Paul: Good afternoon. My name is Paul, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Park Aerospace Corp. first quarter fiscal year 2027 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 1 on your telephone keypad. If you'd like to withdraw your question, please press star 2. 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.
Brian Shore: Thank you very much, Operator. This is Brian, of course. Welcome all to Park Aerospace's fiscal year 27 first quarter investor call. I have with me, as usual, Mark Esquivel, our President and COO. We published our Q1 earnings release just after the close. If you haven't seen that, you want to take a look at that because in the earnings release, there are instructions as to how you can access the investor presentation that we're about to go through. There's a link and also you can access that on our website. A couple of preliminary comments here. It's only been seven weeks since our Q4 investor call. It's also been summer. So I had a feeling this Q1 call would be kind of a quiet call, just a little updates and we move on. But it actually didn't work out that way. There are a lot of important developments that we need to, we should go through with you, especially starting in the missile systems and then the new plant sections at the end. So what we'll probably try to do is go through the beginning portion of the front end, let's say, of the presentation a little more quickly so we can get to the back end, if you will, more quickly again and spend a little more time because that requires much more discussion, I think. Unfortunately, well, it's fortunate, but in a sense, it's unfortunate.
Mark Esquivel: We have a lot of new investors at PARC.
Brian Shore: and I apologize for we're going to go through the front end, if you will, of the presentation a little more quickly just to have time for the back end. But for the rhetoric investors, probably not a problem. A lot of the stuff is we go over a quarter. But for new investors, if there's anything you want to talk to us about that we went over quickly, please give us a call and we'd be happy to go through those items in more detail with you. and I guess the other thing I'll say is that we're happy to answer questions of course after we're done with the presentation. So why don't we get into it? Slide two is our forward-looking disclaimer language. Let us know if you have any questions about that. Slide three, our table of contents. Slide one, we start with our investor presentation. And appendix one, supplementary financial information. We don't intend to go through that during the call, but if you have any questions about any of the supplementary financial info, please let us know. We've been featuring the James Webb Space Telescope for a while now in our table of contents. So we're not going to break the pattern here that James Webb shattered our timeline of the universe. Talking about some big stuff here, not just what we may do for the quarter, by spotting impossible infant galaxies containing all stars and heavy elements, which should not be there. It seems to be kind of a common theme with James Webb. We keep saying, yeah, the thoughts will be that way. And all we believe, or most of them, just not really true. James Webb was produced 18 proprietary Park Sigma Stretch. Let's go on to slide four, our quarterly results. Let's just go through this quickly. Q1, the right-hand side, right-hand column, sales $18,312,000. Gross Profits, $6,376,000. Gross Margin, 34.8%. As we often say, we don't like it when it's below 30 like it was in Q4, so a little happier above 30%. Just an EBITDA, $4,576,000. And Just an EBITDA Margin, 25%. What did we say about our Q1 during our Q4 investicle when we gave you the kind of forecast estimate for Q1? We said sales estimate 17.7 to 18.4. So we came in within the range, maybe kind of toward the top end, but still within. Adjusted EBITDA estimate 4.1 to 4.6. And again, we came in within the range, maybe at the high end of the range, but still within. I thought we didn't cover this anymore, but maybe we do. What is the significance of our forecast estimate? So we've mentioned this many times, is that we're not doing the guidance thing where we give you a number to beat. We don't do that. When we give you these numbers, we're telling you this is what we think is going to happen. Now, sometimes we're wrong. Sometimes it's off. Sometimes it's a little high. Sometimes it's a little low. But we're not playing any game here. We're not giving you a number. We think minus 10% so we could beat it and be heroes and Make the Analysts Happy, and all that stuff. I know everybody, I shouldn't say it, but a lot of other companies do that. We just don't. We were wondering, based upon the reaction to our Q4 call, whether everybody's listening to that. We think it's kind of strange that investors would invest in our company on a buy-or-sell stock, totally disregarding what management's been saying consistently for years now. But that's, you know, everybody has their freedom to do what they want. Let's go on to slide five. Quarterly results, not too many comments about Q1 here. Considerations, I guess the main consideration is we're back to talk about Aering Group. Now, we'll talk about Aering Group in much more detail when we get into the missile system section of the presentation. Just for now, the reason we bring it up, it has an impact upon the quarterly bottom line. So, you know, we entered into this business partner agreement with Aering Group in January 22nd. under which they appointed us as their exclusive distributor for what they call Raycarb C2B fabric in the U.S. or actually North America, sorry. So here's the thing. We had zero C2B fabric sales in Q1. That's actually a good thing. We were not, because as we explained, we sell the fabric to our defense industry customers for a relatively small markup. Now, I don't know, not to trick, but the key thing is that When we buy C2B fabric for a customer, we'll sell to the customer, but almost always we store it in our plant. We stockpile it or store it for that customer in our plant. At some point, they're going to say to us, we want you to pre-print. We want you to take this fabric and make it into a pre-print. So we had $1.9 million of ablated material sales. That's a pre-print sales using C2B fabric, and that's very good margin. So that's The extent we sell fabric or the extent we sell pre-break made with the fabric, that can affect our margins. That's why we bring it up most quarters. Let's go on to slide six. Okay, this is something we do every quarter. This is Donna's little specialty, the top five customers in alphabetical order. Let's see if we can figure out who's doing what. AAE Aerospace, that's that paper missile on the top right-hand corner. side of the page. GKN, I think that's the Boeing 787. Let's see. Kratos is obviously the Valkyrie tactical aircraft. Now, Middle River could be the Global 8000 or the H320XLR, but I think what we are doing here is Norden relates to the Global 8000 and then MRES relates to the Airbus A321XLR. Okay, let's keep going. Slide 7, these are the pie charts, which we like sharing with you every quarter. Nothing too remarkable about Q1. It seems to be more or less kind of aligned with the history there. We break it down, obviously, to a military commercial and business aircraft. Let's go on to slide eight. Now, this is a later slide, the Park Plus Niche Military Airspace Programs. And we don't talk anymore about the specific programs. They're just a little too sensitive, except to say that any time every program that we show you is a program we're involved with. We're not just showing you general defense programs. We're involved with all these programs.
