Park Aerospace Corp (PKE) Q3 2021 Earnings Call Transcript

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Park Aerospace Corp (PKE -4.06%)
Q3 2021 Earnings Call
Jan 7, 2021, 11:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning. My name is Katherine, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Park Aerospace Corp. Third Quarter Fiscal Year '21 Earnings Release Conference Call and Investor Presentation. [Operator Instructions]

At this time, I'd like to turn the call over to Mr. Brian Shore, Chairman and Chief Executive Officer. Mr. Shore, you may begin your conference.

Brian Shore -- Chairman And Chief Executive Officer

Thank you, Katherine. This is Brian, and welcome everybody. I have with me Matt Farabaugh, our CFO. Happy New Year to all.

So, first thing is that we announced our earnings this morning. You probably know that. You want to take a look at the earnings release, because there's instructions that will say how to access the presentation we're about to go through. And I highly recommend you do that, because it will make the discussion much more meaningful to be able to go through the presentation with us. There's also a supplemental financial data attached as Appendix 1 to the presentation, you might want to check that out.

As you know, we cover this often, we're not here with these presentations to promote or hype the Company. What we're trying to do is cover things we believe which would be of interest to you and provide perspective that we think will be useful to you, our shareholders, in understanding our Company and our Company dynamics. We can't cover everything each quarter unfortunately just doesn't -- it's not possible, so we have to be a little selective. And notwithstanding that, we have a long presentation. It could take 45, 50 minutes, so I just want you to be aware of that, brace yourselves. There are a number of items which require a little more discussion, because they're not so obvious on the surface. And then after we're done going through the presentation, then of course, we'll be happy to answer any questions you might have.

So, why don't we get started. We'll go to Slide 2. Slide 2 is our forward-looking disclaimer. If you have any questions about it, just let us know. You can call us later of course.

We get right to Slide 3. Okay. We'll go right into the numbers. A lot of stuff going on in this slide. Let's try to go through it. So the third quarter, sales, as you can see, were $10.320 million -- $10.372 million. Gross profit $2.553 million. Gross margin of only 24.6%, that's low as you can see from history, and we'll discuss that just in a minute. And we have an EBITDA of $1.380 million. If you look at the top line for the first three quarters, it certainly shows the effects of the commercial aircraft downturn and also the destocking we've been talking about for quite a while now.

So what do we say about this quarter, Q3? During our last quarter conference call, we said our sales estimate was $10 million-ish and our EBITDA estimate was $1 million-ish. We're not trying to be cute or clever with the ish stuff. When we say ish, we're saying we really don't know. There's a lot of uncertainty and we don't want to give you more confidence than we have in what we're telling you. We're happy to give you our thoughts, but we want you to understand how much confidence we have in what we're telling you. So, looks like we came in within the range for our top and bottom line, meeting our sales and EBITDA. Maybe a little bit ahead, but let's call it, within the range.

Remember our forecast philosophy, we cover this often, but I think it's worth just going over again, is our forecast -- we're not claiming what we call gain to give you a little low numbers or number that's below our expectation, so we can beat it. We give you a forecast, we are telling you what we think will happen. We could be wrong, but we're telling you what we think we'll have. We're not rounding up and not rounding down, this is what we think is going to happen to the best of our ability.

So, then let's go into the next -- let's go into the next item, certain factors affecting Q3 and it'll affect Q4 as well, sales and margins. Let's talk about that. So, the GE sales, we'll cover this later on in the presentation, only $1.8 million. Now, this requires a little bit of a review of things we discussed in previous quarters, which we'll get to in more detail later on the presentation. Remember, we mentioned in the last quarter that we had reached an arrangement with MRAS, which is the -- our main customer, our largest customers, I should say, which is a subsidiary of ST Engineering in Singapore. It used to be a subsidiary of GE Aviation. We reached an arrangement with them under which, we produce a certain minimal amount for them every month on the theory that if we went below that amount, it would severely impact our ability to ramp back up, and we need to ramp back up, and we're quite confident that day would come, that day would come and has come. We'll get to that as well. But it's -- that minimal amount is in units, it's not in dollars. So the dollar amount is going to change based on mix, but somewhere between $700,000 and $900,000 a month, a very small amount, but that's what we said we need in order to maintain that critical mass and the ability to ramp up.

Remember, we mentioned this last quarter that in September, though, we were not going to operate our hot-melt line, because we're taking it down for major maintenance that was overdue. So, in Q3, we only operated two of the three months. So rather than one month times three, maybe $700,000 and $900,000 times three, $700,000 and $900,000 times two. So we had only $1.8 million of GE programs revenue, as you will see a later on in the presentation in Q3. And you'll see as well that compares to Q2 of $2.9 million when we had three full months of production at that minimal level. So that affected, obviously, our top-line, and then bottom line. So this is something else a little complicated we need to explain to you, so you have the perspective.

During the third quarter, we sold about -- we had about $2 million of sales of an essential component that's used on missile programs, that are very critical missile programs. These sales were to the OEMs, the defense contractors. This component is actually produced overseas and it is -- it's produced by an ally. It's not -- it's a friendly country, but nevertheless, the OEMs, these defense contractors are a little nervous. They want to have supply of this critical component. We have the relationship with the supplier, I know this is complicated, but bear with me. So we were asked to go buy this product, which we did, and then sell it packed -- well, not sell it packed, it's all packed, sell it to these OEMs, these defense contractors, so there is a safe source of supply of this critical component, and we did that. So we sold this component to these contractors. They own it now. They can do whatever they want with it, but the expectation is clearly that it will be used starting, let's say, next fiscal year to produce the composite materials for these missile programs. That's the pattern.

But again, it's their product, they can do whatever they want with it, but the expectation is that it will be used by us to produce these materials for these missile programs. But they're very low margins on that $2 million, because we do mark it up, we buy it, we mark it up, and we sell it to these defense contractors at a fairly low margin.

