Ducommun Incorporated

conference call. At this time, all participants are on listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you'll 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 hand the conference over to your first speaker today, Suman Mugurji, Senior Vice President and Chief Financial Officer. Please go ahead.

Thank you, and welcome to Duke Commons 2024 fourth quarter conference call. With me today is Steve Oswald, Chairman, President, and Chief Executive Officer. 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 Buchanan include, among others, the cyclicality of our end-use markets, the level of US government defense spending, our customers may experience delays in the launch and certification of new products, timing of orders from our customers, our ability to obtain additional financing and service existing debt to fund capital expenditures and meet our working capital needs, legal and regulatory risks, the cost of expansion, consolidation and acquisition, competition, economic and geopolitical developments, including supply chain issues, international trade restrictions 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. Please refer to our annual report on Form 10-K, quarterly reports on Form 10-Q, and other reports filed from time to time with the SEC, as well as the press release issued today for a detailed discussion of the risks. Our forward-looking statements are subject to those risks. Statements made during this call are only as of the time made, and we do not intend to update any statements made in this presentation, except if and as required by regulatory authorities. This call also includes non-GAAP financial measures. Please refer to our filings with the SEC for a reconciliation of the GAAP to non-GAAP measures referenced on this call. We filed our 2024 annual report on Form 10-K 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, Suman. Thanks, everyone, for joining us today for our fourth quarter conference call. Today, and as usual, I will give an update of the current situation at the company, after which Suman will review our financials in detail. Let me start off again on this quarterly call with the Commons Vision 2027 game plan for investors. The strategy and vision were developed coming out of the COVID pandemic over the summer and fall of 2022. unanimously approved by the Board, the Common Board in November 2022, and then presented to investors the following month in New York, where we got excellent feedback. Since that time, the Commons management has been executing the Vision 2027 strategy by increasing the revenue percentage of engineered product and aftermarket content, which finished at 23% for 2024, up from 19% in 2023, consolidating our rooftop footprint in contract manufacturing, continuing the targeted acquisition program, executing our offloading strategy with defense primes and high growth segments of the defense budget, driving value added pricing, and expanding content on key commercial aerospace platforms. All of us here, as well as my fellow board members, continue to have a high conviction in the Vision 2027 strategy and financial goals. and believe the many catalysts ahead present a unique value creation opportunity for shareholders. The Q4 2024 results are another example of our strategy initiatives working with much more to come in the next few years. Q4 was our 15th consecutive quarter with the year-over-year growth in revenue, growing 2.6% over prior year to $197.3 million despite the significant headwinds in commercial aerospace build rates. destocking at BA and SPR, and the strategic pruning of our non-core industrial business, which I've mentioned in the past. It was also our sixth consecutive quarter above $190 million in revenue. Strong growth in our missile and electronic warfare programs, F-16, and military ground vehicle programs drove our military and space revenue to 5% growth over prior year. The defense business has now been over 100 million in revenues for the fifth time in the last six quarters and remain optimistic about the growth ahead. I also want to point out that three of our top five customers in Q4 were defense primes, and that is consistent with all the quarters in 2024. There's great momentum as we move to build scale at other defense primes, such as Northrop Grumman, outside of RTX, our largest customer. Also on the defense side, obviously a lot of discussion going on for European defense budgets. On January 6th, we put out a press release and did announce a major order in Q4 from Bayern Chemie, a new customer for DCO based in Germany, and it's 100% owned by MDBA. This order is in support of NATO and the Patriot PAC-2 missile. Bayern Chemie makes the rocket motor and came to DCO in Joplin, Missouri for best in world cabling solutions. All POs were received in Q4, which totaled over $40 million in cable assemblies and shipments will begin in 2025 through 2030. We're obviously thrilled with this new customer and expect more activity with FMS in 2025. We are very well positioned. In our commercial aerospace business, we continue to see excellent growth on the A220 program where we make the skins for the entire fuselage. The A220 program grew more than 40% during Q4, and we continue to see growth on other Airbus platforms as well. The commercial rotorcraft business grew over 50% in Q4 over prior year, with strong growth on the S-92 platform, as well as our BLR Fast Fin business for helicopters, DCO's most recent acquisition. This growth was partially offset by weakness on Boeing platforms that we all know as they slowly resume production after the strike in Q4. Overall, commercial aerospace grew 4% year-over-year in the quarter, and we have now grown year-over-year revenue on our commercial aerospace business for 14 consecutive quarters. This is a great story showing the resilience of our business, even in a challenging environment with Spirit and Boeing. Gross margins also grew 4.7 million to 23.5% in Q4, up 180 basis points year-over-year from 21.7%. So we continue to realize year-over-year benefits from our strategic value pricing initiatives, productivity improvements, growing the engineered products