Ducommun Inc (DCO) 2013 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second-quarter 2013 Ducommun conference call. My name is Jackie, and I will be your operator today. At this time, all participants are in a listen-only mode. Following the prepared remarks, there will be a question and answer session.

(Operator Instructions)

As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to coordinator. Mr. Chris Witty, you may proceed.

Thank you, and welcome to Ducommun's second-quarter conference call. With me today is Tony Reardon, Chairman, President, and CEO, and Joe Bellino, Vice President, Treasurer 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 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 would 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 will begin by providing a brief overview of the quarter including some market color, after which I will turn the call over to Joe Bellino to go over our financial results in details. The second-quarter clearly highlighted the strength of Ducommun's diverse aerospace and defence operations, as the Company benefited from robust demand for large commercial jets and the solid base of key military programs. The top line growth, combined with strong margins and lower interest expense helped drive earnings to $0.51 per share. And by keeping a focus on operating leverage and working capital management, we generated more cash and paid down additional debt this quarter leaving the Company with a stronger balance sheet.

So we had a number of things come together that drove the positive operating results, as we continued to execute on the strategy of growth and earnings improvement. Heading into the second half of 2013, our backlog remains solid at $632 million, and we expect some major follow-on orders in both commercial and military markets, along with new business wins which we expect will bolster backlog further. While there are still some uncertainties within the non-A&D segment well as the potential of impact of sequestration, we are prepared to manage the business through these challenges.

Let me provide some more in depth color on our markets, platforms and our programs. Ducommun and the entire industry is benefiting from (inaudible) robust commercial aerospace demand. We are all aware of the increasing build rates from Boeing and Airbus, as well as some of the major orders announced during the Paris Airshow in June that further strengthened their backlogs.

Given this backdrop we are very positive about large commercial aircraft market, where our sales grew over 25% year-over-year. In fact, large commercial aircraft sales represented nearly 20% of our Ducommun revenue during this quarter, and we see no let up in demand particularly across some of our most popular programs, the 737, 777, and 787 aircraft. Our backlog remains healthy across the overall commercial aerospace sector. However, softness continues within the business and regional jet markets, and we have experienced a pull-back in our commercial helicopter shipments after 2012's record performance.

We continue to focus on new business opportunities within the commercial aerospace arena, and during the quarter we announced an agreement with Alenia Aermacchi, a unit of Italy's Finmeccanica to produce the various fuselage skins for the Airbus A321 aircraft. As our first major contract for an Airbus single-aisle aircraft, this is a great opportunity for us to showcase our technology and production expertise, as we look to expand sales across the A320 family. This long-term agreement also significantly strengthens our partnership with Alenia, and Ducommun now supports the A320, A350 and A380 programs.

Within the military and space markets we posted solid results across the board this quarter, representing our diverse set of products and platforms. Our military aircraft revenues rose substantially year-over-year primarily due to strong deliveries for the F-15 and F-18. And Joe will review further in a moment, our DLT operations accounted for the bulk of Ducommun's military growth this period, reflecting robust demand for radar racks, upgrades, and replacements with solid sales in missile defense and space. Our military helicopter sales were roughly flat year-over-year, with higher shipments on the Chinook and Bell helicopters and other platforms offsetting schedule slides on the Blackhawk. That said, we recently received another multi-year contract from Sikorsky to continue producing sophisticated electromechanical assemblies for the Blackhawk, a program we have worked at for more than two decades. It is one of our most important platforms and it remains the Army's workhorse, one that we look forward to supporting for years to come.

Overall, the defense outlook is still clouded by uncertainties of budget discussions in Washington. Given this climate, we expect that while our military and space backlog remains near record levels, we will likely see more schedules slides which may push out defense revenues from 2013, into 2014 and 2015. Ducommun's position is bolstered by our strong product mix, and the need for advanced electronics content and the diversity of our programs. But we are cautious, in terms of how the next few quarters will play out. While we are working on new avenues for growth, the effects of sequestration on our programs will be better understood as budget negotiations commence this fall. We expect that the total military spending will be down in 2014.

