News and Information
Ducommun Incorporated

PRESS RELEASE: 2022-02-23

Ducommun Reports Results for the Fourth Quarter Ended December 31, 2021

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

  • Revenue of $164.8 million
  • GAAP net income of $110.8 million, or $9.05 per diluted share
  • Adjusted net income for the quarter of $9.7 million, or $0.79 per diluted share
  • Gross margin increased 50 basis points year-over-year to 22.6%
  • Adjusted EBITDA of $24.4 million, or 14.8% of revenues, an increase of 40 basis points year-over-year
  • Completed the acquisition of Magnetic Seal LLC (“MagSeal”) for $69.5 million, net of cash acquired
  • Completed sale-leaseback, netting proceeds of over $110 million

“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:

  • $4.9 million higher revenue within the Company’s Industrial end-use markets due to timing of customer requirements; and
  • $4.4 million higher revenue within the Company’s commercial aerospace end-use markets due to higher build rates on other commercial aerospace platforms and regional and business aircraft platforms; partially offset by
  • $2.3 million lower revenue within the Company’s military and space end-use markets due to lower build rates on military rotary-wing aircraft platforms.

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

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:

  • $4.9 million higher revenue within the Company’s Industrial end-use markets due to timing of customer requirements; and
  • $2.9 million higher revenue within the Company’s commercial aerospace end-use markets due higher build rates on other commercial aerospace platforms; partially offset by
  • $0.9 million lower revenue within the Company’s military and space end-use markets due to lower build rates on various missile platforms, partially offset by higher build rates on military fixed-wing aircraft platforms.

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

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:

  • $1.5 million higher revenue within the Company’s commercial aerospace end-use markets due to higher build rates on regional and business aircraft platforms; partially offset by
  • $1.4 million lower revenue within the Company’s military and space end-use markets due to lower build rates on military rotary-wing aircraft platforms, partially offset by higher build rates on other military and space platforms.

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.

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, 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.

CONTACT:

Suman Mookerji, Vice President, Corporate Development and Investor Relations, 657.335.3665

[Financial Tables Follow]

DUCOMMUN INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars In thousands)

    December 31,
2021
  December 31,
2020
Assets        
Current Assets        
Cash and cash equivalents   $ 76,316     $ 56,466  
Accounts receivable, net     72,261       58,025  
Contract assets     176,405       154,028  
Inventories     150,938       129,223  
Production cost of contracts     8,024       6,971  
Other current assets     8,625       5,571  
Total Current Assets     492,569       410,284  
Property and Equipment, Net     102,419       109,990  
Operating lease right-of-use assets     33,265       16,348  
Goodwill     203,694       170,830  
Intangibles, Net     141,764       124,744  
Deferred Income Taxes           33  
Other Assets     5,024       5,118  
Total Assets   $ 978,735     $ 837,347  
Liabilities and Shareholders’ Equity        
Current Liabilities        
Accounts payable   $ 66,059     $ 63,980  
Contract liabilities     42,077       28,264  
Accrued and other liabilities     41,291       40,526  
Operating lease liabilities     6,133       3,132  
Current portion of long-term debt     7,000       7,000  
Total Current Liabilities     162,560       142,902  
Long-Term Debt, Less Current Portion     279,384       311,922  
Non-Current Operating Lease Liabilities     28,074       14,555  
Deferred Income Taxes     18,727       16,992  
Other Long-Term Liabilities     15,388       21,642  
Total Liabilities     504,133       508,013  
Commitments and Contingencies        
Shareholders’ Equity        
Common stock     119       117  
Additional paid-in capital     104,253       97,090  
Retained earnings     377,263       241,727  
Accumulated other comprehensive loss     (7,033 )     (9,600 )
Total Shareholders’ Equity     474,602       329,334  
Total Liabilities and Shareholders’ Equity   $ 978,735     $ 837,347  
                 

DUCOMMUN INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Quarterly Information Unaudited)
(Dollars in thousands, except per share amounts)

