PKE - NYSE

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 not going to go through that either during the presentation. But if you have questions about it, please let us know, of course. Slide 4, we will slowdown a little bit for Slide 4. This is the earnings results, at least high level. If you look at the right-hand column, these are quarterly results, of course. And highlighted in yellow, we have Q3 sales, $13.867 million. Gross profit, easy number to remember, $4.444 million. Gross margin, 32%, which we like to be higher. But as we always said, we get real unhappy when it gets going below 30%. If you look at Q2, it actually did go below 30%. And we have a couple of quarters where it's gone below 30%. Now you go back to the fiscal year '21 and that was the beginning of pandemic. So we know a number of quarters where the margins were lower. So adjusted EBITDA, $3.321 million, EBITDA percentage 29.3% [ph]. What do we say about Q2, during our sorry -- what did we say about Q3, the current quarter during our Q2 investor call, what did we say about it? We said our sales estimate was $13.25 million to $13.75 million. So we came in just a little tad above the top of the range there. And then our adjusted EBITDA estimate $3 million to $3.5 million. The adjusted EBITDA, as I said is $3.321 million, so kind of in the middle of the range for EBITDA. I'll just remind you briefly about our forecast philosophy. We tend to kind of remind you almost every quarter our forecast philosophy, when we give you a forecast, we're saying to you, this is what we think will happen. We don't play what we consider to be a game of giving you a low number that we can beat and then be heroes. That's not what we're doing. And our employees, they have the same targets. So these are real objectives for us. And they're not easy objectives. These are again, we're telling you what we think will happen, assuming that we do what we normally do, is work very hard to make the numbers. So I just want to mention that to you. So when we make our numbers, the fact that we gave you a number that was in our forecast, the prior quarter that was low, so it was beat to call, I guess in Wall Street. That's not something -- we think it's just kind of a waste of your time and our time to play that game. The other thing is that we have -- when people do that, I know most people do, to us they're not really being honest with you. They tell you this is what they think is going to happen. They don't really believe it. And that's not for us. So we're not judging others. We're just telling you, reminding you of our philosophy. Let's go on to Slide 5. An outstanding job by Park's people to exceed by just a little bit our Q3 sales estimate and to make our Q3 EBITDA estimate, especially considering significant challenges with supply chain disruptions, freight disruptions, unreliability, staffing shortages. It was not easy to make those numbers. And total missed shipments in Q3, approximately $650,000. We're still struggling with these things. Those three checked items are the reason for the missed shipments in Q3 that hopefully will carry over to Q4. Factors which affected our margins in Q3. So we're going to go into the next page, is a bunch of factors, a number of factors we'll be talking about. So far, we're talking about top line in terms of how much we -- the $650,000 we missed top line. Now let's talk about bottom line. Let's go on to Slide 6. Significant inflation. That's not going away or abated yet, not for us anyway. Raw material costs, shipping supplies, other supplies, utilities, freight in, freight out, people costs, you name it, probably more expensive. Some of the increased costs were passed through to our customers in Q3 and form of selling price increases, but not all. Why is that? First item is the lag effect. And so we honor our commitments on our POs. Some companies don't do that. Some of our suppliers surprisingly haven't done that. We're going to confirm PO and then we're going to go ahead and confirm that PO with our customer based upon the expectation of raw material costs. And in the middle of the process, we are told that our cost is going up, even though there's a PO that we have from our supplier. So we get burned with that. But we don't do that. We live up to our commitment -- it's not even a discussion, it's not a great area. We make a commitment, we live up to it. So there's a lag effect. So we need to wait until the next time we quote this customer in order to take into account the increased costs. And the other thing is, forget about our suppliers for a second, just the other costs are going up. They haven't gone up very quickly. And people talk about inflation moderating. We don't see that. Sometimes it's hard to keep up. We anticipate a little inflation when we do our quoting, but sometimes it gets away from us. So we get behind the power curve. But we just -- we live up to our commitments. So that's a lag effect. We'll wait until the next time we quote in order to