SOURCE: Dynamic Materials Corp.

Dynamic Materials Corp.

October 30, 2013 16:05 ET

Dynamic Materials Reports Third Quarter Financial Results

BOULDER, CO--(Marketwired - Oct 30, 2013) - Dynamic Materials Corporation (DMC) (NASDAQ: BOOM), today reported financial results for its third quarter ended September 30, 2013.

Third quarter sales were $54.3 million, up 8% from $50.1 million in the same quarter last year, and down 6% from sales of $57.9 million in the second quarter. Third quarter gross margin was 31%, flat versus the third quarter a year ago and up from 30% in this year's second quarter.

Operating income increased 6% to $5.5 million from $5.2 million in last year's third quarter, and was down 9% from $6.0 million in the second quarter. Net income in the third quarter was $3.6 million, or $0.26 per diluted share, a 5% decline from net income of $3.8 million, or $0.28 per diluted share, in the year-ago third quarter, but up from net income of $3.4 million, or $0.25 per diluted share, in this year's second quarter.

During the third quarter, DMC completed a comprehensive review of inventories at its oilfield products business as part of an effort to reduce inventory levels. As a result of the review, the Company recorded a one-time expense of $1.2 million to reflect an increase in reserves for excess, slow moving and obsolete inventory. The impact of this change in estimated reserve requirements reduced earnings by $0.06 per diluted share for both the three and nine-month periods ended September 30, 2013.

Third quarter adjusted EBITDA was $9.2 million, up 3% from $9.0 million in the third quarter last year, and down 5% from $9.7 million in the second quarter. Adjusted EBITDA is a non-GAAP (generally accepted accounting principles) financial measure used by management to measure operating performance. See additional information about adjusted EBITDA at the end of this news release, as well as a reconciliation of adjusted EBITDA to GAAP measures.

NobelClad
NobelClad, the Company's explosive metalworking business, reported sales of $30.4 million, up 2% from $29.8 million in the third quarter last year. Operating income was $5.6 million, an increase of 2% versus $5.5 million in the same quarter a year ago. Adjusted EBITDA was $7.1 million, up 4% from $6.8 million in the comparable year-ago quarter. The segment closed the quarter with an order backlog of $42.9 million versus $44.2 million at the end of the second quarter.

DynaEnergetics
Sales at DynaEnergetics, DMC's oilfield products business, were $21.9 million, up 22% from $18.0 million in last year's third quarter. The increase is attributable to geographic expansion initiatives and favorable changes in product and customer mix. Operating income was $1.7 million, up 51% versus $1.1 million in the third quarter last year, while adjusted EBITDA was $3.1 million, up 22% versus $2.6 million in the 2012 third quarter.

AMK Technical Services
AMK Technical Services, previously known as AMK Welding, reported third quarter sales of $1.9 million, down 17% from $2.3 million in last year's third quarter. AMK's sales continue to reflect the wind down of a major, long-term ground power project, which accounted for a significant portion of the business's historical ground power revenues. Operating income was $186,000 versus $386,000 in the 2012 third quarter. Adjusted EBITDA was $338,000 compared with $524,000 in last year's third quarter.

Nine-Month Results
Sales for the nine-month period increased 6% to $158.4 million from $149.0 million during the same period a year ago. Gross margin was flat at 29%. Operating income for the nine-month period, which includes the negative impact of the above referenced $1.2 million increase in inventory reserves, as well as $3.0 million in non-recurring expenses associated with management retirements, decreased to $10.4 million from $12.9 million in the same period last year.

Net income, which reflects a $908,000 first quarter tax benefit, was $7.2 million, or $0.52 per diluted share, down 18% from $8.8 million, or $0.65 per diluted share, in the same period a year ago. Adjusted EBITDA declined 9% to $22.2 million from $24.5 million during the 2012 nine-month period.

Cash flow from operations through nine months increased 146% to $30.7 million from $12.5 million during the first nine months of 2012. The increase was largely driven by a $19.0 million positive change in net working capital, which offset a $1.5 million decrease in net income.

