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Park Electrochemical (NYSE:PKE)
Q1 2020 Earnings Call
Jul 11, 2019, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good morning. My name is Catherine, and I will be your conference operator today. At this time, I would like to welcome everyone to the Park Electrochemical Corp.'s first quarter fiscal-year 2020 earnings release conference call and investor presentation. [Operator instructions] 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 -- Chairman and Chief Executive Officer

Thank you, operator. This is Brian. Welcome, everybody, to our first-quarter conference call. And with me as usual, Matt Farabaugh, our CFO.

There's a presentation that I hope you all have access before we go through that presentation. After we're done with that, we'll be happy to entertain questions. And I want to point out that there's also a supplemented -- supplemental data, financial data, which is attached to the presentation as Appendix 1. The presentation is smaller and shorter than our last quarter's presentation because it's only been two months since -- less than two months actually since the last quarter presentation.

So we don't want to just kind of put redundant information in here. Although there's a lot to cover, so we're going to try to hustle through it even though it's only 10 pages. There's quite a few points for us to hit. So why don't we get started.

On Slide 2, that's our forward-looking disclaimer, and if you have any questions about that, just let us know. Why don't we just move right into Slide 3. And Matt, can you help us with Slide 3, please?

Matt Farabaugh -- Chief Financial Officer

Sure, Brian. The Slide 3 shows our reconciliation of EPS from GAAP to special items. And there is only one special item in the quarter, and it went through our tax operation line. It had a $0.01 impact, so you can see our earnings before special items, $0.14.

It is $0.01 greater than our net earnings from continuing operations on a GAAP basis. The tax item here, the tax impact of canceled stock options relates to options for employees of the Electronics Business that we sold to AGC back in December. The employees had a few months to exercise any stock options that they had outstanding, and at the end of that period, anything that was left unexercised canceled. And that did in fact happen.

Some of the options went unexercised, and they did cancel. And as a result, Park lost a tax deduction related to those unexercised items that would've otherwise gotten had they've been exercised. We also show on this slide the top five customers for the quarter, and those top five customers are: AAE Aerospace; AAR CORP.; GKN Aerospace; Middle River Aerostructure Systems, including its subcontractors; and NORDAM Group. Those customers are in alphabetical order, and I do want to point out that Middle River Aerostructure Systems was recently sold by GE to ST Engineering Aerospace.

So that used to be a GE-related company, now it's ST Engineering Aerospace.

Brian Shore -- Chairman and Chief Executive Officer

OK. Thank you, Matt. So why don't we just keep moving. We'll try to hustle on here.

Slide 4, it is our results for Q1 with the prior-quarter comparisons. I want to point out that we're trying to focus more on sales, gross margin, EBITDA then EPS in net because of the interest and taxes really tend to skew the numbers quite a bit. In Q1, tax rate was higher than Q4. Interest income was lower than Q4.

But if you look at the EBITDA numbers and the gross margin numbers, they were more apples to apples. So let's talk about Q1 as compared to what we indicated, what kind of forecast we gave you when we did our fourth quarter call on May 17. We estimated sales of $14.25 million to $15.25 million, and so sales end up being $14.95 million that came within the range. We also estimated EBITDA of $3.4 million to $3.8 million.

So the EBITDA for Q1 was $3.372 million. You could say, well, it kind of rounds to $3.4 million. But that doesn't really tell the whole story because when we do -- when we give you these estimates, we have an internal number, which is not a range, of course. And what we do, and we discussed this last time, we -- our internal number is going to be at the middle of that range.

So we're not going to give you a lower range so we can beat it. We're telling you what we think is going to happen to the best of our ability. So really, we are looking for $3.6 million in a sense because you see $3.4 million to $3.8 million, obviously, the midpoint is $3.6 million. So we were about $225,000 short in our EBITDA in Q1 from what we thought we were going to do.

And so we have -- sorry, down the page on Slide 4, factors which affected our Q1 EBITDA, training of third shift. So we talked about the third shift, bring a third shift on during our last call because this is so strong and so demanding. But we were really just training the third shift in Q1. They're now working, but during the training period, it's really cost because they're not working yet and they're not really released to the factory lines.

And we do have a pretty extensive training. The skill level for the operators in the factory floor is quite high. So it's really important that the operators are trained effectively and completely so that we don't have any mishaps, we don't have any issues with quality or safety or anything like that. It is not like just going to work on assembly line.

