Ducommun Inc /De/ Q4 FY2022 Earnings Call

Good day. And thank you for standing by. Welcome to the Fourth Quarter 2022 Ducommun Earnings Conference Call. At this time all participants are in a listen-only mode. I will now like to turn the conference over to Ducommun’s Vice President and Chief Financial Officer, and Controller and Treasurer, Chris Wampler. Please go ahead.

Thank you, and welcome to Ducommun's 2022 fourth quarter conference call. With me today is Steve Oswald, Chairman, President and CEO. I'm going to discuss certain limitations to any forward-looking statements regarding future events, projections, or performance that we may make during the prepared remarks or the Q&A session that follows. Certain statements today that are not historical facts, including any statements as to future market conditions, results of operations, and financial projections are forward-looking statements under the Private Securities Litigation Reform Act of 1995 and are therefore prospective. These forward-looking statements are subject to risks, uncertainties, and other factors, which could cause actual results to differ materially from the future results expressed or implied by such forward-looking statements. Although we believe that the expectations reflected in our forward-looking statements are reasonable, we can give no assurance that such expectations will prove to have been correct. In addition, estimates of future operating results are based on the company's current business, which is subject to change. Particular risks facing Ducommun include, among others, the cyclicality of our end-use markets, the impact of COVID-19 on our operations or customers, the level of U.S. government defense spending, timing of orders from our customers, legal and regulatory risks, the cost of expansion and acquisitions, competition, economic and geopolitical developments, pandemics and disasters, natural or otherwise. These risks and others are described in our annual report on Form 10-K filed with the SEC, and our forward-looking statements are subject to those risks. Statements made during this call are only as of the time made, and we do not intend to update any statements made in this presentation, except if and as required by regulatory authorities. This call also includes non-GAAP financial measures. Please refer to our filings with the SEC for a reconciliation of GAAP to non-GAAP measures referenced on this call. We filed our 2022 Annual Report on Form 10-K with the SEC today. I would now like to turn the call over to Steve Oswald to review the operating results.

