Greetings, and welcome to the DMC Global Fourth Quarter Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note, this conference is being recorded. I will now turn the conference over to your host, Geoff High, Vice President of Investor Relations. Thank you. You may begin.

Hello, and welcome to DMC's fourth quarter conference call. Presenting today are DMC's interim CEO, Jim O'Leary; 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 fourth 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 Jim O'Leary. Jim?

Thanks, Geoff, and thanks everyone for joining us for today's call. DMC's 2024 fourth quarter was a solid finish to a challenging year. Fourth quarter sales of $152.4 million and adjusted EBITDA attributable to DMC of $10.4 million both exceeded our guidance range, reflecting the progress we made to stabilize our two largest businesses while executing on several self-help initiatives. At Arcadia, our Architectural Building Products business, fourth quarter sales were $60.3 million, up 4% sequentially and down 11% versus the same quarter last year. Sales of commercial exterior products, which generate approximately three-quarters of Arcadia's revenue, showed modest sequential and year-over-year growth. The sales decline versus last year's fourth quarter was principally due to soft demand for custom residential windows and doors focused on luxury price points. Jim Schladen, who we recently recruited back as President of Arcadia, is implementing a back-to-basics plan that includes rightsizing our cost structure to match market realities while evaluating certain underperforming product offerings that serve primarily high-end residential customers. We're refocusing on Arcadia's core commercial operations, which represented the vast majority of the sales and EBITDA at Arcadia when the original acquisition was made in 2021. While we're continuing the operating initiatives introduced recently, Arcadia's principal focus under Jim will be reinvigorating its commercial efforts while rightsizing areas, notably in the custom residential operations. At DynaEnergetics, our energy products business, fourth quarter sales of $63.7 million were down 9% sequentially, reflecting a seasonal slowdown in unconventional onshore well completions. In response to market realities and to ensure we continue to have the best product on the market, DynaEnergetics focused on two key initiatives designed to enhance product reliability and improve overall competitiveness during the end of 2024. The first was the introduction of Dyna's next-generation DynaStage system. The latest model has been value reengineered to use less raw material and be significantly more compact than the prior system. It delivers a further improvement in downhole reliability, which was already the best in the industry. The process of converting customers to the new system is complete, and the feedback has been positive so far. Second, DynaEnergetics finished the first phase of automating product assembly operations at its Blum, Texas manufacturing center. Phase 2 should be complete in the second quarter, and this initiative will reduce operating expenses and improve product reliability by further minimizing human error. Lastly, at NobelClad, our composite metal business, reported fourth quarter sales of $28.4 million, which was its second strongest top line performance in more than 10 years. Robust fourth quarter shipments were not offset by new orders, leading to a sequential decline in order backlog. However, NobelClad has recently seen a pickup in its product inquiries from its core downstream energy market and is focused on converting as many of those as possible into firm orders and backlog. Now, stepping back for a moment from a broader strategic perspective, the number one concern many of our shareholders correctly raised when I took over last November was the risk created by the Arcadia put-call arrangement, which could have subjected us to either an impending liquidity issue or significant equity dilution. To address this issue, we proactively pursued and reached an agreement with our Arcadia joint venture partners in December. This agreement extended the maturity of this obligation until September of 2026 as the earliest date our joint venture partners can exercise their put option. This extension provides us with significant optionality to reduce debt with a singular focus on free cash flow while exploring other more favorable refinancing alternatives. The steps we've taken to stabilize and strengthen our businesses have positioned DMC for improved performance going forward while our core cyclical end markets improve. I'll now turn it over to Eric for a closer look at the fourth quarter and our guidance for the first quarter.

