Ducommun Incorporated (DCO) Q1 2013 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the First Quarter 2013 Ducommun Earnings Conference Call. My name is Regina, and I'll be your conference operator for today. [Operator Instructions] As a reminder, today's event is being recorded for replay purposes. I will now turn the conference over to your host for today, Mr. Chris Witty, with Ducommun's Investor Relations. Please go ahead, Chris.

Thank you, and welcome to Ducommun's first quarter conference call. With me today is Tony Reardon, Chairman, President and CEO; and Joe Bellino, Vice President and CFO. I would now like to provide a brief Safe Harbor statement. This conference call may include forward-looking statements that represent the company's expectations and beliefs concerning future events that involve risks and uncertainties and may cause the company's actual performance to be materially different from the performance indicated or implied by such statements. All statements, other than statements of historical facts included in this conference call, are forward-looking statements. Although the company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from the company's expectations are disclosed in this conference call and in the company's Annual Report and Form 10-K for the fiscal year ended December 31, 2012. All subsequent written and oral forward-looking statements attributable to the company or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements. Unless otherwise required by law, the company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this conference call. I'd like to turn it over now to Tony Reardon for a review of the operating results. Tony?

Thank you, Chris, and thank you, everyone, for joining us today. I'll begin by providing a brief overview of the quarter, including some market color, after which I'll turn the call over to Joe Bellino to go through our financial results in detail. When we last spoke 2 months ago, I reviewed many accomplishments we achieved in 2012 and laid out our path we would take going forward. First quarter played out with strong shipments in our core aerospace and defense business, offset by weaker sales within our non-A&D markets, in particular the industrial and natural resources segments. These are areas we have put the great deal of effort aligning our total capabilities with the needs of our customers and are working hard to gain some of the market dynamics on our favor as I'll review further in a moment. I'm pleased that our overall backlog remains solid and that our aerospace and defense sales increased 4% year-over-year and our segment EBITDA margins also rose. In addition, as Joe will go over in detail, we took further steps to bolster our balance sheet this quarter, repricing our credit agreements to reduce interest expense and paying down another $7.5 million of outstanding debt. Deleveraging the company remains a core objective for the quarters to come. Now let me provide some more in-depth color on our markets, platforms and programs. Starting with our non-A&D business, sales fell 32% year-over-year due to weakness in our industrial and natural resources segments. As we've mentioned in the past, the trend of soft orders from key customers continued and, unfortunately, anticipate this case to be going forward for another quarter or 2. Our book backlog of the business here also fell slightly from the year end 2012. That said, quarterly revenue in our non-A&D segment has likely bottomed out, so we expect some stability going forward. We have several initiatives to identify and pursue new business opportunities across a number of industrial and energy markets. We're working with our customers to identify a number of product upgrades utilizing our in-house engineering capabilities in support of our customer's design teams. So we're not only looking for additional follow on and new business opportunities, but we're supporting the customer and aftermarket services as well. While we have many satisfied long-term clients, we're looking to further develop these relationships and substantially expand our customer base. We expect the economy will continue to improve in the months to come and we're targeting specific submarkets for increased customer penetration. With our broad capabilities and technological expertise, we're confident in our ability to win energy -- new energy and industrial customers alike, particularly given the help with some portions of these sectors today. We will continue to update you on the progress in addressing these markets and obtaining new business. Moving to our military and space programs, we again saw strong revenue this quarter. Despite lower military helicopter sales reflecting some schedule slides, we saw increased underlying demand and customer acceptance of our defense electronic products, including higher shipments radar racks both domestically and abroad. In Washington, the situation remains fluid. While we're certainly disappointed that sequestration has come into effect, we have not really seen any negative impact on our programs thus far. The Defense Department has given some flexibility to manage near-term priorities, which has mitigated the extent to which sequestration has affected key suppliers, such as Ducommun. As we've seen in the past, we expect 2013 revenues across our defense programs to be flat to up slightly due to our strong product mix and diversity of programs. Our total defense backlog is actually higher now than it was this time a year ago, but our visibility is still hindered by the lack of clarity in terms of Federal budget. Although we suspect the deal will be reached before the end of the government fiscal year, no matter what happens, Ducommun's components and systems remain crucial with the ongoing needs for upgrades in advanced electronics content. We play a vital role in some top military aircraft, missile systems and radar programs in operation today. We'll be vigilant in managing cost and working capital no matter what actions are taken in Washington. In our commercial aerospace business, our large aircraft sales rose on the strength of higher shipments for the 777 and 787 programs and continued robust run rates for the 737 program. As you may have seen recently, Ducommun announced it was again selected to provide spoilers for the Boeing's next-generation 737 program through 2018. We produced spoilers for this family of jets for nearly 50 years. And the 737 is actually our second biggest program in terms of overall revenue after only the Black Hawk. Regarding the Boeing 787 Dreamliner, the aircraft is back in service and we expect build rates to increase later this year as deliveries commence again, which should bolster our backlog. Our sales within the regional and business aircraft markets were nearly flat in the last year and we saw a decline in commercial helicopter sales, primarily due to timing of our orders. Overall, the commercial aerospace market is one that continues to provide growth opportunities for Ducommun, and our backlog remains sealed at record levels. We see no reason to believe that build rates will slow anytime soon and are meeting demands of our customers while managing working capital effectively. We're also seeing active bidding on your applications for both Boeing and Airbus across a number of different platforms and are targeting other programs and OEMs for increased content as well. In that vein, we started to see greater opportunities within the general aviation market as a result of our capabilities to deliver a more diverse product offering. Overall, we believe Ducommun will see improvements in our operating results as we move through the year, much as we did in 2012. With that said, I'd now like to have Joe go through the financials in detail. Joe?