These three lines are very complicated to run, and it's important that the guys are -- and some gals are trained carefully and completely. Next item, outside testing costs incurred to meet demanding production schedules. What's going on here, see, the theme is just impacting demanding production schedule. One of our -- these are testing equipment went down in the lab, and normally, we would just kind of make things work.

We have two or three of these units where a couple of weeks while the unit went down, get -- got repaired. But our schedules, production schedules was so demanding that we didn't think it would be a good idea because if we waited a couple of weeks, we would never catch up by the time that, that piece of equipment, it was mechanical tester engaged a revisit, came back online. We would be behind and we never catch up. So we decided to use outside services, which are very expensive, in order to keep up -- outside testing services, which we were able to do and that's a proven qualifier, but it's significantly expensive when you have to do something like that.

And again, it relates to demanding production schedule. We felt we had no choice. We felt we couldn't just hang in there for a couple of weeks because we'd get behind with our customers and then we wouldn't catch up. And that was not -- we didn't think that would be a good idea.

That's not how we look at our business. So when we make a commitment to our customers, we intend to keep it. So we also had GE9X program manufacturing trials and development expenses. So we're still working on development for GE9X.

And then Film Adhesive, that's Film Adhesive manufacturing trials. We spoke about Film Adhesive. The Film Adhesive product was a joint development effort based upon an actual agreement between Middle River and Aircraft -- sorry, Aerostructure Systems, that's their new name, and Park. That product is fully developed in terms of formulation.

We're still doing the manufacturing trials, and there are expenses involved with the manufacturing trials. So these expenses just go right through the P&L. We don't capitalize and run them like that. And those -- all those four items had an impact on our Q1 EBITDA.

There are other items which are not mentioned here but those are ones I thought you might be most interested in. OK. So let's keep hustling along here. Why don't we move to Slide 5.

This is -- what's going on in the slide -- so let's see if we can cover it fairly completely. So we have our forecast for Q2 and Q3 here, and we have -- sorry, I just want to mention -- I forgot to mention. We'll go back to Slide 4 for a second. Notice that the gross margin number is also lower than Q4 for Q1, 32.1%.

That's partly because the revenues were down, but also -- from Q4, but also because of these other factors that I've mentioned, which include -- there are other factors -- there are additional factors rather, which we didn't mention, but these four factors were all going to have impacts upon our gross margins. OK. Sorry about that. So let's go back to Slide 5 and pick up the discussion.

So here's a forecast for Q2 and Q3. And we have the comparative prior, what, four quarters or five quarters, I guess, five quarters just for reference. So let's see. Why don't -- let's start with what we indicated about Q4 during our last -- sorry, what we indicated during our Q4 conference call regarding Q2 is we provide a forecast for Q2 during our Q4 conference call.

And we said $15 million to $16 million, so we brought it down to $14.5 million to $15.5 million. So you could see that we worked the number down a little bit, and obviously, you have to ask why. And also I want to mention, just so you know, because -- I think you should have that kind of full perspective here that to get to our Q2 number, we need to book and ship another $1 million. Now that's not alarming amount, but -- that's not that unusual, but it is still something has to get done.

So it's not just booked, it's booked and shipped. So we'll book a lot more during the quarter, during the second quarter, but these are bookings which we have to turn to shipments before the end of the quarter in order for them, those shipments -- those bookings rather to turn to revenue so we can hit our number. So again, what are we doing? I said $14.5 million to $15.5 million. Well, that $1 million gets to $15 million.

OK? We do not need to book and ship another $1 million to get to $15 million. That's right at the midpoint of the range. Again, we talked about this last time. We're not -- we think it's insulting to play these games where we kind of give you the safe number so we can beat it.

No, we're telling you what we think is going to happen. And sometimes we're going to be right, sometimes we're going to be wrong, but we're not going to provide any cushions for ourselves or making it easy for us to be heroes and come in and beat numbers. We don't do that. So we tell you something, we tell you what we believe.

Otherwise we're not gonna tell you. And what we believe is that for Q2, we're looking at about $15 million, so we give you that range of -- the bracket of $14.5 million to $15.5 million. OK. So what do we do with slide, the slide is kind of backwards because we're talking top line.

Let's go on Slide 5, the third arrow item because that really is the item that deals with the top line and the forecasting of the top line. So factors affecting predictability of short-term forecasts. Pretty important stuff here because, again, we are talking in this case, we reduced our Q2 sales forecast by $0.5 million in terms of the high end -- high -- sorry, the low end and the high end of the range. Two major things to consider and they're pretty important.

