Ducommun Incorporated (DCO) Earnings Call Transcript & Summary

Thank you, everyone. Welcome to the 2021 UBS Global Industrial Transportation Conference. My name is Louis Raffetto, I'm a member of the U.S. aerospace, defense and airlines team here at UBS. And we're delighted to have with us today Ducommun. Representing the company is Stephen G. Oswald, Chairman, President and CEO. Stephen is going to go through a presentation. We'll leave some time at the end for Q&A. So Stephen, welcome. With that, I will hand it over to you for your presentation.

Great. Great. Thank you, Louis, and good morning, everyone. I want to thank the UBS team for having us in and look forward to spend a little time together and talking about the Ducommun Incorporated. So first, just the safe harbor disclosure. Everyone's seen that before. I won't spend any time on it, but just wanted to show that before I get started. Okay. A little bit about our company. I'm sure there's folks on here that aren't familiar with Ducommun, some may be, I'm sure. Let's start at the top left you can see our revenues in 2020. You took a step back, obviously, with the rest of the industry, at least on the commercial aero side in 2020, we're higher revenue in 2019, but obviously, with all the issues. But I'm happy to say that our profitability, you can see our adjusted EBITDA is actually fairly strong with less revenue growth. We're able to do a lot of things, and I think it showed the strength of the company, and I'll get more into that. And our backlog was, I think, good. It was certainly leaning more into defense, which I'll talk about as we go forward. You can see the revenue by end market. Our defense business, I took over in 2017. So I came in from the outside, I came in from KKR. I was running one of their portfolio companies and then had a long [ proper ] career at United Technologies, GE and Hoechst Celanese. So I came in with, obviously, a lot of experience and a lot of ideas and so we started building the company. But in 2020, we had to do what we have to do, as they say and we lean heavily into our defense business, and you can see the revenue band marker for 2020. It was very, very high in military and space. And we're glad and happy that we had at our -- when I came into the company, our business was undermanaged. So we were lucky by 2020 that we had our act together in lots of ways, and we're able to really dive in and drive that business. So I also will talk more about this, but our proprietary content, we obviously have OEM products and we're building that portfolio, but we have a lot of trade secrets throughout our manufacturing. So we consider the proprietary, talk a little bit about that. We have an excellent titanium, hot form and superplastic forming franchise. You don't need to know the details on that. All you need to know is that we're the leader in the space in A&D, and I'll get more to that as we go forward. And our commercial aero mix, I put that on there because we're going to come out of this thing and I'll talk more about it, and we're very strong on narrow-body and that's going to give us a nice lift in the next few years. To the right, you can see -- I'll go over this more, you can see the platforms we have, military aircraft we're obviously on all the ones that you know, commercial as well. We have a very good missile business. I'll talk more about that. That's been a legacy of Ducommun and something that's gave us a lot of strength expressly last year. And though we haven't really been in the game in UAVs, we are now. And I was mentioning on another call that went from like 0 to 100 on UAVs. So I think that's going to bode well for investors and for the company. You can see our range of customers at the bottom right, and we're primarily a Tier 1 supplier for the industry. And I think the important thing for investors to know is that we do very complex electronics and structural systems, which I'll talk more about and focus today and every day on aerospace and defense. To put together some of these highlights, I think they're important for your consideration when you think about Ducommun now in the future. First, as I mentioned, we're a Tier 1 player. You might think for a small cap, that's where we are right now. We'll be probably be Tier 2, Tier 3. We have a little bit of Tier 2 business, but primarily because of our legacy and we've been around for a long time, we're really in the room with the top customers and I'll talk more about that. Talked about our defense business. We feel good about it. I know that there's nervousness about the budget for the defense business and rightfully so, but we feel that of all the things we're doing, we're going to be more than fine. We'll talk about that a little bit more. Reopening trade. We all know about that. Everybody is kind of catching up to that, but we think that, that's going to be real strength in the years ahead for us. Certainly, it was prior to the MAX and COVID and that's going to come back along with, I think, a great franchise with Airbus going forward. We have proprietary capabilities. We're -- I think in the past, we're always viewed as a build-to-print shop in a commercial aerospace shop, that's not the case. So we'll talk more about that. I talked about our titanium position, I think that's exciting. And for a small-cap to be a world leader in that space, that's pretty good. Our aftermarket franchise is getting momentum. I'll talk a little bit more about that. I'm from UTC and GE and all these big companies where we had all these operational systems for our manufacturing. And we have that today at Ducommun comment, but we have something that's simplified for our size and has already paid dividends and there's more margin improvement ahead for that. When I started, we brought in an M&A function. We didn't have that now we do. And we have an