Greetings and welcome to the DMC Global Third Quarter Earnings Call. At this time, all participants are in listen-only mode. A 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, Vice President of Investor Relations. Thank you, you may begin.

Hello and welcome to DMC's Third Quarter Conference call. Presenting today are DMC's Executive Chairman, James O'Leary, CEO, Michael Kuta, and CFO, Eric Walter. I'd like to remind everyone that matters discussed during this call may include forward-looking statements based on our estimates, projections, and assumptions as of today's date, which are subject to risks and uncertainties 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 Third 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 shortly after the conclusion of this call. And with that, I'll now turn the call over to Jim O'Leary. Jim?

Thank you, Geoff, and thanks to everybody for joining us today. I've been on the board for a little under a year now. As Geoff mentioned, I was recently appointed as Executive Chairman. My first official board meeting was when the strategic process was announced, so I'm very familiar with all the activity associated with it. Over the last few months, I've had an opportunity to engage with many of our shareholders, and I have a good sense of how you're feeling and what you're thinking. I've been associated with industrial building and manufacturing products businesses for about 40 years, most often serving as either the CEO or CFO of publicly traded companies. My most relevant experience was with a publicly traded company called Kaydon Corporation, which was a diversified industrial manufacturer that went through a number of strategic assessments similar to what DMC has been dealing with over the past 10 months. Ultimately, my board and I concluded that a sale to a strategic peer was the best outcome in what was a highly successful transaction at the time. For the past 10 years, I've been a Director or Advisor to several publicly traded companies, including Builders First Source, the largest distributor of value-added building products and services. I've also worked in the private equity space, focused primarily on mid-cap industrial companies as either a Director, Advisor, or Executive. As we announced two weeks ago, we've concluded the strategic review process on DynaEnergetics and NobelClad. The key takeaway is that we're not interested in selling excellent businesses for less than what we believe they're worth. DynaEnergetics in particular was challenged by very choppy and volatile conditions in the oil field services space, and we concluded that now is not the right time to try to maximize the value of that business. I'll now turn it over to Michael for an update on the third quarter.

Thank you, Jim. DMC's third quarter sales were $152.4 million, down 11% from both the second quarter and last year's third quarter. The declines reflect weakness in the U.S. construction and energy services industries. Adjusted EBITDA attributable to DMC was $5.7 million, or approximately 4% of sales. As previously reported, adjusted EBITDA reflects about $5 million in bad debt and inventory charges at DynaEnergetics, along with lower fixed cost absorption at both Arcadia and DynaEnergetics. Arcadia, our architectural building products business, reported third quarter sales of $57.8 million, down 17% sequentially and down 19% versus the third quarter last year. Arcadia's third quarter Adjusted EBITDA margin was 5.8%, down from 17.8% in the second quarter and 18.8% year over year. The decline principally reflects lower fixed cost absorption on reduced sales. Persistently high interest rates have negatively affected sales to Arcadia's high-end luxury home market and also slowed commercial construction activity in several of Arcadia's regional markets. Arcadia's third quarter was also impacted by supply chain disruptions that limited product availability. We recently named Chris Scocos as our new Interim President at Arcadia. He brings an extensive background in lean manufacturing, operational excellence, and improving plant productivity. His immediate focus is on strengthening sourcing and supply chain functions, improving sales inventory and operations planning processes, and more effectively leveraging Arcadia's ERP system. We are also reviewing certain product lines that have not consistently met our profitability targets. DynaEnergetics, our energy products business, reported third quarter sales of $69.7 million, down 9% sequentially and down 5% versus last year's third quarter. Dyna's adjusted EBITDA in the third quarter was roughly breakeven, and the adjusted EBITDA margin was just under 1%. The results included the previously mentioned $5 million in bad debt and inventory charges, as well as a lower margin customer mix and the continued decline in U.S. onshore well completions. According to the EIA, completions were down 6% sequentially and were off 13% versus the third quarter last year. Dyna is implementing several margin improvement initiatives and has completed the first phase of automating its DynaStage assembly operations in Blum, Texas. Phase two is scheduled for completion early next year. The next generation version of Dyna's flagship DynaStage system is also expected to enhance margins beginning in early 2025. Sales at NobelClad, our composite metals business, were $24.9 million, flat versus the second quarter and down 10% year over year. Adjusted EBITDA margin improved to 23.2%, reflecting a favorable project mix. NobelClad ended the third quarter with an order backlog of $59 million versus $63.9 million at the end of the second quarter. Rolling 12-month bookings were $103.9 million, and the book-to-bill ratio was 0.96. Now I'll turn the call over to Eric for some additional financial information and a look at guidance.

