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DMC Global Third Quarter Financial Results

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   |    Thursday,October 22,2020

DMC Global reported financial results for its third quarter ended September 30, 2020.

Quick Read

  • Consolidated third quarter sales were $55.3 million, up 28% sequentially and down 45% from Q3 2019
  • Operating income was $1.5 million versus $12.8 million in Q3 2019
  • Net income was $1.0 million, or $0.07 per diluted share; while adjusted net income* was $1.2 million, or $0.08 per diluted share
  • Adjusted EBITDA* was $6.0 million versus negative $1.8 million in Q2 2020 and positive $23.2 million in Q3 2019
  • Cash and cash equivalents at September 30, 2020, were $24.6 million, up from $17.2 million at June 30, 2020.
  • Net cash* (cash and cash equivalents less total debt) at September 30, 2020, was $12.6 million, up from net cash of $4.5 million at June 30, 2020

Consolidated sales were $55.3 million, up 28% sequentially and down 45% versus the third quarter of 2019. The sequential increase reflects improved demand in North America for integrated perforating systems from DynaEnergetics, DMC's oilfield products business. North American sales improved 122% sequentially, and were partially offset by a 27% sequential decline in international sales, which can fluctuate based on order timing. Consolidated third quarter sales also reflect an 8% sequential improvement at NobelClad, DMC's composite metals business. The sales decline versus last year's third quarter reflects the collapse in global oil and gas demand as a result of the Covid-19 pandemic.

Gross margin for the third quarter was 25% versus 15% in the 2020 second quarter and 36% in the 2019 third quarter

Third quarter operating income was $1.5 million, down from $12.8 million in last year's third quarter. Net income was $1.0 million, or $0.07 per diluted share, versus net income of $6.9 million, or $0.46 per diluted share, in last year's third quarter. Adjusted net income was $1.2 million, or $0.08 per diluted share.

Third quarter adjusted EBITDA was $6.0 million versus a negative $1.8 million in the 2020 second quarter, and a positive $23.2 million in the 2019 third quarter.

Net cash (total cash and cash equivalents less total debt) at September 30, 2020, was $12.6 million, up from net cash of $4.5 million at June 30, 2020.

DynaEnergetics

Third quarter sales at DynaEnergetics were $34.2 million, up 45% sequentially and down 56% from the 2019 third quarter. Gross margin was 24%, up from 8% in the second quarter of 2020 and down from 39% in last year's third quarter. Operating income was $2.2 million versus $14.9 million in the comparable year-ago quarter. Excluding restructuring charges, adjusted operating income was $2.3 million versus $21.4 million in the 2019 third quarter. Adjusted EBITDA was $4.2 million versus $23.2 million in last year's third quarter.

NobelClad

Third quarter sales at NobelClad, DMC's composite metals business, were $21.1 million, up 8% sequentially and down 7% versus the 2019 third quarter. Gross margin was 26%, up from 25% in the 2020 second quarter and flat versus last year's third quarter. Operating income was $2.5 million versus $2.2 million in the year-ago third quarter. Adjusted EBITDA was $3.4 million versus $3.1 million in last year's third quarter.

NobelClad's trailing 12-month book-to-bill ratio at the end of the third quarter was 1.09, and its rolling 12-month bookings were $90 million versus $89 million at June 30, 2020. Order backlog was $42.6 million versus $42.9 million at the end of the second quarter.

Nine-month results

Consolidated sales for the nine-month period were $172.0 million, down 45% versus the same period a year ago. Gross margin was 26% versus 37% in the 2019 nine-month period. Operating loss was $178,000 versus operating income of $57.9 million in last year's nine-month period. Net loss for the period was $485,000, or $0.03 per diluted share, versus net income of $39.3 million, or $2.64 per diluted share, in the same period a year ago.

Nine-month adjusted operating income was $3.1 million and adjusted net income was $1.8 million, or $0.13 per diluted share. Adjusted EBITDA was $15.5 million versus $76.1 million in last year's nine-month period.

DynaEnergetics

Nine-month sales at DynaEnergetics were $111.1 million, down 55% from $245.8 million in last year's nine-month period. Operating income was $3.9 million versus $64.8 million in the comparable year-ago period. Adjusted EBITDA was $12.2 million versus $76.2 million in last year's nine-month period.

NobelClad

NobelClad reported nine-month sales of $61.0 million, down 7% from $65.4 million at the nine-month mark last year. Operating income was $5.9 million versus $6.0 million in the comparable year-ago period, while adjusted EBITDA was $8.8 million versus $8.9 million in last year's nine-month period.

President and CEO Kevin Longe said, "The third quarter brought a stronger-than-expected upturn in North American well completion activity, and DynaEnergetics' customers were able to quickly accelerate operations, in part by deploying our Factory-Assembled, Performance-Assured DS perforating systems, which are delivered just-in-time to the wellsite. In addition, NobelClad reported better-than-expected order shipments. These factors led to third quarter financial results that exceeded publicly issued guidance.

"Despite the recent improvement in well completion activity, the environment for North America's unconventional oil and gas industry remains challenging, and most operators and service companies are actively streamlining operations and reducing costs. Many also are adopting new well-completion technologies, including DynaEnergetics' integrated DS perforating systems, which require fewer people and less time to arm and deploy, and significantly enhance the safety, performance and reliability of our customers' well-completion programs.

"DynaEnergetics made several additions to its product portfolio during the third quarter, including the DS MicroSet, a compact, disposable setting tool used to install the plug at the end of each stage in an unconventional oil or gas well. The factory-assembled tool has performed extremely well in field trials with multiple customers. It works seamlessly with our DS perforating systems, and is fully disposable, eliminating the dangerous redressing processes required with most setting tools. DS MicroSet and the new DS Liberator ballistic release tool will be commercially available next month.

"DynaEnergetics anticipates fourth quarter demand from North America's unconventional market will be consistent with the third quarter. However, it also expects a seasonal decline in international order volume, which is expected to accelerate again in the first half of 2021."

Longe continued, "During the third quarter, NobelClad booked several orders in the petrochemical sector, as well as the upstream and downstream energy industries. In addition, shipments began on the first major order from the engineered wood industry, which NobelClad expects could become a long-term end market.

"We continue to enhance our financial position, and ended the third quarter with cash and cash equivalents of $24.6 million, and net cash of $12.6 million.

"Our third quarter performance was achieved in the midst of difficult market conditions that were made more challenging by the global pandemic. I am extremely proud of our employees around the world for their efforts to keep themselves and their co-workers safe, while also delivering on our commitments to our customers."

Guidance

Michael Kuta, CFO, said fourth quarter 2020 sales are expected in a range of $50 million to $55 million versus the $55.3 million reported in the 2020 third quarter. At the business level, DynaEnergetics is expected to report sales in a range of $30 million to $33 million versus the $34.2 million reported in 2020 third quarter, while NobelClad's sales are expected in a range of $20 million to $22 million versus the $21.1 million reported in the 2020 third quarter.

Consolidated gross margin is expected in a range of 20% to 23% versus 25% in the 2020 third quarter. The anticipated sequential decline reflects an expected seasonal drop in higher-margin international sales at DynaEnergetics, and a less favorable project mix at NobelClad.

Third quarter selling, general and administrative (SG&A) expense is expected to be approximately $12 million versus the $11.6 million reported in the 2020 third quarter, while amortization expense is expected to be approximately $370,000. Interest expense is expected in a range of $150,000 to $200,000.

Adjusted EBITDA is expected in a range of $2 million to $4 million versus the $6.0 million in the third quarter of 2020.


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