News and Information
Ducommun Incorporated

PRESS RELEASE: 2019-10-30

Ducommun Incorporated Reports Results for the Third Quarter Ended September 28, 2019

Revenue Rises 13%; Company Remains on Track for Strong 2019 Full Year Performance

SANTA ANA, Calif., Oct. 30, 2019 (GLOBE NEWSWIRE) -- Ducommun Incorporated (NYSE:DCO) (“Ducommun” or the “Company”) today reported results for its third quarter ended September 28, 2019.

Third Quarter 2019 Highlights

  • Revenue increased 13.3% year-over-year to $181.1 million
  • Net income of $8.3 million, or $0.70 per diluted share
  • Gross margin increased 170 basis points year-over-year to 21.2%
  • Operating margin increased 380 basis points year-over-year to 8.1%
  • Adjusted EBITDA increased 30.8% year-over-year to $23.6 million
  • Acquired Nobles Worldwide, Inc. (“Nobles”) subsequent to quarter end

“I am very happy with the 3rd quarter results and continued strong performance of the company. We now have had five straight quarters of double digit revenue increases averaging 15% with over 85% of the gains being organic growth,” said Stephen G. Oswald, chairman, president and chief executive officer. “Our team continues to do an excellent job as well, relentlessly driving performance and cost through our Performance Center strategy expanding operating margins in the quarter by 380 basis points to 8.1% and achieving earnings of $0.70 per diluted share. Our strong performance also reflects ongoing demand for Ducommun’s broad array of engineering processes, products and aftermarket services along with pricing discipline. Adjusted EBITDA was also strong increasing almost 31% year-over-year to $24 million, and we generated $12.0 million in cash from operations, while our backlog remains near record levels.

“In addition and after the end of the quarter, I was pleased to announce that Ducommun had acquired Nobles Worldwide, a global leader in the design of ammunition handling systems. Nobles has been in business for over 70 years and supplies advanced tactical products for a variety of aircraft, naval vessels, and military vehicles in the U.S. and overseas. It’s a great fit for Ducommun’s defense platform opening new market opportunities while adding on another value-added, engineering products company with aftermarket support. Like our other two recent acquisitions, we believe Nobles will improve our growth profile, help expand margins and bolster our aftermarket services.

“As we look forward, we remain confident on a strong finish for 2019 and continued momentum in 2020 despite the continued uncertainty on the Boeing 737 Max return to service. We see great balance in the portfolio with our defense business and the many other commercial platforms we serve to deliver for Ducommun shareholders. Our team is also energized for the opportunities ahead.”

Third Quarter Results

Net revenue for the third quarter of 2019 was $181.1 million compared to $159.8 million for the third quarter of 2018. The year-over-year increase of 13.3% was primarily due to the following:

  • $12.6 million higher revenue in the Company’s commercial aerospace end-use markets due to additional content and higher build rates on large aircraft platforms; and
  • $9.0 million higher revenue in the Company’s military and space end-use markets due to higher build rates on other military and space platforms and various missile platforms.

Net income for the third quarter of 2019 was $8.3 million, or $0.70 per diluted share, compared to $4.2 million, or $0.36 per diluted share, for the third quarter of 2018. This reflects a $7.2 million increase in gross profit due to higher revenue and the associated operating leverage at the Company’s performance centers and operations performance. Restructuring charges were lower year-over-year by $3.4 million that were offset by $2.8 million of higher selling, general and administrative expenses, $1.9 million of higher interest expense, and $1.8 million of higher income taxes.

Gross profit for the third quarter of 2019 was $38.3 million, or 21.2% of revenue compared to gross profit of $31.1 million, or 19.5% of revenue, for the third quarter of 2018. The increase in gross margin year-over-year was due to improved operating leverage at the Company’s performance centers and improved operations performance. This resulted in favorable manufacturing volume, favorable product mix, and manufacturing efficiencies.

Operating income for the third quarter of 2019 was $14.6 million, or 8.1% of revenue, compared to $6.8 million, or 4.3% of revenue, in the comparable period last year. The year-over-year increase of $7.8 million was due to higher revenue and the associated operating leverage at the Company’s performance centers, improved operations performance, and lower restructuring charges in the current year.

Interest expense for the third quarter of 2019 was $4.4 million compared to $2.5 million in the comparable period of 2018. The year-over-year increase was due to higher interest rates.

Adjusted EBITDA for the third quarter of 2019 was strong at $23.6 million, or 13.1% of revenue, compared to $18.1 million, or 11.3% of revenue, for the comparable period in 2018, an increase of 30.8%.

During the third quarter of 2019, the net cash provided by operations was $12.0 million compared to $7.2 million during the third quarter of 2018. The change year-over-year was due to higher net income.

Business Segment Information

Electronic Systems

Electronic Systems segment net revenue for the quarter ended September 28, 2019 was $90.6 million, compared to $85.7 million for the third quarter of 2018. The year-over-year increase was primarily due to the following:

  • $5.0 million higher revenue within the Company’s military and space end-use markets due to higher build rates on other military and space platforms and various missile platforms, partially offset by lower military rotary-wing aircraft due to timing of orders; and
  • $0.2 million higher revenue within the Company’s commercial aerospace end-use markets.

Electronic Systems segment operating income was $9.7 million, or 10.7% of revenue, for the third quarter of 2019 compared to $9.1 million, or 10.6% of revenue, for the comparable quarter in 2018. The year-over-year increase of $0.6 million was due to lower restructuring charges.

Structural Systems

Structural Systems segment net revenue for the quarter ended September 28, 2019 was $90.5 million, compared to $74.1 million for the third quarter of 2018. The year-over-year increase was due to the following:

  • $12.4 million higher revenue within the Company’s commercial aerospace end-use markets due to additional content and higher build rates on large aircraft platforms; and
  • $4.0 million higher revenue within the Company’s military and space end-use markets due to higher build rates on military rotary-wing aircraft platforms and various missile platforms.

