design work.Anyway, let’s go to the first item again on the Slide 9, the first arrow item.

So, our aerospace business develops and manufactures hot-melt solution advanced composite materials for the aerospace industry. We also design and manufacture composite parts assemblies, primary and secondary structures, and also low-volume tooling for the aerospace industry, all done at this location in the picture here in Newton, Kansas. And our principal manufacturing and design and R&D facility is located in Kansas, and we have satellite manufacturing operation in Singapore.A little history on aerospace, it’s more recent history but it’s a story similar to the history with electronics. In January 2007, I remember quite well, we had a sales meeting in Wichita, the global sales meeting, and at that point we decided we were going to focus in aerospace as a second major area of business concentration for Park.

And then, I guess, in August, that would be about six months later we found out a farm field in Newton, Kansas. It was, I think, a wheat farm, as a site for our new aerospace facility. I remember seeing this field and I went to speak to the people at the local town and their economic development group and asked them if we could have it and they said, “Sure. It’s just a farm field” and that was that.

In January of 2008, January 17, we had groundbreaking. It was a cold wintry day, not quite like it is in Northeast today, but it was cold and wintry. And then looks like, what, six years later, fast forward to 2014. Sorry, I’m on Slide 10.

We went into production on the first program for a major jet engine manufacturer, which is GE Aviation. As some of you know, we were asked by GE Aviation never put their name in writing but they said they were OK with us discussing their name on our investor calls. So this was a big deal for a new kid on the block. In aerospace six years, that’s not very long.

Actually groundbreaking was in 2008. I think, in 2009 when we kind of opened for business. So, maybe five years later we go into production for this major jet engine manufacturer, GE Aviation. That was a big deal, very highly unusual, almost unheard of.

Their first program we were on was actually a legacy program, would qualify as a legacy program, quite unusual, very unusual, especially for a new kid on the block. So, we’re very fortunate, very lucky in that regard.The third item, on Slide 10. So, our very special aerospace business was built from nothing. [Inaudible] built from nothing, something built from nothing.

A farm field producing wheat 10 years ago, I remember, but now it’s a business with true lasting value built the Park way. Same principles here, staying true to our principles of integrity and humility, working very hard. Of course perseverance has been the key. We were in Kansas.

We didn’t know anybody. We didn’t know really very many people in aerospace. We were kind of on our own. We faced a lot of adversity, many challenges.

We’re kind of an outsider too. Aerospace is a little cliquey, and we’re a new kid on the block, ‘Who are you guys?’ Many disappointments, setbacks, failures. Some days seemed hopeless. Some days everything seemed dark [Inaudible] but the difference is — and this to me is how value is built — we never quit, we never stopped, we never gave up.

Kept going and going and going no matter what, no matter, even when it was pretty lonely because we didn’t have too many friends or advocates. So, the comment, building value, is financial engineering. I’m sure there’s some value in financial engineering as well, but the problem is, when the financial engineering is over, what do you have? You’re still the same company. If that company, hasn’t focused on the things that really matter, if they’re spending too much in the boardroom and not enough time where the rubber hits the road, something very weak, very flimsy, not lasting.

Fortunately, we didn’t take that route. So, I think we have built something with substantial value and lasting value. So, we haven’t yet achieved greatness but that is our objective. It is a special business with significant opportunities.

Look, we didn’t do this, we didn’t go to that farm field 10 years ago because we [Inaudible] have an objective of mediocrity or something less than greatness. We’re going for greatness and if it wasn’t that, we wouldn’t have done it. It just wouldn’t have been worth it. It would have been so easy not to do it, not to do it.

And Park was doing fine back then, in 2007, right? We didn’t need to do this but we did it because we felt it was the right thing for the company. We felt it was the right thing long term for investors, and I’m glad we did it but I only would have done it, I’ll speak for myself personally, if the objective was greatness. Something less than greatness? Not interested, OK?Let’s go to Slide 11. Let’s talk a little bit about some of the [Inaudible] regarding the aerospace company.

