Q4 2019 Earnings Call
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Sure Minder These conference calls being recorded.
I'd now like to turn conference over to your host Mr., Chris witty. The moderator. Please go ahead Sir.
Thank you and welcome to do comments 2019 fourth quarter Conference call with me today are Steve Oswald Chairman, President and CEO, Chris Wampler, Vice President interim Chief Financial Officer, and Treasurer, and controller and Chief Accounting Officer.
And it just got certain limitations to any forward looking statements regarding future events projections or performance that we may make during the prepared remarks or the QNX session that follows.
Certain statements say that are not historical facts, including any statements as to future market conditions results of operations and financial projections are forward looking statements under the federal Private Securities Litigation Reform Act of 1995 and are therefore perspective. These forward looking statements are subject to risks uncertainties and other factors, which could cause actual results today.
Differ materially from the future results expressed or implied by such forward looking statements.
Although we believe that the expectations, reflecting enough. We're looking statements are reasonable we can go give no assurance that such expectations will prove to be correct.
In addition estimates of future operating results are based on the company's current business, which are subject to change particular risks facing to common include among others. The cyclicality of our end use markets. The level of U.S. government defense spending legal and regulatory risks management changes the cost of expansionary acquisitions and competition.
These risks and others are describing our annual report and form 10-K filed with the FCC.
Forward looking statements are subject to those risks.
Statements made during this call are only as of the time made and we did not intend to update any statements made in this presentation, except if and as required by regulatory authorities.
This call. So well include non-GAAP financial measures. Please refer to our filings with the FTC for a reconciliation of the non-GAAP measures reference on this call to the most similar GAAP measures.
We thought our form 10-K with the FCC today, and you will find a link to all our filings on the company's website under the Investor Relations tab.
I like to turn the call over to Mr., Steve OSL before I review or the operating results Steve.
Well, thank you, Chris and thanks, everyone for joining us today.
Our fourth quarter conference call.
As usual I'll begin by providing an update a recent developments of the company.
After which Chris Wampler, we view our financials in detail.
As you guys are very important year for the company 2019.
Well take this opportunity to first review a few highlights.
Our strong performance.
Our team is working diligently over the past three years, improving all of our operations.
<unk> product portfolio.
Driving new technologies.
Focusing on providing high value to customers.
And making strategic acquisitions among others.
It's Wayne I take a common sales grew.
721 billion of 15% over 2018.
And its highest.
Since 2014.
In conjunction with that increase we grew gross profit.
252 million.
Or 21.1%.
That margin rate for 29 team.
It's not been realized that the company and more than 15 years.
Adjusted margins rose as well to 7.9%.
6.4% 2018.
And we generated 51 million in cash from operations.
Just as important with great top and bottom line growth EBITDA rose to 92.3 million in 2019, or 12.8% of cells versus 70.7 million or 11.2% of sales last year.
We're very proud of all these games.
As we develop the company for sustained high performance in the years ahead.
That's very specifically to the fourth quarter revenue rose, 14% year over year and marked the sixth consecutive quarter of double digit increases averaging 50% growth.
Which was mainly organic.
The majority of the gains were driven by important military programs.
Such as the F 35 F 15, the Apache helicopter and several missile programs.
It also put a good growth with Airbus and Boeing.
The other real bright spot for the quarter was ending the year with the backlog about 910 million.
Bolstered by strong orders across numerous key platforms, particularly within our defense business.
We also posted an impressive book to bill ratio in the quarter.
A 1.4.
Again, driven by defense.
As mentioned in the press release, we spent a good amount of time during the past few years, improving the performance of our defense operations and business development team.
And now are seeing the results.
It's also great to see our team leveraging two comments capabilities and structures more and more with into defense markets.
And orders in that part of your comments business increased sequentially in the second half of the year by 45%.
At the same time be completed another important acquisition noble's worldwide.
Supplies advanced technical products for a variety of aircraft naval vessels and military vehicles.
The integration is going very well.
And the team is already Eddie grade value opening new markets and opportunities for the common.
Well with expanding our engineered products portfolio.
