Q1 2024 Ducommun Inc Earnings Call

Participants

Suman Mookerji; Chief Financial Officer, Senior Vice President, Treasurer; Ducommun Inc

Stephen Oswald; Chairman of the Board, President, Chief Executive Officer; Ducommun Inc

Michael Crawford; Analyst; B Riley Securities Inc

Michael Ciarmoli; Analyst; Truist Securities Inc

Ken Herbert; Analyst; RBC Capital Markets Inc

Jason Gursky; Analyst; Citigroup Inc

Presentation

Operator

Good day and thank you for standing by, and welcome to the First Quarter 2024 Ducommun earnings conference call. (Operator Instructions)Please be advised that today's conference is being recorded. And now I'd like to hand the conference over to your first speaker today, Suman Mooerji, Chief Financial Officer. Please go ahead.

Suman Mookerji

Thank you, and welcome to Ducommun's 2024 first quarter conference call. With me today is Steve Oswald, Chairman, President and CEO. I'm going to discuss certain limitations to any forward-looking statements regarding future events, projections or performance that we may make during the prepared remarks or the Q&A session that follows.
Certain statements today that are not historical facts, including any statements as to future market conditions, results of operations and financial projections are forward-looking statements under the Private Securities Litigation Reform Act of 1995 and are therefore prospective.
These forward-looking statements are subject to risks, uncertainties and other factors which could cause actual results to differ materially from the future results expressed or implied by such forward-looking statements. Although we believe that the expectations reflected in our forward-looking statements are reasonable, we can give no assurance that such expectations will prove to have been correct.
In addition, estimates of future operating results are based on the Company's current business, which is subject to change Particular risks facing Ducommun include amongst others, the cyclicality of our end-use markets, the level of US government defense spending, our customers may experience delays in the launch and certification of new products, timing of orders from our customers legal and regulatory risks, the cost of expansion and acquisitions, competition, economic and geopolitical developments, including supply chain issues and rising or high interest rates, the ability to attract and retain key personnel and avoid labor disruption, the ability to adequately protect and enforce intellectual property rights, pandemics, disasters, natural or otherwise, and risk of cybersecurity attacks.
Please refer to our annual report on Form 10-K, quarterly reports on Form 10-Q and other reports filed from time to time with the SEC as well as the press release issued today for a detailed discussion of the risks. Our forward-looking statements are subject to those risks. Statements made during this call are only as of the time made, and we do not intend to update any statements made in this presentation, except if and as required by regulatory authorities.
This call also includes non-GAAP financial measures. Please refer to our filings with the SEC for a reconciliation of the GAAP to non-GAAP measures referenced on this call, we filed our Q1 2024 quarterly report on Form 10-Q with the SEC today.
I would now like to turn the call over to Steve Oswald for a review of the operating results. Steve?

