Park Aerospace Corp.

Good morning. My name is Catherine, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Park Electrochemical Corporation's first quarter fiscal year 2020 earnings release conference call and investor presentation. All lines have been placed on mute to prevent any background noise. After the speaker's remark, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the one on your telephone keypad. If you would like to withdraw your question, press the pound key. At this time, I will turn today's call over to Mr. Brian Shore, Chairman and Chief Executive Officer. Mr. Shore, you may begin your conference.

Thank you, operator. This is Brian. Welcome, everybody, to our first quarter conference call. With me, as usual, Matt Feuerbaum, our CFO. There's a presentation that hopefully you all have access because we're going to go through that presentation. After we're done with that, we'll be happy to entertain questions. and, oh, I want to point out that there are also supplemental data, financial data, which is attached to the presentation as Appendix 1. The presentation is smaller and shorter than our last quarter's presentation because it's only been two months since, less than two months, actually, since the last quarter presentation, so we didn't want to just kind of put redundant information in here, although there's a lot to cover, so we're going to try to hustle through it, even though it's only 10 pages. There's quite a few points for us to hit. So why don't we get started on slide two. That's our forward-looking disclaimer. And if you have any questions about that, just let us know. Why don't we just move right into slide three. And Matt, could you help us with slide three, please?

Sure, Brian. The slide three shows our reconciliation of EPS from GAAP to special items. And there is only one special item in the quarter, and it went through our tax revision line. had a one penny impact. So you can see our earnings before special items, 14 cents is a penny greater than our net earnings from continuing operations on a GAAP basis. The tax item here, the tax impact of canceled stock options relates to options for employees of the electronics business that we sold to AGC back in December. The employees had a few months to exercise any stock options that they had outstanding. And at the end of that period, anything that was left unexercised canceled. And that did in fact happen. Some of the options went unexercised and they did cancel. And as a result, PARC lost a tax deduction related to those unexercised items that it would have otherwise gotten had they been exercised. We also show on this slide the top five customers for the quarter, and those top five customers are AAE Aerospace, AAR Corp., GKN Aerospace, Middle River Aerostructure Systems, including its subcontractors, and Nordham Group. Those customers are in alphabetical order, and I do want to point out that Middle River Aerostructure Systems was recently sold by GE to ST Engineering Aerospace. So that used to be a GE-related company. Now it's ST Engineering Aerospace.

