News and Information
Ducommun Incorporated

PRESS RELEASE: 2022-11-07

Ducommun Incorporated Reports Third Quarter 2022 Results

Strong Revenue Growth; Commercial Aerospace Strength; Solid Gross Margins

SANTA ANA, Calif., Nov. 07, 2022 (GLOBE NEWSWIRE) -- Ducommun Incorporated (NYSE: DCO) (“Ducommun” or the “Company”) today reported results for its third quarter ended October 1, 2022.

Third Quarter 2022 Recap

  • Net revenue was $186.6 million
  • Net income of $8.5 million, or $0.69 per diluted share
  • Adjusted net income of $11.9 million, or $0.96 per diluted share
  • Adjusted EBITDA of $26.0 million, or 13.9% of revenue
  • Completed debt refinancing

“Our third quarter saw very strong top-line growth with Commercial Aerospace demand once again leading the way along with another quarter of solid performance in Ducommun's largest business, defense,” said Stephen G. Oswald, chairman, president and chief executive officer. “Quarterly revenue exceeded $180 million for the first time since before the pandemic in Q4 2019 and rose to $186.6 million, up 14% over Q3 2021. We were very pleased to see the volume growth return in Commercial Aerospace, a significant market for us, with revenue up 66% year-over-year. Gross margins for the Company in Q3 2022 also surpassed 20.0%, to 20.7% as we move forward out of pandemic related headwind. Our Q3 2022 adjusted EBITDA of $26.0 million was a strong increase year-over-year as well and the highest since I joined the Company in 2017.

“Finally, as we had previously announced during Q3 2022, we had an excellent outcome as we completed a debt refinancing at an opportunistic time. Our debt was set to mature in 2024 and 2025 but with this refinancing, we upsized our revolving credit facility which allows for further growth of our Company, and our debt will now mature in 2027.”

Third Quarter Results

Net revenue for the third quarter of 2022 was $186.6 million compared to $163.2 million for the third quarter of 2021. The year-over-year increase of 14.3% was primarily due to the following:

  • $27.2 million higher revenue in the Company’s commercial aerospace end-use markets due to higher build rates on large aircraft platforms, other commercial aerospace platforms, and regional and business aircraft platforms; partially offset by
  • $7.3 million lower revenue in the Company’s military and space end-use markets due to lower build rates on military rotary-wing aircraft platforms and military fixed-wing aircraft platforms, partially offset by higher build rates on other military and space platforms.

Net income for the third quarter of 2022 was $8.5 million, or $0.69 per diluted share, compared to $9.6 million, or $0.78 per diluted share, for the third quarter of 2021. This reflects higher selling, general and administrative (“SG&A”) expenses of $2.9 million, partially offset by higher gross profit of $3.3 million.

Gross profit for the third quarter of 2022 was $38.6 million, or 20.7% of revenue, compared to gross profit of $35.3 million, or 21.6% of revenue, for the third quarter of 2021. The decrease in gross profit as a percentage of net revenue year-over-year was primarily due to unfavorable product mix, partially offset by favorable manufacturing volume.

Operating income for the third quarter of 2022 was $13.2 million, or 7.1% of revenue, compared to $13.4 million, or 8.2% of revenue, in the comparable period last year. The year-over-year decrease of $0.1 million was primarily due to higher gross profit, partially offset by higher SG&A expenses. Adjusted operating income for the third quarter of 2022 was $17.2 million, or 9.2% of revenue, compared to $15.3 million, or 9.4% of revenue, in the comparable period last year.

Interest expense for the third quarter of 2022 was $3.0 million compared to $2.8 million in the comparable period of 2021. The year-over-year increase was primarily due to higher interest rates, partially offset by a lower outstanding debt balance.

Adjusted EBITDA for the third quarter of 2022 was $26.0 million, or 13.9% of revenue, compared to $23.9 million, or 14.6% of revenue, for the comparable period in 2021.

