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spk15: Good day and thank you for standing by. Welcome to the Q4 2023, Do 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 1-1 on your telephone. You will then hear an automated message advising that 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 hand the conference over to your speaker, Suman Mukherjee, Senior Vice President and Chief Financial Officer. Please go ahead.
spk05: Thank you and welcome to Do Common's 2023 fourth 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 Do Common include, amongst others, the cyclicality of our end-use markets, the level of U.S. government defense spending, our customers may experience delays in the launch and certification of new products, timing of orders from our customers, legal and regulatory risks, the cost of expansion and acquisitions, competition, economic and geopolitical developments, including supply chain issues and rising or high interest rates, the ability to attract and retain key personnel and avoid labor disruptions, the ability to adequately protect and enforce intellectual property rights, pandemics, disasters, natural or otherwise, and risk of cybersecurity attacks. These risks and others will be described in our annual report on Form 10-K once it is filed with the SEC, and our forward-looking statements are subject to those risks. Statements made during the call are only as of the time made, and we do not intend to 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.
spk10: This
spk05: year, we expect to file our 2023 Form 10-K on Thursday, February 22, 2024. The additional time is to complete the documentation of our internal controls and preparation of the Form 10-K for filing. In the 2023 Form 10-K, we expect to report a material weakness in our internal controls over financial reporting related to our revenue recognition process. This material weakness resulted in immaterial adjustments to net revenues and contract assets as of and for the quarterly period ending December 31, 2023. We do not expect the material weakness to result in a restatement or change to the reported financial statements. We will make the necessary changes to the design and operating effectiveness of the specific revenue recognition internal controls during 2024. I would now like to turn the call over to Steve Oswald for a review of the operating results. Steve?
spk13: Okay, thank you, Suman, and thanks everyone for joining us today for our fourth quarter conference call. Today and as usual, I'll give an update on the current situation at the company, after which, Suman, we'll review our financial results in detail.
spk14: Q4 was
spk13: a very good quarter as we wrapped up 2023. Revenues exceeded $190 million for the second consecutive quarter, so $192.2 million, driving a full year revenue of $757 million with the last high mark set in 2012. Strong growth in our single-aisle commercial aircraft business helped to drive the revenue. The contingent recovery in commercial aerospace once again delivered in Q4 with Boeing's single-aisle platform business in aggregate being up 46% year over year, along with Airbus A220 program showing strong growth of 73% year over year. Overall, commercial aerospace with Airbus and Boeing and others was up 18% from Q4 2022, despite Boeing's and Spirit's continued challenges with max quality issues. We are now in our 10th quarter of year over year revenue growth for commercial aerospace, a continued excellent sign for DCO and the industry. While our defense business was slightly down the quarter with sun setting programs such as the F-18 Heavy and Impact, the company also experienced strong demand in the Apache program as well as increases for F-35 and the Mir missile platforms. The defense business was over $100 million revenue once again at $103 million of revenue for the quarter. We remain optimistic about the growth ahead. As we go through a timing transition on certain programs, the ever-growing backlog in defense tells the story, with backlog up $70 million from last year and $33 million from Q3 2023. Defense backlog now stands at over half a billion at $527.1 million. Another real bright spot in Q4 was gross margins of .7% for Q4, up 120 basis points year from .5% as we began realizing benefits from our strategic pricing initiative, productivity improvements and some initial restructuring savings. We are now also in the final stages of operation at our Berryville, Arkansas and Monrovia, California performance centers and are targeting a full shutdown by June 30. The final approval stage with RTX for the Tomahawk harnesses going to Mexico, the last product still being produced at Berryville is close. We continue to give a full effort with BA, BCS and BA defense on the Max spoilers and Apache tail rotors respectively, working with them on approval and building buffer. Due to the low level of production at both sites, we do have some headwind, but this is temporary and will clear after the closures. For adjusted operating margin in Q4, the team delivered .3% compared to .1% in Q4 2022. A nice result while investing some of the gross margin improvement after a few lean years during COVID and the ramp up of commercial aerospace. The gap diluted EPS was 34 cents a share in Q4 2023 versus 65 cents a share for Q4 2022. And with the adjustments, diluted EPS was a solid 70 cents a share compared to diluted EPS of 85 cents in the prior year. Some key drivers for the lower gap diluted EPS include higher interest expense due to higher interest rates, higher inventory purchase accounting adjustments, and higher SG&A expenses as we invested in the business to position it for the future. The total company backlog performance increased both sequentially and compared to the prior year. Total company backlog ended 2023 at almost 994 million, increasing over 30 million both sequentially and compared to the prior year. The defense backlog as mentioned earlier also increased 70 million compared to the prior year to the end at a record of 527 million. The strong defense backlog reaffirms the comments the defense business remains in good shape with more positive news to come. The commercial aerospace backlog however decreased slightly year over year primarily due to industry issues with single aisle production rates, specifically the max issues mentioned earlier with BA in spirit, but still ended Q4 2023 at a solid 429 million. For offloading from defense primes, the work continues. We are expecting roughly 90 million for the full year in 2024 as committed to, mainly in our circuit card business for RTX in new areas such as radar for the SPY6. As communicated, the long-term run rate of these defense programs already commercialized or in development for offloading will be over 125 million by 2025 once transition work is completed. In Q4, our team delivered another good quarter managing the supply chain as evidenced by positive revenue growth along with significant gross margin expansion compared to a year ago. Another great example of productivity improvements in people is the revenue per employee number, which granted is a high level number but did increase significantly by 16% in 2023 versus 2022. That is a terrific job everyone at the company. 2023 record revenues of 757 million with a solid .2% growth over 2022 and in line with the guidance of 6 to .5% we provided to you during the Q3 call. We are obviously happy with this record number last set in 2012, especially in light of the 737 max headwinds with BA in spirit that created a more modest pace than it then expected in single hour production rates in 2023. For revenue guidance in 2024, we believe that with the uncertainty surrounding BA, spirit and the FAA at this point on the max, the best approach is to guide to mid single digits and look to further updates on future earnings calls. The commercial aerospace recovery will continue to expand along with growth and defense, which is backed by a record backlog. We continue as well to be active with acquisitions. As in 2020 acquisition last April and believe this is another catalyst to drive us possibly higher in
spk07: the year ahead.