Thanks, Tony, and good day, everyone. After the market closed today, we reported results for the first quarter of 2013. Overall sales of nearly $176 million were down approximately 5% compared to the sales of the $184 million in last year's first quarter. We traditionally see a softer first quarter compared to the rest of the year, and 2013 was no exception. Even with favorable sales trends and the large commercial aerospace market and solid demand for our defense technologies, we could not have offset these positive given the softer revenues and our non-aerospace and defense, or non-A&D, end-use market segments. Net income grew to $3.7 million or $0.35 per diluted share compared with $2.4 million or $0.23 per diluted share last year. First quarter 2013 results were aided by a $0.19 per share federal R&D tax benefit, as we reported and discussed in our March 4th quarter and year end results. This income tax benefit was recorded retroactive for 2012. Importantly, the federal R&D tax credits have been extended through 2013 and we will record these benefits on a quarterly basis throughout the year. Ducommun's lower sales this quarter impacted our company-wide operating income in terms of both dollars and as a percentage of revenue. Operating income for the quarter was $10.3 million or 5.9% of revenues compared with $12 million or 6.4% of revenues in the comparable quarter last year. However, we are pleased to see operating segment margins improve 20 basis points year-over-year at both Ducommun AeroStructures, DAS, and Ducommun LaBarge Technologies, DLT. Higher corporate SG&A expenses is primarily debt pricing transaction costs, benefit costs and nonrecurring professional fees offset these gains. In the first quarter, we generated $17.3 million in adjusted EBITDA or 9.9% of revenues compared to $19 million in adjusted EBITDA or 10.3% of revenues in the first quarter of 2012. Our backlog remains solid at $638 million and we expect this to grow during the balance of the year. It appears our non-A&D markets have stabilized, and we also have a variety of opportunities in the works with our commercial aircraft and defense technologies businesses, as you heard from Tony. Results by business segment, DAS, or Ducommun AeroStructures, sales for the first quarter were slightly less than $73 million, down about 2% year-over-year, primarily due to slower shipments of military and commercial helicopter products, but this was partially offset by higher sales of large commercial aircraft products, underscoring the continued strength in build rates in the commercial sector. DAS' EBITDA for the first quarter 2013 was $9 million, slightly higher than last year, and the EBITDA margin expanded 70 basis points to 12.3%, reflecting continued reductions in development costs for new programs versus a year ago. We now have more normalized cost levels for new programs and it reflects actions we have taken in recent quarters to drive our productivity in this area. Ducommun LaBarge Technologies, DLT, posted sales for the quarter of $103 million, it was down 6% year-over-year. The non-A&D revenues fell 32% and overshadowed the 15% increase in military electronics, which includes strong shipments of airborne radar systems and other military defense system products. For the quarter, DLT EBITDA was $12.6 million, slightly below the $13 million from a year ago. However, we expanded our margins year-over-year by 40 basis points to 12.2%, as we continue to benefit from cost savings associated with our integration efforts. Corporate, general and administrative expenses that are not identifiable to the 2 business segments were 2.4% of revenue for the first quarter compared to 1.6% a year ago. They reflected about $0.8 million in expenses -- in nonrecurring expenses, which included $0.5 million for the recent debt repricing transaction and $0.3 million in nonrecurring professional fees. We remained vigilant on our cost-reduction efforts. In terms of liquidity and capital resources, as Tony mentioned earlier, during the quarter, we continue to delever our balance sheet. And in addition, we were proactive in reducing our bank interest expenses. We prepaid $7.5 million of our debt, reducing that to $358 million and our net debt to $328 million, given our trailing-12 months adjusted EBITDA of $85 million, this equates to the 3.85x funded debt to equity. We discussed in prior calls in 2013, we expect to pay down a total of $25 million to $30 million of debt this year with the goal of deleveraging our balance sheet to the 2.75x to 3x range by the end of 2015. We were also successful in reducing interest expenses on our credit facilities by 75 basis points through a repricing transaction. The Accommodative Monetary policy by the Fed presented us with an opportunity to reduce the interest on our term and revolving credit lines by 50 basis points and we were also able to lower our interest rates lower by 25 basis points. As a result, going forward here in the second quarter, our pricing on these debt instruments will be LIBOR plus 375 basis points with the 1% floor. In the year's first quarter, we used $6 million in cash from operations compared to approximately $5 million a year ago, a little bit more on investments in tooling as we support new program growth and some timing differences. We continue to focus our efforts on effective working capital management through higher inventory turns and better receivables management. We expect our $60 million revolving credit line to remain unused for the foreseeable future. We anticipate capital expenditures for fiscal 2013 to be approximately $15 million, about the same level as we did last year. Our capital plans will support the expansion of our manufacturing capabilities and new contract awards. So in closing, while we were challenged with softer revenues in our non-A&D end-use markets again this quarter, we offset large portion of this with solid gains of shipments in commercial aircraft products and defense technology applications. In addition, operating and EBITDA margin levels expanded at the segment level as a result of manufacturing cost efficiencies, including better performance on our new program costs and benefits realized through our integration efforts. I now would like to turn the program back over to Tony for his closing remarks. Tony?

