Ducommun Incorporated Stock

Good day, and thank you for standing by. Welcome to the Q3 2026 Ducommun Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Ducommun's Senior Vice President and Chief Financial Officer, Suman Mookerji. Please go ahead.

Thank you, and welcome to Ducommun's 2026 Third 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&A session that follows.

Certain statements today that are not historical facts, including any statements as to the company's progress and value creation opportunity for shareholders under our Vision 2027 game plan for investors, beliefs about the company's ability to attain the goals stated in our Vision 2032 strategic plan, potential destocking headwinds and their impact on the company's business for the remainder of 2026, expectations related to the U.S. Department of War's long-term framework agreements for key missile programs with defense primes, our share of potential orders from those primes, the increase in production on many of those missile programs and their impact on the growth of our defense business, estimated synergies to be realized under the company's facility consolidation projects and the outlook for the company's revenue and commercial aerospace and defense businesses for the full year 2026 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 U.S. government defense spending, our customers may experience changes in production rates or delays in launch and certification of new products, timing of orders from our customers, which are subject to cancellation, modification or rescheduling, our ability to obtain additional financing and service existing debt to fund capital expenditures and meet our working capital needs, legal and regulatory risks, including pending litigation matters generally and as well as any potential losses arising from third-party subrogation claims related to the Guaymas Performance Center fire that may become material.

The cost of expansion, consolidation and acquisitions, competition, economic and geopolitical developments, including supply chain issues, our ability to successfully implement restructuring, realignment and cost reduction initiatives that could adversely impact our ability to achieve our strategic objectives, international trade restrictions and our ability to obtain necessary U.S. government approvals for proposed sales to certain foreign customers, the impact of tariffs and elevated interest rates, risks associated with the prolonged partial or total U.S. federal government shutdown, 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-K/A, quarterly report 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.

The 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 Q3 2026 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.

Okay. Thank you, Suman, and thanks, everyone, for joining us today for our third quarter conference call. Today, and as usual, I will give an update of the current situation of the company, after which Suman will review our financials in detail. To start, I want to thank everyone that attended the launch of our Vision 2032 strategy in September, either in person, in New York or virtually. It was over 1,300 days since our last Investor Day in 2022, and we are excited to share our game plan for continued growth. The highlights were our new revenue and margin expansion targets, along with plans for a significant increase in the percentage of engineered products for the DCO P&L. The feedback we have received since then from all shareholders have been very positive. So again, thank you.

As in previous calls, I will reiterate Ducommun's Vision 2027 strategy as we continue to make great progress heading into our 5th and final year starting this January. Strategy and vision were developed coming out of the COVID pandemic over the summer and fall of 2022, unanimously approved by the Ducommun Board in November 2022 and then presented the following month in New York to investors where we got excellent feedback.

Since that time, Ducommun's management has been executing the strategy by increasing the revenue percentage of engineered product content, which was 24% in Q3, a record, consolidating our rooftop footprint in contract manufacturing, continuing our focused acquisition program, executing the offloading strategy with defense primes in high-growth segments, driving value-added pricing and expanding content on key commercial aerospace platforms. All of us here are thrilled about Vision 2027 and the many accomplishments to date.

The Q3 2026 results show again the strategy initiatives are working with again, record gross margins. I'm happy to report our adjusted EBITDA margins and engineered product revenue mix are very close to our final Vision 2027 targets a year early. Wonderful news. Our Vision 2032 strategy continues that momentum will take DCO to the next level. We are doubling down on Engineered Products to build that to at least 40% of revenue, both organically and by increasing our acquisition activity.

We expect to grow total revenue to the range of $1.6 billion to $1.7 billion and expand adjusted EBITDA margins to 23% of revenue. We've got the right team in place and the plans to execute these targets are already in motion.

For Q3, we achieved a new record of $227 million in revenue, 6% growth over last year and our 6 consecutive quarters of over $200 million in revenue and now 22 consecutive quarters of year-over-year revenue growth. In Q3, commercial aerospace performed extraordinarily well, growing 28% over last year with narrow-body platforms for both Boeing and Airbus growing significantly as we're working through the final stages of destocking, and that is coming to an end in December.

We're also benefiting on the commercial side from a major new program for BA, supplying proprietary switches we talked about last quarter. This is an engineered product designed by DCO engineers and is driving retrofit and new build revenue at significant margins for us. And DCO has received bookings in excess of $30 million, a first for us at this level.

Military and space revenues came in at 7% lower this quarter versus prior year due to the timing of orders and production on certain programs, including some pull forward into the first half of the year that we discussed previously. We closed on $263 million in military and space bookings in Q3, an all-time record, which represents a book-to-bill of 2.2x and takes our military and space revenue performance obligation to an all-time high of $868 million.

This record level of order activity sets us up well for strong growth in our military and space business. Missiles continues to outperform other areas of our defense portfolio with another quarter of double-digit growth as well as continued strength in fixed-wing aircraft, which was offset by temporary softness in our rotary wing, ground vehicle and radar platforms.

Overall, for DCO, we closed on $354 million of new bookings during the quarter at a book-to-bill of 1.6x. This increases our remaining performance obligations for the company to a record $1.3 billion, $255 million higher than prior year and $127 million higher than Q2, all outstanding. Our defense business RPO grew $275 million year-over-year, highlighted by a $90 million order of the SPY-6 Navy radar from RTX. This is the offload of CCAs from the Andover, Massachusetts facility that I've talked about over the past few years that is now really paying off in a big way, but it did take time. $54 million of bookings as well for the MESA airborne surveillance for Northrop Grumman that supports the Boeing E-7 Wedgetail, and that number is for 5 planes.

I'm thrilled with the current state of our radar business, which is now becoming a franchise like the DCO missile business. To put this segment in perspective and context, in 2024, we booked $65 million for 5 radar programs. In 2025, only $11 million for 3 programs. And year-to-date in 2026, we booked over $150 million for 7 programs, and that is just in the first 9 months, such wonderful news. Overall, in 2026, we have booked $535 million of defense orders through Q3 of this year. And I want to point out that this does not include any orders under the 7-year missile framework agreements for RTX and Lockheed.

For clarity, the framework agreements announced have resulted in contract awards, but not orders to defense primes, and we will eventually turn into purchase orders that get flowed down in the supply chain. While the timing of such orders is hard to predict, our current expectation is for that to happen starting in late Q1 and Q2 of next year, but we'll be getting OEM commitments to start ordering material in Q4.

In addition, we've been adding staff and floor space as we speak. Production on many of these missile programs such as the PAC-3, AARGM, Standard Missile-3, Standard Missile-6 and Tomahawk are expected to grow several fold, and this will be a big driver of growth for DCO and the industry over the next several years. Gross margins grew by $7 million in the quarter to 28.9%, a 140-basis-point improvement, another record from 27.5% last year in Q3. The benefits of our Vision 2027 strategy continue to flow through the P&L with expansion from DCO's engineered product portfolio, which again includes the new major BA application I mentioned earlier, and we have now reached 24% of revenue. This, along with strategic value-added pricing, restructuring actions and productivity improvements are all reading through to the P&L. Our cost saving expectations of $13 million annually from our facility consolidation program have also been realized at this time.

For adjusted operating income margin in Q3, the team delivered 12.3%, 40 basis points below the prior year of 12.7%. This is mainly due to timing of stock-based compensation expense during the year. Adjusted EBITDA continues to improve towards our Vision 2027 goal of 18% in 2027 from 13% in 2022. DCO achieved 17.5% in the quarter or $39.7 million, up $2.4 million from Q3 2025. This puts us in great shape to achieve our 2027 target.

GAAP EPS was $0.89 per diluted share in Q3 2026 versus a loss of $4.06 per share for Q3 2025 from the litigation settlement. With adjustments, diluted EPS was $1.21 a share in Q3 versus $1.22 in prior year quarter. Higher operating income drove the higher GAAP EPS during the quarter, while adjusted net income was essentially flat to prior year.

As I touched on earlier, we've had some significant orders in the quarter with over $354 million of bookings and a book-to-bill of 1.6x. Over the last 12 quarters, we've closed on over $1.1 billion of bookings, a trailing 12-month book-to-bill of 1.3x. With increased defense spending and positive momentum in commercial aerospace, we have strong tailwinds in both our primary end markets. It is the best I have seen since joining Ducommun in 2017.

On the outlook for the fourth quarter, I expect to see continued growth, especially in our commercial aerospace business. In September, during our Investor Day, we narrowed our revenue guidance for 2026 to a range of $880 million to $890 million. We are continuing to track to that and further refine that range to $885 million to $890 million. This is also in line with our original guidance from February of this year of mid- to single high-digit (sic) [ mid- to high single-digit ] revenue growth for the full year 2026.

Now let me provide some color on our markets, products and programs. Beginning with our commercial aerospace operations, third quarter revenue increased 28% year-over-year to $97 million with strong growth in production and deliveries on single-aisle platforms for both Airbus and Boeing. In particular, on the 737 MAX platform, we benefited from the shipments of the proprietary switches and overall, our aerospace business grew across all platform groups, single-aisle, wide-body, commercial rotorcraft, business jets and engines. Now that Boeing received FAA certification of the 737 MAX 10 in October, the company has cleared another hurdle in their recovery. The new production line in Everett is also up and running, and the company is working to stabilize at 47 MAXs a month on the way to 52 in the second half of next year.

While this is slower than the prior expectations, it still represents great progress for our second largest customer. And with internal and external destocking largely coming to an end, we are set up very well for good growth going into 2027 and beyond. I will also add that the 787 build rate increases will be good for Ducommun. We have limited exposure as well on 777 production delays and don't expect those to affect revenue in Q4 and in 2027.

Airbus has an aggressive Q4 goal for shipments and DCO is fully supporting the production needs with capacity available to meet the demand. The other item I want to cover in commercial aerospace is our 7-year LTA expiration for Airbus at the end of 2026. I'm happy to report we have now finalized a new 2-year agreement to continue supplying superplastic formed and hot formed titanium products for the A320 family. And in addition, we received the purchase orders today from Airbus, such great news.

This content is for both Pratt engines and CFM engines and will be in effect starting in January. We will now see significant double-digit price increases for both Pratt and CFM nacelle components, which shows our strategy of high value-add niche contract manufacturing, which has been developed over the decades is a winner and very effective.

Ducommun for those who do not know, is a worldwide market share leader in titanium SPF and hot form outside of the OEM Toulouse operation and 1 of the very few companies in that space. This is a big deal for our P&L, shareholder value and will make a difference in DCO Structures gross margin and profitability in 2027 and 2028 starting in January.

In our military and space sector, we saw revenues of $119 million compared to $128 million in Q3 2025. This represents military and space in the first half to level load production for the year. Our missile franchise continues to perform well, up 25% year-over-year in Q3 as well as double-digit growth in fixed-wing platforms. This was offset by temporary declines in radar, ground vehicles and rotorcraft due to timing of orders and production schedules.

As I've noted earlier, we had robust bookings in our defense business with a book-to-bill of 2.2x and with the RPO record levels positioning us for growth in the future. Our Missile franchise continues to perform at double-digit growth rate at Ducommun, and Ducommun expects orders for the 7-year agreements to come in starting in late Q1 and Q2 of 2027.

DCO is a key supplier on the PAC-3, SM-3, SM-6, Tomahawk, THAAD and AMRAAM, and we continue to work with defense primes on multiple opportunities. DCO is also in great shape with capacity at our operations to fully support the required ramp-up with minimal capital. Overall, our missiles, radar and electronic warfare franchise grew 12% during the quarter on a year-to-date basis, represents 39% of our Military and Space segment and more than 21% now of our total company revenues. This is a great platform that I expect to drive growth for us for multiple years going forward.

In summary, the outlook for the next few years continues to be exciting for the company and our shareholders. We like the balance of defense and commercial aerospace. And like I said earlier, this is the best position I've seen the company in for future growth since I joined Ducommun in 2017.

With that, I'll have Suman review our financial results in detail. Suman?

Thank you, Steve. As a reminder, please see the company's 10-Q and Q3 earnings release for a further description of information mentioned on today's call. As Steve discussed, our third quarter results reflected another strong quarter of revenue with strong growth in commercial aerospace, offset by a temporary decline in our military end market. Gross margins and adjusted EBITDA margins both showed continued improvement over the previous year and hit new records. The synergies from our facility consolidation projects completed last year are now fully in our P&L and along with our value-based pricing approach and the pickup from operating leverage positions us well to achieve our Vision 2027 goal of 18% adjusted EBITDA percentage of sales.

Now turning to our third quarter results. Revenue for the third quarter of 2026 was $227 million versus $214.4 million for the third quarter of '25. The year-over-year increase of 6% reflects strong growth in commercial aerospace of 28%, driven by growth on single-aisle platforms, including the 737 MAX and A320 as well as growth on wide-body platforms and business jets.

The strength in the commercial aerospace business was supported by higher production and deliveries for OEM customers and new aftermarket business on the 737. Our defense business experienced a temporary decline of 7% year-over-year with continued strength in missiles and fixed-wing platforms, offset by temporary declines in ground vehicles, rotorcraft and radar platforms.

As Steve mentioned earlier, our missiles business saw another quarter of double-digit growth with our missile radar and electronic warfare programs combined now representing 39% of year-to-date defense revenues and more than 21% of total DCO revenue. It's a strong franchise with great platforms to drive significant upside for Ducommun in 2027 and beyond as the framework agreements start converting into orders on these missile platforms vital to the country's defense.

Overall, Q3 was a strong revenue quarter for us, even with the pull forward of production and related revenue from the second half into the first half of the year and level-loaded activity at our factories. We posted total gross profit of $65.6 million or 28.9% of revenue for the quarter versus $59 million or 27.5% of revenue in the prior year period. The record gross margin was driven by an improved mix of our Engineered Products business, realization of our planned synergies from the facility consolidation program, which are now at their full run rate as well as the benefit of higher manufacturing volume.

Operating income for the third quarter was $25.8 million or 11.4% of revenue compared to an operating loss of $75.3 million or minus 35.1% of revenue in the prior year period. Last year's operating income was negatively impacted by the onetime litigation settlement in the quarter. Adjusted operating income was $28 million or 12.3% of revenue this quarter compared to $27.2 million or 12.7% of revenue in the comparable period last year. The adjusted operating income benefited from higher volume and gross profit, offset by higher SG&A spending driven by a change in the calendarization of stock-based compensation expense during the year.

The company's net income for the third quarter of $13.9 million or $0.89 per diluted share compares to a loss in the prior year of $60.8 million or negative $4.06 per share. On an adjusted basis, the company reported net income of $18.8 million or $1.21 per diluted share compared to an adjusted net income of $18.8 million or $1.22 in Q3 2025.

Now let me turn to our segment results. Our Structural Systems segment posted revenue of $97.4 million in the third quarter of 2026 versus $89 million last year. The year-over-year change reflected $8.6 million higher revenue in our commercial aerospace business, driven by single-aisle platforms, including the 737 MAX and the A320 as well as business jets.

The military and space business within this segment was down $0.4 million on a year-over-year basis with production lower in military rotorcraft and ground vehicles, partially offset by growth in missiles and fixed-wing aircraft. Structural Systems operating income for the quarter was $11.9 million or 12.3% of revenue compared to $12.2 million or 13.7% of revenue for the prior year quarter.

Excluding restructuring charges and other adjustments in both years, the segment operating margin was 14.2% in Q3 2026 versus 16.4% in Q3 2025. The decrease in year-over-year margin was primarily due to product mix and other manufacturing costs. Our Electronic Systems segment posted revenue of $130 million in the third quarter of 2026 versus $125 million in the prior year period, an increase of 3%. The year-over-year change reflected $12 million growth in commercial aerospace, primarily in Boeing and Airbus platforms.

Military and space applications declined in the quarter by $9 million with lower production on radars and other miscellaneous platforms. Our Industrial business also grew $0.8 million during Q3 due to timing of production orders. Electronic Systems operating income for the third quarter was $28.7 million or 22.2% of revenue versus $23.3 million or 18.6% of revenue in the prior year period.

Excluding restructuring charges and other adjustments in both years, the segment operating margin was 22.5% in Q3 2026 versus 18.9% in Q3 2025. The year-over-year increase was driven by higher manufacturing volume and our value-based pricing approach.

Turning now to liquidity and capital resources. In Q3 2026, we generated $32.7 million in cash flow from operating activities compared to $18.1 million in Q3 of last year. Our strong cash generation was driven by higher net income, partially offset by higher working capital during the quarter. Year-to-date cash flow from operating activities is $77.5 million and year-to-date free cash flow was $65.2 million, representing year-to-date free cash flow conversion of 134% of adjusted net income.

In Q4 of last year, the company amended its credit agreement, which now includes a $200 million term loan and a $450 million revolver. The new $650 million facility lowers our cost of capital and gives us incremental capacity to execute on our acquisition strategy. As of the end of the third quarter, we have available liquidity of $434 million, comprising of the unutilized portion of our revolver and cash on hand.

Interest expense in Q3 was $3.1 million compared to $2.9 million in Q3 of 2025. The year-over-year increase in interest cost was primarily due to higher debt balances, offset by lower interest rates on our debt due to more favorable terms in our new credit agreement. Also, as a reminder, in November 2021, we put in place an interest rate hedge that went into effect for a 7-year period starting January 2024 and pegs the 1-month term SOFR at 170 basis points for $150 million of our debt.

The hedge is still in place and will continue to drive significant interest cost savings for the rest of 2026 and beyond. To conclude the financial review, I would like to say that the third quarter results continue to affirm that our Vision 2027 strategy is working, and we are not only on track to achieve those targets, but well positioned to deliver on our new Vision 2032 strategy as well. I'll now turn it back to Steve for his closing remarks.

Okay. Thanks, Suman. Just in closing, just a few things. First, Q3 was another record quarter for DCO. And frankly, I could not be happier. This year, we achieved record revenues, record EBITDA margins, record bookings and strong cash generation. The strong book-to-bill will also be a tailwind for us going into 2027. It was also our 6 consecutive quarters of revenue over $200 million and gross margins and adjusted EBITDA margins were 28.9% and 17.5%, respectively, and ahead of schedule to meet our Vision 2027 goals. In addition, the company's engineered product revenues were up 24% in Q3 as we drive higher OEM and aftermarket products through the P&L. As everyone knows, driving this percentage as high as possible is our #1 strategic focus with 100% commitment.

Finally, let me again go back to the beginning of my remarks, and thank you all again for your strong support for the Vision 2032. It means a lot to us at Ducommun. We all look forward to a great future for our company and shareholders with the finishing of Vision 2027 and the launching of Vision 2032 in January 2028. I'm excited for the future of Ducommun over the next 6-plus years, and I'm proud to be leading this company as we drive DCO to new heights. Okay.

With that, now let's go to questions. Thank you for listening.

[Operator Instructions] Our first question comes from the line of John Godyn with Citi.

Maybe a good place to start is just talking a bit about the outlook for missiles at large. And Steve, it's not about reading the tea leaves on politics. Obviously, the market is sort of saying that it's concerned about the defense outlook. I'm more curious, you guys are a principal supplier into the missile supply chain. You're not necessarily having the same kind of conversations with the government and contracting that the primes have. How do you protect yourself? How do you look at a situation like this to make sure that you're kind of insulated from any potential policy changes in the future and just position the company to really kind of benefit from this runway. Any general thoughts would be helpful.

Yes. Great. Great, John. Good to be with you. Thank you. So look, first of all, like I mentioned in my remarks about titanium earlier in commercial aerospace, same thing goes for defense electronics. We're really sort of very niche-oriented. A lot of things that we do for these missile programs, we've been doing for a long time. A lot of things are sole-sourced. Now they might be not fully sole sourced because of the volumes, for instance, on like a Tomahawk, where you go from 80 a year to 1,250, right? So I feel very good about our situation. Again, it all goes back to our strategy. It all goes back to our manufacturing know-how. It all goes back to our trade secrets that we use to insulate us.

So these missile programs, this is my view, certainly are needed. Certainly, in the next few years, I think regardless of politics and everything else, there needs to be this replenishment. I see lots of great things with FMS as well, certainly for the PAC-3 and some others. So our manufacturing strategy fits into this whole sort of niche and insulated from maybe some other things that are going to happen. So it's a good question, and we feel very good about our position.

One minor thing to add there is the fact that we also are not looking to spend a significant amount of CapEx. So the risk to our company and our shareholders is limited. It's not like we're going to put in a lot of money and then the orders don't come in, right? So unlike others who may have to put in significant amount to build new factories and production capability, for us, it's a mix of existing capacity and nominal expansion at existing facilities that will support the higher volume. So we are more flexible in flexing up and down depending on where the volume comes in.

Yes, John, for us, it's more about manpower and training, maybe a few machines, that type of thing, retrofit building a little bit, but nothing -- we're not doing anything that we get nervous about.

Got it. Very helpful. And if I think back to the Investor Day, capital allocation, M&A was a big topic. From some of the other companies today that have printed SMid-cap companies in A&D, we've heard of an M&A landscape that is very active in breadth and depth. I'm curious how you would characterize it and maybe kind of revisit some of the thoughts from the Investor Day.

Do you want to take that?

I would agree. We are seeing a number of opportunities come to market here over the past few, I would say, last couple of months and even in the past few weeks. I would agree with that characterization. We are actively working and analyzing and working through a number of different opportunities. We're encouraged.

Our next question comes from the line of Ken Herbert with RBC Capital Markets.

Maybe just to start, I wanted to see if we could drill down a little bit on the defense sales in the quarter. It sounds like there was some timing, obviously, the bookings were really strong. Can you flesh out anything structurally changed in how you view some of the programs you're on or some of the outlook for defense, in particular, on the non-missile piece of the business, as I know in the press release, you called out some timing around some of the more ground systems or combat-related markets.

Ken, great question. The slowdown in the current quarter was really due to both timing of orders and production. We did telegraph earlier that we had pulled in demand into the first half, mainly production into the first half. And so that was part of it and also the timing of orders, where on ground vehicles, on even some of the radars, it was timing of orders. If you look at our remaining performance obligations or backlog for radar, it's at an all-time high. It's up $135 million over previous quarter. That's the extent to which our radar business's RPO has increased, even though in the quarter, revenue was down.

So we do view this as temporary. We expect growth to come back in 2027. I think the back half of this year was expected to be softer versus the front half of the year. It was telegraphed as such and it's panning out as we had somewhat expected.

Let me just jump here, Ken. So yes, just ground vehicles, a few other things. We have Nobles. We have other programs that are supporting different defense programs. Nothing -- there's no -- there's one thing I might say is a couple of things. There's no one major program. So one of the great things that we have here is diversification along the defense line. So we have lots of different things. I do want to also mention that just because we brought up the bookings is that -- and I mentioned in my remarks, this radar thing is a big deal for us. And I know for several years, I was talking about these moving work out of OEM plants and putting them into Tulsa and other places.

And it was how painful, but how it was finally going to pay off. And I'm very happy to see that this SPY-6 after many years and lots of hard work is going to pay off for shareholders big time. So I do want to mention that as well. So I feel great about where we are. It's just timing a little bit. The order book is really good.

And Steve made the point earlier about our book-to-bill for defense as a whole, which includes a mix of both missiles, radar and the legacy platforms. That was at 2.2x book-to-bill ratio, I mean, that really shows you the strength of the defense portfolio that we have on a combined basis.

Our next question comes from the line of Mike Crawford with B. Riley Securities.

Glad to hear that you're progressing towards getting these LTAs in place with your framework defense customers. But what about progress on finding more things for them in the offload to you guys?

Could you say it again, Mike. Absolutely. Yes. So yes, that's ongoing. Like I've said in many calls, OEMs are always nervous about moving things out of their operations because they lose control, okay? Especially the operations people. Supply chain people love it, not so much on the other side. So it's sort of a long-term trust-building situation. And I would say we're working right now with -- and this is really on the defense prime side. We're really working with Northrop now and other operations to do that. So I'll have more to say about that in future calls, but that's ongoing. But the big deal is Raytheon was the numero uno for us, and it's finally really paying off. So we're really happy.

Okay. And then just one follow-up on M&A. You did convey your intent to kind of move higher up and take a bigger bite at something. Have you been rebuffed in any of these approaches? Or any other color on that landscape?

We're continuing to evaluate a mix of opportunities, both that are slightly larger than what we have done in the past as well as smaller opportunities that are tuck-in acquisitions in line with what we've done in the past. We're not looking to do, again, to clarify something that is a huge transformative acquisition that was not how we messaged it, but we are looking to do things that are bigger than what we have looked at in the past. So we absolutely are -- have things in the pipeline and things that we are working on that cover that wider range.

And as was noted earlier, we are seeing a higher level of activity in the M&A market. So we remain hopeful about getting something done here. We've also increased the bench strength of the M&A team. And I mentioned earlier about having hired a strong Director of Corporate Development to lead the function for me. And we also have now hired another extremely capable manager-level resource to support him. So we have much more capacity to process and execute transactions than we have ever had in the company in the past.

Yes, that's a great point. Really, we're fully committed, obviously, Mike, as you know, to this, and we're building capacity both internally with our team, but also now we have the capacity to go up the ladder a bit with a larger buy. So stay tuned, Mike.

Our next question comes from the line of Michael Ciarmoli with Guggenheim Securities.

Maybe, Steve or Suman, just a really good commercial aerospace growth in the quarter here. How do we think about this rate of growth going forward? I mean you're going to have obviously ramping production. You've got the destocking coming to an end. You've got the switch kicking in, and then you've got the double-digit pricing from Airbus. I mean is there any way you can help us kind of calibrate our expectations? I mean it was certainly a high watermark, I think, since pre-COVID, maybe 2019 with these aerospace revenues. But this rate of growth, does it stay into the 20s here as we think about into '27?

I think we can expect to see strong growth. I wouldn't say it stays above 20% that would probably be a bit sporty. But we are going to -- we're continuing to see the destocking wind down on the 737. We shipped at around 40 for most of our structural products. On the 737, we shipped at the rate of about 40 during the quarter, which is getting close to, I guess, a range of 42 to 47 that Boeing is producing at. So that's a good sign. Our revenue recognition was in the mid-30s. So as you think about growth in our 737 business going from mid-30s to wherever you view 2027 MAX production to be, right, somewhere in the low to mid-40s. So that's what you would expect.

Yes. I think 20-plus a bit sporty. But Mike, what I'll tell you, though, in February, we'll have a much better view because we'll have everything sort of locked in by then, okay? But I think it's going to be good. Maybe not 20-plus, but it's going to be good.

[Operator Instructions] Our next question comes from the line of Hrishi Kumbhojkar with Guggenheim Securities.

I think Mike already...

Might have been a duplicate. Didn't close that line.

Mike from Guggenheim already...

We already have that.

This concludes the question-and-answer session. I would now like to turn it back to Steve Oswald for closing remarks.

Okay. I want to thank everybody. I really appreciate you listening. I also appreciate the questions. We'll continue to work together as we move forward. I want to make sure everybody has a real good understanding about where we are and where we're going. I think we had a great Investor Day. Again, thank you for the support of that. I do again want to come back to the defense situation and make sure I reiterate that we have a lot of insulation around some of the other things that might be happening. We have a lot of diversification in our defense portfolio.

So I think that's going to be great for us going forward. And the numbers speak for themselves being at 2.2x book-to-bill. That's, I think, a wonderful job by our team and also a statement by the industry that they have a lot of trust in DCO and that we're going to deliver for them. So on that note, I'll thank you again for listening, and have a great rest of the day.

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

Good morning, everyone. Welcome to Ducommun's Investor Day, both all of you here in person as well as an even larger number of people who are joining us remotely today. I am Suman Mookerji, Chief Financial Officer of the company. And with us today, we have Steve Oswald, Chairman, President and Chief Executive Officer; Jerry Redondo, Senior Vice President, Electrical and Structural Systems; and Clay Bringhurst, Vice President, Engineered Products.

To get us started here with the fun stuff, the forward-looking statements and disclosures. Certain statements we make 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 and Vision 2032 game plans for investors are forward-looking statements under the Private Securities Litigation Reform Act of 1995. 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 statements.

Please refer to our annual report on Form 10-K/A, quarterly reports on Form 10-Q and other reports filed with the SEC for a discussion of the particular risks facing the company. Statements made in today's presentation are only as of the time made, or as otherwise specified. We do not intend to update any statements made in the presentation, except if and as required by regulatory authorities. Today's presentation also includes non-GAAP financial measures. Please refer to the appendix at the end of the presentation for a reconciliation of non-GAAP measures to their GAAP counterparts.

With that out of the way, I will pass it on to Steve Oswald. Steve?

Okay. Thank you, Suman. Again, we welcome everybody for our Investor Day. Very much appreciate everybody that came here in person and those online as well. I want to thank you. It's a very important day for us, for our company, for our shareholders. We don't do this very often. Does anybody know how many days it's been since our last Investor Day? You get a price. Over 1,000 or under 1,000. Good job. Okay. You get some kind of price. Okay. 1,379 days since we last spoke about Ducommun in our Investor Day.

So I want to -- I did actually had somebody help me with the math. I'm just kidding, but help me with the math on that, yesterday because I think it's an important metric or important number, because we don't get together that often for these type of things. So again, a very important day. I want to welcome everyone. We're going to be very efficient, okay? We've got quite a few slides and stories to get through. So if you hang in there with us, we're going to do our best for you and make sure it's interesting and compelling.

Okay. Just for the agenda, I'm going to give an update on the Vision 2027. This is something you all know about. You're probably sit and hear me talk about it, but you're going to hear it a little bit longer. Then what you're waiting for the Vision 2032 plan. So I look forward to presenting that and I hope that you're excited as we are.

Then Jerry and Clay are going to go over both the structural and electronic systems product lines. I think they'll be interesting. And then Suman will talk about M&A. M&A is a big part of who we are and will continue to be. So we look forward to those remarks, financial performance by Suman, and then I will close, and then we're going to have plenty of time for Q&A. So let's go.

Okay. First, for those that don't know or not that familiar with our story, we're the oldest company in California still active today. So that's kind of cool, right? So we founded in 1849. Ducommun is a family name, Charles L. Ducommun, walked across the United States. It took them 9 months to get from the East Coast to the West Coast, almost starved to death, but made it, got out to the Pueblo of Los Angeles and was a watch maker, looked around and said, I'm going to starve if I keep going with these watches.

So basically turned to picks and axes and then got into the general store business for a long time. I guess one other thing just to start off. So there's a very important 100th anniversary next year in aviation. Okay. Does anybody know what that is? -- with all these smart people here live. I think someone knows, right? No. Okay. All right. So next year is the 100th anniversary of the Spirit of St. Louis and the flight by Charles Lindbergh.

And the reason I bring that up is that Ducommun actually supplied the tubular steel for -- and aluminum for that plane. And people don't realize that plane was actually built in San Diego by Claude Ryan, the old Ryanair. So we're going to celebrate that next year. Hopefully, you can celebrate with us. We're really proud of those kind of things, and we'll keep going from there. So a little bit of background on the company, which we like now. Just real quick on the Vision 2027. I'm happy to report that pretty much we're on target.

For those getting used to our story, these numbers are the numbers we presented back in December 2022, okay? So these numbers -- these goals have not changed, okay? These goals are the same goals. We put them out there. The team has worked extremely hard. And I'm happy to report that as we stand here today and looking to next year that we will meet our revenue on the left, which is a nice job with all the drama we have with Boeing in 2023 and 2024 and some other things.

The adjusted EBITDA margins, we signed up for 500 basis point improvement we're going to deliver. So that's, I think, a very nice job. And then Engineered Products, which we're going to talk a lot about today. We also are committed to having that roughly 25% of our revenue by the end of next year, and that also is on track.

