Ducommun (DCO) 8 Nov 232023 Q3 Earnings call transcript

Good day, and thank you for standing by. Welcome to the Third Quarter 2023 Ducommun Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.I would now like to hand the conference over to your speaker today, Mr. Suman Mookerji, Ducommun's Senior Vice President and Chief Financial Officer. Please go ahead.

to Third welcome Conference and you, Ducommun's Quarter XXXX Call. Thank statements Chairman, today certain Chief forward-looking the projections prepared is session make me the follows. we President performance limitations future that or Steve any remarks discuss With during to Oswald, and may events, going Executive to Q&A or regarding that Officer.I'm Private operations any Securities prospective. statements future market to Certain that statements as forward-looking of Act are today Reform are results Litigation not and of XXXX statements under therefore, projections historical the facts, including are, financial conditions, and forward-looking uncertainties expectations remarks that statements are These correct. reflected will statements the implied other such are can materially we we been differ reasonable, forward-looking risks, subject future actual expectations no and believe cause such our expressed assurance the that or to prove by in could forward-looking from give have results factors to to statements.Although that

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

$XXX.X for current an call. which as joining Thank quarter in everyone, situation for the conference review outstanding and us our high of grew our you, line the an update quarter the as revenue sequentially, of Today, quarterly of both company, of delivering Suman, detail.QX versus record give financials XXXX will I all-time and third being year-over-year will after thanks, of revenue top total and our XXXX. in reaching today was usual, growth Suman new a we and previous X% million,

December, fuselage repairs challenges the with year-over-year.Overall, the reducing goals we as of and XX% achieve As with revenue the with mentioned Boeing's AXXX meeting big up was Boeing in the MAX aggregate great growth, along in build also of to was business our in forward this platform QX others aircraft Aerospace have and press and course, revenue of with along which aisle good release, and new being the Commercial year-over-year to welcome QX investor move again news, Airbus milestone.We our discussed over Commercial widebody recovery for level twin years. and, XXXX, higher, to once with see our despite up -- helped Aerospace XXX% at next almost this Airbus to up need from Military growth quality rates. business ramp-up The having realizing XX% -- of continued last continued delivered be a the business, return in XXXX few we drive

plant adjusted anticipate in higher a adjusted for also margin quarter The very an closures encouraging high million favorable shareholders. creation year-over-year $XXX even operating of volume The continue defense share QX. completed.A year. team posted EPS for with $X.XX $X.X benefit year-over-year the the Ducommun. of was it in margins wing for we once in of And other strong we diluted XX.X% due for a the was see was through And share adjusted report from of number EBITDA for XX.X%, increase of stronger the now military million, XXXX. happy product in growth from adjustments, a margins GAAP in missile was million are diluted $XX.X delivered strong, as numbers year-over-year. in rotary EBITDA solid quality the ninth We to diluted good a revenue for the with to share XXXX the compared was points revenue program XXX $X.XX The QX solid industry.I'm versus be performance with and of of as very a up of mix of restructuring our return XX.X%, prior business and of other continued well to to is and restructuring an work QX, for year also $X.XX gross and $X.XX demand, amount our many all-time space delivered sign excellent platforms. a Ducommun's the growth Apache business of X.X%, The Commercial MIRV ahead along EPS mainly company Ducommun's and the activities.We to the with business EBITDA overall military year-over-year quarter. adjusted for Aerospace, products, breakout excellent income this EPS good are important to activities QX the did value up earnings basis in business company and to this

inventory higher interest higher due higher backlog purchase performance. adjustments.Switching rates, company EPS GAAP accounting diluted total include to to the higher Some for expense interest drivers key and charges the lower restructuring

