News and Information
Ducommun Incorporated

PRESS RELEASE: 2021-02-11

Ducommun Reports Results for the Fourth Quarter Ended December 31, 2020

Solid Finish to 2020; Company Positioned for Growth in 2021 and Beyond

SANTA ANA, Calif., Feb. 11, 2021 (GLOBE NEWSWIRE) -- Ducommun Incorporated (NYSE:DCO) (“Ducommun” or the “Company”) today reported results for its fourth quarter and year ended December 31, 2020.

Fourth Quarter 2020 Recap

  • Revenue of $157.8 million
  • GAAP net income of $9.7 million, or $0.80 per diluted share
  • Adjusted net income for the quarter of $10.8 million, or $0.89 per diluted share
  • Gross margin increased 60 basis points year-over-year to 22.1%
  • Adjusted EBITDA of $22.8 million, or 14.4% of revenues, an increase of 90 basis points year-over-year

“I am proud of the Ducommun team continuing to move forward in the fourth quarter and delivering excellent results. The numbers show the strength of our product lines, diversity of our customer base and performance positions us well for the future,” said Stephen G. Oswald, chairman, president and chief executive officer. “Our military and space revenue rose more than 25% in both the fourth quarter and the year as a whole, resulting in total 2020 revenue of almost $425 million, a new record for the Company. At the same time, ongoing cost saving projects and our lean operations initiatives along with an improved product mix, drove fourth quarter gross margins up 60 basis points year-over-year, to 22.1%, and earnings of $0.80 per diluted share. The positive results during the pandemic are a clear signal that Ducommun's value offering to the marketplace and operational performance will deliver for our shareholders in the future.

“With a defense backlog* at all time highs and some forecasted stability in our commercial business, we are optimistic about the quarters to come. Given improving fundamentals in aircraft production, and pent up demand for air travel post pandemic, the Company is in great shape to weather the remaining headwinds and drive higher growth in the second half of 2021, with the 2022 outlook being even better. I want to thank our employees for their dedication to our success, Ducommun's investors for their support, and our customers for their loyalty throughout 2020.”

Fourth Quarter Results

Net revenue for the fourth quarter of 2020 was $157.8 million, compared to $186.9 million for the fourth quarter of 2019. The 15.6% decrease year-over-year was primarily due to the following:

  • $42.2 million lower revenue within the Company’s commercial aerospace end-use markets due to lower build rates on large aircraft platforms; and
  • $10.1 million lower revenue within the Company’s Industrial end-use markets due to timing of customer requirements; partially offset by
  • $23.2 million higher revenue within the Company’s military and space end-use markets due to higher build rates on various missile platforms and military fixed-wing aircraft platforms.

Net income for the fourth quarter of 2020 was $9.7 million, or $0.80 per diluted share, compared to $8.9 million, or $0.75 per diluted share, for the fourth quarter of 2019. The increase in net income year-over-year was due to lower interest expense of $2.6 million, lower SG&A expense of $2.4 million, and lower income tax expense of $1.6 million, partially offset by a $5.3 million decrease in gross profit due to lower revenue.

Gross profit for the fourth quarter of 2020 was $34.8 million, or 22.1% of revenue, compared to gross profit of $40.1 million, or 21.5% of revenue, for the fourth quarter of 2019. The increase in gross margin percentage year-over-year was due to favorable product mix, partially offset by unfavorable manufacturing volume and higher compensation and benefit costs.

Operating income for the fourth quarter of 2020 was $11.6 million, or 7.3% of revenue, compared to $15.2 million, or 8.1% of revenue, in the comparable period last year. The year-over-year decrease was due to lower revenue, partially offset by lower SG&A expenses. Adjusted operating income for the fourth quarter of 2020 was $12.9 million, or 8.2%, compared to $15.8 million, or 8.4% of revenue, in the comparable period last year.

Interest expense for the fourth quarter of 2020 was $2.6 million compared to $5.2 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 revolving credit facilities as a result of drawing down $50.0 million during the first quarter of 2020 to hold as cash on hand, $25.0 million of which was repaid during the three months ended December 31, 2020. The net $25.0 million draw down on the revolving credit facility remained as cash on hand as of December 31, 2020.

