Ducommun (DCO) 4 May 232023 Q1 Earnings call transcript

Good day, ladies and gentlemen, and welcome to Ducommun's First Quarter 2023 Conference Call. At this time, all participants are in a listen-only mode.

Following management's prepared remarks, we'll hold a Q&A session. [Operator Instructions] As a reminder, this conference call is being recorded today, May 4, 2023.

I would now like to turn the conference call over to Ducommun's Senior Vice President, Chief Financial Officer, Controller and Treasurer; Mr. Mookerji. Suman

and today XXXX President is Jeda, call. quarter and to me With Steve welcome you, first Ducommun's conference CEO. Thank Oswald, Chairman,

statements or to future remarks make or going discuss Session limitations prepared any I'm that Q&A follows. certain during the events, that performance forward-looking projections the we may to regarding

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

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

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

Particular as Statements made regulatory supply intend level of rising to risks. except among XX-K do risks the SEC, of we expansion update authorities. competition, geopolitical the orders this with those filed and defense to cost timing spending, as time during are others and risks, end-use by government and rates, Form from disasters, are made, statements Annual in including and and the any economic others, of described or are of forward-looking our on and and otherwise. acquisitions, statements if regulatory facing presentation, developments, the natural this of not only the subject required Report our our in call customers, US chain markets, legal cyclicality issues and Ducommun our interest and include, pandemics These risks made

XXXX non-GAAP We a measures Quarterly SEC measures. QX GAAP Please this filed This referenced on call. with of includes call reconciliation SEC with Form-XXQ to non-GAAP our the for filings our also today. refer Report the on financial the to

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

Okay, call. current joining review usual, and Today, for everyone, of Suman, an the Suman for of the today detail. quarter as conference first which I company our financials thank you. for will update And situation our give thanks, and us in will

though, that announced CFO to like Before I'd discuss transition our yesterday.

and his I'd to any him revolving welcome the like service in confidence is And would related have financial his together for like and congratulate known CFO. the I contributions and First, company's I Wampler for XX abilities. reporting. each say this and him over to Suman different role. and thank to at to call as full not transition also Chris other I his Mookerji Suman new have worked on issues three companies years,

completed the expectations joined And company with discussed last the also sorry, as Meeting XXX% April and announced a we we XX. is QX period in As have I'm we our delighted on XX-day -- New acquisition week, since acquisition BLR that had we the of the the in that BLR after December. fifth Investor I'm on in York July of largest at Ducommun ended ended XXXX. filing its in end I line Aerospace

the to begin customers Ducommun. to excited to President engineered BLR and industry rotorcraft, and welcome and products OEM business is fixed-wing Carpenter, providing with entire them. leader aviation operators. an Mike team fleet BLR aftermarket to innovator, and want services working I I'm

XXXX strong in As a to good $XXX.X quarter, very growth, for growth revenue the XX% with company top-line as to year-over-year off the delivered start of we're million.

longer gets driving better term. growth good is to sign It narrow-body was near of shape. release, key press and in the another excellent As recovery and in our aircraft mentioned only position positive overall revenue in in the

the continued the wants in up also get year-over-year. With year-over-year in real MAX of to a and significant XX% aerospace markets. business AXXX Turning Boeing XX% recovery XXX spot The QX. Airbus to bright have commercial growth

others Boeing revenue year-over-year growth Ducommun’s the sign recover. has commercial from industry XXXX. up aerospace XX% was the excellent commercial aerospace consecutive business and Airbus QX Overall, and as build now with seventh an and shown for quarter, rates

up a The good others. restructuring company's programs solid of activities. the in XX.X% UAVs million FMS budgets solid revenue to work DoD mainly modestly But we roughly down has defense timing in business once profit GA from QX, posted as rotor and was years year-over-year again, for of and gross among the we prepare XX.X% results, $XX company Apache increasing as a the due blade year-over-year Ducommun of in The such our delivered ahead. performance through

posted stronger margins much to adjusted operating year be also The this XXXX. and Once are XX.X% EBITDA was EBITDA solid million, QX anticipate plant EBITDA the million an income margins $XX.X with of team of numbers The increase company adjusted we us. of as -- well adjusted X.X% and adjusted year-over-year. in XXXX had $X behind in

in $X.XX diluted diluted $X.XX was $X.XX a EPS prior of diluted of adjustments comparable EPS with EPS of Quality solid year. a a But share to the versus earnings a with for share $X.XX a of the GAAP QX share XXXX. share was

