News and Information
Ducommun Incorporated

PRESS RELEASE: 8/2/2023

Ducommun Incorporated Reports Second Quarter 2023 Results

Strong Commercial Aerospace Demand; Record Backlog* of $1B; Completed Stock Offering

SANTA ANA, Calif., Aug. 03, 2023 (GLOBE NEWSWIRE) -- Ducommun Incorporated (NYSE: DCO) (“Ducommun” or the “Company”) today reported results for its second quarter ended July 1, 2023.

Second Quarter 2023 Recap

  • Net revenue was $187.3 million
  • Net income of $2.4 million, or $0.17 per diluted share
  • Adjusted net income of $7.3 million, or $0.54 per diluted share
  • Adjusted EBITDA of $26.1 million, or 13.9% of revenue
  • Record backlog of $1.0 billion
  • Completed stock offering with net proceeds of $85.1 million
  • Completed the acquisition of BLR Aerospace

“Q2 was an excellent quarter for Ducommun as we grew our topline both year-over-year and sequentially, led by strong Commercial Aerospace demand and steady performance from our defense business while also delivering good improvements in gross and Adjusted EBITDA margins,” said Stephen G. Oswald, chairman, president and chief executive officer. “Quarterly revenue exceeded $180 million for a third consecutive quarter, increasing to $187.3 million, up 8% over Q2 2022 with narrow-body aircraft once again the catalyst in driving Commercial Aerospace revenues up 37% year-over-year. The Company's gross margins as well expanded 150 bps year-over-year from 19.9% to 21.4% for the quarter as we continued improving our operating performance which includes the meaningful on-going restructuring activities that are expected to be completed by the end of this year. Finally, the Company's backlog reached an all-time high and exceeded $1 billion for the first time, driven by the significant growth in orders in our defense business.

“As we previously announced in May, we completed a stock offering with net proceeds of over $85 million and used it to pay down on the debt from the BLR acquisition that was completed in April as we continue to strategically manage our balance sheet and our working capital needs. BLR is another important acquisition as we continue to implement Ducommun's strategy of increasing Engineered Products and Aftermarket revenue in our portfolio.

“Ducommun also participated at the Paris Air Show in June which further validated the Commercial Aerospace recovery has exceeded expectations with plenty of runway ahead. Airbus’ announcement during the Air Show that it had received the single largest aircraft order ever, by number of aircraft, along with Boeing’s announcement of their single largest order in South Asia, were welcomed news, as we look towards the second half of 2023 and strong years ahead.”

Second Quarter Results

Net revenue for the second quarter of 2023 was $187.3 million compared to $174.2 million for the second quarter of 2022. The year-over-year increase of 7.5% was primarily due to the following:

  • $21.2 million higher revenue in the Company’s commercial aerospace end-use markets due to higher build rates on large aircraft platforms and other commercial aerospace platforms; partially offset by
  • $10.8 million lower revenue in the Company’s military and space end-use markets due to lower build rates on military fixed-wing aircraft platforms and various missile platforms.

Net income for the second quarter of 2023 was $2.4 million, or $0.17 per diluted share, compared to $4.1 million, or $0.34 per diluted share, for the second quarter of 2022. This reflects higher selling, general and administrative (“SG&A”) expenses of $6.2 million, higher interest expense of $3.1 million, and higher restructuring charges of $2.1 million, partially offset by higher gross profit of $5.5 million and higher other income of $4.1 million.

Gross profit for the second quarter of 2023 was $40.1 million, or 21.4% of revenue, compared to gross profit of $34.6 million, or 19.9% of revenue, for the second quarter of 2022. The increase in gross profit as a percentage of net revenue year-over-year was primarily due to favorable product mix and favorable manufacturing volume.

Operating income for the second quarter of 2023 was $5.0 million, or 2.7% of revenue, compared to $7.8 million, or 4.5% of revenue, in the comparable period last year. The year-over-year decrease of $2.7 million was primarily due to higher SG&A expenses and higher restructuring charges, partially offset by higher gross profit. Adjusted operating income for the second quarter of 2023 was $15.2 million, or 8.1% of revenue, compared to $14.2 million, or 8.2% of revenue, in the comparable period last year.

Interest expense for the second quarter of 2023 was $5.7 million compared to $2.7 million in the comparable period of 2022. The year-over-year increase was primarily due to higher interest rates and a higher outstanding debt balance.

Adjusted EBITDA for the second quarter of 2023 was $26.1 million, or 13.9% of revenue, compared to $24.1 million, or 13.8% of revenue, for the comparable period in 2022.

