UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2022~~March 31, 2023

☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO .

Commission file number 001-14775

DMC GLOBAL INC.

(Exact name of Registrant as Specified in its Charter)


Delaware						84-0608431
(State of Incorporation or Organization)						(I.R.S. Employer Identification No.)

11800 Ridge Parkway, Suite 300, Broomfield, Colorado 80021

(Address of principal executive offices, including zip code)

(303) 665-5700

(Registrant’s telephone number, including area code)

Title of each class

Trading Symbol

Name of exchange on which registered

Common Stock, $0.05 Par Value

BOOM

The Nasdaq Global Select Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer ☒☐						Accelerated filer ☐☒

Non-accelerated filer ☐						Smaller reporting company ☐

						Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 under the Act). Yes ☐ No ☒

The number of shares of Common Stock outstanding was ~~19,529,644~~19,716,554 as of ~~November 3, 2022.~~April 28, 2023.

CAUTIONARY NOTE ABOUT FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q contains “forward-looking statements” within the meaning of section 27A of the Securities Act of 1933 and section 21E of the Securities Exchange Act of 1934. We intend the forward-looking statements throughout this quarterly report on Form 10-Q to be covered by the safe harbor provisions for forward-looking statements. Statements contained in this report which are not historical facts are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from projected results. These statements can sometimes be identified by our use of forward-looking words such as “may,” “believe,” “plan,” “anticipate,” “estimate,” “expect,” “intend,” and other phrases of similar meaning. Such statements include expectations regarding the resiliency of DynaEnergetics’ end markets and customer pricing, ~~planned~~potential price increases at DynaEnergetics, ~~DynaEnergetics’ ability to benefit~~anticipated profit margin improvements resulting from ~~strengthening prices, projected growth~~changes in manufacturing processes and the introduction of new products in DynaEnergetics, the resiliency in Arcadia’s core geographic regions and end markets, plans to install ~~new~~additional finishing capacity and targets for such lines to be operational, the expected timing and benefits of the completion of phase one of the new enterprise resource planning system at Arcadia, projected increases in demand at NobelClad, our backlog at NobelClad, our ability to access our at-the-market offerings or the capital markets in the future, the ~~ability~~completion of ~~DynaEnergetics to realize~~ the ~~anticipated benefits of its patent strategy and expected continuing litigation costs,~~search process for our next Chief Executive Officer, expected material and labor cost trends, the availability of funds to support our liquidity position and our expected future liquidity position. The forward-looking information is based on information available as of the date of this quarterly report and on numerous assumptions and developments that are not within our control. Although we believe that our expectations as expressed in these forward-looking statements are reasonable, we cannot assure you that our expectations will turn out to be correct. Factors that could cause actual results to differ materially include, but are not limited to, those factors referenced in our Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022 and such things as the following: geopolitical and economic instability, including recessions or depressions; inflation; supply chain delays and disruptions; the availability and cost of energy; transportation disruptions; 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; fluctuations in customer demand; fluctuations in foreign currencies; 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, aluminum, and other raw materials; fluctuations in tariffs or quotas; changes in laws and regulations, both domestic and foreign, impacting our business and the business of the end-market users we serve; the adequacy of local labor supplies at our facilities; current or future limits on manufacturing capacity at our various operations; our ability to successfully integrate ~~Arcadia and future-acquired businesses;~~Arcadia; the impact of pending or future litigation or regulatory matters; the availability and cost of funds; our ability to access our borrowing capacity under our credit facility or access the capital markets; global economic conditions; and wars, terrorism and armed conflicts. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s analysis only as of the date hereof. We undertake no obligation to publicly release the results of any revision to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

INDEX


		Page
PART I - FINANCIAL INFORMATION

Item 1	Condensed Consolidated Financial Statements	4

	Condensed Consolidated Balance Sheets as of SeMarch 31 ~~pte~~, 202 ~~mber 30,~~3 ~~2022~~ (unaudited) and December 31, ~~2021~~202 2	4
	Condensed Consolidated Statements of Operations for the three ~~and~~ ~~nine~~ months ended SeMarch 31, 202 ~~pte~~3 ~~mber~~ and 202 ~~30, 2022 and 2021~~2 (unaudited)	5
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the three ~~and~~ ~~nine~~ months ended SeMarch 31, 202 p3 and 2022 t ~~ember~~ ~~30, 2022 and 2021~~ (unaudited)	6
	Condensed Consolidated Statements of Stockholders’ Equity and Redeemable Noncontrolling Interest for the three ~~and~~ ~~nine~~ months ended ~~September~~ March 31, 2023 and 2022 ~~30, 2022 and 2021~~ (unaudited)	7
	Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended SMarch 31 ~~eptember~~, 20 ~~30, 2022~~ 23 and ~~2021~~202 2 (unaudited)	109
	Notes to Condensed Consolidated Financial Statements (unaudited)	1110

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2623

Item 3	Quantitative and Qualitative Disclosure about Market Risk	4232

Item 4	Controls and Procedures	4232

PART II - OTHER INFORMATION

Item 1	Legal Proceedings	4333

Item 1A	Risk Factors	4333

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	4333

Item 3	Defaults Upon Senior Securities	4433

Item 4	Mine Safety Disclosures	4433

Item 5	Other Information	4433

Item 6	Exhibits	4433

	Signatures	4534

Table of Contents

Part I - FINANCIAL INFORMATION

ITEM 1. Condensed Consolidated Financial Statements

DMC GLOBAL INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in Thousands, Except Share and Per Share Data)
September 30, 2022 December 31, 2021
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 18,486 $ 30,810
Accounts receivable, net of allowance for doubtful accounts of $3,361 and $2,773, respectively 94,191 71,932
Inventories 152,573 124,214
Prepaid expenses and other 9,977 12,240
Total current assets 275,227 239,196
Property, plant and equipment 199,540 191,022
Less - accumulated depreciation (76,248) (68,944)
Property, plant and equipment, net 123,292 122,078
Goodwill 139,922 141,266
Purchased intangible assets, net 221,753 255,576
Deferred tax assets 7,887 6,930
Other assets 97,028 99,366
Total assets $ 865,109 $ 864,412
LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST, AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 41,573 $ 40,276
Accrued expenses 9,575 13,585
Accrued income taxes 3,206 9
Accrued employee compensation and benefits 15,535 9,766
Contract liabilities 30,030 21,052
Current portion of long-term debt 15,000 15,000
Other current liabilities 6,994 6,126
Total current liabilities 121,913 105,814
Long-term debt 121,409 132,425
Deferred tax liabilities 1,547 2,202
Other long-term liabilities 62,625 66,250
Total liabilities 307,494 306,691
Commitments and contingencies (Note 12)
Redeemable noncontrolling interest 194,962 197,196
Stockholders’ equity
Preferred stock, $0.05 par value; 4,000,000 shares authorized; no issued and outstanding shares — —
Common stock, $0.05 par value; 50,000,000 shares authorized; 20,127,679 and 19,920,829 shares issued, respectively 1,007 996
Additional paid-in capital 301,003 294,515
Retained earnings 115,016 111,031
Other cumulative comprehensive loss (33,801) (26,538)
Treasury stock, at cost, and company stock held for deferred compensation, at par; 597,822 and 570,415 shares, respectively (20,572) (19,479)
Total stockholders’ equity 362,653 360,525
Total liabilities, redeemable noncontrolling interest, and stockholders’ equity $ 865,109 $ 864,412


	March 31, 2023		December 31, 2022
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	19,647	$	25,144

Accounts receivable, net of allowance for doubtful accounts of $772 and $925, respectively	109,332		94,415
Inventories	179,545		156,590
Prepaid expenses and other	17,069		10,723


Total current assets	325,593		286,872
Property, plant and equipment	214,243		211,277
Less - accumulated depreciation	(85,448)		(81,832)
Property, plant and equipment, net	128,795		129,445
Goodwill	141,725		141,725

Purchased intangible assets, net	212,258		217,925
Deferred tax assets	7,669		7,633
Other assets	87,963		95,378
Total assets	$	904,003	$	878,978

LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST, AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	71,408	$	46,816
Accrued expenses	11,099		8,415


Accrued income taxes	5,837		4,256
Accrued employee compensation and benefits	14,586		14,441
Contract liabilities	31,198		32,080
Current portion of long-term debt	15,000		15,000
Other current liabilities	12,823		7,042

Total current liabilities	161,951		128,050
Long-term debt	111,686		117,798

Deferred tax liabilities	2,122		1,908
Other long-term liabilities	58,445		63,053
Total liabilities	334,204		310,809
Commitments and contingencies (Note 11)
Redeemable noncontrolling interest	187,522		187,522
Stockholders’ equity
Preferred stock, $0.05 par value; 4,000,000 shares authorized; no issued and outstanding shares	—		—
Common stock, $0.05 par value; 50,000,000 shares authorized; 20,399,461 and 20,140,654 shares issued, respectively	1,020		1,007
Additional paid-in capital	308,675		303,893
Retained earnings	124,986		125,215
Other cumulative comprehensive loss	(27,989)		(28,758)
Treasury stock, at cost, and company stock held for deferred compensation, at par; 682,907 and 605,723 shares, respectively	(24,415)		(20,710)


Total stockholders’ equity	382,277		380,647
Total liabilities, redeemable noncontrolling interest, and stockholders’ equity	$	904,003	$	878,978

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

Table of Contents

DMC GLOBAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in Thousands, Except Share and Per Share Data)

(unaudited)


		Three months ended September 30,				Nine months ended September 30,					Three months ended March 31,
		2022		2021		2022		2021			2023		2022
Net sales	Net sales	$	174,465	$	67,175	$	479,012	$	188,271	Net sales	$	184,341	$	138,716
Cost of products sold	Cost of products sold	123,127		50,513		338,669		141,725		Cost of products sold	132,130		101,810
Gross profit	Gross profit	51,338		16,662		140,343		46,546		Gross profit	52,211		36,906
Costs and expenses:	Costs and expenses:									Costs and expenses:
General and administrative expenses	General and administrative expenses	19,796		9,721		56,330		26,121		General and administrative expenses	26,500		17,718
Selling and distribution expenses	Selling and distribution expenses	10,748		5,593		31,383		16,380		Selling and distribution expenses	12,824		10,090
Amortization of purchased intangible assets	Amortization of purchased intangible assets	7,385		211		33,154		823		Amortization of purchased intangible assets	5,667		12,976

Restructuring expenses	Restructuring expenses	8		—		53		127		Restructuring expenses	—		32

Total costs and expenses	Total costs and expenses	37,937		15,525		120,920		43,451		Total costs and expenses	44,991		40,816
Operating income		13,401		1,137		19,423		3,095
Other income (expense):
Other income (expense), net		120		(198)		(35)		304
Operating income (loss)										Operating income (loss)	7,220		(3,910)
Other expense:										Other expense:
Other expense, net										Other expense, net	(200)		(209)
Interest expense, net	Interest expense, net	(1,771)		(14)		(4,058)		(230)		Interest expense, net	(2,381)		(1,024)
Income before income taxes		11,750		925		15,330		3,169
Income tax provision		3,537		522		4,938		610
Income (loss) before income taxes										Income (loss) before income taxes	4,639		(5,143)
Income tax provision (benefit)										Income tax provision (benefit)	2,500		(863)

Net income		$	8,213	$	403	$	10,392	$	2,559
Less: Net income attributable to redeemable noncontrolling interest		1,496		—		1,411		—
Net income attributable to DMC Global Inc. stockholders		$	6,717	$	403	$	8,981	$	2,559
Net income (loss)										Net income (loss)	$	2,139	$	(4,280)
Less: Net income (loss) attributable to redeemable noncontrolling interest										Less: Net income (loss) attributable to redeemable noncontrolling interest	1,230		(992)
Net income (loss) attributable to DMC Global Inc. stockholders										Net income (loss) attributable to DMC Global Inc. stockholders	$	909	$	(3,288)

Net income per share attributable to DMC Global Inc. stockholders:
Net loss per share attributable to DMC Global Inc. stockholders:										Net loss per share attributable to DMC Global Inc. stockholders:
Basic	Basic	$	0.46	$	0.02	$	0.20	$	0.15	Basic	$	(0.01)	$	(0.47)
Diluted	Diluted	$	0.46	$	0.02	$	0.20	$	0.15	Diluted	$	(0.01)	$	(0.47)
Weighted average shares outstanding:	Weighted average shares outstanding:									Weighted average shares outstanding:
Basic	Basic	19,381,489		18,728,278		19,352,638		17,239,306		Basic	19,462,636		19,301,126
Diluted	Diluted	19,381,794		18,739,085		19,357,333		17,250,525		Diluted	19,462,636		19,301,126

Reconciliation to net income (loss) attributable to DMC Global Inc. stockholders after adjustment of redeemable noncontrolling interest for purposes of calculating earnings per share

Three months ended September 30, Nine months ended September 30,
2022 2021 2022 2021
Net income attributable to DMC Global Inc. stockholders $ 6,717 $ 403 $ 8,981 $ 2,559
Adjustment of redeemable noncontrolling interest 2,256 — (4,996) —
Net income attributable to DMC Global Inc. common stockholders after adjustment of redeemable noncontrolling interest $ 8,973 $ 403 $ 3,985 $ 2,559


	Three months ended March 31,
	2023		2022
Net income (loss) attributable to DMC Global Inc. stockholders	$	909	$	(3,288)
Adjustment of redeemable noncontrolling interest	(1,138)		(5,717)
Net loss attributable to DMC Global Inc. stockholders after adjustment of redeemable noncontrolling interest	$	(229)	$	(9,005)

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

Table of Contents

DMC GLOBAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Amounts in Thousands)

(unaudited)


		Three months ended September 30,				Nine months ended September 30,					Three months ended March 31,
		2022		2021		2022		2021			2023		2022
Net income		$	8,213	$	403	$	10,392	$	2,559
Net income (loss)										Net income (loss)	$	2,139	$	(4,280)

Change in cumulative foreign currency translation adjustment	Change in cumulative foreign currency translation adjustment	(3,472)		(1,347)		(7,263)		(2,841)		Change in cumulative foreign currency translation adjustment	769		(1,204)
Other comprehensive income (loss)	Other comprehensive income (loss)	$	4,741	$	(944)	$	3,129	$	(282)	Other comprehensive income (loss)	$	2,908	$	(5,484)

Less: comprehensive income attributable to redeemable noncontrolling interest		1,496		—		1,411		—
Less: comprehensive income (loss) attributable to redeemable noncontrolling interest										Less: comprehensive income (loss) attributable to redeemable noncontrolling interest	1,230		(992)

Comprehensive income (loss) attributable to DMC Global Inc. stockholders	Comprehensive income (loss) attributable to DMC Global Inc. stockholders	$	3,245	$	(944)	$	1,718	$	(282)	Comprehensive income (loss) attributable to DMC Global Inc. stockholders	$	1,678	$	(4,492)

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

Table of Contents

DMC GLOBAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND REDEEMABLE NONCONTROLLING INTEREST

(Amounts in Thousands, Except Share Data)

(unaudited)

Other Treasury Stock, at cost, and Total Redeemable
Additional Cumulative Company Stock Held for DMC Global Inc. Non-
Common Stock Paid-In Retained Comprehensive Deferred Compensation, at par Stockholders’ Controlling
Shares Amount Capital Earnings Loss Shares Amount Equity Interest
Balances, June 30, 2022 20,119,929 $ 1,006 $ 298,905 $ 106,043 $ (30,329) (597,758) $ (20,570) $ 355,055 $ 197,196
Net income — — — 6,717 — — — 6,717 1,496
Change in cumulative foreign currency translation adjustment — — — — (3,472) — — (3,472) —
Shares issued in connection with stock compensation plans 7,750 1 (1) — — — — — —
Consideration adjustment related to redeemable noncontrolling interest (Note 3) — — — — — — — — 1,783
Stock-based compensation — — 2,099 — — — — 2,099 143
Distribution to redeemable noncontrolling interest holder — — — — — — — — (3,400)
Adjustment of redeemable noncontrolling interest to redemption value — — — 2,256 — — — 2,256 (2,256)
Treasury stock activity — — — — — (64) (2) (2) —
Balances, September 30, 2022 20,127,679 $ 1,007 $ 301,003 $ 115,016 $ (33,801) (597,822) $ (20,572) $ 362,653 $ 194,962

Other Treasury Stock, at cost, and Total
Additional Cumulative Company Stock Held for DMC Global Inc.
Common Stock Paid-In Retained Comprehensive Deferred Compensation, at par Stockholders’
Shares Amount Capital Earnings Loss Shares Amount Equity
Balances, June 30, 2021 19,294,745 $ 965 $ 269,375 $ 117,813 $ (24,456) (569,737) $ (17,660) $ 346,037
Net income — — — 403 — — — 403
Change in cumulative foreign currency translation adjustment — — — — (1,347) — — (1,347)
Stock-based compensation — — 1,618 — — — 1,618
Treasury stock activity — — — — — (177) (1,811) (1,811)
Balances, September 30, 2021 19,294,745 $ 965 $ 270,993 $ 118,216 $ (25,803) (569,914) $ (19,471) $ 344,900


								Other		Treasury Stock, at cost, and			Total		Redeemable
				Additional				Cumulative		Company Stock Held for			DMC Global Inc.		Non-
	Common Stock			Paid-In		Retained		Comprehensive		Deferred Compensation, at par			Stockholders’		Controlling
	Shares	Amount		Capital		Earnings		Loss		Shares	Amount		Equity		Interest
Balances, December 31, 2022	20,140,654	$	1,007	$	303,893	$	125,215	$	(28,758)	(605,723)	$	(20,710)	$	380,647	$	187,522
Net income	—	—		—		909		—		—	—		909		1,230
Change in cumulative foreign currency translation adjustment	—	—		—		—		769		—	—		769		—


Shares issued in connection with stock compensation plans	258,807	13		(13)		—		—		—	—		—		—



Distribution to redeemable noncontrolling interest holder	—	—		—		—		—		—	—		—		(2,600)
Stock-based compensation	—	—		4,795		—		—		—	—		4,795		232
Adjustment of redeemable noncontrolling interest	—	—		—		(1,138)		—		—	—		(1,138)		1,138

Treasury stock activity	—	—		—		—		—		(77,184)	(3,705)		(3,705)		—

Balances, March 31, 2023	20,399,461	$	1,020	$	308,675	$	124,986	$	(27,989)	(682,907)	$	(24,415)	$	382,277	$	187,522

Table of Contents

DMC GLOBAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND REDEEMABLE NONCONTROLLING INTEREST

(Amounts in Thousands, Except Share Data)

