PARK AEROSPACE CORP 10-Q

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . General: Park Aerospace Corp. (“Park” or the “Company”) develops and manufactures solution and hot-melt advanced composite materials used to produce composite structures for the global aerospace markets. Park’s advanced composite materials include film adhesives and lightning strike protection materials. Park offers an array of composite materials specifically designed for hand lay-up or automated fiber placement (“AFP”) manufacturing applications. Park’s advanced composite materials are used to produce primary and secondary structures for jet engines, large and regional transport aircraft, military aircraft, Unmanned Aerial Vehicles (“UAV”s commonly referred to as “drones”), business jets, general aviation aircraft and rotary wing aircraft. Park also offers specialty ablative materials for rocket motors and nozzles and specially designed materials for radome applications. As a complement to Park’s advanced composite materials offering, Park designs and fabricates composite parts, structures and assemblies and low volume tooling for the aerospace industry. Target markets for Park’s composite parts and structures (which include Park’s proprietary composite Sigma Strut TM and Alpha Strut TM product lines) are, among others, prototype and development aircraft, special mission aircraft, spares for legacy military and civilian aircraft and exotic spacecraft. Financial Overview The Company's net sales in the 13 weeks and 39 weeks ended November 30, 2025 were $17.3 million and $49.1 million, respectively, compared to $14.4 million and $45.1 million, respectively, in the 13 weeks and 39 weeks ended December 1, 2024. Net sales for the 13 weeks and 39 weeks ended November 30, 2025 were higher than in the comparable periods of the prior fiscal year. The increase for the 13 weeks and 39 week periods ended November 30, 2025 was primarily due to the robustness of the commercial and military equipment programs that the Company supplies. The Company’s gross profits in the 13 weeks and 39 weeks ended November 30, 2025 were higher than the gross profits in the prior year’s comparable periods. The Company’s higher gross profits during the current 13 week and 39 week periods were primarily due to higher sales volumes, increased selling prices and a more favorable product mix. The Company’s gross profit margins, measured as percentages of sales, were 34.1% and 32.0%, respectively, in the 13 weeks and 39 weeks ended November 30, 2025, compared to 26.6% and 28.1%, respectively, in the 13 weeks and 39 weeks ended December 1, 2024. The Company’s higher gross profit margins for the 13 weeks and 39 weeks ended November 30, 2025 compared to the prior year’s comparable periods were primarily due to higher sales volume, increased selling prices and more favorable sales mixes in the current periods. The Company’s earnings before income taxes and net earnings increased 86.7% and 87.1%, respectively, in the 13 weeks ended November 30, 2025, compared to the 13 weeks ended December 1, 2024, primarily as a result of higher gross profit margins mentioned above and higher interest income in the current periods. The Company’s earnings before income taxes and net earnings increased 58.1% and 60.4%, respectively, in the 39 weeks ended November 30, 2025, compared to the 39 weeks ended December 1, 2024, primarily due to the higher gross profit margins mentioned above, the previously reported charges incurred in the prior year related to the storm damage and higher interest income. 19 On May 19, 2024, the Company’s manufacturing facilities in Newton, Kansas were damaged by a strong storm which transited the area. None of the Company’s manufacturing lines or equipment were damaged by the storm. The roofs on all three buildings in the Company’s Newton, Kansas campus required repairs or replacement. Also, multiple specialty HVAC units were damaged or destroyed. The Company recorded a charge of $1.1 million in the 39 weeks ended December 1, 2024 related to the damage and repair and downtime costs. There were no corresponding charges in the 39 weeks ended November 30, 2025. The Company continues to experience inflation in costs of raw materials and supplies, freight costs and other costs and expenses. The impact of inflation on the Company’s profits has been largely mitigated by the Company’s ability to adjust pricing for a large portion of its sales to pass the impact of inflation through to its customers. Programs in which the Company participates as a supplier are, in some cases, experiencing supply chain issues from other suppliers to the programs that could result in delays in production for certain customers of the Company. The Company’s sales may be impacted by these supply chain challenges that its customers are experiencing from other suppliers. The Company has a number of long-term contracts pursuant to which certain of its customers, some of which