Fourth Quarter 2017 Recap
- Revenue of
$142.3 million - GAAP net income of
$9.5 million , or$0.82 per diluted share - Adjusted net income for the quarter was
$4.6 million , or$0.41 per diluted share, which excludes net of tax,$12.6 million tax benefit from adoption of Tax Cuts Jobs Act,$6.9 million restructuring charges, and$0.9 million inventory purchase accounting adjustment - Adjusted EBITDA of
$13.6 million - Backlog of
$726.5 million
“I am happy to report that we closed 2017 with several major accomplishments as we move into a busy year ahead,” said
“We took the initial steps this quarter, as previously announced, to further streamline our operations and improve margins, particularly within the structures business. We have a good amount of work to do this year as well but remain on track to reduce some
Fourth Quarter Results
Net revenue for the fourth quarter of 2017 was
$1.3 million lower revenue within the Company’s military and space end-use markets mainly due to timing of certain orders which impacted scheduled deliveries on the Company’s fixed-wing and helicopter platforms; partially offset by$0.9 million higher revenue in the Company’s commercial aerospace end-use markets mainly due to added content with existing customers; and$0.2 million higher revenue within the Company’s industrial, medical and other (“Industrial”) end-use markets.
Net income for the fourth quarter of 2017 was
$17.5 million lower income tax expense mainly due to the reduction of the U.S. corporate tax rate as a result of the Tax Cuts and Jobs Act (“Tax Act”) enacted inDecember 2017 which required the Company to remeasure its deferred tax assets and liabilities atDecember 31, 2017 ; partially offset by$8.7 million (of which,$0.5 million was recorded as cost of sales) higher restructuring charges as a result of the Company approving and commencing a restructuring plan inNovember 2017 that is expected to increase operating efficiencies;$1.4 million higher selling, general, and administrative (“SG&A”) expense mainly due to higher compensation and benefit costs and higher professional service fees; and$1.1 million of inventory purchase accounting adjustments in the fourth quarter of 2017.
Gross profit for the fourth quarter of 2017 was
Operating loss for the fourth quarter of 2017 was
Adjusted operating income for the fourth quarter of 2017 was
Interest expense for the fourth quarter of 2017 was
Adjusted EBITDA for the fourth quarter of 2017 was
The Company’s backlog as of
Business Segment Information
Structural Systems
Structural Systems reported net revenue for the current quarter of
$4.1 million higher revenue within the Company’s commercial aerospace end-use markets mainly due to build rate increases and added content with existing customers, which favorably impacted the Company’s large airframe platforms; and$0.2 million higher revenue within the Company’s military and space end-use markets mainly due to higher demand, which favorably impacted the Company’s helicopter platforms.
Structural Systems segment operating loss for the current-year fourth quarter was
Adjusted operating income for the fourth quarter of 2017 was
$3.2 million lower revenue within the Company’s commercial aerospace end-use markets mainly due to timing of certain orders which impacted scheduled deliveries on certain of the Company’s large airframe programs; and$1.5 million lower revenue within the Company’s military and space end-use markets mainly due to timing of certain orders which impacted scheduled deliveries on certain of the Company’s fixed-wing and helicopter platforms; partially offset by$0.2 million higher revenue within the Company’s Industrial end-use markets.
Adjusted operating income for the fourth quarter of 2017 was
Corporate General and Administrative (“CG&A”) Expense
CG&A expense for the fourth quarter of 2017 was
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About
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, the Company’s restructuring plan 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: 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
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, and inventory purchase accounting adjustments), adjusted net income (which excludes impact from the adoption of the Tax Cuts and Jobs Act, restructuring charges, inventory purchase accounting adjustments, and divestiture related adjustments), and adjusted operating income (which excludes restructuring charges and inventory purchase accounting adjustments).
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.
