Q2 2024 Ducommun Inc Earnings Call
Operator: Good day, everyone, and thank you for standing by. Welcome to the second quarter 2024 Ducomin Earnings Conference Call.
Okay.
Speaker Change: Good day, everyone and thank you for standing by welcome to the second quarter 2020 for Ducommun earnings Conference call.
Operator: At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To participate, you will need to press star 11 on your telephone. You will then hear a message advising that your hand is raised. To withdraw your question, simply press star 11 again. Please be advised that today's conference is being recorded. Now, I will pass the call over to Ducomin's Senior Vice President and Chief Financial Officer, Suman Mookerji. Please go ahead.
Speaker Change: At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to participate you will need to press star one one on your telephone you were down here a message of dicing. Your hand. This raced to withdraw your question simply press Star one again please.
Speaker Change: Be advised that today's conference is being recorded now I will pass the call over to Ducommun Senior Vice President and Chief Financial Officer, Tamara and Milka G. Please go ahead.
Suman Mookerji: Thank you, and welcome to Ducommon's 2024 second quarter conference call. With me today is Steve Oswald, Chairman, President, and CEO.
Thank you and welcome to Ducommun Strange 24 second quarter Conference call with me today is Steve Oswald Chairman President and CEO.
Suman Mookerji: I'm going to discuss certain limitations to any forward-looking statements regarding future events, projections, or performance that we may make during the prepared remarks or the Q&A session that follows. Certain statements today 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 Private Securities Litigation Reform Act of 1995 and are therefore prospective. These forward-looking statements are subject to risks, uncertainties, and other factors that could cause actual results to differ materially from the future results expressed or implied by such forward-looking statements.
Speaker Change: To discuss certain limitations to any forward looking statements regarding future events projections or performance that we may make during the prepared remarks or the Q&A session that follows.
Suman Mookerji: Although we believe that the expectations reflected in our forward-looking statements are reasonable, we can give no assurance that such expectations will prove to have been correct. In addition, estimates of future operating results are based on the company's current business, which is subject to change. Particular risks facing Ducommon include, amongst others, the cyclicality of our end-use markets, the level of U.S. government defense spending, our customers may experience delays in the launch and certification of new products, timing of orders from our customers, legal and regulatory risks, The cost of expansion and acquisition, competition, economic and geopolitical developments, including supply chain issues and rising or high interest rates, the ability to attract and retain key personnel and avoid labor disruptions, the ability to adequately protect and enforce intellectual property rights, pandemics, disasters, natural or otherwise, and risk of cybersecurity attacks.
Speaker Change: These statements today that are not historical facts, including any statements as for future market conditions results of operations and financial projections are forward looking statements under the private Securities Litigation Reform Act of 1995.
Speaker Change: From our perspective. These forward looking statements are subject to risks uncertainties and other factors, which could cause actual results to differ materially from future results expressed or implied by such forward looking statements.
Although we believe that the expectations reflected in our forward looking statements are reasonable we can give no assurance that such expectations will prove to have been correct.
Speaker Change: In addition estimates of future operating results are based on the company's current business, which is subject to change particular risks facing ducommun include amongst others. The cyclicality of our end use markets the level of U S government defense spending our customers may experience delays in the launch and certification of new products timing.
Speaker Change: The timing of orders from our customers legal and regulatory risks the cost of expansion and acquisitions competition economic and geopolitical developments.
Speaker Change: Supply chain issues, and rising or high interest rate the ability to attract and retain key personnel and avoid labor disruption the ability to adequately protect and enforce intellectual property rights and that makes disasters natural or otherwise and risk of cyber security attacks. Please.
Suman Mookerji: Please refer to our annual report on Form 10-K, quarterly reports on Form 10-Q, and other reports filed from time to time with the SEC, as well as the press release issued today, for a detailed discussion of these results. Our forward-looking statements are subject to those risks. Statements made during this call are only as of the time made, and we do not intend to update any statements made in this presentation, except if and as required by regulatory authorities.
Speaker Change: Please refer to our annual report on Form 10-K quarterly reports on Form 10-Q, and other reports filed from time to time with the SEC as well as the press release issued today for a detailed discussion of the risks are.
Speaker Change: We're looking statements are subject to those risks statements made during this call are only as of the time made and we do not intend to update any statements made in this presentation, except if and as required by regulatory authorities.
Speaker Change: This call also includes non-GAAP financial measures. Please refer to our filings with the SEC for a reconciliation of the GAAP to non-GAAP measures referenced on this call.
Suman Mookerji: This call also includes non-GAAP financial measures. Please refer to our filings with the SEC for a reconciliation of the GAAP to non-GAAP measures referenced on this call. We filed our Q2 2024 quarterly report on Form 10-Q with the SEC today.
Speaker Change: We filed our Q2 2024 quarterly report on Form 10-Q with the SEC today.
Suman Mookerji: I would now like to turn the call over to Steve Oswald for a review of the operating results. Thank you.
Speaker Change: I would now like to turn the call over to Steve Oswald for a review of the operating results Steve.
Stephen Oswald: Okay, thank you Suman, and thanks everyone for joining us today for our second quarter conference call. Today, as usual, I'll give an update on the current situation at the company, after which Suman will review our financials in detail. Let me first start off this quarterly call with Ducommon's Vision 2027 Game Plan for Investors. Strategy and vision were developed coming out of the COVID pandemic over the summer and fall of 2022. Unanimously approved by the Common Board in November of 2022, and then presented to investors the following month in New York, where we got excellent feedback.
Steve Oswald: Okay. Thank you so much and thanks, everyone for joining us today for our second quarter conference call today, and as usual I will give an update on the current situation at the company.
Speaker Change: Afterwards, <unk> will review our financials in detail, let me first start off its quarterly call with Ducommun vision 2027 game plan for investors straw.
Stephen Oswald: Since that time, Commons Management has been executing the Vision 2027 strategy by consolidating its facility or rooftop footprint, increasing the revenue percentage of engineered product and aftermarket content, continuing its Targeted Acquisition Program, executing our offloading strategy with defense primes and high growth segments of the defense budget, and by expanding content on key commercial aerospace platforms. All of us here have a high level of conviction in the Division 2027 Strategy and Financial Goals and believe the many catalysts ahead present a unique value creation opportunity for shareholders. The Q2 2024 results were also a very good example of our strategy working. Q2 was a record revenue and gross margin quarter. This follows up the strong start we experienced in the first quarter.
<unk>: Strategy and vision.
<unk>: Philip coming out of the Covid pandemic over the summer and fall of 2022.
Steve Oswald: Unanimously approved by the board in November of 2022.
Steve Oswald: And then presented to investors the following months in New York.
Steve Oswald: We got excellent feedback.
Steve Oswald: Since that time, the comments management has been executing the vision 2027 strategy.
Steve Oswald: Consolidated its facility our rooftop footprint.
Steve Oswald: Increasing the revenue percentage of engineered products and that.
Steve Oswald: Aftermarket content.
Speaker Change: Continuing its targeted acquisition program.
Speaker Change: Executing our off loading strategy with defense primes and high growth segments of the defense budget.
Speaker Change: And by expanding content on key commercial aerospace platforms.
Speaker Change: All of US here have a high level of conviction in.
Speaker Change: And the vision 2027 strategy and financial goals.
Speaker Change: I believe that many catalysts ahead present, a unique value creation opportunity for shareholders.
Speaker Change: The Q2 2024 results were also very good example of our strategy working.
Speaker Change: Q2 was a record revenue and gross margin quarter follows up strong start we experienced in the first quarter revenues were $197 million.
Stephen Oswald: Revenues were $197 million, growing 5.2% over the prior year. This was our fourth consecutive quarter with revenues exceeding $190 million. Strong growth in our commercial aircraft business across Boeing, Airbus, and BusinessJet helped drive revenue during the quarter. We saw significant growth on the A220 program, where we make the skins for the entire fuselage, along with good growth in twin-aisle platforms as well. Yet revenues, we're higher driven by work; we do it for both.
Speaker Change: Growing five 2% over the prior year. This is our fourth consecutive quarter with revenues exceeding $190 million.
Speaker Change: Strong growth in our commercial aircraft business across Boeing Airbus and business jet helped drive revenue during the quarter.
Speaker Change: We saw significant growth.
Speaker Change: The eight two 'twenty program.
Speaker Change: When we made the skins for the entire fuselage, along with good growth and twin aisle platforms as well.
Speaker Change: This is yet revenues were higher driven by work we do for Gulfstream.
Stephen Oswald: We also saw an increase in our commercial revenue as we built buffer stock to support the Monrovia facility closure and transfer to DCO's Guaymas, Mexico operation. Q2 was also supported by us building a higher production rate than SPR and VA to allow for efficiencies, workforce retention, and level loading of our production. Overall, commercial aerospace is up 13% from Q2 2023. We have now grown year-over-year revenue in our commercial aerospace business for 12 consecutive quarters, demonstrating the resilience of our business even in the challenging OEO environment with SPR and VA. The other good news for DCO's commercial aerospace business is the fuselage skin project for the 737 MAX. That's spirit!
Speaker Change: We also saw an increase in our commercial revenue as we built buffer stocks to support the Monrovia facility closure and transfer to <unk> Mexico operations.
Speaker Change: Q2 was also supported by US building, a higher production rate that SPR NDA to allow for efficiencies workforce retention and level loading of our production.
Speaker Change: Overall commercial aerospace was up 13% from Q2 2023.
Speaker Change: We have now grown year over year revenue in our commercial aerospace business for 12 consecutive quarters.
Speaker Change: Demonstrating the resilience of our business, even in a challenging environment with STR.
Speaker Change: Okay.
Speaker Change: The other good news for Dcs commercial aerospace business is the fuselage skin project for the 737 backs at spirit.
Stephen Oswald: which we have been working on. We now anticipate having the FAI approved in September and shipping the first production set in October. 2025 revenue for the foreskin should be over $3.5 million at 15 ship sets a month. Keep in mind this is less than 10% of the fuselage.
Speaker Change: We have been working on.
Speaker Change: We now anticipate having the FAA approved in September and shipping the first production set in October.
Speaker Change: 2025 revenue for the fourth skins.
Speaker Change: B over $3 $5 million at 15 ship sets a month.
Speaker Change: Keep in mind this is less than 10% of the fuselage. So.
Stephen Oswald: So stay tuned for more news as we move forward and gain more program share. Our defense business grew 3% year-over-year, with strong demand for the F-15, Black Hawk, and radar platform, as well as selective naval-submarine programs. However, growth was partially offset by declines in programs such as the JSF and F-18, which we have discussed in the past.
Speaker Change: So stay tuned for more news as we move forward and gain more program sure.
Speaker Change: Our defense business grew 3% year over year with strong demand for the F 15, Blackhawk and radar platform as well as selective naval submarine programs.
Speaker Change: Growth was partially offset by declines in programs such as the J S F.
Speaker Change: <unk>, which we have discussed in the past and the F 16.
Stephen Oswald: A pause in the TOW missile production contributed as well, but we now have a new PO from RTX and anticipate starting shipments again in July 2025 from Guaymas, Mexico. Defense Business achieved $100 million in revenue for the third time in the last four quarters, and we remain optimistic about the growth ahead. On offloading from RTX, our SPY-6 radar circuit card business grew over 100% from Q3 last year, and we are now tracking for over $10 million in revenue in 2024 for just one CCA.
Speaker Change: A pause in the tow missile production contributed as well, but we now have a new appeal for Marty actually anticipate starting shipments again in July 2025 from wireless Mexico.
Speaker Change: The fed's business of 100 billion revenue for the third time in the last four quarters.
Speaker Change: And we remain optimistic about the growth ahead.
Jacky: On Offloading from <unk> six radar circuit card business grew over 100% from Q3 last year Jacky.
Speaker Change: Checking now for over $10 million in revenue in 2024 for just one Ccs.
Stephen Oswald: We have the next card for the SPY-6 program in process, and that will be in production next year. Another record highlight in Q2 was gross margin of 26% for the quarter, up 460 BPS year over year from 21.4% and 140 BPS compared to the first quarter as we continue to realize benefits from our strategic value pricing initiatives, productivity improvements, favorable product mix, growing engineered product portfolio with aftermarket, and initial restructuring savings.
Speaker Change: The next chart for the <unk> program and process and that will be in production next year.
Speaker Change: Another record highlighted Q2 was gross margin of 26% for the quarter.
Speaker Change: 460 bps year over year from 21, 4% and 140 bps compared to the first quarter as we continue to realize benefits from our strategic value pricing initiatives productivity improvements favorable product mix growing engineered product portfolio with aftermarket and initial restructuring savings.
Stephen Oswald: In addition, our Berryville, Arkansas facility is now down to less than 10 people to maintain capability on a single platform until the receiving plant is certified. Our Monrovia, California facility also significantly reduced headcount this month, with most production activities shut down, and the team is down to less than 20 employees. The Monrovia plant will be fully closed by the end of September.