Thank you, Chris. And thank you everyone for joining us today for our fourth quarter conference call. As usual, I'll provide an update on the company's current situation, followed by Chris reviewing our financials in detail. I'm pleased to announce that Ducommun's fourth quarter top line performance was very strong, with year-over-year revenue growth of 14% to $188.3 million. This indicates not only the robust state of our end markets but also highlights Ducommun’s ability to effectively manage the supply chain and workforce. Moving to the markets, the ongoing recovery of commercial aerospace was a significant positive in Q4. The Boeing 737 MAX business grew by 37% year-over-year, and the Airbus A320 saw substantial growth of 72% year-over-year. Overall, the commercial aerospace segment, including Airbus, Boeing, Gulfstream, and others, was up over 60% from Q4 2021. The commercial aerospace business has demonstrated year-over-year revenue growth for the sixth consecutive quarter, an excellent indicator as the industry and build rates recover. The company's defense business, after experiencing unprecedented growth in 2020 and 2021, was down slightly in Q4 but still delivered solid revenue of over $100 million as we anticipate increasing DoD budgets and FMS in the upcoming years. The company reported a gross profit of 20.5%, a slight decrease year-over-year due to several one-time factors that Chris will discuss. The adjusted operating income margins were 8.1%. Adjusted EBITDA was strong at $24.5 million, showing a slight year-over-year increase, while adjusted EBITDA margins stood at 13% in Q4. We predict solid EBITDA performance this year and even stronger results in 2024 after resolving the plant closures and restructuring activities of 2023. The quality of earnings was good, with a GAAP diluted EPS of $0.65 a share compared to $9.05 a share for Q4 2021. However, when adjusted, the diluted EPS was $0.85 a share, comparable to the previous year's diluted EPS of $0.88. Key factors contributing to the lower GAAP EPS include restructuring charges and last year's significant gain from the lease sale back of our Gardena performance center’s industrial property. I would like to highlight the significant improvement in our commercial aerospace business within our Structural System segment during 2022. Commercial aerospace revenue within structures reached $165 million, approximately 55% higher than in 2021. In addition, Q4 commercial aerospace revenues were $43 million, or 45% higher than the previous year, indicating encouraging growth in this segment. At the end of Q4 2022, our backlog stood at $325 million, a 17% increase from Q4 2021, setting us up for excellent growth now and in the future. It's worth noting that our structures business is component-based rather than relying on large, capital-intensive products, and we focus on niche technology such as titanium hot form and super-plastic forming. Regarding the company's backlog performance, the commercial aerospace backlog increased sequentially for the seventh consecutive quarter, climbing from $266 million at the end of Q1 2021 to $450 million at the end of Q4 2022, a 69% increase. This growth was driven by the 737 MAX, Viasat for inflight entertainment, the A320, A220, and Gulfstream, which is encouraging after the challenging years of 2020 and 2021. The defense backlog remained solid in Q3, finishing the quarter at $457 million. We successfully surpassed our target for defense prime work, reaching significantly more than $45 million in 2022, up from around $31 million in 2021. We expect a strong performance in 2023, forecasting approximately $90 million, primarily in our circuit card business for Raytheon at locations such as Appleton, Wisconsin, and Tulsa, Oklahoma. The long-term run rate of these defense programs, either already commercialized or in development, is anticipated to exceed $125 million for Ducommun by 2025. As the prime contractors continue to emphasize cost reduction and challenge the rationale for keeping certain types of production in-house, our cost management strategies and organizational structure are yielding positive results. Our team delivered an excellent quarter in Q4, effectively managing the supply chain, which is reflected in our financial results, and we maintain a strong relationship with our customers regarding on-time delivery and quality. Corporate costs as a percentage of revenue were also very favorable at 4.1%, down from 5.3% last year in Q4. I would also like to highlight our successful Investor Day on December 8, and thank all who participated, both in person and virtually. We greatly appreciate the valuable feedback. We shared more information than in previous meetings, particularly regarding our strong results from our four acquisitions and our post-pandemic strategy. Our path forward for the company and investors is now clear through 2027. Chris will provide further details, but we have made a strong start in 2023 with the plant consolidations and other restructuring efforts, along with plans for real estate sales. For 2023 revenue guidance, we anticipate the company's revenue growth to be in the low- to mid-single digits. The recovery in the commercial aerospace sector will continue to drive this growth, with solid revenue expected in the upcoming quarters as more volume returns, although the defense segment may experience some timing impacts on a few programs while maintaining a strong backlog. The two plant closings will result in a slight reduction in revenue as we streamline non-strategic and low-volume business. We remain active and opportunistic with acquisition opportunities, believing this will serve as another catalyst for growth in the coming year. Now, let me provide additional insights on our markets, products, and programs. In our military and space sector, we reported fourth-quarter revenue of $108.4 million, a slight decrease from 2021. Despite this decline, revenue exceeded $100 million, showcasing solid Q4 results. We observed increased demand for our missile programs, including [indiscernible] and Patriot, and F-18. The fourth-quarter military and space revenue constituted 58% of Ducommun’s revenue during this period, down from 69% last year. This trend reflects a continued balance with commercial aerospace, which we welcome. We closed the fourth quarter with a solid backlog of $457 million, representing nearly 50% of the company's total backlog. In our commercial aerospace operations, fourth-quarter revenue increased year-over-year to $68 million, largely driven by production increases for large aircraft platforms, inflight products for Viasat, and other commercial aerospace platforms. Ducommun expects to see continued improvement in the commercial aerospace market, gaining momentum in 2023, and the outlook is positive across our product offerings. Our delivery and quality standards also continue to stand out as we progress. The commercial aerospace backlog stood at $450 million at the end of the fourth quarter, reflecting a $117 million or 35% year-over-year increase from Q4 2021. With that, I'll turn it over to Chris to discuss our financial results in detail.

