Okay. Good morning, everyone. On behalf of the team and myself, I just want to welcome everyone to our inaugural Investor Day. So appreciate everybody making time. Is this okay in the back, is that okay to you?
Okay, great. All right. So just a couple of things before we get started. This is a disclosure, Safe Harbor. So I ask everybody to reference it along with the materials that we're going to talk about today.
I'd appreciate that. As far as our agenda, I'm going to handle the company wide strategy. Then I'd like Dave Walmott to handle electronic systems overview. So Dave, can you stand up for a sec? Good morning.
Okay. And then Jerry is going to handle structural systems. Jerry, if you
can stand up please. Okay.
And then Sumon is going to handle M and A. So, Sumon. And then finally, Doug is going to handle the financials. Okay. And I'll finish up,
all right?
So again, I want to thank everybody for their participation. And we're going to take a break in the middle, a short break for everybody just to kind of regroup. Okay. So, 1st, we always like to start with this slide. We think it's interesting.
As far as our history, a lot of folks don't know about the history of Ducommun that we're the oldest continuous company in California, which we think is pretty cool. We don't really talk about it, but that's something that is part of our legacy. One of the other interesting things, California only became a state in 18/48. So it became part of the United States in 18/48. Charles Newcomen walked across the country, okay?
So back then you walked, okay? So he went to Fort Smith, Arkansas and then got with a wagon train and I guess a couple of 100 people and walked to Los Angeles. So and then was a watchmaker, but quickly went into the general store business for a long time. That's what's become. And then for folks that know some of the history of aerospace, Los Angeles, Southern California became a real hotbed for aerospace in the '30s, '40s, '50s, '60s, huge aircraft, McDonnell Douglas, lots of things.
So we got into the metals game, big in that area, Got into other things as we move forward with the space program. Really started working on engineered products in the 2000s. And here we are today and we're going to talk about where we're heading in the future. Okay. So this is a snapshot.
A lot of you folks know this already, but we really we focus on complex electronics and structural systems. We have electronics and electromechanical products, lots of different structures, which I'll talk about. Our game is commercial aerospace, military, defense and space. You'll see a little bit of industrial revenue in our presentation today, but that's really not what we focus on, but it's legacy. We're on some great, great programs.
We'll talk about the 37 as well as the 320. JSF, this is Tomahawk missile. So we're big in missiles. We'll talk about that too as far as our work with Raytheon on the Tomahawk. This is the Paveway missile, which is a very, very high volume missile, which we're big time players on.
And then finally, we have a legacy and we have a good business in rotor aircraft. So this is at Apache. So you don't want to wake up one morning and see this coming for you. Not to joke around, but it's a this is a really an interesting aircraft, very high demand. This is the Blackhawk, which is really kind of a pickup truck of the military, okay?
So lots of Black Hawks giving soldiers rides all over the place. So that's a little bit of our makeup as far as our programs and we're proud of it. As far as our team, you've either met folks or they introduced themselves, you get to know them better today. Obviously, myself, Jerry, David, Doug, Suman. The reason I included this slide is, I guess, I really want to drive home the fact that despite the size of Ducommun, which is we're working on building that as far as getting much bigger.
I think that the types of folks we have with not only Fortune 100 experience but also top 5 private equity, okay? We bring both of those to the table. So as investors, when you're thinking about the other companies, say, okay, what's the game here? What's really going to move the needle? A big part of it, I believe, is our experience and the rest of our team as well.
So I wanted to note that that's I think a big deal. As far as our vision and mission, just to reiterate, I mean we're really dedicated to A and D. So there's no looking at other things. We're going to get into medical. Some of our peers will say, we're going to get into industrial.
The answer is no, okay? So we're committed to aerospace and defense. We're also committed to being a leader in engineered products. We'll talk about that. Electronic and structural manufacturing assembly services, okay?
So that's really going out and really making things happen for our customers, providing value and then also getting paid for it. And then finally, aftermarket support. We'll talk about that a little bit even though that's a smaller part of common right now. You'd be surprised that we do have an aftermarket and we're trying to grow it. We'll talk to you
about that as well.
So I think it's important for any company. The company supplies high value niche products and services, and we're all about delivering exceptional value to not only our customers, but our shareholders, ourselves. That's what we're about. We don't get up every morning saying, we're just going to be pretty good today, right? I mean, we get up every morning like we're going to move the needle again today.
Okay. So what sets us apart? We're going to talk a little bit more about our industry leading proprietary products. I know in the past a lot of the legacy, a lot of the conversation with Ducommun was build the print or contract manufacturing, okay? That's a big part of our business, but we also have other parts too.
And we have industry leading engineered products. So I think that's important for investors. We do have these unique capabilities. And we'll talk about those such as titanium hot form. So we'll take titanium sheet at 700 degrees Fahrenheit and we'll mold it into something that Boeing and Airbus puts on their aircraft.
And believe me, it's not easy to do. And believe me, a lot of people can do it. So those are the kind of things as we go forward. As well as our electronics, we make things that are ruggedized. So we'll take interconnect.
So it's not just handwork. Well, I'm going to put together this interconnect. We're going to put it in a helicopter. We're going to put it somewhere else. We take the connector.
We mold the thermostat around it, we design it a certain way. We do a lot more than just handwork and contract manufacturing in that area. And we drive that value and we expect to get paid for it. And then obviously our assemblies too, we do a lot of box builds and we'll talk about that. I think our placement in the industry both on commercial and military, you'll see a lot of narrow body, you won't see a lot of A380, okay?
All right. You'll see F-thirty five. You'll see Apache, things like that. So we're pretty proud of that. We are working on our aftermarket and we feel good about where we're going.
One of the other things about our operating model is that we're not bureaucratic, okay? We're small enough where I answer the phone. I get involved with problems. We have a very flat organization. We have very little politics, Okay.
We're all getting up every day and thinking about how we're going to be better. I think that's important as we move forward to build a company. And again, I talked about the executive leadership. Here's a little bit deeper dive into the products since I get into it here. So these are our proprietary industry leading products, okay?
And Dave Walmott will talk more about that. We do a lot of stuff with cockpits, do a lot of switches with cockpits. We call it HMI, human manual interface. We also do really nice things with Lightning Diversion Systems. That's one of our new acquisitions.
That's proprietary. We have motor controllers, lots of other things, resolvers. So this is a real focus point for us and we're proud of it. Circuit cards, we do a lot of low volume high mix. So we'll get in there with circuit cards with Raytheon from Paveway and for other OEMs.
We'll figure out how we can help them. We'll figure out the designs. We'll do the prototyping. We'll bring the whole thing home for them. And we're really focused on that value.
We do a lot of box builds for again for Raytheon and other customers. So we'll take the cards. We'll build the boxes, we take the harnesses, we put everything in, okay? And we're able to provide tremendous value to a customer doing all that off-site. And then the wire harness, it doesn't look like much from the picture, but there's a lot of things that go into wire harnesses.
And you know what? You want it to work when you need them,
all right?
So it's a these are all big time. These got to work or else you're going to fail. So we like that. Structural, talked about the Apache. We do a lot of metal bonds and autoclave, composite materials.
We're proud of that. The spoiler, we're we've made every 737 spoiler since like 1968. A lot of people don't know that, okay? We've been sole source on the spoiler for the 37 forever out of our Monrovia, California facility. So we're proud of that.
And you can see other things that we do. And we're very selective about structures, okay, especially since I come on board, okay? We're just not interested in volume. No. Okay?
We're interested in where we can provide value, where we can have some type of barrier to entry, okay, and where we can really have a great runway for future revenue. This titanium form I talked about, this is an engine duct for helicopter. You can see the complexity for that. So it's I think really impressive engine ducts, lots of other things. We do a lot of we do aluminum farming, 10 mill.
So, 10 milling, a lot of people do 10 milling folks that are in this room know that. So, not interested in doing 10,000,000 for everybody. But we have very, very large tanks that we had from the space program that very few people have. So we are driving our ChemMill business in those areas, areas where there's legacy things that very few competitors have. We can come in, provide value on F-thirty 5, other things.
So it's, I think, exciting time for even Ken Miller to comment. And then finally, you have extruded plastics. This is our new acquisition called Certified Thermoplastics. This is all about aircraft interiors, right? So we're making electronics, we're making structures, we came across this company, we like aircraft interiors.
The reason why this is interesting is because this plastic takes like 5 minutes to burn smoke,
okay? It's called Oltem, okay?
I used to sell it, all right? Been a long, long time ago. And the reason they're in the aircraft interior, obviously, if there's a fire or something, you have time before things start to burn and things start to smoke, all right? $18 a pound. Most plastics are $0.50 to $1 to $1.50 a pound
for all your automotive applications, everything. These types of things,
very few people can extrude these. In fact, it's only one other in North America and us. That's what we like, right? So again, I think some really good stuff going on. You can see our facilities here, but we have a really nice lineup.
We'll talk more about it. You can see our business segments. Structural, last 12 months, 46% electronics, 54%. So I think we have nice balance. We also have, I think, excellent balance in commercial and military.
I talked about industrial legacy, which will at some point be going down a bit. But as far as commercial aircraft, commercial aerospace, military demands, we have a really nice balance here and we're excited about the future. Here's a little take on our revenue. You can see here that the TUKOMET actually was higher in the past just because we had C-seventeen and we had a lot of other programs that were high volume revenue programs that basically just went away. But you can see it kind of bottomed out.
And that's one of the reasons I took the job. So I've been here since January 2017. And yes, why did you come to Ducommun? All the reasons is I thought the company had kind of bottomed down was on its way up. That's one of the reasons I'm here, okay?
So I think that's this is where we're heading. You see our backlog is very good. Just so you know, the military and space, the lead times are a little shorter than structures. So you guys see a little less backlog because the structural components take longer to order and to make because of titanium, that type of thing. So you'll see a little less on this.
But we're excited about our backlog. It's pretty much at historic rate. Okay. So what have we been doing since I joined last year? So first, streamlined organization, I'll talk about that.
We're working on enhancing our business model. We talked about that towards industry leading products. We implemented a new operating system We're manufacturing people. We got to make things right. We got to make them right the first time.
We got to make them without scrap. We got to make them high quality. And then finally, our very important capital allocation strategy. So here's just a little view from the past into the present. When I came on board, there's a real legacy view of the company, slow to adapt.
We had lots of layers of management, lots of Vice Presidents. We just they were nice people and they were trying to do their best, but we just we didn't need them, okay? The common we had to flatten the organization. So I came out with a fresh perspective with some other leaders. We're driving excellence and value.
We're developing new and existing talent and we flattened the organization. So we took a whole layer out, which is great for communication. Actually, we're performing much better, as you can see from the numbers, with a lot less people, okay? And I think that's really important. And we had a lot of different business units.
Now we've reduced those as well. So I think a very positive story here. Again, looking at the business when I got in, we had some low margin business. We had contracts that weren't very profitable, okay? We had no M and A activity.
Our capacity we had too much capacity. So we really made some tough decisions. Last year in November, we announced this restructuring and rationalized the product portfolio. We closed 2 acquisitions in the footprint you know about. So this is a very, very important piece.
They all are, but this is extremely important for us to get out of where we were
and get things moving.
