Ducommun Incorporated (NYSE:DCO) (“Ducommun” or the “Company”)
today reported results for its third quarter ended October 1,
2016.
Third Quarter 2016 Summary
- Third quarter revenue was $132.6 million
- Net income was $5.0 million, or $0.44 per diluted share
- Adjusted EBITDA for the quarter was $14.9 million
- Backlog increased to $566 million
- Made net voluntary principal prepayments of $10 million on
credit facilities during the quarter
“The third quarter illustrated continued
progress towards reaching our long-term performance goals and
growth objectives,” said Anthony J. Reardon, chairman, president
and chief executive officer. “While revenue and gross margins were
essentially flat sequentially compared to the second quarter, our
backlog rose to $566 million - the highest ever, net of
divestitures - and we’re well positioned for sales acceleration in
the fourth quarter and beyond. At the same time we paid down an
additional $10 million of debt, leaving us with the strongest
balance sheet since our acquisition of LaBarge in 2011. We are
pleased with these results but remain focused on further operating
improvement. We are pursuing strategic growth opportunities to
leverage our expertise in commercial aerospace electronics,
titanium, and composite systems, providing innovative solutions
that distinguish Ducommun from our competitors.”
Third Quarter Results
Net revenue for the third quarter of 2016 was
$132.6 million compared to $161.7 million for the third quarter of
2015. The net revenue decrease year-over-year was primarily due to
the following:
- $18.0 million lower revenue within the Company’s industrial
end-use markets mainly due to the divestiture of the Pittsburgh
operation in January 2016 and closure of the Houston operation in
December 2015; and
- $15.6 million lower revenue within the Company’s military and
space end-use markets mainly due to the divestiture of the Miltec
operation in March 2016 as well as program cancellations and budget
changes, which impacted the Company’s fixed-wing and helicopter
platforms and pushed out scheduled deliveries;
- These negative impact of the aforementioned items was partially
offset by $4.5 million higher revenue in the Company’s commercial
aerospace end-use markets, mainly due to added content with
existing customers.
Net income for the third quarter of 2016 was
$5.0 million, or $0.44 per diluted share, compared to a net loss of
$(9.5) million, or $(0.86) per share, for the third quarter of
2015. The increase in net income for the third quarter of 2016
compared to the third quarter of 2015 was primarily due to the
following:
- The 2015 third quarter included a loss on extinguishment of
debt of $11.9 million related to the redemption of the $200.0
million senior unsecured notes;
- The 2015 third quarter included a forward loss reserve charge
related to a regional jet program of $10.0 million;
- Lower interest expense of $1.4 million; and
- Improved operating performance.
Gross profit for the third quarter of 2016 was
$25.2 million, or 19.0% of revenue, compared to gross profit of
$20.0 million, or 12.4% of revenue, for the third quarter of 2015.
The higher gross margin percentage year-over-year was primarily due
to the 2015 third quarter included a forward loss reserve charge
related to a regional jet program of $10.0 million. In addition,
total material costs as a percentage of revenue decreased 2.1%
year-over-year as a result of the Company’s ongoing supply chain
initiatives and improved operating performance.
Operating income for the third quarter of 2016
was $8.1 million, or 6.1% of revenue, compared to an operating loss
of $(1.2) million, or (0.7)% of revenue, in the comparable period
last year. The increase in operating income was primarily due to
higher gross profit and lower selling, general and administrative
(“SG&A”) expenses. The lower SG&A expenses were the result
of the divestitures of the Company’s Pittsburgh and Miltec
operations, closures of facilities, and a decrease in compensation
and benefit costs.
Interest expense decreased to $1.9 million in
the third quarter of 2016, compared to $3.4 million in the previous
year’s third quarter, primarily due to a lower outstanding debt
balance as a result of net voluntary principal prepayments on the
Company’s new credit facilities and a lower average interest rate
as a result of completing the refinancing of the Company’s debt in
July 2015.
Adjusted EBITDA for the third quarter of 2016
was $14.9 million, or 11.2% of revenue, compared to $6.6 million,
or 4.1% of revenue, for the comparable period in 2015.
During the third quarter of 2016, the Company
generated $15.4 million of cash from operations compared to a
$(5.5) million use of cash in operations during the third quarter
of 2015. The increase in cash flow from operations was primarily
due to higher net income as a result of higher gross margin
percentage in the current-year quarter.
