Company Participants Conference Call Participants Operator I would now like to turn the conference call over to Ducommun's Senior Vice President, Chief Financial Officer, Controller and Treasurer; Mr. Suman Mookerji. Thank you, Jeda, and welcome to Ducommun's 2023 first quarter conference call. With me today is Steve Oswald, Chairman, President and CEO. Particular risks facing Ducommun include, among others, the cyclicality of our end-use markets, the level of US government defense spending, timing of order ...

[Part I](index=5&type=section&id=PART%20I) [Business](index=5&type=section&id=Item%201.%20Business) Ducommun provides engineering and manufacturing services for aerospace, defense, and industrial markets, with a $960.8 million backlog - Ducommun operates through two primary business segments: **Electronic Systems** and **Structural Systems**, serving the aerospace & defense (A&D) and Industrial markets[21](index=21&type=chunk)[24](index=24&type=chunk) - Acquisitions are a key growth strategy, exemplified by the December 2021 purchase of Magnetic Seal LLC (MagSeal) for an initial price of **$69.5 million** to enhance its engineered product offerings[22](index=22&type=chunk)[23](index=23&type=chunk) Net Revenues by End-Use Market (2022) | End-Use Market | Percentage of Total Net Revenues | | :-------------------- | :------------------------------- | | Military and Space | 59% | | Commercial Aerospace | 35% | | Industrial | 6% | Top Customers' Share of 2022 Net Revenues | Customer | Percentage of Net Revenues | | :---------------------------- | :------------------------- | | Raytheon Technologies Corp. | 22% |\ | Boeing Company | 7% |\ | Top 10 Customers (Combined) | 61% | - Backlog increased to **$960.8 million** at the end of 2022, up from **$905.2 million** in 2021, primarily driven by the commercial aerospace market, with remaining performance obligations at **$853.0 million**[54](index=54&type=chunk)[56](index=56&type=chunk) - As of December 31, 2022, the company had **2,465 employees**, with **435** subject to collective bargaining agreements[65](index=65&type=chunk) [Risk Factors](index=12&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks from its capital structure, customer concentration, government spending, supply chain, and cybersecurity - Capital Structure Risk: The company's indebtedness of **$248.4 million** as of December 31, 2022, could limit financing options and affect financial condition, with the debt refinanced in July 2022[68](index=68&type=chunk)[69](index=69&type=chunk) - Customer Concentration Risk: A majority of revenues come from the aerospace and defense industry, with the top ten customers accounting for **61%** of 2022 net revenues, posing a material impact risk from sales reductions to major customers[86](index=86&type=chunk)[89](index=89&type=chunk) - Government Spending Risk: A significant portion of business depends on U.S. Government defense spending, which is subject to budgetary uncertainties and policy changes[92](index=92&type=chunk)[94](index=94&type=chunk) - Supply Chain Risk: The company relies on third-party suppliers for raw materials and components, with some being single-source, which could cause disruptions or cost inefficiencies[133](index=133&type=chunk) - Pandemic Risk: The COVID-19 pandemic continues to have a material adverse effect on the business, particularly disrupting the commercial aerospace industry and global supply chains[134](index=134&type=chunk)[136](index=136&type=chunk) - Cybersecurity and Operational Risk: The business is vulnerable to cybersecurity attacks and system failures which could lead to data loss, business interruption, and reputational damage[140](index=140&type=chunk) [Unresolved Staff Comments](index=24&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports that it has no unresolved staff comments from the SEC - None[145](index=145&type=chunk) [Properties](index=24&type=section&id=Item%202.%20Properties) The company's headquarters are in Santa Ana, California, operating various owned and leased facilities suitable for current operations - The company's headquarters are located in Santa Ana, California, and it operates from various owned and leased facilities in the U.S. and abroad[146](index=146&type=chunk) [Legal Proceedings](index=24&type=section&id=Item%203.%20Legal%20Proceedings) Information regarding the company's legal proceedings is detailed in Note 15 to the consolidated financial statements - For a description of legal proceedings, the report refers to Note 15 of the consolidated financial statements[147](index=147&type=chunk) [Mine Safety Disclosures](index=24&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[148](index=148&type=chunk) [Part II](index=25&type=section&id=PART%20II) [Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=25&type=section&id=Item%205.%20Market%20for%20the%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Ducommun's common stock trades on the NYSE under DCO, with no dividends paid since Q1 2011 and no issuer equity purchases reported - The company's common stock is listed on the NYSE under the symbol DCO[150](index=150&type=chunk) - No dividends have been paid since Q1 2011, and none are expected in the foreseeable future[150](index=150&type=chunk) - There were no issuer purchases of equity securities reported[151](index=151&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=26&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In 2022, revenues grew 10.4% to $712.5 million, driven by commercial aerospace recovery, though net income declined due to a prior-year one-time gain [Overview and COVID-19 Impact](index=26&type=section&id=Overview%20and%20COVID-19%20Impact) The COVID-19 pandemic continued to negatively impact the business in 2022, particularly the commercial aerospace market, due to global economic factors - The COVID-19 pandemic and related economic factors (inflation, rising interest rates, supply chain issues) continued to negatively impact the business, especially the