Ducommun (DCO) 3 Nov 212021 Q3 Earnings call transcript

Thank you all for standing by and welcome to the conference call entitled Q3 2021 Ducommun Earnings Conference Call. At this time, all participants are in a listen-only mode. Near the end of today’s session, we will have a question-and-answer session. [Operator Instructions] Please also note that today's call is being recorded. I'll now hand the call over to your host, the Investor Relations Adviser of Ducommun Incorporated, Chris Witty. begin. now may you Sir,

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

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

competition our a not disasters, or Annual are the described our ability our others management SEC potential use with estimates update to to expansion customers, regulatory in risks as These presentation, subject government this refer Particular on from changes, statements made natural other legal is to risks, intend SEC during of Oswald call terms company's financial I include of Form our subject filed Form others, or the markets, complete addition, risks among Steve? GAAP COVID-XX defense regulatory Report to based authorities. Please are leaseback spending, We would to operating those and our the transaction, filings otherwise. results. risks. Statements the filed acquisitions, of do like by XX-K a on call measures operations XXXX are timing with facing also our U.S. of our quarter future In the the for except are for as and today's call and statements cost the of in now end will on sales orders measures. review This level referenced only made time operating current any of and of with the and of of cyclicality over non-GAAP to a required results the the we change. of the forward-looking impact on which business, non-GAAP which and customers, made if the reconciliation Ducommun and include our today. this SEC to turn Mr. third XX-Q Steve to the call. and

of safety which you, current focused, our Thank foremost, the done excellent I'll with on XXXX. team quarter an financials our company, March third in first review the conference today since put job after Company call. of and protocols the and health employees. our on situation will usual, in and remains place detail. The of thanks Chris, everyone as an for update for give Chris us Today, Wampler joining the has safety

is We and and the OSHA operations. vaccination roughly XXXX. many we be requirements aligning the to of company number following to in we had company from I the pandemic awaiting of QX since throughout practices, Total mention, continue those XX rules currently are the also our the our want will government. beginning cases follow authorities health within the with best XXX cases of

commercial are delivered results The aerospace in and release, delivering all year-over-year business and markets Company's is revenue revenue of defense showed quarter. press the mentioned business the year-over-year As for XXXX third commercial organic. QX spots. the strong. first since recovering X% time solid bright company are in were the some we quarter Ducommun's The growth performance another seeing

for of revenue customer in a of XXth position also from quarter Spirit and the XXXX QX example, of the our revenue was going For XXXX. QX Aerosystems to in X% largest of fourth

in optimistic that seeing as from well are start and OEM Ducommun bill Boeing increases comments Airbus from We will rate meaningful recent starting XXXX.

any and a revenues and gains was $X.XX operating was and more X%, higher defense majority F-XX, mid communicated great in growth, excellent impressive margins quarter we QX UAVs significant program, quarter continue GAAP year-over-year income XXXX, is F-XX, In gross QX solid revenue solid increase adjusted business robust programs. excellent of commercial growth Ducommun's team year. which with had growth for versus XXXX TOW show our business record the Atomics, of company on consecutive The doubled, with since of our up in revenue prior high other as the This progress, XX%, results of investors, than runway a posted time and diluted share build year. also EBITDA addition $X.XX start to of with missile margins The the ahead. delivering include versus versus was to last earnings first showing a second as a third is reaching progress we return QX business Raytheon year-over-year for also share and along continue business shipments commitment anticipated well; posted General reflect to The $X.XX in adjusted of development. a financial continued XXXX. we Defense EPS which company's to the also XX.X%. XX.X%, numbers XX% of of quality share QX diluted margins revenue Those EPS $X.XX growth environment. The for of as revenue adjusted track

provide for to to levels approach the past, and striving signing since significant be products supplier progress Our that customer, service. numbers XXXX. of the Defense value high July innovative, I the to strategy. this the rewarded be want the current Missile in as also strategic them for to backlog with in agreement and the and show, business we defense mention to Raytheon with The market processes consistent along of continues continue

have been new will And $XXX runway ahead. this growing XXXX areas, We share with more I'm business less in of a offloading much $XX that overall million million programs, at legacy happy work Raytheon shift. than record and XXXX with XXXX, over from in be to year increase than XX% three an report to more in hard