Paul: The pie chart.
Brian Shore: The missile system is a little bit less than we would normally expect, but why is that? Because the Renault C2B fabric sales in Q1, that would be in that missile systems part of the pie chart. Pie charts, you have to look at them more long term.
Paul: You look at them quarter over quarter, it's hard to
Brian Shore: figure out what to extrapolate from the short-term quarterly part charts. Let's go on to slide nine. GE Aerospace and Engine Programs, for some of you new folks, we cover this every quarter because it's a very significant portion of our business. We have firm pricing LTA from 19 to 29 with Middle River Air Structure Systems, which is a sub of SD Engineering Aerospace, a Singapore company. The key thing we need to explain to you every quarter is that if you look at these programs, they're all GE Aerospace or CFM, which is the JV with GE Aerospace programs. So why is that? What does that do with MRAS or ST Engineering? What it has to do with is that When we got these programs, MRES was owned by GE Aerospace. I think in maybe 19, I'm not sure exactly when, GE sold MRES to SD Engineering, but we were already on all these GE Aerospace programs at the time. We built the redundant factory in Newton for GE. They asked us to do that to support their programs.
Mark Esquivel: And these are some of the GE programs that were on through MRES.
Brian Shore: And we won't go through them. If you have any questions about them, let us know. But these are some of the key programs that we're on. Again, this is for GE Aerospace. It's engines.
Mark Esquivel: And this would be for engine and cells and thrust reverse components, composite components.
Brian Shore: Let's go on to slide 10, still GE Aerospace. So additional program that's not listed in the prior page is the faint case containment wrap for the GE 9X engines for the 777X airplane.
James Grischutti: That's an important program for PARC.
Brian Shore: also the LTA was amended to include film adhesive products which are now in qualification and as we've told you many quarters now the MRAS NSDE did request a life of program agreement with us and we haven't made a lot of progress late it's finding the way with us but MRAS is at some other priorities so when they have a little more bandwidth I guess we'll continue with the discussions of the life of program agreement let's go on to slide 11 Let's talk about the GE Aerospace programs. The big kahuna is always going to be the A320 NEO aircraft family, including all these variants, which I won't read off to you. And then, you know, look at the numbers. It's a huge, huge, huge, huge program. They've already delivered 4,470. These are NEO airplanes. This is not A320. These are A320 NEO airplanes. And they have a backlog airbus of 7,493. That's just a lot, a lot, a lot of airplanes for this program. the delivery history for the NEO family. I'm not going to go through numbers with you. Except let's look at June, the first six months, 271 deliveries. Last year, this time, 232. So we're doing a little bit better this year. Aerobus is trying to ramp up. We'll get to that in a second. What we don't do is take June and multiply it by two. So that wouldn't work. We stay back and load the deliveries. I mean, if you look at the 232 and you multiply that by two, it's not going to give you 607. You see what I mean for $25,000? So the key consideration is that Airbus is way ahead of where they were last year at this time with A320neo deliveries. Let's go on to Flight 12. Okay, here's a punchline at the top. Airbus is targeting an A320 aircraft family delivery rate of 70 to 75 airplanes per month by the end of 27 and then stabilizing 27 thereafter. If you have any experience with commercial aircraft, That's a huge, huge, huge, huge number. Those numbers are unheard of, really, 75 airplanes per month. Approved engines, we've got to talk about that. These are two approved engines for the A320 aircraft family. One is the engine we're on, which is the CFM Leap 1A, that's the CFM engine. There's another approved engine, which is the Pratt 1100G, that's a GTF engine. We're only on the CFM Leap 1A engine for the H320 aircraft family, and that's covered, I guess, in the next second little bullet item there. Then the third bullet item, okay, according to Aeroengine News, which is the Bible, the CFM Leap 1A market share is of firm engine orders for the A320neo family of aircraft was 66.2%. That's a big number.
Mark Esquivel: That number is just going up and up and up.
Brian Shore: That's a huge market share. So it's just creeping up here. I guess that's one way to describe it. At the delivery rate of 75 airplanes per month, okay, 75 per month, that's 66.2% market share, translation to 1,192 LEAP 1A engines per year. Thank you for joining us. According to Airbus, there's now a serious shortage. So we've got reliability issues, storage issues, the Pratt engine. Meanwhile, CFM has ramped up production of the LEAP engine. So just full disclosure, we've also read some things that there's some complaints every now and then about CFM and how great a job they're doing with supplying engines as well, just to be fair about it. but could these factors lead to an even greater LEAP 1A market share? You know, maybe, you know, maybe. It seems like it's already having an impact because those numbers have been moving up. The market share numbers have been moving up as of March 31, 26. Okay, these are some huge numbers. 8,472 firm LEAP 1A engine orders. Those are firm orders. That's just a huge amount of revenue for PARC. You know, if you look in the, I think in the, What do you call it? The juggernaut slide. It kind of tells you what our revenue per unit is. You can do your own math if you have a pocket calculator. So the A320 aircraft family program could end up being the world's largest commercial aircraft program ever. That's probably a given. And then the A320 NEO aircraft program could also end up being PARC's largest non-defense program ever. All right. So let's keep going here. What's next? Slide 14, now this is the Chinese airplane, the Comac 919. That's a single aisle competitor, the A320 and the 737. That is another version of the LEAP engine, made by CFM and 1C. I wonder if C stands for Comac, and A might stand for Airbus. I don't know. Comac's increasing manufacturing capacity to achieve production rates of 150. You can see their target rates here. I won't go through them. Detail, they reportedly have over 1,200 orders for the 919 aircraft, and they reportedly delivered only two in 23, 14, 24, 18, and 25. So they've got a long, long way to go to ramp up.
