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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 June 30, 2022
 
OR
 
         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 classTrading SymbolName of exchange on which registered
Common Stock, $0.05 Par Value
BOOMThe 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 19,528,107 as of August 4, 2022.





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 price increases at DynaEnergetics, DynaEnergetics’ ability to benefit from strengthening prices, projected growth in Arcadia’s core geographic regions and end markets, plans to install new finishing capacity and targets for such lines to be operational, our ability to access our at-the-market offerings or the capital markets in the future, the ability of DynaEnergetics to realize the anticipated benefits of its patent strategy and expected continuing litigation costs, 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 and such things as the following: impacts of COVID-19 and any related preventative or protective actions taken by governmental authorities and resulting economic impacts, 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 and other raw material; 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; 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 political and economic developments including political instability 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
   
 
 
 
 
 
 
   
   
   
   
   
   
   
   
   
   
   
   
 

3

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)
June 30, 2022December 31, 2021
(unaudited)
ASSETS  
Current assets:  
Cash and cash equivalents$11,819 $30,810 
Accounts receivable, net of allowance for doubtful accounts of $2,801 and $2,773, respectively
92,998 71,932 
Inventories152,023 124,214 
Prepaid expenses and other11,888 12,240 
Total current assets268,728 239,196 
Property, plant and equipment198,920 191,022 
Less - accumulated depreciation(74,091)(68,944)
Property, plant and equipment, net124,829 122,078 
Goodwill135,464 141,266 
Purchased intangible assets, net229,365 255,576 
Deferred tax assets7,094 6,930 
Other assets98,075 99,366 
Total assets$863,555 $864,412 
LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST, AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$45,179 $40,276 
Accrued expenses9,818 13,585 
Accrued income taxes289 9 
Accrued employee compensation and benefits11,631 9,766 
Contract liabilities33,202 21,052 
Current portion of long-term debt15,000 15,000 
Other current liabilities6,291 6,126 
Total current liabilities121,410 105,814 
Long-term debt125,017 132,425 
Deferred tax liabilities2,019 2,202 
Other long-term liabilities62,858 66,250 
Total liabilities311,304 306,691 
Commitments and contingencies (Note 12)
Redeemable noncontrolling interest197,196 197,196 
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; 20,119,929 and 19,920,829 shares issued, respectively
1,006 996 
Additional paid-in capital298,905 294,515 
Retained earnings106,043 111,031 
Other cumulative comprehensive loss(30,329)(26,538)
Treasury stock, at cost, and company stock held for deferred compensation, at par; 597,758 and 570,415 shares, respectively
(20,570)(19,479)
Total stockholders’ equity355,055 360,525 
Total liabilities, redeemable noncontrolling interest, and stockholders’ equity$863,555 $864,412 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
4

DMC GLOBAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in Thousands, Except Share and Per Share Data)
(unaudited)

Three months ended June 30,Six months ended June 30,
 2022202120222021
Net sales$165,831 $65,438 $304,547 $121,096 
Cost of products sold113,732 48,467 215,542 91,212 
Gross profit52,099 16,971 89,005 29,884 
Costs and expenses:    
General and administrative expenses18,816 8,471 36,534 16,400 
Selling and distribution expenses10,545 5,544 20,635 10,787 
Amortization of purchased intangible assets12,793 288 25,769 612 
Restructuring expenses and asset impairments13  45 127 
Total costs and expenses42,167 14,303 82,983 27,926 
Operating income9,932 2,668 6,022 1,958 
Other income (expense):    
Other income (expense), net54 108 (155)502 
Interest expense, net(1,263)(81)(2,287)(216)
Income before income taxes8,723 2,695 3,580 2,244 
Income tax provision2,264 971 1,401 88 
Net income$6,459 $1,724 $2,179 $2,156 
Less: Net income (loss) attributable to redeemable noncontrolling interest907  (85) 
Net income attributable to DMC Global Inc. stockholders$5,552 $1,724 $2,264 $2,156 
Net income (loss) per share attributable to DMC Global Inc. stockholders:    
Basic$0.20 $0.10 $(0.26)$0.13 
Diluted$0.20 $0.10 $(0.26)$0.13 
Weighted average shares outstanding:    
Basic19,374,714 17,554,809 19,338,049 16,495,685 
Diluted19,374,736 17,568,444 19,338,049 16,507,500 

