Ducommun (DCO) 1 Nov 192019 Q3 Earnings call transcript

Good afternoon, ladies and gentlemen, and welcome to Ducommun Third Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded.

I would now like to turn the conference over to your host, Mr. Chris Witty, the moderator, you may begin.

Thank you, and welcome to Ducommun's 2019 third quarter conference call. Steve President, President and Interim and Accounting are Chris CEO; Treasurer, today Chief Vice Wampler, Chief Officer. me Oswald, and Chairman, and Controller With Financial Officer forward-looking discuss that performance may session make remarks limitations or that projections prepared we make the the to future events, going to I'm any or statements during follows. regarding or certain question-and-answer

Federal operations Certain Private statements and future market to any statements statements as forward-looking Act Reform today that Litigation are results Securities are and of of not under projections historical the facts, including financial conditions, XXXX are by and implied factors, are, forward-looking results the These cause therefore, from to or expressed such could perspective. forward-looking subject future statements to differ results materially statements. risks, uncertainties which actual other

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

future changes, In SEC, management cyclicality statements level current subject subject government described legal which is report company's addition, are the include, defense of estimates others, the Particular in Ducommun of based markets, to on Form risks. spending, annual the of with acquisitions business, our and facing end-use expansion risks, forward-looking competition. others These our regulatory and on filed XX-K are and among and change. operating our to risks U.S. results risks the and of the cost those are

link measures. the this with all referenced our a on under non-GAAP the you'll company's similar the of today, time the made Investor non-GAAP do filings refer authority. Form XX-Q the reconciliation a made, Relations our regulatory filed and Statements made measures. in also required if we during site most except any with our are measures find call call filings and includes Web this presentation, as and call This on to the intend of the We to to Please SEC this for to as SEC not GAAP only update financial tab. statements by

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

thanks, Okay. Chris, today us for conference and Thank joining you, everyone, our call. quarter third for

by in review As at which developments usual, after financials will our Chris providing on I'll recent detail. Wampler the an update begin company,

release organic. of in mentioned having very averaging and double-digit quarter I'm increases, press strong over the the now well our this performance happy revenue afternoon, five As XX% results with of quarters straight as XX% the continued company, gains of with third

the at to aggregate aircraft revenue where in million, Ducommun's narrow-body for grew and third MAX fixed-wing and commercial on and position our the AXXX driven both Airbus large to content. provide important also we platforms, our quarter Boeing including $XXX XX% last versus grew year-over-year year, Boeing businesses. underscoring increased business XXX shipments Airbus, the by XX% Ducommun's defense over family,

support ship On currently MAX, and stated in We we've Spirit. not the Boeing for to of the rate Ducommun. reduction to is the see change I the build material schedule, monthly XX current XX Boeing the past, in and for continued and no

capacity manufacturing in work to them, schedule any support future. with continue and the ability the have ramp and increase of up also in We closely build to currently the the

across As platforms, we're Airbus. commercial broadly you now numerous also including know, diversified

runway with another bright them, year-over-year. the growing, in now also strong G us. aircraft. with Series We have ahead quarter the long posted business on Our production again, of is increases gains a opportunity Gulfstream spot of the

business. in programs, which its overall important continued this combined excellent the key an on with missile many company, in increase quarter remain had aircraft strong of business as growth great a revenue. defense our helicopter. commercial Our with the F-XX XX% We balance such the segment, platforms aerospace had Ducommun and provides well, in Apache performance as confident to

levels, near-record ended our product also commercial with long-term serve. of certainly We the diversity of military platforms healthy the The offerings we for million, quarter balance the backlog of backlog and underscores strength of both our with and $XXX orders. a demand a the

highlight basis to expansion, XX.X% gross implementation margin operating points to continued margins with XX.X% Another adjusted third XXXX. rising an compared margin XXX expanded to the XXX strong year-over-year in of versus was quarter also X.X% basis in points quarter Ducommun's driven the excluding Structures X.X% our and expanded pricing due improved purchase performance discipline. to This and leverage, XX.X% of margins operating That's inventory year. adjustments. last strategy, charges center Ducommun's where operating by operating restructuring accounting segment, performance successful to system our was

