Good day, ladies and gentlemen. And welcome to the DMC Global Second Quarter Earnings Call. At this time, all participants have been placed in a listen-only mode, and the floor will be open for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Geoff High, Vice President of Investor Relations. Sir, the floor is yours.

Hello. And welcome to DMC’s second 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 will now turn the call over to Kevin Longe. Kevin?

Good afternoon and thank you for joining us for today’s call. Our second quarter financial results exceeded the high end of our guidance, driven by healthy end market demand, improved pricing, and strong execution by our employees. Our consolidated second quarter sales were a record $165.8 million, up 20% from the first quarter and up 153% versus the second quarter of 2021. Excluding revenues from Arcadia, which we acquired a 60% controlling interest in during last year’s fourth quarter, second quarter sales were up 26% sequentially and up 37% versus the second quarter last year. Second quarter sales at DynaEnergetics, our energy products business, increased 38% sequentially to $67.5 million. The improvement was driven by an increase in international orders and very strong demand from North America’s onshore oil and gas industry. DynaEnergetics’ second quarter gross margin was 30%, up from 26% in the first quarter and 25% in the second quarter last year. The increase reflects higher sales on fixed manufacturing overhead, lower manufacturing costs resulting from improved operating efficiencies, and higher average selling prices. DynaEnergetics plans to implement additional price increases in the third quarter, and we expect it will finish the year at its target gross margin of approximately 34%. DynaEnergetics shipped a record number of its fully integrated DS perforating systems during the quarter and it’s benefiting from its position as the only manufacturer that offers this comprehensive system. DynaEnergetics plans to launch several new products that will continue to expand the family of DS perforating systems and enhance the features and performance of DynaEnergetics’ intrinsically safe initiating technology. Second quarter sales at Arcadia, our architectural building products business, increased 12% sequentially to $76.5 million. The increase reflects higher selling prices, which were implemented to offset sharply higher aluminum prices. The increase in Arcadia selling prices led to improved gross margins, which increased to 34% from 30% in the first quarter. A portion of Arcadia’s aluminum inventories purchased during the first quarter at significantly higher prices will shift during the third quarter. This is expected to temporarily depress Arcadia’s gross margin, as Michael addressed in his guidance. During the second quarter, Arcadia’s commercial business benefited from healthy activity in its primary low- and mid-rise building markets and also saw steady demand at its Satellite facilities located across the Western and Southwestern United States. These 11 service centers work with hundreds of regional glass and glazing contractors, who are a consistent source of relatively small quick-turn orders. Arcadia has established a reputation within this market for providing broad product availability, short lead times, and excellent customer service. Arcadia Custom, which provides premium steel, aluminum, and wood windows and doors to the high-end residential real estate industry, continued to address a large order backlog that is expected to keep its manufacturing facility at full capacity well into 2023. Arcadia Custom serves a segment of the real estate industry that is generally less affected by rising interest rates compared to the broader housing market. We continue to make progress on the implementation of Arcadia’s new enterprise resource planning system and are also making headway on the design and planning of additional finishing capacity. Second quarter sales at NobelClad, our composite metals business, were flat versus the first quarter. However, order backlog increased 5% sequentially to approximately $47 million, reflecting the impact of higher metal prices. Rolling 12-month bookings at NobelClad were $92.5 million, up from $84 million at the end of last year’s second quarter. The mid- to long-term growth prospects at NobelClad continued to improve. Growing global use of liquefied natural gas has generated strong demand for NobelClad’s cryogenic transition joints, which are used to address the extreme temperatures and pressures inherent to LNG processing. NobelClad is also addressing inquiries from several segments of the alternative energy industry, including hydrogen, geothermal, and solar. This week, NobelClad received its first commercial order for its new product line DetaPipe. I am very pleased with our sales growth and improved profitability during the second quarter. As we head into the second half of the year, we are focused on continual improvement in margins, improving free cash flow, and continuing to strengthen our balance sheet. With that, I will turn the call over to Mike for a review of our second quarter financial results and a look at third quarter guidance. Mike?