    Three Months Ended   Years Ended
    December 31,
2021
  December 31,
2020
  December 31,
2021
  December 31,
2020
Net Revenues   $ 164,843     $ 157,786     $ 645,413     $ 628,941  
Cost of Sales     127,580       122,985       502,953       491,203  
Gross Profit     37,263       34,801       142,460       137,738  
Selling, General and Administrative Expenses     25,447       22,555       93,579       89,808  
Restructuring Charges           656             2,424  
Operating Income     11,816       11,590       48,881       45,506  
Interest Expense     (2,754 )     (2,585 )     (11,187 )     (13,653 )
Gain on Sale-Leaseback     132,522             132,522        
Other Income, Net     72       29       268       128  
Income Before Taxes     141,656       9,034       170,484       31,981  
Income Tax Expense (Benefit)     30,822       (619 )     34,948       2,807  
Net Income   $ 110,834     $ 9,653     $ 135,536     $ 29,174  
Earnings Per Share                
Basic earnings per share   $ 9.29     $ 0.82     $ 11.41     $ 2.50  
Diluted earnings per share   $ 9.05     $ 0.80     $ 11.06     $ 2.45  
Weighted-Average Number of Common Shares Outstanding                
Basic     11,931       11,720       11,879       11,676  
Diluted     12,248       12,070       12,251       11,932  
                 
Gross Profit %     22.6 %     22.1 %     22.1 %     21.9 %
SG&A %     15.4 %     14.3 %     14.5 %     14.3 %
Operating Income %     7.2 %     7.3 %     7.6 %     7.2 %
Net Income %     67.2 %     6.1 %     21.0 %     4.6 %
Effective Tax Rate (Benefit)     21.8 %   (6.9)        %     20.5 %     8.8 %

DUCOMMUN INCORPORATED AND SUBSIDIARIES
BUSINESS SEGMENT PERFORMANCE
(Unaudited)
(Dollars in thousands)

    Three Months Ended   Years Ended
    %
Change
  December 31,
2021
  December 31,
2020
  %
of Net  Revenues
2021
  %
of Net  Revenues
2020
  %
Change
  December 31,
2021
  December 31,
2020
  %
of Net  Revenues
2021
  %
of Net  Revenues
2020
Net Revenues                                        
Electronic Systems   7.0 %   $ 106,026     $ 99,093     64.3 %   62.8 %   5.1 %   $ 412,648     $ 392,633     63.9 %   62.4 %
Structural Systems   0.2 %     58,817       58,693     35.7 %   37.2 %   (1.5)%     232,765       236,308     36.1 %   37.6 %
Total Net Revenues   4.5 %   $ 164,843     $ 157,786     100.0 %   100.0 %   2.6 %   $ 645,413     $ 628,941     100.0 %   100.0 %
Segment Operating Income                                        
Electronic Systems       $ 15,444     $ 11,467     14.6 %   11.6 %       $ 57,629     $ 51,894     14.0 %   13.2 %
Structural Systems         5,057       6,211     8.6 %   10.6 %         20,234       19,584     8.7 %   8.3 %
          20,501       17,678                   77,863       71,478          
Corporate General and Administrative Expenses (1)         (8,685 )     (6,088 )   (5.3)%   (3.9)%         (28,982 )     (25,972 )   (4.5)%   (4.1)%
Total Operating Income       $ 11,816     $ 11,590     7.2 %   7.3 %       $ 48,881     $ 45,506     7.6 %   7.2 %
Adjusted EBITDA                                        
Electronic Systems                                        
Operating Income       $ 15,444     $ 11,467                 $ 57,629     $ 51,894          
Other Income                                 196                
Depreciation and Amortization         3,427       3,447                   13,823       14,038          
Restructuring Charges               264                         596          
Success bonus related to completion of sale-leaseback transaction (2)         970                         970                
          19,841       15,178     18.7 %   15.3 %         72,618       66,528     17.6 %   16.9 %
Structural Systems                                        
Operating Income         5,057       6,211                   20,234       19,584          
Other Income         72                         72                
Depreciation and Amortization         3,791       3,603                   14,331       14,559          
Restructuring Charges               392                         1,828          
Inventory Purchase Accounting Adjustments         106                         106                
Guaymas Fire Related Expenses         615       682                   2,486       1,704          
Success bonus related to completion of sale-leaseback transaction (2)         475                         475                
          10,116