excellent person running it. We've had 3 acquisitions which I'll hit on. And finally, just as we all live in the world of ESG. We -- I think we have a good track record with our first report. So put our first report this year. So I feel good about that. And I think through 2025, there's a lot of value to create with some of the things I just mentioned. So I'll get more into it, but we're excited about the future. Just a comment about our Tier 1 status again, it might not feel right with the size of the company we have. But if you look at the left here, again, we're a leading manufacturer. We make things that are tough, complex, hard to make. We're not a machining house, we're not a touristic machining things. There's a thousand suppliers of machine parts. And that's not for Ducommun, that's not for me. 2020 so the net revenues, you can see on the right customers. We have excellent relationships with our customers. That wasn't always the case in the past, but it's much, much better now. And we're working with them directly, and that's what we want to do. We want to be in the room with top players and adding value. Then I mentioned about Tier 2 status, put a couple down here, Spirit Aerosystems, obviously, with the MAX and the 787, amongst some other products and then AVIC as well as a customer of ours through a Tier 2, but for the most part, we're Tier 1, and we're happy with that position. One of the other things I want to hit on just as far as our business, I think it's important for investors, the top left here is Raytheon Technologies is our largest customer. Obviously, it's the legacy Raytheon and the UTC companies, a part of the UTC companies. We entered into a strategic supplier agreement with them, a pre-merger in July 2019 and the reason I bring that up is that if you look at the -- our filings, they're our #1 customer, but we just feel like this is sort of our model where we're preferred, we add value. We can do significant share shift, which we've done with the TOW missile from an incumbent competitor. We deliver things that are obviously tough to make and we're benefiting from offloading. So it's more than just new programs. It's more than just share shift. Now it's also offloaded for Raytheon. So that's a big deal for them and for us. And the nice thing is we can do that kind of work. And you can see the franchises below. They're not going anywhere, okay, whether whatever your budget is TOW missile, Patriot, Tomahawk, SM2, the SM2, SM 6. So those kind of franchises. We're very comfortable, again, with our posture going forward on defense. Top right, I mentioned a little bit about UAVs. We were nowhere with General Atomics a couple of years ago. Now we're running as hard as we can with them. So we're thrilled to be with GA. Again, this was a share shift. And it's because we can perform. So we're doing great there. Northrop. Northrop was not really a player for Ducommun, now they're a top 3 customer and what do you get on these UAVs. And finally, we put this in there because we do have business in space. We know space is going to be a big platform or it is, but we're going to continue to work there. And I'll get more into that. The little note at the bottom right there about our defense programs, have 52 defense program, so over $1 million in net revenue in 2020. That was -- we had 34 in 2017. And you might say, well, how does that happen? Certainly, the budget went up, but it's really about our performance. It's about our business development approach, which we've fully changed when I came in, and it's really paying benefits. So we feel good about our relationships with defense primes, and we think it's going to be [ good ] for Ducommun's shareholders moving forward. Just a comment on Next gen. Obviously, people are interested in that. We're again, working a lot on UAVs, and we'll continue to do that. We're also in the room on hypersonics. So again, this is this Tier 1 relationship where we're working on things with defense primes and trying to help them build this important new approach as well as on rotorcraft. So we're legacy rotorcraft people, but we're involved with Sikorsky and obviously, Lockheed and other folks on the scout, which is we think it's going to be a real winner for our defense army customers. So we're working hard on next-gen as well, and we see some very good things ahead. Okay, a little bit on commercial aerospace. I talked about we're going to benefit from this reopening trade. We've got a high share in narrow body. That's what we like. Certainly, we'll take the wide-body work and we do and we'll take the business jet to work as well. We think -- we'd like to see it come back a little bit sooner, but where I think we're moving forward, you can see to the left here, we all know about the recovery that's going to happen, which is already happening domestically. RB, 737 MAX family is going to be coming back, I think, nicely in the 787 as well. I do want to mention Airbus. Airbus 5 years ago was not a customer of Ducommun and now we continue to build that relationship, adding value with our titanium approach and processes that I talked about earlier. We're really good at it and was sought after by world leaders. So I think that bodes well for our future. So more to come there. And I think just in general, we are positioned well because we're in the room with these folks. We have agreements in certain areas, and we think that as the build rates go up, we're also -- the way we have our factories laid out, we're lean, but we're agile. So we're going to be right there when these build rates go up, and we're excited about it. So I think a lot of good things ahead on the commercial side. I did mention about proprietary capabilities. And let me just say a few words about this. You can see the trends on the left, everybody kind of knows these. We think they all