DMC (BOOM) - 2025 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION This section provides the unaudited condensed consolidated financial information, including financial statements and management's discussion and analysis ITEM 1. Condensed Consolidated Financial Statements This section presents the unaudited condensed consolidated financial statements of DMC Global Inc. for the periods ended June 30, 2025, and December 31, 2024, along with detailed notes Condensed Consolidated Balance Sheets This section presents the company's financial position, detailing assets, liabilities, and equity as of June 30, 2025, and December 31, 2024 | Metric | June 30, 2025 (Thousands) | December 31, 2024 (Thousands) | | :----------------------------------- | :-------------------------- | :---------------------------- | | Total assets | $645,024 | $671,337 | | Total liabilities | $204,087 | $233,286 | | Redeemable noncontrolling interest | $187,080 | $187,080 | | Total stockholders' equity | $253,857 | $250,971 | - Total assets decreased by $26,313 (3.9%) from December 31, 2024, to June 30, 2025, while total liabilities decreased by $29,199 (12.5%)[12] Condensed Consolidated Statements of Operations This section outlines the company's financial performance, including net sales, gross profit, operating income, and net income for the reported periods | Metric (Thousands) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net sales | $155,487 | $171,179 | $314,777 | $338,048 | | Gross profit | $36,731 | $46,413 | $77,930 | $88,765 | | Operating income | $3,897 | $11,685 | $10,410 | $18,373 | | Net income | $321 | $6,293 | $2,184 | $8,612 | | Net income attributable to DMC Global Inc. stockholders | $116 | $4,012 | $793 | $6,575 | | Basic EPS | $(0.24) | $0.24 | $(0.20) | $0.25 | | Diluted EPS | $(0.24) | $0.24 | $(0.20) | $0.25 | - Net sales decreased by 9% for the three months ended June 30, 2025, and by 7% for the six months ended June 30, 2025, compared to the respective prior-year periods[14] - Net income attributable to DMC Global Inc. stockholders saw a significant decline of 97% for the three-month period and 88% for the six-month period[14] Condensed Consolidated Statements of Comprehensive Income This section details the company's comprehensive income, including net income and other comprehensive income components, for the reported periods | Metric (Thousands) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income | $321 | $6,293 | $2,184 | $8,612 | | Change in cumulative foreign currency translation adjustment | $3,478 | $(515) | $4,652 | $(1,628) | | Other comprehensive income | $3,799 | $5,778 | $6,836 | $6,984 | | Comprehensive income attributable to DMC Global Inc. stockholders | $3,594 | $3,497 | $5,445 | $4,947 | - The company reported a positive change in cumulative foreign currency translation adjustment for both the three and six months ended June 30, 2025, contrasting with negative adjustments in the prior year[15] Condensed Consolidated Statements of Stockholders' Equity and Redeemable Noncontrolling Interest This section presents changes in stockholders' equity and redeemable noncontrolling interest from December 31, 2024, to June 30, 2025 | Metric (Thousands) | December 31, 2024 | June 30, 2025 | | :--------------------------------------- | :---------------- | :------------ | | Common Stock | $1,054 | $1,074 | | Additional Paid-In Capital | $305,460 | $304,243 | | Retained Earnings | — | — | | Other Cumulative Comprehensive Loss | $(29,560) | $(24,908) | | Treasury Stock, at cost, and Company Stock Held for Deferred Compensation, at par | $(25,983) | $(26,552) | | Total DMC Global Inc. Stockholders' Equity | $250,971 | $253,857 | | Redeemable Noncontrolling Interest | $187,080 | $187,080 | - Total stockholders' equity increased by $2,886 (1.1%) from December 31, 2024, to June 30, 2025, primarily due to changes in other cumulative comprehensive loss and common stock issued[17] Condensed Consolidated Statements of Cash Flows This section summarizes the company's cash inflows and outflows from operating, investing, and financing activities for the reported periods | Metric (Thousands) | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :--------------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $19,734 | $15,783 | | Net cash (used in) provided by investing activities | $(718) | $7,204 | | Net cash used in financing activities | $(19,746) | $(39,727) | | Net decrease in cash and cash equivalents | $(1,862) | $(16,473) | | Cash and cash equivalents, end of the period | $12,427 | $14,567 | - Net cash provided by operating activities increased by $3,951 (25.0%) for the six months ended June 30, 2025, compared to