to This acquisition U.S. business in $XX we naval the of platform, increase company's in new supply ammunition XX% products obviously also company over [indiscernible] my year many adjusted in the systems. vehicles quarter a support. market quarter It's of overseas. as by of Nobles our overall the the announced has will for thrilled After years, variety and in design We the of comparable tactical of and over XX a Worldwide, great period I'm opening been results the with aircraft, operating global and nearly third finish ended, meaningful also strong military Ducommun's the of with I million in for for team Ducommun and for a January. aftermarket opportunities at a advanced handling accomplishments EBITDA the vessels, support posted XXXX. leader fit

presence the transaction the engineered in opportunities. of proprietary expanding roughly our support with Nobles to past, from market-leading the property to with abroad. intellectual I've addition, the accomplishes XX% future that revenue our discussed companies product sales, growth acquire just is aftermarket is strategy [ph] international latest and In

the that mention to were the below I X for XXXX and of on since time the completed a at multiple this the price EBITDA one LTM each XXx of based do want acquisitions other also the Nobles time at purchase purchase.

Day but some communicated required information for certain details in As selective regulations along by we've data with year, competitive the Investor disclosed other we limit last reasons.

Nobles recent an did speculation today both EBITDA the in top and and that we the higher want a to senior best it we X thought Ducommun due to multiple with backgrounds. was reiterate, private spoken and this in I investors equity paid I past, However, to share XXX press on for analysts not. executives and leadership Fortune I've also or team as basis, to much

a experience significant acquisition process, and have discipline. strong We

Now with programs. up space XXXX, over provide stronger programs. across our military on some me of sales third and number let XX% million, products we Beginning revenue and markets, $XX.X color and posted sector, missile our defense quarter of reflecting a

F-XX, such a demand market quarter number trend performing We in saw strong which helicopter we space products with defense Phalanx. the exemplifies and F-XX, $XXX Patriot, our which program we're for including across shipments approximately military area, the this growth applications, for proud. Strike we example, Embraer, and missile the growth XXXX. several million For will JSOW along F-XX, continuing the for the Apache of double-digit with defense of platforms the continue expect Fighter, fiscal Joint the a in of The sheer ended steady backlog into and the

Our XX% year-over-year commercial rose operations, $XX.X third aerospace to quarter sales million.

mentioned again as aircraft fueled Airbus I growth the narrow-body fixed-wing, Boeing by was such large, As earlier, and AXXX XXX family.

XXX. row, quarter for of second-highest double commercial second our our digits. Boeing And the fact, In Airbus after platforms AXXX revenue-generating the was the a platform and in grew most

Our to value rapid customer. portfolio and with provided the this of the growth strength Airbus Ducommun's reflects

into declining commercial continue platforms market, sector $XXX the our The stood quarter, commercial on growth optimistic quarter order helicopter at to earlier backlog platforms. see year end million XXXX. we aerospace and strong also with this at roughly from Gulfstream as We commercial our the within other heading of the levels remain to timing. the breadth serve well about due key of in We the lines given product as

I'll our With have financial results that, Chris in detail. Chris? review

Thank good afternoon, everyone. you, Steve, and

As please discussion matters release press and the call. see further a the description today's reminder, of during filings company's under for

EBITDA. performance margin of seen favorable the have continue trends of we line year-over-year business certain and themes top key XXXX, expansion growth, metrics, the During in including the adjusted

has key consistent operating continued as system operating customer such in Ducommun and drive in been approach its and more the as manner. a performing satisfaction areas a helping predictable results, well scrap year-over-year as factory performance-center-focused including and of improvement Our

missile increased million results, as of quarter the of AXXX, as This to programs includes a sector, the third various demand and due near primarily the as $XXX and quarter review for details $XX.X sales space strong Now, shipments reflecting approximately is was I'll still customers Ducommun's quarter aerospace Airbus million quarter. revenue the levels. to $XXX.X third $X Revenue the of of narrow-body was overall the from XXXX. within move of for of the our commercial for million, performance key end versus such military in XXX the the and platforms higher record greater of million third Steve which Boeing backlog million XXXX $XXX.X mentioned. third overall

