Ducommun (DCO) 7 Nov 222022 Q3 Earnings call transcript

Good day, ladies and gentlemen. And welcome to the Ducommun’s Third Quarter Conference Call. At this time, all participants are in a listen only mode.

Following management's prepared remarks we’ll hold a question-and-answer session [Operator Instructions].

As a remainder, this conference is being recorded today November 7, 2022. to Financial conference Chris Officer, like Vice to Wampler. now Chief President, Controller would turn over the Ducommun's I and Treasurer, Please begin.

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

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

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

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

to authorities. health continue practices We aligned best follow with

cases XXXX. Omicron QX variant we of XXX company the in Within have of

in real The EPS recovery QX $XXX expect was partially performance, started the onetime I in EBITDA of cover time $X.XX aerospace a market’s as a QX solid since before his bright but we and million grow The the XX.X% $X.XX to which income -- performance in again XXXX Adjusted good growth once to results. million XX.X%, exceeded the for with first which the report line MAX third year-over-year strong Chris factors, gross also delivering share share $XX defense down in down the of was to revenues million. company's posted $XXX will strong was team profit years increase up sequentially share adjusted the the that commercial slightly with continue after AXXX QX XX%. in EBITDA recovered. due QX revenue. a industry to aerospace to to is EBITDA versus revenue than Turning was QX, But aerospace and XXX% up company Gulfstream higher The EPS QX the was company of again $X.XX year. million XXXX. QX up build margins two business once in Adjusted company Boeing continued ahead. of XXXX. quarters for consecutive diluted GAAP now The With with financial rates last Airbus, solid happy spot strong sign of XXXX to performance Boeing, QX. top with very XXXX. Quality XX% the XXXX for well fifth I'm joined and also earnings revenue was and only solid a margins since delivered of from XX% and that quarter several Airbus a of X.X%, of remarks. company of in have in business excellent The an a the the was solid Overall, unprecedented be with quarter, $XXX.X and rose growth adjustments, year-over-year. but operating growth XXX of highest improvement in over year-over-year a year-over-year, as posted commercial diluted Net well. reaching Ducommun's year-over-year commercial also business year-over-year, pandemic showed others the from up sales over

strong include revenue regards recovery drivers the coming ahead in quarters leading Some see of QX the loss and continue more company with part industry volume to single restructuring way. digits aerospace and lower more extinguishment the debt Guaymas of high year In return. be mentioned for EPS calls, full outlook and commercial as the see for at fire charges on the we debt QX that in GAAP the diluted we We related the refinance. the as the of commercial aerospace revenue key to continue estimate comments expenses, to over end the the will

Gulfstream. widebody high have a as Ducommun the leading world we good products our momentum, is during other year-over-year structures revenue to business that related $X.XX with period. XXXX. XXX portfolio business for million news it plus, and Commercial XX% Our a roughly and deliveries but our is or segment highlight to to improvements of I'd as strong significant area out supplying move was especially ago revenue from a systems backlog benefit structures aerospace at a year-to-date continues pandemic than up headwinds the business well of will in year business One a narrowbody aerospace within has of ratio resumed. of well commercial also within like higher have we $XXX the as our aviation titanium components,

revenue our XXXX QX this $XX almost addition, XX% higher business. sign ago, aerospace commercial growth year is In was part or accelerating a than great of million that a

backlog QX XXXX at the $XXX at end than Finally, million stood of higher or QX XX% XXXX.

super not products in should to the set is now industry based titanium Investors business up niche and for only from in future. we hot So strive growth forming. plastic wings to produce our component sales, as mind structures technology, or keep not excellent also form continue we and such and are

as in programs Raytheon at over primes, with For business of for over we will defense will that card run in our Ducommun double commercialized our already the term development Long be million Wisconsin. sites million these in for $XX circuit defense target it in up for $XXX $XX deal then of from a continues meet work million are floating XXXX. great Appleton, XXXX. as such plus our expect by offloading for rate to XXXX $XX XXXX, We million to from roughly in