So, a major jet-engine company, again, we’re not to put their name in writing, it’s GE Aviation. So, we’re in Year 2 of a 13-year, long-term agreement, pricing [Inaudible] Year 3 and Year 8. This is for nacelles and thrust reversers. Those are very big parts.

Look at the picture on Slide 11. You see those big white things? Huge structures, right? You see there’s a person in the background to give you a perspective on their size. So, those are nacelles. The thrust reversers you can’t see.

They’re locker doors inside and trans [Inaudible] but these are very, very, very large parts, which is good if you’re a company that produces composite materials, because the bigger the parts, the more materials. I’m not sure about this but I would suspect that if you’re looking at nacelles and thrust reversers, that’s probably by far the biggest usage of composite materials at GE Aviation. I don’t know that for a fact. I’m just speculating based upon knowing the engines and a little bit about the engines and how they’re built.

So, second item on 11, we’re sole source on multiple engine nacelle and thrust-reverser programs, including the 747-8, which is what you see in the picture, A320NEO with a LEAP engine, Comac 919 with a LEAP engine, Bombardier Global 7000 and 8000 with a Passport 20 engine. That’s not all the programs, those are some of the key programs that we’re on. Sole source for thrust reverser, materials for thrust reversers and nacelles. And we’re also sole source for a third item.

For example, internal fixed structure for a new a engine program just ramping up now. And we are also qualified, the last item on the top of the right [Inaudible] and top of page, a number of other internal fixed structure components for multiple engine programs.Why don’t we go on to to Slide 12, continuing with GE Aviation. So, we have done multiple joint development and collaboration efforts, very, very key for Park. This has led to our developing new products but also getting qualified, and in aerospace that’s 90-something percent of the battle — you need to get qualified.

You can develop a new product but it’s like, what is it, a tree falls in the forest, does it make a sound? Who knows? But if you don’t get the product qualified in a major program, it’s not that meaningful. The beauty of this is as we develop the product by working with GE and with their assistance, we also get these products qualified on these programs. There’s two additional new products expected to be complete and qualified in fiscal 19 as well. The development of products is basically complete and now we’re going into qualification.So, let’s see, the second to last item.

This is something else, quite interesting. This is the large composite part. It’s actually for a military program, again GE Aviation. We’re still in development, although I think we’re in Phase 2 or Phase 3.

So, funding has been there. Very interesting opportunity for Park and lots of potential revenue as well, if the program is successful. Redundant factory, we discussed this before. I think we mentioned, over the years that if and when we sign an LTA, we would [Inaudible] redundant factory but even though we’ve signed the LTA, we haven’t made a commitment to do that yet.

Still working some details with GE Aviation. This is a redundant factory, presumably, in Newton, Kansas, and this is redundancy for the GE Aviation customers in particular, Boeing and Airbus, for instance. Redundancy is very important in aerospace, of course. Based on our forecast, we probably need the additional factory anyway, for just capacity, but the stated purpose of the additional factory is redundancy.Let’s keep moving, Slide 13.

Sorry, it’s taking a little longer but I want to go through these items [Inaudible] quickly. So, this is a different company. This is a major aerospace company in the U.S. and we’re currently in qualification on two important specifications, expected to be complete in the first quarter of fiscal ’19.

Our fiscal ’19 starts in March. So, that’s March-April-May timeframe. That’s soon, in other words. So, other specifications under review.

Also, significant opportunities for parts and spares for multiple legacy aircrafts, especially military programs. That picture is a picture of a 747. That’s my favorite airplane, I guess you know that. Slide 14, just a quick one.

Textron’s Scorpion, tactical aircraft. So, we’ve done lots of parts and assemblies and also tooling for all the prototypes of this aircraft. The key for us with these guys was speed, response, and flexibility. So, we could turn a part, meaning we get a data package, into something we drive down to their factory in Wichita in one of our cars in less than two weeks.

In other words, we have to make a tool. Make a tool and the part in less than two weeks. That’s pretty unusual.So, let’s keep going, Slide 15. The future, let’s talk about the future.