Stephen Oswald

Okay, Nathan, and thanks, everyone, for joining us today for our first quarter conference call today. And as usual I'll give an update on the current situation of the Company and towards Sumant will review our R&D, our financials in detail. I will start off with an update on our continued progress towards vision 2027.
For background, this vision and strategy was developed coming out of the COVID pandemic over the summer and fall of 2022, unanimously approved by the common Board in November 2022 and then presented to investors the following month in New York.
We had excellent feedback since that time to content management has been executing the vision 2027 strategy by consolidating its facility footprint, continuing its targeted acquisition program, increasing the revenue proportion of engineered product and aftermarket content executing our offloading strategy with defense primes and high-growth segments of the defense budget and by expanding content on key commercial aerospace platforms.
We all have conviction in the vision 2027 goals and strategy and believe the near term and midterm catalysts, along with strong results ahead for DCO. present a unique long-term value creation opportunity for shareholders. The Q1 2024 results were very good example of the strategy at work.
Q1 was an outstanding quarter and a great start to the year. For the comp revenues exceeded $190 million for the third consecutive quarter at $190.8 million, growing 5.3% over the prior year. Strong growth in our commercial aircraft businesses across both Boeing and Airbus slowed. Our rotorcraft business helped drive revenue during the quarter.
Recovery on the 7A7 was notable with revenues more than doubling over the prior year period, as well as strong growth on A220 platform, we make the skins for the entire fuselage. Overall, commercial aerospace with Airbus and Boeing and others was up 11% from Q1 2023 despite volumes experienced continued challenges with Max quality issues.
We have now grown our year-over-year revenue in our commercial aerospace business for 11 consecutive quarters, demonstrating the resilience of our business, even in even in a challenging OEM environment. Our defense business grew 1% year over year as strong demand for the Black Hawk, Apache and F-35 platforms, as well as selected naval programs, including the Salix close-in weapon system and other weapons systems for submarines.
Growth was partially offset by declines in legacy programs such as the F-18, which we have talked about in the past and a pause in the total missile production for which we expect a new contract anticipate starting shipments again in 2025.
Defense business was almost $100 million in revenue in the first quarter. We remain optimistic about the growth ahead as we go through a timing transition of certain programs. The ever-growing backlog in defense tells the story of $125 million from last year and $42 million from Q4 2023.
Defense backlog now stands at over $0.5 billion at $569 million. This good wins with RTX in Q1 were important driver for the increased defense backlog. The SPY six program is part of the US Navy's family of radars that performs air and missile defense on seven classes of ships as a giant leap for the fleet and SPY six radars are integrated, meaning they can defend against ballistic missiles, cruise missiles hypersonic missiles, Fossil aircraft and surface ships simultaneously.
Carmen, as has been provided one card for the program as this is part of the offloading strategy we've been working on, and I'm very happy to report that we've been awarded a second car from RTX for the STY6 in Q1 after 18 months of work. These are a slow transition as I've mentioned in the past and it should be, but now it pays off.
And the order for two cars in Q1, one new and one follow-on was over $50 million this is also great news as we are now building out a much bigger business in RADAR support, complementing our long-term track record in missile support, new car award deliveries are expected to begin in 2025 and the current card shipments are ongoing.
As communicated on the overall offloading program, we anticipate that the long-term run rate of the STY. six and other defense programs already commercialized or in development will now be $135 million in 2025, an increase of $10 million over our prior target of $125 million for 2025. It has been a long journey, but well worth it.
Another real highlight in Q1 was gross margin of 24.6% for the quarter, up 430 basis points year-over-year from 20.3% as we continue to realize benefits from our strategic value pricing initiatives, productivity improvements, growing the engineered product portfolio and initial restructuring savings. We also made significant reductions in the scope of our operations at our variable Arkansas facility during Q1 with several programs fully transitioned into comments, Joplin, Missouri facility, roughly 200 miles away.
This has allowed us to start realizing a portion of the savings expected for variable closure during the first quarter with one more program left to transition with RTX. We also continue to make a full effort with Boeing, commercial and Boeing Defense on the MAX wireless and Apache tail, respectively. Working with them on approvals and building buffer.