I was also mentioned in the press release, we're off to a strong start and 2020.
Was it within many areas of the company.
In addition, we're also working closely with Boeing and Spirit Aerosystems on the 737 Max.
After the announcements in December from both companies.
The comment took action in January to ensure all costs.
Within our effective <unk> within our affected operations.
Being closely and proactively managed.
All of our affected operations of working to minimize the impact.
And do it at some of our successes with new business, we've been able to redeploy some employees.
The amount of personnel furloughed in January due to the Max was less than 3%.
No difficult.
We are proud of our performance entertains proactively dealing with the situation.
That being said, we're looking forward to starting production back later in Q1 with spirit.
Based on public comments that communication from them.
And with Boeing as soon as April.
We're also well positioned operationally I mean, any re requirements along with the ramp up in the future.
In regards to the 2020 outlook, we see our strong backlog into fad.
Growing business with Airbus.
No strategic supplier agreement with Raytheon, which we announced in July 20, it I'd seen as all examples of programs, helping to offset this year as revenue headwind.
737, Max production.
Company is also benefiting from new process technologies exemplified by our 200 million dollar 10, your contract to supply Middle River Aerostructures with leap engine to sell components for the 83 20 platform.
This business is utilizing two comments proprietary burst of car composite process technology.
Well deliver over $10 million.
In 2020 revenue.
Well the full ramp up to 20 million in 2021.
And is now all being fully produced at our wireless Mexico performed center.
The Noble's acquisition closed on October 29 team will also provide additional revenue this year.
Finally, all the hard work pass through years, putting process improvements restructuring leadership development cost discipline.
And other initiatives will also contribute and 2020.
Therefore to comments 2020 revenue growth.
Based on both spirit and Boeing following through on their public comments regarding their production plans.
Should be flat to slightly down low single digit.
In the first half of Twentytwenty.
And up low single digits in the second half of 2020.
Come out the last few years, certainly more modest but under the circumstances with 737 737 Mac situation. We feel it's an excellent outcome shows the company's development in the past few years.
And we will deliver on our commitment.
Now, let me provide some additional color on our markets products and programs.
Beginning with a military and space sector, we posted fourth quarter revenue of 89.5 million up 22% versus 2018.
20, and I think we drove sales nearly 325 million again of over 17% over 2018, reflecting growth across a broad variety of defense platforms.
Including nearly every aspect of our product portfolio.
We saw a double digit increase in demand for a military fixed wing aircraft programs, particularly strong shipments from the F 15, and F 35, as well substantial top line expansion for helicopters like the Apache Black Hawk and should not.
In addition to Patriot missile system rose to become a lot of our top sellers last year.
We saw significant growth across many other military and space applications.
We are well positioned for future growth across our defense platforms, and 2020 again, it all sectors and began the year, where the backlog roughly 450 million up 32% year over year.
Within our commercial aerospace operations fourth quarter sales declined slightly year over year 83 million WAPA 2019, as a whole revenue grew 15% to just over 350 million.
Commons growth continues to be fueled by large narrow body aircraft platforms.
Nearly all which saw a double digit growth last year.
Well Boeing is still our largest customer.
And the 737, Max a major contributor revenue.
Tom as expansion with Airbus Since 27 team has clearly help and put important balance in our portfolio.
The Airbus Athree 20, and eight to 20 families. In particular have become very important factors in our growth trajectory and Airbus and told represents a larger larger share both directly and indirectly into Commons commercial commercial revenue last quarter.
The backlog within our commercial aerospace sector stood at roughly 431 million at the end of 29 team.
Positioning us well for solid performance going forward.
Despite some uncertainty with the 737 matched production schedule, we remain optimistic about the commercial market given the breadth of key platforms. We serve in this market in 2020.
With that of course, we view our financial results in detail Chris.
Thank you Steve.
Good afternoon, everyone. As a reminder, please see the company's filings in today's press release for further descriptions of matters under discussion during the call.
2019, as Steve discussed was a year of great accomplishment for to common that included strong top line growth.
Solid margin expansion adjusted EBITDA growth in a variety of wins that position us well for the future or.