If Park’s electronics [Inaudible] sold, Park will become an aerospace-only company. Second item, Park’s opportunities in aerospace are now very significant after 10 years of hard work and perseverance. So, I think that was probably earned. It certainly hasn’t been easy, but I think a lot of the hard work and perseverance has paid off.

So, if Park’s electronics business is the sold, then we’d be able to focus 100% of our efforts or attention or resources or energy on our aerospace business and our significant opportunities in the aerospace industry. My concern is that as a small company, as I was saying earlier, we don’t have the bandwidth needed to take advantage of all the opportunities that we would like to take advantage of and that’s kind of a shame. So, we want to do something about that.The next item, because of the status we’ve earned in the aerospace industry [Inaudible], I think we may be very well-positioned to take advantage of fairly unique strategic opportunities, including acquisition opportunities in the aerospace industry. So, I’m being a little obtuse here and I think I need to be, but there are some, I believe there some special opportunities that we have in terms of acquisitions based upon our status in the aerospace industry.

Other words, not just to get in some auction, like every Tom, Dick, and Harry financial buyers and that kind of thing. So we’ll see what happens, but these opportunities could be very special for Park and, again, it’s based upon a lot of hard work and perseverance to earn that status and I think we have.Last item on Slide 15. So, we’ve very carefully redesigned our cost structure for the future from the bottom up in the event our electronics business is sold and we do become an aerospace-only company. So, I want you to understand we put hundreds of hours, management hours into this model and we’ve been working on it for two months, hundreds of hours.

This is not something that an investment banker or an MBA would do in a day or two. Hundreds of hours looking under every rock, every person, every detail. This is a bottom-up model. I’m going to show you this.

It’s on the next page. And why is that? Because we don’t think you could figure it out yourself because the cost structure has been so fundamentally changed. It’s not that we cut cost. We reinvented the cost.

We started from the ground up. We thought “Look, this is the business going forward. Let’s design a cost structure for that business rather than taking our current cost structure and adjusting.” We didn’t think that would be the way to go but we did think if there is any way for you to figure it out, and that’s really not fair to you, because this could be pretty important for Park for the future. So, we thought we should help you.

We thought we should help you out, something we’ve never done before that I remember anyway and I’ve been doing this for a while.So, let’s go to Slide 16. This is Park’s baseline pro forma forecast estimates and this assumes Park’s electronics business is sold. Just for perspective, the aerospace revenues for fiscal ’18 probably about $40 million, OK? So, just to put it in perspective. And you can go look at numbers.

I guess they speak for themselves. You can go up to fiscal ’22. We show some pretty nice growth over that four-, five-year period. Let me just go through some of the points here.

Now, fiscal ’19 pro forma, remember ’19. That’s the year that starts in two months, starts in the beginning of March. So, that’s really the year that’s important, the baseline, let’s call it the baseline year. This pro forma for ’19 assumes two things.

1) It assumes that electronics business was sold by the beginning of the year, let’s say the end of this fiscal year, No.1, and No.2, all legacy costs that are going to tail off have already tailed off because if we sell electronics, the day it’s sold, the legacy cost probably take six months to tail off. This assumes all legacy cost are gone as of the beginning of the ’19 fiscal year, two months from now. That’s a pro forma. The following years aren’t really pro forma years, they’re just forecast years because by fiscal ’20 if the electronics business is sold, it would have been sold, and most, the large majority of legacy cost would have ended by the beginning of fiscal ’20.

Fiscal 20, remember, starts in 14 months from now. So, fairly conservative forecast here.Second item, pro forma forecast assumes organic growth only. No additional revenue from significant opportunities or acquisitions. It’s really conservative.

What are the components of the forecast, talking about the revenue, the top line? We take the GE forecast. We don’t take everything that we’re dealing with at GE. These are the things [Inaudible] looking for sole source, those two other products I mentioned earlier that we’ve developed and we’re going to qualifications on those two products. That’s it.