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

increase our XX.X% primarily to This was enhanced Moving increased mix of the and with favorable versus compensation third benefit $XX primarily in in in year-over-year gross versus third in operating production period. $XX.X to corporate-related improved margin was and manufacturing quarter million efficiencies. the profit, the year's volumes, in costs higher leverage centers, higher prior driving favorable was performance. increase million operating the XX.X% the the due XXXX, The and comparable product quarter performance SG&A reflecting at resulted gross other costs. quarter third

On compared third basis, gross aggregate quarter to $XX.X million improvement third operating charges revenue, million X.X% of profit or million of an prior due or adjustments. or and year XXXX. income restructured revenue operating the higher X.X% to of accounting of the reported the of the The adjusted was in $X.X period. company in sales total prior X.X% $X.X revenue income of an included $XX.X The was quarter year-over-year and year purchase million for higher inventory of

was million due rates. XXXX interest million third the versus $X.X expense in to $X.X quarter last of higher Interest year

accordingly also facility the or to $X.X and of credit subsequent result $X.XX increased to utilizing third we diluted million million, income expect $X.X due going a increase net end, income Restructuring $X.X do company's offset million of for adjustments the by compared quarter $X.X interest expense million SG&A, reported higher to increase $X.X acquisition million The by profit. per $X.XX The of $X.X were expense per our primarily Nobles XXXX. or of for of quarter $X.X taxes and quarter interest the As company year-over-year lower diluted net to million. higher third forward. fund share higher charges to of of million income share in year-over-year other was gross

compared Adjusted comparable the or period the quarter net $X.X revenue diluted basis EBITDA in or for $XX.X XXXX third third Adjusted $X.XX per $XX.X XX.X% income million XXX of or revenue was of the points. of increase in XXXX, million for million to quarter. was of XXXX XX.X% share an

Now results. to let me turn our segment

of relatively quarter posted or customers. reflect $X.X flat XX.X% versus in of Systems the third aerospace versus the million in year $X.X for revenue million period. to year $XX.X $XX.X of were prior in of increase These revenue prior million quarter operating income XXXX a third results and Commercial posted segment of the our Electronic Systems military shipments $X million revenue million sales Electronic year-over-year. Our period. or the space XX.X% in

Excluding decline the year-over-year for restructure mix. charges year, operating was third last the margin XX.X% with adjusted reflecting XXXX product electronics quarter

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

margin These favorable reflects in centers, charges The inventory adjustments, year. operating and and operating adjusted improved third production manufacturing production in favorable lower margin performance. with accounting the elevated XXXX improved quarter. purchase operating at charges operating driving the for along volume, mix restructured improvement was leverage Structures efficiencies, the Excluding X.X% year-over-year restructure performance current resulted

The XXXX. higher million higher quarter of $X.X million the $X.X or restructuring million, and X.X% $X of results Corporate revenue other or benefit partially general expense for third charges XXXX and revenue current was $X.X million of and in versus the $X.X year-over-year of X.X% of million year. corporate costs offset by expenses of compensation reflect in administrative lower

higher with liquidity in net compared during from $XX of XXXX, to generated third year. our cash of capital quarter the resources, flow XXXX of the Turning we million quarter million third this operations $X.X and income reflecting

quarterly wins. $X.X of performance results. with terms and million million We're, In to spent and we track to pleased the our $XX again, capital million new about are program during third the expenditures, support future spend on remain during quarter XXXX to $XX positive

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

Chris. Thanks, Okay.

company to just the for I see for year. we top Okay, the XXXX. over think for of to before turning the company the And near saying, close in fiscal I momentum strong few great to we're continued I asset, the excellence customer as both remains their development the most shareholders a and comments end shape areas, also drive and on on Ducommun's line into bottom expect our I finish the support a XXXX questions, as employees. for energized certainly performance team as In organization's satisfaction, and as trust. about year the operational important many in And thank continues closing, and of our excited always, ahead. want to such

up the for questions. we'll Thank you. call that, With open operator, now

from Company. Sidoti Instructions] question from First the [Operator Marshall of Edward & comes line

now Your line open. is

Hello.