During the third quarter of 2022, the net cash used in operations was $5.5 million compared to the net cash provided by operations of $5.5 million during the third quarter of 2021. The higher net cash used in operations year-over-year was primarily due to higher inventories, higher accounts receivable, and higher investment in contract assets, partially offset by higher accounts payable.

Business Segment Information

Electronic Systems

Electronic Systems segment net revenue for the quarter ended October 1, 2022 was $113.4 million, compared to $104.7 million for the third quarter of 2021. The year-over-year increase was primarily due to the following:

  • $7.8 million higher revenue in 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
  • $2.6 million lower revenue within the Company’s military and space end-use markets due to lower build rates on military fixed-wing aircraft platforms, partially offset by higher build rates on other military and space platforms.

Electronic Systems segment operating income for the quarter ended October 1, 2022 was $13.9 million, or 12.2% of revenue, compared to $15.3 million, or 14.6% of revenue, for the comparable quarter in 2021. The year-over-year decrease of $1.4 million was primarily due to unfavorable product mix, partially offset by favorable manufacturing volume.

Structural Systems

Structural Systems segment net revenue for the quarter ended October 1, 2022 was $73.2 million, compared to $58.5 million for the third quarter of 2021. The year-over-year increase was primarily due to the following:

  • $19.4 million higher revenue within the Company’s commercial aerospace end-use markets due to higher build rates on large aircraft platforms, other commercial aerospace platforms, and regional and business aircraft platforms; partially offset by
  • $4.8 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 military fixed-wing aircraft platforms.

Structural Systems segment operating income for the quarter ended October 1, 2022 was $6.7 million, or 9.1% of revenue, compared to $4.5 million, or 7.6% of revenue, for the comparable quarter in 2021. The year-over-year increase of $2.2 million was primarily due to favorable manufacturing volume.

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

CG&A expenses for the third quarter of 2022 were $7.4 million, or 3.9% of total Company revenue, compared to $6.4 million, or 3.9% of total Company revenue, for the comparable quarter in the prior year. The year-over-year increase in CG&A expenses was primarily due to higher compensation and benefits costs of $1.0 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, November 7, 2022 at 10:00 a.m. PT (1:00 p.m. ET) to review these financial results. To access the conference call, please pre-register using the following registration link:

https://register.vevent.com/register/BI01615fde2536452d8a386e2faaec5c01

Registrants will receive a confirmation with dial-in details. 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. A live webcast of the event can be accessed using the link above. A replay of the webcast will be available on the Ducommun website at Ducommun.com.

Additional information regarding Ducommun's results can be found in the Q3 2022 Earnings Presentation available at Ducommun.com.

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, any statements about the duration of the impact of the COVID-19 pandemic and completion of a debt refinancing, respectively, on the Company’s future performance and growth. 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 strength of the real estate market, the duration of any lease entered into as part of any sale-leaseback transaction, the amount of commissions owed to brokers, and applicable tax rates; 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, November 7, 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, restructuring charges, Guaymas fire related expenses, insurance recoveries related to business interruption, inventory purchase accounting adjustments, loss on extinguishment of debt, 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 other prior period amounts have been reclassified to conform to current year’s presentation.

Beginning with the first quarter of 2022, the Company changed its GAAP to non-GAAP operating income reconciliation, GAAP to non-GAAP earnings reconciliation, and GAAP to non-GAAP earnings per share reconciliation to exclude the amortization of acquisition-related intangible assets as it is a non-cash item and a significant portion of the purchase price for acquisitions may be allocated to intangible assets that have estimated useful lives of up to 19 years. Exclusion of this non-cash amortization expense allows for the comparison of operating results that are consistent over time for both the newly acquired and long-held businesses and with both acquisitive and non-acquisitive peer companies. As such, the Company modified the prior year's presentation for this item to conform with the 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
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands)

