DMC Global Inc. (NASDAQ: BOOM) has revised its financial guidance for the third quarter of 2024, pointing to weaker-than-expected performance across its key businesses. The Colorado-based asset-light manufacturing company revealed a significant hit to both its architectural products and energy products divisions, forcing the company to adjust its financial forecasts.
Weaker Sales Across Core Businesses
In a surprising update, DMC Global reported that its third-quarter sales would be approximately $152 million, down from its prior guidance of $158 million to $168 million. The shortfall reflects underperformance in its two main segments, Arcadia Products, which supplies architectural building products, and DynaEnergetics, a provider of energy products. Both businesses experienced a combination of weak market demand and operational challenges.
Arcadia, which caters to both commercial and high-end residential construction markets, has been hit by supply chain disruptions and a decline in construction activity. DynaEnergetics, which supports the energy industry, faced declining well-completion activities in North America. Additionally, a higher mix of lower-margin customers and inventory charges compounded DynaEnergetics’ struggles.
In a statement, Michael Kuta, DMC’s president and CEO, commented on the disappointing performance, acknowledging the challenges that both businesses faced during the quarter. “Arcadia’s third-quarter performance was affected by weak commercial and high-end residential construction activity, lower fixed overhead absorption, and supply-chain disruptions that impacted product availability,” Kuta said.
Meanwhile, DynaEnergetics saw reduced well-completion activity, a critical factor for the energy business. According to Kuta, manufacturing automation and product design initiatives at DynaEnergetics are expected to improve adjusted EBITDA margins starting in 2025.
Goodwill Impairment and Profitability Concerns
The company also announced an approximate $142 million non-cash goodwill impairment charge related to its 2021 acquisition of a controlling interest in Arcadia. The goodwill impairment reflects Arcadia’s recent financial struggles and its uncertain near-term outlook. DMC’s market capitalization has declined significantly, pushing the company to assess the need for the goodwill charge.
While DMC had hoped Arcadia’s acquisition would bolster its presence in the architectural market, this impairment signals a tough road ahead for the division. For the third quarter, adjusted EBITDA is expected to be around $5 million, a sharp drop from the previous forecast of $15 million to $18 million. Much of this is attributed to reduced sales and bad debt charges, particularly within DynaEnergetics.
| Q3 2024 Financial Outlook | Initial Guidance | Revised Guidance |
|---|---|---|
| Sales | $158M to $168M | $152M |
| Adjusted EBITDA | $15M to $18M | $5M |
| Goodwill Impairment (Arcadia) | N/A | $142M |
The goodwill impairment, along with the weaker sales figures, paints a challenging picture for DMC’s financial outlook in the near term. The company is facing higher overhead costs, inventory issues, and a tough economic environment, particularly within the construction and energy sectors.
DMC Halts Strategic Sale of DynaEnergetics and NobelClad
Earlier this year, DMC had initiated a strategic review process for both DynaEnergetics and NobelClad, its composite metals division, with an eye toward potential sales, mergers, or strategic partnerships. However, in light of the weak economic conditions and underwhelming market interest, the company has decided to pause any active marketing of the two businesses.
The decision marks a shift from DMC’s initial plans to explore strategic combinations. According to Kuta, stability and internal improvement will be prioritized over divestment at this point, a move that is seen as more beneficial for shareholders in the current economic climate.
While NobelClad, which serves the industrial infrastructure sector, is expected to meet or exceed its third-quarter targets, the market challenges facing DynaEnergetics appear to have played a significant role in the company’s decision to hold off on any potential sales.
Governance Changes at DMC: New Leadership Takes the Helm
In a bid to stabilize the company, DMC’s Board of Directors has announced several governance changes. James O’Leary, who joined the Board in 2023, has been appointed as executive chairman, while Ouma Sananikone has been named the lead independent director. O’Leary brings decades of executive experience, particularly in the construction and industrial manufacturing industries. He has previously served in leadership roles at Builders FirstSource, Kaydon Corporation, and WireCo.
The governance shift comes as David Aldous, DMC’s independent chairman, has stepped down from his role along with Board member Peter Rose, who will not stand for re-election. These changes reflect a company in transition, seeking to position itself for future growth and recovery amid market turbulence.
Sananikone, a seasoned expert in finance, capital markets, and mergers and acquisitions, is expected to bring a fresh perspective to DMC as it navigates through these challenging times. With her experience across various industries, particularly in asset management and renewable energy, her leadership could play a pivotal role in shaping DMC’s future direction.