Okay. Thank you, Matt. So why don't we just keep moving. We'll try to hustle along here. Slide 45. is our results for Q1 with the prior quarter comparisons. I want to point out that we're trying to focus more on sales, gross margin, EBITDA, than EPS and net because the interest in taxes really tend to skew the numbers quite a bit. In Q1, tax rate was higher than Q4. Interest income was lower than Q4. But if you look at the EBITDA numbers and the gross margin numbers, There are more apples to apples. So let's talk about Q1 as compared to what we indicated, what kind of forecast we gave you when we did our fourth quarter call on May 17. We estimated sales of $14.25 to $15.25 million, and the sales ended up being $14.950 million. That came within the range. We also estimated EBITDA at $3.4 to $3.8 million. Thank you for joining us. Our term number is going to be at the middle of that range. So we're not going to give you a lower range so we can beat it. We're telling you what you think is going to happen to the best of our ability. So really we are looking for 3.6 million in a sense because you see 3.4 to 3.8 million, the opposite of the midpoint is 3.6 million. So we were about $225,000 short in our EBITDA in Q1 from what we thought we were going to do. And so we have, sorry, down the page on slide four, factors which affected our Q1 EBITDA, training of third shifts. We talked about the third shift, bringing a third shift on during our last call because the business was so strong and so demanding, but we were really just training the third shift in Q1. They're now working, but during the training period, it's really cost because they're not working yet. They're not really released to the factory lines. and we do have a pretty extensive training. The skill level for the operators and the factory floor are quite high and so it's really important that the operators are trained effectively and completely so that we don't have any mishaps, we don't have any issues with quality or safety or anything like that. This is not like just going to work on the assembly lines. These treatment lines are very complicated to run. and it's important that the guys and some gals are trained carefully and completely. Next item, outside testing costs incurred to meet demanding production schedules. What's going on here? See the theme, is this impacting the demanding production schedule? One of our pieces of testing equipment went down in the lab and normally we would just kind of make things work. We have two or three of these units for a couple of weeks while the The unit went down and got repaired, but our production schedules were so demanding that we didn't think it would be a good idea because if we waited a couple of weeks, we would never catch up. By the time that piece of equipment, it was a mechanical tester in case you're interested, came back online, we'd be behind and we'd never catch up. So we decided to use outside services, which are very expensive. in order to keep up outside testing services, which we were able to do, and that's approved and qualified, but it's a significant expense when you have to do something like that. And, again, it relates to the demanding production schedule. We felt we had no choice. We felt we couldn't just hang in there for a couple of weeks because we'd get behind with our customers, and then we wouldn't catch up. And that was not – we didn't think that would be a good idea. That's not how we look at our business. When we make a commitment to our customers, we intend to keep it. So we also had GE9X program manufacturing trials and development expenses. So we're still working on the development for GE9X. And then film adhesive, that's film adhesive manufacturing trials. We've spoken about film adhesive. The film adhesive product was a joint development effort based upon an action agreement between Middle River and Aircraft, sorry, Aerostructure Systems, that's their new name, and PARC. That product is fully developed. developed in terms of formulation. We're still doing the manufacturing trials, and there are expenses involved with the manufacturing trials. So these expenses just go right through the P&L. We don't capitalize them or anything like that. And all those four items had an impact on our Q1E, but there are other items which I'm not mentioning here, but those ones I thought you might be most interested in. Okay? So let's keep hustling along here. Why don't we move to slide five? This is a lot going on in this slide, so let's see if we can cover it fairly completely. So we have our forecast for Q2 and Q3 here, and we have the, oh, sorry, I just want to mention, I forgot to mention this. Can we go back to slide four for a second? Notice that the gross margin number is also lower than Q4 for Q1, 32.1%. That's partly because the revenues are down, but also apart from Q4, but also because of these other factors that I mentioned, which include There are additional factors, rather, which we didn't mention, but these four factors are all going to have impacts upon our gross margins. Okay, sorry about that. So let's go back to slide five and pick up the discussion. So here's our forecast for Q2 and Q3. And we had a comparative prior, what, four quarters or five quarters, I guess. Five quarters, sorry, just for reference. So, let's see, let's start with what we indicated about Q4 during our last, sorry, we indicated during our Q4 conference call regarding Q2, because we provided a forecast for Q2 during our Q4 conference call. And we said $15 to $16 million, so we brought it down to $14.5 to $15.5. So, you can see that we brought the number down a little bit, and obviously you have to ask why. and also I want to mention, just so you know, I think you should have the kind of full perspective here, that to get to our Q2 number, we need to book and ship another million dollars. Now, that's not an alarming amount. It's not that unusual, but it's still something that has to get done. So it's not just book, it's book and ship. So we'll book a lot more during the quarter, during the second quarter, but these are bookings which we have to turn to shipments before the end of quarter in order for those shipments, those bookings rather, to turn to revenue so we can hit our number. So again, what are we doing? I said $14.5 to $15.5. Well, that million dollars gets to $15. Okay, we need to book and ship another million dollars to get to $15 million. That's right at the midpoint of the range. We talked about this last time. We think it's insulting to play these games where we kind of use safe numbers so we can beat it. No, we're telling you what we think is going to happen. And, you know, sometimes we're going to be right, sometimes we're going to be wrong. But we're not going to provide any cushions for ourselves or make it easy for us to be heroes and come in and beat numbers. We don't do that. So we tell you something, we tell you what we believe. Otherwise, we're not going to tell you. And what we believe is that, you know, for Q2, we're looking at about 15 million, so we give you that range of you know, the bracket of 14 and a half to 15 and a half. Okay, so why don't we do this though? The slide's kind of backwards because we're talking top line. Let's go on slide five to the third arrow item because that really is the item that deals with the top line and the forecasting of the top line. So, factors affecting predictability short-term forecasts. Pretty important stuff here. Again, we were talking in this case, we reduced our Q2 sales forecast by half a million dollars in terms of the low end and the high end of the range.

Two major things to consider, and they're pretty important.