commercial aerospace end-use market[154](index=154&type=chunk)[157](index=157&type=chunk) - The company utilized the option to defer employer payroll taxes under the CARES Act, with the final deferred amount paid by December 31, 2022[156](index=156&type=chunk) [Results of Operations](index=29&type=section&id=Results%20of%20Operations) For 2022, net revenues increased by 10.4% to $712.5 million, but gross profit margin declined, and net income significantly dropped due to the absence of a prior-year one-time gain Consolidated Results of Operations (2022 vs. 2021) | Financial Metric | 2022 (in thousands) | 2021 (in thousands) | Change | | :---------------------- | :------------------ | :------------------ | :---------- | | Net Revenues | $712,537 | $645,413 | +10.4% | | Gross Profit | $144,297 | $142,460 | +1.3% | | Operating Income | $39,788 | $48,881 | -18.6% | | Net Income | $28,789 | $135,536 | -78.8% | | Diluted EPS | $2.33 | $11.06 | -78.9% | - The increase in 2022 revenue was primarily due to a **$91.8 million** rise in the commercial aerospace market, partially offset by a **$33.1 million** decrease in the military and space market[170](index=170&type=chunk) - Gross profit margin decreased to **20.3%** in 2022 from **22.1%** in 2021, mainly due to an unfavorable product mix[172](index=172&type=chunk) - The decrease in 2022 net income was primarily due to the absence of the **$132.5 million** gain on sale-leaseback that occurred in 2021, coupled with **$6.7 million** in restructuring charges incurred in 2022[184](index=184&type=chunk)[176](index=176&type=chunk)[174](index=174&type=chunk) [Business Segment Performance](index=32&type=section&id=Business%20Segment%20Performance) In 2022, both Electronic Systems and Structural Systems segments saw revenue growth, but their operating income declined due to unfavorable product mix and restructuring charges Segment Performance (2022 vs. 2021) | Segment | Net Revenues 2022 (in millions) | Net Revenues 2021 (in millions) | Operating Income 2022 (in millions) | Operating Income 2021 (in millions) | | :------------------ | :------------------------------ | :------------------------------ | :---------------------------------- | :---------------------------------- | | Electronic Systems | $440.6 | $412.6 | $49.9 | $57.6 | | Structural Systems | $271.9 | $232.8 | $17.2 | $20.2 | - Electronic Systems' revenue increase was driven by a **$33.2 million** rise in commercial aerospace, while operating income decreased due to unfavorable product mix and restructuring charges[189](index=189&type=chunk) - Structural Systems' revenue growth was fueled by a **$58.6 million** increase in commercial aerospace from higher large aircraft build rates, with operating income declining due to unfavorable mix and restructuring[190](index=190&type=chunk) [Backlog](index=35&type=section&id=Backlog) Total backlog increased by $55.6 million to $960.8 million at year-end 2022, driven by commercial aerospace growth, with $655.0 million expected to be delivered in the next 12 months Backlog by End-Use Market (in thousands) | End-Use Market | Dec 31, 2022 | Dec 31, 2021 | Change | | :-------------------- | :----------- | :----------- | :---------- | | Military and space | $457,354 | $520,278 | ($62,924) | | Commercial aerospace | $450,092 | $333,107 | $116,985 | | Industrial | $53,374 | $51,802 | $1,572 | | **Total** | **$960,820** | **$905,187** | **$55,633** | [Liquidity and Capital Resources](index=36&type=section&id=Liquidity%20and%20Capital%20Resources) As of December 31, 2022, the company had $46.2 million in cash and $199.8 million available credit, with total debt at $248.4 million after a July 2022 refinancing Liquidity Position (as of Dec 31) | Metric | 2022 (in millions) | 2021 (in millions) | | :---------------------------- | :----------------- | :----------------- | | Total Debt | $248.4 | $287.7 | | Cash and cash equivalents | $46.2 | $76.3 | | Unused Revolving Credit Facility | $199.8 | $99.8 | - In July 2022, the company completed a major debt refinancing, establishing a new **$250.0 million** term loan and a **$200.0 million** revolving credit facility, both maturing in 2027[197](index=197&type=chunk)[401](index=401&type=chunk) - A restructuring plan commenced in April 2022 is expected to result in total pre-tax charges of **$12.0 million** to **$16.0 million** through 2023, aiming for annualized cost savings of **$11.0 million** to **$13.0 million**[201](index=201&type=chunk) - Cash flow from operating activities was **$32.7 million** in 2022, a significant improvement from a **$0.6 million** use of cash in 2021[211](index=211&type=chunk) [Critical Accounting Policies and Estimates](index=38&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) The company's critical accounting policies involve significant judgment, particularly for revenue recognition over time and annual goodwill impairment testing, with no impairment recorded in 2022 - Revenue is primarily recognized over time using a cost-to-cost input method, as most products are built to customer specifications with no alternative use and an enforceable right to payment[222](index=222&type=chunk)[223](index=223&type=chunk) - Goodwill is tested for impairment annually on the first day of the fourth quarter, with a quantitative test for the Structural Systems reporting unit and a qualitative assessment for the Electronic Systems unit in 2022, resulting in no impairment for either[234](index=234&type=chunk)[238](index=238&type=chunk)[239](index=239&type=chunk) - Inventories are stated at the lower of cost or net realizable value, with cost determined on a moving average or actual cost basis[242](index=242&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=41&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is from interest rate changes on its $248.4 million variable-rate debt, with a hypothetical 10% change not expected to be material - The main market risk is from interest rate changes on the **$248.4 million** of outstanding variable-rate