The following discussion should be read in conjunction with our historical
Consolidated Financial Statements and notes, as well as the selected historical
consolidated financial data that is included in our Annual Report filed on
Form 10-K for the year ended
Unless stated otherwise, all dollar figures are presented in thousands (000s).
Overview
General
Arcadia
On
Cost of products sold for Arcadia includes the cost of aluminum, paint, and other raw materials used to manufacture windows, curtain walls, doors, and interior partitions as well as employee compensation and benefits, depreciation of manufacturing facilities and equipment, manufacturing supplies and other manufacturing overhead expenses.
DynaEnergetics
DynaEnergetics designs, manufactures and distributes products utilized by the
global oil and gas industry principally to perforate oil and gas wells. These
products are sold to oilfield service companies in the
Cost of products sold for DynaEnergetics includes the cost of metals, explosives and other raw materials used to manufacture shaped charges, detonating products and perforating guns as well as employee compensation and benefits, depreciation of manufacturing facilities and equipment, manufacturing supplies and other manufacturing overhead expenses.
NobelClad
NobelClad produces explosion-welded clad metal plates for use in the
construction of corrosion resistant industrial processing equipment and
specialized transition joints. While a significant portion of the demand for our
clad metal products is driven by maintenance and retrofit projects at existing
chemical processing, petrochemical processing, oil refining, and aluminum
smelting facilities, new plant construction and large plant expansion projects
also account for a significant portion of total demand. These industries tend to
be cyclical in nature and timing of new order inflow remains difficult to
predict. We use backlog as a primary means to measure the immediate outlook for
our NobelClad business. We define "backlog" at any given point in time as all
firm, unfulfilled purchase orders and commitments at that time. Most firm
purchase orders and commitments are realized, and we expect to fill most backlog
orders within the following 12 months. NobelClad's backlog increased to
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Cost of products sold for NobelClad includes the cost of metals, explosive powders and other raw materials used to manufacture clad metal plates as well as employee compensation and benefits, outside processing costs, depreciation of manufacturing facilities and equipment, manufacturing supplies and other manufacturing overhead expenses.
Employee Retention Credit
In the first quarter of 2021, under provisions of legislation enacted in
Factors Affecting Results
•Consolidated sales were
•Arcadia reported sales of
•DynaEnergetics sales of
•NobelClad sales of
•Consolidated gross profit was 31% in the second quarter of 2022 versus 26% in
the second quarter of 2021. The improvement compared to prior year primarily was
due to the acquisition of Arcadia, which had a higher gross profit percentage
than DMC's other business units. The impact of higher sales volume on fixed
manufacturing overhead expenses and increases in the average selling price of DS
perforating systems at DynaEnergetics also contributed to the improved
performance. These favorable impacts were partially offset by higher material
and other input costs at each business segment. Additionally, the 2021 second
quarter gross profit was favorably impacted by the receipt of
•Consolidated selling, general and administrative expenses were
•Cash of
We remain in a period of rising raw material and other input costs as well as continued supply chain disruptions and challenges. Each of our businesses has been and may continue to be impacted by rising raw material prices (particularly aluminum at Arcadia and steel at DynaEnergetics), increasing wages, the availability of labor, and supply chain disruptions such as increased lead times related to raw materials.
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In
We believe well completion activity and customer pricing will be resilient. DynaEnergetics has instituted price increases in the fourth quarter of 2021 and first half of 2022 to offset higher labor and material costs and the expiration of the previously enacted CARES Act. DynaEnergetics is planning on additional price increases in the second half of 2022 as it seeks to return margins to levels that reflect the inherent value of its products. We believe DynaEnergetics is among the first to benefit from strengthening prices, as it offers a highly differentiated product line. Factory-assembled DS perforating systems are delivered just in time to the wellsite, eliminating assembly operations and requiring fewer people on location.
We believe many of the pre-wired carriers in the market incorporate features that violate DynaEnergetics patents, and we are continuing to take aggressive legal action against the companies that make these products. DynaEnergetics has made significant investments in technologies and products that have improved the safety, efficiency and performance of its customers' well completions, and have enhanced the effectiveness and profitability of the industry as a whole. Our patent strategy is designed to protect these investments and provide transparency so others can innovate without violating our intellectual property. These lawsuits have increased our general and administrative expenses, and we expect these costs to be ongoing throughout 2022.
Arcadia services both commercial building and high-end residential markets.
Arcadia's current geographic regions of focus include the western and
southwestern regions of
Use of Non-GAAP Financial Measures
Adjusted EBITDA is a non-GAAP (generally accepted accounting principles) measure
that we believe provides an important indicator of our ongoing operating
performance and that we use in operational and financial decision-making. We
define EBITDA as net income or loss plus or minus net interest, taxes,
depreciation and amortization. Adjusted EBITDA excludes from EBITDA stock-based
compensation, restructuring expenses and asset impairment charges and, when
appropriate, other items that management does not utilize in assessing DMC's
operating performance (as further described in the tables below). Adjusted
EBITDA attributable to
Adjusted net income (loss) is defined as net income (loss) attributable to
Adjusted net income (loss) and adjusted diluted earnings per share are presented because management believes these measures are useful to understand the effects of restructuring, impairment, and other non-recurring charges on DMC's net income (loss) and diluted earnings per share, respectively.
Net debt is a non-GAAP measure we use to supplement information in our Condensed Consolidated Financial Statements. We define net debt as total debt less total cash and cash equivalents. In addition to conventional measures prepared in accordance with GAAP, the Company uses this information to evaluate its performance, and we believe that certain investors may do the same.
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The presence of non-GAAP financial measures in this report is not intended to suggest that such measures be considered in isolation or as a substitute for, or as superior to, DMC's GAAP information, and investors are cautioned that the non-GAAP financial measures are limited in their usefulness. Because not all companies use identical calculations, DMC's presentation of non-GAAP financial measures may not be comparable to similarly titled measures of other companies.
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