in For out of the AXXX, $XXX very million backlog QX for performance, by of led increased aerospace as the quarter This from XXX $XXX for over of are end and an ‘XX QX dividends organizational continuing and $XXX a expect cost structure the pay all to of of to Gulfstream, of and quarter tough MAX the consecutive Viasat we commercial solid in-flight million. and million at XXXX XX%. fifth we the ended Docommun’s XXXX AXXX The the entertainment, end XXXX, increase was at sequentially the actions which too. this for at remained lead QX would company's after The part backlog business. defense well came backlog

cannot supply time delivery not financials excellent regarding this and Our another quarter, a our in but team in as better our quality. be delivered managing chain place And well on we only our chain. customers supply showing is with

the XXXX. versus missile third $XXX.X and programs. quarter Now products a additional Beginning on million, increases let was color million provide me missile Despite we Patriot for greater mentioned space with $XXX than programs. being and in saw markets, sector, it our business We in and of earlier, space revenue showing as posted F-XX demand slight and a QX. down, as well for our solid decrease military and other as some military programs, other

commercial and period balance and aerospace. to down last more revenue Ducommun’s the Third year, from with reflect quarter space in continue military of XX% represented XX% this revenue will trend

solid product revenue have million backlog With the Ducommun with Viasat, flight our stands XX% $XX.X our within Ducommun’s other large the million commercial the of overall quarter We future for continued Chris? this Chris platforms commercial of increased million, to review and the of quarter XX% in improvement and at QX rate end the operations, gain aerospace momentum to across third expects that, increases I'll over business aircraft million, aerospace third products The of detail. driven the results our XXXX our $XXX backlog. a offerings. increase aerospace commercial on or mainly year-over-year year-over-year market and ended represents XXXX, total quarter backlog from bright roughly at is by aviation. $XXX build higher in third aerospace to for $XXX commercial financial in Within was all XXXX. rest sector also which and platforms,

Thank you, Steve.

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

strong quarter a of period third our discussed, Steve As reflected performance. results

months long themes The nine a on XXXX a going commercial strength in results first forward. saw performance. the support shipments of There positive continued and by this and and were are We higher increase building domestic the remain in aerospace we demand looking forward revenue. term of travel, third significant should during multitude quarter to global help which encouraged

of December, across partially me XXXX, aerospace lower sector. some offset revenue with directly for military our attributable of approximately across Now million quarter of by within commercial backlog results, our quarter A of million. and inorganic our The MagSeal, increase for million the space Ducommun’s and overall third the Revenue we third third XXXX. the versus year-over-year year-over-year turning in growth growth that's organic the the reflects is our of quarter quarter growth. recent highlights. increase of to of platform, end portion growth platforms. review million the third XXXX million acquired combination was This $XXX.X let $X.X reflects was $XX.X aerospace to the commercial which a overall $XXX at $XXX.X of

was we for the solid backlog for positioned of defense remain defense year and for rest continued $XXX Our the our million performance business.

an potential dates margins for purchase $XX.X define adjusted and agreements and the gross profit in of based As year period, as were the total in in XX.X% quarter XX.X% of while long delivery XXXX prices XX On orders expected and versus million in gross gross prior term XXXX XX.X% posted and XXXX. or a months margins XX.X% XXXX firm and backlog we basis, less. with were We customer reminder, fixed our $XX.X on respectively. revenue million

non-GAAP this adjusted we related margins purchase share We the as by acquisition. amount and inventory related the to driven adjustments cost fire MagSeal sales our year, gross of a Guaymas have of impact continue to accounting mainly higher related

operating work difficult As all and with chain to supply environment efficiency regard continue companies, labor availability. well to manufacturing like we through a

the inventory or manage quarter efforts, our While strategic we're operating third performance chain supply executing of utilizing of center to of reported Ducommun in able not X.X% another net or reported On income XXXX revenue net per the to million million $X.X to comparable million income period per $X.X an for share to company million $X.XX $XX.X X.X% or was or of compared to net least The Adjusted we basis, proactive $XX.X or to company and to million our EBITDA impacts since or highest or issues, $X.XX immune adjusted chain income the $X.XX share of adjusted year million share or the or $XX.X for last ago. quarterly Adjusted period XXXX. XX.X% of compared in for $XX.X third XX.X% X.X% leveraging flexibility quarter diluted quarter income in buys, the prior XXXX. third $XX.X in income supply $XX.X quarter chain a X.X% year $X.XX investments. or income compared quarter of per $XX of million year. were diluted of the due to for revenue million reported compared supply significant compared the diluted million the was of to This EBITDA of without revenue this comparable period. $XX.X million net of revenue revenue revenue operating XXXX. was at

