Ducommun Incorporated

All participants are in a listen-only mode. After the speaker 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 assistance during the conference, please press star 0. I would now like to hand the conference over to your speaker today, Chris Wampler. Vice President, Chief Financial Officer, Controller, and Treasurer.

Thank you. And welcome to Dukaman's 2022 First Quarter Conference Call. With me today is Steve Oswald, Chairman, President, and CEO. 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 Dukama include, among other things, 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 acquisition, competition, geopolitical developments, 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 filing with the SEC for a reconciliation of the GAAP to non-GAAP measures referenced on this call. We filed our 2022 First Quarter Form 10-Q with the SEC today. I would now like to turn the call over to Mr. Steve Oswald for review of the operating results. Steve?

Okay, thank you, Chris. Thanks, everyone, for joining us today for our first quarter conference call. Today and as usual, I will give an update on the current situation of the company, after which Chris 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 2020. We continue to follow our best practices aligning with health authorities. Within the company, we had 287 cases of Omicron in Q1 of 2022, with 263 of them occurring in January. Turning to the Q1 financial results, the company's first quarter performance was very solid, the company delivering year-over-year revenue growth of 4%. This was excellent in light of the significant amount of COVID cases mentioned previously among the workforce in January. The commercial aerospace market recovery was a real bright spot in Q1. And Boeing's 737 MAX business was up over 100% year over year. And the Airbus A320 family also had a significant increase of over 80% year over year. The company's defense business, after great progress in the past two years, was down, but still delivered a solid performance. Finally, our overall commercial aerospace business showed good year-over-year revenue growth for the third consecutive quarter. We also posted solid gross profit of 19.9%, along with an adjusted EBITDA of 12.3%, despite the challenging start to the year. The team also posted adjusted operating income margins of 7.5%, which is good progress for the start of the year as we continue to build our track record of effective operational leadership and cost management in any environment. Quality of earnings was solid as well. The company reaching GAAP diluted EPS of 66 cents a share versus 55 cents a share for Q1 2021 and adjusted diluted EPS of 67 cents a share versus 66 cents in 2021. First quarter revenue was higher due to the Commons overall commercial aerospace growth, up 53% year over year, along with continued solid defense business versus prior year, though down on a fairly strong Q1 2021 number. The military and space program that had growth in Q1 included the F-18, F-16 Mir missile program, and other military rotary wing aircraft programs. Our continued approach to the defense market continues to be innovative products and processes as a tier one supplier that provides significant value to the customer, along with striving for a consistent high level of service. Raytheon Technologies as well was again our number one customer in Q1. We continue to benefit from the strategic supplier agreement signed with the missile and defense business over two years ago. We've been hard at work with current and new programs offloading and share shift with Raytheon Technologies and look forward to continuing to leverage that relationship in 2022 and 2023. I mentioned in the last call about the offloading from defense primes and the future benefits for the company. The work is progressing with Raytheon, GA, Northrop Grumman and others, and will be over 45 million in 2022 for strictly offloading, up from roughly 31 million in 2021. We then expect to double it to $90 million plus in 2023, a great deal of that in our circuit card business. The long-term run rate of programs already commercialized or in development will be over $125 million by 2025. These opportunities include Raytheon SPY6 products for GA, tow missile electronic harnesses and circuit cards, and the next generation jammer, which would be a major driver for revenue. The defense backlog was also a bright spot in Q1 and ended the quarter at $509 million. The commercial backlog also showed strong signs of recovery, increasing sequentially for the third consecutive quarter, from $276 million at the end of Q2 2021 to $377 million at the end of Q1 2022. a very good sign. The book-to-bill ratio for Q1 was 1.2. We are thrilled that the total backlog for Q1 reached an all-time high of $943 million for the company. The company's cost actions and lead organization are also continuing to pay dividends. Even before the pandemic, the company was working on initiatives to offset the 737 MAX beginning in Q4 2019. The effectiveness of our operational leadership and action since then, and through two years of COVID, will provide meaningful benefits as we move forward and gain scale across our businesses. SG&A spending in particular is a contributor, especially at the corporate level, which is among the industry leaders. In regards to the outlook, Our continued good momentum in commercial aerospace, along with our significant backlog in defense, will result in high single-digit revenue growth for the full year of 2022, which we are very pleased with. We estimate that revenue remains solid in defense, but over the quarters ahead, we will see more and more commercial aerospace volume return. Our high narrow-body to wide-body ratio for the business will also help us based on current challenges facing wide-body aircraft. The other bright spot for Dukama is our business aviation portfolio, which is up 70% in revenue year-over-year with a strong backlog, especially with GS. As mentioned in previous calls, we have the capacity, supply chain, and strong operating team ready to deliver the forecasted rate increases ahead, and we look forward to every opportunity. Another area for the companies and investors to discuss is M&A. We continue to be actively looking for companies that fit our model and believe this will only be an accelerator to higher results now and in the future. We had a significant win with the acquisition of MagSeal in December. I'm happy to report that the numbers are already ahead of plan and the integration has been excellent. I also want to mention that all of our acquisitions completed since 2017. have been integrated well, are leaders in their space, the financial numbers are ahead of expectations, and have added much needed high margin aftermarket revenue to the company. We will delve deeper into this performance at our upcoming investor meeting planned for the second half of this year, and stay tuned for the date. Before I move to the market commentary, we announced today a restructuring initiative which commenced subsequent to Q1 2022. Our team has taken this action to accelerate the achievement of our strategic goals to better position the company for stronger performance. We are still finalizing details as to the timing, certain actions, and operations affected, including facility repositioning-related expenses, impairment of long-lived assets, severance, and write-down of inventories. We currently anticipate this initiative will result in approximately $10 to $14 million in total pre-tax restructuring charges over the next 12 months. The company anticipates these destruction actions will result in estimated annual cost savings of approximately $3 to $4 million beginning in 2023. Now let me provide you with some color on our markets, products, and programs. Beginning with our military and space sector, We posted first quarter revenue of $99.3 million, a decrease versus 2021. Despite being down, this was a solid showing for the business in Q1. As mentioned earlier, we saw increases in demand for our F-18, F-16, Mir missile program, and other military rotary wing aircraft. First quarter military space revenue represented more than 70% of the Commons revenue in the period and this will be changing over time to reflect more balance with commercial aerospace. We also ended the first quarter with a solid backlog of $509 million, which represents 54% of the economy's total backlog. Then our commercial aerospace operations. First quarter revenue increased year over year to $54.1 million, driven mainly by bill rate increases on large aircraft platforms, business aviation, and in-flight products for Viasat. Tucomit expects a meaningful improvement in the commercial aerospace markets overall for the rest of 2022 and 2023. And the future is very bright across our product offerings, including our industry-leading titanium structural business. The backlog within our commercial aerospace sector stands at roughly 376 million at the end of the first quarter, a significant increase sequentially compared to Q4 2021 and the third consecutive quarter of growth. With that, I'll have Chris review our financial results in detail. Chris?