First, all of our major jet engine company programs, being our GE programs, are ramping or in development, except the Boeing 747-8. That's a smaller program. We love the Boeing 747. It's my favorite airplane ever.

And it's kind of a steady state as you go. Everything else, every other program, is ramping or in development. What does that mean? It means that it makes it very difficult for the customer to do effective inventory and production management because we're -- they're constantly hitting -- trying to hit a moving target. And the customer doesn't order through the forecast.

We have short-term, long-term forecasts, but they're going to order based upon their inventory management. So we have these ups and downs that are not exactly predictable all the time. So that's going to cause our forecasts to be not always as accurate as we like them to be, our top line forecasts. The other factor which is really important, and this is something you just read the news for the aerospace industry, it's not just from us, the supply chain is under severe stress right now because the industry is so strong but the problem, the suppliers are having trouble keeping up.

If you know people that are -- had supply chain or sourcing people at bigger space companies, I know some of them, they're really having a very rough time. They're struggling very badly. They spend all their time out there chasing suppliers because the suppliers are just not able to keep up. So that's -- it's a big factor here, and let me explain why.

That's not us, not Park, we don't do that kind of thing. We meet our commitments or die trying. In our fourth quarter, we explained how we had a very demanding situation, but we met our commitments. I think most of our -- most other companies in the aerospace industry would have said, "Look, we're just too much, we'll do our best but we're just not going to be able to get there for you," and that's kind of the story.

So we're, I think, maybe a little bit of an exception. But why does it affect the forecasting? Because here's the thing, whether we can meet the forecast or not, and we always will or die trying, if the other suppliers to the same OEM, let's say, who are supplying other components are behind and the OEM can't source those components, there's no reason for the OEM to stock up and park material because it's just going to sit there in the freezer while they're waiting for the other components to come in so they can do their production as they can produce their parts or their engine components or whatever it is the OEM is doing. So that's an important factor, and it's not predictable so well, especially on a short-term basis by our customers' OEMs because they're struggling every day to get product from their suppliers. And it's a real battle.

If you live in the industry, you'll hear a lot about it. So it's hard for our customers and OEMs to really predict their production levels because they don't know what they're going to get in terms of component support. They know what they need. They know what their other suppliers have committed to, but the commitment and delivery are not necessarily aligned.

So the result of these two factors which are both important will be that our sales from quarter to quarter, revenues will be some herky-jerky, not so smooth from quarter to quarter. Long-term prospects, that's something else. And I think that's something we really need to watch, long-term prospects. The quarter-to-quarter stuff, my feeling is we need to kind of filter that out a little bit.

I think you know that we are very committed to making money every quarter. We take that very seriously and it's important to us. We know -- we hear other companies' CEOs complain about the short-term focus of the investment community, but we don't complain about that. We think it's a good thing.

As long as we don't lose sight of the long-term objectives as well, we think that quarter-to-quarter pressure is good, good for us. It's going to hold us -- keeps us honest and keeps us accountable. But having said that, the top line is going to be bouncing around a little bit, herky-jerky as I said because of these factors. OK.

So like I said, we did this -- we're doing this Slide 5 a little bit backwards. Now let's talk about the EBITDA portion of it. Because when we did our Q4 conference call, we gave you a forecast for Q2 EBITDA of $3.5 million to $4 million. So we brought it down to $3.1 million to $3.7 million.

Obviously, part of that is because the top line forecast is coming down as well. But there's these other factors. And some of them are similar to the factors that we just enunciated for -- enumerated rather for Q1. What are the factors that will affect Q2 EBITDA? OK.

Outside testing costs related to data development for new product. That kind of sounds familiar, but this is not because there is a problem with a tester or piece of equipment. This is because we've been doing this -- we've had a product which is fully developed in terms of -- we have -- the formulation has been set. But in order to introduce a product, we need to develop data.

We need to provide data with the product. And this has gotten bogged down because we just haven't been able to squeeze in the development with the production demands. So we decided to do, even if this cost us $80,000 this quarter, is to form out the testings for the data development for this product, so now outside a supplier. Let's see.

Second one, GE9X program, manufacturing trials, development expenses. Third one, Film Adhesive manufacturing trials and development expenses. Those continued from Q1, and they'll be factored for Q2. Then special personnel costs.

