Good day, ladies and gentlemen. And welcome to the DMC Global Second Quarter Earnings Call. At this time, all participants have been placed on a listen-only mode and the floor will be open for questions-and-comments after the presentation. It is now my pleasure to turn the floor over to your host, Geoff High, Vice President of Investor Relations.

Sir, the floor is yours..

Hello. And welcome to DMC’s second quarter conference call. Presenting today are President and CEO, Kevin Longe; and CFO, Mike Kuta.

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. A webcast replay of today’s call will be available at dmcglobal.com after the call.

In addition, a telephone replay will be available approximately two hours after the call. Details for listening to the replay are available in today’s news release. And with that, I will now turn the call over to Kevin Longe.

Kevin?.

Good afternoon and thank you for joining us for today’s call. Our second quarter financial results exceeded the high end of our guidance, driven by healthy end market demand, improved pricing and strong execution by our employees.

Our consolidated second quarter sales were record $165.8 million, up 20% from the first quarter and up 153% versus the second quarter of 2021. Excluding revenues from Arcadia, which we acquired a 60% controlling interest in during last year’s fourth quarter, second quarter sales were up 26% sequentially and up 37% versus the second quarter last year.

Second quarter sales at DynaEnergetics, our energy products business increased 38% sequentially to $67.5 million. The improvement was driven by an increase in international orders and very strong demand from North America’s onshore oil and gas industry.

DynaEnergetics second quarter gross margin was 30%, up from 26% in the first quarter and 25% in the second quarter last year. The increase reflects higher sales on fixed manufacturing overhead, lower manufacturing costs resulting from improved operating efficiencies and higher average selling prices.

DynaEnergetics plans to implement additional price increases in the third quarter and we expect it will finish the year at its target gross margin of approximately 34%.

DynaEnergetics shipped a record number of its fully integrated DS perforating systems during the quarter and it’s benefiting from its position as the only [Audio Gap] DynaEnergetics plans to launch several new products that will continue to expand the family of DS perforating systems and enhance the features and performance of DynaEnergetics intrinsically safe initiating technology.

Second quarter sales at Arcadia, our architectural building products business increased 12% sequentially to $76.5 million. The increase reflects higher selling prices, which were implemented to offset sharply higher aluminum prices.

The increase in Arcadia selling prices lead to improved gross margin, which increase to 34% from 30% in the first quarter. A portion of Arcadia’s aluminum inventories purchased during the first quarter at significantly higher prices and the majority of this inventory should shift during the third quarter.

This is expected to temporarily depress Arcadia’s gross margin, as Michael addressed in his guidance.

During the second quarter, Arcadia’s commercial distance benefited from the healthy activity in its primary low- and mid-rise building markets, and also saw a steady demand at its Satellite facilities located across the Western and Southwestern United States.

These 11 service centers work with hundreds of regional glass and glazing contractors, who are a consistent source of relatively small quick turn orders. Arcadia has established a reputation within this market for providing broad product availability, short lead times and excellent customer service.

Arcadia Custom which provides premium steel, aluminum and wood windows and doors to the high end residential real estate industry continued to address a large order backlog that is expected to keep its manufacturing facility at full capacity well into 2023.

Arcadia Custom serves a segment of the real estate industry that is generally less affected by rising interest rates compared to the broader housing market. We continue to make progress on the implementation of Arcadia’s new enterprise resource planning system and are also making headway on the design and planning of additional finishing capacity.

Second quarter sales at NobelClad, our composite metals business were flat versus the first quarter. However, order backlog increased 5% sequentially to approximately $47 million, reflecting the impact of higher metal prices. Rolling 12-month bookings at NobelClad were $92.5 million, up from $84 million at the end of last year’s second quarter.

The mid- to long-term growth prospects at NobelClad continued to improve, growing global use of liquefied natural gas has generated strong demand for NobelClad’s cryogenic transition joints, which are used to address the extreme temperatures and pressures inherent to LNG processing.