Now, it's actually good news because when we actually produce the pre-preg materials, the composite materials, the margins are quite good. But $2 million of revenue in Q3 that have very low margins associated with it, so we go back to that gross margin number, 24.6%, and that's probably the big picture in terms of explaining why those -- why that number is lower. You look at the -- our prior quarter where the revenues were $9.2 million and the gross margin is 28.6%. We don't like anything below 30%, but nevertheless, look at Q3 and the gross margin is even lower with higher revenues, so we want to explain that to you. Sorry, I took a little bit of extra time. But I just want to make sure you understood that dynamic.

Let's go on to Slide 4. Top five customers, we always cover our top five customers for you. AAE Aerospace and Aerojet Rocketdyne, they're both related to this PAC-3 Missile System. We have pictures that are associated with these top five customers. We've spoken about this PAC-3. It's a Missile System, before it's Patriot Missile, next generation -- latest generation Patriot Missile. GKN, that's a contractor for Sikorsky and many other customers, but we have a picture at the bottom right of the Sikorsky Seahawk, which is a program we supply into. Next item down, Kratos, they've been our top five quite a bit in the last year I guess. And we have a picture of the Valkyrie. Remember that we mentioned before, we believe we're the main supplier of composite materials for all of their drones, including their tactical drones, as well as their target drones. Valkyrie, interesting, looks like they received -- Kratos received award from the U.S. Air Force for the Skyborg program. So that's a very nice program to be on. And the last one is Middle River Aerostructure Systems, we call MRAS, the subcontractors, and again That's a sub of ST Engineering Aerospace, our largest customer. That's a picture of a 747-8, and I think the photography work is excellent. I must say this, I took the picture myself. And this is in Anchorage. The airplane was landing because its gear is down in the landing position, little over a year ago, and I think I was -- yeah, that's right, they're running all the runway, except one runway was closed. So using one runway for takeoff and landing, so I was lined up to take off after this guy landed. Let's go on to Slide 5. So, we've been sharing our pie -- these pie charts with you in the last few quarters. I think they're very interesting, and hopefully, they're informative. So let's start with last fiscal year, fiscal year 2020. $60 million of revenue. You can see the breakdown here. And then, we fast forward to this year, year-to-date -- our Q3 year-to-date, and you see the pie chart has moved around quite a bit. Military is now 58%, where it was 35% last year. Commercial is down to 35% versus 47% last year. Let's do a little math here just for the fun of it. If we take $60 million last year total revenue, and multiply that by 35%, the military portion, that's $21 million, isn't it, approximately? Let's take this year where the revenue is $31.8 million. We multiply that by 50%, and then we annualize that number. Let's just assume, I'm not saying it's true, but let's just annualize, assuming that Q4 will be similar to the first three quarters. That annualizes to $24.6 million. So what's going on here? Even in a down year, you see the aerospace business has grown and grown considerably, probably on the action and probably because we decided that we're going to focus on -- I said -- military, I think I said aerospace by mistake. Our military business has grown even in a down year, and we decided we're going to focus on military as we discussed for the last couple of quarters. So. Okay. Why don't we move on. We'll keep hustling along here, like I said at the beginning, we would like to cover Slide 6. Okay. So we're talking about our Niche Military Aerospace programs. As I just mentioned, we decided we're going to focus on a lot of attention on military. And I think so far, it's going pretty well. It's still a long way to go, but so far it's going pretty well. These are some -- the pictures are just some programs we're on, and not necessarily larger or smaller, we just thought they're programs of interest. I think every quarter we discussed a few programs that we're on -- military programs. The one at top left is very interesting. That's something we're in qualification on-the Standard Missile 3 System, a very fast missile, I think goes Mach 16 to 18. That's very, very fast, the SR-71, you know what that airplane is? It's the fastest airplane, I think still that it was ever build, it goes Mach of about 3.3. So it's a very, very fast missile. And actually, we're also in qualification. We were in qualification on a rocket system that's used on the SM-3 and the SM-6 as well. The Boeing KC-10 Extender, this is really a niche kind of thing. You see that this is kind of a special mission here, because you see the airplane is refueling, but normally it would be used to refuel B-52s and F-18s and military aircraft. This is in for [Indecipherable] I'll try to go through it quickly. We -- it's specialty material and we also make the parts for this program. And how did we get into this program? It was a legacy supplier, this is not a new airplane that's -- they didn't want to do anymore. It is too difficult, too much trouble, and OK, sign us up, we're happy to do that. We love to hear those kind of thing. When somebody thinks something else is too much trouble, sign us up, because those are kind of programs we like. So let's keep moving. The Grumman E2-D Hawkeye, as you can see, that's a carrier-based aircraft, early warning, you see the big antenna on top, we do structural parts, using our material for that aircraft. And we also have the Predator here. I think last quarter we showed you the Global Hawk. This is another drone, obviously used for military purposes. And we -- our materials go into structural components as well as radome materials. And you see the pie chart. Now, this pie chart has taken the military segment for this year, Q3 year-to-date and breaking it up into these sub-components. The common thing for us is we like the niche military programs. We're not looking to go on the big ones like the F-35 structures, things like that, we'd rather do niche programs where we feel we are something different, something special, something unique to offer which -- and we also feel the ability to protect the business because of the fact we're doing something a little different unique. The KC-10 is a good example of that. Why don't we keep going? Slide 7. So now I'll talk about commercial. So this quarter, as I said, we can't cover everything, we talked about military, we talked about commercial, we're not going to talk about business aircraft, at least in the presentation this quarter. If you have questions about it, please let us know. Let's talk about commercial. This is a slide similar to the slide we showed you in the last quarter. So it's a little bit of a review here. We're talking about single-aisle versus wide-body aircraft. So trends are already in place favoring single-aisle aircraft. That was before the pandemic. Why is that? Because people rather fly direct, and they don't want to do the hub-and-spoke thing if they can avoid it. So the single-aisle