Greetings and welcome to the DMC Global First Quarter Earnings Release and Conference Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Geoff High, Vice President of IR. Thank you, Geoff. You may begin.

Hello, and welcome to DMC's first quarter conference call. Presenting today are DMC CEO, Michael Kuta; and Chief Financial Officer, Eric Walter. I'd like to remind everyone that matters discussed during this call may include forward-looking statements that are based on our estimates, projections and assumptions as of today's date and are subject to risks and uncertainties that are disclosed in our filings with the SEC. Our business is subject to certain risks that could cause actual results to differ materially from those anticipated in our forward-looking statements. DMC assumes no obligation to update forward-looking statements that become untrue because of subsequent events. Today's release and a related presentation on our first quarter performance are available on the Investors page of our website located at dmcglobal.com. A webcast replay of today's presentation will be available at our website shortly after the conclusion of this call. With that, I'll now turn the call over to Michael Kuta. Michael?

Hello, and thank you for joining us for today's call. DMC's first quarter financial results included consolidated sales of $167 million, down 9% from the first quarter a year ago. This decrease was largely due to soft demand and lower pricing at Arcadia products, our architectural building products business. Arcadia sales of $61.9 million were down 23% compared with the year-ago first quarter. We noted during our last earnings call that Arcadia was experiencing a slow start to the year due to weak market conditions in the Western and Southwestern United States. Demand declined further in March, particularly for short-cycle orders at several of our large regional service centers as well as for our ultra-high-end residential products. The weakness in our short-cycle commercial business aligns with the Architectural Billings Index, which is a leading indicator for commercial construction activity. March marked the 14th consecutive monthly ABI decline nationally. In the Western U.S., the index fell sharply during last year's third quarter. Since the ABI tends to lead nonresidential construction by 9 to 12 months, we believe we are now seeing the impact of that decline. We are seeing signs of improving activity at Arcadia's commercial divisions. The backlog for long-cycle projects has increased in the past month and quoting activity for both large projects and short-cycle orders is picking up. Based on these indicators, we expect to see sequential quarterly improvements in sales and earnings in the coming quarters. DynaEnergetics, our oilfield products business, reported first quarter sales of $78.1 million, up 4% sequentially and down 5% versus last year's first quarter. International demand remained healthy, and in North America, unit sales of our industry-leading DynaStage system were again at record levels. North American sales also benefited from increased demand for our premium oriented perforating systems. Dyna continues to execute on a series of operational excellence and cost reduction programs designed to mitigate pricing pressure in North America. These initiatives are expected to strengthen margins during the latter half of the year and include automating certain manufacturing and assembly processes and streamlining product designs. NobelClad, our composite metals business, reported sales of $26.8 million, up 22% from the same quarter last year. Earlier this week, NobelClad received a $19 million order from an international petrochemical customer. This represents the largest order in NobelClad's history and involves the production of clad plates that will be used to fabricate heat exchangers, reactors, and associated equipment for a petrochemical facility being built in Asia. NobelClad expects to ship the majority of the order during 2025. NobelClad has made significant progress expanding manufacturing capacity for its Cylindra cryogenic transition joints. Demand for Cylindra from the liquefied natural gas industry remains strong, and NobelClad's commercial team is tracking more than 90 global LNG projects that have either been announced or are in the planning phases. While the first quarter sales shortfall of Arcadia products was disappointing, we remain confident in its differentiated business model, strong brand, and the growth strategy we are executing. As its markets recover, we believe Arcadia is well positioned to benefit. DMC's financial strength continues to grow and is benefiting from our improved free cash flow and our aggressive efforts to delever our balance sheet. We are also making progress in our review of strategic alternatives for DynaEnergetics and NobelClad as we seek to unlock shareholder value. It is too early to discuss the details of our efforts, but we look forward to providing an update in the coming months. I'll now turn the call over to Eric for a closer look at our first quarter financial performance and a review of our guidance. Eric?