Glamis include fire-related diluted for the charges EPS and lower expenses. Some drivers higher key restructuring GAAP

during a ViaSat This led AXXX XX%. was slower-than-expected you backlog of the of to for $XXX which backlog of Gulfstream, increase from QX and eighth entertainment increased Switching to an commercial the MAX end by aerospace in-flight XXXX quarter at the recovery QX million the expect all for $XXX of consecutive AXXX, the the XXX XXXX. the sequentially XXXX would performance at million company's end after

of decreased want and modestly the some as at ended million. the This of ever the XXXX, MAX. sequentially quarter of similar order total is We news received AXXX. skin QX I comprised remained solid made order for end the for roughly recently backlog we QX from initial great skins $XXX well X% Spirit an to Defense for fuselage. from you our first but four with what fuselage The AeroSystems MAX which at the share sections, to XXX on currently also

as foreskin skins to be we Keep close forward. XX-XX a yearly move with $X projected order we grow this we So for Spirit sole in we're in to for million ahead. XXX% of revenue is AXXX the initial the mind, The or what source and is as provide to about excited expect fuselage areas. a certain split

a after are we ready initial to this more So do order. lot

by four will commercialized year-end. be skin The sections fully

Oklahoma. Raytheon prime $XX For card circuit for programs already rate defense of run and expecting development be defense work or that for the of in million We're as Appleton a deal will these as for full Wisconsin $XXX continues. The our great common year sites offloading Tulsa XXXX. over million long-term by for with for the committed in to commercialized such off-flowing the roughly at business

types would One an test with or not material transfer to their only projects. do the OEM et item from initial revenue to equipment buy I with headwind on-hand are there have a cetera, note these of lags have on supplying is that legacy we but stock.

with some So these OEMs time. numbers the do take large

company's pay are continuing to and also The lean structure dividends. actions organizational

better with our another and this financials in excellent Our chain in shape delivery customers QX not in and the our our cannot supply be team shown regarding is but only well quarter also on-time we managing as delivered quality.

top-performing products. superplastic in very for this being work. -- Telos were by In press are a for addition, release an we on put titanium Airbus form supplier award March and of with our a farm we in hot and out Ducommun proud honored

is success a any before great standard context, XXXX. For and Airbus select a has It with we business awards. been did It high global these very group. not Airbus is a have for

for with win update mid-to-high acquisition. BLR For a on very commercial successful year it with guidance and revenue for happy the along we're based the to XXXX single aerospace on news better to digit

happy Just a our to on effort a to provides few for the and deal are early with beneficial due and and seller excellence. win. our These Ducommun report approach never everyone. exclusive that great of benefits this comments went easy on require I'm

solid. non-strategic seek revenue as on as will also more confident rest for The volume but we way aerospace be very defense to very with more commercial see lead recovery good guidance and feel the being side, this On continue closings revenue the have the some XXXX two prove much-improved business the we will revenue. XXXX also low-volume later year of our for and plant to returns and in limited headwinds will

QX let Now, other and markets We earlier, the military additional our color some MIRV aircraft for platforms a platforms it business platforms. saw military military in space still aircraft down XXXX. solid was and on sector, missile space rotary revenue versus and products in on of our me first-quarter showing with demand fixed-wing other Beginning military a other provide QX. increases being as Despite decrease and modest our posted $XX.X million we mentioned programs.

last XX% military will In and the aerospace and in period, of common from more that. represented the revenue first XX% reflect like this the and continue year commercial to balance with quarter we trend revenue space down

ended sequentially XX% We modestly total still also represents Ducommun's first solid backlog also million, quarter while down with of $XXX the backlog. a of

to aerospace revenue and others. bright Boeing expects the to in bill Airbus future rate offerings. gain continue our at year-over-year quarter first million, and increases very commercial this $XX.X our operations, In XX% Ducommun driven across XXXX by product increased mainly to is momentum

the backlog year-over-year and at aerospace also $XXX at quality XX% increase continued commercial The as end from within of XXXX. was a to million stands higher first million QX quarter and $XX or move out delivery the ahead. stand Our we sector our had

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

Thank Steve. you,

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

continued travel, reflect domestic should saw by commercial and increase our that discussed, strength aircraft build continued customers are remain the for first encouraged the growth again, outlook Steve As support by from in higher shipments. Once our strong long-term global encouraged we We demand in period also revenues. in another which drive our key and rate aerospace significant would our performance. quarter of a results

we the During feel and continued in XXth. acquisition With Steve transaction on first Aerospace to April BLR restructuring on like strong we the QX our the quarter, as quarter. And in make a this, mentioned we foundation announced we the closed on the have of also year progress all program. laid subsequently to