Now turning to the non-A & D market. Sales fell 26% year-over-year this quarter, and the weakness continued across the board. Our natural resources and industrial segments were down versus last year, although nearly flat sequentially with the first quarter of 2013. We expect similar results for the remainder of this year, given our current backlog and anticipated shipments going forward. However, we are certainly not sitting still. While this portion of our business is very challenging right now, we clearly believe it can be a growth engine for us. To that end, we have developed new strategies for each of these markets, engaged outside assistance along with our talented engineering staff to identify and capitalize on innovative solutions to address our markets -- our customers' market requirements.

We see a lot of promise in the medical, oil and gas markets and the broad sections of the industrial landscape with customers such as John Deere, which recently recognized Ducommun as a partner level supplier with the company's Achieving Excellence Program. This partner level status is John Deere's highest supplier rating, and was awarded in recognition of Ducommun LaBarge technology's reliability and rapid prototype development of critical components for their assemblies and electronic systems. We look forward to having a long and growing relationship with Deere, and other leading industrial manufacturing companies.

Similarly for the oil and gas markets, we are utilizing our in-house R&D expertise to generate new innovative design concepts, and to modify and improve existing applications providing a wider array of solutions to our customers in this highly technical field. Overall, given our broad capabilities and engineering focus, we expect to begin seeing a pick up in the non-A&D orders leading to improved performance across this segment next year. In summary, we have some challenges to overcome in the second half, but with some excellent opportunities to grow our business as well. And with that, I will turn the call over to Joe to go through our financial results. Joe?

Thank you, Tony, and good day, everyone. After the market closed this afternoon, we reported our second-quarter results of 2013. Our overall sales of approximately $191 million were up nearly 4%, compared to sales of $185 million in last year's second-quarter. The increase was driven by solid growth in the large commercial aerospace market, and strong demand for our defense technologies which was partially offset by the continuing softness in our non-A&D end use markets as Tony discussed. Net income was $5.5 million or $0.51 per fully diluted share, compared with $5.5 million or $0.52 per diluted share in last year's second-quarter. Last year's second-quarter results were aided by a $0.15 per share state income tax benefit resulting from the LaBarge acquisition.

Ducommun's higher sales this quarter favorably impacted our Company-wide operating income, in terms of both dollars and as a percentage of revenue. Operating income for the quarter was $15 million or 7.9% of revenue, compared to $14 million or 7.6% of revenue in the comparable period last year. In addition, we were pleased to see the operating segment margins improved at both segments. At Ducommun AeroStructures or DAS, they improved 140 basis points year-over-year and at Ducommun LaBarge Technologies, DLT, they improved 80 basis points. Higher corporate G&A expenses, primarily a workers compensation insurance payroll audit and professional fees partially offset these gains. In the second-quarter, we generated over $22 million in adjusted EBITDA or 11.6% of revenue, compared to $21 million in adjusted EBITDA per last year's second-quarter which was also 11.6% of revenue. Our backlog remains solid at $632 million, and we expect this to grow during the final quarter of 2013.

It appears our non-A&D markets have stabilized in terms of sale and in backlogs, and we also have a variety of opportunities being pursued within our commercial aircraft and defense technologies businesses. And looking at results by segment, Ducommun AeroStructures, sales for the second-quarter increased 9% to $84 million, up from the $77 million a year ago, driven primarily by higher shipments of large commercial aircraft reflecting higher build rates.

DAS's EBITDA for the second-quarter was approximately $12 million compared to $10 million last year, and the EBITDA margin expanded 140 basis points to 14.2% of revenues, and reflected continued reductions in development costs for new programs verses 2012. Ducommun LaBarge Technologies, DLT, posted sales for quarter of $107 million essentially flat with last year's second-quarter. As Tony mentioned non-A&D revenue fell 26%, and was offset by a 16% increase in the sales of military electronics, which included airborne radar systems and commercial aerospace technology products. For the second-quarter, DLT EBITDA was nearly $16 million, slightly higher than the $15.2 million a year ago. However, we expanded our EBITDA margins year-over-year by 70 basis points to 14.8%, as we continue to benefit from cost savings associated with our integration efforts.

Corporate, general and administrative expenses. Corporate G&A non-identifiable to the two segments were 3% of revenue for the second-quarter compared to 2.2% last year, reflecting higher benefit costs, a workers' compensation insurance payroll audit charge, and higher professional fees. We remain vigilant on our cost reduction efforts.

