EX-99.1 2 ex99_1q32016pressrelease.htm EXHIBIT 99.1 Exhibit


EXHIBIT 99.1
23301 Wilmington Avenue
 
ducommun4ca01a02a01a05.jpg
Carson, CA 90745-6209
 
310.513.7200
 
www.ducommun.com
 
NEWS RELEASE

Ducommun Reports Results for the
Third Quarter Ended October 1, 2016
Backlog at Record High net of Divestitures; Company on Track for Continued Operating Improvement
LOS ANGELES (November 3, 2016) – Ducommun Incorporated (NYSE:DCO) (“Ducommun” or the “Company”) today reported results for its third quarter ended October 1, 2016.
Third Quarter 2016 Summary
•
Third quarter revenue was $132.6 million
•
Net income was $5.0 million, or $0.44 per diluted share
•
Adjusted EBITDA for the quarter was $14.9 million
•
Backlog increased to $566 million
•
Made net voluntary principal prepayments of $10 million on credit facilities during the quarter
“The third quarter illustrated continued progress towards reaching our long-term performance goals and growth objectives,” said Anthony J. Reardon, chairman, president and chief executive officer. “While revenue and gross margins were essentially flat sequentially compared to the second quarter, our backlog rose to $566 million - the highest ever, net of divestitures - and we’re well positioned for sales acceleration in the fourth quarter and beyond. At the same time we paid down an additional $10 million of debt, leaving us with the strongest balance sheet since our acquisition of LaBarge in 2011. We are pleased with these results but remain focused on further operating improvement. We are pursuing strategic growth opportunities to leverage our expertise in commercial aerospace electronics, titanium, and composite systems, providing innovative solutions that distinguish Ducommun from our competitors.”
Third Quarter Results
Net revenue for the third quarter of 2016 was $132.6 million compared to $161.7 million for the third quarter of 2015. The net revenue decrease year-over-year was primarily due to the following:
•
$18.0 million lower revenue within the Company’s 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
•
$15.6 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 as well as program cancellations and budget changes, which impacted the Company’s fixed-wing and helicopter platforms and pushed out scheduled deliveries;
•
These negative impact of the aforementioned items was partially offset by $4.5 million higher revenue in the Company’s commercial aerospace end-use markets, mainly due to added content with existing customers.
Net income for the third quarter of 2016 was $5.0 million, or $0.44 per diluted share, compared to a net loss of $(9.5) million, or $(0.86) per share, for the third quarter of 2015. The increase in net income for the third quarter of 2016 compared to the third quarter of 2015 was primarily due to the following:
•
The 2015 third quarter included a loss on extinguishment of debt of $11.9 million related to the redemption of the $200.0 million senior unsecured notes;
•
The 2015 third quarter included a forward loss reserve charge related to a regional jet program of $10.0 million;
•
Lower interest expense of $1.4 million; and