Another in this QX. partnership highlight of occurred

of contract program a This primes, we'll run defense program, is with the great drive with on to example for business, be supplying rate. production, help defense them card prestigious more critical million our assemblies As win our major ability radar and circuit now a Ducommun annual card very won over a off-load and $XX ahead. value SPY-X for a circuit Raytheon, opportunities with significant for

of just number recovery overall quarter addition, despite based a examples SPY-X also In company's continue QX I from QX the are and be strong backlog a challenges. The aerospace very our to pay like dividends. revenue regards GA increasing showed remains million defense for our of opportunities. with for relationship, larger backlog consecutive good sequentially end to the million the second QX and The the the XXXX backlog cost the of continuing at the $XXX commercial backlog In some the other company, industry end at and good for on was $XXX sign. a it's the total to to about million, environment. signs Northrop newly customer company, With becoming $XXX optimistic defense mentioned, actions a million opportunities developing $XXX of also ending

initiatives significant the positioned on very margins more our I efforts also You commercial the provide good was can in backlog operating the offset MAX. impact. operations to are the to even our investors XXXX. XXX effectiveness see mention before ahead, defense, gross remain in profit volume the clear revenue QX more and return actions wide-body quarters with our certainly income the see revenue regards and working for having want The make to the the EPS. outlook, along ahead. and show a percentages to of diluted and important aerospace in pandemic, business, more defense we the leadership aerospace, our ratio will to supply and our In want and as are momentum company and well strong and of good positive that we have operating continue and solid pricing again a to I forecasted with in chain rates to strong in in team but analysts, our high capacity commercial narrow-body estimate will also the to very come. over We deliver

in accelerator looking for also market fit this to We will that the model, results. believe active our companies new for remain only an be and higher M&A

military revenue and revenue key platforms. million, sector, increase The some provide markets, on versus products programs. posted and Beginning our slight me on third let of our additional Now, showing with solid we color $XXX.X was from a XXXX. defense quarter space

As mentioned F-XX, increases missile earlier, tow, in saw demand for we and UAVs, programs. other F-XX,

of space XX% Third quarter revenue military Ducommun's revenue period. in represented the

increase I Raytheon. consecutive at a well-positioned a in all for defense contend business platforms jet meaningful XX% quarter third aircraft quarters commercial represents commercial also Within Gulfstream believe mainly backlog. our by $XXX and QX, growth earlier in within further as next roughly customers very the strong also slight company. in mentioned be We the at year-over-year to a the and with to several especially of The very market bright. across Ducommun over ended compared quarter good for backlog our And sectors and million, aerospace platforms the to aerospace year-over-year XXXX total increases seeing we're on is XXXX improvement our sector the some at which our of XXXX, Bombardier. and third QX expects million growth growth second overall revenue million, large $XX.X increased $XXX build end both future of operations, we the backlog and driven quarter again stands of sequentially of

one of are signing and sale and closing as an facilities company this in and next of then Seattle of winners three review and California, have important a I therefore Ducommun Before and undertaken that to to mention joined legacy estate industrial for capital transaction Southern acquisitions leaseback our least We as Having be for marketing at acquisitions million an Industrial expected that strategic to and the component our the catalyst of strategic repayment. since California to anticipate our of a have transaction excess want expected transaction. extremely is generate acquisitions our financial critical said mainly few recently plan. been on I debt other a portfolio. in initiated company, available real having high properties Southern vision new $XX of and review we'll continue in Chris in shareholders is all very This areas deploy our after-tax that able cash the months. our the demand be results, we

We to financial shareholders. continue I'll will as the have in excited about we and review Chris that, for our create California move With sale-leaseback results opportunities opportunity evaluate forward and are that also the detail. the additional in Chris? and we our value company

Thank you, good and afternoon everyone. Steve,

see on today's As further please earnings a release for call. the XX-Q description mentioned reminder, and a information company's of QX

that areas the noteworthy. complexities recovery impact control Demonstrating discussed, of XXXX journey has our we results other aerospace As even performance of XXXX with can't for minimizing beyond. quarter Steve about with the our QX things update and and of been strong performance control. can our remainder pandemic-related the pacing a more like we of on along QX are much Execution outlook some make during commercial focusing pleased and the third like we

turning Now our third quarter to results.

platforms highlights. Let million year-over-year $XXX.X across million the third of third and sales million the of $XXX.X review sector. within growth XXXX military our for the higher of versus for reflects quarter was and million of the The of increase quarter aerospace $XX.X XXXX. me space $X.X commercial some Revenue

since growth was the organic. quarter of markets strength well million, in of pandemic, the start aerospace was third backlog platforms. reflecting as overall the level of approximately at the as commercial electronics the All this growth the across military $XXX.X end Ducommun's highest our

