Ducommun (DCO) 5 Nov 182018 Q3 Earnings call transcript

Good day, ladies and gentlemen, and welcome to the Ducommun Third Quarter Conference Call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this call is being recorded. And I like to introduce your host for today's conference, Chris Witty, Moderator. begin. may you Sir,

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

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

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

today's policies of Oswald referenced refer measures. call for a Topic Form prior GAAP of the call on recognition Accounting description SEC the We a under [Audio non-GAAP XX-Q And I or Relations see call comparisons filings to all Please This Standards reconciliation current policy, recognize the Mr. non-GAAP to measures. the filings today. implementation filings Steve on similar Please to link further FASB Company's review of addition, for of In SEC now this the this to the measures results. filed operating revenue to over website Investor the our ASC, Codification, change results. the most find covering the for XXX, call our tab. comparison with turn to would also ASC our a a the financial with on the gap] all includes like XXX. Company's you'll and on Steve?

and to quarter XXXX Chris, conference for you call. third Thanks, thank our everyone joining us today

As usual, detail. I’ll Doug our providing which of after in of Company, the overview results financial recent by review developments begin will an

across growth performance. for programs taken is a XXXX, a and over $XXX.X proprietary and Revenue contract producing VersaCore growth to same to As quarter organization Composite we structural aircraft for ship realized significant $XXX our both new wins past large program efficient our a the months in Ducommun set time, commercial ongoing rising many Ducommun's and we’ve the the leading XX.X% reflects is now many the results. continued rates. double-digit The recently Company of the defense OEM. starting the more benefiting million. of advanced second a demonstrated million financial of be electronic trajectory restructuring new leaner number components, provider third benefits to finance gains from announced the amount our the year-over-year XX actions The and rose of for bill as narrow-body strength this related, improve is backlog, also quarter-by-quarter. At platform technology and which leading long-term record Effective components engine known share to using market strategy, again quarter growing overall of nacelle

we full XXXX. for reasons, with materials composites. through an While manufacturing the runs Company XXXX design nacelle example then XXXX contract Ducommun customer in technology which product cannot is the expertise, name the and complete production proprietary excellent its in the and will of begin along competitive leveraging process

VersaCore enables For the at manufacture the much durability. lightweight, Composite lower structures technology aircraft compromising of background, without costs

XX.X% year. purchase And stronger margins impact versus quarter X.X% op from basis XXXX. our to points the and of gross adjustments this ASC XX after XXX X.X% margins adjusted We posted accounting also last points of again XX.X% rose

efficiency operating And this is due and has basis to to our implemented utilization. a structures climbed been year, margin, operating drastically adjusted XXX initiatives XX%. major Our X% which last of an from X.X% improve capacity points focus increase many or to

in charges of floor savings resulting million review moment. restructuring Doug past we this approximately $XX year-end, eliminate booked staff our reduce a on XX% addition, of will roughly by in remain of which in million to million equates In starting $X.X reflecting of which annual quarter track We million from space of further We quarter, in platforms. X% by commercial XX.X in roughly cash related orders flow with X.X to and cash XXXX. generated operations, solid ended XXX levels still a stronger million near defense year-to-date. the We backlog both record

our you margins, balance as strength Ducommun line on on top is accelerating of XXXX. growth track sheet, the improving corner turn the Given

and of last aircraft. for from we with the F-XX F-XX, Now, let some on million, programs military XX% XX.X reflecting with year, quarter along and F-XX color provide end Beginning and revenue me up you military sector, additional third posted over markets, products higher shipments other space programs. our

anticipate platforms We continued year electronics. XX% military such great In going the performance strong content enduring fact next. integral these and spending is of revenue sales based value planes outlook this as to a the and shows Ducommun fixed-wing defense year-over-year. from and rose forward access the This and radar provides, cockpit on

Our aerospace sales levels. growth rates AXXX build commercial year-over-year, across operations, backlog of at at once under approximately We Boeing and quarter XX% just higher fixed-wing space military $XXX our remaining our large saw dividend their end applications XXX reflecting and $XX.X again the Airbus for aircraft some Within third quarter the was million the family. million. record rose the platforms

aircrafts clearly in greater are benefitting We for narrow-body from having presence these on platforms a increasing and general. demand

than months. last set over business doubled than our it total has ship higher XXX sales per AXXX Ng is on year-over-year are content with was on Airbus, and Our while XX% more Boeing XXX the up Max XX% XX in the Ducommun's