•
Improved operating performance.
Gross profit for the third quarter of 2016 was $25.2 million, or 19.0% of revenue, compared to gross profit of $20.0 million, or 12.4% of revenue, for the third quarter of 2015. The higher gross margin percentage year-over-year was primarily due to the 2015 third quarter included a forward loss reserve charge related to a regional jet program of $10.0 million. In addition, total material costs as a percentage of revenue decreased 2.1% year-over-year as a result of the Company’s ongoing supply chain initiatives and improved operating performance.
Operating income for the third quarter of 2016 was $8.1 million, or 6.1% of revenue, compared to an operating loss of $(1.2) million, or (0.7)% of revenue, in the comparable period last year. The increase in operating income was primarily due to higher gross profit and lower selling, general and administrative (“SG&A”) expenses. The lower SG&A expenses were the result of the divestitures of the Company’s Pittsburgh and Miltec operations, closures of facilities, and a decrease in compensation and benefit costs.
Interest expense decreased to $1.9 million in the third quarter of 2016, compared to $3.4 million in the previous year’s third quarter, primarily due to a lower outstanding debt balance as a result of net voluntary principal prepayments on the Company’s new credit facilities and a lower average interest rate as a result of completing the refinancing of the Company’s debt in July 2015.
Adjusted EBITDA for the third quarter of 2016 was $14.9 million, or 11.2% of revenue, compared to $6.6 million, or 4.1% of revenue, for the comparable period in 2015.
During the third quarter of 2016, the Company generated $15.4 million of cash from operations compared to a $(5.5) million use of cash in operations during the third quarter of 2015. The increase in cash flow from operations was primarily due to higher net income as a result of higher gross margin percentage in the current-year quarter.
The Company’s firm backlog as of October 1, 2016 was $566 million, which rose $29 million sequentially primarily due to a $41 million increase in the Company’s commercial aerospace backlog reflecting the timing of certain orders and new business wins.
Structural Systems
Structural Systems segment net revenue for the current-year third quarter was $60.9 million, compared to $64.2 million for the third quarter of 2015. The year-over-year decrease in net revenue was primarily due to a $3.4 million decline in military and space revenue, reflecting program cancellations and budget changes which impacted scheduled deliveries on the Company’s fixed-wing and helicopter platforms.
Structural Systems segment operating income for the current-year third quarter was $5.9 million, or 9.7% of revenue, compared to an operating loss of $(6.0) million, or (9.4)% of revenue, for the third quarter of 2015. The increase in operating income reflects higher gross margins in the current year quarter and the 2015 third quarter included a forward loss reserve charge related to a regional jet program of $10.0 million.
Structural Systems segment Adjusted EBITDA was $8.9 million for the current-year quarter, or 14.6% of revenue, compared to $(3.3) million, or (5.2)% of revenue, for the comparable quarter in the prior year.
Electronic Systems
Electronic Systems segment net revenue for the current-year third quarter was $71.6 million, compared to $97.5 million for the third quarter of 2015. The lower net revenue was primarily due to the following:
•
An $18.0 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
•
A $12.2 million decrease in military and space revenue mainly due to the divestiture of the Company’s Miltec operation in March 2016 as well as program cancellations and budget changes, which impacted scheduled deliveries on fixed-wing platforms;
•
Partially offset by a $4.3 million increase in commercial aerospace revenue mainly due to added content with the Company’s existing customers.
Electronic Systems’ segment operating income for the current-year third quarter was $6.6 million, or 9.2% of revenue, compared to $8.6 million, or 8.8% of revenue, for the third quarter of 2015. The decrease in operating income was primarily due to the effect of lower revenue as a result of the divestitures of the Company’s Pittsburgh and Miltec operations and closure of its Houston operation.




Electronic Systems segment Adjusted EBITDA was $9.8 million for the current-year quarter, or 13.7% of revenue, compared to $13.3 million, or 13.6% of revenue, for the comparable quarter in the prior year.
Corporate General and Administrative Expenses (“CG&A”)
CG&A expenses for the third quarter of 2016 were $4.4 million, or 3.3% of total Company revenue, compared to $3.7 million, or 2.3% of total Company revenue, for the comparable quarter in the prior year. The increase in CG&A expenses in the current year quarter was primarily due to higher compensation and benefits of $0.6 million.
Conference Call
A teleconference hosted by Anthony J. Reardon, the Company’s chairman, president and chief executive officer, and Douglas L. Groves, the Company’s vice president, chief financial officer and treasurer, will be held today, November 3, 2016 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 95214313. Mr. Reardon 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 95214313.
About Ducommun Incorporated
Ducommun Incorporated delivers 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
Statements contained in this press release regarding other than recitation of historical facts are forward-looking statements. These statements are identified by words such as “may,” “will,” “ begin,” “ look forward,” “expect,” “believe,” “intend,” “anticipate,” “should,” “potential,” “estimate,” “continue,” “momentum” and other words referring to events to occur in the future. These statements reflect the Company’s current view of future events and are based on its assessment of, and are subject to, a variety of risks and uncertainties beyond its control, including, but not limited to, the state of the world financial, credit, commodities and stock markets, and uncertainties regarding the Company, its businesses and the industries in which it operates, which are described in the Company’s filings with the Securities and Exchange Commission. The Company is under no obligation to (and expressly disclaims any such obligation to) update or alter its forward-looking statements whether as a result of new information, future events or otherwise.
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, gain on divestitures, loss on extinguishment of debt, and restructuring charges).
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.
CONTACTS:
Douglas L. Groves, Vice President, Chief Financial Officer and Treasurer, 310.513.7224
Chris Witty, Investor Relations, 646.438.9385, cwitty@darrowir.com
[Financial Tables Follow]





DUCOMMUN INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
 
 
 
October 1,
2016
 
December 31,
2015
Assets
 
 
 
 
Current Assets
 
 
 
 
Cash and cash equivalents
 
$
9,466

 
$
5,454

Accounts receivable, net
 
73,820

 
77,089

Inventories
 
129,769

 
115,404

Production cost of contracts
 
11,095

 
10,290

Other current assets
 
8,658

 
13,389

Assets held for sale
 
—

 
41,636

Total Current Assets
 
232,808

 
263,262

Property and equipment, Net
 
98,586

 
96,551

Goodwill
 
82,554

 
82,554

Intangibles, net
 
103,835

 
110,621

Non-current deferred income taxes
 
212

 
324

Other assets
 
2,987

 
3,769

Total Assets
 
$
520,982

 
$
557,081

Liabilities and Shareholders’ Equity
 
 
 