represent a substantial portion of the Company’s revenue, place orders. Long-term contracts with the Company’s customers are primarily requirements-based and do not guarantee quantities. An order forecast is generally agreed concurrently with pricing for any applicable long-term contract. This order forecast is then typically updated periodically during the term of the contract. Purchase orders are generally received by the Company more than three months in advance of delivery. Under a Business Partner Agreement with ArianeGroup SAS of Les Mureaux, France, Park is the exclusive North American distributor of ArianeGroup’s RAYCARB C2®B NG proprietary product. RAYCARB C2®B NG is used to produce ablative composite materials for critical rocket and missile systems. Park is a long-term customer of ArianeGroup and uses ArianeGroup’s RAYCARB C2®B NG product in the production of many of Park’s key ablative materials, which Park supplies into critical rocket and missile programs. On March 27, 2025, Park and ArianeGroup entered into an agreement under which Park would advance funds to ArianeGroup against future purchases of C2®B product in the total amount in Euros of €4,587,000 payable in three installments in 2025, 2026, and 2027. These advanced funds are to be used to help fund the purchase and installation, by ArianeGroup, of additional manufacturing equipment for ArianeGroup’s production of C2®B product. 20 Results of Operations: The following table sets forth the components of the Condensed Consolidated Statements of Operations: 13 Weeks Ended 39 Weeks Ended (Amounts in thousands, except per share November 30, December 1, % November 30, December 1, % amounts) 2025 2024 Change 2025 2024 Change Net sales $ 17,333 $ 14,408 20.3 % $ 49,114 $ 45,087 8.9 % Cost of sales 11,430 10,580 8.0 % 33,377 32,403 3.0 % Gross profit 5,903 3,828 54.2 % 15,737 12,684 24.1 % Selling, general and administrative expenses 2,259 1,982 14.0 % 6,829 6,139 11.2 % Earnings from operations 3,644 1,846 97.4 % 8,908 6,545 36.1 % Storm damage charge - - 0.0 % - (1,098 ) (100.0 )% Interest and other income 343 290 18.3 % 1,088 874 24.5 % Earnings from operations before income taxes 3,987 2,136 86.7 % 9,996 6,321 58.1 % Income tax provision (Note 9) 1,037 559 85.5 % 2,562 1,685 52.0 % Net earnings $ 2,950 $ 1,577 87.1 % $ 7,434 $ 4,636 60.4 % Earnings per share: Basic: Basic earnings per share $ 0.15 $ 0.08 87.5 % $ 0.37 $ 0.23 60.9 % Diluted: Diluted earnings per share $ 0.15 $ 0.08 87.5 % $ 0.37 $ 0.23 60.9 % Net Sales The Company's net sales in the 13 weeks and 39 weeks ended November 30, 2025, were $17.3 million and $49.1 million, respectively, compared to $14.4 million and $45.1 million, respectively, in the 13 weeks and 39 weeks ended December 1, 2024. Sales for the 13-week and 39-week periods ended November 30, 2025 were higher than the comparable period of the prior year, primarily due to higher sales to the space, commercial and military markets partially offset by lower sales in the business aircraft market. Gross Profit The Company’s gross profit in the 13 weeks and 39 weeks ended November 30, 2025 was higher than the gross profit in the prior year’s comparable periods due to higher sales, sales price increases, a more favorable product mix and lower labor costs which were partially offset by higher overhead costs, including higher insurance costs, utilities, repairs and maintenance costs and salaries and fringe benefits as well as higher direct material costs. 21 The Company’s gross profit margins, measured as a percentage of sales, were 34.1% and 32.0%, respectively, in the 13 weeks and 39 weeks ended November 30, 2025, compared to 26.6% and 28.1%, respectively, in the 13 weeks and 39 weeks ended December 1, 2024. The higher gross profit margin for the 13 weeks ended November 30, 2025 compared to the prior year’s comparable period, was primarily due to a more favorable sales mix as well as sales price increases, lower labor costs and lower overhead costs as a percentage of sales partially offset by higher waste costs. The higher gross profit margin for the 39 weeks ended November 30, 2025 compared to the prior year’s comparable period, was primarily due to a more favorable sales mix, sales price increases and lower labor costs partially offset by higher freight costs. Selling, General and Administrative Expenses Selling, general and administrative expenses increased by $277,000, or 14.0%, during the 13 weeks ended November 30, 2025 compared to the 13 weeks ended December 1, 2024, and these expenses, measured as percentages of sales, were 13.0% in the 13 weeks ended November 30, 2025 compared to 13.8% in the 13 weeks ended December 1, 2024. The increase in selling, general and administrative expenses, in dollars, during the 13 weeks ended November 30, 2025 was primarily due to higher salaries, fringe benefits, incentive compensation, profit sharing expenses, travel expenses and professional fees partially offset by