Consolidated Results of Operations
Three months ended September 30, 2016
compared with
three months ended September 30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
|
|
|
|
|
2016
|
|
2015
|
|
$ change
|
|
% change
|
Net sales
|
|
$
|
36,553
|
|
|
$
|
39,508
|
|
|
$
|
(2,955
|
)
|
|
(7
|
)%
|
Gross profit
|
|
8,457
|
|
|
10,289
|
|
|
(1,832
|
)
|
|
(18
|
)%
|
Gross profit percentage
|
|
23.1
|
%
|
|
26.0
|
%
|
|
|
|
|
COSTS AND EXPENSES:
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
5,685
|
|
|
5,071
|
|
|
614
|
|
|
12
|
%
|
% of net sales
|
|
15.6
|
%
|
|
12.8
|
%
|
|
|
|
|
Selling and distribution expenses
|
|
3,832
|
|
|
4,867
|
|
|
(1,035
|
)
|
|
(21
|
)%
|
% of net sales
|
|
10.5
|
%
|
|
12.3
|
%
|
|
|
|
|
Amortization of purchased intangible assets
|
|
1,009
|
|
|
1,007
|
|
|
2
|
|
|
—
|
%
|
% of net sales
|
|
2.8
|
%
|
|
2.5
|
%
|
|
|
|
|
Restructuring charges
|
|
373
|
|
|
285
|
|
|
88
|
|
|
31
|
%
|
Operating loss
|
|
(2,442
|
)
|
|
(941
|
)
|
|
(1,501
|
)
|
|
(160
|
)%
|
Other income (expense), net
|
|
(157
|
)
|
|
(1,463
|
)
|
|
1,306
|
|
|
89
|
%
|
Interest income (expense), net
|
|
(265
|
)
|
|
(255
|
)
|
|
(10
|
)
|
|
(4
|
)%
|
Loss before income taxes
|
|
(2,864
|
)
|
|
(2,659
|
)
|
|
(205
|
)
|
|
8
|
%
|
Income tax provision (benefit)
|
|
272
|
|
|
1,574
|
|
|
(1,302
|
)
|
|
(83
|
)%
|
Net loss
|
|
(3,136
|
)
|
|
(4,233
|
)
|
|
1,097
|
|
|
26
|
%
|
Adjusted EBITDA
|
|
$
|
1,178
|
|
|
$
|
2,546
|
|
|
$
|
(1,368
|
)
|
|
(54
|
)%
|
Net sales
The
decrease
compared with
2015
was due to a
21%
decrease
in NobelClad primarily due to delays at a subcontractor that pushed the shipment of a large project in the agricultural sector out of the third quarter of 2016. This partially was offset by an
8%
increase
in DynaEnergetics driven by the annual India project that shipped in the third quarter of 2016 versus the second quarter last year. Unit sales of DynaEnergetics' intrinsically-safe DynaSelect
TM
initiator increased significantly year over year. However, the increases in DynaEnergetics partially were offset by a decline in unit selling prices across all major product lines as a result of the downturn in the oil and gas exploration and development sector.
Gross profit
The
decrease
in gross profit and gross profit percentage compared with
2015
was due to unfavorable selling prices in DynaEnergetics combined with unfavorable project mix and warranty work in NobelClad.
General and administrative expenses
The
increase
compared with
2015
primarily was due to higher outside legal fees related to regulatory and litigation matters and information technology ("IT") project costs partially offset by lower salaries and benefits as a result of headcount reductions and a decline in stock-based compensation.
Selling and distribution expenses
The
decrease
compared with
2015
principally was due to lower bad debt expense, a decrease in outside sales agent commissions and the impact of closing multiple distribution centers in DynaEnergetics as part of its previously announced restructuring programs.
Restructuring charges
For the
three months ended September 30, 2016
the components of restructuring charges were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance and benefits
|
|
Contract termination
|
|
Equipment moving and other exit costs
|
|
Total
|
DynaEnergetics restructuring
|
|
$
|
(41
|
)
|
|
$
|
370
|
|
|
$
|
44
|
|
|
$
|
373
|
|
Total restructuring charges
|
|
$
|
(41
|
)
|
|
$
|
370
|
|
|
$
|
44
|
|
|
$
|
373
|
|
DynaEnergetics restructuring includes
severance adjustments related to headcount reductions announced in prior quarters, lease termination costs to exit administrative offices in Austin, Texas, and relocation of perforating gun manufacturing in Germany
.