Airbus million remain customer The XXXX across significant driving such of in now backlog continued recognition we're new slightly platforms seeing QX a the sector strong, XXXX. higher into in revenue We're commercial position that the heading benefits past, became our and stands mentioned order the timing. from $XXX down within a aerospace will our at As runway ahead. confident

Before I other over want two important call the turn to to matters. Doug, I mention

we directors appointment Ducommun number First, the as Ducommun delighted expands as Director. Shirley several announced team part her of are joined I'm of independent. Independent the board of to whom an eight our and to that Drazba recently have Shirley

ongoing Xth. new leading will Vice positions In analysts, oversee Beside productive additional experience in of developing have member President Vice Innovation person Ducommun myself have November of and in very XX years investors, and and also and of this look review in results and expertise institutional designed IDEX and and Doug financial from product Morning remind technologies forward this meetings. Dave I'd our that York Engineered Jerry structures; Strategy Friday defense advisors Products; ever President operations over attend. also customers. brings you our heard who we plan addition, of Doug, from we'll innovation of activities of is Company's I'll Shirley hope at happy And to in our President Honeywell. that, forward attendance presentations at Mookerji, detail. aerospace Wilmot, Committee, of to the financial With to like President Day in And Electronics a her host Vice day our its have to Ducommun. Vice also we're Redondo, important be attend and a She We a can New meeting. We to Doug? first M&A. which now Suman Senior of to background listeners will Investor already

and everyone. you, Thank good day Steve,

a the implementation reflects As release press the of recognize and Company’s million ASC XXX, further Topic from this end comparisons timing. overall revenue these policies the This increase Airbus reminder, million the X.X the the fixed on performance to versus Ducommun’s due backlog policy as Please ASC and my at commercial of third was today’s of for F-XX in Steve million The the million codification XX.X was SEC third quarter Revenue for the in XXXX. versus XXX.X on the primarily the XXX.X are on of Standards XXX. today's basis description year-over-year of XXXX a current results. Accounting quarter filings and prior see or revenue with covering Codification recognition to as Boeing sales mentioned. sector. AXXX, F-XX, higher the of Company’s about customers due Martin QX slightly and year in such call Lockheed million just and down just order Boeing wing as markets F-XX the greater for higher were shipments the XXX within platforms XXX space aerospace quarter, both XXX military million

at However, record it near remains levels.

for and period. of of the professional was SG&A the costs reported XX.X% accounting operating prior an margin higher sales, million manufacturing which production of after overhead fees. ASC impact basis, The increase with adjustments X.X X.X versus X.X% or XXX XXXX comparable product in was X.X% up benefit year-over-year income and was volumes, in operating revenue revenue third for The income basis Company increase purchase XX and of in quarter due to service the million year of period. quarter XX.X reflecting the profit, of in Moving mix. primarily operating costs compensation our XXXX gross year’s prior third or to points year-over-year. versus XX versus higher gross favorable the or X.X lower million adjusted X.X% and XX.X% the primarily On income

aggregate approximately of Our and X.X charges million Systems which restructuring within million. activities in X.X at electronic systems the X.X within equaled Structural segment, corporate million the level, included X.X

million in we previously X% XX% year-end, be eliminating operating annualized manufacturing XXXX. expenses approximately staff last mentioned XX by footage to square by and As fewer of expect

in million to quarter million our to program utilization a Interest for incur We million higher third to since to X.X for tax of starting year of of reported of income quarter to share revolving million approximately The quarter facilities of the rate fourth versus X.X diluted in expense share per charges with compared XXXX. due third million or X recent XXXX XX additional XXXX. per $X.XX per X.X% XX net third expect X.X the diluted million in Company $X.XX million or net net X the $X.XX or the in to last of bringing effective was QX million of X.X total an of restructuring the income credit quarter quarter. acquisitions. for million X.X Adjusted share current diluted income was

XX% in the third million quarter charges Our rate XXXX. will any head the XX.X% expected as for XX.X million revenue the and quarter of Adjusted revenue tax comparable we approximately was or of XX.X period in restructuring XX.X% XX% for into XXXX. or fourth compared before to or be EBITDA