Thank you, Steve. As a reminder, please see the company's 10-K and Q4 earnings release for further description of information mentioned on today's call. As Steve discussed, our fourth quarter results reflected another quarter of strong performance. The fourth quarter results saw a significant increase once again in commercial aerospace revenue. We remain encouraged by the continued strength in domestic and global travel, which should help support higher long-term demand in shipments going forward. There were multitudes of positive themes as we closed out 2022, and combined with actions being taken to our restructured program, we're looking forward to building on our 2022 performance. Now, turning to our fourth quarter results. Revenue for the fourth quarter of 2022 was $188.3 million versus $164.8 million for the fourth quarter of 2021. The year-over-year increase reflects $26.4 million of growth across our commercial aerospace platforms, partially offset by $4.7 million of lower revenue within the military and space sector. A portion of the year-over-year increase is directly attributable to MagSeal, which we acquired in December 2021. So our overall growth was a combination of organic and inorganic growth. Ducommun’s overall backlog at the end of the fourth quarter was approximately $961 million. This reflects recent growth across our commercial aerospace platforms. Our defense backlog was $457 million and we remain positioned for continued solid performance as we begin the new year with our defense business. As a reminder, we define backlog as potential revenue based on customer purchase orders and long-term agreements with firm fixed prices and expected delivery dates of 24 months or less. We posted total gross profit of $38.6 million for the quarter versus $37.3 million in the prior year period. While gross margins were 20.5% and 22.6% in 2022 and 2021 respectively. On an adjusted basis, gross margins were 21% and 23% in 2022 and 2021 respectively. Throughout 2022, we've had adjustments for items such as Guaymas fire-related costs, MagSeal inventory, step-up amortization, and costs of sales related to restructuring expenses. As we finish 2022 and head into 2023, we expect these types of adjustments to wind down by mid-year. While gross margins of 20% to 21% plus are good from a historical perspective for Ducommun, they continue to lag the levels we ran at in 2021. The globally recognized challenges around supply chain and labor availability have had some level of impact on nearly all manufacturing companies. However, as Steve mentioned, we continue to manage through without significant supply chain impacts due to the proactive supply chain efforts, executing strategic buys, leveraging our performance center flexibility, and utilizing inventory investments. But we have seen certain performance centers continue to have more of a challenge on various program flow-through, products mix, and profitability. Two of which are Monrovia, California, and Berryville, Arkansas operations. As mentioned during our Investor Day dialogue in December 2022, we anticipate repositioning production from these facilities during the first half of 2023. The consolidations will redeploy the production from these performance centers, which have been unable to perform at expected profitability levels and allow us to better utilize our low-cost manufacturing facility in Guaymas, Mexico. In addition to taking out these fixed costs, we continue to aggressively manage our discretionary spending, all with the purpose of driving margin expansion. Ducommun reported operating income for the fourth quarter of $9.7 million or 5.1% of revenue compared to $11.8 million or 7.2% of revenue in the prior year period. Adjusted operating income was $15.2 million or 8.1% of revenue this quarter compared to $15.3 million or 9.3% of revenue in the comparable prior period last year. The company reported net income for the fourth quarter of 2022 of $8.1 million or $0.65 per diluted share compared to net income of $110.8 million or $9.05 per diluted share a year ago. On an adjusted basis, the company reported net income of $10.6 million or $0.85 per diluted share compared to net income of $10.8 million or $0.88 in 2021. Adjusted EBITDA for the fourth quarter was $24.5 million or 13% of revenue compared to $24.4 million or 14.8% of revenue for the comparable period in 2021. Now let me turn to the segment results. Our Structural Systems segment posted revenue of $68.2 million in the fourth quarter of 2022 versus $58.8 million last year. The year-over-year increase reflects $13.4 