Ducommun Inc: Form 10-Q for the period ended Sep 27, 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.

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.

The Boeing Company

The Boeing Company (“Boeing”) is one of our largest customers and 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 addition, 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. As discussed further below under “U.S. Government Tariffs,” during the second quarter of 2025, the United States adjusted various tariff rates, including on aluminum and steel imports, and announced broad reciprocal tariffs on imports from all countries. The United States has asserted that reciprocal tariff rates for many trade partners could increase from the 10% baseline tariff on August 1, 2025, unless agreements are reached. In Boeing’s Q2 2025 Quarterly Report on Form 10-Q, it stated that collectively, these tariffs and any retaliatory actions taken by countries in response to the United States tariffs could have a material impact on Boeing’s financial position, results of operations and/or cash flows. Recently, Boeing announced the FAA has cleared Boeing’s plan to raise 737 MAX production from 38 airplanes to 42 airplanes per month. Since Boeing is one of our largest customers, if Boeing is unable to meet the full compliance of the Federal Aviation Administration’s required quality control procedures, 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.

U.S. Government Tariffs

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 October 1, 2025, Congress failed to reach an agreement on funding the federal government, resulting in a shutdown until an agreement is reached. This has resulted in the disruption of non-essential government services, with over hundreds of thousands of federal employees being furloughed or working without pay. While the impact of the shutdown on Ducommun will ultimately depend on the duration of the shutdown and outcome of the finalized agreement, Ducommun currently does not expect that the shutdown will materially impact our business or results of operations. However, should the shutdown continue for an extended period of time, it could materially impact our business or results of operations.

U.S. Taxation Legislation

On July 4, 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 1 and Note 9 to our 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 DoD for obligations through 2029. Congress has also begun deliberations on the U.S. President’s budget request for fiscal year 2026.

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.

Guaymas Fire - Developments

On October 3, 2025, we entered in a binding settlement term sheet (the “Term Sheet”) to resolve the Guaymas fire litigation against us (the “Guaymas Fire Litigation”), and subsequently, on October 17, 2025, we entered into a settlement agreement that memorialized the terms set forth in, and superseded the Term Sheet.

On October 9, 2025, we also settled an ancillary subrogation claim for $1.4 million. See Note 1 and Note 10 to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q for further information.

Third quarter 2025 recap:

• Net revenues of $212.6 million
• Net loss of $64.4 million, or 30.3% of net revenues, or $4.30 per share
• Adjusted EBITDA of $34.4 million, or 16.2% of net revenues

Results of Operations

Third Quarter of 2025 Compared to Third 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 and nine months ended September 27, 2025 and September 28, 2024, respectively, were as follows:

(Dollars in thousands)

(Dollars in thousands)

Net revenues for the three months ended September 27, 2025 were $212.6 million, compared to $201.4 million for the three months ended September 28, 2024. The year-over-year increase in our key end-use markets were primarily due to the following:

• $14.2 million higher revenues in our military and space end-use markets due to higher rates on selected missiles, fixed-wing aircraft, rotary-wing aircraft, and ground vehicle weapon platforms; partially offset by
• $8.1 million lower revenues in our commercial aerospace end-use markets due to lower rates on business jet aircraft and large aircraft platforms.

In addition, revenues for our industrial end-use markets for the three months ended September 27, 2025 increased $5.1 million compared to the three months ended September 28, 2024, mainly due to restocking and last time buys.

Net revenues for the nine months ended September 27, 2025 were $608.9 million, compared to $589.3 million for the nine months ended September 28, 2024. The year-over-year increase in our key end-use markets were primarily due to the following:

• $45.3 million higher revenues in our military and space end-use markets due to higher rates on selected missile, rotary-wing aircraft, a classified program, radar, and ground vehicle weapon platforms; partially offset by
• $25.3 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 nine months ended September 27, 2025 decreased $0.3 million compared to the nine months ended September 28, 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 and nine months ended September 27, 2025 and September 28, 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 September 27, 2025 of 26.6%, compared to the three months ended September 28, 2024 of 26.2% primarily due to lower other manufacturing costs and lower restructuring charges as a result of nearing the completion of the wind down of our Monrovia performance center, partially offset by unfavorable product mix.