debt under the 2022 Credit Facilities[246](index=246&type=chunk) - The interest rate on the debt is based on Term SOFR plus a margin ranging from **1.375%** to **2.375%**, depending on the consolidated total net adjusted leverage ratio[247](index=247&type=chunk) [Financial Statements and Supplementary Data](index=42&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section incorporates by reference the company's audited consolidated financial statements and supplementary data from Part IV, Item 15 - The financial statements and supplementary data are incorporated by reference from Part IV, Item 15(a) 1 and 2 of the report[250](index=250&type=chunk) [Changes in and Disagreements With Accountants on Accounting and Financial Disclosure](index=42&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20With%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[251](index=251&type=chunk) [Controls and Procedures](index=42&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2022, with no material changes - Management concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of December 31, 2022[253](index=253&type=chunk) - Based on the COSO framework, management concluded that the company maintained effective internal control over financial reporting as of December 31, 2022[256](index=256&type=chunk) - No material changes were made to the internal control over financial reporting during the fourth quarter of 2022[258](index=258&type=chunk) [Other Information](index=43&type=section&id=Item%209B.%20Other%20Information) The company reports no other information for this item - None[259](index=259&type=chunk) [Disclosure Regarding Foreign Jurisdictions That Prevent Inspections](index=43&type=section&id=Item%209C.%20Disclosure%20Regarding%20Foreign%20Jurisdictions%20That%20Prevent%20Inspections) This item is not applicable to the company - Not applicable[260](index=260&type=chunk) [Part III](index=44&type=section&id=PART%20III) [Directors, Executive Officers and Corporate Governance](index=44&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) This section incorporates by reference information from the 2023 Proxy Statement regarding directors, executive officers, and corporate governance - Information regarding directors, executive officers, corporate governance, and the audit committee is incorporated by reference from the 2023 Proxy Statement[263](index=263&type=chunk)[264](index=264&type=chunk)[265](index=265&type=chunk) [Executive Compensation](index=44&type=section&id=Item%2011.%20Executive%20Compensation) This section incorporates by reference information from the 2023 Proxy Statement concerning executive and director compensation - Information regarding executive compensation is incorporated by reference from the 2023 Proxy Statement[269](index=269&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=44&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) This section incorporates by reference security ownership information from the 2023 Proxy Statement, detailing securities authorized for issuance under equity compensation plans - Information regarding security ownership is incorporated by reference from the 2023 Proxy Statement[270](index=270&type=chunk) Equity Compensation Plan Information | Plan Category | Securities to be Issued Upon Exercise (a) | Weighted-Average Exercise Price (b) | Securities Remaining for Future Issuance (c) | | :------------------------------------------ | :---------------------------------------- | :---------------------------------- | :------------------------------------------- | | Equity Compensation Plans approved by security holders | 702,425 | $36.89 | 338,061 | | Employee stock purchase plan approved by security holders | — | — | 549,977 | | **Total** | **702,425** | | **888,038** | [Certain Relationships and Related Transactions, and Director Independence](index=45&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) This section incorporates by reference information from the 2023 Proxy Statement regarding related party transactions and director independence - Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the 2023 Proxy Statement[273](index=273&type=chunk) [Principal Accountant Fees and Services](index=45&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) This section incorporates by reference information from the 2023 Proxy Statement concerning fees paid to and services provided by the principal accountant - Information regarding principal accountant fees and services is incorporated by reference from the 2023 Proxy Statement[274](index=274&type=chunk) [Part IV](index=46&type=section&id=PART%20IV) [Exhibits and Financial Statement Schedules](index=46&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section contains the company's consolidated financial statements and auditor's report, which includes a critical audit matter regarding goodwill impairment assessment - The auditor, PricewaterhouseCoopers LLP, issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting[281](index=281&type=chunk) - A critical audit matter was identified concerning the goodwill impairment assessment of the Structural Systems reporting unit, due to the significant management judgment involved in estimating its fair value, particularly the gross margin assumptions[288](index=288&type=chunk)[289](index=289&type=chunk) [Form 10-K Summary](index=89&type=section&id=Item%2016.%20Form%2010-K%20Summary) This item is not applicable to the company - Not applicable[496](index=496&type=chunk)

Ducommun Incorporated (NYSE:DCO) Q3 2022 Results Conference Call November 7, 2022 1:00 PM ET Company Participants Chris Wampler - Vice President, Chief Financial Officer, Controller and Treasurer Steve Oswald - Chairman, President and CEO Conference Call Participants Ken Herbert - RBC Capital Markets Mike Crawford - B. Riley Michael Ciarmoli - Truist Operator Good day, ladies and gentlemen. And welcome to the DucommunÂ's Third Quarter Conference Call. At this time, all participants are in a listen only mode ...