We're in the final transition phase with some headwinds in Q2 and Q3 of this year. But long term, we are driving to a great outcome for the common Boeing and our shareholders for adjusted operating income margins. In Q1, the team delivered 9% compared to 7.5% in Q1 2023 great results, driven by the continued growth in our Engineered Product businesses and with our restructuring savings beginning to kick in during the quarter.
Adjusted EBITDA was another great story in Q1 of 14.4% of revenue compared to 12.7% in Q1 2023. 170 basis points improvement year over year gives to calm and a great start to 2024 as you work towards the 18% for the Vision 2027 goals. The GAAP diluted EPS was $0.46 a share in Q1 2024 versus $0.42 a share for Q1 2023.
And with the adjustments, diluted EPS was a solid $0.7 a share compared to a diluted EPS of $0.63 a share in the prior year quarter. Higher GAAP and adjusted diluted EPS was driven by improved operating income as well as lower interest costs during the quarter. The Company's consolidated backlog increased sequentially and compared to the prior year quarter.
Total Company backlog ended Q1 at a record of $1.46 billion, decreasing over $52 million sequentially and was $85 million year over year. Defense backlog, as mentioned earlier, also increased $125 million compared to the prior year quarter to end at a record $569 million. Strong defense backlog reaffirms that the common defense business remains well positioned with more positive news to come.
Commercial aerospace backlog decreased slightly year over year, primarily due to industry issues in the single-aisle production rates and the MAX issues mentioned earlier with Boeing and Spirit. However, our commercial aerospace backlog still grow relative to Q4 2023 at $442 million in Q1.
Our team delivered another good quarter, managing the supply chain as evidenced by another quarter of positive revenue growth and significant gross margin expansion compared to the prior your period, our revenue guidance for the remainder of 2024. We continue to believe that the uncertainty surrounding BA Spirit and the FAA at this point on the MAX, the best approach, the best approach to again guide to middle mid single digit.
And looking further updates on the next earnings call, we do see a slowdown in the MAX bill rates not for their own reasons in Q2 and Q3 for this year where commercial aerospace will be a bit lighter due to the situation by softness in the MAX, which is a major program for us. We are comforted by continued strength on other programs such as the 7A7 and Airbus programs included in the eight to 20. The best part is the max bill rate will actually be at a much higher level.
And we continue to work on gaining more share, strong bookings and growing backlog in defense business is also supportive of our revenue outlook.
Now let me provide some additional color on our markets, products and programs. Beginning with our military and space sector. We experienced revenue just below $100 billion at $98.9 million compared to $97.7 million in Q1 2023. While growth was muted, we saw positive signs in our military helicopter products, including strong demand, the Blackhawk program with revenues growing over 70% and also for Apache tail rotor blades, which grew more than 50% year over year.
Our naval business also performed well. We saw strong growth in the Phalanx close-in weapon system used on surface ships as well as other weapons systems for submarines. First quarter's military and space revenue represented 52% of the Company's revenue in the period, down from 59% back in 2022 and 70% in 2021.
We expect that this trend will continue reflecting more balance with commercial aerospace, which we like. We also ended the first quarter with a backlog of $569 million, an increase of $125 million year over year, representing 54% of the comments total backlog.
Our commercial aerospace operations, first quarter revenue continued to see double digit growth, increasing 11% year over year to $80 million, driven mainly by bill rate increases on large aircraft platforms, including the seven 37 MAX seven eight seven and eight to 20 platforms, along with growth growth on commercial rotary wing aircraft platforms and regional and business jets.
As many of you are aware, the FAA announced in January that will increase its oversight of Boeing prior volume to get FAA approval for production rate increases for the seven 37 MAX. This will likely cap production on the seven 37.
We do, however, expect the long-term China remained very positive once the issues are fully addressed, this rate limitations did not have a significant impact on our first quarter results. The backlog within our commercial aerospace business was $442 million at the end of the first quarter, increasing with $12 million sequentially, a solid number given the temporary weakness in the commercial aerospace markets.
With that, I'll have Suman review our financial results in detail.

