Ducommun (DCO) 8 May 222022 Q1 Earnings call transcript

Good day and thank you for standing by. Welcome to the Q1 2022 Ducommun Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Chris Wampler, Vice President, Chief Financial Officer, Controller and Treasurer.

Thank you and welcome to Ducommun 2022 first quarter conference call. Steve President is CEO. today me Oswald, and Chairman, With the any certain regarding that I'm the during discuss follows. to session we remarks forward-looking that Q&A make performance going to or limitation statements or projections future may prepared events, not that of prospective. of as Private results facts, including and Securities under XXXX the financial therefore, projections Litigation Certain to are any market Act future and statements are, historical today statements Reform conditions, operations statements are forward-looking uncertainties risks, the and factors These or forward-looking to statements to from subject cause could materially implied statements. results future other actual forward-looking are which expressed by differ such results

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

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

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

We our aligning with best continue to follow health authorities. practices

in of of QX XXX Omicron company, occurring January. the we them XXXX, had XXX with Within in cases of

a was business over of and a market COVID to light solid significant a defense Turning progress in business, XX% company had QX growth years, year-over-year. amount very bright XXX% year-over-year was company's Airbus Boeing but among significant Ducommun's The after was revenue of the family down the in performance the MAX still also the excellent performance. of aerospace previously results. in a of The solid. in QX January. spot delivering recovery This and XXX financial increase was first two X%. cases workforce is commercial the past quarter up mentioned year-over-year The real AXXX over great delivered

growth good for showed Finally, consecutive year-over-year revenue commercial aerospace the business quarter. third overall our

our share challenging $X.XX leadership as record operating start Team to a The well. for of EPS $X.XX of a any track adjusted start is also diluted EBITDA year, X.X% to good also XXXX. share company $X.XX solid despite cost gross of We versus of profit GAAP adjusted adjusted margins year. progress XX.X%, XXXX build reaching in posted of the of EPS a XX.X%, in along which for posted the with and effective income The an diluted the $X.XX and we the of of was quality operational as solid versus environment. management share earnings QX continue

had programs. versus QX, due quarter number. missile on programs defense the along though overall and First QX F-XX, included XXXX continued fairly aircraft program F-XX, wing revenue up military higher with was down The commercial and to aerospace space solid a growth, Ducommun's XX% strong year-over-year, growth year that in near other rotary business military prior

a be of continues service. innovative approach to in one as to supplier well, although consistent customer, Raytheon defense again it's continued striving that value to a level processes, products as X number Technologies the customer our and the was Tier high QX. Our market for significant provide

benefits quarter offloading expect strictly to the defense company. and great We be roughly XXXX, Technologies from deal continue years for million and $XX supplier two GA, it to and continuing $XX XXXX in work to for in over and and progressing with from circuit generation shift end business jammer over the development already commercialized been for agreement in a strong We up to in and include circuit to of Raytheon, others relationship consecutive million. offloading missile $XX million third double last $XXX long ago. also commercial bright book-to-bill at QX in The of of million signed in and Raytheon to will defense signs SPY-X, the quarter good next I the end business. for be $XXX of Grumman ratio Northrop programs, electronic call XXXX, products in also for $XXX work harnesses revenue. about look offloading, for major would benefit defense at over XXXX, was A QX ended our of that the GA, the sequentially very increasing backlog the a XXXX. cards leverage and These is a that million with sign. card The current QX the Raytheon strategic with rate at by share term then with missile spot will TOW million hard plus products mentioned the opportunities for XXXX. and the run that be in forward X.X. The the which was driver XXXX. The $XXX and million backlog recovery, new programs the or We've XXXX at QX future showed from

the continued along in contributor, especially at good among revenue that defense, are commercial XXXX level we the provide revenue estimate was in the also growth backlog pandemic, that commercial the industry company lead backlog We will company. million over to in thrilled outlook, momentum reached we're working QX organization aerospace quarters pleased but is particular continuing high solid very of actions in the and regards see SG&A before an the to is with. ahead, QX for are and and which single-digit benefits We company's Even pay businesses. with will our cost for high a move our more the The remain significant all-time more $XXX total and full The XXX action dividends. in beginning the aerospace, spending of In offset gain return. effectiveness initiatives MAX in years then corporate leaders. the and which on our forward of scale to we the COVID our will defense since XXXX. two as across operational volume meaningful year for result through leadership

narrow-body facing to also Our wide-body help business the high current on wide-body aircraft. for challenges ratio will us based

especially business is portfolio Ducommun The aviation year-over-year other GS. with revenue in XX% our strong spot backlog, for a bright is up which with

