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
period ended September 30, 2010.
Sales for the quarter were $41.3 million, up 19% from sales of
$34.7 million in last year's third quarter, and an 8% increase
versus sales of $38.3 million in this year's second quarter. Third
quarter gross margin increased to 26% from 25% in the comparable
quarter a year ago and 24% in the second quarter.
Third quarter operating income was $2.9 million, an increase of
18% versus $2.5 million reported in the same quarter last year and
a 41% increase versus the $2.1 million reported in the most recent
quarter. Net income was $1.3 million, or $0.10 per diluted share,
an increase of 21% compared with net income of $1.1 million, or
$0.08 per diluted share, in the third quarter a year ago. Net
income in the second quarter was $3.0 million, or $0.23 per diluted
share, and benefited from a $2.1 million one-time gain associated
with the acquisition of the outstanding interests in two Russian
joint ventures, as well as from the tax treatment of that gain.
Third quarter adjusted EBITDA was $6.7 million, up 12% from $6.0
million reported in last year's third quarter and an increase of
21% versus the $5.5 million reported in the second quarter.
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 DMC's Explosive Metalworking segment were
$24.9 million compared with $27.3 million in the same quarter a
year ago. Operating income was $1.2 million versus $3.4 million in
the comparable year-ago quarter. Adjusted EBITDA was $2.8 million
versus $4.9 million in the third quarter of 2009. Order backlog at
the Explosive Metalworking segment increased to $41.2 million from
$39.9 million at the end of this year's second quarter.
Oilfield Products
Third quarter sales at DMC's Oilfield Products segment increased
158% to $13.2 million compared with $5.1 million in the third
quarter last year. Approximately $5.2 million of the increase was
attributable to incremental sales contributions from recent
acquisitions, while $2.9 million of the increase was achieved by
legacy operations. Income from operations improved to $1.7 million
versus an operating loss of $414,000 in the third quarter a year
ago. Third quarter adjusted EBITDA was $2.8 million compared with
$498,000 in the comparable prior-year quarter.
AMK Welding
DMC's AMK Welding segment reported third quarter sales of $3.2
million, up 41% from $2.2 million in the same quarter last year.
Operating income increased 95% to $861,000 from $441,000 in the
comparable quarter last year. The segment recorded adjusted EBITDA
of $981,000, up 77% from $555,000 in the comparable year-ago
quarter.
Management Commentary
"We continue to see signs that global demand for clad plates is
improving, although the initial pace of the recovery has remained
relatively slow," said Yvon Cariou, president and CEO. "Outpacing
the tepid performance of the clad business has been a very strong
improvement at our Oilfield Products segment. Even when excluding
the North American and Russian operations we have acquired during
2010, this segment achieved a 56% third quarter sales increase
versus the same quarter last year. We are especially encouraged by
the segment's strong gross margin performance."
"We noted at the end of the second quarter that the Oilfield
Products business was pursuing two large order opportunities, and
we can now report that both have been awarded to DMC. These orders
involve shaped charges and associated perforating guns, which will
be delivered over the next several quarters to customers in the
Middle East and India."
Cariou said the Oilfield Products segment is on pace to achieve
2010 sales in excess of $40 million versus the $21.8 million
reported in fiscal 2009. "We are very optimistic about the
long-range growth prospects of both the Oilfield Products and
Explosion Welding business segments, and will continue to explore
consolidation opportunities in both sectors."
Rick Santa, senior vice president and chief financial officer,
said that due to continued weakness in the quote-to-bookings rate
within the explosion-welding segment, full-year sales for fiscal
2010 are now expected to be 8% below fiscal 2009 sales results.
Prior forecasts called for a year-over-year sales decline of 5%.
Full year 2010 gross margin is expected to be approximately 24%.
Fourth quarter sales are expected to be comparable to sales in the
2010 third quarter, while fourth quarter gross margin is
anticipated in a range of 22% to 24%. DMC's anticipated blended
effective tax rate for 2010 has been reduced to a range of 22% to
23% based on previously discussed adjustments resulting from the
Russian joint venture acquisitions, lower pre-tax income versus
fiscal 2009, and other items discussed in DMC's Form 10-Q, which is
being filed today with the Securities and Exchange Commission. It
is expected that the Company will return to a blended effective tax
rate of 33% to 35% in 2011.
