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 NetRevenues2017 |
|
%of NetRevenues2016 |
|
%Change |
|
July 1, 2017 |
|
July 2, 2016 |
|
%of NetRevenues2017 |
|
%of NetRevenues2016 |
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
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