Hi, Ed.

Hi.

Can margin, put or you profile, what type $XX.X in basis looking similar at the could the a of than improvement? this of the subsequent me? talk two had margin about So margin tell saw especially particular, mix, up, see year, more very Is Structures I on that yet you revenue the to significant kind sequentially. looking intra increase quarters you're steps that you year was million the we you of some at this taking

Okay.

me Let handle that.

kind just starting it's that improvements. continued here said strategy, pick that like all reducing see pricing operating really it's it's it's center to and the scrap, got going things Ducommon it's I we're earlier, It's up. the of So I performance finally model, since we discipline, our operational came it's the things

So it's a mix.

Sequentially, absolutely and it. better, getting with You're right. happy it's we're

this this do is think I sustainable -- overachieving grow -- a of you Do or you number? think you you kind is here, is or is number, do Thanks. this an from this think mean

forward it's this don't it overachieving grow don't certainly to little a mid-singles is keep mean, to get it's journey -- at is number. been there I as continue line, up an Yes. where continue -- as the to again, get we And to that that singles drop-down -- just to with. mean Chris. this it the looking a it things and to back but now, it will cleaner the And north. No. help -- as Ed, see well top moving are low to we're I platform I from keep we're moving get our execute from

Boeing's to to continued approved. flight, wanted I it. Got Obviously, push-outs from the equivalent fourth and early quarter discuss European return expectations. with the still a FAA MAX. missed organization haven't seeing And airline we're

the from from and what can at were there your hearing like you're what Spirit's As in hanging Boeing about look we declined Boeing for Boeing from of X% I Maybe and looked what kind has both talk you're you revenue looks but you year-over-year. Boeing versus it versus at hearing hearing MAX, Spirit, Spirit?

absolutely Boeing. a I with What said we're still, is And or hearing and as there, you at expect We're Spirit bit, you're been XX hanging in us, helping change. down no and Boeing in been for The XX XX. right. declining that's but that going at remarks, to we're is my Spirit's

Right.

that? kind the kind there to that And or prepared base? is How you inventory rate, there's month ship ultimately sets I Boeing employment the think And some shutdown ship in so for of I -- to then, and assuming of a you are it's move should XXXX when goes and a of the months bleed if I now, how growth XX, I'm XX X, if slowdown system. forth. Thanks. as XX, so X flex ahead. -- I out into back to we production guess, about ultimately, mean that mean a

as really the change getting long at Ed, to I relatively how last I is but curve similar No. back to it time, where to been our -- mean, as we sort of couple confidence we've as think what that's fully and the of there of happens quarters sort eventually far a going to as out we'll as carry that's guys. us in view get in going to business going us the rest on -- day, point and them is meantime, the laid certainly, what business that our the that and supported In drags, grow still the for back the the you say the the the to gives in it options Yes. longer Structures orders gives to there, are that. of get fashion that we're continue we it's

broke or point XX% the there which about delays then X%, receivables now kind at And there looked you your improvements I of it. the customer? there's basis Got payments in from, is in receivables, from largest increase are when Q, I that XXX up any so guess, seeing out there, Boeing's

Yes. -- mean sales got sort signaling number a as of one, of there; supply goes our I there. no program pull-through and got two, and Boeing most we've a No. No we've chain agreement -- got options we've any been issues most to where of there's well. number finance through program of our

got we've So flow to moving. cash multiple ways keep

Perfect. Thanks, guys.

Yes.

