Ducommun (DCO) 2 Mar 192018 Q4 Earnings call transcript

Good day, ladies and gentlemen, and welcome to the Q4 2018 Ducommun Earnings Conference Call. [Operator Instructions].

As a reminder, this call is being recorded. I'd like to introduce your moderator for this call. Sir, you may begin.

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

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

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

the Accounting see and on or the measures. of the filings company's all refer change Standards comparison a also Please filings to includes policy, topic financial policies a call results. covering on today's with ASC referenced implementation XXX, SEC measures. the reconciliation on of the description non-GAAP similar of this the This the call for call non-GAAP GAAP recognize comparisons recognition Please revenue Codification, measures for further addition, prior most to to a our current ASC, In XXX. FASB this

you have with link to to the We for tab. the like our Mr. Investor a today, over all to company's of and XX-K results. Form I on find Steve? would filings Oswald website the call will operating the SEC turn filed under our Steve a review Relations the now

XXXX and Chris, quarter us for thank for our conference thanks, today Okay, you, joining fourth everyone, call.

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

First, I'm results to operating actions and I both very revenue performance. $XXX robust quarter to happy military good to a commercial initiatives with million improve which had report the higher platforms. Ducommun shipments indicative of across the XXXX are a Fourth to XX% finish to grew believe year-over-year company's many strong implemented that and reflect

moment. new generated of financial $XXX as clearly year-over-year. $XXX XX%. backlog our innovation, the same commitment is more In $XX full $XXX shows an we year year million, million $XXX At the fully platforms. value. operations over the XXXX, in to into demonstrates strengthened up to and same increase leveraging also flexibility of engaged penetrating also our refinancing as ended by Doug from sales winning our in as will with cash a a customer million million well the time, million further client in from Ducommun and At company's on and review This existing time, addition, in success technology the rose debt, business record than company

space almost streamline any to and XX% delivered eliminated areas. margins, capacity in manufacturing $XX all and disruptions. the team and action Our operations, removed three of without floor all annualized utilization XXXX costs forward, improve going were about in We customer restructuring our of million increase total

hiring well, investing costs our from reduced structure low-performing new talent and the product and portfolio as removing organizational in flattened team programs employee also company. We while rationalized development. the The

the that our strengthened acquisitions Ducommun to company restructuring, profile. margins, and the integrated successfully for two our these technology addition activities proprietary All In well accretive enhanced very position bolstered the growth our future.

to achieve. within previous significant, attended period. the calls, of from on hard within and with returns And been in were business. the earlier, quarter operational with Investor is to XXXX we've excellence our XX.X% of focused a year who Day shareholders along able As operating results, an a company work, The through adjusted was in quarterly fourth structures also outstanding the November, team comments proud particular everyone particularly higher doubling lot structures X.X% in than improvement short more in margins, what a on

it's company's look is the expanding we engineered of continually to the in to solid and team shape we line every our The is or composite provide in VersaCore differentiation as innovation, ensure the marketplace top value the XXXX, As begin on working that product forward future, day. Whether growth array we're high and the to Ducommun niche proprietary is improving excellent focused technology committed continued margins. applications company products, industry. on to

on million, military of color Now posted last fourth year, our $XX from you reflecting XX% missile variety sales me Beginning space up let end provide we programs. and some applications. strong across of markets, our with and sector, a revenue quarter additional products

$XXX strong other revenue Patriot driven growth was XXXX, might continued I be budget For to is of of helicopter, the the with to million, X% current In such aerospace space and under fourth the that just for above backlog that's ended levels. we commercial the anticipate operations, missile-related Boeing the F-XX, just fiscal and for significant with near XXXX excuse $XXX on roughly spending. approximately is again least reflecting million based anticipated Ducommun, year, saw as note sector, or over Airbus record military for $XXX million. rates programs. $XX Apache key year aircraft, billion AXXX - once But initial me, representing We which above results budget. the family. our business year-over-year across platforms our the F-XX, platforms military, DoD by quarter outlook the sales at XX% total We portion fixed-wing, XXX and the large, growth for narrow-body this higher build rose within along the

also see business a nice We pleased electronics are for very Viasat to uptick tied in-flight with connectivity. to in

commercial XX% of a XXXX, nearly million, whole, representing of For growth posted as revenue year-over-year. we $XXX

