Q4 2024 Ducommun Inc Earnings Call
Operator: Good day and thank you for standing by.
Good day and thank you for standing by welcome to the fourth quarter 2020 for Ducommun earnings Conference call.
Operator: Welcome to the fourth quarter 2024 Ducommon Earnings conference call. At this time, all participants are on listen-only mode. After the speaker's presentation, there will be a question and answer session.
At this time, all participants are in listen only mode.
Speaker's presentation there'll be a question and answer session.
Operator: To ask a question during this session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again.
If you ask a question during this session you will need to press star one wired telephone.
Speaker Change: Automated message of life in your hands race to withdraw your question. Please press star one again please.
Operator: Please be advised that today's conference is being recorded.
Please be advised that today's conference is being recorded.
Operator: I would now like to hand the conference over to first speaker today, Suman Mookerji, Senior Vice President and Chief Financial Officer. Please go ahead.
Speaker Change: I'd like to hand, the conference over to your first speaker today, So Martin Mucci, Senior Vice President and Chief Financial Officer. Please go ahead.
Suman Mookerji: Thank you and welcome to Ducommon's 2024 fourth quarter conference call.
Speaker Change: Thank you and welcome to Ducommun started 94 fourth quarter Conference call with me today is Steve Oswald Chairman, President and Chief Executive Officer.
Suman Mookerji: With me today is Steve Oswald, Chairman, President and Chief Executive Officer. 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 which could cause actual results to differ materially from the future results expressed or implied by such forward-looking statements.
Speaker Change: I'm going to discuss certain limitations to any forward looking statements regarding future events projections. Our 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 1995.
Speaker Change: Therefore perspective. 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.
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, among 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, our ability to obtain additional financing, and service existing debt to fund capital expenditures and meet our working capital needs.
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.
Speaker Change: 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 cyclic.
Speaker Change: T F. 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.
Speaker Change: Timing of orders from our customers our ability to obtain additional financing and service existing debt to fund capital expenditures and meet our working capital need.
Suman Mookerji: Legal and Regulatory Risks, Cost of Expansion, Consolidation and Acquisition, Competition Economic and geopolitical developments, including supply chain issues, international trade restrictions 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. 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.
Speaker Change: Legal and regulatory risks cost of expansion consolidation and acquisition.
Speaker Change: Competition.
Speaker Change: Economic and geopolitical developments, including supply chain issues international trade restrictions 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 aura.
Speaker Change: And the 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.
Suman Mookerji: Our forward-looking statements are subject to those 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 authority. 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.
Speaker Change: 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: We filed our 2024 annual report on Form 10-K with the SEC today.
Speaker Change: We filed our 2024 annual report on Form 10-K with the SEC today.
Suman Mookerji: I would now like to turn the call over to Steve Oswald for a review of the operating requirements. Steve? Okay, thank you, Suman.
Speaker Change: I would now like to turn the call over to Steve Oswald for a review of the operating rhythm.
Stephen Oswald: Thanks, everyone, for joining us today for our fourth quarter conference call. Today, and as usual, I will give an update of the current situation at the company, after which Suman will review our financials in detail. Let me start off again on this quarterly call with the Commons 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 board, the common board in November 2022, and then presented to investors the following month in New York, where we got excellent feedback.
Speaker Change: Okay. Thank you, Steve and thanks, everyone for joining us today for our fourth quarter conference call.
Speaker Change: Today and as usual I will give you an update of the current situation at the company after which Matt will review our financials in detail.
Speaker Change: Let me start off again on this quarterly call with the common vision 2027 game plan for investors.
Speaker Change: The strategy and vision, where develop coming out of the Covid pandemic over the summer and fall of 2022.
Speaker Change: You're not obviously approved by the board the common board in November 2022, and then presented to investors at the following month in New York, where we got excellent feedback.
Stephen Oswald: Since that time, Ducommon's management has been executing the Vision 2027 strategy by increasing the revenue percentage of engineered product and aftermarket content, which finished at 23% for 2024, up from 19% in 2023, consolidating our rooftop footprint in contract manufacturing, continuing the targeted acquisition program. executing our offloading strategy with defense primes and high-growth segments of the defense budget, driving value-added pricing, and expanding content on key commercial aerospace platforms. All of us here, as well as my fellow board members, continue to have a high conviction. in the Vision 2027 Strategy and Financial Goals, and believe the many catalysts ahead present a unique value creation opportunity for shareholders.
Speaker Change: Since that time to comment as management has been executing the vision 2027 strategy by increasing the revenue percentage of engineered products and aftermarket content, which finished at 23% for 2024 up from 19% in 2023, consolidating our rooftop footprint and contract manufacturing.
Speaker Change: Continuing the targeted acquisition program.
Speaker Change: Executing our offloading strategy with defense crimes and high growth segments of the defense budget.
Speaker Change: Driving value added pricing.
Todd: Expanding Todd said on T commercial aerospace platforms.
Todd: All of US here as well as my fellow Board members continue to have a high conviction in.
Todd: And the vision 2027 strategy and financial goals I believe the many catalysts ahead presented unique value creation opportunity for shareholders.
Stephen Oswald: The Q4 2024 results are another example of our strategy initiatives working. with much more to come in the next few years. Q4 was our 15th consecutive quarter with year-over-year growth in revenue, growing 2.6% over prior year to $197.3 million despite significant headwinds in commercial aerospace build rates, destocking at BA and SPR, and the strategic pruning of our non-core industrial business, which I have mentioned in the past. It was also our sixth consecutive quarter above $190 million in revenue. Strong growth in our missile and electronic warfare programs, F-16, and military ground vehicle programs drove our military space revenue to 5% growth over prior year.
Todd: The Q4 2024 results are another example of our strategy and initiatives working.
Todd: With much more to come in the next few years.
Todd: Q4 was our 15th consecutive quarter with year over year growth in revenue growing.
Todd: Growing two 6% over prior year to $197 3 billion, despite significant headwinds in commercial aerospace build rates destocking of B a S. P. R.
Todd: And the strategic pruning of our non core industrial business, which I had mentioned in the past.
Todd: It was also our sixth consecutive quarter above $190 million in revenue.
Todd: Strong growth in our missile and electronic warfare programs F 16, and military ground vehicle programs drove our military and space revenue two 5% growth over prior year.
Stephen Oswald: The fence business has now been over $100 million in revenues for the fifth time in the last six quarters. and remain optimistic about the growth ahead. I also want to point out that three of our top five customers in Q4 were defense front. and that is consistent with all the quarters in 2024. There's great momentum as we move to build scale at other defense primes such as Northrop Grumman, outside of RTX, our largest customer. Also on the defense side, obviously a lot of discussion going on for European defense budget. On January 6th, we put out a press release and did announce a major order in Q4 from Byron Kemi.
Todd: The first business has now been over $100 billion in revenues for the fifth time in the last six quarters.
I remain optimistic about the growth ahead.
Todd: I also want to point out that three of our top five customers in Q4, where defense front.
Todd: And that is consistent with all of the quarters in 2024.
Todd: There's great momentum as we move to build scale and other defense primes, such as Northrop Grumman outside of our TX our largest customer.
Todd: Also on the defense side, obviously, a lot of discussion going on for European defense budgets.
Todd: On January six we put out a press release and did announce a major order in Q4.
Byron Kelley: From Byron Kelley.
Stephen Oswald: a new customer for DCO based in Germany and it's 100% owned by MDBX. This order is in support of NATO and the Patriot PAC-2 missile. Byron Kemi makes the rocket motor. who came to DCO in Joplin, Missouri. for Best in World Cabling Solutions. All POs were received in Q4, which totaled over $40 million. in cable assemblies and shipments will begin in 2025 through 2030. We're obviously thrilled with this new customer. and expect more activity with FMS in 2025. We are very well positioned. In our commercial aerospace business, we continue to see excellent growth on the A220 program where we make the skins for the entire fuselage.