NobelClad is also addressing inquiries from several segments of the alternative energy industry, including hydrogen, geothermal and solar. This week, NobelClad received the first commercial order for its new product line DetaPipe. I am very pleased with our sales growth and improved profitability during the second quarter.

As we head into the second half of the year, we are focused on continual improvement in margins, improving free cash flow and continuing to strengthen our balance sheet. With that, I will turn the call over to Mike for a review of our second quarter financial results and a look at third quarter guidance.

Mike?.

Thanks, Kevin. As Kevin noted, second quarter sales were $165.8 million. Excluding the Arcadia acquisition consolidated sales were $89.4 million, an increase of 37% versus the second quarter of 2021. Arcadia reported second quarter sales of $76.5 million, up 12% sequentially.

DynaEnergetics reported second quarter sales of $67.5 million, up 38% sequentially and 60% versus the same quarter last year. North American sales increased 31% sequentially and international sales increased 95% sequentially. Excluding a large order from a customer in South Asia international sales increased 31% sequentially.

Sales at NobelClad were $21.9 million, flat sequentially and down 6% versus last year’s second quarter. Consolidated gross margin in the second quarter was 31%, up from 27% in the first quarter and 26% in last year’s second quarter.

Second quarter gross margin benefited from the acquisition of Arcadia, which had a higher gross profit percentage than DMCs legacy business units, as well as the impact of higher sales volume on fixed manufacturing overhead expenses, combined with higher average selling prices at DynaEnergetics.

These improvements were offset by the expiration of the employee retention credit under the CARES Act, which benefited the second quarter of 2021. Arcadia reported second quarter gross margin of 34%, an increase versus 30% in the first quarter driven by pricing actions.

DynaEnergetics reported second quarter gross margin of 30% versus 26% in the first quarter and 25% in last year second quarter. The margin improvement from last year primarily relates to the impact of higher sales volume on fixed manufacturing overhead expenses, as well as higher average selling prices.

NobelClad second quarter gross margin improved to 28% from 19% in the first quarter and was flat compared to the year ago second quarter, primarily due to more favorable project mix and the impact of the prior year CARES Act credits, respectively.

Looking at our second quarter expenses, consolidated SG7A was $29.4 million and included $11.4 million of SG&A from Arcadia, compared to $14 million in the same quarter last year.

The year-over-year increase also was attributable to higher variable incentive compensation, the expiration of the employee retention credits and implementation costs associated with the new enterprise resource planning system at NobelClad. We reported consolidated operating income of $9.9 million.

Second quarter adjusted net income attributable to DMC was $5.6 million or $0.29 per diluted share versus adjusted net income of $1.7 million or $0.10 per diluted share in last year second quarter. Adjusted EBITDA attributable to DMC was $22.4 million versus $7.5 million in last year’s second quarter.

Arcadia reported second quarter adjusted EBITDA attributable to DMC of $9.8 million, DynaEnergetics reported second quarter adjusted EBITDA of $13.3 million, while NobelClad reported adjusted EBITDA of $3.4 million. We ended the second quarter with cash of $11.8 million versus cash of $30.8 million at December 31, 2021.

The decrease was driven by a building working capital, principal payments on long-term debt and quarterly cash distributions to our Arcadia joint venture partner. The working capital increase primarily reflects higher required inventory levels at Arcadia and DynaEnergetics from higher input prices and increased lead times.

Our total outstanding share count is now 19.5 million. Looking at guidance, third quarter sales are expected to be in a range of $155 million to $163 million versus the $165.8 million reported in the 2022 second quarter.

At the business level, Arcadia is expected to report sales in a range of $70 million to $73 million versus the $76.5 million reported in the second quarter. DynaEnergetics is expected to report sales in the range of $65 million to $69 million versus the $67.5 million reported in the second quarter.

