DUCOMMUN INC /DE/

Ducommun Incorporated 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). The company operates through two primary business segments: Electronic Systems and Structural Systems. The largest end-use markets are the aerospace and defense markets, and revenues from these markets represented 96% of total net revenues in 2025. The commercial aerospace end-use market is highly cyclical and is impacted by the level of global air passenger traffic, while the defense end-use market is impacted by the level of government defense spending. Revenues from the commercial aerospace end-use market represented 38% of total net revenues for 2025, and revenues from the military and space end-use market in 2025 represented 58% of total net revenues during 2025. The industrial, medical and other (collectively, Industrial) end-use markets represented 4% of total net revenues during 2025.

The markets Ducommun serves are highly competitive, and the company competes worldwide with domestic and international companies that may have competitive advantages as a result of greater financial resources, economies of scale and bundled products and services. The company's ability to compete depends principally upon the breadth of its technical capabilities, the quality of its goods and services, competitive pricing, product performance, design and engineering capabilities, new product innovation, the ability to solve specific customer needs, and customer relationships. For 2025, Boeing and RTX Corporation were the largest customers, with Boeing generating 13% and RTX generating 18% of 2025 net revenues. Revenues from the top 10 customers, including Boeing and RTX, were 61% of total net revenues during 2025.

Ducommun generates revenue by designing and manufacturing high-performance products and providing manufacturing solutions, primarily through firm fixed-price contracts with customers in the aerospace and defense, industrial, medical and other industries. The company recognizes the majority of its revenue over time using an input measure (costs incurred to date relative to total estimated costs at completion) because products are built to customer specifications with no alternative use and the company has an enforceable right to payment. Revenue is also recognized at a point in time for certain contracts. The company's customer base is concentrated in the aerospace and defense industry, with significant sales to major OEMs and the U.S. Government.

Electronic Systems designs, engineers and manufactures high-reliability electronic and electromechanical products used in worldwide technology-driven markets including A&D and Industrial end-use markets. Product offerings primarily range from prototype development to complex assemblies, including complex cable assemblies and interconnect systems, printed circuit board assemblies, higher-level electronic, electromechanical, and mechanical components and assemblies, and lightning diversion systems. Electronic Systems also provides engineering expertise for aerospace system design, development, integration, and testing. For the year ended December 31, 2025, Electronic Systems net revenues were $462,682 thousand ¹, representing 56.1% of total net revenues. Segment operating income for Electronic Systems was $82,174 thousand ² in 2025, with an operating margin of 17.8% ³.

Structural Systems designs, engineers and manufactures various sizes of complex contoured aerostructure components and assemblies and supplies composite and metal bonded structures and assemblies. Products include structural components, structural assemblies, bonded (metal and composite) components, precision profile extrusions and extruded assemblies, ammunition handling systems, seals, and aerodynamic systems. Products are primarily used on commercial aircraft, military fixed-wing aircraft and military and commercial rotary-wing aircraft. For the year ended December 31, 2025, Structural Systems net revenues were $362,048 thousand ⁴, representing 43.9% of total net revenues. Segment operating income for Structural Systems was $46,417 thousand ⁵ in 2025, with an operating margin of 12.8% ⁶.

In April 2023, the company acquired 100% of the outstanding equity interests of BLR Aerospace L.L.C. for an initial purchase price of $115.0 million ⁷, net of cash acquired, paying a gross aggregate of $117.0 million ⁸ in cash. On June 3, 2025, the company sold its Berryville, Arkansas facility for $2.0 million ⁹, recognizing a gain of $1.2 million ¹⁰. On October 17, 2025, the company entered into a settlement agreement to resolve the Guaymas Fire Litigation, issuing a payment of $150.0 million ¹¹, of which $56.0 million ¹² was funded by insurance carriers. On October 9, 2025, the company settled an ancillary subrogation claim for $1.4 million ¹³. On November 24, 2025, the company completed a refinancing, entering into a new $200.0 million ¹⁴ senior secured term loan (2025 Term Loan) and a new $450.0 million ¹⁵ senior secured revolving credit facility (2025 Revolving Credit Facility). The company repurchased 95,848 ¹⁶ shares related to the exercise of stock options and stock awards vested for $5,963 thousand ¹⁷ during 2025.