Paul: Don't take 1,200 orders there.
Brian Shore: And they say that we heard the lack of availability of the engines has been reported to be limiting COMAC's ability to ramp up. My sense is, I shouldn't speak for LEAP or CFM, I sense that they're giving a little more priority to Boeing and Airbus to NACOMAC, but I could be wrong about that. I'm just telling you what I'm kind of sensing. Let's go on to slide 15. The other big program, big G aerospace program is the 777X with those G9X engines. So this airplane has been very, very, very delayed, but I feel that it's going well now, that it's on track. It's doing well in terms of certification. They've amassed lots of flights and lots of flight hours in the test program.
Mark Esquivel: They have over 650 open orders for this airplane.
Brian Shore: This is a much bigger airplane. You're not going to get like the same number that you see for the H-120, for instance. That's a lot of very nice orders. The certification test program has moved into Phase 4B of the FAA-type certification testing program. That's an important milestone. Just approved recently. That's good. So I think they're progressing well. Boeing anticipates certification of the aircraft in early to mid-27 and entry into service for delivery in mid-27. So that's very good news. These pictures are interesting. This was at Fairbanks a few years ago. A friend of mine, I know a lot of friends up in Fairbanks, I took this picture and it was up there for cold weather testing. If you go to Fairbanks in the winter, that's a good bet if you're looking to get cold weather testing done, you know, often 40, 50 below. Let's go into, let's go on to slide 16. So here's some numbers. GE Aerospace Engine Program Sales History and Forecast Assessments. Okay. We won't go through all the numbers. That's probably not necessary. Maybe you just noticed that Fiscal 20 Just shy of $29 million, $28.9 million, and it took all the way to $26 million to get back to that number, $29.2 million, which obviously we're going through the pandemic. Look what happened at $21 million. My God, it just dropped like, you know, like dropped off a cliff or something like that. So our program sales forecast estimates, Q1, sorry, was $7.1 million, and Q2, we're estimating $7.5 to $8.25, and total for the year, total $34.38 million. Now, you could say, because you're smart, well, if you add Q1 and Q2 and you multiply that by two, you're not going to get $34 to $38 million. There's $34 to $38. That comes from our customer. That's what we're told. We actually haircut a little bit to be a little conservative. And it looks like a stretch, but I just want to mention, last year and this time, we're in the same position where we're looking at, we had a forecast for the year, and then Q1 and Q2, it was much less than half. The total, and we ended up making a number anyway, so we'll see what happens.
Mark Esquivel: We don't know what's going to happen. I'm just telling you where we get the number from.
Brian Shore: We'll see. A lot of variables in this world. Let's go on to slide 17. Okay, now we're talking about PARC itself, PARC's Financial Performance History and Forecast Estimates. So we already know what Q1 was. We talked about that at the bottom of the first box, 18.3%. Sales, 14.6 EBITDA, Justice EBITDA. Our estimate for Q2, 19.5 to 21 million of sales, 4.3 to 5.1 million of EBITDA. And if you look at the footnotes, I just want to highlight something, something that Rich described in slide two. We always include that in this slide, but we also say including supply chain, international freight risk, Thank you for joining us. We focus very intensely on the quarters. It's very important to us.
Paul: We work very hard in our quarters.
Brian Shore: But I think the understanding of PARC, if it's really about the quarters, that probably misses the point. And the point is probably, to me anyway, more the big picture. The quarters are always going to be quirky.
Mark Esquivel: They'll sometimes be high, sometimes be low, because all kinds of factors that
Brian Shore: that might just affect that quarter that don't necessarily have big picture impact. It's just my opinion. You investors, you figure it out for yourself. That's my opinion. Slide 18. You know what? We're not going to go through this. This is the same slide that we presented last quarter. So if you have any questions about it, just let us know. Slide 19. Okay. Change your gears a little bit. We talk about this every quarter, our buyback authorization activity. Under a buyback, we purchased 718,000 shares of our common stock. Average price, $12.94. I just want to flag those numbers for you because we'll circle back on them. I'm not surprised here we didn't buy any stock in Q1 or Q2. Let's go on to slide 20 because we juxtapose buybacks and public offering for a reason. We did a recent public offering at ATM at the market offering. for $50 million of Park Common Stock. And during the Q4, we sold approximately 943,000 shares of Common Stock for total proceeds of about $22.8 million, or $24.21 per share.
Paul: That's before commissions.
Brian Shore: No sales in Q1, but we go on to Q2, which we're in now. Let's go on to slide 21. Okay, in Q2, just in June, Park sold about 170,000 shares of a common stock for total proceeds, again, before commissions of $27,174,000. Average price at $31.24 per share. I just want to tell you that, you know, you should know that we're very disappointed about, we were very disappointed about this offering. We A lot of the buying was done via blocks, and we turned them down. A lot of people would offer us to buy blocks, X dollars or Y dollars and cents. We'd just say no so many times because we really were trying to protect the existing shareholders. And I think actually maybe we could pat ourselves on the back a little bit.
Mark Esquivel: I think we did a pretty good job for you with the ATM.
