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.

Thank you, Steve. As a reminder, please see the company's 10K and Q4 earnings release for a further description of information mentioned on today's call. As Steve discussed, our fourth quarter results reflected another period of solid performance with growth in both our commercial aerospace and military end markets. We also continue to make good progress on our facility consolidation projects, which are now nearing completion and will drive further synergies in late 2025 and into 2026 as we close out the recertification of the various product lines at the receiving facilities over the next few months. As Steve highlighted earlier, We also made great progress in continuing to build up our engineered product portfolio, with those revenues now contributing 23% to our mix. These actions, along with our strategic pricing initiatives, drove strong margin expansion in 2024 and has put us on a strong footing to achieve our Vision 2027 goals. Now, turning to our fourth quarter results. Revenue for the fourth quarter of 2024 was 197.3 million versus 192.2 million for the fourth quarter of 2023. The year-over-year increase of 2.6% reflects growth in both commercial aerospace and military and space, highlighted by 5.1 million of growth across military and space platforms and 3 million of growth in our commercial aerospace platforms. We posted total gross profit of 46.4 million or 23.5% of revenue for the quarter versus 41.7 million or 21.7% of revenue in the prior year period. We continue to provide adjusted gross margins as we have certain non-GAAP cost of sales items in the current and prior period relating to inventory step-up amortization on our recent acquisitions and restructuring charges. On an adjusted basis, our gross margins were 24% in Q4 2024 versus 23.2% in Q4 2023. The improvement in gross margin was driven by our growing engineered product portfolio, strategic pricing initiatives, productivity improvements, and restructuring savings, partially offset by unfavorable product mix in our structured segment and one-time expenses. We continue to make progress working through a difficult operating environment with supply chain and labor. 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. Going forward, we will continue to work to improve the working capital turns in the business and improve our cash flow. The common reported operating income for the fourth quarter of $10.4 million, or 5.3% of revenue, compared to 8.9 million or 4.6% of revenue in the prior year period. Adjusted operating income was 16.1 million or 8.2% of revenue this quarter compared to 15.9 million or 8.3% of revenue in the comparable period last year. The company reported net income for the fourth quarter of 2024 of 6.8 million or 45 cents per diluted share compared to 5.1 million or 34 cents per diluted share a year ago. On an adjusted basis, the company reported net income of $11.4 million, or $0.75 per diluted share, compared to adjusted net income of $10.4 million, or $0.70 in Q4 2023. The higher net income and adjusted net income during the quarter was driven by the higher operating income and adjusted operating income. Additionally, our interest rate hedge helped reduce our year-over-year interest expense. Now let me turn to our segment results. Our structural systems segment posted revenue of $90.3 million in the fourth quarter of 2024 versus $85.6 million last year. The year-over-year increase reflected $6.4 million of fire sales across our commercial aerospace applications, including the A220 and S92 rotorcraft platform. Military and space applications were down 5% driven primarily by a decline in Apache revenue as we shut down production in our Monrovia facility, partially offset by growth in Black Hawk and other military vehicles. Structural systems operating income for the quarter was $3.2 million, or 3.6% of revenue, compared to $6.6 million, or 7.7% of revenue, for the prior year quarter. Excluding restructuring charges and other adjustments in both years, the segment operating margin was 9.2%, in Q4 2024 versus 14.6% in Q4 2023. The decline in margin during the quarter was driven by unfavorable program mix and higher one-time costs. Our electronic system segment posted revenue of $107 million in the fourth quarter of 2024 versus $106.7 million in the prior year period. Higher revenues from the MER Next Generation Jammer and F-16 platforms were offset by lower revenues from in-flight entertainment electronics along with a reduction in our industrials business as we chose to selectively prune non-core work. Electronic systems operating income for the fourth quarter was $19 million or 17.7% of revenue versus $9.8 million or 9.2% of revenue in the prior year period. Excluding restructuring charges and other adjustments in both years, the segment operating margin was 17.7% in Q4 2024 versus 10.2% in Q4 2023. The year-over-year increase was primarily due to a higher mix of engineered products, strategic value pricing initiatives, as well as savings from the restructuring program. The restructuring savings were driven by the consolidation of product lines from our variable performance center into our Joplin facility. Next, I would like to provide an update on our ongoing restructuring program. As a reminder, and as discussed previously, we commenced a restructuring initiative back in 2022. These actions are being taken 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 the transfer of that work to our low-cost operation in Guaymas, Mexico, and to other existing performance centers in the United States. We continue to make progress on these transitions and are working diligently with our customers, Boeing and RTX, to obtain the requisite approvals which are expected to be completed over the next few months. During Q4 2024, we recorded $2.3 million in restructuring charges. We expect to incur an additional $1 to $1.5 million in restructuring expenses as we complete the program. Upon the completion of our restructuring program, we expect to generate 11 to 13 million in annual savings from our actions and have already seen some realization of savings from these actions in 2024. We expect the synergies to ramp up in late 2025 and into 2026 as the product recertification is complete and the receiving facilities move up the learning curve and ramp up production. We also anticipate selling the land and buildings at both Monrovia, California and Variable, Arkansas. Turning next to liquidity and capital resources. In 2024, we generated $34.2 million in cash flow from operating activities, which was an improvement compared to $31.1 million in 2023. The improvement was due to net income growth of $15.6 million offset by investments in working capital. We paid down $15 million on our revolver and $7.8 million on our term loan, for a total of $22.8 million during the year. As of the end of the fourth quarter, we had available liquidity of $228 million, comprising of the unutilized portion of our revolver and cash on hand. Our existing credit facility was put in place in July 22 at an opportune time in the credit markets, allowing us to reduce our spread increase the size of our revolver, and allowing us flexibility to execute on our acquisition strategy. Interest expense in Q4 2024 was $3.6 million compared to $5.4 million in Q4 2023. The year-over-year improvement in interest cost was mainly due to our interest rate hedge. In November 2021, we 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 so far at 170 basis points for $150 million of our debt. The hedge resulted in interest savings of approximately $1.8 million in Q4 2024 and will continue to drive significant interest cost savings in 2025 and beyond. To conclude the financial overview for Q4 2024, I would like to say that the fourth quarter results continued our momentum this year and positions us well for 2025 and beyond. I'll now turn it back over to Steve for his closing remarks.

