Good day, ladies and gentlemen, and welcome to Ducommun's First Quarter 2023 Conference Call. At this time, all participants are in a listen-only mode. Following management's prepared remarks, we'll hold a Q&A session. [Operator Instructions] As a reminder, this conference call is being recorded today, May 4, 2023. I would now like to turn the conference call over to Ducommun's Senior Vice President, Chief Financial Officer, Controller and Treasurer; Mr. Suman Mookerji.

Thank you, Jeda, and welcome to Ducommun's 2023 first 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 Ducommun include, among others, the cyclicality of our end-use markets, the level of US government defense spending, 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 interest rates, pandemics and disasters, natural or otherwise. These risks and others are described in our Annual Report on Form 10-K filed with the SEC, and our forward-looking statements are subject to 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 Q1 2023 Quarterly Report on Form-10Q 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, Suman, thank you. And thanks, everyone, for joining us today for our first quarter conference call. Today, and as usual, I will give an update of the current situation of the company and for which Suman will review our financials in detail. Before that though, I'd like to discuss our CFO transition announced yesterday. First, I'd like to say this transition is not related to any issues revolving the company's financial reporting. I would also like to thank Chris Wampler for his contributions and service as CFO. And welcome Suman Mookerji to the call and congratulate him on his new role. Suman and I have known each other for over 12 years, worked together at three different companies and I have full confidence in him and his abilities. As we announced last week, I'm also delighted that we have completed the acquisition of BLR after the end of Q1 as we had a 30-day filing period that ended on July -- I'm sorry, ended on April 24. BLR Aerospace is our fifth acquisition and largest since I joined the company in 2017. And its 100% in line with the expectations we discussed at the Ducommun Investor Meeting in New York in December. BLR is an industry leader and innovator, providing engineered products and aftermarket services to rotorcraft, fixed-wing business aviation OEM customers and fleet operators. I want to welcome Mike Carpenter, President and the entire BLR team to Ducommun. I'm excited to begin working with them. As for the quarter, we're off to a good start in 2023 with very strong top-line growth, as the company delivered year-over-year revenue growth of 11% to $181.2 million. As mentioned in the press release, our excellent position in narrow-body aircraft was key to driving overall revenue growth and another positive sign of…

Thank you, Steve. As a reminder, please see the company's Q1 10-Q and Q1 earnings release for a further description of the information mentioned on today's call. As Steve discussed, our first quarter results reflect another period of strong performance. Once again, we saw a significant increase in our commercial aerospace revenues. We remain encouraged by the continued strength in domestic and global travel, which would support higher long-term demand for aircraft and are also encouraged by the build rate outlook from our key customers that should drive continued growth in our shipments. During the quarter, we also continued to make progress on our restructuring program. And as Steve mentioned we announced the acquisition of BLR Aerospace in Q1 and subsequently closed on the transaction on April 25th. With all this, we feel like we have laid a strong foundation to the year in the first quarter. Now turning to our first quarter results. Revenue for the first quarter of 2023 was $181.2 million versus $163.5 million for the first quarter of 2022. The year-over-year increase reflects $19 million of growth across our commercial aerospace platforms, partially offset by $2.9 million of lower revenue within the military and space sector. Ducommun's overall backlog at the end of the first quarter was approximately $961 million similar to the level at the end of Q4 2022 and $18 million higher than at the end of Q1 2022. This reflects recent growth across our commercial aerospace platforms. Our defense backlog was $444 million and we remain positioned for continued solid performance as we move through the remainder of 2023. As a reminder, we define backlog as potential revenue based on customer purchase orders and long-term agreements with firm fixed prices and expected delivery dates of 24 months or less. We posted a total…

Okay. Thanks, Suman. In closing, it was a look a very good quarter to begin the year. The Bell acquisition is another step in the right direction and certainly meets the expectations we communicated at our Investor Day in December. In addition, all the meetings I've been attending now that we're meeting in person again with top customers and all the industry news that I read, just show some great opportunities over the next several years and the common team be ready to capture the upside. My thanks as always to our employees and investors for the support as we embark on the New Year, and build momentum throughout 2023, toward an even stronger 2024. I will now open up for questions. Thank you for listening.

