DEL MONTE CORP(DMC)Q2 2026 法說會逐字稿

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

Hello, and welcome to DMC's Second Quarter Conference Call. Presenting today are President and CEO, Jim O'Leary, and Chief Financial Officer, Eric Walter. I would 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 will now turn the call over to Jim O'Leary. Jim?

Thanks, Jeff, and thanks to everyone for joining us today. Despite continued headwinds in each of our end markets, many of the initiatives discussed in previous calls have been successful, notably at Arcadia. As a result, second quarter consolidated sales of $157 million were at the high end of our forecasted range, while adjusted EBITDA attributable to DMC of $10.7 million exceeded the high end of our range. Arcadia's second quarter sales increased 9% year over year and 19% sequentially, marking its strongest quarterly sales performance since the second quarter of 2024 and the best EBITDA performance in over a year. These results were delivered despite a still-horrible commercial construction market. The American Institute of Architects reported last week that its architectural billings index has now gone 41 consecutive months without a majority of firms reporting billings growth. While demand for large, longer-term construction projects remains highly challenged, Arcadia saw improved turnover for its core short-cycle products across its regional service center network, as well as for high-end residential windows and doors. The stronger performance reflects the efforts of Arcadia's management team to improve product availability and service—longstanding hallmarks of Arcadia's business model. Additionally, efforts to right-size our residential product offerings and refocus on attainable targets contributed significantly to Arcadia's improved performance. Sales at DynaEnergetics, our energy products business, were flat year over year but increased 13% sequentially. Demand was steady, but unfavorable mix, increased input costs and price pressure weighed on profitability. DynaEnergetics recently completed a first shipment of a new perforating system developed specifically for use in enhanced geothermal systems. EGS is emerging as a potentially significant source of baseload electricity and could represent a meaningful opportunity for DynaEnergetics. At NobelClad, our composite metals business, second-quarter sales were down 17% year over year due primarily to lower activity in the global oil and gas market. Sales were up 15% sequentially as a result of increased deliveries on a large petrochemical order. NobelClad continues to maintain a healthy backlog, and increased shipments from that backlog, including order deliveries delayed by customers, should drive strong results during the second half of the year. I will now turn it over to Eric for a closer look at our second quarter, our guidance for the third quarter, and some important color on our capital structure as we are on the cusp of the potential put-call exercise.

