Gentlemen, thank you for being with us today. The floor is yours.
Thank you, John. Happy to be here and good evening, everyone, for your final presentation of the day. John told me they always like to save the best for the last, and so we were happy to take this final slot in the evening before you wrap up. Hopefully all of you have had a good day of meetings already. To give you an introduction to Ducommun and who we are, we have a long history. We are the oldest company in California. If we can move to the next page. We have a long history. We are the oldest continuously operating company in California.
We have evolved over the years, starting as a general store selling picks and shovels into the gold rush, and migrating to selling metals to the aerospace industry in the early 1930s. Eventually kind of moving into more engineered products, aerostructures, defense electronics, and various other things that I'll cover here briefly, over the course of 177 years. The current management team has been in place since early 2017 when Steve Oswald, our current Chairman, President, and CEO, took over leadership of this company. He brought me over in March of that year, so I have also now been with the company for almost 9 years. We've had great success during this period.
If we move to the next page, this will give you a snapshot of both the stock performance as well as the financial performance of the company over this period of time under the current leadership team. You can see that as of the end of last year, our market cap was up almost 400%. This is prior to the run-up in defense stocks in January and February and through March of this year. We are up significantly more since then. If you look at our revenues, we have grown that 50% despite the downturn in commercial aerospace as a result of the pandemic.
Most importantly and proudly, we have grown our EBITDA 144% or 600 basis points of margin expansion under the current management team with significant runway ahead. That's a key point. We have had made commitments to expand our margins, and we have delivered on those commitments, and we have a lot of runway to further expand those margins going forward. Moving on. You can see the portfolio of businesses that we have. Our business is almost 60% defense, 58% defense for 2025, and 38% commercial aerospace, with 4% being niche industrial exposure. Most of our commercial aerospace business is focused on narrow body platforms, including the 737 MAX, the A220, the A320.
We also have some wide-body exposure, mainly the 787. This combination of platforms in large commercial aerospace we feel is optimal. We are on the right platforms that have the greatest potential for growth, and we're, we feel it positions us really well for the expected growth in production rates at both Boeing and Airbus over the next several years. You can see on the right some of the key platforms across, both defense and commercial. You can see, a section on missiles and radar. This is the fastest-growing portion of our business, and I'll talk about that more in a little bit. Moving to the next page, you will see the different products that we, make, design, and sell in each of our two reported segments.
Electronic Systems, which is 56% of our revenue, and Structural Systems, which is 44% of our revenue. Within each of these reported segments, we have what we call Engineered Products, which are a portion of each of these segments. Engineered Products is a key part of the strategy for the company, and our intention is to grow those product lines and to acquire additional product lines that have the attributes that these Engineered Products businesses have. They tend to be sole sourced, spec-ed into platforms, own the aftermarket, have great pricing power. Their business is similar to what, for those of you familiar in the industry, they are similar to a HEICO and a TransDigm, and so we like those businesses.
Within the Electronic Systems, the Human Machine Interface business, the Lightning Protection business, and the Motion Control business are Engineered Products businesses. On the Structural Systems side, the Ammunition Handling business, the Magnetic Seals business, the aerodynamic enhancement products, and the extruded thermoplastics are part of our Engineered Products portfolio. I will talk more about the successes we've had in growing our Engineered Products businesses and our targets for this portfolio going forward, as it's key to our continued margin expansion. Moving to the next page. This is our Vision 2027 strategy. While the management team in place today came in early 2017 and demonstrated great progress both in terms of revenue growth and margin expansion through 2019. We were hit by the pandemic in 2020.
There was a reset in the business with commercial aerospace declining significantly in 2020 and 2021. We saw a reset in the business, and as we got to the end of 2022 and we were emerging from the pandemic, we felt it was the right time to lay out a five-year plan, a set of goals for the company to pursue and strategies that would enable us to achieve those goals. Our targets were to get from about $700 million in revenue in 2022 to close to $1 billion, $950 million-$1 billion in revenue, and to expand margins by 500 basis points from 13% to 18%.
Today, as we have completed three years out of that five-year plan, we have achieved 340 basis points of margin expansion, and this margin expansion has come entirely from improvement in gross margin, GAAP gross margin. There's no funny business. There are no adjustments that are driving this margin expansion. It's true improvement in the underlying GAAP gross margins that the business is producing. It has come through some of the strategies that you have in the middle there. It has come through growth in Engineered Products, both through strategic acquisitions as well as organic growth. It has come through discipline in pricing, making sure we get paid for the value we provide. It has come through better cost management and ensuring material cost inflation is passed on to the customer through appropriate escalation clauses.
