Good day. My name is Claudia Guentet, and I will be your conference operator today. At this time, I would like to welcome everyone to Park Aerospace Corp. Fourth Quarter FY '25 Earnings Release Conference Call and Investor Presentation. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there'll be a question-and-answer session. 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 the conference.

Thank you, operator. This is Brian, and welcome everyone to Park's fiscal '25 fourth quarter investor conference call. Joining me is Mark Esquivel, our President and COO. We announced our earnings right after the close with a news release, and I encourage you to review that. The earnings release includes instructions on how to access the presentation, either through a link or a website, so please have that ready. After the presentation, which will take about 45 to 50 minutes, Mark and I will be available for any questions you may have. Moving on, we have our forward-looking disclaimer. While we won't go through it now, feel free to reach out with any questions. On to Slide 3, regarding the James Webb Space Telescope, we're sharing updates each quarter because there's always new information. The telescope was equipped with our SIGMA STRUT technology, and this time it captured a glimpse of the James Webb in the L2 Lagrange orbit, located approximately a million miles from Earth. There's significant news about potential alien life detected on a planet named K2-18, which is about 124 light-years away. The James Webb identified gases that are typically produced by biological processes, which is remarkable. It’s surprising that this isn't making more headlines, given the implications. Now, let's move to Slide 4, which outlines our quarterly results for '23, '24, and '25 in thousands. For Q4, we reported sales of $16.939 million, including $4.4 million from C2B fabric. Our gross margin stands at 29.3%, which I found unexpectedly high considering our pricing strategy for C2B fabric. Typically, we prefer margins over 30%, but favorable production and sales practices helped us achieve this margin despite the challenges we faced. Last quarter, we estimated sales between $15.5 million and $16.3 million, and we slightly exceeded this range. Our adjusted EBITDA was expected to be between $3.3 million and $3.9 million, and we fell within that range. I need to clarify something that we’ve previously addressed but may have been overlooked. Some remarks made after our Q3 call suggested we should "pad" our forecasts. I want to emphasize that we don't engage in that practice. Our guidance reflects our genuine expectations, not a conservative estimation. We aim to provide honest forecasts based on our assessments, and while we acknowledge that we may miss our targets occasionally, we want to maintain our integrity. Slide 5 highlights our considerations for Q4, focusing on production versus sales. In Q3, we noted a shortfall in our sales value of production, affecting our EBITDA. This was due to not meeting our production targets, a situation we worked to rectify in Q4. I’m pleased to report that our team did an excellent job, and our Q4 production exceeded sales when adjusted for Raycarb fabric. This improvement positively impacted our bottom line, contributing around $350,000. On Slide 6, the excess production in Q4 significantly increased our EBITDA and helped restore our finished goods inventory to acceptable levels, with an increase of about $1 million compared to Q3. Our stock was too low at the beginning of Q3 as we had relied on inventory sales rather than new production. Regarding the Aaron Group, we entered into a partnership with them in 2022, becoming their exclusive North American distributor for Raycarb C2B fabric used in advanced missile program systems. In Q4, we sold $4.4 million in C2B fabric, exceeding our Q3 expectations, and we anticipate total sales of $7.5 million for all of '25. On Slide 7, we note sales totaling $420,000 from ablative materials manufactured with C2B fabric in Q4, contributing significantly to the bottom line, around $300,000. Our margins on these sales are favorable. Lastly, I need to address some inaccuracies in previous transcripts. Due to automation, these transcripts may contain errors that misrepresent my statements. We're not responsible for those mistakes, and I advise you to read them cautiously. Many have asked about the status of the Requal for C2B fabric. Mark, could you provide an update on that?

