Ducommun(US:DCO)2022-08-06 23:03Financial 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]