Ducommun Inc: Form 10-Q for the period ended Mar 29, 2025

Overview

Ducommun Incorporated (“Ducommun,” “the Company,” “we,” “us” or “our”) is a leading global provider of engineering and manufacturing services for high-performance products and high-cost-of failure applications used 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.

In its 2024 Annual Report on Form 10-K, The Boeing Company (“Boeing”) indicated that in 2024, global air traffic continued to expand beyond 2019 levels with domestic travel continuing to be the most robust and the single-aisle market following closely. International travel also surpassed pre-pandemic levels during 2024 and the wide-body market continued to improve with the international travel recovery. Therefore, the transition in the international commercial market from recovery to normal market conditions continued to progress as China international travel remains below 2019 levels. For 2025, while both major large aircraft manufacturers, Boeing and Airbus SE, have indicated they expect increases in build rates compared to 2024, the ramp up to date has been slower than initially expected and below pre-pandemic levels. In addition, Boeing, one of our largest customers, was notified by the Federal Aviation Administration (“FAA”) in early January 2024 that the FAA had initiated an investigation into Boeing’s quality control system. This notification was followed by the FAA 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 is satisfied that Boeing is in full compliance with required quality control procedures. In July 2024, Boeing also pleaded guilty to conspiracy fraud charges, which may result in additional external oversight on its manufacturing and quality control process. Further, in September 2024, the International Association of Machinists and Aerospace Workers District 751 voted to initiate a labor strike affecting more than 30,000 Boeing manufacturing employees primarily located in Washington state, and the manufacturing employees, after rejecting the contract offer in October, voted to approve the revised contract offer in November 2024. Moreover, in Boeing’s Q1 2025 Quarterly Report on Form 10-Q, it stated various countries have announced plans for and/or have already implemented new or modified tariffs (discussed further below). Boeing’s first quarter results reflect its best estimate of the impacts of the tariffs enacted as of March 31, 2025, and certain potential mitigations. These tariffs and any retaliatory actions from other countries could have a material impact on Boeing’s financial position, results of operations and/or cash flows. In April 2025, certain customers in China informed Boeing they will not accept deliveries. 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, and/or recover from the impact of the labor strike in the near term along with the tariffs (already imposed or will be imposed), it could have a material adverse impact on our business, results of operations and financial condition.

Economic Environment

Changes in the macroeconomic environment, including volatility with respect to global trade policy, interest rates, and financial markets, can lead to economic uncertainty, an economic downturn or recession and impact the demand for our products and services as well as our supply chain. We continue to pursue strategic and operational initiatives to help address these macroeconomic pressures.

Since February 2025, the U.S. government has issued several executive orders imposing tariffs on imports from most countries with whom the U.S. engages in trade (“Tariff EOs”). In response to the Tariff EOs, China, the European Union and Canada have announced, and in some cases imposed, counter tariffs on goods that are imported from the U.S. Our business imports various goods that may be subject to tariffs from certain countries covered by the Tariff EOs and we also supply goods to customers who may import those goods into a country which may consider counter tariffs and other actions. 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 March 15, 2025, the U.S. President signed a continuing resolution (“CR”) under which U.S. government Departments and Agencies will continue to operate through September 30, 2025, the end of the U.S. government’s fiscal year. The CR funds the government at fiscal year 2024 levels with certain exceptions, including the addition of approximately $6 billion to the Department of Defense (“DoD”) budget. Although Congress provided guidelines to the Executive Branch, the CR generally permits individual Departments and Agencies to determine the areas and programs to fund. As a result, while the impact of the CR on Ducommun ultimately will depend on those funding decisions, Ducommun currently does not expect that the CR will materially impact our business or results of operations.

Executive Order Regarding Modernizing Defense Acquisitions

On April 9, 2025, the U.S. government issued an executive order requiring, among other things, a DoD 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.

First quarter 2025 recap:

• Net revenues of $194.1 million
• Net income of $10.5 million, or 5.4% of net revenues, or $0.69 per diluted share
• Adjusted EBITDA of $30.9 million, or 15.9% of net revenues

Results of Operations

First Quarter of 2025 Compared to First Quarter of 2024

The following table sets forth net revenues, selected financial data, the effective tax rate and diluted earnings per share:

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 months ended March 29, 2025 and March 30, 2024, respectively, were as follows:

(Dollars in thousands)

Net revenues for the three months ended March 29, 2025 were $194.1 million, compared to $190.8 million for the three months ended March 30, 2024. The year-over-year increase in our key end-use markets were primarily due to the following:

• $14.6 million higher revenues in our military and space end-use markets due to higher rates on selected missile, electronic warfare, radar, and rotary-wing platforms; partially offset by
• $8.2 million lower revenues in our commercial aerospace end-use markets due to lower revenues from Boeing 737 MAX and in-flight entertainment products, and lower rates on rotary-wing aircraft platforms.