NobelClad reported nine-month sales of $89.0 million, up 5% from $84.7 million in the comparable prior-year period. Operating income was $13.3 million versus $13.1 million in the year-ago nine-month period, and adjusted EBITDA was $17.7 million versus $17.3 million at the nine-month mark last year.

Nine-month sales at DynaEnergetics increased 10% to $63.7 million from $57.9 million in the 2012 nine-month period. The segment reported nine-month operating income of $5.6 million, up 15% from $4.9 million in the comparable prior-year period. Adjusted EBITDA improved 8% to $9.8 million from $9.1 million in the year-ago period.

AMK Technical Services recorded nine-month sales of $5.7 million, down 12% from $6.4 million through the first nine months of 2012. Operating income was $296,000 versus $463,000 in the prior year's nine-month period, while adjusted EBITDA was $749,000 versus $850,000.

Management Commentary
Kevin Longe, president and CEO, said that each of DMC's businesses achieved important operational objectives during the third quarter. DynaEnergetics launched commercial production at its new shaped charge facility in Blum, Texas during September, and hit key construction objectives on a third shaped charge plant being built in Tyumen, Siberia. DynaEnergetics also has reported growing market acceptance of its new DYNAselect System, an advanced explosive initiation technology that enhances the safety and decreases the complexity of the well perforating process.

"At NobelClad, the prospective orders we referenced last quarter from the chemical industry have now been booked into backlog," said Longe. "In addition, our sales team has reported several additional large order opportunities have emerged from the international chemical and upstream oil and gas industries."

Longe added, "Quoting activity has remained relatively strong, but the pace at which orders are being released by customers remains sluggish. We are optimistic that as the global economy continues to strengthen, we will begin to see an increase in our book-to-bill ratio. NobelClad continues to strengthen operational efficiencies, particularly at its flagship explosion welding facility in Mt. Braddock, Pennsylvania. These improvements have allowed us to concurrently address multiple large orders with very tight delivery deadlines, while also managing our base-load production."

Longe said that AMK Technical Services continues to pursue new revenue opportunities with current and prospective customers. The business recently invested in a new Mazak machining center, which expands the services AMK can provide to its customers.

"As we commence the final months of fiscal 2013, we are making additional progress on the strategic objectives we established at the beginning of the year," Longe said. "We continue to enhance operations at the business and corporate levels and are further strengthening our leadership and support teams. We also are expanding our presence in Asia and South America and rolling out a global re-branding campaign. As a result of these efforts, we have a much stronger platform from which to pursue our growth plans, and are optimistic about our prospects for success in 2014 and beyond."

Guidance
Rick Santa, senior vice president and chief financial officer, said, "In light of our year-to-date sales levels and the slight decline in NobelClad's order backlog, we are adjusting our full year 2013 sales forecast to an anticipated growth rate of 4% to 5% versus 2012 sales. Our prior forecast called for an increase of 6% to 8%. However, given the year-to-date and anticipated fourth quarter product and customer mix at NobelClad and DynaEnergetics, we are elevating our full-year 2013 gross margin forecast to 29% to 30% versus the prior range of 27% to 29%."

DMC's blended effective tax rate for the full year 2013 is expected to be in a range of 26% to 27% (versus a previously forecasted range of 24% to 26%) based on projected pre-tax income, the previously reported $908,000 in certain tax benefits recognized in the first quarter, and the previously reported $430,000 non-recurring charge recorded in the second quarter related to a German tax settlement. Excluding the impact of the above items, the blended effective tax rate for 2013 is projected to be in a range of 29% to 30%.

For the fourth quarter, management anticipates sales will be in a range of 2% below to 2% above sales of $52.5 million reported in the fourth of 2012. Gross margin is expected to be in a range of 29% to 30%.

