PARK AEROSPACE CORP Q2 FY2026 earnings call

Brian Shore welcomes everyone to the call, mentions new investors and skimming legacy items carefully. Talks about ArianeGroup partnership, C2B fabric sales and impact on margins, C2B fabric requalification update. Mark Esquivel discusses C2B fabric approval status. Talks about production vs sales, significant ongoing expenses, missed shipments due to customer issues. Goes through various aerospace program updates including GE Aerospace Jet Engine Programs, Airbus A320neo family, Boeing 777X, Comac 919, missile systems like Patriot, PAC-3, LRASM, SM-6. Mentions major expansion of manufacturing facilities, Park's Egg Strategy of making customers love them through flexibility, urgency, responsiveness. Discusses buyback authorization, balance sheet, cash and dividend history.

Second quarter sales were $16.381 million, gross profit $5.116 million, gross margin $31.2 million, adjusted EBITDA $3.401 million, adjusted EBITDA margin 20.8%. Sales estimate in Q1 was $15 million to $16 million, came above that. EBITDA estimate $3 million to $3.4 million, came in top of range. Sales of ArianeGroup's RAYCARB C2B fabric in Q2 were $1.65 million, ablative materials manufactured with C2B fabric were $415,000. Ratio of fabric to materials sales not in normal 40%-60% range, pushing down margins. C2B fabric requalification had update with approval at 90% of specification, testing remaining 10% expected to take 9 - 12 months. Production versus sales in Q2 had sales value of production well matched with sales, no impact on bottom line. Significant ongoing expenses from new manufacturing facility. Total missed shipments $510,000 due to customer certification and testing delays. Net impact of tariffs and tariff-related costs minimal in Q2.

Not providing fiscal '26 guidance at this time. Q3 financial forecast estimates sales of $16.5 million to $17.5 million, adjusted EBITDA of $3.7 million to $4.1 million. Believes fiscal '26 revenue will be over $70 million. Q3 GE Aerospace program sales estimated $7.5 million to $8 million, total for year $27.5 million to $29 million compared to prior $28 million to $32 million estimate based on customer build plan.

Customer certification and testing delays impacted shipments in Q2. Tariff situation is a dynamic one, though minimal impact currently. Uncertainties in certification timelines for programs like Boeing 777X and Comac 919 could affect business. Stockpiling by OEMs and supply chain issues can impact production and delivery timelines.

Q: Once again, nice presentation, nice quarter. And just a couple of easy questions. I've been thinking about Park and all the exciting things going on. How do you feel about the need for additional sales personnel? Or are you feel that everything you have there is adequate. You've got so much going on. I'm just wondering, are you covered in that area sufficiently. And the second thing is, I know you say you're not prepared at this time to share the long-term forecast. So do you think like sometime next calendar year, you can kind of give people a longer-term view of where this company could be in 3 to 5 years. There are so many things that are blossoming. You truly are a growth company. But -- and then the third thing is -- and I know this is not your primary function, obviously, but you must be on the radars of firms out here to pick up research coverage. There's so much research out there now by niche firms, and you have such a great story. I was just wondering if anything happening in that regard?

A: Thanks, Nick. Thanks for your questions. So let's take them in order. Additional salespeople. I think, Mark, you can chime in. We've learned a lot over the last 20 years. And I think our view on salespeople is a little bit skeptical. I think we prefer to have additional technical people, engineering people in terms of getting more business. We -- you're right, Nick, we certainly have our hands full of what we have already, but we're always interested in new opportunities, new opportunities. They're coming pretty fast and furious, but they're not coming because of salespeople. They're coming because it's a small industry, particularly in the defense side, and we have close ties with a lot of the OEMs and the military as well. So the work gets out pretty quickly. The important thing is we have engineering people to support those activities rather than salespeople that go get those -- the business. And I'm not sure that really works anyway. I don't think that -- I don't know, Mark, you chime in, that typical OEMs really are that interested in the guy bringing doughnuts and a slick salesmen. They're more interested in what you can do, how you can help us. And that's going to be more of an engineering discussion or it could be a supply chain discussion, okay, how can you support us in terms of providing a product to us. But I don't know, I'm a little skeptical about whether additional salespeople are -- we want to talk about at this point. Why don't we -- Mark, why don't you chime in? I'll take the other 2 questions, but why don't you chime in if you have anything you want to add to that, my answer on that question. Mark A. Esquivel: Yes, Brian, I think you're correct. I mean we work really close with the technical and engineering folks and it kind of goes back to our strategy too, they have priorities and they need to get projects done. And we work directly with them and help them develop new programs, new products, and that really helps us get business more so than the traditional, like you said, Brian, going to the supply chain people, bringing doughnuts. It's a little different in our industry. It's more technical, more engineering driven. And if you're satisfying those groups, that's how the business usually comes our way. Brian Shore: Yes. I think a lot of times it comes to us rather than we go into it. But it's a real kind of small close to industry and people know where to find us. Long-term forecast, I understand why you're asking that. I think what we'll try to do in Q3 is provide some information. I'm a little bit -- like a little reluctant because I think the number is going to be shocking to our investors.