Financial Data and Key Metrics Changes - Ducommun reported Q2 2022 revenue of $174.2 million, up from $160.2 million in Q2 2021, reflecting a year-over-year growth of 9% [9][25] - Gross profit was $34.6 million with a gross margin of 19.9%, down from 23% in the prior year [27] - Adjusted EBITDA for Q2 was $24.1 million, representing 13.8% of revenue, compared to $23.4 million or 14.6% in Q2 2021 [31] Business Line Data and Key Metrics Changes - The Structural segment posted revenue of $64.5 million, an increase from $57.4 million last year, while the Electronic Systems segment revenue was $109.7 million, up from $102.8 million [32][33] - The commercial aerospace business grew significantly, with Boeing 737 MAX business up over 200% year-over-year and overall commercial aerospace revenue up over 50% from Q2 2021 [9][10] - Military and space revenue was $106.7 million, a decrease from the previous year, but still above $100 million [22] Market Data and Key Metrics Changes - The commercial aerospace backlog increased from $276 million at the end of Q2 2021 to $419 million at the end of Q2 2022, a growth of over 50% [17] - The total backlog reached an all-time high of approximately $976 million, with defense backlog remaining solid at $494 million [26] Company Strategy and Development Direction - The company is focused on the recovery of the commercial aerospace market and plans to leverage its strategic supplier agreements with major customers like Raytheon and Northrop Grumman [13][14] - Ducommun is actively pursuing M&A opportunities to enhance growth, with recent acquisitions performing ahead of expectations [20] - A restructuring initiative was announced to better position the company for future performance, with expected charges of $3 million to $5 million in the coming quarters [21][34] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the commercial aerospace recovery and expects continued strong performance in the second half of 2022 [18][38] - The company anticipates challenges in the supply chain but believes it has managed these issues better than some peers [42][47] - Future revenue growth is expected to be driven by a strong backlog and recovery in commercial aerospace demand [18][24] Other Important Information - The company generated $25 million in cash from operations in Q2, a significant increase from $5.5 million in the prior year [35] - Capital expenditures for the quarter were $4.2 million, with expectations to spend between $17 million and $19 million for the full year [36] Q&A Session Summary Question: Supply chain disruptions and future sales expectations - Management indicated they have managed supply chain issues better than peers and expect some challenges in the circuit card business but do not foresee material impacts [41][43] Question: Margins on offloaded work - Management expects margins on offloaded work to remain similar to current levels, benefiting from cost savings and established relationships with defense customers [44][46] Question: Commercial aerospace production rates - The company is currently operating at production rates of 28% to 31% for the Boeing 737 MAX and expects this to continue through early 2023 [48][49] Question: Lead times and customer orders - Management has not observed consistent messaging regarding lead times decreasing and does not expect a significant pause in customer orders [51][52] Question: Capital allocation and property sales - The company is exploring options for another property but has not made any decisions yet [53] Question: Defense backlog and order flow - Management noted that while there was a dip in backlog, they expect continued activity and opportunities in the defense sector [57][58] Question: Free cash flow expectations - Management anticipates free cash flow in the second half of the year to be similar to Q2, estimating around $20 million [59]

Financial Data and Key Metrics Changes - Ducommun reported Q1 2022 revenue of $163.5 million, up from $157.2 million in Q1 2021, reflecting a year-over-year growth of 4% [20][5] - Gross profit for Q1 2022 was $32.5 million, with a gross margin of 19.9%, compared to $33.1 million and 21.1% in Q1 2021 [21][26] - GAAP diluted EPS increased to $0.66 in Q1 2022 from $0.55 in Q1 2021, while adjusted diluted EPS rose to $0.67 from $0.66 [6][25] Business Line Data and Key Metrics Changes - The commercial aerospace segment saw a revenue increase of 53% year-over-year, driven by significant growth in Boeing 737 MAX and Airbus A320 family programs [5][7] - Military and space revenue was $99.3 million in Q1 2022, a decrease compared to the previous year, but still represented about 70% of total revenue [15][27] - The structural segment posted revenue of $66 million, up from $58 million, while the electronic systems segment revenue decreased to $97.5 million from $99.1 million [27][28] Market Data and Key Metrics Changes - The total backlog reached an all-time high of $943 million, with a defense backlog of $509 million and a commercial backlog of $376 million [21][10] - The book-to-bill ratio for Q1 was 1.2, indicating strong order intake relative to revenue [10] - The business aviation portfolio revenue increased by 70% year-over-year, indicating strong demand in that segment [12] Company Strategy and Development Direction - The company is focused on maintaining operational excellence and is actively seeking M&A opportunities to enhance growth [12][14] - A restructuring initiative was announced to better position the company for future performance, with expected pre-tax charges of $10 million to $14 million [14][30] - The company anticipates high single-digit revenue growth for the full year 2022, driven by commercial aerospace recovery and a strong defense backlog [11][31] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the recovery in commercial aerospace and the potential for increased defense spending due to geopolitical tensions [41][11] - The impact of COVID-19 and weather-related challenges in Q1 was acknowledged, but management expects improved operational performance in Q2 [44][45] - The company is well-positioned with a strong supply chain and inventory management to navigate current market challenges [35][22] Other Important Information - The company reported a liquidity position of $119 million and made voluntary paydowns on term loans amounting to $30 million [29][30] - Capital expenditures for Q1 were $4.8 million, with an anticipated full-year spending of $16 million to $18 million [30][29] Q&A Session Summary Question: Current production rates for the 737 MAX - Management confirmed alignment with Boeing and Airbus production rates, expressing confidence in titanium inventories [34] Question: Margins and inflation impacts - Management noted that while inflationary pressures exist, they are manageable and expect margins to improve moving forward [36][37] Question: Demand signals from defense customers - Increased activity in defense was noted, with management optimistic about future opportunities due to geopolitical tensions [41] Question: Weakness in military and space programs - Timing of orders was cited as a reason for the decrease, with management confident in the strong backlog [43][44] Question: Restructuring initiative related to M&A integration - Management clarified that the restructuring is focused on legacy operations rather than acquired entities [47]

Ducommun Incorporated (NYSE:DCO) Q4 2021 Earnings Conference Call February 23, 2022 5:00 PM ET Company Representatives Steve Oswald - Chairman, President, Chief Executive Officer Chris Wampler - Vice President, Chief Financial Officer, Controller, Treasurer Conference Call Participants Mike Crawford - B. Riley Securities Pete Osterland - Truist Securities Ken Herbert - RBC Capital Markets Operator Good day ladies and gentlemen, and welcome to Ducommun’s Fourth Quarter Conference Call. At this time all parti ...