take into account the inflation factors. And then the other factor is LTA pricing with certain customers like that big one MRAS which we talk about a lot of these presentations. We have long-term pricing, fixed pricing. It could be subject to fixed adjustments, but it's not often based upon inflation factors. So that's also an issue. And inflation is really a burden for us. It's really becoming a burden for us. And our people, I think, are doing a pretty special job is finding ways to overcome that burden because there's a real burden. It's not just kind of a rounding error kind of burden. It's a real burden and it's something that we live with every day. And we continue to live with. We are not sure when it's going to go away. Like I said, people say it's moderating. We don't see it in our little world. Let's go on to Slide 7. Still talking about margins, what happened -- not what happened on our margins, but things that impacted our margins, let's put it that way. Somewhat lower margin product mix in Q3 than expected. So why did we not fully anticipate this in our planning? When we gave you a forecast for Q3 back when we did our Q2 announcement, why don't we anticipate the product mix? And my comment is, I think the same comment we gave you last time, planning is interesting in the world of supply chain chaos. So we have a nice plan. It's great. But so we put the plan in the drawer, then the chaos happens because of supply chain disruptions and freight disruptions. Whatever we plan is nice, but it's not what we're able to do. We have to shuffle. We have to move things around. We have to scramble. We have to make things happen. That's the Herculean effort that's involved to make our numbers, to make our quarters because if we just kind of went as planned, they would not work out too well. And then Mike Tyson, everyone who has -- everyone has a plan so they can punch them out. I think it speaks to us, because we have a plan, but almost immediately after the plan is put in the drawer, the world changes on us and a lot. This is not normal. I mean, things always change a little bit, but changed on us a lot. So it's very difficult to anticipate exactly what we're going to sell in any quarter and that's why it is difficult to anticipate the product mix exactly in terms of margins. What we plan is good, but we end up actually selling during the quarter may not be what we planned. And in fact, it has been up in what we planned. Supply chain disruptions continue to cause significant efficiencies in our manufacturing operations. If you know people that run the manufacturing operations, one of the things they really like the best is to be building to plan the manufacturing operation with some kind of predictability. And when you have to scramble and adjust and move things around, it makes the manufacturing operation very inefficient. Again, this is another thing that our people had overcome. They did an outstanding job in my opinion of overcoming it. But at the end of the day, notwithstanding all the obstacles, challenges and difficulties our great Park people pulled together to get the job done to make our Q3 numbers. Each person, each Park person received a quarterly bonus, our Q3 quarterly bonus of $200, not in thousands. They didn't get $200,000, they got $200 for his or her outstanding job under very challenging circumstances. Let's continue to Slide 8. Slide 8, we won't discuss very much, but this is a slide that we provide in our presentations for historical context and reference. Any questions about the annual -- historical annual results, let us know. Let's go on to Slide 9, just to save a little time here. Park's balance sheet, cash, cash dividend history and recent share buyback authorization. We'll skip through some of this stuff. One of our key investors recommended we cover it to me. We cover this every quarter. I thought it was a good idea. So we're doing that. Some of the stuff is not that newsy. It's kind of going over things we covered before. Let's see our reported cash was $103.3 million in Q3. What's our investment philosophy? We invest in highly secure liquid securities, such as treasuries, governments, high-grade commercial paper. We don't take any credit risk. We do take interest rate risk because look our average maturity is 21 months. So interest rates spiking up, you don't have, because that means the value of the investment at least, temporarily ends up going down. Our practice, by the way, is to hold our investment to maturity, but the value of them on accrued basis is going to be depressed if interest rates are going up, which they happen, of course. We report this is how reporting is done mark-to-market. So it's not the investment value, it's the market value of our securities and investments that are reported to you with that $103.3 million. Just so you know, in case I put it that way, the amortized cost basis of our cash and marketable securities as of the end of Q3 was $109.2 million. I just want you to have that information