UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
(Mark One)
x☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended SeptemberJune 30, 20172021
OR
o☐TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO .
Commission file number 001-14775
DMC GLOBAL INC.
(Exact name of Registrant as Specified in its Charter)
|
| | | | | | | |
Delaware | | 84-0608431 |
(State of Incorporation or Organization) | | (I.R.S. Employer Identification No.) |
5405 Spine Road, Boulder,11800 Ridge Parkway, Suite 300, Broomfield, Colorado 8030180021
(Address of principal executive offices, including zip code)
(303) 665-5700
(Registrant’s telephone number, including area code)
| | | | | | | | | | | | | | |
Title of each class | | Trading Symbol | | Name of exchange on which registered |
Common Stock, $0.05 Par Value | | BOOM | | The Nasdaq Global Select Market |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x☒ No o☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x☒ No o☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging“emerging growth company"company” in Rule 12b-2 of the Exchange
Act.
| | | | | | | | |
Large accelerated filer ☐ | | Accelerated filer ☒ |
| | |
Non-accelerated filer ☐ | | Smaller reporting company ☐ |
| | |
Large accelerated filer o
| | Accelerated filer x
|
| | |
Non-accelerated filer o
(Do not check if smaller reporting company)
| | Smaller reporting company o
|
| | |
| | Emerging growth company o ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act o☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 under the Act). Yes o☐ No x☒
The number of shares of Common Stock outstanding was 14,769,34218,725,072 as of October 26, 2017.
CAUTIONARY NOTE ABOUT FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q contains “forward-looking statements” within the meaning of section 27A of the Securities Act of 1933 and section 21E of the Securities Exchange Act of 1934. We intend the forward-looking statements throughout this quarterly report on Form 10-Q to be covered by the safe harbor provisions for forward-looking statements. Statements contained in this report which are not historical facts are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from projected results. These statements can sometimes be identified by our use of forward-looking words such as “may,” “believe,” “plan,” “anticipate,” “estimate,” “expect,” “intend,” and other phrases of similar meaning. Such statements include projections, guidanceexpectations regarding improvements to DynaEnergetics’ end markets, our ability to access the capital markets, expected continuing litigation costs, expected material and other statements regardinglabor cost trends, our expected financial positionability to claim the Employee Retention Credit (“ERC”) under the Coronavirus Aid, Relief, and operating results, the expected impacts of new accounting standardsEconomic Security Act, as amended, and the timingavailability of our implementation thereof, our business strategy, expectations regarding NobelClad's end markets and activity levels, comments regarding expanding demand for DynaEnergetics' products, particularly DynaSelectTM and DynaStageTM, expected expansion plans in Blum, Texas, Troisdorf, Germany and Mt. Braddock, Pennsylvania,funds to support our liquidity position and factors impacting such position, including expectations regarding legal costs, and the outcome of any pending litigation or contingencies.our expected future liquidity position. The forward-looking information is based on information available as of the date of this quarterly report and on numerous assumptions and developments that are not within our control. Although we believe that our expectations as expressed in these forward-looking statements are reasonable, we cannot assure you that our expectations will turn out to be correct. Factors that could cause actual results to differ materially include, but are not limited to, those factors referenced in our Annual Report on Form 10-K for the year ended December 31, 20162020 and such things as the following: changes in globalimpacts of COVID-19 and any related preventative or protective actions taken by governmental authorities and resulting economic conditions;impacts, including recessions or depressions; supply chain delays and disruptions; transportation disruptions; the ability to obtain new contracts at attractive prices; the size and timing of customer orders and shipment;shipments; product pricing and margins; our ability to realize sales from our backlog; fluctuations in customer demand; fluctuations in foreign currencies; competitive factors; the timely completion of contracts; the timing and size of expenditures; the timely receipt of government approvals and permits; the price and availability of metal and other raw material; fluctuations in tariffs or quotas; changes in laws and regulations, both domestic and foreign, impacting our business and the business of the end-market users we serve; the adequacy of local labor supplies at our facilities; current or future limits on manufacturing capacity at our various operations; our ability to successfully integrate acquired businesses; the impact of pending or future litigation or regulatory matters; the availability and cost of funds; our ability to access our borrowing capacity under our credit facility or access the capital markets; and generalglobal economic conditions both domestic and foreign, impacting our businesspolitical and the business of the end-market users we serve.economic developments. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s analysis only as of the date hereof. We undertake no obligation to publicly release the results of any revision to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
INDEX
Part I - FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements
DMC GLOBAL INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands, Except Share and Per Share Data)
|
| | | | | | | |
| September 30, | | December 31, |
| 2017 | | 2016 |
| (unaudited) | | |
ASSETS | |
| | |
|
CURRENT ASSETS: | |
| | |
|
Cash and cash equivalents | $ | 8,861 |
| | $ | 6,419 |
|
Accounts receivable, net of allowance for doubtful accounts of $1,102 and $1,146, respectively | 45,443 |
| | 32,959 |
|
Inventory, net | 31,489 |
| | 28,833 |
|
Prepaid expenses and other | 5,293 |
| | 5,148 |
|
| | | |
Total current assets | 91,086 |
| | 73,359 |
|
| | | |
PROPERTY, PLANT AND EQUIPMENT | 118,752 |
| | 109,427 |
|
Less - accumulated depreciation | (59,167 | ) | | (52,294 | ) |
| | | |
Property, plant and equipment, net | 59,585 |
| | 57,133 |
|
| | | |
GOODWILL, net | — |
| | 16,097 |
|
| | | |
PURCHASED INTANGIBLE ASSETS, net | 13,980 |
| | 15,827 |
|
| | | |
OTHER ASSETS, net | 215 |
| | 139 |
|
| | | |
TOTAL ASSETS | $ | 164,866 |
| | $ | 162,555 |
|
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
DMC GLOBAL INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands, Except Share and Per Share Data)
|
| | | | | | | |
| September 30, | | December 31, |
| 2017 | | 2016 |
| (unaudited) | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | |
| | |
|
CURRENT LIABILITIES: | |
| | |
|
Accounts payable | $ | 15,794 |
| | $ | 13,260 |
|
Accrued expenses | 4,188 |
| | 4,173 |
|
Accrued anti-dumping duties | 3,585 |
| | 6,550 |
|
Dividend payable | 295 |
| | 290 |
|
Accrued income taxes | 958 |
| | 548 |
|
Accrued employee compensation and benefits | 5,437 |
| | 3,307 |
|
Customer advances | 2,772 |
| | 2,619 |
|
| | | |
Total current liabilities | 33,029 |
| | 30,747 |
|
| | | |
LINES OF CREDIT | 21,958 |
| | 15,732 |
|
| | | |
DEFERRED TAX LIABILITIES | 1,040 |
| | 1,448 |
|
| | | |
OTHER LONG-TERM LIABILITIES | 2,534 |
| | 2,219 |
|
| | | |
Total liabilities | 58,561 |
| | 50,146 |
|
| | | |
COMMITMENTS AND CONTINGENT LIABILITIES |
|
| |
|
|
| |
| | |
|
STOCKHOLDERS’ EQUITY: | | | |
Preferred stock, $0.05 par value; 4,000,000 shares authorized; no issued and outstanding shares | — |
