Q1 2025 DMC Global Inc Earnings Call
Greetings and welcome to the DMC Global first quarter 2025 earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation if.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded.
Speaker Change: I will now turn the conference over to our host Geoff High Vice President of Investor Relations. Thank you you may begin.
Geoff High: Hello, and welcome to Dmc's first quarter conference call presenting today are <unk> interim CEO, Jim Oleary, Chief Financial Officer, Eric Walter I'd 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 todays date and are subject to risk.
Geoff High: 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 become untrue because of subsequent events.
Geoff High: Today's earnings release and related presentation on our first quarter performance are available on the investors page of our website located at DMC Global Dot com.
Geoff High: A webcast replay of today's presentation will be available at our website. Shortly after the conclusion of this call and with that I'll turn the call over to Jim O'leary Kim.
Speaker Change: Thanks, Jeff and thanks to everyone for joining us today.
Speaker Change: Our first quarter was a solid start to 2025.
Speaker Change: Despite mounting external challenges, including tariffs highly volatile and still softening macroeconomic conditions and rapidly decreasing visibility into our core end markets. We still saw a meaningful progress on our operational improvement initiatives consolidated first quarter sales were 159 points.
Speaker Change: $3 million up 5% sequentially, while adjusted EBITDA attributable to the DMC was $14 $4 million, 39% higher than the fourth quarter.
Speaker Change: At Arcadia architectural building products business.
Speaker Change: <unk> were $65 6, million% to 9% sequential increase and a 6% year over year improvement versus last year.
Speaker Change: Increased sales of commercial ex curious storefront products and interior framing systems more than offset a planned for and expected decline in high end residential window into ourselves the back to basics initiatives. We began implementing in recent months around renewed focus on our <unk>.
Speaker Change: Core commercial operations.
Speaker Change: Our reinforced focus on cost containment contributed to improved year over year performance.
Speaker Change: Diane Energetics are energy products business reported first quarter sales of $65 $6 million up 3% sequentially and down 16% compared to the first quarter of last year. The year over year decline primarily reflects product pricing adjustments made in response to the <unk>.
Speaker Change: <unk> turned in Diana's core U S onshore energy market, where the number of active frac crews was down approximately 20% versus last year's first quarter.
A mild understatement would be that oil prices at current levels don't enhanced stability or confidence in <unk> core markets.
Speaker Change: Daina Energetics has responded by focusing on improving its operations and value engineering its product offerings.
Speaker Change: The new automated assembly lines at our manufacturing center in Blum, Texas are now fully operational and expect it to increase production capacity, while supporting a leaner more efficient workforce we're.
Speaker Change: We're also seeing benefits from cost and efficiency improvements at our main product offering.
Speaker Change: Turning to noble side, our composite metal business first quarter sales were flat sequentially, but up 5% year over year.
Speaker Change: Ongoing uncertainty around U S tariff policies and reciprocal actions has led customers to delay orders as they see greater visibility as a result noble class order backlog at the end of the first quarter stood at $41 million down from $49 million at the end of the fourth quarter.
Speaker Change: Good morning activity indicators pent up demand for repair and maintenance work and noble sides core downstream energy markets and our manufacturing teams are ready to respond quickly when visibility improves and order volumes pick up.
Speaker Change: I'll now turn the call over to Aric for a closer look at our first quarter results and our guidance for the second quarter Eric.
Speaker Change: Jim ill.
Speaker Change: Start with a look at first quarter profitability.
Speaker Change: Solid dating adjusted EBITDA attributable to DMC was $14 $4 million.
Speaker Change: Inclusive of the Arcadia Noncontrolling interest adjusted EBITDA was $18 $1 million, while adjusted EBITDA margin was 11, 4%.
Speaker Change: Up sequentially from seven 8% in the fourth quarter and flat with the prior year.
Speaker Change: The sequential increase was primarily driven by improved results at Arcadia and Diana.
Speaker Change: Arkady reported first quarter adjusted EBITDA attributable to DMC, a $5 $6 million before the Noncontrolling interest allocation adjusted EBITDA was $9 $3 million or 14, 2% of sales.
Speaker Change: Up from six 2% in the fourth quarter and nine 5% in the prior year first quarter.
Speaker Change: The improvement in adjusted EBITDA margin, primarily primarily related to better absorption of manufacturing costs.
Speaker Change: Data delivered $7 4 million and adjusted EBITDA in the first quarter up from $5 1 million in the fourth quarter.
