Ducommun Reports Results for the Fourth Quarter Ended December 31, 2020

2/11/2021, 10:15 PM (Source: GlobeNewswire)

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SANTA ANA, Calif., Feb. 11, 2021 (GLOBE NEWSWIRE) -- Ducommun Incorporated (NYSE:DCO) (“Ducommun” or the “Company”) today reported results for its fourth quarter and year ended December 31, 2020.

Fourth Quarter 2020 Recap

  • Revenue of $157.8 million
  • GAAP net income of $9.7 million, or $0.80 per diluted share
  • Adjusted net income for the quarter of $10.8 million, or $0.89 per diluted share
  • Gross margin increased 60 basis points year-over-year to 22.1%
  • Adjusted EBITDA of $22.8 million, or 14.4% of revenues, an increase of 90 basis points year-over-year

“I am proud of the Ducommun team continuing to move forward in the fourth quarter and delivering excellent results. The numbers show the strength of our product lines, diversity of our customer base and performance positions us well for the future,” said Stephen G. Oswald, chairman, president and chief executive officer. “Our military and space revenue rose more than 25% in both the fourth quarter and the year as a whole, resulting in total 2020 revenue of almost $425 million, a new record for the Company. At the same time, ongoing cost saving projects and our lean operations initiatives along with an improved product mix, drove fourth quarter gross margins up 60 basis points year-over-year, to 22.1%, and earnings of $0.80 per diluted share. The positive results during the pandemic are a clear signal that Ducommun's value offering to the marketplace and operational performance will deliver for our shareholders in the future.

“With a defense backlog* at all time highs and some forecasted stability in our commercial business, we are optimistic about the quarters to come. Given improving fundamentals in aircraft production, and pent up demand for air travel post pandemic, the Company is in great shape to weather the remaining headwinds and drive higher growth in the second half of 2021, with the 2022 outlook being even better. I want to thank our employees for their dedication to our success, Ducommun's investors for their support, and our customers for their loyalty throughout 2020.”

Fourth Quarter Results

Net revenue for the fourth quarter of 2020 was $157.8 million, compared to $186.9 million for the fourth quarter of 2019. The 15.6% decrease year-over-year was primarily due to the following:

  • $42.2 million lower revenue within the Company’s commercial aerospace end-use markets due to lower build rates on large aircraft platforms; and
  • $10.1 million lower revenue within the Company’s Industrial end-use markets due to timing of customer requirements; partially offset by
  • $23.2 million higher revenue within the Company’s military and space end-use markets due to higher build rates on various missile platforms and military fixed-wing aircraft platforms.

Net income for the fourth quarter of 2020 was $9.7 million, or $0.80 per diluted share, compared to $8.9 million, or $0.75 per diluted share, for the fourth quarter of 2019. The increase in net income year-over-year was due to lower interest expense of $2.6 million, lower SG&A expense of $2.4 million, and lower income tax expense of $1.6 million, partially offset by a $5.3 million decrease in gross profit due to lower revenue.

Gross profit for the fourth quarter of 2020 was $34.8 million, or 22.1% of revenue, compared to gross profit of $40.1 million, or 21.5% of revenue, for the fourth quarter of 2019. The increase in gross margin percentage year-over-year was due to favorable product mix, partially offset by unfavorable manufacturing volume and higher compensation and benefit costs.

Operating income for the fourth quarter of 2020 was $11.6 million, or 7.3% of revenue, compared to $15.2 million, or 8.1% of revenue, in the comparable period last year. The year-over-year decrease was due to lower revenue, partially offset by lower SG&A expenses. Adjusted operating income for the fourth quarter of 2020 was $12.9 million, or 8.2%, compared to $15.8 million, or 8.4% of revenue, in the comparable period last year.

Interest expense for the fourth quarter of 2020 was $2.6 million compared to $5.2 million in the comparable period of 2019. The year-over-year decrease was due to lower interest rates, partially offset by a higher outstanding balance on the Company's revolving credit facilities as a result of drawing down $50.0 million during the first quarter of 2020 to hold as cash on hand, $25.0 million of which was repaid during the three months ended December 31, 2020. The net $25.0 million draw down on the revolving credit facility remained as cash on hand as of December 31, 2020.

