Ducommun Incorporated (DCO) Earnings Call Transcript & Summary

All right. Well, good morning, everybody, to those in the room and on the webcast. Again, Jason Gursky from Citigroup. I'm the company's aerospace and defense analyst. And I have the great pleasure today of sitting here on the stage this morning with the CEO of Ducommun. Steve, thanks for joining us. I appreciate it. Let's see here. I always like to start these conversations a little bit higher level. Particularly for those that may not be as familiar with the company, I know the company has a very long heritage that will be kind of caught up in this question I'll ask here. But maybe start with what's the problem that you're trying to solve for your customers? How you all go about doing it. And kind of what differentiates the company? And maybe start -- kick it off with a little bit of the history.

Sure. Absolutely. Well, again, it's great to be with you, Jason. Thank you for having us. And this is my first Citi conference. So we very much appreciate that. And just a little background Ducommun this year 2024 will be in business for 175 years. So we've had the doors open for 175 years. We're the oldest company in California. We're looked at because we were obviously filed in 1849. So general store initially and then morphed into lots of other things. And -- but we've been open for 175 years this year. So we're proud of that and our employees and everything else. So -- we're mainly at A&D. A&D is what we think about. We get up every day, we think about aerospace defense. And we have a little bit of industrial, but very small. So I came in, in 2017. So after a long career at RTX which was UTC at that time and then divested in private equity and then came into Ducommun. It was, for the most part, a turnaround story, okay, for me to get moving on it. The things that we do for customers, obviously solve problems. We have a significant manufacturing services component to our business. So -- but we're very focused on sort of niche manufacturing such as titanium. So we take titanium sheets and we hot formed them, we [indiscernible] super-plastic forming, which is with nitrogen. We hand work it. We do a lot of sort of like stretching [indiscernible] for lots of larger sort of skins like we make all the skins of to the A220. So we're really proud of that. So we've got a lot of sort of very -- sort of in the manufacturing services business, harnesses, cards, all things that are tough to make. So people come to us with tough things. And that's what we want, right? Because when you're solving hard problems, you get paid more, right? So that's sort of our thing. And there's a little less competition because it's sort of -- it's not just a machining company. So we like that. The other piece, which I have been focused on since I've been there is really building up sort of our Engineering Products business, okay? So we do everything, we're the world leader in Lightning diversion system. So every plane you're on has a lightning strip pretty much from Ducommun, which makes you safe in case there is a, God forbid a, strike on your plane. It gets dissipated through these strips. So we do that. We do lots of magnetic seals for the Apache engines, for Pratt & Whitney Canada. So we're involved in the engine business there. So we like that. And then we're in other military applications. And my goal is, obviously, to solve problems, to make a difference in the industry, to have a team that's focused on quality, which we all know is something which is super important right now. And what we've done, though, since 2017, we've really added on a lot of aftermarket, and we've added a lot of engineered products into our revenue mix. And so instead of when I came in, we were pretty much mostly engineering services or manufacturing services businesses, people call it contract manufacturing. We're moving more and more into engineered products as well. And so our goal in 2027, and we had our Investor Day a little bit over a year ago, was we were going to get at least 25% of our revenue at Engineered Products and by 2027, it gets about $1 billion in revenue. And I'm happy to report after our first year, we're pretty close to getting halfway there already. I mean -- and what we do with the engineered products is that we buy them, but then we invest in them, okay? We make sure we do the right thing on the capital side, the BD side. A lot of these businesses we buy are anywhere from $50 to $75 million to $100 million, $125 million. So we really look at that as our sweet spot for now as we work to get bigger, we work to be able to buy something bigger in the future. But what we do is we take them and we drive them. We operate them. I mean I'm a large-cap person, my background, we get into these smaller companies. We kind of have a lot of experience to know what to do. And I'm happy to report we did this just recently is that our first 4 acquisitions, first of all, after 12 months, we have a double-digit return on invested capital. So that's public as well as we reduced the multiple by 4 already, driving EBITDA. So we're pretty happy where we are and we're excited about the future.

