Ducommun (DCO) 5 Aug 192019 Q2 Earnings call transcript

Good afternoon, ladies and gentlemen and welcome to Ducommun Second Quarter Earnings 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions].

As a reminder, this conference call is being recorded.

turn over to Mr. your like now the to conference host I’d Witty may Chris begin. you

and welcome Officer. and call. Steve and Controller Interim today you Ducommun’s and Officer, With are Vice Treasurer, CEO; Chief President Financial Chairman, Chief Thank Oswald, to me conference Accounting XXXX and Wampler, President, Chris second quarter

Certain not including the events, results prospective. performance that follows. we Federal I’m are going to today of facts, limitations session or certain statements or any forward-looking statements Q&A projections make projections any historical Act future statements therefore the during market of prepared are are as conditions, to discuss Private statements under financial Reform remarks the and to regarding Securities Litigation operations future that and XXXX forward-looking may that

subject which forward-looking These materially differ implied the and risks, to actual cause forward-looking results by uncertainties statements or could expressed to other are such future results from statements. factors

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

on addition, based operating of company’s current subject future change. results are which estimates to business, In is the

the our spending, management Report the and Ducommun Particular our to those and markets, the and government Annual XX-K competitions. among These forward-looking level SEC and with acquisitions, risks. changes, our are risks, legal defense in of on others cyclicality include, end-use regulatory described the cost US expansion statements of are others, risks facing of filed and subject risks Form

to filings SEC most this financial update similar call required also if measures. do and any call this by except to refer a of measures GAAP regulatory this made as referenced made with call includes in reconciliation and we or call made measures. Please the intend are of only This presentation non-GAAP the as during to authorities. the the time statements on not Statements for non-GAAP our

a find you Investor on our the link Form under filings SEC XX-Q will We today the with filed company’s tab. to our the and website all Relations

turn a operating call to to would for the over of Steve the like Oswald Mr. I now results. Steve? review

joining Thanks thanks quarter you Chris today conference who for second call. us everyone our and is

As I’ll review of company, recent detail. financial Chris results Wampler the CFO which after update an Interim developments providing on our begin our usual by will in

was such quarter we higher the growth Ducommun JSF, Second execution, Apache million platforms across from to AXXX as $XXX.X on family a business diversified an one Airbus year-over-year XX.X% of variety narrow shipment key as customer MAX, grew a driven platforms, Boeing another robust well accomplishments and as for strong XXX program. body and base to by of as demand. helicopter continued the Revenue impressive platform product large, missile benefit Raytheon

build month reflecting Boeing. Well works current Revenue situation. related MAX to MAX the rates the a rate at XXX rose substantially higher and at Boeing AeroSystems per to of XX the XX Spirit per year-over-year XXX month at address

We continue ready if are them to required. production communicate when and operationally increase to and with

issues material customers. the momentum any our growth across variety to of X% our and revenue to not a strong rest backlog with XXXX. Ducommun, line for do For platforms X% amounts and aerospace of We of military top view and commercial expect across

prior adjusted XX.X% margins last XXX scale higher actions by streamline quarter year. to increased from second year period this compared our electronic basis the income overall was and segments $XX.X increase business. higher quarter the significantly the again basis Gross rose the XX.X% the to year-over-year to XX% We This points posted XXXX. for over margin were production many adjusted the taken substantially margins segment as The operating due million EBITDA operating while past in quarter For and equal on rates, in prior segments, Ducommun’s structured to the was performance by was we’ve by also well nearly to comparable driven the XX.X% X.X%. year. to

backlog ended order the quarter We the the first million, primarily timing. quarter of with $XXX a from reflecting some decrease

remains unique for and our manufacturing and the near technologies, level. underscoring both engineered the the products levels and record backlog services relations at at first-tier company strong Our OEM customer

with new great for Being every at this company to higher last will key stronger opportunities was in future. the the missile supplier structural existing RMS the relationship newly and allow a to and selected and to Team area Raytheon XXXX Ducommun and platform also which week fire growth initiative our an and subsequent with This delighted honor of be either years. or step announcement that first strategic revenue the forward by agreement a systems. includes signed is a for will strategic RMS on in for components collaborate compete customer partnership to the be

This center good also performance California activity future appreciated PREMIER The across had We so winner. much recognition with board. as XXXX. very and show selected our our a since customers initiatives and and growth Paris highlight the for customer and value. Air too Show the major interest the Excellence first being Monrovia, our great award enthusiasm is and the Award products XXXX company very services discuss for our We at me technology both to July Raytheon Supplier of in

opportunity. engine this team process AXXX was Middle During with Composite Aerostructure on development $XXX contract is million great track facility VersaCore Ducommun we and Guaymas, for using components River working that at hard technology. platform supply company This announced, with the a our the show nacelle is deliver Mexico LEAP Systems our the important its on Airbus to