Part I [Business](index=5&type=section&id=Item%201.%20Business) Ducommun Incorporated provides engineering and manufacturing services for high-performance products, primarily serving the aerospace and defense industries [General and Acquisitions](index=5&type=section&id=General%20and%20Acquisitions) Ducommun operates through Electronic Systems and Structural Systems segments, with acquisitions like MagSeal being a key growth strategy - Ducommun operates through two primary business segments: Electronic Systems and Structural Systems, providing solutions for aerospace, defense, and industrial markets[18](index=18&type=chunk)[21](index=21&type=chunk) - On December 16, 2021, the company acquired Magnetic Seal LLC (MagSeal) for **$69.5 million**, net of cash acquired, to enhance its engineered product offerings within the Structural Systems segment[20](index=20&type=chunk) [Products and Services](index=5&type=section&id=Products%20and%20Services) The company's Electronic Systems segment offers high-reliability electronic products, while Structural Systems manufactures complex aerostructure components - Electronic Systems provides a range of products including complex cable assemblies, printed circuit board assemblies, electromechanical systems, and engineered products like switches, filters, and motors for motion control[22](index=22&type=chunk)[25](index=25&type=chunk) - Structural Systems manufactures large, complex contoured aerostructure components and assemblies from materials like aluminum, titanium, and Inconel, as well as composite and metal bonded structures[27](index=27&type=chunk) [End-Use Markets Overview](index=7&type=section&id=End-Use%20Markets%20Overview) In 2021, 94% of Ducommun's revenue derived from aerospace and defense markets, with commercial aerospace recovering and defense spending influenced by government budgets 2021 Revenue by End-Use Market | End-Use Market | Percentage of 2021 Net Revenues | | :------------- | :------------------------------ | | Military and Space | 70% | | Commercial Aerospace | 24% | | Industrial | 6% | - The commercial aerospace market is recovering from the COVID-19 pandemic, with Boeing projecting a return to 2019 air travel levels between 2023 and 2024[29](index=29&type=chunk)[32](index=32&type=chunk) - The defense market is subject to U.S. government defense spending levels, with the FY 2022 NDAA authorizing approximately **$25 billion** more than the President's budget request, though future appropriations remain uncertain[33](index=33&type=chunk) [Sales, Marketing, and Major Customers](index=8&type=section&id=Sales%2C%20Marketing%2C%20and%20Major%20Customers) Sales are tied to aircraft production and defense programs, with the top 10 customers accounting for 61% of 2021 net revenues Net Revenues by Major Customer (as % of Total) | Customer | 2021 | 2020 | | :-------------------------- | :------ | :------ | | Raytheon Technologies Corp. | 24.4% | 20.9% | | The Boeing Company | 7.8% | 10.5% | | Northrop Grumman Corp. | 7.1% | 9.1% | | Lockheed Martin Corp. | 4.4% | 5.0% | | **Top 10 Customers (Total)** | **61.1%** | **61.1%** | [Remaining Performance Obligations and Backlog](index=10&type=section&id=Remaining%20Performance%20Obligations%20and%20Backlog) As of December 31, 2021, remaining performance obligations totaled **$814.1 million**, with backlog increasing to **$905.2 million** driven by commercial aerospace and industrial markets Backlog Comparison (Year-End) | Metric | Dec 31, 2021 | Dec 31, 2020 | | :-------------------------- | :---------------- | :---------------- | | Remaining Performance Obligations | $814.1 million | Not Provided | | Total Backlog | $905.2 million | $807.7 million | - The increase in backlog from 2020 to 2021 was primarily driven by the commercial aerospace and industrial end-use markets[54](index=54&type=chunk) [Human Capital](index=12&type=section&id=Human%20Capital) As of December 31, 2021, Ducommun employed 2,480 people, focusing on safety, diversity, and talent retention through competitive compensation and benefits - The company had **2,480 employees** as of December 31, 2021, with **465** subject to collective bargaining agreements[62](index=62&type=chunk) - Key human capital initiatives include promoting diversity and inclusion, ensuring employee safety (highlighted by COVID-19 response), and talent retention through competitive compensation and an Employee Stock Purchase Plan (ESPP)[58](index=58&type=chunk)[59](index=59&type=chunk)[60](index=60&type=chunk) [Risk Factors](index=13&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks related to its capital structure, business operations, regulatory environment, and general market conditions [Capital Structure Risks](index=13&type=section&id=Capital%20Structure%20Risks) Ducommun's **$287.7 million** in outstanding debt limits financing options and operational flexibility, with variable interest rates partially mitigated by forward interest rate swaps - As of December 31, 2021, the company had **$287.7 million** of outstanding long-term debt under its Credit Facilities, primarily resulting from past acquisitions[67](index=67&type=chunk) - The debt level could limit the ability to obtain additional financing, require cash flow to be dedicated to debt service, and restrict strategic acquisitions[70](index=70&type=chunk) - The company entered into forward interest rate swaps for an aggregate notional amount of **$150.0 million**, effective January 1, 2024, to mitigate risk from rising interest rates on its variable-rate debt[75](index=75&type=chunk)[86](index=86&type=chunk) [Business and Operational Risks](index=16&type=section&id=Business%20and%20Operational%20Risks) Ducommun's business is vulnerable to cyclical markets, high customer concentration, U.S. government defense spending fluctuations, and challenges in integrating acquisitions - The company has high customer concentration, with its top ten customers representing **61%** of total 2021 