Speaker Change: In addition, our variable Arkansas facility is now down to less than 10 people to may take to make capability maintain capability on a single platform for receiving until we receive a plan is certified.
Speaker Change: Our Monrovia, California facility also significantly reduce head count this month with most production activity shutdown and the team is down to less than 20 employees.
Speaker Change: The Monrovia plant will be fully closed by the end of September.
Stephen Oswald: We will see the cost savings of these moves as the receiving plants ramp up production in 2025. So stay tuned. For adjusted operating income margins in Q2, the team delivered 10.1%, a record performance and well ahead of the 8.1% number in Q2 2020. This is a great result driven again by the continued growth in our engineered product business, favorable product mix, impact of our strategic pricing initiative, and our restructuring savings began to kick in during the quarter. Address that EBITDA was another great story in Q2, hitting $30 million for the first time, a big deal, while expanding a robust 130 basis points to 15.2% of revenue compared to 13.9% in Q2 2020.
Speaker Change: We will see the cost savings of these moves as the receiving plants ramp up production in 2025, so stay tuned.
Speaker Change: For adjusted operating income margins in Q2, the team delivered 10, 1% a record performance.
Speaker Change: And well ahead of the eight 1% number in Q2 2023.
Speaker Change: This is a great result, driven again by the continued growth in our engineered product businesses.
Speaker Change: Favorable product mix impact of our strategic pricing initiatives and our restructuring savings begin beginning to kick in during the quarter.
Speaker Change: Adjusted EBITDA was another great story in Q2, and a $30 million for the first time, a big deal while expanding a robust 130 basis points to 15, 2% of revenue compared to 13, 9% in Q2 2023.
Stephen Oswald: This all provides momentum along with the Q1 results as we work towards the 18% goal and our vision of 2027. The GAAP diluted EPS was $0.52 a share in Q2 2024 versus $0.17 a share for Q2 2023. And with adjustments, diluted EPS was an impressive $0.83 a share compared to diluted EPS of $0.54 in the prior year quarter. The higher gap in adjusted diluted EPS was driven by improved operating income as well as lower interest costs due to our hedging strategy during the quarter.
Speaker Change: This all provides momentum along with the Q1 results as you work towards the 18% goal.
Speaker Change: Vision 2027 plan.
Speaker Change: The GAAP diluted EPS was <unk> 52 cents a share in Q2 2024 versus 17 cents a share for Q2, 2023, and where the adjustments diluted EPS was an impressive 83, a share compared to diluted EPS of <unk> 54.
Speaker Change: In the prior year quarter.
Speaker Change: The higher GAAP and adjusted diluted EPS was driven by improved operating income as well as lower interest cost due to our hedging strategy.
Speaker Change: In the quarter.
Stephen Oswald: The company's consolidated backlog increased both sequentially and compared to the prior year quarter. Total company backlog ended Q2 at a new record of $1,068,000,000, increasing over $22,000,000 sequentially and almost $58,000,000 year-over-year. The fence backlog increased $98 million compared to the prior year quarter to end at a record of $592 million. However, commercial aerospace backlog decreased 14 million year-over-year primarily due to industry issues with single aisle production rates and the max issues with Boeing and Spirit. However, our commercial aerospace backlog still grew on a sequential quarterly basis to $451 million.
Speaker Change: The company's consolidated backlog increased both sequentially and compared to the prior year quarter.
Speaker Change: Total company backlog ended Q2 at a new record of $1 $68 million, increasing over 22 million sequentially and almost $58 million year over year.
Speaker Change: The first backlog increased $98 million compared to the prior year quarter.
Speaker Change: And to add at a record of $592 million.
Speaker Change: The commercial aerospace backlog decreased 14 million year over year, primarily due to industry issues with single aisle production rates in the Max issues with Boeing and spirit.
Speaker Change: However, our commercial aerospace backlog still grew on a sequential quarterly basis to $451 million.
Stephen Oswald: As for the 2024 revenue guidance, despite continued uncertainty surrounding Boeing, Spirit, and the FAA on the Max, we are maintaining our guide of mid-single digits for the year, with Q3 flattish to last year, followed by an uptick again in Q4. While we have seen a significant slowdown in the max build rates at the OEM level in Q2 and anticipate the same in Q3, we are positioned for a recovery as the build rates ramp back up.
Speaker Change: As for the 2020 for revenue guidance. Despite continued uncertainty surrounding Boeing spirit and the FAA on the Max we are maintaining our guide of mid single digits for the year with Q3 flattish to last year, followed by an uptick again in Q4.
Speaker Change: We have seen significant Florida slowdown the Max fill rates at the OEM level in Q2 and anticipate the same in Q3, we are positioned for the recovery as the bill rates ramp back up.
Stephen Oswald: If VA is at 38 by year-end for their most recent communications on the MACS, this will be a major list for DCO. I will also add that despite the challenges in the MAX, we are comforted by continued strength on other programs at VA and SPIRIT, Airbus, and Yuletide. Now, let me provide some color on our markets, products, and programs. Beginning with our military and space sector, we experienced revenues of $101 million compared to $97 million in Q2 2020.
Speaker Change: EBITDA is at 38 by year end for their most recent communications on the Max This will be a major lift for Dci.
Speaker Change: I'll also add that despite the challenges in the Max we're comforted by continued strength in other programs IPA and spirit Airbus and Gulfstream.
Stephen Oswald: Growth was driven by the F-15 program along with military rotary aircraft, notably the Black Hawk program, as well as our radar franchise, again driven by the SPY-6 program. However, these are partially offset by weakness in the F-35, F-18, and F-16 weapons.
Speaker Change: Now, let me provide some color on our markets.
Alex: Alex and programs.
Speaker Change: Beginning with our military and space sector, we experienced revenues at $101 million compared to $97 million in Q2 2023.
Speaker Change: Growth was driven by the F 15 program, along with military rotary aircraft.
Speaker Change: The Blackhawk program as well as our radar franchise again, driven by the <unk> six program.
Speaker Change: These are partially offset by weakness in F 35, F 18, and F 16 revenues.
Suman Mookerji: The second quarter military and space revenue represented 51% of the commons revenue in the period, down from 59% in 2022 and 70% in 2021. We expected these trends, and it reflects more balance with commercial aerospace, which we like. We also ended the second quarter with a backlog of $592 million, an increase of $98 million year-over-year, representing 55% of the Commons total backlog. Within our commercial aerospace operations, second quarter revenue continued to see double-digit growth, increasing 13% year-over-year to $87 million, driven mainly by growth on the A220 platform.
Speaker Change: Second quarter military and space revenue represented 51% of <unk> revenue in the period down from 59% back in 2022 and 70% in 2021.
Speaker Change: We expect these trends, we expect that these trends and reflect more flex more balanced with commercial aerospace, which we like we also ended the second quarter with a backlog of $592 million, an increase of $98 million year over year, representing 55% of the time its total backlog.
Speaker Change: Within our commercial aerospace operations second quarter revenue continued to see double digit growth, increasing 13% year over year to $87 million driven mainly by growth on the <unk> hundred 20 platform twin aisle aircrafts business jets as well as buffer build support the closure of our Monrovia facility.
Suman Mookerji: Twin-aisle aircraft, business jets, as well as buffer builds support the closure of our Monrovia facility. As mentioned earlier, we believe a much better story is ahead for BA and MAC by the end of Q4 in 2020. The backlog within our commercial aerospace business was $451 million at the end of the second quarter, increasing almost 9 million sequentially and a solid number given the temporary weakness in the commercial aerospace industry. Now with that, I'll have Suman review our financial results in detail.
Speaker Change: As mentioned earlier, we believe a much better story is ahead for <unk> and Max.
Speaker Change: By the end of Q4 and in 2025.
Speaker Change: The backlog within our commercial aerospace business was $451 million at the end of the second quarter, increasing almost nine months sequentially and a solid number given the temporary weakness in the commercial aerospace market.
Speaker Change: Now with that I'll ask <unk> review, our financial results in detail.
Suman Mookerji: Thank you, Steve. As a reminder, please see the company's Q2 10Q and Q2 earnings release for a further description of the information mentioned in today's call. As Steve discussed, our second quarter results reflected another period of strong performance with growth in both our commercial aerospace and military-end markets, as well as continued improvement in our margins. We remain encouraged by the continued strength in domestic and global travel, which should support higher long-term demand for aircraft, as we work through some of the industry issues impacting single-isle production.
Speaker Change: Thank you Steve as a reminder, please see the company's Q2 10-Q and Q2 earnings release for a further description of information mentioned on today's call.
Speaker Change: As Steve discussed our second quarter results reflected another period of strong performance with growth in both our commercial aerospace and military end markets as well as continued improvement in our margins. We remain encouraged by the continued strength in domestic and global travel, which would support higher long term demand for aircraft as we work through some of the industry issue.
Speaker Change: Those impacting single aisle production rates and.
Speaker Change: In addition, we also made good progress on our facility consolidation efforts during the quarter, which will drive savings in 2025 and beyond.
Suman Mookerji: In addition, we also made good progress on our facility consolidation efforts during the quarter, which will drive savings in 2025 and beyond. With all this, we feel like 2024 is showing good momentum that will continue to drive our performance towards our Vision 2027 goal. Now, we turn to our second quarter results.
Speaker Change: With all this we feel like 'twenty 'twenty four is showing good momentum that will continue to drive our performance towards our vision 2027 goals.
Speaker Change: Now turning to our second quarter results.
Suman Mookerji: Revenue for the second quarter of 2024 was $197 million versus $187.3 million for the second quarter of 2023. The year-over-year increase of 5.2% reflects growth in both commercial aerospace and military in space, highlighted by 9.9 million of growth across our commercial aerospace platforms and 3.2 million of growth in our military and space platforms. We posted a total gross profit of $51.2 million, or 26% of revenue for the quarter, versus $40.1 million, or 21.4% of revenue in the prior year period.
Speaker Change: Revenue for the second quarter of 2024 was $197 million versus $187 3 million for the second quarter of 2023.
Speaker Change: The year over year increase of five 2% reflects growth in both commercial aerospace and military and space highlighted by $9 9 million of growth across our commercial aerospace platforms, and $3 2 million of growth in our military and space platforms.
Speaker Change: We posted total gross profit of $51 2 million or 26% of revenue for the quarter versus $40 1 million or 21, 4% of revenue in the prior year period. We continue to provide adjusted gross margins as we have certain non-GAAP cost of sales items in the current and prior period relating to inventory.
Suman Mookerji: We continue to provide adjusted gross margins as we have certain non-gap cost of sales items in the current and prior periods relating to inventory, step-up amortization on our recent acquisitions, restructuring charges, and the impact of the Boehmus fire on our operation. On an adjusted basis, our gross margins were 26.6% in Q2 2024 versus 23.1% in Q2 2023. The improvement in gross margin was driven by our growing engineered products portfolio as well as a favorable product mix in our manufacturing services businesses.
Speaker Change: <unk> step up amortization of our recent acquisitions restructuring charges and the impact from the Guaymas fire on our operations.
Speaker Change: On an adjusted basis, our gross margins were 26, 6% in Q2 2024 versus 23, 1% in Q2 2023 the improvement in gross margin was driven by our growing engineered products portfolio as well as favorable product mix in our manufacturing services businesses.
Suman Mookerji: Strategic Pricing Initiatives, Productivity Improvements, and some Initial Restructuring. We continue to make progress working through a difficult operating environment with supply chain and labor. Through our proactive efforts, including strategic buys and our inventory investments, we have been able to avoid any significant impact thus far on our business.
Speaker Change: Strategic pricing initiatives productivity improvements and some initial restructuring savings.
Speaker Change: We continued to make progress working through a difficult operating environment with supply chain and labor through our proactive efforts, including strategic buys in our inventory investments, we have been able to avoid any significant impact thus far in our business.
Suman Mookerji: During the second quarter of 2024, we reduced our inventory by 7.1 million from Q1, while still keeping our performance centers positioned to meet our 2024 delivery commitments and ready for a ramp-up in commercial aerospace building. We grew our contract assets by $13 million versus Q1. This was partly due to buffer build of product to support the Monrovia facility closure, as well as some modest build ahead in our commercial aerospace structures business to level out production.
Speaker Change: During the second quarter of 2024, we reduced our inventory by $7 1 million from Q1, while still keeping our fulfillment centers positioned to meet our 2024 delivery commitments and ready for a ramp up in commercial aerospace build rates.
Speaker Change: We grew our contract assets by $13 million versus Q1. This was partly due to a buffer built a product to support the Monrovia facility closure as well as a modest build ahead in our commercial aerospace structures business to level load production. We continue to look for opportunities to unwind, our working capital investments to improve our.