LX. programs. of the and the Strike Raytheon additional missile color Now We standoff reflecting $XX.X XX% Patriot [ph] XXXX substantial and posted let with sector. million of nearly JSAW, saw and some across beginning sales for with the number space Joint growth weapon along other or over and on second the various defense quarter our applications electronics and for F-XX programs military me on Missile, Chinook, of Joy revenue strong products Fighter end markets, We provide

to federal on most the the which the $XX passed remains Airbus with for backlog Gulfstream a important levels. is XX% year-over-year strong fiscal is and Within such We XXXX defense to primarily XXX, million fueled military new body spend approximately programs. operations growth as recently million. nearly very quarter of quarter the commercial key large our and budget and many military for outline wing ended rose second aerospace space aircraft of plays models. the record the sales Ducommun Boeing market close narrow AXXX family Given XXX role by fixed

as all including our Our AXXX business platforms grew not XX XXX rose but one. Boeing double-digit year-over-year mostly all XXX, and the and substantially XXX

Gulfstream roughly clearly posted we to the aerospace value within OEM is higher the ramps at sector we summary, backlog the significantly stood levels. market the platforms our this the that The million new the quarter serve, fixed excellent record sales growth end conditions In overall this and large as provide, company. production new of up seeing key highlighting quarter commercial business also our wing on We operational at the continued at $XXX improvement again models.

this optimistic military as We be the continue well for to the as of our business markets. part about outlook

have financial I’ll to results detail. Chris? With our that, in do Chris

and day, everyone. Steve good you, Thank

today’s $X.X I’ll versus second $XXX.X primarily quarter million quarter and And for includes and $XXX.X This due second matters during increased As company’s as overall under reminder with demand in key million for XXXX filings mentioned. call. further of results. with body million details a of was sales AXXX the Steve discussion begin see the release as various military million our our strong revenue description the space programs. reflecting press the to the please for the for commercial XXX XXXX. of of of sector platforms customers military Revenue greater in performance $XX.X higher Airbus shipments and aerospace such narrow Boeing of

million overall June last Ducommun’s $XXX down quarter’s record XX as backlog from approximately was amount. of

the as As is the prices delivery revenue agreements placed orders reminder, potential long-term fixed or and on backlog with months company firm expected customer purchase dates a less. of and and XX defined based

gross increase favorable favorable versus discussed. year’s the Moving and measures due manufacturing in quarter mix XX.X% second was period. taken primarily to as XX.X% margin the many profit, our product streamlining with year previously to year-over-year volumes The last in was along prior comparable gross

million quarter SG&A $XX.X the was XXXX. versus second $XX.X million in in

higher reflecting $XX.X the X.X% well in or prior higher primarily The the to year-over-year year revenue income benefit compensation period. for quarter of the company operating $X.X cost. as million by one-time expense. improvement million in in of charges or as of X.X% $X.X SG&A increase was due million charges the profit to offset The and partially With of gross higher lower of second report severance restructuring compared impact revenue revenue

the operating adjusted of On was utilization of higher basis versus rates. of million was was versus Certified second greater income of of in sales. an of XXXX along quarter income XXXX our operating increase quarter adjusted facility in operating is the XXXX $XX.X for million April X.X% $X.X last or million expense Interest the increase second XXXX acquisition XX.X%. in quarter credit with of second The $X.X an XXXX interest to year which Thermoplastics income million due $X.X

increase share million $X.X expense of net income of million income The partially or an were net versus $X.X lower and due of per higher per taxes gross of XXXX year-over-year million. second by is million second also adjusted net of compared million Restructuring $X.X increase net to or of greater second for which $X.X $X XXXX SG&A, increased income of share. $X.XX income $X.X the quarter The quarter The $X.XX basis of interest second increase XX.X%. million million net primarily by profit. $X.X diluted was On $X.X or million the in for higher company reported $X.XX per to quarter XXXX income XXXX. share an million of offset income adjusted diluted the diluted $X.X was the quarter in was charges year-over-year

million revenue to of the XX.X% for of nearly the increase for in period XX%. or $XX.X an of XXXX or XXXX quarter was EBITDA million XX.X% comparable $XX.X revenue second Adjusted of compared