So just a little bit of that. We will report on Vision 2027 next year. It's not going to be like, okay, we had the investor meeting. We're on to 2032. Let's forget about it, the usual corporate stuff. That's -- we're not usual corporate people, okay? We're committed. We will make sure we report on it next year and meet our commitments at the end of 2027. So thank you for that. Okay. So when you set goals and you work hard, right, and you have success, and all your people are engaged and you have good products and customers love what you're doing, this is what happens, okay? So this is a little bit -- you can see the journey for our Vision 2027.

And over the last 2 years, we have magnificent increase in our stock performance. This is a tribute to my team and also our loyal shareholders getting behind our story. You can see the TSR since the end of 2022 is 243%. The market cap has gone way up and also our average daily traded volume has gone up as well. So we've, I think, really set things up nicely the last 4 or 5 years coming out of COVID, coming out of these terrible MAX crashes. And I think now just aside, reflecting on today, I mean, we -- it could be a better time for Ducommun and have an Investor Day, right?

So it's -- obviously, we're proud of what we do, but also it's going to be a little lucky. I mean this is a great time to talk about Ducommun and our markets, and we'll tell you why. Revenue growth, I'm not going to get into this too much. This is 2027. I know you're here for the next phase here, but had great growth in missiles, radar. Commercial aerospace, I'm happy to report is really coming back, as you know. I was just up at Boeing with the folks a couple of weeks ago for the 737 MAX line and super impressed. Kelly and everybody is doing a great job up there. So thanks to them. And we've got a lot of organic growth in Engineered Products, which we'll talk about.

How do we get there on the adjusted EBITDA margins, 500 basis points? Well, first and foremost, it's the change in our revenue mix going more to engineered products and aftermarket. That is critical. That's -- when I first came in, that was the #1 goal, okay, is to make sure we change our mix and we build our aftermarket and we build sole-source engineered products, okay? Numero Uno, okay? And that's what we've been driving towards as well as making sure to the right there, we're getting all the value we can and the value of the pricing for contract manufacturing.

And then also, we're doing some smart things, I think, on restructuring, and we've done some of that as well for footprint consolidation. Here's the Engineered Products growth, just to look under the hood a bit here. So in 2022, we're $110 million. Next year, we're going to be $250 million. And I just want to point out that over $100 million of that is organic growth. So let me just say that again, over $100 million of that is organic growth. So that's our engineering teams getting stronger. Our engineering teams getting broader, putting out new products that customers need and want, okay? So it's not just acquisitions. I mean, acquisitions are important. It will be an important part of our story going forward. So stay tuned for that. But a lot of this is on the right there, all the things we've done to build organic growth in Engineered Products. So we're thrilled with it.

You're going to see this chart a lot. This is our sort of engineered product portfolio. You've seen some of this this morning. Left to right, you can see all the different businesses. We've done 5 acquisitions since I started in 2017 and they're noted there. You can see them. And at the bottom there, when I came in, in 2017, we're 9% Engineered Products, 6% aftermarket. And you see where we are today. And I think we're in great shape for 2027 target.

So overall, I think an excellent report card, and we're going forward. Okay. Vision 2032 plan. So let's get into it. A lot of you have seen this chart. Let me just get baseline for those that are getting -- are new to the story. From left to right at the top, you can see our revenue, LTM, our margins and also very important, our RPOs. We're very proud of our order book. The RPO has gone considerably up in the last year or so. So customers, we always say speak with orders, right? So customers speak with orders. And so we really like that saying. And you can see we're 58% military. That's probably going to stay for a while just because of our missile, radar and other products that we produce, but that's going to modulate probably a little bit in the next 3 or 4 years.

You can see the mix of commercial at the bottom here. For the commercial aerospace business, we're sort of narrow-bodies or us. We like narrow-bodies. We do have some significant content on the 787 as well, but we're primarily focusing on narrow bodies and some other things like business jets. On the right are all the products we're on. I'm not going to go through those because Jerry and Clay are going to get into that, but you can just see the pictorial there. The range of our customers, and we're mainly a Tier 1 though we do a lot in Tier 2, which we'll also highlight in the next few slides.

Okay, our segments. So this is how we go reporting for our segments. Again, for those new to the story, left to right, we have Electronic Systems and Structural Systems. You can see the revenue for both. You can see the adjusted EBITDA margins. The products that are on the slide there, the highlighted products in yellow are Engineered Products. And then obviously, we do a lot for customers in contract manufacturing, where -- let me just point out again, we have a lot of IP in our processes.

We have trade secrets. We have things that we've been doing for decades, okay, which we're really proud of. And we always like to think about, okay, what kind of moat are we building around our contract manufacturing, okay? We know that Engineered Products. We have a considerable moat. We have considerable strength for market, for competitors. And we're always trying to build around our contract manufacturing to make them stronger with better pricing power, and we'll talk more about that. You can see our key customers, both at the bottom for both Electronics and Structural Systems. So that's a little bit on our segments. Okay. Here's a good-looking group, right? So this is -- I think this is important to show. First of all, I want to obviously show our leadership, but also just get your understanding of how we work in Ducommun, okay?

We're very lean, but we like it that way, okay? I think when I came in, in 2017, Ducommun had like 16 Vice Presidents, okay? That's a true story. I said what all these people do it all day. And so that changed quickly. So we really just have myself. We have my 5 direct reports, and then we have the performance centers, and we'll talk about those, and those are the people that are making the products and driving the teams each day.

So proud of this team. It took me 6 years to get this in place, but we have an excellent team, and I thank them for all their support. We talked about this just previously about a Tier 1 supplier. So we like Tier 1 because we're talking to customers, we're talking to RTX. We're talking to Lockheed, we're talking to Northrop. So we get a lot of information on markets on how to get better at our business and actually add more value for them. But also we do a lot of Tier 2, which is fine as well. Tier 2 is also a very good place to be in aerospace. So that's just a little bit there. Again, you'll see this chart again and again, but this is one of our favorite charts.

Again, this is just the engineered products. Engineered Products now, as you know, is a little less than 25% of our business. And shortly, I'll tell you where we're going to take it. So that's a little bit there. On our manufacturing services, we'll talk more about this, and Jerry and Clay will help as well. From left to right, the takeaway from this chart is that we're only going to be involved in sort of manufacturing services where it's really hard to do, okay? We only want to be in businesses where it's just really difficult to make these things, okay?

Because that's where you're going to develop your manufacturing IP. That's where you're going to build your moat. That's where you're going to have some pricing power. That's where you're going to have less competition because it's either too hard or there's just too many things or people look at it and they say, "You know what, let Ducommun do that". And a good example is titanium hot form and superplastic forming. I mean we're the only ones. We're the top supplier outside of Toulouse that does this product.

And there's other small players, but we're #1 in the world outside the OEM, Airbus. So that's a good example. Circuit cards, we'll talk about that interconnects, stretch form, we do a great job. VersaCore's are Composites. So I'm very happy with where we are with our contract manufacturing and our manufacturing services IP. So all good stuff for investors. Okay. So here's our plan. All right. So we're going to get into this a little bit. I'll spend a little more time. So no secret here. The first bullet is we're going to double down on Engineered Products and aftermarket revenue organically.

So we have stronger and stronger engineering teams, bigger platforms. We're getting better every day. These things take time. But I told you about organic growth over the last 4 or 5 years has been over $100 million. So that's not going to change. One of the big changes here is the acquisition side. So we're going to basically -- we've kind of always been a $75 million, $100 million, $125 million player in acquisitions. Maybe if we had to, we had -- we could go to $150 million.

But that's all we could have done in the past. But I'm happy to report because of our growth in EBITDA, because of our stock price, because of all the things that we've done together that now we're going to be able to look at a $300 million deal. Now we're going to be able to look at a $500 million deal, okay? So we've never done that. That's the most -- that's a big takeaway, okay? I mean this is fantastic news. I mean we've -- I can't tell you how many times we told the banker, you know what, we love it, but we got to pass. And we did that in the past because we just couldn't afford it, all right? So this time, we're going to really step it up.

It's all because of the Vision 2027. It's all because of the success of our team, where the market is today in aerospace, defense. So be looking for us to really increase our view of what's possible for Ducommun up to a $500 million deal, which we can now do. We talked about the defense revenue. I mean, I was just talking to Ken earlier. I mean sometimes it's good to be good and sometimes it's good to be lucky, and we're kind of both, all right? So be in this place right now with the industry where it is, I'm just going to also mention this is late-breaking news is that our radar business was always just an okay business.

Now it's really come on. I've talked about this SPY-6 forever on the calls. I'm sure you guys are sticking hearing about it. But just yesterday, I'm happy to report we got a $72 million order from Raytheon for SPY-6. $72 million. That's only 2 circuit cards. Just think about that. 2 circuit cards, $72 million. We got the order yesterday. It's now in our backlog, so I can officially discuss it. And the other radar news that we got just a few weeks ago, you guys familiar with the Wedgetail, the E-7, the E-7 Wedgetail, which has been a lot of drama in Washington, whether they're going to fund it or not, they finally going to fund V. We just got an order a few weeks ago on the MESA radar system for over $53 million for the first 5 units. So credit to Jerry and his team for doing that. Thank you, Jerry, and really delivering.

So we have this amazing missile business. We'll talk more about that. But this radar business as well, just from a lot of hard work in the last few years is exploding. Okay. Number four, commercial aerospace production ramp. We all know that's going to happen. Kelly is now in Boeing. Airbus is going to do their thing. The most important thing for investors is that it's going to require very little capital. So we don't get to build a new factory, do a greenfield, spend your money on things that maybe we don't really want to. We don't want to do that. So that's going to be terrific for the financials.

Strategic pricing, repricing and just -- that's something we live and breathe every day. I will tell you that our Airbus contract is up at the end of this year. So we're repricing with Airbus. So that's news -- and so more to come there. We're engagement with them right now, but that contract ends in December. And we're highly engaged with Airbus, and we'll have more to report out on the quarterly call.

So repricing, strategic pricing, engineered products, build the moat, all the things that we need to do, and that's you want us to be doing. Finally, on the last one, we're -- even though we're still lean, we are going to add talent, top talent to the organization, we have to with these numbers going up, right? So we're going to have to have some more talented executives. I always believe in the Jack Welch rule is it's people first, strategy second. So people first, then strategy, not the other way around. So that's going to happen. Goals on the right. We're thrilled with this revenue goal.

We hope you are as well. We generally have always been about a mid-single revenue player year-over-year. Now we're really stepping up. And this is the CAGR. This isn't just 1 year. So we're thrilled with that. We're going to sign it for 600 basis points of EBITDA. We're not going to hedge it. We're not going to do 400 to 600, and we're going to kind of have an opportunity to kind of, we're going to go for 600, okay? Remember, in 2022, we said 500. We didn't say 300 to 500. That's not who we are, okay? We basically said this is what we're going to do, and this is where we're heading.

Our EP mix is going to be 40%. I'd like to see it a little bit higher. We'll have to see. I mean, 5 years is a long time, 5, 6 years is a long time. So -- but that's the floor. And then aftermarket at 20%. All right. So that's -- we'll talk more about, but that's kind of the headline right there. Okay. How are we going to -- the road map now on Engineered Products. We're going to have the new product pipeline. I told you about organically, how we're going to do that with new content, moving to adjacencies, the volume growth. We've seen good growth across our businesses, and we talk about pricing. So it's basically new products, ride the volume and making sure we get paid for our value. That's the goal for the 40% and 20%.

Now the acquisition piece I talked about, we're going to step it up here. This -- again, this is something that's brand new, especially for new investors. This is something that we could never do. I've been at Ducommun almost 10 years now. It was not happening. But now it's going to happen, okay? So we're excited. And we love big deals. We just couldn't do them before. So we'll do the step change deal. We'll continue with the tuck-ins and we're going to get to this 40%, and we're excited to deliver for you.

Okay. So that's a little bit on EP, a little bit on M&A. We know about the defense spending. This is sort of where we think it's going here. So I know you're all clued in on this, so we don't need to spend a lot of time on this. But this is an important chart here. This is the missile and weapons part broken down just for Department of War budget, what we see for the next 6 years, including 2027. And you can see the missile and weapon numbers is really big. And on the right is all the programs that we're on. And just so you know, we -- all our revenue, everything to date does not have any of the 7-year deals in it. So that's all coming forward for investors, all coming forward for Ducommun. We'll make sure you all know that. And we're waiting for major orders, especially on the Tomahawk. We think that's imminent. Now that Raytheon has their $22 billion order for Tomahawk. We know about standard missiles. We know about AMRAAM. PAC-3 is just -- I was just again talking to Ken earlier. I think the 3x of the PAC-3 is going to be higher. We're major players on the PAC-3. We're the sort of go-to person for circuit cards for Lockheed on PAC-3 in our Tulsa facility. And I think that's going to be going to go higher. I mean I think interceptors are going to be even more demand in the next few years. So stay tuned on that. But this is a great chart for us. Again, this is a great day to have an investor meeting with all that's in front of us.

We hope you're excited, we are, too. You can see on the left here just the many products that we support. You can see the Radar, the SPY-6 and the MESA. So I mean, that's -- I mean, our SPY-6, Jerry is tell me this morning, it's over $100 million, right? $107 million in our back, thank you. Jerry is ran on that. Good job. And you can see -- so that's a new piece for investors. I've been talking about it for a while, but it's really starting to come home now as well as the missile is just off the charts.

And you can see on the right here, our franchise, we expect mid-teen CAGR through 2032, which is a big number. It's a big number. So we're very excited. We hope you are as well. And also, let me just say about the new defense. We -- on the left here, you can see all the things we're doing here. Missiles and radars. We're in the Navy, do good work for the Navy. The war fight is there as well, hypersonics and the counter UAS. We're also starting to work with Anduril. So Anduril is actually our neighbor. Anduril is also -- they're lucky they get to work in Orange County, California, too, like me. So they're out there in the sun and so am I. And I'm also very happy that we have a better and better relationship now with AeroVironment AV with Wahid. Wahid and I have developed a good relationship, and we're really working hard with AeroVironment to help them with their products and obviously, Kratos and a few others.

So we are not only the legacy thing, which is going to be there for a long, long time, so we're excited about that. We're also working with these new players. It's a little tricky because the new players, if Lockheed is going 50 miles an hour, the new players are going 150 miles an hour. I mean, just the way it is. So -- but we're small enough and we're lean enough that we can keep up. So we're excited about that. We know about commercial aerospace. It's all great for Ducommun. We're going to get to 63. The guys will talk about that later as far as picking up content on lots of things.

So we're excited about that. We make skins. We make different things now for the MAX. We never made skins for the MAX before. I mean this is like really big business. And when Boeing, Wichita looks at their business and they're going to go to 63 fuselages a month. I mean, to capitalize that and to hire all those people to get to 63, they're going to take twice. And I know that. So they're going to look for us to maybe pick up 15 or 20 skins. And maybe we just made 4 skins now, and there's over 40 on the fuselage of the MAX, but we think we're getting a lot more share.

And these are things just that are coming our way, right? So it's all just baked in the cake as they say. So lots of good things there. Airbus will do their thing, and we will get the repricing done. I'm fully confident with Airbus in the next month or 2. Okay. The guys will get into this. This is just sort of the key commercial platforms we're on. You can see the shipset numbers below. Again, this presentation will be on our website this afternoon, as standard with us. It will stay on our website. It will not change. Just like in 2022, we put the presentation on the website, and it stayed there, okay?

This is our commitment. This is who we are and transparency, 1,000%. So we'll talk more about that. Okay. I'm going to wrap up here and turn it over, but I do want to just kind of go again over the Vision 2032. So no surprise here on the double down organically for EP and aftermarket revenues. This is something we really couldn't talk about in 2022 because we didn't really have any scale. And we really didn't really have much scale. We had -- we did okay. But now after 3 or 4 years, building out the teams, getting better talent, new products, knowing what we're doing, I mean, this is going to be a home run for investors. This acquisition size is a big deal, okay?

Again, I'm just being honest with you, we never thought we could ever do a $500 million deal. I wish -- and I wish, but that was just not in the cards and now it is. So that's a huge thing for us. $300 million, $500 million, that's wonderful. I talked to you about defense, the guys will get into it more. Commercial aerospace, only one way but up. Again, just count on us for the pricing, count on us to sell value.

Look, we -- when I came into Ducommun in 2017, the thinking was it's all about just the size of the order. It wasn't about what you were going to make. It was just like, "Oh, we got a $50 million order, we got to win this thing." Our life is over, if we don't win this, right, okay?

And the answer to that is no, it's not, okay? If we're going to sign up to take this kind of order, okay, we have to get paid. We have to get paid for our effort and paid for our value. And that's totally been changed. okay, over the last 7, 8, 9 years. And that's a great thing for investors. And I'm going to tell you this, we're fair with the customer. If the customer can get a better deal and go down the road and we can't match the value, "Hey, we'll work on something else -- we work on something else, nothing personal." We'll always support the customer, don't get me wrong, we won't fight the whole thing, but it's just -- that's kind of how we operate. Obviously, the talent, you see the goals here, okay? So you guys will see that more. And okay, I'm a little bit early, which is good because I want to keep the efficient here. Now I'd like to introduce Jerry and Clay, and they're going to walk you through some of our wonderful products.

Thank you Steve. Okay. Hello again. Clay and I are going to give you a little more color and background behind our structures and our electronics. And we'll talk about who we are today, what our focus is. And then most importantly, what's the trajectory? What are we looking at? What are the key things that we're focused on going forward. Structural Systems. So highlight here our key products. And again, this is a mix of engineered products and contract manufacturing, and we'll talk more about each of those, but contract manufacturing from our presence, these are highly proprietary processes. It's niche processes. It's the most complex products within these arenas and where we have positioning, leverage, pricing power and some exclusivity with the competition.

Nacelles, fuselage panels, firewall exhaust, forming, hot forming, superplastic forming, flight control surface assemblies, metal bond composite, right? An example of that is the Boeing spoilers, the 12 shipsets that we referenced earlier. Pylon auxiliary power units, rotary blades. The example here is the Apache tail rotor blade. So we're on 100% work share on the Apache tail rotor blade. We've had that for many years. We do that out of our New York facility. Missile assemblies, a large array of products, significant, and we'll talk about that more, but electronics and structures as well.

Structures example is a toll missile case, quite an array of electronics that go across the missile platforms. And then MagSeal, extruded thermoplastics, the aerostructures that Clay shared earlier, key engineered products that we'll give you more color on. So looking at the structures, kind of the highlight on the top, you look at -- the key point here is world leader in titanium, right? Titanium for us are the aerostructures on the commercial platforms as well as key defense programs.

Proprietary process internally. We're 1 of 3 in the world. We're openly regarded by our customers as a world leader in this arena. We have the greatest capability, the greatest depth, the greatest capacity. And so we have that leverage. We have that pricing power. We've been regarded for our world-class performance with awards and most importantly, continued awards and pricing power with that. We're well positioned across the commercial platforms. As Steve shared, the single-aisle, A320, the MAX, strongly positioned there, A220. And then defense, we said robust defense and growing. So we'll talk about the key programs, our focus there, but we're heavily weighted.

Our growth trajectory, along with the commercial growth recovery is on defense. And then we do that through 8 scalable performance centers. And we highlight the term scalable and -- we're very well capitalized today. So if you go back several years, the steps we've taken to prepare for the rate ramps on the commercial side, what we've expected in the market on defense has grown significantly beyond that. But we've equipped ourselves to do that. We'll look at what that CapEx investment looks like going forward, but it's very minimal in contrast to the growth and to the synergies that we're going to gain from that.

And then the VersaCore proprietary process, a process within Ducommun. We acquired that many years ago. And at the time, there was a high-tech product called a surfboard, right, in California. And this product process was used to produce surfboard. So we took that process and we industrialized it and we put some engineering to Capstone on top of that, and now we produce aerospace products. Key product is the -- one of the key products is the blocker doors that go into the GE LEAP-1A engine for the A320. So we're 100% work share. There's 10 blocker doors around the circumference that pivot and manage the controls of the thrust reverser.

And then we have fairings and panels within that nacelle. So we have actually 26 assembly parts within each nacelle, 52 per shipset on the GE LEAP-1A and the A320. So key markets, as you can see, military, we weighted 34% our narrow-body, 35%. And these are, again, looking where we're at today and with the growth in the single aisle, both 37 and the A320, we expect that to grow our wide-body of big jets and then commercial aero, which is weighted on rotorcraft.

We're also focused on opportunities where we're increasing our work share, and we're increasing the scope, the part count and so more to come on that following in the near future here, but we're adding to our bill of material. A customer breakdown, you can see the weight here with Boeing, Shenyang aircraft. Again, we produce the entire fuselage for the A220, all the skins, okay? And we ship those to China. They do the interior fasteners and then it goes straight to Airbus. So several plants that produce A220 today. ST Engineering, previously known as Middle River, it's where the GE LEAP-1A product goes. As you can see, RTX, TIG, HITCO, which is a product that goes to Sikorsky. We work very closely with Sikorsky along with TIG and then all others noted.

Platforms, as we spoke to, you can see that the key programs are all noted here. So key sectors and applications. Again, commercial aircraft, military, commercial rotorcraft, our missiles, fixed wing and other and then our bizjets. As Steve shared in one of his previous slides, again, this SPF, the superplastic forming, the metal bond, the composite, both the process that was designed for that product, such as the spoilers and then the VersaCore technology metal bond process with our core, that's proprietary that's under our IP.

And then as Clay shared earlier and shared more, our excluded thermoplastics, which is a highly proprietary process for very specialized high-requirement plastics, and that's been one of our acquisitions that's been very successful. Military, rotorcraft, commercial, again, titanium exhaust ducts, example, CH-53K. We have the exhaust ducts, and that's a complex assembly, titanium and hard metals that we produce in our Coxsackie, New York site. And then we also have the inlet ducts as well, which is a mix of metal and composite that we produce.

Metal blond blades, just a wide array of titanium products and then the ammunition handling and then the FastFin, which Clay will share more about. Missiles, okay? Missiles is a significant growth trajectory for us today, significant backlog, and we're the incumbent in all the programs that we'll be looking at here that Steve has shared. Dorsalfins from the structure side, we build the SM2 dorsalfins. Initially, that was an opportunity for us. There was a customer design. We looked at that design. We had a -- we felt a better solution to that design. So we designed that dorsalfin product, collaborating with Raytheon, it's obviously their IP, their formal design, their release, but we produce those as the incumbent. And just an example of where we integrate with our customers on the design side puts us in a strong position as the incumbent and for the legacy demand going forward. And then the bizjets, again, superplastic forming, stretch forming and then the winglets and propellers, again, part of our engineered products.

I'll jump in here, Jerry. As Steve pointed out, you're going to see this slide again and again and again and again, we'll say it two more times here. Within structures, I just want to talk about some of the engineered products portfolio that we have here. We're going to dive deep into each of these. But this is our playbook. This has worked really well for us with each of these businesses, proprietary design sole-source positioning, aftermarket content, that's how we win in these businesses.

We have pricing power. And good news is also as we're continuing to develop new products, internal research and development as our new products hit the fleets and as we service them in the aftermarket, we're always looking to invest to make sure that we are on the cutting edge of product. Go to the next slide, Jerry. All right. Magnetic seals. We love magnetic seals. Once you're spec-ed in, designed in, you're there to stay. We've been doing magnetic seals since 1954. We are the leading designer of magnetic seals.

If you flew here on a 737 or a 320, 321, you were flying with magnetic seals. We're proud of what we do. Anything that really spins, you're going to find magnetic seals in. Those who were here for the product showcase, we showed you several different designs of those, great business for us. We've grown that business 3x since acquisition. And some of that is just through restructuring some of our channel partner deals. We go direct now to OEMs. We go direct to DLA, which now we have control of that in the past. They used other channel partners to do that. And it's helped us tremendously. On the right side, here on the slide, ammunition handling system, Nobles Worldwide, near and dear to my heart, that's how I came to be part of Ducommun.

Nobles was established in 1948, and it is the center of the universe when it comes to ammunition handling systems. When we were acquired, we were just mainly dealing with components. We were dealing with shoots, e-jects, some boxes. But the strategy was we were going to go more of an engineered product, meaning we are going to design systems of systems. Anywhere the ammunition was stored, we were going to take it to the gun, and that's been very successful for us. We've grown our content 2 to 3x on the ammunition side. Again, we do have the subject matter expertise in engineering.

We've got a great team out in St. Croix Falls, Wisconsin. And I do want to reiterate, we are the center of the universe. We were just awarded a contract through Rheinmetall Italia, which is a business that usually would work through Germany for their shoots, and now we're providing those shoots in for a new system that they've been fielding for quite some time. So we're also displacing others.

Talk a little bit about next generation, what's coming next, 50-millimeter, the XM30, some of you may have heard that program from you're Intune of Defense. It's the Bradley replacement. I've been part of the Bradley replacement for 20 years, and my fingers are crossed that we're finally to the point that we are going to replace the Bradley. And we're awfully close. The down select for the XM30 started years ago, and we're to the point next year where they will choose between RAM Missile America and General Dynamics Land Systems. I'm happy to say, proud to say that we are on both teams.

So well positioned for that down select and looking forward to supporting the war fighter. That program will grow our business tremendously. Just the XM30, truly nearly exponential growth when this thing is in full rate production, and we're servicing it in the aftermarket. Another component with 50-millimeter speaking directly about the 50-millimeter new program, Cannon-based air defense, again, those who weren't here for the product showcase speaking a bit about drone defense, drone defeat.

We talk a lot about missiles, shooting high-dollar missiles at drones, cheap drones. We talk about shooting lasers. Lasers are not -- they don't operate in all environments. So at the end of the day, you still need a direct fire cannon system. And we are partnered with Northrop Grumman on their Canada-based air defense system, which is part of the Golden Dome, and we are developing a hybrid system that has deep magazines. And again, that's -- we're seeing huge quantities for it, and there's demand across the globe for that specific system.

And with that, I'll turn it -- I'll go over to BLR Aerospace, aerodynamic structures, again, another business near and dear to my heart. Steve has entrusted this business to me out there in the Pacific Northwest. So I tell you right now, the weather is great, but it's not about me. So maybe we can find another business so I can somewhere else, just kidding. So main products there, FastFin. FastFin, we modify tail booms on helicopters. Bottom line is we reduce drag and increase lift. And we are -- from the factory, we are factory installed on the Bell 412. We are factory optional on the H125.

And Black Hawk, I know some of you have been tracking our progress there with the Us and Ls that are leaving the U.S. Army fleet. They're going into firefighting outfits. Those firefighting outfits need additional lift. They come to us for that additional lift. It's successful for us. And as more and more of those aircraft hit the fleet, similar to the Bell 412, I might add, from back when those were retired from the Army, we will start seeing a pickup in business there.

We have a partnership with MT Prop on the fixed wing side. We are an exclusive distributor of MT Prop for King Air. We also are the patented provider of King Air winglets. We have an STC for the 200. And we -- I'm happy to say that we just received our supplemental type certificate for the 300. So we will be servicing the aftermarket with the plan to -- with our friends at Textron, capture -- that OEM business as well. So a lot of good things going on there. I just want to touch base on one more initiative we have. Because our MT relationship is so successful, we're looking to clone that and look for other businesses where we could distribute for different businesses, mainly in Europe, aerospace businesses.

And there's an outfit out of Italy, [indiscernible] Aerospace that we've just signed an exclusive agreement with, and we will be distributing their products into the Americas. Products I'm excited about are the baskets working in STC right now, mirror systems, and they have a next-gen camera system. So good relationship, and that's just starting now, and we're looking to push that forward.

Lastly, I'll just touch from a BLR perspective, the Black Hawk. I will say that within 12 months, we will be flying on a U.S. Army Black Hawk helicopter, both the Victors and Mike models. There is challenges at altitude, and we are working directly with those units that are required to fly at altitude, and we're working on a program to integrate and test.

All right. Moving on to certified thermoplastics. Jerry touched on this as well as I did in the showcase. Highly proprietary process we use for extrusions. We compete against Pexco. We do hard things. We extrude material [ Peg, Ultim ] that are resins that are difficult to work with to keep tight tolerances, and we've got a great team out in Santa Clarita who is doing that for us. And again, most likely, if you've probably flown with some of our product on the way out here already on when you do travel. Turn it back over to Jerry.

Okay. Well, a little more color on our superplastic forming Again, we're the largest non-OEM provider of SPF and the other OEM is located in France. So you can probably figure out who that is, but we're a key customer and provider to Airbus on this as well. So again, we're on all the leading platforms, commercial. We're on defense, proprietary process, and we have significant capacity that we've made available.

We're growing with the program rates, but we're also capturing --focused on capturing new part numbers and more to come on that, but we're very close to that, not ready to announce anything yet, but we're very close to capturing additional part numbers for the leading platforms. We've invested in our technology -- we're well positioned today as shared. We spent about $40 million over the past 8, 9 years on expansion, press capacity and all the ancillary equipment. So we're well positioned today to support the growth rates and to add additional part numbers to our bill of material to our backlogs.

Aluminum stretch forming, and we shared this in the showcase, leading provider, stretch form skins, again, Steve shared, we're on the MAX now, and we've been working very closely with Blaine. Steve was in Seattle a couple of weeks ago. We met with Blaine, Steve and I last Friday. And we're executing together and partnering on increasing that work share for additional skins to support Boeing Wichita where those skins are produced today.

Airbus and Boeing, when you think of structures relative to titanium, metal bond assemblies, the products that we produce for Airbus, we've been engaged with Airbus for about 10 years. We've been a top provider. We've been receiving the top award. It was in Toulouse a couple of years ago and got called to stage. We've got a big detailed parts partner, D2P award for performance. We've become a growth partner with them a trusted partner. We've been performing at 100%. So we're highly regarded for our performance and as well as the niche process and the key position we're at with the super plastic forming as well as hot forming, but there's not really an alternative other than to bring that in-house, OEM bring it in-house and then there's one other.

But we far surpassed the capabilities and the scope and the depth to perform. So again, it's contract manufacturing, but it's highly proprietary IP. It's our process -- and we're able to produce large complex, highly contrary parts to all the requirements. Boeing, a lot of legacy here since the mid-60s, really the same story on the SPF, the hot forming on the metal bond process, as we shared, a key example of that is the Boeing 737 spoilers. We produced the whole shipset to spoilers in our Guaymas, Mexico operation, which we put in place who's been there for quite a long time, over 12, 13 years, the new building we put up about 2 years ago.

It's a state-of-the-art facility, and it's positioned to grow with the capacities that are needed. We note the Apache tail rotor just as an example, sole provider. And we're continuing to engage, highly engaged with our customers, both Boeing and Airbus on renegotiating agreements where we can, pricing leverage as well as increased opportunities, new partner numbers add to our bill of material.

Just a few thoughts on the words on our Guaymas, Mexico operation. So today, it's a metal bond, it's VersaCore and it's hard metal fabrication, but heavily weighted on the metal bond, the VersaCore products, the spoilers, the toll missile case, the Middle River, the GE LEAP-1A engine product is key focus there. We've expanded. We have about 115,000 square feet. We have about 200 employees and you say, well, why Mexico? Well, logistically, it's an easy spot to get to for us. And we found that the talent that we're able to draw on board, the technical talent, the technicians, the engineering has provided leverage, pricing power, margin power, and it's been a great operation for us. And so we've reset that. We've expanded. We've invested in capital, and we're pretty well set today with what we have there to support the rates and further growth.

Highlights across structures. Again, niche engineered products is key. niche processes where there's contract manufacturing. We're very, very focused on value pricing, value pricing. And how do we acquire value pricing is because we have niche processes. We have -- Steve calls it a moat that we built. And we're able to apply that leverage based on as simple as it sounds, 100% quality and 100% delivery, right? When you're talking with customers about pricing and opportunity, delivery and quality is ultimately the end objective, and we've been providing that, we provide that.

