Ducommun Incorporated

11/05/2026 | Press release | Distributed by Public on 11/05/2026 05:14

Quarterly Report for Quarter Ending October 3, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations
Restatement of Previously Issued Financial Statements
As disclosed in our Amendment No. 1 to Annual Report on Form 10-K for the year ended December 31, 2025 ("2025 Form 10-K/A"), we restated our audited consolidated financial statements for the year ended December 31, 2025, and our unaudited quarterly financial information for each quarter in the year ended December 31, 2025 (collectively, the "Affected Periods"), among other periods, and corrected certain other immaterial items that were previously identified and concluded as immaterial, individually and in the aggregate, to its consolidated financial statements during the Affected Periods as further described below.
While preparing the first quarter of 2026 consolidated financial statements, management identified an error in our historical consolidated financial statements for the Affected Periods relating to the timing of stock-based compensation expense recognition (the "Error"). In particular, the Company did not apply the proper accounting for changes made in April 2024 to the retirement provision in the Company's performance stock unit and restricted stock unit award agreements and did not record stock-based compensation expense in the correct periods for retirement eligible employees. As a result of the changes to the stock unit award agreements in April 2024, the stock-based compensation expense for any employee eligible for retirement on or before the grant date should have been accelerated and fully recognized on the grant date. Further, the stock-based compensation expense related to employees expected to become retirement eligible during the vesting period should have been accelerated and recognized from the grant date through the retirement eligible date instead of being recognized over the typical vesting period applicable to other employees. The correction for the Error impacted (i) selling, general and administrative expenses, (ii) accrued and other liabilities, (iii) other long-term liabilities, and (iv) additional paid-in capital.
Additionally, the Company also corrected certain items that were previously corrected out of period and that were previously identified and concluded as immaterial, individually and in the aggregate, to its consolidated financial statements during the Affected Periods. These items primarily related to (i) revenue and cost of sales being recognized in the wrong period, which also impacted accounts receivable, contract assets, inventory, and other current assets (ii) employee compensation and benefits costs being recorded in the wrong period which also impacted accrued and other liabilities and other long-term liabilities, and (iii) incorrect netting of contract liabilities against contract assets. In addition, the tax effects of these adjustments impacted other current assets and deferred income taxes.
See Part I, Item 4 of this Quarterly Report on Form 10-Q for information regarding our controls and procedures.
Overview
Ducommun Incorporated ("Ducommun," "the Company," "we," "us" or "our") is a leading designer and manufacturer of and provider of manufacturing solutions for high-performance products often used in high-cost-of failure applications primarily in the aerospace and defense ("A&D"), industrial, medical, and other industries (collectively, "Industrial"). We differentiate ourselves as a full-service solution-based provider, offering a wide range of value-added products and services in our primary businesses of electronics, structures and integrated solutions. We operate through two primary business segments: Electronic Systems and Structural Systems, each of which is a reportable segment.
Economic Environment
The Boeing Company
In its 2025 Annual Report on Form 10-K, The Boeing Company ("Boeing") indicated that in 2025, global air traffic expanded to near historical trend rates on an annual basis. The growth occurred despite a lower than usual contribution from the North America market, which had stagnant demand, particularly in the low-cost space. International demand outpaced domestic demand on an annual basis as the international demand continues to build on the recovery momentum from 2024, including in China, lifting demand for wide-body airplanes. Based on these trends, both single-aisle and wide-body demand remain above current industry supply levels. Overall, Boeing is experiencing strong demand from their airplane customers globally.
Boeing was one of our largest customers in 2025, and the 737 MAX was one of our highest commercial end use market revenue platforms. In early January 2024, the Federal Aviation Administration ("FAA") initiated an investigation into Boeing's quality control system, which was followed by the agency announcing actions to increase its oversight of Boeing as well as not approving production rate increases or additional production lines for the 737 MAX until it was satisfied that Boeing attained full compliance with required quality control procedures. More recently, Boeing announced that the FAA cleared Boeing's plan to raise 737 MAX production from 42 airplanes to 47 airplanes per month. In addition, the FAA recently announced that Boeing can resume issuing airworthiness certificates for its 737 MAX aircraft.
Since Boeing is one of our largest customers, if Boeing is unable to meet the full compliance of the FAA's required quality control procedures, in the near term, it could have a material adverse impact on our business, results of operations and financial condition.
Airbus SE
Airbus SE ("Airbus") is aligned with Boeing's view on international demand as its Global Services Forecast for Asia-Pacific (including China and India) anticipates that total services demand in the region will grow at a 5.2% compound annual growth rate through 2044, reaching an estimated market value of $138.7 billion. This sustained growth is expected to be underpinned by expanding air traffic and fleet growth. The region is also expected to remain the world's fastest growing air travel market, with passenger traffic expected to rise by 4.4% annually, well above the global average of 3.6%.
Jet Fuel Prices
As noted above, Boeing is one of our largest customers, and Boeing, Airbus, and our other customers that are suppliers to the commercial airline industry are being impacted as commercial airline customers are experiencing elevated jet fuel prices due to the conflict in the Middle East, and sustained fuel-cost increases may reduce passenger demand or capacity and affect demand for our products and services. We are monitoring these conditions closely as sustained fuel cost increases and macroeconomic pressures also could negatively affect the financial condition of certain airline customers, particularly low-cost carriers. Given the volatile nature of the situation, the potential impacts to us are subject to change.
U.S. Government Tariffs
Since February 2025, the U.S. government has issued several executive orders ("Executive Orders"), under various statutes, imposing tariffs on imports from most countries with whom the U.S. engages in trade. As such, during 2025, the United States reached bilateral trade agreements that recognize tariff-free trade of products within the scope of the World Trade Organization Agreement on Trade in Civil Aircraft with the United Kingdom, Japan, and the European Union. Moreover, the United States applies a diverse range of reciprocal tariffs to imports originating from countries that have not concluded bilateral trade agreements with the United States. In February 2026, the U.S. Supreme Court struck down the sweeping tariffs that the U.S. government had imposed through the Executive Orders issued pursuant to International Emergency Economic Powers Act ("IEEPA") of 1977. However, the U.S. government subsequently imposed a global tariff of 10% (which could potentially increase to 15%) that went into effect on February 24, 2026, and which would be effective for 150 days unless they are extended by the U.S. Congress. Additionally, in late July 2026, an Executive Order implementing tariffs under Section 301(b) and Section 304(a) of the Trade Act of 1974, as amended, was issued imposing tariffs of 10% to 12.5% on non-exempt goods depending on the country of origin, and from which civil aircraft parts and components and goods qualifying under the United States-Mexico-Canada Agreement are exempt.