Adjusted EBITDA for the fourth quarter of 2020 was $22.8 million, or 14.4% of revenue, compared to $25.2 million, or 13.5% of revenue, for the comparable period in 2019.

* The Company defines backlog as potential revenue and is based on customer placed purchase orders and long-term agreements (“LTAs”) with firm fixed price and expected delivery dates of 24 months or less. Backlog as of December 31, 2020 was $822.0 million compared to $910.2 million as of December 31, 2019. Under ASC 606, the Company defines remaining performance obligations as customer placed purchase orders with firm fixed price and firm delivery dates. The remaining performance obligations disclosed under ASC 606 as of December 31, 2020 were $779.7 million compared to $745.3 million as of December 31, 2019.

Business Segment Information

Electronic Systems

Electronic Systems reported net revenue for the current quarter of $99.1 million, compared to $96.3 million for the fourth quarter of 2019. The year-over-year increase was primarily due to the following:

  • $17.6 million higher revenue within the Company’s military and space end-use markets due to higher build rates on various missile platforms and military fixed-wing aircraft platforms; partially offset by
  • $10.1 million lower revenue within the Company’s Industrial end-use markets due to timing of customer requirements; and
  • $4.7 million lower revenue within the Company’s commercial aerospace end-use markets due lower build rates on other commercial aerospace platforms, regional and business aircraft platforms, and large aircraft platforms.

Electronic Systems operating income for the current year fourth quarter of $11.5 million, or 11.6% of revenue, compared to $9.9 million, or 10.2% of revenue, for the comparable quarter in 2019. The year-over-year increase was due to favorable manufacturing volume and favorable product mix, partially offset by higher compensation and benefit costs.

Structural Systems

Structural Systems reported net revenue for the current quarter of $58.7 million, compared to $90.6 million for the fourth quarter of 2019. The year-over-year decrease was due to the following:

  • $37.6 million lower revenue within the Company’s commercial aerospace end-use markets due to lower build rates on large aircraft platforms; partially offset by
  • $5.7 million higher revenue within the Company’s military and space end-use markets due to higher build rates on various missile platforms.

Structural Systems operating income for the current-year fourth quarter was $6.2 million, or 10.6% of revenue, compared to $11.6 million, or 12.8% of revenue, for the fourth quarter of 2019. The year-over-year decrease was due to unfavorable manufacturing volume and higher compensation and benefit costs, partially offset by favorable product mix.

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

CG&A expense for the fourth quarter of 2020 was $6.1 million, or 3.9% of total Company revenue, compared to $6.3 million, or 3.4% of total Company revenue, in the comparable quarter in the prior year.

Conference Call

A teleconference hosted by Stephen G. Oswald, the Company’s chairman, president, and chief executive officer, and Christopher D. Wampler, the Company’s vice president, chief financial officer, controller and treasurer will be held today, February 11, 2021, 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 1085599. Mr. Oswald and Mr. Wampler 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 Ducommun.com. Conference call replay will be available after that time at the same link or by dialing 855-859-2056, passcode 1085599.

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 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, growth in the second half of 2021, outlook for 2022, strategies, future demand, and prospects. The Company generally uses the words “may,” “will,” “could,” “expect,” “anticipate,” “believe,” “estimate,” “plan,” “intend,” “continue” 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: whether the anticipated pre-tax restructuring charges will be sufficient to address all anticipated restructuring costs, including related to employee separation, facilities consolidation, inventory write-down and other asset impairments; whether the expected cost savings from the restructuring will ultimately be obtained in the amount and during the period anticipated; whether the restructuring in the affected areas will be sufficient to build a more cost efficient, focused, higher margin enterprise with higher returns for the Company's shareholders; 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, 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; the ultimate geographic spread, duration and severity of the coronavirus (COVID-19) outbreak, and the effectiveness of actions taken, or actions that may be taken, by governmental authorities to contain the outbreak or treat its impact, 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, February 11, 2021, 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).

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, restructuring charges, Guaymas fire related expenses, inventory purchase accounting adjustments, and other debt refinancing costs), non-GAAP operating income and as a percentage of net revenues, non-GAAP earnings, and non-GAAP earnings per share. In addition, certain prior period amounts have been reclassified to conform to current year’s presentation.