Capacity, we've sustained the capacity. We've built the capacity. We're positioned today for the growth. We've expanded in all the key areas, superplastic forming, hot forming, our composites. Our footprint in Mexico has been a success story. It will continue to grow, and we'll continue to seek opportunities to apply the VersaCore technology across metal bond opportunities. So we're very excited about our structures, again, both engineered products and highly proprietary process for contract manufacturing. So we'll jump over to electronics, electronic systems.

Our key products as shared in our showcase, ruggedized interconnects. So our whole strategy behind electronics isn't to be a circuit card provider. It's to provide solutions to our customers for the programs and the platforms, and that's really key. And those solutions equate to the most complex, the highest requirement products that are within these systems. So ruggedized interconnects, these are examples of the Tomahawk missile and other key defense products where the requirement, the test requirements, the environments that they are in, complex supply chain, test requirements is really our focus.

As shared, circuit card assemblies, the next level control boxes, a key focus for us. Avionics, engineered products, lightning production systems, motors, resolvers, okay, motion control and measuring that motion and then custom RF components. Again, electromedical switches, which we're taking the RF signal, and we're communicating that to make that switch command. Who are we? -- electronic systems. So again, considered a leader by our customers. We're highly regarded by our customers for the products, for our performance that we're operating in, very, very harsh requirements that our products work through, high requirements from a product test requirement.

We have a trusted domestic footprint. So the only out-of-country facility we have is in Guaymas, Mexico. All the electronics is domestic. Again, highly, highly focused on our robust high growth on defense platforms. We're the sole proprietary market position with these niche segments across the Board. And then we do all this through 7 scalable performance centers. And we'll talk a little bit about the CapEx, investment we've made and what's still in front of us, but very, very minimal in contrast to the growth trajectory that we're on today.

End markets, heavily weighted on military and defense, on our electronics, commercial and other noted customer breakdown. Our largest customer is RTX. So we're highly, highly engaged almost on a daily basis with Raytheon directly, myself and our team, very much so across all of our customers. Northrop, Steve shared the MESA E7 win. So a great opportunity, but we're continuing to grow with Northrop. They set up a supplier council, a small group with their senior team and fortunate to be included in that panel. So we have a lot of engagement with Northrop.

And then other customers noted a Simmonds Precision, previously known as Collins. So recent PAC-3 award their platforms. You can see missile, radar, electronic warfare, military, commercial, F-35, heavy content F-35 and others. So the key here is this is our snapshot today, the growth trajectory, heavily focused on defense, heavily focused on missiles, where we're the RV incumbent, and we're working through those agreements today literally on a daily basis to set forth the next pattern for the horizon in front of us. Key sectors, applications. Again, we show the key points here, but missiles, the military aircraft, UAVs, naval, nuclear submarines. So basically, what this depicts is land sea and air, land, sea and air across our electronic sectors.

Space and communications. We focus on space and communications where there's ultra-high requirements, there's some scale to that. And so we're growing in that arena as well. Our key programs we shared in the previous slide, noted, again, it's highly proprietary processes, complex, the niche processes, difficulties and the longevities to be qualified, and we're positioned today on the programs that we're on.

So our pricing power is strong. Our opportunities to continue on these programs is solid based on the difficulties to make a change with these sources. And the capstone behind all this is performance, right? We deliver on time. We're delivering quality, and we're maintaining a high engagement with our customers on all the initiatives that they take place on. So Steve shared this slide. Key takeaway for us, the highlight here, missiles and weapons, okay, new missiles and weapons. And if you look to the right, the programs noted, AMRAAM, [indiscernible], all in between, we are on all these programs today.

We have our bill of material across all these programs today. We are the incumbent. We've been regarded as a top performer. We're working today through the rate increases, delivering to higher rates. And we're deep, deep into the process literally on a daily basis with our customers. I am -- our team is on setting up the next wave of agreement. As you know, the landmark agreements from Tomahawk is an example of that. So we'll be meeting a week after next in Phoenix on the Tomahawk and working to get closure on the next wave, the go-forward plan and agreement for that.

So very strong position. Our focus is to support the rates, provide value pricing, not low pricing, value pricing that's aligned with the performance and what we've contributed, what we do contribute. But we're very well positioned today to execute to the rates forecasted. On the portfolio, you can see the programs. You can see the growth, a key part of our vision. Steve shared 2032 vision. We consider ourselves the franchise, missile and radar. I'm proud to share the wins that we just had. We had a nice one yesterday. Timing was great for that to support the CAGR in our Vision 32. So scaling our production to meet capacity. So the question is, can you do it, right? It's always a question from our customers. Can you do this? Are you prepared to execute?

So noted are the kind of the snapshot between Appleton, Joplin, Tulsa, Huntsville. Appleton and Tulsa are focused on highly complex defense circuit cards as well as the next level controller, Joplin, harness, interconnect, cable assemblies, Huntsville, Arkansas, an array of electronic controls, complex, SM3, SM6 stress vectoring is an example of the Huntsville product. So noted is the CapEx investment. And this is looking back a year looking forward, what's the investment to ensure that we're established for our capacity requirements going forward.

We're equipped with the automation with the technologies that are needed to support the programs, our competitiveness and the requirements. So about 80% of the spend has been launched, and about 90% of it by the end of next year will be spent. So we've either acquired it or it's been launched for the most part. And then as those lead times are in play, the end of '27 will be where we're at. So there's pretty minimal CapEx investment. A large percentage has already been spent. It's already behind us, and then the balance of it will read through -- now through the end of 2027.

Here's that slide again. I can't promise this is the last time you're going to see it, but this is the last time I will brief it. So within electronics with our Electronics Group engineered products from left to right, human machine interface products, Carson, California. Lightning protection also in California, RF switches and motion control. Steve hit on this. This is our playbook, proprietary design, sole-source positioning, aftermarket content. That is what wins the day for us again and again with the portfolio -- with this portfolio here.

All right. Next slide. Human machine interface, we've been doing this in Carson or we've been doing this for 50 years. We designed and manufactured proprietary sole-source push button, rotary and electronics switches used in military and commercial aircraft. We talked about it at the product showcase display, one that's very interesting to me is the F/A-18 [ watt ] program. And the reason that was developed is when the sun would hit the cockpit just right, you couldn't actually see the warning panel. So we redesigned a fix for that, now it's going into all F/A-18, which is great news. Engine start switches and Jerry has some other news on -- from a human machine interface wins.

Yes. So as we shared, we're on the F-18. We talked about the push button switches and more to come that we're working through. So we've got -- our future is bright, and we're highly, highly engaged with our customers. We're building the products. We're designing the products. It's our IP. And so there's typically no work share. It's our product, and we have the OEM and the aftermarket. So it's definitely a growth trajectory for us, and we have an aggressive growth target, and we're highly 100% confident we're going to hit it. We look at our Engineered Products and the Carson facility operation, and we've got a good future ahead of us with HMI specifically.

Then on Lightning protection, shared that an aircraft is struck by lightning once a year, a 1,000 flight hours. If you haven't been in one, maybe it's close. But the good news is we've been protected since 1982 from a lightning protection perspective. Diverter strips protect avionics. They protect electronics surge suppression. If we do have a big surge within the aircraft, obviously, we need to suppress that before it moves on to critical components. And we're doing all that in Huntington Beach. Mentioned today Shock Tape. Shock Tape, we were awarded a contract last year through Lockheed Martin for THAAD to help with Lightning protection on the actual launcher itself and we're qualified. We don't have a production contract, but that's an area that we're going to look to -- it's an adjacent market that we're going to look at. Obviously, you need lightning protection across the board. Why not launcher. So we're going to be pushing into that. And another recent award for us, Starlink.

So when you guys are accessing the Internet, please think of us because we're providing that lightning protection for those files on the Starlink piece as well.

All right. So motion control, again, motors, resolvers, motors control motion and the resolvers measure the positioning. Again, proprietary design, OEM aftermarket, our IP -- we're on land, sea and air, highly specialized products. Again, our customers come to us for their solutions. The radio frequency products, RF products focused again, electrical mechanical switches, processes the RF signal within the system, and then we direct that to the given needed commands. Highlights. Just also before we go to the highlights, I want to share one key new product, product line that we're working on, and we're in a really strong, great position. So it's LVDT, Linear [ Vein ] Directional Transducer. And so what an LVDT does, it measures the positioning of a flight control actuator, right? Measures positioning.

There's electronic signal that measures that positioning. So every flight control actuator requires that positioning, sensing that measurement. And so we're currently -- it's a brand-new product line for us, and we have 13 that we are working closely with an OEM with leading flight control provider, and we have 13 in design. We'll have those 13 designs completed this year, and then those will transition.

And the strategy here is to get on board a brand-new product lane for us, get these implemented into the flight controls and then continue to cascade this throughout not only the target initial customer, but throughout other platforms. But again, all the flight control actuators across every airplane has an LVDT and its controls and measures. So we're quite excited about this. It's a leap that we took -- and we have a really strong engineering team. They've gone through the development. The first design is complete, and we're working through the balance, which are very scalable. And so we're -- more to come on LVDTs, but this will be a great growth trajectory, we believe, for us at Ducommun, which just emphasizes the key focus here. It's look at opportunities on [indiscernible] products.

Where is there a market need? Where is there a competitive advantage, where there's a [ bar ] in the competition that we can capture. We want programs of longevity and depth and scale, and that's our focus. Again, being sole-sourced proprietary has been our strategy, is our focus. It's where we sit today. That's a key part of what we're looking at going forward.

And then value-added pricing, right? Where do we have the leverage? Where do we have the pricing power? How do we gain that pricing power? That's our focus. And the first thing without question is performance, right? We're performing. We're delivering the requirements that the customers have, and we're solving something for them. It's a solution, right? And we put value to that. We put pricing to that as we go forward with incumbent products and with new products.

So we're well positioned for growth. I mean our book-to-bill has been strong. We expect that to continue to strengthen from where we've been. And we're well positioned for the growth. We've made our investment, most of that's behind us. We have some remaining the balance of this year and into the first few quarters of next year, but we're well positioned to support the programs that we're on in those growth trajectories. So we're very excited about both Aero structures, structures and electronics. And we thank you guys for your time. Our CFO.

Thank you, Jerry and Clay, and I hope everyone is really excited with what you've heard so far on our Vision 2032 strategy. We certainly are as a management team. We appreciate all of you here attending in person. And also, I've been told we have more than 3x as many people joining us virtually. So thank you and a shout out to those joining us on the Internet here today.

So what I'll do now for the next 20 minutes is take you through our M&A strategy and then also provide a financial update, and that will take you through the close, and Steve will wrap up then with his closing remarks, and we'll have some time for Q&A as well after that. So the M&A strategy. I want to start off by saying that our core M&A strategy is not changing. We're still focused on acquiring engineered product businesses like we have in the past. But what is changing is the way we're doing it. We're going to change things so that we can be more effective.

We can be more impactful to DCO with our M&A. Our strategy is going to continue to buy engineered products businesses that have design IP. So they're typically spec-ed into the drawings at the customer. They are typically sole sourced. They have access to the aftermarket for the products they make. And also importantly, the businesses are low capital intensity, which is really important as well to us. So we're going to continue to look for businesses that have these attributes and our objective is to continue to build out our portfolio of these niche aerospace and defense engineered products businesses and keep growing that portfolio to take the revenue contribution from such businesses to 40% or more of our revenues.

It's at 23% today to take it to 40% or more of our revenues by 2032. And at the same time, to grow the aftermarket content in our revenues to more than 20% -- and aftermarket typically is a subset of our engineered product businesses. So as engineered product businesses grow, aftermarket content grows as well. And as Steve has told many of you, and he always reminds us on the management team, a successful aerospace and defense business has to have aftermarket, and that has been one of the key tenets of our strategy ever since he took on leadership of the company.

We've had a great track record of doing acquisitions. If you look at the 5 deals on this page that we have done under the current management team tenure, we have bought businesses ranging from an enterprise value of $30 million to $115 million. I won't go into the individual product line details again, Jerry and Clay talked about that already with you. But each one of these businesses have the attributes I discussed just a short while ago. They have design IP. They're spec into the drawings of their customers. They are sole sourced. They have access to the aftermarket for those products that they make, and they are low capital intensity.

All attributes we really love and are present in these businesses, and that has been key to our success. As we look to do acquisitions of businesses with these attributes, it's not just about acquiring these businesses, but then what are we doing with them? How are we creating value for our shareholders? How are we creating a stronger return on the invested capital once we bought these engineered product businesses. And these metrics out here for the 5 deals that we have done really reflect that. First, and we have been able to reduce the multiple that we have paid on these transactions we have done by 8x across the 5 transactions we have done. There's an 8x reduction in the multiple from what we bought them at.

I mean all of you know Engineered Products businesses trade at pretty healthy multiples. And so if on average, we've bought these businesses at a mid-teens multiple, they are now with the EBITDA expansion that we have done, we've been able to reduce the effective multiple on those down to mid-single digit, which is a great outcome for our shareholders and tells you how we have created value from each one of these investments we have made in the 5 companies that we have bought and should give you confidence on our ability to be able to do this going forward.

Our return on invested capital, as you would expect based on the previous metric I said, is really strong. We have well into the double digits return on invested capital on average across our 5 acquired businesses. And we have been able to meet and exceed our revenue and EBITDA margin targets cumulatively across these 5 businesses through the end of last quarter. So again, great execution on the part of the team here to be able to deliver this kind of value. And we buy these businesses that are either family-owned, founder-run businesses or businesses that may have been through one round of private equity.

And there is a lot of value that remains to be created at these businesses. We bought the business MagSeal, which we talked about earlier, which was run by 2 brothers who inherited the business from their father. And there hadn't been a lot of investment in that facility for decades. So we came in and over the last 4 years, we have invested $4 million to $5 million of capital, and it's a brand-new facility in terms of all the equipment there. And as Clay mentioned earlier, we are now in 4 to 5 years, generating 3x the revenue in that facility with that same footprint and with approximately the same number of people, which is incredible, right? So you can only imagine how much more money we're making in that business since we bought it.

And that's what gets us that 8x multiple reduction. That's what gets us the double-digit return on invested capital, which you should be really happy about as shareholders. How do we do this? We have a playbook. We have a playbook where we -- when we are buying a business, we put together first a clear road map of how we are going to expand the EBITDA. How are we going to create value? We have a detailed road map going into the acquisition. And then once the deal is closed, we operationalize that plan into clear action items assigned to specific individuals and then tracked daily, weekly, monthly at all levels within our company to make sure we're executing on that plan.

And that programmatic approach is what gives us the success on the deals that we've had. How have we created the value? I gave you a couple of examples, but we buy these businesses to invest and grow them and to make them more profitable. And that makes us more attractive to owners of businesses as well. Our focus is not to cut our way to success. Steve often says that you can only generate higher margin by cutting your way to success for 1 year. And after that, it's gone. It's already in your P&L. But if you're investing in growth, if you're investing in new product development, if you're investing in engineering and sales resources, if you're investing in equipment and machinery and processes that will drive better productivity, that will generate rewards again and again and continue to help you improve margin in that business.

And that's what we do with our acquisitions. And value pricing. These are highly engineered proprietary products and bring a unique proposition to the customers and the end-use applications that they serve. And we should, where we are bringing this kind of value, get paid for it. And we make sure that is the case for both our existing portfolio of engineered products businesses, but also certainly for our acquisitions. And that has been also a key driver in our margin expansion story at our acquisitions.

So we've had a lot of the success that I've talked about here with our acquisitions, but we also recognize that we haven't done a deal here in the last 3 years. So what are we going to do differently going forward that will give you the confidence that we are going to be able to execute on the goals that we have under Vision 2032 for our acquisition strategy. First, we have deployed additional resources. I have a new Director of Corporate Development, who is highly capable and has been in the job now for more than 6 months. And we are building up the team underneath him to add more capacity to the M&A team to be able to do deals.

We are working actively to build out our proprietary pipeline so that we are not just looking at banker and auction processes, which can sometimes be frothy. I mean we are well networked into the broker -- the dealer -- the broker network, the M&A boutique banks that are doing deals in the space and they understand their acquisition strategy, but we are also spending a lot of time building out our own proprietary pipeline, both through internal resources through a search firm and in other ways so that we have an active pipeline that we can engage with.

And then -- the other very important thing that Steve highlighted is that we have expanded our aperture. We have expanded our aperture to be able to look at larger transactions. There have been numerous instances over the last 5 years where we have had to give up and up on an opportunity because it was beyond our size range. We had a very narrow range of options for us in terms of deal size. We could look at things up to $125 million, maybe $150 million in enterprise value. Beyond that, it was difficult for us to be able to execute a transaction with our capital structure at that point.

But now with the growth in the EBITDA in the business, with the equity valuation of our stock where it is, we have the ability to do much larger deals, 3 to 5x what we have looked at in the past and be able to do deals, as Steve said, that are $300 million in enterprise value or even $0.5 billion in enterprise value. We have the ability to be able to fund those kinds of transactions that increases the aperture, that increases the scope of opportunities that are in front of us and gives us a much better chance of success moving forward.

So we will look to do larger transactions. We will look to do the tuck-in acquisitions that we have done and been very successful with, and we will grow this engineered product portfolio from 23% to 40% or more of our revenue base, as you can see on the bar chart there on the right. We have the road map to get there, and we have a placeholder of $250 million to $300 million in revenues from acquisition of engineered products in our overall revenue target.

This is just to summarize. Again, I'd say that we are actively engaged in multiple opportunities. We have the team in place to be able to execute. We have a plan in place already and in motion to continue to build out our pipeline of opportunities, and we are going to step up. We're going to do more transactions. We're going to do bigger transactions, and we're going to be able to move the needle for DCO on the engineered product front with that.

So with that, I'll move to the finance section of the presentation and give you an update on Vision 2027 as well as our Vision 2032 financial goals. But before I do that, I wanted to share a couple of charts on our performance under the current management team. So Steve came on Board as CEO at Ducommun in January of 2017. And this chart here shows our financial and market performance since the end of 2016. And you can see our market cap during this period is through the end of last quarter, up 10x. It's up 10x. And even with the pullback we've had in the past few weeks, we are up more than 8x versus where we ended in 2016.

So a huge achievement in being able to grow the market cap so many fold in the last 9 years. If you look at the financial performance of the company, revenues are up 57%. So that's a modest number, but you have to keep in mind, we went through a pandemic. We went through all the disruptions in commercial aerospace OEM production. And so we're still happy with the 57% growth that we have had over these years. But more importantly is the quality of those revenues. The quality of the $550 million in revenue we had back in '16 versus the $865 million in revenue we've had in the LTM period, the change in the quality of those revenues is significant.

We have today much more engineered product content in those revenues. We have revenues that come in at a much higher margin because as we mentioned earlier, we are not chasing business for the sake of adding top line. We are chasing business where we can add value, where we can solve a problem for a customer. And when you do that and when you're not competing on price, what you're able to do is you're able to demand a better price, demand get and earn a better margin on those sales. And so that focus has enabled -- has really transformed the quality of our revenue base despite the more modest growth.

And that's what we're really proud of. And that's reflected also in our margin expansion. So over this tenure, we have expanded EBITDA margins by 700 basis points, 700 basis points in these 9 years, which is incredible. And all of it has come from improvement in GAAP gross margin, which is up 900 basis points during this period, 900 basis points improvement in GAAP gross margin. No adjustments, no funny numbers there. GAAP gross margins are up 900 basis points over these 9 years.

So -- that's something that we are really proud of. And as you would expect, I mean, you're probably asking, okay, market cap grew 10x. What was it for an individual shareholder? What was it for an individual share? And so if you look at TSR, we have done exceptionally well on a TSR basis as well. Our TSR relative to the S&P 500, our TSR relative to the Russell 2000, our TSR relative to our proxy peer group, and you can see the names of those companies at the bottom there later on the chart. We are significantly higher in terms of TSR over this current management team's tenure and by a very wide margin.

Again, something we are very proud of. So with that, I will move into our -- a quick update on the Vision 2027 and our performance on key metrics. First on revenue, 6% CAGR during these last 3.5 years under Vision 2027. It's -- we've only been 3.5 years into that plan, but we've had 6% growth, which I think is really healthy given what we have seen in commercial OEM production rates and the delays we've had there for us to have had 6% growth is pretty good.

And -- but more importantly, during the same period, we have grown our RPO at a 9% CAGR. That's 50% faster than the growth in revenue. 50% faster growth in our RPO or what is effectively backlog during the same period in which revenues have grown 6%. And we have taken that RPO, which is definitized orders from our customers for which revenue has not yet been recognized, we have taken that to $1.16 billion. So that's something that is really good for everyone here. You've heard about some of the big orders we have won recently. You've heard the fact that the framework agreements for the missile programs are not yet in this number, and yet we have had such strong performance. Our book-to-bill ratio in the last 12 months is 1.3x.

All this is great news for you as shareholders. It's great news because it shows that there is a lot of growth ahead in revenue for the company. If you look at EBITDA margin in these last 3.5 years, they're up 400 basis points. And again, I'll go back to GAAP gross margin. All the improvement in our EBITDA margins has come from improvement in GAAP gross margin. So these are real change, real transformation in the business as we continue to grow our margin profile.

And if you look at EPS, that's up at an 8% CAGR over these last 3.5 years. Again, strong growth in EPS, and this is despite the equity offering we had in May 2023. So we issued a little over 2 million shares back in May of 2023. It was something that was long outstanding, long overdue for Ducommun, and there were a lot of good reasons for us to do that. And all the things that we expected to come out of that offering, we were able to achieve all those objectives.

So despite that offering, we have still been able to grow EPS at an 8% CAGR during this period. So something that we can all be happy about. And then cash conversion, right? At the end of the day, you have to generate cash. And that is a reflection of how much money you're really making. And that's up dramatically from a pandemic era low in 2022 of $13 million only of annual free cash flow. In the last 12 months, we've generated $83 million of free cash flow.

And we had the benefit of some onetime items, some NOLs that we could take advantage of. We had some benefits from OBBA that are onetime and that helped us and that's taken us actually in excess of 100% of adjusted net income. But even adjusted for those, we are at a very healthy cash conversion ratio today that we can all be happy about.

So great achievement here in the last 3.5 years. Now I'll move on to what we have set ourselves up for Vision 2032. So we have key metrics that Steve talked about earlier for revenue, for revenue mix, for our margins and then cash conversion. Revenue, we're going to get to $1.6 billion to $1.7 billion in revenue by 2032. That incorporates a 7% to 8% that reflects a 7% to 8% organic CAGR in our business and has an acquisition placeholder of $250 million to $300 million.

And we're going to, as we grow these revenues, change the mix to 50% coming from Engineered Products. And at the same time, grow our margins by 600 basis points over the baseline in 2026. And we're going to get to our 18% EBITDA margin by the end of next year, by the end of 2027 as we have committed under our Vision 2027. So we're going to continue to track our progress against our Vision 2027 targets. So those are not forgotten. But then we're going to have another 500 basis points, another 500 basis points in the following 5 years under Vision 2032 that will take us to 23%. And I'll talk a little more about both our revenue and margin targets in the next couple of slides. But touching on cash flow conversion, again, our target here during this period is to have 90% to 100% cash conversion from adjusted net income.

Now there are -- there's going to be a significant ramp-up in revenues. We continue to see pressures in the supply chain. Lead times are long. And so we are going to have to maintain some amount of working capital investment in the business to support the growth and to make sure that we are able to deliver despite the constraints in the supply chain. So we are going to see improvement in working capital. We're going to see an improvement in working capital turns, but it's going to be modest, but we are still going to be able to get to 90% to 100% cash conversion, which I think is an important metric for you to remember as either current or potential shareholder.

So with that, jumping into revenue in some more detail. So 2026, we are expecting to come out at $880 million to $890 million, which is in line with guidance we shared after our Q2 earnings and right around kind of a little above 7% growth at the midpoint there. And we're looking to take that to $1.6 billion to $1.7 billion in Vision 2032. And that reflects, as I just said earlier, a 7% to 8% organic CAGR in the business with higher growth expected in the earlier years, supported by growth on missile production and supported by ramp-up in commercial aerospace OEM production rates.

We expect the defense business to grow at a faster clip at an organic growth of 8% to 9% supported by strong growth in missiles and radar platforms. You heard Steve and then Jerry talk about our very strong missile franchise and our presence on virtually every missile program that is covered by these framework agreements by the Department of War. We are on the cusp of signing up to the agreements to be able to deliver to our OEM customers under those framework agreements, and that's going to drive growth for us at 8% to 9% with the missile and radar portion growing at mid-teens, mid-teens growth in our missile and radar franchise, which should more than double that business over this time frame.

Our commercial aerospace business, we expect will grow at 6% to 7% organic growth CAGR during this period, again, higher growth in the initial years, given by the expected ramp in OEM build rates over the next couple of years, particularly on the MAX, on the 787 as well as on the A320neo. We're going to see good growth there in commercial aerospace.

And then finally, going back to Engineered Products. We're going to take that from 25%, which we will get to at the end of next year to 40% of revenue through acquisition as well as organic growth. We have a placeholder of $250 million to $300 million in revenues acquired of Engineered Products. And then we're also going to continue to grow our existing portfolio at a strong clip and at a rate which is actually faster than the rest of the business. Margins. So we have a 600 basis points expansion plan here, 100 basis points, getting us to 18% by next year as we have committed under Vision 2027 and then getting us another 500 basis points in the following 5 years.

Where is that going to come from? What's our plan to be able to achieve that margin expansion? We're going to -- it's going to come from the acquisition of Engineered Products. That's going to be a key part as we continue to shift that portfolio to businesses where we own the design IP and where after buying these businesses, we do the things I talked about operationally to get more value out of those businesses, we're going to be able to improve the overall margin profile of our company.

We're also going to grow the existing portfolio at a faster clip than the rest of the business, and that will help with the margin improvement. So if you look at our Engineered Products business over the last 3.5 years, we have grown in the teens organically. We've had growth in the teens organically over the last 3.5 years in our Engineered Products business. So you should feel confident about our ability to be able to continue to grow that business. And with all the new products that Jerry and Clay also talked about across the Board, there are a number of opportunities for us to be able to grow that engineered product portfolio and be able to improve our overall margin mix.

We're also going to drive margins through better pricing. We're going to get paid for the value we provide. We are not -- we are never egregious with our customers. We are always respect our duties towards the war fighter or to commercial aerospace. And -- but we also want to make sure that we are getting a reasonable return on our investments. We are getting a reasonable return on the products we make, and we have to get paid a decent margin on any product that we sell. And as LTAs come up for renewal, we have the ability to make sure that, that is happening in each and every one of those contracts.

So we are still not done with the repricing opportunity that we have across various programs, and that will help drive margins over the next few years. And then finally, with revenue growing at 10% to 11%, we are going to benefit from operating leverage as well, and that will also help with the margin story. So with that, I'll wrap up the finance section here. We have a great portfolio here. It's leveraged to missile production. It's leveraged to the commercial OEM build rates and the tailwinds in those end markets are really going to help us drive strong organic growth here over the next 5 or 6 years.

We're going to continue to see the shift towards Engineered Products, both organically and through acquisition. And we have a strong plan in place, a strong team in place and a great playbook to drive value through acquisitions, which we have demonstrated in the past, and we're going to execute on going forward. And then we're going to have strong cash generation. We've seen strong cash generation here in the last year or 2, and we're going to continue and maintain that momentum and continue to have good cash conversion, which I know is important to all of you as shareholders. And with that, I will pass it back over to Steve for his concluding remarks.

Okay. Thank you, Suman. Appreciate it. Okay. First, just let me go through these 2 charts real quick, okay? And then we'll go right to Q&A. We're going to keep everybody on time here, and you can get out to your next responsibilities today. So we talked about Vision 2027. So we're all set there. Vision 2032, again, this is what we've shown you several times now. Let me just say a few things. First of all, on deals, okay? We're now reconstituted to really get to the next level on M&A, right? I know we haven't done a deal in a while. There's good reasons for it, okay? One of the big reasons is we really sort of -- we were limited as far as what we could look at for many years when I was at -- when I've been at Ducommun. We just had to tell the bank, sorry, it's $250 million, can't do it. $275 million, $300 million, can't do it, can't do it. I mean, and they just moved on, right? So we were really, really limited. And that was our reality, and that's what we did.

Now it's a different ball game. So I just want you to -- all of you know M&A is a big part of this plan. It's a big part of my job and the job of our team, and we will close deals and you will be happy, okay? Because you got to understand the other thing is we know what we're doing when we're looking at deals, okay? That's the other thing, right? We do very good due diligence. You saw the report cut on the deals. That's the best part. As we know, sometimes you do deals, they don't work out, right?

Just ask Dick's Sporting Goods and Foot Locker. Sorry, I shouldn't pick on them, not so great. Anyway, so -- but they're still a great company, just not so great. Anyway, so -- but this is, I think, a tremendous plan for investors. We're excited about the next 5, 6 years. This is no mystery here. This is my plan, okay? So I plan on being here, all right? So that's something else that I think is important for investors to know. And I have a great team. I want to thank them again today. And I appreciate everybody hanging in there, both in the room and on the phone. I know this is a lot of data and a long meeting. So with that, again, thank you, and let's -- we're going to go to Q&A real quick, right? So I'll invite my team up. Let's get some chairs here, and then we'll turn it over to you.

Okay. I'm going to -- I'll just sort of be the facilitator for the Q&A. So I'll sit right here. Perfect. Okay. Great. We got everybody guys have a seat. We'll go to the room first. Those online, please send in your questions. We'll do our best and let's go down the front here. Just wait for a second.

John Godyn at Citi. Steve, you, Suman, others really emphasized M&A, obviously. It's the second bullet on the Vision 2032 plan. I wanted to just spend an extra minute on the contours of that. The plug in the guidance versus stepping up the size was not particularly large. It seems like you could exceed that. Maybe it's just me, but I got the impression that maybe M&A is going to be front-end loaded in the plan. I don't know if that's true or not. And then in terms of just the targets, are they going to be accretive to the 2032 goals? Is that the way to think about it that we should be seeing deals that have 20% plus adjusted EBITDA margins, significantly higher EP aftermarket mix. Is that the way? Maybe we could just kind of...

Sure. Great question.

[indiscernible] in on some of these pieces.

Thank you, John. That's a great question. Why don't you, Suman, you want to chip in first?

So we're actively working on a number of opportunities at any given point of time, including right now. The exact timing is unpredictable. So I wouldn't say necessarily that they're going to be front-loaded, but we expect to be able to execute over the next 5 to 6 years on acquisitions. But we do hope to be able to announce things here within the next 6 months as well.

So -- but it's not necessarily expected to be front-loaded. The size of acquisitions, again, the -- whether we're going to do the next deal is going to be a $50 million or $100 million or a $300 million deal is difficult to predict. Again, we look at multiple things, and it depends on which one we get across the line, which one is the right one for us to get across the line. It will depend on whether we do something bigger upfront or later down the line. But we have an active pipeline with a wide number of opportunities that we think are executable over the next 5 to 7 years.

We're working on something right now, we're really excited about. So obviously, these things are opportunistic, but we're deep in diligence on one right now. So that's positive. The other thing I'd say is that the deals we're going to do are going to be accretive. Okay? So that's sort of our -- it's been our playbook. We're just -- I mean, the big takeaway in the M&A is that we reconstituted our team, and we have a lot more money. And the great thing is the track record, even though it's been a couple of years, we've done these things. We not only bought them at a good price, and we didn't have a disaster like something we found out later on, but we also were able to, as Suman said earlier, cut the multiple in half over time, right? So we're excited about that. So we have a lot of good things ahead, but thank you for that thoughtful question. Mike? Yes. I go to Ken next. Mike, want to go first.

Mike Crawford at B. Riley Securities. Just to continue on that M&A front. So I think the midpoint of that $250 million to $300 million of assumed deal revenue at a multiple of maybe, I don't know, 15x for like a 28% EBITDA margin business, which I think is maybe what your Engineered Products do today, that implies like $1.1 billion to be invested. So would you look to do that as a mix of equity and cash?