CONTACTS:
[Financial Tables Follow] |
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DUCOMMUN INCORPORATED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands) |
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December 31, 2017 |
December 31, 2016 |
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Assets | ||||||||
Current Assets | ||||||||
Cash and cash equivalents | $ | 2,150 | $ | 7,432 | ||||
Accounts receivable, net | 74,064 | 76,239 | ||||||
Inventories | 122,161 | 119,896 | ||||||
Production cost of contracts | 11,204 | 11,340 | ||||||
Other current assets | 11,435 | 11,034 | ||||||
Total Current Assets | 221,014 | 225,941 | ||||||
Property and Equipment, Net | 110,252 | 101,590 | ||||||
Goodwill | 117,435 | 82,554 | ||||||
Intangibles, Net | 114,693 | 101,573 | ||||||
Non-Current Deferred Income Taxes | 261 | 286 | ||||||
Other Assets | 3,098 | 3,485 | ||||||
Total Assets | $ | 566,753 | $ | 515,429 | ||||
Liabilities and Shareholders’ Equity | ||||||||
Current Liabilities | ||||||||
Current portion of long-term debt | $ | — | $ | 3 | ||||
Accounts payable | 51,907 | 57,024 | ||||||
Accrued liabilities | 28,329 | 29,279 | ||||||
Total Current Liabilities | 80,236 | 86,306 | ||||||
Long-Term Debt, Less Current Portion | 216,055 | 166,896 | ||||||
Non-Current Deferred Income Taxes | 15,981 | 31,417 | ||||||
Other Long-Term Liabilities | 18,898 | 18,707 | ||||||
Total Liabilities | 331,170 | 303,326 | ||||||
Commitments and Contingencies | ||||||||
Shareholders’ Equity | ||||||||
Common stock | 113 | 112 | ||||||
Additional paid-in capital | 80,223 | 76,783 | ||||||
Retained earnings | 161,364 | 141,287 | ||||||
Accumulated other comprehensive loss | (6,117 | ) | (6,079 | ) | ||||
Total Shareholders’ Equity | 235,583 | 212,103 | ||||||
Total Liabilities and Shareholders’ Equity | $ | 566,753 | $ | 515,429 |
DUCOMMUN INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Quarterly Information Unaudited) (In thousands, except per share amounts) |
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Three Months Ended | Years Ended | |||||||||||||||
December 31, 2017 |
December 31, 2016 |
December 31, 2017 |
December 31, 2016 |
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Net Revenues | $ | 142,258 | $ | 142,486 | $ | 558,183 | $ | 550,642 | ||||||||
Cost of Sales | 116,565 | 114,700 | 455,363 | 444,449 | ||||||||||||
Gross Profit | 25,693 | 27,786 | 102,820 | 106,193 | ||||||||||||
Selling, General and Administrative Expenses | 20,074 | 18,647 | 79,435 | 77,443 | ||||||||||||
Restructuring Charges | 8,360 | 182 | 8,360 | 182 | ||||||||||||
Operating (Loss) Income | (2,741 | ) | 8,957 | 15,025 | 28,568 | |||||||||||
Interest Expense | (2,673 | ) | (1,995 | ) | (8,261 | ) | (8,274 | ) | ||||||||
(Loss) Gain on Divestitures, Net | — | (1,211 | ) | — | 17,604 | |||||||||||
Other Income, Net | 357 | 74 | 845 | 215 | ||||||||||||
(Loss) Income Before Taxes | (5,057 | ) | 5,825 | 7,609 | 38,113 | |||||||||||
Income Tax (Benefit) Expense | (14,541 | ) | 2,989 | (12,468 | ) | 12,852 | ||||||||||
Net Income | $ | 9,484 | $ | 2,836 | $ | 20,077 | $ | 25,261 | ||||||||
Earnings Per Share | ||||||||||||||||
Basic earnings per share | $ | 0.84 | $ | 0.25 | $ | 1.78 | $ | 2.27 | ||||||||
Diluted earnings per share | $ | 0.82 | $ | 0.25 | $ | 1.74 | $ | 2.24 | ||||||||
Weighted-Average Number of Common Shares Outstanding | ||||||||||||||||
Basic | 11,246 | 11,182 | 11,290 | 11,151 | ||||||||||||
