Ducommun (DCO) 2026 年第三季法說會：營收創新高且收窄財測指引

重點摘要

• Ducommun 公布 2026 年第三季營收達創紀錄的 2.27 億美元，年增 6%，並創下連續第六個季度超過 2 億美元的紀錄。
• 商用航太營收成長 28% 至 9,700 萬美元，受惠於波音 737 MAX 與空中巴士 A320 產量提升、廣體機平台、商務噴射機以及專利 737 開關產品的需求帶動。
• 軍事與太空營收因訂單及生產時程影響，年減 7% 至 1.19 億美元。然而，國防新接訂單達到創紀錄的 2.63 億美元，訂單出貨比達 2.2 倍。
• 毛利率達到創紀錄的 28.9%，增加 140 個基點；調整後 EBITDA 增至 3,970 萬美元，佔營收的 17.5%。
• 總訂單金額為 3.54 億美元，訂單出貨比為 1.6 倍。未履行合約義務增至創紀錄的 13 億美元。
• 管理層將 2026 全年營收財測區間自先前的 8.8 億至 8.9 億美元，縮小至 8.85 億至 8.9 億美元。

關鍵財務數據

今年以來營業現金流為 7,750 萬美元，自由現金流達 6,520 萬美元，相當於調整後淨利的 134% 轉換率。Ducommun 在本季末擁有 4.34 億美元的可用流動資金。

業務與營運表現

商用航太是主要的成長動能。隨著單走道客機、廣體客機、商用旋翼機、商務噴射機及發動機平台的產量與交付量增加，該部門營收成長 28% 至 9,700 萬美元。管理層表示，內部與外部的去庫存已基本告一段落，預計該過程將於 12 月結束。

737 客機的專利開關專案帶來了超過 3,000 萬美元的新增訂單。Ducommun 還敲定了一項為期兩年的新空中巴士合約，涵蓋 A320 系列的超塑成型與熱成型鈦合金產品。管理層預期自 2027 年 1 月起，普惠 (Pratt) 與 CFM 的發動機短艙組件價格將有顯著的雙位數漲幅。

軍事與太空營收自 1.28 億美元下滑至 1.19 億美元。飛彈業務營收成長 25%，定翼機平台亦實現雙位數成長；但這些增長被雷達、地面車輛及軍用旋翼機的暫時性疲軟所抵銷。

國防需求指標依然強勁。軍事與太空業務訂單達 2.63 億美元，相關未履行合約義務增至創紀錄的 8.68 億美元。重大得標項目包括來自 RTX 的 9,000 萬美元 SPY-6 雷達訂單，以及諾斯洛普格魯曼 (Northrop Grumman) 用於支援 5 架波音 E-7 楔尾鷹 (Wedgetail) 飛機之 MESA 空中監視計畫的 5,400 萬美元訂單。

Ducommun 在 2026 年前九個月共取得 5.35 億美元的國防訂單，其中不包含與 RTX 及洛克希德馬丁 (Lockheed Martin) 七年期飛彈架構協議相關的潛在訂單。飛彈、雷達與電子戰業務佔今年以來國防營收的 39%，佔公司總營收超過 21%。

工程化產品佔營收比重達到創紀錄的 24%。管理層將毛利率改善歸因於優化產品組合、基於價值的定價、生產力提升，以及工廠整併每年節省 1,300 萬美元的效益完全顯現。

管理層財務預測

管理層將 2026 全年營收展望區間縮減至 8.85 億至 8.9 億美元。該公司預期第四季在商用航太帶動下將持續成長。

展望 2027 年，管理層預期商用航太成長將維持強勁，但表示若要維持 20% 以上的成長率目標略顯激進。第三季波音 737 營收認列相當於每月約 35 架的水準，隨著 2027 年產量朝向管理層提及的每月 40 架出頭至 45 架區間邁進，仍具備潛在成長空間。

Ducommun 預期飛彈架構協議將於 2027 年第一季末至第二季開始轉化為採購訂單。原廠設備製造商 (OEM) 預計將於 2026 年第四季開始訂購材料，但管理層強調具體時程難以預測。

該公司在實現「2027 願景」(Vision 2027) 調整後 EBITDA 利潤率達 18% 的目標進度上持續超前。在「2032 願景」(Vision 2032) 下，管理層設定的目標為營收達 16 億至 17 億美元、調整後 EBITDA 利潤率達 23%，且工程化產品佔營收比例至少達 40%。