Hello everyone. The current status is that the specification has not been updated, meaning it is still in progress. The testing is not being handled by Park but rather by our customer, just to clarify. We have been informed that it should be completed by the end of May, but I mention this cautiously as there have been delays in the past. We anticipate receiving an update at the end of the month. On a positive note, most of the completed testing aligns with the specification. We are hopeful that the few remaining tests due by the end of the month will also meet that same standard. Essentially, we share everyone's eagerness for the results and hope they meet the target by the month's end. However, this situation is out of our control and relies on our customer, but we are maintaining communication and monitoring the status. As the end of the month approaches in two weeks, we will check in again, and hopefully, during our next call, we will have more information to share.

Thank you for your patience. We are being transparent and can only share what our customer has informed us. In our previous call, we anticipated March, but that did not materialize. We'll see how things progress from here. Also, I want to remind you about the ramp-up of our new factory, which we are preparing for the Juggernaut project, even though it's not needed for capacity at this point. This ramp-up is putting a strain on our profit and loss statement. During this quarter, we missed 175,000 shipments, primarily due to unforeseen international shipping issues. Although the situation has improved, it's still a challenge. Moving to Slide 8, there were no tariff-related costs in Q4, and we'll revisit the future impacts later in the presentation. On Slide 9, we present our top five customers in alphabetical order. Donna prepares this slide, and there are some key projects like Aerojet Rocketdyne's Patriot missile and the A321XLR commercial aircraft for Middle River, along with the Bombardier Global 7500 and unmanned aerial target aircraft for Nordam. Now, turning to Slide 10, we’ve estimated our revenues by aerospace market segment. From 2021 onward, the chart for 2022, 2023, 2024, and 2025 looks fairly similar despite the pandemic's impact on 2021. Slide 11 showcases our latest military aerospace projects, mentioning that radomes, rocket nozzles, and drones are niche markets where we traditionally excel with attractive margins. We won't delve into all programs but will highlight Halcon SkyNight in the UAE, which has been in the news recently. We have also noted the Sentinel GBSD program aimed at replacing the Minuteman system from the 1960s, involving missile silos spread across the country. Moving on to Slide 12, which we display quarterly, we outline a long-term agreement with Middle River Aero Structure Systems. These programs are linked to GE Aerospace, and the connection is essential for context. On Slide 13, we have a sole source on primary components for the Passport 20 engine and Fan Case Containment Wrap for the GE9X engine. The life of program agreements continues to evolve, and we are managing pricing with our suppliers to either stick with our current agreements or transition to life of program pricing. On Slide 14, we highlight the A320neo program, which has a massive backlog of 7,256 aircraft. While delivery rates have improved, supply chain issues continue to hinder progress. Hence, Airbus is aiming for a target delivery of 75 aircraft per month by 2027. Slide 15 underscores the market share of the CFM LEAP-1A engine, which holds a 65.2% share and translates to a promising future for Park, with significant revenue potential from these engine orders. Moving to Slide 16, I’d like to note the A321XLR's delivery and operation on new routes typically reserved for larger, more expensive aircraft, representing a significant shift in operational strategy. Then on Slide 17, we discuss Comac’s C919, which is positioned to compete against the A320 and 737. Despite initial skepticism, it’s clear that Comac aims for an international footprint, exemplified by seeking EASA certification in 2025, which is crucial for global market acceptance. On Slide 18, Comac also has a regional jet, the 909, already seeing deliveries to international airlines, countering the notion that these planes are purely for Chinese markets. Regarding the 777X, Boeing is making progress with test flights and certifications, and recent order wins further bolster their position. As we approach Slide 19, we look at GE Aerospace’s sale history in fiscal 2020, aiming to recover to pre-pandemic levels by 2025. Our forecast for Q1 estimates sales between 15 million and 16 million, with EBITDA of 2.5 million to 3 million, as outlined in Slide 20. Our anticipated C2B fabric sales impact our bottom line somewhat, which we detail on Slide 21, noting the growth despite pandemic challenges. Finally, on Slide 22, we announce a new agreement with Ariane, where we are advancing funds to support new manufacturing equipment for the production of C2B fabric, emphasizing a significant and necessary capacity increase. Slide 23 highlights the certification of line strike protection material for the Passport 20 Engine, which should generate additional revenue later this year. Lastly, our advancements in hypersonic missile technology are noteworthy, as we maintain exclusive licensing for these programs and continue to progress with manufacturing trials.

