Earnings call transcript: Ducommun Q2 2025 beats earnings forecast, stock steady

Ducommun Incorporated, a $1.37 billion aerospace and defense manufacturer with a "GOOD" financial health rating according to InvestingPro, reported its second-quarter 2025 earnings, surpassing analyst expectations with an adjusted EPS of $0.88, compared to the forecasted $0.82. The company’s revenue reached $202.3 million, exceeding the anticipated $198.97 million. Despite the positive earnings surprise, the stock showed minimal movement in pre-market trading, maintaining a price of $91.86, which represents a slight increase of 0.54% from the previous close. InvestingPro analysis indicates the stock is currently trading above its Fair Value.

Key Takeaways

• Ducommun achieved record quarterly revenue with a 2.7% year-over-year increase.
• The company reported its 17th consecutive quarter of year-over-year revenue growth.
• Gross margin reached a record high of 26.6%.
• The defense market showed robust growth, with missile and radar businesses increasing by 39% and 46%, respectively.

Company Performance

Ducommun continues to demonstrate strong performance, particularly in the defense sector. The company has maintained a consistent growth trajectory, achieving its 17th consecutive quarter of year-over-year revenue increases. This performance is driven by significant gains in its defense segment, specifically missile and radar systems, which have contributed to its robust financial results. The stock has delivered impressive returns, with a 44.3% gain year-to-date, according to InvestingPro data.

Financial Highlights

• Revenue: $202.3 million, up 2.7% year-over-year
• Adjusted EPS: $0.88, up from $0.83 in Q2 2024
• Gross Margin: 26.6%, a record level
• Adjusted EBITDA: $32.4 million, representing 16% of revenue

Earnings vs. Forecast

Ducommun’s actual EPS of $0.88 outperformed the forecast of $0.82, marking a 7.32% earnings surprise. Revenue also exceeded expectations, coming in at $202.3 million compared to the $198.97 million forecast. This marks a continuation of the company’s trend of surpassing market expectations.

Market Reaction

Despite the positive earnings surprise, Ducommun’s stock saw limited movement, with a slight increase of 0.54% in pre-market trading. Trading at $91.86, the stock sits just 1.7% below its 52-week high of $93.41, having climbed 77.5% from its 52-week low of $51.76. This strong performance indicates investor confidence in the company’s trajectory, though InvestingPro data suggests the stock may be overvalued at current levels.

Outlook & Guidance

Looking forward, Ducommun anticipates mid-single-digit revenue growth in Q3 and low double-digit growth in Q4. The company expects improvements in Boeing’s production rates and continues to focus on expanding its engineered products portfolio. Potential mergers and acquisitions are also on the horizon for the second half of 2025.

Executive Commentary

CEO Steve Oswald highlighted the company’s strategic positioning: "We are positioned to benefit from the expected Boeing recovery in the second half along with continued momentum in defense." CFO Suman Mokaji noted the competitive landscape: "We’re continuing to see a number of opportunities, but there is increased level of competition."

Risks and Challenges

• Supply chain disruptions could impact production schedules.
• Increased competition in the defense sector may pressure margins.
• Economic downturns could affect commercial aerospace recovery.
• Regulatory changes in defense spending could alter market dynamics.
• Currency fluctuations may impact international revenue streams.

Q&A

During the earnings call, analysts inquired about the ongoing destocking in commercial aerospace and its impact on future growth. Executives confirmed their focus on the engineered products strategy and expressed optimism about recovery in both the defense and commercial aerospace sectors.

Full transcript - Ducommun Inc (DCO) Q2 2025:

Conference Operator: Good day, and thank you for standing by. Welcome to the q two two thousand twenty five Ducommun earnings conference call. At this time, all participants are in listen only mode. After the speaker’s presentation, there will be a question and answer session. To ask a question during this session, you would need to press 11 on your telephone.

You would then hear an automated message advising your hand is raised. To withdraw your question, please press 11 again. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to Duke Common’s senior vice president, chief financial officer, mister Suman Mokaji. Please go ahead.

Suman Mokaji, Senior Vice President, Chief Financial Officer, Ducommun: Thank you, and welcome to Ducommun’s twenty twenty five second quarter conference call. With me today is Steve Oswald, chairman, president, and chief executive officer. 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 and A session that follows. Certain statements today that are not historical facts, including any statements as to future market and regulatory conditions, results of operations, and financial projections, including those under our Vision 2027 game plan for investors 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 that 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 launch and certification of new products, timing of orders from our customers, our ability to obtain additional financing and serve existing and service existing debt to fund capital expenditures and meet our working capital’s needs, legal and regulatory risks, including spending litigation matters generally, as well as any losses arising from litigation related to requirements performance center fire that may become material, the cost of expansion, consolidation and acquisitions, competition, economic and geopolitical developments, including supply chain issues, international trade restrictions, the impact of tariffs and elevated interest rates, the ability to attract and retain key personnel and avoid labor disruptions, 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 ks, 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 Q2 twenty twenty five 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 Oswald, Chairman, President, and Chief Executive Officer, Ducommun: Steve? Okay. Thank you, Sumant. Thanks everyone for joining us today for our second quarter conference call. Today and as usual, I’ll give an update of the current situation at the company.

