Good morning. My name is Doug, and I will be your conference operator today. At this time, I would like to welcome everyone to the Park Aerospace Corp. Third Quarter Fiscal Year '23 Earnings Release Conference Call and Investor Presentation [Operator Instructions]. At this time, I would like to turn today's call over to Mr. Brian Shore, Chairman and Chief Executive Officer. Mr. Shore, you may begin your conference.

Thank you, operator. This is Brian. Welcome everybody to our third quarter conference call. Happy New Year. With me, as usual, as always, Matt Farabaugh, our CFO. So we announced our earnings this morning. In the earnings announcement there also are instructions as how to access the presentation, either view our webcast or through our website, you want to have that up in front of you to make the call more meaningful of course. Just one note, I don't want you to freak out too much about the length of the presentation. I think it's like 55 slides. But what we did is we incorporated a number of slides from the prior presentation, Q2 and even Q1 for context and perspective. So the third quarter presentation stands on its own. You have to go back and start, check in the second quarter or first quarter presentation to get the full picture. But those items that we just -- that we carried over, pretty much intact. We'll probably skip over at least skim over. So it's a lot of slides, but I think we'll be able to move through it relatively quickly. And when I say that, it's probably 45 minutes, but it's not going to -- we're not going to go through every slide to cover that. So of course, when we're done going to go through the presentation, Matt and I will be happy to answer your questions. And I think that's it. So why don't we get started. Here we go. So let's move on to Slide 2, our forward-looking disclaimer language. If you have any questions about that language, please let us know. Slide 3 is our table content. The presentation that we're about to go through and then the supplementary financial information, that's Appendix 1. We're…

Thank you. [Operator Instructions] Our first question comes from the line of Nick Rispatella [ph] with NR Management. Please proceed with your question.

Hi. Thank you. First of all Happy New Year. And again, thank you for your very comprehensive presentation. I listen to so many conference calls and really Park has about the most comprehensive presentation. That's wonderful. First time in all my years, I've ever seen Vito Corleone mentioned in a presentation, by the way, I got a kick from that. So my question is, -- and I know this might be a little difficult for you, but the language you have in the slide about the China program, Comac, significant upside potential. If there's any way you can quantify in your wildest dreams or just a range of what this might mean for Park a couple of years down the road. That's first. Secondly, it is China. There's a lot of, let's say, tension. Do you see any risk politically for Park as a supplier in this program? And then finally, and this is kind of just a big picture question, Brian. How would you characterize Park's competitive position, your moat for lack of a better word? Thank you.

Thank you, Nick, and Happy New Year to you. I appreciate the input. And just let me say, to the extent people are still listening, if there is anything you would like us to cover in presentations in the future, please let us know. This time is your time, it's not our time. It's not our opportunity to hyper promote our company and tell you how smart we are. It's an attempt to communicate to you what we think might be meaningful in terms of understanding Park, our business and our objectives. So Nick, the 919 program, what's the upside potential? So right now, it's basically a kind of almost zero. And the question is how many 919s Comac produces. The good news for Comac is they have a captive market, which is the Chinese market, and it's a controlled market and the Chinese government will dictate to some extent, my opinion anyway, what Chinese -- what airplanes the Chinese airlines are buying. So we've seen some numbers coming out of Comac, and we're reluctant to pass those on. We're not sure what they mean, and in terms of forecast and the ramp rates and stuff like that. So we're reluctant to pass those on. We're not sure how much we can count on them. But I mean, starting at zero, I mean let's say, they got to 100 airplanes per year. I'm just putting that number out there as compared to 75 airplanes per month, which is what the A320neo program is -- target is. That's still a lot of revenue for Park. And what we did this time is we actually decided we give you the revenue per program, so you kind of do your own math. Obviously, I think you know this, there are two engines for…

Okay, thank you. That's very helpful.

Thank you, Nick.

Our next question comes from the line of Brandon Dietz with Huffman Prairie. Please proceed with your question.

Hey, Brian, Happy New Year. Thanks for taking the question. Yes. Just got a couple of questions. First, to start off, for the AFP initiative, you noted a potential major multi-front JV project with a large aerospace company. Just curious what does multi-front mean?

Multi-front means there are really two different major initiatives that relate to the JV discussions. And at this point, I think it's too early for us. It wouldn't be appropriate for us to discuss what they are. But both of them are significant initiatives and there are different types of things. This was raised by this company. It came from their side, originally, two concepts. And I'm sorry, I wanted to put it out there because I want you to know that kind of in terms of transparency that we're juggling two major projects, AFP project as well as the multi-front JV project with this large aerospace company. And I'm sorry to do that, please maybe we've raised curiosity up too much, but we're not really in a position to provide any more information about what company that is or what these JV opportunities relate to, but both of them are significant in their own right. I mean even if we only did one of them, which is possible. They're not dependent on each other, it still would be significant.