Diluted | 11,504 | 11,383 | 11,558 | 11,299 | ||||||||||||
Gross Profit % | 18.1 | % | 19.5 | % | 18.4 | % | 19.3 | % | ||||||||
SG&A % | 14.1 | % | 13.1 | % | 14.2 | % | 14.1 | % | ||||||||
Operating (Loss) Income % | (1.9 | )% | 6.3 | % | 2.7 | % | 5.2 | % | ||||||||
Net Income % | 6.7 | % | 2.0 | % | 3.6 | % | 4.6 | % | ||||||||
Effective Tax (Benefit) Rate | (287.5 | )% | 51.3 | % | (163.8 | )% | 33.7 | % |
DUCOMMUN INCORPORATED AND SUBSIDIARIES BUSINESS SEGMENT PERFORMANCE (Unaudited) (In thousands) |
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Three Months Ended | Years Ended | |||||||||||||||||||||||||||||||||
% Change |
December 31, 2017 |
December 31, 2016 |
% of Net Revenues 2017 |
% of Net Revenues 2016 |
% Change |
December 31, 2017 |
December 31, 2016 |
% of Net Revenues 2017 |
% of Net Revenues 2016 |
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Net Revenues | ||||||||||||||||||||||||||||||||||
Structural Systems | 7.0 | % | $ | 65,088 | $ | 60,823 | 45.8 | % | 42.7 | % | (2.0 | )% | $ | 241,460 | $ | 246,465 | 43.3 | % | 44.8 | % | ||||||||||||||
Electronic Systems | (5.5 | )% | 77,170 | 81,663 | 54.2 | % | 57.3 | % | 4.1 | % | 316,723 | 304,177 | 56.7 | % | 55.2 | % | ||||||||||||||||||
Total Net Revenues | (0.2 | )% | $ | 142,258 | $ | 142,486 | 100.0 | % | 100.0 | % | 1.4 | % | $ | 558,183 | $ | 550,642 | 100.0 | % | 100.0 | % | ||||||||||||||
Segment Operating (Loss) Income | ||||||||||||||||||||||||||||||||||
Structural Systems | $ | (2,670 | ) | $ | 3,150 | (4.1 | )% | 5.2 | % | $ | 5,477 | $ | 16,497 | 2.3 | % | 6.7 | % | |||||||||||||||||
Electronic Systems | 6,782 | 9,214 | 8.8 | % | 11.3 | % | 30,940 | 28,983 | 9.8 | % | 9.5 | % | ||||||||||||||||||||||
4,112 | 12,364 | 36,417 | 45,480 | |||||||||||||||||||||||||||||||
Corporate General and Administrative Expenses (1) | (6,853 | ) | (3,407 | ) | (4.8 | )% | (2.4 | )% | (21,392 | ) | (16,912 | ) | (3.8 | )% | (3.1 | )% | ||||||||||||||||||
Total Operating (Loss) Income | $ | (2,741 | ) | $ | 8,957 | (1.9 | )% | 6.3 | % | $ | 15,025 | $ | 28,568 | 2.7 | % | 5.2 | % | |||||||||||||||||
Adjusted EBITDA | ||||||||||||||||||||||||||||||||||
Structural Systems | ||||||||||||||||||||||||||||||||||
Operating (Loss) Income | $ | (2,670 | ) | $ | 3,150 | $ | 5,477 | $ | 16,497 | |||||||||||||||||||||||||
Other Income | — | — | 200 | 141 | ||||||||||||||||||||||||||||||
Depreciation and Amortization | 1,981 | 2,005 | 8,860 | 8,688 | ||||||||||||||||||||||||||||||
Restructuring Charges | 5,802 | — | 5,866 | — | ||||||||||||||||||||||||||||||
5,113 | 5,155 | 7.9 | % | 8.5 | % | 20,403 | 25,326 | 8.4 | % | 10.3 | % | |||||||||||||||||||||||
Electronic Systems | ||||||||||||||||||||||||||||||||||
Operating Income | 6,782 | 9,214 | 30,940 | 28,983 | ||||||||||||||||||||||||||||||
Other Income | 357 | — | 645 | — | ||||||||||||||||||||||||||||||
Depreciation and Amortization | 3,681 | 3,426 | 13,888 | 14,087 | ||||||||||||||||||||||||||||||
Restructuring Charges | 1,190 | 182 | 1,190 | 182 | ||||||||||||||||||||||||||||||
Inventory Purchase Accounting Adjustments | 1,111 | — | 1,235 | — | ||||||||||||||||||||||||||||||
13,121 | 12,822 | 17.0 | % | 15.7 | % | 47,898 | 43,252 | 15.1 | % | 14.2 | % | |||||||||||||||||||||||
Corporate General and Administrative Expenses (1) | ||||||||||||||||||||||||||||||||||
Operating loss | (6,853 | ) | (3,407 | ) | (21,392 | ) | (16,912 | ) | ||||||||||||||||||||||||||
Other Income | — | 74 | — | 74 | ||||||||||||||||||||||||||||||