Another measure that we talk about is in the area of liquidity and capital resources. And as Tony mentioned during the quarter, we continue to delever our balance sheet. We prepaid $7.5 million of our debt reducing it to $350 million, and our net debt now stands at $317 million. Given our LTM's last 12 months adjusted EBITDA of $85 million, this equated to 3.7 times net funded debt to EBITDA.

As we have discussed in prior calls, in 2013 we expect to pay down $25 million to $30 million of debt this year, with the goal to delever our Company to 2.75 to 3 times by 2015. In the year second-quarter, we generated a strong $13 million in cash from operations. That compares to $11 million in last year's comparable quarter, and it reflects continued diligence and effective working capital management. We anticipate that CapEx for fiscal 2013 will be approximately $13 million, and our CapEx programs will be used to support the expansion of our manufacturing capabilities and products and to support 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 this with very solid gains in shipments of commercial aircraft products and defense technologies applications. In addition, operating and EBITDA margin levels expanded at the segment level, as a result of increased revenues and manufacturing cost efficiencies including better performance on our new program costs. Now I would like to turn the program back over to Tony.

Thank you, Joe. Before opening the call to questions, let me say a few words and wrap up the quarter. Again, we are very proud of our recent accomplishments with total A&D revenue up nearly 13% year-over-year, solid margins, strong cash flow and continued debt reduction. Our broad extensive product portfolio, long-standing customer relationships and experienced staff have made Ducommun what it is today, a leading solutions provider serving a number of great platforms and programs. We have a strong presence in the growing commercial aerospace market, and numerous growth opportunities ahead of us. But we are also prepared for uncertainties due to sequestration within the military market.

But we have more work do in the non-A&D segments. As I have said earlier, we are developing energy, a strategy for the energy and resources to turn that part of the business around and position it for future growth. This will take time, but we are committed to make it happen. Two years ago this quarter, we completed the largest acquisition in the Company's history, nearly doubling our sales and EBITDA. We have spent a great deal of time since then successfully integrating the business, streamlining the operations, delivering on projected synergies, and putting together a very strong management team. We took on debt to execute this acquisition, and have met our commitments to delever over time by reducing working capital, increasing cash flow and paying down that debt.

Today we have a much stronger, more capable Company that is dedicated to creating innovative solutions for our customers' requirements. However, our sales and earnings have been somewhat lumpy quarter-over-quarter, primarily due to changes in market demand and overall economic conditions. We are also investing in new product development, new technologies and more efficient manufacturing techniques, which in the aggregate (inaudible) cause variations in our quarterly performance as well, with some quarters negatively impacted by new product ramp up, and other quarters benefiting from R&D tax credits.

But if you view Ducommun's performance over a longer stretch of time, such as a half year or a year, you get a better picture of the improvements we are making to the Company. And we expect the lumpiness in our results to moderate over time, as operating environment becomes more predictable. We are building our Company for the long-term. And we are focused on growing the business with solid strategies built around our value proposition and customer requirements. We will continue to execute on a strategic plan that leads to sustained growth, higher margin, increased cash flow, and more predictable earnings. Our team is making this happen, and we appreciate their dedication to both our customers and our shareholders. With that, Jackie, I would like to open up the call for questions, please?

(Operator Instructions)

And our first question comes from the line of Mark Jordan with Noble Financial. Please proceed.

Thank you. Good afternoon, gentlemen. A question relative to DAS and the operating margin of 11.3%, it is best one you have had since -- for the last two years. June of '11 was roughly the same level. I guess, question number one, what was the mix that created such a favorable margin? And then secondly, looking into the second half of the year, is this type of margin rate sustainable? Or should we be expecting something, that could back off 100 basis points from where you are in the second-quarter?

In terms of the mix, Mark, when we look at it year over year even sequentially, what we are benefiting from is a nice improvement in the commercial aerospace part of our products, and that momentum seems to continue. For example last year, second-quarter we shipped slightly less than $45 million of products in the DAS segment. And this year it was up to $50 million. Where as the military structure part of the business has a combination of fixed wing and helicopter business, was relatively flat. Okay. Let me add a little something, Mark. The margins were also driven by improvement in our development costs on our new programs. So as we have talked about, we have had a number of new development programs in DAS over the last couple of years, that we have been working to improve on the operating results. So some of that margin pick up is as a result of that as well. Also your question about the second half of the year, we do have some new programs coming on board. So we expect some learning curve development, but no major investments in those programs. So we are looking forward to putting ourselves in the position where we continue to grow the business.