During the second quarter of 2023, the net cash provided by operations was $9.2 million compared to $25.0 million during the second quarter of 2022. The lower net cash provided by operations during the second quarter of 2023 was primarily due to lower accounts payable and lower contract liabilities, partially offset by lower contract assets 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 July 1, 2023 was $1,010.2 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 July 1, 2023 were $916.7 million compared to $853.0 million as of December 31, 2022.

Business Segment Information

Electronic Systems

Electronic Systems segment net revenue for the quarter ended July 1, 2023 was $107.1 million, compared to $109.7 million for the second quarter of 2022. The year-over-year decrease was primarily due to the following:

  • $8.4 million lower revenue within the Company’s military and space end-use markets due to lower build rates on military fixed-wing aircraft platforms and various missile platforms; partially offset by
  • $3.1 million higher revenue in the Company’s commercial aerospace end-use markets due to higher build rates on other commercial aerospace platforms

Electronic Systems segment operating income for the quarter ended July 1, 2023 was $9.5 million, or 8.9% of revenue, compared to $13.6 million, or 12.4% of revenue, for the comparable quarter in 2022. The year-over-year decrease of $4.1 million was primarily due to unfavorable product mix and unfavorable manufacturing volume.

Structural Systems

Structural Systems segment net revenue for the quarter ended July 1, 2023 was $80.2 million, compared to $64.5 million for the second quarter of 2022. The year-over-year increase was primarily due to the following:

  • $18.1 million higher revenue within the Company’s commercial aerospace end-use markets due to higher build rates on large aircraft platforms and other commercial aerospace platforms; partially offset by
  • $2.4 million lower revenue within the Company’s military and space end-use markets due to lower build rates on various missile platforms and military fixed-wing aircraft platforms, partially offset by higher build rates on military rotary-wing platforms.

Structural Systems segment operating income for the quarter ended July 1, 2023 was $5.4 million, or 6.7% of revenue, compared to $1.3 million, or 2.0% of revenue, for the comparable quarter in 2022. The year-over-year increase of $4.1 million was primarily due to favorable product mix and favorable manufacturing volume, partially offset by unfavorable other manufacturing costs.

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

CG&A expenses for the second quarter of 2023 were $9.9 million, or 5.3% of total Company revenue, compared to $7.1 million, or 4.1% 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 $2.7 million, a portion of which was related to the acquisition of BLR.

Conference Call

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, August 3, 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:

https://register.vevent.com/register/BI6e5ee2adb0774592be5661a881ed5247

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 Q2 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 results and timing of the completion of its restructuring initiative, and the continued commercial aerospace recovery in the second half of 2023 and years ahead. 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, August 3, 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, other 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, non-GAAP earnings per share, and backlog. 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.

CONTACT:

Suman Mookerji, Senior Vice President, Chief Financial Officer, Controller and Treasurer, 657.335.3665

[Financial Tables Follow]


DUCOMMUN INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands)
 
  July 1,
2023
    December 31,
2022
Assets        
Current Assets        
Cash and cash equivalents $ 22,806     $ 46,246  
Accounts receivable, net   95,382       103,958  
Contract assets   189,836       191,290  
Inventories   204,465       171,211  
Production cost of contracts   5,536       5,693  
Other current assets   11,098       8,938  
Total Current Assets   529,123       527,336  
Property and Equipment, Net   111,357       106,225  
Operating Lease Right-of-Use Assets   36,759       34,632  
Goodwill   244,575       203,407  
Intangibles, Net   174,987       127,201  
Other Assets   21,953       22,705  
Total Assets $ 1,118,754     $ 1,021,506  
Liabilities and Shareholders’ Equity        
Current Liabilities        
Accounts payable $ 82,992     $ 90,143  
Contract liabilities   31,719       47,068  
Accrued and other liabilities   38,111       48,820  
Operating lease liabilities   8,165       7,155  
Current portion of long-term debt   6,250       6,250  
Total Current Liabilities   167,237       199,436  
Long-Term Debt, Less Current Portion   271,460       240,595  
Non-Current Operating Lease Liabilities   30,260       28,841  
Deferred Income Taxes   12,231       13,953  
Other Long-Term Liabilities   15,423       12,721  
Total Liabilities   496,611       495,546  
Commitments and Contingencies        
Shareholders’ Equity        
Common Stock   146       121  
Additional Paid-In Capital   199,526       112,042  
Retained Earnings   413,657       406,052  
Accumulated Other Comprehensive Income   8,814       7,745  
Total Shareholders’ Equity   622,143       525,960  
Total Liabilities and Shareholders’ Equity $ 1,118,754     $ 1,021,506  


 
DUCOMMUN INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in thousands, except per share amounts)
 