風險與關注焦點

• 儘管積壓訂單與新接訂單皆創歷史新高，國防營收對客戶訂單時間點與生產排程依然高度敏感。
• 七年期飛彈架構協議轉化為採購訂單的時間點仍具不確定性。
• 波音的產量復甦進度慢於先前預期，儘管管理層預期去庫存即將結束，並認為波音 777 延誤對公司的影響有限。
• 由於股權激勵費用認列時間點的影響，調整後營業利益率較去年同期下滑。結構系統業務的利潤率亦受到產品組合與製造成本的影響。
• 該公司提及的更廣泛風險包括國防支出、供應鏈中斷、關稅、高利率環境、政府停擺、勞動力供應、訴訟，以及收購或重組的執行狀況。

分析師問答重點

飛彈需求與政策風險：管理層表示，Ducommun 的利基製造能力、商業機密，以及長期或單一供應商地位，能在一定程度上抵禦潛在的政策變動風險。預期的飛彈產能提升主要需要額外的人力、培訓與有限的設備，而非龐大的資本投資。

國防業務疲軟：管理層將第三季的下滑定調為暫時性，並將其歸因於部分生產提前至上半年進行以及訂單時程安排。雷達業務的未履行合約義務較第二季增加 1.35 億美元，支持了管理層對國防業務將於 2027 年恢復成長的預期。

商用航太成長：管理層預期，受惠於 737 去庫存結束、飛機產量提升、專利開關產品營收以及空中巴士的定價優勢，業務將持續強勁。然而，管理層並未預測該業務能再實現一年超過 20% 的成長。

併購案儲備：Ducommun 正在評估補強型收購以及規模大於過往交易的併購案，同時排除了重大轉型併購的可能性。該公司已擴充其企業發展團隊，並表示近幾個月的收購機會有所增加。

國防外包承接：Ducommun 持續爭取來自諾斯洛普格魯曼等主要國防主承包商的額外外包工作。管理層強調與 RTX 相關的業務轉移（包括 SPY-6 生產），證明其外包轉移策略正取得成效。

電話會議完整逐字稿

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完整財報電話會議逐字稿

管理層陳述

Operator

Good day, and thank you for standing by. Welcome to the Q3 2026 Ducommun Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Ducommun's Senior Vice President and Chief Financial Officer, Suman Mookerji. Please go ahead.

Suman Mookerji

Thank you, and welcome to Ducommun's 2026 Third Quarter Conference Call. With me today is Steve Oswald, Chairman, President and Chief Executive Officer. I'm going to discuss certain limitations to any forward-looking statements regarding future events, projections or performance that we may make during the prepared remarks or the Q&A session that follows.

Certain statements today that are not historical facts, including any statements as to the company's progress and value creation opportunity for shareholders under our Vision 2027 game plan for investors, beliefs about the company's ability to attain the goals stated in our Vision 2032 strategic plan, potential destocking headwinds and their impact on the company's business for the remainder of 2026, expectations related to the U.S. Department of War's long-term framework agreements for key missile programs with defense primes, our share of potential orders from those primes, the increase in production on many of those missile programs and their impact on the growth of our defense business, estimated synergies to be realized under the company's facility consolidation projects and the outlook for the company's revenue and commercial aerospace and defense businesses for the full year 2026 are forward-looking statements under the Private Securities Litigation Reform Act of 1995 and are, therefore, prospective.

These forward-looking statements are subject to risks, uncertainties and other factors, which could cause actual results to differ materially from the future results expressed or implied by such forward-looking statements. Although we believe that the expectations reflected in our forward-looking statements are reasonable, we can give no assurance that such expectations will prove to have been correct.

In addition, estimates of future operating results are based on the company's current business, which is subject to change. Particular risks facing Ducommun include, amongst others, the cyclicality of our end-use markets, the level of U.S. government defense spending, our customers may experience changes in production rates or delays in launch and certification of new products, timing of orders from our customers, which are subject to cancellation, modification or rescheduling, our ability to obtain additional financing and service existing debt to fund capital expenditures and meet our working capital needs, legal and regulatory risks, including pending litigation matters generally and as well as any potential losses arising from third-party subrogation claims related to the Guaymas Performance Center fire that may become material.

The cost of expansion, consolidation and acquisitions, competition, economic and geopolitical developments, including supply chain issues, our ability to successfully implement restructuring, realignment and cost reduction initiatives that could adversely impact our ability to achieve our strategic objectives, international trade restrictions and our ability to obtain necessary U.S. government approvals for proposed sales to certain foreign customers, the impact of tariffs and elevated interest rates, risks associated with the prolonged partial or total U.S. federal government shutdown, the ability to attract and retain key personnel and avoid labor disruptions, the ability to adequately protect and enforce intellectual property rights, pandemics, disasters, natural or otherwise and risk of cybersecurity attacks.