Suman Mookerji

Thank you, Steve. As a reminder, please see the Company's Q1 10-Q and Q1 earnings release for a further description of information mentioned on today's call. As Steve discussed, our first quarter results reflected another period of strong performance. Despite industry headwinds. We again saw a significant increase in our commercial aerospace revenues.
We remain encouraged by the continued strength in domestic and global travel, which should support higher long-term demand for aircraft as we work through some of the industry issues impacting single-aisle production rates. In addition, we are encouraged by the record backlog we achieved in the first quarter, especially in our military and space end-user segment with all this, we feel like we are beginning 2024 with good momentum that will continue to drive our performance.
Now turning to our first quarter results. Revenue for the first quarter of 2024 was $190.8 million versus $181.2 million for the first quarter of 2023. The year-over-year increase of 5.3% reflects growth in all three of our end user segments, highlighted by $8.1 million of growth across our commercial aerospace platforms and $1.3 million of growth in our military and space platform.
We posted total gross profit of $46.9 million or 24.6% of revenue for the quarter versus $36.8 million or 20.3% of revenue in the prior year period. We continue to provide adjusted gross margins as we have certain non-GAAP cost of sales items in the current and prior period relating to inventory step-up, amortization on our recent acquisitions, restructuring charges and the impact from the Guaymas fire on our operations.
On an adjusted basis, our gross margins were 25% in Q1 2024 versus 21.1% in Q1 2023. The improvement in gross margin was driven by our growing Engineered Products portfolio, strategic pricing initiatives, productivity improvements and some initial restructuring savings. We continue to make progress working through a difficult operating environment with supply chain and labor.
Through our proactive efforts, including strategic buys and our inventory investments, we have been able to avoid any significant impacts thus far on our business during the first quarter of 2024, we increased our inventory by $9.8 million from year end 2023 to position our performance centers to meet our 2024 delivery commitments we also grew our contract assets net of contract liabilities by $15 million.
We continue to look for opportunities to unwind our working capital investments to improve our cash flow. Ecommerce reported operating income for the first quarter of $12.6 million or 6.6% of revenue, compared to $6.4 million or 3.5% of revenue in the prior year period. Adjusted operating income was $17.1 million or 9% of revenue this quarter compared to $13.6 million or 7.5% of revenue in the comparable period last year.
Company reported net income for the first quarter of 2024 of $6.8 million or $0.46 per diluted share compared to net income of $5.2 million or $0.42 per diluted share a year ago. On an adjusted basis, the Company reported net income of $10.4 million or $0.7 per diluted share compared to net income of $7.9 million or $0.63 in Q1 2023.
The higher net income and adjusted net income during the quarter were driven by the higher operating income and adjusted operating income. Additionally, our interest rate hedge helped to reduce our year-over-year interest expense.
Now let me turn to our segment results. Our Structural Systems segment posted revenue of $83.3 million in the first quarter of 2024 versus $75.6 million last year. The year-over-year increase reflected $5.7 million of higher sales across our commercial aerospace applications, including the seven eight seven three seven MAX and the A. two 20, in addition to selected commercial rotorcraft platforms and $2.1 million of higher revenue within the military and space markets, driven by strength in the Black Hawk and Apache programs.
Structural Systems operating income for the quarter was $2.9 million or 3.4% of revenue compared to $4.7 million or 6.3% of revenue for the prior year quarter. Excluding restructuring charges and other adjustments in both years, the segment operating margin was 7.8% in Q1 2024 versus 12.9% in Q1 2023.
This can be attributed to higher costs in our Monrovia plant as it winds down production, reducing operating margins year over year our Electronic Systems segment posted revenue of $107.5 million in the first quarter of 2024 versus $105.6 million in the prior year period.
The increase was mainly due to growth across the commercial aerospace platforms and certain military platforms, including the F-35 and naval programs such as the failings close-in weapon system and submarine launch missile launch systems, partially offset by the impact and timing of reduction in legacy platforms such as the F-18 electronic systems.
Operating income for the first quarter was $19 million or 17.6% of revenue versus $10 million or 9.4% of revenue in the prior year period. Excluding restructuring charges and other adjustments in both years.
The segment operating margin was 18.4% in Q1 2024 versus 11.6% in Q1 2023. The year-over-year increase was due to favorable product mix, including growth in our Engineered Products portfolio, strategic pricing initiatives, as well as savings from restructuring program. Beginning to kick in during the quarter, restructuring savings were driven by the transition of product lines from our variable Performance Center two other facilities.
Next to provide an update on restructuring. As a reminder, and as previously discussed, we commenced a restructuring initiative back in 2022. These actions are being taken to accelerate the achievement of our strategic goals and to better position the Company for stronger performance in the short and long term. This includes the shutdown of our facilities in Monrovia, California and variable Arkansas and the transfer of that work to our low-cost operation in Guaymas, Mexico and to other existing performance centers in the United States.
We continue to make progress on these transitions with excellent employee retention and engagement and are also working diligently with our customers, Boeing and RTX to obtain the requisite approvals. During Q1 2024, we recorded $1.4 million in restructuring charges. The majority of these charges were severance and related benefits as we continue to wind down the two operations.
The recertification process is ongoing, so we plan to complete production at both facilities by the end of the second quarter. We expect to incur an additional $5 million to $6 million in restructuring expenses through the end of 2024. As we complete the program upon the completion of our restructuring program, we expect to generate $11 million to $13 million in annual savings from our actions and are beginning to see realization of these actions in this year.
We anticipate selling the land and building at both Monrovia California and variable Arkansas.
Turning next to liquidity and capital resources. During Q1 2024, we used $1.6 million in cash flow from operating activities, which was an improvement compared to Q1 2023 usage of $18.9 million. The improvement was due to a smaller increase in inventories and higher contract liabilities, partially offset by higher contract assets as of the end of the first quarter, we had available liquidity of $208.1 million, comprising of the unutilized portion of our revolver and cash on hand.
Our existing credit facility was put in place in July 2023 at an opportune time in the credit markets, allowing us to reduce our spread, increased the size of our revolver and allowing us the flexibility to execute on our acquisition strategy.
Interest expense was $3.9 million compared to $4.2 million in Q1 of 2023 the year-over-year improvement of interest cost despite a higher debt balance was due to the interest rate hedge going into effect in November 2021, we put in place an interest rate hedge that went into effect for a seven year period starting January 2024 and back to the one month term, so far at 170 basis points or $150 million of our debt. That has resulted in interest savings of $1.3 million in Q1 2024.
We will continue to drive significant interest cost savings in 2024 and beyond.
To conclude the financial overview for Q1 2024, I would like to say that we had a strong start to 2024 and anticipate a strong balance of the year.
I'll now turn it back over to Steve for his closing remarks.