Suman Mookerji: We continue to look for opportunities to unwind our working capital investments to improve our cash flow. Ducommon reported operating income for the second quarter of $13.9 million, or 7.1% of revenue, compared to $5 million, or 2.7% of revenue, in the prior year period.
Speaker Change: Cash flow.
Speaker Change: Ducommun reported operating income for the second quarter of $13 9 million or seven 1% of revenue compared to $5 million or two 7% of revenue in the prior year period.
Suman Mookerji: Adjusted operating income was $19.9 million, or 10.1% of revenue this quarter, compared to $15.2 million, or 8.1% of revenue in the comparable period last quarter. The company reported net income for the second quarter of 2024 of $7.7 million, or $0.52 per diluted share, compared to net income of $2.4 million, or $0.17 per diluted share a year ago. On an adjusted basis, the companies reported net income of $12.5 million or $0.83 per diluted share compared to net income of $7.3 million or $0.54 in Q2 2023.
Speaker Change: Adjusted operating income was $19 9 million or 10.1% of revenue this quarter compared to $15 2 million or eight 1% of revenue in the comparable period last year.
Operator: Good day, everyone, and thank you for standing by.
Operator: Welcome to the second quarter of 2024 to come and earnings conference call. At this time, all participants are in a listen on a mode. After the speaker's presentation, there will be a question and answer session. To participate, you will need to press star 11 on your telephone. You will then hear a message advising your hand is raised. To withdraw your questions, simply press star 11 on again.
Speaker Change: The company reported net income for the second quarter of 2024 of $7 7 million or <unk> 52 per diluted share compared to net income of $2 4 million or <unk> 17 per diluted share a year ago.
Speaker Change: On an adjusted basis. The company reported net income of $12 5 million RMB three cents per diluted share compared to net income of $7 3 million or <unk> 54 in Q2 2023.
Operator: Please, the advice that today's conference is being recorded.
Suman Mookerji: The higher net income and adjusted net income during the quarter were driven by higher operating income and adjusted operating income. Additionally, our interest rate hedge helped reduce our year-over-year interest income. Now, let me turn to our segment results.
Speaker Change: The higher net income and adjusted net income during the quarter were driven by higher operating income and adjusted operating income.
Suman Mookerji: Now, I will pass the call over to Ducommun Senior Vice President and Chief Financial Officer, Suman Mookerji. Please go ahead. Thank you, and welcome to Ducommun's 2024 second quarter conference call. With me today is Steve Oswald, Chairman, President and CEO.
Speaker Change: <unk>, our interest rate hedge helped reduce our year over year interest expense.
Speaker Change: Now, let me turn to our segment results.
Suman Mookerji: Our structural systems segment posted revenue of $95.6 million in the second quarter of 2024 versus $80.2 million last year. The year-over-year increase reflected 10.4 million of higher sales across our commercial aerospace applications, including the A220 and select twin-aisle platforms, in addition to regional business jets and buffers built to support the Monrovia facility closure. In addition, we maintain commercial aerospace build rates for selected products to help level load production and maintain production efficiency.
Speaker Change: Our structural systems segment posted revenue of $95 6 million in the second quarter of 2024 versus $80 2 million last year.
Suman Mookerji: I'm going to discuss certain limitations to any forward-looking statements regarding future events, projections or performance that we may make during the prepared remarks or the Q&A session that follows. Certain statements today 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 private security's litigation reform act of 1995 and are therefore prospective. These forward-looking statements are subject to risks, uncertainties and other factors which could cause actual results to differ materially from the future results expressed or implied by such forward-looking statements.
Speaker Change: The year over year increase reflected $10 4 million of higher sales across our commercial aerospace applications, including the 8% to 20 and select twin aisle platforms. In addition to regional business Jets and buffer build to support the Monrovia facility closure. In addition, we maintained commercial aerospace build rates with electric products.
Speaker Change: To help level load production and maintain production efficiencies.
Suman Mookerji: The $5 million of higher revenue within the military and space markets was driven by strength in Black Hawk and other military programs. Structural Systems operating income for the quarter was $10.6 million, or 11% of revenue compared to $5.4 million, or 6.7% of revenue for the prior year quarter. Excluding restructuring charges and other adjustments in both years, the segment operating margin was 15.4% in Q2 2024 versus 16% in Q2 2023. The slight decline was due to higher costs due to the transition of production from Monrovia to Guaymas, partially offset by strategic pricing initiatives and operating leverage from higher revenues at other performance centers within the state.
Speaker Change: The $5 million of higher revenue within the military and space markets was driven by strength in Black Hawk and other military programs.
Speaker Change: Structural systems operating income for the quarter was $10 6 million or 11% of revenue compared to $5 4 million or six 7% of revenue for the prior year quarter.
Suman Mookerji: Although we believe that the expectations reflected in our forward-looking statements are reasonable, we can give no assurance that such expectations will prove to have been correct. In addition, estimates of future operating results are based on the company's current business, which is subject to change.
Speaker Change: Excluding restructuring charges and other adjustments in both years.
Speaker Change: The segment operating margin was 15, 4% in Q2 2024 versus 16% in Q2 2023.
Suman Mookerji: Particular risks facing Ducommun include among others the cyclicality of our end-use markets, the level of US government defense spending, our customers may experience delays in the large and certification of new products, timings of orders from our customers, legal and regulatory risks, the cost of expansion and acquisitions, competition, economic and geopolitical developments, including supply chain issues and rising or high interest rates, the ability to attract and retain key personnel and avoid labor disruptions, the ability to adequately protect and enforce intellectual property rights, endemics, disasters, natural or otherwise and risk of cyber security attacks. Please refer to our annual report on Form 10K, quarterly reports on Form 10Q and other reports filed from time to time with the SEC, as well as the press release issued today for a detailed discussion of the risks. Our forward-looking statements are subject to those risks.
Speaker Change: The slight decline was from higher costs due to the transition of production from <unk>, partially offset by strategic pricing initiatives and operating leverage from higher revenues and other performance centers within the segment.
Suman Mookerji: Our electronic systems segment posted revenue of $101.4 million in the second quarter of 2024 versus $107.1 million in the prior year period. The decline is attributable to lower revenues from in-flight entertainment electronics, F-18 and F-35 platforms, along with a reduction in our industrial business, as we chose to selectively prune non-core businesses. The declines were partially offset by strength on select military platforms, including the F-15, SPY-6 radar, and naval and submarine programs, along with business jets with Gulfstream and on the A220 platform with Airbus. Electronic systems operating income for the second quarter was $16.8 million, or 16.6% of revenue, versus $9.5 million, or 8.9% of revenue in the prior year period.
Speaker Change: Our electronic systems segment posted revenue of $101 4 million in the second quarter of 2024 versus $107 1 million in the prior year period.
Speaker Change: The decline is attributable to lower revenues from Inflight Entertainment electronics.
Speaker Change: And F 35 platforms, along with a reduction in our industrial business as we chose to selectively prune non core business.
Speaker Change: The declines were partially offset offset by strength on select military platforms, including the <unk> slide six radar enabled and submarine programs, along with business Jets with Gulfstream and on the 820 platform with Airbus.
Suman Mookerji: Statements made during this call are only as of the time made and we do not intend to update any statements made in this presentation except if and as required by regulatory authorities. This call also includes non-gap financial measures. Please refer to our filings with the SEC for a reconciliation of the gap to non-gap measures referenced on this call. We filed our Q2 2020-24 quarterly report on Form 10Q with the SEC today.
Speaker Change: Electronic systems operating income for the second quarter was $16 8 million or 16, 6% of revenue versus $9 5 million or eight 9% of revenue in the prior year period.
Suman Mookerji: Excluding restructuring charges and other adjustments in both years, the segment operating margin was 16.9% in Q2 2024 versus 11.4% in Q2 2023. The year-over-year increase was primarily due to a changing mix with higher growth in revenues and profitability in our engineered product businesses, along with strategic value pricing initiatives, as well as savings from the restructuring program. Restructuring savings were driven by the transition of product lines from our variable performance center to other facilities.
Speaker Change: Excluding restructuring charges and other adjustments in both years. The segment operating margin was 16, 9% in Q2 2024 versus 11, 4% in Q2 2023.
Speaker Change: The year over year increase was primarily due to shifting mix with higher growth in revenues and profitability in our engineered product businesses, along with strategic value pricing initiatives as well as savings from the restructuring program.
Stephen Oswald: I would now like to turn the call over to Seba Swald for a review of the operating results. Thank you so much. Thanks everyone for joining us today for our second quarter conference call. Today, as usual, I want to give an update on the current situation at the company. Afterwards, some honor of your financials and detail.
Speaker Change: Restructuring savings were driven by the transition of product lines from our variable performance center to other facilities.
Stephen Oswald: Let me first start off this quarterly call with your comments, vision, 2027 game plan for investors. Strategy and vision were developed coming out of the COVID pandemic over the summer and fall of 2022. Unanimously approved by the Common Board in November of 2022. And then presented to investors the following month in New York where we got excellent feedback. Since that time, the comments management has been executing the vision in 2027 strategy.
Suman Mookerji: Next, I would like to provide an update on our ongoing restructuring program. As a reminder, and as discussed previously, we commenced a restructuring initiative back in 2022. These actions are being taken to better position the company for stronger performance in the short and long term. These actions include the shutdown of our facilities in Monrovia, California and Berryville, Arkansas and the transfer of that work to our low-cost operation in Guaymas, Mexico and to other existing performance centers in the United States.
Speaker Change: Next I would like to provide an update on our ongoing restructuring program as a reminder, and as discussed previously we commenced a restructuring initiative back in 2020 do these actions are being taken to better position the company for stronger performance in the short and long term. This includes the shutdown of our.
Suman Mookerji: We continue to make progress on these transitions with excellent employee retention and engagement and are also working diligently with our customers Boeing and RTX to obtain the requisite, During Q2 2024, we recorded $2.1 million in restructuring charges. The majority of these charges were severance and related benefits as we continue to wind down the two operations. We expect to incur an additional $3-4 million in restructuring expenses through the end of 2024 and early 2025 as we complete the program.
Speaker Change: Facilities in Monrovia, California, and very Arkansas.
Speaker Change: And the transfer of that work through our low cost operation in Guaymas, Mexico and to other existing performance centers in the United States.
Stephen Oswald: By consolidating its facility or rooftop footprint, increasing the revenue percentage of engineered products and aftermarket content. Continuing its targeted acquisition program, executing our offloading strategy with the fence primes and high growth segments of the fence budget. And by expanding content on key commercial aerospace platforms. All of us here have a high level of conviction in the vision 2027 strategy and financial goals. And believes that many catalysts ahead present a unique value creation opportunity for shareholders.
Speaker Change: We continue to make progress on these transitions with excellent employee retention and engagement and are also working diligently with our customers Boeing and RPX to obtain the requisite approval.
Speaker Change: During Q2, 2024, we recorded $2 1 million in restructuring charges the.
Speaker Change: The majority of these charges for severance and related benefits as we continue to wind down the two operations.
Speaker Change: We expect to incur an additional $3 million to $4 million in restructuring expenses.
Speaker Change: Through the end of 2024 and early 2025 as we complete the program.
Suman Mookerji: Upon the completion of our restructuring program, we expect to generate $11 to $13 million in annual savings from our actions and are already beginning to see some realization of savings from these actions this year. We anticipate selling the land and buildings at both Monrovia, California, and Berryville, Arkansas, turning next to liquidity and capital. Year to date, Q2 2024, we generated 1.8 million in cash flow from operating activities, which was an improvement compared to year to date, Q2 2023, which had a usage of 9.7. The improvement was due to higher net income of $7 million as well as improvements compared to the prior year and accrued another liability.
Speaker Change: Upon the completion of our restructuring program, we expect to generate 11% to $13 million in annual savings from our actions and are already beginning to see some realization of savings from these actions this year.
Stephen Oswald: The Q2 2024 results were also a very good example of our strategy working. Q2 was a record revenue and growth margin quarter. Followed up the strong start we experienced in the first quarter. Revenues were 197 million, going 5.2 percent over the prior year. This is our fourth consecutive quarter for revenues exceeding 190 million. Strong growth in our commercial aircraft business across Boeing, Airbus, and business jet help drive revenue during the quarter.
Speaker Change: We anticipate selling the land and building.
Speaker Change: At both Monrovia, California and variable Arkansas.
Speaker Change: Turning next to liquidity and capital resources.
Speaker Change: Year to date Q2, 2024, we generated $1 8 million in cash flow from operating activities, which was an improvement compared to year to date, Q2, 2023, which had a usage of $9 7 million.
Speaker Change: The improvement was due to higher net income of $7 million as well as improvements compared to prior year and accrued and other liabilities.
