Q3 2024 Ducommun Inc Earnings Call
During this session you will need to press star one on your telephone you will then hear an automated message of I think your your hand, just raised to withdraw your question. Please press star. One again, please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today, Simone Leukergy, Vice President and Chief Financial Officer. Please.
Simone Leukergy: Go ahead.
Simone Leukergy: Thank you.
Speaker Change: Welcome to Ducommun started 24 third quarter conference call with me today is Steve Oswald Chairman, President and Chief Executive Officer.
Speaker Change: 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.
Speaker Change: 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 1095 and are therefore perspective. These forward looking statements are subject to risks.
Speaker Change: 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: 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: Particular risks facing ducommun include among others. The cyclicality of our end use markets the level of U S government defense spending.
Speaker Change: 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 acquisitions and competition economic and geopolitical developments, including supply chain issues and rising our high interest rates the ability to attract and.
Speaker Change: Retain key personnel and avoid labor disruptions the ability to adequately protection enforce intellectual property rights, pandemics disasters, natural or otherwise and risk of cyber security attacks.
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 forward looking statements are subject to those risks.
Speaker Change: Shipments 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.
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.
Speaker Change: We filed our Q3 2024 quarterly report on Form 10-Q with the SEC today.
Speaker Change: I would now like to turn the call over to Steve Oswald for a review of the operating results.
Speaker Change: Steve.
Okay. Thank you Sam and thanks, everyone for joining us today for our third quarter conference call.
Speaker Change: Today and as usual I'll give you an update of the current situation at the company.
Speaker Change: Afterwards, <unk> will review our financials in detail let.
Speaker Change: Let me start off again on this quarterly call with Ducommun vision 2027 game plan for investors the.
Speaker Change: The strategy and vision to develop coming out of the Covid pandemic over the summer and fall of 2022 unanimously approved by the common Board in November 2022, and then presented to investors. The following month in New York.
Speaker Change: We got excellent feedback.
Speaker Change: Since that time to talent management has been executing the vision 2027th strategy by increasing the revenue percentage of engineered products and aftermarket content consolidating its fact facility or rooftop footprint continuing its targeted acquisition program executing our offloading strategy with defense primes and high growth segments of the defense budget.
Speaker Change: Value added pricing initiatives and by expanding content on key commercial aerospace platforms.
Speaker Change: All of US here as well as my fellow Board members continue to have a high level of conviction in the vision 2027 strategy and financial goals.
Speaker Change: I believe the many catalysts ahead present, a unique value creation opportunity for shareholders.
Speaker Change: The Q3 2020 results are another Great example of our strategy and initiatives working.
Speaker Change: Q3 was our second consecutive quarter of record revenue and gross margin represents another very strong performance for DCF.
Speaker Change: Revenues exceeded $200 million for the first time ever.
Speaker Change: Only two 6% over the prior year and this quarter is our fifth consecutive quarter above $190 million in revenue.
Speaker Change: Strong year over year growth in our radar electronic warfare and missile programs drove our military and space revenues to 6% growth over prior year.
Speaker Change: Defense business has now been over $100 million in revenue for the fourth time in the last five quarters.
Speaker Change: We remain optimistic.
Speaker Change: About the growth ahead.
Speaker Change: I also want to point out that Northrop Grumman was our second largest customer for revenue this quarter.
Speaker Change: First that <unk>.
Speaker Change: And up from Q3 last year, but over 100% to over $17 million.
Speaker Change: This will moderate going forward, but it is a great side as we move to build scale at other defense primes outside of our TX our largest customer.
Speaker Change: In our commercial aerospace business, we continue to see excellent growth on the <unk> hundred 20 program, where we make the skins for the entire fuselage along with strong growth in other Airbus platforms, a real bright spot as well was the <unk> hundred 20 family up 60% year over year things are moving.
Speaker Change: Business jet revenues powered on and was driven higher by the work, we do at Gulfstream Bombardier and others.
Speaker Change: Strength at Airbus and with business Jets was partially offset by weakness from Boeing platforms.
Speaker Change: Which were down over prior year by over 40%.
Speaker Change: Driven by lower build rates earlier in the quarter and the impact of the strike in September.
Speaker Change: Overall commercial aerospace grew 3% year over year.
Speaker Change: We now have grown year over year revenue on our commercial aerospace business for 13 consecutive quarters.
Speaker Change: Demonstrating the resilience of our business, even in a challenging OEM environment with spirit and Boeing.
Back in September.
The other good news for <unk> commercial aerospace business the fuselage skin project for the 737 Max at Spirit.
Overall commercial aerospace grew 3% year over year.
And we now have grown year over year revenue in our commercial aerospace business for 13 consecutive quarters, demonstrating the resilience of our business even in a challenging OEM environment with spirit and Boeing.
Speaker Change: Which I've been mentioning as being outsourcing their internal operations.
Speaker Change: We see first Oracle proven September and shipped our first production set last month.
The other good news for <unk> commercial aerospace business the fuselage skin project for the 737 Max at Spirit.
Speaker Change: 2025 revenue for the foreskin should be over $3 million.
Speaker Change: The foreskin section, which is less than 10% of the fuselage and $22000 to our ship set for the Max and.
Which I've been mentioning as being outsourced from their internal operations.
Speaker Change: And we continue to drive that number higher and higher for the program.
See first article approval in September and shipped our first production set last month.
I also want to add that we're picking up more content on the 787 for all models due to a share shift from a competitor in 2025.
25 revenue for the foreskin should be over $3 million.
<unk> section, which is less than 10% of the fuselage, it's $22000 to our ship set for the Max.
Speaker Change: I'll have more details for you on the next call it is significant.
And we continue to drive that number higher and higher for the program.
Another record highlights in Q3 was gross margins of 26, 2% for the quarter of 350 basis points year over year from 22, 7%.
I also want to add that we are picking up more content on the 787 for all models due to a share shift from a competitor in 2025.
Speaker Change: 20 basis points compared to the second quarter as we continue to realize benefits from our strategic value pricing initiatives productivity improvements.
I'll have more details for you on the next call it is significant.
Another record highlight in Q3 was gross margins of 26, 2% for the quarter of 350 basis points year over year from 22, 7%.
Speaker Change: Favorable product mix growing engineered product portfolio with aftermarket and initial restructuring savings.
20 basis points compared to the second quarter as we continue to realize benefits from our strategic value pricing initiatives productivity improvements.
Speaker Change: In addition, our Monrovia, California facility is now closed and our variable lockett's our facility is down to less than 10 people to remain to maintain capability and until the receiving plant in <unk>, Mexico certified for the Tomahawk missile program.
Favorable product mix growing engineered product portfolio with aftermarket and initial restructuring savings.
Speaker Change: We're already seeing cost savings from these facility closures and we will see these savings will be higher as the receiving plants ramp up production in 2025 stay tuned.
In addition, our Monrovia, California facility is now closed and our variable rockets or facilities down to less than 10 people to remain to maintain capability into the receiving plant in guaymas, Mexico certified for the Tomahawk missile program.
Speaker Change: For adjusted operating income margins in Q3, the team delivered 10, 5% a record performance and well ahead of the $18, 8.9% number in Q3 2023.
We're already seeing cost savings from these facility closures and we will see these savings will be higher as the receiving plants will ramp up production in 2025 stay tuned.
Speaker Change: This is a great result, driven by the continued growth in our engineered product businesses favorite favorable product mix impact of our strategic pricing initiatives and our restructuring savings during the quarter.