Structural Systems segment operating income for the quarter ended September 28, 2019 was $12.9 million, or 14.2% of revenue, compared to $4.0 million, or 5.3% of revenue, for the comparable quarter in 2018. The year-over-year increase of $8.9 million was due to improved operating leverage at the Company’s performance centers and improved operations performance. This resulted in favorable manufacturing volume, favorable product mix, and improved manufacturing efficiencies, along with lower restructuring charges in the current year.

Corporate General and Administrative (“CG&A”) Expenses

CG&A expenses for the third quarter of 2019 were $7.9 million, or 4.4% of total Company revenue, compared to $6.2 million, or 3.9% of total Company revenue, for the comparable quarter in the prior year. The year-over-year increase of $1.7 million was due to higher other corporate expenses of $1.0 million and higher compensation and benefit costs of $0.7 million, partially offset by lower restructuring charges in the current year of $0.6 million.

Conference Call

A teleconference hosted by Stephen G. Oswald, the Company’s chairman, president, and chief executive officer, and Christopher D. Wampler, the Company’s vice president, interim chief financial officer and treasurer, and controller and chief accounting officer will be held today, October 30, 2019 at 2:00 p.m. PT (5:00 p.m. ET) to review these financial results. To participate in the teleconference, please call 844-239-5278 (international 574-990-1017) approximately ten minutes prior to the conference time. The participant passcode is 4590999. Mr. Oswald and Mr. Wampler will be speaking on behalf of the Company and anticipate the call (including Q&A) to last approximately 45 minutes.

This call is being webcast and can be accessed directly at the Ducommun website at www.ducommun.com. Conference call replay will be available after that time at the same link or by dialing 855-859-2056, passcode 4590999.

About Ducommun Incorporated

Ducommun Incorporated delivers value-added innovative manufacturing solutions to customers in the aerospace, defense and industrial markets. Founded in 1849, the Company specializes in two core areas - Electronic Systems and Structural Systems - to produce complex products and components for commercial aircraft platforms, mission-critical military and space programs, and sophisticated industrial applications. For more information, visit www.ducommun.com.

Forward Looking Statements

This press release and any attachments include “forward-looking statements,” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including, in particular, earnings guidance, the Company’s restructuring plan and any statements about the Company’s plans, strategies and prospects. The Company generally uses the words “may,” “will,” “could,” “expect,” “anticipate,” “believe,” “estimate,” “plan,” “intend,” “look forward” and similar expressions in this press release and any attachments to identify forward-looking statements. The Company bases these forward-looking statements on its current views with respect to future events and financial performance. Actual results could differ materially from those projected in the forward-looking statements. These forward-looking statements are subject to risks, uncertainties and assumptions, including, among other things: whether the anticipated pre-tax restructuring charges will be sufficient to address all anticipated restructuring costs, including related to employee separation, facilities consolidation, inventory write-down and other asset impairments; whether the expected cost savings from the restructuring will ultimately be obtained in the amount and during the period anticipated; whether the restructuring in the affected areas will be sufficient to build a more cost efficient, focused, higher margin enterprise with higher returns for the Company's shareholders; the impact of the Company’s debt service obligations and restrictive debt covenants; the Company’s end-use markets are cyclical; the Company depends upon a selected base of industries and customers; a significant portion of the Company’s business depends upon U.S. Government defense spending; the Company is subject to extensive regulation and audit by the Defense Contract Audit Agency; contracts with some of the Company’s customers contain provisions which give the its customers a variety of rights that are unfavorable to the Company; further consolidation in the aerospace industry could adversely affect the Company’s business and financial results; the Company’s ability to successfully make acquisitions, including its ability to successfully integrate, operate or realize the projected benefits of such businesses; the Company relies on its suppliers to meet the quality and delivery expectations of its customers; the Company uses estimates when bidding on fixed-price contracts which estimates could change and result in adverse effects on its financial results; the impact of existing and future laws and regulations; the impact of existing and future accounting standards and tax rules and regulations; environmental liabilities could adversely affect the Company’s financial results; cyber security attacks, internal system or service failures may adversely impact the Company’s business and operations; and other risks and uncertainties, including those detailed from time to time in the Company’s periodic reports filed with the Securities and Exchange Commission. You should not put undue reliance on any forward-looking statements. You should understand that many important factors, including those discussed herein, could cause the Company’s results to differ materially from those expressed or suggested in any forward-looking statement. Except as required by law, the Company does not undertake any obligation to update or revise these forward-looking statements to reflect new information or events or circumstances that occur after the date of this news release, October 30, 2019, or to reflect the occurrence of unanticipated events or otherwise. Readers are advised to review the Company’s filings with the Securities and Exchange Commission (which are available from the SEC’s EDGAR database at www.sec.gov, at various SEC reference facilities in the United States and through the Company’s website).

Note Regarding Non-GAAP Financial Information

This release contains non-GAAP financial measures, including Adjusted EBITDA (which excludes interest expense, income tax expense [benefit], depreciation, amortization, stock-based compensation expense, restructuring charges, and inventory purchase accounting adjustments).

The Company believes the presentation of these non-GAAP measures provide important supplemental information to management and investors regarding financial and business trends relating to its financial condition and results of operations. The Company’s management uses these non-GAAP financial measures along with the most directly comparable GAAP financial measures in evaluating the Company’s actual and forecasted operating performance, capital resources and cash flow. The non-GAAP financial information presented herein should be considered supplemental to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. The Company discloses different non-GAAP financial measures in order to provide greater transparency and to help the Company’s investors to more meaningfully evaluate and compare Ducommun’s results to its previously reported results. The non-GAAP financial measures that the Company uses may not be comparable to similarly titled financial measures used by other companies. We define backlog as potential revenue and is based on customer placed purchase orders and long-term agreements (“LTAs”) with firm fixed price and expected delivery dates of 24 months or less. The majority of the LTAs do not meet the definition of a contract under ASC 606 and thus, the backlog amount disclosed herein is greater than the remaining performance obligations disclosed under ASC 606. Backlog is subject to delivery delays or program cancellations, which are beyond our control. Backlog is affected by timing differences in the placement of customer orders and tends to be concentrated in several programs to a greater extent than our net revenues. Backlog in industrial markets tends to be of a shorter duration and is generally fulfilled within a three month period. As a result of these factors, trends in our overall level of backlog may not be indicative of trends in our future net revenues.