Brian Shore: The next thing probably is the big – this is the total, not broken down by quarters. So we sold a total of 1,812,601 shares for total proceeds before commissions, just under $50 million, $49,996,000 at $27.58 per share. And the ATM offering is complete. But that $27.58 per share, I wanted to go back and let's look at that. Yeah, back to slide 19. To buy it back, $90,000. Sorry. Again, $12.94. We bought the stock for $12.94. We sold it for $27.58. So I think that's probably a pretty good deal for you, I would say. What's the expression? What is it? Like you buy cheap and sell dear or something like that? Okay. Let's go on to slide 22. Parts balance sheet, cash, incredible cash dividend history. We have zero long-term debt. We reported $89.4 million in cash and marketable securities at the end of Q1. We plan to invest $65 million in a new plant, also $25 million in Arian's C2B fabric plant in the form of advanced payments. We'll discuss both those things later. But, you know, you had $65 million, $25 million. I don't know. Maybe get your calculator. I think that's about $90 million. What did I say? $65 million here, $25 million there. Before you know it, you have some real money.
Paul: You ever hear that? No, no, no.
Brian Shore: I don't know where that comes from, but it's from a movie or something like that. So let's keep going. Park has faced 41 consecutive years of uninterrupted regular cash dividends. That's a good deal. on slide 23. Here we go. We paid $613.7 million, $27.5 cents per share in cash dividends since beginning of 2005. Now, we declared another dividend. When that $12.5 cents per share cash dividend is paid on August 3rd. We will have paid over $30 per share in cash given since the beginning of 2005. Well, I think that's pretty incredible. I do say so myself. And here's a nice picture of our founders in Flushing, New York. This is not an original plant, actually. The original plant was in Woodside. It wasn't a plant. It was a garage. This is a real plant, I think about 89,000 square feet back in the 1950s. The reason we like to show you this slide when we're talking about, you know, paying $613 million of dividends. This company started with nothing, nothing back in 1954. Two guys that had some money left over from their war duty, you know, started with nothing. So I like to think about that sometimes. Let's go on to slide 24, changing gears a little bit.
Paul: Financial outlook for GE Airspace Initiative Program.
Brian Shore: The Commercial Aircraft Juggernaut. So here's the first juggernaut commercial aircraft. What's the timing for the commercial aircraft juggernaut? We used to say the juggernaut is coming, it can't be stopped, and we better be ready. Remember that every quarter. Now we're saying, well, the juggernaut is here, at least it's beginning now, you know, in that sense. The driver is a juggernaut. That A320 aggressive ramp-up, A320 NEO program, that's clearly a big one. Remember, 51 airplanes at 25, they're going to 75. Well, that sounds like about a 50% increase. That's pretty huge. Expected certification and entry into service of the 777X and Comax planned ramp up. Those are the three big drivers of the commercial aircraft juggernaut. Let's go on to slide 25, some numbers here. Let's talk about the A320 here. Remember, we mentioned this, that assumption in the first line, second column, 1,080, well, That's based on 75 airplanes per month, but also based on a 60% market share for the LEAF-1A. But we told you in the prior slide it's over 66%, which translates to 1,192. We're not using that number. We're using 1080. I just want you to be aware of that. Maybe a little conservative. Now, just so you know, the Passport 20 and the 909, those programs are really at rate already, so See, they're not the drivers of the Juggernaut. It's the A320, the 919, and the GE9X program that are drivers of the commercial aircraft Juggernaut. Let's go on to slide 25. We certainly won't cover this. Here's just footnotes which explain how we computed the numbers of the prior slide. Slide 27. Okay. It's a half hour into the presentation and now we're getting into the new stuff. The important stuff. I shouldn't say it that way, but important new stuff. Missile systems, Park's new juggernaut, and the next big thing for Park. So some of this is just going over some things we covered last quarter. for review, and some of it is new. Parks Missile Systems niche. We specialize in design and manufacture advanced composite ablated materials used to produce solid rock and mortar structures and heat shield for critical missile systems, including the PAC-3 Patriot missile system. Now, let me stop there because there was some breaking news this morning announced by Lockheed of something called the PAC-3 ASC system. I just want to understand, we'll talk about that a little later, but everything we talk about in this presentation, when I say PAC-3 refers to the PAC-3 MSC, that's the program we're on now. ASC is something new, and I don't want you to confuse those two. Maybe we'll go back and talk about that later at the end of the section regarding missiles.
Mark Esquivel: But this just happened this morning, so I didn't have time to rewrite the presentation, sorry about that.
Brian Shore: But whenever it says in this presentation PAC-3, what it means is PAC-3 MSC, Not the PAC-3 ASC, okay? So let's go, let's keep going. Depletion of the depleted. We covered this last time. Very bad depletion of missile systems based on the war in Europe, meaning Ukraine, and last year's 12-day war, and now the war in Iran. It's a pretty dire situation, I think.
Mark Esquivel: Flight 28.
Brian Shore: Much reporting about how badly the stockpiles of critical missile systems have been depleted. We're not going to go into that now. If you want to, you can look it up yourself. But running it empty, it's a question. Maybe not empty, but it's certainly concerning how badly the stockpiles have been depleted. Replenishing the depleted stockpiles? Yeah, clearly a highly urgent need to replenish the depleted missile system stockpiles. But is that it? Is that all we want to do? I don't think so. Maybe not. talking about quadrupling the production of explicit class of weapon systems. So just getting back to where we started from, no. Getting back to where we started from times four is, I think, what we're really talking about here. It's really incredible, unprecedented. You come up with your adjectives, I don't know.
Mark Esquivel: Slide 29.
Brian Shore: We reviewed this before, you know, in March of this year. President Trump met with the White House and seven of the top defense contractors. including Lachey, Martin, L3. Why do we mention them?
Mark Esquivel: Because they're the big defense contractors on the PAC-3 MSC.
Brian Shore: And they need to quadruple their exquisite class of weapons systems as soon as possible. Clearly, the PAC-3 MSC missile system is a key member of the exquisite class of weapons systems. So in our experience, our experience rather is that the defense industry has entered into hypersonic mode, you know, hypersonic or frenetic, something like that. You come up with your adjectives.
Mark Esquivel: In all our years, we have never seen anything like this, particularly for ablated materials or solid rocket missile systems.