sequentially the a XXXX. it slightly sequentially, flat held and it The backlog at solid While was QX year QX a The increase remained after a earlier, production positive shape backlog, in significant with end MAX held million decreased that with year-over-year overall news year-over-year, flat on million but -- come. for decreased defense offloading business and QX the however, single-aisle our million.For business Aerospace primes, committed positive the sequentially XXXX continues. roughly at the to to a rates, represents We're issues basis.We mainly in X% sign due this $XXX specifically card as DCO Defense RTX. primarily $XXX mentioned year-over-year at to, in more backlog defense the ended of slightly full pleased the at XXXX up jump with work expecting for the were good remains and circuit $XXX $XX still for industry Commercial million

these move process, completed.In for long-term or revenue chain the significant guidance range managing transition As ago. This our of defense already the high-single record to a rate is the as the of QX million team development I be of communicated, now company mid- to along quarterly XXXX programs will once year by digit delivered in towards work we run for the am year, offloading of with a as supply margin the revenue the another $XXX another and of to quarter the operating gross to well evidenced previous leadership.As year compared is culture, commercialized our conclusion example by narrowing over now dedicated employees X% expansion great down X.X%. excellent

in thought time the which a especially to delays number, are rates market MAX I program our created happy MagSeal Aerospace's and move closed Commercial have providing was in which about, overcoming I spotlight modest with pace this good more XXXX.Before details, We to of all production in XXXX. know December it acquisition, we single-aisle we our a

per been I on balance think want has the seals progress of request, applications.In Island-based our course, a information designer aerospace success harming the did have without just quarters the magnetic acquisitions Ducommun competitiveness. for good ownership, manufacturer and X disclosing of I excellent. highlight of Rhode shareholder defense to we and over found at our

backlog have grown more this with ownership growing during by than revenue XX% more We operating grew than XXX%. XX% period. also adjusted income MagSeal's than by more

and this was believe Ducommun's years recent first, development; to a QX Beginning sector, revenues acquisition; of and Garde year-over-year demand adjusting $XXX.X continued significant post spend and wing equipment I of like. as sense.This saw the to the them take the to the Commercial other to additional drive return last bring in wing MIRV a time exceeded company their outstanding how is compared missile involvement capital.As investments of $XXX a look And military enable increase track blades and now, Space our Aerospace, on products with demand our platforms, high growth $XXX.X our limited Space our the I when forward also quarter's acquisition improve increased for XXX% record to want third from fourth, their programs. markets, owners Ducommun closer leaders The revenue which low million main to more sales engagement me a revenue in tail in color channel and performance space customer, product XX% example was but will made performance BELL provide Military we on we compelling the we this we for for well it congratulate prior driver, and to second, reflect as business their were manufacturing period, quarterly saw playbook, many able add V-XX new the where represented through most strategy come.Now capital XXXX. for them we Apache & the platform.The with post to XX% deal success background, new trend rotary key Military also quarter year. acquisitions. shareholders continue customer million & from level in almost of products, military revenue million to a create let our and to the rotor including we other Bob drive For some balance third, rotary MagSeal and with and on the of third to and to down team value and state-of-the-art this with to engineering in money is to to per the family-owned resources the productivity; retain operations,

while we happy Ducommun navigates various quality lower issues.I'm have the our with rotary the report on sector was We total And Ducommun million, year-over-year X% represents customers detail. bright solid our platforms. also industry from backlog.Within as end The aerospace more forward. Aerospace in $XXX increases it rate to by $X number component Ducommun's also ended expects the bill supply revenue twin-aisle the quarter. XX% a solid it as million backlog backlog financial platform, mainly as quarter $XX.X modest platforms third the operations, platforms, increased a Aerospace Suman? our temporary that, a aircraft was I'll continues in weakness our to X% commercial within XXXX, year-over-year well driven wing at at year-over-year, stands of to spot growth, quarter Commercial still other AXXX and an and $XXX in move million million, given third continued aircraft Commercial commercial of a a be of third Suman increase to of the at commercial QX large chain review and delivery very results or the Commercial as aircraft including decrease pace Aerospace.With platforms Aerospace although Commercial XX%

Thank you, Steve.