Stephen Oswald: We saw a significant growth on the A220 program where we make the skins for the entire fuselage along with good growth in twin aisle platforms as well. Business jet revenues were hired driven by work we do for Gulfstream. We also saw an increase in our commercial revenue as we build buffer stock to support the Monroeville facility closure and transfer to DCO's glamorous Mexico operation. Q2 was also supported by us building a higher production rate than SPR and VA to allow for efficiencies, workforce retention, and level loading of our production.
Suman Mookerji: As of the end of the second quarter, we had available liquidity of $205.4 million, comprising the unutilized portion of our revolver and cash on hand. Our existing credit facility was put in place in July 2022 at an opportune time in the credit market, allowing us to reduce our spread, increase the size of our revolver, and allow us the flexibility to execute on our acquisition strategy. Interest expense was $4 million, compared to $5.7 million in Q2 of 2023.
Speaker Change: As of the end of the second quarter, we had available liquidity of $205 4 million comprising of the Unutilized portion of our revolver and cash on hand.
Speaker Change: Our existing credit facility was put in place in July 2022 at an opportune time in the credit market, allowing us to reduce our spread increased the size of our revolver and allowing us the flexibility to execute on our acquisition strategy.
Speaker Change: Interest expense was $4 million compared to $5 7 million in Q2 of 2023.
Suman Mookerji: The year-over-year improvement in interest costs, despite a higher debt balance, was due to the interest rate hedge going into effect. In November 2021, we put in place an interest rate hedge that will go into effect for a seven-year period starting January 2024 and pegged the one-month term so far at 170 basis points for $150 million of our debt. The hedge resulted in interest savings of $1.4 million in Q2 2024 and will continue to drive significant interest cost savings in 2024 and beyond.
Speaker Change: The year over year improvement in interest costs. Despite the higher debt balance was due to the interest rate hedge going into effect.
Stephen Oswald: Overall, commercial aerospace was up 13 percent from Q2 2023. We have now grown year-over-year revenue on a commercial aerospace business for 12 consecutive quarters. Demonstrating the resilience of our business even in the challenging OEO environment with SPR and VA. The other good news for DCO's commercial aerospace business is the Fusualized Skin Project for the 737 Maxette Spirit which we have been working on. We now anticipate having the FAA approved in September and shipping the first production set in October.
Speaker Change: In November 2021, we put in place an interest rate hedge that went into effect for a seven year period, starting January 2024, and the one month done so far at 170 basis points for $150 million of our debt.
Speaker Change: The hedge resulted in interest savings of $1 4 million in Q2, 2024, and we will continue to drive significant interest cost savings in 2024 and beyond.
Suman Mookerji: To conclude the financial review for Q2 2024, I would like to say that the second quarter results continued our momentum from Q1 and positioned us well for the rest of 2024. I'll now turn it back over to Steve for his closing remarks. Steve. Okay.
Speaker Change: To conclude the financial review for Q2, 2024, I would like to say that the second quarter results continued our momentum from Q1 and positions us well for the rest of 2024.
Stephen Oswald: 24. 2025 revenue for the four skins should be over $3.5 million at 15 ships at a month. Keep in mind this is less than 10% of the fuselage, so stay tuned for more news as you move forward and gain more program share. Our Defense Business Group's 3% year-over-year, with strong demand for the F-15 Black Hawk and radar platform, as well as selective naval submarine programs. Growth was partially offset by the clients and programs such as the JSF, F-18, which we have discussed in the past and the F-16.
Steve Oswald: I'll now turn it back over to Steve for his closing remarks, Steve Okay. Thanks, Tim on that just in closing Q2 was a it was an excellent quarter and a record in some cases with many highlights for the company and our shareholders as you start to realize some of the gains we all expect for the vision 2027, especially.
Stephen Oswald: Thanks, Suman. And just in closing, you know, Q2 was an excellent quarter and a record in some cases, with many highlights for the company and our shareholders. We started to realize some of the gains we all expect for the Vision 2027, especially around margin expansion, first half position as well as to deliver a strong performance in 2022. Despite some of the current constraints, the progress on gross and even margin expansion has been excellent.
Speaker Change: <unk> margin expansion.
Speaker Change: Our first half position us well to deliver strong performance in 2022 despite.
Speaker Change: Some of the current constraints the progress on gross and EBIT margin expansion has been excellent we're not surprised.
Stephen Oswald: We're not surprised and feel right on schedule. In addition, on two key tenets of our 2027 game plan, we're tracking well against the goals of 18% EBITDA margins and 25% or more of engineered product and aftermarket revenue. Commercial Aerospace Build Grants are still ahead of us, and the benefits from our facility consolidation expected to kick in starting in 2025. I'm excited about what lies ahead for us at Ducommon and our shareholders in the years ahead.
Speaker Change: And feel right on schedule. In addition on two key tenets of our 2027th game plan, we're tracking well against the goals of 18% EBIT margins and 25% or more of engineered product and aftermarket revenues.
Stephen Oswald: A pause in the tow missile production contributed as well, but we now have a new PO from RTX anticipate starting shipments again in July 2025 from Guamis, Mexico. Defense Business will $100 million revenue for the third time in the last four quarters, and we remain optimistic about the growth ahead. On offloading from RTX, our SPY-6 radar circuit car business grew over 100% from Q3 last year, tracking now for over $10 million in revenue in 2024 for just one CCA.
Speaker Change: With commercial aerospace builds reps still ahead of us and the benefits from our facility consolidation expected to kick in starting in 2025.
Speaker Change: I'm excited about what lies ahead for us at Ducommun and our shareholders in the years ahead.
Operator: Okay, with that, let's please go to questions.
Speaker Change: Stay tuned.
Speaker Change: Okay with that let's please now go to questions.
Operator: Thank you. One moment for our first question, and it comes from the line of Jason Gursky with Citi. Please proceed.
Speaker Change: Thank you one moment for our first question.
Stephen Oswald: We have the next car for the SPY-6 program in process and that will be in production next year. Another rugged highlight in Q2 was gross margin of 26% for the quarter of 460 bips year-over-year from 21.4% and 140 bips compared to the first quarter as we continue to realize benefits from our strategic value pricing initiatives, productivity improvements, favorable product mix, growing engineered product portfolio with the aftermarket, and initial restructuring savings. In addition, our very vulnerable Arkansas facilities now down to less than 10 people to maintain capability on single platforms or receiving a totally receiving plan of certified.
Speaker Change: And it comes from the line of Jason Gursky with Citi. Please proceed.
Jason Gursky: Yeah, hello there everybody. Thanks for taking the question. Steve, maybe we can start with you and talk a little bit about the pipeline of new opportunities and maybe just kind of give us a flavor of how things have evolved year to date, you know, starting at the beginning of the year, where you are today and what you see in the pipeline. I'm just curious if anything kind of new and interesting has popped up for you here over the last six, seven months. And, you know, when you look out over Pipeline conversion might look like and book to build just in the general demand flavor as well. Thanks.
Jason Gursky: Yes, Hello, everybody. Thanks for taking my question.
Speaker Change: Steve maybe start with you and talk a little bit about.
Speaker Change: The pipeline of.
Speaker Change: New opportunities and maybe just kind of.
Speaker Change: Give us a flavor of how things.
Speaker Change: Have evolved.
Speaker Change: Year to date, starting at the beginning of the year, where you are today and what you.
Speaker Change: See in the pipeline I'm just curious if.
Speaker Change: Anything kind of new and interesting.
Speaker Change: Has popped up for you here over the last six seven months and.
Speaker Change: When you.
Stephen Oswald: Our Mondrovia California facility also significantly reduced headcount this month with most production activities shut down and the team is down to less than 20 employees. The Mondrovia plant will be fully closed by the end of September. We will see the cost savings of these moves as the receiving plan to ramp up production in 2025. So stay tuned. For adjusted operating income margins in Q2, the team delivered 10.1% a record performance and well ahead of the 8.1% number in Q2 2023.
Speaker Change: Look out over the next couple of years, what you think the.
Speaker Change: The pipeline conversion might look like in book to bills, just kind of general demand flavor.
Stephen Oswald: Sure. Okay, thank you. Good to be with you.
Speaker Change: As well sure okay. Thank you good to be with.
Speaker Change: So first let me just tackle the commercial aerospace there's.
Stephen Oswald: So first, let me just tackle commercial aerospacers. You know, I talked about the skins, and that's, you know, though not a huge number starting next year, about three or four million. I mean, we're only doing less than 10% of the fuselage for the MAX. You know, we do 100% of the fuselage for the A220, so we can do it, right? We have the capacity; we have the machines. So that's something in the pipeline that we're very, very excited about.
Speaker Change: I talked about the skins and.
Speaker Change: Although not a huge number starting next year about three or $4 million I mean, we're only doing less than 10% of the fuselage.
Speaker Change: For the Max.
Speaker Change: We do a 100% fuselage for the AG Tony So we can do it right. We have the capacity we have the machine so.
Stephen Oswald: This is a great result driven again by the contingent growth in our engineered product businesses, favorable product mix, impact of our strategic pricing initiatives, and our restructuring savings beginning to kick in during the quarter. Adjusted even though it was another great story in Q2, hitting $30 million for the first time. A big deal, while expanding a robust 130 basis points to 15.2% of revenue compared to 13.9% in Q2 2023. This all provides momentum along with the Q1 results as you work towards the 18% goal in our vision 2027.
Speaker Change: That's something in the pipeline.
Stephen Oswald: We're also, and I just can't disclose it today, we're also working on opportunities more on the commercial aerospace side, and specifically around share shift from some of our competitors, and won't get into it today, but we have some nice things happening there. We're going to pick up, and I can, you know, disclose this, we're going to pick up a good amount of business on the 787 starting in January 2025. And the 787, you know, gets to five or ten, that's real money for DCO. So on that side, it's good.
Speaker Change: Very very excited about where also.
Speaker Change: And just can't disclose that today, we are also working on opportunities.
Speaker Change: More on the commercial aerospace side, and specifically around the share shift from some of our competitors won't get into it today, but we have some nice things happening there we're going to pick up.
Ken: Ken disclose this are going to pick up also on the 787, a good amount of business starting in January 2025.
Ken: And the 787.
Ken: Gets the five or 10.
Ken: That's real money for Dcs, so on that side. It's good we just met with Airbus at the Air show.
Stephen Oswald: We just met with Airbus at the air show. You know, we're in a very good position, you know, with Airbus. You know, they're on the way up, and we're going to go on the way with them. So I think on the commercial side, it's all looking very positive, and there'll be more news. On the defense side, you know, we certainly worked on sort of the hypersonic and the other things that we probably can't discuss on the call too much, but I'll just give you one example. This offloading program has been great for us. We're really getting heavy into radar. You know, we made one cart so far on the SPY-6, and here today it's been over $5 million for one cart.
Stephen Oswald: Plan. The gap diluted EPS was 52 cents a share in Q2 2020 for versus 17 cents a share for Q2 2023 and with adjustments diluted EPS was an impressive 83 cents a share compared to diluted EPS of 54 cents in the prior year quarter. The higher gap in adjusted diluted EPS was driven by improved operating income as well as lower interest costs due to our hedging strategy during the quarter. The company's consolidated backlog increased both sequentially and compared to the prior year quarter.
Speaker Change: And a very good position with Airbus.
Speaker Change: They're they're going all the way up and we're going to go all the way it with them. So I think on the commercial side. It's all looking very positive on this there will be more news coming.
Speaker Change: Defense side.
Speaker Change: We certainly worked on sort of the hypersonic than the other.
Speaker Change: Sort of.
Speaker Change: Things that we probably can't discuss the call too much but.
Speaker Change: I'll just give you. One example, this offloading program has been great for us, we're really getting heavier to radar.
Stephen Oswald: Total company backlog ended due to a new record of 1 billion to 68 million increasing over 22 million sequentially and almost 58 million year over year. The Feds backlog increased 98 million compared to the prior year quarter to the end of 200 at a record of $592 million. The commercial aerospace backlog decreased 14 million year over year, primarily due to industry issues with single-out production rates and the max issues with Boeing and spirit.
Speaker Change: We make what card so far in the <unk> section you year to date is about $5 million for one part.
Stephen Oswald: So we're going to bring out another car next year. So we've got some very nice things happening in defense, not only organically, but obviously, you know, with share shift as well. And we just met with Raytheon at the air show and had a great meeting. And the Tomahawks are going to go to Guaymas, which is going to be a great boost for us from where we are now in Berryville. That's a major program. We've had it since the 1980s.
Speaker Change: We're going to bring on another card next year. So we've got some very nice things happening in defense, not only organically, but obviously a share shift as well.
Speaker Change: Raytheon at the Air show and.
Speaker Change: Had a great meeting in the Tomahawk is going to go to Gliomas, which has got to be a great boost for us.
Speaker Change: From where we are now very Phil that's a major program, we've had that since the eighties.
