DMC Global Inc (BOOM) 2026 Q3 法說會逐字稿

Greetings and welcome to the DMC Global third quarter earnings call. At this time, all participants are in a listen-only mode.

A question-and-answer session will follow the formal presentation. (Operator Instructions)

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Geoff High, Vice President of Investor Relations.

Thank you. You may begin.

Hello, and welcome to DMC's third quarter conference call. Presenting today are President and CEO, Jim O'Leary and Chief Financial Officer, Eric Walter.

I would like to remind everyone that matters discussed during this call may include forward-looking statements that are based on our estimates, projections and assumptions as of today's date and are subject to risks and uncertainties that are disclosed in our filings with the SEC. Our business is subject to certain risks that could cause actual results to differ materially from those anticipated in our forward-looking statements.

DMC assumes no obligation to update forward-looking statements that have become untrue because of subsequent events.

Today's earnings release and a related presentation on our third quarter performance are available on the Investors page of our website located at dmcglobal.com. A webcast replay of today's presentation will be available on our website shortly after the conclusion of this call.

And with that, I will turn the call over to Jim O'Leary. Jim.

Thanks, Geoff, and thanks to everyone for joining us.

Today, we reported significantly improved financial results for the third quarter. With both sales and adjusted EBITDA attributable to DMC well above year ago levels and comfortably above the high end of our guidance. These results were driven by initiatives implemented over the past two years to improve the performance of our businesses, despite continued uncertainty and highly challenging end market conditions.

Consolidated third quarter sales were $172.8 million, a 14% increase versus last year's third quarter and a 10% sequential improvement.

Reported EBITDA attributable to DMC was $19 million, which included $5.4 million of tariff refunds at Dyna Energetics.

Excluding tariff refunds, adjusted EBITDA attributable to the DMC was $13.6 million, a 59% increase versus the year ago third quarter and 48% above the prior quarter.

Sales at Arcadia, our building products business, were up 25% year-over-year and up 14% sequentially.

Adjusted EBITDA attributable to DMC increased 32% versus the year ago quarter and was up 23% sequentially.

This improvement was driven by higher sales of commercial aluminum framing products and high-end residential doors and windows. Arcadia's improved performance reflects its renewed focus on service levels and product availability in its short cycle operations. Arcadia also benefited from higher residential sales and a large prestigious long cycle project in Los Angeles during the quarter. These efforts offset still difficult market conditions and included elevated interest rates and materially higher aluminum costs, which continued to negatively impacted larger, longer cycle commercial projects. However, we believe we have recently regained local market share in our key short cycle operations due to the focused initiatives just discussed. Dyna Energetics, our energy products business, delivered improved third quarter profitability on relatively flat year-over-year and sequential sales.

Adjusted EBITDA was $11.9 million during the quarter. Which included $5.4 million of tariff refunds. Excluding these refunds, adjusted EBITDA increased 34% versus last year's third quarter and was up 57% sequentially. The improvement was driven by cost-saving initiatives and a favorable sales mix that reflects Dinah's ongoing market diversification efforts. With early contributions from the defense and enhanced geothermal sectors.

Sales at NobelClad, our composite metals business, increased 38% year-over-year and 30% sequentially. Adjusted EBITDA increased 120% year-over-year and was up 51% sequentially. NobelClad's improved performance resulted from increased shipments related to a record petrochemical order and the resolution of supply chain issues that had delayed shipments on a large defense order. Order activity was healthy during the quarter with significant new bookings from the energy, engineered wood and defense sectors. NobelClad ended the third quarter with an order backlog of $72.4 million. Up from $63.5 million at the end of the second quarter. This included a quarterly record $16 million in orders related to US Navy vessel construction.

Now I will turn the call over to Eric for a closer look at our third quarter financial performance and our fourth quarter guidance.

I will start with a review of our third quarter profitability.

At Arcadia, adjusted EBITDA margin before NCI allocation was 14.7%, up from 13.8% in the year-ago quarter and 13.6% in the second quarter.

The EBITDA margin improvement principally reflects higher sales volumes across our commercial, residential and commercial interior product offerings, which resulted in improved fixed cost absorption. Excluding care-free funds, Dyna Energetics' adjusted EBITDA margin was 9.7%, up from 7.1% in last year's third quarter and up from 6.2% in this year's second quarter. The improvements reflect the implementation of cost savings initiatives, a more favorable sales mix and a higher margin contribution from new end markets.