| | — |
|
Common stock, $0.05 par value; 25,000,000 shares authorized; 14,769,342 and 14,496,359 shares outstanding, respectively | 740 |
| | 725 |
|
Additional paid-in capital | 75,380 |
| | 73,116 |
|
Retained earnings | 62,330 |
| | 80,107 |
|
Other cumulative comprehensive loss | (31,784 | ) | | (41,514 | ) |
Treasury stock, at cost; 39,783 and 2,378 shares, respectively | (361 | ) | | (25 | ) |
| | | |
Total stockholders’ equity | 106,305 |
| | 112,409 |
|
| | | |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 164,866 |
| | $ | 162,555 |
|
| | | | | | | | | | | |
| June 30, 2021 | | December 31, 2020 |
| (unaudited) | | |
ASSETS | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 36,363 | | | $ | 28,187 | |
Marketable securities | 144,931 | | | 25,736 | |
Accounts receivable, net of allowance for doubtful accounts of $2,690 and $2,605, respectively | 43,027 | | | 31,366 | |
Inventories | 62,478 | | | 52,573 | |
Prepaid expenses and other | 10,577 | | | 5,448 | |
| | | |
| | | |
Total current assets | 297,376 | | | 143,310 | |
Property, plant and equipment | 172,409 | | | 180,278 | |
Less - accumulated depreciation | (66,820) | | | (70,867) | |
Property, plant and equipment, net | 105,589 | | | 109,411 | |
| | | |
| | | |
Purchased intangible assets, net | 2,391 | | | 3,665 | |
Deferred tax assets | 6,097 | | | 4,582 | |
Other assets | 22,893 | | | 18,677 | |
Total assets | $ | 434,346 | | | $ | 279,645 | |
| | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
Current liabilities: | | | |
Accounts payable | $ | 25,122 | | | $ | 17,574 | |
Accrued expenses | 6,702 | | | 5,301 | |
| | | |
| | | |
Accrued income taxes | 8,696 | | | 7,279 | |
Accrued employee compensation and benefits | 7,025 | | | 7,160 | |
Contract liabilities | 10,188 | | | 4,928 | |
Current portion of long-term debt | 0 | | | 3,125 | |
Other current liabilities | 1,477 | | | 1,741 | |
| | | |
Total current liabilities | 59,210 | | | 47,108 | |
Long-term debt | 0 | | | 8,139 | |
| | | |
Deferred tax liabilities | 1,153 | | | 2,254 | |
Other long-term liabilities | 27,946 | | | 25,230 | |
Total liabilities | 88,309 | | | 82,731 | |
Commitments and contingencies (Note 12) | 0 | | 0 |
Stockholders’ equity | | | |
Preferred stock, $0.05 par value; 4,000,000 shares authorized; 0 issued and outstanding shares | 0 | | | 0 | |
Common stock, $0.05 par value; 25,000,000 shares authorized; 18,725,008 and 15,389,285 shares outstanding, respectively | 965 | | | 796 | |
Additional paid-in capital | 269,375 | | | 117,387 | |
Retained earnings | 117,813 | | | 115,657 | |
Other cumulative comprehensive loss | (24,456) | | | (22,962) | |
Treasury stock, at cost, and company stock held for deferred compensation, at par; 569,737 and 528,274 shares, respectively | (17,660) | | | (13,964) | |
| | | |
| | | |
Total stockholders’ equity | 346,037 | | | 196,914 | |
Total liabilities and stockholders’ equity | $ | 434,346 | | | $ | 279,645 | |
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
DMC GLOBAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in Thousands, Except Share and Per Share Data)
(unaudited)
|
| | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
NET SALES | $ | 52,161 |
| | $ | 36,553 |
| | $ | 138,314 |
| | $ | 118,402 |
|
COST OF PRODUCTS SOLD | 34,999 |
| | 28,096 |
| | 96,767 |
| | 89,652 |
|
Gross profit | 17,162 |
| | 8,457 |
| | 41,547 |
| | 28,750 |
|
COSTS AND EXPENSES: | |
| | |
| | |
| | |
|
General and administrative expenses | 6,535 |
| | 5,685 |
| | 19,821 |
| | 15,522 |
|
Selling and distribution expenses | 4,446 |
| | 3,832 |
| | 13,420 |
| | 12,352 |
|
Amortization of purchased intangible assets | 1,046 |
| | 1,009 |
| | 3,034 |
| | 3,023 |
|
Restructuring expenses | — |
| | 373 |
| | 458 |
| | 1,202 |
|
Goodwill impairment charge | 17,584 |
| | — |
| | 17,584 |
| | — |
|
Total costs and expenses | 29,611 |
| | 10,899 |
| | 54,317 |
| | 32,099 |
|
OPERATING LOSS | (12,449 | ) | | (2,442 | ) | | (12,770 | ) | | (3,349 | ) |
OTHER INCOME (EXPENSE): | |
| | |
| | |
| | |
|
Other income (expense), net | (436 | ) | | (157 | ) | | (965 | ) | | 178 |
|
Interest expense | (367 | ) | | (265 | ) | | (1,203 | ) | | (826 | ) |
Interest income | — |
| | — |
| | 2 |
| | 2 |
|
LOSS BEFORE INCOME TAXES | (13,252 | ) | | (2,864 | ) | | (14,936 | ) | | (3,995 | ) |
INCOME TAX PROVISION | 812 |
| | 272 |
| | 1,956 |
| | 321 |
|
NET LOSS | $ | (14,064 | ) | | $ | (3,136 | ) | | $ | (16,892 | ) | | $ | (4,316 | ) |
| | | | | | | |
LOSS PER SHARE | |
| | |
| | |
| | |
|
Basic | $ | (0.98 | ) | | $ | (0.22 | ) | | $ | (1.18 | ) | | $ | (0.31 | ) |
Diluted | $ | (0.98 | ) | | $ | (0.22 | ) | | $ | (1.18 | ) | | $ | (0.31 | ) |
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: | |
| | |
| | |
| | |
|
Basic | 14,368,225 |
| | 14,195,921 |
| | 14,333,452 |
| | 14,105,594 |
|
Diluted | 14,368,225 |
| | 14,195,921 |
| | 14,333,452 |
| | 14,105,594 |
|
| | | | | | | |
DIVIDENDS DECLARED PER COMMON SHARE | $ | 0.02 |
| | $ | 0.02 |
| | $ | 0.06 |
| | $ | 0.06 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Net sales | $ | 65,438 | | | $ | 43,203 | | | $ | 121,096 | | | $ | 116,766 | |
Cost of products sold | 48,467 | | | 36,599 | | | 91,212 | | | 85,696 | |
Gross profit | 16,971 | | | 6,604 | | | 29,884 | | | 31,070 | |
Costs and expenses: | | | | | | | |
General and administrative expenses | 8,471 | | | 6,707 | | | 16,400 | | | 14,831 | |
Selling and distribution expenses | 5,544 | | | 5,488 | | | 10,787 | | | 14,015 | |
Amortization of purchased intangible assets | 288 | | | 353 | | | 612 | | | 707 | |
| | | | | | | |
Restructuring expenses and asset impairments | 0 | | | 2,046 | | | 127 | | | 3,162 | |
| | | | | | | |
| | | | | | | |
Total costs and expenses | 14,303 | | | 14,594 | | | 27,926 | | | 32,715 | |
Operating income (loss) | 2,668 | | | (7,990) | | | 1,958 | | | (1,645) | |
Other income (expense): | | | | | | | |
Other income (expense), net | 108 | | | (85) | | | 502 | | | 32 | |
Interest expense, net | (81) | | | (156) | | | (216) | | | (394) | |
Income (loss) before income taxes | 2,695 | | | (8,231) | | | 2,244 | | | (2,007) | |
Income tax provision (benefit) | 971 | | | (2,583) | | | 88 | | | (514) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Net income (loss) | $ | 1,724 | | | $ | (5,648) | | | $ | 2,156 | | | $ | (1,493) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Net income (loss) per share | | | | | | | |
Basic | $ | 0.10 | | | $ | (0.38) | | | $ | 0.13 | | | $ | (0.10) | |
Diluted | $ | 0.10 | | | $ | (0.38) | | | $ | 0.13 | | | $ | (0.10) | |
Weighted average shares outstanding: | | | | | | | |
Basic | 17,554,809 | | | 14,832,242 | | | 16,495,685 | | | 14,745,661 | |
Diluted | 17,568,444 | | | 14,832,242 | | | 16,507,500 | | | 14,745,661 | |
| | | | | | | |
Dividends declared per common share | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0.125 | |
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
DMC GLOBAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSSINCOME (LOSS)
(Amounts in Thousands)
(unaudited)
|
| | | | | | | | | | | | | | |
| Three months ended September 30, | Nine months ended September 30, |
| 2017 | | 2016 | 2017 | | 2016 |
Net loss | $ | (14,064 | ) | | $ | (3,136 | ) | $ | (16,892 | ) | | $ | (4,316 | ) |
| | | | | | |
Change in cumulative foreign currency translation adjustment | 2,952 |
| | 852 |
| 9,730 |
| | 3,599 |
|
| | | | | | |
Total comprehensive loss | $ | (11,112 | ) | | $ | (2,284 | ) | $ | (7,162 | ) | | $ | (717 | ) |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Net income (loss) | $ | 1,724 | | | $ | (5,648) | | | $ | 2,156 | | | $ | (1,493) | |
| | | | | | | |
Change in cumulative foreign currency translation adjustment | 473 | | | 605 | | | (1,494) | | | (235) | |
| | | | | | | |
Total comprehensive income (loss) | $ | 2,197 | | | $ | (5,043) | | | $ | 662 | | | $ | (1,728) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
DMC GLOBAL INC.