Conference call information
Management will hold a conference call to discuss these results today at 5:00 p.m. Eastern (3:00 p.m. Mountain). Investors are invited to listen to the call live via the Internet at www.dynamicmaterials.com, or by dialing into the teleconference at 877-407-0778 (201-689-8565 for international callers). No passcode is necessary. Webcast participants should access the website at least 15 minutes early to register and download any necessary audio software. A replay of the webcast will be available for 90 days and a telephonic replay will be available through November 6, 2013, by calling 877-660-6853 (201-612-7415 for international callers) and entering the Conference ID # 100714.

Use of Non-GAAP Financial Measures
Non-GAAP results are presented only as a supplement to the financial statements based on U.S. generally accepted accounting principles (GAAP). The non-GAAP financial information is provided to enhance the reader's understanding of DMC's financial performance, but no non-GAAP measure should be considered in isolation or as a substitute for financial measures calculated in accordance with GAAP. Reconciliations of the most directly comparable GAAP measures to non-GAAP measures are provided within the schedules attached to this release.

EBITDA is defined as net income plus or minus net interest plus taxes, depreciation and amortization. Adjusted EBITDA excludes from EBITDA stock-based compensation and, when appropriate, other items that management does not utilize in assessing DMC's operating performance (as further described in the attached financial schedules). None of these non-GAAP financial measures are recognized terms under GAAP and do not purport to be an alternative to net income as an indicator of operating performance or any other GAAP measure.

Management uses these non-GAAP measures in its operational and financial decision-making, believing that it is useful to eliminate certain items in order to focus on what it deems to be a more reliable indicator of ongoing operating performance. As a result, internal management reports used during monthly operating reviews feature the adjusted EBITDA. In addition, during 2013 DMC management incentive awards will be based, in part, on the amount of EBITDA achieved during the year. Management also believes that investors may find non-GAAP financial measures useful for the same reasons, although investors are cautioned that non-GAAP financial measures are not a substitute for GAAP disclosures. EBITDA and adjusted EBITDA are also used by research analysts, investment bankers and lenders to assess operating performance. For example, a measure similar to EBITDA is required by the lenders under DMC's credit facility.

Because not all companies use identical calculations, DMC's presentation of non-GAAP financial measures may not be comparable to other similarly titled measures of other companies. However, these measures can still be useful in evaluating the company's performance against its peer companies because management believes the measures provide users with valuable insight into key components of GAAP financial disclosures. For example, a company with greater GAAP net income may not be as appealing to investors if its net income is more heavily comprised of gains on asset sales. Likewise, eliminating the effects of interest income and expense moderates the impact of a company's capital structure on its performance.

All of the items included in the reconciliation from net income to EBITDA and adjusted EBITDA are either (i) non-cash items (e.g., depreciation, amortization of purchased intangibles and stock-based compensation) or (ii) items that management does not consider to be useful in assessing DMC's operating performance (e.g., income taxes and gain on sale of assets). In the case of the non-cash items, management believes that investors can better assess the company's operating performance if the measures are presented without such items because, unlike cash expenses, these adjustments do not affect DMC's ability to generate free cash flow or invest in its business. For example, by adjusting for depreciation and amortization in computing EBITDA, users can compare operating performance without regard to different accounting determinations such as useful life. In the case of the other items, management believes that investors can better assess operating performance if the measures are presented without these items because their financial impact does not reflect ongoing operating performance.

About DMC
Based in Boulder, Colorado, DMC serves a global network of customers in the energy, infrastructure and industrials markets through two core business segments -- NobelClad and DynaEnergetics -- as well as a specialized industrial service provider, AMK Welding. The NobelClad segment is the world's largest manufacturer of explosion-welded clad metal plates, which are used to fabricate capital equipment utilized within various process industries and other industrial sectors. DynaEnergetics is an international manufacturer and marketer of advanced explosive components and systems used to perforate oil and gas wells. AMK Welding utilizes various specialized technologies to weld components for use in power-generation turbines, and commercial and military jet engines. For more information, visit the Company's website at: http://www.dynamicmaterials.com