(unaudited)

Other Treasury Stock, at cost, and Total Redeemable
Additional Cumulative Company Stock Held for DMC Global Inc. Non-
Common Stock Paid-In Retained Comprehensive Deferred Compensation, at par Stockholders’ Controlling
Shares Amount Capital Earnings Loss Shares Amount Equity Interest
Balances, December 31, 2021 19,920,829 $ 996 $ 294,515 $ 111,031 $ (26,538) (570,415) $ (19,479) $ 360,525 $ 197,196
Net income — — — 8,981 — — — 8,981 1,411
Change in cumulative foreign currency translation adjustment — — — — (7,263) — — (7,263) —
Shares issued in connection with stock compensation plans 206,850 11 (11) — — — — — —
Consideration adjustments related to redeemable noncontrolling interest (Note 3) — — — — — — — — 1,356
Stock-based compensation — — 6,499 — — — — 6,499 403
Distribution to redeemable noncontrolling interest holder — — — — — — — — (10,400)
Adjustment of redeemable noncontrolling interest to redemption value — — — (4,996) — — — (4,996) 4,996
Treasury stock activity — — — — — (27,407) (1,093) (1,093) —
Balances, September 30, 2022 20,127,679 $ 1,007 $ 301,003 $ 115,016 $ (33,801) (597,822) $ (20,572) $ 362,653 $ 194,962

~~Table of Contents~~

~~DMC GLOBAL INC.~~

~~CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND REDEEMABLE NONCONTROLLING INTEREST~~

~~(Amounts in Thousands, Except Share Data)~~

~~(unaudited)~~

Other Treasury Stock, at cost, and Total
Additional Cumulative Company Stock Held for DMC Global Inc.
Common Stock Paid-In Retained Comprehensive Deferred Compensation, at par Stockholders’
Shares Amount Capital Earnings Loss Shares Amount Equity
Balances, December 31, 2020 15,917,559 $ 796 $ 117,387 $ 115,657 $ (22,962) (528,274) (13,964) $ 196,914
Net income — — — 2,559 — — — 2,559
Change in cumulative foreign currency translation adjustment — — — — (2,841) — — (2,841)
Shares issued in connection with equity offering 2,875,000 144 123,317 — — — — 123,461
Shares issued in connection with at-the-market offering program 397,820 20 25,242 — — — — 25,262
Shares issued in connection with stock compensation plans 104,366 5 248 — — — — 253
Stock-based compensation — — 4,799 — — — 4,799
Treasury stock activity — — — — — (41,640) (5,507) (5,507)
Balances, September 30, 2021 19,294,745 $ 965 $ 270,993 $ 118,216 $ (25,803) (569,914) $ (19,471) $ 344,900


								Other		Treasury Stock, at cost, and			Total		Redeemable
				Additional				Cumulative		Company Stock Held for			DMC Global Inc.		Non-
	Common Stock			Paid-In		Retained		Comprehensive		Deferred Compensation, at par			Stockholders’		Controlling
	Shares	Amount		Capital		Earnings		Loss		Shares	Amount		Equity		Interest
Balances, December 31, 2021	19,920,829	$	996	$	294,515	$	111,031	$	(26,538)	(570,415)	(19,479)		$	360,525	$	197,196
Net loss	—	—		—		(3,288)		—		—	—		(3,288)		(992)
Change in cumulative foreign currency translation adjustment	—	—		—		—		(1,204)		—	—		(1,204)		—


Shares issued in connection with stock compensation plans	163,443	8		(8)		—		—		—	—		—		—

Consideration adjustment related to redeemable noncontrolling interest	—	—		—		—		—		—	—		—		(427)

Distribution to redeemable noncontrolling interest holder	—	—		—		—		—		—	—		—		(4,400)

Stock-based compensation	—	—		2,267		—		—		—	—		2,267		102


Adjustment of redeemable noncontrolling interest	—	—		—		(5,717)		—		—	—		(5,717)		5,717
Treasury stock activity	—	—		—		—		—		(16,773)	(1,088)		(1,088)		—
Balances, March 31, 2022	20,084,272	$	1,004	$	296,774	$	102,026	$	(27,742)	(587,188)	$	(20,567)	$	351,495	$	197,196

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements

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DMC GLOBAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in Thousands)

(unaudited)


		Nine months ended September 30,					Three months ended March 31,
		2022		2021			2023		2022
Cash flows provided by (used in) operating activities:	Cash flows provided by (used in) operating activities:					Cash flows provided by (used in) operating activities:
Net income		$	10,392	$	2,559
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Net income (loss)						Net income (loss)	$	2,139	$	(4,280)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:						Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Depreciation	Depreciation	10,578		8,400		Depreciation	3,400		3,359
Amortization of purchased intangible assets	Amortization of purchased intangible assets	33,154		823		Amortization of purchased intangible assets	5,667		12,976
Amortization of deferred debt issuance costs	Amortization of deferred debt issuance costs	412		168		Amortization of deferred debt issuance costs	138		132
Amortization of acquisition-related inventory valuation step-up	Amortization of acquisition-related inventory valuation step-up	430		—		Amortization of acquisition-related inventory valuation step-up	—		258
Stock-based compensation	Stock-based compensation	6,891		4,904		Stock-based compensation	5,027		2,358

Deferred income taxes	Deferred income taxes	(1,612)		(2,046)		Deferred income taxes	178		(2,714)

Other	Other	(295)		(298)		Other	(405)		41
Restructuring expenses		53		127

Change in:	Change in:					Change in:
Accounts receivable, net	Accounts receivable, net	(24,421)		(8,562)		Accounts receivable, net	(14,664)		(7,480)
Inventories	Inventories	(31,311)		(10,620)		Inventories	(22,678)		(19,877)
Prepaid expenses and other	Prepaid expenses and other	3,736		(15,892)		Prepaid expenses and other	1,131		(2,324)
Accounts payable	Accounts payable	2,925		6,861		Accounts payable	24,336		7,162
Contract liabilities	Contract liabilities	9,277		4,957		Contract liabilities	(906)		5,968

Accrued expenses and other liabilities	Accrued expenses and other liabilities	4,126		6,713		Accrued expenses and other liabilities	3,702		(163)
Net cash provided by (used in) operating activities	Net cash provided by (used in) operating activities	24,335		(1,906)		Net cash provided by (used in) operating activities	7,065		(4,584)

Cash flows used in investing activities:	Cash flows used in investing activities:					Cash flows used in investing activities:

Consideration adjustments related to acquisition of business (Note 3)		(2,034)		—
Investment in marketable securities		—		(123,984)
Proceeds from maturities of marketable securities		—		4,799

Acquisition of property, plant and equipment	Acquisition of property, plant and equipment	(11,277)		(6,348)		Acquisition of property, plant and equipment	(2,226)		(1,536)

Proceeds on sale of property, plant and equipment		—		1,019

Net cash used in investing activities	Net cash used in investing activities	(13,311)		(124,514)		Net cash used in investing activities	(2,226)		(1,536)

Cash flows (used in) provided by financing activities:
Cash flows used in financing activities:						Cash flows used in financing activities:

Repayments on term loan	Repayments on term loan	(11,250)		—		Repayments on term loan	(6,250)		(3,750)
Repayments on capital expenditure facility		—		(11,750)

Payments of debt issuance costs		(179)		—

Payment of debt issuance costs						Payment of debt issuance costs	—		(97)
Distributions to redeemable noncontrolling interest holder	Distributions to redeemable noncontrolling interest holder	(10,293)		—		Distributions to redeemable noncontrolling interest holder	(2,600)		(4,400)
Net proceeds from issuance of common stock through equity offering		—		123,461
Net proceeds from issuance of common stock through at-the-market offering program		—		25,262
Net proceeds from issuance of common stock to employees and directors		—		253

Treasury stock purchases	Treasury stock purchases	(1,092)		(2,476)		Treasury stock purchases	(2,157)		(1,088)

Net cash (used in) provided by financing activities		(22,814)		134,750
Net cash used in financing activities						Net cash used in financing activities	(11,007)		(9,335)

Effects of exchange rates on cash	Effects of exchange rates on cash	(534)		503		Effects of exchange rates on cash	671		21

Net (decrease) increase in cash and cash equivalents		(12,324)		8,833
Net decrease in cash and cash equivalents						Net decrease in cash and cash equivalents	(5,497)		(15,434)
Cash and cash equivalents, beginning of the period	Cash and cash equivalents, beginning of the period	30,810		28,187		Cash and cash equivalents, beginning of the period	25,144		30,810
Cash and cash equivalents, end of the period	Cash and cash equivalents, end of the period	$	18,486	$	37,020	Cash and cash equivalents, end of the period	$	19,647	$	15,376

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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DMC GLOBAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in Thousands, Except Share and Per Share Data)

(unaudited)

1. BASIS OF PRESENTATION

The information included in the Condensed Consolidated Financial Statements is unaudited but includes all normal and recurring adjustments which, in the opinion of management, are necessary for a fair presentation of the interim periods presented. Certain information and footnote disclosures, including critical and significant accounting policies normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles, have been condensed or omitted for this quarterly presentation. These Condensed Consolidated Financial ~~statements~~Statements should be read in conjunction with the financial statements that are included in our Annual Report filed on Form 10-K for the year ended December 31, ~~2021.~~2022.

2. SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The Condensed Consolidated Financial Statements include the accounts of DMC Global Inc. (“DMC”, “we”, “us”, “our”, or the “Company”) and its controlled subsidiaries. Only subsidiaries in which controlling interests are maintained are consolidated. All ~~significant~~ intercompany accounts, profits, and transactions have been eliminated in consolidation.

Accounts ~~and Notes~~ Receivable

The Company measures expected credit losses for its accounts receivable using a current expected credit loss model, which is based on historical experience, adjusted for current conditions and reasonable and supportable forecasts. The Company has disaggregated pools of accounts receivable balances by business, geography and/or customer risk profile and has used history and other experience to establish an allowance for credit losses at the time the receivable is recognized. To measure expected credit losses, we have elected to pool trade receivables by business segment and analyze each segment’s accounts receivable balances as separate populations. Within each segment, receivables exhibit similar risk characteristics.

During the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, our expected loss rate reflects uncertainties in market conditions ~~that could impact~~present in our businesses, including ~~COVID-19 related considerations,~~ supply chain disruptions, rising interest rates, as well as global geopolitical and economic instability. In addition, we reviewed receivables outstanding, including aged balances, and in circumstances where we are aware of a specific customer’s inability to meet its financial obligation to us, we recorded a specific allowance ~~for credit losses (with~~against the amounts due, reducing the net receivable recognized to the amount we estimate will be collected. The offsetting expense for allowances recorded is charged to “Selling and distribution expenses” in our Condensed Consolidated Statements of ~~Operations) against the amounts due, reducing the net recognized receivable to the amount we estimate will be collected.~~Operations. During the three ~~and nine~~ months ended ~~September 30, 2022, provisions~~March 31, 2023, net recoveries of ~~$568 and $696, respectively,~~$154 were recorded.

The following table summarizes year-to-date activity in the allowance for credit losses on receivables from customers in each of our business segments:


		Arcadia		DynaEnergetics		NobelClad		DMC Global Inc.			Arcadia		DynaEnergetics		NobelClad		DMC Global Inc.
Allowance for doubtful accounts, December 31, 2021		$	—	$	2,758	$	15	$	2,773
Allowance for doubtful accounts, December 31, 2022										Allowance for doubtful accounts, December 31, 2022	$	244	$	603	$	78	$	925

Current period provision for expected credit losses	Current period provision for expected credit losses	$	584	97		62		743		Current period provision for expected credit losses	—		32		—		32
Write-offs charged against the allowance				(97)		—		(97)

Recoveries of amounts previously reserved	Recoveries of amounts previously reserved	$	—	(47)		—		(47)		Recoveries of amounts previously reserved	(184)		(2)		—		(186)
Impacts of foreign currency exchange rates and other	Impacts of foreign currency exchange rates and other	$	—	(6)		(5)		(11)		Impacts of foreign currency exchange rates and other	—		1		—		1
Allowance for doubtful accounts, September 30, 2022		$	584	$	2,705	$	72	$	3,361
Allowance for doubtful accounts, March 31, 2023										Allowance for doubtful accounts, March 31, 2023	$	60	$	634	$	78	$	772

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Redeemable noncontrolling interest

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”). The limited liability company operating agreement for Arcadia (the “Operating Agreement”) contains a right for the Company to purchase the remaining interest in Arcadia 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 has the right to sell its remaining interest in Arcadia 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.

The Company initially accounted for the noncontrolling interest at its acquisition date fair value. We determined that neither the Call Option nor the Put Option meet the definition of a derivative as the Operating Agreement does not allow for contractual net settlement, the options cannot be settled outside the Operating Agreement through a market mechanism, and the underlying shares are deemed illiquid as they are not publicly traded and thus not considered readily convertible to cash. Additionally, the settlement price for both options is based upon a predefined calculation tied to adjusted earnings rather than a fixed price, and the formula is based upon a multiple of Arcadia’s average adjusted earnings over a three-year period. As such, we have concluded that the Call Option and Put Option are embedded within the noncontrolling interest and therefore do not represent freestanding instruments.

Given that the noncontrolling interest is subject to possible redemption with redemption rights that are not entirely within the control of the Company, we have concluded that the noncontrolling interest should be accounted for in accordance with ASC 480 Distinguishing Liabilities from Equity ("ASC 480"). The noncontrolling interest is also probable of redemption, as the only criteria for the security to become redeemable is the passage of time. As such, the redeemable noncontrolling interest is classified in temporary equity, separate from the stockholders’ equity section, in the Condensed Consolidated Balance Sheets.

At each balance sheet date subsequent to acquisition, two separate calculations must be performed to determine the value of the redeemable noncontrolling interest. First, the redeemable noncontrolling interest must be accounted for in accordance with ASC 810 Consolidation (“ASC 810”) whereby income (loss) and cash distributions attributable to the redeemable noncontrolling interest holder are ascribed. After this occurs, applicable provisions of ASC 480 must be considered to determine whether any further adjustment is necessary to increase the carrying value of the redeemable noncontrolling interest. An adjustment would only be necessary if the estimated settlement amount of the redeemable noncontrolling interest, per the terms of the Operating Agreement, exceeds the carrying value calculated in accordance with ASC 810. If such adjustment is required, the impact is immediately recorded to retained earnings and therefore does not impact the Condensed Consolidated Statements of Operations or Comprehensive Income (Loss). As of March 31, 2023 and December 31, 2022, the redeemable noncontrolling interest is $187,522.

Promissory Note

In order to equalize after-tax consideration to the redeemable noncontrolling interest holder relative to an alternative transaction structure, immediately following the closing of the acquisition, the Company loaned $24,902 to the redeemable noncontrolling interest holder. The loan was evidenced by an unsecured promissory note, and the loan will be repaid out of proceeds from the sale of the redeemable noncontrolling interest holder’s interests in Arcadia, whether received upon exercise of the Put Option, the Call Option or upon sales to third parties permitted under the terms of the Operating Agreement. The loan must be repaid in full by December 16, 2051 and has been recorded within “Other Assets”in the Condensed Consolidated Balance Sheets.

Revenue Recognition

The Company’s revenues are primarily derived from consideration paid by customers for tangible goods. The Company analyzes its different ~~goods~~products by business segment to determine the appropriate basis for revenue recognition. Revenue is not generated from sources other than contracts with customers, and revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities. There are no material upfront costs for operations that are incurred from contracts with customers.

Our rights to payments for goods transferred to customers within our DynaEnergetics and NobelClad business segments arise when control is transferred at a point in time and not on any other criteria. Our rights to payments for goods transferred to customers within our Arcadia business segment also generally arise when control is transferred at a point in time; however, at times, control of certain customized, project-based products passes to the customer over time. Payment terms and conditions vary by contract, although terms generally include a requirement of payment within 30 to 90 days across all of our segments. In

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instances when we require customers to make advance payments prior to the shipment of their orders, we record a contract liability. We have determined that our contract liabilities do not include a significant financing component given the short duration between order initiation and order fulfillment within each of our segments. Refer to Note ~~6 "Contract Liabilities" for further information on contract liabilities and Note 10~~9 "Business Segments" for disaggregated revenue disclosures.

See additional revenue recognition policy disclosures specific to ~~the DynaEnergetics and NobelClad~~each of our business segments within our Annual Report filed on Form 10-K for the year ended December 31, ~~2021.~~

~~Arcadia~~

Customers agree to terms and conditions at the time of initiating an order. A significant portion of transactions contain standard architectural building materials that are not made-to-order, which include standard storefronts and entrances, windows, curtain walls, doors and interior partitions. In instances where multiple products are included within an order, each product represents a separate performance obligation given that: (1) the customer can benefit from each product on a standalone basis and (2) each product is distinct within the context of the contract.

The transaction price is readily determinable and fixed at the time the transaction is entered into with the customer. Arcadia is entitled to each product’s transaction price upon the customer obtaining control of the item. For standard architectural building materials that are not made-to-order, such control transfers at a point in time, which is generally when the product has been shipped to the customer and the legal title has been transferred. Upon shipment and title transfer, Arcadia has performed its contractual requirements such that it has a present right to payment, and the customer from that point forward bears all risks and rewards of ownership. In addition, at this date, the customer has the ability to direct the use of, or restrict access to, the asset. Payment discounts, rebates, refunds, or any other forms of variable consideration are typically not granted to Arcadia customers.

For contracts that contain only one performance obligation, the total transaction price is allocated to the sole performance obligation. For contracts which contain multiple distinct performance obligations, judgment is required to determine the standalone selling price (“SSP”) for each performance obligation. However, such judgment is largely mitigated given that standard architectural building materials purchased are generally shipped at the same time. In instances where products purchased are not shipped at the same time, Arcadia uses the ~~contractually stated price to determine SSP as this price approximates the price of each good as sold separately.~~

At times, Arcadia will also contract with customers to supply customized architectural building materials based on design specifications, measurements, finishes, framing materials, and other options selected by the customer at the time an order is initiated. For these contracts, Arcadia has an enforceable right to payment from its customers at the time an order is received and accepted for all manufacturing efforts expended on behalf of its customers. Due to the customized nature of these products, the Company has concluded that the substantial portion of the related goods produced have no alternative use, and therefore control of these products passes to the customer over time. We have concluded that recognizing revenue utilizing an over-time output method based upon units delivered reasonably depicts the fulfillment of our performance obligations under our contracts and the value received by the customer based upon our performance to date. This conclusion is further supported by the frequency of shipments in fulfilling these contracts. We have elected not to disclose our unsatisfied performance obligations as of September 30, 2022 under the short-term contract exemption as we expect such performance obligations will be satisfied within the next 12 months following the end of the reporting period.