Sorry about that. I was on mute. I didn't want to have any background noise. So, the trials on this are going really well. Again, we licensed the product. So, the formulation work was done ahead. So, what the Phase 2 is, we're building laminates, we're making material and we have a partner for that as well because this will require investment, once we get to the point that we've industrialized the project or the product. So, we are building panels now, we're making material. I think we're getting to the place where we're going to start testing the materials because it takes a little bit of time to figure out these processes. This is an OXOX product, it's not a standard epoxy, which is the majority of our business. So, it's taken a little bit of time to figure out how to process these materials. It's a lot different than what we're used to. So, I feel like we're making really, really good progress with it. And the next steps, maybe in a few months, maybe about six months, we'll have a better update where we're at, once we kind of button up the processes and get some of the test data and potentially, have a product where we could release a data sheet, meaning that we can go to the public with it. In the meantime, we are talking to a few customers, a few OEMs, a select few partners just to kind of figure out what their needs are with this product and that helps us develop our test matrix and helps us decide what kind of panels we need to build. So, but again, we're being very selective about who we're talking to because we don't want to go out to the market when we're still trying to work out the details of the product, the fine-tuning of it. So, like I said, maybe about six months, we'll have a better update and give you guys a sense of where we're at with this project. So, but it's, we're definitely making progress with it.

Okay. Thanks, Mark. Why don't we go into Slide 24? We covered this last quarter expecting about $5 million per year from the new LTA, which is aerospace, which is different than the MRAS LTA. So, we're in discussion with two Asian large industrial conglomerates, related to Asian manufacturing joint ventures. This would be a joint venture to do what we do in Asia, produce our preprint for aerospace. They approached us. Both these companies were in active discussions with them. We're not intending to contribute any cash, so it would just be our IP. We'll see how it goes. Maybe it'll happen, maybe not, but I thought at least we mentioned it to you. Current MRAS supplier scorecard rather 100, 100, 100, that's what we need. We need that 100, 100, 100. That's very unusual. I think we discussed it before, but that's kind of our mindset. That's our philosophy is, we're not looking for 99s. We're not looking for 99.9s. We're looking for 100s. That's all that if it's less than 100, we're unhappy, and we'll be talking to the customer about, okay, what happened, how do we fix it. I'm not kidding. 99.9, we're going to talk to the customer. I've been told, a lot of most suppliers be happy with 80s. Tariffs, back to you, Mark. All the hard once gets rid of Mark. Tariffs International trade conflicts expected impact on Mark’s, sorry on Park’s not Mark. We said in Q4 there was no impact, but let's talk about what we think going forward about tariffs.

Okay, tariffs. I guess just like everybody else, we're all learning and trying to sort this out. We feel like we did a pretty good job getting ahead of it when we saw it coming. I think it was like early March we started updating our order confirmations or quotes, putting a note on there telling customers that if any tariffs come our way, we're going to pass them along to them. And to date, we've been pretty fortunate. We haven't seen too many letters come from suppliers. We've had a few, but there has been no impact on our business. Essentially, I think there's been one, maybe two we had to pass along to a customer. The rest we were able to mitigate the tariffs with inventory on hand. Obviously, when you carry inventory, you don't have to pay tariffs because you have it there. So, we're able to get those orders processed and shipped out without buying new material. And then so the next step was, now we have to update our cost if we have tariffs, which is again, it's only a few materials right now. So, our quotes are reflective of that moving forward. So, essentially, we're just like everybody else. We're trying to figure this out. But again, I think we've done a good job getting ahead of it and there has been no impact on the business. But again, there's more to come, there's things still pretty dynamic. We're not sure how it's all going to shake out. So, we'll probably have to give you maybe another update on the next call as well to see if that has changed. But again, we feel like we're in pretty good shape with this and we continue to talk to our suppliers and we don't see anything else coming our way. But I can't say that we know with 100% confidence, but we feel pretty good about where we're at today with this. So, I think that's the update, Brian.

