DMC Global Inc. (BOOM)

ITEM 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our historical Consolidated Financial Statements and notes included elsewhere in this annual report. A discussion regarding our financial condition and results of operations as well as our liquidity and capital resources for fiscal 2023 compared to fiscal 2022 can be found under Item 7 in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, which is available on the SEC’s website at www.sec.gov and our Investor Relations website at www.dmcglobal.com/investors.

Unless stated otherwise, all dollar figures in this report are presented in thousands (000s). N/M indicates that the change in dollars or percentage was not meaningful.

Overview

General

DMC Global Inc. (“DMC”, "we", "us", "our", or the "Company") owns and operates Arcadia Products, DynaEnergetics and NobelClad, three innovative, asset-light manufacturing businesses that provide differentiated products and engineered solutions to segments of the construction, energy, industrial processing and transportation markets. Our businesses seek to capitalize on their product and service differentiation to expand profit margins, increase cash flow and enhance shareholder value. Based in Broomfield, Colorado, DMC trades on Nasdaq under the symbol “BOOM.”

Arcadia Products

On December 23, 2021, DMC completed the acquisition of 60% of the membership interests in Arcadia Products, LLC, a Colorado limited liability company resulting from the conversion of Arcadia, Inc. (collectively, “Arcadia Products”). Arcadia Products designs, engineers, fabricates, and finishes aluminum framing systems, windows, curtain walls, storefronts, entrance systems, and interior partitions to the commercial construction market. Additionally, Arcadia Products supplies customized windows and doors to the high-end residential construction market.

Cost of products sold for Arcadia Products includes the cost of aluminum, paint, and other raw materials used in manufacturing as well as employee compensation and benefits, manufacturing facility lease expense, depreciation of manufacturing equipment, supplies and other manufacturing overhead expenses.

DynaEnergetics

DynaEnergetics designs, manufactures, markets and sells perforating systems and associated hardware for the global oil and gas industry. These products are primarily sold to oilfield service companies in the U.S., Europe, Canada, Africa, the Middle East, and Asia. The market for perforating products, which are used during the well completion process, generally corresponds with oil and gas exploration and production activity. Well completion operations are increasingly complex, which in turn has increased the demand for intrinsically-safe, reliable and technically advanced perforating systems.

Cost of products sold for DynaEnergetics includes the cost of metals, explosives and other raw materials used to manufacture shaped charges, detonating products and perforating guns as well as employee compensation and benefits, depreciation of manufacturing facilities and equipment, supplies and other manufacturing overhead expenses.

NobelClad

NobelClad produces explosion-welded clad metal plates for use in the construction of corrosion resistant industrial processing equipment and specialized transition joints for commuter rail cars, ships, and liquified natural gas (LNG) processing equipment. While most demand for our products is driven by maintenance and retrofit projects at existing plants and facilities, new projects for petrochemical processing, oil refining, and aluminum smelting facilities also account for a significant portion of total demand. These industries tend to be cyclical in nature and the timing of new order inflow remains difficult to predict. We use backlog, defined as all unfilled firm purchase orders and commitments at a point in time, to measure the immediate outlook for our NobelClad business. Most firm purchase orders and commitments are realized and shipped within twelve months. NobelClad's backlog was $48,885 at December 31, 2024 compared to $59,357 at December 31, 2023.

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Cost of products sold for NobelClad includes the cost of metals, explosive powders and other raw materials used to manufacture clad metal plates and transition joints as well as employee compensation and benefits, outside processing costs, depreciation of manufacturing facilities and equipment, manufacturing facility lease expense, supplies and other manufacturing overhead expenses.

Factors Affecting Results

•Consolidated net sales were $642,851 in 2024 versus $719,188 in 2023, a decrease of 11%. The decline in performance primarily was driven by lower Arcadia Products sales volumes in longer-cycle high-end residential and certain short-cycle commercial markets, and a decrease in pricing of DynaEnergetics’ DS perforating systems as a result of industry consolidation in the United States.

•Consolidated gross profit of 23.4% in 2024 decreased from 29.5% in 2023. The decline was primarily attributable to margin declines at DynaEnergetics and Arcadia Products, as well as lower absorption of fixed manufacturing overhead costs as a result of the decrease in consolidated sales.

•Consolidated selling, general, and administrative ("SG&A") expenses were $108,656 in 2024 compared with $124,442 in 2023. The year-over-year decrease was primarily attributable to a reduction in variable compensation costs of $5,297, outside services costs of $5,735, as well as internal leadership and sales meeting expense of $1,176, partially offset by an increase in bad debt expense of $3,784. Additionally, there were $7,383 of CEO transition expenses and related accelerated stock-based compensation in 2023.

•Cash and marketable securities of $14,289 at December 31, 2024 decreased $29,370 from $43,659 at December 31, 2023 and was primarily attributable to debt repayments made in conjunction with the Company’s amended credit agreement.

•Net debt, a non-GAAP measure, of $56,529 (comprised of $70,818 of total debt less $14,289 in cash, cash equivalents and marketable securities) at December 31, 2024 decreased $15,663 from $72,192 at December 31, 2023. The decrease was due to a reduction in outstanding debt attributable to voluntary repayments made after execution of the credit agreement amendment in February 2024.

•The Company’s leverage ratio, calculated in accordance with its credit facility, was 1.35 to 1.0 as of December 31, 2024 in comparison to the maximum ratio permitted of 3.0 to 1.0. The Company’s adjusted leverage ratio, calculated using net debt as of December 31, 2024, was 1.09 to 1.0.

Outlook

We expect Arcadia Products’ first quarter sales will be flat to modestly above the 2024 fourth quarter, with continued weak demand from the luxury residential market. In January, Arcadia Products’ former president, Jim Schladen, returned to lead the organization. He is currently focused on strengthening Arcadia Products’ core commercial operations and stabilizing and developing an improvement plan for its high-end residential products, which may include the elimination of underperforming product offerings. As a regional architectural building products leader based in the Los Angeles metro area, management believes Arcadia Products is uniquely positioned to participate in the long-term reconstruction of many neighborhoods destroyed by the recent wildfires in Southern California.

At DynaEnergetics, first quarter sales are expected to be flat to modestly up versus the seasonally soft 2024 fourth quarter. Anticipated sales growth in North America is expected to be partially offset by lower international sales. DynaEnergetics has completed a value-engineering initiative designed to reduce the cost and improve the performance of its flagship DynaStage product offering. DynaEnergetics also has made significant progress automating its North American manufacturing center, with cost benefits that are expected to begin to be realized in the first half of 2025. These initiatives are expected to partially offset persistent pricing pressure in North America’s well completions industry.

NobelClad expects first quarter sales will be comparable to the 2024 fourth quarter, which was NobelClad’s second strongest sales quarter in more than a decade. NobelClad continues to experience strong demand for its Cylindra™ cryogenic transition joints for use in the processing of LNG, and recent enhancements to the Cylindra production process have reduced manufacturing lead times.

Our businesses are closely monitoring the potential impact of evolving U.S. and reciprocal tariff policies.

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Use of Non-GAAP Financial Measures

In addition to disclosing financial results that are determined in accordance with generally accepted accounting principles in the United States (GAAP), the Company also discloses certain non-GAAP financial measures that we use in operational and financial decision making. Non-GAAP financial measures include the following:

•EBITDA: defined as net income (loss) plus net interest, taxes, depreciation and amortization.

•Adjusted EBITDA: excludes from EBITDA stock-based compensation, restructuring expenses and asset impairment charges (if applicable) and, when appropriate, nonrecurring items that management does not utilize in assessing DMC’s operating performance (as further described in the tables below).

•Adjusted EBITDA attributable to DMC Global Inc.: excludes the Adjusted EBITDA attributable to the 40% redeemable noncontrolling interest in Arcadia Products.

•Adjusted EBITDA for DMC business segments: defined as operating income (loss) plus depreciation, amortization, allocated stock-based compensation (if applicable), restructuring expenses and asset impairment charges (if applicable) and, when appropriate, nonrecurring items that management does not utilize in assessing DMC's operating performance.

•Adjusted net income (loss): defined as net income (loss) attributable to DMC Global Inc. stockholders prior to the adjustment of redeemable noncontrolling interest plus restructuring expenses and asset impairment charges (if applicable) and, when appropriate, nonrecurring items that management does not utilize in assessing DMC's operating performance.

•Adjusted diluted earnings per share: defined as diluted earnings per share attributable to DMC Global Inc. stockholders (exclusive of adjustment of redeemable noncontrolling interest) plus restructuring expenses and asset impairment charges (if applicable) and, when appropriate, nonrecurring items that management does not utilize in assessing DMC’s operating performance.

•Net debt: defined as total debt less total cash, cash equivalents and marketable securities.

•Free-cash flow: defined as cash flows from operating activities less net acquisitions of property, plant and equipment.

Management believes providing these additional financial measures is useful to investors in understanding the Company’s operating performance, excluding the effects of restructuring, impairment, and other nonrecurring charges, as well as its liquidity. Management typically monitors the business utilizing the above non-GAAP measures, in addition to GAAP results, to understand and compare operating results across accounting periods, and certain management incentive awards are based, in part, on these measures. The presence of non-GAAP financial measures in this report is not intended to suggest that such measures be considered in isolation or as a substitute for, or as superior to, DMC’s GAAP information, and investors are cautioned that the non-GAAP financial measures are limited in their usefulness. Given that not all companies use identical calculations, DMC’s presentation of non-GAAP financial measures may not be comparable to similarly titled measures of other companies.

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Consolidated Results of Operations

Net sales were $642,851 for the year ended December 31, 2024, a decrease of 11% compared with 2023, primarily due to lower Arcadia Products sales volumes in longer-cycle high-end residential and certain short-cycle commercial markets, and a decrease in pricing of DynaEnergetics’ DS perforating systems as a result of industry consolidation in the United States.

Gross profit percentage was 23.4% versus 29.5% in 2023. The decline compared to prior year was primarily attributable to margin declines at DynaEnergetics and Arcadia Products, as well as lower absorption of fixed manufacturing overhead costs as a result of the decrease in consolidated sales.

General and administrative expenses decreased $13,940 for the year ended December 31, 2024 compared with 2023. 2023 included CEO transition expenses and related accelerated stock-based compensation of $7,383, and patent infringement litigation costs at DynaEnergetics of $3,610. The remaining year-over-year decrease was primarily attributable to lower employee compensation costs, driven by a decline in variable compensation of $2,402 and lower internal leadership and sales meeting expense of $1,176. These decreases were partially offset by an increase of $762 in expense recognized related to certain alleged violations of stormwater regulatory requirements in the state of California.

Selling and distribution expenses decreased $1,846 for the year ended December 31, 2024 compared with 2023. The lower expense was driven by a decrease in compensation cost of $3,571 and outside marketing consulting costs of $1,564, partially offset by an increase in bad debt expense for $3,784.

Amortization of purchased intangible assets decreased $1,512 for the year ended December 31, 2024 compared with 2023 as the Arcadia Products customer relationship purchased intangible asset is amortized using an accelerated amortization method.

