Selected Highlights
-- Q3 diluted EPS reported at $0.57 on 33% gross margin and lower tax
rate
-- Revenue of $52.4M up 24% versus 2007 third quarter
-- Year-to-date Adjusted EBITDA increases 41% to $41.1M versus 2007 nine-
month period
-- Management reports steady bookings and strong quoting activity
Dynamic Materials Corporation (DMC) (NASDAQ: BOOM), the world's
leading provider of explosion-welded clad metal plates, today
reported financial results for its third quarter and nine-month
fiscal period ended Sept. 30, 2008.
DMC reported third quarter net income of $7.2 million, or $0.57
per diluted share, on revenue of $52.4 million, which compares with
net income of $7.1 million, or $0.58 per diluted share, on sales of
$42.1 million in the third quarter a year ago. The
better-than-anticipated bottom-line results in this year's third
quarter are primarily attributable to strong gross margin
performance and a decrease in the Company's effective tax rate.
Third quarter gross margin was 33% compared with 34% in last
year's third quarter, and a forecasted range of 28% to 29%. Gross
margin was better than expected due to a favorable product mix at
DMC's new Oilfield Products segment, a sharp increase in sales at
the Company's AMK Welding segment, and higher-than-expected
proportionate sales by DMC's U.S. explosion welding business, which
generally enjoys higher gross margins than the Company's European
explosion welding businesses.
DMC's effective tax rate for the 2008 third quarter was 7.0%
versus 34.2% in the third quarter of 2007, and was well below the
Company's previously forecasted full-year effective tax rate range
of 32% to 33%. The variance arose primarily from the completion
during the third quarter of an Internal Revenue Service
examination, and from adjustments that were identified during the
third quarter 2008 preparation of the Company's 2007 federal and
state tax returns. The closure of the IRS examination enabled DMC
to record previously unrecognized tax benefits of approximately
$300,000. The "book-to-return" adjustments related primarily to
apportionment factors utilized to compute state income taxes, and
favorably impacted the third quarter tax provision by approximately
$1.1 million.
Third quarter income from operations was $9.4 million versus
$10.6 million in the third quarter a year-ago. The decrease is
primarily attributable to a $3.2 million decline in third quarter
sales at DMC's legacy explosion welding businesses and lower margin
on those sales. Adjusted EBITDA for the third quarter increased 12%
to $12.8 million from $11.5 million in the third quarter last year.
Adjusted EBITDA is a non-GAAP (generally accepted accounting
principle) financial measure used by management to measure
operating performance. See additional information about adjusted
EBITDA at the end of this news release.
Explosive Metalworking
Third quarter sales at the Company's Explosive Metalworking
segment increased 6% to $42.7 million from $40.3 million in the
third quarter last year. The increase reflects a $5.6 million sales
contribution from the clad business of DYNAenergetics, which was
acquired by DMC in November 2007. This contribution offset a $3.2
million decrease in sales at DMC's legacy explosive metalworking
divisions. Operating income was $8.6 million versus $10.6 million
in last year's third quarter. Adjusted EBITDA was $10.2 million
versus $11.0 million in the third quarter a year ago.
Order backlog for the Explosive Metalworking segment at the end
of the third quarter was $99 million versus $105 million reported
at the end of this year's second quarter and $77 million recorded
at the end of last year's third quarter. Approximately $4 million
of the sequential decrease in backlog was related to changes in
foreign exchange rates.
Oilfield Products
DMC's new Oilfield Products segment recorded third quarter sales
of $6.8 million and operating income of $725,000. Third quarter
adjusted EBITDA was $1.7 million.
AMK Welding
Third quarter sales at DMC's AMK Welding segment increased 65%
to $2.9 million from $1.8 million in the third quarter last year.
Operating income increased 169% to $874,000 from $325,000 in the
comparable year-ago quarter. Adjusted EBITDA advanced 142% to
$983,000 from $407,000 in the same quarter last year.
Management Commentary
Yvon Cariou, president and CEO, said, "Each of our three
business segments exceeded internal third quarter forecasts, and
this helped us achieve better-than-expected sales and earnings
results. Bookings remained steady during the quarter, and we have
maintained this momentum into the early stages of Q4. In fact we
added $5 million to our explosive metalworking backlog on the first
day of the fourth quarter, thanks to a significant order for plates
to be used in a refinery project."
"Worldwide quoting activity has remained very strong in recent
months," Cariou added. "During August and September, the total pool
of projects tracked on our 'hot list' was higher than at anytime in
the past 12 months. Moreover, in spite of global economic
challenges, we have not seen material signs of project
postponements or cancellations related to orders important to DMC.
