Q3 2025 DMC Global Inc Earnings Call
Speaker #3: Greetings and welcome to the Dmc Global . S third quarter earnings call . At this time , all participants are in a listen only mode .
Speaker #3: A question and answer session will follow the formal presentation . If anyone should require operator assistance during the conference , please press Star Zero on your telephone keypad .
Speaker #3: As a reminder , this conference is being recorded . It is now my pleasure to introduce your host , Geoff High . BP of Investor Relations .
Speaker #3: Thank you, Jeff. You may begin.
Speaker #4: Hello and welcome to Dmcs third quarter conference call . Presenting today are president and CEO Jim O'Leary and Chief Financial Officer Eric Walter .
Speaker #4: 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 today's date and are subject to risks and uncertainties that are disclosed in our filings with the SEC .
Speaker #4: 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 .
Speaker #4: Today's earnings release and related presentation on our third quarter performance are available on the investors page of our website , located at Dmc Global .
Speaker #4: Com . 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 now turn the call over to Jim O'Leary .
Speaker #4: Jim . Thank you . Jeff .
Speaker #5: And thank you to everyone joining us for today's call . While challenging market conditions continue to impact each of Dmcs businesses during the third quarter , we made significant progress on the most important strategic objective within our control .
Speaker #5: The continued deleveraging of our balance sheet . By the end of the third quarter . Our net debt had been reduced to $30.1 million .
Speaker #5: Down 47% since the start of the year and the lowest level since we purchased the interest controlling in Arcadia at the end of 2021.
Speaker #5: Dmcs consolidated third quarter sales were $151.5 million , down 1% versus the third quarter a year ago . While adjusted EBITDA attributable to DMC was $8.6 million , up 51% year over year at Arcadia , our building products business .
Speaker #5: Third quarter sales totaled $61.7 million , a 7% year over year increase . But down 1% from the second quarter . Adjusted EBITDA attributable to DMC more than doubled to $5.1 million from the year ago quarter , reflecting improved operating performance and better absorption of fixed manufacturing overhead due to the sales increase .
Speaker #5: Adjusted EBITDA was up 27% sequentially . The efforts to stabilize Arcadia's business during the past year have helped mitigate the impact of stubbornly high interest rates and generally soft commercial construction activity in Arcadia's call , Western region , where architectural billings have declined every month since May , according to the Architectural Billing Index at Dinah Energetics , our energy products business , third quarter sales $68.9 million , down 1% year over year and up 3% sequentially .
Speaker #5: The third quarter was marked by declining activity in Dinah Energetics core US onshore market , where well completions were down 8% year over year .
Speaker #5: And 6% sequentially at the end of the quarter . Active frack crews , a canned indicator of demand , were down nearly 20% in the 2025 peak in March .
Speaker #5: Dinah Energetics reported third quarter adjusted EBITDA of $4.9 million , up from break even in the year ago quarter , but down 46% sequentially .
Speaker #5: The sequential decline reflects lower product pricing and higher costs due to tariffs , as well as certain receivable and inventory charges at noble Clad , our composite metal business .
Speaker #5: Third quarter sales were $20.9 million , down 16% year over year and down 21% sequentially . The declines reflect the delayed impact of lower US bookings during the first and second quarters , when customers moved to the sidelines as they monitored fluctuating US and reciprocal tariff policies .
Speaker #5: Adjusted EBITDA was $2.1 million , down 64% from the prior year and 53% sequentially , reflecting lower absorption of fixed manufacturing . Manufacturing overhead on reduced sales and a less favorable product mix during the third quarter .
Speaker #5: Noble Clad Book did $20 million order associated with a large international petrochemical project . After quarter end , we received an additional $5 million order related to that same project .
Speaker #5: Together , these bookings would ship at the beginning of next year , reflect the largest order in the 60 year history of noble clad noble Clads backlog .
Speaker #5: At the end of the third quarter was $57 million , , up 53% from the second quarter , not including the $5 million follow on order .
Speaker #5: up
Speaker #5: I'll now turn the call over to Eric for a closer look at our third quarter results . And our outlook for the fourth quarter .
Speaker #4: Thank you . Jim . I'll start off with a closer look at third quarter profitability . As Jim .
Speaker #6: Mentioned , consolidated adjusted EBITDA attributable to DMC was $8.6 million , inclusive of the Arcadia noncontrolling interest . Adjusted EBITDA was
Speaker #6: $12 million , or 7.9% of sales , up from 4.6% in the third quarter last year . And down from 10.4% in the second quarter .
