Ducommun(US:DCO)2022-11-07 20:54Financial Data and Key Metrics Changes - Ducommun's Q3 2022 revenue reached $186.6 million, a 14% increase year-over-year, marking the first time revenues exceeded $180 million since Q4 2019 [5][11] - Gross profit was $38.6 million with a gross margin of 20.7%, down from 21.6% in Q3 2021, while adjusted EBITDA was $26 million, representing a 13.9% margin [12][7] - GAAP diluted EPS was $0.69, down from $0.78 in Q3 2021, but adjusted diluted EPS increased to $0.96 from $0.91 [12][7] Business Line Data and Key Metrics Changes - The commercial aerospace segment saw a revenue increase of over 65% year-over-year, with Boeing 737 MAX business up 137% and Airbus A320 sales up 70% [6][8] - The defense business generated over $100 million in revenue, showing a slight decline compared to previous years but maintaining solid performance [6][10] - Structural systems segment revenue was $73.2 million, up from $58.5 million year-over-year, while electronic systems segment revenue increased to $113.4 million from $104.7 million [13][14] Market Data and Key Metrics Changes - The commercial aerospace backlog increased to $431 million, a 55% increase from Q2 2021, while the defense backlog remained solid at $467 million [9][11] - Military and space revenue represented 57% of total revenue, down from 70% the previous year, indicating a shift towards a more balanced revenue stream [10] Company Strategy and Development Direction - The company is focused on the recovery of the commercial aerospace market and expects continued strong performance driven by increased demand and backlog growth [11][18] - Ducommun is actively pursuing restructuring initiatives to optimize operations and improve performance, with expected costs of $7 million to $10 million in the coming quarters [16][17] - The company aims to double its defense outsourcing revenue to over $90 million in 2023, indicating a strategic focus on expanding its defense business [8][10] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the recovery in commercial aerospace and the potential for continued growth in defense, despite some timing issues with orders [18][31] - The company highlighted strong customer relationships and improved supply chain management as key factors supporting future performance [17][36] - Management anticipates a positive free cash flow for the full year, with Q4 typically being a strong cash quarter [39][41] Other Important Information - The company reported available liquidity of $221 million at the end of Q3 2022 and completed a refinancing of its debt with favorable terms [17][12] - The restructuring efforts are not related to acquisitions but are aimed at optimizing core business operations [25][26] Q&A Session Summary Question: What drove the margin improvement in structural systems? - Management indicated that volume and a strong book of business contributed to the margin improvement [19][20] Question: When can positive growth in the defense business be expected? - Management expects growth to begin mid-2023, driven by positive developments in various defense programs [21][31] Question: Is the timing issue related to supply chain or customer contracts? - Management clarified that the timing issue is primarily due to order timing rather than supply chain problems [22][23] Question: How does restructuring relate to past acquisitions? - Restructuring is focused on optimizing core business rather than consolidating past acquisitions [25][26] Question: What is the outlook for free cash flow? - Management expects to achieve positive free cash flow for the full year, with Q4 being a strong cash quarter [39][41] Question: How does the M&A pipeline look? - The company is actively pursuing acquisitions and aims for at least one acquisition per year [42][43]