Nine-month Results
Sales for the year-to-date period were $109.9 million versus
$122.3 million in the comparable nine-month period of 2009. Gross
margin was 25% versus 27% in the same period a year ago. Operating
income was $5.3 million versus $13.8 million in the prior year's
nine-month period. Net income was $4.0 million, or $0.30 per
diluted share, compared with net income of $7.5 million, or $0.58
per diluted share, at the nine-month mark last year. Net income for
the nine-month period of 2010 benefited from the previously
discussed Russian joint venture acquisitions and associated tax
treatment. Adjusted EBITDA was $15.6 million compared with $23.9
million in the same period a year ago.
The Explosive Metalworking segment reported nine-month sales of
$72.9 million versus $102.4 million at the nine-month mark in 2009.
The segment reported operating income of $4.4 million compared with
$17.4 million in the same period a year ago. Adjusted EBITDA was
$8.7 million versus $21.8 million in the comparable year-ago
period.
Nine-month sales at DMC's Oilfield Products segment were $28.9
million versus $13.2 million in last year's nine-month period. The
segment reported operating income of $1.5 million versus an
operating loss of $2.0 million in the same period a year ago.
Nine-month adjusted EBITDA was $4.6 million versus $603,000 in the
prior-year's nine-month period.
AMK Welding recorded nine-month sales of $8.1 million compared
with $6.7 million in the comparable year-ago period. Operating
income was $1.9 million versus $1.1 million in the prior-year
period. Adjusted EBITDA at the nine-month mark was $2.3 million
compared with $1.5 million in the same period a year ago.
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
866-394-8610 (706-758-0876 for international callers) and entering
the passcode 18344027. 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 Nov. 1 2010, by
calling 800-642-1687 (706-645-9291 for international callers) and
entering the passcode 18344027.
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, gain on step
acquisitions 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 full-year 2010 sales, margins and
tax rates, quoting and booking expectations, our anticipation of
future customer demand, and our expected timing of delivery of
product, all of which involve risks and uncertainties. These risks
and uncertainties include, but are not limited to, the following:
our ability to obtain new contracts at attractive prices; the size
and timing of customer orders and shipments; our ability to realize
sales from our backlog; 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
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, 2009.
DYNAMIC MATERIALS CORPORATION & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009
(Dollars in Thousands, Except Share Data)
(unaudited)
Three months ended Nine months ended
September 30, September 30,
---------------------- ----------------------
2010 2009 2010 2009
---------- ---------- ---------- ----------
NET SALES $ 41,298 $ 34,690 $ 109,913 $ 122,268
COST OF PRODUCTS SOLD 30,445 25,936 82,819 89,032
---------- ---------- ---------- ----------
Gross profit 10,853 8,754 27,094 33,236
---------- ---------- ---------- ----------
COSTS AND EXPENSES:
General and administrative
expenses 3,487 2,749 9,990 9,318
Selling expenses 3,047 2,212 7,918 6,376
Amortization of purchased
intangible assets 1,376 1,293 3,913 3,709
---------- ---------- ---------- ----------
Total costs and expenses 7,910 6,254 21,821 19,403
---------- ---------- ---------- ----------
INCOME FROM OPERATIONS 2,943 2,500 5,273 13,833
OTHER INCOME (EXPENSE):
Gain on step acquisition
of joint ventures - - 2,117 -
Other income (expense), net (416) (633) (402) (560)
Interest expense (667) (752) (2,473) (2,521)
Interest income 6 41 71 145
Equity in earnings of
joint ventures - 91 255 170
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 1,866 1,247 4,841 11,067