Speaker #6: The year over year increase in EBITDA margin principally reflects improved results at Dinah Energetics , which was impacted by $5 million in inventory and bad debt charges in last year's third quarter .
Speaker #6: As well as price driven top line growth at Arcadia , leading to improved absorption of fixed manufacturing overhead . The sequential decline in adjusted EBITDA margin was primarily due to lower pricing and higher costs at Dine Energetics , as well as reduced activity levels at Noble Clad .
Speaker #6: Arcadia's third quarter adjusted EBITDA margin before noncontrolling interest allocation improved to 13.8% from 5.8% in the year ago quarter and 10.9% in the second quarter .
Speaker #6: Dinah's adjusted EBITDA margin improved to 7.1% in the third quarter , compared to less than 1% in last year's third quarter . EBITDA margin was down from 13.4% in the second quarter for the reasons previously mentioned , noble Clads third quarter adjusted EBITDA margin was approximately 10% and was impacted by the tariff related bookings slowdown earlier in the year .
Speaker #6: Adjusted EBITDA margin was down from 23.2% in the third quarter last year , and 16.5% in the second quarter . Third quarter SG&A expense was $26 million , or 17.1% of sales , versus $28.2 million , or 18.5% of sales in the third quarter .
Speaker #6: Last year . Third quarter adjusted net loss attributable to DMC was $1.6 million , while adjusted loss per share attributable to DMC was $0.08 , with respect to liquidity , we ended the third quarter with cash and cash equivalents of approximately $26.4 million .
Speaker #6: Total debt was $56.5 million , down 20% from the end of 2024 . And as Jim mentioned , net debt was $30.1 million , down 47% from the end of last year .
Speaker #6: And now on to guidance . We expect fourth quarter sales to be in a range of 140 million to $150 million , while adjusted EBITDA attributable to DMC is expected in a range of $5 million .
Speaker #6: Our guidance reflects the lag of converting recent record bookings in Nova , clad into sales which are expected in 2026 . Our guidance range also anticipates continued headwinds and down energetics core North American market , which has been significantly impacted by both tariffs and declining well completion activity in May .
Speaker #6: Experience a seasonal slowdown late in the quarter , as has been the case in recent years . Although Arcadia is expected to experience a normal , normal seasonal fourth quarter slowdown , it expects continued year over year improvement in profitability due to better operational execution .
Speaker #6: Our guidance is heavily influenced by macroeconomic concerns , volatility and visibility issues created by the current state of energy markets and fair policies , and is subject to change either upward or downward as market conditions evolve .
Speaker #6: With that , I'll turn it back to Jim for some additional comments .
Speaker #5: Thanks , Eric and an environment marked by volatile and declining energy prices . Elevated interest rates and shifting tariff policies . We continue to focus on what's in our control .
Speaker #5: Dyna energetics is continuing its costs while pursuing international opportunities and navigating an extremely challenging North American oil and gas market . As discussed in based on direct customer feedback , we expect the oilfield services market to face continued headwinds during the fourth quarter .
Speaker #5: Accordingly , we remain focused on the self-help measures within our control . As mentioned earlier , noble clad secured a record order at its commercial team , worked nearly five years to win .
Speaker #5: While it rebuilds its order book and looks globally for new business opportunities . And finally , at Arcadia , we've stabilized operations after a challenging 2024 and a positioning the business for an eventual recovery in its commercial and residential markets .
Speaker #5: Arcadia has now had several quarters of stability since we brought Jim Sladen back , and we believe we successfully reset the business . While we wait for market conditions to improve collectively , we've made substantial progress on our most important initiative deleveraging our business .
Speaker #5: This remains our principal corporate objective as we work through generally challenging markets for each one of our operating companies . Our progress would not be possible without the hard work of our DMC associates .
Speaker #5: I want to thank them for their continued contributions . And with that , we're ready to take any questions . Operator .
Speaker #3: Thank you . We will now be conducting a question and answer session . If you would like to ask a question , please press star one on your telephone keypad .
Speaker #3: 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 #3: For participants using speaker equipment , it may be necessary to pick up your handset before pressing the star keys . One moment please .
Speaker #3: While we pull for questions . Thank you . Our first question comes from the line of Jerry Feeney with Roth Capital Partners . Please proceed .