Yes. Suman, do you want to handle that and I'll probably add to. Yes.

The good thing is we have options. We have options. And our preference is always first to be able to finance it with debt with lower cost of capital first. But where there is an attractive opportunity, which makes a lot of sense. We have a clear path to maximizing EBITDA in the business. It's a great fit for what we are looking for. We would be open to considering some amount of equity to be able to finance the deal. I think where we are trading right now at the DCO level gives us that optionality, which we probably didn't have in the past. And so it creates more options for us.

Yes. We want to do -- if we could do it in debt. We want to do it debt, but we're realistic, right? If there's something that's really special that comes along that shareholders would cheer us on as far as this is the right thing to do, then we would consider it. But we have to seriously consider it, okay?

I mean if you look at the $500 million deal, today, we have right now available capacity to finance up to $350 million, still stay under 3.5 turns leverage, still be well within the covenants of our existing credit facility and the amount available under our revolver and cash on the balance sheet. So we're not necessarily looking at -- this is not us contemplating a huge equity issuance to do a $500 million deal, which is kind of one of the larger size deals that Steve discussed, we're talking about another $150 million in equity, right? So that's just going to be kind of an incremental thing to support a deal if that's needed to get something done.

But you got to be very patient, okay, for $500 million, it's got to be absolutely something that came along that we've been looking at, that it's the right time, okay? Because that's obviously -- that's a big swing. And you got to get that right. A lot of the smaller deals, $200 million, $250 million, $300 million, we can just do through debt.

And just one more the dynamics of these missile programs expanding much as 4x, even [ FA ] 10x. Is there some level of conservatism built into your assertion that missiles and radars just are going to continue to only grow in the mid-teens?

I mean that's where we see it right now. I mean we've got to go further along with the 7-year landmark, okay? You have to understand that these 7 landmark deals, the reason -- one of the reasons why they haven't gone as quickly is because the OEMs are also negotiating what happens if it changes, okay? I mean, I'm going to build factories, I'm going to do this. And then if we have a new President in 2 years that thinks, you know what, this is the greatest thing in the world, okay, how are we going to get our downside. So there is a little conservatism in there, but I think it's appropriate until we really get going. But at least the first couple of years, it's going to be gangbusters. So stay tuned. Ken?

Steve or Suman. Congratulations on everything towards '27. It's been impressive. As we think forward on the margin side, maybe to shift the discussion there, 100 basis points a year. I know, Steve, you made some comments that when you came in several years ago, there was perhaps a low-hanging fruit in terms of the margin opportunity. But how do we think about that as we think about the pieces, volume versus where you see across the organization opportunity now to continue to take cost out? Is that a big part of it -- and really, the lift on margins seems to be getting not harder, but some bigger pieces that you need to maybe think about -- how do you see the opportunities.

I'll take it. I'll jump in first, just on the margins. I mean, volume is going to be a huge friend of ours, right? Because we got -- we really locked in with our footprint, really just have to add people and get some machines. I think second of all, to Jerry's credit and the Clay's credit. We're very well positioned on our pricing situation as far as what we add value. We're incumbent. We talked earlier, we're 100% on the Tomahawk. They need the Tomahawk, okay? Okay, maybe the harnesses, they might do something different, Raytheon, with a certain percentage. But right now, we think we're going to be 100%. So we're in great shape there. So the volume being the incumbent, the pricing -- anything else you want to jump inhere?

Suman shared the 900 basis points improvement increase in GP performance, and that's not over. That's just where we're at currently and the trajectory in front of us. We're highly focused on OpEx, efficiency, automation, all the key things that drive higher GP performance. So it's driving down costs through efficiency and performance and value pricing to keep that margin. So we continue to focus on performance, efficiency, drive down cost, value pricing to get that margin.

And I don't see any big restructuring. If you're asking me, I don't mean we closed Monrovia, huge deal, right, been around forever. We closed Berryville, right thing to do. Those -- both those businesses were losing money for 2 or 3 years. So we finally bit the bull. We try, keep them going. So I think on the restructuring side, we're good, and that's really going to come from going forward and growing.

And just a follow-up on M&A. Would you look at doing a deal outside of the United States like Europe as you look at where defense spending is going in other parts of the world?

We wouldn't be opposed to it. It's just that Europe is very tricky. Europe is very tricky with energy, with labor, okay? I mean, with just how it's structured differently than here. So I wouldn't be opposed to it if it was something that -- but it has to be something that -- if it's an engineered product, -- we would consider it. You know that, right? So I'd say that. We want to go on the back. No, you have a question. Yes, please. Thank you, Ken. Appreciate it.

A few questions. With the Engineered Products strategy, are you looking to build franchises of product categories? Or is it more grab bag of whatever you can get because we've seen very diversified versions of that work? Second question is, why is the aftermarket mix not mix up as fast as the Engineered Products mix? That's -- I guess that's a little surprising and that would help the business. And then on the pricing, is there any quantification of what inning you're in or what percentage of LTAs that could be repriced have been done versus or still have...

Okay. Suman, you want it first, then I'll go after.

Yes. And your question was the -- on the engineered product was the...

Franchise. We [indiscernible].

Yes. So we're looking at both, right? So we have platforms that we have built. We have a platform around human machine interface products. We have ammunition handling. We look at adjacent product lines that can help us continue to build out those platforms. So we look at opportunities that are adjacent to the core we have already established, but we are still small enough where we can continue to create new platforms and look at opportunities outside of the core as well, all within aerospace and defense, but we do look to add additional platforms. So it's going to be a mix of both. And -- but I do think that given the current footprint that we have, you're probably going to see more platform additions.

Yes, I think that's right. Would we love to do roll-ups and franchises? Yes, yes and yes, right? So it's the first thing. Second thing on your aftermarket, we found that at least out of the gate on this journey Vision 2020 where we bought, we generally did pretty good. We generally did like a 50-50 on these deals, right? So we would buy like MagSeal, we do 50% engineered product or OEM, 50% aftermarket. But you don't always get that. So that number is a little modest because we're basically be a little more conservative. It's going to be more 75-25. So that's why there's not -- that's a good question to ask. That's sort of why. We're hoping because we don't know yet, but we're hoping that when we do find these things, we have that 50-50, but it's not always the case.

[indiscernible].

There are several LTAs that are coming up for renewal over the next few years that need repricing where we believe we are not making anywhere near the margins we should be making and that are in severe need for adjustment. And so those definitely will provide us opportunity for improvement. We have made a lot of progress on pricing over the last 3 or 4 years, especially since the pandemic. But I would say we are kind of barely at the halfway mark if you look across the portfolio and the opportunities that lie ahead for pricing, especially on the structural systems side of our business.

And then most -- all the missile programs, right? They're at that point now where we're negotiating working through the repricing for the forward landmark, the forward rates. Across really that list that you saw earlier.

And that's a big number, but also, Jerry, just one bit on Airbus.

Airbus, contracts and super plastic forming structures, it expires December 31 this year. So we're working through the next agreement for the next horizon, right, which is targeted at 7 years, but we're looking at other short iterations on pricing. So we had a call Wednesday morning with them. So we're actively, actively engaged, and we expect to have that agreed and firmed up here in the upcoming short weeks.

That's going to be a big help. The Airbus situation is going to -- once we do the repricing, it's going to be very nice in the next few years.

And I'll just add to a previous question you had on the franchising and the products. Organically, an example are the LVDTs, we talked about flight actuation, the sensing, the measurement. That's a brand-new lane for us, right? That's another poster of our product line. And you look at like the name the competitors or the incumbents, but they're difficult experience with flight controls and understanding the difficulties to acquire LVDTs, the performance, the absolute pricing leverage that's there once these are qualified. So we entered into that.

And the great part about this is very proud of our team, our engineering team and we've developed these initial 13 very quickly. Again, we'll have those design completed this year. And the strategy is to expand that. But we spent almost no dollars to do this development in this design. It's all been internal engineering, highly efficient product as far as how it's produced. It's going to be another lane and it will be a poster.

Yes. And the good thing about this is we have these -- what Jerry just mentioned, this is our Carson, California Performance Center, okay? I inherited Carson, right? Everything else we bought. But Carson, I inherited had a few product lines, for the first 5 or 6 years, it was $45 million or $50 million every year, I mean bouncing around, okay? Next year, okay, it's going to be $100 million of revenue. It's going to be our first $100 million engineered product center, and that's all tribute to Jerry and his team.

So -- but that's happened over the last 3 or 4 years. And the reason I bring that up is that we really have very strong now engineering -- engineered product teams and leadership and processes now in the company, which we just didn't have in the past. And I think that's an important point. So thank you. Good. Thanks for being here today. Okay. We got anything online, then we'll wrap it up to everybody out here on time.

Yes. One question was around M&A as interest rates get higher. How does the impact -- how does this impact -- do you comment any differently than other M&A players, your hurdle rate to move up?

Definitely is a fact for us to consider as we look at our cost of capital. At the end of the day, it depends also on the return you make on the deal is also what you can do with that acquisition. So if you are able to create a lot of value, if you have a road map to a significant value creation, you're able to generate sufficient return in excess of your higher cost of capital.

So if rates go up another -- I mean, today, we are linked on our debt side mainly to floating rate and floating rates go up another 75 basis points over the course of the next year. We'll have a 1% higher cost of debt. And -- but if we are able to generate the kind of returns that we have historically on acquisitions and that we plan to on acquisitions going forward, I don't see an incremental 100 basis points of interest cost preventing us from doing deals.

Yes. I'd just say also just because people ask us aspirational companies and those type of things. And I always bring up Eric and his brother at HEICO, okay? So if you think about Engineered Products businesses and they always ask us, we don't give directions on margin, but that's pretty much -- the margins at HEICO are pretty much the margins we have for the plus and minus in Engineered Products, and that's why it's so important to us.

So every deal that we do going forward, especially with the big one, I mean, it's just going to be just transformational on our margin expansion and everything else because that's why you have that embedded contract manufacturing, which is a good business, okay? And it's a big part of the P&L. But as we continue to roll it forward and we add more Engineered Products, our revenue is only going to get better.

So we're really excited about that. Okay. So I think we're right at time. And I think we got -- is everybody okay, we're good. So I just want to wrap it up. I want to thank my team here. Okay, great job. Thank you so much, and our support team is welcome to comment. But most important, I want to thank everybody showing up today. I know you're busy, busy schedules. Thanks for listening. I know it's a long meeting. Also everybody online, thanks for hanging in there with us. We're excited about the next 5, 6 years, okay? We think it will be great for everyone, shareholder value, the industry, customers and our employees who are dedicated to delivering. So again, all my best. Thank you for joining us, and have a great rest of the day.

Good day, and welcome to the Ducommun Second Quarter 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker, Mr. Suman Mookerji, Vice President and Chief Financial Officer. Please go ahead.

Thank you, and welcome to Ducommun's 2026 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&A session that follows. Certain statements today that are not historical facts, including any statements as to the company's progress and value creation opportunity for shareholders under our Vision 2027 game plan for investors, beliefs about the company's Vision 2032 strategic plan, potential destocking headwinds and their impact on the company's business for the remainder of 2026, expectations related to the U.S. Department of War's long-term framework agreements for key missile programs with defense primes, our share of potential orders from those primes, the increase in production on many of those missile programs and their impact on the growth of our defense business, estimated synergies to be realized under the company's facility consolidation project and the outlook for the company's revenue and Commercial Aerospace and Defense businesses for the full year 2026 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 U.S. government defense spending, our customers may experience changes in production rates or delays in the launch and certification of new products, timing of orders from our customers, which are subject to cancellation, modification or rescheduling, our ability to obtain additional financing and service existing debt to fund capital expenditures and meet our working capital needs, legal and regulatory risks, including pending litigation matters generally and as well as any potential losses arising from third-party subrogation claims related to the Guaymas performance center fire that may become material, the cost of expansion, consolidation and acquisitions, competition, economic and geopolitical developments, including supply chain issues, our ability to successfully implement restructuring, realignment and cost reduction activities that could adversely affect our ability to achieve our strategic objectives, international trade restrictions and our ability to obtain necessary U.S. government approvals for proposed sales to certain foreign customers, the impact of tariffs and elevated interest rates, risks associated with the prolonged partial or total U.S. federal government shutdown, 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-K/A, quarterly report 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 2026 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?

Okay. Thank you, Suman, and 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 of the company, after which Suman 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 to make great progress in our fourth year of the plan, heading into the final year of the vision starting this January. The strategy and vision were developed out of the COVID pandemic over the summer and fall of 2022, unanimously approved by the Ducommun Board in November 2022 and then presented the following month in New York to investors where we had excellent feedback.

Since that time, Ducommun's management has been executing the strategy by increasing the revenue percentage of engineered product content, which is at 23% over the past year and up from 15% in 2022, consolidating our rooftop footprint in contract manufacturing, continuing our focused acquisition program, executing the offloading strategy with defense primes in high-growth segments, driving value-added pricing and expanding content on key commercial aerospace platforms. All of us here as well as my fellow Board members continue to have a high level of conviction of the Vision 2027 strategy and financial goals and believe the market catalysts ahead present a unique value creation opportunity for our shareholders.

The Q2 2026 results show again that the strategy initiatives are working with gross and adjusted EBITDA margins continuing to stay on track to meet and exceed our Vision 2027 goals along with revenues and the level of engineered products and aftermarket at the company.

For Q2, I'm very happy to report that revenues reached a new quarterly record of $224 million, 12% growth over last year, our fifth consecutive quarter of over $200 million in revenue and our 21st consecutive quarter with year-over-year revenue growth. We had strong growth across all our end markets, with Commercial Aerospace, in particular, showing continued strength this year with 16% year-over-year growth, a very positive sign. We saw production and deliveries continue to ramp, driven by higher OEM production rates and a gradual easing of the destocking impact. In addition, we benefited from new aftermarket content that drove incremental retrofit revenues on the 737MAX.

We still expect some destocking to remain as a headwind through the end of this year, but the situation is improving. Military & Space revenues grew 7% with continued strength in our missile portfolio and fixed wing aircraft, partially offset by temporary weakness in our radar, space and naval revenues. During the quarter, we also pulled ahead some production activity and associated revenues from the second half to level-load production at our plants ahead of higher delivery commitments in the second half of this year.

Another major highlight in Q2 was the company's remaining performance obligations continued growth, reaching a record $1.16 billion, which is over $250 million higher than prior year and $85 million higher than just last quarter. This represents a book-to-bill ratio of 1.4x in the quarter and 1.3x over the last 12 months. We added more than a quarter's worth of revenue to our backlog in the last year, which is fantastic. Our Defense business RPO grew $197 million year-over-year, and Commercial Aerospace grew $54 million. We closed on $310 million of bookings in Q2 and have closed on $1.1 billion in the past 12 months. This is great work by our business development team, and it still does not include our share of potential orders from defense primes under the 7-year missile framework agreements, which are still being negotiated by RTX and the government, but also happy to see it is now completed as of last month for the PAC-3 and THAAD at Lockheed and L3Harris.

We continue to have discussions with the defense primes to support them on these major agreements and are well positioned as the incumbent supplier of many of the programs, which is great news for DCO and shareholders. Production on many of these missile programs such as the Tomahawk, PAC-3 and Standard Missile 3 and 6 are expected to grow several fold. And this will be a big driver of growth for the DCO defense business over the next few years. Our performance centers are prepared for this increase in production with most capacity already in place, and we will hit the ground running once the orders begin to flow.

Gross margin grew by $9.9 million in the second quarter to 28%, a 160 basis point improvement from 26.4% last year in Q2. We continue to see the benefits of our Vision 2027 strategy and gross margin expansion due to DCO's engineered product portfolio with aftermarket, strategic value pricing initiatives, restructuring actions and productivity improvements reading through to the P&L. Our cost saving expectations of $13 million annually from our facility consolidation program has almost been mostly realized at this time. For adjusted operating income margin in Q2, the team delivered 11.9%, well above the prior year of 10.2%. This was supported by growth in adjusted operating income margins in both our operating segments.

Adjusted EBITDA continues to improve towards our Vision 2027 goal of 18% in 2027 from 13% in 2022. DCO achieved 17.1% in the quarter or $38.4 million, up $6.7 million from Q2 2025. We're also in great shape for 18% in 2027. GAAP EPS was $1.31 per diluted share in Q2 2026 versus $0.84 for Q2 2025. With the adjustments, diluted EPS was $1.18 a share in Q2 versus $0.90 in the prior year quarter. A higher GAAP and adjusted diluted EPS during the quarter was driven by higher operating income. GAAP net income and EPS also benefited from a one-time clawback of executive compensation as a result of a restatement published earlier this year.

As I mentioned earlier, we closed on over $1.1 billion in bookings over the past 12 months, a trailing 12-month book-to-bill of 1.3x. With increased Defense spending and positive momentum in Commercial Aerospace, we have strong tailwinds in both our primary end markets. On the outlook for the second half of 2026, we expect to see continued growth from both our Defense and Commercial Aerospace businesses, but at more muted levels versus the first half. We reiterate our previous guidance of mid- to high single revenue growth for the full year and that holds. As I mentioned earlier, we pulled some forward production-related revenue recognition into the first half to level load our facilities and to support high levels of delivery commitments in the second half. This is expected to unwind in the second half, resulting in low to mid-single-digit growth in Q3 and Q4 and keeping our full year expectations unchanged.

Now let me provide some additional color on our markets, products and programs. Beginning with our Military & Space sector, we saw revenues of $124 million compared to $116 million in Q2 2025. This represents 7% growth and was driven by another quarter of strong performance in our missile franchise that was up significantly. We also had nice growth in fixed wing aircraft, which was offset by year-over-year temporary declines in radar, naval and space platforms and this was due to timing of orders.

I want to briefly expand on our missile business. DCO's missile business grew 68% and in Q2 and is now up 29% over the past 12 months. I mentioned before that RTX, our largest customer and Lockheed are expected to significantly increase production on many programs, including the PAC-3, SM-3, SM-6, Tomahawk, THAAD, AMRAAM, and we are in discussions on multiple opportunities. DCO is well positioned on all these programs and in great shape with capacity in our operations that fully support the required ramp-up. DCO is the key supplier on these programs and as the orders for missile replenishment begin to work their way from announcing to firm orders, Ducommun is laser-focused on capturing as much of this content as we can.

This is an exceptional time to be operating in this segment. We're not only fortunate but also excited for the opportunity to drive much higher levels of shareholder value from this growth. Within our Commercial Aerospace operations, second quarter revenue increased 16% year-over-year to $89 million, with strong growth in production and deliveries on single-aisle platforms from both Boeing and Airbus. Our 737MAX platform also benefited from an aftermarket retrofit order. This is an incremental content of engineered products for us on the 737MAX and the retrofit demand is expected to sustain for the next few years with an opportunity for line fit revenues as well in the future. This growth in our large commercial aerospace business helped offset declines in our business jet and commercial rotorcraft business during the quarter.

We continue to be optimistic on the Commercial Aerospace outlook. Boeing just last week announced, they continue to make progress on increasing the 737MAX builds from 42 to 47, and the new production line in Everett is now up and running. It was also great to see the MAX 7 recently certified after more than 6 years -- more than a 6-year delay. The MAX 10 is next and will be another big lift for our second largest customer, BA.

We see the impact of internal and external destocking coming to an end in the next couple of quarters with a glide path for growth going into 2027. We continue to monitor closely the supply chain challenges at Airbus with engines and know they're expecting rate increases in 2027 as well.

In summary, the outlook for the next few years is the best I've seen since joining Ducommun, and the future is very exciting for the company and its shareholders. We like the balance of Defense and Commercial Aerospace business that we have as well and are strongly positioned to take advantage of the overall industry tailwinds.

With that, I'll let Suman review our financials in detail. Suman?

Thank you, Steve. As a reminder, please see the company's 10-Q and Q2 earnings release for a further description of information mentioned on today's call. As Steve discussed, our second quarter results reflect another strong quarter of revenue with continued recovery in Commercial Aerospace, along with growth in our Military end markets. Gross margins and EBITDA margins both continued to show improvement on a year-over-year basis and the synergies from our facility consolidation projects completed last year are now at the expected run rate. These actions, along with our strategic pricing initiatives, drove continued margin expansion in Q2 and keeps us on pace to achieve our Vision 2027 goal of 18% adjusted EBITDA percentage of sales.

Now turning to our second quarter results. Revenue for the second quarter of 2026 was $224.5 million versus $200.8 million for the second quarter of 2025. The year-over-year increase of 12% reflects strong growth in Commercial Aerospace of 16%, driven by growth on single-aisle platforms, including the 737MAX and A320 as well as growth on wide-body platforms. The strength in the Commercial Aerospace business was supported by higher production and deliveries for OEM customers and aftermarket retrofit work on the MAX. We continue to see destocking in our Commercial Aerospace business and expect it to be largely caught up by the end of 2026.

Our Defense business grew 7% year-over-year, with continued strength in missiles and fixed-wing platforms, partially offset by temporary declines in radar, naval and space platforms. The growth in our missile franchise was broad-based with strength in several different programs, including PAC-3, SM-6, MIR, Tomahawk and the Naval Strike Missile. As Steve mentioned earlier, our missile business grew by 68% during the quarter and 29% over the past 12 months. And with that, our missiles, radar and electronic warfare programs combined now represent approximately 35% of our LTM defense revenues and more than 20% of total DCO revenue. It's a strong franchise with great platforms to drive significant upside for Ducommun in 2027 and beyond as we see an uptick in OEM production activity on the various missile platforms.

Overall, Q2 was a very strong revenue quarter for us, but did also benefit from some pull forward of production and related revenue from the second half as we look to level load activity in anticipation of higher deliveries in Q3 and Q4. We posted total gross profit of $62.9 million or 28% of revenue for the quarter versus $53 million or 26.4% of revenue in the prior year period. The record gross margin was driven by realization of our planned synergies from the facility consolidation program, which are now at their full run rate, along with the benefit of higher manufacturing volume. Operating income for the second quarter was $28.3 million or 12.6% of revenue compared to operating income of $17.7 million or 8.8% of revenue in the prior year period.

The year-over-year increase of $10.6 million was primarily due to higher gross profit and flat SG&A with the latter benefiting from the one-time compensation clawback. Adjusted operating income was $26.7 million or 11.9% of revenue this quarter compared to $20.6 million or 10.2% of revenue in the comparable period last year. The adjusted operating income excluded the onetime benefit of compensation clawback and was up 170 basis points versus prior year. The company reported net income for the second quarter of $20.4 million or $1.31 per diluted share compared to $12.8 million or $0.84 per diluted share a year ago.

On an adjusted basis, the company reported net income of $18.4 million or $1.18 per diluted share compared to adjusted net income of $13.6 million or $0.90 in Q2 2025. The higher net income and adjusted net income during the quarter were driven by the higher adjusted operating income.

Now let me turn to our segment results. Our Structural Systems segment posted revenue of $93 million in the second quarter of 2026 versus $91 million last year. The year-over-year change reflected $4 million higher revenue in our Commercial Aerospace business driven by single-aisle platforms, including the MAX and the A320 as well as wide-body platforms. The Military & Space business within this segment was down $2 million on a year-over-year basis with temporary weakness in military rotorcraft, partially offset by growth in missiles. Structural Systems operating income for the quarter was $12.8 million or 13.7% of revenue compared to $9.3 million or 10.2% of revenue for the prior year quarter. Excluding restructuring charges and other adjustments in both years, the segment operating margin was 15.7% in Q2 2026 versus 12.8% in Q2 2025.

The increase in year-over-year margin was driven by savings from the facility consolidation program and higher manufacturing volume. Our Electronic Systems segment posted revenue of $131 million in the second quarter of 2026 versus $110 million in the prior year period, an increase of 20%. The year-over-year change reflected $10 million in higher revenues in Military & Space applications, driven by strong growth in missiles and military fixed wing aircraft, partially offset by temporary weakness in our radar and space business. Commercial Aerospace in the quarter grew $8 million, driven by growth in Boeing platforms. Our industrial business also grew $3.8 million during Q2 due to timing of production orders.

Electronic Systems operating income for the second quarter was $25.5 million or 19.4% of revenue versus $20.5 million or 18.6% of revenue in the prior year period. Excluding restructuring charges and other adjustments in both years, the segment operating margin was 19.7% in Q2 2026 versus 19.1% in Q2 2025. The year-over-year increase was driven by higher manufacturing volume.

Turning to liquidity and capital resources. In Q2 2026, we generated $33.5 million in cash flow from operating activities compared to $22.4 million in Q2 of last year. Our strong cash generation was driven by higher net income partially offset by higher working capital during the quarter. Year-to-date cash flow from operating activities was $44.8 million, and year-to-date free cash flow was $38.3 million, representing free cash flow conversion against adjusted net income of 127%. In Q4 of last year, the company amended its credit agreement, which now included a $200 million term loan and a $450 million revolver. This new $650 million facility lowers our cost of capital and gives us incremental capacity to execute on our acquisition strategy.

As of the end of the second quarter, we had available liquidity of $410 million, comprising of the unutilized portion of our revolver and cash on hand. Interest expense in Q2 was $3.5 million compared to $3 million in Q2 of 2025. The year-over-year increase in interest cost was primarily due to higher debt balances, offset by lower interest rates on our debt due to more favorable terms in our new credit agreement. Also, as a reminder, in November 2021, we had put in place an interest rate hedge that went into effect for a 7-year period starting January '24 and pegged the 1-month Term SOFR at 170 basis points for $150 million of our debt. The hedge is still in place and will continue to drive significant interest cost savings in '26 and beyond.

To conclude the financial overview, I would like to say that the second quarter results continue to affirm that our Vision 2027 strategy is working and that we are well positioned to achieve our Vision 2027 goals.

I'll now turn it back to Steve for his closing remarks. Steve?

Okay. Thanks, Suman. In closing, Q2 was another record quarter for DCO, and I cannot be happier. We ended the first half as well with record revenue and EBITDA margins and seeing strong tailwinds across our primary end markets. It was also our fifth consecutive quarter of revenue over $200 million. Gross margin and adjusted EBITDA margins were at 28% and 17.1%, respectively. Wonderful news, and on track to meet our Vision 2027 goals.

In addition, the company's engineered product revenues over the past 12 months was 23% and in excellent shape as we drive higher OEM and aftermarket products through the P&L. As everyone knows, driving this percentage as high as possible is our #1 strategic focus with 100% commitment.

Finally, I look forward to sharing the next chapter of Ducommun, California's oldest company still operating today when we unveil our Vision 2032 on September 17 at our Investor Day in New York. We cannot be more positive about the future of DCO over the next 6 years and are excited to share the strategy and game plan with all of you next month.

With that, now let's go to questions. Thank you.

[Operator Instructions] Our first question will come from the line of John Godyn with Citi.

I wanted to just hone in on a couple of things from the prepared remarks and then maybe ask a bigger picture one. But in the prepared remarks, the missile growth number, I think I heard 68%. That was a very large acceleration from last quarter. I would love -- obviously, there's a theme there, but I would love a little bit more color on kind of whatever you're willing to share on the large inflection there? And then separately, you mentioned a large retrofit order, which I thought was very interesting and perhaps offering a little bit more color there would be useful as well.

Sure. Great. Great to be with you. Thank you for the question or the questions. I'll handle the first one. Yes, we're thrilled with the 68%. A lot of it is PAC-3. So a great job by our team, our whole group that supports the PAC-3, Lockheed in general is on this replenishment even though these are -- this order was not for the 7 years, obviously, 7-year was just done last month in July. They are very focused on PAC-3. We are a major supplier for cards for the PAC-3 and so that was a big part of the 68%. And Suman, you want to handle the other one?

Yes. And John, just to make sure the second part outside of the missile growth?

It's the Carson.

Yes, the Carson business...

The retrofit.

Yes. So that really is a great win for us with engineered products. So Carson is an engineered product business. We own the design IP in the revenues that come out of that performance center, and they were able to design a switch, which is going to be retrofitted on the MAX, and that was a big win. And eventually, we expect that will also be part of the line fit and will drive recurring revenue for us. But even prior to that, the retrofit order, it's a large fleet out there and is going to drive revenue for us for the next few years, just the retrofit alone. So it's a big win, and that helped with the MAX.

Absolutely. John, that's a home run for us. That retrofit.

Excellent. Excellent. And maybe if we just take a step back, and I'm sure we're going to hear more at the Investor Day, but just taking a step back on the margin outlook. I think sometimes the pushback that we hear from investors is on contract manufacturing exposure and the margins that, that kind of generates. I think you've demonstrated that you're able to generate higher-than-normal margins on contract manufacturing. And Steve, maybe there's something to kind of dig in there a little bit and just shed some light on how your contract manufacturing is a little bit different, maybe a little bit more specialized and how it's generating that margin profile?

Yes, it's a great question. And I think I'm happy to have this answer is that contract manufacturing is a challenging business. But if you find the right niches, you can make good money and have some pricing power, and that's a good example as our titanium business. We do super plastic forming and hot forming of titanium in the structures, which is a contract manufacturing build-to-print business. And there's only a few folks that do that in the entire world. And outside of Toulouse, which Airbus has -- even though they're a customer, they also have their own internal titanium operation. We're the largest. And there's very, very few that can do the work we do. So that's one example.

The other example I'll give you is our Joplin facility, which makes harnesses, all types of ruggedized harnesses, all types of applications for high heat, for pressure, for all types of environments and very few people can do that, too. So when you look at Ducommun and contract manufacturer, you can't look at us as we're just doing like machining with 5- and 6-axis machines, and there's 100 companies that can do that worldwide, okay? You really got to think about our CM business is just really things that are really hard to make, and there's a few people doing it in the world.

One moment for our next question and that will come from the line of Mike Crawford with B. Riley Securities.

So we know you're embedded on these large traditional prime missile and munitions programs. But what are you doing to address all the opportunities coming with affordable mass and emerging new primes such as like Anduril?

Yes. Well, first of all, great question again. We are engaged. We're engaged with AeroVironment. We're engagement with Anduril, obviously, somewhat as well with Kratos. So we are absolutely on top of this as far as trying to find areas where we can drive value. Do I see us on a $5,000 drone? I'm not sure, okay? But I do see us being able to provide value in different areas, such as composites, possibly RF, antennas, those type of things. So we are actively quoting, actively engaged. We have high levels of relationship now with their management, and we continue to move forward. So we're right on top of it, Mike.

All right. And then just for one follow-up question. We know you've been super patient on M&A, I mean, super successful as well and patient in recent years to not do anything that is not good for shareholders. But do you ever get tempted to look at larger, more transformational deals? And related, any other updates on the existing pipeline?

Mike, you're a great straight man. Okay. Look forward to talking to you in September. Well, that's some good news for you. I do mean that, but Suman, you want to jump in real quick?

Yes. No, we continue to remain active in the market in terms of looking at opportunities. We've beefed up the team. And so we are absolutely looking at a number of things that we're going to do. We're going to pull the trigger when we think the opportunity is right, and there is -- we have the ability to create value for our shareholders. So we -- stay tuned and I think you asked another good question, which, as Steve said, we'll be better positioned to answer...

Yes, more to come next month, Mike.

One moment for our next question and that will come from the line of Ken Herbert with RBC Capital Markets.

I just wanted to follow up on the margin question. Again, without getting too far ahead of potential September news. But you've done a lot from a restructuring standpoint, facility and manufacturing footprint. As we think about gross margins moving forward, obviously, volume would be an important tailwind. It sounds like you're getting better price. Is there anything else we should think about from a -- just an organizational structure standpoint, anything else that could be a tailwind to margins beyond volume and price as we think about sort of the potential over the next few years?

Ken, great question. We certainly believe there is a lot of margin runway ahead of the company. Again, more color to be provided on Investor Day. You noted a couple of key drivers. I would say, the other big driver for us is going to be the continued shift to engineered products. And that's been an important part of our story over the last 4 or 5 years, well, ever since kind of Steve took on leadership of the company, and it's going to continue to be part of our story going forward, and that will help improve our margin moving to higher IP products, which are more engineered where we're able to make better margins.