Thank you, Jim. I'll start with a look at fourth quarter profitability. Consolidated adjusted EBITDA attributable to DMC was $10.4 million. Inclusive of the Arcadia non-controlling interest, adjusted EBITDA was $11.9 million, while adjusted EBITDA margin was 7.8%, up sequentially from 4.6% in the third quarter and down from 13.4% in the prior year fourth quarter. The year-over-year decline relates to the previously mentioned drop in sales of Arcadia's premium residential windows and doors products. Arcadia reported fourth quarter adjusted EBITDA attributable to DMC of $2.2 million. Adjusted EBITDA before non-controlling interest allocation was $3.7 million or 6.2% of sales, up from 5.8% in the third quarter and down from 13.6% in the prior year fourth quarter. Dyna reported fourth quarter adjusted EBITDA of $5.1 million. Adjusted EBITDA margin was 8%, up from breakeven margin in the third quarter, which was impacted by inventory and bad debt charges, and down from 12.3% in the 2023 fourth quarter. NobelClad reported fourth quarter adjusted EBITDA of $5.8 million, with adjusted EBITDA margin of 20.6%, down from 23.2% in the third quarter and 24.7% in the prior year fourth quarter. The decline was due to a less favorable project mix. Fourth quarter SG&A expense was 16.5% of sales, down sequentially from 18.5% in the third quarter and up from 2.6% in the 2023 fourth quarter. It should be noted that SG&A in the third quarter included approximately $3.5 million of bad debt expense at DynaEnergetics. Fourth quarter adjusted net income attributable to DMC was $1.8 million, while adjusted EPS attributable to DMC was $0.09. With respect to liquidity, we ended the fourth quarter with cash and cash equivalents of approximately $14 million. Total debt, inclusive of debt issuance costs, was approximately $71 million, and net debt was roughly $57 million. Our debt to adjusted EBITDA leverage ratio was 1.35x, which remains well below our covenant threshold of 3.0x. On a pro forma net debt basis after subtracting cash, our leverage ratio at the end of the third quarter was 1.09x. And now on to guidance. In light of current activity levels and the recent backdrop of uncertainty created by tariffs in Dyna's North American market as well as Arcadia's primary commercial construction market, we are anticipating first quarter sales and adjusted EBITDA to be relatively flat versus the 2024 fourth quarter. We expect first quarter consolidated sales to be in a range of $146 million to $154 million, and we anticipate adjusted EBITDA attributable to DMC to be in a range of $8 million to $11 million. I should note that we're closely monitoring evolving U.S. and reciprocal tariff policies and will provide any updates when appropriate. Now I'll turn the call back to Jim for some additional comments.

Thanks, Eric. 2024 was an extraordinarily challenging year for DMC on many fronts. However, we made significant progress in several areas that will position us well going forward. Most importantly, we extended the looming maturity created by the Arcadia put, providing us with the time required to generate additional cash flow and reset our capital structure while we continue to improve our businesses. Supporting this undertaking, we've made important modifications to our incentive programs to prioritize absolute EBITDA improvement and free cash flow generation above any other metrics. Organizationally, at Arcadia, we were able to recruit Jim Schladen back to reset the commercial culture, bringing a back-to-basics approach to our operations and positioning us to take full advantage of the opportunities we expect will emerge as areas of Greater Los Angeles impacted by the recent wildfires are rebuilt. Operationally, while we can't do much to influence the imposition of tariffs with the macroeconomic impacts they may have, we can do something about our underlying cost structure to ensure we capture more of every marginal dollar. Notably, at DynaEnergetics, our product reengineering efforts and the introduction of automation at our largest manufacturing facility will dramatically improve our positioning both in difficult environments such as 2024 and in what we hope will be an improved regulatory, political, and economic backdrop for oil service companies going forward. Now finally, I'd like to thank our employees around the world for their contributions and loyalty during a very challenging year. Also, we'd like to thank our shareholders for their patience and support over this recent difficult period. We appreciate that you always have other places to invest, and we're committed to finding ways to maximize value on your behalf. And now with that, operator, we'd be glad to take any questions.

Thank you. At this time, we will conduct our question-and-answer session. Thank you. Our first question comes from Kate Fleischer with KeyBanc Capital Markets. Please state your question.

Hey, good afternoon. I'm on for Ken Newman today. I was wondering if you could start off by talking about some of the supply chain sourcing initiatives and improvements to finishing operations that you discussed on the last call? And how does this fit into the new back-to-basics approach that you discussed, Jim?

I don't. The back-to-basics approach is more about rightsizing the cost structure, rightsizing the residential operations that have gotten a bit too large. That's separate and distinct from some of the supply chain initiatives, which are part of the everyday ethos. Most of what Jim is working on now is really reinvigorating the commercial culture, which he was absolutely top-notch at when he was here. That was one of the underlying attractive things about the business when it was acquired by DMC in 2021, rightsizing the cost structure. Our ambitions probably got a little bit ahead of what we should have been willing to pay for at that time. And probably the biggest issue, which we talked about in the press release, we talked about last quarter. Our aspirations for the residential business, and it's a custom residential business, which means it's very high touch, very high cost to serve, and getting that to the levels that the company wants to aspire to is probably not realistic in the short term. So Jim has appropriately rightsized it around what our aspirations can and should be for the next couple of years. And I mean, that's really the back-to-basics reference in there.