Afterwards, Sumant will review our financials in detail. Let me start off again on this quarterly call with Ducommun’s Vision 2027 game plan for investors as we continue our third year of execution in 2025. Strategy and vision were developed coming out of the COVID pandemic over the 2022, unanimously approved by the common board in November 2022, then presented the following month in New York to investors where we got excellent feedback. Since that time, the commons management has been executing the strategy by increasing the revenue percentage of engineered product and aftermarket content, which is at 23 this year, up from 15% in 2022, consolidating our rooftop footprint and contract manufacturing, continuing our focused acquisition program, executing the offloading strategy with defense primes in high growth segments, driving value added pricing, expanding content on our key commercial aerospace platforms. All of us here as well as my fellow board members continue to have a high level of conviction in the Vision 2027 strategy and financial goals and believe the market catalysts ahead present unique value creation opportunity for shareholders.

The Q2 twenty twenty five results show again the strategy initiatives are working with both gross and adjusted EBITDA margins, for example, at record levels with more opportunities to come for DCO. For Q2, I’m happy to report revenues reached a new quarterly record of $202,300,000 or 2.7% over prior year, beating our prior record of $2.01400000.0 dollars in Q3 of last year and also making this our seventeenth consecutive quarter with year over year growth in revenue. We achieved this despite headwinds in commercial aerospace build rates, destocking at BA and SPR, which was anticipated and the continued strategic pruning of our non core industrial businesses, the right thing to do. The revenue performance was driven by continued strength in our defense business, which grew 16% during the quarter and was our second consecutive quarter with double digit growth. The growth of defense was driven by very strong performance in our missile franchise, which grew by 39% during the quarter, along with DCO’s radar business, much newer to DCO, up 46%.

Now the outlook for our defense business continues to look great. In addition to the highlights I just mentioned, the Apache Blades, Tomahawk Cables and the Toll Missile Case are scheduled to be back starting in the second half and into 2026 as we are nearing final approvals from RTX and BA. In addition, and previously discussed, our team continues to build scale at other defense customers outside of RTX, which is and has been a long term goal. Northrop Grumman is a great example of this strategic effort. I also thought it was the right time with the recent Wall Street Journal article on missiles published on July 23 to highlight DCO’s missile franchise and how well it’s positioned to benefit from the replenishment of depleted worldwide inventories mentioned in the article, along with, in general, very robust US and FMS order activity.

For background, Takamen is a supplier in over a dozen key missile platforms, including AMRAN, MIR, PAC-three, SM-two, SM-three, SM-six, Tomahawk, and TOW amongst others. Missile business is up 39% in the second quarter and our missile backlog also increased 30% compared to the year ago. Excellent news. For greater context, DCO currently supports 18 missile programs with at least $750,000 of revenue in the last twelve months. Complementing our missile portfolios are strong radar franchise, is up and coming, covering marquee programs such as the SPY-six radar, the LOT TIMES radar, which is part of the Patriot Missile Defense System, the TPY-two radar used on the THAAD missile defense system, and the GATOR radar used by the US Marine Corps and various other radar platforms.

This combination of both missile and radar platforms positioned us well in the current environment and also aligns us with key defense priorities outlined in The US defense budget, including the Golden Dome as well as NATO priorities. We are in active negotiations with the defense prime right now for record levels of the SM-three as an example, and view our missile and radar franchises a bedrock for growth now and the next few years ahead. Strong growth in our defense business more than offset lower revenue in our commercial aerospace business, which declined 10% in the quarter. However, the outlook is promising for commercial aerospace as Boeing continues to perform at improved build rates and they get through the destocking along with SPR. I also want to add that everything we see out of Boeing commercial in the last three or four months has been very encouraging, both on the seven thirty seven and seven eighty seven, our main platforms.

We’re optimistic that bill rates will be growing from 38 to 42 on the seven thirty seven MAX soon, as outlined by Boeing on recent calls. Gross margin also grew 2,500,000.0 to 26.6% in Q2, matching the record gross margin percentage achieved in Q1, up 60 basis points year over year from 26% as we continue to realize benefits from our growing engineered product portfolio with aftermarket, strategic value pricing initiatives, restructuring actions and productivity improvements. We have ceased manufacturing operations in both our Monrovia, California and Berryville, Arkansas operations. We expect to see those savings be higher as the receiving plants ramp up later this year and more fully in 2026. For adjusted operating income margins in Q2, the team delivered 9.9%, which is just below the prior year of 10.1%.