Brian Shore: The quoting activity, especially for those ablated materials for solid rocket missile systems, Hyper and Phrenetic, Hypersonic and Phrenetic maybe.
Paul: The PAC-3 Patriot Missile System.
Brian Shore: Again, this relates to the PAC-3 MSE. We didn't need to specify that because there wasn't a PAC-3 ASE. There actually was a PAC-3 CRI, but I don't think they make that anymore. That was a prior iteration of the Pack 3 MSC, which is the most advanced version of the Patriot Missile System family. So, these are big things. Park is sole source qualified for advanced composite materials for Solid Rocket Motors for the PAC-3 MSC missile system program, slide 30. So stockpiles of these PAC-3 missile system interceptors. We already covered this just generally, but it relates to the PAC-3 as well. Very badly depleted by the wars, but now even more depleted by the current war with Korea. The PAC-3 missile system interceptors have been extensively and very effectively used by US allies in the region, meaning the Middle East region. including Saudi Arabia, UAE, Kuwait, Qatar, Iran, Israel, and that's to defend against incoming ballistic missiles and other threats. The PAK-3 MSC missile system is an extremely effective missile defense system, very high success rate, very high successful, sorry here, I should read ahead, very high rates of successful intercept and destruction of incoming ballistic missiles and other threats. But, this is the kicker, Patriot missiles do no good if they're not available.
Mark Esquivel: Let's go on to slide 31.
Brian Shore: Did you see the report or read it on July 5th a couple weeks ago? Dozens of people were killed in Ukraine by Russian ballistic missiles, which Ukraine was not able to intercept and shoot down because of a serious shortage, that's in quotes, from them. A Patriot missile interceptor, is it? It makes me want to cry, you know, that all these people are dying. It's not a joke. As previously reported, just continuing here on January 6th of this year, Lockheed announced a recent seven-year agreement with the Department of War to grease the patent factory. This time I actually refer to MSC. MSC, most advanced version of the Packer Missile System Interceptor, production capacity from 600 per year to 2,000. That's just unheard of. 600 to 2,000. That's incredible.
Paul: What about us?
Brian Shore: Actually, our rate's a little higher. We're not going to tell you what it is, but it's a little higher even than that. On January, so in January 2000, a lot of happening in January, I guess, 2026, the Department of War also announced it was investing a billion dollars in L3 Harris, solid rock and mortar business, formerly Aerojet, now called L3 Harris Missile Systems. We're doing solid rocket motor production for the PAC-3 and other missile systems. You see the focus here, the focus, the focus. Let's talk about the Arian Group. We discussed the Arian Group of France. They're a joint venture between Airbus and Sarafran. They're a significant company. Going to slide 32, our relationship with the Arian Group and its predecessors goes back to the early 2000s. We're very proud to be their partner. And just so you know, we're not being presumptuous. We use the term partner. That's what they call us. That's their term.
Mark Esquivel: So I just want you to understand that.
Brian Shore: We're not usually a presumptuous company. Airing Group produces a proprietary fabric called Raycorp C2B, which is used to produce ablative composite materials for advanced solid rocket missile programs. Here's a big one. Parker SolSource qualified on a solid rocket motor for the Pac-3 MSC Missile Program for specially ablated materials produced with Arian Group's proprietary C2B fabric. Now, PARC entered into a business partner agreement, that's what they call it, with Arian in January 22, under which Arian appointed PARC as their exclusive distributor for C2B in North America. Last year, March of 25, we entered into what they call the new agreement with Arian, under which PARC agreed to advance Arian 4,587,000 Euro against future payments, sorry, against payments for future purchase by PARC, the C2B fabric. So when we buy C2B fabric in the future, rather than sending a check, we apply the advance. You understand how that works? You can read the installments. It's not necessary for me to read them for you. On slide 32 at the top of of 33. We have one more installment to go, which is next April, I guess, something like that. It's Q1 of 28. What's the purpose of that advance, that €4,587,000 advance? To fund 50-50 with Ariad, the construction of additional C2B fabric manufacturing capacity in France. This additional French manufacturing capacity is expected to come online in 2028. and approximately half of that is for us and half is for them. It kind of makes sense. We went 50-50 on the project. This additional manufacturing capacity will not even be even close to adequate to support the ramp up of the PAC-3 MSC missile program. So now what do we do? Now what? Okay, let's go on to slide 34. So continuing the missile systems. July 18, well, that's pretty recent. That was, what? Arian and Park entered into a term sheet agreement relating to the construction and establishment by Arian of a U.S.-based C2B fabric manufacturing plant with expected C2B fabric manufacturing capacity adequate to fully support the needs and the ramp-up of the factory MSC project. Well, that's really good news, isn't it? We've been negotiating in terms of this agreement for several months. We haven't really talked about it because it wasn't really appropriate, but this is not something we just did two days ago. The term sheet agreement provides that a definitive agreement consistent with the term sheet terms and provisions will be entered into before the end of the year. Okay, so what's the big deal about the term sheet then if it says that we're going to enter into a definitive agreement at the end of the year? Well, what's the key significance of the signing by Park and Arian of the term sheet agreement? There it is. Based on the signing of the term sheet agreement by Arian and Park, Arian will now, not later on, now proceed with the construction and establishment of a U.S.-based C2B fabric manufacturing plant. Very, very important. Let's go on to slide 35. And as provided in the term sheet agreement, here we go, 100%, 100% of the output of Arian Group's U.S.-based C2B Fabric Manufacturing Plant will be allocated to PARC. That's for us. Also on July 9, all recent stuff, you know, it was a week or two ago, we entered into a letter of agreement with a large defense contractor. This is a contractor that we work with on the tax-free MSC missile program. Letter of agreement ties into and relates to the term sheet agreement. There's only so much we can discuss about this, but it's a little complicated. This all ties together.
