Ducommun Incorporated

Ladies and gentlemen, thank you for standing by, and welcome to the Q4 2020 Due Common Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Mr. Chris Witte, Investor Relations Moderator. Thank you. Please go ahead, sir.

Thank you, and welcome to DeCommon's 2020 Fourth Quarter Conference Call. With me today are Steve Oswald, Chairman, President, and CEO, and Chris Wampler, Vice President, Chief Financial Officer, Controller, and Treasurer. I'm going to discuss certain limitations for any forward-looking statements regarding future events, projections, or performance that we may make during the prepared remarks or the question-and-answer 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 Federal Private Security Litigation Reform Act of 1995 and therefore are perspectives. 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. 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 be correct. In addition, estimates of forward operating results are based on the company's current business, which is subject to change. Particular risks facing Dukama include, among others, the cyclicality of our end-use markets, the impact of COVID-19 on our operations or customers, the level of U.S. government defense spending, timing of orders from our customers, legal and regulatory risks, management changes, the cost of expansion and acquisitions, competitions and disasters, natural or otherwise. These risks and others are described in our annual report on Form 10-K, filed with the SEC, and our forward-looking statements are subject to those risks. The statements made during this call are only as of the time made, and we do not intend to update any statements made in this presentation except if and as required by regulatory authorities. This call will also include non-GAAP financial measures. Please refer to our filings with the SEC for a reconciliation of the GAAP to non-GAAP measures referenced on this call. We filed our 2020 Fourth Quarter Form 10-K with the SEC earlier today. I would now like to turn the call over to Ms. Steve Oswald for a review of the operating results.