Okay. Great. You got through all of our questions. Look, we're going dive a little bit deeper into a lot of this stuff. Look let's dive a little bit deeper into the Investor Day, and some of the targets that you put out there for 2027 because not only did you talk about driving the engineered product content to 25% of the business, but you put out some margin targets there as well. So maybe let's just step back and talk about big broad brush strokes, you're there and I think December 2022, I think it was the timing. Yes, so talk a little bit more about that day. What were the targets that you threw out there and maybe starting with the top line margins, the mix of the business and quantify after 1 year. Where are you?

Absolutely. So we met in New York in December 2022, and coming out of COVID. Obviously, COVID was a big deal for DCO and for lots of other folks, right, because half of our business was commercial aerospace, right? But then I see as we're able to kind of ride through COVID a little bit on a real big increase in defense. So one of the things we're able to do through the dark times of 2020, 2021, et cetera, we're able to hold our EBITDA margins pretty good and pretty flat, right? So that's a nice thing when 70% of our commercial aerospace business [indiscernible]. So we felt it was the right time. Let's go into New York, let's meet with investors. And first thing we did was say, look, we're coming out of this thing. We have wonderful build rates ahead okay, even though we're disappointed. I know everybody in Boeing and what's happening right now, but we feel the MAX does have a life to get to hopefully 50-plus sooner than later, right? So we're hoping for that. We'll have to work through the issues and make sure everybody is safe, first and foremost. But we put out a number where we came out where we came out of the -- came about [indiscernible] 10-ish. We had the meeting out of 2022, and we said we're going to do $1 billion, okay, close to it in 5 years. So this year, we just had our earnings, we're $757 million. So we have at least good traction over 6% with issues at spirit that kind of hurt us a little bit because we're a big supplier of spirit and they kind of didn't get to where we thought they would in 2023. So that was okay. But one of the big things we're doing is driving EBITDA margins, okay? I know that's top of mind for invest -- top of mind for me. And so we put out a number of 18%, okay? So right around we're 13-ish. So we put out 500 basis points, which is, I think, a respectable number and something we have to work hard to get. But we think that at least in 2023, we even on percentage-wise, we were a little bit up. We had our best year in EBITDA as far as actual dollar amount. And we also as far as the Engineered Products business, we want to change the revenue mix, as I've talked about, to more aftermarket engineered products. And so we put out a 25% of revenue by 2027, which is a respectable number, a little light, okay, but you want a -- 5 years is a long time, right? So you want to kind of -- but we're already almost halfway there. So that's so from the $1 billion, we're at $750 million, almost $760 million, a little bit up on EBITDA margins, 13% and change, but we didn't go down, right? And then on the Engineered Products side and aftermarket, and you say, well, how did you do that so quickly? Well, we had a great year with our Engineered Products business. We just did more so than we thought. And this is just lots of demand coming through the system and lots of demand on aftermarket. We have good pricing power in aftermarket. So all these things we think about as management and think about all these goals, we take them to heart. And I think we're tracking nicely towards all that, and we think good things ahead.

Right, right. And on getting to that -- well, let's see here, if you had a good year on the engineered products and your margins were up a bit. I would think that there was probably some downward pressure on some of the other areas of the business. And so maybe talk a little bit about that. I know there were some -- I want to call them onetime costs, but some costs are going to fade away on you -- so maybe talk a little bit about as we think about '24 and '25 in particular, kind of the medium term as it relates to the margins. Some of the things that are going to help drive those margin rates higher.

