Ducommun Incorporated (DCO) Earnings Call Transcript & Summary

My name is Keats Saxton. I'm the Executive Director within the UBS Global Industrials Group by Leader Aerospace and Defense coverage. I have the privilege this morning of introducing our speaker, Stephen Oswald, Chairman, President and CEO of Ducommun. Ducommun is a Tier 1 supplier to the commercial aerospace, defense and space markets. In terms of the order of events, Stephen has about a 15-, 20-minute presentation. And then we're going to pivot over to Q&A. So without further ado, Stephen, please?

Thank you very much. Great to be with you. Okay. Good morning, everyone. Thanks for your time. Again, I'm Stephen Oswald, I'm going to march through these things pretty quick, and then we can do some Q&A and go from there. So first, Ducommun safe harbor disclosures. Okay. A little bit about the company first. You can see on your top left, if you look at it this way. We came in a little bit over $700 million in revenue for 2022. EBITDA margins, a little over $13 million. Backlog right around $1 billion. Our revenue by end market is pretty much leaning more towards military and space still. We had a tough time, as everybody did through the COVID, MAX shutdown, 787, you know the story. So our business shrank a bit on commercial. But it is coming back now. I think that will certainly find its way commercial to 40%, 45% here in the short to midterm. So that's going to balance out a bit. Our proprietary products, we roughly run about 80%. That's not only our engineered products with aftermarket, but also our titanium operations. We call them manufacturing services. So we have a lot of things. Either we own the blueprint, we own the configuration, or we own the manufacturing know-how. Getting back to commercial, just quick. Got a very good story on narrowbody. As you know, that's more and more going to be a big story in 2024 and 2025. We like our widebodies, we like our business jets as well but narrowbody is a big play for the company. If you look at our product line, military aircraft, we're on all the big names as you've seen, I'm sure, through your other meetings, JSF, long-time Apache supplier, we're on all the major commercial aircraft bodies, really good business on A220, which is really coming up now. As far as our missile and radar business, we're really at the forefront of electronic warfare. So if you think about the trends in defense and where things are going, we're certainly not making the arm events, we're not making the radar systems, but we're making the things that go into it. So we're making the circuit cards, making the harnesses, lots of things on electronic warfare. We're in many, many different types of applications, and we're proud to support the defense department. And then space UAVs and ground vehicles were more and more into that, and we can talk more about that in Q&A. We have a wide range of customers. And as mentioned, we're pretty much a Tier 1. So for a small cap, that's -- I think that's pretty good. You generally have a lot of things in front of you when you're a smaller company, but we deal directly with Boeing, Airbus, Raytheon, Northrop Grumman. So we're in the meetings, and we're right there with the top players. Just a little deeper on our business. You can see we break it down really by electronics and structures. Our electronic systems is a little bit bigger. It has a lot to do with our defense business, but we really make things that are either ruggedized, hard to make. We don't want to do things there's 20 other people in the lobby that can also make it for a customer, okay? We're really sort of focusing on niche manufacturing applications. We don't do machining, so we don't have a big machining business. We really just do things that are very few players and where there's some pricing power. And you can see the customers at the bottom there. On the structural systems, we do make structures. I know in a lot of ways, it's a bad word for investors. There's a lot of heart break in structures from lots of other companies in the past, but that's not so much with Ducommun. We're really just interested in doing things like if you think about titanium hot forming, there's like 3 people that can do in the world and one of them is Airbus. So there's very, very few people. That's what we want to do. We want to make sure we stay where there is really niche applications. We do a lot of things now for the Feds with our acquisitions and ammunition handling systems. As you can see there, we're in the steel business now with an acquisition. We're in many, many different things. So -- and at the bottom there, you can see some of the customers. So overall, again, the story for Ducommun of our small cap started with higher aspirations coming out of a tough environment in '20 and 2021 and somewhat 2022. But we're certainly on our way and we'll talk more about that. Here's a little bit of our revenue history. I came into the company in 2017 at the beginning. It was a bit of a mess and was a turnaround story. We started to get going a little bit, have a lot of things to fix. A lot of things to do, including an M&A strategy. We started on our way in 2019 and then obviously got hit pretty hard in the last couple of years with COVID as I mentioned and other things. But now we're on our way back. I think this year, we're pegged at like $760 million or $770 million in revenue. So we think that's a good effort, and that's kind of where we're heading. Again, we're increasing our diversification. One other thing I'll just add is that if you look at our numbers in the last 5 years, yes, the numbers were down for revenue, but our EBITDA pretty much held. So despite going from $721 