DMC Global Inc. Stock

Thank you. Greetings. Welcome to the DMC Global Second Quarter Earnings Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Jeff High, VP of Investor Relations at DMC Global. Thank you, Jeff. You may begin.

Hello and welcome to DMC's second quarter conference call. Presenting today are President and 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 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 now turn the call over to Jim O'Leary. Jim? Thanks, Jeff, and thanks to everyone for joining us today.

Despite continued headwinds in each of our end markets, many of the initiatives discussed in previous calls have been successful. notably at Arcadia. As a result, second quarter consolidated sales of $157 million were at the high end of our forecasted range, while adjusted EBITDA attributable to DMC of $10.7 million exceeded the high end of our range. Arcadia's second quarter sales increased 9% year over year and 19% sequentially, marking its strongest quarterly sales performance since the second quarter of 2024 and the best EBITDA performance in over a year. These results were delivered despite a still horrible commercial construction market. The American Institute of Architects reported last week that its architectural billings index has now gone 41 consecutive months without a majority of the firms reporting billings growth. is the longest downturn in the more than 30-year history of the ABI. While demand for large, longer-term construction projects remains highly challenged, Arcadia saw improved turnover for its core short cycle products across its regional service center network, as well as for high-end residential windows and doors. The stronger performance reflects the efforts of Arcadia's management team to improve product availability and service. longstanding hallmarks of Arcadia's business model.

Additionally, efforts to right-size our residential products offerings and refocus on attainable targets contributed significantly to Arcadia's improved performance. Sales at Dyna Energetics, our energy products business, were flat year over year, but increased 13% sequentially. Demand was steady but unfavorable mix, increased input costs, and price pressure on profitability. Dyna Energetics recently completed its first shipment of a new perforating system developed specifically for use in enhanced geothermal systems. EGS is emerging as a potentially significant source of baseload electricity and could represent a meaningful opportunity for Dyna Energetics. at nobleclad our composite metals business second quarter sales were down 17 year over year due primarily to lower activity in the global oil and gas market state Sales were up 15% sequentially as a result of increased deliveries on a large petrochemical order. NobleClad continues to maintain a healthy backlog with increased shipments from that backlog, including order deliveries delayed by customers, should drives strong results during the second half of the year. I'll now turn it over to Eric for a closer look at our second quarter, our guidance for the third quarter, and some important color on our capital structure as we're on the altar of the potential put call exercise.

Thanks, Jim. I'll start with a look at our second quarter profitability across our businesses. Arcadia reported adjusted EBITDA margin before NCI allocation of 13.6%, up from 10.9% in the year-ago quarter and 6.9% in the first quarter. The improvement principally reflects improved fixed cost absorption on higher sales and improved results as we successfully right-size our residential offering. At Dyna Energetics, adjusted EBITDA margin was 8.4% and benefited from a $1.5 million tariff refund. The results were down from 13.4% last year, driven by unfavorable pricing and mix, along with higher input costs. Diana's EBITDA margin was up from 4.6% in the prior quarter from sales growth and the tariff refund. Novaclad reported adjusted EBITDA margin of 13.7%, down from 16.5% in the year-ago quarter, and up from 9.8% in the first quarter.

Second quarter SG&A expense was $24.5 million, or 15.6% of sales. versus 16.8% of sales in the year ago second quarter and 18.1% of sales in the first quarter. Sequential decline principally relates to higher sales and improved operating leverage on fixed costs. Second quarter adjusted net income attributable to DMC was $727,000, or $0.04 per diluted share. With respect to liquidity, we ended the second quarter with cash and cash equivalents of $28.6 million. debt increased to $30.5 million, up from $18.7 million at our 2025 year-end. The increase was primarily due to higher credit facility borrowings to fund working capital needed for business growth. Ned cash used in operations was $8 million, also reflecting our investments in working capital as activity improves. And now the guidance for the third quarter.

We expect sales will be in a range of $158 to $168 million, while adjusted EBITDA attributable to DMC is expected in a range of $10 to $13 million. The anticipated sequential improvements reflect steady performance at Arcadia, increases in well completion activity at DynEnergetics, oil and gas, and EGS markets. and increased product shipments at NOBLECLAD. Our guidance does not contemplate increased disruptions in international supply chains due to renewed hostilities in the Middle East, which which could impact both DynEnergetics and Novaclad, continued volatility in aluminum input costs at Arcadia, or generally weaker in-market conditions. As a reminder, our guidance is heavily impacted by macroeconomic conditions, including evolving tariff policies, particularly in our poor energy and construction markets. Our guidance is subject to change either upward or downward as these highly volatile inputs evolve in 2026. Now, I'd like to provide an update on the non-controlling interest in Arcadia. As a reminder, when we acquired our 60% interest in Arcadia in 2021, our joint venture partner retained a 40% ownership interest equal to a net value of approximately $162 million.

Under the terms of our operating agreements, DMC can acquire the remaining 40% at any time through a call option that we're be settled entirely in cash. Our joint venture partner also holds a put option, which becomes exercisable on September 6th. If either the call or put option is exercised, DMC would acquire the 40% share of Arcadia's adjusted EBITDA that we currently don't own. Okay. In addition to adding the 40% of Arcadia's EBITDA in cash flow, it would considerably simplify our reporting and operating structure. If the put option is exercised, DMC can settle the obligation either entirely in cash or a combination of 20% cash and 80% preferred shares. preferred shares are convertible on a one-for-one basis and are mandatorily redeemable. However, I'd like to explain some critical considerations around any redemption of these preferred shares. Under NASDAQ rules, and as previously discussed and disclosed, the conversion and related voting rights are limited to 19.9% of DMC's outstanding common shares prior to issuance.

Any conversion beyond that level would require approval from our shareholders, and the holder of the preferred shares would not be eligible to vote. This leaves any dilution above the 19.9% completely in the hands of DNC's shareholders. In terms of the mandatory redeemable feature on the preferred shares, DMC would make equal annual cash redemptions over the subsequent three years after issuance. However, any redemption of the preferred shares is subject to DMC having sufficient legally available funds to redeem the shares. Delaware law prohibits a company from redeeming preferred shares if doing so would impair its ability to operate or adversely affect the interests of its creditors. This requires our board of directors to make a good-faith determination each quarter as to whether DMC can meet the requirements for a redemption. Our board could not authorize any redemption that could threaten DMC solvency or our ability to continue as a going concern.

If DMC cannot redeem the preferred shares, it would not be in default under the governing document for the preferred shares. The unconverted preferred shares will remain outstanding until they can be redeemed. assuming the 19.9% has been converted. From an accounting perspective, the redeemable preferred stock would not be considered debt until DMC borrows on its credit facility to make those redemptions. Additional details regarding the redemption of the preferred shares are summarized in note two to the financial statements in today's forum 10Q under the title, sustainable, non-controlling interests. And with that, I'll turn the call back over to Jim.

Thanks, Eric. As noted before, we made meaningful progress during the quarter, particularly at Arcadia, even as our end markets provided very little help. Arcadia executed on several successful performance improvement initiatives. We believe it can build on this momentum, although we remain very mindful that the broader construction environment remains challenging. Dynan Energetics should benefit from the anticipated improvement in well completion activity in its core North American market during the balance of the year and hopefully continued success in the emerging EGS space. At NobleClad, a strong order backlog and the expected easing of customer-related delivery delays should drive higher shipment volumes and stronger financial results during the second half of the year. We remain focused on disciplined execution and tight cost controls, so each of our businesses can capitalize on eventually improving market conditions. Finally, I'd like to thank our associates for their continued hard work and focus during the quarter.

With that, we'd be glad to take any questions.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Thank you. Our first question is from Jerry Sweeney with Roth Capital Partners LLC.

Please proceed with your question.

Good afternoon. Thanks for taking my call. Hey, Jared. Hey, Jared. I wanted to start with Arcadia. On Q1 earnings, you did discuss some supply chain constraints that hampered the short cycle business. And obviously, we saw some improvement in 2Q. Did you recapture all the lost business, or is there still some more opportunity there to go as we look out for the rest of the year and forward?.

Sure. So, and Jerry, I'm thinking back to whatever we said on the last quarter. The supply chain issues or costing issue, it's all around aluminum. It's all around, you know, just the general environment exacerbated obviously by what's going on in the Middle East. Where we were capturing business, and I don't want to go too far down memory lane, but if you remember, and this goes back to the third quarter of 24, which I remember vividly, I think that was the first time I was introduced to the company. We had the Goodwill write-off, and we also had just a horrible quarterly performance where... We talked about supply chain disruptions, product availability, customer issues. We brought Jim Slayton back after that.

And our focus was, number one, stability, you know, from end to end, maybe make sure our supply chain partners feel the love and we get that sorted out, which was really broken in that third quarter. And let's get back to the customers who, to be candid, we kind of screwed over when we didn't have product available. They rely on Arcadia. That's why we have number one positions in every one of these the major MSAs we deal with. And, you know, that was Jim's priority. And, you know, with the short cycle businesses coming back now, it's not because the market's any better. It is still absolutely horrible. It's not because the long cycle business isn't any better. It's still very interest rate driven.

And obviously the Fed didn't do us anything. favors today. But, you know, the basic, you know, Jim calls it the bread and butter business, the stuff that Arcadia was, you know, really, I don't know, Found it on is wrong, but the thing that made it successful in good times, bad times, through recessions, was just how important it was in the supply chain for its customers. And we think we're getting that business back. You know, it's closer to five going on six months now where the daily storefront business is consistently up day after day in our daily sales reports. When you don't hear about problems in the supply chain, that means something's going right. You know, when the trains don't run, that's the only time you hear about them. So that's going well, too. And, you know, really, to give credit, not just to Jim, but, you know, we focus on stability.

We wanted to bring back those customers, particularly on the storefront business. So, the focus on the customers, check, working. You know, we did have a lot of turnover, you know, besides Jim. We had a lot of presidents, interim presidents during that period. This has been the longest time since DMC's at Arcadia where we've had consistent leadership at the top. Jim's doing a great job. He's also done a great job bringing back a lot of the people who left during that period. It's lead salespeople, guys in the branches, and I think when they come back, the business is coming back, and even though the macro and economic environment is still challenging, and even though the aluminum issues still keep us awake at night, all the things we can control and we can influence are going right.

So I hope that answers the question. Yes, I mean, I was just curious. I mean, let's just say you lost 10 points because of issues. I'm just curious if you've gotten five points back and there's still some room to maybe recapture some lost market share with the understanding that, you know, the end markets are just in a tough position. That's all.