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Billings for customized architectural building materials occur at times upon delivery, but also can occur via pre-established billing schedules agreed upon at the commencement of the contract. Therefore, we frequently generate contract liabilities in instances when we have billed the customer in excess of revenue recognized for units delivered.2022.

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 ~~basis~~bases of assets and liabilities. Any effects of changes in income tax rates or tax laws are included in the provision for income taxes in the period of enactment. The deferred income tax impact of tax credits isare recognized as an immediate adjustment to income tax expense. We recognize deferred tax assets 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 operations and their associated valuation allowances, if any.

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 itthe 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~~Condensed 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. We recognize interest and penalties related to uncertain tax positions in operating expense.

Earnings Per Share

In periods with net income, the Company computes earnings per share (“EPS”) using a two-class method, which is an earnings allocation formula that determines EPS for (i) each class of common stock (the Company has a single class of common stock), and (ii) participating securities according to dividends declared and participation rights in undistributed earnings. Restricted stock awards are considered participating securities in periods of net income as they receive non-forfeitable rights to dividends as common stock. Restricted stock awards do not participate in net losses.

Basic EPS is calculated by dividing net income (loss) attributable to the Company’s stockholders after adjustment of redeemable noncontrolling interest by the ~~weighted average~~weighted-average number of common shares outstanding during the period. Net income (loss) available to common shareholders of the Company includes any adjustment to the redeemable noncontrolling interest value as of the end of the period presented. Refer to ~~Note 3 "Business Combination"~~"Redeemable noncontrolling interest" section above for further discussion of the calculation of the adjustment of the redeemable noncontrolling ~~interest to redemption value as of the end of the period presented.~~interest. Diluted EPS adjusts basic EPS for the effects of restricted stock awards, restricted stock units, performance share units and other potentially dilutive financial instruments (dilutive securities), only in the periods in which such effect is dilutive. The effect of the dilutive securities is reflected in diluted EPS by application of the more dilutive of (1) the treasury stock method or (2) the two-class method. ~~For the applicable periods presented, diluted EPS using the two-class method was more dilutive than the treasury stock method; as such, only the two-class method has been included below.~~

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		Three months ended September 30,				Nine months ended September 30,					Three months ended March 31,
		2022		2021		2022		2021			2023		2022
Net income attributable to DMC Global Inc. stockholders, as reported		$	6,717	$	403	8,981		2,559
Net income (loss) attributable to DMC Global Inc. stockholders, as reported										Net income (loss) attributable to DMC Global Inc. stockholders, as reported	$	909	$	(3,288)
Adjustment of redeemable noncontrolling interest	Adjustment of redeemable noncontrolling interest	2,256		—		(4,996)		—		Adjustment of redeemable noncontrolling interest	(1,138)		(5,717)

Less: Undistributed net income available to participating securities	Less: Undistributed net income available to participating securities	(136)		(3)		(61)		(25)		Less: Undistributed net income available to participating securities	—		—
Numerator for basic net income per share:		8,837		400		3,924		2,534
Numerator for basic net loss per share:										Numerator for basic net loss per share:	(229)		(9,005)
Add: Undistributed net income allocated to participating securities	Add: Undistributed net income allocated to participating securities	136		3		61		25		Add: Undistributed net income allocated to participating securities	—		—
Less: Undistributed net income reallocated to participating securities	Less: Undistributed net income reallocated to participating securities	(136)		(3)		(61)		(25)		Less: Undistributed net income reallocated to participating securities	—		—
Numerator for diluted net income per share:		8,837		400		3,924		2,534
Numerator for diluted net loss per share:										Numerator for diluted net loss per share:	(229)		(9,005)
Denominator:	Denominator:									Denominator:
Weighted average shares outstanding for basic net income per share		19,381,489		18,728,278		19,352,638		17,239,306
Weighted average shares outstanding for basic net loss per share										Weighted average shares outstanding for basic net loss per share	19,462,636		19,301,126
Effect of dilutive securities (1)	Effect of dilutive securities (1)	305		10,807		4,695		11,219		Effect of dilutive securities (1)	—		—
Weighted average shares outstanding for diluted net income per share		19,381,794		18,739,085		19,357,333		17,250,525
Net income per share attributable to DMC Global Inc. stockholders
Weighted average shares outstanding for diluted net loss per share										Weighted average shares outstanding for diluted net loss per share	19,462,636		19,301,126
Net loss per share attributable to DMC Global Inc. stockholders										Net loss per share attributable to DMC Global Inc. stockholders
Basic	Basic	$	0.46	$	0.02	$	0.20	$	0.15	Basic	$	(0.01)	$	(0.47)
Diluted	Diluted	$	0.46	$	0.02	$	0.20	$	0.15	Diluted	$	(0.01)	$	(0.47)

(1) ~~For~~Given we were in a net loss position after the adjustment of redeemable noncontrolling interest for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022, ~~128,145~~all potentially dilutive shares were anti-dilutive and ~~69,846 shares, respectively, have been~~were therefore excluded ~~as their effect would have been anti-dilutive.~~from the determination of diluted EPS.

Deferred ~~compensation~~Compensation Plan

The Company maintains a Non-Qualified Deferred Compensation Plan (the “Plan”) as part of its overall compensation package for certain employees. Participants are eligible to defer a portion of their annual salary, their annual incentive bonus, and their equity awards through the Plan on a tax-deferred basis. Deferrals into the Plan are not matched or subsidized by the Company, nor are they eligible for above-market or preferential earnings.

The Plan provides for deferred compensation obligations to be settled either by delivery of a fixed number of shares of DMC’s common stock or in cash, in accordance with participant contributions and elections. For deferred equity awards, subsequent to equity award vesting and after a period prescribed by the Plan, participants can elect to diversify contributions of equity awards into other investment options available to Plan participants. IfOnce diversified, ~~these~~such contributions will be ~~subsequently~~ settled by delivery of cash.

The Company has established a grantor trust commonly known as a “rabbi trust” and contributed certain assets to satisfy the future obligations to participants in the Plan. These assets are subject to potential claims of the Company’s general creditors. The assets held in the trust include unvested restricted stock awards (“RSAs”), vested company stock awards, company-owned life insurance (“COLI”) on certain employees, and money market and mutual funds. Unvested RSAs and common stock held by the trust are reflected in the Condensed Consolidated Balance Sheets within “Treasury stock, at cost, and company stock held for deferred compensation, at par” ~~and are recorded~~ at the par value of the common stock or unvested RSAs. These accounts are not adjusted for subsequent changes in the fair value of the common stock. COLI is accounted for at the cash surrender value while money market and mutual funds held by the trust are accounted for at fair value.

Deferred compensation obligations that will be settled in cash are accounted for on an accrual basis in accordance with the terms of the Plan. These obligations are adjusted based on changes in value of the underlying investment options chosen by Plan participants. Deferred compensation obligations that will be settled by delivery of a fixed number of previously vested shares of the Company’s common stock are reflected in the Condensed Consolidated Statements of Stockholders’ Equity and Redeemable Noncontrolling Interest within “Common stock” at the par value of the common stock or unvested RSAs. These accounts are not adjusted for subsequent changes in the fair value of the common stock.

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The balances related to the deferred compensation plan were as ~~follows:~~follows for the periods presented. The amount included within “Prepaid expenses and other” and “Other current liabilities” pertains to scheduled distributions per the terms of the Plan to our former Chief Executive Officer (“CEO”) that will occur within twelve months of March 31, 2023. Refer to Note 12 for additional information regarding the CEO transition.

Balance Sheet location September 30, 2022 December 31, 2021
Deferred compensation assets Other assets $ 13,337 $ 13,812
Deferred compensation obligations Other long-term liabilities $ 14,982 $ 15,944

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	Balance Sheet location	March 31, 2023		December 31, 2022
Deferred compensation assets	Prepaid expenses and other	$	5,798	$	—
Deferred compensation assets	Other assets	$	8,098	$	13,566
Deferred compensation obligations	Other current liabilities	$	5,798	$	—
Deferred compensation obligations	Other long-term liabilities	$	11,424	$	15,292

Fair Value of Financial Instruments

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We are required to use an established hierarchy for fair value measurements based upon the inputs to the valuation and the degree to which they are observable or not observable in the market. The three levels in the hierarchy are as follows:

•Level 1 — Inputs to the valuation based upon quoted prices (unadjusted) for identical assets or liabilities in active markets that are accessible as of the measurement date.

•Level 2 — Inputs to the valuation include quoted prices in either markets that are not active, or in active markets for similar assets or liabilities, inputs other than quoted prices that are observable, and inputs that are derived principally from or corroborated by observable market data.

•Level 3 — Inputs to the valuation that are unobservable inputs for the asset or liability.

The highest priority is assigned to Level 1 inputs and the lowest priority to Level 3 inputs.

The carrying value of cash and cash equivalents, accounts receivable, accounts payable, and ~~payable,~~ accrued expenses ~~and the~~approximate their fair value. The carrying value of our revolving loans and term loan under our credit facility, when outstanding, also approximate their fair ~~value.~~value because of the variable interest rate associated with those instruments, which reset each month at market interest rates. All of these account balances are considered Level 1 assets and liabilities.

Our foreign currency forward contracts are valued using quoted market prices or are determined using a yield curve model based on current market rates. As a result, we classify these instruments as Level 2 in the fair value hierarchy. Money market funds and mutual funds of ~~$8,379~~$8,625 as of ~~September 30, 2022~~March 31, 2023 and ~~$9,083~~$8,444 as of December 31, ~~2021~~2022 held to satisfy future deferred compensation obligations are valued based upon the market values of underlying securities and are classified as Level 2 assets in the fair value hierarchy.

We did not hold any Level 3 assets or liabilities as of ~~September 30, 2022~~March 31, 2023 or December 31, 2021. However, the fair value measurements of certain assets and liabilities acquired as part of the Arcadia acquisition were based on significant inputs not observable in the market and represent Level 3 measurements within the fair value measurement hierarchy.2022.

Recent Accounting Pronouncements

~~The Company reviews recent accounting pronouncements on a quarterly basis.~~ We have considered all recent accounting pronouncements issued, but not yet effective, and we do not expect any to have a material effect on the Company’s Condensed Consolidated Financial Statements.

3. ~~BUSINESS COMBINATION~~

On December 16, 2021, the Company entered into an equity purchase agreement with Arcadia, Inc., a California corporation, the shareholders of Arcadia, Inc. and certain other parties (the “Equity Purchase Agreement”). On December 23, 2021, pursuant to the Equity Purchase Agreement, the Company completed the acquisition of a 60% controlling interest in Arcadia Products, LLC, a Colorado limited liability company resulting from the conversion of Arcadia, Inc. (collectively, “Arcadia”) for closing consideration of $261,000 in cash (excluding $7,654 in acquired cash) and 551,458 shares of its common stock, par value $0.05 per share. A portion of the cash consideration was placed into escrow and is subject to certain post-closing adjustments.

DMC acquired Arcadia as part of its strategy of building a diversified portfolio of industry-leading businesses with differentiated products and services. Arcadia is a leading U.S. supplier of architectural building products, which include exterior and interior framing systems, windows, curtain walls, doors, and interior partitions for the commercial buildings market, and highly engineered windows and doors for the high-end residential real estate market.

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The acquisition was funded by the Company through cash and marketable securities, equity, and debt financing. Assets acquired and liabilities assumed have been recorded at their fair values. Certain fair values were determined by management using the assistance of third-party valuation specialists. The valuation methods used to determine the fair value of intangible assets included the income approach—excess earnings method for customer relationships and the income approach—relief from royalty method for the trade name acquired. A number of assumptions and estimates were involved in the application of these valuation methods, including forecasts of revenues, costs of revenues, operating expenses, tax rates, forecasted capital expenditures, customer attrition rate, discount rates and working capital changes.

The following table sets forth the preliminary components of the fair value of the total consideration transferred and preliminary purchase price allocation of the net assets acquired at the date of acquisition, along with the measurement period adjustments that occurred during the nine months ended September 30, 2022. The assets acquired and liabilities assumed exclude Arcadia's right-of-use asset and lease liabilities, respectively, as they have an immaterial impact on the total net assets acquired. Refer to Note 7 “Leases” for additional discussion of lease accounting. The total consideration transferred is still subject to potential adjustment, with any remaining adjustment not expected to impact long-lived asset balances recorded as of September 30, 2022.

Preliminary Measurement Period Adjustments Preliminary
December 23, 2021 September 30, 2022
Cash, including cash acquired(1)
$ 268,654 $ 2,034 $ 270,688
Equity(2)
21,716 — 21,716
Total fair value of consideration transferred 290,370 2,034 292,404
Assets acquired:
Cash and cash equivalents $ 7,654 $ — $ 7,654
Accounts receivable 31,456 — 31,456
Inventories 60,503 — 60,503
Prepaid expenses and other 2,438 — 2,438
Property, plant and equipment(3)
17,323 4,770 22,093
Goodwill(4)
141,266 (1,344) 139,922
Intangible assets(5)
254,500 — 254,500
Other long-term assets 122 (36) 86
Total assets acquired 515,262 3,390 518,652
Liabilities assumed:
Accounts payable 8,792 — 8,792
Other current liabilities 22,520 — 22,520
Total liabilities assumed 31,312 — 31,312
Redeemable noncontrolling interest(6)
193,580 1,356 194,936
Total assets acquired and liabilities assumed $ 290,370 $ 2,034 $ 292,404

~~(1)~~ Cash sources of funding included $150,000 in new term loan debt and $118,654 of cash and marketable securities on hand. During the quarter ended March 31, 2022, working capital estimates at the time of acquisition were finalized. In April 2022, $640 was returned to the Company from the funds previously placed into escrow. During the quarter ended September 30, 2022, the Company paid the prior shareholders of Arcadia $2,674 in additional consideration to compensate for certain tax impacts of the transaction, as provided in the Equity Purchase Agreement.

~~(2)~~ ~~Equity consideration included 551,458 shares of DMC common stock.~~

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~~(3)~~ ~~Property, plant and equipment consists of the following:~~

~~Land~~

~~1,500~~

~~Buildings and improvements~~

~~6,451~~

~~Manufacturing equipment and tooling~~

~~12,634~~

~~Furniture, fixtures, and computer equipment~~

~~211~~

~~Other~~

~~1,297~~

~~Total property, plant and equipment~~

~~22,093~~

~~The useful lives of property, plant and equipment are consistent with the Company's accounting policies.~~

~~(4)~~ ~~Amounts recorded for goodwill resulting in a tax basis step-up are generally expected to be deductible for tax purposes. Tax deductible goodwill is estimated to be $85,308.~~

~~(5)~~ ~~Intangible assets consist of $210,500 of customer relationships, $22,000 of trade name, and $22,000 of customer backlog.~~ ~~During the quarter ended September 30, 2022, the Company reclassified $500 from customer relationships to customer backlog due to changes in purchase price allocation estimates.~~

~~(6)~~ ~~Redeemable noncontrolling interest represents 40% of the total fair value of Arcadia upon acquisition.~~

The final fair value determination of the assets acquired and liabilities assumed will be completed prior to one year from the transaction completion date, consistent with Accounting Standards Codification (“ASC”) 805 Business Combinations ("ASC 805"). Measurement period adjustments will be recognized in the reporting period in which the adjustments are determined and calculated as if the accounting had been completed as of the acquisition date.

~~Redeemable noncontrolling interest~~

The limited liability company operating agreement for Arcadia (the “Operating Agreement”) contains a right for the Company to purchase the remaining interest in Arcadia 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 has the right to sell its remaining interest in Arcadia 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.

The Company initially accounted for the noncontrolling interest at its acquisition date fair value. We determined that both the Call Option and Put Option do not meet the definition of a derivative under ASC 815 Derivatives and Hedging as the Operating Agreement does not allow for contractual net settlement, the options cannot be settled outside the Operating Agreement through a market mechanism, and the underlying shares are deemed illiquid as they are not publicly traded and thus not considered readily convertible to cash. Additionally, the settlement price for both options is based upon a predefined calculation tied to adjusted earnings rather than a fixed price, and the formula is based upon a multiple of Arcadia’s average adjusted earnings for the preceding two fiscal years and its projected adjusted earnings for the then-current fiscal year. As such, we have concluded that the Call Option and Put Option are embedded within the noncontrolling interest and therefore do not represent freestanding instruments.

Given that the noncontrolling interest is subject to possible redemption (with redemption rights that are not entirely within the control of the Company), we have concluded that the noncontrolling interest should be accounted for in accordance with ASC 480 Distinguishing Liabilities from Equity ("ASC 480"). The Company has also concluded that the noncontrolling interest is probable of redemption, as the only criteria for the security to become redeemable is the passage of time. As such, the Company has classified the redeemable noncontrolling interest separate from the stockholders’ equity section in the Condensed Consolidated Balance Sheets.

At each balance sheet date subsequent to acquisition, the carrying value of the redeemable noncontrolling interest has been adjusted to its estimated redemption value as if redemption were to occur at the balance sheet date based upon the predefined calculation in the Operating Agreement described above. This immediate adjustment is charged or credited directly to retained earnings and therefore does not impact the Condensed Consolidated Statements of Operations or Comprehensive Income (Loss). As of September 30, 2022, the Company’s estimated redemption value of the redeemable noncontrolling interest decreased to $194,962 in comparison to our previous estimates at each balance sheet date subsequent to acquisition of $197,196 due to a change in our forecast of adjusted earnings for calendar year 2022. During the three months ended September

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30, 2022, the Company recorded an adjustment of $2,256 to decrease the redeemable noncontrolling interest to its estimated redemption value. This adjustment was recorded after ascribing net income and cash distributions attributable to the redeemable noncontrolling interest in accordance with ASC 480.

~~Promissory Note~~

In order to equalize after-tax consideration to the redeemable noncontrolling interest holder relative to an alternative transaction structure, immediately following the closing of the acquisition, the Company loaned approximately $24,902 to the redeemable noncontrolling interest holder. The loan was evidenced by an unsecured promissory note, and the loan will be repaid out of proceeds from the sale of the redeemable noncontrolling interest holder’s interests in Arcadia, whether received upon exercise of the Put Option, the Call Option or upon sales to third parties permitted under the terms of the Operating Agreement. The loan must be repaid in full by December 16, 2051 and has been recorded within “Other Assets”~~in the Condensed Consolidated Balance Sheets.~~

~~Unaudited Pro Forma Financial Information~~

Pro forma financial information is presented for informational purposes and is not intended to represent or be indicative of the actual results of operations of the combined business that would have been reported had the acquisition of Arcadia been completed at an earlier date, nor is it representative of future operating results of the Company.