 
Current Liabilities
 
 
 
 
Current portion of long-term debt
 
$
5

 
$
26

Accounts payable
 
60,173

 
40,343

Accrued liabilities
 
30,510

 
36,458

Liabilities held for sale
 
—

 
6,780

Total Current Liabilities
 
90,688

 
83,607

Long-term debt, less current portion
 
176,618

 
240,661

Non-current deferred income taxes
 
25,871

 
26,528

Other long-term liabilities
 
16,763

 
18,954

Total Liabilities
 
309,940

 
369,750

Commitments and contingencies
 
 
 
 
Shareholders’ Equity
 
 
 
 
Common stock
 
112

 
111

Additional paid-in capital
 
76,681

 
75,200

Retained earnings
 
140,048

 
117,623

Accumulated other comprehensive loss
 
(5,799
)
 
(5,603
)
Total Shareholders’ Equity
 
211,042

 
187,331

Total Liabilities and Shareholders’ Equity
 
$
520,982

 
$
557,081





DUCOMMUN INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
 
 
 
Three Months Ended
 
Nine Months Ended
 
 
October 1,
2016
 
October 3,
2015
 
October 1,
2016
 
October 3,
2015
Net Revenues
 
$
132,571

 
$
161,670

 
$
408,156

 
$
509,435

Cost of Sales
 
107,348

 
141,642

 
329,749

 
431,439

Gross Profit
 
25,223

 
20,028

 
78,407

 
77,996

Selling, General and Administrative Expenses
 
17,171

 
21,205

 
58,796

 
64,707

Operating Income (Loss)
 
8,052


(1,177
)

19,611


13,289

Interest Expense
 
(1,945
)
 
(3,392
)
 
(6,279
)
 
(16,499
)
Loss on Extinguishment of Debt
 
—

 
(11,878
)
 
—

 
(14,720
)
Other Income
 
141

 
—

 
141

 
1,510

Gain on Divestitures
 
—

 
—

 
18,815

 
—

Income (Loss) Before Taxes
 
6,248

 
(16,447
)
 
32,288

 
(16,420
)
Income Tax Expense (Benefit)
 
1,234

 
(6,932
)
 
9,863

 
(6,714
)
Net Income (Loss)
 
$
5,014

 
$
(9,515
)
 
$
22,425

 
$
(9,706
)
Earnings (Loss) Per Share
 
 
 
 
 
 
 
 
Basic earnings (loss) per share
 
$
0.45

 
$
(0.86
)
 
$
2.01

 
$
(0.88
)
Diluted earnings (loss) per share
 
$
0.44

 
$
(0.86
)
 
$
1.99

 
$
(0.88
)
Weighted-Average Number of Common Shares Outstanding
 
 
 
 
 
 
 
 
Basic
 
11,169

 
11,083

 
11,141

 
11,035

Diluted
 
11,310

 
11,083

 
11,261

 
11,035

 
 
 
 
 
 
 
 
 
Gross Profit %
 
19.0
%
 
12.4
 %
 
19.2
%
 
15.3
 %
SG&A %
 
13.0
%
 
13.1
 %
 
14.4
%
 
12.7
 %
Operating Income (Loss) %
 
6.1
%
 
(0.7
)%
 
4.8
%
 
2.6
 %
Net Income (Loss) %
 
3.8
%
 
(5.9
)%
 
5.5
%
 
(1.9
)%
Effective Tax (Benefit) Rate
 
19.8
%
 
(42.1
)%
 
30.5
%
 
(40.9
)%




DUCOMMUN INCORPORATED AND SUBSIDIARIES
BUSINESS SEGMENT PERFORMANCE
(Unaudited)
(In thousands)
 
 
 
Three Months Ended
 
Nine Months Ended
 
 
%
Change
 
October 1,
2016
 
October 3,
2015
 
%
of Net  Revenues
2016
 
%
of Net  Revenues
2015
 
%
Change
 
October 1,
2016
 
October 3,
2015
 
%
of Net  Revenues
2016
 
%
of Net  Revenues
2015
Net Revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Structural Systems
 
(5.0
)%
 
$
60,931

 
$
64,170

 
46.0
 %
 
39.7
 %
 
(12.6
)%
 
$
185,642

 
$
212,306

 
45.5
 %
 
41.7
 %
Electronic Systems
 
(26.5
)%
 
71,640

 
97,500

 
54.0
 %
 
60.3
 %
 
(25.1
)%
 
222,514

 
297,129

 
54.5
 %
 
58.3
 %
Total Net Revenues
 
(18.0
)%
 
$
132,571

 
$
161,670

 
100.0
 %
 
100.0
 %
 
(19.9
)%
 
$
408,156

 
$
509,435

 
100.0
 %
 
100.0
 %
Segment Operating Income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Structural Systems
 
