SANTA ANA, Calif., Oct. 28, 2020 (GLOBE NEWSWIRE) -- Ducommun Incorporated (NYSE:DCO) (“Ducommun” or the “Company”) today reported results for its third quarter ended September 26, 2020.
Third Quarter 2020 Recap
“Ducommun’s results due to our defense business and operational performance really shined in the third quarter despite significant headwind from the pandemic in commercial aerospace along with the continued grounding of the 737 MAX,” said Stephen G. Oswald, chairman, president and chief executive officer. “The defense business grew 40% year-over-year, reflecting a diverse array of demand for nearly all aspects of the Company’s product portfolio. Our military and space backlog* remains at record levels as well, positioning the Company for continued strong performance in this part of our business now and in 2021.
“At the same time, our relentless focus on efficiency, asset utilization and cost reduction resulted in gross margins rising 110 basis points year-over-year to 22.3% along with adjusted operating margins of 8.2%, versus 8.1% in 2019. Our Electronic Systems segment posted particularly robust results, with revenue up 14% and adjusted operating income of 14.7%, a 400 basis point improvement. EPS was also $0.69 per diluted share on an adjusted basis which was a $0.21 per diluted share increase from Q2. I’m very pleased with this standout performance and want to extend a special thanks to our dedicated employees who are outperforming the current challenging conditions.
“While near term shipments within the commercial aerospace market will remain under pressure, our operations’ footprint and capacity are ready to support the eventual demand increases. We are also cautiously optimistic given the recent positive statements about the 737 MAX’s return to service. Overall, Ducommun is well positioned to weather the remaining headwinds and is prepared for strengthening economic fundamentals and a return to revenue growth for the Company in 2021.”
Third Quarter Results
Net revenue for the third quarter of 2020 was $150.4 million compared to $181.1 million for the third quarter of 2019. The year-over-year decrease of 17.0% was primarily due to the following:
Net income for the third quarter of 2020 was $6.5 million, or $0.54 per diluted share, compared to $8.3 million, or $0.70 per diluted share, for the third quarter of 2019. This reflects a $4.9 million decrease in gross profit due to lower revenue and higher restructuring charges of $1.1 million, partially offset by lower SG&A expenses of $1.6 million.
Gross profit for the third quarter of 2020 was $33.5 million, or 22.3% of revenue, compared to gross profit of $38.3 million, or 21.2% of revenue, for the third quarter of 2019. The increase in gross profit margin as a percentage of net revenue year-over-year was due to favorable product mix, partially offset by unfavorable manufacturing volume.
Operating income for the third quarter of 2020 was $10.3 million, or 6.8% of revenue, compared to $14.6 million, or 8.1% of revenue, in the comparable period last year. The year-over-year decrease of $4.3 million was due to lower revenue, partially offset by lower SG&A expenses. Adjusted operating income for the third quarter of 2020 was $12.4 million, or 8.2% of revenue, compared to $14.6 million, or 8.1% of revenue, in the comparable period last year.
Interest expense for the third quarter of 2020 was $3.1 million compared to $4.4 million in the comparable period of 2019. The year-over-year decrease was due to lower interest rates, partially offset by a higher outstanding balance on the Company’s credit facilities driven by the acquisition of Nobles Worldwide, Inc. (“Nobles”) in October 2019, and higher net draw downs on the Company’s revolving credit facility, including $50.0 million during the first quarter of 2020, which remained as cash on hand at the end of the third quarter of 2020.
Adjusted EBITDA for the third quarter of 2020 was $21.6 million, or 14.4% of revenue, compared to $23.6 million, or 13.1% of revenue, for the comparable period in 2019.
During the third quarter of 2020, the net cash provided by operations was $4.9 million compared to $12.0 million during the third quarter of 2019. The change year-over-year was due to higher contract assets and lower accounts payable, partially offset by higher contract liabilities and lower accounts receivable.
* 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 September 26, 2020 was $796.0 million compared to $910.2 million as of December 31, 2019. 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 as of September 26, 2020 were $746.1 million compared to $745.3 million as of December 31, 2019.
Business Segment Information
Electronic Systems
Electronic Systems segment net revenue for the quarter ended September 26, 2020 was $103.5 million, compared to $90.6 million for the third quarter of 2019. The year-over-year increase was primarily due to the following:
Electronic Systems segment operating income for the quarter ended September 26, 2020 was $14.9 million, or 14.4% of revenue, compared to $9.7 million, or 10.7% of revenue, for the comparable quarter in 2019. The year-over-year increase of $5.2 million was due to favorable volume and favorable mix.
Structural Systems
Structural Systems segment net revenue for the quarter ended September 26, 2020 was $46.9 million, compared to $90.5 million for the third quarter of 2019. The year-over-year decrease was due to the following:
Structural Systems segment operating income for the quarter ended September 26, 2020 was $1.8 million, or 3.8% of revenue, compared to $12.9 million, or 14.2% of revenue, for the comparable quarter in 2019. The year-over-year decrease of $11.1 million was due to unfavorable manufacturing volume.
Structural Systems segment adjusted operating income for the quarter ended September 26, 2020 was $3.6 million, or 7.7% of revenue, compared to $12.9 million, or 14.2% of revenue, for the comparable quarter in 2019.
Corporate General and Administrative (“CG&A”) Expenses
CG&A expenses for the third quarter of 2020 were $6.4 million, or 4.2% of total Company revenue, compared to $7.9 million, or 4.4% of total Company revenue, for the comparable quarter in the prior year. The decrease in CG&A expenses was due to lower professional services fees of $1.1 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 28, 2020 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 10 minutes prior to the conference time. The participant passcode is 5817565. 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 Ducommun.com. Conference call replay will be available after that time at the same link or by dialing 855-859-2056, passcode 5817565.
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 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 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,” “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 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; 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 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 28, 2020, 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, restructuring charges, and Guaymas fire related expenses).
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, 657.335.3665Chris Witty, Investor Relations, 646.438.9385, cwitty@darrowir.com
[Financial Tables Follow]
(1) Includes costs not allocated to either the Electronic Systems or Structural Systems operating segments.
(1) Includes effective tax rate of 16.0% for 2020 adjustments.
* 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 September 26, 2020 was $796.0 million compared to $910.2 million as of December 31, 2019. 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 $746.1 million.
Source: Ducommun Incorporated