Adjusted EBITDA for the fourth quarter of 2020 was $22.8 million, or 14.4% of revenue, compared to $25.2 million, or 13.5% of revenue, for the comparable period in 2019.

* 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, 2020 was $822.0 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 December 31, 2020 were $779.7 million compared to $745.3 million as of December 31, 2019.

Business Segment Information

Electronic Systems

Electronic Systems reported net revenue for the current quarter of $99.1 million, compared to $96.3 million for the fourth quarter of 2019. The year-over-year increase was primarily due to the following:

  • $17.6 million higher revenue within the Company’s military and space end-use markets due to higher build rates on various missile platforms and military fixed-wing aircraft platforms; partially offset by
  • $10.1 million lower revenue within the Company’s Industrial end-use markets due to timing of customer requirements; and
  • $4.7 million lower revenue within the Company’s commercial aerospace end-use markets due lower build rates on other commercial aerospace platforms, regional and business aircraft platforms, and large aircraft platforms.

Electronic Systems operating income for the current year fourth quarter of $11.5 million, or 11.6% of revenue, compared to $9.9 million, or 10.2% of revenue, for the comparable quarter in 2019. The year-over-year increase was due to favorable manufacturing volume and favorable product mix, partially offset by higher compensation and benefit costs.

Structural Systems

Structural Systems reported net revenue for the current quarter of $58.7 million, compared to $90.6 million for the fourth quarter of 2019. The year-over-year decrease was due to the following:

  • $37.6 million lower revenue within the Company’s commercial aerospace end-use markets due to lower build rates on large aircraft platforms; partially offset by
  • $5.7 million higher revenue within the Company’s military and space end-use markets due to higher build rates on various missile platforms.

Structural Systems operating income for the current-year fourth quarter was $6.2 million, or 10.6% of revenue, compared to $11.6 million, or 12.8% of revenue, for the fourth quarter of 2019. The year-over-year decrease was due to unfavorable manufacturing volume and higher compensation and benefit costs, partially offset by favorable product mix.

Corporate General and Administrative (“CG&A”) Expense

CG&A expense for the fourth quarter of 2020 was $6.1 million, or 3.9% of total Company revenue, compared to $6.3 million, or 3.4% of total Company revenue, in the comparable quarter in the prior year.

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 11, 2021, 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 1085599. 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 1085599.

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, growth in the second half of 2021, outlook for 2022, strategies, future demand, 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, February 11, 2021, 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, Guaymas fire related expenses, inventory purchase accounting adjustments, and other debt refinancing costs), 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.

CONTACTS:

Christopher D. Wampler, Vice President, Chief Financial Officer, Controller and Treasurer, 657.335.3665
Chris Witty, Investor Relations, 646.438.9385, cwitty@darrowir.com

[Financial Tables Follow]

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

    December 31,
2020
  December 31,
2019
Assets        
Current Assets        
Cash and cash equivalents   $ 56,466     $ 39,584  
Accounts receivable, net   58,025     67,133  
Contract assets   154,028     106,670  
Inventories   129,223     112,482  
Production cost of contracts   6,971     9,402  
Other current assets   5,571     5,497  
Total Current Assets   410,284     340,768  
Property and Equipment, Net   109,990     115,216  
Operating lease right-of-use assets   16,348     19,105  
Goodwill   170,830     170,917  
Intangibles, Net   124,744     138,362  
Deferred Income Taxes   33     55  
Other Assets   5,118     6,006  
Total Assets   $ 837,347     $ 790,429  
Liabilities and Shareholders’ Equity        
Current Liabilities        
Accounts payable   $ 63,980     $ 82,597  
Contract liabilities   28,264     14,517  
Accrued and other liabilities   40,526     37,620  
Operating lease liabilities   3,132     2,956  
Current portion of long-term debt   7,000     7,000  
Total Current Liabilities   142,902     144,690  
Long-Term Debt, Less Current Portion   311,922     300,887  
Non-Current Operating Lease Liabilities   14,555     17,565  
Deferred Income Taxes   16,992     16,766  
Other Long-Term Liabilities   21,642     17,721  
Total Liabilities   508,013     497,629  
Commitments and Contingencies        
Shareholders’ Equity        
Common stock   117     116  
Additional paid-in capital   97,090     88,399  
Retained earnings   241,727     212,553  
Accumulated other comprehensive loss   (9,600 )   (8,268 )
Total Shareholders’ Equity   329,334     292,800  
Total Liabilities and Shareholders’ Equity   $ 837,347     $ 790,429  
                 

