Ducommun Incorporated

Good day, ladies and gentlemen, and welcome to the Duke Commons second quarter conference call. At this time, all participants are in a listen-only mode. Following management's prepared remarks, we'll hold a question and answer session. To ask a question, please press star followed by one on your touchtone phone. If anyone has difficulty hearing the conference, please press zero for operator's assistance. As a reminder, this conference is being recorded today, August 12, 2021. I would now like to turn the conference over to your Investor Relations Advisor, Chris Woody.

Thank you, and welcome to the Commons 2021 Second 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 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. 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 to common 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, competition 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. Statements made during this call are only as of the time made, and we do not intend to update any statements made in this presentation except if and as required by regulatory authorities. This call also includes non-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 have followed our 2021 Second Quarter Form 10Q with the SEC today. I would now like to turn the call over to Mr. Steve Oswald for a review of the operating results. Steve?

Well, thank you, Chris, and thanks, everyone, for joining us today for our second quarter conference call. Today, as usual, I'll give an update on the current situation at the company, after which Chris Swamp 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 safety protocols put in place since March 2020. We continue to work with authorities on best practice throughout our many operations. The total number of cases is roughly 214 since the beginning of the pandemic. And within the company, we had 14 cases in Q2 2021. As mentioned in the press release, the common second quarter results were very strong, with the company delivering year-over-year revenue growth of 9%, all organic, for the first time since Q1 2020. The company's defense business continues to be a major success, with upward momentum growing again year over year, and with the main contributor to the quarter. The challenges in the commercial aerospace market were overcome again by the team. Though we have seen some good signs, for example, with growth at Spirit Aerosystems in Q2, we're optimistic that we'll start seeing meaningful OEM build rate increases starting in 2022. In addition to revenue growth, we posted gross margins of 23%, which is the highest level reached in 10 years at the company, along with adjusted EBITDA margins of 14.6%, which is an increase of 80 basis points year over year. The team also posted adjusted operating income margins of 9%, which is excellent progress. The quality of earnings was high as well, with the company reaching GAAP diluted EPS of 69 cents a share versus 43 cents a share for Q2 2020, and adjusted diluted EPS of 74 cents a share versus $0.48 in 2020. These numbers reflect the return to revenue growth we anticipated along with strong operating management. This is also a great story for our investors, as this quarter was the beginning of a return to revenue growth for the full year of 2021, with the commercial aerospace market starting to recover in the quarters ahead. The company's second quarter revenue was higher with the commons defense business as mentioned earlier, leading the way, being up 20% versus prior year. Our defense business revenues continue to show excellent progress on shipments and a robust business development approach. The majority of the gains in Q2 include the radar systems for Northrop Grumman, Raising on Tow Program, F-18, Apache helicopter, UAVs and General Atomics, Phalanx, and other missile programs. Our approach to the market is innovative products and processes that provide significant value to the customer, along with striving for the highest level of service. The numbers show that we continue to be rewarded for this strategy. I also want to mention, as I have in the past, the Raytheon Missile and Defense business and the progress since signing the strategic supplier agreement with them in July of 2019. We have been hard at work in three areas. New programs, offloading, and share shift. I'm happy to report that 2021 will be a record year overall with this legacy Raytheon business growing from less than $90 million in 2020 to over $115 million in 2021, an increase of more than 25%. What a great story. The defense results also show great opportunities when we leverage our structural product lines with defense OEMs. As previously mentioned, we have wins now on the tow missile, which was a share shift from another supplier, and other new programs such as the standard missile tool, dorsal fin assembly, both for Raytheon Missile and Defense. Along with our acquisitions, this part of the business will be north of $110 million in revenue for 2021, where it was under $80 million in 2019. Another defense structural highlight in Q2 was that Nobles Worldwide has secured significant content to supply integrated ammunition handling systems as part of the