Good afternoon, ladies and gentlemen. And welcome to the DMC Global First Quarter Earnings Call. At this time, all participants have been placed on a listen-only mode. We will open the floor for your questions after the presentation. It is now my pleasure to turn the floor over to your host, Geoff High, VP of IR. Sir, the floor is yours.

Hello, and welcome to DMC’s first quarter conference call. Presenting today are President and CEO, Kevin Longe; and CFO, Mike Kuta. 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. A webcast replay of today’s call will be available at dmcglobal.com after the call. In addition, a telephone replay will be available approximately two hours after the call. Details for listening to the replay are available in today’s news release. And with that, I’ll turn the call over to Kevin Longe. Kevin?

Good afternoon, and thank you for joining us for today’s call. I would like to start by addressing some key developments during the first quarter, then turn the call over to Mike for a review of our financial performance and a look at guidance. Despite challenges in today’s global markets, the first quarter saw improved dynamics in DMC’s core energy, industrial infrastructure and building products markets. DMC reported record first quarter sales of $138.7 million, with $58 million coming from Arcadia, our architectural building products business. We acquired a 60% controlling interest in Arcadia last December. Arcadia sales were above our guidance, reflecting higher selling prices to offset inflation on raw materials. Arcadia maintained consistent gross profit dollars versus the first quarter last year despite a more than 20% increase in the cost of aluminum, which is Arcadia’s primary input. First quarter demand remained strong in Arcadia’s commercial markets, which primarily consists of low to mid-rise buildings throughout the Western and Southwestern United States. Arcadia’s end markets also include several countercyclical industries such as government and civic facilities, education and health care, which are typically sources of consistent demand even when the broader economy slows. Demand is also strong at Arcadia Custom, which provides the national high-end residential real estate market with highly engineered steel, aluminum, and wood windows and doors. This upper end of the residential market is generally less affected by rising interest rates than the broader housing market. Arcadia is operating at full capacity, and we are taking steps to address its growth constraints. These include personnel additions, implementation of a new enterprise resource planning system, and the design and installation of additional paint and anodizing lines. We expect the new manufacturing capacity will be operational around the middle of next year. I am pleased by the progress we have made integrating Arcadia’s people, processes and systems and by the efforts to align our cultures. DynaEnergetics, our energy products business, saw an inflection point in its core geographical market during the first quarter. After two years of being oversupplied, we believe the North American market for perforating equipment is back in balance. Growth in unconventional well completions is leading to increased demand at DynaEnergetics and is demonstrating the value of our fully integrated DS perforating systems. These systems are delivered fully assembled just in time to the well site, and they are the safest and most reliable on the market. They tie up less working capital, require fewer people on location and can reduce the cost of completing a well by more than $200,000 compared to other solutions. Activity in North America was relatively light at the start of the year due to sand shortages and supply chain constraints that impacted the completions industry. DynaEnergetics saw North American demand increase sharply in March, resulting in a new monthly shipment record for our DS perforating systems. This momentum continued into the second quarter as shipments in April were similar to those in March. DynaEnergetics’ ability to address this rapid demand growth illustrates the strength of its vertically integrated business model. International demand also improved significantly in the second quarter, and we believe it will remain strong through the balance of the year. On April 1, DynaEnergetics implemented its second global price increase in six months. The increase, in combination with higher-margin international sales and improved operating efficiencies, is expected to drive continued gross margin expansion during the second quarter. DynaEnergetics’ end markets have improved, and we believe strong energy prices and increasing U.S. rig count, a growing number of North American frac spreads and increased international activity will lead to continued healthy demand during the remainder of 2022 and into next year. At NobelClad, our composite metals business, rolling 12-month bookings at the end of the first quarter were $91 million, up from $81 million at the end of last year’s first quarter. Our order backlog at the end of the quarter was $44 million, up from $41 million at the end of the fourth quarter. Activity in NobelClad’s end markets is improving, and we believe its performance during the second half of 2022 will begin to reflect the inherent strength of the business. We made significant recent investments in working capital as we position DMC’s businesses for future growth. We are confident the second half of 2022 will bring much improved free cash flow as inventory becomes earnings and receivables become free cash flow, leading to a strengthening of our balance sheet and stronger returns for our stakeholders. With that, I’ll turn the call over to Mike for a review of our first quarter financial results and a look at second quarter guidance.