For adjusted operating income margins in Q3, the team delivered 10, 5% a record performance and well ahead of the 88, 9% number in Q3 2023.
Adjusted EBITDA was another great story in Q3, achieving $31 9 million and expanding to 15, 8% for the first time.
This is a great result, driven by the continued growth in our engineered product businesses favorite favorable product mix impact of our strategic pricing initiatives and our restructuring savings during the quarter.
Speaker Change: This is 90 890 basis points above prior year, and 60 basis points over the second quarter.
Speaker Change: This continues the outstanding momentum we've seen each quarter. This year as you work towards the 18% goal and our vision 2027 plant.
Adjusted EBITDA was another great story in Q3, achieving $31 9 million and expanding to 15, 8% for the first time.
GAAP diluted EPS was <unk> 67 cents a share in Q3 2024 versus 22, a share for Q3 2023 and with the adjustments diluted EPS was an impressive 99, a share compared to diluted EPS of <unk> 70 in the prior year quarter.
This is 90% 90 basis points above prior year, and 60 basis points over the second quarter.
This continues the outstanding momentum we've seen each quarter. This year as you work towards the 18% goal and our vision 2027 plan.
GAAP diluted EPS was <unk> 67 cents a share in Q3 2024 versus 22, a share for Q3 2023 and.
Speaker Change: The higher GAAP and adjusted diluted EPS during the quarter was driven by improved operating income.
Speaker Change: As well as lower interest cost due to our hedging strategy put in place this year in January.
And with the adjustments diluted EPS was an impressive 99, a share compared to diluted EPS of <unk> 70 in the prior year quarter.
Speaker Change: The Companys consolidated backlog continues to be strong at $1 $44 million decreasing $24 million sequentially, but increasing over $85 million year over year.
The higher GAAP and adjusted diluted EPS during the quarter was driven by improved operating income.
As well as lower interest cost due to our hedging strategy put in place this year in January.
Speaker Change: Defense backlog increased $97 million compared to the prior year quarter is at $592 million with new orders for toll missiles.
The Companys consolidated backlog continues to be strong at $1 $44 million, decreasing 24 million sequentially, but increasing over $85 million year over year.
Speaker Change: Mesa airborne surveillance as well as other platforms.
Speaker Change: As discussed we've experienced the pause in the order cycle for the toll missile case.
Defense backlog increased $97 million compared to the prior year quarter is at $592 million with new orders for tow missiles Mesa.
But now it is coming back strong.
Speaker Change: With better pricing and will be manufactured in a low cost wireless Mexico facility, where previously it was produced in Monrovia, California.
Mesa airborne surveillance as well as other platforms.
Speaker Change: The commercial aerospace backlog decreased sequentially by $20 million, but was still up $8 million on a year over year basis.
As discussed we've experienced the pause in the order cycle for the toll missile case.
But now it is coming back strong.
With better pricing and will be manufactured in a low cost wireless Mexico facility, where previously it was produced in Monrovia, California.
Speaker Change: As for the 2020 for revenue guidance with VA and.
Speaker Change: And the movement of three major programs out of Monrovia and variable we are guiding to the lower end of single digits, an expected range of 3% to 4% for the full year.
The commercial aerospace backlog decreased sequentially by $20 million, but was still up $8 million on a year over year basis.
Speaker Change: Three major programs being moved will all start up again in 2025.
As for the 2020 for revenue guidance with VA and.
Speaker Change: And the Max build rates they'll still weak in Q4, we will start to recover as VA employees now returned to work.
And the movement of three major programs out of Monrovia and variable we're guiding to the lower end of single digits, an expected range of 3% to 4% for the full year.
Speaker Change: We are well positioned for the recovery in 2025 and 2026 for both the Max and the 787.
Three major programs being moved will all start up again in 2025.
Speaker Change: Now, let me provide some additional color on our markets products and programs.
And the Max build rates they'll still weak and Q4 will start to recover as VA employees now returned to work.
Beginning with our military and space sector, we experienced revenues of $111 million compared to $105 million in Q3 2023.
We are well positioned for the recovery in 2025 and 2026 for both the Max and the 787.
Speaker Change: Growth was driven by radar and electronic warfare programs.
Now, let me provide some additional color on our markets products and programs.
Speaker Change: 15.
The Blackhawk.
Speaker Change: These are partially offset by weakness in Apache.
Beginning with our military and space sector, we experienced revenues of $111 million compared to $105 million in Q3 2023.
Speaker Change: Which is in the middle of being transferred to other Monrovia and the GSS revenues.
Speaker Change: The third quarter's military and space revenue represented 55% of the comments revenues in the period down from 59% for the full year back in 2022.
Growth was driven by radar and electronic warfare programs or F 15.
And the Blackhawk.
These are partially offset by weakness in Apache.
Speaker Change: And 70% in 2021.
As in the middle of being transferred out of Monrovia, and the GSS revenues.
Speaker Change: We expect this trend and reflects commercial aerospace getting stronger for <unk>, providing good balance.
The third quarter's military and space revenue represented 55%.
Speaker Change: We also ended the third quarter with a backlog of $592 million, an increase of $97 million year over year, representing 57% of ducommun is total backlog.
The comments revenues in the period down from 59% for the full year back in 2022.
And 70% in 2021.
We expected this trend and reflects commercial aerospace getting stronger for D. C O provide a good balance.
Speaker Change: Within our commercial aerospace operations.
Speaker Change: Third quarter revenue continued to grow increasing 3% year over year to $85 million driven mainly by growth on the <unk> hundred 20, and <unk> hundred 20 platforms as well as with business jets offset by slowing rates on the 737 Max.
We also ended the third quarter with a backlog of $592 million, an increase of 97 million year over year, representing 57% of ducommun total backlog.
Within our commercial aerospace operations.
Speaker Change: As mentioned earlier, we believe a much better story is ahead for <unk> and the Max now that the strike is resolved and they returned to their projected production rates in 2025.
Third quarter revenue continued to grow increasing 3% year over year to $85 million driven mainly by growth on the <unk> hundred 20, and <unk> hundred 20 platforms as well as with business jets offset by slowing rates on the 737 Max.
Speaker Change: Also keep an eye on the 787 as you move higher.
Speaker Change: On the rates for <unk>.
As mentioned earlier, we believe a much better story is ahead for <unk> and the Max now that the strike is resolved and they returned to their projected production rates in 2025.
Speaker Change: The backlog within our commercial aerospace business was $431 million at the end of the third quarter increased the $8 million compared to the prior year, a solid number given the temporary weakness in.
Also keep an eye on the 787 as you move higher.
Speaker Change: In the commercial aerospace markets.
The rates for VA.
Speaker Change: With that I will have some I'll review our financial results in detail.
The backlog within our commercial aerospace business was $431 million at the end of the third quarter increased the $8 million compared to prior year, a solid number given the temporary weakness in the commercial aerospace markets.
Speaker Change: Thank you Steve as a reminder, please see the Companys Q3, 10-Q, and Q3 earnings release for a further description of information mentioned on today's call.
Speaker Change: As Steve discussed our third 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.
With that I will have some I'll review our financial results in detail.
Speaker Change: Thank you Steve as a reminder, please see the company's Q3 10-Q and Q3 earnings release for a further description of information mentioned on today's call.
Speaker Change: In addition, we also made good progress on our facility consolidation efforts during the quarter, which has benefited us in 2024 and will drive more meaningful synergies in 2025 and beyond.