Okay. No worries. It definitely piqued our curiosity and very encouraging to hear. My second question is more of a housekeeping and modeling question around the rate card C2B sales. I think in the past, you noted you expected like a pretty small amount in Q2 and Q3. Based on your updated expectations, is it fair to assume the majority of what's expected for the fiscal year is going to accrue in Q4? And is it possible to quantify these amounts just for our modeling purposes?

Let me just quickly check if I can find that information. Yes, so about half of that number is expected in Q4. That's correct. But half that $7.5 million number is expected in Q4. So that's a correct observation.

Okay. It's nice to see the increase in headcount. I know it has been a struggle over the past year or two. And you noted it was kind of a sudden increase after Q3. Did anything change at Park in its hiring strategy, or was it just the labor market being a little more cooperative?

We didn't change our strategy. We stuck to our principles, like I said. There was one event though, that took place in our little town in Newton. I mean it's about 30,000, which is there's another company that has been in Newton for a long time, not in aerospace that shocked everybody by closing its doors with maybe one week notice. What surprised us about it is that this is one of the companies that was aggressively hiring people with hiring bonuses and big pay packages up until the announcement. So that was a good opportunity for us, and we've hired a number of people from that company, so local people, which is really good. We rather our preference, especially for production people to hire people that are local rather than from Wichita. So that helped us a lot. We didn't changed our approach. We didn't change our standards or we didn't do any of that. It was just we had some people who were available, all of a sudden. And look, I mean, I don't know what's going to happen to the economy, but it's possible we'll see more of this in the future.

Yes, definitely. You noted that even with those hires, you're not still where you want to be. I mean, how should we think about like what is an optimal level of headcount for Park that you still need to get to?

So that's a good question and something we're actively discussing and really, it's not a black one answer. It depends on how we structure the shifts. The norm will be a little different. But I think another half a dozen people approximately maybe up to kind of like 120, we get to a point where we feel pretty good. Maybe you want to do some fine-tuning, but we're certainly lot closer to that number than we were when we were down at 99 because the requirement hasn't changed. It's not like we needed less people when we were at 99. So moving in the right direction anyway.

Yes. No, that's for sure. Maybe one last one, a quick one. I know there's limitations on the ADRS program in terms of what you can tell us, but really encouraging to see the $2 million forecasted for calendar year 2023. Is that something you guys are already producing? Or is this still kind of tentative on when production will start for the -- to produce the kits for the program.

Some of that is booked, a good portion of it is booked. I think maybe about 40% of it. And we have orders to ship in our fourth quarter, our fourth quarter, meeting the next two months. So I think it's real. And that's the reason we provide that number because we just -- $2 million kind of a round number, but we wanted to communicate or we want our investors that this is not just something we're talking about as a prospect anymore. It looks like it's really going to happen. It looks like it is happening.

Yes, it seems like it's going to be very pretty significant, so definitely encouraging to you guys are on the program. All right. Well, that's all my questions, Brian. Thanks for -- once again, thanks for taking them and Happy New Year.

Happy New Year to you. Thank you for your questions and thank you for your interest.

Our next question can the line of Daniel Baldini with Oberon. Please proceed with your question.

Hi, good morning. Thanks for taking my question. I'm trying -- this is sort of a broad question. I'm trying to understand what portion of the demand for your products has been destroyed by the pandemic and related economic chaos and what's just been deferred? And for me, maybe the way to think about it is to go back basically three years ago, right before the pandemic started. And you went to the Needham conference. And in your presentation, you had a long term for what you call the long-term forecast estimate. And you had sales growing over the four year period to $94 million to $100 million for fiscal year '24. Now if I look at -- if I take your nine months numbers and add your estimate for the fourth quarter and then apply the breakdowns that just for the nine months, it seems to me that your commercial business is back to pre-pandemic levels and your military business is back to pre-pandemic levels. But the business is off by I don't know -- if it's maybe half or a little bit more than half of what it was. So if you say, if I were to argue that the demand has simply been postponed by, say three years, do you think that you could have $94 million to $100 million of revenue three years from now in fiscal year '27? And if not, what's sort of changed over this three year period about your sort of outlook for the potential?

Okay. Well, thank you, Daniel. That's a good question. As I've said, we're not -- we don't feel comfortable providing a new long-term forecast because all the short-term uncertainty. As explained, we think the outlook is good for Park. But it's a really good question, like how much has been deferred. You used the term destroy in your question. I'm not aware of any programs that were destroyed, but a lot deferred. And we're not quite back to where we were. I think in the pre-pandemic year, our sales were $60 million. We're not quite at that level yet. And...

The differences accounted all for, as far as I estimate, this big drop-off in business.