Thanks, Kevin. First quarter sales were $138.7 million. Excluding the Arcadia acquisition, consolidated sales were $70.7 million, a sequential decrease of 2% and an increase of 27% versus the first quarter of 2021. Arcadia reported first quarter sales of $68 million. DynaEnergetics reported first quarter sales of $48.9 million, down 4% sequentially and up 28% versus the same quarter last year. North American sales increased 2% sequentially while international sales decreased 33% sequentially. Sales at NobelClad were $21.9 million, up 3% sequentially and up 25% versus last year’s first quarter. Consolidated gross margin in the first quarter was 27%, up from 18% in the fourth quarter of 2021 and 23% in last year’s first quarter. First quarter gross margin benefited from the acquisition of Arcadia, which has a higher gross profit percentage than DMC’s legacy business units, as well as the impact of higher sales volume on fixed manufacturing overhead expenses at DynaEnergetics. These improvements were offset by project mix at NobelClad, a decline in high-margin international sales and higher material costs at DynaEnergetics and the expiration of the employee retention credit under the CARES Act, which benefited the first quarter of 2021. Arcadia reported first quarter gross margin of 30%. DynaEnergetics reported first quarter gross margin of 26% versus 20% in the 2021 fourth quarter and 22% in last year’s first quarter. The margin improvement from last year primarily relates to the impact of higher sales volume on fixed manufacturing overhead expenses. NobelClad’s first quarter gross margin declined to 19% from 20% in the fourth quarter and 26% in the year-ago first quarter, primarily due to less favorable project mix and the prior year CARES Act credits. Looking at our first quarter expenses, consolidated SG&A was $27.8 million and included $9.9 million of incremental SG&A from Arcadia. The year-over-year increase was also attributable to higher litigation expenses at DynaEnergetics, which were related to actions against companies that we believe infringe on DynaEnergetics’ patents, higher non-cash stock compensation expense and higher salaries, benefits and other payroll-related costs due in part to the expiration of the CARES Act credits. We reported a consolidated operating loss of $3.8 million. First quarter adjusted net loss attributable to DMC was $3.1 million or $0.16 per diluted share versus adjusted net income of $559,000 or $0.04 per diluted share in last year’s first quarter. Adjusted EBITDA attributable to DMC was $10.5 million versus $4 million in last year’s first quarter. Arcadia reported first quarter adjusted EBITDA attributable to DMC of $6.9 million. DynaEnergetics reported first quarter adjusted EBITDA of $5.3 million, while NobelClad reported adjusted EBITDA of $1.7 million. We ended the first quarter with cash of $15.4 million versus cash of $30.8 million at December 31, 2021. The decrease was driven by a build in working capital, principal payments on long-term debt and quarterly cash distributions to Arcadia's joint venture partner. The working capital increase primarily reflects higher required inventory levels at Arcadia and DynaEnergetics from higher input prices, increased lead times and an expected sales ramp in the second quarter. Our total outstanding share count is now 19.5 million. Looking at guidance, second quarter sales are expected to be in the range of $142 million to $152 million versus $138.7 million reported in the 2022 first quarter. At the business level, Arcadia is expected to report sales in the range of $68 million to $72 million versus the $68 million reported in the first quarter. The anticipated increase reflects higher pricing to address inflation on raw materials. DynaEnergetics is expected to report sales in a range of $54 million to $58 million versus the $48.9 million reported in the first quarter. DynaEnergetics expects significantly higher international sales and improved pricing in North America during the second quarter. NobelClad sales are expected in the range of $20 million to $22 million versus the $21.9 million reported in the 2022 first quarter. Consolidated gross margin is expected in the range of 28% to 30% versus 27% in the first quarter. The expected improvement reflects DynaEnergetics’ anticipated increase in international sales and improved pricing in North America. Second quarter selling, general and administrative expense is expected to be approximately $26.5 million to $27.5 million versus the $27.8 million reported in the 2022 first quarter. Amortization expense is expected to be approximately $13 million. The remaining value assigned to Arcadia’s acquired backlog will be largely amortized during the second quarter, resulting in a significant decline in amortization expense during the second half of this year. Amortization expense is expected to be $6.7 million in the third quarter and $3.6 million in the fourth quarter. Second quarter depreciation expense is expected to be $3.7 million and interest expense is expected to be approximately $1.3 million. Second quarter adjusted EBITDA attributable to DMC is expected to be in the range of $15 million to $18 million versus $10.5 million in the 2022 first quarter. Capital expenditures are expected in a range of $4 million to $6 million. With that, we’re ready to take any questions.