It would be a guess, but half of it's probably not wrong. There's still a fair amount, you know, with the aluminum being what it is. And, you know, I'm not going to name names, but, you know, we do have some competitors who are, you know, have more challenged balance sheets than we do, who are much more competitive. more aggressive on pricing than we'd like and have historically been. So, you know, there's a little bit of market share that trades because of things that we don't want to participate in as far as like the really bottom, you know, bottom of the barrel pricing. So I think we've probably gotten back a lot of the share that's within our control and the rest, we probably don't. want to participate in, but at least right now. And when things get better and everyone starts behaving better, that'll come back as well.

Understood, that's helpful. And then, you know, Dynanergetics, it's an interesting world out there, you know, higher for longer, I think you indicated maybe some increase well completions in the second half of the year. Just curious if you could give any more color on what you're hearing, you know, out there, what's happening. if there's even an opportunity to push this into 27, or is it too early to even say on that front?.

I'd say it's too early to say just because it's been, you know, so, you know, up one day, down the next, the straits are open, the straits are closed. I'm just going to repeat the things that you probably read as well. Of the peers of ours that are a larger, in some cases, through either peers or customers. They may actually have better visibility on it than we do because of their proximity to, uh, to the majors. Everyone is still expecting a pickup in the second half. Uh, And everyone is saying they're hoping there'll be momentum into 2027. We're not hearing anything that contradicts it.

It's just been slow to come. Obviously, we don't directly correlate with rig count, but until last week, I think it was the longest streak that rigs had increased in about two or three years. And again, all the anecdotes are positive. It's just they've yet to translate into meaningfully better business. I'd say hopefully momentum in the second half. Hopefully that carries into 2027. And the only caveat that would be, I think, specific to us, particularly amongst – equipment providers. You know, we have a pretty big European presence and, you know, we're a little bit more influenced or impacted negatively when you can't get stuff to some of our Middle Eastern customers.

You know, the European supply chain traffic slash freight has been an impact. So we might have timing issues there, but nothing, again, nothing specific to call out, all anecdotal.

Got it. And one more quick question on Dyna Energetics. the enhanced geothermal, any idea of how we should look at that in terms of potential market size or growth or where it could go over the next couple of years? Or, again, is this still very nascent in its development? development, and more testing needs to answer that question.

WAY TOO EARLY. I WOULDN'T SAY IT'S TESTING, BUT LOOK, THE BEST INDICATOR AND SOMETHING I DRAW YOUR ATTENTION TO, TAKE A LOOK AT FERVO'S S1, TAKE A LOOK AT THEIR WEBSITE. THEY'RE THE PIONEER IN THIS AREA. EVERYBODY'S WATCHING THEM TO SEE IF THEY'RE SUCCESSFUL. the buzz around data centers and the power super cycle that's much talked about and seems to be playing out. But the best thing to keep an eye on would be be Farvo. And for possible size of the market, I would look to the things I have in the restaurant. I understand. All right. Thanks. I appreciate it. It's nice to see a good sell a quarter for you.

You're welcome. Thank you. Our next question is from Stephen Gingaro with Stiefel. Please proceed with your question.

Thanks. Good afternoon, everybody. Thanks. I had two. I'll follow up on the prior question on the... geothermal side first. Can you talk a little bit about on the geothermal side, is the integrated perf gun technology a differentiator like it is in the oil patch, or is it just kind of another opportunity for advanced perf guns in general? I'm trying to figure out, like, is there a more or less differentiated opportunity than you participated in the oil field?.

If I understand the question, it's using the existing technology but with some nuances and some nuances that we're able to provide. The type of gun, you know, we're using a five-inch gun and, you know, some additional tweaks, Because we are, I still think it's safe to say we're the technology leader there. We're doing a lot of handholding, a lot of partnership, And you can only really do that if you have an expertise in the area. Because the rock formations they're going into are different than in the traditional oil and gas application. you know, the type of gun and its attributes are a little bit different, but, uh, You know, beyond that and nuances to the detonator as well, you know, it's the reason why you see all oil and gas people at the lead of all these companies. It's a very similar technology. Yes.

Okay, thank you. And then you talked a little bit about the market backdrop for Dyna Energetics and kind of what we're seeing on the activity side, and hopefully it continues to improve. What do you see specifically on the competitive landscape and the pricing dynamics for the perf guns?.

That's still very challenging. It's still one of the more fragmented areas in the chain, you know, when you work your way from the majors down. Pricing is still hard to come by. There's no price increases and it's very competitive, which has certainly been the case since, you know, in the three years that I've been on the board and in the company. So no different really there. And, you know, I would also add between tariffs that we've been unable to recover, between cost pressures on almost every input cost we have You know, the margin squeeze has been painful, and you see it in ours, and I think you would see it in our competitors' numbers as well.

Okay, great. Thanks. If I could just ask one more. You did a good job and I appreciate the explanation on the put call option. And it seemed like we revisited that with sort of more detail than we've heard recently. Is that sort of foreshadowing something that's going to happen in the near term? or you're just kind of reminding the market as to how the put call option functions?.

Well, so, you know, I'll start off, I'll give you kudos. I mean, you're one of our few analysts who's gone out and modeled it because I think you went a year or two further out last year. And it highlighted to us the fact that, you know, even though everything has been disclosed, and if you go back to 2021, the agreement, the operating agreement, the form of the – everything is disclosed out there. But we can't get away from the fact it's a complicated transaction. It's been five years and this won't be weight-breaking news. It's July 29th. The thing is exercisable on September 6th, and we have absolutely no idea if our partner will stay in the joint venture, if they'll decide to exercise. But this is the first time that it is exercisable, and we're issuing our quarter, and the next time we'll formally talk to you. it could be exercised.

So what we wanted to do is make sure everybody has the same information and addition to yourself, anybody else who is going to model it in the next, you know, the next report, including, you know, our shareholders, if they're, you know, if they're doing their own modeling. We want to make sure people understood two things. You know, number one, the level of dilution that was originally committed to, you know, not nothing changed, exactly the same. We wanted to make sure, particularly the shareholders knew that the misconception that It was endless dilution, completely in the hands of our shareholders. get a vote on anything above the 99. I think you've modeled that well and you understand it really well. We wanna make sure everybody understands it as well as you. And the other thing, you know, whether it's the 132 or 100, we want to make sure people understand that the debt, you know, if you put it in our debt footnote, if you schedule it out, it looks like a lot for this company to handle.

But we want to make sure people understand the preferred stock is a capital instrument. It is called mandatorily redeemable, but the board has an obligation to make sure it's not buying back the preferred shares at the wrong time. So we want to make sure that people understand, number one, how the dilution works, number two, how the debt works, and number three, you know, they know that they are in control as far as the debt is concerned. shareholder vote and we are in control as far as making sure we're not buying back shares or redeeming the preferred at a time that would put the company in jeopardy. So really just clearing up things that are in the marketplace and making sure we don't have, again, you've done a great job at it. Other guys are working on it. We want to make sure we also don't have selective disclosure issues in between in trying to explain something that's out there. But we appreciate it's a really complicated transaction.

Yes. They're great. Thank you for all the color. That's very helpful. You're welcome. And by the way, I really meant that. You did a good job modeling it. We want to make sure everyone has the same information. Thank you.

Our next question is from Ken Newman from KeyBank Capital Markets. Please proceed with your question.

Hey, thanks. Congrats on the nice quarter, guys. Thank you, Ken. Yep. Of course. I just wanted to circle back a little bit on to the supply chain dynamics question in Arcadia a little bit more. I think last quarter we were talking about higher aluminum prices being a bit of a headwind for new project activity. Obviously, I know commercial activity is still very challenging right now. It sounds like it may also have been a tailwind on supply chain dynamics. sales this quarter to a certain extent, right? So maybe Eric, is there any way to maybe help us bridge how much of the year over year sales was really driven by stronger volumes versus the higher aluminum pricing? Because obviously that took a step up, I think sequentially.

on a year-over-year basis in aluminum costs? Yes, I think a lot of the year-over-year increase is going to be due to the price, the aluminum price increases. There was some volume pickup that we had, but what we're seeing the increases in what Jim talked about, our short cycle business, and that's typically business that's to the small to medium-sized glazers, and contractors that are less price sensitive versus a longer cycle project that would have more competitors bidding for the same piece of work. So those same types of issues that we talked about in the first quarter around projects being delayed, intense price competition, those still exist for the long cycle business, we've seen is that the short cycle business, or sometimes we call it storefront businesses picked up, considerably over the last several months. And so we're excited about that because that business is fairly steady. It's higher margin. And it's really the bread and butter of what Arcadia was founded on, which was to serve as that small to medium-sized glazer.

That's helpful, Culler. I guess, Jim, does it feel like with all the work that you've done in optimizing the network within Arcadia, does it feel like this is pretty stable so long as the macro kind of still works with you, or is there still kind of more work or more levers to pull in order to drive better optimization from here?.

Well, really the one thing I did was bring back Jim Slayton. And the only other thing I did was nothing, meaning stability, prioritize, just letting the thing get healthy by itself. I think as far as getting it back to where it was in 2021, 2022, you know, Jim, he brought back the right people. We reprioritized and brought stability into the supply chain, how we managed some of our supply chain partners. We've calmed down the level of introduction of whether it's new processes. You know, whenever you buy a founder-led company, I have seen this a bunch of times. There's a temptation to try to boil the ocean right away and do everything new.

We've stopped that altogether. There's a reference in the press release to the high-end residential business. Which, you know, a couple years ago, I could have told you I was more likely to close it than not. And that was just an overreaction, probably on my part to, you know, to the challenges it had because we'd introduced so much change and maybe set, maybe we set the goals for that company as far as how big it could get and how fast it would get there. Maybe we were too ambitious. And Jim and I had a handshake when he came back. You know, he'd get it. to a certain level, both on sales and profitability within a certain time period. And he's meeting all those goals. I think we're more measured on where we can get to in an absolutely horrible macroeconomic environment.

When we first bought the company, I think we set out some goals that were probably too hard to get to. But we still have the best product in the market. We think the Arcadian name adds a halo effect to whatever we put out there on the residential side and Jim and the people he's brought back are again, every commitment, you know, he made to me and I made to our board as far as getting that business to where it is, are all coming, uh, are all coming to pass. So, uh, The short answer is that the only thing I did was bring him back and let him bring back the people he wanted. We kind of restored the trust in our supply chain partners. You know, our people are restoring the trust our customers had in us when we let them down in 2024. And, you know, right now there are some things we probably can't do. could do in terms of processes.

