DUCOMMUN INC /DE/ Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Vision 2027 Strategy: Executing strategy by increasing engineered product and aftermarket content to 23% in 2024 (up from 19% in 2023), consolidating contract manufacturing, targeted acquisitions, offloading non-core defense, value-added pricing, and expanding commercial aerospace content.
• Q4 Results: 15th consecutive quarter of revenue growth (2.6% to $197.3 million), defense revenue over $100 million for fifth time in six quarters, commercial aerospace grew 4% with A220 up over 40%, commercial rotorcraft up over 50%. Gross margin 23.5% (up 180 basis points), adjusted operating income margin 8.2% (flat to prior year).
• Facilities and Restructuring: Monrovia, CA closed; Berryville, AR reduced; Guaymas, Mexico plant certified for Tomahawk missile. Cost savings from closures expected to ramp up in 2025.
• Backlog: Consolidated backlog $1.06 billion, defense backlog $625 million (up $98 million), commercial aerospace backlog $416 million (down $15 million).

Segment Performance

• Structural Systems: Q4 2024 revenue was $90.3 million vs $85.6 million in prior year. Year-over-year increase due to $6.4 million growth in commercial aerospace applications (A220, S-92), but military and space down 5% (driven by Apache revenue decline). Operating income for the quarter was $3.2 million (3.6% of revenue) vs $6.6 million (7.7% of revenue) in prior year. Excluding restructuring charges and adjustments, segment operating margin was 9.2% in Q4 2024 vs 14.6% in Q4 2023.
• Electronic Systems: Q4 2024 revenue was $107 million vs $106.7 million in prior year. Higher revenues from Next-Generation Jammer and F-16 platforms offset by lower in-flight entertainment revenues. Operating income for the quarter was $19 million (17.7% of revenue) vs $9.8 million (9.2% of revenue) in prior year. Excluding restructuring charges and adjustments, segment operating margin was 17.7% in Q4 2024 vs 10.2% in Q4 2023.

Guidance

• 2025 revenue guidance: mid-single-digit growth, first quarter flattish due to destocking/build rates, better second half.
• Full year 2024: record revenue ($786 million), adjusted EBITDA margins 14.8% (expanded 140 basis points).
• Engineered products: 23% of revenue in 2024, ahead of Vision 2027 target of 25%+.

Risks

• Cyclicality of end-use markets, U.S. government defense spending, customer order delays, financing, legal/regulatory, competition, economic/geopolitical, supply chain, labor disruptions, intellectual property protection, pandemics, disasters, cybersecurity.

Question and Answer

• Q: Color on defense and commercial markets for 2025, Europe defense sales impact A: Commercial aerospace first half impacted by destocking, second half better; defense growth more even. Europe order from Bayern-Chemie bodes well for more Foreign Military Sales (FMS).
• Q: Position amid defense budget reprioritization A: Diversified product portfolio, good on circuit cards, cabling; Apache truck full orders, Tomahawk missile in Guaymas, Mexico facility.
• Q: IMC business capacity transition A: Appleton, WI has high demand for products beyond ViaSat work, planning for space in next 1-2 years.
• Q: Margin hit in Structural Systems A: Half due to product mix, half onetime expenses; margins expected to recover in Q1 2025.
• Q: Legal fees for acquisition offer A: Fees for advising Board on Albion River offer, no expected continued expenses as Albion River sold its position.