million to $629 million, we pretty much held EBITDA through that time, and that's -- I would say, well, how can you do that? How does that happen? Because you're not set for your company, you don't have many things. But I run the company lean. So we didn't have that major restructuring. And we're good with pricing power, and we really leaned in to the Fed. You can see our defense business in 2019 to 2020 went from $324 million to $423 million. So I believe we're good operators. Here's a little bit of our journey. I said I came in early 2017. I won't go into too much of this, but certainly increasing our market cap. Revenues were up, obviously. The EBITDA is important number, and I'll talk more about that. Your end markets where we were in commercial aerospace and where we are now. And today, we're just much better. And we have a plan now for the next 5 years, which I'll talk about, hopefully, you'll find it interesting. Just some of the key investment highlights that we like to talk about. Certainly, when I came into the company, we were very, very low on engineered products and aftermarket, and I told the Board, I said, you can't have an aerospace defense company without an aftermarket business. It's just -- that's not an aerospace company. I mean you don't have an aerospace -- aftermarket business. So we got busy with that. We're buying companies. I'll talk more about that. We've got a lot of cost reduction initiatives underway. I think that's going to help. I'll get to that. We're good at M&A. So when I came in, most of my background is large cap and I work for KKR and private equity. And so we had a very successful sale and then I came to Ducommun. And I brought somebody with me who's now my CFO, Suman Mookerji, who's excellent in M&A. So we've done 5 deals now, and I can talk more about that in Q&A, but they've all been very, very good. I said we're a Tier 1. I think we're well positioned for the commercial aerospace run-up barring any disaster that might come our way again. We think we're in good shape there. Our defense business is good. We're a bit down last year, but we had a great run in the last couple of years, but nothing to worry about there. I talked about manufacturing services are very good a niche, and I think we do a good job with ESG. Just a little bit more about our M&A and proprietary products. You can see at the bottom there, we have grown our revenue from 9% to 15% over the last 5 years. And these -- when I talk about proprietary products, these are configuration control. This is not the build-to-print business. okay? This is where we own the aftermarket. We own the products; we own the engineering. So we've done a fairly good job. Our target is to get 25%. So if you think about like HEICO and my friend, Eric, and what they've done last -- we're about 20 years behind them. But that's sort of our long-term view. I mean -- but I think we've got a lot of the things to make that happen. We're going to get to 25-plus percent in 5 years, I believe, and hopefully more. I talked about the aftermarket 6% when I came in. Not so great. And we got the 10%, which is not easy. Everybody wants aftermarket, right? You have everybody who said up here, aftermarket. Everybody wants aftermarket. And so do I. So we're at 10%. We're going to get to 15% plus by 2027. Well, I like it higher, yes, but we've got to make sure we're straight with investors. We think that's a good number, hopefully a little bit more. At the top, you can just see the acquisitions we did just 5 of them. The ones that don't have the yellow above it, that's what I inherited when I came in. So bought 5 deals. We spend about $350 million since I've been here, we've disclosed that we've reduced the multiple by 4 since we bought these companies. So -- and we don't -- we're not paying 16% times -- 16x. So we've done a really nice job with all of them. Our last one we just bought was the aerodynamic systems. We just bought that closed on that in April. My biggest acquisition since I've been here, $115 million. And we can talk about that in the Q&A. I'm also shutting down factories, so we're rationalizing things. So we have -- and I'll talk about we have a commitment to improve EBITDA margins by 500 basis points through 2027. And there's some one of the ways we're going to do it is we have some massive factories that have been with Ducommun forever, that for one reason or another just aren't where they need to be, and they have no future. So unfortunately, we have to close them. You can see 2 factories right now in Monrovia, California, which is like an aircraft carrier. That's a huge plant, and Berryville, Arkansas. So we're closing them. We're going to sell the properties. I think that's going to be nice for investors. We sold the property about -- I don't know, 16, 17 months ago for over $140 million in Gardena, California. So right near our headquarters. So we have -- we're the oldest company in California. So we have a lot of this real estate that I inherited that we've owned forever. And so we -- that was a sale leaseback. This one, we're just going to sell. So we're getting out and we're going to move a lot of this work to Mexico. We got a really good operation in Mexico. So stay tuned on that. That's going to be a big win for us in '24 and '25. Talked about M&A. We are spending shareholders' money, I think, wisely. We have a double-digit ROIC for every deal that we closed after 12 months. And again, the 4x multiple reduction you can see there. So lots of good things happening. We talked about Tier 1, talked about our customers. We do have some Tier 2, and we're happy with that, our friends at Spirit Aerosystems and other places. So we're fine as a Tier 2 when it's appropriate. I