Ducommun Incorporated (NYSE:DCO) (“Ducommun” or the “Company”)
today reported results for its first quarter ended April 1,
2017.
First Quarter 2017 Highlights
- Revenue was $136.3 million
- Net income was $2.1 million, or $0.18 per diluted share
- Adjusted EBITDA was $11.7 million
- Cash flow from operations was $13.2 million
- Net voluntary principal prepayments on credit facilities
totaled $5 million
“Ducommun’s first quarter results reflect the
demand dynamics of our various end-use markets at the start of what
we expect to be a solid year ahead,” said Stephen G. Oswald,
president and chief executive officer. “Net of divestitures,
revenue was up slightly year-over-year, benefiting from an increase
in defense shipments and solid sales across several large
commercial platforms. We also paid down an additional $5 million of
debt, more than doubled capital expenditures, after generating
$13.2 million in cash from operations during the quarter.
“Even as we’ve accomplished a great deal these past
twelve months - resulting in a more focused organization and
improved cost structure - we see room for higher operating
performance going forward. As I begin my new role, we are assessing
all areas of the Company for new ways to streamline manufacturing,
further increase margins, and enhance return on capital. This is a
priority heading into the second half, and we have already hired
select staff to focus on initiatives that will bolster Ducommun’s
growth trajectory and strengthen bottom line results. For example,
we have filled a new role in the Company to lead strategic
initiatives that will drive inorganic growth and a higher level of
strategic thinking. We are setting the stage to take the Company to
the next level -- leveraging our people, technology expertise
and the current attractive economic environment.”
First Quarter Results
Net revenue for the first quarter of 2017 was
$136.3 million compared to $142.1 million for the first quarter of
2016. The net revenue decrease year-over-year was primarily due to
the following:
- $6.0 million lower revenue within the Company’s commercial
aerospace end-use markets mainly due to the winding down of a
regional jet program and the platform transition of a large
aircraft program; and
- $5.8 million lower revenue within the Company’s industrial
end-use markets mainly due to the closure of one of the Company’s
Tulsa operations in June 2016 and divestiture of the Company’s
Pittsburgh operation in January 2016; partially offset by
- $5.9 million higher revenue within the Company’s military and
space end-use markets mainly due to the resumption of scheduled
deliveries by the U.S. Department of Defense, which favorably
impacted the Company’s helicopter and fixed-wing platforms,
partially offset by the divestiture of the Company’s Miltec
operation in March 2016.
Net income for the first quarter of 2017 was $2.1
million, or $0.18 per diluted share, compared to $13.6 million, or
$1.21 per diluted share, for the first quarter of 2016. The
decrease in net income year-over-year was primarily due to the
following:
- The prior year included a preliminary pretax gain on
divestitures of the Company’s Pittsburgh and Miltec operations of
$18.8 million; partially offset by
- $6.8 million of lower income tax expense.
Gross profit for the first quarter of 2017 was
$24.9 million, or 18.3% of revenue, compared to gross profit of
$27.0 million, or 19.0% of revenue, for the first quarter of 2016.
The decrease in gross margin percentage year-over-year was
primarily due to unfavorable product mix.
Operating income for the first quarter of 2017 was
$4.1 million, or 3.0% of revenue, compared to $4.3 million, or 3.0%
of revenue, in the comparable period last year. The decrease in
operating income was primarily due to the following:
- Decrease in gross margin percentage as a result of unfavorable
product mix; partially offset by
- Lower selling, general and administrative expenses as a result
of the divestiture of the Company’s Pittsburgh operation and
closure of certain facilities.
Interest expense decreased to $1.6 million in the
first quarter of 2017, compared to $2.4 million in the previous
year’s first quarter, primarily due to a lower outstanding debt
balance as a result of net voluntary principal prepayments on the
Company’s credit facilities.
Adjusted EBITDA for the first quarter of 2017 was
$11.7 million, or 8.6% of revenue, compared to $11.1 million, or
7.8% of revenue, for the comparable period in 2016.
