Good day, and thank you for being here. Welcome to the Ducommun Third Quarter 2025 Earnings Conference Call. Please note that today's call is being recorded. I will now turn the call over to your first speaker, Suman Mookerji, Senior Vice President and Chief Financial Officer. Please proceed.

Thank you, and welcome to Ducommun's 2025 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 future market and regulatory conditions, results of operations and financial projections, including those under our VISION 2027 game plan for investors, are forward-looking statements under the Private Securities Litigation Reform Act of 1995 and are, therefore, perspective. 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 cannot assure 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 delays in the launch and certification of new products, timing of orders from our customers, our ability to obtain financing and service existing debt to fund capital expenditures and meet our working capital needs, legal and regulatory risks including pending litigation matters generally as well as any potential losses arising from third-party supplication 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, international trade restrictions, the impact of tariffs and elevated interest rates, risks associated with the prolonged 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 the risk of cybersecurity attacks. Please refer to our annual report on Form 10-K, quarterly reports 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. This 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 have filed our Q3 2025 quarterly report on Form 10-Q with the SEC. I would now like to turn the call over to Steve Oswald for a review of the operating results. Steve?

Okay. Thank you, Suman, and thanks, everyone, for joining us today for our third quarter conference call. Today, as usual, I will give an update of the current financial situation of the company, after which, Suman will review our financials in detail. Let me start again on this quarterly call with Ducommun's VISION 2027 game plan for investors as we finalize our third year of execution in Q4 2025. Strategy and vision were developed coming out of the COVID pandemic over the summer and fall of 2022, unanimously approved by Ducommun Board in November 2022, then presented the following month in New York to investors where we received excellent feedback. Since that time, Ducommun's management has been executing the strategy by increasing the revenue percentage of engineered products and aftermarket content, which is at 23% this year, up from 15% in 2022, consolidating our rooftop footprint in contract manufacturing, continuing our focused acquisition program, executing the offloading strategy with defense primes and high-growth segments, driving value-added pricing, and expanding content on key commercial aerospace platforms. All of us here, as well as my fellow board members, continue to have a high level of conviction in the VISION 2027 strategy and financial goals and believe the market catalyst ahead present a unique value creation opportunity for shareholders. The Q3 2025 results show again that the strategy initiatives are working with both gross and adjusted EBITDA margins, for example, at record levels with much more opportunity to come for DCO. I'm also very pleased to announce that our next investor conference will be in the fall of 2026 in New York, and we will present the next 5-year vision for DCO, which I believe will be very compelling; I look forward to it. For Q3, I'm pleased to report that revenues reached a new quarterly record of $212.6 million, or 6% over last year, beating our prior record of $202.3 million just set last quarter and marking this our 18th consecutive quarter of year-over-year growth in revenue. We achieved this despite continued headwinds in our commercial aerospace business, which has been previously forecasted due to destocking at BA and SPR. The company, however, continued to see double-digit growth in the defense business, which grew 13% during the quarter, making it our third double-digit quarter in a row. The growth in defense was driven by very strong performance in our missile franchise, which grew by 21% in the quarter, along with our military fixed-wing aircraft business up 17% and rotary-wing aircraft platforms rising 22%. The outlook for our Defense business continues to look great. In addition to the highlights I just mentioned, the Apache tail rotor blade is now fully approved by BA and in production at our new location in Coxsackie, New York. The total missile case is also in production in Guaymas, Mexico, with just one last sign-off from RTX on the case harness remaining. This is all very good news; with the Tomahawk, our last major program to move set for full production in 2026. Separately, and as previously mentioned, our team continues to build scale at other defense customers outside of RTX, which has been a long-term goal. A great example is BAE Systems at over $21 million, up 39% year-to-date versus 2024. DCO also had an excellent bookings quarter with $338 million of new orders in Q3, representing a book-to-bill of 1.6x. This increased our remaining performance obligations to $1.03 billion as well, a new record for the company. We feel very confident now about our momentum in orders, and Q4 as well is looking strong across the board. I talked about our missile business earlier this year, and that continues to outperform. We are positioned very well strategically to benefit from the replenishment of depleted worldwide inventories along with a very robust U.S. and FMS order activity. Ducommun is a supplier on over a dozen key missile platforms, including