Speaker Change: Adjusted EBITDA margin was 11, 3%, which reflects an improvement of 325 basis points due to the launch of a second generation dynasty age perforating system and the completion of a major automation initiative at Diana's manufacturing Center in Blum, Texas.
Speaker Change: <unk> reported first quarter, adjusted EBITDA of $5 $4 million with an adjusted EBITDA margin of 19, 2%.
Speaker Change: Down from 26% in the fourth quarter and 21, 9% in the prior year.
Speaker Change: The decline in first quarter and the first quarter was primarily due to a higher mix of sales from global projects, which typically carry a lower gross margin.
Speaker Change: First quarter SG&A expense was $28 $3 million up sequentially from $25 1 million in the fourth quarter relatively flat with 2024 first quarter the.
Speaker Change: The sequential increase reflects higher expenses for professional services.
Speaker Change: Increased bad debt expense at Arcadia, and Diana and a reset of incentive compensation to target levels across the businesses.
Speaker Change: First quarter adjusted net income attributable the DMC was $2 $2 million, while adjusted EPS attributable to DMC was 11.
Speaker Change: With respect to liquidity, we ended the first quarter with cash and cash equivalents of approximately $15 million.
Speaker Change: It'll debt inclusive of debt issuance cost was approximately $72 million and net debt was roughly $58 million.
Speaker Change: Our debt to adjusted EBITDA leverage ratio was 1.38, which remains well below our covenant threshold of three point out.
Speaker Change: On a pro forma net debt basis after subtracting cash our leverage ratio at the end of the first quarter was 1.11.
Speaker Change: And now onto guidance.
Speaker Change: And our Acadia, we anticipate lower project billings due to the completion of a substantial portion of a large mixed use project in California.
Speaker Change: Additionally, our <unk> results are expected to be below the year ago second quarter, which benefited from very strong demand for residential and commercial exterior products.
Speaker Change: Since last year's second quarter demand in our luxury residential market has declined significantly.
Speaker Change: Flecking persistently high interest rates renewed inflation concerns and broader macroeconomic uncertainty.
Speaker Change: For dining energetics second quarter guidance assumes sequentially stable well completion activity in its core U S onshore oil and gas markets.
Speaker Change: Finally, novo cloud sales are expected to slow sequentially as customers seek clarity on evolving in the U S and reciprocal tariff policies.
Speaker Change: Based on these assumptions, we expect second quarter consolidated sales will be in a range of $149 million to $157 million.
Speaker Change: And adjusted EBITDA attributable to the DMC will be in a range of $10 million to $13 million.
Speaker Change: I should note that our guidance is heavily influenced by macroeconomic concerns.
Speaker Change: <unk> and visibility issues created by current tariff policies and the current level of energy prices.
Speaker Change: It's subject to change, but upward or downward as greater clarity emerges.
Jim Oleary: Now I'll turn it back to Jim for some additional comments.
Jim Oleary: Thanks, Eric.
Jim Oleary: We ended 2024 by successfully extending the maturity of our Arcadia, a put call arrangement and stabilizing operations across our business portfolio.
Jim Oleary: We're now entering 2025 focused on our primary near term objectives drive absolute EBITDA growth generate strong free cash flow and restore our balance sheet to full health through deleveraging over the coming quarters and year ahead.
Jim Oleary: I want to thank our business leaders and the dedicated DMC associates around the world for their continued hard work and loyalty and we're effectively executing on our operating improvement strategies well continues to be a very challenging environment.
Jim Oleary: And with that operator, we'd be glad to take any questions.
Jim Oleary: Thank you.
Jim Oleary: And at this time, well conduct a question and answer session.
Speaker Change: If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: And our first question comes from Gerry Sweeney with Roth Capital Partners. Please state your question.
Speaker Change: Oh, good afternoon, Jim or Jeff Thanks for taking my call.
Speaker Change: Darren.
Speaker Change:
Speaker Change: Nice quarter to start with that did want to also just ask a question about guidance, but in a larger.
Speaker Change: Sort of frame I'm, just curious sort of what are the puts and takes behind the guidance you know maybe specifically.
Speaker Change: And he can any impact from tariffs higher steel costs et cetera, and some of your results.
Speaker Change: Looking at the revenue and EBITDA it looks like we're sort.
Speaker Change: Focusing in or implying a little bit of a lower gross margin. So.
Speaker Change: So maybe frame that out a little bit better really better with guidance. How much is sort of tariffs impacts from tariffs on calls versus maybe lower volumes and just end markets pricing because of tariffs.
Speaker Change: Makes sense.