We think we got the systems, you know, we had an ERP conversion. You know, we're maybe 75 to 80% of the way there. We're going slow. It's still a big digestion issue. And as far as other operational improvement, I'd rather, you know, we're not going to force feed the company things like maybe we had in the past. I'd like to have tailwinds. To be candid, we really have headwinds in every one of our markets. And Arcadia, despite the fantastic performance this quarter, it's still got real headwinds as far as input costs, interest rates. interest rates, general malaise with our developers. So when we have tailwinds again, we'll be a little bit more ambitious on additional improvements we can do.

But for the time being, just getting back to where we were on the storefront business and with both our customers and our supply chain partners is,.

I think that's a tall enough task. Got it. That's very good color. I appreciate that. Maybe one last one, if I could squeeze it in. It sounds like there was maybe a modest benefit to Dinah EBITDA margins this quarter from the tariff refunds. Is there a way to maybe parse out what that benefit was and whether or not that stretches into the remainder of the year?.

Yes, Ken, we had about a million and a half of tariff refunds in the second quarter. That's from a combination of refunds from the government as well as negotiations with vendors. We're continuing to go through and file for additional refunds from the government and continuing those negotiations with our supply chain. but it's really difficult to forecast what that's going to look like.

Just to be clear, does the current guidance already assume like a similar level of refunds for the third quarter? It does.

It does not. The current guidance says no refund, no tariff refunds factored into it.

Very helpful. Thank you. Yes. Our ability to forecast Tariff recovery is almost as good as our ability to forecast whether the Straits of Formosa will be open when we walk out of this room. All right. Thank you. And, Operator, other than thank you to anybody who participated today, Thanks for your patience. We're trying to do the best we can in a very challenging market, but really appreciate all the work on the part of our employees at each one of our divisions here and in Europe. And we look forward to talking to you in a couple of months, and enjoy the rest of the summer.

That's it, Felice. Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

This live transcript is auto-generated without human intervention or review.

[Call has ended.]

Greetings, and welcome to the DMC Global First Quarter Earnings Call. [Operator Instructions] Please note, this conference is being recorded.

I will now turn the conference over to your host, Geoff High. Please go ahead.

Hello, and welcome to DMC's first quarter conference call. Presenting today are President and 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 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.

And with that, I'll turn the call over to Jim O'Leary. Jim?

Thanks, Geoff, and thanks to everyone for joining us today. The macroeconomic challenges that persisted throughout 2025 carried into the first quarter and continued to pressure our construction, energy and industrial end markets. In late February, the onset of the Middle East conflict intensified these headwinds, disrupting supply chains and international oil production while fueling raw material inflation, particularly for aluminum, which is by far Arcadia's biggest cost.

Despite these challenges, we delivered financial results that were within our admittedly moderated expectation range. Also, despite all this macroeconomic turmoil, there are some longer-term green shoots we're hearing about that are worth mentioning, which we'll discuss later in the call.

First quarter consolidated sales were $135.6 million, down 15% from the 2025 first quarter and down 6% sequentially. Adjusted EBITDA attributable to DMC was $3.9 million compared with $14.4 million in last year's first quarter and a negative $1.6 million in the fourth quarter.

Arcadia, our Building Products business reported first quarter sales of $56.7 million, down 14% versus the year ago quarter and flat sequentially. The year-over-year decline was principally due to the timing of a large mixed-use project in Southern California that benefited last year's first quarter.

Demand in this year's first quarter remained soft across both commercial and residential construction markets as sharply higher aluminum prices and persistently high interest rates continue to weigh on project activity and customer demand.

Average aluminum costs reached multiyear highs during the first quarter, increasing 64% year-over-year and 16% sequentially. A competitive bidding environment also continues to pressure pricing.

First quarter adjusted EBITDA attributable to DMC was $2.3 million, down from $5.6 million in the 2025 first quarter and $2.4 million in the prior year quarter. At DynaEnergetics, our energy products business, sales were $59.5 million, down 9% year-over-year and down 14% sequentially. The declines were driven by lower product sales in North America, where well completion activity continued to decline and pricing remained competitive. In addition, the conflict in the Middle East delayed customer shipments into that region.

First quarter adjusted EBITDA was $2.7 million compared to $7.4 million in the year ago quarter and a negative $2.7 million in the prior quarter. The year-over-year decline was primarily driven by tariffs implemented in April 2025, and the sequential improvement reflects the absence of discrete AR and inventory charges in the fourth quarter.

At NobelClad, our composite metal business, first quarter sales were $19.3 million, a 31% year-over-year decline driven primarily by the timing of large project shipments that benefited the prior year period as well as reduced bookings in the first half of 2025, due to uncertainty around U.S. and reciprocal tariff policies. Sequentially, sales increased 9%, supported by initial deliveries on a large international petrochemical project.

We expect additional shipments from this project throughout the remainder of the year. NobelClad's adjusted EBITDA was $1.9 million compared with $5.4 million in the year ago quarter and $2.1 million in the previous quarter. Order backlog at the end of the first quarter increased 12% sequentially to $70.3 million, marking the highest level in more than 15 years.

Now I'll turn it over to Eric for more detail on our first quarter results and a look at second quarter guidance. Eric?

Thank you, Jim. As previously noted, continued macroeconomic pressures and the conflict in the Middle East slowed activity in our core markets and weighed on our first quarter profitability. Our consolidated adjusted EBITDA margin before allocations of non-controlling interests, or NCI, was 4%, down from 11.4% in last year's first quarter, but up from breakeven in the fourth quarter.

Arcadia's first quarter adjusted EBITDA margin before NCI was 6.9% down from 14.2% in last year's first quarter and 7.1% in the fourth quarter. Competitive pricing pressure, high aluminum input costs and lower absorption of fixed manufacturing overhead placed downward pressure on margin during the quarter.

Dyna's adjusted EBITDA margin was 4.6% versus 11.3% in the first quarter of last year and up from a negative 4% in the fourth quarter. The decline versus last year relates principally to the impact of tariffs and pricing pressure, while the sequential increase reflects the discrete AR and inventory charges in the fourth quarter.

At NobelClad, adjusted EBITDA margin was 9.8% versus 19.2% a year ago, and 11.9% in the fourth quarter. The year-over-year decline reflects the timing of a large project in China that benefited last year's first quarter, while the sequential decline reflects a less favorable project mix in this year's first quarter.

First quarter SG&A expense was $24.6 million or 18.1% of sales versus 17.8% of sales in the year ago first quarter and 20.7% of sales in the fourth quarter. The sequential decline principally relates to the discrete AR charges at Dyna in the fourth quarter. First quarter adjusted net loss attributable to DMC was $5.7 million, while adjusted loss per share attributable to DMC was $0.28.

With respect to liquidity, we ended the first quarter with cash and cash equivalents of approximately $32 million. Total debt was $54 million, up slightly from our 2025 year-end due to seasonality. Net debt at quarter end was $22.4 million.

And now on to guidance for the second quarter. We expect sales will be in the range of $148 million to $158 million, while adjusted EBITDA attributable to DMC is expected in a range of $6 million to $8 million. We expect the anticipated sequential improvement will be driven by demand growth across all 3 of our businesses.

At DynaEnergetics, we're seeing stronger order activity developing in both our international and North American markets. Arcadia is coming off a seasonally softer first quarter, so we expect to see a modest pickup in activity there. And in NobelClad, we're anticipating higher shipment volumes tied to a large international petrochemical project.

I should note our guidance assumes a relatively consistent operating environment as we are not factoring in additional supply chain disruptions internationally, which could impact DynaEnergetics shipments into the Middle East, affect raw material availability and order timing at NobelClad or further increase aluminum input costs at Arcadia.

As a reminder, our guidance is heavily impacted by macroeconomic conditions, including evolving tariff policies, particularly in our core energy and construction markets. Our guidance is subject to change either upward or downward as these highly volatile inputs evolve in 2026.

Now I'll turn the call back to Jim.

Thanks, Eric. After a prolonged period of challenging macroeconomic conditions, we're hearing early indication from peers and competitors based on their recent public statements, the demand in several of our key area -- excuse me, our key end markets may be improving.

In DynaEnergetics oilfield service market, several leading industry players have recently noted that the prospect of higher for longer oil prices are supporting plans for increased drilling and completion activity in North America's onshore oil and gas sector.

At the same time, expanding interest in enhanced geothermal systems, which leverage technologies developed by the oil and gas industry, represent a long-term opportunity for the business.

At NobelClad, our order backlog is at the highest level in more than 15 years, and we're seeing a number of leading positive indicators, including increased spending by the Navy on enhanced naval readiness and potential demand tied to industrial infrastructure repair and reconstruction in the Middle East.

More broadly and also harder to quantify, the increasing narratives around global energy security and greater spending on both defense and energy infrastructure can only be positives as you look much further out for 2 of our businesses.

Nearer term, Arcadia is tracking positive trends in the Architectural Billings Index, which is a 12-month leading indicator of commercial construction activity. In March, the index for our primary Western U.S. market rose above 50 for the first time since December 2024, meaning more firms are reporting increased billings than declining billings.

While we expect continued near-term volatility across many of our markets, these indicators are encouraging and suggest that capital spending may be improving over the next several quarters. In the meantime, we remain focused on the disciplined execution and tight cost controls as we position DMC for the future.

I want to thank our employees for their continued dedication and hard work. And with that, we'll open the call for your questions.

[Operator Instructions] And our first question will come from Ken Newman with KeyBanc Capital Markets.

Nice to hear that we're expecting sales to improve sequentially across all 3 of the businesses. As I think about the second quarter sales guide, is there any color on helping us think about where the largest sequential increases come? It sounds like maybe there's some pushouts in DynaEnergetics. How much of the -- is there a catch-up there? Or maybe a little bit of help on maybe Arcadia just as well, just given that the comp there is pretty easy on a year-over-year basis.

Yes, Ken, I think just looking at each one of the businesses, we do expect that there's going to be improvements quarter-over-quarter at all 3 of those, like we said. The NobelClad business is expecting to have a pretty significant ramp-up in the second quarter for this international petrochemical project. So that's where you're going to see a lot of the increase for Q2.

And then we talked a little bit about some ongoing challenges with commodity prices, particularly within aluminum for Arcadia. But I'm curious if you could just talk a little bit about price cost impacts and how you're expecting that to trend through the second quarter? And maybe any incremental color on what you're seeing from the tariff side of the business? I know Canada has been a challenge, but any -- what are your customers saying there in terms of tariffs?