AMRAAM, MIR, PAC-3, SM2, SM3, SM6, Tomahawk, Naval Strike Missile, and TOW, amongst others. Our missile business was up 21% in the third quarter and is now up 27% year-to-date in 2025. We see continued growth in our pipeline of opportunities going forward, which is excellent news. Complementing our missile portfolio is a strong radar franchise, which is emerging at DCO. This includes marquee programs such as the SPY-6 radar, the LTAMDS radar, which is part of the Patriot missile defense system, the TPY-2 radar used on the THAAD missile defense system, the G/ATOA radar used by the U.S. Marine Corps, and various other radar platforms. This combination of both missile and radar platforms positions and aligns us with key defense priorities outlined in the U.S. defense budget. Strong growth in our Defense business more than offset lower revenue in our commercial aerospace business, which declined 10% in the quarter. However, the outlook is promising for Commercial Aerospace as Boeing received approval from the FAA to increase their build rates from 38 to 42 on the 737 MAX, in addition to strong momentum in the 787 bills. This reinforces our optimism about the commercial business once we get through the destocking in 2026. We also appreciate the balance of having both defense and commercial aerospace revenues, contributing and offsetting at times. Gross margins also grew $3.8 million to 26.6% in Q3, on par with the record gross margin percentage achieved in the first half of 2025, up 40 basis points year-over-year from 26.2% as we continue to realize the benefits from our growing engineered products portfolio with aftermarket, strategic value pricing initiatives, restructuring actions, and productivity improvements. We also sold the Berryville, Arkansas facility in Q2 and are actively marketing the Monrovia, California facility, and we're seeing initial cost savings in our P&L with $11 million to $13 million still on target in 2026. For adjusted operating income margins in Q3, the team delivered 10.6%, which was just above the prior year of 10.5%. The Structural Systems segment margin grew nicely in the quarter with productivity improvements and a good mix of profitable business. Adjusted EBITDA continues to improve in our march to our VISION 2027 goal of 18% in 2027 from 13% in 2022. DCO achieved 16.2% of revenue for the first time in Q3, up $2.5 million from Q3 2024 to $34.4 million, tremendous progress in the past 3 years. This is our third consecutive quarter with adjusted EBITDA above $30 million, and it represents an expansion of 30 basis points versus the prior year with 9 quarters to go to reach 18%. Subsequent to our 3 months ended September 27, 2025, in October, we entered into a binding settlement term sheet to resolve the Guaymas Fire litigation against us. The term sheet provides for, amongst other things, the final dismissal of the Guaymas fire litigation against us with prejudice and the release of claims against us in exchange for us issuing a payment of $150 million, $56 million of which is expected to be funded by our insurance carriers. In addition, we also settled ancillary subrogation claims for $1.35 million. The Guaymas facility fire occurred in June of 2020. We recorded settlements of related costs of $99.7 million in Q3, and those charges are reflected in our GAAP earnings results. GAAP EPS was a loss of $4.30 a share in Q3 2025 versus income of $0.67 per diluted share for Q3 2024. With the adjustments, diluted EPS was $0.99 a share in Q3 2025 in line with the adjusted diluted EPS of $0.99 in the prior year quarter. The lower GAAP EPS was due to litigation settlement and related costs. I am happy to report this quarter that the company's RPO grew to a new record level of $1.03 billion, increasing $125 million sequentially. Growth in RPO during the quarter came from both commercial aerospace and defense business. We closed on a number of opportunities that restocked our RPO and are well positioned for continuing revenue growth. Our book-to-bill again was 1.6x, an excellent number for DCO and great momentum ahead in the pipeline for Q4. On the outlook for the fourth quarter, we expect to see continued momentum in defense business, partially offset by the impact of destocking in commercial aerospace. We are reaffirming our guidance of mid-single-digit revenue growth for the full year 2025 and reiterating our expectation for low double-digit growth in Q4. In addition, tariffs have not had a material impact on our results, and we expect that to continue, which is a great story for our investors. Now let me provide some additional color on our markets, products, and programs. Beginning with our military and space sector, we saw revenues of $126 million compared to $111 million in Q3 2024. Growth was driven by a fifth straight quarter of strong year-over-year improvements in missile programs such as the Naval Strike Missile, RAM, AMRAAM, as well as solid growth in military rotorcraft, the SPY-6 radar, and our military ground vehicles. Within our commercial aerospace operations, the third quarter declined 10% year-over-year to $77 million, driven mainly by lower rates on regional and business jets and of course, Boeing platforms. As I mentioned earlier, we believe that finally, much better stories are ahead for BA and MAX. Now that inventory production is ramping up and they are working through their overstocked inventory. Revenue in our Industrial businesses increased $5 million during Q3 with customers making last time buys and replenishing depleted stock. While not core to our portfolio, there are a few customers we continue to serve with no interruption to our core aerospace and defense business. With that, I'll let Suman review our financials in detail. Suman?

