DMC Global Inc. Aktie

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.

Greetings, and welcome to the DMC Global Second 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 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 date and are subject to risks and uncertainties that are disclosed in our filings with the SEC. Our business is subject to certain risks that could cause actual results to differ materially from those anticipated in our forward-looking statements. DMC assumes no obligation to update forward-looking statements that become untrue because of subsequent events.

Today's earnings release and a related presentation on our second quarter performance are available on the Investors page of our website located at dmcglobal.com. A webcast replay of today's presentation will be available at our website shortly after the conclusion of this call.

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

Thanks, Geoff, and thanks, everyone, for joining us for today's call.

In a volatile environment marked by shifting tariff policies and highly challenged visibility, our businesses remain focused on their operating initiatives, helping us exceed our EBITDA guidance range of $10 million to $13 million for the second quarter. At the same time, we made progress on our most important overall objective, deleveraging our balance sheet. Second quarter consolidated sales were $155.5 million, while adjusted EBITDA attributable to DMC was $13.5 million.

At Arcadia, our building products business, second quarter sales totaled $62 million, down 5% sequentially and 11% from the year ago period. Last year's second quarter benefited from much stronger demand for high-end residential and commercial exterior products. As expected and previously discussed, this year's second quarter reflects nationwide weakness in the high-end residential market and in construction activity more broadly.

Building activity in all segments continues to be challenged by persistently high interest rates. Management recently rightsized the cost structure of its residential offering to align with current market activity while refocusing on its core exterior operations, which generate approximately 75% of the segment sales. Arcadia's second quarter sales also reflect the anticipated and previously discussed drop in project billings following the completion of a large mixed-use development project in California that benefited the previous quarter.

At DynaEnergetics, our energy products business, sales were $66.9 million, up 2% sequentially but down 12% year-over-year. That decline versus prior year reflects pricing pressure and weaker demand in our core U.S. unconventional market, where the number of rigs, well completions and active frac crews are at or near multiyear lows.

At NobelClad, our composite metals business, second quarter sales were $26.6 million, down 5% sequentially and up 6% year-over-year. NobelClad's order backlog at quarter end was $37 million versus $41 million at the end of the first quarter. This decline reflects a sharp slowdown in bookings as customers await clarity on tariff actions or have settled on using alternative clad solutions from suppliers not impacted by tariffs. We believe we've lost some business in recent months to non-U.S. suppliers due to tariff-driven cost increases and a willingness by Canadian customers, in particular, to buy non-U.S. product.

On a more positive note, during the second quarter, we drove a meaningful improvement in DMC's financial position. Total debt at the end of the quarter was $59 million, down 17% from the previous quarter as we focus on our most important objective, strengthening our balance sheet in advance of the unwinding of the Arcadia put call.

I'll now turn the call over to Eric for a closer look at our second quarter financial results and our outlook for the third quarter. Eric?

Thank you, Jim. I'll start with a look at second quarter profitability. As Jim mentioned, consolidated adjusted EBITDA attributable to DMC was $13.5 million. Inclusive of the Arcadia noncontrolling interest, adjusted EBITDA was $16.2 million, while adjusted EBITDA margin was 10.4%, down from 11.4% in the first quarter and 14.3% in the second quarter last year. The year-over-year decline is largely attributable to lower absorption at Arcadia, where sales of residential and commercial exterior products declined from last year's second quarter, a period that benefited from materially stronger customer demand.

Arcadia reported second quarter adjusted EBITDA attributable to DMC of $4 million. Before the noncontrolling interest allocation, adjusted EBITDA was $6.7 million or 10.9% of sales, down from 14.2% of sales in the first quarter and 17.8% in the prior year second quarter.

Dyna delivered $9 million in adjusted EBITDA, while adjusted EBITDA margin was 13.4%, a sequential improvement of 210 basis points and a year-over-year increase of 190 basis points. The improvements primarily reflect lower material costs and a slightly improved sales mix.