Improved pricing in North America will be partially offset by lower international sales versus the second quarter, which included the previously mentioned large international order. NobelClad sales are expected in a range of $20 million to $21 million versus the $21.9 million reported in the 2022 second quarter.

Consolidated gross margin is expected in a range of 29% to 31% versus 31% in the second quarter. The expected decline reflects a less favorable project makes it NobelClad and lower margins at Arcadia resulting from a first quarter spike in aluminum prices that drove up the average cost of Arcadia’s inventory.

The majority of this inventory is expected to be shipped during the third quarter. Third quarter selling, general and administrative expense is expected in the range of $30 million to $31 million versus the $29.4 million reported in the 2022 second quarter.

Third quarter SG&A will include approximately $600,000 in implementation expense associated with a new enterprise resource planning system at Arcadia. Amortization expense is expected to be approximately $6.7 million.

The remaining value assigned to Arcadia’s acquired backlog was largely amortized during the second quarter, amortization expense is expected to be $3.6 million in the fourth quarter. Third quarter depreciation expense is expected to be $3.5 million and interest expense is expected to be in a range of $1.9 million to $2 million.

Third quarter adjusted EBITDA attributable to DMC is expected to be in a range of $16 million to $19 million versus the $22.4 million in the 2022 second quarter. Capital expenditures are expected in the range of $5 million to $6 million. With that, we are ready to take any questions.

Operator?.

[Operator Instructions] Your first question for today is coming from Cameron Lochridge. Cameron, your line is live..

Hey. Good afternoon, guys. Thanks for taking my questions..

Good afternoon, Cameron..

So I was hoping to start just at a high level with Dyna, very strong margin progression here, so far in the first half, expected to continue into the back half.

Kevin, you have touched on previously that margins in that segment are likely not to return to the 2019 levels, just given the difference in mix, going from selling components and systems to now solely systems.

But I was wondering if you can maybe help us kind of think about what the ultimate earnings power of that business now looks like? Could we see a scenario where even if margins do not return to 2019 levels, EBITDA dollars still could reach that level, and if so, maybe when do you think that could happen?.

First of all, that’s correct, when we were selling more components, the initiating systems, which were higher margin, lower dollar value units, we primarily started out as a component company and turned it into a system company.

And by doing that the revenue increased significantly, but the average margin came down as we began selling more of the hardware that goes with the energetics. We see, probably, the sweet spot for margins -- gross margins in the 34% to 36% range. We are happy with the progress that happened -- that’s happened year-to-date, Q2 over Q1.

We were up 31% in revenue in North America. Our unit volume was up last around 28%, the difference being price. We want to continue that into the third quarter and fourth quarter and we are targeting less volume pickup in the second half of the year and more margin improvement.

And we would expect to see more unit growth in 2023 as the industry adjusts to the current level of activity. And so we see getting back to reasonably healthy similar EBITDA levels, hopefully, sometime over the next 12 months to 18 months..

Got it. That’s very helpful. Thank you, Kevin. Switching gears here to Arcadia. Again strong first half of the year, strong sequential growth in the second quarter, it sounds like next quarter, the current quarter 3Q, we might see some dip in margins, just given the high aluminum prices earlier on in the year.

On the topline, though, I was wondering if you can comment on the sequential decline and maybe what’s driving that here in the third quarter. And on a related note, how should we -- how can we think about maybe order trends throughout the second quarter here into the first parts of 3Q, did that….

Yeah. Yeah. Breaking that down, I think, the order trends are fairly resilient and we have got a high backlog, and quite frankly, an uncomfortably high backlog in the Arcadia business and relative to the service levels that we would like to provide our customers.

And so what you are seeing is less of a volume change in revenues and more of a pricing change from quarter-to-quarter, as the cost of aluminum primarily is softening compared to where it was at the end of last year and in the first quarter. It’s come down and it’s come down even more into the second quarter and so that’s impacting the topline.