Thanks, Kevin. As Kevin noted, second quarter sales were $165.8 million. Excluding the Arcadia acquisition, consolidated sales were $89.4 million, an increase of 37% versus the second quarter of 2021. Arcadia reported second quarter sales of $76.5 million, up 12% sequentially. DynaEnergetics reported second quarter sales of $67.5 million, up 38% sequentially and 60% versus the same quarter last year. North American sales increased 31% sequentially, and international sales increased 95% sequentially. Excluding a large order from a customer in South Asia, international sales increased 31% sequentially. Sales at NobelClad were $21.9 million, flat sequentially and down 6% versus last year’s second quarter. Consolidated gross margin in the second quarter was 31%, up from 27% in the first quarter and 26% in last year’s second quarter. Second quarter gross margin benefited from the acquisition of Arcadia, which had 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, combined with higher average selling prices at DynaEnergetics. These improvements were offset by the expiration of the employee retention credit under the CARES Act, which benefited the second quarter of 2021. Arcadia reported second quarter gross margin of 34%, an increase versus 30% in the first quarter driven by pricing actions. DynaEnergetics reported second quarter gross margin of 30% versus 26% in the first quarter and 25% in last year’s second quarter. The margin improvement from last year primarily relates to the impact of higher sales volume on fixed manufacturing overhead expenses, as well as higher average selling prices. NobelClad’s second quarter gross margin improved to 28% from 19% in the first quarter and was flat compared to the year-ago second quarter, primarily due to more favorable project mix and the impact of the prior year CARES Act credits, respectively. Looking at our second quarter expenses, consolidated SG&A was $29.4 million and included $11.4 million of SG&A from Arcadia, compared to $14 million in the same quarter last year. The year-over-year increase also was attributable to higher variable incentive compensation, the expiration of the employee retention credits, and implementation costs associated with the new enterprise resource planning system at NobelClad. We reported consolidated operating income of $9.9 million. Second quarter adjusted net income attributable to DMC was $5.6 million or $0.29 per diluted share versus adjusted net income of $1.7 million or $0.10 per diluted share in last year’s second quarter. Adjusted EBITDA attributable to DMC was $22.4 million versus $7.5 million in last year’s second quarter. Arcadia reported second quarter adjusted EBITDA attributable to DMC of $9.8 million, DynaEnergetics reported second quarter adjusted EBITDA of $13.3 million, while NobelClad reported adjusted EBITDA of $3.4 million. We ended the second quarter with cash of $11.8 million versus cash of $30.8 million at December 31, 2021. The decrease was driven by a building working capital, principal payments on long-term debt, and quarterly cash distributions to our Arcadia joint venture partner. The working capital increase primarily reflects higher required inventory levels at Arcadia and DynaEnergetics due to higher input prices and increased lead times. Our total outstanding share count is now 19.5 million. Looking at guidance, third quarter sales are expected to be in a range of $155 million to $163 million versus the $165.8 million reported in the 2022 second quarter. At the business level, Arcadia is expected to report sales in a range of $70 million to $73 million versus the $76.5 million reported in the second quarter. DynaEnergetics is expected to report sales in a range of $65 million to $69 million versus the $67.5 million reported in the second quarter. Improved pricing in North America will be partially offset by lower international sales versus the second quarter, which included the previously mentioned large international order. NobelClad sales are expected in a range of $20 million to $21 million versus the $21.9 million reported in the 2022 second quarter. Consolidated gross margin is expected in a range of 29% to 31% versus 31% in the second quarter. The expected decline reflects a less favorable project mix at NobelClad and lower margins at Arcadia resulting from a first quarter spike in aluminum prices that drove up the average cost of Arcadia’s inventory. The majority of this inventory is expected to be shipped during the third quarter. Third quarter selling, general, and administrative expense is expected in the range of $30 million to $31 million versus the $29.4 million reported in the 2022 second quarter. Third quarter SG&A will include approximately $600,000 in implementation expense associated with a new enterprise resource planning system at Arcadia. Amortization expense is expected to be approximately $6.7 million. The remaining value assigned to Arcadia’s acquired backlog was largely amortized during the second quarter; amortization expense is expected to be $3.6 million in the fourth quarter. Third quarter depreciation expense is expected to be $3.5 million and interest expense is expected to be in a range of $1.9 million to $2 million. Third quarter adjusted EBITDA attributable to DMC is expected to be in a range of $16 million to $19 million versus the $22.4 million in the 2022 second quarter. Capital expenditures are expected in the range of $5 million to $6 million. With that, we are ready to take any questions.