While it is difficult to predict how current macroeconomic
conditions might impact bookings in 2009, we remain confident about
the position we have established within our end markets as a key
supplier of high-value components that help enhance the ROI of
industrial infrastructure. We therefore are very optimistic about
our prospects for continued long-term success."
Cariou said strong demand for pressure-vessel-quality steel
plate has kept the supply chain for these specialized metals tight,
but added that the Company's effort to diversify its network of
providers is showing clear signs of progress.
Rick Santa, senior vice president and chief financial officer,
said sales during the fourth quarter are expected to increase to a
level comparable to the $63.2 million reported in the second
quarter. Based on these anticipated sales volumes and normal
fluctuations in product mix, fourth quarter gross margin is
expected to be approximately 30%, which also would be comparable to
DMC's second quarter performance. As a result of the third quarter
tax provision adjustments, Santa said DMC's full-year 2008 blended
effective tax rate is expected to approximate 27%. This rate is
expected to increase to a range of 31% to 32% in fiscal 2009.
Santa added that fourth quarter operating income will be
impacted by approximately $1.2 million of amortization expense
associated with the DYNAenergetics acquisition. Pre-tax income will
be impacted by approximately $1.2 million of interest expense.
Nine-month Results
Sales through nine months increased 58% to $174.0 million from
$110.0 million in the comparable nine-month period of 2007. This
year's nine-month sales results included $44.1 million of
contributions from the DYNAenergetics businesses. Gross margin was
31% versus 34% in the same period a year ago.
Nine-month operating income increased 7% to $28.9 million from
$26.9 million in the comparable prior-year period. Net income
through nine months was $18.7 million, or $1.49 per diluted share,
up 6% from net income of $17.7 million, or $1.44 per diluted share,
in the same period last year. Adjusted EBITDA increased 41% to
$41.1 million from $29.2 million at the nine-month mark of fiscal
2007.
The Explosive Metalworking segment reported nine-month sales of
$147.3 million, up 40% from sales of $105.3 million in the first
nine months of 2007. The explosion welding business of
DYNAenergetics contributed $25.0 million to sales through nine
months. Operating income increased 4% to $28.4 million from $27.2
million in the prior year's nine-month period. Adjusted EBITDA
increased 23% to $35.0 million from $28.4 million in the same
period a year ago.
Nine-month sales at DMC's Oilfield Products segment were $19.1
million. Operating income for the period was $775,000 and adjusted
EBITDA was $3.6 million.
AMK Welding recorded nine-month sales of $7.5 million, an
increase of 59% from $4.7 million in the comparable year-ago
period. Operating income increased 246% to $2.1 million from
$606,000 in the prior-year period. Adjusted EBITDA at the
nine-month mark was $2.4 million, up 199% versus $810,000 in the
same period a year ago.
Conference call information
Management will hold a conference call to discuss third quarter
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
866-394-8610 (706-758-0876 for international callers) and entering
the passcode 69051992. 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 30 days and
a telephonic replay will be available through November 1, 2008, by
calling 800-642-1687 (706-645-9291 for international callers) and
entering the passcode 69051992.
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 and the
company's ability to generate cash flow from operations. As a
result, internal management reports used during monthly operating
reviews feature the adjusted EBITDA. 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 Dynamic Materials Corporation
Based in Boulder, Colorado, Dynamic Materials Corporation is a
leading international metalworking company. Its products, which are
typically used in industrial capital projects, include
explosion-welded clad metal plates and other metal fabrications for
use in a variety of industries, including oil and gas,
petrochemicals, alternative energy, hydrometallurgy, aluminum
production, shipbuilding, power generation, industrial
refrigeration and similar industries. The Company operates three
business segments: Explosive Metalworking, which uses proprietary
explosive processes to fuse different metals and alloys; Oilfield
Products, which manufactures, markets and sells specialized
explosive components and systems used to perforate oil and gas
wells; and AMK Welding, which utilizes various technologies to weld
components for use in power-generation turbines, as well as
commercial and military jet engines. For more information, visit
the Company's websites at http://www.dynamicmaterials.com and
http://www.dynaenergetics.de.
Safe Harbor Language
Except for the historical information contained herein, this
news release contains forward-looking statements, including our
guidance for fourth quarter and 2008 revenue, margins, income,
expenses and tax rates, that involve risks and uncertainties. These
risks and uncertainties include, but are not limited to, the
following: our ability to realize sales from our backlog; our
ability to successfully integrate and operate the recently-acquired
DYNAenergetics businesses; our ability to obtain new contracts at
attractive prices; the size and timing of customer orders and
shipments; fluctuations in customer demand; 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 timely receipt of
government approvals and permits; 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 report on Form 10-K for the year ended
December 31, 2007.
