Good afternoon, ladies and gentlemen, and welcome to the DMC Global Third Quarter Earnings Call. At this time, all participants have been placed on a listen-only mode and we will open the floor for your 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 third 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 a review of DMC's third quarter financial results. Our third quarter sales and profitability were above our guidance, reflecting continued strong demand within the end markets served by our three asset-light manufacturing businesses. Consolidated third quarter sales were a record $174.5 million, which were up 5% from the second quarter and up 160% from the third quarter last year. Excluding $80.7 million in revenues from Arcadia, in which we acquired a 60% controlling interest last December, third quarter sales increased 5% sequentially and 40% versus the third quarter of 2021. The growth reflects stronger sales at DynaEnergetics, our energy products business, which is benefiting from healthy activity in the global well completion industry. DynaEnergetics third quarter sales were $70.4 million, up 4% sequentially and up 59% versus last year's third quarter. The safety performance and efficiency of DynaEnergetics fully integrated DS perforating systems continue to drive increased adoption by North America's exploration and production companies and service providers. This year, DynaEnergetics has already surpassed the one million unit mark for shipments of its factory assembled performance-assured DS perforating systems. It is the first time one million units have been shipped in a single year since the product was launched in 2015. The on-time delivery rate of these systems is 99.93%, and they were deployed by our customers at a success rate of 99.98%, which we are very proud of. The systems also were deployed without a single safety incident in the seven-year commercial history of the DS system. We have shipped nearly four million units without a reported safety issue. Arcadia, our Architectural Building Products business reported third quarter sales of $80.7 million, up 6% sequentially and up 24% versus pro forma sales in last year's third quarter. The improvement reflects higher selling prices, which were implemented to offset a sharp increase in aluminum costs earlier in the year. Aluminum prices actually rose faster than Arcadia increased prices for its products. Additionally, some third quarter orders that shipped out of backlog were quoted before the price increases took effect. Combined, these factors reduced Arcadia's gross margin to 30% from 34% in the second quarter and 36% in last year's third quarter. We expect it will take another quarter for the balance of the high-priced aluminum inventory to move through Arcadia's service centers, at which time we expect gross margins will return to normalized levels in the low to mid 30% range. Demand for commercial products in Arcadia's Western and Southwestern US territories remains healthy. And Arcadia's commercial team is working on booking a diverse collection of projects that include hotels, educational facilities, and casinos. Arcadia is also investing in resources to support future growth. We've been working on the implementation of a new enterprise resource planning system since the beginning of the year. In addition, Arcadia has hired sales and manufacturing personnel at its new service centers in Dallas and Houston, two large markets that we believe will fuel strong long-term growth. Arcadia Custom, which serves the high-end residential market, also is reporting strong demand and is working through a large order backlog. It is adding production capacity at its Tucson, Arizona facility and investing in sales and marketing resources that will create demand for its differentiated product offering. Third quarter sales at NobelClad, our composite metals business were $23.4 million, up 7% sequentially and up 2% versus last year's third quarter. NobelClad's rolling 12-month bookings increased to $97.7 million, up from $92.5 million at the end of the second quarter. Order backlog increased to $48 million from $46.8 million in the prior quarter. The outlook at NobelClad continues to improve, and we are beginning to see several of the large industrial projects NobelClad has been pursuing moved to the award phase. We made significant progress during the third quarter, and I'd like to thank DMC's employees for their continued hard work and commitment to the company. DMC is well positioned to deliver long-term growth, improved returns for our shareholders, and opportunities for our employees. Now I'll turn the call over to Mike for a review of our third quarter financial results and a look at fourth quarter guidance. Mike?