For the
three months ended September 30, 2015
the components of restructuring charges were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance and benefits
|
|
Contract termination
|
|
Equipment moving and other exit costs
|
|
Total
|
NobelClad restructuring
|
|
$
|
94
|
|
|
$
|
—
|
|
|
$
|
(46
|
)
|
|
$
|
48
|
|
DynaEnergetics restructuring
|
|
—
|
|
|
97
|
|
|
140
|
|
|
237
|
|
Total restructuring charges
|
|
$
|
94
|
|
|
$
|
97
|
|
|
$
|
94
|
|
|
$
|
285
|
|
NobelClad's restructuring relates to shifting the majority of clad metal plate production in Europe from facilities in Rivesaltes, France and Würgendorf, Germany to its manufacturing facility in Liebenscheid, Germany.
DynaEnergetics' restructuring relates to the consolidation of perforating gun manufacturing centers and the closure of distribution centers in the Americas as well as the reduction of administrative workforce at the corporate offices in Troisdorf, Germany.
Operating loss
The increase compared with
2015
was due to a decrease in NobelClad's operating income combined with a higher operating loss at DynaEnergetics and higher corporate unallocated expenses. Corporate unallocated and stock-based compensation expenses are not allocated to our business segments.
Other income (expense), net
The
decrease
in expense compared with
2015
primarily was due to a decrease in unrealized foreign currency losses. Our subsidiaries frequently enter into inter-company and third party transactions that are denominated in currencies other than their functional currency. Changes in exchange rates with respect to these transactions will result in unrealized gains or losses if unsettled at the end of the reporting period or realized foreign currency transaction gains or losses at settlement of the transaction.
Interest income (expense), net
The
increase
in expense compared with
2015
was due to interest on the accrued anti-dumping duties in the DynaEnergetics segment offset by lower interest on our line of credit.
Income tax provision
We recorded income tax expense of
$272
for the
third quarter
of
2016
compared with income tax expense of
$1,574
for the
third quarter
of
2015
. We currently are unable to recognize tax benefits associated with losses incurred in certain jurisdictions due to valuation allowances recorded against deferred tax assets in those jurisdictions.
Net
loss
As a result of the factors discussed above, net
loss
for the
three months ended September 30, 2016
was
$3,136
, or
$0.22
per diluted share, compared with a net
loss
of
$4,233
, or
$0.30
per diluted share, for the same period in
2015
.
Adjusted EBITDA
The
decrease
compared with 2015 primarily was due to an increased operating loss.
Adjusted EBITDA is a non-GAAP (generally accepted accounting principles) measure that we believe provides an important indicator of our ongoing operating performance. We define EBITDA as net income plus or minus net interest, taxes, depreciation and amortization. Adjusted EBITDA excludes from EBITDA stock-based compensation, restructuring and impairment charges and, when appropriate, other items that management does not utilize in assessing DMC’s operating performance (as further described in the following financial schedules).
EBITDA and Adjusted EBITDA, as well as income measures that exclude restructuring expenses (ex-items), are non-GAAP financial measures. 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 Adjusted EBITDA and certain management incentive awards are based, in part, on the amount of Adjusted EBITDA achieved during the year.
The presence of non-GAAP financial measures in this report is not intended to be considered in isolation or as a substitute for, or superior to, DMC’s GAAP information, and investors are cautioned that the non-GAAP financial measures are limited in their usefulness and may be unique to DMC, should not be considered as a supplement to DMC’s GAAP financial measures and do not reflect any positive or negative trends in DMC’s performance. 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.
The following is a reconciliation of the most directly comparable GAAP measure to EBITDA and Adjusted EBIDTA.