restructuring in quarter the comparable million was net Adjusted of XX customer X.X% to excluding income million $XX.X for and third we the months outstanding prior in expense $X.XX XX.X% rates expected XX.X% million revenue decline diluted XXXX share reported million of or interest and the of the $X.X $XX.X $XX.X margins prior Interest versus Ducommun last year, or reflects $X.X third the year long-term was reflecting reflecting purchase respectively. XXXX SG&A third of in $XX.X in and the operating related of or as million X.X% income versus this or quarter and posted net period with fire prior on $XX.X year per last $XX.X revenue less. revenue for year period versus XXXX. the year-over-year XXXX, revenue cost controls costs was and orders were compared or quarter $XX.X The streamlined company for debt ongoing X.X% X.X% a Slight $XX per of company's $X.XX margin mix. We dates product or firm-fixed or revenue, reminder, gross the in quarter million lower income profit of the potential compared in prices and balance. for share of total and the million Guaymas to unfavorable quarter operations. delivery reported As million to period, while previously income agreements to $X.X compared reported expenses third $X.X of third million million in the million period. million of in year. of diluted quarter backlog operating quarter based define a lower gross the

EPS compared million onetime to third XXXX $XX.X the of of $XX.X period or of in quarter XXXX XX.X% reflecting the Excluding third was just or I expenses, revenue for XX.X% the million XXXX comparable EBITDA and adjusted discussed. for respectively. revenue was and the Adjusted items for $X.XX, quarter $X.XX

Now our turn results. me segment let to

platforms. of revenue strong revenue aerospace XX.X% results higher in customers $X.X revenue Our operating and the in operational across XX.X% Electronic or XXXX the $XXX.X year third slight a customers' our commercial in quarter results $XX.X income uptick at increase period in of and third was a million versus segment period. of million $XXX.X posted revenue with quarter in of sales versus Systems for $XX.X million or Electronic These million million reflecting $X.X continued prior performance Systems the the the prior reflect year space military the our centers. and million revenue

increase segment greater revenue for or demand in of the demonstrate commercial of last year. due income in the operating across margin million revenue million our posted year-over-year Structural helps of The higher Systems favorable from prior increase applications operating recovery sales the third The the military-based levels $X.X growth $XX.X year. reflects revenue $X.X fewer Structural of onetime Our quarter year-over-year markets. million and of million year-over-year Systems $XX.X versus or was of million the XXXX X.X% revenue the aerospace commercial from The $XX.X underlying compared was volume to aerospace X.X% quarter year. million trough to $X.X last and charges. company's

fire, Excluding of CG&A versus operating restructuring X.X% XXXX expenses and the impact XXXX of X.X% segment versus the third the XXXX. last year. $X.X or or $X.X million revenue revenue expense the of Guaymas margin of million X.X% was X.X% in for was quarter in

capital liquidity Turning resources. and to

case strongest year cash year. We this this have our cash flow compared generated of the we million available expect typically of quarter operations quarter be that $XX and liquidity to $X.X million generation million $X.X the in to prior QX from and is period.

performance Our capital our be to most investment. investment the of in incremental continues inventory working centers and significant component level loading

ratio the X.X at debt-to-EBITDA trailing of third times X.X at quarter. end Our the was

we an opportunistic equity we are completed the mentioned California have estate Southern potential with or in pursue expect through some of debt. Steve cash we down sale leaseback our the that a an planning our the we As of unlocking on expect capacity created acquisitions Gardena facility. we to even Once paying debt real is the are better to potentially position either generate from with result in additional of

in lower environment. capital economic quarter In spent reflecting million $X.X current terms expenditures, during investment requirements we the of the

capital highlighted million stability as the the expected our between of the expenditures. the Ducommun's to of efficiency performance and spending focused and In third conclusion, product lines again XXXX million $XX year full once factory For strength in center quarter we $XX anticipate operations.

continuing While are will high, picking see to we in gather commercial a demand remains deliveries the up military we believe quarters trend and momentum come.

XXXX assess value I'll look ways in the stay enhancing company we his XXXX. will on shape as We a The back for Steve over and shareholder closing is to it further remarks. head as to employee deliver we capital. finish increase great strong and turn bottom-line results safety, now into growth, focused to on to returns business for solid Steve?