Thank you, Joe. Before I open the call to questions, let me emphasize our major accomplishments this quarter. Booked some great business across our end markets and kept our backlog solid at $638 million. We're seeing a number of new business opportunities in the commercial aerospace arena and are utilizing our broad product offerings to cross sell into many of our major customers on new platforms. We continue to be optimistic about this area due to higher build rates, the potential for increased work content and expanded aftermarket opportunities. And across our military platforms, we have a solid diverse business that we believe we still have room to grow. As I mentioned earlier, we're focusing resources and efforts on a new business development across our non-A&D segments. We have made a conscious effort to continue cross-selling into these markets and are seeing positive reaction to our engineering talent, expanded product offering and aftermarket sales efforts. While we clearly have more to do in this area, we're comfortable we have a solid strategy in place. Lastly, we took steps to improve our balance sheet this quarter as Joe mentioned and we'll continue to pay down debt to reduce interest expense going forward. We remain committed to deleveraging the company and providing enhanced financial flexibility, as well as increased earnings power. With that, Regina, I would now like to open the call up for questions.

[Operator Instructions] Your first question today comes from the line of Mark Jordan with Noble Financial.

I'd like to talk a little bit about the industrial and national resource segments. Sequentially, pretty significant declines there. I guess I'd have -- could you talk about the visibility you saw coming into the quarter for the level of business that you ended up having? And what visibility do you have in terms of seeing that stabilize or the recovery you allude to as the year evolves?

Well, I think, Mark -- this is Tony. I think, Mark, we talked in the fourth quarter and, again, in the first quarter or the fourth quarter results and previous to that, in the third quarter results. We saw softening in the bookings coming into the year and actually we started talking about that as late as last year. And we saw sequential declines during the year on the non-A&D side. So we took some steps to shore up some things now. We talked about the destocking of both a couple of our major customers there. And as that may continue today, we did see some pickup in the last month or so, the quarter in terms of bookings. So I think that the marketplace has certainly stabilized for us and really, I think, we've made some nice opportunities to grow that business, as we worked on some development programs with both our major customers in those market places. So we did see a softening. I think we tried to forecast that and it is -- was unfortunate that we could not set it with some of our military and commercial sales that we anticipated in the helicopter market. But I think, that we have a handle on where the market is. I think, we're tied in with a key customers and we've got an expanded opportunity to build a broader base in that marketplace as well.