Goodwill impairment of $141,725 for the year ended December 31, 2024 related to the full impairment of Arcadia Products’ goodwill due in part to recent financial performance not in accordance with expectations and downward revisions to the near-term forecast.

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Strategic review expenses of $7,765 for the year ended December 31, 2024 related primarily to the review of strategic alternatives for DynaEnergetics and NobelClad. In connection with this process, strategic review expenses primarily included $4,076 in professional service fees and $2,988 in employee retention compensation, including $372 of stock-based compensation. On October 21, 2024, the Company announced that the Board was no longer actively marketing the DynaEnergetics and NobelClad segments.

Restructuring expenses and asset impairments decreased $1,240 for the year ended December 31, 2024 compared with 2023. 2024 costs primarily related to the abandonment of a planned manufacturing expansion at DynaEnergetics and employee severance associated with headcount reductions at DynaEnergetics and Arcadia Products. 2023 costs included $2,471 of asset impairments primarily associated with the abandonment of a software asset at DynaEnergetics and $1,295 of cost reduction initiatives, including employee severance, primarily at DynaEnergetics.

Operating loss of $131,258 for the year ended December 31, 2024 was primarily attributable to the goodwill impairment charge at Arcadia Products and decreased financial performance at DynaEnergetics. Operating income in 2023 was $61,177.

Other expense, net of $1,068 in 2024 primarily related to net realized foreign currency exchange losses. Currency gains and losses can arise when subsidiaries enter into inter-company and third-party transactions that are denominated in currencies other than their functional currency, including foreign currency forward contracts used to offset foreign exchange rate fluctuations on certain foreign currency denominated asset and liability positions.

Interest expense, net of $8,664 in 2024 decreased 9% compared with 2023 due primarily to lower outstanding balances on our credit facility due to voluntary debt repayments during 2024.

Income tax provision of $10,970 was recorded on loss before taxes of $140,990 as the loss was primarily driven by the full impairment at Arcadia Products' goodwill, which did not result in a tax benefit. The effective rate was also impacted unfavorably by income generated in foreign jurisdictions and the establishment of a valuation allowance against U.S. deferred tax assets.

We recorded an income tax provision of $15,120 on income before income taxes of $49,879 in 2023. The prior year rate was impacted by geographical mix. Our most significant operations are in the United States, which has a 21% statutory income tax rate, and Germany, which has a 32% combined statutory income tax rate. The mix of income or loss before income taxes between these jurisdictions is one of the primary drivers of the difference between our 21% statutory tax rate and our effective tax rate. The effective rate was also impacted unfavorably by state taxes and certain compensation expenses that are not tax deductible in the U.S. The operating results of Arcadia that are attributable to the redeemable noncontrolling interest holder are not taxed at DMC, which resulted in a partially offsetting favorable impact to the effective tax rate.

Net loss attributable to DMC Global Inc. in 2024 was $94,452, or $(8.20) per diluted share compared with net income of $26,259, or $1.08 per diluted share, in 2023.

Adjusted EBITDA in 2024 decreased compared with 2023 due to the factors discussed above. See "Use of Non-GAAP Financial Measures" above for explanation of the use of Adjusted EBITDA. The following is a reconciliation of the most directly comparable GAAP measure to Adjusted EBITDA.

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Adjusted Net Income and Adjusted Diluted Earnings Per Share decreased compared with 2023 due to the factors discussed above. See "Use of Non-GAAP Financial Measures" above for explanation of the use of non-GAAP measures. The following is a reconciliation of the most directly comparable GAAP measures to Adjusted Net Income and Adjusted Diluted Earnings Per Share.

(1) Calculated using diluted weighted average shares outstanding of 19,667,673

(2) Net loss attributable to DMC Global Inc. prior to the adjustment of redeemable noncontrolling interest and deemed dividend for purposes of calculating earnings per share

(1) Calculated using diluted weighted average shares outstanding of 19,518,382

(2) Net income attributable to DMC Global Inc. prior to the adjustment of redeemable noncontrolling interest for purposes of calculating earnings per share

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Business Segment Financial Information

We primarily evaluate performance and allocate resources based on segment revenues, operating income and Adjusted EBITDA as well as projected future performance. Segment operating income is defined as revenues less expenses identifiable to the segment. DMC consolidated operating income and Adjusted EBITDA include unallocated corporate expenses and unallocated stock-based compensation expense. Stock-based compensation is not allocated to wholly owned segments, DynaEnergetics and NobelClad. Stock-based compensation is allocated to the Arcadia Products segment as 60% of such expense is attributable to the Company, whereas the remaining 40% is attributable to the redeemable noncontrolling interest holder. Segment operating income will reconcile to consolidated income (loss) before income taxes by deducting unallocated corporate expenses, unallocated stock-based compensation, other expense, net, and interest expense, net.

Net sales, segment operating income (loss), and Adjusted EBITDA for each segment were as follows for the years ended December 31:

Arcadia Products

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Net sales of $249,763 in 2024 decreased $49,146 compared to 2023 primarily due to lower sales volumes in longer-cycle high-end residential markets. Additionally, weak construction activity and internal operational disruptions negatively impacted short-cycle commercial sales for portions of 2024.

Gross profit percentage decreased to 26.8% in 2024 primarily due to lower absorption of fixed manufacturing overhead costs as a result of the decrease in net sales, particularly within longer-cycle high-end residential markets.

Selling and distribution expenses decreased $1,450 in 2024 compared to 2023 due to lower compensation costs.

Amortization of purchased intangible assets decreased $1,497 in 2024 compared to 2023 as the customer relationship purchased intangible asset is amortized using an accelerated amortization method.

Goodwill impairment of $141,725 in 2024 relates to the full impairment of goodwill due in part to recent financial performance not in accordance with expectations and downward revisions to the near-term forecast.

Restructuring expenses and asset impairments of $645 in 2024 primarily related to employee severance associated with headcount reductions.

Operating loss of $143,636 in 2024 compared to operating income of $21,407 in 2023 was due to the factors discussed above.

Adjusted EBITDA decreased in 2024 due to the factors discussed above. See “Use of Non-GAAP Financial Measures” above for explanation of the use of Adjusted EBITDA. The following is a reconciliation of the most directly comparable GAAP measure to Adjusted EBITDA.

DynaEnergetics

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Net sales decreased $27,340 in 2024 compared to 2023 primarily due to a decrease in pricing of DS perforating systems as a result of industry consolidation in the United States.

Gross profit percentage decreased to 17.4% primarily due to lower customer pricing as well as lower absorption of fixed manufacturing overhead costs as a result of the decrease in net sales.

General and administrative expenses were lower by $4,971 compared with 2023 primarily due to a decrease in patent infringement litigation costs of $3,610 and compensation costs of $1,334.

Selling and distribution expenses were lower by $344 compared with 2023 primarily due to a decrease in compensation costs of $1,639, marketing consulting costs of $1,572 and business-related travel of $170, partially offset by an increase in bad debt expense of $3,100.

Restructuring expenses and asset impairments of $1,881 in 2024 related to asset impairment charges of $1,104 primarily associated with the abandonment of a planned manufacturing expansion and employee severance of $777 due to headcount reductions. Restructuring expenses and asset impairments in 2023 were attributable to $1,140 of cost reduction initiatives, primarily employee severance, and an asset impairment charge of $1,871 associated with the abandonment of a software asset.

Operating income decreased by $30,186 compared with 2023 due to a decrease in gross profit.

Adjusted EBITDA decreased in 2024 compared with 2023 primarily due to the factors discussed above. See "Use of Non-GAAP Financial Measures" above for explanation of the use of Adjusted EBITDA. The following is a reconciliation of the most directly comparable GAAP measure to Adjusted EBITDA.

NobelClad

Net sales and gross profit percentage were consistent in 2024 compared with 2023 due to steady, healthy activity in core energy and petrochemical end markets, including Cylindra™ cryogenic transition joints and pressure vessel plate shipments.

General and administrative expenses increased by $207 compared with 2023 primarily due to higher variable compensation costs.

Operating income increased $624 compared to 2023 due in part to an increase in gross profit.

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Adjusted EBITDA increased due to the factors discussed above. See "Use of Non-GAAP Financial Measures" above for explanation of the use of Adjusted EBITDA. The following is a reconciliation of the most directly comparable GAAP measure to Adjusted EBITDA.

Liquidity and Capital Resources

We have historically financed our operations from a combination of internally generated cash flow, revolving credit borrowings, and various long-term debt arrangements. Our net debt position was $56,529 at December 31, 2024 compared to $72,192 at December 31, 2023. The decrease in net debt during 2024 was due to a reduction in outstanding debt attributable to voluntary repayments made after executing the amended credit agreement in February 2024.

We believe that cash and cash equivalents on hand, cash flow from operations, funds available under our current credit facilities and any future replacement thereof will be sufficient to fund the working capital, required minimum debt service payments, and other capital expenditure requirements of our current business operations for the foreseeable future. We may also execute capital markets transactions, including at-the-market offering programs, to raise additional funds if we believe market conditions are favorable, but there can be no assurance that any future capital will be available on acceptable terms or at all. Nevertheless, our ability to generate sufficient cash flows from operations will depend upon our success in executing our strategies. If we are unable to (i) realize sales from our backlog; (ii) secure new customer orders; (iii) continue selling products at profitable margins; and (iv) continue to implement cost-effective internal processes, our ability to meet cash requirements through operating activities could be impacted. Furthermore, any restriction on the availability of borrowings under our credit facilities could negatively affect our ability to meet future cash requirements. We will continue to monitor financial market conditions, including the related impact on credit availability and capital markets.

Debt facilities

On February 6, 2024, the Company and certain domestic subsidiaries entered into an amendment (the “First Amendment”) to its existing credit agreement with a syndicate of banks, led by KeyBank National Association (the “credit facility”). The First Amendment provided for certain changes to the credit facility, including an increase in the maximum commitment amount from $200,000 to $300,000. The credit facility allows for revolving loans of up to $200,000, a $50,000 term loan facility, and a $50,000 delayed draw term loan facility that can be accessed by the Company at its discretion until February 6, 2026. The $50,000 term loan facility is amortizable at $625 per quarter beginning on June 30, 2024 through March 31, 2026. Quarterly term loan amortization increases to $938 on June 30, 2026 through March 31, 2028, and increases to $1,250 from June 30, 2028 through December 31, 2028. A balloon payment for the outstanding term loan balance is due upon the credit facility maturity date of February 6, 2029. The credit facility retains a $100,000 accordion feature to increase the commitments under the revolving loan and/or by adding one or more term loans subject to approval by the applicable lenders. The credit facility is secured by certain assets of DMC including accounts receivable, inventory, and fixed assets, including Arcadia Products and its subsidiary, as well as guarantees and share pledges by DMC and its subsidiaries.

