Greetings, and welcome to the DMC Global Second Quarter Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Geoff High, VP of IR. Thank you. You may begin.

Hello, and welcome to DMC's second 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 earnings release and a related presentation on our second 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. And with that, I'll turn the call over to Michael Kuta. Michael?

Hello, and thank you for joining us today. DMC reported second quarter sales of $171.2 million and adjusted EBITDA attributable to DMC of $19.4 million. Our results represent a sequential rebound versus the first quarter and were achieved despite continued weakness in our primary construction and energy products markets. The results also were above the high end of our guidance range. Arcadia, our Building Products business, was a key driver in our improved financial performance, reporting second quarter sales of $69.7 million and a gross margin of 33.2%. Gross margin was up 600 basis points from the first quarter. In the comparable quarter last year, Arcadia's gross profit was 34.7%, which was their best margin performance since we acquired the business in December 2021. Arcadia's second quarter adjusted EBITDA margin was 17.8% versus 9.5% in the first quarter and 20.8% in the year-ago second quarter. The results reflect management's focus on improving operational efficiencies and streamlining Arcadia's cost structure. A successful effort to debottleneck finishing operations has improved Arcadia's capacity, and the business is working to further strengthen its customer service and lead times. DynaEnergetics, our Energy Products business, reported second quarter sales of $76.2 million, down 2% sequentially and down 10% versus last year's second quarter. Adjusted EBITDA margin was 11.5%, down from 13.5% in the first quarter and 23% in the year-ago second quarter. This year's second quarter results reflect lower sales volumes and softer pricing in North America as well as a $500,000 bad debt expense. Well completions in Dyna's core U.S. onshore market declined in five of the first six months of the year, and the number of FRAC spreads is off roughly 13% from the 2024 peak. We expect North American completion activity will remain soft during the second half of the year. Dyna has taken steps to align its cost structure with anticipated demand. Recent cost reductions, coupled with previously discussed automation and product enhancement initiatives, are expected to improve Dyna's EBITDA margins during the back half of the year. In the fourth quarter, sales and margins should benefit from an expected increase in international product sales. Sales at NobelClad, our composite metals business, were $25.2 million, which is up 2% versus the year-ago quarter and down 6% sequentially. Adjusted EBITDA margin was a strong 22.7% and benefited from favorable delivery timing and project mix. NobelClad's second quarter order backlog of $64 million was up over 20% sequentially and reflects the impact of the record petrochemical order we discussed during our last call. EMC's Board of Directors continues to evaluate a range of strategic options to unlock shareholder value; we will issue an update when appropriate. I'm encouraged by the progress made by DMC's businesses during the second quarter. We want to thank our employees for their commitment and outstanding efforts. Now I'll turn the call over to Eric for a closer look at our second quarter financial performance and a review of our third quarter guidance. Eric?

Thanks, Michael. Consolidated second quarter sales were $171 million, up 3% sequentially and down 9% from last year's second quarter, which was one of DMC's strongest historical quarters. Consolidated gross margin was 27.1%, up sequentially from 25.4% and down from 32.8% in last year's second quarter. As Michael noted, the sequential improvement reflects a strong margin recovery at Arcadia versus the first quarter. The decline versus last year's second quarter reflects lower sales and margin at DynaEnergetics. Second quarter SG&A was approximately $27 million or 15.8% of net sales versus $29 million or 15.5% of sales in the second quarter last year. Lower outside service expenses across all DMC businesses drove the reduction. Inclusive of the Arcadia noncontrolling interest, consolidated second quarter adjusted EBITDA margin was 14.3% of sales, up from 11.4% in the first quarter and down from 20.3% in the year-ago second quarter. Second quarter adjusted net income attributable to DMC was $5.7 million, while adjusted EPS attributable to DMC was $0.29. With respect to liquidity, we ended the second quarter with cash and cash equivalents of $15 million. Total debt, inclusive of debt issuance costs, was $84 million and net debt was $70 million. Our debt to adjusted EBITDA leverage ratio of 1.1 at the end of the second quarter remained well below our covenant threshold of 3.0. On a pro forma net debt basis, after subtracting cash, our leverage ratio was 0.92 at the end of the second quarter. Now turning to guidance for the third quarter of 2024. Consolidated sales are expected in a range of $158 million to $168 million. We expect activity in Arcadia's primary markets to remain weak in the third quarter, while activity in China's primary North American markets is expected to soften versus the second quarter. NobelClad's sales are expected to be comparable to the second quarter. Third quarter adjusted EBITDA attributable to DMC is expected in the range of $15 million to $18 million. Arcadia's adjusted EBITDA margin is expected to moderate versus the second quarter due to less absorption of overhead expenses on lower sales. While we expect Dyna will improve modestly due to cost reductions and operational initiatives. Adjusted EBITDA margin at NobelClad is expected to decline sequentially due to a less favorable project mix. With that, we're ready to take any questions from our analysts.

Thank you. The first question is from Gerry Sweeney from Roth Capital Partners.

Revenue at Arcadia was ahead of forecast and obviously gross margins, you executed extremely well on that front. Can you give us a little bit more detail on maybe some of the operational efficiencies and cost-out reductions that you implemented in the segment to drive those margins? And are they sustainable?

So what we've been doing is some cost-outs, really streamlining the organization, getting more efficient, in particular, in our finishing operations. Our finishing operations are the heartbeat of our organization. So that's what enables our customer service model. Everything goes through finishing, whether it's paint, anodizing, all material runs through there. So the organization has really worked hard to debottleneck those operations and increase finishing capacity throughput. So that's driving real productivity improvements in the business and enabling the front end of the business.

