Company Begins 2017 Well Positioned for Growth as New CEO Takes Helm
Fourth Quarter 2016 Highlights
- Fourth quarter revenue was
$142.5 million - Operating income was
$9.0 million - GAAP net income for the quarter was
$2.8 million , or$0.25 per diluted share - Adjusted net income for the quarter was
$5.1 million , or$0.45 per diluted share, which excludes a$1.2 million final pre-tax net working capital adjustment and a$1.0 million tax adjustment related to divestitures - Adjusted EBITDA for the quarter was
$15.1 million - Cash flow from operations for the quarter was
$15.8 million - Backlog increased to
$600 million - Net voluntary principal prepayments on credit facilities totaled
$10 million during the quarter - for a net total of$75 million in voluntary principal prepayments during 2016
"Ducommun again posted improved operating results and excellent cash flow during the quarter, paying down an additional
"Looking back, the Company took a number of decisive steps in 2016 that streamlined and focused our operations, and I'm excited to lead this innovative organization going forward. In 2017, the higher commercial platform build rates expected later this year, along with the potential for increased defense spending, make me confident we have a strong foundation to leverage our leading position in composites, titanium, and advanced electronics."
Fourth Quarter Results
Net revenue for the fourth quarter of 2016 was
$17.5 million lower revenue within the Company's industrial, medical and other ("Industrial") end-use markets mainly due to the divestiture of thePittsburgh operation inJanuary 2016 and closure of theHouston operation inDecember 2015 ; and$4.5 million lower revenue within the Company's military and space end-use markets mainly due to the divestiture of the Miltec operation inMarch 2016 ; partially offset by$7.8 million higher revenue in the Company's commercial aerospace end-use markets mainly due to added content with existing customers.
Net income for the fourth quarter of 2016 was
The increase in net income for the fourth quarter of 2016 compared to the fourth quarter of 2015 was primarily due to the following:
$57.2 million non-cash pre-tax goodwill impairment charge within the Structural Systems segment recorded in the fourth quarter of 2015;$32.9 million non-cash pre-tax charge related to the impairment of an indefinite-lived trade name within theElectronic Systems segment recorded in the fourth quarter of 2015; and- Improved operating performance in the fourth quarter of 2016; partially offset by
$28.0 million higher income tax expense.
Gross profit for the fourth quarter of 2016 was
Operating income for the fourth quarter of 2016 was
Interest expense decreased slightly to
Adjusted EBITDA for the fourth quarter of 2016 was
During the fourth quarter of 2016, the Company generated
Business Segment Information
Structural Systems
Structural Systems reported net revenue for the current quarter of
Structural Systems reported operating income for the current fourth quarter of
Adjusted EBITDA was
$17.5 million decrease in Industrial revenue mainly due to the divestiture of the Company'sPittsburgh operation inJanuary 2016 and closure of theHouston operation inDecember 2015 ; and$1.5 million decrease in military and space revenue mainly due to the divestiture of the Company's Miltec operation inMarch 2016 ; partially offset by$5.1 million increase in commercial aerospace revenue mainly due to added content with the Company's existing customers.
- Fourth quarter 2015 included a non-cash charge related to the impairment of the indefinite-lived trade name intangible asset of
$32.9 million ; and - Higher operating margins in the fourth quarter of 2016 as a result of the aforementioned divestitures and improved operating performance.
Adjusted EBITDA was
Corporate General and Administrative ("CG&A") Expense
CG&A expense for the current fourth quarter was
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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: competition from other industry participants; the Company's ability to continue to develop innovative new products and services and enhance its existing products and services, or the failure of its products and services to continue to appeal to the market; the effectiveness of the Company's marketing and advertising programs; 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; uncertainties related to a downturn in general economic conditions or consumer confidence; uncertainties regarding the satisfactory operation of the Company's information technology or systems; the impact of existing and future laws and regulations; the impact of existing and future accounting standards and tax rules and regulations; the impact of the Company's debt service obligations and restrictive debt covenants; and other risks and uncertainties, including those detailed from time to time in the Company's periodic reports filed with the
Note Regarding Non-GAAP Financial Information
This release contains non-GAAP financial measures, including Adjusted EBITDA (which excludes interest expense, income tax expense (benefit), depreciation, amortization, stock-based compensation expense, net gain on divestitures, loss on extinguishment of debt, goodwill impairment, intangible asset impairment, and restructuring charges) and Adjusted Net Income (Loss) as well as Adjusted Earnings Per Share (which excludes divestiture net working capital adjustment and divestiture tax basis adjustment).