Paul: All ties together.
Brian Shore: And let me just, I guess we'll leave it at that. Under the terms of the term sheet agreement and in coordination with this defense contractor customer, we've committed, PARC's committed to invest $25 million in Arianne's U.S.-based C2B fabric manufacturing plant.
Paul: And that's not an equity investment.
Brian Shore: The $25 million we've made by PARC in the form of advance payments to be fully applied against future purchases of C2B fabric. 25 million advance payments are expected to be made by PARC in 26 and 27, are expected to be applied by PARC against future C2B fabric purchases beginning in 30. So we're still working out the details, but the full application of 25 million, I don't know, could take 32, 33, we'll see. In other words, when the advance is fully utilized, fully applied to purchase of C2B in the future. Let's go on to 36. Why the heck are we doing this? It's $25 million, and that's a lot of money. Why are we making a $25 million advance payment commitment? Because it's necessary in order for Arian to proceed with the construction of the U.S.-based C2B manufacturing plant, and we believe it is highly urgent that Arian rebuilds its U.S.-based manufacturing plant as soon as possible. As explained above, Arian's U.S. plant is necessary to support the ramp-up of the PAC-3 missile program. So let's keep going. Why are we doing this?
Mark Esquivel: Just so you know, it's not all dials and cents for park.
Brian Shore: Almost every time a factory missile, MSC, MSC missiles launch and successfully intercepts, destroys an incoming ballistic missile, remember the success rate is very high, it's likely that there are people who are alive and walking around the earth who otherwise would be body parts scattered around.
Mark Esquivel: Now, that's a harsh way to describe it, but the reality is a lot more harsh.
Brian Shore: That's for sure. We're not fooling around here. Let's go on to slide 37.
Mark Esquivel: Well, let's talk about dollars and cents for a minute.
Brian Shore: We're shareholders, so we're interested in that, I guess. Under the terms of the term sheet agreement, there's a minimum required purchase. This is very key. A C2B fabric from 30 to 36. We're not going to go into what that number is. This is not a forecast. It's a minimum required purchase under the term sheet. What does that minimum amount translate into in revenues for park during that 30 to 36 period? Well, remember how we do this. We buy the fabric from Arian. We sell it to our customer. Then we store it for them. We never deliver it to our customer. They keep it in our plant because ultimately 100% of the time they're going to ask us to pre-preg it. So we'll look at the revenues. We have a look at the revenues from selling in the fabric and then also some selling in the prepreg. And we're not going to give you a number, but it's hundreds of million dollars. So you think about that $25 million investment and we get, you know, it comes back to us. Now, just to cost the money, right?
Paul: No.
Brian Shore: Thank you for watching. It looks like the PAC-3 MSC has been used for a lot of things.
Mark Esquivel: It's overkill.
Brian Shore: It's very expensive overkill. For cruise missiles and drones and that kind of thing, it's overkill. Not necessary. The PAC-3 MSC is really designed for incoming long-range ballistic missiles. Very effective. It could be used to shoot on other things, but not really very cost-effective. If you read the lines, it looks like the ASC is designed to fill that cap. Now, we've already spoken to our customer about this, and this is important. Everything I'm telling you about relates to the PAC-3 MSC. The PAC-3 ASC is gravy for PARC. It doesn't eat into anything we're talking about with the MSC. It's gravy for PARC. Now, obviously, we're very interested, and we were expressed here, and we delighted to support that program. We'll see what happens. but I want you to understand that's not a negative for PARC. It's a potential big positive for PARC. Okay, let's go on to slide 36, totally different topic here. PARC's major new manufacturing plant on July 17th. It's also pretty recent news here. PARC entered into a long-term lease agreement to lease 18 acres of land at the Tulsa Oklahoma International Airport. So a new manufacturing plant we've been talking about for a while. We haven't made our site selection decision yet. Well, we have. It's going to be the Tulsa International Airport. That will be the site of Park's major new manufacturing plant. The site will also provide space for an additional plant location in the future if anyone needs it. This is important. So the existing media plant, let's put it that way, probably needs about maybe 9, 10 acres. So it's another maybe 9 acres or so that will be available for another plant at some point in the future, which is important for us. It's a beautiful location at Tulsa International Airport.
Paul: Maybe you'll visit it someday.
Brian Shore: Maybe we'll have a, I don't know, Scherbler meeting there someday. Parks, a new plant size, about 150,000 square feet. The budget, $65 million. Outflow, this is a guess because, you know, sometimes the outflow will straddle the end of a fiscal year or so. Just a guess, but approximately $25 million at $27 million, $35 million at $28 million, and $5 million at $29 million. Let's go on to slide 39, please. Timeline for new plant. Complete the facility in fiscal 28, two years. Production and shipment of customers commence in fiscal 29. Our new plant is designed to basically do what we do now. Support composite materials product line, including specially bladed materials, et cetera, et cetera, et cetera.
Paul: What else?