CONTACTS:

Christopher D. Wampler, Vice President, Interim Chief Financial Officer and Treasurer, and Controller and Chief Accounting Officer, 657.335.3665
Chris Witty, Investor Relations, 646.438.9385, cwitty@darrowir.com

[Financial Tables Follow]

 
DUCOMMUN INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands)
    September 28,
 2019
  December 31,
 2018
Assets        
Current Assets        
Cash and cash equivalents   $ 6,381     $ 10,263  
Restricted cash   361      
Accounts receivable, net   77,002     67,819  
Contract assets   102,475     86,665  
Inventories   109,848     101,125  
Production cost of contracts   10,704     11,679  
Other current assets   5,947     6,531  
Total Current Assets   312,718     284,082  
Property and equipment, Net   112,597     107,045  
Operating lease right-of-use assets   18,602      
Goodwill   136,057     136,057  
Intangibles, net   103,977     112,092  
Non-current deferred income taxes   313     308  
Other assets   5,290     5,155  
Total Assets   $ 689,554     $ 644,739  
Liabilities and Shareholders’ Equity        
Current Liabilities        
Accounts payable   $ 78,310     $ 69,274  
Contract liabilities   11,850     17,145  
Accrued and other liabilities   37,701     37,786  
Operating lease liabilities   2,915      
Current portion of long-term debt   2,281     2,330  
Total Current Liabilities   133,057     126,535  
Long-term debt   222,600     228,868  
Non-current operating lease liabilities   17,156      
Non-current deferred income taxes   18,107     18,070  
Other long-term liabilities   14,855     14,441  
Total Liabilities   405,775     387,914  
Commitments and contingencies        
Shareholders’ Equity        
Common stock   116     114  
Additional paid-in capital   86,828     83,712  
Retained earnings   203,682     180,356  
Accumulated other comprehensive loss   (6,847 )   (7,357 )
Total Shareholders’ Equity   283,779     256,825  
Total Liabilities and Shareholders’ Equity   $ 689,554     $ 644,739  


 
DUCOMMUN INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in thousands, except per share amounts)
 
    Three Months Ended   Nine Months Ended
    September 28,
 2019
  September 29,
 2018
  September 28,
 2019
  September 29,
 2018
Net Revenues   $ 181,101     $ 159,842     $ 534,162     $ 465,124  
Cost of Sales   142,774     128,726     422,076     375,225  
Gross Profit   38,327     31,116     112,086     89,899  
Selling, General and Administrative Expenses   23,724     20,956     71,031     61,476  
Restructuring Charges       3,373         10,784  
Operating Income   14,603     6,787     41,055     17,639  
Interest Expense   (4,363 )   (2,497 )   (13,140 )   (9,159 )
Income Before Taxes   10,240     4,290     27,915     8,480  
Income Tax Expense   1,937     119     4,325     118  
Net Income   $ 8,303     $ 4,171     $ 23,590     $ 8,362  
Earnings Per Share                
Basic earnings per share   $ 0.72     $ 0.37     $ 2.05     $ 0.73  
Diluted earnings per share   $ 0.70     $ 0.36     $ 2.00     $ 0.72  
Weighted-Average Number of Common Shares Outstanding                
Basic   11,551     11,404     11,501     11,382  
Diluted   11,794     11,683     11,784     11,639  
                 
Gross Profit %   21.2 %   19.5 %   21.0 %   19.3 %
SG&A %   13.1 %   13.1 %   13.3 %   13.2 %
Operating Income %   8.1 %   4.3 %   7.7 %   3.8 %
Net Income %   4.6 %   2.6 %   4.4 %   1.8 %
Effective Tax Rate   18.9 %   2.8 %   15.5 %   1.4 %


 
DUCOMMUN INCORPORATED AND SUBSIDIARIES
BUSINESS SEGMENT PERFORMANCE
(Unaudited)
(Dollars in thousands)
 
    Three Months Ended   Nine Months Ended
    %
Change
  September 28,
 2019
  September 29,
 2018
  %
of Net  Revenues
2019
  %
of Net  Revenues
2018
  %
Change
  September 28,
 2019
  September 29,
 2018
  %
of Net  Revenues
2019
  %
of Net  Revenues
2018
Net Revenues                                        
Electronic Systems   5.7 %   $ 90,588     $ 85,696     50.0 %   53.6 %   4.5 %   $ 264,045     $ 252,606     49.4 %   54.3 %
Structural Systems   22.1 %   90,513     74,146     50.0 %   46.4 %   27.1 %   270,117     212,518     50.6 %   45.7 %
Total Net Revenues   13.3 %   $ 181,101     $ 159,842     100.0 %   100.0 %   14.8 %   $ 534,162     $ 465,124     100.0 %   100.0 %
Segment Operating Income                                        
Electronic Systems       $ 9,657     $ 9,050     10.7 %   10.6 %       $ 28,750     $ 23,463     10.9 %   9.3 %
Structural Systems       12,877     3,963     14.2 %   5.3 %       35,199     13,380     13.0 %   6.3 %
        22,534     13,013                 63,949     36,843          
Corporate General and Administrative Expenses(1)       (7,931 )   (6,226 )   (4.4 )%   (3.9 )%       (22,894 )   (19,204 )   (4.3 )%   (4.1 )%
Total Operating Income       $ 14,603     $ 6,787     8.1 %   4.3 %       $ 41,055     $ 17,639     7.7 %   3.8 %
Adjusted EBITDA                                        
Electronic Systems                                        
Operating Income       $ 9,657     $ 9,050                 $ 28,750     $ 23,463          
Depreciation and Amortization       3,569     3,707                 10,602     11,022          
Restructuring Charges           1,150                     2,406          
        13,226     13,907     14.6 %   16.2 %       39,352     36,891     14.9 %   14.6 %
Structural Systems                                        
Operating Income       12,877     3,963                 35,199     13,380          
Depreciation and Amortization       3,350     2,576                 9,750     7,510          
Restructuring Charges           1,612                     6,748          
Inventory Purchase Accounting Adjustments           293                     622          
        16,227     8,444     17.9 %   11.4 %       44,949     28,260     16.6 %   13.3 %
Corporate General and Administrative Expenses(1)                                        
Operating loss       (7,931 )   (6,226 )               (22,894 )   (19,204 )        
Depreciation and Amortization       73     37                 399     103          
Stock-Based Compensation Expense       2,051     1,299                 5,322     3,414          
Restructuring Charges           611                     1,798          
        (5,807 )   (4,279 )               (17,173 )   (13,889 )        
Adjusted EBITDA       $ 23,646     $ 18,072     13.1 %   11.3 %       $ 67,128     $ 51,262     12.6 %   11.0 %
Capital Expenditures                                        
Electronic Systems       $ 1,768     $ 879                 $ 4,820     $ 5,091          
Structural Systems       2,747     3,935                 10,108     6,565          
Corporate Administration           185                     375          
Total Capital Expenditures       $ 4,515     $ 4,999                 $ 14,928     $ 12,031          