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
|
2016
|
|
2015
|
Net loss
|
|
$
|
(3,136
|
)
|
|
$
|
(4,233
|
)
|
Interest expense
|
|
265
|
|
|
255
|
|
Interest income
|
|
—
|
|
|
—
|
|
Provision for income taxes
|
|
272
|
|
|
1,574
|
|
Depreciation
|
|
1,760
|
|
|
1,543
|
|
Amortization of purchased intangible assets
|
|
1,009
|
|
|
1,007
|
|
EBITDA
|
|
170
|
|
|
146
|
|
Restructuring charges
|
|
373
|
|
|
285
|
|
Stock-based compensation
|
|
478
|
|
|
652
|
|
Other (income) expense, net
|
|
157
|
|
|
1,463
|
|
Adjusted EBITDA
|
|
$
|
1,178
|
|
|
$
|
2,546
|
|
Nine months ended September 30, 2016
compared with
nine months ended September 30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30,
|
|
|
|
|
|
|
2016
|
|
2015
|
|
$ change
|
|
% change
|
Net sales
|
|
$
|
118,402
|
|
|
$
|
125,068
|
|
|
$
|
(6,666
|
)
|
|
(5
|
)%
|
Gross profit
|
|
28,750
|
|
|
33,577
|
|
|
(4,827
|
)
|
|
(14
|
)%
|
Gross profit percentage
|
|
24.3
|
%
|
|
26.8
|
%
|
|
|
|
|
COSTS AND EXPENSES:
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
15,522
|
|
|
16,670
|
|
|
(1,148
|
)
|
|
(7
|
)%
|
% of net sales
|
|
13.1
|
%
|
|
13.3
|
%
|
|
|
|
|
Selling and distribution expenses
|
|
12,352
|
|
|
14,703
|
|
|
(2,351
|
)
|
|
(16
|
)%
|
% of net sales
|
|
10.4
|
%
|
|
11.8
|
%
|
|
|
|
|
Amortization of purchased intangible assets
|
|
3,023
|
|
|
3,037
|
|
|
(14
|
)
|
|
—
|
%
|
% of net sales
|
|
2.6
|
%
|
|
2.4
|
%
|
|
|
|
|
Restructuring charges
|
|
1,202
|
|
|
3,397
|
|
|
(2,195
|
)
|
|
(65
|
)%
|
Operating loss
|
|
(3,349
|
)
|
|
(4,230
|
)
|
|
881
|
|
|
21
|
%
|
Other income (expense), net
|
|
178
|
|
|
(299
|
)
|
|
477
|
|
|
160
|
%
|
Interest income (expense), net
|
|
(824
|
)
|
|
(696
|
)
|
|
(128
|
)
|
|
(18
|
)%
|
Loss before income taxes
|
|
(3,995
|
)
|
|
(5,225
|
)
|
|
1,230
|
|
|
(24
|
)%
|
Income tax provision
|
|
321
|
|
|
2,704
|
|
|
(2,383
|
)
|
|
(88
|
)%
|
Net loss
|
|
(4,316
|
)
|
|
(7,929
|
)
|
|
3,613
|
|
|
46
|
%
|
Adjusted EBITDA
|
|
$
|
7,499
|
|
|
$
|
9,123
|
|
|
$
|
(1,624
|
)
|
|
(18
|
)%
|
Net sales
The
decrease
compared with
2015
was due to a
14%
decrease
in DynaEnergetics partially offset by a
3%
increase
in NobelClad. The decline in DynaEnergetics was due to prolonged downturn in the oil and gas well-completions sector while the increase in NobelClad primarily related to a large project for the semiconductor capital equipment industry that shipped in the second quarter of 2016.
Gross profit
The
decrease
in gross profit and gross profit percentage compared with
2015
primarily was due to unfavorable selling prices in DynaEnergetics and a lower proportion of sales in DynaEnergetics relative to NobelClad.
General and administrative expenses
The
decrease
compared with
2015
primarily was due to lower salaries and benefits from reducing headcount during the period and lower stock-based compensation. General and administrative expenses for 2015 also included incremental audit and legal expenses of $450 associated with the restatement of previously-issued financial statements included in our 2014 Form 10-K.
Selling and distribution expenses
The
decrease
compared with
2015
principally was due to lower salaries and benefits, lower bad debt expense in both DynaEnergetics and NobelClad, and lower outside sales agent commissions in DynaEnergetics driven by sales volume in territories in which our segments do not have a captive sales force.
Restructuring charges
For the
nine months ended September 30, 2016
the components of restructuring charges were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance and benefits
|
|
Contract termination
|
|
Equipment moving and other exit costs
|
|
Total
|
DynaEnergetics restructuring
|
|
$
|
684
|
|
|
$
|
386
|
|
|
$
|
58
|
|
|
$
|
1,128
|
|
Corporate restructuring
|
|
74
|
|
|
—
|
|
|
—
|
|
|
74
|
|
Total restructuring charges
|
|
$
|
758
|
|
|
$
|
386
|
|
|
$
|
58
|
|
|
$
|
1,202
|
|
DynaEnergetics restructuring
relates to severance for headcount reductions in Troisdorf, Germany and Austin, Texas as well as lease termination costs in Austin
. Corporate restructuring relates to the accelerated vesting of stock awards in connection with the elimination of certain positions in DynaEnergetics.
For the
nine months ended September 30, 2015
the components of restructuring charges were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance and benefits
|
|
Asset impairments
|
|
Contract termination
|
|
Equipment moving and other exit costs
|
|
Total
|
NobelClad restructuring
|
|
$
|
91
|
|
|
$
|
—
|
|
|
$
|
40
|
|
|
$
|
475
|
|
|
$
|
606
|
|
DynaEnergetics restructuring
|
|
245
|
|
|
205
|
|
|
341
|
|
|
440
|
|
|
1,231
|
|
Corporate restructuring
|
|
1,560
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,560
|
|
Total restructuring charges
|
|
$
|
1,896
|
|
|
$
|
205
|
|
|
$
|
381
|
|
|
$
|
915
|
|
|
$
|
3,397
|
|
NobelClad's restructuring relates to shifting the majority of clad metal plate production in Europe from facilities in Rivesaltes, France and Würgendorf, Germany to its manufacturing facility in Liebenscheid, Germany.