Speaker Change: As Steve discussed our third 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.
Speaker Change: With all this we feel like 'twenty 'twenty four is showing good momentum as we continue to drive our performance towards our vision 2027 goals.
Speaker Change: In addition, we also made good progress on our facility consolidation efforts during the quarter, which has benefited us in 2024 and will drive more meaningful synergies in 2025 and beyond.
Speaker Change: Now turning to our third quarter results.
Speaker Change: Revenue for the third quarter of 2024 was $201 4 million versus $196 3 million for the third quarter of 2023 the.
With all this we feel like 'twenty 'twenty four is showing good momentum as we continue to drive our performance towards our vision 2027 goals.
Speaker Change: The year over year increase of two 6% reflects growth in.
Speaker Change: Now turning to our third quarter results.
Speaker Change: In both commercial aerospace and military and space highlighted by $6 6 million of growth across military and space platforms, and $2 $8 million of growth in our commercial aerospace platforms.
Speaker Change: Revenue for the third quarter of 2024 was $201 4 million versus $196 3 million for the third quarter of 2023 the.
Speaker Change: The year over year increase of two 6% reflects growth.
Speaker Change: We posted total gross profit of $52 7 million or 26, 2% of revenue for the quarter versus $44 6 million or 22, 7% of revenue in the prior period.
Speaker Change: In both commercial aerospace and military and space highlighted by $6 6 million of growth across military and space platforms, and $2 $8 million of growth in our commercial aerospace platforms.
Speaker Change: We continue to provide adjusted gross margins as we have certain non-GAAP cost of sales items in the current and prior year period relating to inventory step up amortization on our recent acquisitions restructuring charges and the impact from the <unk> fire on our operations on an adjusted basis, our gross margins were 26, 5%.
Speaker Change: We posted total gross profit of $52 7 million or 26, 2% of revenue for the quarter versus $44 6 million or 22, 7% of revenue in the prior period.
Speaker Change: We continue to provide adjusted gross margins as we have certain non-GAAP cost of sales items in the current and prior year period relating to inventory step up amortization on our recent acquisitions restructuring charges and the impact from the <unk> fire on our operations.
Speaker Change: In Q3, 2024 versus 24, 1% in Q3 2023 <unk>.
Speaker Change: The improvement in gross margin was driven by our growing engineered product portfolio as well as favorable product mix in our manufacturing services businesses.
Speaker Change: On an adjusted basis, our gross margins were 26, 5% in Q3 2024 versus 24, 1% in Q3 2023 the.
Speaker Change: Strategic pricing initiatives productivity improvements and restructuring savings.
Speaker Change: We continue to make progress working through a difficult operating environment with supply chain and labor.
Speaker Change: The improvement in gross margin was driven by our growing engineered product portfolio as well as favorable product mix in our manufacturing services businesses.
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.
Speaker Change: Strategic pricing initiatives productivity improvements and restructuring savings.
Speaker Change: During the third quarter of 2024, we have reduced our inventory by $16 million from Q2, 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: We continue to make progress working through a difficult operating environment with supply chain and labor.
Speaker Change: Through our proactive efforts, including strategic buyers in our inventory investments, we have been able to avoid any significant impact thus far on our business during.
Speaker Change: We continue to look for opportunities to unwind, our working capital investments to improve our cash flow.
Speaker Change: During the third quarter of 2024, we have reduced our inventory by $16 million from Q2, 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: Ducommun reported operating income for the third quarter of $15 3 million or seven 6% of revenue compared to $8 6 million or four 4% of revenue in the prior year period.
Speaker Change: We continue to look for opportunities to unwind, our working capital investments to improve our cash flow.
Speaker Change: Adjusted operating income was $21 1 million or 10, 5% of revenue this quarter compared to $17 5 million or eight 9% of revenue in the comparable period last year.
Speaker Change: Ducommun reported operating income for the third quarter of $15 3 million or seven 6% of revenue compared to $8 6 million or four 4% of revenue in the prior year period.
Speaker Change: The company reported net income for the third quarter of 2024 of $10 1 million or <unk> 67 per diluted share compared to net income of $3 2 million or 22 per diluted share a year ago.
Speaker Change: Adjusted operating income was $21 1 million or 10, 5% of revenue this quarter compared to $17 5 million or eight 9% of revenue in the comparable period last year.
Speaker Change: On an adjusted basis. The company reported net income of $14 8 million or <unk> 99 per diluted share compared to adjusted net income of $10 3 million or <unk> 70 in Q3 2023.
Speaker Change: The company reported net income for the third quarter of 2024 of $10 1 million or <unk> 67 per diluted share compared to net income of $3 2 million or <unk> <unk> per diluted share a year ago.
Speaker Change: The higher net income and adjusted net income during the quarter was driven by the higher operating income and adjusted operating income. Additionally, our interest rate hedge helped to reduce our year over year interest expense.
Speaker Change: On an adjusted basis. The company reported net income of $14 8 million or <unk> 99 per diluted share compared to adjusted net income of $10 3 million or <unk> 70 in Q3 2023.
Speaker Change: Now, let me turn to our segment results.
Speaker Change: Our structural systems segment posted revenues of $86 million in the third quarter of 2024 versus $85 5 million last year.
Speaker Change: The higher net income and adjusted net income during the quarter was driven by the higher operating income and adjusted operating income. Additionally, our interest rate hedge helped reduce our year over year interest expense.
Speaker Change: Year over year increase reflects $3 7 million of higher sales across our commercial aerospace applications, including the <unk> hundred 20, and 820 in addition to business Jets and other commercial aerospace.
Speaker Change: Now, let me turn to our segment results.
Speaker Change: Our structural systems segment posted revenues of $86 million in the third quarter of 2024 versus $85 5 million last year the.
Speaker Change: $3 3 million of lower revenue within the military.
Speaker Change: The year over year increase reflects $3 7 million of higher sales across our commercial aerospace applications, including the <unk> hundred 20, and 820 in addition to business Jets and other commercial aerospace.
Speaker Change: And space markets was driven by a decline in the past year revenue as we shut down production in our Monrovia facility offset by growth we saw in Blackhawk.
Speaker Change: Structural systems operating income for the quarter was $8 3 million or nine 6% of revenue compared to $6 7 million or seven 9% of revenue for the prior year quarter.
Speaker Change: The $3 3 million of lower revenue within the military.
Speaker Change: And space markets was driven by a decline in the past year revenue as we shut down production in our Monrovia facility offset by growth we saw in Blackhawk.
Speaker Change: Excluding restructuring charges and other adjustments in both years. The segment operating margin was 14, 7% in Q3 2024 versus 15, 7% in Q3 2023.
Speaker Change: Structural systems operating income for the quarter was $8 3 million or nine 6% of revenue compared to $6 7 million or seven 9% of revenue for the prior year quarter.
Speaker Change: The slight decline was from higher cost due to the transition of product production from Monrovia to guaymas, partially offset by strategic pricing initiatives and operating leverage from higher revenues at other performance centers within the segment.
Speaker Change: Excluding restructuring charges and other adjustments in both years. The segment operating margin was 14, 7% in Q3 2024 versus 15, 7% in Q3 2023.
Yes.
Our electronic systems segment posted revenue of $115 4 million in the third quarter of 2024 versus $110 7 million in the prior year period.