Speaker #7: Good afternoon . Jim . Eric . Jeff , thanks for taking my call .
Speaker #6: Hey , Jerry .
Speaker #5: Hey , Jerry .
Speaker #6: You're welcome .
Speaker #7: Start off with Acadia . I know you meant Jim . I know you mentioned the Abi was down . I think out in the West , etc.
Speaker #7: , but two questions on that front . One , are you seeing any green shoots ? And then two . Are there opportunities for additional operational improvements at Arcadia , or is that level set for now ?
Speaker #5: Okay . So we're seeing green shoots . But remember that's very specific to us . What we had . When I think the industry was still doing okay and I would say say just okay , both residential and commercial .
Speaker #5: You know , we with turnover and some self-inflicted issues , we we had a challenging 2 or 3 years after the acquisition . So a lot of our year over year improvement or month over month improvement , a lot of the things we're seeing are just introducing stability with Jim back , bringing back some employees who might have , you know , looked for greener pastures , repairing some of the relationships that might have gotten a bit frayed , both on the supplier side on the customer side .
Speaker #5: So we're seeing some Arcadia specific green shoots , but I wouldn't read too much into that . And okay , from everything you can see , it's observable and anecdotal .
Speaker #5: Whether it's our public peers , even one like Jeld-wen today , which is , you know , more , far more residential than us .
Speaker #5: But , you know , it's a data point . If you subscribe to any of the credit agencies , you can see companies like Oldcastle and Conair , you know , we're all struggling with exactly the same issues .
Speaker #5: Persistently high interest rates , you know , overall costs and affordability . And that applies to commercial as well . And , you know , I think that's starting to that should start getting better .
Speaker #5: But I wouldn't say you see the green shoots industry wide board of a company I'm on I mean we're in every MSA in the country .
Speaker #5: If you put a gun to my head , I couldn't tell you what MSA in the country is really doing . Well , maybe 1 or 2 in the Carolinas .
Speaker #5: So all of our, you know, year-over-year improvement green shoots that you categorize are all very Arcadia specific and all because we brought back stability and some self-help measures.
Speaker #5: So all of our , you know , year over year improvement green shoots that you categorize all and , do specifically stabilize things , brought back some key players , repaired relationships , really soft .
Speaker #5: You know , the soft skills . Which Jim is fantastic at . You know , Jim would have a longer list of things that we can do next .
Speaker #5: And I would and a lot of it is , you know , we can still do better in terms of professionalization , maybe bringing some new skills in , maybe looking at , you know , we've been underspending CapEx for a while on things that , you know , we're going to have some decisions to make as to whether or not where and when we want to put it in , you know , this capital , we might have put in in 2021 that we've we have to do .
Speaker #5: But whether or not you do it now , if you think you're still going to be bouncing along the bottom is a really important question .
Speaker #5: But , you know , we both have very long lists of things we can do that would be and I wouldn't say it's I would say it's past self-help .
Speaker #5: It would be okay . You know , now we're at the point where professionalization bringing some new skills , you know , we're getting there now on the ERP implementation , some of the improvement , the data quality for the first time , in a while .
Speaker #5: So there's a long list of things we work on , including on capacity on . The question is when , you know , when's the right time , you don't want to add it early .
Speaker #5: If the market just doesn't , you know , doesn't fill up a paint line or fill up an anodizing line , right ?
Speaker #7: Yep . Understood . Yeah . Got it . Switching gears , noble cloud , large order . It sounded like it was going to ship in my words .
Speaker #7: First quarter . But I'm not sure how you exactly characterized it , but you know what would be the cadence of the shipping of that order ?
Speaker #7: And over how many quarters , if more than one , would this sort of take place ?
Speaker #6: Yeah .
Speaker #5: So I said 20 , 26 . But what Eric will give you the particulars . It's it's more back end loaded than first quarter .
Speaker #5: Okay .
Speaker #6: Yeah . I don't I don't have no no I .
Speaker #5: Misspoke I think .
Speaker #6: Yeah . No I don't have much to add to that other than like Jim said , it will be second half of 2026 is where you're going to see the bulk of the revenue from , from that order .
Speaker #7: Got it . And just sticking with Noble Cloud , obviously that's a large international order . US is facing some headwinds . But you know , I think there's a lot of opportunity in the Gulf at some point for some of this petrochemical stuff .
Speaker #7: But I'm just curious if you're seeing any additional orders unlock or are they still tied up because of tariffs and other issues and just uncertainties ?