Thank you. Ladies and gentlemen, the floor is now open for questions. The first question today is coming from Stephen Gengaro from Stifel. Stephen, your line is live. Please go ahead.

Thank you, and good afternoon, everybody.

Yes. Hi, Stephen.

Hi, Kevin. So I guess two things from me. Why don’t we start with – you mentioned sort of a March record sales of the integrated perf system in the U.S. And then as I think back to higher peak sales levels and the revenue associated with that, is the difference in that price? Or am I missing part of the equation? So how – I’m just trying to get a handle on how we should think about the pricing of that product relative to where it was at prior peaks a couple of years back and how we should think about how that translates to revenue.

Yes. So it’s both price and product mix. Previously, we were selling components, primarily our integrated switch detonator without the shaped charges and the gun bodies. And that was not in this quarter; that was during a transition where we were switching from components to systems. And so this is system revenue that we’re talking about being a record. It doesn’t include the other products.

Okay, great. And as we – given that commentary, we’ve sort of been expecting and waiting for kind of a reacceleration in adoption rates. I mean it seemed like people were buying a lot of components. And I know you have these lawsuits out there that you don’t want – you can’t comment on. But just in general, are you seeing kind of a reacceleration in the adoption of these integrated systems coming out of over the last, say, couple of quarters? Is that what’s driving this?

Well, for DMC or DynaEnergetics, it’s 100% system revenue in our North American business on the perforating side of it. If I look at the last couple of quarters or last year, in particular, we saw some of our competition pull back from systems and go more towards components. And so it’s certainly a trend for us that systems are up, but it may not necessarily be for our specific competitors in the market in general. We are seeing some preassembled carriers that are assembled by machine shops. They’ll buy the shaped charges from some of our traditional competitors and ship them to the customer or to the well site. But that’s still more of a component model than it is a system model. The E&P is seeing the system, but the delivery from the supplier to the E&P, we’re still in a lead from a system standpoint.

Okay, great. And if you don’t mind one final one. When I look at your guidance for the second quarter and I sort of try to piece together the incremental margins and just sort of different pieces, it seemed like the biggest sequential growth driver is the DynaEnergetics business to the EBITDA line versus the other two segments. Am I thinking about that correctly?

Yes, you are. And in fact, if you think of NobelClad and Arcadia, we’ve seen inflation-adjusted pricing to offset material costs. In DynaEnergetics, we’ve seen inflation earlier in the year, but their pricing moves and volume are primarily margin improvement.

Great. Thank you for the color, Kevin.

Thank you. The next question today is coming from Cameron Lochridge from Stephens. Cameron, your line is live. Please go ahead.

Hi there, thanks for taking my questions. Good afternoon.

You’re welcome, Cameron.