Speaker Change: The slight decline was from higher cost due to the transition of product production from Monrovia to guaymas, partially offset by strategic pricing initiatives and operating leverage from higher revenues at other performance centers within the segment.
Speaker Change: The increase is attributable to higher revenues from radar and electronic warfare programs.
Speaker Change: Yes.
Speaker Change: Our electronic systems segment posted revenue of $115 4 million in the third quarter of 2024 versus $110 7 million in the prior year period.
Speaker Change: This was offset by lower revenues from Inflight Entertainment electronics, along with a reduction in our industrial business as we chose to selectively prune noncore business.
Speaker Change: The increase is attributable to higher revenues from radar and electronic warfare programs. This was offset by lower revenues from inflight Entertainment electronics, along with a reduction in our industrial business as we chose to selectively prune non core business.
Speaker Change: Electronic systems operating income for the third quarter was $18 9 million or 16, 4% of revenue versus $12 7 million or 11, 5% of revenue in the prior year period.
Speaker Change: Excluding restructuring charges and other adjustments in both years. The segment operating margin was 16, 8% in Q3 2024 versus 13, 4% in Q3 2023.
Speaker Change: Electronic systems operating income for the third quarter was $18 9 million or 16, 4% of revenue versus $12 7 million or 11, 5% of revenue in the prior year period.
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.
Speaker Change: Excluding restructuring charges and other adjustments in both years. The segment operating margin was 16, 8% in Q3 2024 versus 13, 4% in Q3 2023.
Speaker Change: The restructuring savings were driven by the transition of product lines from our variable performance center to other facilities.
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.
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 2022. These actions are being taken to better position the company with stronger performance in the short and long term. This.
Speaker Change: The restructuring savings were driven by the transition of product lines from our variable performance center to other facilities.
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 2022. These actions are being taken to better position the company for stronger performance in the short and long term. This.
Speaker Change: This includes the shutdown of our facilities in Monrovia, California, and variable, Arkansas and the transfer of that work to our low cost operation in Guam is Mexico and two other existing performance centers in the United States.
Speaker Change: We continue to make progress on these transitions and are working diligently with our customers Boeing and Raytheon to obtain the requisite approvals.
Speaker Change: This includes the shutdown of our facilities in our Monrovia, California, and variable, Arkansas and the transfer of that work through our low cost operation in Guaymas, Mexico and two other existing performance centers in the United States.
Speaker Change: During Q3, 'twenty 'twenty four we recorded $1 9 million in restructuring charges, we expect to incur an additional two to 3 million in restructuring expenses as we complete the program.
Speaker Change: We continue to make progress on these transitions and are working diligently with our customers Boeing and Raytheon to obtain the requisite approvals.
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.
Speaker Change: During Q3, 'twenty 'twenty four we recorded $1 9 million in restructuring charges, we expect to incur an additional two to 3 million in restructuring expenses as we complete the program.
Speaker Change: We anticipate selling the land and building at both Monrovia and variable.
Speaker Change: One 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.
Speaker Change: Turning next to liquidity and capital resources year to date Q3, 2024, we generated $15 8 million in cash flow from operating activities, which was an improvement compared to year to date Q3, 2023 generation of $4 6 million.
Speaker Change: We anticipate selling the land and building at both Monrovia and variable.
Speaker Change: Turning next to liquidity and capital resources year to date Q3, 2024, we generated $15 8 million in cash flow from operating activities, which was an improvement compared to year to date Q3, 2023 generation of $4 6 million.
Speaker Change: The improvement was due to higher net income was $24 7 million as well as improvements compared to prior year and inventories and accounts payable.
Speaker Change: As of the end of the third quarter, we had available liquidity of $218 3 million comprising of the Unutilized portion of our revolver and cash on hand.
Speaker Change: The improvement was due to higher net income of $24 7 million as well as improvements compared to prior year and inventories and accounts payable.
Our existing credit facility was put in place in July 2022 at an opportune time in the credit markets, allowing us to reduce our spread increase the size of our revolver and allowing us the flexibility to execute on our acquisition strategy.
Speaker Change: As of the end of the third quarter, we had available liquidity of $218 3 million comprising of the Unutilized portion of our revolver and cash on hand.
Speaker Change: Interest expense was $3 8 million compared to $5 4 million in Q3 of 2023.
Speaker Change: Our existing credit facility was put in place in July 2022 at an opportune time in the credit markets, allowing us to reduce our spread increase the size of our revolver and allowing us the flexibility to execute on our acquisition strategy.
Speaker Change: The year over year improvement in interest cost was due to the interest rate hedge going into effect.
Speaker Change: In November 2021.
Speaker Change: We've put in place an interest rate hedge that went into effect for a seven year period, starting January 2024, and begs the one month term so far at 170 basis points for a $150 million of our debt. The hedge resulted in interest savings of $1 4 million in Q3, 2024 and will continue to drive significant interest.
Speaker Change: Interest expense was $3 8 million compared to $5 4 million in Q3 of 2023.
Speaker Change: The year over year improvement in interest cost was due to the interest rate hedge going into effect.
Speaker Change: In November 2021.
Speaker Change: We've put in place an interest rate hedge that went into effect for a seven year period, starting January 2024, and begs 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 Q3, 2024, and we will continue to drive significant interest.
Speaker Change: Cost savings in 2024 and beyond.
Speaker Change: To conclude the financial review for Q3, 2024, I would like to say that the third quarter results continued our momentum this year and positioned us well for the rest of 2024.
Speaker Change: I'll now turn it back over to Steve for his closing remarks.
Speaker Change: Cost savings in 2024 and beyond.
Steve Oswald: Okay. Thanks Ahmad closing look Q3 excellent quarter a record in some cases, many highlights for the company and our shareholders.
Speaker Change: To conclude the financial review for Q3, 2024, I would like to say that the third quarter results continued our momentum this year and positioned us well for the rest of 2024.
Steve Oswald: As you realize the gains we all expect from our vision 2027 strategy, especially around margin expansion.
Speaker Change: I'll now turn it back over to Steve for his closing remarks, Steve.
Speaker Change: Steve.
Speaker Change: It's working well.
Steve: In closing look Q3 excellent quarter a record in some cases, many highlights for the company and our shareholders.
Speaker Change: What surprised.
And the progress on gross and EBIT margin expansion has especially been a highlight.
Speaker Change: We're also tracking well against the goals of 18% EBIT margins and 25% or more of engineered product and aftermarket revenues for 2027.
Speaker Change: As you realize the gains we all expect from our vision 2027 strategy.
Speaker Change: Especially around margin expansion.
Speaker Change: It's working well.
Speaker Change: Not surprised.
Speaker Change: Could not be happier.
Speaker Change: And the progress on gross and EBITDA margin expansion has especially been a highlight.
Speaker Change: Finally, with the strike now behind Us.
Speaker Change: Commercial bill rates heading higher.
Speaker Change: We're also tracking well against the goals of 18% EBITDA margins and 25% or more of engineered product and aftermarket revenues for 2027.
Speaker Change: Along with stronger defense activity, including Fms ahead, I feel great about the next few years for all of US. So thank you again for listening and I will turn it over for questions.
Speaker Change: I could not be happier.
Speaker Change: Finally, with the VA strike now behind Us.
Speaker Change: Thank you as a reminder to ask a question. Please press star one on your telephone in late June aimed to be announced.
Speaker Change: Commercial bill rates heading higher.
Speaker Change: Along with stronger defense activity, including SMS ahead, I feel great about the next few years.