DynaEnergetics' restructuring relates to the consolidation of perforating gun manufacturing centers, the closure of distribution centers in the Americas, and the reduction of administrative workforce at its corporate offices in Troisdorf, Germany.
Corporate restructuring relates to severance payments and the accelerated vesting of stock awards associated with
the elimination of certain positions in our corporate office.
Operating loss
The
decrease
compared with
2015
was due to an
increase
in NobelClad's operating income and lower corporate unallocated and stock-based compensation expenses partially offset by an increase in DynaEnergetics' operating loss. Corporate unallocated and stock-based compensation expenses are not allocated to our business segments.
Other income (expense), net
The change compared with
2015
was due to an increase in unrealized foreign currency gains partially offset by a decrease in realized foreign currency losses. Our subsidiaries frequently enter into inter-company and third party transactions that are denominated in currencies other than their functional currency. Changes in exchange rates with respect to these transactions will result in unrealized gains or losses if unsettled at end of the reporting period or realized foreign currency transaction gains or losses at settlement of the transaction.
Interest income (expense), net
The
increase
in expense compared with
2015
was primarily due to interest expense recorded on the accrued anti-dumping duties in DynaEnergetics.
Income tax provision
We recorded income tax expense of
$321
for the
nine months ended September 30, 2016
compared with income tax expense of
$2,704
for the
nine months ended September 30, 2015
. We currently are unable to recognize tax benefits associated with losses incurred in certain jurisdictions due to valuation allowances recorded against our deferred tax assets in those jurisdictions.
Net
loss
As a result of the factors discussed above, net
loss
for
nine months ended September 30, 2016
was
$4,316
, or
$0.31
per diluted share, compared with a net
loss
of
$7,929
, or
$0.57
per diluted share, for the same period in
2015
.
Adjusted EBITDA
The
decrease
compared with
2015
primarily was due to lower income tax expense and restructuring charges partially offset by a smaller operating loss compared with
2015
.
See explanation of the use of Adjusted EBITDA under the comparison of the
three months ended September 30, 2016
with the same period of
2015
. The following is a reconciliation of the most directly comparable GAAP measure to EBITDA and Adjusted EBIDTA.
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30,
|
|
|
2016
|
|
2015
|
Net loss
|
|
$
|
(4,316
|
)
|
|
$
|
(7,929
|
)
|
Interest expense
|
|
826
|
|
|
700
|
|
Interest income
|
|
(2
|
)
|
|
(4
|
)
|
Provision for income taxes
|
|
321
|
|
|
2,704
|
|
Depreciation
|
|
5,024
|
|
|
4,696
|
|
Amortization of purchased intangible assets
|
|
3,023
|
|
|
3,037
|
|
EBITDA
|
|
4,876
|
|
|
3,204
|
|
Restructuring charges
|
|
1,202
|
|
|
3,397
|
|
Stock-based compensation
|
|
1,599
|
|
|
2,223
|
|
Other (income) expense, net
|
|
(178
|
)
|
|
299
|
|
Adjusted EBITDA
|
|
$
|
7,499
|
|
|
$
|
9,123
|
|
Business Segment Financial Information
We primarily evaluate performance and allocate resources based on segment revenues, operating income and adjusted EBITDA as well as projected future performance. Segment operating income is defined as revenues less expenses identifiable to the segment. Segment operating income will reconcile to consolidated income before income taxes by deducting unallocated corporate expenses, including stock-based compensation, net other expense, net interest expense, and income tax provision.
NobelClad
Three months ended September 30, 2016
compared with
three months ended September 30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
|
|
|
|
|
2016
|
|
2015
|
|
$ change
|
|
% change
|
Net sales
|
|
$
|
16,915
|
|
|
$
|
21,306
|
|
|
$
|
(4,391
|
)
|
|
(21
|
)%
|
Gross profit
|
|
3,112
|
|
|
4,522
|
|
|
(1,410
|
)
|
|
(31
|
)%
|
Gross profit percentage
|
|
18.4
|
%
|
|
21.2
|
%
|
|
|
|
|
COSTS AND EXPENSES:
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
907
|
|
|
1,014
|
|
|
(107
|
)
|
|
(11
|
%)
|
Selling and distribution expenses
|
|
1,409
|
|
|
1,693
|
|
|
(284
|
)
|
|
(17
|
)%
|
Amortization of purchased intangible assets
|
|
95
|
|
|
95
|
|
|
—
|
|
|
—
|
%
|
Restructuring expenses
|
|
—
|
|
|
48
|
|
|
(48
|
)
|
|
(100
|
)%
|
Operating income
|
|
701
|
|
|
1,672
|
|
|
(971
|
)
|
|
(58
|
)%
|
Adjusted EBITDA
|
|
$
|
1,707
|
|
|
$
|
2,733
|
|
|
$
|
(1,026
|
)
|
|
(38
|
)%
|
Net sales
The
decrease
compared with
2015
reflects the timing differences with respect to when orders enter our backlog and the subsequent shipment of these orders. During the third quarter of 2016, NobelClad experienced a temporary delay at a subcontractor that pushed the shipment of a large order out of the third quarter.