Safe Harbor Language
Except for the historical information contained herein, this news release contains forward-looking statements, including our guidance for fourth quarter and full-year 2013 sales, margins, tax rates and tax benefits, expectations regarding our global growth and operational initiatives, NobelClad sales opportunities in the international chemical and upstream oil and gas markets, expanded geographic presence, success of new products, and the other prospects we are pursuing at each of our three business segments. These risks and uncertainties include, but are not limited to, the following: our ability to realize sales from our backlog; our ability to obtain new contracts at attractive prices; the size and timing of customer orders and shipments; fluctuations in customer demand; our ability to successfully execute upon international growth opportunities; fluctuations in foreign currencies, changes to customer orders; the cyclicality of our business; competitive factors; the timely completion of contracts; the timing and size of expenditures; the timing and price of metal and other raw material; the adequacy of local labor supplies at our facilities; current or future limits on manufacturing capacity at our various operations; the availability and cost of funds; and general economic conditions, both domestic and foreign, impacting our business and the business of the end-market users we serve; as well as the other risks detailed from time to time in the Company's SEC reports, including the annual report on Form 10-K for the year ended December 31, 2012.

   
   
DYNAMIC MATERIALS CORPORATION  
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS  
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012  
(Amounts in Thousands, Except Share and Per Share Data)  
(unaudited)  
                         
    Three months ended     Nine months ended  
    September 30,     September 30,  
    2013     2012     2013     2012  
NET SALES   $ 54,268     $ 50,149     $ 158,396     $ 149,048  
COST OF PRODUCTS SOLD     37,695       34,800       112,042       105,383  
    Gross profit     16,573       15,349       46,354       43,665  
COSTS AND EXPENSES:                                
  General and administrative expenses     5,833       4,668       19,129       13,815  
  Selling and distribution expenses     3,699       4,011       12,074       12,330  
  Amortization of purchased intangible assets     1,581       1,520       4,734       4,584  
    Total costs and expenses     11,113       10,199       35,937       30,729  
INCOME FROM OPERATIONS     5,460       5,150       10,417       12,936  
OTHER INCOME (EXPENSE):                                
  Other income (expense), net     (247 )     180       (371 )     390  
  Interest expense     (129 )     (216 )     (484 )     (622 )
  Interest income     1       16       5       25  
INCOME BEFORE INCOME TAXES AND NON-CONTROLLING INTEREST     5,085       5,130       9,567       12,729  
INCOME TAX PROVISION     1,474       1,373       2,259       3,882  
NET INCOME     3,611       3,757       7,308       8,847  
  Less: Net income attributable to non-controlling interest     49       3       92       13  
NET INCOME ATTRIBUTABLE TO DYNAMIC MATERIALS CORPORATION   $ 3,562     $ 3,754     $ 7,216     $ 8,834  
INCOME PER SHARE:                                
  Basic   $ 0.26     $ 0.28     $ 0.52     $ 0.65  
  Diluted   $ 0.26     $ 0.28     $ 0.52     $ 0.65  
                                 
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:                                
  Basic     13,540,394       13,212,246       13,528,880       13,204,086  
  Diluted     13,544,665       13,216,229       13,532,973       13,208,259  
                                 
DIVIDENDS DECLARED PER COMMON SHARE   $ 0.04     $ 0.04     $ 0.12     $ 0.12  
                                 
                                 
                                 
DYNAMIC MATERIALS CORPORATION & SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands)
         
    September 30,   December 31,
    2013   2012
ASSETS   (unaudited)    
             
Cash and cash equivalents   $ 9,578   $ 8,200
Accounts receivable, net     32,018     36,981
Inventory, net     41,708     48,320
Other current assets     6,546     7,165
  Total current assets     89,850     100,666
             
Property, plant and equipment, net     63,500     53,976
Goodwill, net     37,553     37,431
Purchased intangible assets, net     37,646     41,958
Other long-term assets     1,005     1,400
Total assets   $ 229,554   $ 235,431
             
