Ducommun (DCO) 10 May 182018 Q1 Earnings call transcript

Good afternoon, ladies and gentlemen, and welcome to the First Quarter 2018 Ducommun Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to your moderator, Mr. Chris Witty.

Thank you, and welcome to Ducommun's 2018 first quarter conference call. With me today are Steve Oswald, Chairman, President and CEO; and Doug Groves, Vice President, CFO and Treasurer. question-and-answer certain or any make performance prepared or discuss future statements, during to remarks projections follows. events, that the going limitations forward-looking to regarding the I'm that session we may XXXX, statements Federal future conditions, and Private Reform to financial Securities are statements restructuring forward-looking are of operations, market historical including Litigation results facts, Certain any and that statements perspective. as projections our of therefore, our plan not under Act the other by factors, subject to are to statements. and actual future risks, statements could forward-looking results which uncertainties differ results These cause expressed such from materially or implied forward-looking

we we reflected can expectations in expectations that assurance reasonable, no are such that statements be Although, give to believe will our the prove forward-looking correct.

are which annual only on time and in risks. Ducommun current and our any update legal subject this we except made U.S. the level cost required acquisitions not and results risks, In in those cyclicality government competition. based presentation, others, with on is expansion management the call forward-looking statements report and and spending, if the as changes, described to facing Form risks addition, our are risks to business, filed estimates XX-K regulatory Statements this intend others to during include, the as are Particular of and SEC, are and among of of These our do defense authorities. made, statements made change. the company's future markets, subject of regulatory of end-use and the operating by

GAAP ASC similar on the results. and of the This turn filings company's measures. further our tab. standards our over call to XX-K includes in to filings comment's Please financial revenue operating on of on call Please measures of the refer policy, and addition, for covering see also XXX. filings a Steve measures. the the description with this website accounting current recognize the review policies Form our XXX, topic comparisons call implementation Oswald prior to with today, change Investor all In reconciliation to recognition results. a the our ASC, most of non-GAAP comparison this codification referenced the today's call non-GAAP for the all for like SEC the Relations We've now under SEC the to filed Steve? find Mr. would I you'll FASB

after review thank of an call. for us conference providing and Chris, our today our by developments I'll you Thanks, for the results for overview everyone XXXX in financial will first which begin Doug the company detail. recent joining of quarter

very I'm update on First, pleased to place give many Ducommun. an taking changes at

to growth As we position business results and going stronger forward. the for higher drive operating

a We taken $X.X resulting continue year. footprints million of of rationalize to last our $X.X top million on the quarter, charges, restructuring this

assets, actions write-down staff work recent about most we our end the Our additional XXXX. with of or by of XX% along with involved consolidation reduce to severance to of along total cost. Similar the force base X% as manufacturing above reduction of QX,

ahead. company to million actions lightly. track XXXX. in discussed, annually, restructuring we life do our And we our let time, the And charges many million I the changes, of the also are take roughly the will We years job, want very which the committed to organization. our to At customer of implementing today the done effective these same not internal in program. previously beginning share the team $XX the meet approximately million performance has that $XX a impact As take on savings we over strengthen or actions $XX haven't of entire will

on-time very best quality service, As product customer and we strive delivery. the to provide

year provide that to as trust innovative us customers than ago. $XX million have that $XXX our the to put million $XXX nearly solutions and more truly speaks roughly quarter is in backlog and million. grow. time XX% exciting from continue of and That's As up to this actions, again this over high-value, capabilities a or proof QX our aerospace to Ducommun's This defense markets serves sequentially

platforms, across to are benefiting orders Diversion also continued well a Lightning sequential We multitude our Systems leaving see Segment new also growth of winning components, in products I'm pleased faster in engine including improvement positioned the well extremely acquisition, the us and the Structural from to margins. as as years for come.

a in X.X% QX, to rose review this will margin Doug operating an X.X% in quarter adjusted basis of points. moment, from As increase structures XXX

margin see going expansion expect We further forward. to

of and the higher margins $X.X Overall, quarter, year, cost XXXX. QX over seeing for is generated cash a adjusted I we're the now through which reductions, and the investors. million news total of for leadership million As company, changes, last rose the from volumes, of XX% during structures were or operating unacceptable also $XX.X mix, We've mentioned income favourable great results.