Now let results. segment our to me turn

higher year segment posted a prior quarter period. or of in increase within XX.X% sales of or reflect million in in our million posted shipments XX.X% aerospace to and commercial operating the $XX.X electronic system third for versus million Electronic market. versus $XX million to space of revenue system our the the million third $X.X quarter million system military $X results $X.X These of segment XXXX the prior period. and year revenue in the revenue Turning of $X.X customers electronic income

operating our margin the million increase operating $X.X million particularly of year-over-year due commercial ASC-XXX XXXX the Systems $X.X income last revenue of of increased revenue Excluding the third sales the XXXX posted of $XX.X higher XX.X% increased or to compared on to to The year. as versus the for segment shipments was revenue $X.X of the and military income X.X% aisle million large due well single Systems charges, The of impact aerospace posted third $XX.X year. million quarter revenue X.X% in million operating as for last quarter. million across helicopter restructuring jet on of the Structural of applications or platforms electronics platforms. space was $X within of adjusted markets quarter Structural

general last of ASC-XXX, compared to and to compensation charges, administrative increase. X% and last of and impact expense million to for restructuring of or accounting primarily year, Excluding margin million purchase compared quarter was the adjusted million. adjustments the of the $X.X million quarter due third charges the benefit revenue, $X.X revenue XX% and $X.X was of The X.X% expenses year. a Corporate, $X.X X.X% structure's cost of or X.X% fees CG&A service professional million, $X.X company higher total higher restructuring higher for

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

basis to in $XX.X from a $XX.X year-to-date year compared million on generated we've the comparable period. However, million cash in operations prior

also of We $XX for to paid million debt expect $X we the pay year-to-date full quarter to approximately year. off bringing down $XX million the during and total the million

the $XX a still year-to-date as the prior previously year. approximately with spent XXXX new such million CapEx, mentioned. basis of million we million in million performance spending to in we We to to one year. support $XX.X compared this pleased We're Steve terms In spent $X.X program overall million the $XX.X quarter. our improved $XX anticipate third during operating wins On

Our on continued completed is closing it line we're restructuring and our in growth with his quarters results returns our turn I'll excellence to strong higher track continued the plan focus Steve? operational as to reflect come. and on to well Steve top this as our remarks. year optimistic for over back now be

Doug. Thanks

XXXX to we're questions, actions like now activities is again of the Before the reiterate benefits all XXXX. seeing -- the turning that, and call just really the once I'd Ducommun and in

success. up I let Company a interest positive our take patience this in very continuing as has and markets, wrap growth the for continued addition, a runway we're the of across the Also investors move amount direction. great And both we our believe In know here and expansion. their future revenue to look I margin in time appreciate to I to their

the for So with questions? that, open operator, not call why

Thank you [Operator Instructions].

from Edward from Sidoti. Our comes first question Marshall

now Your line is open.

you growth, growth, that thinking rate? growth of to that been The what’s market share I been implement. and even been look price some how XX.X% revenue and kind volume could you that price there’s driving out about When know you’ve that initiatives at talk maybe breaks

to pick think well, of appendix the $X look on can if the I answer the of you revenue did the release, about adoption ASC question Ed, million I up earnings from part in we XXX.

XXX last over last the which is initiatives So revenue a talked bit little the the numbers. pricing that we of drove in definitely course growth that year, higher a In the about was continue as the renewal. quarters for course, in contracts side aisle, of see come we And of on few volume the up comments. the in the which things is really denoted single

a combination through. certainly, in growth. that to But the see work put those it’s we three that the all pleased of drove things reading So, is we’re

What place margins, continued look basis. look the at you to and or year. this improvement you I’ll like that year-over-year margin, over I business I’m might is contribution on forward, the the margin. when the for either think And a a particular, on incremental this number structures' might call note And look When the in you go I specific the think it incremental what been at wondering structures? all about, it’s normalized

in consistent to our been through in We're X.X% we’ve messaging on this we’re an single-digit. exit that Well, year quarters. roughly adjusted high three basis going

the going this on double-digits? top on high-single track. more and to platforms. can the come towards year line well we’re we that. the going to particularly out as But we certainly to as get we’re it certainly Do work single we We’re think So, to growing, to we see exit stick with

the is come. same There's more This say thing. I'd Steve. to

the dropping right. What’s as over through. about that what’s of just work costs, guess your threshold, certain mean, talking to the the fixed I The covered the I’m you’ve once additional there end? be opposed on margin what revenue guess might rate, incremental my incremental rate drop -- is I a through

at level an the about of XXX While certain points say it’s perspective, volume get level. once operating incremental I’ll to probably you margin margin operating pure basis of