Thanks, Jim. I will start with a look at our second quarter profitability across our businesses. Arcadia reported adjusted EBITDA margin before NCI of 13.6%, up from 10.9% in the year-ago quarter and 6.9% in the first quarter. The improvement principally reflects improved fixed cost absorption on higher sales and improved results as we successfully right-sized our residential offering. At DynaEnergetics, adjusted EBITDA margin was 8.4%, and benefited from a $1.5 million tariff refund. The results were down from 13.4% last year, driven by unfavorable pricing and mix along with higher input costs. DynaEnergetics' EBITDA margin was up from 4.6% in the prior quarter from sales growth and the tariff refund. NobelClad reported adjusted EBITDA margin of 13.7%, down from 16.5% in the year-ago quarter and up from 9.8% in the first quarter. Second quarter SG&A expense was $24.5 million, or 15.6% of sales, versus 16.8% of sales in the year-ago second quarter and 18.1% of sales in the first quarter. The sequential decline principally relates to higher sales and improved operating leverage on fixed costs. Second quarter adjusted net income attributable to DMC was $727 thousand, or $0.04 per diluted share. With respect to liquidity, we ended the second quarter with cash and cash equivalents of $28.6 million. Net debt increased to $30.5 million, up from $18.7 million at our 2025 year-end. The increase was primarily due to higher credit facility borrowings to fund working capital needed for business growth. Net cash used in operations was $8 million, also reflecting our investments in working capital as activity improves. And now the guidance for the third quarter. We expect sales to be in the range of $158 million to $168 million while adjusted EBITDA attributable to DMC is expected in a range of $10 million to $13 million. The anticipated sequential improvements reflect steady performance at Arcadia, increases in well completion activity at DynaEnergetics' oil and gas and EGS markets, and increased product shipments at NobelClad. Our guidance does not contemplate increased disruptions in international supply chains due to renewed hostilities in the Middle East, which could impact both DynaEnergetics and NobelClad, continued volatility in aluminum input costs at Arcadia, or generally weaker end market conditions. 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 upwards or downwards as these highly volatile inputs evolve in 2026. Now I would like to provide an update on the noncontrolling interest in Arcadia. As a reminder, when we acquired our 60% interest in Arcadia in 2021, our joint venture partner retained a 40% ownership interest equal to a net value of approximately $162 million. Under the terms of our operating agreement, DMC can acquire the remaining 40% at any time through a call option that would be settled entirely in cash. Our joint venture partner also holds a put option which becomes exercisable on September 6th. If either the call or put option is exercised, DMC would acquire the 40% share of Arcadia's adjusted EBITDA that we currently do not own. In addition to adding the 40% of Arcadia's EBITDA and cash flow, we would considerably simplify our reporting and operating structure. If the put option is exercised, DMC can settle the obligation either entirely in cash or a combination of 20% cash and 80% in preferred shares. These preferred shares are convertible on a 1-for-1 basis and are mandatorily redeemable. However, I would like to explain some critical considerations around any redemption of these preferred shares. Under NASDAQ rules and as previously discussed and disclosed, the conversion and related voting rights are limited to 19.9% of DMC's outstanding common shares prior to issuance. Any conversion beyond that level would require approval from our shareholders and the holder of the preferred shares would not be eligible to vote. This leaves any dilution above 19.9% completely in the hands of DMC's shareholders. In terms of the mandatorily redeemable feature on the preferred shares, DMC would make equal annual cash redemptions over the subsequent three years after issuance. However, any redemption of the preferred shares is subject to DMC having sufficient legally available funds to redeem the shares. Delaware law prohibits a company from redeeming preferred shares if doing so would impair its ability to operate or adversely affect the interests of its creditors. This requires our Board of Directors to make a good faith determination each quarter as to whether DMC can meet the requirements for a redemption. Our board could not authorize any redemption that could threaten DMC's solvency or our ability to continue as a going concern. If DMC cannot redeem the preferred shares, it would not be in default under the governing document for the preferred shares. The unredeemed preferred shares will remain outstanding until they can be redeemed, assuming the 19.9% limitation has been conferred. From an accounting perspective, the redeemable preferred stock would not be considered debt until DMC borrows on its credit facility to make those redemptions. Additional details regarding the redemption of the preferred shares are summarized in Note 2 to the financial statements in today's Form 10-Q under the title "Redeemable Noncontrolling Interests." And with that, I will turn the call back over to Jim.

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

We will now be conducting a question-and-answer session. Our first question is from Gerry Sweeney with ROTH Capital Partners LLC. Please proceed with your question.

Good afternoon. Thanks for taking my call. I wanted to start with Arcadia. On the Q1 earnings, you did discuss some supply chain constraints that hampered the short-cycle business, and obviously we saw some improvement in Q2. Did you recapture all the lost business or is there still some more opportunity there to regain as we look out the rest of the year and forward?

Sure. Gerry, I'm thinking back to what we said on the last quarter. The supply chain issues or costing issues are all around aluminum and the general environment, exacerbated obviously by what is going on in the Middle East. We were capturing business, and I don't want to go too far down memory lane, but if you remember, this goes back to the third quarter of 2024, which I remember vividly—that was the first time I was introduced to the company. We had the goodwill write-off and we also had a horrible quarterly performance where we talked about supply chain disruptions, product availability and customer issues. We brought Jim Schladen back after that and our focus was, number one, stability from end to end. Let's make sure our supply chain partners feel the love and we get that sorted out, which was really broken in that third quarter. And let's get back to customers who, to be candid, were let down when we had product available. They rely on Arcadia—that is why we have number one positions in each of the major MSAs we deal with. That was Jim's priority. With the short-cycle businesses coming back now, it is not because the market is any better—it is still absolutely horrible. It is not because the long-cycle business is any better—it is still very interest-rate driven and obviously the Fed did not do us any favors today. But the basic, the bread-and-butter business—the stuff that Arcadia was founded on—is the thing that made it successful in good times and bad times through recessions because of how important it was in the supply chain for its customers. We think we are getting that business back. It's closer to five going on six months now where the daily storefront business is consistently up day after day in our daily sales reports. You don't hear about problems in the supply chain—that means something's going right. When the trains do not run, that's when you hear about them. So that is going well. And really, to give credit to Jim, we focused on stability. We wanted to bring back those customers, particularly on the storefront business, so the focus on the customers is working. We did have a lot of turnover besides Jim. We had a lot of presidents and interim presidents during that period. This has been the longest time since DMC's ownership of Arcadia where we have had consistent leadership at the top. Jim is doing a great job. He has also done a great job bringing back a lot of the people who left during that period. Those are lead salespeople, guys in the branches. When they come back, the business comes back. Even though the macroeconomic environment is still challenging and even though the aluminum issues still keep us awake at night, all the things we can control and influence are going right. So I hope that answers the question.