Electronic Systems segment margin grew nicely in the quarter with a good mix of profitable business and improvements in productivity. Adjusted EBITDA hit another record in Q2, achieving 16% of revenue for the first time, up $2,400,000 to $32,400,000 fantastic. This is our third quarter with adjusted EBITDA above $30,000,000 and represents an expansion of 80 basis points above prior year and continues the strong momentum we saw in 2024 as we work towards the 18% goal in our Vision 2027 plan, two point five years to go. GAAP diluted EPS was $0.82 a share in Q2 twenty twenty five versus $0.52 a share for Q2 twenty twenty four, and with adjustments diluted EPS was a strong $0.88 a share compared to adjusted diluted EPS of $0.83 in the prior year quarter. The higher GAAP and adjusted diluted EPS during the quarter was driven by improved operating income as well as lower interest costs due to lower interest rates along with a lower outstanding debt balance.

The company’s consolidated backlog continues to be strong at $1,020,000,000 but did decrease $50,000,000 year over year due to timing of awards. We are in active negotiations with customers on a number of meaningful opportunities and based on our current pipeline, we expect a significant uptick in orders in the second half. The defense backlog was flat compared to the prior year quarter and is at $593,000,000 but expected to ramp up in the back half of the year. The commercial aerospace backlog decreased by $47,000,000 compared to the prior year quarter due to lower OEM production rates and destocking, which we fully expect to come back. In December 2022, we set a target of generating 25% of our revenues from Engineered Products, which was 9% in 2017 and fifteen percent in 2022.

In 2024, we reported that our engineered product business drove 23% of our total revenue, up from 19% in 2023, positioning us well ahead of the curve in achieving our Vision 2027 goal of certainly pushing and we’re certainly pushing for a lot more. We achieved this both through focused investment driving organic growth in those current businesses as well as the BLR acquisition. In Q2 twenty twenty five, we have maintained this 23% mix and continue to work on both organic and inorganic opportunities to drive this higher. We have made tremendous progress to date and I’m proud of our team and strategic plan. As for the 2025, we are positioned to benefit from the expected Boeing recovery in the second half along with continued momentum in defense.

For revenue guidance, after somewhat flattish first half, we’re expecting mid single digit growth in Q3 with low double digit growth in Q4. In addition, we believe tariffs will have limited and no material impact on our 2025 revenues, a good story for our investors. Also, I want to reiterate as well that Ducommun is a U. S. Manufacturer with U.

S. Employees and 95% of our revenue is produced in The U. S. Our only other facility is based in Guaymas, Mexico and that production is less than 5% of our revenue and thankfully covered under the USMCA, exempting us from tariffs. The other good news is Tucommon’s revenue into China is almost entirely one program for an Airbus supplier, who is owned by the government, constitute less than 2% of our revenue, we have not seen any impact at this point on tariffs for our revenue.

On the supplier side, we do procure some parts from Europe and Asia, but it is manageable and so far the impact has been seen to be pretty de minimis. We will continue to monitor it as the situation evolves, but at this point we certainly don’t see it as being something that’s a material impact to the company. Now let me provide some color on our markets, products and programs. Beginning with our military and space sector, we saw revenues of $117,000,000 compared to $101,000,000 in Q2 twenty twenty four. Growth was driven by significant activity in missile programs such as TOW and AMRAN, as well as solid growth in military rotorcraft on the GATOR radar and on a classified program.

We also ended the second quarter with a backlog of $593,000,000 flat to prior year, representing 58% of Ducommun’s total backlog. Within our commercial aerospace operations, second quarter revenue declined 10% year over year, dollars 78,000,000 driven mainly by lower rates on Boeing platforms, commercial helicopters and in flight entertainment. As I mentioned earlier, we believe that finally a much better story is ahead for BA and MAX. Now the production is ramping up again and they’re working through their overstocked inventory. The backlog within our commercial aerospace business was $4.00 $4,000,000 at the end of the second quarter, decreasing $47,000,000 compared to prior year driven by lower rates on Boeing platforms.

We expect this to recover as production rates ramp up in late twenty twenty five and 2026. Revenue in our industrial business declined by 23% to $8,000,000 during Q2 as we continually strategically prune our non core business from the portfolio. This will benefit the company in the longer term as we transition that capacity to our core aerospace and defense platforms. With that, I’ll let Suman review our financial results in detail. Suman?

Suman Mokaji, Senior Vice President, Chief Financial Officer, Ducommun: Thank you, Steve. As a reminder, please see the company’s 10 and Q2 earnings release for a further description of information mentioned on today’s call. As Steve discussed, our second quarter results reflected another record quarter of revenue with strong growth in our military end markets, especially in missiles and radar systems. We also saw record gross margins and record EBITDA margins during the quarter. We are nearing the end of our facility consolidation projects, which will drive further synergies in late twenty twenty five and into 2026, as we close out the recertification of the various product lines at the receiving facilities.