There are many other opportunities not included in the GE forecast. We take GE forecast, roll it into our model. GE forecast is based upon how many airplanes Airbus will sell, how many airplanes Boeing will sell, Bombardier, Comac.So, it also includes, let’s say, a modest amount of revenue from that other major aerospace company that we talked about a few slides back but I think a modest amount. And then also it assumes approximately $5 million a year of incremental, we call miscellaneous, incremental business.

We don’t just plug the number. That would have probably 100 [Inaudible] associated with it. Again, there’s hundreds of hours doing this modeling both for their top line as well as the cost [Inaudible]. So, that that was an assumption that we use to build this model.

Like I said, it is all organic and no revenue coming from any significant opportunities or acquisitions. You might say, “Well, that’s conservative.” Of course, we hope that we will have new opportunities and maybe acquisitions. And I just want to note also that that GE forecast does not top out until fiscal year 2025. So, 2022, it has a way to run based upon the forecast that we have received from GE Aviation.

Now, we won’t put this down in EBIT. We weren’t going to go down to net or EPS, because we figured there are variables there, but if you want to do the math, the analysts, I think we probably want to assume approximately a 25% tax rate going forward. Let’s assume we sell electronics, so it would be mostly U.S. Twenty-one percent is our new tax rate, I guess, plus a [Inaudible] for state taxes.

And you see on the next page that after all these things we talked about early on are complete, the company probably has $90 million to $95 million in cash with no debt and we would assume maybe 1.5% to 2% interest income on whatever cash we have. Now, maybe that’ll go up based on what the Fed is doing, but that’s a part you guys can figure out probably smarter than we are in that regard if you want to do the rest of the modeling, bring it down to EPS or bring it down to net.Let’s go to Slide 17, additional financial commentary. So, there’s good news. About $20 million of taxes that we’re gonna need to pay based upon the new tax law regarding overseas earnings and cash, $20 million.

If we repatriate our cash before the new tax law was adopted and enacted, it would’ve been about $60 million. That’s after-tax $40 million. So, I guess it paid off for us to hang in there to [Inaudible] $40 million.Next item says that OK, we assume $20 million of taxes. Remember we paid off the loan.

That was $68.5 million. That’s money already gone, paid it off. Dividends, the special dividend as well as the regular dividends declared, that’s probably about $63 million. So, we just take our current cash position, do the math and that means that after all the stuff is done, after taxes are paid, loans are paid off, they’re already paid off, we don’t have a loan anymore, as of today, we’ll have about $90 to $95 million of cash remaining.

So, the question obviously is what we do with that cash. Well, we’ll see. There are a number of factors, though. One is, let’s see what happens with the potential sale, possible sale, of our electronics business and if that business is sold, proceeds from that business, after-tax proceeds.

We want a little bit of a deeper understanding of the tax law. We did our best to move quickly but obviously the nuances will be developed over the next few months. As I mentioned, there’s a unique acquisition opportunities. Unfortunately, I can’t tell you more about this but if I was able to, any reasonable investor would say you definitely want to take advantage of those or pursue those seriously.

So, that would be consideration as well, but of course there’s also a possibility for returning more cash to shareholders, but we can’t say what will happen because there are a lot of different moving parts, a lot of variables here. The last thing I want comment on is the regular dividend $0.10 per quarter. I don’t remember when we increased that, probably 10 years ago from $0.08. I think we paid regular dividends for 30 years now, quarterly dividends.

We intend to keep it, we don’t intend to change it. We intend to continue the regular quarterly dividend of $0.10 per share per quarter at this time.OK, Slide 18. That’s our “thank you” slide, and the last thing I want to mention to you is that there is a [Inaudible] conference and we intend to attend that conference. I believe we’re doing a presentation on the 18th at 12 noon but we will send a news release out about that, and that’ll be webcast, so everybody’s welcome and we will probably go through this presentation, maybe an extended version of it.

So, feel free to dial into that webcast for an update on everything about Park.OK, Operator, that concludes our introductory comments, remarks, and we’re happy to take questions.