Thanks, Kevin. Quickly recapping our top line results. Third quarter sales were $174.5 million, up 5% versus this year's second quarter. Arcadia's third quarter sales were $80.7 million, up 6% sequentially. DynaEnergetics reported third quarter sales of $70.4 million, up 4% sequentially. DynaEnergetics North American sales increased 6% sequentially, while international sales decreased 5% sequentially. Sales at NobelClad were $23.4 million, up 7% sequentially. Consolidated gross margin in the third quarter was 29%, down from 31% in the second quarter, and up from 25% in last year's third quarter. Third quarter gross margin reflected an expected dip in gross margin at Arcadia resulting from the recent volatility in aluminum prices. The gross margin improvement compared to last year's third quarter reflects higher sales volume on fixed manufacturing overhead expenses at DynaEnergetics. As Kevin mentioned, Arcadia's third quarter gross margin was 30%, down from 34% in the second quarter. DynaEnergetics reported third quarter gross margin of 30%, flat versus the second quarter, and up from 22% in last year's third quarter. The margin improvement from last year primarily relates to the impact of higher sales volume on fixed manufacturing overhead expenses. NobelClad's third quarter gross margin was 27% versus 28% in the second quarter and 30% in the year-ago third quarter, primarily due to a less favorable project mix and the impact of the prior year CARES Act credits, respectively. Looking at our third quarter expenses, consolidated SG&A was $30.5 million and included $12.9 million of SG&A from Arcadia compared to $15.3 million in the same quarter last year. The year-over-year increase also was attributable to higher variable incentive compensation, the expiration of employee retention credits, and implementation costs associated with the new enterprise resource planning system at NobelClad. We reported consolidated operating income of $13.4 million. Third quarter adjusted net income attributable to DMC was $6.7 million or $0.35 per diluted share versus adjusted net income of $403,000 or $0.02 per diluted share in last year's third quarter. Adjusted EBITDA attributable to DMC was $21.8 million versus $5.8 million in last year's third quarter. Arcadia reported third quarter adjusted EBITDA attributable to DMC of $7.2 million. DynaEnergetics reported third quarter adjusted EBITDA of $13.9 million, while NobelClad reported adjusted EBITDA of $3.4 million. We ended the third quarter with cash of $18.5 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 our Arcadia joint venture partner. The working capital increase primarily reflects higher required inventory levels at DynaEnergetics due to increased sales volume, and at Arcadia from higher input prices and increased lead times. Our total outstanding share count is now 19.5 million. Looking at guidance. Fourth quarter sales are expected to be in the range of $158 million to $168 million versus the $174.5 million reported in the 2022 third quarter. At the business level, Arcadia is expected to report sales in the range of $70 million to $75 million versus the $80.7 million reported in the third quarter. The sequential decline primarily relates to the anticipated impact of seasonality. DynaEnergetics is expected to report sales in a range of $68 million to $72 million versus the $70.4 million reported in the third quarter. NobelClad sales are expected in the range of $20 million to $21 million versus the $23.4 million in the 2022 third quarter. Consolidated gross margin is expected in a range of 27% to 29% versus 29% in the third quarter. Fourth quarter gross margin is expected to be impacted by a less favorable project mix at NobelClad and selling through higher-priced aluminum inventory at Arcadia. Fourth quarter selling general and administrative expense is expected in the range of $31 million to $32 million versus the $30.5 million reported in the 2022 third quarter. Amortization expense is expected to be approximately $3.7 million. The remaining value assigned to Arcadia's acquired backlog was fully amortized during the third quarter. Fourth quarter depreciation expense is expected to be $3.7 million and interest expense is expected to be $2.4 million. Fourth quarter adjusted EBITDA attributable to DMC is expected to be in the range of $15 million to $18 million versus $21.8 million in the 2022 third quarter. Capital expenditures are expected in the range of $6 million to $7 million. With that, we're ready to take any questions.

Thank you. Ladies and gentlemen, we are now open for questions. The first question comes from Cameron Lochridge with Stephens. Your line is live.

Hi, good afternoon, guys. Thanks for taking my questions.

Yes, good afternoon, Cameron.

Kevin, I wanted to start on Arcadia and the geographic expansion efforts you outlined when you purchased the business back in last December. Could you just comment on how that is progressing? Maybe share your latest thoughts on the efforts there? And any specifics around markets you're most excited about?

The geographical expansion primarily was Houston and Dallas where over the last 18 months we've opened up two new satellite facilities to serve the local market. And I believe they're moving in a healthy direction and we see them as growth opportunities as we move forward.

That's great. Great to hear. Thanks, Kevin. And then maybe flipping to DynaEnergetics. Thinking about the gross margins here, 29% up nicely on a year-over-year basis, but perhaps a little shy of the 30% target we had come to expect heading into the fourth quarter. Could you just maybe share your thoughts around pricing, and what needs to happen for us to get to that 30% plus range that we had discussed?