So margins for Arcadia and the margin comps are going to continue to be challenged. A lot of the aluminum pricing that's happened happened post the Iranian conflict, and that's going to carry forward. And all of our competitors, particularly on large projects, are dealing with the same issue. So pricing, going to get bailed out by pricing. We are seeing a little bit more traction, particularly if we're able to serve your customer service and your delivery times are up to where we're getting to again at Arcadia.

But I'd expect margins to still be challenged for at least the next quarter or 2 at Arcadia as the aluminum issue works through. And if it stays high, we'll continue to have challenges through the year. But when the market improves eventually and contractors start breaking ground, projects get -- larger projects start getting commissioned, which is where we're probably having most of the margin pressure. We could get some relief, but you need a healthier building market for that.

And on tariffs, we did not obviously book anything and we didn't put it in our guidance or expecting it, but we have applied for all the same tariff reliefs and rebates that we're entitled to. Dyna, in particular, is expecting several million, but it's so difficult to forecast. The mechanics and the timing are virtually impossible. But that could be a bluebird that flies in the window. We just have no idea when.

Maybe if I could just sneak one more in here. It was good to hear about the rumblings about the potentially improving oil and gas activity here in the States. As you talk to your customers, do you get a sense of how quickly they can move on potential orders if they feel comfortable with the CapEx spend? And where would you start to see that initial improvement as it flows through on Dyna? Would it be primarily just on the drilling side? Or would you get further or maybe a sooner indication on order improvement?

Well, we have very short lead times there in every environment. So it's nothing that's going to impact dramatically the next quarter. And if you look at the guidance from everybody from Halliburton to one of the peers that released today, nobody is thinking the second quarter is going to have real huge improvement. I think most people -- and again, it's all the suspects that I just ticked off and everybody who's released before us, they're all talking about as you go into the back half of the year, if you listen to the administration, all these tankers are turning around and heading to the United States and a great many of them are, tracking tanker activity is pretty easy to do, and it's pretty granular. But that doesn't start to help, and that won't translate into really any big bump in onshore activity until after this upcoming quarter. We're not expecting any major pickup. But if it happens, we've got the capacity, and we've got the ability to turn things very quickly. I mean, we operate on very short lead times there.

[Operator Instructions] And we'll go next to Gerry Sweeney with ROTH Capital Partners.

Sticking with DynaEnergetics. Obviously, I think in the past, you've talked about some new product innovations and even some automation. I just wanted to see where that stood and where that could play into potential pickup in the second half of this year?

Well, it's already baked into the guidance and already baked into kind of how we look at the balance of the year. We're getting the savings from the automation that we've been talking about for the last -- at least the last 3 or 4 quarters. And it's not really new products. It's more value engineering and product reengineering for cost. We expect -- and again, it's in the guidance. It's in the sequential improvement that we just chatted about. And it's in future years as well. We've got a pretty meaningful slate of cost outs that carry forward into this year and then into '27 as well and it's from not less new products than it is reengineered existing products.

The only thing it would be new products, but I don't know if it's necessarily a new product, just a new application, new end market would be geothermal, where we do expect some business this year. And we're really hoping that, that ends up being a big growth market in future years. And for -- it's not in our press release. It is talked about in public, but the only renewable energy that really survived completely unscathed, in fact, came out better from Trump's One Big Beautiful Bill was geothermal. And there's a tremendous amount of excitement and enthusiasm for it. It pairs very well with data centers, and it fits perfectly with our product and a lot of the applications that fracking has been doing for the last decade.

I'm just going to switch over to geothermal. That was my next question. And I mean, listen, it is the only baseload renewable energy, true baseload renewable energy out there. So I think that's part of the demand aspect of it. But just speaking of demand, do you have visibility to the opportunity, what's going on with enhanced geothermal in terms of potential market size and when the opportunity may start to maybe show up in the numbers?

We'll book sales this year. It will be -- it won't be meaningful enough where we'll break it out. And Gerry, I'd really have to direct you to some of the industry literature Wood Mackenzie, if you look at have been -- there's a couple of really, really good things in the public marketplace from companies that have gone public recently.

So I direct you to them, and that's kind of what we're hanging our hat on. But we don't have to put in a lot of capital. We're not making major additions to infrastructure. We're just redirecting some of our engineering resources and our customer service resources to service a market that we're really excited about. But we're not basing anything on enormous numbers going forward. We're just trying to meet the demand that's right in front of us. And by the way, utility-grade solar did okay coming out of the bill as well. I have to say that because I'm on the Board of a utility grade solar company. But I am rooting more for geothermal these days.

And I get what you're saying, I'll go back and look at the material. Just sticking with Dyna. Obviously, you've got very good manufacturing. You've got a great product. It reduces the need for manpower on the drill pad, et cetera. And if there is a quick push back to maybe some -- or speed up in drilling and even completions, do you think you're potentially better positioned than some of your competitors to meet that demand just because of your foundation?

Yes, but not necessarily for -- we have some really good competitors in North America. There's a lot of capacity. That's why pricing has been so challenging. Why I think we're better positioned than many. And one of the things you didn't mention is energy security and all the things that are being talked about after this Iranian conflict. Well, I'm very excited about geothermal. I think if you look at some of the public stuff, and I direct you towards Fervo filed an IPO, their material is fantastic, and we're excited for them.

But when you look at all the discussion about energy security, I think there's a general recognition now that it's not going to be renewable or. It's not going to be fossil fuels or. It has to be everything. I saw a guy named Ernie Moniz, who was the Department of Energy head under Clinton. I saw him in a presentation not long ago where -- and he was under clearly a democratic, very pro-renewable administration. He said we need everything. And this is before the Iranian conflict. There was an article in the journal last week where there's at least 6, and I thought it was more countries that historically haven't done fracking.

There's a lot of countries that have fracking resources that are looking at whether or not they should be getting a lot more serious about that. Where I think Dyna is particularly well positioned is we have an international operation that could be a little challenge making shipments into the Middle East or some of the other parts that does business, particularly in Asia because of the supply chain issues and some of the challenges being created by that conflict.

But long term, if the rest of the world gets serious about energy security and it's everything, meaning not just renewable and not just fossil fuels, that's going to be great for us. That won't be next quarter. It might not be this year. But longer term, if people are more focused on energy security, recognize that you have to look at the limitations of every possible source and you have a basket of things, we're not going to be talking about getting rid of fossil fuels by 2030, 2035 or 2050. And that's always been ridiculous, and I think people are recognizing that now.

Got it. One more question and just speaking about security. The naval readiness program under NobelClad. Any details on that? Or is this one specific program that we can watch or track? Or is this a multitude of just increased shipbuilding or some other aspect?

It could be a multitude of increased shipping across the board. What we're talking specifically about and what we've got factored into less of an impact this year, but more going into next year. Just going from 1 nuclear sub to 2 is a really big deal. If you look at what the budgets and what Trump and HF and others have talked about under naval readiness, it's a lot more than 1 or 2 subs that they're talking about increasing. The challenge is -- and again, not being a show for the Wall Street Journal, but if you look at -- and it's been in the Atlantic. It's been in all the foreign relations magazines, too.

The challenge is if you go to Newport News, Groton, the new shipyard in Philadelphia, naval readiness is being hampered by just people. You can't build the stuff fast. If -- and the Noble people must be starting to hate me because every time I see one of these articles, I forward it to them and ask why you can't be more. And the answer is always the same. It's a question of the constraints and the constraints are all manpower. And that will fix itself. But again, it won't fix itself by next quarter or the end of this year. I do think even, if peace breaks out around the world, the issues around naval readiness, particularly with concerns in Asia, a heightened awareness of what's happened with the Straits of Hormuz, this is never going away and in the long term, be a good thing for us.

No, there's huge, huge spending Pacific defense initiative is one out that's out there. But super helpful. I appreciate the longer view on that perspective.

And this now concludes our question-and-answer session. I would like to turn the floor back over to Jim O'Leary for closing comments.

Terry, other than thanks for your patience. We know it's been a difficult year. There's an old saying. And I don't know if it's one of the immutable laws of nature, but things can't go up until they stop going down. And it does feel like this quarter, and I'm not -- I'm hoping we make next quarter. I'm hoping things continue to look a little bit cheerier. But once things start going down, you have enhanced prospects for them going up. We're not reveling in all the insecurity around the world. But for a company that's tied to energy infrastructure, older technologies around fossil fuel, the naval readiness we talked about, a world that's what we're living in, those are all positives for us.

So just the fact that things are a little bit cheerier longer term out is something we haven't been able to talk about before. And not specifically a next quarter or the quarter after thing. But Arcadia, and I do a lot of other things in the building industry. This is still a pretty gloomy year. The affordability and the interest rate issues, nothing's changed. But they do feel like they stopped getting worse. And again, things aren't going up until they stop going down, and they do feel like they've at least stabilized.

And if you remember this time last year, we've been through our third or fourth President at Arcadia. We destabilized it badly with integration. And we were struggling with some supply chain challenges and some self-inflicted issues where they definitely stabilized. Jim Schladen and a couple of new team members we brought there are doing a great job. Things have at least stabilized, and I think it's in the press release, but the fact that the AI index prepped above 50 for the first time or hit 50 for the first time in over a year, it's a real positive when you look further out. And we're seeing that.

That doesn't help with the affordability issues that the contractors are dealing with. It doesn't help with interest rates. It would have been nice if the Fed gave a little bit more promise for interest rates going down. But until the inflationary picture is a little bit better, we won't expect that. But even at Arcadia, which isn't necessarily going to benefit from energy security, naval readiness, some of the bigger themes we talked about. But Arcadia, things have stopped going down. The team there has done a great job of stabilizing things. We've attracted back some of the team members that had left the company and we were really top-notch salespeople.

So again, it's not going to be next quarter, may not be this year, but one of our peers talked about 2027 being a year when they expect things to really start kicking in, and I hope that's true for us, too. But when things stop going down, the prospects of them going up were a lot better. And hopefully, that's the case for us. So thanks to our investors. Thanks to the employees who are slogging through this every day, and we'll talk to you next quarter.

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines and have a wonderful day.

Greetings. Welcome to the DMC Global Fourth Quarter Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce Geoff High, Vice President of Investor Relations. Please go ahead.

Hello, and welcome to DMC's fourth quarter conference call. Presenting today are President and 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 our 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 today. Macroeconomic challenges continue to be a major issue at DMC, notably tariffs, both pre and post Friday's turbulence and the general trend in level of interest rates, which have largely been unforecastable, much to the strain of everyone in the building industry.