INCOME TAX PROVISION 540 151 891 3,540
---------- ---------- ---------- ----------
NET INCOME $ 1,326 $ 1,096 $ 3,950 $ 7,527
========== ========== ========== ==========
INCOME PER SHARE:
Basic $ 0.10 $ 0.09 $ 0.30 $ 0.59
========== ========== ========== ==========
Diluted $ 0.10 $ 0.08 $ 0.30 $ 0.58
========== ========== ========== ==========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING:
Basic 12,939,274 12,632,406 12,807,826 12,597,023
========== ========== ========== ==========
Diluted 12,951,397 12,645,500 12,820,508 12,621,970
========== ========== ========== ==========
DIVIDENDS DECLARED PER
COMMON SHARE $ 0.04 $ 0.04 $ 0.12 $ 0.08
========== ========== ========== ==========
DYNAMIC MATERIALS CORPORATION & SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
September 30, December 31,
2010 2009
ASSETS (unaudited)
------------- -------------
Cash and cash equivalents $ 11,097 $ 22,411
Accounts receivable, net 27,390 25,807
Inventories 36,797 32,501
Other current assets 4,350 7,255
------------- -------------
Total current assets 79,634 87,974
Property, plant and equipment, net 40,470 42,052
Goodwill, net 40,414 43,164
Purchased intangible assets, net 50,962 49,079
Other long-term assets 1,986 2,907
------------- -------------
Total assets $ 213,466 $ 225,176
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 11,386 $ 9,183
Customer advances 5,128 6,528
Dividend payable 528 515
Accrued income taxes 847 1,485
Other current liabilities 7,122 9,162
Lines of credit 6,735 1,777
Current portion of long-term debt 7,567 13,485
------------- -------------
Total current liabilities 39,313 42,135
Long-term debt 23,541 34,120
Deferred tax liabilities 13,469 15,217
Other long-term liabilities 1,354 1,593
Stockholders' equity 135,789 132,111
------------- -------------
Total liabilities and stockholders' equity $ 213,466 $ 225,176
============= =============
DYNAMIC MATERIALS CORPORATION & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009
(Dollars in Thousands)
(unaudited)
2010 2009
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,950 $ 7,527
Adjustments to reconcile net income to net cash
provided by operating activities -
Depreciation (including capital lease amortization) 3,908 3,701
Amortization of purchased intangible assets 3,913 3,709
Amortization of capitalized debt issuance costs 489 215
Stock-based compensation 2,537 2,657
Deferred income tax benefit (953) (1,875)
Equity in earnings of joint ventures (255) (170)
Gain on step acquisition of joint ventures (2,117) -
Change in working capital, net (1,218) 7,650
-------- --------
Net cash provided by operating activities 10,254 23,414
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Austin Explosives (3,620) -
Step acquisition of joint ventures, net of cash
acquired (2,065) -
Acquisition of property, plant and equipment (2,309) (3,238)
Change in other non-current assets (59) 42
-------- --------
Net cash used in investing activities (8,053) (3,196)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment on syndicated credit agreement (15,374) (3,912)
Borrowings on lines of credit, net 4,682 -
Payments on long-term debt (593) (653)
Payments on capital lease obligations (215) (132)
Payment of dividends (1,561) (513)
Payment of deferred debt issuance costs - (58)
Net proceeds from issuance of common stock 70 373
Tax impact of stock-based compensation (639) 90
-------- --------
Net cash used in financing activities (13,630) (4,805)
-------- --------
EFFECTS OF EXCHANGE RATES ON CASH 115 258
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (11,314) 15,671
CASH AND CASH EQUIVALENTS, beginning of the period 22,411 14,360
-------- --------
CASH AND CASH EQUIVALENTS, end of the period $ 11,097 $ 30,031
======== ========
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,
-------------------- --------------------
2010 2009 2010 2009
--------- --------- --------- ---------