Okay. Thank you. Relative to sequential growth from Q1 to Q2 in DAS, I mean, you are up $11.3 million, is there something you can do to smooth that out a little more? Because obviously, you did suffer from a difficult margin environment I think due to volume in the first quarter.

I think one of the issues we had, Mark, in the first quarter is we had some schedule slides on some of our helicopter blades, and if you could help me solve out that customer problem, I think I could smooth it out for you. But I think that the real issue is that, as you look at the two quarters and you blend that, you get a better picture of what happens. So some of those pick up in revenue in the early second-quarter, were actually sales that were slid out of the first quarter.

Okay. Final question for me. The corporate general administrative expense of $5.7 million. I think you mentioned there were some one-time workers comp payments and professional fees. What should be the normalized run rate of that line?

Well, we looked at that Mark and it was about $4.6 million in the first quarter, and we think more normalized is about $4.7 million to $4.8 million. There was about $1 million worth of -- that was the result of a workers compensation insurance audit over for the last couple years, and some nonrecurring professional fees that we paid during the quarter. You heard in Tony's comments that we are -- in looking at our business development activities, we are utilizing outside resources help us in the BD, as well as internal engineering services department. And those are more one-offs.

Okay. And then I guess, I will sneak one more in. Is the second half tax rate, should that be similar to the --?

(Multiple Speakers). Yes. I think the second-quarter tax rate of 27.6%, let's round it to 28%, is more normal for the third and fourth quarters.

Okay. Thank you very much.

Thank you, Mark.

Your next question comes from the line of J.B. Groh with D.A. Davidson. Please proceed.

Hi Thanks for taking my call. Congratulations on the quarter.

Thanks, J.B.

Thanks, J.B.

You mentioned some -- in the press release there that you had some specific initiatives on DLT, in terms of tapping into some markets that are maybe a little bit more stable. Could you give us a little flavor as to how -- what specifically you are doing there? Is it just tapping same customers or you are looking for different applications to help us out there?

You are talking on the non-A&D, J.B. or?

Yes.

Okay, yes. We are doing both. So we are looking at -- I guess, the easiest thing do is kind of give you an overall view. We bring a lot of capabilities in the oil and gas and the industrial markets, and what we have done is harness those together. So we have gone out, and using our engineering capability, surprisingly enough those markets are very similar in terms of technology requirements to the aerospace market. So we are able to combine resources, and go after the market place. So we have actually picked up business with new customers. And I think we are enhancing our position from existing customers.

So there is a nice mix, of either modifications to existing applications, and some potential new business that we are looking at. But because it is more along the development lines and working with them to change some product lines, I think that it is going take a little bit more time than we originally -- we still have our base of business with those companies. But it is a combination, J.B., of both new customers and existing customers.

What do you think it takes for those -- anything specifically it would take for natural resources, industrial, medical I guess, non-A&D, for those markets to turn around?

Yes, I think what -- we are -- like let's -- the two markets that are -- hurting us were the industrial and oil and gas. And we played more heavily in the gas market than we did in the oil market, in terms of the downhole fracking. So we are trying to realign that. So we think that there are some opportunities this second half of the year. I am not sure if they will all blossom immediately. So, but we are looking for some growth in those markets in the second -- into 2014.

Great. And then just one last one. On the A321, a great entry into that platform. Does it Just give me your color on that.

Yes, absolutely. And I think it, obviously the type of manufacturing expertise that we are bringing to that product line does lend itself across the A320 family. And we are looking at other applications as well on, the A320 with other customers. Airbus manufactures through a host of Tier 1s if you will. And so we are working with a couple other companies to see if we can pick up similar applications, both on the structure side as well as on the technology side of the business.

Great. Thanks, Tony. Thanks, Joe.

Okay. Thanks, J.B.

Thanks, J.B.

Your next question comes from the line of Mike Crawford with B. Riley & Company. Please proceed.

Thank you. In your remarks you talked about an expected decline in total military spending in 2014. If that is, just say a modest decline compared with current budget expectations, how would that correlate with your expected military and space business?