NobelClad reported second quarter adjusted EBITDA of $4.4 million with an adjusted EBITDA margin of 16.5%, down from 19.2% in the first quarter and 22.7% in the prior year second quarter. The declines were primarily due to a higher mix of international project sales, which typically carry a lower gross margin.

Second quarter SG&A expense was $26.1 million, down sequentially from $28.3 million and $27.1 million in last year's second quarter. The decrease principally reflects lower expenses for professional services and bad debt. Second quarter adjusted net income attributable to DMC was $2.5 million, while adjusted EPS attributable to DMC was $0.12.

With respect to liquidity, we ended the second quarter with cash and cash equivalents of approximately $12 million. As Jim mentioned, total debt, inclusive of debt issuance costs, was down 17% from the first quarter to approximately $59 million, and net debt was reduced to roughly $46 million.

And now to guidance. We expect second quarter consolidated sales will be in a range of $142 million to $150 million, while adjusted EBITDA attributable to DMC is expected in a range of $8 million to $12 million. The wider-than-normal range on adjusted EBITDA reflects the increased uncertainty in our end markets.

Arcadia expects conditions in the U.S. construction industry will remain challenging, and it's rightsized its residential cost structure to align with the current market while also refocusing on its core commercial operations. At DynaEnergetics, the industry is anticipating a sequential decline in well completion activity in our core U.S. onshore market, while NobelClad is continuing to be impacted by the deferral of orders by customers that continue to monitor the still evolving tariff policies.

I should note that our guidance is heavily influenced by macroeconomic concerns, volatility and visibility issues created by current tariff policies and the current level of energy prices. It's subject to change either upward or downward as greater clarity emerges.

Now I'll turn it back to Jim for some additional comments.

Great. Thanks, Eric. And to wrap up on a slightly more positive note, albeit very high level and anecdotal, despite recent ongoing challenges, continued uncertainty across both building products and the broader industrial markets, our businesses are steadily advancing against the key objectives we set earlier in the year. We exceeded our admittedly cautious EBITDA guidance by remaining focused on self-help initiatives within our control.

At Arcadia, while business is subdued due to elevated interest rates and a slow start to the residential rebuild of Los Angeles, there are reasons to be optimistic. There's pent-up demand that will eventually be unleashed when interest rates moderate and local policies supporting the rebuilding initiative in L.A. picks up steam. In the meantime, we're focused on fixing some of the things that need fixing and believe we're making solid progress despite the market headwinds.

At NobelClad, we believe there's pent-up demand and order volume, which should recover as the tariff situation settles down. In the meantime, we're focused on controlling costs and lowering our overall breakevens.

At DynaEnergetics, things are a bit trickier due to the shifting animal spirits around global energy markets, which are impacting oilfield service companies and their suppliers. Again, maintaining tight cost controls is our principal focus as we watch for a recovery in energy prices and well completion activity.

At the midyear mark of 2025, we've also made important progress deleveraging our balance sheet and improving our financial flexibility. We view these as important achievements as we continue to prepare for the possible acquisition of the remaining 40% stake in Arcadia late next year.

The efforts of DMC associates across each of our 3 businesses has been critical to our continued progress, and I'd like to thank all of our employees for their hard work and commitment to DMC's future success.

And with that, we're ready to take any questions. Operator?

[Operator Instructions] Our first question is from Gerry Sweeney with ROTH Capital Partners.

I wanted to start with Arcadia. This multifaceted question, so I apologize in the beginning. But on the weakness or some of the headwinds there, how much of this is resi? And how much is sort of just end market across maybe the building products segment? And then the follow-up to that is, what is the roadmap? What should we be looking for as you rightsize the business there to fit demand as we go forward?

Gerry, this is Eric. I'll take the first part of that question. So the weakness that we've seen has been really split between the residential business. That's our high-end residential segment. But also, we've seen in the commercial exteriors part of the business that some of the projects are being deferred out a little ways. And so we think that, that's primarily the impact of tariffs on people, the end developers trying to wait and see how things are going to shake out. But just the persistence of the higher interest rate environment, which is not helpful from that standpoint.