If the imposition of current tariff levels is sustained, our profitability, cash flows and the estimates inherent in our financial statements could be negatively affected to the extent we are either unable to claim duty exemptions or are unable to pass on such incremental tariffs to our customers. The actual financial impacts of tariffs are dependent upon various factors, most notably, the scope of goods covered by tariffs, the value of our imports subject to tariffs, the rate of tariffs applied, the timing and duration of tariffs, the implementation of tariff and non-tariff countermeasures by countries subject to U.S. tariffs, and our ability to mitigate the impacts of tariffs by availing ourselves of applicable exemptions. Changes in any of these factors and actual tariff costs incurred could significantly affect the estimates inherent in our financial statements, including those used in our estimates-at-completion ("EACs"), and estimates supporting the recoverability of our inventories, contract assets, intangible assets, and goodwill, and could have a material effect on our results of operations and cash flows in the periods recognized and paid.
U.S. Government Budget
On February 3, 2026, Congress passed and the President signed a spending package providing full-year funding for most federal agencies through September 30, 2026. On September 2, 2026, the President signed a Continuing Resolution maintaining Fiscal Year 2026 funding levels for federal agencies beyond the September 30, 2026 deadline through December 11, 2026. On April 21, 2026, the President's proposed Fiscal Year 2027 defense budget seeking $1.5 trillion was released, consisting of $1.15 trillion in base discretionary budget and $350 billion of mandatory funding through reconciliation. The President submitted a separate supplemental funding request to Congress on June 24, 2026, with approximately $67 billion of the request intended for defense spending, including $21 billion for munitions replenishment. We continue to closely monitor the movement of the requests through Congress.
U.S. Taxation Legislation
In July 2025, the U.S. enacted the One Big Beautiful Bill Act ("OBBBA"), which, among other things, provides a corporate tax provision change in reinstating the immediate expensing of U.S. research and development expenditures paid or incurred for tax years beginning after December 31, 2024. See Note 10 to our unaudited condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q for further information.
The OBBBA also provides a supplementary $156 billion to the Department of War ("DoW") for obligations through 2029.
Executive Order Regarding Modernizing Defense Acquisitions
In April 2025, the U.S. government issued an executive order requiring, among other things, a DoW review of its Major Defense Acquisition Programs to identify those programs that are 15% behind schedule, 15% over budget, unable to meet key performance parameters, or unaligned with the Secretary of Defense's mission priorities for potential cancellation. Although Ducommun does not, at this time, believe the Executive Order will have a material impact on our business or results of operations, the longer-term ramifications, if any, to Ducommun will depend on a variety of factors including the formulation and implementation of the review criteria in the order, the review timeline, the Secretary of Defense's mission priorities, and future budget determinations based on the results of such review.
Guaymas Fire - Developments
Subsequent to December 31, 2025, in January 2026, we entered into a binding confidential agreement ("Confidential Agreement") to resolve an additional subrogation claim ("Additional Subrogation Claim") against us related to the Guaymas fire. The Confidential Agreement provides for, among other things, the final dismissal of the Additional Subrogation Claim and a release of all claims against us, with prejudice, in exchange for us issuing a payment of $4.0 million. We do not believe there are any remaining subrogation or other claims relating to the Guaymas fire at this time other than by an insurer of the plaintiff in the Guaymas Fire Litigation based in Mexico for payments issued to its insured for damages allegedly incurred in the Guaymas fire, which we believe to be time barred. See Note 11 to our unaudited condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q for further information.
Third quarter 2026 recap:
•Net revenues of $227.0 million
•Net income of $13.9 million, or 6.1% of net revenues, or $0.89 per diluted share
•Adjusted EBITDA of $39.7 million, or 17.5% of net revenues
Results of Operations
Third Quarter of 2026 Compared to Third Quarter of 2025 (As Restated)
The following table sets forth net revenues, selected financial data, the effective tax (benefit) rate and diluted earnings (loss) per share:
(Dollars in thousands, except per share data)
Three Months Ended 		(Dollars in thousands, except per share data)
Nine Months Ended
October 3,
2026 		%
of Net Revenues 		September 27,
2025 		%
of Net Revenues 		October 3,
2026 		%
of Net Revenues 		September 27,
2025 		%
of Net Revenues
(As Restated) (As Restated) (As Restated) (As Restated)
Net Revenues $ 227,023 100.0 % $ 214,422 100.0 % $ 660,537 100.0 % $ 607,706 100.0 %
Cost of Sales 161,453 71.1 % 155,472 72.5 % 475,834 72.0 % 445,329 73.3 %
Gross Profit 65,570 28.9 % 58,950 27.5 % 184,703 28.0 % 162,377 26.7 %
Selling, General and Administrative Expenses 39,775 17.5 % 34,009 15.8 % 114,857 17.4 % 113,702 18.7 %
Restructuring Charges - - % 583 0.3 % - - % 1,617 0.3 %
Litigation Settlement and Related Costs, Net - - % 99,675 46.5 % - - % 99,675 16.4 %
Operating Income (Loss) 25,795 11.4 % (75,317) (35.1) % 69,846 10.6 % (52,617) (8.7) %
Interest Expense, Net (3,083) (1.4) % (2,927) (1.4) % (10,615) (1.6) % (9,198) (1.5) %
Other Income, Net - - % - - % - - % 1,746 0.3 %
Pension Plan Settlement Loss (3,872) (1.7) % - - % (3,872) (0.6) % - - %