(1)   Includes costs not allocated to either the Electronic Systems or Structural Systems operating segments.


DUCOMMUN INCORPORATED AND SUBSIDIARIES
GAAP TO NON-GAAP OPERATING INCOME RECONCILIATION
(Unaudited)
(Dollars in thousands)
 
    Three Months Ended   Nine Months Ended
GAAP To Non-GAAP Operating Income   September 28,
 2019
  September 29,
 2018
  %
of Net  Revenues
2019
  %
of Net  Revenues
2018
  September 28,
 2019
  September 29,
 2018
  %
of Net  Revenues
2019
  %
of Net  Revenues
2018
GAAP Operating income   $ 14,603     $ 6,787             $ 41,055     $ 17,639          
                                 
GAAP Operating income - Electronic Systems   $ 9,657     $ 9,050             $ 28,750     $ 23,463          
Adjustments:                                
Restructuring charges       1,150                 2,406          
Adjusted operating income - Electronic Systems   9,657     10,200     10.7 %   11.9 %   28,750     25,869     10.9 %   10.2 %
                                 
GAAP Operating income - Structural Systems   12,877     3,963             35,199     13,380          
Adjustments:                                
Restructuring charges       1,612                 6,748          
Inventory purchase accounting adjustments       293                 622          
Adjusted operating income - Structural Systems   12,877     5,868     14.2 %   7.9 %   35,199     20,750     13.0 %   9.8 %
                                 
GAAP Operating loss - Corporate   (7,931 )   (6,226 )           (22,894 )   (19,204 )        
Adjustment:                                
Restructuring charges       611                 1,798          
Adjusted operating loss - Corporate   (7,931 )   (5,615 )           (22,894 )   (17,406 )        
Total adjustments       3,666                 11,574          
Adjusted operating income   $ 14,603     $ 10,453     8.1 %   6.5 %   $ 41,055     $ 29,213     7.7 %   6.3 %


 
DUCOMMUN INCORPORATED AND SUBSIDIARIES
GAAP TO NON-GAAP EARNINGS AND EARNINGS PER SHARE RECONCILIATION
(Unaudited)
(Dollars in thousands, except per share amounts)
 
    Three Months Ended   Nine Months Ended
GAAP To Non-GAAP Earnings   September 28,
 2019
  September 29,
 2018
  September 28,
 2019
  September 29,
 2018
GAAP Net income   $ 8,303     $ 4,171     $ 23,590     $ 8,362  
Adjustments:                
Restructuring charges (1)       2,800         9,090  
Inventory purchase accounting adjustments (1)       243         516  
Total adjustments       3,043         9,606  
Adjusted net income   $ 8,303     $ 7,214     $ 23,590     $ 17,968  


    Three Months Ended   Nine Months Ended
GAAP Earnings Per Share To Non-GAAP Earnings Per Share   September 28,
 2019
  September 29,
 2018
  September 28,
 2019
  September 29,
 2018
GAAP Diluted earnings per share (“EPS”)   $ 0.70     $ 0.36     $ 2.00     $ 0.72  
Adjustments:                
Restructuring charges (1)       0.24         0.78  
Inventory purchase accounting adjustments (1)       0.02         0.04  
Total adjustments       0.26         0.82  
Adjusted diluted EPS   $ 0.70     $ 0.62     $ 2.00     $ 1.54  
                 
Shares used for adjusted diluted EPS   11,794     11,683     11,784     11,639  

(1)   Includes effective tax rate of 17.0% for 2018 adjustments.


 
DUCOMMUN INCORPORATED AND SUBSIDIARIES
NON-GAAP BACKLOG* BY REPORTING SEGMENT
(Unaudited)
(Dollars in thousands)
 
    (In thousands)
    September 28,
 2019
  December 31,
 2018
Consolidated Ducommun        
Military and space   $ 372,492     $ 339,443  
Commercial aerospace   429,368     487,232  
Industrial   33,314     37,774  
Total   $ 835,174     $ 864,449  
Electronic Systems        
Military and space   $ 255,769     $ 241,196  
Commercial aerospace   68,100     48,032  
Industrial   33,314     37,774  
Total   $ 357,183     $ 327,002  
Structural Systems        
Military and space   $ 116,723     $ 98,247  
Commercial aerospace   361,268     439,200  
Total   $ 477,991     $ 537,447  

* The Company defines backlog as potential revenue and is based on customer placed purchase orders and long-term agreements (“LTAs”) with firm fixed price and expected delivery dates of 24 months or less. Backlog as of as of September 28, 2019 was $835.2 million compared to $864.4 million as of December 31, 2018. Under ASC 606, the Company defines remaining performance obligations as customer placed purchase orders with firm fixed price and firm delivery dates. The remaining performance obligations disclosed under ASC 606 were $682.2 million.