These are things like stay bonuses. We're still somewhat transitioning from a legacy company in terms of personnel. We're most a way there, but there are still some costs that will be lingering. And there's something called one company reorganization costs.

So we'll describe what we mean by one company later on in the presentation, but those costs will impact Q2 and maybe Q3 as well. When we get to the Q2 conference call, we'll give you more information about Q3. At this point, we really want to focus on Q2. And the -- sorry, the middle arrow item, legacy costs expected to continue through Q3.

I think the one point we indicated maybe a couple of quarters ago was that we thought the legacy costs would end by the end of the second quarter. Right now, it's looking like it's probably going to be pushed through the end in the third quarter. So we're not doing a great job there. We're probably one quarter behind.

OK, that's Slide 5. Like I said, let's move on from Slide 5. Slide 6. OK, let's go to Slide 6.

This relates to GE Aviation programs. Now you've seen this slide before. The reason we're including it in this presentation, though, is because there are some changes which I want to bring to your attention. First of all, in the bottom left, we list the different programs, GE Aviation programs.

We added 2. One is A321neo, the other one is COMAC ARJ. Now both those programs are already on. But why did we add them? Because as far as the A321neo is concerned, we used to -- in the prior version of the slide, the item was -- we had the A320neo and we intended that A321 was part of the A320 family, if you will, so it was included.

But many investors have asked us about A321, so we thought we'd spell it out. Yes, the A321 program, we're on that too. That's a LEAP-1A engine. That's our program.

COMAC ARJ, we haven't mentioned that in our slide presentation before, but that program is ramping so we thought we'd mention it. That is a CF34-10A GE engine. As far as these programs are concerned, as I mentioned in the prior page, the prior slide, the first one, the program we love is 747-8. That's a steady-state, steady-as-you-go program.

The A320, A321neo, those are ramping pretty hard. COMAC919, still in development. COMAC ARJ, that's ramping. And the Global 7500, the Passport 20 engine, ramping.

So again, quite difficult for production and inventory management with all those programs ramping and/or in development because it's a big moving target, lots of them. Let's go to the top right of the slide, what's new there. The top right, we just want to mention that we're explaining this is not the -- this is for the Passport 20 large primary structure, we're not at this point at liberty to explain what it is. This is not included in the 13-year LTA which was referenced, that's the first arrow item, the top left of the page, because this is a GE program.

Now I noticed it can be a little confusing, but if you look at the bottom left, you see the Passport 20, the Bombardier 7500 listed. So the nacelles, the materials or nacelles are in the 13-year LTA. But this other component is -- because those -- the nacelles are the MRAS programs. That's covered by the 13-year LTA.

But this other component, that's a GE -- that's part of GE, and that's not covered by the LTA at this time. So I just wanted to explain that and probably made it more confusing, but I did my best. The other item that's new, which is the last item on the right side, I think we previously referred to this. This is for the GE9X engine as a critical structure.

But MRAS recently announced and went public with the fact that this is something called container craft. This is a containment for the fan case, which is very critical. Fan case has to have absolute containment of the fan blades. So it's a very critical structure.

And this is what we've been working on. This is also a GE program, so it's not part of the 13-year LTA with Middle River. The other thing I want to mention which was announced by MRAS is that's an AFP program. And they also announced that the A320, A321neo nacelles are partly AFP programs.

Remember, AFP, we talked about this in prior presentations, is something that's a process that we worked on, we developed -- we helped GE or MRAS develop the process and they helped us develop our product. AFP would've made a fiber replacement. Most people believe it's a very important technology for manufacturing composite structures in the future. Let's go to Slide 7.

Let's check how we're doing with the time here. OK. Slide 7, this is a new slide and this is done by Ben. So it's kind of a non sequitur, doesn't really follow the rest of our presentation, but I just thought since it's new, you might like to see it.

I think it's very interesting. No surprise with jet engines being such a large component. Space and rocket nozzles to the bottom of the page. That's mostly rocket nozzles right now, but we're optimistic that we see good things coming with space.

Top of the page, drones and urban air mobility. That's mostly drones, but we're working on some urban air mobility programs. We feel good about those as well. All right.

So let's just keep moving along here. We have two pages of recent developments. Let's go to Slide 8. Just a couple of little updates.

"Hit 'em Where They Ain't" acquisition program. We talked about this in our fourth quarter conference call, so we won't go into detail except that we're continuing to do reach-outs of the target companies. Security analyst coverage of Park. So still hopeful.