Income (Loss) Before Taxes 18,840 8.3 % (78,244) (36.5) % 55,359 8.4 % (60,069) (9.9) %
Income Tax Expense (Benefit) 4,949 nm (17,417) nm 11,153 nm (13,398) nm
Net Income (Loss) $ 13,891 6.1 % $ (60,827) (28.4) % $ 44,206 6.7 % $ (46,671) (7.7) %
Effective Tax Rate 26.3 % nm 22.3 % nm 20.1 % nm 22.3 % nm
Diluted Earnings (Loss) Per Share $ 0.89 nm $ (4.06) nm $ 2.84 nm $ (3.13) nm
nm = not meaningful
Net Revenues by End-Use Market and Operating Segment
Net revenues by end-use market and operating segment during the fiscal three and nine months ended October 3, 2026 and September 27, 2025, respectively, were as follows:
Three Months Ended Nine Months Ended
(Dollars in thousands) % of Net Revenues (Dollars in thousands) % of Net Revenues
Change October 3,
2026 		September 27,
2025 		October 3,
2026 		September 27,
2025 		Change October 3,
2026 		September 27,
2025 		October 3,
2026 		September 27,
2025
(As Restated) (As Restated) (As Restated) (As Restated)
Consolidated Ducommun
Military and space $ (9,228) $ 118,609 $ 127,837 52.3 % 59.6 % $ 4,083 $ 359,992 $ 355,909 54.5 % 58.6 %
Commercial aerospace 21,065 97,200 76,135 42.8 % 35.5 % 45,610 270,530 224,920 41.0 % 37.0 %
Industrial 764 11,214 10,450 4.9 % 4.9 % 3,138 30,015 26,877 4.5 % 4.4 %
Total $ 12,601 $ 227,023 $ 214,422 100.0 % 100.0 % $ 52,831 $ 660,537 $ 607,706 100.0 % 100.0 %
Electronic Systems
Military and space $ (8,869) $ 86,956 $ 95,825 67.1 % 76.5 % $ 6,497 $ 269,679 $ 263,182 71.2 % 76.5 %
Commercial aerospace 12,448 31,442 18,994 24.2 % 15.2 % 24,965 78,944 53,979 20.9 % 15.7 %
Industrial 764 11,214 10,450 8.7 % 8.3 % 3,138 30,015 26,877 7.9 % 7.8 %
Total $ 4,343 $ 129,612 $ 125,269 100.0 % 100.0 % $ 34,600 $ 378,638 $ 344,038 100.0 % 100.0 %
Structural Systems
Military and space $ (359) $ 31,653 $ 32,012 32.5 % 35.9 % $ (2,414) $ 90,313 $ 92,727 32.0 % 35.2 %
Commercial aerospace 8,617 65,758 57,141 67.5 % 64.1 % 20,645 191,586 170,941 68.0 % 64.8 %
Total $ 8,258 $ 97,411 $ 89,153 100.0 % 100.0 % $ 18,231 $ 281,899 $ 263,668 100.0 % 100.0 %
Net revenues for the three months ended October 3, 2026 were $227.0 million, compared to $214.4 million for the three months ended September 27, 2025. The year-over-year increase in our key end-use markets were primarily due to the following:
•$21.1 million higher revenues in our commercial aerospace end-use markets due to higher rates on large aircraft and other commercial aircraft platforms; partially offset by
•$9.2 million lower revenues in our military and space end-use markets due to lower rates on selected ground vehicle weapon, rotary-wing aircraft, and other military and space platforms, partially offset by higher rates on selected missiles and fixed-wing aircraft platforms.
In addition, revenues for our industrial end-use markets for the three months ended October 3, 2026 increased $0.8 million compared to the three months ended September 27, 2025, mainly due to timing of orders.
Net revenues for the nine months ended October 3, 2026 were $660.5 million, compared to $607.7 million for the nine months ended September 27, 2025. The year-over-year increase in our key end-use markets were primarily due to the following:
•$45.6 million higher revenues in our commercial aerospace end-use markets due to higher rates on selected large aircraft, other commercial aerospace, and rotary-wing aircraft platforms; and
•$4.1 million higher revenues in our military and space end-use markets due to higher rates on selected missiles and fixed-wing aircraft platforms, partially offset by lower rates on selected ground vehicle weapons, radar and electronic warfare, rotary-wing aircraft, naval, and other military and space platforms, along with a classified program.
In addition, revenues for our industrial end-use markets for the nine months ended October 3, 2026 increased $3.1 million compared to the nine months ended September 27, 2025, mainly due to timing of orders.
Net Revenues by Major Customers
A significant portion of our net revenues are from our top ten customers as follows:
Three Months Ended Nine Months Ended
October 3,
2026 		September 27,
2025 		October 3,
2026 		September 27,
2025
Boeing Company 14.7 % 13.1 % 14.0 % 13.7 %
Northrop Grumman Corporation 3.5 % 6.0 % 4.0 % 5.8 %
RTX Corporation 23.1 % 19.3 % 20.4 % 18.5 %
Total top ten customers (1)
63.9 % 61.8 % 61.1 % 62.5 %
(1)Includes The Boeing Company ("Boeing"), Northrop Grumman Corporation ("Northrop"), and RTX Corporation ("RTX") for the three and nine months ended October 3, 2026 and September 27, 2025.
Boeing, Northrop, and RTX represented the following percentages of total accounts receivable:
October 3,
2026 		December 31,
2025
Boeing 11.6 % 7.3 %
Northrop 13.3 % 13.3 %
RTX 14.3 % 14.7 %
The net revenues and accounts receivable from Boeing, Northrop, and RTX were diversified over a number of commercial, military and space programs and were generated by both operating segments.
Gross Profit
Gross profit consists of net revenues less cost of sales. Cost of sales includes the cost of production of finished products and other expenses related to inventory management, manufacturing quality, and order fulfillment. Gross profit as a percentage of net revenues increased year-over-year with the three months ended October 3, 2026 of 28.9%, compared to the three months ended September 27, 2025 of 27.5% primarily due to higher manufacturing volume and savings from the facility consolidation program, partially offset by higher other manufacturing costs and unfavorable product mix.
Gross profit as a percentage of net revenues increased year-over-year with the nine months ended October 3, 2026 of 28.0%, compared to the nine months ended September 27, 2025 of 26.7% primarily due to higher manufacturing volume and savings from the facility consolidation program, partially offset by unfavorable product mix and higher other manufacturing costs.