Okay. Sort of a top, overall question. Obviously, you started the year with a softer first quarter, which is similar trends in the last year. Do you think, just broadly, that you have the opportunity to show an overall growth in revenue in 2013 versus '12? Or could you give us just a sense of where you see the order of magnitudes of marginally down, flat marginally up, up. Is there any way you feel comfortable quantifying sort of the general direction?

Well, it's difficult for me to -- without giving you a forecast going forward. But we do see the trend to improve, particularly on the natural resources and industrial markets, where we do believe that we'll see a pickup there. We think that we're very solid on the A&D side of the business and there's a potential for some pickup on some of the commercial business as we see it. So we believe that we'll come out -- with the opportunity to have higher revenue across the year. And we believe that it will look a lot like we did last year in terms of pickups and opportunities.

Just to add to what Tony said, Mark, you might recall when looking at the data last year, the first 3 quarters we were hanging around $184 million of sales each quarter and then we wound up with $193 million or $194 million in the fourth quarter. And there was a lot of uncertainty in the December period as the budgets were going through all the things that eventuated and as a result, we just started off the first part of the year slowly, but traditionally, the second and third quarters, we get a lot of momentum, and it usually culminates with even a stronger quarter directionally in the fourth quarter. So our underlying business is strong commercial business, defense technology's strong customer acceptance, increased shipments of the radar rack products and other missile-defense systems is certainly very positive and we really do believe that although our -- we do believe with our backlogs in the non-A&D sector about the same at the end of the first quarter than they were in December, we believe they've bottomed and we're starting to expect an uptick in those backlogs as we report subsequent quarters.

All right. Final question for me. Do you -- any change in terms of you feeling what your normalized tax rate will be in the second through fourth quarters?

We -- one of the facets about it that I commented upon is that we took the $2 million for full year '12 in the first quarter. But in addition, whatever the normal tax rate we have of about -- of about 31%, it will also additionally benefit from about $0.5 million a quarter of additional federal tax credits here in Q2, Q3 and Q4, whereas last year we weren't able to record that until the end of the year. So we expect a favorable tax rate based on the work that we've done.

So you're implying that we'd be -- to look at the 31% rate and then subtract 500,000 -- or some of this additional 500,000 benefits?

Yes. Correct.

Your next question is from the line of Ken Herbert with Imperial Capital.

Just real quick, one more question on the industrial and natural resources commentary. Do you see within expected rebound later this year, do you see those getting back to levels we saw maybe first, second quarter of '12 by the end of the year or are we still sort of a ways off the peak, when you look at those businesses?

Ken, we study these non-A&D markets over the last 6 years and quarters and they have the ability to expand over a period of time by 25% and then shrink by 18% to 20%. This quarter was a little bit unusual but the reason I said that is a lot of them can be tied to particular sector factors like in the energy markets, what those things are doing, and also the industrial markets, which is related to capital goods information, and those are components of G&P. So we have to study where those macros are going. I mean, I think it was somewhat positive that with a 2.5% G&P growth, it was below expectations, that the forecast going forward, or for a little bit, more attractive. So when we correlate those with the macros, we think, certainly, there's a higher probability they'll expand.

Let me just follow on a little bit, Ken. We do have a couple of opportunities in there that we think that we can work with the customer on and it's really about timing in terms of implementation of the things that we have in place with them. So we do think it's going to start to pick up. But there is some timing that's associated with that and clearing some of the engineering issues.

Okay. And it sounded like from your comments, Tony, that maybe this business or these businesses, sequentially, are flat into the second quarter before you start to see pickup into the second half of the year. Is that a fair statement?

Yes. That's yes, absolutely.

And then if I could, just 1 final question. I mean last year, second quarter was a great quarter where you saw, especially the AeroStructures segment, a really nice step up in margins sequentially, and then sort of a level and drop down of this in the fourth quarter. What -- Joe, when you look at margins within AeroStructures, do you see similar pattern this year with maybe a nice step up in the second quarter? Or are we seeing maybe a little more opportunity to maintain higher margins as the impact of the new programs continues to roll off?

Certainly we expect higher margins in general in the second and third quarter in the AeroStructure business. But then in the fourth quarter, because of less operating days and our manufacturing cost structure, which include some fixed manufacturing costs, we see a compression sequentially in those and we think, directionally, that's what we'll see again.

Okay. So similar pattern?

Yes.