Borrowings under the $200,000 revolving loan limit and $50,000 Term Loan can be in the form of Adjusted Daily Simple Secured Overnight Financing Rate ("SOFR") loans or one month Adjusted Term SOFR loans. Additionally, U.S. dollar borrowings on the revolving loan can be in the form of Base Rate loans (Base Rate borrowings are based on the greater of the administrative agent’s Prime rate, an adjusted Federal Funds rate or an adjusted SOFR rate). SOFR loans bear interest at the applicable SOFR rate plus an applicable margin (varying from 2.25% to 3.25%). Base Rate loans bear interest at the defined Base Rate plus an applicable margin (varying from 1.25% to 2.25%).

The credit facility includes various covenants and restrictions, certain of which relate to the payment of dividends or other distributions to stockholders; redemption of capital stock; incurring additional indebtedness; mortgaging, pledging or disposition of major assets; and maintenance of specified ratios. As of December 31, 2024, we were in compliance with all financial covenants and other provisions of our debt agreements.

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The leverage ratio is defined in the credit facility as the ratio of Consolidated Funded Indebtedness (as defined in the credit facility) on the last day of any trailing four quarter period to Consolidated EBITDA (as defined in the credit facility) for such period. The maximum leverage ratio permitted by our credit facility is 3.00 to 1.0. The actual leverage ratio as of December 31, 2024, calculated in accordance with the amended credit facility, was 1.35 to 1.0.

The debt service coverage ratio is defined in the credit facility as the ratio of Consolidated EBITDA less the sum of capital distributions paid in cash (other than those made with respect to preferred stock issued under the Operating Agreement), Consolidated Unfunded Capital Expenditures (as defined in the credit facility), and net cash income taxes divided by the sum of cash interest expense, any dividends on the preferred stock paid in cash, and scheduled principal payments on funded indebtedness. Under our credit facility, the minimum debt service coverage ratio permitted is 1.25 to 1.0. The actual debt service coverage ratio for the trailing twelve months ended December 31, 2024 was 3.41 to 1.0.

As of December 31, 2024, borrowings of $48,125 on the Term Loan under our credit facility were outstanding, and $24,375 was outstanding on the revolver.

We also maintain a line of credit with a German bank for certain European operations. This line of credit provides a borrowing capacity of €7,000 on which no amounts were outstanding as of December 31, 2024.

Redeemable noncontrolling interest

The Operating Agreement for Arcadia Products contains a right for the Company to purchase the remaining interest in Arcadia Products from the minority interest holder on or after December 23, 2024 (“Call Option”). The minority interest holder of Arcadia Products has the right to sell its remaining interest in Arcadia Products to the Company (“Put Option”). On December 3, 2024, the Company and minority interest holder entered into an amendment to the Operating Agreement whereby the minority interest holder agreed not to exercise the Put Option until on or after September 6, 2026 in exchange for, among other terms, a one-time payment of $2,500. Both the Call Option and Put Option enable the respective holder to exercise their rights based upon a predefined calculation as included within the Operating Agreement.

As of December 31, 2024, the value of the redeemable noncontrolling interest was $187,080. Upon settlement, consideration paid will be net of the $24,902 promissory note outstanding due from the redeemable noncontrolling interest holder. Refer to Note 2 within Item 8 — Financial Statements and Supplementary Data for further information related to the valuation of the redeemable noncontrolling interest and promissory note outstanding.

Other contractual obligations and commitments

The table below presents principal cash flows by expected maturity dates for our debt obligations and other contractual obligations and commitments as of December 31, 2024:

(1)  Represents outstanding borrowings under our credit facility but excludes future interest expense on outstanding credit facility borrowings. For more information about our debt obligations, refer to Note 7 "Debt" within Item 8 — Financial Statements and Supplementary Data.

(2) The operating lease obligations presented reflect future minimum lease payments due under non-cancelable portions of our leases as of December 31, 2024. Our operating lease obligations are described in Note 6 "Leases" within Item 8 — Financial Statements and Supplementary Data.

(3)  Amounts represent firm commitments to purchase goods or services to be utilized in the normal course of business. These amounts are not reflected in the Consolidated Balance Sheets.

(4) The above table does not include amounts potentially payable upon exercise of the Put Option or Call Option associated with the redeemable noncontrolling interest.

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Cash flows from operating activities

Net cash provided by operating activities of $46,596 in 2024 decreased compared to $65,927 in 2023 primarily driven by lower net income attributable to a decline in financial performance at Arcadia Products and DynaEnergetics. This decrease was partially offset by lower working capital in 2024 as compared to 2023.

Cash flows from investing activities

Net cash used in investing activities in 2024 of $3,569 primarily related to the acquisition, net of proceeds received, of property, plant and equipment of $16,188, partially offset by proceeds from the sales and maturities of marketable securities of $12,619.

Net cash used in investing activities in 2023 was $28,101 and primarily related to the acquisition of property, plant and equipment of $15,974 and investments in marketable securities of $12,471.

Cash flows from financing activities

Net cash used in financing activities in 2024 totaled $59,788 and included net credit facility repayments of $45,000, distributions to the redeemable noncontrolling interest holder of $8,445, payment of debt issuance costs of $2,735, payment of a deemed dividend to the redeemable noncontrolling interest holder of $2,500, and treasury stock purchases of $1,240.

Net cash used in financing activities in 2023 totaled $33,182 and included payments on our Term Loan of $17,500, distributions to the redeemable noncontrolling interest holder of $13,515, and treasury stock purchases of $2,481.

Payment of dividends

Any determination to pay cash dividends is at the discretion of the Board of Directors. On April 23, 2020, DMC announced that its Board of Directors suspended the quarterly dividend indefinitely. Future dividends may be affected by, among other items, our views on potential future capital requirements, future business prospects, debt covenant compliance considerations, changes in income tax laws, and any other factors that our Board of Directors deems relevant.

Critical Accounting Estimates

Our Consolidated Financial Statements contain information that is pertinent to management’s discussion and analysis of results of operations and financial condition. Preparation of financial statements in conformity with generally accepted accounting principles in the United States requires that management make estimates, judgments and assumptions that affect the amounts reported for revenues, expenses, assets, liabilities, and other related disclosures.

Our critical accounting estimates, described below, are important to the portrayal of our results of operations and financial condition. Management’s judgments and estimates in these areas are based on information available and at times requires management to make difficult, subjective, and complex judgments. Actual results may or may not differ from these estimates.

Inventories

Inventories are stated at the lower-of-cost (first-in, first-out) or net realizable value. Significant cost elements included in inventory are raw materials, labor, freight, subcontract costs, and manufacturing overhead. As necessary, we write down inventory to its net realizable value by recording provisions for excess, slow moving and obsolete inventory. To determine provision amounts, we regularly review inventory quantities on hand and values, and compare them to estimates of future product demand, market conditions, production requirements and technological developments. If assumptions about future demand change and/or actual market conditions are less favorable than those projected by the Company, additional write-downs of inventories may be required.

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Goodwill

Goodwill represents the amount by which the purchase price exceeds the fair value of identifiable tangible and intangible assets and liabilities acquired in a business combination. Goodwill acquired in a business combination and determined to have an indefinite useful life is not amortized, but instead is tested for impairment at least annually during the fourth quarter or whenever events or changes in circumstances indicate that the carrying value might not be fully recoverable. For goodwill, impairment is assessed at the reporting unit level. A reporting unit is defined as an operating segment or a component of an operating segment to the extent discrete financial information is available that is reviewed by segment management. The Company's reporting units are each of the three operating segments disclosed in Note 11 within Item 8 — Financial Statements and Supplementary Data.

To test goodwill for impairment, we first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. For the qualitative assessment, we consider macroeconomic and market conditions, cost factors, financial performance and other relevant entity-specific events. If we conclude that it is more likely than not that the fair value of a reporting unit is less than its carrying value during the qualitative assessment, then we quantitatively estimate the fair value of the reporting unit and compare the estimated fair value to its carrying value. Based on the results of the quantitative assessment, if the carrying value exceeds the fair value of the reporting unit, an impairment loss is recognized for the difference.

In connection with the preparation of its quarterly financial statements during the third quarter of 2024, the Company assessed changes in circumstances that occurred during the quarter to determine whether it was more likely than not that the fair value of its Arcadia Products reporting unit was below its carrying amount. While there was no single determinative event or factor, potential triggering events during the third quarter of 2024, including recent financial performance not in accordance with expectations and downward revisions to the near-term forecast, led the Company to conclude that when considering the events and factors in totality, it was more likely than not that the fair value of the Arcadia Products reporting unit was below its carrying value at September 30, 2024. As such, a quantitative goodwill impairment test was performed. The Company utilized the market approach to estimate the fair value of the Arcadia Products reporting unit, but also considered the income approach to validate the results. The market approach includes observable inputs of fair value, including but not limited to non-binding offers received from third-parties and comparative market multiples. The income approach estimates the fair value by discounting the reporting unit’s estimated future cash flows using an estimated discount rate, or expected return, that a marketplace participant would have required as of the valuation date.

Based on the results of our quantitative goodwill impairment test, we recorded a $141,725 impairment charge to goodwill during the year ended December 31, 2024.

Asset impairments

Finite-lived assets, including purchased intangible assets, property, plant and equipment, and right-of-use assets, are tested for impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable. We compare the expected undiscounted future operating cash flows associated with applicable assets or asset groupings to their respective carrying values to determine if they are fully recoverable when indicators of impairment are present. If the expected future operating cash flows of an asset or asset grouping are not sufficient to recover the related carrying value, we estimate the fair value of the asset or asset grouping. Impairment is recognized when the carrying amount of the asset or asset grouping is not recoverable and when carrying value exceeds the estimated fair value.

The net carrying value of our purchased intangible assets as of December 31, 2024 was $174,104, which is entirely related to Arcadia Products. The net carrying values of our property, plant and equipment and right-of-use assets as of December 31, 2024 were $129,276 and $42,164, respectively. During the year ended December 31, 2024, we recorded impairment charges on our property, plant and equipment of $1,182. The impairment charges primarily related to a charge associated with the abandonment of a planned manufacturing expansion at DynaEnergetics.

Income taxes

We recognize deferred tax assets and liabilities for the expected future income tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities. Deferred tax assets are recognized for the expected future effects of all deductible temporary differences to the extent we believe these assets will more likely than not be realized. We record a valuation allowance when, based on current circumstances, it is more likely than not that all or a portion of the deferred tax assets will not be realized. In making such determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning

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strategies, recent financial performance and existing valuation allowances, if any. As of December 31, 2024, we were in a three-year cumulative loss position at the consolidated financial statement level, driven by losses in the U.S. primarily related to the impairment of Arcadia Products’ goodwill in the third quarter of 2024. Accordingly, during the year ended December 31, 2024, we evaluated the impact on all jurisdictions and have recorded a valuation allowance against the corresponding net deferred tax assets in the U.S. We also have a valuation allowance recorded against deferred tax assets in certain of our foreign jurisdictions. As of December 31, 2024, we have recorded a consolidated valuation allowance of $32,121.