ASC 805 requires pro forma adjustments to reflect the effects of fair value adjustments, transaction costs, capital structure changes, the tax effects of such adjustments, and also requires nonrecurring adjustments to be prepared and presented. For the three and nine months ended September 30, 2021, operating results have been adjusted to reflect (a) fair value adjustments related to incremental intangible asset amortization, (b) interest expense with the higher principal and interest rates associated with the Company's new term loan debt incurred to finance, in part, the acquisition of Arcadia, (c) the effects of integration costs on the results of Arcadia's operations, and (d) the effects of the adjustments on income taxes.

The following unaudited pro forma combined financial information presents combined results of the Company and Arcadia. Arcadia’s operating results have been included in the Company’s operating results for the three and nine months ended September 30, 2022.

Three months ended September 30, 2021 Nine months ended September 30, 2021
As Reported Pro Forma As Reported Pro Forma
Net sales $ 67,175 $ 132,488 $ 188,271 $ 371,963
Net income attributable to DMC Global Inc. stockholders $ 403 $ 5,522 $ 2,559 $ 15,965

4. INVENTORIES

Inventories are stated at the lower of cost (first-in, first-out) or net realizable value. Significant cost elements included in inventory are material, 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. 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.

Inventories consisted of the following at ~~September 30, 2022:~~

Arcadia DynaEnergetics NobelClad DMC Global Inc.
Raw materials $ 14,290 $ 16,646 $ 7,517 $ 38,453
Work-in-process 10,072 17,652 8,624 36,348
Finished goods 56,038 21,380 129 77,547
Supplies — — 225 225
Total inventories $ 80,400 $ 55,678 $ 16,495 $ 152,573
March 31, 2023:

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	Arcadia		DynaEnergetics		NobelClad		DMC Global Inc.
Raw materials	$	10,233	$	22,463	$	9,806	$	42,502
Work-in-process	13,006		30,914		12,460		56,380
Finished goods	53,978		26,418		—		80,396
Supplies	—		—		267		267
Total inventories	$	77,217	$	79,795	$	22,533	$	179,545

Inventories consisted of the following at December 31, ~~2021:~~2022:


		Arcadia		DynaEnergetics		NobelClad		DMC Global Inc.			Arcadia		DynaEnergetics		NobelClad		DMC Global Inc.
Raw materials	Raw materials	$	12,168	$	15,209	$	7,655	$	35,032	Raw materials	$	11,099	$	23,701	$	8,926	$	43,726
Work-in-process	Work-in-process	3,987		13,672		10,257		27,916		Work-in-process	11,468		21,198		7,587		40,253
Finished goods	Finished goods	44,348		14,998		1,651		60,997		Finished goods	55,074		16,802		456		72,332
Supplies	Supplies	—		—		269		269		Supplies	—		—		279		279
Total inventories	Total inventories	$	60,503	$	43,879	$	19,832	$	124,214	Total inventories	$	77,641	$	61,701	$	17,248	$	156,590

5.4. PURCHASED INTANGIBLE ASSETS

Our purchased intangible assets consisted of the following ~~as of September 30, 2022:~~at March 31, 2023:


		Gross		Accumulated Amortization		Net			Gross		Accumulated Amortization		Net
Core technology	Core technology	$	12,951	$	(12,693)	$	258	Core technology	$	14,257	$	(14,229)	$	28

Customer relationships	Customer relationships	242,642		(42,016)		200,626		Customer relationships	244,980		(52,880)		192,100
Customer backlog		22,000		(22,000)		—

Trademarks / Trade names	Trademarks / Trade names	23,751		(2,882)		20,869		Trademarks / Trade names	23,940		(3,810)		20,130
Total intangible assets	Total intangible assets	$	301,344	$	(79,591)	$	221,753	Total intangible assets	$	283,177	$	(70,919)	$	212,258

Our purchased intangible assets consisted of the following ~~as of~~at December 31, ~~2021:~~2022:


		Gross		Accumulated Amortization		Net			Gross		Accumulated Amortization		Net
Core technology	Core technology	$	15,647	$	(14,209)	$	1,438	Core technology	$	14,063	$	(14,031)	$	32
Customer backlog								Customer backlog	22,000		(22,000)		—
Customer relationships	Customer relationships	246,718		(36,047)		210,671		Customer relationships	244,650		(47,254)		197,396
Customer backlog		21,500		—		21,500

Trademarks / Trade names	Trademarks / Trade names	24,037		(2,070)		21,967		Trademarks / Trade names	23,914		(3,417)		20,497
Total intangible assets	Total intangible assets	$	307,902	$	(52,326)	$	255,576	Total intangible assets	$	304,627	$	(86,702)	$	217,925

The change in the gross value of our unamortized purchased intangible assets at ~~September 30, 2022~~March 31, 2023 from December 31, ~~2021~~2022 was ~~primarily~~ due to foreign currency translation. Additionally, there was an adjustment due to recognition of tax benefit from tax amortization previously applied to certain goodwill related to the DynaEnergetics and NobelClad reporting units. After the goodwill associated with each reporting unit was impaired at December 31, 2015 and September 30, 2017, respectively, the tax amortization reduces other intangible assets related to the historical acquisition.

6.5. CONTRACT LIABILITIES

At times, we require customers to make advance payments prior to the shipment of their orders in order to help finance our inventory investment on large orders or to keep customers’ credit limits at acceptable levels. Contract liabilities were as ~~follows:~~follows for the periods presented:


		September 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022
Arcadia	Arcadia	$	26,123	$	14,697	Arcadia	$	24,335	$	27,634
NobelClad	NobelClad	3,453		5,881		NobelClad	5,293		3,661
DynaEnergetics	DynaEnergetics	454		474		DynaEnergetics	1,570		785
Total contract liabilities	Total contract liabilities	$	30,030	$	21,052	Total contract liabilities	$	31,198	$	32,080

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We generally expect to recognize the revenue associated with contract liabilities over a time period no longer than one year, but unforeseen circumstances can cause delays in shipments associated with contract ~~liabilities.~~liabilities, primarily supply chain delays and disruptions.

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7.6. LEASES

The Company leases real properties for use in manufacturing and as administrative and sales offices, and ~~also~~ leases automobiles and office equipment. The Company determines if a contract contains a lease arrangement at the inception of the contract. For leases in which the Company is the lessee, leases are classified as either finance or operating. Right-of-use (“ROU”) assets are initially measured at the present value of lease payments over the lease term plus initial direct costs, if any. If a lease does not provide a discount rate and the implicit rate cannot be readily determined, an incremental borrowing rate is used to determine the present value of future lease payments. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term within the Condensed Consolidated Statement of Operations. Lease and non-lease components within the Company’s lease agreements are accounted for together. Variable lease payments are recognized in the period in which the obligation ~~for those payments~~ is incurred. The Company has no leases in which the Company is the lessor.

Nearly all of the Company’s leasing arrangements are classified as operating leases. ROU asset and lease liability balances were as follows for the periods presented:


		September 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022
ROU asset	ROU asset	$	50,145	$	52,219	ROU asset	$	46,912	$	48,470

Current lease liability	Current lease liability	6,994		6,126		Current lease liability	7,025		7,041
Long-term lease liability	Long-term lease liability	44,634		47,000		Long-term lease liability	41,580		43,001
Total lease liability	Total lease liability	$	51,628	$	53,126	Total lease liability	$	48,605	$	50,042

The ROU asset is reported in “Other assets” while the current lease liability is reported in “Other current liabilities” and the long-term lease liability is reported in “Other long-term liabilities” in the Company’s Condensed Consolidated Balance Sheets. Cash paid for operating lease liabilities are recorded as operating cash outflows in the Company’s Condensed Consolidated Statements of Cash Flows.

Arcadia leases certain office, manufacturing, distribution and warehouse facilities from entities affiliated with the redeemable noncontrolling interest holder and ~~the~~former president of Arcadia. There were eight related party leases in effect as of ~~September 30, 2022,~~March 31, 2023, with expiration dates ranging from calendar years ~~2023~~2025 to 2031. As of ~~September 30, 2022,~~March 31, 2023, the total ROU asset and related lease liability recognized for related party leases was ~~$29,753~~$28,036 and ~~$30,131,~~$28,625, respectively.

For the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ operating lease expense was ~~$2,872~~$3,040 and ~~$1,064, respectively. For the nine months ended September 30, 2022 and 2021, operating lease expense was $8,413 and $3,074,~~$2,767, respectively. Related party lease expense for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 was $1,156 in each period and ~~$3,469, respectively, which~~ is included in ~~overall~~total operating lease expense. ~~There was no related party lease expense recorded through September 30, 2021.~~ Short term and variable lease costs were not ~~material~~significant for ~~the three and nine months ended September 30, 2022 and 2021.~~any period presented.

8.7. DEBT

~~As of September 30, 2022 and December 31, 2021, outstanding~~Outstanding borrowings consisted of the ~~following:~~following at:


		September 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022
Syndicated credit agreement:	Syndicated credit agreement:					Syndicated credit agreement:
U.S. Dollar revolving loan	U.S. Dollar revolving loan	$	—	$	—	U.S. Dollar revolving loan	$	—	$	—
Term loan	Term loan	138,750		150,000		Term loan	128,750		135,000

Commerzbank line of credit	Commerzbank line of credit	—		—		Commerzbank line of credit	—		—
Outstanding borrowings	Outstanding borrowings	138,750		150,000		Outstanding borrowings	128,750		135,000
Less: debt issuance costs	Less: debt issuance costs	(2,341)		(2,575)		Less: debt issuance costs	(2,064)		(2,202)
Total debt	Total debt	136,409		147,425		Total debt	126,686		132,798
Less: current portion of long-term debt	Less: current portion of long-term debt	(15,000)		(15,000)		Less: current portion of long-term debt	(15,000)		(15,000)
Long-term debt	Long-term debt	$	121,409	$	132,425	Long-term debt	$	111,686	$	117,798

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Syndicated Credit Agreement

On December 23, 2021, we entered into a five-year $200,000 syndicated credit agreement (“credit facility”) which included a $150,000 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 has an accordion feature to increase the commitments by $100,000 under the revolving loan class and/or by adding a term loan subject to approval by applicable lenders. We entered into the credit facility with a syndicate of four banks, with KeyBank, N.A. acting as administrative agent. The credit facility is secured by the assets of DMC including accounts receivable, inventory, and fixed assets, including Arcadia and its subsidiary, as well as guarantees and share pledges by DMC and its subsidiaries.

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~~Rate plus an applicable margin (varying from 0.50% to 2.00%). As of March 31, 2023, no amounts were outstanding on the revolver.

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~~incurring additional indebtedness; mortgaging, pledging or disposition of major assets; and maintenance of specified ratios.

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 ~~the~~ 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.

As of ~~September 30, 2022,~~March 31, 2023, we were in compliance with all financial covenants and other provisions of our debt agreements.

We also maintain a line of credit with a German bank with a borrowing capacity of €7,000 for ~~our NobelClad and DynaEnergetics operations in Europe.~~certain European operations. This line of credit is also used to issue bank guarantees to customers to secure advance payments made by them. As of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, we had no outstanding borrowings under this line of credit and bank guarantees of ~~€2,559~~€2,023 and ~~€2,997~~€2,221, respectively, were secured by the line of ~~credit, respectively.~~credit. The line of credit has open-ended terms and can be canceled by the bank at any time.

Included in “Long-term debt” are deferred debt issuance costs of $2,064 and $2,202 as of March 31, 2023 and December 31, 2022, respectively. Deferred debt issuance costs are being amortized over the remaining term of the credit facility, which expires on December 23, 2026.

9.8. INCOME TAXES

The effective tax rate for each of the periods reported differs from the U.S. statutory rate primarily due to variation in contribution to consolidated pre-tax income from each jurisdiction for the respective periods, differences between the U.S. and foreign tax rates (which range from 20% to 33%), permanent differences between book and taxable income, and income or loss attributable to the redeemable noncontrolling interest ~~holder, and changes to valuation allowances on our deferred tax assets.~~holder.

Arcadia is treated as a partnership for U.S. tax purposes. With the exception of certain state taxes, income or loss flows through to the shareholders and is taxed at the shareholder level. Tax impacts related to income or loss from Arcadia that are included in consolidated pretax results but are attributable to the redeemable noncontrolling interest holder are not included in the consolidated income tax provision.

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We assess the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use existing deferred tax assets. Additionally, a three-year cumulative loss at a consolidated financial statement level may be viewed as negative evidence impacting a jurisdiction that by itself is not in a three-year cumulative loss position. During the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and March 31, 2022, ~~and September 30, 2021,~~ we did not record any adjustments to previously established valuation allowances, except for corresponding adjustments related to ~~the~~ changes in ~~balances of the related~~ deferred tax ~~assets.~~asset balances. These adjustments had no impact on the Condensed Consolidated Statements of Operations. The Company will continue to monitor the realizability of deferred tax assets and the need for valuation allowances and will record adjustments in the periods in which facts support such changes.

The Tax Cuts and Jobs Act (“TCJA”) provides that foreign earnings generally can be repatriated to the U.S. without federal tax consequence. We have assessed the assertion that cumulative earnings by our foreign subsidiaries are indefinitely reinvested. We continue to permanently reinvest the earnings of our international subsidiaries and therefore we do not provide for U.S. income taxes or withholding taxes that could result from the distribution of those earnings to the U.S. parent. If any such earnings were ultimately distributed to the U.S. in the form of dividends or otherwise, or if the shares of our international subsidiaries were sold or transferred, we could be subject to additional U.S. federal and state income taxes. Due to the multiple avenues in which earnings can be repatriated, and because a large portion of these earnings are not liquid, it is not practical to estimate the amount of additional taxes that might be payable on these amounts of undistributed foreign income.

~~10.~~9. BUSINESS SEGMENTS

Our business is organized into three segments: Arcadia, DynaEnergetics and NobelClad. In December 2021, DMC acquired a 60% controlling interest in Arcadia. Arcadia ~~a leading U.S. supplier of~~supplies architectural building products, including ~~storefronts~~exterior and ~~entrances, windows,~~interior framing systems, curtain walls, windows, doors, and interior partitions ~~for~~to the commercial ~~buildings market. Arcadia~~construction market; it also supplies customized windows and doors to the ~~luxury home market with highly engineered steel, aluminum and wood door and window systems.~~high-end residential construction market. DynaEnergetics designs, manufactures and distributes highly engineered products utilized by the global oil and gas industry principally ~~to perforate~~for the perforation of oil and gas wells. NobelClad is a leader in the production of explosion-welded clad metal plates for use in the construction of corrosion resistant industrial processing equipment, ~~and~~as well as specialized transition ~~joints.~~joints for use in construction of commuter rail cars, ships, and liquified natural gas (LNG) processing equipment.

Our reportable segments are separately managed, strategic business units that offer different products and ~~services.~~services, and each segment has separate financial information available that is evaluated regularly by the Chief Operating Decision Maker ("CODM") in allocating resources and assessing performance. Each segment’s products are marketed to different customer types and require different manufacturing processes and technologies.

Segment information is as follows:


		Three months ended September 30,				Nine months ended September 30,					Three months ended March 31,
		2022		2021		2022		2021			2023		2022
Net sales:	Net sales:									Net sales:
Arcadia	Arcadia	$	80,697	$	—	$	225,127	$	—	Arcadia	$	80,338	$	67,968
DynaEnergetics	DynaEnergetics	70,372		44,237		186,776		124,677		DynaEnergetics	81,968		48,887
NobelClad	NobelClad	23,396		22,938		67,109		63,594		NobelClad	22,035		21,861
Net sales	Net sales	$	174,465	$	67,175	$	479,012	$	188,271	Net sales	$	184,341	$	138,716

Three months ended September 30, Nine months ended September 30,
2022 2021 2022 2021
Income (loss) before income taxes:
Arcadia $ 3,742 $ — $ 3,521 $ —
DynaEnergetics 11,978 1,585 26,585 6,307
NobelClad 2,505 3,620 5,690 8,595
Segment operating income 18,225 5,205 35,796 14,902
Unallocated corporate expenses (2,939) (2,499) (10,490) (6,903)
Unallocated stock-based compensation* (1,885) (1,569) (5,883) (4,904)
Other income (expense), net 120 (198) (35) 304
Interest expense, net (1,771) (14) (4,058) (230)
Income before income taxes $ 11,750 $ 925 $ 15,330 $ 3,169

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	Three months ended March 31,
	2023		2022
Income (loss) before income taxes:
Arcadia	$	3,133	$	(2,443)
DynaEnergetics	13,168		3,298
NobelClad	2,621		705
Segment operating income	18,922		1,560

Unallocated corporate expenses	(7,254)		(3,368)
Unallocated stock-based compensation*	(4,448)		(2,102)
Other expense, net	(200)		(209)
Interest expense, net	(2,381)		(1,024)
Income (loss) before income taxes	$	4,639	$	(5,143)


		Three months ended September 30,				Nine months ended September 30,					Three months ended March 31,
		2022		2021		2022		2021			2023		2022
Depreciation and amortization:	Depreciation and amortization:									Depreciation and amortization:
Arcadia	Arcadia	$	7,966	$	—	$	34,818	$	—	Arcadia	$	6,469	$	13,349
DynaEnergetics	DynaEnergetics	1,957		2,012		5,908		6,095		DynaEnergetics	1,787		1,984
NobelClad	NobelClad	899		967		2,725		2,851		NobelClad	740		915
Segment depreciation and amortization	Segment depreciation and amortization	10,822		2,979		43,451		8,946		Segment depreciation and amortization	8,996		16,248
Corporate and other	Corporate and other	104		102		281		277		Corporate and other	71		87
Consolidated depreciation and amortization	Consolidated depreciation and amortization	$	10,926	$	3,081	$	43,732	$	9,223	Consolidated depreciation and amortization	$	9,067	$	16,335

* 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.

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~~The disaggregation of revenue earned from contracts with customers based on~~In the ~~geographic location of the customer is as follows. For Arcadia,~~tables below, net sales for Arcadia have been presented consistent with United States regional definitions as provided by the American Institute of Architects. The geographic distribution of net sales for DynaEnergetics and NobelClad is based on the customer location.

