Park Aerospace Corp. Common Stock 2027 Q2 Earnings Call

Thank you, operator. This is Brian. Welcome all to Park Aerospace's fiscal 2027 second quarter investor call. I have with me, as usual, Mark Esquivel, our President and COO. We just, I guess right after the close, published our second quarter earnings release. In the earnings release, you'll find instructions as to how to access the presentation we're about to go through, either through a link, and it's also on the website. You want to pull it up in order to make this presentation discussion more meaningful. It's kind of a common theme for the last couple of quarters. We have a lot of new investors. I think last call, we had about 170 people who participated in the call. We have a lot of new investors. We have a lot of the veteran investors.

We have to find a balance between the old and the new. We'll do the best we can to maybe find a middle ground or compromise. Obviously, the legacy investors probably don't want to hear the same material being covered every time, but some of the new investors may find it more interesting and useful. We'll do the best we can with that. After we're done with the presentation, we'll be happy to answer your questions. Why don't we get started? Let's proceed. On to slide 2, forward-looking disclaimer information. Let us know if you have any questions about forward-looking disclaimer information. Slide 3, our table of contents. First of all, slide 1. Sorry, the first item in the table of contents is the investor presentation, which we're about to get to.

There's also a supplementary financial information attached as Appendix 1 to the presentation. We're not going to go through that information, but let us know if you have any questions about it. As usual, we feature the James Webb Space Telescope in our table of contents. The James Webb Space Telescope recently identified a mysterious new class of cosmic objects called black hole stars. They look like gigantic stars which shine up to 100 billion times brighter. That sounds like a lot to me. Thank you, James Webb Space Telescope and Park. James Webb was produced with 18 Park proprietary SIGMA STRUTs, as you probably all know. Let's go on to slide 4. We go from the sublime to the mundane here. Here are the second quarter results. Let's just go through the right-hand column. Second quarter, the quarter we're just announcing. Sales of $20,791,000. Gross profit, $7,135,000.

Gross margin, 34.3%. We like that. We like our gross margins to be into the 30s. Adjusted EBITDA, $5,285,000. Adjusted EBITDA margin, 25.4%. What did we say about our Q2 during our Q1 investor call? We said our sales estimate was $19.5 million to $21 million. We came in within the range, maybe kind of toward the upper end, but within the range. Adjusted EBITDA estimate, we said $4.3 million to $5.1 million. We came in a little bit above the range with our EBITDA number. Significance of our forecast estimates. We remind you of this fairly often. When we give these estimates, we are telling you what we think will happen. Sometimes we are wrong, sometimes we are not, but we are telling you what we think. Mark and I usually spend a lot of time going through this and come up with the ranges for you.

We do not pad the numbers. I know a lot of other people do that. We do not give you a number then subtract 10% from it, so when we announce the number, we can beat it. That is just not what we do. We understand that pretty much everybody else does that, but we are not like everybody else, as you probably know. That is actually a Kinks song, if you want to check that out. Pretty good one. Slide 5. Quarterly results. We are continuing here. We are mixing things up a little bit. I maybe should have explained at the beginning. We are changing the sequence of things, and we are changing the content a little bit, just to try to make it a little more interesting for you. I do not know if it will be successful, but that is the objective here.

What we are doing with this slide here, slide 5 at the top, is we are talking about some key product groups that we will circle back to in many cases. C2B fabric, we cover that a lot, $1.5 million of sales. Plated materials produced with C2B fabric, $1.8 million. Often we discuss those two numbers because if they are really out of sync, out of alignment, they could distort the quarterly P&L. But those numbers are fairly close, so we are not going to get into that. But just for your information, we always like to know. Missile system programs, $5.7 million. Obviously, we emphasize missile systems a lot, so we thought you would be interested in that number. Advanced composite materials for our GE Aerospace jet engine programs, $8.3 million. We will circle back on that. We cover that every quarter. Here is something a little interesting with what we provide for you.

Our second quarter sales value of production, we call it SVP, was $21.1 million. That is not inventory value, that is actually sales value. That is a modern-day record, we think, post-sale of our electronics business. That is a really good thing, and we got to give a lot of credit to our factory people, our floor people, for producing and getting out the door that much product. That is actually a pretty nice accomplishment under maybe not ideal circumstances, but when are there ideal circumstances? We wanted to acknowledge our production people in terms of how much product was produced during the quarter. One other thing we never cover in these investor calls is EPS. We do not get into that, but we just wanted to mention something to you. It will be discussed in more detail with our 10-Q, which I think will be filed on Tuesday.