It has come through our discrete actions in consolidating our footprint and taking cost out. You know, we have been able to execute each one of these really well over the last few years, and which is why we are linearly ahead of where we need to be on our five-year plan of getting to 500 basis points. We have reiterated that we are well on our way to hitting the 18% margin target by the end of next year. Moving forward, what are kind of the key investment highlights, right, for the business? We have a few slides following this where we'll talk about it in more detail. I'm not gonna go through all the slides for each out of these bullets but highlight a few specific ones.
I'll touch on all of them here on this upfront summary page. First is to expand our portfolio of proprietary product business or Engineered Products businesses, and we have been doing that organically. We have grown our Engineered Products business from 15% of revenue to 23% of revenue today, and that has been a contributor to expanded margins. We have a target of getting to 25% plus of our revenues from Engineered Products by the end of next year and are well on our way to doing that. Second, cost reduction initiatives and facility rationalization. We have shut down two facilities as part of this five-year plan and taken those products and are producing them in other existing facilities of the company, either here in the United States or in our location in Guaymas, Mexico.
That has allowed us to take cost out and improve profitability. We had targeted $11 million-$13 million in savings from this footprint consolidation, and as of the end of 2025, about half of that is already in our P&L on run rate basis, with another half expected to be realized on a run rate basis by end of this year. Demonstrated M&A strategy and execution. We have done five acquisitions under this leadership team over the last eight-nine years. We have a good track record of being able to buy businesses and that have these engineered product attributes of being sole sourced, spec'd into good platforms, owning the aftermarket, and we have the ability to grow the EBITDA in those businesses after acquiring them.
We do that through various means, whether it is by improving productivity in those factories, new product introductions, investing in engineering and sales resources, adjusting, making changes to distribution, value pricing, all levers that have allowed us to expand EBITDA in our acquired businesses and create value for our shareholders. Fourth, we are a tier one player. We have a strong position in the industry. We are dealing directly with Boeing and Airbus. We are dealing directly with Raytheon and the other defense primes, including Northrop, Lockheed, GD. They know us. We know them. We have great relationships with all these defense primes at the highest levels, and we are a recognizable player in the industry. Fifth, the recovery in commercial aerospace.
Commercial aerospace is, you know, as you saw earlier, 38% of our revenues, with exposure to large commercial, both Boeing and Airbus, where production rates have slowly been ramping up over the past few years coming out of the pandemic with significant runway ahead. That gives us a strong tailwind as we have the capacity today, existing capacity, to support that ramp up over the next few years. Six, the growing defense business with strong macro tailwinds and the presence on key missile platforms. Our missile business grew at 14% last year. Our defense business grew at 14% last year. Our missiles business grew at 20% last year. Our radar business grew north of 30% last year.
We have a strong portfolio of defense products that are positioned really well to leverage the tailwinds and the trends in the industry coming into 2026 and then further accelerated and catalyzed by the recent events, geopolitical events, and I'll talk about that a bit more in a minute. Seven, our manufacturing services capability. I talked about growing Engineered Products, and the thought might come to your head, what about the remaining portion of the business? What does Ducommun do, and how is Ducommun positioned to succeed in the remaining non-Engineered Products portion of the business? Now, that portion of our business is not just pure contract manufacturing. It is a very niche capability that we have. We have proprietary technologies that are not easily found elsewhere that allow us to differentiate our non-Engineered Products businesses even.
We do everything from ruggedized interconnects that go onto missiles or in nuclear submarines to circuit card assemblies in similar applications to titanium hot forming parts that are found on commercial aircraft or you know components of missiles that are made with titanium. We have aluminum stretch forming capability, which again, only a limited number of players globally have for the scale and size of parts that we build, including fuselage skins for commercial aircraft. We really do have a differentiated and niche set of manufacturing services capabilities that allow us to make a decent margin even where we may not have the design IP in the product. That's important to note.
These businesses are exposed to and will benefit from the ramp up in commercial aerospace production rates, and they will benefit from the expected surge in demand for defense products over the next several years. Finally, the last point on the slide is our exposure to tariffs. We are primarily an American company. 95% of our sales are produced or manufactured here in the United States, with less than 5% coming from our facility in Mexico, where we are covered by the USMCA. Most of our procurement and supply chain is domestic and has limited exposure to international supply chains, and therefore we've had a less than material impact from tariffs so far. I'll now touch on, in particular, the defense pages here. If we could move to the defense slide here.
Moving forward, we have a strategy that has been hugely successful over the last five or seven years with defense electronics, where we have taken work out of the defense primes factories and produced them in our factories in a much more economical way. You take product or circuit card assemblies that are being built in Marlborough, Massachusetts by Raytheon, and you take them out from on that, you know, Fortune 100 company overhead structure in a high-cost state like Massachusetts, and you produce them in Appleton, Wisconsin or in Tulsa, Oklahoma, you can create a win-win for Ducommun and for Raytheon. We have done that successfully multiple times across different product platforms and been able to get significant amount of work from them.