Arcadia


		Three months ended		Nine months ended			Three months ended March 31,
		September 30, 2022		September 30, 2022			2023		2022
West	West	$	63,281	$	176,288	West	$	62,282	$	56,204
South	South	12,139		27,362		South	8,553		5,839
Northeast	Northeast	2,958		11,880		Northeast	6,853		3,217
Midwest	Midwest	2,319		9,597		Midwest	2,650		2,708

Total Arcadia	Total Arcadia	$	80,697	$	225,127	Total Arcadia	$	80,338	$	67,968

DynaEnergetics


	Three months ended March 31,
	2023		2022
United States	$	64,649	$	38,743
Canada	7,040		4,749
United Arab Emirates	1,788		1,213

Oman	1,747		928
Kuwait	1,357		542



Indonesia	704		342

India	623		230
Rest of the world(1)	4,060		2,140
Total DynaEnergetics	$	81,968	$	48,887

(1) Rest of the world does not include any individual country comprising sales greater than 2% of total DynaEnergetics revenue.
Three months ended September 30, Nine months ended September 30,
2022 2021 2022 2021
United States $ 55,999 $ 36,543 $ 146,297 $ 96,316
Canada 4,341 2,798 14,453 9,304
Indonesia 1,051 240 1,903 933
Egypt 652 671 3,120 2,398
India 615 243 4,625 904
Oman 704 665 2,695 2,117
Rest of the world 7,010 3,077 13,683 12,705
Total DynaEnergetics $ 70,372 $ 44,237 $ 186,776 $ 124,677

NobelClad


	Three months ended March 31,
	2023		2022
United States	$	9,119	$	9,155
China	2,206		2,357
United Arab Emirates	1,860		998
Canada	1,855		1,438
Germany	1,271		587
United Kingdom	796		49

Italy	671		413
France	558		351
Sweden	497		—
Belgium	466		276
South Africa	430		843
Norway	365		234
Netherlands	353		491

Spain	295		199
India	2		2,325




Rest of the world	1,291		2,145



Total NobelClad	$	22,035	$	21,861

(1)

Rest of the world does not include any individual country comprising sales greater than 2% of total NobelClad revenue.

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~~NobelClad~~

Three months ended September 30, Nine months ended September 30,
2022 2021 2022 2021
United States $ 9,120 $ 11,033 $ 29,055 $ 30,448
Canada 3,161 1,254 6,952 3,985
Germany 2,055 761 3,215 1,539
China 1,100 892 3,467 3,775
Sweden 1,096 494 2,179 676
United Arab Emirates 1,003 929 2,705 2,030
Australia 844 576 1,499 1,171
India 742 299 3,007 1,371
South Korea 672 328 1,510 1,426
Norway 508 265 1,087 757
France 472 509 1,625 1,929
Netherlands 357 507 1,464 1,628
Italy 143 831 840 1,268
Saudi Arabia — 242 1,995 310
Russia* — 1,519 191 3,586
Rest of the world 2,123 2,499 6,318 7,695
Total NobelClad $ 23,396 $ 22,938 $ 67,109 $ 63,594

*Future sales to Russia have been indefinitely suspended due to the ongoing conflict in Ukraine.

During the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023, one DynaEnergetics customer accounted for approximately 10% of consolidated net sales. The same DynaEnergetics customer accounted for approximately 15% of consolidated accounts receivable as of March 31, 2023 and December 31, 2022. During the three months ended March 31, 2022, ~~and 2021,~~ no single customer accounted for ~~greater than~~approximately 10% of consolidated net sales. As of September 30, 2022, one DynaEnergetics customer accounted for greater than 10% of consolidated accounts receivable. As of December 31, 2021, no single customer accounted for greater than 10% of consolidated accounts receivable.

~~11.~~10. DERIVATIVE INSTRUMENTS

We are exposed to foreign currency exchange risk resulting from fluctuations in exchange rates, primarily the U.S. dollar to the euro, the U.S. dollar to the Canadian dollar and, to a lesser extent, other currencies, arising from intercompany and third-party transactions entered into by our subsidiaries that are denominated in currencies other than their functional currency. Changes in exchange rates with respect to these transactions result in unrealized gains or losses if such transactions are unsettled at the end of the reporting period or realized gains or losses at settlement of the transaction. We use foreign currency forward contracts to offset foreign exchange rate fluctuations on foreign currency denominated asset and liability positions. None of these contracts are designated as accounting hedges, and all changes in the fair value of the forward contracts are recognized in “Other ~~income (expense),~~expense, net” within our Condensed Consolidated Statements of Operations.

We execute derivatives with a specialized foreign exchange brokerage firm as well as other large financial institutions. The primary credit risk inherent in derivative agreements is the possibility that a loss may occur from the nonperformance of a counterparty to the agreements. We perform a review of the credit risk of our counterparties at the inception of the contract and on an ongoing basis. We anticipate that our counterparties will be able to fully satisfy their obligations under the agreements but will take action if doubt arises regarding the counterparties’ ability to perform.

As of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, the net notional ~~amount~~amounts of the forward ~~currency~~ contracts the Company held were ~~$8,591~~$28,335 and ~~$13,032,~~$21,907, respectively. At ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, the fair ~~values~~value of outstanding ~~foreign currency~~ forward contracts ~~were~~was $0.

The following table presents the location and amount of net gains (losses) from hedging activities, which offset foreign currency gains and losses recorded in the normal course of business that are not presented ~~below.~~below, for the periods presented.

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			Three months ended September 30,				Nine months ended September 30,						Three months ended March 31,
Derivative	Derivative	Statements of Operations Location	2022		2021		2022		2021		Derivative	Statements of Operations Location	2023		2022
Foreign currency contracts	Foreign currency contracts	Other income (expense), net	$	(637)	$	(253)	$	(789)	$	(187)	Foreign currency contracts	Other expense, net	$	171	$	(127)

~~12.~~11. COMMITMENTS AND CONTINGENCIES

Contingent Liabilities

The Company records an accrual for contingent liabilities when a loss is both probable and reasonably estimable. If some amount within a range of loss appears to be a better estimate than any other amount within the range, that amount is accrued. When no amount within a range of loss appears to be a better estimate than any other amount, the lowest amount in the range is accrued.

Legal Proceedings

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial condition or operating results except as set forth below:

Wage and Hour Matters

Felipe v. Arcadia, Inc. and One Stop Employment Services, Inc. (“One Stop”). This complaint was filed on October 22, 2021 in Los Angeles Superior Court and purports to allege a class action on behalf of all non-exempt California employees who worked on behalf of One Stop or Arcadia at any time during the four years preceding the date of the complaint. One Stop is a staffing agency which provides temporary workers, including to Arcadia. The complaint states claims under California’s labor laws and under its general Unfair Business Practices Act, California Business & Professions Code section 17200. The plaintiff has subsequently dismissed the class action claims without prejudice, acknowledging that Arcadia’s arbitration agreement likely bars such class claims. The plaintiff also filed a separate action under California’s Private Attorneys General Act (“PAGA”) alleging essentially the same wage and hour violations. This action included other Arcadia employees. In Viking River Cruises,

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Inc. versus Moriana, the U.S. Supreme Court concluded that arbitration agreements may bar representative PAGA claims. However, Viking River left open certain state law issues, which the California Supreme Court has agreed to address. Currently, Felipe’s PAGA representative claims are stayed, and will likely remain stayed until a California Supreme Court ruling. The plaintiff has ~~announced the intent to commence~~however commenced arbitration on individual claims, ~~but~~though no ~~claims~~dates have yet been ~~filed.~~set in that arbitration.

Mayorga v. Arcadia, Inc. This complaint was filed on November 15, 2021 in Los Angeles Superior Court. It purported to allege a class action on behalf of all of the Company’s non-exempt California employees who worked at the Company within four years before the date the complaint was filed. It asserts claims substantially similar to those asserted in the Felipe case but does not include One Stop as a defendant. The plaintiff amended his complaint to delete class action claims and any individual non-PAGA claims. Accordingly, plaintiff’s complaint is now limited to PAGA collective action claims. As inFelipe, those PAGA representative claims are currently stayed and will likely remain stayed until the California Supreme Court addresses the state law issues left open by the U.S. Supreme Court’s decision in Viking River Cruises, Inc. versus Moriana. The plaintiff has however commenced arbitration on a solely individual basis of his wage and hour claims. The arbitral body has appointed an arbitrator to adjudicate those claims and a hearing has been set ~~in June 2023.~~for 2024. The remaining Mayorga PAGA representative claims have now been ~~combined with~~assigned to the same judge as the Felipe case.

We have agreed to mediate the Felipe claims in May 2023, and in any settlement arising out of this process, we would intend to resolve the claims in both Mayorga and Felipe ~~case.~~to the extent asserted on behalf of other employees.

Arcadia intends to vigorously defend against theFelipe and Mayorga actions. Due to the nature of these matters and inherent uncertainties, it is not possible to provide an evaluation of the likelihood of an unfavorable outcome or an estimate of the amount or range of potential loss, if any. Further, under the Equity Purchase Agreement, certain amounts have been placed in escrow pending resolution of these matters.

12. CHIEF EXECUTIVE OFFICER TRANSITION

During the first quarter of 2023, the Company and its former CEO entered into a separation agreement pursuant to which the former CEO received certain severance benefits consistent with his pre-existing employment agreement with the Company. These severance benefits include 18 months of salary, a lump sum cash payment, and accelerated vesting of outstanding equity awards. During the three months ended March 31, 2023, the Company recognized $1,621 of severance related expense and $3,040 of stock-based compensation expense related to the accelerated vesting of outstanding equity awards. These expenses were recognized in “General and administrative expenses” in the Condensed Consolidated Statements of Operations.

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ITEM 2. 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 ~~as well as the selected historical consolidated financial data~~ that isare included in our Annual Report filed on Form 10-K for the year ended December 31, ~~2021.~~2022.

Unless stated otherwise, all dollar figures are presented in thousands (000s).

Overview

General

DMC Global Inc. (“DMC”, "we", "us", "our", or the "Company") ~~is a diversified holding company. Our~~owns and operates Arcadia, DynaEnergetics and NobelClad, three innovative, asset-light manufacturing businesses that provide differentiated products and ~~services~~engineered solutions to niche segments of the construction, energy, industrial processing and ~~commercial markets around the world. DMC’s objective is~~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 ~~well-run~~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 ~~strong management teams~~systems, expand their markets and ~~support them with long-term capital and strategic, legal, technology and operating resources. DMC’s~~improve their competitive positions. Our culture is to foster local innovation versus centralized control. We help our portfolio companies grow core businesses, launch new initiatives, upgrade technologies and systems to support their long-term strategy, and make acquisitions that improve their competitive positions and expand their markets. Today, DMC’s portfolio consists of Arcadia, DynaEnergetics, and NobelClad, which collectively address the building products, energy, industrial processing and transportation markets. BasedHeadquartered 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 ~~is a leading U.S. supplier of~~supplies architectural building products, ~~which include~~including exterior and interior framing systems, ~~windows,~~ curtain walls, windows, doors, and interior partitions ~~for~~to the commercial ~~buildings~~construction market; ~~and highly engineered~~it also supplies customized windows and doors ~~for~~to the high-end residential ~~real estate~~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 ~~to perforate~~for the perforation of oil and gas wells. These products are primarily 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.

NobelClad

NobelClad produces explosion-welded clad metal plates for use in the construction of corrosion resistant industrial processing equipment, ~~and~~as well as specialized transition ~~joints.~~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 ~~fill~~ship most orders in our backlog ~~orders~~ within ~~the following 12~~twelve months. ~~NobelClad’s~~NobelClad's backlog increased to ~~$48,019~~$59,989 at ~~September 30, 2022~~March 31, 2023 from ~~$41,181~~$55,451 at December 31, ~~2021.~~

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2022.

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 the first quarter of 2021, under provisions of 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 three and nine months ended September 30, 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 three and nine months ended September 30, 2022.

Factors Affecting Results

•Consolidated sales were ~~$174,465~~$184,341 in the ~~third~~first quarter of ~~2022. Excluding Arcadia, third~~2023 versus $138,716 in the first quarter ~~sales were $93,768,~~of 2022, an increase of ~~40% versus the third quarter of 2021.~~33%. The improved performance primarily was driven by ~~higher energy prices and a growing reliance on North American oil and gas, which has led~~DynaEnergetics due to increased drilling and well completion activity in North ~~America and increased sales at DynaEnergetics.~~America.

•Arcadia reported sales of ~~$80,697~~$80,338 in the ~~third~~first quarter of ~~2022,~~2023, representing ~~a sequential~~an increase of ~~6%.~~18% compared with the first quarter of 2022. The increase was largely attributable to higher customer pricing in response to ~~higher base~~ aluminum metal ~~prices experienced~~inflation throughout a significant portion of 2022, as well as increases in other input costs.

•~~DynaEnergetics~~DynaEnergetics’ sales of ~~$70,372~~$81,968 in the ~~third~~first quarter of 2023 increased 68% compared with the first quarter of 2022 ~~increased 59% compared with the third quarter of 2021~~ due ~~to improved oil and gas demand, which led~~ to higher North American drilling and well completions, ~~and~~which led to increased demand ~~and improved pricing~~ for ~~DynaEnergetics’ DS~~its DynaStage (“DS”) perforating systems. Supply chain disruptions including a shortage of sand, which is a key material used to complete unconventional wells, impacted activity levels at end customers in North America in the first quarter of 2022. DynaEnergetics’ international sales also improved year over year, increasing ~~117%~~90% compared with the ~~third~~first quarter of ~~2021.~~2022.

•~~NobelClad~~NobelClad’s sales of ~~$23,396~~$22,035 in the ~~third~~first quarter of 2023 increased 1% compared with the first quarter of 2022 ~~increased 2% compared with the third quarter of 2021~~ reflecting ~~increased~~a modest increase in shipments out of backlog. ~~The increase in NobelClad 2022 sales was partially offset by the weakening of the Euro compared to the United States Dollar.~~

•Consolidated gross profit was ~~29%~~28.3% in the ~~third~~first quarter of ~~2022~~2023 versus ~~25%~~26.6% in the ~~third~~first quarter of ~~2021.~~2022. The improvement compared to the prior year ~~primarily~~ was ~~due~~attributable to the ~~acquisition of Arcadia, which had a higher gross profit percentage than DMC’s other business units. The~~ impact of higher sales volume, primarily ~~increases~~ in unit sales of DS perforating systems at DynaEnergetics, on fixed manufacturing overhead expenses also contributed to the improved performance. These favorable impacts were partially offset by higher material and other input costs at each business segment. Additionally, the 2021 third quarter gross profit was favorably impacted by the receipt of $1,800 ERC under the CARES Act.expenses.

•Consolidated selling, general and administrative (SG&A) expenses were ~~$30,544~~$39,324 in the ~~third~~first quarter of ~~2022~~2023 compared with ~~$15,314~~$27,808 in the ~~third quarter of 2021. Arcadia’s incremental selling, general and administrative expenses were $12,917 in the third~~first quarter of 2022. ~~The~~During the first quarter, the Company and its former Chief Executive Officer (“CEO”) entered into a separation agreement. In conjunction with this change, we incurred total CEO transition charges of $2,965 inclusive of severance expense directly related to the former CEO of $1,621, as well as $3,040 of stock-based compensation expense related to the accelerated vesting of the former CEO’s outstanding equity awards. Remaining year-over-year ~~increase also was~~SG&A increases were primarily attributable to higher ~~salaries, benefits,~~outside service costs driven by patent infringement litigation costs at DynaEnergetics and ~~other-payroll~~payroll related ~~costs including variable incentive compensation and stock-based compensation expense. Additionally, SG&A in the third quarter of 2021 included receipt of $769 of ERC under the CARES Act.~~expenses.

•Cash of ~~$18,486~~$19,647 at ~~September 30, 2022~~March 31, 2023 decreased ~~$12,324~~$5,497 from ~~$30,810~~$25,144 at December 31, ~~2021.~~2022. The decrease in cash primarily related to principal ~~and interest~~ payments on the Company’s Term Loan under our 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.facility.

Outlook

WeWhile we remain in a period of ~~volatile raw material and other input costs as well as continued supply chain disruptions and challenges. Each of~~macroeconomic uncertainty, our businesses ~~have been and may continue to be impacted by high raw material prices,~~reported resilient demand for their products through the ~~availability of labor, increased wages, and supply chain disruptions such as longer lead times related to the procurement of raw materials.~~

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In North America, well completion activity increased in the third quarter of 2022 which positively impacted DynaEnergetics’ end customers’ activity levels. 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 has instituted price increases over the past twelve months to offset higher labor and material costs. DynaEnergetics offers a highly differentiated product line, and its factory-assembled DS perforating systems are delivered just in time to the wellsite, eliminating customer assembly operations and requiring fewer people on location.

We believe many of the pre-wired carriers in the market incorporate features that violate DynaEnergetics patents, and we are continuing to take aggressive legal action against the companies that make these products. DynaEnergetics has made significant investments in technologies and products that have improved the safety, efficiency and performance of its customers’ well completions, and have enhanced the effectiveness and profitability of the industry as a whole. Our patent strategy is designed to protect these investments and provide transparency so others can innovate without violating our intellectual property. These lawsuits have increased our general and administrative expenses, and we expect these costs to be ongoing throughout 2022.first quarter.

Arcadia serves the commercial building market primarily in the western and southwestern United States ~~and~~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 ~~resilient~~continued sequential improvement in Arcadia’s financial ~~performance.~~performance in the second quarter of 2023. In addition, we expect ~~the building products industry~~ to ~~remain strong, particularly in Arcadia’s core geographic regions and end markets. We are beginning the process to design and install new~~increase our finishing capacity toduring 2023, which will increase manufacturing throughput. ~~We expect the finishing capacity will be operational next year.~~ The ~~design and~~ implementation of phase one of a new enterprise resource planning system is ~~also underway~~nearing completion and ~~will~~should improve operating ~~efficiencies~~efficiencies.

In North America, well completion activity remained healthy in the first quarter of 2023, which positively impacted demand at DynaEnergetics and ~~enhance~~led to record unit sales of DynaEnergetics’ fully integrated and factory-assembled DS perforating systems. We believe well completion activity and customer pricing will remain resilient during the ~~buying experience~~balance of 2023. DynaEnergetics instituted price increases throughout 2022 to offset higher labor and material costs, and additional price

increases may occur in 2023 depending upon market dynamics. Additionally, DynaEnergetics is seeking to implement more efficient manufacturing processes and is planning to introduce several premium products in 2023 that collectively are designed to improve profit margins. 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. In the past several years, we have engaged in litigation 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 and during the first quarter of 2023; however, we expect these costs to be substantially lower for the remainder of 2023.