Got it. And then it sounds like you're transitioning a bit more to focus on the commercial efforts that you talked about before. How does that fit in with some of the tailwinds that you're going to see from the rebuild in L.A.? Just assuming that, that would be more of the high-end residential.

Well, 75% of the business is commercial. So I don't know if that's consistent with what you're referencing, Kate. But in L.A., everywhere there has been an impacted area, there's a strip mall, there are storefronts, there are areas that our principal product in the bread and butter of Arcadia is going to have utility and value going forward. On the high-end residential side, particularly the product that while we're rightsizing, we're not taking it out of existence. It's still there. And if you listen to the comments coming out of most of the elected officials in L.A., this is a 10-plus year rebuilding project, and it will start with things that we’ve supplied and do supply every day in some of the more populated areas where commercial buildings have every bit been as impacted as residential. And we’ve got a nice residential business that will be there when the houses are rebuilt.

Okay. And then if I can just squeeze one last one in here. Some really good momentum on NobelClad for this quarter, but you talked about the backlog coming down a bit. I understand it's against the difficult comp. But what's the level of confidence that you can carry on the momentum within that segment in the next few quarters?

Yes. So with NobelClad, it's a backlog-driven business. So we have pretty good transparency going into the first quarter or so of the year. And even though the backlog has come down, we feel pretty confident that the numbers that we put up before will be able to keep that same type of momentum. But what I will say, though, is that business has a portion of operations that are based in the U.S. And the U.S. fabricators will be impacted by the tariff that everybody is wrestling with, and that could make them being the fabricators less competitive and would potentially impact NobelClad. So we're still working through all of that as it relates to the tariff impact on NobelClad, but the backlog that they have right now still remains strong, and we feel good about the start of the year.

Good, thanks. I'll pass it on.

Thank you. And our next question comes from Stephen Gengaro with Stifel. Please state your question.

Thanks. Good afternoon, everybody. A couple for me. I think the first is, it seems like the U.S. pressure pumping business is going to be kind of flattish year-over-year. Like we're kind of hearing activity levels pretty flat, maybe completion activity in general stages, et cetera. How do you perform in that environment if you agree with that environment? And what would that mean for what margins could do in Dyna as the year progresses?

Well, I mean, Stephen, you just repeated what the same conference call, the same press releases we read. It's the same thing we hear from our customers is that flattish is probably optimistic compared to what some of them said. Most of our margin improvement going forward is going to come from self-help initiatives. We recognized last year was a really tough year. We've done the value engineering exercise referenced in there. We're trying to take out the appropriate number of people and variable costs to be responsive to that. And right now, margins for the company as a whole are high-single-digits. Until the market itself picks up, I wouldn't expect much higher than that.

Okay. My second question might be a bit more challenging to address. When considering the bids from third parties for your business and how you respond to them, it seems to suggest that you believe your businesses are currently under-earning compared to what they could achieve on a normalized basis. Can you provide insight into what you think the EBITDA margin for Dyna and Arcadia should be at mid-cycle, considering the competitive landscape?

On the last call, I'm pretty sure I said a business like Arcadia should probably be mid-teens EBITDA margins, certainly can over or under earn based on the cycle. I think where we are with Dyna, getting to low double-digit EBITDA margins is aspirational, but certainly possible, mid- to high point of the cycle. Let me ask you a question on bids and valuations. When a stock goes down and it's at a cyclical low, is that when you recommend it get bought?

I'm not suggesting that you should agree to anything. I'm simply trying to understand what you believe your businesses are worth and what you think they should earn during the midpoint of the cycle.

Yes, last year was a challenging one for DynaEnergetics, with decreased activity and consolidation in some of our main markets. In response, we implemented various cost-saving measures. Regarding Arcadia, the overcommitment to the residential sector was a self-inflicted issue which we've since corrected. We've brought back the previous leader who successfully managed the business for many years. While I can't assign a specific value to the business, we believe, as mentioned, that the mid-cycle margins should align with my earlier suggestions. For NobelClad, it's very much dependent on specific projects, but we don't foresee a significant decline in margins. Overall, when you average everything out, we expect the performance to be significantly better than the low point we experienced last year.

Great. Thanks. And then just one quick one. I don't know if you want to comment on this or not, but you gave 1Q guidance. Are there any big moving pieces between the segments? I mean, you kind of suggested the overall drivers. Is there any big moving pieces we should think about between the three segments sequentially?