We've been talking to a few analysts. These are aerospace specialists and -- but it's not a done deal until it's a done deal. I guess we'll find out if it's a done deal when you will when the report comes out. One thing that I think helps us a little bit is that with all the consolidation in the aerospace industry, some of the aerospace analysts are kind of having a little bit of bandwidth available and looking for other companies to cover, and I think Park is an ideal company for them to cover.

From some perspective, we're small, I get it, but we're kind of an interesting company in terms of what an aerospace analyst might be interested in because I think a lot of the things that affect the whole industry are going to affect us as well, maybe we're almost even and partly a leading indicator, I don't know. Maybe that's an arrogant thing to say, but it's a way some people look at us. Let's keep going. Major expansion in Newton, Kansas.

So last time we spoke during our fourth quarter call, I think I mentioned that we were waiting for the FAA approval. We hope that will be the end of this month. We expected, hoped for it to be in the end of the month. That's a government agency, so we never can be sure.

The expansion should be complete by June-ish of next year. June-ish, I don't say June, June-ish because we want to give ourselves a little wiggle room, then there's three to six months of trials and about six to nine months of qualifications with a major customer. This is about two years out from now or when the plant will be in production. That's give or take, plus or minus, but approximately two years.

Name change. This is something we talked about during our fourth quarter call. But here, we're telling you what we're proposing as a name. This is in our proxy statement, so you know about it.

The vote so far is a landslide. This is something -- the changing of our name is up to the shareholder approval. And so far, the shareholders voted very much in favor of that. So thank you, shareholders, who have voted so far.

So a couple of comments. We probably will keep at least for now our PKE ticker symbol. We could change that, but we'll probably hold on to that just for the time being and see what happens. The change is kind of a bittersweet thing for me.

Park was founded in 1954. I know you've heard these stories many times. The first name was Park Nameplate, though. And then in 1960, before it went public, the name was changed to Park Electrochemical Corp.

So we've been Park Electrochemical since 1960. That's a lot, a lot, a lot of years, and it's kind of a bittersweet thing for me anyway to change name to Park Aerospace. It makes all the sense, right? It's completely the right thing to do for us, we think. But it's kind of a little bit hard to let go of Park Electrochemical.

The most important thing for me, though, is that we as a company do not forget and lose touch with the founders' spirit, the people who started the company and did everything they did to create the company that -- at least to start the process of creating the company that we have today against all kind of odds. We covered that before. So we won't go into any more about the history. You should probably heard about -- enough of that from me.

Next item. Park will be one company. This is a little bit of a new thing. We decided that after the name change is approved, we hope it will be, and it becomes official, we're going to merge the two units, the two entities into one.

We have Park Electrochemical, which is the public company, kind of a parent company entity. And then we have our operating subsidiary called Park Aerospace Technologies Corp., we call it PATC. So PATC will be merged to Park. At that point, we'll be one company, and it'll be called Park Aerospace Corp.

We think it's a really good idea. The separation doesn't make any sense to us anymore. We really want to look at us as one company. We'll have a small office in New York, but the main location obviously is in Kansas.

And we want everybody in the company to think of themselves as one company, not think of themselves as, well, I'm in Melville or I'm in Kansas, it doesn't really matter. What matters is we all work for the same company and we all need to be pulling together. There also are some cost redundancies, of course, by having two separate entities. But mostly I think the reason was the cultural advantage of having one company.

So that will be interesting. Let's see how that works out. Next item, kind of a non sequitur, but I think I mentioned before that it's a little frustrating for us that we're on programs or getting on programs and we really can't be too specific because the customer OEM hasn't given us permission to use their name. Well, Kratos gave us permission, thank you very much, Kratos.

So we're going public in writing that we're on these Kratos programs for the target and tactical unmanned aerial systems, basically what you and I would call drones. And including the Valkyrie, which is a new tactical drone that they are coming out with now. So we're a design and SMA [Inaudible] supplier for those tactical and target drones -- target and tactical drones, including the Valkyrie, which is nice. Now there's been a lot of news.

Kratos is a public company. There's been a lot of news about these programs, but I don't think it's appropriate for me to do Kratos disclosures, so you can look that stuff out yourself. But there's a lot of exciting things going on. From what I can tell, Kratos is very much a privilege for Park to be involved.

Next thing. OK. Here's an example where I absolutely can't give you any more details. A major private space program, we've received our first PO.