across space by of revenue commercial or offset lower revenue to X.X% The operating turn structural third income increase in $XX.X was million increase our last year-over-year segment million $XX.X $X.X let segment $X.X the operating Structural manufacturing volume. sales $X.X for to million revenue the of applications, markets. our year. and compared primarily our of segment year. year-over-year versus The posted military Now or due of favorable systems last segment, revenue X.X% of margin million partially million Structural results. me company's quarter aerospace to quarter reflects within systems was higher of million XXXX $XX.X

other in structural very This and strong segment. segment in XXXX. charges a performance the the systems years, versus in for operating XX.X% was XX.X% restructuring both adjustments Excluding operating margin is XXXX

from As in are a results of MagSeal QX result, business. which the structures was the acquired part XXXX, our business,

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

adjustments in the segment restructuring margin operating and Excluding XXXX. was XX% other charges versus XX.X% both years, in

has a of not Restructuring at electronic operated, this the solid end top the segment the segment. While the range quarter for update. was

XXXX. we restructuring in reminder, approved initiatives the commenced and a As QX

our Our of taking company performance strategic restructure these stronger to the actions the and short team accelerate for is in achievement long goals term. and position the better

benefits continue this these dynamic since to we appropriate During QX, $X.X severance macroeconomic were million related. we has The such, The of incurred charges in assess as environment charges. restructuring And been activities. scope and the started initiative. majority we and

assets one These from expanded and have will and expense long in Joplin, next During especially restructuring in with facility. of as all Center. facility as investors further in quarters. work some periods and is of $X of company we consolidation for difficult of move be to This decisions Xth now $XX as well plan Guaymas, are meeting will common Guaymas to Mexico in expect benefits for incur our wire details the additional providing harness along million impairment million such fully Joplin compensation Ducommun during feel we Performance facilities, impacted. reopened direct provide a facility cable above the to to over York. our from scale the our company, facility our and utilize example more severence New our We Arkansas investor they as as We impact market decisions to consolidation, leverage difficult are jobs December other another our made assembly on on several lived those update teammates decision Berryville, and a

$X.X of use in in of to this in by but period. as in $X.X million the compared not quarter assets and work. quarter. requirements $XXX year drop primarily current only was on used to to due prior cash work higher we increased inventory quarter cash A of operations third the provided million liquidity available of the year operations end million the also contract to of take position as customer in have be of cash We We meet

Our among adjusted last in and ratio several remains X.X XX the months the lowest was debt to years. EBITDA

XXth debt during five on in of new will mature favorable refinancing we July have they As completed credit facilities all terms. year of July a announced QX our term with previously a we XXXX, XXXX. The

in the conclude interest the the QX XXX more the at XXXX. had To than the had remarks. points leverage the as In to spread ratio, a to efforts in term same initiatives contributions the robust long B now continuing addition, is performance on than basis improved strong our we back continue favorable QX for we credit our end facilities over two restructuring I'll financial Term closing A while Steve posted and rate structure. our position Term than end work of at slightly third lower quarter, new and the through strong it turn Steve? backlog, term long Loan for at we to overview, debt the balanced to segments, we company from maintain of XXXX, that results Loan our

quarter. be it And offloading a far are cost and aerospace The XXXX tough Chris. XXXX. the lien chain, supply commercial future shape the is in another company in It tailwind our move defense of was excellent all to preference, good year in of very is best in strong outcome drive thanks, closing, next positive to look, level forward, out with strong the as customer active, themes recovery Okay, was so we profile, refinancing for going our us. coming to

to I years, time other been past excellent Thank questions. in thank to stakeholders, now shape forward. as of like unprecedented the our through up again usually moving couple I and we we're investors open I in and have do, employees, As it an you. will

comes RBC. Our Ken first with from Herbert Instructions] question [Operator

on the EBITDA. adjusted the nice in I Sequentially, to But wanted this -- nice as margin a the year-over-year as ask well key that margins really tailwinds it there how up both the here. margin Is maybe in the in or mean, structural systems. should if MAX quarter like drivers step maybe just volume and segment? that was think any sequential unusual improvement in first identify was about there way of to operating I anything looks the on we