That's a great question. It's a very fair question. So we announced we're going to shut down 2 factories, right? So that's 350,000, 400,000 [indiscernible] these are one much bigger in California and one in Arkansas. And what you have is you have a timing on when these things are approved to move. Okay? So for instance, for Berryville, in Arkansas, okay, everything has gone except one product, 2 harnesses. Now these 2 harnesses are on the Tomahawk, right, which is the offensive missile for the United States. Okay? So to move that, and we're moving that to Mexico, which is going to be great, and we have great people there. So there's no issue there and great on cost and everything else. You have to get state department approval, you have to get RTX approval. And we're in the final -- we already have a state department approval on most of it. So we're in the final. So what happened was with the net income in Q4 especially, we had 2 harnesses and a big factory, right? And the same thing from California, where we have 2 products left, okay? We have the spoilers for the MAX, and we have the back blade or the rotablade for the Apache. That's it, right? So again, that is something we're working on. And we're targeting by the midyear, by the end of June to have all the operations in both those seats. And then all that cost, which we've been carrying because we have nothing to -- no production to smudge it up, right? It's going right to the headwind for the bottom line. So that's one of the big things we feel in the second half of the year and 2025 we're going to see a really nice uptick in that. And that's the biggest issue -- that's the biggest issue right now. And I think the other thing just -- and getting back to the sort of manufacturing services and thinking about how that business look. We're really focused on really hard things. And that's coming even better now as far as our margins, all right? So our gross profit was way up this year versus last, right? So we've been kind of floating around a certain level and then we're up, I think, 150 basis points or something overall. So that's starting to bleed through because we do think about price. We do think about value pricing, okay? I mean, we're not just running after orders, which we could do before I showed up, right, just because it had a big revenue number we thought it was great. Well, it's not great if you can't make any money. So I think all that's positive. It's all going to drive this EBITDA 18%, which is got to be terrific. And the last thing I'd say is that we're still in the game for acquisitions, and we talked about this, Jason, and about -- we have the hedge that just came in for $150 million of our debt. We run about $250 million, $260 in debt. So more than half of it now is going to be at 170 basis points because we did this thing back in 2021. So we're going to -- it's going to be at least $4 million, $5 million savings in interest this year. So that's going to be a nice thing for net income. So I think a lot of things are in the mix. Again, it's a little bit of a timing issue. Investors have been patient and I appreciate that, but we're at sort of like the 3-yard line, I hate to say it, but we're still out in the end zone yet.

Yes. Yes. No, fair enough. Let's -- so you mentioned a couple of things there, let's double-click a little bit on. So on the M&A front, the potential to be acquisitive here. And I think given the strategy around the Engineered Products side of the business, that's probably where the acquisitions would be focused on at this point. So what are you seeing in that market these days with availability of properties and assets. And I suspect there aren't all that many available during the trough times, and now they're starting to come to market. Is that the right way to think?

I think that's the right way. I think that's accurate. I think even more so this quarter and more so sort of the fourth quarter, things are starting to really pick up again, which we obviously we like. We're very opportunistic. So we look at -- we look at lots of things because obviously, we have a big target ahead of us. But -- so the market has definitely gotten better, certainly much better than 2022, early 2023-ish. So -- we are seeing things. We're looking at things. We're meeting with management. So we're doing all these types of things that are important. And just so everybody knows, we're still in this sort of $75 million to $150 million sort of deal size, and we like that. I mean it's really worked for us. [indiscernible] bolt-ons because they're really [indiscernible] because we use them. We're not just bolt them on and then go on to something else. I mean, we invest in these things and we work hard to get it better. So -- but we think that our track record now, we have 5 deals and we bought BLR, which is back in April of last year, and BLR was our biggest acquisition to date since I've been there. And that's been terrific as well because that's a whole another helicopter business, aftermarket, wing tips, general aviation, really good pricing power there. Fast Fin, which is a very unique thing they put on helicopters, so it can lift more weight, and it's an aftermarket opportunity for us, and we're doing that a lot retrofit, not aftermarket. So I think that's all positive for us. And when we buy these things because we have such a large contract manufacturing base, they immediately are positive for the P&L. I mean, because I won't get into details, but obviously, they're going to be accretive versus our contract manufacturing business.