spk13: Now let me provide some additional color on our markets, products and programs. Beginning with our military and space sector, we experienced our second consecutive quarter of revenues over 100 million at 102.8 million compared to 108.4 million in Q4 2022. While lower, we saw some bright spots including strong demand for the Apache tail rotor blades with over 380% year over year growth and increased demand for other military and space products, other military rotary wing platforms, F35 and the Mir missile as well. The fourth quarter's military and space revenue represented 53% of the commons revenue in the period down from 58% last year. And this trend will continue to reflect more balance with commercial aerospace, which we like. We also entered the fourth quarter with backlog in excess of 500 million to 527 million, an increase of 70 million year over year and represents 53% of the commons total backlog. Within our commercial aerospace operations, fourth quarter revenue saw double digit growth once again, increasing 18% year over year to 80 million driven mainly by build rate increases on large aircraft platforms, including the 737 MAX and A220 platforms and twin aisle commercial aircraft platforms, commercial rotary wing aircraft platforms and regional and business jets. As many of you are aware, the FAA announced in January that it will increase its oversight of Boeing as well as require Boeing to get approval for production rate increases or additional production lines for the 737 MAX until it is satisfied that Boeing is in full compliance with the acquired quality control procedures. This will likely cap the production of the 737 MAX, but we need to see how things go in Q1 of 2024 in the FAA going forward plan. We do, however, expect the long-term trend to remain positive once the issues are fully addressed. The backlog within our commercial aerospace sector was 429 million at the end of the fourth quarter, and while it was 21 million lower year over year, it increased 7 million sequentially, a solid number given the temporary weakness in commercial aerospace. With that, I'll have Suman review our financial results in detail. Suman?
spk05: Thank you, Steve. As a reminder, please see the company's Q4 earnings release for a further description of information mentioned on today's call. As Steve discussed, our fourth quarter results reflect another period of good performance. We again saw a significant increase in our commercial aerospace revenues. We remain encouraged by the continued strength in domestic and global travel, which should support higher long-term demand for aircraft as we work through some of the industry issues impacting single-isle production rates. In addition, we are encouraged by the strong backlog growth in our military and space business that should help drive our revenues in that end-user segment going forward. During the quarter, we also continue to make progress on our restructuring program, and I will provide some more color shortly. With all this, we feel like we have entered 2024 with good momentum that will continue to drive our performance. Now turning to our fourth quarter results. Revenue for the fourth quarter of 2023 was 192.2 million versus 188.3 million for the fourth quarter of 2022. The -over-year increase reflects 12.1 million of growth across our commercial aerospace platforms, partially offset by 5.6 million of lower revenue within the military and space sector due to lower bill rates on various missile platforms and military fixed-wing aircraft platforms, such as the F-18, partially offset by higher bill rates on military rotor wing aircraft platforms, such as the Apache. New Commons total backlog at the end of the fourth quarter was 993.6 million. This includes a record backlog in our defense end-user segment, which grew by 33 million to a total 527 million. The backlog in our commercial aerospace business increased slightly during the quarter from 423 million at the end of Q3 to 429 million at the end of Q4. As a reminder, we define backlog as potential revenue based on customer purchase orders and long-term agreements with some fixed prices and expected delivery dates of 24 months or less. We posted total gross profit of 41.7 million or .7% of revenue for the quarter versus 38.6 million or .5% of revenue in the prior year period. We continue to share adjusted gross margins as we have certain non-GAAP cost of sales items in the current and prior year period relating to inventory step-up amortization on our recent acquisitions, restructuring charges, and the impact of the Guaymas fire on our operations. On an adjusted basis, our gross margins were .2% in Q4 2023 versus 21% in Q4 2022. The improvement in gross margins was driven by favorable product mix, better pricing, and improved scale in our commercial aerospace business. We continue to work through a difficult operating environment with supply chain and labor. However, through our proactive efforts, including strategic buys and our inventory investments, we have been able to avoid any significant impacts thus far on our business. In parallel, we continue to look for opportunities to unwind our working capital investments to improve our cash flow. During the fourth quarter of 2023, we were able to reduce our inventory by 16 million sequentially compared to Q3. We also reduced our contract assets' net of contract liabilities by 15 million. Newcomen reported operating income for the fourth quarter of 8.9 million or .6% of revenue compared to 9.7 million or .1% of revenue in the prior year period. Adjusted operating income was 15.9 million or .3% of revenue this quarter compared to 15.2 million or .1% of revenue in the comparable period last year. The company reported net income for the fourth quarter of 2023 of 5.1 million or 34 cents per diluted share compared to net income of 8.1 million or 65 cents per diluted share a year ago. On an adjusted basis, the company reported net income of 10.4 million or 70 cents per diluted share compared to net income of 10.6 million or 85 cents in Q4 2022. The lower adjusted net income during the quarter, despite a higher level of adjusted operating income, was driven mainly by higher interest costs, partially offset by lower income tax expense. This was primarily due to the impact of Fed's rate hike on short-term interest rates. I will discuss this along with our interest rate hedge, which took effect on January 1, 2024 shortly. Now let me turn to our segment results. Our structural system segment posted revenue of 85.6 million in the fourth quarter of 2023 versus 68.2 million last year. The -over-year increase reflects 12.3 million of higher sales across our commercial aerospace applications, mainly for single-aisle aircraft for the 737 MAX and A220 platforms, and 5 million of higher revenue within the military and space markets, mainly from the ramp-up in sales in the Apache program and other military rotor wing aircraft platforms. Structural systems operating income for the quarter was 6.6 million or 7.7 percent of revenue compared to 4.4 million or 6.4 percent of revenue last year. Excluding restructuring charges and other adjustments in both years, the segment operating margin was 14.6 percent in Q4 2023 versus 10.8 percent in Q4 2022. Strong -over-year improvement was driven by favorable product mix, better pricing, and higher sales in the business as our commercial aerospace revenues have continued to grow. This has been another great quarter for our structural systems segment. Our electronic systems segment posted revenue of 106.7 million in the fourth quarter of 2023 versus 120 million in the prior year period. The decline was mainly due to lower revenues with the company's military and space customers, including the impact and timing of reductions in revenues on synthetic programs such as the F-18 not synchronized with growth in sales from the company's position on next-gen platforms. Electronic systems operating income for the fourth quarter was 9.8 million or 9.2 percent of revenue versus 13 million or 10.8 percent of revenue in the prior year period. Excluding restructuring charges and other adjustments in both years, the segment operating margin was 10.2 percent in Q4 2023 versus 12.9 percent in Q4 2022. The -over-year decrease was due to unfavorable product mix and, as Steve mentioned earlier, due to the loss of manufacturing volume and inefficiencies at our variable performance center as we wind down their operations. To clarify, such inefficiencies have not been considered as restructuring charges in our calculation of adjusted operating income or adjusted EBITDA. Next, on the restructuring, as a reminder and as discussed previously, we commenced a restructuring initiative back in 2022. These actions are being taken to accelerate the achievement of our strategic goals and to better position the company for stronger performance in the short and long term. This includes the shutdown of our facilities in Monrovia, California and Berryville, Arkansas, and transfer of majority of that work to our low-cost operation in Guaymas, Mexico with the remainder going to other existing performance centers in the United States. We continue to make progress in these transitions with excellent employee retention and engagement and are also working diligently with our customers Boeing and RTX to obtain the requisite approvals.
