DMC Global Inc. Q2 FY2025 earnings call

Management Statement and Operational Highlights:

• Exceeded EBITDA guidance range of $10 million to $13 million for the second quarter with adjusted EBITDA attributable to DMC of $13.5 million.
• Made progress on deleveraging the balance sheet; total debt at the end of the quarter was $59 million, down 17% from the previous quarter.
• Arcadia rightsized the cost structure of its residential offering to align with current market activity and refocused on core commercial operations.
• DynaEnergetics faced industry anticipation of sequential decline in well completion activity in the core U.S. onshore market.
• NobelClad impacted by customer order deferrals due to monitoring of evolving tariff policies.
• Ended second quarter with cash and cash equivalents of approximately $12 million, and net debt reduced to roughly $46 million.

Segment Performance:

• Arcadia: Second quarter sales totaled $62 million, down 5% sequentially and 11% from the year ago period. Generates approximately 75% of the segment sales from core exterior operations.
• DynaEnergetics: Sales were $66.9 million, up 2% sequentially but down 12% year-over-year due to pricing pressure and weaker demand in the core U.S. unconventional market.
• NobelClad: Second quarter sales were $26.6 million, down 5% sequentially and up 6% year-over-year. Order backlog at quarter end was $37 million versus $41 million at the end of the first quarter, reflecting a slowdown in bookings due to tariff actions and customer use of alternative clad solutions.

Guidance:

• Expect second quarter consolidated sales to be in a range of $142 million to $150 million, while adjusted EBITDA attributable to DMC is expected in a range of $8 million to $12 million.
• Wider range on adjusted EBITDA due to increased uncertainty in end markets.
• Arcadia expects challenging conditions in the U.S. construction industry.
• DynaEnergetics anticipates sequential decline in well completion activity in core U.S. onshore market.
• NobelClad continuing to be impacted by customer order deferrals due to evolving tariff policies.

Risks:

• Volatile tariff policies causing customer order deferrals and potential loss of business for NobelClad.
• Persistently high interest rates challenging building activity across segments.
• Uncertainty in energy markets impacting DynaEnergetics' core U.S. unconventional market.
• Market volatility and visibility issues created by current tariff policies and energy prices affecting guidance.

Q: Gerry Sweeney asked about the weakness in Arcadia, splitting it between residential and commercial, and the roadmap for rightsizing the business.

A: Eric V. Walter said weakness split between residential high-end and deferred commercial projects due to tariffs and high interest rates. James O'Leary stated residential rightsizing was done by adjusting workforce and support, and commercial impacted by tariffs and interest rates with pent-up demand in L.A. rebuilding.

Q: Ken Newman asked about sizing up Arcadia's gross margins at the midpoint of the third quarter guide.

A: Eric V. Walter said Arcadia has fixed costs in COGS, with volume increases needed for better fixed cost absorption. James O'Leary added operating leverage is key, and volume pick-up needed for improved EBITDA margins.

Q: Jawad Bhuiyan asked about Dyna's second half sales expectations and oriented perforating guns.

A: James O'Leary said Dyna's primary U.S. markets expected to be down in second half, with possible higher international sales. Stated oriented perforating guns are a market trend but not dramatically changing the oil and gas market paradigm.