Okay. Thanks, Jamal. Just in closing, Q4 was another very good quarter for DCO to finish, I believe, an excellent year. In 2024, we achieved record revenues with record margin expansion, and the Vision 2027 strategy in its second year really kicked in. We also delivered full year EBITDA margins of 14.8%. which was an expansion of 140 basis points during the year. Solid progress towards our target we've been mentioning this morning of 18% by 2027. We also discussed our Vision 2027 target of the very important 25% plus of engineered product revenues, and 2024 coming in at 23% was terrific news. Finally, with the BEA strike now behind us, commercial bill rates heading higher, along with, I believe, a Very good defense backdrop for DCO, including FMS. I feel great about what lies ahead in the next few years for us, our shareholders, and our other stakeholders. So with that, let's go to questions. Thank you.

Thank you. At this time, we'll conduct a question and answer session. As a reminder to ask a question, you'll need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. And our first question comes from the line of Ken Herbert of RBC Capital Markets. Your line is now open.

Yeah, hey, good morning, Steve and Suman. Ken, good morning. Good morning. Hey, Steve. Yeah, maybe just to kick off, appreciate the 2025 mid-single-digit top-line outlook as we think about the year. Specifically, can you provide any color on expectations for defense and commercial markets, commercial aerospace? And then I guess within commercial aerospace, where are you shipping today on maybe the max, or I guess what do you see as continued destocking risk? on that particular program into the first part here of 2025? Yeah.

All right. Ken, thanks for the question. First, let me just tackle the commercial part. I mean, you know, a big part of our MAX business is through Spirit, right? So, you know, that's a large part of our shipments, including what we sent to Boeing as well, lesser so. You know, we think that... everything we're hearing is that first, the first quarter and probably through the first half, you know, there's certainly these stocking headwinds and spirit. Okay. So, uh, you know, I can't tell you exactly what, but you know, that's why we feel like, you know, first half of the year is, uh, uh, first quarter, especially the first half of the year is a bit challenging on the D stocking. And I think after that, you know, things will open up a bit. Uh, really, you know, all indications are that, you know, They're going to get to the mid-30s at least, okay, we're hoping, and we think that's in the cards now. So, you know, so we think the second half is going to be better than the first. Our military side, I mean, I know the services companies and lots of other folks are seeing tremendous headwinds. I mean, you know, I can only talk to our backlog. Our backlog is real good. We're on these programs that we like. I mean, and I mentioned this earlier. this new customer, Ken, who, you know, it's just one of many, but, you know, this whole NATO buy that we got in Q4 that, you know, just because we're good at cabling, really good, and, you know, we've been working with Raytheon in the past, we were able to get that order. So I feel good about defense. I think that, you know, we're going to ride up more commercial aero in the second half of the year. First half, destocking and sort of still moving bill rates higher, I think is the story for DCO.