Hard to common operating system and its performance Center focus factory approach continues to be a catalyst and driving the improvement of the year over year operating results, we feel confident that our efforts to broaden our customer base and streamline the business will continue to serve as well as we head into 2020 and beyond.
Now I'll move to the details of our overall results.
Review of the fourth quarter 2019.
Revenue for the fourth quarter of 2019 was 186.9 million.
Versus 164.2 million in the fourth quarter of 2018.
The performance was driven primarily by 16.1 million of higher sales within the military and space sector and to a lesser extent 3.6 million of greater revenue from our commercial aerospace customers.
But then markets all increased demand across a variety of platforms and programs.
Ducommuns overall backlog at the end of the fourth quarter was approximately 910 million a new record for the company.
As a reminder, we define backlog as potential revenue based on customer purchase orders and long term agreements with from fixed prices and expected delivery dates of 24 month or less.
Our focus factory approach at our performance centers continues to drive strong margins as our gross margin was 21.5% in the fourth quarter versus 19.9% in the prior years comparable period.
The increase year over year was primarily due to the impact of favorable volume along with the manufacturing efficiencies.
This was our highest gross profit percentage quarter since the second quarter of 2010.
And our Q4 gross profit amount of $40.1 million was the highest gross profit dollar result in the company's history.
That's DNA was 24.9 million in the fourth quarter.
Versus 22.5 million in the fourth quarter of 2018 with the increase primarily reflecting incremental that's DNA from the noble's business and higher compensation and benefit costs.
The company reported operating income for the fourth quarter of 15.2 million or 8.1% of revenue.
Compared to 6.3 million or 3.8% of revenue in the prior period.
The year over year improvement was due to higher revenue higher gross profit and the fact that the prior year included in aggregate 4.5 million of restructure charges in refinancing costs.
The 2019 fourth quarter by comparison included a total of point 6 million of purchase accounting adjustments and refinancing costs on an adjusted basis operating income was 15.8 million.
8.4% of sales in the fourth quarter of 2019 versus 10.8 million or 6.6% of sales in 2018.
Interest expense was 5.2 million in the fourth quarter of 2019 versus 3.8 million in the prior year period due to higher debt levels related to the company's acquisition of Noble's in October 2019.
As announced on December 20, 2019, we executed a debt refinancing which included entering into a term loan a 140 million to clear or 100 million dollar revolver as well as pay down some of our term loan b, which carries a higher interest rate.
The company reported net income for the fourth quarter of 8.9 billion EUR 75 cents per diluted share compared to net income the point 7 million or six cents per diluted share for the fourth quarter of 2018.
The year over year increase was primarily due to 7.4 million of higher gross profit and lower restructure and other charges as I previously mentioned.
Adjusted net income was 9.5 million or 80 cents per diluted share in the fourth quarter in 2019 fourth quarter versus 5.2 million or 44 cents per share in the prior year period.
Adjusted EBITDA for the fourth quarter of 2019 was 25.2 million were 13.5% of revenue compared to 19.4 million or 11.8% of revenue for the comparable period in 2018, an increase of 170 basis points.
Now, let me turn to the segment results.
Electronic systems or electronic systems segment posted revenue of 96.3 million in the fourth quarter of 2019 versus 85.3 million in the prior year period.
These results reflect a 9.3 million increase in sales to our military and space customers, while commercial aerospace shipments were down slightly year over year.
Electronic systems posted operating income for the fourth quarter of 9.9 million or 10.2% of revenue versus 7.5 million or 8.7% of revenue in the prior period.
Excluding restructure restructuring charges last year electronics adjusted operating margin was 11.5% for the 2018 fourth quarter with the year over year decline, reflecting product mix.
Structural systems.
Our structural systems segment posted revenue of 90.6 million in the fourth quarter of 2019 versus 78.9 million last year.
Year over year increase was due to 4.9 million of higher sales across our commercial aerospace applications, primarily large airframes single aisle platforms, and a 6.8 million increase in revenue within the company's military and space markets.
Structural systems posted operating income for the quarter of 11.6 million or 12.8% of revenue compared to 5.7 million or 7.2% of revenue last year.