Q: [indiscernible]. Brian Shore: Yes. Okay. Well, let's see what we can do to give you more perspective, quantitative perspective when we announce Q3, okay? Would that be right? And we'll work on that. I'm not saying we'll give you a hard like 3- or 4-year forecast, but there's something that you could sink your teeth into a little bit more. And the research, we're here. I mean, nowhere to find us. We'd be happy to be covered. Like you said, Nick, not really our principal focus, but we'd be happy to be covered. And if anybody is interested, I'm happy to talk to them. I think we are seeing a lot more visibility in the last few months or so. So we'll see what happens. I don't believe there's anything imminent where somebody is about to pick us up right now, but we're very open to being covered. So hopefully, those...

Q: When the revenue doubles from here, then they'll come around. That's the way it happens a lot.

A: Maybe. Yes, maybe you're right. Any other questions you have, Nick? Or is that covered it?

Q: No, thank you so much. And it's glad to see that all the hard work, the stock has caught lightning in the bottle after the last quarter, and it's good. It's a nice thing to see hard work appreciated and reflected in the value. It must make all the employees and everybody feel good and the investors, obviously. But -- so thank you.

A: It's a good thing. Thank you very much for your input, Nick. Operator, do we have any other questions?

Q: Brian, just, I guess, 2 questions. You mentioned the C2B material being a 60%-40% lower to higher margin mix. When the Patriot missile gets ramped up, will that be constant? Or can you get a higher mix there with the higher revenue converted material?

A: So I'll answer that. So what's going on here is they're stockpiling, stockpiling, stockpiling. And that's why there's -- the ratio is not really balanced. At the end of the day, though, there will be a certain amount of C2B fabric that's required to make the C2B material. But at the end of the day, it all has to kind of even out. Right now, the OEMs are stockpiling. Why? Because they're nervous. They want as much as they can get because they see where the future is going. And they're not stopping. They're going to keep stockpiling, I think. But eventually, the plan is not to just have that stuff sitting in our factory, of course, it's for us to produce the material that's used to make the rocket nozzle materials for the -- rocket nozzle structures for the Patriot missile system.

Q: Okay. And is there timing on that, where you think that might pick up this calendar year?

A: Yes. I think as Mark alluded to, we had this issue with the recall and that was slowing down a lot in our ability to produce the materials, the C2B materials. The recall is pretty much complete now. So we think that's going to open things up quite a bit even in the next quarter. I mean, even this quarter, I think. So we'll see. We'll see. With the aerospace, probably most industries, though, Chris, the demand is there, but the supply chain can't turn everything on, on a dime. We can, but there's a lot of other steps along the way in the supply chain in order to be able to ramp up like with the A320, we could support 75 airplanes a month at this point if they needed it. But -- and Airbus would like to be at 75 airplanes for a month. I'm quite sure of that. What's holding them back is the supply chain, the supply chain is not able to turn on a dime. Was there another question, Chris?

Q: No.

A: Good. Okay. Operator, anything else right now?

Q: There are no further questions at this time. I would like to turn the floor back over to Mr. Shore for any closing comments.

A: Okay. Well, Brian again here. Thank you very much for listening in. Sorry, the call went so long. If you have any other questions, you want to call us any time, we're happy to talk to you. Have a great day. Thank you. Bye. Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. Please disconnect your lines, and have a wonderful day.