And as we begin to shift the inventory that we have in stock at -- which was purchased at higher levels, we will see some margin compression going into the third quarter. But we expect to work through this, by the end of the year. And -- but we are fairly pleased with their unit performance and the resiliency of their markets at this point..

Got it. And so just to make sure I am tracking you correctly.

It sounds like in the third quarter, the decline is mostly on a pricing decline and not so much on a unit volume decline as it were?.

Correct..

Yeah. And just real quickly, you look at average LME through 6/30. It was just over $3,000 at that time and Q3 to-date so far just the first month and we are running $2,500 at that time..

Got it. Got it. That’s super helpful. Thank you. Thank you both and I will turn it back..

Yeah. Thanks, Cameron..

Your next question is coming from Stephen Gengaro. Stephen, your line is live..

Thanks. Good afternoon, everybody..

Yeah. Hi, Stephen..

Hi, Kevin. So if you don’t mind, can you -- you talked about the margin compression in the next quarter at Arcadia.

Can you help us bridge the gap on the EBITDA line? It sounds like it’s mostly margin compression on Arcadia which is impacting the sequential decline? Can you talk about that? And maybe also and I am not sure I heard you say, but given the raw material costs you have in your inventory, were the second quarter EBITDA margins a good longer term guide or is it sort of somewhere in between where second and third quarters flush out?.

Yeah. So this is Mike. And to answer your question on, when you think about bridging Q2 to Q3 guide, NobelClad is lumpy. They have got unfavorable project mix. So that’s a couple million down on EBITDA after 3.4 in Q2. So it’s really kind of a mix probably 50-50 between NobelClad and just a slight margin downtick in Arcadia.

I think, from an Arcadia’s standpoint, with the rise that we have taken in aluminum prices, you are seeing margins move around quite a bit. But on a medium to longer term basis, we see Q2 as a good indicator of long-term margins and that was 34%. Their pro forma 2021 was 34% and that’s been a historical average even before then.

So I think you are going to see it bounce around a little bit with aluminum price volatility, but that’s where it’s going to settle out long-term..

Okay. Thank you. And can you remind us the, you mentioned international versus U.S. changes at Dyna. Can -- were you -- Are you speaking U.S.

specifically or just want to make sure, because I know in the Q, there’s international, I am not sure Canada is included? I am trying to figure out where Canada is in those comments?.

Yeah. Canada is in our North America. It’s not part of the international, I guess, I would say..

Okay. Great. Thanks. And then the other question I had was, we are hearing pretty consistently that pressure pumping equipment is -- was and we sold out and EMPs are working hard to secure equipment even to next year in a lot of cases. And it would seem like the efficiency that your products bring on the perf side would be in higher demand.

And I am just trying to get a sense for, if you are seeing, that acceleration or real acceleration or greater shift to integrated systems and then how your products kind of are faring versus maybe some of these other similar products or some of these products, which have been packaged in the same jobs and trying to compete?.

Yeah. We saw quite a pickup in the year-to-date numbers, but specifically in Q1 to Q2 in the unit volume, approaching 38%, actually 28% in our DS systems. And at the same time, we saw a pickup in our pricing by approximately 3 percentage points. So we are pleased with the progression in both our volume and our price.

In the first half of this year, we expect with some of the sold out situation that you have in pressure pumping that we are going to see more margin growth and price growth in the second half of the year.

But we are seeing our market share at a healthy number compared to where it was a year ago, and we benefit in strong markets where single source responsibility, less working capital, fewer people in the service companies and at the well site, all these dynamics work towards an integrated system and so we feel pretty good about where we sit right now..

Great. Thanks. And just one other quick one, is the international large sale in Dyna in the quarter.

Is that a accretive to margins?.

Yeah..

Yes..

Okay..

Yes..

That’s all. Thank you. Thank you both. Appreciate the color..

Yeah..

Your next question for today is coming from Gerry Sweeney. Gerry, your line is live..

Good afternoon, Kevin, Mike..

Hi, Gerry..

How you doing?.

Good..