and you figure out, you decide what you think is a more relevant number. If we hold these securities to maturity, which has been our practice, we'd probably get closer to about $109 million. When these securities mature, you got a 21-month average maturity, but the present value of $103.3 million. The other reason I want you to know that is in case you're wondering, what happen to our cash, well, it's like the cash has been -- we're not spending the cash recklessly. The value of the cash for reporting purposes is affected by interest rates. Again, we don't take any credit risk. We just take interest rate risk. So we have an average of 21 months, and that means we're exposed to interest rate fluctuations. Let's go on to Slide 10. Any more questions about that, please call Matt later and ask them because that's about as much as I can explain about how we report our cash. Slide 10. We've got about maybe $13 million of spend on, especially the installment tax payments. So again we'd like to share that with you because if you're thinking about how much cash does Park really have, that's relevant. This is a liability we have. It's on our books, but we still have to pay the IRS over the next three years or something like that, that $12.6 million. Cash dividends, every quarter we cover this. Let's go to the last check item. Park has paid $558 million now in cash dividends since the beginning of 2005. And I'll give you my comment that I always give you, which is that that's a hell a lot of money for a small company like Park, $558 million cash dividend. Let's go on to Slide 11. Share repurchase authorization. This has been kind of a hot topic of late. We announced in May 23, 2022 that our Board authorized a purchase of 1.5 million shares of companies -- of our Park stock, common stock. And did we purchase anything in Q3? No, we didn't purchase anything but not for not trying. So maybe the market was making us an offer that we couldn't refuse. Well, we've been in blackout since middle of November, but during the Q3 period where we were not in the blackout, remember, stock went down to like, I don't know, $10.11 or something like that. It was trading in the tens for a little while than they have. At that point, we felt the market might be making us an offer we couldn't refuse. I told you the last time, we don't think it's our job to buy stock. We think it's your job to buy stock, your job to decide whether you want to buy stock or not. We don't think it's really our principal job. Our principal job is what? Do everything within our power to enhance the fundamental value of the company. That's what we're working every day. We're not market traders. So we're not too excited about buying 5,000 or 10,000 shares a day. It seems kind of like suddenly you waste your time in petty. But when the stock was tuned to that level, we felt maybe the market was making an offer we couldn't refuse. Worked through an [ph] amount of buyback. They're doing a great job. If you ever know somebody who wants to do a buyback program I'd recommend them without reservation. And we were looking for blocks and big ones, but we didn't find anything. And we're told that the institutions are more really all buyers, not sellers. So we couldn't find anything. And then if you remember, the stock started to move away from us up to $11, $12, $13, $14. At that point we backed out because we don't want to compete against actual outside buyers who are buying the stock. I just want you to know that I'm not saying the price here. We're not saying that the price goes down to $10.5 we will be back in the market. That's for us to know, and you not to know this. That's -- we will discuss what we will do in the future. I just want to give you the facts as to what happened in the past, all right? So for your perspective. Last item with interest rates rising, era of cheap and easy money coming to an end, we hope with Park's hard-earned money finally would be worth something, maybe we hope so. Let's go on item, Slide 12, rather. This is -- we cover this every quarter. Let's just go through it. AAE Aerospace. That's the MK125 warhead with a standard missile 2, SM 2. That's a really nice program. I like being on that program. Let's see in the next Kratos Defense, well, you can see the Kratos Valkyrie. We're really very pleased being in that program. It's a really exciting program. We love working with Kratos also. And I don't know if you saw it, but just recently announced that they did a new deal with Kratos with the navy for a couple of Valkyrie aircraft. So that's exciting for us anyway. Lockheed Martin, well, that's secret program. We're not allowed to talk about it. So we can't give you pictures or anything else. But they are in the top 5. So we can tell you they were top 5 in Q3, and that's what we can tell you with that. And Middle River, yes, we know who they are, MRAS, we call them. And that's the like the Comac 919 with the LEAP-1C engines. And then Nordam, bottom right, the Bombardier Global 8000 