Park Aerospace Corp.

Good afternoon. My name is Julian and I'll be your conference operator today. At this time, I would like to welcome everyone to Park Aerospace Corp's fiscal year 26 Q4 investor call and 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'd like to ask a question during this time, please simply press star, then the number one on your telephone keypad. If you'd like to withdraw your question, Please press star 2. 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. This is Brian. Welcome all to Park Aerospace's Q4 Investor Conference Call. Thank you for joining us. With me, as usual, Mark Esquival, our President and COO. We published our fourth quarter earnings release just after the close. If you haven't accessed that, you probably want to do that. In the earnings release, there are instructions as to how to access the presentation that we're about to go over. There's a link that's provided. Also, you can access that presentation on our website. You want to do that so the call will be meaningful. So we'll review our presentation, of course, with you, and then we'll be happy to answer questions. Just want to comment that we have a lot of new investors or potential investors at PARC. during our third quarter call in January, there were over 150 participants. That's a lot for us. And I suspect that that interest might continue. So the point is that we have a lot of new potential investors or investors, and then we have the veteran investors. So we have to balance between covering the old stuff again and not covering it too much. I know sometimes when we do that, the veteran investors get a little impatient that we're going over things that we went over. But Out of respect for our new blood, new investors, we want to go back and cover some of these things that we cover every quarter. So we'll do the best we can to find a middle ground and compromise, and that, of course, means that nobody's going to be happy. But anyway, we'll do our best, of course. Why don't we go ahead and proceed, and we'll go right to slide two, which is our forward-looking disclaimer language. We're not going to read this for you, but if you have any questions about it, please let us know. Let's go to slide three, table of contents. Slide one, we start with our investor presentation. And in Appendix 1, there's supplementary financial information. We don't normally cover that during our calls, but please let us know if you have any questions about it. Our practice has been on our table of contents to feature something about the James Webb Space Telescope. We discovered these little red dots, a new class of object. You think about the new class of object. I didn't know what to make of that. small extremely red points of light that represent a potential seeding of early supermassive black holes, challenging our understanding of galactic formation and evolution. Thank you, James Webb. And James Webb was produced with 18 proprietary Park Sigma stretch. So this is not a high-volume program for us, and probably... Not an opportunity for many spares since the James Webb is in the orbit a million miles away. Probably not going to send anybody up to replace any of the Sigma struts. But even though it's a small program in terms of revenue, we feature it every quarter now for the last couple of years because it's just such an incredible thing to be part of. It's just amazing. I mean, it's hard to describe. The words don't even get it. Amazing doesn't really get it. Almost everything you hear that comes from James Webb says everything we believe, the smartest people in the world believe about the universe was not true. Sorry, we're going to start all over again. So we're just, I don't know how to say it. We're just so thrilled to be part of that, the James Webb. Again, even though from a business financial perspective, it's not a big impact. And like I said, probably no more revenue from the James Webb anytime soon. Let's go on to slide four, going from the lofty to the, I don't know if it's mundane, but a little different kind of level. Our own quarterly results, important, but maybe not quite important in terms of the history of the universe perspective, but nevertheless, we'll go over our quarterly results. Q4, Sales, $24,187,000. Gross profits, $6,935,000. Gross margin, $28.7 million. As you know, we don't like that too much. We don't like when the gross margin is below 30%, but when we get to the next slide or two, we'll explain what's going on here. That relates to the significant shipment sales of CQB fabric. Adjusted EBITDA, $5,171,000, and EBITDA margin, 24.1%. What did we say about our Q4 during our January 13 Q3 investor call? We said our sales estimate is 23.5% to 24.5%, so we came in within the range maybe Kind of the top half, but still within the range. Adjusted EBITDA estimate, four and three quarters to five and a quarter million. And it seems like we came in within the range. We're at the top half of the range, which is good. I need to explain, especially for some of our new potential investors, investors, that when we give an estimate, we're telling you what we think is going to happen next. We don't like this kind of thing that people do where they give a number, but they haircut it by 10% so they can beat the number and they have a beat. I don't like that term. These analysts come up with this sort of stuff. Like it's some game. We're not playing a game here. We don't like that. It makes us uncomfortable. We're not playing a game, but the whole concept is a beat. It's a beat. It's a beat. We don't want a beat. When we give you a number, we're telling you what we think is going to happen. And if we're wrong, that means we didn't do a very good job. Now, sometimes we'll be rolling high. Sometimes we'll be rolling low. But we're not trying to do that. We're not trying to give you a number that we can beat so we can be a hero. To us, that seems like such a childish waste of time. And I just want you to understand that. So when we say we were in the range, that's a good thing. That means our prediction was right. So I probably cover that every quarter because it's a little different with many other companies, how they do that kind of guidance thing, and it's not something we really have to spend time with. Let's go on to slide five, okay? Talk about Q4 a little bit more. Area and group, here we go, and now we're, you know, talking about that gross margin number. Area and group business partner agreement, we talk about this every quarter because it's, you know, significant from many perspectives, but in terms of the quarterly P&L, so we entered into the business partner agreement with Arian in January 22, under which Arian appointed Barca's They're an exclusive North American distributor for their Raycarb C2B fabric used to produce ablative composite materials for advanced missile programs. Now, we had 7.1 million of C2B fabric sales in Q4. Well, that's a lot. I mean, 7.1, what was our number? 24.1, so it's a very high percentage. As we previously explained, we sell C2B fabric to our defense industry customers for a small markup. You say, well, that's not so good. Well, wait a minute. That's not the whole story. Park sold 1.3 million of ablated materials manufactured with C2P fabric in Q4. And as we also previously explained, our margins for producing and selling ablated materials manufactured with this fabric are significant. Now, what's going on here? When we sell the product, we buy it from Arian because we're exclusive. We have exclusive rights to buy it in North America. So we sell it to the OEMs because we're doing their stockpile on their product. Where does it go when they stockpile it? In our factory. We don't even ship to them. We hold it for them in our factory. Why are we doing that? They're stockpiling it because obviously you're going to tell us at some point, please make this into your prepreg material. Please produce the material for us. So everything that we stockpile will end up being produced by PARC as a blade of material, which is where those margins are very good. So stockpiling is good, and the OEMs are doing it because they're concerned about The availability of this is our critical C2B fabric. Let's go on to slide six. Missed shipments. Now, this is interesting because we started talking about this at the beginning of the pandemic. You know, the industry was not doing well. Supply chain, international shipments, one thing after another after another, and every quarter with a lot of missed shipments, you know. Now, that calmed down quite a bit over the last couple of years, I think, kind of. got close to quote-unquote normal based upon the post-pandemic levels, all right? But what's going on here is this is now re-emerging as a problem because now the industry is accelerating, recovering, and the program ramps are accelerating. So now the industry is kind of struggling once again with keeping up from a different perspective, but it's the same kind of phenomenon, it's just from a different perspective. So now we're talking once again about the shipments, 715,000, Well, that's a lot, and we talk about Q1 or Q1 forecast, it's going to be even more. So it's something to think about. Ultimately, all this product gets produced and shipped, but the industry is now struggling to keep up as the industry accelerates and ramps. Net impact of tariffs, tariff-related costs. Mark, could you help us with a little perspective on tariffs and tariff-related costs, please?

Yeah, it's the same story as, you know, the last few quarters, very minimal impact for us. Again, we typically pass these on to our customers through pricing, our pricing contracts, or as we do pricing every few months with our regular business. So no impact for us, but maybe a few thousand dollars this quarter.