Your first question for today is from Cameron Lochridge. Cameron, your line is live.

Hey. Good afternoon, guys. Thanks for taking my questions.

Good afternoon, Cameron.

So I was hoping to start just at a high level with Dyna, very strong margin progression here so far in the first half, expected to continue into the back half. Kevin, you have touched on previously that margins in that segment are likely not to return to the 2019 levels, just given the difference in mix, going from selling components and systems to now solely systems. But I was wondering if you can maybe help us kind of think about what the ultimate earnings power of that business now looks like? Could we see a scenario where even if margins do not return to 2019 levels, EBITDA dollars still could reach that level, and if so, maybe when do you think that could happen?

First of all, that's correct. When we were selling more components and initiating systems, which had higher margins but lower dollar values, we started as a component company and transitioned into a system company. This change led to a significant increase in revenue, although the average margin declined as we sold more hardware related to the energetics. We see the optimal margin range being around 34% to 36%. We are pleased with the progress made year-to-date, with a 31% revenue increase in North America from Q1 to Q2. Our unit volume also rose by approximately 28%, largely due to pricing differences. We plan to carry this momentum into the third and fourth quarters, targeting less volume but more margin improvement in the second half of the year. We anticipate further unit growth in 2023 as the industry adapts to the current activity levels. Therefore, we expect to return to reasonably healthy EBITDA levels, hopefully within the next 12 to 18 months.

Thank you, Kevin, that’s very helpful. Now, turning to Arcadia, we saw a strong first half of the year with solid sequential growth in the second quarter. It seems like we may experience a dip in margins for the current third quarter due to high aluminum prices earlier in the year. I’d like your insights on the decline in revenue for this quarter and what might be influencing that. Additionally, how should we view order trends as we move from the second quarter into the beginning of the third quarter?

Breaking that down, I believe the order trends are quite steady, and we have a substantial backlog in the Arcadia business, which is higher than we would prefer in relation to the service standards for our customers. Consequently, what you are observing is not so much a change in revenue volume, but rather a fluctuation in pricing from quarter to quarter, as the cost of aluminum is decreasing compared to its levels at the end of last year and in the first quarter. It has fallen further into the second quarter, impacting the top line. As we start to move the inventory we have on hand, which was acquired at higher costs, we anticipate some margin compression in the third quarter. However, we expect to navigate through this by year-end. We are quite satisfied with their unit performance and the stability of their markets at this time.

Got it. And so just to make sure I am tracking you correctly. It sounds like in the third quarter, the decline is mostly on a pricing decline and not so much on a unit volume decline as it were?

Correct.

Yeah. And just real quickly, you look at average LME through 6/30. It was just over $3,000 at that time and Q3 to-date so far just the first month and we are running $2,500 at that time.

Got it. Got it. That’s super helpful. Thank you. Thank you both and I will turn it back.

Yeah. Thanks, Cameron.

Your next question is coming from Stephen Gengaro. Stephen, your line is live.

Thanks. Good afternoon, everybody.

Yeah. Hi, Stephen.

Hi, Kevin. Could you elaborate on the margin compression expected for the next quarter at Arcadia? It seems like this compression is mainly affecting EBITDA and contributing to the sequential decline. Can you provide more details on that?