Stephen Oswald

Thanks, Suman. Next month In closing, Q1 was an excellent quarter a record in some cases with many highlights for the Company and our shareholders. The strong start to the year with solid revenue and earnings growth certainly strengthens our path to delivering on the goals we set out in the Vision 2027.
2024 is also our 175th year of continuous operation, a great achievement and will be recognizing that through the year. I did the math recently the door the Company has been continuously open for over 43,000 business days a long time at a young country like the United States, what a great story with a very bright future ahead for the Company, our shareholders and all other stakeholders. Thank you for listening. And let's now open up for questions.

Question and Answer Session

Operator

(Operator Instructions) Mike Crawford, B. Riley Securities.

Michael Crawford

Thank you, Steve. What are some of the main pressure points you're or you're trying to avoid what the strategic inventory buys like? Would it be titanium, which the come becoming a problem for summer? What else do you?

Stephen Oswald

Yes. Thank you. Thank you. Good morning. Yes, you know, look at titanium is obviously a big one. I mean, as the wide body three 50 and these other platforms start going up. And obviously the situation in Russia is something that we've been very proactive over the last couple of years and are in really good shape with our Tiete. And the other thing we did on strategic buyer was really around the card business.
Oh, I know there's less drama now than there was in the past, but we did go out buy ahead on certain things for certain cards. Obviously, it's an important business for us just getting more important. So I'd say those two, I think we're in good shape or we're not going to plan on doing a lot of things. You know, I mean, titanium aside on things like for the for the circuit cards, we'll probably just continue to take it day by day, but those are the two reports I have.

Michael Crawford

Okay. Excellent. And then firm, I mean, you did call out the F-18 as a legacy platform is in decline when that might eventually about where it could be the blackout, although that's going up and you know what, whether the maybe some of the other key platforms that are that are growing for you and conversely, some maybe phasing out a little bit just given the?

Stephen Oswald

Sure sure. I'd say, look, you know, you're spot on the F-18 is the one, right? So we all know about the F-18. We know what's happening in St. Louis we are going to see, I think still good business in depot maintenance and other things. So we know that that's still going to be an okay program for us. That's kind of the biggest one I talked about the total missile.
Again, these things are timing related. So we're going to see the total come back and we're going to start shipping again we plan in 2025. I mean, we as far as other on the positive side, I mean, we couldn't be happier with the Blackhawk business. I mean, it's even though I know there's lots of discussion and everything that business is going great for us.
The Apache I also mentioned that we're just starting to move higher and higher and the Seahawk as Sikorsky as well. So our rotary business was terrific. Despite the F-18, we still agile, great the volume and the F-35 and some other programs. And so we're feeling very good, especially with the backlog, Mike, and just get the second car.

Suman Mookerji

With some of the other missile programs, if I may add in are also giving us strength, including the mirror missile the standard missile. And as Steve previously pointed out, the SPY six radar and next-generation jammer. So missile and radar from programs are helping offset the decline in the legacy programs and the transition time.

Michael Crawford

Right. Okay, thank you. Just one final one for me. Kind of related to ARM to the rotary platform. So and last, it's now just over a year since you acquired BLR aerospace and I know one of the goals there was maybe trying to get some of their unique structures into military aircraft. Is there some progress there?

Stephen Oswald

Or working on it right now and like you're spot on that, you know, our big opportunity is really with the Black Hawk, and that's really for the National Guard. So we have a lot of things. I think that these things obviously take time, right, but we're excited. We think that also with some of the other news about switching out the engine on that, I think will be more opportunity for that. So that's stay tuned on that, probably next one. Thank you.

Michael Crawford

Thank you.

Operator

Michael Ciarmoli, Truist Securities.

Michael Ciarmoli

Hey, good afternoon, guys. Thanks for taking my question and nice results and maybe a kind of a two-part I guess, Steve or Sumant, just because the margins are really strong in the ES segment, you commented on pricing and I know you threw out the value based and I think that's something we hear pretty often now. Any anything you guys are doing differently with pricing outside of just taking advantage of the whole inflationary environment? And then kind of just how do we think about these the some electronic systems margins going forward?
I think I think that was a record level of eight to kind of say, okay, let's let's extrapolate this you know, it sounded like you got some some mix in there as well, but any color on both those items?