    October 1,
2022
  December 31,
2021
Assets        
Current Assets        
Cash and cash equivalents   $ 21,247   $ 76,316  
Accounts receivable, net     94,328     72,261  
Contract assets     194,496     176,405  
Inventories     172,060     150,938  
Production cost of contracts     6,187     8,024  
Other current assets     10,735     8,625  
Total Current Assets     499,053     492,569  
Property and Equipment, Net     105,887     102,419  
Operating Lease Right-of-Use Assets     36,611     33,265  
Goodwill     203,407     203,694  
Intangibles, Net     130,839     141,764  
Other Assets     13,706     5,024  
Total Assets   $ 989,503   $ 978,735  
Liabilities and Shareholders’ Equity        
Current Liabilities        
Accounts payable   $ 89,720   $ 66,059  
Contract liabilities     34,057     42,077  
Accrued and other liabilities     44,257     41,291  
Operating lease liabilities     7,164     6,133  
Current portion of long-term debt     6,250     7,000  
Total Current Liabilities     181,448     162,560  
Long-Term Debt, Less Current Portion     242,061     279,384  
Non-Current Operating Lease Liabilities     30,632     28,074  
Deferred Income Taxes     14,123     18,727  
Other Long-Term Liabilities     12,452     15,388  
Total Liabilities     480,716     504,133  
Commitments and Contingencies        
Shareholders’ Equity        
Common Stock     121     119  
Additional Paid-In Capital     110,025     104,253  
Retained Earnings     397,971     377,263  
Accumulated Other Comprehensive Income (Loss)     670     (7,033 )
Total Shareholders’ Equity     508,787     474,602  
Total Liabilities and Shareholders’ Equity   $ 989,503   $ 978,735  



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

    Three Months Ended   Nine Months Ended
    October 1,
2022
  October 2,
2021
  October 1,
2022
  October 2,
2021
Net Revenues   $ 186,590     $ 163,227     $ 524,269     $ 480,570  
Cost of Sales     148,003       127,912       418,565       375,373  
Gross Profit     38,587       35,315       105,704       105,197  
Selling, General and Administrative Expenses     24,803       21,952       72,340       68,132  
Restructuring Charges     567             3,270        
Operating Income     13,217       13,363       30,094       37,065  
Interest Expense     (2,998 )     (2,770 )     (8,056 )     (8,433 )
Loss on Extinguishment of Debt     (295 )           (295 )      
Other Income           196       3,000       196  
Income Before Taxes     9,924       10,789       24,743       28,828  
Income Tax Expense     1,462       1,205       4,035       4,126  
Net Income   $ 8,462     $ 9,584     $ 20,708     $ 24,702  
Earnings Per Share                
Basic earnings per share   $ 0.70     $ 0.80     $ 1.72     $ 2.08  
Diluted earnings per share   $ 0.69     $ 0.78     $ 1.68     $ 2.02  
Weighted-Average Number of Common Shares Outstanding                
Basic     12,112       11,920       12,057       11,862  
Diluted     12,350       12,242       12,346       12,248  
                 
Gross Profit %     20.7 %     21.6 %     20.2 %     21.9 %
SG&A %     13.3 %     13.4 %     13.8 %     14.2 %
Operating Income %     7.1 %     8.2 %     5.7 %     7.7 %
Net Income %     4.5 %     5.9 %     3.9 %     5.1 %
Effective Tax Rate     14.7 %     11.2 %     16.3 %     14.3 %