The new DCO operating system, again, we're manufacturing people, so technology people, weak processes. So we had a I put a new operating system in focused on lean principles, okay? So everybody gets up every morning in all our factories, okay? They have a meeting every morning called the Gemba meeting. And everybody gets out of their offices and gets out on the floor and goes to a Board and talks about the day, okay?
There's no hiding. Everybody's on the same page, customer feedback, quality feedback, what do we got to be successful today. Everybody's involved. And the other thing about our you think about just our footprint and we've obviously reduced it by 16%. We have operations that are anywhere from 150 to 350 people.
And that's a perfect size for excellence. It's very hard to run a manufacturing operation 1500 people in the building. It just is, to connect with everybody and make sure that you're getting everybody's head. So we feel great about also just how we're footprinted out with our mission to drive excellence. And then finally, capital allocation.
Again, not such a great story here, much better story here. And we're working hard on getting better. Okay. So that's a little bit about the last 18 months or so since I joined in January. Let's talk about the future.
So profitable top line growth, I've said this in my other investor meetings, this is my 4th business that I've led, okay? And I've never cut my way to success, okay? I'm not going to do it here either, all right? I've told everybody, I mean, the way we're going to have long term success is profitable growth, okay? We're going to watch our costs, but we're going to really focus on profitable growth.
Drive operational excellence and efficiencies, people first strategy second, and then all important acquisitions to drive growth where it's appropriate for us to make sure we continue to strengthen our business model. So I think that's a great story for investors. Obviously, exceptional value you'll hear throughout the presentation. We're committed to our shareholders. We're committed to our employees.
We're committed to our suppliers. We're committed to our customers. Okay? That's it. That's what we do at Tucumis.
Okay. So let's walk through these a bit. Strategic priorities, I talked about profitable top line growth, both organic and inorganic, driving profitability, really thinking about, okay, where do we really provide value in the chain in the supply chain? Where do we really make a difference for customers? And then getting that communicated and implemented and then obviously getting paid for it.
So that's a big deal for us. We have a lot of customers out there. For example, we have Raytheon that's a very big our 2nd biggest customer to come is Raytheon. And we are far, far away from that at Lockheed. So one of our excitement things that get us excited is where our share market at Lockheed for the missile programs and other things are very low.
So we have a lot of good opportunities there. I talk about on my call about early innings. I think that's really true for us. I really think it's the early innings in a lot of ways. Next is this manufacturing capability, talked about titanium and lots of things.
Our commercial approach, we used to have all our commercial people reporting to corporate, okay? Now we have all our commercial people reporting to the strategic business unit leaders, okay, because they have to be responsible to deliver the backlog, deliver the bookings, okay? So that's in the past. Next top right is this operational excellence. We have the operating system metrics.
You've all heard this before from other companies. But I like this word intensity, okay? We needed more intensity to comment. We lack intensity. We've got a lot of it and focus.
And that's a big reason we're going to be successful. And then our supply chain execution as well. Bottom left here, I talked about taking out the layers. The high level executives raising the bar obviously and investing. One thing here is people we're going to talk about this a little bit more is that we're on a narrow body.
We're very good friends with Spirit. We know what Spirit has to do. We're getting to 57 in January, okay? We are ready, 57, okay? We have the people in place.
We have the capital in place, okay? This is all the titanium products we make for the 37. So we're going to try to be very proactive here. And then Sumant's role, we talked about this. We have a new M and A function.
I mentioned that in the call. We'll talk about his screening. And I think that the track record isn't very good. So we're excited about our first two acquisitions. Hopefully, investors are as well.
Again, exceptional value. What are you doing every day? We're driving exceptional value. So here's a little bit more of the numbers, the growth drivers here. You have again, I went over these.
We have industrial here, but it's not material, our backlog. Here are the platforms. And one of the items to note is that before 2016, Ducommun didn't do any business with Airbus. I know it's hard to believe, right, because we've been in structures for a long time, right? And Airbus has been around for a long time, but 0 revenue with Airbus, okay?
Now we've got a contract. We are dealing with them directly. We are growing our business with them. Again, this is early innings, right? We're just starting to get we're just getting started on a lot of this on this journey here.
So great platforms, military, F-eighteen. The F-eighteen is alive and well, okay? We're happy about it as far as the things that we provide for the F-eighteen. The Tomahawk, Patriot, F-thirty 5 is a great thing as well at Apache. You can see here that we're bullish about the growth.
This is over the next 3 years. 5% to 7%, 2% to 4%. So we don't this is something new for our investor meeting. We really we haven't disclosed this in the past, so we felt this is an important chart for investors to see here. So on the left here is what I talked about the CAGR forecast, 3 years.
But this is the DCO revenue in dollars. This is for 2018, all right? So left is the CAGR and bottom is the DCO revenue. So you can see here that on 37 this year, not like, oh, we're going to do this in the future, this year we're about $100,000,000 okay? And then you see our missile program, almost $80,000,000 a lot of that is just a Raytheon.
So there you go about the theme on early innings. Airbus, this is just getting started, but we'll take close to $20,000,000 from 2016 onward. This continues to grow the F-thirty 5. 87 is locked in, F-eighteen and we have our Apache. So this is a good example.
Now there's more coming, which we're not going to disclose yet, because they're not ready and we don't have contracts in place, but there are other major programs that we're working on. So we're not standing still. We like our position and happy to share this with you today. Okay. Just a few final comments on the market.
This is obviously a very tough time for our electronics business. As you can tell from our military exposure, so we before I showed up, we suffered a lot with this. Now we're back. And I think even we still believe it's going to be flattish even after 2020. There's just too many upgrades needed.
There's too many global threats. That's our thesis is that unfortunately, we're still going to run a pretty high level of military. We have a lot of opportunity here for us. So revitalization, platform upgrades. The other thing is FMS, okay?
FMS in the last administration, not so much. FMS in this administration a lot, a lot. So we're feeling all that as manufacturers. Here's the missile market going a little deeper. And just to let you know these are all we work with top level research companies.
We pay a lot of money for it. We work with some of the best in the industry as far as we put these things together. So these are all this isn't our thoughts. We go out to research companies that are well known and they work with us on these. So we can see right here the missile market and military aircraft.
So if you step back from there and you say, okay, what is where is Ducommun? Where is their footprint? Where are they? Okay. They're in growing markets with capture of greater share to come.
So can't ask for a better story. As well as our commercial, we've all seen these charts. I won't go over them, but you can see we've got great at least through 2020 or 2021, we got great prospects, especially on the narrow body on commercial. One thing I'll also say on this, we have some outsourcing. We also have some insourcing.
So you'll hear from Boeing, you'll hear from Spirit, right? We're going to take some work in house And sometimes they do that. One of the nice things about titanium, at least in our research, is nobody wants to do titanium at that level, okay? It's really hard to do. It's kind of a smaller niche process.
You got to really you got to heat you got big factories, you're heating molds up to 700 degrees Fahrenheit. It's a very tricky thing and it's hard to do. So we feel really good about our investment. Our titanium business is 50% of our structures revenue, 5.0. So that's meaningful.
And we feel good about our position and where we are in the marketplace. So good stuff there. You see our titanium content. And also titanium has continued to grow as we go forward here. You can see the 330 from 3% on the A330 to 14% and the build rates.
You guys know the backlog and the market forecast. So let's say, I think a great story as we go forward. So it's my last slide and I will turn it over to one of my colleagues. But as we thought about our day with you and thought about the investment thesis, I think right out in front, we have these proprietary and unique capabilities, right? We also have industry leading brands.
We're also working on our aftermarket. So I think that's a big part of it. We're continuing to refinance develop our business model. You'll see that as we go forward here and what we're going to do. We're only interested in winning and winning the right way, okay?
That's it. I have very little patience from poor performance and no, okay? We don't do that here anymore. So you get supported, but you got to deliver, end of story, okay? Improving financials, I like this word runway.
We used it at one of our last companies UTC, okay, because that's how I feel. Runway on revenue, okay, as far as early innings and runway on margin expansion. And we'll talk more about that as we go forward. Just because of our legacy, we have really strong relationships with OEMs and Tier 1s, okay? So just because Ducommun made the spoiler since the 60s and everything else, we deal directly with Boeing.
We deal directly with Airbus. We deal directly with Spirit. We're very well connected for a company our size. So it helps us as far as trying to understand the industry better and service customers better. So I think it's a real positive.
Then finally, we've always been a good cash flow company, as you can tell from the financials. So that's not going to change.
It's all going to get better.
Okay. With that, I appreciate your attention this morning. I'm going to turn it over to Dave.
Dave? Thank you, Steve. Good
morning, everybody. Good morning.
As it says there, Dave Wilmot got responsibility for the Electronics and the Engineered Products Group within Ducommun. So an overview of the Electronics Systems Group. And for the context of this presentation, we're split it into 2 parts. The Engineered Products Group, which is really the proprietary niche, sole saw products that we have, we'll go into detail on those and then the Electronic Solutions. In terms of the facilities on the slide that Steve put up earlier, Engineered Products, Considered and Huntington Beach in California with a support manufacturing facility in Thailand that really supports
the Casa facility in the U. S. And Canada.
The next solution is basically the acquisition of 2010. So that's Appleton, Berryville, Joplin, Huntsville and Tulsa. So within the Engineered Products Group, what do we focus on? Well, so start with human machine interfaces, which really consists of cockpit panel push buttons, toggle switches, rotary switches and backlit panels. So legacy business has been around for a long time.
The evolution of aircraft office today, there's still 130 push button switches and toggle switches on a 7 37 MAX, for example. So it's still a very buoyant market even though sort of the glass copies have come into being. Lighting protection systems and that's just an example over here, which has been a real growth area for us with the in flight entertainment in the SATCOM business. So we're providers of whether this is a Gogo radome, a Thales radome, a Panasonic radome, a Row 44 radome, a Viasat radome, from a lightning protection standpoint, all of those products are fitted with 2 common products. So a growing market for us, a great market for us.
And as we move forward, it will go from a retrofit OEM activity to an aftermarket activity when these parts come back for repair and overhaul. On the Engineered Solutions, and also it does read across to some of our motion control devices. An example there is the phalanx. Customers Raytheon, but we do a number of things there. We do harness assemblies.
We do circuit board build. And then we also do some motion control motors as well. Over here on the right, just two examples of the product lines that we support, again, from across the Electronics and Engineered Products business. You've got the V22, where that's a good program for us from an OEM standpoint. Working with Bell, we do the power distribution and control for the heater mats of the main rotors.
So that assembly sits up in the hub of the nacelle. We do some other circuit board and harness assemblies also on that program. And then we've got the F-thirty 5, where we've got a building content, both with boards, harnesses and some sub assembly build that we do for some sub tiers that go into the F-thirty 5 program. And on those programs, we're currently in a dual source scenario, but with our performance on delivery and quality, we expect our share as the F-thirty five ramps up that our share will be greater than the share the 50% share we have today. So we see growth there as that platform grows.
In a robust environment. And that with our card assemblies, when we bring those 2 together, we then add some structural components and then we do our box build. So we can take the elements within the electronics businesses and put that into a value added sub assembly. And that's growing because the primes, certainly Raytheon, are starting to put more and more high level assemblies out to the supply chain. And we've been successful in a number of programs there.
