Ducommun(DCO) - 2025 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Q1 2025 revenue was $194.1 million, a 1.7% increase from$ 190.8 million in Q1 2024, marking the sixteenth consecutive quarter of year-over-year revenue growth [9][25] - Gross margin increased to 26.6%, up 200 basis points from 24.6% year-over-year, achieving a new quarterly record [13][26] - Adjusted EBITDA reached 15.9%, a record as a percentage of sales, up from 14.4% in the prior year [14][31] - GAAP diluted EPS was $0.69, compared to$ 0.46 in Q1 2024, while adjusted diluted EPS was $0.83, up from$ 0.70 [14][31] Business Line Data and Key Metrics Changes - Military and space revenue grew by 15% year-over-year to $114 million, driven by missile and electronic warfare programs [10][21] - Commercial aerospace revenue declined by 10% to$ 72 million, marking the first decline in 15 quarters, primarily due to lower demand for the 737 MAX [11][22] - Industrial business revenue decreased to $9 million as the company continues to prune non-core operations [23] Market Data and Key Metrics Changes - The defense backlog increased by over$ 15 million year-over-year to $620 million, representing 59% of the total backlog [15][21] - The commercial aerospace backlog decreased by$ 31 million to $411 million due to lower OEM production rates [16][22] - The company expects a recovery in commercial aerospace as production rates ramp up in 2025 [22] Company Strategy and Development Direction - The company is executing its Vision 2027 strategy, aiming to increase the revenue percentage from engineered products, which accounted for 23% in 2024, up from 19% in 2023 [9][17] - The strategy includes targeted acquisitions, consolidation of manufacturing operations, and expansion in high-growth segments of the defense budget [9][10] - The company is focused on maintaining a strong mix of defense and commercial aerospace to mitigate risks associated with market cyclicality [10][70] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the recovery in commercial aerospace and continued strength in defense, reaffirming guidance for mid-single-digit revenue growth for 2025 [18][70] - The company does not anticipate significant impacts from tariffs on its revenues, as 95% of its revenue is generated in the U.S. [19][29] - Management highlighted the importance of maintaining operational efficiency and strong relationships with key customers like Boeing and Spirit [83][84] Other Important Information - The company has ceased operations in two facilities, expecting to realize cost savings as production ramps up in other locations [13][36] - Cash flow from operating activities improved to$ 800,000 in Q1 2025, compared to a use of $1.6 million in Q1 2024 [38] - The company is actively pursuing M&A opportunities, focusing on niche engineered product businesses that span both defense and commercial aerospace [54][56] Q&A Session Summary Question: How would you characterize any delay in ship set rates to Boeing and Spirit? - Management noted that Boeing is producing in the low twenties and Spirit is ramping up to the mid to high twenties, with expectations for continued growth despite destocking impacts [43][45] Question: Are you tracking towards your M&A placeholder for Vision 2027? - Management confirmed they are tracking multiple opportunities and remain confident in completing a deal this year [54][56] Question: What are your expectations for growth rates between commercial aerospace and defense for the remainder of the year? - Management expects continued strength in defense and a recovery in commercial aerospace, aiming for mid-single-digit growth overall [68][70]