think, again, on the commercial aerospace side, you guys know the story here, right? So everything is, I think, pointing in the right direction. I know we got some bad news on the 787 yesterday or the day before, I was traveling didn't and catch what it is, but they got to do some rework on the 87, nothing too big, but never ends, right? But hopefully, we'll come out of this thing. And certainly, the orders are there. I'm off to the Paris Asia. I'm sure you are as well or some of you are in a week or 2, and I'm sure it's going to be the best air show order situation we've had in maybe 10 years. So all good things. Let's just hope we get through everything positively and safely. So Boeing has got their act together. I feel. I couldn't tell you that 6 or 12 months ago, but I was just up in Everett for their big supplier [indiscernible], with Stan Deal and the team, and they certainly got the orders. So they just need to make sure they deliver. I think they will. This extra MAX assembly line they're putting in is going to be a big lift for them. Airbus. Nobody has bigger aspirations in Airbus with their production. We'll see what happens. But Airbus is a very good customer of ours, fairly new, believe it or not, we didn't do anything with Airbus before 2017. So I know that's -- it's hard to believe, but we are there now. So -- and you can see some of the shipset values below. Defense business is always going to be, I think, decent. I know there's some churn right now in defense and some concerns and where things are going. But our defense business, I think, is really strong. We're across lots of platforms, both electronically, which is really a strong point, but we're doing more in structures, and we're doing a lot of this offloading. So the story for the comment is we're really good at making cards. And this is just not cards you have for automobiles or other things. I mean we're good at making real tough things. And so Raytheon and other companies are saying, why are we making cards in our internal operation. And we have employees, and we have overheads and everything. So we benefited from that. So we're picking up more and more of these kind of offloads. We make them in Oklahoma, make them in a really lean operation, robotic shop, and it's a win for them and it's a win for us. So good stuff there. And we continue to support the new platforms, hypersonics, other things. Raytheon, obviously, is the lead in that, along with Northrop, and they're great friends and they're critical for our future. So all good things there. We talked about the manufacturing services, which is a big part of our company. You can see the titanium business. I won't get into how you [ bought ] titanium at 1,600 degrees. But I would tell you that it's hard. And what it's hard, you get paid because a lot of people can't make it. So that's good there. Certain cards have talked about box bills. You can see very robotic, which we really like. We make interconnects. We call them ruggedized because they're, again, very difficult to put together. We do a lot of stretch form and chem mill for structures. We just picked a big order from Spirit on the MAX. We can talk about that in Q&A. And we do composites. So VersaCore composite is actually something we own. It has a legacy of 10 or 15 years ago, were making surfboards. So I'll leave it there for that because we're a California company, but it's a true story. So surfboards to the south. So VersaCore, you can see at the bottom there, some of the highlights. I talked about ESG, just mentioned, we're doing our part. I know that's important for investors, important for your investors and your companies. We do over report, which is pretty good for a small cap, lots of folks don't have a report. We do and we take it seriously. We talk about it and we try to do our best here. So I think, overall, we've come a long way since 2017 in my opinion. Okay. The outlook. Last year, we did right over 10% coming out of a tough year with a pretty easy compare in 2021. So I think that's a decent job. A lot of churn last year as well. I'm sure you've heard from other CEOs, it was still not great. This year, it's better and better. We're going to be mid to high. Looks -- I'll talk more about that in my upcoming earnings calls, but I think that's going to happen as well. You can see on the right all the reasons why, very strong backlog, lots of things happening. We're going to build these -- we're going to run up with these build rates. So that's going to be really good. And -- so good stuff on the revenue side. Here's what you can expect for 2027. We presented this at our Investor Day in December. And you can see here that we're going to work towards getting to $1 billion in revenue. We think that's in the cards. We were hoping to get that. If you take out the MAX, the Turbo Max crashes and COVID and everything else, I mean, we'd probably be about $875 right now, coming off of 2019, $850, $875. So we're not there, okay? But we're going to -- we kind of regrouped. I think $1 billion is a good start for us to get to where we want to be. So we're going to make that happen. And then the EBITDA margins and the op margins are also a really good story. And it's not just we're going to get scale or we're going to -- and that's part of it, but these major restructurings we're doing with these factory closures as well as the acquisitions that we're going to buy in the next few years, that's going to get us to the 18%. So it's a big number. I know but it's in the cards, and we think we're going to get to it. So a lot of reasons why, so we can talk about that in Q&A. And I think I'll leave it there. So thank you for listening, and I'll join you, Keats. Thank you.

Steve, that's great. Thank you so much. Great update on the company. Congrats on emerging from COVID seemingly as a stronger company, and I think you're one of the few. You took the right actions through COVID, so you're well positioned now for the recovery. Just a reminder for the audience, so you'll see a QR codes on your table. Do you have any questions that you want to submit to Steve, please scan the QR code and submit, and I'll receive it on the iPad up here. Steve, I want to spend maybe a few minutes talking about some of the core markets. You referenced some of the share gains on commercial aerospace. This is with the fuselage skins on MAX. Maybe give a little more context for what does that win? What does it mean for the company? Are you concerned about -- you referenced it a little bit, but are you concerned about some of the disruption at Spirit on the tail finish issue. The news you mentioned on 787. So...

Yes, great. Thank you. So first, Spirit's going to work through this tail issue, okay? They have -- the most important thing is to have a fix, okay? So they figure out what they have to do to fix it, which we all want, right? They're all flying planes. So they have the fix approved. So that's the big deal. So now it's just a matter of doing the work and the cost and everything and Tom's a friend of mine and we're great partners together, and I wish them well, but they're going to get through this little problem. And there might be a little structure on the back end, but I think the front end is going to be fine, okay? The 787, the news, I just saw that. I don't -- again, I don't think that's going to be a huge issue. So I think we're going to roll through that okay. Nothing like we had in the past with the 787 and these issues on the skins. As far as our content, we -- I talked about this. We just -- so we make all the fuselage skins for the A220. So the A220 is the open part CSeries. And now it's Airbus, right? All of a sudden, became Airbus and everybody wants it, right? Nobody wanted beforehand. We don't care, right? We just want to sell, right? So we make all the skins, which is a big job. So Tom and Spirit, they came out to visit us and we went through the plant to make the skins and they realized, "Hey, we can work with to comment on this as well." They make all their skins in-house, okay, for the MAX, which is huge, right? I mean that's -- I mean 50 a month or whatever. So we filed after these things take a long time, 14, 15 months, we probably got an order on skins for the MAX. So we're going to start making skins for the MAX, which is a huge lift for us. It's less than 5% of the fuselage. So there's lots of ways to go. But the nice thing that because they're good partners, they said, "Look, we're not going to take you on dive, okay. We're going to give you 15 a month. You start making it." I mean even though it's internal operation for us, we'll just kind of -- we're working on our end. So we're starting to build the tooling now. We're going to have that commercialized by the end of the year. And that's going to get us up on our ship rates, okay? So right now, we're $175 million. So that's -- we think we're getting it close to $200 million , okay, in a ship rate or maybe $185 million, but we're going to keep getting there. But the good news is it just tells the story of -- and I talked about this is that very few people, at least on the build-to-print side, the manufacturing service side, kind of do what we do. And we like that, right? I mean there's nobody else Spirit given skins to, but us. I mean not give it to Triumph and not give it -- Tom said they give it to Ducommun. And we have a relationship, they trust us, but the most important thing is we have the machines to do it. So I think it's all good for investors. Again, I talk about this a lot, but all this titanium work and everything else, very few folks do that stuff. And that's what we want, and that's what -- it's investors that [indiscernible] as well because this whole machining thing, there's 50 people that can do 5-axis machining. They're all quoting on the same work. So it's not margin very low. So I think it all works well.