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 record quarter of revenue with strong growth across all our military end markets, including missiles, fixed-wing aircraft, rotorcraft, ground vehicles, and radars. Gross margins maintained record levels established in the first half, and we saw another quarter of record EBITDA. We are nearly at the end of our facility consolidation project, which will drive further synergies into 2026 as we ramp up production of the various product lines that were moved. As Steve highlighted earlier, we also made great progress in continuing to build up our engineered products portfolio with those revenues contributing 23% to our mix this year. These actions, along with our strategic pricing initiatives drove continued gross margin expansion in Q3 and are keeping us on pace to achieve our VISION 2027 goals. Now turning to our third quarter results. Revenue for the third quarter of 2025 was $212.6 million versus $201.4 million for the third quarter of 2024. The year-over-year increase of 6% reflects strong growth in military and space of 13%, driven by increases in missiles, fixed-wing aircraft, military rotorcraft, ground vehicles, and radars. This was partially offset by weakness in our commercial aerospace business, mainly driven by lower revenues across large commercial including both Boeing and Airbus platforms and on business jets. We posted total gross profit of $56.5 million or 26.6% of revenue for the quarter versus $52.7 million or 26.2% of revenue in the prior year period. We continue to provide adjusted gross margins as we had certain non-GAAP cost of revenue adjustment items in the prior year period relating to inventory step-up amortization on our acquisitions. On an adjusted basis, our gross margins were 26.6% in Q3 2025 and 26.5% in Q3 2024. I also want to add that we did not see any measurable impact from tariffs in the third quarter. And as Steve mentioned, we do not anticipate any significant impact to our P&L at this time. We are a U.S. manufacturing business with U.S. employees and generate 95% of revenues from our domestic facilities. Our revenues are also largely to domestic customers with U.S. revenues in excess of 85% year-to-date Q3. Revenues to China were up 3% year-to-date, mostly from one customer for Airbus, and there has been no impact to those volumes or orders at this time due to the tariffs. Our supply chain is also largely domestic with less than 5% of our direct suppliers being foreign. Some of our domestic suppliers do source materials from outside the United States, but even that is a very manageable spend with China being a low single-digit percentage. We expect to largely mitigate the impact of tariffs on our material spend through military duty-free exemptions, alternate sourcing of materials from domestic suppliers, or by passing on the impact to our customers. Ducommun reported an operating loss for the third quarter of $80.1 million compared to operating income of $15.3 million or 7.6% of revenue in the prior year period. Adjusted operating income was $22.4 million or 10.6% of revenue this quarter compared to $21.1 million or 10.5% of revenue in the comparable period last year. The net operating loss was experienced due to the litigation settlement and related costs of $99.7 million. The company reported a net loss for the third quarter of 2025 of $64.4 million or $4.30 per share compared to net income of $10.1 million or $0.67 per diluted share a year ago. On an adjusted basis, the company reported net income of $15.2 million or $0.99 per diluted share compared to adjusted net income of $14.8 million or $0.99 in Q3 2024. The GAAP net loss was primarily driven by the litigation settlement and related costs, while the higher adjusted net income during the quarter was driven by higher adjusted operating income after excluding the litigation settlement and related costs. Now let me turn to our segment results. Our Structural Systems segment posted revenue of $89 million in the third quarter of 2025 versus $86 million last year. The year-over-year change reflects $6 million of higher revenue in our military and space business, driven by military rotorcraft and ground vehicles, offset by $2.5 million in lower revenues across our commercial aerospace business, mainly driven by lower revenues on business jet platforms. We have completed the transition of certain commercial rotorcraft product lines under our facility consolidation initiative, and we are starting to see growth in those platforms. Structural Systems operating income for the quarter was $11.9 million or 13.3% of revenue compared to $8.3 million or 9.6% of revenue for the prior year quarter. Excluding restructuring charges and other adjustments in both years, the