Thank you. Let's proceed to Slide 25. We discussed this last quarter, highlighting our new focus on defense markets and programs. The reasoning behind this shift is that there are no new commercial aircraft on the horizon that we are aware of. We are still involved with the 777X, but we will not be participating in the 929, which is unlikely to happen. However, we do see significant opportunities in military defense markets, particularly concerning missile programs. Our primary focus is on blade technologies and hypersonics. How is this emphasis proving beneficial for Park? It's actually performing quite well, and we will discuss this in more detail later in the presentation. Moving to Slide 26, let's address some recent questions from investors. We appreciate these inquiries because often several others are thinking the same thing but may not ask. One question we received is whether the C2B fabric manufacturing equipment funded partly by Park for ArianeGroup will be located at Ariane’s facility or Park's. This equipment will be located at Ariane’s facility, and Ariane will own and operate it. Next question: the Park MRAS LTA allowed for a 6.5% weighted average price increase. Will the LTA permit any further price increases through 2029? Not unless there are cost increases related to certain raw materials that Park uses in producing products for MRAS. What about the Life of Program agreement? The Life of Program agreement differs slightly, as it includes various price adjustments. If we enter into it, we may or may not. In any case, we're content with either the Life of Program agreement or the current LTA. You mentioned that Park is a true-blue American company and to the best of Park’s knowledge, only one of its competitors is an American company. Who is that? We believe Hexcel is an American public company, and we are not aware of any other U.S.-owned competitors.

Congratulations on a decent quarter and it's pretty exciting what you're suggesting there, with this new expansion. So, I just have a couple of general questions, with regard to tariffs and I know it's hard, but in the big picture, just your best guess at how it might play out in terms of the airlines and Airbus for example. So if you can comment on how you think it, I know it's hard to answer, but there's just so much different opinions on how it might work out. And there's a lot of tough talk going around, but your best guess. Secondly.

Go ahead. Sorry, did you finish your question?

That's the first question. The second question is, if you could just there's been a lot of talk and a lot of sell side research on supply chain still and engine components. Do you think that those issues have mostly resolved themselves at this point? I mean, GE has been pretty positive and so just your further thoughts on that and then do you think what would be your biggest worry in terms of delaying the Juggernaut at this point? I know that's also a difficult question, but, as you know, Airbus when they reported recently, I think we had an email back forth, they're not backing down. So there is optimism there. So anyway, those are my questions. Thank you so much.

Thanks, Nick. Okay, I'll try to, we'll try to take a reverse order. You were, I think the last question is, what is the biggest obstacle Juggernaut occurring? So, I don't know. I mean, I think it's more really a question of when and if that's my opinion. I don't see the Juggernaut not happening. I don't see the scenario under which it doesn't happen, but you could argue, and obviously people do about when it'll happen, Airbus has, if we're talking about day through ‘20, they have their input. Other people want to be skeptical. And you know what, I'll personally, I'll say I kind of got tired of listening to it because it's just so much noise and noise and noise. Like, who cares? And we just have, for our perspective, we just have to be ready because we believe it'll happen. And every expert has an opinion. I get these email services, with all these aviation experts. And I don't know who pays them because, I mean, I don't know what your opinion is worth, but my opinion much. On the supply chain stuff, yes, you probably heard that Airbus is building gliders again. I think it's 17 gliders. I'm not sure. I think that's the number that they're producing here. Gliders mean that they're producing airplanes and no engines, and thanks to, who rather that did all the engines for the A320. Now, what I'm told is there a little bit of bright news is that, in the first half more engines have been going to the, just supporting existing airplanes with spares and that kind of thing. And that's not supposed to happen in this, that's supposed to go away in the second half. So, that way, the engines that are being produced will be going to new airplanes, not the spares. That's what I'm told anyway. But it's like, it's not really wonderful news to hear that Airbus has built 17 gliders, A320neo gliders, because they just can't get the engines. So, it's still the supply chains with the engine company is still obviously an issue, and I just hope they figure out a way to get their act together, and not just for Airbus, but for obviously, for Comac and Boeing as well. So, I don't know if that's a good answer, but that's the best answer I can provide. We'll have to see.