These and other economic challenges weighed heavily on DMC's core oilfield and construction markets throughout 2025 and are persisting into early 2026. Despite these difficulties, we remain focused on our main objective, which we've consistently discussed with you each quarter, strengthening our financial position. And on that front, we continue to make significant progress.

We reduced our net debt by another $11.4 million during the fourth quarter. At year-end, our net debt of $18.7 million was down 67% from the end of 2024 and at the lowest level since the Arcadia acquisition was consummated in 2021. However, while we made progress on the balance sheet front, we received little or no cooperation from our end markets, which continued to worsen during the period.

Tariffs were a significant headwind for us in 2025, and we're currently reviewing Friday's Supreme Court ruling and the White House's subsequent response to understand what it all means for our businesses. At this point, it appears that the Section 232 tariffs on steel and aluminum will remain in place. We're evaluating what refunds we may be entitled to which the Supreme Court was silent upon in its ruling.

With respect to the fourth quarter, consolidated sales declined 6% year-over-year to $143.5 million. Fourth quarter adjusted EBITDA attributable to DMC was negative $1.6 million, which included approximately $7 million in discrete accounts receivable and inventory write-offs at DynaEnergetics, our core oilfield products business as certain of its customers have been negatively impacted by very challenging conditions in the North American unconventional oil and gas market.

Arcadia, our building products business, reported fourth quarter sales of $57 million, down 5% year-over-year and down 8% sequentially. Adjusted EBITDA attributable to DMC was $2.4 million, up from $2.2 million in the prior year fourth quarter, but down from $5.1 million in the third quarter. In addition to year-end seasonality, Arcadia's end markets have been impacted by persistently high interest rates and elevated raw material and labor costs, which have collectively slowed architectural activity and led to the deferral of several large projects.

The Architectural Billing Index for Acadia's core Western U.S. region is contracted for 12 months, and these conditions have led to a highly competitive bidding environment that's pressured pricing. Most notably, we've experienced a continued increase in the average price of aluminum, Arcadia's primary input, which was up 55% year-over-year and 12% sequentially. In a soft market categorized by project deferrals and delays, this has led to a very price competitive environment.

DynaEnergetics reported fourth quarter sales of $68.9 million, an 8% improvement versus the prior year quarter and flat sequentially. Adjusted EBITDA, including the approximately $7 million in write-offs was negative $2.7 million. As mentioned, DynaEnergetics and its customers have been negatively impacted by challenging conditions in the North American onshore market, which has seen volatile and generally declining oil prices, fewer operating frac crews and highly competitive pricing.

During the fourth quarter, Dyna paid more than $3 million in tariffs and related duties and has paid more than $10 million since the tariffs were imposed in February of last year. NobelClad, our composite metals business, reported fourth quarter sales of $17.7 million, down 38% from the 2024 fourth quarter and down 15% sequentially. Reduced bookings during the first half of 2025 led to the declines as evolving tariff policies contributed to significant uncertainty in NobelClad's U.S. and international markets.

Adjusted EBITDA was $2.1 million down 64% versus the comparable prior period and up 1% sequentially. The year-over-year decline principally reflects lower absorption of fixed manufacturing overhead on significantly reduced sales. NobelClad's order backlog at the end of the quarter was $62.6 million, up 28% year-over-year and up 10% sequentially. The increase reflects a record $25 million order during the first quarter of 2025 for an international petrochemical project.

I'll now turn it over to Eric for a closer look at the fourth quarter financials and our guidance for the first quarter.

Thank you, Jim. As previously mentioned, our consolidated adjusted EBITDA attributable to DMC of negative $1.6 million included approximately $7 million in discrete charges at DynaEnergetics and the majority of these charges were related to accounts receivable reserves. As Jim noted, the reduced activity and pricing pressure in the North American unconventional oil and gas sector has created significant challenges for some of DynaEnergetics oilfield services customers.

Inclusive of the Arcadia noncontrolling interest, adjusted EBITDA was approximately $61,000 versus $11.9 million in last year's fourth quarter and $12 million in the third quarter. Arcadia's fourth quarter adjusted EBITDA margin before noncontrolling interest allocation was 7.1%, up from 6.2% in the year ago fourth quarter but down from 13.8% in the third quarter. Dyna's adjusted EBITDA margin was a negative 4% compared with 8% in the prior year quarter and 7.1% in the third quarter.

NobelClad's fourth quarter adjusted EBITDA margin was approximately 12% versus 20.6% in the prior year fourth quarter and approximately 10% in the third quarter. The year-over-year decline includes a tariff-related slowdown in bookings earlier in the year. Fourth quarter SG&A expense was $29.6 million or 20.6% of sales versus $25.1 million or 16.5% of sales in the prior year fourth quarter.

The year-over-year increase principally relates to discrete accounts receivable write-offs at Dyna. Fourth quarter adjusted net loss attributable to DMC was $9.9 million, while adjusted loss per share attributable to DMC was $0.50. With respect to liquidity, we ended the fourth quarter with cash and cash equivalents of approximately $32 million. Strong fourth quarter cash flow enabled us to reduce total debt to $52 million, a 28% decrease from year-end 2024. As Jim mentioned, net debt was $18.7 million, down 67% from the end of 2024.

And now the guidance for the first quarter. We expect sales will be in a range of $132 million and $138 million, while adjusted EBITDA attributable to DMC is expected in a range of $2 million to $4 million. Our results will reflect the impact of severe weather across much of the United States that affected our businesses during the first half of the quarter. We expect many of the factors that negatively impacted our fourth quarter and most of 2025 will continue into 2026. We believe Arcadia products will continue to face the broader factors that have weighed on the construction sector, including persistently high interest rates, volatile input prices and acute price competition.

Project deferrals and generally lower activity in Arcadia's core West Coast markets are expected to continue through at least the beginning of the year. DynaEnergetics core North American unconventional market remains challenged by margin pressure from both fewer operating frac crews, which has led to a difficult pricing environment and higher input prices that have been inflated principally by tariffs.

While NobelClad expects improved performance for the full fiscal year, demand erosion following the imposition of tariffs in early 2025 and the resulting impact on major orders will result in a slow start to the year. As a reminder, our guidance is heavily impacted by macroeconomic conditions, including evolving tariff policies, particularly in our core energy and construction markets. Our guidance is subject to change either upward or downward as these highly volatile inputs evolve in 2026.

Now I'll turn the call back to Jim.

Thank you, Eric. So to sum up, while we're pleased with our progress on the balance sheet, we're equally displeased with our overall financial performance. However, we recognize and we expect that many of our constituents recognize that we operate principally in 2 markets, energy and construction, that historically have been highly volatile and can and have been deeply cyclical.

While we navigate what currently are tough conditions, what will hopefully be close to trough conditions in both markets, we're keenly aware of the need to find future avenues of growth while we continue to batten down the hatches to maximize operating leverage when business conditions eventually improve. Our businesses are actively pursuing potential growth opportunities that align with their core capabilities. For example, DynaEnergetics is exploring opportunities in the enhanced geothermal sector while we're looking to expand our presence in certain emerging international shale markets.

Meanwhile, NobelClad which already supplies mission-critical components to the U.S. Navy is closely monitoring opportunities associated with the recently announced acceleration of the U.S. Naval Readiness program, and expects to be a beneficiary of any increased volume, particularly for future submarine programs.

Currently, each of our businesses are assessing the expected impacts of the Supreme Court tariff decision while working on additional tariff mitigation strategies. They're ready to take further cost reduction activity in addition, if business conditions do not improve as we move further into 2026.

Finally, I'd like to thank the DMC's associates around the world for their contributions during a very challenging year. The contribution and commitment is greatly appreciated. And with that, we'd be glad to take any questions, operator.

[Operator Instructions] And our first question comes from the line of Gerry Sweeney with ROTH Capital Partners.

I want to start with DynaEnergetics. Obviously, at the end of your prepared remarks, you talked about being keenly aware of growth opportunities. And I was wondering if you could touch upon the geothermal opportunity and the international shale opportunity with...

Gerry, are you there?

Did you catch anything? Or did I -- was it just not there?

You weren't there? Can you start over?

Yes, I can. I apologize. Jim, you spoke at the end of your prepared remarks about being keenly aware of growth. And I want to see if you could just discuss the opportunities on the geothermal side and the international shale side -- and on the international shale side, how you go to market and what's the opportunity there?

Sure, sure. We'll definitely talk about the growth. But again, we're keenly aware these are cyclical markets, 2 of them are down. So while we've been taking costs out all along, supply chain, variable costs. And if there were further attrition, everything is on the table, head count across the board, spending across the board. So the goal for at least until we start to see the markets improve is make sure we're maximizing operating leverage on the other side. I was at the Builder Show last week, we're not experiencing anything different than anybody else, onshore oil and gas certainly the same, and we're particularly exposed to onshore oil and gas, where the price pressure and volume -- volume has been okay, but the price pressure, particularly the tariff impact on margins has been challenging.

So job one is to make sure we have the maximum operating leverage possible on the other side of this. But -- and to your question, our product, particularly for EGS enhanced geothermal, it's exactly the product we use for fracking. If you looked at the One Big Beautiful Bill from a couple of months ago, the renewable technology that was most favored and came out not just intact, but better than it went in before the bill was put up. Enhanced geothermal is the preferred and really, it came out with a halo on it. There are a number of industry players that we're working with right now. They're through. And if you were to look at the CVs of most of the people in leadership positions at EGS companies, they're all former people who were in leadership roles at fracking companies, oil and gas companies. It's very much a similar technology.

It's the same sales channels. And it's something that Dyna is extremely good at. And I think we're uniquely well positioned if -- in our opinion, it's when geothermal takes off. It will be principally in North America. But remember, we're one of the few companies with an international footprint as well. So we're exploring that globally, but first and foremost, in North America.

The second and particularly noteworthy again because it's in the papers every day, naval readiness, particularly around issues and it's not just in Asia, it's across the world. The state of naval readiness around submarines, battleships, almost anything that has been underinvested in for now decades is something NobelClad is uniquely positioned in. We're sole sourced on a number of things that go into most nuclear subs right now and openly discussed and I believe in the budget for next year is a doubling of sub volume. Now that might be going from 1 to 2 or 1.5 to 2 plus, but doubling our volume has a pretty pronounced impact on NobelClad.