spk04: During
spk05: Q4 2023, we recorded $1.9 million in restructuring charges. The majority of these charges were severance and benefits related as we continue to wind down the two operations. The recertification process is ongoing and we plan to close both facilities fully in the first half of 2024. We expect to incur $5-7 million in restructuring expenses through 2024 and that will conclude the spending. Upon completion of our restructuring program, we expect to generate $11-13 million in annual savings from our actions and expect a portion of those savings to be realized starting in the second half of 2024. We anticipate selling the land and buildings at both Monrovia, California and variable Arkansas. Turning next to liquidity and capital resources. During Q4 2023, we generated $26.5 million in cash flow from operating activities, which was up from $14.3 million in Q3 2023. For the full year 2023, we generated $31.1 million in cash flow from operating activities. This is despite cash payments of $10.7 million for restructuring and $18.3 million for taxes relating to changes in rules for R&D tax credits relating to 2022 and 2023. At the end of the fourth quarter, we have available liquidity of $218.9 million comprising of the unutilized portion of our revolver and cash on hand. Our existing credit facility was put in place in July 2022 at an opportune time in the credit markets allowing us to reduce our spread, increase the size of our revolver and allowing us the flexibility to execute on our acquisition strategy. Our debt through Q4 2023 was 100% floating and linked to SOFR. As a result, and as I highlighted before, the increase in our interest costs from $3.5 million in Q4 2022 to $5.4 million in Q4 2023 was driven by the run up in short-term rates due to the Fed rate hikes. In November 2021, we had put in place an interest rate hedge that went into effect for a seven-year period starting January 2024 and pegs the one-month term SOFR at 170 basis points for $150 million of our debt. This will help drive significant interest cost savings in 2024 and beyond. To conclude the financial overview for Q4 2023, I would like to say that we had a strong finish to 2023 and anticipate another strong year in 2024. I would now like to turn it back over to Steve for his closing remarks. Steve?
spk13: Okay, thanks, Shuman. So, just a couple more comments before we go to questions in closing. I think Q4 was a very good quarter with many highlights for the company and our shareholders. In addition, achieving all-time highs for annual revenue and adjusted EBITDA of $757 million and $102 million respectively in 2023 are wonderful milestones. I'm very happy for the hardworking DeConven team and all of our other stakeholders for those achievements. I also want to mention that 2024 will be our 175th year of continuous operation here at DeConven, a great achievement, and we will be recognizing that through the year. Final note is our 2027 strategy, which we've talked about. We had a strong first year with both engineered products and aftermarket gaining a larger percentage of revenue for the company in 2023 versus 2022. And the future is very bright. Okay, with those remarks, I will conclude and open it up to questions. Thank you for listening.
spk15: Certainly. As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster. And one moment for our first question. Our first question will be coming from Griffin Boss of B. Riley Securities. Your line is open, Griffin.
spk16: Hi. Thank you for taking my question. So, Steve, you just mentioned the engineered products and aftermarket parts. Are there any more specific details you can give on percentage of revenue there and how you would characterize that trending going forward versus the rest of the business?
spk13: So, I'm not going to disclose an actual number. You know, just not at this time. We will probably do something as we go forward in our rest of the meeting. But it was certainly up quite a bit, I will say that, both in revenue and aftermarket for engineered products. And we're moving, you know, we have a 25% target for 2027 for revenues for engineered products. So, if we can do that, then let me just say that we're tracking very strongly towards that and to beat it.
spk16: Okay. Yeah, great. Fair enough. I appreciate the color. And then, so we saw a sequential, slight sequential decline in gross margin. Just curious if you can add a little bit more color on what you're seeing there and how you're thinking about that, you know, in the next quarter and going into 24.
spk17: Is that question? One more, Griffin?
spk16: Yeah, so we saw a sequential decline in gross margin. I was just curious if you could give some more color on what was driving that and how you're thinking about that trending going into 24.
spk05: That's right. So, the sequential decline was driven by one product mix, but also because we have two facilities that we're in the process of winding down and we're just producing inefficiently there given the much lower volume of operations versus the size and scope of those facilities. And that's causing a drag, particularly on the electronic system side, but also some drag on the structural system side. And we expect that headwind to linger but gradually go down as we close those, both those facilities in the first half of 2024.
spk13: Yeah, I think that's good. Let me just put some color on that. For Berryville, for instance, you know, during a quarter, obviously we have a lot less people. Every during a quarter we would run sort of $7 million a quarter at Berryville, and now we're less than a million just making the tomahawk. So, that's why there's a little bit of a timing issue or we have some headwind.