airplane -- aircraft, a smaller aircraft, they're able to operate out of more regional smaller airports, whereas the wide-bodies go to the big hub. So if you want to go from Point A to Point B, you have to go stop at Point C, I guess where the hub is. Nobody wants to do that if not necessary. Now with the pandemic that accelerated the movement toward single-aisle in our opinion, will the market for single-aisle recover before wide-body? Yeah, I think that's -- we say -- we state as a question, but I think it's clearly the case. And again, the pandemic and the economic downturn has certainly accelerated the movement toward single-aisle -- favoring single-aisle versus wide-body. So our opinion, if you want to be a commercial aircraft, which we do, we never wavered on that, by the way, even though there are a lot of bad news about commercial aircraft over the last year, we felt this is a good place for us to be. If you want to be a commercial aircraft, for us we want to be in single-aisle, but that's our opinion. Now the three major single-aisle programs, the Airbus A320 Family of Aircraft with LEAP-1A Engines. This is a program we are on. This is a very, very, very big program, a very important program, it's a great program to be on. The next one, the 737 MAX. As you know, the 737 MAX is going to be certified, and it's flying again. So good luck to Boeing, hope it works out. We're not in that program. We have almost -- I think no content, and I shouldn't say almost, no content I'm aware of on the 737 MAX program. And then the third single-aisle was Comac 919. The airplane is still in development. Comac says that they're going to have -- finish the development certification within China this year and start deliveries at the end of the year. We'll see if that happens. But we think that's a very important potential program for the future as well. So, in our opinion, we check two of the three boxes, those are the boxes we want to check. The A320, that's by far, we think, the big dog. And the A320, a lot of variance too, they cover a lot of ground, from small to large, so they have a lot of unique things to offer. Unfortunately, because of the MAX problems, they are way ahead of Boeing at this point, at least in my opinion -- our opinion. So if you want to be in single-aisle aircraft, those are two boxes you want to check and those are the boxes we do check. Let's go on to Slide 8 now. So what do we do with program highlight? Airbus A321XLR, that's part of that A320 family we're talking about. Very interesting program and it's a single-aisle. Range, very good range, about 5,400 statute miles. Seating capacity up to 244, that's a lot of seating capacity in high density configuration. Expected to enter service in 2023. Interesting, you should know that. Not very far from now. Will it be a game changer? Well, there's a lot of press, a lot of people writing about this, a lot of people think, yes, it will be a game changer. Why is that? Because it will replace wide-bodies for many operations. For instance, North America to Europe, we expect to take a wide-body, this would be a replacement for that wide-body, but much lower cost. So there's a lot of excitement about this program and we're happy to be part of it, that's for sure. So unfortunately for Boeing, they don't really have an answer for this airplane. It's kind of like the 757 -- the old 757, which is a single-aisle, but it's old technology, and it really -- and it was stretched kind of version of maybe 737, if you want to look at it like that, but they can't stretch the MAX any further. So they can't use the MAX as a platform to compete with this XLR. And unfortunately Boeing added a NMA airplane that was kind of targeting this market, but my understanding is anyway they discontinued development on that for a while, while they're focused on the MAX. We believe Park is ideally positioned maybe partly by luck, maybe mostly by luck, in the commercial and aircraft industry. But whatever reason we think we're ideally positioned, if it's luck, we'll take it, no problem for us. Slide 9. Let's go to Slide 9. This is a slide that we go through Through almost every quarter. It's just kind of a review of GE Aviation jet engine programs. Why are we on those programs, because MRAS, our large customer was until two years ago, a subsidiary of GE Aviation. Now they're a subsidiary of ST Engineering in Singapore, a large Singaporean aerospace company. So let's do this quickly. We have a firm price LTA through 2029 with this MRAS, Middle River Aerostructure Systems. We also have a redundant factory, which is in progress. We'll talk about that later in the presentation. What's going on here is, look at the next item, we're the sole source in all these programs, so for large aerospace OEM, they're not going to be comfortable with a sole source relationship -- long-term sole source relationship for materials like this -- critical tools like this, where there is only one facility. It's too dangerous. If something happens to our facility, it'd be a real problem for these OEMs because the qualification timeframes for these materials is very, very long. So it would be a real problem. So that's kind of part of our arrangement with MRAS. We signed up this long-term agreement. We said, sure, we'll build a redundant facility for you. Now the good news is we needed capacity anyway. I think you remember, some of you do, and you might remember that about a little over a year ago, before the pandemic, we were talking about pushing our capacity already in our existing facility. So that's a good news. We needed capacity as well. Sole source for composite materials, for Engine Nacelles and Thrust Reversers for multiple MRAS programs. We have the A320 family, the first four items. The 747, we've already shown you a picture of that. That's not just for Nacelles and Thrust Reversers, also Inner Fixed Structure. Comac 919, we talked about that. Comac ARJ-21, that's a regional jet, it's doing quite well. It's installed in China mostly. And then the Global 7500 with the Passport 20 engines. Top right, it says, we're also making another component for that Passport 20 program, but that's through GE aviation. The picture here is a 747-8 Engine Nacelles. I like this picture very much because it just shows you the size of the structures. You see the person in the background, very, very large structures made with our materials. So it's a very good program too for Park to be on because there's a lot of content for Nacelle structure on a Park content. Slide 10. So here is an update on GE Aviation jet engine programs. We've done this for the last couple of quarters. Let's give you another update. First item, the A320neo family of aircraft that was LEAP-1A engines. What has Airbus said? Well, they were saying till recently that they're going to do 40 airplanes a month and it was interesting, a lot of analysts were questioning, well, could they be able to sustain that and it almost seemed like everybody was kind of getting on to the train where so many analysts were questioning whether Airbus could sustain the 40 per month and a lot of gloom and doom news about commercial aircraft in general and also this [Indecipherable] program. And well, Airbus said, yeah, I guess you're right, we're not going to sustain 40 a month, we're going to 47. I don't know if that's supposed to be in the