Yes. Ken, the only answer we just -- and just the top -- the next level down is that our engineering, Ken, on the engineered products side is just so much better. So great example is retrofit with the MAX.

I was just going to ask, is most of the missile exposure engineered products? Because it just seems like you've got phenomenal opportunity there, but a significant mix benefit is just going to face headwinds from growth in a lot of the non-engineered products parts of the portfolio.

No, that's a good point as well. And that's where kind of acceleration on the -- in M&A is going to play a factor as well. Again, more to come at Investor Day. But we are growing our engineered products organically, too. If you look at the performance over the last 4 years under Vision 2027 with the one acquisition, which contributed maybe 300 basis points to the mix shift. We have gone from 15% to 23% of revenue from engineered products. So that's reflective of the strong organic growth in the business, and there is an expectation with the investments made in that business that we will continue to see strong organic growth. And that supplemented with M&A will help keep moving the shift.

I think the other question you had around missiles, a lot of the missile work is these ruggedized interconnects or cables, which are not in our definition, engineered product, but they are highly proprietary in terms of the process capability that we have. So -- but they aren't technically part of engineered products.

Yes. It leads more to CM on the missile, Ken. But again, we're working -- it obviously built out more engineered products and we're really happy where we are. I think we're going to have a really nice story for you guys next month on that.

No, it sounds great. If I could, just one final question. Where are you from a capacity standpoint? I mean, as you're seeing the growth like in the rugged interconnects in these areas, or do you have sufficient capacity in Joplin and these other centers of excellence to drive that? Or are you looking at maybe more CapEx or hiring to really support that?

Yes, hiring for sure, Ken. Okay. Thankfully, on the capital side and footprint side, we're in really good shape. Obviously, we're going to have to make some investments over the next few years. But Joplin, for instance, guys are doing a great job. We just opened up another part of the building that was really not being used for another 25,000, 30,000 square feet. The Tomahawk is going to go in there, and that's being lined out. It's going to be a world-class facility, but we're hiring quite a bit in Joplin, for instance. I think we probably hired over 80 to 90 people since January. So that's a lot for us. So we're moving forward. And I think we'll be in good shape.

[Operator Instructions] Our next question will come from Alexandra Mandery with Truist Securities.

Nice results. In relation to missiles, have you started taking a look at your supply chain there to secure components to align with the demand? And what might those pinch points be?

Yes, it's a good question. Look, it's always a concern. I think we have a really effective supply chain group. We've been doing this game for a long time, as you know, it's a big part of our business. So we know how to look at the market. We know we certainly do some buffer stock when needed. We feel overall that with the capacity and the footprint that we still -- which is still underutilized, right, which has got to start going way up as far -- and the hiring, which is obviously ongoing right now, we obviously have to monitor.

But we feel good about the supply chain. We're not tight about really any kind of components other than just we need to manage it, and we do that right now. So I think it's all green light.

I'm showing no further questions in the queue at this time. I would now like to turn the call over to Mr. Steve Oswald for any closing remarks.

Okay. Great. Well, let me just wrap it up. First, thank you again for joining us for the Q2 call. As I said in my press release, which I do as I did over the past few days, the first sentence is, I could not be happier, and that's true. The first 6 months in this quarter has been wonderful for DCO, wonderful for our employees and our customers and obviously, our shareholders as equally important.

So we're looking forward to another great second half in 2026. We're also very excited about our Investor Day next month. We hope you can join us. Again, thank you for being with us today, and have a safe day.

This concludes today's program. Thank you all for participating. You may now disconnect.

Thank you. Well, Ron, appreciate your saving the best for the last, right? I know you guys have been through three days of the conference. But we have an exciting story at Ducommun, and I'm really happy to be able to share that with you. As Ron said, I'll just quickly go through a few slides so that for those of you who are new to the story, you have an overview of the company and what we do and what, kind of, the key investment thesis is for the business.

So our disclosures. For those of you that don't know, we are the longest operating company in California. We've been in business for 176 years. We started back in 1849, even before the state of California was formed. We did a bunch of things. We weren't in commercial aerospace then, of course, but got into that in the 1920s and '30s supplying metals into the industry as it was really born at that time.

And then we moved out of being a distributor of metals in the '80s and started getting into both aerostructures and into various other components for the aerospace industry through the '90s and 2000s through a series of acquisitions. In 2017 is when the current management team came on board. So Steve Oswald, who's our Chairman, President, and CEO, came on board then, and we embarked on a new journey then.

It was kind of a sleepy small cap company prior to that, viewed primarily as an aerostructures business. And Steve took on the leadership then. He brought about a different culture of accountability, a focus on driving the business for profit versus just for growth. And we had a great run from 2017 through 2019, growing the business as well as improving profitability until the pandemic hit. And that's when we had to refocus the business.

Defense became a bigger portion of our portfolio, and that business grew really well through 2020, '21, '22. And it really saw us through the pandemic years, and we were able to maintain our EBITDA within a 10% range, EBITDA dollars within a 10% range, despite commercial aerospace being 50% of our revenues going into the pandemic. So that is a, kind of, reflection of management's ability to kind of deal with that adversity and be able to make adjustments in the business to maintain and the profitability.

In 2022 is when we felt like there was, or we thought we had enough visibility into the future of the industry to be able to come out and present a five-year plan, that's what we did. So we presented in December of 2022 what we call Vision 2027. It was a roadmap for us to grow from $700 million in revenue to $1 billion in revenue and take EBITDA margins from 13% to 18%.

And I'll talk about that in a little bit, but that was kind of the outline of that strategy. And we have made great progress in being able to meet those targets. If you look at the market capitalization of the company since Steve took over, we've had a growth of 569% in the market cap. Our TSR is more than 400% over these nine years. Great performance, and the best is yet to come.

The EBITDA margins, if you look at them, 700 basis points of expansion in EBITDA margin under the current management team. Even going back to 2022 when we were laying out our Vision 2027 strategy and margins were around 13%, up from where the management team had taken on the business, people were skeptical. They said, "Okay, how can a business like Ducommun get 500 basis points of expansion?"

The customers would never allow you to be able to get your profitability to that level. But we were confident. We had a sound plan. We executed on it, and we are at 17% right now. What does our business mix look like? 58% of our revenues come from defense, 38% from commercial aerospace. So defense is a pandemic. There is a lot of opportunity in commercial aerospace.

We, where we sit in the supply chain and for what we provide, the inflection point in commercial aerospace is yet to come as we still see destocking and the benefit of rate ramps with the OEMs not yet reflected in our P&L. So there is opportunity there. So we will see that mix move a bit more favorably towards commercial aerospace.

Defense is growing really strongly too, and we have a large missile franchise. So if you look at the different platforms where we have exposure, on the right, you can see the different military aircraft, you can see the commercial aerospace platforms, but the missiles and radar are going to be kind of the big opportunity for us going forward.

And they generate, if you look at missiles and radar and electronic warfare, they are more than a third of our defense business, almost 20% of the total revenues for Ducommun. And we believe that there is going to be significant growth opportunity.

We are an incumbent supplier on most of the key missile platforms where the Department of War has entered into framework agreements with the Raytheon and Lockheed and others, and we are in a great position to benefit from the expected growth on all those platforms.

I won't spend much time on this slide, but this kind of shows you, and this presentation is on our website. It shows you the different product lines within each of our reportable segments. And we have a good assortment of both electronics, which largely go into defense applications, as well as structural products.

And not just kind of the legacy aerostructures, as many of you may know, but also engineered structural products that are part of our portfolio where we own the design IP and have great strategic pricing power and margin opportunity.

So vision 2027, I, kind of, talked about it already a little bit. What were the key drivers behind us being able to execute on this margin trajectory? It was a shift towards engineered product. What is engineered product? We define it as product where we own the design IP, where we are spec'd in, we're sole-sourced, we own the aftermarket. We love those kinds of businesses.

Many companies do these days. We do, and we have had a good track record of growing that portion of our business. When the current management team took over, it was only 9% of our revenue. In 2022, when we laid out our Vision 2027 plan, it was 15% of our revenue. Today, it's 23% of our revenue, that has been that shift in mix towards more engineered products, which we have achieved both organically and, to some extent, inorganically, has helped with margins.

The second piece has been cost takeout. So we do have manufacturing services in our business where taking out cost to improve profitability is important. We have reduced our footprint. We have shut down two facilities, one in California, one in Arkansas, and we have moved our production into existing facilities in the United States and in Mexico and been able to take cost out.

And we committed to taking $13 million of cost out through those moves. We've already achieved two-thirds of that saving. It's in our P&L, another third to go over the course of the rest of the year. And then the third key element to drive margin has been pricing and discipline around pricing and making sure that we are protected from cost inflation.

So if you look at our margins back in 2020 and 2021, part of the reason why we saw some of the margin go down a little bit was because we had firm fixed price contracts, and we saw a lot of inflation due to the supply chain issues during the pandemic. And we learned our lesson, and when we enter into LTAs, first of all, we try to keep the tenure of those LTAs short. And where we do enter into longer-term agreements, we make sure we have the appropriate escalation clauses so that we are protected from cost inflation and can maintain and grow our margins.

Those have been the key drivers. We believe that there is a lot of runway ahead of us when it comes to margins going forward. We're going to be back in the city in September to host an Investor Day where we will lay out what we call Vision 2032, so the five years beyond 2027, and what we intend to accomplish there, both from the perspective of growing top line and revenue and the numerous opportunities we have on that front, but also things we will do to improve margin.

This is the last page that I'll go through. I won't go through the remaining deck, but this tries to capture some of the key elements that drive our business and are going to drive performance in the business. So first, I talked about it, is growing the engineered product mix, right? It has gone from 9% to 15% to 23%.

We're going to get to 25% of revenues by next year, and there is much more opportunity there for us to continue expanding that portion of our revenue. And so that -- and that will help a lot with our margin as well. Cost reduction initiatives, I talked about the facility consolidation that we have done.

We continue to find ways to take cost out through automation, and things like optical inspection through automation to be able to take the cost out of our business and become more profitable.

M&A strategy and execution linked also to our intention to grow our engineered product business, buying businesses that have that engineered product content to be able to grow that mix and shift that mix faster than just the organic growth that we are seeing. Commercial aerospace recovery, that is still an inflection point that is yet to come for us.

Today, if you look at our commercial aerospace business, we are seeing the impact of destocking still for parts of the supply chain where we play. You still have several fuselages at Spirit that are waiting to get shipped out. We have internal stock as well that we need to get through. Today, we are recognizing revenue on the MAX at around 30 aircraft a month.

Production at Boeing is at closer to 42 with the intention of getting to 47 middle of this year, eventually into the mid-50s and higher next year. And so with us being at 30 today, the opportunity is significant for us on the revenue front with commercial aerospace. Similar situation on the 787, where we have significant content, as well as with A320.

And then last but certainly not the least is our missile and electronic warfare and radar exposure. As I was mentioning earlier, it is today about 33% of our defense revenues. It's just under 20% of our total revenues. And there is a lot of opportunity there as the Department of War, through its framework agreements, looks to ramp up production anywhere from 2X to 10X on a lot of these key platforms where we are an incumbent supplier today. And the growth opportunity is enormous.

We are today in active discussions with the defense primes, with Raytheon, with Lockheed and others, to support them under these framework agreements and be able to help them get to the production rates that they have committed to the government. So that's really the most exciting part for us right now and will be a key driver for the business going forward. I'll leave that page up there.

So as we think about the business as you go out a couple of years and presumably commercial aero's working, right? Boeing and Airbus are building closer to their stated targets out there. Your 73s are where they are, higher where they are today. You've worked through your inventory. Boeing and Airbus are humming along. Defense is where it is. Organically, where do you see the mix of the business going as things evolve, broadly speaking?

Right. I think we're going to see some inflection point in commercial aerospace in 2027 as we get past the de-stocking. That being said, the big opportunity is going to be in defense for the company because the exponential growth that we're expecting to see, especially on the missiles and radars, I think is going to be a key driver.

So if you'd asked me the same question a few years ago, I would have said the business mix is going to continue to skew more towards commercial aerospace as the ramp up happens, and we were pre-pandemic 50-50 between defense and commercial. Today, we are almost 60% defense and 40% commercial. We will probably stay in that ballpark just because defense is also gonna grow very nicely.

Got you. Got you. When you think about the defense growth, sort of the big primes have these framework agreements, and some aspect of that is they're gonna invest up front and get it back. How does that work for you?

That's a great question. And the good thing for us is for the products that we make for these missile programs, the capital intensity of our operation is low. We're making recognized interconnects that are going into these missiles, where there is a lot of handwork and there is -- or we're making circuit card assemblies where your SMT line is $1 million, $1.5 million.

We're not talking about $10 million of investment that we need to make and then be worried about volume sustaining beyond five to seven years. We're talking about investments that will be just part of our regular CapEx budget that will be able to support the significant ramp up.

Got it. On that ramp, when we think about from a margin accretion point of view, how should we think about that?

There is going to be -- there's certainly an expectation that with these higher volumes, some of that efficiency is passed on to the customer and eventually to the government. I think that is also the framework of these agreements that Raytheon and Lockheed have with the government. So I think there is an opportunity for us to share some of those efficiencies and yet continue to benefit from the operating leverage these much higher volumes will have in our existing facilities.

We're going to use our existing facilities. The low capital intensity allows us to be able to have incremental drop through because we're not gonna have a lot of incremental depreciation running through the P&L or as a result of huge CapEx that we need to put into these projects.

Got you. The transition from -- I'm familiar with your comment of old, long time ago, right? That airplane skin thick. Continuing down that road, when you think about maybe inorganic things to add, where in the portfolio, not to give away any figures, but broadly here in the portfolio, where it makes sense? Is there adjacencies or areas that could make sense?

Yes. When we look at M&A, we tend to be fairly product line agnostic. We're focused on A&D. That's what we know best, and we are going to stick to it. We're not going to go buy an industrials business to get the deal done. So we're focused on A&D. We're focused on engineered products. We want products where we own the design IP, we're spec'd in, we have access to the aftermarket.

We like businesses where we can be a number one, number two player within a niche market. If you look at the businesses that we have bought, we bought a company called MagSeal in the last few years. They make magnetic seals. They're the only provider of magnetic seals in the A&D space globally. Small business. It was a $70 million enterprise value transaction.

We bought a leader in a segment where they have content on several rotorcraft platforms where they're spec'd in sole source, and there is -- they're the only solution for that particular problem that they're solving. We like a business like that. The first deal we did under the current management team was a business called Lightning Diversion Systems.

And they make lightning protection for radomes on aircraft, both military and commercial. And they are the foremost in that space. The next player is 1/10 their size in that segment. It was a $60 million transaction, we bought this business that was very profitable and has become even more profitable since then and has grown well just given the proliferation of electronics and communications on board aircraft.

Protection, there are more radomes, and more radomes need more lighting protection, and they are the go-to supplier in the space. So we like businesses like those and, those are the kinds of, properties that we intend to continue to acquire.

When you think about the pipeline for those kinds of properties, how is it? Because I would imagine there's others who want them too, right? So it's...

Yes. Competition has always been intense for those kinds of product businesses. I mean, you've had TransDigm, HEICO, Loar, looking to do acquisitions for more than a decade in that space. There are additional players that have come in today, both private equity and strategic, that are now pursuing similar assets.

Focus on growing our proprietary pipeline has become more important to us, and we are investing to do that. And we feel like there is enough in the pipeline for us to be able to get deals done. But I do acknowledge that it is a more competitive environment today than it was maybe 5 years ago.

When you think about places that you can do it organically, that you can invest your own money and develop your own hit, if you will, for lack of better words. What areas are, if you can say?

Of course. We're definitely doing that. So if you look at the mix shift that we've had in our business from 2022 through 2020, first quarter of 2026, we've gone from 15% to 23%. Only a couple of hundred basis points of that has been inorganic. The rest has been organic growth. So we've been investing, and this takes time for you to get an engineered product qualified on any platform. It doesn't happen in weeks or months or even quarters. It takes a while.

It takes years of both product development and engineering and getting the buy-in and getting specced onto a platform. So we have been making that investment for a while now under this current management team, and we're beginning to see the fruits. We're beginning to see the success there.

We're doing that with our businesses which make, for example, motors and resolvers. We have a lot of engineering capability and technology there, so we are finding additional applications where these motors can be used, including missile applications, for, like, tail fin actuation. Motors are used, and then electronic motors are used in various parts of the value chain in A&D. That's one area where we're looking at.

We have a lot of capability when it comes to push button switches that are used in both commercial and military aircraft. And so we've been continuing to grow that product line. We have a business we bought called Nobles, which makes ammunition chutes, and they are the leader globally in making ammunition chutes.

Since we've acquired them, we have moved them to making entire ammunition handling systems, so expanded the scope of that product. That product had a ship set value of $3,000 to $5,000, maybe $10,000 at most, depending on the application and platform.

Now that they're providing the entire solution, it's tens of thousands of dollars per ship set for them. So that investment in engineering and production capability to be able to move into an adjacent space and grow the business is something we've been investing in all our engineered product business.

Maybe frame it as a percentage of sales. What do you think the proper level of spending on R&D and product development should be?

So we don't publicly disclose our R&D spend. 77% of our revenue today still is contract manufacturing. It's manufacturing services. So it is not a metric that we are publicly talking about. But as we grow engineered products further, it definitely is something we will highlight more. But I can tell you that it has been a focus for management to invest in and design engineering in our engineered product businesses.

And today, I would say the reflection of that is in our results, even though we may not publicly talk about the engineering spend, is the fact that organically, the engineered product businesses are growing so nicely.

Yes, that's clear. I mean, that's going on. Back in the day, the aftermarket exposure was pretty low. When we think about a percentage of revenue that's either aftermarket or recurring, in defense maybe it's different. What percentage is that, and where would you like to see that go over time?

Right. So in our Vision 2027 plan, we said we want to take our aftermarket business, which largely is a subset of our engineered product businesses. That's where we have access to the aftermarket. We said it was about 10% of our revenue. We want to take it to 15%. I would say that we are past the halfway mark on that.

We're probably around 13%, 14% of revenue today coming from aftermarket, and we feel confident we're gonna get it to 15% by next year. And then there is and as we keep growing engineered products beyond 25%, the aftermarket is naturally gonna grow with it. It's, as I said, it's a subset of that engineered product portfolio. We expect it to continue to ramp up.

So if one wanted to sort of dream the dream. Could you think of a 1/3 of the company maybe one day being aftermarket, or is that just a bridge too far?

So we'll have more clarity around that. I think, we certainly are, very keen on growing that business. We know that you can't have a good aerospace and defense business without having an aftermarket, big aftermarket component. And we are going to have aggressive targets to grow that. I don't want to throw a number out there, but we will have more on that specific thing, topic, in our Investor Day in September.

Maybe it's -- maybe a different way to ask it or a different way to get at that is, are the things you'd want to divest that don't have that are maybe more structural? They're fine businesses, but just not maybe been the vision that you guys have.

So we're always looking at our portfolio. Right? We're a public company. Nothing is for sale, but yet everything is for sale, right, at the right price. So those businesses have a lot of upside today where they stand. So we want to make sure that we realize that value for our shareholders. Our commercial aerostructures business is at 13 MAX aircraft per month that's. There's so much more potential in that business.

We're continuing to grow ship set content as well, for example, on the MAX, with additional content on the fuselage skins and things that we do for Spirit as well as for Boeing. There is a lot of opportunity, untapped potential there that we want to make sure we extract and provide to our shareholders.

So, no, there isn't an intention this time for us to sell any portion of our business, but we constantly, on an annual basis, revisit our portfolio to see what makes sense for the shareholder, and we're always open to all options.

Got you. The Spirit brought back into Boeing's fold. I mean, just as an outsider, one would think that's good for you. But I mean, I don't know. Like, I don't want to put words in your mouth.

It's good. I mean, Boeing, under Kelly's leadership, has got so much more operational discipline and greater ability to execute, and I think that's gonna help Spirit, and it has been helping Spirit, and it's already visible.

So that's a net positive for us. None of the things we do for Spirit, Boeing does in-house, so there isn't any threat for anything moving in-house as a result of the combination. We feel like it's going to provide more certainty and predictability in build rates and in demand coming from Spirit. So it's a good thing for us.

Also some of the opportunities to grow ship set content that we were pursuing with Spirit, which was for a period of time in a holding pattern, I think is now going to open up now that they're under Boeing's ownership and provide us with more opportunities to grow content.

Yes, you would think that stability would be a very good thing.

A net positive.

And then you didn't talk much about Airbus, but you do have content on A320. Is that right?

We do A220 and the A320, those are the key platforms for us, and they've been performing well. I mean, in Q1, we saw strong demand on both those platforms.

Yes. They just sold about 120 A220s, right? I don't know. Is that right? Going forward, when you think about the business, and maybe you can't answer this, 10 years out, where are you guys?

I see us as a business with a much higher engineered product content. And again, I don't want to kind of steal the thunder from our investor day, but it's a big number. It's gonna be a big number. It's going to be much more engineered product. It's going to be a much higher margin profile than what we have today.

People were skeptical of us, as I was saying earlier, getting from 13% to 18%, and they were like, they have the legacy perception of Ducommun, and did not believe that we could be an 18% margin business, right, just structurally. But we've proved that wrong. We had a well-thought-out plan that we executed step-by-step, and we have a really strong plan for the next five to seven years for the business, and what we will call Vision 2032.

So how did you all get buy-in from the employees, right? I mean, if you've got a workforce that's, "This is the way we do it, this is what we've done. I've built a career doing this," how do you get them to change, to go that direction? Clearly, you've been doing it, you've been working. What did you have to do to do that?

From a people perspective within the organization? It's the -- that's something it is difficult to change culture overnight. And it has been a slow process. And it's been nine years in the making now, where we have the right people in the right places who are results-oriented, very performance-driven culture.

People are rewarded for strong performance. Everybody in the company is entitled to an annual bonus. And it is linked to performance metrics that they can get their head around and that they can understand. Steve, our CEO, does a great job at converting complex business strategy into simple messages that someone on the shop floor can understand, right?

That they can take that message and do something about it to drive results, whether it is doing things to improve margin, whether it is reducing inventory that's sitting in the warehouse. He does a great job at being able to get into the minds of the shop floor worker, so that everyone is motivated and aligned in achieving the company's objectives.

So that's credit to his strong leadership and his communication skills and being able to get that message across. So we have a great workforce that is super motivated, super excited. We try to have equity incentives for a lot of our, certainly all our senior management, but also a lot of the middle-level management, so that there is alignment with the shareholder to the extent possible.

I mean, Steve was a CEO at a KKR portfolio company, and as I'm sure they're all about equity ownership across all employees. So he has brought that philosophy here to Ducommun to the extent it's possible in a public company setting.

And that also has a great impact on the employees see how their equity portfolio has performed with Ducommun in it over the last, four or five years based on their performance, and they're motivated to continue to drive a higher level of performance.

Yes, we've seen that work great at other companies. There's millionaires, at my desk at HEICO , right?

Right. Yes.

So I think, yes, we're almost out of time. So thank you for that.

Thank you for having us here.

Yes. Yes. Thanks.

Good day, and thank you for standing by. Welcome to Ducommun's First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I'd now like to hand the conference over to Suman Mookerji, Senior Vice President, Chief Financial Officer. Please go ahead.

Thank you, and welcome to Ducommun's 2026 First 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&A session that follows.

Certain statements today that are not historical facts including any statements as to the company's progress and value creation opportunity for shareholders under our Vision 2027 game plan for investors, beliefs about the company's Vision 2032 strategic plan potential destocking headwinds and their impact on the company's business for the remainder of 2026, expectations related to the U.S. Department of War. Long-term framework agreements for key missile programs with defense primes and their impact on the growth of our defense business, expectations related to certain commercial aerospace single and twin aisle platform build rates through 2027 and beyond.

Estimated synergies to be realized under the company's facility consolidation projects and the outlook for our commercial aerospace and defense businesses for the remainder of 2026 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 U.S. government defense spending, our customers may experience changes in production rates or delays in the launch and certification of new products, timing of orders from our customers, which are subject to cancellation, modification or rescheduling, our ability to obtain additional financing and service existing debt to fund capital expenditures, and meet our working capital needs, legal and regulatory risks, including pending litigation matters generally as well as any potential losses arising from third-party subrogation claims related to Guaymas Performance Center fire may that become material.

The cost of expansion, consolidation and acquisitions, competition, economic and geopolitical developments, including supply chain issues, our ability to successfully implement restructuring, realignment and cost reduction initiatives that could adversely impact our ability to achieve our strategic objectives.

International trade restrictions and our ability to obtain necessary U.S. government approvals for proposed sales to certain foreign customers, the impact of tariffs and elevated interest rates, risks associated with the prolonged partial or total U.S. federal government shut down, 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-K/A, quarterly report 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 the 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 2026 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?

Okay. Thank you, Suman. Thanks, everyone, for joining us today for our first quarter conference call. Today, as usual, I will give an update of the current situation at the company, after which, Suman 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 to make great progress in our fourth year of the plan, strategy and vision were developed coming out of the COVID pandemic over the summer and fall of 2022, unanimously approved by the Ducommun board in November 2022 and then presented the following month in New York to investors where we got excellent feedback. Since that time, Ducommun's management has been executing the strategy by increasing the revenue percentage of engineered product content, which is at 23% over the past year and up from 15% in 2022, consolidating our rooftop footprint and contract manufacturing, continuing our focused acquisition program, executing the offload strategy with defense primes and high-growth segments, driving value-added pricing and expanding content on 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 catalyst ahead present a unique value creation opportunity for shareholders. The Q1 2026 results show again that strategy initiatives are working with gross and adjusted EBITDA margins continuing to stay on track to meet and exceed our Vision 2027 goals with more opportunities to come for DCO.

For Q1, I'm happy to report that revenues reached a new first quarter record of $209 million, 9% growth over last year, our fourth consecutive quarter of $200 million revenue and our 20th consecutive quarter with year-over-year revenue growth. We have particular -- we had growth in both our commercial and military end markets with commercial aerospace, in particular, showing a major turnaround in the quarter with 18% year-over-year growth, a very positive sign. We saw production and deliveries continue to ramp, driven by higher OEM production rates as well as lower than previously anticipated destocking. While this is great news, we are not past the destocking issue entirely as yet, and we expect it to have some impact in the remaining 3 quarters of 2026.

In addition, the company's remaining performance obligations, RPOs, remain at over $1 billion -- almost $1.1 billion, increasing $86 million compared to Q1 last year. The growth in RPO year-over-year is primarily in defense, where our book-to-bill is at 1.2 in the last 12 months, and our commercial aero book-to-bill is at 1. We closed on over $175 million of bookings in Q1 and have closed on $925 million in the past 12 months. Our bookings do not reflect any upside of potential orders from defense primes under the 7-year missile framework agreements entered into by them with the Department of War in the past few months.

We are in active discussions with the defense primes to support them on these major agreements and are well positioned as an incumbent supplier in many of the programs, which is great news for DCO and its shareholders. Production on many of these missile programs such as Tomahawk, PAC-3 and Standard Missile-3 and 6 are expected to grow severalfold and this will be a big driver of growth for the DCO defense business over the next few years. Stay tuned for more news on this front in the coming quarters.

Gross margin grew by $5.8 million in the quarter to 26.9%, a nice improvement from 26.2% last year in Q1. We continue to see the benefits of our Vision 2027 strategy and gross margin expansion due to DCO's engineered product portfolio with aftermarket, strategic value pricing initiatives, restructuring actions and productivity improvements reading through to the P&L. Cost saving expectations are also on track for the run rate of $13 million in savings from our facility consolidation program by the end of 2026. For adjusted operating income margin in Q1, the team delivered 8.6% and well above the prior year of 4%.

This was supported by growth in adjusted operating income margins in Electronic Systems segment during the quarter as well as lower stock-based compensation expenses. Adjusted EBITDA continues to improve towards our Vision 2027 goal of 18% in 2027 from 13% in 2022. DCO achieved 16.9% in the quarter or $35.4 million, up $5.7 million from Q1 2025, which is excellent to see as we start off 2026. GAAP EPS was $0.64 per diluted share in Q1 2026 versus $0.09 for Q1 2025. With the adjustments, diluted EPS was $0.75 a share in Q1 2026 versus $0.23 in the prior year quarter. The higher GAAP and adjusted diluted EPS during the quarter was driven by higher operating income.

As mentioned earlier, over the past 12 months, we closed on over $925 million in bookings, a trailing 12-month book-to-bill of 1.1. The positive momentum in commercial aerospace and increased defense spending, we have strong tailwinds in both our primary markets. On the outlook for the rest of 2026, we expect to see continued strength in the defense business and a recovery in our commercial aerospace business. We reiterate our previous guidance of mid- to high single-digit revenue growth for the full year 2026. With the higher than previously anticipated strength in our commercial aerospace business in Q1 and with some of the destocking impact previously expected in Q1 deferred, we now expect the quarter to be relatively level loaded than 2026 and growth for each quarter between mid- to high single digits depending on the level of destocking.

Now let me provide some additional color on our markets, products and programs. Beginning with our military and space sector, we saw revenues of $118 million compared to $112 million in Q1 2025. This represents 5% growth and was driven by another quarter of strong performance in our military fixed-wing and missile franchises partially offset by weakness in our radar and electronic warfare, ground vehicle and marine business due to timing of orders. DCO's missile business grew 20% in 2025. And in Q1, it continued to grow, increasing 22% compared to Q1 in 2025.

As I mentioned earlier, RTX, our largest customer, and Lockheed will significantly increase production on many programs, including PAC-3, SM-3, SM-6 and Tomahawk amongst others, and we are ready to get moving. DCO is well positioned on all these programs and also in great shape of capacity at our operations to fully support the required ramp-up. These framework agreements and DOW's pushed to increase production ASAP should be a strong catalyst for growth in our Military and Space segment starting in 2027 and beyond. As a reminder, Ducommun is a key supplier in over a dozen missile platforms, including AMRAAM, MIR, PAC-3, SM-2, SM-3, SM-6, Tomahawk, RAM, Naval Strike Missile, THAAD and TOW, amongst others. This is an exceptional and unique time for DCO within this market segment and excellent news for significant future revenue, along with generating high levels of shareholder value.

Within our commercial aerospace operations, first quarter revenue increased 18% year-over-year to $84 million, with strong growth on Airbus platforms, including the A220 and A320 as well as the 737 MAX with Boeing. We also saw good growth in our commercial rotorcraft business as we ramp up production, our Bell platforms out of our Coxsackie, New York facility. The outlook for commercial aerospace is promising as Boeing increases their 737 MAX build rates from 42 to 47 by this summer and with the new production line in Everett going live this year.

While we expect to see some destocking headwind for the next couple of quarters, it should start to dissipate as we get to the end of the year, especially at legacy Spirit MAX Fuselage operations in Wichita. Additionally, Boeing is building momentum on 787 builds and making big investments in its South Carolina facility to increase capacity and ramp up production to 10 by the end of this year, with further rate ramp in 2027 and beyond. I also want to mention that DCO is $150,000 per ship set content on this platform. And so this will help us as we drive at a higher rate. We're also monitoring the production at Airbus as they work through their engine issues.

But overall, we remain optimistic about DCO's commercial aerospace business in 2026 with more growth ahead in 2027 and beyond. As we get past destocking and industry supply chain issues. Our balance of defense and commercial aerospace businesses is helping drive growth for the company in 2026. And we very much like the mix and the balance it provides. The outlook going forward is very positive for both end markets, the best I've seen in my 9-plus years leading Ducommun, and that's exciting news for the company and its shareholders. With that, I'll let Suman review our financial results in detail. Suman?