This can be very exciting but still early. We'll see, but we're seeing the first PO as obviously a big step. And we hope at some point, we'll be authorized to give you more information about it. But it's -- let's just say it's a pretty exciting opportunity for Park.

Slide 9. OK. Some interesting stuff from the Paris Air Show, very impactful to Park. First of all, CFM -- CFM is a JV between GE and Safran.

CFM is a company that makes the LEAP engines. The LEAP-1A engine, that's a program we're on. We're also on LEAP-1C, which is the COMAC919 program, but that's in development, as we said. The LEAP-1A, that goes on the Airbus A320, A321neo programs.

So CFM announced orders and commitments for more than 1,150 LEAP-1A engines. Those our -- that's our program. That's a big deal. That's a lot of orders at the Paris Air Show.

And IndiGo company -- next check item, a company called IndiGo, they announced and ordered 560 LEAP-1A engines for A320neo and A321neo aircraft. That's the largest engine order in the history of the world, and that's our program. So again, very nice and good news for Park. And another thing that's really good news for Park and also at the Paris Air Show, Airbus announced the A321XLR, and there's a picture of it to your right.

This is part of the A320 family, I guess. It's not clear at this point, to me anyway, about all the design issues, but one thing that has been made clear to me by people who are in a position to know and make these commitments, that's a Park program. Is it incremental? I don't know. Could be.

In other words, is this just going to be taking away from the A320, A321 and so customers had otherwise would have ordered A320, A321 or the XLR? Maybe, maybe not, because the XLR has capabilities which are different than the A320, A321. So it may tap into a different customer, a different market. So in other words, the XLR could be incremental business for Park. It's really to say it's really wonderful to be in the program.

But it's real too early to say, I think, whether to what extent it's incremental business for us. It's our question, but also based upon the news coming out of Paris that in terms of the A320 family, remember the A320 shares the CFM, LEAP-1A engine and another private engine, that LEAP-1A fared much better, got much more the share of the new A320 orders. Again, very good news for Park. So just one last thing with the 737 MAX impact and how that might impact Park through the A320.

These are most single-aisle, the big single-aisle competitors. When the problems first came up with the MAX, I was asked by a lot of people if that's going to be a benefit for Park, it will help Park. And I guess my reaction -- and first of all, we don't -- we hope Boeing solves the problem. We don't wish them any ill, of course.

We wish them the best. But I also say that probably not because I felt that, well, this problem will be solved pretty quickly three months down the road, we won't be talking anymore. Obviously, I was wrong about that. And now just my opinion, I have no way to prove it, just my opinion that A320, the A320 family may actually take some share from the 737 MAX over the long term because of the continuing problems.

Now I think some people thought, well, why doesn't Airbus increase their production schedule immediately? And the fact that there might be a market need for it is one thing, but the other thing is can the airplane be produced and it goes back to that point about the supply chain. The supply chain is already struggling keeping up with the ramp with the A320 family. So the increased production is not really realistic in the short term. Maybe long term, it might be.

One thing I know is that if Airbus does decide to increase production, we'll be there for them. We will not be one of those suppliers that causes it to be a problem for them to ramp up. So that's it. That's the end of our presentation.

Our last slide is our thank you slide. Operator, I think we're ready for questions now.

Questions & Answers:


Operator

[Operator instructions] And we have a question from Christopher Hillary with Roubaix.

Christopher Hillary -- Roubaix Capital LLC -- Analyst

I just want to ask you guys, on the last call, you seemed to be optimistic that you were going to be able to find some additional business acquisitions to kind of add on, tack on. I think you discussed some of your business partners pointing you in certain directions where they thought you could be of help to them. Is there any update on that?

Brian Shore -- Chairman and Chief Executive Officer

Yes. We don't want to go through the whole thing again because we get redundant, but I just -- we mentioned the fact that we're continuing to do reach-outs now. That's exactly what is going on. As what you talked about, the customers and OEMs, a couple of them that we're close with have been pointing us in the direction they think we should be focused on, and they've been helping us by giving us names.

So that's really the basis for the reach-out program. It's not just kind of random. As we explained last time, we're not just kind of chasing after bankers that have processes and that kind of thing. We're focused on certain components, certain products that are provided to aerospace manufacturing companies, and this is based upon the input we received from, as we spoke about last time, customers' OEMs, and what are we asking them or they're telling us.