Yeah. So this is Mike. And to answer your question on bridging Q2 to Q3 guide, NobelClad is lumpy. They have got unfavorable project mix. So that’s a couple million down on EBITDA after 3.4 in Q2. So it’s really kind of a mix probably 50-50 between NobelClad and just a slight margin downtick in Arcadia. I think, from an Arcadia’s standpoint, with the rise that we have taken in aluminum prices, you are seeing margins move around quite a bit. But on a medium to longer term basis, we see Q2 as a good indicator of long-term margins and that was 34%. Their pro forma 2021 was 34% and that’s been a historical average even before then. So I think you are going to see it bounce around a little bit with aluminum price volatility, but that’s where it’s going to settle out long-term.

Thank you. Can you clarify whether you were referring specifically to the U.S. or if your comments also included international changes at Dyna? I want to ensure I understand the context, especially regarding Canada and its role in your comments.

Yeah. Canada is in our North America. It’s not part of the international, I guess I would say.

Thank you. I wanted to ask about the current situation with pressure pumping equipment. It seems that there's a notable demand as many EMPs are attempting to secure equipment even into next year. Given this context, I'm curious if you are observing an acceleration towards integrated systems and how your products are performing compared to similar offerings that are packaged for the same tasks.

Yeah. We saw quite a pickup in the year-to-date numbers, but specifically in Q1 to Q2 in the unit volume, approaching 38%, actually 28% in our DS systems. And at the same time, we saw a pickup in our pricing by approximately 3 percentage points. So we are pleased with the progression in both our volume and our price. In the first half of this year, we expect with some of the sold out situation that you have in pressure pumping that we are going to see more margin growth and price growth in the second half of the year. But we are seeing our market share at a healthy number compared to where it was a year ago, and we benefit in strong markets where single source responsibility, less working capital, fewer people in the service companies, and at the well site, all these dynamics work towards an integrated system, and so we feel pretty good about where we sit right now.

Great. Thanks. And just one other quick one, is the international large sale in Dyna in the quarter. Is that accretive to margins?

Yeah.

Yes.

Okay.

Yes.

That’s all. Thank you. Thank you both. Appreciate the color.

Yeah.

Your next question for today is coming from Gerry Sweeney. Gerry, your line is live.

Good afternoon, Kevin, Mike.

Hi, Gerry.

How you doing?

Good.

I would like to clarify a point regarding DynaEnergetics. It appears that the guidance for the third quarter indicates flat sequential performance, but as you mentioned, there was a significant international order in the second quarter. Could you specify the size of that order? It seems that this was a one-time event that occurs annually, so there might only be a small sequential change from the second quarter to the third quarter. Nevertheless, it looks like there is actual growth in the North American base business, am I correct?

Correct.

Yeah.

It was approximately a $4 million order. We do not expect that volume to be replaced internationally in the third quarter. Therefore, the revenue increase is happening in North America, both in unit volume and price.

Got it. And then on, Arcadia, the one thing I was struggling with, when you purchased it, I think, some of the talk was they had some very unique pricing strategies or way of implementing pricing that sort of mitigated some of the potential inflationary costs with cost of goods sold, i.e., let’s just say aluminum in this case. But it seems like that’s not necessarily happening currently. Is that because of the just extreme volatility in aluminum pricing or can you help me sort of understand that?

I believe they have done an outstanding job managing selling prices and are very efficient in this regard. This is a primary focus for them, and they have established the right mechanisms to pass along price increases due to the inflation they are experiencing, especially in metals. However, there is significant volatility in aluminum costs, and obtaining materials has been challenging due to supply chain issues. As a result, we find ourselves with an uncomfortably high backlog, which I mentioned earlier. Nonetheless, it was crucial for us to have inventory available for the second half of the year, and we acquired it at various prices. Unfortunately, when we were building our inventory, the prices for aluminum were high. Consequently, as we move into the third quarter, we will be absorbing these aluminum costs within our revenues, which is necessary for fulfilling our customer requirements.

So…

…as far as an organization and their ability to manage inventory, manage pricing, and pass pricing along at fair prices to our customers, they are second to none, quite frankly, in companies I have been associated with.