Suman Mookerji

Yes, Mike, great question. We are really happy with the Electronic Systems margins this quarter, as you noted, pricing is a key factor. And certainly, as you have seen across the aftermarket in the industry, pricing has been strong and we have seen the same kind of beyond that.
There are a couple of other things at play here, kind of two themes that are key drivers of our Vision 2027 strategy and one is growing the Engineered Products portfolio and as that continues to grow as a percentage of revenue in the engineered electronic systems business in the drop-through is really good. So we've had good growth in kind of engineered product businesses.
And the second is the consolidation of footprint strategy, right? And that has also started kicking in this quarter with a program getting fully transitioned from our variable performance center to our Triathlon Performance Center. And after taking out a significant amount of cost early in the quarter out of the variable facility, which is now has a skeleton crew and only one active program.
Those other programs are now being produced out of Joplin without much addition to overhead and SG&A in that business. So that's really driving the margins, those two factors and outside of some minor impacts of product mix, I think the general trend is sustainable. And I mean the current margins we're seeing within a narrow band is sustainable going forward.

Michael Ciarmoli

Is there any way to quantify what you what you saw from the run rate consolidation savings? I know you said $11 million to $13 million you know annualized. So it sounds like you got got some Any way to quantify that still in the early stages of that?

Suman Mookerji

It's over $1 million during the current quarter. Protalix Yes.

Stephen Oswald

I think I mean, I think this is a good story. I mean, look, we're thrilled with the number and you're spot on about the 18%. So we're excited about that. We think that again, as we move into the 2nd year of Vision 2027, you know that these things are coming together and we're obviously driving value pricing across the board. Right. So that's going to Got it.

Michael Ciarmoli

And then I guess conversely, on structural systems, sounds like you're just dealing with are overhead under absorption issues as yet transition it sounds like I mean, should we expect that that margin rate to persist next two quarters? And you know, I guess it doesn't sound like anything really out of the normal except for just the kind of wind-down drag?

Suman Mookerji

Yes. I mean, our Monrovia Performance Center, which is being wound down revenues, it were almost a third of what they were on a year-over-year quarter basis, almost half on a sequential quarter basis. So that's naturally going to create a significant amount of drag on margins. And as you can imagine, in a facility being wound down. It's not it's not that easy, right?
So we do expect the that to linger for the next one to two quarters, but gradually improve that trend is going to be improvement, it's not. And then really the benefits of the complete closure will only kick in in 2025 when we not only shut down the facility in Monrovia here in 2024, but then start actively producing some of those products out of Guaymas in 2025.

Stephen Oswald

Now might you guys have heard me on the call, so you know, my role is very close to Los Angeles. It's in that area and you know, and so it's the size of an aircraft carrier. Okay. So yes, from that, you have a small plant, right? So it's been around for a long time, too. So good things ahead. There are very we're at the the three yard line here. So in that regard at all.

Michael Ciarmoli

Got it. And last one for me, Stephen, I don't want to put words in your mouth there numbers here, but I think you started that defense offloading. I don't know if that was really in earnest in late '20 or '21. But if you're thinking in the $135 million by '25, I mean I could go back and take your 20 defense revenue run rate and I could get something, you know, north of $550 million by '25.
Obviously you're losing some work in there. You know, F-18, I'm sure there are some other programs, but, you know, how should we think about this defense growth trajectory? You know, again, it might not be apples to apples the way I'm thinking about it, but I can come up with some some pretty sharp growth there.

Stephen Oswald

Yes, you're right. It's not it's a lead, some you know like human. I'm looking at the numbers here as we speak or you know, like a company like GA, right? So we've had a lot of a couple of really good years with GA. But we know that that whole market has been disrupted for them because of these lower costs, UAVs and everything, right.
So our volume was down under the FA Hematide, but some other stuff. But a lot of what we're seeing, we're seeing a lot of repeat orders, but we're getting like the Next Generation Jammer, ditto that's coming out of RTX and Virginia and Appleton. So we consider that, you know, offload, right?
Yes, I mean so even though you might say, well, you know, we they had if they were to us. We love what you guys are doing to take it same thing with the SPY six. So I think that it's not apples to apples, but I think overall, the story I think holds pretty well and that's what we want we want to. We've got a as you know, there's a lot of new programs out there.
These things delay and you do all that, but we want the stuff that's got a long, long life like SPY six, right? It's going to be in the fleet forever, and we want that current business that's already and I made as well as the new stuff from us, right, that as well. So I think it is more to come down that. Okay. As well, we get the '26 2027, but let's hold it now $135 million.