The Company’s firm backlog as of October 1, 2016
was $566 million, which rose $29 million sequentially primarily due
to a $41 million increase in the Company’s commercial aerospace
backlog reflecting the timing of certain orders and new business
wins.
Structural Systems
Structural Systems segment net revenue for the
current-year third quarter was $60.9 million, compared to $64.2
million for the third quarter of 2015. The year-over-year decrease
in net revenue was primarily due to a $3.4 million decline in
military and space revenue, reflecting program cancellations and
budget changes which impacted scheduled deliveries on the Company’s
fixed-wing and helicopter platforms.
Structural Systems segment operating income for
the current-year third quarter was $5.9 million, or 9.7% of
revenue, compared to an operating loss of $(6.0) million, or (9.4)%
of revenue, for the third quarter of 2015. The increase in
operating income reflects higher gross margins in the current year
quarter and the 2015 third quarter included a forward loss reserve
charge related to a regional jet program of $10.0 million.
Structural Systems segment Adjusted EBITDA was
$8.9 million for the current-year quarter, or 14.6% of revenue,
compared to $(3.3) million, or (5.2)% of revenue, for the
comparable quarter in the prior year.
Electronic Systems
Electronic Systems segment net revenue for the
current-year third quarter was $71.6 million, compared to $97.5
million for the third quarter of 2015. The lower net revenue was
primarily due to the following:
- An $18.0 million decrease in industrial revenue mainly due to
the divestiture of the Company’s Pittsburgh operation in January
2016 and closure of the Houston operation in December 2015;
and
- A $12.2 million decrease in military and space revenue mainly
due to the divestiture of the Company’s Miltec operation in March
2016 as well as program cancellations and budget changes, which
impacted scheduled deliveries on fixed-wing platforms;
- Partially offset by a $4.3 million increase in commercial
aerospace revenue mainly due to added content with the Company’s
existing customers.
Electronic Systems’ segment operating income for
the current-year third quarter was $6.6 million, or 9.2% of
revenue, compared to $8.6 million, or 8.8% of revenue, for the
third quarter of 2015. The decrease in operating income was
primarily due to the effect of lower revenue as a result of the
divestitures of the Company’s Pittsburgh and Miltec operations and
closure of its Houston operation.
Electronic Systems segment Adjusted EBITDA was
$9.8 million for the current-year quarter, or 13.7% of revenue,
compared to $13.3 million, or 13.6% of revenue, for the comparable
quarter in the prior year.
Corporate General and Administrative Expenses
(“CG&A”)
CG&A expenses for the third quarter of 2016
were $4.4 million, or 3.3% of total Company revenue, compared to
$3.7 million, or 2.3% of total Company revenue, for the comparable
quarter in the prior year. The increase in CG&A expenses in the
current year quarter was primarily due to higher compensation and
benefits of $0.6 million.
Conference Call
A teleconference hosted by Anthony J. Reardon,
the Company’s chairman, president and chief executive officer, and
Douglas L. Groves, the Company’s vice president, chief financial
officer and treasurer, will be held today, November 3, 2016 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 95214313. 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
95214313.
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, gain on divestitures, loss on
extinguishment of debt, and restructuring charges).
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.