the same period in 2024[20] - Net cash used in investing activities shifted from a positive inflow of $7,204K in 2024 to an outflow of $718K in 2025[20] Notes to Condensed Consolidated Financial Statements This section provides detailed disclosures on significant accounting policies, financial statement components, and other relevant financial information - The financial statements are unaudited and include all normal and recurring adjustments necessary for fair presentation of interim periods[22] - Certain information and footnote disclosures have been condensed or omitted for this quarterly presentation[22] - The company measures expected credit losses for accounts receivable using a current expected credit loss model, based on historical experience adjusted for current conditions and forecasts[24][25] - Net provisions for expected credit losses were $696K for the six months ended June 30, 2025, compared to $1,036K in the prior year[24][25] - The redeemable noncontrolling interest in Arcadia Products is classified in temporary equity due to redemption rights not entirely within the Company's control[30][31] - The estimated settlement amount was $187,080K as of June 30, 2025, equal to the floor value[30][31] - Revenue is primarily derived from tangible goods, recognized when control is transferred to customers[33][60] - Contract liabilities decreased from $23,162K at December 31, 2024, to $12,026K at June 30, 2025, with most revenue expected to be recognized within one year[33][60] - Restructuring expenses and asset impairments totaled $1,474K for the six months ended June 30, 2025, including a $605K asset impairment and lease termination costs at DynaEnergetics, and $869K in employee severance across all segments[52] Inventory Category | Inventory Category (Thousands) | June 30, 2025 | December 31, 2024 | | :----------------------------- | :------------ | :---------------- | | Raw materials | $41,318 | $42,003 | | Work-in-process | $25,183 | $30,391 | | Finished goods | $77,794 | $79,907 | | Supplies | $262 | $279 | | Total inventories | $144,557 | $152,580 | - Total inventories decreased by $8,023K (5.3%) from December 31, 2024, to June 30, 2025[57] Purchased Intangible Assets | Purchased Intangible Assets (Thousands) | June 30, 2025 (Net) | December 31, 2024 (Net) | | :-------------------------------------- | :------------------ | :---------------------- | | Customer relationships | $147,747 | $156,540 | | Trademarks / Trade names | $16,831 | $17,564 | | Core technology | — | — | | Total intangible assets | $164,578 | $174,104 | - Total net purchased intangible assets decreased by $9,526K (5.5%) from December 31, 2024, to June 30, 2025, primarily due to amortization of customer relationships[58][59] Debt | Debt (Thousands) | June 30, 2025 | December 31, 2024 | | :--------------------------------------- | :------------ | :---------------- | | U.S. Dollar revolving loan | $12,625 | $24,375 | | Term loan | $46,875 | $48,125 | | European line of credit | $750 | — | | Outstanding borrowings | $60,250 | $72,500 | | Total debt (net of issuance costs) | $58,675 | $70,818 | - Total outstanding borrowings decreased by $12,250K (16.9%) from December 31, 2024, to June 30, 2025[65][71] - The company entered into the Second Amendment to its credit facility on June 10, 2025, modifying financial covenants and interest rates to accommodate a possible acquisition of the remaining 40% minority interest in Arcadia Products, including a temporary increase in the maximum leverage ratio[65][71] - The Stockholder Protection Rights Agreement's expiration time was extended for one year to June 4, 2026, on May 30, 2025, with no current impact on financial statements[75] - The effective tax rate differs from the U.S. statutory rate due to jurisdictional income mix, U.S. and foreign tax rate differences, permanent differences, and income/loss attributable to the redeemable noncontrolling interest holder[77][79] - A valuation allowance is maintained against U.S. net deferred tax assets due to a three-year cumulative loss position[77][79] - Strategic review and related expenses for the six months ended June 30, 2025, were $2,073K, primarily professional service fees ($1,507K) and employee retention compensation ($366K)[104][105] - This is a decrease from $4,189K in the prior year[104][105] Segment Net Sales | Segment (Net Sales, Thousands) | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :----------------------------- | :------ | :------ | :------- | :------- | | Arcadia Products | $61,980 | $69,748 | $127,560 | $131,673 | | DynaEnergetics | $66,862 | $76,210 | $132,413 | $154,332 | | NobelClad | $26,645 | $25,221 | $54,804 | $52,043 | - Arcadia