As Steve highlighted earlier, we also made great progress in continuing to build up our engineered product portfolio with those revenues now contributing 23% to our mix. These actions along with our strategic pricing initiatives drove continued gross margin expansion in Q2 and is keeping us on pace to achieve our Vision 2027 goals. Now turning to our second quarter results. Revenue for the 2025 was $202,300,000 versus 197,000,000 for the 2024. The year over year increase of 2.7% reflects strong growth in military and space of 16%, driven by increase in missiles, radar, military rotorcraft and a classifying program.

This was partially offset by weakness in our commercial aerospace business, mainly driven by lower revenues on Boeing platforms and on select commercial rotorcraft platforms as we complete our facility consolidation exercise. We posted total gross profit of $53,700,000 or 26.6% of revenue for the quarter versus $51,200,000 or 26% of revenue in the prior year period. We continue to provide adjusted gross margin as we had certain non GAAP cost of revenue items in the prior year period relating to inventory step up amortization on our acquisitions and restructuring charges. On an adjusted basis, our gross margins were 26.6% in Q2 twenty twenty five and in Q2 twenty twenty four. We also continue to make progress on our supply chain and the working capital in our business.

Through our proactive efforts, including strategic buys in our inventory investments, we have been able to avoid any significant operational impacts on our business. We continue to work to improve the working capital turns in the business and improve our cash flow. I also want to add that we did not see any material impact from tariffs in the second quarter. And as Steve mentioned, we do not anticipate any significant impact to our P and L at this time. We are a U.

S. Manufacturing business with U. S. Employees and generate 95% of revenues from our domestic facilities. Our revenues are also largely to domestic customers with US revenues being in excess of 85% in 2024.

Revenues to China were less than 3%, mostly one customer for Airbus, and there has been no impact to those volumes or orders at this time due to the tariffs. Our supply chain is also largely domestic with less than 5% of our direct suppliers being foreign. Some of our domestic suppliers do source materials from outside The United States, but even that is a very manageable spend with China being a low single digit percentage. We expect to mitigate the impact of tariffs on our material spend through military duty free exemptions, alternate sourcing of materials from domestic suppliers, or by passing on the impact to our customers. Ducommun reported operating income for the second quarter of $17,200,000 or 8.5 percent of revenue, compared to $13,900,000 or 7.1% of revenue in the prior year period.

Adjusted operating income was 20,000,000 or 9.9% of revenue this quarter, compared to $19,900,000 or 10.1% of revenue in the comparable period last year. The company reported net income for the 2025 of $12,600,000 or $0.82 per diluted share, compared to net income of $7,700,000 or $0.52 per diluted share a year ago. On an adjusted basis, the company reported net income of 13,400,000.0 or $0.88 per diluted share, compared to adjusted net income of $12,500,000 or $0.83 in Q2 twenty twenty four. The higher net income and adjusted net income during the quarter was driven by the higher operating income and adjusted operating income and lower interest expense. Now let me turn to our segment results.

Our Structural Systems segment posted revenue of $92,000,000 in the 2025 versus $95,600,000 last year. The year over year change reflected $6,200,000 in lower revenues across our commercial aerospace business, mainly driven by lower revenues on Boeing platforms, as well as lower revenue on select commercial rotorcraft platforms as we complete the transition of certain product lines under our facility consolidation initiative. The decline in commercial aerospace was partially offset by 2,700,000.0 of higher revenues across our military and space applications, driven by strength in military rotorcraft platforms and selected missile programs. Structural systems operating income for the quarter was $9,500,000 or 10.4% of revenue compared to $10,600,000 or 11% of revenue for the prior year quarter. Excluding restructuring charges and other adjustments in both years, segment operating margin was 13% in Q2 twenty twenty five versus 15.4% in Q2 twenty twenty four.

The decline in margin was driven by an unfavorable sales mix in the quarter. Our Electronic Systems segment posted revenue of $110,200,000 in the 2025 versus $101,400,000 in the prior year period. The year over year change reflected $13,800,000 in higher revenues in military and space applications, driven by strong growth in missiles and radar systems, military fixed wing aircraft and unclassified program. The strong growth in defense was partially offset by lower revenues from commercial aerospace and a reduction in our industrial business as we chose to selectively prune non core work. We have been pruning our industrial business now for multiple quarters, maintaining only select customers that are accretive to our business.

Electronic Systems operating income for the second quarter was $21,000,000 or 19% of revenue versus $16,800,000 or 16.6% of revenue in the prior year period. Excluding restructuring charges and other adjustments in both years, segment operating margin was 19.4 in Q2 twenty twenty five versus 16.9% in Q2 twenty twenty four. The year over year increase was driven by a favorable product mix and better leverage of fixed costs from higher revenue. Next, I would like to provide an update on our ongoing restructuring program. As a reminder, and as discussed previously, we commenced a restructuring initiative back in 2022.

These actions are being taken 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 Berryville, 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 and are working diligently with our customers, Boeing and RTX, to obtain the requisite approvals, which are expected to be completed by the end of Q3. This quarter, we expect it to start quarter, we expect to start full production of rotor blades for the Apache helicopter at our Kauksaki, New York facility, which will complete the transition of that program from California. We are also working through the transition of seven thirty seven MAX spoilers, Tomahawk harnesses and Latour missile cases, which are all expected to go into production in Guaymas in the second half of this year.