Gross profit as a percentage of net revenues increased year-over-year with the nine months ended September 27, 2025 of 26.6%, compared to the nine months ended September 28, 2024 of 25.6% primarily due to lower other manufacturing costs, lower restructuring charges as a result of nearing the completion of the wind down of our Monrovia performance center, and favorable product mix.

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

SG&A expenses increased $0.8 million year-over-year in the three months ended September 27, 2025 compared to the three months ended September 28, 2024, primarily due to higher compensation and benefit costs of $1.0 million and higher other SG&A expenses of $0.9 million, partially offset by lower professional services fees of $1.1 million.

SG&A expenses increased $2.3 million year-over-year in the nine months ended September 27, 2025 compared to the nine months ended September 28, 2024, primarily due to higher compensation and benefits expense of $3.0 million and other SG&A expenses of $0.7 million, partially offset by lower professional services fees of $1.4 million.

Restructuring Charges

Restructuring charges decreased $1.3 million and $3.8 million (including $0.9 million recorded as cost of sales during the nine months ended September 28, 2024) year-over-year in the three and nine months ended September 27, 2025, compared to the three and nine months ended September 28, 2024, respectively, primarily due to the winding down of the previously disclosed restructuring plan that was approved and commenced in April 2022. See Note 2 to our 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, increased $99.7 million year-over-year in each of the three and nine months ended September 27, 2025, compared to each of the three and nine months ended September 28, 2024, due to the binding settlement agreement to resolve the Guaymas Fire Litigation against us as well as settling an ancillary subrogation claim which occurred subsequent to our quarter ended September 27, 2025. See Note 1 and Note 10 to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q for further information.

Interest Expense

Interest expense decreased $0.9 million and $2.5 million year-over-year in the three and nine months ended September 27, 2025, compared to the three and nine months ended September 28, 2024, respectively, primarily due to lower interest rates along with a lower debt balance.

Income Tax (Benefit) Expense

We recorded an income tax benefit of $18.5 million for the three months ended September 27, 2025 compared to income tax expense of $1.3 million for the three months ended September 28, 2024. The change to income tax benefit from income tax expense for the third quarter of 2025 compared to the third quarter of 2024 was primarily due to pre-tax loss, driven by litigation settlement and related costs, net of insurance recovery, in the third quarter of 2025 compared to pre-tax income in the third quarter of 2024. We recorded a discrete income tax benefit of $23.0 million related to litigation settlement and related costs, net of insurance recovery, for the third quarter of 2025.

We recorded an income tax benefit of $12.4 million for the nine months ended September 27, 2025 compared to income tax expense of $5.4 million for the nine months ended September 28, 2024. The change to income tax benefit from income tax expense for the nine months ended September 27, 2025 compared to the nine months ended September 28, 2024 was primarily due to pre-tax loss, driven by litigation settlement and related costs, net of insurance recovery, in the nine months ended September 27, 2025 compared to pre-tax income in the nine months ended September 28, 2024. We recorded a discrete income tax benefit of $23.0 million related to litigation settlement and related costs, net of insurance recovery, for the nine months ended September 27, 2025.

The pre-tax loss in the three and nine months ended September 27, 2025 resulted in the recognition of a deferred tax asset for the benefit of the net operating loss carryforward to be recognized in future years. Based on our expectation of future taxable income, we expect to realize the deferred tax asset and did not record a valuation allowance against it.

Our total amount of unrecognized tax benefits was $5.0 million and $4.5 million as of September 27, 2025 and December 31, 2024, respectively. If recognized, $3.1 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 September 27, 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.

On July 4, 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 initial assessment of the OBBBA corporate tax provisions as they relate to our financial statements in the third quarter of 2025. The enactment of the OBBBA did not have a material impact to our effective tax rate for the three and nine months ended September 27, 2025. However, we expect the OBBBA to decrease our cash tax liability for 2025.

Net (Loss) Income and (Loss) Earnings per Share

Net (loss) income, net (loss) income as a percentage of revenues, and (loss) earnings per share for the three months ended September 27, 2025 were a net loss of $(64.4) million, or (30.3)% of revenues, or $(4.30) per share, respectively, compared to net income of $10.1 million, or 5.0% of revenues, or $0.67 per diluted share, respectively, for the three months ended September 28, 2024. The decrease in net income for the three months ended September 27, 2025 compared to the three months ended September 28, 2024 was primarily due to higher litigation settlement and related costs, net, of $99.7 million discussed above, partially offset by lower income tax expense of $19.8 million discussed above and higher gross profit of $3.8 million.