CONDENSED CONSOLIDATED STATEMENTSTATEMENTS OF STOCKHOLDERS’ EQUITY
(Amounts in Thousands, Except Share Data)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Other | | Treasury Stock and | | | | |
| | | | | Additional | | | | Cumulative | | Company Stock Held for | | | | |
| Common Stock | | Paid-In | | Retained | | Comprehensive | | Deferred Compensation | | | | |
| Shares | | Amount | | Capital | | Earnings | | Loss | | Shares | | Amount | | | | Total |
Balances, March 31, 2021 | 16,399,813 | | | $ | 820 | | | $ | 144,094 | | | $ | 116,089 | | | $ | (24,929) | | | (566,343) | | | $ | (17,644) | | | | | $ | 218,430 | |
Net income | — | | | — | | | — | | | 1,724 | | | — | | | — | | | — | | | | | 1,724 | |
Change in cumulative foreign currency translation adjustment | — | | | — | | | — | | | — | | | 473 | | | — | | | — | | | | | 473 | |
Shares issued in connection with equity offering | 2,875,000 | | | 144 | | | 123,317 | | | — | | | — | | | — | | | — | | | | | 123,461 | |
| | | | | | | | | | | | | | | | | |
Shares issued in connection with stock compensation plans | 19,932 | | | 1 | | | 252 | | | — | | | — | | | — | | | — | | | | | 253 | |
| | | | | | | | | | | | | | | | | |
Stock-based compensation | — | | | — | | | 1,712 | | | — | | | — | | | — | | | — | | | | | 1,712 | |
| | | | | | | | | | | | | | | | | |
Treasury stock activity | — | | | — | | | — | | | — | | | — | | | (3,394) | | | (16) | | | | | (16) | |
| | | | | | | | | | | | | | | | | |
Balances, June 30, 2021 | 19,294,745 | | | $ | 965 | | | $ | 269,375 | | | $ | 117,813 | | | $ | (24,456) | | | (569,737) | | | $ | (17,660) | | | | | $ | 346,037 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Other | | Treasury Stock and | | | | |
| | | | | Additional | | | | Cumulative | | Company Stock Held for | | | | |
| Common Stock | | Paid-In | | Retained | | Comprehensive | | Deferred Compensation | | | | |
| Shares | | Amount | | Capital | | Earnings | | Loss | | Shares | | Amount | | | | Total |
Balances, March 31, 2020 | 15,260,835 | | | $ | 763 | | | $ | 86,832 | | | $ | 121,224 | | | $ | (26,643) | | | (509,593) | | | $ | (8,487) | | | | | $ | 173,689 | |
Net loss | — | | | — | | | — | | | (5,648) | | | — | | | — | | | — | | | | | (5,648) | |
Change in cumulative foreign currency translation adjustment | — | | | — | | | — | | | — | | | 605 | | | — | | | — | | | | | 605 | |
Shares issued in connection with stock compensation plans | 36,456 | | | 2 | | | 261 | | | — | | | — | | | — | | | — | | | | | 263 | |
| | | | | | | | | | | | | | | | | |
Stock-based compensation | — | | | — | | | 1,408 | | | — | | | — | | | — | | | — | | | | | 1,408 | |
| | | | | | | | | | | | | | | | | |
Treasury stock activity | — | | | — | | | — | | | — | | | — | | | (18,388) | | | (34) | | | | | (34) | |
Balances, June 30, 2020 | 15,297,291 | | | $ | 765 | | | $ | 88,501 | | | $ | 115,576 | | | $ | (26,038) | | | (527,981) | | | $ | (8,521) | | | | | $ | 170,283 | |
DMC GLOBAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Amounts in Thousands, Except Share Data)
(unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Other | | | | | | |
| | | | | Additional | | | | Cumulative | | | | | | |
| Common Stock | | Paid-In | | Retained | | Comprehensive | | Treasury Stock | | |
| Shares | | Amount | | Capital | | Earnings | | Loss | | Shares | | Amount | | Total |
Balances, December 31, 2016 | 14,498,737 |
| | $ | 725 |
| | $ | 73,116 |
| | $ | 80,107 |
| | $ | (41,514 | ) | | (2,378 | ) | | $ | (25 | ) | | $ | 112,409 |
|
Net loss | — |
| | — |
| | — |
| | (16,892 | ) | | — |
| | — |
| | — |
| | (16,892 | ) |
Change in cumulative foreign currency translation adjustment | — |
| | — |
| | — |
| | — |
| | 9,730 |
| | — |
| | — |
| | 9,730 |
|
Shares issued in connection with stock compensation plans | 310,388 |
| | 15 |
| | 139 |
| | — |
| | — |
| | — |
| | — |
| | 154 |
|
Stock-based compensation | — |
| | — |
| | 2,125 |
| | — |
| | — |
| | — |
| | — |
| | 2,125 |
|
Dividends declared | — |
| | — |
| | — |
| | (885 | ) | | — |
| | — |
| | — |
| | (885 | ) |
Treasury stock purchases | — |
| | — |
| | — |
| | — |
| | — |
| | (37,405 | ) | | (336 | ) | | (336 | ) |
Balances, September 30, 2017 | 14,809,125 |
| | $ | 740 |
| | $ | 75,380 |
| | $ | 62,330 |
| | $ | (31,784 | ) | | (39,783 | ) | | $ | (361 | ) | | $ | 106,305 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Other | | Treasury Stock and | | | | |
| | | | | Additional | | | | Cumulative | | Company Stock Held for | | | | |
| Common Stock | | Paid-In | | Retained | | Comprehensive | | Deferred Compensation | | | | |
| Shares | | Amount | | Capital | | Earnings | | Loss | | Shares | | Amount | | | | Total |
Balances, December 31, 2020 | 15,917,559 | | | $ | 796 | | | $ | 117,387 | | | $ | 115,657 | | | $ | (22,962) | | | (528,274) | | | $ | (13,964) | | | | | $ | 196,914 | |
Net income | — | | | — | | | — | | | 2,156 | | | — | | | — | | | — | | | | | 2,156 | |
Change in cumulative foreign currency translation adjustment | — | | | — | | | — | | | — | | | (1,494) | | | — | | | — | | | | | (1,494) | |
Shares issued in connection with equity offering | 2,875,000 | | | 144 | | | 123,317 | | | — | | | — | | | — | | | — | | | | | 123,461 | |
Shares issued in connection with at-the-market offering program | 397,820 | | | 20 | | | 25,242 | | | — | | | — | | | — | | | — | | | | | 25,262 | |
Shares issued in connection with stock compensation plans | 104,366 | | | 5 | | | 248 | | | — | | | — | | | — | | | — | | | | | 253 | |
| | | | | | | | | | | | | | | | | |
Stock-based compensation | — | | | — | | | 3,181 | | | — | | | — | | | — | | | — | | | | | 3,181 | |
| | | | | | | | | | | | | | | | | |
Treasury stock activity | — | | | — | | | — | | | — | | | — | | | (41,463) | | | (3,696) | | | | | (3,696) | |
| | | | | | | | | | | | | | | | | |
Balances, June 30, 2021 | 19,294,745 | | | $ | 965 | | | $ | 269,375 | | | $ | 117,813 | | | $ | (24,456) | | | (569,737) | | | $ | (17,660) | | | | | $ | 346,037 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Other | | Treasury Stock and | | | | |
| | | | | Additional | | | | Cumulative | | Company Stock Held for | | | | |
| Common Stock | | Paid-In | | Retained | | Comprehensive | | Deferred Compensation | | | | |
| Shares | | Amount | | Capital | | Earnings | | Loss | | Shares | | Amount | | | | Total |
Balances, December 31, 2019 | 15,117,207 | | | $ | 756 | | | $ | 85,639 | | | $ | 119,002 | | | $ | (25,803) | | | (464,532) | | | (7,453) | | | | | $ | 172,141 | |
Net loss | — | | | — | | | — | | | (1,493) | | | — | | | — | | | — | | | | | (1,493) | |
Change in cumulative foreign currency translation adjustment | — | | | — | | | — | | | — | | | (235) | | | — | | | — | | | | | (235) | |