 
 
$
5,893

 
$
(6,028
)
 
9.7
 %
 
(9.4
)%
 
 
 
$
13,347

 
$
2,980

 
7.2
 %
 
1.4
 %
Electronic Systems
 
 
 
6,600

 
8,598

 
9.2
 %
 
8.8
 %
 
 
 
19,769

 
22,575

 
8.9
 %
 
7.6
 %
 
 
 
 
12,493

 
2,570

 
 
 
 
 
 
 
33,116

 
25,555

 
 
 
 
Corporate General and Administrative Expenses (1)
 
 
 
(4,441
)
 
(3,747
)
 
(3.3
)%
 
(2.3
)%
 
 
 
(13,505
)
 
(12,266
)
 
(3.3
)%
 
(2.4
)%
Total Operating Income (Loss)
 
 
 
$
8,052

 
$
(1,177
)
 
6.1
 %
 
(0.7
)%
 
 
 
$
19,611

 
$
13,289

 
4.8
 %
 
2.6
 %
Adjusted EBITDA
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Structural Systems
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Income (Loss)
 
 
 
$
5,893

 
$
(6,028
)
 
 
 
 
 
 
 
$
13,347

 
$
2,980

 
 
 
 
Other Income (2)
 
 
 
141

 
—

 
 
 
 
 
 
 
141

 
1,510

 
 
 
 
Depreciation and Amortization
 
 
 
2,851

 
2,386

 
 
 
 
 
 
 
6,683

 
7,009

 
 
 
 
Restructuring Charges
 
 
 
—

 
314

 
 
 
 
 
 
 
—

 
314

 
 
 
 
 
 
 
 
8,885

 
(3,328
)
 
14.6
 %
 
(5.2
)%
 
 
 
20,171

 
11,813

 
10.9
 %
 
5.6
 %
Electronic Systems
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Income
 
 
 
6,600

 
8,598

 
 
 
 
 
 
 
19,769

 
22,575

 
 
 
 
Gain on Divestitures (3)
 
 
 
—

 
—

 
 
 
 
 
 
 
18,815

 
—

 
 
 
 
Depreciation and Amortization
 
 
 
3,232

 
4,207

 
 
 
 
 
 
 
10,661

 
12,928

 
 
 
 
Restructuring Charges
 
 
 
—

 
468

 
 
 
 
 
 
 
—

 
468

 
 
 
 
 
 
 
 
9,832

 
13,273

 
13.7
 %
 
13.6
 %
 
 
 
49,245

 
35,971

 
22.1
 %
 
12.1
 %
Corporate General and Administrative Expenses (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating loss
 
 
 
(4,441
)
 
(3,747
)
 
 
 
 
 
 
 
(13,505
)
 
(12,266
)
 
 
 
 
Gain on Divestitures (3)
 
 
 
—

 
—

 
 
 
 
 
 
 
(18,815
)
 
—

 
 
 
 
Depreciation and Amortization
 
 
 
6

 
42

 
 
 
 
 
 
 
76

 
127

 
 
 
 
Stock-Based Compensation Expense
 
 
 
594

 
331

 
 
 
 
 
 
 
2,579

 
2,792

 
 
 
 
 
 
 
 
(3,841
)
 
(3,374
)
 
 
 
 
 
 
 
(29,665
)
 
(9,347
)
 
 
 
 
Adjusted EBITDA
 
 
 
$
14,876

 
$
6,571

 
11.2
 %
 
4.1
 %
 
 
 
$
39,751

 
$
38,437

 
9.7
 %
 
7.5
 %
Capital Expenditures
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Structural Systems
 
 
 
$
3,555

 
$
2,329

 
 
 
 
 
 
 
$
10,149

 
$
8,080

 
 
 
 
Electronic Systems
 
 
 
947

 
758

 
 
 
 
 
 
 
1,701

 
3,196

 
 
 
 
Corporate Administration
 
 
 
—

 
4

 
 
 
 
 
 
 
—

 
10

 
 
 
 
Total Capital Expenditures
 
 
 
$
4,502

 
$
3,091

 
 
 
 
 
 
 
$
11,850

 
$
11,286

 
 
 
 
(1)
Includes costs not allocated to either the Electronic Systems or Structural Systems operating segments.
(2)
Insurance recoveries related to property and equipment included as other income for the nine months ended October 3, 2015.
(3)
Includes gain on divestitures of the Pittsburgh and Miltec operations.