Thank you. At this time we will conduct the question-and-answer session. [Operator Instructions] Our first question comes from Ken Herbert of RBC. Your line is now open.

Yes. Hey, good morning Steve, and congratulations to Suman.

Thank you.

Good morning, Ken.

Hey, Steve maybe to start off, you called out some pretty significant growth in the first quarter for the MAX, and it sounds like you've taken some share on that program, which is nice, but there's been a lot of headlines recently about this program and some issues with Spirit. Can you maybe level set us here in terms of what bill rate you're currently going in on the MAX, maybe how you see that progressing over this year? And then maybe the revenue contribution this year. How much do we expect it to grow across the full year? Because it sounds like you haven't been impacted by some of the slowdown that we're seeing in Spirit.

Yes. Well, thanks, Ken. Good question. I guess a couple of things. First, I was up at the Boeing supplier meeting not too long ago. So it's Stan Deal and the team there. So, a couple of things. First, we came out of the gate pretty much in a modest way at 31 a month. But we do -- despite some of the issues in Spirit, and we wish them all the best to get that cleared up, we're more on the front end and front end of this thing. We think that, okay, there will be a little bit of a hiccup, but we still see things heading up from 31% to 38% by the end of the year. We're further confident in that. We're all capitalized for that. We've got a little bit of hiring to do, but we're optimistic. So, certainly, it's an issue certainly the repairs. I mean, there's a lot of things that the Spirit has to get done there. But also as I mentioned we have a major development with them on the skins and that was a long time coming. We worked very hard on that for over say, 16 months at least. So we got that across the finish line just recently. So we already do for roll form and stretch form. We're already big players in fuselage skins on the A220. So we think that not only we're going to see better rates, I mean, okay, we'll have a little bit of a headwind right now, but we're planning to get to 38% or very close by the end of the year. But we're also very optimistic that as we go forward with Spirit, we're going to pick up more of the program share. So I think good things ahead for us.

Okay. That's helpful. Thank you. And I guess as you think about that to segue into the better outlook for revenues this year to up mid to high single-digit. Is that predominantly the BLR acquisition, or is there any assumption in there about sort of better performance out of aerospace? I mean, it looks like BLR could add maybe three to four points of growth this year.

Yes. So, it's a mix, okay? So, it's certainly BLR is going to contribute. We just picked them up at the end of April, right? So we're not going to get a full year of revenue, but we're going to pick up some nice revenue. And then also, again, when we started the year at low single, we're still obviously a little -- I wouldn't say, nervous, but just being a little more modest at the beginning of the year. But we feel better about our prospects as well as Airbus and Gulfstream, and the other companies we support. I would say, BLR is kind of on the lower end of the range that you suggested, Ken, and so there is substantial organic growth in the outlook.

Okay. Great. And Suman, just finally I think the cash use this quarter was probably consistent with expectations, but can you reset us on maybe an expectation for full-year 2023 free cash flow?

So, we expect to have a better free cash flow year this year than we did last year. There are some headwinds as we do these facility transitions and have to build up some inventory to support those moves. But we're looking at ways to offset some of those headwinds and come out net positive versus where we did on working capital and cash flow last year.

Yes. Ted we got some -- just on that we got the Apache back late, we have the MAX spoilage. So we got some major industry impact moves here. So we got to make sure we're taking care of first the customer and making sure we got enough buffer for these moves. So, a little over that too.

Great. All right guys. Thanks a lot.

Thanks, Ken.

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

Thank you. Just to make sure are you not comfortable talking about the rough annual revenue run rate of BLR as well as added working capital that that's going to put on the balance sheet the next time we see a print?