First, all of our major jet engine company programs, meaning our GE programs, are ramping or in development except the Boeing 747-8. That's a smaller program. We love the Boeing 747. It's my favorite airplane ever. And it's kind of a steady state, you know, as soon as you go. Everything else, every other program is ramping or in development. What does that mean? It means that it makes it very difficult for the customer to do effective inventory and production management because they're constantly hitting, trying to hit a moving target. And the customer doesn't order to the forecast. Here we have a short-term, long-term forecast that they're going to order based upon their inventory management. So we have these ups and downs that are Not exactly predictable all the time. So that's going to cause our forecast to be not always as accurate as we like them to be, our timeline forecast. The other factor which is really important, and this is something you just read in the news with aerospace and the aerospace industry, it's not just from us, the supply chain is under severe stress right now because the industry is so strong, but the problem is that the suppliers are having trouble keeping up. If you know people that are, you know, head supply chain or sourcing people at big airspace companies, I know some of them, they're really having a very rough time. They're struggling very badly and they spend all their time out there chasing suppliers because their suppliers are just not able to keep up. So that's a big factor here and let me explain why. Now that's not us, you know, not Park. We don't do that kind of thing. We meet our commitments or die trying. In our fourth quarter, we explained how we had a very demanding situation, but we met our commitments. I think most other companies in the aerospace industry would have said, look, you know, it's just too much. We're doing our best, but we're just not going to be able to get there for you. And that's kind of the story. So we're, I think, maybe a little bit of an exception. But why does it affect the forecasting? Because here's the thing. whether we can meet the forecast or not and we always will or die trying if the other suppliers to the same OEM let's say we're supplying other components are behind and the OEM can't source those components there's no reason for the OEM to stock up and park material because it's just going to sit there in a freezer while they're waiting for the other components to come in so they can do their production because they can produce their parts or their engine components or whatever it is the OEM is doing. So that's an important factor, and it's not predictable so well, especially on a short-term basis by our customers and OEMs, because they're struggling every day to get product from their suppliers. And it's a real battle. If you live in the industry, you'll hear a lot about it. So it's hard for... are customers that only have to really predict their production levels because they don't know what they're going to get in terms of component support. They know what they need. They know what their other suppliers have committed to, but the commitment and delivery are not necessarily aligned. So the result of these two factors, which are both important, will be that our sales from quarter to quarter will be some herky-jerky, not so smooth in quarter-to-quarter. Long-term prospects, that's something else. I think that's something really to watch, long-term prospects. The quarter-to-quarter stuff, my feeling is we need to filter that out a little bit. I think you know that we're very committed to making money every quarter. We take that very seriously. It's important to us. We know We hear other companies, CEOs, complain about the short-term focus of the investment community, but we don't complain about that. We think it's a good thing, as long as we don't lose sight of the long-term objectives as well. We think that quarter-to-quarter pressure is good, good for us because it keeps us honest and it keeps us accountable. But having said that, the top line is going to be bouncing around a little bit. Herky-jerky, as I said, because these factors. Okay, so like I said, we did this, we're doing this slide five a little bit backwards. Now let's talk about the EBITDA portion of it. Because we did our Q4 conference goal, we gave you a forecast for Q2 EBITDA of 3.5 to 4 million. So we brought it down to 3.1 to 3.7 million. Now obviously part of that is because the top line forecast is coming down as well, but there are these other factors, and some of them are similar to the factors that we just enunciated for, enumerated rather, for Q1. What are the factors that will affect Q2? Okay, outside testing costs, related data available, new product. Now that kind of sounds familiar. But this is not because there's a problem with a tester or a piece of equipment. This is because we've been doing this. We've had a product which is fully developed in terms of form. We have the formulation has been set. But in order to introduce the product, we need to develop data. We need to provide data with the product. And this has gotten bogged down because we just haven't been able to squeeze in the development with the production demands. So what we decided to do, even though it's cost us $80,000 this quarter, is to form out the testings for the data development for this product to an outside supplier. Let's see, second one, G9x program, manufacturing trials, development expenses. for everyone, film and ease of manufacturing files and development expenses. Those continue from Q1, and they'll be a factor for Q2. Then special personnel costs. These are things like stay bonuses. We're still somewhat transitioning from a legacy company in terms of personnel. We're most of the way there, but there is still some costs that will be lingering. And there's something called one company reorganization costs. So we'll describe what we mean by one company later on in the presentation. but those costs will impact Q2 and maybe Q3 as well. When we get to the Q2 conference call, we'll give you more information about Q3. At this point, we really want to