[Financial Tables Follow]
DUCOMMUN INCORPORATED AND SUBSIDIARIES |
CONDENSED CONSOLIDATED BALANCE SHEETS |
(Unaudited) |
(In thousands) |
|
|
|
October 1, 2016 |
|
December 31, 2015 |
Assets |
|
|
|
|
Current Assets |
|
|
|
|
Cash and cash equivalents |
|
$ |
9,466 |
|
|
$ |
5,454 |
|
Accounts receivable, net |
|
73,820 |
|
|
77,089 |
|
Inventories |
|
129,769 |
|
|
115,404 |
|
Production cost of contracts |
|
11,095 |
|
|
10,290 |
|
Other current assets |
|
8,658 |
|
|
13,389 |
|
Assets held for sale |
|
— |
|
|
41,636 |
|
Total Current Assets |
|
232,808 |
|
|
263,262 |
|
Property and equipment,
Net |
|
98,586 |
|
|
96,551 |
|
Goodwill |
|
82,554 |
|
|
82,554 |
|
Intangibles, net |
|
103,835 |
|
|
110,621 |
|
Non-current deferred
income taxes |
|
212 |
|
|
324 |
|
Other assets |
|
2,987 |
|
|
3,769 |
|
Total
Assets |
|
$ |
520,982 |
|
|
$ |
557,081 |
|
Liabilities and
Shareholders’ Equity |
|
|
|
|
Current Liabilities |
|
|
|
|
Current portion of long-term
debt |
|
$ |
5 |
|
|
$ |
26 |
|
Accounts payable |
|
60,173 |
|
|
40,343 |
|
Accrued liabilities |
|
30,510 |
|
|
36,458 |
|
Liabilities held for sale |
|
— |
|
|
6,780 |
|
Total Current Liabilities |
|
90,688 |
|
|
83,607 |
|
Long-term debt, less
current portion |
|
176,618 |
|
|
240,661 |
|
Non-current deferred
income taxes |
|
25,871 |
|
|
26,528 |
|
Other long-term
liabilities |
|
16,763 |
|
|
18,954 |
|
Total Liabilities |
|
309,940 |
|
|
369,750 |
|
Commitments and
contingencies |
|
|
|
|
Shareholders’ Equity |
|
|
|
|
Common stock |
|
112 |
|
|
111 |
|
Additional paid-in capital |
|
76,681 |
|
|
75,200 |
|
Retained earnings |
|
140,048 |
|
|
117,623 |
|
Accumulated other comprehensive
loss |
|
(5,799 |
) |
|
(5,603 |
) |
Total Shareholders’ Equity |
|
211,042 |
|
|
187,331 |
|
Total Liabilities
and Shareholders’ Equity |
|
$ |
520,982 |
|
|
$ |
557,081 |
|
DUCOMMUN INCORPORATED AND SUBSIDIARIES |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS |
(Unaudited) |
(In thousands, except per share amounts) |
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
October 1, 2016 |
|
October 3, 2015 |
|
October 1, 2016 |
|
October 3, 2015 |
Net Revenues |
|
$ |
132,571 |
|
|
$ |
161,670 |
|
|
$ |
408,156 |
|
|
$ |
509,435 |
|
Cost of Sales |
|
107,348 |
|
|
141,642 |
|
|
329,749 |
|
|
431,439 |
|
Gross Profit |
|
25,223 |
|
|
20,028 |
|
|
78,407 |
|
|
77,996 |
|
Selling, General and
Administrative Expenses |
|
17,171 |
|
|
21,205 |
|
|
58,796 |
|
|
64,707 |
|
Operating Income
(Loss) |
|
8,052 |
|
|
(1,177 |
) |
|
19,611 |
|
|
13,289 |
|
Interest Expense |
|
(1,945 |
) |
|
(3,392 |
) |
|
(6,279 |
) |
|
(16,499 |
) |
Loss on Extinguishment of
Debt |
|
— |
|
|
(11,878 |
) |
|
— |
|
|
(14,720 |
) |
Other Income |
|
141 |
|
|
— |
|
|
141 |
|
|
1,510 |
|
Gain on Divestitures |
|
— |
|
|
— |
|
|
18,815 |
|
|
— |
|
Income (Loss) Before
Taxes |
|
6,248 |
|
|
(16,447 |
) |
|
32,288 |
|