Speaker Change: Your question. Please press star one again.
Moment for our first question.
Speaker Change: For all of US. So thank you again for listening and we will turn it over for questions.
Speaker Change: Our first question is going to come from the line of Mike Crawford with B Riley Securities. Your line is open. Please go ahead.
Speaker Change: Thank you and as a reminder to ask a question. Please press star one on your telephone in late June aimed to P&L till withdraw your question. Please press star one again.
Speaker Change: Thank you what is it that youre doing new for Northrop Grumman and what else could you help them.
Speaker Change: Moment for our first question.
Speaker Change: Yes, well look.
Speaker Change: Our first question is going to come from the line of Mike Crawford with B Riley Securities. Your line is open. Please go ahead.
Speaker Change: Let me again highlight for me highlight for the company, we do a lot of the airborne surveillance electronics, we do power packs.
Mike Crawford: Thank you what is it that youre doing new for Northrop Grumman and what else could you help them.
Speaker Change: This whole Mesa program, which kind of comes every two years, which is a huge order for US is all Northrop and we're sole source on that so we will continue to drive that business. So it's a lot of electronics.
Speaker Change: Yes, well look we're.
Speaker Change: Again, the highlight for me highlight for the company, we do a lot of the airborne surveillance electronics, we do power packs.
Speaker Change: A lot of it is in our Huntsville operation in Arkansas, but were doing other things as well Im actually two weeks from now I'm going to be with their leadership our Baltimore.
Speaker Change: This whole Mesa program, which kind of comes every two years, which is a huge order for US is all Northrop and we're sole source on that so we will continue to drive that business. So it's a lot of electronics.
Speaker Change: Because what we're looking for even bigger things ahead. So.
Speaker Change: Part of our brand the whole thing up is that we've talked about this over the years about okay.
Speaker Change: A lot of it is in our Huntsville operation in Arkansas, but we're doing other things as well Im actually two weeks from now I'm going to be with their leadership our Baltimore.
Speaker Change: <unk> is a huge customer for you for <unk> thats, great where else can be going for.
Speaker Change: Bigger scale of defense primes, and I think we're finally, starting to crack the code in north rope and we love them as far as their partnership in and we do a lot of good things I think value added for them.
Speaker Change: Because what we're looking for even bigger things ahead. So.
Speaker Change: Part of our brand the whole thing up is that we've talked about this over the years about okay.
Speaker Change: <unk> is a huge customer for you for <unk> thats, great where else can be going for bigger.
Speaker Change: Okay, Great and then.
Speaker Change: On the 707 and you've been I believe.
Speaker Change: Bigger scale of defense primes, and I think we're finally, starting to crack the code at North rope and we love them as far as their partnership and we do a lot of good things I think value added for them.
Speaker Change: Delivering about $90000 worth of AR.
Speaker Change: Content per aircraft and where is that heading to now with the share shifts that you've won yes.
Speaker Change: Okay, Great and then.
Speaker Change: Yes, im going to have to them.
Speaker Change: On the 787 and <unk> been I believe.
Speaker Change: I want to wait till the next call I will tell you that.
Speaker Change: The increase is going to be double digit I don't want to go too far right now, but this is a major win for US. This is coming from a competitor will have more detailed February then I'll give you. The actual ship set number I don't want to I don't want to.
Speaker Change: Delivering about $90000 worth of.
Speaker Change: Content per aircraft and where is that heading to now with the share shift that you're gone.
Speaker Change: Yes, im going to ask you.
Speaker Change: So I want to wait till the next call I will tell you that.
Speaker Change: Ahead of ourselves right now but.
Speaker Change: Everything is kind of done done, but we just need to give a little more time and then we'll be ready.
Speaker Change: The increase is going to be double digit I don't want to go too far right now, but this is a major win for US. This is coming from a competitor I'll have more detail in February that I'll give you. The actual ship set number I don't want to I don't want get too ahead of ourselves right now but.
Speaker Change: Okay. Thank you one last for me just from these acquired engineered products and aftermarket products businesses are there any new favourite or I guess, Conversely, unruly children in the room that set of companies that you are now growing.
Speaker Change: Everything is kind of done done, but we just need to give a little more time and then we'll be ready.
Speaker Change: Okay. Thank you one last for me just from these acquired engineered products and aftermarket products businesses are there any new favorite or I guess, Conversely, unruly children in the room that set of companies that you are now growing.
Speaker Change: No I wouldn't specifically highlight one over the other we've had.
Speaker Change: Good performance across our engineered product portfolio.
Speaker Change: Okay, that's fair.
Speaker Change: Okay. Thank you Simone Thank you Steve Thanks, Mike.
Speaker Change: Thank you one moment our next question.
Speaker Change: No I wouldn't specifically highlight one over the other we've had.
Speaker Change: Next question is going to come from the line Jason.
Speaker Change: Good performance across our engineered product portfolio.
Speaker Change: Okay.
Speaker Change: With Citi. Your line is open. Please go ahead.
Speaker Change: Okay, that's fair.
Speaker Change: Great Good morning, everybody Hi, Jay.
Speaker Change: Okay. Thank you Simone Thank you Steve Thanks, Mike.
Speaker Change: Just a quick question on <unk>.
Speaker Change: Thank you one moment our next question.
Speaker Change: <unk>.
Speaker Change: Next question is going to come from the line Jason.
Speaker Change: At the company.
Speaker Change: It sounds like.
Speaker Change: Okay.
Jason: With Citi. Your line is open. Please go ahead.
Speaker Change: There's been an acceleration here maybe potentially.
Speaker Change: Great Good morning, everybody Hi, Jay.
Speaker Change: Some outsourcing.
Speaker Change: Both commercial as well as defend it sounds like you've got plenty of opportunities there.
Speaker Change: Just a quick question on <unk>.
Speaker Change: <unk>.
Speaker Change: Curious how much more work can you all take on.
Speaker Change: At the company.
Speaker Change: It sounds like.
Speaker Change: There's been an acceleration here, meaning potentially.
Speaker Change: Without the need to.
Speaker Change: Ramp up.
Speaker Change: Some outsourcing.
Speaker Change: Capex.
Speaker Change: Both commercial as well as defend it sounds like you've got plenty of opportunities there.
Speaker Change: Let me maybe just let's start with that yes fair question, which is the auction yes sure.
Speaker Change: Just curious how much more work can you all take on.
Thanks, Jason for that question, so we do <unk>.
Speaker Change: Without the need to.
Speaker Change: I believe our structures business.
Speaker Change: Ramp up.
Speaker Change: As a lot of capacity.
Speaker Change: Capex.
Speaker Change: Let me maybe just let's start with that yes fair question, which is yes sure. Thanks, Jason for that question. So we do <unk>.
Speaker Change: Max production rates are still pretty low versus the 57%. We saw back in 2019. So we're not looking at any significant investments expected that in the near term on the electronics side.
Speaker Change: I believe our structures business.
Speaker Change: As a lot of capacity.
Speaker Change: Business is doing well a lot of that is defense and.
Speaker Change: <unk> production rates are still pretty low versus the 57%. We saw back in 2019. So we're not looking at any significant investments expected that in the near term on the electronics side.
Speaker Change: So we do expect that as the business continues to grow we will continue to make expansion on the fringes at.
Speaker Change: At a number of our facilities, but those are not very capital intensive expansions and so we're maintaining.