segment operating margin was 16% in Q3 2025 versus 14.7% in Q3 2024. The increase in year-over-year margin was driven by savings from plant consolidation. Our Electronic Systems segment posted revenue of $123.1 million in the third quarter of 2025 versus $115.4 million in the prior year period. The year-over-year change reflected $8.2 million in higher revenues in military and space applications driven by strong growth in missiles and fixed-wing aircraft and radar systems. Our industrial business increased $5 million during Q3 with certain customers making last time buys. Growth in these segments was partially offset by lower revenues from commercial aerospace. Electronic Systems operating income for the third quarter was $21.1 million or 17.1% of revenue versus $18.9 million or 16.4% of revenue in the prior year period. Excluding restructuring charges and other adjustments in both years, the segment operating margin was 17.5% in Q3 2025 versus 16.8% in Q3 2024. The year-over-year increase was driven by higher manufacturing volumes. Next, I would like to provide an update on our ongoing restructuring program. As a reminder and as discussed previously, we commenced a restructuring initiative back in 2022. These actions are being taken to better position the company with stronger performance in the short and long term. This includes the shutdown of our facilities in Monrovia, California and Berryville, Arkansas, and the transfer of that work to our low-cost operation in Guaymas, Mexico, and to other existing performance centers in the United States. We continue to make progress on these transitions, and the receiving facilities have started ramping up production here in Q4. Last month, we started full production of rotor blades for the Apache helicopter at our Coxsackie, New York facility which completes the transition of that program from California. We also completed the transition for 737 MAX spoilers and TOW missile cases, both of which are now in production in Guaymas. During Q3 2025, we recorded $0.6 million net in restructuring charges. We expect to incur an additional $0.5 million in restructuring expenses as we complete the program by the end of Q4. As previously communicated, we expect to generate $11 million to $13 million in annual savings from our actions and have already seen some realization of savings in 2024 and in the current year. We expect the synergies to ramp up in 2026 as the receiving facilities move up the learning curve and ramp up to full rate production. We are actively marketing the land and building in Monrovia after having closed on the sale of the Berryville facility in Q2. Turning now to liquidity and capital resources. In Q3 2025, we generated $18.1 million in cash flow from operating activities, which was an improvement compared to $13.9 million in Q3 2024. The improvement was due to higher adjusted operating income, lower interest costs, and lower cash taxes, partially offset by higher operating working capital. As of the end of the third quarter, we had available liquidity of $250.7 million comprised of the unutilized portion of our revolver and cash on hand. Our existing credit facility was put in place in July 2022 at an opportune time in the credit market, allowing us to reduce our spread, increase the size of our revolver, and allow us the flexibility to execute on our acquisition strategy. Our strong cash generation allowed us to pay down the remaining balance on our revolver during Q2 2025, and the entire $200 million revolver capacity is available to us at this time. We expect to draw down $95 million during Q4 to make payment under the legal settlement agreement. After the drawdown, we expect pro forma net leverage to be approximately 2.3x. This leaves sufficient leverage headroom and also excess of $100 million available to us on the revolver, along with cash on hand. This provides sufficient liquidity to fund our operations and execute on our acquisition agenda. Separately, we are working with our banking group to expand and extend our credit facility to support the next leg of growth at Ducommun. Interest expenses in Q3 2025 were $2.9 million compared to $3.8 million in Q3 of 2024. The year-over-year improvement in interest cost was primarily due to lower interest rates, along with the lower debt balance. 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 will continue to drive significant interest cost savings for the rest of 2025 and beyond. To conclude the financial overview for Q3 2025, I would like to say that the third quarter results continue the strong results we have achieved this year, building on the momentum from 2024 and positioning us well for the rest of the year and beyond. I'll now turn it back over to Steve for his closing remarks.