Please refer to our annual report on Form 10-K/A, quarterly report on Form 10-Q and other reports filed from time to time with the SEC as well as the press release issued today for a detailed discussion of the risks. Our forward-looking statements are subject to those risks. Statements made during this call are only as of the time made, and we do not intend to update any statements made in this presentation, except if and as required by regulatory authorities.

The call also includes non-GAAP financial measures. Please refer to our filings with the SEC for a reconciliation of the GAAP to non-GAAP measures referenced on this call. We filed our Q3 2026 quarterly report on Form 10-Q with the SEC today.

I would now like to turn the call over to Steve Oswald for a review of the operating results.

Stephen Oswald

Okay. Thank you, Suman, and thanks, everyone, for joining us today for our third quarter conference call. Today, and as usual, I will give an update of the current situation of the company, after which Suman will review our financials in detail. To start, I want to thank everyone that attended the launch of our Vision 2032 strategy in September, either in person, in New York or virtually. It was over 1,300 days since our last Investor Day in 2022, and we are excited to share our game plan for continued growth. The highlights were our new revenue and margin expansion targets, along with plans for a significant increase in the percentage of engineered products for the DCO P&L. The feedback we have received since then from all shareholders have been very positive. So again, thank you.

As in previous calls, I will reiterate Ducommun's Vision 2027 strategy as we continue to make great progress heading into our 5th and final year starting this January. Strategy and vision were developed coming out of the COVID pandemic over the summer and fall of 2022, unanimously approved by the Ducommun Board in November 2022 and then presented the following month in New York to investors where we got excellent feedback.

Since that time, Ducommun's management has been executing the strategy by increasing the revenue percentage of engineered product content, which was 24% in Q3, a record, consolidating our rooftop footprint in contract manufacturing, continuing our focused acquisition program, executing the offloading strategy with defense primes in high-growth segments, driving value-added pricing and expanding content on key commercial aerospace platforms. All of us here are thrilled about Vision 2027 and the many accomplishments to date.

The Q3 2026 results show again the strategy initiatives are working with again, record gross margins. I'm happy to report our adjusted EBITDA margins and engineered product revenue mix are very close to our final Vision 2027 targets a year early. Wonderful news. Our Vision 2032 strategy continues that momentum will take DCO to the next level. We are doubling down on Engineered Products to build that to at least 40% of revenue, both organically and by increasing our acquisition activity.

We expect to grow total revenue to the range of $1.6 billion to $1.7 billion and expand adjusted EBITDA margins to 23% of revenue. We've got the right team in place and the plans to execute these targets are already in motion.

For Q3, we achieved a new record of $227 million in revenue, 6% growth over last year and our 6 consecutive quarters of over $200 million in revenue and now 22 consecutive quarters of year-over-year revenue growth. In Q3, commercial aerospace performed extraordinarily well, growing 28% over last year with narrow-body platforms for both Boeing and Airbus growing significantly as we're working through the final stages of destocking, and that is coming to an end in December.

We're also benefiting on the commercial side from a major new program for BA, supplying proprietary switches we talked about last quarter. This is an engineered product designed by DCO engineers and is driving retrofit and new build revenue at significant margins for us. And DCO has received bookings in excess of $30 million, a first for us at this level.

Military and space revenues came in at 7% lower this quarter versus prior year due to the timing of orders and production on certain programs, including some pull forward into the first half of the year that we discussed previously. We closed on $263 million in military and space bookings in Q3, an all-time record, which represents a book-to-bill of 2.2x and takes our military and space revenue performance obligation to an all-time high of $868 million.

This record level of order activity sets us up well for strong growth in our military and space business. Missiles continues to outperform other areas of our defense portfolio with another quarter of double-digit growth as well as continued strength in fixed-wing aircraft, which was offset by temporary softness in our rotary wing, ground vehicle and radar platforms.

Overall, for DCO, we closed on $354 million of new bookings during the quarter at a book-to-bill of 1.6x. This increases our remaining performance obligations for the company to a record $1.3 billion, $255 million higher than prior year and $127 million higher than Q2, all outstanding. Our defense business RPO grew $275 million year-over-year, highlighted by a $90 million order of the SPY-6 Navy radar from RTX. This is the offload of CCAs from the Andover, Massachusetts facility that I've talked about over the past few years that is now really paying off in a big way, but it did take time. $54 million of bookings as well for the MESA airborne surveillance for Northrop Grumman that supports the Boeing E-7 Wedgetail, and that number is for 5 planes.

