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. If anyone should require operator assistance, please press star zero on your telephone keypad. 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'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. 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. 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'll 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 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 core. These efforts offset still difficult market conditions and included elevated interest rates and materially higher aluminum costs, which continued and negatively impacted larger, longer cycle commercial projects. However, we believe we have recently regained local market share and 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-free funds. 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 Dyna's ongoing market diversification efforts with early contributions from the defense and enhanced geothermal sectors. Sales at Nobleclad Our composite metals business increased 38% year-over-year and 30% sequentially. Adjusted EBITDA increased 120% year-over-year and was up 51% sequentially. Nobleclad'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. Water activity was healthy during the quarter with significant new bookings from the energy, engineered wood, and defense sectors. Noble Flat 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 U.S. Navy vessel construction. Now, I'll turn the call over to Eric for a closer look at our third quarter financial performance and our fourth quarter guidance. Eric? Thanks, Jim.

I'll 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 carefree 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. Noble Cloud 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 in 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 refunds, was $9.8 million, or 48 cents 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 to $164 million. Adjusted 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 Our guidance assumes steady well completion in Dyna Energetics Core US in-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 Nobleclad. Our guidance does not contemplate increased disruptions in international supply chains due to ongoing hostilities in the Middle East. which could impact both Dyna Energetics and Novoclad or generally weaker in 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'll turn the call back over to Jim.

Great.

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'd 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'd be happy to take your questions.

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. A confirmation tone will indicate your line is in the question queue. You may press star two to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. Our first question comes from the line of Jerry Sweeney with Ross Capital Partners. Please proceed with your question.

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

Thanks, Jerry.

I wanted to talk about the defense side. Obviously, that's a word I think for the first time it's 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've seen some news out there specifically like Teledyne Energetics getting some orders for I guess charges specifically for drones and that's an emerging opportunity. We have drone dominance, et cetera. Can you give a little bit more details to maybe what's going on on this front, the opportunity? I know it's early stages but maybe frame it out in any way possible.

Sure. Glad you asked. And if you don't mind, you know, at the risk of filibustering a little bit, we'll 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 in Nobleclad, but you're right. First time we mentioned it. No apologies necessary. But so We have been spending a lot of time turning over stones, looking at capabilities, all under the auspices of diversification. And as you know, and most of our shareholders know, in the perforation segment, we're one of the more, in fact, I think we're 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've talked about. and Defense, particularly, and you're right, it's the detonators, it's for drones, it's less for people like Teledyne or some of the established primes than it is for something that, you know, there's an article every single day in one of the mainstream newspapers. I think there's 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 don't fit like hand in glove yet. But it has been worth us spending the time. And the reason we mentioned it, particularly in Dyna, is it actually wasn't a small number. It wasn't material the way you'd think about it in the 10Q, 10K 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're doing your modeling, I back your margins off a little bit. This was kind of a bluebird that flew in the window. So when you kind of extrapolate the margins for Dyna Energetics, 50 to 100 basis points, I bring them down a little bit because we don't have anything in the guidance for defense and, you know, we're really debating whether or not we put anything in the budget for next year, which obviously we'll talk about quarter to quarter when we're into 2027. But the reason we thought it was worth mentioning, number one, we don't want you modeling it and coming up with a number that's, you know, going to make you look silly at the end of the day. And this is more, you know, you've been around this company and the stock a lot longer than I have. When you look at the history of DMC Global, both for Dyna Energetics and Nobleclad, every couple of years something comes up out of the blue where it could end up being meaningful. We don't want people to be surprised to think we're working on things and we don't leave any breadcrumbs or Easter eggs around. When you look at the history of Dyna with Dyna Stage, Nobleclad has many of these if you go back a decade or so where our applications and our capabilities are so unique and eclectic and every now and then something comes out of the blue and it's a real positive surprise. We've 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 don't want it distorting your guidance and we're excited about it. It's just, you said it's early. We're not even in the second half of the first inning. So it's very early, but we're working hard at it. And the one thing, you know, we called out specifically the noble clad backlog. You know, for our applications in naval, particularly submarines, the end of the backlog we've got there is meaningful. And the only thing that keeps it from being bigger, and again, it's not a next quarter or hopefully... It is a next year thing, but still too early. You know, between the Hanwha Yard in Philadelphia, the Andoril investment in Maryland, you know, the first two meaningful investments in naval capabilities as far as building submarines and ships have been in the last two years. So, you know, that's one is probably more tangible and we're equally excited about, but, you know, hopefully we can turn these opportunities into something meaningful for our investors.