 

Ducommun Logo.JPG

Source: Ducommun Incorporated

Revenue Rises 13%; Company Remains on Track for Strong 2019 Full Year Performance

SANTA ANA, Calif., Oct. 30, 2019 (GLOBE NEWSWIRE) -- Ducommun Incorporated (NYSE:DCO) (“Ducommun” or the “Company”) today reported results for its third quarter ended September 28, 2019.

Third Quarter 2019 Highlights

  • Revenue increased 13.3% year-over-year to $181.1 million
  • Net income of $8.3 million, or $0.70 per diluted share
  • Gross margin increased 170 basis points year-over-year to 21.2%
  • Operating margin increased 380 basis points year-over-year to 8.1%
  • Adjusted EBITDA increased 30.8% year-over-year to $23.6 million
  • Acquired Nobles Worldwide, Inc. (“Nobles”) subsequent to quarter end

“I am very happy with the 3rd quarter results and continued strong performance of the company. We now have had five straight quarters of double digit revenue increases averaging 15% with over 85% of the gains being organic growth,” said Stephen G. Oswald, chairman, president and chief executive officer. “Our team continues to do an excellent job as well, relentlessly driving performance and cost through our Performance Center strategy expanding operating margins in the quarter by 380 basis points to 8.1% and achieving earnings of $0.70 per diluted share. Our strong performance also reflects ongoing demand for Ducommun’s broad array of engineering processes, products and aftermarket services along with pricing discipline. Adjusted EBITDA was also strong increasing almost 31% year-over-year to $24 million, and we generated $12.0 million in cash from operations, while our backlog remains near record levels.

“In addition and after the end of the quarter, I was pleased to announce that Ducommun had acquired Nobles Worldwide, a global leader in the design of ammunition handling systems. Nobles has been in business for over 70 years and supplies advanced tactical products for a variety of aircraft, naval vessels, and military vehicles in the U.S. and overseas. It’s a great fit for Ducommun’s defense platform opening new market opportunities while adding on another value-added, engineering products company with aftermarket support. Like our other two recent acquisitions, we believe Nobles will improve our growth profile, help expand margins and bolster our aftermarket services.

“As we look forward, we remain confident on a strong finish for 2019 and continued momentum in 2020 despite the continued uncertainty on the Boeing 737 Max return to service. We see great balance in the portfolio with our defense business and the many other commercial platforms we serve to deliver for Ducommun shareholders. Our team is also energized for the opportunities ahead.”

Third Quarter Results

Net revenue for the third quarter of 2019 was $181.1 million compared to $159.8 million for the third quarter of 2018. The year-over-year increase of 13.3% was primarily due to the following:

  • $12.6 million higher revenue in the Company’s commercial aerospace end-use markets due to additional content and higher build rates on large aircraft platforms; and
  • $9.0 million higher revenue in the Company’s military and space end-use markets due to higher build rates on other military and space platforms and various missile platforms.

Net income for the third quarter of 2019 was $8.3 million, or $0.70 per diluted share, compared to $4.2 million, or $0.36 per diluted share, for the third quarter of 2018. This reflects a $7.2 million increase in gross profit due to higher revenue and the associated operating leverage at the Company’s performance centers and operations performance. Restructuring charges were lower year-over-year by $3.4 million that were offset by $2.8 million of higher selling, general and administrative expenses, $1.9 million of higher interest expense, and $1.8 million of higher income taxes.

Gross profit for the third quarter of 2019 was $38.3 million, or 21.2% of revenue compared to gross profit of $31.1 million, or 19.5% of revenue, for the third quarter of 2018. The increase in gross margin year-over-year was due to improved operating leverage at the Company’s performance centers and improved operations performance. This resulted in favorable manufacturing volume, favorable product mix, and manufacturing efficiencies.

Operating income for the third quarter of 2019 was $14.6 million, or 8.1% of revenue, compared to $6.8 million, or 4.3% of revenue, in the comparable period last year. The year-over-year increase of $7.8 million was due to higher revenue and the associated operating leverage at the Company’s performance centers, improved operations performance, and lower restructuring charges in the current year.

Interest expense for the third quarter of 2019 was $4.4 million compared to $2.5 million in the comparable period of 2018. The year-over-year increase was due to higher interest rates.

Adjusted EBITDA for the third quarter of 2019 was strong at $23.6 million, or 13.1% of revenue, compared to $18.1 million, or 11.3% of revenue, for the comparable period in 2018, an increase of 30.8%.

During the third quarter of 2019, the net cash provided by operations was $12.0 million compared to $7.2 million during the third quarter of 2018. The change year-over-year was due to higher net income.

Business Segment Information

Electronic Systems

Electronic Systems segment net revenue for the quarter ended September 28, 2019 was $90.6 million, compared to $85.7 million for the third quarter of 2018. The year-over-year increase was primarily due to the following:

  • $5.0 million higher revenue within the Company’s military and space end-use markets due to higher build rates on other military and space platforms and various missile platforms, partially offset by lower military rotary-wing aircraft due to timing of orders; and
  • $0.2 million higher revenue within the Company’s commercial aerospace end-use markets.

Electronic Systems segment operating income was $9.7 million, or 10.7% of revenue, for the third quarter of 2019 compared to $9.1 million, or 10.6% of revenue, for the comparable quarter in 2018. The year-over-year increase of $0.6 million was due to lower restructuring charges.

Structural Systems

Structural Systems segment net revenue for the quarter ended September 28, 2019 was $90.5 million, compared to $74.1 million for the third quarter of 2018. The year-over-year increase was due to the following:

  • $12.4 million higher revenue within the Company’s commercial aerospace end-use markets due to additional content and higher build rates on large aircraft platforms; and
  • $4.0 million higher revenue within the Company’s military and space end-use markets due to higher build rates on military rotary-wing aircraft platforms and various missile platforms.

