Ducommun Incorporated

Good day, ladies and gentlemen, and welcome to DeCommon's third 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 during the session, you will need to press star 11 on your telephone, and you will then hear an automated message advising your hand is raised. As a reminder, this conference is being recorded today. November 7, 2022. I would now like to turn the conference over to DeCommons Vice President, Chief Financial Officer, and Controller and Treasurer, Chris Swampler. Please begin.

Thank you and welcome to DeCommons 2020 Third Quarter Conference Call. With me today, Dave 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 DoCommon 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, the cost of expansion and acquisition, competition, economic and 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 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 third quarter form 10Q with the SEC today. I would now like to turn the call over to Steve Oswald for a review of the operating results. Steve?

Okay. Thank you, Chris, and thanks, everyone, for joining us today for our third quarter conference call. Today, as usual, I will give an update of the current situation at 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. We've done an excellent job, the team and the leadership, with safety protocols put in place since March 2020. We continue to follow best practices aligned with health authorities. And within the company, we had 188 cases of Omicron variant in Q3 of 2022. Turning to the Q3 financial results, I'm happy to report that the comments third quarter top line performance was very strong. The company delivering year over year revenue growth of 14%. Net revenues also exceeded 180 million for the first time since before the pandemic started in Q4, 2019. and rose to 186.6 million. The commercial aerospace market continued recovery was a real bright spot once again in Q3 with Boeing 737 MAX business up 137% year-over-year, and the Airbus A320 also having up 70% year-over-year. Overall commercial aerospace with Airbus, Boeing, Goldstream, and others was up over 65% from Q3 2021. The commercial aerospace business as well showed year-over-year revenue growth now for the fifth consecutive quarter, an excellent sign as the industry and build rates recover. The company's defense business, after two years of unprecedented growth in 2020 and 2021, was only down slightly in Q3, but once again delivered solid performance over $100 million in revenue. The company posted solid gross profit of 20.7%, sequentially up but down year over year due partially to several one-time factors, which Chris will cover in his remarks. Adjusted EBITDA of $26 million was a strong increase year over year and the highest since I joined the company in 2017. Adjusted EBITDA margins of 13.9% in Q3 as well. With a solid performance, we expect EBITDA to continue to be strong in the quarters ahead. The team also posted adjusted operating income margins of 9.2%, which was a good improvement from Q2. Quality of earnings was solid, with the company reaching GAAP diluted EPS of 69 cents a share versus 78 cents a share for Q3 2021. But with adjustments, the diluted EPS of 96 cents a share was higher than last year. Some key drivers for the lower GAAP diluted EPS include the Guaymas fire-related expenses, restructuring charges, and loss on extinguishment of debt as part of the debt refinance. In regards to the revenue outlook comments mentioned in the Q1 and Q2 calls, we continue to see the company coming in at the high end of single digits for the full year with the commercial aerospace industry recovery leading the way. We estimate that revenue will continue to be strong over the quarters ahead, as we see more and more commercial aerospace volume return. Our high narrow-body to wide-body ratio for the business is also a plus, but we will benefit as well from the news that deliveries of 787 have resumed. Dukavan has a business aviation portfolio as well, supplying our world-leading titanium products and other components, and it continues to have good momentum, up 60% in revenue year-over-year, with a strong backlog, especially at Gulfstream. One area of our business I'd like to highlight as we move out of pandemic-related headwind is the significant improvements of our commercial aerospace business with our structures system segment during 2022. Commercial aerospace revenue within structures year-to-date was $122 million, or roughly 60% higher than the year-ago period. In addition, Q3 2022 commercial aerospace revenue was 46 million, or almost 75% higher than a year ago, a great sign that growth is accelerating in this part of our business. Finally, backlog at the end of Q3 2022 stood at 321 million, or 36% higher than Q3 2021. So we are set up for excellent growth to continue now and in the future. Investors should also keep in mind our structures business is component-based, not wings or nacelles, and we strive to produce products from only industry niche technology, such as titanium hot form and super plastic forming. For offloading from defense primes, the work continues as we will meet our target for over 45 million in 2020-22, up from roughly 31 million in 2021. We then expect to double it to 90 million plus in 2023, with a great deal of that in our circuit card business for Raytheon at sites such as Appleton, Wisconsin. A long-term run rate of these defense programs already commercialized or in development for offloading will be over $125 million for the common by 2025. For backlog performance, the commercial aerospace backlog increased sequentially for the fifth consecutive quarter, from $276 million at the end of Q2 2021 to $431 million at the end of Q3 2022, an increase of over 55%. This was led by the 737 MAX, Viasat for in-flight entertainment, the A220, A320, and Gulfstream, all which you would expect after we came out of a very tough 20 and 2021 for this part of the commons business. The defense backlog remained solid in Q3 as well and ended the quarter at $467 million. The company's cost actions and lean organizational structure are continuing to pay dividends too. Our supply chain team as well delivered another excellent quarter, managing the supply chain, and this is not only showing in our financials, but we cannot be in a better place with our customers regarding our on-time delivery and quality. Now let me provide some additional color on our markets, products, and programs. Beginning with our military and space sector, we posted third quarter revenue of $106.3 million, a slight decrease versus 2021. Despite being down, as mentioned earlier, it was greater than $100 million and a solid showing for the business in Q3. We saw increases in demand for our F-18, Patriot missile, and other missile programs, as well as other military and space programs. The third quarter military and space revenue represented 57% of the Commons revenue in a period down from 70% last year, and this trend will continue to reflect more balance with commercial aerospace. We also ended the third quarter with a solid backlog of 467 million, which represents roughly 50% of the Commons total backlog. Within our commercial aerospace operations, Third quarter revenue increased year over year to $68.3 million, driven mainly by bill rate increases on large aircraft platforms, in-flight products for Viasat, other commercial aerospace platforms, and business aviation. Tacoma expects this continued improvement in the commercial aerospace market overall to gain momentum for the rest of 2022 and 2023, and the future is bright across all our product offerings. The backlog within our commercial aerospace sector stands at $431 million at the end of the third quarter and was $145 million higher or over 50% increase year-over-year from Q3 2021. With that, I'll have Chris review our financial results in detail.