million of higher sales across our commercial aerospace applications, partially offset by $4 million of lower revenue within the company's military and space markets. Structural Systems operating income for the quarter was $4.4 million or 6.4% of revenue compared to $5.1 million or 8.6% of revenue last year. The year-over-year operating margin decrease was primarily due to unfavorable product mix and higher restructuring charges, partially offset by favorable manufacturing volume. Excluding restructured charges and other adjustments in both years, the segment operating margin was 10.8% in 2022 versus 12.2% in 2021. This is a solid operating performance from the Structural Systems segment. As a reminder, the results of our MagSeal business, which was acquired in Q4 2021, are part of the structures business. Our Electronic Systems segment posted revenue of $120 million in the fourth quarter of 2022 versus $106 million in the prior year period. These results reflect $13 million of higher commercial aerospace revenue, partially offset by $0.7 million of lower revenue across the company's military and space customers. Electronic Systems operating income for the fourth quarter was $13 million or 10.8% of revenue versus $15.4 million or 14.6% of revenue in the prior year period, primarily reflecting unfavorable product mix and higher restructuring charges partially offset by favorable manufacturing volume. Excluding restructured charges and other adjustments in both years, the segment operating margin was 12.9% in 2022 versus 15.8% in 2021. Now at the top end of the range, this segment has operated, and this was a solid quarter for the electronic segment. As a reminder, and discussed at our recent Investor Day, we commenced a restructure initiative back in Q2 2022. The identified restructure actions are being taken to accelerate the achievement of our strategic goals and better position the company for stronger performance in the short and long term. During Q4 2022, we incurred $2.9 million in restructuring charges. The majority of these charges were severance and benefit-related. We expect to incur an additional $12 million to $16 million in restructure expense for facility consolidations, severance, and impairment of long-lived assets during 2023. Most of the expected remaining charges related to the repositioning of a portion of our restructure initiative that I mentioned earlier. The majority of the production being moved is going to our low-cost operation in Guaymas, Mexico with the remainder going to other existing performance centers in the United States. Once we wind down production at Monrovia and Berryville, we anticipate selling the associated land and buildings at both locations. These initiatives are progressing as expected and when we complete our restructure, we anticipate our efforts will generate annualized savings of $11 million to $13 million. We have available liquidity of $246 million as of the end of the fourth quarter. The fourth quarter of each year is typically our strongest from a cash flow generation perspective, in 2022 with no exception. We are pleased with the generation of $32.1 million of cash flow from operations this quarter. Cash flow from operations in Q4 of 2021 was $11.7 million. Our 12 months debt-to-adjusted EBITDA ratio was 2.2 and is amongst the lowest in the last several years. We finished 2022 with a full-year effective tax rate of 13.6% versus 20.5% in 2021. The rate was lower this year as the majority of the tax in 2021 related to our gain on sale, leaseback transaction, which was taxed at a rate in excess of our effective rate excluding such transactions. Interest for the full year 2022 was $11.6 million versus $11.2 million in 2021. While our debt refinancing during 2022 was timely and beneficial, the rising interest rate environment drove the increase year-over-year. Assuming no pivot on interest rates during 2022, we expect interest expense to be approximately $18 million in 2023. When our interest rate hedge becomes effective January 1, 2024, we anticipate it will provide significant beneficial offset in the longer term. Just one additional comment from me, 2022 is the third consecutive year with an environment of significant market and macroeconomic change. During this time, we’ve attempted to continually assess and adjust our priorities as we focus on daily execution to deliver for our customers and all other stakeholders. We look forward to building on the strong foundation we have established as we move through 2023 and beyond. I’ll now turn it back over to Steve for closing remarks.