Okay, so if I had to add that we are seeing improvement between January and February this year in our shipments, both to Spirit and Boeing. So we have seen a ramp up and from kind of the teens into the 20s, both with Boeing and Spirit going from January to February. So that bodes well for Q1 and rest of 2025.

This spirit has a lot of fuselages, as you know, Ken.

Yeah, yeah. No, I appreciate that. So if I think about, again, relative to the mid-single digit, maybe upper end of that range in defense and lower end of that range or better growth in defense, I guess, in military and space in 25 relative to commercial. Is that the right way to think about it?

I think we're going to see, we are expecting to see good growth in commercial as well, but it's going to be more back half. I think defense growth is going to be more even through the year. Yeah.

Okay. Perfect. And just to clarification, what percent of your maybe defense sales ultimately end up in Europe and how much will you benefit just from, uh, what's expected to be a surge in defense spending there?

Yeah, that's a good question. You know, this, this, uh, this whole, uh, order we got this 40 million plus order, uh, is is frankly you know one of our first okay so you know we are getting lift you know with the uh the polish order for the apache helicopters and all kind of those type of things we get big lift from that but that goes through our our u.s defense primes this is a new thing for for dco so we're hoping for more on that it's you know early but uh you know this is a direct uh shipment into germany so it's uh i think it bodes well for hopefully more this year and next year

Perfect. Thanks. I'll pass it back there.

All right, Ken. Thanks.

Thank you. One moment for our next question. Our next question comes from the line of Mike Crawford of B Reilly Securities. Your line is now open.

Thank you. I know it's a little early, but with potential offsets to defense budget spending where things are prioritized under the new administration, um as much as eight percent targeted um you know where how where does where does do comments sit in the mix like let's just take for example growing platforms like uh the xm30 that is like a new uh next generation combat vehicle that that's probably okay but maybe some other older platforms uh you know might get hit on uh reprioritization of spending so you know it As you look at it now, how would you characterize your position amid all this?

Yeah, Mike, I hate to give you that answer. I'll give you two parts of the answer. First, it's tough for us to know right now. So that's the first answer I'll give you. The second answer is that we feel like when we look across what we have, we feel very good about where we are with our circuit cards, with our cabling. you know, with our, you know, we've got, we're chock full orders for Apache, even though that's, that program, as I mentioned, is offline right now, and it'll be certified in the next couple months, and will be made in New York at our Krasacki facility. The Tomahawk missile is, you know, going to be there, as you know. So, you know, SPY-6, you know, maybe here, maybe there, we feel like at least You know, what we know today, we feel good about the breath. That's what I would say about our defense business.

We don't have strong reliance on any one program. No individual program is more than 10% of our defense revenues, including programs such as the F-35, the F-16, or F-18. So I think we are diversified in that way. And also the focus, as Steve mentioned, on our missile, missile defense, electronic warfare, our focus in those strategic areas I think is going to bode well if there is that pivot that you're talking about. And we should hopefully see further growth in those areas offsetting weakness on the more legacy platforms.

The only thing, Mike, we've been writing down is the F-18. which we've signaled the last, I guess, year or two on the call, right? So we're riding that down. But the good news is, is that a lot of that lower revenue now is in the base. So, you know, we're not going to see as much headwind on that. That's our view.

Okay. Thank you. And just to switch gears a little bit. So in the IFC business, you have this great relationship with BISAT that has just about 4,000 commercial planes in service and another 1,570 planes in backlog. So that's still going to continue for a few more years, but this has been a great growth business for you in the last few years. But at what point do you start planning for capacity where that business, you know, will slow down at some point, if it's not, you know, next year or 2027, it's going to happen at some point. So when do you start planning for that transition?

Yeah, we're actually, you know, how about lucky and good, right? So all that work really comes out of Appleton, Wisconsin. That's all the card work we do for Viasat and they're great partners. And, you know, we have Next Generation Jammer going in there. We have lots of things that are queued up. So we actually are probably in the next year to looking for more space, even though, yeah, the Viasat work will go down. We've got We've got lots of high demand for our Appleton products. So I'd say at least from where I sit today, we're in good shape.

Okay, thank you. And just the last one is what, if anything, are you seeing that's different or interesting in your M&A pipeline?

So we are continuing to work on multiple opportunities. The deal flow in the lower mid-market for the engineered product businesses that we have seen has been slower in the past 12 months. But there are active things in the hopper that we continue to work on. And we remain optimistic about being and confident about being able to execute our acquisition strategy and meeting the Vision 2027 goals.