Well, J.B., or excuse me, Mike, what we have seen on the military market is, if you look at our businesses from the split between the AeroStructures and the technology, AeroStructures has remained relatively flat. So if there is a modest drop in some of the build rates, we would hope would hold. And so therefore, we should be able to sustain in that market place and hopefully stay flat. On the technology side of the business, it depends on what programs are impacted. But we see some opportunities there, from a growth standpoint, and there are somep products that would probably change going forward. So there is kind of a mixed bag there. So that is flat to up slightly, I would say in that side of the market place. And then one thing to recognize is that, in the out years of '14 and '15, we will probably see decreased production rate on the C17 -- to the program force.

And just to add to that, Mike, on the defense technologies business, you might recall we booked $50 million worth of orders in June on the radar rack and other missile defense systems, and we are working through that nice backlog and shipping it. And that $260 million segment, the LTM 12, in 2013 is up about $35 million from last year. And what we do say, we believe that segment over the next couple years for us, because of the electronic content needs and the updates in cockpits that it should grow 2% to 5%. It will offset the structural part of our So we feel very strong about the franchise we have developed on the defense technology side of the business.

Okay. And I noticed, Raytheon became a 10% customer, and that is because of the airborne radar systems primarily?

That is correct.

That was one of the larger contributors, but we are pretty prolific in terms of our capabilities and product offerings to their missile defense system, which is as you know very diversified.

Okay. Thanks. And then we have seen the still increasing commercial air build, so that bodes well for next year. In terms of getting back to the margin [question], I know there is kind of opposing forces, one is where you are marching down the learning curve on products that you are already fabricating. And then you have the new learning curves, that you ramp up as you get -- take on new projects. So if you had to say which force appears greater at this point for the second half of the year and then for next year where you sit now, which looks like a greater force?

Well, I would say that they are about equal, Mike. The -- we hope for a continued margin improvement on the existing development programs. And we do have a couple of programs that we are introducing into production, which will be at the higher end of the learning curve. So that may be somewhat of a drag in the second half.

Okay. Thanks, Tony. And then final question relates to Airbus. I mean, they have over 5,000 aircraft in backlog right now. And it looks like you have good growth coming down on the pike with A320 and A350. I think that was less than a $15 million revenue customer at last year. Where do you think you could be with Airbus within a couple of years?

The run rate is -- it looks like it is running a little over annualized, over $15, $16 million which is up $10 or $11 million a year ago. So, yes, the market acceptance and our product offerings and capabilities with Airbus are improving nicely. Just I want to add one thing, on the commercial aerospace side where we are really benefiting. Where it was up over 20% as Tony mentioned year-over-year, we are now enjoying the higher build rates of the 787 and the 777 and somewhat to the 737. But those two programs that I mentioned, the 787 and 777 are really driving our large commercial aircraft growth, along with the incremental volume from Airbus.

But the Airbus programs, you remember the A321s that start up this year for us, so that will add some incremental revenue. And then the A350 program, of course, is in development. So as we go forward, we would expect that. I don't see -- the A321 should help us next year. A350, probably in 2015, and going forward from there.

Okay. Thank you very much.

Yes.

Your next question comes from the line of Les Suleski with Sidoti & Company. Please proceed.

Hi, Joe, hi, Tony.

Hi, Les, how are you today?

Good. I have a question regarding, perhaps were there any missed shipments from last quarter that came in and were booked for this quarter in terms of revenue?

Yes.

Yes, there were.

Not missed, moved, slid.

Were they a significant portion of the revenue?

I don't have that data to be honest with you, but there were some scheduled slides that came out of the first quarter. I think we talked about that in the first quarter, especially on the helicopter blades that were actually picked up in the second-quarter. So that would benefit it. And so if you smooth out the first two quarters, I think you will get a pretty good picture of what it looks like.

Okay. And then I saw just a little bit of an increase in accounts receivable. Can you shed a little color on that?

Yes, the -- when we look at working capital management, our accounts receivables are up and a user of cash because of the strong amount of sales to $191 million from a $176 million number. So you would normally expect that. In terms of days outstanding, they are still very liquid, and they are at 48 or 49 days. I look at a ratio, it is a liquidity ratio called a quick ratio. And as we have converted work-in-process inventory in finished goods into sales, we have a stronger liquidity position. And look, we expect to collect the bulk of that -- those shipped, those receivables here during this quarter, the third quarter. And we feel really good about our accounts receivable portfolio. The other (inaudible) that you will notice is we let cash flow year to year, we have improved our because of inventory management, we have improved our inventories position by $5 million, which is more than offsetting our growth in receivables. So we are creating more liquidity, and our cash balances are holding quite well.