NobelClad reported adjusted EBITDA margin of 15.9%, up from 9.9% in the year ago third quarter and 13.7% in the second quarter. The improvement was principally attributable to higher gross profit and lower SG&A. Third quarter SG&A expense was $27.5 million or 15.9% of sales. Versus 17.1% of sales in the prior third quarter and 15.6% in the second quarter. Third quarter adjusted net income attributable to DMC inclusive of tariff-free funds was $9.8 million or $0.48 per diluted share.

With respect to liquidity, we ended the third quarter with cash and cash equivalents of $38 million. Net debt improved to $13.7 million, down from $18.7 million at our 2025 year end and down from $30.5 million at the end of the second quarter. The decrease was primarily due to improved free cash flow of $16.6 million during the quarter from better profitability across our businesses, more stable working capital needs. And the receipt of tariff refunds.

Now turning to guidance for the fourth quarter.

We expect sales will be in a range of $154 million to $164 million. Adjusted EBITDA attributable to DMC is expected in a range of $10 million to $13 million.

Our guidance reflects normal seasonal moderation in Arcadia, which will be further impacted by a temporary shutdown of our California finishing facility for planned maintenance, an expected decline in large long cycle project activity, the negative impact of still rising interest rates on construction activity, ongoing volatility in aluminum input costs. And continued tight labor conditions for commercial and residential builders. Our guidance also assumes steady well completion in Dyna Energetics core US end market with the benefit from previously discussed cost optimization programs more than offsetting input cost increases.

Finally, our guidance assumes continued improvement in shipping activity at NobelClad. Our guidance does not contemplate increased disruptions in international supply chains due to ongoing hostilities in the Middle East, which could impact both DyneEnergetics and Novoclad or generally weaker end-market conditions. Moreover, our guidance remains highly dependent on macroeconomic conditions, particularly within our core energy and construction markets and may change either positively or negatively as these factors evolve throughout the remainder of 2026.

And with that, I will turn the call back over to Jim.

Thanks, Eric.

During the third quarter, we made progress on the cost-saving measures and targeted commercial initiatives implemented over the past several quarters despite continued economic headwinds in our core energy and construction markets.

We believe our businesses are well positioned to capitalize when our end markets improve.

We also now have continued to strengthen our financial position with net debt now at the lowest level since the Arcadia acquisition in December 2021. I would like to thank our associates across the company for their hard work and continued dedication during the past quarter and over several challenging years.

And with that, we would be happy to take your questions.

Thank you. We will now be conducting a question-and-answer session.

(Operator Instructions)

Gerry Sweeney, Roth Capital Partners.

Good afternoon, Jim, Eric and Geoff. Thanks for taking my call.

I wanted to talk about the Defense side. Obviously, that is a word I think it is first time it is come up in at least in the press releases. But on the Defense side, you have your. Shape charge business or technology and manufacturing as well as your detonator business.

And I have seen some news out there specifically like Teledyne Energetics getting some orders for, I guess, charges specifically for drones and that is an emerging opportunity. We have drone dominance, et cetera. Can you give a little bit more details to maybe what is going on this front, the opportunity. I know it is early stages, but maybe frame it out in any way possible.

Sure. I am glad you asked. And if you do not mind, at the risk of filibustering a little bit, we will give you the background and why we thought it was worth mentioning. Only thing not to correct you, but we have been talking about Defense pretty extensively and NobelClad, but you are right, first time we mentioned it. So we have been spending a lot of time turning over stones, looking at capabilities, all under the auspices of diversification. And as and most of our shareholders know, in the perforation segment, we are one of the more, in fact, I think we are one of the few fully integrated.

Manufacturers of systems. And when we looked at where we would have other applications, geothermal is one which we have talked about and defense particularly and you are right, it is the detonators, it is for drones, it is less for people like Teledyne or some of the established crimes than it is for something that there is an article every single day in one of the mainstream.

Newspapers. I think there is one today in the Wall Street Journal about unconventional warfare drones, both aerial and maritime drones. And that is something that we think we have some unique capabilities for. They are not perfect. They do not fit like hand and glove yet, but it has been worth us spending the time. And the reason we mentioned.

Particularly in Dinah, is it actually was not a small number, it was not material the way you think about it in the 10-Q,-K aspect, but it was about three quarters of a million and we thought we should call it out for two reasons. Number one, when you are doing your modeling, I back your margins off a little bit. It was.

This was kind of a bluebird that flew in the window. So when you kind of extrapolate the margins for Dyna Energetics, 50 basis points to 100 basis points, I bring them down a little bit because we do not have anything in the guidance for defense. And we are really debating whether or not we put anything in the budget for next year, which obviously we will talk about quarter to quarter when we are into 2027. But the reason we thought it was worth mentioning, number one, we do not want you modeling it and coming up with a number that is going to make you look silly at the end of the day.