Today, as they look to ramp up capacity across key platforms, they are looking for more support from their supply chain to take on higher level assemblies, to take on more work so that they can expand capacity within their footprint and their factories. We expect this trend, which has been hugely successful for Ducommun over the last several years, to continue to be a good tailwind for us going forward. We also, on the right of this page you can see, have positioned our defense business on the right segments of the defense budget. More than a third of our business comes from missiles and radar systems. This is expected to grow significantly. Our missiles business saw a 4x plus book-to-bill ratio in Q4 of 2025. The missiles revenues in 2025 grew, as I said earlier, by 20%.
Radar business grew by more than 30% in 2025. All this is before the long-term framework agreements the government put in place with Lockheed Martin and with Raytheon to exponentially grow missile production. It's before that. It is before the impacts of the ongoing war in Ukraine and the demand acceleration that is expected to potentially have on missile production. We are in really have a strong footing in those segments of the defense budget. We expect them to grow strong. I have one more page on missiles that I'll come to in a moment. Before that, I also wanted to highlight our presence across UAVs and counter-UAVs.
Counter-UAS is an important and a key threat that we are facing across the world, and definitely what we are seeing in the Middle East today, and being able to appropriately address this threat is critical to our country. We have presence in a number of platforms that support Counter-UAS. We also have presence in hypersonics, working with Raytheon on multiple platforms where we are providing electronic components that go into these hypersonic missiles that can withstand the temperatures and speed and environment that these hypersonic missiles operate in. Before I wrap up here, I do want to touch on one other slide here, which will give you a better picture of our missile presence. This is a page that shows the seven key missile programs that have been identified by the Department of Defense as being critical to our country.
They have put in place framework agreements, seven-year long-term agreements with Lockheed and with Raytheon to significantly ramp up production on each one of these platforms. You can see that production is expected to go up from 1.5x to 10x across these different platforms. Ducommun is an incumbent supplier on every one of these platforms. As the production ramps up exponentially over the course of the next seven years, Ducommun has a great opportunity to be able to grow its missiles business further. It's already growing at 20% and more today, but we have an opportunity to grow it exponentially over the next several years. This is going to be a key catalyst to grow our defense portfolio over the next few years. We have the capacity, and we have the people who can make that happen.
We are continuing to invest in this business, which you should also know is low capital intensity. We are able to continue to grow capacity in this business that's supporting the missile work within our routine capital budgets and be able to expand and grow this business and drive our defense portfolio into 2027 and beyond. With that, maybe we get to the last page, Christian, where we have the key investment, the page before that. Right there. Leave that. Happy to open up to questions. We will have also, just for all of you to know, an Investor Day planned in New York City on September Seventeenth. That will be where we will kind of announce our next five-year plan, that you know that takes us beyond Vision 2027.
Since we are making steady and great progress in achieving those goals, we wanna kind of lay out the next leg of the journey for Ducommun going forward from here at that Investor Day.
Mm.
With that, I'll pass back to John Yu to take any questions.
Suman, I'm sure everyone's looking forward to hearing what you have to say in September. Back to the present. If you have a question, please enter it into the Q&A section and I will present it to Suman. I guess I wanna start off with a little bit of where you left off. You kinda suggested there's adequate capacity to address all these missile needs. Is that true just in the missile programs, or is it true across all of A&D?
Good question, John. Thank you. If you look at commercial aerospace, our factories were built to support the MAX being produced at 57 aircraft per month back in 2019. Today we are seeing volumes, for us, net of destocking, right? Boeing producing at maybe low 40s and net of destocking us seeing 30, low 30s aircraft per month. We have significant headroom there, to grow production, and we have the capacity in place and the people in place to grow that business. There is no concern on capacity there. On the defense side, what we have said is that we have about 30% capacity on our defense electronics business.
and radar is a little more than a third of the business, so we can easily double our missile and radar business within our existing capacity and footprint. That should allow us to be able to meet any needs we have over the next 18-24 months. We are putting in place and making the necessary changes to allow to have additional capacity for kind of year three and beyond, as we expect a sustained growth in the defense business, especially missiles, as I talked about earlier. The good thing is that, you know, it's not that expensive to do that. We can do that within our existing annual capital budgets and have the capacity needed to meet the exponential growth in year three and beyond.
Understood. In your goals to hit 18% margins, it seemed that the first 300 basis points, you highlighted those 5 levers that you pulled. I'm curious which lever had the most significant impact on maybe the low-hanging fruit, and which one you looked as the most important one to achieve the balance of that target?
Yeah. I mean, the key things that have driven the margin expansion here over the last few years have been the pivot towards more Engineered Products, higher IP products. That's one. Two is pricing and cost discipline. We have made sure that we get paid for the value we provide, and we've made sure that material inflation is passed to the customer through appropriate escalation clauses. The third has been the facility consolidation. I would say that these three have had relatively equal contribution in getting us to the 340 basis points of margin expansion that we have seen. Going forward, we have another $6 million-$7 million in footprint consolidation that we expect to realize at run rate by the end of this year. That will provide additional margin expansion in 2026 and beyond.