Right, right. Okay. Great. And then just going back to those '27 targets and the ability to get to that being 25% of your revenue, what was the baseline assumption in December '22 to about organic growth versus inorganic growth to get you there?

Yes. Well, our assumption really for organic was just was mid single. Yes, we thought mid single was appropriate. Even at the time, even in 2022, it wasn't good as far as -- but we obviously we count on -- we're very close to the market. So we count on all these bill rates going up. And eventually, we think they will. I mean, especially on the BA side, we're -- we're going to be even more as we go into 2025, bigger players on the 787. So we're going to pick up more content there. So it's already kind of in the cake as they say. So we're going to -- and then when that gets up to 10 and it will because the book there is going to be -- has to be delivered, right, and with the MAX and everything. So we sort of, at least in 2022, and we'll update it. We'll have another investor conference, and we'll tighten it up. But we follow sort of mid and we had like a $75 million or $60 million, probably $75 million [indiscernible] for acquisitions, we're right around there.

Yes. Okay. That makes sense. Yes, I think the mid-single-digit number has probably been running little better.

It has been. But we again, we're very tied in, and I think it's a good thing because eventually the pay up will get very tight in the build rates. I mean we're just really -- and Spirit. -- Spirit is a big customer. We have vendor-owned inventory. So we have a ton of our work sitting, waiting to get pulled in Spirit. And so we get daily updates and we're just cheering or kind of down. But that's part of the aerospace game, but we think that with all going on and Shanahan in there now, and I think the FAA, even though they don't have 1,000 people, they're going to hopefully help them, and we think there's better days ahead. And once that gets going, I mean, with MAX, before I just said before in 2019, going to $55 million or $57 million, I mean, the MAX alone for DCO is $130 million. Just that 1 point, $30 million. So that's gives you a sense of -- then it went down to $20 million. I mean, so it gives you a sense, though, that we can -- we've got, I think, a lot of dry powder once these build rates, I mean, if we get to 45% or 50%. We'll be in great shape.

Yes. And you mentioned the word build rates quite a few times here. So let's double click on that. So I think you mentioned on your call last week that the expectation here is kind of the mid-30s right now on the 737. I think you and one of the casting guys Helmet talked about 34, I think. So any sense of how long that lasts?

We -- no, I mean other than -- we just -- we think sort of the back end. Here's the thing about -- and it's maybe not talked about enough is that when you become a new employee at Spirit and Spirit, I used to go to Spirit before COVID, it was 20,000 people. I mean, and then it went down to 8,000. So to get all those people back, first of all, a lot of them are coming back. But second of all, the type of training you have to do, okay. It's 12, sometimes 16, then you want these people trained. So it's -- so you think about, okay, we have this issue, and we have supply chain, but I'm banking on in the second half of the year, okay? Spirit having fully trained a couple of thousand people since we start hiring people again, then it could be in there that can actually be working at an 85% versus 60% right? I mean -- and I know they went through the union and we had a problem there. And hopefully, that's been worked out and everything, but it's -- I know I know Spirit just from the inside a little bit, it's an absolute fight every day at Spirit, get those fusilages built. I know that. So there -- I think they're going to come out of it. They're our friends. We obviously support them any way we can. But I think that better days in the second half. I think a big part of it is the manpower or the people [indiscernible] got to be trained. They've got to be indoctrinated. And that's just not something that -- you can't go from 20,000 to 8,000 to 12,000 and have 4,000 people you have to train and be like, okay, everything is going to be fine in 6 months. It's not going to be fine. So anyway, so I think better days ahead, tailwind ahead. I think second half of the year, I'm hoping that we'll see maybe 38 by Q4. But I'm not going to, I think that's probably the best I can tell you.

Right, right. Okay. Great. So talk to us a little bit about the labor dynamics at your own company in that context because you had a lot of moving pieces, right? Not only did you see your 37 revenue go from $1.30 to [ $20 ], right? So you probably had to react a little bit there as well. But you're also moving some factories around and [indiscernible] down in Mexico. So just kind of walk us through how you all have been able to come through this.