Next question Canaccord. Herbert is from Ken of

is line open. Your now

Hi. Good Chris. Steve and afternoon,

Ken. afternoon, Good

Good Ken. afternoon,

just really of Is to just free wanted seems it this Steve, year. flow the quarter, first maybe to last year mean that compared capital we it follow a the fair assume into or think on think stretched cash we unique and sort that? nice the outlook? reverse in do or payments? quarter that a see then, as do acceleration fourth about is to about maybe build down lot And that question. to like I else in start up you nice of of Or And there running I some that on clearly sort is cash inventory is last really working how anything XXXX?

Chris. mean, this is I Ken,

cash, the in the related bonus first-half. first were in of the of hit the sort So payments the to had negative we cash, part that the the onetime year year-to-date

So from back would little that we we QX, put -- us outdid would year's and last normal sort a of where trend QX. back pace got on be.

expecting to as with usually expect look we're it's We're -- Boeing finish anything The or good cash looking QX, it -- to inventory for through related impact of negligible, call we're quarter. the that we else slowdown working As well. case our a and QX. and that to strongest be is I'd to anything

Yes. going to Ken. We get better, it's think

think -- committing that what terms to I with or are And you in do maybe comfortable what maybe -- you number Okay. on this I should can you're of sort and business got a point, you've generate the -- guess, of to the a phenomenal. conversion obviously, translating revenues, growth mean, we think way about are or great some on basis backlog, this a margins this into

eventually, cash up. to I imagine, catch here the So would really starts

So in about should how we opportunity? that that think of terms

Yes. No.

little I think cash is I should still neighborhood in which think of that'll said the a of in net play, sort is outpace where we be before it through. that I mean our And fair. south that's our moment, move but we're at income. we've what

in We as more. leverage expand pick expect to to will a -- some additional move forward, we going through margins we the up little And QX. then again, as be continue here

is this Steve. Ken, And

we help inventory -- about all about Ducommun going strategy, mentioned talked the forward. improvements type go performance to us As that's on we of earlier as with the those the model, center call -- and side we in operational operating

business or in closed, that Yes. assume, the the quarter top to about to quarter? detail week add of the first Is X X I I it? right points the Perfect. think around this I it on there. And so of growth Does appreciate deal the sort Is mean, just way fair the Nobles. line of incremental think, to

we're Yes. in mean that that it's that's give but in range. detail, not range. in neighborhood. too -- I'd more it's somewhere But much that going mean the to say I it's -- I the

a can and itself. color? like a for the do a where and more going, forward? helpful Steve, how I is And really, opportunity, you No. opportunity appreciate in little maybe for now the guess, but moving maybe see line Okay. You've than less or that. mean, provide of fit. month, the just Can you only finally, I business bit the the integration I That's great owned this business, view looks Nobles you how top just obviously, team

Sure, sure.

to First are and the thrilled of going team, start all, stay. staying. them his President I'm reports the all the with to And want with we direct team. We're

with to to three executives with LDS, had forward. So we us like go be we're staying CTP, and create able flight with us value had we three we with now help as and top

we're So happy that. with

the Our things We integrations bring UTC very other mentioned learnt a We're any We went a and lot lot jobs past better. bring of processes I you in we lot use the couldn't two same of the we a of have here. going in we of in plan. past, detailed. as continue that experience. -- It's for integration lots to bring

least market about nice think that. The definitely Obviously, -- there's it's upside. and niche So looks like, top like to nice that that. what us. feel next we certainly that bottom-line have for defense. at market going five feel XX good year but is we exactly We We'll It's a to see we forward, certainly headroom.

Thanks great a quarter. lot,

appreciate All I Ken. right, thanks, it.

We of B. from Aman question have Gulani FBR. Riley a

Your now is open. line

my to And in guys. capture of and acquired know in land you're for some platforms. sea Thanks know solid opportunity seeing congrats Noble the you've mostly platforms you Do a lot sea of capture some quarter. has business Can platforms? air some Hey, content I to are talk now and but you and any opportunity then, see on that now, about opportunities I you land there? Nobles? a aftermarket question, taking

Yes. We do, actually.

on on We're So great well opportunity's with land. sea, as big good on shape shape we're the fairly air. in in Nobles our really

at busy The team So is we're with busy that. that.