And Gerry, when you asked, the rightsizing is effectively done in residential, 1 or 2 facilities where at the end of the second quarter of last year, like everybody else, there's a couple of public comps out there you can look at that are pretty illustrative. When the volume dropped off, we rightsized the workforce, rightsized some of the support, and that's effectively done. We consider taking more drastic action. But to be honest, most of that product would be perfect for the rebuilding of some of the higher-priced areas in L.A., and we have an option on that.

Now the challenge with that, the estimates and Geoff pulled something this morning that said 1,300 -- 13,000 homes I see an estimates as high as 20,000 homes because remember, a lot of the structures that are still on lots may never be inhabitable. So it's a pretty significant number of homes that need rebuilding. And I think there's been 154 permits pulled so far. So it's pretty far behind.

And we've got a pretty good position. We've got a unique option on that market. We want to make sure we're positioned to take advantage of it. So we think we've done the right amount of belt tightening in the residential side, which is reflective of higher interest rates principally.

On the commercial side -- on the commercial side, it's -- tariffs do impact it a little bit, but it really is principally interest rates. And most commercial contractors, they placed orders, they're long lead, long-term demand. But they're not going to do releases and they're not going to start construction until they know what their overall cost of financing is.

And when you're sitting in front of -- think about the last 1.5 weeks, 2 Fed descents, 1 Fed governor moving on, almost a certainty you'll have some regime change there. And I think futures are pricing anywhere between 1 and 2. There are some descent saying 0. But if we had to bet, we'd say there'd be some substantial cuts in at least the next 12 months, if not in the next 6. So there's a lot of pent-up demand and making deeper cuts to commercial, which is still healthy and will also benefit if you think about storefronts and some of the low mid-rise buildings we do, they were impacted by the fires, too. So we want to be careful about not cutting off our nose despite our face.

I got you. I understand that. Besides maybe reductions in force and rightsizing, are there other opportunities within Arcadia to drive profitability or other initiatives? Any update on that front?

I mean the principal initiatives and where Jim Schladen, who returned to us earlier this year, spending time, is getting customer service -- principally customer service, lead time reduction, a little bit on the quality side back up to the standards that the organization lived and breathed when he was there. I mean it's a custom customer service-driven business top to bottom.

And restoring that focus is where he's been spending a lot of his time in every division, not just Arcadia, we've got basically 0 headcount add mandates unless it's for specific initiatives. We've got basically 0 variable cost additions until volume returns, less a factor for Arcadia than some of the other businesses where they've seen the volume really fall off. Jim is the guy who did most of the headcount reduction across the residential business when the backlogs were really depleted at the end of last year.

So I think on the discretionary side, where it makes sense, we've done all the things you should without impairing yourself. If you look at NobelClad, which is definitely our most tariff-impacted business, although if you ask me to quantify it, you remember the model, we pass through raw material increases, but you don't know what demand you lose if your raw material increases are higher than somebody who's not burdened by tariffs.

That's the business that's probably seen the steepest drop in actual business impact, but it's more reflective in the backlogs and the recent drop in quarterly performance, because the project business and most of the CapEx numbers I've seen come out from the government are absolutely horrendous. And that's a function of people either deferring or canceling orders until they know what the economy is going to look like and until they know what the true cost of a project is going to be.

And I'll commend the NobelClad people. They've not only done the variable cost reduction that I always view as kind of the automatic shock absorber. They have cut much deeper than I would say, selectively around other things, everything from travel down to discretionary headcount. They've done all the things you do when you really have a steep downturn driven by exogenous events, which they have.

And Dyna, they've done all the things that are consistent with the initiatives we started last year. Remember, that business fell off steeply last year. We had an automation initiative, which is going well, but I'd say probably 50-ish-plus percent there. So more to come around getting that implemented.

I would say a value engineering product, which I'd love to say was intelligently driven by our crystal balls, but we took a lot of material out of the product that's out in the market now. We did things that not only took material cost out, but by taking material costs out that would be impacted by tariffs, you kind of got the double whammy of preempting some of the things that unfortunately, tariffs have done to a really challenged oil service market now.