Yeah. I mean, I was just curious—if let's just say you lost 10 points because of issues, I am just curious if you have gotten 5 points back and there is still some room to maybe recapture some lost market share with the understanding that the end markets are just in a tough position. That is all.

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

Understood. That is helpful. And then DynaEnergetics—it's an interesting world out there. I think you indicated maybe some increased well completions in the second half of the year. Just curious if you could give any more color on what you are hearing out there, what is happening? And if there is even an opportunity to push this into 2027 or is it too early to even say on that front?

I would say it is too early to say because it is been so up one day, down the next. The straits are open, the straits are closed. I'm going to repeat things that you have probably read as well. Some of our peers, who are larger in some cases or are customers, may actually have better visibility because of their proximity to the majors. Everyone is still expecting a pickup in the second half and hoping there will be momentum into 2027. We are not hearing anything that contradicts it; it's just slow to come. Obviously, we are not a direct correlation with rig count, but until last week I think it was the longest streak that rigs had increased in about two or three years. All the anecdotes are positive; they have yet to translate into meaningfully better business. I would say hopefully momentum in the second half and hopefully that carries into 2027. The only caveat specific to us, particularly among equipment providers, is we have a pretty big European presence and we are a little more influenced or impacted negatively when you cannot get stuff to some of our Middle Eastern customers—the European supply chain and freight has been an impact. So we might have timing issues there. But nothing specific to call out—nothing beyond anecdotal.

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

Way too early. I would not say it is testing, but the best indicator and something I draw your attention to is Fervo. Take a look at Fervo's website—they are a pioneer in this area. Everyone is watching them to see if they are successful. This is very much driven by the buzz around data centers and the power super cycle that is much talked about and seems to be playing out. But the best thing to keep an eye on would be Fervo, and for possible market size, look to their estimates.

Understood. All right. Thanks. I appreciate it. Nice to see a good solid quarter for you. You guys deserve it.

You're welcome. Thank you.

Our next question is from Stephen Gengaro with Stifel. Please proceed with your question.

Thanks. Good afternoon, everybody. I have two. First, a follow-up on the geothermal side: can you talk a little bit about whether the integrated perforating gun technology is a differentiator like it is in the oil patch, or is it just another opportunity for advanced perf guns in general? I'm trying to figure out whether there is a more or less differentiated opportunity than you participated in in the oilfield.

If I understand the question, it is using the existing technology with some nuances that we are able to provide. The type of gun we are using is a 5-inch gun with some additional tweaks because the rock formations they are going into are different than in the traditional oil and gas application. The type of gun and its attributes are a little different, and there are nuances to the detonator as well. We remain the technology leader there. We are doing a lot of handholding and partnership, and you can only really do that if you have expertise in the area. It is the reason you see oil and gas people leading a lot of these companies—it is a very similar technology with specific adaptations for geothermal.

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

That is still very challenging. It is still one of the more fragmented areas in the chain when you work your way from the majors down. Pricing is still hard to come by; there are no meaningful price increases and it is very competitive, which has certainly been the case for the three years that I have been on the Board and in the company. Between tariffs that we have been unable to recover and cost pressures on almost every input cost, the margin squeeze has been painful and you see it in our numbers. I think you would see it in our competitors' numbers as well.

If I could just ask one more: you did a good job, and I appreciate the explanation on the put-call option. It seemed like you revisited that with more detail than we have heard recently. Is that foreshadowing something that is going to happen in the near term, or are you just reminding the market how the put-call option functions?