Shares issued in connection with stock compensation plans | 180,084 | | | 9 | | | 254 | | | — | | | — | | | — | | | — | | | | | 263 | |
Adjustment for cumulative effect from change in accounting principle (ASU 2016-13) | — | | | — | | | — | | | (50) | | | — | | | — | | | — | | | | | (50) | |
Stock-based compensation | — | | | — | | | 2,608 | | | — | | | — | | | — | | | — | | | | | 2,608 | |
Dividends declared | — | | | — | | | — | | | (1,883) | | | — | | | — | | | — | | | | | (1,883) | |
Treasury stock activity | — | | | — | | | — | | | — | | | — | | | (63,449) | | | (1,068) | | | | | (1,068) | |
Balances, June 30, 2020 | 15,297,291 | | | $ | 765 | | | $ | 88,501 | | | $ | 115,576 | | | $ | (26,038) | | | (527,981) | | | $ | (8,521) | | | | | $ | 170,283 | |
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
Statements
DMC GLOBAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
(unaudited)
| | | | | | | | | | | |
| Six months ended June 30, |
| 2021 | | 2020 |
Cash flows provided by operating activities: | | | |
Net income (loss) | $ | 2,156 | | | $ | (1,493) | |
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: | | | |
| | | |
Depreciation | 5,530 | | | 4,716 | |
Amortization of purchased intangible assets | 612 | | | 707 | |
Amortization of deferred debt issuance costs | 112 | | | 99 | |
Stock-based compensation | 3,335 | | | 2,559 | |
| | | |
Deferred income taxes | (2,616) | | | (1,360) | |
Gain on disposal of property, plant and equipment | (283) | | | (1) | |
Restructuring expenses and asset impairments | 127 | | | 3,162 | |
| | | |
| | | |
| | | |
Change in: | | | |
Accounts receivable, net | (11,985) | | | 27,245 | |
Inventories | (10,477) | | | (5,713) | |
Prepaid expenses and other | (9,076) | | | (1,242) | |
Accounts payable | 7,476 | | | (10,778) | |
Contract liabilities | 5,345 | | | 2,477 | |
| | | |
Accrued expenses and other liabilities | 3,723 | | | (9,250) | |
Net cash (used in) provided by operating activities | (6,021) | | | 11,128 | |
| | | |
Cash flows used in investing activities: | | | |
Investment in marketable securities | (123,984) | | | 0 | |
Proceeds from maturities of marketable securities | 4,799 | | | 0 | |
| | | |
Acquisition of property, plant and equipment | (3,252) | | | (7,476) | |
Proceeds on sale of property, plant and equipment | 1,004 | | | 14 | |
| | | |
Net cash used in investing activities | (121,433) | | | (7,462) | |
| | | |
Cash flows provided by (used in) financing activities: | | | |
| | | |
Repayments on capital expenditure facility | (11,750) | | | (1,562) | |
| | | |
Payment of dividends | 0 | | | (3,749) | |
Payment of debt issuance costs | 0 | | | (84) | |
Net proceeds from issuance of common stock through equity offering | 123,461 | | | 0 | |
Net proceeds from issuance of common stock through at-the-market offering program | 25,262 | | | 0 | |
Net proceeds from issuance of common stock to employees and directors | 253 | | | 263 | |
Treasury stock purchases | (2,451) | | | (1,068) | |
| | | |
Net cash provided by (used in) financing activities | 134,775 | | | (6,200) | |
| | | |
Effects of exchange rates on cash | 855 | | | (571) | |
| | | |
Net increase (decrease) in cash and cash equivalents | 8,176 | | | (3,105) | |
Cash and cash equivalents, beginning of the period | 28,187 | | | 20,353 | |
Cash and cash equivalents, end of the period | $ | 36,363 | | | $ | 17,248 | |
|
| | | | | | | |
| Nine months ended September 30, |
| 2017 | | 2016 |
CASH FLOWS FROM OPERATING ACTIVITIES: | |
| | |
|
Net loss | $ | (16,892 | ) | | $ | (4,316 | ) |
Adjustments to reconcile net loss to net cash provided by operating activities: | |
| | |
|
Depreciation (including capital lease amortization) | 5,030 |
| | 5,024 |
|
Amortization of purchased intangible assets | 3,034 |
| | 3,023 |
|
Amortization of deferred debt issuance costs | 359 |
| | 123 |
|
Stock-based compensation | 2,125 |
| | 1,599 |
|
Deferred income tax | (408 | ) | | (563 | ) |
Gain (loss) on disposal of property, plant and equipment | (46 | ) | | 35 |
|
Restructuring expenses | 458 |
| | 1,202 |
|
Goodwill impairment charge | 17,584 |
| | — |
|
Change in: | |
| | |
|
Accounts receivable, net | (10,747 | ) | | 10,480 |
|
Inventory, net | (1,221 | ) | | 3,400 |
|
Prepaid expenses and other | 20 |
| | (347 | ) |
Accounts payable | 1,051 |
| | (3,166 | ) |
Customer advances | 97 |
| | 180 |
|
Accrued anti-dumping duties | (2,965 | ) | | 128 |
|
Accrued expenses and other liabilities | 3,039 |
| | 1,037 |
|
Net cash provided by operating activities | 518 |
| | 17,839 |
|
| | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | |
| | |
|
Acquisition of property, plant and equipment | (3,299 | ) | | (4,070 | ) |
Proceeds on sale of property, plant and equipment | 2 |
| | 31 |
|
Change in other non-current assets | — |
| | 31 |
|
Net cash used in investing activities | (3,297 | ) | | (4,008 | ) |
| | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | |
| | |
|
Borrowings (repayments) on bank lines of credit, net | 6,000 |
| | (12,250 | ) |
Payment on capital lease obligations | — |
| | (3 | ) |
Payment of dividends | (880 | ) | | (861 | ) |
Payment of deferred debt issuance costs | (133 | ) | | — |
|
Net proceeds from issuance of common stock to employees and directors | 154 |
| | 190 |
|
Treasury stock purchases | (336 | ) | | (21 | ) |
Net cash provided by (used in) financing activities | 4,805 |
| | (12,945 | ) |
| | | |
EFFECTS OF EXCHANGE RATES ON CASH | 416 |
| | 274 |
|
| | | |
NET INCREASE IN CASH AND CASH EQUIVALENTS | 2,442 |
| | 1,160 |
|
CASH AND CASH EQUIVALENTS, beginning of the period | 6,419 |
| | 6,291 |
|
CASH AND CASH EQUIVALENTS, end of the period | $ | 8,861 |
| | $ | 7,451 |
|
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
DMC GLOBAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands, Except Share and Per Share Data)
(unaudited)
1. BASIS OF PRESENTATION
The information included in the condensed consolidated financial statements is unaudited but includes all normal and recurring adjustments which, in the opinion of management, are necessary for a fair presentation of the interim periods presented. These condensed consolidated financial statements should be read in conjunction with the financial statements that are included in our Annual Report filed on Form 10-K for the year ended December 31, 2016.2020.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The condensed consolidated financial statements include the accounts of DMC Global Inc. ("DMC"(“DMC”, “we”, “us”, “our”, or the “Company”) and its controlled subsidiaries. Only subsidiaries in which controlling interests are maintained are consolidated. All significant intercompany accounts, profits, and transactions have been eliminated in consolidation.