face of the analysts' position from Airbus, but they said at some point this year, they'd go to 47 and increase the rate of airplanes to 47 per month. But I think more -- maybe more importantly, we -- Park recently received a forecast from our customer MRAS indicating significant increases in units in calendar year 2021. Let's go on to that Global 7500 with the Passport 20 engines. Same thing, we recently received a forecast from the customer indicating significant increase in units in calendar year 2021. The sole source in the next program to -- for our Lighting Strike Materials qualified on. Comac ARJ-21, that's a regional jet that's being produced in China. Park recently received forecast from customer indicating significant increase in units in calendar year 2021, as you can see a pattern here. Here is the A321, a picture of the A321, a very big seller, very successful airplane for Airbus. Go on to Slide 11, continuing with the different programs. Comac 919, with LEAP-1C engines, Comac has indicated they intend to certify and begin delivery of this airplane before the end of 2021, and our Lightening Strike Materials are already being used in the program. What that means is this is an anti [Indecipherable] new product introductions for they were already producing some units trying to get ahead on production for any airplane. And also to go through the certification programs. 747-8, yeah, it's a special airplane, it's for me, but Boeing has announced, they're going to terminate production of the Queen of the Skies next year, but no change in production rates until then. So the rates aren't being reduced. Boeing is saying, [Indecipherable] to producing this airplane until the program is terminated. That's just saying rate, till the program is terminated. I'm a dreamer, but maybe just unrealistic, but I kind of hold to that hope that maybe somebody will come in and order maybe one of the big freight companies, or other companies, UPS order some more units before the production ends. But that's probably might be somebody being much at a wishful thinking. Slide 12. So how did we get here, where we are now with GE Aviation and GE Aviation programs? Well, of course, there was a significant downturn in the commercial aircraft industry in early calendar year 2020. We all know about that, as a result of the pandemic and global economic crisis. Almost all news about commercial aircraft industry was negative. Very negative. This is kind of, to me, the herd mentality that not a lot of conviction maybe, not a lot of courage. There are two or three analysts -- industry analysts that's targeting very, very negative, that everybody jumped on board. Okay, fine. To me that's always a sign that look at the other side of the story. When there is that capitulation, everybody's now capitulating it so negative or maybe somebody's missing something. So next item, but we did not -- we didn't completely buy all that doom and gloom news, but you know for Park, it doesn't really matter too much. Because at Park, we make adjustments on the fly. We keep pressing forward. That's really all we know how to do. As Winston Churchill, I think, once said, when your're going through hell, you keep going. We're not analysts. We're not philosophers. So we keep our head down and keep moving forward and we make the adjustments as we have to make them. But we never gave up commercial airplanes -- commercial aircraft. We didn't just then buy that. We didn't buy a lot of the news that was coming out from industry analysts. Okay. Let's keep moving on. Park made arrangements, we talked about this in the first slide. We made arrangements with MRAS for Park to maintain a minimum monthly baseline, critical mass production level to preserve Park's ability to ramp up production when needed. This is critically important to Park and MRAS. This arrangement went into effect probably in June -- sorry, in July, I think we made the arrangement in June, but probably, July was the first month that we started to comply or abide by the sort of arrangement and ends up being about$700,000 to $900,000 a month based upon, I can say it's really -- it's something -- the arrangement is a minimum and the new arrangement is based on units. So the units -- the dollars are going to vary based upon the mix. But think of $700,000 to $900,000 per month is the arrangement that we entered into. And that arrangement lasted until last month, until December. Let's go on to 13 -- Slide 13. How did we get here continues. So we spoke at some length -- I'm sorry, but unfortunately we have to kind of review for perspective, what we covered in the last quarter or two. We spoke at some length during our Q1 and Q2 investor calls about the significant divergence from and mismatch between our agreed-to minimum monthly baseline production amounts, what we just talked about, and the then current end-market requirements for GE programs which Park is on, the specific programs which we were on. So again, there is all those news about the MAX and [Indecipherable] and other programs, but we are focused on programs were on. So -- and let's just go through some numbers, and again it's a little too -- you need to start to go back and review all the stuff, but perspective -- for perspective, I think it's probably important. Fiscal '20, our GE programs revenues were $28.9 million -- approximately $29 million. So just kind of doing some high level math, that's about $7 million per quarter. We told you, I think, last quarter, what we felt these -- the programs we were on, we're probably down about 25% to 30% based upon what the end-market usage was indicating, the programs themselves -- the airplane programs themselves. So we thought, well, all right, if we take the $7 million number and we reduce it by 25% or 30%, that gives us about $5 million per quarter. But we're operating at less than half that. Look at our last couple of quarters, less than half that, based upon that minimal amount again. So what the heck is going on here? Of course, it's an inventory restocking. And we knew that something was up. It wasn't adding up. It didn't make any sense. We explained again going back Going back that we believe many companies, the aerospace supply chain were demoralized in survival mode, not paying attention to need to ramp up production when destocking ended. We're very concerned about that, still are. We further explained during those calls that we believe the aerospace supply chain may be taking inventories to dangerously low levels. It's a serious concern of ours, because the supply chain is very defensive in the survival mode, not thinking about the future, not thinking about, wait a minute, something is not making sense, you're going to have to ramp up someday. Wasn't really being considered in my opinion by some of the members of the supply chain. So, we said this last time, an abrupt and steep ramp up by supply chain could be required when the inventory destocking ends. Is this a ticking time bomb? Maybe. But one thing is for sure. I think if you do the math, the inventory can't go below zero. There is a finite limit to how much inventory can be reduced, how much destocking can occur, right? Can't go below zero. So, let's see keep going here -- sorry, 14. All right. So, how did we get here? And now, to compound the potential need for a steep and abrupt ramp-up, because of