Net (loss) income, net (loss) income as a percentage of revenues, and (loss) earnings per share for the nine months ended September 27, 2025 were a net loss of $(41.4) million, or (6.8)% of revenues, or $(2.77) per share, respectively, compared to net income of $24.7 million, or 4.2% of revenues, or $1.65 per diluted share, respectively, for the nine months ended September 28, 2024. The decrease in net income for the nine months ended September 27, 2025 compared to the nine months ended September 28, 2024 was primarily due to higher litigation settlement and related costs, net, of $99.7 million, partially offset by lower income tax expense of $17.8 million, higher gross profit of $11.0 million, and lower restructuring charges of $3.8 million (the prior year period included $0.9 million recorded as cost of sales).

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 September 27, 2025 and September 28, 2024:

(Dollars in thousands)

(Dollars in thousands)

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

(2) The three and nine months ended September 27, 2025 each included $0.1 million of stock-based compensation expense recorded as cost of sales. The three and nine months ended September 28, 2024 each included $0.1 million of stock-based compensation expense recorded as cost of sales.

(3) The three and nine months ended September 27, 2025 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 28, 2024 included $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 September 27, 2025 included $0.6 million and $2.0 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 28, 2024 included $0.9 million and $2.8 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 September 27, 2025 compared to the three months ended September 28, 2024 increased $7.7 million primarily due to the following in our key end-use markets:

• $8.2 million higher revenues in our military and space end-use markets due to higher rates on selected missile and fixed-wing aircraft platforms, partially offset by lower rates on electronic warfare platforms; partially offset by
• $5.6 million lower revenues in our commercial aerospace end-use markets due to lower rates on large aircraft platforms.

In addition, revenues for our industrial end-use markets for the three months ended September 27, 2025 increased $5.1 million compared to the three months ended September 28, 2024 mainly due to restocking and last time buys.

Electronic Systems net revenues in the nine months ended September 27, 2025 compared to the nine months ended September 28, 2024 increased $18.7 million primarily due to the following in our key end-use markets:

• $34.3 million higher revenues in our military and space end-use markets due to higher rates on selected missiles, a classified program, fixed-wing aircraft, and radar platforms, partially offset by lower rates on selected rotary-wing aircraft platforms; partially offset by
• $15.3 million lower revenues in our commercial aerospace end-use markets due to lower rates on large aircraft platforms and lower in-flight entertainment revenues.

In addition, revenues for our industrial end-use markets for the nine months ended September 27, 2025 decreased $0.3 million compared to the nine months ended September 28, 2024 mainly due to our selective pruning of non-core business.

Electronic Systems segment operating income in the three months ended September 27, 2025 compared to the three months ended September 28, 2024 increased $2.2 million primarily due to higher manufacturing volume.

Electronic Systems segment operating income in the nine months ended September 27, 2025 compared to the nine months ended September 28, 2024 increased $5.5 million primarily due to higher manufacturing volume, favorable product mix, and lower other manufacturing costs.

Structural Systems

Structural Systems net revenues in the three months ended September 27, 2025 compared to the three months ended September 28, 2024 increased $3.5 million primarily due to the following:

• $6.0 million higher revenues in our military and space end-use markets due to higher rates on selected rotary-wing aircraft and ground vehicle weapon platforms; partially offset by
• $2.5 million lower revenues in our commercial aerospace end-use markets due to lower rates on business jet aircraft platforms, partially offset by higher rates on large aircraft platforms.

Structural Systems net revenues in the nine months ended September 27, 2025 compared to the nine months ended September 28, 2024 increased $1.0 million primarily due to the following:

• $11.0 million higher revenues in our military and space end-use markets due to higher rates on selected rotary-wing aircraft and ground vehicle weapons platforms, partially offset by lower rates on selected fixed-wing aircraft platforms; partially offset by
• $10.0 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 September 27, 2025 compared to the three months ended September 28, 2024 increased $3.6 million primarily due to lower other manufacturing costs and lower restructuring charges as a result of nearing the completion of the wind down of our Monrovia performance center, partially offset by lower manufacturing volume.