Okay, Chris, thank you. Well, it certainly was a strong quarter. I hope you’re pleased. The year in 2022 was our best top line since 2019. We feel good about it. As mentioned earlier, the path is now clear coming out of our investor meeting in December. I think we’re off to a very good start in 2023. We’ve got a lot to do and I think it’s all going to provide a lot of value to shareholders and to the company going forward. In addition, all the meetings I’ve been having and attending, and industry news I’ve read shows that I think there are great opportunities ahead over the next several years. The Ducommun team will be ready to capture the upside when available. My thanks, as always, to our employees and investors for their support as we conclude again, a very good year with lots of positive things ahead. So again, thank you for listening. I’ll now open it up for questions.

Our first question comes from Ken Herbert at RBC Capital Markets. Your line is open.

Hey, good morning, Steve and Chris.

Ken, good morning. Thanks for joining us.

Yes. Hey, maybe just wanted to first talk about the low to mid-single top line expectations for 2023. And I wondered, Steve, if you can break that out a little bit by market. It looks like commercial aero should continue to see some obviously nice growth based on the backlog and build rates. What is your assumption for growth in that market? And then what are your assumptions for growth in defense?

Well, it’s really going to grow in commercial aero, Ken. We’re a little bit – we’re – as we’ve talked about we’re ready to go, right? So we’re a little bit – with Spirit and Airbus and Boeing, we’re sort of – I wouldn’t say we’re capped, but we’re absolutely going to see growth in commercial aero this year. But we certainly are cheering for them to get to the next level of production. So that’s the first thing I’d say. The second thing is I’ve mentioned in remarks with defense. I mean, we have a couple of programs that either through timing or the order situation right now, we’re going to basically bring defense in probably right around flat this year. But we’re encouraged with our backlog, and we think 2024 is going to be a better year. But I think this year with a couple of things, F-18, we have a little bit of a program there and Apache and a few others that are just more timing-based. We’re going to be above $100 million, but we’re going to be pretty – I’d say pretty flat.

Okay. That’s helpful. And for defense, does that flatness reflect as well the – it looks like you’ve got an incremental, call it $45 million or so, $40 million to $45 million from offloading benefits in 2023 relative to 2022?

Yes. It’s going to – it won’t be that high. It’s going to be – we came in – I don’t want to come write down the number there, but we’re probably going to get a tailwind of say $30 million from the offload, maybe $35 million, because we came in pretty good shape. But again, these offloads are also helping with some of the timing on these programs. So, it’s definitely going to help us. We’re going to certainly hold our ground, as they say. And going into 2024 because you have to understand when we’re moving parts for the Patriot or for other programs, I mean, these have a long tail as far as getting everything over to Tulsa. As I’ve mentioned earlier, some of these programs are Raytheon. But we continue to make progress and I mentioned in my remarks that Primes are eager for cost reduction and they’re certainly challenging and questioning their in-house operations. So that’s helping us.

And if I could just one – yes, just I appreciate that. Just one final question on the defense outlook. I mean, budgets are up sort of 10% in fiscal 2023. There’s obviously some uncertainty around fiscal 2024, but we’re seeing higher international spend. Do you – you’ve called out timing on a couple of programs, maybe those help in the latter part of the year. But do we see then a sort of material inflection positively in defense into 2024? Or how do you think about this longer-term? Because the flat sales, I can appreciate because it’s consistent with what a lot of other companies have talked about. But I’m just curious, Steve, your view on when we start to see the funding catch up or get better reflected in your results.

Yes. We feel much better about 2024, Ken. Okay. Certainly with what we’re seeing, I mean, we had a – maybe we don’t disclose that our electronic systems defense business had a great order quarter in Q4, which was sequentially, I’ll just give you that number, probably at least over 40%, 45% versus Q3. So orders are coming in. I mean, obviously, there’s timing on deliveries. Is it going to be 2023, 2024? We feel good about 2024 as far as being able to move forward again.

Yes. And one other comment too, Ken, is just as you – I think as we’ve seen everything turning from order to delivery to shipment is pushing out slightly as you’ve come through these last couple of years. So that’s why we’ve got – we’re looking at this next whole months and saying sort of hold, serve and then start to see it pick up.

Yes. And Ken, as it rolls out, you might see a little bit of other suppliers for these Primes that are struggling or have other issues, right? Other issues where it’s certainly a little bit of challenge for us because I mean, we’re pretty much ready to deliver, but there are other things happening with some of these programs, either there’s hiring challenges at some of the Primes or there are other suppliers that are late. So we’re feeling a little bit of that too this year. We’re hoping for a much better activity next year.

Great. All right. Thanks, Steve. Thanks, Chris.

Yes. Thanks for the question. Always appreciate it.

One moment for our next question. Our next question will come from the line of Mike Crawford from B. Riley. Your line is open.

Thank you. I think would you agree that supply chain constraints are easing? And if so, how much of an opportunity is there to bring in some working capital to take that back into cash?

Mike, good question. I think that it is easing; I think it’s a little bit sort of down the middle on commercial aero because one of the reasons where we’ve been winning more is that we have titanium sheets and we have other things that maybe some of the suppliers don’t, we’re able to kind of come in and help. So I would say that the second half of the year we see that in a better place easing and we’re certainly interested in getting our turns up.