Products' net sales decreased by 11% in Q2 2025 and 3% YTD 2025[85][86] - DynaEnergetics' net sales decreased by 12% in Q2 2025 and 14% YTD 2025[85][86] - NobelClad's net sales increased by 6% in Q2 2025 and 5% YTD 2025[85][86] - The company uses foreign currency forward contracts to offset foreign exchange rate fluctuations, with net notional amounts of $8,045K as of June 30, 2025[91][93] - All changes in fair value are recognized in 'Other expense, net'[91][93] Derivative Net Gains (Losses) | Derivative (Thousands) | Q2 2025 Net Gains (Losses) | Q2 2024 Net Gains (Losses) | YTD 2025 Net Gains (Losses) | YTD 2024 Net Gains (Losses) | | :--------------------- | :------------------------- | :------------------------- | :-------------------------- | :-------------------------- | | Foreign currency contracts | $642 | $(358) | $957 | $(1,213) | - The company is involved in several legal proceedings, including securities class action lawsuits and stockholder derivative lawsuits, which it intends to vigorously defend[99][100][102][103] - An environmental matter related to stormwater violations at Arcadia Products facilities resulted in a Consent Decree and an accrual of $762K for potential penalties[99][100][102][103] ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations, highlighting performance drivers, segment details, and outlook Overview This section introduces DMC Global Inc.'s three asset-light manufacturing businesses and their primary cost components - DMC Global Inc. operates three asset-light manufacturing businesses: Arcadia Products (aluminum framing systems for construction), DynaEnergetics (perforating systems for oil and gas), and NobelClad (explosion-welded clad metal plates for industrial equipment)[109][110][112][114] - Arcadia Products' cost of products sold includes aluminum, paint, raw materials, employee compensation, lease expense, and depreciation[111][113][115] - DynaEnergetics' costs include metals, explosives, raw materials, compensation, and depreciation[111][113][115] - NobelClad's costs include metals, explosive powders, compensation, outside processing, and depreciation[111][113][115] - NobelClad's backlog was $37,263K at June 30, 2025, down from $48,885K at December 31, 2024, with most orders realized within twelve months[114] Factors Affecting Results This section discusses key factors influencing the company's consolidated sales performance, including segment-specific market conditions and leverage - Consolidated sales decreased by 9% in Q2 2025 compared to Q2 2024, driven by lower sales at Arcadia Products (down 11% due to commercial exterior and high-end residential markets) and DynaEnergetics (down 12% due to lower well completions in North America, pricing decreases, and reduced international sales)[116][122] - NobelClad's sales increased by 6% in Q2 2025 compared to Q2 2024, primarily due to the timing of shipments from backlog[122] - The Company's leverage ratio was 1.23 to 1.0 as of June 30, 2025, well below the maximum permitted ratio of 3.0 to 1.0[122] Outlook This section provides forward-looking insights into market conditions, strategic focus areas for each business segment, and expected order activity - The company's businesses are monitoring U.S. and reciprocal tariff policies and volatility in U.S. and global energy markets, which could impact sales and profitability[117] - Arcadia Products has right-sized its high-end residential cost structure and is focusing on core commercial operations (75% of segment sales)[118] - DynaEnergetics is implementing cost reduction and market share expansion initiatives to offset an expected decline in demand in H2 2025 due to lower oil prices and reduced well completion activity[119] - NobelClad's order backlog decreased to $37,263K, with order activity expected to improve once customers gain clarity on future tariff actions[120] Use of Non-GAAP Financial Measures This section explains the company's use of non-GAAP financial measures to assess operating performance and liquidity, excluding nonrecurring charges - The company uses non-GAAP financial measures like EBITDA, Adjusted EBITDA, Adjusted EBITDA attributable to DMC Global Inc., Adjusted EBITDA for DMC business segments, Adjusted net income (loss), Adjusted diluted earnings per share, Net debt, and Free-cash flow to understand operating performance and liquidity, excluding nonrecurring charges[121][123] Consolidated Results of Operations This section analyzes the company's consolidated financial performance, including net sales, gross profit, operating income, and net income, for the reported periods Consolidated Financial Performance (Q2 YoY Change) | Metric | Q2 2025 (Thousands) | Q2 2024 (Thousands) | $ Change | % Change | | :--------------------------------------- | :------------------ | :------------------ | :------- | :------- | | Net sales | $155,487 | $171,179 | $(15,692) | (9%) | | Gross profit | $36,731 | $46,413 | $(9,682) | (21%) | | Gross profit percentage | 23.6% | 27.1% | | | | Operating income | $3,897 | $11,685 | $(7,788) | (67%) | | Net income attributable to DMC Global Inc. | $116 | $4,012 | $(3,896) | (97%) | | Adjusted EBITDA attributable to DMC Global Inc. | $13,538 | $19,420 | $(5,882) | (30%) | - The decline in gross profit percentage (from 27.1% to 23.6%) was primarily due to lower absorption of fixed manufacturing overhead costs at Arcadia and a less favorable project/regional mix at NobelClad[126] - General and administrative expenses increased by $282K in Q2 2025, mainly due to $520K in executive transition costs and $300K in higher outside services, partially offset by lower Waterkeeper matter expenses[127] - Selling and distribution expenses decreased by $1,257K in Q2 2025, driven by lower bad debt expense ($570K), reduced selling costs at DynaEnergetics ($402K), and lower marketing consulting costs ($264K)[128] Consolidated Financial Performance (YTD YoY Change) | Metric | YTD 2025 (Thousands) | YTD 2024 (Thousands) | $ Change | % Change | | :--------------------------------------- | :------------------- | :------------------- | :------- | :------- | | Net sales | $314,777 | $338,048 | $(23,271) | (7%) | | Gross profit | $77,930 | $88,765 | $(10,835) | (12%) | | Gross profit percentage | 24.8% | 26.3% | | | | Operating income | $10,410 | $18,373 | $(7,963) | (43%) | | Net income attributable to DMC Global Inc. | $793 | $6,575 | $(5,782) | (88%) | | Adjusted EBITDA attributable to DMC Global Inc. | $27,929 | $36,103 | $(8,174) | (23%) | - YTD 2025 gross profit percentage declined from 26.3% to 24.8% due to lower fixed manufacturing overhead absorption at Arcadia and DynaEnergetics, and a less favorable project/regional mix at NobelClad[139] - YTD 2025 General and administrative expenses increased by $976K, driven by executive transition costs ($520K), higher compensation ($854K), and outside services ($422K), partially offset by lower Waterkeeper expenses and travel[140] - YTD 2025 Selling and distribution expenses decreased by $1,854K, primarily from lower selling costs at DynaEnergetics ($568K), reduced marketing consulting ($449K), lower bad debt ($340K), and decreased compensation ($276K)[141] Business Segment Financial Information This section provides detailed financial performance analysis for each of the company's operating segments: Arcadia Products, DynaEnergetics, and NobelClad - Arcadia Products' net sales decreased by 11% in Q2 2025 and 3% YTD 2025, primarily due to lower sales volumes in commercial exterior and high-end residential markets[152][153][159][160] - Gross profit percentage declined from 33.2% to 26.2% in Q2 and from 30.4% to 28.7% YTD due to lower fixed manufacturing overhead absorption[152][153][159][160] - DynaEnergetics' net sales decreased by 12% in Q2 2025 and 14% YTD 2025, driven by lower DS perforating system volumes, pricing decreases from industry consolidation, and reduced international sales[166][172] - Adjusted EBITDA increased by 3% in Q2 but decreased by 15% YTD[170][175] - NobelClad's net sales increased by 6% in Q2 2025 and 5% YTD 2025, primarily due to the timing of shipments from backlog[177][178][182][183] - Gross profit percentage decreased from 32.6% to 24.7% in Q2 and from 32.4% to 26.8% YTD due to a less favorable project and regional mix[177][178][182][183] Liquidity and Capital Resources This section assesses the company's financial liquidity, capital resources, debt management, and cash flow activities - Net debt decreased to $46,248K at June 30, 2025, from $56,529K at December 31, 2024, primarily due to $12,278K in net credit facility repayments[187] - The company believes current cash, operating cash flow, and credit facilities are sufficient for foreseeable working capital and capital expenditure needs[188] - Future capital market transactions may be pursued if conditions are favorable[188] - The credit facility was amended on June 10, 2025, to increase the maximum leverage ratio temporarily to 3.5x adjusted EBITDA (from 3.0x) to accommodate a possible acquisition of the remaining Arcadia Products minority interest[192][194] - The actual leverage ratio was 1.23 to 1.0 as of June 30, 2025[192][194] - The debt service coverage ratio for the trailing twelve months ended June 30, 2025, was 3.83 to 1.0, exceeding the minimum requirement of 1.25 to 1.0[193] - Net cash provided by operating activities increased to $19,734K for the six months