Got it. So at the end of the day, this was more of a business service as relates to the customer decision and not a profitability discussion, if it's…

Correct. They are thinking medium- to long-term, managing selling prices, managing inventory levels, and ensuring that we can meet demand. It's been a challenging environment lately, and the price for aluminum is quite volatile, making it difficult to manage. Our goal is to handle our selling prices effectively, which we have achieved, while also maintaining our service levels for our customers.

Got it. Regarding your comment about focusing on reduced volume and increased pricing in the second half with DynaEnergetics, are you suggesting that price increases are standard and that we might withhold selling equipment if those price increases are not accepted?

I think that's too heavy-handed in how we interact with our customers. Our customers recognize the value of our product line. When you examine the cost of our perforating equipment, even with the price increases we are implementing, the value we provide far exceeds the premium or, frankly, the cost of the equipment. Therefore, we are executing fair price increases. In fact, the overall cost of perforating equipment for drilling and completing a well is decreasing due to the enhanced efficiencies we are offering, and our well costs are declining despite our price increases.

Got it. So I have one more question about pricing. Is it a general price increase across the board, or have you noticed companies starting to raise prices annually, then adjusting to twice a year due to inflation, and eventually deciding to implement price increases as needed? I'm curious about your strategy and how you approach pricing moving forward.

Yeah. I mean the markets are much more dynamic of late than they have been where you see inflation and you see significant cost increases and you have to be flexible, both in terms of how you manage your supply chain, but how you implement these price increases. We have a framework where our best customers get our best prices, but we are ratcheting up that framework. We are not changing the relationships of people within that framework. And we have a customer base that is committed to the product and loyal to the product because of all the operating characteristics that it brings to their operations and so we have a responsibility of also keeping them competitive and successful in the marketplace, and we are just balancing all these things.

Got it. Okay. I will jump back in line.

Yeah.

Thank you.

We have a follow-up question coming from Stephen Gengaro. Stephen, your line is live.

Thanks for taking the follow-up gentlemen. So, Kevin, just going back a couple of years, we used to talk about NobelClad and Dyna, and sort of the incremental margin that would kind of be a normalized incremental margin. They were pretty healthy. I think you earlier talked about somewhere in the 30% to 40% range. How do you think about the incremental margin potential in the three segments as we go forward from here?

Yeah. Stephen, I would say that, with NobelClad, the incremental margins remain in that 40% to 45% range, usually it’s right in that range. And again, we have lumpiness from quarter to quarter, but over a year, that’s how we would think about that as that business grows. DynaEnergetics historically on a pre-pandemic, they were in that 45% range, I think right now they are closer to 35%, but we see them with the ability to get back to that 40% to 45% range with the margin growth and pricing. And then in Arcadia, that’s a high variable cost business as well with, we think on a long-term run rate in the mid-30s on gross margins. So their incremental margins should be in that 40% to 45% range as well. So we still see along that sort of same zip code in that 40% to 45% range.

Stephen, that’s it.

I had muted you so wouldn’t hear the background noise. Yeah, I think that the only other quick one I would add is as we look into the next couple of quarters on the Arcadia front and those capital little bit. Are there any pieces of it we should be more concerned about from a GDP perspective, I know you mentioned the custom side is probably more resilient. But do you see any signs in the other businesses that worry you or things are pretty solid?

I believe they are quite solid in terms of their commercial outlook. Their end of the commercial aspect is fairly resilient, and they effectively balance repair and replacement with new construction as the market changes. Therefore, considering the market they serve and their backlogs, we feel they are comfortable with their unit volume outlook for the foreseeable future.

I think in the residential side, we say that that’s serving the higher end of the market and less susceptible to higher interest rates. So we think we are well positioned in both the residential and the commercial, yeah.

Okay. Great. Thank you for the answers.

You have another follow-up question coming from Gerry Sweeney. Gerry, your line is live.