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 June 30,
Six months ended June 30,
2022202120222021
Net income attributable to DMC Global Inc. stockholders$5,552 $1,724 $2,264 $2,156 
Adjustment of redeemable noncontrolling interest(1,535) (7,252) 
Net income (loss) attributable to DMC Global Inc. common stockholders after adjustment of redeemable noncontrolling interest$4,017 $1,724 $(4,988)$2,156 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
5

DMC GLOBAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Amounts in Thousands)
(unaudited)

 
Three months ended June 30,Six months ended June 30,
 2022202120222021
Net income$6,459 $1,724 $2,179 $2,156 
Change in cumulative foreign currency translation adjustment(2,587)473 (3,791)(1,494)
Other comprehensive income (loss)$3,872 $2,197 $(1,612)$662 
Less: comprehensive income (loss) attributable to redeemable noncontrolling interest907  (85) 
Comprehensive income (loss) attributable to DMC Global Inc. stockholders$2,965 $2,197 $(1,527)$662 
 
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
6

DMC GLOBAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND REDEEMABLE NONCONTROLLING INTEREST
(Amounts in Thousands, Except Share Data)
(unaudited)

     OtherTreasury Stock, at cost, andTotalRedeemable
   Additional CumulativeCompany Stock Held forDMC Global Inc.Non-
 Common StockPaid-InRetainedComprehensive Deferred Compensation, at parStockholders’Controlling
 SharesAmountCapitalEarningsLossSharesAmountEquityInterest
Balances, March 31, 202220,084,272 $1,004 $296,774 $102,026 $(27,742)(587,188)$(20,567)$351,495 $197,196 
Net income— — — 5,552 — — — 5,552 907 
Change in cumulative foreign currency translation adjustment— — — — (2,587)— — (2,587)— 
Shares issued in connection with stock compensation plans35,657 2 (2)— — — —  — 
Adjustment of redeemable noncontrolling interest to redemption value— — — (1,535)— — — (1,535)1,535 
Stock-based compensation— — 2,133 — — — — 2,133 158 
Distribution to redeemable noncontrolling interest holder— — — — — — — — (2,600)
Treasury stock activity— — — — — (10,570)(3)(3)— 
Balances, June 30, 202220,119,929 $1,006 $298,905 $106,043 $(30,329)(597,758)$(20,570)$355,055 $197,196 
     OtherTreasury Stock, at cost, andTotal
   Additional CumulativeCompany Stock Held forDMC Global Inc.
 Common StockPaid-InRetainedComprehensiveDeferred Compensation, at parStockholders’
 SharesAmountCapitalEarningsLossSharesAmountEquity
Balances, March 31, 202116,399,813 $820 $144,094 $116,089 $(24,929)(566,343)$(17,644)$218,430 
Net income— — — 1,724 — — — 1,724 
Change in cumulative foreign currency translation adjustment— — — — 473 — — 473 
Shares issued in connection with equity offering2,875,000 144 123,317 — — — — 123,461 
Shares issued in connection with stock compensation plans19,932 1 252 — — — — 253 
Stock-based compensation— — 1,712 — — — 1,712 
Treasury stock activity— — — — — (3,394)(16)(16)
Balances, June 30, 202119,294,745 $965 $269,375 $117,813 $(24,456)(569,737)$(17,660)$346,037 

7

DMC GLOBAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND REDEEMABLE NONCONTROLLING INTEREST
(Amounts in Thousands, Except Share Data)
(unaudited)