which business first with terrific being grew on story a content ever, XXX for continue our with to Airbus and commercial XX% continued again in in same Gulfstream Max we about and other a is optimistic AXXX, Boeing programs $XXX time, We're up million as the well XXXX XXXX, business XXX time Our by the new such topped fairly Boeing sales. customer. ramp as AXXX once growth At in the the being as platforms and XXX. driven Airbus

a As to Boeing plans I'd from is to contract a for XX XXX engine regards XX-year in sell last leading like year, on for also to growing mention XX supply month year OEM. technology million to benefit reminder, aircraft to track our with and real in a this components production popularity, XXX a and $XXX to our to a production we're month XX and XX increase XXXX from Ducommun. VersaCore

aerospace to XXXX. Guaymas, the and million Mexico We grew The full the production will our company. in at commercial within complete manufacturing expect plan another to with representing sector year-end, backlog industrialization in this record begin $XXX for year

this In operating While order we improvement. along performance. bottom the year, on bookings serve converted to mid-single-digit for continued margins better platforms line the due quarter-to-quarter outlook strong and all upbeat in should and about summary, we're timing, result XXXX or with based growth solid this

over January, and which with where initiated Doug? opportunity employee a provides those now operating reward Doug, want in result environment to have all detail. employees purchase Ducommun our Having that, stakeholders in plan interest I stock review With all growth Before mention aligned I financial future. turn that I'll the in call in results and win-win the purchase shares. results an to improving employees' Ducommun of shareholders Doug to our an

everyone. day, Thank and you, Steve, good

XX-K the today's are year see covering or end topic company's reminder, in on year-over-year of of sales as the it new and various comparisons overall $XXX for and for policy recognize Revenue increased aerospace Standards Please million recognition today's was the XXX, was represents backlog approximately codification a Boeing quarter on commercial $XXX.X ASC, policies $X.X Ducommun's versus million of the the the key million higher versus million versus was XXX. to current sector. for $XXX reflects the and my As mentioned, the fourth primarily the military at of Codification, revenue description a implementation press greater and revenue ASC prior shipments call defense this missile further $XXX.X company's of the as to QX, XXXX the filings due the within in programs. This $XX and Accounting of quarter million company. customers such results. the space FASB AXXX platforms on record million basis release XXX performance for This year and XXXX. Steve fourth a Airbus of and

referring upon as Just or and We firm XXXX the is our XXX will delivery prices versus firm to to remaining with months does obligations orders also potential and define XXXX, in ASC as dates revenue customer-placed less. our backlog backlog fixed company be our agreements of based we long-term definition. completed XX a transition reminder, and in so performance historical purchase

gross profit. Moving to

due increase benefit million company of in fourth income the SG&A higher $X.X to - The the of an and sales restructuring of higher XX.X% lower revenue gross in million compared or XXXX, costs. fourth adjusted impact The as charges to increase period. $X.X the in compensation income fees due was $X.X $XX X.X% primarily million basis, revenue $X.X year's the The versus was million favorable or along of sales comparable the operating $XX.X year higher in X.X% operating gross higher by in for compensation or SG&A negative operating fourth year-over-year mix, the for well quarters was primarily million reflecting year-over-year X.X% XXXX, XXXX quarter improvement debt and quarter revenue with fourth million in $X.X me, and $XX.X loss XX.X% product XXXX as of was and was million refinancing production the excuse volumes, an Our offset X.X% and in million of respectively. period. profit expenses. versus of to reported prior partially prior margin with costs. or the benefit On of quarter lower

million XXXX activities charges the quarter our within Our Systems approximately corporate segment, million included $X.X Electronic Systems $X.X within fourth million at of and $X.X restructuring Structural level.