QX reflects the aerospace XXXX. military platforms. recent million end increase and and first revenue across reflects quarter year-over-year XXXX versus the partially offset of the within $XXX.X turning results. million platforms, $XXX.X growth of by the QX backlog of of to our at than first lower level the XXXX. Ducommun's aerospace overall approximately $XXX the first quarter end of Revenue for of first $X.X $XX the the XXXX our was commercial quarter $XX This at our was at sector. Now growth million million to end higher commercial of space The across million for quarter million similar

backlog defense $XXX move as XXXX. Our remain we solid performance for we through and continued was remainder million the of positioned

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

We QX sales continue of cost a mainly XXXX as gross were QX have our XX.X% margins related by amount adjusted we XXXX. margins gross basis in XX.X% show higher On our fire in an driven this related to adjusted impact. year, versus Guaymas of non-GAAP

through continue operating difficult and work environment labor. with We supply chain to a

significant been including able buys inventory However, have on we proactive the impacts our business. efforts through any and strategic to avoid our investments,

diluted revenue Ducommun the compared income X.X% of of net year $X.X last million quarter income of the to million $X.X million was of revenue, reported year $XX.X $X.XX to or million or per X.X% in income $XX.X quarter diluted to of $X.X company comparable net of Adjusted first revenue share reported $X.X period compared $X.XX this income million in X.X% prior or or per ago. period. a or XXXX for of revenue for share the of operating the or compared million The year. quarter X.X% operating first

a per diluted On The of for basis XX.X% million an to to driven period $X.XX in revenue compared net higher to million the reported was in operating net income EBITDA or by costs period. income QX company relative million revenue, share, or $X.XX the XXXX. comparable XX.X% of of first million XXXX was income $X.X net of $X.X income compared a adjusted interest lower $XX.X during or quarter for of $XX.X Adjusted the or the XXXX.

results. turn let Now, me to our segment

partially sales segment of Our within and revenue aerospace of offset higher versus of year-over-year posted Structural by space the across lower $XX million first million $XX company's $XX.X markets. of Systems last million increase $X.X reflects year. revenue commercial XXXX in applications, our The the military quarter million

$X.X the revenue quarter X.X% operating compared income million last of of or year. X.X% or Systems to revenue was $X.X for Structural million

to The year-over-year due margin primarily operating charges. restructuring decrease higher was

and charges performance years, in segment. from in margin restructuring the solid operating XXXX. Excluding QX both QX other XXXX XX.X% was versus operating the a adjustments This Systems Structural segment XX.X% in is

Electronic Systems aerospace and $X the posted XXXX prior Our results first the $X.X million of million of and revenue million $XXX.X of higher These versus in company's of revenue higher $XX.X reflect segment revenue the in commercial year period. million military across space customers. quarter

to the restructuring income income first or revenue of or X.X% a million revenue of $XX X.X% due The the higher for operating as year versus was was lower Electronic $X.X quarter Systems' operating charges. in percentage of primarily million revenue prior period.

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

Now restructuring. an update on our

and our Monrovia, and in As States. the accelerate back actions initiative in transferred strategic both California we commenced of other existing XXXX. Guaymas, and facilities as performance discussed our low-cost for and stronger short includes operation the the United achievement to in that a work shutdown being to centers goals better previously, taken in performance and of These in position a the Arkansas with company to restructuring a majority our long-term. QX This Mexico, the going reminder are remainder the of Berryville, to

with and well customer these with We both engagement are on employee progressing alignment. transitions and retention

of were charges and majority severance million in charges. During The QX restructuring $X.X related. benefits these incurred we XXXX,

and Berryville, incur locations. the million wind million at selling the in expect million $XX XXXX. our we expenses in during Upon $X anticipate production savings the additional restructuring million both actions. rest to down our restructuring annual We and to $XX at program, we associated an building of of Once to to Monrovia from land completion $XX generate we expect

Turning to resources. and liquidity capital

We end the of the have quarter. first available million at liquidity of $XXX

And which million capitalized is year largest net each of of million $X need be and expenses, R&D was used thus cash usage in operations incentives. the saw also from of the quarter now year to tax also cover in for to cash cash we million. year, in operating rules estimated flow and this prior primarily payment which approximately to payout first The net operations, in of during typically to quarter. an tax $XX.X accrued This our changes due made of amortized activities similar used the $XX.X year-end