Excluding restructuring charges and inventory purchase accounting adjustments structures adjusted operating margin was 13.4% for the 2019 fourth quarter and 8.7% for the 2018 fourth quarter the year over year operating margin improvement reflects favorable product mix and improved manufacturing efficiencies.
Corporate general and administrative expense cdna expense for the fourth quarter of 2019 was 6.3 million or 3.4% of revenue versus 6.9 million or 4.2% of revenue in 2018.
The year over year decrease was due to lower restructure charges of point Threemillion and lower general corporate expense as a point 2 million.
Turning to liquidity in capital resources.
We generated 31 million of cash from operations in the fourth quarter of 2019, and 51 million for the full year compared with 13 million during the prior year quarter and 46 million for 2018 in total.
We remain committed to managing working capital effectively and improving asset utilization to maintain solid margins and generate as much operating cash as possible.
In terms of capital expenditures, we spent 3.9 million during the fourth quarter.
Good point 8 million for the full year, we anticipate spending 16 to 18 million in 2020 to support new programs and product development.
Well again pleased with our full year in fourth quarter performance remain upbeat about our future results I'll now turn it back over to Steve for his closing remarks.
Okay, Thanks, Chris and well, we certainly hopefully it provided I think some important information for our shareholders today as we begin 2020, a again Uh huh.
Few final thoughts here at 29 team was certainly a terrific year.
For the company was just three years ago. Despite the short term challenges. The Max you know I believe we have a lot of a runway ahead.
2020 will be one that sees increasing content with Airbus continued strength across all our defense platforms.
And determine focused on serving Boeing spirit as we support this important program along with the subsequent resumption of production.
I'd also add that we do have the right footprint cost structure discipline and operational leadership to continue developments at the company and strengthen it this year.
Finally, you can be assured that every one of the company is fully engaged as you move through the first quarter.
I like our track record during the past few years.
Despite the short term challenge, we will deliver on our commitments.
With that I'll turn it over for questions Alexander.
At this time I would like to inform everyone or did you asked a question. Please press star one on your telephone keypad again that star one to ask a question.
We have your first question from Ken Herbert from Canaccord. Your line is open.
Hi, good afternoon, Steven Chris.
Good afternoon.
Hey.
The year Steve.
I appreciate the commentary you've given on the impact of the Max from a topline standpoint, but can you provide any color on how we should think about gross margins in the first half of the year in particular are you able to maintain.
20% gross margins with volume headwinds or any more detail on that would be great. Yeah. Yeah. No problem. Okay, I say, great question, and Chris I talked about it we figured we get to it on the Q on a so just a or at least on the operating income margin can.
We did a for the whole year in 2019, a 7.8% roughly okay and we think that you know for the year flattish to that is where we're going to be.
So.
Flattish flattish to run rate of op margins in 29 team.
Okay.
All right and I'm guessing that would just with volume you'd probably see some.
Obviously stronger second half of your relative to the first half of the year, Yeah, Yeah, well said, yes, that's right get up.
Okay.
And I just wanted to elaborate I think you mentioned Steve.
Going to start to ship to spirit in March and I think you mentioned Boeing in April with fee.
I'm guessing youre your shipments would largely be in line with the numbers that that's certainly spirit had put out on what they plan to deliver this year or do you expect to deviate much from that no absolutely in line Ken everything is everything is locked down from what we heard from spirit.
You know, we're expecting a on Tuesday of next week to get the their production schedule from them officially.
So everything is in line to their public comments.
Okay.
That's excellent and then just switching gear. Obviously, you continue to see great success on the on the defense side can you just provide a little bit more detail on how you think defense grows in in 2020 or.
You really benefit it obviously you from F 35 minutes 15, and some of the rotorcraft, how do we think about the moving pieces in 20 on the defense side.
Yeah, I guess couple of things first obviously my comments, we've put a lot of working through the last couple of years me I think we've we've really improved our defense operations, which were not very good when when I. When I got here. We also have built I think the right type of BD team and I think going forward I mentioned, a little bit. So I won't gets a lot of detail I think we have some some great. Thanks.