As to mentioned calls, we every have rate opportunity. we in forecasted operating and the to forward the capacity, strong ready supply deliver and look team ahead increases previous chain

for to and discuss companies area the investors Another M&A. is

to since accelerated already and believe that high-margin will revenue well, for expectations have has their leaders our for I financial our want plan XXXX and numbers company. actively a integration companies much happy the that that needed integrated be the in continue mention MagSeal been to have of are the acquisition space. had to of December. We of model ahead are now fit ahead significant of are to win We excellent. acquisitions future. the added been all the numbers aftermarket be higher completed I'm report and looking also only with The this in and results in

at investor planned We upcoming of will meeting tuned performance this stay our the the second half into this date. for deeper delve for year and

a Before I initiative move commenced to to we market XXXX. which QX announced commentary, subsequent the today restructuring

of action performance. this taken the to better has team accelerate our a stronger the company strategic for achievement position to Our goals

will and including annual We the The result operations million details facility this restructuring will to are $XX inventory. still beginning $X and savings charges in We the company severance write-down anticipates approximately actions pre-tax as of repositioning timing, $X long-lived to in certain currently anticipate million $XX of initiative total months. restructuring effectively; related expenses, in over of estimated of in million impairment XX finalizing cost these approximately million XXXX. actions next result assets,

XXXX. with you for decrease our of we down, and solid business markets, some programs. our was the spite on space first color versus this QX. provide military $XX.X me and a let of In quarter being million, with posted in showing Now products sector, Beginning revenue a

As aircraft. mentioned missile increases near wing our program rotary F-XX, and demand for F-XX, saw in military earlier, we other

increased changing revenue period rate with First of aircraft Viasat. to increases million commercial total time over and aviation and $XXX reflect first our revenue business by $XX.X the quarter in balance of XX% quarter quarter backlog commercial in will on to improvement XXXX. our which million is We $XXX Ducommun's expects future mainly across for have in at commercial business. represents Chris. solid of the military quarter aerospace commercial with and our increase XXXX; for bright results XX% rest the sector products offerings, With detail, about space driven the backlog growth. aerospace. our sequentially, this in-flight aerospace revenue at our aerospace first consecutive million, backlog. I'll the large be quarter. bill Ducommun represented titanium offset of of In structural QX, to And product Ducommun's the more Significant platforms, that, operations, within meaningful the very industry-leading and XXXX third of stands financial in overall The review markets and the a roughly end including compared Chris first year-over-year

again, and good Thank everyone. Steve afternoon you,

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

solid discussed, reflected first another As Steve quarter period results our of performance.

a quarter results saw strong increase aerospace revenue. commercial The in first

continued should strength We their pleased going shipments forward. travel see demand which are and to overall higher drive

XXXX We are are to a forward XXXX decent building on do a start results in our and looking off QX position and are in to to so.

quarter Now turning to first results. our

attributable XXXX. of highlights. space Ducommun's aerospace platforms, $XX.X The XXXX year-over-year overall of to inorganic. December which high, $XXX.X overall up first setting $XXX.X sector. of within acquired approximately for recent the the Revenue of the commercial Company combination was review backlog $XX.X growth first performance for of our lower platforms, for million, portion the at first was a reflecting some of in versus topline strong the growth million and the quarter beyond. of was across rest of million growth an across MagSeal me quarter XXXX. and we Thus $XXX directly end all-time aerospace and A quarter commercial organic of for military is our the reflects the million our of increase increase partially by Let million the year-over-year revenue XXXX offset

year has million strong us Our our defense positioned defense for for business. strong backlog and another remains $XXX at

in million As backlog XX with gross We and by and based prior firm compensation unfavorable posted revenue and a total were the quarter decrease fixed profit purchase partially million delivery year potential benefit XXXX agreements orders or offset respectively. expected mix, and margins long-term XX.X% and margin the for in we product prices of while customer year-over-year costs. versus months define XX.X% XXXX, $XX.X $XX.X gross less. dates in on The of period, reminder, reflects as lower

period efforts, chain items that some the to to buys, able chain are as the ripple and $XX.X During center we first supply versus one-time had in performance largely invested million the $XX.X supply the million slowed $XX.X the we issues, million weather strategic harsh these comparable production million utilizing in workforce without of effects operating Ducommun while was severance revenue quarter SG&A in due income $X.X period. our revenue performance executing reported year. Also, quarter, not of our significant well of in. X.X% X.X% or supply year, was flexibility through increase inventory our Omicron to charges. or in first to chain part this COVID or variant, the first $XX.X immune winter quarter manage income another of prior compared of by or we were The leveraging compared operating Adjusted the million X.X% for last in impacts quarter $XX.X as availability revenue, last to was reflects impacted the year proactive Midwest. of QX, centers. of million X.X% revenue

