Ducommun

News Release
Ducommun Reports Results for the Fourth Quarter Ended December 31, 2016

Company Begins 2017 Well Positioned for Growth as New CEO Takes Helm

LOS ANGELES, March 06, 2017 (GLOBE NEWSWIRE) -- Ducommun Incorporated (NYSE:DCO) ("Ducommun" or the "Company") today reported results for its fourth quarter and year ended December 31, 2016.

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 $10 million in debt before year end," said Stephen G. Oswald, president and chief executive officer. "For 2016 as a whole, we eliminated $75 million of indebtedness, and our backlog rose to $600 million due to recent commercial aerospace awards - leaving us very well positioned for 2017 and beyond.

"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 $142.5 million, compared to $156.6 million for the fourth quarter of 2015. The year-over-year decline was due to the following:

  • $17.5 million lower revenue within the Company's industrial, medical and other ("Industrial") end-use markets mainly due to the divestiture of the Pittsburgh operation in January 2016 and closure of the Houston operation in December 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 in March 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 $2.8 million, or $0.25 per diluted share, compared to a net loss of $(65.2) million, or $(5.88) per share, for the fourth quarter of 2015. The fourth quarter of 2016 included a $1.2 million (pre-tax) net working capital adjustment for which there was no related tax benefit and a $1.0 million tax adjustment related to the finalization of a divestiture. The impact of these two non-recurring items was $2.2 million or $0.20 per diluted share.

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 the Electronic 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 $27.8 million, or 19.5% of revenue, compared to gross profit of $22.8 million, or 14.6% of revenue, for the fourth quarter of 2015. The higher gross margin percentage year-over-year was primarily due to improved product mix (reflecting the aforementioned divestitures), ongoing supply chain initiatives, and improved operating performance.

Operating income for the fourth quarter of 2016 was $9.0 million, or 6.3% of revenue, compared to an operating loss of $(88.6) million, or (56.6)% of revenue, for the comparable period in 2015. The increase in operating income in the fourth quarter of 2016 was primarily due to the items that affected operating income (loss) described in net income (loss) above.

Interest expense decreased slightly to $2.0 million in the fourth quarter of 2016, compared to $2.2 million in the previous year's fourth quarter, primarily due to a lower outstanding debt balance as a result of net voluntary principal prepayments on the Company's credit facilities.

Adjusted EBITDA for the fourth quarter of 2016 was $15.1 million, or 10.6% of revenue, compared to $11.0 million, or 7.1% of revenue, for the comparable period in 2015.

During the fourth quarter of 2016, the Company generated $15.8 million of cash from operations, compared to $11.6 million during the fourth quarter of 2015. The increase in cash flow from operations in the fourth quarter of 2016 was primarily due to the higher net income.

Business Segment Information

Structural Systems

Structural Systems reported net revenue for the current quarter of $60.8 million, compared to $61.0 million for the fourth quarter of 2015. The slight decrease year-over-year was primarily due to a $2.9 million decline in military and space revenue, reflecting program delays and budget changes which impacted scheduled deliveries on the Company's fixed-wing and helicopter platforms. This decline was partially offset by a $2.8 million increase in the Company's commercial aerospace revenue, mainly due to added content with existing customers.

Structural Systems reported operating income for the current fourth quarter of $3.2 million, or 5.2% of revenue, compared to an operating loss of $(56.0) million, or (91.8)% of revenue, in the fourth quarter of 2015. The increase in operating income was primarily due to the fact that the prior year quarter included a non-cash goodwill impairment charge of $57.2 million and the current year period benefited from higher operating margins.

Adjusted EBITDA was $5.2 million for the current quarter, or 8.5% of revenue, compared to $4.6 million, or 7.6% of revenue, for the comparable quarter in 2015.

Electronic Systems

Electronic Systems reported net revenue for the current quarter of $81.7 million, compared to $95.6 million for the fourth quarter of 2015. The lower net revenue year-over-year was primarily due to the following:

  • $17.5 million decrease in Industrial revenue mainly due to the divestiture of the Company's Pittsburgh operation in January 2016 and closure of the Houston operation in December 2015; and
  • $1.5 million decrease in military and space revenue mainly due to the divestiture of the Company's Miltec operation in March 2016; partially offset by
  • $5.1 million increase in commercial aerospace revenue mainly due to added content with the Company's existing customers.

Electronic Systems operating income for the current year fourth quarter was $9.2 million, or 11.3% of revenue, compared to an operating loss of $(27.0) million, or (28.3)% of revenue, for the fourth quarter of 2015. The increase in operating income year-over-year was primarily due to the following:

  • 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 $12.8 million for the current quarter, or 15.7% of revenue, compared to $11.3 million, or 11.8% of revenue, in the comparable quarter in 2015.

Corporate General and Administrative ("CG&A") Expense

CG&A expense for the current fourth quarter was $3.4 million, or 2.4% of total Company revenue, compared to $5.6 million, or 3.6% of total Company revenue, in the comparable quarter in 2015. The decrease in CG&A expense in the current year quarter was primarily due to lower professional fees of $1.7 million and lower compensation and benefit costs of $0.5 million.

Conference Call

A teleconference hosted by Anthony J. Reardon, the Company's chairman of the board, 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, March 6, 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 56842062. Mr. Reardon, Mr. Oswald, and Mr. Groves will be speaking on behalf of the Company and anticipate the meeting and Q&A period to last approximately 45 minutes.

This call is being webcast by Thomson Reuters 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 56842062.

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: 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 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 (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 Electronic Systems operating segments.
(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 Electronic Systems operating segment.

 
 
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, 310.513.7200 Chris Witty, Investor Relations, 646.438.9385, cwitty@darrowir.com

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Ducommun Incorporated