So Kevin, since the Arcadia acquisition late last year, we fielded quite a few questions just on competitive dynamics of the business and the industry, the market that it operates in. One thing that’s come across is there’s not a great comp out there for Arcadia in terms of what they do, certainly not in the public realm and potentially not in the private realm. And I think that probably speaks to just the niche nature of the offering – of Arcadia’s offering. I was hoping you could just take a few seconds to speak to the competitive dynamics in the market that Arcadia operates in. And then related, what are some of the things, again, that you can do to drive share in that market? And I realize we may have touched on some of this in previous calls. I just – for folks that are trying to wrap their arms around the business, I think it will be helpful.

Well, first of all, Arcadia is in three general market segments, if you will, the commercial exteriors, commercial interiors and the high-end residential. The commercial exteriors can be broken down into everyday business and project business. And it also can be broken down by product into aluminum framing systems or windows, doors and more of a complete system. And Arcadia, in the commercial area, is in the framing systems, low to mid-rise buildings primarily and also focuses on health care and institutional work and has a very strong everyday business. And so they’re very efficient at serving customers locally with a broad product mix and being very responsive to a high number of small orders, which gives them a target market and a strength from a pricing standpoint that supports their margins. The Wilson business is an architect-driven business, also has a local component to it. But it’s architect and building owner driven. And the residential high end, which goes beyond aluminum framing systems, which is primarily in the commercial area, we go into high-end steel, wood and also aluminum. But there, we are – it’s a national market where they’re providing our products and less of a product line and more of a product capability for our high-end homes that are being engineered or Arcadia’s engineering built products to fit those homes. And so the combination of the three market segments and how they participate in those market segments, and their geographical footprint lead to a competitive business model that is well suited for Arcadia and for DMC. There are good competitors and strong competitors in the market, but they have either a different product or end market focus and/or different priorities. And it’s really how it all comes together to create the business model that Arcadia has and the team that they have that serve the segments that they participate in that separates them from other companies.

That’s helpful. Thank you, Kevin. I guess as a related kind of follow-up there, could you maybe just touch on some of the benefits of the diversification aspect of having Arcadia under the DMC Global roof? And just what DMC brings to the table that really makes a lot of sense for a business like Arcadia, which is different from your traditional end markets? Why it makes sense to have that business under the DMC Global roof?

First of all, all three of our businesses are manufactured products and asset-light business models where there’s either a know-how in NobelClad, a system approach versus a component approach in DynaEnergetics, or a combination of different product and end markets that Arcadia brings. So there are businesses that are tailored for their individual market segments. And we focus in each of our markets on being a market leader, which we define not just by volume. We try to focus on the gross margin dollars that we get out of these market segments. And then DMC, in turn, gets behind the leadership and management teams of each of these businesses to be a discussion partner and help them to clarify their competitive differentiation, how they go to market, and provide the resources and support to help them to operate very efficiently and effectively. If you look at Arcadia and the addition of Arcadia into our portfolio, it brings us into a different set of markets. We’re in architectural framing systems and building products, both on the commercial and the residential, augmenting our industrial markets that we served with NobelClad, and obviously, the energy market that we serve with DynaEnergetics. The diversification makes it a stronger ecosystem, if you will. And I think that our focus on market leadership either through product or business model and excellence in what we do is what differentiates us from our competition. We focus on how well we execute and how well we take care of our customers.

Thank you, Kevin. That’s all very helpful. I guess maybe if I can squeeze one more in, just touch on the supply chain, kind of switching gears here a little bit. Is there any one business – of your three businesses, is there any one that is being affected more so than the others as it relates to the supply chain? And then just maybe touch on what are some of the steps you’re taking to mitigate that? And then specifically on Dyna, pricing has really come on strong. Is there any risk to gross margins going forward and reaching that ultimate exit rate of, call it, into the 30s as far as the gross margin goes in Dyna? Is there any risk to that as you see it today?