Yes, I agree. So for example, I mentioned that the A320neo program was producing at 63 airplanes per month before the pandemic. And the number I heard for calendar '22 was only 41 per month. Now they're up to 50, maybe a little bit more. They're trying to claw their way back. but still quite a bit less than it was pre-pandemic. And that's probably a good kind of metric for other programs, especially in the commercial area. Military is a little different because it adds a different kind of different drivers, different dynamics, I would say. So we just want to say we're going to shift everything three years. I don't think we're quite prepared to do that because of so much uncertainty. But the concept it doesn't make sense because I'm not aware of any programs that just went away and just died. Well, I shouldn't say that, the 747. That was probably a victim of the pandemic. And that was never a major program because it's already pretty small. They were only doing about six airplanes per year, 24 engines. So I think I mentioned that was probably a little under $2 million per year for us. So that's true. The 747 that went away and some people would argue maybe would have went on its way anyway, but who knows. But it's probably a very few examples of that. Probably mostly things were deferred and not quite back to where they were. And the A320 program, like I said is a really good example of it that not anywhere close to back to where it was now. That's not Airbus' choice. They have lots and lots of orders. They like their production rates to be up to over 60% at this point but just a lot…

So let me follow up. Last quarter, you had a slide where you noted that assuming a 59.5% leap market share, and 75 per month build for the A320neo, that represented approximately $32.5 million per year of revenue to Park starting in 2025. And I'm just curious, if you can remember back three years ago when you were making your forecast for the business with the LEAP engine, did you imagine that it would grow to a larger number than $32.5 million? Or is $32.5 million sort of what you've been expecting all along?

For the LEAP engine. I don't remember exactly what we were thinking about when we did that long-term forecast. But I guess I would say that I'd be surprised that long-term forecast contemplated a rate of over 75 per month. That would be surprising. So the dynamic has changed. I mean we talked about this over the last few quarters. This is my opinion again, but not completely because Airbus has been pretty vocal about this. They're on a mission. They're in a mission, single aisle to do what, to make Boeing a second-tier supplier. They see an opportunity, they're going forward. They're trying to be aggressive as possible. They feel that Boeing has been weakened, so they want to take advantage of it. So they want to emerge from this whole thing where I don't think they're thinking of putting Boeing on a business where the single-aisle offering from Boeing, the MAX is really much less than the A320neo. And we talked about the XLR. That was something that was not on the table. We treated that long term forecast three or four years ago. Boeing doesn't have a response to the XLR. They said they're not going to develop a new airplane in this decade. So I think that's a new dynamic which partly was caused by the actions with the MAX and then the pandemic, which makes Airbus even more aggressive in their mindset than they were previously. So I'm just rambling here a little bit, if you don't mind, but I doubt we'd be contemplating more than 75 per month, even three or four years ago. And just to complete the thing about what that's worth. The reason that we gave you the revenue per engine is so you could figure it out. We provide you the market share that LEAP has as compared to Pratt. And we tell you that the people at Airbus are still talking about per month by 2025. But you read the stuff, same stuff I do, is 2025 a realistic time frame? Some people would say maybe it's not. Although Airbus is not back of off that but I guess I would just add one thing, which is that in my opinion, is Airbus will get there. And maybe people could argue maybe it won't be 2025. But my opinion is they'll get there. They're highly motivated to get there, highly motivated.

Okay, and if you permit me one last related question. So as I've noted, your business jet business has fallen off quite substantially since the pandemic started. What are your sort of opinions about the prospects for that recovering?

So our business jet business is the biggest program that we have in the business jet segment is a Global 7500/8000, which is a good program to be on. And we have a lot of content on that program also per engine unit. That's kind of maybe the leading big, big, big business jet. Right now, Gulfstream has kind of come up with an answer in terms of the range capabilities of size. My opinion about the business jet industry is this. And just an opinion and I just want to say that, people will disagree some people will anyway. My opinion is that a recession is coming this year. And then the question is, how does it impact the business jet industry. My opinion again is that it will impact the industry differently in a different way, for the really big business jets as compared to a swan mid type business jet, why is that? The Global 7500/8000, I think it's $78 million per unit. So we're talking about a lot of money. This is not the average regular wealthy guy. These are large corporations, [indiscernible] Elon Musk types. Recession, are they going to hesitate to buy a $78 million airplane? Probably not, in my opinion. So I think the Gulfstreams and the Bombardier and the Falcons will probably do better in a recession. Now the smaller and midsized jet, that's a different market. That's a different buyer. Maybe it's a guy who has four or five car dealers and he wants to have a jet, maybe now not a $75 million jet. It might be $5 million to $10 million. That guy probably doesn't have $500 million or $600 million in a bank and he's more vulnerable to recession, and that guy might be affected more in his terms of just buying attitudes about jets than the guy or the company who buys the $75 million airplane. So my feeling is that the larger aircraft, Gulfstream, Bombardier, Falcons will do better. The smaller jets, maybe will be more affected by the recession. And I also would base that opinion upon past history. In the past, when receptions have occurred, economic downturns have occurred. The companies that made the smaller business jets were hurt badly. And I'm not aware of any reason why that pattern or dynamic would be very different if there's another recession.

Okay, great. Well thanks very much for your time.

Sure, thank you for your questions and your interest.

There are no further questions in the queue. I'd like to hand the call back to Mr. Shore for closing remarks.

Thank you, operator, and thank you all for listening. We appreciate it very much. Have a happy New Year. All the best to you and your family in 2023. Feel free to give us a call any time if you have any follow-up questions. So thank you, and take care. Goodbye.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.