another by we reminder, discussed, strength the as Steve call.As in for near-term for see XX-Q strong which our significant increase some a earnings work our single-aisle information a demand third description of and QX performance. company's reflect encouraged Once and remain on revenues. period the mentioned release global quarter QX should please again, higher We temporary support through of Commercial saw domestic weakness in in we long-term As results Aerospace travel, today's a continued rates. production aircraft further

Military the up of color With make programs such our our a Space $XXX.X to finish was mainly Revenue XXXX to solid sector. & progress the year-over-year third for more to revenue return The of platform to in to $XXX the saw timing Commercial turning in the return our in reflects million. note.Now defense we this, our million for increase the Space quarter and Apache.During million of on versus revenue we to third within some the Space growth of addition, QX was XXXX, Ducommun's third program, in the continued a also quarter, we $X.X and provide as saw of all million quarter significant we quarter million on across by results. backlog XXXX. Aerospace third & $XX feel the $X.X growth shortly. higher XXXX certain The Military due end & our Military restructuring growth quarter million.In was total backlog $XXX.X jump we I In at third will a encouraging. $XXX quarter like million very are positioned to revenues, of

agreements maintain industry were the level During to end as of revenue total result months $XXX that end million the as fixed able at the with dropped QX the quarter $XXX The from ongoing QX define reminder, versus the period. in we quarter of profit gross million bill a prior XXXX, backlog or on $XX.X same $XX.X Commercial and million aerospace posted we revenue of less.We in million. our million backlog at commercial expected backlog defense or delivery for dates to potential XX.X% of of purchase the the customer for Aerospace business based long-term during or of of $XXX of and prices XX.X% XX year firm QX revenue rates.As issues at orders a

and on basis, adjusted as in share better our scale driven to sales of certain amortization our impact continue XX.X% fire margins in cost QX we Aerospace margin favorable in non-GAAP by on our The gross our operations.On businesses. XXXX. the items improvement in relating were gross from XXXX versus Commercial inventory an to XX.X% partially to product pricing adjusted Guaymas was We and primarily mix, the recent margins gross QX acquisitions improved had step-up

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

mainly me interest was been with or will net income revenue million adjusted $X.XX or or XXXX, compared third an net or the income in of a The adjusted any despite diluted significant this $X.X million However, of the let $X.XX takes million $XX.X the our for short-term a net million income $XX.X $XX.X X.X% income company our or share thus hedge, on to per million on per strategic in of $X.XX have of income fed's in higher hike compared was This XXXX the through was of X.X% primarily effect impact per our ago.On X.X% third revenue which the rates. able $XX.X and driven of higher X, along buys operating QX basis, net rate of proactive quarter for discuss efforts, to rate share to inventory reported income we share reported or including net year diluted impact income on revenue lower avoid segment million The year. our XXXX. shortly.Now our far this investments, year level $X.X income of I $X.XX or quarter the compared to business.Ducommun by or operating revenue costs. of due last reported turn period operating quarter of period.Adjusted X.X% diluted January to the of $XX.X interest to results. into to interest million comparable adjusted $X.X compared of during the quarter million company prior

million last higher million from was of revenue revenue year. in X.X% mainly of or $X.X Our for Apache Structural in versus compared million Systems and of quarter quarter operating commercial twin-aisle space Systems of increase to markets, across for million AXXX million year. our in $X.X $XX.X higher and revenue aerospace on posted million the of $X.X the program.Structural or of revenue within The the the reflects income segment applications, last X.X% sales XXXX mainly ramp-up year-over-year sales the third military aircraft and $XX.X the $X.X

been $XXX.X to and F-XX, period. in This with to of the million grow. due $XXX.X or as adjustments in charges platforms business legacy timing decline versus revenue of posted the company's segment or as driven segment.Our product have prior in or next-gen Systems on impact reduction period. a XXXX XXXX continued The margin of not was the prior and for synchronized versus third year the volumes space military was revenue and revenue year position scale the the growth Electronic restructuring the higher This was quarter was $XX.X quarter in in QX the the sales operating on Commercial million and with Excluding Aerospace our years, in significant XXXX. in including customers, XX.X% for mainly million sales such both other XX.X% income from third great Structural revenues the operating segment company's in by improvement better of quarter pricing mix, has of platforms.Electronic QX revenues million in versus Systems' manufacturing favorable lower XX.X% XX.X% Systems year-over-year our $XX.X

in in Excluding XX.X% higher the restructuring favorable would was a operating adjustments operating margin both update primarily QX and years, like an percentage on program. XXXX and The mix product QX pricing in restructuring to I charges was our due to revenue segment XX.X% ongoing of other versus actions.Next, income as provide XXXX.

