Good day, and thank you for standing by. Welcome to the Third Quarter 2023 Ducommun’s Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Mr. Suman Mookerji, Ducommun’s Senior Vice President and Chief Financial Officer. Please go ahead.

Thank you, and welcome to Ducommun’s 2023 third quarter conference call. With me today is Steve Oswald, Chairman, President and Chief Executive Officer. I am 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, that could cause actual remarks 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 rate, 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 and non-GAAP measures referenced on this call. We filed our Q3 2023 quarterly report on Form-10-Q with the SEC today. I would now like to turn the call over to Steve Oswald for a review the operating results. Steve?

Thank you, Suman, and thanks, everyone, for joining us today for our third quarter conference call. Today, and as usual, I will give an update on the current situation of the company. Afterwards, Suman will review our financials in detail. Q3 was an outstanding quarter as we grew our top line both year-over-year and sequentially, delivering revenue growth of 5% versus 2022 and reaching a new all-time quarterly record of full revenue of $196.3 million. The previous high being in 2012. As mentioned in the press release, the ramp-up of our widebody aircraft business, which was welcome news, along with a return to growth of military -- of our military business helped to drive revenue and achieve this new milestone. We have big goals for 2027, discussed at our investor meeting last December. And we need to be realizing this level of revenue and of course, higher as we move forward over the next few years. The continued recovery in Commercial Aerospace once again delivered in Q3, with Boeing's twin aisle platform business in aggregate, being up almost 170% year-over-year, great to see, along with Airbus A220 also having good growth up 33% year-over-year. Overall, commercial aerospace with Boeing and Airbus and Others was up 14%, from Q3 2022. Despite the continued challenges with the quality repairs reducing the MAX fuselage build rates. We are now in our ninth quarter as well of year-over-year revenue growth for Commercial Aerospace, a continued excellent sign, overall for the industry. I'm happy to report the Commons Defense business was also up year-over-year in Q3, mainly due to the Apache program strong demand of the Military & Space products, the Mere Missile and other Military Rotary Wing platforms. The business delivered good performance of $109 million in revenue for the quarter. And that was…

Thank you, Steve. As a reminder, please see the company's Q3 10-Q and Q3 earnings release for a further description of information mentioned on today's call. As Steve discussed, our third 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 should support higher long-term demand for aircraft as we work through some temporary near-term weakness in single-aisle production rate. In addition, we saw a return to growth in our military and space revenue, mainly due to timing of certain programs such as the Apache. During the quarter, we also continued to make progress on our restructuring program, and I will provide some more color shortly. With all this, we feel like we are positioned to finish up 2023 on a solid note. Now turning to our third quarter results. Revenue for the third quarter of 2023 was $196.3 million versus $186.6 million for the third quarter of 2022. The year-over-year increase reflects $9.6 million of growth across our commercial aerospace platforms and $2.4 million of higher revenue within the military and space sector. The return to growth in military and space revenue in the third quarter was very encouraging. Ducommun total backlog at the end of the third quarter was $959 million. In Q2 2023, we saw a significant jump in our defense backlog by $50 million to $494 million. During Q3 2023, we were able to maintain the defense backlog at that same level of $494 million. The backlog for our commercial aerospace business dropped during the quarter from $465 million at the end of Q2 to $423 million at the end of Q3 as a result of the ongoing industry issues in commercial aerospace…

Okay. Thanks, Suman. In closing, just a few thoughts here. So Q3 obviously, was a great quarter, many highlights for the company and our shareholders. Achieving record quarterly revenue along with an all-time high adjusted EBITDA in Q3 are wonderful milestones to be proud of, and I'm thrilled for the Ducommun team. It also means that we are ahead of schedule on the Vision 2027 we shared at the Investor Day last December and are committed to reaching those goals. Lastly, my continued thanks as well to our employees, investors and all other stakeholders for your continued support, as we look forward to finishing up a successful 2023. Okay, let's go to questions. Thank you for listening.

[Operator Instructions] One moment for our first question. And our first question comes from Mike Crawford of B. Riley. Mike, your line is open. Mike if your line is muted, please unmute and please rejoin using the call me feature. If that doesn't work. One moment for our next question. And our next question comes from Michael Ciarmoli of Truist.