play to our strengths. And what we have right now in the company as well as what we're developing. In the middle, I talked about our platforms. I talked about our titanium business. We also have VersaCore Composite a core composite, which is something that we designed or we developed. Right now, we're in the cells on the LEAP engine for the A320. And that's going to be a terrific franchise for us in the future. These things are not easy to do because the LEAP already had their nacelle launched. So this is us coming in and replacing other products and being more competitive. So that's already in process as far as production. We still have a few more things to work out. But we feel great about VersaCore. It's lightweight. It's high-value, and it's strong. We talked about our electronic business a little bit. We have ruggedized interconnects and assemblies. So we're making things that not a lot of people can make and tough to make. So we're proud of that. We do proprietary products, as I mentioned. And then finally, we're pretty much an American manufacturer. We are doing things outside the U.S., but primarily, we're -- our footprint is here. I think the way we have the factories set up is -- there's a lot of contribution margin, a lot of scale ahead of us that's going to drive some real high profits. And so we feel good about our footprint and feel good about our design and our prototyping and the things that we do. Some on the right there's a little bit of a value proposition. But at the end of the day, it's really 2 things. It's that we're going to provide top value, so customers can run their business better and be more successful for their customers, and we're going to do it at a very, very high service low. That's it. And we're dedicated to that, and we're already demonstrating that. We're going to do more of that in the future. Okay. Just a little bit more about our business. As far as our franchises, the next level down, I talked about our missile business, circuit cards, actuators, interconnects, motors, actuation control units. So we do lots of different things. Again, this is a long-term franchise for Ducommun and we've been doing it for a long time and successfully. The military aircraft, I mentioned that as well, just to reiterate around these top franchises as well as, again, the UAVs. We also make light lightning protection products. We do RF, we do different things for cockpits. I mean we're involved in lots of things. And again, it goes back to is there value for the customer? Are there less competitors? Can we gain some competitive advantage? And can we use that to build Ducommun and help our customers be successful? And if it isn't, then we're not going to do it. So -- and I don't think that was always the case in the past with the company. I think that things were looked upon and pursued, which there was just really no value that Ducommun could add. And that obviously led to so performance in the past. So that's behind us. Our naval business is good, always working to get better. And we think overall, the defense budget is going to be supportive of naval, space and communications. We're really happy to be on the Mars Rover. We're proud of our work there and as well as many of the things we're working with Viasat now, which is our neighbor to the South and Southern California. And we're doing a lot of their things in the Midwest, at some of our factory, at least one of our factories. So we have a lot of good things happening in space communication. And then finally, on, again, the commercial business and also the business jets and those type of things. We're very involved in different types of production and products and decent aftermarket as well. On the structural side, the top left there, you can see, again, we have composites, titanium. We do all different types of chemical mill. We have a VersaCore, I talked about we also have a new acquisition for extruded thermoplastics for interiors. So I feel very good again about that. Our military rotorcraft programs. We've been with Blackhawk since the '80s and Apache as well. We've done a lot of different things there. So we're in great shape. And I think these new platforms are going to be in good shape as well, especially with the scout. So we're doing lots of things there. Talked about the missiles on the structures and something that we're doing. This is with Raytheon is the dorsal fins for the SM2. So we were always sort of an electronics value provider for Raytheon, and now we've kind of turned that on its head. And we're doing lots of things and structures, and we're adding value for them as well as generating great revenue for Ducommun. So that's something new in the last year or 2, and we feel that, that's going to bode well in the future. And then finally, our business jets. We're not on every type of jet, small jet, but we're on the major players, okay? We're on the globals, we're on the Gulf Streams. And one of the reasons we're honest because we make things no one else can make, all right? So we make titanium inlet ducts and things that are really, really hard to do. People come to Ducommun and we're proud of that. So we're on these major, major new planes like the G700, and we think there's more to come there. So we're proud of that work. Okay. Switching gears here a little bit to the aftermarket. Again, this is something we've been thinking about and working on. A lot of this has been a result of our hard work the last few years. And you can see in 2016, there was less than 10%, 7%, not great, but okay. Ducommun was a much different company now, but as you get into 2020, you can see our aftermarket as a percentage of revenue is 10%, so roughly 10%. We're proud of that. We are doing things that we haven't done before, such as blade repair for the Apache. So we're doing that. But the other nice things we're doing is we looked at our business that we had in 2016 in the last few years and we went with the right distribution, we went with the right partners. Things weren't looked at properly. And so again, we just turn things on their heads. I mean, we're just -- we're impatient in those -- these kind of ways. We need excellent partners and we need people that are going to drive our business. So we found someone that can do that. And so we've done that. And then the last thing is our acquisition. So and I'll talk a little bit more about that, but our acquisitions are helping drive our aftermarket growth. So we're happy about that. We're going to continue to build it. And we see very, very good things ahead for it, and we've come a long way already. Okay. Just switching gears a little bit on just our M&A. M&A has been an accelerator for us. I mentioned we brought in the M&A function when I started in 2017. I think it's been good for Ducommun and really good for shareholders. So just a bit on our vision here. So you probably hear this from a lot of folks, but we're only interested in sort of places where we could find some kind of value niche and we're obviously have proprietary products where we can, even processes, trade secrets or on configuration and blueprint IP. So you can see that, that's our vision for driving it. And we've done this the last -- I'll get into the deals in a minute, we've done, we've achieved finding these engineered products businesses, they have very good runway, and we're executing on it. And all 3 have been a success. So let me get into these 3 here. So our most recent one was Nobles Worldwide, and they make the shoots for ammunitions for all types of products, they're the world leader, second to none. I mean we do have some competition, but they're really a world leader. Nobles Worldwide, doing terrific jobs for us as they came in. The next one is Certified Thermoplastics. I mentioned that's extruded thermoplastics for aircraft interiors who do some other things, but this is primarily we try to focus on A&D. And we've had a lot of success with Certified Thermoplastics. And finally, the first deal that we did when I came in was Lightning Diversion Systems or known as LDS. And again, world leader in lightning protection for radomes, for all sorts of electronics in aircraft and defense applications. So I mean, we're 3 for 3. So it's great. I think, for the team, it's great for shareholders. Certainly drives our margins. These are all accretive and certainly turbocharged the business a bit. So we're actively involved in more. I hope to have something in the near future. But as we all know, these things are opportunistic, and there's a lot of competition. I won't spend a lot of time on this, but this is our total shareholder return over the past 3 years going into 2020. And the nice thing I'd say about 2020 is that certainly, we all went way down in March and April, as everybody knows in 2020. But I think the business showed its strength and we have excellent operating executives here that know what they're doing, okay? So that's why we're able to still have a good year and the stock price reflected it. So I think that's a nice job. And that's against our peer group. I think we're -- I think we're 86 percentile, says down here out of the Russell 2000 over the 3-year period. So that's, I think, a good start. Our financial profile, again, for those folks that are not following the company right now. You can see our final numbers for 2016 as far as market cap enterprise value and then how we ended up after a couple of years of work in 2020 and the changes so we had a lot of work to do. A lot of pulling and a lot of change and culturally and every other way. But I think the team has responded. And I think we're certainly on our way. You can see our net revenues for that time as well, as you can see the EBITDA and the margins. So I think that's all very positive for investors going forward. I think it's a really good track record. And here's our financial performance on Page 17. You can see our gross margins continue to go up, productivity, product mix. Let me just mention about one thing on pricing. I mean we're -- we're not shy about pricing things where we add value. And one thing investors need to know is that I came from a corporate background, large cap, I also came from private equity. And my last job is in private equity running something for KKR. We eventually sold for $2.5 billion, and we were very successful there. And again, in that business as well as others, we price for value. So I think that's reflective in the gross margins as well. We're just running the company better. And you can see the EBITDA margins adjusted and the op income margins adjusted. So I think overall, a good start the last few years and a lot more to come. Okay. We're going to finish up here in a minute or so. We can do the Q&A, but let me just hit on our backlog you can see we've had a nice run. 2019 was the high mark here for the company. And then obviously, 2020 with a lot of commercial aerospace headwind, but we did have -- we have an all-time defense backlog at the end of 2020. So we're proud of that. Again, how does that happen? I know that a lot of people might think, well, all boats rise at high tide, and that's true. But it's much more than that. I mean we really -- our service levels are so much better in defense. Our BD team is working now within the P&L, versus before was a function. Everybody's held accountable, and we're out there in the rooms driving value, and we're being rewarded. So that's how you get to the number. Okay, so that's just, hopefully, I know that's a high level, I know that you're hearing lots of thanks today at the conference. But hopefully, there's a few things in there of interest to our listeners. I thank you for your time, and I'll turn it back to Louis.

All right. Thank you very much, Stephen. That was a great overview of the company. As a reminder, you can enter questions. And we have a few in the queue right now. So I'm going to get started. So Stephen, you had to make some tough decisions over the last couple of years, 737 MAX, pandemic. As you start to ramp back up and bring employees back, how is that going? Do you see any problems or issues with bringing employees back?

Yes. Well, thank you for the question. And at least at this point, I do not. I mean, we're -- I think there's a couple of things. First, we consciously held on to our top people, okay? So obviously, we did have some layoffs because if you don't have orders, you can't just have people standing around a factory not doing anything. You can only clean for so many days, right? So we had obviously say goodbye to some folks, but we did it totally just do everything we had to save every penny. I'm not going to do that, and that's not smart. So we knew we'd get through this thing. So we did -- obviously in titanium and other things, we kept a lot of our good people. And we just carried what we could and we did. And the way we're situated as far as in the Midwest and I think our pay practices, we're very -- and this is something I brought from KKR private equity, where we're very bonus focused culture. So we're pay for performance, people like that. We're in a good place to work. We run a clean shop, for the most part. We always try to do our best. We reward people for success. And I think that we're a fairly attractive employer. And we're in some small towns, but word gets around as you probably know that we are the good places to work and whether or not. So we feel good about it. We should be okay.

All right. Great. Thank you. So another question here. You mentioned UAVs, how are you thinking about Urban Air Mobility or EVTOL, the emerging markets you see there? Are you involved? Do you want to be involved? Any thoughts you guys have?

Yes. Well, thank you for that question, too. Yes. That's sort of our next phase. We're -- overall, we're not involved. We're kind of still catching up on some of these things. I mean I think our UAV franchise is something that we're already very proud of, and we're just doing some great things there. But that's the next step. I mean I think that we could do some nice things in electronics there, though we have to learn more. And then I have to see exactly what the structural play will be. But as I mentioned, with VersaCore and some other things, we have some really pretty high-value but cost competitive processes that we can maybe help with that. And I think that, as you all know, if it's going to be a commercial aircraft, it's going to be very competitive. So but we're -- that's our next step. So stay tuned.

All right. Great. So you had a slide in there on aftermarket. You've grown it from 6% to 10%. And obviously, all these 2020 numbers you put out there, they're impressive and even more than it was 2020. So as you think about aftermarket, is that mostly within electronic systems? I would guess, is it mostly military versus commercial? And do you have the same margin dynamic, I guess, that you hear from other aftermarket plays?

Yes. So, yes, we have similar margin dynamics. It's that's all disclosed. But yes, it's a very good business for us. I'd say it's a mix. I mean like we view our Nobles business is structural on electronics. So -- and that has aftermarket, okay? A lot of the other stuff is electronics. So we have legacy things from -- on the defense side that we've been doing for 15, 20 years that we still do, and we're still successful at it. But our new stuff is sort of a mix between structures and electronics. So a little bit of both.

All right. And so sort of just going down some of those other slides. Obviously, the M&A function, it's been increasingly important and to you guys and many others in the space. Do you guys have a preference for military versus commercial or even digging deeper just to specific product areas?

Yes. So look, we're -- first of all, I just -- we're open to -- we're always looking to learn, okay? So I'd say that's the first thing, okay? So we don't have all the answers here. So if we get a book and it might be something interesting, whether we go through the next stage or not with an acquisition, we might look at it, right? So -- but we're A&D players. We lean more towards defense on A&D. And that's just -- there's just more properties out there for that, at least at this point. We're not really -- unless there's something that really blows us away, we're not extremely interested in structural businesses. I mean -- and that doesn't mean a company like Nobles, which is a lot more than just than a structures, part business. It's a fully -- it's a full OEM. We'll run after those things, okay? But we're probably leaning more toward defense. We're probably leaning more towards electronics. As I mentioned earlier, we have our sort of vision and mission and we're pretty disciplined about it and more to come. So if you look at our last 3 deals, there's a lot of common characteristics, and I think that's something that you'll continue to see.

All right. That's great. So obviously, a big area, you did cover to some extent. But in 2020, you were 2/3 defense. You said you are more of a defense. You lean more that way than aerospace. Defense budget flattening, to some degree, maybe it's up a couple percent versus 5, 7 you see all in the past. You mentioned naval still has probably a good growth pattern from here. But any highs or lows that you'd point to from the defense budget most recently?

I think, obviously, Biden has his budget out now, and it's got to go through committees and everything else, right? So we have to kind of see where everything ends up there. Obviously, the President's budget will have some sway. So we'll have to see kind of what's happening. I think the story for to comment is that is a couple of things. First, we're involved in the R&D aspect of it. We're involved in the new electronic aspects of it. I mean there's a lot of things happening, which are not going to be cut, so we're good there. I think we have a nice franchise in F-35 and other things and Apache and those types of things, which, okay, might, at least maybe the Apache here some might take a haircut a bit, but we're still sole-sourced on products, and we're still going to have a really good business. I think the thing that investors need to consider is that our value and position in the market. And one of the things you're benefiting from as your share shifts. So last year or 2, we're getting major business from competitors, okay, because we're doing a better job, frankly. And the second is offloading, okay? So we're benefiting. You might say, well, budget is flat, it's not going to be great, but the budget could be flat, but there could be primes and they're doing it, offloading products out of their high overhead, high cost shops to a small Ducommun operation, which is very lean in Kansas or in Missouri. So I think that's a theme. We're seeing it. We're living it. I think it's going to continue. And it's just up to us. I mean, as you know, performance -- high-performance is a wonderful thing for repeat orders.

That's one of the leading drivers realistically if you can deliver.

Exactly.

So I guess, how much of your business is -- how do you see the overlap between the commercial and the military business? And do you see any -- we've seen some of this in defense about sort of using commercial technology, bringing that over. Is that an area you're involved with?