During Q2 twenty twenty five, we recorded $600,000 net in restructuring charges. We expect to incur an additional 500,000.0 to $1,000,000 in restructuring expenses as we complete the program. As previously communicated, we expect to generate 11,000,000 to $13,000,000 in annual savings from our actions and have already seen some realization of savings in 2024 and the first half of this year. We expect the synergies to ramp up in late twenty twenty five and into 2026 as a product recertification is complete and the receiving facilities move up the learning curve and ramp up production. We anticipate selling the land and building in Monrovia and during the second quarter, we closed on the sale of the Berryhill facility.

Turning to liquidity and capital resources. In Q2 twenty twenty five, we generated $22,400,000 in cash flow from operating activities, which was an improvement compared to 3,500,000 in Q2 twenty twenty four. The improvement was due to net income growth of $4,800,000 as well as better working capital management. As of the end of the second quarter, we had available liquidity of 236,900,000.0 comprising of the unutilized portion of our revolver and cash on hand. Our existing credit facility was put in place in July 2022 at an opportune time in the credit markets, allowing us to reduce our spread, increase the size of our revolver and allowing us the flexibility to execute on our acquisition strategy.

Our strong cash generation allowed us to pay down the remaining balance on our revolver during Q2 twenty twenty five and the entire $200,000,000 revolver capacity is now available to us. Interest expense in Q2 twenty twenty five was $3,000,000 compared to $4,000,000 in Q2 twenty twenty four. The year over year improvement in interest cost was primarily due to lower interest rates, along with a lower debt balance. In November 2021, we put in place an interest rate hedge that went into effect for a seven year period starting January 2024 and begs the one month term so far at 170 basis points for 150,000,000 of our debt. The hedge will continue to drive significant interest cost savings in 2025 and beyond.

To conclude the financial review for Q2 twenty twenty five, I would like to say that the second quarter results complete a strong first half building on the momentum from 2024 and positions us well for the rest of 2025 and beyond. I’ll now turn it back over to Steve for his closing remarks. Steve?

Steve Oswald, Chairman, President, and Chief Executive Officer, Ducommun: Okay. Thanks, Suman. Just to close before we get to questions here, Q2 was an excellent continuation of our strategy working despite the anticipated headwind from commercial aerospace. As we’ve talked about, we achieved another quarter of record revenue and have a good step up forecasted in the 2025. Adjusted EBITDA and gross margins were also at record levels of 1626.6% respectively in the quarter.

We’re in great shape to meet and exceed our Vision 2027 target of twenty five percent plus of engineered product revenues with twenty twenty five Q2 coming in at 23%. Finally, with commercial bill rates heading higher, getting past destocking along with stronger defense activity, especially in missiles and we believe radar as well. Very optimistic about what lies ahead in the second half and the next few years for our shareholders, for our employees and other stakeholders. So thank you for listening, let’s go to questions.

Conference Operator: Thank you. At this time, we will conduct a question and answer session. Our first question comes from Noah Poponak from Goldman Sachs. Please go ahead.

Noah Poponak, Analyst, Goldman Sachs: Hey, everyone.

Steve Oswald, Chairman, President, and Chief Executive Officer, Ducommun: Hi, Noah. Thanks for joining us.

Noah Poponak, Analyst, Goldman Sachs: Yes. Thanks, Steve. The forecast for low double digit organic revenue growth in the fourth quarter, that would imply you expect the aerospace original equipment inventory destocking has ended by then. Do you have that visibility? And then I guess, as we move into 2026, can we use that exit rate as a guidepost, at least on the aerospace side, especially given how easy the comparisons will be?

Suman Mokaji, Senior Vice President, Chief Financial Officer, Ducommun: You wanna go first? No, great question. And what we’re seeing is certainly some ramp up activity in commercial aerospace as we go into Q3 and Q4, but even in our defense business, and Steve highlighted some of the great things that we’re seeing in our missiles and radar business, we are expecting a higher level of activity on the defense side of our business, and that’s going to be a key driver. We’re not expecting a huge ramp up in commercial aerospace here in these last two quarters, there’ll be some, but it’s really also going to come from, the defense portion of our business, which looks strong.

Steve Oswald, Chairman, President, and Chief Executive Officer, Ducommun: Yeah, no, we’re obviously going to see better in commercial aerospace. That’s what we believe. We don’t have a great line of sight into destocking, we’ve tried. We still think there’s going to be some of that. So we feel the double digit, low double digit in Q4 is going to be better on commercial, but it’s going to be strong defense.

And remember, we have these products that have been offline, like the Apache rotor blade, which is coming online this quarter, and that’s going to help us in Q4. So we’ve got some upside there too.

