Ducommun Incorporated

Good day, and thank you for standing by. Welcome to the Q4 2025 Do Common Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during this session, you will need to press star 1 and 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 and 1 again. 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 Mukherjee, Senior Vice President and Chief Financial Officer. Please go ahead.

Thank you, and welcome to Duke Commons 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 risk, 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 Duke Common include, amongst others, the cyclicality of our end-use market, 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, Shaman. Thanks, everyone, for joining us today for our fourth quarter conference call. Today, and as usual, I would 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 DeCommon'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 DeCommon Board in November 2022, and and then presented the following month in New York to investors, where we got excellent feedback. Since that time, Commons Management has been executing the strategy by increasing the revenue percentage of engineered product and aftermarket content, which is at 23% this year, up from 15% in 2022, consolidating our rooftop footprint in contract manufacturing, continuing our focused acquisition program, executing the offloading strategy with defense primes and high growth segments, driving evaluated 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. I 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 five-year vision for DCO as a follow-up to our current Vision 2027. I strongly believe Vision 2032 will be very compelling for shareholders. 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 SPR, 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 of the quarter was orders for the MIR program for DCOs, 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 1.3 times 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 non-typical favorable product mix, which helped margins by approximately 100 basis points, the trend in gross margins 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 array, an expected run rate of 11 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 three years and a terrific job by the DCO team. Gap EPS was 48 cents per diluted share in Q4 2025 versus 45 cents for Q4 2024. With the adjustments, diluted EPS was $1.05 a share in Q4 2025, 30 cents above adjusted diluted EPS of 75 cents in the prior year quarter. The higher gap in adjusted diluted EPS during the quarter was driven by approved 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 SPR a headwind all year. Our non-core industrial businesses grew 3% year-over-year, providing a nice volume in margin without interrupting our military and commercial aerospace focus. Full-year 2025 adjusted even of margins expanded 160 basis points at 16.4%, another year of record-breaking performance as we make steady progress towards our Vision 2027 target of 18% even of 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 and momentum from both our primary and 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 the common 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 two ancillary subrogation claims of $1.35 million and $4 million, respectively. The Guaymas Fire occurred in June of 2020. We recorded settlement to 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 the stocking. 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% and was driven by strong performance in our military fixed-wing and rotorcraft franchises, 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 Cusack in New York, the Tome Missile Case in production in Guaymas, Mexico, and the Tomahawk in production at Joplin, Missouri. We've all heard the recent announcement from the Department of War to ramp up production capacity on key missile programs. The Department of War has entered into long-term framework agreements with Raytheon, our largest customer, and Lockheed Martin to significantly increase 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 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, Amran, 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, UConn 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, so 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 bill 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 e-stocking for our products on the MAX, particularly those flowing through the Legacy, operation 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 ship set content on this platform. so this will help us as well. We're also monitoring the production of Airbus as they work through their engine issues, but overall 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 help 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.