So outside of those, I don't think there's really a lot we can do right now. If the economy takes a huge step down, of course, there's more. But at this level of volume, I think we're at the right level.

No, I wouldn't disagree. I tell you guys executed very well in the quarter and not surprised guidance is probably a little bit lower than my numbers, but that's not a surprise to me. One other quick follow-up question. I know there's other people...

Gerry, we have the unfortunate benefit by releasing today. We got to see a lot of the people you cover and a lot of the commentary from customers, peers, the whole oilfield space. So I think we were appropriately prudent.

Yes. Balance sheet, obviously, nice paydown in debt in the quarter. Maybe this is for Eric. Anything in terms of -- on the balance sheet that you can continue to work on? I'm not sure inventories or payables, receivables, et cetera. I didn't have a chance to really come through it, but it looks like it's trending in the right direction and in a decent velocity.

Yes. I think from a net working capital standpoint, I think the business has performed reasonably well during the quarter. And there's always more that can be done, so we'll continue to push there. The free cash flow performance we had was really strong in the second quarter.

I'd say looking out over the next several quarters, we would expect that we would be converting EBITDA into free cash flow 40% to 45% similar to where we were in the first half of the year. And if you look back at the prior couple of years, we were kind of in that ballpark, 40% to 45%. So the net working capital performance is part of it. Obviously, generating cash earnings as we head into the second half of this year will be another critical aspect of it as well.

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

Jim and Eric, maybe to go back to Arcadia. Thanks for all the help there on some of the cost-out initiatives there. I do want to ask, just given some of the work that you've done in recent months to rightsize the cost in Arcadia, can you just help us size up how you expect gross margins in that segment to perform at the midpoint of the third quarter guide? I'm just trying to figure out how you think -- where do you think volumes need to be in order to step back up to that high 20%, low 30% range?

Yes. I think with this business, Ken, there's a fair amount of fixed costs in our COGS area. So when you look at the revenue that we've generated over the past couple of quarters, to the extent that we increase that, we have much better fixed cost absorption. So going into the third quarter, we've caveated what we think the performance is going to be for Arcadia just given what the overall environment looks like. And there's going to be some softness in the fourth quarter that's just seasonal in nature.

But really, for Arcadia, trying to get the volume pick back up to levels that we had in prior years. And to the extent that we do that, we get a disproportionate amount of impact at the EBITDA level and can push the EBITDA margins up closer to where you saw them in prior years. But for the next, I'd call it, 2, 3 quarters, it's still going to be touch and go given how the environment is operating.

And Ken, just one slight addition. The difference between this company at $240 million to $250 million and $300 million, if you look at the history going back even before we acquired it, because you've got 11-ish or give or take, a number of distribution sites around the hub-and-spoke model, you've got all your manufacturing in one place, you effectively got your operating leverage as good as it can be.

The difference between $240 million and $300 million, that's the difference between the consistent $40 million to $50 million years this company was doing right up until 2023 going into 2024. And the drop-off in volume, $5 million to $10 million a month, that's really where all the tremendous operating leverage is. That's why we want to be really careful about doing anything that impacts service lead times or our ability to meet demand because if interest rates come down and if L.A. were to really jump start the permitting process, there's just a ton of business and a ton of leverage there. But as Eric pointed out, on the fixed cost structure, it really shows pronounced differences in the difference between $240 million and higher.

Yes. No, that makes a lot of sense. Jim, you kind of touched on it there a little bit, but you did talk about interest rates kind of remaining stubbornly high. That's not too surprising from some of the other nonres construction guys that we cover. What do you think is the lag time between hopefully, an eventual cut versus when that starts to pull through in orders?

Well, for residential, it's usually pretty quick. And this doesn't impact us as directly as if you were a JELD-WEN or somebody who's doing first-time step-up. The transmission mechanism, particularly if you've got lots available, if buildings underway, is really quick. And the ability of builders and construction folks to get out there and jump-start demand, it's impacted only by the labor.