So on the topic of titanium hot forming, that was a topic of discussion at our conference last year. Chris spoke about it. I know it's been a big focus for you. Just give us the update on that capability. I think you get some big news from Airbus recently.

Yes. Well, look, when I came in, we were just getting started with Airbus and nobody told me that in the interviews, right? What's going on. We don't know what Airbus. There's only 2 people, but they get us started in 2016. So I got into 2017, and we kind of got going with them. And believe me, it's very, very hard. I mean, it takes a very long time to build relationship with Airbus. I mean it takes a very long -- so we finally got to the one...

Especially as a U.S.-based company. .

Absolutely. Especially when we're considered a Boeing house forever, right? And I mean -- so there's a lot of tricky things, but you know what, can't say enough about the Airbus team. They went all in. I mean, obviously, they were nervous, but they taught us what we needed to do, right? So -- but we just got this major award in Telos in March that one of the top suppliers in the world for them for our titanium operation and you have to understand, Airbus is the most -- we feel the most sophisticated sourcing, okay, in the world as far as on the aerospace side because they have EI-PRO, they have all these things. So they go out to everybody in the world. I mean you're truly quoted globally. So for us to get an award like the top award for titanium, one of the top awards, a big deal because they're working with everybody. It's just not some American-based companies. So we feel great about that. The story for Airbus is they have very high aspirations. They do make titanium in-house. So that's how we got it because they looked at their operation and said, "Hey, we're never going to make it. So we need to get other folks to make titanium as well." They do SPF and they do hot-form in Telos. And they used to do everything, right? That's the old European way, everything is in-house. So we're benefiting from that. And when they get up to like $65 million or $70 million, I mean again, this is 2019. Customers just come in and say, where is my part. They don't come in and say, let's talk about price. They just come in and say, "Hey, I need my part, okay?" So...

Maybe one more on commercial. And I guess it spans some of your other markets, too. But on supply chain, I think you and Suman made comments earlier this year that you're still seeing challenges on supply chain, labor. It sounds like you guys are navigating it successfully. I mean, what are you seeing currently in the market?

Yes. Look, it's still tricky. I mean, you'll hear it more from the big companies. We tended to -- and I'm not happy about inventory levels either, but what we did was we tended to go ahead and buy extra titanium sheets and some extra on the circuit cards, we do a lot of circuit cards. So we have a lot of issues there. But we're able to manage it. We have very good supply chain people. We did buy ahead. We're not going to live always that way, but we did that consciously to make sure that we recovered. And it really kind of paid off for us on the customer side. But you're still -- for us, it's like we can't build something because there's an adhesive shortage in the industry. I mean in Boeing short adhesives, and those pockets still that we're coming out of it. Now we're going to -- hopefully, that's going to go away at the end of the second quarter. I think the big player is going to be engines. I used to be in the engine business. I know how hard it is to make it, not only hard to build in it. It's hard to get all the parts. I mean there's so many parts and you can't build a head of an engine. If you don't have a bolt, it stops. And I used to work at Pratt for 6 years. So I have a lot of scars from that, but anyways . So the engine business is tough. Believe me.

Now is that -- does that create an opportunity for Ducommun to take share? I mean are you seeing competitors still struggle with on-time delivery with quality? I mean is that an opportunity?

Yes, absolutely. We've benefited already from these inventory levels. When I came in, our quality and delivery was not great, okay? I mean and that's one of the reasons why our defense business gets built up and you say, "Was that an acquisition? How did you get all that defense business?" I said a little bit was, but more about it was in 2017 and 2018, we fixed a lot of things. So our customers started to trust us more, okay? I mean the customers can't trust you, they're not going to give you the PL. So we were able to kind of turn that a little bit, get the trust going and kind of roll that through. But we benefited, we've -- look, customers come in and they don't like the price. And you say, you know what, this is our price. I mean we're we can't. so they'll go out and they'll shop it and they'll bring it to someone else. And they'll be like, "Hey, I got 30% less on this, great. We are moving the work." And guess what happens a year later. They come back, say, "You know what, it didn't work out. Can you guys help us out?" And of course, we do, right, because we're partners and everything, but that's some of the things that's what happens in the marketplace. So you not only have share shift, but you also have -- when you have to just hold the line on price, which we do, okay, unless it's a real strategic situation where we have to take care of a big time partner. We do what we can.

Sometimes we get pushback on banking fees, too. So we can understand the writing pressure. We try to operate from where we can.

Good to hear. Hold the line.

Hold the line. That's right. So you talked about defense. Maybe it's a good segue to go to defense. So talk a little bit about focus for the defense business, what are going to be the key drivers going forward, biggest opportunities for growth?

Yes. Well, look, I think overall defense business, I mean, break your heart to see what's going on in lots of the world here, but this is where we are, right? So we're going to have to -- people say, Washington's broken. Washington isn't broken on the fence, okay? So I spent time with the Armed Services Committee members and the house and other folks. I'm not friends with them, but I'm in the room with these people. And they're all friends. I mean, they're all -- they all know like, hey, we're on this competition. There's no fall around here. It's not like you're going to fight over sewers or something like that. I mean this is -- the first job is to protect the country. So I think defense budget is still -- I just sort of know today Boeing budget, whatever went up another 3%. So no one is going to -- unfortunately, no one is going push back on that. So they say, okay, next level down, where does the common fit in? Again, it's this electronic warfare, okay? Electronic warfare, radar, connectivity. I'm not even going to get to machine and machine learning as that's a whole another AI that's -- we're not in that game yet. But just in general, electronics is where we play in defense. That's our -- that's really where our electronics business is. And that's -- we like that, okay? We're not in commercial or business jets, not too much in electronics because there's no money there. And I mean it's really, really -- it's brutally competitive versus defense, at least they want to buy in the U.S. I mean, you have a lot of things that you have to do. You have to have DFRS, you have to have all these things. So there's a little bit more of sort of a little bit of a moat in electronics, defense versus commercial, forget it. Everything is in Mexico or a lot of it is. So we're navigating that. The other thing I'd say is that we're with the right players on the new stuff, right? So Raytheon is going to do the hypersonic, right? That's what they're going to do. And they're our #1 customer. And the missile defense business is like our #1. I know Boeing's coming up now. But we have a lot of relationships with them. Again, what are they going to come to us for, they come to us for cards, right? Cards, cables and these interconnects, okay? We need box builds, we need things like that for electronic warfare. And that's what we do.

We'll say we had Admiral Jon Greenert, former CNO. Remember the Joint Chief of Staff on the stage yesterday talking about key defense priorities, and one of them was electric warfare, EW. So you guys are aligned on that...

Yes, that were absolutely aligned. So that's -- and one other thing I'd just say is that because -- when I came in, a lot of people didn't know what we did, right? They said, "Okay, you're structures, commercial aerospace structures company, okay, you're Ducommun. We do a lot more than that." But over time, we'll be able to kind of convince people and show that, look, we can do structures for fighter jets. We can do structures for UAVs. We could do things outside of just the MAX and the legacy of Ducommun. So we've been able to do that, too. So I think not only electronic warfare, which is the biggest one. It's also -- I think we have some decent traction now on defense restructures, which is actually -- again, it's a good business.

To make it more tangible for folks to talk about what's going on in Ukraine, the fear of the potential conflict between China and Taiwan. Are there certain systems that are now in heightened demand where there's a direct kind of pull-through for Ducommun products.

Yes. Well, the first one I think is SPY-6. So the SPY, the Spyder 6 is the radar for the U.S. Navy. That's when we're in the Pacific and we're going to hopefully never have to deal with some kind of warfare in the Pacific, okay? The radar is Spyder 6, okay? It's made by Raytheon. It just came -- is a new one that just came out. We are now going to take all the cards on that. So that's that offloading thing, okay? So they used to make everything in-house on those because that's -- the SPY 6 is the radar system for Raytheon. So they're not going to give it to anyone. But because of our relationship and we've been with them a long time, and I've been in the company for 6 years now, we started picking up some of those cards. And that's a huge, huge endorsement for our company. We're in a company like Raytheon, which is the U.S. Navy, that's their radar system, nothing else, okay? Nothing else, okay? They give us those cards because that's -- those -- that's the top thing. So that's a big, big deal for us and as well as we're in General Atomics now. We're never in General Atomics before. You say, well, how can -- what do you guys had, General Atomics used to make everything in-house. Airbus is back. I mean, they make everything. They make batteries in-house. We love General Atomics. So that's -- they were just -- so now we're making a lot of their cables. We're doing things with them, which is not easy to do. They're in San Diego, so their neighbors to the south of us are headquartered. So we're close to them. And so I think all those -- it's just going to get -- I think the U.S. -- the defense is going to be $1 trillion before you know it. I know people are up and down about this and that, but I hope that...

It's an interesting comment right. I mean in light of the Fiscal Responsibility Act, trying to cap defense spending 1% 2025. Do you think that's short-lived? Or I mean what's your view given up that as a pretty important impact on Ducommun.

I mean, look, I mean, I'm on enough meetings where I leave the press, okay? I have to tell you, I mean it's like who's kidding who? I mean, it's like I wish there is some relationship we could get going with China and other places where we're not in this terrible competition. But I mean, who knows? I'm just telling it's my own opinion, it's not the companies, but just from what I see, unfortunately, when things dramatically change as I hope they do. I mean, we're -- things aren't going to slow down.

If we are in that environment where there is more pressure on defense, again, hypothetically, right, and it's more of a flat to down environment and Ducommun do you think still provide top line growth in defense?

I think we can because it's offloading. So thanks for bringing it up yes. And I should make sure definitely, once this -- look, first of all, when you do offload, it takes forever, okay? Because first of all, remember, the purchasing people go to the operations people and say, "Hey, I've got this great idea. I'm going to take things out of your control and put them outside the building and the operations people say, that's not just a great idea, okay, but they finally decide, okay, the head person says, okay, this is what we're going to do, what it happens, but it takes a long time. I mean, to move like these cards, okay? Just move the cards, but you have to move the test stands and you have to get the training done and you have to go to their plan, you have to go to -- I mean, there's so many things. So -- and the reason I bring that up is that I've been talking about this for over 2 years now is we're really going to see that now in '24 and '25 because this is the year we're really starting to make progress on it. And again, these things go slow, and you know what, they should go slow. I know my team gets frustrated sometime like, what do you want? And I mean these things are so important to these companies and we usually do the same thing.

Let's pivot to M&A because it's been a great part of the Ducommun story. Maybe talk a little bit about the rationale for acquisition of BLR. We actually -- we have a question from the room on integration, how it's been going?

Yes. Okay. So look, I mean the BLR is our fifth deal, right? So we've been at this for a while. I brought in someone who worked with me at KKR and at UTC. So he came in, in 2017 with me because we have...