Byron Kelley: A new customer for D C O based in Germany.
Byron Kelley: And it's 100% owned by M D B.
Byron Kelley: This order is in support of NATO and the Patriot Pac to missile.
Speaker Change: Byron Kelley makes the rocket motor.
Byron Kelley: In case of D C O in Joplin, Missouri.
Speaker Change: For best in World Cabling solutions.
Speaker Change: All Appeals, we received in Q4, which.
Speaker Change: Which totaled over $40 million.
Speaker Change: And cable assemblies.
Speaker Change: And shipments will begin in 2025 300 2030.
We're obviously thrilled with this new customer.
Speaker Change: And I expect more activity with SMS and 2025.
Speaker Change: We are very well positioned.
Speaker Change: In our commercial aerospace business, we continue to see excellent growth on the <unk> hundred 20 program will it make the <unk> for the entire fuselage.
Stephen Oswald: The A220 program grew more than 40% during Q4 and we continue to see growth on other Airbus platforms as well. The commercial rotorcraft business grew over 50% in Q4, over prior year, with strong growth on the S92 platform, as well as our BLR fast fin business for helicopters.
Speaker Change: The <unk> hundred 20 program grew more than 40% during Q4, and we continue to see growth on other Airbus platforms as well.
Speaker Change: The commercial rotorcraft business grew over 50% in Q4 over prior year with strong growth on the S 92 platform as well as our <unk> SaaS business for helicopters.
Stephen Oswald: DCO's most recent acquisition. This growth was partially offset by weakness on Boeing platforms that we all know as they slowly resumed production after the strike in Q4. Overall, Commercial Aerospace grew 4% year-over-year in the quarter, and we have now grown year-over-year revenue in the commercial aerospace business for 14 consecutive quarters. This is a great story showing the resilience of our business, even in a challenging environment, with spirit and knowing. Gross margins also grew $4.7 million to 23.5% in Q4, up 180 basis points year-over-year from 21.7%. So we continue to realize year-over-year benefits from our strategic value pricing initiatives, productivity improvements.
Speaker Change: <unk> most recent acquisition.
Speaker Change: This growth was partially offset by weakness on Boeing platforms.
Speaker Change: I'll know as they slowly resumed production after the strike in Q4.
Speaker Change: Overall commercial aerospace grew 4% year over year in the quarter and we have now grown year over year revenue in our commercial aerospace business for 14 consecutive quarters.
Speaker Change: This is a great story, showing the resilience of our business even in even in a challenging environment.
Speaker Change: With spirit and Boeing.
Speaker Change: Gross margins also grew $4 7 million to 23, 5% in Q4 up 180 basis points year over year from 21, 7%. So we continue to realize year over year benefits from our strategic value pricing initiatives.
Speaker Change: <unk> improvements.
Stephen Oswald: growing the engineering products portfolio in the aftermarket, and initial restructuring savings partially offset by some unfavorable product mix and one-time expenses during the quarter. Our Monrovia, California facility is now closed. and our Berryville Arkansas facility is down to less than 10 people to make capability. until the receiving plant in Guaymas, Mexico is certified for the Tomahawk missile program. That is expected very soon. We're already seeing cost savings for these facility closures. will see those savings be higher as the receiving plants ramp up production in 2025. Stay tuned. For adjusted operating income margins in Q4, the team delivered 8.2%, which is about flat to the prior year of 8.3%.
Speaker Change: Growing the engineered products portfolio of the aftermarket and the initial restructuring savings, partially offset by some unfavorable product mix and one time expenses during the quarter.
Speaker Change: Our Monrovia, California facility is now closed.
Speaker Change: And our various <unk> facilities down to less than 10 people to make capability.
Speaker Change: Until the receiving plant in Guaymas, Mexico is certified.
Speaker Change: So the Tomahawk missile program that is expected very soon.
Speaker Change: We are already seeing cost savings for these facility closures.
Speaker Change: So we'll see those savings would be higher as the receiving plants ramp up production in 2025 stay tuned.
For adjusted operating income margins in Q4, the team delivered eight 2%. So it was about flat to the prior year prior year of $8.
Stephen Oswald: We continue to be pleased with the growth in our engineering product businesses and are encouraged by the performance in our electronic business this quarter resulting from the impact of our strategic pricing initiative. Our restructuring savings during the quarter was offset by lower margins in our structures business due to unfavorable mix and one-time expenses. Adjusted EBITDA continues to grow compared to last year at 13.8% up $4.3 million and exceeding $27 million. Great to see. This represents an expansion of 180 basis points above prior year. This continues our year-over-year momentum we've seen each quarter in 2024. as we work towards the 18% goal in our Vision 2027.
Speaker Change: 3%.
Speaker Change: We continue to be pleased with the growth in our engineered product businesses and are encouraged by the performance of our electronic business this quarter, resulting from the impact of our strategic pricing initiatives.
Speaker Change: Our restructuring savings during the quarter was offset by lower margins in our structures business due to unfavorable mix and one time expenses.
Speaker Change: Adjusted EBITDA continues to grow compared to last year at 13.8% up $4 $3 million and exceeding $27 million.
Speaker Change: Great to see.
Speaker Change: This represents an expansion of 180 basis points above prior year.
Speaker Change: This continues our year over year momentum, we've seen each quarter in 2024.
Speaker Change: As you work towards the 18% go.
Speaker Change: And our vision 2027 plan.
Stephen Oswald: Gap diluted EPS was $0.45 a share in Q4 2024 versus $0.34 a share for Q4 2026. And with the adjustments, diluted EPS was a solid $0.75 a share compared to diluted EPS of $0.70 in the prior year quarter. The higher gap in adjusted diluted EPS during the quarter was driven by improved operating income, as well as lower interest costs due to our proactive hedging strategy, which took effect in January 2020. The company's consolidated backlog continues to be strong. have $1.06 billion, increasing $17 million sequentially and over $67 million year-over-year despite headwinds from VA. The defense backlog increased $98 million compared to the prior year quarter and is now at $625 million.
Speaker Change: GAAP diluted EPS was <unk> 45 cents a share in Q4 2024 versus <unk> 34 cents a share for Q4 2023.
Speaker Change: And with the adjustments diluted EPS was a solid 75, 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 operating income as well as lower interest cost due to our proactive hedging strategy, which took effect in January 2024.
Speaker Change: The company's consolidated backlog continues to be strong.
Speaker Change: At 1.6 billion, increasing 17 million sequentially and over $67 million year over year, despite headwinds from VA.
Speaker Change: The defense backlog increased $98 million compared to the prior year quarter and is now at $625 million with new orders from previously discussed buyer Academy.
Stephen Oswald: With new orders from previously discussed, Bayer and Kemi The Toll Missile Case. Mesa Airborne Surveillance, as well as other platforms. As discussed, we experienced a pause in the order cycle for the Tome Missile case. But now we're coming back strong with better pricing, we manufacture in our Guaymas, Mexico facility. where previously it was produced in Monrovia, California. The commercial aerospace backlog decreased sequentially by $14 million. Full year 2024 revenue grew 3.9% to a record $786 million. Our commercial aerospace business grew 8% in 2024, with strength in Airbus, commercial rotorcraft, and business jet platforms, partially offset by weakness on Boeing.
Speaker Change: The toll missile case.
Speaker Change: <unk> airborne surveillance as well as other platforms.
Speaker Change: As discussed we experienced the pause in the order cycle for the toll missile case.
Speaker Change: But now I'll be coming back strong with better pricing, we manufactured in our Guaymas Mexico facility.
Speaker Change: Where previously it was produced in Monrovia, California.