Top customers and platforms, as you can see there, just over 50% of our business in the electronics comes from 7 customers. And so again, all the well respected primes and a couple of Tier 1s, so a great base there to build on. Some of them are bigger than others, and there's an intent there to grow. As Steve mentioned, with Raytheon, with the missile business, we have a model there that's worked very well. As you see there, Sikorsky is a customer, but Lockheed itself isn't.
So there's from a runway perspective, there's plenty of ways to go regarding our opportunities as we go forward with the electronics business and indeed, Engineered Products. If you take some of the platforms, quarter of our business is missile and missile related. So that's Midyear. That's obviously new manufacture. Then we have F-thirty 5, which is again new manufacturer, and that will increase as the rates build up as we go forward and our market share grows.
F-eighteen has got a good steady build rate for the foreseeable next 3 to 5 years, and also there's aftermarket. There's a lot of F-18s out there that aren't operational but we're bringing back into service to increase the size of the fleet that's active. So we've got the OE benefit there and then we get a lot of repair and overhaul. F-eighteen is one example where we do box build, we do cable assemblies, but we also make the complete sub assembly for the radar box for both the F-eighteen and the F-fifteen. The F-fifteen is obviously predominantly aftermarket.
In flight connectivity, we do a lot of work on the Lightning Protection side and then within electronics, we're now doing a lot of card build, card assemblies and some smaller electronic subassemblies to support the distribution of the in flight connectivity throughout the aircraft. So again, a growing market for us. A lot of the in flight connectivity, a that is yet to be fitted out. And it's the way of life now. Everybody expects to be able to get on the aircraft and be able to connect to Wi Fi and do whatever we need to do.
So huge market runway for us there. Bell V-twenty 2, good steady production still going and the aftermarket that goes with it. For the components that we sell into the V-twenty 2 program, they are removed. So there is a significant and a growing amount of repair and overhaul coming through on that program now. And then obviously, we've got the others.
So nice balance there. We've got new programs with the missiles and the F-thirty 5. We've got steady aftermarket with the F-eighteen and the V-twenty 2 as well as production and then the growing in flight connectivity. So a good landscape for us to build on as we move forward. In terms of revenues and backlog, as you can see there, I mean, our revenues, 2016, 2017 was kind of the end of sequestration.
As we move into 2018, we're seeing some growth. One of the things around here is in 2017, we went 6 layers deep within the business and we really looked at what we had. And as Steve said, what we want
to be in is value added
where we add value to the customer and add value to Ducommun. There were some programs that were adding value to the customer, but weren't adding value to Ducommun. They weren't in a profitable state. So we exited a number of product lines, some in the industrial sector, but also some in the military and space as well. So whilst you only see a relatively small growth there, there were a number of military and space programs that we did exit.
Just one example was $8,000,000 of revenue in 2017 that we exited, so it wasn't there in 2018. So our growth in our new business is the parts are greater than that because there's pushes and takes and there's been some mix in what the customers were taking. Strong backlog from 263 $1,000,000 in 2016 to $307,000,000 in 2018 through the Q3. So we've got strong backlog as we move forward, and we've got a very healthy pipeline with our customers across both the Electronics and the Engineered Products Group.
So now we'll come on to
the Engineered Products Group. So we'll just go into a bit more detail around the products, what we do and what our individual strategies are. We'll start with the Engineered Products and then we'll move on to the Electronic Solutions after that. So revenue mix. What we have within Engineered Products, and again, going back to my second slide, that's the human controlled or human machine interfaces, the push button switches, the rotary switches, the motion control devices, which are motors and resolvers, the RF business that we have and then lightning protection.
So within those businesses, we've got a very healthy mix. Currently, it's 55% OEM 45% aftermarket. If you look at the sorry, if you look at how the vertical
no, there, sorry. So if
you look at how the vertical market split, today, 50% military and space, 35% commercial aerospace and 13% of other, which mainly is industrial and comes out of some of the commercial RF work that we do within the Carson facility. As we move forward, and you'll see as we go through the strategy, the plan is that we're pushing to get the aftermarket growth and the aftermarket should be more than 50% and the OEM will become less. So we are having a focus on driving the aftermarket growth as we go forward. A few examples what we have. I mean, what is our engineered products is about?
They're generally sole sourced, proprietary parts that are sold into niche markets. So we're one of a few players in that particular marketplace. In some cases, we are number 1. In some cases, we're 2 or 3. But there's plenty of opportunity for us in those markets, and I'll touch on that in a second.
We're leaders in our niche segments, most of them. So if you see here, 73 there's an aircraft cockpit, could be commercial, could be military. These are our legacy switches. So these are our push button switches, which there's an abundance of in every aircraft today, more in commercial than the military right now. But from a legacy standpoint, we have these switches fitted to F-fifteen, F-eighteen, F-sixteen, Cobra, Apache, C-five, Chinook, Blackhawk.
So from a legacy standpoint, we have a great history and there's a we have a significant aftermarket content with those parts today. The work we've done over the last 12 months going 6 layers deep is, well, what have we done lately? Well, lately, we did develop the engine start switch. So that's a rotary engine start switch for the 737 MAX. We also came up with some versions.
So that's compatible now right back to the classics. So any requirement for engine start switch for 737, all generations we can supply. So we have good build rates with Boeing on the new build, and there's a healthy aftermarket there as well. We came up with improved designs. We worked with Boeing.
We came up with a product that was superior to the offering they had in the marketplace. And that was introduced about 4 years ago. But around the switches, we didn't see that we've done any development, and there was no reason why. So we're going through a process at the moment. We've brought the technology in, we're bringing the talent in, we're bringing our push button switch technology up to date, and that's a market that is one we're pursuing in both the OEM side and the aftermarket as part of our strategic plan going forward.
Top right, this is our RF business. So we do some very complex RF, high frequency switches that go in from anything really from industrial applications through the satellites. So we've got both switches and we've got converters on programs, including Mars 2020, Imarsat and others. So we again, we're dealing with all of the respective primes and sub tiers in the satellite business. We're dealing with Airbus, Space and Defense directly.
We deal with MDA. We deal with JPL. So we have a broad product base and customer base for those products. Down here, lighting protection systems, 2 products, the strips that go on the outside on a radome. So any composite structure that has an antenna underneath needs to be protected.
There's our system and there's really only one other competitor out there in the marketplace. So in this business, we've got about an 85% market share and strong aftermarket. Surge suppressors, low voltage, high current suppressors that go inside the aircraft in the event there is a lightning event and you get a surge going through the aircraft, then these suppressors are here to protect it. The 787, for example, has 25 of these throughout the aircraft, supporting systems that include the GE Common Core System and the Hamilton Sunstrand Power Distribution and Control. And then our strips on the outside protecting the nose radome, the tail radome, the tail fin and then any SATCOM that gets put on top of the fuselage.
On the right hand side here, you can see on our motors business, our motion control, where we are market leaders, we do what everybody else finds very difficult to do in terms of reliability, precision and the demands on that product. So you've got the motors, we've got the resolvers and there's just a picture here. So what these can do on a missile system, for example, is they can control the wing deploy mode, the other wing deploy system and they're also used in the control actuation system, the CAF system. So for example, on the next generation Tomahawk, there's motor opportunities on both wing deploy, control actuation and we're active on those programs. So in summary, niche products, proprietary products, a good level of technology into it, and we believe that we do the difficult stuff.
There's a lot of people out there that do the lower spec, lower technology offerings. So the trends for Engineered Products. Yes, there's a focus. Everybody wants something smaller, lighter, the same level of performance or more, but in a smaller, lighter package, and we work towards that across all of the product lines. The strong growth trends in both commercial and defense segments, I mean, the commercial build rates are increasing.
The defense spending is there now and the programs are needed to be supported. There's continued aftermarket growth and demand, and there continue to be high barriers to entry because of the niche proprietary nature of the products that we have within Engineered Products. So what are we doing about it in terms of our growth strategies? The aftermarket represents significant growth for us. Again, when we went 6 layers deep, we were looking at our distribution process because probably around or a large portion of our sales within the Engineered Products is aftermarket.
A lot of it was going through different distribution channels that weren't necessarily the best value proposition for Ducommun. And so as of October, we actually partnered with Seal Dynamics, part of a HEICO company. So Seal are now doing all of our global distribution for our HMI product line, both civil, commercial and overseas. It gives us a level of transparency. It gives a better offering to the end user, but it also adds a lot more value to Do Common.
We were doing prior to that really wasn't adding value to Ducommun at all. So we managed to increase both revenue, and that's fallen straight through to the bottom line on our aftermarket plan going forward. We're well positioned in the market. We have the products, the legacy products. We're working on the newer technology to be compatible with LED, with ADS B compliance and everything else.
So there's a lot of good things going on. There's a lot of share gain opportunities in the marketplace around the complex motors, the human machine interface in terms of the push button switches. I mean, it's a big market. We're a relatively small player. So again, the runway there is once we get technologies.
And we're working there's a pipeline there now for both aftermarket and OE, and we're working those today. And we've built the team to support the growth plan. We've brought technology talent in. We've brought program management talent in. We're bringing operational management talent in to really strengthen the team to make sure that we drive, we hold ourselves accountable and we see this success.
On the Electronic Solutions side, again, so this is the Labarge, really, the Labarge acquisition of 2010, 2011, the five business units that we now have there. Again, we've got nearly well, we have got 60% made up of 6 customers. Obviously, as I think Steve mentioned, in this sector, Raizen is our biggest customer and then these other guys share the balance of and again, well respected primes. The programs that we're on, 30% of our electronics business is missiles, F-thirty 5 in flight connectivity, F-eighteen. So that's pretty much a summary of the earlier slide, but this is just specific to the market shares and the program shares for the Electronic Systems Group, but again areas where we're growing on.
So if we take the value proposition that we have for the electronic solutions, part of electronic systems, we are circuit board manufacturers. Now they're not the standard circuit boards. I mean there's a lot of people who make circuit boards. What we make is high mix, low volume, but also for robust environments. So we do the difficult stuff where you can't just run it through an SMT line.
There's a lot of manual population and finishing in the boards that we make. And then you've got the cable assemblies. And so it looks like a simple cable assembly, but there's a lot that goes into them to make sure that they're going to fix themselves in a ruggedized environment. We bring the 2 together and then we can offer the sub assembly value added business, and this is where we're growing significantly. This is a box for a shipborne system, and this is actually the radar rack for the aircraft.
So when you start to bring the circuit boards together, the cables together, we manage the structural assemblies that go around that and then we do the full population of bringing other electronics and avionics as required, we can offer a much higher level of value to the customer. And the customers that we have today, Raytheon and others, are starting to work they were doing this work previously themselves. They're now starting to look at putting that out of the market so they can just concentrate on final assembly with their growing opportunities that they have. High complexity, low volume, ruggedized. It's all about the ruggedization of it.
So everything that we make within the electronics business goes through a lot of just routine acceptance testing in terms of thermal shock, hot and cold, a lot of vibration and then all of the other environmental conditions that these systems A key part there to touch on is obsolescence management. I mean, certainly within the circuit board world, there's obsolescence every day. So part of our ongoing activity is we make sure that we manage every day on every product. So the industry trends for increased defense spending, I mean most of our yes, the increased across the whole product line. And then so a couple of things here that's also helping our growth.