And this is more you have been around this company and the stock a lot longer than I have. When you look at the history of DMC Global, both the Dyna Energetics and Noble Clad, every couple of years something comes up out of the blue where it could end up being meaningful. We do not want people to be surprised to think we are working on things and we do not leave any breadcrumbs or Easter eggs around. When you look at the history of Dyna, with Dyna stage, NobelClad has many of these if you go back.

A decade or so where our applications and our capabilities are so unique and eclectic, every now and then something comes out of the blue and it is a real positive surprise. We have had a lot of negative surprises the last couple of years, so we thought we should call out one of the positive surprises. Again, nothing that we can scope, nothing that we can give you the hard numbers on, but again, it was meaningful enough where we do not want it distorting your guidance.

And we are excited about it. It is just you said it is early, we are not even in the second-half of the first inning. So it is very early, but we are working hard at it. And the one thing we called out specifically the NobelClad backlog for our applications in naval, particularly submarines. The backlog we have got there is meaningful and the only thing that keeps it from being bigger and again, it is not a next quarter or hopefully, it is a next year thing, but still too early, between the Hanwha Yard in Philadelphia, the Andorol investment in Maryland, the first two meaningful investments in naval capabilities as far as building submarines and ships have been in the last two years.

That is one is probably more tangible and we are equally excited about, but hopefully we can turn these opportunities into something meaningful for our investors.

Just on that front, I mean, just my understanding of just the detonator side, you have a lot of technology around not only. Setting off the detonator is not only a charge but a software code. So and that is patented and I think that is kind of unique. And I know you said it does not fit hand in glove, but my sense is there is a unique application with your DynaSelect detonator that may not necessarily be out there in the market as well. Is that a fair assumption?

And I have a, I do not want to say a huge amount, but I have a lot of experience from a former life with being a defense contractor. It does take a while to get qualified, even though the Department of War. Puts out something every day and talks actively about accelerating the system, making the process go faster. And it is definitely happening in some of these unconventional applications, particularly drones. It has not happened yet, so we do not want to get ahead of our skis. But what we are trying to do is find applications for our capabilities that would unquestionably be a win-win.

Got it.

I appreciate that. And then just switching gears real quick to Arcadia, I will jump back on line. Obviously, it sounds like you have taken some share back, especially in the short-cycle business. The longer cycle is maybe a little bit more constrained for the reasons you mentioned. Just curious, two things. One, is there some more share to be taken or are we back to where you should be? And then just separately, any specific policy stage, maybe an opportunity as that develops or building permits are put in place?

So I think we have either regained most of the share we probably lost from 2023 forward up to when Jim Schladen came back or if we have not regained most of it, it is probably at the point of diminishing returns now.

For the first couple of quarters, Jim was probably a bit frustrated. It took a little longer than they expected. He brought back a lot of his teammates who had left or kind of wandered off the reservation for over a period of a couple of quarters when we made personnel changes. With the benefit of hindsight, we probably should not have made. So I think we have got the early return. There is probably -- if there is a little bit more, it really is just a little bit more.

I mean, that is something and it gets us back to a run rate that we are comfortable with outside of the broader economy. On the broader economy, we are not expecting permits to pick up. We are not expecting any robust jumpstart to the construction economy. And I will tell you, it is truly terrible out there. It is definitely the worst I have seen since 2008 and '09. As long as interest rates are where they are, which is still at, I am not sure if it is 20 or 30-year highs right now, it is tough sweating and we are just going to have to keep at it. Besides the local market share regaining, we are doing pretty well on the residential side where most of those are cash purchases, very little influenced by interest rates. The constraint there is production constraints. There is only so much we can get through our factory. Right now. And the type of buyer who you are there, they are typically multi-year projects, not track building where you are banging them out every month or every quarter.

And locally, there are a lot of improvement opportunities. In adjacent markets, we are looking at are there any satellites or any other opportunities that we have not pursued in the last few years that Jim had on his to-do list back in 2021. So there is a couple of things like that, but those are longer-term, meaning a few quarters, maybe a year or two out initiatives that we are pursuing.

Well, congrats. Nice quarter.

Even if it was a bluebird, I will take it any day of the week.

Sometimes you see one bluebird and the whole flock is right behind it.

Ken Newman, KeyBanc Capital Markets.

Hey there.

Me for the first one, I think if my math is right, it looks like gross margins for Dinah were around 18% after backing out the tariff refund in the quarter.