Speaker Change: Our commercial aerospace backlog decreased sequentially by $14 million.
Speaker Change: Full year 2024 revenue grew three 9% to a record $786 million.
Our commercial aerospace business grew 8% in 2024 with strength in Airbus commercial rotorcraft and business jet platforms, partially offset by weakness on Boeing platforms.
Stephen Oswald: Our military and space business grew 4% in 2024, driven by strong performance across missiles, missile defense, radar, naval, and F-15 programs, partially offset by weakness on the F-18 and F-35 programs. Our non-core industrial businesses were down 24% as well in 2024, as we continue to selectively prune non-core business to refocus our portfolio for the long term. full year 2024 adjusted even a margins expanded 140 basis points to 14.8% Excellent performance as we make steady progress towards our Vision 2027 target of 18% EBITDA margin.
Speaker Change: Our military and space business grew 4% in 2024, driven by strong performance across missiles missile defense radar Naval and F 15 programs, partially offset by weakness on the F 18, and F 35 programs.
Speaker Change: Our non core industrial businesses was down 24% as well in 2024, as we continue to selectively prune noncore business to refocus our portfolio for the long term.
Speaker Change: Full year 2024, adjusted EBITDA margins expanded 140 basis points to 14, 8%.
Speaker Change: And excellent performance as we make steady progress towards our vision 2027 target of 18% EBITDA margins.
Stephen Oswald: I'm also delighted to share our significant progress on what I believe is the number one strategic goal under our Vision 2027 strategy. In December 2022, we set a target of generating 25% plus of our revenues from engineered products, up from 9% 2017 and 15% 2022. 2024 engineering product revenue was 23% of our total revenue, up from 19% in 2023, positioning us well ahead of the curve. achieving our Vision 2027 goal, and we're pushing for a lot more. We achieved this both through focused investment driving organic growth on our current businesses as well as the BLR acquisition.
I'm also delighted to share our significant progress in what I believe is the number one strategic goal under our vision 2027th strategy.
Speaker Change: In December 2022, we set a target of generating 25% plus of our revenues from engineered products.
Speaker Change: 9% in 2017, and 15% in 2022.
Speaker Change: 2020 for engineered product revenue was 23% of our total revenue up from 19% in 2023 positioning us well ahead of the curve.
Speaker Change: Achieving our vision 2027 goal.
Speaker Change: We're pushing for a lot more.
Speaker Change: We achieved this both through focused investment driving organic growth on our card businesses as well as the DLR acquisition.
Stephen Oswald: This is tremendous progress, and I could not be happier. As for 2025 revenue, we are positioned to benefit from the expected bone recovery as the year progresses. as well as the upcoming certification of three major revenue programs being transferred from our closed plant. We are guiding to mid-single-digit growth for the year with a flattish first quarter due to de-stocking and lower build rates. Slightly better revenue in Q2, and then renewed strength in the second half of 2025. Now let me provide some additional color on our markets, products, and programs. Beginning with our military and space sector, we saw revenues of $109 million compared to $104 million in Q4 2023.
Speaker Change: This is tremendous progress.
I could not be happier.
Speaker Change: As for 2025 revenue, we are positioned to benefit from the expected Boeing recovery as the year progresses as well as the upcoming certification of three major revenue programs being transferred from our closed plants.
Speaker Change: We are guiding to mid single digit growth for the year.
Speaker Change: With a flattish first quarter due to destocking and lower build rates.
Speaker Change: Slightly better revenue in Q2, and then renewed strength in the second half of 2025.
Speaker Change: Now, let me provide some additional color on our markets products and programs.
Speaker Change: Beginning with our military and space sector, we saw revenues of $109 million compared to $104 million in Q4 2023.
Stephen Oswald: Growth was driven by missile programs such as the Mir. the Tow Circuit Cards along with Next Generation Jammer and the F-16. These are partially offset by weakness on the F-35 Apache and the well-documented F-18. Fourth quarter military space revenue represented 55% of the commons revenue 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 DCO, providing good balance. We also ended the fourth quarter with a backlog of $625 million, an increase of $98 million year-over-year, representing 59% of Ducommon's total backlog.
Speaker Change: <unk> was driven by missile programs such as the mirror.
Speaker Change: The tow circuit cards, along with next generation Jammer and the F 16.
Speaker Change: These are partially offset by weakness on the F 35, Apache and the well documented F 18.
Speaker Change: Fourth quarter military and space revenue represented 55% of <unk> revenue in the period down from 59%.
Speaker Change: For the full year back in 2022 and 70% in 2021.
Speaker Change: We expected this trend and reflects commercial aerospace getting stronger for desio, providing good balance.
Speaker Change: We also ended the fourth quarter with a backlog of $625 million, an increase of $98 million year over year, representing 59% of the comments total backlog.
Stephen Oswald: In our commercial aerospace operations, fourth quarter revenue continued to grow, increasing 4% year-over-year to $82 million, driven mainly by growth on the A220 and S92 platforms, offset by lower rates on the MAC. As mentioned earlier, we believe a much better story is ahead for B.A. and the M.A.X. Now the production is ramping up again. We also have high confidence in Kelly Rothberg and his team. The backlog within our commercial aerospace business was $416 million at the end of the fourth quarter, decreasing $15 million compared to the prior year driven by the Boeing strike. We expect this to recover as production rates ramp up in 2025.
Speaker Change: Within our commercial aerospace operations fourth quarter revenue continued to grow increasing 4% year over year to 48, excuse me $82 million driven mainly by growth on the <unk> hundred 20, and Thats 92 platforms offset by lower rates on the Max.
Speaker Change: As mentioned earlier, we believe a much better story is ahead for <unk> and the Max now the production is ramping up again.
Speaker Change: We also have high confidence and Kelly, what Bert and his team.
Speaker Change: The backlog within our commercial aerospace business was $416 million at the end of the fourth quarter decreasing 15 million compared to the prior year driven by Boeing by the Boeing strike.
Speaker Change: We expect this to recover as production rates ramp up in 2025.
Stephen Oswald: Revenues in our industrial business declined by a third to six million dollars during Q4 as we continue to strategically prune non-core business from the portfolio. This will benefit the company in the longer term as we transition that capacity to our core aerospace and defense platform.
Speaker Change: Revenues in our industrial business declined by $3 $6 million during Q4, as we continue to strategically prune non core business from the portfolio.
Speaker Change: This will benefit the company in the longer term as we transition that capacity to our core.
Speaker Change: Aerospace and defense platforms.
Suman Mookerji: Okay, with that, I'll have Suman review our financial results in detail.
Speaker Change: Yes.
Speaker Change: Okay with that I'll have Jim I'll review, our financial results in detail.
Suman Mookerji: Thank you, Steve. As a reminder, please see the company's 10K and Q4 earnings release for a further description of information mentioned on today's call. As Steve discussed, our fourth quarter results reflected another period of solid performance with growth in both our commercial aerospace and military end markets. We also continue to make good progress on our facility consolidation projects, which are now nearing completion and will drive further synergies in late 2025 and into 2026, as we close out the recertification of the various product lines at the receiving facilities over the next few months. As Steve highlighted earlier, we also made great progress in continuing to build up our engineered product portfolio, with those revenues now contributing 23% to our mission.
Speaker Change: Thank you Steve as a reminder, please see the company's 10-K and Q4 earnings release for a further description of information mentioned on today's call.
Speaker Change: As Steve discussed our fourth quarter results reflected another period of solid performance with growth in both our commercial aerospace and military end markets. We also continue to make good progress on our facility consolidation projects, which are now nearing completion and will drive further synergies in late 2025 and enter 2020 as well.
Speaker Change: Closeout, the recertification of the various product lines at the receiving facilities over the next few months.
Speaker Change: Steve highlighted earlier, we also made great progress in continuing to build up our engineered product portfolio with those revenues now contributing 23% to our mix.