Strong growth in high speed data management, like including the F-thirty 5 and other programs, and we're there on those programs. And then also for the shift in GPS technology to the M code compatibility, so all defense spending from 2017 onwards requires GPS systems and guidance systems to be M Code compatible. So that's causing the primes and the sub the high Tier 1s to come out for alternate systems, and we're working with them on those solutions. So a good market for us. Our growth strategy is to leverage the integrated capabilities throughout the business, not just within electronic systems.
We just yes, we take the boards, we take the cables, we come up with the value added systems. What we're also doing is taking some of our electronic systems capabilities that we have and matching them with our structures business. So for instance, now we're working on a new program for a missile launch system where we're actually making the structural composite launch tube. We're integrating our cable assemblies into it, again, a much higher level of assembly that's going to the customer. Grow our missile business with the defense primes.
Steve mentioned, as I've mentioned, Raycon is a big customer of ours. Lockheed is not. So we're taking what with other with the other primes. Pursue value opportunities with the Air, Land and Sea. We do a lot of cabinets.
We do a lot of large sub assemblies for shipborne systems for submarines. So we do a lot of stuff on the Virginia class submarine and the DDG 51 destroyers that goes into companies like General Dynamics, Northrop Grumman, out of our Huntsville business. So there's a lot of very mixed there, but they're all ongoing programs and there's growth in the world. And we're well positioned to support the current rate increases and the new programs that we're pursuing. We have a good footprint.
We've got capacity. We've got the engineering talent and the manufacturing talent to support the growth. So in summary, it's my last slide. What are we trying to do? We're trying to extend our leadership position in proprietary niche products where we can add value to Ducommun and add value to the customer.
We're growing relationships with the OEMs right across the board. We want good relationships with all of the primes and the Tier 1s that are important to us, and that's starting to happen as we move on. And focus on the value added products and services. Historically, we were really all about building the revenue. We actually very carefully look at every opportunity that we bid.
And if it doesn't add value to Do common as well as adding value
to the customer, then we're not bidding that business. So we've been very selective in what we
necessarily we did well in the past, whereas we would bid every opportunity and we would price it accordingly to make sure we won it and have kind of seller's remorse later on. So we're focusing on innovation on the product lines. We've got a newly created innovation committee that's supported by the Board and led by the Board. They'll be working with us within the operating units to identify what technology and the best technology to pursue and invest in as we go forward. We want to grow the missile business.
I think we've covered that. Significantly, we're doing with the products that we have today, our distribution channels and also what new products we bring in. So part of the aftermarket is we are looking at PMA opportunity. We are looking at both products and the sub assemblies, the next level assembly that they go into. And again, there's a huge untapped market there that we believe that we can bring value to in the marketplace.
So that's the end of my slot. So what I'd like to do now is hand over to Gerry Redondo, our Senior Vice President of Operations and also Group Head of
Thank you, Dave. Good morning.
So as part of our
overall transformation, Ducommun, our focus, I'm really excited to talk about our structures business, where we're headed and the highlights of that. So clearly, we have a vision. I think that's first. We have a very clear vision of where we're headed. We've got a strategy to achieve that, and we're very focused on executing it.
So with that, let's talk about the key products. So as we talked about, Steve introduced the titanium forming is key. It's 50% of our structures business. What's really key here with titanium, it's not simply titanium formed into a component. We're taking a very proprietary process, very complex, very difficult parts, both due to the complexity, the size, the contour, the dimensions.
We'll talk a little bit more about that, but clearly an area of emphasis for us. Composites, we're extremely excited about composites from where we've been. Legacy, we've had Metalbond and Pure Composite. Most recently, we introduced the VersaCore technology. So that's a patented Ducommun process,
both at
the process level, the product level, and we're going to see great things from that. Aluminum forming and chemical milling. So again, differentiating ourselves from the competition and from the typical aluminum forming, the characteristics here really focused on high level of complexity, larger part size and then the contours, the shapes themselves are unique to what we typically see in more standard fare competition. And then extruded plastics, as shared, we're 1 of 2 that has that level of plastics and extrusions that are offering to market, both due to the material, the flammability that we talked about, we'll talk more about that. So that was our recent acquisition of TTP, which extremely excited about as well.
Just a click on the pictures, the top left, that's an 860 Blackhawk upward exhaust duct. And what does that mean? So we produce that. We produce that in New York in our Kosaki operation. The key there is the value that we're providing to our customer.
So certainly, we're providing the product, so we're providing a very high level of delivery and quality, supporting the rate. More importantly, the solution provided here was that the customer needed a different outcome from that product. There was a high level of detectability from radar due to the duct, the exhaust and how that was detectable. So we did additional value. We went in with Sikorsky and we assisted and participated and contributed to the design so that, that wasn't as reasonable by radar and that translated to a different design, which we're producing here.
So our focus is we're a solution provider, not necessarily just a part provider. The GE LEAP engine, you'll see here, it's a minor part, you can see in the picture and then this here, these are the fairings. So this comes from our VersaCore technology. It's a VersaCore product, and this is our initial offering. Since then, we've had additional wins that we've announced, which go into the thrust reverser portion.
These are the blocker doors and there's some closeout auxiliary panels that we produce as well. These are leading edges, so leading and trailing edges that we produce for wings and horizontal stabilizers. And then for interiors, key focus of our plastics, extrusions to focus on the interior. So customers, we're very focused at a Tier 1 level. So we produce to the OEM direct and at the Tier 1 level.
You can see, Sikorsky, Boeing, GKN, Airbus and Spirit. There's a tail that goes beyond that, our key focus here. Platforms, most importantly here is we're on all the key single aisle high volume programs. So 7 37 MAX, A320, we're very well positioned on both those programs, and we're continuing to grow both at a market share or work share as well as additional wins that we're working with our customers on. Key point here is Airbus.
So you'll see a relatively small percentage today, not indicative of our engagement with Airbus. So we have a very close relationship with Airbus. They spend time in our facility, much time in Parsons. We spend time in Toulouse. I was there 2 weeks ago.
We're collaborating together on the future and how we can align with their buds to support their sourcing strategy, which we're very much part of. From a revenue standpoint, again, overall structures, you'll see a nice appreciable growth this year 2018. And then our backlog, obviously, growing as well from the 4.22% last year to 4.73% this year. The other key point in our backlog is certainly it's an attractive growth rate, but even more than the growth represents is by virtue of the agreements we have with our customers on replenishment. We have vendor owned inventory.
We're providing inventory to our customers, expand consumption. And our lead times are continuing to be worked to be reduced. Titanium is extended, but we're mitigating that to on hand and stores in house. The key there is the longevity of that backlog and how it gets firmed up is at a lesser window than it was previously. So we're able to be agile and react to that.
So the backlog in its current state as opposed to what have been a few years ago based on those same agreements would have been a higher number. So titanium forming, really want to frame this up to really talk about what that is. We're taking titanium sheets and we're heating it to 1600 to 1700 degrees, right? So we're turning titanium into virtually plastic is what we're doing. And the proprietary process here is that we are taking a design and a concept that our customer has and we're translating that into a finished product.
And we're doing that through a design of the process based on the expertise that we have internally through our engineering and our operation. So at a high level, we form the part in a dye, a very large dye. These weigh multiple tons and they're large parts, they're complex, they're highly contoured and they're very close tolerant. So there's a significant differentiation between that process and what you would typically term titanium forming. So with that, the customers about the same, added here is GD, Airbus, Spirit, Sikorsky and Boeing.
The platforms, again, we're on the top platforms. We have significant bills of material on the single aisle, 737, A320, and that extends into defense as well with the weight of that into Blackhawk 787. So the process, our value proposition, again, we're differentiated from typical forming and typical titanium parts. These are the highest level of complexity, size, tolerance, contour, shape. If you look at some of the snapshots here, we've made a considerable investment in the previous 2 years to be rate ready.
So we've aligned ourselves for rate 60 for 7 37 MAX. We work very closely with Airbus on the R75 initiative, which says understand what it takes to be at R75 and be enabled to take those actions. Today, we've enabled ourselves to be R60, right, R58, R60, so that we're executing to the most immediate forward requirements and we're positioned and we understand what it takes to be R75 and are ready to draw on that as required. Some examples of the product that we've invested in. It's kind of a high level.
Again, we take a titanium sheet and we cut the periphery of this part into a flat shape. That translates into a dye and then we form that. And there's 2 versions of the forming. There's what we term hot forming and then there's super plastic forming, both of which translate the sheet into a form into a die. The superplastic forming introduces argon gas additionally.
And the argon gas creates an environment where the titanium becomes even more pliable and offers the an even greater, more contoured, differentiated shape. So it's something that we're good at. Our customers term this as we're at a different dimension from others that do this, and that's a quote from them, from our 2 largest customers. We're vertically integrated, so we go out for almost nothing. There's one process we go out for, minimal processing, but we go from raw material to finished product.
And the super plastic forming and the hot forming, the weighted portion of that is in Parsons and then the forming, hot forming, both hot and cold, we do in our New York facility. So again, this is a very proprietary process. We're focused on a unique set of parts, that portfolio. We've done a lot of portfolio management across structures in the last year, and I think we're well positioned today to support the growth and the add on that our customers have available to us. These are two examples.
These are exhaust ducts or inlet ducts that go on in one of the leading business aircraft. So just to visualize that, those were flat sheets of titanium, and so there was the forming. And then to take that conical shape, there's very detailed welding as well, which is a very high standard and requirement. So all of that work is done internally. So industry trends, our customers, Airbus, Spirit, Boeing, very focused on working at a higher level.
I mean their input to us is they want to work at a higher level and have us as their partner and as a provider of these very high level complexity parts. Two key points there is the ability to mutually support rate and to mitigate risk. In some cases, our customer has that capability to a lesser degree, and we're partnering with them to produce half the parts. And then as we get up to full process capability, then the second half, right, based on the strategy, would be to translate that second half back over to us. There's certainly an increased use of titanium parts in new aircraft.
And as the capabilities increase, the automation increase, becomes more affordable. That's a lighter solution. It's a strong solution. Increasing the technology and automation, I mean, that's key for us in the industry, I think, as we all know. And then longer contract terms, right?
So whereas in the past, you might have had a 2 or 3 year agreement, the contracts now extend along much for the past 5 to 7 years, sometimes termed a lifetime agreement with iterative points of negotiation and pricing that we need to take. Our focus, along with the trend, is to really drive customer service, right? We're a solution provider, deliver quality parts on time, be there with our customers, support rate mitigation, their sourcing strategies, their make buy strategies, be that provider to them, ensuring we have the capacity to support the rates because we all know there's much discussion and concern over rate readiness of the supply chain in order to support Boeing and Airbus, our focus has been we've invested in it greatly over these last 2 years, are well positioned today to support rate. And then talent, right? We can buy equipment.
Equipment doesn't yield product, people, right? It's all about people. So we're continuing to invest in talent, to develop in talent internally as well as the technologies. And then as Steve shared, operating systems. So we're very focused on that.
We act on that daily, and we're seeing much success from that. And then quality and delivery, right, in providing solutions for complex challenges, complex problems that our customers carry. So composites. Again, composites kind of 2 iterative levels. We have our metal bond, pure composite, and then we have the new technology that we introduced, VersaCore.
And so from the introduction of VersaCore, we have the fairings that go in the GE LEAP engine, and then we have the blocker doors that are part of the pressure versus system that we've introduced as well. So we're really excited about it. There's tremendous growth. We've spent a lot of time with our customers. They're very interested in what we're doing.