We don't want to quote the numbers for an individual for a unique vertical right now. But doubling of sub volume for NobelClad, principally in the U.S., that doesn't include what else might go on elsewhere in the world, which we are looking into actively. Any additional -- particularly on pressure vessels and battleships and some of the additional things that are being talked about by the Trump administration would have a pronounced impact. It won't be 2026 unless it's very late in 2026. But in '27 and beyond, the revving up of the naval readiness program would have a significant impact on us.

The third thing, which we talked about, going back to Dyna, international shale principally in South America, Vaca Muerta in Argentina is the one that you see most in the press. But in Saudi Arabia and other parts of the world, again, we think we're uniquely positioned because of our global footprint and our technology, but that's something we're also revving up the efforts on.

Got it. I always like to start with the good things on the growth side, but a little bit different tact Arcadia. And I want to make sure -- I believe I read this right when I was rereading the transcript, but I think you anticipated actually, I think, better margins with the 3Q call in that segment. I'm just curious if that just saw increased pressure in the second half. And as you also said, there's nothing off the table. Anything there that you need to sort of fix or even invest in to help on the margin front?

No, I don't think there's anything obvious that needs to be fixed. We're looking at every discrete physical operation. We're looking at -- and we've continued to look at every product line, whether it's contributing or not. But Gerry, the entire industry just took a leg down from the second quarter going into the first quarter of this year. It worsened more than we expected, more than our management team there anticipated. I think you've heard us talk about the run rate, going from $20 million in sales per month up to $25 million as a pronounced impact on operating leverage. But we dipped below $20 million going into the third -- excuse me, going into the fourth quarter and into the first.

And if it were something unique that we were doing poorly or something unique about our footprint, and don't get me wrong. We are concerned, we're looking at everything. But it's not concerned that we're doing anything particularly wrong. You -- I don't know if you have visibility into anybody, but there's one public comp, and I don't like to speak about peers in the press, but there is one public comp. Yes. But there's 2 private comps, both of which are private equity owned, we get to see, and I believe you probably could figure out how their performance has been.

Of the 3 or 4 data points we have, 2 private, but pretty prominent debt issuers, 1 public, there's absolutely nothing unique about our performance, which is unfortunate. And I was at the Builder Show earlier this week and it's the gloomiest I remember since 2011. Now I'm hoping the saying, it's always darkest before the dawn holds true. I thought interest rates would kind of break in our way in our favor a bit sooner. I think we're going to have to stay tuned there. The cross currents of inflation, is it caused by tariffs or not, just general stickiness of longer-term interest rates relative to the likelihood that at some point this year, there'll be cuts.

Hopefully, that precipitates the darkest before the dawn comment. But right now, it's about the gloomiest I've seen since 2010 and '11, but it's nothing unique to Arcadia. The only thing that may impact us a bit more than some of the peers I just mentioned. We're disappointed. I know the people who live there and are directly impacted are very disappointed, but the rebuilding in Los Angeles is taking a lot longer than I think we anticipated a year ago. It's taken a lot longer than people I talked to at the Builder Show last week have expected.

And that's one where it has to be impacting us a bit more pronounced because we're the leader in that market. If you were -- if you've been through Vegas for any trade shows or any of your other coverage universe, I mean, Vegas is not a lot of lapse these days. We're still holding up very well because of our market share. But whereas in an upmarket, our footprint is really beneficial because we continue to be in some of the better MSAs in the country.

Right now, at least a number of them, and I'm thinking particularly California and Vegas are a bit gloomier than they normally are in the building market. And again, nothing that's specific to Arcadia and that's borne out by what we see and what we can tell from our comps. But it doesn't make us feel any better about it and doesn't make us any more alert about looking at everything. And like I said, everything is on the table.

Got you. And I saw the read-throughs on some of the competition. So I appreciate that. And you also preempted my question on the [indiscernible] rebuild. My sense is there's a lot of -- there's building frustration that's taken longer than people anticipated and some of it is being held up by some red tape, but that's it for me.

It's incredible and it's disappointing.

The next question comes from the line of Stephen Gengaro with Stifel.

A couple for me. The first on the DynaEnergetics side, it seemed like the fourth quarter revenue was very strong. And I know there was a kind of lower seasonality in the frac business than normal. Did the top line surprise you? And I'm curious if what you're seeing -- I would imagine that would help overhead absorption as to whether there's -- I was trying to figure out kind of the margin performance even absent the discrete items you took.

I wouldn't say surprised because we have reasonably good visibility by the time we announced guidance. On the volume side, principally unit volume, it was as we expected. There was nothing disappointing about it. In fact, given what you read in the press, it was absolutely solid. It did fall off a little bit going into the end and then going into the beginning of the year. So that's why we're even a bit more cautious with the first quarter. It really came down to margins, Stephen. The margin pressure from tariffs and we put in -- we debated whether or not we should put in the exact numbers, but the impact on DynaEnergetics from tariffs has been so significant.

We thought it was important for you and your constituents to see the numbers. 3.25% and 10% for the year is pretty impactful for a company the size of DynaEnergetics. The unit volume, and I'm making a clear distinction between unit volume and price. Pricing has been challenging on perforating guns in particular, given it's a narrow universe, it's a subset of the broader equipment market. And I know you cover a lot of our peers, whereas some are seeing the benefits of broadening offshore exposure, some are seeing the benefits of greater penetration, greater activity in conventional particularly in other geographies. We are pretty -- our sandbox is pretty restricted. Is it 70-30? That's probably not a bad number, unconventional in the U.S., principally the Permian and elsewhere. And the price pressure there has been significant.

So kind of simplifying it a bit and back to your question. Unit volume was as we expected, and it was fine. Price pressure was pretty significant, and price coupled with -- and it's not just tariffs, labor costs, the friction from having to reverse gears on what tariffs are doing. And we did do a lot of good things on the supply chain side. But the friction of having to reengineer everything a couple of times a year, that has a cost impact as well. So it's mostly margin compression, and it's principally on the cost and a bit on the pricing side.

Okay. And the follow-up to that, this is probably a little kind of higher level. But when we think of DynaEnergetics and like you made the comment earlier, cyclical versus -- I think you mentioned something about cyclical issues. And what I'm trying to understand about Dyna is how much of this is truly cyclical? And how much of this is a structural problem in the U.S. perf business, given what some of the machine shops have done and given maybe a competitive landscape, which is probably better than it was a couple of years ago. I'm struggling with that part of it and trying to figure out what it's really going to take for DynaEnergetics margins to start to expand again at some point?

It's the right question. It's one we're asking ourselves a lot as well. I couldn't give you it's 50-50 or 70-30, but on the volume side, even though unit volumes are fine, rig count has been down, frac spreads have been down, frac crews are down. If you look at some of the industry data, would it be better if oil was consistently over $70. Would it be better in a less uncertain world where is Iran onstream, off stream or the Saudi is going to increase or decrease output.

I think a little bit more consistency and just because volumes weren't bad, it doesn't mean they couldn't be a lot better if you had better visibility into the global picture. And again, most of the metrics that do affect us were down. It's just unit volume ended up being okay. So it's clearly not all secular. But it's also not as bad cyclically as it was around COVID in 2015 and '16. I wish I had a better answer in terms of the percentage and when we would see things turn around. We have and we typically don't talk about this level of detail, but we have made some pretty substantial changes at Dyna on the personnel front as far as manufacturing and some inside salespeople that we think will make a difference.

We've maybe gotten a little -- I don't want to say fat and happy, but we probably got a little bit too complacent over a long period. The last 2 years, particularly as volume came down, but it didn't plummet. It didn't bring people into action the way probably it should have. I hope that's helpful, and I wish we could give you a better answer on how much is cyclical and how much is secular.

On the secular side, though, again, and it's intentionally put this way in the press release. We appreciate that cyclical businesses, but we have to find other avenues of growth. And I think international shale opportunities and enhanced geothermal are the two things we got to be paying attention to until visibility improves and we can better answer the question.

Great. No, that's fine. I appreciate you giving some color. And then just one final one. Like I'm not sure how granular you'll get on this, but when we think about the first quarter and then maybe as '26 progresses, any commentary on the segment puts and takes in the first quarter? And maybe which segments you're probably more or less optimistic about as far as seeing some expansion throughout '26.

Yes. The first quarter is going to be tough. And NobelClad doesn't really pick up. The pickup will largely be driven by that large project we referenced and that's into the year. It's not in the first quarter. It's really too late to say interest rates or anything in the broader economy and Los Angeles or elsewhere in the West, in particular. So I think they're all going to be equally gloomy. And I think the recovery in the pickup has to be back half of the year, maybe as early as the second quarter, but I don't want to jinx those.

And again, everything along the lines of interest rates, greater clarity on tariffs. If you just take the 15% that the administration is going to use from Section 122 of the 74 Act, and you superimpose that, we should see a little bit of relief. It's only a small percentage of the 3 and 10 that we referenced in the press release. But we should see some cost improvement. But it is almost the end of February. And I think we've tried to be conservative but not unrealistic about the first quarter. And again, we wish we had a better answer, but I think that's -- the die is kind of cast for the first quarter.

The next question comes from the line of Ken Newman with KeyBanc Capital Markets.

Eric, maybe for my first question, I was hoping maybe you could help us bridge a little bit to this first quarter EBITDA guidance. I wanted to get some clarity. First, is there any other carryover write-down impacts or anything else that outside of just the core operations that we should be aware of from 4Q to 1Q? And then also maybe a little bit of help from a gross margin perspective across those segments as we think about the sequential moves there.

Yes. So not aware of any type of carryover write-downs that we would have from Q4 going into Q1 to answer your first question. And I think the second one in terms of gross margins, as we talked about earlier in the prepared remarks, the margins are pressured in both Arcadia and also at Dyna. So the input costs that are coming through for Arcadia the aluminum cost, they continue to increase and through just yesterday -- or sorry, Friday, the aluminum cost had gone up another 10% on a quarter-over-quarter basis.

So what Arcadia is seeing is a very difficult -- it's very difficult for them to pass through all of those costs on to their customers. And the other piece of it is that some of the projects that they bid on are starting to get delayed. And so there's an increased level of price competition, it's also impacting them.

So in terms of gross margin for Arcadia, I think there's nothing that's going to necessarily return or recover to historical levels in the first quarter, at least from what we see right now. And then, Jim, in answering some of the previous questions, talked about some of the challenges for Dyna. They also have some of the similar challenges from a tariff standpoint. There's no reason to think that the tariff exposure is going to dramatically change from this point through the end of the quarter. And the pricing pressures that they had in the second half of 2025 are going to continue into the first quarter as well.