Just a point of clarity on DynaEnergetics, it looks like sequentially and the guidance three Q is sort of flat, but as you said, in 2Q, you had the large international order. You kind of gave a bracketed out, but how big was that order? So that was a one-time that happens once a year, so 2Q to 3Q, even a five sequentially.

There’s -- you are actually seeing growth sort of in that North American base business, is that right….

Correct..

Yeah..

Correct. It was approximately a $4 million order..

Okay..

And that order we are not anticipating that volume to be replaced internationally in the third quarter. And so you -- where the revenues are that pickup is in North America both in unit volume and price..

Got it. And then on, Arcadia, the one thing I was struggling with, when you purchased it, I think, some of the talk was they had some very unique pricing strategies or way of implementing pricing that sort of mitigated some of the potential inflationary costs with cost of goods sold, i.e., let’s just say, aluminum in this case.

But it’s -- it seems like that’s not necessarily happening currently.

Is that because of the just extreme volatility in aluminum pricing or can you help me sort of understand that?.

Yeah. I think they have actually done an excellent job in terms of managing selling prices and are very, very efficient at it. And it’s a primary focus and they have got the proper mechanisms in place for passing along price increases with the inflation that they are seeing, particularly in metals.

Now, the situation that we have is, it’s odd in the sense that, that there’s great volatility in the cost of aluminum. And there’s also been -- it’s been very difficult to get a hold of materials with some of the supply chain challenges.

And so we have an uncomfortably high backlog, as I mentioned earlier, but it was important for us to have inventory going into the second half of the year and we bought inventory at various prices. But at the time that we are building inventory, it was at the higher prices for the alu -- cost of aluminum.

And it’s just the more we are going to see in the third quarter and absorbing that aluminum with our revenues is really the cost that we are going to pay for meeting our customer requirements. But….

So….

… as far as an organization and their ability to manage inventory, manage pricing, pass pricing along at fair prices to our customers, they are second to none, quite frankly, in companies I have been associated with..

Got it. So at the end of the day, this was more of a business service as relates to the customer decision and not a profitability discussion, if it’s….

Correct. It -- they are thinking medium- to long-term, managing selling prices, managing inventory levels and making sure that we can meet demand. And it’s been an imperfect world of late and the LME or the price for aluminum is all across the map and that’s difficult to manage.

What we are trying to do is manage our selling prices, which we have done a good job with and managing our service levels to our customers..

Got it.

And then the comment you made targeting less volume, more pricing in the second half with DynaEnergetics, is this some -- is this sort of -- I don’t want to say drawing a line in the sand, but maybe that’s the right term, but saying, hey, price increases are common and we are -- you are going to take on more, we are going to not sell you the equipment?.

I think it’s really our -- no, I think that that’s maybe too heavy handed for how we deal with our customers. Our customers are seeing the value of our product line. And when you really look at the cost of our perforating equipment, even with the price increases that we are implementing….

Yeah..

…that -- the value that we create for our customers far outweighs the premium, or quite frankly, the cost of the equipment and so we are getting through fair price increases.

And actually the overall cost of perforating equipment for drilling and completing of a well is declining, because of the improved efficiencies that we are offering and our cost of that well is declining even though we are getting our price increases..

Got it.

So and then just one more question on the pricing, is this -- is it just that across the Board price increase or I have seen companies that use -- so they start to raise price once a year, then inflation came along and then they do twice a year, then they said what, we are just going to start implementing price increases on an as they come along basis.

I am just curious as to where your strategy is and how you are looking at pricing and how you implement it as we move?.

Yeah. I mean the markets are much more dynamic of late than they have been where you see inflation and you see significant cost increases and you have to be flexible, both in terms of how you manage your supply chain, but how you implement these price increases.

We are -- we have a framework where our best customers get our best prices, but we are ratcheting up that framework. We are not changing the relationships of people within that framework.