Selling, General and Administrative ("SG&A") Expenses
SG&A expenses increased $5.8 million year-over-year in the three months ended October 3, 2026 compared to the three months ended September 27, 2025, primarily due to higher compensation and benefits costs of $2.8 million, higher professional services fees of $1.8 million, and higher other SG&A expenses of $1.0 million.
SG&A expenses increased $1.2 million year-over-year in the nine months ended October 3, 2026 compared to the nine months ended September 27, 2025, primarily due to higher other SG&A expenses of $3.2 million and higher professional services fees of $1.7 million, partially offset by compensation clawback of $3.9 million during the second quarter of 2026, which is a reduction to SG&A expenses.
Restructuring Charges
Restructuring charges decreased $0.6 million and $1.6 million year-over-year in the three and nine months ended October 3, 2026, respectively, compared to the three and nine months ended September 27, 2025, primarily due to the completion as of the prior year ended December 31, 2025, the previously disclosed restructuring plan that was approved and commenced in April 2022. See Note 3 to our unaudited condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q for further information.
Litigation Settlement and Related Costs, Net
Litigation settlement and related costs, net, decreased $99.7 million year-over-year in each of three and nine months ended October 3, 2026, compared to the three and nine months ended September 27, 2025, primarily due to the prior year entry into a binding settlement agreement to resolve the Guaymas Fire Litigation against us as well as settling an ancillary subrogation claim. See Note 11 to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q for further information.
Interest Expense, Net
Interest expense, net increased $0.2 million and $1.4 million year-over-year in the three and nine months ended October 3, 2026, compared to the three and nine months ended September 27, 2025, respectively, primarily due to a higher outstanding debt balance, partially offset by lower interest rates.
Income Tax Expense (Benefit)
We recorded income tax expense of $4.9 million for the three months ended October 3, 2026 compared to an income tax benefit of $17.4 million for the three months ended September 27, 2025. The change to income tax expense from income tax benefit for the third quarter of 2026 compared to the third quarter of 2025 was primarily due to pre-tax income in the third quarter of 2026 compared to a pre-tax loss, driven by litigation settlement and related costs, net of insurance recovery, in the third quarter of 2025 for which we recorded a discrete income tax benefit of $23.0 million.
We recorded income tax expense of $11.2 million for the nine months ended October 3, 2026 compared to an income tax benefit of $13.4 million for the nine months ended September 27, 2025. The change to income tax expense from income tax benefit for the nine months ended October 3, 2026 compared to the nine months ended September 27, 2025 was primarily due to pre-tax income in the nine months ended October 3, 2026 compared to a pre-tax loss, driven by litigation settlement and related costs, net of insurance recovery, in the nine months ended September 27, 2025 for which we recorded a discrete income tax benefit of $23.0 million.
Our total amount of unrecognized tax benefits was $5.6 million and $5.0 million as of October 3, 2026 and December 31, 2025, respectively. If recognized, $3.5 million would affect the effective tax rate. We record interest and penalty charges, if any, related to uncertain tax positions as a component of tax expense and unrecognized tax benefits. The amounts accrued for interest and penalty charges as of October 3, 2026 and December 31, 2025 were not significant.
We file U.S. Federal and state income tax returns. We are subject to examination by the Internal Revenue Service ("IRS") for tax years after 2021 and by state taxing authorities for tax years after 2020. While we are no longer subject to examination prior to those periods, carryforwards generated prior to those periods may still be adjusted upon examination by the IRS or state taxing authorities if they either have been or will be used in a subsequent period. We believe we have adequately accrued for tax deficiencies or reductions in tax benefits, if any, that could result from the examination and all open audit years.
In July 2025, the U.S. enacted the OBBBA. Amongst other things, the OBBBA provides for several corporate tax provision changes including restoring the full expensing of qualified property placed in service after January 19, 2025, reinstating the immediate expensing of U.S. research and development expenditures paid or incurred for tax years beginning after December 31, 2024, and changes in the computations of U.S. taxation on international earnings for tax years beginning after December 31, 2025. We completed the assessment of the OBBBA corporate tax provisions as they relate to our financial statements. The enactment of the OBBBA did not have a material impact to our effective tax rate for the three and nine months ended October 3, 2026. However, we expect the OBBBA to decrease our cash tax liability for 2026. We will continue to evaluate the impact of the OBBBA corporate tax provision changes as additional guidance becomes available.
Net Income (Loss) and Earnings (Loss) per Share
Net income, net income as a percentage of revenues, and earnings per diluted share for the three months ended October 3, 2026 were $13.9 million, or 6.1% of revenues, or $0.89 per diluted share, respectively, compared to a net loss, net loss as a percentage of revenues, and loss per share for the three months ended September 27, 2025 of $60.8 million, or 28.4% of revenues, or $4.06 per share, respectively. The increase in net income for the three months ended October 3, 2026 compared to the three months ended September 27, 2025 was primarily due to higher litigation settlement and related costs, net, of $99.7 million in the prior year period discussed above that did not reoccur in the current period and higher gross profit of $6.6 million, partially offset by higher income tax expense of $22.4 million, higher SG&A expenses of $5.8 million, and higher pension plan settlement loss of $3.9 million.
Net income, net income as a percentage of revenues, and earnings per diluted share for the nine months ended October 3, 2026 were $44.2 million, or 6.7% of revenues, or $2.84 per diluted share, respectively, compared to a net loss, net loss as a percentage of revenues, and loss per share of $46.7 million, or 7.7% of revenues, or $3.13 per share, respectively, for the nine months ended September 27, 2025. The increase in net income for the nine months ended October 3, 2026 compared to the nine months ended September 27, 2025 was primarily due to higher litigation settlement and related costs, net, of $99.7 million in the prior year period discussed above that did not reoccur in the current period and higher gross profit of $22.3 million, partially offset by higher income tax expense of $24.6 million.