Depreciation and Amortization | 34 | 9 | 97 | 85 | ||||||||||||||||||||||||||||||
Stock-Based Compensation Expense | 411 | 428 | 4,675 | 3,007 | ||||||||||||||||||||||||||||||
Restructuring Charges | 1,782 | — | 1,782 | — | ||||||||||||||||||||||||||||||
(4,626 | ) | (2,896 | ) | (14,838 | ) | (13,746 | ) | |||||||||||||||||||||||||||
Adjusted EBITDA | $ | 13,608 | $ | 15,081 | 9.6 | % | 10.6 | % | $ | 53,463 | $ | 54,832 | 9.6 | % | 10.0 | % | ||||||||||||||||||
Capital Expenditures | ||||||||||||||||||||||||||||||||||
Structural Systems | $ | 3,462 | $ | 5,512 | $ | 20,679 | $ | 15,661 | ||||||||||||||||||||||||||
Electronic Systems | 763 | 1,331 | 5,019 | 3,032 | ||||||||||||||||||||||||||||||
Corporate Administration | — | — | 775 | — | ||||||||||||||||||||||||||||||
Total Capital Expenditures | $ | 4,225 | $ | 6,843 | $ | 26,473 | $ | 18,693 |
(1) Includes costs not allocated to either the Structural Systems or
DUCOMMUN INCORPORATED AND SUBSIDIARIES GAAP TO NON-GAAP EARNINGS AND EARNINGS PER SHARE RECONCILIATION (Unaudited) (In thousands, except per share amounts) |
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Three Months Ended | Years Ended | |||||||||||||||
GAAP To Non-GAAP Earnings | December 31, 2017 |
December 31, 2016 |
December 31, 2017 |
December 31, 2016 |
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GAAP Net income | $ | 9,484 | $ | 2,836 | $ | 20,077 | $ | 25,261 | ||||||||
Adjustments: | ||||||||||||||||
Tax Cuts Jobs Act (1) | (12,590 | ) | — | (12,590 | ) | — | ||||||||||
Restructuring charges (2) | 6,879 | — | 6,929 | — | ||||||||||||
Inventory purchase accounting adjustments (2) | 871 | — | 968 | — | ||||||||||||
Divestiture of Miltec operation net working capital adjustment (3) | — | 1,211 | — | 1,211 | ||||||||||||
Divestiture of Miltec operation tax basis adjustment (4) | — | 795 | — | 795 | ||||||||||||
Gain on divestitures, net (4) | — | — | — | (13,625 | ) | |||||||||||
Total adjustments | (4,840 | ) | 2,006 | (4,693 | ) | (11,619 | ) | |||||||||
Adjusted net income | $ | 4,644 | $ | 4,842 | $ | 15,384 | $ | 13,642 |
Three Months Ended | Years Ended | |||||||||||||||
GAAP Earnings Per Share To Non-GAAP Earnings Per Share | December 31, 2017 |
December 31, 2016 |
December 31, 2017 |
December 31, 2016 |
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GAAP Diluted Earnings Per Share (“EPS”) | $ | 0.82 | $ | 0.25 | $ | 1.74 | $ | 2.24 | ||||||||
Adjustments: | ||||||||||||||||
Tax Cuts Jobs Act (1) | (1.09 | ) | — | (1.09 | ) | — | ||||||||||
Restructuring charges (2) | 0.60 | — | 0.60 | — | ||||||||||||
Inventory purchase accounting adjustments (2) | 0.08 | — | 0.08 | — | ||||||||||||
Divestiture of Miltec operation net working capital adjustment (3) | — | 0.11 | — | 0.11 | ||||||||||||
Divestiture of Miltec operation tax basis adjustment (4) | — | 0.07 | — | 0.07 | ||||||||||||
Gain on divestitures, net (4) | — | — | — | (1.21 | ) | |||||||||||
Total adjustments | (0.41 | ) | 0.18 | (0.41 | ) | (1.03 | ) | |||||||||
Adjusted Diluted EPS | $ | 0.41 | $ | 0.43 | $ | 1.33 | $ | 1.21 | ||||||||
Shares used for adjusted diluted EPS | 11,504 | 11,383 | 11,558 | 11,299 |
(1) Net impact of Tax Cuts Jobs Act and
(2) Includes effective tax rate of 21.6% for 2017 adjustments.
(3) Net working capital adjustment did not have an impact on our effective tax rate and thus, no effective tax rate was applied to this item.
(4) Includes effective tax rate of 22.6% for 2016 adjustments.