We recognize the tax benefits from uncertain tax positions only when it is more likely than not, based on the technical merits of the position, that the tax position will be sustained upon examination, including the resolution of any related appeals or litigation. The tax benefits recognized in the Consolidated Financial Statements from such a position are measured as the largest benefit that is more likely than not to be realized upon ultimate resolution. As of December 31, 2024, we have an uncertain tax position liability of $5,240 recorded in our Consolidated Balance Sheet related to tax positions taken in prior periods.

Off Balance Sheet Arrangements

At December 31, 2024, we had no off-balance sheet arrangements, as defined by SEC rules, that have or are reasonably likely to have a material current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Recent Accounting Pronouncements

Refer to Note 2 "Significant Accounting Policies" within Part II, Item 8 — Financial Statements and Supplementary Data in this annual report for a discussion, as applicable, of recent accounting pronouncements and their anticipated effect on our business.

ITEM 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our historical Consolidated Financial Statements and notes included elsewhere in this annual report. A discussion regarding our financial condition and results of operations as well as our liquidity and capital resources for fiscal 2022 compared to fiscal 2021 can be found under Item 7 in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, which is available on the SEC’s website at www.sec.gov and our Investor Relations website at www.dmcglobal.com/investors.

Unless stated otherwise, all dollar figures in this report are presented in thousands (000s). N/M indicates that the change in dollars or percentage was not meaningful.

Overview

General

DMC Global Inc. (“DMC”, "we", "us", "our", or the "Company") owns and operates Arcadia Products, DynaEnergetics and NobelClad, three innovative, asset-light manufacturing businesses that provide differentiated products and engineered solutions to niche segments of the construction, energy, industrial processing and transportation markets. Each of our businesses provides a unique suite of highly engineered products and differentiated solutions, and each has established a leadership position in its respective market. Our businesses seek to capitalize on their product and service differentiation to expand profit margins, increase cash flow and enhance shareholder value. Based in Broomfield, Colorado, DMC trades on Nasdaq under the symbol “BOOM.”

Arcadia Products

On December 23, 2021, DMC completed the acquisition of 60% of the membership interests in Arcadia Products, LLC, a Colorado limited liability company resulting from the conversion of Arcadia, Inc. (collectively, “Arcadia Products”). Arcadia Products designs, engineers, fabricates, and finishes aluminum framing systems, windows, curtain walls, storefronts, entrance systems, and interior partitions to the commercial construction market. Additionally, Arcadia Products supplies customized windows and doors to the ultra-high-end residential real estate market.

Cost of products sold for Arcadia Products includes the cost of aluminum, paint, and other raw materials used in manufacturing as well as employee compensation and benefits, manufacturing facility lease expense, depreciation of manufacturing equipment, supplies and other manufacturing overhead expenses.

DynaEnergetics

DynaEnergetics designs, manufactures, markets and sells perforating systems and associated hardware for the global oil and gas industry. These products are primarily sold to oilfield service companies in the U.S., Europe, Canada, Africa, the Middle East, and Asia. The market for perforating products, which are used during the well completion process, generally corresponds with oil and gas exploration and production activity. Well completion operations are increasingly complex, which in turn has increased the demand for intrinsically-safe, reliable and technically advanced perforating systems.

Cost of products sold for DynaEnergetics includes the cost of metals, explosives and other raw materials used to manufacture shaped charges, detonating products and perforating guns as well as employee compensation and benefits, depreciation of manufacturing facilities and equipment, supplies and other manufacturing overhead expenses.

NobelClad

NobelClad produces explosion-welded clad metal plates for use in the construction of corrosion resistant industrial processing equipment and specialized transition joints for commuter rail cars, ships, and liquified natural gas (LNG) processing equipment. While most demand for our products is driven by maintenance and retrofit projects at existing plants and facilities, new projects for petrochemical processing, oil refining, and aluminum smelting facilities also account for a significant portion of total demand. These industries tend to be cyclical in nature and the timing of new order inflow remains difficult to predict. We use backlog, defined as all unfilled firm purchase orders and commitments at a point in time, to measure the immediate outlook for our NobelClad business. Most firm purchase orders and commitments are realized and shipped within twelve months. NobelClad's backlog increased to $59,357 at December 31, 2023 from $55,451 at December 31, 2022.

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Cost of products sold for NobelClad includes the cost of metals, explosive powders and other raw materials used to manufacture clad metal plates and transition joints as well as employee compensation and benefits, outside processing costs, depreciation of manufacturing facilities and equipment, manufacturing facility lease expense, supplies and other manufacturing overhead expenses.

Factors Affecting Results

•Consolidated net sales were $719,188 in 2023 versus $654,086 in 2022, an increase of 10%. The improved performance primarily was driven by an increase in unit sales of DynaEnergetics’ DS perforating systems and increased activity in NobelClad's core energy and petrochemical end markets.

•Arcadia Products reported sales of $298,909 in 2023, which were consistent with sales of $299,527 in 2022.

•DynaEnergetics' sales of $315,026 in 2023 increased 19% compared with 2022 due primarily to an increase in unit sales of DS perforating systems. International sales increased 28%, while North American sales increased 18%.

•NobelClad’s sales of $105,253 in 2023 increased 17% compared with 2022 reflecting healthy activity in core energy and petrochemical end markets.

•Consolidated gross profit of 29.5% in 2023 increased from 28.4% in 2022. The percentage improvement compared to prior year was attributable to favorable project and regional mix, as well as better absorption of fixed manufacturing overhead expenses at NobelClad. Also contributing to the percentage improvement was margin recovery at Arcadia as decreases in base aluminum metal prices exceeded declines in customer pricing.

•Consolidated selling, general, and administrative ("SG&A") expenses were $124,442 in 2023 compared with $118,349 in 2022. The year-over-year increase was primarily attributable to $4,343 of CEO transition expenses, as well as higher compensation and outside services costs.

•Cash and marketable securities of $43,659 at December 31, 2023 increased $18,515 from $25,144 at December 31, 2022 due primarily to higher free cash flow.

•Net debt, a non-GAAP measure, of $72,192 (comprised of $115,851 of total debt less $43,659 in cash, cash equivalents and marketable securities) at December 31, 2023 decreased $35,462 from $107,654 at December 31, 2022. The decrease was driven by $17,500 in Term Loan payments in 2023 and $12,471 of investments in marketable securities.

•The Company’s leverage ratio, calculated in accordance with its credit facility, was 1.25 to 1.0 as of December 31, 2023 in comparison to the maximum ratio permitted of 3.0 to 1.0. The Company’s adjusted leverage ratio, calculated using net debt as of December 31, 2023, was 0.78 to 1.0.

Outlook

DMC’s Arcadia Products business serves the commercial building products market primarily in the western and southwestern United States, and the ultra-high-end residential market across the United States. We expect Arcadia Products to be the primary driver of DMC’s future financial and operational growth, reflecting its large addressable market and differentiated business model. Arcadia Products is investing in new digital technologies and manufacturing capacity to facilitate its expansion. Phase one of a new enterprise resource planning (ERP) system went live in the third quarter of 2023 and is enhancing operating efficiencies and the internal control environment. Additional aluminum painting capacity was added in the second half of 2023, and the business expects further expansions in painting and anodizing capacity in 2024.

At DynaEnergetics, U.S. well completion activity in the fourth quarter declined by approximately 8% versus the third quarter, according to the U.S. Energy Information Administration. We believe North American well completion activity will remain soft during the first quarter of 2024 based on a decline in the number of active drilling rigs and well fracking crews. DynaEnergetics introduced various premium products in 2023 and is in the process of implementing more efficient manufacturing processes that collectively are expected to partially offset persistent pricing pressure in North America’s well completions sector.

NobelClad is experiencing strong demand for its Cylindra™ cryogenic transition joints used in the LNG industry, while repair and maintenance work from downstream energy and petrochemical industries is also contributing to healthy production

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activity. Our backlog was $59,357 as of December 31, 2023 in comparison to $55,451 as of December 31, 2022. We expect to ship most orders in our backlog within twelve months.

On January 29, 2024, DMC announced its Board of Directors had initiated a review of strategic alternatives for its DynaEnergetics and NobelClad businesses. The process formalizes DMC’s ongoing efforts during the past several months to consider opportunities that unlock shareholder value. The Board has retained a financial advisor and may retain other advisors to assist in evaluating the Company’s current strategy, operations, and capital structure. The Board will consider various strategic, business, and financial alternatives for both businesses. These could include, among other things, a sale, a merger, or other business combination of a portion of DMC’s business-unit assets, and/or a strategic investment. The Board has not set a timetable to complete the strategic review process, and there can be no assurance that the review process will result in any transactions.

Use of Non-GAAP Financial Measures

In addition to disclosing financial results that are determined in accordance with generally accepted accounting principles in the United States (GAAP), the Company also discloses certain non-GAAP financial measures that we use in operational and financial decision making. Non-GAAP financial measures include the following:

•EBITDA: defined as net income (loss) plus net interest, taxes, depreciation and amortization.

•Adjusted EBITDA: excludes from EBITDA stock-based compensation, restructuring expenses and asset impairment charges (if applicable) and, when appropriate, nonrecurring items that management does not utilize in assessing DMC’s operating performance (as further described in the tables below).

•Adjusted EBITDA attributable to DMC Global Inc. stockholders: excludes the Adjusted EBITDA attributable to the 40% redeemable noncontrolling interest in Arcadia Products.

•Adjusted EBITDA for DMC business segments: defined as operating income (loss) plus depreciation, amortization, allocated stock-based compensation (if applicable), restructuring expenses and asset impairment charges (if applicable) and, when appropriate, nonrecurring items that management does not utilize in assessing DMC's operating performance.

•Adjusted net income (loss): defined as net income (loss) attributable to DMC Global Inc. stockholders prior to the adjustment of redeemable noncontrolling interest plus restructuring expenses and asset impairment charges (if applicable) and, when appropriate, nonrecurring items that management does not utilize in assessing DMC's operating performance.

•Adjusted diluted earnings per share: defined as diluted earnings per share attributable to DMC Global Inc. stockholders (exclusive of adjustment of redeemable noncontrolling interest) plus restructuring expenses and asset impairment charges (if applicable) and, when appropriate, nonrecurring items that management does not utilize in assessing DMC’s operating performance.

•Net debt: defined as total debt less total cash, cash equivalents and marketable securities.

•Free-cash flow: defined as cash flows provided by (used in) operating activities less net acquisitions of property, plant and equipment.

Management believes providing these additional financial measures is useful to investors in understanding the Company’s operating performance, including the effects of restructuring, impairment, and other nonrecurring charges, as well as its liquidity. Management typically monitors the business utilizing the above non-GAAP measures, in addition to GAAP results, to understand and compare operating results across accounting periods, and certain management incentive awards are based, in part, on these measures. The presence of non-GAAP financial measures in this report is not intended to suggest that such measures be considered in isolation or as a substitute for, or as superior to, DMC’s GAAP information, and investors are cautioned that the non-GAAP financial measures are limited in their usefulness. Given that not all companies use identical calculations, DMC’s presentation of non-GAAP financial measures may not be comparable to similarly titled measures of other companies.