And I the final if question, may.

first, or is that’s titanium? nacelle that assuming at program, -- the is I’m composites Looking that

composite. Yes, that’s

we process composite VersaCore. have called So a new

that So composite that’s nacelle. straight from up work a

for reimbursed tooling? tooling of and work How’s you Does as do associated the as you as revenue that the the for support customer of -- the you tooling those new pays in ramp to part incur build do or Who kind costs do pay work? that’s the you with composite program up. then

It’s similar to the other structures businesses that we have.

development of the as this, under ready a latter as contract as out We’re to right getting building we're now the tooling part processes, XXXX? and industrialize the well

I the then to of should into the core in program be as should up that run-rate, the a -- if of level? a bit So think and a run-rate, see typical initially contributing gets compression margin that typical ultimately a at it you'll little

That's come the programs initial you then a experience production way the when obviously and up. with work. correct, that's There volume structures' into curve generally and get learning is margins the

this just And is is tooling significant to think more some cost metal trying is do, to the -- a opposed there amount or that any this specific of the about you or work there? complex of curve as

actually No, got, businesses structures technology. other than that it's less because we've some is out this of the of probably autoclaved

Thank you.

next Herbert from question from Canaccord. comes Our Ken

now line open. Your is

off. I just first wanted to

are part need a any [Technical talk terms it You've particular. more you the Difficulty] your moving narrow rate is businesses Can XXX of business forward? then step in talked like there clearly And as you that incremental -- now standpoint bodies, any, the month, just to you several capital that contribution to can up in investments seems a the program overall and on there from of quarters support you second, frame make that you one. to XX to

the is capital let investment part start the which question, certainly of the the required. me that So easy

few talked years. capital as last think made investment over we've we've about, I the that So

of focus as a a footprint wins we've the the for and and to to share applications of and the and part lot gain. So structures we Boeing the from business, new new which titanium place at higher, in big business we've with as as of well XX support have increases. MAX we're seeing come that rate been XX that gotten with going lot business lot on A be us. those We got able has like Spirit the from opportunity look

I Albany main were York and months working I've in the call -- are the Coxsackie, And of Parsons. last and just And all been everybody the operations near the are that titanium so couple operations towards both on two New facilities believe XX.

part, machines most the all the the the and just For and we've about driving all chain got to capital place. in a higher supply It's getting level.

and comfortable we're to we're looking rate. forward the rising So

you any in on your XXX? seeing risk points And any are pressure supply or chain particular the

mean our of good are make gain covered. that. more are And a Not a sheet. we that minor, in manage have really, that on suppliers good other We always the titanium lot I certain shape. inventory of And is this appropriately flow our -- to we we're sure and very

So, from it's at story. the good least Ducommun a side,

is times related obviously the know up is quarter this guess I to we've maybe lead down each it's reflecting growth of year. would I programs? fair on it that year titanium, the seen could other be or longer inventory -- sequential that is to in ago. just But And stepped say some be from it a

probably I cycle got it's mean, Yes, these that. orders. you've long

had the that of definitely the order so and ramp is a that’s up a And bit. it part

programs. just could you defense I out called side. the on if then few And Obviously,

in at defense to tapering ’XX? the year Do view -- growth this the not on really view, you nice early view quarter. view maybe look your three some into as defense portfolio? some of sustainability? Are Maybe off but on we next you two business? opportunities the within growth your quarter fourth your What’s seen the You’ve what’s as

I guess couple of things.

a we budget. obviously, have First,

with So we’re that. happy

So we certainty. have some

So the we good three about next or two feel years.