Speaker Change: Business is doing well a lot of that is defense and.
Speaker Change: So we do expect that as the business continues to grow we will continue to make expansion on the fringes at.
Speaker Change: Turning to our outlook on Capex spending to be in line with what we had said during our vision 2027.
Speaker Change: At a number of our facilities, but those are not very capital intensive expansions and so we are.
Speaker Change: Strategy discussions.
Speaker Change: And it's going to be kind of in that $20 million.
Speaker Change: Range going forward for the next few years, Jason Let me just jump in here. So also we're not rather than heavy second and third shifts.
Speaker Change: Maintaining kind of our outlook on capex spending to be in line with what we had said during our vision 2027.
Speaker Change: Some of these structural plants.
Speaker Change: Strategy discussions.
Speaker Change: I think we're in very good shape. There. So we don't think we not only have the capital in place, but we have the time and the plant right. So.
Speaker Change: And it's going to be kind of in that 20 million.
Speaker Change: Range going forward for the next few years, Jason Let me just jump in here. So also we're not rather than heavy second and third shifts.
Speaker Change: We feel good about where we are and where we're going with our capital okay.
Speaker Change: Some of these structural plants.
Speaker Change: Great, Yes that makes good sense and.
Speaker Change: I think we're in very good shape. There. So we don't think we not only have the capital in place, but we have the time and the plant right. So.
Speaker Change: And then just on the M&A.
Front can you kind of describe the.
Speaker Change: The pipeline in the current environment. There I know you assume some additional acquisitions here over time and I'm just kind of curious how.
Speaker Change: We feel good about where we are and where we're going with our capital okay.
Speaker Change: Okay, great, yes that makes good sense.
Speaker Change: That part of the vision 2027.
Speaker Change: <unk>.
Speaker Change: And then just on the M&A.
Speaker Change: Framework is shaping up for you.
Speaker Change: Can you kind of describe the.
Alright, and then as continuous activity on that front I can tell you we are super busy looking at things and we have been for the most part of this year.
Speaker Change: The pipeline in the current environment. There I know you assume some additional acquisitions here over time and I'm just kind of curious how.
Speaker Change: We're seeing even more I would say in the past few months.
Speaker Change: Is that part of the vision 2027.
Speaker Change: We're going to make.
Speaker Change: Framework is shaping up for you.
Speaker Change: Right.
Speaker Change: Our selection and we've got to make sure that it's the right fit for us so.
Speaker Change: Alright, and then as continuous activity on that front I can tell you we are super busy looking at things and we have been for the most part of this year.
Speaker Change: We're keeping at it we think there is plenty of opportunity there.
Speaker Change: We're seeing even more I would say in the past few months.
Speaker Change: And.
Speaker Change: We're going to make.
Speaker Change: Stay tuned in the coming few quarters.
Speaker Change: Right.
Speaker Change: Our selection and we've got to make sure that it's the right fit for us so.
Speaker Change: We will continue.
Continue to have M&A activity I think Thats fair I think we are we're seeing we are seeing more.
Speaker Change: We're keeping at it we think there is plenty of opportunity there.
Speaker Change: <unk> deals and obviously Jason.
As they say, we're kind of we're picky eaters.
Speaker Change: And.
Speaker Change: Stay tuned in the coming few quarters.
Speaker Change: We've had a lot of success with the things we bought in the past so.
Speaker Change: We will continue.
Speaker Change: Maybe look at things in me for environmental or other reasons, we just think it's not for us so so.
Speaker Change: Continue to have M&A activity I think Thats fair I think we are we're seeing we are seeing more.
Speaker Change: <unk> deals and obviously Jason.
Speaker Change: The other good news Ed for that.
Speaker Change: As they say, we're kind of we're picky eaters.
Speaker Change: Okay, Great I'll leave it there thanks, guys. Thank you Jason because Vod.
Speaker Change: We've had a lot of success with the things we bought in the past so.
Speaker Change: One moment for our next question. Our next question is going to come from the line of Michael <unk> with.
Speaker Change: Maybe look at things in mid for environmental or other reasons. We just think it's not for us so so.
Speaker Change: Sure Securities. Your line is open. Please go ahead.
Speaker Change: The other good news Ed for that.
Speaker Change: Hey, good morning, guys. Thanks for taking the questions good results.
Speaker Change: Okay, Great I'll leave it there thanks guys.
Speaker Change: I guess either Steve.
Jason Let: Jason because vod.
Speaker Change: Thank you one moment for our next question. Our next question is going to come from the line of Michael <unk> with <unk>.
Speaker Change: Just on the revenue guidance now down at the lower end.
Speaker Change: I guess it implies.
Speaker Change: <unk> Securities. Your line is open. Please go ahead.
Speaker Change: On a sequential step down into the fourth quarter, maybe 5% or so if you get to that low end and then I guess I'm just thinking about.
Speaker Change: Hey, good morning, guys. Thanks for taking the questions good results.
Speaker Change: I guess either Steve.
Speaker Change: What is your margin situation look like try and calibrate us maybe for the fourth quarter and then obviously with the Boeing strike and disruption and then.
Speaker Change: On the revenue guidance now down at the lower end.
Speaker Change: I guess it implies.
Speaker Change: A sequential step down into the fourth quarter, maybe 5% or so if you get to that low end and then I guess I'm just thinking about.
Speaker Change: How we recover to that in the 25 and it sounds like it's the guide all related to the Boeing strike I know you called out some of the program movement, but I thought that was kind of already in the plan.
Speaker Change: What is your margin situation look like try and calibrate us maybe for the fourth quarter and then obviously.
Speaker Change: Yes.
Okay. So.
Speaker Change: The Boeing strike and disruption and then kind of how we recover to that in the 25 and it sounds like the guide all related to the Boeing strike I know you called out some of the program movement, but I thought that was kind of already in the plan.
Speaker Change: The Boeing piece is definitely a key driver right. If you look at where.
Speaker Change: We were expecting commercial aerospace build rates to be for the Max coming into the year versus where they actually panned out and then even versus where things stood at the end of Q2, when we last spoke about our outlook for the.
Speaker Change: Yeah. So.
Speaker Change: The Boeing piece is definitely a key driver right. If you look at where.
Speaker Change: Sure.
Speaker Change: We were expecting commercial aerospace build rates to be for the Max coming into the year versus where they actually panned out and then even versus where things stood at the end of Q2.
Speaker Change: Things have deteriorated dramatically.
Speaker Change: And we.
Speaker Change: Have seen shipments to spirit go to kind of the low twenty's.
Speaker Change: When we last spoke about our outlook for the year.
And we are seeing shipments to Boeing come down to zero on the Max in.
Speaker Change: Things have deteriorated dramatically and we.
Speaker Change: In September.
Speaker Change: So.
Speaker Change: Have seen shipments to spirit go to kind of the low twenty's.
Speaker Change: That is certainly I mean, the Max is still less than 10% of our revenues in the current year.
Speaker Change: And we are seeing shipments to Boeing come down to zero on the Max.
Speaker Change: But just under and so it does while it doesn't have an outsized impact and we've been able to stay broadly in the ballpark of where we had.
Speaker Change: In September.
Speaker Change: So.
Speaker Change: That is certainly I mean, the Max is still less than 10% of our revenues in the current year, but it is.
Previously guided there was a little bit of.
Speaker Change: A haircut to accommodate for for the Max.
Speaker Change: But just under and so it does while it doesn't have an outsized impact and we've been able to stay broadly in the ballpark of where we had pre.