Well, first of all, on Dyna and the gross margins, we feel that their gross margins are strengthening. And it’s partly related to the supply chain, if you will. We make an integrated system, delivered just in time to the marketplace. We’re vertically integrated in our components from raw materials and explosives, if you will, for shaped charges, integrated switch detonators and det cord. We’re also vertically integrated. We’ve invested in the capacity for all the machining and assembly operations. And so we actually have less of a supply chain issue in DynaEnergetics than any one of our businesses. And quite frankly, it goes to being a competitive advantage because we handle the supply chain, the working capital requirements, the just-in-time delivery, and we can ramp quickly with our customers as they ramp. And so it’s a lower total cost business model if people take into account all the things that we do for them versus assembling components or buying components from other companies. And so we actually use the supply chain as a significant competitive advantage in DynaEnergetics. And we saw that in March, we’ve already seen it in April. Previously, we were just north of 250,000, 260,000 perforating guns a quarter. We’re operating at over 100,000 a month the last couple of months. And so our ability to respond quickly, just-in-time delivered to the well site, managing the supply chain has been a real competitive advantage. In NobelClad, we buy metals. We combine them using proprietary know-how. We are subject to the delivery of those metals, and they come from unique sources depending on the chemical composition and size of the project. Lead times of our longer freight is higher and travel time longer, and so we have to plan further out. So we’re seeing a lag and our revenue is picking up because of managing the supply chain, but we feel that that’s going to be wind to our back as we go into the second half of the year. And then on Arcadia, the primary raw material there that they – the two raw materials that they purchase and manage is aluminum. That goes in all three of the markets, primarily the commercial market. Aluminum has been in short supply, high demand, high energy price that feeds into making the product. So it’s ended up being a very high cost and a lot of inflation in aluminum. I have to compliment the team. They’ve done very well at implementing price increases in the commercial market. The aluminum goes up, the price increase gets layered in, in steps. So there’s a little bit of a lag, not to mention the backlog that they have. But I have to compliment the leadership team of Arcadia as being one of the best companies that I’ve seen in terms of managing costs and passing on costs to their customer in real time, which has really been a pleasure to watch and learn from. And so we’ve got different characteristics in each one of our different markets and businesses. But I think our teams are very agile in responding to the competitive situation and the supply situations in their industries.

Thanks, Kevin. That’s all helpful. And I’ll turn it back.

Thank you. And we have a follow-up question from Stephen Gengaro from Stifel. Stephen, your line is live. Please go ahead.

Thank you. Thanks for taking my follow-up. Kevin, you mentioned in your prepared remarks or maybe Mike did about the price increases in DynaEnergetics. I think you mentioned two. Can you give us a sense for how well they’re sticking? And also, is this something that starts to show up in margins in 2Q or 3Q?

Yes, first of all, they’re sticking because we’re – we would rather – we don’t need practice, if you will, making perforating guns. We do pretty well at it. And we’re in the market to create value for our customers. We feel that we create a superior value for our customers. And that over the last couple of years, when demand collapsed due to COVID, the markets were very much in disarray and a lot of excess capacity and pricing was very challenging. And we sell at a premium, and we’ve continued to sell at a premium. But when the markets were oversupplied and others were competing against our technology on price, we had no choice but to be responsive to support our customers and maintain our delta but follow that market. The market has hit an inflection point where demand is quite strong, and it’s difficult to manage the supply chain that I mentioned earlier, difficult to hire and retain good people. Our systems simplify the supply chain and require fewer people at the well site. We’ve got the capacity in place to ramp, and that’s part of our value add to our customers. Not to mention, we feel that they perform better and more efficiently and safer. And so we’re holding on our prices. I will say in last year, the beginning of this year, it was harder to do. Now we’re holding quite firm. We – with the two increases that we’ve had, the first one, if you will, is absorbed inflation in raw materials and other things. Where we stand today, it’s margin recovery. I will say that we had a record – another record month in perforating systems in April, and that’s with the higher price that we’ve implemented. And so when you look at DynaEnergetics in the second quarter of this year, it’s pricing that’s driving the margin improvement, which we’re guiding. And we’re already a third of the way into the quarter and feel reasonably confident that we’re going to have a very good quarter in that part.