that mismatch, the forecasted units for calendar year '21 for all GE Aviation programs have gone up, in some cases, significantly with the exception of the 747, which is flat. We just went through the program by program discussion. We said everything is up significantly except 747. So we have destocking end -- ending, we have inventory being low, and then the programs move up. Do you see the dynamic? So now what? Now what is there's probably a problem that the industry have, at least our part of the industry. This is the Global 7500 that we've been talking about with the Passport 20 Engines. Slide 15. So, the ramp is upon us, that's our belief. Destocking has ended in most cases -- most of the supply chain related to Park's GE Aviation programs. Inventory is taking too low in some cases. That's our opinion. So we'll talk about this later. But the reason I say in most cases is we deal with some subcontractors as well for these GE Aviation programs, about 20% of our revenues go to subcontractors, they have a little rev -- sorry, they have a little excess inventory, maybe at a $1 million. But is demand supply aligned to MRAS? No. We think it's actually low. So as explained, just little review, rates are being pushed up. The ramp is looking pretty steep, just for perspective, JV -- GE program sales for the following periods were. Now, before we go into the numbers, I just want to point out we're talking calendar years here. I'm sorry, that I have to confuse things because normally we talk fiscal years, but for this purpose, we need to talk calendar year, because we have a forecast from GE Aviation -- sorry, from MRAS for calendar year '21. We don't have a forecast for next fiscal year. So we've got to do the calendar year comparisons. This is just for perspective anyway. Calendar year '19, $29.3 million, GE Aviation sales. Calendar year '20, last year -- last calendar year, $15.8 million. But importantly, calendar year '20 last six months, $5 million. That's during that period we were doing a minimum production from July to December, I guess. Obviously, we can do that math. For six months, $5 million, that's a $10 million run rate, isn't it? $10 million? And that goes to add approximately $800,000 per month baseline minimum. $10 million -- so we got $29 million, $10 million in the last six months. Let's keep going. So now we get to the forecast. The calendar year -- sorry, excuse me, '21, forecast for GE Aviation program sales based on the forecasted rates, we recently received from the customer, MRAS approximately $24 million, calendar year, $24 million. Get the numbers? Now you see what I'm talking about in terms of the steep ramp up. This is basically not -- this is not six months from now, nine months from now, $24 million. What does this mean? Okay. So let me explain what we're talking about. What we received from our big customer is a forecast by unit, and by unit number. So this many of this program, this month, that month, they don't give us -- not dollars, it's OK. This month, we're going to build eight of these units. We're going to build nine of those units. We're going to build 20 of those units, month-to-month, 12 months, so it's pretty detailed forecast. For us, it's very easy to convert that to dollars, which we know how much material goes into each unit, very well, and we know what -- what the material [Phonetic] sold for, so it's very easy to convert that to dollars. It's actually, we say approximately $24 million, we have a more precise number, but it's about $24 million. That's how we take this number. What does it not mean? This is not a Park forecast. We're not ready for that yet. We're not quite ready for that yet. We're sharing information which you should have a perspective on the ramp we're talking about, but we'll not provide you a Park forecast at this time. And with next couple pages, we'll explain that. We saw some things we're not sure about or we don't have confidence in to give you a forecast for the next year. So we're not doing that at this time. So let's keep going. Let's talk about -- let's go to Slide 16. So what are the risks and factors potentially affecting that $24 million forecast? Our inventory subcontractors, we talked about that, it's probably about $1 million. And they probably will be absorbed and normalized, by, let's say, April timeframe, May timeframe. Certainly by the end of our first fiscal quarter, this should be in the rear view window. This is for subcontractors. There is no excess inventory we believe and our directs will apply to MRAS. Possible inventory build as a result of ramp. So right now, there is very minimal inventory in our direct supply line to MRAS. We think it's probably too little, but it's the amount that was needed to support that $10 million business level, not $24 million. So it's a very real possibility that the inventory could be built up, so that's going in the other direction for us. Obviously more inventory that's going to drive sales up at least while the inventory is being built up. We don't know that will happen. I'm just kind of sharing with you as considerations. Here are some negative concerns. Possible -- possibility that global economic recovery stalls, that obviously will effect commercial aerospace, the global economic recovery isn't there, then people can be flying less. And obviously there are pandemic risks, vaccine risks, political complexities is a risk that's very dynamic and complex environment right now, which we're not commenting on, we're not political analyst, except to reference that there are a lot of uncertainty and that creates risks. So we just want to flag that. We don't have an opinion about it, but just saying there is a -- those are risks. Geopolitical international trade risks, pretty dicey stuff, not just with China, with Europe. So, you never know, but just want to flag that it's always our concerns and issues for -- with the type of business we're doing which almost in every case, except well, maybe the 747 is a little exception, every other case probably relies quite a bit on international trade. And export -- U.S. export controls against China affecting -- potentially affecting the Comac ARJ21 and 919. It really is potential. These are potentially affecting the forecast. It's a recent event. I think last month, December, there were some action, but it's certainly not decided, and it's just something we're flagging for you. But if U.S. impose very strict and stringent controls -- export controls, it could -- it definitely could affect the ARJ21 and Comac 919, the use of Western made engines. So let's go on to 17. Sorry, we're taking so long. I'll try to move as quickly as possible. So the ramp is upon us, I'm just continuing here. Well, these are just more factors, more risk factors, possible setbacks or issues with specific programs Park is on. Maybe the OEMs will push out their forecasts. Another possibility is the OEMs or customers will increase the forecast. I'm just kind of -- not just throwing stuff at you completely, there's talk, we'll maybe increase this program, that program. Nothing we're prepared to talk about, but there is talk on both sides of the equation. Possibly supply chain supporting the GE Aviation programs which Park is on struggles to ramp up. That's a real concern. Possibly that MRAS' suppliers are not able to ramp up production as quickly as