Questions and Answers:


Thank you. Ladies and gentlemen, if you have a question at this time, please press the *, then 1 key on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the # key. And to prevent any background noise, we ask that you please place your line on mute once your question has been stated.

And the first question will come from Sean Hannan of Needham and Company. Your line is open.

Sean Hannan — Needham and Company — Analyst

Yes. Thanks for taking my question here. Good morning, folks, and Happy New Year. Can you hear me OK?

Brian Shore — Chairman and Chief Executive Officer

We can hear you fine. Happy New Year, Sean.

Sean Hannan — Needham and Company — Analyst

So, you certainly starting off with a bang here, Brian. Pretty material announcement around the evaluation of the electronics business. Is there a way, perhaps if you can give us a little bit of context in that you’ve laid out some of your general viewpoints and estimates looking at your aerospace business? You have some assumptions that you’re making in terms of where you could potentially, ultimately end up with your net cash. Can you talk a little bit about the profitability of the electronics business today as you’re looking to evaluate that and potentially consider the sale?

Brian Shore — Chairman and Chief Executive Officer

No, I don’t think we [Inaudible] do that. Obviously, we’re going to be asking people to sign NDAs and then we’ll select potential buyers and we’ll send them information based upon them signing NDAs. We’re not going to invite everybody into the process. We want to feel the company is a good company, good reputation, honorable company.

At that point, we would send the information to them but we’re not going to comment on the possibility of top line, bottom line of the electronics business at this time. I think that my feeling is, though –this is not your question but I’ll comment anyway — that many serious potential buyers will find this to be of great interest for a lot of reasons. The numbers obviously will be important, but it will be the numbers and other, strategic reasons.

Sean Hannan — Needham and Company — Analyst

OK. Is there a way perhaps, Brian, if you could at least give us an indication, was the electronics business profitable within the quarter you had just reported and against the last quarter as well? At least are we in the green or are we in the red at this point? Some indication at least would be helpful.

Brian Shore — Chairman and Chief Executive Officer

We’re not in the red but remember we don’t segment electronics, aerospace. There’s no hard answer to that question. I’ll just say we’re not in the red. Again, we will present the electronics business properly to the potential buyers.

That will be done on a confidential basis. I think that the numbers they see will be fine, but I think that the proper strategic buyer will also look beyond the numbers to see even more value as well, but it’s not in the red.

Sean Hannan — Needham and Company — Analyst

OK, that’s helpful. And switching gears to the aerospace side of the business, on Slide 11, Brian, you’ve laid out four aircraft platforms as examples with different engines where you’ve got a presence and, it’s true, I believe one single jet engine company that places you on those platforms. I just want to make sure that I have that accurately. That’s been an assumption and I just want to validate that.

Brian Shore — Chairman and Chief Executive Officer

That’s correct. Slide 11 and, I think, let me just check for sure, Slide 12 relate to GE Aviation. So, everything on these slides relate to GE Aviation. These are all programs we have from GE Aviation.

Sean Hannan — Needham and Company — Analyst

OK. And then [Inaudible] programs that are in hand and would inherently be factored into the forecast that you laid out [Inaudible], which was very helpful to see, by the way, whereas the bullet, the upper right of the slide, indicating you’re qualified for internal fixed structure components. Would that be factored into the thought process for organic revenues that would grow or given that it’s only qualified, is that something that would be [Inaudible]? Just trying to understand context here.

Brian Shore — Chairman and Chief Executive Officer

Yea, good question, and the answer is, generally you’re right that the items on which we’re qualified would not be included in our forecast.

Sean Hannan — Needham and Company — Analyst

OK. And then that leads me to kind of the last question here and then I’ll get out of the way. Can you outline for some of us some of the key opportunities that either you’ve referenced today or in some prior calls or just overall that would not be in the numbers and the estimates forecast that you sized on that one page? Can you can you outline for us some of the opportunities not in those numbers and then somehow qualitatively give us a perspective of how sizable those could be as an additive factor to what’s been outlined as potential revenue trajectory here?