In addition, revenues for our industrial end-use markets for the three months ended March 29, 2025 decreased $3.1 million compared to the three months ended March 30, 2024 mainly due to our selective pruning of non-core business.

Net Revenues by Major Customers

A significant portion of our net revenues are from our top ten customers as follows:

(1) Includes The Boeing Company (“Boeing”), Lockheed Martin Corporation (“Lockheed”), Northrop Grumman Corporation (“Northrop”), RTX Corporation (“RTX”), and Spirit AeroSystems Holdings, Inc. (“Spirit”) for the three months ended March 29, 2025 and March 30, 2024.

Boeing, Lockheed, Northrop, RTX, and Spirit represented the following percentages of total accounts receivable:

The net revenues and accounts receivable from Boeing, Lockheed, Northrop, RTX, and Spirit 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 March 29, 2025 of 26.6%, compared to the three months ended March 30, 2024 of 24.6% primarily due to favorable product mix and higher manufacturing volume.

Selling, General and Administrative (“SG&A”) Expenses

SG&A expenses increased $1.6 million year-over-year in the three months ended March 29, 2025 compared to the three months ended March 30, 2024 primarily due to higher compensation and benefits expense of $1.7 million and higher professional services fees of $0.6 million, partially offset by lower other SG&A expenses of $0.7 million.

Restructuring Charges

Restructuring charges decreased $0.9 million year-over-year in the three months ended March 29, 2025, compared to the three months ended March 30, 2024 primarily due to the winding down of the previously disclosed restructuring plan that was approved and commenced in April 2022. See Note 2 for further information.

Interest Expense

Interest expense decreased $0.6 million year-over-year in the three months ended March 29, 2025, compared to the three months ended March 30, 2024, primarily due to lower interest rates along with a lower debt balance.

Income Tax Expense

We recorded income tax expense of $2.8 million for the three months ended March 29, 2025 compared to $1.9 million for the three months ended March 30, 2024. The increase in income tax expense for the first quarter of 2025 compared to the first quarter of 2024 was primarily due to higher pre-tax income in the first quarter of 2025 compared to the first quarter of 2024.

Our total amount of unrecognized tax benefits was $4.7 million and $4.5 million as of March 29, 2025 and December 31, 2024, respectively. If recognized, $2.7 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 March 29, 2025 and December 31, 2024 were not significant. As a result of statute of limitations set to expire in the fourth quarter of 2025, we expect decreases to our unrecognized tax benefits of approximately $0.5 million in the next twelve months.

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 2020 and by state taxing authorities for tax years after 2019. 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.

Net Income and Earnings per Share

Net income, net income as a percentage of revenues, and earnings per share for the three months ended March 29, 2025 were $10.5 million, or 5.4% of revenues, or $0.69 per diluted share, respectively, compared to $6.8 million, or 3.6% of revenues, or $0.46 per diluted share, respectively, for the three months ended March 30, 2024. The increase in net income for the three months ended March 29, 2025 compared to the three months ended March 30, 2024 was primarily due to higher gross profit of $4.7 million and lower restructuring charges of $0.9 million, partially offset by higher SG&A expenses of $1.6 million.

Business Segment Performance

We report our financial performance based upon the 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 months ended March 29, 2025 and March 30, 2024:

(Dollars in thousands)

(1) Includes costs not allocated to either the Electronic Systems or Structural Systems operating segments.

(2) The three months ended March 29, 2025 and March 30, 2024 each included less than $0.1 million of stock-based compensation expense recorded as cost of sales.

(3) The three months ended March 29, 2025 and March 30, 2024 included less than $0.1 million and $0.1 million, respectively, of stock-based compensation expense recorded as cost of sales.

(4) The three months ended March 29, 2025 and March 30, 2024 included $0.8 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 March 29, 2025 compared to the three months ended March 30, 2024 increased $2.2 million primarily due to the following in our key end-use markets:

• $12.3 million higher revenues in our military and space end-use markets due to higher rates on electronic warfare and selected missiles and radar platforms; partially offset by
• $7.0 million lower revenues in our commercial aerospace end-use markets due to lower in-flight entertainment revenues and lower rates on large aircraft platforms.

In addition, revenues for our industrial end-use markets for the three months ended March 29, 2025 decreased $3.1 million compared to the three months ended March 30, 2024 mainly due to our selective pruning of non-core business.

Electronic Systems segment operating income in the three months ended March 29, 2025 compared to the three months ended March 30, 2024 decreased $0.8 million primarily due to lower manufacturing volume and higher other manufacturing costs, partially offset by favorable product mix.

