Ducommun Incorporated (DCO) Earnings

Management highlights

### Vision 2027 Strategy Progress - The 5-year strategy is in its fourth year, on track to meet its 2027 targets, with strong execution across all core initiatives. - Engineered product revenue as a percentage of total revenue increased to 23% over the past 12 months, up from 15% in 2022; increasing this share is the company's top strategic priority. - Core strategic initiatives include facility footprint consolidation in contract manufacturing, focused acquisitions, value-added pricing, and expanding content on key commercial aerospace platforms. - The company will unveil its new 6-year Vision 2032 strategic plan at the September 17, 2026 Investor Day in New York. ### Overall Q2 2026 Operational Results - Total Q2 revenue hit a new quarterly record of $224.5 million, representing 12% year-over-year growth; this is the fifth consecutive quarter of revenue over $200 million and the 21st consecutive quarter of year-over-year revenue growth. - Remaining performance obligations (backlog) reached a record $1.16 billion, up $250 million year-over-year and $85 million quarter-over-quarter, with a quarterly book-to-bill ratio of 1.4x and a trailing 12-month book-to-bill of 1.3x. - Gross margin reached 28%, up 160 basis points year-over-year, and adjusted EBITDA margin reached 17.1%, up from 13% in 2022 and on track to hit the 18% 2027 Vision target. - Annual cost savings of $13 million from the facility consolidation program completed in 2025 are now mostly realized at full run rate. ### End Market & Program Highlights - **Military & Space**: Revenue grew 7% year-over-year to $124 million, driven by a 68% quarter-over-quarter surge in missile business (29% growth over the past 12 months). Growth was concentrated in core programs including PAC-3, SM-3, SM-6, and Tomahawk, partially offset by temporary order timing weakness in radar, naval, and space segments. Missile, radar, and electronic warfare programs combined represent 35% of trailing 12-month defense revenue and over 20% of total company revenue. The U.S. DoD has completed seven-year long-term missile framework agreements with leading defense primes, and DCO, as an incumbent supplier on most core programs, expects significant production ramping over the next several years; the company already has most required capacity in place to support this growth. - **Commercial Aerospace**: Revenue grew 16% year-over-year to $89 million, driven by higher production and deliveries on Boeing 737 MAX and Airbus A320 single-aisle platforms. The quarter benefited from a large incremental 737 MAX engineered product retrofit order, which is expected to generate recurring revenue over the next several years and may transition to line-fit revenue in the future. Growth in large commercial aerospace offset temporary declines in business jet and commercial rotorcraft revenue. Destocking headwinds are gradually easing and are expected to end within the next two quarters, with Boeing ramping 737 MAX production to 47 units per month and Airbus targeting rate increases in 2027.

Guidance

- Full-year 2026 revenue growth guidance is maintained at mid-to-high single-digit percentage growth, unchanged from prior guidance. - The company pulled forward some production and revenue recognition from H2 2026 into H2 to level load factory operations ahead of higher planned delivery commitments in the second half. This pull-forward is expected to result in low-to-mid single-digit year-over-year revenue growth in Q3 and Q4 2026, leaving full-year 2026 expectations unchanged. - The company remains on track to achieve all financial and strategic targets for the Vision 2027 plan, which concludes at the end of 2027, including the target of 18% adjusted EBITDA margin. - Management expects continued long-term growth from missile program ramping, commercial aerospace recovery, and ongoing mix shift to higher-margin engineered products.

Segment performance

1. Structural Systems: Q2 2026 revenue was $93 million, compared to $91 million in Q2 2025. Commercial aerospace revenue within the segment grew $4 million driven by single-aisle (737 MAX, A320) and widebody platforms, while military and space revenue declined $2 million due to temporary weakness in military rotorcraft (partially offset by missile growth). Operating income for the segment was $12.8 million (13.7% of revenue), up from $9.3 million (10.2% of revenue) year-over-year. Adjusted for restructuring charges, operating margin was 15.7% in Q2 2026, up from 12.8% in Q2 2025. Revenue contribution to total Q2 2026 revenue was ~41.4%. 2. Electronic Systems: Q2 2026 revenue was $131 million, compared to $110 million in Q2 2025 (20% year-over-year growth). Military and space revenue grew $10 million driven by strong missile and fixed-wing aircraft growth (partially offset by temporary weakness in radar and space), commercial aerospace revenue grew $8 million driven by Boeing platform growth, and industrial revenue grew $3.8 million due to production order timing. Operating income for the segment was $25.5 million (19.4% of revenue), up from $20.5 million (18.6% of revenue) year-over-year. Adjusted for restructuring charges, operating margin was 19.7% in Q2 2026, up from 19.1% in Q2 2025. Revenue contribution to total Q2 2026 revenue was ~58.6%.