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. We define backlog as potential revenue and is based on customer placed purchase orders and long-term agreements (“LTAs”) with firm fixed price and expected delivery dates of 24 months or less. The majority of the LTAs do not meet the definition of a contract under ASC 606 and thus, the backlog amount disclosed herein is greater than the remaining performance obligations disclosed under ASC 606. Backlog is subject to delivery delays or program cancellations, which are beyond our control. Backlog is affected by timing differences in the placement of customer orders and tends to be concentrated in several programs to a greater extent than our net revenues. Backlog in industrial markets tends to be of a shorter duration and is generally fulfilled within a three month period. As a result of these factors, trends in our overall level of backlog may not be indicative of trends in our future net revenues.

CONTACTS:

Christopher D. Wampler, Vice President, Chief Financial Officer, Controller and Treasurer, 657.335.3665
Chris Witty, Investor Relations, 646.438.9385, cwitty@darrowir.com

[Financial Tables Follow]

DUCOMMUN INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars In thousands)

  December 31,
2020
 December 31,
2019
Assets    
Current Assets    
Cash and cash equivalents $56,466  $39,584 
Accounts receivable, net 58,025  67,133 
Contract assets 154,028  106,670 
Inventories 129,223  112,482 
Production cost of contracts 6,971  9,402 
Other current assets 5,571  5,497 
Total Current Assets 410,284  340,768 
Property and Equipment, Net 109,990  115,216 
Operating lease right-of-use assets 16,348  19,105 
Goodwill 170,830  170,917 
Intangibles, Net 124,744  138,362 
Deferred Income Taxes 33  55 
Other Assets 5,118  6,006 
Total Assets $837,347  $790,429 
Liabilities and Shareholders’ Equity    
Current Liabilities    
Accounts payable $63,980  $82,597 
Contract liabilities 28,264  14,517 
Accrued and other liabilities 40,526  37,620 
Operating lease liabilities 3,132  2,956 
Current portion of long-term debt 7,000  7,000 
Total Current Liabilities 142,902  144,690 
Long-Term Debt, Less Current Portion 311,922  300,887 
Non-Current Operating Lease Liabilities 14,555  17,565 
Deferred Income Taxes 16,992  16,766 
Other Long-Term Liabilities 21,642  17,721 
Total Liabilities 508,013  497,629 
Commitments and Contingencies    
Shareholders’ Equity    
Common stock 117  116 
Additional paid-in capital 97,090  88,399 
Retained earnings 241,727  212,553 
Accumulated other comprehensive loss (9,600) (8,268)
Total Shareholders’ Equity 329,334  292,800 
Total Liabilities and Shareholders’ Equity $837,347  $790,429 
         

DUCOMMUN INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Quarterly Information Unaudited)
(Dollars in thousands, except per share amounts)

  Three Months Ended Years Ended
  December 31,
2020
 December 31,
2019
 December 31,
2020
 December 31,
2019
Net Revenues $157,786   $186,926   $628,941   $721,088  
Cost of Sales 122,985   146,815   491,203   568,891  
Gross Profit 34,801   40,111   137,738   152,197  
Selling, General and Administrative Expenses 22,555   24,933   89,808   95,964  
Restructuring Charges 656      2,424     
Operating Income 11,590   15,178   45,506   56,233  
Interest Expense (2,585)  (5,150)  (13,653)  (18,290) 
Loss on Extinguishment of Debt    (180)     (180) 
Other Income, Net 29      128     
Income Before Taxes 9,034   9,848   31,981   37,763  
Income Tax (Benefit) Expense (619)  977   2,807   5,302  
Net Income $9,653   $8,871   $29,174   $32,461  
Earnings Per Share        
Basic earnings per share $0.82   $0.77   $2.50   $2.82  
Diluted earnings per share $0.80   $0.75   $2.45   $2.75  
Weighted-Average Number of Common Shares Outstanding        
Basic 11,720   11,568   11,676   11,518  
Diluted 12,070   11,837   11,932   11,792  
         
