SANTA ANA, Calif., May 04, 2023 (GLOBE NEWSWIRE) -- Ducommun Incorporated (NYSE: DCO) (“Ducommun” or the “Company”) today reported results for its first quarter ended April 1, 2023.
First Quarter 2023 Recap
“We are off to a good start in 2023, with double digit top-line growth, led by strong Commercial Aerospace demand and continued steady performance from our defense business,” said Stephen G. Oswald, chairman, president and chief executive officer. “Quarterly revenue exceeded $180 million for a second consecutive quarter, increasing to $181.2 million, up 11% over Q1 2022. Our excellent position on narrow-body aircraft was key to driving Commercial Aerospace revenues up 35% year-over-year, another positive sign the recovery is in good shape and will only get better this year and in 2024. The Company also delivered gross margins in Q1 2023 of 20.3%, a solid overall performance as well as we continue to work through our meaningful restructuring activities. Our Q1 2023 adjusted EBITDA of $23.1 million is an increase of $3.0 million compared to a year ago.
“Finally, we announced last month we had completed the acquisition of BLR Aerospace, an industry leader in providing engineered products and aftermarket services to rotocraft, fixed-wing business aviation OEM customers and fleet operators. I am delighted this is now our fifth and largest acquisition since I joined the Company back in 2017. BLR Aerospace is also 100 percent in line with the expectations discussed at the Ducommun Investor Day in December 2022 as it strengthens our proprietary engineered products and aftermarket revenue.”
First Quarter Results
Net revenue for the first quarter of 2023 was $181.2 million compared to $163.5 million for the first quarter of 2022. The year-over-year increase of 10.8% was primarily due to the following:
Net income for the first quarter of 2023 was $5.2 million, or $0.42 per diluted share, compared to $8.1 million, or $0.66 per diluted share, for the first quarter of 2022. This reflects higher restructuring charges of $4.2 million and higher selling, general and administrative (“SG&A”) expenses of $2.9 million, partially offset by higher gross profit of $4.3 million.
Gross profit for the first quarter of 2023 was $36.8 million, or 20.3% of revenue, compared to gross profit of $32.5 million, or 19.9% of revenue, for the first quarter of 2022. The increase in gross profit as a percentage of net revenue year-over-year was primarily due to favorable manufacturing volume, partially offset by unfavorable other manufacturing costs and unfavorable product mix.
Operating income for the first quarter of 2023 was $6.4 million, or 3.5% of revenue, compared to $9.1 million, or 5.6% of revenue, in the comparable period last year. The year-over-year decrease of $2.8 million was primarily due to higher restructuring charges and higher SG&A expenses, partially offset by higher gross profit. Adjusted operating income for the first quarter of 2023 was $13.6 million, or 7.5% of revenue, compared to $12.3 million, or 7.5% of revenue, in the comparable period last year.
Interest expense for the first quarter of 2023 was $4.2 million compared to $2.4 million in the comparable period of 2022. The year-over-year increase was primarily due to higher interest rates, partially offset by a lower outstanding debt balance.
Adjusted EBITDA for the first quarter of 2023 was $23.1 million, or 12.7% of revenue, compared to $20.1 million, or 12.3% of revenue, for the comparable period in 2022.
During the first quarter of 2023, the net cash used in operations was $18.9 million, essentially flat compared to $18.9 million during the first quarter of 2022. The net cash used in operations during the first quarter of 2023 was primarily due to higher inventories, lower accrued and other liabilities, and lower net income, partially offset by lower accounts receivable.
Business Segment Information
Electronic Systems segment net revenue for the quarter ended April 1, 2023 was $105.6 million, compared to $97.5 million for the first quarter of 2022. The year-over-year increase was primarily due to the following:
Electronic Systems segment operating income for the quarter ended April 1, 2023 was $10.0 million, or 9.5% of revenue, compared to $9.4 million, or 9.7% of revenue, for the comparable quarter in 2022. The year-over-year increase of $0.6 million was primarily due to favorable manufacturing volume, partially offset by higher restructuring charges and unfavorable product mix.
Structural Systems segment net revenue for the quarter ended April 1, 2023 was $75.6 million, compared to $66.0 million for the first quarter of 2022. The year-over-year increase was primarily due to the following:
Structural Systems segment operating income for the quarter ended April 1, 2023 was $4.7 million, or 6.3% of revenue, compared to $4.9 million, or 7.4% of revenue, for the comparable quarter in 2022. The year-over-year decrease of $0.1 million was primarily due to unfavorable other manufacturing costs, higher restructuring charges, and unfavorable product mix, partially offset by favorable manufacturing volume.
Corporate General and Administrative (“CG&A”) Expenses
CG&A expenses for the first quarter of 2023 were $8.4 million, or 4.6% of total Company revenue, compared to $5.2 million, or 3.2% 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 $1.7 million and higher professional services fees of $1.5 million, mainly due to the BLR acquisition.
A teleconference hosted by Stephen G. Oswald, the Company’s chairman, president and chief executive officer, and Suman B. Mookerji, the Company’s senior vice president, chief financial officer, controller and treasurer will be held today, May 4, 2023 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:
Registrants will receive a confirmation with dial-in details. Mr. Oswald and Mr. Mookerji 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 Q1 2023 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 Company's expectations relating to the commercial aerospace recovery in 2023 and 2024, and the BLR Aerospace acquisition strengthening the Company's engineered products portfolio and adding to its aftermarket revenues. 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, May 4, 2023, 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 loss on operating assets, insurance recoveries related to business interruption, and inventory purchase accounting adjustments), 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.
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. As a result of these factors, trends in our overall level of backlog may not be indicative of trends in our future net revenues.
[Financial Tables Follow]
DUCOMMUN INCORPORATED AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS(Unaudited)(Dollars in thousands)
DUCOMMUN INCORPORATED AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF INCOME(Unaudited)(Dollars in thousands, except per share amounts)
DUCOMMUN INCORPORATED AND SUBSIDIARIESBUSINESS SEGMENT PERFORMANCE(Unaudited)(Dollars in thousands)
(1) Includes costs not allocated to either the Electronic Systems or Structural Systems operating segments.
(2) The three months ended April 1, 2023 and April 2, 2022 included $0.4 million and zero, respectively, of stock-based compensation expense for awards with both performance and market conditions that will be settled in cash.
DUCOMMUN INCORPORATED AND SUBSIDIARIESGAAP TO NON-GAAP OPERATING INCOME RECONCILIATION(Unaudited)(Dollars in thousands)
DUCOMMUN INCORPORATED AND SUBSIDIARIESGAAP TO NON-GAAP EARNINGS AND EARNINGS PER SHARE RECONCILIATION(Unaudited)(Dollars in thousands, except per share amounts)
(1) Includes effective tax rate of 20.0% for both 2023 and 2022 adjustments.
DUCOMMUN INCORPORATED AND SUBSIDIARIESNON-GAAP BACKLOG* BY REPORTING SEGMENT(Unaudited)(Dollars in thousands)
* 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 April 1, 2023 was $960.7 million compared to $960.8 million as of December 31, 2022. Under ASC 606, the Company defines 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 April 1, 2023 were $874.0 million compared to $853.0 million as of December 31, 2022.
Source: Ducommun Incorporated