XXX really and we through believe our our you. got gets due that's Okay, to results want In leadership. the here. thank commercial with the all continued just for just quarter. Chris. pandemic proud on closing, industry. And get MAX. up have certainly And nations higher strengthened for our employees of I just aerospace the them in We've We All positioned I XXXX. proud for of of other. at period entire the past, to to the allies customers, operations this when and show challenges efforts our commitments. up in and our and thank and our their finish though look us tell the us our dedicated that certainly issues Well, company difficult the people as members and for they rates go our We're effective all It a I'm up day strategy, each every operational our the want the better and meaningfully the many for and job done stressful,

over it turn I'll for that with Thank questions. you. So

Thank Securities. first [Operator from session. begin Instructions] our the will Mr. of question-and-answer question Oswald. Participants, Speakers, you, Truist now Michael is we Ciarmoli

line open. is Your now

Hey, good evening. for is taking our questions. for Pete Thanks Osterland on This Mike.

to expecting see in have to you up demand rates higher meet question the about in the thinking into now. Are rising to you're And the a resources expecting need aero? in in the you mandates looking just on conditions right related do with ramp issues market seeing you're year, just you First to vaccine next what production order any labor near-term? the the commercial

of Look a couple things. Yes.

we're the We have question to end – First just that at end resources. think the going do. we your

have I challenges about We been of pretty some we've our keeping team. even the best in – commercial think people careful on the aerospace despite

into feel next very So we're good in shape. year I going

thing. that's So one

Second thing is OSHA that requirements. we're going to follow the

as everybody this still knows, so in out. being worked And is Washington

But the what with at So you're position be once going about But to look that's forward like. we're that's to effective speculation it's that's point. feel follow. we week. our But good this tested and to when going honest to or going We be a looking get and to we're just we actually to either don't vaccinated you know work that's what you. going believe be

And XX% your to Systems All right. EBITDA turning the a XX% margins Great. in compared second bit just margins down it just the I at then was in Structural quarter. were Thanks. think to

So just had wondering drove that you that platforms particular seeing or prior versus any quarter? basis. back an there sequential impacted mix, on input what a cost product impact the step headwinds Were are any

No, question. for thanks the

sequentially utilization I with of quarter-to-quarter – think I type the mix and mean type the movement is how on we that's end depending up how is. the of that

– but and businesses basis working So driving from that's for the bit there's on low the more sure structures also of of that. trough off of little platform just sort the the no single back. are the That's a mix a combination bill

So recovery there's sort going. as a this get more fully little we volatility of

tightness other And whether I Great. basic on metals side, just you any any raw material materials, then are could on Thanks. raw experiencing or titanium for materials? lastly, the if

say, all would aware. I we're

titanium look Airbus our a of I in with through key get Boeing, that materials our the that things there's are our think do source couple of is we we keenly there what and directed. we when But at everybody with out case, raw lot aware particular most things broadly. like and customers of challenges of particularly

in where We've that leverage feel about and we get we've then spot. so without of We've that. we that. an to places. the feel And ahead need we a we've of feel strategic we've coming been good sort overall been It's on we and got not good issue components, but on now comfortable up like supply able to LTAs of try lot got got other so a

Thanks much All taking very right. the questions. for

Great. us. Thank you joining for

Herbert from Ken of is RBC. question Next

line Your open. is now

Steve Chris. good afternoon, Hi, and

afternoon. good Ken,

Hi, Ken.

revenue just when When topline that do Hey, frame? broader into the And to about the – year start Spy-X on first how that -- their lower as made. comment Steve. or would you million rate? you particular $XX do sort a I for we XXXX, to defense to when today ramp, you we wanted announcement environment does to incremental time the outsourcing of growth that ask run the in XXXX start seeing outlook you're side the primes as about opportunities get for

the X. of Yes. Great on doing question Ken. the We're work certainly proud we're SPY

that's of of really us to get a I a inspection a program. it's only high-level happen. the things some going to to XXXX take parts. because But very equipment. to It's think event be obviously have couple going it's Lots time all

that but that say would XXXX around I really been XXXX So, event is early it's awarded.

proud I very business of say. still our very, fairly our and we're -- optimistic at seeing with about level. of one that penetration still one reasons that's our would What So, defense light I'm fairly the I'm a we're is

what that I I'm what seeing I'm hearing is there's competition. think more

past you -- So, pricing. margins in vertically and more that not going on. the other are firm-fixed integrated were folks that anymore. do They're things that can't being they're just are more There's pressured

More different years good to So we it. and for really next our we come. of it's about all us the all we just the things because feel do few can feel processes

Okay.

defense a bigger of are XXXX ship in slows, growth that this commercial gross is how follow-up yet is and commercial any Okay, And specific side becomes as headwind I to maybe to XXXX Is as know as quarter that should margins? you're that? of had mix about wanted think in you there you fiscal guidance we really the or that's about on And just as I piece headwinds not reason for -- starts ramp the or the some there of on implications think great. what material we margin a but and giving question. mix the the

Yes.