Business Segment Performance
We report our financial performance based upon our two reportable operating segments: Electronic Systems and Structural Systems. The results of operations differ between our reportable operating segments due to differences in competitors, customers, extent of proprietary deliverables and performance. The following table summarizes our business segment performance for the three and nine months ended October 3, 2026 and September 27, 2025:
Three Months Ended Nine Months Ended
% (Dollars in thousands) % of Net Revenues % (Dollars in thousands) % of Net Revenues
Change October 3,
2026 		September 27,
2025 		October 3,
2026 		September 27,
2025 		Change October 3,
2026 		September 27,
2025 		October 3,
2026 		September 27,
2025
(As Restated) (As Restated) (As Restated) (As Restated)
Net Revenues
Electronic Systems 3.5 % $ 129,612 $ 125,269 57.1 % 58.4 % 10.1 % $ 378,638 $ 344,038 57.3 % 56.6 %
Structural Systems 9.3 % 97,411 89,153 42.9 % 41.6 % 6.9 % 281,899 263,668 42.7 % 43.4 %
Total Net Revenues 5.9 % $ 227,023 $ 214,422 100.0 % 100.0 % 8.7 % $ 660,537 $ 607,706 100.0 % 100.0 %
Segment Operating Income
Electronic Systems $ 28,746 $ 23,286 22.2 % 18.6 % $ 77,146 $ 61,194 20.4 % 17.8 %
Structural Systems 11,944 12,215 12.3 % 13.7 % 35,143 31,429 12.5 % 11.9 %
40,690 35,501 112,289 92,623
Corporate General and Administrative Expenses (1)
(14,895) (110,818) (6.6) % (51.7) % (42,443) (145,240) (6.4) % (23.9) %
Total Operating Income (Loss) $ 25,795 $ (75,317) 11.4 % (35.1) % $ 69,846 $ (52,617) 10.6 % (8.7) %
Adjusted EBITDA
Electronic Systems
Operating Income $ 28,746 $ 23,286 $ 77,146 $ 61,194
Depreciation and Amortization 3,578 3,553 10,788 10,694
Stock-Based Compensation Expense (2)
117 71 325 294
Restructuring Charges - 71 - 242
32,441 26,981 25.0 % 21.5 % 88,259 72,424 23.3 % 21.1 %
Structural Systems
Operating Income 11,944 12,215 35,143 31,429
Depreciation and Amortization 4,648 4,670 14,038 14,182
Stock-Based Compensation Expense (3)
82 60 253 381
Restructuring Charges - 512 - 1,375
16,674 17,457 17.1 % 19.6 % 49,434 47,367 17.5 % 18.0 %
Corporate General and Administrative Expenses (1)
Operating Loss (14,895) (110,818) (42,443) (145,240)
Depreciation and Amortization 115 115 307 319
Stock-Based Compensation Expense (4)
5,386 3,957 21,778 24,180
Compensation Clawback - - (3,870) -
Litigation Settlement and Related Costs, Net - 99,675 - 99,675
(9,394) (7,071) (24,228) (21,066)
Adjusted EBITDA $ 39,721 $ 37,367 17.5 % 17.4 % $ 113,465 $ 98,725 17.2 % 16.2 %
Capital Expenditures
Electronic Systems $ 3,663 $ 1,216 $ 6,725 $ 4,264
Structural Systems 1,670 1,029 4,681 6,272
Corporate Administration 268 109 510 122
Total Capital Expenditures $ 5,601 $ 2,354 $ 11,916 $ 10,658
(1)Includes costs not allocated to either the Electronic Systems or Structural Systems operating segments.
(2)The three and nine months ended October 3, 2026 included $0.1 million and $0.2 million, respectively, of stock-based compensation expense recorded as cost of sales. The three and nine months ended September 27, 2025 each included $0.1 million of stock-based compensation expense recorded as cost of sales.
(3)The three and nine months ended October 3, 2026 included $0.1 million and $0.2 million, respectively, of stock-based compensation expense recorded as cost of sales. The three and nine months ended September 27, 2025 included less than $0.1 million and $0.2 million, respectively, of stock-based compensation expense recorded as cost of sales.
(4)The three and nine months ended October 3, 2026 included zero and $0.3 million, respectively, of stock-based compensation expense for awards with both performance and market conditions that will be settled in cash. The three and nine months ended September 27, 2025 included $0.2 million and $1.4 million, respectively, of stock-based compensation expense for awards with both performance and market conditions that will be settled in cash.
Electronic Systems
Electronic Systems net revenues in the three months ended October 3, 2026 compared to the three months ended September 27, 2025 increased $4.3 million primarily due to the following in our key end-use markets:
•$12.4 million higher revenues in our commercial aerospace end-use markets due to higher rates on large aircraft and other commercial aerospace platforms; partially offset by
•$8.9 million lower revenues in our military and space end-use markets due to lower rates on other military and space, selected radar and naval platforms, partially offset by higher rates on selected fixed-wing aircraft and missiles platforms.
In addition, revenues for our industrial end-use markets for the three months ended October 3, 2026 increased $0.8 million compared to the three months ended September 27, 2025, mainly due to timing of orders.
Electronic Systems net revenues in the nine months ended October 3, 2026 compared to the nine months ended September 27, 2025 increased $34.6 million primarily due to the following in our key end-use markets:
•$25.0 million higher revenues in our commercial aerospace end-use markets due to higher rates on large aircraft and other commercial aerospace platforms; and
•$6.5 million higher revenues in our military and space end-use markets due to higher rates on selected fixed-wing aircraft and missiles platforms, partially offset by lower rates on radar and electronic warfare, other military and space, and naval platforms, along with a classified program.
In addition, revenues for our industrial end-use markets for the nine months ended October 3, 2026 increased $3.1 million compared to the nine months ended September 27, 2025, mainly due to timing of orders.
Electronic Systems segment operating income in the three months ended October 3, 2026 compared to the three months ended September 27, 2025 increased $5.5 million, primarily due to higher manufacturing volume, partially offset by higher other manufacturing costs.
Electronic Systems segment operating income in the nine months ended October 3, 2026 compared to the nine months ended September 27, 2025 increased $16.0 million, primarily due to higher manufacturing volume and lower other manufacturing costs, partially offset by unfavorable product mix.