You'll hear more this year about you know driving more structures business and defense. So stay tuned for that but I also feel that if you look at a Northrop if you look at a Lockheed our penetration in those campuses is fairly low.
So I see I see a lot a lot of runway ahead.
Forward to common in the in those areas.
Okay perfect I appreciate the color I'll pass it back there Ken Thanks, very much Ken.
What was it player.
We have your next question from Mike Crawford from B. Riley <unk>. Your line is open.
Thanks, maybe if we just go into the a potential parameters around margin impact. If we can if if we consider you know as you know and your K that the numbers that spares talking about is 216, Shipsets and I'm 2020, if that's you know.
Mostly in the back nine months to the year, you're talking about mid Twentys a month and then so you gave your your margin you know thoughts around around that but what about the next year.
Perhaps the monthly run rate is closer to two acts that you know how and if we have you know as expected yea or otherwise and defense and and the rest of your business you know what about.
Any thoughts on what the margins might look like in the following year.
Yeah, Yeah, Mike.
I'll start with so when you look at this year and I agree with sort of you know how you laid it out. So it is there's a reason we have well diversified portfolio. There's this these pointing to you know the defense side will step up a little bit this year. So as we take a little step back with Max as we think setback with Max this year the structures margins.
We'll be there will be challenged to be where we were as we ran through 2019, but it's the growth on the defense side that will sort of balance that out and keep us in the range of performance that we're talking about as you move out another year and if the rate doubles up as we head into that year, then incrementally we'll get that margin back on the structure side and again plan is that we continue to we sort of turn.
The corner here over the next few years with defense. So we're looking to keep going there. So that a lot of gives us the the expansion possibilities as we move into 2021.
[noise] right, but you know a the regarding the question of margin impact is that two specific might look I mean, I guess I assume that look you know we thought about how are you guys talked today I think that.
So oh this year.
Sorry, obviously, there's a lot of things are run over but we feel good about ill talk at least about our op income margin, but I would say if you look at 2021, if that goes back to act, we're going to expand margins right I mean, we're going to get the scale.
And we're going to get the drop for so I would say that if it goes to X 2020, Twond 2021 looks looks real good.
Right May I'll take one last stab at it and then and then pass the baton, but let's say, we get a say 737 production back into the you know around 50, a month or something like that in your other bins, it's still growing you're being very successful like more of a longer term operator.
18 model, you know target for ducommun on say gross and or EBITDA type margins given your current footprint and your expanded you know a first the core production and Glen Messina et cetera et cetera.
Yeah, no I'm so.
Maybe I'll for later this since your third triad, Michael I'll try to another way to let's let's hone it a little bit more on just our baseline which is where we're at this year what doesn't matter, what you're talking gross margin or operating margin again, we're going to we're going to battle the sort of keep all right now if that scenario plays out were Stephen are both pointing to is that's upside that's expand.
And as we head into 2021, and I think we've been on a journey I mean, we've gone from mid 17, the midnight teams and now 21 at the gross profit level and it's how do we take another step in that direction and it's going to take that volume along with the improvements we're talking about to get us or and my guess is Steve You're asked me if there's headroom as a 21 there is.
Okay, well. Thank you okay. Thanks.
We have your next question from Michael Ciarmoli from Suntrust. Your line is open.
Hey, good afternoon guys.
Nice close to the year here how are you.
Maybe just to stay on stay on the margins a little bit Steve you mentioned the employee furlough, but it is pretty impressive that you guys are going to be able to maintain flat margins given the volume declines what else are you doing with which some of the fixed assets. You know how are you able to.
You know kind, a re purpose or reuse any of that excess capacity and then I guess, if we think about.
Let's be optimistic and if those rates do double in 21.
What do you have to do then to kind of free up some of that capacity or how are you thinking about bringing employees back on.
Yeah, I'll kick it off and Steven certainly jump in here anywhere, but I mean on the question related to you know what we're currently do enter as these as these assets or are you know being taken a step back on the level of utilization. The benefit. We have is you know we're not we don't have one facility that is our Mac 737 facility. The that's care.