Brian Shore — Chairman and Chief Executive Officer

OK, well, maybe the way to look at it is, we try to break down what the forecast does include and some limited things. So, what it does include is the rest of the universe and I don’t know how to even approach that. There are so many opportunities from so many different directions. I mean, some are even with GE Aviation.

There’s other opportunities with this large aerospace company I spoke about but those are obviously not the only aerospace companies in the world. And also new products are being developed, worked on. Those lend more opportunities. The products which we developed with GE Aviation where they helped us get qualified, just so you know, when you’re in the aerospace business and you have a product you want to sell and you go to a new customer, the first thing they’re going to ask you is “What programs are you on?” Why is that? Because they don’t want you to be the first guy to try you out and it’s hard to comprehend the amount of money that’s required to be spent just to qualify you on a major aerospace program.

So, they don’t want to do that if you’re not a proven quantity. So the fact we can say, “Yea, we’re on GE Aviation programs.” OK, that’s the end of that discussion, because GE Aviation is known to be a pretty difficult company to get qualified with. I mean, to their benefit it’s good they’re difficult but it is a lot of credibility. So, what I’m getting at is those products that we developed with GE Aviation’s help and are getting qualified in GE Aviation’s program, GE Aviation has been very nice to us.

They said, “Well, you could sell those products to anybody you want.” So, we’re just getting started, we’re promoting the products and trying to sell the products that we developed with GE Aviation where we’re qualified on those programs, to other aircraft companies, large and small. Remember, we developed for GE Aviation, we talked about this before, an AFP material and that’s going to production now with GE Aviation. AFP [Inaudible] replacement, that’s a newer technology, a robotic technology for producing composite parts. We can sell that material to other companies.

Sean Hannan — Needham and Company — Analyst

OK. All right, that’s helpful. I’ll see if I can follow up around this. Thanks for taking the questions here, folks.

Brian Shore — Chairman and Chief Executive Officer

Sure. Have a good day. Happy New Year.


Thank you. The next question is from Scott Scher of LMJ Capital. Your line is open.

Scott Scher — LMJ Capital — Analyst

For someone who is not that familiar with your company, can you point us to any transactions that have taken place over the last two or three years that are comparable to the business that you own?

Brian Shore — Chairman and Chief Executive Officer

Transactions? I’m not following you, what you’re getting at —

Scott Scher — LMJ Capital — Analyst

I want to be able to guess what you’re going to sell that business for, [Inaudible]. I am not familiar with your company. So, investment banks are going to put together a pitch book of comparable companies and comparable transactions and that’s how they do things. So, for somebody who is just trying to ramp up real quickly, maybe you can point me to, say, this company that sold a year ago was sold for one time revenue, that one sold for two times revenue, that sold for X, that sold for Y.

Any direction would be fantastic. Thank you.

Brian Shore — Chairman and Chief Executive Officer

Yea. There are really no comparables for this business. Obviously, lots of different companies in the electronics industry but no direct comparables in terms of any kind of transaction I’m aware of in quite a few years. I’m just thinking out loud, but I don’t think so.

Rogers bought Arlon, but that’s not really pure comparable. You can look at that transaction. That’s really a stretch to think of anything. Of course I’m familiar with what you’re talking about [Inaudible] discussion.

That’s why we lack any good comparables.

Scott Scher — LMJ Capital — Analyst

If I could follow up, so you made the decision to sell this. How far along are you in understanding what you perceive the value to be and that’s Part A. And Part B is if the value comes back and it’s materially different than what you think, possibly lower, would you reverse course and not sell the business?

Brian Shore — Chairman and Chief Executive Officer

We’re not going to commit to sell the business unless it’s right for Park and we’re not going to sell the business to the wrong party either. So it has to be right for Park. So this is something that we’ve given an enormous amount of thought to, deep consideration. We have a good feeling, sense for what the value is.

