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Ducommun Reports Results for the Second Quarter Ended July 1, 2017

SANTA ANA, Calif., Aug. 03, 2017 (GLOBE NEWSWIRE) -- Ducommun Incorporated (NYSE:DCO) (“Ducommun” or the “Company”) today reported results for its second quarter ended July 1, 2017.

Second Quarter 2017 Highlights

  • Revenue of $140.9 million
  • Net income of $3.8 million, or $0.33 per diluted share
  • Adjusted EBITDA of $13.6 million
  • Backlog of $611 million

“The Ducommun team has made a concerted effort to significantly improve performance to our customers and set the stage for future growth, along with long-term margin expansion,” said Stephen G. Oswald, president and chief executive officer. “While further steps are clearly needed to take Ducommun to where I know it can go, I’m pleased with the revenue growth this quarter - both sequentially and year-over-year - as well as our robust backlog of $611 million, which now includes $337 million of commercial aerospace bookings. At the same time, the Company invested $9 million in the business during the quarter, primarily in our titanium centers of excellence, which will serve future requirements for Boeing, Airbus, and Gulfstream. Overall, I think we are well on our way to transforming Ducommun into a faster-growing, better performing enterprise, and we will continue to take decisive steps this year to position us for 2018 and beyond.”

Second Quarter Results

Net revenue for the second quarter of 2017 was $140.9 million compared to $133.4 million for the second quarter of 2016. The year-over-year increase was primarily due to the following:

  • $17.6 million higher revenue in the Company’s military and space end-use markets mainly driven by increased demand, which favorably impacted the Company’s helicopter, fixed-wing, and missile platforms; partially offset by
  • $7.7 million lower revenue in the Company’s commercial aerospace end-use markets, reflecting the winding down of a regional jet program and continued softness in demand in the business jet market; and
  • $2.4 million lower revenue in the Company’s industrial end-use markets.

Net income for the second quarter of 2017 was $3.8 million, or $0.33 per diluted share, compared to $3.9 million, or $0.34 per diluted share, for the second quarter of 2016. The year-over-year decrease was primarily due to the following:

  • $0.8 million higher selling, general, and administrative (“SG&A”) expense mainly due to higher compensation and benefit costs; partially offset by
  • $0.7 million of lower income tax expense.

Gross profit for the second quarter of 2017 was $26.2 million, or 18.6% of revenue, compared to gross profit of $26.2 million, or 19.6% of revenue, for the second quarter of 2016. The decrease in gross margin percentage year-over-year was primarily due to unfavorable product mix, partially offset by higher manufacturing volume.

Operating income for the second quarter of 2017 was $6.5 million, or 4.6% of revenue, compared to $7.3 million, or 5.4% of revenue, in the comparable period last year. The year-over-year decrease was primarily due to higher SG&A expense mainly due to higher compensation and benefit costs.

Interest expense was essentially flat at $1.9 million in both the second quarter of 2017 and 2016, as the favorable impact of a lower outstanding term loan balance was offset by the higher utilization of the revolving credit facility during the current three month period.

Adjusted EBITDA for the second quarter of 2017 was $13.6 million, or 9.6% of revenue, compared to $13.7 million, or 10.3% of revenue, for the comparable period in 2016.

During the second quarter of 2017, the Company generated $3.0 million of cash flow from operations compared to $6.6 million during the second quarter of 2016. The year-over-year decrease reflects an increase in accounts receivable, partially offset by higher accounts payable.

The Company’s firm backlog as of July 1, 2017 was $611 million compared to $581 million as of April 1, 2017.

Structural Systems

Structural Systems segment net revenue for the current-year second quarter was $59.1 million, compared to $60.7 million for the second quarter of 2016. The year-over-year decrease was primarily due to the following:

  • $5.0 million lower revenue within the Company’s commercial aerospace end-use markets mainly due to the winding down of a regional jet program and continued softness in demand in the business jet market; partially offset by
  • $3.4 million higher revenue within the Company’s military and space end-use markets due to increased demand, which favorably impacted the Company’s helicopter platforms.