So for both of those businesses, they're getting an impact, whether it's pricing to customers, whether it's the input costs are going to put pressure on margins. And then I guess the last thing that I would say across them as well as NobelClad is to the extent that they have less volume flowing through their plants, they obviously have pressure coming from fixed cost absorption or operating leverage, however you want to think about it. So I think for your second question, I think the pressures that we had in Q4, they're going to continue into Q1 at the gross margin level.

Yes. Okay. That's very helpful. And then for my follow-up here. Jim, you gave a lot of great color. It sounds like there's more blood that could be squeezed from the stone here from a cost down and efficiency perspective if the demand remains weak. I know you talked a bit to the opportunities for when that demand recovers. But as you think about this from a higher level, how much of this story you view it as one of just hoping that the end markets improve versus something that you can actively do today to kind of drive that incremental demand? And how much do you have to spend in order to kind of go after those opportunities?

We wouldn't have to spend anything. I mean there's no big capital project. There's nothing that is transformative on the technology front. We talked in the past about automation at DynaEnergetics. We talked about some CapEx projects on a one-off basis here and there in Arcadia. There's no money that has to be spent. But Ken, we did go into -- and it was intentional the discussion on the cyclical businesses. I wouldn't say there's blood to squeeze out of the stone because we are diligent and we continue to look at certain things just adjust with volume over time, temporary labor, traffic, meaning mileage and things that are purely variable. When those don't adjust, even if you're a quarter or two late, you jump all over them, and we've been jumping all over them now.

Are there things that we can be a little bit more diligent on and push on a little bit harder? Yes. But I'll see the difference. It will probably be difficult for you to see the difference. The reference and we're looking at other plans and considering other things we can do. Listen, if there's a step function down and I lived through 2007 through 2011 in the building industry, I was the CEO of another industrial company during the great financial crisis.

You do have to be diligent about another step function down where you're laying off substantial numbers of people, you're cutting heads, certainly not indiscriminately, but you're cutting heads at a level that you wouldn't do if you didn't have to. I mean, right now, the drop down over the last 4 quarters. I categorize as measured and it hasn't been a slow drip but again, if you look at our peers, if you look at the building industry more broadly, if you take one of the guys who preceded us question on, is it secular? Is it cyclical in onshore unconventional, it's been kind of a slow drip and a steady march downward.

What I'm talking about is if there's another drop down and it's precipitous and a step function, we'll be ready. There are other things we can do. But right now, part of this is maximizing operating leverage and being ready if there's a step function up at some point, and I've lived through this, too, when the building industry takes off and we get monthly sales above $20 million and going from $20 million to $25 million, the drop-through in operating margins, the drop-through on gross margins is significant. It's noticeable not just to me, you guys will see it right away. So that's -- it's kind of making sure we're in a position to maximize and harvest all of that. And we also intentionally in the comments said, we're hoping this is the trough, but you can never get complacent about that.

I think we've had a little bit of complacency over the last couple of years, which we've run all the complacency out. I think people are paying attention to all the variable costs. We're looking at avenues where if there's a step function down, we're prepared to take the actions that would be necessary. But the flip side of that is if the building industry takes off, you don't want to be the person who can't meet demand. You don't want to be the person who can't be staffed up and in a position to maximize that. I think we're right in that point of balance now. And again, I'm keeping my fingers crossed that it's a leg up at some point this year. It won't be next quarter. And if it is a step down, we'll be prepared. Let's just hope that's not what it comes to.

This concludes the question-and-answer session. I'll turn the call back over to Jim O'Leary for closing remarks.

Operator, thank you and for anyone listening on the call, including the fellows who asked questions. Thank you. All good questions, all provided the color we want you to leave with. And again, just to repeat something, cyclical end markets, we don't see anything that's specific to us that is in desperate need of help. We're trying to maximize the operating leverage on the other side. We're prepared if there's another leg down, which hopefully there won't be.

Tariffs and the general level of interest rates have not been kind to us, but they haven't been kind to anybody and not just maximizing the operating leverage, but looking for avenues of growth, which would be geothermal and international with Dyna, certainly, the naval readiness initiative at NobelClad amongst getting back in the game with some of the larger projects that we think now that there's a little bit more stability on the demand front, we should avail ourselves of.

We're looking at all the right things. We appreciate your patience, and we're trying like heck to do a better job for you. So with that, thank you, and we're looking forward to talking to you in a couple of quarters.

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.

Greetings, and welcome to the DMC's Global Third Quarter Earnings Call. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Geoff High, VP of Investor Relations. Thank you, Geoff. You may begin.

Hello, and welcome to DMC's third quarter conference call. Presenting today are President and 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 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 at our website 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 thank you to everyone joining us for today's call. While challenging market conditions continue to impact each of DMC's businesses during the third quarter, we made significant progress on the most important strategic objective within our control, the continued deleveraging of our balance sheet. By the end of the third quarter, our net debt had been reduced to $30.1 million, down 47% since the start of the year and the lowest level since we purchased the controlling interest in Arcadia at the end of 2021. DMC's consolidated third quarter sales were $151.5 million, down 1% versus the third quarter a year ago, while adjusted EBITDA attributable to DMC was $8.6 million, up 51% year-over-year.

At Arcadia, our Building Products business, third quarter sales totaled $61.7 million, a 7% year-over-year increase, but down 1% from the second quarter. Adjusted EBITDA attributable to DMC more than doubled to $5.1 million from the year ago quarter, reflecting improved operating performance and better absorption of fixed manufacturing overhead due to the sales increase. Adjusted EBITDA was up 27% sequentially. The efforts to stabilize Arcadia's business during the past year have helped mitigate the impact of stubbornly high interest rates and generally soft commercial construction activity in Arcadia's core Western region, where architectural billings have declined every month since May according to the Architectural Billing Index.

At DynaEnergetics, our Energy Products business, third quarter sales were $68.9 million, down 1% year-over-year and up 3% sequentially. The third quarter was marked by declining activity in DynaEnergetics core U.S. onshore market, where well completions were down 8% year-over-year and 6% sequentially. At the end of the quarter, active frac crews, a key indicator of demand, were down nearly 20% from the 2025 peak in March. DynaEnergetics reported third quarter adjusted EBITDA of $4.9 million, up from breakeven in the year ago quarter, but down 46% sequentially.

The sequential decline reflects lower product pricing and higher costs due to tariffs as well as certain receivable and inventory charges. At NobelClad, our composite metal business, third quarter sales were $20.9 million, down 16% year-over-year and down 21% sequentially. The declines reflect the delayed impact of lower U.S. bookings during the first and second quarters when customers move to the sidelines as they monitor fluctuating U.S. and reciprocal tariff policies. Adjusted EBITDA was $2.1 million, down 64% from the prior year and 53% sequentially, reflecting lower absorption of fixed manufacturing overhead on reduced sales and a less favorable product mix.

During the third quarter, NobelClad booked a $20 million order associated with a large international petrochemical project. After quarter end, we received an additional $5 million order related to that same project. Together, these bookings, which ship at the beginning of next year, reflect the largest order in the 60-year history of NobelClad. NobelClad's backlog at the end of the third quarter was $57 million, up 53% from the second quarter, not including the $5 million follow-on. I'll now turn the call over to Eric for a closer look at our third quarter results and our outlook for the fourth quarter.

Thank you, Jim. I'll start off with a closer look at third quarter profitability. As Jim mentioned, consolidated adjusted EBITDA attributable to DMC was $8.6 million. Inclusive of the Arcadia noncontrolling interest, adjusted EBITDA was $12 million or 7.9% of sales, up from 4.6% in the third quarter last year and down from 10.4% in the second quarter. The year-over-year increase in EBITDA margin principally reflects improved results at DynaEnergetics, which was impacted by $5 million in inventory and bad debt charges in last year's third quarter as well as price-driven top line growth at Arcadia, leading to improved absorption of fixed manufacturing overhead.

The sequential decline in adjusted EBITDA margin was primarily due to lower pricing and higher costs at DynaEnergetics as well as reduced activity levels at NobelClad. Arcadia's third quarter adjusted EBITDA margin before noncontrolling interest allocation improved to 13.8% from 5.8% in the year ago quarter and 10.9% in the second quarter. Dyna's adjusted EBITDA margin improved to 7.1% in the third quarter compared to less than 1% in last year's third quarter. EBITDA margin was down from 13.4% in the second quarter for the reasons previously mentioned.

NobelClad's third quarter adjusted EBITDA margin was approximately 10% and was impacted by the tariff-related bookings slowdown earlier in the year. Adjusted EBITDA margin was down from 23.2% in the third quarter last year and 16.5% in the second quarter. Third quarter SG&A expense was $26 million or 17.1% of sales versus $28.2 million or 18.5% of sales in the third quarter last year. Third quarter adjusted net loss attributable to DMC was $1.6 million, while adjusted loss per share attributable to DMC was $0.08.

With respect to liquidity, we ended the third quarter with cash and cash equivalents of approximately $26.4 million. Total debt was $56.5 million, down 20% from the end of 2024. And as Jim mentioned, net debt was $30.1 million, down 47% from the end of last year. And now on to guidance. We expect fourth quarter sales to be in a range of $140 million to $150 million, while adjusted EBITDA attributable to DMC is expected in a range of $5 million to $8 million. Our guidance reflects the lag of converting recent record bookings at NobelClad into sales, which are expected in 2026.

Our guidance range also anticipates continued headwinds in DynaEnergetics core North American market, which has been significantly impacted by both tariffs and declining well completion activity and may experience a seasonal slowdown late in the quarter as has been the case in recent years. Although Arcadia is expected to experience a normal seasonal fourth quarter slowdown, it expects continued year-over-year improvement in profitability due to better operational execution.

Our guidance is heavily influenced by macroeconomic concerns, volatility and visibility issues created by the current state of energy markets and tariff policies and is subject to change either upward or downward as market conditions evolve. With that, I'll turn it back to Jim for some additional comments.

Thanks, Eric. In an environment marked by volatile and declining energy prices, elevated interest rates and shifting tariff policies, we continue to focus on what's in our control. DynaEnergetics is containing its costs while pursuing international opportunities and navigating an extremely challenging North American oil and gas market. As discussed and based on direct customer feedback, we expect the oilfield services market to face continued headwinds during the fourth quarter.

Accordingly, we remain focused on the self-help measures within our control. As mentioned earlier, NobleClad secured a record order that its commercial team worked nearly 5 years to win while it rebuilds its order book and looks globally for new business opportunities. And finally, at Arcadia, we've stabilized operations after a challenging 2024 and are positioning the business for an eventual recovery in its commercial and residential markets. Arcadia has now had several quarters of stability since we brought Jim Shladen back, and we believe we've successfully reset the business while we wait for market conditions to improve.