Thank you.

Thanks, Mike.

Thank you. One moment for our next question. Our next question comes from the line of Jason Gursky of Citi. Your line is now open.

Hi. This is Jeremy Jason. I'm for Jason Gursky. I just kind of wanted to understand sort of how much of the margin hit this quarter in structural systems was like mix as opposed to like costs that would fade away once Mexico is up and running? And so like, if it's mixed, you know, how long does that mix sort of persist for?

Right, great, great question. And I would say it's kind of about evenly split between mix as well as one time expenses that were specific to the quarter. And the mix as well was was unusual to the quarter. And we do expect

uh the margins in the structures business to fully recover in q1 yeah gotcha gotcha i really appreciate that um and uh so uh my follow-on question is just um if you know if that's the case um so uh sounds like boeing programs are a bit more profitable than airbus so uh so first of all is that the case and also um what can you guys do to like improve airbus program profitability

I think we avoid talking about specific customer profitability or product line profitability. That being said, we ensure that we're getting paid for the value that we bring to the customer and we continue to work on opportunities with both the customers you mentioned to raise prices where it is appropriate and make sure that we're earning sufficient margin and those opportunities actions have taken place over the last year, as you've seen growth in our margins. And there are, you know, active ongoing initiatives to drive that going forward in 2025 as well.

Perfect. And then one last one, just thank you so much for this. So how much of like additional costs did you guys sort of incur in this past quarter that were not backed out? Like, and sort of when do those potentially go away?

So are you referring to the structures segment? Yes. So it's about half of the drop in margin was an account of one-time expenses. Just for the score. Just for the score. Just for Q4. That's right.

Gotcha. Appreciate the color. I'll pass it back. Thank you.

Thank you. One moment for our next question. Our next question comes from the line of Alexandra Mandery of True Securities. Your line is now open.

Hi, this is Alexandra Mandery. I'm from Michael Ciaramoli with True Securities. Thank you for taking my question. I just had a question on the cash flow statement. It looks like there's one item titled legal fees for unsolicited non-binding acquisition offer of 738K and 4Q. and 3.145 million year-to-date. Can you just add more color on this item and what it entails?

Yes. So, you know, it's not an expense we are happy about that we, you know, didn't want to spend certainly be spending shareholder money on something like this, but it was the right thing for us to do to protect shareholder interests and make sure that we preserve the value of the company for our existing shareholders. And so, in making sure that we were properly, the management and the board was properly advised in response to the offer received from Albion River. We did engage both financial advisors as well as legal advisors over the course of the year. And those are the fees that were paid to both those legal and financial advisors that advised board and management. Now, since in Q4 and then in February of this year, we did see a 13G filing stating that Albion no longer holds a position in Duke Common, and they have sold off their entire position. So, you know, we are not expecting these expenses to continue in 2025. Okay, great.

That makes a lot of sense. And I just had a quick follow-up related to defense exposure and programs. So do you have any thoughts on DOGE and potential changes for the better or worse as a result of DOGE?

Thanks. Yeah, thank you for the question. I know it's top of mind for everyone. You know, we don't really have a viewpoint right now. Again, we've mentioned earlier on the call, we feel, you know, we have a wide breadth of products that we make for defense. A lot of it is electronic warfare. A lot of it is things, cards, cablings, you know, things that are important for missiles and missile defense. And, you know, we do feel good about, you know, all our programs. I mean, I did signal a year or two ago for the F-18, and that's the one program which we are winding down. And most of that's already in the base. So we feel good. But, again, we don't – We don't have any view as yet as far as on the DOGE side. We just have a DCO view.

Okay, great. Awesome. Thanks. Thank you. One moment for our next question. Again, as a reminder to ask a question, you'll need to press star 1-1 on your telephone.

Our next question comes from the line of Noah Poppenack of Goldman Sachs. Your line is now open. Hello, Noah. Your line is now open. I think there may be a connection issue.

Let's move forward.

Okay, I'm showing no further questions. I'll now turn it back to Chairman, President, and CEO Stephen Oswald for closing remarks.

Okay, I want to thank everyone for joining us. I very much appreciate it. Again, you know, I felt we had a very good quarter. I think we're well positioned. I know there's, you know, lots of discussion about defense right now. Again, let me reiterate finally that, you know, our view is at least from our product line we feel very good about this year. So we'll have to see, but that's our view. We feel strongly about our vision 2027 and look forward to speaking with you after the first quarter. So thank you again for your support and have a great and safe day.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.