Stephen Oswald: Right now, obviously, we built all the buffer to move it, so but we have some wonderful margin expansion happening there as well as we go to Guaymas and the tow. So the tow is also coming back. We talked about that already in my remarks coming back mid-year. We already have the PO for that in Guaymas. So, both on the commercial and defense side, things are looking good to very good. And then also, obviously, the build rates, which I think are going to go up eventually, that's going to be some nice tailwind as well.
Speaker Change: Right now obviously, we built all the buffer to to move it so but we have some wonderful margin expansion happening there as well as we go to <unk> and the top so that tells also coming back.
Stephen Oswald: However, our commercial aerospace backlog still grew on a sequential quarterly basis to $451 million. As for the 2024 revenue guidance, it despite contingent uncertainty surrounding Boeing, spirit, and the FAA on the max, we are maintaining our guide of mid-single digits for the year with Q3 flatish to last year followed by an uptick again in Q4. While we have seen this in this can slow down the max build rates at the OEM level in Q2 and anticipate the same in Q3, we are positioned for the recovery as the build rates ran back up.
Speaker Change: Talked about that already in my remarks coming back mid year, we have already have the appeal for that in Gliomas. So.
Speaker Change: Both on the commercial and defense side looking good to very good and then also obviously.
Speaker Change: To build rates, which I think are going to go up eventually that's going to be some nice tailwind as well.
Suman Mookerji: Okay, great. And just a quick follow-up. Suman, you mentioned maybe some additional liquidity to your capacity, and I think you mentioned M&A in the same sentence. So I'm just kind of curious to get an update on the pipeline of potential M&A, and have you, you know, further opened the aperture on potentially doing something larger, where we'd be bringing in more revenue than what you had targeted for Vision 2027?
Speaker Change: Okay, Great and then just a quick follow up so when you mentioned <unk>.
Speaker Change: Maybe some additional.
Speaker Change: Liquidity year capacity.
Stephen Oswald: If BA is at 38 by year end for their most recent communications on the max, this will be a major list for DCO. I will also add that despite the challenges in the max, we are comforted by contingent strength on other programs at BA and spirit, Arabus, and Gilstrang.
Speaker Change: And I think you mentioned M&A in the same sentence. So I'm just kind of curious to get an update.
Speaker Change: Just on the pipeline of potential M&A and have you yes.
Speaker Change: Further open the aperture on potentially doing something.
Speaker Change: Larger where we'd be bringing in more revenue than what you had targeted for vision 2027.
Stephen Oswald: Now let me provide some color on our markets, products, and programs. Beginning with our military and space staff that we experienced revenues at 101 million compared to 97 million in Q2 2023. Growth was driven by the F15 program along with military rotary aircraft, notably the Black Hawk program as well as our radar franchise, again driven by the SPY-6 program. These are partially offset by weakness in F35, F18, and F16 revenues. The second quarter of military and space revenue represented 51 percent of the comments were revenue in the period, down from 59 percent back in 2022 and 70 percent in 2021.
Suman Mookerji: So we continue to look at a number of opportunities. I would say that in terms of us being able to meet and exceed the target we set forth in Vision 2027, which is a $75 million placeholder for revenue from acquisitions, we feel very good about being able to meet and exceed that.
Speaker Change: So we continue to look at a number of opportunities.
Speaker Change: I would say that.
Speaker Change: In terms of us being able to meet and exceed the target we set.
Speaker Change: Fourth in vision, 2027, which was a $75 million placeholder for revenue from acquisitions, we feel very good about being able to meet and exceed that so.
Speaker Change: I would agree that we're looking to do something bigger than that or something more transformational at this time no. We're looking to continue our strategy of.
Suman Mookerji: Are we looking to do something bigger than or something more transformational at this time? No, we're looking to continue our strategy of doing these token acquisitions of niche product lines in kind of a more manageable size range and be prudent with our leverage at this time. So, we aren't looking to change the aperture on the size of deals, but we feel good about being able to exceed the Vision 2027 target for acquisition.
Speaker Change: Doing these tuck in acquisitions of niche product lines.
Speaker Change: It's kind of a more manageable size range and be prudent with our leverage at this time so.
Stephen Oswald: We expect these trends and reflect more balance with commercial aerospace, which we like. We also ended the second quarter with a backlog of 592 million and increased the 98 million year of a year representing 55 percent of the comments total backlog. In our commercial aerospace operations, second quarter revenue continued to see double digit growth, increasing 13 percent year of a year to 87 million driven mainly by growth on the A220 platform, twin-hour aircraft, business jets, as well as buffer-built support As mentioned earlier, we believe a much greater story is ahead for BA and Max by the end of few four in 2025. The backlog within our commercial aerospace business was 451 million at the end of the second quarter, increasing almost nine minutes sequentially and a solid number given the temporary weakness in the commercial aerospace market.
Speaker Change: We aren't looking to change the aperture on size of deals.
Speaker Change: We feel good about being able to exceed the original 2027 target for acquisition revenue.
Jason Gursky: Okay, great. I'll pass the line. Thanks.
Speaker Change: Okay, Great I'll pass the line thanks.
Operator: Thank you. Our next question comes from the line of Mike Crawford with B. Riley Securities.
Jason: Hey, Jason.
Jason Gursky: Thank you.
Speaker Change: Our next question comes from the line of Mike Crawford with B Riley Securities.
Michael Crawford: Thank you. So, Suman, you benefited from absorption as you built some buffered stock. Now, can you just walk us through how margins are affected by the ramp-up at Guaymas and as you work through this buffer that you've built up and get to a more normalized cadence?
Mike Crawford: Thank you. So <unk> you benefited from absorption as you built some buffer stock now can you just walk us through.
Sam: How are margins are affected by the ramp up at Guaymas, Sam as you work through this this.
Speaker Change: Buffer that you've built up and get to a more normalized cadence.
Suman Mookerji: Right, so great question, Mike. And we did have a significant improvement in our structure segment margins on a sequential quarter basis. And to the point you just made, it was driven to a large extent by Mondrovia having better absorption. In fact, Mondrovia had significantly lower revenues in Q1 versus the Q4 of last year and Q1 of 2023. So we saw a very low revenue base kind of trying to handle a higher fixed cost base in Q1, which led to higher one-time costs related to the transition to Mondrovia in Q1.
Speaker Change: Alright.
Speaker Change: Great question.
Suman Mookerji: Now with that, I'll have Suman with you are financial results in detail. Thank you, Steve.
Mike: Mike and we did have a significant improvement in our structures segment margins on a sequential quarter basis and to the point you. Just made it was driven to a large extent by Monrovia, having better absorptions actually it's the Monrovia had significantly lower revenues in Q.
Suman Mookerji: For the reminder, please see the company's Q210Q and Q2 earnings release for a further description of information mentioned in today's call. As Steve discussed, our second quarter results reflected another period of strong performance with growth in both our commercial aerospace and military end markets as well as continued improvement in our margins. We remain encouraged by the continued strength in domestic and global travel, which would support higher long-term demand for aircraft as we work through some of the industry issues impacting single-hour production rates. In addition, we also made good progress on our facility consolidation efforts during the quarter, which would drive savings in 2025 and beyond.
Suman Mookerji: With all this, we feel like 2024 is showing good momentum that will continue to drive our performance towards our vision 2027 goals.
Speaker Change: One.
Speaker Change: Versus Q4 of last year in Q1 of that.
Speaker Change: 2023, so we saw a very low revenue base kind of trying to handle higher fixed cost base in Q1, which led to a higher one time costs related to the transition in Monrovia in Q1, we had lower costs, we had doubled our revenue in Monrovia as we build up buffer stock.
Suman Mookerji: We had lower costs. We had doubled the revenue in Mondrovia as we built up buffer stocks and looked to close out operations. We had double the revenue in Q2 versus Q1 in that Mondrovia facility. That helped with absorption again to the point you made right, and we also had some slightly better mix. So we feel like the improvement that we're seeing in that structure segment margin in Q2, which is in line with where structures margins have been historically, is sustainable if that's kind of where you were getting.
Speaker Change: And look to close out operations that we have doubled our revenue in Q2 versus Q1 in that Monrovia facility that helped with that.
Speaker Change: The absorption again to the point you made right and we also have some slightly better mix. So we feel like the improvement that we're seeing in that structure segment margin in Q2, which is in line with west structures margins have been historically is sustainable.
Suman Mookerji: Now, turning to our second quarter results. Revenue for the second quarter of 2024 was 197 million versus 187.3 million for the second quarter of 2023. The year-over-year increase of 5.2 percent reflects growth in both commercial aerospace and military and space highlighted by 9.9 million of growth across our commercial aerospace platforms and 3.2 million of growth in our military and space platforms. We posted total growth profit of 51.2 million or 26 percent of revenue for the quarter versus 40.1 million or 21.4 percent of revenue in the prior year period.
Speaker Change: That's kind of where you're getting to.
Michael Crawford: Okay, thank you, and just... Excuse me.
Speaker Change: Okay. Thank you and just.
Suman Mookerji: We made it. We're getting near the end of this, I guess, second restructuring program since you guys joined the company and put it on its current trajectory. But I know there's an 11 to 13 million cost savings target, but I imagine a chunk of that has already been realized.
Speaker Change: Excuse me related.
Speaker Change: Getting near the end of this I guess second restructuring program.
Speaker Change: You guys join the company.
Speaker Change: And put it on its current trajectory, but I know there is $11 million to $13 million cost savings target, but I imagine a chunk of that has already been realized.
Suman Mookerji: We continue to provide adjusted growth margins as we have certain non-gap cost of sales items in the current and prior period relating to inventory step-up amortization in our recent acquisitions, restructuring charges and the impact from the bonus fire on our operations. On an adjusted basis, our growth margins were 26.6 percent in Q2 2024 versus 23.1 percent in Q2 2023. The improvement in growth margin was driven by our growing engineered product portfolio as well as favorable product mix in our manufacturing services businesses, strategic pricing initiatives, productivity improvements and some initial restructuring savings.
Suman Mookerji: That is correct. So I would say that from our Berryville and Chaplin facilities, we are right now tracking at a run rate of, I would say, two to three million dollars in savings annually. So an annual run rate of two to three million, I would say, is where we are right now from the shutdown of Berryville. Of course, that will ramp up later in 2025 when we actually start production of some of those product lines in Guaymas, Mexico. So that hasn't started yet. Yeah, I wouldn't say a good chunk, Mike. I would say it's, I think, two to three is fair. Okay. There's a lot more.
Speaker Change: That is correct, so I would say that from our.
Speaker Change: Very little in Joplin.
Speaker Change: Facility, we are right now tracking at a run rate of I would say $2 million to $3 million of savings annually. So in annual run rate of $2 million to $3 million I would say is where we are right now.
Speaker Change: From the shutdown of very well of course that will ramp up later in 2025, when we actually start production.
Mike: Some of those product lines in Guaymas, Mexico, So that Hasnt started yet I would say a good chunk of Mike I would say.
Suman Mookerji: We continue to make progress working through a difficult operating environment with supply chain and labor, through our proactive efforts including strategic buys in our inventory investments, we have been able to avoid any significant impact thus far on our business. During the second quarter of 2024, we reduced our inventory by 7.1 million from Q1 while still keeping our performance centers positioned to meet our 2024 delivery commitments and ready for a ramp-up in commercial aerospace build rates.
Speaker Change: I think two to three Sir alright, Okay, there's a lot more comment right.
Michael Crawford: Okay, great. Thank you very much.
Speaker Change: Okay, great. Thank you very much.
Operator: Thank you, Mike. Thank you, and as a reminder, if you do have a question, simply press star 11. Our next question is from Michael Ciarmoli with Truist Securities.
Speaker Change: Thanks, Mike. Thank you and as a reminder, if you do have a question simply press Star One one our next question is from Michael <unk> with <unk> Securities.
Michael Ciarmoli: Good afternoon, guys. Thanks for taking the questions. Hey, y'all.
Michael: Hey, good afternoon, guys. Thanks for taking the questions.
Speaker Change: Salt.
Stephen Oswald: Yeah, Steve or Suman, the buffer stock, I think coupling that with maybe, I think you said you're building ahead right now, how should we sort of calibrate ourselves just on the revenue? I think you said 3Q would be down a little bit, but do we have to go through an unwind period here as we look out over the second half of the year, even into early 25? I mean, you know, I don't think we have a crystal ball with Boeing's rates or Airbus's for sure, but how should we think about, maybe, the impact of the build ahead and buffer on revenue?
Speaker Change: Hey.
Stephen: Yes Stephen.
Speaker Change: Buffer stock.
Suman Mookerji: We grew our contract assets by 13 million versus Q1. This was partly due to buffer build of product to support the Minrovia facility closure as well as some modest build ahead in our commercial aerospace structures business to level load production. We continue to look for opportunities to unwind our working capital investments to improve our cash flow. Ducommun reported operating income for the second quarter of 13.9 million or 7.1% of revenue compared to 5 million or 2.7% of revenue in the prior year period.