Michael Ciarmoli

Got it. All right. Good stuff. I'll jump back in the queue, guys. Thanks, Mike.

Operator

Ken Herbert, RBC Capital Markets.

Ken Herbert

Yes, good morning, Steve. Steve, when we look at the gross margins in the first quarter, is there any reason that they don't that they would step down in the second quarter or is this gross margin run rate now something we should model moving forward?

Suman Mookerji

I'll take a first stab at that. And so we are really happy with the gross margins in the first quarter, as I said on the electronics side, driven by engineered products, the restructuring savings, and that really were the key drivers. If you look at the overall company, they were partially offset by the headwinds we had in Monrovia and the structures business are these outside of, I would say, marginal benefits from product mix during the quarter.
These gross margins and within a fairly narrow band are sustainable. And I mean, if you when I look at our adjusted gross margin in Q4, it was 23.2% last year. So and it's now 25%. So it's yes, if you look at so quarter year over year in all is a big difference and especially with some of the adjustments. But we been able to take more of the adjustments into the GAAP gross margin, which is a really good thing. And now I would say we feel really good about these margins going forward within the narrow range.

Ken Herbert

Great, thank you. And can you level set us on you're expected, I guess either max deliveries this year or sort of a monthly or quarterly production rate because it sounds like there's maybe a step down sequentially from the first to the second to the third quarter, but maybe an anticipated tick in the back of the year can you maybe sort of comment on where you are on that program and how we should think about the cadence for the year on the MAX?

Stephen Oswald

Yes. So I can't yes, good question. So look, we are we are not we had a fairly good first quarter because there's a lot of things still happening right until this. So this terrible thing happened obviously in January and lots of things came out of that. So from June was pretty good. April was a bit light. So you know, we're going to anticipate a little bit lighter action on it, though, because remember, we're both feeding Spirit, which is a major customer as well as a Boeing OEM, right? So BCA.
So we know right now, we're thinking you know, maybe it's in the mid 20s, you know, lower to mid 20s for the second quarter. We'll have to figure out the third when we get there right, based on their progress, but we see it coming back. The nice thing is to for our shareholders and for all of us, if you were working real hard with and I don't want I can't go make any announcement right now. We're working on gaining share on the MAX. Okay.
As well, the A. two, 23, 20. So we're working on those types of things. And so yes, I think, Ken, we're going to get a little shallower, maybe mid 20s. You know, certainly it's been a little lighter in April, but nothing where we're concerned, we want to be transparent, but we have 77, which I know has its own problems, but we're seeing a nice bounce back there and we're happy with our Airbus business, so as well as GM.

Ken Herbert

Great. And thanks. And just finally, Steve, where would you see the opportunity on the A. three, 20 or even the A. two 20 take share and what could be the timing around some of the share gains with Airbus on a narrow-body portfolio?

Stephen Oswald

Again, we're looking at probably within 12 months. So working on something right now, we'll see how it goes, right, because these things are, you know, these things take time, but we think within 12 months, we might have something going again on the three, 20 and eight to 20. We could just continue to or continue to grow. As you know, that's a major program for us and good things ahead there.

Ken Herbert

Great. Thanks Steve. Thanks, Suman.

Suman Mookerji

That again, thank you.

Operator

Jason Gursky, Citi.

Jason Gursky

So apologies. I had myself on mute. Some Good morning, everybody. Thanks for taking the questions for LG Uplus. And what does, Steve, I wanted to ask about a little bit more about Vision 2027 and in particular the M&A component of the vision there because you've got some inorganic growth, I think you'd like to get done. So the question I guess, is maybe a bit of a two-part question, Tom.
We've got a company that recently went public that's now got you have access to some more money that claims that it's going to go out and be heavily involved in buying up proprietary product type companies. So I'm just kind of curious what the competitive environment looks like these days for assets. So I guess, A., the pipelines pipe what's the pipeline looking like?
What's the competitive environment look like? And then I also want to just kind of get your take on the size and scale of things that you guys would be willing to offer and maybe talk a little bit about that dynamic that's going on there with one of your big customers and spirit in the Airbus work is that it seems like it's a Boeing by spirit that Airbus work has got to go somewhere.
And just kind of curious what kind of appetite you guys might all have for taking on some of that work of all in the context of your of your M&A strategy?