Yep. 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, it's not only a charge, but a software code. And that's patented, and I think that's kind of unique. And I know you said it doesn't fit hand in glove, but my sense is there's a unique application with your Dynaselect detonator that may not necessarily be out there in the market as well. Is that a fair assumption?

Yeah. I don't 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. You know, it hasn't happened yet, so we don't want to get ahead of our skis. But what we're doing is trying to, what we're 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'll jump back in line. Obviously, it sounds like you're You've taken some share back, especially in a 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 policies, maybe an opportunity as that develops or building permits are put in place.

Thanks. So I think we've either regained most of the share we probably lost from 2023 forward up to when Jim Schladen came back. Or if we haven't regained most of it, it's probably at the point of diminishing returns now. You know, for the first couple of quarters, Jim was probably a bit frustrated. It took a little longer than he expected. He brought back a lot of his teammates who had left or kind of wandered off the reservation for, you know, for a period of a couple of quarters when we made personnel changes. With the benefit of hindsight, we probably shouldn't have made. So I think we've got the early return. There's probably, you know, if there is a little bit more, it really is just a little bit more. But hey, I mean, that's something and it gets us back to a run rate that we're comfortable with outside of the broader economy. On the broader economy, you know, we're not expecting permits to pick up. We're not expecting any robust jumpstart to the construction economy. And I'll tell you, it's truly, truly terrible out there. It's definitely the worst I've seen since 2008 and 9, as long as interest rates are where they are, which is still at I'm not sure if it's 20 or 30-year highs right now. It's tough sledding, and we're 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's only so much we can get through our factory right now. and the type of buyer who you're there. They're typically multi-year projects, not track building where you're banging them out every month or every quarter. And locally, there are a lot of improvement opportunities in adjacent markets. We're looking at, are there any satellites or any other opportunities that we haven't pursued in the last few years that Jim had on his to-do list back in 2021? So there's a couple of things like that, but those are Longer term, meaning a few quarters, maybe a year or two out initiatives that we're pursuing.

Got it. Well, congrats. Nice quarter. Even if it was a bluebird, I'll take it any day of the week, so thanks.

Hey, sometimes you see one bluebird and the whole flock is right behind it.

Thank you. Our next question comes from the line of Ken Newman with KeyBank Capital Markets. You may proceed with your question.

Hey, thanks. Good afternoon, guys. Thanks for taking the question. Hey, there. Maybe for the first one, I think if my math is right, it looks like gross margins for Dyna were around 18% after backing out the tariff refund in the quarter. You know, obviously, you know, it sounds like, you know, Jim, you mentioned there's some moving pieces in that business, just given the defense ones you talked about earlier. But I'm curious if there's 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'm 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're sustainable. I wouldn't 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's probably a little bit more juice in the sourcing lemon to squeeze. We're always looking at, or at least more aggressively looking at additional product design, but those are, you know, the unit economics there are The more you sell, you're going to get more absolute dollars, but the margins don't ramp up. We do have some improvement, we think, but it's not or it shouldn't be the type of step function up. And we wouldn't want you thinking that's going to be there when you're 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're very well positioned. Supply is pretty tight, but right now volumes, even though rig count and spreads are up, they're 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's not, you know, it's really not a loss of market share or a loss of wallet share. You know, it's just who we happened to sell during the quarter on what's still, you know, rate counts 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's 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 this maintenance shutdown actually is, and is there a way to size up just what you're expecting there from the shutdown? How long does that take? How much of the volumes kind of go through that facility?

Yeah, hey Ken, this is Eric. There are kind of two things going on there. One is just the seasonality of it. There's just less construction activity that's 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're 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's down, obviously we won't be able to produce anything. We're gonna build a little bit of inventory in the quarter to try to service customers. But we think overall they will put some pressure on getting shipments out. And so that's why we're guiding to a little softer top line performance from Arcadia on a quarter-over-quarter basis.

Understood, okay, that's helpful. 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, how large is the mix of the shorter cycle commercial high-end non-res Eastside 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 isn't something that typically goes through an RFP like the longer, bigger projects. And so those customers, when Jim was talking about winning back some business and we think that we're taking back some market share, it's really with those customers. and so we've re-established our service levels, product availability and have the customer support staff in place so that we can better service that customer and win back some business that we had lost in the prior year.

It's 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're at the point of diminishing returns but You know, if we did lose something, it's good to get it back and it's good to regain the trust of our customers, which quite frankly, Arcadia was built on that.

Very helpful. Thanks, guys.

Thank you. Thank you.

Thank you. And we have reached the end of the question and answer session. Therefore, I'd like to turn the call back over to Jim O'Leary before closed remarks.

Shanali, 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've hung in there. Thank you very much. We will talk to you next quarter. And with that, Shanali, 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