of was would that about would would volume’s centers normal But group, we the through systems of helpful. structural had, I we I think would say, to say what the always that volume through expected it, was call anybody majority when of flow -- of us higher facilities. what I more business I and nice have came for performance and helped quarter end get the The up again bigger them. a the of the step a a couple think book

was back think work a to. that's get out we'll -- that time that strive I So nice to for us, put there what

the And as there defense do and sort think bookings of the we backlog growth and look expect business, when is defense to some that see -- or will should start we business? business, have in when acceleration positive organic at the we can troughed you in

of we're Let of to timing news, to bit bit of business orders. XXXX, that other work We've that see we're We're higher. we're and always me a business as little here. lot drive a the It's but programs probably positive little on, and midyear had active. Northrop with such of bit places, to especially timing are looking on it's things a order lots Poland a and definitely going take a defense our of a of issue to lull book Ken. into build obviously continuing But with offload, Look, continuing going a of the something. that Apache again,

or how chain your delayed, and of in maybe Steve. mean, that budget ability I like, maybe a it we is a supply timing timing more Is that, ship? on customer sounds impacting issue. mean, from that's issues deliver I -- it should And like little to a detail or standpoint, or contracts terms

Like I supply not mentioned, it's chain.

it's peers through it's So not timing it's of -- demand. flow we might supply our of hear some other just or orders, whatever, chain,

us, going help is it's sometimes to not. FMS Sometimes,

some So we're the of well with that mix products make. little bit as in we

it's sure. leading that way So I'd say more for

our Please question. for stand next by

from Mike comes B. with Our Crawford Riley. next question

say How past attributable niche different you've these is Regarding guess formally the in acquisitions of years? some companies to consolidating these would now much restructuring. I some did to of facilities completely And you that, that the of out they're of? use few made that further

nothing trying is This and it's with -- need continue think just has move we acquisition companies. to to business really optimize along of restructure where go. more The we as do to the to we sort base

so much And business. the base more it's about

today And and with sort and niche be think so themselves I continue therefore, harness like to the to continue the within provide normal But product that's move situation, their of the of Berryville the -- new acquisitions them. news type we core this with or footprint, wire engineered business. mean, I the morning benefit forward

makes know years at So brought before, consolidation. thing have a a you even and running we we Guaymas, we're had our now a though in -- up the it ago looking up I where call and terrible couple sense happen it. have for we operation we And just expanded mean, I

things So going to do smart we're we're looking square footage. our looking with consolidate, forward to

estate segue, your of And perhaps good books? that's sale lease question, hidden to kind asset California there further in Difficulty] large that's is final on a any a your real which facility your on my value regarding other back development -- is, [Technical at a doing thought Steve,

more Xth, I come It's absolutely that. sale the look, homerun just But to of was December Xth, our company, there. would December investors color and Mike. a we'll say, we it's on Gardena the have for more real for ongoing. have

more look have we Investor say to are Day, we'll So it. the in continuing to but at

active. that's something it's So

Our comes Ciarmoli with Truist. Michael next from question

outsourcing growth? now, next guidance. to defense. revenue put in $XX good thawing you're be mean, XX that more defense year I mean, not a that chain, sort the that's going grow But of of thinking to is that's your we us give And the understand then Steve, thinking going defense XX% some mean, to [Technical way year, to the about million. going be I'm could trying year. this just just pretty supply than on Difficulty]. I growth? million to trajectory I end additive? to broader $XX At think we the of you the get mean, should if right more revenue I the

Yes, couple things, of Mike.

So -- look, we the of up we the XX%. And and of excellent in saw XXXX for an company had run kind change first, game defense. we and we XXXX were really the

a So this into in got so heavy programs. we're lot year and little coming of we a

I think that FMS with Raytheon happen. we this is all and of do these going of and outsourcing some on SPYX, whole when orders are that kind to have timing But headwind especially related. come in,