acquisition transaction known for last the Industrial latest of [indiscernible] following This and We capabilities LDS resins, certified alloys, of CTP, April, our and in bolt-on second wide compounds applications. Commercial range thermoplastics of Medical of also purchase Defense, year. bolsters recently assemblies completed a also as a Aerospace,

proprietary components, mentioned entirely one new the property, while expanding in and our leveraging and past, our CTP our adds is in strengthen of footprint I expands expertise. profile in company's value-added my Interiors. the aerostructures Ducommun high into As capabilities products augmenting our existing to market, Aircraft through goals to engineering and intellectual an

a opportunity and Duncan, current an Robert organization, provide President assist aftermarket part the major and stay important positive a being transition. moving are and very as on sales. shareholder, for things and to happy adopted to team the of agreed CTP's to how for while has have integration Robert well ensure direction. in successful that the As the with a his and quickly Ducommun family We're please with

transparency to delivery, MK the XX million, Beginning MK systems. strong provide me military our as a of highest spending not filing some continued see and in grew XX programs. good let and cycle this Space budget additional sector, first our with and place We $XXX the and and sector has going been predictability coincidently, across markets, Military perhaps it Having to end defense missile on quarter. posted Department's anticipate forward the products forward is This revenue Now are X million provides and our Raytheon and growth we and you to quarter space nearly Defense greater missile demand, pleased color with $XX.X during priorities. such current in years.

operations, particularly, we're and highest to [ph] line our level family. platforms In growth sales AXXX XXX significant Aerospace first nearly large rose again million, the We fixed Boeing year-over-year $XX our across its extremely $XX.X saw So quarter million pleased. Commercial on aircraft applications, ever.

gains Ducommun's and posted steady platforms that the also New facility. Parsons are expanded We along with many production progress, for with facility, York [indiscernible] recently Gulfstream making ramping up are

Airbus expect MAX, the of deal certain to XXX a GXXX, and AXXX this Boeing as see including increase operating GXXX, and year leverage output GXXX. for We these Gulfstream well AXXX XXX in the great as their models, locations as

produced, manufacturing our performance next-generation the for the titanium centerpiece serves a components methods Given as both advanced in our capabilities.

sites have year improvements In now this addition, many both we XXXX. leaders the stay tuned for into and new at

to end $XXX million, structural of Commercial backlight MAX. at QX orders by Boeing record another XXX boasted large some components Our at on the hit Aerospace the

speeds hope said, the and related our certain yet volumes not future. in have magnitude reflected teamwork we [indiscernible] the share core of customer addition that wins about backlog That relationships, entry announce to the In our abilities. near very

supplier to to of the continue that business, solid aerospace our in be exciting see all It's across key We sequential platforms Aerospace driven customer product a encompass Commercial time segments. growth by nearly an industry. our clearly

XXXX talent, So excellence we performance volumes I of beyond, demanding details. returns about focused top for now have review and Ducommun, in financial look as ahead. the hiring dedicated outlook Doug? for Doug every area in I'm forward remain With our streamlining greater company the and it that, the higher talking our production the have in on about, positioning improved operating I for fundamentals, quarters and optimistic been shareholders. will to

you everyone. day Thank and Steve, good

As classification, call and XXX, ASC recognition year-over-year of our of today's current statements, are on revenue topic implementation the on the Harbor covering FASB results. introductory comparisons all the we mentioned standards accounting year a during basis recognize policies Safe

We Please the for have been since press of are filings today's description in method modified not the past ASC XXX. using purposes. further prior company's adjusted adoption policy, versus this the retrospective of for the comparison see release financial results

ago, quarter So higher customers as QX performance This turning to XXXX rose large was Boeing end level million Revenue the just sequentially platforms, highest increased fixed in first million XXX. million mentioned. the nearly to due and the the million its $XXX.X to Commercial $XXX XXXX. such of wing of Aerospace the versus company's first quarter, million $XXX.X ever, $XX from Ducommun's year the shipments $XX.X for quarter the as at million sales a with over of from results. quarter primarily up first nearly of backlog Steve for reflects $XXX

profit. gross to Moving

the first margin X.X% was lower in of primarily restructuring operating the XX% X.X% of reported to costs was the costs, in comparable the revenue million service XX.X% versus an or of in other and prior reflecting year's mentioned was of offset was income in gross the that income versus to operating period. manufacturing versus $XX.X was $X.X period. by SG&A million or decline for as X.X% $X.X volume. $X.X XXXX, manufacturing partially activities of result higher with professional revenue, the compared primarily million year-over-year quarter prior-year gross higher partially million in On Our up income due as margin of The first the offset a Steve fees. an $XX.X in company of compensation X.X% decrease benefit and quarter operating basis, quarter-over-quarter. adjusted XX.X% higher quarter The sales, or nearly X.X% million by first or revenue,