Hey, good afternoon, guys. Thanks for taking the questions here. Nice results. Maybe Steve, or Suman, the restructuring and the annualized savings, it sounds like maybe that's sliding to the right a little bit. I mean, I know you kind of said only a portion, and it's more second half. Do I have that correct? And what's sort of happening there to kind of prevent that full run rate from being realized really kicking off starting in earlier 2024?

Yes, Mike, fair question. And it has moved a bit. We're a little bit at diversity of Boeing and RTX, right? Because they get a lot of suppliers that won't move a lot of different things around. And so we're doing our best, like Suman this nodes, we're diligent with both those large OEMs. But we did see a bit of a delay, not that anything on our end, but we're trying to get people down to these new factories to improve these processes, and it's going to be a little bit longer. But I will tell you that we're going to -- we'll be done for sure by the end of June.

Okay. Is that -- you called out certification? Is that presumably what is for getting the proper sign off? And I mean, clearly, yes, both of those guys have a lot going on. Okay.

Yeah, absolutely. So much -- Bob was at the Boeing conference in March. They said they have 1,000 parts that suppliers want to move. And so we're one of many. But I think overall, the good news is we're moving forward, and we do have a target, and that's going to happen at the end of June. So that...

Yeah. Got it. Should we -- I mean, I know you're not going to give a 2024 guidance here, but I'm assuming then we should probably maybe temper are margins a bit? I mean you just put up great margins in the quarter. It sounds like you're certainly dealing with some of the aero challenges and there were some sequential downticks there. But just can you maybe kind of level set us, maybe using this quarter's margins as a starting point or a launching point and how to think about the trajectory?

Yes, great question, Mike. You're right. We have really strong margins and margins have progressed sequentially over the course of this year in a very nice manner. I would expect the margin improvement, especially given the timing of the restructuring to be more -- for next year to be more in the second half versus first half. Improvement.

Because the margin that we posted this quarter looks. Going forward.

Absolutely, yes.

Okay. Okay. Got it. That's helpful. And last one for me. Commercial Aero, I mean, you're -- I understand what's been going on out there. We're still seeing pretty good growth among the peers. I mean maybe you guys got a little bit disproportionately hit here because of outsized exposure and concentration on MAX. But is this -- can you maybe give us a sense where you are on MAX rates and kind of where you expect to be? Or just kind of what the general state of the union is there on that program.

Sure. Yeah. We're sort of mid-20s. We're certainly excited about what we heard as far as maybe going to 500 some calls. So we're enthusiastic about that. But to be honest with you, the strike and then the quality repairs kind of just flattens out a bit on the MAX. And as you know, it's a pretty big program. But I think the good news is because we're pretty much dead in the water last year is that the wide-body business is coming boring back even though at a smaller level, it's a really good sign for this.

Got it. Helpful. Thanks, guys. I'll jump back in the queue here.

Thanks, Mike.

Thank you. One moment for our next question. And our next question comes from Mike Crawford of B. Riley Securities.

Can you guys hear me this time?

We can hear you, Mike. Loud and clear.

Excellent. Excellent. Glad to hear that. So thanks for sharing your playbook on Max deal. Is there a similar walk through you can share with your plans for BLR Aerospace?

We're -- look, you guys kind of got the playbook, right? So -- but I think we're going to use pretty much what we did with MAX deal, we'll be in touch, right? As we go forward here, it's still real early on BLR. So that's about all I want to say. But we have high hopes like we've had our other four, and we're going to use the same playbook.

Okay. Thanks. And then since you started your initial sales process in Monrovia, are you prepared at this time to provide any expectations on potential value you might receive for selling that property?

Mike, we have an ongoing sales process, but we are not yet at a stage where we can share details around the expectations there. But as we move along the sales process, we'll keep holders updated. Yes. I think, Mike, by December, we'll have a communication out, okay? So you count on it. So to that later, Mike.

Okay. Thanks. And then can you share your expectations on inventory purchase accounting adjustments that we might see in the fourth quarter and/or next year from where you're standing today?

The inventory purchase accounting adjustments during the current quarter were mainly on account of inventory that had to be marked up for the BLR acquisition. And we do expect that to continue through Q1 and Q2 of next year, it kind of depend on the rate of revenue. But certainly, in Q1, we'll see it in Q4 of 2023 and then certainly in Q1 and depending on revenue maybe a little bit in Q2, but not beyond that.