net revenues[95](index=95&type=chunk) - A significant portion of business depends on U.S. Government defense spending, making the company vulnerable to changes in government appropriations, national defense policies, and budgetary constraints[98](index=98&type=chunk)[101](index=101&type=chunk) - The growth strategy includes acquisitions, which entail risks such as integration difficulties, loss of key employees or customers, and failure to achieve anticipated synergies[110](index=110&type=chunk)[111](index=111&type=chunk) - The company faces risks associated with its international manufacturing facilities in Thailand and Mexico, including political instability, pandemics, and trade restrictions[116](index=116&type=chunk) [Legal, Regulatory, Tax, and Accounting Risks](index=19&type=section&id=Legal%2C%20Regulatory%2C%20Tax%2C%20and%20Accounting%20Risks) The company is subject to extensive government regulation, environmental liabilities, product liability claims, and potential impairment of its **$345.5 million** in goodwill and intangible assets - Business with the U.S. Government is subject to extensive regulation and audit, with non-compliance potentially leading to severe penalties including contract termination and suspension from future business[126](index=126&type=chunk)[129](index=129&type=chunk) - The company faces environmental liabilities for groundwater contamination at certain California sites and has accrued for these potential costs[134](index=134&type=chunk)[136](index=136&type=chunk) - Goodwill and other intangible assets totaled **$345.5 million** (**35%** of total assets) as of December 31, 2021, which are subject to impairment risk if business performance declines[143](index=143&type=chunk) [General Risks](index=23&type=section&id=General%20Risks) The COVID-19 pandemic continues to adversely affect the business, particularly commercial aerospace, while the company also faces cybersecurity threats and natural disaster risks in Southern California - The COVID-19 pandemic continues to have a material adverse effect on business, results of operations, and financial condition, with the commercial aerospace industry being significantly disrupted[153](index=153&type=chunk)[155](index=155&type=chunk) - The company is exposed to risks from cybersecurity attacks and system failures that could disrupt business, cause data loss, and damage its reputation[161](index=161&type=chunk) - A significant portion of operations are located in Southern California, an area subject to earthquake activity, and the company does not carry earthquake insurance[165](index=165&type=chunk) [Unresolved Staff Comments](index=24&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments from the SEC - None[166](index=166&type=chunk) [Properties](index=24&type=section&id=Item%202.%20Properties) The company's headquarters are in Santa Ana, California, with various owned and leased facilities deemed suitable for current operations - Headquarters are located in Santa Ana, California, with additional owned and leased facilities in the U.S. and abroad[167](index=167&type=chunk) [Legal Proceedings](index=24&type=section&id=Item%203.%20Legal%20Proceedings) Information regarding the company's legal proceedings is provided in Note 14 to the consolidated financial statements - Details on legal proceedings are available in Note 14 of the consolidated financial statements[168](index=168&type=chunk) [Mine Safety Disclosures](index=25&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[170](index=170&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=26&type=section&id=Item%205.%20Market%20for%20the%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Ducommun's common stock trades on the NYSE under DCO, with 144 holders of record as of December 31, 2021, and no dividends paid since Q1 2011 - Common stock is listed on the NYSE under the symbol **DCO**[173](index=173&type=chunk) - The company has not paid dividends since Q1 2011 and does not expect to in the foreseeable future[173](index=173&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=27&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In 2021, Ducommun's net revenues increased to **$645.4 million**, with net income surging to **$135.5 million** primarily due to a **$132.5 million** sale-leaseback gain, maintaining strong liquidity [Results of Operations](index=30&type=section&id=Results%20of%20Operations) For 2021, net revenues increased by **2.6%** to **$645.4 million**, driven by military and space sales, while net income surged to **$135.5 million** due to a significant sale-leaseback gain Key Financial Results (2021 vs. 2020) | Metric | 2021 | 2020 | | :------------------------- | :---------------- | :---------------- | | Net Revenues | $645.4 million | $628.9 million | | Gross Profit | $142.5 million | $137.7 million | | Operating Income | $48.9 million | $45.5 million | | Net Income | $135.5 million | $29.2 million | | Diluted Earnings Per Share | $11.06 | $2.45 | - The year-over-year revenue increase was primarily due to **$31.0 million** higher revenues in military and space markets, partially offset by a **$12.4 million** decrease in commercial aerospace markets[192](index=192&type=chunk)[194](index=194&type=chunk) - The significant increase in net income was primarily driven by a **$132.5 million** gain on a sale-leaseback transaction[201](index=201&type=chunk)[210](index=210&type=chunk) [Business Segment Performance](index=33&type=section&id=Business%20Segment%20Performance) In 2021, Electronic Systems revenue grew **5.1%** to **$412.6 million** due to military and space sales, while Structural Systems revenue declined **1.5%** to **$232.8 million** despite increased operating income Segment Net Revenues (2021 vs. 2020) | Segment | 2021 | 2020 | % Change | | :----------------- | :---------------- | :---------------- | :------- | | Electronic Systems | $412.6 million | $392.6 million | +5.1% | | Structural Systems | $232.8 million | $236.3 million | -1.5% | Segment Operating Income (2021 vs. 2020) | Segment | 2021 | 2020 | | :----------------- | :---------------- | :---------------- | | Electronic Systems | $57.6 million | $51.9 million | | Structural Systems | $20.2 million | $19.6 million | - Electronic Systems' revenue growth was driven by a **$19.2 million** increase in military and space end-use markets[215](index=215&type=chunk) - Structural Systems' revenue decline was due to a **$15.3 million** drop in commercial aerospace, partially offset by an **$11.8 million** increase in military and space[217](index=217&type=chunk) [Liquidity and Capital Resources](index=36&type=section&id=Liquidity%20and%20Capital%20Resources) As of December 31, 2021, liquidity was strong with **$76.3 million** in cash and **$99.8 million** available credit, supported by a **$143.1 million** sale-leaseback transaction that reduced total debt to **$287.7 million** Liquidity Position (as of Dec 31) | Metric | 2021 | 2020 | | :------------------------- | :---------------- | :---------------- | | Total Debt | $287.7 million | $320.6 million | | Cash and Cash Equivalents | $76.3 million | $56.5 million | | Unused Revolving Credit Facility | $99.8 million | $74.8 million | - In December 2021, the company completed a sale-leaseback transaction for its Gardena, CA facility, generating proceeds of **$143.1 million**[74](index=74&type=chunk)[225](index=225&type=chunk) - Net cash used in operating activities was **$0.6 million** in 2021, compared to net cash provided by operating activities of **$12.6 million** in 2020, with the decrease primarily due to higher contract assets and inventories[227](index=227&type=chunk) [Critical Accounting Policies and Estimates](index=38&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Management identifies revenue recognition, business combinations, and goodwill impairment as critical accounting policies requiring significant judgment and estimates - Revenue Recognition: The majority of revenue is recognized over time using a cost-to-cost input measure, which requires significant estimates regarding labor, materials, and subcontractor performance[231](index=231&type=chunk)[233](index=233&type=chunk) - Business Combinations: The company uses significant judgment and estimates, including valuation specialists, to allocate purchase prices to assets and liabilities at fair value, particularly for intangible assets like customer relationships[234](index=234&type=chunk)[325](index=325&type=chunk) - Goodwill Impairment: Goodwill is tested annually for impairment using either a qualitative or quantitative approach, with the quantitative test relying on assumptions about future revenues, margins, and discount rates to estimate fair value[237](index=237&type=chunk)[326](index=326&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=42&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate changes on its **$287.7 million** variable-rate debt tied to LIBOR, with the planned LIBOR cessation posing a potential impact on borrowing costs - The main market risk is interest rate changes on its **$287.7 million** in outstanding long-term debt, which bears interest at variable rates based on LIBOR[244](index=244&type=chunk) - The company acknowledges the risk associated with the planned phase-out of LIBOR, which could impact future borrowing costs[85](index=85&type=chunk)[244](index=244&type=chunk) [Controls and Procedures](index=43&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2021 - The CEO and CFO concluded that disclosure controls and procedures were effective at a reasonable assurance level as of December 31, 2021[247](index=247&type=chunk) - Management concluded that the company maintained effective internal control over financial reporting as of December 31, 2021, based on the COSO framework[248](index=248&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=44&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information regarding the company's directors, executive officers, audit committee, and code of business conduct is incorporated by reference from the 2022 Proxy Statement - Required information is incorporated by reference from the 2022 Proxy Statement[253](index=253&type=chunk)[254](index=254&type=chunk)[257](index=257&type=chunk) [Executive Compensation](index=44&type=section&id=Item%2011.%20Executive%20Compensation) Information regarding executive and director compensation is incorporated by reference from the company's 2022 Proxy Statement - Required information is incorporated by reference from the 2022 Proxy Statement[259](index=259&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=44&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information on security ownership is incorporated by reference from the 2022 Proxy Statement, with a table detailing securities authorized for issuance under equity compensation plans Securities Authorized for Issuance under Equity Compensation Plans | Plan Category | Securities to be Issued Upon Exercise (a) | Weighted-Average Exercise Price (b) | Securities Remaining for Future Issuance (c) | | :---------------------------------------- | :---------------------------------------- | :---------------------------------- | :------------------------------------------- | | Equity Plans Approved by Security Holders | 819,624 | $35.30 | 113,579 | | Employee Stock Purchase Plan | — | — | 609,670 | | **Total** | **819,624** | **N/A** | **723,249** | [Certain Relationships and Related Transactions, and Director Independence](index=45&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the company's 2022 Proxy Statement - Required information is incorporated by reference from the 2022 Proxy Statement[264](index=264&type=chunk) [Principal Accountant Fees and Services](index=45&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Information regarding principal accountant fees and services is incorporated by reference from the company's 2022 Proxy Statement - Required