SANTA ANA, Calif., Feb. 28, 2018 (GLOBE NEWSWIRE) -- Ducommun Incorporated (NYSE:DCO) (“Ducommun” or the “Company”) today reported results for its fourth quarter and year ended December 31, 2017.
Fourth Quarter 2017 Recap
“I am happy to report that we closed 2017 with several major accomplishments as we move into a busy year ahead,” said Stephen G. Oswald, the Company’s president and chief executive officer. “Along with posting solid revenue and making progress towards higher margins, our backlog surged to over $720 million this quarter - marking a milestone for the Company that once again illustrates the enduring demand for our applications, the value we provide, and the key programs we serve.
“We took the initial steps this quarter, as previously announced, to further streamline our operations and improve margins, particularly within the structures business. We have a good amount of work to do this year as well but remain on track to reduce some $14 million of annualized cost out of the Company starting in 2019. Overall, I am optimistic about the future for Ducommun as we take additional measures to increase margins, accelerate top line growth, and improve returns to our shareholders.”
Fourth Quarter Results
Net revenue for the fourth quarter of 2017 was $142.3 million, compared to $142.5 million for the fourth quarter of 2016. The decrease year-over-year was primarily due to the following:
Net income for the fourth quarter of 2017 was $9.5 million, or $0.82 per diluted share, compared to $2.8 million, or $0.25 per diluted share, for the fourth quarter of 2016. Adjusted net income for the fourth quarter 2017 was $4.6 million, or $0.41 per adjusted diluted earnings per share, compared to $4.8 million, or $0.43 per adjusted diluted share for the fourth quarter of 2016. The year-over-year increase in GAAP net income was primarily due to the following:
Gross profit for the fourth quarter of 2017 was $25.7 million, or 18.1% of revenue, compared to gross profit of $27.8 million, or 19.5% of revenue, for the fourth quarter of 2016. The decrease in gross margin percentage year-over-year was primarily due to unfavorable product mix and, as part of our restructuring activities, $0.5 million in inventory write-offs.
Operating loss for the fourth quarter of 2017 was $(2.7) million, or (1.9)% of revenue, compared to operating income of $9.0 million, or 6.3% of revenue, in the comparable period last year. The year-over-year decrease in operating income in the fourth quarter of 2017 was primarily due to higher restructuring charges of $8.7 million, higher SG&A expenses of $1.4 million, and higher amortization of intangible assets from the acquisition of LDS in the fourth quarter of 2017.
Adjusted operating income for the fourth quarter of 2017 was $7.1 million, or 5.0% of revenue, compared to adjusted operating income of $9.1 million, or 6.4% of revenue, in the comparable period last year.
Interest expense for the fourth quarter of 2017 was $2.7 million compared to $2.0 million in the comparable period of 2016. The year-over-year increase was primarily due to a higher utilization of the Company’s revolving credit facility, mainly for the acquisition of Lightning Diversion Systems, LLC (“LDS”).
Adjusted EBITDA for the fourth quarter of 2017 was $13.6 million, or 9.6% of revenue, compared to $15.1 million, or 10.6% of revenue, for the comparable period in 2016.
The Company’s backlog as of December 31, 2017 was $726.5 million compared to $641.3 million as of December 31, 2016, which reflects an increase of $60.3 million in Commercial aerospace, $21.0 million in military and space, and $3.9 million in Industrial.
Business Segment Information
Structural Systems reported net revenue for the current quarter of $65.1 million, compared to $60.8 million for the fourth quarter of 2016. The year-over-year increase was primarily due to the following:
Structural Systems segment operating loss for the current-year fourth quarter was $(2.7) million, or (4.1)% of revenue, compared to operating income of $3.2 million, or 5.2% of revenue, for the fourth quarter of 2016. The year-over-year decrease was primarily due to restructuring charges of $5.8 million.
Adjusted operating income for the fourth quarter of 2017 was $3.1 million, or 4.8% of revenue, compared to adjusted operating income of $3.2 million, or 5.2% of revenue, in the comparable period last year.
Electronic Systems reported net revenue for the current quarter of $77.2 million, compared to $81.7 million for the fourth quarter of 2016. The year-over-year decrease was primarily due to the following:
Electronic Systems operating income for the current year fourth quarter of $6.8 million, or 8.8% of revenue, compared to $9.2 million, or 11.3% of revenue, for the comparable quarter in 2016. The year-over-year decrease was primarily due to restructuring charges of $1.2 million and higher amortization of intangible assets from the acquisition of LDS.
Adjusted operating income for the fourth quarter of 2017 was $9.1 million, or 11.7% of revenue, compared to adjusted operating income of $9.4 million, or 11.5% of revenue, in the comparable period last year.
Corporate General and Administrative (“CG&A”) Expense
CG&A expense for the fourth quarter of 2017 was $6.9 million, or 4.8% of total Company revenue, compared to $3.4 million, or 2.4% of total Company revenue, in the comparable quarter in the prior year. The increase in CG&A expense in the current year quarter was primarily due to restructuring charges of $1.8 million, higher professional service fees, and higher compensation and benefit costs.
A teleconference hosted by Stephen G. Oswald, the Company’s president and chief executive officer, and Douglas L. Groves, the Company’s vice president, chief financial officer and treasurer, will be held today, February 28, 2018 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 8195996. Mr. Oswald and Mr. Groves 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 8195996.
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” 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 or enter into joint ventures, 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 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, depreciation, amortization, stock-based compensation expense, restructuring charges, and inventory purchase accounting adjustments), adjusted net income (which excludes impact from the adoption of the Tax Cuts and Jobs Act, restructuring charges, inventory purchase accounting adjustments, and divestiture related adjustments), and adjusted operating income (which excludes 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.
Douglas L. Groves, Vice President, Chief Financial Officer and Treasurer, 657.335.3665Chris Witty, Investor Relations, 646.438.9385, firstname.lastname@example.org
(1) Includes costs not allocated to either the Structural Systems or Electronic Systems operating segments.
(1) Net impact of Tax Cuts Jobs Act and $0.5 million in 2016 state income tax adjustments.
(2) Includes effective tax rate of 21.6% for 2017 adjustments.
(3) Net working capital adjustment did not have an impact on our effective tax rate and thus, no effective tax rate was applied to this item.
(4) Includes effective tax rate of 22.6% for 2016 adjustments.