News and Information
Ducommun Incorporated

PRESS RELEASE: 08/03/2017

Ducommun Reports Results for the Second Quarter Ended July 1, 2017

Revenue Growth; Strong Backlog; Poised for Sales Acceleration

SANTA ANA, Calif., Aug. 03, 2017 (GLOBE NEWSWIRE) -- Ducommun Incorporated (NYSE:DCO) (“Ducommun” or the “Company”) today reported results for its second quarter ended July 1, 2017.

Second Quarter 2017 Highlights

  • Revenue of $140.9 million
  • Net income of $3.8 million, or $0.33 per diluted share
  • Adjusted EBITDA of $13.6 million
  • Backlog of $611 million

“The Ducommun team has made a concerted effort to significantly improve performance to our customers and set the stage for future growth, along with long-term margin expansion,” said Stephen G. Oswald, president and chief executive officer. “While further steps are clearly needed to take Ducommun to where I know it can go, I’m pleased with the revenue growth this quarter - both sequentially and year-over-year - as well as our robust backlog of $611 million, which now includes $337 million of commercial aerospace bookings. At the same time, the Company invested $9 million in the business during the quarter, primarily in our titanium centers of excellence, which will serve future requirements for Boeing, Airbus, and Gulfstream. Overall, I think we are well on our way to transforming Ducommun into a faster-growing, better performing enterprise, and we will continue to take decisive steps this year to position us for 2018 and beyond.”

Second Quarter Results

Net revenue for the second quarter of 2017 was $140.9 million compared to $133.4 million for the second quarter of 2016. The year-over-year increase was primarily due to the following:

  • $17.6 million higher revenue in the Company’s military and space end-use markets mainly driven by increased demand, which favorably impacted the Company’s helicopter, fixed-wing, and missile platforms; partially offset by
  • $7.7 million lower revenue in the Company’s commercial aerospace end-use markets, reflecting the winding down of a regional jet program and continued softness in demand in the business jet market; and
  • $2.4 million lower revenue in the Company’s industrial end-use markets.

Net income for the second quarter of 2017 was $3.8 million, or $0.33 per diluted share, compared to $3.9 million, or $0.34 per diluted share, for the second quarter of 2016. The year-over-year decrease was primarily due to the following:

  • $0.8 million higher selling, general, and administrative (“SG&A”) expense mainly due to higher compensation and benefit costs; partially offset by
  • $0.7 million of lower income tax expense.

Gross profit for the second quarter of 2017 was $26.2 million, or 18.6% of revenue, compared to gross profit of $26.2 million, or 19.6% of revenue, for the second quarter of 2016. The decrease in gross margin percentage year-over-year was primarily due to unfavorable product mix, partially offset by higher manufacturing volume.

Operating income for the second quarter of 2017 was $6.5 million, or 4.6% of revenue, compared to $7.3 million, or 5.4% of revenue, in the comparable period last year. The year-over-year decrease was primarily due to higher SG&A expense mainly due to higher compensation and benefit costs.

Interest expense was essentially flat at $1.9 million in both the second quarter of 2017 and 2016, as the favorable impact of a lower outstanding term loan balance was offset by the higher utilization of the revolving credit facility during the current three month period.

Adjusted EBITDA for the second quarter of 2017 was $13.6 million, or 9.6% of revenue, compared to $13.7 million, or 10.3% of revenue, for the comparable period in 2016.

During the second quarter of 2017, the Company generated $3.0 million of cash flow from operations compared to $6.6 million during the second quarter of 2016. The year-over-year decrease reflects an increase in accounts receivable, partially offset by higher accounts payable.

The Company’s firm backlog as of July 1, 2017 was $611 million compared to $581 million as of April 1, 2017.

Structural Systems

Structural Systems segment net revenue for the current-year second quarter was $59.1 million, compared to $60.7 million for the second quarter of 2016. The year-over-year decrease was primarily due to the following:

  • $5.0 million lower revenue within the Company’s commercial aerospace end-use markets mainly due to the winding down of a regional jet program and continued softness in demand in the business jet market; partially offset by
  • $3.4 million higher revenue within the Company’s military and space end-use markets due to increased demand, which favorably impacted the Company’s helicopter platforms.