adjusted of income add includes amortization expense. for definition Our acquisition-related an back now

recoveries related company reported ago. income share, or As with $X.X and basis, for XX.X% of per net methodology. the compared to a million for we revenue, share $X.XX this quarter an $X.X income per result first million diluted of $X.X million EBITDA of business to $X.X Interest diluted $X.X compared $XX.X net income insurance first includes $X.XX related was amortization or per $XX.X income million the recast income our $X EPS the of for aforementioned the XXXX increase million share, expense. period million $X income of or recovery. for to quarter XX.X% include Guaymas of add-back reported XXXX. other change, $X.XX the first million $X.X compared or interruption comparable amounts the Both adjusted adjusted XXXX. diluted revenue million comparable to or net of million of Adjusted XXXX to On year -- adjusted diluted of net in in The the company acquisition-related $X.XX million or period. The was in net year-over-year of quarter versus prior-year the this the numbers have of expense for

Now, let the segment turn to results. me

company's revenue across operating million $X.X segment's of primarily revenue our quarter of compensation last million operating million was unfavorable of partially $X.X The was volume of million and Our million costs. by product lower last aerospace structural manufacturing X.X% posted versus XXXX offset to due offset benefit The higher for lower of to space compared year-over-year commercial or margin -- income revenue the the $X.X and year. markets. or $XX segment reflects Structural year-over-year of segment the million quarter revenue X.X% in partially mix, first by $XX applications, decrease within favorable year. $XX.X sales military and increase

and other versus years, segment Excluding inventory was XXXX purchase in in adjustments adjustments margin both in accounting operating XX.X% XX.X% the XXXX.

the structures business the results are part a As recently a MagSeal reminder, acquired business. of

These versus space first of systems $XX.X partially the posted the prior revenue. $XX.X first by aerospace and volume revenue commercial systems lower million reflect XX.X% segment $X.X company's primarily operating in or across period, higher prior year X.X% Electronic Our results product revenue million million customers, in for in quarter $X.X the of of period. $X.X of the year reflecting XXXX revenue and military income of revenue million versus $XX.X million was Electronic quarter offset mix. the or of manufacturing unfavorable million

for country portion in the Corporate, the presented for majority business earlier, impacts of was CG&A of of our in challenges the more the mid-western expenses. of of year-over-year mentioned $X.X revenue prevalent the costs. the QX weather X.X% expense electronics primarily the The lower first was in As benefit operates. of million is million compensation X.X% revenue which quarter administrative and winter us. XXXX or $X XXXX, challenges due were or and and where versus general to COVID decrease

of million quarter, $XX.X of used period. of capital year resources, the Turning and liquidity in have liquidity cash $XX.X used cash million, we $XXX to compared this operations prior we available to from million

current working our to in We operations quarter. growth. of in term The invest million capital incentives made expected quarter loans support voluntary support we paydowns our as first and cash outflow $XX the on results typically a -- pay annual from in business

ratio in EBITDA the debt-to-adjusted remains lowest month the several X.X XX last was and amongst years. Our

XX%. during great XXXX, As outcome. was million increase sale-leaseback QX our we a and a $XXX This earnings equity reminder, increased of related over the was of was a an result it retained shareholders' gain successful as which over to project, by of

expenditures, the capital of $X.X quarter. In million terms we during spent

anticipate XXXX full for capital to million development. $XX Going $XX and million forward, we for ongoing between the year spending product sustaining

months. and restructuring mentioned finalized anticipate the pre-tax provide XXXX The the beyond. in quarter-end, -- currently rest As a result this over our for and in the results in are are certain and conclusion, to commercial approximately charges In details details approved calls. $XX strong to million restructure aerospace us first future but next we timing We'll additional setting XX plan. backlog, for posted of being solid growing performance earlier, our continued will we in total million up $XX of quarter, while we commenced actions Steve initiative subsequent

QX as bottom our the for stronger I'll our our pick on look through see Steve? We for back now continue improved debt growth, look down from to momentum at our his investors opportunities paying over significantly and we and accelerate We'll up forward. gross results operating loans. term expect our line to closing to to position deliver remarks. Steve $XX operations topline to for we by move We as year. returns million turn it going our

Okay. Thanks, Chris.