Okay. Thanks, Suman. And then final question for me is just relative to the renewed growth in military space, I really like to hear your thoughts on space, in particular, given all of the investment that's going into that sector at this moment.

Mike, I'll just -- I'm going to give you a high-level view. I mean we certainly support the space programs, but we lean more towards the military side, I mean, candidly. So we do see a lot of investments ongoing. I mean we're looking at interesting things. Most of that's come out of Carson and we might have a few other support as we do ruggedized harnesses for NASA and for other things. But we're probably not the best people to ask.

Okay. All right. Well, thank you.

Yes.

Thank you. [Operator Instructions] Our next question comes from Jason Gursky of Citi.

Hey, good morning everybody. Wanted to just dive in a little bit more about the relationship that you all have with Spirit. You mentioned some of the dynamics going on there with the 37 makes good sense, I think, to see a little bit of pause here in 2023 and then recovery in 2024. But part of the narrative with you all has been bringing in some more work from them. And I'm just kind of curious maybe to get an update from you. They've got new leadership there. It sounds like they've got somebody at the helm, there that is pretty focused on operations. So just kind of curious if you've got some sort of readout for us on kind of your initial interactions there and try to figure out whether there is an opportunity for the work that you do with them to potentially grow even more as they wrap their heads around and hands around all this on their plate.

Sure. And Jason thanks for calling in, to be with you. So look, we're close to Spirit. We were composed to Tom, the CEO, and I know things have changed and no Patrick's in there now. We obviously are expecting a new sort of level of energy there. And I think we're going to see that. I think they're doing some smart things early on. So we're encouraged. As far as program gain, I mean, I talk about these skins for the fuselage, right, which is going to be a big deal for us. But we're still working on the tooling and we're going to hopefully get that moving towards the end of the year where we're going to get things approved. And we're going to start building more program share for the MAX, which we already have a pretty good share. But I think that the real labor issue, as we all know, I know they just did some things on the capital side. And I think, hopefully, we're through these quality issues because we're VOI person there at Spirit. So we're right in the middle of the operation. They're pulling our products. We're certainly making sure we have the inventory there in the factory. We have, again, a strong relationship. I'm absolutely positive about it. I mean, unless we see something that and got to bid another quality problem, which really sets everybody back and uses a lot of time for people to do this. So I think thumbs up for Spirit. I think it's still going to be sort of a flattish first three months. It's a big operation, right? But I think you're going to see better things in 2024, and we're certainly counting on it.

All right. Okay. Great. And then on the wide-body side, did this -- these ramping volumes come as a surprise to you all? I'm just trying to get a sense of whether there was something is coming in better than expectations on that side of things and if you could just offer a little bit more fidelity on where you're seeing that strength. That would be helpful. Thanks.

Yeah. So certainly, we're 787 players. So we did see some tick up in that. We think it's going to be much, much better in 2024, once they don't talk about it, that we're on the A330, believe it or not. We have a pretty good position on A330. And year-over-year, that really popped, okay? As far as we know that's not the biggest priority in the Airbus lineup for their products, but we're a player on that all through our Titanium operations. So that was a positive. And sometimes, you're just going to get spares and other things. And believe it or not, we got some good news year-over-year on 747. So those are the kind of things. But we're counting on the 87, because we not only provide Titanium or things in this, we provide engineered products. We provide the FUSION lighting, The Fusion Systems for the 787 at very high margins. So we're all in on the 87 going forward.

Okay. Great. Thank you very much.

Thanks, Jason. Appreciate it.

Thank you. I'm showing no further questions at this time. I would now like to turn it back to Mr. Steve Oswald, for closing remarks.

Okay. Thank you, and thank you, everybody, for joining us today. I appreciate you listening and hanging in there. I thought again, we had an excellent quarter. I want to thank everyone for their support, certainly coming out of a couple of tough years with COVID and starting to move forward with a lot of good things for shareholders and for our team here. So again, thank you. I just want to say one last thing. I want to just thank our veterans as we move up to Veterans Day on Saturday. Thank you for your service and to the families that support them. We are proud to be a part of helping the War-fighter. Thank you. Have a great day.

This concludes today's conference call. Thank you all for participating. And have a good day. And you may now disconnect.