They're saying these are areas we'd like your help in. We're not happy exactly with the supply chain in these areas as we explained last time. The last thing we want to hear is, oh yes, we have five great suppliers of that kind of product, that product. Well, then the question for us is what do we bring to the table.

So we're looking for areas -- that's the "Hit 'em Where They Ain't" kind of philosophy or strategy, looking for areas where our key customers and OEMs are saying they're not feeling good about the supply chain in those areas. Although those components are critical for aircraft manufacturing.

Christopher Hillary -- Roubaix Capital LLC -- Analyst

And then just -- great. And then just one other question maybe. Just -- you've been able to deliver a pretty impressive degree of profitability at your revenue run rate. Is there some more color or context you might share on how you've been able to accomplish that at this stage in the company's life cycle as an aerospace composite manufacturer?

Brian Shore -- Chairman and Chief Executive Officer

Well, thank you for that question. We don't pat ourselves on the back pretty much about how profitable we are. We think we need to be more profitable. I don't know.

Let me think -- let me share a couple of things with you that might give you some perspective, though. So we're really focused on being more of what we call a niche company. We're not interested in getting on some large program by being aggressive on pricing. We're always looking for something unique or something different, something special.

We lose business all the time because we're asked to quote it, and our quote just is not where it needs to be. And we'll be told by the customer -- these are usually not our real quick customers. With MRAS, we've revered into kind of relationship. Other customers, well, you're 20% too high, and our answer is, well, sorry, we do the math and this is what we think is required.

So we end up taking business. Normally, it's because the customer has a need and they realize the value we bring to the table, and it requires real discipline. Now we can grow our top line a lot faster, but the question for us is how sustainable is that for our future because if all we have is low price. We're getting on a program based on price, first of all, the margins are not going to be very nice, you're not going to like them.

And secondly, how do we protect that program? There is always somebody out there who can offer lower price. It doesn't matter how low you go. We learned this stuff from electronics actually, being an Electronics Business for all those years. That's a rough-and-tumble business.

No matter how low you go, if you have nothing special to offer, sorry, somebody out there is always going to find a way to go lower. And then how do you defend yourselves? All you have is your price. So that's one thing. The other thing is that we are very focused on our bottom line, very focused on our expenses and our costs.

We take everything personally. Every cent that's spent is something that is due pretty carefully. We understand and we believe it's our job to deliver profits for our investors. And we don't feel bad about that.

We don't complain about it. You hear other CEOs complain about all short-term orientation. I think it's good because it keeps us honest, keeps us accountable. Now it's bad if we don't have any focus on the long term, but that's where the problem is.

But I think you have to say we certainly have been guilty of that after what we did in the last 10 years to reinvent our whole company, to transform our company from electronics to aerospace. We certainly have focus on the long term, but the short term, the spending, something we spend a lot of time thinking about and we've taken very personally. So those are two things you might want to think about to help you with answering that question, although I want to go back to the first point is that we certainly are not patting ourselves on the back about how much money we're making because we think we need to make more.

Christopher Hillary -- Roubaix Capital LLC -- Analyst

Is there any -- just to the idea that by being a somewhat newer company, you've been able to create a more efficient footprint given you're obligated to costs in this market or this footprint?

Brian Shore -- Chairman and Chief Executive Officer

Well, that's a good question, and I don't know the answer. I hear people that have told me those kind of things, like we're not a big company like some of our competitors that have lots of corporate infrastructure. But of course, I'm not privy to their operating numbers and their inside story about their P&L and their costs. But it's -- I guess it's a good point.

We are focused on being lean, and we're not looking to just add costs just because everybody else has that kind of thing. So we are incurring costs. We are bringing our R&D operation to setting up R&D operation in Kansas, so that's some costs that we're incurring at this time. But we try to be real careful about how we spend our money, and we need to be focused on.

This is something that really makes sense for Park. The fact that maybe everybody else does it is not a good enough answer. Some of them maybe true from that, I just don't know for sure because I think maybe that would be compared to others, and that's where I'm not sure how to make that comparison.

Operator

[Operator instructions] We have a question from Brad Evans with Heartland.

Brad Evans -- Heartland Advisors -- Analyst

Thanks again for a very informative presentation, lots of valuable information in it. Brian, I could be mistaken here, but I just noticed in the list of customers, the large customers you highlighted, you --- I don't recall seeing AAR CORP. in that list before, and I was hoping maybe you could maybe expand on how that relationship has evolved and exactly how -- what the nature of that relationship as it relates to what you're providing to them.