Structural Systems segment operating income for the quarter ended September 28, 2019 was $12.9 million, or 14.2% of revenue, compared to $4.0 million, or 5.3% of revenue, for the comparable quarter in 2018. The year-over-year increase of $8.9 million was due to improved operating leverage at the Company’s performance centers and improved operations performance. This resulted in favorable manufacturing volume, favorable product mix, and improved manufacturing efficiencies, along with lower restructuring charges in the current year.

Corporate General and Administrative (“CG&A”) Expenses

CG&A expenses for the third quarter of 2019 were $7.9 million, or 4.4% of total Company revenue, compared to $6.2 million, or 3.9% of total Company revenue, for the comparable quarter in the prior year. The year-over-year increase of $1.7 million was due to higher other corporate expenses of $1.0 million and higher compensation and benefit costs of $0.7 million, partially offset by lower restructuring charges in the current year of $0.6 million.

Conference Call

A teleconference hosted by Stephen G. Oswald, the Company’s chairman, president, and chief executive officer, and Christopher D. Wampler, the Company’s vice president, interim chief financial officer and treasurer, and controller and chief accounting officer will be held today, October 30, 2019 at 2:00 p.m. PT (5:00 p.m. ET) to review these financial results. To participate in the teleconference, please call 844-239-5278 (international 574-990-1017) approximately ten minutes prior to the conference time. The participant passcode is 4590999. Mr. Oswald and Mr. Wampler will be speaking on behalf of the Company and anticipate the call (including Q&A) to last approximately 45 minutes.

This call is being webcast and can be accessed directly at the Ducommun website at www.ducommun.com. Conference call replay will be available after that time at the same link or by dialing 855-859-2056, passcode 4590999.

About Ducommun Incorporated

Ducommun Incorporated delivers value-added innovative manufacturing solutions to customers in the aerospace, defense and industrial markets. Founded in 1849, the Company specializes in two core areas - Electronic Systems and Structural Systems - to produce complex products and components for commercial aircraft platforms, mission-critical military and space programs, and sophisticated industrial applications. For more information, visit www.ducommun.com.

Forward Looking Statements

This press release and any attachments include “forward-looking statements,” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including, in particular, earnings guidance, the Company’s restructuring plan and any statements about the Company’s plans, strategies and prospects. The Company generally uses the words “may,” “will,” “could,” “expect,” “anticipate,” “believe,” “estimate,” “plan,” “intend,” “look forward” and similar expressions in this press release and any attachments to identify forward-looking statements. The Company bases these forward-looking statements on its current views with respect to future events and financial performance. Actual results could differ materially from those projected in the forward-looking statements. These forward-looking statements are subject to risks, uncertainties and assumptions, including, among other things: whether the anticipated pre-tax restructuring charges will be sufficient to address all anticipated restructuring costs, including related to employee separation, facilities consolidation, inventory write-down and other asset impairments; whether the expected cost savings from the restructuring will ultimately be obtained in the amount and during the period anticipated; whether the restructuring in the affected areas will be sufficient to build a more cost efficient, focused, higher margin enterprise with higher returns for the Company's shareholders; the impact of the Company’s debt service obligations and restrictive debt covenants; the Company’s end-use markets are cyclical; the Company depends upon a selected base of industries and customers; a significant portion of the Company’s business depends upon U.S. Government defense spending; the Company is subject to extensive regulation and audit by the Defense Contract Audit Agency; contracts with some of the Company’s customers contain provisions which give the its customers a variety of rights that are unfavorable to the Company; further consolidation in the aerospace industry could adversely affect the Company’s business and financial results; the Company’s ability to successfully make acquisitions, including its ability to successfully integrate, operate or realize the projected benefits of such businesses; the Company relies on its suppliers to meet the quality and delivery expectations of its customers; the Company uses estimates when bidding on fixed-price contracts which estimates could change and result in adverse effects on its financial results; the impact of existing and future laws and regulations; the impact of existing and future accounting standards and tax rules and regulations; environmental liabilities could adversely affect the Company’s financial results; cyber security attacks, internal system or service failures may adversely impact the Company’s business and operations; and other risks and uncertainties, including those detailed from time to time in the Company’s periodic reports filed with the Securities and Exchange Commission. You should not put undue reliance on any forward-looking statements. You should understand that many important factors, including those discussed herein, could cause the Company’s results to differ materially from those expressed or suggested in any forward-looking statement. Except as required by law, the Company does not undertake any obligation to update or revise these forward-looking statements to reflect new information or events or circumstances that occur after the date of this news release, October 30, 2019, or to reflect the occurrence of unanticipated events or otherwise. Readers are advised to review the Company’s filings with the Securities and Exchange Commission (which are available from the SEC’s EDGAR database at www.sec.gov, at various SEC reference facilities in the United States and through the Company’s website).

Note Regarding Non-GAAP Financial Information

This release contains non-GAAP financial measures, including Adjusted EBITDA (which excludes interest expense, income tax expense [benefit], depreciation, amortization, stock-based compensation expense, restructuring charges, and inventory purchase accounting adjustments).

The Company believes the presentation of these non-GAAP measures provide important supplemental information to management and investors regarding financial and business trends relating to its financial condition and results of operations. The Company’s management uses these non-GAAP financial measures along with the most directly comparable GAAP financial measures in evaluating the Company’s actual and forecasted operating performance, capital resources and cash flow. The non-GAAP financial information presented herein should be considered supplemental to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. The Company discloses different non-GAAP financial measures in order to provide greater transparency and to help the Company’s investors to more meaningfully evaluate and compare Ducommun’s results to its previously reported results. The non-GAAP financial measures that the Company uses may not be comparable to similarly titled financial measures used by other companies. We define backlog as potential revenue and is based on customer placed purchase orders and long-term agreements (“LTAs”) with firm fixed price and expected delivery dates of 24 months or less. The majority of the LTAs do not meet the definition of a contract under ASC 606 and thus, the backlog amount disclosed herein is greater than the remaining performance obligations disclosed under ASC 606. Backlog is subject to delivery delays or program cancellations, which are beyond our control. Backlog is affected by timing differences in the placement of customer orders and tends to be concentrated in several programs to a greater extent than our net revenues. Backlog in industrial markets tends to be of a shorter duration and is generally fulfilled within a three month period. As a result of these factors, trends in our overall level of backlog may not be indicative of trends in our future net revenues.

