Park Aerospace Corp.

Good morning. My name is Shamali 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 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 the number one on your telephone keypad. If you would like to withdraw your question, simply press star, then the 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, Operator. Welcome, everybody. Happy New Year. This is Brian. Welcome to the Park Aerospace Corp. Fiscal Year 2026 Third Quarter Investor Conference Call. I have with me, as usual, Mark Esquival, our President and CEO, correction, COO. I gave you a promotion there, Mark, sorry. And just so a little housekeeping stuff, we announced, released our third quarter earnings release, or published our The third quarter is released right after the close. You want to get a hold of that because in the release, there's link information to access the presentation we're about to go through. The presentation is also posted on our website. So we have a lot to cover when we get started. We have our dilemma. We have a lot of new investors, a lot of veteran investors. So how much do we cover? The background stuff is always a little bit of an issue. We'll do the best we can. Also, I just want to mention that we did file an S3 registration statement with the SEC after the close as well. So we're going to get started with the presentation. We have a lot to cover. Obviously, at the end of our presentation, we'll be happy to take any questions you might have. So let's plow ahead. Slide two, forward-looking disclaimer. If you have any questions about this language, please let us know. Let's go on to slide three, table of contents, fiscal year 26, Q3 investor presentation. We're about to go through that. And then the supplementary financial information in Appendix 1. We're not going to review that or cover it, but if you have any questions about it, please let us know. As has become our practice in recent quarters, we're featuring the James Webb Space Telescope, runaway supermassive black hole, 10 million times the mass of the sun. That sounds pretty big to me, being boosted from its galaxy at 108. Sorry, 1,000 kilometers per second, which is about 2 million miles an hour. Thank you, James Webb, Space Telescope. The James Webb was produced with 18 Park proprietary Sigma struts. James Webb is now orbiting, I think it's called a brain's orbit, about a million miles from Earth. Okay, let's go on to slide four, our quarterly results. Let's just focus on Q3, where we just announced the sales, 17,333,000. Gross profit, 5,903,000. Gross margin, 34.1%. Adjusted EBITDA, 4,228,000. Adjusted EBITDA margin, 24.4%. We're not going to go over the history, but we provide it to you for perspective. the park quarters i mean what do we say about q3 about our q3 accord we just announced during our october 9 2025 q2 investor call sales estimate was 16 and a half to 17.5 million so we came in within that range that's just an ebitda estimate was 3.7 million to 4.1 million uh so we came in a little bit above that range Just want to remind you that when we provide you with these estimates, we don't do what's called guidance that I guess everybody else does, almost everybody else does. When we tell you, we give you an estimate, we are telling you, Mark and I are telling you what we think will happen. We don't provide any fudge room so we can, you know, we reduce what we think by 10% so we can come in and beat the number and be heroes. We don't get involved in that kind of stuff. So I just want to always remind you when we talk about our estimates, what they mean, what they don't mean. Okay, let's go on to slide five, quarterly results continuing this, the Q3 considerations. All right, we always have to talk about the Aryan Group Business Partner Agreement because it has an impact upon our quarters. It gets a little tedious, but I think we need to explain it. We entered into a business partner agreement with Aryan Group. They're a wonderful French company. We've known them for about 20 years. They're, I think, a JV between Safran and Airbus, a large company. That was in January of 2022, under which Arian appointed Park as its exclusive North American distributor for their Raycar of C2B fabric used to produce ablative composite materials for advanced missile programs. So this is, you know, a lot of people consider it to be the Cadillac of C2B. There's a category of fabric that's used for blade, as they call it sometimes, for missile programs. So this is why we have to talk about it, because let's just go into it. We had zero sales of the fabric in Q3. OEMs buy the fabric or stockpile the fabric because they're trying to protect their very critical missile programs. but they have to buy it from us since we're the exclusive distributor in North America. The OEMs, we buy the fabric from Arian, our partner, and then we resell it or sell it, rather, to the OEMs for a small markup, right? And we don't even deliver it to the OEMs. We store the product, the fabric, in our factory, as a favor to them, I guess. Because ultimately, they don't need it. They're going to give us the releases at some point to go ahead and take that fabric and produce the pre-print material with it. So small markup, I probably shouldn't put this print in here because it's not going to explain it. Even smaller is a percentage considering tariffs. This is because we pass through all the tariffs that are significant, but you pass through on a dollar-per-dollar basis to go into our sales line but we don't provide a markup on the tariffs, that would be kind of ridiculous. So that actually makes the markup percentage even lower, if you follow what I'm saying. So we had zero sales of fabric in Q3, and we had a little bit more than a million dollars of sales of the materials manufactured with C2B product in Q3. So when we produced the prepreg, that actually results in very good margins. So when we have significant sales of material, not too significant of fabric, that's actually a plus for our bottom line. But the opposite often happens, and we'll talk about that when we talk about our Q4 forecast. We have a lot of sales of fabric, not as much of materials that will drive down our margins. It's all good. It's all wonderful. It's ultimately everything that we, all the fabric that we sell to the OEMs, and they stockpile, we will end up producing. That's the reason we keep it in our factory. But the timing kind of distorts our quarters sometimes. That's what we have to talk about, unfortunately. Let's go on to slide six. Total mis-shipments in Q3, approximately 740,000. That number's up quite a bit. It was caused principally by international freight supply chain and customer spec and engineering issues. So what was going on here? Industry challenges are re-emerging as industry recovers and program ramps accelerate. This is actually a good thing, good news. You know, after the pandemic or when the pandemic started, it was a mess because the supply chain was so screwed up. And after a couple of years, we kind of got back to something that would be more acceptable, which is okay. But now that the industry has, is recovering and the programs are ramping quickly. Now the supply chain, the industry is actually getting a little bit behind the power curve again. That's what's going on there. So actually, it's good news. That impact of tariffs and tariff-related costs and charges, maybe Mark can help us with this. Go ahead, Mark.

Yeah, this is a very eventful update again, which is, I think, a good thing. We have minimal impact on tariffs in our Q3, just as we've had previously. I think we talked about it. We price our materials on a short-term basis, most of our business, so we're able to pass them on if we do get them. The second bullet, possible future of impacts. Again, this has been quiet again for us the last few months, or it seems to stabilize as far as what's coming our way. That doesn't mean there could be changes to that, but as far as the near term, I probably think the bullet would be pretty similar to the first one. you know, going forward in the next few quarters, but you just never know, but there's minimal impact for part at this point.