Now let me our segment turn results. to

second results and $XX.X revenue XXXX in million sales were aerospace space $XX.X prior Our million within increase electronic our lower flat posted customers by versus slightly offset reflect $X.X These the year-over-year. revenue markets. year shipments systems our in the segment million and Commercial quarter of relatively in used military through the of industrial period.

revenue revenue posted or in of operating million of the second million of $X.X the for year systems or XX.X% prior Electronic period. $X.X quarter XX.X% versus income

year XX.X% last charges restructuring also quarter. electronics for operating margin second adjusted the Excluding XXXX was

year. in revenue slight and million revenue space versus second platforms the airframe sales within markets. a structural and last across in commercial applications million was $XX.X million XXXX higher our quarter due aerospace system aisle Our of military posted single increase segment company’s of $XX.X The $XX year-over-year increase of the particularly large to

X.X% revenue operating XX.X% the year. of Structural systems compared million $X for or posted last or income of $XX.X million revenue to quarter

The purchase for restructuring in inventory of was $X.X the respectively the restructuring Excluding second services quarter operating expenses, year. of CG&A. of $X quarter. XXXX for million. for second $X.X XXXX offset or and revenue million second Corporate $X.X XX.X% year-over-year margin of XXXX lower structures and quarter charges reflect of charges administrative and adjusted incurred accounting XXXX and each by fees the both one-time the was million professional the roughly CG&A and and adjustments were partially X.X% million XXXX X.X% results charges that in absence of severance general

an was generated Turning during year-over-year in support by operations XXXX $XX.X the second capital to net in primarily compared of due income. million higher million $X.X from second offset investment the we to cash quarter of partially growth liquidity The to working resources capital quarter to and decline increase XXXX. of

typical leverage using any anticipate company’s acquisition this to XXXX patterns excluding further cash the expect for remainder and of flow We cash unforeseen more year. the reduce

wins. expenditures spent total million million spend expect new of In program quarter $XX support to capital $XX during terms second to XXXX we the approximately and million during $X.X to in

which We’re results performance puts on second half. solid for the once again proud track of us our in quarterly

Steve? I’ll now closing turn for Steve it to over his back remarks.

thanks Okay, Chris.

shape so growth, Ducommun’s optimistic to backlog. the so Gulfstream margins we our with the relationships is strong and ahead. see as earnings. now and, and looking good strong in our to to Raytheon, in many think believe along revenues like Airbus, our innovative value revenue and others both Okay we be the us in Aerospace well we continue earlier, I years technology in mentioned momentum about rest I solid defense mentioned provide the of earlier years, and with Boeing, positions I with always very

recognized – XXXX look decades years the is and we and want the as California. in to also Before I month to State. proud August forward founding go which to is do the celebrating many XXXth in of a we we’re company ahead. started that Ducommun the happy oldest questions. be to recognize company We of to the very be year great in Ducommun mention

with operator So, that call questions. up the now you. for open Thank we’ll

Sidoti your question have we Edward coming from Instructions] first & [Operator Marshall Company. with

is line Your live. now

on while I plans before the briefly when eventually term? the and it in some about to their there? the material So, worst-case platform, good think here you and be imagine talked flattened the XXXX there. about look gets How event then cost key on it vain of do that, your about contingency you no I you XXX continues pretty had at are out to MAX talked they some balance ultimately, Thanks. as color issues scenario the look stop production What platform to a seem talked the rate about. XQ reaccelerates. at you or you of There your through call that growth rationalization for customer for longer

Yes, sure problem. no

are going very I to some the as situation ready down obviously So, then I we’re be pretty really way to to be Boeing earlier, changes certainly have to we XX. and in its the we the there’s mentioned that’s much we’re we’re happening our ready we’ll anything we’re to close if or the – locked The make very think size changes about XX half close nimble, Spirit at We certainly I we’re right thing if as have at do some other. first, road. make Boeing volume mentioned but hopeful with one Ducommun is, we one of if nice and and to the