Okay, thank you, Chris. Thanks, everyone, for joining us for our fourth quarter conference call. As in our second and third quarter calls, I first hope you and your families are healthy, continue to get through this pandemic as best as possible. Today, and as usual, I will give an update of the current situation at the company, after which Chris Wampa will review our financials in detail. The company remains focused first and foremost on the health and safety of our employees. The team has done an excellent job with the safety protocols put in place since March of last year. We continue to work with the authorities on best practices throughout our many operations. The amount of cases now is 188 for the company since last March. We remain diligent on communications with weekly updates to our human resources team. As mentioned in the press release, Dukama's fourth quarter results really shined in despite the continued unprecedented challenges in the commercial aerospace markets. All of our actions, initiatives, and hard work since we began this journey in 2017 have shown in the strong operating results and again in Q4. Our defense business continues to be a major contributor along with cost reductions, having the right product portfolio, strong operating leadership, and leveraging our lean and highly focused performance centers. This is particularly evident in the margin expansions for gross profit and adjusted EBITDA, despite the massive year-over-year headwind. The team also posted adjusted operating income margins of over 8% in line with expectations. Quality of our earnings, too, was very high, with the company reaching GAAP diluted EPS of 80 cents a share versus 75 cents a share for Q4 2019, and adjusted diluted EPS of 89 cents a share versus 80 cents in 2019. These numbers were reached despite overall revenue being down 15.6% from Q4 last year, a job well done. This is a great story for our investors as we see a return to growth in 2021 with commercial aerospace recovering. And the solid results in 2020 will benefit the future numbers. The company's fourth quarter revenue was lower due to the commercial aerospace markets and roughly at the midpoint of our expectations of being down between 14 and 18 percent, which was communicated in our last earnings call. Tacoma's defense business, however, again, showed great strength, being up 25% versus prior year, and again, a result of the many improvements that we started back in 2018. Our timing was excellent. Though I never wanted to show negative growth, the revenue number is also impressive to not only the pandemic impact, but also overcoming another $24 million of 737 MAX headwind in Q4. Tacoma's defense business continues to show excellent progress on shipments and business development. The majority of the gains in Q4 included radar systems for north of Grumman, increases from our new weapons systems business, Nobles Worldwide, along with the Patriot, UAVs at General Atomics, F-35, Mir, and the Raytheon tow program. I mentioned our last call about Tacoma's new efforts with UAVs. Again, we are thrilled to be a strategic partner with GA, and they're not reaching a million dollars in revenue in December 2020 as we had hoped. The number was still strong, and shipments in 2021 for this customer will be over 4X versus last year. In regard to the defense backlog, we set an all-time record for Ducan in ending Q4 with a backlog of $530 million. The total backlog was $822 million for the company sequentially up from Q3, and it's a great number based on the environment. Defense business grew year-over-year by 25%, bolstered by strong revenues across numerous key platforms, which included F-35, Patriot, the tow missile, Mir missile, UAVs, weapon systems for ground vehicles at Nobles, and others, as this part of the common continues to deliver. Obviously, this strength helped offset commercial orders, which we anticipate will start increasing in 2021. The Fence results also show great opportunities where we can leverage our structural product lines with the Fence OEMs. We have major wins now in the tow missile, which I've spoken about, and other new programs, and along with acquisitions, this part of the business will be north of $100 million in revenue for 2021. I also want to mention that we are optimistic about defense going forward, despite concerns regarding the budget and change in administration. The common defense segment was under-managed in the past, but now with structural applications going full speed, along with a long-term track record and value offering of our electronic systems business, we see a strong future. As in Q3, cost actions have continued in Q4. You can certainly see the effectiveness of our actions in the positive gross profit margin expansion year over year and solid operating income percentage along with EPS. The team did a great job in 2020 moving quickly and managing this difficult environment with no material pandemic-related costs incurred, including major restructuring or impairments. In regards to the outlook, our significant backlog in defense the many growth programs mentioned earlier, will provide strong revenue in 2021. We estimate that revenues will be led by defense, but over the quarters and years ahead, we will see more commercial aerospace volume return to Ducamin. We have the capacity, the strong operating team, and are prepared for the rate increases, especially in single-aisle aircraft. We also see Ducamin's titanium business of hot form, and super plastic forming leading this comeback as well. We are a leader in this area with only OEM operations we know of at Airbus. Ducama has a strong position in titanium already at Boeing, Spirit Aerosystems, Gulfstream, and among others. And you know we have the operating, we know we've been reporting over the past few years our efforts to develop a significant franchise with Airbus, which continues to go well. As mentioned in our last call, we will return to growth in 2021 with the first quarter still having a tough compare and being down year over year. The other three quarters will see good growth versus 2020, and we anticipate overall revenue for the year to Common growing low to mid-single digits. Common also has a great long-term future. This will be accomplished by leveraging our new built-out defense portfolio spoken about earlier, which now has currently 52 programs above $1 million in yearly revenue, and that's up from 34 in 2017. That's over a 50% increase. Also, the common strong position in commercial aerospace, especially on narrowbody, with roughly a two-to-one ratio with widebodies. Our titanium market leadership, along with share gain at Airbus, will drive excellent growth as the market recovers. Our engineered products portfolio and recent acquisitions will provide opportunities as well. And finally, we also remain active in the market for M&A and believe this will only be an accelerator to higher results in the future. Now, let me provide some additional color on our markets, products, and programs. Beginning with our military and space sector, we posted fourth quarter revenue of $115.4 million once again representing strong growth versus 2019, up 25%. We drove revenue across a broad variety of defense platforms, including most of our product portfolio. As mentioned earlier, we saw increases in demand for our military fixed-wing aircraft programs, with particularly strong revenue, as mentioned, from Northrop Grumman, Nobles Worldwide, Patriot, GA, F-35, Mir, and the TOW missile. The fourth quarter military and space revenue represented 73% of the Commons revenue in the period. We also continue to be very well positioned for future growth across our defense platforms over the next several quarters in all sectors. And again, ended the fourth quarter with an all-time high backlog record of $530 million, which is up 17% year over year. And it also represents 65% of our current backlog. Within our commercial aerospace operations, fourth quarter revenue declined year-over-year to $37.2 million, as expected, driven by bill rate declines on the 737 MAX, as well as many other programs impacted by COVID-19 pandemic. Tacoma also has effectively adjusted costs and managed to downturn as well-positioned once rates stabilized and increased over the long term. Tacoma will begin to recover in this market in 2021, As mentioned earlier, it has a very bright future. The backlog within our commercial aerospace sector stands at roughly $268 million at the end of Q4, with the majority of the decline due to the 737 MAX. With that, I'll have Chris review our financial results in detail. Chris?