  Three Months Ended   Six Months Ended
  July 1,
2023
  July 2,
2022
  July 1,
2023
  July 2,
2022
Net Revenues $ 187,320     $ 174,198     $ 368,511     $ 337,679  
Cost of Sales   147,198       139,556       291,622       270,562  
Gross Profit   40,122       34,642       76,889       67,117  
Selling, General and Administrative Expenses   30,348       24,185       56,573       47,537  
Restructuring Charges   4,769       2,703       8,939       2,703  
Operating Income   5,005       7,754       11,377       16,877  
Interest Expense   (5,735 )     (2,656 )     (9,954 )     (5,058 )
Other Income   4,059             7,945       3,000  
Income Before Taxes   3,329       5,098       9,368       14,819  
Income Tax Expense   955       951       1,763       2,573  
Net Income $ 2,374     $ 4,147     $ 7,605     $ 12,246  
Earnings Per Share              
Basic earnings per share $ 0.18     $ 0.34     $ 0.59     $ 1.02  
Diluted earnings per share $ 0.17     $ 0.34     $ 0.58     $ 0.99  
Weighted-Average Number of Common Shares
Outstanding
             
Basic   13,403       12,070       12,799       12,029  
Diluted   13,599       12,333       13,075       12,337  
               
Gross Profit %   21.4 %     19.9 %     20.9 %     19.9 %
SG&A %   16.2 %     13.9 %     15.4 %     14.1 %
Operating Income %   2.7 %     4.5 %     3.1 %     5.0 %
Net Income %   1.3 %     2.4 %     2.1 %     3.6 %
Effective Tax Rate   28.7 %     18.7 %     18.8 %     17.4 %


 
DUCOMMUN INCORPORATED AND SUBSIDIARIES
BUSINESS SEGMENT PERFORMANCE
(Unaudited)
(Dollars in thousands)
 
  Three Months Ended   Six Months Ended
  %
Change
  July 1,
2023
  July 2,
2022
  %
of Net Revenues
2023
  %
of Net Revenues
2022
  %
Change
  July 1,
2023
  July 2,
2022
  %
of Net Revenues
2023
  %
of Net Revenues
2022
Net Revenues                                      
Electronic Systems (2.4) %   $ 107,124     $ 109,732     57.2 %   63.0 %   2.7 %   $ 212,750     $ 207,198     57.7 %   61.4 %
Structural Systems 24.4 %     80,196       64,466     42.8 %   37.0 %   19.4 %     155,761       130,481     42.3 %   38.6 %
Total Net Revenues 7.5 %   $ 187,320     $ 174,198     100.0 %   100.0 %   9.1 %   $ 368,511     $ 337,679     100.0 %   100.0 %
Segment Operating Income                                      
Electronic Systems     $ 9,528     $ 13,610     8.9 %   12.4 %       $ 19,539     $ 23,021     9.2 %   11.1 %
Structural Systems       5,385       1,265     6.7 %   2.0 %         10,130       6,152     6.5 %   4.7 %
        14,913       14,875                   29,669       29,173          
Corporate General and Administrative Expenses(1)       (9,908 )     (7,121 )   (5.3) %   (4.1) %         (18,292 )     (12,296 )   (5.0) %   (3.6) %
Total Operating Income     $ 5,005     $ 7,754     2.7 %   4.5 %       $ 11,377     $ 16,877     3.1 %   5.0 %
Adjusted EBITDA                                      
Electronic Systems                                      
Operating Income     $ 9,528     $ 13,610                 $ 19,539     $ 23,021          
Other Income       222                         222                
Depreciation and Amortization       3,561       3,484                   7,059       6,990          
Restructuring Charges       2,071       1,284                   3,945       1,284          
        15,382       18,378     14.4 %   16.7 %         30,765       31,295     14.5 %   15.1 %
Structural Systems                                      
Operating Income       5,385       1,265                   10,130       6,152          
Depreciation and Amortization       4,335       4,356                   8,767       8,559          
Restructuring Charges       2,612       1,947                   4,908       1,947          
Guaymas fire related expenses       1,880       998                   3,348       1,955          
Other fire related expenses       477                         477                
Inventory Purchase Accounting Adjustments       766       637                   766       1,274          
        15,455       9,203     19.3 %   14.3 %         28,396       19,887     18.2 %   15.2 %
Corporate General and Administrative Expenses(1)                                      
Operating loss       (9,908 )     (7,121 )                 (18,292 )     (12,296 )        
Depreciation and Amortization       58       58                   117       117          
Stock-Based Compensation Expense(2)       5,036       3,600                   8,117       5,190          
Restructuring Charges       86                         86                
        (4,728 )     (3,463 )                 (9,972 )     (6,989 )        
Adjusted EBITDA     $ 26,109     $ 24,118     13.9 %   13.8