ended June 30, 2025, from $15,783K in the prior year, driven by lower working capital balances[199] - Net cash used in investing activities was $718K for the six months ended June 30, 2025, primarily due to property, plant, and equipment acquisitions, partially offset by a note receivable settlement[200] - Net cash used in financing activities was $19,746K for the six months ended June 30, 2025, including $12,278K in net credit facility repayments and $6,255K in distributions to the redeemable noncontrolling interest holder[202] - The quarterly dividend remains suspended indefinitely since April 23, 2020, with future dividends subject to Board discretion and financial considerations[204] Critical Accounting Estimates This section confirms that there have been no changes to the critical accounting estimates since the last annual report - There have been no changes to the critical accounting estimates reported in the Annual Report on Form 10-K for the year ended December 31, 2024[205] ITEM 3. Quantitative and Qualitative Disclosure about Market Risk This section states that there have been no material changes in market risk exposures related to foreign currency exchange rates and interest rates since the last annual report - No material changes in market risk for foreign currency exchange rates and interest rates were reported since the Annual Report on Form 10-K for the year ended December 31, 2024[206] ITEM 4. Controls and Procedures Management concluded that disclosure controls were effective as of June 30, 2025, with no material changes in internal control over financial reporting - Management, under the supervision of the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2025[207] - No material changes in internal control over financial reporting occurred during the fiscal quarter ended June 30, 2025[208] PART II - OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, defaults, mine safety, other information, and exhibits Item 1. Legal Proceedings This section refers to Note 12 of the Condensed Consolidated Financial Statements for details on legal proceedings, including stockholder litigation and an environmental matter - Refer to Note 12 of the Condensed Consolidated Financial Statements for information on legal proceedings[209] Item 1A. Risk Factors This section updates risk factors, highlighting potential adverse effects of tariffs, trade measures, and changes in immigration laws on operations and financial position - New or existing tariffs and other trade measures, including retaliatory tariffs, could adversely affect the company's results of operations, financial position, and cash flows by increasing material costs (e.g., steel, aluminum) and impacting competitiveness[211][212] - Changes in immigration laws or enforcement programs could negatively impact the business by reducing the labor pool, increasing employee costs, and potentially leading to fines or adverse publicity if unauthorized workers are identified[213] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's unregistered sales of equity securities, specifically shares retained for tax withholding obligations upon vesting - During Q2 2025, the company retained 12,656 shares of common stock at an average price of $6.55 per share to offset tax withholding obligations from vesting restricted common stock and deferred compensation plan distributions[214][215] Item 3. Defaults Upon Senior Securities This section states that there were no defaults upon senior securities during the reporting period - There were no defaults upon senior securities during the reporting period[216] Item 4. Mine Safety Disclosures This section confirms no specified health and safety violations or mining-related fatalities for U.S. operations during the quarter ended June 30, 2025 - No specified health and safety violations, orders, citations, related assessments, legal actions, or mining-related fatalities were reported for U.S. operations during Q2 2025, as per Section 1503(a) of the Dodd-Frank Act[217] Item 5. Other Information This section states that no director or officer adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the quarter - No director or officer adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the quarter ended June 30, 2025[218] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including amendments to key agreements, incentive plans, and executive officer agreements - Key exhibits include Amendment No. 1 to the Stockholder Protection Rights Agreement (May 30, 2025), the 2025 Omnibus Incentive Plan, the Second Amendment to the Credit Agreement (June 10, 2025), and various executive officer and director award agreements[219][220][221][222][223][224][225]