Speaker Change: I think coupling that with maybe I think you said you are building ahead right now.
Speaker Change: We sort of calibrate ourselves just on the revenue I think you said <unk> would be down a bit but do we have to go through.
Speaker Change: Unwind periods here as we look out over the second half of the year or even into early 'twenty five just dependent.
Speaker Change: I don't think we have a crystal ball with boeing's rates for Airbus is for sure, but how should we think about maybe.
Speaker Change: The impact of the build ahead in buffer on revenues.
Michael Ciarmoli: Hi Mike. Great question.
Speaker Change: Yes, Hi, Mike Great question, So we during.
Suman Mookerji: Adjusted operating income was 19.9 million or 10.1% of revenue this quarter compared to 15.2 million or 8.1% of revenue in the comparable period last year. The company reported net income for the second quarter of 2024 of 7.7 million or 52 cents per diluted share compared to net income of 2.4 million or 17 cents per diluted share a year ago. On another adjusted basis the company's reported net income of 12.5 million or 83 cents per diluted share compared to net income of 7.3 million or 54 cents in Q2 2023. The higher net income and adjusted net income during the quarter were driven by higher operating income and adjusted operating income. Additionally our interest rate hedge helped reduce our year-over-year interest expense.
Speaker Change: During Q2.
Speaker Change: We had about I would say.
Speaker Change: Between the buffer build and the build ahead.
Speaker Change: Somewhere between $5 million to $6 million in revenue that you could say was pulled ahead from Q3 and Q4.
Suman Mookerji: So during Q2, we had about, I would say, between the buffer build and the build ahead, somewhere between five to six million in revenue that you could say was pulled ahead from Q3 and Q4. And so that's kind of how I would think about how Q3 comes out, in line with what Steve said a little earlier, Q3 being flattish on a year-over-year basis and then seeing improvement in Q4, so that kind of all-in-all, we come out at that mid-single-digit guidance for the full year.
Speaker Change: And so thats kind of how I would think about how Q3 comes out in line with what Steve said, a little earlier Q3 being flattish on a year over year basis.
Speaker Change: And then seeing improvement in Q4, so thats kind of all in all we come out at that mid single digit guidance for the Columbia.
Suman Mookerji: Mike, I think that's the right way to think about it. I think overall it's light. The impact is light. Okay. So it's not anything I'm very concerned about, but just for everyone on the call, Parsons is a big manufacturer for both Spirit and for BA, and we just don't want to have to lay off 40 people and then four months later hire them again.
Speaker Change: I think that's the right way to think about I think overall, it's like the impact of life.
Speaker Change: Okay.
Stephen: So it's not anything.
Suman Mookerji: Now let me turn to our segment results. Our structural system segment posted revenue of 95.6 million in the second quarter of 2024 versus 80.2 million last year. The year-over-year increase reflected 10.4 million of higher sales across our commercial aerospace applications including the A220 and select to in aisle platforms in addition to regional business jets and buffer bill to support the Monroe Bay facility closure. In addition we maintained commercial aerospace build rates for selection products to help level load production and maintain production efficiencies.
Stephen: Concerned about but just so everyone on the call.
Stephen: Yes.
Speaker Change: Parsons is a big.
Speaker Change: Manufacturer for both spirit FBA and.
Speaker Change: We just don't want to have to lay off 40 people and then four months later hiring yet.
Stephen Oswald: Right, right, yeah, of course.
Michael Ciarmoli: So there's a little, as I've said, there's some retention of water retention in there that I think investors, I think hopefully, will agree is smart.
Speaker Change: Alright, Alright, yes of course, there is a little as I said there is some retention employee retention in there that I think investors I think hopefully we'll agree it's smart.
Michael Ciarmoli: Got it. And then just on the aerospace, I mean, I know, you know, we can kind of see it in our models. You've got the slide out there.
Speaker Change: Got it.
Speaker Change: And then just on the aerospace.
Speaker Change: We can kind of see it in our models you've got the slide out their highest quarterly revenue rate since.
Suman Mookerji: The 5 million of higher revenue within the military and space markets was driven by strength in Black Hawk and other military programs. Structural systems operating income for the quarter was 10.6 million or 11 percent of revenue compared to 5.4 million or 6.7 percent of revenue for the prior year quarter. Excluding restructuring charges and other adjustments in both years the segment operating margin was 15.4 percent in Q2 2024 versus 16 percent in Q2 2023.
Speaker Change: $302 19.
Speaker Change: Is there any way to measure that on a same store sales basis, I mean, you've obviously had some acquisitions in there you picked up some new programs like the <unk> 'twenty, but just knowing that Max had been one of the biggest programs.
Speaker Change: Just trying to get a sense as to if I were looking at that on a same store sales versus that three Q.
Speaker Change: How much runway do you still have because I think we are still well below prior peak production rates here.
Stephen Oswald: Highest quarterly revenue rate since, you know, 3 to 19. Is there any way to measure that on a same-store sales basis? I mean, you've obviously had some acquisitions.
Suman Mookerji: The slight decline was from higher costs due to the transition of production from the Monroe Bay to Guymus partially offset by strategic pricing initiatives and operating leverage from higher revenues at other profound centers within the segment. Our electronic system segment posted revenue of 101.4 million in the second quarter of 2024 versus 107.1 million in the prior year period. The decline is attributable to lower revenues from in flight entertainment to electronics, F18 and F35 platforms along with the reduction in our industrial business as we chose to selectively prune non-core business.
Speaker Change: I think we have a lot I think.
Speaker Change: Go back that long.
Speaker Change: Think about it now is a lot more defense business that we had back then.
Stephen Oswald: Yeah, I think we have a lot. I think when you go back that long, I mean, if you think about us now, it's a lot more defense business than we had back then. So that's one thing to think about, and also...
Speaker Change: So that's one thing to think about it also.
Speaker Change: <unk>, which is extremely important that you have.
Speaker Change: A good deal more engineered product and aftermarket.
Speaker Change: So.
Speaker Change: That could also follow the commercial right Mike but.
Stephen Oswald: We were certainly different back then.
Speaker Change: Much more.
Speaker Change: We are certainly different back then.
Mike Crawford: And so you are right that we have the right kind of base I think we have good balance and I think that.
Speaker Change: We're very anxious I know its kellys first day, so we're we're going to cheer for him and.
Suman Mookerji: The declines were partially offset by strength on select military platforms including the F-15, F-56 radar and naval and submarine programs along with business jets with Gulf Stream and on the A-220 platform with Airbus. Electronic systems operating income for the second quarter was 16.8 million or 16.6 percent of revenue versus 9.5 million or 8.9 percent of revenue in the prior year, period. Excluding restructuring charges and other adjustments in both years, the segment operating margin was 16.9% in Q2 2024, which is 11.4% in Q2 2023. The year-over-year increase was primarily due to shifting mix with higher growth in revenues and profitability in our engineered product businesses, along with strategic value pricing initiatives as well as savings from the restructuring program.
Speaker Change: We certainly feel like things are going to get better and we're going to ride the wrap up.
Speaker Change: That's going to be great for our revenue.
Suman Mookerji: I'll add there, Mike, as you help, as you think about modeling our commercial aerospace revenues relative to where we were in 2019, a little over half of our revenues come from our commercial aerospace revenues come specifically from Boeing and Airbus platforms. So, you know, you couldn't apply build rates directly to our entire commercial airspace revenues. There are other elements, including business jets, commercial helicopters, and other in-flight entertainment stuff and things that we do. So if you were looking really at build rates across Boeing and Airbus platforms, a little more than half. Got it. Thank you.
Speaker Change: Got it got it.
Speaker Change: As you help you.
Speaker Change: Think about modeling our commercial aerospace revenues relative to where we were in 2019, a little over half of our revenues come from our commercial aerospace revenues come specifically from Boeing and Airbus platforms.
Speaker Change: No.
Speaker Change: You Couldnt apply directly to our entire commercial aerospace revenues there are other elements, including business jet commercial helicopters.
Speaker Change: And other inflight entertainment stuff and things that we do so if you are looking really at build rates across Boeing and Airbus platforms.
Speaker Change: A little more than half.
Speaker Change: Yes.
Speaker Change: Got it.
Speaker Change: Yes, okay.
Speaker Change: No.
Speaker Change: Yes.
Suman Mookerji: Restructuring savings were driven by the transition of product lines from our variable performance center to other facilities.
Michael Ciarmoli: Okay, and it's just the last one. Any thoughts, Suman, on free cash generation? I know you kind of mentioned that inventory being down sequentially, but, you know, just, I know you've got the guidance out there on the top line, talked a little bit about the margins and where we should be. But how should we think about cash generation in the second half of the year here and into 25?
Speaker Change: But right now it's that much okay.
Speaker Change: Okay and then just.
Speaker Change: The last one any thoughts on.
Speaker Change: On free cash generation I know you kind of mentioned that inventory being down sequentially, but just I know you've got the guidance out there on the top line.
Suman Mookerji: Next I would like to provide an update on our ongoing restructuring program. As a reminder and as discussed previously, we commenced a restructuring initiative back in 2022. These actions have been taken to better position the company for stronger performance in the short and long time. This includes the shutdown of our facilities in Manrovia, California, and Barry Will Orkinsau, and the transfer of that work to our low-cost operation in Guamance, Mexico, and to other existing performance centers in the United States.
Suman Mookerji: We continue to make progress on these transitions with excellent employee retention and engagement and are also working diligently with our customers, Boeing and RTX to obtain the requisite approval. During Q2 2024, we recorded 2.1 million in restructuring charges. The majority of these charges were severance and related benefits as we continue to wind down the two operations. We expect to incur an additional 3 to 4 million in restructuring expenses through the end of 2024 and early 2025 as we complete the program.
Speaker Change: Talked a little bit about the margin, where we should be but how should we think about cash generation second half of the year here and into 'twenty five.
Suman Mookerji: Yeah, that's an important focus area for us, Mike, at the company. And Q2, as you noted, was impacted by the buildup in contract assets as we did some of these buffer bills; we did some amount of build ahead on commercial aerospace platforms. We do expect that Q4 will be really strong for us in terms of cash flow to the end of the year on a much more positive note, and that is a priority for us. I mean, I would expect Q3 to be marginally better, but not significantly, but with a real ramp-up in cash flow towards the end of the year.
Speaker Change: Yes, the important focus area for us Mike of the company.
Speaker Change: In Q2 as you noted was impacted by a buildup in contract assets as we do.
Speaker Change: These buffer builds we did some amount of build ahead on commercial aerospace platform.
Speaker Change: We do expect.
Speaker Change: That Q4 will be really strong for us in terms of cash flow to end up.
Speaker Change: On a much more positive note and that is a priority for us I mean, I would expect Q3 to be marginally better, but not significantly, but where the real ramp up in cash flow towards the end of the year.
Michael Ciarmoli: Okay, well, in our business. Okay. Okay. Good. Thanks.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Well in our business okay.
Michael Ciarmoli: Okay, good. Thanks guys. I'll jump back in the queue.
Speaker Change: Okay, great. Thanks, guys I'll jump back in the queue.
Suman Mookerji: Upon the completion of our restructuring program, we expect to generate 11 to 13 million in annual savings from our actions and are already beginning to see some realization of savings from these actions this year. We anticipate selling the land and building at both Manrovia, California, and Barry Will Orkinsau.
Speaker Change: Thanks.
Speaker Change: Thank you.
Operator: Our next question is from the line of Noah Poponac with Goldman Sachs.
Noah <unk>: Our next question is from the line of Noah <unk> with Goldman Sachs.
Noah Poponac: Hey, good afternoon, Griffin and Jumaan. Maybe just picking up there. How should we think about where free cash to net income conversion or EBITDA conversion goes, you know, over the medium term if you kind of think about more normal times where you're not having to build ahead and you don't have so much uncertainty at the customers and, you know, things are kind of coming along a little bit more visibly.
Noah <unk>: Hey, good afternoon.
Suman Mookerji: Yeah, an excellent question. Thanks, Noah.
Noah <unk>: Yes.
Noah <unk>: Do you mind, maybe just picking up there how should we think about where free cash to net income conversion or EBITDA conversion.
Suman Mookerji: Turning next to liquidity and capital resources. Here today, Q2 2024, we generated 1.8 million in cash flow from operating activities, which was an improvement compared to a year-to-date Q2 2023, which had a usage of 9.7 million. The improvement was due to a higher net income of 7 million as well as improvements compared to prior year in accrued in other liabilities. As at the end of the second quarter, we had available liquidity of 205.4 million comprising of the unutilized portion of our revolver and cash on hand.
Noah <unk>: Go.