needed. So there's two kind of things we're talking about here. One is suppliers that supply directly to MRAS. And then you have suppliers that'll supply chain into aerospace. So there are some reason, let's say, there's nothing related to MRAS or Park. There are components that GE Aviation can't source or even Airbus can't source. That could affect the whole program. So it's just something to be concerned about when programs aren't being pushed up pretty fast, pretty aggressively, pretty steep ramp and maybe a supply chain that isn't necessarily focused on ramping up as much as they need to be. Herd mentality, that just means that sometimes you get a herd effect where everybody is negative, sometimes everybody is positive. It seems like it's turning positive now. For us that means, we have to for us and we have to watch out and pay attention, not get caught up in the herd mentality. Okay. This is the ARJ, the regional jet that's been China [Phonetic]. Let's go to Slide 18. Okay. How will Park respond to this -- the ramp-ups, the steep ramp-ups. All about our people, that's our ace in the hole. Our current head count is 107. We plan to add about 15 to 20 people to accommodate the ramp-up. All new people need to be trained, we did not lay anybody off, we got nobody to call back. So it's a process and we need to do it right. We say we did not lay off anybody against our religion. It is very much against our religion. Now when I say that I always have to say, well, we're not Gods, so we can't guarantee we will never do a layoff. But it's something we're very, very, very much against. We just don't believe in that and why is that. It's because we want our people to feel and believe that they can build a future with us and if you can say whatever -- you could say whatever you want and then you lay off a bunch of people, it's like, well, what would happen to our future. Very important for Park, very important for our people and it's also a very good business in my opinion. So we do not add people casually at Park. We had somebody we're thinking OK, we're adding this person for life. So we're going to be careful. We don't want just go -- easily go higher 20 people but then tell [Phonetic], well, it doesn't work out, we'll lay off 10 of them. No, we're not going to do that. So we have to be careful about how we bring people on which we will not overdo it and have to lay people off. We hear, we see companies they hire 1,000 and they fire or lay off 1,000 people. That's not for us, that's not for us. It's not -- those are human beings, those are people that really can make a difference for a company. A company that has real dedicated people, that's a company that has a lot of power. The company whose people are just kind of punching a clock I don't know, it's not for us anyway. Time will be critical. In other words, we're not just to go hire all 15, 20 people today. We're in a process. We're hiring some people. We have to do this very intelligently. We have to pay attention and adjust as we go, very important. If we hired 20 people now, it would be chaos. We need to train all these people. That would just create chaos, like I said. We need to be very flexible and agile. At Park, we make adjustments on the fly as we go and keep pressing forward. We don't stop to regroup. So we're not going to stop, OK, let's take a month or two to figure this out. No, we quickly come up with a plan and we move ahead with plan and we make adjustments on the fly. No matter what we plan, the circumstances are going to change to some extent. So we have to be very agile, pay a lot of attention, make the adjustments on the fly. That's how we do things at Park. Park's customer flexibility program, I mentioned this before, our Ace in the Hole. Our current participation is 83%. This is just a great thing for Park. It's so wonderful to have this program. It's a cross-training program. Most everybody is involved with it. It gives us so much flexibility, it gives us so much better ability to respond to someone and to ramp up. So you have a two-year crew, let's say it's four guys in a crew. That's a very complex machine to run. What they can do? People just say, OK, give them one week of training, good luck, no, no, no, it doesn't work that way. You have three months then the new people have been integrated into a crew that has experience. You can't just take four new people, put [Indecipherable] even in three months. Doesn't work that way. So the great thing we have is the customer flexibility program. We did ramp up, let's say, one department maybe another department is not so busy, those people you cross train, they can start today in that department, no training, they are already certified. You can certify. Actually people get a little bit of increase in pay to get a little bit of a premium in pay when they are certified to do another job function, but they have to train, they have to take a test. So these people are ready to go. It's a great program thus Park could be very flexible, very agile. Ultimately our great people are our aces in the hole. That's where we're very, very fortunate, very special, very privileged to have such great people, such dedicated people. It really makes a difference between what Park is and what maybe some other companies might be. Let's go on to Slide 19. This is our financial forecast slides. Let's start with GE Aviation sales review. If you look for yourself for the first three quarters they speak for themselves. Q4, we're forecasting $3.9 million to $4.4 million. $3.9 million, that's what's books. So we start there and say we're not sure, but maybe a little bit -- it will be a little bit more. So we're targeting $3.9 million to $4.4 million. You look at the last couple of quarters, Q2 and Q3, well that was really running at $800,000 and $900,000 a month rate. Remember Q3 only two months of production. Now it's interesting because when we did our Q2 call we predicted about $1.5 million for Q3. Came at $1.8 million. That's just -- that's -- we're not taking credit for it. It's just how things worked out. In our Q2 call we predicted about $2.3 million to $2.4 million for Q4. Now we're up considerably with the rest of them now $3.9 million to $4.4 million. It's still not the $24 million level though. $24 million, let's do the math, that's about $6 million a quarter, right, divided by four. We're not anywhere close to the $6 million. So remember, we got a forecast by month. It's not just for the year. So there is some ramp-up that's involved. But according to the forecast we received we will be at that level, that $24 million level which is what, it's $2 million a month, right, by April. We'll see if that happens. We gave you all the risk factors. Not sure it's going to happen. And then there's also the subcontractors inventory, don't forget about that. But again that should be pretty much normalized by the end of the first quarter, first fiscal quarter. So let's keep going here. Let's talk about before our forecast for the whole Company. We give you the history here, which we've already gone over. Our forecast for Q4, $14 million to $14.5 million sales; $2.3 million to $2.8 million, EBITDA. So again, we got to stop and explain. So certain factors affecting Q4 sales and EBITDA. So first of all, as you can see, the GE program revenues are up quite a bit from prior quarters. We