Suman Mookerji: These actions, along with our strategic pricing initiatives, drove strong margin expansion in 2024 and has put us on a strong footing to achieve our Vision 2027 goal. Now, turning to our fourth quarter. Revenue for the fourth quarter of 2024 was $197.3 million versus $192.2 million for the fourth quarter of 2021. The year-over-year increase of 2.6% reflects growth in both commercial aerospace and military in space, highlighted by 5.1 million of growth. across military and space platforms, and 3 million of growth in our commercial aerospace. We posted total gross profit of $46.4 million, or 23.5% of revenue for the quarter, versus $41.7 million, or 21.7% of revenue in the prior year period.
Speaker Change: These actions along with our strategic pricing initiatives drove strong margin expansion in 2024 and has put us on a strong footing to achieve our vision 2027 goals.
Speaker Change: Now turning to our fourth quarter results.
Speaker Change: Revenue for the fourth quarter of 294 was $197 3 million versus $192 2 million for the fourth quarter restaurant in 'twenty three.
Speaker Change: Year over year increase of two 6% reflects growth in both commercial aerospace and military and space highlighted by $5 $1 million of growth.
Speaker Change: Across military and space platforms, and $3 million of growth in our commercial aerospace platforms.
Speaker Change: We posted a total gross profit of $46 4 million or 23, 5% of revenue for the quarter versus $41 7 million or 21, 7% of revenue in the prior year period. We continue to provide adjusted gross margin as we have that non-GAAP cost of sales items in the current and prior period.
Suman Mookerji: 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 step-up amortization on our recent acquisitions and restructuring charges. On an adjusted basis, our gross margins were 24% in Q4 2024 versus 23.2% in Q4 2021. The improvement in gross margin was driven by our growing engineered products portfolio, strategic pricing initiatives, productivity improvements, and restructuring savings, partially offset by unfavorable product mix in our structured segment and one-time investment. 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 impacts thus far on our business.
Speaker Change: Relating to inventory step up amortization on our recent acquisitions and restructuring charges.
Speaker Change: On an adjusted basis, our gross margins were 24% in Q4 2024 versus 23, 2% in Q4 2093.
Speaker Change: The improvement in gross margin was driven by our growing engineered products portfolio strategic pricing initiatives productivity improvements and restructuring savings, partially offset by unfavorable product mix in our structures segment and one time expenses.
Speaker Change: 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.
Suman Mookerji: Going forward, we will continue to work to improve the working capital turns in the business and improve our cash flow. Ducommon reported operating income for the fourth quarter of $10.4 million or 5.3% of revenue compared to $8.9 million or 4.6% of revenue in the prior year period. Adjusted operating income was $16.1 million, or 8.2% of revenue this quarter, compared to $15.9 million, or 8.3% of revenue in the comparable period last year. The company reported net income for the fourth quarter of 2024 of $6.8 million or $0.45 per diluted share compared to $5.1 million or $0.34 per diluted share a year ago.
Speaker Change: Going forward, we will continue to work to improve the working capital turns in the business and improve our cash flow.
Speaker Change: You commented reported operating income for the fourth quarter of $10 4 million or five 3% of revenue compared to $8 9 million or four 6% of revenue in the prior year period.
Speaker Change: Adjusted operating income was $16 1 million or eight 2% of revenue this quarter compared to $15 9 million or eight 3% of revenue in the comparable period last year.
Speaker Change: The company reported net income for the fourth quarter of 2024 of $6 8 million or <unk> 45 per diluted share compared to $5 1 million or <unk> 34 per diluted share a year ago on.
Suman Mookerji: On an adjusted basis, the company reported net income of $11.4 million, or $0.75 per diluted share, compared to adjusted net income of $10.4 million, or $0.70 per diluted share. 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 rate.
Speaker Change: On an adjusted basis. The company reported net income of $11 4 million or 75 per diluted share compared to adjusted net income of $10 4 million or <unk> 77 in Q4 2023, the higher net income and adjusted net income during the quarter was driven by the higher operating income and adjusted operating income.
Speaker Change: Additionally, our interest rate hedge out to reduce our year over year interest expense.
Suman Mookerji: Now let me turn to our segment. Our structural systems segment posted revenue of $90.3 million in the fourth quarter of 2024 versus $85.6 million last year. The year-over-year increase reflected $6.4 million of fire sales across our commercial aerospace applications, including the A220 and S92 rotorcraft platforms. Military and space applications were down 5%. driven primarily by a decline in Apache revenue as we shut down production in our Monrovia facility, partially offset by growth in Black Hawk and other military vehicles. Structural systems operating income for the quarter was $3.2 million or 3.6% of revenue compared to $6.6 million or 7.7% of revenue for the prior year quarter.
Speaker Change: Now, let me turn to our segment results.
Speaker Change: Our structural systems segment posted revenue of $90 3 million in the fourth quarter of 2094 versus $85 6 million last year a.
Speaker Change: The year over year increase reflecting $6 4 million of higher sales across our commercial aerospace applications, including the 820 and S 92 rotorcraft platform.
Speaker Change: Military and space applications were down 5%.
Speaker Change: Driven primarily by a decline in Apache revenue as we shut down production in our Monrovia facility, partially offset by growth in Black Hawk and other military vehicles.
Speaker Change: Structural systems operating income for the quarter was $3 2 million or three 6% of revenue compared to $6 6 million or seven 7% of revenue for the prior year quarter.
Suman Mookerji: Excluding restructuring charges and other adjustments in both years, the segment operating margin was 9.2% in Q4 2024 versus 14.6% in Q4 2023. The decline in margin during the quarter was driven by unfavorable program mix and higher one-time. Our electronic system segment posted revenue of $107 million in the fourth quarter of 2024 versus $106.7 million in the prior year period. Higher revenues from the Mir, Next Generation Jammer, and F-16 platforms were offset by lower revenues from in-flight entertainment electronics, along with a reduction in our industrials business as we chose to selectively prune non-core work. Electronic systems operating income for the fourth quarter was $19 million or 17.7% of revenue versus $9.8 million or 9.2% of revenue in the prior year.
Speaker Change: Excluding restructuring charges and other adjustments in both years our segment operating margin was nine 2% in Q4 2024 versus 14, 6% in Q4 of 2023.
Speaker Change: The decline in margin during the quarter was driven by unfavorable program mix and higher one time costs.
Speaker Change: Our electronic systems segment posted revenue of $107 million in the fourth quarter of 294 versus $106 7 million in the prior year period.
Speaker Change: Higher revenues from the EMEA next.
Speaker Change: The next generation Jammer and F 16 platforms were offset by lower revenues from in flight Entertainment electronics, along with a reduction in our industrials business as we chose to selectively prune non core work.
Speaker Change: Electronic systems operating income for the fourth quarter was $19 million or 17, 7% of revenue versus $9 8 million or nine 2% of revenue in the prior year period.
Suman Mookerji: Excluding restructuring charges and other adjustments in both years, the segment operating margin was 17.7% in Q4 2024 versus 10.2% in Q4 2020. The year-over-year increase was primarily due to a higher mix of engineered products, strategic value pricing initiatives, as well as savings from the restructuring. The restructuring savings were driven by the consolidation of product lines from our variable performance center into our job center.
Speaker Change: Excluding restructuring charges and other adjustments in both years. The segment operating margin was 17, 7% in Q4 2024 versus 10, 2% in Q4 'twenty two 'twenty three.
Speaker Change: The year over year increase was primarily due to a higher mix of engineered products strategic value pricing initiatives as well as savings from the restructuring program.
Speaker Change: Restructuring savings were driven by the consolidation of product lines from our variable performance center into our Joplin facility.