     OtherTreasury Stock, at cost, andTotalRedeemable
   Additional CumulativeCompany Stock Held forDMC Global Inc.Non-
 Common StockPaid-InRetainedComprehensiveDeferred Compensation, at parStockholders’Controlling
 SharesAmountCapitalEarningsLossSharesAmountEquityInterest
Balances, December 31, 202119,920,829 $996 $294,515 $111,031 $(26,538)(570,415)$(19,479)$360,525 $197,196 
Net income (loss)— — — 2,264 — — — 2,264 (85)
Change in cumulative foreign currency translation adjustment— — — — (3,791)— — (3,791)— 
Shares issued in connection with stock compensation plans199,100 10 (10)— — — —  — 
Escrow adjustment related to redeemable noncontrolling interest— — — — — — — — (427)
Adjustment of redeemable noncontrolling interest to redemption value— — — (7,252)— — — (7,252)7,252 
Stock-based compensation— — 4,400 — — — — 4,400 260 
Distribution to redeemable noncontrolling interest holder— — — — — — — — (7,000)
Treasury stock activity— — — — — (27,343)(1,091)(1,091)— 
Balances, June 30, 202220,119,929 $1,006 $298,905 $106,043 $(30,329)(597,758)$(20,570)$355,055 $197,196 

8

DMC GLOBAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND REDEEMABLE NONCONTROLLING INTEREST
(Amounts in Thousands, Except Share Data)
(unaudited)
     OtherTreasury Stock, at cost, andTotal
   Additional CumulativeCompany Stock Held forDMC Global Inc.
 Common StockPaid-InRetainedComprehensiveDeferred Compensation, at parStockholders’
 SharesAmountCapitalEarningsLossSharesAmountEquity
Balances, December 31, 202015,917,559 $796 $117,387 $115,657 $(22,962)(528,274)(13,964)$196,914 
Net income— — — 2,156 — — — 2,156 
Change in cumulative foreign currency translation adjustment— — — — (1,494)— — (1,494)
Shares issued in connection with equity offering2,875,000 144 123,317 — — — — 123,461 
Shares issued in connection with at-the-market offering program397,820 20 25,242 — — — — 25,262 
Shares issued in connection with stock compensation plans104,366 5 248 — — — — 253 
Stock-based compensation— — 3,181 — — — 3,181 
Treasury stock activity— —  — — (41,463)(3,696)(3,696)
Balances, June 30, 202119,294,745 $965 $269,375 $117,813 $(24,456)(569,737)$(17,660)$346,037 
    

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

9

DMC GLOBAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
(unaudited)
Six months ended June 30,
 20222021
Cash flows provided by (used in) operating activities:  
Net income$2,179 $2,156 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:  
Depreciation7,037 5,530 
Amortization of purchased intangible assets25,769 612 
Amortization of deferred debt issuance costs267 112 
Amortization of acquisition-related inventory valuation step-up430  
Stock-based compensation4,649 3,335 
Deferred income taxes(164)(2,616)
Other45 (283)
Restructuring expenses and asset impairments45 127 
Change in:  
Accounts receivable, net(22,250)(11,985)
Inventories(29,814)(10,477)
Prepaid expenses and other1,161 (9,076)
Accounts payable4,955 7,476 
Contract liabilities12,389 5,345 
Accrued expenses and other liabilities(4,162)3,723 
Net cash provided by (used in) operating activities2,536 (6,021)
Cash flows used in investing activities:   
Proceeds from escrow related to acquisition of business640  
Investment in marketable securities (123,984)
Proceeds from maturities of marketable securities 4,799 
Acquisition of property, plant and equipment(6,319)(3,252)
Proceeds on sale of property, plant and equipment 1,004 
Net cash used in investing activities(5,679)(121,433)
Cash flows (used in) provided by financing activities:   
Repayments on term loan(7,500) 
Repayments on capital expenditure facility (11,750)
Payments of debt issuance costs(176) 
Distributions to redeemable noncontrolling interest holder(7,000) 
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(1,094)(2,451)
Net cash (used in) provided by financing activities(15,770)134,775 
Effects of exchange rates on cash(78)855 
Net (decrease) increase in cash and cash equivalents(18,991)8,176 
Cash and cash equivalents, beginning of the period30,810 28,187 
Cash and cash equivalents, end of the period$11,819 $36,363 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
10

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 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.

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 segment and analyze each segment’s accounts receivable balances as separate populations. Within each segment, receivables exhibit similar risk characteristics.