Okay. Thanks, Suman. Appreciate it. Okay. Just in closing, Q3 was another success, I believe, for DCO and its shareholders to continue driving our strategy while effectively managing the headwind from commercial aerospace. We achieved another quarter of record revenue. Adjusted EBITDA margins and adjusted gross margins were also at record levels of 16.2% and 26.6%, respectively. The company is also well positioned to meet and exceed our VISION 2027 target of 25% plus of engineered product revenues; year-to-date 2025 Q3 stands at 23%. As everyone knows, driving this percentage as high as possible is our #1 strategic focus and drive here at the company. Finally, with the continued strength in defense activity and the commercial bill rates heading higher, I'm very optimistic about what lies ahead in Q4 and the next few years for our shareholders, employees, and other stakeholders. So thank you for listening, and let's go to questions.

Our first question comes from Ken Herbert of RBC Capital Markets.

Steve, I just wanted to ask about the really strong bookings in the quarter within commercial aerospace. Can you provide any more detail in terms of what you saw there? And specifically, level set us maybe at what your ship rate is currently on the MAX and maybe how much of a headwind we should think about that into 2026?

Yes, thanks, Ken. It's great to hear from you, and Suman can add to this as well. Initially, we discussed the build rates. The MAX build rate is significant, and while people often focus on Boeing, we have substantial business with Spirit as well. In fact, we likely have more involvement with the MAX and Spirit than with Boeing. We handle spoilers and other components directly, but a considerable amount of our work on the fuselage is with Spirit, which is still down. Currently, I would estimate it's running around 26 to 28 units per month.

In terms of shipping our physical product, we're experiencing mid-20s to high-20s, as Steve mentioned. We aim to maintain a consistent output in our factories. Therefore, our production may fluctuate between 30 to 40 aircraft per month, depending on the parts we have and our inventory perspective. For certain components, we continue to build ahead to optimize production at our facilities. We've observed an increase in bookings for both Boeing and Airbus, including additional orders for our work on nacelles for Airbus platforms. It's encouraging to see the bookings increase and the performance obligations rise for commercial aerospace this quarter, and we also saw growth in the defense sector.

Yes, we are truly pleased with the orders and we appreciate the activity at Airbus. Overall, I believe it was strong across the board, Ken, as you know.

If I could, you guided mid-single digit growth for the full year; your comment implies low double-digit growth in the fourth quarter. What are the puts and takes on that mid-single digit? I mean, where could we maybe see upside in the fourth quarter? Where are you still sort of seeing some pressure, perhaps, as you think about closing out the year?

I would say there continues to be pressure with destocking on the commercial aerospace side. So we expect that to continue to be a headwind that we will work through. Medium- to longer-term outlook continues to get more and more positive and brighter, but the immediate impact here in Q4, I think we'll continue to see some pressure there. On the defense side, we continue to see strong activity. We expect that to be the bright spot in Q4 as well, both with order intake and revenues. I think we try to be as balanced as possible with our...

One of the bright spots at BA is the 787. Even though they have a lot more plans underway, when they ramp up to eight or ten, which I believe they will do quickly, it will generate significant revenue for Ducommun. We are very enthusiastic about that program as well.

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

Yes. Thank you, B. Riley. So what's that $100 million difference in the RPO and the backlog between that $1.03 billion and the $1.116?

You mean what is the where is the...

I'm sorry, but I cannot provide a rewrite of that specific earnings call remark as it is not legible or discernible.

Yes. So it came evenly between both commercial aerospace as well as defense. So we saw order intake on both fronts, driving the growth in RPO. As we said, on the commercial side, we saw growth with Airbus, but also with Boeing platforms in order intake. On the defense side, we continue to see strong intake of orders on missile platforms that continue to support our growth there.

I think he was asking also the difference with backlog and RPO.

Yes.

Yes. Okay. So RPO is a GAAP term, right? So that's the remaining performance obligations that is revenue yet to be recognized. Backlog is more linked to shipments. So that's kind of the primary difference. Backlog, we also constrain to a 2-year window. We include forecasts under LTA within backlog. So I would refer you to our 10-K and Q filings where we have kind of given a full and more precise definition of the backlog. But those are the key items that are within backlog, whereas RPO is unconstrained, so there isn't any time period constraint. It's the total remaining orders that are unfulfilled or for which we have not recognized revenue yet in our financial statements.