DYNAMIC MATERIALS CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
(Dollars in Thousands, Except Share Data)
(unaudited)
Three months ended Nine months ended
September 30, September 30,
---------------------- ----------------------
2008 2007 2008 2007
---------- ---------- ---------- ----------
NET SALES $ 52,380 $ 42,099 $ 173,957 $ 109,964
COST OF PRODUCTS SOLD 35,355 27,807 120,171 72,741
---------- ---------- ---------- ----------
Gross profit 17,025 14,292 53,786 37,223
---------- ---------- ---------- ----------
COSTS AND EXPENSES:
General and administrative
expenses 3,679 1,903 10,612 5,419
Selling expenses 2,611 1,811 8,085 4,913
Amortization expense of
purchased intangible
assets 1,363 - 6,188 -
---------- ---------- ---------- ----------
Total costs and
expenses 7,653 3,714 24,885 10,332
---------- ---------- ---------- ----------
INCOME FROM OPERATIONS 9,372 10,578 28,901 26,891
OTHER INCOME (EXPENSE):
Other income (expense) (268) 23 (227) 3
Interest expense (1,469) (20) (4,203) (20)
Interest income 153 233 477 598
Equity in earnings
(losses) of joint
ventures (19) - 270 -
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 7,769 10,814 25,218 27,472
INCOME TAX PROVISION 546 3,697 6,535 9,813
---------- ---------- ---------- ----------
NET INCOME $ 7,223 $ 7,117 $ 18,683 $ 17,659
========== ========== ========== ==========
INCOME PER SHARE:
Basic $ 0.58 $ 0.59 $ 1.50 $ 1.47
========== ========== ========== ==========
Diluted $ 0.57 $ 0.58 $ 1.49 $ 1.44
========== ========== ========== ==========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING:
Basic 12,463,060 12,094,181 12,426,369 12,039,593
========== ========== ========== ==========
Diluted 12,567,912 12,301,772 12,572,226 12,245,212
========== ========== ========== ==========
ANNUAL DIVIDENDS DECLARED
PER COMMON SHARE $ - $ - $ 0.15 $ 0.15
========== ========== ========== ==========
DYNAMIC MATERIALS CORPORATION & SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
September 30, December 31,
2008 2007
ASSETS (unaudited)
------------- -------------
Cash and cash equivalents $ 30,508 $ 9,045
Restricted cash - 371
Accounts receivable, net 31,031 39,833
Inventories 40,900 41,628
Other current assets 7,729 3,853
------------- -------------
Total current assets 110,168 94,730
Property, plant and equipment, net 38,709 35,446
Goodwill, net 44,797 45,862
Purchased intangible assets, net 54,876 61,914
Other long-term assets 2,878 2,947
------------- -------------
Total assets $ 251,428 $ 240,899
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 18,722 $ 22,590
Accrued income taxes 993 1,212
Other current liabilities 14,476 19,394
Lines of credit - current 4,785 7,587
Current portion of long-term debt 7,471 8,035
------------- -------------
Total current liabilities 46,447 58,818
Lines of credit 9,536 -
Long-term debt 60,440 61,530
Deferred tax liabilities 18,040 20,604
Other long-term liabilities 1,125 1,668
Stockholders' equity 115,840 98,279
------------- -------------
Total liabilities and stockholders' equity $ 251,428 $ 240,899
============= =============
DYNAMIC MATERIALS CORPORATION & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
(Dollars in Thousands)
(unaudited)
2008 2007
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 18,683 $ 17,659
Adjustments to reconcile net income to net cash
provided by operating activities -
Depreciation (including capital lease
amortization) 3,621 1,394
Amortization of purchased intangible assets 6,188 -
Amortization of capitalized debt issuance costs 210 -
Stock-based compensation 2,363 912
Provision for deferred income taxes (2,735) (239)
Equity in earnings of joint ventures (270) -
Change in working capital, net (3,255) (6,925)
-------- --------
Net cash provided by operating activities 24,805 12,801
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (7,325) (7,347)
Change in other non-current assets 50 (11)
-------- --------
Net cash used in investing activities (7,275) (7,358)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on lines of credit, net 7,247 -
Payments on long-term debt (1,251) (389)
Payments on capital lease obligations (308) -
Payment of dividends (1,894) (1,821)
Payment of deferred debt issuance costs (167) -
Net proceeds from issuance of common stock 333 563
Excess tax benefit related to stock options 9 5
-------- --------
Net cash provided by (used in) financing
activities 3,969 (1,642)