we restructuring and in We're as have million X% restructuring corporate million of the $XX annualized our charges expenses Electronic was $X consolidate in Systems we Our charges taken through $X.X year-end $X.X within million XXXX, footage, and in taken segment, approximate currently its manufacturing and within million approximately to by all approximately in the $X.X on the to track initiatives. the the and restructuring anticipate quarter continue staff. XX% to our charges footprint These less expect by QX Structural as company quarter. segment, eliminate square together taking initiatives to second that level such during headcount fewer add were reduce million million included continues Systems $X.X

As noted machinery including outlays, the charges of and severance mix and previously, items of will typically and be facility for noncash consolidation, write-off these cash equipment. a

anticipate We CTP, the per million discussed. for higher to expect XX% per quarter increase the charges. $X.X facility $X.XX share million $X.X utilization $X.XX $X.X entire was first of million $XX net which $XX credit XXXX or for the share. of in of EBITDA of or quarter this Adjusted Adjusted last company we will net life and period The end compared X.X% offset income XXXX. or for rate of of be program, diluted revenue mentioned, million Steve just the to would As quarter income the be Interest XX% quarter. $X total $X.X for $XX.X the the the for expense first was XXXX. reflects approximately $XX.X runs or year expense diluted million versus lower restructuring year-over-year I higher the LDS restructuring million due higher partially year previously XXXX the million QX approximately per first SG&A, X.X% of over any revolving GAAP Expected the charges million the charges before $X.X quarter interest purchase in for next diluted revenue, of was income through XXXX. expense acquisition to share mentioned. with compared of or of approximately million by comparable our $X.XX of net the as to tax restructuring The the million reported interest to

to turn segment the segment. me Electronic results. Systems let Now

X% Systems Electronic customers, sales prior offset Space million in slightly in segment revenue million million Our higher and versus $XX.X to first year. $X.X posted quarter of of by the operating Military in modest the of first of million quarter systems These or for $XX.X the markets. of reflect results or revenue Industrial million $X.X X% our revenue income year. versus $X.X posted Electronic declines prior the in

by electronics QX. level impacted for quarter. operating to As the but Steve we expect negatively The X.X% XXXX more back to margins product mentioned, was normal mix the X,XXX first margin adjusted in quarter was first bounce some

the to System Turning segment. Structural

of revenue first X.X% million of compared of The and to million offset segments to given year. year. segment quarter million Steve $X.X than versus was Commercial the Our single was or volumes, posted mentioned restructuring in particularly, Structural Systems for our Space large increase when timing. up million and revenue across The Structural operating the quarter, Military applications, of decline year-over-year sales was prior more million Aerospace was market just jet to posted operating in shipment of margin $XX.X year-over-year or basis out XXXX on million of quarter $X.X income due income to X.X. the due higher platforms, $XX higher the of last $XX.X primarily The adjusted first $X.X XXX charges X.X% operating last of points X.X% the the from structure's quarter. revenue as increase for reflecting

million X.X% was revenue and Parsons corporate, last decline asset and in result fees. $X.X of CG&A, anticipate company as administrative benefit benefit The we by or year was to was initiatives partially activities to and activities the the upon cost of Steve progresses general X% our compensation quarter also due operating margins to our offset facility revenue will to with for compared higher CG&A Margins our expense As programs restructuring continue first as service and or professional ongoing of expenses leverage. higher trend a discussed, million associated improve ramp-up year. based at streamlining the new utilization. will lower $X.X primarily of

million capital and cash liquidity the first versus quarter million XXXX generated to from in Turning in resources, $XX.X $XX.X we of XXXX. of operations

of We to XXXX, quarter in also million pay million any to absent $XX down million paid $XX $X.X and down expect additional in acquisitions. debt the

wins business the I'll million the the consummated. million over new million come. progress, anticipate to XXXX, the to $X.X as in growth results his improve back in related and XXXX, CapEx, the $XX.X closing is $XX and our for higher on to less it much solid Parsons approximately We we're and we facility believe recently expansion. spending to restructuring than now Steve? $XX we pleased investment of our terms quarter, In post million acquisitions in the quarters with largely Steve spent turn financial footing we completed to during company remarks. Overall,