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Consolidated Results of Operations

Net sales were $719,188 for the twelve months ended December 31, 2023, an increase of 10% compared with 2022, primarily due to an increase in unit sales of DynaEnergetics’ DS perforating systems and increased activity in NobelClad's core energy and petrochemical end markets.

Gross profit percentage was 29.5% versus 28.4% in 2022. The improvement compared to the prior year was attributable to the favorable project and regional mix at NobelClad and margin recovery at Arcadia Products.

General and administrative expenses decreased $778 for the twelve months ended December 31, 2023 compared with 2022. The decrease was driven by various cost savings initiatives, including headcount reductions and decreased business travel, partially offset by $4,343 of CEO transition expenses.

Selling and distribution expenses increased $6,871 for the twelve months ended December 31, 2023 compared with 2022. The higher expense was primarily due to increases in compensation costs of $3,543, marketing and certain other outside services costs of $1,562, bad debt expense of $1,133, and freight and supplies costs of $621.

Amortization of purchased intangible assets decreased $14,259 for the year ended December 31, 2023 compared with 2022 as the Arcadia Products customer backlog purchased intangible asset was fully amortized in 2022.

Restructuring expenses, net and asset impairments increased $3,584 for the year ended December 31, 2023 compared with 2022 due to $2,471 of asset impairments primarily associated with the abandonment of a software asset at DynaEnergetics and $1,295 of cost reduction initiatives, including employee severance, primarily at DynaEnergetics.

Operating income of $61,177 increased $31,187 for the year ended December 31, 2023 compared with 2022. The increase in operating income was primarily the result of increased gross profit.

Other expense, net of $1,782 in 2023 primarily related to net realized foreign currency exchange losses. Currency gains and losses can arise when subsidiaries enter into inter-company and third-party transactions that are denominated in currencies other than their functional currency, including foreign currency forward contracts used to offset foreign exchange rate fluctuations on certain foreign currency denominated asset and liability positions.

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Interest expense, net of $9,516 in 2023 increased 54% compared with 2022 due to an increase in floating interest rates related to the Term Loan.

Income tax provision of $15,120 was recorded on income before taxes of $49,879. Our most significant operations are in the United States, which has a 21% statutory income tax rate, and Germany, which has a 32% combined statutory income tax rate. The mix of income or loss before income taxes between these jurisdictions is one of the primary drivers of the difference between our 21% statutory tax rate and our effective tax rate. The effective rate was impacted unfavorably by the geographic mix of pretax income, state taxes, and certain compensation expenses that are not tax deductible in the U.S. The operating results of Arcadia that are attributable to the redeemable noncontrolling interest holder are not taxed at DMC, which resulted in a partially offsetting favorable impact to the effective tax rate. We recorded an income tax provision of $9,376 on income before income taxes of $23,209 in 2022. The prior year rate was impacted by the same factors previously discussed.

Net income attributable to DMC Global Inc. in 2023 was $26,259, or $1.08 per diluted share, after adjustment to the redeemable noncontrolling interest, compared with net income of $12,247, or $0.72 per diluted share, in 2022.

Adjusted EBITDA in 2023 increased compared with 2022 due to the factors discussed above. See "Use of Non-GAAP Financial Measures" above for explanation of the use of Adjusted EBITDA, a non-GAAP measure. The following is a reconciliation of the most directly comparable GAAP measure to Adjusted EBITDA.

Adjusted Net Income and Adjusted Diluted Earnings Per Share increased compared with 2022 due to the factors discussed above. See "Use of Non-GAAP Financial Measures" above for explanation of the use of non-GAAP measures. The following is a reconciliation of the most directly comparable GAAP measures to Adjusted Net Income and Adjusted Diluted Earnings Per Share.

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(1) Calculated using diluted weighted average shares outstanding of 19,518,382

(2) Net income attributable to DMC Global Inc. prior to the adjustment of redeemable noncontrolling interest

(3) Includes CEO transition expenses of $4,343 and accelerated stock-based compensation of $3,040 related to the vesting of the former CEO’s outstanding equity awards, net of tax.

(1) Calculated using diluted weighted average shares outstanding of 19,369,165

(2) Net income attributable to DMC Global Inc. prior to the adjustment of redeemable noncontrolling interest

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Business Segment Financial Information

We primarily evaluate performance and allocate resources based on segment revenues, operating income and Adjusted EBITDA as well as projected future performance. Segment operating income is defined as revenues less expenses identifiable to the segment. DMC operating income and Adjusted EBITDA include unallocated corporate expenses and unallocated stock-based compensation expense. Stock-based compensation is not allocated to wholly owned segments, DynaEnergetics and NobelClad. Stock-based compensation is allocated to the Arcadia Products segment as 60% of such expense is attributable to the Company, whereas the remaining 40% is attributable to the redeemable noncontrolling interest holder. Segment operating income will reconcile to consolidated income before income taxes by deducting unallocated corporate expenses, unallocated stock-based compensation, other (expense) income, net, and interest expense, net.

Net sales, segment operating income, and Adjusted EBITDA for each segment were as follows for years ended December 31:

Arcadia Products

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Net sales of $298,909 in 2023 were comparable to net sales of $299,527 in 2022.

Gross profit percentage increased to 30.9% in 2023 primarily due to decreases in base aluminum metal costs which exceeded declines in customer pricing.

General and administrative expenses were lower by $1,384 in 2023 compared to 2022 due primarily to a decrease in stock-based compensation of $656 and a decrease in outside services costs of $538.

Selling and distribution expenses increased $1,565 in 2023 compared to 2022 due to higher compensation costs.

Amortization of purchased intangible assets decreased $13,708 in 2023 compared to 2022 as the customer backlog purchased intangible asset was fully amortized in 2022.

Operating income increased $17,445 in 2023 compared to 2022 due to the factors discussed above.

Adjusted EBITDA increased in 2023 due to the factors discussed above. See “Use of Non-GAAP Financial Measures” above for explanation of the use of Adjusted EBITDA, a non-GAAP measure. The following is a reconciliation of the most directly comparable GAAP measure to Adjusted EBITDA.

DynaEnergetics

Net sales increased $50,699 in 2023 compared to 2022 due to higher North American drilling and well completions, which led to increased demand for DS perforating systems. International sales also increased by 28%, which favorably impacted 2023 results.

Gross profit percentage decreased to 27.5% primarily due to an unfavorable customer mix.

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General and administrative expenses decreased by $3,821 compared with 2022 primarily due to lower patent infringement litigation costs of $3,019 and depreciation expense of $533.

Selling and distribution expenses increased by $4,884 compared with 2022 primarily due to increases in marketing costs of $1,609, bad debt expense of $1,371, compensation costs of $831, freight and other supplies expense of $790, and business-related travel of $112.

Restructuring expenses, net and asset impairments increased $3,011 for the year ended December 31, 2023 compared with 2022 due to $1,140 of cost reduction initiatives, primarily employee severance, and an asset impairment charge of $1,871 associated with the abandonment of a software asset.

Operating income increased by $7,298 compared with 2022 due primarily to increased gross profit.

Adjusted EBITDA increased in 2023 compared with 2022 primarily due to the factors discussed above. See "Use of Non-GAAP Financial Measures" above for explanation of the use of Adjusted EBITDA, a non-GAAP measure. The following is a reconciliation of the most directly comparable GAAP measure to Adjusted EBITDA.

NobelClad

Net sales increased $15,021 in 2023 compared with 2022 due primarily to higher activity in core energy and petrochemical end markets, including increased pressure vessel plate shipments.

Gross profit percentage increased to 31.9% in 2023 due to a more favorable project and regional mix, as well as the impact of higher sales on fixed manufacturing overhead expenses.

General and administrative expenses decreased by $495 compared with 2022 due to lower outside services costs driven by a decrease in ERP system implementation costs.

Selling and distribution expenses increased by $589 compared with 2022 due primarily to higher compensation costs of $787, partially offset by a decrease in depreciation of $105 and bad debt expense of $61.

Restructuring expenses, net and asset impairments increased by $258 compared with 2022 due to the impairment of a manufacturing asset that was removed from production.

Operating income increased $11,438 compared to 2022 primarily due to an increase in gross profit.

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Adjusted EBITDA increased due to the factors discussed above. See "Use of Non-GAAP Financial Measures" above for explanation of the use of Adjusted EBITDA, a non-GAAP measure. The following is a reconciliation of the most directly comparable GAAP measure to Adjusted EBITDA.

Liquidity and Capital Resources

We have historically financed our operations from a combination of internally generated cash flow, revolving credit borrowings, and various long-term debt arrangements. Our net debt position was $72,192 at December 31, 2023 compared to $107,654 at December 31, 2022. The decrease was driven by $17,500 in Term Loan payments in 2023 and $12,471 of investments in marketable securities. We have a fully undrawn $50,000 revolving credit facility at December 31, 2023.

On October 22, 2020, we commenced an at-the-market equity ("ATM") program under a shelf registration statement filed in May 2020 under which we have sold a total of 1,006,180 shares of common stock for net proceeds of $51,002 since inception. There was no ATM activity for the years ended December 31, 2023 and 2022.

In May 2021, the Company completed a registered public offering of its stock under an automatic shelf registration statement on Form S-3ASR filed on May 3, 2021, issuing a total of 2,875,000 shares of its common stock, which included the exercise of the over-allotment option, at a market price of $45 per share resulting in gross proceeds of $129,375. Net proceeds from the offering were $123,461 after deducting underwriter fees and other expenses of $5,914. We used proceeds from the ATM program and the registered public offering as part of the consideration used to acquire our 60% controlling interest in Arcadia Products.

In 2023, the Company completed a shelf registration statement on Form S-3, which became effective on March 31, 2023, for the potential offering of securities not to exceed $200,000. We have not issued shares under this registration statement as of December 31, 2023. We may in the future seek to reengage under an at-the-market offering program or otherwise access the capital markets, but there can be no assurance that any future capital will be available on acceptable terms or at all.

We believe that cash and cash equivalents and marketable securities on hand, cash flow from operations, funds available under our credit facilities and any future replacement thereof will be sufficient to fund the working capital, required minimum debt service payments, and other capital expenditure requirements of our current business operations for the foreseeable future. We may also execute capital markets transactions, including at-the-market offering programs, to raise additional funds if we believe market conditions are favorable, but there can be no assurance that any future capital will be available on acceptable terms or at all. Nevertheless, our ability to generate sufficient cash flows from operations will depend upon our success in executing our strategies. If we are unable to (i) realize sales from our backlog; (ii) secure new customer orders; (iii) continue selling products at profitable margins; and (iv) continue to implement cost-effective internal processes, our ability to meet cash requirements through operating activities could be impacted. Furthermore, any restriction on the availability of borrowings under our credit facilities could negatively affect our ability to meet future cash requirements. We will continue to monitor financial market conditions, including the related impact on credit availability and capital markets.