Structural Systems segment operating income for the current-year second quarter was $2.0 million, or 3.5% of revenue, compared to $4.7 million, or 7.8% of revenue, for the second quarter of 2016. The year-over-year decrease was primarily due to lower manufacturing volume and the impact of new program development.

Electronic Systems

Electronic Systems segment net revenue for the current-year second quarter was $81.8 million, compared to $72.7 million for the second quarter of 2016. The year-over-year increase was primarily due to the following:

  • $14.2 million higher revenue within the Company’s military and space end-use markets mainly due to higher demand, which favorably impacted the Company’s helicopter, fixed-wing, and missile platforms; partially offset by
  • $2.7 million lower revenue within the Company’s commercial aerospace end-use markets mainly due to continued softness in demand in the business jet market; and
  • $2.4 million lower revenue in the Company’s industrial end-use markets.

Electronic Systems’ segment operating income was $8.8 million, or 10.8% of revenue, for the second quarter of 2017 compared to $6.8 million, or 9.3% of revenue, for the comparable quarter in 2016. The year-over-year increase was primarily due to higher manufacturing volume, partially offset by unfavorable product mix.

Corporate General and Administrative (“CG&A”) Expenses

CG&A expenses for the second quarter of 2017 were $4.4 million, or 3.1% of total Company revenue, compared to $4.2 million, or 3.2% of total Company revenue, for the comparable quarter in the prior year. The increase in CG&A expenses was primarily due to higher compensation and benefit costs.

Conference Call

A teleconference hosted by Stephen G. Oswald, the Company’s president and chief executive officer, and Douglas L. Groves, the Company’s vice president, chief financial officer and treasurer, will be held today, August 3, 2017 at 2:00 p.m. PT (5:00 p.m. ET) to review these financial results. To participate in the teleconference, please call 844-239-5278 (international 574-990-1017) approximately ten minutes prior to the conference time. The participant passcode is 52256455. Mr. Oswald and Mr. Groves will be speaking on behalf of the Company and anticipate the call (including Q&A) to last approximately 45 minutes.

This call is being webcast and can be accessed directly at the Ducommun website at www.ducommun.com. Conference call replay will be available after that time at the same link or by dialing 855-859-2056, passcode 52256455.

About Ducommun Incorporated

Ducommun Incorporated delivers value-added innovative manufacturing solutions to customers in the aerospace, defense and industrial markets. Founded in 1849, the Company specializes in two core areas - Electronic Systems and Structural Systems - to produce complex products and components for commercial aircraft platforms, mission-critical military and space programs, and sophisticated industrial applications. For more information, visit www.ducommun.com.