Structural Systems segment operating income for the current-year second quarter was $2.0 million, or 3.5% of revenue, compared to $4.7 million, or 7.8% of revenue, for the second quarter of 2016. The year-over-year decrease was primarily due to lower manufacturing volume and the impact of new program development.

Electronic Systems

Electronic Systems segment net revenue for the current-year second quarter was $81.8 million, compared to $72.7 million for the second quarter of 2016. The year-over-year increase was primarily due to the following:

  • $14.2 million higher revenue within the Company’s military and space end-use markets mainly due to higher demand, which favorably impacted the Company’s helicopter, fixed-wing, and missile platforms; partially offset by
  • $2.7 million lower revenue within the Company’s commercial aerospace end-use markets mainly due to continued softness in demand in the business jet market; and
  • $2.4 million lower revenue in the Company’s industrial end-use markets.

Electronic Systems’ segment operating income was $8.8 million, or 10.8% of revenue, for the second quarter of 2017 compared to $6.8 million, or 9.3% of revenue, for the comparable quarter in 2016. The year-over-year increase was primarily due to higher manufacturing volume, partially offset by unfavorable product mix.

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

CG&A expenses for the second quarter of 2017 were $4.4 million, or 3.1% of total Company revenue, compared to $4.2 million, or 3.2% of total Company revenue, for the comparable quarter in the prior year. The increase in CG&A expenses was primarily due to higher compensation and benefit costs.

Conference Call

A teleconference hosted by Stephen G. Oswald, the Company’s president and chief executive officer, and Douglas L. Groves, the Company’s vice president, chief financial officer and treasurer, will be held today, August 3, 2017 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 52256455. Mr. Oswald and Mr. Groves 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 www.ducommun.com. Conference call replay will be available after that time at the same link or by dialing 855-859-2056, passcode 52256455.

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 www.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” 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: 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 or enter into joint ventures, 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; 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 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, at various SEC reference facilities in the United States and through the Company’s website).

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, and gain on divestitures).

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.

[Financial Tables Follow]

 
DUCOMMUN INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
 
    July 1,
 2017
  December 31,
 2016
Assets        
Current Assets        
Cash and cash equivalents   $ 7,372     $ 7,432  
Accounts receivable, net   81,965     76,239  
Inventories   129,398     119,896  
Production cost of contracts   12,673     11,340  
Other current assets   10,438     11,034  
Total Current Assets   241,846     225,941  
Property and equipment, Net   110,788     101,590  
Goodwill   82,554     82,554  
Intangibles, net   97,155     101,573  
Non-current deferred income taxes   286     286  
Other assets   3,143     3,485  
Total Assets   $ 535,772     $ 515,429  
Liabilities and Shareholders’ Equity        
Current Liabilities        
Current portion of long-term debt   $     $ 3  
Accounts payable   71,659     57,024  
Accrued liabilities   25,814     29,279  
Total Current Liabilities   97,473     86,306  
Long-term debt, less current portion   169,627     166,896  
Non-current deferred income taxes   31,895     31,417  
Other long-term liabilities   17,837     18,707  
Total Liabilities   316,832     303,326  
Commitments and contingencies        
Shareholders’ Equity        
Common stock   113     112  
Additional paid-in capital   77,670     76,783  
Retained earnings   147,225     141,287  
Accumulated other comprehensive loss     (6,068 )   (6,079 )
Total Shareholders’ Equity   218,940     212,103  
Total Liabilities and Shareholders’ Equity   $   535,772     $ 515,429  
                 


 
DUCOMMUN INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS
(Unaudited)
(In thousands, except per share amounts)
 
    Three Months Ended   Six Months Ended
    July 1,
2017
  July 2,
2016
  July 1,
2017
  July 2,
2016
Net Revenues   $  140,938     $  133,437     $  277,235     $  275,585  
Cost of Sales   114,747     107,222     226,117     222,401  
Gross Profit   26,191     26,215     51,118     53,184  
Selling, General and Administrative Expenses   19,720     18,949     40,547     41,625  
Operating Income   6,471     7,266     10,571     11,559  
Interest Expense   (1,907 )   (1,935 )   (3,500 )   (4,334 )
Gain on Divestitures               18,815  
Income Before Taxes   4,564     5,331     7,071     26,040  
Income Tax Expense   741     1,470     1,133     8,629  
Net Income   $ 3,823     $ 3,861     $ 5,938     $ 17,411  
Earnings Per Share                
Basic earnings per share   $ 0.34     $ 0.35     $ 0.53     $ 1.56  
Diluted earnings per share   $ 0.33     $ 0.34     $ 0.51     $ 1.55  
Weighted-Average Number of Common Shares Outstanding                  
Basic   11,237     11,155     11,253     11,127  
Diluted   11,491     11,264     11,556     11,245  
                 