Gross profit
The
decrease
in gross profit and gross profit percentage compared with
2015
primarily was due to warranty work and less favorable margins on its mix of projects in the third quarter of 2016 compared with the same period in 2015.
General and administrative expenses
The
decrease
compared with
2015
primarily was attributable to a decline in salaries and wages.
Selling and distribution expenses
The
decrease
compared with
2015
primarily was attributable to lower bad debt expense.
Restructuring expense
Restructuring expenses in
2015
related to shifting the majority of clad metal plate production in Europe from facilities in Rivesaltes, France and Würgendorf, Germany to our manufacturing facility in Liebenscheid, Germany.
Operating income
The decrease in operating income was driven by lower gross profit partially offset by lower general and administrative expenses and no restructuring charges in 2016.
Adjusted EBITDA
The decrease compared with
2015
primarily was due to a decrease in operating income. See explanation of the use of Adjusted EBITDA under "Consolidated Results of Operations." The following is a reconciliation of the most directly comparable GAAP measure to Adjusted EBIDTA.
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
|
2016
|
|
2015
|
Operating income
|
|
$
|
701
|
|
|
$
|
1,672
|
|
Adjustments:
|
|
|
|
|
Restructuring
|
|
—
|
|
|
48
|
|
Depreciation
|
|
911
|
|
|
918
|
|
Amortization of purchased intangibles
|
|
95
|
|
|
95
|
|
Adjusted EBITDA
|
|
$
|
1,707
|
|
|
$
|
2,733
|
|
Nine months ended September 30, 2016
compared with
nine months ended September 30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30,
|
|
|
|
|
|
|
2016
|
|
2015
|
|
$ change
|
|
% change
|
Net sales
|
|
$
|
68,374
|
|
|
$
|
66,699
|
|
|
$
|
1,675
|
|
|
3
|
%
|
Gross profit
|
|
13,728
|
|
|
13,052
|
|
|
676
|
|
|
5
|
%
|
Gross profit percentage
|
|
20.1
|
%
|
|
19.6
|
%
|
|
|
|
|
COSTS AND EXPENSES:
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
2,754
|
|
|
3,350
|
|
|
(596
|
)
|
|
(18
|
%)
|
Selling and distribution expenses
|
|
4,348
|
|
|
4,331
|
|
|
17
|
|
|
—
|
%
|
Amortization of purchased intangible assets
|
|
286
|
|
|
286
|
|
|
—
|
|
|
—
|
%
|
Restructuring expenses
|
|
—
|
|
|
606
|
|
|
(606
|
)
|
|
(100
|
)%
|
Operating income
|
|
6,340
|
|
|
4,479
|
|
|
1,861
|
|
|
42
|
%
|
Adjusted EBITDA
|
|
$
|
9,340
|
|
|
$
|
8,201
|
|
|
$
|
1,139
|
|
|
14
|
%
|
Net sales
The
increase
compared with
2015
reflects the timing differences with respect to when orders enter our backlog and the subsequent shipment of these orders. During the second quarter of 2016, NobelClad shipped a large project related to specialized explosion clad plates to be used in the fabrication of equipment for a semiconductor material production facility in East Asia.
Gross profit
The
increase
in gross profit and gross profit percentage compared with
2015
primarily was due to more favorable margins on its mix of projects during the
nine months ended September 30, 2016
compared with the same period in 2015. Gross profit also benefited from lower manufacturing overhead expenses from the consolidation of European manufacturing facilities.
General and administrative expenses
The
decrease
compared with
2015
primarily was attributable to lower salaries and wages and outside service costs.
Restructuring expense
Restructuring expenses in
2015
related to shifting the majority of clad metal plate production in Europe from facilities in Rivesaltes, France and Würgendorf, Germany to our manufacturing facility in Liebenscheid, Germany.
Operating income
The
increase
in operating income was driven by higher gross profit from favorable project mix, lower general and administrative expenses and no restructuring charges in 2016.
Adjusted EBITDA
The increase compared with
2015
was due to an increase in operating income and no restructuring expenses during the
nine months ended September 30, 2016
. See explanation of the use of Adjusted EBITDA under "Consolidated Results of Operations." The following is a reconciliation of the most directly comparable GAAP measure to Adjusted EBIDTA.