Gross Profit % 22.1 % 21.5 % 21.9 % 21.1 %
SG&A % 14.3 % 13.3 % 14.3 % 13.3 %
Operating Income % 7.3 % 8.1 % 7.2 % 7.8 %
Net Income % 6.1 % 4.7 % 4.6 % 4.5 %
Effective Tax (Benefit) Rate (6.9)% 9.9 % 8.8 % 14.0 %

DUCOMMUN INCORPORATED AND SUBSIDIARIES
BUSINESS SEGMENT PERFORMANCE
(Unaudited)
(Dollars in thousands)

  Three Months Ended Years Ended
  %
Change
 December
31, 2020
 December
31, 2019
 %
of Net  Revenues
2020
 %
of Net  Revenues
2019
 %
Change
 December
31, 2020
 December
31, 2019
 %
of Net  Revenues
2020
 %
of Net  Revenues
2019
Net Revenues                    
Electronic Systems 2.9 % $99,093   $96,328   62.8 % 51.5 % 9.0 % $392,633   $360,373   62.4 % 50.0 %
Structural Systems (35.2)% 58,693   90,598   37.2 % 48.5 % (34.5)% 236,308   360,715   37.6 % 50.0 %
Total Net Revenues (15.6)% $157,786   $186,926   100.0 % 100.0 % (12.8)% $628,941   $721,088   100.0 % 100.0 %
Segment Operating Income                    
Electronic Systems   $11,467   $9,863   11.6 % 10.2 %   $51,894   $38,613   13.2 % 10.7 %
Structural Systems   6,211   11,637   10.6 % 12.8 %   19,584   46,836   8.3 % 13.0 %
    17,678   21,500         71,478   85,449      
Corporate General and Administrative Expenses (1)   (6,088)  (6,322)  (3.9)% (3.4)%   (25,972)  (29,216)  (4.1)% (4.1)%
Total Operating Income   $11,590   $15,178   7.3 % 8.1 %   $45,506   $56,233   7.2 % 7.8 %
Adjusted EBITDA                    
Electronic Systems                    
Operating Income   $11,467   $9,863         $51,894   $38,613      
Depreciation and Amortization   3,447   3,568         14,038   14,170      
Restructuring Charges   264            596         
    15,178   13,431   15.3 % 13.9 %   66,528   52,783   16.9 % 14.6 %
Structural Systems                    
Operating Income   6,211   11,637         19,584   46,836      
Depreciation and Amortization   3,603   3,913         14,559   13,663      
Restructuring Charges   392            1,828         
Inventory Purchase Accounting Adjustments      511            511      
Guaymas Fire Related Expenses   682            1,704         
    10,888   16,061   18.6 % 17.7 %   37,675   61,010   15.9 % 16.9 %
Corporate General and Administrative Expenses (1)                    
Operating loss   (6,088)  (6,322)        (25,972)  (29,216)     
Other Income   29            128         
Depreciation and Amortization   59   73         253   472      
Stock-Based Compensation Expense   2,694   1,839         9,299   7,161      
Other Debt Refinancing Costs      77            77      
    (3,306)  (4,333)        (16,292)  (21,506)     
Adjusted EBITDA   $22,760   $25,159   14.4 % 13.5 %   $87,911   $92,287   14.0 % 12.8 %
                     
Capital Expenditures                    
Electronic Systems   $1,519   $688         $5,037   $5,508      
Structural Systems   4,170   3,230         8,570   13,338      
Corporate Administration                        
Total Capital Expenditures   $5,689   $3,918         $13,607   $18,846      
                                 

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

DUCOMMUN INCORPORATED AND SUBSIDIARIES
GAAP TO NON-GAAP OPERATING INCOME AND AS A PERCENTAGE OF NET REVENUES RECONCILIATION
(Unaudited)
(Dollars in thousands)

  Three Months Ended Years Ended
GAAP To Non-GAAP Operating Income December
31,
2020
 December
31,
2019
 %
of Net  Revenues
2020
 %
of Net  Revenues
2019
 December
31,
2020
 December
31,
2019
 %
of Net  Revenues
2020
 %
of Net  Revenues
2019
GAAP Operating income $11,590  $15,178      $45,506  $56,233     
                 