LIABILITIES AND STOCKHOLDERS' EQUITY            
             
Accounts payable   $ 9,135   $ 11,281
Customer advances     1,392     1,363
Dividend payable     550     540
Accrued income taxes     1,325     406
Other current liabilities     10,175     9,742
Lines of credit     -     981
Current portion of long-term debt     65     65
  Total current liabilities     22,642     24,378
             
Lines of credit     25,550     37,779
Long-term debt     5     55
Deferred tax liabilities     8,429     9,211
Other long-term liabilities     1,755     1,452
Stockholders' equity     171,173     162,556
Total liabilities and stockholders' equity   $ 229,554   $ 235,431
             
             
             
DYNAMIC MATERIALS CORPORATION & SUBSIDIARIES  
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012  
(Amounts in Thousands)  
(unaudited)  
             
    2013     2012  
CASH FLOWS FROM OPERATING ACTIVITIES:                
  Net income   $ 7,308     $ 8,847  
  Adjustments to reconcile net income to net cash provided by operating activities -                
    Depreciation (including capital lease amortization)     4,441       4,121  
    Amortization of purchased intangible assets     4,734       4,584  
    Amortization of deferred debt issuance costs     76       96  
    Stock-based compensation     2,685       2,838  
    Deferred income tax benefit     (260 )     (763 )
    Gain (loss) on disposal of property, plant and equipment     5       (32 )
    Change in working capital, net     11,745       (7,214 )
      Net cash provided by operating activities     30,734       12,477  
CASH FLOWS FROM INVESTING ACTIVITIES:                
  Acquisition of property, plant and equipment     (14,030 )     (10,526 )
  Acquisition of TRX Industries     -       (10,294 )
  Change in other non-current assets     209       152  
      Net cash used in investing activities     (13,821 )     (20,668 )
CASH FLOWS FROM FINANCING ACTIVITIES:                
  Borrowings (repayments) on bank lines of credit, net     (13,252 )     17,087  
  Payments on long-term debt     (47 )     (1,157 )
  Payments on capital lease obligations     (39 )     (53 )
  Payment of dividends     (1,637 )     (1,614 )
  Net proceeds from issuance of common stock     163       98  
  Tax impact of stock-based compensation     (895 )     (5 )
      Net cash provided by (used in) financing activities     (15,707 )     14,356  
EFFECTS OF EXCHANGE RATES ON CASH     172       (60 )
NET INCREASE IN CASH AND CASH EQUIVALENTS     1,378       6,105  
                 
CASH AND CASH EQUIVALENTS, beginning of the period     8,200       5,276  
CASH AND CASH EQUIVALENTS, end of the period   $ 9,578     $ 11,381  
                 
                 
                 
DYNAMIC MATERIALS CORPORATION & SUBSIDIARIES
RECONCILIATIONS OF NON-GAAP FINANCIAL MEASUREMENTS TO MOST
DIRECTLY COMPARABLE GAAP FINANCIAL MEASUREMENTS
(Amounts in thousands)
(unaudited)
 
  Three months ended   Nine months ended  
  September 30,   September 30,  
  2013   2012   2013   2012  
                         
Explosive Metalworking $ 30,407   $ 29,771   $ 88,977   $ 84,680  
Oilfield Products   21,924     18,044     63,743     57,941  
AMK Welding   1,937     2,334     5,676     6,427  
Net sales $ 54,268   $ 50,149   $ 158,396   $ 149,048  
                         
Explosive Metalworking $ 5,562   $ 5,451   $ 13,251   $ 13,138  
Oilfield Products   1,718     1,139     5,597     4,886  
AMK Welding   186     386     296     463  
Unallocated expenses   (2,006 )   (1,826 )   (8,727 )   (5,551 )
Income from operations $ 5,460   $ 5,150   $ 10,417   $ 12,936  
                         
                         
    For the three months ended September 30, 2013  
    Explosive   Oilfield     AMK   Unallocated        
    Metalworking   Products     Welding   Expenses     Total  
                           
