DUCOMMUN INC /DE/ Q2 FY2025 earnings call

• Ducommun's VISION 2027 game plan is in execution, focusing on increasing engineered product and aftermarket content, consolidating contract manufacturing, acquisition program, offloading noncore businesses, value-added pricing, and expanding content on key commercial aerospace platforms.
• Q2 2025 revenues reached a new quarterly record of $202.3 million, up 2.7% year-over-year, with defense business growing 16% driven by missile franchise (up 39%) and radar business (up 46%).
• Gross margin grew to 26.6% in Q2, adjusted EBITDA hit a record 16% of revenue. GAAP diluted EPS was $0.82 vs $0.52 in Q2 2024, adjusted diluted EPS was $0.88 vs $0.83 prior year.
• Restructuring program ongoing with shutdown of Monrovia, CA and Berryville, AR facilities, transitioning work to Guaymas, Mexico and other U.S. centers, expecting savings of $11-13 million annually.

Structural Systems segment posted revenue of $92 million in Q2 2025, down from $95.6 million last year. Electronic Systems segment had revenue of $110.2 million in Q2 2025, up from $101.4 million prior year. Structural Systems operating income was $9.5 million or 10.4% of revenue, while Electronic Systems operating income was $21 million or 19% of revenue. Engineered product revenues contributed 23% to the mix in Q2 2025.

• Expect mid-single-digit growth in Q3 and low double-digit growth in Q4. Tariffs are expected to have limited and no material impact on 2025 revenues. Commercial aerospace outlook is promising with Boeing ramping up production. Defense backlog expected to ramp up in the second half of the year.

• Cyclicality of end-use markets.
• Level of U.S. government defense spending.
• Customer delays in launch, certification, and order timing.
• Ability to obtain financing and service debt.
• Legal and regulatory risks, including litigation matters.
• Cost of expansion, consolidation, and acquisitions.
• Competition, economic and geopolitical developments, including supply chain issues and tariffs.
• Labor disruptions and ability to attract/retain key personnel.
• Intellectual property protection risks.
• Pandemics, disasters, and cybersecurity attacks.

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

A: No, great question. And what we're seeing is certainly some ramp-up activity in commercial aerospace as we go into Q3 and Q4. But even in our defense business, and Steve highlighted some of the great things that we're seeing in our missiles and radar business, we are expecting a higher level of activity on the defense side of our business, and that's going to be a key driver. We're not expecting a huge ramp up in commercial aerospace here in the last 2 quarters. There will be some, but it's really also going to come from the defense portion of our business, which looks strong.

Q: Kenneth George Herbert: Steve and Suman, nice results. I just wanted to ask, you're still at sort of I think it's 23% of the revenues from the engineered products portfolio. It sounds like that's not maybe a significant mix tailwind in the second half of the year. What does the guidance imply for sort of exit rate from that portfolio this year into 2026 as maybe as a percent of the revenues?

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

Q: Michael Roy Crawford: Okay. Great. And just one follow-up question, a little different category. But I know you've made some inroads into space and unmanned systems markets. I think you started with the Predator maybe a few years ago, but it's not -- it hasn't been a huge part of your mix. You've had success, obviously, with Viasat and IFC, but any updates there?

A: It's a bit of a tricky business for us just because there's a high level of expense, as you know, for developing these types of products. We are supporting space in Joplin. We make cables, cabling, which is world-class for space applications. We do other things in our engineered products businesses. So we're probably, as far as space goes, we're opportunistic, and that's what I would say. We're much more strategically aligned on defense and on commercial aerospace. But if there's a space application, which we can do, and it won't cost us a fortune and we'll have a good return, then we're happy to do it.