Structural Systems
Structural Systems net revenues in the three months ended October 3, 2026 compared to the three months ended September 27, 2025 increased $8.3 million primarily due to the following:
•$8.6 million higher revenues in our commercial aerospace end-use markets due to higher rates on selected large aircraft and other commercial aerospace platforms; partially offset by
•$0.4 million lower revenues in our military and space end-use markets due to lower rates on selected rotary-wing aircraft and ground vehicle weapons platforms, partially offset by higher rates on selected missiles and fixed-wing platforms.
Structural Systems net revenues in the nine months ended October 3, 2026 compared to the nine months ended September 27, 2025 increased $18.2 million primarily due to the following:
•$20.6 million higher revenues in our commercial aerospace end-use markets due to higher rates on selected large aircraft and rotary-wing aircraft platforms; partially offset by
•$2.4 million lower revenues in our military and space end-use markets due to lower rates on selected rotary-wing aircraft and ground vehicle weapons platforms, partially offset by higher rates on selected missiles and fixed-wing aircraft platforms.
The Structural Systems segment operating income in the three months ended October 3, 2026 compared to the three months ended September 27, 2025 decreased $0.3 million, primarily due to higher other manufacturing costs and unfavorable product mix, partially offset by higher manufacturing volume and savings from the facility consolidation program.
The Structural Systems segment operating income in the nine months ended October 3, 2026 compared to the nine months ended September 27, 2025 increased $3.7 million, primarily due to higher manufacturing volume and savings from the facility consolidation program, partially offset by unfavorable product mix and higher other manufacturing costs.
In June 2020, a fire severely damaged our performance center in Guaymas, Mexico, which is part of our Structural Systems segment. The loss of production from the Guaymas performance center was absorbed by our other existing performance centers, however, we have reestablished our operations and are in the process of certification with various customers and ramping up our manufacturing capabilities in a different leased facility in Guaymas. We have insurance coverage up to a capped amount, less our deductible. The insurance claim for damages to our operating assets and business interruption was deemed final and closed by our insurance company during the three months ended July 1, 2023.
A neighboring, non-related manufacturing facility, also suffered fire damage during the same time as the fire that severely damaged our Guaymas performance center and, in November 2023, the occupant of the neighboring facility filed suit against us in U.S. District Court for the Central District of California seeking unspecified amounts for damages relating to the fire. Subsequent to our quarter ended September 27, 2025, on October 3, 2025, we entered into a binding settlement term sheet (the "Term Sheet") to resolve the Guaymas fire litigation against us. The Term Sheet provides for, among other things, the final dismissal of the Guaymas fire litigation against us with prejudice and a release of claims against us in exchange for us issuing a payment of $150.0 million, $56.0 million of which at that time was expected to be funded by our insurance carriers. Also subsequent to our quarter ended September 27, 2025, on October 9, 2025, we settled an ancillary subrogation claim related to the fire for $1.4 million. Further, subsequent to the fiscal year ended December 31, 2025, on January 7, 2026, we settled another ancillary subrogation claim related to the fire for $4.0 million. See Note 11 to our unaudited condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q for further information.
Corporate General and Administrative ("CG&A") Expenses
CG&A expenses decreased $95.9 million for the three months ended October 3, 2026 compared to the three months ended September 27, 2025, primarily due to litigation settlement and related costs, net, of $99.7 million in the prior year discussed above that did not reoccur in the current period, partially offset by higher compensation and benefits costs of $1.9 million, higher professional services fees of $1.1 million, and higher other CG&A expenses of $0.7 million.
CG&A expenses decreased $102.8 million for the nine months ended October 3, 2026 compared to the nine months ended September 27, 2025, primarily due to litigation settlement and related costs, net, of $99.7 million in the prior year discussed above that did not reoccur in the current period, compensation clawback of $3.9 million recorded in the second quarter of 2026, which is a reduction to CG&A expenses, and lower compensation and benefits costs of $1.3 million, partially offset by higher professional services fees of $1.8 million.
Non-GAAP Financial Measures
Adjusted earnings before interest, taxes, depreciation, amortization, stock-based compensation expense, and restructuring charges ("Adjusted EBITDA") were $39.7 million and $37.4 million for the three months ended October 3, 2026 and September 27, 2025, respectively.
When viewed with our financial results prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and accompanying reconciliations, we believe Adjusted EBITDA provides additional useful information that clarifies and enhances the understanding of the factors and trends affecting our past performance and future prospects. We define this measure, explain how it is calculated and provide a reconciliation of this measure to the most comparable GAAP measure in the table below. Adjusted EBITDA and the related financial ratios, as presented in this Quarterly Report on Form 10-Q ("Form 10-Q"), are supplemental measures of our performance that are not required by, or presented in accordance with, GAAP. They are not a measurement of our financial performance under GAAP and should not be considered as alternatives to net income or any other performance measures derived in accordance with GAAP, or as an alternative to net cash provided by operating activities as measures of our liquidity. The presentation of these measures should not be interpreted to mean that our future results will be unaffected by unusual or nonrecurring items.
We use Adjusted EBITDA as a non-GAAP operating performance measure internally as a complementary financial measure to evaluate the performance and trends of our businesses. We present Adjusted EBITDA and the related financial ratios, as applicable, because we believe that measures such as these provide useful information with respect to our ability to meet our operating commitments.
Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations include:
•It does not reflect our cash expenditures, future requirements for capital expenditures or contractual commitments;
•It does not reflect changes in, or cash requirements for, our working capital needs;
•It does not reflect the significant interest expense or the cash requirements necessary to service interest or principal payments on our debt;
•Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements;
•It is not adjusted for all non-cash income or expense items that are reflected in our statements of cash flows;
•It does not reflect the impact on earnings of charges resulting from matters unrelated to our ongoing operations; and
•Other companies in our industry may calculate Adjusted EBITDA differently from us, limiting its usefulness as a comparative measure.
As a result of these limitations, Adjusted EBITDA and the related financial ratios should not be considered as measures of discretionary cash available to us to invest in the growth of our business or as a measure of cash that will be available to us to meet our obligations. You should compensate for these limitations by relying primarily on our GAAP results and using Adjusted EBITDA only as supplemental information. See our unaudited condensed consolidated financial statements contained in this Form 10-Q.
