Park Aerospace Corp.

Good afternoon. My name is Vaughn, and I will be your conference operator for today. At this time, I would like to welcome everyone to the Park Aerospace Corp. Second Quarter Fiscal Year 2026 Earnings Release Conference Call and Investor Presentation. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star then number one on your telephone keypad. If you would like to withdraw your question, press star, then number two. Thank you. 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 very much, Operator. This is Brian. Welcome, everybody, to the Park Aerospace Fiscal 26 Second Quarter Investor Conference Call. With me, as usual, Mark Esquivel, our President and COO. We announced the earnings right after the close. In the earnings release, there are instructions as to how you can access the presentation we're about to go through, either via link, and you also can... link information in the news release and also on our website. You want to pick that up because we're going to go through it. It'll be a lot more meaningful to listen to it if you have the presentation in front of you. So we have quite a few new investors in the last quarter that have come on board. And out of consideration for them, I think we should go through some of the legacy items more carefully. I think in the past, the legacy items, we've just kind of skimmed over on the assumption that most people have already or are familiar with them. Veteran investors, just please be patient with that. Another item I want to cover with you is that on Tuesday I had some unplanned oral surgery, and I'm not really feeling that great, so I hope you can bear with me. And if I need more takeover, I'm sure I'll be very willing and able to do that. Questions at the end, after we're done with the presentation, we'll take questions. And please do ask them. We love questions. Actually, sometimes linked to questions are more meaningful than a presentation. We go through a presentation, we don't know whether you're liking it, not liking it, interested, disinterested, half asleep. But, you know, the questions are always more helpful because then we know what people are really interested in, what they're thinking about. So why don't we go ahead and get started with the presentation. Slide two is our forward-looking disclaimer language. We're not going to go through that, but if you have any questions about it, please let us know. Slide three, table of contents. Starting on slide one is our Q2 investor presentation, which we're about to go through now. And in appendix one, we have supplementary financial information. We're not going to go through that during the call, but if you have any questions about it, please let us know. It's become our practice now, our pattern, I guess, to feature the James Webb Space Telescope in our table of contents. So what we're talking about here, James Webb Space Telescope discovered cosmic dust which shouldn't exist outside its galaxy, which shouldn't exist in quotes, because I think we're developing a common theme here so much that, We believed about the universe and its origin, which just isn't true. Sorry, folks. Not true. James Webb saying, well, you can believe whatever you want, but this is what's really going on. So here's another one of those. Thank you, James Webb Space Telescope. The James Webb Space Telescope was produced with 18 Park proprietary Sigma struts. Let's go on to slide four. Kind of more nitty-gritty stuff here. So quarterly results, let's look at the right-hand column, the second quarter that we just announced. Sales, $16,381 million. Gross profit, $5,116 million. Gross margin, $31.2 million. So we're happy about gross margins over 30, or maybe we should say we're unhappy when they're not over 30. And it's good that they're over 30 because there are a couple things we'll talk about in a second that drag down our margins. Just at EBITDA, $3,401,000. and adjusted EBITDA margin 20.8%. What did we say about Q2 during our Q1 call on July 15th? We said our sales estimate was 15 to 16 million, so we came a little bit above that. EBITDA estimate, 3 million to 3.4, so we came in kind of the top of the range of the EBITDA estimate. I just want to remind you, especially for some of our new investors, that well, this is not guidance. We don't do guidance. When we give an estimate, we're saying to you, this is what we think is going to happen. Now, we could be wrong, but this is what we think. There's a, I don't know, let's call it practice. We have different terms for it, but let's call it practice, where everybody does it almost, where, you know, let's say it's going to be 100. They think it's going to be 100. They go out with 90, you know, that's their guidance. So then when they come out, when they come back with 100, they come out with 100, then they're heroes. And I don't know. We think that's not worthy of our time. So when we give you an estimate, we're saying this is what we think is going to happen. We're not giving you a number of which we plan to beat, okay? Let's go on to slide five. Q2 considerations. We always talk, well, always in the last few quarters, about airing group. It has impact on a lot of things, including the quarterback. So we entered into this business partner agreement with Aeron Group. It's a very large aerospace company in France, great company, and they're a JV between Airbus and Safran, I believe. And in January 22, we've actually been working with them for 20 years. They appointed us exclusive distributor of their Raycarb C2B fabric. That fabric's used to produce ablative composite materials for advanced missile systems programs. Now, we sold 1.65, sorry, million of that fabric in Q2. As we previously explained, we sell that fabric to our defense industry customers for a small markup. What's going on here is the defense industry customers are stockpiling the C2B. We're the exclusive distributor, though, so they buy it from us. We buy it from – we're a distributor, not a rep. We buy it from Arians. And then we resell it or sell it, I should say, to the OEM. But it's kind of a strange thing because we keep the C2B fabric in our plant because the OEM eventually asked us to produce prepreg with it. So even though we sell to them and they own the product, it's kept in our plant. The markup is small. So when we have a significant amount of C2B fabric sales, that's going to push down our margins significantly. And we sold 415,000 of ablated materials manufactured with C2B fabric in Q2. Now, the margins on the ablated materials that we produced those fabrics, very, very good, very good. So that's the offset. But it's still the ratio of sales of fabric to ablated materials manufactured with the C2B fabric are still out of balance, right? So more... fabric than materials, prepreg, let's call it. What's the reason? I already said it, because the OEMs are stockpiling this product. A more normal kind of ratio would be 40-60. So 40% would be the materials and 60% would be the fabric. No, that's not always going to be exactly it, but just to give you a sense. So you see that the ratio is much more than 40-60 here, and that's going to drive down our margin. So let's talk about, let's go into slide six rather. Oh, we're still on the topic of C2B fabric requalification by one of Park's key customers of C2B fabric. This has been a big deal for the last few quarters. And Mark, we always give Mark the hard stuff to talk about. Can you help us with what's going on with that requalification?

Yeah, so we actually do have an update this time. I think the last couple calls we said we're waiting for approval. So we do have approval. We don't have full approval. We have approval at about 90% of the specification. Not to get too technical, there's a requirement within the spec that has a lower and an upper range. They were somewhere in the middle. They moved down closer to the commercial specification, as we call it, which gets us back into production at 90 plus percent of everything we have. So what we're doing now is they're currently testing that last 10%, which will probably take another nine to 12 months. So we'll continue to talk about you know, when we get that approval. But as far as the program's concerned, we're back in business, we're back running, you know, and we're back to, I would say, you know, normal typical rates that we were running, you know, prior to, you know, this, I won't say issue coming up, but this recall coming up. So, and we actually expect to see, you know, some upside, you know, in the coming quarters, you know, and Brian will talk about some of that news as well. But I guess the story here, the message here is we're pretty much back in business with, you know, running at our normal level.