During the first quarter of 2017, the Company
generated $13.2 million of cash from operations compared to $5.5
million during the first quarter of 2016. The increase in cash flow
from operations reflects a reduction in accounts receivable and
higher deferred income taxes.
The Company’s firm backlog as of April 1, 2017 was
$581 million compared to $600 million as of December 31, 2016,
reflecting a $7 million decrease in the Company’s commercial
aerospace backlog and a $13 million decrease in its military and
space backlog, both due to timing of orders.
Structural Systems
Structural Systems segment net revenue for the
current-year first quarter was $57.6 million, compared to $64.0
million for the first quarter of 2016. The year-over-year decrease
was primarily due to a $7.2 million decline in commercial aerospace
shipments as a result of the winding down of a regional jet program
as well as the platform transition of a large aircraft program.
Structural Systems segment operating income for the
current-year first quarter was $2.6 million, or 4.6% of revenue,
compared to $2.7 million, or 4.3% of revenue, for the first quarter
of 2016.
Structural Systems segment Adjusted EBITDA was $5.0
million for the current-year quarter, or 8.7% of revenue, compared
to $4.8 million, or 7.5% of revenue, for the comparable quarter in
the prior year.
Electronic Systems
Electronic Systems segment net revenue for the
current-year first quarter was $78.7 million, compared to $78.1
million for the first quarter of 2016. The increase in revenue
year-over-year was primarily due to the following:
- $5.2 million higher revenue within the Company’s military and
space end-use markets mainly due to the resumption of scheduled
deliveries by the U.S. Department of Defense, which favorably
impacted the Company’s fixed-wing and helicopter platforms,
partially offset by the divestiture of the Company’s Miltec
operation in March 2016; and
- $1.2 million higher revenue within the Company’s commercial
aerospace end-use markets mainly due to additional content with the
Company’s existing customers; partially offset by
- $5.8 million lower revenue in the Company’s industrial end-use
markets mainly due to the closure of one of the Company’s Tulsa
operations in June 2016 and the divestiture of the Company’s
Pittsburgh operation in January 2016.
Electronic Systems’ segment operating income was
$7.1 million, or 9.0% of revenue, for the first quarter of 2017
compared to $6.4 million, or 8.2% of revenue, for the comparable
quarter in 2016. The increase in operating income was primarily due
to lower selling, general and administrative expenses as a result
of the divestiture of the Company’s Pittsburgh operation and
closure of certain facilities.
Electronic Systems segment Adjusted EBITDA was
$10.5 million for the quarter, or 13.4% of revenue, compared to
$10.1 million, or 13.0% of revenue, for the comparable quarter in
the prior year.
Corporate General and Administrative (“CG&A”)
Expenses
CG&A expenses for the first quarter of 2017
were $5.6 million, or 4.1% of total Company revenue, compared to
$4.8 million, or 3.4% 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 of $1.1
million, partially offset by lower professional services fees.
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, May 4, 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 4551513. 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 4551513.