Great. Thank you. And the other question I was curious about and I’m not exactly sure how to ask this. But when you think about the well site and the efficiencies and what’s going on from a frac perspective, with pressure pumping equipment being very tight, more simul fracs and zipper fracs. And the – so I’m trying to figure out – I would think that would help the demand for the integrated product because of the efficiencies it brings on the well site. But on the flip side, they’ve had some other disruptions from frac sand shortages and other things creating inefficiency. So I’m just wondering about sort of the drivers of demand because of the need at the well site and how the needs are evolving for the integrated systems you’re selling?

Well, I think it’s important to note that when you look at the cost of a perforating system from DMC or how it’s put together by other people in the industry, it’s a very small percentage or fraction of the completion costs, under 2%, if you will. Yet with DynaEnergetics’ integrated systems and how they’re delivered to the well site assembled, they go together faster than any other product in the market. They’re armed safely and quickly. And they go down the wells more efficiently because they’re very compact systems. It helps the whole well site to operate effectively. The stronger the frac crews and the more skilled the frac crews, the better our system is for them because they’re not waiting on perforating systems and they can – we can run as fast as they can run. That ultimately creates value for their customers, and we’re helping our customers to create value for their customer. In a strong market, we believe we’re going to gain share. In the weaker markets that we’ve had over the last couple of years where we – we’re going to lag on price rather than lead price down. It challenges our market share. But in the type of markets that we see for 2022 and 2023, we believe that it plays into our sweet spot, which is to create a high-performing well site and then a safe and efficient well site for our customers.

Great. Thank you, Kevin.

Thank you. Your next question is coming from Ken Newman from KeyBanc. Ken, your line is live. Please go ahead.

Hey guys, thanks for taking the question.

Yes. Hi, Ken.

Hi. So, I guess, my first question was going to be revolving around Arcadia. I’m just curious if you could just talk a little bit about what you’re seeing from order bidding activity within the commercial businesses for that segment, whether you’ve seen some acceleration or if inflation has started to slow that down at all. Obviously, I think, as you mentioned, these businesses seem to be a little bit more resilient to figures in interest rates potentially moving here. But just curious what you’re seeing on the ground in terms of order activity or just indications of backlog growth.

Well, we actually have very strong backlogs in both our – in all three of our market segments right now. And we remain optimistic for non-residential construction and spending as this year progresses. But as you might expect, the macro picture is creating some uncertainty and also the elevated material costs. But I will say that we haven’t seen it in the short-term order input or – we had a very good month in April. We’ve had a good start to the year. You will see that when you look at our numbers in that segment that the revenues are up and will be up more so than volume. The underlying volume is – our units, if you will, is softer but it’s at much higher prices because of what we’re seeing from an inflation standpoint. But having said that, we’re managing our inventories to the best we can. And we – up to this point, we’ve had capacity constraints and inflation in raw materials. Demand is strong short-term, but there are a lot of things on the horizon that could create some uncertainty, but we’re just not seeing it day in and day out.

Yes. I understand all the volatility around raw material costs and inflationary impacts. Obviously, we didn’t get a prior year number in terms of the quarter revenue and margins. But I’m just curious if you could help us think about the go-forward operating leverage of this business. Given what seems to be a still pretty strong outlook for demand here in the near term, notwithstanding some of these macro uncertainties.

Yes. I would say if there’s one thing that we feel that we can improve upon right now is our margins. I mean we’re lagging because of our strong backlog and the mechanisms for implementing price increases. Our margin percentages have softened over the last – well, it’s up over the fourth quarter, but we feel that they should be stronger in the second half of the year compared to the first as we work through our backlog with lower-price materials and also get our price increases implemented. So we feel that we’ll continue to do well from a volume standpoint and the margin percentages will improve. And the underlying unit volume will be fairly constant. That’s more of a capacity constraint from suppliers than it is an order constraint for Arcadia. And for us to address that, that’s a little bit more medium to longer-term.