Net revenues for 2025 were $824,730 thousand ¹⁸ compared to $786,551 thousand ¹⁹ for 2024, an increase of 4.9%. Gross profit margin increased to 26.9% ²⁰ in 2025 from 25.1% ²¹ in 2024. Net loss for 2025 was $33,938 thousand ²², or 4.1% of net revenues, compared to net income of $31,495 thousand ²³, or 4.0% of net revenues, in 2024. Diluted loss per share was $2.27 ²⁴ in 2025 versus diluted earnings per share of $2.10 ²⁵ in 2024. Adjusted EBITDA was $135,567 thousand ²⁶ for 2025, or 16.4% of net revenues, compared to $116,555 thousand ²⁷, or 14.8% of net revenues, in 2024.

The company's growth strategy includes evaluating selected future acquisitions as an increasingly important component of future growth, given ongoing aerospace and defense subcontractor consolidation. The company also aims to differentiate itself by moving up the value chain to become a more value added supplier of more complex assemblies, which will require enhanced design, product development, manufacturing, and supply chain project management skills. The company continues to identify opportunities to expand its presence and offerings with both major large aircraft manufacturers and their supply chain, and to broaden and diversify its customer base in the end-use markets it serves by providing innovative product and service solutions.

The company's business growth strategy is to differentiate itself from competitors by providing more complex assemblies to customers as a higher value added supplier. The company expects to 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. The company also plans to continue to selectively prune its non-core Industrial business, which should result in additional capacity for its core business.

The company expects to spend a total of $20.0 million to $24.0 million ²⁸ 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 the 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.

The company expects to spend a total of $20.0 million to $24.0 million ²⁹ for capital expenditures in 2026. The company continues to depend on operating cash flow and the availability of its 2025 Credit Facilities to provide short-term liquidity. Cash generated from operations and bank borrowing capacity is expected to provide sufficient liquidity to meet obligations during the next twelve months from the date of issuance of the financial statements.

The company does not expect to pay dividends for the foreseeable future, having not paid any dividends since the first quarter of 2011. The filing does not disclose a specific share repurchase authorization amount.

The company faces headwinds from the cyclical nature of its end-use markets, which are subject to global economic conditions, U.S. defense budgetary spending, geopolitical developments, pandemics, supply chain shortages, rising or high interest rates, and other developments. The company also faces risks from customer pricing pressures, potential consolidation in the aerospace industry, and the imposition of tariffs. The company's commercial aerospace end-use market is impacted by the level of global air passenger traffic, and the defense end-use market is impacted by the level of government defense spending, which is subject to uncertainties of governmental appropriations and national defense policies.

The company's operations are subject to numerous extensive, complex, costly and evolving laws, regulations and restrictions, including cybersecurity requirements such as the Cybersecurity Maturity Model Certification (CMMC). The company is also subject to extensive regulation and audit by the Defense Contract Audit Agency. The company faces risks associated with operating and conducting business outside the United States, including political instability, economic and geopolitical developments, compliance with international laws, and potential for new and/or increase in tariffs.

The company requires a considerable amount of cash to run its business, and its ability to make payments on its $305.0 million ³⁰ of outstanding long-term debt depends on generating sufficient cash flow. The covenants in the 2025 Credit Facilities impose restrictions that may limit operating and financial flexibility, including a leverage covenant and a Consolidated Interest Coverage Ratio covenant. A significant portion of the company's business depends on U.S. Government defense spending, which is subject to uncertainties of governmental appropriations and national defense policies; revenues from the military and space end-use market represented 58% of total net revenues during 2025. The company faces material litigation risk, as evidenced by the $150.0 million ³¹ settlement payment for the Guaymas Fire Litigation, of which $56.0 million ³² was funded by insurance. Goodwill and other intangible assets of $377.4 million ³³, or 32% of total assets, could be impaired if estimates and assumptions are not realized, resulting in substantial charges.

Management's message emphasizes the company's position as a leading designer and manufacturer of high-performance products for high-cost-of-failure applications, operating through two primary segments: Electronic Systems and Structural Systems. The company's strategic priorities include differentiating itself as a full-service solution-based provider, moving up the value chain to become a more value added supplier of more complex assemblies, and evaluating selected acquisitions as part of its growth strategy. Management highlights the VISION 2027 game plan for investors, though specific details are not provided in the filing. The company is focused on improving operating efficiencies and reducing costs through restructuring initiatives, and on capitalizing on long-term growth drivers in commercial aerospace and defense markets, despite near-term uncertainties.