Debt facilities

On December 23, 2021, in connection with the Arcadia Products acquisition, we entered into a five-year $200,000 syndicated credit agreement (“credit facility”) which included a $150,000 Term Loan (the "Term Loan"), which is amortizable at 10% of principal per year with a balloon payment for the outstanding balance upon the credit facility maturity date in 2026, and allows for revolving loans of up to $50,000. The credit facility is secured by the assets of DMC including accounts receivable, inventory, and fixed assets, including Arcadia Products and its subsidiary, as well as guarantees and share pledges by DMC and its subsidiaries.

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Borrowings under the $150,000 Term Loan and $50,000 revolving loan limit can be in the form of Adjusted Daily Simple Secured Overnight Financing Rate ("SOFR") loans or one month Adjusted Term SOFR loans. Additionally, U.S. dollar borrowings on the revolving loan can be in the form of Base Rate loans (Base Rate borrowings are based on the greater of the administrative agent’s prime rate, an adjusted Federal Funds rate or an adjusted SOFR rate). SOFR loans bear interest at the applicable SOFR rate plus an applicable margin (varying from 1.50% to 3.00%). Base Rate loans bear interest at the defined Base rate plus an applicable margin (varying from 0.50% to 2.00%).

The credit facility includes various covenants and restrictions, certain of which relate to the payment of dividends or other distributions to stockholders; redemption of capital stock; incurrence of additional indebtedness; mortgaging, pledging or disposition of major assets; and maintenance of specified ratios. As of December 31, 2023, we were in compliance with all financial covenants and other provisions of our debt agreements.

The leverage ratio is defined in the credit facility as the ratio of Consolidated Funded Indebtedness (as defined in the credit facility) on the last day of any trailing four quarter period to Consolidated Pro Forma EBITDA (as defined in the credit facility) for such period. Consolidated Pro Forma EBITDA equals Adjusted EBITDA as calculated within the Consolidated Results of Operations section plus certain predefined add-backs. The maximum leverage ratio permitted by our credit facility is 3.00 to 1.0 from the quarter ended December 31, 2023 and thereafter. The actual leverage ratio as of December 31, 2023, calculated in accordance with the credit facility, as amended, was 1.25 to 1.0.

The debt service coverage ratio is defined in the credit facility as the ratio of Consolidated Pro Forma EBITDA less the sum of capital distributions paid in cash (other than those made with respect to preferred stock issued under the Operating Agreement), Consolidated Unfunded Capital Expenditures (as defined in the credit facility), and net cash income taxes to the sum of cash interest expense, any dividends on the preferred stock paid in cash, and scheduled principal payments on funded indebtedness. Under our credit facility, the minimum debt service coverage ratio permitted is 1.35 to 1.0. The actual debt service coverage ratio for the trailing twelve months ended December 31, 2023 was 3.05 to 1.0.

As of December 31, 2023, borrowings of $117,500 on the Term Loan under our credit facility were outstanding. No amounts were outstanding on the $50,000 revolver as of December 31, 2023.

We also maintain a line of credit with a German bank for certain European operations. This line of credit provides a borrowing capacity of €7,000 on which no amounts were outstanding as of December 31, 2023.

Refer to Note 14 within Item 8 — Financial Statements and Supplementary Data for discussion of the credit facility amendment executed subsequent to December 31, 2023. The credit facility amendment was executed, in part, with the intention to provide the Company with the financial flexibility to purchase the remaining interest in Arcadia Products.

Redeemable noncontrolling interest

The Operating Agreement for Arcadia Products contains a right for the Company to purchase the remaining interest in Arcadia Products from the minority interest holder on or after the third anniversary of the acquisition closing date (“Call Option”). Similarly, the minority interest holder of Arcadia Products has the right to sell its remaining interest in Arcadia Products to the Company on or after the third anniversary of the acquisition closing date (“Put Option”). Both the Call Option and Put Option enable the respective holder to exercise their rights based upon a predefined calculation as included within the Operating Agreement.

As of December 31, 2023, the redeemable noncontrolling interest is $187,760 in comparison to our previous estimate at December 31, 2022 of $187,522. Upon settlement, consideration paid will be net of the $24,902 promissory note outstanding due from the redeemable noncontrolling interest holder. Refer to Note 2 within Item 8 — Financial Statements and Supplementary Data for further information related to the valuation of the redeemable noncontrolling interest and promissory note outstanding.

Other contractual obligations and commitments

The table below presents principal cash flows by expected maturity dates for our debt obligations and other contractual obligations and commitments as of December 31, 2023:

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(1)  Represents outstanding borrowings under our credit facility but excludes future interest expense on outstanding credit facility borrowings. For more information about our debt obligations, refer to Note 6 "Debt" within Item 8 — Financial Statements and Supplementary Data.

(2) The operating lease obligations presented reflect future minimum lease payments due under non-cancelable portions of our leases as of December 31, 2023. Our operating lease obligations are described in Note 5 "Leases" within Item 8 — Financial Statements and Supplementary Data.

(3)  Amounts represent firm commitments to purchase goods or services to be utilized in the normal course of business. These amounts are not reflected in the Consolidated Balance Sheets.

(4) The above table does not include amounts potentially payable upon exercise of the Put Option or Call Option associated with the redeemable noncontrolling interest.

Cash flows from operating activities

Net cash provided by operating activities was $65,927 in 2023 compared to $44,936 in 2022. The increase primarily was due to higher net income. Specifically, the NobelClad and DynaEnergetics business segments experienced increases in operating income of $11,438 and $7,298, respectively. The improved financial performance was driven by higher activity levels in each segment's core end markets. Additionally, working capital impacts on operating cash flows improved in 2023 as compared to 2022.

Cash flows from investing activities

Net cash used in investing activities in 2023 of $28,101 primarily related to the acquisition of property, plant and equipment of $15,974 and investments in marketable securities of $12,471.

Net cash used in investing activities in 2022 was $20,926 and primarily related to the acquisition of property, plant and equipment of $18,584 and consideration adjustments related to the acquisition of Arcadia Products of $2,404.

Cash flows from financing activities

Net cash used in financing activities in 2023 totaled $33,182, which included payments on our Term Loan of $17,500, distributions to the redeemable noncontrolling interest holder of $13,515, and treasury stock purchases of $2,481.

Net cash used in financing activities in 2022 totaled $28,510, which included payments on our Term Loan of $15,000, distributions to the redeemable noncontrolling interest holder of $12,300, and treasury stock purchases of $1,231.

Payment of dividends

Any determination to pay cash dividends is at the discretion of the Board of Directors. On April 23, 2020, DMC announced that its Board of Directors suspended the quarterly dividend indefinitely. Future dividends may be affected by, among other items, our views on potential future capital requirements, future business prospects, debt covenant compliance considerations, changes in income tax laws, and any other factors that our Board of Directors deems relevant.

Critical Accounting Estimates

Our Consolidated Financial Statements contain information that is pertinent to management’s discussion and analysis of results of operations and financial condition. Preparation of financial statements in conformity with generally accepted

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accounting principles in the United States requires that management make estimates, judgments and assumptions that affect the amounts reported for revenues, expenses, assets, liabilities, and other related disclosures.

Our critical accounting estimates, described below, are important to the portrayal of our results of operations and financial condition. Management’s judgments and estimates in these areas are based on information available and at times requires management to make difficult, subjective, and complex judgments. Actual results may or may not differ from these estimates.

Inventories

Inventories are stated at the lower-of-cost (first-in, first-out) or net realizable value. Significant cost elements included in inventory are raw materials, labor, freight, subcontract costs, and manufacturing overhead. As necessary, we write down inventory to its net realizable value by recording provisions for excess, slow moving and obsolete inventory. To determine provision amounts, we regularly review inventory quantities on hand and values, and compare them to estimates of future product demand, market conditions, production requirements and technological developments. If assumptions about future demand change and/or actual market conditions are less favorable than those projected by the Company, additional write-downs of inventories may be required.

Goodwill

Goodwill represents the amount by which the purchase price exceeds the fair value of identifiable tangible and intangible assets and liabilities acquired in a business combination. Goodwill acquired in a business combination and determined to have an indefinite useful life is not amortized, but instead is tested for impairment at least annually during the fourth quarter or whenever events or changes in circumstances indicate that the carrying value might not be fully recoverable. For goodwill, impairment is assessed at the reporting unit level. A reporting unit is defined as an operating segment or a component of an operating segment to the extent discrete financial information is available that is reviewed by segment management. The Company's reporting units are each of the three operating segments disclosed in Note 10 within Item 8 — Financial Statements and Supplementary Data.

To test goodwill for impairment, we first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. For the qualitative assessment, we consider macroeconomic and market conditions, cost factors, financial performance and other relevant entity-specific events. If we conclude that it is more likely than not that the fair value of a reporting unit is less than its carrying value during the qualitative assessment, then we quantitatively estimate the fair value of the reporting unit and compare the estimated fair value to its carrying value. Based on the results of the quantitative assessment, if the carrying value exceeds the fair value of the reporting unit, an impairment loss is recognized for the difference.

The assumptions used in a quantitative assessment require significant judgment, which include assumptions about future economic conditions and company-specific conditions and plans. In the Company's quantitative assessment, we estimate the fair value of a reporting unit by using the income approach, specifically a discounted cash flow analysis. A number of assumptions and estimates are required in performing the discounted cash flow analysis, including forecasts of revenues, gross profits, capital expenditures, discount rates, working capital changes, and terminal growth rates. Actual results may differ from those assumed in the forecasts.

As of December 31, 2023, the carrying value of goodwill was $141,725 and relates entirely to the Arcadia Products operating segment and reporting unit. As of the date of the 2023 annual impairment test, we performed a quantitative assessment and concluded that the fair value of the Arcadia Products reporting unit exceeded its carrying value by approximately 10%. Discount rates are one of the more significant assumptions used in the income approach. If the Company increased the discount rate used by approximately 100 basis points, the fair value of Arcadia Products would still exceed its carrying value. A sustained decline in general economic conditions, activity levels in end markets or equity valuations could impact the judgments and assumptions used to estimate the fair value of Arcadia Products, and the Company could be required to record an impairment charge in the future. If the Company was required to recognize an impairment charge in the future, the Consolidated Balance Sheets and Consolidated Statements of Operations and Comprehensive Income (Loss) could be materially impacted; however, the non-cash charge would not impact the Company's consolidated cash flows, current liquidity, and capital resources.

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Asset impairments

Finite-lived assets, including purchased intangible assets, property, plant and equipment, and right-of-use assets, are tested for impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable. We compare the expected undiscounted future operating cash flows associated with applicable assets or asset groupings to their respective carrying values to determine if they are fully recoverable when indicators of impairment are present. If the expected future operating cash flows of an asset or asset grouping are not sufficient to recover the related carrying value, we estimate the fair value of the asset or asset grouping. Impairment is recognized when the carrying amount of the asset or asset grouping is not recoverable and when carrying value exceeds the estimated fair value.

The net carrying value of our purchased intangible assets as of December 31, 2023 was $195,260 and includes $195,215 of purchased intangible assets related to Arcadia Products. The net carrying values of our property, plant and equipment and right-of-use assets as of December 31, 2023 were $129,267 and $45,409, respectively. During the year ended December 31, 2023, we recorded impairment charges on our property, plant and equipment of $2,471. The impairment charges included $1,871 related to the abandonment of a software asset at DynaEnergetics and $440 attributable to a manufacturing asset in NobelClad that was removed from production.