Obviously, we’re not going to disclose that, but if for some reason the process ends in something that’s disappointing, we’re in control. We’re not going to do something just to do it. So, if we don’t have the right buyer, we don’t have the right number, it’s not going to happen but I would say that I’m really optimistic that there will be serious interest. And this would be for strategic buyers.

We don’t really believe this is the right kind of opportunity for a financial buyer, not that we wouldn’t necessarily talk to a financial buyer but we think this is more an opportunity for a strategic buyer. This business is an iconic business that was started in 1961. It’s known very, very well throughout the world. It’s a very special electronics business, kind of a niche business, a little different for our competitors, which are largely large larger Asian companies.

The company has a very good technology, has access to the U.S. market, presence in the U.S. market. These are special things that I think would be coveted.

Scott Scher — LMJ Capital — Analyst

And then one follow-up question. Again, I apologize I’m not familiar with your company. The aerospace business is a separate entity and run by separate management. Correct?

Brian Shore — Chairman and Chief Executive Officer

Well, see, that’s the problem. There is so much tension but then there’s corporate people that are covering both and we don’t like using the term corporate but let’s call Park Electrochemical people that are covering both. So, that’s a problem and that’s where we get spread real thin. So, those high-level resources, assets, aren’t able to focus and do justice to both businesses.

Scott Scher — LMJ Capital — Analyst

I guess that’s the issue. I mean, obviously, you said now you’ll have the opportunity to make acquisitions in aerospace. Obviously, you’ve been sitting on an inordinate amount capital for years and you didn’t feel compelled to make those acquisitions. So, wasn’t that you didn’t have access to capital, which you obviously have too much of.

It was that you didn’t have the intellectual bandwidth to be able to make acquisitions and grow the business at the level or the rate that you thought you could because you didn’t have the intellectual bandwidth to do that?

Brian Shore — Chairman and Chief Executive Officer

I don’t know if I would put it that way. First of all, the opportunities are developing now but based upon 10 years of hard work. So, I’m not sure we were prepared to really do significant acquisition three to four, five years ago but we probably hadn’t earned the status to have special opportunities with acquisitions three or four or five years ago. So, I think I would agree partly with what you’re saying but it’s not just that, well, if we had a couple of more people, we could have done acquisitions three, four, five years ago.

We probably wouldn’t have [Inaudible] the business enough to be able to be doing the acquisitions that would be special acquisitions.

Scott Scher — LMJ Capital — Analyst

Got it. Thank you.

Brian Shore — Chairman and Chief Executive Officer

Thank you. Thank you for questions. Happy New Year.


Thank you. The next question is from Eric Hardwood of Tudor. Your line is open.

Eric Hardwood — Tudor — Analyst

Hi. Just a couple of quick follow-ups on the questions that just came through. You made kind of an indication on the projection slide that you built this new cost structure and financial model from the bottoms up. Excluding acquisition spend, should we expect a change in the cash flow profile of the stand-alone aerospace from the way the business looks today?

Brian Shore — Chairman and Chief Executive Officer

Yes. We haven’t given you cash flow information but I think the cash flow will be positive. If you look at EBIT, EBITDA numbers, I think you can translate those into cash flow fairly easily. So, I would think that the cash flow will be positive.

We’ll be good.

Eric Hardwood — Tudor — Analyst

Got it. So, you’ve been in this electronics business for a very long time. It sounds like the financial profile of that business is perhaps not quite as attractive as the aerospace business. The aerospace suppliers are trading at possibly higher multiples.

Why not sell that business and focus on electronics, which has been your bread and butter for 50 years, 60 years.

Brian Shore — Chairman and Chief Executive Officer

We think electronics would be better off if it’s owned by a different kind of company at this point. At least that’s our objective, to find the right owner, right buyer. But we didn’t put 10 years of very, very hard labor with the aerospace to just now back away and sell it. We think that aerospace has so much potential that has not been realized at all at this point.

