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Ducommun Reports Results for the Fourth Quarter Ended December 31, 2021

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Ducommun Incorporated (NYSE: DCO) (“Ducommun” or the “Company”) reported results for its fourth quarter and year ended December 31, 2021.

Fourth Quarter 2021 Recap

  • Revenue of $164.8 million
  • GAAP net income of $110.8 million, or $9.05 per diluted share
  • Adjusted net income for the quarter of $9.7 million, or $0.79 per diluted share
  • Gross margin increased 50 basis points year-over-year to 22.6%
  • Adjusted EBITDA of $24.4 million, or 14.8% of revenues, an increase of 40 basis points year-over-year
  • Completed the acquisition of Magnetic Seal LLC (“MagSeal”) for $69.5 million, net of cash acquired
  • Completed sale-leaseback, netting proceeds of over $110 million

“2021 was a return to growth story for Ducommun and I’m pleased with how much we accomplished along with positioning the Company for continued success in the years ahead,” said Stephen G. Oswald, chairman, president and chief executive officer. “In December alone, we netted over $110 million in after-tax proceeds related to the sale-leaseback of our Gardena, CA performance center building and land, effectively monetizing and unlocking its value at record prices to fuel growth and strengthen our balance sheet. A portion of the proceeds were immediately deployed for the MagSeal acquisition which brings innovative engineered sealing solutions to Ducommun, enhances our aerospace product portfolio and increases the Company’s aftermarket capabilities and revenue.

“Ducommun ended the year with a strong backlog* as well of approximately $905 million, with gains driven by a recent uptick in commercial aerospace orders. For 2021, we posted revenues of approximately $645 million, led by another record year for military and space, topping $450 million, along with strong gross margins. In 2022, with growing travel demand and subsiding pandemic-related related restrictions, the commercial aerospace industry should continue its recovery especially in the narrow body market. Our longstanding customer relationships with Boeing, Raytheon, and other leading OEMs, along with our five year Airbus contract for titanium products awarded in 2021 are expected to drive stronger performance in 2022 and beyond.”

Fourth Quarter Results

Net revenue for the fourth quarter of 2021 was $164.8 million, compared to $157.8 million for the fourth quarter of 2020. The 4.5% increase year-over-year was primarily due to the following:

  • $4.9 million higher revenue within the Company’s Industrial end-use markets due to timing of customer requirements; and
  • $4.4 million higher revenue within the Company’s commercial aerospace end-use markets due to higher build rates on other commercial aerospace platforms and regional and business aircraft platforms; partially offset by
  • $2.3 million lower revenue within the Company’s military and space end-use markets due to lower build rates on military rotary-wing aircraft platforms.

Net income for the fourth quarter of 2021 was $110.8 million, or $9.05 per diluted share, compared to $9.7 million, or $0.80 per diluted share, for the fourth quarter of 2020. The increase in net income year-over-year was due to the gain on the Gardena performance center sale-leaseback transaction of $132.5 million and a $2.5 million increase in gross profit due to higher revenue, partially offset by higher income tax expense of $31.4 million and higher SG&A expense of $2.9 million. Adjusted net income was $9.7 million, or $0.79 per diluted share, for the fourth quarter of 2021, compared to $10.8 million, or $0.89 per diluted share, for the fourth quarter of 2020. The difference between net income and adjusted net income was primarily due to excluding the gain on sale-leaseback.

Gross profit for the fourth quarter of 2021 was $37.3 million, or 22.6% of revenue, compared to gross profit of $34.8 million, or 22.1% of revenue, for the fourth quarter of 2020. The increase in gross margin percentage year-over-year was due to favorable product mix, favorable manufacturing volume, and lower other manufacturing costs, partially offset by higher compensation and benefits costs.

Operating income for the fourth quarter of 2021 was $11.8 million, or 7.2% of revenue, compared to $11.6 million, or 7.3% of revenue, in the comparable period last year. The year-over-year increase was due to higher revenue, partially offset by higher SG&A expenses. Adjusted operating income for the fourth quarter of 2021 was $14.0 million, or 8.5%, compared to $12.9 million, or 8.2% of revenue, in the comparable period last year.