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. This includes 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. We continue to make progress on these transitions and are working diligently with our customers. Boeing and RTX to obtain the requisite approvals which are expected to be completed over the During Q4 2024, we recorded 2.3 million in restructuring charges.
Speaker Change: Next I would like to provide an update on our ongoing restructuring program. As a reminder, <unk> discussed previously we commenced a restructuring initiative back in 2022 <unk>.
Speaker Change: 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 facilities in Monrovia, California, and very well, Arkansas and the transfer of that work through our low cost operation environment, 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.
Speaker Change: <unk> and RPX to obtain the requisite approvals, which are expected to be completed over the next few months.
Speaker Change: During Q4 'twenty to 'twenty, four we recorded $2 3 million in restructuring charges.
Suman Mookerji: We expect to incur an additional $1 to $1.5 million in restructuring expenses as we complete the program. Upon the completion of our restructuring program, we expect to generate $11-13 million in annual savings from our act. have already seen some realization of savings from these actions. We expect the synergies to ramp up in late 2025 and into 2026 as the product recertification is complete and the receiving facilities move up the learning curve and ramp up production.
Speaker Change: We expect to incur an additional 1% to $1 5 million in restructuring expenses as we complete the program.
Upon the completion of our restructuring program, we expect to generate a 11% to $13 million in annual savings from our actions.
Speaker Change: I have already seen some realization of savings from these actions in 2024.
Speaker Change: We expect the synergies to ramp up in late 2025, and enter 2026 as a product re certification is complete and the receiving facilities move up the learning curve and ramp up production.
Suman Mookerji: We also anticipate selling the land and buildings at both Monrovia, California and Berryville, turning next to liquidity and capital. In 2024, we generated $34.2 million in cash flow from operating expenses. which was an improvement compared to 31.1 million. The improvement was due to net income growth of $15.6 million offset by investments in work. We've paid down $15 million on our revolver and $7.8 million on our... for a total of $22.8 million during the year. As of the end of the fourth quarter, we had available liquidity of $228 million comprising of the unutilized portion of our revolver and cash.
Speaker Change: We also anticipate selling the land and buildings at both Monrovia, California and variable Arkansas.
Speaker Change: Turning next to liquidity and capital resources.
Speaker Change: In 2024, we generated 30 point $34 2 million in cash flow from operating activities, which was an improvement compared to $31 1 million in 2023.
Speaker Change: Improvement was due to net income growth of $15 6 million offset by investments in working capital.
Speaker Change: We paid down $15 million on our revolver and $7 8 million on our term loan for a total of $22 8 million during the year.
Speaker Change: As of the end of the fourth quarter, we had available liquidity of $228 million comprising of the unutilized portion of our revolver and cash on hand.
Suman Mookerji: Our existing credit facility was put in place on July 22 at an opportune time in the credit market, allowing us to reduce our spread, increase the size of our revolver, and allowing us flexibility to execute our plan. Interest expense in Q4 2024 was 3.6 million compared to 5.4 million in Q4. The year-over-year improvement in interest costs was mainly due to our interest rates. In November 2021, we put in place an interest rate hedge that went into effect for a seven-year period starting January 2021. It pegs the one month term so far at $170,000. $150 million of hard The hedge resulted in interest savings of approximately $1.8 million in Q4 2024 and will continue to drive significant interest cost savings.
Speaker Change: Our existing credit facility was put in place in July 22 at an opportune time in the credit markets, allowing us to reduce our spread increased the size of our revolver and allowing us flexibility to execute on our acquisition strategy.
Speaker Change: Interest expense in Q4, 2024 was $3 6 million compared to $5 4 million in Q4 2023.
Speaker Change: The year over year improvement in interest cost was mainly due to our interest rate hedge.
Speaker Change: In November 2021, we've put in place an interest rate hedge that went into effect for a seven year period, starting January 2024, and pegged to the one month, so far at 170 basis points or $150 million of our debt.
Speaker Change: The hedge resulted in interest savings of approximately $1 8 million in Q4, 2024 and will continue to drive significant interest cost savings.
Suman Mookerji: in 2025.
Speaker Change: In 2025 and beyond.
Suman Mookerji: To conclude the financial overview for Q4 2024, I would like to say that the fourth quarter results continued our momentum this year and positioned us well for 2025 and beyond.
Speaker Change: To conclude the financial overview for Q4, 'twenty to 'twenty, four I would like to see that.
Third quarter results continued our momentum this year and positions us well for 2025 and beyond.
Stephen Oswald: I'll now turn it back over to Steve for his closing remarks. Thanks, Suman. Just in closing, Q4 was another very good quarter for DCO to finish, I believe, an excellent year. In 2024, we achieved record revenues with record margin expansion, and the Vision 2027 strategy in its second year really kicked in. We also delivered full year even margins of 14.8%, which was an expansion of 140 basis points during the year. Solid progress towards our target we've been mentioning this morning of 18% by 2020. We also discussed our Vision 2027 target of the very important 25% plus of engineered product revenues.
Speaker Change: I'll now turn it back over to Steve for his closing remarks, okay. Thanks Ahmad just in closing.
Speaker Change: Q4 was another very good quarter for D. C O to finish I believe an excellent year.
Speaker Change: 24, we achieved record revenues with record margin expansion.
Speaker Change: <unk> vision 2027 strategy in its second year of really kicked in.
Speaker Change: We also delivered full year EBIT margins of 14, 8%, which was an expansion of 140 basis points during the year.
Speaker Change: Solid progress towards our target we've been mentioning this morning of 18% by 2027.
Speaker Change: We also discussed our vision 2027 target of the very important 25% plus of engineered product revenues.
Stephen Oswald: and 2024 coming in at 23% was terrific news. Finally, with the BEA strike now behind us. Commercial bill rates heading higher, along with, I believe, a very good defense backdrop for DCO, including FMS. I feel great about what lies ahead in the next few years for us. our shareholders, and our other stakeholders.
Speaker Change: And 2024 coming in at 23% was terrific news finally, with the BBA strike now behind us.
Speaker Change: Commercial bill rates heading higher along with I believe.
Speaker Change: Good defense backdrop for desio floating Fms.
Speaker Change: We feel great about what lies ahead in the next few years for us.
Speaker Change: Our shareholders and our other stakeholders.
Operator: So with that, let's go to questions. Thank you.
Speaker Change: So with that let's go to questions. Thank you.
Speaker Change: Yes.
Operator: At this time, we'll conduct the question and answer session. As a reminder, to ask a question, you'll need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster.
Speaker Change: Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one one telephone and wait for your name from Dan notes to withdraw your question. Please press star one again, please standby, while we compile the Q&A roster.
Ken Herbert: And our first question comes from a line of Ken Herbert of RBC Capital Markets. Your line is now open. Yeah, hey, good morning, Stephen, Suman. Okay, good morning. Good morning. Hey, Steve. Yeah, maybe just to kick off, appreciate the 2025 mid-single-digit top-line outlook as we think about the year. Specifically, can you provide any color on expectations for defense and commercial markets, commercial aerospace? And then I guess within commercial aerospace, where are you shipping today on maybe the max, or I guess, what do you see as continued destocking risk on that particular program into the first part here of 2025?
Speaker Change: And our first question comes from the line of Ken Herbert of RBC Capital markets. Your line is now open.
Ken Herbert: Yeah, Hey, good morning, Stephens two months, Ken good morning.
Speaker Change: Good morning, Hi, Steve Yeah, maybe just to kick off I. Appreciate the 2025 mid single digit top line outlook as we think about the year.
Steve Oswald: Specifically can you provide any color on expectations for defense and commercial markets.
Speaker Change: Commercial aerospace and then I guess within commercial aerospace.
Steve Oswald: Where are you shipping today.
Steve Oswald: The Max where I guess, what do you see is continued destocking risk on that particular program into the first part here of 2025, Yeah alright. Thanks for the question first let me let me just tackle the commercial part I mean.
Stephen Oswald: Yeah, all right, Kent, thanks for the question.
Stephen Oswald: First, let me just tackle the commercial part. I mean, a big part of our max business is through Spirit, right? So that's a large part of our shipments, including what we sent to Boeing as well, lesser so. You know, we think that everything we're hearing is that first, the first quarter, and probably through the first half, there's certainly destocking headwinds at Spirit, okay? So I can't tell you exactly what, but that's why we feel like first half of the year is, first quarter, especially the first half of the year is a bit challenging on the destocking.
Steve Oswald: Big part of our Max business is through spirit right.
Steve Oswald: So.
Steve Oswald: That's a large part of our shipments, including what we sense, So boy as well lesser so.
We think that.
Steve Oswald: Everything we're hearing is that first the first quarter and probably through the first half, there's certainly destocking headwinds that spirit. Okay. So.
Steve Oswald: I can't tell you exactly what but that's why we feel like first half of the year is.
Steve Oswald: First quarter, especially the first half of the year is a bit challenging on the Destocking I think after that.
Stephen Oswald: I think after that, things will open up a bit. Really, all indications are that they're gonna get to the mid-30s at least, okay? We're hoping, and we think that's in the cards now. So we think the second half's gonna be better than the first.
Steve Oswald: Things will open up a bit I really.
Steve Oswald: All indications are that.
Steve Oswald: They're going to get to the mid mid <unk> at least okay, but we're hoping and we think that's in the cards now so.
Steve Oswald: So we think the second half to be better than the first our military side I mean I know.
Stephen Oswald: Our military side, I mean, I know... I know the services companies and lots of other folks are seeing tremendous headwinds. I mean, you know, I can only talk to our backlog. Our backlog is real good. We're on these programs that we like. I mean, and I mentioned this new customer, Ken, who, you know, it's just one of many, but, you know, this whole NATO buy that we got in Q4 that, you know, just because we're good at cabling, really good, and, you know, we've been working with Raytheon in the past, we were able to get that order.
Steve Oswald: I know the services companies and lots of other folks are seeing tremendous headwinds I mean, I can only talk to our backlog.
Steve Oswald: Backlog is real good.
Steve Oswald: We're on these programs that we like and I've mentioned this this new new customer 10, who you know it's just one of many but.
Steve Oswald: NATO by that we got.
Steve Oswald: In Q4.
Steve Oswald: <unk>.
Steve Oswald: Just because we're good at cabling really good and we've been working with Raytheon in the past we were able to get that that order. So I feel good about defense.
Stephen Oswald: So I feel good about defense. I think that, you know, we're going to ride up more commercial aero in the second half of the year. First half, destocking and sort of still moving build rates higher, I think, is the story for DCO. Okay, so we are seeing improvement between January and February this year in our shipments both to Spirit and Boeing, so we have seen a ramp up and from kind of the teens into the 20s, both with Boeing and Spirit going from January to February. So that bodes well for Q1 and rest of 2020.
Steve Oswald: Think that we're going to ride up more commercial aero in the second half of the year first half destocking in sort of still moving bill rates higher I think is the story for <unk>.
Steve Oswald: Okay.
Steve Oswald: We are seeing improvement between January and February this year and our shipments both too.
Steve Oswald: Spirit and Boeing so we have seen a ramp up and.
Steve Oswald: The teens into the 20 <unk>, both with Boeing and spirit going from January to February so that bodes well for for Q1 and rest of around 25%. This spirit has a lot of fuselages as you know Ken.
Stephen Oswald: This spirit has a lot of fuselages, as you know. Yeah, yeah. No, I appreciate that. So if I think about, again, relative to the mid-single digit, maybe upper end of that range in defense and lower end of that range, or better growth in defense, I guess, in military and space. 25 relative to commercial, is that the right way to think about it? I think we're going to see, we are expecting to see good growth in commercial as well, but it's going to be more back half. I think defense growth is going to be more even.
Speaker Change: Yes, yes, no I appreciate that so if I think about again relative to the mid single digit maybe maybe upper end of that range in defense and lower end of that range or better growth in defense I guess in military and space in <unk>.
Steve Oswald: Five relative to commercial because that's the right way to think about it.
Steve Oswald: I think we're going to see we are expecting to see good growth in commercial as well, but it's going to be more back half I think defense growth is going to be more even through the ESL.
Stephen Oswald: Okay, perfect.
Stephen Oswald: And just a clarification, what percent of your maybe defense sales ultimately end up in Europe and how much will you benefit just from what's expected to be a surge in defense spending? Yeah, that's a good question. You know, this, this, this whole order we got this 40 million plus order is, is frankly, you know, one of our first, okay, so, you know, we are getting lift, you know, with the, the Polish order for the Apache helicopters and all kinds of those type of things, we get big lift from that, but that goes through our, our US defense price.
Speaker Change: Okay, perfect and just a clarification what percent of your maybe defense sales ultimately end up in Europe, and how much will you benefit just from.
Steve Oswald: What's expected to be a surge in defense spending there, yes, that's a good question.
Steve Oswald: So order, we got this $40 million plus order.
Steve Oswald: Is frankly, one of our first okay. So we are getting lift with.
Steve Oswald: The Polish order for the Apache helicopters, and those kind of those type of things, we get big lift from that but that goes through our for our U S. Defense price. This is I do thing for Dcs are open for more on that it's early but this is a direct shipment into Germany. So.
Ken Herbert: This is a new thing for DCO, so we're hoping for more on that. It's, you know, early, but, you know, this is a direct shipment into Germany. So it's, I think it bodes well for hopefully more this year and next year. Thanks. I'll pass it back there. All right, Ken. Thank you. One moment for our next question.
Steve Oswald: I think it bodes well for hopefully more this year and next year.
Speaker Change: Perfect. Thanks, I'll pass it back there.
Thanks.
Speaker Change: Thank you one moment for our next question.
Mike Crawford: Our next question comes from the line of Mike Crawford of B Raleigh Securities. Your line is now open. Thank you.
Speaker Change: Our next question comes from the line of Mike Crawford of B Riley Securities. Your line is now open.
Stephen Oswald: I know it's a little early, but with potential offsets to defense budget spending, where things are report prioritized under the new administration, as much as 8% targeted, you know, where does Ducom sit in the mix? Like, let's just take, for example, growing platforms The XM-30, that is like a new next-generation combat vehicle that's probably okay, but maybe some other older platforms, you know, might get hit on reprioritization of spending. So, you know, as you look at it now, how would you characterize your position amid all this? Yeah, Mike, I hate to give you that answer.
Speaker Change: Thank you I know, it's a little early but with potential offsets to defense budget spending where things are report prior ties under the new administration.
Speaker Change: As much as 8% targeted.
Speaker Change: Where.
Speaker Change: Where does the board of Ducommun sit in the mix like let's just take for example growing platforms like.
Speaker Change: The exon 30 that is like a new.
Speaker Change: Next generation combat vehicle that that's probably okay, but maybe some other older platforms.
Speaker Change: It might get hit on re prioritization of spending so.
Speaker Change: Okay.
Speaker Change: As you look at it now.
Speaker Change: Would you characterize your position in the mid <unk>.
Speaker Change: All of this.
Mike Crawford: Yeah, Mike.
Stephen Oswald: I'll give you two parts of the answer. First, you know, it's tough for us to know right now. So that's the first answer I give you. The second answer is that we feel like when we look across what we have, we feel very good about, you know, where we are with our circuit cards, with our cabling, you know, with our, you know, we've got, we're chock full of orders for Apache, even though that program, as I mentioned, is offline right now, and it'll be certified in the next couple months, and will be made in New York at our Krasacki facility.