Marketable Securities
We typically invest in highly rated securities with the primary objectives of preserving principal, providing access to liquidity to fund the ongoing operations and strategic needs of the Company and its subsidiaries, and achieving a yield that is commensurate with low risk and highly liquid securities.
Our investments in marketable debt securities are classified as either trading, available-for-sale or held-to-maturity based on the nature of the securities and their availability for use in current operations. The Company classifies its marketable debt securities in the Condensed Consolidated Balance Sheet as current or non-current based on related maturities and expectations of sales and redemptions in the subsequent twelve-month period. The Company may sell certain of its marketable debt securities prior to their stated maturities to manage liquidity, credit risk, or asset allocation.
As of June 30, 2021 and December 31, 2020, our investments had maturities ranging from three to twelve months, and all such investments have been classified and accounted for as trading securities.
The Company’s investments in marketable securities consisted of the following:
| | | | | | | | | | | |
| June 30, 2021 | | December 31, 2020 |
U.S. Treasury securities | $ | 76,590 | | | $ | 25,736 | |
Commercial paper (A-1 or P-1 rated) | 68,341 | | | 0 | |
Marketable securities | $ | 144,931 | | | $ | 25,736 | |
The Company’s U.S. Treasury securities have annual yields between 0.01% and 0.02% and the commercial paper securities have annual yields between 0.05% and 0.1%. The Company’s investments in marketable securities are measured at fair value with gains and losses recognized in the Condensed Consolidated Statement of Operations within “Other income, net." For the three and six months ended June 30, 2021, the net gains on marketable securities were $3 and $10, respectively.
Accounts Receivable
The Company measures expected credit losses for its accounts receivable using a current expected credit loss model, which is based on historical experience, adjusted for current conditions and reasonable and supportable forecasts. The Company has disaggregated pools of accounts receivable balances by business, geography and/or customer risk profile and has used history and other experience to establish an allowance for credit losses at the time the receivable is recognized. To measure expected credit losses, we have elected to pool trade receivables by segment and analyze DynaEnergetics and NobelClad accounts receivable balances as separate populations. Within each segment, receivables exhibit similar risk characteristics.
During the three and six months ended June 30, 2021, our expected loss rate continued to reflect uncertainties in market conditions present in both of our businesses due to the ongoing COVID-19 pandemic. In addition, we reviewed receivables outstanding, including aged balances, and in circumstances where we are aware of a specific customer’s inability to meet its financial obligation to us, we recorded a specific allowance for credit losses (with the offsetting expense charged to “Selling and distribution expenses” in our Condensed Consolidated Statements of Operations) against the amounts due, reducing the net recognized receivable to the amount we estimate will be collected. During the three and six months ended June 30, 2021, provisions of $58 and $96, respectively, were recorded.
The following table summarizes year-to-date activity in the allowance for credit losses on receivables from DynaEnergetics and NobelClad customers:
| | | | | | | | | | | | | | | | | |
| DynaEnergetics | | NobelClad | | DMC Global Inc. |
Allowance for doubtful accounts, December 31, 2020 | $ | 2,590 | | | $ | 15 | | | $ | 2,605 | |
| | | | | |
Current period provision for expected credit losses | 96 | | | 0 | | | 96 | |
| | | | | |
Recoveries of amounts previously reserved | (10) | | | 0 | | | (10) | |
Impacts of foreign currency exchange rates and other | (1) | | | 0 | | | (1) | |
Allowance for doubtful accounts, June 30, 2021 | $ | 2,675 | | | $ | 15 | | | $ | 2,690 | |
Revenue Recognition
The Company’s revenues are primarily derived from consideration paid by customers for tangible goods. The Company analyzes its different goods by segment to determine the appropriate basis for revenue recognition. Revenue is not generated from sources other than contracts with customers and revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities. There are no material upfront costs for operations that are incurred from contracts with customers.
Our rights to payments for goods transferred to customers arise when control is transferred at a point in time and not on any other criteria. Payment terms and conditions vary by contract, although terms generally include a requirement of payment within 30 to 60 days. In instances when we require customers to make advance payments prior to the shipment of their orders, we record a contract liability. We have determined that our contract liabilities do not include a significant financing component given the short duration between order initiation and order fulfillment within each of our segments. Please refer to Note 5 “Contract Liabilities” for further information on contract liabilities and Note 10 “Business Segments” for disaggregated revenue disclosures.
Income Taxes
The effective tax rate for each of the periods reported differs from the U.S. statutory rate due primarily to variation in contribution to consolidated pre-tax income from each jurisdiction for the respective periods, differences between the U.S. and foreign tax rates (which range from 20% to 35%) on earnings that have been permanently reinvested and changes to valuation allowances on our deferred tax assets.
We recognize deferred tax assets and liabilities for the expected future income tax consequences of temporary differences between the financial reporting and tax basesbasis of assets and liabilities. Any effects of changes in income tax rates or tax laws are included in the provision for income taxes in the period of enactment. The deferred income tax impact of tax credits areis recognized as an immediate adjustment to income tax expense. We recognize deferred tax assets for the expected future effects of all deductible temporary differences to the extent we believe these assets will more likely than not be realized. We record a valuation allowance when, based on current circumstances, it is more likely than not that all or a portion of the deferred tax assets will not be realized. In making such determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies, recent financial operations and their associated valuation allowances, if any.
We recognize the tax benefits from uncertain tax positions only when it is more likely than not, based on the technical merits of the position; the tax position that it will be sustained upon examination, including the resolution of any related appeals or litigation. The tax benefits recognized in the consolidated financial statements from such a position are measured as the largest benefit that is more likely than not of beingto be realized upon ultimate resolution. We recognize interest and penalties related to uncertain tax positions in operating expense.