Monday's a holiday, so you can look forward to it there. You might have noticed already, and I just want to get ahead of this a little bit, that our tax rate for our Q2 was quite low. It was 18.6%. That's not a normal tax rate. There are significant benefits from stock option exercises which took place in Q2. There were a lot of stock option exercises in Q2, significant benefit. Our normal tax rate without that benefit, the stock option exercise benefit, if you will, for the tax rate, would be probably around 26.5%, something like that. Just so you know, if we had that more, let's say "normal tax provision" or tax rate rather of 26.5%, probably looking at $0.19 rather than $0.21. Like I said, we're reluctant to get into EPS stuff.

We don't normally cover that, but I thought it's such a significant difference in the tax rate that you'd probably be interested to know, have that information. If you want more information about that, you really should call and talk to Gus and Chris. But like I said, when we publish our 10-Q, there'd be a little bit more information about that particular item. Okay, let's not get too hung up on that, though. Let's go on to slide six, our top five customers for Q2 in alphabetical order. Let's see. Let's tie the customers to the pictures. The easy one is Kratos, the BQM-177A, that's a target unmanned aircraft. That obviously ties to Kratos Defense & Security Solutions. Airbus A320neo with the LEAP-1A engines, that ties to Middle River Aerostructure Systems. We call it MRAS. Let's see, the Patriot, we talk about that a lot, Patriot MSE, defensive missile system.

That's a two for the price of one. That ties to Aerojet and L3Harris Missile Systems. That's nice and efficient. The bottom right, Bombardier Global 8000 business aircraft, and that ties to the Nordam Group. Okay, let's go on to slide seven, more pie charts. Nothing too remarkable here, pretty consistent, so let's not spend too much time on slide seven. Just we keep moving. Let's go on to Of course, you have questions. Let us know later, but we're going to move to slide eight. This is a little more interesting. Park loves niche military aerospace programs. This is a slide we give you every quarter. This is Elena's project. She always does a real nice job. So, the pie chart is interesting because look at the missile system percentage.

It is growing. This is just one quarter, so we'll see what happens quarter to quarter. These things change, of course, but we even talk a lot about missile systems, and missile systems as portion of the pie chart is growing. We won't go through a description of the photos, individual programs, except we always say that we don't provide photos of programs that we're not somehow involved with. But we used to give you more information. Right now, at this point, we don't feel we can do that. It's just too sensitive. We just don't know where the line is as to what we can say and what we can't, so we don't want to push the envelope too much. Let's go on to slide nine. Okay. GE Aerospace jet engine programs.

Like I said, we're changing things up in terms of sequence a little bit, try to make it a little more interesting, and this slide's a little different than it was in the past. Park's advanced composite materials are sole source qualified on multiple engine nacelle and thrust reverser components of the following GE Aerospace and CFM engine programs. Quickly, there's a Boeing 747-8 with a GEnx-2B engine. Those are for spares. That program is canceled. LEAP-1A engine for the A320neo aircraft family, that's the big kahuna. LEAP-1C, that's for the COMAC C919. That's a Chinese single aisle. CF34-10A, that's for the COMAC C909. That's a Chinese regional jet. The Passport 20, we already talked about that, the Bombardier Global 8000 aircraft, with the Passport 20 engine. What's going on here? Park has an LTA requirements contract through June 2029 for the above programs with MRAS, a sub of ST Engineering Singapore.

What's going on here? These look like they're all GE programs. You got to read the little footnote. Footnote, MRAS is formerly a sub of GE Aerospace, so that's the connection. When we got on all these programs, MRAS was part of GE Aerospace, and then, I think in maybe 2018 or 2019, GE Aerospace sold MRAS to ST Engineering, which is a large Singapore aerospace company. Park is also exclusive supplier of AFP composite materials for the fan case for the GE9X engine for the Boeing 777X aircraft. Let's go on to slide 10. Update on GE Aerospace jet engine programs. We're starting out with the big kahuna, the A320neo aircraft family.