Speaker Change: To give you that answer I'll give you two parts of that first.
Speaker Change: It's tough for us to know right now so that's the first answer I'll give you. The second answer is is that we feel like when we look across what we have.
We feel very good about where we are with our circuit cards with our cabling.
Speaker Change: We've got we're chockfull orders for Apache, even though that program as I mentioned is offline right now and there will be certified in the next couple of months and will be made in New York the darker sackey facility the Tomahawk missile.
Suman Mookerji: The Tomahawk missile is, you know, going to be there, as you know. So, you know, SPY-6, you know, maybe here, maybe there, we feel like at least, you know, what we know today, we feel good about the breadth. That's what I would say about it. We don't have a strong reliance on any one program, and no individual program is more than 10% of our defense revenues, including programs such as the F-35, the F-16, or F-18. So I think we are diversified in that way, and also the focus, as Steve mentioned, on our missile, missile defense, electronic warfare.
Speaker Change: Is going to be there as you know.
Speaker Change: So.
Speaker Change: <unk> six.
Speaker Change: Maybe here, maybe there we feel like at least.
Speaker Change: What we know today, we feel we feel good about the breadth that's what I would say about our defense business. We don't have a strong reliance on any one program and no individual program is more than 10% of our defense revenues.
Speaker Change: Including programs such as the F 35.
Speaker Change: 2016 or F 18.
Speaker Change: So I think we are diversified.
Speaker Change: In that way and also the focus as Steve mentioned on our missile missile defense electronic warfare, our focus in those strategic areas I think is going to bode well.
Suman Mookerji: Our focus in those strategic areas, I think, is going to bode well if there is that pivot that you're talking about. And we should hopefully see further growth in those areas, offsetting weakness on the more legacy platforms. The only thing, Mike, we've been riding down is the F-18, which we've signaled the last, I guess, year or two on the call, right? So we've been riding that down, but the good news is that a lot of that lower revenue now is in the base. So, you know, we're not going to see as much headway.
Speaker Change: If there is that pivot youre talking about and we should hopefully see further growth from those areas offsetting weakness on the more legacy platforms. The only thing Mike we've been writing down the FAA team, which we signaled the last I guess year or two on the call rights will be writing that down but the good news is is that a lot of that lower revenue.
Speaker Change: You know is in the base, so we're not going to see as much headwind on that.
Suman Mookerji: That, that's, that's our.
Speaker Change: Uh huh.
Speaker Change: That's our view.
Mike Crawford: Okay, thank you.
Mike Crawford: And just to switch gears a little bit, so in the IFC business, you have this great relationship with BISAT that has Just about 4,000 commercial planes in service and another 1,570 planes in backlog. So that's still going to continue for a few more years, but this has been a great growth business for you in the last few years. But at what point do you start planning for capacity where that business, you know, will slow down at some point if it's not, you know, next year or 2027? It's going to happen at some point. So when do you start planning for that transition?
Speaker Change: Okay. Thank you and just to switch gears, a little bit so the RMC business you have that's great.
Speaker Change: Relationship advice that it has.
Speaker Change: Just about 4000 commercial planes in service.
Speaker Change: Another 1570 planes in backlog, so that's still going to continue.
Speaker Change: A few more years, but this has been a great growth business for you in the last few years, but at what point do you start planning for capacity where that business well.
Speaker Change: Slowdown at some point if it's not.
Speaker Change: Next year 2027 is going to happen at some point so when do you start planning for that transition.
Stephen Oswald: Yeah, we're actually You know, how about lucky and good, right? So all that work really comes out of Appleton, Wisconsin. That's all the card work we do for Viasat and they're great partners. And you know, we have next generation jammer going in there. We have lots of things that are queued up. So we actually are probably in the next year or two looking for more space, even though yeah, the Viasat work will go down. We've got lots of high demand for our Appleton products. I'd say, at least from where I sit today, we're on good terms. Okay, thank you.
Speaker Change: Yes, we're actually.
Speaker Change: How 'bout Lucky and good right. So all of that all of that work really comes out of Appleton, Wisconsin and Thats. All the card work, we do for Viasat and they're great partners.
Speaker Change: We have next generation jammer going in there we have lots of things that are queued up so we were actually or probably in the next year to look for more space, even though the Viasat work will go down we've got we've got lots of.
Speaker Change: High demand for our Appleton products, So I'd say at least from where I sit today, we're in good shape.
Suman Mookerji: And just the last one is what, if anything, are you seeing that that's different or interesting in your M&A pipeline? So we are continuing to work on multiple opportunities. The deal flow in the lower mid market for the engineered product businesses that we've seen has been slower in the past 12 months. But there are active things in the hopper that we continue to work on.
Speaker Change: Okay. Thank you and just the last one is.
Speaker Change: What.
Speaker Change: If anything are you seeing that that's different or interesting in your M&A pipeline.
Speaker Change: So we are continuing to work on multiple opportunities the deal flow in the lower mid market for the engineered product businesses that we've seen has been slower.
Speaker Change: In the past 12 months.
Speaker Change: But there are active things in the hopper that we continue to work on and.
Suman Mookerji: And we remain optimistic about being and confident about being able to execute our acquisition strategy and meeting the Vision 2020 Thank you.
Speaker Change: We remain optimistic about being and confident about being able to execute our acquisition strategy and meeting the vision 2027 goals.
Speaker Change: Yes.
Speaker Change: Thank you Mark.
Mike Crawford: Thanks Mike.
Operator: Thank you. One moment for our next question.
Speaker Change: Thanks, Mike.
Speaker Change: Walmart for next question.
Jason Gursky: Our next question comes from the line of Jason Gursky of Citi, your line is now open.
Speaker Change: Our next question comes from the line of Jason Gursky with Citi. Your line is now open.
Jason Gursky: Hi, this is Jeremy Jason on for Jason Gursky. I just kind of wanted to understand sort of how much of the margin hit this quarter and structural systems was like, mix as opposed to like costs that would fade away once Mexico is up and running. And so like, if it's mixed, you know, how long does that mix sort of persist for? Right, great, great question. And I would say it's kind of about evenly split between mix as well as one time expenses that were specific to the quarter. And the mix as well was was unusual to the quarter.
Jeremy Jason: Hi, This is Jeremy Jason on for Jason Gursky.
Speaker Change: Just kind of wanted to understand.
Speaker Change: Sort of how much of the margin hit this quarter and structural assistance with like mix as opposed to like cost that would fade away once Mexico is up and running until like if it's mix how long does that mix sort of persist for.
Speaker Change: Alright, great Great question and.
Speaker Change: I would say, it's kind of about evenly split between mix as well as one time expenses that were specific to the quarter and the mix as well was unusual to the quarter and we do expect.
Suman Mookerji: And we do expect the margins in the structures business to fully recover in Q1. Gotcha, gotcha. I really appreciate that. And so, my follow on question is just if you know if that's the case. So sounds like Boeing programs are a bit more profitable than Airbus. So first of all, is that the case? And also, what can you guys do to improve Airbus program profitability?
Speaker Change: The margin in the structures business to fully recover in Q1.
Speaker Change: Yep.
Speaker Change: Gotcha Gotcha I really appreciate that.
And.
Speaker Change: So Mike.
Speaker Change: My follow up question is just if.
Speaker Change: That's the case so.
Speaker Change: It sounds like Boeing programs are a bit more profitable than Airbus. So.
Speaker Change: So first of all is that the case and also what can you guys do to like improve Airbus program profitability.
Suman Mookerji: I think we would avoid talking about specific customer profitability or product line profitability. That being said, we ensure that we're getting paid for the value that we bring to the customer and we continue to work on opportunities with both the customers you mentioned to raise prices where it is appropriate and make sure that we are earning sufficient margin. And those actions have taken place over the last year as you've seen growth in our margins and there are active ongoing initiatives to drive that going forward in 2025. Perfect.