And then just finally, within the AeroStructures side, I mean I know you've been talking about a lot of opportunities in terms of new business and potential capture. Can you provide any more details, may be, on when do you see it in the quarter? Or how that pipeline looks over the next couple of quarters?

Yes, the pipeline looks pretty strong, Ken. Actually, I think that we're working on closing out a couple of programs right now that have some nice legs to them, if you will. And what I think that -- and on pretty good commercial build-rate program. So we've got some opportunities. We see some capacity issues in some other areas, not ours, but our customers and the OEMs, and we see that we have an opportunity to pick things up. So we've been pretty active on a couple of major programs that look like we'll be able to pick those up this year and potentially will have an impact on this year's revenue.

Next question is from the line of Mike Crawford with B. Riley and Company.

I'd like to ask about the contract extension with Boeing on the 737 spoilers. So that's a 5-year extension? Or does that include the annual option years that need to be exercised, how does that work?

It's a 5-year contract with options beyond that.

Okay. And do you have any other important -- I guess, we could classify this as a recompete. Is that fair?

It's a follow on order but Boeings pricing requirements are such that they get some bids on the outside. So yes, you could say it's a recompete. It's ours lose as the way I look at it, right? And so we had to bid on aggressively. And we have other...

Do you expect to have similar margins on that work going forward?

Yes, sir. That's the goal.

And then, are there any other important programs with some follow-on orders and/or recompetes, whatever you want to call them, coming up for the remainder of 2013?

Let's see. Well, on some of the programs, we're already under long-term agreement. So I'm trying to think of my -- on the commercial side, I don't see any that would be in that category possibly into the end of the year, maybe to 2014. But we have a couple of programs that we're working on, that we'll see -- I would expect will be working on to close out this year and probably would announce in the first quarter next year, depends on where the -- based on when the contract ends.

Mike, that said, we're going through a multi-year contracts with -- on the Black Hawk, which is our largest program, about $75 million. And we have that set for several years. And we also with the airborne radar systems, the radar racks, we have that work through on the most recent orders that we received in the middle of 2012. We have that through 2014. So -- and we're working on future orders for that here during '13. So sometimes the work that we do, the results don't show up until later by time the procurement releases those, but those kind of lags on large programs are very significant in our portfolio.

Okay. Since you mentioned the Black Hawk, so it looks like the President's request is for 65 Black Hawk in fiscal '14, that'd be up a bit, I think, from the last request? Is that something -- how closely would that affect your outlook?

I think it'd quite about the same, Mike. Because once they get through -- once the House, Armed Services and the Senate, Armed Services through negotiating the package with the President's requirement, you'll see steady state. The Black Hawk does have -- it's slated to come down about 14 aircraft in last quarter this year. As I think we said in the last call and we expect that to be picked up by foreign military sales. So I think this would be a slight pickup if they were to get it, but I think it would level out in terms of production rate. So I think that we see a pretty steady rate coming out of the Black Hawk program for at least a couple of years.

Okay. And then the final question relates to the commercial aerospace. So you thought there's a chance you could see an uptick in 787 production in revenue for you in the second half of this year. Are there other programs where you're looking for potential new work or other increases in content per platform?

Well, we're looking at -- again, we have a couple of applications that we're looking at on the Airbus, which 1 or, I guess, 2 of them are on some pretty high volume programs. So that's something that we're working on and then we do have a couple of programs on Boeing that we're working on right now, so that would be a new business. And depends on timing and the order release, whether or not we'll be able to impact this year

Your next question comes from the line of J. B. Groh with D.A. Davidson. J. B. Groh - D.A. Davidson & Co., Research Division: I had a question on the strength and military, and forgive me if you've addressed this already, but was that driven by aftermarket or what was the big driver there? Was that in DLT or more DAS?

It was a little bit of both, but it was primarily in DLT. And most of the pickup, J.B., was -- not most of it, but some of the pickup was on the radar systems. It was offset slightly by the downtick on the helicopter, military helicopter market. So we did have pretty strong performance on the DLT side on the electronics that was up and the radar racks kind of drove that and now it's kind of a split between domestic and foreign military sales. J. B. Groh - D.A. Davidson & Co., Research Division: But is it OE or is it retrofit?

It's both.

J.B., we had quite a strong amount of shipments year-over-year in our defense technologies for the items, the products that Tony mentioned, but we went from slightly less than $55 million last year's first quarter to $63 million. That's a big number. J. B. Groh - D.A. Davidson & Co., Research Division: That's DLT, right? Okay.