Noah Poponak, Analyst, Goldman Sachs: Okay. That is interesting. And then Suman, can you spend another minute on the cash flow? That’s one of the higher 2Q cash from ops numbers you’ve ever had. But you still I think you still actually had working capital as a headwind.

What’s driving the improvement? And can you get to that 50% of EBITDA conversion for the year or close to it?

Suman Mokaji, Senior Vice President, Chief Financial Officer, Ducommun: No, yes, we did have working capital as a headwind, but as a lesser headwind than we did in Q2 of last year, and this is one of the stronger cash flows we’ve had in the company’s history in Q2. We are looking at free cash flow conversion as well, and historically, we look at 2024, it was 40% free cash flow as a percentage of adjusted net income. This year, year to date, we are at 55%, which is a noticeable improvement. I think taxes have also helped us with some of the changes in tax rules under the new act. It’s certainly helping us, but even in terms of just operating performance and higher profits driving higher cash flows, We expect us to continue to improve that free cash flow conversion ratio to kind of our ultimate goal of getting to 100% free cash flow conversion over the next couple of years.

Steve Oswald, Chairman, President, and Chief Executive Officer, Ducommun: Yeah. And Noah, just to get back to your earlier question, I don’t want to leave it, because I know this destocking thing is important for everybody on the call is that, again, we’ve asked for things both from BA and Spirit, we do the best we can with it. We’re still going to have some destocking through the rest of the year on certain things. Think that or we hope that probably first quarter, second quarter next year will be clear. I’m just not sure.

Really couldn’t tell you honestly it would be the end of this year. Wish it was, but just not sure at this point.

Noah Poponak, Analyst, Goldman Sachs: Okay. Appreciate the detail. Thank you.

Steve Oswald, Chairman, President, and Chief Executive Officer, Ducommun: Okay, thanks. Appreciate you joining us.

Conference Operator: Thank you. Our next question comes from Ken Herbert from RBC Capital Markets. Please go ahead.

Ken Herbert, Analyst, RBC Capital Markets: Yeah. Hi. Thanks, Steve and Suman. Nice results.

Steve Oswald, Chairman, President, and Chief Executive Officer, Ducommun: Thank you. Thank you, Larry.

Ken Herbert, Analyst, RBC Capital Markets: I just wanted to ask you. You’re still at sort of I think it’s 23% of of the revenues from the engineered products portfolio. It sounds like that’s not a maybe a significant mix tailwind in the second half of the year. What does guidance imply for sort of exit rate from that portfolio this year into 2026, maybe as a percent of the revenues?

Suman Mokaji, Senior Vice President, Chief Financial Officer, Ducommun: It’ll kind of depend on the acquisitions and what we close. I mean, I would expect us to kind of stay at a fairly steady rate here through the end of this year, because even any acquisition will kind of come in at the tail end and may not, will not have a significant impact on the mix for the year. So I would expect it to be fairly consistent, this year with the expectation that it continues to ramp up in ’26.

Steve Oswald, Chairman, President, and Chief Executive Officer, Ducommun: Yeah, I think that’s about right. I think it’s going to bounce around ’23 Ken, but fairly close. And then, obviously we’re looking to ramp that up in 2026.

Ken Herbert, Analyst, RBC Capital Markets: Yeah, so on that point, Steve or Suman, obviously, it’s been quite a while since you’ve announced an acquisition. A lot of your peers are talking about, maybe a greater focus on acquisitions in the aerospace and defense sector. Are you can you comment on what you’re seeing in the pipeline, confidence of something maybe in the back half of

Suman Mokaji, Senior Vice President, Chief Financial Officer, Ducommun: the

Ken Herbert, Analyst, RBC Capital Markets: year? Are you seeing more competition that may have pushed some opportunities out of reach? Any more detail on the M and A outlook would be helpful. Thank you.

Suman Mokaji, Senior Vice President, Chief Financial Officer, Ducommun: We’re continuing to see a number of opportunities, but there is increased level of competition. You’re absolutely right. And, but we think we can be competitive enough to win assets. So we’ll continue to keep our heads down and working on our pipeline and continue to work through the various opportunities we’re seeing right now.

Steve Oswald, Chairman, President, and Chief Executive Officer, Ducommun: Yeah, I think, just if I jump in here, think I like our pipeline right now for the second half. I think there’s a few things out there that are interesting. I’ll say this from my old bosses, we’re picky eaters as they say, as far as we do look at things and we’re active and we’re just thoughtful and I know that’s what you want us to be as far as purchasing some of this. We’ve passed in the past and but we have a couple of things that look promising in the second half.

Ken Herbert, Analyst, RBC Capital Markets: That’s great. And if I could just finally, any update on Monrovia and potential sale of that property and how we might think of that as ideally, real estate values maybe firm up a little bit and you get a little better visibility there. It sounds like you were obviously successful on Berryville.

