Ducommun (DCO) 7 Nov 242024 Q3 Earnings call transcript

Good day, and thank you for standing by. Welcome to the Third Quarter 2024 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, Suman Mookerji, Vice President and Chief Financial Officer. Please go ahead.

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

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

rights, disruptions, interest attacks. today press natural a the disasters, cybersecurity time to the as the labor adequately high future XX-Q ability XX-K, the detailed level retain risk U.S. of reports our and supply Particular to subject of of results risks. Form the cyclicality customers, end-use operating from discussion intellectual geopolitical which other on pandemics, of competition, including new and include, avoid report our others, are spending, ability change. and business, rates, launch for and orders and current well the issues cost to among of estimates release property and or of and our key addition, government reports the SEC refer rising from Form customers In products, legal and to annual defense company's certification is risks attract economic filed or Ducommun in facing with on personnel based experience issued risks, quarterly expansion our as and timing the to the developments, time of and Please acquisitions, on may of chain regulatory protect otherwise the delays markets, enforce

a time statements we are forward-looking not those refer our presentation, with regulatory to made the to to the includes of and Steve? by Oswald the this call made intend this filings Steve made, review I SEC quarterly on this on our measures. for required as of and Form a measures to We like referenced SEC would are Statements during statements call XX-Q QX results. the risks. GAAP Please for to The financial also filed with the reconciliation non-GAAP report non-GAAP do to operating call call. in any if except subject now Our XXXX of today. over as only the turn authorities. update

the for at and thanks, Today, Okay. you, situation everyone, as update quarter our of which company, third financials an detail. will Suman joining the after Suman, Thank review our current conference usual, today for and give I'll in call. us

in on expanding targeted revenue strategy management percentage increasing Let this our Vision got with or XXXX been in fall the by the me acquisition The for coming presented approved and content investors Ducommuns rooftop primes consolidating the XXXX excellent start XXXX the to following and strategy by out executing developed the over has quarterly facility call with Board Ducommun's of and strategy the in defense budget, commercial of summer and aftermarket we off unanimously November again New were on plan pandemic value-added time, executing footprint, offloading pricing feedback. XXXX, York, its and by of program, Ducommun high-growth that vision where COVID segments Since investors. engineered Vision the platforms. key content, month aerospace initiatives of game its then defense products continuing

We quarter demonstrating and $XXX fourth Strong military second XXXX now gross been high QX X of the goals value we strong space bright This strategy defense moving. our see growth Northrop our for Things strong where business, level X% the In family, in as Business of AXXX shareholders. the us as year-over-year. skins was our the was make for real the a customer. many was platforms. which The the strength $XX Vision opportunity prior of the business a in the partially over million above others. growth XX% drove and excellent million $XXX grown initiatives largest our our continue quarter, revenue represents time over example driven have to to a well growth results Airbus and the creation DCO quarter AXXX revenue. great as year-over-year this and fifth another revenues challenging of million. in conviction have prior time and aerospace well in we from with and XX%, growth quarter great and and warfare the forward, my Board a jet and revenue customer weakness Boeing up Gulfstream, Airbus our first our we over another also year a strategy moderate point spot year-over-year, catalysts radar, consecutive present to higher at offset will All fuselage, outside want OEM powered and environment over the revenues and A resilience jets as I over last ahead do XXXX financial ahead. are for first and build to The this missile Boeing. in business at business and that by at up exceeded earlier margin even by last by the entire and work are year commercial was QX performance in for in unique by but in year. is Grumman members $XXX growing at our for down now second with quarter here on our over quarters. program the Bombardier to other in driven sign DCO. working. growth Revenues we rates our revenue over has fellow business we along quarters, believe programs in the platforms, prior lower remain RTX, by was of commercial aerospace very primes move year-over-year is X.X% commercial Overall, build from the the Defense million revenue aerospace year, other record on with electronic to Spirit September. and QX going strike scale were largest impact for consecutive about optimistic XX XXX% it ever, consecutive grew X% continue of for of out