Noble. there's as I here more come So think go forward that with we to

goal that's aftermarket, the as a of far ours. As

develop to on to more move have future we the We'll information work into hard continue as that. We that.

acquisition Noble, at characterize with that And looking current you Got what how M&A completed you're the you've the would of now it. today? pipeline

knows business everybody Sure. competitive Well, look, the very it's -- in as is world. everything

lot for time us. that the see we Nobles sure the lot a still it we of this that for buy we've us though, a So -- at it we're ahead of Obviously, think price. we right there's opportunities right and spent and made on that, deal, see -- we it, studied we've also but was

So good. take the see to but been nothing's either. and time, really there We'll pipeline's just these things changed have pretty

it. Got

about And some Raytheon. at to any just talked I if just business Okay. Structures previously capturing the to I progress then turning front. Raytheon, wanted know that you've see there's on

we're There is but with tuned. Stay Raytheon. progress, working

I to they As in with the future that calls the first signed the first strategic Structure thrilled on mentioned We'll side. we're last call, be for their in is up supplier working more their RMS information teams. program. have We're the busy

you, it pass thank it, on. Got will I

great, Okay, thanks.

Thanks, Aman.

[Operator Instructions] We a Michael question have from of SunTrust. Ciarmoli

line is Your open. now

question, guys. evening, nice taking Thanks for Good quarter. the

Hi, Mike.

longer-term Steve, of step I you getting Can looking mean, sort in about XX of obviously aero. to talk a is really guess, X%, down. mean, does doesn't that XXX that X% saw a maybe still it I growth has the projections, three-year -- the that terms that's what -- look just of taken your up CAGR just rates. at we like it lot I on? growth dependent on there's in to Does XX? there's contingent production

going So more expansion and to guys? you content market is it be for share

I Ducommun. relationship is is mean it Airbus obviously, I my mentioned new on fairly mean, I to remarks, think that. as this I still

think I the XXX innings. some for them early We're it's other on work great and really -- it's programs. a doing So still

or it's goals years. help years, Airbus, And really in three next think, going. for So P&L comfortable where the with over going to three the get I it I'm us not obviously, to pretty was four our now we're right

to it. the to basis, you in XX.X% Got the even that XX.X% a then entirely And Was the sequential quarter? mix the But dip as revenue. on assuming on well. had -- on to the quarter, from margins. electronic this the back there just higher was I'm second a product mix due

year, It the was last year. more the during No. for anticipate we that at was of was Michael, to compared mix were where sort in This the opposite, that mixed it a that, bouncing -- but popped segment Yes. having favorable last year. year back. between we it's -- said We

the Nobles, I mentioned just then aftermarket. you And it. on Got one last think

was be new the stream I'm You disclosed, is margins, assuming would would and aftermarket much that accretive -- disclose revenues a Did reasonable you revenue from much are how the -- even how of be I you assessment? think, to this international. willing for maybe the coming

and no yes. say, would I

Yes. That's No and right. yes.

will jump back All in the queue. That works. I guys. right, thanks

it. Mike, right, thanks lot, a All appreciate

this time, no call questions return Mr. the will closing queue. remarks. further in are there any Oswald to I Steve At for

Okay.

now. chain wrap just Let great my we to going feel really my mention, I about very great this thank And good team, to today. everybody forward We're our Again, to things to about I again, together everybody in us feel get strong are. also me We Ducommun Everybody leadership thank is we XXXX. want take we where supply want pulling just to I to, it up. partners. a want feel December. looking closing just time year and else we're at ahead. us, up as for as well joining behind

for Thank it you, leave there. I'll a evening. great and trust. shareholders So Have your our again, to support

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

disconnect. You all may