I'm thrilled with the current state of our radar business, which is now becoming a franchise like the DCO missile business. To put this segment in perspective and context, in 2024, we booked $65 million for 5 radar programs. In 2025, only $11 million for 3 programs. And year-to-date in 2026, we booked over $150 million for 7 programs, and that is just in the first 9 months, such wonderful news. Overall, in 2026, we have booked $535 million of defense orders through Q3 of this year. And I want to point out that this does not include any orders under the 7-year missile framework agreements for RTX and Lockheed.

For clarity, the framework agreements announced have resulted in contract awards, but not orders to defense primes, and we will eventually turn into purchase orders that get flowed down in the supply chain. While the timing of such orders is hard to predict, our current expectation is for that to happen starting in late Q1 and Q2 of next year, but we'll be getting OEM commitments to start ordering material in Q4.

In addition, we've been adding staff and floor space as we speak. Production on many of these missile programs such as the PAC-3, AARGM, Standard Missile-3, Standard Missile-6 and Tomahawk are expected to grow several fold, and this will be a big driver of growth for DCO and the industry over the next several years. Gross margins grew by $7 million in the quarter to 28.9%, a 140-basis-point improvement, another record from 27.5% last year in Q3. The benefits of our Vision 2027 strategy continue to flow through the P&L with expansion from DCO's engineered product portfolio, which again includes the new major BA application I mentioned earlier, and we have now reached 24% of revenue. This, along with strategic value-added pricing, restructuring actions and productivity improvements are all reading through to the P&L. Our cost saving expectations of $13 million annually from our facility consolidation program have also been realized at this time.

For adjusted operating income margin in Q3, the team delivered 12.3%, 40 basis points below the prior year of 12.7%. This is mainly due to timing of stock-based compensation expense during the year. Adjusted EBITDA continues to improve towards our Vision 2027 goal of 18% in 2027 from 13% in 2022. DCO achieved 17.5% in the quarter or $39.7 million, up $2.4 million from Q3 2025. This puts us in great shape to achieve our 2027 target.

GAAP EPS was $0.89 per diluted share in Q3 2026 versus a loss of $4.06 per share for Q3 2025 from the litigation settlement. With adjustments, diluted EPS was $1.21 a share in Q3 versus $1.22 in prior year quarter. Higher operating income drove the higher GAAP EPS during the quarter, while adjusted net income was essentially flat to prior year.

As I touched on earlier, we've had some significant orders in the quarter with over $354 million of bookings and a book-to-bill of 1.6x. Over the last 12 quarters, we've closed on over $1.1 billion of bookings, a trailing 12-month book-to-bill of 1.3x. With increased defense spending and positive momentum in commercial aerospace, we have strong tailwinds in both our primary end markets. It is the best I have seen since joining Ducommun in 2017.

On the outlook for the fourth quarter, I expect to see continued growth, especially in our commercial aerospace business. In September, during our Investor Day, we narrowed our revenue guidance for 2026 to a range of $880 million to $890 million. We are continuing to track to that and further refine that range to $885 million to $890 million. This is also in line with our original guidance from February of this year of mid- to single high-digit (sic) [ mid- to high single-digit ] revenue growth for the full year 2026.

Now let me provide some color on our markets, products and programs. Beginning with our commercial aerospace operations, third quarter revenue increased 28% year-over-year to $97 million with strong growth in production and deliveries on single-aisle platforms for both Airbus and Boeing. In particular, on the 737 MAX platform, we benefited from the shipments of the proprietary switches and overall, our aerospace business grew across all platform groups, single-aisle, wide-body, commercial rotorcraft, business jets and engines. Now that Boeing received FAA certification of the 737 MAX 10 in October, the company has cleared another hurdle in their recovery. The new production line in Everett is also up and running, and the company is working to stabilize at 47 MAXs a month on the way to 52 in the second half of next year.

While this is slower than the prior expectations, it still represents great progress for our second largest customer. And with internal and external destocking largely coming to an end, we are set up very well for good growth going into 2027 and beyond. I will also add that the 787 build rate increases will be good for Ducommun. We have limited exposure as well on 777 production delays and don't expect those to affect revenue in Q4 and in 2027.

Airbus has an aggressive Q4 goal for shipments and DCO is fully supporting the production needs with capacity available to meet the demand. The other item I want to cover in commercial aerospace is our 7-year LTA expiration for Airbus at the end of 2026. I'm happy to report we have now finalized a new 2-year agreement to continue supplying superplastic formed and hot formed titanium products for the A320 family. And in addition, we received the purchase orders today from Airbus, such great news.

This content is for both Pratt engines and CFM engines and will be in effect starting in January. We will now see significant double-digit price increases for both Pratt and CFM nacelle components, which shows our strategy of high value-add niche contract manufacturing, which has been developed over the decades is a winner and very effective.