Speaker #5: Well , we agree and we hope you're right about for the petrochemical orders . But right now , if you asked the division president there how he categorize , you know , the state of things and we've , you know , went through his budget a couple of times in the last few months .
Speaker #5: You know , if you have the choice of order or wait , people wait , you know , and it's , you know , the tariffs were a big issue that impacted us early , particularly on 1 or 2 really big ones that we know we probably didn't get because of tariffs .
Speaker #5: Right now , I think it's just a general level of economic uncertainty . You know , outside of outside of tech and a couple of really fair haired favored sectors .
Speaker #5: If you're very capital intensive , if you're very consumer driven , if you're very consumer , meaning the ultimate end markets , you can include automotives in there , you know , I mean , nobody's rushing to do capital projects unless you're bringing stuff back under some of the Trump policies .
Speaker #5: You know , factory building , major CapEx . You're going to wait before you order until you start to be a little bit more comfortable with the overall economy .
Speaker #7: Got it . Okay , I'll jump back in queue . Thanks .
Speaker #5: Great . Thank you . Jerry .
Speaker #3: Thank you . Our next question comes from the line of Katie Flesher with KeyBanc Capital Markets . Please proceed .
Speaker #8: Hey , good evening guys . I wanted to dig into the tariff impacts in China a little bit . How should we think about that impact in coming quarters ?
Speaker #8: And is there any opportunity to push price within that market ?
Speaker #6: Yeah . So the the impact to to China in the quarter was roughly $3 million . And to answer your question , to try to push price in the market , that's extremely challenging right now .
Speaker #6: All of the players in the market are pretty much going through the same type of issues with import , importing steel and some other components that are used in their perforating systems .
Speaker #6: So what we're doing right now is trying to figure out ways we can be more efficient with how we manufacture our and being smart about the automation that we put into our manufacturing line .
Speaker #6: But to increase price is very difficult in the market right now .
Speaker #8: Yeah . Makes sense . Just any other details that you can give around the margin progression within China and Noble Cloud for next quarter , or does the midpoint
Speaker #8: of guidance assume products , that both of those are going to see a sequential decline ?
Speaker #6: Well , I think for just taking them one at a time with China , they're going to continue to have the pressures that we talked about from a pricing standpoint .
Speaker #6: There may be some seasonal slowdown . And to the extent that there is , that puts additional pressure on margins because there's less sales and less volume to absorb .
Speaker #6: Their fixed manufacturing overhead . And the same would be true of Noble Clad , the large order that we talked about will ship in 2026 .
Speaker #6: So we're probably not going to get much of a benefit for the next , you know , few quarters . And they're same thing .
Speaker #6: It's going to be to the extent that the , the the sales are a little soft in the quarter , it's going to put pressure on them because they're not going to be able to absorb that overhead .
Speaker #6: So , you know , you can take take that into your modeling . And it should show you that the margins will be pressured .
Speaker #6: You know, quarter to quarter. Yeah.
Speaker #5: The only thing .
Speaker #9: The only thing I'd add to that.
Speaker #5: I would add , you know , if your assumption , whatever your assumptions are on end markets , will probably be right ahead , you know , whether it's lead by a couple of months , lead by a quarter , it'll be right ahead of our margin progression , because everything at Noble Clad , for the most part , has been absorption driven a fair amount outside of the tariffs , which Eric just went through .
Speaker #5: There's a little bit of mix , but it's the pricing issue and the fact that the Permian is so challenging right now , you know , when you think both of those end markets get better , you'll see our margins pick up .
Speaker #5: You know , maybe disproportionately . I'd like to think we have some operating leverage , but it'll be very end market dependent because I think we did the self-help things early .
Speaker #5: But you still , you know , a noble clads to best example , you know , you're down 5 million of sales . That's all throughput .
Speaker #5: And that all comes through as a overhead absorption .
Speaker #8: Got it . And then just one last question here . I know visibility is very limited , but just looking ahead , when you think about the recovery of these end markets , how much more downside is there from here .
Speaker #8: And what would you really need to see to give you some confidence that some of these demand trends are starting to pick up ?
Speaker #5: Well , look , I mean , the first thing you need is stability . I am encouraged , and I would think the stability in the order book at Noble Clad is a precursor .
Speaker #5: You know , we won't see that for a quarter or two or , you know , two or more , as it's mostly back end , back end weighted .