with the Passport 20 engines. Actually, MRAS is on that program as well as Nordam, but we're choosing to focus on Nordam this time for the Bombardier Global 8000. Let's keep going. Slide 13, our pie charts. I guess what I would high level of interest is if you look at fiscal '22 and fiscal '23 first nine months, boy, it sure looks the same, doesn't it, hardly any change at all. I mean commercial is actually the exact same percentage. So it seems like the pie chart kind of break segmentation is stabilizing more or less at these levels, at least for now. Look at fiscal '21, that was that pandemic year, let's call it, and commercial was way, way off. Remember, maybe you do remember, the airplanes being flown empty, remember that? Okay. Let's go on to Slide 14. Park loves niche military aerospace programs. This is a slide we always do. This is -- Donna does the presentation, he does a great job, and Donna works over the holidays and everything. It's really great duty by work by Donna. Elena is the one who comes up with the programs for the Park niche military aerospace slide. So I want to give her some shot at it as well. What do we have here, the ASTER 30 missile, those are blades, the Predator Radome materials, the Growler Radome, structures materials and the Poseidon structured materials. When you look at the pie chart, rocket nozzles, drones, Radomes, I would all consider those all to be niche markets for us. And we focus really on niche markets more than commoditized markets in commercial and military, especially military. Okay, so let's go on to Slide 15. Military markets. So not every slide we have is happy slide, but that's not what we're doing here. We're just trying to tell you what we think. The new world order, the sea change, the war in Europe grinds on. Many of the governments seem to be willing and maybe even eager to continue to sponsor and fund the war with military hardware and equipment and other things. And Asia is not a happy place either these days. There's now open talk about the possibility of nuclear war. You mean like the end of civilization on earth nuclear war. Is that the kind of the nuclear war we're talking about? Elon Musk wants to establish colonies on Mars to preserve human race in case we do not make it here on earth. You better hurry. This is a joke and not for us anyway. The bottom line for us is that we hope, we sincerely hope the warring nations find a way to end their war and stop the killing soon. What a waste of life. But even if they do, we believe the aggressive military buildups will likely continue for a while because there's so much ill will, fear and distrust in the world now. Let's go into Slide 16. Like I said, not every slide's a happy slide, but that's not our job. Our job is, I think, to tell you what we think. Slide 16, not surprisingly, there's currently much emphasis in many parts of the world, on aggressively expanding military budgets and spending in the U.S. and foreign countries and also not surprisingly, missile defense systems, including the PAC-3 Patriot missile. One of the key areas of emphasis for increased defense spending. That's probably in a shocker in the circumstances, the missile defense systems to be very important. And this is like the preeminent missile defense system, I think, for -- at least for a lot of initial systems, the PAC-3 I'm talking about. Remember, the Patriot missile that was in the first Gulf War back in the early '90s. Well, this is obviously next-generation. There's multiple generations after it, but it's been around for a while, actually. On Slide 17, Park supports the PAC-3 missile defense system with specially ablative composite materials. And our ablative composite materials are sole-source qualified in that program. Japan, South Korea, Taiwan, Germany, Switzerland, Poland, Netherlands, Romania are buying PAC-3 missile systems or upgrading systems. I think next quarter, we probably want to just give you a list of countries that are not buying the -- or not using the PAC-3 missile system. And during President

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 C919, so you have to multiply that by two. The good news with the 919 is that engine, the LEAP-1C engine sorry, that program only uses a LEAP engine, only uses CFM engine. It's not a shared program with Pratt. So all the C919 that are produced are going to be used in that LEAP engine, LEAP-1C engine with the Park materials. The risk -- it's a good point. I don't know how to quantify it. I would never say never. I guess the counterargument or consideration might be this that the 919 is a very important prestige program for the Chinese government. And there's a lot of risk in changing. Once you get an aircraft going, there's a lot of risk, a lot of expense, a lot of hassle and change in courses midstream. So for them to decide they want to change engines or change suppliers and their cell structures, anything is possible. But it's a lot of effort, a lot of risk, and it's a risk for their program, which