Speaker Change: The medium term if you kind of think about more normal times, where you're not having to build ahead.
Speaker Change: You don't have so much uncertainty at the customers.
Noah <unk>: Things that are kind of humming, along a little bit more visibly.
Suman Mookerji: You know, in the longer run, we do want to get our fee clash flow closer to the net income number. But we're not going to get there here in the next few quarters or next year, as we continue to have a significant amount of inventory and contract assets on the balance sheet. And supply chain pressures, while they have eased, are still significant. We continue to have close to two years of lead time on inventory.
Noah <unk>: Yes excellent question. Thanks Noah.
Noah <unk>: In the longer run, we do want to get our free cash flow closer to the net income number.
Suman Mookerji: Our existing credit facility was put in place in July 2022 at an opportune time in the credit market, allowing us to reduce our spread, increase the size of our revolver, and allowing us the flexibility to execute on our acquisition strategy. Interest expense was 4 million compared to 5.7 million in Q2 of 2023. The year-over-year improvement in interest costs, despite a higher net balance, was due to the interest rate hedge going into effect.
Noah <unk>: We are not going to get that here in the next few quarters or next year.
Noah <unk>: We continue to have significant amount of inventory and contract assets on the balance sheet and supply chain pressure as well these are still significant.
Noah <unk>: We continue to have close to two years of lead time on the inventory we have fluctuations in build rates, which often means we're stuck with raw material inventory.
Suman Mookerji: We have fluctuations in build rates, which often means we are stuck with raw material inventory we've ordered two years in advance sitting on our balance sheet. So as those supply chain pressures ease, and there is more predictability in production rates, we will be able to continue to wind down our strategic inventory that we have been holding for the past few years. And it will get us over the next couple of years closer to that target of getting our free cash flow in line with our net income. Yeah, yeah.
Noah <unk>: Two years in advance sitting on our balance sheet. So.
Suman Mookerji: In November 2021, we put in place an interest rate hedge that went into effect for a 7-year period starting January 2024, and pay the one-month term so far at 170 basis points for 150 million of our Yet, the heads resulted in intersaving as a 1.4 million in Q2 2024 and will continue to drive significant interest cost savings in 2024 and beyond.
Noah <unk>: As those supply chain pressures eased there is more predictability and production rates, we will be able to continue to wind down our strategic inventory that we have been holding for the past few years and it will get us over the next.
Noah <unk>: A couple of years.
Noah <unk>: In closer to that target of getting our free cash flow in line with our net income.
Stephen Oswald: And no, this is Steve. I also think that some of this restructuring is going to help. I mean, there are other things, bigger rocks for the market and troubled companies and you know, strategic buying and everything, but it also is going to help us on the manufacturing services side to have a smaller footprint and, I think, better management over our inventory and our processes.
Noah <unk>: And now this is Steve I also think that some of this restructuring is going to help I mean, there is other things it bigger bigger rocks of the market and troubled companies.
Steve Oswald: Strategic buying and everything but it also is going to help us on the manufacturing services side to have shorter small footprint and I think better management of our inventory and our processes.
Suman Mookerji: Just in closing, Q2 was an excellent quarter and a record and met in some cases with many highlights for the company and our shareholders to start to realize some of the gains we all expect for the Vision 2027, especially around margin expansion. First half position as well to deliver a strong performance in 2022 despite some of the current constraints. The progress on gross and even a margin expansion has been excellent. We're not surprised and feel right on schedule.
Noah Poponac: Okay, that's helpful; I appreciate that. On the margins, the segment margins, I guess, would it be possible to just speak to how you expect each segment's margin in the second half to kind of compare to the first half? Just, you know, electronic systems have had this pretty sizable increase year over year. Structurally, you talked about the difference between 1Q and 2Q, but that's a pretty big difference. How do each of those shape up in the second half versus the first half?
Steve Oswald: Okay.
Speaker Change: That's helpful. I appreciate that.
Speaker Change: On the margins the segment margins I guess would it be possible to just speak to how you expect each segment margin in the second half.
Speaker Change: Kind of Directionally compared to the first half just.
Speaker Change: Chronic systems, we've had this pretty sizable increase year over year.
Speaker Change: Structural you talked about the difference between <unk> and <unk>, but that's a pretty big difference.
Suman Mookerji: In addition on two key tenants, there are 2027 game plan. We're tracking well against the goals of 18% even a margins and 25% of more of engineered product and aftermarket revenues. With commercial aerospace bills ramps still ahead of us and the benefits from our facility consolidation expected to kick in starting in 2025.
Speaker Change: How does each of those shape up second half versus first half.
Suman Mookerji: Yeah, so I'll take that. So we don't, while we don't give guidance at the segment level for margins, I can give you some comments which are kind of directionally helpful to you. So if you look at our electronics margins, they jumped in Q1 of this year, and they've kind of stayed in the ballpark here in Q2. And that was driven by a shift in the mix within our electronic systems portfolio towards more engineered product revenue and growth in the profitability as well of those engineered product revenues on a year-over-year basis.
Speaker Change: Yes.
Speaker Change: Like that so.
Speaker Change: We don't we don't give guidance at the segment level for margins I can give you some comments, which are if you kind of Directionally help you. So if you look at the our electronics margins they have jumped.
Suman Mookerji: I'm excited about what lies ahead for us at the Common and our shareholders in the years ahead. Stay tuned.
Speaker Change: In Q1 of this year and they've kind of stayed in the ballpark.
Steve Oswald: In Q2.
Steve Oswald: And that was driven by a shift in the mix within our electronic systems portfolio towards more engineered product revenue.
Operator: Okay, with that, let's please go to questions. Thank you.
Operator: One moment for our first question.
Jason Gursky: And it comes from the line of Jason Gersky with city, please proceed. Yeah, hello there, everybody. Thanks for taking the question.
Steve Oswald: Growth in the profitability.
Steve Oswald: Well of those engineered product revenues on a year over year basis. So that was a significant driver for.
Suman Mookerji: So that was a significant driver for the electronics segment margins. And we, you know, I would say, would expect margins to stay in the ballpark of where you're seeing them here in Q2 for the rest of the year. There is always a range of, I would say, 50 to 75 basis points within which they may fluctuate based on product mix in a particular quarter, but they're in that ballpark. On the structure side, you saw margins this quarter get back to historical levels. We had an unusual situation with Monrovia, which had unusually low revenue and other one-time costs as we were shutting down the facility in Q1, which subdued the overall structure segment margins.
Stephen Oswald: And see, maybe start with you and talk a little bit about the pipeline of new opportunities and maybe just kind of give us a flavor of how things have evolved year to date, you know, starting at the beginning of the year where you are today. And what you see in the pipeline, I'm just curious if anything kind of new and interesting has popped up for you here over the last six, seven months.
Steve Oswald: The electronics segment margins and.
Steve Oswald: I would say, we would expect margins to stay in the ballpark of where youre seeing them here in Q2.
Speaker Change: For the rest of the year right.
Speaker Change: Alright, there is always a range of I would say $50 to 75 basis points within which they may fluctuate based on product mix in a particular quarter, but they are in that ballpark on the structure side you saw margins this quarter or get back to historical levels. We had an unusual situation with Monrovia, which had unusually lower revenue.
Stephen Oswald: And, you know, when you look out over the next couple of years, what you think the pipeline conversion might look like and book the bills on just in the general demand flavor as well. Thanks. Okay, thank you. Good to be with you.
Steve Oswald: <unk> and other onetime costs as we were shutting down the facility in Q1, which subdued the overall structure segment margins.
Suman Mookerji: That got back to normal here in Q2, and it helped the structures business improve. We also had some better mix in there, which helped in Q2 get the structures margins up. Now, with Monrovia costs being further cut down in Q3, and as Steve mentioned there, we have less than 20 people now in that facility, we do believe that we will have similar levels of structural margins for the second half. And, you know, of course, margins will continue to improve in 2025 as the restructuring savings start to kick in and other initiatives take hold.
Steve Oswald: That clock back to normal here in Q2 helped the structured business improve we also had some better mix in there.
Stephen Oswald: So first let me just tack the commercial aerospace. There's, you know, yeah, talked about the skins and that's, you know, though not a huge number starting next year, about three or four million. I mean, we're only doing less than 10% of the fuselage for the max. You know, we're doing 100% of fuselage for the 820. So we can do it, right? We have the capacity. We have the machine. So that's something in the pipeline.
Steve Oswald: Which helped in Q2, given the structural margins up now with Monrovia cost being further cut down in Q3 and as Steve mentioned, we have less than 20 people now in that facility.
Steve Oswald: We do believe that we will have similar levels of structure of margins for the second half.
Stephen Oswald: You know, we're very, very excited about. We're also, and we can't disclose it today. We're also working on opportunities more on the commercial aerospace side. And so simply around the share shift from some of our competitors and won't get into it today. But we have some nice things happening there. We're going to pick up. I can, you know, disclose this. We're going to pick up also on the 787, a good amount of business starting in January 2025.
Steve Oswald: And.
Steve Oswald: Of course margins will continue to improve.
Speaker Change: In 2025, as a restructuring savings start to kick in and other initiatives take hold so lots of trajectory margins improved second half I would say margins.
Suman Mookerji: So, long-term trajectory margins improved. Second half, I would say, margins are expected to stay in the same ballpark. Q2 margins, I would say, probably have about 75 basis points of favorable mix in them, just overall at the DCO level. But that's typical for us, and we expect to stay in there. We're going to hold...
Suman Mookerji: I expect it to stay in the same ballpark.
Speaker Change: Q2 margins I would say probably have about 75 basis points of favorable mix and then overall at the <unk> level.
Stephen Oswald: And the 787, you know, gets the five or 10. That's, that's, that's real money for DCO. So on that side, it's good. We just met with Airbus at the air show. You know, we're in a very good position. You know, with Airbus, you know, they're, they're going on the way up. And we're going to go on the way it with them. So I think on the commercial side, it's all looking very positive.
Steve Oswald: And.
Speaker Change: That's typical for us.
Suman Mookerji: We expect to stay on that right now we're going to hold serve for the most part.
Suman Mookerji: We're going to hold serve for the most part.
Suman Mookerji: Okay.
Speaker Change: Super Helpful Last one I had was just.
Noah Poponac: Super helpful. Last one I had was just, your defense revenue, um, you know, had a bit of a transition with the F-18 and the timing of the missile, I think was how you described it, and it's, it looks like maybe you've now lapped the former and then have had some orders on the latter. Should we expect your defense revenues to kind of be stable going forward here or can the growth rate accelerate?
Speaker Change: Your defense revenue.
Speaker Change: <unk> had a bit of a guess transition with.
Stephen Oswald: And there will be more news coming on the fence side. You know, we certainly worked on sort of the hypersonic and the other, you know, sort of things that we probably can't discuss on the call too much, but I'll just give you one example. This offloading program has been great for us. We're really getting heavy at the radar. You know, we make one card so far on the S2Y6 and here today it's going to be $5 million for one card.
Noah Poponac: Okay.
Steve Oswald: And the timing of missile I think whats how you described it.
Speaker Change: It looks like maybe you have now lapped the former and then we've had some orders on the ladder.
Speaker Change: Should we expect your defense revenues to kind of be stable.
Speaker Change: Stable going forward here or can the growth rate accelerate.
Suman Mookerji: We'll probably be flattish here in the rest of 2024 as we continue to face tough competition on the F-18 in particular, as well as the TOW missile program. But, you know, with TOW coming back in 2025, as well as other programs such as the SPY-6 ramping up in 2025, we should have better times and defense starting next year. Yeah, but we're better next year.
Speaker Change: We've probably flattish here in the rest of <unk>.
Stephen Oswald: So we're going to bring on another card next year. So we've got some very nice things happening in defense, not only organically, but obviously, you know, with share shift as well. And we just met with Gratheon at the air show and had a great meeting in the Tomahawk's going to go to Glimis, which is going to be a great boost for us from where we are now in Maryville. That's a major program.
Speaker Change: 124, as we continue to face tough compares on the F 18.
Suman Mookerji: In particular.
Suman Mookerji: And as well as the tool missile program.
Suman Mookerji: But with <unk> coming back in 2025 as well as other programs such as the spy six ramping up in 2025, we should have better times in defense.
Stephen Oswald: We've had that since the 80s. It's right now, obviously, we built all the buffer to move it. So, but we have some wonderful margin expansion happening there as well as we go to Glimis and the Tom. So the Tomahawk's also coming back. We talked about that already in my remarks coming back mid-year. We have already had the PO for that in Glimis.
Suman Mookerji: It'll be better next year.
Speaker Change: Next year will be better next year.
Steve Oswald: Sure.
Noah Poponac: Okay, this is super helpful. Thank you.
Speaker Change: Okay Super helpful. Thank you.