DUCOMMUN INCORPORATED AND SUBSIDIARIES GAAP TO NON-GAAP OPERATING INCOME AND AS A PERCENTAGE OF NET REVENUES RECONCILIATION (Unaudited) (In thousands) |
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Three Months Ended | Years Ended | |||||||||||||||
GAAP To Non-GAAP Operating Income | December 31, 2017 |
December 31, 2016 |
December 31, 2017 |
December 31, 2016 |
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GAAP Operating (loss) income | $ | (2,741 | ) | $ | 8,957 | $ | 15,025 | $ | 28,568 | |||||||
GAAP Operating (loss) income - Structural Systems | $ | (2,670 | ) | $ | 3,150 | $ | 5,477 | $ | 16,497 | |||||||
Adjustment: | ||||||||||||||||
Restructuring charges | 5,802 | — | 5,866 | — | ||||||||||||
Adjusted operating income - Structural Systems | 3,132 | 3,150 | 11,343 | 16,497 | ||||||||||||
GAAP Operating income - Electronic Systems | 6,782 | 9,214 | 30,940 | 28,983 | ||||||||||||
Adjustments: | ||||||||||||||||
Restructuring charges | 1,190 | 182 | 1,190 | 182 | ||||||||||||
Inventory purchase accounting adjustments | 1,111 | — | 1,235 | — | ||||||||||||
Adjusted operating income - Electronic Systems | 9,083 | 9,396 | 33,365 | 29,165 | ||||||||||||
GAAP Operating loss - Corporate | (6,853 | ) | (3,407 | ) | (21,392 | ) | (16,912 | ) | ||||||||
Adjustment: | ||||||||||||||||
Restructuring charges | 1,782 | — | 1,782 | — | ||||||||||||
Adjusted operating income - Corporate | (5,071 | ) | (3,407 | ) | (19,610 | ) | (16,912 | ) | ||||||||
Total adjustments | $ | 9,885 | $ | 182 | $ | 10,073 | $ | 182 | ||||||||
Adjusted operating income | $ | 7,144 | $ | 9,139 | $ | 25,098 | $ | 28,750 |
Three Months Ended | Years Ended | |||||||||||
GAAP To Non-GAAP Operating Income As A Percentage of Net Revenues | December 31, 2017 |
December 31, 2016 |
December 31, 2017 |
December 31, 2016 |
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GAAP Operating (loss) income as a % of net revenues | (1.9 | )% | 6.3 | % | 2.7 | % | 5.2 | % | ||||
GAAP Operating (loss) income - Structural Systems | (4.1 | )% | 5.2 | % | 2.3 | % | 6.7 | % | ||||
Adjustment: | ||||||||||||
Restructuring charges | 8.9 | % | — | % | 2.4 | % | — | % | ||||
Adjusted operating income - Structural Systems | 4.8 | % | 5.2 | % | 4.7 | % | 6.7 | % | ||||
GAAP Operating income - Electronic Systems | 8.8 | % | 11.3 | % | 9.8 | % | 9.5 | % | ||||
Adjustments: | ||||||||||||
Restructuring charges | 1.5 | % | 0.2 | % | 0.4 | % | 0.1 | % | ||||
Inventory purchase accounting adjustments | 1.4 | % | — | % | 0.4 | % | — | % | ||||
Adjusted operating income - Electronic Systems | 11.7 | % | 11.5 | % | 10.6 | % | 9.6 | % | ||||
GAAP Operating loss - Corporate | (4.8 | )% | (2.4 | )% | (3.8 | )% | (3.1 | )% | ||||
Adjustment: | ||||||||||||
Restructuring charges | 1.3 | % | — | % | 0.3 | % | — | % | ||||
Adjusted operating income - Corporate | (3.5 | )% | (2.4 | )% | (3.5 | )% | (3.1 | )% | ||||
Total adjustments | 6.9 | % | 0.1 | % | 1.8 | % | — | % | ||||
Adjusted operating income as a % of net revenues | 5.0 | % | 6.4 | % | 4.5 | % | 5.2 | % |
DUCOMMUN INCORPORATED AND SUBSIDIARIES BACKLOG BY REPORTING SEGMENT (Unaudited) (In thousands) |
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(In thousands) December 31, |
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2017 | 2016 | |||||||
Consolidated Ducommun | ||||||||
Military and space | ||||||||
Defense electronics | $ | 216,508 | $ | 197,577 | ||||
Defense structures | 60,921 | 58,877 | ||||||
Commercial aerospace | 417,981 | 357,668 | ||||||
Industrial | 31,068 | 27,130 | ||||||
Total | $ | 726,478 | $ | 641,252 | ||||
Structural Systems | ||||||||
Military and space (defense structures) | $ | 60,921 | $ | 58,877 | ||||
Commercial aerospace | 361,586 | 319,518 | ||||||
Total | $ | 422,507 | $ | 378,395 | ||||
Electronic Systems | ||||||||
Military and space (defense electronics) | $ | 216,508 | $ | 197,577 | ||||
Commercial aerospace | 56,395 | 38,150 | ||||||
Industrial | 31,068 | 27,130 | ||||||
Total | $ | 303,971 | $ | 262,857 |