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

    Three Months Ended   Nine Months Ended
    %
Change
  October 1,
2022
  October 2,
2021
  %
of Net  Revenues
2022
  %
of Net  Revenues
2021
  %
Change
  October 1,
2022
  October 2,
2021
  %
of Net  Revenues
2022
  %
of Net  Revenues
2021
Net Revenues                                        
Electronic Systems   8.3 %   $ 113,404     $ 104,721     60.8 %   64.2 %   4.6 %   $ 320,602     $ 306,622     61.2 %   63.8 %
Structural Systems   25.1 %     73,186       58,506     39.2 %   35.8 %   17.1 %     203,667       173,948     38.8 %   36.2 %
Total Net Revenues   14.3 %   $ 186,590     $ 163,227     100.0 %   100.0 %   9.1 %   $ 524,269     $ 480,570     100.0 %   100.0 %
Segment Operating Income                                        
Electronic Systems       $ 13,881     $ 15,319     12.2 %   14.6 %       $ 36,902     $ 42,185     11.5 %   13.8 %
Structural Systems         6,687       4,457     9.1 %   7.6 %         12,839       15,177     6.3 %   8.7 %
          20,568       19,776                   49,741       57,362          
Corporate General and Administrative Expenses(1)         (7,351 )     (6,413 )   (3.9 )%   (3.9 )%         (19,647 )     (20,297 )   (3.7 )%   (4.2 )%
Total Operating Income       $ 13,217     $ 13,363     7.1 %   8.2 %       $ 30,094     $ 37,065     5.7 %   7.7 %
Adjusted EBITDA                                        
Electronic Systems                                        
Operating Income       $ 13,881     $ 15,319                 $ 36,902     $ 42,185          
Other Income               196                         196          
Depreciation and Amortization         3,510       3,547                   10,500       10,396          
Restructuring Charges         340                         1,624                
          17,731       19,062     15.6 %   18.2 %         49,026       52,777     15.3 %   17.2 %
Structural Systems                                        
Operating Income         6,687       4,457                   12,839       15,177          
Depreciation and Amortization         4,100       3,599                   12,659       10,540          
Restructuring Charges         227                         2,174                
Guaymas fire related expenses         1,496       704                   3,451       1,871          
Inventory Purchase Accounting Adjustments         107                         1,381                
          12,617       8,760     17.2 %   15.0 %         32,504       27,588     16.0 %   15.9 %
Corporate General and Administrative Expenses(1)                                        
Operating loss         (7,351 )     (6,413 )                 (19,647 )     (20,297 )        
Depreciation and Amortization         59       58                   176       176          
Stock-Based Compensation Expense(2)         2,714       2,407                   7,904       8,149          
Other Debt Refinancing Costs         224                         224                
          (4,354 )     (3,948 )                 (11,343 )     (11,972 )        
Adjusted EBITDA       $ 25,994     $ 23,874     13.9 %   14.6 %       $ 70,187     $ 68,393     13.4 %   14.2 %
Capital Expenditures                                        
Electronic Systems       $ 3,192     $ 1,964                 $ 7,831     $ 3,865          
Structural Systems         1,175       1,598                   7,033       6,154          
Corporate Administration                                                
Total Capital Expenditures       $ 4,367     $ 3,562                 $ 14,864     $ 10,019          

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

(2)   The three and nine months ended October 1, 2022 included $0.2 million and $0.8 million, respectively, of stock-based compensation expense for awards with both performance and market conditions that will be settled in cash.



DUCOMMUN INCORPORATED AND SUBSIDIARIES
GAAP TO NON-GAAP OPERATING INCOME RECONCILIATION
(Unaudited)
(Dollars in thousands)

    Three Months Ended   Nine Months Ended
GAAP To Non-GAAP Operating Income   October 1, 2022   October 2, 2021   %
of Net  Revenues
2022
  %
of Net  Revenues
2021
  October 1, 2022   October 2, 2021   %
of Net  Revenues
2022
  %
of Net  Revenues
2021
GAAP Operating income   $ 13,217     $ 13,363             $ 30,094     $ 37,065          
                                 
GAAP Operating income - Electronic Systems   $ 13,881     $ 15,319             $ 36,902     $ 42,185          
Adjustment:                                
Restructuring charges     340                     1,624                
Amortization of acquisition-related intangible assets     374       374               1,120       1,120          
Adjusted operating income - Electronic Systems     14,595       15,693     12.9 %   15.0 %     39,646       43,305     12.4 %   14.1 %
                                 
GAAP Operating income - Structural Systems     6,687       4,457               12,839       15,177          
Adjustment:                                
Restructuring charges     227                     2,174                
Guaymas fire related expenses     1,496       704               3,451       1,871          
Inventory purchase accounting adjustments     107                     1,381                
Amorti