Speaker Change: I think we were we avoid talking about specific customer profitability or product line profitability.
That being said, we ensure that we're getting paid for the value that we bring to the customer and we continue to work on opportunities with both the customers you mentioned to raise prices, where it is appropriate and make sure that we're earning sufficient margin in those opportunity.
Speaker Change: Those actions have taken place over the last year as you have seen growth in our margins.
Speaker Change: And there are.
Speaker Change: Active ongoing initiatives to drive that going forward in 2025 as well.
Suman Mookerji: And then one last one, just thank you so much for this. So, how much of like additional costs, did you guys sort of incur in this past quarter that were not backed out? and sort of when do those potentially go away. So if you're referring to the structures segment, yes. So it's about half of the drop in margin was an account of one time. Just for the score. I appreciate the color.
Speaker Change: Perfect and then one last one just thank you so much for this.
Speaker Change: How much of like additional costs did you guys sort of incur in this past quarter that were not backed out like <unk>.
And sort of when do those potentially go away.
Speaker Change: So if youre, referring to the structures segment.
Speaker Change: Yes, yes.
Speaker Change: It's about half of the drop in margin was.
Speaker Change: Account of one time expenses just for this quarter just for this quarter for Q4, that's right.
Speaker Change: Okay I appreciate the color I'll pass it back.
Suman Mookerji: I'll pass it back. Thank you.
Speaker Change: Thank you.
Alexandra Mandry: Thank you, one moment, for our next question. Our next question comes from the line of Alexandra Mandery of True Securities. Your line is now open. Hi, this is Alexandra Mandry on for Michael Ciarmoli with Tourist Security. Thank you for taking my question. I just had a question on the cash flow statement. It looks like there's one item titled legal fees for unsolicited non-binding acquisition offer of $738,000 in 4Q and $3.145 million year to date. Can you just add more color on this item and what it entails?
Speaker Change: Thank you for our next question.
Our next question comes from the line of Alexandra mandatory of true Securities. Your line is now open.
Speaker Change: Hi, This is Alexandra <unk> on for Michael Chairman Lai maturing Securities. Thank you for taking my question.
Speaker Change: I just had a question on the cash flow statement. It looks like there is a line item titled legal fees from unsolicited non binding acquisition offer.
Speaker Change: 730, <unk> and $3, one 5 million year to date can you just add more color on this item.
Suman Mookerji: Yeah, so, you know, it's not an expense we are happy about that we, you know, didn't want to spend certainly be spending shareholder money on, on something like this, but it was the right thing for us to do to protect shareholder interests and make sure that we preserve the value of the company for our existing shareholders. And so, in making sure that we were properly, the management and the board was properly advised in response to the offer received from Albion River, we did engage both financial advisors as well as legal advisors over the course of the year.
Speaker Change: Yes.
Speaker Change: It's not an expense.
Speaker Change: Happy about that.
Speaker Change: Didn't want to spend certainly.
Speaker Change: Pending shareholder money on.
Speaker Change: On something like this but it was the right thing for us to do to protect shareholder interests and <unk>.
Speaker Change: Make sure that we preserve the value of the company for our existing shareholders and so in <unk>.
Speaker Change: Making sure that we were properly the management and the board was properly advised in response to the offer received from Albion River, we did engage both.
Speaker Change: Financial advisors as well as legal advisers over the course of the year and those are the fees that were paid to both those legal and financial advisers that advisory Board and management now since in Q4 and then in February of this year, we did see.
Suman Mookerji: And those are the fees that were paid to both those legal and financial advisors that advised board and management. Now, since in Q4, and then in February of this year, we did see a 13G filing stating that Albion no longer holds a position in Ducommon, and they have sold off their entire position. So, you know, we are not expecting these expenses to continue in 2022. Okay, great. That makes a lot of sense.
Speaker Change: <unk> filings, stating that al we are no longer holds a position in ducommun and they have sold off that entire position. So we're not expecting these expenses to continue in 2025.
Speaker Change: Okay, great that makes a lot of sense and I just had a quick follow up related to the defense exposure on program. So do you have any thoughts on potential changes for the better or worse as a result of Josh. Thanks.
Suman Mookerji: And I just had a quick follow-up related to defense exposure and programs. So do you have any thoughts on DOJ and potential changes for the better or worse as a result of DOJ? Thanks. Yeah, thank you for the question. I know it's top of mind for everyone. You know, we don't really have a viewpoint right now. Again, we've mentioned earlier on the call, we feel, you know, we have a wide breadth of products that we make for defense. A lot of it is electronic warfare. A lot of it is things, cards, cabling, you know, things that are important for missiles and missile defense.
Speaker Change: Yes. Thank you for the question I know, it's top of mind for everyone.
Speaker Change: We don't really have a viewpoint right now again, we mentioned earlier on the call. We feel we have a wide breadth of.
Speaker Change: Products that we make for a defense a lot of it is electronic warfare a lot of it is things cards cabling sales things that are important for missiles and missile defense.
Operator: We do feel good about all our programs. I mean, I did signal a year or two ago for the F-18, and that's the one program which we are winding down, and most of that's already in the base. So we feel good. But again, we don't have any view as yet as far as on the dota. Okay, great. Awesome. Thank you. One moment for our next question. Again, as a reminder to ask a question, you will need to press star 11 on your telephone.
Speaker Change: We do feel good about it.
Speaker Change: All of our programs.
Speaker Change: Good signal of a year or two ago with the F 18.
Speaker Change: That's the one program, which we are winding down.
Speaker Change: And most of that's already in the base. So we feel good but again, we don't we don't we're not we don't have any view as yet as far as on the dose side, we just have the <unk>.
Speaker Change: Okay great.
Speaker Change: Thank you one moment.
Speaker Change: Our next question again as a reminder to ask a question you will need to press star one on your telephone.
Noah Poponak: Our next question comes from the line of Noah Poponak of Goldman Sachs. Your line is now open. Hello, Noah, your line is now open.
Speaker Change: Our next question comes from the line of Noah <unk> of Goldman Sachs. Your line is now open.
Speaker Change: Hello, Noah Your line is now open.
Operator: I think there may be a connection issue.
Speaker Change: I think there may be a connection issue.
Operator: Let's move forward.
Move forward, yes.
Speaker Change: Yes.
Operator: Okay, I'm showing no further questions.
Speaker Change: Okay, I'm showing no further questions I would now like to turn it back to chairman President and CEO, Stephen Oswald for closing remarks.
Stephen Oswald: I'd now like to turn it back to Chairman, President, and CEO Stephen Oswald for closer remarks. Okay, I want to thank everyone for joining us. I very much appreciate it. Again, you know, I felt we had a very good quarter. I think we're well positioned. I know there's, you know, lots of discussion about defense right now. Again, let me reiterate finally that, you know, our view is at least from our product line, we feel very good about this year. So we'll have to see, but we that's our view. We feel strongly about our vision 2027 and look forward to speaking with you after the first quarter.
Speaker Change: Okay, well, thank you everyone for joining us.
Speaker Change: Very much appreciate it again.
Speaker Change: We had a very good quarter.
Speaker Change: We're well positioned I know there is.
Speaker Change: Lots of discussion about defense right now again, let me reiterate finally that all.
Speaker Change: Our view is at least from our product line, we feel very good about about this year, obviously, we will.
Speaker Change: I'll have to see what we would that's our view.
Speaker Change: We feel strongly about our vision 2027.
Speaker Change: And.
Speaker Change: We look forward to speaking with you.
Stephen Oswald: So thank you again for your support and have a great and safe day.
Speaker Change: After the first quarter. So thank you again for your support and have a great and safe day.
Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Speaker Change: Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
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