And we have a customer base that is committed to the product and loyal to the product, because of all the operating characteristics that it brings to their operations and so we have a responsibility of also keeping them competitive and successful in the marketplace, and we are just balancing all these things..

Got it. Okay. I will jump back in line..

Yeah..

Thank you..

[Operator Instructions] We have a follow-up question coming from Stephen Gengaro. Stephen, your line is live..

Thanks for taking the follow-up gentlemen. So, Kevin, just going back a couple of years, we used to talk about NobelClad and Dyna, and sort of the incremental margin that would kind of be a normalized incremental margin. They were pretty healthy. I think you earlier talked about somewhere in the 30% to 40% range.

How do you think about the incremental margin potential in the three segments as we go forward from here?.

Yeah. Stephen, I would say that, with NobelClad, the incremental margins remain in that 40% to 45% range, usually it’s right in that range. And again, we have lumpiness from quarter-to-quarter, but over a year, that’s how we would think about that as that business grows.

DynaEnergetics historically on a pre-pandemic, they were in that 45% range, I think, right now they are closer to 35%, but we see them with the ability to get back to that 40% to 45% range with the margin growth and pricing.

And then in Arcadia, that’s a high variable cost business as well with, we think on a long-term run rate in the mid-30s on gross margins. So their incremental margins should be in that 40% to 45% range as well. So we still see along that sort of same zip code in that 40% to 45% range..

Stephen that’s it..

I had muted you so wouldn’t hear the background noise. Yeah, I think that the only other quick one I would add is as we look into the next couple of quarters on the Arcadia front and those capital little bit.

Are there any pieces of it we should be more concerned about from a GDP perspective, I know you mentioned the custom side is probably more resilient.

But do you see any signs in the other businesses that worry you or things are pretty solid?.

Hey. I think that they are pretty solid in terms of their -- their commercial outlook has a little bit -- their end of the commercial is pretty resilient and between replacement -- repair and replacement versus new construction, they do a great job balancing those too or they self-balance as the market evolves.

And so a combination of the market that is served and the backlogs that we -- we are -- we feel that they are fairly comfortable with where they are from a unit volume standpoint for the foreseeable future..

I think in the residential side, we say that that’s serving the higher end of the market and less susceptible to higher interest rates. So we think we are well positioned in both the residential and the commercial, yeah..

Okay. Great. Thank you for the answers..

You have another follow-up question coming from Gerry Sweeney. Gerry, your line is live..

Hi. We can make it short call so I figured to ask a follow-up. Two questions, one probably a little harder and the other a little bit more in depth. But on the DynaEnergetics side, how much visibility do you have with your customers and not so much I know the orderings come in as they do.

But are you talking to them of what they are looking at for second half of this year, but even more importantly, into 2023, have any insight into their plans? Do they come down to that level with you?.

We have short lead times and we respond quickly to -- it’s a quick turn business and that’s actually one of the values that we bring to the marketplace with our integrated system that’s fully assembled, is that we can respond quickly with our vertical integration to their demand.

And so we have visibility that’s less than 30 days, and it’s usually around three weeks..

Got it..

Yeah..

Yeah..

When it comes to next year, we are more looking at frac stages and how the overall market is rather than a specific customer..

Got it, I wasn’t sure, especially when things get tighter, they start reaching out and saying these are our plans, make sure we are sort of in the queue and be prepared?.

Yeah. With our volume growth we have -- and how that team has done an excellent job in terms of managing its supply chain and admittedly it’s easier with the vertical integration, particularly on integrated switch initiating systems. And so they have been able to meet the demand of our customers..

Got it. Then the legal, that’s sort of been in the background and we sort of stopped talking about it just because it’s there and it’s going to be there for a little bit.

But is that starting to perk up or are there any costs in the quarter on the SG&A side that sort of we can highlight that, they are not -- it’s not always going to be permanent, but?.

Yeah.