focus on Q2. And the middle arrow item, legacy costs are expected to continue through Q3. I think at one point we indicated maybe a couple of quarters ago that we thought the legacy costs would end by the end of the second quarter. Right now, it's looking like it's probably going to be pushed through the end of the third quarter, so we're not doing a great job there. We're probably one quarter behind. Okay, that's slide five. Like I said, a lot going on in slide five. Slide six. Okay, let's go to slide six. This relates to GE Aviation Programs. Now, you've seen this slide before. The reason we're including it in this presentation, though, is because there's some changes which I want to bring to your attention. First of all, on the bottom left, where we list the different programs, the GE Aviation programs. We added two. One is A321neo. The other one is COMAC-ARJ. Now, both those programs were already on, but why did we add them? Because as far as A321neo is concerned, we used to, in the prior version of this slide, the item was A3, we had the A320neo. and we intended that the A321 was part of the A320 family, if you will, so it was included, but many investors have asked us about the A321, so we thought we'd spell it out. Yes, the A321 program, we're on that too. That's a LEAP 1A engine. That's our program. Comac ARJ, we haven't mentioned that in a slide presentation before, but that program is ramping, so we thought we'd mention it. That is a CF3410A GE engine. As far as these programs are concerned, as I mentioned in the prior page, the prior slide, the first one are the program we love, the 747-8. That's the steady state, steady as you go program. The AC20, A321, NEO, those are ramping pretty hard. COMAC 919 is still in development, COMAC ARJ. that's ramping, and the Global 7500, the Fastboard 20 engine, ramping. So again, quite difficult for production and inventory management with all those programs ramping or in development because it's a big moving target, lots of them. Let's go to the top right of the slide, what's new there. The top right, we just want to mention that we're explaining this is not This is for the Passport 20 large primary structure. We're not at this point at liberty to explain what it is. This is not included in the 13-year LTA, which is referenced. That's the first arrow on the top left of the page. This is a GE program. Now, I know this could be a little confusing, but if you look at the bottom left, you see the Passport 20, the Bombardier 7500 listed. So the materials for the cells are in the 13-year LTA. But this other component, because those are the MRES programs, that's covered by the 13-year LTA. But this other component, that's a GE, that's part of GE, and that's not covered by the LTA at this time. So I just wanted to explain that. I probably made it more confusing, but I did my best. The other item that's new, which is the last item on the right side, I think we previously referred to this, this is for the GE9X engine, as a critical structure, but MRAS recently announced and went public with the fact that this is something called a containment wrap. This is a containment for the fan case, which is very critical. The fan case has to have absolute containment of the fan blades, so it's a very critical structure, and this is what we've been working on. This is also a GE program, so it's not part of the 13-year LTA with Middle River. The other thing I want to mention, which was announced by MRAS, is that's an AFP program, and they also announced that the A320, A321-NEO cells are partly AFP programs. Remember AFP? We talked about this in prior presentations. is something that's a process that we worked on. We helped GE or MRAS develop the process, and they helped us develop our product, AFP, automated fiber placement. Most people believe it's a very important technology for manufacturing composite structures in the future. Let's go to slide seven. Let's check if we're doing the time here. Okay. Slide seven. This is a new slide, and this was done by Ben. So it's kind of a non-sequitur. It doesn't really follow the rest of our presentation, but I just thought since it's new, you might like to see it. I think it's very interesting. No surprise with jet engines being such a large component. Space and rocket nozzles at the bottom of the page. That's mostly rocket nozzles right now, but, you know, we're optimistic that we have some good things coming with space. Top of the page drones and urban air mobility. That's mostly drones. But we're working on some urban air mobility programs, so we feel good about those as well. All right, so let's just keep moving along here. We have two pages of recent developments. Let's go to slide eight. Just a couple little updates. Here are more of the acquisition program. We talked about this in our fourth quarter conference call, so we won't go into a lot of detail, except that we're continuing to do reach-outs of the target companies. Security analyst coverage for PARC. So still hopeful. You know, we've been talking to a few analysts. These are aerospace specialists. And but, you know, it's not a done deal until it's done deal. I guess we'll find out if it's a done deal. Well, you will when a report comes out. One thing that I think helps us a little bit is that with all the consolidation in the aerospace industry, some of the aerospace analysts are kind of have a little bit of bandwidth available and looking for other companies to cover. And I think Park's an ideal company from the cover from some perspectives. We're small, I get it, but we're kind of an interesting company in terms of what an aerospace analyst might be interested in because I think a lot of things that affect the whole industry are going to affect us as well. Maybe we're almost even in and partly a leading indicator, I don't know. Maybe that's an arrogant thing to say, but it's the way some people look at us. Let's keep going. Major expansion in Newton, Kansas. So last time we spoke during our fourth quarter call, I think I mentioned that we're waiting for the FAA approval. We hope that'll be the end of this month. We expect it, hope for it to be the end of the month. That's the government agency, so whenever can be sure. The expansion should be complete by June-ish of next year. June-ish, I don't say June, June-ish, because I want to give ourselves a little wiggle room. Then there's three to six months of trials and about six to five months of qualifications with a major customer. It's about two years out from now from when the plant will be in production. That's give or take, you know, plus or minus, but approximately two years. Name change, this is something we talked about during our fourth quarter call. But here we're telling you what we're proposing as a name. This is in our proxy statements. Do you already know about it? The vote so far is a landslide. The changing of our name is subject to shareholder approval. And so far the shareholders have voted very much in favor of that. So thank you shareholders who voted so far. So a couple of comments. We probably will keep, at least for now, PKE, PKE ticker symbol. We could change that, but we probably hold on to that just for the time being and see what happens. The change is kind of a bittersweet thing for me. Park was founded in 1954. I know you've heard these stories many times. The first name was Park Nameplate, though. And then in 1960, before it went public, the name was changed to Park Electrochemical Corp. So we've been Park Electrochemicals since 1960. That's a lot, a lot, a lot of years. and it's kind of a bittersweet thing for me anyway to change the name to Park Aerospace. It makes all sense, right? It's completely the right thing to do for us, we think. But, you know, it's kind of a little bit hard to let go of Park Psychochemical. The most important thing for me, though, is that we as a company do not forget and lose touch with the founder spirit, the people that started the company and did everything they did to create the company that at least to start the process of creating the company that we have today. Against all kind of odds, we covered that before. So we won't go into any more about the history. At least you've probably heard about enough of that from me. Next item, Oracle B1 Companies. This is a little bit of a new thing. We decided is this, that after the name change is approved, we hope it will be, and it becomes official, we're going to merge the two units, the two entities into one. We have Park Electrochemical, which is the public company, kind of a parent company entity. And then we have our acronym subsidiary called Park Aerospace Technologies Corp., we call it PATC. So PATC will be merged with the Park. At that point, there'll be one company, and it'll be called Park Aerospace Corp. We think it's a really good idea. The separation doesn't make any sense to us anymore. We really want to look at it as one company. We'll have a You know, a small office in New York, but the main location obviously is in Kansas. And we want everybody in the company to think of themselves as one company, not think of themselves as, well, I'm, you know, in Melville or I'm in Kansas. It doesn't really matter. What matters is we all work for the same company, and we all need to be pulling together. There also are some cost redundancies, of course, by having two separate entities. But mostly I think the reason was the cultural impact. and a number of other companies. So that'll be interesting. Let's see how that works out. Next item, kind of a non-sequitur, but I think I've mentioned before that it's a little frustrating for us that we're on programs, we're getting on programs and we really can't be too specific because the customer or OEM hasn't given us permission to use our name. Well, Kratos gave us permission. Thank you very much, Kratos. So we're going public, you know, in writing that we're on these Kratos programs for the The Target and Tactical Unmanned Aerial Systems. Basically, you know, what you and I would call drones. And including the Valkyrie, which is a new tactical drone that they're coming out with now. So we're designing it as the main prefect supplier for those tactical and target drones. Target and tactical drones, including the Valkyrie, which is nice. Now, there's been a lot of news lately. Kratos is a public company. There have been a lot of news about these programs, but I don't think it's appropriate for me to do Kratos' disclosure, so you can look that stuff up yourself. But there's a lot of exciting things going on. From what I can tell at Kratos, it's very much a privilege for Clark to be involved. Next thing, okay, here's an example where I absolutely can't give you any more details. A major private space program, we received our first PO. This could be very exciting, but it's still early. We'll see, but receiving the first PO is obviously a big step. And we hope at some point we'll be authorized to give you more information about it. But it's, let's just say it's a pretty exciting opportunity for PARC. Slide nine. Okay, some interesting stuff from the Paris Airshow. Very impactful to PARC. First of all, CFM. CFM is the JV between GE and Safran. CFM is the company that makes the LEAP engines. The LEAP 1A engine, that's the program we're on. We're also on the LEAP 1C, which is the COMAC 919 program, but that's in development, as we said. The LEAP 1A, that goes on the Airbus A320, A321, NEO programs. So, CFM announced orders and commitments for more than 1,150 LEAP 1A engines. That's our program. That's a big deal. That's a lot of orders at the Paris Airshow. And then to the company, next check item, a company called Indigo. They announced and ordered 560 LEAP-1A engines for A320neo and A321neo aircraft. That's the largest engine order in the history of the world. And that's our program. So again, very nice and good news for PARC. And another thing that's very good news for PARC, also at the Paris Airshow, Airbus announced the A321XLR. And there's a picture of it to your right. This is part of the A320 family, I guess. It's not clear at this point to me anyway about all the design issues, but one thing has been made clear to me by people who are in a position to know and make these commitments. That's a part program. Is it incremental?

I don't know.

Could be. In other words, is this just going to be taking away from the A320, A321, so customers that otherwise would have ordered A320, A321 will order the XLR? Maybe, maybe not, because the XLR has capabilities which are different than the A320, A321, so it may tap into a different customer, a different market. So in other words, the XLR could be incremental business for PARP, It's early to say, it's really wonderful to be in the program, but it's too early to say, I think, to what extent it's incremental business for us. It's our impression, but also based upon the news coming out of Paris, that in terms of the A320 family, remember the A320 shares the CFM LEAK-1A engine and another PRAT engine, that LEAK-1A fared much better, got much more of the share of the new A320 orders. Again, very good news for PARC. So just one last thing with the 737 MAX impact and how that might impact PARC through the A320, the usable single aisle, the big single aisle competitors. When the problems first came up with the MAX, I was asked by a lot of people, that's going to be a benefit for PARC, it will help PARC. and I guess my reaction then was, first of all, we hope Boeing solves the problem. We don't wish them any ill, of course. We wish them the best. But I also said, probably not, because I felt that, well, this problem will be solved pretty quickly. Three months down the road, we won't even be talking anymore. Obviously, I was wrong about that. And now, it's just my opinion, and I have no way to prove it, just my opinion, that H320, the H320 family may actually take some share from the 737 MAX over the long term because of the continuing problems. Now, I think some people thought, well, why does an Airbus increase their production schedule immediately? And, you know, the fact that there might be a market need for it is one thing, but the other thing is can the airplane be produced? And it goes back to that point about the supply chain. The supply chain is already struggling, keeping up with a ramp of the A320 family. So the increased production is not really realistic in the short term. Maybe long term it might be.

