Backlog Growth to $905 Million; Acquired Magnetic Seal;
Completed Sale-Leaseback Netting Over $110 Million in Proceeds; Record Diluted EPS of $9.05
SANTA ANA, Calif., Feb. 23, 2022 (GLOBE NEWSWIRE) -- Ducommun Incorporated (NYSE: DCO) (“Ducommun” or the “Company”) today reported results for its fourth quarter and year ended December 31, 2021.
Fourth Quarter 2021 Recap
“2021 was a return to growth story for Ducommun and I'm pleased with how much we accomplished along with positioning the Company for continued success in the years ahead,” said Stephen G. Oswald, chairman, president and chief executive officer. “In December alone, we netted over $110 million in after-tax proceeds related to the sale-leaseback of our Gardena, CA performance center building and land, effectively monetizing and unlocking its value at record prices to fuel growth and strengthen our balance sheet. A portion of the proceeds were immediately deployed for the MagSeal acquisition which brings innovative engineered sealing solutions to Ducommun, enhances our aerospace product portfolio and increases the Company's aftermarket capabilities and revenue.
“Ducommun ended the year with a strong backlog* as well of approximately $905 million, with gains driven by a recent uptick in commercial aerospace orders. For 2021, we posted revenues of approximately $645 million, led by another record year for military and space, topping $450 million, along with strong gross margins. In 2022, with growing travel demand and subsiding pandemic-related related restrictions, the commercial aerospace industry should continue its recovery especially in the narrow body market. Our longstanding customer relationships with Boeing, Raytheon, and other leading OEMs, along with our five year Airbus contract for titanium products awarded in 2021 are expected to drive stronger performance in 2022 and beyond.”
Fourth Quarter Results
Net revenue for the fourth quarter of 2021 was $164.8 million, compared to $157.8 million for the fourth quarter of 2020. The 4.5% increase year-over-year was primarily due to the following:
Net income for the fourth quarter of 2021 was $110.8 million, or $9.05 per diluted share, compared to $9.7 million, or $0.80 per diluted share, for the fourth quarter of 2020. The increase in net income year-over-year was due to the gain on the Gardena performance center sale-leaseback transaction of $132.5 million and a $2.5 million increase in gross profit due to higher revenue, partially offset by higher income tax expense of $31.4 million and higher SG&A expense of $2.9 million. Adjusted net income was $9.7 million, or $0.79 per diluted share, for the fourth quarter of 2021, compared to $10.8 million, or $0.89 per diluted share, for the fourth quarter of 2020. The difference between net income and adjusted net income was primarily due to excluding the gain on sale-leaseback.
Gross profit for the fourth quarter of 2021 was $37.3 million, or 22.6% of revenue, compared to gross profit of $34.8 million, or 22.1% of revenue, for the fourth quarter of 2020. The increase in gross margin percentage year-over-year was due to favorable product mix, favorable manufacturing volume, and lower other manufacturing costs, partially offset by higher compensation and benefits costs.
Operating income for the fourth quarter of 2021 was $11.8 million, or 7.2% of revenue, compared to $11.6 million, or 7.3% of revenue, in the comparable period last year. The year-over-year increase was due to higher revenue, partially offset by higher SG&A expenses. Adjusted operating income for the fourth quarter of 2021 was $14.0 million, or 8.5%, compared to $12.9 million, or 8.2% of revenue, in the comparable period last year.
Interest expense for the fourth quarter of 2021 was $2.8 million compared to $2.6 million in the comparable period of 2020.
Adjusted EBITDA for the fourth quarter of 2021 was $24.4 million, or 14.8% of revenue, compared to $22.8 million, or 14.4% of revenue, for the comparable period in 2020.
* 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 December 31, 2021 was $905.2 million compared to $807.7 million as of December 31, 2020. Under ASC 606, the Company defines performance obligations as customer placed purchase orders with firm fixed price and firm delivery dates. The remaining performance obligations disclosed under ASC 606 as of December 31, 2021 were $814.1 million compared to $779.7 million as of December 31, 2020.