Collectively, we've made substantial progress on our most important initiative, deleveraging our business. This remains our principal corporate objective as we work through generally challenging markets for each one of our operating companies. Our progress would not be possible without the hard work of our DMC associates, and I want to thank them for their continued contributions. And with that, we're ready to take any questions. Operator?

[Operator Instructions] Our first question comes from the line of Gerry Sweeney with ROTH Capital Partners.

Start off with Arcadia. I know you -- Jim, I know you mentioned the ABI was down, I think, out in the West, et cetera. But 2 questions on that front. One, are you seeing any green shoots? And then two, are there opportunities for additional operational improvements at Arcadia? Or is that level set for now?

Okay. So we're seeing green shoots, but remember, that's very specific to us. We had, when I think the industry was still doing okay, and I would say just okay, both residential and commercial. We would turnover and some self-inflicted issues, we had a challenging 2 or 3 years after the acquisition. So a lot of our year-over-year improvement, our month-over-month improvement, a lot of the things we're seeing are just introducing stability with Jim Bact, bringing back some employees who might have looked for green pastures, repairing some of the relationships that might have gotten a bit fray, both on the supplier side and the customer side.

So we're seeing some Arcadia-specific green shoots, but I wouldn't read too much into that. And from everything you can see, it's observable and anecdotal, whether it's our public peers, even one like JELD-WEN today, which is far more residential than us. But it's a data point. If you subscribe to any of the credit agencies, you can see companies like Oldcastle and Pan Air. We're all struggling with exactly the same issues, persistently high interest rates, overall cost and affordability, and that applies to commercial as well. And I think that's starting to -- that should start getting better, but I wouldn't say you see the green shoots industry-wide.

A Board of a company I'm on, I mean, we're in every MSA in the country. If you put a gun to my head, I couldn't tell you what MSA in the country is really doing well, maybe 1 or 2 in the Carolinas. So all of our year-over-year improvement and green shoots that you categorize that, all very Arcadia specific and all because we brought back stability and some self-help measures. Now on what we can do specifically, stabilized things, brought back some key players, repaired relationships, really soft -- the soft skills, which Jim is fantastic at. Jim would have a longer list of things that we can do next than I would.

And a lot of it is we can still do better in terms of professionalization, maybe bringing some new skills in, maybe looking at -- we've been underspending CapEx for a while on things that we're going to have some decisions to make as to whether or not -- where and when we want to put it in. There's capital we might have put in, in 2021 that we've -- we have to do, but whether or not you do it now, if you think you're still going to be bouncing along the bottom is a really important question. But we both have a very long list of things we can do that would be -- and I wouldn't say it's -- I would say it's past self-help.

It would be, okay, now we're at the point where professionalization, bringing some new skills. We're getting there now on the ERP implementation, some of the improvement to data quality for the first time in a while. So there's a long list of things we work on, including on capacitization. The question is when is the right time? You don't want to add it early if the market just doesn't doesn't fill up a paint line or fill up an anodizing line, right?

Yes. Understood. Yes. Got it. Switching gears, NobleClad large order. It sounded like it was going to ship in my words, first quarter, but I'm not sure how you exactly characterized it. But what would be the cadence of the shipping of that order? And over how many quarters, if more than one would this sort of take place?

Yes. So I said 2026, but Eric will give you the particulars. It's more back-end loaded than first quarter.

I don't have...

I misspoke.

No, I don't have much to add to that other than, like Jim said, it will be second half of 2026 is where you're going to see the bulk of the revenue from that order.

Got it. And just sticking with NobelClad, obviously, that's a large international order. U.S. is facing some headwinds, but I think there's a lot of opportunity in the Gulf at some point for some of this petrochemical stuff, but I'm just curious if you're seeing any additional orders unlock? Or are they still tied up because of tariffs and other issues and just uncertainties?

Well, we agree, and we hope you're right about further petrochemical orders. But right now, if you asked the division President there, how he categorize the state of things, and we've went through his budget a couple of times in the last few months. If you have the choice of order or wait, people wait. And it's -- the tariffs were a big issue that impacted us early, particularly on 1 or 2 really big ones that we know we probably didn't get because of tariffs. Right now, I think it's just a general level of economic uncertainty. Outside of tech and a couple of really fare haired favored sectors, if you're very capital intensive, if you're very consumer-driven, if you're very -- in consumer, meaning the ultimate end markets, it can include automotives in there.

I mean nobody is rushing to do capital projects unless you're bringing stuff back under some of the Trump policies, factory building, major CapEx, you're going to wait before you order until you start to be a little bit more comfortable with the overall economy.

Our next question comes from the line of Katie Fleischer with KeyBanc Capital Markets.

I wanted to dig into the tariff impacts in Dyna a little bit. How should we think about that impact in coming quarters? And is there any opportunity to push price within that market?

Yes. So the impact to Dyna in the quarter was roughly $3 million. And to answer your question, to try to push price in the market, that's extremely challenging right now. All of the players in the market are pretty much going through the same type of issues with importing steel and some other components that are used in their perforating systems. So what we're doing right now is trying to figure out ways we can be more efficient with how we manufacture our products and being smart about the automation that we put into our manufacturing line. But to increase price is very difficult in the market right now.

Yes, makes sense. Just any other details that you could give around the margin progression within Dyna and NobelClad for next quarter? Like does the midpoint of guidance assume that both of those are going to see a sequential decline?

Well, I think for -- just taking them one at a time. With Dyna, they're going to continue to have the pressures that we talked about from a pricing standpoint. There may be some seasonal slowdown. And to the extent that there is, that puts additional pressure on margins because there's less sales and less volume to absorb their fixed manufacturing overhead. And the same would be true of NobelClad. The large order that we talked about will ship in 2026. So we're probably not going to get much of a benefit for the next good few quarters.

And there, same thing. It's going to be -- to the extent that the sales are a little soft in the quarter, it's going to put pressure on them because they're not going to be able to absorb that overhead. So you can take that into your modeling, and it should show you that the margins will be pressured quarter-over-quarter.

I'd add to that. I would add, if your assumption -- whatever your assumptions are on end markets, will probably be right ahead, whether it's lead by a couple of months, lead by a quarter, it will be right ahead of our margin progression because everything at NobelClad for the most part, has been absorption driven. A fair amount outside of the tariffs, which Eric just went through, there's a little bit of mix, but it's the pricing issue and the fact that the Permian is so challenging right now. When you think both of those end markets get better, you'll see our margins pick up maybe disproportionately.

I'd like to think we have some operating leverage, but it will be very end market dependent because I think we did the self-help things early, but you're still -- in NobelClad is the best example. You're down $5 million of sales. That's all throughput and that all comes through as overhead absorption.

Got it. And then just one last question here. I know visibility is very limited. But just looking ahead, when you think about the recovery of these end markets, how much more downside is there from here? And what would you really need to see to give you some confidence that some of these demand trends are starting to pick up?

Well, look, I mean, the first thing you need is stability. I am encouraged, and I would think the stability in the order book at NobelClad is a precursor. We won't see that for a quarter or 2 or 2 or more as it's mostly back-end weighted. But the fact that the order book picked up, we got a major biggest in our history order is a real positive. In the building industry, I think we have more self-help and more benefits just from being stable, but it's still a really, really tough market. And the fact that the Fed has started cutting interest rates, some appropriate consternation as to whether or not the next move will be up or flat after Powell's last couple of comments.

You got a Fed that seems more favorably disposed, particularly with the recent appointees. But it's not clear that you're going to see 3 or 4 cuts the way people might have been thinking a month or 2 ago or that will be dragged out over a longer period. And that is absolutely critical to get things going. I'd like to think we could see some green shoots sooner but I still think you got a grand total of 20 permits issued in some of the parts of Southern California that we're most long-term excited for, but there's just not a lot of activity.

They're continuing to keep a lid on permits. The activity is not there the way -- honestly, the way some of these poor homeowners would like to see. But when that starts to loosen up, that will be a little bit divorced from interest rates. But building, if we get 2 or 3 cuts, building could start picking up in the back half of next year. But I would say, if you listen to homebuilder calls, some of the larger distributors like Builders FirstSource, Beacon, anybody that's out there, I wouldn't say they've written off next year, but they're very, very conservative about it because we've been burned a few too many times.

So that's -- I think middle end of next year would be optimistic on housing, but I think we have some specific things that are Arcadia and Arcadia dependent. And honestly, the market I'm least knowledgeable about is obviously Dyna just from past history. But that's the one where the volumes have held up, but a couple of industry prognosticators out there, they do comment on how consolidated our customers and our customers' customers have gotten. We're still at the point where we probably had the brunt of the tariffs that we've had to eat.

Once the markets take off and we get the opportunity to be selling the value that we bring, I think we'll get some of the margin and price back, but that's probably quarters away. But if you wake up and the Saudis decide they're not going to keep the spigots open, that could change tomorrow.

Our next question comes from the line of Jawad Bhuiyan with Stifel.

I guess just based on what we've been hearing around a lot of these U.S. pressure pumping companies, it seems like activity levels are kind of bottoming and that's kind of where we're -- I guess, the direction that we're heading. And I guess more specifically, can you talk about or elaborate expectations for 2026, specifically within the perforating gun business and maybe also what current pricing looks like in that business? And then I just have a quick follow-up.

Too early to talk about 2026. We're one quarter at a time for good reason. The visibility is terrible. And we don't comment on pricing other than if the market picks up and it's a little less competitive, we should see some relief, but we're nowhere near there right now.

Got it. And I guess just more specifically for oriented perforating guns. We've kind of heard that it's been having a positive impact on production levels. I guess, could you maybe talk about what you're seeing in the field?

That's true. We have a product. Yes, we have a product out there that's self perforating gun as well. Yes. Technology is what's driven a lot of the incredible production increases in the Permian for -- in the last 10 years. We've been a leader there and continue to be.

There are no further questions at this time. I'd like to pass the call back over to James O'Leary for any closing remarks.

We appreciate your patience. We are doing everything we can under the category of self-help and positioning ourselves for the eventual recovery. We didn't get a chance to talk about except in the prepared remarks, but getting the balance sheet in shape, having your cost structure in shape, being ready for whether it's opportunities or just the things we got to deal with next year and having a clean balance sheet, plenty of cash flow and a cost structure that will accommodate us are the things we're working on. So we appreciate your patience. And for any employees listening, we appreciate your hard work and dedication. So thank you.

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