The best example of that is the work we've done with Airbus, where we've worked over the past 2 years to develop the process level approval so we can apply VersaCore to critical flight services. And so we passed that in recent several months ago, we passed that, and now we're at a test readiness level 6 relative to Diversicore. And so now that product technology can be applied to a multitude of applications. Top customers, you'll see GE, Boeing and Dell. Platforms, the current platforms, again, we're on the single aisle, Apache, Defense, and then we have legacy 757 still and some work remaining on 767.
And then there's a tail with other applications we support. Key point here is we've provided the 7 37 spoilers since the beginning, right? Since, like, 1965, we've been a provider of the spoilers, chipsets for 7 37, and we continue to do that. So our value proposition. Again, the proprietary VersaCore composite technology, it's a differentiator.
The value there is ultra high quality. We've surpassed all the tests required that draw the equivalent to what was required in the metal or what was required in the previous composite configuration. And it's a value, right? And I'll say it's a price play, but it's a great value, and our customers see it as a very affordable, high performing solution. We spent a lot of time here in the last year, and most recently, we've become an improved Apache blade repair station in Monrovia.
So we work closely with the government, we work closely with the Army and Boeing, and now we're supporting the repair of Apache tail loaders, which we produce at the OEM level from legacy and still today. And we're also doing the repairs on the main rotor blades for Apache. Composite, metal bond, autoclave processing, again, core. The key there is the technology that we've introduced, proprietary processes that go with that and then the focus, the altitude of the products that we do focus on. Again, it's the higher level, larger, more complex, spoilers being an example of that.
And then we've spent a lot of time across operations, across 2 Common on our lean focus, our lean operations, continuing to drive that transformational in everything we do. And then we've spent an incredible amount of time in our Mexico facility in these last 10 months, and we're setting up our operation to execute VersaCore in Wyomus, Mexico. And there's really 2 key points there. It's not only that we're producing the product in Mexico versus the U. S.
I mean, there's some cost, obviously, advantages to that. The key there is we're setting up a best in class process and a best in class operation. So regardless of where it was, we would be yielding significant results from that, and we've invested in that. We invested in that beginning last year, and we're getting close to finishing that up this year. So we'll be producing VersaCore, the most latest win in Wymus and be shipping from that early next year, producing working on the prototypes now.
Obviously, shared the rotorcraft defense applications. We have the patchy tail rotor blades represented in the picture here. The repair station, so that's a snapshot of the repair that we do. So the parts come in from the depot. We do the disposition ourselves.
We translate that into the work required, and then we ship that product back. The flight control services, that's an example of a portion of the 737 spoilers. And then the BursaCore fairings, again, Right, in this area here, these are the products. And today, that's a combination of production in the U. S.
In Monrovia, and that's about 50% transferred into Wyomus today and will be fully transferred into Mexico by mid next year on Albertsacore. So the work we're doing in the U. S. Will then translate into Mexico as well. So trends in growth for composites, certainly an adoption and the new wide body designs expected will drive significant growth.
Increasing use of composites replacing metal, I mean, you look at the percentage today on 787 as an example versus an earlier version of 737, it's very, very significant. There's no comparison. Automation at OEMs in Tier 1s, higher level assemblies being the pursuit of the OEMs versus component level manufacturing. So even examples of a product that we were producing today or yesterday, what's that next level that, that part goes into? And then asking the question for ourselves, is that something that we can align to and provide a solution to our customers for?
And based on their strategy to work at a higher level, that introduces an additional opportunity and solution that we can provide. And then new manufacturing technology is driving lower cost. So certainly, that's an ongoing trend in a high area of focus in the trend today. So our growth strategy, again, is focusing on the technology and the process of VersaCore. Most recent example there on technology and process is all the VersaCore product, all the composite product goes through a nondestructive testing, each part 100% inspection.
So on the fairings today, there's an NDT process that takes about 16 minutes per part, right, 16 minutes per part. With the introduction of the technology that we're putting into our WiMAX operation, and we've just introduced this, is now we can produce 20 parts in that same 16 minutes. So 16 minutes apart traditionally and how that process is executed going forward, our wireless operation, based on the technology and the process focus, it's 20 parts in that same 16 minutes. So that's been our focus is to look exponentially at what's possible. Key strategies to grow the repair in the blades.
So again, we have the tail rotor, the main rotor. There's more opportunity there for us. We're approved repair station by the Army, by the government, and we're going to continue to drive that. And leveraging our position on existing programs and existing platforms, Expanding on missile defense and integrated product technology, Dave spoke a bit about this, but we've introduced a product now where we're doing the composite work in our Monrovia plant, and we're doing the wiring harness in our Joplin, Missouri operation, the 2 Marriott and are integrated into one end items, providing a much higher solution to our customer, which flattened the bill of material, and it's proven to be a good process for us. And then again, expansion of our Mexico capabilities and capacity.
And it's not only low cost country, it's process, it's technology and setting up a world class operation and capabilities. So aluminum forming and chemical milling. So two things here. The aluminum forming, again, much like the titanium, is our focus is on the highest level complexity. We have significant capabilities on size, which very much differentiates us from our competition, aligns very closely with the OEMs and their capabilities, in some cases, their capabilities that they don't have.
And then on the chemical milling, same focus, high level complexity, high dollar parts. We do chem milling for the parts that we produce. So the parts that require chem milling is also differentiated because there's very minimal capabilities for others to do that work, and was something that they typically would have to outsource, which offers risk and then there's a capability gap externally for complex chem milling. So for us, the chem milling is a differentiator. We focus on titanium and we focus on aluminum.
And we've done a lot of portfolio management this year on this. So we've aligned our portfolio to where it pegs to that, right? It's the high complexity, higher size, difficult to source, providing a higher value. Our top customers noted the same group. And here you'll see Bombardier and Triumph and GKN.
Top platforms, we have a good mix of defense and commercial. Again, we're on the leading platforms. And key points on our value proposition. So again, the proprietary forming methodology, right? So these are typically larger parts, large parts complex.
Our customers come to us because they need a part. Typically, they come to us because they're having a challenge. They're having a challenge with the design. They need assistance on that. Most regularly, the challenge is on getting the parts configured, quality, delivery, consistency, minimal variation.
And so that's where we come in, and we engineer that solution, and then we apply it to the capital and the equipment and the process strength that we have. Integration, right, again, we're going from raw material to a finished product, inclusive of the chem milling, machining and assembly. Key in our process capability is our tool design and our process design. So we have a lot of legacy. We have a lot of engineers with a lot of talent.
We continue to breed that talent to build up our bench strength so we don't lose that. And with a highly experienced team, dedicated committed team. Key points here on the chem milling. Again, the differentiator is titanium, aluminum as well, but very high complexity, very high dollar parts. We do that work through our product as well as just the chem milling for customers that only require that.
The high speed machining, the CNC, the brake pads, what's unique about that as opposed to the typical capital of those subscriptions is the size, the tonnage and the ability to support and control the tolerancing. So we've continued to look at the technology. We've upgraded. We've modified over these last 2 years to ensure that we were aligned to do that. This is a piece of equipment, the high speed machine that we've added these past 18 months.
So industry trends, certainly, it's a niche segment with limited number of competitors. Again, that's at the level of the product that's in that circle that we're focused on. There's a very high cost of capital, so the barriers to entry are challenging. It's really a strategic question on whether that's the right thing to do for others. Limited competition with chem milling, the capabilities we have for the complex large parts, that's certainly a trend in part of the environment.
And then consolidation through M and A, right? We're seeing that with our competitors and others that do the forming and the work typically that we do. Our strategy going forward is continue to focus on niche capabilities. So we're not a big supplier of anything that's formed. It's the complex, the niche.
Our focus is on increasing our work share to that degree on the key applications noted. And then leveraging our scale and unique capabilities for the larger, the complex aluminum, the aluminum lithium, which we do as well as those applications that require that chem milling because that in itself draws others out where otherwise they'd be interested. And then extruded plastics. Again, this is our CTT, certified plastics that we've completed the acquisition on here recently. The focus here, as Steve noted, the $0.50 or $1 a pound, dollars 18 a pound, this isn't your typical plastics, right?
This is we're 1 of 2 that provide this material to this configuration at this level. It's proprietary materials. It's also a proprietary process, right? So the process engineering as well as the materials puts us in this unique position. Continue looking at where we can add more value, add the most value by applying this technology and material and then ensuring we have the capacity to support significant growth, which we do today.
So key applications, you'll see the product and you'll see different points in the interiors where the plastic and the excursions are applied. So trends, thermoplastic, the extrusions expected to continue to grow. Replacement of metal parts, aluminum parts. And from customers' experience, cabin density changes and upgrades, they're driving spending, driving improvements and upgrades into the interiors, which would translate into requirements that need to be fulfilled, which we're positioned to do. Our growth strategy is driving share gain, continuously doing that from our competitors, expand our capabilities for a higher level, more value add solutions and then the aftermarket, reaching out to the aftermarket on the MRO and various channels to do that.
So we're focusing on our strategy and our actions in order to achieve that. So overall, our structures strategy summary, again, we've been in a very transformational role. We're very, very excited about structures. We've we're committed to our strategy. We're committed to our execution.
We're seeing those results read through, but we're not ever close to being done, and we have a lot of opportunity in front of us. Key is extending our leadership position. Again, the proprietary products and solutions is key, right, differentiating ourselves, continuing to draw and build on our strategic relationships, which we have strong relationships today. We're continuing to build upon that. And then focusing on the value added solutions.
What we're producing today, it's a good point. What happens next to those products? How does that branch out both vertically and horizontally to a broader span? So focusing on restructuring costs, right, leveraging that but also our lean practices. Our lean practices, the restructuring happened, we're done with it, continuing focusing on the lean operations, innovative engineering, the process to continue to reap those benefits.
Airbus is a significant growth customer with us. We're very closely aligned. We're in the midst with them when we turn the transformation process, and we're very much part of each other's features. And then expand our presence on the high value and growth platform. So work share, additional wins is the key focus there.
And then driving the technology with VersaCore, right? We're extremely excited about that. All the production for VersaCore, we executed our Wymanus operation in Mexico. And again, it's 2 points. It's low cost country.
Even more impact, we believe, is the process technology innovation that we're putting into those processes in order to achieve customer service, rate readiness and affordability. Okay. With that, I'll introduce Sumay Kumar, who will take a break.
So just everyone, thank you for hanging in there and your attention. David and Jerry thank you for the excellent job. So we're going to take a 10 minute break. Okay. We'll come back.
We got a little more to do and then we'll wrap up, okay? So thank you very much. 10 minutes. Okay, everybody. Thank you again for hanging in there after the first part.
This won't be as long. And then we'll take some Q and A, okay? So if everybody can just take their seats and we hit the doors and again, appreciate everybody hanging in there on this. And with that, I'm going to turn it over to Sumant Mukherjee. Sumant's going to walk you through our M and A strategy.
So I'll turn it over to you, Sumant.
Thank you, Steve. So you've heard a lot about the good things we're doing on the organic side of our business. And then I'm going to now spend a little bit of time taking through even more exciting stuff, our inorganic growth agenda. So I've been with Ducommun now since April of last year. And really a lot of the time that I've spent is really setting up our strategy as well as our acquisition and post acquisition integration function.