NobelClad, DMC’s composite metals business, is experiencing increasing demand for its Cylindra™ cryogenic transition joints used in the liquified natural gas industry, while repair and maintenance work from downstream energy and petrochemical industries is also improving. NobelClad backlog was $59,989 as of March 31, 2023, up from $55,451 as of December 31, 2022. We expect to ship most orders in our backlog within 12 months.

In January 2023, the Company announced the appointment of Michael Kuta and David Aldous as interim co-Chief Executive Officers. In addition, DMC named Eric Walter as the new Chief Financial Officer, and Arcadia named James Chilcoff as its new President. In connection with these leadership changes, near-term priorities include the acceleration of Arcadia’s integration, strengthening the profitability of DynaEnergetics, achieving commercial success with new products introduced in NobelClad, and ~~residential customers.~~improving the Company’s overall cash flow through more effective working capital management and targeted cost reductions. Efforts to identify DMC’s next Chief Executive Officer have begun in earnest. A leading executive search firm has been retained to help in evaluating both external and internal candidates. This important process is expected to be completed before the end of the calendar year.

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~~(loss) plus ~~or minus~~ 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, ~~other~~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. For our business segments, Adjusted EBITDA is 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, ~~other~~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 (if applicable) and, when appropriate, ~~other~~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 (if applicable) 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 ~~non-recurring~~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 Condensed 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.

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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

Three months ended ~~September 30, 2022~~March 31, 2023 compared with three months ended ~~September 30, 2021~~March 31, 2022


		Three months ended September 30,										Three months ended March 31,
		2022			2021			$ change		% change				2023			2022			$ change		% change
Net sales	Net sales	$	174,465		$	67,175		$	107,290	160	%		Net sales	$	184,341		$	138,716		$	45,625	33	%
Gross profit	Gross profit	51,338			16,662			34,676		208	%		Gross profit	52,211			36,906			15,305		41	%
Gross profit percentage	Gross profit percentage	29.4		%	24.8		%						Gross profit percentage	28.3		%	26.6		%
COSTS AND EXPENSES:	COSTS AND EXPENSES:												COSTS AND EXPENSES:
General and administrative expenses	General and administrative expenses	19,796			9,721			10,075		104	%		General and administrative expenses	26,500			17,718			8,782		50	%
% of net sales	% of net sales	11.3		%	14.5		%						% of net sales	14.4		%	12.8		%
Selling and distribution expenses	Selling and distribution expenses	10,748			5,593			5,155		92	%		Selling and distribution expenses	12,824			10,090			2,734		27	%
% of net sales	% of net sales	6.2		%	8.3		%						% of net sales	7.0		%	7.3		%
Amortization of purchased intangible assets	Amortization of purchased intangible assets	7,385			211			7,174		3,400	%		Amortization of purchased intangible assets	5,667			12,976			(7,309)		(56	%)
% of net sales	% of net sales	4.2		%	0.3		%						% of net sales	3.1		%	9.4		%

Restructuring expenses	Restructuring expenses	8			—			8		—	%		Restructuring expenses	—			32			(32)		(100	%)

Operating income		13,401			1,137			12,264		1,079	%
Other income (expense), net		120			(198)			318		161	%
Operating income (loss)													Operating income (loss)	7,220			(3,910)			11,130		285	%
Other expense, net													Other expense, net	(200)			(209)			9		(4	%)
Interest expense, net	Interest expense, net	(1,771)			(14)			(1,757)		12,550	%		Interest expense, net	(2,381)			(1,024)			(1,357)		133	%
Income before income taxes		11,750			925			10,825		1,170	%
Income tax provision		3,537			522			3,015		578	%
Net income		8,213			403			7,810		1,938	%
Net income attributable to redeemable noncontrolling interest		1,496			—			1,496		—	%
Net income attributable to DMC Global Inc.		6,717			403			6,314		1,567	%
Income (loss) before income taxes													Income (loss) before income taxes	4,639			(5,143)			9,782		190	%
Income tax provision (benefit)													Income tax provision (benefit)	2,500			(863)			3,363		390	%
Net income (loss)													Net income (loss)	2,139			(4,280)			6,419		150	%
Less: Net income (loss) attributable to redeemable noncontrolling interest													Less: Net income (loss) attributable to redeemable noncontrolling interest	1,230			(992)			2,222		224	%
Net income (loss) attributable to DMC Global Inc.													Net income (loss) attributable to DMC Global Inc.	909			(3,288)			4,197		128	%
Adjusted EBITDA attributable to DMC Global Inc.	Adjusted EBITDA attributable to DMC Global Inc.	$	21,751		$	5,787		$	15,964	276	%		Adjusted EBITDA attributable to DMC Global Inc.	$	20,091		$	10,505		$	9,586	91	%

Net sales were ~~$174,465. Excluding Arcadia, net sales were $93,768~~$184,341 for the three months ended ~~September 30, 2022,~~March 31, 2023, or an increase of ~~40%~~33% compared with the same period in ~~2021~~2022, primarily due to ~~increased drilling and well completion activity in North America and a corresponding~~an increase in unit sales of DynaEnergetics’ DS perforating ~~systems.~~systems and higher customer pricing at Arcadia in response to raw material and labor inflation.

Gross profit percentage was ~~29.4%. Excluding Arcadia, gross profit percentage was 29.3%~~28.3% versus ~~24.8%~~26.6% in the same period in ~~2021.~~2022. The improvement compared to the prior year ~~primarily~~ was ~~due~~attributable to the impact of higher sales volume on fixed manufacturing overhead ~~expense,~~expenses, primarily due to increases in unit sales of DS perforating systems at DynaEnergetics. These favorable impacts were partially offset by higher material and other input costs at each business segment. ~~Additionally, the 2021 third quarter gross profit was favorably impacted by the receipt of $1,800 ERC under the CARES Act.~~

General and administrative expenses increased ~~$10,075~~$8,782 for the three months ended ~~September 30, 2022~~March 31, 2023 compared with the same period in ~~2021.~~2022. The ~~Arcadia acquisition contributed $8,782~~increase was driven by CEO transition charges of $2,965 as well as higher stock-based compensation expense related to the ~~increase.~~accelerated vesting of our former CEO’s outstanding equity awards. In addition, outside service costs increased by $1,145 due primarily to patent infringement litigation costs at DynaEnergetics and non-capitalizable implementation costs incurred related to a new enterprise resource planning system at Arcadia. There was also an increase in salaries, benefits, and other-payroll related costs including variable incentive compensation of $1,860.

Selling and distribution expenses increased $2,734 for the three months ended March 31, 2023 compared with the same period in 2022. The ~~remainder of the~~ increase primarily was due to higher salaries, benefits, and other-payroll related costs including variable incentive and stock-based compensation ~~by $1,125 and the expiration~~ of ~~the 2021 ERC under the CARES Act by $349.~~

~~Selling and distribution expenses~~ increased $5,155 for the three months ended September 30, 2022 compared with the same period in 2021. Arcadia contributed $4,135 to the increase. The remainder of the increase primarily was due to higher salaries, benefits, and other-payroll related costs including variable incentive compensation by $194, expiration of the 2021 ERC under the CARES Act by $420, higher lease expense by $173,$2,397 and higher ~~business-related travel by $76.~~outside services costs of $316.

Operating income was ~~$13,401~~$7,220 for the three months ended ~~September 30, 2022~~March 31, 2023 compared to ~~$1,137~~an operating loss of $3,910 in the same period ~~last year. Excluding Arcadia,~~in 2022. The increase in operating income was ~~$9,659 due to~~ the result of improved performance ~~of DynaEnergetics.~~at DynaEnergetics and Arcadia.

Other ~~income,~~expense, net of $~~120~~200 for the three months ended ~~September 30, 2022~~March 31, 2023 primarily related to net ~~unrealized and~~ realized foreign currency exchange ~~gains.~~losses. Currency gains and losses can arise when subsidiaries enter into inter-company and third-party transactions that

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~~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 $~~1,771~~2,381 for the three months ended ~~September 30, 2022~~March 31, 2023 increased compared with the same period in ~~2021~~2022 due to an increase in interest rates as the ~~principal balance outstanding on the~~Term Loan under our credit facility ~~entered into in December 2021 in conjunction with the acquisition of Arcadia, as well as increasing~~has a variable interest ~~rates during the quarter.~~rate.

Income tax provision of ~~$3,537~~$2,500 was recorded on income before income taxes of ~~$11,750.~~$4,639. Our most significant operations are in the United States, which has a 21% statutory income tax rate, and Germany, which has a ~~33%~~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 geographic mix of pretax income, state taxes, ~~and~~ certain compensation expenses that are not tax deductible in the ~~U.S.~~U.S and discrete stock-based compensation impacts of $1,298. 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~~benefit of ~~$522~~$863 on loss before income taxes of ~~$925~~$5,143 for the three months ended ~~September 30, 2021.~~March 31, 2022. The prior year effective rate was impacted ~~favorably~~unfavorably by discrete stock-based compensation ~~windfall benefits~~impacts of ~~$39.~~$386. The rate was also impacted ~~unfavorably~~ by ~~geographic mix of pretax income, state taxes, and certain compensation expenses that are not tax deductible in~~ the ~~U.S.~~same factors previously discussed.

Net income attributable to DMC Global Inc. for the three months ended ~~September 30, 2022~~March 31, 2023 was ~~$6,717, or $0.46 per diluted share after the adjustment related to the redeemable noncontrolling interest,~~$909, compared to net ~~income~~loss of ~~$403, or $0.02 per diluted share,~~$3,288 for the same period in ~~2021.~~2022.

Adjusted EBITDA for the three months ended ~~September 30, 2022~~March 31, 2023 increased compared with the same period in ~~2021~~2022 primarily due to the ~~acquisition of Arcadia and~~ improved performance of DynaEnergetics. See ~~“Overview”~~“Use of Non-GAAP Financial Measures” above for the explanation of the use of Adjusted EBITDA. The following is a reconciliation of the most directly comparable GAAP measure to Adjusted EBITDA.


		Three months ended September 30,					Three months ended March 31,
		2022		2021			2023		2022
Net income		$	8,213	$	403
Net income (loss)						Net income (loss)	$	2,139	$	(4,280)
Interest expense, net	Interest expense, net	1,771		14		Interest expense, net	2,381		1,024
Income tax provision		3,537		522
Income tax provision (benefit)						Income tax provision (benefit)	2,500		(863)
Depreciation	Depreciation	3,541		2,870		Depreciation	3,400		3,359
Amortization of purchased intangible assets	Amortization of purchased intangible assets	7,385		211		Amortization of purchased intangible assets	5,667		12,976
EBITDA	EBITDA	24,447		4,020		EBITDA	16,087		12,216
Stock-based compensation						Stock-based compensation	5,027		2,358
CEO transition expenses (1)						CEO transition expenses (1)	2,965		—

Restructuring expenses	Restructuring expenses	8		—		Restructuring expenses	—		32

Amortization of acquisition-related inventory valuation step-up						Amortization of acquisition-related inventory valuation step-up	—		258

Stock-based compensation		2,242		1,569
Other (income) expense, net		(120)		198
Other expense, net						Other expense, net	200		209
Adjusted EBITDA						Adjusted EBITDA	24,279		15,073
Adjusted EBITDA attributable to redeemable noncontrolling interest	Adjusted EBITDA attributable to redeemable noncontrolling interest	(4,826)		—		Adjusted EBITDA attributable to redeemable noncontrolling interest	(4,188)		(4,568)
Adjusted EBITDA attributable to DMC Global Inc.	Adjusted EBITDA attributable to DMC Global Inc.	$	21,751	$	5,787	Adjusted EBITDA attributable to DMC Global Inc.	$	20,091	$	10,505

(1) During the first quarter of 2023, the Company and its former CEO entered into a separation agreement. In conjunction with this event as well as a reprioritization of near-term initiatives, we have incurred certain transition expenses, primarily including: (a) severance related charges for the former CEO and other impacted employees of $1,906; (b) CEO transition and executive search firm costs of $557; and (c) contract termination costs of $350.

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Adjusted Net Income and Adjusted Diluted Earnings per Share for the three months ended ~~September 30, 2022~~March 31, 2023 increased compared with the same period in ~~2021~~2022 primarily due to the factors discussed above. See ~~"Overview"~~"Use of Non-GAAP Financial Measures" above for the 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.


		Three months ended September 30, 2022					Three months ended March 31, 2023
		Amount		Per Share (1)			Amount		Per Share (1)
Net income attributable to DMC Global Inc.	Net income attributable to DMC Global Inc.	$	6,717	$	0.35	Net income attributable to DMC Global Inc.	$	909	$	0.05
CEO transition expenses and accelerated stock-based compensation, net of tax(2)						CEO transition expenses and accelerated stock-based compensation, net of tax(2)	5,235		0.27

NobelClad restructuring expenses, net of tax		5		—

As adjusted	As adjusted	$	6,722	$	0.35	As adjusted	$	6,144	$	0.32

(1) Calculated using diluted weighted average shares outstanding of ~~19,381,794~~19,462,636

(2) Includes CEO transition expenses of $2,965 and accelerated stock-based compensation of $3,040 related to the vesting of the former CEO’s outstanding equity awards, net of tax.

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	Three months ended March 31, 2022
	Amount		Per Share (1)
Net loss attributable to DMC Global Inc.	$	(3,288)	$	(0.17)
Amortization of acquisition-related inventory valuation step-up, net of tax	133		0.01

NobelClad restructuring expenses and asset impairments, net of tax	22		—




As adjusted	$	(3,133)	$	(0.16)

Three months ended September 30, 2021
Amount
Per Share (1)
Net income attributable to DMC Global Inc. $ 403 $ 0.02
As adjusted $ 403 $ 0.02

(1) Calculated using diluted weighted average shares outstanding of ~~18,739,085~~19,301,126

~~Nine months ended September 30, 2022 compared with nine months ended September 30, 2021~~

Nine months ended September 30,
2022 2021 $ change % change
Net sales $ 479,012 $ 188,271 $ 290,741 154 %
Gross profit 140,343 46,546 93,797 202 %
Gross profit percentage 29.3 % 24.7 %
COSTS AND EXPENSES:
General and administrative expenses 56,330 26,121 30,209 116 %
% of net sales 11.8 % 13.9 %
Selling and distribution expenses 31,383 16,380 15,003 92 %
% of net sales 6.6 % 8.7 %
Amortization of purchased intangible assets 33,154 823 32,331 3,928 %
% of net sales 6.9 % 0.4 %
Restructuring expenses 53 127 (74) (58 %)
Operating income 19,423 3,095 16,328 528 %
Other (expense) income, net (35) 304 (339) (112 %)
Interest expense, net (4,058) (230) (3,828) 1,664 %
Income before income taxes 15,330 3,169 12,161 384 %
Income tax provision 4,938 610 4,328 710 %
Net income 10,392 2,559 7,833 306 %
Net income attributable to redeemable noncontrolling interest 1,411 — 1,411 — %
Net income attributable to DMC Global Inc. 8,981 2,559 6,422 251 %
Adjusted EBITDA attributable to DMC Global Inc. $ 54,618 $ 17,349 $ 37,269 215 %

~~Net sales~~ were $479,012. Excluding Arcadia, net sales were $253,885 for the nine months ended September 30, 2022, an increase of 35% compared with the same period in 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 29.3%. Excluding Arcadia, gross profit percentage was 27.6% versus 24.7% in the same period in 2021. The improvement compared to prior year primarily was due to higher sales volume on fixed manufacturing overhead expenses, primarily due to increases in unit sales of DS perforating systems at DynaEnergetics. These increases were partially offset by a less favorable project mix at NobelClad and higher material costs at DynaEnergetics. Additionally, 2021 gross profit was favorably impacted by the receipt of $4,134 ERC under the CARES Act.

~~General and administrative expenses~~ increased $30,209 for the nine months ended September 30, 2022 compared with the same period in 2021. The Arcadia acquisition contributed $22,337 to the increase. The remainder of the increase was due to higher outside services costs by $1,725, which was primarily related to patent infringement litigation in which DynaEnergetics is the plaintiff, higher headcount and salaries, benefits, and other-payroll related costs including variable incentive compensation by $2,644, higher business-related travel by $1,668, and the expiration of the 2021 ERC under the CARES Act by $1,028.

~~Selling and distribution expenses~~ increased $15,003 for the nine months ended September 30, 2022 compared with the same period in 2021.The Arcadia acquisition contributed $11,832 to the increase. The remainder of the increase was from the expiration of the 2021 ERC under the CARES Act by $1,236, higher business-related travel by $431, increased lease expense by

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~~$399, higher depreciation expense by $136, higher outside service costs by $165, and higher salaries, benefits, and other-payroll related costs including variable incentive compensation by $319.~~

~~Operating income~~ was $19,423 for the nine months ended September 30, 2022 compared to $3,095 in the same period last year. The improved performance was attributable to DynaEnergetics and the acquisition of Arcadia. Operating income for the nine months ended September 30, 2021 was also favorably impacted by receipt of $6,398 ERC under the CARES Act.

~~Other expense, net~~ of~~$35for~~ ~~the~~ nine months ended September 30, 2022 primarily related to net unrealized and 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~~$4,058 for the nine months ended September 30, 2022 increased compared with the same period in 2021~~due to the principal balance outstanding on the credit facility entered into in December 2021 in conjunction with the acquisition of Arcadia, as well as increasing interest rates during the year-to-date period.

~~Income tax provision~~ of $4,938 was recorded on income before income taxes of $15,330. Our most significant operations are in the United States, which has a 21% statutory income tax rate, and Germany, which has a 33% 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 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 favorable impact to the effective tax rate. The effective rate was impacted unfavorably by discrete stock-based compensation shortfalls of $454. We recorded an income tax provision of $610 on income before income taxes of $3,169 for the nine months ended September 30, 2021. The effective rate was impacted favorably by discrete stock-based compensation windfall benefits of $832. The rate was also impacted unfavorably by geographic mix of pretax income, state taxes, and certain compensation expenses that are not tax deductible in the U.S.

~~Net income attributable to DMC Global Inc.~~ for the nine months ended September 30, 2022 was $8,981, or $0.20 per diluted share after the adjustment related to the redeemable noncontrolling interest, compared to net income of $2,559, or $0.15 per diluted share, for the same period in 2021.

~~Adjusted EBITDA~~ for the nine months ended September 30, 2022 increased compared with the same period in 2021 primarily due to the acquisition of Arcadia and improved performance of DynaEnergetics. See “Overview” above for the explanation of the use of Adjusted EBITDA. The following is a reconciliation of the most directly comparable GAAP measure to Adjusted EBITDA.