Income taxes

We recognize deferred tax assets and liabilities for the expected future income tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities. Deferred tax assets are recognized for the expected future effects of all deductible temporary differences to the extent we believe these assets will more likely than not be realized. We record a valuation allowance when, based on current circumstances, it is more likely than not that all or a portion of the deferred tax assets will not be realized. In making such determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies, recent financial performance and existing valuation allowances, if any. As of December 31, 2023, we have a valuation allowance of $6,167 recorded against deferred tax assets primarily in our foreign jurisdictions.

We recognize the tax benefits from uncertain tax positions only when it is more likely than not, based on the technical merits of the position, that the tax position will be sustained upon examination, including the resolution of any related appeals or litigation. The tax benefits recognized in the Consolidated Financial Statements from such a position are measured as the largest benefit that is more likely than not to be realized upon ultimate resolution. As of December 31, 2023, we have an uncertain tax position liability of $5,017 recorded in our Consolidated Balance Sheet related to tax positions taken in prior periods.

Off Balance Sheet Arrangements

At December 31, 2023, we had no off-balance sheet arrangements, as defined by SEC rules, that have or are reasonably likely to have a material current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Recent Accounting Pronouncements

Refer to Note 2 "Significant Accounting Policies" within Part II, Item 8 — Financial Statements and Supplementary Data in this annual report for a discussion, as applicable, of recent accounting pronouncements and their anticipated effect on our business.

ITEM 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our historical Consolidated Financial Statements and notes included elsewhere in this annual report. A discussion regarding our financial condition and results of operations as well as our liquidity and capital resources for fiscal 2021 compared to fiscal 2020 can be found under Item 7 in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, which is available on the SEC’s website at www.sec.gov and our Investor Relations website at www.dmcglobal.com/investors.

Unless stated otherwise, all dollar figures in this report are presented in thousands (000s). N/M indicates that the change in dollars or percentage was not meaningful.

Overview

General

DMC Global Inc. (“DMC”, "we", "us", "our", or the "Company") owns and operates Arcadia, DynaEnergetics and NobelClad, three innovative, asset-light manufacturing businesses that provide differentiated products and engineered solutions to niche segments of the construction, energy, industrial processing and transportation markets. Each of our businesses provides a unique suite of highly engineered products and differentiated solutions, and each has established a leadership position in its respective market. Our businesses seek to capitalize on their product and service differentiation to grow market share, expand profit margins, increase cash flow and enhance shareholder value.

Our businesses follow a clear and compelling strategy and are led by excellent leadership teams that we support with business resources and capital. We take a focused approach to capital allocation and work with our business leaders to identify investments that will advance their operating strategies and generate attractive returns. Our approach helps our portfolio companies grow their core businesses, launch new initiatives, upgrade technologies and systems, expand their markets and improve their competitive positions. Our culture is to foster local innovation versus centralized control. Based in Broomfield, Colorado, DMC trades on Nasdaq under the symbol “BOOM.”

Arcadia

On December 23, 2021, DMC completed the acquisition of 60% of the membership interests in Arcadia Products, LLC, a Colorado limited liability company resulting from the conversion of Arcadia, Inc. (collectively, “Arcadia”). Arcadia supplies architectural building products, including exterior and interior framing systems, curtain walls, windows, doors, and interior partitions to the commercial construction market; it also supplies customized windows and doors to the high-end residential construction market.

Cost of products sold for Arcadia includes the cost of aluminum, paint, and other raw materials used to manufacture windows, curtain walls, doors, and interior partitions as well as employee compensation and benefits, manufacturing facility lease expense, depreciation expense of property, plant and equipment related to manufacturing, supplies and other manufacturing overhead expenses.

DynaEnergetics

DynaEnergetics designs, manufactures and distributes highly engineered products utilized by the global oil and gas industry principally for the perforation of oil and gas wells. These products are sold to oilfield service companies in the U.S., Europe, Canada, Africa, the Middle East, and Asia. DynaEnergetics also sells directly to end-users. The market for perforating products, which are used during the well completion process, generally corresponds with oil and gas exploration and production activity. Well completion operations are increasingly complex, which in turn has increased the demand for intrinsically-safe, reliable and technically advanced perforating systems.

Cost of products sold for DynaEnergetics includes the cost of metals, explosives and other raw materials used to manufacture shaped charges, detonating products and perforating guns as well as employee compensation and benefits, depreciation of manufacturing facilities and equipment, manufacturing supplies and other manufacturing overhead expenses.

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NobelClad

NobelClad produces explosion-welded clad metal plates for use in the construction of corrosion resistant industrial processing equipment, as well as specialized transition joints for use in construction of commuter rail cars, ships, and LNG processing equipment. While a significant portion of the demand for our products is driven by maintenance and retrofit projects at existing chemical processing, petrochemical processing, oil refining, and aluminum smelting facilities, new plant construction and large plant expansion projects also account for a significant portion of total demand. These industries tend to be cyclical in nature and timing of new order inflow remains difficult to predict. We use backlog as a primary means to measure the immediate outlook for our NobelClad business. We define “backlog” at any given point in time as all firm, unfulfilled purchase orders and commitments at that time. Most firm purchase orders and commitments are realized, and we expect to ship most orders in our backlog within twelve months. NobelClad's backlog increased to $55,451 at December 31, 2022 from $41,181 at December 31, 2021.

Cost of products sold for NobelClad includes the cost of metals, explosive powders and other raw materials used to manufacture clad metal plates as well as employee compensation and benefits, outside processing costs, depreciation of manufacturing equipment, manufacturing facility lease expense, supplies and other manufacturing overhead expenses.

Employee Retention Credit

In 2021, pursuant to legislation enacted in December 2020, the Company became eligible for the Employee Retention Credit (“ERC”) under the Coronavirus Aid, Relief, and Economic Security Act, as amended (“CARES Act”). As a result of the new legislation, the Company was able to claim a refundable tax credit equal to 70% of the qualified wages it paid to employees for portions of calendar year 2021. The ERC favorably impacted the financial statement results of the Company for the year ended December 31, 2021 as described further in the “Consolidated Results of Operations” section below. The ERC had no impact on the financial statement results of the Company for the year ended December 31, 2022.

Factors Affecting Results

•Consolidated net sales were $654,086. Excluding Arcadia, 2022 sales were $354,559, an increase of 36% versus 2021. The improved performance primarily was driven by higher energy prices and a growing reliance on North American oil and gas, which led to increased drilling and well completion activity in North America and increased sales at DynaEnergetics.

•Arcadia reported sales of $299,527 in 2022. Sales performance was largely attributable to higher customer pricing in response to higher base aluminum metal prices experienced throughout a significant portion of 2022, as well as increases in other input costs.

•DynaEnergetics' sales of $264,327 in 2022 increased 51% compared with 2021 due to improved oil and gas demand, which led to higher North American drilling and well completions, and increased demand and improved pricing for DynaEnergetics’ DS perforating systems. DynaEnergetics’ international sales also improved, increasing 35% compared with 2021.

•NobelClad’s sales of $90,232 in 2022 increased 6% compared with 2021. Net sales improved due to project mix that resulted in higher sales prices, which exceeded declines observed in 2022 project volume. The increase in NobelClad 2022 sales was partially offset by the weakening of the Euro compared to the U.S. Dollar.

•Consolidated gross profit of 28% in 2022 increased from 23% in 2021. The improvement compared to the prior year was due in part to the impact of higher sales volume, primarily increases in unit sales of DS perforating systems at DynaEnergetics, on fixed manufacturing overhead expenses. The acquisition of Arcadia also contributed to the improved performance. These favorable impacts were partially offset by higher material and other input costs at each business segment. Additionally, 2021 gross profit was favorably impacted by the receipt of $4,899 pursuant to the ERC.

•Consolidated selling, general, and administrative ("SG&A") expenses were $118,349 in 2022 compared with $58,783 in 2021. Arcadia’s incremental selling, general and administrative expenses were $48,056 in 2022. The year-over-year increase also was attributable to higher headcount and salaries, benefits, and other-payroll related costs including variable incentive compensation, higher stock-based compensation expense, and increased business travel. Additionally, SG&A in 2021 included receipt of $2,264 pursuant to the ERC.

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•Cash and cash equivalents of $25,144 at December 31, 2022 decreased $5,666 from $30,810 at December 31, 2021. The decrease in cash primarily related to principal and interest payments on the Company’s credit facility and funding working capital at DynaEnergetics and Arcadia. Both businesses increased their investments in inventory due to rising raw material prices, longer-lead times and continued sales volume growth.

•Net debt, a non-GAAP measure, of $107,654 (comprised of $132,798 of total debt less $25,144 in cash and cash equivalents) at December 31, 2022 decreased $8,961 from $116,615 at December 31, 2021. The decrease was driven by $15,000 in Term Loan payments in 2022.

Outlook

We remain in a period of volatile raw material and other input costs as well as continued supply chain disruptions and challenges. Each of our businesses has been and may continue to be impacted by volatility of raw material prices, the availability of labor, increased wages, and supply chain disruptions such as longer lead times related to the procurement of raw materials.

In North America, well completion activity continued to increase in the fourth quarter of 2022, which positively impacted activity levels of DynaEnergetics’ end customers. These conditions, along with the attainment of higher market share, have led to continued increases in unit sales of DynaEnergetics’ fully integrated and factory-assembled DS perforating systems. We believe well completion activity and customer pricing will remain resilient. DynaEnergetics instituted price increases throughout 2022 to offset higher labor and material costs, and additional price increases are expected in 2023. DynaEnergetics offers a highly differentiated product line, and its factory-assembled DS perforating systems are delivered just in time to the well site, eliminating customer assembly operations and requiring fewer people on location.

DynaEnergetics has made significant investments in technologies and products that have improved the safety, efficiency and performance of its customers’ well completions, and enhanced the effectiveness and profitability of the industry as a whole. Our patent strategy is designed to protect these investments and our competitive position. In the past several years, we have engaged in lawsuits seeking to enforce our patents and defend against accusations of infringement of others’ patents. These lawsuits have increased our general and administrative expenses in recent years; however, we expect these costs to be substantially lower in 2023.

Arcadia serves the commercial building market primarily in the western and southwestern United States as well as the high-end residential market across the United States. Both commercial and residential operations have built substantial order backlogs and are benefiting from relatively strong markets, which collectively are expected to lead to improved financial performance in the first half of 2023. In addition, we expect the building products industry to remain resilient, particularly in Arcadia’s core geographic regions and end markets. We expect new finishing capacity to be installed in 2023 which will increase manufacturing throughput. The design and implementation of phase one of a new enterprise resource planning system is nearing completion and will improve operating efficiencies and enhance the buying experience for Arcadia’s commercial and residential customers.

