DMC GLOBAL INC. 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 currency amounts are presented in thousands of
Overview General
Our diversified segments each provide a suite of unique technical products to niche sectors of the global energy, industrial and infrastructure markets, and each has established a strong or leading position in the markets in which it participates. With an underlying focus on generating free cash flow, our objective is to sustain and grow the market share of our businesses through increased market penetration, development of new applications, and research and development of new and adjacent products that can be sold across our global network of sales and distribution facilities. We routinely explore acquisitions of related businesses that could strengthen or add to our existing product portfolios, or expand our geographic footprint and market presence. We also seek acquisition opportunities outside our current markets that would complement our existing businesses and enable us to build a stronger and more diverse company. DynaEnergetics
DynaEnergetics designs, manufactures and distributes products utilized by the
global oil and gas industry principally for the perforation of 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, freight in, 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
Cost of products sold for NobelClad includes the cost of metals and alloys used to manufacture clad metal plates, the cost of explosives, employee compensation and benefits, freight in, outside processing costs, depreciation of manufacturing facilities and equipment, manufacturing supplies and other manufacturing overhead expenses.
In the first quarter of 2021, under provisions of legislation enacted in
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Table of Contents Factors Affecting Results
•Consolidated sales of
•DynaEnergetics sales of
•NobelClad's sales of
•Consolidated gross profit was 25% in the third quarter of 2021 versus 26% in
the second quarter of 2021 and 25% in the third quarter of 2020. Gross profit
was flat versus last year as the third quarter of 2021 and reflects receipt of
•Consolidated selling, general and administrative expenses were
•Restructuring expenses and asset impairments of
•Cash and marketable securities of
Outlook
Supply chain disruptions and travel restrictions challenged the international
operations of both DMC businesses during the third quarter of 2021. As a result,
consolidated sales were below our expectations. DynaEnergetics' international
sales were down
We remain in a period of rising material and labor costs at both DynaEnergetics
and NobelClad; both of which could also be impacted by supply-chain disruptions
and availability of direct labor. NobelClad was awarded an
In
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direct labor are negatively impacting the recovery in DynaEnergetics. As market conditions continue to improve and operators implement their 2022 budgets, we believe pricing will begin to improve as well. We expect DynaEnergetics will be among the first to benefit from strengthening prices, as it offers a highly differentiated product line. Factory-assembled DS systems are delivered just in time to the wellsite, eliminating assembly operations and requiring fewer people on location.
In the fourth quarter of 2021, DynaEnergetics announced a 5% price increase that
will go into effect
We believe many of the pre-wired carriers in the market incorporate features that violate DynaEnergetics patents, and we are taking 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 in the first nine months of 2021, and we expect these costs to be ongoing throughout the remainder of 2021 and into 2022.
In the third quarter of 2021, NobelClad introduced DetaPipe™, a high-performance clad-pipe solution for the chemical and metal-processing markets. This product offering is expected to provide customers with a better-performing, cost-effective alternative to solid zirconium or titanium pipe in their high-pressure, high temperature processing environments.
In
From time to time, we also may continue to use our ATM equity program, which
commenced in
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 and 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). 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.
Adjusted operating income (loss) is defined as operating income (loss) plus restructuring and impairment charges and, when appropriate, other items that management does not utilize in assessing DMC's operating performance.
Adjusted net income (loss) is defined as net income (loss) plus restructuring and impairment charges and, when appropriate, other items that management does not utilize in assessing DMC's operating performance. Adjusted diluted earnings per share is defined as diluted earnings per share plus restructuring and impairment charges and, when appropriate, other items that management does not utilize in assessing DMC's operating performance.
Adjusted operating income (loss), 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 and impairment charges on DMC's operating income (loss), net income (loss) and diluted earnings per share, respectively.
Net cash is a non-GAAP measure we use to supplement information in our Consolidated Financial Statements. We define net cash as total cash, cash equivalents and marketable securities less total debt. In addition to conventional measures
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prepared in accordance with GAAP, the Company uses this information to evaluate its performance, and we believe that certain investors may do the same.
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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