discussed that at some length. But remember we're talking about the essential component that we sold to the defense contractors for missile programs in Q3. I think we said it is approximately -- sorry, approximately $2 million in Q3; $3.5 million, approximately $3.5 million in Q4. So that's why as a top line you have to remember quite low margin on those sales. We buy the product from this overseas supplier, then we sell it to the contractor by this component as a small market. When we actually end up producing materials that's where the big margins come, the good margins come in. So it's important to understand that. I appreciate you look at the numbers and saying, oh, jeez you're talking about compared to Q1 for instance, you're talking about much more top line, but the bottom line isn't that much better or it's about the same. That's why we need to explain the details here. Let's go on to Slide 20, Park's financial forecast estimates continued. So we withdrew as you knew -- as you know rather our long-term forecast. Let's see during our fourth quarter conference call investor call last year on May 14. When we will be able to reissue that. I am not sure. We may be able to give -- provide you, this is may be able to provide you with a forecast for the next fiscal year, fiscal '22 when we announce our Q4 earnings. I doubt we're going to be comfortable enough to give you like a three or four year forecast or maybe at least for the year. We will see, I'm not promising on that, but we're hoping to be able get there. As far as our forecasts are just concerned, long-term forecasts, we believe the fundamentals are still in place. It's just that things are pushed to the right. So you will go back and look at that forecast and say well, when will you get back into those numbers and I am not sure how long it's pushed to the right. But the other thing I want to mention is that the one good -- piece of good news is I am just getting back to the forecast, now we have the better emphasis on military. So if you look at the, let's see, the pie chart at the bottom right just for reference, the commercial aircraft segment that's going to grow as the commercial aircraft programs ramp up as we discussed that will grow. That's not really something we're driving. That's something that the end market is driving. We're just lucky we're on the right programs. Maybe some little bit more luck, but a lot of it's luck, we're in the programs. But the military part of it, that's something we are driving. So, we intend to keep pushing that up, keep pushing that up, pushing that up. We're now looking into the big grand slam with military looking for more niche programs. So it's a lot of programs, not one or two, a lots of programs that will push that number up where we feel very good about that. So much -- I think that covers it for a long-term forecast. Let's go on to Slide 21, just a quick update on, sorry, that we're going so long, on our expansion. Total budget $18 million. Spending as at the end of Q3 $12 million, approximately $6 million to go. We expect completion during the first half of this calendar year. calendar year. You see the pictures that are updated. The first time we showed you a picture of the inside of the facility actually is this year [Indecipherable] I think the technical term for it is huge, very big. Slide 22, OK, a different topic here. We haven't talked this in a while. Our balance sheet, cash and acquisition perspective. Cash dividends, so we paid a cash dividend for 36 consecutive years uninterrupted. Never skipped a dividend, never reduced the dividend. Since fiscal 2005 we paid $542 million of cash dividends, $542 million, $26.45 per share. And I guess my opinion is that's a lot of damn money for a small company like Park. So, let's go into next item. Remember we did this cash match thing in the past. So we're saying OK, we start with $117 million. That's our cash and marketable securities end of Q3. We should subtract $16 million as the remaining transition tax installment payments. This relates to repatriation of foreign cash. This is paid over five years. But nevertheless it's something we owe the IRS. We're saying, OK, then spoken for $6 million remaining on the Kansas expansion. So we subtract those two numbers and you get to $95 million. Obviously, this is just kind of a conceptual analysis. This is how we think of it internally. So we're sharing with you. Obviously there's a lot of things that affect cash on a daily basis, up and down. So we're not giving you a cash flow prediction or anything like that. We're saying this is how we look at our cash situation. Park also has long-term debt. So what about M&A, what about acquisitions, what's our perspective. So the major opportunities to buy businesses at distressed values have not really materialized in calendar 2020. We said we thought it might. But what happened, so what we're told we think it's very much like the Fed. So why is that. Companies that were distressed companies were able to hang up. They didn't -- they weren't forced to sell. They were able to hang on because they were able to access money so cheaply, hang on until business got better. So if they're going to sell they could sell on a better price. Very limited number of businesses offered through banker led or managed processes. Actually none that I can remember in last year that we were involved with. What's the potential outlook -- sorry, what potential acquisition do we look at in last calendar year? We looked at a few actually and some [Indecipherable] we did due diligence, not only came through banker processes to all kind of businesses, some relatively small that came to us either through industry contacts or maybe in one case a customer called us and gave us a lead on a company that we might want to take a look at. But nothing was right for us, nothing panned out. So I'd like to say we did some due diligence, even significant due diligence in one case. But end of the day we just decided it wasn't for us, it didn't pan out, so we moved on. What about the outlook for 2021. The bankers say that there will be much more activities in 2020 but the valuations go up. So I have to see what happens. Let's move on to our last slide, 24, Park's reflections on trouble world. The world has been badly damaged and is a troubled place at this time. At Park we have had our own share of heartbreak and tragedy, but at Park we do not quit. We do not give up. We do not relent. We continue to grind and press forward. That's really all we know how to do. Park is a strange and unusual company filled with very wonderful and special people and we're not like the others. We are not fooling around here. We're not trying to just get by. At Park we play for keeps. And the last thing I'll quickly cover is this is our shipping and receiving crew. I think in the last quarter or so we featured one of our better crews. Left to right, we got Lucas, Jon Moon, Raymundo, Ismail. Jon Moon is the supervisor. Really great crew. And like I say about them we're lucky to have them. When something needs to get shipped, it's going to get shipped. So I think what we'll do is since we're running so late is we will shift the rest of the comments and go to questions. So, operator, thank you everybody for hanging in there to the extent you have. Operator, we're ready to take questions at this time.