Speaker Change: As we have seen in the quarter.
Speaker Change: Let me jump vendor for me just on these programs so look.
Speaker Change: The Tomahawk for instance of 17 different harnesses and pretty much.
Speaker Change: Previously guided there was a little bit of.
As I've mentioned in the past Oems or digital or other things and we've really had a fight to get this approved we have filed we have final buying now so that's going to come soon but.
Speaker Change: A haircut to accommodate for for the Max.
Speaker Change: Changes, we've seen in the quarter.
Speaker Change: And Michael jump vendor for me just on these programs so look.
Speaker Change: The Tomahawk for instance of 17 different harnesses and pretty much.
Speaker Change: One of the reasons two in Q4, we just had some delays with Oems you mean that anything other than.
Speaker Change: As I've mentioned in the past Oems or digital or other things and we've really had a fight to get this approved we have filed we have final buying now so that's going to come soon but.
Speaker Change: Just trying to push this thing over the line and we're very close on this.
Speaker Change: We feel great about these transfers so more comment and mark out it would be good.
Speaker Change: That's one of the reasons too in Q4.
Speaker Change: Margins should be got it.
Speaker Change: Margin so in the fourth quarter I mean, it sounds like structural.
Speaker Change: Had some delays at Oems do mean that.
Speaker Change: Anything other than.
Speaker Change: I mean, Max at zero, it sounds like Youre going to be dealing with some decrementals in excess overhead there and then we kind of just sort of snapback maybe to this level in that 14 15 issued back in the first quarter alright.
Speaker Change: Just trying to push this thing over the line and we're very close on this.
Speaker Change: We feel great about these transfers so more comment and mark out it would be good.
Speaker Change: Margins should be got it.
Speaker Change: Margin so in the fourth quarter I mean, it sounds like structural if I mean, Max at zero, it sounds like youre going to be dealing with some decrementals in excess overhead there and then we kind of just sort of snapback maybe to this level in that 14 15 issued back in the first quarter alright.
Speaker Change: Alright.
Speaker Change: Great question, Mike and while Max shipment rates might be at zero, we will still see some revenue and production activity.
Speaker Change: As required by ASC 606, so we're going to see some because we don't want to shut down the facility and restart again, so there's going to be some continuing activity. So it won't technically come down even though chip shipments are at zero I would say margins.
Speaker Change: Alright.
Speaker Change: Great question, Mike and while Max shipment rates might be at zero, we will still see some revenue and production activity.
Speaker Change: Are going to stay in the same ballpark.
Speaker Change: We are going to be maybe some minor impact of volume and product mix, but we're not expecting.
Speaker Change: As required by ASC 606, so we're going to see some because we don't want to shut down the facility and restart again, so there's going to be some continuing activity. So it won't technically come down even though chip shipments are at zero I would say margins.
Speaker Change: And again, we don't guide on margins, but there isn't any reason for us to believe that there's going to be any material change there, Mike, but thats one of the things about the vision 2027 coming in with where we're getting more and more engineered product and aftermarket so it might take a little bit on the chin with.
Speaker Change: Are going to stay in the same ballpark.
Speaker Change: We are going to be maybe some minor impact of volume and product mix, but we're not expecting.
Speaker Change: And then again, we don't guide on margins, but there isn't any reason for us to believe that there's going to be immaterial change that yes, Mike but.
Speaker Change: With the Max but we got other things coming in so that's the beauty of this thing.
Speaker Change: Got it got it helpful. And then just the last one how much is there a lot left of pruning on the industrial.
Speaker Change: So thats one of the things about the vision 2027 coming in with where we are getting more and more engineered products and aftermarket so it might take a little bit on the chin with.
Speaker Change: Sort of piece of the business I mean, it's kind of sub scale now Im sure Theres, just some some natural product adjacency, but any anything else youre, either industrial or anywhere else you are looking to prune.
Speaker Change: With the Max but we got other things coming in so that's the beauty of this thing.
Speaker Change: Got it got it helpful. And then just the last one how much is there a lot left of pruning on the industrial.
Speaker Change: Yes, let me Joe I'll, just because I looked at the other day. So look the only real game that we have in there is there is pretty much card business, which is a legacy of Appleton and a few other things we might do on a plastic extrusion, but our business is a business year over year is down about 50%. So we're we're really winding down this which is what we want right. If it's great.
Speaker Change: Sort of piece of the business I mean, it's kind of sub scale now Im sure Theres, just some some natural product adjacency, but any anything else youre, either industrial or anywhere else you are looking to prune.
Speaker Change: Yes, let me Joe I'll, just because I looked at it the other day. So look the only real game that we have in there is there is pretty much card business, which is a legacy of Appleton and a few other things we might do.
Speaker Change: Business for US you can make some cards and make 40% margin okay.
Speaker Change: But.
Speaker Change: Customers generally are going to move on at some point, so thats winding that.
Speaker Change: Plastic extrusion, but our business is a business year over year is down about 50%. So we're we're really winding down on this which is what we want ratable. If it's great business for US you can make some cards and make 40% margin okay.
Speaker Change: We feel good about it.
Speaker Change: Okay got it perfect. Thanks, guys.
Thank you Mike as always.
Speaker Change: Thank you and as a reminder to ask a question at this time. Please press star one on your telephone.
Speaker Change: But.
Speaker Change: Customers generally going to move on at some point so that's.
Speaker Change: Okay.
Speaker Change: There appears to be no further questions and I would now like to turn the conference back over to Chairman President and CEO, Steve Oswald for closing remarks, Okay. Thank you very much and thank you everyone for joining us today look we feel great about the France.
Speaker Change: We feel good about it okay.
Speaker Change: Okay got it perfect. Thanks, guys.
Mike Crawford: Thank you Mike as always.
Speaker Change: Thank you and as a reminder to ask a question at this time. Please press star one on your telephone.
Speaker Change: Obviously, we're thrilled that the strike is now over.
Speaker Change: Okay.
Speaker Change: There appears to be no further questions and I would like to turn the conference back over to Chairman President and CEO, Steve Oswald for closing remarks, Okay. Thank you very much and thank you everyone for joining us today look we feel great about the France.
Speaker Change: For VA in Seattle, and we look forward to many many great years, now and we have full trust and Kelly and the team up there and thats going to be big lift for us I mean, our Airbus business.
Speaker Change: Obviously, we're thrilled that the strike is now over.
Speaker Change: Fantastic and as I've talked about it's really coming on now because they have internal operations, but we're up we're way up on the <unk> hundred 20.
Speaker Change: For VA in Seattle, and we look forward to many many great years, now and we have full trust and Kelly and the team up there and thats going to be big lift for us I mean, our Airbus business.
Speaker Change: And that's what we want right. So it's all coming together for <unk> and obviously, our vision slide seven which is the most important thing is.
Speaker Change: Fantastic and as I've talked about it's really coming on now because they have internal operations, but we're up we're way up on the <unk> hundred 20.
Speaker Change: It's working and we're seeing that in our margins and our profit and our engineered product and aftermarket mix. So so all good news from here just want to wish you a great day and a safe day. Thank you.
Speaker Change: And that's what we want right. So it's all coming together for <unk> and obviously, our vision slide seven which is the most important thing is.
Yes.
Speaker Change: This concludes today's conference call. Thank you for participating you may now disconnect.