Gross Profit %   18.6 %   19.6 %   18.4 %   19.3 %
SG&A %   14.0 %   14.2 %   14.6 %   15.1 %
Operating Income %   4.6 %   5.4 %   3.8 %   4.2 %
Net Income %   2.7 %   2.9 %   2.1 %   6.3 %
Effective Tax Rate   16.2 %   27.6 %   16.0 %   33.1 %
                         


 
DUCOMMUN INCORPORATED AND SUBSIDIARIES
BUSINESS SEGMENT PERFORMANCE
(Unaudited)
(In thousands)
 
    Three Months Ended   Six Months Ended
    %
Change
  July 1,
 2017
  July 2,
 2016
  %
of Net
Revenues
2017
  %
of Net
Revenues
2016
  %
Change
  July 1,
 2017
  July 2,
 2016
  %
of Net
Revenues
2017
  %
of Net
Revenues
2016
Net Revenues                                        
Structural Systems   (2.6 )%   $ 59,112     $ 60,694     41.9 %   45.5 %     (6.4 )%   $ 116,687     $ 124,711     42.1 %   45.3 %
Electronic Systems     12.5 %   81,826     72,743     58.1 %   54.5 %   6.4 %   160,548     150,874     57.9 %   54.7 %
Total Net Revenues   5.6 %   $  140,938     $  133,437       100.0 %     100.0 %   0.6 %   $  277,235     $  275,585        100.0 %      100.0 %
Segment Operating Income                                        
Structural Systems       $ 2,049     $ 4,730     3.5 %   7.8 %       $ 4,681     $ 7,454     4.0 %   6.0 %
Electronic Systems       8,820     6,782     10.8 %   9.3 %       15,924     13,169     9.9 %   8.7 %
        10,869     11,512                 20,605     20,623          
Corporate General and Administrative Expenses (1)       (4,398 )   (4,246 )   (3.1 )%   (3.2 )%       (10,034 )   (9,064 )   (3.6 )%   (3.3 )%
Total Operating Income       $ 6,471     $ 7,266     4.6 %   5.4 %       $ 10,571     $ 11,559     3.8 %   4.2 %
Adjusted EBITDA                                        
Structural Systems                                        
Operating Income       $ 2,049     $ 4,730                 $ 4,681     $ 7,454          
Depreciation and Amortization       2,307     1,775                 4,659     3,832          
        4,356     6,505     7.4 %   10.7 %       9,340     11,286     8.0 %   9.0 %
Electronic Systems                                        
Operating Income       8,820     6,782                 15,924     13,169          
Depreciation and Amortization       3,439     3,668                 6,862     7,429          
        12,259     10,450     15.0 %   14.4 %       22,786     20,598     14.2 %   13.7 %
Corporate General and Administrative Expenses (1)                                          
Operating loss       (4,398 )   (4,246 )               (10,034 )   (9,064 )        
Depreciation and Amortization       2     33                 9     70          
Stock-Based Compensation Expense       1,342     985                 3,164     1,985          
        (3,054 )   (3,228 )               (6,861 )   (7,009 )        
  Adjusted EBITDA       $ 13,561     $ 13,727     9.6 %   10.3 %       $ 25,265     $ 24,875     9.1 %   9.0 %
Capital Expenditures                                        
Structural Systems       $ 7,580     $ 4,540                 $ 12,768     $ 6,594          
Electronic Systems       1,030     407                 2,463     754          
Corporate Administration       648                     648              
  Total Capital Expenditures       $ 9,258     $ 4,947                 $ 15,879     $ 7,348          

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

CONTACTS:

Douglas L. Groves, Vice President, Chief Financial Officer and Treasurer, 657.335.3665
Chris Witty, Investor Relations, 646.438.9385, cwitty@darrowir.com

Primary Logo

Ducommun Incorporated