Thanks, Michael. Our consolidated first quarter sales were $167 million, down 9% from the first quarter last year. Consolidated gross margin was 25.4%, down from 28.3% in the 2023 first quarter, due primarily to industry consolidation at Dyna, which was partially offset by a more favorable project mix at NobelClad. Excluding one-time expenses, our first quarter SG&A expense was $28 million, or 16.9% of net sales, down approximately 120 basis points from the first quarter of last year. The improvement was driven primarily by lower litigation expenses at Dyna, which were partially offset by a $500,000 bad debt charge also at Dyna. First quarter adjusted EBITDA attributable to DMC was $16.7 million compared with $20 million in the prior year quarter. The decline was driven by lower sales at Arcadia and the previously mentioned gross margin contraction at Dyna. Inclusive of the Arcadia non-controlling interest, consolidated adjusted EBITDA was $19 million, or 11.4% of sales, compared with 13.2% of sales in the prior year quarter. At the business level, Arcadia reported first quarter adjusted EBITDA of approximately $6 million, or 9.5% of sales, of which $3.5 million, or 60%, was attributable to DMC. Arcadia's adjusted EBITDA declined 44% year-over-year due mostly to lower sales that Michael explained earlier. Dyna reported first quarter adjusted EBITDA of $10.5 million, or 13.5% of sales, which was lower than the prior year quarter due to a decline in average selling price. Compared to the fourth quarter, Dyna's adjusted EBITDA improved 13% due to a higher volume of DynaStage units and lower SG&A. NobelClad reported adjusted EBITDA of almost $6 million, which was 21.9% of sales compared with 15.3% of sales in the first quarter of 2023. EBITDA margin improved due to a more favorable project mix and better absorption of fixed manufacturing overhead costs. First quarter adjusted net income attributable to DMC was $4.2 million, while adjusted EPS attributable to DMC was $0.21 versus $0.32 in last year's first quarter. During the quarter, DMC generated free cash flow of $10.5 million, which was more than double the prior year quarter. We used this year's first quarter free cash flow primarily for voluntarily delevering on our debt and distributions to our Arcadia joint venture partner. In terms of liquidity, we ended the first quarter with cash of approximately $20 million and debt of $90 million. We ended the first quarter with a debt to adjusted EBITDA leverage ratio of 1.0, which was well below our covenant threshold of 3.0 and represents the ninth quarter in a row that we have delivered. On a pro forma net debt basis after subtracting cash, our leverage ratio was 0.77 at the end of the first quarter. Now turning to guidance for the second quarter of 2024. Consolidated sales are expected in the range of $161 million to $171 million. We expect activity in Arcadia's primary markets to remain soft in the second quarter, while activity in Dyna's North American markets is expected to remain relatively flat versus the first quarter. Second quarter adjusted EBITDA attributable to DMC is expected to be in a range of $14 million to $17 million. Arcadia EBITDA margins are forecasted to improve from the first quarter due to stronger volumes and lower SG&A. At Dyna, we anticipate EBITDA margins will remain relatively flat quarter-over-quarter, while NobelClad's EBITDA margins are expected to moderate due to a less favorable project mix. With that, we're ready to take any questions from our analysts. Operator?

Our first question is from Ken Newman with KeyBanc Capital Markets.

Maybe just starting with Arcadia. Michael or Eric, could you just size the revenue that went through the short-cycle channel versus the project-related sales that you're expecting? Just hoping you can help us bridge your comments on this idea of segment sales sequentially improving in coming quarters.

Yes. So thanks, Ken. So what we've seen is a decline in a couple of our regional branches or service centers for our short-cycle work. We call that our storefront business. And so those regional branches, service centers, account for about 50% to 60% of our sales that track with general commercial construction activity. The rest of our business is project-based, whether on the commercial side or the residential side. So our project business is exposed to a broader range of end markets. So that's where you're seeing more government, civic, education, and other sectors featured in our earnings deck. They don't necessarily wind up as much with the short-cycle business. We saw quite a dip in the back half of the first quarter, and we're seeing significantly improved quoting on short-cycle currently. We have some good project business we see also coming through. We think we are currently in a valley right now, Ken.

Okay. So if this is transitory on the short-cycle Arcadia side on the volumes, I know you're bringing on paint capacity later this year. Just assuming that the volumes stay relatively muted, are there levers that you can pull to mitigate under-absorption?

Yes, absolutely, Ken. We have a couple of quarters as we navigate this current environment. We can certainly push out capacity investments until we see a sustained increase in demand, so we can hold back on CapEx. There are many operational initiatives we're executing that can help save from a cost standpoint and drive EBITDA north from here off of Q1. We have several projects in the works. Additionally, from a capacity standpoint, there are external sources we can leverage as our volume picks up.

Okay. Maybe just switching to the other segments. I mean what's the confidence level in the 2Q revenue guide beyond Arcadia, maybe for Dyna specifically? And what are you kind of assuming or expecting at the lower end of the range as it relates to levels of conservatism?

What we're seeing in Dyna's market is fairly stable, steady activity. We see Q2 as maybe modestly soft or flat. We had a pretty decent April, and we observed decent performance in Arcadia as well. However, in Dyna, we're seeing pretty steady activity levels right now, and that's what we see in the immediate forecast.

Got it. Maybe I'll ask one more, and I'll jump back in line. Do you have a view for gross margins across all the segments as we move through the back half of the year?