Speaker Change: It's working and we're seeing that in our margins and our profit and our engineered product and aftermarket mix. So so all good news from here just want to wish you a great day and a safe day. Thank you.
Speaker Change: Yes.
Speaker Change: This concludes today's conference call. Thank you for participating you may now disconnect.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Sure.
Speaker Change: [music].
Speaker Change: <unk>.
Speaker Change: Sure.
Speaker Change: [music].
Speaker Change: [music].
Speaker Change: [music].
Speaker Change: Good day and thank you for standing by welcome to the third quarter 2020 for Ducommun earnings Conference call. At this time, all participants are in a listen only mode.
Speaker Change: The speaker's presentation, there will be a question and answer session to ask a question. During this session you will need to press star one on your telephone you will then hear an automated message of icing. Your hand, just raised to withdraw your question. Please press star. One again, please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today.
Speaker Change: Jim on Leukergy, Vice President and Chief Financial Officer. Please go ahead.
Speaker Change: Thank you.
Speaker Change: Welcome to Ducommun 'twenty 'twenty four third quarter conference call with me today are Steve Oswald Chairman, President and Chief Executive Officer.
Speaker Change: 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.
Speaker Change: 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 1095 and are therefore perspective. These forward looking statements are subject to risks.
Speaker Change: 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: 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: Particular risks facing ducommun include among others. The cyclicality of our end use markets the level of U S government defense spending.
Speaker Change: 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 acquisitions and competition economic and geopolitical developments, including supply chain initiatives and rising our high interest rates the ability to attract and.
Speaker Change: <unk> key personnel and avoid labor disruptions the ability to adequately protect and enforce intellectual property rights pandemics disasters, natural or otherwise and risk of cyber security attacks.
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 forward looking statements are subject to those risks.
Speaker Change: <unk> 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: 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.
Speaker Change: We filed our Q3 2024 quarterly report on Form 10-Q with the SEC today.
Speaker Change: I would now like to turn the call over to Steve Oswald for a review of the operating results.
Speaker Change: Steve.
Speaker Change: Okay. Thank you so much thanks, everyone for joining us today for our third quarter conference call.
Speaker Change: Today and as usual I'll give you an update of the current situation at the company.
Jason Let: Afterwards, <unk> will review our financials in detail let.
Jason Let: Let me start off again on this quarterly call with the common vision 2027 game plan for investors the.
Jason Let: The strategy and vision were develop coming out of the Covid pandemic over the summer and fall of 2022 unanimously.
Jason Let: Proved by the common board in November 2022, and then presented to investors. The following month in New York, where we got excellent feedback.
Jason Let: Since that time, the talent management has been executing the vision 2027 strategy by increasing the revenue percentage of engineered product and aftermarket content consolidating its fact facility or rooftop footprint continuing its targeted acquisition program executing our offloading strategy with defense primes and high growth segments of the defense budget.
Jason Let: Value added pricing initiatives and by expanding content on key commercial aerospace platforms.
Speaker Change: All of US here as well as my fellow Board members continue to have a high level of conviction in the vision 2027 strategy and financial goals.
Speaker Change: I believe the many catalysts ahead present, a unique value creation opportunity for shareholders.
Speaker Change: The Q3 2022 results are another Great example of our strategy and initiatives working.
Speaker Change: Q3 was our second consecutive quarter of record revenue our gross margin represents another very strong performance for DCM.
Speaker Change: Revenues exceeded 200 million for the first time ever.
Speaker Change: Growing two 6% over the prior year and this quarter is our fifth consecutive quarter above $190 million in revenue.
Speaker Change: Strong year over year growth in our radar electronic warfare and missile programs drove our military and space revenues to 6% growth over prior year.
Speaker Change: Defense business has now been over $100 million in revenue for the fourth time in the last five quarters.
Speaker Change: We remain optimistic.
Speaker Change: About the growth ahead.
Speaker Change: I want to point out the Northrop Grumman was our second largest customer for revenue this quarter, our first that desio.
Speaker Change: And up from Q3 last year by over 100% to over $17 million.
Speaker Change: This will moderate going forward, but it is a great side as we move to build scale at other defense primes outside of our TX our largest customer.
Speaker Change: In our commercial aerospace business, we continue to see excellent growth on the <unk> hundred 20 program, where we make the <unk> for the entire fuselage along with strong growth in other Airbus platforms, a real bright spot as well was the <unk> hundred 20 family up 60% year over year things are moving.
Speaker Change: Business jet revenues powered on and was driven higher by the work, we do at Gulfstream Bombardier and others.
Speaker Change: The strike that Airbus and with business Jets was partially offset by weakness from Boeing platforms.
Speaker Change: Which were down over prior year by over 40%.
Speaker Change: By lower build rates earlier in the quarter and the impact of the strike in September.
Speaker Change: Overall commercial aerospace grew 3% year over year.
Speaker Change: Now have grown year over year revenue on our commercial aerospace business for 13 consecutive quarters, demonstrating the resilience of our business even in a challenging OEM environment with spirit and Boeing.
Speaker Change: The other good news for <unk> commercial aerospace business the fuselage skin project for the 737 Max at Spirit.
Speaker Change: Which I've been mentioning as being outsourcing their internal operations.
Speaker Change: We see first article approval in September and shipped our first production set last month.
Speaker Change: 2025 revenue for the foreskin should be over $3 million.
Speaker Change: For skin section, which is less than 10% of the fuselage at $22000 through our ship set for the Max and.
Speaker Change: And we continue to drive that number higher and higher for the program.
Speaker Change: I also want to add that we are picking up more content on the 787 for all models due to a share shift from a competitor in 2025.
Speaker Change: I'll have more details for you on the next call it is significant.
Speaker Change: Another record highlight in Q3 was gross margins of 26, 2% for the quarter of 350 basis points year over year from 22, 7%.
Speaker Change: 20 basis points compared to the second quarter as we continue to realize benefits from our strategic value pricing initiatives productivity improvements.
Speaker Change: Favorable product mix growing engineered product portfolio with aftermarket and initial restructuring savings.
Speaker Change: In addition, our Monrovia, California facility is now closed and our variable lockett's. Our facility is down to less than 10 people to remain to maintain capability necessarily receiving flattened guaymas, Mexico is certified for the Tomahawk missile program.
Speaker Change: We're already seeing cost savings from these facility closures and we see these savings to be higher as the receiving plants ramp up production in 2025 stay tuned.
Speaker Change: For adjusted operating income margins in Q3, the team delivered a 10, 5% a record performance and well ahead of the 18th 8.9% number in Q3 2023.
Speaker Change: This is a great result, driven by the continued growth in our engineered product businesses favorite favorable product mix impact of our strategic pricing initiatives and our restructuring savings during the quarter.
Speaker Change: Adjusted EBITDA was another great story in Q3, achieving $31 9 million.
Speaker Change: Planning to 15, 8% for the first time.
Speaker Change: This is 90% 90 basis points above prior year, and 60 basis points over the second quarter.
Speaker Change: This continues the outstanding momentum we've seen each quarter. This year as you work towards the 18% goal and our vision 2027 plan.
Speaker Change: GAAP diluted EPS was <unk> 67, a share in Q3 2024 versus 22, a share for Q3 2023 and.
Speaker Change: And with the adjustments diluted EPS was an impressive 99, a share compared to diluted EPS of <unk> 70 in the prior year quarter.
Speaker Change: The higher GAAP and adjusted diluted EPS during the quarter was driven by improved.