for of of diluted XXXX the objectives program decrease credit acquisitions higher was Adjusted or of As in basis is million higher $XX.X compared to in in the XXXX. $XX.X fourth net XXXX the year expense prior The $X.X for stated of prior X.X% of the which primarily Jobs Interest income quarter was XXXX share period. The of along period utilization as $X.X $X.XX to XXXX set Adjusted fourth for $X.XX share Steve is for in quarter our interest million and to last and in revenue, million diluted was versus was $X.X mentioned, discussed. compared $XX.X year-over-year Act. restructuring $X.XX per due with million the to achieved million recent million an the share the of the net to of XXXX. XX.X% increase of net rates. diluted the revenue XXX previously income the $X.X of deliver due fourth or versus million million fourth a EBITDA million the for points $X.X This year. benefits a or diluted result tax reported period income $X.XX of per Tax $X.X or benefit Cuts year or fourth quarter per or quarter per company comparable was quarter facility share the

segment turn me let the Now results. to

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

ASC in of XX.X% impact operating Excluding restructuring posted for of and - charges XXXX income the margin XXX, the the year quarter fourth period. and electronics prior operating XX.X%

year-over-year XXXX higher space Systems of or our revenue fourth the $X.X posted revenue Our revenue the military particularly increased year. sales or aerospace large million posted Structural for increase million single-aisle million an of of operating markets. Systems and within of airframe income of The segment X.X% last quarter was platforms loss million due of $XX.X and of company's versus in applications, million $XX.X negative commercial to across of revenue $XX.X the X% $X.X operating last $X.X million quarter Structural year. compared to

Excluding higher and program. and offset for of essentially to charges, structures X.X% operating compensation $X.X year-over-year was in XX.X% margin doubled flat $X.X pricing CG&A, costs. the the and the adjusted restructuring million of partially than in by quarter expenses, Corporate of XXXX and and to X.X% restructure completed ASC versus revenue and restructuring general restructuring XXXX. quarter benefit administrative reflected impact charges million for efficiencies, fourth costs This due the operating higher improved XXX, impact our debt just fourth more lowering or

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

in full shape working secured going our operating anticipate five basis new execute leverage in balance million weight to upon million the is will year, credit cash in further reflects XXX depending will continued flow improved we any forward. to our cash secured was $XX.X flow The acquisitions, solid diligence allow to capital, credit earnings, points our managing the ended, seven a of XXX For operating unforeseen providing we've XXXX. a flow year flexibility our versus and facility about $XXX strategic In by senior and using revolver. greater agreement, us million just November, new Net initiatives the for $XXX in but also in increase facilities our The leverage. reduce improvement loan cash sheet XXXX. refinanced senior year borrowing term $XX.X company's million

fourth million in million the company XXXX. improve very with the strong streamline spent sound $XX the million it quarter CapEx, spending In continued footing of now over performance top closing, new in million wins. XXXX. $XX to support is to of Steve initiatives we're $XX.X was closing turn line growth. We million anticipate terms and we Steve? other program on for the fiscal restructuring and back $X.X which In during year for from $XX.X down and to Ducommun our for I'll results designed his to XXXX approximately operating program remarks. in pleased

Doug. Okay, thanks,

me Before call pleased just accomplishments once I over reiterate turning the our again am how let questions, for many with in XXXX.

provide to As internal will to can operations. the marketplace continuing markets on focused most commercial we where XXXX, I look both the great forward to and defense opportunities while year the of company. we're bring another the value for Ducommun, again our improve In

best Our platforms structure the engineered the capabilities, manufacturing narrow-body in and with electronic industry. products, along serve large

We Boeing, United relationships Martin Spirit also as strong have key and customers Aerosystems, Lockheed very with Technologies such Airbus, Corporation. Raytheon,

prepare success. aligned for the as we In company's strong, sheet year is another addition, and the believe I balance is team of

closing, their now very want our everything call the questions. in that, investors we With continued open thank I'm of in to again, XXXX, and operator, achieved for up I we'll proud support. So to

[Operator Instructions].

comes from Our from & Sidoti first Marshall Company. question Edward

that I start restructuring do sharing So good you're through of additional And what done you've for areas there, kind guess, may if restructuring, the a business XXXX? Is obviously. mind job coming so, restructuring with I'll of that be pretty you with? planning there

restructuring. time. There's further this no term the we're at compete Ed, the with in point anticipated restructuring near in

the incremental charges, we're anticipating was XXXX Okay. all in the guess, And taken XXXX? that And for I improvement that. on you've earnings versus the what

million. out it'll of $XX the had of we set about half So be what

start other half will it So of we 'XX. in about through in 'XX and realized reading the half

right. All Okay.

incremental about now. as you specifically the of of mind the on it's programs the And the curious, in we thinking so do business. of margin XXX, type XXX, had, in structures the incremental cost I'm manufacturing heavier think contribution being your here that well, kind with as guess, and I the cost other we kind structures, about commenting? on ramp the - specifically ramp with that you've your if see see the I'm from that don't margin reductions the I businesses, the - how And

in see, ending the made strides Well, the great we've margins X.X% as in year at for you operating margins. this structures improving can year

we we As another the margin forward, pricing, see to points moving contribution think, and basis XX in XXXX could with the XX operating margin. in

structures specifically For or for...