-- is Chris. me this Let Ken,

going the can I harbinger in of quarter got mix necessarily be to certainly the like the Steve are and the is us. helpful. have of start me the where some what is across of jump a volume we've the be we to be think well. are sequential on front in rates Let going in one helpful that particularly the going not very I But certainly back anywhere. programs question coming But to ones the as feel board

the both of of it's right think quarters going several make no, to and more that I the more those course over little hopefully a to road single next But are So, with our thing now. no it. some predictable upside driving

Okay. you that the And the thinking when then M&A how an just M&A do relative you'll it how certain $XXX sale which leaseback is And pipeline to to a assuming through close we are think that? about like to looks reduction? mean complete the does goes million finally more. you'll have How probably other uses capacity not point you look? a you do cash or on debt get aggressive more at start leverage, about of if don't I there acquisition if

Yes, I on think you're there. spot

markets. it taking by look spicy these of thrilled about now We're the hot especially on think industrial way right the closing we're transaction. advantage focused red I

positive. So that's game. We're to hopefully active a have going to big going right the this in transaction. think opportunity. I now. very We're We're We're unique close the

know our that products to can drive to the which around continue really engineered we've us and on are aftermarket is help for. As rewarded strategy been that trying that find you strategy

everything have see is will that continue. to how opportunistic think acquisitions. We'll I with So,

might that. down do might bit down. about little road pay we lowering the doing leverage think some We a So, and debt

that's of I why a kind the were remarks both. little think bit So, of

at fair point. that's this think I

that about just Gardena. there as or sounds Monrovia similar Is is like And in footprint your some this down it the road? we or could of California Okay. also other Southern Carson be opportunities the mix think

a share reviewing that mean transaction it's not decided a we're to sort part one on facilities. We've the the Having I been for lease the but we and and of sale-leaseback we here is that. Gardena. on focused are as evaluation. try that time headed of some a that center out we're Ken. that but Certainly here a front of that sort minimum. we're that's Yes probably some in we said progress to literally the at where owned sort of lay as long more very owned done of we ever own ones And all

And everybody we so that keep then we're sort where go on from through of there. updated one focused we'll working and on

think going that's to I property. our mean again I Yes, review fair. but we're

Perfect. Thanks All right. guys.

Next quarter.

this. Okay, Appreciate thanks Ken.

Instructions] Riley Next from Mike of Securities. Crawford question [Operator is B.

now open. is line Your

you. Thank

rotary So wing business decline in there? What that see about the nice long-term the in do Is in wing? a in market, a future platforms. strength fixed rebound that or secular you

of you tell I'll what, say would a I couple things.

many obviously rotary well. change have you and might in -- First, it's So, sales, overall with think things the things FMS fairly right? a some Black in I Apache there's other meaningful on happening Obviously, been that as we're Mike. certainly see platforms headwind. We Hawk

So certainly we think overall we're in decent shape.

sole a times a thing -- The other things of one kind. lot for is it's all It's the very stuff sourced. make these it's that we of

case probably So sourced on a we're never sole but lot not -- that of every we're rotary.

I it about it's It's so, I out going come feel we're will think little going comment happen, flattish, to think -- I for going And okay. to we're to rotary. And get good but whenever the it. a be think I

then that Okay. shifts you're the at same just at Steve. garnering similar there And offloading and to Thanks share comment programs anything Raytheon. new on you Is Airbus? can the

where years a Airbus even we're just we we're right? of DXP, sort moving -- of where five in kind that we now who were, couple with that's vein a know ago the So one were won we preferred okay? So, firms. they -- of forward look thing the is didn't

Okay fine.

they're really operations. they but titanium moving We Now forward. into will only -- and which much when again to is I way be we're because I their in-house, they far share and moving going as plus XX be is okay start as certainly and make I you committed coming this think they're -- our so think believe more speculation, that getting can okay, fully

a So really status the that more up up, And we're big company. pick we'll how bill going for go deal the have to believe the see certainly, we preferred that's now business. goes. to with mean as But rates

ahead me. mean Ducommun I for So and Airbus and for really good Boeing -- I think excuse Ducommun things

Thank you. Okay.

Thanks Mike.

further remarks. call Thank Steve participants. turn questions for Oswald no . now are the you, There closing back queue. over I'll to on

a you. It coming thank again think everybody's the Well, team, certainly I whole of Okay. just support. we to of set end want XXXX. to by been has along I We're appreciate the we XXXX. behalf the but all company a despite commercial about year not And wanted yet. to feel we come little for challenges. good very has aerospace But bit good back the further, certainly

continued and overall it for to Our I'll looking leave M&A increases team is there. ready defense and growth forward these

So again, and evening. time today great be have my thanks for and phone the on your a safe

Thanks everyone. you. Thank

That concludes joining. conference call. for today's you all Thank

now may You disconnect.