lower freight out expense. Selling, general and administrative expenses increased by $690,000, or 11.2%, during the 39 weeks ended November 30, 2025 compared to the 39 weeks ended December 1, 2024, and these expenses, measured as a percentage of sales, were 13.9% in the 39 weeks ended November 30, 2025 compared to 13.6% in the 39 weeks ended December 1, 2024. The increase in selling, general and administrative expenses during the 39 weeks ended November 30, 2025 was primarily due to the higher salaries, fringe benefits, incentive compensation, profit sharing expenses, travel expenses, research and development expenses and professional fees partially offset by lower freight out, advertising and trade show expenses. Selling, general and administrative expenses included stock option expenses of $105,000 and $294,000, respectively, for the 13 weeks and 39 weeks ended November 30, 2025, compared to stock option expenses of $105,000 and $295,000 for the 13 weeks and 39 weeks ended December 1, 2024. Earnings from Operations For the reasons set forth above, the Company’s earnings from operations were $3.6 million and $8.9 million, respectively, for the 13 weeks and 39 weeks ended November 30, 2025, compared to $1.8 million and $6.5 million, respectively, for the 13 weeks and 39 weeks ended December 1, 2024. Interest and Other Income Interest and other income were $343,000 and $1,088,000, respectively, for the 13 weeks and 39 weeks ended November 30, 2025, compared to $290,000 and $874,000, respectively, for the prior year's comparable periods. Interest income increased 18.3% and 24.5%, respectively, for the 13 weeks and 39 weeks ended November 30, 2025, primarily due to interest received on tax refunds in the 39 weeks ended November 30, 2025 and a foreign exchange gain recorded related to a long-term supplier advance. During the 13 weeks and 39 weeks ended November 30, 2025, the Company earned interest income principally from its investments, which consisted primarily of short-term instruments and money market funds as well the tax refund noted above. 22 Income Tax Provision For the 13 weeks and 39 weeks ended November 30, 2025, the Company recorded income tax provisions of $1.0 million and $2.6 million, respectively, which included net discrete income tax benefits of $(21,000) and $(59,000), respectively, for excess tax benefits from stock option exercises offset by the accrual of interest related to unrecognized tax benefits. For the 13 weeks and 39 weeks ended December 1, 2024, the Company recorded income tax provisions of $559,000 and $1.7 million, respectively, which included discrete income tax provisions of $19,000 and $60,000, respectively, for the accrual of interest related to unrecognized tax benefits. The Company’s effective tax rates for the 13 weeks and 39 weeks ended November 30, 2025 were 26.0% and 25.6%, respectively, compared to 26.2% and 26.7%, respectively, in the prior year’s comparable periods. The effective tax rates for the 13 weeks and 39 weeks ended November 30, 2025 were higher than the U.S. statutory rate of 21% primarily due to state and local taxes and liabilities, and the accrual of interest related to unrecognized tax benefits offset by excess tax benefits on stock option exercises. The effective rates for the 13 weeks and 39 weeks ended December 1, 2024 were higher than the U.S. statutory rate of 21% primarily due to state and local taxes and the accrual of interest related to unrecognized tax benefits. Net Earnings For the reasons set forth above, the Company's net earnings for the 13 weeks and 39 weeks ended November 30, 2025 were $3.0 million and $7.4 million, respectively, compared to net earnings of $1.6 million and $4.6 million, respectively, for the 13 weeks and 39 weeks ended December 1, 2024. Basic and Diluted Earnings Per Share In the 13 weeks and 39 weeks ended November 30, 2025, basic and diluted earnings per share were $0.15 and $0.37, respectively, compared to basic and diluted earnings per share of $0.08 and $0.23, respectively, in the 13 weeks and 39 weeks ended December 1, 2024. Liquidity and Capital Resources - Continuing Operations: (Amounts in thousands) November 30, March 2, 2025 2025 Change Cash and cash equivalents and marketable securities $ 63,558 $ 68,834 $ (5,276 ) Working capital 79,281 81,033 (1,752 ) 23 39 Weeks Ended (Amounts in thousands) November 30, December 1, 2025 2024 Change Net cash provided by operating activities $ 4,581 $ 3,748 $ 833 Net cash provided by investing activities 33,150 14,232 18,918 Net cash (used in) financing activities (8,854 ) (11,793 ) 2,939 Cash and Marketable Securities Of the $63.6 million of cash and cash equivalents and marketable securities at November 30, 2025, $32.0 million was owned by one of the Company’s wholly-owned foreign subsidiaries. The change in cash and cash equivalents and marketable securities at November 30, 2025 compared to March 2, 2025 was the result of capital expenditures, the purchase