In the U.S., tax audits for the years 2012 through 2015 were closed during the second quarter 2017, and no adjustments to the Company's tax provisions were proposed. In Germany, tax audits are currently in progress for the years 2011 through 2014. Our tax provisions reflect our best estimate of state, local, federal, and foreign taxes. However, the outcome of tax audits cannot be predicted with certainty. If any issues addressed in the Company’s tax audits are resolved in a manner not consistent with our expectations, the Company could be required to adjust its provision for income taxes in the period such resolution occurs.
Earnings Per Share
Unvested awards of share-based paymentsIn periods with rights to receive dividends or dividend equivalents are considered participating securities for purposes of calculatingnet income, the Company computes earnings per share (“EPS”) using a two-class method, which is an earnings allocation formula that determines EPS for (i) each class of common stock (the Company has a single class of common
stock), and (ii) participating securities according to dividends declared and participation rights in undistributed earnings. Restricted stock awards are considered participating securities in periods of net income as they receive non-forfeitable rights to dividends similar to common stock. Restricted stock awards do not participate in net losses.
Basic EPS is calculated by dividing net income available to common stockholders of the Company by the weighted average number of shares of common stock outstanding during the period. Diluted EPS adjusts basic EPS for the effects of restricted stock awards, performance share units and other potentially dilutive financial instruments (dilutive securities), only in the periods in which we have net income and require the usesuch effect is dilutive. The effect of the two classdilutive securities is reflected in diluted EPS by application of the more dilutive of (1) the treasury stock method or (2) the two-class method. For the periods presented, diluted EPS using the treasury stock method was less dilutive than the two-class method; as such, only the two-class method has been included below.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Net income (loss), as reported | $ | 1,724 | | | $ | (5,648) | | | 2,156 | | | (1,493) | |
| | | | | | | |
Less: Undistributed net income available to participating securities | (17) | | | 0 | | | (21) | | | 0 | |
Numerator for basic net income (loss) per share: | 1,707 | | | (5,648) | | | 2,135 | | | (1,493) | |
Add: Undistributed net income allocated to participating securities | 17 | | | 0 | | | 21 | | | 0 | |
Less: Undistributed net income reallocated to participating securities | (17) | | | 0 | | | (21) | | | 0 | |
Numerator for diluted net income (loss) per share: | 1,707 | | | (5,648) | | | 2,135 | | | (1,493) | |
Denominator: | | | | | | | |
Weighted average shares outstanding for basic net income (loss) per share | 17,554,809 | | | 14,832,242 | | | 16,495,685 | | | 14,745,661 | |
Effect of dilutive securities (1) | 13,635 | | | 0 | | | 11,815 | | | 0 | |
Weighted average shares outstanding for diluted net income (loss) per share | 17,568,444 | | | 14,832,242 | | | 16,507,500 | | | 14,745,661 | |
Net income (loss) per share | | | | | | | |
Basic | $ | 0.10 | | | $ | (0.38) | | | $ | 0.13 | | | $ | (0.10) | |
Diluted | $ | 0.10 | | | $ | (0.38) | | | $ | 0.13 | | | $ | (0.10) | |
(1) For the three and six months ended June 30, 2020, 30,967 and 35,742 respectively, shares have been excluded as their
effect would have been anti-dilutive.
Deferred compensation
The Company maintains a Non-Qualified Deferred Compensation Plan (the “Plan”) as part of its overall compensation package for calculating EPS. Under this method,certain employees. Participants are eligible to defer a portion of net income is allocatedtheir annual salary, their annual incentive bonus, and their equity awards through the Plan on a tax-deferred basis. Deferrals into the Plan are not matched or subsidized by the Company, nor are they eligible for above-market or preferential earnings.
The Plan provides for deferred compensation obligations to these participating securities and therefore is excluded from the calculationbe settled either by delivery of EPS allocated toa fixed number of shares of DMC’s common stock or in cash, in accordance with participant contributions and elections. For deferred equity awards, subsequent to equity award vesting and after a period prescribed by the Plan, participants can elect to diversify contributions of equity awards into other investment options available to Plan participants. Once diversified, contributions of equity awards will be settled by delivery of cash.
The Company has established a grantor trust commonly known as showna “rabbi trust” and contributed certain assets to satisfy the future obligations to participants in the table below.Plan. These assets are subject to potential claims of the Company’s general creditors. The assets held in the trust include unvested restricted stock awards (“RSAs”), vested company stock awards, company-owned life insurance (“COLI”) on certain employees, and money market and mutual funds. Unvested RSAs and common stock held by the trust are reflected in the Consolidated Balance Sheets within “Treasury stock, at cost, and company stock held for deferred compensation, at par” at the par value of the common stock or unvested RSAs. These accounts are not adjusted for subsequent changes in the fair value of the common stock. COLI is accounted for at the cash surrender value while money market and mutual funds held by the trust are accounted for at fair value.
Computation and reconciliationDeferred compensation obligations that will be settled in cash are accounted for on an accrual basis in accordance with the terms of earnings per sharethe Plan. These obligations are adjusted based on changes in value of the underlying investment options chosen by Plan participants. Deferred compensation obligations that will be settled by delivery of a fixed number of previously vested shares of the Company’s common stock are reflected in the Consolidated Statements of Stockholders’ Equity within “Common stock” at the par value of the common stock or unvested RSAs. These accounts are not adjusted for subsequent changes in the fair value of the common stock.
The balances related to the deferred compensation plan were as follows:
| | | | | | | | | | | | | | | | | |
| | Consolidated Balance Sheet location | June 30, 2021 | | December 31, 2020 |
Deferred compensation assets | | Other assets | $ | 11,567 | | | $ | 7,596 | |
Deferred compensation obligations | | Other long-term liabilities | $ | 13,942 | | | $ | 11,894 | |
| | | | | |
| | | | | |
|
| | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Numerator: | | | | | | | |
Net loss | $ | (14,064 | ) | | $ | (3,136 | ) | | $ | (16,892 | ) | | $ | (4,316 | ) |
Less income allocated to RSAs | — |
| | — |
| | — |
| | — |
|
Net income (loss) allocated to common stock for EPS calculation | $ | (14,064 | ) | | $ | (3,136 | ) | | $ | (16,892 | ) | | $ | (4,316 | ) |
| | | | | | | |
Denominator: | | | | | | | |
Weighted average common shares outstanding - basic | 14,368,225 |
| | 14,195,921 |
| | 14,333,452 |
| | 14,105,594 |
|
Dilutive stock-based compensation plans | — |
| | — |
| | — |
| | — |
|
Weighted average common shares outstanding - diluted | 14,368,225 |
| | 14,195,921 |
| | 14,333,452 |
| | 14,105,594 |
|
| | | | | | | |
Net income (loss) allocated to common stock for EPS calculation: | | | | | | | |
Basic | $ | (0.98 | ) | | $ | (0.22 | ) | | $ | (1.18 | ) | | $ | (0.31 | ) |
Diluted | $ | (0.98 | ) | | $ | (0.22 | ) | | $ | (1.18 | ) | | $ | (0.31 | ) |
Fair Value of Financial Instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We are required to use an established hierarchy for fair value measurements based upon the inputs to the valuation and the degree to which they are observable or not observable in the market. The three levels in the hierarchy are as follows:
•Level 1 — Inputs to the valuation based upon quoted prices (unadjusted) for identical assets or liabilities in active markets that are accessible as of the measurement date.
•Level 2 — Inputs to the valuation include quoted prices in either markets that are not active, or in active markets for similar assets or liabilities, inputs other than quoted prices that are observable, and inputs that are derived principally from or corroborated by observable market data.
•Level 3 — Inputs to the valuation that are unobservable inputs for the asset or liability.
The highest priority is assigned to Level 1 inputs and the lowest priority to Level 3 inputs.