And then one final one, regarding the John Deere partnership. Can you just get into a little bit detail on that, how can that affect our revenue outlook looking forward?

Well, we are in the early stages. We have, we are able to support them on a couple of major programs for their large farm vehicles, which are actually like drones, right? They are not manned, they are not manned. And that is a market place that we see with an opportunity to grow. So I think like any major customer, when you get in, you prove yourself. We were really pleased with the award. That was a significant deal. We are seeing more opportunities out of Deere, as a direct result of that. So we are putting ourselves in the position, where we will grow the business. Again, these will be development programs, and then step into production. So it is going to take a little bit of time, Les, but I think that there will be a nice customer base for us as we move forward.

Excellent. Thank you.

Thank you.

Your next question comes from the line of Kevin Ciabattoni with KeyBanc Capital Markets. Please proceed.

Hi, good afternoon, Tony and Joe. Thanks for taking the questions here, and nice quarter.

Hi, Kevin. Thank you.

Most have been answered. Just a couple from me. Following up on the A321 contract, that is obviously a nice win for you. Just wondering if you can give us any color, in terms of execution against that contract, I guess, with regards to timing? And maybe if there is any margin impact kind of relative to the broader DAS margins once that gets ramped up?

Well, I think that it is -- let me start with your first question, and that was, impact on the revenue. I think we should see a slight pick up in the last quarter, more revenue generation as we go into 2014. In terms of margin impact, it should balance into the margins that we have there. So to the effect that it allows us to absorb more overhead, it could have an incremental increase in margins, as we come down the learning curve which usually takes six or seven months to get you back to where you believe you should be.

Okay. Perfect. That is extremely helpful. And then lastly, looking at your commentary from last quarter, it seemed like you maybe expected natural resource and industrial to kind of tick up in the back half of this year, after being sequentially flat in Q2. So we saw the 2Q part of that play out. I am just wondering, it sounds like you may be not quite as optimistic on the back half, in terms of those two end markets. And I was just wondering if a, that is the case, and b, if there was anything specific that changed between last quarter and this quarter in those specific end markets?

Okay, Kevin, I think there is a couple things there. One was, you are correct, we did anticipate somewhat of a pick up in the second half. But I think as Joe talked about in the last quarter, we really see in this market place, we see -- how your bookings are in a quarter will determine what your pick up will be in the second, the next quarter. So this is a short cycle type product, so generally you have got a 90 day window to book it and ship. So what we are seeing is soft bookings, which leads us to believe that it is going forward.

So any major changes -- not necessarily. We haven't lost any customers. We haven't lost any programs. The market just has not recovered the way we anticipated that it would. Natural gas has not come back. We moved more into the oil business, the oil drilling section of that market place. So I think that will help us going forward, and we anticipate that some of the natural gas market will start picking up as the prices start to increase a little bit. On the industrial side, a couple of major customers there, still working through some issues that they have with regards to capitalization, and how they are going to proceed forward. Again, we haven't lost any business there. It is just slow in recovery.

Were bookings pretty consistent throughout the course of the quarter? I mean, did you see any kind of pick up at the end of the quarter? I know you said they were soft, but just curious as to how they kind of played out through the quarter?

Yes, they were pretty flat. We got fooled a little bit in March of last year or April. We picked up a nice booking, and we thought it was going to start picking up. And that is kind of where our comments came from. But if you look at the second-quarter, it was pretty flat.

Okay. Appreciate the color. That's all I had.

Okay, Kevin.

(Operator Instructions)

Your next question comes from the line of Michael Callahan with Topeka Capital Markets. Please proceed.

Hi, thanks for taking my questions. I guess, just a kind of a follow up on the technology segment in the non-A&D markets again. Were there, I guess, throughout the quarter were there large variations between natural resource, industrial, medical, and both in sales this quarter and in backlog? I think last quarter that was the case. I was just curious if that was still the case here?

It is in our a trend -- it's in our Q, if you get a chance to look at our level of backlogs and sales, Mike. And the backlog sequentially are the same, in the end of the second-quarters, as they were the first quarter. And our sales in the second-quarter were only slightly down from the first quarter. So that is what gives us a read on what we could expect. Let's say our visibility is only the next 90 days really, where flat sequential backlogs from Q1 to Q2 leads us to believe that our sales level of activity in the absence of a surge in orders, in the absence of that, will be similar to what it was in the second-quarter.