Stephen Oswald

Yes. No, thanks, Jason. Good to be with you on the first just on our Vision 2027 and the acquisition piece, we have a placeholder for $75 million, right? So we're a bit modest on that because obviously, it's only 2024 we got several years ahead of us. So we feel good about that. And again, it's a bit modest, but we're right now as we go forward in time, we've really been happy with what we're doing acquisitions. I think it's been a real great thing for shareholders and for the company.
And so but we're looking more where we can do some you know, maybe look at acquisitions where they can, you know, again how our current engineered product portfolio. We're committed to that to build business on that side. I think that's smart and it's a winning formula for our shareholders. I think you know, 75 again is low. I think we're going to do more bolt-ons.
But again, if we can find something where there can be some consolidation. We're going to do that as well. So I think for the next couple of years, that's sort of where we where we sit as far as Spirit, as you know, just you know, for Airbus, we ship directly to Toulouse for FRH. 20. So we're really just working with them directly. We don't really do anything for Airbus for Spirit spirits, much more, I think in the A3 50 world, which we're not right now. So we'd be open to it.
I mean, you know, I think it's as I read the notes this morning on some of the situations in the meeting in New York last night, it's going to be difficult, but we're there. I mean, we have the capacity, you know, that could be an upside for us. You know, have nothing to report on it, but we certainly I don't think we could we could help out and Airbus again, for all the business we do right now is a first tier. We do everything with Toulouse direct.

Jason Gursky

Okay, great. So the $75 million placeholder looks like that through the 27 time frame you think is going to be a pretty achievable. I'm just kind of curious, though, what does the pipeline look like today? What do you think the cadence of or potential timing of some of those acquisitions might be?
Is it's going to be a near term, more back-end weighted towards 2027 and just kind of what the competitive environment looks like and pricing on the kinds of assets that you might be chasing?

Stephen Oswald

A few things. Okay. So we're always in the market. So I'll just say that, right. So you know, our companies were looking at things. We have an excellent team here, led by Sumant on M&A. You know, if something comes up this year. We're going to do it our cases. So that's obviously slowed down from COVID for everybody. But you know, we'd like to do at least one, if not two a year again this year, you know, and just the DLR back in last May, so or last April and May.
So we'd have, you know, a little bit of time now. So what we're always in the market, it is, you know, it's competitive. I mean, you've I know you follow the companies and many of them and, you know, it's a crowded lobby. But I will tell you that for what we want and what we've done, I mean, we've got a we've got a really good hit rate. We've had a lot of success for the things we've gone after, not every single one, but you know, it's up there.
So we're excited about building that part of the business. That's a big thing for me when I came into 2020 in 2017. And so I like to remind you, was there anything else either?

Suman Mookerji

Yes, we've been actively looking at businesses I would say there's been a pickup in deal flow in late Q1 and coming into Q2, we're seeing more assets come to market or the competitive environment. I wouldn't say necessarily has dramatically changed the Company you referenced that went public recently has been around and looking for similar assets for over 10 years, but we've certainly come across them in the past so I don't see that dynamic changing now.
So we will continue to be aggressive for businesses that we really like and where we really think we can drive a lot of incremental value for our shareholders, and we will continue to be aggressive with those opportunities. And as we have demonstrated in the past five years and we can, despite the competitive environment with assets at a price at which we can still drive additional benefit and ROI for our shareholders.
So we feel good about being able to continue doing that and timing as Steve said, is difficult to predict as that's active work ongoing on several opportunities that timing always difficult to predict on M&A on now.

Stephen Oswald

And Jason, just to chime in or you know, we're also are very excited about organic growth, okay? We really want to get hopefully the Max and find its way by the end of the year. I mean, if they're at 50 at some point in the future, you would drop through and everything else right now, we feel very good about our current operation to deliver.

Jason Gursky

Okay, great. That's a wonderful appreciate the time, Sanjay.

Stephen Oswald

So I appreciate common.

Operator

Thank you. I'm showing no further questions at this time. I would now like to turn it back to Steve Oswald for closing remarks.

Stephen Oswald

Okay. Thank you very much and thanks for joining us today. Obviously, we're we couldn't be happier with our Q1. I want to thank I thank my team of people working hard every day to come and with our relentless approach to saying. So that's what we do here.
And we are very encouraged as we come out of March to have a I think a super year for everybody for our shareholders and for our company and the for all of the stakeholders involved with us. So again, thanks for joining us. Have a great and safe day. Thank you.

Operator

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.