spk16: Okay, great. Thanks for the detail on that. And then just, yeah, last one for me. I apologize if I missed this in the prepared remarks. Can you give us an update on how the offloading opportunities are trending and how you're thinking about potential upside to those 2025 targets on that front?
spk13: Yeah, thank you for the question. Yeah, well, this is, you know, I've been talking about this. We think there is some potential above the 125 that we still have a little more work to do here. You know, it's all very positive. It's actually moving us in, as I mentioned in my remarks, more into the radar business. For this is, you know, a lot of it is cards. But so what happens is, is just, you know, it's when you're dealing with an RTX and you're moving work out of their facility, they have lots of inventory. They have lots of different things we have to overcome. They have test equipment that they either want to keep or they don't want to keep. You know, they have that that test equipment has lead times. It's over a million dollars for some of these test equipment machines. So there's a lot that goes into it. But once you once it gets the Tulsa or get somewhere else than Appleton, you know, we're off to the races here. So we are actively heads down, working very hard in 2024 to get a lot of this passed, you know, sort of the finish line here. So we'll have an update later in the year. But we're feeling real good about where we are. And, you know, hope to have better report on the 125 plus towards the end of 2024.
spk16: OK, great. Glad to hear it. Thanks for taking my questions. Appreciate it.
spk15: Again, ladies and gentlemen, if you do have a question, please press star one one on your touchtone telephone. Again, please press star one one. Our next question will be coming from Michael Ciaramoli of Truist Securities. Your line is open.
spk19: Hey, afternoon, guys. Thanks for taking the questions. I don't know, Steve or Suman, just I guess if we look maybe to piggyback on the offloading, but if we look at defense revenues down sequentially, you know, you finish the year, I guess, down two years in a row. And I guess, you know, you haven't really parsed out the guidance, but it sounded like there was more conservatism in there around the max. What's the biggest headwind? I mean, I know you called out the F-15 wind down, but is there anything else, you know, impacting the defense revenue growth?
spk13: Yeah, you know, it's again, this is Mike, good to be with you. It's, you know, it's a little bit of a mix. I mean, look, the F-18 is significant, right? Not, you know, for the total business, but the F-18. We also, earlier in, you know, say 2021, 2022, we did these towed missile cases for Raytheon. And, you know, they were running 15 or 20 plus a year. And, you know, what happens with the towed missile cases, you know, they have problems with supply chain and they can't get the motor for the missile. And then all of a sudden the case of business dries up for a year or two. And we're a little bit in that valley right now. So, you know, there's just a couple. There's nothing systemic to the business. We like where we are. You know, we're getting pinched here and there a little bit. But we think that, you know, coming out of this thing, we're in really good shape. And, you know, the F-18, we had a great run with it. But, you know, those things sometimes they come to an end.
spk01: Okay.
spk19: Okay. And did I hear it right? The offloading was $90 million expected to be in 2024? Because I think you called out maybe seeing that step up to $125 million in 2025.
spk11: Yeah,
spk13: that's where we're heading. So, again, we're, you know, again,
spk11: it's, you know, one of the big, big,
spk13: you know, rocks here is the SPY-6. And there's a number of cards, right? So we have the first cards already, you know, being made at Tulsa. And that's, you know, that's, you know, just those cards alone are, you know, $15 million, $20 million a year, right? So we have those going. Okay. But we've got two other layers of cards that are just, you know, they're an and over. You know, it's tough to get them over here. We're working on it, right? So, you know, initially, you know, we get all the material from them because they get all the inventory, right? So our revenue is tamped down a lot. But once they break through, we're feeling very good about 2024 on these changes. It's just, you know, it's great business. But unfortunately, coming out of a big OEM, it's a bit of a long time coming.
spk18: Got it.
spk13: Got it. And I'd like to highlight
spk05: again, our defense backlog is the highest it has ever been in the last few years. So, yes, we've had some decline in the current year, but the backlog is at the highest. And that's kind of a two-year look when we, you know, our backlog numbers. So that's a good position to be in.
spk19: Yeah. No, no. Notice that. Yeah, definitely positive there. And then just, I guess, what's the level of conservatism or prudence that you've sort of built in for the max in 2024? Or can you even give us a sense of, you know, what you're delivering to the spirit, what you're assuming? You know, I know we've heard, you know, kind of several commentary from Boeing about lower first half, picking up second half. But where exactly are you guys and what are you embedding?
spk11: Yeah, I hate to say a little bit. It's a little bit of a moving target.
spk13: Okay. So, you know, we're seeing better things, ramping up a little bit of spirit and at Boeing. And now things are, as you know, from the reports on January, we feel that too, right? But, you know, we're probably, you know, speaking for Saman here, we're probably in the 32, 34 range, right, for 2024, I'd say, right?
spk02: Yeah, 34.
spk13: Yeah, yeah, 34. We'd like to see it higher. But, you know, again, we have to, you know, I think this momentum is just going to push us forward, you know, hopefully after we get through this, you know, FAA audit and rightly so, right? But, you know, we're being a little modest right now, but we certainly expect things to ramp up. The good news is, Mike, we have the capacity and we have the people.
spk18: We
spk13: just
spk18: need the orders. Yep, yep, makes sense.
spk19: Okay,
spk18: perfect.
spk19: I'll jump back in the queue and then if I need you, I'll get back in. Thanks. Thank you, Mike. Thank you, Mike.
spk15: And I'm showing no further questions. I would now like to turn the conference back to Steve Oswald for closing remarks.
spk13: Okay, all right, let me finish up here. So, look, I just want to thank everybody for joining us today. You know, obviously we had a very, very good year in 2023.
spk06: I'm
spk13: thrilled that we were able to break through our record last established in 2012 and we're marching towards our 2027 commitments and we're building more engineered products and we're driving more aftermarket. And you were cleaning up our contract manufacturing and taking costs out of that and driving, hopefully, a much better day once we get these two factories closed. And I believe that's going to be the case. So, you know, looking forward to a great year ahead. We again thank everybody for their support. And I want to again thank our employees for all their hard work in 2023. Thank you.
spk15: And this concludes today's conference call. Thank you for participating. You may now disconnect.