Well, I will start off by giving you kudos. You are one of our few analysts who modeled it because you could—you went a year or two further out last year. That highlighted to us that even though everything has been disclosed and if you go back to 2021 the agreement and operating agreement and form of everything is out there, it is a complicated transaction. This will not be groundbreaking news—it is exercisable on September 6th, and we have absolutely no idea if our partner will stay in the joint venture or if they will decide to exercise. But this is the first time it is exercisable, and we are assuring our quarter and the next time we will formally talk to you it could be exercised. We wanted to make sure everybody has the same information, including anyone who is going to model it in the next report and our shareholders if they are doing their own modeling. We want people to understand two things: number one, the level of dilution that was originally committed to—nothing changed, exactly the same—and number two, the preferred stock mechanics. The misconception that dilution is endless is incorrect; anything above the 19.9% conversion limit is subject to a shareholder vote. Also, while the preferred stock is mandatorily redeemable, the board has an obligation to ensure it is not redeeming at the wrong time and threatening the company's solvency. So we wanted to make sure people understand how the dilution works, how the debt works if we were to redeem, and that shareholders control anything above 19.9%. Again, you modeled it well, and we wanted to make sure everyone has the same information.

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

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

Yeah. I think a lot of the year-over-year increase is going to be due to aluminum price increases. There was some volume pickup from the short-cycle business, which is typically business to the small- to medium-size glazers and contractors that are less price-sensitive versus a longer-cycle project that would have more competitors bidding. The issues we talked about in the first quarter around projects being delayed and intense price competition still exist for the long-cycle business. But we have seen the short-cycle or storefront business pick up considerably over the last several months, and we are excited about that because that business is fairly steady and is higher margin. It's really the bread and butter of what Arcadia was founded on, which was to service small- to medium-sized glazers.

That is helpful color. Jim, does it feel like with all the work you have done in optimizing the network within Arcadia, this is pretty stable so long as the macro works with you, or is there more work or more levers to pull to drive better optimization from here?

Really, the one primary thing I did was bring back Jim Schladen and the other thing I did was nothing—meaning stability. Prioritize and let the business get healthy by itself. I think as far as getting it back to where it was in 2021–2022, Jim brought back the right people. We reprioritized and brought stability into the supply chain and how we managed some of our supply chain partners. We have calmed down the level of introduction of new processes. Whenever you buy a founder-led company, there is a temptation to try to boil the ocean right away and do everything new. We stopped that. There's a reference in the press release to the high-end residential business which, a couple of years ago, I said I was more likely to close than not. That was probably an overreaction on my part given the challenges it had because we had introduced so much change and maybe we set goals for that company that were too ambitious. Jim and I had a handshake when he came back: he would get it to a certain level on sales and profitability within a certain time period, and he is meeting all those goals. We are more measured on where we can get to in an absolutely horrible macroeconomic environment. When we first bought the company, I think we set some goals that were probably too hard to get to. But we still have the best product in the market; we think the Arcadia name has a halo effect on whatever we put out. On the residential side, Jim and the people he brought back are delivering on their commitments. The short answer is that the only thing I did was bring him back and let him bring back the people he wanted. We restored trust with our supply chain partners and our customers after letting them down in 2024. There are some things we could do in terms of processes; we are about 75% to 80% of the way through an ERP conversion and we are going slow because it is still a big digestion issue. As far as other operational improvements, I would rather not force-feed changes. I'd rather have tailwinds. For the time being, getting back to where we were on the storefront business and restoring trust with customers and suppliers is a tall enough task.

Maybe one last one, if I could squeeze it in. It sounds like there was a modest benefit to Dyna EBITDA margins this quarter from the tariff refunds. Is there a way to parse out what that benefit was and whether it will stretch into the remainder of the year?

Ken, we had about $1.5 million of tariff refunds in the second quarter. That is from a combination of refunds from the government as well as negotiations with vendors. We are continuing to pursue additional refunds from the government and continuing those negotiations with our supply chain, but it is really difficult to forecast what that is going to look like going forward.

Does the current guidance assume a similar level of refunds for the third quarter?

It does not. The current guidance assumes no tariff refunds. Our ability to forecast tariff recovery is almost as good as our ability to forecast whether the Strait of Hormuz will be open when we walk out of this room.

Thank you. And thank you to everybody who participated today. We are trying to do the best we can in a very challenging market and really appreciate all the work of our employees at each of our divisions here and in Europe. We look forward to talking to you in a couple of months. Enjoy the rest of the summer.

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