One thing I know is that if Airbus does decide to increase production, we'll be there for them.

We will not be one of those suppliers that causes it to be a problem for them to ramp up. So that's it. That's the end of our presentation. And the last slide is our thank you slide. Operator, I think we're ready for questions now.

Thank you. Ladies and gentlemen, if you have a question at this time, please press the star, then the one key on your touch-tone telephone. If your question has been answered or you wish to move yourself from the queue, please press the pound key. Again, if you have a question, press the star, then the one key on your touch-tone telephone. And we have a question from Christopher Hillary with Rubal. Your line is open.

Hi. Good morning. Thank you. Hi, Christopher. I just want to ask you guys, on the last call, you seemed to be optimistic that you were going to be able to find some additional business acquisitions, kind of add-ons, tack-ons. I think you discussed some of your business partners pointing you in certain directions where they thought you could be of help to them. Is there any update on that?

Yeah, we didn't want to go through the whole thing again because we get redundant, but I guess we mentioned the fact that we're continuing to reach out. Now, that's exactly what is going on, just what you talk about. The customers and OEMs, a couple that we're close with, have been pointing us in the direction they think we should be focused on, and they've been helping us by giving us names. So that's really the basis for the Reach Out Program. It's not just kind of random information. As we explained last time, we're not just kind of chasing after bankers that have processes and that kind of thing. We're focused on certain components, certain products that are provided to aerospace manufacturing companies. And this is based upon input we've received from, as we spoke about last time, customers' OEMs. And what are we asking them? What are they telling us? They're saying, these are areas we'd like help in. We're not happy exactly with the supply chain in these areas. As we explained last time, the last thing we want to hear is, oh, yeah, we have five great suppliers of that kind of product. That product will end the question for us is, what do we even bring to the table? So we're looking for areas, that's a hidden where they ain't kind of philosophy or strategy, looking for areas where our key customers and OEMs are saying they're not feeling good about the supply chain in those areas, although those components are critical for aircraft manufacturing operations.

Great. And then just one other question maybe. Just you've been able to deliver a pretty impressive degree of profitability at your revenue run rate. Is there some more color or context you might share on how you've been able to accomplish that at this stage in the company's lifecycle as a aerospace composite manufacturer?

Well, thank you for that question. We don't pat ourselves on the back very much about how profitable we are. We think we need to be more profitable. I don't know. Let me share a couple things with you that might give you some perspective though. So we're really focused on being more of what we call a niche company. We're not interested in getting on some large program by being aggressive on pricing. We're always looking for something unique or something different, something special. We lose business all the time because we're asked to quote it, and our quote just is not where it used to be, and we'll be told by the customer. These are usually not our real good customers. And we're asked to create a kind of relationship with other customers. Well, you're 20% too high. and our answer is, well sorry, we did the math and this is what we think is required. So we end up taking business, normally it's because the customer has a need and they realize the value we bring to the table. And it requires real discipline. Now we can grow our top line a lot faster, but the question for us is how sustainable is that for our future? Because if all we have is low price, we get in a program based on price. First of all, the margins are not going to be very nice. You're not going to like them. And secondly, how do we protect that program? There's always somebody out there who's going to offer a lower price. It doesn't matter how low you go. We learned this stuff with electronics, actually, you know, being in the electronics business for all those years. It's a very rough and tumble business. No matter how low you go, if you have nothing special to offer, sorry, somebody out there is always going to find a way to go lower. How do you defend yourself? All you have is your price. So that's one thing. The other thing is that we are very focused on Our bottom line, very focused on our expenses and our costs. We take everything personally. Every cent that's spent is something that is reviewed pretty carefully. We understand, we believe, it's our job to deliver profits for our investors. And we don't feel bad about that. We don't complain about it. Your other CEOs complain about, oh, short-term orientation. I think it's good because it keeps us honest, keeps us accountable. Now, it's bad if we don't have any focus in the long term. That's where the problem is. But I think you'd have to say, well, we certainly have been guilty of that after what we did in the last 10 years to reinvent our whole company, to transform our company from electronics to aerospace. We certainly have focus in the long term. But the short term, the spending, something we spend a lot of time thinking about, and we take it very personally, So those are two things you might want to think about to help you with answering that question, although I want to go back to the first point, is that we're certainly not patting ourselves on the back about how much money we're making, because we think we need to make more.

Is there any truth to the idea that by being a somewhat newer company, you've been able to create a more efficient footprint, given you don't have legacy costs in this market or this footprint?

Well, that's a good question, and I don't know the answer. I hear people that have told me those kind of things, like we're not a big company like some of our competitors that have lots of corporate infrastructure. But, of course, I'm not privy to their operating numbers and their inside story about their P&L and their costs. But I guess it's a good point. We are focused on being lean, and we're not looking to just add costs just because everybody else has that kind of thing. So we are adding costs. We are bringing R&D operation to setting up R&D operation in Kansas. So that's some costs that we're incurring at this time. But we're trying to be real careful about how we spend our money. And we need to be focused on is this something that really makes sense for PARC. The fact that maybe everybody else does it is not a good enough answer. So there may be truth in that. I just don't know for sure because I think maybe that would be compared to others, and that's where I'm not sure how to make that comparison.

Okay. Well, great. Thanks for your time and all the progress.