of treasury shares, dividends paid to shareholders, the Company’s transition tax installment payment, and a number of additional factors. The significant changes in cash (used in) provided by operating activities was as follows: ● accounts receivable decreased by 6% at November 30, 2025 compared to March 2, 2025 primarily due to improved collections in the 13 weeks ended November 30, 2025 than in the comparable period in the prior year; ● inventories increased by 6% at November 30, 2025 compared to March 2, 2025 primarily due to timing of raw materials purchases; ● prepaid and other current assets decreased by 4% at November 30, 2025 compared to March 2, 2025 primarily due to lower interest receivable balances; ● other assets increased $1.6 million during the 39 weeks ended November 30, 2025 due to a long-term supplier advance paid during the first quarter of fiscal year 2026; ● accounts payable increased by 30% at November 30, 2025 compared to March 2, 2025 primarily due to timing of vendor payments; ● accrued liabilities increased by 2% at November 30, 2025 compared to March 2, 2025 due to higher accrued incentive compensation; and ● income taxes payable decreased by 87% at November 30, 2025 compared to March 2, 2025 due to the payment of a $4.9 million transition tax installment payment in June 2025 partially offset by an increase as a result of increased taxable earnings in the 39 weeks ended November 30, 2025. 24 In addition, the Company paid $7.5 million in cash dividends in the 39-week period ended November 30, 2025 compared to $7.6 million in the 39-week period ended December 1, 2024. During the 39 weeks ended November 30, 2025, the Company repurchased shares of $2.2 million compared to $4.3 million of repurchases in the 39 weeks ended December 1, 2024. The Company had proceeds from the exercises of stock options of approximately $780,000 in the 39 weeks ended November 30, 2025 compared to proceeds from the exercises of stock options of $26,000 in the 39 weeks ended December 1, 2024. Working Capital The decrease in working capital at November 30, 2025 compared to March 2, 2025 was primarily due to a decrease in cash as a result of the payment of the long-term supplier advance of $1.6 million, treasury share repurchases of $2.2 million and the payment of $7.5 million of dividends. The Company's current ratio (the ratio of current assets to current liabilities) was 15.8 to 1.0 at November 30, 2025, compared to 9.7 to 1.0 at March 2, 2025. Cash Flows During the 39 weeks ended November 30, 2025, the Company's net earnings, adjusted for depreciation and amortization, deferred income taxes, stock-based compensation, amortization of bond premium, provision for credit losses, loss on sale of marketable securities and changes in operating assets and liabilities, resulted in a $4.6 million operating cash inflow compared to a cash inflow of $3.7 million for the 39 weeks ended December 1, 2024. The increase was driven by the higher earnings and improved collections of accounts receivable partially offset by a payment of a $1.6 million long-term supplier advance during the 39 weeks ended November 30, 2025. During the same 39-week period, the Company expended $1,502,000 for the purchase of property, plant and equipment compared with $258,000 during the 39 weeks ended December 1, 2024. The Company paid $7.5 million in cash dividends in the 39-week period ended November 30, 2025 compared to $7.6 million in the 39-week period ended December 1, 2024. The Company purchased treasury shares of $2.2 million in the 39-week period ended November 30, 2025 compared to $4.3 million in the 39-week period ended December 1, 2024. Other Liquidity Factors The Company believes its financial resources will be sufficient, through the 12 months following the filing of this Form 10-Q Quarterly Report and for the foreseeable future thereafter, to provide for continued investment in working capital and property, plant and equipment and for general corporate purposes. The Company’s financial resources are also available for purchases of the Company's common stock, cash dividend payments, and appropriate acquisitions and other expansions of the Company's business. On January 13, 2026, the Company entered into an Equity Distribution Agreement with Needham & Company, LLC (“Needham”) and Citizens JMP Securities, LLC (“Citizens”) (the “Distribution Agreement”) under which the Company may offer and sell, from time to time, at its sole discretion, up to $50.0 million in shares of its common stock. The issuance and sale, if any, of shares of the Company’s common stock under the Distribution Agreement will be made pursuant to a registration statement on Form S-3 that the Company expects to file with the U.S. Securities and Exchange Commission (“SEC”) on January 13, 2026. No sales will be made pursuant to the Distribution Agreement unless and until the registration statement on Form S-3 is declared effective by the SEC. 25 The