Thanks, Doug.

the here proud of As at I'm earlier, steady I said improvement Ducommun.

by million our all through year, the I winning good by and $XX see to this a improvements, bottom think and of backlog lay and business, we we're top will we levels. In I'm resolve that I the reaching operator, operating expanding for margins, start. are to benefits that, noted employees for reduced line we'll all that for going be the record efforts this questions. our our it driving the should line as groundwork as acquisitions, cost investors off thank year spirit, With a new approved want now very that confident call investors open results in XXXX. we're

And question Instructions] first Sidoti. Thank you. Marshall from [Operator from our Edward comes

Your line is open. now

Good evening, guys. How afternoon. you? Good are

are you? Hi, Ed. How Great.

I am doing well.

way? to ask, upon think So you in backlog want just I did guys any your

Yes.

we're consistent price of fixed The XXX, that reporting we've from we Ed, So LTA's XXX which with POs, over backlog plus fixed number PO, our out POs. XXX, XX-Q from years, go that price firm adoption see a is under customers XX had for as dates fixed reporting as months. open on firm price, purposes defined delivery of you'll backlog the

that the as has we've into the we're So using consistent definition press put release. remained

So which isn't there's the no XXX, policy change the aside in from XXX?

less. number is the substantially the and XXX No, XX-Q

the that quarter? So in at - wasn't backlog way, after by all, and happened CTP, the

April. exactly. yes, No, That happened in

Okay.

last Just a year projects testament looking and pretty you I already called I I'm at that aggressive to that's mean a out… ramp-up guess

XX aisle of to correlates on structures years rates the there at build the platforms, to largely seeing Well, in that right, next XX with commercial well we're that's which And over you XX backlog, business. is our of if couple the so. thirds that really two look single the

And and delivery one it. of it you the with firm is more Got just adjusted just Or clarification probably you think XXX. backlog predicted by point But I that what this these is have reported? dates? are

chain, structures of products. No, far they nature because the these stuff on firm the of especially supply out that delivery go the are because

delivery fixed firm dates, firm So prices.

you're was adjustments good. year-over-year, in this the well. And quarter went why lost profits the is XXX. the to competitive looks more probably second as smoothly I there was including for rest the I of that understand but then for I it. the revenue Got want you adjusted last And the reasons question have year. to year in a structures understand effect

or closer So think kind I to X.X in to think adoption it's you of structures X that of might like for that, margin guess I I looks leave business? if the the XXX there -

Well, no, on progress goods now XXX, in in we're in are inventory. that and means that mean that revenue not yet. adoption with our work of recognizing is I things what finished the

to recognizing the generally point versus as left full a recognize estimate revenue have you a when the revenue depending shipping XXX, would time over in under warehouse, to so we accounting And go to So it complete upon XXX. terms. time,

we recognizing as obligations. we're revenue our Now complete performance

numbers I are that So are think, just... represented the here

Yes, you I numbers XXX, the that profile - go... number extract that are a the margin correct? include And that are on they reported understand GAAP from but

exactly. Yes,

on go so with it? numbers, forward go is think of going XXX is the representation a on what adjustment this this out, to about business of the way included to right smoothing that But that a be basis doing forward kind is

is. It

we're we've get message that consistently restructuring digits. said, with going that We've back up doing high the all improvements and in the pretty As this we're in business, been single to business

And structure says it that today today? like reported here looks is basically

Right.

points. basis XXX

this was it's trying a happened? lower just It at am of particular, Was prior quarter particular maybe the bit like revenue kind because, adjusted And little of to than lower might've years. anticipated. in that you then looks over look XXX, that some Okay. adjustment little last year? bit may in electronics that the a I margin anything, recognize that in there

No.

in has the it's - the mix we cycle talked as shorter have product And in previous margins cycle move that depending around tend a about we As and did electronics well. calls, the issues some upon we've timing to business. have quarter business shorter the the

the look this consistently anything our don't pretty So and you business, between that's at margins we quarter-over-quarter. somewhere if as XX, and see that problem nine in

don't here. problematic. anything that's depth small But So we see

there. We'll back be

on that comments size profitability be business? may or can CTP you in make Any about,

Sure.

forward. reporting small it's to business. profile of profile business. than where revenues relatively margin total margin the the than business that a going were better revenue, structures be is our which we're it X% current So the of is substantially less going The But structures

So on the expected three than in that the roughly level structures business operating have. we are margins what we see

Is the that on basis? EBIT an or EBITDA

EBIT.