Forward Looking Statements

This press release and any attachments include “forward-looking statements,” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including, in particular, earnings guidance and any statements about the Company’s plans, strategies and prospects. The Company generally uses the words “may,” “will,” “could,” “expect,” “anticipate,” “believe,” “estimate,” “plan,” “intend” and similar expressions in this press release and any attachments to identify forward-looking statements. The Company bases these forward-looking statements on its current views with respect to future events and financial performance. Actual results could differ materially from those projected in the forward-looking statements. These forward-looking statements are subject to risks, uncertainties and assumptions, including, among other things: the impact of the Company’s debt service obligations and restrictive debt covenants; the Company’s end-use markets are cyclical; the Company depends upon a selected base of industries and customers; a significant portion of the Company’s business depends upon U.S. Government defense spending; the Company is subject to extensive regulation and audit by the Defense Contract Audit Agency; contracts with some of the Company’s customers contain provisions which give the its customers a variety of rights that are unfavorable to the Company; further consolidation in the aerospace industry could adversely affect the Company’s business and financial results; the Company’s ability to successfully make acquisitions or enter into joint ventures, including its ability to successfully integrate, operate or realize the projected benefits of such businesses; the Company relies on its suppliers to meet the quality and delivery expectations of its customers; the Company uses estimates when bidding on fixed-price contracts which estimates could change and result in adverse effects on its financial results; the impact of existing and future laws and regulations; the impact of existing and future accounting standards and tax rules and regulations; environmental liabilities could adversely affect the Company’s financial results; cyber security attacks, internal system or service failures may adversely impact the Company’s business and operations; and other risks and uncertainties, including those detailed from time to time in the Company’s periodic reports filed with the Securities and Exchange Commission. You should not put undue reliance on any forward-looking statements. You should understand that many important factors, including those discussed herein, could cause the Company’s results to differ materially from those expressed or suggested in any forward-looking statement. Except as required by law, the Company does not undertake any obligation to update or revise these forward-looking statements to reflect new information or events or circumstances that occur after the date of this news release or to reflect the occurrence of unanticipated events or otherwise. Readers are advised to review the Company’s filings with the Securities and Exchange Commission (which are available from the SEC’s EDGAR database at www.sec.gov, at various SEC reference facilities in the United States and through the Company’s website).

Note Regarding Non-GAAP Financial Information

This release contains non-GAAP financial measures, including Adjusted EBITDA (which excludes interest expense, income tax expense, depreciation, amortization, stock-based compensation expense, and gain on divestitures).

The Company believes the presentation of these non-GAAP measures provide important supplemental information to management and investors regarding financial and business trends relating to its financial condition and results of operations. The Company’s management uses these non-GAAP financial measures along with the most directly comparable GAAP financial measures in evaluating the Company’s actual and forecasted operating performance, capital resources and cash flow. The non-GAAP financial information presented herein should be considered supplemental to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. The Company discloses different non-GAAP financial measures in order to provide greater transparency and to help the Company’s investors to more meaningfully evaluate and compare Ducommun’s results to its previously reported results. The non-GAAP financial measures that the Company uses may not be comparable to similarly titled financial measures used by other companies.

[Financial Tables Follow]

DUCOMMUN INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
July 1,
2017
December 31,
2016
Assets
Current Assets
Cash and cash equivalents $7,372 $7,432
Accounts receivable, net 81,965 76,239
Inventories 129,398 119,896
Production cost of contracts 12,673 11,340
Other current assets 10,438 11,034
Total Current Assets 241,846 225,941
Property and equipment, Net 110,788 101,590
Goodwill 82,554 82,554
Intangibles, net 97,155 101,573
Non-current deferred income taxes 286 286
Other assets 3,143 3,485
Total Assets $535,772 $515,429
Liabilities and Shareholders’ Equity
Current Liabilities
Current portion of long-term debt $ $3
Accounts payable 71,659 57,024
Accrued liabilities 25,814 29,279
Total Current Liabilities 97,473 86,306
Long-term debt, less current portion 169,627 166,896
Non-current deferred income taxes 31,895 31,417
Other long-term liabilities 17,837 18,707
Total Liabilities 316,832 303,326
Commitments and contingencies
Shareholders’ Equity
Common stock 113 112
Additional paid-in capital 77,670 76,783
Retained earnings 147,225 141,287
Accumulated other comprehensive loss (6,068) (6,079)
Total Shareholders’ Equity 218,940 212,103
Total Liabilities and Shareholders’ Equity $ 535,772 $515,429