spk00: Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you.
spk15: Thank you. Thank you. Thank you. Thank you. Good day and thank you for standing by. Welcome to the Q4 2023 Do 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 1-1 on your telephone. You will then hear an automated message advising that 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 hand the conference over to your speaker, Suman Mukherjee, Senior Vice President and Chief Financial Officer. Please go ahead.
spk05: Thank you and welcome to Do Commons 2023 fourth 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 Do Commons include, amongst others, the cyclicality of our end-use markets, the level of U.S. government defense spending, our customers may experience delays in the launch and certification of new products, timing of orders from our customers, legal and regulatory risks, the cost of expansion and acquisitions, competition, economic and geopolitical developments, including supply chain issues and rising or high interest rates, the ability to attract and retain key personnel and avoid labor disruptions, the ability to adequately protect and enforce intellectual property rights, pandemics, disasters, natural or otherwise, and risk of cybersecurity attacks. These risks and others will be described in our annual report on Form 10-K once it is filed with the SEC, and our forward-looking statements are subject to those risks. Statements made during the 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.
spk10: This year,
spk05: we expect to file our 2023 Form 10-K on Thursday, February 22, 2024. The additional time is to complete the documentation of our internal controls and preparation of the Form 10-K for filing. In the 2023 Form 10-K, we expect to report a material weakness in our internal controls over financial reporting related to our revenue recognition process. This material weakness resulted in immaterial adjustments to net revenues and contract assets as of and for the quarterly period ending December 31, 2023. We do not expect the material weakness to result in a restatement or change to the reported financial statements. We will make the necessary changes to the design and operating effectiveness of the specific revenue recognition internal controls during 2024. I would now like to turn the call over to Steve Oswald for a review of the operating results. Steve?
spk13: Okay, thank you, Suman. And thanks, everyone, for joining us today for our fourth quarter conference call. Today, and as usual, I'll give an update on the current situation at the company, after which Suman will review our financial results in detail.
spk14: Q4 was a
spk13: very good quarter as we wrapped up 2023. Revenues exceeded $190 million for the second consecutive quarter, so $192.2 million, driving a full year revenue of $757 million with the last high mark set in 2012.
spk09: Strong
spk13: growth in our single aisle commercial aircraft business helped to drive the revenue. The contingent recovery and commercial aerospace once again delivered in Q4 with Boeing's single aisle platform business in aggregate being up 46% year over year, along with Airbus A220 program showing strong growth of 73% year over year. Overall commercial aerospace with Airbus and Boeing and others was up 18% from Q4 2022, despite Boeing's and Spirit's continued challenges with max quality issues. We are now in our tenth quarter of year over year revenue growth for commercial aerospace, a continued excellent sign for DCO and the industry. While our defense business was slightly down the quarter with sun setting programs such as the F-18 Heavy and Impact, the company also experienced strong demand in the Apache program as well as increases for F-35 and the Mir missile platforms. The defense business was over $100 million revenue once again at $103 million of revenue for the quarter. We remain optimistic about the growth ahead. As we go through a timing transition on certain programs, the ever growing backlog in defense tells the story with backlog of $70 million from last year and $33 million from Q3 2023. Defense backlog now stands at over half a billion at $527.1 million. Another real bright spot in Q4 was gross margins of .7% for Q4 up 120 basis points year over year from .5% as we began realizing benefits from our strategic pricing initiative, productivity improvements and some initial restructuring savings. We are now also in the final stages of operation at our Berryville, Arkansas and Monrovia, California performance centers are targeting a full shutdown by June 30. The final approval stage with RTX for the Tomahawk harnesses going to Mexico, the last product still being produced at Berryville is close. We continue to give a full effort with BA, BCS and BA defense on the Max spoilers and Apache tail rotors respectively, working with them on approval and building buffer. Due to the low level of production at both sites, we do have some headwind, but this is temporary and will clear after the closures. For adjusted operating margin and Q4, the team delivered .3% compared to .1% in Q4 2022. A nice result while investing some of the gross margin improvement after a few lean years during COVID and the ramp up of commercial aerospace. The gap diluted EPS was 34 cents a share in Q4 2023 versus 65 cents a share for Q4 2022. And with the adjustments diluted EPS was a solid 70 cents a share compared to diluted EPS of 85 cents in the prior year. Some key drivers for the lower gap diluted EPS include higher interest expense due to higher interest rates, higher inventory purchase accounting adjustments, and higher SG&A expenses as we invest in the business to position it for the future. The total company backlog performance increased both sequentially and compared to the prior year. Total company backlog ended 2023 at almost 994 million, increasing over 30 million both sequentially and compared to the prior year. Defense backlog as mentioned earlier also increased 70 million compared to the prior year to the end at a record of 527 million. The strong defense backlog reaffirms the comments defense business remains in good shape with more positive news to
spk08: come.
spk13: The commercial aerospace backlog however decreased slightly year over year primarily due to industry issues with single aisle production rates, specifically the max issues mentioned earlier with BA in spirit, but still ended Q4 2023 at a solid 429 million. For offloading from defense primes, the work continues. We are expecting roughly 90 million for the full year in 2024 as committed to, mainly in our circuit card business for RTX in new areas such as radar for the SPY6. As communicated, the long term run rate of these defense programs already commercialized or in development for offloading will be over 125 million by 2025 once transition work is completed. In Q4 our team delivered another good quarter managing the supply chain as evidenced by positive revenue growth along with significant gross margin expansion compared to a year ago. Another great example of productivity improvements and people is the revenue per employee number, which granted is a high level number but did increase significantly by 16% in 2023 versus 2022. That is a terrific job everyone at the company. 2023 record revenues of 757 million with a solid .2% growth over 2022 and in line with the guidance of 6 to .5% we provided to you during the Q3 call. We are obviously happy with this record number, last set in 2012, especially in light of the 737 max headwinds with BA in spirit that created a more modest pace that is then expected in single hour production rates in 2023. For revenue guidance in 2024, we believe that with the uncertainty surrounding BA, spirit and the FAA at this point on the max, the best approach is to guide to mid single digits and look to further updates on future earnings calls. The commercial aerospace recovery will continue to expand along with growth and defense, which is backed by a record backlog. We continue to be active with acquisitions as in 2020 acquisition last April and believe this is another catalyst to drive us possibly higher in
spk07: the year ahead.