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

result BLR expect of forward to ratio increase. a going in we the However the completion QX, EBITDA acquisition debt-to-adjusted as of our

will increase XXXX was debt and interest QX interest for in XXXX drove This the $X.X $X.X which put hedge into in rate our help beneficial, environment during to million million goes in we was interest in timely $XXX November rising refinancing January quarter XXXX. with the While the in costs. effect expected. and interest million, XXXX, In an rate our versus costs

XXXX start completion and there conclude we program forward with restructuring this completed rest financial overview, QX and of year, are of good look the the a acquisition the the and in XXXX much for expected is now beyond. to the in BLR to off to To later

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

expectations step another was and acquisition Thanks, good communicated Investor year. Day Okay. the we meets December. a it closing, very certainly a our in quarter is begin to The direction right Suman. in Bell look In at the the

meetings next that customers some the always My and thanks employees the show and several with as that for In meeting great be read, to our years to on top I we opportunities addition, over person build and capture all we're ready all team XXXX. attending the as the support industry investors even Year, been the I've news and in the stronger now again an New toward embark the momentum XXXX, upside. common just throughout

I for will questions. up now Thank you listening. for open

session. [Operator RBC. will we Ken the conduct comes Our this question At of first Herbert time you. question-and-answer Thank from Instructions]

now line open. is Your

Yes. and Suman. to good morning Steve, Hey, congratulations

you. Thank

morning, Ken. Good

MAX, you for that Hey, there's program called it nice, but you've pretty Steve headlines share what level with been growth is start set taken maybe going some the this here sounds of and in program, quarter see the to in us this you're on bill in Can terms maybe off, which lot significant and some first recently about the on how over you Spirit. some MAX, out you issues currently a progressing rate of year? maybe like that

the year? revenue sounds slowdown seeing year. some like in this the impacted by that much How it full you to the maybe do And it of Spirit. across then haven't grow we Because contribution we're been expect

Well, guess a couple I question. thanks, Good Ken. of Yes. things.

First, too long ago. the Boeing up was supplier at I meeting not

and Stan So it's there. the Deal team

So, a couple of things.

way of all gate more -- a XX and modest we're Spirit, we But do out a up, to the front that we cleared best them the First, and month. in end end thing. the of pretty on much in came front the some wish get this we at of despite issues

We think still but We're hiring confident year. of to bit but we're that. that, heading from up all a for end a got XX% okay, capitalized there optimistic. things of we a bit in little do, that. will the hiccup, little by further XX% We've the see of We're to be

major I coming. skins has But to So, mean, a certainly, the there's and development we get them was with that the it's an mentioned that certainly as I issue a time of there. a done things also on repairs. the lot Spirit have long

hard at over XX months say, for We on that least. worked very

So we line recently. the that finish just across got

skins fuselage in do So We're big the form form. and already for on roll players already we stretch AXXX.

but I XX% or very have forward a bit little year. to we're close planning see very to as that a get that think now, not the only Spirit, better to going the we're mean, we're we we'll by the of rates, program pick go headwind share. right end with of of to we're going more optimistic But we also okay, So up

So I think us. for good things ahead

Thank as for better outlook about that single-digit. there or out of maybe there year. four of Is predominantly up like helpful. I any the revenues this looks assumption BLR BLR add could growth it high guess to to the sort you that That's you. aerospace? year three think Okay. into to segue of mean, And in to this performance about is points mid I acquisition, better

Yes.

certainly just picked nice mix, going right? a at up April, BLR We year them So, end not but to it's we're So, a okay? to revenue, contribute. So but revenue. full to And year is of a also, just year. pick it's little we're going the the more nervous, some of I get the the little going beginning at we still at of started wouldn't then we're again, modest single, say, obviously low a when up -- being

our as support. growth Airbus so outlook. suggested, about the we of But as range organic that in well Ken, on BLR the Gulfstream, is prospects lower I there would you we the and of end better feel the and substantial companies say, other kind and is

cash Great. probably you Suman, finally reset just free this can an for maybe on And was Okay. full-year cash XXXX expectations, I quarter flow? but think expectation the with consistent us use

net and looking But inventory capital out we're come free and we cash versus better to did up have we those of facility transitions year to So, did flow flow support a positive where we year year. some year. expect moves. to this to on some at some build than do headwinds working headwinds There these ways we are as and last last have those cash offset

we have on we Yes. the some just spoilage. Apache -- Ted the got MAX late, we that back got

moves impact got we industry So here. some major

the enough and taking So to we're customer we got make moves. these we got first buffer care making for sure of sure

over little too. that a So,

lot. Great. All right Thanks a guys.