Sure. So first of all, it hasn't been easy, right, because you have these things that happens, nobody's fault, but what we try to do is fill in as much defense work as we can. And that's sort of what we did. I mean, our defense business went way up in 2020 and 2022. So we're able to kind of move maneuver a bit. But we've had at least we kept as many of the people we could in sort of the MAX businesses, people that were very well trained, leads and everything. We just kept them. And I mean -- and we had our engineered products businesses that were going pretty well in aftermarket, right? So that was good. So we were luckier than most because we're able to kind of float some things and just sort of make all the numbers respectable, but just keep people still employed. So that's one thing we did. And then as things bounced back, we have -- we're closing 2 factories, a lot of our factories, our largest factory is like 450, 500 people, okay? And we like that. Okay? That's a little bit of our secret sauce, right? We want to have smaller, more focused and their P&Ls. I mean, everything is a P&L, but there -- you get a bit more, I'm going to make a car. I got 400 people, 300 people, right? I mean everybody's ahead right? Because you can do that with 300 people in a factory. You can't do that with 3,000. So we're able to -- because we have sort of at least on the people side, we're not having to go out and hire 2,000 people. We were able to manage it fairly well. So we did have layoffs. We didn't do any restructuring. That's the one thing that I tell, we didn't use any shareholder money during COVID for restructure. We did restructuring after COVID because we looked at the world and we said, you know what, the Monrovia plant, good people, their future is not good. So we're going to have -- and Berryville the same thing. It's just -- there was just no future there for those folks [indiscernible] business. So we're going to move everything, and that's what we did. So I think overall, I give my team and our leadership, high marks because we're able to move everything and keep the business at a respectable level. And then we come out, do we have issues in the Midwest hiring people? Yes. And I mean, but we're hiring 30 people or 40 people and I do not have to hire 1,000 like Spirit, Wichita. So good stuff there. But there's inflation concerns, and there's -- when we try to do our best there, I mean, we're -- just for a little more color, we're very bonus centric company, okay? And we just read the top of mind, we just had the bonus last week. And so we're a very big pay-for-performance. We try to keep the base reasonable because when you hit a tough year, your base is your base, right? You have to carry that no matter what. So we tend to do a little bit with the private equity side, which I came from before Ducommun and really kind of be like, hey, if you hit these marks and you hit this performance, okay, you're going to get a big bonus. Just one example, Magseal. And they're a magnetic seal. We bought them in 2022, okay? And they had -- sorry 2021. They had an outstanding year in 2020. Everybody got their biggest bonus in the history of their career. Fantastic. -- just was an easy answer. They were fantastic. So we try to manage human resources that way. We like that.

Let's talk a little bit about some of the programs. Specifically, we talked a little bit about the 37 and the build rates there. But there's another angle to the 37, right, which is getting some more content on that aircraft. And I know you've got some things here on the come with some additional skins, I believe, right? Yes. So talk to us a little bit about the scope of that project and when you expect those to start feathering into the revenue line.