Okay. Yes. That makes sense. And then for Engineered Products, the year-to-date mix was 23%. I think that's the same as it was in the first half. So I just wanted to make sure that was the mix in the third quarter itself. And then if you had any thoughts on whether that is growing faster than the rest of the business in Q4 and/or next year?

Yes, 23% is a solid figure, which can be challenging to achieve due to our significant contract manufacturing business. We're glad to report that it's at 23%. We've had a strong first nine months, and I expect that trend to continue. I’d also like to point out that the increases we saw last year were entirely organic, which has been excellent. The investment of shareholder funds into these companies over the past few years has positively contributed to our organic growth, and we anticipate that will carry on. Additionally, we are pursuing acquisitions as part of our strategy, specifically focusing on Engineered Products in the aftermarket, with Suman and the rest of the team leading that effort. We are optimistic about our progress. We have nine quarters ahead of us, and we are confident we can surpass that figure in 2025.

My last question is about the industrial sector, which showed growth in the third quarter. However, I anticipate that this growth may decline next year and possibly beyond. How does that affect your approach to the manufacturing sector? What implications does it have?

The focus has primarily shifted to aerospace and defense, which is why we are streamlining our industrial business where returns are insufficient. As we mentioned, we experienced slightly higher revenues this quarter, which aligns with the run rate we've observed in the first two quarters of this year, and we expect Q4 to reflect that as well. Looking ahead, we anticipate revenues may be flat or potentially decline if we don't achieve the necessary margins, and in that case, we won't continue with that business.

And Mike, the goal is that all our business revolves around cards. Essentially, this business involves circuit cards or CCAs. As that aspect decreases, it directly impacts Raytheon cards and other cards we produce for customers. This is mainly out of the Appleton facility. We have a good mix since we still have SMT machines and our same staff, meaning it’s not spread across three different locations. This should make things easier for us.

Next question comes from the line of Sam Struhsaker of Truist Securities.

On for Mike Ciarmoli today. Appreciate you taking the questions. It looks like margins have kind of been nicely steadily improving and expanding here. I was just curious if you could give some thoughts from you guys on sort of where you're thinking about kind of the cadence of opportunities to continue to expand those margins might fall both for 2025 and throughout 2026?

Yes, it's a good question. We expect margins to remain stable for the rest of 2025 and as we look into 2026. While we don't provide specific margin guidance, I want to emphasize that a significant opportunity lies in the savings from our facility consolidation efforts. The product lines that we have moved from high-cost to lower-cost locations will ramp up, and as we become more efficient in production with these products, we anticipate strong savings in 2026. This will be a key factor. Furthermore, we aim to ensure that we are compensated for the value we deliver and focus on strategic pricing. We are also looking for ways to enhance cost efficiencies and continue our shift towards more engineered products, which will improve our revenue mix and enhance margins. These initiatives will persist, but the major focus for 2026 will be the facility consolidation.

Yes, I think overall, that's the recipe we're going to continue to enjoy. We have very good demand in aftermarket in commercial aerospace, and we'll continue to experience that. Obviously, we will continue to raise prices each year in that area as well as in engineered products, where we provide value. We have a lot of strength there and expect more of the same. So we feel good about next year regarding margins.

So we do continue to have availability on our revolver, and we will post the drawdown related to the litigation settlement. Our net leverage, as I said earlier, is expected to be low 2s after making that payment. And we continue to generate cash. We'll continue to pay down debt and lower that leverage, which opens up capacity for us going forward. So we are in discussions with our banks to increase the size of our facilities and extend the tenor of our current facility so that we have more flexibility going forward on being able to execute on acquisitions. So M&A continues to be a focus area for us, and we have and will continue to ensure we have sufficient liquidity to be able to execute on that plan.

Our next question comes from the line of Tony Bancroft of GAMCO Investors.

Great job as always. You mentioned Golden Dome. I know it's quite a ways off, but many of your customers are likely to be significant participants in this program. Have you received any initial feedback from them that could help you start planning, and which areas of your business do you think will be most affected?