Ducommun for those who do not know, is a worldwide market share leader in titanium SPF and hot form outside of the OEM Toulouse operation and 1 of the very few companies in that space. This is a big deal for our P&L, shareholder value and will make a difference in DCO Structures gross margin and profitability in 2027 and 2028 starting in January.

In our military and space sector, we saw revenues of $119 million compared to $128 million in Q3 2025. This represents military and space in the first half to level load production for the year. Our missile franchise continues to perform well, up 25% year-over-year in Q3 as well as double-digit growth in fixed-wing platforms. This was offset by temporary declines in radar, ground vehicles and rotorcraft due to timing of orders and production schedules.

As I've noted earlier, we had robust bookings in our defense business with a book-to-bill of 2.2x and with the RPO record levels positioning us for growth in the future. Our Missile franchise continues to perform at double-digit growth rate at Ducommun, and Ducommun expects orders for the 7-year agreements to come in starting in late Q1 and Q2 of 2027.

DCO is a key supplier on the PAC-3, SM-3, SM-6, Tomahawk, THAAD and AMRAAM, and we continue to work with defense primes on multiple opportunities. DCO is also in great shape with capacity at our operations to fully support the required ramp-up with minimal capital. Overall, our missiles, radar and electronic warfare franchise grew 12% during the quarter on a year-to-date basis, represents 39% of our Military and Space segment and more than 21% now of our total company revenues. This is a great platform that I expect to drive growth for us for multiple years going forward.

In summary, the outlook for the next few years continues to be exciting for the company and our shareholders. We like the balance of defense and commercial aerospace. And like I said earlier, this is the best position I've seen the company in for future growth since I joined Ducommun in 2017.

With that, I'll have Suman review our financial results in detail. Suman?

Suman Mookerji

Thank you, Steve. As a reminder, please see the company's 10-Q and Q3 earnings release for a further description of information mentioned on today's call. As Steve discussed, our third quarter results reflected another strong quarter of revenue with strong growth in commercial aerospace, offset by a temporary decline in our military end market. Gross margins and adjusted EBITDA margins both showed continued improvement over the previous year and hit new records. The synergies from our facility consolidation projects completed last year are now fully in our P&L and along with our value-based pricing approach and the pickup from operating leverage positions us well to achieve our Vision 2027 goal of 18% adjusted EBITDA percentage of sales.

Now turning to our third quarter results. Revenue for the third quarter of 2026 was $227 million versus $214.4 million for the third quarter of '25. The year-over-year increase of 6% reflects strong growth in commercial aerospace of 28%, driven by growth on single-aisle platforms, including the 737 MAX and A320 as well as growth on wide-body platforms and business jets.

The strength in the commercial aerospace business was supported by higher production and deliveries for OEM customers and new aftermarket business on the 737. Our defense business experienced a temporary decline of 7% year-over-year with continued strength in missiles and fixed-wing platforms, offset by temporary declines in ground vehicles, rotorcraft and radar platforms.

As Steve mentioned earlier, our missiles business saw another quarter of double-digit growth with our missile radar and electronic warfare programs combined now representing 39% of year-to-date defense revenues and more than 21% of total DCO revenue. It's a strong franchise with great platforms to drive significant upside for Ducommun in 2027 and beyond as the framework agreements start converting into orders on these missile platforms vital to the country's defense.

Overall, Q3 was a strong revenue quarter for us, even with the pull forward of production and related revenue from the second half into the first half of the year and level-loaded activity at our factories. We posted total gross profit of $65.6 million or 28.9% of revenue for the quarter versus $59 million or 27.5% of revenue in the prior year period. The record gross margin was driven by an improved mix of our Engineered Products business, realization of our planned synergies from the facility consolidation program, which are now at their full run rate as well as the benefit of higher manufacturing volume.

Operating income for the third quarter was $25.8 million or 11.4% of revenue compared to an operating loss of $75.3 million or minus 35.1% of revenue in the prior year period. Last year's operating income was negatively impacted by the onetime litigation settlement in the quarter. Adjusted operating income was $28 million or 12.3% of revenue this quarter compared to $27.2 million or 12.7% of revenue in the comparable period last year. The adjusted operating income benefited from higher volume and gross profit, offset by higher SG&A spending driven by a change in the calendarization of stock-based compensation expense during the year.

The company's net income for the third quarter of $13.9 million or $0.89 per diluted share compares to a loss in the prior year of $60.8 million or negative $4.06 per share. On an adjusted basis, the company reported net income of $18.8 million or $1.21 per diluted share compared to an adjusted net income of $18.8 million or $1.22 in Q3 2025.