|
(16,420 |
) |
Income Tax Expense
(Benefit) |
|
1,234 |
|
|
(6,932 |
) |
|
9,863 |
|
|
(6,714 |
) |
Net Income (Loss) |
|
$ |
5,014 |
|
|
$ |
(9,515 |
) |
|
$ |
22,425 |
|
|
$ |
(9,706 |
) |
Earnings (Loss) Per
Share |
|
|
|
|
|
|
|
|
Basic earnings (loss) per
share |
|
$ |
0.45 |
|
|
$ |
(0.86 |
) |
|
$ |
2.01 |
|
|
$ |
(0.88 |
) |
Diluted earnings (loss) per
share |
|
$ |
0.44 |
|
|
$ |
(0.86 |
) |
|
$ |
1.99 |
|
|
$ |
(0.88 |
) |
Weighted-Average Number of
Common Shares Outstanding |
|
|
|
|
|
|
|
|
Basic |
|
11,169 |
|
|
11,083 |
|
|
11,141 |
|
|
11,035 |
|
Diluted |
|
11,310 |
|
|
11,083 |
|
|
11,261 |
|
|
11,035 |
|
|
|
|
|
|
|
|
|
|
Gross Profit % |
|
19.0 |
% |
|
12.4 |
% |
|
19.2 |
% |
|
15.3 |
% |
SG&A % |
|
13.0 |
% |
|
13.1 |
% |
|
14.4 |
% |
|
12.7 |
% |
Operating Income (Loss)
% |
|
6.1 |
% |
|
(0.7 |
)% |
|
4.8 |
% |
|
2.6 |
% |
Net Income (Loss) % |
|
3.8 |
% |
|
(5.9 |
)% |
|
5.5 |
% |
|
(1.9 |
)% |
Effective Tax (Benefit)
Rate |
|
19.8 |
% |
|
(42.1 |
)% |
|
30.5 |
% |
|
(40.9 |
)% |
DUCOMMUN INCORPORATED AND SUBSIDIARIES |
BUSINESS SEGMENT PERFORMANCE |
(Unaudited) |
(In thousands) |
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
%Change |
|
October 1, 2016 |
|
October 3, 2015 |
|
%of Net Revenues2016 |
|
%of Net Revenues2015 |
|
%Change |
|
October 1, 2016 |
|
October 3, 2015 |
|
%of Net Revenues2016 |
|
%of Net Revenues2015 |
Net
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Structural Systems |
|
|
(5.0 |
) |
% |
|
$ |
60,931 |
|
|
$ |
64,170 |
|
|
|
46.0 |
|
% |
|
|
39.7 |
|
% |
|
|
(12.6 |
) |
% |
|
$ |
185,642 |
|
|
$ |
212,306 |
|
|
|
45.5 |
|
% |
|
|
41.7 |
|
% |
Electronic Systems |
|
|
(26.5 |
) |
% |
|
71,640 |
|
|
97,500 |
|
|
|
54.0 |
|
% |
|
|
60.3 |
|
% |
|
|
(25.1 |
) |
% |
|
222,514 |
|
|
297,129 |
|
|
|
54.5 |
|
% |
|
|
58.3 |
|
% |
Total Net Revenues |
|
|
(18.0 |
) |
% |
|
$ |
132,571 |
|
|
$ |
161,670 |
|
|
|
100.0 |
|
% |
|
|
100.0 |
|
% |
|
|
(19.9 |
) |
% |
|
$ |
408,156 |
|
|
$ |
509,435 |
|
|
|
100.0 |
|
% |
|
|
100.0 |
|
% |
Segment Operating
Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Structural Systems |
|
|
|
$ |
5,893 |
|
|
$ |
(6,028 |
) |
|
|
9.7 |
|
% |
|
|
(9.4 |
) |
% |
|
|
|
$ |
13,347 |
|
|
$ |
2,980 |
|
|
|
7.2 |
|
% |
|
|
1.4 |
|
% |
Electronic Systems |
|
|
|
6,600 |
|
|
8,598 |
|
|
|
9.2 |
|
% |
|
|
8.8 |
) |
% |
|
|
|
19,769 |
|
|
22,575 |
|
|
|
8.9 |
|
% |
|
|
7.6 |
|
% |
|
|
|
|
12,493 |
|
|
2,570 |
|
|
|
|
|
|
|
|
33,116 |
|
|
25,555 |
|
|
|
|
|
Corporate General and
Administrative Expenses (1) |
|
|
|
(4,441 |
) |
|
(3,747 |
) |
|
|
(3.3 |
) |
% |
|
|
(2.3 |
) |
% |
|
|
|
(13,505 |
) |
|
(12,266 |
) |
|
|
(3.3 |
) |
% |
|
|
(2.4 |
) |
% |
Total Operating Income (Loss) |
|
|
|
$ |
8,052 |
|
|
$ |
(1,177 |
) |
|
|
6.1 |
|
% |
|
|
(0.7 |
) |
% |
|
|
|
$ |
19,611 |
|
|
$ |
13,289 |
|
|
|
4.8 |
|
% |
|
|
2.6 |
|
% |
Adjusted