Thanks, Michael. Third quarter SG&A was $28 million, or 18.5% of net sales, compared with $29 million, or 16.7% of sales in the third quarter last year. It's important to note that SG&A included approximately $3 million of bad debt charges at Dyna. Excluding these charges, third quarter SG&A would have been approximately $25 million or 16.5% of net sales. Third quarter adjusted net loss attributable to DMC was $9.6 million, while adjusted EPS attributable to DMC was negative $0.49. With respect to liquidity, we ended the third quarter with cash and cash equivalents of approximately $15 million. Total debt inclusive of debt issuance costs was approximately $74 million, and net debt was roughly $60 million. Our debt to adjusted EBITDA leverage ratio was 1.18, which remains well below our covenant threshold of 3.0. On a pro forma net debt basis after subtracting cash, our leverage ratio at the end of the third quarter was 0.96. Given the significant volatility and uncertainty in our energy and construction markets, we've decided to limit our quarterly financial guidance to consolidated sales and adjusted EBITDA. For the fourth quarter, we expect consolidated sales to be in a range of $138 million to $148 million, while adjusted EBITDA attributable to DMC is expected to be in a range of $5 million to $8 million. The expected sequential sales decline principally reflects the challenging market conditions and seasonality at DynaEnergetics and Arcadia. The impact of high interest rates on luxury home sales and the related impact of lower fixed cost absorption in some of our factories, principally those supporting certain high-end residential products, are expected to negatively impact Arcadia's fourth quarter performance. With that, we're ready to take any questions from our analysts.

Thank you. We will now be conducting a question and answer session. And our first question comes from the line of Stephen Gengaro with Stifel. Please proceed with your question.

Thanks, good evening everybody.

Hi Steve.

Hi, how are you? So there's two things for me. The first is kind of big picture, and the other one's more backward. I think at a high level, so we've seen a lot of turnover at Arcadia, Dyna, and the board. And I'm trying to understand, and maybe you could help how much of the change is related to either performance or the direction of the company? Or maybe how much of the performance is related to leadership versus the market? I'm trying to kind of figure out, is this market, is it leadership, and is that why leadership is changing and/or leaving?

Stephen, this is Jim O'Leary. I'll answer that, nice to meet you. So the answer is yes, but I couldn't give you specific percentages. Let's start with the market. Absolutely, the market has played a big role in DynaEnergetics. We talked specifically about that as having a lot to do with why that process was halted. If you look at every one of our peers, competitors, particularly the much more noteworthy companies—Schlumberger, Baker-Hughes, Halliburton—the back half of the year has been much more challenged, reliant a lot more on international business. The market for Dyna should not be a surprise to anybody. The market for Arcadia, and this is where, when I said the answer is yes, is it leadership? Is it leadership from the absolute top down? We announced a couple of weeks ago that we wrote off $142 million of goodwill. That's not a rousing testament to a spectacular job, and we know that. The market conditions though, I'll tell you—most of the time I've spent in the last decade and probably over the last four decades has been in the building space. If you look at the numbers that were released today, the businesses comparable to ours aren’t really doing that much better. So I'd say the market has had a lot to do with it, but when you pay a lot for a business that hasn't performed, as Arcadia has not, that's a reflection on us from the top down. The board got it. We made a change at the chairman level. We've had some retirements in the past couple of months. And at Arcadia, we made a change and we put in a highly qualified individual who has expertise in all the areas we need to strengthen right now. So the answer is yes—the market has had a lot to do with it. You combine market issues with the fact we paid a very robust price at probably the peak of the market for Arcadia. We're not hiding from that. I mean, that's why we wrote off $142 million of goodwill. We've begun to make the changes that I mentioned earlier.

Great. No, that's great color. I appreciate that answer. Thank you. And the other one I had, and then I'll get back in line here, was when we think about the fourth quarter, and I appreciate not wanting to break down into segments, but the domestic pressure pumping business and budget exhaustion, holidays, etc., everybody seems to be suggesting that's kind of like a low double-digit decline in that business. I'm sort of trying to triangulate here, but I would think NobelClad would be showing flat results. Is the rest of it Arcadia? Is that how we should be thinking about it, or is Dyna worse than that for other reasons I'm missing?