fairly is customers market I’d obviously of of have The low. other customers say that thing account some share we have other or strategic we is share but where

with up, forward, okay, only, the also innings for it’s early industry other not the some -- of big primes. that are budget across also we as look it’s certainly still and we're things the So Ducommun it’s defense

as and as with the military mean, with we with I given add. the the see. and good be can defense part portfolio, a we’ve have Raytheon primarily emerging program we there, is multiple as see just Northrop got but And at electronics of which the funding what what F-XX programs would four sales and budgets way largely we’ve big should Apache, both more gain of I look the Ken, that share for years from characterized again we in the couple good The there. being next the also funded Grumman. for And longer there got Company growth strong some then the we missile the And business. term F-XX

opportunity, seeing Steve, obviously like finally, just guess comments. well the you’re some your your share volume certainly or some as of growth? gain I interpreted a sounds customers, So if with opportunities I as some It there’s nice just

yes. Absolutely,

But said, And like term volume very thing think the there’s innings, customers Company. So I with to on come I the also there’s share more and the -- very for good there’s we’re busy. a whole early also and busy the we’re think and done are side. the obviously it’s I happy our

comes from Market. Christian question next from Noble Herbosa Capital Our

Your now open. line is

a couple have I questions.

CTP to they from get integrated see integration any acquisitions the LDS an additional First, update expect of or acquisitions? and the your recent are we this U.S. we enhancement at Should coming fully can point? on marginal

in really integrated. Company we’ve how previous able companies. They’re smaller experienced this. were to mean, were And I people integrate calls, in now We about we’ve fully these the great got as do to talked them. some successfully that

So, the now as businesses part we’re they’re to helping grow Ducommun looking those of forward portfolio. really

them. own So the focused integration behind and now those really that is businesses us growing on we we’re

the in the the that second Raytheon question might air any you from of XXX by Indonesia was outcomes business? how your any possible impact into crashed have Do investigation recently. And about incident of then Boeing my regarding concerns

in and we tragedy, and we Ducommun. do while don't there Boeing standards, is any threat to No, have have that a don’t what mean, quality anything any aircraft records look that’s we I a concern our for we at the concerns, Christian.

regarding question last to my And charges incur? restructuring expect charges. you do additional How was much your more restructuring

$X in and The mentioned $X at is transfer underway of to exit we million be done well as exit and wrapped up this probably Phoenix year. Arkansas the should facility quarter to as our in fourth So the this million we'll year. comments, have we facility our looking this Huntsville, we're as

[Operator We Crowford FBR. Mike Instructions] have Riley with B.

Your line open. is now

Nice the next XX% Thanks. top sales five Boeing. that take it's did your only five next XX% see it's then if from and the customers of the to the I five and to almost from of top noticed you XX% top five XX whereas, whereas thereafter. revenue

those is big it's inning the you mean, beyond and I five you're currently business expect get just So, serving? Or more from? do expect it in where growth to more others see five to from -- say or you that you you're still

and a what great example tremendous of to a we've the the important opportunity got business the same done Hawk Lockheed Lockheed. the missile and Black think where take do work who's of I is is some there to Well, customer we've Raytheon an capability ours. their of we apply Most with

there more of we're certainly opportunity some haven’t think customers with So, lot after getting captured a yet. I that but is those

as believe there your those the top next is thing in certainly other point, in five. a there then also is is but of amount the to good think I we opportunity But well five

-- So it think very looks I I overall, think positive.

paid payables to has its disclosing and growing financials cover, been maybe in of cash Ducommun. to another Ducommun company SEC of then And outside and Viasat, I numbers that.

there what you say is for or can there? it growth opportunity make is whether Viasat So,

other good that don't say we information than are customer unless No, we customer. have to of their they disclose ours, consent customer

on a And it's you're Well, or any quality progressing Is thought companies there pipeline, the how just through in your in of you're front. mentioned filings. you're finding final change then question that in worth there companies or since number I them? try M&A of

think goes. it's I it steady No, as

have process, good discipline. So have we a good we

Mookerji have it. Suman We running

We him already two made have he's a acquisitions. with on faith the and those difference

same. much is the So I'd the say pretty profile

for further remarks. be in to back Steve At to questions this And point, no turn queue. there the closing over Oswald the like appear to I call any

it’s again great. who in and committed really afternoon. thank years those been their the of up these proud investors this we're all want workthe who’ve Okay, of wrap want thank new this team showing me numbers. here. most And Again, time the to of to we’re our cover upbeat Company Well, two I for and proud everybody last and and let changes. patient We're

there I I’ll to Thank a it leave and wish So want you. you good evening.

Ladies and have today’s today’s program, This all disconnect. gentlemen, day. participating thanks conference. for in great concludes you a Everyone may