I that heavy as I've Still year, So think know. But don't story. been coming at we'll this good high. a looking it again, into in you

we Is But that And things you should timing officer that the delays. just be other of that's contracting you? as in supply guys mean also to what I a mean, of to of follow-up I we to dynamic, players with of about is this maybe seem some you up the kind supply we're well. industry? when was mean, hearing -- I asking. lot timing some start opens chain for think ease to handling the headwinds? do the of we're hearing supply chain chain causing bit, just kind a think think Ken sort that you mean, and do see issue? related I timing

a quicker chain and little orders that semiconductors continues we've mean, think state we've timing department, a being think supply absolutely, things. But it’s and continue. buying. both. company, think with ongoing -- between that's And pretty, issues other on I of to it's little will OEMs We're move of in to and I mean, that's I strategic a it's I titanium. we're and -- things I those more few think been a able our done I smaller and

the think or the same of three I that's next over quarters, more be to four going So unfortunately.

as we're And item should thinking lot mean, maybe, inventory flow. about that Chris, think as color suppliers you're to about How cash just it forward? of working going capital? we how flow that just some seeing kind continues But of a to on build. there. maybe Obviously, then out among cash and the to relates free I

know, Comments well is of taken. And first quarter. cash you I'd sort QX our say, always off

to really be, that to us Mike, to we probably and intended a a had a would We this ahead QX flow sort get year put cash a again look QX, really a of little yearly have we'll little back So reasonable that our of to nice lighter. where range.

sort starting there's But make I move it to that's percent level the to as the mean, come some contract of do of what business amount next we're growing. on. might really we're be several a happen the inventory as flat looking point’s, QX. sort And down, I is and right in as dollar the forward, you with your mean grow So so we’re assets looking over cash going where into to be model comes quarters. additional that to

my been it's in remarks. our with place quality. mean, using never customers some and a I and board better in just I've since here, delivery I been the mentioned Mike, And I too. mean, cash we're to on-time, comment on on this Look, super. strategically, the across cash we've been

it’s and that on [paid up heads just off]. So

I'm And do that to of think we If get the assets, looking mostly contract you tailwinds or tied and from any milestones the of at there? timing, get defense you sort contract both, contract inventory we do think an assets, assets? unwinding is

you’ll No, both over several of through mean, think the to quarters, percentage start the from. the down should it'll that [contract] course asset get [bill] got both. of come we've sides business I come I -- on

question [Operator Ken RBC. from next Instructions] Our Herbert with comes

to still comment. be free on flow that cash expecting for clarify year? positive to Are wanted you Chris, the full last

cash will Yes, mean quarter flow. positive fourth us I come a the through strong to to free get

about want at as as ramping some I and aerospace EBITDA in couple side the continued of it? where don't you on what's see you should But think to things And potential on framework get side? next about to the mean, the think percentage maybe front in continue right or the the look that other a to generation get commercial cash you business, that the much next obviously, could years, the defense I as years success here. way the of couple business of too of we over of

say, was more I I looked flow, cash one, if say, you again, well, we'll things the year, get a again, this through Day, of little keep breaks the business cash detail having on is, really mean, our start number we historically, to but we've about little would and that's size, that free there. and as I But an first And And bit talk point, pivot I the exactly a think, knowing at the we're million back we're sort happen, ready to moving. then at and generation for where a of plus the it Investor is more lever Ken. from a cash for talked it would not think as have we've little flow about I this we that start there. business to be free to got moving where will $XX inflection

year How pipeline we're of coming a MagSeal. does and Difficulty]. I on your And M&A one of think you’re the the anniversary I deal are been efforts? up sort focusing where mean look on of you've you [Technical

the been acquisition, looking work And reality. company, certainly one from like mean, It's a We is bit liked through, hopefully. we're nice active, and I I'm Look, come with the relationships We people, these which proprietary other with bankers. do too. meeting but to are it a our of sure we come so to slow. they deal more as we we active, least you’re continue we're pipeline, that's outside this they've our more active. accelerator year, really We're folks for hearing a have at at things regular

at this There are further time. questions no

I Oswald for any to so pass remarks. And back closing it will Steve

And in XXXX be that's everybody you But Michelle. Look, happy moving company team, you, And time couldn't be It's Great be and see moderating nicely. long thrilled more our I had forward. with aerospace overall and for defense it's our for great QX. Okay. our XXXX think to good a and to joining questions. for think, still, thank together we big us. we again. journey. Thank investors. come Again, we're going We to in it's for back been commercial

day. thanks Again, us. great for to want I joining So a you wish

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

now You disconnect. may