-------- --------
EFFECTS OF EXCHANGE RATES ON CASH (36) 357
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 21,463 4,158
CASH AND CASH EQUIVALENTS, beginning of the period 9,045 17,886
-------- --------
CASH AND CASH EQUIVALENTS, end of the period $ 30,508 $ 22,044
======== ========
DYNAMIC MATERIALS CORPORATION & SUBSIDIARIES
RECONCILIATIONS OF NON-GAAP FINANCIAL MEASUREMENTS TO MOST
DIRECTLY COMPARABLE GAAP FINANCIAL MEASUREMENTS
(Dollars in thousands)
Three months ended Nine months ended
September 30, September 30,
-------------------- --------------------
2008 2007 2008 2007
--------- --------- --------- ---------
(unaudited) (unaudited)
Explosive Metalworking Group $ 42,703 $ 40,326 $ 147,344 $ 105,257
Oilfield Products 6,756 - 19,128 -
AMK Welding 2,921 1,773 7,485 4,707
--------- --------- --------- ---------
Net sales $ 52,380 $ 42,099 $ 173,957 $ 109,964
========= ========= ========= =========
Explosive Metalworking Group $ 8,593 $ 10,646 $ 28,393 $ 27,197
Oilfield Products 725 - 775 -
AMK Welding 874 325 2,096 606
Unallocated Expenses (820) (393) (2,363) (912)
--------- --------- --------- ---------
Income from operations $ 9,372 $ 10,578 $ 28,901 $ 26,891
========= ========= ========= =========
For the three months ended September 30, 2008
------------------------------------------------
Explosive
Metalworking Oilfield AMK Unallocated
Group Products Welding Expenses Total
---------- -------- -------- -------- ---------
(unaudited)
Income from operations $ 8,593 $ 725 $ 874 $ (820) $ 9,372
Adjustments:
Stock-based compensation - - - 820 820
Depreciation 924 234 109 - 1,267
Amortization of purchased
intangibles 650 713 - - 1,363
---------- -------- -------- -------- ---------
Adjusted EBITDA $ 10,167 $ 1,672 $ 983 $ - $ 12,822
========== ======== ======== ======== =========
For the three months ended
September 30, 2007
-------------------------------------
Explosive
Metalworking AMK Unallocated
Group Welding Expenses Total
-------- -------- -------- ---------
(unaudited)
Income from operations $ 10,646 $ 325 $ (393) $ 10,578
Adjustments:
Stock-based compensation - - 393 393
Depreciation 402 82 - 484
-------- -------- -------- ---------
Adjusted EBITDA $ 11,048 $ 407 $ - $ 11,455
======== ======== ======== =========
DYNAMIC MATERIALS CORPORATION & SUBSIDIARIES
RECONCILIATIONS OF NON-GAAP FINANCIAL MEASUREMENTS TO MOST
DIRECTLY COMPARABLE GAAP FINANCIAL MEASUREMENTS
(Dollars in thousands)
For the nine months ended September 30, 2008
---------------------------------------------------
Explosive
Metalworking Oilfield AMK Unallocated
Group Products Welding Expenses Total
----------- --------- --------- -------- ---------
(unaudited)
Income from operations $ 28,393 $ 775 $ 2,096 $ (2,363) $ 28,901
Adjustments:
Stock-based
compensation - - - 2,363 2,363
Depreciation 2,593 704 324 - 3,621
Amortization of
purchased intangibles 4,026 2,162 - - 6,188
----------- --------- --------- -------- ---------
Adjusted EBITDA $ 35,012 $ 3,641 $ 2,420 $ - $ 41,073
=========== ========= ========= ======== =========
For the nine months ended
September 30, 2007
---------------------------------------
Explosive
Metalworking AMK Unallocated
Group Welding Expenses Total
--------- --------- -------- ---------
(unaudited)
Income from operations $ 27,197 $ 606 $ (912) $ 26,891
Adjustments:
Stock-based
compensation - - 912 912
Depreciation 1,190 204 - 1,394
--------- --------- -------- ---------
Adjusted EBITDA $ 28,387 $ 810 $ - $ 29,197
========= ========= ======== =========
Three months ended Nine months ended
September 30, September 30,
------------------ ------------------
2008 2007 2008 2007
-------- -------- -------- --------
(unaudited) (unaudited)
Net income $ 7,223 $ 7,117 $ 18,683 $ 17,659
Interest expense 1,469 20 4,203 20
Interest income (153) (233) (477) (598)
Provision for income taxes 546 3,697 6,535 9,813
Depreciation 1,267 484 3,621 1,394
Amortization of purchased
intangible assets 1,363 - 6,188 -
-------- -------- -------- --------
EBITDA 11,715 11,085 38,753 28,288
Stock-based compensation 820 393 2,363 912
Other (income) expense 268 (23) 227 (3)
Equity in (earnings) losses of
joint ventures 19 - (270) -
-------- -------- -------- --------
Adjusted EBITDA $ 12,822 $ 11,455 $ 41,073 $ 29,197
======== ======== ======== ========
CONTACT: Pfeiffer High Investor Relations, Inc. Geoff High
303-393-7044
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