Yes.

Maybe in-flight Okay. connectivity. I who doing? a Could you elaborate you the are what else the want Viasat, beforehand held on contract elaborate. and you more that might bit anything the to guess little

Yes.

disclose revenue. don't we So

with - I all So it's business. for you. side - it's so is But cards, great can't that electronic really or our and to the us. around opportunity I'll so builds systems of share It's box have X% a making more, it's on Viasat

we're we've So It's relationship in only nice San And them with getting based closely. working They're Diego. had a better. with them.

So it's roughly? two to well, assembly, mostly new more come say, cards, on I'd Viasat. But right, a as customer years, around last they're and

Yes.

And to jockeying Viasat win is players think the key in there's of about other the certain out you it the for a that who's connectivity? has What over advantage been some bit in-flight for going market contracts. on of

Viasat's our we That's landscape They Yes. do. know better for our us than their customer to competitor. competitive not difficult answer.

Michael from next comes Ciarmoli from Our question SunTrust.

- on programs business the new coming of know now. in just Les a Lockheed I for backlog. perhaps new actually Michael. underweight Airbus, mentioned Martin? of It's from you little of legacy, you the they're any Could Is bit give are about talk a potential kind breakdown

breakdown a that of number, could. you a us bit give backlog little if Just of

percentage to in mostly also And Airbus we're meet business Boeing, what what of particularly there, sure was doing that are increasing, be good a the but is saw it to it's recurring new that the work is of with but we rate areas. those mean demands. percentage their Well, have. business getting obviously, smaller a structures repeat I than business. there in And we for both we're from, ready POs from we're rates some

So it's new largely a particularly of already a lot regarding have. done, of we a business business that it's lead Boeing, we've it's so long titanium, time we lot on, Airbus, - got haven't that and

do of the potential work? titanium I to tieing new a any there of you Airbus question, too. in future Lockheed business guess 'XX see - it's mean I kind on I relatively Okay. still the customer, coming Were has too. work? around mean, new discussions double-digit growth and

Yes.

I that real supplier been them, the a for company really around to Airbus, for last and now products. we think great continue thing the good XXXX. we're about to years growth And It's right? have couple with a and we feel our of conversations titanium prospects

Okay.

maybe You the rate that's you years? about maybe X%. in called would mentioned you've out on three around sure missiles, next be potential looking I your mean opportunities to conservative, conservative potential there. the X% hypersonics. that somewhat out the Investor Day on given the even on say if Will you're the Not end CAGRs, defense growth

out our that You'll did to pull X% to that X% we see website presentation in investor today up later our those on for reasons.

in that X% pump had X%. where as wins bit the we've we we've that to gotten we'll more probably see So up a new - and at of little the visibility business some had than

Got it.

supply of seeing Okay, the you of guys me up chain? one pick pressures. industry's incremental great. the the just chain. on bottlenecks And work for in last been supply kind from I the for Any mean

we're I nonperformance. lot say grabbing a competitive that for mean it's No, not but new I a business marketplace, - really. of we're wouldn't

yes. Yes,

from question Ken comes And our Herbert next Canaccord. from

costs headwind? you'd either or a there 'XX, positive see, margins or that to Doug, as anything or else in we about tailwind sort First, highlight, think a from specifically, specifically be or just wanted anything could tariffs negative material incrementally of is

because a Not U.S. of material our off business. really. side mostly business, buying And Boeing defense the Airbus that's lot of, electronics and that structures it's business, contracts. mostly on It's supply we're the in coming is base then of

may little what there's mean others in a to experiencing be compared I industries. but So bit not other probably

So big don't a it's think we headwind.