We haven't had this role in the company. As Steve mentioned, we haven't done any acquisitions since we bought LaBarge in 2010, 2011. And for a period of 6 or 7 years, really we didn't have anyone kind of covering this role and we didn't have kind of the standard work, the processes needed in order to successfully execute on transactions and execute flawlessly on post acquisition integration. And so we've been over the course of the 2 acquisitions that we've done set up that process, the discipline and the standard work in order to be able to execute on that going forward as well. So what is our vision from an M and A perspective?
The vision is over a period of time to have built a portfolio of proprietary engineered product businesses in aerospace and defense, businesses which either are or have a clear path to becoming a leader in a niche segment. And that's where we want to be. And in order to do that, in order to execute and achieve that mission, what we're going to do is naturally over a period of time keep acquiring such proprietary engineered product businesses. And what we're going to do is we're going to then after we acquire them, we're going to aggressively execute on a profit expansion plan, because that's really at the end of the day what will deliver value to our shareholders from our acquisitions. And I'll talk a little bit more in a little bit around what that means and what our screening criteria is and how we go about with the expansion plan.
So how are we working on our pipeline development? How are we screening opportunities that we look at? We have a very proactive approach. We are exhaustively scanning the universe. We work with a search firm.
We have been working with consultants to scan the entire A and D landscape to identify segments that would be attractive to us and that fits the criteria that we are looking for. I spent a lot of time attending trade shows and conferences, identifying new candidates that could be a potential fit for us. We I also spend a lot of time with bankers some of whom are here. And over the period of the last 12 to 18 months, educating the banker network on what really we are looking for. We've historically been known as a structured business and a more contract manufacturing electronics business.
But so my work has been to kind of educate them on our M and A agenda, which is focused on engineered products. So and I think we've been quite successful in getting that message out there. And we've seen a very good we've had very good visibility into the different opportunities that have come into the market over this period. And then finally, working with the Tier 1s and the Primes and maintaining the relationships with them and their corporate development teams, many of whom I have known easy to come to know in the last 18 months or through my prior A and D experience with a large Tier 1 A and D player have been able to kind of continue to build that network and stay in the loop on opportunities as they come up. So with this approach, we've been able to stay on top not just with of all the privately held businesses, family owned businesses, but also the private equity owned businesses as well as any carve out opportunities from the Tier 1s and Primes.
In the last 15 months, we have applying this approach seen more than 2 50 companies. So we really had some good success with this approach in looking at a wide gamut of companies. And we have, however, been very disciplined in our evaluation and our screening criteria. So we look at screening the businesses at 2 levels: 1, at the product segment level to identify whether that specific niche segment is attractive to us, what is the strength of those of suppliers in that specific niche space? We like businesses that have a moat around them, so there are high barriers to entry.
And that often comes from proprietary technology, which is protected in some way or the other. So we like businesses with intellectual property. And we also like businesses which are specified on platforms. With an A and D, if you are specified on the right platforms, you have a long life in terms of revenue potential. And we like businesses which are where the or product lines where you can get specified on a platform and enjoy the fruits of that platform for a long period of time.
We like businesses which have low capital intensity. We like businesses which have high aftermarket content. Both of those attributes make the business resilient to cycles in the industry and provide good balance to our the rest of our business, which may have more of an OEM focus. So those are the attributes that we look at from the product line focus with one other addition being the size, right? So today where we are with our leverage, we want to be very disciplined in maintaining our kind of debt to EBITDA ratios and be responsible.
And so we want to identify and that kind of flows through our M and A identification process as well because we want to identify niches where within our M and A size constraint we can be a leading player in that space. So our typical sweet spot today as it stands now is for transactions with an enterprise value of $25,000,000 to 100,000,000 dollars And that's our sweet spot. And we can keep doing those kinds of tuck in acquisitions over the next couple of years. And if we do find opportunities which are really a great strategic fit, we can certainly stretch beyond that at the right time and for the right business case. So that kind of explains the product line criteria that we have and then the company criteria, right?
So once we like a particular product line, that's not kind of the end of the screening, right? We have to like the specific company within that product segment. Most important to fall, the company needs to have runway. And Steve talked about runway in our existing business. There certainly needs to be runway for profit expansion in the business that we acquire.
And that's really critical. We need to have before we execute on a transaction a very clearly defined path to significantly expanding the EBITDA profit in the business over the next 3 to 5 years. And we have a strong process in actually executing and doing the integration and executing on our plan. And we'll talk about the success we've had so far with the acquisitions that we have done. And we're going to continue to maintain that discipline going forward.
The kind of other attributes, we like businesses which of course will be A and D content. We want businesses which are a leading brand in that segment. So if we like a segment, we want to make sure that we are either buying a player that is already a leader in that space or we have again a clearly defined path to make you the leader in that space. So those are really critical. And finally, we want businesses that have strong management bench strength.
This is sometimes a concern, especially when you're looking at deals within the $25,000,000 to $100,000,000 range. You're looking often at family owned smaller businesses, which with a lot of knowledge kind of residing in the minds of the owner. So we want to make sure that when we buy a business either we have a plan to retain and keep the owner motivated post acquisition or we have a clearly laid out plan to a succession plan to the current ownership. So that's kind of our process. As you can see, and as I mentioned, 2 50 plus companies evaluated in the last 15 to 18 months.
We've closed on 2 acquisitions and there will be more to come. So I wanted to take you through the first acquisition we did of Lightning Diversion Systems. And Dave covered that to some extent in his portion of the presentation. So we bought Lightning Diversion Systems in September of last year for $60,000,000 And they're the world leader in lightning protection for radome systems. They're definitely benefiting from the macro trend in more connected aircraft.
And we see very strong growth in that business for many years to come as more and more planes get connected. Even today, there is a significant base of the legacy aircraft, which don't have connectivity and that just is has to happen. And so we're going to benefit from that. I spoke about aftermarket being a key consideration for us when we screen acquisitions. And there's a huge aftermarket content in this business, not just from the retrofit business of retrofitting legacy aircraft but even the existing aircraft that has connectivity, the radome typically on a commercial aircraft needs to get overhauled every 5 to 7 years.
And when the radome gets overhauled, our product gets peeled off and thrown away. And we are able to resell every lightning protection product or lightning protection strip that we sold 5 or 7 years ago once again. So terrific aftermarket business. It's not going to go away. You're going to need connectivity on the plane.
You're going to need the electronics, the antenna, the receivers on top of the aircraft. You're going to need a radome, which is going to be made with composite materials covering the antenna and the electronics and you're going to need lightning protection because the composite material doesn't conduct electricity. So terrific business. As you can see on the right well, before I go into that, we integration, I said, we've really put in place a strong process for integration. When we go into a transaction, we make sure we have a clearly defined plan, day 1 plan, 1st 90 day plan and the longer term plan of what we're going to do with the business.
When it came to LDS, it was kind of a new platform for us in terms of a product line. So the integration was not heavy. We didn't we weren't integrating it with an existing business. But for all the other integration that we need to do from a functional perspective with regard to compliance, financial reporting, health and safety, we were able to successfully integrate it in less than a quarter, in fact, within the 1st month or 2, that the business could get past that and go on to the real objective of kind of growing the business and continue on their growth path. So how have we done in this business in the 1st 12 months?
So we completed 12 months at the end of Q3 of this year. And you can see that versus our acquisition model, we are ahead on revenue by more than 110% and over 118% on the EBITDA. So that shows you that we are conservative when it comes to modeling out our growth. We are not looking to make aggressive assumptions in order to support high valuation. We are very disciplined in and I wouldn't say conservative, but very realistic in our projections and we make sure that we're able to generate value from the acquisitions and don't get carried away in kind of the hype or of trying to get things done or get deals done for the sake of getting deals done.
So what is our plan going forward? What's the outlook for the future? We intend to continue building the pipeline in a very exhaustive and relentless manner to make sure that we have visibility into everything that's out there or may get out there in the future. We're going to maintain a cadence of doing acquisitions not at the cost of the discipline, but we feel like there's still a lot of opportunity out there in the market for us to continue doing these add on acquisitions. And we feel like we can we'll probably do fewer in the next year or 2 based on our leverage.
But as we continue to build our capacity, we will certainly see more transactions in future years. And for every acquisition that we do, as I mentioned, the plan is to aggressively execute on our EBITDA expansion plan for each and every one of those transactions in a well planned and disciplined manner. So with that, I'll pass the talk to our CFO, Doug Groves to take you over our financial outlook.
Great. Thank you, Saman, and thanks, everyone, for being here today. It's great to see so many familiar faces. So I've got a few slides I'd like to share with you on our financial outlook. We'll go through a brief look back on history and where we've come over the last 18 months with our transformation and how it's reading through in our financials.
I'll talk a little bit about the actions that we've taken and will be taking to sustain that financial performance. We'll share with you our capital allocation strategy going forward, which has changed from where it had been in the past with the acquisition strategy that Sumon just laid out and then wrap up with our financial priorities for the next few years.
So my comments here will
kind of focus really on 2017 2018. Those are the most relevant as we began the transformation of the company. You can see on the top line revenue, good growth. That does include the impact of ASC 606 adoption this year, which added about on a quarter to date excuse me, LTM basis, dollars 15,000,000 ish in revenue on the top line. Most importantly is the EBITDA expansion, so 900 basis point expansion in the EBITDA, and that's really been reflective of all the restructuring activity that we've done.
I'll talk a little bit about that further in the next slide, but that's certainly helping to boost the margins in the company. Our debt at $227,000,000 at the end of the 3rd quarter, up a little bit reflective of the CTP acquisition, which was $30,000,000 by about $18,000,000 of debt pay down so far this year. We do expect to pay down about $25,000,000 in debt this year with the strong cash flow generation of the company that, again, we'll get to on another slide. So on a trailing basis, about 3.5 turns levered. As we finish this year, probably expect to be closer to 3.2 turns, and we're certainly comfortable at that level.
So steps we've taken so far that are really driving these financial results. As talked about, we stream the organization. Certainly, the last several conference calls, this has been a major topic. I mean, we've incurred about $19,000,000 in restructure charges since the beginning of the program. About $2,000,000 to $3,000,000 more will be incurred in the Q4.
So the whole program comes to about $21,000,000 to $23,000,000 since we kicked it off in the Q4 of last year. The goal all along has stayed consistent that with this restructuring program, we take about $14,000,000 of cost out of the infrastructure of the company. It's a combination of fixed asset reductions, footprint consolidation and, of course, a reduction in the workforce of roughly 6%. So it's setting up nicely for 20 19 as we sit here today. Sumant just talked about executing 2 strategic acquisitions, and we've got a great process in place to continue to build that funnel and look for the right assets to add to the margin expansion of the company.
And then the rationalization of the product portfolio, you heard Dave talk about that a little bit earlier with Steve's arrival on the company and putting a fresh lens on a lot of our programs and the profitability of those programs. We have exited some unprofitable programs and that's an ongoing process that will continue. The revenue impacts haven't been that significant as Dave referenced in his comments, but it is an active process that is, I would say, very disciplined and looking at when contracts come up for renewal, whether we're going to stay in those or not. We have an industrial finger of our portfolio that we continue to look at, and it probably shrinks as we go forward just as the other two parts of the business, defense and commercial, grow that, that probably gets a little bit smaller. Moving to the middle column.