Understood. Then last question for me, if you don’t mind. I think I just wanted to go back to the $4 million to $6 million in CapEx for the second quarter. When I think about the free cash flow, I think you mentioned, Kevin, at the beginning of the call, expectations for improving free cash flow by the end of the year. And can you just kind of put some color or help me quantify that a little bit in terms of, one, how do you think about the working capital build as we work through some of this higher-cost inventory? And where are the risks in terms of potential higher CapEx needed to help integrate Arcadia as we go forward?

Hey, first of all, on the – I’ll address the CapEx, and then I’m going to let Mike help on the raw materials and pricing. The CapEx is – we’ve already are implementing an ERP system. DMC has a very good IT and digital group and is supporting Arcadia in the implementation of a new ERP system, a D365 Microsoft system, which we have in other businesses. And there’s an efficiency and actually quite an efficiency in the company for that when we get that fully implemented. And we’ll be going live with some of those functions in November of this year, I believe. And the – so there’s two inefficiencies, one’s in processes and systems and the other is just in manufacturing capacity. Anodizing painting is a relatively quick thing to add and not that expensive. But anodizing requires a little bit more thought, and that’s something that we’re going to be looking at, at the beginning of the following year 2023. This year, we’re really focused on processes, systems, integrating our people and our culture and working well together. And the capacity will follow as we’re more aggressive in our markets. But as far as margins and the price increase…

Yes, right. So we think that Q2, from a cash flow standpoint, is we’re still seeing these elevated raw material costs and a little bit heavier CapEx quarter that will probably cash flow – free cash flow neutral in Q2. And I would expect us in Q3, Q4 to be generating operating cash flow in the $15 million to $20 million range, $15 million probably per quarter in the back half of the year. And you have to look at our – we haven’t provided guidance on Q3, Q4 from a CapEx standpoint, so we’ll look at that. But that should probably be relatively consistent with the first half of the year if you look at our guidance. And we’ll have some CapEx wrap into the first part of 2023, as Kevin mentioned, we get this paint anodizing capacity in Arcadia. So hope that helps.

But we’ve invested in inventory in two of our businesses in the first two quarters of this year that will turn to earnings and receivables, and then those receivables will get collected in the third quarter and fourth. And so we’re just following that path right now.

Yes. And that inventory, though, was just – not just pricing but you also ramp in expected volume at DynaEnergetics, both in North America where that market is strong right now as well as international.

Yes, and I’ll say, in Arcadia, we’ll have better matching of the raw material prices with the backlog and the inventory in the second half of the year, which will lead to margin improvement.

That’s all very helpful color. I appreciate it.

Thank you. And your next question is coming from Jim Brilliant from Century Management. Jim, your line is live. Please go ahead.

Hi guys, how you’re doing?

Yes. Hi, Jim.

Good afternoon. I just want to clarify that last point. Mike, did you say that Q3, Q4 were – you were looking at $15 million to $20 million per quarter in free cash flow, so $30 million to $40 million in the second half?

Operating cash flow, $15 million per quarter in operating cash flow before CapEx. We’re still evaluating CapEx. So it should look like – and CapEx should look like average the first and second quarters.

Okay. Okay, great. And then can you guys kind of quantify what you think the – maybe characterize the capacity in – industry capacity in the perforating market these days.

I still think that there’s – so capacity has a time component and efficiency to it. And where we’re seeing advantages, Jim, is in our ability to respond quickly to increase demand. And what we were touching on earlier, the ability to orchestrate the wireline and the frac crews in a very efficient way. And that is easier when you’re vertically integrated and have the type of system that we have. And so I don’t want to say the capacity for perforating systems is tight. The performance level of perforating systems is tight. And that’s where we’re aligning with our customers and really getting behind the businesses that are operating most efficiently.