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 | ||||||||
CONSOLIDATED BALANCE SHEETS | ||||||||
(Unaudited) | ||||||||
(In thousands) | ||||||||
December 31, 2016 | December 31, 2015 | |||||||
Assets | ||||||||
Current Assets | ||||||||
Cash and cash equivalents | $ | 7,432 | $ | 5,454 | ||||
Accounts receivable, net | 76,239 | 77,089 | ||||||
Inventories | 119,896 | 115,404 | ||||||
Production cost of contracts | 11,340 | 10,290 | ||||||
Other current assets | 11,034 | 13,389 | ||||||
Assets held for sale | — | 41,636 | ||||||
Total Current Assets | 225,941 | 263,262 | ||||||
Property and Equipment, Net | 101,590 | 96,551 | ||||||
Goodwill | 82,554 | 82,554 | ||||||
Intangibles, Net | 101,573 | 110,621 | ||||||
Non-Current Deferred Income Taxes | 286 | 324 | ||||||
Other Assets | 3,485 | 3,769 | ||||||
Total Assets | $ | 515,429 | $ | 557,081 | ||||
Liabilities and Shareholders' Equity | ||||||||
Current Liabilities | ||||||||
Current portion of long-term debt | $ | 3 | $ | 26 | ||||
Accounts payable | 57,024 | 40,343 | ||||||
Accrued liabilities | 29,279 | 36,458 | ||||||
Liabilities held for sale | — | 6,780 | ||||||
Total Current Liabilities | 86,306 | 83,607 | ||||||
Long-Term Debt, Less Current Portion | 166,896 | 240,661 | ||||||
Non-Current Deferred Income Taxes | 31,417 | 28,125 | ||||||
Other Long-Term Liabilities | 18,707 | 18,954 | ||||||
Total Liabilities | 303,326 | 371,347 | ||||||
Commitments and Contingencies | ||||||||
Shareholders' Equity | ||||||||
Common stock | 112 | 111 | ||||||
Additional paid-in capital | 76,783 | 75,200 | ||||||
Retained earnings | 141,287 | 116,026 | ||||||
Accumulated other comprehensive loss | (6,079 | ) | (5,603 | ) | ||||
Total Shareholders' Equity | 212,103 | 185,734 | ||||||
Total Liabilities and Shareholders' Equity | $ | 515,429 | $ | 557,081 | ||||
DUCOMMUN INCORPORATED AND SUBSIDIARIES | ||||||||||||||||
CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||
(Quarterly Information Unaudited) | ||||||||||||||||
(In thousands, except per share amounts) | ||||||||||||||||
Three Months Ended | Years Ended | |||||||||||||||
December 31, 2016 | December 31, 2015 | December 31, 2016 | December 31, 2015 | |||||||||||||
Net Revenues | $ | 142,486 | $ | 156,576 | $ | 550,642 | $ | 666,011 | ||||||||
Cost of Sales | 114,700 | 133,780 | 444,449 | 565,219 | ||||||||||||
Gross Profit | 27,786 | 22,796 | 106,193 | 100,792 | ||||||||||||
Selling, General and Administrative Expenses | 18,829 | 21,214 | 77,625 | 85,921 | ||||||||||||
Goodwill Impairment | — | 57,243 | — | 57,243 | ||||||||||||
Intangible Asset Impairment | — | 32,937 | — | 32,937 | ||||||||||||
Operating Income (Loss) | 8,957 | (88,598 | ) | 28,568 | (75,309 | ) | ||||||||||
Interest Expense | (1,995 | ) | (2,210 | ) | (8,274 | ) | (18,709 | ) | ||||||||
(Loss) Gain on Divestitures, Net | (1,211 | ) | — | 17,604 | — | |||||||||||
Loss on Extinguishment of Debt | — | — | — | (14,720 | ) | |||||||||||
Other Income, Net | 74 | 638 | 215 | 2,148 | ||||||||||||
Income (Loss) Before Taxes | 5,825 | (90,170 | ) | 38,113 | (106,590 | ) | ||||||||||
Income Tax Expense (Benefit) | 2,989 | (24,997 | ) | 12,852 | (31,711 | ) | ||||||||||
Net Income (Loss) | $ | 2,836 | $ | (65,173 | ) | $ | 25,261 | $ | (74,879 | ) | ||||||