There are two factors that will positively influence the gross margin as we progress. In the second half of this year, we have mainly been addressing slow-moving inventory that has been on our books for the last couple of years. In a strong market, we are successfully moving this inventory, although at lower prices and with lower gross profit. The underlying gross profit from our current sales is stronger than expected, and we anticipate seeing this as we approach the fourth quarter and as we exit it. Pricing is a gradual process, and we have experienced some positive price movements throughout the year. Nonetheless, we operate on a principle where our best customers receive our best prices, and these customers have also increased their purchases, representing a larger share of our overall business. Therefore, the gross margin has increased more slowly due to the customer mix. However, as we enter the New Year and, based on our expectations for a decent market in the energy sector, we expect to see pricing growth accelerate in the first half of the year.

Hey, Cameron, this is Mike. Just a note too for the nine months we were at 29%. We finished for the third quarter at 30% margin in DynaEnergetics, and our guidance currently contemplates low 30s. So call it in that 31% to 32% range for DynaEnergetics. So we see that marching up.

Got it. Thank you, Michael. I appreciate the answers, guys. I'll turn it back.

Okay. The next question is coming from Ken Newman with KeyBanc Capital Markets. Your line is live.

Hey guys, nice quarter.

Thank you Ken.

I wanted to explore the pricing aspect a bit more. Specifically for Arcadia, can you provide insight on how much price adjustments contributed to the revenue growth this quarter? Additionally, what assumptions have been made in the revenue guidance for the fourth quarter?

In the third quarter, the revenue growth was primarily driven by price rather than volume. However, in the third and fourth quarters, we have noticed a contraction in margins because we are shipping out our backlog, and raw material prices have increased more than selling prices, especially for the items being shipped from backlog. We anticipate that as we finish Q4 and move into the first half of 2023, gross margins in Arcadia will return to the typical range of low to mid-30s.

I'm trying to understand your comments regarding third quarter performance, where it seems that price growth has surpassed volume growth. I recognize the seasonal factors influencing the fourth quarter, but I would expect prices to remain stable or even increase depending on how costs evolve. Could you provide more detail on the typical seasonal trends in volume from the third to the fourth quarter in Arcadia? How much of the volume decrease is compensated by increased pricing? Also, is there a possibility that the fourth quarter guidance may be too cautious if prices need to be raised further?

Yeah. Again, a lot of what we're doing is shipping out of that backlog where it has already been priced. We believe there will be a significant flywheel effect again in the first half. Regarding your comment about seasonality, we're looking at a seven-day holiday. Therefore, we have fewer days to ship in Arcadia for the fourth quarter. There is no demand disruption in the marketplace; it's solely due to the holiday season that we've guided $70 million to $75 million instead of $80.7 million.

Yeah. And I'll add to that Ken that we typically take a week at the end of the quarter and for holidays between Christmas and New Year's where we're doing inventories and that's impacting the revenues.

Got it. That's helpful. We've heard from a few other building product peers and others involved in commercial non-residential projects that there have been some modest delays primarily related to the supply chain. You may have mentioned it in your earlier response, but I'm interested in any insights or discussions you've had with your customers regarding commercial non-residential projects.

We haven't seen a slowdown in the order input except for lead-time related issues associated with our backlog. And there's significant amount of uncertainty probably more in the back half of 2023 and into 2024. But we feel reasonably strong about the Western market of the United States for the commercial business and in the markets in which we have our satellites.

Okay. Maybe one more. I know this is a longer-term type of question. Given the demand for DynaEnergetics this quarter and your expectations for better margins, how do you compare that to the current macro environment for well completion activity and the ongoing holdbacks on capital expenditure budgets? Can you provide some insights into customer conversations regarding their plans for well completion activity as we move into 2023?

Most of the customers we are speaking with, if not all, are aiming for a strong end to this year and a positive start to the New Year. We continue to expect a favorable market for most of 2023. Our volume is actually increasing; we achieved a record shipment of our DS perforating systems in October. Overall, we feel optimistic about this.

Very good. Thank you.

Okay. The next question is coming from Alec Scheibelhoffer with Stifel. Alec, your line is live.

Good afternoon, everyone. Can you hear me, okay?

Yes.

Excellent. Congrats on the quarter.

Thank you, Alec.

I was curious if you could share some insights on how you've observed the competitive landscape changing with integrated perforating systems compared to components and machine shops that assemble products. What are your thoughts on that market?

We're seeing more and more of the market move towards the integrated system. And that's both provided by ourselves and there are some of the machine shops that are if you will providing a factory assembled system of components that they purchased from other companies as well as make themselves. And so it's moving to more of a product supply to a system supply from a component-supplied business to the service company.

Understood. Yes.