Okay. Fair enough. And then I guess, just the -- I guess, the one other thing I want to ask here, on the technology segment again, and on operating margin, I guess, even despite somewhat soft sales trends in the segment, margins were pretty strong. Is that sustainable at that level, or is it largely due to mix? And then assuming you do get some higher revenue going forward, I would assume there is even pretty substantial leverage beyond what you saw this quarter?

Yes, I mean, we have seen both, Mike, in the -- even in the first half of the year, when you level out our EBITDA margins, where the DLT segments have gone up 13% to 13.5%, and in the quarter 14.1% to 14.8%, it is a result of improved product mix, selling more defense technology applications which are a little more sophisticated than in their usage of a military, than a industrial and commercial applications. Continued cost reductions from our integration efforts, that is really prolific throughout the organization, and it is manifesting itself in -- through the DLT business segment. So a combination of those two things have led us to the point where we had, as I mentioned, we have a 14.8% DLT segment margin for the quarter.

Okay. Thanks. That's all for me.

Thank you.

Your next question comes from the line of Gregory Macosko with Lord Abbett. Please proceed.

Yes. Hi, Tony, thanks. Could we talk just a little bit about the structures business? And I know that, I believe that the Blackhawk is a big share of total, pretty good size. Are we seeing anything with regard to international orders? Is that -- is there any offset there? Are you seeing any possibility for growth there, or offset to military?

Well, in general I think the answer to that question is, yes, Greg, Gregory, but we don't actually don't see it at our level. The -- what we get is the blanket order from Sikorsky, and then we ship to that order. So we wouldn't really see the mix that they see. But our market intelligence is, and our customer intelligence is that they have a nice mix of the foreign military buys. They have not had any cancellations that have been announced or that we are aware of.

So I think we have talked in the last quarter, we anticipate that there would be a product level drop in the fourth quarter, about 14 aircraft for the military, US military, but I think that would be backfilled by foreign military sales. So we expect to be flat going into the fourth quarter. We are down a little bit on the Blackhawk, because of a couple of modification programs that were used primarily for the war have been pulled back as the war has slowed down. But in general, in our production grade programs, it has been very solid for us.

Okay. Good. And then with regard to working capital, Tony, you mentioned you had some nice cash flow there. Inventory came down. I know you talked about it being volatile. Do you feel that level? Or should we expect more volatility going forward, or kind of a more stable situation?

In terms of the inventory?

Yes, the inventory, right.

I will let Tony answer, in terms of quantifying it. In the end of the third quarter last year, our inventories, Greg, were about $164 million, and they have gone down to the $148 million level the last three reporting periods. And they seem pretty sustainable. We think that there is more opportunity to actually increase our inventory turn over levels.

Right. And that is kind of where I was going to go. We have a nice program in place, that our CLO is running.

Yes.

And so, we are walking through the inventory. There is always a possibility -- what you see with our inventory is it gets a little, I will use the term lumpy, in terms of pickups. So as we have no runs in some of our structures facilities, from a material buy, or whether it is on a large program like C17 or other programs then, we will see a pick up. But we have got a nice program in place to get after those elements in the business. And we are working hard on that side of the fence to improve the inventory turns as Joe indicated.

Yes.

And continue to work that backlog inventory levels. (Multiple Speakers). But the one caution I will give you is, that as we enter new programs, we always pick up new inventory and it flushes out a little slower. So do we have programs coming in the second half of the year. We anticipate that we will be able to manage inventory levels to maintain or lower levels, but that is just a cautionary tale.

And then finally, you mention some the cost savings from the integration et cetera. Are we pretty much through that, through with that today? Or is there a bit more to come in terms of just efficiency, productivity and those kind of things?

I would say we are essentially through that, so what you have seen is probably the level that we are at. So I don't anticipate -- there is no major cost reduction efforts on that, from a synergy standpoint that we anticipate seeing going forward.

Okay Joe, Tony, thanks very much.

Right. Thank you, Greg.

Ladies and gentlemen, with no further questions I will now like to turn the presentation back to Mr. Tony Reardon. You may proceed.

Thank you, Jackie. And I would like to thank everybody once again for your continued interest and support. And we look forward to speaking with you next quarter. Thank you.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.