Income from operations   $ 5,562   $ 1,718     $ 186   $ (2,006 )   $ 5,460  
Adjustments:                                    
  Net income attributable to non-controlling interest     -     (49 )     -     -       (49 )
  Stock-based compensation     -     -       -     628       628  
  Depreciation     1,009     406       152             1,567  
  Amortization of purchased intangibles     529     1,052       -     -       1,581  
Adjusted EBITDA   $ 7,100   $ 3,127     $ 338   $ (1,378 )   $ 9,187  
                                     
                           
    For the three months ended September 30, 2012  
    Explosive   Oilfield     AMK   Unallocated        
    Metalworking   Products     Welding   Expenses     Total  
                                     
Income from operations   $ 5,451   $ 1,139     $ 386   $ (1,826 )   $ 5,150  
Adjustments:                                    
  Net income attributable to non-controlling interest     -     (3 )     -     -       (3 )
  Stock-based compensation     -     -       -     903       903  
  Depreciation     857     397       138     -       1,392  
  Amortization of purchased intangibles     500     1,020       -     -       1,520  
Adjusted EBITDA   $ 6,808   $ 2,553     $ 524   $ (923 )   $ 8,962  
                                     
                                     
                                     
DYNAMIC MATERIALS CORPORATION & SUBSIDIARIES
RECONCILIATIONS OF NON-GAAP FINANCIAL MEASUREMENTS TO MOST
DIRECTLY COMPARABLE GAAP FINANCIAL MEASUREMENTS
(Amounts in thousands)
(unaudited)
 
    For the nine months ended September 30, 2013  
    Explosive   Oilfield     AMK   Unallocated        
    Metalworking   Products     Welding   Expenses     Total  
    (unaudited)  
                                     
Income from operations   $ 13,251   $ 5,597     $ 296   $ (8,727 )   $ 10,417  
Adjustments:                                    
  Net income attributable to non-controlling interest     -     (92 )     -     -       (92 )
  Stock-based compensation     -     -       -     2,685       2,685  
  Depreciation     2,883     1,105       453     -       4,441  
  Amortization of purchased intangibles     1,578     3,156       -     -       4,734  
Adjusted EBITDA   $ 17,712   $ 9,766     $ 749   $ (6,042 )   $ 22,185  
                                     
                           
    For the nine months ended September 30, 2012  
    Explosive   Oilfield     AMK   Unallocated        
    Metalworking   Products     Welding   Expenses     Total  
    (unaudited)  
                                     
Income from operations   $ 13,138   $ 4,886     $ 463   $ (5,551 )   $ 12,936  
Adjustments:                                    
  Net income attributable to non-controlling interest     -     (13 )     -     -       (13 )
  Stock-based compensation     -     -       -     2,838       2,838  
  Depreciation     2,601     1,133       387     -       4,121  
  Amortization of purchased intangibles     1,536     3,048       -     -       4,584  
Adjusted EBITDA   $ 17,275   $ 9,054     $ 850   $ (2,713 )   $ 24,466  
                                     
                                     
    Three months ended     Nine months ended  
    September 30,     September 30,  
    2013     2012     2013     2012  
                                 
Net income attributable to DMC   $ 3,562     $ 3,754     $ 7,216     $ 8,834  
  Interest expense     129       216       484       622  
  Interest income     (1 )     (16 )     (5 )     (25 )
  Provision for income taxes     1,474       1,373       2,259       3,882  
  Depreciation     1,567       1,392       4,441       4,121  
  Amortization of purchased intangible assets     1,581       1,520       4,734       4,584  
EBITDA     8,312       8,239       19,129       22,018  
  Stock-based compensation     628       903       2,685       2,838  
  Other (income) expense, net     247       (180 )     371       (390 )
Adjusted EBITDA   $ 9,187     $ 8,962     $ 22,185     $ 24,466  
                                 
                                 

Contact Information

  • CONTACT:
    Pfeiffer High Investor Relations, Inc.
    Geoff High
    303-393-7044