fairly mean to we've well the as Okay. of the would opportunity segment. And sort thinking specifically restructuring, I that be tailwind improvement, the say Is there then you'd highlight at got And from fair that which is margin look a structural could volume else in expect Or it biggest I that I'm to anything the you'd margins think understood. I be it's a 'XX? standpoint of that margin to see?

as of would I standpoint. the single material a think volume things, drop volumes spread driver such the we across higher biggest that other will costs from expansion and that are most be neutral overhead But margin through.

just looking titanium the seeing to chain, supply I your just gain. finally, across better or the - the - content. I your could, other sort you've of Airbus any or increase you in MAX you opportunities continue maybe take that of share to I share? for through other taken mean you either ability Are sort are volume an are some derisk you where know, there's opportunities particular, share And step maybe aerospace know can through seeing your than I technology gains? Are grow in on if obviously, to XXX, the to customers program about you maybe Okay. or or in, customer, something represents opportunities there could where talk with maybe either else?

I guess, things. look, of a Well, couple

Boeing pretty locked rate, now in. they're and first, with the we're side, on I doing think focused what right we're much on

think we as of it's So sort with you Boeing. go steady

of We some Airbus the over a is could that and part think a higher program bit think see more upside the little for percentage I that for share program. do we on might a perspective. of XXX, part a we taking

a little think there I So for bit Airbus. there's

what I we and much in this know think again have. for customers, you we're pretty locked our year

Instructions]. [Operator

from Our Markets. NOBLE from Herbosa next Capital question Christian comes

couple questions. a have of I

titanium one's questions. the are in you most of So where of a to composites market seeing at the follow-up gain for share potential earlier some terms so aluminum? this But Airbus or or

as been specialized And both in Airbus gaining share we've about largely I science talks may things more the because that's and titanium be doing for Well, from they in a other it's I internally very think area, well with us, as suppliers. technology. mean,

So biggest think share as about we that's to as the I composites we you'll hear side would on aluminum That's forward. more about and say Steve's of move the VersaCore much do. really what we comments, single that We calls lot an great we had about as contract sell we've good ago. talked XXXX. high-volume few us bring a got to a on things that exciting we there market of new to area opportunity participate not And and a when probably And in for gains. a working program,

right. All

VersaCore, any contract So us are to other us maybe outside for market opportunities on seeing And up? coming you the the size of you an the can VersaCore? give of missile metrics of provide addressable idea

We're not yet. there

Yes. but hundreds early with really still with hundreds of surfaces, addressable about not And I different talked Airbus think, if our TRLX certification opportunities, them The targeting, is we're in control number market on from our innings in a we're as size for billions. millions, on us, flight of Day the that. Investor of and specifically

up. following It's early, be it's early. We'll

comes And our from next Aman Gulani question FBR. from B. Riley

So be initiatives. you XX% should will you another that quickly in be XXXX? to in savings cost realizing restructuring How from XX% mentioned realized

terms Well, initiatives being consolidation be out half capacity. of first the of phase other it'll year X. in did A taking a into whether in be It that to of still going are and ramp. be over second and those It's the plant January lot it's worked through, the bleed half. a things we won't

to going year. the spread it's So across

your business mentioned with Got that that your secure with Lockheed. Raytheon? Are grow to How think programs track also on about existing with missile it. should missile into you're opportunity while calls looking going some them previous to growing And fiscal 'XX? on we you you

do work now programs, to long organization but are a work on have mean is with something at we're it's it in within think the resource progress. cycles continuing we these I not... Well, looking so pretty it's But that dedicated Lockheed. I sales these

yet, Not no.

yet. Not

Marshall have Sidoti & from We a Edward with question Company. follow-up

anything with Guys, quick the LDS that cementing of maybe Viasat. I on do did to just LDS? have a award? a wanted Where And follow-up customer they

Ed. good not, No, It's not and they question, they involved. were were

like And Oswald, there I call to further CEO the and Steve over further questions for to queue. appears in now be President no would Chairman, to remarks. turn

let We're and Again, up want here. and for XXXX where investors can to everybody I what shareholders. wrap looking just and us are. certainly it for results Okay, with We're the pleased and calling that in for for me certainly we forward bring today. to our thank

my just the again, settle your to again last all and through to we So go for years support thanks as I two XXXX. forward wanted together, look

all best leave it and there. you, to So you. the I'll Thank

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

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

you. Thank

Thank you.