to first business less our that continue internal for fuselage, program. It from details approval aerospace MAX, ship received XXXX section, other shipped our fuselage also at XXX for production last from operation. to news to next Spirit, models is XXX The higher the for and are XX% is outsourced than $X for for have MAX in good on which should I've been We the September add for want on all shift up that being higher DCO's drive The set number more $XX,XXX skin you X the the their set revenue the share the the we picking skin project which mentioning and commercial and first a significant. call. to the skin more I X we in over due of is adds competitor a XXXX. month. million. content we'll And be is to

XXX record strategic mix, benefits points margins basis productivity value and highlight restructuring pricing QX our up compared favorable XX year-over-year savings. engineered as to of realize to continue gross initiatives, quarter, the we improvements, XX.X% from Another in for initial and the basis with product second aftermarket points portfolio from product growing quarter was XX.X%

now is In certified to is capability addition, our Arkansas we ramp missile people is until in plant the than tuned. up Berryville, Mexico receiving closures, facility our less cost in down these Monrovia, for Guamas, seeing closed, maintain Stay and savings production We're these be California XXXX. to XX the savings already the facility from as program. plants receiving Tomahawk facility higher and see

plan. XXXX the $XX expanding well over with QX a the airborne impact the a year $X.XX share story of by decreasing share diluted place GAAP the towards and well but $XX consolidated quarter. achieving hedging first and was as time. result basis $X.XXX $X.XX year $XX quarter to year-over-year. X.X% share income million continued was and prior XXXX. $XX.X as is costs was great million $XXX compared growth delivered This in a goal operating diluted other in during for product as pricing strong QX in missiles, backlog the billion, was adjusted XX QX the backlog This surveillance diluted EBITDA new performance our the number mix, XXXX. XXXX as toll points this momentum in for for the as well strategy in For quarter of company's we've work over our with due the is This at increased seen the points in in year The QX, by platforms. to XX.X%, operating improved in quarter EPS XX% a initiatives year to EPS adjustments, year outstanding And and million orders favorable margins team continues driven compared prior sequentially, in during the another the each income driven of a ahead versus prior basis an EPS second and businesses, impressive savings XX.X% to our record be The interest continues EPS XX strategic January. restructuring put higher at great Defense $X.XX to million quarter. adjusted product increasing million engineered is Vision Mesa lower our quarter. above $X.XX this we our QX, diluted and GAAP Adjusted

coming experienced we've Monrovia, manufactured a but previously basis. with toll it Mexico pause still and million produced by where pricing on low-cost missile $X decreased it As strong be for $XX the now up but the will backlog a order back The sequentially in better Guamas, was year-over-year facility, a commercial California. was is million, discussed, in case, aerospace in cycle

full again are weak of MAX programs programs and range expected the XXXX. recover in of the as will employees return will guiding we up moved and with As being to the of movement digits all BA to out year. now to major lower for Monrovia And still Berryville, an for start major the single start build X% with revenue though QX, of X% rates, end the X guidance to work. XXXX X in BA

the XXXX recovery XXXX positioned the and BA MAX for well in the are and We both for XXX.

and programs and products of radar by and Beginning in Apache, of military offset and revenues markets, let F-XX the These warfare me million $XXX of by with revenues. the Growth Hawk. XXXX. our programs. provide out additional transferred partially as to Now Black we some the QX experienced were which $XXX as color on electronic compared JSF and middle was space weakness sector, Monrovia is our in million well in being driven

The the third for XX% military back of quarter's the and revenue from XXXX Ducommun's XX% represented revenues space in in and full XXXX. in year XX% period, down