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30,
|
|
|
2016
|
|
2015
|
Operating income
|
|
$
|
6,340
|
|
|
$
|
4,479
|
|
Adjustments:
|
|
|
|
|
Restructuring
|
|
—
|
|
|
606
|
|
Depreciation
|
|
2,714
|
|
|
2,830
|
|
Amortization of purchased intangibles
|
|
286
|
|
|
286
|
|
Adjusted EBITDA
|
|
$
|
9,340
|
|
|
$
|
8,201
|
|
DynaEnergetics
Three months ended September 30, 2016
compared with
three months ended September 30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
|
|
|
|
|
2016
|
|
2015
|
|
$ change
|
|
% change
|
Net sales
|
|
$
|
19,638
|
|
|
$
|
18,202
|
|
|
$
|
1,436
|
|
|
8
|
%
|
Gross profit
|
|
5,399
|
|
|
5,829
|
|
|
(430
|
)
|
|
(7
|
)%
|
Gross profit percentage
|
|
27.5
|
%
|
|
32.0
|
%
|
|
|
|
|
COSTS AND EXPENSES:
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
2,739
|
|
|
2,244
|
|
|
495
|
|
|
22
|
%
|
Selling and distribution expenses
|
|
2,350
|
|
|
3,091
|
|
|
(741
|
)
|
|
(24
|
)%
|
Amortization of purchased intangible assets
|
|
914
|
|
|
912
|
|
|
2
|
|
|
—
|
%
|
Restructuring expenses
|
|
373
|
|
|
237
|
|
|
136
|
|
|
57
|
%
|
Operating loss
|
|
(977
|
)
|
|
(655
|
)
|
|
(322
|
)
|
|
(49
|
)%
|
Adjusted EBITDA
|
|
$
|
1,159
|
|
|
$
|
1,119
|
|
|
$
|
40
|
|
|
4
|
%
|
Net sales
The
increase
compared with
2015
primarily was due to the India project that shipped in the third quarter of 2016 versus the second quarter last year. Demand for DynaEnergetics' intrinsically-safe DynaSelect
TM
initiator has increased significantly year over year. However, this was partially offset by a decline in unit selling prices across all major product lines as a result of the prolonged downturn in well completion activity.
Gross profit
The
decrease
in gross profit and gross profit percentage compared with
2015
was due to lower selling prices and higher spending on research and development partially offset by favorable product mix.
General and administrative expenses
The
increase
compared with
2015
primarily was due to higher outside legal expenses related to regulatory and litigation matters partially offset by lower salaries and wages.
Selling and distribution expenses
The
decrease
compared with
2015
was principally due to lower bad debt expense combined with lower salaries and wages from closing distribution centers in 2015.
Restructuring expense
DynaEnergetics' restructuring activity in
2016
relates to adjustments to severance for headcount reductions, lease termination costs in Austin, Texas, and scrapping equipment after relocation of perforating gun manufacturing
in Germany
. Restructuring activity in
2015
relates to the closure of a number of distribution centers in North America and Colombia and the closure of a perforating gun manufacturing facility and distribution center in Edmonton, Alberta.
Operating loss
The increase in operating loss compared with
2015
primarily due to lower gross profit percentage and higher general and administrative expenses partially offset by lower selling and distribution expenses.
Adjusted EBITDA
The increase compared with
2015
is primarily due to a higher restructuring and depreciation expenses compared with the same period in the prior year. See explanation of the use of Adjusted EBITDA under "Consolidated Results of Operations." The following is a reconciliation of the most directly comparable GAAP measure to Adjusted EBIDTA.
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
|
2016
|
|
2015
|
Operating loss
|
|
$
|
(977
|
)
|
|
$
|
(655
|
)
|
Adjustments:
|
|
|
|
|
Restructuring
|
|
373
|
|
|
237
|
|
Depreciation
|
|
849
|
|
|
625
|
|
Amortization of purchased intangibles
|
|
914
|
|
|
912
|
|
Adjusted EBITDA
|
|
$
|
1,159
|
|
|
$
|
1,119
|
|
Nine months ended September 30, 2016
compared with
nine months ended September 30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30,
|
|
|
|
|
|
|
2016
|
|
2015
|
|
$ change
|
|
% change
|
Net sales
|
|
$
|
50,028
|
|
|
$
|
58,369
|
|
|
$
|
(8,341
|
)
|
|
(14
|
)%
|
Gross profit
|
|
15,187
|
|
|
20,711
|
|
|
(5,524
|
)
|
|
(27
|
)%
|
Gross profit percentage
|
|
30.4
|
%
|
|
35.5
|
%
|
|
|
|
|
COSTS AND EXPENSES:
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
6,510
|
|
|
6,807
|
|
|
(297
|
)
|
|
(4
|
%)
|
Selling and distribution expenses
|
|
7,771
|
|
|
10,122
|
|
|
(2,351
|
)
|
|
(23
|
)%
|
Amortization of purchased intangible assets
|
|
2,737
|
|
|
2,751
|
|
|
(14
|
)
|
|
(1
|
)%
|
Restructuring expenses
|
|
1,128
|
|
|
1,231
|
|
|
(103
|
)
|
|
(8
|
)%
|
Operating loss
|
|
(2,959
|
)
|
|
(201
|
)
|
|
(2,758
|
)
|
|
(1,372
|
)%
|
Adjusted EBITDA
|
|
$
|
3,216
|
|
|
$
|
5,647
|
|
|
$
|
(2,431
|
)
|
|
(43
|
)%
|
Net sales
The
decrease
compared with
2015
primarily is due to the extended downturn in DynaEnergetics' end markets.