Great question. So we -- it's -- we've been with Spirit for a long time. And so we have a factory in Gardena, California, which is -- has a lot of unique things. They do a lot of stretch forming. They do wonderful chem mill. I mean they're really like they're top of the industry. And so talking about this and then we had the former CEO of Spirit come out and joined us in Gardena. And he goes out there and he sees the skins for the A220 and they're all hanging from the [indiscernible] and he looks and he goes, "I don't know you guys did this" -- so that struck up a conversation where the Spirit folks are like, "You know what, -- no 1 else can -- no 1 else is making these skins other than us for the MAX" and we said we'd be totally interested, but we're not going to do a by-the-drink sort of thing, like, yes, I need 6 this month, I need 4 of this. We're not going to do that, okay? So they committed to 15 skins a month, right? And I mean, and they'll write up their own thing, but they'll take 15 skins. And so they gave us an additional order for 4, okay? So there's about 40-plus skins that they're all sort of put together for the MAX and they're different sizes and shapes. And so we started having a discussion. And so we got an order for 4 skins initially, like I mentioned -- and so now we're doing the tooling right now. So the tooling is being done, and we're going to be -- we're targeting to be commercial early Q3. So our view is it's about $4 million a year. So it's not -- but it's 4 looking to get another 20, right, right because we think we could do it. So it's kind of like baby steps, and I'm fine with that because we have to learn too. But we have a very -- I talked about this -- so this is a manufacturing service right? So they give us the blueprint and they tell us it's [indiscernible]. But we have the know-how and we -- that's how we get paid. And so this is another area where we're sort of a very niche business where Spirit is a supermarket of structure. I mean you go to Spirit, it's every machine, they can make everything, they can stretch whatever, right? And to have the CEO come to Gardena facility and be like impressed like, wow, we didn't know -- we're trying to look for people that can do this stuff says a lot. And so we're on to our floor, we'll get those done and then we're going to try to get -- we'd like to get the whole thing. I mean we make the whole fuselage for the A220. I mean, that's a great business for us. I mean this is a wonderful thing. And we had gotten that when it was a C Series, right? So this is a long, long time. But -- so we're hoping for that. It's definitely going to happen. And then as we go forward in time, I mentioned the 787 content coming on. That's more titanium work and things that are coming back to us now for the 87. That's going to be additional dollars, we'll talk about that later in the year once that firms up, so we have that. But we -- I mean we need the MAX, right? The industry needs the MAX. MAX isn't going anywhere, God forbid, right? So I think that whether it's Q4 or whether it's the middle of 2025, we're going to increase content on the MAX. We're already a legacy or sort of we're very strong in everything we do. The [indiscernible] performance, okay? So we're fortunate that we have good people, quality mindset. We just got a big award from Airbus in 2023 for Supplier of the Year, okay? And this is for all our work on the A320 family. This is structures, right? So this is our titanium work. And they don't give those things out, Airbus. They're a very tough customer, certainly, global in all aspects, in my opinion, the way they do procurement, they way they look at this landscape and so the reason we got that award is we've been pretty much on time for like 4 years -- every product, every month, 100%. It's not like we have a bunch of stuff where we have in France that just stack all this inventory, and we're always good. No, we are shipping things from Parsons, Kansas. So I think that's the other thing. As far as the winning, more programs, more content is that customers trust us. And one other thing I just tell you on the defense side is that talked about this a little bit. So we are now making cards for the radar systems. So we always make cards from missiles, right? So we make cards for all types of missiles, [indiscernible], they make them in Appleton, Wisconsin, those kind of things. But this new SPY-6 business, which is coming from RTX, which has taken a while. These are some main circuit cards in this radar system. And we already have the first card -- and I'll talk about later in the year, and then we have other cards that are all coming from [indiscernible]. The facility [indiscernible] mass and the best thing about this is that it takes a while to do it. But once you get it in the factory, they're not going to move it. And always be fair to our customers and believe me, they're a tough customer on pricing and everything else. But we feel great that even though it's taken time and it's a lot of effort, sometimes they buy a test machine for $1 million and some other things, right? We know that this SPY-6 is sort of one of the crown jewels of RTX.

Makes sense. So on the 787 really quickly, rates going up. Clearly, I think Boeing talked about being in 5 here recently, 7 then going on to 10. So those are good growth rates for you, obviously, but you talked a little bit about more content and you said titanium and you said coming back. So did that -- during the lower volumes of that business go away and then now the volume has been coming back?

No, quite frankly, it left us because we hold firm on price. So this is a few years ago, basically, and they said, "Okay, we're going to go somewhere else to make it" and now came back to us.

At the same price?