Obviously, it sounds like, Jim, you mentioned there is some moving pieces in that business just given the defense ones you talked about earlier. But I am curious if there is a way to think about whether those segment margins could see another sequential increase in the fourth quarter if the volumes remain stable quarter-over-quarter. Really, I am just trying to level set about how much more opportunity for margin outperformance on the cost optimization program is left.

So I think about it more in terms of absolute dollars.

I think they are sustainable. I would not expect them to be scalable or to have another step function up. Most of the cost savings came from two buckets, one being product design and the other one being sourcing initiatives. There is probably a little bit more juice in the sourcing lemon to squeeze. We are always looking at or at least more aggressively looking at additional product design, but.

Those are the unit economics there are the more you sell, you are going to get more absolute dollars, but the margins do not ramp up. We do have some improvement, we think, but it is not or it should not be the type of step function up and we would not want you thinking that is going to be there when you are doing your modeling.

If volume did go up, and remember, volume was actually down this quarter.

Particularly in the Americas and despite all the talk and all the consternation about the Middle East, with all the strategic reserves depleted, is there going to be a big wave of production increases? If that happens, we are very well positioned.

Supply is pretty tight, but right now volumes, even though. Rig count and spreads are up. They are only up between 5% and 10%. It depends on which was the last call you listened to, whether it was Halliburton, Liberty, somebody else.

The numbers are kind of up and down and it averages out to about 5% to 10% up. We were actually down and that is not it is really not a loss of market share or a loss of wallet share, just who we happened to sell during the quarter.

On what is still rate count is still only around 600. So if volume really took up, it'd be the volume benefit from gross margins. But if volume stayed the same, I think you should expect it to be about the same as this quarter.

Understood. That is really helpful.

Maybe switching gears.

You mentioned the expectation for a seasonal moderation in Arcadia with this temporary shutdown in California. Can you just talk a little bit about what the maintenance shutdown actually is and is there a way to size up just what you are expecting there from the shutdown, how long does that take, how much of the volumes kind of go through that facility?

Hey, Ken, this is Derek. There are kind of two things going on there. One is just the seasonality of it. There is just less construction activity that is going on with our customers. So we would normally see the revenue start to trail off, particularly in November and December because of the holidays and the weather. But to your question around the maintenance, we have one of our anodizing facilities where we are going to be going through and doing some maintenance on that. We think that that facility is going to be down for probably two weeks. At the end of September or sorry, end of December.

And when it is down, obviously, we woould not be able to produce anything. We are going to build a little bit of inventory in the quarter to try to service customers.

But we think overall, we will put the pressure on getting shipments out. And so that is why we are guiding to a little softer top-line performance from Arcadia on a quarter-over-quarter basis.

Maybe if I could just squeeze one last one in, just a quick one.

It was helpful for the color on the short cycle demand versus the longer cycle mix in Arcadia.

Can you remind us like where how large is the mix of the shorter cycle commercial high and non-resi side kind of trending nowadays? And then maybe just an add-on to the earlier question on how you think that mix continues to shift in the next couple of quarters?

Yeah, when you look at the revenues for Arcadia, the short cycle commercial business is roughly half of that. So this would be stock link sales, it would be doors, but typically smaller projects where we would provide the product, ship it out within four to six weeks.

The long cycle part of the business would be roughly 25% of Arcadia sales. And then the residential 15% and the balance would be what we call Wilson, the interiors business.

The short cycle business, not only is it a considerable part of the revenues, but it tends to have higher margins than some of the long cycle business. The short cycle business is not something that typically goes through an RFP, like the longer. Bigger projects. And so those customers, when Jim was talking about winning backs in business and we think that we are taking back some market share, it is really with those customers. And so we have reestablished our service levels, product availability and have the customer support staff in place so that we can better service that customer and win backs in business that we had lost in the prior year.

It is really kudos to the Arcadia team because they came in.

It was a little challenging. They stabilized it and they got it moving in the right direction. Now, I do think we are at the point of diminishing returns, but if we did lose something, it is good to get it back and it is good to regain the trust of our customers, which quite frankly, Arcadia was built on that.

And we have reached the end of the question-and-answer session. Therefore, I would like to turn the call back over to Jim O’Leary before closing remarks.

So, now I thank you very much and to employees who have been working unbelievably hard the last couple of quarters, the last couple of years and some of our longest-serving shareholders who hung in there, thank you very much. We will talk to you next quarter and with that, so now we, it is a wrap.

Thank you. And this does conclude today's conference, and you may disconnect your lines at this time. We thank you for your participation.