Okay.

So very temporary employees, and our thank despite other year with a business of few the next time over pay for excellence the in of and will a XXXX to a our it's off challenges. our level few good smart job continued work managing all this great along maintaining ahead. the like a investors, their full to and again stakeholders in We've hard support. XXXX. I'd years suppliers take Ducommun quarter to start closing, in done now and And this

listening up you now we'll Operator? open optimistic. We for we're and very for questions. So thank

first [Operator Securities. from Instructions] Truist Pete Osterland question from comes Our

This is Pete Ciarmoli. Mike on for

on are inventories or rates current rates XXX of due or are any expectations are rates you where with underlying just there MAX, the wanted rest for for leadx will to going production system. ask, are aligned what in the currently build year? rates production the be First, differences And just your you for your where production I OEM throughout to the

we're with rates. look, right Airbus, Well, Boeing right and the aligned aligned bill as far with as

we're One for titanium with of our Ducommun the is, spots I bright good inventories. very position think, the, in

We have and well where -- we with companies other sort very both manufacturers. about shoulder-to-shoulder of feel good as we're as Gulfstream are, with we

we are inventory. we So with where feel about great

aligned as a We of are customer Spirit pretty they I'll big are mention and well, ours. much because

So I shape. we're in think very good

add Let one me thing.

too. quickly just Just real to add, Pete, add

inventory that's like through published is Your what other the working got we've we're that of is come -- of question the plan, the still part everybody out of the through we're in their I mean as come the to inventory, still, we've their towards. on of wrinkle some your rate back what come working rates. we as that that's I of us. they from rate that working their where we But have. pandemic, we're We're see still from sort the some see, work inventory, with

All just -- question right. a margins. And also then on I had

might the meaningful segment from you headwind product year-over-year in systems, of the into out or and labor the over will are the quarter from COVID input the was you're understood given weather called drop seem that be Just to I seeing mix contained other and some heading but inflation impacts be they'd any the second like called impacting quarter that in were headwinds electronic out first you an they that XQ? additional you that costs continue and expecting

where be is that. we're and more terms we're especially mix on to look significant. that. in the state or lot inflationary say the But we're in the do No, sort you forward you really but supply I'd of a good for in particularly see with feel us, electronics coming and forward, forward of board see can move we're normal look as like across working itself, I QX. margin a quarter QX so with we're dynamics back at the the and spot, chain planning pressures from that certainly labor a on we snapping wouldn't the say, to here as with what we covered toughest margin from back but tends from everybody to we We'll of

one, last great. And Okay, could. just if then I one, one

is This Steve.

want me color I Let some say that. more just on

manufacturers February we it hard March those So going from certainly of January. obviously the have and of work absenteeism margins think think had things, companies. on you've lot bright a to and one forward in but did heard and which our in I backlog. very type spots some of struggled Sure, I make We for record all-time the we other

through So the that's lot to a going help as quarters. few go forward we next

last prime result global increases the the might you just customers sense. from and defense Makes opportunities one suggesting Russia-Ukraine could, situation be what as moving of is overall signals demand are any there your defense on outlook Understood. And your seeing that just defense if volume I a the side, spending then environment for any forward? additional just or one

look, we've built business. really Yes, we defense our built

Yes, the So competition legacy we good Russia, with the really feel it. going just threats so on and there is competition with more with about and China, activity, general, in Ukraine. absolutely continued threats

feel good So are activity and working seeing we're we we absolutely on about. that

on make The outside saying, these my mentioned other programs to manufacturing is want circuit customers eager with sort at other defense mean, looking costs I again non-core of thing, tailwind order not we Ducommun, want things, things to of this are do only send that next remarks, the work cards primes on top and really of OEM year in so an as to just we're us the were and I kind at to of in do with our going now. factories it that activity has, year, but you off-loading some certainly or think nice to have

with Our Ken Capital is from Herbert Market. RBC next question

saw we [ph] programs? discuss in military Keith for of the could the terms Ken This you Herbert. is of was I just space, guys and in some hoping, weakness on

a timing a of things, I'll let is of Keith. was lot Chris it think that orders. in too, And of couple I Yes, jump

kind far cases variable we've have our took had, as as a As little of orders going go. things of at tends military some when programs you those sales we that some as to missile missile movement, bit TOW a look well, there and be

lightness very quarter So thought it just a TOW I were in missiles case. a little was then harnesses good again, us. think Cards were good, in I on markets, and level overall, for but solid top