I think we’re only getting started with aerospace. We paid dues and it’s not that we’re there, not that we’ve achieved what we want, not that we’re not going to pay more dues. We pay a lot of dues and I think that the result of that is now a position to take advantage of where we are in electronics. I think it would be very weird to want to sell it now.

I mean, I wouldn’t have put the 10 years in if we’re just gonna sell it. I put the 10 years in [Inaudible] build something meaningful and lasting for future of our company and for our investors.

Eric Hardwood — Tudor — Analyst

Got it. On the electronics, it sounds like you have a few potential acquirers in mind specifically. I’m not going to ask you to say specifically who, but have you had [Inaudible] from competitors or strategics or sponsors for that business in the past?

Brian Shore — Chairman and Chief Executive Officer

Not too many. I think it was probably commonly known that we would not have been interested in the past. So, not too many but, yea, this is a strategic situation, in my opinion. So, it doesn’t take long being in the business as long as we have to come up with the usual suspects pretty quickly as to who the likely strategic buyers would be.

Of course, as you implied, we’re not going to name names but of course we talked to our banker, he asked for the list. It’s like, “Well, do you have two minutes? Cause here’s the list.” It doesn’t take long.

Eric Hardwood — Tudor — Analyst

OK. And then one last quick one. Have you discussed this decision and ultimately a possible sale with the top customers and is there any sensitivity around, I guess, the agreements that you have with them?

Brian Shore — Chairman and Chief Executive Officer

You’re talking aerospace or electronics?

Eric Hardwood — Tudor — Analyst

Either, yea.

Brian Shore — Chairman and Chief Executive Officer

Yea. So, not very many, maybe one or two critical customers that we really could trust because obviously it’s a very confidential matter. Maybe one or two we gave some advance notice to. Not many.

We’re going to go into that communication process now. I think some of our guys are already talking to our customers, particularly on the electronics side, and the message for them and the OEMs as well, is we’re not just dumping this business. We want to find a better owner for the business that can do more with it and enhance it, will focus on having resources. This should be a better thing for the business because of course we want to reassure our customers and OEMs this is going to be a positive thing, not a negative thing.

Our intention is to make this a positive thing for all parties concerned — electronics, aerospace, investors, our people who work at Park, all parties concerned — and then of course our customers and our OEMs, the [Inaudible] customers.

Eric Hardwood — Tudor — Analyst

OK. You said before that you’ve spent about two months working on the model. Is it fair to assume you’ve also been spending that same amount of time with bankers, consultants, the board evaluating the transaction or are you relatively, I guess, earlier in the process?

Brian Shore — Chairman and Chief Executive Officer

No, I think that’s fair to assume. We spent a lot of time at all different levels, all different aspects of this potential transaction, as you just implied in your question.

Eric Hardwood — Tudor — Analyst

Thank you. I appreciate it.

Brian Shore — Chairman and Chief Executive Officer

Thank you. Happy New Year.

Eric Hardwood — Tudor — Analyst

You too.


Thank you. And as a reminder, if you do have a question, please press the *, then 1 key on your touchtone telephone.

There are no further questions in the queue. I’d like to turn the call back over to Brian Shore for closing remarks.

Brian Shore — Chairman and Chief Executive Officer

OK, thank you, Operator. Thank you all for listening in, very nice talking to you, very nice updating you on our business. So, unfortunately, our office is closed because of the storm. If you want to contact us, like I said, the best thing to do is send email to Martina.

Her email address is right at the top of the news release. And other than that, hopefully we’ll talk to you soon and I want to wish all of you and your families just the very best of everything in 2018. Goodbye. Have a good day.

Duration: 57 minutes

Call Participants:

Brian Shore — Chairman and Chief Executive Officer

Sean Hannan — Needham and Company — Analyst

Scott Scher — LMJ Capital — Analyst

Eric Hardwood — Tudor — Analyst

More ANGO analysis

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company’s SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

10 stocks we like better than Park Electrochemical
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor , has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now… and Park Electrochemical wasn’t one of them! That’s right — they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of January 2, 2018

The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Original Source