In the brunt of all of this headwind that's coming at US. So the headwind is splintered out amongst three to four facilities that all have you know pieces of that and so with that and then with having the other commercial and then the defense customers that we have the can they can pick up the slack. That's what gives us the increased flexibility versus if we were sitting there with one facility there.
Is going to take on all this headwind. So that's that's why we can you know what's reflects what we did that's why we feel like we can manage and certainly as Steve alluded to first half of the year lets a little more challenging and then as the growth is kicking in all the other things along with the Max rate picking up the second half the year certainly helps out and then as we go forward than that.
Again makes it easier to sort of ramp up because you're not talking about.
We're not talking about for a company our size of hundreds of people what one location you're talking about you know sort of just ramping it up a little bit and this I just a couple of things just you know just feel they might we got you know we have the capital already in place. Okay. So as I mentioned in my remarks, Okay. We're ready for the ramp up okay. Fortunately because of some new programs and structure.
As a defense, we're able to redeploy people and so that also help us and lastly, I'd say is just when you look at our businesses either in the past are going forward. The last couple of years. I mean, you know we have we have fairly good cost discipline and were fairly lean. So it's it's not like all of a sudden you know we we've got to do a lots of different things I mean weve.
On some things in January we got ahead of it I think again, we're going to you know a b in good shape and 2020.
Got it and then if I look at 2020, just on the topline you gave sort of.
The outlook there, but in aggregate I mean, it should we expect the organic growth to be down and you. Obviously got more contribution from noble's clearly to the rest of the portfolio sounds like it's growing absent the Max headwind, but.
That doesn't mean, it seems like you're going to have a pretty substantial Max headwind. So organically, obviously down noble's contribution gives yet so some of that whole.
Yeah, I think couple they so you know as I mentioned in the remarks, you know were first half a little bit tougher flattish to a couple of points down.
Second half up a single a and so we still expect good growth with with Airbus. Obviously, you know we've got a lot going on in defense.
Got noble's as I talked about so you know I kind of feel that you know that situation is you know we've already got the orders right for the most part. So you know we just about it is about executing it obviously you know where we're expecting spirit to start sometime in March and boys soon as April for Dave Dave Calhoun.
That's where we are.
Got it and that's just the last one of the backlog I mean, you called out the strength in military.
Big jump in that in that military backlog sequentially was noble's a factor in driving that and then can you just maybe point to just some of the specific programs that you know whether they're new wins follow on orders, that's driving some of that military growth.
No no yeah, noble's as a part of that I mean, they do bring with them they bring with them their backlog that.
You know that we acquired at the valuation days. This first quarter, you've seen noble's pop in there yeah, but a majority of the increase in the backlog for defense was either current programs like F 35, and some other things and add new programs. So it's a nice mix of both.
Got it all right I'll jump back into queue. Thanks, guys.
We have your next question from Edward Marshall from Sidoti and company. Your line is open.
Hey, guys. Good evening, how are you.
Good.
I'm curious what what's what's the anticipation on interest expense for 20 Twond.
Yeah on 2020 were I mean, we're anticipating it if you look at Q4, that's probably a fair affair view of what we have coming at us.
'cause, it's we picked which we definitely picked up like a couple of points with our term loan switch out for what we did pay down but that we're going to run sort of at that rate.
So about $2 million to $3 million of incremental interest expense in 18 1920 versus 19.
And then it looks like you know if we if we just we look at the tax rate just thinking through the tax rate assumptions I think traditionally we've talked about it.
18% to 19%, 18% to 20% what do you what would you normally yeah. No. If you look at the tax rate I mean, we're going we're gonna run more and the the 19% to 20% rate is where we're gonna be okay. Yeah, [laughter]. So given the comments given the comments around revenue and then flattish funny I op income for 2020 should <unk> <unk>.
Back to that S declines in 2020 is that is that appropriate given the current environment.
No no I wouldn't I wouldn't say that and just told one second because that's going to go back on the interest for a second yeah, we're really looking more.
We're probably looking more at a run rate of about four and a half.