information is incorporated by reference from the 2022 Proxy Statement[265](index=265&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=46&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists the financial statements, schedules, and exhibits filed as part of the Form 10-K, including the Report of Independent Registered Public Accounting Firm [Report of Independent Registered Public Accounting Firm](index=47&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) PricewaterhouseCoopers LLP issued an unqualified opinion on Ducommun's consolidated financial statements and internal control effectiveness, identifying customer relationships valuation as a critical audit matter - The auditor, PricewaterhouseCoopers LLP, issued an unqualified opinion on both the consolidated financial statements and the effectiveness of internal control over financial reporting as of December 31, 2021[272](index=272&type=chunk) - A critical audit matter was identified concerning the valuation of the customer relationships intangible asset acquired in the Magnetic Seal LLC acquisition, due to the significant judgment required for assumptions like future revenue growth, gross margins, customer attrition, and discount rates[281](index=281&type=chunk)[282](index=282&type=chunk) [Form 10-K Summary](index=90&type=section&id=Item%2016.%20Form%2010-K%20Summary) This item is not applicable - Not applicable[470](index=470&type=chunk)

Ducommun Incorporated (NYSE:DCO) Q3 2021 Earnings Conference Call November 2, 2021 5:00 PM ET Company Participants Chris Witty - Investor Relations Adviser Steve Oswald - Chairman, President & Chief Executive Officer Chris Wampler - Vice President, Chief Financial Officer, Controller & Treasurer Conference Call Participants Pete Osterland - Truist Securities Ken Herbert - RBC Mike Crawford - B. Riley Securities Operator Thank you all for standing by and welcome to the conference call entitled Q3 2021 Ducomm ...

Financial Data and Key Metrics Changes - Ducommun reported second-quarter revenue of $160.2 million, an increase of 8.7% year-over-year from $147.3 million in Q2 2020, primarily driven by higher military and space sector revenue [18][21] - Gross margin rose to 23.0%, the highest quarterly performance in over a decade, up from 22.2% in the prior year [19][20] - Adjusted EBITDA for the second quarter was $23.4 million, or 14.6% of revenue, compared to $20.3 million, or 13.8% of revenue in Q2 2020 [21] Business Line Data and Key Metrics Changes - The Electronic Systems segment posted revenue of $102.8 million, up from $92 million in the prior year, reflecting strong growth in military and space customers [21][22] - The Structural Systems segment reported revenue of $57.4 million, slightly up from $55.4 million last year, with military and space markets driving the increase [22] Market Data and Key Metrics Changes - Military and space revenue represented over 70% of Ducommun's total revenue in Q2, with a strong backlog of $501 million, accounting for 62% of the total backlog [15][16] - Commercial aerospace revenue declined to $37.6 million, but the backlog increased sequentially from $266 million at the end of Q1 to $276 million at the end of Q2, indicating signs of recovery [16][18] Company Strategy and Development Direction - The company is focused on leveraging its defense business and expects revenue growth to be led by defense, with a gradual recovery in commercial aerospace anticipated [14][24] - Ducommun has been recognized as an Airbus detailed parts partner, securing a long-term five-year contract, which is seen as a significant milestone for the company [12][14] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about defense opportunities despite concerns regarding budget discussions in Washington, indicating a strong backlog and growth potential [11][14] - The company anticipates continued revenue growth in the low to mid-single digits for 2021, driven by defense and a recovery in commercial aerospace [14][24] Other Important Information - Ducommun's liquidity stands at $97 million, with cash generated from operations amounting to $6 million in the quarter [23] - The company is actively pursuing M&A opportunities to enhance its product mix and growth potential [40] Q&A Session Summary Question: What percent of structural systems sales are titanium? - Management did not disclose the exact percentage but indicated it is a meaningful number [28][29] Question: Any updates on the proprietary process and technology? - Management noted excitement about the prospects for their composite products, particularly for the Airbus A320, despite some delays due to the pandemic [30] Question: Insights on the forthcoming government fiscal year budget? - Management expressed confidence that the defense budget will benefit the company, especially with an additional $25 billion allocated [31] Question: Details on the Airbus deal and revenue tracking? - Management indicated that the Airbus partnership is significant and expected to lead to meaningful revenue increases, particularly for the A320 [34][35] Question: Production rates and alignment with industry expectations? - Management confirmed readiness to support increased production rates, particularly for the 737 MAX and Airbus programs [39] Question: Current M&A environment and deal flow? - Management stated that the M&A environment is competitive, but they remain active and optimistic about future acquisitions [40]

Ducommun Incorporated (NYSE:DCO) Q1 2021 Results Conference Call May 4, 2021 5:00 PM ET Company Participants Chris Witty - IR Steve Oswald - Chairman, President and CEO Chris Wampler - VP, CFO and Treasurer and Controller and CAO Conference Call Participants Pete Osterland - Truist Securities Mike Crawford - B. Riley Ken Herbert - Canaccord Genuity Operator Welcome to the First Quarter 2021 Ducommun Earnings Conference Call. My name is Anna, and I will be your operator for today's call. At this time, all pa ...