Risks & headwinds

- Forward-looking statements are subject to material risks that could cause actual results to differ materially from projections, including: cyclicality of aerospace and defense end markets, fluctuations in U.S. government defense spending, customer production rate changes, order timing changes, cancellations or delays to new product launches and certifications, and difficulty accessing affordable financing for capital expenditures and working capital needs. - Legal and regulatory risks, including material potential losses from third-party subrogation claims related to the Guaymas Performance Center fire, costs related to expansion, consolidation, and acquisition activity, and competitive pressure. - Geopolitical and macroeconomic risks, including global supply chain disruptions, international trade restrictions, tariffs, elevated interest rates, risks of prolonged U.S. federal government shutdowns, and broader economic slowdowns. - Operational and strategic risks, including failure to successfully execute restructuring and cost reduction initiatives, inability to obtain required U.S. government export approvals for foreign sales, difficulty attracting and retaining key personnel, risk of labor disruptions, failure to protect intellectual property, the impact of pandemics or natural disasters, and cybersecurity breaches.

Analyst Q&A

• Q: What drove the sharp 68% quarter-over-quarter growth in the missile business, and what additional details can be shared on the large 737 MAX retrofit order? /

  A: The large missile growth was driven primarily by strong demand for PAC-3 missile programs, where DCO is a major incumbent supplier. While this specific order predates the recently completed seven-year DoD framework agreement, Lockheed Martin is already actively ramping PAC-3 replenishment production. On the retrofit order, it is a new engineered product designed by DCO's Carson business, for which DCO owns the design IP. The retrofit order covers the existing in-service 737 MAX fleet, will generate multi-year recurring revenue, and is expected to be added as a standard line-fit feature for new MAX aircraft in the future.

• Q: How does DCO's contract manufacturing business achieve higher margins than typical contract manufacturing, and what makes it unique? /

  A: DCO focuses on specialized, highly complex contract manufacturing niches with very limited global competition, rather than commodity manufacturing that has high competition and low pricing power. Examples include super plastic and hot forming of titanium for aerospace structures, where DCO is one of the largest independent global providers, and ruggedized specialized harnesses for harsh operating environments, with only a handful of providers capable of meeting the required specifications. This specialization allows for sustainable pricing power and stronger margins.

• Q: What is DCO doing to pursue opportunities with emerging defense primes working on affordable mass-produced drones, and what is the update on M&A pipeline and interest in transformational deals? /

  A: DCO is actively engaged with leading emerging drone primes including AeroVironment, Anduril, and Kratos, evaluating opportunities to add value in areas matching DCO's core capabilities such as composite structures, RF components, and antennas. DCO does not plan to pursue low-value commodity drone components, but is actively quoting and developing relationships for higher-value work. For M&A, DCO remains active, has expanded its M&A team, and is evaluating multiple opportunities; the company will only pursue deals that deliver clear shareholder value, and will share more updates on acquisition strategy at the September Investor Day.

• Q: Beyond volume and pricing improvements, what additional tailwinds support gross margin expansion going forward, and does DCO have sufficient capacity to support expected missile growth? /

  A: The primary additional long-term margin driver is the ongoing mix shift to higher-margin engineered products with IP, which DCO has grown organically from 15% to 23% of revenue since 2022, with further organic growth expected, supplemented by M&A. Most missile content is specialized contract manufacturing rather than engineered products, but still benefits from DCO's unique process capabilities. For capacity, DCO already has sufficient existing facility space to support expected near-term growth (for example, DCO recently opened 25,000-30,000 square feet of unused existing space at its Joplin harness facility for Tomahawk missile production), and only requires incremental hiring (over 80 new hires at Joplin since January 2026) rather than large new capital expenditures for footprint.