We'll have more to say, I think at the end of the Q2 call, okay? Mike, we'll just get started here. I mean, obviously BLR is an engineered product with an aftermarket. So it's going to be accretive to the P&L and to our current business. So we're excited about it. I think earlier with Ken's comments it's a couple of points for this year for us on the revenue side and more to come.

Okay and then regarding the mid-to-high single-digit growth guidance implying some high hundred millions of revenue versus your 12-month backlog which is closer to $650 million-ish. So where is the main book and ship business that makes up that difference?

So we see book and ship in a lot of our engineered product businesses. And so that is a big driver of that. And then, we may see some incremental in our structures business as well and some drop in orders in our electronic manufacturing services business as well from time-to-time though their typical lead times are longer. But mainly in our engineered products businesses is where we have more book and ship business.

Okay. Great. Thank you. And then, I don't know I guess on the last call you weren't really prepared to talk about this, but once you do get out of Monrovia and the other factory like, do you have any more sense you can share on the potential timing of the sale of the real estate underlying these facilities and ….

Yeah.

…perhaps what you might get from it?

Yeah. I think it's a little tricky right now, because we've got some major things to move, right? And customers they get nervous. So we have to make sure that we're doing the right things on the front-end. We would like to move one if not both properties, probably by the year-end if not, by Q1, Mike. So it's not something we're going to -- we're in a hurry a bit here, but we've got to make sure we do the right things for the market, but sooner than later.

Okay. All right. Thank you very much.

Thanks Mike.

Our next call comes from Michael Ciarmoli of Truist Securities.

Taking my question…

Your call is now…

Hey, can you hear me guys?

Yes. We can hear you.

We can hear you Michael. How are you?

Hey. Maybe just going back to the facility transitions, I think you talked about the MAX spoilers and the Apache blades.

Yeah.

Is there any sort of requalification risk needed to shift that work or any sort of technical challenges that we should be aware of there?

No Mike. We're making that stuff forever. So…

Okay.

So we're just going to make it somewhere else. So no issue about that, but obviously we have to work with the customer because it's going into a new facility, right? So there's always a lag with defense prime or a major OEM on the commercial side. But we feel good about where we are. The one thing I'd say too just for investors is that -- and I give a lot of people credit at Berryville [indiscernible]. I mean, we announced this in November last year and we still have a pretty much a full workforce. So people are committed to finishing the job and getting it transferred properly. So I would say at least on the technical side the answer is no.

Okay. And then, just back to the MAX, can you just circle back a little more time on the content? You talked about the $4 million. Does that assume a specific run rate? Are you on every plane? I know the MAX was your biggest program pre-pandemic but just trying to get a sense of how much content this adds.

Yes. So like I said I mentioned about formula. It's a good start. Let's put it that way. It's going to sort of increase our ship rates so roughly around 15 ships sets a month for those skins. We're pretty happy with that.

Okay.

Spirit makes it internally too. So..

Got it.

But that's the big deal. We're in the game.

Okay. Perfect. That's what I was looking for. And then maybe Suman on the restructuring, you called out the -- and I think you have done this the annualized savings starting in the second half of 2023. How should we think about that? I don't know, if it's call it $5.5 million or so of savings. How should we think about the margin? Should we expect to see a significant up-tick in operating income and margins as we get into 3Q and 4Q?

I think you're going to see it more towards the end of the year.

Okay.

And yeah, so I think you're going to see the benefit really more pronounced in 2024.

Okay. Got it. Perfect. Okay, perfect guys. That's all I had. Thanks.

Okay. Thanks, Michael.

There appears to be no further questions. I would now like to turn it over to Mr. Oswald, for closing remarks.

Okay. Thank you very much. Look, again, I think it's a very good start to the year. We have a lot going on here, but I think all very positive for our customers, our company and our shareholders. It should be a consequential year to comment on the upside. And again, my thanks for attending today and I wish you a good afternoon.

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