As us and mean general. I thing far the platform, as the nice structures about talking about in just

diversified more getting We’re as go. we

we’ve MAX if and little more going Okay, business a a Gulfstream Raytheon’s. of have but structures were we growing good at there down there. so little business up got pick a we to the time really the we’ve some business the hopefully flattening, had – But might lift see takes we’re some – bit road might

going So, think is a of we’ve think I to diversification you know help. lot got that I

in Okay with context. that

you the If you move rate for think look would Do within that XXXX end fall at you a short of structures. or at increase you’re could without that into X% to it and X% see as on rate lower looking we range? commercials that

think mid-single. to about following X% feel as about when We now confident like year, I usual, said right very X% our we’re we

if structures. I’m then to the They’ve tougher. good And increases it. majority next you’re seeing the got Mid-single about, quarter XX in in the at that comps running are what has look the if a XXs within to quarter. particular incremental you of XXs the obviously tougher very I margins been think the I to on leverage you wondering down [indiscernible] of this side. the mean margin on starting passed or margin get had and kind and are dropped the

and left what’s talk about business what kind acquisitions to overall. can that without what in and pull maybe thinking the can of about bring you the leverage you So tank might

and I things. Yes, know couple

off, journey on all with finding of and the we’re facilities fine within. the think incremental still different tuning improvements I first

then we’ve building piece now make comfortable of too that’s there all of a with inroads we that continuing couple over just some again, the forward. of that’s the be as how next lift to XXX, of taken puzzle, of the the item going how newer platforms volume alluded impact So move be a that we’re with Steve hold, that these with to several and to sort we we’re mentioned more another as and taking against it’s continue to is are a been quarters, sort to that feel little up quarters up rate last operating key to going few the bit over some you so so

Got or would bit. extra it. not programs, does bid like with Raytheon. can new silly little frame elaborate programs on And it new like then this content kind Thanks. maybe come or us you just kind be on of of is opportunity sounds about to business it existing an finally about talk it a talk of me, to I guess and It when to up; sounds

Yes.

of it’s got we’re think is for really we that, revenue is signed, in with But because going new, for RMS’s we’re heavy hope, some $X an $XX company standard that what that the the I pretty to things it’s right? some going one for of the they them open note be working or it’s business first right? there. excited missiles, proud – portfolio more to whole [ph] we’re billion make thing on their we’re they electronics. come missiles billion first so So ones of above all of, It’s be new this up structures opportunities the we so you to we’re out to of gate. ones existing, SM So do the

Thanks Great. appreciated. guys

Thank you.

your Crawford next Mike with have We question coming from B. Riley.

now is line live. Your

talked you also, the about Raytheon. what today picking structures maybe with differentiate when Raytheon Can it that and you’ve can versus with just primarily what mix might some – been you versus you VersaCore business would be in Steve, up electronics be hopefully structures with future? the of doing

much side I’ll on so one, second Yes, first. to much maybe the is the get structure zero. Raytheon pretty Pretty

So circuit cards, type no thing. boxes, that mostly it really There’s looking action. back connectors, of all really,

a [ph] of of things [ph] different thing. could about we’re So York, excited in very type well work New do that. lot and blendings up and VersaCore, [indiscernible] in metal It be of we that tachyon

going business. shape think there going of to forward So that we’re pretty good that hopefully we we’re some in build

revenue year you into from year from this and what product year revenues been and think just future? you much next if you how the to-date versus of the VersaCore, maybe then. that see have Okay, might about thanks level that gage could

top with so $X program setting level I that and But things sort double rough. we’re right and got going – year for up that’s nice so we’re running VersaCore year of got think roughly we’ve – Mike. [indiscernible] Yes, next million this on this for is we’ve XXXX, then around to some

I great general in How in XXX the next help resolves you variance that favorable gross had then quarter-to-quarter? the – six itself Okay, question last but number and and kind expect much of Max that around this the know on manufacturing outlook assuming mix months. you margin is, the quarter would margin gross based

move forward. mentioned we we move, as As as I

but in location I think strengthen and happens the little getting each goodness continued no to making step that work of a with better It’s continue again be to going it will function. huge increased some volume. the

of So we’re longer But at be keep – second it as we had level. we our half highest in that period a to prior next to in able in pretty we the running more a work expecting couple right upon to the looking and and compare year, year the strong we through we’re of this moving do build quarters. and We direction. were that expect to QX compare

continue just, Chris that. on Well let me just

Sure.

mix? Because our basis many a and the like the with or other is that how model hundred mix in actually gross had, was [indiscernible] how if maybe had maybe like, could yet, few points higher much, favorable manufacturing XXX down less dip talking it are we we’ve way, you margin like the than it

Yes, I mean go this. if things against

range we’re talking think now XXX, a that’s. of sort of I

Mike, think that. I

We’re the moving direction. in right

Mike, minimal. I think it’s

see point. for this margins, runway [indiscernible] with structures more future I to think be on I the in honest you.

All right, you. Thank awesome.

