Gross Margins Rebound; Debt Reduced and Backlog
Strong
Ducommun Incorporated (NYSE:DCO) (“Ducommun” or the “Company”)
today reported results for its first quarter ended April 2,
2016.
First Quarter 2016 Highlights
- First quarter revenue was $142.1
million
- Net income was $13.6 million, or $1.21
per diluted share
- Adjusted EBITDA for the quarter was
$11.1 million
- Backlog increased to $564 million
“Our 2016 first quarter results validate that Ducommun is taking
the right steps to improve long-term operating performance,” said
Anthony J. Reardon, chairman and chief executive officer. “Ongoing
efficiency-enhancement efforts, along with supply chain
initiatives, generated much higher gross margins -- both
sequentially and year-over-year -- even in the face of lower
defense spending. Our commercial aerospace backlog remains near
record levels, and we continue to win new and expanded content on
both commercial and military blue-chip platforms.
“In addition, we successfully completed the divestitures of our
Pittsburgh and Miltec operations during the quarter, using net
proceeds of $50 million to reduce debt to $190 million versus $280
million a year ago. With these transactions behind us, Ducommun is
stronger and more focused on serving our core aerospace and defense
markets with innovative electronic and structural solutions. We
will continue to deleverage the Company’s balance sheet this year,
unlocking shareholder value and reducing interest expense in
tandem. Our focus on critical operational initiatives, margin
enhancement, top-line growth, and cash flow generation are bearing
fruit, and we expect these efforts to result in performance
improvement in the quarters ahead.”
First Quarter Results
Net revenue for the first quarter of 2016 was approximately
$142.1 million compared to $172.9 million for the first quarter of
2015. The net revenue decrease year-over-year was primarily due to
the following:
- Approximately $15.4 million lower
revenue in the industrial end-use markets due to the divestiture of
the Pittsburgh operation in January 2016 and the closure of the
Houston operation in December 2015; and
- Approximately $13.2 million lower
revenue in the military and space end-use markets mainly due to the
decrease in U.S. government defense spending and shifting spending
priorities, which impacted the Company’s fixed-wing and helicopter
platforms and pushed out scheduled deliveries of these products to
customers.
Going forward, as a result of the closure of the Houston
operation and divestitures of the Pittsburgh and Miltec operations
during the first quarter of 2016, Electronic Systems revenue will
be lower by approximately $20.0 million per quarter for the balance
of 2016.
Net income for the first quarter of 2016 was approximately $13.6
million, or $1.21 per diluted share, compared to net loss of $(2.0)
million, or $(0.18) per share, for the first quarter of 2015. The
increase in net income for the first quarter of 2016 compared to a
net loss for the first quarter of 2015 was primarily due to the
pretax gain on divestitures of the Pittsburgh and Miltec operations
of approximately $18.8 million and lower interest expense of $4.3
million.
Operating income for the first quarter of 2016 was approximately
$4.3 million, or 3.0% of revenue, compared to $3.6 million, or 2.1%
of revenue, in the comparable period last year. The increase in
operating income was primarily due to improved operating
efficiencies related to ongoing cost improvement initiatives that
was partially offset by the impact of the divestiture of the
Pittsburgh operation.
Interest expense decreased to approximately $2.4 million in the
first quarter of 2016, compared to $6.7 million in the previous
year’s first quarter, primarily due to a lower outstanding debt
balance as a result of voluntary principal prepayments on the term
loan and a lower average interest rate as a result of completing
the refinancing of the Company’s debt in July 2015.
The Company recorded a pretax gain on divestitures of
approximately $18.8 million for the first quarter of 2016
consisting of the divestitures of the Pittsburgh operation with a
pretax gain of $18.3 million and the Miltec operation with a pretax
gain of $0.5 million.
Adjusted EBITDA for the first quarter of 2016 was approximately
$11.1 million, or 7.8% of revenue, compared to $12.2 million, or
7.0% of revenue, for the comparable period in 2015.
During the first quarter of 2016, the Company generated
approximately $5.5 million of cash from operations compared to $3.5
million during the first quarter of 2015 primarily due to higher
net income as a result of higher gross margins in the current-year
quarter.
The Company’s firm backlog as of April 2, 2016 was approximately
$564 million.
Structural Systems
The Structural Systems segment net revenue for the current-year
first quarter was approximately $64.0 million, compared to $72.1
million for the first quarter of 2015. The lower net revenue was
primarily due to the following:
- An approximately $4.5 million decrease
in military and space revenues mainly due to the decrease in U.S.
government defense spending and shifting spending priorities which
impacted scheduled deliveries on the Company’s fixed-wing and
helicopter platforms; and
- An approximately $3.5 million decrease
in commercial aerospace revenue related to the wind down of a
regional jet program.