Speaker Change: There's a little bit in there for tariffs.
Speaker Change: Yeah. If you look at what we were able to cover by pulling in inventory.
Speaker Change: Our own mitigation strategies.
Speaker Change: This would be the least quarter going forward through the year that is impacted by tariffs just the timing of when they roll on.
Speaker Change: That ignores the fact that tariffs are creating demand destruction now.
Speaker Change: Mobile flat if you look at that.
Speaker Change: Last year, when they had pretty much spectacular results all year, our comments on them, having lower order intake.
Speaker Change: It obviously suggests they're going to be a bit lower next year, that's baked into the guidance.
Speaker Change: First of this year.
And we specifically called out Arcadia, which is less impacted by tariffs and really any of our businesses.
Speaker Change: It is impacted by interest rates, where last year was really the last two or off of the residential business, where we've had pretty significant Poland from J, Paul on a demand from strategies that the company had been employing since your acquisition it led to a pretty strong quarter for the residential business at Arcadia.
Speaker Change: But if you look at it and their numbers arent out until Tuesday, but if you look at.
Speaker Change: Most of the homebuilders if you look at gelled win last quarter. If you look at anybody in the construction business.
Speaker Change: Interest rates at the level, we've been at for the past year due impact demand a little bit, particularly on high end residential.
Speaker Change: And thats explicitly baked into our guidance, so a little bit tariffs a lot of demand destruction.
Speaker Change: And as Eric said, if the tariffs go away and demand picks up are they should be better if they don't we could certainly be worse, but.
Speaker Change: We've tried to explicitly factor in each one of those items and key takeaway would be this.
Speaker Change: Probably the lightest tariff impact, we'll see in the quarter because of timing and because of.
Speaker Change: Some mitigation efforts, we've been able to employ Gary that the other thing I would add to it is that.
Speaker Change: Yes, we're guiding to lower sales quarter over quarter, so theres going to be a little less overhead absorption of manufacturing costs.
Speaker Change: That was sort of my next sort of imply a question, but thanks.
Speaker Change: What about obviously your you know back to basics and it's been the mantra recently right. So and dine ahead of phase one automation process, you're introducing a diner stage 2.0.
Speaker Change: Uh huh.
Speaker Change: There are some benefits there and I think you also talked about it in automation phase two at Dawn energetics.
Speaker Change: And then as well as in our Katy you know Jim slate and just came back you know where are we in terms of additional opportunity to take some cost out on both those segments. I think time is probably a little bit further along but I'm curious about Arcadia as well.
Speaker Change: Okay do you. It really is about fixing we are fixing the residential business refocusing on the commercial business. Jim is definitely focused on cost containment to a much greater extent than the company has been in the last couple of years, but Oh, we in early innings are probably what we are.
Speaker Change: Not going to quantify what the total impact would be this is a oh no. This isn't a program. This is the way of life until we get the Oh carry a put call taken.
Speaker Change: Taken care of.
Speaker Change: And I'd say on the debt.
Speaker Change: Yes, sorry, just to answer the question on the diner side. So we've had some impact in Q1 from the product reengineering that we referenced earlier the automation is coming online in Q2. So we haven't fully achieved all those savings, but the counterbalance to that is that the business is going to be impact.
Speaker Change: By tariffs so it's really hard for us to predict how much of those savings are going to fall to the bottom line.
Speaker Change: It's time to stage two pointed out has a smaller form factor uses less steel does that make you a little bit more competitive against competitors.
Speaker Change: Because it does depend on us.
Speaker Change: Yeah.
Speaker Change: Well, yeah. It can't comment on the supply chain for our competitors, but for Daina definitely will help relative to what the product look like this time last year, there's just less steel to be subject to a tariff.
Speaker Change: Yes.
Speaker Change: I'll jump back in queue. Thanks.
Speaker Change: Your next question comes from Ken Newman with Keybanc capital markets. Please state your question.
Ken Newman: Hey, Thanks, Good evening guys.
Speaker Change: Yeah.
Speaker Change: Hey, Eric.
Speaker Change: Hey, Eric.
Speaker Change: Eric maybe for my first question is there any way you can help size up just how much the large California commercial projects added to our to the first quarter EBITDA in Arcadia.
Speaker Change: And you know just trying to think about that sequential.
Speaker Change: EBITDA margin for that segment at the midpoint of the two key guide do.
Speaker Change: Do you think that business could still be profitable at the operating income level into queue. Just any help there would be appreciated.
Speaker Change: Yeah, I mean that was in Dallas, the commercial side of our business and yes. It will 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 are substantially as completes borrow battle.