Structural Systems

Structural Systems net revenues in the three months ended March 29, 2025 compared to the three months ended March 30, 2024 increased $1.1 million primarily due to the following:

• $2.3 million higher revenues in our military and space end-use markets due to higher rates on selected rotary-wing aircraft platforms, partially offset by lower rates on selected fixed-wing aircraft platforms; partially offset by
• $1.3 million lower revenues in our commercial aerospace end-use markets due to lower revenues from Boeing 737 MAX and lower rates on rotary-wing aircraft platforms.

The Structural Systems segment operating income in the three months ended March 29, 2025 compared to the three months ended March 30, 2024 increased $7.5 million primarily due to higher manufacturing volume, favorable product mix, and lower other manufacturing costs.

In June 2020, a fire severely damaged our performance center in Guaymas, Mexico, which is part of our Structural Systems segment. We have insurance coverage up to a capped amount, less our deductible. The full financial impact cannot be estimated at this time. We have been working with our insurance carriers to determine ultimate responsibility for the fire. The loss of production from the Guaymas performance center was absorbed by our other existing performance centers, however, we have reestablished and are in the process of ramping up our manufacturing capabilities in a different leased facility in Guaymas. 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 filed a lawsuit against us seeking recovery for its losses. Subsequently, in July 2024, we received a subrogation demand from our landlord’s insurer, who also serves as one of our excess carriers, and with whom we have since entered into an informed consent and conflict of waiver agreement. In the interim, discovery in the litigation is ongoing, and we intend to defend these matters vigorously. Ultimate responsibility for the fire is still undetermined and damages to our former neighbor’s facility have yet to be quantified, and as such, there is no amount of loss that is probable and reasonably estimable at this time. If we are ultimately deemed to be responsible or partly responsible, it is possible we could incur a loss in excess of our insurance coverage limits, which could be material to our cash flow, liquidity, or financial results. See Note 10 to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q.

Corporate General and Administrative (“CG&A”) Expenses

CG&A expenses increased $2.7 million for the three months ended March 29, 2025 compared to the three months ended March 30, 2024 primarily due to higher compensation and benefits costs of $1.7 million and higher other corporate expenses of $0.9 million.

Non-GAAP Financial Measures

Adjusted earnings before interest, taxes, depreciation, amortization, stock-based compensation expense, restructuring charges, and inventory purchase accounting adjustments (“Adjusted EBITDA”) were $30.9 million and $27.4 million for the three months ended March 29, 2025 and March 30, 2024, 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 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 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 payable for the period and the change in deferred taxes during the period, and may 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; and
• Purchase accounting inventory step-ups may be useful to our investors as they do not necessarily reflect the current or on-going cash charges related to 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)

(1) The three months ended March 29, 2025 and March 30, 2024 included $0.8 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 months ended March 29, 2025 and March 30, 2024 each included less than $0.1 million of stock-based compensation expense recorded as cost of sales.

Backlog

We define backlog as customer placed purchase orders (“POs”) and long-term agreements (“LTAs”) with firm fixed price and expected delivery dates of 24 months or less. The majority of the LTAs do not meet the definition of a contract under ASC 606, and thus, the backlog amount disclosed below may or may not be greater than the remaining performance obligations amount disclosed in Note 1 to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q. Backlog is subject to delivery delays or program cancellations, which are beyond our control. Backlog 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.

The decrease in backlog was primarily in the military and space and commercial aerospace end-use markets, partially offset by an increase in industrial end-use markets. $756.0 million of total backlog is expected to be delivered over the next 12 months. The following table summarizes our backlog as of March 29, 2025 and December 31, 2024:

(Dollars in thousands)

34

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)

In July 2022, we completed a refinancing of all our existing debt by entering into a new term loan (“2022 Term Loan”) and a new revolving credit facility (“2022 Revolving Credit Facility”). The 2022 Term Loan is a $250.0 million senior secured loan that matures on July 14, 2027. The 2022 Revolving Credit Facility is a $200.0 million senior secured revolving credit facility that matures on July 14, 2027. The 2022 Term Loan and 2022 Revolving Credit Facility, collectively, represent our new credit facilities (“2022 Credit Facilities”). In conjunction with the closing of the 2022 Credit Facilities, we utilized the entire $250.0 million of proceeds from the 2022 Term Loan plus our existing cash on hand to pay off our entire debt balance outstanding of $254.2 million under our prior credit facilities. At the same leverage ratio, the interest rate spread in the 2022 Credit Facilities is lower than the interest rate spread under our prior credit facilities. Interest payments are typically paid either on a monthly or quarterly basis, depending on the interest rate selected, on the last business day each month or quarter. In addition, the 2022 Term Loan requires quarterly amortization payments of 0.625% during year one and year two, 1.250% during year three and year four, and 1.875% during year five of the original outstanding principal balance of the 2022 Term Loan amount, on the last business day each quarter. Further, the undrawn portion of the commitment of the 2022 Revolving Credit Facility is subject to a commitment fee ranging from 0.175% to 0.275%, based upon the consolidated total net adjusted leverage ratio, typically paid on a quarterly basis, on the last business day each quarter. However, the 2022 Revolving Credit Facility does not require any principal installment payments. As of March 29, 2025, we were in compliance with all covenants required under the 2022 Credit Facilities. See Note 7 to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q for further information.