Business Segment Information
Electronic Systems reported net revenue for the current quarter of $106.0 million, compared to $99.1 million for the fourth quarter of 2020. The year-over-year increase was primarily due to the following:
Electronic Systems operating income for the current year fourth quarter was $15.4 million, or 14.6% of revenue, compared to $11.5 million, or 11.6% of revenue, for the comparable quarter in 2020. The year-over-year increase was due to favorable product mix and favorable manufacturing volume, partially offset by higher compensation and benefits costs.
Structural Systems reported net revenue for the current quarter of $58.8 million, compared to $58.7 million for the fourth quarter of 2020. The year-over-year increase was primarily due to the following:
Structural Systems operating income for the current-year fourth quarter was $5.1 million, or 8.6% of revenue, compared to $6.2 million, or 10.6% of revenue, for the fourth quarter of 2020. The year-over-year decrease was due to unfavorable product mix, partially offset by lower other manufacturing costs.
Corporate General and Administrative (“CG&A”) Expense
CG&A expense for the fourth quarter of 2021 was $8.7 million, or 5.3% of total Company revenue, compared to $6.1 million, or 3.9% of total Company revenue, in the comparable quarter in the prior year. The year-over-year increase was due to higher professional services fees of $1.8 million, a portion of which was related to the Magnetic Seal LLC acquisition, and higher compensation and benefits costs of $0.8 million.
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, chief financial officer, controller and treasurer will be held today, February 23, 2022, 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 1660427. 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 also being webcast and can be accessed at the Ducommun website at Ducommun.com.
About Ducommun Incorporated
Ducommun Incorporated delivers value-added innovative, value-added proprietary products and 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 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, any statements about the Company’s plans, strategies, prospects, growth and outlook for 2022 and beyond, as well as future demand for the Company's products from commercial aerospace end-use markets and relationships with its customers. The Company generally uses the words “may,” “will,” “could,” “should,” “expect,” “anticipate,” “believe,” “estimate,” “plan,” “intend,” “continue” 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 cyclicality of the Company’s end-use markets; the Company's dependence upon a selected base of industries and customers; a significant portion of the Company’s business being dependent upon U.S. Government defense spending; the Company being subject to extensive regulation and audit by the Defense Contract Audit Agency; some of the Company’s contracts with customers containing provisions which give the its customers a variety of rights that are unfavorable to the Company; further consolidation in the aerospace industry adversely affecting 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's reliance on its suppliers to meet the quality and delivery expectations of its customers; the Company's use of 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 such as the Cybersecurity Maturity Model Certification applicable to government contracts and sub-contracts, and environmental, social and governance requirements; the impact of existing and future accounting standards and tax rules and regulations; environmental liabilities adversely affecting the Company’s financial results; cyber security attacks, internal system or service failures, which may adversely impact the Company’s business and operations; the ultimate geographic spread, duration and severity of the coronavirus (COVID-19) outbreak, and the effectiveness of actions taken, or actions that may be taken, by governmental authorities to contain the outbreak or treat its impact and facilitate commercial aerospace end-use markets' recovery from those impacts, 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, February 23, 2022, 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).
Note Regarding Non-GAAP Financial Information
This release contains non-GAAP financial measures, including Adjusted EBITDA (which excludes interest expense, income tax expense, depreciation, amortization, stock-based compensation expense, Guaymas fire related expenses, gain on sale-leaseback, success bonus related to completion of sale-leaseback transaction, inventory purchase accounting adjustments, and restructuring charges), non-GAAP operating income and as a percentage of net revenues, non-GAAP earnings, and non-GAAP earnings per share. In addition, certain prior period amounts have been reclassified to conform to current year’s presentation.
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.
[Financial Tables Follow]
DUCOMMUN INCORPORATED AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(Unaudited)(Dollars In thousands)
DUCOMMUN INCORPORATED AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOME(Quarterly Information Unaudited)(Dollars in thousands, except per share amounts)
DUCOMMUN INCORPORATED AND SUBSIDIARIESBUSINESS SEGMENT PERFORMANCE(Unaudited)(Dollars in thousands)