What DMC Global (BOOM) Said on Its Q3 Earnings Call

Key Points

• DMC Global exceeded its Q3 guidance, with sales up 14% year over year to $172.8 million and adjusted EBITDA, excluding tariff refunds, rising 59% to $13.6 million. Performance improved across Arcadia, DynaEnergetics and NobelClad despite challenging construction and energy markets.
• Arcadia regained short-cycle market share and improved margins, while DynaEnergetics benefited from cost reductions, favorable mix and emerging defense and geothermal opportunities. NobelClad sales rose 38%, with backlog expanding to $72.4 million, including record U.S. Navy-related orders.
• DMC generated $16.6 million in free cash flow and reduced net debt to $13.7 million. For Q4, the company expects seasonal pressure and a planned California facility shutdown, forecasting sales of $154 million–$164 million and adjusted EBITDA of $10 million–$13 million.

DMC Global NASDAQ: BOOM reported third-quarter sales and adjusted EBITDA above the high end of its guidance, citing improvement across its building products, energy products and composite metals operations despite difficult construction and energy-market conditions.

Consolidated third-quarter sales rose 14% from a year earlier and 10% sequentially to $172.8 million. Reported EBITDA attributable to DMC was $19 million, including $5.4 million in tariff refunds received by the DynaEnergetics business. Excluding those refunds, adjusted EBITDA attributable to DMC was $13.6 million, up 59% from the prior-year quarter and 48% from the second quarter, President and CEO Jim O'Leary said.

Adjusted net income attributable to DMC, including tariff refunds, was $9.8 million, or $0.48 per diluted share, Chief Financial Officer Eric Walter said.

Arcadia sales rise as short-cycle operations recover

Arcadia, DMC's building products business, recorded a 25% year-over-year increase in sales and a 14% sequential increase. O'Leary said the gains were driven by higher sales of commercial aluminum framing products and high-end residential doors and windows, as well as a large long-cycle project in Los Angeles.

The company attributed the unit's improvement to a renewed emphasis on service levels and product availability in its short-cycle operations. O'Leary said Arcadia believes it has regained local market share in key short-cycle markets after recovering business that had been lost during earlier operational challenges.

Walter said short-cycle commercial operations account for about half of Arcadia revenue and generally involve products shipped within four to six weeks. Long-cycle business represents roughly 25% of Arcadia sales, while residential business accounts for about 15%, with the balance coming from its Wilson interiors operation.

Arcadia's adjusted EBITDA margin before noncontrolling-interest allocation was 14.7%, compared with 13.8% a year earlier and 13.6% in the second quarter. Walter said higher volumes across commercial, residential and commercial interior products improved fixed-cost absorption.

Management cautioned that the construction environment remains challenging. O'Leary pointed to elevated interest rates, higher aluminum costs and weak conditions for larger, longer-cycle commercial projects. He said the company does not expect a near-term jump in construction permits, though residential demand has been relatively more resilient because many purchases are made with cash.

DynaEnergetics benefits from cost actions and diversification

DynaEnergetics, DMC's energy products business, generated improved profitability despite sales that were relatively flat both year over year and sequentially. Adjusted EBITDA was $11.9 million, including the $5.4 million tariff refund. Excluding that refund, adjusted EBITDA increased 34% from a year earlier and 57% sequentially.

Walter said adjusted EBITDA margin excluding tariff refunds was 9.7%, compared with 7.1% a year earlier and 6.2% in the second quarter. The improvement reflected cost-saving measures, a more favorable sales mix and higher-margin contributions from new end markets.

O'Leary said DynaEnergetics has pursued opportunities beyond its core oil-and-gas completion market, including enhanced geothermal and defense applications. The defense contribution in the quarter was about $750,000, according to O'Leary, who said the business sees potential applications for its detonator capabilities in aerial and maritime drones. However, he emphasized that the opportunity remains early-stage and that the company has not included defense revenue in its guidance.

On margins, O'Leary said the company expects current profitability levels to be sustainable if volume remains steady, but does not expect another substantial step-up solely from the cost-optimization program. Additional volume growth could benefit gross profit, he said.

NobelClad backlog expands on defense and petrochemical activity

NobelClad, DMC's composite metals business, posted a 38% year-over-year increase in sales and a 30% sequential increase. Adjusted EBITDA rose 120% from a year earlier and 51% from the second quarter, aided by shipments on a record petrochemical order and the resolution of supply-chain issues that had delayed deliveries on a large defense order.

NobelClad's adjusted EBITDA margin reached 15.9%, up from 9.9% in the prior-year quarter and 13.7% in the second quarter. Walter cited higher gross profit and lower selling, general and administrative expense.

Order activity was healthy in energy, engineered wood and defense markets. NobelClad ended the quarter with a $72.4 million backlog, up from $63.5 million at the end of the second quarter. The backlog included a quarterly record $16 million in orders tied to U.S. Navy vessel construction.

O'Leary said naval applications, particularly those involving submarines, represent a tangible longer-term opportunity for NobelClad, though he did not provide a forecast for the business.

Cash flow improves; fourth-quarter outlook reflects seasonal pressures

DMC ended the quarter with $38 million of cash and cash equivalents. Net debt declined to $13.7 million from $30.5 million at the end of the second quarter, supported by $16.6 million in free cash flow, improved profitability, more stable working-capital needs and tariff-refund receipts.

For the fourth quarter, DMC forecast sales of $154 million to $164 million and adjusted EBITDA attributable to DMC of $10 million to $13 million.

The outlook assumes normal seasonal moderation at Arcadia, along with a planned two-week maintenance shutdown at its California anodizing facility near the end of December. Walter said the company expects to build some inventory before the shutdown but anticipates pressure on shipments.

DMC's outlook also assumes steady well completions in DynaEnergetics' core U.S. market and continued improvement in NobelClad shipping activity. The company said its guidance does not contemplate increased international supply-chain disruptions tied to Middle East hostilities or weaker end-market conditions.

About DMC Global (NASDAQ:BOOM)

DMC Global Inc NASDAQ: BOOM is a diversified industrial company that develops and manufactures engineered products for energy, industrial, infrastructure and building markets. The company's operations have included businesses focused on specialty metalworking and architectural building products.

Through its DMC Clad Solutions business, DMC Global supplies explosion-welded clad metals under the NobelClad brand. These products bond dissimilar metals to create corrosion-resistant and structurally capable materials used in chemical processing, oil and gas, power generation, marine, transportation and other industrial applications.

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