I think that we are -- we have synergies, maybe not so -- a little bit on the electronics. I would say it's more like it on our titanium business, okay? So we have these -- and we have these processes, they're certainly held secretly where we can do some things that are very unique and we do within the company, but we do it both for commercial and defense. So it kind of comes across both platforms. And so we do, I think, or build our teams around that strength and around that focus. I think that on the electronics side, we're more -- I think we're more supporting those types of moves than driving them, okay? Because that's just our position. I mean we're working with primes and other folks that might be taking commercial and moving it into defense. And we might make the cars, we might make the interconnects, we might make the switches, we might make those things. But we're kind of -- we're riding in the second polar -- second position, okay, as far as, I think, on some of the technology transfer. And we're okay with that. I mean we know who we are. It's important that we stay grounded. We're not going to go off and try to be something we're not where we don't have strength because it's just because of ego or something that it doesn't really make any sense to me. So we're going to -- we stay -- we like to certainly take some risk and we do, and we will to a thoughtful level and just support the industry. And if something comes our way, great.

All right. Great. So I guess I switch back over to commercial for a second. Obviously, that's the -- it might be the smaller business right now, but obviously, it's the recovery trade, it's driving a lot of questions. So Airbus put out some, what might think are arguably aggressive production rates. Are you guys capitalized to go to these 64, 75 in the middle of the decade? Any comments you've got there.

Yes. That's good. Obviously, that was huge news, I think, for the industry, right? And a wonderful news, a real shot in the arm. I mean it's not going to happen tomorrow, but for Airbus to say that I think that was wonderful to hear. And for investors, and I'm sure folks don't know this, we put in a couple of years ago, probably $25 million plus of capacity in our titanium and structural businesses, okay? So we did that early on when we started talking to Airbus and taking on some of their business. So this is sort of post 2016. We signed an agreement, and then we started going and then I came in. And we had some growing pains, obviously, because you have to configure your operation and your mindset to Airbus' expectations. So you had some couple of years there of development. But -- no, I feel very good about where we are with this run rate. We might need little -- look we might need some -- we probably going to need some capital, but nothing where it's $10 million, $20 million plus. I mean, we already have the tanks, and we have a lot of things already in place. But we're proud to be with Airbus. I mean just from -- this is Stephen Oswald speaking. I mean, I think for the most part, those numbers are real as far as where their backlog is. Whether all their suppliers can support it, that's another question, okay, right.

That's the key thing.

That's the key thing. I mean we're itching to get going. So we feel good about where we are. And let me just mention a Boeing a bit just because we're on commercial. Look, Boeing is been our customer forever. And we want to see them be hugely successful. I know they've had lots of problems, but we're shoulder to shoulder with them as well as far as making sure we support them. We have really nice positions on the MAX. We know that's going to come back. We do need to work as an industry here on the whole China question, okay? I think that's a big deal for Boeing, and I think that [indiscernible] just trying to get that out there. And I think that everybody in Washington and everyone else, I'm just going to mention that a minute. We have to -- we need to come up with some solutions there because it needs to be at the front because Boeing is -- that's a big part of their book.

Sure. Biggest exporter in the country, right?

Yes. So hopefully, better days ahead for them. It's all the same.

Yes. So actually, just to sort of wrap it up here and just to stick on that topic internally from Ducommun, the products you make on the 737, the products you make for the A320, are they done at same facility? Is it something where you have the ability to flex one way or the other, depending on what that customer demand looks like?

Yes, that's a really good question. It's multiple. We're not -- so if you think about Ducommun, we have 10-plus or 12-plus facilities that are distributed around the Midwest, okay, and in Southern California, that's our legacy base, right? But they're made in multiple locations, okay? And if you think about our business, I mean, we have some very profitable companies, very low headcount. We might go up to 350 at some factories, okay, people, that's about it. And we kind of like -- we're very focused on, okay, this is your role, get up every morning and try to make the best titanium product for [ Airbus ], day after day after day. So we really focus in on -- we don't have a factory with 1,200 people that has 5 product lines and is unionized and all those types of things. We just -- we're kind of -- we're sort of smaller and we like it because we think down the road, the scale is going to be a big deal for investors and for the company.

All right. Well, with that, I'd like to thank Stephen for joining us today. Everyone joining online as well, thank you for joining us. And with that, I hope you guys have a great rest of your day, great rest of the conference. Thank you again, Stephen.

Thank you, Louis, well done. Good to be with you.

You as well.