Our litigation costs, I think, year-to-date, are around $4 million and I think they were $1.7 million in the quarter and we are -- that’s a comfortable rate for us right now that we actually see probably less spending in the second half of this year compared to the first half of the year, primarily because of the court systems and how things are working their way through the court systems..

Got it. And that $4 million on the litigation, that’s really -- is that -- I mean, you are always going to have some litigation, you are always going to have, not litigation, but legal costs, I should say. But is that $4 million….

Yeah..

… really litigation?.

That’s purely litigation, correct..

Yeah..

And Mike, did I get those numbers correct on the $4 million year-to-date?.

Yes..

Okay..

Okay. I appreciate it..

Your next question is a follow-up question coming from Cameron. Cameron, your line is live..

Hey. Thank you. Just we are all doing follow-ups now so..

We don’t want you to go away, so we are enthusiast..

Well, I appreciate it. I wanted to circle back on some of the cost items here, in the second quarter and how to think about how it’s progress throughout this year and 2023. First, on Arcadia about $1.5 million, a little less than, call it $1.25 million jump in G&A at Arcadia in the second quarter.

What -- can you offer some insight into what that accounts for and does it go back to what you had 1Q 2022 for the third quarter? How should we think about that?.

Yeah. I think the second quarter we have been putting some people in. It’s people, systems, processes, and I think you are going to see that second quarter run rate prevail on a go-forward basis and it might even tick up a bit..

Okay. Got it. And then, if you, I mean, given all the moving pieces, we have heard you loud and clear about Arcadia’s margins just coming down slightly with aluminum prices early in the year.

But can you give us maybe a ballpark for the magnitude of the decline we should see in the third quarter for Arcadia?.

Yeah. So I think it’s a couple of points..

Okay. Okay. Got it.

To be clear 200 -- call it, 200 basis points for the quarter. It could be a little bit more than that. We might be able to mitigate it. But it could be 300 basis points, so 200 basis points to 300 basis points, something like that. But then we see margins marching back up..

Got it. Got it. That’s helpful. Okay. And then maybe just on Dyna, the cost items, I mean, if I think back to like 2019, right, your quarterly G&A, and selling and distribution expenses were, I don’t know, call it, $9-ish million.

Here in the second quarter, it was about $8.5 million, is that kind of the new norm just given the economies of scale as that business grows?.

Yeah. I would say so. I mean, when I look back at 2019, DynaEnergetics’s SG&A was $34.1 million and we are tracking in and around that number for 2022 as well. We have had the elevated legal spend and we think we have topline, it is going to continue growing into the existing SG&A number..

Yeah. Yeah. Got it..

We also became more efficient over time, particularly as we exited our Russian location and business I think in that timeframe..

Right. That’s right. Okay. Okay. All right. That’s it for me guys. Thank you..

Yeah. Thank you, Cameron..

Your next question for today is coming from Jim Brilliant. Jim, your line is live..

Hey, guys.

How are you doing?.

Fine Jim. Nice to hear your voice..

Good to hear you.

Couple of questions, I just want to clarify one thing, I thought you said back half of the year, but mostly in the fourth quarter you are looking to exit the year at about 34% gross margin on DynaEnergetics, did I hear that right?.

Correct. You won’t see that in the third quarter, but we hope to exit the fourth quarter and that’s really the layering in of the pricing and the notice that we have given our customers..

Okay.

And is there a recent price increase or are you talking about one from April?.

No. It’s -- they are recent -- they are either delayed or recently announced within the quarter. They will start taking effect in this third quarter and so it will progress as the quarter goes out.

But we got away from the published price increases, because it seems to create a lot more confusion and angst and we are now talking to customers individually and but we are being fair across the entire group of people that we have..

Okay. That makes sense. And then just to reset my head on this, what is the kind of the revenue capacity at DynaEnergetics with the changes you have made over the last several years since -- I guess, since 2019 you have made a lot of internal manufacturing enhancements.

So what would you say your revenue capacity is these days?.