So this is what happen sometimes because we are value pricing -- that's what you want. You want us to be like, yes, we're not giving stuff away if we're really good and we have a boat or something. We're not going to go crazy, but we're going to be fair to our employees and to our shareholders, too. We got to -- so we price it that way. And sometimes people say, you know what, thanks. You've been doing it for 10 years, but we're going to go to Algeria, we're going to go here. We're going to go there. And then lo and beholds 18 months later, they come back. And they say, okay, and I think this is what's paying off for the 87. That's a true story, by the way. That's always coming back to us -- but I'm really high on the 87 -- by the way, the other cool thing is that we make lightning diversion suppressors throughout the 87. So our Lightning business, LDS, which is a world leader, we have 80% of very high market share, okay, where we're the #1 by far. We're going to pick up a ton of business now going forward once that goes. So we sell...

Did you change something out there on the 87 on that Lightning Diversion system?

Absolutely. It's a suppressor system. So the suppresses we make. We solve the TTM and they solve the [indiscernible], and Collins obviously has the electrical system. And so that's how we get to the chain. So we're back in the back. But where I keep -- we have these meetings. I'm always asking so what's going on with the 87. It's such a good business for us and it's something that, fortunately, with the shutdown of the 87 and building inventory, you having to fix 100. I mean and then they're doing 3 or 4, it's been 0, but we know it's coming back in a big way. So there's -- there's a lot of, I think, very positive things in the 87.

Yes. So shifting gears then over to Airbus. We know rates going up on their narrow-body fleet. Any opportunities for additional content?

Yes. Yes. Airbus is -- well look first of all, the A220 has been a home run for us, right? So -- but that's all through Montreal, that's mostly -- that's not a lot of to lose. And the A320 family is what we want to be on, right? The problem you have is that the A350 is struggling to make money. So to get on an A350 to do whatever, you have to come in with a major price reduction. I mean, like because they're already tight on their and I don't want to speak for Airbus, but it's a program [indiscernible] and so we just don't do it. I mean we're not going to go unless there's something that we can really add value. We're just not going to want to get in the A350 just for price. We're not going to do it. So we're on the A220. We're on the -- on the A320 family, which is really the show there, right? And we're not on the A330 or we're not. We do A330 retrofit, but we're not on the A350, but we have a great relation with Airbus. We think that because the Airbus is the only company we deal with that has internal titanium operations, okay? So this is like a legacy thing, right? They're all -- they're all vertically integrated when they started, right? And they still have -- so they make titanium like we do. So we go into their operation. We see the same machines we have in Parsons, right? But we feel and it's kind of played on the path. Once they get to 55, 60, 65, right? They're going to need more help. I mean we already have a good business with them, but it's only going to get better. So as pressure goes on, my view, the DCO revenue goes up. Because they have to -- they've got to meet -- they got to meet the numbers, right? They got to meet the deliveries. So we feel very good about that. Again, we have a great relationship with Airbus. Funny thing is your Airbus wasn't even a customer of Ducommun until 2017. So they had nothing with them. I mean, it's hard to believe, right? We only 2 major OEMs, but that was the story. And so when I came in, they had signed a contract, my predecessor, all credit to him, they had got something done. But then we 4 or 5 years of pain, learning Airbus comes in and says, this is how you have to do it if you want to be a supplier. So we had to basically change everything we did. But the cool thing about Airbus is they made us better. They made us better the way they were hard on us and they spend a lot of time. It's not easy to get the Parsons, Kansas team to lose, but all credit to them because they got on planes they came over, and they helped us with their whole operating system. And so now it's been a real success.

Okay. Great. A few more questions here. We're going to run out of time quickly, and I want to make sure I get a few more in here. On the defense side of things, the year-over-year revenue has been a little lackluster, but the book-to-bill has been pretty strong, pertaining some growth in front of us. So maybe you can just talk to us a little bit about some of the dynamics that are going on there and when growth begins to reflect.