The construction market, and this is kind of untested right now because -- and I don't want to throw a curveball in there, but what's happening to labor markets across the country, particularly labor markets where you're impacted by some of the other headline issues that I don't want to throw in there. But if your workforce is impacted by job site guys who may or may not be coming in right now, there was a lot of disruption in L.A. around the fires and whatnot. How quickly you can respond there and how quickly commercial contractors get out there? It may be a little bit slower, but I don't think it's 2 or more quarters, probably 1 quarter to 2.

Okay. And then maybe one more if I could just squeeze it in. Look, I understand that there's a few problems that better volumes can't fix. But maybe just kind of going around each of the segments and talking a little bit about what you saw from a price/cost perspective, just given some of the moving pieces on tariffs, how has realization been this quarter, just given the tariff environment? And what are you kind of expecting here in the third quarter?

We'll give you real generalities. And if Eric's got some specifics, he's not uncomfortable with it, he can jump in. Arcadia is really successful and our peers have been very good about passing along tariff-driven increases, particularly on the aluminum side since almost everything we do is aluminum. And it's -- a lot of it is health of the market, competitive reaction. There's nothing there that's long-term competitively damaging. And I would say it's purely a demand issue. And every time I talk to Mr. Schladen, it's -- we just need the sales. So when the demand comes back, we're fine there.

NobelClad is trickier because we're passing along the cost of the metal and where your demand impact is on -- you just don't get projects or they just don't get started because it's a very chunky project-driven tariff business. The margin structure shouldn't be impaired there, but it's a volume issue. And until there's a little bit more clarity on us relative to our competitors, there was that comment in there, which, again, hopefully, these things pass. But Canadian buyers are not as enamored by U.S. suppliers as maybe they used to be. That's purely a volume. I don't think there's any permanent impairment in the margins.

Dyna is a little trickier, and they did a great job executing. They've done a great job executing a number of projects. But if you look at everybody in oilfield services, everybody has been impacted by tariffs. Every one of our customers and peers who's in the marketplace already talked about having to take that on the chin a little bit on margins. So do we have -- I look to Eric, is it 100-ish, 100-plus basis points to recover? There's definitely a hit there. I just think it's too hard to quantify now because energy markets are so volatile and to be candid, it's so terrible.

Our next question is from Jawad Bhuiyan with Stifel.

I guess could you just talk a little bit about your second half sales expectations for Dyna? And I guess, how do you expect your sales to perform relative to the market that you're seeing right now? And then I do have a quick follow-up after that.

Yes. So I think we said in our prepared remarks, but for the second half of the year, we're expecting the activity in Dyna's primary U.S. markets to be down. I think that's consistent with what you'll see with other players in the OFS space. There could be some opportunity for higher international sales relative to the first half of the year. But most of the sales, as you know, that Dyna generates would come from the North American market. And so we just expect that to be trending lower, just given where the completion activity is in frac crews and all other metrics you would see out there for the market.

Got it. And then -- so we're seeing some data that's indicating that oriented perforating guns are kind of driving improved recovery rates and also better frac. Are you also seeing this? And how should we kind of think about that in terms of impacting your business going forward?

It's a trend in the market. We have a product that is in the market as good as anybody's, and we're benefiting just like everybody else. I don't think it has dramatically changed anyone's performance relative to other peers. There is a product out there that's sold to -- it's a self-orientated product that's sold to non-Dyna customers, but I don't think that changes the paradigm in the way that you're referring to. It's not going to make the oil and gas market be better than what energy prices will allow it to be.

There are no further questions at this time. I'd like to hand the floor back over to management for any closing comments.

Well, to the shareholders and the analysts who cover us, we appreciate your time this afternoon. And to any employees or others listening, again, we appreciate your hard work during the quarter. I appreciate you hanging in there during a very difficult environment with some challenging visibility. And back to shareholders and investors, we're working as hard as we can for you. We'll be there to participate in the recovery when it's here, and we appreciate your patience. So thank you very much.

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