Ducommun(DCO) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Revenue for Q3 2024 was $201.4 million, a 2.6% increase from$ 196.3 million in Q3 2023, marking the first time revenue exceeded $200 million [10][26] - Gross profit was$ 52.7 million, representing a gross margin of 26.2%, up from 22.7% in the prior year [15][27] - Adjusted EBITDA reached $31.9 million, expanding to 15.8%, which is 90 basis points above the prior year [18][30] - GAAP diluted EPS was$ 0.67, compared to $0.22 in Q3 2023, while adjusted diluted EPS was$ 0.99, up from $0.70 [18][31] - Consolidated backlog was$ 1.044 billion, decreasing $24 million sequentially but increasing over$ 85 million year-over-year [19] Business Line Data and Key Metrics Changes - Military and space revenues grew to $111 million, a 6% increase year-over-year, driven by radar and electronic warfare programs [10][22] - Commercial aerospace revenue increased by 3% year-over-year to$ 85 million, with significant growth in the A220 and A320 programs [12][24] - Structural Systems segment revenue was $86 million, slightly up from$ 85.5 million, while Electronic Systems segment revenue rose to $115.4 million from$ 110.7 million [32][34] Market Data and Key Metrics Changes - Defense backlog increased by $97 million year-over-year to$ 592 million, with new orders for various platforms [20][23] - Commercial aerospace backlog decreased sequentially by $20 million but was up$ 8 million year-over-year, indicating resilience despite market challenges [21][24] Company Strategy and Development Direction - The company is executing its Vision 2027 strategy, focusing on increasing revenue from engineered products and aftermarket content, consolidating facilities, and pursuing targeted acquisitions [9][10] - The strategy aims for 18% EBITDA margins and 25% or more of revenues from engineered products and aftermarket by 2027 [41][66] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about growth in military and space sectors and anticipated recovery in commercial aerospace, particularly with Boeing [11][22] - The company is well-positioned for recovery in 2025 and 2026, especially for the MAX and 787 programs [21][22] - Management highlighted the importance of strategic pricing initiatives and productivity improvements in driving margin expansion [15][41] Other Important Information - The company closed its Monrovia facility and reduced operations at Berryville, leading to cost savings that are expected to increase as production ramps up in Guaymas, Mexico [16][38] - The restructuring program is expected to generate annual savings of $11 million to$ 13 million upon completion [38] Q&A Session Summary Question: What is the company doing new for Northrop Grumman? - The company is involved in airborne surveillance and electronics, with significant orders from Northrop Grumman, indicating a strong partnership [43][44] Question: What is the current status of the 787 program? - The company expects a double-digit increase in content per aircraft due to a share shift from a competitor, with more details to be provided in the next call [45] Question: How much more work can the company take on without ramping up CapEx? - The company believes it has sufficient capacity in its structures business without significant capital investments, maintaining a CapEx outlook of around $20 million [50][51] Question: What is the current environment for M&A activity? - The company is actively looking for acquisition opportunities and has seen increased activity in recent months, with a focus on making the right selections [53][54] Question: What is the outlook for revenue guidance and margins in Q4? - The company anticipates a sequential decline in revenue due to the Boeing strike and program movements but expects margins to remain stable [57][60]