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,
2020
  December 31,
2019
  December 31,
2020
  December 31,
2019
Net Revenues   $ 157,786       $ 186,926       $ 628,941       $ 721,088    
Cost of Sales   122,985       146,815       491,203       568,891    
Gross Profit   34,801       40,111       137,738       152,197    
Selling, General and Administrative Expenses   22,555       24,933       89,808       95,964    
Restructuring Charges   656             2,424          
Operating Income   11,590       15,178       45,506       56,233    
Interest Expense   (2,585 )     (5,150 )     (13,653 )     (18,290 )  
Loss on Extinguishment of Debt         (180 )           (180 )  
Other Income, Net   29             128          
Income Before Taxes   9,034       9,848       31,981       37,763    
Income Tax (Benefit) Expense   (619 )     977       2,807       5,302    
Net Income   $ 9,653       $ 8,871       $ 29,174       $ 32,461    
Earnings Per Share                
Basic earnings per share   $ 0.82       $ 0.77       $ 2.50       $ 2.82    
Diluted earnings per share   $ 0.80       $ 0.75       $ 2.45       $ 2.75    
Weighted-Average Number of Common Shares Outstanding                
Basic   11,720       11,568       11,676       11,518    
Diluted   12,070       11,837       11,932       11,792    
                 
Gross Profit %   22.1   %   21.5   %   21.9   %   21.1   %
SG&A %   14.3   %   13.3   %   14.3   %   13.3   %
Operating Income %   7.3   %   8.1   %   7.2   %   7.8   %
Net Income %   6.1   %   4.7   %   4.6   %   4.5   %
Effective Tax (Benefit) Rate   (6.9 ) %   9.9   %   8.8   %   14.0   %

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

    Three Months Ended   Years Ended
    %
Change
  December
31, 2020
  December
31, 2019
  %
of Net  Revenues
2020
  %
of Net  Revenues
2019
  %
Change
  December
31, 2020
  December
31, 2019
  %
of Net  Revenues
2020
  %
of Net  Revenues
2019
Net Revenues                                        
Electronic Systems   2.9   %   $ 99,093       $ 96,328       62.8   %   51.5   %   9.0   %   $ 392,633       $ 360,373       62.4   %   50.0   %
Structural Systems   (35.2 ) %   58,693       90,598       37.2   %   48.5   %   (34.5 ) %   236,308       360,715       37.6   %   50.0   %
Total Net Revenues   (15.6 ) %   $ 157,786       $ 186,926       100.0   %   100.0   %   (12.8 ) %   $ 628,941       $ 721,088       100.0   %   100.0   %
Segment Operating Income                                        
Electronic Systems       $ 11,467       $ 9,863       11.6   %   10.2   %       $ 51,894       $ 38,613       13.2   %   10.7   %
Structural Systems       6,211       11,637       10.6   %   12.8   %       19,584       46,836       8.3   %   13.0   %
        17,678       21,500                   71,478       85,449            
Corporate General and Administrative Expenses (1)       (6,088 )     (6,322 )     (3.9 ) %   (3.4 ) %       (25,972 )     (29,216 )     (4.1 ) %   (4.1 ) %
Total Operating Income       $ 11,590       $ 15,178       7.3   %   8.1   %       $ 45,506       $ 56,233       7.2   %   7.8   %
Adjusted EBITDA                                        
Electronic Systems                                        
Operating Income       $ 11,467       $ 9,863                   $ 51,894       $ 38,613            
Depreciation and Amortization       3,447       3,568                   14,038       14,170            
Restructuring Charges       264                         596                  
        15,178       13,431       15.3   %   13.9   %       66,528       52,783       16.9   %   14.6   %
Structural Systems                                        
Operating Income       6,211       11,637                   19,584       46,836            
Depreciation and Amortization       3,603       3,913                   14,559       13,663            
Restructuring Charges       392                         1,828                  
Inventory Purchase Accounting Adjustments             511                         511            
Guaymas Fire Related Expenses       682                         1,704                  
        10,888       16,061       18.6   %   17.7   %       37,675       61,010       15.9   %   16.9   %
Corporate General and Administrative Expenses (1)                                        
Operating loss       (6,088 )     (6,322 )                 (25,972 )     (29,216 )          
Other Income       29                         128                  
Depreciation and Amortization       59       73                   253       472            
Stock-Based Compensation Expense       2,694       1,839                   9,299       7,161            
Other Debt Refinancing Costs             77                         77            
        (3,306 )     (4,333 )                 (16,292 )     (21,506 )          
Adjusted EBITDA       $ 22,760       $ 25,159       14.4   %   13.5   %       $ 87,911       $ 92,287       14.0   %   12.8   %
                                         