portfolio with aftermarket, and initial restructuring savings, partially offset by some unfavorable product mix and one-time expenses during the quarter. Our Monrovia, California facility is now closed, and our Berryville, Arkansas facility is down to less than 10 people to main capability until the receiving plant in Guaymas, Mexico is certified for the Tomahawk missile program. That is expected very soon. We're already seeing cost savings for these facility closures. We'll see those savings be higher as the receiving plants ramp up production in 2025. Stay tuned. For adjusted operating income margins in Q4, the team delivered 8.2%, which is about flat to the prior year of 8.3%. We continue to be pleased with the growth in our engineered product businesses and are encouraged by the performance in our electronic business this quarter, resulting from the impact of our strategic pricing initiatives. Our restructuring savings during the quarter was offset by lower margins in our structures business due to unfavorable mix and one-time expenses. Adjusted EBITDA continues to grow compared to last year at 13.8% of 4.3 million and exceeding 27 million. Great to see. This represents an expansion of 180 basis points above prior year. This continues our year-over-year momentum we've seen each quarter in 2024 as we work towards the 18% goal in our Vision 2027 plan. Gap diluted EPS was 45 cents a share in Q4 2024 versus 34 cents a share for Q4 2023. And with the adjustments, diluted EPS was a solid 75 cents a share compared to diluted EPS of 70 cents in the prior year quarter. The higher gap in adjusted diluted EPS during the quarter was driven by improved operating income as well as lower interest costs due to our proactive hedging strategy, which took effect in January 2024. The company's consolidated backlog continues to be strong at $1.06 billion, increasing $17 million sequentially and over $67 million year-over-year despite headwind from B.A., The defense backlog increased 98 million compared to the prior year quarter, and is now at 625 million, with new orders from previously discussed Bayer and Chemie, the Toll Missile case, Mesa Airborne Surveillance, as well as other platforms. As discussed, we experienced a pause in the order cycle for the Toll Missile case, but now we're coming back strong. With better pricing, we manufacture in our Guaymas, Mexico facility, where previously it was produced in Monrovia, California. The commercial aerospace backlog decreased sequentially by $14 million. Full year 2024 revenue grew 3.9% to a record $786 million. Our commercial aerospace business grew 8% in 2024, which strengthened Airbus, commercial rotorcraft and business jet platforms, partially offset by weakness on Boeing platforms. Our military and space business grew 4% in 2024, driven by strong performance across missiles, missile defense, radar, naval, and F-15 programs, partially offset by weakness on the F-18 and F-35 programs. Our non-core industrial businesses were down 24% as well in 2024, as we continued to selectively prune non-core business to refocus our portfolio for the long term. Full year 2024 adjusted EBITDA margins expanded 140 basis points to 14.8%. An excellent performance as we make steady progress towards our Vision 2027 target of 18% EBITDA margins. I'm also delighted to share a significant progress of what I believe is the number one strategic goal under our Vision 2027 strategy. In December 2022, we set a target of generating 25% plus of our revenues from engineered products up from 9% in 2017 and 15% in 2022. In 2024, our engineered product revenue was 23% of our total revenue, up from 19% in 2023, positioning us well ahead of the curve, achieving our vision 2027 goal, and we're pushing for a lot more. We achieved this both through focused investment, driving organic growth on our current businesses, as well as the BLR acquisition. This is tremendous progress and I could not be happier. As for 2025 revenue, we are positioned to benefit from the expected bone recovery as the year progresses, as well as the upcoming certification of three major revenue programs being transferred from our closed plants. We are guiding to mid single digit growth for the year with a flattish first quarter due to destocking and lower build rates. Slightly better revenue in Q2, and then renewed strength in the second half of 2025. Now let me provide some additional color on our markets, products, and programs. Beginning with our military and space sector, we saw revenues of $109 million compared to $104 million in Q4 2023. Growth was driven by missile programs such as the Mir, the tow circuit cards, along with next generation jammer and the F-16. These are partially offset by weakness on the F-35 Apache and the well-documented F-18. Fourth quarter military space revenue represented 55% of the Commons revenue in the period down from 59% for the full year back in 2022 and 70% in 2021. We expected this trend and reflects commercial aerospace getting stronger for DCO, providing good balance. We also ended the fourth quarter with a backlog of 625 million an increase of 98 million year over year, representing 59% of the common total backlog. Then our commercial aerospace operations, fourth quarter revenue continued to grow, increasing 4% year over year to 82 million, driven mainly by growth on the A220 and S92 platforms, offset by lower rates on the MAX. As mentioned earlier, we believe a much better story is ahead for BA and the MAX. Now that production is ramping up again, We also have high confidence in Kelly Ortberg and his team. The backlog within our commercial aerospace business was $416 million at the end of the fourth quarter, decreasing $15 million compared to the prior year driven by the Boeing strike. We expect this to recover as production rates ramp up in 2025. Revenues in our industrial business declined by a third to $6 million during Q4 as we continue to strategically prune non-core business from the portfolio. This will benefit the company in the longer term as we transition that capacity to our core aerospace and defense platforms. Okay, with that, I'll have Suman review our financial results in detail.