Nine months ended September 30,
2022 2021
Net income $ 10,392 $ 2,559
Interest expense, net 4,058 230
Income tax provision 4,938 610
Depreciation 10,578 8,400
Amortization of purchased intangible assets 33,154 823
EBITDA 63,120 12,622
Restructuring expenses 53 127
Amortization of acquisition-related inventory valuation step-up 430 —
Stock-based compensation 6,891 4,904
Other expense (income), net 35 (304)
Adjusted EBITDA attributable to redeemable noncontrolling interest (15,911) —
Adjusted EBITDA attributable to DMC Global Inc. $ 54,618 $ 17,349

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~~Adjusted Net Income and Adjusted Diluted Earnings per Share~~ increased for the nine months ended September 30, 2022 compared with the same period in 2021 primarily due to the factors discussed above. See "Overview" above for the 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.

Nine months ended September 30, 2022
Amount
Per Share (1)
Net income attributable to DMC Global Inc. $ 8,981 $ 0.47
Amortization of acquisition-related inventory valuation step-up, net of tax 199 0.01
NobelClad restructuring expenses, net of tax 36 —
As adjusted $ 9,216 $ 0.48
~~(1) Calculated using diluted weighted average shares outstanding of 19,357,333~~

Nine months ended September 30, 2021
Amount
Per Share (1)
Net income attributable to DMC Global Inc. $ 2,559 0.15
NobelClad restructuring expenses, net of tax 127 0.01
As adjusted $ 2,686 $ 0.16

~~(1) Calculated using diluted weighted average shares outstanding of 17,250,525~~

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Business Segment Financial Information

We primarily evaluate performance and allocate resources based on segment revenues, operating income and ~~adjusted~~Adjusted EBITDA as well as projected future performance. Segment operating income is defined as revenues less expenses identifiable to the segment. Segment operating income will reconcile to consolidated income (loss) before income taxes by deducting unallocated corporate expenses, including unallocated stock-based compensation, ~~net~~ other expense, net, and ~~net~~ interest ~~expense.~~expense, net.

Arcadia

As more fully described in the 2021 Form 10-K, a 60% controlling interest in Arcadia was acquired in December 2021. A summary of results of operations for Arcadia for the three and nine months ended September 30, 2022 is as follows (in thousands):

~~Three and nine months ended September 30, 2022~~
Three months ended September 30, 2022 Nine months ended September 30, 2022
Net sales $ 80,697 $ 225,127
Gross profit 23,892 70,364
Gross profit percentage 29.6 % 31.3 %
COSTS AND EXPENSES:
General and administrative expenses 8,782 22,337
Selling and distribution expenses 4,135 11,832
Amortization of purchased intangible assets 7,233 32,674
Operating income 3,742 3,521
Adjusted EBITDA 12,065 39,777
Less: adjusted EBITDA attributable to redeemable noncontrolling interest (4,826) (15,911)
Adjusted EBITDA attributable to DMC Global Inc. $ 7,239 $ 23,866

Arcadia’s profitability is dependent, in large part, on the spread between its input costs, for which the primary raw material is aluminum metal, and the subsequent value received from selling its products, which include exterior and interior framing systems, curtain walls, windows, doors, and interior partitions for the commercial buildings market; and highly engineered windows and doors for the high-end residential market.

During the three and nine months ended September 30, 2022, both net sales and cost of products sold increased in comparison to pre-acquisition periods, largely driven by higher customer pricing in response to higher base aluminum metal prices and increases in other input costs. During the nine months ended September 30, 2022, cost of products sold was also negatively impacted by the amortization of the inventory step-up recorded in purchase accounting. Gross profit dollars generated were consistent with pre-acquisition periods; however, the related gross profit percentage decreased as increased input costs outpaced the increase in net sales from higher average selling prices. General and administrative and selling and distribution expenses were higher in comparison to pre-acquisition periods. Higher general and administrative expenses were driven by public company related expenses such as internal and external audit fees, investments to support growth, employee headcount and compensation, non-recurring integration costs including outside services costs such as professional services, and depreciation expense related to the increase in fair value of property, plant and equipment recorded as of the date of acquisition. Higher sales and distribution expenses were driven primarily by increases in employee headcount and compensation. Amortization of purchased intangible assets related to identifiable intangible assets recorded as of the date of acquisition.

Adjusted EBITDA was primarily driven by the factors discussed above. See “Overview” above for the explanation of the use of non-GAAP measures. The following is a reconciliation of the most directly comparable GAAP measure to Adjusted EBITDA.

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Three months ended September 30, 2022 Nine months ended September 30, 2022
Operating income $ 3,742 $ 3,521
Adjustments:
Amortization of acquisition-related inventory valuation step-up — 430
Depreciation 733 2,144
Amortization of purchased intangible assets 7,233 32,674
Stock-based compensation 357 1,008
Adjusted EBITDA 12,065 39,777
Less: adjusted EBITDA attributable to redeemable noncontrolling interest (4,826) (15,911)
Adjusted EBITDA attributable to DMC Global Inc. $ 7,239 $ 23,866

~~DynaEnergetics~~

Three months ended ~~September 30, 2022~~March 31, 2023 compared with three months ended ~~September 30, 2021~~March 31, 2022

Three months ended September 30,
2022 2021 $ change % change
Net sales $ 70,372 $ 44,237 $ 26,135 59 %
Gross profit 21,237 9,924 11,313 114 %
Gross profit percentage 30.2 % 22.4 %
COSTS AND EXPENSES:
General and administrative expenses 4,924 4,990 (66) (1 %)
Selling and distribution expenses 4,257 3,260 997 31 %
Amortization of purchased intangible assets 78 89 (11) (12 %)
Operating income 11,978 1,585 10,393 656 %
Adjusted EBITDA $ 13,935 $ 3,597 $ 10,338 287 %


	Three months ended March 31,
	2023			2022			$ change		% change
Net sales	$	80,338		$	67,968		$	12,370	18	%
Gross profit	22,094			20,245			1,849		9	%
Gross profit percentage	27.5		%	29.8		%
COSTS AND EXPENSES:
General and administrative expenses	7,857			6,143			1,714		28	%
Selling and distribution expenses	5,452			3,737			1,715		46	%
Amortization of purchased intangible assets	5,652			12,808			(7,156)		(56	%)


Operating income (loss)	3,133			(2,443)			5,576		228	%
Adjusted EBITDA	10,470			11,420			(950)		(8	%)
Less: adjusted EBITDA attributable to redeemable noncontrolling interest	(4,188)			(4,568)			(380)		(8	%)
Adjusted EBITDA attributable to DMC Global Inc.	$	6,282		$	6,852		(570)		(8	%)

Net sales increased ~~$26,135~~$12,370 for the three months ended ~~September 30, 2022~~March 31, 2023 compared to the same period in ~~2021. Higher energy prices~~2022 primarily due to higher customer pricing in response to raw material and a growing reliance on North American oil and gas has led to increased drilling and well completion activity in North America and increased sales of DynaEnergetics’ DS perforating systems. International sales also increased, which favorably impacted results in the third quarter of 2022.labor inflation.

Gross profit percentage ~~increased~~decreased to ~~30.2%~~27.5% for the three months ended ~~September 30, 2022~~March 31, 2023 primarily due to ~~the impact of~~ higher ~~sales volume on fixed manufacturing overhead~~base aluminum metal prices and an increase in other input costs.

General and administrative expenses ~~primarily due to increases in unit sales of DS perforating systems. The~~ increased $1,714 forthree months ended ~~September 30, 2021 was favorably impacted by~~March 31, 2023 compared to the ~~receipt~~same period in 2022 due to higher outside services costs of ~~$1,250 ERC under~~$710 in part due to the ~~CARES Act.~~implementation of a new enterprise resource planning system, higher salaries, benefits, and other-payroll related costs including stock-based compensation and variable compensation of $857, and higher depreciation expense of $147.

Selling and distribution expenses increased ~~$997~~$1,715 for the three months ended ~~September 30, 2022~~March 31, 2023 compared to the same period in ~~2021 primarily~~2022 due to higher salaries, benefits, and other-payroll related costs including ~~variable incentive~~stock-based compensation of $1,903. This increase is primarily attributable to an increase in employee headcount and was offset by ~~$296,~~a decrease in bad debt expense of $209.

Amortization of purchased intangible assets decreased $7,156 for the ~~expiration of~~three months ended March 31, 2023 compared to the ~~2021 ERC under~~same period in 2022 as the ~~CARES Act by $279, and higher lease expense by $196.~~customer backlog purchased intangible asset was fully amortized over its 7 month useful life in 2022.

Operating income increased ~~$10,393~~$5,576 for the three months ended ~~September 30, 2022~~March 31, 2023 compared to the same period in ~~2021~~2022 due to the factors discussed above.

Adjusted EBITDA for the three months ended ~~September 30,~~March 31, 2023 decreased compared with the same period in 2022 due to the factors discussed above. See “Use of Non-GAAP Financial Measures” above for the 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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	Three months ended March 31,
	2023		2022
Operating income (loss)	$	3,133	$	(2,443)
Adjustments:


Depreciation	817		541
Amortization of purchased intangible assets	5,652		12,808
Stock-based compensation	579		256
CEO transition expenses	289		—
Amortization of acquisition-related inventory valuation step-up	—		258
Adjusted EBITDA	10,470		11,420
Less: adjusted EBITDA attributable to redeemable noncontrolling interest	(4,188)		(4,568)
Adjusted EBITDA attributable to DMC Global Inc.	$	6,282	$	6,852

DynaEnergetics

Three months ended March 31, 2023 compared with three months ended March 31, 2022


	Three months ended March 31,
	2023			2022			$ change		% change
Net sales	$	81,968		$	48,887		$	33,081	68	%
Gross profit	24,437			12,608			11,829		94	%
Gross profit percentage	29.8		%	25.8		%
COSTS AND EXPENSES:
General and administrative expenses	6,197			5,322			875		16	%
Selling and distribution expenses	5,057			3,903			1,154		30	%
Amortization of purchased intangible assets	15			85			(70)		(82	%)


Operating income	13,168			3,298			9,870		299	%
Adjusted EBITDA	$	14,955		$	5,282		$	9,673	183	%

Net sales increased $33,081 for the three months ended March 31, 2023 compared to the same period in 2022 due to higher North American drilling and well completions, which led to increased demand for DS perforating systems. Supply chain disruptions, including a shortage of sand which is a key material used to complete unconventional wells, impacted DynaEnergetics’ end customers’ activity levels in North America in the first quarter of 2022. International sales also increased 90% in the first quarter of 2023 compared to the same period in 2022.

Gross profit percentage increased to 29.8% for the three months ended March 31, 2023 primarily due to the impact of higher sales volume on fixed manufacturing overhead expenses.

General and administrative expenses increased $875 for the three months ended March 31, 2023 compared to the same period in 2022 due to higher outside services costs of $957 due primarily to patent infringement litigation costs.

Selling and distribution expensesincreased $1,154 for thethree months ended March 31, 2023 compared to the same period in 2022 due to higher salaries, benefits, and other-payroll related costs including variable incentive compensation of $658, higher outside services cost of $330, and an increase in business-related travel of $78.

Operating income increased $9,870 for thethree months ended March 31, 2023 compared to the same period in 2022 due to the factors discussed above.

Adjusted EBITDAfor the three months ended March 31, 2023 increased compared with the same period in ~~2021~~2022 due to the factors discussed above. See ~~“Overview”~~“Use of Non-GAAP Financial Measures” above for the 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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		Three months ended September 30,					Three months ended March 31,
		2022		2021			2023		2022
Operating income	Operating income	$	11,978	$	1,585	Operating income	$	13,168	$	3,298
Adjustments:	Adjustments:					Adjustments:

Depreciation	Depreciation	1,879		1,923		Depreciation	1,772		1,899
Amortization of purchased intangible assets	Amortization of purchased intangible assets	78		89		Amortization of purchased intangible assets	15		85
Adjusted EBITDA	Adjusted EBITDA	$	13,935	$	3,597	Adjusted EBITDA	$	14,955	$	5,282

NobelClad

~~Nine~~Three months ended ~~September 30, 2022~~March 31, 2023 compared with ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022


		Nine months ended September 30,											Three months ended March 31,
		2022			2021			$ change		% change			2023			2022			$ change		% change
Net sales	Net sales	$	186,776		$	124,677		$	62,099	50	%	Net sales	$	22,035		$	21,861		$	174	1	%
Gross profit	Gross profit	53,805			29,034			24,771		85	%	Gross profit	5,783			4,181			1,602		38	%
Gross profit percentage	Gross profit percentage	28.8		%	23.3		%					Gross profit percentage	26.2		%	19.1		%
COSTS AND EXPENSES:	COSTS AND EXPENSES:											COSTS AND EXPENSES:
General and administrative expenses	General and administrative expenses	14,657			12,574			2,083		17	%	General and administrative expenses	923			1,037			(114)		(11	%)
Selling and distribution expenses	Selling and distribution expenses	12,318			9,702			2,616		27	%	Selling and distribution expenses	2,239			2,324			(85)		(4	%)
Amortization of purchased intangible assets	Amortization of purchased intangible assets	245			451			(206)		(46	%)	Amortization of purchased intangible assets	—			83			(83)		(100	%)

Restructuring expenses												Restructuring expenses	—			32			(32)		(100	%)

Operating income	Operating income	26,585			6,307			20,278		322	%	Operating income	2,621			705			1,916		272	%
Adjusted EBITDA	Adjusted EBITDA	$	32,493		$	12,402		$	20,091	162	%	Adjusted EBITDA	$	3,361		$	1,652		$	1,709	103	%

Net sales ~~increased $62,099~~were consistent for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 compared to the same period in 2021 due to a recovery in energy demand 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 of DynaEnergetics’ DS perforating systems. International sales also increased, which favorably impacted results in 2022.

Gross profit percentage increased to ~~28.8%~~26.2% for the ~~nine~~three months ended ~~September 30, 2022 compared to the same period in 2021~~March 31, 2023 primarily due to the impact of higher sales volume on fixed manufacturing overhead expenses, primarily increases in unit sales of DS perforating systems. The nine months ended September 30, 2021 was favorably impacted by the receipt of $2,696 ERC under the CARES Act.a more favorable project mix.

General and administrative expenses ~~increased $2,083~~decreased $114 for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 compared to the same period in ~~2021 due~~2022 due primarily to ~~an increase in outside services costs by $831, primarily related to patent infringement litigation in which DynaEnergetics is the plaintiff, higher salaries, benefits,~~lower legal expense and ~~other-payroll related costs including variable incentive compensation by $541, and the expiration of the 2021 ERC under the CARES Act by $333.~~

~~Selling and distribution expenses~~ increased $2,616 for the nine months ended September 30, 2022 compared to the same period in 2021 primarily due to the expiration of the 2021 ERC under the CARES Act by $800, increases in lease expense by $425, increases in salaries, benefits, and other-payroll related costs including variable incentive compensation by $506, higher business-related ~~travel by $239, and increases in depreciation expense by $116.~~travel.

Operating income increased ~~$20,278~~$1,916 for the ~~for the nine~~three months ended ~~September 30, 2022~~March 31, 2023 compared to the same period in ~~2021~~2022 due primarily to ~~the factors discussed above.~~an increase in gross profit.

Adjusted EBITDA ~~increased~~ for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 increased compared towith the same period in ~~2021~~2022 primarily due to the factors discussed above. See ~~“Overview”~~“Use of Non-GAAP Financial Measures” above for the explanation of the use of Adjusted EBITDA. The following is a reconciliation of the most directly comparable GAAP measure to Adjusted EBITDA.


	Three months ended March 31,
	2022		2021
Operating income	$	2,621	$	705
Adjustments:
Depreciation	740		832
Amortization of purchased intangible assets	—		83
Restructuring expenses	—		32



Adjusted EBITDA	$	3,361	$	1,652

Table of Contents

Nine months ended September 30,
2022 2021
Operating income $ 26,585 $ 6,307
Adjustments:
Depreciation 5,663 5,644
Amortization of purchased intangible assets 245 451
Adjusted EBITDA $ 32,493 $ 12,402

~~NobelClad~~

~~Three months ended September 30, 2022 compared with three months ended September 30, 2021~~
Three months ended September 30,
2022 2021 $ change % change
Net sales $ 23,396 $ 22,938 $ 458 2 %
Gross profit 6,325 6,883 (558) (8 %)
Gross profit percentage 27.0 % 30.0 %
COSTS AND EXPENSES:
General and administrative expenses 1,475 933 542 58 %
Selling and distribution expenses 2,263 2,208 55 2 %
Amortization of purchased intangible assets 74 122 (48) (39 %)
Restructuring expenses 8 — 8 — %
Operating income 2,505 3,620 (1,115) (31 %)
Adjusted EBITDA $ 3,412 $ 4,587 $ (1,175) (26 %)

~~Net sales~~ increased $458 for the three months ended September 30, 2022 compared to the same period in 2021 primarily due to the timing of shipments out of backlog. NobelClad net sales in 2022 were also negatively impacted by the weakening of the Euro compared to the United States Dollar.

~~Gross profit percentage~~ decreased to 27.0% for the three months ended September 30, 2022. The three months ended September 30, 2021 was favorably impacted by the receipt of $550 ERC under the CARES Act. Excluding the CARES Act and foreign currency impacts, the gross profit percentage was consistent period over period.

~~General and administrative expenses~~ increased $542 for the three months ended September 30, 2022 compared to the same period in 2021 due to higher outside services costs by $472 primarily related to the implementation of a new enterprise resource planning system.

~~Operating income~~ ~~decreased $1,115 for the~~three months ended September 30, 2022 compared to the same period in 2021 due to a decrease in gross profit and higher general and administrative expenses. Operating income in 2021 was benefited by the receipt of $719 of ERC under the CARES Act.

~~Adjusted EBITDA~~ for the three months ended September 30, 2022 decreased compared with the same period in 2021 primarily due to the factors discussed above. See “Overview” above for the explanation of the use of Adjusted EBITDA. The following is a reconciliation of the most directly comparable GAAP measure to Adjusted EBITDA.