Thank that. appreciate you very much. I

Ed. Appreciate it. Thanks,

Ken Thank from you. comes from And Canaccord. next our Herbert question

You now line open. is

actually this add congratulation is second my my Hi, acquisition. your for to wanted I Thanks Parry Ken. on on question. for taking delayed

Thank you for that.

talk potential little bit, your where a would help bit on it something I little most more opportunity seeing right now? also on about Can just you're pipeline and the focusing you're maybe color a

acquisition Parry, just sales, which? or

CTP?

is Okay, I'll Steve. acquisitions. take this, this

with we a aftermarket continue still and we're a marketplace we've in in we're with have XXXX. for good as started have We're we So the going that on products mean about. talking so opportunity. looking on bolt-on been that we niche focused have us as that I have and get file produces product journey acquisitions, and and and a looking LDS, okay. CTP or We're position [indiscernible] now, these

I our that pipeline so a the think also use intensity at year, capital funnel early also our that model like our year with in and [indiscernible] we for we low next this of and least acquisitions. year, obviously posture we that have sort So businesses in and that

XXXX, Thank bit a also, you sequentially XXX? and as how maybe such considering mind would likely gross you. increase margin and trending volume you restructuring it. activities And speaking little through Got too

to in continue up about would Sure, impact the margins increase those through start as the of the to really continue second expect we so half structural we we're to now activities mentioned our where we're to year continuing. halfway show

look back range, get XX-plus you in Ducommun's next to margins, at if over expect been the couple of them historically, mean, the they've and I there would quarters. we So

it. your it. I Got for Thanks time. appreciate Great.

Riley FBR. Instructions] next comes [Operator you. Gulani Our Aman question from with Thank B.

is line now open. You

question. Hi, guys. taking Thanks for my

to other volume Just on marketplace services Ducommun committee today? to we any relevant have know, helicopter potential the wanted insight or platforms, from armed

we're is electronics different say large mean that on encouraged. Well us. a I for I'll Blackhawk applications a platform the just of or both platform. We're very number structural very

relates for the Of course Apache we've been decades. for manufacturing more

funding and the well certainly as that retrofit [ph] some of well. those we're see the for support as to So encouraged birds as for

we're all So think we've boarding what it's think seen. very encouraged I positively, and by

I what to think now on comment blades, Apache also we're the okay. we're with thrilled is doing just repairs

That's starting get we're facility, in is going direction business positive but on think well. that our moving through everything in light. So early a in of so just as sort I

very last That's it, Got for thanks. helpful. question And then me.

you've September type capabilities under you more are of to And that so, you that bolt-on able are on got if to looking of now still belt, So do sort the two comment acquisitions? acquisitions for? your looking you're

Okay, take right. again. as you that are know, optimistic, I'll acquisitions Look,

- appropriately. to to So we together it have everything come has be to has on

active. still we're certainly we're So looking, certainly

a earlier, LDS mentioned we're with, good niche and I integrate that interesting to and investors CTP really bought I the okay. opportunities we do can have these that As in marketplace going have these fine, [indiscernible] to that be positions like companies really just think companies something we something that it's aftermarket know both you looking for we going

right we team. So got the

have the over on integrated companies have We $X billion. people staff that

So good think customers. good handle, I these investors for we a are things thing that's can our and something and thing for

that. say I'd So

pass Thank I'll it. Got on. you. Okay. it

Thanks Okay. much. so

Thank Mr. will no in turn any Oswald queue. it you. further to for remarks. showing closing And I'm questions I back

Okay, thanks.

I do, we've of Let I but my certainly are of lot like to Again, market. up. where pleased mentioned I me benefit our we picked we lot I'm I a a we actions have here. optimistic lots and seen remarks, of really a as a moment of up XXXX. in think I are, we still through with work like about our where just wrap the lot like

thank our dedicated have our team want who just Ducommun. supported as again, think well, I shareholders and to to close really I okay, thank So

for So and your you Again, it to speak you thank there. I'll to time, hope soon. leave

you Ladies concludes and conference. today's thank in This gentlemen, participating for today's program.

day. all have You great disconnect. may a Everyone,