Brian Shore: That's a key question because this is not just a do or doing now. That's part of it. We're also looking at this as a Major Development Opportunity for PARCC. So what else is an important question? We'll see about that. Our new plan is expected to approximately double PARCC's current hot melt, brief break, and film adhesive manufacturing capacity, principally used for the commercial aircraft programs like the GE Aviation, GE Aerospace programs. are approximately double the capacity. And then our new plant is expected to approximately triple our current solution-treating manufacturing capacity. And what's that used for? Well, it's used for a lot of things, but among other things, to support the missile assistance program. So we're going to be tripling our solution-treating capacity with the new plant. I mean, tripling over, you know, compared to our current capacity. in Newton, Kansas. Let's go on to slide 40. Why are you building our new manufacturing plant? Well, pretty obvious. Our juggernauts require it also to enable, facilitate, and inspire fire parks growth and development as a company in the future. So why did we choose Oklahoma? Probably a good question to ask. Could have gone to other places. Well, we were very interested to understand. So let me back up. The second largest industry in Oklahoma, you know what the first is, or I guess, is second largest aerospace, A&D rather. But we wanted to understand what do we mean by that? What's the culture of A&D in Oklahoma? Is it like big commercial aircraft companies, maybe more like what we have in Wichita, or is it something else? So we're very pleased that we, by spending a lot of time here, are doing due diligence. We think the A&D culture in Oklahoma is more a lot of startups, more about, I wrote some notes down here, so I'm reading from them. Normally I don't write notes. Innovation, creativity, imagination, risk-taking, more of a progressive kind of mindset, space and defense activities, startups. We think that's very good for us. We think that'll inspire us. to be more creative and more innovative in our own thinking and our own development as a company. So that's our thought behind Oklahoma. We're really excited about it, actually. We've come a long way since we started a company in that little garage in Woodside, Queens, back in 54. And again, a garage is not like a, what do you call it, like a euphemism. I mean, it was really a garage. I mean, with cars and stuff. I don't know, maybe 2,000 square feet, something like that. but in my opinion, we're just getting started. Okay, operator, we're done with the presentation and the extent for any questions or any questions, we'll be happy to, Mark and I will be happy to answer them.
Paul: At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question is from James Grischutti with Needham & Company.
James Grischutti: Hi, thank you. Afternoon. I'm wondering if you can tell us if there's any Raycarb CQB fabric sales that you're embedding in that fiscal Q2 outlook, just because it does have an impact on margins.
Brian Shore: Yeah, but we didn't mention it because it's more balanced between the fabric and the freight. At least that's what we're expecting. We also mentioned a little concern about international freight, and so that could have an effect on it. It's not significant. If we expected something that would have a significant impact on the bottom line, we would have brought that up.
James Grischutti: Got it. And... Also, I'm wondering if we look at the revenue split, commercial aircraft, military, and Q1, should we assume a similar type of profile in terms of the Q2? And I know you should be looking at this probably on a multi-quarter period.
Brian Shore: Yeah, that's hard for us to say. Probably about the same. I think we would say longer term that the The military portion of the pie chart will start to become more prominent. And I think we'd also say certainly when you begin that breakdown of military, that second pie chart, that the missile systems portion of the pie chart will grow as well.
James Grischutti: Okay, and one final quick one if I could. Just maybe this, I apologize, this was in some of the materials you provided or maybe in the queue. Did you have a second 10% customer in the quarter?
Paul: I'm sorry? What's the question?
James Grischutti: Sorry, was there a second 10%? 10% customer in the quarter.
Brian Shore: Oh, we don't disclose. We only disclose that for the year-end. We don't disclose 10% customers by quarter. So definitely look at our 10K for the 10% customers for the year-end. Sorry, we don't do that. You're probably guessing that. MRAS is 10%. That's a good guess, but we don't actually confirm that.
James Grischutti: Thank you.
Paul: You're welcome. Our next question is from Trevor Walsh with Citizens.
Trevor Walsh: Great. Hello, Brian and team. Thanks for taking the questions. How are you? Sure.
Nick Ripostella: Yeah, good. Good, good. So maybe just also piggybacking on the margin question. So I think last quarter you had mentioned that the C2B more direct sales, not the prefrag, kind of caused some of the margin pressure in Q4. Obviously, nice recovery there. here in Q1. Was it really just that dynamic of the C2B sales or was there something else in the quarter that helped kind of gross margins pop up back to that 50%? Yeah.
Brian Shore: Okay. Thanks for the question. So I think you know how it works. I mean, every quarter is going to be lots of factors go up and down, but we're highlighting the big one here. And so I think that would be one of the more significant factors when you compare the gross margins and Q4, and Q1. In Q4, there was, I don't remember the number, but quite significant C2B sales, fabric sales, I should say, in Q4, and that really pushed the gross margin down quite a bit. Unfortunately, the problem is that these things, they're kind of out of sync, so that's why we keep bringing it up, because if you look at things long-term, it's all fine, because like I said, 100% of the fabric that we purchase ends up being produced in the prepreg, but the timing is out of sync, so it can really skew our margins in a quarter-to-quarter basis.
Nick Ripostella: Got it. Okay, that's helpful, and that was kind of leading into my follow-up. Is it purely kind of customer-driven then in terms of when you, whether you're in a given quarter, whether you're going to sell, you know, X amount of C2B versus prepreg, and it's not necessarily you choosing to do one or the other. It's more just what customer demand and kind of time is dictating. It's more of that type. And then follow-up to that is how might that be changed or affected when you open up the new Both the Arion specific facility and your new facility in Oklahoma.
Brian Shore: The answer to the first question is we don't decide anything. Customers decide everything in terms of timing of the fabric purchases, in terms of the timing of the prepack purchases. The question about the Oklahoma plant, though, I'm not sure we followed that one. What was that question again?
Nick Ripostella: Does the dynamic of the timing change at all with either the new facility for CQB in the U.S. or if that really doesn't necessarily move that dynamic in terms of the timing of the fabrics specifically, the sales?
Brian Shore: I don't know if it's going to change anytime soon, except maybe one way we might think about it is as these programs ramp, the numbers get larger and larger. And I think it might be more likely that they kind of are more aligned as the programs ramp and get larger and larger. But we don't know. I mean, it's like I said to answer your first question, it's never our decision. It's always the customer's decision as to when they want to You know, when they want to buy the fabric, when they want to buy the proofread, you know, and that's what we do here. We do what customers ask us to do. We don't tell customers what they should do. They tell us what we should do. That's a little bit, I think, I know that sounds really strange, but that's probably a unique thing about PARC, which is, yeah, we try to be responsive and flexible and do everything we can to help our customers and not Tell them what to do. You know, they tell us what to do. I know that sounds strange, but, you know, I think maybe some of our competitors don't really think that way all the time.