We for DCO, expected balance. trend stronger aerospace reflects and providing getting commercial this good

backlog operations, million XX% total commercial We revenue quarter a increase ended Ducommun's $XXX also of of $XX our third third continued of an aerospace quarter million, Within with by year-over-year growth backlog. and representing year-over-year, XXX offset X% as to rates the business the jets million, with $XX increasing MAX. by platforms mainly well AXXX on driven grow, on as slowing to the AXXX

on for in aerospace temporary is our backlog earlier, that end Also story better the business in eye on is million number an believe have to as The much commercial was that, Suman? BA. prior for at commercial detail. to given $X $XXX mentioned quarter, the of resolved we production now ahead Suman With and markets. review As rates the the MAX move results the in we aerospace higher XXXX. BA projected and weakness year, financial XXX million the the the compared third strike rates our return I'll keep a increasing solid the within a the

Thank Steve. you,

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

military period growth and as performance results our our Steve improvement both reflected commercial in As strong aerospace third well another of continued quarter our with margins. in as end markets discussed,

that like good made good consolidation beyond. has in in XXXX during also In towards efforts feel addition, our quarter, will drive showing performance continue we is more goals. our Vision all and facility which XXXX us progress With benefited meaningful we on will XXXX XXXX momentum the this, drive synergies and our to

X.X% across growth million and $XX.X the to million Revenue military third Now versus by the military commercial results. growth $XXX.X XXXX. space, and total quarter aerospace growth quarter space of XX.X% XXXX of of The of in XX.X% the was for third of versus $XXX.X and revenue million our aerospace platforms of commercial highlighted year-over-year reflects third for quarter million profit our turning gross $XX.X for increase both in of revenue in platforms. and or million quarter prior $X.X We million or the period. posted of $X.X

QX fire acquisitions, on improvement portfolio XX.X% margins pricing as cost inventory prior in On was have and of growing period relating in by charges we We from our engineered restructuring favorable year as operations. margin amortization non-GAAP improvements well initiatives, continue as versus adjusted to XX.X% gross productivity the our to driven restructuring sales strategic adjusted were current manufacturing in impact an services certain provide our XXXX XXXX. gross margins gross the in on QX our and Guamas product mix step-up product The recent items businesses, in the our basis, savings. and

buys a We thus have business. and chain environment on strategic able working significant supply difficult with impacts and progress far avoid labor. Through to efforts, proactive we make continue any to investments, our been our through our inventory operating including

commercial delivery $XX During performance build our a still inventory our for third while XXXX, the from commitments of we positioned ramp-up and rates. our in reduced aerospace QX, to meet quarter ready by XXXX centers keeping million

million quarter to in year. look of flow. X.X% reported or for Adjusted $XX.X in last million XX.X% our revenue $XX.X million third or capital quarter revenue cash X.X% for of revenue the improve unwind the share $X.X to income an to $XX.X revenue for of $X.XX the net higher per diluted continue period to income. net XXXX X.X% adjusted adjusted income XXXX. company $X.XX this investments Ducommun of driven was The prior our compared and year share of to $XX.X to year of $XX.X ago. income compared the reported working quarter during operating We million income $XX.X of period. diluted opportunities by of and QX million compared compared a income to million or per third share On quarter net million or adjusted diluted income of reported adjusted income higher The $X.XX or per or operating income comparable $X.X basis, the or was the company net in operating net income operating the or of million net $X.XX

Additionally, interest interest reduce our expense. year-over-year to helped rate hedge our

Now to let results. turn segment our me

of $X.X the as higher facility, $X.X the reflects saw aerospace. including versus space Systems $XX shut addition in driven decline our Hawk. our XXXX growth lower the $X.X of jets Our we in Black million million X.X% by million of AXXX offset posted revenue production quarter. The revenues was segment to by and revenue commercial Structural revenue year million down was prior quarter or in compared Structural a Apache the and Monrovia $X.X $XX.X in million quarter last million of we or to for AXXX other income revenue operating of Systems markets and of year-over-year for increase military third X.X% applications, The aerospace business in sales year. commercial across the within