spk13: Now let me provide some additional color on our markets, products and programs. Beginning with our military space sector, we experienced our second consecutive quarter of revenues over 100 million at 102.8 million compared to 108.4 million in Q4 2022. While lower, we saw some bright spots including strong demand for the Apache tail rotor blades with over 380% year over year growth and increased demand for other military and space products, other military rotary wing platforms, F35 and the Mir missile as well. The fourth quarter military and space revenue represented 53% of the commons revenue in the period down from 58% last year. And this trend will continue to reflect more balance with commercial aerospace, which we like. We also ended the fourth quarter with backlog in excess of 500 million to 527 million, an increase of 70 million year over year and represents 53% of the commons total. Back. Within our commercial aerospace operations fourth quarter revenue, so double digit growth once again, increasing 18% year over year to 80 million driven mainly by build rate increases on large aircraft platforms, including the 737 max and 820 platforms and twin aisle commercial aircraft platforms commercial rotary wing aircraft platforms and regional and business jets. As many of you are aware of the FAA announced in January that will increase its oversight of Boeing as well as require Boeing to get approval for production rate increases or additional production lines for the 737 max until it is satisfied that Boeing is in full compliance with the required quality control procedures. This will likely cap the production of the 737 max, but we need to see how things go in Q1 of 2024 and the FAA going forward plan. We do however expect the long term trend to remain positive. Once the issues are fully addressed. The backlog with our commercial aerospace sector was 429 million at the end of the fourth quarter. And while it was 21 million lower year over year, it increased 7 million sequentially a solid number given the temporary weakness in commercial aerospace. With that, I'll have Suman review our financial results in detail. Thank
spk05: you, Steve. As a reminder, please see the company's Q4 earnings release for a further description of information mentioned on today's call. As Steve discussed, our fourth quarter results reflect another period of good performance. We again saw a significant increase in our commercial aerospace revenues. We remain encouraged by the continued strength in domestic and global travel, which should support higher long term demand for aircraft as we work through some of the industry issues impacting single production rates. In addition, we are encouraged by the strong backlog growth in our military and space business that should help drive our revenues in that end user segment going forward. During the quarter, we also continue to make progress on our restructuring program, and I will provide some more color shortly. With all this, we feel like we have entered 2024 with good momentum that will continue to drive our performance. Now turning to our fourth quarter results. Revenue for the fourth quarter of 2023 was 192.2 million versus 188.3 million for the fourth quarter of 2022. The year over year increase reflects 12.1 million of growth across our commercial aerospace platforms, partially offset by 5.6 million of lower revenue within the military and space sector due to lower bill rates on various missile platforms and military fixed wing aircraft platforms, which is the F-18, partially offset by higher bill rates on military rotor wing aircraft platforms, which has the Apache. Due to common total backlog at the end of the fourth quarter was 993.6 million. This includes a record backlog in our defense and end user defense end user segment, which grew by 33 million to a total 527 million. The backlog in our commercial aerospace business increased slightly during the quarter from 423 million at the end of Q3 to 429 million at the end of Q4. As a reminder, we define backlog as potential revenue based on customer purchase orders and long term agreements with some fixed prices and expected delivery dates of 24 months or less. We posted total gross profit of 41.7 million or .7% of revenue for the quarter versus 38.6 million or .5% of revenue in the prior year period. We continue to share adjusted gross margins as we have certain non-GAAP cost of sales items in the current and prior year period relating to inventory step up amortization on our recent acquisitions, restructuring charges, and the impact of the Guaymas fire on our operations. On an adjusted basis, our gross margins were .2% in Q4 2023 versus 21% in Q4 2022. The improvement in gross margins was driven by favorable product mix, better pricing, and improved scale in our commercial aerospace business. We continue to work through a difficult operating environment with supply chain and labor. However, through our proactive efforts, including strategic buys and our inventory investments, we have been able to avoid any significant impacts thus far on our business. In parallel, we continue to look for opportunities to unwind our working capital investments to improve our cash flow. During the fourth quarter of 2023, we were able to reduce our inventory by 16 million sequentially compared to Q3. We also reduced our contract assets net of contract liabilities by 15 million. Newcomen reported operating income for the fourth quarter of 8.9 million or .6% of revenue compared to 9.7 million or .1% of revenue in the prior year period. Adjusted operating income was 15.9 million or .3% of revenue this quarter compared to 15.2 million or .1% of revenue in the comparable period last year. The company reported net income for the fourth quarter of 2023 of 5.1 million or 34 cents per diluted share compared to net income of 8.1 million or 65 cents per diluted share a year ago. On an adjusted basis, the company reported net income of 10.4 million or 70 cents per diluted share compared to net income of 10.6 million or 85 cents in Q4 2022. The lower adjusted net income during the quarter, despite a higher level of adjusted operating income, was driven mainly by higher interest costs, partially offset by lower income tax expense. This was primarily due to the impact of Fed's rate hike on short-term interest rates. I will discuss this along with our interest rate hedge, which took effect on January 1, 2024 shortly. Now let me turn to our segment results. Our structural system segment posted revenue of 85.6 million in the fourth quarter of 2023 versus 68.2 million last year. The -over-year increase reflects 12.3 million of higher sales across our commercial aerospace applications, mainly for single-aisle aircraft for the 737 MAX and A220 platforms, and 5 million of higher revenue within the military and space markets, mainly from the ramp-up in sales in the Apache Program and other military rotor wing aircraft platforms. Structural systems operating income for the quarter was 6.6 million or .7% of revenue compared to 4.4 million or .4% of revenue last year. Excluding restructuring charges and other adjustments in both years, the segment operating margin was .6% in Q4 2023 versus .8% in Q4 2022. The strong -over-year improvement was driven by favorable product mix, better pricing, and higher sales in the business as our commercial aerospace revenues have continued to grow. This has been another great quarter for our structural systems segment. Our electronic systems segment posted revenue of 106.7 million in the fourth quarter of 2023 versus 120 million in the prior year period. The decline was mainly due to lower revenues with the company's military and space customers, including the impact and timing of reductions in revenues on synthetic programs such as the F-18 not synchronized with growth in sales from the company's position on next-gen platforms. The electronic systems operating income for the fourth quarter was 9.8 million or .2% of revenue versus 13 million or .8% of revenue in the prior year period. Excluding restructuring charges and other adjustments in both years, the segment operating margin was .2% in Q4 2023 versus .9% in Q4 2022. The -over-year decrease was due to unfavorable product mix and, as Steve mentioned earlier, due to the loss of manufacturing volume and inefficiencies at our variable performance center as we wind down their operations. To clarify, such inefficiencies have not been considered as restructuring charges in our calculation of adjusted operating income or adjusted EBITDA. Next on the restructuring, as a reminder and as discussed previously, we commenced a restructuring initiative back in 2022. These actions are being taken to accelerate the achievement of our strategic goals and to better position the company for stronger performance in the short and long term. This includes the shutdown of our facilities in Monrovia, California and Berryville, Arkansas, and transfer of majority of that work to our low-cost operation in Guaymas, Mexico, with the remainder going to other existing performance centers in the United States. We continue to make progress in these transitions with excellent employee retention and engagement and are also working diligently with our customers Boeing and RTX to obtain the requisite approvals.