Nick Ripostella: Got it. No, I think it makes sense. Thanks. Just one quick one as a final, Brian, if I can. Of the kind of the outline that you give around the commercial-oriented juggernaut, the GE programs, Obviously, A320 and LEAP for that portion at least is the biggest contributor. But is there anything kind of in the next, I don't know, two, three quarters that you think could be more of a surprise to that kind of your calculus there from the other programs, whether it's COMAC or some of the Boeing? Is there anything that you think, whether it's to the more negative or positive, but just something that could maybe move that needle that's not necessarily, again, A320 specific?
Brian Shore: So as we said, we believe the Global 7500-8000 program and the COMAC 909 program are really at rate already, so we don't expect much from them. I don't think we're going to see huge upside from the 919 program in the next few quarters because that's the issue. It's not that COMAC doesn't have the orders. It's that they have to find a way to ramp up, and that means they have to deal with supply chain issues on their own. you know manufacturing ramp up as well so we talked about the fact that maybe you know they don't have enough engines and it's hard to make airplanes without engines obviously being sarcastic and the Boeing program yeah next few quarters I don't know maybe three or four quarters out you know Boeing's already made a lot of these airplanes they're sitting there in Payne Field in and Washington. Some have engines, some don't. But, you know, they'll already build a lot of airplanes in anticipation of the certification and entry into service. But, you know, once they get to that point next year, early next year, I think we can expect to see that program accelerate more.
Mark Esquivel: It's been a little bit sold out, actually, waiting for the program to, you know, waiting for the aircraft to get certified.
Brian Shore: But the A320 is going to be the big kahuna, I think. You know what I mean? When you compare the A320 to other programs, A320 is a big driver. It's very dynamic and a lot of pressure from Airbus to ramp that program up as aggressively as possible. And they're struggling, of course. We talked about this many times with supply chain issues as well. So Airbus, I mean, Got it.
Nick Ripostella: Okay. Thanks, Brian. That's all I have. I appreciate it, and thanks for all the updates.
Brian Shore: Okay. Thank you.
Paul: Our next question is from Nick Ripostella with NR Management.
Trevor Walsh: Hey, good evening. First of all, Brian, thank you for clarifying with respect to that announcement on the missile program today. I was wondering about that.
Brian Shore: Yeah, Nick, I think the time was good because I think if NASA came out tomorrow, we'd have all these people asking about it.
Nick Ripostella: Well, we really can't talk about it, so...
Brian Shore: You know, we're glad we're able to talk about it today, you know, so go ahead. Sorry, go ahead.
Trevor Walsh: And the second, I just wanted to say it's wonderful that we have... Great research coverage now after all these years and I had a chance to look at that report of citizens. It's very thorough and it's quite a feather in the cap. The Needham guy, that guy is great. I have followed him for many, many years. So this is good news. The only other question I have is, I mean, you know, you put out such a thorough presentation all the time. There really isn't much to ask. But just on Juggernaut 2, you know, Andrew has been working on missiles that are competitive, reportedly, with the Patriot. And I was just wondering, do you know anything about those and do those use materials? I guess another way of asking it, and I may have referenced this the last time, are there programs that don't need the materials that you, the type that you would supply? Or is that just a foolish question? And that's about it.
Brian Shore: No, I don't think it's foolish. Good question. First of all, we love Andoril. We like to do as much with them as possible. But there are many other kind of materials other than C2B that are used in other programs. And, you know, the issue is C2B availability. And, you know, the factory MSCs can have priority. So, you know, other customers may not want to get in line, back in line. So they are looking at other kind of materials.
Mark Esquivel: And we're happy to work with those as well, you know.
Brian Shore: Happy to work with those, and we do. But we'd love to do more business with Andy Rall, and we're working with them. So I don't know if that helps to answer your question.
Trevor Walsh: Okay, so you are working with them right now?
Brian Shore: Oh, yeah, yeah, we are. I'm just saying we'd like to do more, but, yeah, we're definitely working with them.
Trevor Walsh: Okay, that's wonderful. Thank you so much.
Brian Shore: Okay, thanks, Nick. Thanks for your questions.
Paul: Our next question is from Christopher Hillary with Rubo Capital.
Mark Esquivel: Hi, thanks for taking my question. Hello. I wanted to ask on your longer-term EBITDA margins, could you give any commentary with all this new business coming online? Do you feel like these are accretive or dilutive to your long-run EBITDA margins?
Brian Shore: The new business? Well, the new business would definitely be a positive. Now we're going to have some more costs to deal with as we bring up the plant, you know, the timing is going to be the cost will precede the revenues. But no, the new business, the margins are quite good, you know, quite special, I would think.
Mark Esquivel: And then one of the questions I wanted to ask is, it does seem like there's an awful lot of new business activity. And while you're expanding substantially, are there other Thank you for joining us.
Brian Shore: This was our specification, actually. We were dealing with a few different locations, a finalist, if you will. We were looking for 20 acres approximately this 18 because we knew that we'd only need about half of that for the immediate expansion plan. We wanted to have additional acreage to place another location, another plant on our campus without having to go across town or something like that. for other opportunities that we're working on, that we are working on now and also in the future.
Mark Esquivel: Thanks very much and congrats on all the progress.
Brian Shore: Well, thank you very much. Thanks for saying that.
Paul: Thank you. There are no further questions at this time. I'd like to hand the floor back over to Brian Shore for any closing comments.
Brian Shore: Thank you everybody for tuning in. Sorry the call went as long as it did, but it was nice to talk to you. If you have any follow-up questions, feel free to give us a call. Otherwise, please enjoy the rest of the summer and we'll talk to you soon. Thanks. Bye.
Paul: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