Structural Systems segment operating income for the current-year
first quarter was $2.7 million, or 4.3% of revenue, compared to
operating income of $2.1 million, or 3.0% of revenue, for the first
quarter of 2015. The increase in operating income was primarily due
to improved operating efficiencies related to ongoing cost
improvement initiatives.
Structural Systems segment Adjusted EBITDA was approximately
$4.8 million for the current quarter, or 7.5% of revenue, compared
to $4.7 million, or 6.5% of revenue, for the comparable quarter in
the prior year.
Electronic Systems
The Electronic Systems segment net revenue for the current-year
first quarter was approximately $78.1 million, compared to $100.9
million for the first quarter of 2015. The lower net revenue was
primarily due to the following:
- An approximately $15.4 million decrease
as a result of the divestiture of the Pittsburgh operation in
January 2016 and the closure of the Houston operation in December
2015; and
- An approximately $8.7 million decrease
in military and space revenue mainly due to the decrease in U.S.
government defense spending and shifting spending priorities which
impacted scheduled deliveries on the Company’s fixed-wing and
helicopter platforms;
- Partially offset by an approximately
$3.9 million increase in the Company’s commercial aerospace revenue
through added content with existing customers.
Electronic Systems’ operating income for the current-year first
quarter was approximately $7.1 million, or 9.0% of revenue,
compared to $6.3 million, or 6.2% of revenue, for the first quarter
of 2015. The increase in operating income was primarily due to
improved operating efficiencies related to on-going cost
improvement initiatives that was partially offset by the
divestiture of the Company’s Pittsburgh operation.
Electronic Systems segment Adjusted EBITDA was approximately
$29.6 million for the current-year quarter, or 37.9% of revenue,
compared to $10.6 million, or 10.6% of revenue, for the comparable
quarter in the prior year. The increase was primarily due to an
approximate $18.8 million pretax gain on divestitures of the
Pittsburgh and Miltec operations in the first quarter of 2016.
Corporate General and Administrative
Expenses (“CG&A”)
CG&A expenses for the first quarter of 2016 were
approximately $5.5 million, or 3.9% of total Company revenue,
compared to $4.8 million, or 2.8% of total Company revenue, for the
comparable quarter in the prior year. CG&A expenses increased
primarily due to one-time retirement charges of approximately $0.9
million in the first quarter of 2016, partially offset by $0.4
million in other cost reduction initiatives.
Conference Call
A teleconference hosted by Anthony J. Reardon, the Company’s
chairman and chief executive officer, and Douglas L. Groves, the
Company’s vice president, chief financial officer and treasurer,
will be held today, May 9, 2016 at 2:00 p.m. PT (5:00 p.m. ET) to
review these financial results. To participate in the
teleconference, please call 877-786-6947 (international
530-379-4718) approximately ten minutes prior to the conference
time. The participant passcode is 88658163. Mr. Reardon and Mr.
Groves will be speaking on behalf of the Company and anticipate the
meeting and Q&A period to last approximately 45 minutes.
This call is being webcast by Thomson Reuters 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 88658163.
About Ducommun
Incorporated
Ducommun Incorporated delivers 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
Statements contained in this press release regarding other than
recitation of historical facts are forward-looking statements.
These statements are identified by words such as “may,” “will,” “
begin,” “ look forward,” “expect,” “believe,” “intend,”
“anticipate,” “should,” “potential,” “estimate,” “continue,”
“momentum” and other words referring to events to occur in the
future. These statements reflect the Company’s current view of
future events and are based on its assessment of, and are subject
to, a variety of risks and uncertainties beyond its control,
including, but not limited to, the state of the world financial,
credit, commodities and stock markets, and uncertainties regarding
the Company, its businesses and the industries in which it
operates, which are described in the Company’s filings with the
Securities and Exchange Commission. The Company is under no
obligation to (and expressly disclaims any such obligation to)
update or alter its forward-looking statements whether as a result
of new information, future events or otherwise.
Note Regarding Non-GAAP Financial
Information
This release contains non-GAAP financial measures, including
Adjusted EBITDA (which excludes interest expense, income tax
expense (benefit), 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.