Interest expense for the fourth quarter of 2021 was $2.8 million compared to $2.6 million in the comparable period of 2020.

Adjusted EBITDA for the fourth quarter of 2021 was $24.4 million, or 14.8% of revenue, compared to $22.8 million, or 14.4% of revenue, for the comparable period in 2020.

* The Company defines backlog as potential revenue and is based on customer placed purchase orders and long-term agreements (“LTAs”) with firm fixed price and expected delivery dates of 24 months or less. Backlog as of December 31, 2021 was $905.2 million compared to $807.7 million as of December 31, 2020. Under ASC 606, the Company defines performance obligations as customer placed purchase orders with firm fixed price and firm delivery dates. The remaining performance obligations disclosed under ASC 606 as of December 31, 2021 were $814.1 million compared to $779.7 million as of December 31, 2020.

Business Segment Information

Electronic Systems

Electronic Systems reported net revenue for the current quarter of $106.0 million, compared to $99.1 million for the fourth quarter of 2020. The year-over-year increase was primarily due to the following:

  • $4.9 million higher revenue within the Company’s Industrial end-use markets due to timing of customer requirements; and
  • $2.9 million higher revenue within the Company’s commercial aerospace end-use markets due higher build rates on other commercial aerospace platforms; partially offset by
  • $0.9 million lower revenue within the Company’s military and space end-use markets due to lower build rates on various missile platforms, partially offset by higher build rates on military fixed-wing aircraft platforms.

Electronic Systems operating income for the current year fourth quarter was $15.4 million, or 14.6% of revenue, compared to $11.5 million, or 11.6% of revenue, for the comparable quarter in 2020. The year-over-year increase was due to favorable product mix and favorable manufacturing volume, partially offset by higher compensation and benefits costs.

Structural Systems

Structural Systems reported net revenue for the current quarter of $58.8 million, compared to $58.7 million for the fourth quarter of 2020. The year-over-year increase was primarily due to the following:

  • $1.5 million higher revenue within the Company’s commercial aerospace end-use markets due to higher build rates on regional and business aircraft platforms; partially offset by
  • $1.4 million lower revenue within the Company’s military and space end-use markets due to lower build rates on military rotary-wing aircraft platforms, partially offset by higher build rates on other military and space platforms.

Structural Systems operating income for the current-year fourth quarter was $5.1 million, or 8.6% of revenue, compared to $6.2 million, or 10.6% of revenue, for the fourth quarter of 2020. The year-over-year decrease was due to unfavorable product mix, partially offset by lower other manufacturing costs.

Corporate General and Administrative (“CG&A”) Expense

CG&A expense for the fourth quarter of 2021 was $8.7 million, or 5.3% of total Company revenue, compared to $6.1 million, or 3.9% of total Company revenue, in the comparable quarter in the prior year. The year-over-year increase was due to higher professional services fees of $1.8 million, a portion of which was related to the Magnetic Seal LLC acquisition, and higher compensation and benefits costs of $0.8 million.

Conference Call

A teleconference hosted by Stephen G. Oswald, the Company’s chairman, president, and chief executive officer, and Christopher D. Wampler, the Company’s vice president, chief financial officer, controller and treasurer will be held today, February 23, 2022, at 2:00 p.m. PT (5:00 p.m. ET) to review these financial results. To participate in the teleconference, please call 844-239-5278 (international 574-990-1017) approximately ten minutes prior to the conference time. The participant passcode is 1660427. Mr. Oswald and Mr. Wampler will be speaking on behalf of the Company and anticipate the call (including Q&A) to last approximately 45 minutes. This call is also being webcast and can be accessed at the Ducommun website at Ducommun.com.

About Ducommun Incorporated

Ducommun Incorporated delivers value-added innovative, value-added proprietary products and manufacturing solutions to customers in the aerospace, defense and industrial markets. Founded in 1849, the Company specializes in two core areas – Electronic Systems and Structural Systems – to produce complex products and components for commercial aircraft platforms, mission-critical military and space programs, and sophisticated industrial applications. For more information, visit Ducommun.com.

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