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

as requisite Boeing customers, The ongoing, and operations. these X make to restructuring to excellent and are of with benefits in million we in wind process half both recorded continue first the close charges down majority RTX on recertification plan transitions fully and related to engagement retention and employee XXXX. XXXX, QX working were to with the continue charges. and we the our obtain We The we approvals.During $X diligently severance of is factories these also progress

We XXXX, generate begun the in in next be completion of a our million expect as XXXX. land and will and restructuring to resources. our of million at those actions portion program, spending.Upon building HX in through capital million Arkansas. Monrovia million California process to savings $X from annual $XX we savings incur that expenses conclude the past, expect to selling $XX sale the to to starting have restructuring and $X and the for in Berryville, the communicated facility.Turning realized liquidity We both Monrovia, to and anticipate And a expect

QX of During QX up million $XX.X generated $X.X in XXXX, we operating was XXXX. flow from cash activities, from in million which

As the portion we revolver of hand. of of cash end of and the unutilized comprising third quarter, available liquidity on million, the of have $XXX our

Our spread, place in was allowing in at an in allowing XXXX our credit time our the increase to us flexibility our the size market, facility existing July acquisition us put the reduce execute strategy. to and revolver of credit opportune on

drive MagSeal XXX X-month we points rate that a This linked highlighted Our in XXXX place million in from $XXX run-up costs term will XXXX we our SOFR.As hedge with the rates XXXX savings debt short-term and put result, starting as increase a of XXXX and will due an effect interest or in Fed QX significant driven cost and our the to by hikes. expect X-year success is to before, in the million have rate into XXX% I XXXX, basis at interest which our $X period acquisition. goes QX interest had In had floating sulfur the November highlighted million the the in was help beyond.Steve and for January currently $X.X to in debt.

like cadence XX hypothetical maintaining value our and to our from XXXX with the laid million strategy Xx.We cash financial summary, M&A while future This that and a illustrate can $XXX of that of on continuing proven his operating have a deploy a on us about most XXXX. the each presentation playbook earnings continue look place below game laid I deal feel to confident while with ranging that annually. a out our combination strategy now achieve acquisitions funded plan. transactions turn of for of overview release remarks. strong out would to debt, year still back of on based additional for a in flows we leverage.To finishing Vision Page closing to with conclude the debt prudent total behind say Steve? we good have plan to net off QX can enterprise in are leverage scenario have forward year In to targets be execute to we through this over on to XX sizes we million we intend with it and We our X point XXXX.I'll be a now Steve a

just thoughts a few Okay. Thanks, Suman. In here. closing,

team.It and many QX QX EBITDA be obviously for in shareholders, Day and shared revenue means achieving on company are are that reaching a Investor goals. for all-time to highlights the Ducommon So ahead with record was committed at are adjusted thrilled quarterly we an to of and great also quarter, proud XXXX the the December along Vision I'm last of, our the high wonderful milestones those schedule we

XXXX.Okay. thanks look up to continued successful as finishing and support my continued a investors as employees, for forward we all other stakeholders to our your Lastly, well

questions. to Thank go you listening. for Let's

comes Michael of comes Instructions] Truist. our And our And Mike from from question Instructions] B. first [Operator next Crawford Riley.[Operator of Ciarmoli question

mean, rate Maybe right results. know correct? Do sort portion, that run 'XX? second of half. full really that restructuring what's starting realized being said to I Suman, it and kicking prevent like of Steve, it's a kind there little in off happening to of And from sounds more earlier you I have that's had Nice maybe I a or annualized bit. and savings, the kind the the only sliding