Now let me turn to our segment results. Our Structural Systems segment posted revenue of $97.4 million in the third quarter of 2026 versus $89 million last year. The year-over-year change reflected $8.6 million higher revenue in our commercial aerospace business, driven by single-aisle platforms, including the 737 MAX and the A320 as well as business jets.

The military and space business within this segment was down $0.4 million on a year-over-year basis with production lower in military rotorcraft and ground vehicles, partially offset by growth in missiles and fixed-wing aircraft. Structural Systems operating income for the quarter was $11.9 million or 12.3% of revenue compared to $12.2 million or 13.7% of revenue for the prior year quarter.

Excluding restructuring charges and other adjustments in both years, the segment operating margin was 14.2% in Q3 2026 versus 16.4% in Q3 2025. The decrease in year-over-year margin was primarily due to product mix and other manufacturing costs. Our Electronic Systems segment posted revenue of $130 million in the third quarter of 2026 versus $125 million in the prior year period, an increase of 3%. The year-over-year change reflected $12 million growth in commercial aerospace, primarily in Boeing and Airbus platforms.

Military and space applications declined in the quarter by $9 million with lower production on radars and other miscellaneous platforms. Our Industrial business also grew $0.8 million during Q3 due to timing of production orders. Electronic Systems operating income for the third quarter was $28.7 million or 22.2% of revenue versus $23.3 million or 18.6% of revenue in the prior year period.

Excluding restructuring charges and other adjustments in both years, the segment operating margin was 22.5% in Q3 2026 versus 18.9% in Q3 2025. The year-over-year increase was driven by higher manufacturing volume and our value-based pricing approach.

Turning now to liquidity and capital resources. In Q3 2026, we generated $32.7 million in cash flow from operating activities compared to $18.1 million in Q3 of last year. Our strong cash generation was driven by higher net income, partially offset by higher working capital during the quarter. Year-to-date cash flow from operating activities is $77.5 million and year-to-date free cash flow was $65.2 million, representing year-to-date free cash flow conversion of 134% of adjusted net income.

In Q4 of last year, the company amended its credit agreement, which now includes a $200 million term loan and a $450 million revolver. The new $650 million facility lowers our cost of capital and gives us incremental capacity to execute on our acquisition strategy. As of the end of the third quarter, we have available liquidity of $434 million, comprising of the unutilized portion of our revolver and cash on hand.

Interest expense in Q3 was $3.1 million compared to $2.9 million in Q3 of 2025. The year-over-year increase in interest cost was primarily due to higher debt balances, offset by lower interest rates on our debt due to more favorable terms in our new credit agreement. Also, as a reminder, in November 2021, we put in place an interest rate hedge that went into effect for a 7-year period starting January 2024 and pegs the 1-month term SOFR at 170 basis points for $150 million of our debt.

The hedge is still in place and will continue to drive significant interest cost savings for the rest of 2026 and beyond. To conclude the financial review, I would like to say that the third quarter results continue to affirm that our Vision 2027 strategy is working, and we are not only on track to achieve those targets, but well positioned to deliver on our new Vision 2032 strategy as well. I'll now turn it back to Steve for his closing remarks.

Stephen Oswald

Okay. Thanks, Suman. Just in closing, just a few things. First, Q3 was another record quarter for DCO. And frankly, I could not be happier. This year, we achieved record revenues, record EBITDA margins, record bookings and strong cash generation. The strong book-to-bill will also be a tailwind for us going into 2027. It was also our 6 consecutive quarters of revenue over $200 million and gross margins and adjusted EBITDA margins were 28.9% and 17.5%, respectively, and ahead of schedule to meet our Vision 2027 goals. In addition, the company's engineered product revenues were up 24% in Q3 as we drive higher OEM and aftermarket products through the P&L. As everyone knows, driving this percentage as high as possible is our #1 strategic focus with 100% commitment.

Finally, let me again go back to the beginning of my remarks, and thank you all again for your strong support for the Vision 2032. It means a lot to us at Ducommun. We all look forward to a great future for our company and shareholders with the finishing of Vision 2027 and the launching of Vision 2032 in January 2028. I'm excited for the future of Ducommun over the next 6-plus years, and I'm proud to be leading this company as we drive DCO to new heights. Okay.

With that, now let's go to questions. Thank you for listening.

Operator

[Operator Instructions] Our first question comes from the line of John Godyn with Citi.

分析師問答

John Godyn

Maybe a good place to start is just talking a bit about the outlook for missiles at large. And Steve, it's not about reading the tea leaves on politics. Obviously, the market is sort of saying that it's concerned about the defense outlook. I'm more curious, you guys are a principal supplier into the missile supply chain. You're not necessarily having the same kind of conversations with the government and contracting that the primes have. How do you protect yourself? How do you look at a situation like this to make sure that you're kind of insulated from any potential policy changes in the future and just position the company to really kind of benefit from this runway. Any general thoughts would be helpful.