Okay. And then are there any other specific programs that you’re really aiming to gain business via offloading from Primes, or you just don’t want to get into that level of detail on this call?

I probably don’t. I mean, just because I want to be sensitive to the customer and/or the customers. But I will just tell you that especially in the card area, I mean, we put that note out about Appleton being over $100 million now, which is a 70,000 square foot plant, which is – and that’s all cards and that’s all people coming and saying, hey, we want you to do it here as well as, Tulsa now is onto the next phase and we’re expecting really good things. And again, I mentioned – I talked a little bit about one program just because I mentioned earlier is that taking something out of a major operation, test equipment, those types of things. I mean, these things need to take time and they should. So that’s why we’re more bullish in the 2024 period.

Okay. Thank you. And then last question might be more for Suman, but what if any changes or opportunities are you seeing on the M&A front where you’re looking for more of these niche suppliers?

Yes. No, appreciate the question. That’s why I kind of put in my remarks as well. So look, we were – as I mentioned, we were more forthcoming and rightly so at our Investor Day in December. Hopefully everybody was pleased with those – with all four of our operations because we’ve really – I think, done a nice job at all of them. I will just say that we’re active; the model works for us. It does accelerate our margins, does lots of things for us and that's kind of where we're heading right now, Mike, at least for the next year or two these same kind of profile acquisitions you've seen in the past.

Okay, great. Thank you.

Thanks for your time.

Thanks, Mike.

Our next question comes from Pete Osterland from Truist. Your line is open.

Hi, Steve and Chris, thanks for taking our questions today. So first we've heard a few different things across the supply chain about expected build rates this year, particularly for the 737 MAX. So just wanted to know what build rate are you currently producing at on the MAX and are you actively planning for production rate increases this year? Is that something that's reflected in your sales guidance, or would that represent upside if it were to materialize?

Yes, we have experience in this area across the industry. For this year, we anticipate remaining flat for at least a month. We hope to see increases later, though we haven't fully factored that in yet, so there is potential for upside. One positive aspect is the performance of Tier 1 suppliers, as they are ahead in the production chain. Boeing is working to finalize things and we expect to benefit from Spirit's advancements. Additionally, we have been conservative with our build rates this year to avoid overextending ourselves due to concerns about supplier deliveries and their ability to hire enough skilled workers. If circumstances align favorably, we could have a better year ahead.

That's very helpful, thanks. And then just as a follow up, well, I know you didn't give specific guidance on this, so was wondering if you could just help calibrate us on margins for the upcoming year. So just any color you could give on pricing versus cost inflation. Do you expect that to be a headwind this year? And just in general, should we be thinking about seeing margins up this year as sales grow and you start to see the benefits of your restructuring, or just how are you thinking about that?

Yes. No, thanks Pete. So yes, I think as you look at this year and you see where our jump-off point is, yes, we would say and then we sort of signal this in some of the dialogue at the Investor Day. We do view it's sort of a transition year on margins. I mean, we're – those same pressures are still there, so we don't think there's going to be incremental headwind. We think we're going to just continue to work through it. And again, hopefully we will find our way to some type of improvements as we go through the first half of the year, especially with where we were last year and then the restructuring benefits in the back half of the year as we finish up. And that's where we'll start to get the more significant lift just on the base business. When the growth hits too that's always going to be another element to it. But as you've sort of heard in the forecast we have, it's not – it's not a growth-driven year; it's going to be more about what we can do with the business, what we can do with the cost structure, and the repositioning is a big part of that.

Yes. Let me just jump in here. So look, as I mentioned in the Investor Call, we don't take plant consolidation lightly here. But I will tell you the two factories that we're going to close didn't really help us in 2022, okay, from a margin perspective. I'll leave it there. You can interpret that but the second point is that once we consolidate those into low-cost centers we take all the expense out, that's going to, I think, deliver very nicely in the midterm for our margin story, Pete.

All right. Very helpful. Thank you.

Thanks for calling in. Appreciate it.

One moment for our next question. One moment for the next question. And our next question will come from the line of Ken Herbert from RBC Capital Markets. Your line is open.