Yes. I mean there’s – I guess it’s the effect of capacity, right, because you’ve got labor constraints across the oilfield services business in total. And you’ve had some of your competitors go through some big downturns and had to reduce their labor force and then ramping that up. There’s been some difficulty with some trying to field enough people for that. And now you’ve got completion and frac crews that are – the whole calendar is filled up. So to effectively and efficiently deliver perforating guns has got to be getting tighter in that respect and more difficult. So your business model, obviously, is better positioned to be able to do that than some of your competitors. So I guess – so that kind of just leads me to the next question. It looks like Q2 – Q1 and Q2, the improvements were largely some effective price increases, which drove top line but improved margins and more so than volume. But am I hearing it correctly that now you’re starting to see the inflection on both price and volume in the second half, more so than you have in the first half?

And I would say our volume is picking up, but our margins are improving more because of pricing than volume as we go into the second half, the balance of this year. And I will note for all our E&P customers out there that, again, we’re a fraction of a percent when we’re talking about our customers in terms of what it means to the cost of completing a well. If – we’re talking single-digit or $10,000 a well, not $200,000 a well like you see with sand and other things at times. So it’s a…

Well, but beyond that, you provide efficiencies at the well site. So it’s a better value. But…

That’s correct. Yes, so we’re not part of the inflation, if you will, of the well site. We tend to view our value-add as the greater efficiency at the well site and better value.

As we’ve heard about from all the E&P companies and far more service guys that everything is booked through the year, and they’re now looking at longer-term contracts into 2023 for frac crews and drilling crews. So obviously, it’s gotten tight all over the place. And there’s no letup in the difficulty of getting labor into the field. Should we expect now that some of your – that your volume now gets back up to levels that are consistent with the higher frac crews and have that same kind of attach rate that we’ve seen in the past?

Well, I think we’re pleased with our volume. We’re not trying to be all things to all people. We’re focused on a handful of companies, and we do want to be all things to them or as much as we can to them. And we’re like a lot of the other companies in the industry, Jim, that we have capacity. We have capacity in place to support our customers. In our DynaEnergetics, we’re not going to add capacity unless it’s at good margins. And so we’re really focused on serving the customers we have and making sure that we’re getting rewarded for the value that we bring to them.

Okay. That’s fair. And then moving over to NobelClad. So the – certainly, the back – excluding the increased metal prices and the supply chain issues around key raw materials, the demand backdrop is setting up nicely for you guys with the strength in chemicals and petrochems and all the end markets that use your materials. How do you look at it over the next – the second half, it sounds like it’s going to get better. But into 2023, 2024, in terms of some – finally getting some project growth through the system.

Yes. I think when we look at this year, we’re seeing mostly the price of metals entering into potentially higher revenue. And it – there are large projects that are long cycle, and when we book things in the second half of this year, they fall into next year. And so right now, we’re working our backlog for the balance of this year, mostly. And we think the back half of the year will be up over the first half of the year and in the 8% to 10% range, but it’s mostly pricing. And then we see – we’re not giving guidance yet for the back half, let alone for 2023 and 2024, but we’ll start to see the projects get layered in for 2023 and 2024.

And are you seeing increased bid activity for 2023, 2024?

We are, and we’re definitely seeing increased quoting activity from a lot in petrochemical, from maintenance to – the larger projects take time, but they’re being talked about.

Okay. Great. Okay. Yes. That does it from me. Thank you.

Thanks, Jim.

And there are no further questions in queue at this time. I would now like to turn the floor back to Kevin Longe for closing remarks.

Thank you, everybody, for joining us for today’s call. We look forward to getting back together at the end of the second quarter and later in the year. So thank you.

Thank you, ladies and gentlemen. This does conclude today’s conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.