DUCOMMUN INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
April 2,2016 December 31,2015
Assets Current
Assets Cash and cash equivalents $ 6,439 $ 5,454 Accounts
receivable, net 77,664 77,089 Inventories 127,080 115,404
Production cost of contracts 9,667 10,290 Other current assets
8,441 13,389 Assets held for sale — 41,636 Total
Current Assets 229,291 263,262 Property and Equipment, Net 95,602
96,551 Goodwill 82,554 82,554 Intangibles, Net 108,359 110,621
Deferred income taxes 353 324 Other Assets 3,215 3,769
Total Assets $ 519,374 $ 557,081
Liabilities and Shareholders’ Equity Current Liabilities
Current portion of long-term debt $ 19 $ 26 Accounts payable 47,418
40,343 Accrued liabilities 42,496 36,458 Liabilities held for sale
— 6,780 Total Current Liabilities 89,933 83,607
Long-Term Debt, Less Current Portion 186,032 240,661 Deferred
Income Taxes 25,052 26,528 Other Long-Term Liabilities 17,692
18,954 Total Liabilities 318,709 369,750
Commitments and Contingencies Shareholders’ Equity Common
stock 111 111 Additional paid-in capital 75,269 75,200 Retained
earnings 131,173 117,623 Accumulated other comprehensive loss
(5,888 ) (5,603 ) Total Shareholders’ Equity 200,665 187,331
Total Liabilities and Shareholders’ Equity $ 519,374
$ 557,081
DUCOMMUN INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
(Unaudited)
(In thousands, except per share
amounts)
Three Months Ended April 2,2016 April 4,2015 Net
Revenues $ 142,148 $ 172,920 Cost of Sales 115,179 146,159
Gross Profit 26,969 26,761 Selling, General and
Administrative Expenses 22,676 23,134 Operating
Income 4,293 3,627 Interest Expense (2,399 ) (6,661 ) Gain on
Divestitures 18,815 — Income (Loss) Before Taxes
20,709 (3,034 ) Income Tax Expense (Benefit) 7,159 (1,061 )
Net Income (Loss) $ 13,550 $ (1,973 ) Earnings (Loss) Per
Share Basic earnings (loss) per share $ 1.22 $ (0.18 ) Diluted
earnings (loss) per share $ 1.21 $ (0.18 ) Weighted-Average Number
of Common Shares Outstanding Basic 11,100 10,964 Diluted 11,240
10,964 Gross Profit % 19.0 % 15.5 % SG&A % 16.0 % 13.4 %
Operating Income % 3.0 % 2.1 % Net Income (Loss) % 9.5 % (1.1 )%
Effective Tax (Benefit) Rate 34.6 % (35.0 )%
DUCOMMUN INCORPORATED AND SUBSIDIARIES
BUSINESS SEGMENT PERFORMANCE
(Unaudited)
(In thousands)
Three Months Ended %
Change
April 2,2016 April 4,2015 %
of Net Revenues
2016
%
of Net Revenues
2015
Net Revenues Structural Systems (11.2 )% $ 64,017 $ 72,058
45.0 % 41.7 % Electronic Systems (22.5 )% 78,131 100,862
55.0 % 58.3 % Total Net Revenues (17.8 )% $ 142,148 $
172,920 100.0 % 100.0 %
Segment Operating Income
Structural Systems $ 2,724 $ 2,138 4.3 % 3.0 % Electronic Systems
7,053 6,285 9.0 % 6.2 % 9,777 8,423
Corporate
General and Administrative Expenses (1) (5,484 ) (4,796 ) (3.9
)% (2.8 )% Total Operating Income $ 4,293 $ 3,627 3.0
% 2.1 %
Adjusted EBITDA Structural Systems Operating Income
$ 2,724 $ 2,138 Depreciation and Amortization 2,057 2,513
4,781 4,651 7.5 % 6.5 % Electronic Systems Operating Income
7,053 6,285 Gain on Divestitures (2) 18,815 — Depreciation and
Amortization 3,761 4,359 29,629 10,644 37.9 % 10.6 %
Corporate General and Administrative Expenses (1) Operating loss
(5,484 ) (4,796 ) Gain on Divestitures (2) (18,815 ) — Depreciation
and Amortization 37 42 Stock-Based Compensation Expense 1,000
1,624 (23,262 ) (3,130 ) Adjusted EBITDA $ 11,148
$ 12,165 7.8 % 7.0 %
Capital Expenditures
Structural Systems $ 2,054 $ 3,334 Electronic Systems 347 1,490
Corporate Administration — 4 Total Capital
Expenditures $ 2,401 $ 4,828
(1) Includes costs not allocated to either the Electronic
Systems or Structural Systems operating segments.(2) Includes gain
on divestitures of the Pittsburgh and Miltec operations.
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version on businesswire.com: http://www.businesswire.com/news/home/20160509006380/en/
Ducommun IncorporatedDouglas L. Groves, Vice President, Chief
Financial Officer and Treasurer310.513.7224orChris Witty, Investor
Relations646.438.9385cwitty@darrowir.com
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