Stephen Oswald

Yes. Great. Great, John. Good to be with you. Thank you. So look, first of all, like I mentioned in my remarks about titanium earlier in commercial aerospace, same thing goes for defense electronics. We're really sort of very niche-oriented. A lot of things that we do for these missile programs, we've been doing for a long time. A lot of things are sole-sourced. Now they might be not fully sole sourced because of the volumes, for instance, on like a Tomahawk, where you go from 80 a year to 1,250, right? So I feel very good about our situation. Again, it all goes back to our strategy. It all goes back to our manufacturing know-how. It all goes back to our trade secrets that we use to insulate us.

So these missile programs, this is my view, certainly are needed. Certainly, in the next few years, I think regardless of politics and everything else, there needs to be this replenishment. I see lots of great things with FMS as well, certainly for the PAC-3 and some others. So our manufacturing strategy fits into this whole sort of niche and insulated from maybe some other things that are going to happen. So it's a good question, and we feel very good about our position.

Suman Mookerji

One minor thing to add there is the fact that we also are not looking to spend a significant amount of CapEx. So the risk to our company and our shareholders is limited. It's not like we're going to put in a lot of money and then the orders don't come in, right? So unlike others who may have to put in significant amount to build new factories and production capability, for us, it's a mix of existing capacity and nominal expansion at existing facilities that will support the higher volume. So we are more flexible in flexing up and down depending on where the volume comes in.

Stephen Oswald

Yes, John, for us, it's more about manpower and training, maybe a few machines, that type of thing, retrofit building a little bit, but nothing -- we're not doing anything that we get nervous about.

John Godyn

Got it. Very helpful. And if I think back to the Investor Day, capital allocation, M&A was a big topic. From some of the other companies today that have printed SMid-cap companies in A&D, we've heard of an M&A landscape that is very active in breadth and depth. I'm curious how you would characterize it and maybe kind of revisit some of the thoughts from the Investor Day.

Stephen Oswald

Do you want to take that?

Suman Mookerji

I would agree. We are seeing a number of opportunities come to market here over the past few, I would say, last couple of months and even in the past few weeks. I would agree with that characterization. We are actively working and analyzing and working through a number of different opportunities. We're encouraged.

Operator

Our next question comes from the line of Ken Herbert with RBC Capital Markets.

Kenneth Herbert

Maybe just to start, I wanted to see if we could drill down a little bit on the defense sales in the quarter. It sounds like there was some timing, obviously, the bookings were really strong. Can you flesh out anything structurally changed in how you view some of the programs you're on or some of the outlook for defense, in particular, on the non-missile piece of the business, as I know in the press release, you called out some timing around some of the more ground systems or combat-related markets.

Suman Mookerji

Ken, great question. The slowdown in the current quarter was really due to both timing of orders and production. We did telegraph earlier that we had pulled in demand into the first half, mainly production into the first half. And so that was part of it and also the timing of orders, where on ground vehicles, on even some of the radars, it was timing of orders. If you look at our remaining performance obligations or backlog for radar, it's at an all-time high. It's up $135 million over previous quarter. That's the extent to which our radar business's RPO has increased, even though in the quarter, revenue was down.

So we do view this as temporary. We expect growth to come back in 2027. I think the back half of this year was expected to be softer versus the front half of the year. It was telegraphed as such and it's panning out as we had somewhat expected.

Stephen Oswald

Let me just jump here, Ken. So yes, just ground vehicles, a few other things. We have Nobles. We have other programs that are supporting different defense programs. Nothing -- there's no -- there's one thing I might say is a couple of things. There's no one major program. So one of the great things that we have here is diversification along the defense line. So we have lots of different things. I do want to also mention that just because we brought up the bookings is that -- and I mentioned in my remarks, this radar thing is a big deal for us. And I know for several years, I was talking about these moving work out of OEM plants and putting them into Tulsa and other places.

And it was how painful, but how it was finally going to pay off. And I'm very happy to see that this SPY-6 after many years and lots of hard work is going to pay off for shareholders big time. So I do want to mention that as well. So I feel great about where we are. It's just timing a little bit. The order book is really good.

Suman Mookerji

And Steve made the point earlier about our book-to-bill for defense as a whole, which includes a mix of both missiles, radar and the legacy platforms. That was at 2.2x book-to-bill ratio, I mean, that really shows you the strength of the defense portfolio that we have on a combined basis.