CONTACTS:

Christopher D. Wampler, Vice President, Interim Chief Financial Officer and Treasurer, and Controller and Chief Accounting Officer, 657.335.3665
Chris Witty, Investor Relations, 646.438.9385, cwitty@darrowir.com

[Financial Tables Follow]

 
DUCOMMUN INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands)
    September 28,
 2019
  December 31,
 2018
Assets        
Current Assets        
Cash and cash equivalents   $ 6,381     $ 10,263  
Restricted cash   361      
Accounts receivable, net   77,002     67,819  
Contract assets   102,475     86,665  
Inventories   109,848     101,125  
Production cost of contracts   10,704     11,679  
Other current assets   5,947     6,531  
Total Current Assets   312,718     284,082  
Property and equipment, Net   112,597     107,045  
Operating lease right-of-use assets   18,602      
Goodwill   136,057     136,057  
Intangibles, net   103,977     112,092  
Non-current deferred income taxes   313     308  
Other assets   5,290     5,155  
Total Assets   $ 689,554     $ 644,739  
Liabilities and Shareholders’ Equity        
Current Liabilities        
Accounts payable   $ 78,310     $ 69,274  
Contract liabilities   11,850     17,145  
Accrued and other liabilities   37,701     37,786  
Operating lease liabilities   2,915      
Current portion of long-term debt   2,281     2,330  
Total Current Liabilities   133,057     126,535  
Long-term debt   222,600     228,868  
Non-current operating lease liabilities   17,156      
Non-current deferred income taxes   18,107     18,070  
Other long-term liabilities   14,855     14,441  
Total Liabilities   405,775     387,914  
Commitments and contingencies        
Shareholders’ Equity        
Common stock   116     114  
Additional paid-in capital   86,828     83,712  
Retained earnings   203,682     180,356  
Accumulated other comprehensive loss   (6,847 )   (7,357 )
Total Shareholders’ Equity   283,779     256,825  
Total Liabilities and Shareholders’ Equity   $ 689,554     $ 644,739  


 
DUCOMMUN INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in thousands, except per share amounts)
 
    Three Months Ended   Nine Months Ended
    September 28,
 2019
  September 29,
 2018
  September 28,
 2019
  September 29,
 2018
Net Revenues   $ 181,101     $ 159,842     $ 534,162     $ 465,124  
Cost of Sales   142,774     128,726     422,076     375,225  
Gross Profit   38,327     31,116     112,086     89,899  
Selling, General and Administrative Expenses   23,724     20,956     71,031     61,476  
Restructuring Charges       3,373         10,784  
Operating Income   14,603     6,787     41,055     17,639  
Interest Expense   (4,363 )   (2,497 )   (13,140 )   (9,159 )
Income Before Taxes   10,240     4,290     27,915     8,480  
Income Tax Expense   1,937     119     4,325     118  
Net Income   $ 8,303     $ 4,171     $ 23,590     $ 8,362  
Earnings Per Share                
Basic earnings per share   $ 0.72     $ 0.37     $ 2.05     $ 0.73  
Diluted earnings per share   $ 0.70     $ 0.36     $ 2.00     $ 0.72  
Weighted-Average Number of Common Shares Outstanding                
Basic   11,551     11,404     11,501     11,382  
Diluted   11,794     11,683     11,784     11,639  
                 
Gross Profit %   21.2 %   19.5 %   21.0 %   19.3 %
SG&A %   13.1 %   13.1 %   13.3 %   13.2 %
Operating Income %   8.1 %   4.3 %   7.7 %   3.8 %
Net Income %   4.6 %   2.6 %   4.4 %   1.8 %
Effective Tax Rate   18.9 %   2.8 %   15.5 %   1.4 %


 
DUCOMMUN INCORPORATED AND SUBSIDIARIES
BUSINESS SEGMENT PERFORMANCE
(Unaudited)
(Dollars in thousands)
 
    Three Months Ended   Nine Months Ended
    %
Change
  September 28,
 2019
  September 29,
 2018
  %
of Net  Revenues
2019
  %
of Net  Revenues
2018
  %
Change
  September 28,
 2019
  September 29,
 2018
  %
of Net  Revenues
2019
  %
of Net  Revenues
2018
Net Revenues                                        
Electronic Systems   5.7 %   $ 90,588     $ 85,696     50.0 %   53.6 %   4.5 %   $ 264,045     $ 252,606     49.4 %   54.3 %
Structural Systems   22.1 %   90,513     74,146     50.0 %   46.4 %   27.1 %   270,117     212,518     50.6 %   45.7 %
Total Net Revenues   13.3 %   $ 181,101     $ 159,842     100.0 %   100.0 %   14.8 %   $ 534,162     $ 465,124     100.0 %   100.0 %
Segment Operating Income                                        
Electronic Systems       $ 9,657     $ 9,050     10.7 %   10.6 %       $ 28,750     $ 23,463     10.9 %   9.3 %
Structural Systems       12,877     3,963     14.2 %   5.3 %       35,199     13,380     13.0 %   6.3 %
        22,534     13,013                 63,949     36,843          
Corporate General and Administrative Expenses(1)       (7,931 )   (6,226 )   (4.4 )%   (3.9 )%       (22,894 )   (19,204 )   (4.3 )%   (4.1 )%
Total Operating Income       $ 14,603     $ 6,787     8.1 %   4.3 %       $ 41,055     $ 17,639     7.7 %   3.8 %
Adjusted EBITDA                                        
Electronic Systems                                        
Operating Income       $ 9,657     $ 9,050                 $ 28,750     $ 23,463          
Depreciation and Amortization       3,569     3,707                 10,602     11,022          
Restructuring Charges           1,150                     2,406          
        13,226     13,907     14.6 %   16.2 %       39,352     36,891     14.9 %   14.6 %
Structural Systems                                        
Operating Income       12,877     3,963                 35,199     13,380          
Depreciation and Amortization       3,350     2,576                 9,750     7,510          
Restructuring Charges           1,612                     6,748          
Inventory Purchase Accounting Adjustments           293                     622          
        16,227     8,444     17.9 %   11.4 %       44,949     28,260     16.6 %   13.3 %
Corporate General and Administrative Expenses(1)                                        
Operating loss       (7,931 )   (6,226 )               (22,894 )   (19,204 )        
Depreciation and Amortization       73     37                 399     103          
Stock-Based Compensation Expense       2,051     1,299                 5,322     3,414          
Restructuring Charges           611                     1,798          
        (5,807 )   (4,279 )               (17,173 )   (13,889 )        
Adjusted EBITDA       $ 23,646     $ 18,072     13.1 %   11.3 %       $ 67,128     $ 51,262     12.6 %   11.0 %
Capital Expenditures                                        
Electronic Systems       $ 1,768     $ 879                 $ 4,820     $ 5,091          
Structural Systems       2,747     3,935                 10,108     6,565          
Corporate Administration           185                     375          
Total Capital Expenditures       $ 4,515     $ 4,999                 $ 14,928     $ 12,031          