Thank you. Thank you very much.

Thank you. Again, if you would like to ask a question, press the star, then the one key on your touch-tone telephone. We have a question from Brad Evans with Heartland. Your line is open.

Good morning, gentlemen. Hi, Brad. Thank you for taking the question, and thanks again for a very informative presentation. Lots of valuable information in it, so thank you for that. Brian, I could be mistaken here, but I just noticed in the list of customers, the large customers you highlighted, I don't recall seeing AAR Corp. in that list before, and I was hoping maybe you could maybe expand on how that relationship has evolved and exactly what the nature of that relationship is as it relates to what you're providing to them.

So AAR has been a large customer of Park for a long time. And, you know, the thing is that some of the customers may be six or seven and they kind of move up and down. I thought that they'd been in the top five before, but I can't say that for sure. But there's nothing special going on that I can point to with them. They have been a significant customer for many, many years. So I don't have any special news about AAR at this time.

Okay. That would be supporting an aftermarket application, correct? Yes.

There are a couple different programs that we work with AAR on, so I'm not sure it's only aftermarket. I'm not sure about that. I don't think so, actually.

Okay. And then could you just talk, and I know we spoke only two months ago, but I'd appreciate perhaps if you could just give us a qualitative description of how the pipeline of new business opportunities has evolved in the last two or three months. Thank you.

I know it's always, it seems to be a good question that is asked often. So this is kind of a subjective answer, I think, that you're looking for. I think it feels pretty good. We mentioned a couple of new opportunities that we did mention in our recent developments, the opportunity in private space. As I said before, it's a little frustrating because most of these things are not really at liberty to discuss with any kind of detail at all. But I think it feels pretty good. Just my sense, it's qualitative. It's not based upon an objective analysis or hard data analysis, but it feels pretty good. Personally, I see pretty much everything that comes our way. in terms of new opportunities, new quotes. Just like yesterday, we got something we didn't see coming and I was glad to see that. I don't know exactly how this works, how the dynamic works, except I think part of it, Brad, is there's kind of a little momentum that's built and you put a lot of work in and maybe you don't see the results then two or three years later, Things just start to come your way, and I sense that kind of thing is happening. But again, that's subjective. As I mentioned, I think I see most everything that comes our way, so I get a subjective sense about what customers we're dealing with, what programs, what's new, what's just kind of legacy, what's follow-on. and, you know, another thing I would just add, you know, I probably don't want to, I'm sure you don't want me to ramble too much on this, is that we are in a way, PARC is emerging as an aerospace company. We're changing our name, but we sold electronics business in December. I noticed, you know, there's a lot of these kind of news items that I guess people do about public companies are kind of, some are a little silly. And in many cases, we're still referred to as electronics business when they describe us. So maybe it'll take a little while for people to figure out that we're an aerospace company, but I think the sale of electronics was a big deal and made a big impact in terms of our perception as being an aerospace company. And I think that only will help and maybe add to the momentum that I feel we are seeing now.

My last question was, thanks for that new data point as it relates to the commercial space opportunity. Is there any update that you can provide as it relates to the VTOL market or the air taxi market that you referenced last quarter?

Yeah, so it's in Ben's pie chart. It's something that we are working on. There's certainly a lot of news about it and It seems to be the hot topic of the day, but we are working in that area. We're pursuing it. There is a program. It's an important program that I think we're on. I think I told you maybe I did last quarter that was pulled back for redesign, but we feel optimistic that we'll continue to participate in that program. We think it will come out in its redesigned fashion. So it's something we hear a lot about certainly these days. It's in the news everywhere. So, you know, like when these new things come out, just my impression is that not every one of them is going to hit, right? It's kind of like sexy and current and not every one of them will hit, but there's so much going on. There has to be more than just fluff to it, in my opinion.

Okay, thank you so much for the update. Appreciate it. Sure.

Thank you, and I'm showing no further questions at this time. I'd like to turn the call back to Mr. Brian Shore for any closing remarks.

Thank you. This is Brian. Thank you all for listening in the summertime. So I appreciate your time. Thank you for listening to our presentation. And have a really great summer. Please call us if you have any follow-up questions, and we'll talk to you later. Have a great day. Thank you. Thanks again. Bye.

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone, have a great day.