Cash flow was, I think, flat essentially in the quarter. Maybe what's driving free cash flow in the quarter and then projections for the remainder of the year? Obviously, the cash flow there's puts and takes on that front, but just interested on that.

Yes, for the second quarter, the free cash flow performance was really a function of timing and some one-time items. We had a prepaid purchase of explosives to secure our supply within Dyna. There was the timing of some customer advances in the NobelClad business moving from Q2 into Q3. And then we had some higher cash taxes in the quarter. When you add all of those up, that had a negative impact on cash flow of about $10 million in Q2. So going forward, to answer the second part of your question, we think that there is an opportunity to take out some net working capital out of the Dyna business given where we think activity levels will materialize in the second half of the year and also the opportunity to sharpen our pencil at Arcadia. So we're looking to finish the year with a debt position of, call it, $65 million to $70 million and using the cash flow we generate in the second half of the year to continue to pay down and delever that debt. So we feel good about where we're going to be, although we had some headwinds, unfortunately, in the second quarter that were one-time in nature.

The next question is from Stephen Gengaro from Stifel.

Two things for me. The first, can you talk about the DynaEnergetics business a bit more? And just kind of, a, the competitive landscape and what you're seeing kind of from a potential growth of that business relative to kind of completion activity, whether it's market share or completion intensity? How should we be thinking about that as we look at the next couple of quarters?

I think generally, we'll move with the market. When you think about sequentially Q2 versus Q1, when you look at whether you look at completions, rig count, or FRAC spreads, those were generally down in the 4% range, which tracked Dyna's performance. So I think that's probably the way to look at it. And our guidance reflects that softness in Q3 and Dyna. The competitive dynamics are fairly steady, I would say, and pricing continues to be a challenge. But we've got quite a few initiatives in place to offset these impacts, which are also reflected in our guidance. So the initiatives we are working on regarding cost take-out will continue into the second half of the year. Some of that on the product design side is expected to take hold in 2025. Whatever the market is doing, we feel pretty good about controlling what we can control from a cost standpoint as well as from a competitive standpoint in our differentiation. So that remains. Additionally, we are seeing healthy international activity and expect a bump in Q4. So we should exit the year pretty strong on the international front.

And then I think the other question I had was just kind of around the Arcadia put-call option. I think there's a little confusion out there, with people talking about whether it's at a snapshot in time, like in December or whether this thing kind of rolls forward? What's the timing on the way the decision on either party's part has to be made on the put-call option on Arcadia? How does that mechanically work?

Yes. So the put-call first becomes exercisable at the end of December of this year. But that does not mean that anyone is compelled to exercise; us exercising the call or a minority partner exercising the put. So there's nothing compelling about that.

But is it a one-time event? Or does it roll? How long do you have to exercise the option? How long is it, a day or a week, a year? How does that work?

It continues on into perpetuity to the extent that neither party exercises the put or the call.

The next question is from Ken Newman from KeyBanc Capital Markets.

I guess I'll start with Arcadia. Obviously, the market is still pretty weak. It looks like you're expecting revenue down sequentially here from the second quarter. I know you're not ready to give fourth quarter guidance or anything, but I'm curious about what the customers are kind of saying in terms of longer-term visibility and how they're thinking about stabilization or timing of stabilization within that market specifically.

I see a few indicators that we all pay attention to, such as the ABI in the West at 43 and the Dodge Momentum Index, both suggesting some positive trends in specific markets like data centers. From our customers' perspective, we anticipate softer market conditions for a few quarters as we progress through the year. On a positive note, we showed resilience in Q2, maintaining our exposure to diverse end markets, with consistent bookings and active quoting. However, some customers have mentioned that rising interest rates are causing delays in their projects. As a result, we expect a couple more quarters of softness. Our guidance for Q3 indicates a range of 64% to 68%, reflecting a similar outlook to Q2 based on current market indicators. We're concentrating on aspects we can influence, such as enhancing our operational efficiency to boost profitability and EBITDA while improving cash flow. I am confident we will accomplish these goals for the rest of the year, irrespective of market conditions.

I guess as a follow-on to that, with the cost reductions in Arcadia, is there a way that we should think about normalized operating leverage as the volumes stabilize? Obviously, I know it's going to be very dependent on what the volumes do. But how do we think about incremental or decremental margins with this new cost platform that you're on?

Yes. The incremental and decremental margins are probably in the range of about 45%. It's not a high fixed-cost business; there's a larger labor component. So I think incremental or decremental margins are probably between 35% and 40%. Eric, would you concur with that?

Yes.

Yes. The incremental and decremental margins are not significantly higher than our gross margin percentage, which is in the 33% range.

You talked about some project mix headwinds, I think, on NobelClad. I know it's a smaller part of your business, but just can you talk about how persistent that mix headwind could be beyond this quarter as you think about the backlog of activity there?

We see a dip in Q3 but expect a very strong Q4. While I’m not providing guidance on 2025, I'm quite bullish about it. We see factors shaping up that will make 2025 a really good year.

The next question is from Stephen Gengaro from Stifel.

Just a quick follow-up. Michael, I'm not sure you can comment on this, but I'll ask it. When you think about the structure of the company and what you're looking at doing with the Dyna side, is there any thought to pulling back on that either permanently or temporarily, given what the market is like on the buyer side?

I would just say that we're in the throes of strategic alternatives, and there's a lot of things on the table. So a lot of different options that we're evaluating.

Is there any way to think about how you balance the maybe creating more of a pure-play business versus valuation of pieces you might want to sell?

The viewpoint is that we are looking at a wide range of options to maximize shareholder value. Maximizing shareholder value is the key.

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

Thanks again for joining us today. We appreciate your interest in DMC and look forward to our next update. Take care.

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