(1)   Includes costs not allocated to either the Electronic Systems or Structural Systems operating segments.


DUCOMMUN INCORPORATED AND SUBSIDIARIES
GAAP TO NON-GAAP OPERATING INCOME RECONCILIATION
(Unaudited)
(Dollars in thousands)
 
    Three Months Ended   Nine Months Ended
GAAP To Non-GAAP Operating Income   September 28,
 2019
  September 29,
 2018
  %
of Net  Revenues
2019
  %
of Net  Revenues
2018
  September 28,
 2019
  September 29,
 2018
  %
of Net  Revenues
2019
  %
of Net  Revenues
2018
GAAP Operating income   $ 14,603     $ 6,787             $ 41,055     $ 17,639          
                                 
GAAP Operating income - Electronic Systems   $ 9,657     $ 9,050             $ 28,750     $ 23,463          
Adjustments:                                
Restructuring charges       1,150                 2,406          
Adjusted operating income - Electronic Systems   9,657     10,200     10.7 %   11.9 %   28,750     25,869     10.9 %   10.2 %
                                 
GAAP Operating income - Structural Systems   12,877     3,963             35,199     13,380          
Adjustments:                                
Restructuring charges       1,612                 6,748          
Inventory purchase accounting adjustments       293                 622          
Adjusted operating income - Structural Systems   12,877     5,868     14.2 %   7.9 %   35,199     20,750     13.0 %   9.8 %
                                 
GAAP Operating loss - Corporate   (7,931 )   (6,226 )           (22,894 )   (19,204 )        
Adjustment:                                
Restructuring charges       611                 1,798          
Adjusted operating loss - Corporate   (7,931 )   (5,615 )           (22,894 )   (17,406 )        
Total adjustments       3,666                 11,574          
Adjusted operating income   $ 14,603     $ 10,453     8.1 %   6.5 %   $ 41,055     $ 29,213     7.7 %   6.3 %


 
DUCOMMUN INCORPORATED AND SUBSIDIARIES
GAAP TO NON-GAAP EARNINGS AND EARNINGS PER SHARE RECONCILIATION
(Unaudited)
(Dollars in thousands, except per share amounts)
 
    Three Months Ended   Nine Months Ended
GAAP To Non-GAAP Earnings   September 28,
 2019
  September 29,
 2018
  September 28,
 2019
  September 29,
 2018
GAAP Net income   $ 8,303     $ 4,171     $ 23,590     $ 8,362  
Adjustments:                
Restructuring charges (1)       2,800         9,090  
Inventory purchase accounting adjustments (1)       243         516  
Total adjustments       3,043         9,606  
Adjusted net income   $ 8,303     $ 7,214     $ 23,590     $ 17,968  


    Three Months Ended   Nine Months Ended
GAAP Earnings Per Share To Non-GAAP Earnings Per Share   September 28,
 2019
  September 29,
 2018
  September 28,
 2019
  September 29,
 2018
GAAP Diluted earnings per share (“EPS”)   $ 0.70     $ 0.36     $ 2.00     $ 0.72  
Adjustments:                
Restructuring charges (1)       0.24         0.78  
Inventory purchase accounting adjustments (1)       0.02         0.04  
Total adjustments       0.26         0.82  
Adjusted diluted EPS   $ 0.70     $ 0.62     $ 2.00     $ 1.54  
                 
Shares used for adjusted diluted EPS   11,794     11,683     11,784     11,639  

(1)   Includes effective tax rate of 17.0% for 2018 adjustments.


 
DUCOMMUN INCORPORATED AND SUBSIDIARIES
NON-GAAP BACKLOG* BY REPORTING SEGMENT
(Unaudited)
(Dollars in thousands)
 
    (In thousands)
    September 28,
 2019
  December 31,
 2018
Consolidated Ducommun        
Military and space   $ 372,492     $ 339,443  
Commercial aerospace   429,368     487,232  
Industrial   33,314     37,774  
Total   $ 835,174     $ 864,449  
Electronic Systems        
Military and space   $ 255,769     $ 241,196  
Commercial aerospace   68,100     48,032  
Industrial   33,314     37,774  
Total   $ 357,183     $ 327,002  
Structural Systems        
Military and space   $ 116,723     $ 98,247  
Commercial aerospace   361,268     439,200  
Total   $ 477,991     $ 537,447  

* The Company defines backlog as potential revenue and is based on customer placed purchase orders and long-term agreements (“LTAs”) with firm fixed price and expected delivery dates of 24 months or less. Backlog as of as of September 28, 2019 was $835.2 million compared to $864.4 million as of December 31, 2018. Under ASC 606, the Company defines remaining performance obligations as customer placed purchase orders with firm fixed price and firm delivery dates. The remaining performance obligations disclosed under ASC 606 were $682.2 million.

 

Ducommun Logo.JPG

Source: Ducommun Incorporated



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