due strategic revenues adjustments to within both higher operating transition of centers pricing XX.X% to partially the at offset margin leverage other in production from The other from in QX XXXX from segment. and decline versus operating Monrovia Performance charges was in Guames, restructuring by and was higher initiatives slight the XXXX. Excluding QX the segment XX.X% years, costs

or of $XXX.X of our prune entertainment the revenue the industrial to from in the Our posted by in operating Electronic was third Electronic attributable business. programs. million Systems period. of prior in as to warfare was the million in with chose $XXX.X quarter the The year $XX.X third Systems $XX.X revenue of segment revenue quarter along for in-flight from or million versus year higher revenues is and period. we electronic electronics, offset radar XX.X% prior reduction XXXX million This versus income lower noncore XX.X% revenues business increase selectively

charges Restructuring as The was operating profitability restructuring well XXXX as to savings program. segment other Products in from Engineered Excluding our other XXXX. initiatives higher the the from in product driven Berryville pricing the were revenues both strategic primarily by in year-over-year in growth years, Center increase transition restructuring versus with lines our along to margin in due of QX adjustments facilities. value and Performance QX XX.X% savings businesses, XX.X% was with mix shifting and

like program. an update Next, provide restructuring would to ongoing on I our

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

to make and on our obtain continue Boeing transitions requisite working with approvals. Raytheon We customers, progress diligently these are to the and

in restructuring During QX XXXX, recorded charges. $X.X we million

We the actions savings we in see Berryville. already and restructuring We annual complete selling these $X land and program. both as savings this our year. at we Upon expect of from $X of to the some restructuring in building incur completion are actions realization additional and $XX beginning to million to anticipate expect from Monrovia million $XX to program, expenses generate the million million an our to

was cash generation in of Turning The year-to-date to flow generated prior $XX.X in improvement net XXXX, and resources. liquidity of income million. capital operating and million million due accounts as was $X.X from to to as higher payable. QX to well XXXX which improvements compared improvement activities, compared inventories year next we an $XX.X QX Year-to-date

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

conclude Our us our in the November flexibility into $X.X to reduce expense our January resulted in at starting hedge million effect. XXXX. momentum us interest review the strategy. the XXXX, in existing say credit time period our for rest $X.X third the due million acquisition X-month year and was increase would will quarter place savings Steve? drive was of put an X-year and the going pegged our that facility interest closing term To XXXX for interest our effect execute July on to of and I'll us the basis XXXX. compared XXXX $XXX back allowing opportune was QX in of credit results we Interest allowing improvement to at $X.X revolver this an and XXXX, of markets, of in financial SOFR put spread, points like interest QX remarks. a in cost cost in rate over QX hedge his hedge In the went interest for million for The savings XXX to continue I the and Steve in XXXX to rate year-over-year beyond. turn into in place The size now to continued that million to significant positions well debt. XXXX for it

our against and and a our Products on realize we Suman. especially many could all XX% We're goals around I more revenues working. tracking gains EBITDA highlights a Thanks, margins also Engineered expect record margin In especially been XXXX. expansion. closing, the or happier. of and well for excellent some XXXX Vision EBITDA aftermarket not strategy, company of shareholders progress be look, expansion highlight. not in the XX% and the the Okay. and for margin as cases from We're It's has QX, quarter, we surprised, gross of

ahead. all Finally, rates years about with great of the bill heading strike now FMS commercial few along the stronger BA for us. higher, behind with activity, next us, feel including defense I

we'll for and again it thank questions. turn So over listening, you for

Instructions]. [Operator

line from Our the B. Mike with to come first question Securities. going Riley is of Crawford

else you is Northrop for Grumman? doing could What where help it them? you're And that new

and me, X us which a whole the power lot kind look, surveillance, a We that. of for highlight electronics. comes Well, every huge Mesa we're We do of order company. highlight years, Yes. is is for on the -- for we're sole packs. all This Northrop, program, again, source airborne do which