Speaker Change: All impact the top line and then obviously that will impact EBITDA in Q2 as well.
Speaker Change: Okay. That's helpful.
Speaker Change: You know me.
Speaker Change: Maybe circling back kind of to tariffs, but obviously, we're starting to see some maybe early signs of of suppliers pushing price.
Speaker Change: At the you know the early end of the supply chain I'm curious, if you're seeing any of that from your own suppliers.
Speaker Change: And just what are you embedding for organic price this quarter and your ability to push price in the back half of the year.
Speaker Change: Yeah, it's it's.
Speaker Change: We're continuing to evaluate the supply chain really across all three of the businesses I'd say, it's difficult right now to predict how we're going to be able to impact that you know through the next quarter as well as the second half of the year is certainly something we're looking at but it really difficult.
Speaker Change: To assess right now.
Speaker Change: Understood.
Speaker Change: Yeah.
Speaker Change: Thank you.
Speaker Change: And a reminder to the audience if you'd like to ask a question press star one on your phone to remove your question from the queue Press Star two on your phone.
Speaker Change: Our next question comes from Steven Kingara with Stifel. Please state your question.
Steven Kingara: Thanks, and good afternoon everybody.
Speaker Change:
Hugh: Just a quick one start Hugh you had you had released something a couple.
Hugh: A couple of weeks back on the tariff surcharge on the behind the business and I'm just curious.
Hugh: How that has gone so far and just kind of what youre seeing in.
Hugh: In that.
Hugh: Perfect market as far as pricing is concerned given some of the core.
Hugh: Cross currents were dealing with right now.
Hugh: We've had some success passing it along it is a surcharge not 100%, we're having discussions with number of our customers about what the gain sharing.
Hugh: What would the pain sharing is probably a better way to put it is going to be.
Hugh: And.
Hugh: Given how many private competitors, we have and how visible our numbers are standalone in our financials.
Hugh: Commenting on price increases isn't.
Hugh: Isn't a great policy for a company like us so well.
Hugh: Some success passing the surcharge along not total success we've recovered.
Hugh: Part of it from the supply chain, thanks to partnership with our suppliers and we are still in discussions with some of our customers, but the guidance reflects more than 50% recovery of what we've got out there and then just as a policy matter. We've got it out there was a surcharge because when the tariffs go away the surcharge goes away that.
Hugh: It's not theirs.
Hugh: There is no risk of it being permanently embedded in the eyes of our customers as the price increase it's really pain sharing.
Hugh: Okay.
Hugh: That's fair.
Hugh: When we think about what we're hearing from a lot.
Hugh: Out of the upstream player version.
Hugh: Crude prices, obviously soft and we're looking at kind of a second half that.
Hugh: At this point, maybe it looks like it'll be it'll be down somewhat in the year over year, North America activity probably down.
Hugh: How do you think that's good.
Hugh: Diana business performs in the second half of the year I'm not asking you for guidance I'm not asking you to set the parameters, but if rig count drops by 50 to 75 rigs over the next 12 months next two to three quarters.
Hugh: Do you think you'll outperform.
Speaker Change: How do you think margins react like is there a way to frame it in that kind of a scenario.
Speaker Change: If oil stays in the fifties and rig count goes down Frac stages go down.
Speaker Change: Obviously, our business is going to be softer right now we're expecting it to be flat to modestly down could be substantially worse. If the end markets are substantially worse.
Speaker Change: Okay, Okay, and then one other quick one.
Speaker Change: I imagine you won't have a comment but I get asked about this all the time, so I'm going to ask you.
Speaker Change: What's going on with the whole steel connect situation is there any update you can give me a bit of a high level.
Speaker Change: There are our largest shareholder.
Speaker Change: We have conversations with them periodically and I think you find out.
Speaker Change: Contemporaneously, if not shortly thereafter whenever they have a public release, which there hasn't been in a while so.
Speaker Change: Other than they're our largest shareholder and we appreciate their oh, we appreciate their patronage. It really is nothing to report.
Speaker Change: Okay, great. Thank you for the color.
Steven Kingara: Youre welcome Steven.
Speaker Change: Yeah.
Speaker Change: Thank you and there are no additional questions at this time, so I'll hand, the floor back to Jim O'leary CEO for any closing remarks. Thank you.
Speaker Change: Oh, well operator, thank you and thanks for those of you who participated on the call today, we will we will talk in a couple of months.
Speaker Change: Thank you and with that we conclude today's call. All parties may disconnect have a good day.