Suman.

Suman Mookerji, he's my CFO now. He just got promoted, so I'm happy for him. So -- but we've been on this journey because we were never going to make in any other way, right? So these 5 deals have been really, really important for the company, and we're planning to do more, right? So one thing we do is our sort of playbook is that we'll go into a deal and will be very well -- we'll do a whole work head of time, right? So we're -- bankers like that, right? People -- we don't come back every 2 weeks with 10 more questions say, "Oh, I thought about this morning. Oh, my god, again," I mean that's not how we operate, okay? We're going to ask for a lot of things upfront and then we're done. So we have this little bit of a niche, I think, when we -- niche, when we go in there. So we're able to get the inside track on BLR, and we're able to kind of get exclusive early before things really got kind of heated up in the auction. And we like BLR because, first of all, they're geniuses. I mean, they have these wonderful -- they make things that nobody else makes. So when I hear that, I want to play and I'm going to go to talk. I mean -- and they deserve it. I mean they -- because they've come up with this innovation to improve helicopter safety and to be able to -- for helicopters to lift more weight to help with finding fires and also. So everything lines up with me because they are geniuses, they're really smart. They own the IP, but they're improving the world, okay? They're improving the industry. That's part of what we like to do always, right? And hopefully, you feel the same way. I mean, we're just not about going to get money. We want to be successful, but they're doing things to help people, to save people or the fight fires and they're improving things. So I love the business. It's over half aftermarket, which I love. And the way we integrate these things is we're not going to change the name of BLR. I know everybody like, why aren't you brand. Forget it? Nobody -- everybody knows BLR in that space, right, commercial helicopters and everything. I mean, we don't need to have a division of -- forget, it's nonsense. And the other thing is that for the most part, the people stay with us because that's a big thing for me, okay? I don't -- if I can, right, someone is 7 years say they want to leave, fine. But Mike, who's the CEO, he's the guy that's the genius that put a lot of this together, been there for 15, 17, 18 years. He is working for me now directly, okay? And so he's going to be with us. His team is going to be with us. That's the most important thing of integration. If the people are good, you got to keep them. So we do that. We integrate the back office, integrate IT. We have to do all the stuff because we're a defense contractor. We have to make sure everything because people can get in lots of different ways. But the integration is going great, and we really feel like this business has got some great upside because they've got 10 ideas that they're working on. Maybe 4 or 5 will work, but those 4 or 5 work, I mean they're just -- they got to be home run.

And maybe last one, Steve, quickly. I mean you guys had a great record since you joined in '16. You've been averaging about a deal a year, give or take. Is that the right cadence to think about going forward?

Yes, I think either 1 or 2 deals. I mean, it just depends on our cash position. I mean so we're a little bit tight on cash. I know that but try to be fair to everybody. And so where e work, we live within reality, right? We're not out there doing things that nobody would like us to do. So we're kind of humble that way. But we'll at least do 1 or 2 deals a year, at least 1, and we want to kind of make sure that we're being responsible with the money.

And you just want to make a quick comment on the follow-on offering because...

Yes, sure. So we did a follow-on offering, okay, in May, all right? So we sold 2.3 million shares, all right? And we had a -- we were over 3.5x subscribed, right? So we were really excited about that. Now when I came in, I was like, what's going on with the float. I mean, we were -- I mean, it's totally mismanaged, okay? I mean, I'm just -- I'll just tell you the way it is, but now we're getting back on to it. Now we're getting -- I think this was a big step for the company. There was a little bit of an IPO in certain ways. We have a lot of new investors in the cap table, we're excited about that. So I couldn't ask for anything better. I mean I want to do this for years. And it's always tricky, right? The debt is feeling, and everything is what we're able to get across the line and we were really proud of our team.

Excellent. Well, I'm going to wrap it there. On behalf of UBS, Steve, thank you so much for the update on Ducommun. Thank you for supporting the conference. We really appreciate it. Thanks so much.

Thank you so much for having me. I appreciate it. Thank you.