Ducommun Incorporated

Good day and thank you for standing by. Welcome to the fourth quarter 2022 Duke Common Earnings Conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to Turn the conference over to the common vice president, chief financial officer and controller and treasurer Chris Wampler. Please go ahead.

Thank you and welcome to the commons 2022 fourth quarter conference call with me today. 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, the cost of expansion and acquisition, competition, economic and geopolitical developments, pandemics, 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 these 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 filed our 2022 annual report on Form 10-K with the SEC today. I would now like to turn the call over to Steve Oswald for review of the operating results. Steve?

Okay, thank you, Chris, and thanks, everyone, for joining us today for our fourth quarter conference call. Today, and as usual, I'll give an update of the current situation of the company, after which Chris will review our financials in detail. I'm happy to report that the company's fourth quarter top-line performance was very strong. The company delivered year-over-year revenue growth of 14%. to $188.3 million. As mentioned in the press release, it not only shows that our end markets are in very good shape, but also highlights the common's operational strength, managing the supply chain and workforce. Turning to the markets, the continued recovery of commercial aerospace was a real bright spot once again in Q4. The Boeing 737 MAX business up 37% year-over-year, and the Airbus A320 also having significant growth, up 72% year-over-year. Overall, commercial aerospace with Airbus, Boeing, Goldstream, and others was up over 60% from Q4 2021. The commercial aerospace business as well showed year-over-year revenue growth now for the sixth 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 Q4. but once again delivered solid performance over $100 million in revenue as we prepare for increasing DOD budgets and FMS in the years ahead. The company posted solid gross profit of 20.5% down year-over-year due partially to several onetime factors, which Chris will cover in his remarks. The team also posted adjusted operating income margins of 8.1%, adjusted EBITDA of $24.5 million and increased slightly year over year. Zuccombe and Hyde adjusted EBITDA margins of 13% in Q4 as well. And we anticipate EBITDA to be solid this year with much stronger numbers in 2024 once the plan closures and restructuring activities in 2023 are behind us. Quality of earnings was good with the company reaching GAAP diluted EPS of 65 cents a share versus $9.05 a share for Q4 2021. But with adjustments, the diluted EPS of $0.85 a share was comparable to diluted EPS of $0.88 in the prior year. Some key drivers for the lower gap diluted EPS include restructuring chargers, and the prior year benefited from the significant gain on the lease saleback of our Gardena Performance Center's industrial property. One area of our business I would like to highlight as we move out of the pandemic-related headwinds in the past few years is a significant improvement of our commercial aerospace business within our structural system segment during 2022. Commercial aerospace revenue within structures was $165 million or roughly 55% higher than in 2021. In addition, Q4 commercial aerospace revenues were $43 million or 45% higher than a year ago, as we see very nice growth continuing in this part of the business. I will also add that this includes very little 787 business, which we see as an additional catalyst in 2023 through 2025. Finally, the backlog at the end of Q4 2022 stood at $325 million, or 17% higher than Q4 2021. So we are set up for excellent growth now and in the future. Investors should also keep in mind our structure is business component-based, not wings or other large capital-intensive products. And we strive as well to produce products of only industry niche technologies, such as titanium hot form and super plastic forming. Switching to the company's backlog performance, the commercial aerospace backlog increased sequentially for the seventh consecutive quarter from $266 million at the end of Q1 2021 to $450 million at the end of Q4 2022. That's an increase of 69%. And this was led by the 737 MAX, Viasat for in-flight entertainment, the A320, A220, and Gulfstream, all which we would expect after we came out of a very tough 2020 and 2021 for this part of the commons business. The fence backlog remained solid in Q4 as well and ended the quarter at $457 million. For offloading from the fence prime as the work continues, And it did meet and significantly exceeded our target of $45 million in 2022, up from roughly $31 million in 2021. 2023 is a big year as well. We're expecting roughly $90 million, with a great deal of that in our circuit car business we're racing on at sites such as Appleton, Wisconsin, and Tulsa, Oklahoma. The long-term run rate of these defense programs already commercialized or in development for offline will be over $125 million for the common by 2025. as primes continue to drive cost reduction and challenge the reasoning of keeping certain types of production in-house. The company's cost actions and lead organizational structure continue to pay dividends, too. Our team delivered another excellent quarter as well in Q4, managing the supply chain. And this not only shows in our financials, but we also could not be in a better place with our customers regarding our on-time delivery and quality. Corporate costs as a percentage of revenue were also very favorable at 4.1% compared to 5.3% last year in Q4. I also want to mention our very successful investor day on December 8th. First, my thanks to all who participated both in person and virtually, and we very much appreciate the great feedback. We certainly disclosed more of that meeting than in the past, especially around our strong results for our four acquisitions, and the post-pandemic gain plan now is in place. The path ahead for the company and the investors is now clear through 2027. In addition, Chris will provide further details, but we're off to a very good start in 2023 with the plan consolidations and other restructuring activities, along with preparing for the planned real estate sales. For revenue guidance in 2023, we see the company's revenue coming in at the low to mid single digit The commercial aerospace industry recovery will continue to lead the way, and revenue will be solid over the quarters ahead, as we see more and more volume return, with defense being solid, though impacted by some timing on a few programs, but still having a very good backlog. The two planned closings will also see some slight reduction in revenue, as we improve non-strategic and low-volume business. We continue as well to be active and opportunistic with acquisition opportunities. as in the past, and believe this is another catalyst to drive us possibly higher in the year ahead. 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 $108.4 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 Q4. We saw increases in demand for our missile programs, Mir, and Patriot, along with F-18. The fourth quarter military and space revenue represented 58% of the Commons revenue in the period, down from 69% last year. And this trend will continue to reflect more balance with commercial aerospace, which we like. We also ended the fourth quarter with a solid backlog of $457 million, which represents nearly 50% of the company's total backlog. Within our commercial aerospace operations, fourth quarter revenue increased year-over-year to $68 million, driven mainly by bill rate increases on large aircraft platforms, in-flight products from ISAT, and other commercial aerospace platforms. The Common expects to continue improving the commercial aerospace market overall to gain momentum in 2023, and the future is bright across our product offerings. Our delivery and quality also continues to stand out, as we move ahead. The backlog within commercial aerospace stands at $450 million at the end of the fourth quarter, and with $117 million higher, a 35% increase year-over-year from Q4 2021. With that, I'll have Chris review our financial results in detail. Chris?