So we have optimized and consolidated the supply chain. You heard a lot today about rate readiness, and we've certainly been busy with our supply chain being sure that they're going to be rate ready as we are rate ready. So, a tremendous amount of work done to align customer contracts with our supplier contracts, being sure we've got adequate not only supply, but cost lockdown on those contracts as we see the rates increasing on several of our major platforms the next couple of years. Asset utilization, through our restructuring program, We've written off almost $10,000,000 in fixed assets, so that's certainly helping reduce the overhead of the company. We did announce in our Q2 call the closure of our Phoenix facility, which is well underway and should be completed by the end of the quarter.
That facility is being consolidated with our Huntsville, Arkansas facility. So again, through the restructure, creating higher asset utilization of the assets that we have in the company. And then with those actions, the expectation certainly is that it's going to deliver much more sustainable operations and continued growth in both margin and top line. The far right hand column, optimize the capital structure. So this week, we actually kicked off the refinancing of the current debt in the company.
It was going to become current in the Q2 of next year, so we're just getting out ahead of that now. The refinancing is going to give us a lot more flexibility. So as we think about, from a covenant standpoint, the investments that we want to make in the business to grow it organically with some of the initiatives you heard earlier as well as the M and A strategy we have, the new debt facility will give us certainly more flexibility to execute on those opportunities. The capital allocation strategy, I'll get to that in the next slide, but the fundamental change there is being able to create capacity for the inorganic growth that Shuman mentioned as well as the organic growth opportunities we see in some of the new programs that we're going to be bringing on the next couple of years. And then balance sheet management, the company has always been a pretty strong cash flow generator and that's going to continue.
We see that there's nothing that would change there and our goal is to continue to convert greater than 100 percent of our net income to cash. And we've been pretty consistent and we expect that to continue and probably accelerate as we see margin expansion. So capital allocation, historically, you heard reference earlier today, the LaBarge acquisitions, which really levered the company up to over 5 times and through discipline over the years have brought that leverage down significantly. There were investments continuing to be made in CapEx, particularly in our titanium business. So to put it into context, between our New York facility, our Parsons facility, starting in 2015 through 2017, we invested over $30,000,000 in those titanium businesses.
We really like those businesses for the reasons that Jerry mentioned. And we're certainly well positioned now with that capital investment behind us to take advantage of the fruits of that, meaning the rate increases, the additional business, our relationship with Airbus that we'll be able to leverage with those big investments that were made in prior years. So as we look forward, we don't see a big need for a lot of CapEx, particularly as we continue to build out the engineered products part of our business with these proprietary products. They're much less capital intensive. So there won't be the need of the CapEx that we've seen of the past and we should be able to manage to something in that range.
As we think about what we'll do with that excess cash flow, we're going to continue to pay down the debt. I mean, we think that's the best use of our cash in the absence of any organic or inorganic investments. As I mentioned, we'll pay down about $25,000,000 this year and continue to expect that rate and then some going forward as we grow the earnings of the company. And then lastly, certainly the disciplined M and A process that Suman spoke about. So that will become part of our capital allocation as needed when those opportunities arise.
Financial priorities for the next couple of years. So
in Steve's comments, he talked about the commercial aerospace business and where we sit on the major platforms that we've got. We're looking for that part of the portfolio to grow in sort of 5% to 7% range, which has been pretty consistent with what we've messaged in the past. We think that as rates increase, that could potentially creep up. But that's basically what we're looking at on the defense side of the portfolio, growing that part of the business somewhere between 2% 4 Again, could do better on that as we expand our growth into the aftermarket that Dave was mentioning on some of those legacy platforms like the F-eighteen and with new content coming on with the F-thirty 5. So, again, as you think about the key platforms, you probably couldn't pick too many more that you'd want to be on than the ones that Ducommun is already on.
So we're pretty optimistic that we're going to see nice top line growth at least mid single digit we move forward. On the EBIT or operating income line, the expectation there is that we grow that at a CAGR of double digits now as we get out of 'eighteen, start heading into 'nineteen as we pick up some of those restructuring savings as well as just more leverage through the P and L with continued operational efficiencies, but also a growing top line. 2nd, we'll continue to identify strategic organic investments and inorganic investments. So, you heard some of those today, particularly in our engineered products where we're talking about growing the aftermarket, getting more PMAs on some of the products that we've already got. So there will be organic investment, but we know exactly what that looks like and are prepared to make that because we think the business case certainly supports it and then some.
And continue with a disciplined capital allocation strategy, which is, as I mentioned, to limit that where necessary and look to create much higher returns on invested capital than the company has probably had in the past and then use our debt refinancing as needed to have the flexibility for the right investments for the company. Of that and don't see that certainly changing as we move forward. So to wrap up our investment thesis, Steve briefly touched on this, but we think with our unique proprietary products and capabilities and ability to service the aftermarket that that is the single biggest opportunity that we have that's going to drive value. The developing business model, you heard Suman talk about what we're going to be doing on the M and A front. We talked about refining the portfolio with a much keener eye on which programs we're going to stay on and which ones we may exit if they're not as profitable as
we need them to be.
Steve talked about building a winning team and a winning culture. So much higher degree of accountability and results focused than we've had in the past. And again, that's going to it's the people that are going to make all these things happen. And with the changes we've made, certainly feel good about where we're at and where we're going to go with
the new team.
The financials will improve and continue to improve as a result of a lot of the actions that we've already taken that we plan to take. And to reference Steve's comments, we're still in the early innings. So we've been at this roughly 18 months. So we still got a ways to go, but that's the great thing about the opportunity that's ahead of us is that we are just getting started and we see a lot of opportunity moving forward. 5th, the strong customer relationships.
You saw the customer logos in the presentations. We're with all the right OEMs in Tier 1s for the businesses and platforms that we serve. And then lastly, continuing to drive the cash flow in the company. Again, that's going to be the engine that provides us with the investment opportunity to grow the company as we move forward. And at the end of the day, the key priority, deliver exceptional value to all the stakeholders.
And again, I think that's evident in some of the initiatives that we've got, and we'll be driving that as we move forward. So with that, I'll turn it over to Steve for some closing remarks.
Okay. Great. Thank you, sir.
Okay. Well, first, again, thanks for hanging in there this morning and listening attentively. We really appreciate that. We thank you for coming and making time for it to come. And just a couple of closing comments.
First, just for context around David and Jerry's presentation is that a lot of the things they talked about today weren't happening 18 months ago,
all right?
So just to put that
in context, I mean, there wasn't a focus on proprietary products. There wasn't a focus on building aftermarket. There wasn't focus on a lot of things that you heard today, okay? So when you walk out here today, that's a big, I think, takeaway is that what you heard today, a lot of that wasn't going on. In the past, a lot of firefighting and other things that are more reactive where this is I feel
much more proactive is the first thing, okay?
So I just want to comment on that. Second thing is you might have saw this in the press is we have a new Board member and her name is Shirley Drazmo. So I want to mention that for our community here. Shirley just joined us. She was appointed in October, terrific leader.
She came out of IDEXX, which is a world leader in pumps as well as Honeywell. And what we're doing is putting together innovation committee on the board. So we're having a new committee and Shirley is part of it, I'm a part of it, 2 other Board members. And so that's a whole initiative around us trying to really move the company more in this direction of proprietary products, aftermarket, higher technology. So I'm excited about it.
Hopefully, you are too. So we've got, I think, great things there. The Board is all in on our presentation. We had a Board off-site last month at the NYSE for 2 days and spent a lot of time on this. So everybody is connected, everybody is together and we got the game plan.
The other thing I will say is that on capital allocation, okay, it's a big deal for me and I know it's a big deal for investors, okay? The companies that I've run-in the past were all fairly low capital intensity. We were super successful, okay? And what I see at least for the next few years, because we made some investments and we've gotten support in 2015 2016, we're really in good shape to keep that around 2% of sales. I think that would be terrific, okay?
So think we're in great shape on our capital allocation. We're doing a lot of things, right? But if you think about what you heard today, we're really focused on our proprietary products, focused on aftermarket, focused on niche products and our services businesses. So talk about electronics, where we're really doing things that other people can't, our titanium,
those types of things.
All right? So I think it's a great time for Ducommun. Again, I showed this chart earlier. We do have these industry leading proprietary products. In the past, we haven't been as open about LBS than today, right?
So please don't think we're being cute because we're not, okay? All right? Sometimes for proprietary reasons and other things we might not share everything, but we thought today it was important to share that because that acquisition is a home run. And we really want to bring it to the investment community today to show you we know what we're doing, okay? And we need that long term trust as we move forward here that you can trust us that we have the right process, we have the right leadership and we're going to make it happen for everybody.
So, I think that's an important piece. These capabilities we talked about, the platform is terrific, getting much better at aftermarket. This Apache rotor blade,
this thing is huge.
And Boeing Defense came to us and the government said, hey, can you guys help us with this? We've got all these blades all over in all these depots in Texas and other places. I mean, 5,000, 6, 7,000 blades all just stacked up, shot with a gun, damage from the desert, from all these different things. And we stood up our repair station rather quickly. And now we've got a great business for blade repair.
So I think that's a great comment to Jerry and his team. This flexible model, I think, is terrific. And finally, just to leave, it's always in my philosophy, it's people first, strategy second, okay? You can have the greatest strategy in the world, but if you have so so people, guess what? You're going to get so so results.
So I'm excited about this team, excited about our strategy. And again, I appreciate everyone's time today. With that, I'll take questions.
Hi, Steve. Thanks for all the detail. Just a
further question. It looks
like you've got really good organic growth opportunities across a range of businesses. Do you see similar return opportunities as you go through composites, titanium, chemical milling, you go through all of your electronics opportunities. And how do we think about maybe capital allocation reflecting sort of where you see the best return opportunities moving forward? Yes.
Ken, thanks very much and thanks for coming today again. So I think the leading candidates here are going to be a proprietary products, okay, going to be composites, okay, going to be titanium, all right? We like our 10 milling business. We like aluminum forming. We like these businesses, and we're certainly going to run the right way and leverage.
But if you look at the stars of our company, those are the ones that are going to be really funded and with the aftermarket as well. So I really see that's where we're headed.
Okay, great. And if I could just one follow-up and maybe for Doug. The $14,000,000 benefit you expect from the restructuring activities, how much of that have you seen in 2018? And how much then is sort of incremental in 2019 and maybe 2020?
Sure. Good question, Ken. So as we look at all the actions we've taken, probably roughly 40% getting recognized in this year and the next 60% next year. So that in totality, the $14,000,000 does come out of cost structure, the structure of the company through the reduced headcount reduced score base. So that's roughly the kind of breakdown how much between the 2 years.
Okay. Thanks, Ken. I'll start to do back first.
Steve, thanks guys for all the information today. So given the strategy, are there any assets in the portfolio that you think don't fit well, maybe aren't core to the strategy that maybe you could monetize, recycle the capital into debt pay down or M and A that just sort
of further that? Yes. Great question. So with our markets right now, both the commercial and military, okay, we would say no, okay? Right now, I think we're in good shape with footprint.
Maybe we've taken out 16% of our footprint, okay? So we have consolidated our facilities, okay? We've done some things to make the footprint a lot tighter. But where we sit right now, we like where we are. Could that change in 2 years?