NobelClad, DMC’s composite metals business, is seeing encouraging signs that several large industrial projects are moving closer to the vendor-selection phase. In addition, demand for repair and maintenance work from the downstream energy and petrochemical industries is also improving. Our backlog was $55,451 as of December 31, 2022 in comparison to $41,181 million as of December 31, 2021. We expect to ship most orders in our backlog within twelve months.

On January 17, 2023, the Company announced the appointment of Michael Kuta and David Aldous as interim co-Presidents and Chief Executive Officers. In connection with this leadership change, near-term priorities are expected to include the acceleration of Arcadia’s integration, strengthening the profitability of DynaEnergetics, achieving commercial success with new products introduced in NobelClad, and improving the Company’s overall cash flow through more effective working capital management and targeted cost reductions.

Use of Non-GAAP Financial Measures

Adjusted EBITDA is a non-GAAP (generally accepted accounting principles) measure that we believe provides an important indicator of our ongoing operating performance and that we use in operational and financial decision-making. We define EBITDA as net income or loss plus or minus net interest, taxes, depreciation and amortization. Adjusted EBITDA excludes from EBITDA stock-based compensation, restructuring expenses and asset impairment charges and, when appropriate, nonrecurring items that management does not utilize in assessing DMC’s operating performance (as further described in the

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tables below). Adjusted EBITDA attributable to DMC Global Inc. stockholders excludes the adjusted EBITDA attributable to the 40% redeemable noncontrolling interest in Arcadia. For our business segments, Adjusted EBITDA is defined as operating income (loss) plus depreciation, amortization, allocated stock-based compensation, restructuring expenses and asset impairment charges and, when appropriate, nonrecurring items that management does not utilize in assessing operating performance. As a result, internal management reports used during monthly operating reviews feature Adjusted EBITDA and certain management incentive awards are based, in part, on the amount of Adjusted EBITDA achieved during the year.

Adjusted net income (loss) is defined as net income (loss) attributable to DMC Global Inc. stockholders plus restructuring expenses and asset impairment charges and, when appropriate, nonrecurring items that management does not utilize in assessing DMC’s operating performance. Adjusted diluted earnings per share is defined as diluted earnings per share attributable to DMC Global Inc. stockholders (exclusive of adjustment of redeemable noncontrolling interest) plus restructuring expenses and asset impairment charges and, when appropriate, other nonrecurring items that management does not utilize in assessing DMC’s operating performance.

Adjusted net income (loss) and adjusted diluted earnings per share are presented because management believes these measures are useful to understand the effects of restructuring, impairment, and other nonrecurring charges on DMC’s net income (loss) and diluted earnings per share, respectively.

Net debt is a non-GAAP measure we use to supplement information in our Consolidated Financial Statements. We define net debt as total debt less total cash and cash equivalents. In addition to conventional measures prepared in accordance with GAAP, the Company uses this information to evaluate its performance, and we believe that certain investors may do the same.

The presence of non-GAAP financial measures in this report is not intended to suggest that such measures be considered in isolation or as a substitute for, or as superior to, DMC’s GAAP information, and investors are cautioned that the non-GAAP financial measures are limited in their usefulness. Given that not all companies use identical calculations, DMC’s presentation of non-GAAP financial measures may not be comparable to similarly titled measures of other companies.

Forward-Looking Statements

This annual report and the documents incorporated by reference into it contain certain forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigations Reform Act of 1995. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “may,” “will,” “continue,” “project,” “forecast,” and similar expressions, as well as statements in the future tense, identify forward-looking statements. Such statements include statements regarding our future expectations and plans with respect to: well completion activity and customer pricing within DynaEnergetics, DynaEnergetics’ ability to implement future price increases, decreased litigation costs within DynaEnergetics in 2023, positive developments with respect to large industrial projects and improvements in repair and maintenance work within NobelClad, the ability of Arcadia to realize sales under it backlog and the expectation of improved financial performance for Arcadia in the first half of 2023, the resiliency of the building products market, the timing of new finishing capacity and benefits to be realized from the new ERP system in Arcadia, our near term priorities of accelerating the integration of Arcadia, strengthening profitability of DynaEnergetics, achieving commercial success with new NobelClad products and improving overall cash flow, our financing plans, our future liquidity position and factors impacting such position.

These forward-looking statements are not guarantees of our future performance and are subject to risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward-looking statements. These risks and uncertainties include those relating to:

•Changes in global economic conditions;

•The ability to obtain new contracts at attractive prices;

•The size and timing of customer orders and shipments;

•Product pricing and margins;

•Our ability to realize sales from our backlog and our ability to adjust our manufacturing and supply chain;

•Fluctuations in customer demand;

•Our ability to manage periods of growth and contraction effectively;

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•General economic conditions, both domestic and foreign, impacting our business and the business of the end-market users we serve;

•Competitive factors;

•The timely completion of contracts;

•The timing and size of expenditures;

•The timely receipt of government approvals and permits;

•The price and availability of metal and other raw materials;

•The adequacy of local labor supplies at our facilities;

•Current or future limits on manufacturing capacity at our various operations;

•The impact of catastrophic weather events on our business and that of our customers;

•Our ability to successfully integrate Arcadia and any future acquired businesses;

•The ability to remain an innovative leader in our fields of business;

•The costs and impacts of pending or future litigation or regulatory matters;

•Changes to legislation, regulation or public sentiment related to our business and the industries in which our customers operate;

•The impacts of trade and economic sanctions or other restrictions imposed by the European Union, the United States or other countries;

•Costs and risks associated with compliance with laws and regulations, including the United States Foreign Corrupt Practices Act (“FCPA”) and similar legislation;

•The availability and cost of funds; and

•Fluctuations in foreign currencies.

The effects of these factors are difficult to predict. New factors emerge from time to time, and we cannot assess the potential impact of any such factor on our business or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statement. All forward-looking statements speak only as of the date of this annual report, and we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of such statement or to reflect the occurrence of unanticipated events. In addition, see “Risk Factors” for a discussion of these and other factors that could materially affect our results of operations and financial condition.

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Consolidated Results of Operations

Net sales were $654,086. Excluding Arcadia, net sales were $354,559 for the twelve months ended December 31, 2022, an increase of 36% compared with 2021, primarily due to increased drilling and well completion activity in North America and a corresponding increase in unit sales of DynaEnergetics' DS perforating systems.

Gross profit percentage was 28.4%. Excluding Arcadia, gross profit percentage was 27.4% versus 22.9% in 2021. The improvement compared to prior year was primarily attributable to higher unit sales volume of DS perforating systems in DynaEnergetics, which led to improved absorption of fixed manufacturing overhead expenses. Additionally, 2021 gross profit was favorably impacted by the receipt of $4,899 pursuant to the ERC.

General and administrative expenses increased $39,843 compared with 2021. Arcadia contributed $31,259 to the increase. The remainder of the increase was due to higher headcount and salaries, benefits, and other-payroll related costs including variable incentive compensation of $3,959, higher business-related travel of $1,816, an increase in stock-based compensation of $1,509, and the expiration of the 2021 ERC which contributed $1,028 of benefit in the prior year.

Selling and distribution expenses increased $19,723 compared with 2021. Arcadia contributed $16,184 to the increase. The remainder of the increase was attributable to the expiration of the 2021 ERC which contributed $1,236 of benefit in the prior year, higher salaries, benefits, and other payroll related costs including variable incentive compensation of $793, increased lease and selling expense of $811, and higher business-related travel of $528.

Acquisition expenses were $1,581 in 2021 and primarily included legal, accounting, and due diligence expenses in connection with our acquisition of a 60% controlling interest in Arcadia. We did not incur acquisition expenses in 2022.

Operating income of $29,990 increased $32,392 compared with 2021. The improved performance was primarily attributable to an increase of $30,820 in DynaEnergetics' operating income. Operating loss for 2021 of $2,402 was also favorably impacted by receipt of $7,163 pursuant to the ERC.

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Other expense, net of $594 in 2022 primarily related to net realized and unrealized foreign currency exchange losses. Foreign currency exchange gains and losses can arise when subsidiaries enter into inter-company and third-party transactions that are denominated in currencies other than their functional currency, including foreign currency forward contracts used to offset foreign exchange rate fluctuations on certain foreign currency denominated asset and liability positions.

Interest expense, net of $6,187 in 2022 increased compared with 2021 due to the principal balance outstanding on the credit facility entered into in December 2021 in conjunction with the Arcadia acquisition, as well as an increase in interest rates during 2022.

Income tax provision of $9,376 was recorded on income before taxes of $23,209. Our most significant operations are in the United States, which has a 21% statutory tax rate, and Germany, which has a 32% combined statutory tax rate. The mix of income or loss before income taxes between these jurisdictions is one of the primary drivers of the difference between our 21% statutory tax rate and our effective tax rate of 40.4% in 2022. The effective rate was impacted unfavorably by the geographic mix of pretax income, state taxes, stock-based compensation shortfalls, and certain compensation expenses that are not tax deductible in the U.S. The operating results of Arcadia that are attributable to the redeemable noncontrolling interest holder are not taxed at DMC, which resulted in a favorable impact to the effective tax rate. We recorded an income tax benefit of $1,544 on loss before income taxes of $2,554 in 2021. The 2021 effective tax rate was impacted favorably by valuation allowance changes in France, Germany, and the U.S. and by benefits from the vesting of equity-based compensation.

Net income attributable to DMC Global Inc. in 2022 was $12,247, or $0.72 per diluted share, after adjustment to the redeemable noncontrolling interest, compared with net loss of $202, or $0.26 per diluted share, in 2021.

Adjusted EBITDA increased compared with 2021 due to the factors discussed above. See "Use of Non-GAAP Financial Measures" above for explanation of the use of Adjusted EBITDA, a non-GAAP measure. The following is a reconciliation of the most directly comparable GAAP measure to Adjusted EBITDA.

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Adjusted Net Income and Adjusted Diluted Earnings Per Share increased compared with 2021 due to the factors discussed above. See "Use of Non-GAAP Financial Measures" above for explanation of the use of non-GAAP measures. The following is a reconciliation of the most directly comparable GAAP measures to Adjusted Net Income and Adjusted Diluted Earnings Per Share.

(1) Calculated using diluted weighted average shares outstanding of 19,369,165

(1) Calculated using diluted weighted average shares outstanding of 17,610,711

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Business Segment Financial Information

We primarily evaluate performance and allocate resources based on segment revenues, operating income and Adjusted EBITDA as well as projected future performance. Segment operating income is defined as revenues less expenses identifiable to the segment. DMC operating income and Adjusted EBITDA include unallocated corporate expenses and unallocated stock-based compensation expense. Stock-based compensation is not allocated to wholly owned segments, DynaEnergetics and NobelClad. Stock-based compensation is allocated to the Arcadia segment as 60% of such expense is attributable to the Company, whereas the remaining 40% is attributable to the redeemable noncontrolling interest holder. Segment operating income will reconcile to consolidated income (loss) before income taxes by deducting unallocated corporate expenses, unallocated stock-based compensation, other income (expense), net, and interest expense, net.

Net sales, segment operating income, and Adjusted EBITDA for each segment were as follows for years ended December 31:

Arcadia