Yes. And we were having a good year. We believe that we're picking up market share. It's driven by the performance of our products but also the performance of the company on having a fully integrated system where we take full responsibility for the performance of the perforating system, and that's different than a lot of the machine shops. And also what's driving our revenue and our market share growth is our ability to deliver on time as well as the performance and safety of our equipment.

Understood. Understood. And kind of shifting gears a little bit to Arcadia. Moving forward in that business, have you seen any impact from rising interest rates on demand? And, I guess, to that effect, how do you see that evolving through the next several quarters just given where interest rates have moved?

We would expect building activity with the higher interest rates as a broad market to slow down. And I know that the residential market is our reporting nationally the broadened residential market is slowing down. We have not seen a slowdown in the high-end luxury home market for residential. And I believe the commercial market tends to lag the residential market. And we haven't seen a slowdown yet, but we would expect there will be a slower market in the back half of the year and into 2024. However, our order input has been greater than our capability. And so in some respects we feel that we will not mirror the market as much because of the demand for products in the territories in which we serve.

Got it. Got it. That's all on my end. Thanks for the color.

Up next, we have Samir Patel with Askeladden. One moment. Samir, can you hear us?

I can. Yes, I was just waiting for you to finish pronouncing the name. My fault for choosing a weird business name. So hey, guys. How is it going?

Yes. Hi, Samir.

I don't really have a question about operating results. It's more, kind of, a big picture platform question for you to answer. So if you look at the price of stock over the past since call it late June, it's been trading at or below levels that it did through all of COVID including the day when oil prices were very famously negative $37 or whatever they reached. So I just kind of wanted to give you the opportunity to maybe take a step back from the quarter and just address what do you think that the market is misunderstanding about your story, right? Is it they think that for example, Arcadia is more cyclical than it is? Is it they think that the oil patch is kind of going to evaporate next year and you're going to go back to not making profits? So just an open-ended question if you have anything to opine about? Thanks.

Samir, this is Geoff, and certainly we're disappointed as well. I think we're seeing as our story has changed we're also seeing a transition in our shareholder base and there have been the departure of a couple of large shareholders. I will say that the interest level that we've seen from new prospective holders, I don't think we've seen it this high in an awfully long time, and I think we're going through a transition. And I think we all believe that what's going to dictate our performance and our valuation is going to be execution and how we perform. And as Kevin has said, we're confident in where we're headed and in our strategy. And we think that's going to be reflected in our share price.

Yes. And I'd add to that Samir that we're having record shipments in DynaEnergetics. We've got a great project business coming in on NobelClad. We're very pleased with Arcadia, the management team, the employees, the markets they serve. They've got a very strong backlog. You can see that the performance of the company is improving. The second half of the year is stronger than the first half of the year. We expect that to continue. And the stock price will catch up as soon as others recognize the value.

Right. I've just been scratching my head because obviously you keep reporting pretty strong results, so. Thanks. I appreciate the time.

Thank you.

Okay. Next we have Ken Newman with KeyBanc Capital Markets. Ken, your line is live.

Hey, thanks. Just I had one last quick follow-up question here, which was around the wraparound pricing benefits maybe into 2023, just given what's been pretty aggressive price increases across the three segments, Arcadia especially. Any color on what that carryover benefit looks like for 2023? Is that like a low to mid-single-digit contributor?

Yes. I mean what I would say is we're guiding 27% to 29% on the gross margin line for the fourth quarter. We expect that to be 30% and plus 30% as we enter 2023 on a consolidated basis. I think the biggest contributor to that is going to be Arcadia followed by DynaEnergetics.

Yes. And Arcadia will be the inventory working its way through the system at the pricing that we have and hopefully can hold. And on the DynaEnergetics side, they've done well with volume and cost improvements, customer mix kind of masked the success that they've had on selling prices, and we'd expect the selling prices to also strengthen in the first half of the year and not only just to capture some of the inflation that we've had but also to go to margin improvement. And we view our company as on a longer-term basis, medium- to longer-term basis as a mid-30%s kind of gross profit kind of business.

Got it. Thank you.

There are no further questions in the queue. I would like to turn the floor back to Kevin Longe for closing remarks.

Thank you everybody for joining us for today's call and your interest in our company. It's hard to believe that I'm going to say that we're going to talk to you in the New Year, as we finish the fourth quarter and begin a new year for the company. And please have a safe and joyful holiday – holidays. 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.