Hi. We can make it short call so I figured to ask a follow-up. Two questions, one probably a little harder and the other a little bit more in depth. But on the DynaEnergetics side, how much visibility do you have with your customers and not so much I know the orderings come in as they do. But are you talking to them of what they are looking at for the second half of this year, but even more importantly, into 2023, have any insight into their plans? Do they come down to that level with you?

We have short lead times and respond quickly, which is a key value we offer with our fully assembled integrated system. This allows us to react swiftly to customer demand through our vertical integration. We typically have visibility of less than 30 days, usually around three weeks.

Got it.

Yeah.

Yeah.

When it comes to next year, we are more looking at frac stages and how the overall market is rather than a specific customer.

Got it, I wasn’t sure, especially when things get tighter, they start reaching out and saying these are our plans, make sure we are sort of in the queue and be prepared?

With our volume growth, our team has done an excellent job managing the supply chain, and it’s easier with the vertical integration, especially on integrated switching initiating systems. They have successfully met the demand of our customers.

Understood. The legal matters that have been somewhat dormant are still present and will be for a while. Is there any indication that these issues are becoming more pressing, or have there been any related costs this quarter in SG&A that we should mention, even if they may not be long-lasting?

Our litigation costs year-to-date are approximately $4 million, with $1.7 million incurred in the quarter. This spending level is manageable for us, and we anticipate lower expenses in the second half of this year compared to the first half, mainly due to the pace of the court systems.

Got it. That $4 million in litigation costs reflects the ongoing legal expenses we will always incur. But is that $4 million…

Yeah. That’s purely litigation, correct.

Yeah.

And Mike, did I get those numbers correct on the $4 million year-to-date?

Yes.

Okay. I appreciate it.

Your next question is a follow-up question coming from Cameron. Cameron, your line is live.

Hey. Thank you. Just we are all doing follow-ups now so.

We don’t want you to go away, so we are enthusiastic.

I appreciate it. I wanted to revisit some of the cost items for the second quarter and discuss their progress throughout this year and into 2023. First, regarding Arcadia, there was about a $1.5 million increase, slightly less than a $1.25 million jump in G&A at Arcadia in the second quarter. Can you provide some insight into what that includes, and does it return to what you reported in Q1 2022 for the third quarter? How should we approach this?

Yeah. I think the second quarter we have been putting some people in. It’s people, systems, processes, and I think you are going to see that second quarter run rate prevail on a go-forward basis, and it might even tick up a bit.

Okay. Got it. And then, if you, I mean, given all the moving pieces, we have heard you loud and clear about Arcadia’s margins just coming down slightly with aluminum prices early on in the year. But can you give us maybe a ballpark for the magnitude of the decline we should see in the third quarter for Arcadia?

Yeah. So I think it’s a couple of points.

Okay. Okay. Got it

To clarify, it will be around 200 basis points for the quarter. It could be slightly higher, possibly up to 300 basis points, but generally, we anticipate margins will recover.

Got it. Got it. That’s helpful. Okay. And then maybe just on Dyna, the cost items, I mean, if I think back to like 2019, right, your quarterly G&A and selling and distribution expenses were, I don’t know, call it, $9-ish million. Here in the second quarter, it was about $8.5 million, is that kind of the new norm just given the economies of scale as that business grows?

Yeah. I would say so. I mean, when I look back at 2019, DynaEnergetics’ SG&A was $34.1 million and we are tracking in and around that number for 2022 as well. We have had the elevated legal spend, and we think we have topline, it is going to continue growing into the existing SG&A number.

Yeah. Yeah. Got it.

We also became more efficient over time, particularly as we exited our Russian location and business I think in that timeframe.

Right. That’s right. Okay. Okay. All right. That’s it for me guys. Thank you.

Yeah. Thank you, Cameron.

Your next question for today is coming from Jim Brilliant. Jim, your line is live.

Hey, guys. How are you doing?

Fine Jim. Nice to hear your voice.