Company is not aware of any circumstances or events that are reasonably likely to occur that could materially affect its liquidity. The Company further believes its balance sheet and financial position to be very strong. Contractual Obligations: The Company’s contractual obligations and other commercial commitments to make future payments under contracts, such as lease agreements, consist only of (i) operating lease commitments and (ii) commitments to purchase raw materials. In March 2025, the Company entered into an agreement with a supplier, ArianeGroup SAS, under which the Company would advance funds against future purchases. The agreement requires payments of €4,587 over three years, of which €1,376 was paid in April 2025 (actual cost of $1,564), €1,835 (approximately $2,142 based on January 7, 2026 exchange rates) is due in the first quarter of fiscal 2027 and €1,376 (approximately $1,607 based on January 7, 2026 exchange rates) is due in the first quarter of fiscal 2028. Under the agreement, the Company commits to purchase C2®B product through December 2033 at an estimated cost, in aggregate, of €36,000. The Company has no other long-term debt, capital lease obligations, unconditional purchase obligations or other long-term obligations, standby letters of credit, guarantees, standby repurchase obligations or other commercial commitments or contingent commitments, other than two standby letters of credit in the total amount of $140,000, that secure the Company’s obligations under its workers’ compensation insurance program. Off-Balance Sheet Arrangements: The Company’s liquidity is not dependent on the use of, and the Company is not engaged in, any off-balance sheet financing arrangements, such as securitization of receivables or obtaining access to assets through special purpose entities. Critical Accounting Policies and Estimates: The foregoing Discussion and Analysis of Financial Condition and Results of Operations is based upon the Company’s Condensed Consolidated Financial Statements, which have been prepared in accordance with GAAP. The preparation of these Condensed Consolidated Financial Statements requires the Company to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the related disclosure of contingent liabilities. On an ongoing basis, the Company evaluates its estimates, including those related to sales allowances, allowances for credit losses, inventories, valuation of long-lived assets, income taxes, contingencies and litigation, and employee benefit programs. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The Company’s critical accounting policies that are important to the Condensed Consolidated Financial Statements and that entail, to a significant extent, the use of estimates and assumptions and the application of management’s judgment are described in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in the Company’s Annual Report on Form 10-K for the fiscal year ended March 2, 2025. There have been no significant changes to such accounting policies during the 2026 fiscal year third quarter. 26 Contingencies: The Company is subject to a small number of immaterial proceedings, lawsuits and other claims related to environmental, employment, product and other matters. The Company is required to assess the likelihood of any adverse judgments or outcomes in these matters as well as potential ranges of probable losses. A determination of the amount of reserves required, if any, for these contingencies is made after careful analysis of each individual issue. The required reserves may change in the future due to new developments in each matter or changes in approach, such as a change in settlement strategy in dealing with these matters. Factors That May Affect Future Results . Certain portions of this report which do not relate to historical financial information may be deemed to constitute forward-looking statements that are subject to various factors which could cause actual results to differ materially from the Company’s expectations or from results which might be projected, forecasted, estimated or budgeted by the Company in forward-looking statements. Such factors include, but are not limited to, general conditions in the aerospace industry, the Company’s competitive position, the status of the Company’s relationships with its customers, economic conditions in international markets, the cost and availability of raw materials, transportation and utilities, and the various factors set forth under the caption “Factors That May Affect Future Results” in Item 1 and in Item 1A “Risk Factors” of the Company’s Annual Report on Form 10-K for the fiscal year ended March 2, 2025. Item 3 . Quantitative and Qualitative Disclosures About Market Risk . The Company’s market risk exposure at November 30, 2025 is consistent with, and not greater than, the types of market risk and amount of exposures presented in the Annual Report on Form 10-K for the fiscal year ended March 2, 2025.