Stryker MCWS Increased Lethality Program, recently awarded to Oshkosh Defense. The total program of six years can be worth up to $943 million to Oshkosh and their partners. I am also overall still optimistic about defense opportunities for Dukama going forward. concerns regarding the recent budget discussions in Washington and the change in administration. This is again due to our value offering and still a modest revenue base. A good amount of runway is still ahead of us here at Tacoma. In regards to defense backlog, it remains strong in ending Q2 with a backlog of $501 million. The commercial aerospace backlog also began show some signs of recovery increasing sequentially from 266 million at the end of Q1 to 276 million at the end of Q2. This is certainly a good sign. The total backlog was 814 million for the company, and this is very good. It's a very good number based on the environment. Now I want to take a few minutes to discuss my thoughts on a commercial aerospace business. We were notified in May with press release approval in July that the con was recognized as an Airbus Detail Parts Partner and awarded a long-term five-year contract. The commitment from the current industry leader allows us to provide a titanium work package for key products on the A320 and A330 programs. We were and are thrilled and honored to be awarded for the first time a D2P partner designation. which is a major accomplishment at Airbus, representing preferred supplier status along with a long-term five-year contract. This is a significant step forward for Ducamin, and it's industry-leading titanium structural component business. To me, it is the highest level of endorsement, and as I mentioned in the press release, a major milestone in the 172-year history of our company. This contract extends through 2026 and will provide many years of great value to DeCommon and its shareholders. The company's cost actions are also continuing to pay dividends. You can certainly see that even before the pandemic, the company was working on initiatives to offset the 737 max. The effectiveness of our operational leadership and actions show the gross profit margins year over year and a solid operating income percentage along with the diluted EPS. I also want to mention our efforts on pricing. This is also having a positive impact on the company's financials. In regards to the outlook, our significant backlog in defense with the many growth programs mentioned earlier will provide good revenue in 2021. We estimate that revenue will be led by defense, but over the quarters ahead, we'll see more commercial aerospace volume return to the comments. We're also very well positioned with a high narrow body to wide body ratio for our business and have the capacity and strong operating team to deliver on the forecasted rate increases. We will return overall revenue growth this year and anticipate the Commons total revenue to grow in the low to mid single digits versus 2020. Future growth will be accomplished by leveraging our newly built out defense business strong positions in commercial aerospace, especially on narrow-body revenues, with Airbus being a big part of our future, as well as our three acquisitions, which continue to deliver. We also remain active in the market for M&A for new companies that fit our model and believe this will only be an accelerator to higher results. Now let me provide some additional color on our markets, products, and programs. Beginning with our military and space sector, We posted second quarter revenue of $113 million, once again representing strong organic growth versus 2020, up 20%. We drove revenue on some key defense platforms. As mentioned earlier, we saw increased demand for radar systems, tow missile, F-18, Apache helicopter, UAVs, Phalanx, and other missile programs. The second quarter's military and space revenue represented more than 70% of the economy's revenue in the period. We also continue to be very well positioned for further growth across defense platforms over the next several quarters in all sectors, especially at Raytheon. Again, added the second quarter with a strong backlog of 501 million, which represents 62% of the common's total backlog. Within our commercial aerospace operations, second quarter revenue declined year over year to $37.6 billion, as expected, driven by bill rate declines on a number of commercial aerospace platforms impacted by the COVID-19 pandemic. However, The decline in revenue is not as sharp as in prior quarters. The common also has effectively adjusted costs and managed the downturn in its well positions once rates stabilize and increase over the long term. The common expects a meaningful improvement in this market in the second half of 2021, and as mentioned earlier, has a very bright future. The backlog within our commercial aerospace stands at roughly $276 million, at the end of the second quarter, slight increase sequentially, as I mentioned earlier, compared to Q1. We stand ready with the team, processes and capital in place to support the expected bill rate increases in the next few years, and we are excited to get started. With that, I'll let Chris review our financial results in detail. Chris?