The carrying value of cash and cash equivalents, trade accounts receivable and payables,payable, accrued expenses, revolving loans under our credit facility and lines of creditborrowings under our capital expenditure facility, when outstanding, approximate their fair value.
Our U.S. Treasury marketable securities are valued using quoted prices in active markets that are accessible as of the measurement date. Our revolving loans and borrowings under our capital expenditure facility, when outstanding, reset each month at market interest rates. Money market funds and mutual funds of $7,923 as of June 30, 2021 and $4,244 as of December 31, 2020 held to satisfy future deferred compensation obligations are valued based upon the market values of underlying securities. We classify these assets as Level 1 in the fair value hierarchy.
Our commercial paper marketable securities are valued using quoted market prices in non-active markets. Our foreign currency forward contracts are also valued using quoted market prices in non-active markets or are determined using a yield curve model based on current market rates. As a result, we intend to classify these investmentscommercial paper marketable securities and foreign currency forward contracts as Level 2 in the fair value hierarchy.
We did not did not hold any Level 3 assets or liabilities as of SeptemberJune 30, 20172021 or December 31, 2016. The goodwill impairment charge recorded in the third quarter of 2017 was calculated using Level 3 inputs.2020.
Recently AdoptedRecent Accounting StandardsPronouncements
In July 2015,December 2019, the Financial Accounting Standards Board ("FASB") issued ana new accounting standards update ("ASU")pronouncement regarding accounting for income taxes. The new standard removes certain exceptions to change the measurement of inventory from lower of cost or marketgeneral principles in ASC 740 Income Taxes and also clarifies and amends existing guidance to lower of cost and net realizable value. This pronouncement isprovide for more consistent application. The new standard became effective for reporting periods beginning after December 15, 2016, and the Company has adopted it as ofin the first quarter of 2017. The adoption of this standardfiscal 2021 and did not have a material impact on the Company'sour consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment,” to simplify the method
Recent Accounting Pronouncements
In October 2016, the FASB issued an ASU which removes the prohibition against the immediate recognition of the current and deferred income tax effects of intra-entity transfers of assets other than inventory. This ASU is effective for public business entities in fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is in the process of evaluating the impact of adopting this standard on its consolidated financial statements.
In February 2016, the FASB issued an ASU which amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. This ASU will be effective beginning in the first quarter of 2019. Early adoption is permitted. The new leases standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. The Company is currently evaluating the impact of adopting this standard on its consolidated financial statements.
In May 2014, the FASB issued an ASU to clarify the principles of recognizing revenue and to develop a common revenue standard and disclosure requirements for U.S. GAAP and IFRS. The pronouncement is effective for reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. The standard can be adopted using either of two methods: (1) retrospective application to each prior reporting period presented with the option to elect certain practical expedients, as defined within the standard ("full retrospective") or (2) retrospective application with the cumulative effect of adoption recognized at the date of initial application and providing certain additional disclosures, as defined within the standard ("modified retrospective"). Management currently plans to adopt the ASU for the quarter ended March 31, 2018, as required by the standard, and plans to use the modified retrospective approach.
Currently, using internal resources, management is analyzing contracts from the NobelClad and DynaEnergetics segments to determine the technical accounting conclusions and the impact on business processes and systems of the new revenue standard. In our NobelClad business, contracts are often for unique projects, but the vast majority of contracts contain standard terms and conditions. In our DynaEnergetics business, we sell a range of products to a wide variety of customers, but the contracts also often contain similar terms and conditions. We have reviewed contracts representing a majority of NobelClad's and DynaEnergetics' revenue for the year ended December 31, 2016 and have preliminarily concluded that applying the new standard to those contracts would not have a material impact on our financial statements.
The Company is continuing to evaluate the impacts of our pending adoption, and our preliminary assessments are subject to change.
3. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) andor net realizable value. CostSignificant cost elements included in inventory are material, labor, freight, subcontract costs, and manufacturing overhead. As necessary, we recordadjust inventory to its net realizable value by recording provisions and maintain reserves for excess, slow moving and obsolete inventory. To determine reserve amounts, weWe regularly review inventory quantities on hand and values, and compare them to estimates of future product demand, market conditions, production requirements and technological developments.
Inventories consistconsisted of the following at SeptemberJune 30, 2017 and 2021:
| | | | | | | | | | | | | | | | | |
| DynaEnergetics | | NobelClad | | DMC Global Inc. |
Raw materials | $ | 16,698 | | | $ | 10,675 | | | $ | 27,373 | |
Work-in-process | 10,966 | | | 7,721 | | | 18,687 | |
Finished goods | 15,827 | | | 409 | | | 16,236 | |
Supplies | 0 | | | 182 | | | 182 | |
Inventories | $ | 43,491 | | | $ | 18,987 | | | $ | 62,478 | |
Inventories consisted of the following at December 31, 2016 and include reserves of $2,985 and $4,226, respectively:2020:
| | | | | | | | | | | | | | | | | |
| DynaEnergetics | | NobelClad | | DMC Global Inc. |
Raw materials | $ | 13,250 | | | $ | 11,903 | | | $ | 25,153 | |
Work-in-process | 7,062 | | | 6,682 | | | 13,744 | |
Finished goods | 12,806 | | | 669 | | | 13,475 | |
Supplies | 0 | | | 201 | | | 201 | |
Inventories | $ | 33,118 | | | $ | 19,455 | | | $ | 52,573 | |
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
Raw materials | $ | 13,383 |
| | $ | 10,926 |
|
Work-in-process | 5,757 |
| | 5,417 |
|
Finished goods | 12,093 |
| | 12,146 |
|
Supplies | 256 |
| | 344 |
|
| | | |
| $ | 31,489 |
| | $ | 28,833 |
|
4. GOODWILL
As of December 31, 2016, all of the goodwill was recorded within our NobelClad segment. The changes to the carrying amount of goodwill during the period are summarized below:
|
| | | |
| |
Goodwill balance at December 31, 2016 | $ | 16,097 |
|
Adjustment due to recognition of tax benefit of tax amortization of certain goodwill | (450 | ) |
Adjustment due to exchange rate differences | 1,937 |
|
Goodwill impairment | (17,584 | ) |
| |
Goodwill balance at September 30, 2017 | $ | — |
|
As required under ASC 350, “Goodwill and Other Intangible Assets”, we routinely review the carrying value of our net assets, including goodwill, to determine if any impairment has occurred. A quantitative assessment was conducted at June 30, 2017, at which time, based on existing conditions and management’s outlook, we determined there was no impairment. In the third quarter of 2017, activity in NobelClad’s primary end markets slowed considerably. NobelClad experienced a significant decline in its small size core maintenance bookings within the oil and gas industry. Additionally, certain large petrochemical projects previously forecasted to ship in the next twelve months were delayed, and uncertainty exists as to the ultimate timing of booking and shipping these potential orders. As a result, we determined that a potential indicator of goodwill impairment existed during the third quarter of 2017. We utilized an income approach (discounted cash flow analysis) to determine the fair value of the NobelClad reporting unit and concluded that our long-term forecasts were not materializing and needed to be revised downward. We believe the discounted cash flow approach is the most reliable indicator of fair value. The key assumptions used in the discounted cash flow analysis included, among other measures, expected future sales, operating income, working capital and capital expenditures. The discount rate was determined using a peer-based, risk-adjusted weighted average cost of capital.
We determined that the estimated fair value of the NobelClad reporting unit was less than its carrying value primarily due to the factors described above and their related impact on expected future cash flows. During the third quarter, we adopted ASU 2017-04 which amends and simplifies how an entity measures a goodwill impairment loss by eliminating step two from the goodwill impairment test. As the carrying value of the NobelClad reporting unit exceeded the fair value by more than the book value of goodwill, we recorded an impairment charge of $17,584 to fully impair the goodwill related to this reporting unit as of September 30, 2017.