I'm, sorry about four and a half for quarter on the run rate as we look into 2020.
So flattish even <unk>, even though debts up yeah, that's up rates down little bit that's going to offset.
And so you think in that environment, you still grow you still grow up yes, yes, I I just yeah, Steve I think you know a over the year, where your it will be will be will be up.
Okay. Okay, I'm, just kind of to work through the math that and then for the year will be up for the year. It no more more second half.
Right Okay.
And as I look at it's like I think you probably touched on this a scenario a few times as well.
Right.
<unk>.
Robert Oh.
I think we lost said as we get we lost anybody.
Following up.
I think about the color, it's true that in being able to sustain the operating margin.
And kind of running in the <unk> I mean have you made up.
The differential between you know that two thirds of revenue that's going to be be lost in 2020 or pushed out in 2020.
But you would have previously received and all of that has been.
Under new programs and the acquired revenue will offset that.
Okay, and pushing that you get your question, how they cut out there not let's say lets make shed quite krisko. Yeah, you say back yeah. Yeah. Just so what I think I was hearing you say is as we're losing we have the headwind with backs and margin related impact on cost structure under absorbing.
And do we already have it all fill back up so as we point to no margin impact that were that that's where we're at is that what you're asking.
Right right right now and able to to replace that revenue.
Well, Yeah, I think I think is to Steve's point I mean, when you look at the full scale of next year. The answer is yes, I think when you look at it day to day month to month week to week at all of our performance centers. It's a different story at each one. So you know if you go to Oh structures facility that is losing some of the revenue we don't necessarily have that filled day one and.
That's why we do think theres more pressure there on the margin in the first half of the year you know until we do get the other till we get some other growth in there to help it and again some of it is will be we show and we flex a little more on the defense side, and we overdrive, a little more there to make up for that as well.
Got it okay, thanks pretty much all right. Thanks.
Again, if you would like to ask a question. Please press star one on your telephone keypad again that is tar want to ask the question.
We have your next question from Becky Vincent from Vincent and your prices. Your line is open.
Thank you congratulations on the great results.
Thanks, I could have the opportunity to meet you one day.
But my question is really about the F. 35 program you highlighted that several times throughout the presentation and I was curious if your primary customer on that was Lockheed Martin or some of their prime.
[noise] [noise] I'm not sure I want to disclose that yeah, probably not because we're probably not going to disclose that.
Okay I didn't realize it was.
A difficult question I'd say, it's it's not a difficult questions is.
That's fine yeah.
Thank you.
Thank you.
We have your next question from Ken Herbert from kind of course your line is open.
Hi, Steve I, just wondered if you can follow up on the Max and I'm just curious if it can provide any more specifics on I can appreciate you've got people in Monrovia, and you've got people of course and Parsons another.
Facilities can you provide any more short of specifics on on how that.
Sort of the work flow or the volume for the Max you know maybe break so.
And I'm curious just curious if one wireless currently or in the future can do more on the Max and then second if the steps you've taken around head count in the fixed cost structure, if any that sort of spills into the second quarter or fall that is as largely flow through in the first quarter.
Yeah, Hey, Ken it's Chris.
Okay I'll start with you know when you look at the first quarter to second quarter, I mean, assuming that assuming that what unfolds in terms of the start work time and the production levels ramping back over over a reasonable period of time holds to to where we're thinking it does now than what we've done in Q1 should should.
Actually units, where we need to.
And that's that's sort of the game plan on that aspect.
As you as you as you then look at.
Well so on that just real quickly you know Steve mentioned, you know we're locked in with spirit, we're gonna get their work about where we're headed and then on Boeing we're still we're still sorting out exactly what it means for each one of them back to your question on sort of which facilities. You do you have you know you've got the main facilities Monrovia because back in New York Parsons, Kansas.
You also have our gardena facility doing some as well so it is spread out.
And that's why you know thats why the impact is sort of what it is and why we think we can we can you know mitigate some of the impact that that somebody looking at it might think we're gonna have.
But that's that's where we're you know that's that's where we're at and it is the split fairly evenly whether it's you know the fire steels up in New Yorker inlets or.