spk04: During
spk05: Q4 2023, we recorded $1.9 million in restructuring charges. The majority of these charges were severance and benefits related as we continue to wind down the two operations. The recertification process is ongoing and we plan to close both facilities fully in the first half of 2024. We expect to incur $5 to $7 million in restructuring expenses through 2024 and that will conclude the spending. Upon completion of our restructuring program, we expect to generate $11 to $13 million in annual savings from our actions and expect a portion of those savings to be realized starting in the second half of 2024. We anticipate selling the land in buildings at both Monrovia, California and Berryville, Arkansas. Turning next to liquidity and capital resources. During Q4 2023, we generated $26.5 million in cash flow from operating activities, which was up from $14.3 million in Q3 2023. For the full year 2023, we generated $31.1 million in cash flow from operating activities. This is despite cash payments of $10.7 million for restructuring and $18.3 million for taxes relating to changes in rules for R&D tax credits relating to 2022 and 2023. At the end of the fourth quarter, we have available liquidity of $218.9 million comprising of the unutilized portion of our revolver and cash on hand. Our existing credit facility was put in place in July 2022 at an opportune time in the credit markets, allowing us to reduce our spread, increase the size of our revolver and allowing us the flexibility to execute on our acquisition strategy. Our debt through Q4 2023 was 100% floating and linked to SOFR. As a result, and as I highlighted before, the increase in our interest costs from $3.5 million in Q4 2022 to $5.4 million in Q4 2023 was driven by the run up in short-term rates due to the Fed rate hikes. In November 2021, we had put in place an interest rate hedge that went into effect for a seven-year period starting January 2024 and pegs the one-month term SOFR at 170 basis points for $150 million of our debt. This will help drive significant interest cost savings in 2024 and beyond. To conclude the financial overview for Q4 2023, I would like to say that we had a strong finish to 2023 and anticipate another strong year in 2024. I would now like to turn it back over to Steve for his closing remarks. Steve?
spk13: Okay, thanks, Shuman. So just a couple more comments before we go to questions in closing. I think Q4 was a very good quarter with many highlights for the company and our shareholders. In addition, achieving all-time highs for annual revenue and adjusted EBITDA of $757 million and $102 million respectively in 2023 are wonderful milestones. I'm very happy for the hardworking Dukomand team and all of our other stakeholders for those achievements. I also want to mention that 2024 will be our 175th year of continuous operation here at Dukomand. A great achievement. And we will be recognizing that through the year. Final note is our 2027 strategy, which we've talked about. We had a strong first year with both engineered products and aftermarket gaining a larger percentage of revenue for the company in 2023 versus 2022. And the future is very bright. With those remarks, I will conclude and open it up to questions. Thank you for listening.
spk15: Certainly. As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster. And one moment for our first question. Our first question will be coming from Griffin Boss of B. Riley Securities. Your line is open, Griffin.
spk16: Hi. Thank you for taking my question. So, Steve, you just mentioned the engineered products and aftermarket parts. Are there any more specific details you can give on percentage of revenue there and how you would characterize that trending going forward versus the rest of the business?
spk13: So I'm not going to disclose an actual number. You know, not at this time. We will probably do something as we go forward in our rest of the day meeting. But it was certainly up quite a bit, I will say that, both in revenue and aftermarket. We're in the market for engineered products and we're moving, you know, we have a 25% target for 2027 for revenues for engineered products. And let me just say that we're tracking very strongly towards that and to beat it.
spk16: Okay. Yeah, great. Fair enough. I appreciate the color. And then, so we saw a sequential, slight sequential decline in gross margin. I'm just curious if you can add a little bit more color on what you're seeing there and how you're thinking about that, you know, in the next quarter and going into 24.
spk17: Repeat that question one more, Griffin.
spk16: Yeah, so we saw a sequential decline in gross margin. I was just curious if you could give some more color on what was driving that and how you're thinking about that trending going into 24.
spk05: That's right. So the sequential decline was driven by one product mix, but also because we have two facilities that we're in the process of winding down. And we're just producing inefficiently there given the much lower volume of operations versus the size and scope of those facilities. And that's causing a drag, particularly on the electronic system side, but also some drag on the structural system side. And we expect that headwind to linger but gradually go down as we close those, both those facilities in the first half of 2024.
spk13: Yeah, I think that's good. Let me just put some color on that. For Berryville, for instance, you know, during quarter, obviously we have a lot less people. Every during quarter we would run sort of 7 million a quarter at Berryville. And now we're less than a million just making the tomahawk. So that's why there's a little bit of a timing issue or we have some headwind.