DUCOMMUN INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS
(Unaudited)
(In thousands, except per share amounts)
Three Months Ended Six Months Ended
July 1,
2017
July 2,
2016
July 1,
2017
July 2,
2016
Net Revenues $ 140,938 $ 133,437 $ 277,235 $ 275,585
Cost of Sales 114,747 107,222 226,117 222,401
Gross Profit 26,191 26,215 51,118 53,184
Selling, General and Administrative Expenses 19,720 18,949 40,547 41,625
Operating Income 6,471 7,266 10,571 11,559
Interest Expense (1,907) (1,935) (3,500) (4,334)
Gain on Divestitures 18,815
Income Before Taxes 4,564 5,331 7,071 26,040
Income Tax Expense 741 1,470 1,133 8,629
Net Income $3,823 $3,861 $5,938 $17,411
Earnings Per Share
Basic earnings per share $0.34 $0.35 $0.53 $1.56
Diluted earnings per share $0.33 $0.34 $0.51 $1.55
Weighted-Average Number of Common Shares Outstanding
Basic 11,237 11,155 11,253 11,127
Diluted 11,491 11,264 11,556 11,245
Gross Profit % 18.6% 19.6% 18.4% 19.3%
SG&A % 14.0% 14.2% 14.6% 15.1%
Operating Income % 4.6% 5.4% 3.8% 4.2%
Net Income % 2.7% 2.9% 2.1% 6.3%
Effective Tax Rate 16.2% 27.6% 16.0% 33.1%


DUCOMMUN INCORPORATED AND SUBSIDIARIES
BUSINESS SEGMENT PERFORMANCE
(Unaudited)
(In thousands)
Three Months Ended Six Months Ended
%
Change
July 1,
2017
July 2,
2016
%
of Net
Revenues
2017
%
of Net
Revenues
2016
%
Change
July 1,
2017
July 2,
2016
%
of Net
Revenues
2017
%
of Net
Revenues
2016
Net Revenues
Structural Systems (2.6)% $59,112 $60,694 41.9% 45.5% (6.4)% $116,687 $124,711 42.1% 45.3%
Electronic Systems 12.5% 81,826 72,743 58.1% 54.5% 6.4% 160,548 150,874 57.9% 54.7%
Total Net Revenues 5.6% $ 140,938 $ 133,437 100.0% 100.0% 0.6% $ 277,235 $ 275,585 100.0% 100.0%
Segment Operating Income
Structural Systems $2,049 $4,730 3.5% 7.8% $4,681 $7,454 4.0% 6.0%
Electronic Systems 8,820 6,782 10.8% 9.3% 15,924 13,169 9.9% 8.7%
10,869 11,512 20,605 20,623
Corporate General and Administrative Expenses (1) (4,398) (4,246) (3.1)% (3.2)% (10,034) (9,064) (3.6)% (3.3)%
Total Operating Income $6,471 $7,266 4.6% 5.4% $10,571 $11,559 3.8% 4.2%
Adjusted EBITDA
Structural Systems
Operating Income $2,049 $4,730 $4,681 $7,454
Depreciation and Amortization 2,307 1,775 4,659 3,832
4,356 6,505 7.4% 10.7% 9,340 11,286 8.0% 9.0%
Electronic Systems
Operating Income 8,820 6,782 15,924 13,169
Depreciation and Amortization 3,439 3,668 6,862 7,429
12,259 10,450 15.0% 14.4% 22,786 20,598 14.2% 13.7%
Corporate General and Administrative Expenses (1)
Operating loss (4,398) (4,246) (10,034) (9,064)
Depreciation and Amortization 2 33 9 70
Stock-Based Compensation Expense 1,342 985 3,164 1,985
(3,054) (3,228) (6,861) (7,009)
Adjusted EBITDA $13,561 $13,727 9.6% 10.3% $25,265 $24,875 9.1% 9.0%
Capital Expenditures
Structural Systems $7,580 $4,540 $12,768 $6,594
Electronic Systems 1,030 407 2,463 754
Corporate Administration 648 648
Total Capital Expenditures $9,258 $4,947 $15,879 $7,348

(1) Includes costs not allocated to either the Structural Systems or Electronic Systems operating segments.

CONTACTS: Douglas L. Groves, Vice President, Chief Financial Officer and Treasurer, 657.335.3665 Chris Witty, Investor Relations, 646.438.9385, cwitty@darrowir.com

Source:Ducommun Incorporated