(unaudited) (unaudited)
Explosive Metalworking Group $ 24,925 $ 27,327 $ 72,921 $ 102,403
Oilfield Products 13,208 5,123 28,868 13,171
AMK Welding 3,165 2,240 8,124 6,694
--------- --------- --------- ---------
Net sales $ 41,298 $ 34,690 $ 109,913 $ 122,268
========= ========= ========= =========
Explosive Metalworking Group $ 1,225 $ 3,370 $ 4,408 $ 17,381
Oilfield Products 1,691 (414) 1,490 (2,013)
AMK Welding 861 441 1,912 1,122
Unallocated expenses (834) (897) (2,537) (2,657)
--------- --------- --------- ---------
Income from operations $ 2,943 $ 2,500 $ 5,273 $ 13,833
========= ========= ========= =========
For the three months ended September 30, 2010
-------------------------------------------------
Explosive
Metalworking Oilfield AMK Unallocated
Group Products Welding Expenses Total
------------ -------- ------- --------- -------
(unaudited)
Income from operations $ 1,225 $ 1,691 $ 861 $ (834) $ 2,943
Adjustments:
Stock-based compensation - - - 834 834
Depreciation 1,051 333 120 - 1,504
Amortization of
purchased intangibles 557 819 - - 1,376
------------ -------- ------- --------- -------
Adjusted EBITDA $ 2,833 $ 2,843 $ 981 $ - $ 6,657
============ ======== ======= ========= =======
For the three months ended September 30, 2009
-------------------------------------------------
Explosive
Metalworking Oilfield AMK Unallocated
Group Products Welding Expenses Total
------------ -------- ------- --------- -------
(unaudited)
Income (loss) from
operations $ 3,370 $ (414) $ 441 $ (897) $ 2,500
Adjustments:
Stock-based compensation - - - 897 897
Depreciation 910 236 114 - 1,260
Amortization of
purchased intangibles 617 676 - - 1,293
------------ -------- ------- --------- -------
Adjusted EBITDA $ 4,897 $ 498 $ 555 $ - $ 5,950
============ ======== ======= ========= =======
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, 2010
-------------------------------------------------
Explosive
Metalworking Oilfield AMK Unallocated
Group Products Welding Expenses Total
------------ -------- ------- --------- -------
(unaudited)
Income from operations $ 4,408 $ 1,490 $ 1,912 $ (2,537) $ 5,273
Adjustments:
Stock-based compensation - - - 2,537 2,537
Depreciation 2,634 924 350 - 3,908
Amortization of
purchased intangibles 1,706 2,207 - - 3,913
------------ -------- ------- --------- -------
Adjusted EBITDA $ 8,748 $ 4,621 $ 2,262 $ - $15,631
============ ======== ======= ========= =======
For the nine months ended September 30, 2009
-------------------------------------------------
Explosive
Metalworking Oilfield AMK Unallocated
Group Products Welding Expenses Total
------------ -------- ------- --------- -------
(unaudited)
Income (loss) from
operations $ 17,381 $ (2,013) $ 1,122 $ (2,657) $13,833
Adjustments:
Stock-based compensation - - - 2,657 2,657
Depreciation 2,683 676 342 - 3,701
Amortization of
purchased intangibles 1,769 1,940 - - 3,709
------------ -------- ------- --------- -------
Adjusted EBITDA $ 21,833 $ 603 $ 1,464 $ - $23,900
============ ======== ======= ========= =======
Three months Nine months
ended ended
September 30, September 30,
---------------- ----------------
2010 2009 2010 2009
------- ------- ------- -------
(unaudited) (unaudited)
Net income $ 1,326 $ 1,096 $ 3,950 $ 7,527
Interest expense 667 752 2,473 2,521
Interest income (6) (41) (71) (145)
Provision for income taxes 540 151 891 3,540
Depreciation 1,504 1,260 3,908 3,701
Amortization of purchased intangible
assets 1,376 1,293 3,913 3,709
------- ------- ------- -------
EBITDA 5,407 4,511 15,064 20,853
Stock-based compensation 834 897 2,537 2,657
Other income (expense), net 416 633 (1,715) 560
Equity in earnings of joint ventures - (91) (255) (170)
------- ------- ------- -------
Adjusted EBITDA $ 6,657 $ 5,950 $15,631 $23,900
======= ======= ======= =======
CONTACT: Pfeiffer High Investor Relations, Inc. Geoff High
303-393-7044
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