For each of the three months ended March 29, 2025 and March 30, 2024, we made the required quarterly amortization payments on the 2022 Term Loan of zero and $1.6 million, respectively. The required quarterly amortization payment due on March 31, 2025 is in our second fiscal quarter of 2025. We made no voluntary prepayments on our term loans during each of the three months ended March 29, 2025 and March 30, 2024.

In April 2022, management approved and commenced a restructuring plan that will position us for stronger performance. The restructuring plan will mainly reduce headcount and consolidate facilities. As a result of this restructuring plan, we analyzed the need to write-down inventory and impair long-lived assets, including operating lease right-of-use assets. As of March 29, 2025, we estimate the remaining amount of charges related to this initiative will be $0.5 million to $1.0 million of total pre-tax restructuring charges during 2025 for facility consolidation related expenses. The restructuring accrual for severance and benefits and other of $1.3 million as of March 29, 2025 are expected to be paid out during 2025. On an annualized basis, we anticipate these restructuring actions will result in total cost savings of $11.0 million to $13.0 million. See Note 2 to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q for further information.

In November 2021, we entered into derivative contracts, U.S. dollar-one month 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. See Note 1, Note 3, and Note 7 to our 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 SOFR as borrowings using LIBOR are 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 3, and Note 7 to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q for further information.

We expect to spend a total of $23.0 million to $25.0 million for capital expenditures in 2025 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.

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.

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.

We continue to depend on operating cash flow and the availability of our 2022 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 three months ended March 29, 2025 was $0.8 million, compared to net cash used in operating activities of $1.6 million for the three months ended March 30, 2024. The higher net cash provided by operating activities during the first three months of 2025 was mainly due to a smaller increase in contract assets, smaller increase in inventories, and higher net income, partially offset by higher accounts receivable and a smaller increase in accounts payable.

Net cash used in investing activities was $4.8 million for the three months ended March 29, 2025, compared to $5.0 million in the three months ended March 30, 2024. The lower net cash used in investing activities during the first three months of 2025 was mainly due to lower purchases of property and equipment.

Net cash used in financing activities was $2.4 million for the three months ended March 29, 2025, compared to $4.2 million for the three months ended March 30, 2024. The lower net cash used in financing activities during the first three months of 2025 was mainly due to lower repayments on our term loan that was due and paid on March 31, 2025, which occurred in our second fiscal quarter of 2025.

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 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 2024 Annual Report on Form 10-K. There have been no material changes in any of our critical accounting policies during the three months ended March 29, 2025.

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.

Our main market risk exposure relates to changes in U.S. interest rates on our outstanding long-term debt. At March 29, 2025, we had total borrowings of $243.2 million under our 2022 Credit Facilities.

The 2022 Term Loan bears interest, at our option, at a rate equal to either (i) Term Secured Overnight Financing Rate (“Term SOFR”) plus an applicable margin ranging from 1.375% to 2.375% per year or (ii) Base Rate (defined as the highest of [a] Federal Funds Rate plus 0.50%, [b] Bank of America’s prime rate, and [c] Term SOFR plus 1.00%, and if the Base Rate is less than zero percent, it will be deemed zero percent) plus an applicable margin ranging from 0.375% to 1.375% per year, in each case based upon the consolidated total net adjusted leverage ratio.

The 2022 Revolving Credit Facility bears interest, at our option, at a rate equal to either (i) Term SOFR plus an applicable margin ranging from 1.375% to 2.375% per year or (ii) Base Rate (defined as the highest of [a] Federal Funds Rate plus 0.50%,

[b] Bank of America’s prime rate, and [c] Term SOFR plus 1.00%, and if the Base Rate is less than zero percent, it will be deemed zero percent) plus an applicable margin ranging from 0.375% to 1.375% per year, in each case based upon the consolidated total net adjusted leverage ratio.

A hypothetical 10% increase or decrease in the interest rate would have an immaterial impact on our financial condition and results of operations.

Disclosure Controls and Procedures

The Company’s chief executive officer (“CEO”) and chief financial officer (“CFO”) have conducted an evaluation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934), and concluded that such disclosure controls and procedures were effective as of the end of the period covered by this report.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the three months ended March 29, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

See Part I, Item 1A of our Annual Report on Form 10-K (“Form 10-K”) for the year ended December 31, 2024 for a discussion of our risk factors. Other than the risk factor below, there have been no material changes during the three months ended March 29, 2025 to the risk factors disclosed in our Form 10-K for the year ended December 31, 2024.