SunTrust. Michael you Thank with Ciarmoli next your coming from and question have we

is now live. line Your

I up the domestic, the bit sort that of factor more just anything Steve in looking with maybe defense them? But a go and push more would all been behind Can a was chains you shore electronics there to their agreement. of supplier the Raytheon to big a agreement? supplier give supplier DOD obviously on you’ve mean supply little

can’t really that. can you any question. question. is portfolio, good time real like, a provide value give the to DOD. also level view but find level, really to provide that. can’t what big Raytheon would But my that insight next people is and suppliers a with, it’s looking answer to can right? they next [Indiscernible] of work I good looking the Yes, feel I of be get

I’m I it. to context United be opportunities think scrutiny of there’s Technologies. that certainly perception you optically this very about I do the what guys even mean Raytheon, Got sure, view with some is, there? in – of because in how there’s What definitely I merger the with around but [indiscernible] lot would still synergies. does I [indiscernible] maybe mean more a going early not be for create it internal you. mean the

close while we do I with Kenneth think say in game, year. for more company be aerospace. next too, as do have know would so side. the the on right Tom But [ph] defense certainly Obviously, we a Raytheon, have the will you to that, I

over hopeful, would this say like I So what feel the that’s long-term we’re I point. at

the back XX.X% just to operating structural, then margin. and Okay margins

these at high it I customer volume MAX. they’re sensitivity of Hard are tell, to of levels not regardless. I of like But all some any unknowns to think on side it if they to mean margins next here. if I think you going about looks certainly I mean one hold at. be a margins don’t your lower you sure maybe complete change these big on going sounds year you MAX, or the Spirit multi-year Boeing get increased these to stay guys what can there. I’m given how the XX from thinking do the to what’s staying you you mean, certainly like

to back alluding what call. said earlier Steve Just in the

sort of to number we uncertainty various and this got we’ve to through feel that products fashion. of ability around have of and ebb of Our in given manage us look any quarters and through for play we forward facility model couple size month, to They’ve sort gone in a next a to quarter the a them. and in given strong We manage pretty again work one of gives flow through sort through comes like from that in move make a lot we manage ability sort through. can are think I of of that

we’ve the the So, and as past really okay. also of in years also we’re are got business got our starting XXX, not going Overall, with in the to this I or GXXX, XXX GXXX XX. feel we concerns we Mike. have We’ve possibly might XX we’ve got couple the everything and got is variability build platforms. last then it believe business, these we’ve Spirits’ the good – I obviously have Airbus, mentioned to – Steve, in other calls with up book say,

Thanks Got a guys. it. Perfect. lot

[Operator next with comes Moore Genuity. from Instructions] your question [ph] Austin Canaccord

line Your is live. now

Austin Hi, this Ken. for guys is on

Hi Austin.

Austin. Hi

wanted just more to I the expand on a little So – your relationship Raytheon. with

was given in So content wondering few work growth sales quarters more looks looks profile profile guys? I the and markets missile what you that for and for missile on missile over specifically like and standard the guys next you your what defense growth the

it’s for this is myself I grow great not as feel RMS good us to with together teams going only going Raytheon, as They’re how of continue that there’s you of their and that Obviously, it’s leadership their to we’re because – grow you happy business component about all to we’re think if to through FMS, we’re opportunistic going just the format, far agreement obviously that is bookings, which working the going tie the performance, tie some We sort a know but right? business. and it. runs Raytheon be to also RMS at look to going recent

So as going move it’s certainly as we numbers it’s high to say far single forward. I’d be as

missile like in Patriot missile on standard or Do [ph]. Aegis systems any on you content also Aegis in patent have [ph] FAD [ph]. just defense guys other you or so specifically in and have standard great content Okay,

many, – and defense we it’s have, Paveway a absolutely we we is No business on on program, program. the we’re But big have Patriot, a Raytheon which have others. missile JSAW big working many not

you. Thank great. Okay,

[ph]. us Thanks Austin for joining

Thank showing like to Mr. closing would now I’m for questions no any further the Steve at Oswald conference this back I remarks. time. you. to turn

questions to much. for you your Thank everybody very joining today. us you too. I thank Okay, want for thank

we’re think early on journey you’re with overall, our But the I only here. quarter. pleased still innings

we’ve margin things maybe on five, lots I line. that top side. growth thing think of note is or obviously our through the worked to coming in on encouraging really that of hard last But take are the I really six is think one the on four quarters

our a going. says confident we’re lot that think about are hopefully. and I where where position, I’m we

have So thank or much it that. you leave Again and rest evening. good the I’ll very with day of

and Thank participation this your a today’s have day. and concludes gentlemen, Ladies wonderful conference. for you

disconnect. You may all