RTX, lot a question. Because won't Yes, a a little Boeing a lot get around. bit. right? bit suppliers they has and diversity of of We're And it moved move fair different Mike, of at that things

improve see those end, not on we Suman a we're longer. tell be but to a will processes, factories did delay, new these end this sure we'll get we're bit our like people large to these -- I and bit doing it's we're diligent by OEMs. going to we're in a of the trying so with to anything best, both for to said little But going down our be done of you And But June. notes, that

called for what a Okay. proper certification? getting sign yes, Is going those is out clearly, presumably the guys that off? I on. Is you lot -- And of mean, that have both

Okay.

Yes, absolutely.

at So want much They conference – parts I said suppliers move. if X,XXX to Boeing was have that the March. they in

And so we're one do going to of June. that's many. But I moving think at overall, end the target, and forward, and happen good a the news is we we're of have

can So you. that tell I

margins should Should sounds up Got maybe put us, but dealing challenges you're mean, point like maybe certainly a it. guidance this great the margins level can the the our we I'm just using set and mean some starting launching you give you're It I a -- some quarter's 'XX and to we of going just kind aero I I margins how point with bit? a a temper you think maybe in assuming there sequential know there. then about But here, trajectory? of not or quarter. were as downticks probably to

question, great Mike. Yes,

You're right.

second of the given improvement, half. have the half first expect next manner. for be have I progressed a in versus in margins especially the restructuring more year nice the timing the sequentially and this course of to year margin strong -- to be We very margins over the more really would

Improvement...

quarter Because looks... the posted we that margin this

Going forward.

yes. Absolutely,

MAX. can rates to But be? -- state been Aero, give a little for I Commercial among of I maybe And because got guys still That's just on a Or on outsized going it. I disproportionately mean, Got you good last mean kind hit sense peers. you're one and where out Okay. understand you the you me. the MAX this are maybe of union here concentration of on helpful. growth that of where expect bit you program? there. there We're what pretty -- the general seeing us kind is what's on exposure is and

Sure. Yes. we mid-XXs. about XXX going [ ] certainly as We're We're what some far sort heard of to calls. excited as up in prior maybe

back to -- a of big you we're So know, the program. the on But you, the just think honest with the pretty that pretty much a a repairs a flattens boring that. is even bit as though MAX. it's for in really quality kind is the But about dead strike is I DCO. good news smaller wide-body enthusiastic water then we're because good level, it's the be year and at business coming sign And out last

next Riley Crawford our And Mike question of comes B. Securities. from

So thanks a with share for sharing can playbook through Is Aerospace? walk on you similar MagSeal. plans BLR there for your your

on in We're -- kind here, to look, be going MagSeal, guys use but real with BLR. we're right? touch, the you what of did think got So As we'll early we I playbook, -- much right? pretty we go forward it's still

high we've the same want and hopes had to X, all So I say. to have other playbook. we like we're But that's going use about

receive your potential you then provide Okay. sales you And on Monrovia, might any value prepared expectations since initial are property? to for in at that this started selling time process you

where Mike, getting a we shareholders keep But there. can but the stage move process, an sale we we expectations as process, ongoing around along details at we're sale not updated. we'll share have the

Yes.

I communication by think, Mike, So we'll Mike. on than out, December, can a have it sooner okay? you later, count

in expectations that see year can Okay. then fourth we you and/or on where today? might you're quarter adjustments And from standing inventory purchase accounting the share next your

and for BLR next then But that in that. acquisition, little the and the and that inventory of in maybe be a the had of accounting on in up through rate to So we'll of certainly beyond QX of we revenue. XXXX see certainly, QX, the during but not on kind quarter year. marked continue account to QX QX, depending on current depend revenue mainly purchase in bit it QX expect adjustments were of do inventory QX and

this final then the for into And all moment. the to relative your to thoughts given in at renewed investment of that like me that's question in growth particular, space, going is military Okay. just sector on in I hear really space,

mean towards lean just -- give a we space the certainly high-level support I'll I I you programs, Mike, going but the I'm military side, more view. to we candidly. mean,

ask. investments looking of come other at So not and we I a of out things. other do best people for that's do things, we're but a see we the ruggedized Most support interesting harnesses we NASA mean, might few as probably lot ongoing. to we're have Carson for of and