Hey, Steve, I just wanted to follow up on your last comments on the restructuring. How much of the – how much of the work at Monrovia and Berryville have you already transitioned and how much is left to do there? And then how much of a working capital headwind is that this year, I'm sure you've built safety stock and inventory and provisions in anticipation of the move?

Yes. Okay. A couple of things, as I'll let Chris handle the second part of that. Let me just handle the first part. Look, we've had I think excellent or the best you can expect announcements to the teams, okay. I’m happy to say that for the most part, we still have teams working hard in those facilities. We are actively either engaging with customers, as far as I said – mentioned earlier, pruning some things that really just aren't good for us and for shareholders going in the long term. So we're actively doing that. We also put plans in place and as we go forward, building buffer for – to be effective and to have this thing sort of innocuous to customer experience with the commons. So we are active; we pretty much we're probably going to be going through the first quarter pretty much tight with the group, and then we're going to start moving out on moving things and accelerating. But as I mentioned earlier, I'm happy with how we started off. Again, these things are always tricky and we're off to a very good start and we feel we have the plans and we have the right practices for keeping people on the team and for all the things you need to do to be effective to move the work in place. Guaymas as well as we mentioned in the – I think it was in the investor call, we have another building down there now. So we're in a very good shape with floor space and workforce to take the majority of this work in Mexico. Not everything, but the majority of it.

Yes. And just on the inventory or the investment, Ken, I would say modest investment here in the first half of the year, Steve mentioned a little bit of safety stock. I mean, there's an element of that, but we do view that sort of being first half of the year. Transitions are happening, working it down and so by the time you get to the end of the year, it's nominal in sort of what the full year view would look like, but there could be a little bit of investment here in the first half of the year.

Okay. Helpful. And if I could, one other quick follow-up. Airbus today announced some aggressive or planned aggressive rate moves on their wide-body portfolio with maybe the rate increases on the A320 family pushed out to the right a bit. Can you level set us on where you are with Airbus, maybe as a percent of your aerospace business and opportunities with their supply chain disruption and issues to either take share and how much will you participate in the accelerated production on their wide-body aircraft, the A330 and the A350?

Yes. Ken, I did see that note. I only briefly, I didn't read it, I just briefly saw some of the things. So first of all, just to highlight, we're in fairly good shape on the A330, so we were not that optimistic about it a couple of years ago. To see that moving in the right direction, that's something that we actually were players on. I won't get into exactly what the percentage is, but we're going to – that's going to benefit us the A330. We're in the middle of trying and as you know, these things take time to get a position on the A350 which is something that we're engaged in actively. So more to come there. We like to see those increases. I think the year-over-year number that I said about the A320 and Airbus was pretty dramatic. We think that, that’s going to continue. As I mentioned in my Investor Day back in December, you have to always be a little bit careful. With Airbus, they have a lot of mouths to feed and they need the parts to produce. We’re pretty much, even though we might be slightly off now, we've pretty much been 100% on time with Airbus for over three years with a little, maybe one or two misses here or there. So we're in great shape with Airbus, not really ready to go fully on what the disclosure is on the amount of business, but it continues to grow. We're hopeful and we feel good if these – if they're running hard, we're going to feel share gain; that's what we want.

Okay. Thanks, Steve.

Thanks, Ken.

Thank you. And I'm not showing any further questions in the queue at this time. So pass it back to Steve Oswald for any closing remarks.

Okay, thank you. And okay, thank you again everyone for joining us. I thought it was a very good Q&A as well as hopefully you felt the script was helpful. We have a lot going on at the company. We're going to, I think if things go our way, we're going to hopefully do a little bit better than our revenue guidance, but we always try to be thoughtful and we want to be as transparent as we can on these calls and help investors and our analyst partners. So – but we feel good – very good about 2024. We're closing these factories for a reason. It’s all going to benefit from the mid- to long-term, especially in the margin area and other things. We're excited about our Atlantis operation going to the next level, which is a big part of our future. And we're active with acquisitions and we're feeling good. So again we appreciate your support and thank you again for listening.

This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone have a great day.