Yes, think part is the theme other just but of was on we fixed can the little it produce. F-XX, the is down really QX able that matter no, bit I'd volume on too constraint a of I And through pointed the the through a working what weather, on wing side, just and a with military on with issues to that's what to one the of was COVID a working produce we're sort we military side. say

at point way I'll back feel bit about at So backlog $XXX good played to a did. why that we the strong little where really QX the over about, that's million, it but out we're

And a then then you could full just just XQ? year as could, that expect And I more kind outlook for a if bit be positive in defense of kind of do well?

things anticipate I'll as type that. a Yes, here don't we legs on the complexities definitely, I COVID, of same our like yes, we jump mean In little and bit the QX, we I is start mean, just workforce but operate. weather, where can to start we stretch in Steve can with usually

So of years have And backlog. we from out we full to there come it, mean growth. feel that we a strong what really year, about of in knew, couple utilize the getting through of defense a I we've good part

to a Defense, growth, defense strong from like business through There the coming of what's talked but seeing high-single And business year going Steve a the hard as overall commercial 'XX is to we so, flex going it's a up with helpful. continue really have now. Steve be make lot some is we've XXXX, tick got that business mentioned back commercial we're to story that going good about. this inroads we toward to drive the now certainly

is Our question Instructions] B. Riley with [Operator next from Crawford Mike Securities.

you restructuring is these systems? electric M&A latest more that acquired and initiative, separate MagSeal, LDS, like integrated structural subsidiaries integration? of and they much Nobles Do how related entities still think to are or into the Regarding CTP,

Mike. Yes,

the been integrated. since outside think and into I sort of that definitely of been they XXXX more started here. legacy This I've talk some are call, I just the the into of is five mean, when more job, with I companies restructuring really I And November I've look, we our team. those So footprint for that now felt on much I in years did the dealing first in only other to and

We calls, away, really I on have in and as types have opportunities. one that I'll a as the is that things. think for does those is important we strategic value. fit doesn't you far -- some Thailand of far for have very governance give it tough facility us example It's really

opportunity, on. going an to that's forward we're So move

of So it's to those types our getting right goals. things, the to things and trying we're years here, get Mike, we're ready for next long-term five get

what's the the Okay. then, regarding capacity is your And had [indiscernible] footprint, current further following fire you there earlier?

I'm Well, they proud team. building have the and brand new a of

is to back we to going production to we work building. And about transferred as it. being in for by are back where QX and move that All in all the we're, of built background. new facility and right our We end good did. QX, really Gardena, QX. we the Gardena far be had we're up So feel a We as work

go. ready we'll So be to

I think a on got block in runway, door our lot of now River. looking we're LEAP as the Middle looking think in we've fully other capacity, now I because Mike, right to is previous opportunities, we're commercialized engine I at double business, calls, certainly mentioned that

the We have out closed we panels, faring. have

good there. we So VersaCore could we'll do We a lot, job space. think do that more a in to themselves like look

come. to more So

Okay.

Just one. one last

like progress on at could, that you to But NGJ any the Airbus mentioned, radars You for and or? work do. that offloading. what Has things commercial titanium there operation SPY-X about captive like been

certainly when they Airbus We're what's of gets wish Look, from play, benefited I certainly higher That's nice. out see, our past, we're that anticipate. will. volume there. now busier to if Airbus. is more share, Yes, going We interested now don't place okay. I see of to Mike. COVID. opportunity lane we have it the in which we've there as coming with came, more sort We're happened our

more the that that's titatium, --whereas suppliers higher play and of go they may think we other struggle. for So is Ducommun we

with been -- Airbus have years we've We over now. time two on

straight. So,

feel good We're benefit tune So on there. once we we going so about bill stay rates, these again keep going our to position too. that on

I turn am at to the Mr. back would showing conference this no like further time. I Oswald. questions to

start, very very had for Okay. the We're of But that your we January, a thanks time lot I the bit obviously reality. think tough a mentioned and today. a next year. had I of we Thank much was few very optimistic in We just everybody you to absenteeism feel quarters. a start and our about good as

something a team the that's customers, among they obviously our orders, vote vote. okay, here So backlog is and how I they for mean we're proud of. that number all-time good that's feeling

customers behind our are So us.

team. the have We

We footprint. the have

have supply the chain. We

I Have things said So for my as thank I've your in always support. more evening. ahead. you afternoon a calls, Again think good nice or

you call. today's conference concludes This participating. for Thank

may now disconnect. You