Boilers et cetera. So so it's a it's a fairly fairly even split.
Okay. Okay. So yeah, why Miss a there they got their heads down versus the core right now, but you know there still support Monrovia little bit on the 737 spoilers. So you know we've been able to just because of again a lot of success over the last six to 12 months in defense.
No more and more with Airbus, Okay, and a you know the way we run you know the operations and kind of staying ahead of that we're able to you know I think to a lot of good things last six months.
It's helped US obviously as you started the year.
Yes is there any opportunity to move any of the spoiler work or more of a downtick why most out of Monrovia, yeah, [laughter] not well, it's a specialized process. We have some you know legacy tanks, and Monrovia, which aren't going to be able to go anywhere. So you know I think for the most part they do some work on the spoilers, but.
There's a little bit of a niche operation in my Rovi, that's got its kind of here to stay.
Okay Fair enough and just one final question I mean, not to go too far ahead of it here, but as you think about obviously sort of a roughly doubling of Max volume from 20 to 21, with obviously growth and other programs.
Are you would all concerned Steve about just the ability to sort of rehire staff to support the higher rates or how have you taken steps to mitigate that potential risk down the road yeah, well sure. We'll first thing is we are fortunate like less than 3% on the furlough that was you know real a wonderful thing for ducommun right. Because you know the Max's you know.
An important program within the company, but I have no I have no concerns a and because we're so lean you know we're able to keep most of our staff.
Excellent. Thank you very much I cant thanks.
We have your next question from Michael Ciarmoli from Suntrust. Your line is open.
Hey, guys. Thanks for taking the follow up your maybe Chris I, just want to make sure yeah from a modeling perspective here you know looking at the electronic systems margins. They were weaker in the current quarter I think you guys called out mix, but.
We look into next year and the ability to hold that corporate margin flat what it it would seem like some of the burden falls on that electronic system to drive some expansion. There you know what maybe just more of the mix issue in this quarter and what gives you the confidence that you get that expansion in electronic next year, yes no.
It's you're exactly right, that's where we're headed I mean, the that when we talk about the diversified company and that's the one business, helping the other electronics business you know we build it as Steve alluded to gotten to a better book of business as we've exited the year going to have a better rate of volume, it's going to happen throughout the year in.
Most of those performance centers and it will be that the volume. It is the big part of being able to drive that extra margin. The margin that was there you know this year in the you know that we came through you know we mentioned 10 to 11, historically sort of where we Ben and we've got a pop a little more volume to start to get that accretion and I think that's what we're looking at where as we head here to lifted.
Yeah, Mike scale scale is gonna be our friend this year in and electronic system Yep.
Got it that's what I figure and then just maybe the last one you talked about some of the growth in those military programs is there any concern at all you know looking at this budget certainly some of these legacy aircraft programs a fixed wing look to be pretty big Bill payers I mean, there's a big cut their in Black Hawk.
Sure no if the volume to aren't huge so it's a couple units year in there, but but any any concerns that you see maybe some of the funds flow out of legacy into some of these newer modernization programs.
I think it's a I think a directionally, we're gonna be fine I mean, obviously, we're you know we're on Apache as well and that's you know the up going straight up type of thing, but I feel that even if we do see I. It's a fair play we do see a little bit head when some of those other programs, we're winning new business right because we now.
The development team you know that his focus then going into these big you know defense primes and making it happen.
Mike You got you got that.
Operator out there.
Okay. There appear to be no further questions. Okay sounds like turn you back and that's why I didn't hear him. Okay. Great. Okay. So let me just I'm just wrap it up again I want to thank everybody.
Calling in today.
Okay, a lot of information to get through a thought we had an excellent excellent discussion hopefully a we were able to buy enough information folks understand a little more about what's going to happen to 2020, and yeah I feel great about where we are I feel great about 2021, 2022, and you know, let's keep going and we look forward to speaking to you.
You are at the end of the first quarter again my thanks, Thanks, everyone.
Ladies and gentlemen. This concludes today's conference. Thank you for your participation and have a wonderful day you may disconnect.
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