Gross profit
The
decrease
in gross profit and gross profit percentage compared with
2015
primarily was due to lower selling prices and higher research and development expenses partially offset by favorable product mix.
General and administrative expenses
The
decrease
compared with
2015
primarily was due to headcount reductions associated with previously announced restructuring programs partially offset by higher outside legal costs.
Selling and distribution expenses
The
decrease
compared with
2015
was principally due to lower outside sales agents commission expense driven by sales volume in territories in which our segments do not have a captive sales force, lower bad debt expense, and lower salaries and wages including the impact of closing distribution centers in 2015.
Restructuring expense
DynaEnergetics restructuring in
2016
relates
to severance for headcount reductions in Troisdorf, Germany and Austin, Texas and lease termination costs in Austin
. Restructuring activity in
2015
relates to the closure of a number of distribution centers in North America and Colombia and the closure of a perforating gun manufacturing facility and distribution center in Edmonton, Alberta.
Operating loss
The higher operating loss compared with
2015
primarily due to lower sales volume partially offset by lower general and administrative and selling and distribution expenses.
Adjusted EBITDA
The decrease compared with
2015
is primarily due to an operating loss in
2016
compared with operating income in prior year. See explanation of the use of Adjusted EBITDA under "Consolidated Results of Operations." The following is a reconciliation of the most directly comparable GAAP measure to Adjusted EBIDTA.
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30,
|
|
|
2016
|
|
2015
|
Operating loss
|
|
$
|
(2,959
|
)
|
|
$
|
(201
|
)
|
Adjustments:
|
|
|
|
|
Restructuring
|
|
1,128
|
|
|
1,231
|
|
Depreciation
|
|
2,310
|
|
|
1,866
|
|
Amortization of purchased intangibles
|
|
2,737
|
|
|
2,751
|
|
Adjusted EBITDA
|
|
$
|
3,216
|
|
|
$
|
5,647
|
|
Liquidity and Capital Resources
We have historically financed our operations from a combination of internally generated cash flow, revolving credit borrowings, various long-term debt arrangements, and the issuance of common stock. We believe that cash flow from operations and funds available under our current credit facilities and any future replacement thereof will be sufficient to fund the working capital, debt interest service, dividend payments, and capital expenditure requirements of our current business operations for the foreseeable future. Nevertheless, our ability to generate sufficient cash flows from operations will depend upon our success in executing our strategies. If we are unable to (i) realize sales from our backlog; (ii) secure new customer orders; (iii) selling products at attractive margins; and (iv) continue to implement cost-effective internal processes, our ability to meet cash requirements through operating activities could be impacted. Additionally, continued challenging conditions in our core energy markets could impact our ability to meet cash requirements through operating activities. Furthermore, any restriction on the availability of borrowings under our credit facilities could negatively affect our ability to meet future cash requirements.
Debt facilities
We have a a
five
-year
$75,000
syndicated credit agreement (“credit facility”), which allows for revolving loans of
$65,000
in US dollars and
$10,000
in alternate currencies as well as a
$100,000
accordion feature to increase the commitments in any of the loan classes subject to approval by applicable lenders. We also maintain a line of credit with a German bank for certain DynaEnergetics operations. This line of credit provides a borrowing capacity of 4,000 Euros.
As of
September 30, 2016
, U.S. dollar revolving loans of
$15,250
were outstanding under our credit facility. While we had approximately $
59,750
of available revolving credit loan capacity as of
September 30, 2016
under our various credit facilities, future borrowings are subject to compliance with financial covenants that could significantly limit such availability.