Earnings (Loss) Per Share | ||||||||||||||||
Basic earnings (loss) per share | $ | 0.25 | $ | (5.88 | ) | $ | 2.27 | $ | (6.78 | ) | ||||||
Diluted earnings (loss) per share | $ | 0.25 | $ | (5.88 | ) | $ | 2.24 | $ | (6.78 | ) | ||||||
Weighted-Average Number of Common Shares Outstanding | ||||||||||||||||
Basic | 11,182 | 11,084 | 11,151 | 11,047 | ||||||||||||
Diluted | 11,383 | 11,084 | 11,299 | 11,047 | ||||||||||||
Gross Profit % | 19.5 | % | 14.6 | % | 19.3 | % | 15.1 | % | ||||||||
SG&A % | 13.2 | % | 13.5 | % | 14.1 | % | 12.9 | % | ||||||||
Operating Income (Loss) % | 6.3 | % | (56.6 | )% | 5.2 | % | (11.3 | )% | ||||||||
Net Income (Loss) % | 2.0 | % | (41.6 | )% | 4.6 | % | (11.2 | )% | ||||||||
Effective Tax (Benefit) Rate | 51.3 | % | (27.7 | )% | 33.7 | % | (29.7 | )% |
DUCOMMUN INCORPORATED AND SUBSIDIARIES | ||||||||||||||||||||||||||||||||||
BUSINESS SEGMENT PERFORMANCE | ||||||||||||||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||||||||
Three Months Ended | Years Ended | |||||||||||||||||||||||||||||||||
% Change | December 31, 2016 | December 31, 2015 | % of Net Revenues 2016 | % of Net Revenues 2015 | % Change | December 31, 2016 | December 31, 2015 | % of Net Revenues 2016 | % of Net Revenues 2015 | |||||||||||||||||||||||||
Net Revenues | ||||||||||||||||||||||||||||||||||
Structural Systems | (0.3 | )% | $ | 60,823 | $ | 61,013 | 42.7 | % | 39.0 | % | (9.8 | )% | $ | 246,465 | $ | 273,319 | 44.8 | % | 41.0 | % | ||||||||||||||
Electronic Systems | (14.5 | )% | 81,663 | 95,563 | 57.3 | % | 61.0 | % | (22.5 | )% | 304,177 | 392,692 | 55.2 | % | 59.0 | % | ||||||||||||||||||
Total Net Revenues | (9.0 | )% | $ | 142,486 | $ | 156,576 | 100.0 | % | 100.0 | % | (17.3 | )% | $ | 550,642 | $ | 666,011 | 100.0 | % | 100.0 | % | ||||||||||||||
Segment Operating Income (Loss) | ||||||||||||||||||||||||||||||||||
Structural Systems | $ | 3,150 | $ | (55,990 | ) | 5.2 | % | (91.8 | )% | $ | 16,497 | $ | (53,010 | ) | 6.7 | % | (19.4 | )% | ||||||||||||||||
Electronic Systems | 9,214 | (27,047 | ) | 11.3 | % | (28.3 | )% | 28,983 | (4,472 | ) | 9.5 | % | (1.1 | )% | ||||||||||||||||||||
12,364 | (83,037 | ) | 45,480 | (57,482 | ) | |||||||||||||||||||||||||||||
Corporate General and Administrative Expenses (1) | (3,407 | ) | (5,561 | ) | (2.4 | )% | (3.6 | )% | (16,912 | ) | (17,827 | ) | (3.1 | )% | (2.7 | )% | ||||||||||||||||||
Total Operating Income (Loss) | $ | 8,957 | $ | (88,598 | ) | 6.3 | % | (56.6 | )% | $ | 28,568 | $ | (75,309 | ) | 5.2 | % | (11.3 | )% | ||||||||||||||||
Adjusted EBITDA | ||||||||||||||||||||||||||||||||||
Structural Systems | ||||||||||||||||||||||||||||||||||
Operating Income (Loss) (2)(3) | $ | 3,150 | $ | (55,990 | ) | $ | 16,497 | $ | (53,010 | ) | ||||||||||||||||||||||||
Other Income (4) | — | — | 141 | 1,510 | ||||||||||||||||||||||||||||||
Depreciation and Amortization | 2,005 | 2,408 | 8,688 | 9,417 | ||||||||||||||||||||||||||||||
Goodwill Impairment | — | 57,243 | — | 57,243 | ||||||||||||||||||||||||||||||
Restructuring Charges | — | 980 | — | 1,294 | ||||||||||||||||||||||||||||||
5,155 | 4,641 | 8.5 | % | 7.6 | % | 25,326 | 16,454 | 10.3 | % | 6.0 | % | |||||||||||||||||||||||
Electronic Systems | ||||||||||||||||||||||||||||||||||