That's -- yes, so that's on the defense technologies. And then I commented earlier about on the AeroStructures side, we sold -- ship less military helicopters, but it was only about $1.5 million less. So we had really, really strong business that's a $94 million business per quarter compared to about $85 million a year ago. So we're really pleased with, directionally, where that's going and our capabilities. J. B. Groh - D.A. Davidson & Co., Research Division: And then you mentioned briefly on backlog, you expect that to, the book-to-bill, to get above 1, and the balance of the year in that backlog to snap back a little bit?

Yes. well, a lot of that's the non-A&D -- 1 was the study -- what we're doing with the our core businesses of our commercial aerospace and our defense, both technologies and defense structures business, we usually have significant bookings in the fourth quarter and saw this sequentially in the first quarter as we're shipping from some of that backlog, they go down. They went from, for example, they went from $656 million to $638 million but as they go through the year, we're picking up more purchase orders during the course of the year. So we expect those to be quite strong.

I think that on the structure side, it's more lumpy, so you'll get a large order and then ship out of it and then pick up large orders from, as Joe said, usually we see that in the last 2 quarters, where you start seeing some higher orders to fill the requirements for moving forward in the next year. J. B. Groh - D.A. Davidson & Co., Research Division: But the decline is most the natural resources and industrial within DLT, correct?

And some on the military side, in terms of shipments out the door. So it's a natural add in terms of orders received in the last 2 quarters and then ship out of backlog and then you'll feel those as you come through the year.

Your next question is from the line of Bhakti Pavani with C.K. Cooper and Company. Bhakti Pavani - C. K. Cooper & Company, Inc., Research Division: My question was what percentage of the backlog or the bookings came from the cross-selling opportunities? If you could share some light on.

That's a tough one to call for you. We don't categorize it that way, Bhakti. So it will be awfully difficult. But I could tell you that there are some orders in there that are -- there are some shipments in there that came definitely from cross-selling, where we were able to pick up customer requirements. It'd be very difficult for me to say it here because we don't actually categorize it that way.

But we do believe, in general, Bhakti, that this has, in the first part of this year, we announced the AgustaWestland business, we had a strong relationship with them on the structure side. And we picked up some business for the electronic content. And I think that strong franchise we've had in Ducommun AeroStructures, we're able to leverage that with our strategic customers and able to supply defense technology subsystems and that's what we're really working for. It does take a little while and we'll probably start seeing, really, the larger benefits of that perhaps in early 2014 because of the development cycle. But we're very, very favorably disposed on those opportunities.

And just I think, just a quick -- I can't give you the specifics on it because we haven't released any of it but we were able to pick up from 1 of our business units that traditionally has military programs. We're able to pick up some commercial work on a pretty significant development program for Airbus in another division that manages the commercial for us. So we're able to go in and sell on both sides of the fence, if you will. So there are programs that are running right now that are active that have been picked up because we have the ability to cross-sell in the customer. Bhakti Pavani - C. K. Cooper & Company, Inc., Research Division: All right. My next question was about the non-A&D market. I know you guys -- you already have a good relationship with the existing customers and you're working with your key customers. But how about or what kind of initiatives are you taking for acquiring the new customers? I mean, what's your strategy there?

Okay. So one of the things that we've done is we've really increased our value-added content across the board. So in terms of what we bring into the market. And I think that as we looked across the business, I'll use the oil and gas market because that's a lot easier, there's 2 major customers that we haven't penetrated as deeply as we'd like and that's Baker Hughes and Halliburton. On Baker, we actually have sales into there and we've got a presentation schedule with them, so that we can go in and sell them the whole capabilities in terms of the things that we bring in to the oil and gas market. So which is very diverse and can be packaged in a cleaner package than what they traditionally buy. And so we've actually have a presentation scheduled on that. We have a couple other major customers that are new -- would be new customers across the board. So we're taking opportunities. We have the sales force is very enlightened and some of these other major OEMs that traditionally were not penetrated by the existing business units. So we spent quite a bit of time trying to develop the value added to the marketplace as well as the customer content and how we could penetrate those customers. So we are very actively trying to do that and there's activities going on as we speak. Bhakti Pavani - C. K. Cooper & Company, Inc., Research Division: So guys when talking about the sales force, do you have any plans of hiring some sales specialists focused exclusively towards the non-A&D markets including oil and gas? Or are you still working with whatever you have existing?