Questions and Answers:

Operator

[Operator Instructions] We have a question from Brad Hathaway with Far View. Your line is open.

Brad Hathaway -- Far View Capital Management -- Analyst

Hi, Brian. Thanks for the time and thanks for all the detailed explanation. Much appreciated.

Brian Shore -- Chairman And Chief Executive Officer

Thank you, Brad.

Brad Hathaway -- Far View Capital Management -- Analyst

Quick question on the M&A. I hope just to get a little more color, if you could, about why you passed on some of the things you passed on in the last year. Why they just weren't right at the Park, just to understand more on some of your thought process, how you evaluate opportunities to decide they're not a good fit.

Brian Shore -- Chairman And Chief Executive Officer

Well, I'll talk about two of them and there are different reasons. One was we thought it would -- looked really interesting at the beginning, seen very niche, but as we dug into it more we realize we discovered that the market was very closed, very little opportunity to grow the business. And it seems it definitely would require some investment. Maybe I want to be [Indecipherable] and kind but it maybe wasn't neglected a little bit, which we didn't mind. We're happy to put some money and invested in. But the thing that really guide us on that was the upside. We just didn't see it there. The market was pretty closed.

Another case a small business, interesting business and we were concerned that the customer concentration was very, very high and also the expectations of the owner were we felt quite high and that's the owners' right. They can decide whatever they want to decide regarding valuation. But that end up being a big disconnect and that's why the discussions were ended. These were not auctions. They weren't part of processes or both one-on-ones. And a couple of other things we continue to look at, but those are kind of examples. But in both cases, the reason we didn't continue -- the reasons were different.

Brad Hathaway -- Far View Capital Management -- Analyst

Understood. Great. And so you mentioned looking forward into calendar '21, there is a suggestion there will be more businesses on the block but also evaluation expectations will be higher. I mean the combinations of those things make you more or less optimistic about finding a potential deal in 2021?

Brian Shore -- Chairman And Chief Executive Officer

Yeah. It's an excellent question. [Technical Issues] optimistic obviously because there is going to be more activity. That's a good thing. The conservative valuations and we talked about the herd mentality now of everybody is getting on this kind of it's in the mindset that things are going to be going very well in the future, not just with aerospace, let's say, the economy generally then maybe there is some of that irrational exuberance that creeps into people's thinking. We certainly felt we saw that in the past where valuation that didn't really make sense for us. So we'll have to see. We intend to be active. We have the cash. We intend to be active. But for Park, we always want to keep our head on [Indecipherable] and not get caught up in the mob mentality or herd mentality where everyone else is doing it. So we don't see the value, but everybody else seems do. So we need to get on board, the swing must be listening something. We're very reluctant to kind of buy into that thought process.

Brad Hathaway -- Far View Capital Management -- Analyst

Understood. Great. Well congrats on I think making it through the worst portion and looking forward to seeing a better environment for you at least in 2021. So thanks.

Brian Shore -- Chairman And Chief Executive Officer

Thank you, Brad. Happy New Year.

Operator

[Operator Instructions] We have a question from Brian Glenn with Olcott SQ Investments. Your line is open.

Brian Glenn -- Olcott Square Investments -- Analyst

Hey, Brian. Thanks again for the very transparent walk-through as always and happy new year.

Brian Shore -- Chairman And Chief Executive Officer

Happy new year, Brian.

Brian Glenn -- Olcott Square Investments -- Analyst

Thank you. So you mentioned adjustments on the fly earlier in the presentation. And just wanted to see if you could take a minute or two or three to talk about Company culture as a competitive advantage. So specifically the two things that kind of came to mind when I think about it are some of the niche programs that you guys focus on. I know they have volume fluctuations month-to-month or quarter-to-quarter. And then the second thing is what you guys are doing now and over the past few years which is earning a spot or wedging on to some of these programs that are still in development. And I know the aerospace industry might be -- I don't know what the norm is six to eight weeks for turnarounds on prototype stuff. I know that's overly generalized and maybe it goes back to your electronics heritage. But my understanding is you guys just work on a different pace in terms of doing things like that and turning it around to a customer, whether it's a commercialized product or development.

Brian Shore -- Chairman And Chief Executive Officer

So that's a big question. Our culture, yeah, well, so I guess we could say a lot of things about our culture. We're a small company Culture. We're a small company. We're not bureaucratic. There's a lot of passion among our people, lot of dedication, commitment, and we move quickly. We're not into politics, we're not into who's right and who's wrong or we won't have like clicks within the company. The whole company is really -- the whole company, I mean all the people in the company are focused toward the same objective, which is better things for Park. So we do have the ability to move pretty quickly. People gets lined up and focused to get to work on different -- in different directions pretty quickly. We'll make an adjustment. Fine, we're moving in that direction. So there is -- I think it's pretty good in terms of flexibility and agility based upon our culture. We also could be relentless. I'm not sure about this six to eight weeks for aerospace qualification cycles or that could be quite a bit longer. But they vary. Some are much longer, some could be shorter, depending upon the situation. When -- I mentioned this regard the KC-10, which is a small program, but it doesn't matter, we love it. When people, competitors are saying they're not interested, it's too difficult, too small, too much trouble, oh boy! sign us up, we are there. We are there. And to me it's amazing how some of our larger company competitors will walk away from program. They will be on a program for a while. They say, don't want to support it anymore. What do you mean you don't want to support it anymore? We take on a program or a customer, it's like a -- like an employee. We don't believe in divorce. We're married for life. We don't walk away from customers. We don't walk away from programs. We just don't do it. We've had issues where maybe one of our components we can't source anymore, so we have to qualify or get another component, but we don't just walk away from programs and say, well, we don't want do it anymore, we got bigger fish to fry, something like that. We don't have bigger fish to fry. For us, we want every customer to feel like they're the most important customer we have.

Brian Glenn -- Olcott Square Investments -- Analyst

Thanks for that. Yeah, that's all. Best of luck in 2021 and thereafter. Appreciate it, Brian.

Brian Shore -- Chairman And Chief Executive Officer

Thank you very much, Brian. Happy New Year.

Brian Glenn -- Olcott Square Investments -- Analyst

Thank you. You too.

Operator

[Operator Instructions] And I'm showing no further questions on the call. I'd like to turn it back to Mr. Brian Shore for any closing remarks.

Brian Shore -- Chairman And Chief Executive Officer

Thank you, operator, and thank you everybody for hanging in. I think we actually went over an hour. This probably breaks a record. So thanks for bearing with us. Happy New Year to all of you. And please give us a call anytime you like. Always happy to talk to our investors. Thank you. Have a good day. Goodbye.

Operator

[Operator Closing Remarks]

Duration: 63 minutes

Call participants:

Brian Shore -- Chairman And Chief Executive Officer

Brad Hathaway -- Far View Capital Management -- Analyst

Brian Glenn -- Olcott Square Investments -- Analyst

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