Very fair question. Look, a couple of things. First, and I've talked about this in the past, a little bit is this timing, okay? So we have some issues. But -- so that's a little bit of it. The other thing is just in the defense when you have sunsetting programs, right? So the F-18 is a program that, over time, has gone down sort of $10 million a year each year for us. So there's headwind there. We had big years for the total missile case, which we took from a supplier because we were better at it. And those are great years in '21 and '22, okay? But they can't get the motors for the missile from someone else, okay? So the toll missile kind of other things. So -- so it's not -- has nothing to do with the business, our BD, our performance. Those are most part things, right, BD, performance, leadership, all those things, quality, all those things are terrific, and we were down a little bit year-over-year, but it's -- a lot of it is the F-18 and some of it is timing on some of these programs where they get -- Raytheon will tell you it's like a bathtub, right? So to say coming out of 2023, we got a little bit of a bathtub until we get to 2025. I'm saying because things have to cycle up. And that's a little bit where we are. But the great thing is, is that we have record backlog for defense. I mean and that's the thing that's going to -- we're going to take off with. Just -- it's a little -- it's a little tricky. And I got to understand investors saying, okay, but the backlog, I always tell my team, customers speak with orders. That's at the end of the day. So this is going to come through. We feel very good about the rest of the SPY-6 cards. We feel really good about more on this moving from the handovers to the Ducommun. So we -- the last thing I'd say about that is that it's very hard for an OEM to send things outside their control unless they really trust you. Unless they really say, "You know what, we're going to do this because we really trust these guys because we've got to get -- because there's penalties and all sorts of things." And I think that's a great thing for investors to keep in mind. I mean we have one of the top defense companies in the world saying, "You know what, we trust you guys. We know we're going to get the quality on the Navy radar system, SPY-6, that's the system." And I mean, so I just think that's something to mention.

It's great. Your comments aligned perfectly well with the way Raytheon is describing the business -- that business to the external world. Good to hear you guys are aligned.

Absolutely. I met with West Cramer before West left. He told me the same thing. He tole me the same thing.

You mentioned interest expense earlier. I've got to admit, you guys are probably the only company in my coverage universe that's going to see interest expense go down. I hope it's better lucky than good kind of things. Yes, you got some swap setters starting to pay off, right? It's going to drop through the bottom line with you all, provides a little bit more operating cash flow, free cash flow for you all. So that may be kind of leads into the question about capital deployment, cash deployment. Just your general approach at this point.

Yes. I mean, look, we have over $200 million of our revolver and cash on hand. So that's and our debt to equity is 2.5% or a little bit less. So we're -- I think we're in good shape, and we had a good cash year. Certainly in the second half, I have a new CFO, folks don't know that, but my [indiscernible] started in May, and I think that's going to be very positive for investors and cash flow to go forward, okay? So he's built his team now, we're off to the race. So we had a very good second half, so it's good there. So I think our cash flow from operations is going to continue to get better. We had -- our debt to equity is good. We like that, maybe go up for an opportunity. We got the revolver. And then we have this wonderful -- it was actually they did it in 2021, believe it or not, where they looked out and they said, "Okay, we're going to do this peg for $150 million of our debt, 170 bps. So that's, I mean, so I give all credit to them and our advisers. I was around, I was in the building, but those guys made [indiscernible].

You did sign off on it.

I did by the way, I'll take a little credit, but all credit to them. But -- so I think that's great for investors because we really have this thing going now. I mean it's going to get through these factory closures, keep going on the M&A, generate more and more cash to deploy it properly, okay? We're taking every cost we can out of the manufacturing services business, so those margins are going to go up, right? I mean, so we're really looking to have a wonderful -- we have a good -- really good second half, but we really think 2025 is going to be great for investors.

Perfect. My last question was going to be the walk off the stage question, but you already did it. You're [indiscernible]. Perfect. Well, thank you, everybody here in the room, and those listened in online. And Steve, can't thank you enough for joining us today.

Jason. Thanks for having me in. It's a pleasure always.