Sure. So we're open minded, and we always like to look at possibilities. But where we are right now, we're comfortable, so I would say.
All right. Thanks. Chris?
PMA was mentioned several times as a growth opportunity. And traditionally, for an OEM parts manufacturer, I think a PMA has been threat or conversely, if you're a HEICO, it's an opportunity issue. I'm wondering which side of the equation you're approaching it from. If you could just elaborate on your PMA. Sure.
Absolutely. Thanks for the day watching all this, okay, the PMA?
Yes. So the question was how we handle the PMA as we go forward. There's 2 approaches. If you look at our product line, there's some reason we can do under license PMAs with the OEMs and there's other parts where we'll just PMA directly through the computational analysis route. So at the moment, we're open minded to which route we take.
There's a number of products that we have where we can do it directly on our own without affecting our other relationships with the OEMs. But there are some areas where we may well approach those OEMs and do it under a license agreement arrangement.
Yes. So, it's both so we make a lot of switches, right? We make HMI, lots of different switches, those types of things. And we know how to do that well. We're not the leader in everything.
So we're looking, okay, where can we get into some interesting opportunities at TMA and repairs as well. So that's sort of we're going to just play to our strengths. We're not going to go and do PMA on turbine blades. We're going to kind of sit where we are. Yes.
Sorry. Just a quick follow-up on that, if I could. When you do get a license agreement from the OEM, I would assume that they then capture part of that revenue share of that, which typically a highly profitable revenue stream. So just wondering how the profitability of those license deals compares to more traditional PMA? Thanks.
I mean, if you look at it, it depends
on what those royalty rates are. But in my past, which was GK and Aerospace and we had a lot of licensed PMAs with Boeing around cabin windows, cockpit windows and everything else. And looking at how that would reflect in this market, in terms of if you take the Boeing list price or Airbus list price or something, there's plenty of runway there in terms of having a competitive product where you can still make a good return to do common and fund a royalty payment to the OEM.
Yes. This is again, this is something new. We were 18 months ago, we weren't talking about PMAs. We weren't talking about PMA. This is something we're going to explore.
We think we have some good talent that understands the market with David's experience and some other folks we brought in. So some more to come. Sure. I'm sure you've covered this in
the conference calls, and I apologize
for not being up to date on it.
But on the plastics acquisition,
it seems like out of your wheelhouse compared to lightning devices and titanium. Could you just comment on how that fits?
It doesn't seem to me like
it fits, but obviously it does because you've done your homework.
Yes. So I mean that's in some ways structures for interiors. So it may not and we're not necessarily looking to just add to our core business. We are open to adding new platforms where it makes sense and where we can find a path to significantly growing shares and getting to a leadership position. And we felt like we could do that with plastic extrusions for interiors.
So that's why it made a lot of sense. It didn't necessarily have to be fit like a glove with an existing business of ours. We have channels to market, familiarity with the same customers where we thought we can add value to the business. It was an under managed business with a family owned business where we could bring in a lot of value versus how it was being managed in the past. So we didn't talk about that.
It's only 5 months into that acquisition, but that business is performing well. We've invested in sales people to grow that business faster and it's doing really well and that one is ahead of plan as well so far. Thank you very much.
Thank you. More to come on CCP, okay? We're early innings on that, but next meeting we have, we'll be able to hopefully have a similar report out than LDS. Yes, thank you. Hey,
I wanted
to know if you could frame up the growth rates that you're looking at for the 2 different business. So is this industry growth rates that you're thinking about and then market penetration, market share gains on new products and price is additive to those numbers?
So when we think when we talk about 5% to 7% growth, it's all it's the comments based upon our portfolio of products and where we see our ability to grow going forward. So those aren't industry growth rates, but it does encompass some share gain, some business that we'll exit, as we talked about, as part of the portfolio management as well as pricing initiatives that we've got in place in certain parts of the business. There are certain parts of the business that lend itself to pricing opportunities more so than others. So those rates that I quoted of 5% to 7% in commercial, 2% to 4% in defense are our view on our portfolio for the next couple of years. And as I mentioned, probably some upside as we get some of these other initiatives off the ground that we've shared today.
Got it.
And so I'm assuming that doesn't include anything that Sumon might bring Sumon and his team might bring to the Absolutely. Absolutely. Yes. Yes.
So, let's say.
Secondly, I wanted to ask about Apache. There was a program you used to produce the metal bonded blades on an OE basis. That was taken in house. I'm curious as you're doing aftermarket now with the composites, is that an outsource opportunity for Boeing maybe on the OE side? Well, we so the legacy
of the comment as everyone knows is we made the main rotor blade and the back blade as well, okay? And I don't know how long ago, it was maybe 8, 10, 6 years ago. Boeing said we're taking the mainplate inside, okay? So they're doing that inside now. We still do the backplate, okay, which is a really nice metal bond part.
Apache has a whole new life now with FMS and the new defense budget. So everything is moving in the right direction. So we still do the OE on the back blade, but not on the regular blade. And the opportunity for us is that and I was proud of the team, and we stood up a repair center fairly quickly, which we never did before, right? We're not doing repair in Monrovia.
So we set up a really nice process. We had the government come in. We had Boeing come in. They proved everything. It wasn't like this thing.
We're trying to get this thing off the ground for a year. It went fairly smoothly. And what we like to do is, we like to say, hey, look, we're on Blade Repair now. Where else we're going to go? Go to Bell.
Let's go to Sikorsky. Let's see what else we could do, because now we got something going. So that's a great example of what wasn't happening in the past. We're now we're so sourced on the repair. We have people that can hopefully scale it, right?
So we can make a lot more money down the road. So I think overall, the Apache is going to be terrific for us. Yes. So thank you, Ed.
Tony Bancroft from Gabelli. You said you just mentioned Sikorsky and Bell for the for blades. So the SD-one Defiant and the V280, is there anything have you discussed anything about that as potential opportunities since
You got anything on that? The FVL. Are you talking about the Bell?
Yes, the VQA, the next the FVL, the next Yes.
So the replacement? Yes. We're still early on that. We're working with Bell. I mean, we do stuff for Bell out of Monrovia.
We don't really have anything to report on those platforms there. Sure.
And then for content, you had up there, I might be wrong, but went from titanium, it went from 3% to 14%, I guess, for the 350. For NMA, potential, I know it's obviously again early, but would it be what kind of growth factor potentially could it be? Or is it 14% so that fully maxed out amount that titanium needs to be
on a That's
a good question. Do you have any thoughts on the MS?
Yes. It's difficult to we don't know what the material content will be from an Aerostructures perspective in the NMA. I think a lot of decisions haven't been made as yet. But in general across not just the platforms you saw in the presentation, but we've seen over the last 30 years increasing titanium content. You're seeing move from aluminum to composites.
You're seeing move from I mean, you're seeing growth in titanium.
So potentially some remotes to grow, right? Yes.
The one thing I would say is that in the last six months, we've done a lot of work. We worked at ICF. We worked with a lot of high end research companies. And everything we're hearing about titanium as far as increased content, whether it's NMA or whatever, it's the future is bright.
Right, of course.
And then lastly, you talked about Tomahawk and deploying the wing deployment. Obviously, it was a big article that's been going on for a while with hypersonics. Any thoughts on getting on being on any hypersonic? Absolutely.
I mean, we're right. I mean, there's only so much I can say, but we're right in
the middle of it.
Under that. Okay. Right in the middle of it. Sure. It's important.
It's going to be a big, big, big deal. Of course. Thanks. It's going to be
a big deal for the country.
Okay. So I want to thank everybody. I'm just going to wrap up. Are there any callers online? Excuse me.
Oh, sorry. Right. We got 2 people online. So anything from our guests online?
Christian from Noble Capitals Online.
Yes. Hi, guys. Hi. Can
everybody hear me okay? We can hear you, yes.
Okay. I'm just interested in your VersaCore composites technology. Earlier this year, you announced a $200,000,000 award there. As you're going through the development and design process, are you seeing any potential to expand beyond that contract or expand to other applications? Just trying to get a sense of Yes.
No, it's a great question. It works. I'm going to have Jerry Redondo cover that.
Yes. The initial application was on the fairing for the GD lead engine and now the award, the most recent that we announced was on the blocker doors, which is part of the structure versus assembly. So there's 10 blocker doors per engine, 20 per ship set. That's the beginning. It's not the ending.
So the answer is yes. The answer is yes. The application of the technology is being worked today to be aligned to additional applications at the OEM level and the Tier 1 level.
Okay, great. Thanks.
Thank you. Yes.
Just a comment on VersaCore. So we're getting into the nacelles. I mean, we make the fairing, which is okay. It's nice far on the side of the engine nacelles, but we're getting involved in this big contract. We still report on it further once we get a little further down the road, but it's going to be a big deal.
And I'm excited about it. So anything else on the phone? We got Mike there.
Mike from B. Riley.
Yes. Hi, Mike. Hi, Steve. Just further on that Versacor, I think you called it test readiness level 6 with Airbus. What exactly does that mean and do you move beyond that?
Yes. Okay, Jerry. Yes. So Airbus has a tiered level of test readiness. And test readiness level 6 is an altitude that says that the qualification of the process, the materials in the process, all the attributes that, that process would be intended to fulfill goes through a physical and analytical testing qualification.
It yields that capable of an application. In the case of VersaCore, that TRL6 level is it goes through 1 up through 6. At that level, the integrity of the process, the product, the material strength, the tensile strength, all the parameters that would have to be in place to apply that to, in this example, would be a flight control surface. So it could be a lower tier level, like a TRL-three or so 4, and it would be applicable to a utility door, as an example. It would be a utility door that was a cover, certainly important, but not a functioning flight control surface.
So the key for us is the highest level that the technology would be applied to is supported by having a TRL6 capability and it's a passing score. So it was a 2 year process. Airbus put together a team, and that team was dedicated in concert with our team. It was a collaboration agreement. And from that agreement, the achievement of a TRL-six passing was in place.
Now we're qualified to be looking at and working with Airbus on applying the technology to all levels of products but up to a critical flight control surface.
Okay. Thank you, Jerry. Yes, just one follow-up. So VersaCore is our all proprietary process, right? So we show with Boeing, it's like what is this thing, right?
I mean, so we have to spend a couple of years with Airbus and Boeing to educate them, and then they want to test it, right? They want to make sure you're talking about flight safety issues, okay? You're going to go to the nth degree, right? And they should, right? We all fly in planes.
That's sort of a little bit more color on TRL-six. So we're at a point now where they say, okay, we trust VersaCore. Now let's see what we can do to deploy it in the plane, which is kind of cool.
Okay. Thanks. And then a final question is you talked about going deeper into missiles, and you also talked about capturing greater share there. And separately, you've talked about seeing more opportunity with Lockheed Martin. But I just want to clarify whether you already have captured missile programs with Lockheed Martin or that's more of a pursuit at this point?
It's very, very light with Lockheed. It's an upside for us, okay? We do have some opportunity, but it's nothing like we have at Raytheon. So that's what we're trying to do. We're going to try to build that
share. Okay. Great. Thank you very much.
Thank you very much. Okay. I'm going to wrap it up again. I want to thank everybody for coming today, making time to come. I appreciate it.
We also appreciate your continued support, all right? So all the best. Have a great weekend. And again, if you have any questions, please follow-up with us. Thank you.