Speaker #5: But the fact that the order book picked up , we got a , you know , a major , biggest in our history order is a real positive in the building industry .
Speaker #5: I think we have more self-help and more benefits just from being stable . But it's still a really , really tough market . And the fact that the fed has started cutting interest rates , you know , some appropriate consternation as to whether or not the next move will be up or flat .
Speaker #5: You know , after a pause , last couple of comments , you know , you got a fed that seems more favorably disposed , particularly with the recent appointees .
Speaker #5: But , you know , it's not clear that you're going to see 3 or 4 cuts the way people might have been thinking a month or two ago , or that'll be dragged out over a longer period .
Speaker #5: And , you know that that is absolutely critical to get things going . I'd like to think we could see some green shoots sooner , but I still think you've got a grand total of 20 permits issued in some of the parts of Southern California that were most , you know , most long term excited for .
Speaker #5: But there's just not a lot of activity , you know , they're continuing to keep a lid on permits . The activity is not there .
Speaker #5: The way , you know , honestly , the way some of these poor home homeowners would like to see . But , you know , when that starts to loosen up , that'll be a little bit divorced from interest rates .
Speaker #5: But building , you know , if we get 2 or 3 cuts , building could start picking up in the back half of next year .
Speaker #5: But but I would say if you listen to homebuilder calls , some of the larger distributors like builders Firstsource , beacon , you know , anybody that's out there , I wouldn't say they've written off next year , but they're very , very conservative about it because we've been burned a few too many times .
Speaker #5: So that's , you know , I think middle end of next year would be optimistic on housing . But I think we have , you know , we have some specific things that are Arcadia , Arcadia and Arcadia dependent .
Speaker #5: And , you know , honestly , I the market I'm least knowledgeable about is obviously Dina , just from past history . But , you know , that's the one where the volumes have held up .
Speaker #5: But the couple of industry prognosticators out there , you know , they do comment on how consolidated our customers and our customers . Customers have gotten .
Speaker #5: We're still at the point where , you know , we probably had the the brunt of the tariffs that we've had to eat once , you know , once the markets take off and we get the opportunity to , you know , be selling the value that we bring , you know , I think we'll get some of the margin and price back .
Speaker #5: But that's probably quarters away . But you know , if you wake up in the Saudis decide they're not going to keep the spigots open , that could change tomorrow .
Speaker #8: All right. Fair enough. Thanks for all the color.
Speaker #5: You're welcome . Thank you .
Speaker #3: Thank you . next question comes from the line of Jawad Bhuiyan with Stifel . Please proceed .
Speaker #3: Our Too
Speaker #10: Hi . Thanks for the question . I guess just based on what we've been hearing around a lot of these US pressure companies , it seems like activity levels are kind of bottoming , and that's kind of where we're the I guess , the direction that we're heading .
Speaker #10: And I guess more specifically , can you talk about
Speaker #10: Thanks .
Speaker #5: early to talk about 2026 . Where , you know , we're one quarter at a time for good reason . The visibility is terrible and we don't comment on pricing other than if the market picks up and it's a little less competitive .
Speaker #5: We should see some relief . But we're nowhere near there right now .
Speaker #10: Got it . And I guess just more specifically for oriented perforating guns , we've we've kind of heard that it's been having a positive impact on production levels .
Speaker #10: I guess . Could you maybe talk about what you're seeing in the field .
Speaker #5: Are that's true . We have a product . Yeah , we have a product out there that's self oriented and gun as well .
Speaker #5: You know , technology is what's driven a lot of the incredible production increase , increases in the Permian for in the last ten years we've been a leader .
Speaker #5: There . And continue to be . .
Speaker #10: Got it . Thank you .
Speaker #5: You're welcome .
Speaker #3: Thank you . There are no further questions at this time . I'd like to pass the call back over to James O'Leary for any closing remarks .
Speaker #11: Now .
Speaker #5: Look , we appreciate your patience . We are doing everything we can under the category of self-help and positioning ourselves for the eventual recovery .
Speaker #5: We didn't get a chance to talk about , except in the prepared remarks , but , you know , getting the balance sheet in shape , having your cost structure in shape , being ready for whether it's opportunities or just the things we got to deal with next year and having a clean balance sheet , plenty of cash flow and a cost structure that will accommodate us are the things we're working on .
Speaker #5: So we appreciate your patience and for any employees listening , we appreciate your your hard work and dedication . So thank you .