Operator

Our next question comes from the line of Mike Crawford with B. Riley Securities.

Michael Crawford

Glad to hear that you're progressing towards getting these LTAs in place with your framework defense customers. But what about progress on finding more things for them in the offload to you guys?

Stephen Oswald

Could you say it again, Mike. Absolutely. Yes. So yes, that's ongoing. Like I've said in many calls, OEMs are always nervous about moving things out of their operations because they lose control, okay? Especially the operations people. Supply chain people love it, not so much on the other side. So it's sort of a long-term trust-building situation. And I would say we're working right now with -- and this is really on the defense prime side. We're really working with Northrop now and other operations to do that. So I'll have more to say about that in future calls, but that's ongoing. But the big deal is Raytheon was the numero uno for us, and it's finally really paying off. So we're really happy.

Michael Crawford

Okay. And then just one follow-up on M&A. You did convey your intent to kind of move higher up and take a bigger bite at something. Have you been rebuffed in any of these approaches? Or any other color on that landscape?

Suman Mookerji

We're continuing to evaluate a mix of opportunities, both that are slightly larger than what we have done in the past as well as smaller opportunities that are tuck-in acquisitions in line with what we've done in the past. We're not looking to do, again, to clarify something that is a huge transformative acquisition that was not how we messaged it, but we are looking to do things that are bigger than what we have looked at in the past. So we absolutely are -- have things in the pipeline and things that we are working on that cover that wider range.

And as was noted earlier, we are seeing a higher level of activity in the M&A market. So we remain hopeful about getting something done here. We've also increased the bench strength of the M&A team. And I mentioned earlier about having hired a strong Director of Corporate Development to lead the function for me. And we also have now hired another extremely capable manager-level resource to support him. So we have much more capacity to process and execute transactions than we have ever had in the company in the past.

Stephen Oswald

Yes, that's a great point. Really, we're fully committed, obviously, Mike, as you know, to this, and we're building capacity both internally with our team, but also now we have the capacity to go up the ladder a bit with a larger buy. So stay tuned, Mike.

Operator

Our next question comes from the line of Michael Ciarmoli with Guggenheim Securities.

Michael Ciarmoli

Maybe, Steve or Suman, just a really good commercial aerospace growth in the quarter here. How do we think about this rate of growth going forward? I mean you're going to have obviously ramping production. You've got the destocking coming to an end. You've got the switch kicking in, and then you've got the double-digit pricing from Airbus. I mean is there any way you can help us kind of calibrate our expectations? I mean it was certainly a high watermark, I think, since pre-COVID, maybe 2019 with these aerospace revenues. But this rate of growth, does it stay into the 20s here as we think about into '27?

Suman Mookerji

I think we can expect to see strong growth. I wouldn't say it stays above 20% that would probably be a bit sporty. But we are going to -- we're continuing to see the destocking wind down on the 737. We shipped at around 40 for most of our structural products. On the 737, we shipped at the rate of about 40 during the quarter, which is getting close to, I guess, a range of 42 to 47 that Boeing is producing at. So that's a good sign. Our revenue recognition was in the mid-30s. So as you think about growth in our 737 business going from mid-30s to wherever you view 2027 MAX production to be, right, somewhere in the low to mid-40s. So that's what you would expect.

Stephen Oswald

Yes. I think 20-plus a bit sporty. But Mike, what I'll tell you, though, in February, we'll have a much better view because we'll have everything sort of locked in by then, okay? But I think it's going to be good. Maybe not 20-plus, but it's going to be good.

Operator

[Operator Instructions] Our next question comes from the line of Hrishi Kumbhojkar with Guggenheim Securities.

Suman Mookerji

I think Mike already...

Stephen Oswald

Might have been a duplicate. Didn't close that line.

Suman Mookerji

Mike from Guggenheim already...

Stephen Oswald

We already have that.

Operator

This concludes the question-and-answer session. I would now like to turn it back to Steve Oswald for closing remarks.

Stephen Oswald

Okay. I want to thank everybody. I really appreciate you listening. I also appreciate the questions. We'll continue to work together as we move forward. I want to make sure everybody has a real good understanding about where we are and where we're going. I think we had a great Investor Day. Again, thank you for the support of that. I do again want to come back to the defense situation and make sure I reiterate that we have a lot of insulation around some of the other things that might be happening. We have a lot of diversification in our defense portfolio.

So I think that's going to be great for us going forward. And the numbers speak for themselves being at 2.2x book-to-bill. That's, I think, a wonderful job by our team and also a statement by the industry that they have a lot of trust in DCO and that we're going to deliver for them. So on that note, I'll thank you again for listening, and have a great rest of the day.

Operator

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.