No. I mean, everybody we talk to. I know he's asking the airlines and the aircraft companies, but I think we're all looking for answers. I think there's really, no, yes, I don't think anybody wants to stick their neck down and say this is what's going to happen. So, I think we're all just kind of sitting back and just waiting for this all to, kind of vet itself out. And hopefully, it's sooner rather than later. That's all I really got on that.

Okay. So, you see, Nick, our combined input is, not so much more brilliant than news program these days, but…

Can you still hear me?

Yes.

Yes, I want to address one more point. You mentioned your current manufacturing capabilities, and can I assume you are quite confident about pursuing a significant expansion, even before the major project progresses? While it might take a year to two years for that project to reach its potential, it isn't holding you back from making investments now, as you see opportunities available. Is that correct?

Yes, and so exactly right. We're okay now. We're not that we're having trouble keeping up now, but we have to plan for the future. And when you're talking about factoring capacity, especially in aerospace for our kind of business, you got to think five years. So you got to think, well, how much capacity manufacturing capacity will we need in 2031, 2026, ‘27, ‘28 doesn't matter, because we need to be ready for 2031 and if we don't get ready for 2031 now, we will be in trouble and we'll miss out on things and we could end up being too tight and disappointing customers. And that's just not our way of doing business so…

Right. But all while you're thinking forward as a shareholder, it's reasonable to assume you'll have higher sales in the next couple of years in any case, having some kind of I don't know, calamity, we can't think of. The Company will be growing while planning for four or five years. Is that reasonable to assume?

So, the question, I think the answer is yes. But the question is this, you take the capacity we think we need in 2031. Okay, so we're building towards that number. Is there a straight line between where we are now to that point, or is it kind of a squiggly line, and we don't know, but next, maybe look at it doesn't really matter because we have to think five years out capacity-wise. And if we feel we don't have enough and we feel we definitely do not have enough, we need to deal with it so that we get to that point, we'll be where we want to be, not only to be able to handle the programs we know about, but what about new programs, new opportunities that come our way. Like I said, our friend is so upset with this company because they didn't invest for the future. So when programs came around, they were right, they lost them. We don't want to be in that position. We want to be in a position where the new opportunities, whatever they may be, we can take advantage of them if we want to, if we feel the right for Park.

Alright, well my suggestion is those folks in Washington that care about American manufacturing, they ought to be talking to the guys at Park, because you're thinking of the future with American jobs and it's a beautiful thing.

Well, thank you very much for saying that. I doubt anybody from they'll be calling me anytime soon, but…

You're exactly what they're trying to make a point of.

That's true. Well, I agree.

Okay. Well, thank you so much for answering the questions and have a good evening.

Thank you very much, Nick. We appreciate your questions. It's really helpful.

Thank you. At this time, there are no further questions in the queue. I would like to hand the call over to Mr. Shore for closing remarks. Thank you, sir.

Thank you very much, operator. Thank you everybody for listening. Thank you for hanging in there at the extent you're still on for actually a little over an hour. Have a good day. You have any follow-up questions, feel free to give us a call. Thank you. Goodbye.

Thank you. Ladies and gentlemen that does conclude today's conference. Thank you very much for joining us. You may now disconnect your line.