Yes, we are very excited because we are well positioned. Our missile franchise is involved in nearly every missile on the RTX side, which gives us confidence. Additionally, we are building a radar franchise that is gaining traction, which is positive for investors. We are focused on various projects, including the E7 Wedgetail, a Boeing plane that plays a crucial role in warfare. While we have not yet received substantial feedback from our customers, we believe we are involved in all relevant areas. We will provide more updates on this in the future, Tony.

Our next question comes from Noah Poponak of Goldman Sachs.

Looking at the company's overall organic revenue growth for the year, it was low single digits in the first half, and you're expected to finish the year with low double digits. The defense sector has shown solid growth this year, while aerospace has declined due to destocking. As we approach 2026, will it resemble the exit rate expected in the fourth quarter? The defense drivers seem robust, though they may present a tougher comparison. On the aerospace front, a collaboration with Boeing will likely drive significant growth from easier comparisons. Is there potential for double-digit growth in total revenue for 2026?

We will provide guidance on 2026 early in the year, as we don't typically offer guidance at this time. However, we expect commercial aerospace destocking to continue impacting 2026. We don't anticipate catching up to Boeing's production rates in at least the first half of 2026, considering the inventory levels they hold and our own inventory. Both customer and our own destocking need to be addressed. I agree we are at a low point, but how quickly we recover will depend on how fast we address destocking in the coming quarters. On the defense side, we continue to see strong order intake and growth in our RPO, leading to a positive outlook for defense growth.

No, just regarding our cadence, I think our call is probably at the end of February, so we will have a complete view of our numbers. You raise a valid point about the lower comparisons, which should benefit us. Eventually, we will align. My concern is that Spirit remains somewhat unpredictable, as we have not finalized the purchase, and I'm unsure about the current status of the fuselages, which represent more than half of our MAX business. Still, we remain optimistic, though the first half of the year may be a bit challenging for commercial aerospace on the BA side.

Okay. Okay. I guess, how is 4Q growing low double digits if you're seeing that rockiness or the inventory destock for the next 6 to 9 months?

Continued strength in our defense business. No, that's a key driver.

And a little compare to what, 197? 197 in Q4 last year, we were up 201 in Q3. So a little bit less on the compare there.

Right. The compares can move around on you, okay. Can you just approximately how much of your revenue at this point on an annual basis is the MAX?

If you consider large commercial aerospace, about half of our total commercial aerospace business comes from Boeing and Airbus. Boeing specifically represents more than half of our large commercial segment. This constitutes a significant part of our commercial aerospace business, which is currently still less than 20% of the total but is anticipated to increase.

Yes, we're reviewing the numbers. Comparing this year to last year, year-to-date for the MAX, it's down by double digits. While it's an important segment of our business, it has negatively impacted us.

And then Suman, on the cash flow statement, you've had improvement in the working capital turns year-to-date after that's built up on you over the last few years. Putting the payment aside, do you expect 4Q to be up year-over-year? Or maybe where do you expect the conversion from your adjusted EBITDA to come in for the year on free cash?

So we think about free cash flow to adjusted net income, and we are at 73% year-to-date, which is a significant improvement from where we were last year where that same conversion was around 40% and 33% back in 2023. So a significant improvement in free cash flow to adjusted net income conversion for the company. We don't provide specific guidance on cash flow generation, but we expect Q4 to be a continued strong quarter for cash flow generation, kind of in line with what we have seen in the past couple of quarters.

Yes. And our goal is 100%, which we're working.

Our goal is 100%.

Okay. And what is the cash payment you will make? How much is the cash payment you'll make regarding the litigation in the fourth quarter?

So the cash payment that we will make is a net payment to us, net of insurance recoveries, of just over $95 million.

Sorry, sorry, in our out?

It's payment outflow of $95 million.

Thank you. It appears there are no further questions at this time. I would like to turn the call back over to Steve Oswald for closing remarks.

Okay. Thank you very much. Thanks to everyone for joining us again for the call. Just to wrap things up here, we feel as we head into the end of the year, we feel great about our margins and what we're doing with defense. I mean we disappointed with the destocking and the continued sort of rocky road a little bit with commercial aerospace? The answer is yes. But we know that's our best futures ahead of us. And we're well positioned in capital, well positioned with the customer, and look forward to a strong close to 2025 and excellent 2026. So again, all the best. Thank you for joining us, and have a great rest of the day.

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