Thank you, Steve. As a reminder, please see the company's 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 strong quarter of revenue with a strong recovery in commercial aerospace and growth in our military end markets. Gross margin and EBITDA margins both continue to show improvement on a year-over-year basis. We completed our facility consolidation projects at the end of 2025, and those synergies will continue to build through 2026 as we ramp up production of the various product lines that were moved.

These actions, along with our strategic pricing initiatives drove continued gross margin expansion in Q1 and keeps us on pace to achieve our Vision 2027 goal of 18% adjusted EBITDA margin.

Now turning to our first quarter results. Revenue for the first quarter of 2026 was $209 million versus $192.5 million for the first quarter of 2025. The year-over-year increase of 8.6% reflects strong growth in commercial aerospace of 17.5% driven by growth on single-aisle platforms, including the A220, A320 and the 737 MAX as well as growth on commercial helicopter platforms as we ramped up production for Bell at our Coxsackie facility. The strength in the commercial aerospace business was supported by higher than previously expected production and deliveries and lower than previously expected destocking. We expect some of the lower destocking to be caught up in the remaining quarters of 2026.

This pull forward of revenue into Q1 is helping us better level load the quarters across 2026. Our Defense business grew 4.8% year-over-year with continued strength in missile and fixed-wing platforms, partially offset by declines in RADAR and rotorcraft. The missile business grew by 22% during the quarter, and our missiles, radar and electronic warfare franchise combined now represents approximately 33% of last 12-month defense revenues or more than 19% of total DCO revenue. It's a strong franchise and a great platform to drive significant upside for Ducommun in 2027 and beyond as we see an uptick in OEM production activity on the various missile platforms, as Steve noted earlier.

We posted total gross profit of $56.2 million or 26.9% of revenue for the quarter versus $50.5 million or 26.2% of revenue in the prior year period. Operating income for the first quarter was $15.7 million or 7.5% of revenue compared to operating income of $5 million or 2.6% of revenue in the prior year period. Adjusted operating income was $18 million or 8.6% of revenue this quarter compared to $7.6 million or 4% of revenue in the comparable period last year. The company reported net income for the first quarter of 2026 of $9.9 million or $0.64 per diluted share compared to $1.4 million or $0.09 per diluted share a year ago.

On an adjusted basis, the company reported net income of $11.7 million or $0.75 per diluted share compared to adjusted net income of $3.5 million or $0.23 in Q1 2025. The GAAP net income and higher adjusted net income during the quarter was driven by higher adjusted operating income. Now let me turn to our segment results. Our Structural Systems segment posted revenue of $91 million in the first quarter of 2026 versus $83 million last year. The year-over-year change reflected $8 million higher revenue in our commercial aerospace business driven by single-aisle platforms, including the A220, A320 and the 737 MAX as well as commercial helicopters.

The military and space business within this segment was flat on a year-over-year basis, with growth in missiles offset by weakness in military, rotorcraft and ground vehicles. Structural Systems operating income for the quarter was $10.4 million or 11.4% of revenue compared to $9.9 million or 11.9% of revenue for the prior year quarter. Excluding restructuring charges and other adjustments in both years, the segment operating margin was 13.4% in Q1 2026 versus 14.5% in Q1 2025. The decrease in year-over-year margin was driven by unfavorable sales mix, partially offset by savings from planned consolidation. Our Electronic Systems segment posted revenue of $118 million in the first quarter of 2026 versus $109 million in the prior year period.

The year-over-year change reflected $5.3 million in higher revenues in the military and space applications driven by strong growth in military fixed-wing aircraft, missiles and rotorcraft. Commercial Aerospace in the quarter grew $4.6 million driven by growth on the 737 and A220 platforms. Our industrial business decreased $1.4 million during Q1 due to timing of orders. Electronic Systems operating income for the first quarter was $23 million or 19.5% of revenues versus $17 million or 16% of revenue in the prior year period. Excluding restructuring charges and other adjustments in both years, the segment operating margin was 19.8% in Q1 2026 versus 16.4% in Q1 2025. The year-over-year increase was driven by higher manufacturing volume and favorable sales mix.

Turning now to liquidity and capital resources. In Q1 2026, we generated $11.2 million in cash flow from operating activities compared to $0.8 million in Q1 of last year. The significant increase in cash generation is a great start to the year for us and was driven by higher net income and contract liabilities, partially offset by higher accounts receivable and lower accrued liabilities in the quarter. In Q4, the amended -- in Q4, the company amended its credit agreement, which now includes a $200 million term loan and a $450 million revolver. The new $650 million facility lowers our cost of capital and gives us incremental capacity to execute on our acquisition strategy.

As of the end of the quarter, we had available liquidity of $384 million, comprising of the unutilized portion of our revolver and cash on hand. Interest expense in Q1 2025 (sic) [ 2026 ] was $4 million compared to $3.3 million in Q1 of 2025. The year-over-year increase in interest cost was primarily due to higher debt balances, offset by lower interest rates on our debt. In November 2021, we put in place an interest rate hedge that went into effect for a 7-year period starting January 2024 and pegs the 1-month term SOFR at 170 basis points for $150 million of our debt. The hedge is still in place and will continue to drive significant interest cost savings in 2026 and beyond.

To conclude the financial overview, I would like to say that the first quarter results demonstrate that our Vision 2027 strategy is working and that we are well positioned for 2026 and beyond.

I'll now turn it back to Steve for his closing remarks. Steve?

Okay. Thanks, Suman. In closing, we had a great start to the year with Q1 results. Revenue growth was strong and margins continued to improve. It was also our fourth consecutive quarter of revenue over $200 million. Gross margin and adjusted EBITDA margins were at 26.9% and 16.9%, respectively. It's wonderful news, as we've talked about already on track to meet our Vision 2027 goals. In addition, the company's engineered product revenues over the past 12 months was 23% in excellent shape as we drive higher OEM and aftermarket products through the P&L.

As everyone knows and as we spoke about in previous calls, driving this percentage as high as possible is our #1 strategic focus and with 100% commitment. Finally, with increasing defense budgets ahead and commercial bill rates heading higher, I'm very optimistic about the rest of 2026 and the next few years. Okay. So with that, now let's go to questions. Thank you.

[Operator Instructions] Our first question comes from John Godyn with Citi.

I wanted to follow up on 2 things. Just to better understand kind of the revenue outlook going forward. Number one, on commercial OE and the inventory issues. And number two, on missile growth. Maybe on commercial OE first, can we just unpack this inventory overhang a bit more? And it feels like there may be a point toward the end of the year or next year, where really, your volumes have to kind of snap back and catch up and grow even faster than OE growth. Am I thinking about that shape the right way? Maybe you could just offer some color.

Yes. Just a couple of things. First, a big part of our program, especially on the MAX is through Wichita, the legacy Spirit business, which obviously now is owned by Boeing and which we're very happy about. And they obviously produce the fuselage. They still have lots of fuselages that they've built. So that's a big part of the Ducommun story is that, that's something that we're just going to have to overcome. And I think this is going to be the year. I mean the best thing that we're going to see over the summer is the increase in the rate.

So as that rate goes up, in Washington State, and they continue to build the MAXs, those fuselages will go down to some level, which is basically a safety stock. So I think, again, this year is going to be destocking, whether we see in 1 quarter or 2 quarters, we're going to get through it by the end of the year. Then I think we're going to be clear, we're going to see, I think, some nice growth going ahead on the MAX. Airbus is sort of steady because, I mean, obviously it had some problems with fuselages and their engines, but their order rates going to be pretty steady. Will they get to 75, I don't know about that. I'll have to see over the next couple of years. But -- so I think what I've said in the remarks, it's probably going to be just -- that's the best I can share right now is mid- to high level in the next 3 quarters, and we we'll have to see how it goes the rest of the year, John.

Okay. That's helpful. And then on missiles, another big kind of growth driver. You have a great chart that you guys distribute the missile production outlook over the next few years. You're on a lot of different programs. It seems like there's even more kind of upward pressure to missile production when we talk to the primes, et cetera. I just wanted to plug into kind of your long-term thinking. I mean it seems like this is something that could really drive revenue growth for multiple years here. And I'd love to just understand that shape as well.

Yes. Thank you, John. Yes. And that's -- John, that's my favorite chart, just so you know, okay? So thank you for bringing it up. That's a good question. It is exactly. So anyway, so look, just top level, we are heavily engaged with RTX as I mentioned, they're our largest customer. We're on pretty much every one of their platforms for missiles and the problem -- not the problem, but the challenge is with RTX is that big companies move a little bit slower than maybe any of us would like, but that's where we are. So we're incumbent on it. So we've -- we make a lot of the products already.

So I think we're market-wise, strategic wise, we're right where we need to be. We're a little -- we're hedging a little bit. We think it's more of an end of year, early 2027, where this thing is really going to start to pop. And I mean we're looking at a lot of these programs looking at 3x and even more than that. I mean, we're major players on the Tomahawk. And I think maybe it's not 10x from our sheet, but it's going to be at least 8x. And we make the system for people, we make the cabling. We make lots of cabling for the Tomahawk, and that's a big moneymaker for us as well. So 2027, 2028, looking great.

Okay. And just a quick clarification. It sounds like you sort of see it accelerating at year-end into early '27 and then continuing for a while. Is that the right visual?

100%.

Certainly, from an orders perspective, I think revenues may -- it starts reflecting in revenues later in '27. But from an order perspective, yes, late in this year into next year.

Our next question comes from Mike Crawford with B. Riley Securities.

I was just going to ask about when you would expect to start seeing these orders -- these missile orders, in particular, coming into your backlog, you're saying second half of '27?

Second half of '26.

I mean, that makes sense. '26, yes.

Yes. We're in every discussion right now. We don't really have anything to report on this call. We'll certainly have more we talk to you again in August, but we're heavily engaged. We just don't have anything to report on the order side.

Okay. And then just on the M&A front, it's been over 3 years since you acquired BLR Aerospace in Everett and I think it had like $40 million revenue at the time. Are you willing to share like what revenue run rate might be for that business or any of your other engineered products businesses? And then I guess the second part of this is like what's been the hang up, you just can't find quality companies or people are asking too much or you've come close or not in the last 3 years? Because I know in a perfect world, you'd like to do one of these a year.

Mike, good question. So first, when it comes to the growth in our engineered product businesses, they have been growing very nicely, even organically, right? So if you see the mix shift over the last few years in our business from 2022 through 2026 here Q1, we've gone from 15% to 23%. Only, as you noted, a smaller portion of that has come from acquisitions, less than we would like. But the good thing about that story is that the business -- the engineered products business has grown organically very well over the last few years, taking us, therefore, from 15% to the 23%.

We are actively engaged in pursuing acquisition opportunities. We have gotten close on a number of opportunities over the last 18 months, but we continue to remain disciplined on valuation. We continue to -- we remain disciplined to make sure that any deal we pursue will create value for our shareholders. We do believe there are enough opportunities out there for us to be able to execute. And we definitely remain hopeful that we we'll hear over the next several months, be able to bring one or more of these opportunities home.

Mike, I'll jump in here. Mike yes, we're -- look, again, I mentioned this in the past, we're picky eaters. Like I said previously, we had a couple of things we looked at. Just at least one just couldn't get there. And some others, we've worked pretty hard on and just has not worked out yet. But we have the money and we have the team, and we're optimistic that something is going to happen soon. So just stay tuned.

Our next question comes from Alexandra Mandery with Truist Securities.

Do you anticipate any capacity expansion being required later in the year to ramp production once orders are received for missiles?

Yes. Welcome, Alexandra. Great to have you with us. No, we don't. Fortunately, we've -- in a couple of our sites, we have footprint, which wasn't being utilized, and we're a little bit proactive on some. Others, we were more lucky where we had some extra building in the back, which was being utilized. So as far as footprint, I think we're in excellent shape. And the other nice thing is that we don't run our factories. We do -- some we do in some areas, but we're not running a heavy second shift operations.

So we also have a lot of hours that we can still maximize. So we have the footprint. We have capacity in hours. The only challenges or the obvious thing is once we get the orders, we have to bring highly -- high-qualified people in and train them. And that's the only thing I would say that still is not -- has not been done yet, obviously.

Great. And then another question. You mentioned weakness in radars and rotorcraft and military and space due to timing. So what were those timing issues? And will they be alleviated? And I guess, will we expect an uptick in 2Q on maybe timing of those orders being pushed back?

Yes. So if you look at radars, for example, we have a very strong radar franchise, right, from the SPY-6 radar used across the Navy to the GATOR program to LTAMDS, which is used on the Patriot missile. So we have a very strong franchise. It is a matter of kind of timing of those orders, changes in some cases to specification of specific components we make by our customer that affects the timing of when we build and ship out product. So those are all pure timing-related issues. The franchise is really very strong.

And as demand for radar systems, just independently or in -- as radar systems linked to missile defense, the demand for those continue to grow, we are well positioned and expect to see growth in that particular segment in the long -- in the medium to long term. Military rotorcraft, we have good presence on both Apache and Black Hawk. And we do expect demand to stay stable. There are often push outs by the customers that may affect timing within quarters, but we do expect that business to stay stable. We are also positioning ourselves well for the Black Hawk replacement and have been supplying prototypes to Bell to support that program. So we do feel like our rotorcraft franchise is one where we are either maintaining or growing share.

Yes, that's right. And I think also -- and I know you're catching up on the story, is we moved our back rotor blades for the Apache across the country from California to New York. And that has been -- we've been basically ramping that up, and that's going to be in much better shape later in the second quarter. So more June time frame so it's also going to help.

Our next question comes from Ken Herbert with RBC Capital Markets.

This is actually Kevin Liu on for Ken Herbert. Congrats on the strong results. So you guys had a really strong EBITDA margins, 16.9% in the quarter coming out of the gate this year despite margins typically starting off a bit slower in building throughout the year. So can you maybe talk about how investors should think about the margin cadence for the remainder of the year? And is there any reason we shouldn't expect sequential improvements throughout the year like you typically see?

So we do -- margins were strong during the quarter, some favorability due to product mix, but I would -- it is not as much as we had in Q3 and Q4 where we had much more maybe skewed product mix favorability in the revenues. So it could be 20 basis points approximately of that here in Q1. But outside of that, we do expect margins to maintain and strengthen as we go through the rest of the year.

That's right. We're heading to 18.

Our next question comes from Noah Poponak with Goldman Sachs.

This is [ Will Maher ] for Noah. Two parts here. First, can you talk a little bit more about the recent appointment of the prior Head of Northrop Mission Systems to the Board. The press release mentioned that the appointment would help support the missile and radar franchise. Is there any specific initiatives there or just generally adding support for the growth we've talked about today?

Yes. I think it's just -- first, we're delighted to have Mark join us. I think it also says a lot about the confidence to be able to attract someone like Mark to our Board. He -- for those who don't know, he's a top-level executive with Northrop, a long track record of success. He just joined us, and we're thrilled with that. I think it's more general support. We are obviously -- Raytheon being our biggest customer, Northrop is a big strategic customer as well for us. So we continue to work those areas where we can grow with them. And Mark can only help, right, just for insights and just generally just helping us guide us a little bit. So yes, thanks for bringing it up. And yes, we're thrilled to have Mark.

Great. And then following up on that, you mentioned that missiles, radars and electronic warfare is about 19% of total revenue. Would you be willing to help us size how big missiles and radars are individually today? And maybe how big should we think about those being, say, 3 years down the road?

So good question, and we'll have more color on the defense business and different portions and areas where there are more significant growth opportunities during our Investor Day in September, we do -- we have in the past said that missiles represent about 20% of our defense revenues that still continues to be in that ballpark. And we do expect that, that business is going to grow much more exponentially than the rest of the defense business. So that is going to be the key driver for our defense growth over the next several years. We do have a page in the deck, which shows the growth expected on some of the key platforms. But in terms of specific percentage mix of missiles in out years, we'll have more color around that when we do that...

Yes. I think that is a good question. You guys -- sorry, just going to have to wait till September. But it will be a good story. I promise you that.

I'm showing no further questions in the queue at this time. I'd like to turn the call back to Steve Oswald for closing remarks.

Okay. Thank you, again, to everyone for joining us. Obviously, we're very, very happy with the start of 2026. Proud of our results and believe with our markets heading in the right direction on both sides. We're going to have a terrific year. We're also looking forward to our Investor Day, we just mentioned that -- that's going to be in September. We're going to have a press release out this Thursday before the bell on details for that. And we look forward to sharing not only an update on Vision 2027, but also a very exciting road map and new phase for DCO called Vision 2032. So we look forward to that meeting very much. So again, thank you for your time, and have a great and safe day.

This concludes today's conference call. Thank you for participating. You may now disconnect.

Good day, and thank you for standing by. Welcome to the Q4 2025 Ducommun Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Suman Mookerji, Senior Vice President and Chief Financial Officer. Please go ahead.

Thank you, and welcome to Ducommun's 2025 Fourth 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&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, 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 U.S. government defense spending, our customers may experience changes in production rates or delays in the launch and certification of new products, timing of orders from our customers, which are subject to cancellation, modification or rescheduling, our ability to obtain additional financing and service existing debt to fund capital expenditures and meet our working capital needs. Legal and regulatory risks, including pending litigation matters generally and as well as any potential losses arising from third-party subrogation claims related to the Guaymas Performance Center fire that may become material, the cost of expansion, consolidation and acquisitions, competition, economic and geopolitical developments, including supply chain issues, our ability to successfully implement restructuring, realignment and cost reduction initiatives that could adversely impact our ability to achieve our strategic objectives, international trade restrictions and our ability to obtain necessary U.S. government approvals for proposed sales to certain foreign customers, the impact of tariffs and elevated interest rates, risks associated with a prolonged partial or total U.S. government shutdown, 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-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 have filed our 2025 annual report on Form 10-K with the SEC. I would now like to turn the call over to Steve Oswald for a review of the operating results. Steve?

Okay. Thank you, Suman, and thanks, everyone, for joining us today for our fourth quarter conference call. Today, and as usual, I will give an update of the current situation of the company, after which Suman 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 exit our third year of execution and enter the fourth on very strong footing. Strategy and vision were developed coming out of the COVID pandemic over the summer and fall of 2022, unanimously approved by the Ducommun Board in November 2022 and then presented the following month in New York to investors, where we got excellent feedback.

Since that time, Ducommun's management has been executing the strategy by increasing the revenue percentage of engineered products and aftermarket content, which is at 23% this year, up from 15% in 2022, consolidating our rooftop footprint in contract manufacturing, continuing our focused acquisition program, executing the offloading strategy with defense primes in high-growth segments, driving value-added pricing and expanding content on 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 catalyst ahead presents a unique value creation opportunity for shareholders.

The Q4 2025 results show again that strategy and initiatives are working with gross and adjusted EBITDA margins at record levels and tracking to meet and exceed our Vision 2027 goals with much more opportunities to come for DCO. I'm also very pleased to announce that our next investor conference will be held this September in New York on the 17th, and we will present the next 5-year vision for DCO as a follow-up to our current Vision 2027. I strongly believe Vision 2032 will be very compelling for shareholders, and I look forward to it. We will announce further details of the event in the spring.

For Q4, I'm pleased to report that revenues reached a new quarterly record of $215.8 million or 9.4% over last year, beating our prior record of $212.6 million set last quarter and making this our 19th consecutive quarter with year-over-year growth in revenue. We achieved this with our fourth consecutive quarter of double-digit growth in DCO, Military and Space segment. Our Commercial Aerospace segment, which has been challenged all year due to destocking at BA and Spirit, returned to growth in the quarter. I'm also happy to report that this quarter, the company's remaining performance obligation, RPOs grew to a new record level of $1.1 billion, increasing $75 million sequentially. The growth in RPO during the quarter was in our defense businesses and primarily in missiles, as you would expect.

We closed on a number of opportunities and are well positioned for continuing revenue growth, and we expect the bookings momentum to continue in 2026. One of the highlights in the quarter was orders for the MIR program for DCO's, Tulsa and Huntsville, Arkansas operations that totaled more than $80 million at good margins, a major win and one of the highest in DCO's history in terms of dollars and for just one program. Our book-to-bill overall was 1.3x in Q4, a great result for DCO after a very strong book-to-bill in Q3 as well. Gross margins also grew $13.4 million to 27.7% in Q4, a significant increase from 23.5% last year in Q4. While the quarter did benefit from a nontypical favorable product mix, which helped margins by approximately 100 basis points, the trend in gross margin still has been very positive throughout 2025 and positions us well to achieve our Vision 2027 margin targets.

We continue to realize benefits from our growing Engineered Products portfolio with aftermarket, strategic value pricing initiatives, restructuring actions and productivity improvements. We have transitioned all programs from our closed facilities and are seeing meaningful cost savings in our P&L already with an expected run rate of $11 million to $13 million savings still on target by the end of 2026. For adjusted operating income margin in Q4, the team delivered an impressive 11.4% well above the prior year of 8.2%. This was supported by growth in adjusted operating income margins in both the Structural Systems and Electronic Systems segment during the quarter. Adjusted EBITDA continues to improve towards our Vision 2027 goal of 18% in 2027 from 13% in 2022. DCO achieved 17.5% in the quarter or $37.9 million, up $10.6 million from Q4 2024. This includes about approximately 100 basis points of benefit from mix, which I mentioned earlier, but even without that represents tremendous progress in the past 3 years and a terrific job by the DCO team.

GAAP EPS was $0.48 per diluted share in Q4 2025 versus $0.45 for Q4 2024. With the adjustments, diluted EPS was $1.05 a share in Q4 2025, $0.30 above adjusted diluted EPS of $0.75 in the prior year quarter. The higher GAAP and adjusted diluted EPS during the quarter was driven by improved operating income. Full year 2025 revenue grew 5% to a record $825 million. Our military and space business grew 14% in 2025, driven by strong performance across missiles, military rotorcraft, fixed wing platform and radar. Our commercial aerospace business declined as communicated early in 2025 by 7%, with destocking at BA and Spirit a headwind all year. Our noncore industrial businesses grew 3% year-over-year, providing nice volume and margin without interrupting our military and commercial aerospace focus.

Full year 2025 adjusted EBITDA margins expanded 160 basis points to 16.4%, another year of record-breaking performance as we make steady progress towards our Vision 2027 target of 18% EBITDA margins. In 2025, we closed on over $915 million in bookings, a full year book-to-bill of 1.1, with continued positive news coming out of commercial aerospace and increased Department of War budgets, including the ramp-up in missile production, we have strong confidence in the momentum from both our primary end markets. We also announced in early Q4 that we entered into a binding settlement term sheet to resolve the Guaymas, Mexico fire litigation against us. The term sheet provided for, among other things, the final dismissal of the Guaymas fire litigation against Ducommun with prejudice and the release of claims against us in exchange for issuing a payment of $150 million, $56 million of that was funded by our insurance carriers. In addition, we also settled 2 ancillary subrogation claims of $1.35 million and $4 million, respectively. The Guaymas fire occurred in June of 2020. We recorded settlements and related costs of $7.6 million in Q4, and those charges are reflected in our GAAP earnings results. Except for the ancillary subrogation claim of $4 million, payment was made in November, and that is reflected in our Q4 cash flow used in operating activities.

On the outlook for 2026, we expect to see continued strength in the defense business and a recovery in our commercial aerospace business during the second half once we get through destocking. We expect mid- to high single-digit revenue for the year of 2026, with growth ramping up throughout the year. Based on the current order book, we are expecting first half of 2026 to be in the low mid-single-digit range with growth ramping up in the second half of the year. In addition, tariffs have not been a material impact on results, and we expect that to continue, a good story for our investors.

Now let me provide some additional color on our markets, products and programs. Beginning with our military and space sector, we saw revenues of $124 million compared to $109 million in Q4 2024. This represents a growth of 13% was driven by strong performance in our military fixed wing and rotorcraft franchise as well as satellite-related business and continued growth in missile and radar. In addition, our facility consolidation and product line moves are now complete with Apache tail rotor blade now in production at its new location in Coxsackie, New York, the TOW missile case in production in Guaymas, Mexico and the Tomahawk in production at Joplin, Missouri. We have all heard the recent announcement from the Department of War to ramp up production capacity on key missile programs. Department of War has entered into long-term framework agreements with Raytheon, our largest customer, and Lockheed Martin significantly increased production on key programs, including PAC-3, THAAD, AMRAAM, SM-3, Tomahawk, amongst others. DCO is well positioned as an existing supplier with defense primes on all these programs and is in great shape with our capacity at our operations to fully benefit. These framework agreements and DoD push to increase production should be another strong catalyst for growth in our Military and Space segment starting in 2027 and beyond.

In 2025, DCO's missile business grew 20% compared to 2024, and we expect this strength to continue. During Q4, we booked in excess of $130 million in orders in our missile franchise with a book-to-bill exceeding 4x. We had significant wins on MIR, Tomahawk, AMRAAM, Standard Missiles and THAAD. With missile production expected to ramp up very meaningfully over the next few years, we expect this to be a big driver for growth. This is supported by demand to replenish stockpiles in the United States and also support FMS order activity. For context, Ducommun is a supplier on over a dozen key missile platforms, including AMRAAM, MIR, PAC-3, SM-2, SM-3, SM-6, Tomahawk, Naval Strike and TOW amongst others, which is excellent news for the company and our shareholders.

Within our commercial aerospace operations, fourth quarter revenue increased 1% year-over-year to $82 million as we continue to work through Boeing and Spirit destocking on the MAX. In the quarter, we had growth in both 787 and A320 as well as in-flight entertainment compared to Q4 of 2024. The outlook is promising as Boeing increases their 737 MAX build rates from 38 to 42 and then to 47 later this year and with the new production line in Everett going live this summer. Completion of the Spirit acquisition has also helped with improving operations. We expect destocking for our products on the MAX, particularly those flowing through the legacy Spirit operations to persist through the first half of 2026 and gradually ebb in the back half of the year. The steady progress by Boeing ramping up production rates will certainly help with this. Additionally, Boeing is building momentum on 787 builds and making big investments in the South Carolina facility to increase capacity and ramp up production to 10 by the end of this year, with a further rate ramp in 2027 and beyond. DCO has 150,000 per shipset content on this platform, so this will help us as well. We're also monitoring the production at Airbus as they work through their engine issues, but overall, we remain very optimistic about DCO's commercial aerospace business in 2026 with much more growth ahead in 2027 and beyond as we get past destocking and industry supply issues.

Our balance of defense and commercial aerospace businesses helped drive growth for the company in 2025. We very much like the mix and balance it provides. The outlook going forward is very positive for both end markets, and that is exciting news for the company and its shareholders. With that, I'll have Suman review our financial results in detail. Suman?

Thank you, Steve. As a reminder, please see the company's 10-K and Q4 earnings release for a further description of information mentioned on today's call. As Steve discussed, our fourth quarter results reflect another record quarter of revenue with strong growth across most of our military end markets, including fixed wing aircraft, rotorcraft, missiles and radars. Gross margin and EBITDA margins both reached new record levels. And while favorable mix contributed about 100 basis points to our results, margins would have been very strong even without that benefit. We have completed our facility consolidation projects, and this will drive further synergies in 2026 as we ramp up production of the various product lines that were moved. These actions, along with our strategic pricing initiatives drove continued gross margin expansion in Q4 and keeps us on pace to achieve our Vision 2027 goal of 18% EBITDA margin.

Now turning to our fourth quarter results. Revenue for the fourth quarter of 2025 was $215.8 million versus $197.3 million for the fourth quarter of 2024. The year-over-year increase of 9.4% reflects strong growth in military and space of 13%, driven by increases in fixed-wing aircraft, military rotorcraft, missiles and radars. Our commercial aerospace business returned to growth in the quarter with revenues up 1% year-over-year with growth in A320, 787 and helicopters, offsetting lower sales on the 737 MAX. We posted total gross profit of $59.8 million or 27.7% of revenue for the quarter versus $46.4 million or 23.5% of revenue in the prior year period. We continue to provide adjusted gross margins as we had certain non-GAAP cost of revenue adjustment items in the prior year period relating to inventory step-up amortization from our acquisitions. On an adjusted basis, our gross margins were 27.7% in Q4 2025, up 370 basis points from 24% in Q4 2024.

I also want to add that we did not see any material impact from tariffs in the fourth quarter. And as Steve mentioned, we do not anticipate any significant impact to our P&L at this time. We are a U.S. manufacturing business with U.S. employees and generate over 95% of revenue from our domestic facilities. Our revenues are also largely to domestic customers with U.S. revenues in excess of 85% in 2025. Revenues to China were 3% in 2025, 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 material from outside the United States, but even that is a very manageable spend with China being a low single-digit percentage. We expect to largely 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 fourth quarter of $14 million or 6.5% of revenue compared to operating income of $10.4 million or 5.3% of revenue in the prior year period. Adjusted operating income was $24.6 million or 11.4% of revenue this quarter compared to $16.1 million or 8.2% of revenue in the comparable period last year. The company reported net income for the fourth quarter of 2025 of $7.4 million or $0.48 per diluted share compared to $6.8 million or $0.45 per diluted share a year ago. On an adjusted basis, the company reported net income of $16.2 million or $1.05 per diluted share compared to adjusted net income of $11.4 million or $0.75 in Q4 2024. The GAAP net income and higher adjusted net income during the quarter was driven by the higher adjusted operating income after excluding litigation settlement and related costs.

Now let me turn to our segment results. Our Structural Systems segment posted revenue of $96 million in the fourth quarter of 2025 versus $90 million last year. The year-over-year change reflected $5 million of higher revenue in our military and space business, driven by military rotorcraft and fixed wing aircraft platforms. Our commercial aerospace business grew 1% with growth on Airbus platforms and 787 offsetting weakness on the 737 MAX. Structural Systems operating income for the quarter was $14.6 million or 15.2% of revenue compared to $3.2 million or 3.6% of revenue for the prior year quarter. Excluding restructuring charges and other adjustments in both years, the segment operating margin was 17.8% in Q4 2025 versus 9.2% in Q4 2024. The increase in year-over-year margin was driven by savings from plant consolidation and favorable sales mix.

Our Electronic Systems segment posted revenue of $120 million in the fourth quarter of 2025 versus $107 million in the prior year period. The year-over-year change reflected $9.4 million in higher revenues in military and space applications, driven by strong growth in fixed-wing aircraft, rotorcraft, missiles and radar. Our industrial business increased $3 million during Q4. Commercial aerospace in the quarter was flat to prior year with in-flight entertainment and other commercial aerospace offsetting lower revenues on the 737 MAX. Electronic Systems operating income for the fourth quarter was $22 million or 18.4% of revenue versus $19 million or 17.7% of revenue in the prior year period. Excluding restructuring charges and other adjustments in both years, the segment operating margin was 18.6% in Q4 2025 versus 17.7% in Q4 2024. The year-over-year increase was driven by higher manufacturing volume and favorable sales mix.

Next, I would like to provide an update on our restructuring program. As a reminder and as discussed previously, we commenced a restructuring initiative back in 2022. These actions were taken to better position the company for stronger performance in the short and long term. This included 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. I'm happy to report that we have closed out the restructuring program as of Q4 and have moved all transitioning programs into production at the receiving facilities. Production is now ongoing on rotor blades for the Apache helicopter at our Coxsackie, New York facility, 737 MAX spoilers and TOW missile cases in Guaymas, Mexico and Tomahawk components in our Joplin, Missouri facility.

During Q4 2025, we recorded $0.6 million net in restructuring charges. We do not expect additional restructuring expenses in 2026 related to this program. As previously communicated, we expect to generate $11 million to $13 million in annual savings from our actions and have already seen meaningful realization of savings in 2024 and 2025. We expect the synergies to further ramp in 2026 as the receiving facilities move up the learning curve and move to full rate production.

