Ducommun Incorporated

Good day and thank you for standing by. Welcome to Ducommons' first quarter 2026 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I'd now like to hand the conference over to Suman Mukherjee, Senior Vice President, Chief Financial Officer. Please go ahead.

Thank you, and welcome to Duke Commons' 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 relating 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 Duke Common 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 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 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 10Q 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, and as usual, I will give an update of the current situation at the company. after which Siobhan will review our financials in detail. Let me start off again on this quarterly call with the Commons 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 Common Board in November of 2022, and then presented the following month in New York to investors where we got excellent feedback. Since that time, the Commons management has been executing the strategy by increasing the revenue percentage of engineered product 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 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 catalysts 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 over $200 million in revenue, and our 20th consecutive quarter with year-over-year revenue growth. 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 three quarters of 2026. In addition, companies' remaining performance obligations, RPOs, remained 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 arrow 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 seven-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 on many of the programs, which is great news for DCO and its shareholders. Production on many of these missile programs, such as Tomahawks, 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. 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%, 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 gap in 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. With 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 on 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 quarters to be relatively level-loaded in 2026 and growth for each quarter between mid- to high-single-digit, 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 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 with capacity at our operations to fully support the required ramp-up. These framework agreements and DOW's push to increase production ASAP should be a strong catalyst for growth in our military and space segments starting in 2027 and beyond. As a reminder, the Common is a key supplier on 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 on Bell platforms out of our Kawasaki 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 SpiritMax 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 remain optimistic about DCO's commercial aerospace business in 2026 with more growth ahead in 2027 and beyond as they 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 nine-plus years leading to Comet, and that is exciting news for the company and its shareholders. With that, I'll have Suman review our financial results in detail.