Structural Systems – Overview | --- | --- | --- | --- | --- | --- | --- | |---------------------------------------------------------------------------------|-------------------------------|------------------------------|--------------------------------------------|--------|-----------------------------------------------|----------| | Commercial Aircraft | Military Rotorcraft | | Missiles, Ground Vehicles, and Other | | Business Jets | | | B737 A320 | Apache | Blackhawk | TOW Missile | SM2 | Global 7500/8000 ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _________________________________________________________ FORM 10-Q _________________________________________________________ x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2023 OR Commission File Number 001-08174 _________________________________________________________ ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SEC ...

28 Narrowbody 53% Military & Space 23% Business Jets 9% Widebody 9% All Other 6% LISTED Structural Systems – Key Sectors and Applications | --- | --- | --- | --- | --- | --- | --- | --- | --- | |---------------------------|----------------------------------------|------------------|--------------------------------------------|-------------|------------------------------------------------------|----------------------------------|----------------------------|-----------------------| | Commercial Aerospace 19% ...

Suman Mookerji - Senior Vice President, Chief Financial Officer, Controller and Treasurer Jason Gursky - Citi Operator Certain statements today that are not historical facts, including any statements as to future market conditions, results of operations and financial projections are forward-looking statements under the Private Securities Litigation Reform Act of 1995 and are therefore, prospective. These forward-looking statements are subject to risks, uncertainties and other factors, which could cause actu ...

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]

Ducommun Incorporated (NYSE:DCO) Q1 2022 Earnings Conference Call May 3, 2022 5:00 PM ET Company Participants Chris Wampler - Vice President, Chief Financial Officer, Controller & Treasurer Steve Oswald - Chairman, President & Chief Executive Officer Conference Call Participants Pete Osterland - Truist Securities Mike Crawford - B. Riley Securities Operator Good day and thank you for standing by. Welcome to the Q1 2022 Ducommun Earnings Conference Call. [Operator Instructions] Please be advised that today's ...

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 ...