Turning to liquidity and capital resources. In Q4 2025, we used $74.7 million in cash from operating activities as we paid out the litigation settlement-related items. Excluding the $101.2 million in payments related to litigation settlement, non-GAAP adjusted cash provided by operating activities was $26.5 million during the quarter compared to $18.4 million in Q4 of last year. The improvement was due to higher adjusted operating income and lower cash taxes, partially offset by higher operating working capital. For the full year 2025, we used $33.4 million in cash flow from operating activities as we paid litigation settlement-related items of $103.2 million. Excluding these onetime litigation settlement-related payments, non-GAAP adjusted net cash provided by operating activities was $69.8 million, which is more than 2x the number from 2024 of $34.2 million. This strong improvement in operating cash flow is great news for the company.

Also, in Q4, the company amended its credit agreement, which now includes a $200 million term loan and a $450 million revolver. This new $650 million facility lowers our cost of capital and gives us incremental capacity to execute on our acquisition strategy. As of the end of the fourth quarter, we had available liquidity of $390 million, comprising of the unutilized portion of our revolver and cash on hand. Interest expense in Q4 2025 was $3.5 million compared to $3.6 million in Q4 of 2024. The year-over-year improvement in interest cost was primarily due to lower interest rate costs, offset by a higher debt balance. In November 2021, we put in place an interest rate hedge that went into effect for a 7-year period starting January '24 and pegs the 1-month term SOFR at 170 basis points for $150 million of our debt. The hedge is still in place and will continue to drive significant interest cost savings in 2026 and beyond.

To conclude the financial overview, I would like to say that the fourth quarter results demonstrate that our Vision 2027 strategy is working and that we are positioned well for 2026 and beyond. I'll now turn it back over to Steve for his closing remarks. Steve?

Okay. Thanks, Suman. In closing, look, 2025 was a great year and Q4 another success for DCO and its shareholders to continue to drive our Vision 2027 strategy. So I'm very pleased with that. We achieved another quarter of record revenue and gross margins and adjusted EBITDA margins were also at records of 27.7% and 17.5%, respectively. The company is also well positioned to meet and exceed our Vision 2027 target of 25% plus of engineered product revenues with full year 2025 at 23%. As everyone knows, driving this percentage as high as possible is our #1 strategic focus, and we're fully committed to realizing that as we go forward. Finally, with the continued strength in defense activity and commercial bill rates heading higher, I'm also very optimistic about what lies ahead in 2026 and the next few years for our shareholders, employees and other stakeholders.

Okay. So with that, let's go to questions. Thank you for listening.

[Operator Instructions] Our first question comes from John Godden from Citi.

This is Bradley Eiser on for John Godden. So I just wanted to follow up on the commentary about the inventory destocking that you guys previously highlighted. And I also want to look at it in conjunction with the movements we saw in inventory working capital in the fourth quarter. So I know you outlined headwinds in the first half and -- and we're expecting an improvement in the back half of this year. But with the working capital in the fourth quarter being pretty favorable, how should we think about the magnitude of the headwinds you previously called out for the first half '26? Is there any change here? Are you seeing an acceleration of inventory draw higher than expected? I'm just curious how to look at this one.

I think we're -- our expectations are in line with previous comments on destocking. We expect there to be continued destocking, and there are 2 elements of destocking, right, destocking at our customer and destocking in our facility. Destocking in our facility does help reduce working capital tied up in the business. So we expect some of that to happen, as previously discussed. in Q1 and Q2 and for the rest of the year. I think from an external destocking perspective, we see more of that happening in the first half and then ebbing as we get into the second half of 2026 as we see inventory getting burned down, mainly at Spirit -- the legacy Spirit or Boeing and also, to some extent, at Boeing Direct.

Got it. I also want to switch gears to the defense side. So with all the primes talking about increasing their investment in capacity. I was curious if you guys can talk a bit more about your potential medium-term opportunities here, like once this capacity begins to take effect, do you benefit proportionally of this capacity increase? Are there opportunities for you to grow faster than the market? Any color I could probably here would be appreciated.

Yes. Let me just jump in here. Well, first of all, I mean, this -- we really call it, at least for missiles that we call it a franchise within Ducommun because this has been one of our legacies is I mentioned in the script before the questions that we go across all the major missile programs. The good news is that these are all things we know how to make. These are things that are already in production. And the other thing that I mentioned is that we have a significant amount of capacity for most and where we might have a little less that we're putting CapEx into that. So that's all very positive. Now on the other side, we're not the OEM. So we have to work with the OEM and wait for the orders. but they need to get the orders from either the State Department through FMS or the Department of War. So we really see this major sort of move in 2027. We are in contact and Raytheon is having meetings and Lockheed as well. And so we couldn't be happier with all the agreements that are happening. It's just going to -- it's going to be a little bit of a lag just because these things take a little bit of time, unfortunately. Stay tuned.

Our next question comes from Mike Crawford from B. Riley Securities.

Maybe just to dig down into that a little bit more. I mean you've optimized your footprint, you're done with the restructuring. And could you characterize like how much room you have to grow in your new footprint without, let's say, growth CapEx?

Geez, I think we -- I mean, this would be a high-level number maybe, but it's at least we have 30% -- I mean I'm being conservative. We probably have 30% of room in our factories right now for this missile increase. So I'd say we're...

And the CapEx -- additional incremental CapEx required to expand that capacity is not significant. It is something that we can accommodate within our regular CapEx budget and can implement quickly. Defense electronics capacity increases for the products we make do not entail significant CapEx or take a lot of time to put in place. So we are actively evaluating all other capacity across each of our factories in the context of all this potential new business and making investments where needed to adjust capacity. But as Steve said, here in the near term over the next 12 months, given the at least 30% existing open capacity, there is no issue in meeting demand.

Yes. Mike, let me give you an example. We have a factory in Joplin, Missouri that that's where the Tomahawk is going to go. Joplin runs about $100 million a year in revenue. They do world-class cabling and other things and mostly defense, but some commercial, too. And we're putting the Tomahawk in a building that's already standing there that wasn't utilized. And so that's why we have that 30-plus percent. And we think that we could do $200 million in revenue in the next 3 or 4 years there with what we have. So that's very exciting to us for just one plant that's a big mover for DCO.

Great. No, that's super helpful. And then just maybe one separate question for me. And just on -- you do call out that you're partnering with primes on hypersonics and counter hypersonic programs. Is that more on the structural side as opposed to the electronics? Or what are you doing there?

Well on the electronics side with interconnects, ruggedized interconnects that we have presence on hypersonics.

Yes, a lot of cables, Mike.

Our next question comes from Ken Herbert from RBC.

Steve, nice quarter. The exit rate on margins is pretty strong. How do we think about the puts and takes on margins in '26 and sort of what's implied in terms of margin expansion on the, call it, mid- to high single-digit top line outlook?

You want to take that?

Ken, excellent point and question. I would look at the exit rate not based off of Q4's EBITDA of 17.5%, but versus look at the blended EBITDA margin over the year and view that as an exit rate. As we noted, there was about 100 basis points of favorability driven by unusually or atypical product and business revenue mix in the quarter, which helped margins, but we are seeing ourselves exiting closer to the 16.5% on EBITDA as the baseline for 2026. with improvement opportunities, especially as we go into the back half and as revenue scale as well as the production ramps up on the product lines that have been moved in 2025.

Yes. I think that's fair, Ken. I think that's probably right. I mean we had a little bit of extra benefit in Q4. Of course, we'll take it, but I think the other number is a better one to use.

Okay. That's helpful. And increasingly, the 2027 targets look increasingly attainable. What -- maybe not today, but when do you think you'd be prepared to provide an update to those numbers, especially on the margin potential of the business?

Yes, that's great. Thank you for bringing that up. That will be in September. So when we announce our -- we have our investor meeting, the first part of it will be an update on the Vision 2027, and then we'll roll into the Vision 2032 and our plans for the company and investors.

Perfect. And just one final question. Can you level set us on what missiles and munitions represent within the defense portfolio? Because it sounds like the growth opportunity in that business is clearly going to be much better than company average growth.

Absolutely, Ken. So missiles are about 1/4 of our defense business. And as you noted, the opportunity is significant for us going forward there.

Yes, Ken, that MIR order was a big deal for us. We don't see $80 million orders very often here. We love them, but we don't see them very often. So we were -- it's a long time coming, but that's a nice shot in the arm for the company.

Our next question comes from Tony Bancroft from Gabelli Funds.

Great quarter, well done. Just you talked about a little bit before, but more in broader strokes, with this announcement of a potential $1.5 trillion budget, even if it goes over a longer period of time, it's still materially much larger than I think most people would even expect. How do you look at that as far as keeping up with the growth, assuming directionally that's where it's going? I know you said you have capacity, but I mean, quadrupling these numbers we've seen are you able to do it? And then I guess, at some point, there is going to be a run rate and normalization? And how do you guys look at overcapacity? That might even be an issue right now for quite a while, but do you think about that? How do you look at that? And then maybe on top of that, a $1.5 trillion budget has got to be a lot of new opportunities. Would you guys be looking at adjacencies or even other areas to involve yourself in?

Yes. Thank you, Tony. Good to be with you. I think obviously, overall, it's a great opportunity for DCO. We're -- the nice thing is our relationships with defense primes are very strong. I mentioned RTX is our largest customer. So we're critical to their success. which is what we want, right? So we're -- and we're sole sourcing a lot of things. And so that's positive. If you can see, we've done a lot of good work with Northrop Grumman in the past. I've talked about that when I first came on and through the years about getting relationships with other primes other than just having this huge number of Raytheon. And we've done that and Lockheed as well and working on other things. So we think it's -- we read the headline and took our breath away a little bit, but we feel really good about it. And on the capacity side, again, we have really good footprints in the Midwest for these electronic systems. We have, again, I think, at least 30% in our back pocket. And that's just with, as Suman mentioned, regular CapEx feeding every year for the company. So nothing extraordinary. You're going to hear from us, I'm sure, in the next few years. And lastly, we're continuing to work on building relationship with new warfare and building relationships with -- we already have a relationship with GA and other companies to take advantage of the CCA warfare program as well as others, hypersonics. So our defense business is strong. It's only going to get stronger. It's only going to get bigger.

Our next question comes from Sam Struhsaker from Truist Securities.

I guess, first and foremost, I'm a little bit curious just on the destocking on the MAX. I'm curious, is there any way you could maybe break out, I guess, kind of how much of what remains is internal versus external?

Yes. It is more external than internal. I wouldn't say that we haven't really broken that out publicly. But I would say, yes, it is more external versus internal on the MAX. And for context, let's also keep in mind that the large commercial platforms are about -- including both Boeing and Airbus are about 50% of our commercial aerospace revenues. So the impact of destocking as well as the recovery needs to be weighted in our commercial aerospace forecast accordingly.

Yes. And I also say this, we had 1% growth in Q4, which obviously is nice. But part of that, we had a big revenue bump up in in-flight entertainment versus Q4 2024. So that was one of the big reasons we got to the positive side in Q4. So yes, we don't break it out. We're -- the best news is that as we go forward here, we got all confidence that Kelly and Boeing are going to do their thing. And we're going to -- this is -- there's better days ahead, let's put it that way, okay, because the pull, the demand side is going to help a big time on this.

Got it. Absolutely. And I mean, I guess, kind of in turning to maybe the better days ahead, so to speak, are you guys seeing that you're totally prepared once the destocking is out to switch production to whatever the rate increases are at Boeing and Airbus? Is it kind of move up throughout the year?

I think about.

Yes, you kind of came in or come out, but I think what you asked is that are we ready for the bill rate increases for both Airbus and BA?

Yes.

Yes, 100%. We can't wait. We're waiting for the year.

Awesome. And then if I could just sneak in one last one. All the production lines that just recently got moved and are now up and running with their new facilities. So they're not necessarily all quite at full run rate. But I was curious if you could put any kind of details around the cadence of those all getting to full run rate and if there will be any kind of margin benefit that you might associate with that once they are running at full rate.

So I think we expect that to get to full rate by the second half of this year. We had projected $11 million to $13 million in total synergies as of Q4 of 2025, I would say approximately half of that is in the P&L on a run rate basis with another $6 million to $7 million to go, and that will come into the P&L over the course of this year, getting to run rate by the end of this year.

Yes. The last one is the Tomahawk. We make 18 cables for it. And there's -- a lot has to happen on that missile. And that's the one we are still working on a few things. That will be second half for sure.

Our next question comes from Conor Desert from Goldman Sachs.

You've got Conor Desert on for Noah Poponak today. I appreciate the commentary that you guys had about upsizing the credit facility so that you could execute more on the acquisition strategy. I was curious if you guys could give us an update on what the M&A market is looking like from your perspective today. We've heard some other A&D suppliers comment that activity has picked up, and there are a lot more potential deals out there with more willing sellers. So I was curious if you guys are seeing a similar level of activity for the assets that are in your target range and how competitive some of the bidding processes are for those assets?

Yes, we are seeing increased activity. We are very much involved in any and all processes that involve assets with engineered products. within our size range. It is competitive. There are -- and valuations are not cheap, but we we'll remain disciplined. We continue to evaluate multiple opportunities. And we think that there are opportunities where we can create value at the current multiples at which these assets are trading.

Yes. We're seeing good things. More to come on that.

Okay. That's helpful. And then just kind of a follow-up on that. As I look out through '26 and '27, I think Vision 2027, you guys have had a $75 million revenue contribution placeholder from M&A. It starts to look a little more possible that at least the bottom end of that range could be reached just organically from here. Is that kind of the right way to think about it given some of the pickup in momentum, especially in some of the defense areas of the business? Or in your guys' view, does that Vision 2027 still rely on that $75 million placeholder from M&A?

Yes. I would say, yes, it does getting to that -- within that range will definitely require the M&A piece, mainly driven by commercial aerospace recovery pace that we have seen versus what everyone would have naturally expected back in December of 2022 when we put that plan together. The production outlook at that point in time versus reality today is very different. Defense has been great, and we'll continue to see strong growth. We should continue to remain bullish but some of that will happen in 2027 and beyond in terms of production ramp-up on some of these missile platforms. So the longer-term outlook for the company and defense is very strong, but it's -- not all of it is going to come into 2026 and 2027.

But we're going to -- we're working on the $75 million. I mean, we purchased BLR in 2023. So that's part of the $75 million, which is helping, but we've got more work to do on the $75 million, and we're hard at it there, Conor.

I am showing no further questions at this time. I would now like to hand it over to Steve Oswald for closing remarks.

Great. Thank you. And again, thanks for joining us. I very much appreciate your time this morning. Also all the excellent questions. We always appreciate the dialogue after our script -- reading our scripts. So I thought that was great. We are excited about the year. We're also looking forward, as I mentioned earlier, to our September meeting in New York, and we hope that everybody can either make it personally in person or online. We think it will be an exciting, exciting day for not only to update on the Vision 2027 progress, which we're happy about, but also talk about our big future together. So with that, I'll leave it, and have a great and a safe day. Thank you.

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

Okay. Good morning, everybody. I'm Noah Poponak. I'm the aerospace and defense analyst here at Goldman. Very happy to have with us for our next presentation, Ducommun. And with me on stage here is the CFO, Suman Mookerji. Suman, thanks so much for being with us.

Thank you, Noah.

Great to have you.

Great being here, and I appreciate the invite and the opportunity to present Ducommun in this conference.

So Suman is going to go through some slides to kick us off, and then I have some questions. And if anybody in the audience has a question, just raise your hand.

Great. All right. So I'll take you through our investor presentation, just for the benefit of those who aren't as familiar with the story and are new to it, it will help you get some background on the company and where we are headed. Our usual disclosures, the presentation, of course, has some forward-looking statements in it, subject to risk factors, please refer to our Qs and Ks for more details around those.

So interesting factoid, again, for those who aren't familiar with Ducommun, we were founded back in 1849, and we are the oldest company in California. We were originally set up, of course, not as an aerospace company back in 1849, but as a general store in Los Angeles. Our Founder, Charles Ducommun, was an immigrant from Switzerland. He was a watchmaker, but he, during the gold rush, decided to start a general store, which was a smart idea, selling picks and shovels versus looking for gold at that time worked out very much in his favor, and that's how the business got started.

We moved into aerospace in the 1930s, selling metals to then kind of the fledgling aerospace industry in Southern California, and that business stayed within the portfolio until the '80s when it was sold. And Ducommun, as it stands today, started taking shape in kind of the late '80s, '90s and then in the 2000s as we built up our Aerostructures business, bought -- the defense electronics portion of our business and then also started building up what we call engineered products within our portfolio. And I'll talk more about that in the coming slides.

The current management team that is in place today came together in 2017. And that's when we kind of started the transformation of the business versus what has been done in the last 165, 170 years. We streamlined the management team, took delayered the organization, brought in a performance-driven culture. And so a lot of these good things happened under our new CEO at that time, Steve Oswald, also our current Chairman and President and CEO. And that really did work well for the company from 2017 through 2020 when the pandemic hit and the business was reset. And again, I'll talk a little more about that. But we had to kind of pivot the business more towards defense as we hit the pandemic, and that started kind of a new chapter in Ducommun as we did that and also our shift towards more engineered products, which was key to the strategy under the new management team.

If you look at the company's performance over the last 8 years under this team, you will see that our market cap has grown 4x. And it has grown 4x despite the setback we had during the pandemic and despite the fact that commercial aerospace, at least with regard to OEM production rates, hasn't fully come back to where it was pre-pandemic. Our EBITDA, key driver of value is up 125% over that period of time. And so the financial performance has been really strong, and that's reflected in the performance of the stock and shareholders have done really well over this period of time. But there is a lot more yet to come, and we still believe we're kind of in the early innings, and we're kind of now at an inflection point in the company's story here where we have significant upside from a number of things that I will talk about here.

So if you look at our portfolio today, we are currently on an LTM basis, just over $800 million in revenue. Our EBITDA margins are on an LTM basis, 15.5%. But in the last 3 quarters, we've been tracking at 16%, which we're really proud of and is in line with kind of our 5-year plan of growing EBITDA margins. Our remaining performance obligations, a proxy for backlog is at an all-time record high of $1.03 billion. And we had in Q3 of this year, record bookings with a book-to-bill ratio of 1.6. And we continue to see strength in the bookings here in Q4 with what we can see in terms of opportunities in our pipeline. So really a reflection of the strength in the business as we continue to grow it.

If you look at the mix of revenues, it is more skewed towards military. We've seen growth in our defense business. In fact, in the last 3 quarters, we've had double-digit growth in our defense business that has helped offset the weakness in commercial aerospace driven by lower production rates at the OEMs. We do expect that to change as Boeing and Airbus continue to ramp up their production rates and especially with Boeing, and some of the positive commentary that we have been seeing, including commentary from their CFO yesterday as well as the change that we've seen at Boeing under their new leadership is very encouraging and is promising for us at Ducommun.

Within our commercial aerospace business, we have more significant exposure to narrow-body aircraft. You can see some of the platforms on the right side of the page, we have exposure to the 737MAX, the A220 that are kind of good, strong platforms as well as the A320. So we're on the right platforms. On the twin aisle side, we have exposure to 787, that's the primary wide-body exposure that we have. So again, a good platform to be on. And so we feel really good about that. And then we have some business jet content as well, mainly with Gulfstream, which has been growing nicely. You can see our primary customers are the aerospace aircraft OEMs as well as Tier 1s in commercial aerospace and the defense primes on the -- in the military and space segment.

Moving to our products, right? So we have 2 financial reporting segments. the electronics business as well as the structures business. And you can see the different products that make up each of these reporting segments. On the electronics side, we make ruggedized interconnects. We make complex circuit card assemblies as well as kind of compiling these different electronics into enclosures and building kind of the next level up in the value chain, building these boxes of electronics. Most of these products are going into the defense industry. And we've had strong growth in that side. We continue to see strong bookings on the defense side, especially with missiles and radar systems, which is a growing franchise within our portfolio. And these products primarily go into that end-use market.

We also have some proprietary product businesses within the electronics business, and these include our human machine interface products. These are push buttons, switches, [indiscernible] that are within the cockpit of a military or commercial aircraft. We typically get sole sourced and spec in and have very strong margins with these products. We also have a lightning protection product line, a business we acquired in 2017 called LDS, and they have a significant share of the lightning protection market for radomes, and that's been a great business for us. And finally, our motion control business, where we make motors and resolvers for, again, cannot fail applications within the defense industry.

And then on the structure side, we have the more traditional aerostructures type of businesses, which include titanium hot forming, titanium superplastic forming, which we believe there are only a handful of suppliers globally that are capable of manufacturing. These are formed out of titanium sheet, very complex contoured metal parts, titanium parts that we sell into Boeing, into Airbus and Spirit. And we're really proud of the technology we have in order to build these parts.

So while that still kind of falls within what we would consider contract manufacturing, it is kind of a very niche capability that you have. We also have aluminum stretch form business, where we make most of the fuselage panels on the A220. And we have also, in the past couple of years, won work with fuselage panels on the 737MAX. So that's kind of the aluminum stretch form business. And then we have more engineered product businesses within the portfolio as well, which include our ammunition handling business, a business called nobles that we bought back in 2019, magnetic seals, which is a business called MagSeal we bought in 2021 and then extruded thermoplastics for the interiors of aircraft. And finally, aerodynamic enhancement products for rotorcraft, a business called BLR Aerospace, we bought in 2023.

So where is Ducommun headed, right? I talked initially about the things that the current management team did under Steve Oswald's leadership coming in between 2017 and 2019 and then the pandemic hit. But as we were coming out of the pandemic in 2022, we felt like the time was right for us to go out and communicate a 5-year plan to the Street. And so we reviewed this with our Board in late 2022 and then went and presented to the Street in December of 2022, what we call our Vision 2027. And that included growing revenues from about $700 million back in 2022 to close to $1 billion by 2027 and also expanding EBITDA margins from 13% back in 2022 to 18% by 2027.

And we have made great progress in getting to those targets while revenue may have been slightly softer than we had anticipated back in 2022, given where commercial aerospace build rates have panned out so far. On the EBITDA margin front, we have been tracking at 16% here in year 3 of our 5-year plan, so well on our way to get to 18% from 13%. So we're really proud of that. And we are well positioned to get to that 18% in 2027.

What are the key drivers or investment highlights for Ducommun and also kind of the enablers of this Vision 2027. I talked about us wanting to grow our engineered products. That's a key part of our strategy. We like this portion of our business where we own the design IP, we are spec-ed in, we're sole sourced. We have access to the aftermarket. And the aftermarket portion itself is a sizable portion of the business. And any good aerospace business needs to have strong aftermarket. And we had less than -- we probably had 5% or 6% aftermarket in our business back in 2017, and that has grown significantly. Engineered products was less than 10%. It was 9% of our portfolio back in 2017. We took it to 15% of our portfolio by 2022 with a target of getting it under our Vision 2027 strategy to more than 25% of our business by 2027. And today, where we stand, we are already at 23% of our revenues coming from such engineered products.

Again, as I said, these are products where we own the design IP, we are sole sourced, we are spec-ed in, and that's a great position to be in. And we want more of our revenues to come from these kinds of product lines. We've also, for the non-engineered product portion of our business, looking to add value by taking cost out. And this has been driven by -- in the past year to 2 years by shutting down some of our existing footprint and consolidating that manufacturing footprint to be able to take cost out. And we have shut down in the past year a facility in Monrovia, California as well as one in Berryville, Arkansas. And we have moved this work to existing facilities in the U.S. as well as to our facility in Guaymas, Mexico. And we've had great success doing that.

We are kind of at the tail end of those product line moves. We expect those product line product lines to ramp up production here over the course of Q4 and into 2026 and generate significant cost savings for the business. We have said we expect $11 million to $13 million in synergies from these moves. We've seen close to $4 million of that already in our P&L, but the remaining $7 million to $9 million is expected over the course of 2026, which will provide us with that margin accretion that we expect to see to get us to 18% and beyond.

M&A is also an important part of our strategy, especially around the engineered products as we try to grow that as a percentage of our overall revenue mix. As I said, we were at -- now at 23% of our revenue coming from engineered product. We want to take that to 25% and more. And we have successfully done 5 acquisitions under the current management team over the last 8 years. We've successfully integrated them, grown the EBITDA, and that has helped not only the revenue mix, but has also been a key contributor to expanding our margins over this period.

We are a Tier 1 player. You saw we sell directly into these aircraft -- into the aircraft OEMs as well as to the Tier 1s and the defense primes. We are well positioned with the platform content that we have to benefit from the commercial aerospace recovery, which we think is on a firm footing today. So we definitely will be a beneficiary of that over the next couple of years. And then the defense business has been really strong for us, not just through the pandemic, but here, even in 2025, we have seen double-digit growth in our defense business in the last 3 quarters. And we continue to see strong order flow and the future is very promising for us, especially with our missiles and radar franchise, which has been growing high double digit.

Final couple of points there. Our manufacturing services, the structures portion of that business, as I said, we do a lot of titanium forming, which a handful of players globally are capable of doing. When it comes to the electronics side of our business, Again, we have a very -- we have a very efficient low-cost domestic footprint that is able to build these electronic products that need to be made here in the United States for defense purposes. And we've had great success taking work out of our customers' factory and bringing them and being able to cost effectively produce them in our factories and make that a win-win both for ourselves and for our customers. So that's been a big plus for us, and we'll continue to drive value from our manufacturing services businesses even as we look to grow our engineered products.

And the last point is tariffs. I mean, we're -- that's been a hot topic here over the past year. And for us, we are in almost kind of a perfect position when it comes to tariffs given our manufacturing footprint today is primarily here in the United States. 95% of our manufacturing or our revenues come from our U.S. facilities. And if you look at our supply chain, that is as well largely domestic. And so our exposure to foreign suppliers as well as selling to foreign countries is limited. And we have seen negligible impact to our P&L so far through Q3 and even here in Q4 so far as a result of tariffs. So we feel really good about that.

I want to leave some time for Q&A. So there are -- this presentation is available on our website, and you can see some additional detail behind each of these bullets in kind of the following pages, if you were to kind of go through that. But I'll finish here and then we can go into Q&A.

Excellent. Thank you, sir. It'd be great to hear you just talk more about the process of moving into engineered products. How do you actually do it? Because kind of -- it's kind of the whole point of being in Engineered Products is it's higher barrier to entry, less competition, less commoditized, and that has better growth in pricing and margins over time. But that would make it sound kind of hard to break into. So how are you doing it? How much of it is organic versus inorganic? Maybe you could tell us more about that.

Yes, that's an excellent question. So it is a mix of both organic as well as inorganic growth. A lot of the growth over the last 8 years has been inorganic. We've done 5 acquisitions that have contributed to the growth in our engineered product portfolio. But over this period of time, we have invested in engineering resources and sales resources to develop the pipeline of new products as well that will, over a period of time, drive organic growth. And we have had good success of that. We've had good success of that with the engineered products businesses that were part of the portfolio prior to 2017. We have grown our HMI business, human machine interface business with additional products that cater to the aftermarket.

We have grown our RF products. But then we've also -- with our acquisitions, and I'll give you an example, the business called nobles that we bought in 2019, they made ammunition shoots when we bought them. And we have gradually, over the last 7 years, moved them into entire ammunition handling systems. So not just the shoot, but also the magazine and some of the other ancillaries that make up the full system is something that we now are able to design and build, and we have been able to win content on platforms now with that entire integrated system.

So we have been able to take the Shipset content from what would have been a few thousand dollars to tens of thousands of dollars and be able to grow the business. So that's an example of how we have kind of organically grown over a period of time. Yes, it takes time. But once you win that business, then you enjoy it for several years.

Interesting. Okay. You're a little bit ahead of the 25% in 2027 plan for Engineered Products. Do the margins tag right up to the same pacing of the Engineered Products plan? And as we look longer term beyond Vision 2027, have you guys thought about where the Engineered Products mix can go and what that means for margins?

Absolutely, yes. So the margins are certainly been driven by the growth in the engineered products. That has been a key driver of our margins here over the last few years. And we have -- we're now expecting over the next couple of years to see strong growth in the non-engineered product portion of the portfolio as well with the strong growth in defense and the strong recovery that is expected in the build rates over the next couple of years. We do expect the non-engineered product business to also grow nicely, which is good. We like growth in that portion of the business as well.

But what that will mean is that we've got to drive acquisitions to be able to continue to take that mix to 25% and beyond, which we feel good about. We haven't done a transaction here in the last 24 months, but we are actively in the market. We're looking at a number of opportunities in dialogue with several target companies, both as part of kind of bank around processes as well as our own proprietary pipeline of acquisition opportunities that we are pursuing.

So we feel good about being able to do a few transactions here that will help us get to 25% and beyond. In the longer run, the strategy -- and we have told the Street that we are going to come with our next phase or next phase of Vision 2027 in the fall of next year and communicate that to the Street. But pending...

That will be an update of 2027 or that will be a further out?

That will be an update further out. That will be something further out, right? So that will take us kind of beyond 2027. And...

Sorry, when is this...

In the fall of '26 and we plan to communicate that. But it certainly isn't going to be a deviation from our engineered product strategy. It is -- that is core to growing the business. That is core to expanding margins. And I think we can get to 30% plus, eventually 50% plus and possibly one day be an entirely engineered product company.

Okay. We will follow along. You talked -- you referenced Boeing and maybe their production cadence improving. Can you talk about what -- a little bit more about what you're seeing there? And your aerospace growth rates have been negative, which seems partially or entirely due to inventory destock. Is that correct? And are you able to tell when that ends?

Right. We think that there will be some element of destocking through the second half of next year. And part of the reason for that is there is destocking at Spirit and Boeing, but there is also some destocking at our end as we have maintained production rates in order to have our factories operating at a level load versus kind of gyrating between varying production rates month-to-month, that's not a very efficient way of producing.

So we have been here in 2025, if you look at our revenue, we've probably been kind of in the low 30s on average across the different products on the MAX. We've been shipping in the mid- to high 20s. So that does mean that there has been some accumulation, which also will need to get destocked. So I think there is -- we feel really encouraged by what we are seeing out of Boeing and with Spirit acquisition expected still to close here by end of this year. I think there are more good things to come out of Spirit, and we're looking forward to that -- those 2 companies coming together and creating more stability in the demand for us. And hopefully, the destocking will happen sooner than we expect, but that's kind of what we're seeing right now.

Your defense business has been growing double digits. Aerospace, original equipment supply is way below demand, maybe half of demand. So the growth rate that need -- that should occur there is pretty high, has to happen, but then you have to get through the inventory destock, but it should be pretty high. And it will have very easy comparisons. So it would look like your aerospace business could at some point have a double-digit growth rate. Is there a reason I should not expect, therefore, at some point over the next few years for Ducommun topline to have a double-digit growth rate?

That is not an unreasonable expectation. I think once we get past the destocking, there is certainly going to be an inflection point on the commercial aerospace growth rate. And that accompanied by the strong demand we're seeing on the defense side should really be a catalyst to very strong growth for the company.

Okay. Great. We have about 5 minutes left. I can check to see if there are any questions from anyone in the audience here. Yes, here in the middle. Would you mind grabbing the microphone behind...

Okay. Cool. So my responsibility is investments in aerospace and support like U.S. companies to expand into the Asia Pacific market. So I have 2 questions. One is about the regional exposure. I know that you mentioned like 95% of the revenue currently comes from the North U.S.A., but I'm curious to understand what the remaining 5% is and how you see like Asia Pacific market as a -- how you see Asia Pacific market strategically?

My second question is, you mentioned some of the destocking in the commercial aerospace area is expected to happen next year. But given your close work with the major OEMs, I'm curious to learn a little more about how you manage inventory levels and production planning within your company, especially in the commercial aerospace area?

All right. Okay. Thank you for your question. So while we don't sell a lot directly into the -- into Asia Pacific, we do have some content on Airbus platforms that goes into an intermediate supplier before it goes to Airbus -- an intermediate supplier in China. Most of our products are being shipped to customers, mainly in North America and to Airbus and in other parts of Europe. But the -- we're supplying components into products that are eventually going to Asia Pacific. So the growth in passenger traffic and the demand for aircraft is definitely something we're benefiting for. So there is an indirect connection between our growth and growth in Asia Pacific, even though we may not directly sell into that part of the world.