I think you're going to see consistency in Arcadia as well as NobelClad, and we expect some improvements in DynaEnergetics with some of the automation projects and initiatives we're implementing in our plant, along with new product design.

Our next question is from Stephen Gengaro with Stifel.

On the DynaEnergetics side, can you talk about the cost-cutting initiatives and how we should think about margin progression as we move through the next couple of quarters?

Yes. I think Eric can speak to the margin progression, which I think is relatively flat in our guidance. Most of the initiatives that I'll mention are in progress right now, for the most part, on track, and we expect to have those in place by the end of the year. One of the largest items on our list is automating our assembly in our Blum facility, which will enhance our cost base and quality. Additionally, we're working on procurement to better manage our supply chain, particularly for metal purchases. We believe there are significant savings opportunities there. Additionally, we're executing smaller projects to improve operational excellence in DynaEnergetics. Another significant initiative is in product design. We're making efforts to reduce metal use in our products, which will substantially lower costs. So maybe, Eric, can you provide some insights on margin progression?

Yes. So Stephen, these initiatives, as Michael mentioned, are being implemented right now. We probably won't see the full-year benefit this year. However, we expect that in the second half of the year, there will be an increase of approximately 100 to 150 basis points at the EBITDA margin level, taking us up to the mid-teens from an impact standpoint.

Got you. Okay. Good. And then the other one on Dyna is given what's going on in the market and assuming that maybe the rig count seems to be flattish from these levels through year-end, what's the driver of that? I mean, should we think about it as following the rig count and completion activity? Or is there longer laterals or some technology that maybe can drive the top line as well?

I would advise thinking about it more as steady and stable now. One of the key advantages we have is our alignment with customers. Our focus is on delivering technology at the well site, quality service delivery, and partnering with the right customers to support their performance with E&P. We're confident that we can outperform the market. Even in a flat rig count environment, we are doing what we can to shape our own destiny.

Got it. Great. And just one final quick one. Do you have any insights on your market share? And how does the current pricing environment look for the perforating business?

In terms of market share, we've been around 25%, maybe a bit north of that. We fluctuate between 25% and 30%. The pricing environment has remained fairly challenged over the last couple of years, but currently, it's fairly stable.

Our next question is from Gerry Sweeney with ROTH Capital Partners.

Just sticking with Arcadia. I think there was a little bit of weakness at the storefront level. But I'm curious if any of the competitors are adjusting their strategies or if anything is happening in that space after you? Or is this just a lower investment market?

Gerry, great question. I don't think it's as much competitive pressure as it is the backdrop in the commercial business, which we see improving. We don't see any competitors making significant changes to their strategies. There's also been a slowdown in our ultra-high-end residential division. We've made extensive efforts to enhance our operations in that area, reducing lead times. So while we believe that business hit a low point in the first quarter, we're optimistic about improving performance as we move through the year. The factors affecting us are more market-related and specific to our residential business than competitive.

Got it. Do you have any insights into how much of that storefront business is new builds versus replacement type business? Or is that too hard to gauge?

It's too hard to gauge right now. We're getting better visibility from our ERP system, but we're not quite there yet. However, it's certainly a mix of new builds and repair and remodeling.

I noticed that aluminum prices spiked a little bit through April. Any concerns about a mismatch between inventory coming in and product going out with the ERP system?

I don't see any concerns there. While there's been a slight uptick in aluminum prices, we might even capture some margin from it. Therefore, there's nothing to worry about; we may actually have some upside as we progress through the year.

To add to that, we have better visibility into how aluminum costs flow through our production system compared to this time last year. We're better equipped to manage those cost increases and pass them on to customers in a timely manner.

You mentioned you could pull back on CapEx, but there was the paint line and anodizing too. Is that still a priority for you? Has your strategy changed regarding CapEx in that area?

That project was already going to be back-end loaded in 2024. We're currently evaluating it and considering different opportunities and resources. Given the current market conditions, I don't believe we're leaving money on the table. We're continuously assessing this.

What we will do is evaluate how to maximize the ROI. This includes whether to spend CapEx to bring those capabilities in-house or consider outsourcing some of the required capacity to a third party. Given the industry's overcapacity, we might achieve a better return through outsourcing. This will be part of our overall assessment, and ultimately, we will make decisions based on the returns we can achieve with different approaches.

Regarding outsourcing, what is the lead time to add anodizing capabilities? If you do get a better return outsourcing for a year or two, could you potentially add anodizing later if circumstances change?

Yes, we could implement something like that within a couple of quarters if needed. It's relatively straightforward; it's not a multiyear project.

There are no further questions at this time. I would like to turn the floor back over to Michael Kuta for closing comments.

Thanks for joining our call today. I look forward to discussing Q2 results and progress on strategic initiatives in early August. Thank you.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.