Noah Poponac: Thanks, Noah. Thanks for calling in.
Speaker Change: Thanks for calling in thank you. Thank you and there appears to be no further questions I will turn the call back to Stephen Oswald for closing remarks.
Operator: Thank you, and there appear to be no further questions. I will turn the call back to Stephen Oswald for closing remarks.
Stephen Oswald: Okay, thank you very much, and I just wanted to thank everyone for joining us. Obviously, we're very enthusiastic about our numbers and about our performance. As we close the second quarter, we feel great about where we are, and we look forward to continuing to build a performance story as we move to our Vision 2027 financial goals. So again, we appreciate all the support and wish you a good day. Thank you.
Stephen Oswald: Yes. Thank you very much and I just wanted to thank everyone for joining US obviously, we're very enthusiastic about our numbers about our performance as we close.
Stephen Oswald: So both on the commercial and the fence side looking good to very good. And then also, obviously, the build rates, which I think are going to go up eventually, that's going to be some nice tailwind as well.
Stephen Oswald: The second quarter.
Steve Oswald: Feel great about where we are and we look forward to continuing to build.
Stephen Oswald: Okay, great. And just a quick follow up. So when you mentioned maybe some additional liquidity to your capacity, and I think you mentioned M&A on the same sentence, so I'm just kind of curious to get an update, you know, just on the pipeline of potential M&A and have you further open the aperture on potentially doing something larger where we bringing in more revenue than what you had targeted for Vision 2027? So we continue to look at a number of opportunities.
Stephen Oswald: Performance story as we move to our vision 2027 financial goals. So again, we appreciate all the support and wish you a good day. Thank you.
Operator: And thank you all for participating in today's conference. You may now disconnect.
Speaker Change: Thank you all for participating in today's conference and you may now disconnect.
Operator: Okay.
Steve Oswald: [music].
Stephen Oswald: I would say that in terms of us being able to meet and exceed the target we set forth in Vision 2027, which is a $75 million placeholder for revenue from acquisitions. We feel very good about being able to meet and exceed that. So I would agree. Are we looking to do something bigger than or something more transformational at this time? No, we're looking to continue our strategy doing these stuck-in acquisitions of niche product lines in kind of a more manageable size range and be proven with our leverage at this time. So we aren't looking to change the aperture on on signs of deals, but we feel good about being able to exceed the Vision 2027 target for acquisition revenue.
Steve Oswald: Okay.
Steve Oswald: [music].
Stephen Oswald: Okay, great.
Jason Gursky: I'll pass the line. Thanks.
Operator: Thank you.
Mike Crawford: Our next question comes on the line of Mike Crawford with B. Riley Securities. Thank you so much. You benefit from absorption as you built some buffer stock now. Can you just walk us through how margins are affected by the ramp up at Gwymas and as you work through this buffer that you've built up and get into a more normal edge cadence. Right, so a great question, Mike, and we did have a significant improvement in our structures, segment margins on a sequential quarter basis, and to the point you just made it was driven to a large extent by Mondrovia having better absorptions actually, the Mondrovia had significantly lower revenues in Q1 versus the Q4 of last year and Q1 of 2023, so we saw a very low revenue base trying to handle higher fixed cost based in Q1 which led to a higher one-time cost related to the transition in Mondrovia and Q1.
Mike Crawford: We had lower costs, we had doubled the revenue in Mondrovia as we built up buffer stock and looked to close out operations, we had doubled the revenue in Q2 versus Q1 in that Mondrovia facility, that helped with absorption again to the point you made, right, and we also had some slightly better mix, so we feel like the improvement that we're seeing in that structure segment margin in Q2, which is in line with where the structures margins have been historically is sustainable if that's where you're getting to. Okay, thank you, and just, excuse me, we're getting near the end of this, I guess, second restructuring program since you guys joined the company and put it on its current trajectory, but I know there's 11 to 13 million cost savings target, but I imagine a chunk of that has already been realized.
Mike Crawford: That is correct, so I would say that from our variable and chaplain facility, we are right now tracking at a run rate of, I would say, 2 to 3 million of savings annually, the shutdown of the variable, of course, that will ramp up later in 2025 when we actually start production of some of those product lines in Guamus, Mexico, so that hasn't started yet. I wouldn't say a good chunk, Mike, I would say it's, I think, 2 to 3 is fair, okay, there's a lot more coming, okay, great, thank you very much, thank you, and as a reminder, if you do have a question, simply press star 11.
Mike Crawford: Our next question is from Michael Chiarmoli with Truest Securities. Hey, good afternoon guys, thanks for taking the questions, good results. Hey, yes, Steve or Simona, the buffer stock, I think coupling that with maybe, I think you said you're building a head right now, how should we sort of calibrate ourselves just on the revenue, I think you said 3Q would be down a little bit, but do we have to go through an unwind period here, as we look out over the second half of the year, even into early 25, just depend, I mean, I don't think we have a crystal ball with Boeing's rates or airbuses, for sure, but how should we think about maybe the impact of the build ahead and buffer on revenue?
Mike Crawford: James. Yeah, I might in a great question. So we during Q2, we had about, I would say, between the buffer build and the build ahead, somewhere between five to six million in revenue that you could say was pulled ahead from Q3 and Q4. And so that's kind of how I would think about how Q3 comes out in line with what Steve said a little earlier, you know, Q3 being flatish on a year-over-year basis and then seeing improvement in Q4 so that kind of all in all, we come out at that mid-single digit guidance for the full year.
Mike Crawford: Mike, I think that's the right way to think about, I think overall it's light, the impact of light. Okay. So it's not anything very concerned about, but you know, just sort of on the call. I mean, you know, we're a little, you know, Parsons is a big manufacturer for both spirit and for B.A. And, you know, we just don't want to have to lay off 40 people and then four months later hire them again.
Mike Crawford: Right, right, yeah, of course. There's a little of this that said there's some retention, employer retention in there that I think investors, I think hopefully will agree it's smart. Got it. And then just on the aerospace, I mean, I know we can kind of see it in our models. You've got the slide out there highest quarterly revenue rates since, you know, 3Q19. Is there any way to measure that on a same store sales basis?
Mike Crawford: I mean, you've obviously had some acquisitions in there. You've picked up some new programs like the A220, but just knowing that Max had been one of the biggest programs, you know, just trying to get a sense as to if I were looking at that on same store sales versus that 3Q, you know, how much runway do you still have? Because I mean, we're still well below prior peak production rates here. I think we have a lot.
Mike Crawford: I think when you go back that long, I mean, do you think about us now? It's a lot more defense business than we have back then. So that's one thing to think about. And also, and which is extremely important, we have a good deal more engineered product and aftermarket. So, you know, and that could also fall in the commercial, right? But, you know, we're much more, we're certainly different back then. And so you're right that, you know, we have the, I think the right kind of base.
Mike Crawford: I think we have good balance. And I think that, you know, we're very anxious. I know it's Kelly's first day, so we're going to cheer for him. And, you know, we certainly feel like things are going to get better. We're going to ride the wrap up. And I think that's going to be great for our revenue. Got it. You think about modeling our commercial aerospace revenues relative to where we were in 2019.
Mike Crawford: A little over half of our revenues come from our commercial aerospace revenues come specifically from Boeing and Airbus platforms. So, you know, you couldn't apply good rates directly to our entire commercial aerospace revenue. There are other elements including business jets, commercial helicopters, another infight entertainment stuff, and things that we do. So, if you were looking really at build rates across Boeing and Airbus platforms, a little more than half.
Mike Crawford: Okay, and it's just the last one. Any thoughts Suman on on free cash generation? I know you you kind of mentioned that inventory being down sequentially, but you know just I know you've got the guidance out there on the top line. Talk a little bit about the margins and where we should be, but how should we think about cash generation. Second half of the year here and then into 25. Yeah, that's an important focus area for us, Mike, as a company and Q2, as you noted, was impacted by build up and contract assets as we did some of these buffer bills, we did some amount of build ahead on the level space platforms.
Mike Crawford: We do expect that Q4 will be really strong for us in terms of cash flow to end up the year on a much more positive note and that is a priority for us. I mean, I would expect Q3 to be marginally better but not significantly but with a real ramp up in cash flow towards the end of the year. Okay, thank you.
Operator: Thank you.
Noah Poponak: Our next question is from the line of Noah Poponeck with Goldman Sachs. Hey, good afternoon. Yes.
Noah Poponak: Do not maybe just picking up there. How should we think about where free cash to net income conversion or you've a doc conversion. Go, you know, over the medium term. If you kind of think about more normal times where you're not having to build ahead and. You don't have so much uncertainty at the customers and, you know, things are kind of coming along a little bit more visibly. Yeah, no, excellent question.
Noah Poponak: Thanks Noah. You know, in the longer run, we do want to get our fee class flow closer to the net income number. We're not going to get there here in the next few quarters or next year as we continue to have significant amount of inventory and contract assets on the balance sheet and supply chain pressure as well. The fees are still significant. We continue to have close to two years of lead time on inventory.
Noah Poponak: We have fluctuations in build rates, which often means we are stuck with wrong material inventory. We have ordered two years in advance sitting on our balance sheet. So as those supply chain pressures is there is more predictability and production rates. We will be able to continue to wind down our strategic inventory that we have been holding for the past few years. And it will get us over the next couple of years in, you know, closer to that target of getting our free cash flow in line with our net income.
Noah Poponak: And Noah and Steve also think that some of the restructuring is going to help. I mean, there's other things. It's bigger, bigger rocks on the market and troubled companies and strategic buying and everything. But it also is going to help us on the manufacturing services side that have a small footprint. And I think better management over inventory and our process.
Suman Mookerji: Okay, that's helpful, appreciate that. On the margins, the segment margins, I guess, would it be possible to just speak to how you expect each segment's margin in the second half to kind of directionally compare to the first half? Just, you know, electronic systems has had this pretty sizable increase year over year. Structural, you talked about the difference between one Q and two Q, but that's a pretty big difference. How do each of those shape up, second half, first, first half?
Suman Mookerji: Yes, I'll take that. So, we don't, but we don't give guidance at the segment level for margins. I can give you some comments which are kind of directionally help you. So, if you look at the, our electronics margins, they have jumped in Q1 of this year and you can have stayed in the ballpark here in Q2 and that was driven by a shift in the mix within our electronic systems portfolio towards more engineered product revenue and growth in the profitability as well of those engineered product revenues in a year over your basis.
Suman Mookerji: So, that was a significant driver for the electronic segment margins and we, you know, I would say would expect margins to stay in the ballpark of where you're seeing them here in Q2 for the rest of the year, right? There's always a range of, I would say, 50 to 75 basis points within which they may fluctuate based on product mix in a particular quarter but they're in that ballpark. On the structure side, you saw margins this quarter get back to historical levels.
Suman Mookerji: We had an unusual situation with Minrovia which had an usually low revenue and other one-time costs as we were shutting down the facility in Q1 which subdued the overall structure segment margins. That got back to normal here in Q2, helped the structures business improve. We also had some better mix in there which helped in Q2 get the structures margins up. Now, with Minrovia costs being further cut down in Q3 and as Steve mentioned, we have less than 20 people now in that facility.
Suman Mookerji: We do believe that we will have similar levels of structures margins for the second half and, you know, of course margins will continue to improve in 2025 as the restructuring savings start to decaying and other initiatives take hold. So a lot of trajectory margins improve. Second half, I would say margins are expected to stay in the same ballpark. Q2 margins, I would say, probably have about 75 basis points of favorable mix in them just overall at the DCO level. But that's difficult for us and we expect to stay in that rate. We're going to hold serve for the most part. Okay, super helpful.
Noah Poponak: Last one I had was just your defense revenue.
Suman Mookerji: You know, had a bit of a, I guess, transition with F18 and the timing of missile, I think, was how you described it and it looks like maybe you've now lapped the former and then have had some orders on the ladder, should we expect your defense revenues to kind of be stable, going forward here or can the growth rate accelerate? We probably flatish here in the rest of 2024 as we continue to face tough compares on the F18 in particular as well as the Tome and Soul program but you know, with toe coming back in 2025 as well as other programs such as the 5-6 ramping up in 2025, we should have better times than defense in starting next year, yeah, but we've better next year, for sure.
Noah Poponak: Okay, super helpful, thank you. Thanks, Noah, thanks for calling in, thank you.
Stephen Oswald: Thank you and there appears to be no further questions, I will turn the call back to Stephen Oswald for closing remarks. Okay, thank you very much and I just wanted to thank you here for joining us, obviously, we're very enthusiastic about our numbers about our performance as we close the second quarter, we you know, we feel great about where we are and we look forward to continuing to build a performance story as we move to our vision 2027 financial goals. So again, we appreciate all the support and wish you a good day.
Operator: Thank you.
Operator: And thank you all for participating in today's conference, you may now disconnect. [inaudible]