Good to hear you. Couple of questions, I just want to clarify one thing, I thought you said back half of the year, but mostly in the fourth quarter you are looking to exit the year at about 34% gross margin on DynaEnergetics, did I hear that right?

Correct. You won’t see that in the third quarter, but we hope to exit the fourth quarter, and that’s really the layering in of the pricing and the notice that we have given our customers.

Okay. And is there a recent price increase or are you talking about one from April?

No, they are either delayed or recently announced within the quarter. They will start taking effect in this third quarter and progress as the quarter goes on. We moved away from published price increases because it seemed to create a lot more confusion and anxiety, and now we are speaking to customers individually, ensuring fairness across the entire group we have.

Okay. That makes sense. To clarify, what is the current revenue capacity at DynaEnergetics considering the internal manufacturing enhancements you have implemented over the past few years, particularly since 2019?

Yeah. We are operating in the mid-20s in terms of our market share and I am talking in terms of unit volume. And we feel that we could operate easily up to the low-to-mid 30s with the capacity that we have.

Okay. So what is your utilization at this point?

I would need to calculate it. We are not focusing on that right now in terms of...

You could add additional shifts and that sort of thing so?

We are currently operating at about 70% to 80% utilization with the shifts we have in place or could potentially implement.

Okay. And then kind of backing out the overall industry there’s been some pretty widespread reports, I guess, of shortages with integrated circuits for, certainly not for you guys…

Yeah.

…. with your results, but in the industry. How do you see that playing out?

We don't see any shortages on our end. We have our own electronics group and source our circuits for the boards we manufacture. In fact, we've likely benefitted from our supply chain. While we have heard of shortages affecting other companies, we haven't experienced any ourselves.

Okay. And then any comment on the upcoming new products coming out of Dyna?

Not at this time. We will make announcements as the features are introduced to the market. These features will not change the overall size of the market but will enhance our competitiveness, efficiency, and the capabilities of our current perforating systems. We believe that these improvements will benefit our customers in terms of performance and could potentially help us gain market share over time, although they will not expand the total available market.

Okay. Did you mention that there was a first order for your DetaPipe from NobelClad?

Sure.

And what is the end market for that, which I know you guys ignored…

It’s used by the petrochemical industry in the production of epichlorohydrin, which is used in acrylics, if you will.

Okay. So regarding the initial order, are you seeing increased activity in the petrochem business? We've discussed this for years, and it always seemed like capital spending in that industry was continually delayed, but it looks like this might finally be the turning point.

Yes, we believe they are entering a more favorable market in the upcoming years compared to the past. There is an on-shoring of certain production capabilities. However, the challenge over the last year has been the maintenance work at facilities that are operating continuously amid supply chain issues. We anticipate seeing improvements in maintenance as well as growth in applications.

Okay. And is it too early to get any kind of outlook for 2023 in NobelClad or are you willing to go out on a limb and give us some guidance there?

No. I am not willing to go out on a limb on that. I haven’t meant the guidance that we have given in this half.

Yeah. I thought I'd try Kevin, it’s been…

Yeah. I think we are a show-me story on NobelClad’s growth.

Yeah. Fair enough. Okay. And then on Arcadia, with the aluminum prices coming down, do you get any kind of working capital benefit because of that?

Yes.

We assess the value of our inventory, and the pricing might suggest an increased availability of aluminum. As a result, we do not need to maintain as much inventory as we currently have.

Okay. So it’s much easier now and, of course, the raw cost will be lower.

Yeah. I mean.

Okay.

And I guess, I should say, we are pleased that with where our leverage ratio is at the end of the quarter, particularly given the significant increase in working capital that we have in both Arcadia and DynaEnergetics. And so with that coming down, and hopefully, an increase in turns in both businesses, we should see a freeing up of capital.

Okay. Great, okay. That will do it for me. Thanks. I appreciate.

There appear to be no further questions in queue. I would like to turn the floor over to Kevin for any closing remarks.

I’d just like to thank everybody for their interest in our company, and we look forward to speaking with you again at the end of the third quarter. Have a great day and look forward to talking with 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.