Capital Expenditures                                        
Electronic Systems       $ 1,519       $ 688                   $ 5,037       $ 5,508            
Structural Systems       4,170       3,230                   8,570       13,338            
Corporate Administration                                                
Total Capital Expenditures       $ 5,689       $ 3,918                   $ 13,607       $ 18,846            
                                                                 

(1)   Includes costs not allocated to either the Electronic Systems or Structural Systems operating segments.

DUCOMMUN INCORPORATED AND SUBSIDIARIES
GAAP TO NON-GAAP OPERATING INCOME AND AS A PERCENTAGE OF NET REVENUES RECONCILIATION
(Unaudited)
(Dollars in thousands)

    Three Months Ended   Years Ended
GAAP To Non-GAAP Operating Income   December
31,
2020
  December
31,
2019
  %
of Net  Revenues
2020
  %
of Net  Revenues
2019
  December
31,
2020
  December
31,
2019
  %
of Net  Revenues
2020
  %
of Net  Revenues
2019
GAAP Operating income   $ 11,590     $ 15,178             $ 45,506     $ 56,233          
                                 
GAAP Operating income - Electronic Systems   $ 11,467     $ 9,863             $ 51,894     $ 38,613          
Adjustments:                                
Restructuring charges   264                 596              
Adjusted operating income - Electronic Systems   11,731     9,863     11.8 %   10.2 %   52,490     38,613     13.4 %   10.7 %
                                 
GAAP Operating income - Structural Systems   6,211     11,637             19,584     46,836          
Adjustments:                                
Restructuring charges   392                 1,828              
Inventory purchase accounting adjustments       511                 511          
Guaymas fire related expenses   682                 1,704              
Adjusted operating income - Structural Systems   7,285     12,148     12.4 %   13.4 %   23,116     47,347     9.8 %   13.1 %
                                 
GAAP Operating loss - Corporate   (6,088 )   (6,322 )           (25,972 )   (29,216 )        
Adjustment:                                
Other debt refinancing costs       77                 77          
Adjusted operating loss - Corporate   (6,088 )   (6,245 )           (25,972 )   (29,139 )        
   Total adjustments   1,338     588             4,128     588          
Adjusted operating income   $ 12,928     $ 15,766     8.2 %   8.4 %   $ 49,634     $ 56,821     7.9 %   7.9 %
                                                         

DUCOMMUN INCORPORATED AND SUBSIDIARIES
GAAP TO NON-GAAP EARNINGS AND EARNINGS PER SHARE RECONCILIATION
(Unaudited)
(Dollars in thousands, except per share amounts)

    Three Months Ended   Years Ended
GAAP To Non-GAAP Earnings   December 31,
2020
  December 31,
2019
  December 31,
2020
  December 31,
2019
GAAP Net income   $ 9,653     $ 8,871     $ 29,174     $ 32,461  
Adjustments:                
Restructuring charges (1)   551         2,036      
Guaymas fire related expenses (1)   573         1,431      
Inventory purchase accounting adjustments (2)       409         409  
Loss on extinguishment of debt (2)       144         144  
Other debt refinancing costs (2)       62         62  
Total adjustments   1,124     615     3,467     615  
Adjusted net income   $ 10,777     $ 9,486     $ 32,641     $ 33,076  
                                 


    Three Months Ended   Years Ended
GAAP Earnings Per Share To Non-GAAP Earnings Per Share   December 31,
2020
  December 31,
2019
  December 31,
2020
  December 31,
2019