With regard to your question around production planning and the growth rates, so we -- and inventory, right? So as we were coming out of the pandemic, we felt like there was a need for us to make a strategic investment in inventory. There was a lot of disruption in the supply chain. So it was difficult for us to -- and it was hard for us to get -- make sure that we had all the materials we needed in order to satisfy our customers' demand. On the other hand, we also had some erraticness in the demand from some of our customers, especially on the commercial aerospace side with production rates kind of varying -- coming to a stop and then restarting and just a lot of oscillation.

So having the right amount of inventory, maintaining our factories at a level load in order to be efficient in what we were building was really important. And that's part of the reason why we have higher than the typical amount of inventory we would like to carry on our balance sheet. The -- that was a good decision on the part of the management team. It allowed us to maintain delivery in a fairly flawless manner through the last 4 or 5 years, and it positions us well for the ramp-up going forward over the next 2 years. And it also presents an opportunity from a free cash flow perspective as we unwind this investment in inventory over the next couple of years. And as production rates go up and we destock, we're going to see better cash flow conversion, and that's going to be a plus side for us.

Suman, maybe just with the minute or so we have left, M&A is an important part of the strategy. You talked a little bit about it. But I'm curious, it's surprising to me that there hasn't been more M&A and that it's been somewhat quiet recently. And maybe you could talk about why that's the case, what was the pipeline looks like right now? And is it more competitive right now than you maybe would have expected because TransDigm and HEICO and there are these other acquisition platforms that have been in the market for a while, but now [indiscernible] went public and is larger, and I think there's some other private companies getting larger that have the same model. Is it harder to do deals than you thought it would be?

It is definitely competitive. I mean most of these players have been around for the last 8 to 10 years. And so we've seen them as we have done transactions. But you're right that there are a lot of folks that are chasing these assets. We have really ramped up our M&A capability in terms of being actively pursuing things just on our own as well, not just relying on the bank of flow, but we have just been developing and spending a lot of time over the last few years, developing that proprietary pipeline.

So what we can see based on that is a sufficient opportunity for us to be able to close on transactions here over the next couple of years. It's -- in the lower mid-market, we just haven't seen that level of activity for engineered product businesses, but the outlook is really good. So we feel good about being able to do deals going forward.

Okay. All right. We just hit the double zero on the shot clock up here. So why don't we wrap up there. Suman, thank you so much for being with us. We really appreciate it.

Thank you, Noah. I appreciate the opportunity.

Good day, and thank you for standing by. Welcome to the Ducommun Third Quarter 2025 Earnings Conference Call.

[Operator Instructions]

Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Suman Mookerji, Senior Vice President and Chief Financial Officer. Please go ahead.

Thank you, and welcome to the Ducommun's 2025 Third 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&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, perspective. 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 U.S. government defense spending, our customers may experience delays in the launch and certification of new products, timing of orders from our customers, our ability to obtain financing and service existing debt to fund capital expenditures and meet our working capital needs, legal and regulatory risks including pending litigation matters generally as well as any potential losses arising from third-party supplication claims related to the Guaymas 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, risks associated with the prolonged U.S. federal government shutdown, 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-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 have filed our Q3 2025 quarterly report on Form 10-Q with the SEC. I would now like to turn the call over to Steve Oswald for a review of the operating results. Steve?

Okay. Thank you, Suman, and thanks, everyone, for joining us today for our third quarter conference call. Today, as usual, I will give an update of the current financial situation of the company, after which, Suman will review our financials in detail.

Let me start again on this quarterly call with Ducommun's Vision 2027 game plan for investors as we finalize our third year of execution in Q4 2025. Strategy and vision were developed coming out of the COVID pandemic over the summer and fall of 2022, unanimously approved by Ducommun Board in November 2022, then presented the following month in New York to investors where we got excellent feedback. Since that time, Ducommun's management has been executing the strategy by increasing the revenue percentage of engineered products and aftermarket content, which is at 23% this year, up from 15% in 2022, consolidating our rooftop footprint in contract manufacturing, Continuing our focused acquisition program, executing the offloading strategy with defense primes and high-growth segments, driving value-added pricing, expanding content on 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 catalyst ahead present a unique value creation opportunity for shareholders. The Q3 2025 results show again the strategy initiatives are working with both gross and adjusted EBITDA margins, for example, at record levels with much more opportunity to come for DCO.

I'm also very pleased to announce that our next investor conference will be in the fall of 2026 in New York, and we will present the next 5-year vision for DCO, which I believe will be very compelling, I look forward to it. For Q3, I'm pleased to report that revenues reached a new quarterly record of $212.6 million or 6% over last year, beating our prior record of $202.3 million just set last quarter and marking this our 18th consecutive quarter of year-over-year growth in revenue.

We achieved this despite continued headwinds in our commercial aerospace business, which has been previously forecasted due to destocking at BA and SPR. Company, however, continued to see double-digit growth in the defense business, which grew 13% during the quarter, making it our third double-digit quarter in a row. The growth in defense was driven by strong -- very strong performance in our missile franchise, which grew by 21% in the quarter, although with our military fixed-wing aircraft business up 17% and rotary-wing aircraft platform is rising 22%. The outlook for our Defense business continues to look great. In addition to the highlights I just mentioned, the Apache tail rotor blade is now fully approved by BA and in production at our new location in Coxsackie, New York.

The total missile case is also in production in Guaymas, Mexico, which is one last [indiscernible] RTX on the case harness remaining. This is all very good news with the Tomahawk, our last major program to move, set for full production in 2026. Separately, and as previously mentioned, our team continues to build scale at other defense customers outside of RTX which has been a long-term goal. A great example is BAE Systems at over $21 million, up 39% year-to-date versus 2024. DCO also had an excellent bookings quarter with $338 million of new orders in Q3, representing a book-to-bill of 1.6x. This increased our remaining performance obligations to $1.03 billion as well, a new record for the company. We feel very confident now about our momentum in orders, and Q4 as well is looking strong across the board. I talked about our missile business earlier this year, and that continues to outperform. We are positioned very well strategically to benefit to replenishment of depleted worldwide inventories along with a very robust U.S. and FMS order activity.

Ducommun is a supplier on over a dozen key missile platforms, including AMRAAM, Mir, Factory, SM-2, SM-3, SM-6, Tomahawk, Naval Strike Missile and [indiscernible], amongst others. Our missile business was up 21% in the third quarter and is now up 27% year-to-date in 2025. We see continued growth in our pipeline of opportunities going forward, which is excellent news. Complementing our missile portfolio is a strong radar franchise, which is up and coming at DCO. This includes marquee programs such as the SPY-6 radar, which I mentioned earlier, the LATAM's radar, which is part of the patriot missile defense system, the TPY-2 radar used on the THAAD missile defense system, the GATA radar used by the U.S. Marine Corps and various other radar platforms. This combination of both missile and radar platforms positions and aligns us with key defense priorities outlined in the U.S. defense budget, including the Golden Dome as well as NATO priorities. 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 received approval from the FAA to increase their build rates from 38 to 42 on the 737 MAX as well as strong momentum in the 787 bills. This reinforces our optimism about the commercial business once we get through the destocking in 2026. We also like the balance of having both defense and commercial aerospace revenues, contributing and offsetting at times. Gross margins also grew $3.8 million to 26.6% in Q3 on par with the record gross margin percentage achieved in the first half of 2025, up 40 basis points year-over-year from 26.2% as we continue to realize the benefits from our growing engineered products portfolio with aftermarket, strategic value pricing initiatives, restructuring actions and productivity improvements.

We also sold the Berryville, Arkansas facility in Q2 and are actively marketing the Monrovia, California facility, and we're seeing initial cost savings in our P&L with $11 million to $13 million still on target in 2026. For adjusted operating income margins in Q3, the team delivered 10.6%, which was just above the prior year of 10.5%. Structural Systems segment margin grew nicely in the quarter with productivity improvements and a good mix of profitable business. Adjusted EBITDA continues to improve on our march to our Vision 2027 goal of 18% in 2027 from 13% in 2022. DCO achieved 16.2% of revenue for the first time in Q3, up $2.5 million from Q3 2024 to $34.4 million, tremendous progress in the past 3 years. This is our third consecutive quarter with adjusted EBITDA above $30 million, and it represents an expansion of 30 basis points above prior year and 9 quarters to go to reach 18%.

Subsequent to our 3 months ended September 27, 2025. In October, we entered into a binding settlement term sheet to resolve the Guaymas Fire litigation against us. Term sheet provides for, amongst other things, the final dismissal of the Guaymas fire litigation against us with prejudice and release of claims against us in exchange for us issuing a payment of $150 million, $56 million of which is expected to be funded by our insurance carriers. In addition, we also settled ancillary subrogation claims for $1.35 million. The Guaymas facility fire occurred in June of 2020. We recorded settlements of related costs of $99.7 million in Q3, and those charges are reflected in our GAAP earnings results. EPS was a loss of $4.30 a share in Q3 2025 versus income of $0.67 per diluted share for Q3 2024. With the adjustments, diluted EPS was $0.99 a share in Q3 2025 and in line with the adjusted diluted EPS of $0.99 in the prior year quarter.

The lower GAAP EPS was due to litigation settlement and related costs net. I am happy to report this quarter the company's RPO grew to a new record level of $1.03 billion, increasing $125 million sequentially. Growth in RPO during the quarter was both across commercial, aerospace and defense business. We closed on a number of opportunities that restocked our RPO and are well positioned for continuing revenue growth. Our book-to-bill again was 1.6x, a great number for DCO and excellent momentum ahead in the pipeline for Q4. On the outlook for the fourth quarter, we expect to see continued momentum in the defense business, partially offset by the impact of destocking and commercial aerospace. We are reaffirming our guidance of mid-single-digit revenue growth for the full year 2025 and reiterating our expectation for low double-digit growth in Q4. In addition, tariffs have not had a material impact on our results, and we expect that to continue, which is a great story for our investors.

Now let me provide some additional color on our markets, products and programs. Beginning with our military and space sector, we saw revenues of $126 million compared to $111 million in Q3 2024. Growth was driven by a fifth straight quarter of strong year-over-year improvements in missile programs such as the Naval Strike Missile, RAM, AMRAAM as well as solid growth in military rotorcraft on the SPY-6 radar and our military ground vehicles. Within our commercial aerospace operations, third quarter declined 10% year-over-year to $77 million, driven mainly by lower rates on regional and business jets and of course, Boeing platforms.

As I mentioned earlier, we believe that finally, much better stories ahead for BA and MAX. Now that inventory production is ramping up and they are working through their overstocked inventory. Revenue in our Industrial businesses increased $5 million during Q3 with customers making last time buys and replenishing depleted stock. While not accord to our portfolio, there are a few customers we continue to serve with no interruption to our core aerospace and defense business. With that, I'll let Suman review our financials in detail. Suman?

Thank you, Steve. As a reminder, please see the company's 10-Q and Q3 earnings release for a further description of information mentioned on today's call. As Steve discussed, our third quarter results reflected another record quarter of revenue with strong growth across all our military end markets, including missiles, fixed-wing aircraft, rotorcraft, ground vehicles and radars. Gross margins maintained at record levels established in the first half, and we saw another quarter of record EBITDA. We are nearly at the end of our facility consolidation project, which will drive further synergies into 2026 as we ramp up production of the various product lines that were moved.

As Steve highlighted earlier, we also made great progress in continuing to build up our engineered products portfolio with those revenues contributing 23% to our mix this year. These actions, along with our strategic pricing initiatives drove continued gross margin expansion in Q3 and is keeping us on pace to achieve our Vision 2027 goals.

Now turning to our third quarter results. Revenue for the third quarter of 2025 was $212.6 million versus $201.4 million for the third quarter of 2024. The year-over-year increase of 6% reflects strong growth in military and space of 13%, driven by increases in missiles, fixed-wing aircraft, military rotorcraft, ground vehicles and radars. This was partially offset by weakness in our commercial aerospace business, mainly driven by lower revenues across large commercial, including both Boeing and Airbus platforms and on business jets. We posted total gross profit of $56.5 million or 26.6% of revenue for the quarter versus $52.7 million or 26.2% of revenue in the prior year period. We continue to provide adjusted gross margins as we had certain non-GAAP cost of revenue adjustment items in the prior year period relating to inventory step-up amortization on our acquisitions.

On an adjusted basis, our gross margins were 26.6% in Q3 2025 and 26.5% in Q3 2024. I also want to add that we did not see any measurable impact from tariffs in the third quarter. And as Steve mentioned, we do not anticipate any significant impact to our P&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 U.S. revenues in excess of 85% year-to-date Q3. Revenues to China were up 3% year-to-date, mostly 1 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 largely mitigate the impact of tariffs on our material spend through military duty-free exemptions or tender sourcing of materials from domestic suppliers or by passing on the impact to our customers.

Ducommun reported an operating loss for the third quarter of $80.1 million compared to operating income of $15.3 million or 7.6% of revenue in the prior year period. Adjusted operating income was $22.4 million or 10.6% of revenue this quarter compared to $21.1 million or 10.5% of revenue in the comparable period last year. The net operating loss was experienced due to the litigation settlement and related costs of $99.7 million. The company reported a net loss for the third quarter of 2025 of $64.4 million or $4.30 per share compared to net income of $10.1 million or $0.67 per diluted share a year ago. On an adjusted basis, the company reported net income of $15.2 million or $0.99 per diluted share compared to adjusted net income of $14.8 million or $0.99 in Q3 2024. The GAAP net loss was primarily due to the litigation settlement and related costs and the higher adjusted net income during the quarter was driven by higher adjusted operating income after excluding the litigation settlement and related costs.

Now let me turn to our segment results. Our Structural Systems segment posted revenue of $89 million in the third quarter of 2025 versus $86 million last year. The year-over-year change reflects million of higher revenue in our military and space business, driven by military rotorcraft and ground vehicles, offset by $2.5 million in lower revenues across our commercial aerospace business, mainly driven by lower revenues on business jet platforms. We have completed the transition of certain commercial rotorcraft product lines under our facility consolidation initiative, and we are starting to see growth in those platforms. Structural Systems operating income for the quarter was $11.9 million or 13.3% of revenue compared to $8.3 million or 9.6% of revenue for the prior year quarter. Excluding restructuring charges and other adjustments in both years, the segment operating margin was 16% in Q3 2025 versus 14.7% in Q3 2024. The increase in year-over-year margin was driven by savings from plant consolidation. Our Electronic Systems segment posted revenue of $123.1 million in the third quarter of 2025 versus $115.4 million in the prior year period. The year-over-year change reflected $8.2 million in higher revenues in military and space applications driven by strong growth in missiles and fixed wing aircraft and radar systems.

Our industrial business increased $5 million during Q3 with certain customers making last time buys. Growth in these segments was partially offset by lower revenues from commercial aerospace. Electronic Systems operating income for the third quarter was $21.1 million or 17.1% of revenue versus $18.9 million or 16.4% of revenue in the prior year period. Excluding restructuring charges and other adjustments in both years, the segment operating margin was 17.5% in Q3 2025 versus 16.8% in Q3 2024. The year-over-year increase was driven by higher manufacturing volumes.

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 with 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 the receiving facilities have started ramping up production here in Q4. Last month, we started full production of rotor blades for the Apache helicopter at our Coxsackie New York facility which completes the transition of that program from California. We also completed the transition for 737 MAX spoilers and TOW missile cases, both of which are now in production in Guaymas.

During Q3 2025, we recorded $0.6 million net in restructuring charges. We expect to incur an additional $0.5 million in restructuring expenses as we complete the program by the end of Q4. As previously communicated, we expect to generate $11 million to $13 million in annual savings from our actions and have already seen some realization of savings in 2024 and in the current year. We expect the synergies to ramp up in 2026 as the receiving facilities move up the learning curve and ramp up to full rate production. We are actively marketing the land and building in Monrovia after having closed on the sale of the Berryville facility in Q2.

Turning now to liquidity and capital resources. In Q3 2025, we generated $18.1 million in cash flow from operating activities, which was an improvement compared to $13.9 million in Q3 2024. The improvement was due to higher adjusted operating income lower interest costs and lower cash taxes, partially offset by higher operating working capital.

As of the end of the third quarter, we had available liquidity of $250.7 million comprised 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 market, 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 2025, and the entire $200 million revolver capacity is available to us at this time. We expect to draw down $95 million during Q4 to make payment under the legal settlement agreement. After the drawdown, we expect pro forma net leverage to be approximately 2.3x. This leaves sufficient leverage headroom and also in excess of $100 million available to us on the revolver, along with cash on hand. This provides sufficient liquidity to fund our operations and execute on our acquisition agenda.

Separately, we are working with our banking group to expand and extend our credit facility to support the next leg of growth at Ducommun. Interest expenses in Q3 2025 was $2.9 million compared to $3.8 million in Q3 of 2024. The year-over-year improvement in interest cost was primarily due to lower interest rates, along with the lower debt balance. In November 2021, we put in place an interest rate hedge that went into effect for a 7-year period starting January 2024 and pegs the 1-month term SOFR at 170 basis points for $150 million of our debt. The hedge will continue to drive significant interest cost savings for the rest of 2025 and beyond.

To conclude the financial overview for Q3 2025, I would like to say that the third quarter results continue the strong results we have achieved this year, building on the momentum from 2024 and positions us well for the rest of the year and beyond. I'll now turn it back over to Steve for his closing remarks.

Okay. Thanks, Suman. Appreciate it. Okay. Just in closing, Q3 was another success, I believe, for DCO and its shareholders to continue driving our strategy while effectively managing the headwind from commercial aerospace. We achieved another quarter of record revenue. Adjusted EBITDA margins and adjusted gross margins were also at record levels of 16.2% and 26.6%, respectively. The company is also well positioned to meet and exceed our Vision 2027 target of 25% plus of engineered product revenues, year-to-date 2025 Q3 at 23%. As everyone knows, driving this percentage as high as possible is our #1 strategic focus and drive here at the company. Finally, with the continued strength in defense activity, the commercial bill rates heading higher, I'm very optimistic about what lies ahead in Q4 and the next few years for our shareholders, employees and other stakeholders. So thank you for listening, and let's go to questions.

[Operator Instructions]

Our first question comes from the line of Ken Herbert of RBC Capital Markets.

Steve, I just wanted to ask really strong bookings in the quarter within commercial aerospace, can you provide any more sort of detail in terms of what you saw there? And specifically, level set us maybe at what your ship rate is currently on the MAX and maybe how much of a headwind we should think about that in 2026?

Yes. Let me just -- thanks, Ken. Good to hear from you, and Suman can jump in as well. We first talk about the build rates. So the MAX build rate is really -- people always talk about Boeing and the build rates, and that's true for us. But we have a lot of business at Spirit. So it's really -- I think we probably have more on the MAX and spirit than we do at Boeing. I mean obviously we do spoilers direct and we do some other things direct, but we do a lot of stuff for the fuselage at Spirit, that's still down.

I mean it's still running, I would say, probably 26, 28 a month, right?

That's right. In terms of us shipping our physical product, we're seeing mid to high franchises, Steve, you noted. And I would say our -- we want to maintain level load in our factories, our production, depending on the parts and our view of inventory in the system. Our part production may range to between 30 to 40 aircraft per month. So there are times for certain parts where we are continuing to build ahead to balance production in our facilities. We did see growth in bookings across Boeing and Airbus. We got some good additional order inflow for work we do on the cells for Airbus, not directly to Airbus, but on Airbus platforms. So there was -- it was good to see the bookings pick up and remaining performance obligations tick up for commercial aerospace. I mean it certainly did for defense as well. Where it was good to see that pick up for commercial aerospace as well this quarter.

Yes. We're really -- again, we're really happy with the orders and we are really -- would really like to see the activity at Airbus for us. So I think it was strong across the board, Ken, as you know.

Great. And if I could, the guide mid-single digit growth for the full year, your comment implies low double-digit growth in the fourth quarter. What are the puts and takes on that mid-single digit? I mean, where could we maybe see upside in the fourth quarter? Where are you still sort of seeing some pressure perhaps as you think about closing out the year?

I would say there continues to be pressure with destocking on the commercial aerospace side. So we expect that to continue to be a headwind that we will work through. Medium- to longer-term outlook continues to get more and more positive and brighter, but the immediate impact here in Q4, I think we'll continue to see some pressure there. On the defense side, we continue to see strong activity. We expect that to be the bright spot in Q4 as well, both with order intake and revenues. I think we try to be as balanced as possible with our...

And also -- I mean, one of the real bright spots at BA, Ken, you know you all should [indiscernible] the 787, even though they're going to do a lot more down and they have a lot of plans for that is that they've been -- when they get to 8 or 10, which I'm sure they'll get through fairly quickly, that's real money for Ducommun. So we're really -- we're very enthusiastic about that program as well.

Our next question comes from the line of Mike Crawford of R. Riley Securities -- or B.Riley Securities.

Yes. Thank you, B. Riley. So what's that $100 million difference in the RPO and the backlog between that [ 1.03 and the 1.116. ]

You mean what is the -- where is the room [indiscernible].

[indiscernible].

Yes. So it came evenly between both commercial aerospace as well as defense. So we saw order intake on both fronts, driving the growth in RPO. As we said, in the commercial side, we saw growth with Airbus, but also with ongoing platforms in order intake. On the defense side, we continue to see strong intake of orders on missile platforms that continue to support our growth there.

I think he was asking also the difference with backlog and RPO.

Or the difference between backlog. I'm sorry, Mike, is that what you want?

Yes.

Yes. Okay. So RPO is a GAAP term, right? So that's the remaining performance obligations that is revenue yet to be recognized. Backlog is more linked to shipments. So that's kind of the primary difference. Backlog, we also constrained to a 2-year window. We include forecasts under LTA within backlog. So I would refer you to our 10-K and Q filings where we have kind of given a full and more precise definition of the backlog. But those are the key items that are within backlog, whereas RPO is unconstrained, so there isn't any time period constraint. It's the total remaining orders that are unfulfilled or for which we have not recognized revenue as yet in our financial statements.

Okay. Yes. That makes sense. And then for engineered products, the year-to-date mix was 23%, I think that's the same as it was in the first half. So I just wanted to make sure that was the mix in the third quarter itself. And then if you had any thoughts on whether that is growing faster than the rest of the business in Q4 and/or next year?

Yes. So first -- yes, so look, we're really happy from where we came from a couple of years ago, 23% is a good number, hard to do, right? Because you do have -- we have a big contract manufacturing business, right? So you're fighting the percentages. So we're pleased that 23%. We did have -- we've had a good first 9 months. I see that going forward. Now I'd also mention that the upticks last year have been all organic, which has been terrific, right? So what we're using for shareholder money and buying these companies in the last 4, 5, 6 years, actually had doing organic growth. So we see that continuing. Obviously, we also have our other leg of our strategy, which is our acquisitions, and that's all going to be engineered products in the aftermarket. And that's -- Suman is obviously leading that, along with myself and the rest of the team. So we feel good about it. We've got 9 quarters to go, Mike. So we're confident we're going to beat that number in [ 25 ].

Yes. Okay. And then last one for me is, so from last time buys, industrial was up in the third quarter, but I imagine that starts to come down and it is down next year, maybe thereafter. And so what do you do with that manufacturing space? Is it -- what does it port over to?

All right. I mean that moves primarily to aerospace and defense. And that's the objective behind pruning our industrial business where we're not getting sufficient returns. And we did see, as we noted, slightly higher revenues this quarter. I think it goes back to the run rate we have been seeing in Q1 and Q2 of this year, again, here in Q4. And it kind of -- it will be flattish to slightly down potentially in the future. If we don't make the required margin, we're not going to continue that business.

And my goal, all that business are -- its cards. So all that business is circuit cards or CCA. So as that goes down, that goes directly over to Raytheon cards and other cards that we're making for customers. It's primarily out of Appleton, right? This is the Appleton facility. So it's a nice mix where we're just going to -- we have still SMT machines. We have the same people. It's just that -- so it's not like it's in 3 different locations. So it's going to be easy for us. year for me.

Next question comes from the line of Sam Struhsaker of Truist Securities.

On for Mike from Molly today. Appreciate you taking the questions. It looks like margins have kind of been nice steadily improving and expanding here. I was just curious if you could give some thoughts from you guys on sort of where you're thinking about kind of the cadence of opportunities to continue to expand those margins might fall both for 2025 and throughout 2026.

Yes. It's a good question. And we do expect margins to be stable here for the rest of 2025 and then -- and as we look into 2026, again, we don't provide specific guidance on margin. But what I would say is that a big opportunity for us is to drive the savings from our facility consolidation efforts. So all the product lines that Steve mentioned earlier that we have transitioned from high-cost locations to lower-cost locations are going to ramp up and we get up the learning curve on production with these products, they're going to drive strong savings for us in 2026. So that's going to be a key driver.

In addition to the things we do all day, every day, right, we want to get paid for the value we provide and drive strategic pricing. We want to find opportunities to continue to drive cost efficiencies and we want to continue our transition to more engineered products, which improves the revenue mix and drives higher margins. So those will continue. But the big the big nugget there in 2026 is the facility consolidation.

Yes. Yes. I think overall, that's sort of the recipe. We're going to continue to enjoy. We have very good demand in aftermarket in the commercial aerospace. We'll continue to enjoy that. Obviously, we're going to continue to -- where we provide value raised prices each and every year in that area as well as engineered products. So we have a lot of strength there and just more of the same. So we feel good about next year on margins.

That's great. And if I could just sneak in one other. I'm curious, you guys obviously called out M&A as a point of interest in the past, but just kind of curious about your thoughts on capacity there following this recent litigation expense? And maybe if there's any change in time line there.

So we do continue to have availability on our revolver, and we will post the drawdown related to the litigation settlement. We -- our net leverage, as I said earlier, is expected to be low 2s after making that payment. And we continue to generate cash. We'll continue to pay down debt and lower that leverage, and that opens up capacity for us going forward. So we are in discussions with our banks to increase the size of our facilities and extend the tenor of our current facility so that we have more flexibility going forward. on being able to execute on acquisitions. So M&A continues to be a focus area for us, and we have and we'll continue to ensure we have sufficient liquidity to be able to execute on that plan.

Our next question comes from the line of Tony Bancroft of GAMCO Investors.

Great job as always. Just you talked about Golden Dome. I know it's pretty far out -- it's [indiscernible] pretty far out there, but your -- a lot of your customers -- a high percentage of your customers are going to be big, probably participants in this program. And have you heard anything initially, maybe what they're telling you so you can begin planning phase or where -- what parts of your business do you think you're going to be most exposed to it?

Yes. Well, look, we're -- it's certainly something we're excited about because we are very to your point, very well positioned. Obviously, the missile franchise that we have, depending on what they use, what they deploy. I mean we're we're pretty much on every missile or pretty close to every missile persist on the RTX side. So we feel great about that. The other positive thing for investors, and I talked about this, it just -- it's happened for reasons like offloading from RTX for the SPY-6 and other things. And really we're really starting to build a radar franchise that is gaining more and more traction. That's going to be the other thing, right?

I mean, we not only make radar for ground-based installations, I mean something that's exciting that we're thankful that it's going to go forward as the E7 Wedge TOW, which we do a lot with for Northrop, it's folks that don't know it's a Boeing plane outfitted for sort of the brain of warfare and so that's on its way as well. So not that it's not goal, but it's all about us being well positioned in missiles and radar have we heard Tom about it yet from our customers, no. But we are on everything that we believe is going to be utilized pretty much. So we'll have more on that in the future, Tony.

[Operator Instructions]

Our next question comes from the line of Noah Poponak of Goldman Sachs.

I know I guess if I look at the total company organic revenue growth through the year, low single digit in the first half, you're going to exit the year at low double digit and the defense business has had good growth for the year. Aerospace is down with the destocking. I guess as we go into 2026, can '26 look like the exit rate you're going to have here in the fourth quarter because the defense drivers -- I mean, that will be a tougher compare, but the defense drivers sound pretty durable. And then on the aerospace side, you're going to at some point, you're going to link up with Boeing, which will be pretty good growth off pretty easy compares. Can '26 grow double digits, total top line?

So we will provide guidance on 2026 early in the year. We don't typically provide the guidance now. But I would say that commercial aerospace destocking, we expect will continue to have an impact in 2026. I don't think we see ourselves catching up to Boeing production rates in at least the first half of 2026, given the amount of inventory held by them and also inventory at our end, right? So it's kind of destocking both at the customer and a tower end that we need to work through. So I do agree with you that I think we are at a trough, but how quickly we move off the trough, we'll have to see based on how quickly destocking gets done here over the next couple of quarters. On the defense side, we do continue to see good order intake and growth in our RPO. So the outlook continues to be positive for defense growth.

No, we'll -- just our cadence, we'll -- I think our call is probably the end of February, right? So we will have a full view of our our numbers. But I think you [indiscernible] a great point about, yes, there are lower comparison, which are going to be good for us, right? And eventually, we are going to sync up. The thing that I'm always a little bit worried about is a spirits always little bit a wildcard still not closed with the purchase and the fuselages and I don't know how many are back are these days, and that's more than half of our MAX business, right? So -- but we're very positive, but maybe in the first 6 months, it will be still a little rocky for commercial aero on the BA side.

Okay. Okay. I guess, how is 4Q growing low double digits if you're seeing that rockiness or the inventory destock for the next 6 to 9 months?

Continued strength in our defense business. No, that's a key driver.

And a little compare to what, 197? 197 in Q4 last year, we were up 201 in Q3. So a little bit little bit less on the comparator.

Right. The compares can move around on you Okay. Can you just approximately how much of your revenue at this point on an annual basis is the MAX.

So it's -- if you look at large commercial aerospace, it's about -- if you look at Boeing and Airbus, it's about 50% of our total commercial aerospace business and Boeing is more than half of our large commercial. So it's a meaningful portion of our commercial aerospace business, maybe it's still less than 20% of our Commercial Aerospace business today but expected to ramp up.

Yes, if you're looking at the numbers here, we have a little sheets, sheets here. I mean I'll add last year versus this year, year-to-date for the MAX, it's down double digit. So it's a good part of our business, but that's hurt us.

And then Suman, on the cash flow statement, you've had improvement in the working capital turns year-to-date after that's built up on you over the last few years. Putting the payment aside, do you expect 4Q to be up year-over-year? Or maybe where do you expect the conversion from your adjusted EBITDA to come in for the year on free cash?

So we think about free cash flow to adjusted net income, and we are at 73% year-to-date, which is a significant improvement from where we were last year where that same conversion was around 40% and 33% back in 2023. So a significant improvement in free cash flow to adjusted net income conversion for the company. We don't provide specific guidance on cash flow generation, but we expect Q4 to be a continued strong quarter for cash flow generation kind of in line with what we have seen in the past couple of quarters.

Yes. And our goal is 100%, which we're working.

Our goal is 100%.

Okay. And what is the cash payment you will make? How much is the cash payment you'll make regarding the litigation in the fourth quarter?

So the cash payment that we will make is a net payment to us net of insurance recoveries is just over $95 million.

Sorry, sorry, in our out.

it's payment outflow of $95 million.

Thank you. It appears there are no further questions at this time. I would like to turn the call back over to Steve Oswald for closing remarks.

Okay. Thank you very much. Thanks to everyone for joining us again for the call. Just to wrap things up here, we feel as we head into the end of the year, we feel great about our margins, what we're doing with defense. I mean are we disappointed with the destocking and the continued sort of rocky road a little bit with commercial [indiscernible] space? The answer is yes. But we know that's our best futures ahead of us. And we're well positioned in capital, well positioned with the customer and look forward to a strong close to 2025 and excellent 2026. So again, all the best. Thank you for joining us, and have a great rest of the day.

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