Brian Shore -- Chairman and Chief Executive Officer

So AAR has been a large customer of Park for a long time. The thing is that some other customers, maybe six or seven and they kind of move up and down, I thought that they've been a top five before, but I can't say that for sure. But there's nothing special going on that I can point to with them. They have been a significant customer for many, many years.

So I don't have any special news about AAR at this time.

Brad Evans -- Heartland Advisors -- Analyst

OK. But that will be supporting an aftermarket application. Correct?

Brian Shore -- Chairman and Chief Executive Officer

There are a couple other programs that we work with AAR on, so I'm not sure it's only aftermarket. I'm not sure about that. I don't think so actually.

Brad Evans -- Heartland Advisors -- Analyst

OK. And then could you just talk -- I know we spoke only two months ago, but I'd appreciate perhaps if you could just give us a qualitative kind of description of kind of what -- how the pipeline of new business opportunities has evolved in the last two or three months.

Brian Shore -- Chairman and Chief Executive Officer

I know it's always -- that seems to be a good question that is asked often. So this is kind of a subjective answer, I think, that you're looking for. I think it feels pretty good. We mentioned a couple of new opportunities that we were -- we did mention our recent developments, the opportunity in private space.

As I said before, it's a little frustrating because most of these things, we're not really at liberty to discuss with any kind of detail at all. But I think it feels pretty good. Just my sense, it's qualitative. It's not based upon an objective analysis or hard data analysis, but it feels pretty good.

Personally, I see pretty much everything that comes our way in terms of new opportunities, new quotes, and we -- just like yesterday, we got something we didn't see coming, and I was glad to see that. I don't know exactly how this works, the dynamic works, except I think there's part of it, Brad, is there's kind of a little momentum that's built and you put a lot of work in and maybe you don't see the results, then two or three years later, things just start to come your way. But I sense that kind of thing is happening and -- but again, that's subjective, as I mentioned. I think I've seen most everything that comes our way, so I get a subjective sense about what customers were dealing with, with programs, what's new, what's just kind of legacy, what's a follow-on.

And another thing I will just add, I probably -- I'm sure you don't really read too much on this is that we are in a way -- Park is emerging as an aerospace company. We're changing our name but -- we sold Electronics Business in December. I noticed there's a lot of these kind of news items that I guess people do about public companies are kind of -- some are little silly, and in many cases, we're still referred to as Electronics Business when they describe us. So maybe it will take a little while for people to figure out that we are an aerospace company.

But I think the sale of Electronics was a big deal and made a big impact in terms of our perception as being an aerospace company. And I think that only will help and maybe add to the momentum that I feel we are seeing now.

Brad Evans -- Heartland Advisors -- Analyst

And then my last question was -- thanks about new data point as it relates to the commercial space opportunity. Is there any update that you can provide as it relates to the VTOL market or the air taxi market that you referenced last quarter?

Brian Shore -- Chairman and Chief Executive Officer

Yes. So it's in Ben's pie chart. It's something that we are working on. There's certainly a lot of news about it and the -- it seems to be the hot topic of the day, but we are working in that area.

We're pursuing it. There is a program, it's an important program that I think we're on. I think I told you, maybe I did last quarter, that was pulled back where we design. But we feel optimistic that we'll continue to participate in that program.

We think it will come out in its redesigned fashion. So it's something we hear a lot about certainly these days. It's in the news everywhere. So like when these new things come out, just my impression is that not every one of them is going to hit, right? It's kind of like sexy and current and not everyone of them will hit, but there's so much going on there perhaps being more than just fluff to it in my opinion.

Operator

I'm showing no further questions at this time. I'd like to turn the call back to Mr. Brian Shore for any closing remarks.

Brian Shore -- Chairman and Chief Executive Officer

Thank you. This is Brian. Thank you all for listening in the summertime. So I appreciate your time.

Thank you for listening to our presentation, and have a really great summer. Please call us if you have any follow-up questions, and we'll talk to you later. Have a great day. Thank you.

Thanks again. Bye.

Operator

[Operator signoff]

Duration: 10 minutes

Call participants:

Brian Shore -- Chairman and Chief Executive Officer

Matt Farabaugh -- Chief Financial Officer

Christopher Hillary -- Roubaix Capital LLC -- Analyst

Brad Evans -- Heartland Advisors -- Analyst

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