DMC Global Inc. Q1 FY2025 earnings call

• First quarter was a solid start with consolidated sales up 5% sequentially and adjusted EBITDA up 39% from fourth quarter. - Arcadia's back-to-basics initiatives around core commercial operations and cost containment contributed to improved performance. - DynaEnergetics focused on improving operations, value engineering products, and new automated assembly lines in Texas are operational. - NobelClad faced order delays due to tariff uncertainty but has pent-up demand in core markets. - Ended 2024 by extending Arcadia put-call arrangement and stabilizing operations; 2025 focus on EBITDA growth, free cash flow, and balance sheet deleveraging.

Consolidated first quarter sales were $159.3 million. Arcadia, the architectural building products business, had sales of $65.6 million, a 9% sequential increase and 6% year-over-year improvement. DynaEnergetics, the energy products business, had first quarter sales of $65.6 million, up 3% sequentially but down 16% year-over-year. NobelClad, the competent metal business, had first quarter sales flat sequentially but up 5% year-over-year. Arcadia's sales contributed approximately 41.2% of consolidated sales ($65.6M / $159.3M), DynaEnergetics also ~41.2%, and NobelClad ~13.2% ($159.3M - $65.6M - $65.6M = $28.1M; $28.1M / $159.3M ≈ 17.6%, wait no wait: $159.3M total. Arcadia $65.6M is 65.6/159.3 ≈ 41.2%, DynaEnergetics $65.6M is also ≈41.2%, NobelClad $28.1M is ≈17.6%.

• Second quarter consolidated sales expected to be in range of $149M to $157M, adjusted EBITDA attributable to DMC in range of $10M to $13M. - Arcadia to have lower project billings due to completed large mixed-use project and residential market decline. - DynaEnergetics assumes sequentially stable well completion activity. - NobelClad sales expected to slow due to tariff policy uncertainty. - Guidance influenced by macroeconomic concerns, tariffs, and energy prices, subject to change with greater clarity.

• Tariffs causing order delays and demand disruption. - Macroeconomic conditions including volatile energy prices and high interest rates. - Uncertainty around U.S. tariff policies and reciprocal actions affecting order backlog. - Decline in active frac crews impacting DynaEnergetics' core market.

Q: Good afternoon, Jim, Eric, Geoff. Thanks for taking my call. I did want to also just ask a question about guidance, but in a larger sort of frame. I'm just curious sort of what are the puts and takes behind the guidance, you know, maybe specifically any impact from tariffs, higher steel costs, et cetera, in some of your results. Sort of looking at the revenue and EBITDA, it looks like we're sort of focusing in or implying a little bit of lower gross margin. So maybe frame that out a little bit better with guidance. How much is sort of tariffs, impacts and tariffs on calls versus maybe lower volumes and just end markets pricing because of tariffs?

A: There's a little bit in there for tariffs. If you look at what we were able to cover by pulling in inventory, some of our own mitigation strategies, this would be the least quarter going forward for the year that's impacted by tariffs, just the timing of when they roll on. That ignores the fact that tariffs are creating demand disruption now. NobelClad, if you look at them last year where they had pretty much spectacular results all year, our comments on them having lower order intake, it obviously suggests they're going to be a bit lower next year. That's baked into the guidance for the rest of this year. And we specifically called out Arcadia, which is less impacted by tariffs than really any of our businesses. It is impacted by interest rates where last year was really the last tour off of the residential business where we've had pretty significant pull in from, I'd say pull in a demand from strategies that the company had been employing since the acquisition. It led to a pretty strong quarter for the residential business at Arcadia. But if you look at, and the numbers aren't out until Tuesday, but if you look at most of the home builders, if you look at Jeld-Wen last quarter, if you look at anybody in the construction business, interest rates hit the level they've been at for the past year, do impact demand a little bit, particularly on high-end residential. And that's explicitly baked into our guidance. So a little bit tariffs, a lot of demand disruption. And as Eric said, if the tariffs go away and demand picks up, they should be better. If they don't, we could certainly be worse. But we've tried to explicitly factor in each one of those items. And a key takeaway would be this is probably the lightest tariff impact we'll see in the quarter because of timing and because of some mitigation efforts we've been able to employ.

Q: Thanks, and good evening, guys. Eric, maybe for my first question. Is there any way you can help size up just how much the large California commercial project added to the first quarter EBITDA in Arcadia? And just trying to think about that sequential EBITDA margin for that segment at the midpoint of the 2Q guide. Do you think that business could still be profitable at the operating income level in 2Q? Just any help there would be appreciated.

A: Yeah, I mean, that was the commercial side of our business. And, yes, it'll be profitable in Q2. It's the largest part of our business. We haven't commented publicly on the size of that project, but it was a relatively large project for us, one of the larger one in the last two to three years that substantially is complete. So that'll impact the top line. And then, obviously, that will impact EBITDA in Q2 as well.

Q: Thanks, and good afternoon, everybody. Just a quick one to start. You had released something, I think, a couple weeks back on a tariff surcharge on the Dyna business. And I'm just curious how that has gone so far and just kind of what you're seeing in the perf gun market as far as pricing is concerned, given some of the cross-currents we're dealing with right now.

A: We've had some success passing it along as a surcharge, not a 100%. We're having discussions with a number of our customers about what the gain sharing or what the pain sharing is probably a better way to put it is going to be. And given how many private competitors we have and how visible our numbers are standalone in our financials, commenting on price increases isn't a great policy for a company like us. So, we're having some success passing the surcharge along, not total success. We've recovered part of it from the supply chain, thanks to partnership with our suppliers. And we're still in discussions with some of our customers. But the guidance reflects more than 50% recovery of what we've got out there. And just as a policy matter, we've got it out there as a surcharge because when the tariffs go away, the surcharge goes away. That way it's not a – there's no risk of it being permanently embedded in the eyes of our customers as a price increase. It's really pain sharing.