The Structural Systems segment operating income in the nine months ended September 27, 2025 compared to the nine months ended September 28, 2024 increased $10.1 million primarily due to lower other manufacturing costs and lower restructuring charges as a result of nearing the completion of the wind down of our Monrovia performance center, partially offset by unfavorable product mix and lower manufacturing volume.

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 is 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. See Note 10 to our 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 increased $101.1 million for the three months ended September 27, 2025 compared to the three months ended September 28, 2024, primarily due to the litigation settlement and related costs, net, of $99.7 million discussed above.

CG&A expenses increased $103.8 million for the nine months ended September 27, 2025 compared to the nine months ended September 28, 2024, primarily due to the litigation settlement and related costs, net, of $99.7 million discussed above and higher compensation and benefits costs of $4.2 million, partially offset by lower professional services fees of $2.0 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 $34.4 million and $31.9 million for the three months ended September 27, 2025 and September 28, 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 (benefit) 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;
• Professional fees related to unsolicited non-binding acquisition offer may be useful to our investors in evaluating our core operating performance;
• 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;
• Gain on sale of property and other assets may be useful to our investors in evaluating our core operating performance; and
• Litigation settlement and related costs, net, 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)

(1) The three and nine months ended September 27, 2025 included $0.6 million and $2.0 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 28, 2024 included $0.9 million and $2.8 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 $0.1 million and $0.3 million, respectively, of stock-based compensation expense recorded as cost of sales. The three and nine months ended September 28, 2024 included $0.1 million and $0.3 million, respectively, of stock-based compensation expense recorded as cost of sales.

(2) The three and nine months ended September 28, 2024 included zero and $0.9 million, respectively, of restructuring charges that were 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 increase in backlog was primarily in the commercial aerospace and military and space end-use markets. $795.0 million of total backlog is expected to be delivered over the next 12 months. The following table summarizes our backlog as of September 27, 2025 and December 31, 2024:

(Dollars in thousands)

38

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 September 27, 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 the three months ended September 27, 2025 and September 28, 2024, we made the required quarterly amortization payments on the 2022 Term Loan of $3.1 million that was due on June 30, 2025 and zero, respectively. The required quarterly amortization payments due on September 30, 2025 and September 30, 2024, respectively, are both in the fiscal fourth quarter. For the nine months ended September 27, 2025 and September 28, 2024, we made the required quarterly amortization payments on the 2022 Term Loan of $6.3 million and $3.1 million, respectively. We made no voluntary prepayments on our term loans during each of the three and nine months ended September 27, 2025 and September 28, 2024.

Subsequent to our quarter ended September 27, 2025, on October 3, 2025, we entered into 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 is expected to be funded by our insurance carriers. See Note 1 and Note 10 to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q for further information.

In April 2022, we 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 September 27, 2025, we estimate the remaining amount of charges related to this initiative will be $0.5 million of total pre-tax restructuring charges during 2025 for facility consolidation related expenses. The restructuring accrual for severance and benefits and other of $1.0 million as of September 27, 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 $18.0 million to $20.0 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 nine months ended September 27, 2025 was $41.3 million compared to $15.8 million for the nine months ended September 28, 2024. The higher net cash provided by operating activities during the first nine months of 2025 was mainly due to the litigation settlement and related costs, net, which impacted net loss but has not yet been paid and higher accounts payable, partially offset by higher contract assets.

Net cash used in investing activities was $9.1 million for the nine months ended September 27, 2025, compared to $10.3 million in the nine months ended September 28, 2024. The lower net cash used in investing activities during the first nine months of 2025 was mainly due to proceeds from the sale of our Berryville, Arkansas facility. See Note 1 to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q for further information.

Net cash used in financing activities was $18.4 million for the nine months ended September 27, 2025, compared to $11.1 million for the nine months ended September 28, 2024. The higher net cash used in financing activities during the first nine months of 2025 was mainly due to higher payments on our revolving credit facility and term loan.

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 September 27, 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 September 27, 2025, we had total borrowings of $228.1 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 September 27, 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. There have been no material changes during the three months ended September 27, 2025 to the risk factors disclosed in our Form 10-K for the year ended December 31, 2024.