Operating Income (Loss) (3)(5) | 9,214 | (27,047 | ) | 28,983 | (4,472 | ) | ||||||||||||||||||||||||||||
Other Income | — | 712 | — | 712 | ||||||||||||||||||||||||||||||
Depreciation and Amortization | 3,426 | 4,339 | 14,087 | 17,267 | ||||||||||||||||||||||||||||||
Intangible Asset Impairment | — | 32,937 | — | 32,937 | ||||||||||||||||||||||||||||||
Restructuring Charges | 182 | 363 | 182 | 831 | ||||||||||||||||||||||||||||||
12,822 | 11,304 | 15.7 | % | 11.8 | % | 43,252 | 47,275 | 14.2 | % | 12.0 | % | |||||||||||||||||||||||
Corporate General and Administrative Expenses (1) | ||||||||||||||||||||||||||||||||||
Operating loss | (3,407 | ) | (5,561 | ) | (16,912 | ) | (17,827 | ) | ||||||||||||||||||||||||||
Other Expense (Income) | 74 | (74 | ) | 74 | (74 | ) | ||||||||||||||||||||||||||||
Depreciation and Amortization | 9 | 35 | 85 | 162 | ||||||||||||||||||||||||||||||
Stock-Based Compensation Expense | 428 | 703 | 3,007 | 3,495 | ||||||||||||||||||||||||||||||
(2,896 | ) | (4,897 | ) | (13,746 | ) | (14,244 | ) | |||||||||||||||||||||||||||
Adjusted EBITDA | $ | 15,081 | $ | 11,048 | 10.6 | % | 7.1 | % | $ | 54,832 | $ | 49,485 | 10.0 | % | 7.4 | % | ||||||||||||||||||
Capital Expenditures | ||||||||||||||||||||||||||||||||||
Structural Systems | $ | 5,512 | $ | 3,479 | $ | 15,661 | $ | 11,559 | ||||||||||||||||||||||||||
Electronic Systems | 1,331 | 1,223 | 3,032 | 4,419 | ||||||||||||||||||||||||||||||
Corporate Administration | — | — | — | 10 | ||||||||||||||||||||||||||||||
Total Capital Expenditures | $ | 6,843 | $ | 4,702 | $ | 18,693 | $ | 15,988 | ||||||||||||||||||||||||||
(1) Includes costs not allocated to either the Structural Systems or
(2) Goodwill impairment related to Structural Systems operating segment.
(3) 2015 includes restructuring charges for severance and benefits and loss on early exit from leases.
(4) Insurance recoveries related to property and equipment included as other income in 2015.
(5) Intangible asset impairment related to
DUCOMMUN INCORPORATED AND SUBSIDIARIES | ||||||||||||||||
GAAP TO NON-GAAP EARNINGS PER SHARE RECONCILIATION | ||||||||||||||||
(Unaudited) | ||||||||||||||||
(In thousands, except per share amounts) | ||||||||||||||||
Three Months Ended | Year Ended | |||||||||||||||
December 31, 2016 | December 31, 2015 | December 31, 2016 | December 31, 2015 | |||||||||||||
GAAP Net income (loss) | $ | 2,836 | $ | (65,173 | ) | $ | 25,261 | $ | (74,879 | ) | ||||||
Adjustments: | ||||||||||||||||
Divestiture of Miltec operation net working capital adjustment | 1,211 | — | 1,211 | — | ||||||||||||
Divestiture of Miltec operation tax basis adjustment | 1,027 | — | 1,027 | — | ||||||||||||
Total adjustments | 2,238 | — | 2,238 | — | ||||||||||||
Income tax impact on adjustments | — | — | — | — | ||||||||||||
Adjusted net income (loss) | $ | 5,074 | $ | (65,173 | ) | $ | 27,499 | $ | (74,879 | ) | ||||||
Adjusted diluted earnings (loss) per share | $ | 0.45 | $ | (5.88 | ) | $ | 2.43 | $ | (6.78 | ) | ||||||
Diluted shares used for adjusted earnings per share | 11,383 | 11,084 | 11,299 | 11,047 | ||||||||||||
CONTACTS:Douglas L. Groves , Vice President, Chief Financial Officer and Treasurer, 310.513.7200Chris Witty , Investor Relations, 646.438.9385, cwitty@darrowir.com