Thanks, Ken.

One moment question. next for our

of next Securities. Our Crawford question Mike B. comes from Riley

line is now Your open.

you. Thank

added about time next Just revenue to well print? of to make capital going balance that sure the comfortable that's put BLR run you annual the working as a are sheet talking not we on the rate as see rough

call, mean, engineered to product have Mike, obviously more at we'll BLR just the started an okay? We'll end aftermarket. get QX here. is with the I think of say, I an

to accretive it's our current So P&L the be going and to to business.

So we're excited about it.

year points more on I with think comments this the come. for it's us Ken's couple a revenue to of for side and earlier

single-digit of millions which mid-to-high and Okay to guidance million-ish. high hundred regarding backlog implying your then revenue growth closer is the $XXX some versus XX-month

ship main makes is So the that business where up book that difference? and

book in see we and engineered businesses. product So a ship our of lot

then, so incremental we and engineered their and well our a services in business big some And as in is businesses may But time-to-time in orders lead well where structures mainly some electronic are our is from that manufacturing more driver times products drop that. have And our ship see typical in as business. book business though of longer. we

out then, you. of Thank the of weren't and have sense estate more you facilities but I you these and to like, talk last don't And do factory the can timing know Great. Monrovia about the potential do sale really I prepared you the …. you on Okay. of any real once underlying share call guess on the get this, other

Yeah.

might you what it? …perhaps from get

Yeah.

it's move, because a And they right got get things customers we've right? to tricky think nervous. little major I some now,

sure the if not the QX, would we to probably by on one move right properties, we're the to Mike. So like year-end front-end. both have doing not, by We make that things if

in later. to we sure than something -- market, a it's So but hurry for not make right we're we're the we've the but do to bit going got sooner here, a things

very Thank right. you All Okay. much.

Thanks Mike.

call Our of Truist next Ciarmoli from comes Michael Securities.

Taking my question…

is now… call Your

can me guys? Hey, hear you

hear can We Yes. you.

How We are can Michael. you? hear you

Hey. back about you and facility going the think transitions, talked spoilers MAX just the to Maybe Apache blades. I the

Yeah.

technical there challenges aware needed that or any we of Is of sort that of there? risk any be to should shift work requalification sort

making stuff We're Mike. forever. that No

So…

Okay.

we're it to make somewhere going else. just So

we major we about with going commercial where are. customer a about to So new always there's have into it's issue facility, the good because or right? on we a no OEM prime a But So obviously lag side. with feel that, work the but defense

just workforce. give I -- lot a investors much [indiscernible]. thing at I Berryville is this full in and too November a for one credit have a still of say mean, announced year we people and last The that we pretty I'd

committed job people So and it to transferred are getting finishing properly. the

I say no. technical side the least on at answer would So the is

circle about million. just then, MAX, of trying talked that how can you back a just adds. $X the plane? time run pre-pandemic back every to content? the was little rate? to biggest You I Are on a your Does And a more sense get the assume the Okay. on specific know MAX but program just you much content this

Yes.

like start. So said formula. I about I mentioned a It's good

Let's to way. rates happy that XX It's put roughly sets going those sort of around We're our month with ship ships so it skins. a for that. increase pretty

Okay.

it internally makes too. Spirit

So..

Got it.

the But the deal. We're in that's big game.

expect That's the see -- Okay. looking out annualized or we savings. should starting the the think about in have it and the income And restructuring, Perfect. significant if we call know, called How I to as on you of of so don't I the XQ for. million $X.X Should what Suman I second margins about we and operating XXXX. savings then maybe think a we into you XQ? get it's and this should done How margin? think that? in was up-tick half

year. going to more see you're end the towards think I of the it

Okay.

going pronounced And I the really so yeah, in more benefit to XXXX. think you're see

Perfect. it. Got Okay.

all That's had. guys. perfect Okay, Thanks. I

Okay. Thanks, Michael.

be appears to to turn no now closing it like I remarks. Mr. further would for There to questions. Oswald, over

think I good year. again, start to a Look, very much. very you it's the Thank Okay.

for customers, going afternoon. We be I you again, our company comment positive very and It for upside. I on should a attending thanks have our our consequential think good and but all a my today here, And wish a year to the shareholders. on lot

conference. does today's for conclude program. you Thank attending the This

disconnect. now may You