There are two significant financial covenants under our credit facility, the leverage ratio and debt service coverage ratio requirements. The leverage ratio is defined in the credit facility as Consolidated Funded Indebtedness at the balance sheet date as compared to Consolidated EBITDA, which is defined as earnings before provisions for income taxes, interest expense, depreciation and amortization, extraordinary, non-recurring charges and other non-cash charges, for the previous twelve months. For the
nine months ended September 30, 2016
and the year ended
December 31, 2015
, Consolidated EBITDA approximated the “Adjusted EBITDA” that we reported for the respective periods. Under our credit facility, the maximum leverage ratio permitted by our credit facility during the third quarter was 3.25 to 1.0. As of October 1, 2016, the maximum leverage ratio permitted under the the credit facility is 3.0 to 1.0.
The debt service coverage ratio, as defined in the credit facility, means, for any period, the ratio of Consolidated EBITDA less the sum of cash dividends, cash income taxes and capital expenditures to Debt Service Charges. Consolidated EBITDA is defined above and Debt Service Charges equals the sum of cash interest expense and scheduled principal payments of Consolidated Funded Indebtedness. Under our credit facility, the minimum debt service coverage ratio permitted by our credit facility is 1.35 to 1.0.
Our existing loan agreements include various covenants and restrictions, certain of which relate to the payment of dividends or other distributions to stockholders, redemption of capital stock, incurrence of additional indebtedness, mortgaging, pledging or disposition of major assets, and maintenance of specified financial ratios. As of
September 30, 2016
, we were in compliance with all financial covenants and other provisions of our debt agreements.
Other contractual obligations and commitments
Our long-term debt balance decreased to
$15,250
at
September 30, 2016
from
$27,500
at
December 31, 2015
. Our other contractual obligations and commitments have not materially changed since
December 31, 2015
.
Cash flows from operating activities
Net cash provided by operating activities was
$17,839
for the
nine months ended September 30, 2016
. This compares to net cash used in operating activities of
$6,414
for the same period in
2015
. The year-over-year increase in operating cash flows of $
24,253
primarily was driven by a $
25,522
decrease in net working capital. We experienced favorable net working capital changes of $
11,584
in the
nine months ended September 30, 2016
compared with unfavorable changes in net working capital of $
13,938
in the same period of
2015
. Favorable changes in working capital for the nine months ended September 30,
2016
included a
$10,480
decrease in accounts receivable due to lower sales and the timing of collections, a
$3,400
reduction in inventory, and a
$1,037
increase in accrued expenses. These favorable changes in working capital partially were offset by a
$3,166
decrease in accounts payable from a decline in purchases and a
$347
increase in prepaid expenses.
Net cash used in operating activities was $
6,414
for the
nine months ended
September 30, 2015
. We experienced unfavorable net working capital changes of $
13,938
in the
2015
period, including an increase in inventories, prepaid expenses, and receivables of $
3,908
, $
1,523
, and
$220
, respectively, and decreases of $
1,271
in customer advances and $
3,742
in accounts payable. The increase in net working capital was driven by a ramp up of inventory associated with a new product introduction in DynaEnergetics, cash payments related to restructuring activities and a decrease in customer advances in NobelClad.
Cash flows from investing activities
Net cash flows used in investing activities for the
nine months ended September 30, 2016
were
$4,008
primarily due to capital expenditures.
Net cash flows used in investing activities for the
nine months ended
September 30, 2015
totaled $
4,690
primarily due to capital expenditures.
Cash flows from financing activities
Net cash flows used in financing activities for the
nine months ended September 30, 2016
totaled
$12,945
, which included net repayments on bank lines of credit of $
12,250
and payment of quarterly dividends of $
861
.
Net cash flows provided by financing activities for the
nine months ended
September 30, 2015
totaled $
10,965
, which included net borrowings on bank lines of credit of $
13,446
, payment of quarterly dividends of
$1,692
, and payment of deferred debt issuance costs of
$1,042
.
Payment of Dividends
On August 30, 2016, our board of directors declared a quarterly cash dividend of $0.02 per share which was paid on October 15, 2016. The dividend totaled
$290
and was payable to shareholders of record as of September 30, 2016. We also paid quarterly cash dividends of $0.02 per share in the first and second quarters of 2016 and 0.04 per share in the first three quarters of 2015.
We may continue to pay quarterly dividends in the future subject to capital availability and periodic determinations that cash dividends are in compliance with our debt covenants and are in the best interests of our stockholders, but we cannot assure you that such payments will continue. Future dividends may be affected by, among other items, our views on potential future capital requirements, future business prospects, debt covenant compliance, changes in federal income tax laws, or any other factors that our board of directors deems relevant. Any decision to pay cash dividends is and will continue to be at the discretion of our Board of Directors.
Critical Accounting Policies
Our critical accounting policies have not changed from those reported in our Annual Report filed on Form 10-K for the year ended
December 31, 2015
.