Steve Oswald, Chairman, President, and Chief Executive Officer, Ducommun: Yeah, well, let me just mention Berryville. I would give credit to Suman and the entire team, as well as Jerry Redondo. We were able to get $2,000,000 for that operation and our expectations were quite a bit lower. So we’re hoping that will continue. We did market Monrovia last year, but the bid we had, we felt that wasn’t shareholder friendly.

And so we figured we’d pull back. So that’s our next property. We’re happy to have Berryville closed and sold. Hopefully, some good things will be happening in the commercial market in the second half, but we are going to market it again and we’ll keep you posted.

Tony Bancroft, Investor, GAMCO Investors: Great. Thanks, Steve.

Steve Oswald, Chairman, President, and Chief Executive Officer, Ducommun: All right. Thanks, Ken.

Conference Operator: Thank you. Our next question comes from Mike Crawford from B. Riley’s Security. Please go ahead.

Mike Crawford, Analyst, B. Riley’s Security: Thanks. I’d I’d like to get back to the engineered and aftermarket products mix of your business. I mean, 23% now, it’s near 200,000,000 run rate. I mean, I know you’re targeting with this Vision 27, a billion dollars in revenue and 25%. That’s $250,000,000.

But would that be enough for that to be a stand alone business, or would it need more scale? And and then I guess the answer to that is how difficult or not would it be to separate that from the rest of Ducommun’s business?

Steve Oswald, Chairman, President, and Chief Executive Officer, Ducommun: Great question. Suman, you want to take that first? Yes.

Suman Mokaji, Senior Vice President, Chief Financial Officer, Ducommun: That business is there are a lot of synergies between that business and our existing business. Let me say there is there are unique attributes about the business, which may engineered product businesses, which make them attractive, which is why we want to grow that as a mix of our overall revenues. That being said, are also, and they’re managed fairly independently, but there are also synergies with the broader organization. Aerospace and defense is a small industry with the same set of customers that our engineered product businesses sell to, as do our, the rest of our contract manufacturing business. So, we’re not necessarily viewing that as being a standalone business on its own, but certainly wanted to be a larger portion of our portfolio.

Steve Oswald, Chairman, President, and Chief Executive Officer, Ducommun: Yeah, will tell you this, Mike, it’s a good question. Certainly scale, in that area is our number one focus. So, as far as having something standalone in the future, I would just say stay tuned, we’ll have to see.

Mike Crawford, Analyst, B. Riley’s Security: Okay. Great. Thank you. And just one follow-up question, a little different category, but I know you’ve made some inroads into space and unmanned systems markets. Think you started with the Predator maybe a few years ago, but it hasn’t been a huge part of your mix.

If I success obviously with ViaSat and IFC, but any updates there?

Steve Oswald, Chairman, President, and Chief Executive Officer, Ducommun: It’s a bit of a tricky business for us just because there’s a high level of expense, as you know, for developing these types of products. We are supporting space, in Joplin, we make cables cabling, which is world class for space applications. We do other things in our engineered products businesses. So we’re probably as far as space goes, we’re opportunistic. And that’s what I would say.

We’re much more strategically aligned on defense and on commercial aerospace. But if there’s a space application, which we can do, and it won’t cost us a fortune and we’ll have a good return, then we’re happy to do it.

Mike Crawford, Analyst, B. Riley’s Security: Okay. Great. Thanks, Steve.

Steve Oswald, Chairman, President, and Chief Executive Officer, Ducommun: Thanks, Mike.

Conference Operator: Thank you. Our next question comes from Sam Stritaker from Truist Securities. Please go ahead.

Sam Stritaker, Analyst, Truist Securities: Hey, guys. On for Mike Schmuller today. Thanks for taking the question. I guess circling back to the destocking trends for a moment. It looks like commercial aero might have actually been up sequentially this quarter, if I have it right.

So I was just curious, obviously, I know you guys have a ton of visibility into the back half of the year, but just sort of what kind of cadence you guys have seen so far? Did you see kind of do you think destocking has sort of picked up or where are you guys seeing that as of now?

Suman Mokaji, Senior Vice President, Chief Financial Officer, Ducommun: I would say, you know, destocking impact continues. There was, so we want to make sure our factories are operating at optimal capacity as well. So, you know, we’ve had some build ahead in commercial aerospace as well in our factories, right? So that’s kind of another form of destocking, I guess you could say. So as we do some build ahead, you will see some sequential improvement in commercial aerospace.

But as far as destocking impact from Boeing and Spirit, I think that persists as much as it did in Q1.

Steve Oswald, Chairman, President, and Chief Executive Officer, Ducommun: Yeah, see Spirit, Boeing obviously is driving the train here, but Spirit is a major part of our MAX business. I mean, we do a lot for Spirit. And when Boeing had shut down and at the strike and other things, Spirit and rightfully so didn’t wanna lay off a thousand people, so they just kept making fuselages. And there’s a lot of fuselages still in the back and they’re burning those down. So I think all good things ahead, but it’s still an issue for the industry and for us at some level, but it’s coming down.