[Operator Instructions] from Our next Citi. question Jason Gursky of comes

a the relationship to more wanted in little you with Spirit. dive have I just bit that about all

there to little I a on You mentioned narrative dynamics in and of in of been but 'XX all has bringing work maybe see I'm leadership pretty bit some they've just got sense, you on with in XX got of the pause then curious think, going at there. the part the helm the recovery here with It 'XX, of makes focused you. is They've from an new that like them. there update somebody some more kind operations. get from And sounds good to

an heads you've this do to So us plate. there to as some the initial of even sort just with whether curious, work there on that and if on and interactions kind their is of more around got all them you opportunity try grow hands their your they around out wrap for of readout figure for kind potentially

thanks Jason, calling And with to in. you. be Good Sure. for

were things there. And obviously of on. expecting I level And So close look, Patrick's new the that. I in smart there going see CEO, a close they're changed some Spirit. think sort We know think know to I are I now. energy early we're doing Tom, We we're to of to things and and have

But to pulling know, we're middle did through right, as products. And encouraged.As think, I factory. I we're our a we're for in on right to making program have VOI capital all in So these where we're tooling, a the talked deal hopefully, We're the and quality for already about the of skins that good as I I hopefully the we're approved. there going there working these issues know fuselage, we're we think the sure have they're But inventory pretty side, They're mean, going more certainly which through that of we're we to because big which some to we and the a things us. Spirit.So still for I the far at just towards moving labor end building issues, they be share. person is get operation. the we're going on the get the things year program going start Mag, share gain,

have, back a positive another unless again, strong of God time forbid, a mean, -- this. sets see for everybody got something absolutely to relationship. lot and I really uses which people I'm do quality that We about problem, and it. we

thumbs up think I Spirit. So for

first a better it's flattish going sort in I think you're think on right? operation, it. counting to months, X and But a see going big of it's still we're things I to be XXXX, certainly

Right.

where on bit surprise these on come ramping widebody of sense trying be Okay. helpful. just better strength. was that That And Great. volumes coming side, fidelity things. And a little would get side to more did a whether as on there I'm just if you seeing is offer then of in you a you're the to that all? than something could expectations

Yes.

certainly, players. we're So XXX

we thing think on much, better believe see going in that some it's it or don't to much in One not. we We XXXX. that. So it tick we're AXXX, talk be did up the about

AXXX. good the position a you priority we on okay? And we're titanium for have popped, know year-over-year, all the our lineup that's pretty player Airbus As We but that as, their that on products, far know, through operations. biggest really not a in

So that was a positive.

some XXX. to year-over-year believe going things. just got get spares it good you're we on and And sometimes other not, And news or

those not titanium XXX margins. the XX. systems provide very for we're XX on engineered -- lightning provide in are only things of we the provide at So -- the products. diffusion high We and We the the diffusion counting things.But kind other because

all on we're the So forward. XX going in

showing I'm Steve Oswald time. further questions you. like Thank I for to no remarks. closing at this turn Mr. to it back now would

things up say thing. our everyone for as I you Okay. team lot your thank move Thank move to a COVID a for everybody, and them. want starting you to listening I again, for Saturday, support thank we support, certainly us Day I in coming appreciate thought hanging veterans thank thank for and want here.So to to again, their for of one families and thank couple with quarter. and just with years to good joining and excellent that just the service had I and an Veterans shareholders our tough on forward last I you. to you, of there. you, today. want of out we

proud are We to Thank be you. of a helping warfighter. the part great Have a day.

conference good disconnect. all and day, now and This participating, may you have concludes Thank a call. you today's for