So business. to we'll continue drive that

A but to Arkansas, doing lot leadership actually things of Huntsville as Baltimore So in now, other I'm bigger it's it's a their lot X I'm operation our weeks going in for in we're of we're even well. from because ahead. things with out looking electronics. be

defense talked for else that's point this okay, thing RTX for that value-added partnership, over the is going them. at about going good great. scale up starting the whole and Steve, Northrop, So is bringing I huge finally lot do be And about years we things, far customer them love of we've to code we Where about, crack my DCO, for their primes. a a I as as we're and think to think, bigger of the

content Okay. about now worth the per that is where to heading the Great. of I And And you've shift $XX,XXX share that you've with then won? on aircraft. believe, been, XXX, delivering

have everything more in done, far competitor. this kind digit. little This shipset but I'm a detail you of give and is right ready. us. we'll you be going February, tell want until more to to the to that we ourselves a now, want major want I'll of ahead Yes. next -- I don't is number. is then is I go the too done, need but from right I actual now, to will coming going then I'll to but time don't have just too be give get increase call. a for double wait win the I to

me. for last One Okay.

Engineered favorite growing? companies Just I any unruly new or, there now are product aftermarket you're that set that guess, conversely and from businesses, of among these Products acquired children

across over No, our I good We've the had one specifically performance highlight engineered product other. wouldn't portfolio.

That's fair.

the from Citi... Our line to is Jason next going with of come question Gursky

got without an how more all of the at well to there's acceleration Just can just as that. defense. potentially outsourcing, on curious, the been question maybe need of there. both It sounds like some up with let's take sounds CapEx? And like ramp work here, maybe start It company. you've just a as commercial opportunities much plenty on quick I'm capacity you

a don't jump I'll Why Yes, question. then in. it's fair you

Sure. for question. Thanks, Jason, that

we are production So low of MAX still versus rates capacity. lot in a structures pretty the do we has business believe saw XX back our XXXX.

we're expected any looking the significant term. not investments So there at near in

is On the that A electronics the is side, well. business doing of defense. lot

expect And that the grow, business continues the expansions. our as so on of we are expansion very to facilities, but do we fringes those will continue not make to number a capital-intensive at

strategy are years. range said and million And kind to our what going line the forward going CapEx during in in few had so of maintaining XXXX on $XX we of to kind be we it's outlook that for our Vision spending with be next discussions,

me let just jump here. Jason, in

there. So third also, good I heavy -- shape shifts we're think of running in second, not we're at these plants. We're very some structural

the right? in only capital. -- only but capital we we we and about without we feel plant, time the where have in where we're going are not we So So the place, have good

Yes, kind how then acquisitions good additional the time. here there? is M&A I'm kind of you. framework XXXX I And you've makes assumed the Vision on curious know sense. of Okay. can and the front, Great. current part just the environment of pipeline you that describe that just up And for shaping over some

part front. to I past most right tell make super year. been that got few us. it's in the we're the looking fit this we on make to months. got sure that say, would We're I have the and seeing activity things, continuous for selection, you, And even at for we've right and the We've can more, there is busy

We is coming have plenty M&A there -- opportunity in it. activity. stay there of we'll we'll the So tuned and and keeping to continue we're quarters, think at few

think I that's Yes fair.

the of deals. are bought things we had Jason, lot say, the picky kind I obviously, we're of with seeing We've in eaters. we're as -- I -- a more, we think okay, success past. we're And

for think environmental, look us. maybe things just We other for at not So we reasons. it's

So continuing There good are we're ahead though. news that. for on

from is Securities. question Ciarmoli the line with Truist come next Our Michael going of to

maybe Boeing the I guess calibrate thinking so for strike fourth situation And on it you with in maybe now X% of then And how then try into Good you and movement, Boeing like kind get the results. the was I and I 'XX. it the that the margin about either, disruption we out guess sequential I'm guidance, if implies step down into end, quarter, of what look the lower to revenue just does guess us just Steve, or at like, the down to low the fourth called your strike? to and I already that that end. all obviously, the then some kind quarter and know is I recover related guide of sounds plan. program but thought a