spk16: Okay, great. Thanks for the detail on that. And then just, yeah, last one for me. I apologize if I missed this in the prepared remarks. Can you give us an update on how the offloading opportunities are trending and how you're thinking about potential upside to those 2025 targets on that front?
spk13: Yeah, thank you for the question. Yeah, well, this is, you know, I've been talking about this. We think there is some potential above the 125 that we still have a little more work to do here. You know, it's all very positive. It's actually moving us in, as I mentioned in my remarks, more into the radar business. For this is, you know, a lot of it is cards. But so what happens is, is just, you know, it's when you're dealing with an RTX and you're moving work out of their facility, they have lots of inventory. They have lots of different things we have to overcome. They have test equipment that they either want to keep or they don't want to keep. You know, they have that that test equipment has lead times. It's over a million dollars for some of these test equipment machines. So there's a lot that goes into it. But once you once it gets the Tulsa or get somewhere else than Appleton, you know, we're off to the races here. So we are actively heads down, working very hard in 2024 to get a lot of this past, you know, sort of the finish line here. So we'll have an update later in the year. But we're feeling real good about where we are. And we hope to have better report on the 125 plus towards the end of 2024.
spk16: OK, great. Glad to hear it. Thanks for taking my questions. Appreciate it.
spk15: Again, ladies and gentlemen, if you do have a question, please press star one one on your touchtone telephone. Again, please press star one one. Our next question will be coming from Michael Ciaramoli of Truist Securities. Your line is open.
spk19: Hey, afternoon, guys. Thanks for taking the questions. I don't know, Steve or Suman, just I guess if we look maybe to piggyback on the offloading, but if we look at defense revenues down sequentially, you know, you finish the year, I guess, down two years in a row. And I guess, you know, you haven't really parsed out the guidance, but it sounded like there was more conservatism in there around the max. What's the biggest headwind? I mean, I know you called out the F-15 wind down, but is there anything else, you know, impacting the defense revenue growth?
spk13: Yeah, you know, it's again, it's, Michael, good to be with you. It's, you know, it's a little bit a little bit of a mix. I mean, look, the F-18 is is is significant, right? Not, you know, for the total business, but the F-18. We also earlier in, you know, say 2021, 2022, we did these tow missile cases for Raytheon and, you know, they were running 15 or 20 plus a year. And, you know, what happens with the tow missile cases, you know, they have problems with supply chain and they can't get the motor for the missile. And then all of a sudden the case of business dries up for a year or two. And we're a little bit in that valley right now. So, you know, there's just a couple. There's nothing systemic to the business. We we like where we are. You know, we're getting pinched here and there a little bit, but we think that, you know, coming out of this thing, we're we're we're really good shape. And, you know, the F-18 was we had a great run with it, but, you know, those things sometimes they come to an end.
spk01: OK,
spk19: OK. And did I hear it right? The offloading was 90 million expected to be in 24 because I think you called out maybe seeing that step up to 125 and 25.
spk13: Yeah, that's about that's where we're heading. So, again, we're we're, you know, again,
spk11: it's,
spk13: you know,
spk11: one of the big, big,
spk13: you know, rocks here is the SPY-6 and there's a number of cards. Right. So we have the first cards already being made at Tulsa. That's, you know, that's just those cards alone are, you know, 15, 20 million a year. Right. So we have those going. But we've got two other layers of cards that are just, you know, they're in and they're in and over. You know, it's tough to get them over here. We're working it right. You know, initially, you know, we get all the material from them because they get all the inventory. Right. So our revenue is tamped down a lot. But once they break through, we're feeling very good about 2024 on these these changes. It's just, you know, it's great business. But unfortunately, coming out of a big OEM, it's a bit of a long time coming.
spk18: Got it.
spk13: Got it. And I'd like to highlight
spk05: again, the our defense backlog is the highest it has ever been in the last few years. So, yes, that's in decline in the current year, but the backlog is at the highest. And that's kind of a two year look on our backlog numbers. So that's a good position to be in.
spk19: Yeah. No, no, no. Notice that. Yeah, definitely positive there. And then just I guess what's the level of conservatism or prudence that you've sort of built in for the max in 24? Can you even give us a sense of what you're you're delivering to the spirit, what you're assuming? You know, I know we've we've heard, you know, kind of several commentary from Boeing about lower first half picking up second half. But where exactly are you guys and what are you embedding?
spk11: Yeah, I hate to say a little bit. It's a little bit of a moving target.
spk13: So, you know, we're we're seeing better things ramping up a little bit of spirit and Boeing. And now things are, as you know, from the reports on January, we feel that too. Right. But, you know, we're probably speaking for some on here, we're probably in the 32, 34 range. Right. For twenty, twenty four, I'd say. Right.
spk02: Yeah. Thirty four.
spk13: Yeah. Yeah. Thirty four. We like to see higher. But, you know, again, we have to know. I think this momentum is just going to push us forward. You know, hopefully after we get through this, you know, FAA audit and rightly so. Right. But, you know, we're we're we're being a little modest right now, but we certainly expect things to to ramp up. The good the good news is, Mike, we have the capacity and we have the people. We
spk18: just need the orders. Yep. Yep. Makes sense.
spk19: Yeah.
spk18: OK. Perfect.
spk19: I'll I'll jump back in the queue and then find you. I'll get back in. Thanks. Thank you, Mike. Thank you, Mike.
spk15: And I'm showing no further questions. I would now like to turn the conference back to Steve Oswald for closing remarks.
spk13: OK, let me finish up here. So look, I just want to thank everybody for joining us today. You know, obviously we had a very, very good year in in twenty twenty three.
spk06: I'm
spk13: thrilled that we were able to break through our record last established in 2012. And we're marching towards our twenty twenty seven commitments and we're building more engineered products. And we're we're driving more aftermarket and we're cleaning up our contract manufacturing and taking costs out of that and driving hopefully much better day once we get these two factories closed. And I believe that's going to be the case. So, you know, looking forward to a great year ahead. We again thank everybody for their support. And I want to again thank our employees for all their hard work in twenty twenty three. Thank you.
spk15: And this concludes today's conference call. Thank you for participating. You may now disconnect.
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