they know the world is watching is my opinion again. And I don't think they want a hiccup. So I think they want a smooth introduction of this airplane into the market. They want the world to see how that's -- the world to be impressed with how it's going. So I think they're going to be reluctant and they are smart to throw variables into the program that really aren't necessary for them that could cause some setbacks in the program that aren't necessary for them. They look at the big picture. There is some talk. I think we discussed this maybe a couple of quarters ago that Comac or the Chinese government, I don't remember where it came from. It's kind of the same wants to have a Chinese alternative -- Chinese engine alternative to the LEAP-1C from 919 by 2025. And I would say I'm highly skeptical about that target. I don't think that's realistic. And I haven't heard that coming out of China for a while. So I think maybe they -- again my opinion, maybe decided to kind of back off on that target. Ultimately, China wants to take whatever technology, airplane technology, electronics and have much Chinese content in this technology as possible. So we'll have to see what happens. There's a risk -- and I don't know how to quantify, I guess, maybe the only other comment I would make about the risk is it's probably, in my opinion, a longer-term risk rather than a risk that would have an impact, let's say, through the end of this decade. And you're right, there are definitely are tensions. I think just one other comment GE has a lot going on in China, a lot of inroads in China as much as their attentions. They are also symbiotic relationships where both parties are kind of dependent on each other as much as they may not want to work together. They kind of don't have any choice. And they're being practical, and want their programs to succeed. Let's see. The last question was it -- how we're different, how unique from our competitors. So that's a good question, maybe good better question for our customers, ask for our customers. My perspective on it is probably many different kind of things. At Park, we have a pretty extreme culture. And for me, if you really want to have culture, you need to be willing to live and die by it and not just going to talk about it in the board room somewhere. And for us, we try to do things consistent with our culture, not just talk about it. One of the things that is kind of a calling card for Park, there's flexibility, responsiveness, urgency. The aerospace industry is kind of strange. It's well, yes, it's 9 months, 12 months, whatever lead time. And okay, I guess that what it is. We -- that's not for us. We don't want to kind of get ourselves range into the kind of mindset. So I would just maybe list that one item as maybe distinguishing factor between Park and our competitors.

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 of -- they're struggling to get there. And the big issue is supply chain, supply chain. Well, we talked about what happened the pandemic occurred, it was really Armageddon. I mean it was very frightening times because we didn't know what's going to happen. Not only it was bad what had happened in terms of the contraction in the industry, but I mean people are really talking about the world coming to an end. So what did companies do? They slashed and slashed and slashed, just to survive. And then they start coming back a lot more quickly than expected, and they're just totally beyond the power curve and have not caught up yet. I think the Airbus guy, the CEO said, maybe by the beginning of 2024, the supply chain will be back in shape and have caught up. But I mean, I don't want to be disrespectful, but he keeps pushing that date back because he's said other predictions that supply chain would be back in kind of normal shape earlier than that. So I'm rambling here a little bit. I think, Park, just one other comment, maybe part of our ability to get back those numbers are can be based upon these programs, getting back to where they're supposed to get to. And then these are the things like these other opportunities like ADL, for example, the PAC-3 I mean I don't know where that's going, but it seems like everybody in their brother and sister launch PAC-3 missiles these days. So it's hard to even quantify what the upside is there. I just read the stuff you could read about this country, that country, they're all adding PAC-3 missiles. And AFP, that would be another example of a long-term strategic example of additional revenue, this joint venture that we're talking about. Another example of significant upside revenue. But I think when we gave those forecasts, Daniel, I think at that point we said, we're not looking at kind of -- we're looking at our current business, our current business is growing organically rather than acquisitions and large joint ventures. So maybe I should take the potential joint venture out of the equation for this discussion.

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.