Even with the limitations above, we believe that Adjusted EBITDA is useful to an investor in evaluating our results of operations as this measure:
•Is widely used by investors to measure a company's operating performance without regard to items excluded from the calculation of such terms, which can vary substantially from company to company depending upon accounting methods and book value of assets, capital structure and the method by which assets were acquired, among other factors;
•Helps investors to evaluate and compare the results of our operations from period to period by removing the effect of our capital structure from our operating performance; and
•Is used by our management team for various other purposes in presentations to our Board of Directors as a basis for strategic planning and forecasting.
The following financial items have been added back to or subtracted from our net income when calculating Adjusted EBITDA:
•Interest expense, net may be useful to investors for determining current cash flow;
•Income tax expense may be useful to investors because it represents the taxes which may be (receivable) payable for the period and the change in deferred taxes during the period, and may (increase) reduce cash flow available for use in our business;
•Depreciation may be useful to investors because it generally represents the wear and tear on our property and equipment used in our operations;
•Amortization expense may be useful to investors because it represents the estimated attrition of our acquired customer base and the diminishing value of product rights;
•Stock-based compensation may be useful to our investors for determining current cash flow;
•Restructuring charges may be useful to our investors in evaluating our core operating performance;
•Gain on sale of property and other assets may be useful to our investors in evaluating our core operating performance;
•Compensation clawback may be useful to our investors in evaluating our core operating performance;
•Litigation settlement and related costs, net, may be useful to our investors in evaluating our core operating performance; and
•Pension plan settlement loss may be useful to our investors in evaluating our core operating performance.
Reconciliations of net income to Adjusted EBITDA and the presentation of Adjusted EBITDA as a percentage of net revenues were as follows:
(Dollars in thousands) (Dollars in thousands)
Three Months Ended Nine Months Ended
October 3,
2026 		September 27,
2025 		October 3,
2026 		September 27,
2025
(As Restated) (As Restated)
Net income (loss) $ 13,891 $ (60,827) $ 44,206 $ (46,671)
Interest expense, net 3,083 2,927 10,615 9,198
Income tax expense (benefit) 4,949 (17,417) 11,153 (13,398)
Depreciation 4,068 4,037 12,280 12,305
Amortization 4,273 4,301 12,853 12,890
Stock-based compensation expense (1)
5,585 4,088 22,356 24,855
Restructuring charges - 583 - 1,617
Gain on sale of property and other assets - - - (1,746)
Compensation clawback - - (3,870) -
Litigation settlement and related costs, net - 99,675 - 99,675
Pension plan settlement loss 3,872 - 3,872 -
Adjusted EBITDA $ 39,721 $ 37,367 $ 113,465 $ 98,725
Net income (loss) as a % of net revenues 6.1 % (28.4) % 6.7 % (7.7) %
Adjusted EBITDA as a % of net revenues 17.5 % 17.4 % 17.2 % 16.2 %
(1) The three and nine months ended October 3, 2026 included zero and $0.3 million, respectively, of stock-based compensation expense for awards with both performance and market conditions that will be settled in cash. The three and nine months ended September 27, 2025 included $0.2 million and $1.4 million, respectively, of stock-based compensation expense for awards with both performance and market conditions that will be settled in cash. The three and nine months ended October 3, 2026 included $0.1 million and $0.4 million, respectively, of stock-based compensation expense recorded as cost of sales. The three and nine months ended September 27, 2025 included $0.1 million and $0.3 million, respectively, of stock-based compensation expense recorded as cost of sales.
Remaining Performance Obligations
Under generally accepted accounting principles ("GAAP") of the United States, Accounting Standards Codification 606 ("ASC 606"), we define performance obligations as customer placed purchase orders ("PO") with firm fixed price and firm delivery dates. The unrecognized revenue on a PO is the remaining performance obligation ("RPO"). POs are subject to delivery delays or program cancellations, which are beyond our control. As such, RPO is affected by timing differences in the placement of customer orders and tends to be concentrated in several programs to a greater extent than our net revenues.
(Dollars in thousands)
Change October 3,
2026 		December 31,
2025
Consolidated Ducommun
Military and space $ 174,876 $ 867,595 $ 692,719
Commercial aerospace 2,310 404,484 402,174
Industrial 2,957 14,104 11,147
Total $ 180,143 $ 1,286,183 $ 1,106,040
Electronic Systems
Military and space $ 141,796 $ 634,040 $ 492,244
Commercial aerospace 25,001 74,536 49,535
Industrial 2,957 14,104 11,147
Total $ 169,754 $ 722,680 $ 552,926
Structural Systems
Military and space 33,080 $ 233,555 $ 200,475
Commercial aerospace (22,691) 329,948 352,639
Total $ 10,389 $ 563,503 $ 553,114
Liquidity and Capital Resources
Available Liquidity
Total debt, the weighted-average interest rate, cash and cash equivalents and available credit facilities were as follows:
(Dollars in millions)
October 3, December 31,
2026 2025
Total debt, including long-term portion $ 251.3 $ 305.0
Weighted-average interest rate on debt 5.53 % 6.10 %
Term Loan interest rate 5.13 % 5.81 %
Cash and cash equivalents $ 39.2 $ 45.3
Unused Revolving Credit Facility $ 394.8 $ 344.8
Credit Facilities
On November 24, 2025, we completed a refinancing of our existing debt by entering into a new senior secured term loan ("2025 Term Loan") and a new revolving credit facility ("2025 Revolving Credit Facility"). The 2025 Term Loan is a $200.0 million senior secured loan that matures in November 2030. The 2025 Revolving Credit Facility is a $450.0 million senior secured revolving credit facility that matures on November 24, 2030. The 2025 Term Loan replaced the 2022 Term Loan ("2022 Term Loan") which was a $250.0 million senior secured loan. The 2025 Revolving Credit Facility replaced the 2022 Revolving Credit Facility ("2022 Revolving Credit Facility") which was a $200.0 million senior secured revolving credit facility. The 2025 Term Loan and 2025 Revolving Credit Facility, collectively, are the new credit facilities ("2025 Credit Facilities"). The 2022 Term Loan and 2022 Revolving Credit Facility, collectively, were the 2022 credit facilities that were entered into in July 2022 and would have matured in July 2027 ("2022 Credit Facilities"). The terms of the 2025 Term Loan require us to make installment payments of 0.625% of the initial outstanding principal balance on a quarterly basis during years one and two, 1.250% during years three and four, and 1.875% during year five, on the last business day of each calendar quarter. The terms of the 2025 Revolving Credit Facility do not require us to make installment payments. However, the undrawn portion of the commitment of the 2025 Revolving Credit Facility is subject to a commitment fee ranging from 0.175% to 0.250%, based upon the consolidated total net adjusted leverage ratio. As of October 3, 2026, we were in compliance with all covenants required under the 2025 Credit Facilities. See Note 8 to our unaudited condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q for further information.