EBITDA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Structural Systems |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss) |
|
|
|
$ |
5,893 |
|
|
$ |
(6,028 |
) |
|
|
|
|
|
|
|
$ |
13,347 |
|
|
$ |
2,980 |
|
|
|
|
|
Other Income (2) |
|
|
|
141 |
|
|
— |
|
|
|
|
|
|
|
|
141 |
|
|
1,510 |
|
|
|
|
|
Depreciation and Amortization |
|
|
|
2,851 |
|
|
2,386 |
|
|
|
|
|
|
|
|
6,683 |
|
|
7,009 |
|
|
|
|
|
Restructuring Charges |
|
|
|
— |
|
|
314 |
|
|
|
|
|
|
|
|
— |
|
|
314 |
|
|
|
|
|
|
|
|
|
8,885 |
|
|
(3,328 |
) |
|
|
14.6 |
|
% |
|
|
(5.2 |
) |
% |
|
|
|
20,171 |
|
|
11,813 |
|
|
|
10.9 |
|
% |
|
|
5.6 |
|
% |
Electronic Systems |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income |
|
|
|
6,600 |
|
|
8,598 |
|
|
|
|
|
|
|
|
19,769 |
|
|
22,575 |
|
|
|
|
|
Gain on Divestitures (3) |
|
|
|
— |
|
|
— |
|
|
|
|
|
|
|
|
18,815 |
|
|
— |
|
|
|
|
|
Depreciation and Amortization |
|
|
|
3,232 |
|
|
4,207 |
|
|
|
|
|
|
|
|
10,661 |
|
|
12,928 |
|
|
|
|
|
Restructuring Charges |
|
|
|
— |
|
|
468 |
|
|
|
|
|
|
|
|
— |
|
|
468 |
|
|
|
|
|
|
|
|
|
9,832 |
|
|
13,273 |
|
|
|
13.7 |
|
% |
|
|
13.6 |
|
% |
|
|
|
49,245 |
|
|
35,971 |
|
|
|
22.1 |
|
% |
|
|
12.1 |
|
% |
Corporate General and
Administrative Expenses (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
|
|
(4,441 |
) |
|
(3,747 |
) |
|
|
|
|
|
|
|
(13,505 |
) |
|
(12,266 |
) |
|
|
|
|
Gain on Divestitures (3) |
|
|
|
— |
|
|
— |
|
|
|
|
|
|
|
|
(18,815 |
) |
|
— |
|
|
|
|
|
Depreciation and Amortization |
|
|
|
6 |
|
|
42 |
|
|
|
|
|
|
|
|
76 |
|
|
127 |
|
|
|
|
|
Stock-Based Compensation
Expense |
|
|
|
594 |
|
|
331 |
|
|
|
|
|
|
|
|
2,579 |
|
|
2,792 |
|
|
|
|
|
|
|
|
|
(3,841 |
) |
|
(3,374 |
) |
|
|
|
|
|
|
|
(29,665 |
) |
|
(9,347 |
) |
|
|
|
|
Adjusted EBITDA |
|
|
|
$ |
14,876 |
|
|
$ |
6,571 |
|
|
|
11.2 |
|
% |
|
|
4.1 |
|
% |
|
|
|
$ |
39,751 |
|
|
$ |
38,437 |
|
|
|
9.7 |
|
% |
|
|
7.5 |
|
% |
Capital
Expenditures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Structural Systems |
|
|
|
$ |
3,555 |
|
|
$ |
2,329 |
|
|
|
|
|
|
|
|
$ |
10,149 |
|
|
$ |
8,080 |
|
|
|
|
|
Electronic Systems |
|
|
|
947 |
|
|
758 |
|
|
|
|
|
|
|
|
1,701 |
|
|
3,196 |
|
|
|
|
|
Corporate Administration |
|
|
|
— |
|
|
4 |
|
|
|
|
|
|
|
|
— |
|
|
10 |
|
|
|
|
|
Total Capital Expenditures |
|
|
|
$ |
4,502 |
|
|
$ |
3,091 |
|
|
|
|
|
|
|
|
$ |
11,850 |
|
|
$ |
11,286 |
|
|
|
|
|
(1) Includes costs not allocated to
either the Electronic Systems or Structural Systems operating
segments.(2) Insurance recoveries related
to property and equipment included as other income for the nine
months ended October 3, 2015.(3) Includes
gain on divestitures of the Pittsburgh and Miltec operations.
CONTACTS:
Douglas L. Groves, Vice President, Chief Financial Officer and Treasurer, 310.513.7224
Chris Witty, Investor Relations, 646.438.9385, cwitty@darrowir.com
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