I think Arcadia is the wildcard. Maybe a narrative that we in the building space have; everyone thinks the high end is insulated. High end is not insulated from anything. There's always a timing issue, but eventually, interest rates catch up with even high-end custom niches. We've been very conservative there, and it's littered throughout the press release, but the discussion on residential, the discussion on factory absorption, when you're a project-driven business selling high-priced items, those factors impact sales significantly. I think until after the end of the year, it's hard to predict. The election and interest rates add a lot of uncertainty that we have not faced in the past decade. I think Arcadia will have a disproportionate impact, and that's where we're focusing our efforts to get it fixed.

And Stephen, Dyna is, I'd say, following the market generally for your comments.

Great. No, thank you. That’s helpful.

Good afternoon, everyone. Thanks for taking my call.

Thank you.

Guys, I was hoping maybe to discuss a little bit more about the work you want to do at Arcadia to improve operations. Are the systems in place to manage that? You talked about leveraging the ERP explicitly, but just curious if all the systems are in place and where some of the low-hanging fruit is, and what's the path forward on that front?

I'm going to turn it over to Mike on some of the specific initiatives that he and Chris have been initiating, accelerating, and pushing forward with the right skill sets since the acquisition. A macro comment; we bought a family business that had excellent commercial people, pricing, market awareness, but we underestimated the challenges that come with being a public company. We’ve identified and diagnosed the issues, and while they are easy to spot, they also take time to fix. Our ERP system implementation has its challenges, but we have fixes in place for all of them. We recognize that while having wind in our sails would be nice, that’s not what we have right now.

Yes, Gerry, so we’re working on supply chain and sourcing to do a better job with planning. One gap relates to demand planning—knowing what we need when we need it. We have programs to address that. We also need improvements in our finishing operations, which ties back to our lead times and deliveries to customers. We're making progress, but there’s still a long way to go.

Got you. And as a follow-up, how much of the headwind is from high-end residential weakness versus the commercial business and operational issues?

The absorption issues stem from high-margin, high-price products manufactured in batches. This has a disproportionate impact on EBITDA and gross margin. It's probably the high-end residential piece that is affecting us. Mike?

Jim, you covered it exactly.

Just curious if there was even enough focus on marketing to build the backlog in high-end residential, considering the impact of interest rates.

Yes, Gerry, you're on the right track. Several years ago, we built a backlog in the 18-month range. In high-end residential, we need a 16 to 20-week lead time. This backlog issue impacts how customers view us; they are focused on getting their current orders fulfilled rather than helping us build additional backlog during this period.

In purchasing family businesses, there are often issues that only reveal themselves when stress tested. A long backlog leads to customer service challenges and may prevent us from spotting holes in our order backlog quickly. Our business being project-driven means we must improve these processes to regain customer trust.

Got it. That's it for me. I do appreciate the candidness, so thank you.

You're welcome. Thank you.

Hey, good evening, guys. Thanks for taking the question.

Thank you.

Maybe just to start off, can you provide a little color on how the quarter progressed in Arcadia? How quickly did the demand start to fall off there? Was this really back-end loaded in September? And can you give any sense on how the businesses are trending through October relative to September's end?

Yes, Ken, I think the business through this last quarter was fairly level in terms of the demand, bookings, and shipments. I'm not ready to discuss specific details about Q4, but we started to see this trend emerge in the third quarter.

Okay. Maybe switching over to the restructuring actions you're taking. I thought there was already an ERP implementation at Arcadia. What's involved with the sourcing initiatives, and can you size the cash cost associated with some of these actions?

These are additions. We haven't announced specific restructuring, but everything is on the table with results like we’ve seen. Top grading and upgrading people is essential. The ERP has challenges, and more accountability and additional resources are needed. Adding people typically balances out with exiting costs. We're not announcing huge incremental costs.

Got it. That's very helpful. I appreciate it.

Thanks for your questions.

Thank you. And we have reached the end of the question and answer session. I would now like to turn the floor back to Michael Kuta for closing remarks.

Thanks for joining everyone. We appreciate your participation, and we're committed to addressing the challenges we've faced. We own the goodwill issue and acknowledge the turnover as matters we cannot shy away from. We will take ownership of these issues and work diligently to improve our operations. Thank you for your patience.

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