~~Table of Contents~~

Three months ended September 30,
2022 2021
Operating income $ 2,505 $ 3,620
Adjustments:
Restructuring expenses 8 —
Depreciation 825 845
Amortization of purchased intangibles 74 122
Adjusted EBITDA $ 3,412 $ 4,587

~~Nine months ended September 30, 2022 compared with nine months ended September 30, 2021~~
Nine months ended September 30,
2022 2021 $ change % change
Net sales $ 67,109 $ 63,594 $ 3,515 6 %
Gross profit 16,532 17,960 (1,428) (8 %)
Gross profit percentage 24.6 % 28.2 %
COSTS AND EXPENSES:
General and administrative expenses 3,644 2,636 1,008 38 %
Selling and distribution expenses 6,910 6,230 680 11 %
Amortization of purchased intangible assets 235 372 (137) (37 %)
Restructuring expenses 53 127 (74) (58 %)
Operating income 5,690 8,595 (2,905) (34 %)
Adjusted EBITDA $ 8,468 $ 11,573 $ (3,105) (27 %)

~~Net sales~~ increased $3,515 for the nine months ended September 30, 2022 compared to the same period in 2021 primarily due to the timing of shipments out of backlog. The increase in net sales was partially offset by the weakening of the Euro compared to the United States Dollar.

~~Gross profit percentage~~ decreased to 24.6% for the nine months ended September 30, 2022. The nine months ended September 30, 2021 was favorably impacted by the receipt of $1,438 ERC under the CARES Act. Excluding the CARES Act and foreign currency impacts, the gross profit percentage decreased in 2022 due to a less favorable project mix.

~~General and administrative expenses~~ increased $1,008 for the nine months ended September 30, 2022 compared to the same period in 2021 due to higher outside services costs by $847 primarily related to the implementation of a new enterprise resource planning system.

~~Selling and distribution expenses~~ increased $680 for the nine months ended September 30, 2022 compared to the same period in 2021 primarily due the expiration of the 2021 ERC under the CARES Act by $436 and the resumption of business travel by $193.

~~Operating income~~ ~~decreased $2,905 for the nine months ended September 30, 2022 compared to the same period in 2021 due to lower gross profit and higher general and administrative and selling and distribution expenses.~~

~~Adjusted EBITDA~~ for the nine months ended September 30, 2022 decreased compared to the same period in 2021 primarily due to the factors discussed above. See “Overview” above for the explanation of the use of Adjusted EBITDA. The following is a reconciliation of the most directly comparable GAAP measure to Adjusted EBITDA.

~~Table of Contents~~

Nine months ended September 30,
2022 2021
Operating income $ 5,690 $ 8,595
Adjustments:
Restructuring expenses 53 127
Depreciation 2,490 2,479
Amortization of purchased intangibles 235 372
Adjusted EBITDA $ 8,468 $ 11,573

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 ~~$117,923~~$107,039 at ~~September 30, 2022~~March 31, 2023 compared to ~~$116,615~~$107,654 at December 31, ~~2021. Net~~2022. The decrease in net debt ~~increased~~ during ~~2022 to fund a build-up~~the first quarter of ~~working capital, which included higher inventory levels~~2023 was due to ~~increased prices~~$6,250 in Term Loan repayments, including a $2,500 principal prepayment, offset by a reduction in cash and ~~lead times for several key raw materials at DynaEnergetics and Arcadia, and an increase in sales volume at DynaEnergetics in 2022.~~cash equivalents. We have a fully undrawn and available $50,000 revolving credit facility at ~~September 30, 2022.~~March 31, 2023.

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 December 23, 2021, ~~in connection with the Arcadia acquisition,~~ we entered into a five-year $200,000 syndicated credit agreement (“credit facility”) which included a $150,000 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 has an accordion feature to increase the commitments by $100,000 under the revolving loan class and/or by adding a term loan subject to approval by applicable lenders. We entered into the credit facility with a syndicate of four banks, with KeyBank, N.A. acting as administrative agent. The credit facility is secured by the assets of DMC including accounts receivable, inventory, and fixed assets, including Arcadia and its subsidiary, as well as guarantees and share pledges by DMC and its subsidiaries.

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%). As of March 31, 2023, no amounts were outstanding on the revolver.

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 March 31, 2023, we were in compliance with all financial covenants and other provisions of our debt agreements.

~~Table of Contents~~

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, which include up to $5,000 for one-time integration expenses incurred in the twelve-month period following the closing date of the Arcadia acquisition. The maximum leverage ratio permitted by our credit facility is 3.25 to 1.0 ~~from the quarter ended September 30, 2022~~ through the quarter ended March 31, 2023, and 3.0 to 1.0 from the quarter ended June 30, 2023 and thereafter. The actual leverage ratio as of ~~September 30, 2022,~~March 31, 2023, calculated in accordance with the credit facility, as amended, was ~~2.10~~1.47 to 1.0.

Table of Contents

As of ~~September 30, 2022, U.S. dollar revolving loans of $0 and~~March 31, 2023, borrowings of ~~$138,750~~$128,750 on the Term Loan ~~were outstanding~~ under our credit facility were outstanding. No revolving loans were outstanding, and our available ~~revolver~~ borrowing capacity was ~~$50,000.~~$50,000 as of March 31, 2023.

We also maintain a line of credit with a German bank for ~~our NobelClad and DynaEnergetics operations in Europe.~~certain European operations. This line of credit provides a borrowing capacity of €7,000.

~~Other contractual obligations and commitments~~

~~Our debt balance decreased to $136,409 at September 30, 2022 from $147,425 at December 31, 2021. Our other contractual obligations and commitments have not materially changed since December 31, 2021.~~

~~Cash flows provided by (used in) operating activities~~

Net cash provided by operating activities was $24,335 for the nine months ended September 30, 2022 compared with net cash used in operating activities of $1,906 in the same period last year. The increase primarily was due to higher net income and higher non-cash reconciling adjustments related to amortization of purchased intangible assets from the Arcadia acquisition. These increases were partially offset by use of cash for working capital, which included higher inventory levels due to increased input costs and lead times for several key raw materials at DynaEnergetics and Arcadia, and an expected increase in sales volume at DynaEnergetics.

~~Cash flows used in investing activities~~

Net cash used in investing activities for the nine months ended September 30, 2022 of $13,311 related to the acquisition of property, plant and equipment and consideration adjustments related to the Arcadia acquisition. Net cash used in investing activities for the nine months ended September 30, 2021 were $124,514 and primarily related to investment in marketable securities of $123,984 made with the proceeds from our May 2021 equity offering.

~~Cash flows (used in) provided by financing activities~~

Net cash flows used in financing activities for the nine months ended September 30, 2022 of $22,814 included a distribution to the redeemable noncontrolling interest holder of $10,293, quarterly payments on our term loan of $11,250, and treasury stock purchases of $1,092. Net cash flows provided by financing activities for the nine months ended September 30, 2021 of $134,750 included net proceeds from our equity offering of $123,461 and our ATM equity program of $25,262 partially offset by repayment in full of the Capex Facility of $11,750 and treasury stock purchases of $2,476.

Redeemable noncontrolling interest

The Operating Agreement for Arcadia contains a right for the Company to purchase the remaining interest in Arcadia from the minority interest holder on or after ~~December 23, 2024.~~the third anniversary of the acquisition closing date (“Call Option”). Similarly, the minority interest holder of Arcadia has the right to sell its remaining interest in Arcadia to the Company on or after ~~December 23, 2024.~~ 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 ~~September 30, 2022,~~March 31, 2023, the ~~estimated value~~settlement amount of the redeemable noncontrolling ~~interest is $194,962, which is based upon a multiple~~interest of ~~Arcadia’s average adjusted earnings~~$187,522 remains unchanged from December 31, 2022. Refer to Note 2 within Item 1 for further information related to the ~~preceding two fiscal years and its projected adjusted earnings for~~valuation of the ~~then-current fiscal year.~~

~~Table of Contents~~redeemable noncontrolling interest.

Other contractual obligations and commitments

Our debt balance decreased to $126,686 at March 31, 2023 from $132,798 at December 31, 2022 for the reasons discussed above. Our other contractual obligations and commitments have not materially changed since December 31, 2022.

Cash flows provided by (used in) operating activities

Net cash provided by operating activities was $7,065 for the three months ended March 31, 2023 compared with net cash used in operating activities of $4,584 in the same period last year. The increase primarily was due to higher net income, partially offset by an increase in accounts receivable, net, which is attributable to sales growth.

Cash flows used in investing activities

Net cash used in investing activities for the three months ended March 31, 2023 and 2022 of $2,226 and $1,536, respectively, related to the acquisition of property, plant and equipment.

Cash flows used in financing activities

Net cash flows used in financing activities for the three months ended March 31, 2023 of $11,007 included a distribution to the redeemable noncontrolling interest holder of $2,600, a quarterly principal payment and prepayment on our Term Loan of $6,250, and treasury stock purchases of $2,157. Net cash flows used in financing activities for the three months ended March 31, 2022 of $9,335 included a distribution to the redeemable noncontrolling interest holder of $4,400, a quarterly principal payment on our Term Loan of $3,750, and treasury stock purchases of $1,088.

Payment of Dividends

On April 23, 2020, DMC announced that its Board of Directors suspended the quarterly dividend indefinitely due to the uncertain economic outlook caused by the COVID-19 pandemic. 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. Any determination to pay cash dividends will be at the discretion of the Board of Directors.

Critical Accounting ~~Policies~~Estimates

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, asset, liabilities, and other related disclosures. Our critical accounting ~~policies~~estimates have not changed from those reported in ~~our~~Item Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

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ITEM 3. Quantitative and Qualitative Disclosure about Market Risk

There were no material changes in market risk for changes in foreign currency exchange rates and interest rates from the information provided in Item 7A – Quantitative and Qualitative Disclosures About Market Risk in the ~~company's~~Company's Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

ITEM 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, under the supervision and with the participation of the Chief Executive ~~Officer~~Officers and Chief Financial Officer have evaluated the Company’s disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this report, and they have concluded that these controls and procedures are effective.

Changes in Internal Control over Financial Reporting

There were no changes that occurred during the fiscal quarter covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

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Part II - OTHER INFORMATION

Item 1. Legal Proceedings

Please see Note 1211 to the Condensed Consolidated Financial Statements.

Item 1A. Risk Factors

There have been no significant changes in the risk factors identified as being attendant to our business in our Annual Report on Form 10-K for the year ended December 31, ~~2021, except as provided below.~~

~~Our business, financial condition and results of operations could be adversely affected by disruptions in the global and European economies caused by Russia’s invasion of Ukraine.~~

The global economy continues to be negatively impacted by increasing tension and uncertainty resulting from Russia's invasion of Ukraine. The adverse and uncertain economic conditions resulting therefrom have and may continue to negatively impact global demand, cause supply chain disruptions and increase costs for transportation, energy and other raw materials. Furthermore, governments in the United States, the European Union, the United Kingdom, Canada and others have imposed financial and economic sanctions on certain industry segments and various parties in Russia. We continue to monitor the conflict including the potential impact of financial and economic sanctions on the global economy and particularly the economies of Europe. Increased trade barriers, sanctions and other restrictions on global or regional trade could adversely affect our business, financial condition and results of operations. Although we have no operations located in Russia or Ukraine, we do supply regularly into Ukraine and the destabilizing effects of Russia’s invasion of Ukraine could have other adverse effects on our business. Further escalation of geopolitical tensions related to this military conflict and/or its expansion could result in loss of property, expropriation, cyberattacks, supply disruptions, plant closures and an inability to obtain key supplies and materials, as well as adversely affect both our and our customers' supply chains and logistics, particularly in Europe.

In many cases, both our German operations and those of European customers and suppliers depend on the availability of natural gas for use in their manufacturing operations. A significant proportion of Germany's natural gas supply originates from Russia. Material disruptions of natural gas supply to Europe and in particular Germany, whether from sanctions, counter-measures by Russia, other restrictions, damage to infrastructure and logistics or otherwise from the destabilizing effects of military conflict could materially and adversely impact European and global natural gas and oil markets. We expect that shortages in supply and increases in costs of natural gas or other energy will adversely impact our ability to operate our German manufacturing facilities ~~as efficiently and cost-effectively as previously, which could adversely affect our business, results of operations and financial condition.~~

In addition, the effects of such military conflict could heighten and increase many of the other risks described in Part I, Item 1A. "Risk Factors" in our Form 10-K for the year ended December 31, 2021.2022.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

In connection with the vesting of Company restricted common stock under our equity incentive plans or distributions of shares of common stock pursuant to our Amended and Restated Non-Qualified Deferred Compensation Plan (“deferred compensation plan”) during the ~~third~~first quarter of ~~2022,~~2023, we retained shares of common stock in satisfaction of withholding tax obligations. We also retained shares of common stock as the result of participants’ diversification of equity awards held in the deferred compensation plan into other investment options. These shares are held as treasury shares by the Company.

Total number of shares purchased (1) (2) Average price paid per share
July 1 to July 31, 2022 64 $ 18.03
August 1 to August 31, 2022 — $ —
September 1 to September 30, 2022 — $ —
Total 64 $ 18.03


	Total number of shares purchased (1) (2)	Average price paid per share
January 1 to January 31, 2023	29,825	$	21.81
February 1 to February 28, 2023	76,167	$	26.47
March 1 to March 31, 2023	40,742	$	25.57
Total	146,734	$	25.28

(1) Share purchases ~~in 2022 represent shares withheld~~during the period were to offset tax withholding obligations that occurred upon ~~the~~(i) vesting of restricted common stock under the terms of the 2016 Equity Incentive ~~Plan.~~Plan and (ii) distributions of shares of common stock pursuant to deferred compensation obligations.

(2) As of ~~September 30, 2022,~~March 31, 2023, the maximum number of shares that ~~may yet~~could be purchased would not exceed the employees’ portion of taxes to be withheld on unvested shares ~~(495,932)~~(476,521) and potential purchases upon participant elections to diversify equity awards held in the ~~Company’s Amended and Restated Non-Qualified Deferred Compensation Plan (151,468)~~deferred compensation plan (94,265) into other investment options available to participants in the Plan.

~~Table of Contents~~

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Our Coolspring property is subject to regulation by the Federal Mine Safety and Health Administration (“MSHA”) under the Federal Mine Safety and Health Act of 1977 (the “Mine Act”). Pursuant to Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (The “Dodd-Frank Act”), issuers that are operators, or that have a subsidiary that is an operator, of a coal or other mine in the United States are required to disclose in their periodic reports filed with the SEC information regarding specified health and safety violations, orders and citations, related assessments and legal actions, and mining-related fatalities. During the quarter ended ~~September 30, 2022,~~March 31, 2023, we had no such specified health and safety violations, orders or citations, related assessments or legal actions, mining-related fatalities, or similar events in relation to our United States operations requiring disclosure pursuant to Section 1503(a) of the Dodd-Frank Act.

Item 5. Other Information

None.

Item 6. Exhibits

110.1 ~~0.31Third Amendment to License~~Severance and Release Agreement, dated March 1 6 3 ~~1, 2018~~, 2023, by and between ~~Coolspring Stone Supply Company (“CSSC”)~~ Arcadia Product s, LLC , DMC Global Inc . and ~~the Company.~~ James Schlad en.

~~10.32~~Table of Contents

10.2 Second ~~Third Amendment to Risk Allocation, Consulting~~Amended and ~~Services~~Restated Limited Liability Company Agreement of Arcadia Products, LLC, dated ~~March 31, 2018~~February 28, 2023 , by and ~~between Snoddy Management,~~among Arcadia Products, LLC, DMC Global Inc. ~~(“SMI”)~~, DMC Korea, Inc., and ~~the Company.~~New Arcadia Holdings, Inc.

31.1 Certification of the Co-President and Chief Executive Officer pursuant to 17 CFR 240.13a-14(a) or 17 CFR 240.15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

~~31.2~~31.2 Certification of the Co-President and Chief Executive Officer pursuant to 17 CFR 240.13a-14(a) or 17 CFR 240.15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.3 Certification of the Chief Financial Officer pursuant to 17 CFR 240.13a-14(a) or 17 CFR 240.15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1 Certification of the Co-President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2 Certification of the Co-President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

~~32.2~~32.3 Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101 The following materials from the Quarterly Report on Form 10-Q of DMC Global Inc. for the quarter ended ~~September 30, 2022,~~March 31, 2023, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Comprehensive Income (Loss), (iv) the Condensed Consolidated Statement of Stockholders’ Equity ~~(iv)~~and Redeemable Noncontrolling Interest, (v) the Condensed Consolidated Statements of Cash Flows, and ~~(v)~~(vi) the Notes to Condensed Consolidated Financial Statements, tagged as blocks of text.*

* Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

~~Table of Contents~~

SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


		DMC Global Inc.
		(Registrant)


Date:	~~November 3, 2022~~May 4, 2023	/s/ ~~Michael Kuta~~Eric V. Walter
		~~Michael Kuta,~~Eric V. Walter, Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer)

Date:	May 4, 2023	/s/ Brett Seger
		Brett Seger, Chief Accounting Officer (Duly Authorized Officer and Principal Accounting Officer)

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	Preliminary		Measurement Period Adjustments		Preliminary
	December 23, 2021				September 30, 2022
Cash, including cash acquired(1)	$	268,654	$	2,034	$	270,688
Equity(2)	21,716		—		21,716
Total fair value of consideration transferred	290,370		2,034		292,404

Assets acquired:
Cash and cash equivalents	$	7,654	$	—	$	7,654
Accounts receivable	31,456		—		31,456
Inventories	60,503		—		60,503
Prepaid expenses and other	2,438		—		2,438
Property, plant and equipment(3)	17,323		4,770		22,093
Goodwill(4)	141,266		(1,344)		139,922
Intangible assets(5)	254,500		—		254,500
Other long-term assets	122		(36)		86
Total assets acquired	515,262		3,390		518,652
Liabilities assumed:
Accounts payable	8,792		—		8,792
Other current liabilities	22,520		—		22,520


Total liabilities assumed	31,312		—		31,312
Redeemable noncontrolling interest(6)	193,580		1,356		194,936
Total assets acquired and liabilities assumed	$	290,370	$	2,034	$	292,404


	Three months ended September 30, 2021				Nine months ended September 30, 2021
	As Reported		Pro Forma		As Reported		Pro Forma
Net sales	$	67,175	$	132,488	$	188,271	$	371,963
Net income attributable to DMC Global Inc. stockholders	$	403	$	5,522	$	2,559	$	15,965


	Nine months ended September 30, 2022
	Amount		Per Share (1)
Net income attributable to DMC Global Inc.	$	8,981	$	0.47

Amortization of acquisition-related inventory valuation step-up, net of tax	199		0.01

NobelClad restructuring expenses, net of tax	36		—




As adjusted	$	9,216	$	0.48


	Total number of shares purchased (1) (2)	Average price paid per share
July 1 to July 31, 2022	64	$	18.03
August 1 to August 31, 2022	—	$	—
September 1 to September 30, 2022	—	$	—
Total	64	$	18.03