For the three months ended October 3, 2026 and September 27, 2025, we made the required quarterly amortization payments of $1.3 million and $3.1 million, respectively. For the nine months ended October 3, 2026 and September 27, 2025, we made the required quarterly amortization payments of $3.8 million and $6.3 million, respectively. The required quarterly amortization payments due on March 31, 2025, June 30, 2025, and September 30, 2025 were in our second, third, and fourth fiscal quarters of 2025, respectively. We made no voluntary prepayments on our term loans during each of the three and nine months ended October 3, 2026 and September 27, 2025.
Subrogation Claim
Subsequent to the fiscal year ended December 31, 2025, on January 7, 2026, we entered into a binding confidential agreement ("Settlement Agreement") to resolve the Additional Subrogation Claim against us. The Settlement Agreement provides for, among other things, the final dismissal of the Additional Subrogation Claim and a release of all claims against us, with prejudice, in exchange for us issuing a payment of $4.0 million. We made the $4.0 million payment on January 14, 2026. See Note 11 to our unaudited condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q for further information.
Derivatives
In November 2021, we entered into U.S. dollar-one month London Interbank Offered Rate ("LIBOR") forward interest rate swaps designated as cash flow hedges, all with an effective date of January 1, 2024, for an aggregate total notional amount of $150.0 million, weighted average fixed rate of 1.8%, and all terminating on January 1, 2031 ("Forward Interest Rate Swaps"). The Forward Interest Rate Swaps mature on a monthly basis, with fixed amount payer payment dates on the first day of each calendar month, commencing on February 1, 2024 through January 1, 2031. Thus, the interest rate is fixed on $150 million of our debt. See Note 1, Note 4, and Note 8 to our unaudited condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q for further information.
In July 2022, as a result of completing a refinancing of our existing debt, we were required to complete an amendment of the Forward Interest Rate Swaps ("Amended Forward Interest Rate Swaps"). The Forward Interest Rate Swaps were based on U.S. dollar-one month LIBOR and were amended to be based on one month Term Secured Overnight Financing Rate ("SOFR") as
borrowings using LIBOR were no longer available under the 2022 Credit Facilities. The Amended Forward Interest Rate Swaps weighted average fixed rate is 1.7%, as a result of the difference between U.S. dollar-one month LIBOR and one month Term SOFR. See Note 1, Note 4, and Note 8 to our unaudited condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q for further information.
Capital Expenditures
We expect to spend a total of $20.0 million to $22.0 million for capital expenditures in 2026 financed by cash generated from operations, principally to support new contract awards in Electronic Systems and Structural Systems. As part of our strategic plan to become a supplier of higher-level assemblies and win new contract awards, additional up-front investment in tooling will be required for newer programs which have higher engineering content and higher levels of complexity in assemblies.
Transaction Activity
We believe the ongoing aerospace and defense subcontractor consolidation makes acquisitions an increasingly important component of our future growth. We will continue to make prudent acquisitions and capital expenditures for manufacturing equipment and facilities to support long-term contracts for commercial and military aircraft and defense programs.
Properties
We monitor our asset base, including the market dynamics of the properties we own, and we may sell such properties and/or enter into sale-leaseback transactions. Such transactions would provide cash for various capital deployment options.
Short Term Liquidity
We continue to depend on operating cash flow and the availability of our 2025 Credit Facilities to provide short-term liquidity. Cash generated from operations and bank borrowing capacity is expected to provide sufficient liquidity to meet our obligations during the next twelve months from the date of issuance of these financial statements.
Cash Flow Summary
Net cash provided by operating activities for the nine months ended October 3, 2026 was $77.5 million compared to $41.3 million for the nine months ended September 27, 2025. The higher net cash provided by operating activities during the first nine months of 2026 was mainly due to higher net income, higher contract liabilities as a result of higher progress payments, and higher accounts payable, partially offset by higher accounts receivable, higher contract assets, and higher inventories.
Net cash used in investing activities was $12.2 million for the nine months ended October 3, 2026, compared to $9.1 million in the nine months ended September 27, 2025. The higher net cash used in investing activities during the first nine months of 2026 was mainly due to higher purchases of property and equipment.
Net cash used in financing activities was $71.4 million for the nine months ended October 3, 2026, compared to $18.4 million for the nine months ended September 27, 2025. The higher net cash used in financing activities during the first nine months of 2026 was mainly due to higher net repayments on our senior secured revolving credit facility and higher net cash paid upon issuance of common stock under stock plans.
Off-Balance Sheet Arrangements
Our off-balance sheet arrangements consist of operating and finance leases not recorded as a result of the practical expedients utilized, right of offset of industrial revenue bonds and associated failed sales-leasebacks on property and equipment, and indemnities, none of which we believe may have a material current or future effect on our financial condition, liquidity, capital resources, or results of operations.
Critical Accounting Policies
The preparation of our unaudited condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States requires estimation and judgment that affect the reported amounts of net revenues, expenses, assets and liabilities. For a description of our critical accounting policies, please refer to "Critical Accounting Policies" in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our 2025 Form 10-K/A. There have been no material changes in any of our critical accounting policies during the three months ended October 3, 2026.
Recent Accounting Pronouncements
See "Part I, Item 1. Ducommun Incorporated and Subsidiaries-Notes to Condensed Consolidated Financial Statements-Note 1. Summary of Significant Accounting Policies-Recent Accounting Pronouncements" for further information.
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