That’s the best part about it is progress is being made. And that’s what we want.

Sam Stritaker, Analyst, Truist Securities: Got it. Understood. Makes sense. And then I guess if I could just sneak in another one.

Steve Oswald, Chairman, President, and Chief Executive Officer, Ducommun: Yes, sir.

Sam Stritaker, Analyst, Truist Securities: Really nice margins in electronic systems this quarter. Looks like it might be a high watermark. How should we think of that as maybe a new floor or how sustainable are you guys thinking that might be?

Suman Mokaji, Senior Vice President, Chief Financial Officer, Ducommun: I would say that if you look across the company, we probably had 50 basis points of favorability in margin due to favorable product mix. In the electronics business, it was more concentrated, the product mix favorability. On the flip side, on the structure side, it was unfavorable, which kind of net offsets to the 50 basis points I mentioned earlier. So I wouldn’t say that the higher gross margins in the electronics are the new baseline. They’re certainly a move in the right direction, but there was a net favorability across the DCO portfolio of about 50 basis points.

Sam Stritaker, Analyst, Truist Securities: Got it. Okay. And then sorry, just one last one. You guys mentioned that I think last quarter that Apache was gonna maybe kick in this quarter. And just to clarify, I guess, was the uptick in rotorcraft a benefit from that Apache or is that still has not yet kicked in?

We’ll see that next quarter. I was just a little bit unclear on the exact

Suman Mokaji, Senior Vice President, Chief Financial Officer, Ducommun: In q two Apache was still a headwind. In Q2, Apache was still a headwind.

Steve Oswald, Chairman, President, and Chief Executive Officer, Ducommun: Yeah, year to year.

Suman Mokaji, Senior Vice President, Chief Financial Officer, Ducommun: As Kotzake completes recertification on Apache, and there’s been great progress here even through the early part of Q3 here in getting that process completed, we’re going to see a ramp up with Apache.

Steve Oswald, Chairman, President, and Chief Executive Officer, Ducommun: Yeah, that’s a good question. We’re all about sharing good news on this call. I got an update this morning from our New York team and Boeing was and the military, everybody was at Kosaki the last two days and things could not have gone better. So it looks like sometime in August later this month, we’ll be fully approved to start manufacturing and then we’ll start shipping in September. So that’s late breaking, but wanted to share with everybody.

Noah Poponak, Analyst, Goldman Sachs: Great. Thanks, guys.

Steve Oswald, Chairman, President, and Chief Executive Officer, Ducommun: Thanks, Dan.

Conference Operator: Thank you. As a reminder, to ask a question, you would need to press 11 on your telephone and wait for your name to be announced. 1 moment for our next question. Our next question comes from Tony Bancroft from GAMCO Investors. Please go ahead.

Tony Bancroft, Investor, GAMCO Investors: Well, well done on the quarter, gentlemen. Maybe backing up the 30,000 feet back to the previous question with what you might do potentially spinning off or I’m not sure what the direction of that question was, but the aftermarket business could be self sufficient. You’ve done a great job growing this company. You’re almost a billion and a half size company. What’s sort of the next leg over?

I know you have the targets in the next two years, but how do you envision this company, maybe bigger picture, broader strokes over the next

Steve Oswald, Chairman, President, and Chief Executive Officer, Ducommun: question. Headline is go, go, go. I mean, pretty much, you know, we’re, we’ve got our vision 2027 to ’25. We’re gonna, you know, we’ll be out, at some point, with our vision, probably 02/1930, we’ll have to, you know, don’t want to do to get too ahead of ourselves, but, our goal is to continue to build this portfolio with higher percentages of engineered product and aftermarket, as well as, as you know, Tony, we’re continuing to take cost out and value price all our contract manufacturing, which is a niche business, right? It’s a nice business.

So just you’re going to see more and more of that. And I think it’s a ten year play.

Suman Mokaji, Senior Vice President, Chief Financial Officer, Ducommun: Great. More and more.

Tony Bancroft, Investor, GAMCO Investors: Thank you.

Steve Oswald, Chairman, President, and Chief Executive Officer, Ducommun: That’s how I see it. Tony, thanks for joining us.

Conference Operator: I’m showing no further questions at this time. I will now turn it back over to Steve Oswald for final remarks.

Steve Oswald, Chairman, President, and Chief Executive Officer, Ducommun: Okay, thank you. Appreciate everyone calling in this morning, listening. Obviously, remarks are my remarks. I feel very good about where we are. I think that there’s a lot of tailwind.

We are in great shape, as I mentioned earlier, on this missile franchise. Know, the next couple of years, our radar business is doing terrific and, I’m getting closer and closer to Boeing and their BCA team and spending some time with them and everything I can see it’s thumbs up and they’re going to continue, I think, to do great things on the ’37 and the ’87. So we’ll leave it with that. Thank you again. Look forward to connecting soon.

Conference Operator: Thank you for participating in today’s conference. This does conclude the program. You may now disconnect.

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