DCO · Ducommun Incorporated

Ducommun Incorporated identified a significant accounting error during Q1 2026 financial close related to improper acceleration of stock-based compensation expense for retirement-eligible employees following April 2024 changes to performance and restricted stock unit agreements. The error, purely non-cash, affected expense timing but left net revenues, gross margins, operating cash flows, and free cash flows unchanged across impacted periods. Management and the Audit Committee determined that audited FY2024 and FY2025 financials in the 2025 10-K, plus unaudited Q2-Q4 2024 and Q1-Q3 2025 10-Qs, are no longer reliable, prompting a full restatement via an amended 10-K due by May 8, 2026. Preliminary impacts show substantial overstatements: operating income by $10.0 million (2024) and $3.4 million (2025), net income by $9.8 million and $3.4 million, and diluted EPS by $0.65 and $0.22. Adjusted EBITDA saw a $0.9 million overstatement in 2024 but $0.5 million understatement in 2025. This stems from a material weakness in internal controls over financial reporting (ICFR) as of December 31, 2025, invalidating prior ICFR effectiveness assertions and PwC's related audit reports. No intentional misconduct occurred, and debt covenant compliance remains intact. The Compensation Committee will pursue clawbacks of $4.3-$4.9 million (2024) and $0.7-$1.1 million (2025) under the Clawback Policy, with recognition upon receipt. Looking forward, Q1 2026 stock-based compensation will rise $5.0-$6.0 million versus prior expectations, though full-year 2026 remains unchanged. Investors should anticipate heightened scrutiny on control remediation detailed in the upcoming amended filing.