No, I have a brief history with the company, but I am connected to various aspects of the building sector. There are other industrial companies I have been involved with, and this is one of the most uncertain times I've encountered due to tariffs. It's not only the tariffs that the market has to deal with; it's also their effect on demand. Eric provided the right insight regarding NobelClad's incoming orders and overall activity levels. When there is uncertainty about pricing, tariffs, and economic conditions, companies tend to hold off on placing orders. We might experience this hesitation for a few weeks or months, similar to some of our peers. You may not be familiar with JELD-WEN, but they recently shared valuable insights regarding high-end windows, specifically high-end aluminum windows. Apogee, in terms of framing systems, is likely the closest comparable to Arcadia in that market. Again, you've highlighted important points regarding DynaEnergetics. Overall, there's a significant amount of uncertainty. Our focus now is on self-improvement initiatives. I appreciate the back-to-basics strategy Jim is implementing at Arcadia, and we believe it will yield positive results.

Great, thank you for the details.

You're welcome, Stephen. Thank you.

Our next question comes from Gerry Sweeney with ROTH Capital Partners. Please state your question.

Good afternoon, gentlemen. Thanks for taking my call.

There's a lot of uncertainty. What we can do is focus on the self-help initiatives. I do like the back-to-basics approach Jim is taking in Arcadia, and we think it will pay dividends.

I have a few questions that have already been covered, but I would appreciate more details on the restructuring at Arcadia. You mentioned it was somewhat self-inflicted, but to what extent did the high-end retail segment affect this situation? Is this issue resolved now, or will it take more time to see the impact on the income statement?

In the past, there was significant absorption with a considerable drop in volume. Currently, we're managing a workforce of around 100 to 120 full-time equivalents, and we've reduced that to less than 20% to 30% due to decreased fixed overhead from lower volume. I've been skeptical about custom businesses in the building products industry because they have high touch and high service costs, and I haven't had much success in that area. It's essential to consider the current interest rate environment and affordability issues impacting custom businesses, which caught us off guard last year. We believe we've taken the necessary measures to navigate this, and from an EBITDA perspective, we're past that challenge. If we choose to downsize further, we will consider lease costs and fixed expenses, but we're not at that point yet. It's noteworthy that we may have lost some orders in Los Angeles due to recent fires affecting homes we were supplying windows to. As rebuilding begins, we hope to support that process in a way that benefits our shareholders. While this is anecdotal, it suggests that maintaining our custom window operations, especially thermal steel, will yield benefits over the coming years. If it doesn't turn out that way, we wouldn't approach our EBIT and EBITDA strategies differently, and exiting the business is always an option, though we don't find it necessary at this time.

Understood. Then switching gears a little bit, could you provide some insight on the balance sheet and working capital? Is there a chance to reduce inventory in DynaEnergetics and Arcadia this year to free up more cash?

Yes, absolutely. As Jim mentioned in his prepared remarks, we've got two metrics that we're really focused on across all the businesses, absolute EBITDA growth and free cash flow generation. And so part of the free cash flow generation is getting more efficient in terms of how we manage working capital. And we think that there are opportunities across all the businesses, particularly in Arcadia. So when we think about 2025, we think that the free cash flow conversion that we've had historically, we think we can improve upon that. But it's really kind of, I guess to overuse the term, getting back to basics in terms of how we manage AR and inventory and being thoughtful about that. So that is absolutely an area where we're focused and one that we expect to see some improvement in. And if you look at our Q4 numbers, we did have some improvement there from a networking capital standpoint. I mean, there's going to be some seasonality going forward as you go from quarter to quarter, but we'd like to take that momentum and improve upon it this year.

All right. That's it from me guys. Thanks. Appreciate it.

Thank you, Gerry.

Thanks, Gerry.

There are no further questions at this time. I will hand the floor over to Jim O'Leary for closing remarks.

Thank you, Operator. I want to reiterate what I mentioned earlier. To all our employees, last year was challenging, and we appreciate your patience, loyalty, and hard work. For our shareholders, we know it was tough, and we value your support. You have choices for your investments, and we are dedicated to improving and stabilizing our performance. I believe we are moving in the right direction. For the next year and a half to two years, our top priority will be free cash flow, and so will every other priority. Our focus will be clear on free cash flow and debt repayment. Thank you for your time, and have a great day.

This concludes today's conference. All parties may disconnect. Have a great day.