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: competition from other industry
participants; the Company’s ability to continue to develop
innovative new products and services and enhance its existing
products and services, or the failure of its products and services
to continue to appeal to the market; the effectiveness of the
Company’s marketing and advertising programs; 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; uncertainties related to
a downturn in general economic conditions or consumer confidence;
uncertainties regarding the satisfactory operation of the Company’s
information technology or systems; the impact of existing and
future laws and regulations; the impact of existing and future
accounting standards and tax rules and regulations; the impact of
the Company’s debt service obligations and restrictive debt
covenants; 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) |
|
|
|
April 1, 2017 |
|
December 31, 2016 |
Assets |
|
|
|
|
Current Assets |
|
|
|
|
Cash and
cash equivalents |
|
$ |
7,114 |
|
|
$ |
7,432 |
|
Accounts
receivable, net |
|
71,623 |
|
|
76,239 |
|
Inventories |
|
127,201 |
|
|
119,896 |
|
Production cost of contracts |
|
11,052 |
|
|
11,340 |
|
Other
current assets |
|
10,589 |
|
|
11,034 |
|
Total
Current Assets |
|
227,579 |
|
|
225,941 |
|
Property and equipment,
Net |
|
104,868 |
|
|
101,590 |
|
Goodwill |
|
82,554 |
|
|
82,554 |
|
Intangibles, net |
|
99,364 |
|
|
101,573 |
|
Non-current deferred
income taxes |
|
286 |
|
|
286 |
|
Other assets |
|
3,320 |
|
|
3,485 |
|
Total
Assets |
|
$ |
517,971 |
|
|
$ |
515,429 |
|
Liabilities and
Shareholders’ Equity |
|
|
|
|
Current
Liabilities |
|
|
|
|
Current
portion of long-term debt |
|
$ |
— |
|
|
$ |
3 |
|
Accounts
payable |
|
63,313 |
|
|
57,024 |
|
Accrued
liabilities |
|
28,092 |
|
|
29,279 |
|
Total
Current Liabilities |
|
91,405 |
|
|
86,306 |
|
Long-term debt, less
current portion |
|
162,156 |
|
|
166,896 |
|
Non-current deferred
income taxes |
|
31,949 |
|
|
31,417 |
|
Other long-term
liabilities |
|
18,179 |
|
|
18,707 |
|
Total
Liabilities |
|
303,689 |
|
|
303,326 |
|
Commitments and
contingencies |
|
|
|
|
Shareholders’
Equity |
|
|
|
|
Common
stock |
|
113 |
|
|
112 |
|
Additional paid-in capital |
|
76,827 |
|
|
76,783 |
|
Retained
earnings |
|
143,402 |
|
|
141,287 |
|
Accumulated other comprehensive loss |
|
(6,060 |
) |
|
(6,079 |
) |
Total
Shareholders’ Equity |
|
214,282 |
|
|
212,103 |
|
Total
Liabilities and Shareholders’ Equity |
|
$ |
517,971 |
|
|
$ |
515,429 |
|
DUCOMMUN INCORPORATED AND SUBSIDIARIES |
CONDENSED CONSOLIDATED INCOME STATEMENTS |
(Unaudited) |
(In thousands, except per share amounts) |
|
|
|
Three Months Ended |
|
|
April 1, 2017 |
|
April 2, 2016 |
Net Revenues |
|
$ |
136,297 |
|
|
$ |
142,148 |
|
Cost of Sales |
|
111,370 |
|
|
115,179 |
|
Gross Profit |
|
24,927 |
|
|
26,969 |
|
Selling, General and
Administrative Expenses |
|
20,827 |
|
|
22,676 |
|
Operating Income |
|
4,100 |
|
|
4,293 |
|
Interest Expense |
|
(1,593 |
) |
|
(2,399 |
) |
Gain on
Divestitures |
|
— |
|
|
18,815 |
|
Income Before
Taxes |
|
2,507 |
|
|
20,709 |
|
Income Tax Expense |
|
392 |
|
|
7,159 |
|
Net Income |
|
$ |
2,115 |
|
|
$ |
13,550 |
|
Earnings Per Share |
|
|
|
|
Basic
earnings per share |
|
$ |
0.19 |
|
|
$ |
1.22 |
|
Diluted
earnings per share |
|
$ |
0.18 |
|
|
$ |
1.21 |
|
Weighted-Average Number
of Common Shares Outstanding |
|
|
|
|
Basic |
|
11,208 |
|
|
11,100 |
|
Diluted |
|
11,495 |
|
|
11,240 |
|
|
|
|
|
|
Gross Profit % |
|
18.3 |
% |
|
19.0 |
% |
SG&A % |
|
15.3 |
% |
|
16.0 |
% |
Operating Income % |
|
3.0 |
% |
|
3.0 |
% |
Net Income % |
|
1.6 |
% |
|
9.5 |
% |
Effective Tax Rate |
|
15.6 |
% |
|
34.6 |
% |
DUCOMMUN INCORPORATED AND SUBSIDIARIES |
BUSINESS SEGMENT PERFORMANCE |
(Unaudited) |
(In thousands) |
|
|
|
Three Months Ended |
|
|
%Change |
|
April 1, 2017 |
|
April 2, 2016 |
|
%of Net Revenues2017 |
|
%of Net Revenues2016 |
Net
Revenues |
|
|
|
|
|
|
|
|
|
|
Structural Systems |
|
(10.1 |
)% |
|
$ |
57,575 |
|
|
$ |
64,017 |
|
|
42.2 |
% |
|
45.0 |
% |
Electronic Systems |
|
0.8 |
% |
|
78,722 |
|
|
78,131 |
|
|
57.8 |
% |
|
55.0 |
% |
Total Net
Revenues |
|
(4.1 |
)% |
|
$ |
136,297 |
|
|
$ |
142,148 |
|
|
100.0 |
% |
|
100.0 |
% |
Segment
Operating Income |
|
|
|
|
|
|
|
|
|
|
Structural Systems |
|
|
|
$ |
2,632 |
|
|
$ |
2,724 |
|
|
4.6 |
% |
|
4.3 |
% |
Electronic Systems |
|
|
|
7,104 |
|
|
6,387 |
|
|
9.0 |
% |
|
8.2 |
% |
|
|
|
|
9,736 |
|
|
9,111 |
|
|
|
|
|
Corporate
General and Administrative Expenses (1) |
|
|
|
(5,636 |
) |
|
(4,818 |
) |
|
(4.1 |
)% |
|
(3.4 |
)% |
Total
Operating Income |
|
|
|
$ |
4,100 |
|
|
$ |
4,293 |
|
|
3.0 |
% |
|
3.0 |
% |
Adjusted
EBITDA |
|
|
|
|
|
|
|
|
|
|
Structural Systems |
|
|
|
|
|
|
|
|
|
|
Operating
Income |
|
|
|
$ |
2,632 |
|
|
$ |
2,724 |
|
|
|
|
|
Depreciation and Amortization |
|
|
|
2,352 |
|
|
2,057 |
|
|
|
|
|
|
|
|
|
4,984 |
|
|
4,781 |
|
|
8.7 |
% |
|
7.5 |
% |
Electronic Systems |
|
|
|
|
|
|
|
|
|
|
Operating
Income |
|
|
|
7,104 |
|
|
6,387 |
|
|
|
|
|
Depreciation and Amortization |
|
|
|
3,423 |
|
|
3,761 |
|
|
|
|
|
|
|
|
|
10,527 |
|
|
10,148 |
|
|
13.4 |
% |
|
13.0 |
% |
Corporate
General and Administrative Expenses (1) |
|
|
|
|
|
|
|
|
|
|
Operating
loss |
|
|
|
(5,636 |
) |
|
(4,818 |
) |
|
|
|
|
Depreciation and Amortization |
|
|
|
7 |
|
|
37 |
|
|
|
|
|
Stock-Based Compensation Expense |
|
|
|
1,822 |
|
|
1,000 |
|
|
|
|
|
|
|
|
|
(3,807 |
) |
|
(3,781 |
) |
|
|
|
|
Adjusted
EBITDA |
|
|
|
$ |
11,704 |
|
|
$ |
11,148 |
|
|
8.6 |
% |
|
7.8 |
% |
Capital
Expenditures |
|
|
|
|
|
|
|
|
|
|
Structural Systems |
|
|
|
$ |
5,188 |
|
|
$ |
2,054 |
|
|
|
|
|
Electronic Systems |
|
|
|
1,433 |
|
|
347 |
|
|
|
|
|
Corporate
Administration |
|
|
|
— |
|
|
— |
|
|
|
|
|
Total
Capital Expenditures |
|
|
|
$ |
6,621 |
|
|
$ |
2,401 |
|
|
|
|
|
(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, 310.513.7224
Chris Witty, Investor Relations, 646.438.9385, cwitty@darrowir.com
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