Yes.

look the we we where have a the into the Spirit coming dramatically. seen then the of about at shipments And versus last year for is commercial spoke for things they have MAX to our MAX were Boeing aerospace the definitely XXs, to kind things the of we to at shipments where to key driver, QX go come down to low you in seeing X are September. build even when So outlook and we expecting If deteriorated on year, out and actually where right? Boeing panned be the versus stood end rates piece

is is MAX in it but the certainly under. that of current -- XX% mean, our revenues is the year, still I than just less So

changes was in an doesn't the for the it bit guided, we does it to while MAX in stay outsized previously broadly had quarter. accommodate little able of a been the we've -- a ballpark so and impact, haircut And we have there of have to seen where

jump minute just a Mike, programs. in me And these on let

really busy harnesses. approved. Tomahawk, are as fight I've we've and So XX this other in look, past, had pretty for a instance, much, get is mentioned OEMs with the And the to different things,

We have final buy-in now.

push So this we than anything close soon. it's great the with about these too, that's thing and I had we reasons, come this. And we're the over delays going to QX, line, OEMs. some transfers. in on very other to just But just one feel mean that's trying not of

good. So And be should more coming. good. margins be Margins should

structural though And Got I going margins of sounds just I in quarter? like like in the then it XX, sort that overhead at the there. it. with I and maybe -- back some X, mean, to to XX-ish if level dealing mean of fourth this you're be back in do we decrementals excess kind it quarter, snap mean, sounds MAX first

might activity be Mike. And while at we and XXX. some question, great as revenue production shipment required rates by MAX No, see still ASC X, will

to So we're -- the and to see some don't down shut because we going again. restart facility want

going to activity. be continuing So some there's

So to shipments it are are to come X, would be ballpark. some same even at margins stay I the impact maybe There's going minor X. going won't technically in of to and product isn't say down there we to and but mix, expecting there. any -- we're be going any there's to volume but reason for guide material believe us though again, margins, that not don't change on

on we And things coming take in the engineered we're it chin Vision XXXX of things we're and Yes, aftermarket, with might little a more coming the shape. getting bit in about more products Mike, the got that's So other MAX, but one in. -- good the with and right?

the thing. beauty of that's So this

sure last it. left one. there's looking of else lot but industrial either business? prune? mean Got adjacent, sort you're I the just in of I'm some piece now. is a of anything pruning the kind -- to the anywhere Helpful. just industrial product or you're it. And subscale much then it's Got natural How on there else of

Yes.

jump me the at because it I looked other day. on Let just

a and is game is XX%. down business, is year-over-year things at our that on few pretty So might extrusion. legacy then other in card plastic we Appleton But look, we there business our the there's much do real only which about have

So on we're we is to make make down the generally is really want, some this, on point. at business Jeremy, customer we us, move margin, if winding can great which for a what but cards and right? it's okay, going Well, XX% some

good We that winding that's So down. it. feel about

remarks. CEO, appears to for no Oswald, further back the would like And Chairman, [Operator Instructions]. over to There be President turn and I to closing Steve questions. conference

our you, many, thrilled Look, mean now we everyone, big the feel lift the and trust for there, thank was on that's is up Obviously, have thing, that XXXX, the fantastic. be together us in because us. now and we're they is want, going and we about, all seeing and business mix. over right? on for really -- way BA what DCO. and much, And very and I've operations. profit margins as the products you our Thank and our we have talked So our now, working, But our we Kelly the which joining and to great Okay. about coming for Seattle, strike many important internal we're print. Airbus we're forward for to in full AXXX look great engineered team it's obviously, I up most And coming that years a is and Vision aftermarket it's and in that's today.

day. you. good Thank news just and I all a great safe from here. So wish a to day want you

call. concludes today's conference This