Yeah. We are operating in the mid-20s in terms of our market share and I am talking in terms of unit volume. And we feel that we could operate easily up to the low-to-mid 30s with the capacity that we have..

Okay.

So maybe can we -- so what’s your utilization at this point?.

It’s -- I’d have to calculate it. We are not pushing it right now in terms of….

You could add additional shifts and that sort of thing so?.

Yeah. Yeah. In fact, we are operating probably in the 80% -- 70% utilization with the current shifts that we are operating or potentially could operate..

Okay. And then kind of backing out the overall industry there’s been some pretty widespread reports, I guess, of shortages with integrated circuits for, certainly not for you guys….

Yeah..

…. with your results, but in the industry.

How do you see that playing out?.

Yeah. We don’t see it. I mean we have our own electronics group and sourcing for our circuits for the boards that we make. And we have not had any shortages, in fact, we probably benefited because of our supply chain.

And so we have heard of shortages from other companies, but we only are aware of that second hand, we just haven’t had any our own -- on our own..

Okay.

And then any comment on the upcoming new products coming out of Dyna?.

Not at this time. I mean we will have some announcements on it as the features are introduced into the market. They are not going to change the overall size of the market. They make us more competitive, more efficient, more features, if you will, in the perforating systems that we are manufacturing today.

And so it’s -- we believe that they will help our customers from a performance standpoint that probably will help us from a share standpoint over time. It’s not expanding the total available market..

Okay.

And then on to NobelClad, I think you just -- I think you said that, there was a first order for your DetaPipe, is that right?.

Sure..

And what is the end market for that, which I know you guys ignored….

It’s up….

…for a while, so congratulations on that?.

Yeah. Thank you. It’s used by the petrochemical industry in the production of epichlorohydrin, which is used in acrylics, if you will..

Okay. And so it’s the initial order, are you seeing more work now in the petrochem business? I know it’s -- we have talked about it for years and every time it seems to be going, the cap spending in that industry kept getting pushed to the right, but it appears now that maybe is -- that was finally the time..

Yeah..

You see more positive orders that sort of thing?.

Yeah. Definitely. And we feel that they are going into a better market over the next couple of years than what we have experienced over the past couple of years. There is both on onshoring of certain production capacities.

But there’s also -- the hard thing in the last year, in particular, has been the maintenance work at some of the facilities that are working around the clock with some of the supply chain issues and so we are -- we hope to see some of the maintenance come back in, as well as the growth in terms of the applications..

Okay.

And is it too early to get any kind of outlook for 2023 in NobelClad or are you willing to go out on a limb and give us some guidance there?.

No. I am not willing to go out on a limb on that. I haven’t meant the guidance that we have given in this half..

Yeah..

…I think, so..

I thought I try Kevin, it’s been….

Yeah..

… a long time..

Yeah. I think we are show me story on NobelClad’s growth..

Yeah. Fair enough. Okay.

And then on Arcadia, with the aluminum prices coming down, do you get any kind of working capital benefit because of that?.

Yes..

We do both in terms of the value of that inventory, but the pricing may also indicate greater availability of aluminum. So we have to -- we don’t have to carry as much inventory as we have today..

Okay.

So it’s a lot -- it’s easy -- you are finding a lot easier now and then, of course, just the raw cost of it is going to be lower?.

Yeah. I mean..

Okay..

And I guess, I should say, we are pleased that, with where our leverage ratio is at the end of the quarter, particularly given the significant increase in working capital that we have in both Arcadia and DynaEnergetics. And so with that coming down, and hopefully, an increase in turns in both businesses, we should see a freeing up of capital..

Okay. Great, okay. That will do it for me. Thanks. I appreciate..

There appear to be no further questions in queue. I would like to turn the floor over to Kevin for any closing remarks..

I’d just like to thank everybody for their interest in our company and we look forward to speaking with you again at the end of the third quarter. And have a great day and look forward to talking with you..

Thank you, ladies and gentlemen. This does conclude today’s conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation..