Ducommun Incorporated Reports Results for the First Quarter Ended April 3, 2021
05/04/2021 - 04:15 PM
Solid Start to 2021 Along with Continued Margin Strength
SANTA ANA, Calif., May 04, 2021 (GLOBE NEWSWIRE) -- Ducommun Incorporated (NYSE:DCO) (“Ducommun” or the “Company”) today reported results for its first quarter ended April 3, 2021.
First Quarter 2021 Recap
Revenue was $157.2 million Net income of $6.7 million , or $0.55 per diluted share Adjusted net income of $7.1 million , or $0.58 per diluted share Gross margin of 21.1% Adjusted EBITDA of 13.5% of revenue “Our first quarter performance continued to illustrate the resilience of Ducommun’s product portfolio and operating strength, especially in our Defense sector which is building the foundation for a solid year ahead and a return to revenue growth in 2021,” said Stephen G. Oswald, chairman, president and chief executive officer. “Military demand once again served to offset weakness in our commercial business, and continued overall strong product mix resulted in solid gross margins and Adjusted EBITDA across the Company. Looking ahead, we are optimistic that increasing build rates in the second half of 2021 and 2022 will have a positive impact on key aircraft platforms across our customers such as Boeing, Airbus and Gulfstream. We believe pent-up demand in air travel and vaccination progress will ultimately drive increased shipments across a host of programs where Ducommun has a strong market position. While still early, 2021 looks promising for the aerospace industry, and Ducommun is uniquely positioned to benefit as the economy continues to strengthen.”
First Quarter Results
Net revenue for the first quarter of 2021 was $157.2 million compared to $173.5 million for the first quarter of 2020. The year-over-year decrease of 9.4% was primarily due to the following:
$25.2 million lower revenue in the Company’s commercial aerospace end-use markets due to lower build rates on large aircraft platforms and regional and business aircraft platforms; partially offset by$12.2 million higher revenue in the Company’s military and space end-use markets due to higher build rates on military fixed-wing aircraft platforms and other military and space platforms.Net income for the first quarter of 2021 was $6.7 million , or $0.55 per diluted share, compared to $7.9 million , or $0.67 per diluted share, for the first quarter of 2020. This reflects a $3.7 million decrease in gross profit due to lower revenue, partially offset by lower interest expense of $1.4 million .
Gross profit for the first quarter of 2021 was $33.1 million , or 21.1% of revenue, compared to gross profit of $36.8 million , or 21.2% of revenue, for the first quarter of 2020. Gross profit as a percentage of net revenue year-over-year was essentially flat due to unfavorable manufacturing volume, partially offset by favorable product mix and lower compensation and benefit costs.
Operating income for the first quarter of 2021 was $10.6 million , or 6.8% of revenue, compared to $13.6 million , or 7.8% of revenue, in the comparable period last year. The year-over-year decrease of $3.0 million was due to lower revenue. Adjusted operating income for the first quarter of 2021 was $11.1 million , or 7.1% of revenue, compared to $13.6 million , or 7.8% of revenue, in the comparable period last year.
Interest expense for the first quarter of 2021 was $2.8 million compared to $4.2 million in the comparable period of 2020. The year-over-year decrease was due to lower interest rates and a lower outstanding debt balance.
Adjusted EBITDA for the first quarter of 2021 was $21.1 million , or 13.5% of revenue, compared to $23.2 million , or 13.4% of revenue, for the comparable period in 2020.
During the first quarter of 2021, the net cash used in operations was $23.4 million compared to $12.0 million during the first quarter of 2020. The higher cash used in operations year-over-year was due to higher contract assets, lower accrued and other liabilities, and higher inventories, partially offset by higher accounts payable.
Business Segment Information
Electronic Systems
Electronic Systems segment net revenue for the quarter ended April 3, 2021 was $99.1 million , compared to $98.1 million for the first quarter of 2020. The year-over-year increase was primarily due to the following:
$7.4 million higher revenue within the Company’s military and space end-use markets due to higher build rates on other military and space platforms; partially offset by$3.1 million lower revenue within the Company’s commercial aerospace end-use markets due to lower build rates on large aircraft platforms, regional and business aircraft platforms, and other commercial aerospace platforms.Electronic Systems segment operating income for the quarter ended April 3, 2021 was $12.5 million , or 12.6% of revenue, compared to $15.1 million , or 15.4% of revenue, for the comparable quarter in 2020. The year-over-year decrease of $2.6 million was due to unfavorable manufacturing volume and unfavorable product mix, partially offset by lower compensation and benefit costs.
Structural Systems
Structural Systems segment net revenue for the quarter ended April 3, 2021 was $58.0 million , compared to $75.4 million for the first quarter of 2020. The year-over-year decrease was due to the following:
$22.1 million lower revenue within the Company’s commercial aerospace end-use markets due to lower build rates on large aircraft platforms and regional and business aircraft platforms; partially offset by$4.8 million higher revenue within the Company’s military and space end-use markets due to higher build rates on various missile platforms.Structural Systems segment operating income for the quarter ended April 3, 2021 was $5.1 million , or 8.8% of revenue, compared to $5.4 million , or 7.2% of revenue, for the comparable quarter in 2020. The year-over-year decrease of $0.3 million was due to unfavorable manufacturing volume, partially offset by favorable product mix and lower compensation and benefit costs.
Corporate General and Administrative (“CG&A”) Expenses
CG&A expenses for the first quarter of 2021 were $7.0 million , or 4.5% of total Company revenue, compared to $6.9 million , or 4.0% of total Company revenue, for the comparable quarter in the prior year.
Conference Call
A teleconference hosted by Stephen G. Oswald, the Company’s chairman, president and chief executive officer, and Christopher D. Wampler, the Company’s vice president, chief financial officer, controller and treasurer will be held today, May 4, 2021 at 2:00 p.m. PT (5:00 p.m. ET) to review these financial results. To participate in the teleconference, please call 800-697-5978 (international 630-691-2750) approximately 10 minutes prior to the conference time. The participant passcode is 9871258. Mr. Oswald and Mr. Wampler 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 Ducommun.com .
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 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 growth and outlook for the second half of 2021 and 2022, estimated build rates for key customer platforms, future demand for, and shipments related to the Company's products, and the recovery of the aerospace industry and air travel in light of the COVID-19 pandemic. The Company generally uses the words “may,” “will,” “could,” “expect,” “anticipate,” “believe,” “estimate,” “plan,” “intend,” “continue” 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: whether the anticipated pre-tax restructuring charges will be sufficient to address all anticipated restructuring costs, including related to employee separation, facilities consolidation, inventory write-down and other asset impairments; whether the expected cost savings from the restructuring will ultimately be obtained in the amount and during the period anticipated; whether the restructuring in the affected areas will be sufficient to build a more cost efficient, focused, higher margin enterprise with higher returns for the Company's shareholders; 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, 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; the ultimate geographic spread, duration and severity of the coronavirus (COVID-19) outbreak, and the effectiveness of actions taken, or actions that may be taken, by governmental authorities to contain the outbreak or treat its impact, 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, May 4, 2021, 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 ).
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 Guaymas fire related expenses), non-GAAP operating income and as a percentage of net revenues, non-GAAP earnings, and non-GAAP earnings per share. In addition, certain prior period amounts have been reclassified to conform to current year’s presentation.
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. We define backlog as potential revenue and is based on customer placed purchase orders and long-term agreements (“LTAs”) with firm fixed price and expected delivery dates of 24 months or less. The majority of the LTAs do not meet the definition of a contract under ASC 606 and thus, the backlog amount disclosed herein is greater than the remaining performance obligations disclosed under ASC 606. Backlog is subject to delivery delays or program cancellations, which are beyond our control. Backlog is affected by timing differences in the placement of customer orders and tends to be concentrated in several programs to a greater extent than our net revenues. Backlog in industrial markets tends to be of a shorter duration and is generally fulfilled within a three month period. As a result of these factors, trends in our overall level of backlog may not be indicative of trends in our future net revenues.
CONTACTS: Christopher D. Wampler, Vice President, Chief Financial Officer, Controller and Treasurer, 657.335.3665cwitty@darrowir.com
April 3, December 31, Assets Current Assets Cash and cash equivalents $ 16,972 $ 56,466 Accounts receivable, net 61,124 58,025 Contract assets 173,909 154,028 Inventories 138,287 129,223 Production cost of contracts 7,198 6,971 Other current assets 5,723 5,571 Total Current Assets 403,213 410,284 Property and equipment, Net 109,180 109,990 Operating lease right-of-use assets 15,703 16,348 Goodwill 170,830 170,830 Intangibles, net 121,506 124,744 Deferred income taxes 33 33 Other assets 5,399 5,118 Total Assets $ 825,864 $ 837,347 Liabilities and Shareholders’ Equity Current Liabilities Accounts payable $ 70,235 $ 63,980 Contract liabilities 24,257 28,264 Accrued and other liabilities 28,433 40,526 Operating lease liabilities 3,118 3,132 Current portion of long-term debt 7,000 7,000 Total Current Liabilities 133,043 142,902 Long-term debt, less current portion 304,344 311,922 Non-current operating lease liabilities 13,785 14,555 Deferred income taxes 17,598 16,992 Other long-term liabilities 21,524 21,642 Total Liabilities 490,294 508,013 Commitments and contingencies Shareholders’ Equity Common stock 118 117 Additional paid-in capital 96,385 97,090 Retained earnings 248,422 241,727 Accumulated other comprehensive loss (9,355 ) (9,600 ) Total Shareholders’ Equity 335,570 329,334 Total Liabilities and Shareholders’ Equity $ 825,864 $ 837,347
DUCOMMUN INCORPORATED AND SUBSIDIARIES
Three Months Ended April 3, March 28, Net Revenues $ 157,151 $ 173,475 Cost of Sales 124,051 136,671 Gross Profit 33,100 36,804 Selling, General and Administrative Expenses 22,490 23,178 Operating Income 10,610 13,626 Interest Expense (2,806 ) (4,246 ) Income Before Taxes 7,804 9,380 Income Tax Expense 1,109 1,450 Net Income $ 6,695 $ 7,930 Earnings Per Share Basic earnings per share $ 0.57 $ 0.68 Diluted earnings per share $ 0.55 $ 0.67 Weighted-Average Number of Common Shares Outstanding Basic 11,791 11,610 Diluted 12,250 11,855 Gross Profit % 21.1 % 21.2 % SG&A % 14.3 % 13.4 % Operating Income % 6.8 % 7.8 % Net Income % 4.3 % 4.6 % Effective Tax Rate 14.2 % 15.5 %
DUCOMMUN INCORPORATED AND SUBSIDIARIES
Three Months Ended % April 3, March 28, % % Net Revenues Electronic Systems 1.0 % $ 99,104 $ 98,120 63.1 % 56.6 % Structural Systems (23.0 ) % 58,047 75,355 36.9 % 43.4 % Total Net Revenues (9.4 ) % $ 157,151 $ 173,475 100.0 % 100.0 % Segment Operating Income Electronic Systems $ 12,491 $ 15,122 12.6 % 15.4 % Structural Systems 5,128 5,390 8.8 % 7.2 % 17,619 20,512 Corporate General and Administrative Expenses(1) (7,009 ) (6,886 ) (4.5 ) % (4.0 ) % Total Operating Income $ 10,610 $ 13,626 6.8 % 7.8 % Adjusted EBITDA Electronic Systems Operating Income $ 12,491 $ 15,122 Depreciation and Amortization 3,423 3,575 15,914 18,697 16.1 % 19.1 % Structural Systems Operating Income 5,128 5,390 Depreciation and Amortization 3,440 3,689 Guaymas fire related expenses 475 — 9,043 9,079 15.6 % 12.0 % Corporate General and Administrative Expenses(1) Operating loss (7,009 ) (6,886 ) Depreciation and Amortization 59 72 Stock-Based Compensation Expense 3,133 2,279 (3,817 ) (4,535 ) Adjusted EBITDA $ 21,140 $ 23,241 13.5 % 13.4 % Capital Expenditures Electronic Systems $ 624 $ 815 Structural Systems 1,989 2,137 Corporate Administration — — Total Capital Expenditures $ 2,613 $ 2,952 (1) Includes costs not allocated to either the Electronic Systems or Structural Systems operating segments.
DUCOMMUN INCORPORATED AND SUBSIDIARIES
Three Months Ended GAAP To Non-GAAP Operating Income April 3, 2021 March 28, 2020 % % GAAP Operating income $ 10,610 $ 13,626 GAAP Operating income - Electronic Systems $ 12,491 $ 15,122 Adjusted operating income - Electronic Systems 12,491 15,122 12.6 % 15.4 % GAAP Operating income - Structural Systems 5,128 5,390 Adjustment: Guaymas fire related expenses 475 — Adjusted operating income - Structural Systems 5,603 5,390 9.7 % 7.2 % GAAP Operating loss - Corporate (7,009 ) (6,886 ) Adjusted operating loss - Corporate (7,009 ) (6,886 ) Total adjustments 475 — Adjusted operating income $ 11,085 $ 13,626 7.1 % 7.8 %
DUCOMMUN INCORPORATED AND SUBSIDIARIES
Three Months Ended GAAP To Non-GAAP Earnings April 3, March 28, GAAP Net income $ 6,695 $ 7,930 Adjustments: Guaymas fire related expenses (1) 380 — Total adjustments 380 — Adjusted net income $ 7,075 $ 7,930
Three Months Ended GAAP Earnings Per Share To Non-GAAP Earnings Per Share April 3, March 28, GAAP Diluted earnings per share (“EPS”) $ 0.55 $ 0.67 Adjustments: Guaymas fire related expenses (1) 0.03 — Total adjustments 0.03 — Adjusted diluted EPS $ 0.58 $ 0.67 Shares used for adjusted diluted EPS 12,250 11,855 (1) Includes effective tax rate of 20.0% for 2021 adjustments.
DUCOMMUN INCORPORATED AND SUBSIDIARIES
(In thousands) April 3, December 31, Consolidated Ducommun Military and space $ 516,424 $ 515,396 Commercial aerospace 266,400 268,326 Industrial 27,309 24,019 Total $ 810,133 $ 807,741 Electronic Systems Military and space $ 385,626 $ 389,877 Commercial aerospace 54,099 56,719 Industrial 27,309 24,019 Total $ 467,034 $ 470,615 Structural Systems Military and space $ 130,798 $ 125,519 Commercial aerospace 212,301 211,607 Total $ 343,099 $ 337,126
* The Company defines backlog as potential revenue and is based on customer placed purchase orders and long-term agreements (“LTAs”) with firm fixed price and expected delivery dates of 24 months or less. Backlog as of April 3, 2021 was $810.1 million compared to $807.7 million as of December 31, 2020. Under ASC 606, the Company defines performance obligations as customer placed purchase orders with firm fixed price and firm delivery dates. The remaining performance obligations disclosed under ASC 606 as of April 3, 2021 were $690.3 million .