During the three and six months ended June 30, 2022, our expected loss rate reflects uncertainties in market conditions that could impact our businesses, including COVID-19 related considerations, supply chain disruptions, 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 the offsetting expense 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. During the three and six months ended June 30, 2022, provisions of $148 and $128, respectively, were recorded. Provisions recorded do not reflect $975 of previous net sales that were reversed during the second quarter due to returned inventory from a current customer that operates in Ukraine. The value of the returned inventory that is available for immediate sale is $420.

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

ArcadiaDynaEnergeticsNobelCladDMC Global Inc.
Allowance for doubtful accounts, December 31, 2021
$ $2,758 $15 $2,773 
Current period provision for expected credit losses$88 87  175 
Write-offs charged against the allowance(97) (97)
Recoveries of amounts previously reserved$ (47) (47)
Impacts of foreign currency exchange rates and other$ (3) (3)
Allowance for doubtful accounts, June 30, 2022
$88 $2,698 $15 $2,801 


11

During 2021, the Company entered into a note receivable with terms of repayment over five years, collateralized by certain fixed assets. The note, with an outstanding current balance of $1,356 as of June 30, 2022 recorded within “Prepaid expenses and other” and an outstanding long-term balance of $8,811 as of June 30, 2022 recorded within “Other Assets”, is considered an arrangement with a variable interest entity for which the Company is not the primary beneficiary and has concluded does not require consolidation.

Revenue Recognition

The Company’s revenues are primarily derived from consideration paid by customers for tangible goods. The Company analyzes its different goods by 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 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 "Business Segments" for disaggregated revenue disclosures.

See additional revenue recognition policy disclosures specific to the DynaEnergetics and NobelClad 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 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 delivered to the customer and the legal title has been transferred. Upon delivery 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 included within Arcadia contracts.

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.

12

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 June 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.

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.

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 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 is 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 it will be sustained upon examination, including the resolution of any related appeals or litigation. The tax benefits recognized in the consolidated financial statements from such a position are measured as the largest benefit that is more likely than not to be realized upon ultimate resolution. 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 number of common shares outstanding during the period. Refer to Note 3 "Business Combination" 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. 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.
13

Three months ended June 30,Six months ended June 30,
2022202120222021
Net income attributable to DMC Global Inc. stockholders, as reported$5,552 $1,724 2,264 2,156 
Less: Adjustment of redeemable noncontrolling interest(1,535) (7,252) 
Less: Undistributed net income available to participating securities(60)(17) (21)
Numerator for basic net income (loss) per share:3,957 1,707 (4,988)2,135 
Add: Undistributed net income allocated to participating securities60 17  21 
Less: Undistributed net income reallocated to participating securities(60)(17) (21)
Numerator for diluted net income (loss) per share:3,957 1,707 (4,988)2,135 
Denominator:
Weighted average shares outstanding for basic net income (loss) per share19,374,714 17,554,809 19,338,049 16,495,685 
Effect of dilutive securities (1)22 13,635  11,815 
Weighted average shares outstanding for diluted net income (loss) per share19,374,736 17,568,444 19,338,049 16,507,500 
Net income (loss) per share attributable to DMC Global Inc. stockholders
Basic$0.20 $0.10 $(0.26)$0.13 
Diluted$0.20 $0.10 $(0.26)$0.13 

(1) For the three and six months ended June 30, 2022, 100,855 and 99,217 shares, respectively, have been excluded as their effect would have been anti-dilutive.

Deferred compensation

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. If diversified, these 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 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:
Balance Sheet locationJune 30, 2022December 31, 2021
Deferred compensation assetsOther assets$13,299 $13,812 
Deferred compensation obligationsOther long-term liabilities$14,953 $15,944 

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 accounts receivable and payable, accrued expenses, and the revolving loans and term loan under our credit facility, when outstanding, approximate their fair value.

Our revolving loans and term loan under our credit facility, when outstanding, reset each month at market interest rates. As a result, we classify these liabilities as Level 1 in the fair value hierarchy.

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 $9,280 as of June 30, 2022 and $9,083 as of December 31, 2021 held to satisfy future deferred compensation obligations are valued based upon the market values of underlying securities and are classified as Level 2 in the fair value hierarchy.

We did not hold any Level 3 assets or liabilities as of June 30, 2022 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.

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.

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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.

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 co