SANTA ANA, Calif., Feb. 28, 2019 (GLOBE NEWSWIRE) -- Ducommun Incorporated (NYSE:DCO) ("Ducommun" or the "Company") today reported results for its fourth quarter and year ended December 31, 2018.
Fourth Quarter 2018 Highlights
"I am happy to report that Ducommun had a strong finish to 2018," said Stephen G. Oswald, chairman, president, and chief executive officer. "Fourth quarter revenue grew significantly, up 15% year-over-year, to $164 million, gross margins posted an impressive improvement to 19.9%, and the backlog* rose to $864 million, which is a new all-time record, and up over $125 million from the end of 2017. We also completed our restructuring activities on time and as committed, without any customer disruptions, positioning us as leaner and better-focused on the Company's core capabilities and platforms. The success last year was also indicative of the many actions taken to improve the leadership, streamline our operations, increase capacity utilization, and reflects the hard work and dedication of our team members in serving customers and reaching our goals. In addition, we've strengthened our position as a leading electronics and structural provider to the world's top commercial aerospace and defense platforms by leveraging innovation and recent acquisitions to win business and penetrate new markets. As we begin 2019, I expect continued success in the marketplace and capturing more growth opportunities along with posting solid financial results."
Fourth Quarter Results
Net revenue for the fourth quarter of 2018 was $164.2 million, compared to $142.3 million for the fourth quarter of 2017. The 15.4% increase year-over-year was due to the following:
Net income for the fourth quarter of 2018 was $0.7 million, or $0.06 per diluted share, compared to $9.5 million, or $0.82 per diluted share, for the fourth quarter of 2017. The year-over-year decrease was due to a tax benefit of $14.5 million in the prior year period as a result of the 2017 Tax Cuts and Jobs Act. This decrease was partially offset by higher gross profit of $6.9 million due to higher revenue and improved operating performance, and lower restructuring charges of $4.9 million, of which $0.5 million was included in cost of sales in the prior year.
Gross profit for the fourth quarter of 2018 was $32.7 million, or 19.9% of revenue, compared to gross profit of $25.8 million, or 18.1% of revenue, for the fourth quarter of 2017. The increase in gross margin percentage year-over-year was due to lower compensation and benefits costs, favorable product mix, and favorable manufacturing volume, partially offset by an increase in other manufacturing costs.
Operating income for the fourth quarter of 2018 was $6.3 million, or 3.8% of revenue, compared to an operating loss of $(2.6) million, or (1.8)% of revenue, in the comparable period last year. The year-over-year improvement in operating income of $8.9 million was due to higher revenue and lower restructuring charges of $4.9 million, of which $0.5 million was included in cost of sales in the prior year, partially offset by higher SG&A expenses of $2.5 million.
Interest expense for the fourth quarter of 2018 was $3.8 million compared to $2.8 million in the comparable period of 2017. The year-over-year increase was due to a higher debt balance as a result of the acquisition of Certified Thermoplastics Co., LLC ("CTP") in April 2018 and higher interest rates.
Adjusted EBITDA for the fourth quarter of 2018 was $19.4 million, or 11.8% of revenue, compared to $13.8 million, or 9.7% of revenue, for the comparable period in 2017.
* 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 firm delivery dates of 24 months or less. Backlog as of December 31, 2018 was $864.4 million compared to $726.5 million as of December 31, 2017. 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 $722.8 million.
Business Segment Information
Electronic Systems reported net revenue for the current quarter of $85.3 million, compared to $77.2 million for the fourth quarter of 2017. The year-over-year increase was due to the following:
Electronic Systems operating income for the current year fourth quarter of $7.5 million, or 8.7% of revenue, compared to $6.9 million, or 8.9% of revenue, for the comparable quarter in 2017. The year-over-year increase was due to lower inventory purchase accounting adjustments of $1.2 million, partially offset by higher restructuring charges of $1.2 million.
Structural Systems reported net revenue for the current quarter of $78.9 million, compared to $65.1 million for the fourth quarter of 2017. The year-over-year increase was due to the following:
Structural Systems operating income for the current-year fourth quarter was $5.7 million, or 7.2% of revenue, compared to an operating loss of $(2.6) million, or (4.0)% of revenue, for the fourth quarter of 2017. The year-over-year increase was due to lower restructuring charges of $4.7 million and improved operating performance.
Corporate General and Administrative ("CG&A") Expense
CG&A expense for the fourth quarter of 2018 was $6.9 million, or 4.2% of total Company revenue, compared to $6.9 million, or 4.8% of total Company revenue, in the comparable quarter in the prior year. The CG&A expense was essentially flat in the current year quarter due to higher compensation and benefit costs of $0.8 million and higher other debt refinancing costs of $0.7 million, partially offset by lower restructuring charges of $1.5 million.
A teleconference hosted by Stephen G. Oswald, the Company's chairman, 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, 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 7476038. 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 7476038.
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, 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 [benefit], depreciation, amortization, stock-based compensation expense, restructuring charges, inventory purchase accounting adjustments, loss on extinguishment of debt, and other debt refinancing costs). 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 firm 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 backlog amount 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.
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Source: Ducommun Incorporated