GAAP Operating income - Electronic Systems $11,467  $9,863      $51,894  $38,613     
Adjustments:                
Restructuring charges 264        596       
Adjusted operating income - Electronic Systems 11,731  9,863  11.8% 10.2% 52,490  38,613  13.4% 10.7%
                 
GAAP Operating income - Structural Systems 6,211  11,637      19,584  46,836     
Adjustments:                
Restructuring charges 392        1,828       
Inventory purchase accounting adjustments   511        511     
Guaymas fire related expenses 682        1,704       
Adjusted operating income - Structural Systems 7,285  12,148  12.4% 13.4% 23,116  47,347  9.8% 13.1%
                 
GAAP Operating loss - Corporate (6,088) (6,322)     (25,972) (29,216)    
Adjustment:                
Other debt refinancing costs   77        77     
Adjusted operating loss - Corporate (6,088) (6,245)     (25,972) (29,139)    
   Total adjustments 1,338  588      4,128  588     
Adjusted operating income $12,928  $15,766  8.2% 8.4% $49,634  $56,821  7.9% 7.9%
                             

DUCOMMUN INCORPORATED AND SUBSIDIARIES
GAAP TO NON-GAAP EARNINGS AND EARNINGS PER SHARE RECONCILIATION
(Unaudited)
(Dollars in thousands, except per share amounts)

  Three Months Ended Years Ended
GAAP To Non-GAAP Earnings December 31,
2020
 December 31,
2019
 December 31,
2020
 December 31,
2019
GAAP Net income $9,653  $8,871  $29,174  $32,461 
Adjustments:        
Restructuring charges (1) 551    2,036   
Guaymas fire related expenses (1) 573    1,431   
Inventory purchase accounting adjustments (2)   409    409 
Loss on extinguishment of debt (2)   144    144 
Other debt refinancing costs (2)   62    62 
Total adjustments 1,124  615  3,467  615 
Adjusted net income $10,777  $9,486  $32,641  $33,076 
                 


  Three Months Ended Years Ended
GAAP Earnings Per Share To Non-GAAP Earnings Per Share December 31,
2020
 December 31,
2019
 December 31,
2020
 December 31,
2019
GAAP Diluted Earnings Per Share (“EPS”) $0.80  $0.75  $2.45  $2.75 
Adjustments:        
Restructuring charges (1) 0.04    0.17   
Guaymas fire related expenses (1) 0.05    0.12   
Inventory purchase accounting adjustments (2)   0.03    0.03 
Loss on extinguishment of debt (2)   0.01    0.01 
Other debt refinancing costs (2)   0.01    0.01 
Total adjustments 0.09  0.05  0.29  0.05 
Adjusted Diluted EPS $0.89  $0.80  $2.74  $2.80 
         
Shares used for adjusted diluted EPS 12,070  11,837  11,932  11,792 
             

(1)   Includes tax rate of 16.0% for 2020 adjustments.

(2)   Includes tax rate of 20.0% for 2019 adjustments.

DUCOMMUN INCORPORATED AND SUBSIDIARIES
NON-GAAP BACKLOG* BY REPORTING SEGMENT
(Unaudited)
(Dollars in thousands)

  (In thousands)
  December 31,
2020
 December 31,
2019
Consolidated Ducommun    
Military and space $529,663  $451,293 
Commercial aerospace 268,326  430,642 
Industrial 24,019  28,286 
Total $822,008  $910,221 
Electronic Systems    
Military and space $404,144  $311,027 
Commercial aerospace 56,719  75,719 
Industrial 24,019  28,286 
Total $484,882  $415,032 
Structural Systems    
Military and space $125,519  $140,266 
Commercial aerospace 211,607  354,923 
Total $337,126  $495,189 
         

* The Company defines backlog as potential revenue and is based on customer placed purchase orders and long-term agreements (“LTAs”) with firm fixed price and expected delivery dates of 24 months or less. Backlog as of as of December 31, 2020 was $822.0 million compared to $910.2 million as of December 31, 2019. Under ASC 606, the Company defines remaining performance obligations as customer placed purchase orders with firm fixed price and firm delivery dates. The remaining performance obligations disclosed under ASC 606 as of December 31, 2020 were $779.7 million compared to $745.3 million as of December 31, 2019.


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