We also have continued opportunity and runway with pricing and cost management, right? With material escalation clauses and the like. That's gonna continue to provide us headroom for margin expansion going forward. The engineered product pivot is going to continue to be an available lever for us to expand margins. We're gonna do that both organically and inorganically. We're going to do acquisitions here before we get through and complete our Vision 2027 plan, and that will also contribute to margin accretion. Plenty of avenues to continue to drive margin accretion through to our Vision 2027 target of 18%, but then also significant runway beyond that, which we will talk about in September during Investor Day.
Understood. I would assume that the engineered side of the business would be the one with the highest barrier to entry as far as the competitive landscape. What did you change that gave you increased market share in that business?
Excellent question, that kind of market share does not come overnight.
Right.
It has been investments we've made in the business over the last seven or eight years since current management took over that are beginning to bear fruits today. Product introductions and new technology, expanding product lines, moving into adjacencies that has allowed us to grow that business organically and at a faster rate. I can give you know, one example. In our Nobles business, which makes ammunition handling systems, we bought that business back in 2019, and it was primarily an ammunition chute manufacturer for military fixed wing and rotorcraft. Today, they not only make ammunition chutes, but they make entire ammunition handling systems, so the ship set value has gone from $several thousand to $tens of thousands.
Hmm.
They have moved from not just fixed wing and rotorcraft, but they now also make ammunition handling systems for ground vehicles, and that has expanded the addressable market for that product line. There are similar instances where, through new product development and through moving into adjacencies, we've been able to grow the business organically beyond just the acquisitions.
Got it.
It takes time, but you put in the investment and find the right opportunities to invest in, you get rewarded.
I guess it brings me to the question about the competitive landscape. I'm sure they're not thrilled that you're taking share, but can you talk a little bit about the competitive landscape and where you see it as maybe where is the toughest spots and where you think the most opportunity lies?
Yeah. When it comes to Engineered Products, we typically are sole source for the products that we make, and once you get specced in, then you're pretty much guaranteed that program for the rest of the life of the program. We have an assortment of niche product lines, you know, similar to a HEICO or TransDigm, where you have a portfolio of niche product lines that are either the number one or number two player in their respective product line or segment. They have unique IP and technology that differentiates them, they get specced in onto a platform, and then they enjoy the rewards of that for the life of the platform. We have different competitors for each product line, right?
There isn't one competitor that you can compare Ducommun with. Each one of our niche product lines has a different competitor.
Mm-hmm
Ranging from subsidiaries of TransDigm or HEICO to independent businesses. It's, you know, it's. You know, if I were to give you the full rundown, we would take 20 minutes or a half hour. It is, you know.
Right
It's all aerospace and defense businesses. It's kind of the usual suspects, but it's different for each product line of ours.
Okay, fair enough. Can we just maybe sneak in something on M&A? I saw you had, like, a bridge $75 million number on one of the slides. I'm kinda just curious your thoughts about size, you, how willing you are to leverage, maybe adjacencies as far as products or outside maybe your comfort zone. Just briefly discuss the above.
Focus on aerospace and defense. We're not gonna go buy an industrial company. We're going to buy engineered product businesses where we are sole sourced spec'd in. We are focusing more on our proprietary pipeline of opportunities versus just the banker-run auction processes where valuations can be frothy. We are looking to be disciplined. We're not looking to take leverage up significantly. I think if we get kind of to the mid-threes, that would be kind of mid to high threes at the upper end of the leverage that we would be willing to live with for even a short period of time.
Right.
With the intention of bringing down leverage. Current management team in over the last eight-nine years has constantly brought down leverage. That shows that we realize, you know, the importance of managing that leverage properly. We haven't, you know, gambled and taken on risky bets. You know, we're looking to be prudent when it comes to levering the company and only you know make acquisitions where we have a clear path to growing the EBITDA and bringing down the multiple.
Good. Well, thank you, Suman, for bringing us up to speed into the Ducommun story. Any closing remarks?
This is a great time for Ducommun. We have had great success in achieving and getting towards our Vision 2027 goals, which we set up in 2022, despite the headwinds we've seen in commercial aerospace over the last few years. We are well-positioned for the next leg of the journey and super excited to present that to the Street, and we intend to do that in September at Investor Day. Hopefully we will see many of you at that event in New York City. In the meanwhile, you know, stay tuned and feel free to reach out to either Christian, who heads up IR for Ducommun, or to me directly, and we'll be happy to give you some more color on the company and our plans going forward.
Thank you.
Thanks again, gentlemen. Everybody have a great night.