No, we actually did that, Bhakti, towards the end of last year and into the beginning of this year, we have a couple of individuals that are primarily focused on those market places and one of them is an industry expert. Bhakti Pavani - C. K. Cooper & Company, Inc., Research Division: Okay. I'm sorry if this question has been answered, but I was curious, on the last call, you had mentioned about increasing aftermarket sales opportunity. Just was curious how big of a revenue stream that could be for Ducommun going forward?

That's difficult at this point in time because, as you know, as you enter into our market that you hadn't traditionally penetrated, it is -- there are some opportunities. We've actually won a major contract on a retrofit program that we have not announced and we have a couple of other programs. So it's not something that's going to be, let's say, maybe 1% to 2% opportunities and then filter down from that. So if we were able to penetrate it by 1% increase, so that would be something that would be significant.

[Operator Instructions] And the next question comes from the line of Michael Ciarmoli with Keybanc Capital Markets.

Just on -- if I can on the defense portion of the business, I think, you guys said you're expecting flat to up this year. We've got a lot of unknowns with sequestration. Certainly, it looks like the DoD had a pretty significant reprogramming request out there. How do we get comfortable in that flat to slightly up forecast? And what would you say maybe are your riskiest or higher risk programs that you're a little bit concerned about?

Let me give you some parameters around that, Michael. First of all, even on our website we say that because of the positive response that we've had and the great market acceptance of our defense technologies business wrapped within the DLT portfolio, we expect those markets to average growth over the next 3 years, 3% to 5%. Offsetting that, we've said on our Defense AeroStructures business, because of the cutbacks and conflicts in less of the need for military helicopters and fixed wing products, that those might shrink as much as 4% to 5%. And when you work that all out, the mathematics, it said that the market, those defense markets, which is about 51% of our portfolio, should grow mathematically, it says, 1% to 2%, 1% to 3%. And that's within the context that we look at that these things, as opposed to seeing the market shrinking that are in line with the DoD markets, because also as an offset is some foreign military sales.

Any programs or contracts you guys would put in the higher risk, higher concern category for this year? Or you guys feel pretty confident about the portfolio?

I think that there's always, what I would say, higher risk and this wouldn't have anything really to do with sequestration. We expect to see eventually a pullback in some revenue because of the war coming down. And so that would be primarily on some of the helicopter programs that we have. We've already seen some minor schedule slides on those, nothing out of the year, but moving to the right in terms of requirements. So it's hard to say that I don't think none of those programs are at risk. And if you look at the budget, they're all pretty solid in the budget. So it's from an OEM standpoint, it's from more of a we support both the OEM and a little bit of the aftermarket there. So when you look at that, you would think that some of those sales would come down. But when I look across and I see risk programs and, clearly, some of the programs we're on that are on upgrades and modifications will continue on in the future and that's opportunities for more growth if things happen that way. But we really have to wait and see how the final budget shakes out before we can identify those programs. There are opportunities on both sides, opportunities to grow, but there's also some things, like I said, on the helicopter market, that we see could possibly shrink going forward. But I think we're looking at it this year as being pretty stable through the year and probably would expect to see some impacts into 2014.

Okay, perfect. And then just the last one I had. Some of the new, on the commercial aerospace side, some of those new opportunities you're seeing for new content. Are the financial terms or the margins any different from any of your prior or previous programs? Are you seeing any pricing pressure out there or increased demands from some of those OEs like a Boeing or Airbus?

Well, there's always continued pricing pressure. But generally, what we're winning is competitive bids. So we go in with an acceptable margin to ourselves and then we create through our Lean and Six Sigma and continuous improvement platform, an opportunity to continue to try and drive to those margins. So we try to win a program. Traditionally, commercial programs, for us, have been -- have carried a margin that's probably not a significant -- not as well as high as the military programs and I think that's probably pretty standard for people with that kind of mix. But we generally drive to a particular margin and then we put the programs in place in order to be able to hit that. But there is a lot of pressure out there.

Ladies and gentlemen, this does conclude the question-and-answer portion of today's event. I'd like to turn the presentation back over to Ducommun's Chairman, President and CEO, Tony Reardon, for any closing remarks he'd like to make.

Thank you, Regina. Once again, I'd like to thank you for your continued support and we look forward to talking to you next quarter. Thank you.

Ladies and gentlemen, this concludes our broadcast for today. Thank you so much for your participation. You may now disconnect. Have a great day.