For purchased intangible assets, we performed an assessment of the recoverability in accordance with the general valuation requirements set forth under ASC 360, “Accounting for the Impairment of Long-Lived Assets.” The result of this assessment indicated that no impairment existed for purchased intangible assets.
5. PURCHASED INTANGIBLE ASSETS
The following table presents details of ourOur purchased intangible assets other than goodwill,consisted of the following as of SeptemberJune 30, 2017:
|
| | | | | | | | | | | |
| Gross | | Accumulated Amortization | | Net |
Core technology | $ | 19,831 |
| | $ | (9,924 | ) | | $ | 9,907 |
|
Customer relationships | 39,028 |
| | (34,955 | ) | | 4,073 |
|
Trademarks / Trade names | 2,133 |
| | (2,133 | ) | | — |
|
| | | | | |
Total intangible assets | $ | 60,992 |
| | $ | (47,012 | ) | | $ | 13,980 |
|
2021: | | | | | | | | | | | | | | | | | |
| Gross | | Accumulated Amortization | | Net |
Core technology | $ | 16,778 | | | $ | (14,387) | | | $ | 2,391 | |
Customer relationships | 36,799 | | | (36,799) | | | 0 | |
Trademarks / Trade names | 2,124 | | | (2,124) | | | 0 | |
Total intangible assets | $ | 55,701 | | | $ | (53,310) | | | $ | 2,391 | |
The following table presents details of ourOur purchased intangible assets other than goodwill,consisted of the following as of December 31, 2016:
|
| | | | | | | | | | | |
| Gross | | Accumulated Amortization | | Net |
Core technology | $ | 17,751 |
| | $ | (8,165 | ) | | $ | 9,586 |
|
Customer relationships | 36,088 |
| | (29,965 | ) | | 6,123 |
|
Trademarks / Trade names | 1,903 |
| | (1,785 | ) | | 118 |
|
| | | | | |
Total intangible assets | $ | 55,742 |
| | $ | (39,915 | ) | | $ | 15,827 |
|
2020: | | | | | | | | | | | | | | | | | |
| Gross | | Accumulated Amortization | | Net |
Core technology | $ | 17,899 | | | $ | (14,234) | | | $ | 3,665 | |
Customer relationships | 37,638 | | | (37,638) | | | 0 | |
Trademarks / Trade names | 2,194 | | | (2,194) | | | 0 | |
Total intangible assets | $ | 57,731 | | | $ | (54,066) | | | $ | 3,665 | |
The change in the gross value of our purchased intangible assets from December 31, 20162020 to SeptemberJune 30, 20172021 was due to foreign currency translation and an adjustment duethe recognition of the tax benefit of tax deductible goodwill amortization related to recognitionthe 2007 acquisition of our German subsidiaries. Prior to the impairment of the goodwill related to the NobelClad and DynaEnergetics reporting units at September 30, 2017 and December 31, 2015, respectively, the tax benefit of tax amortization previously applied to certain goodwill related to the DynaEnergetics reporting unit. Afterreduced the goodwill wasbalance. After we fully impaired the goodwill, which is only written off at December 31, 2015,for U.S. GAAP purposes, the tax benefit of tax goodwill amortization reduces other noncurrentthe gross value of the purchased intangible assets related to the historicalthis acquisition.
6. CUSTOMER ADVANCES
5. CONTRACT LIABILITIES
On occasion, we require customers to make advance payments prior to the shipment of goods in order to help finance our inventory investment on large orders or to keep customers’ credit limits at acceptable levels. AsContract liabilities were as follows: | | | | | | | | | | | |
| June 30, 2021 | | December 31, 2020 |
NobelClad | $ | 9,904 | | | $ | 4,450 | |
DynaEnergetics | 284 | | | 478 | |
| | | |
Total | $ | 10,188 | | | $ | 4,928 | |
We generally expect to recognize the revenue associated with contract liabilities over a time period no longer than one year, but unforeseen circumstances can cause delays in shipments associated with contract liabilities. Approximately 54% of September 30, 2017 and the $4,928 recorded as contract liabilities at December 31, 2016, customer advances totaled $2,7722020 was recorded to net sales during the six months ended June 30, 2021.
6. LEASES
The Company leases real properties for use in manufacturing and $2,619, respectively,as administrative and originatedsales offices, and also leases automobiles and office equipment. The Company determines if a contract contains a lease arrangement at the inception of the contract. For leases in which the Company is the lessee, leases are classified as either finance or operating. Right of use (ROU) assets are initially measured at the present value of lease payments over the lease term plus initial direct costs, if any, with the classification affecting the pattern of expense recognition. If a lease does not provide a discount rate and the rate cannot be readily determined, an incremental borrowing rate is used to determine the future lease payments. Lease and non-lease components within the Company’s lease agreements are accounted for together.
Nearly all of the Company’s leasing arrangements are classified as operating leases. ROU asset and lease liability balances were as follows for the periods presented:
| | | | | | | | | | | |
| June 30, 2021 | | December 31, 2020 |
ROU asset | $ | 10,393 | | | $ | 10,733 | |
| | | |
Current lease liability | 1,477 | | | 1,741 | |
Long-term lease liability | 9,944 | | | 10,066 | |
Total lease liability | $ | 11,421 | | | $ | 11,807 | |
The ROU asset was included in “Other assets” while the current lease liability was reported in “Other current liabilities” and the long-term lease liability was reported in “Other long-term liabilities” in the Company’s Condensed Consolidated Balance Sheet. Cash paid for operating lease liabilities are recorded as cash flows from several customers.operating activities in the Company’s Condensed Consolidated Statements of Cash Flows. For the three months ended June 30, 2021 and 2020, operating lease costs were $1,039 and $894, respectively. For the six months ended June 30, 2021 and 2020, operating lease costs were $2,010 and $1,996, respectively. Operating lease costs were included in the Company’s Condensed Consolidated Statements of Operations. Short term and variable lease costs were not material for the three and six months ended June 30, 2021 and 2020.
Certain of the Company’s leases contain renewal options and options to extend the leases for up to five years, and a majority of these options are reflected in the calculation of the ROU asset and lease liability due to the likelihood of renewal.
The following table summarizes the weighted average lease terms and discount rates for operating lease liabilities: | | | | | |
| June 30, 2021 |
Weighted average remaining lease term (in years) | 8.12 |
Weighted average discount rate | 5.0 | % |
The following table represents maturities of operating lease liabilities as of June 30, 2021: | | | | | |
Due within 1 year | $ | 1,477 | |
Due after 1 year through 2 years | 2,193 | |
Due after 2 years through 3 years | 2,059 | |
Due after 3 years through 4 years | 1,831 | |
Due after 4 years through 5 years | 1,764 | |
Due after 5 years | 5,206 | |
Total future minimum lease payments | 14,530 | |
Less imputed interest | (3,109) | |
Total | $ | 11,421 | |
7. DEBT
LinesAs of June 30, 2021 we had 0 outstanding borrowings under our credit facility. As of December 31, 2020, outstanding borrowings consisted of the following at September 30, 2017 and December 31, 2016:following:
| | | | | | | |
| | | |
Syndicated credit agreement: | | | |
| | | |
| | | |
Capital expenditure facility | | | $ | 11,750 | |
| | | |
Outstanding borrowings | | | 11,750 | |
Less: debt issuance costs | | | (486) | |
Total debt | | | 11,264 | |
Less: current portion of long-term debt | | | (3,125) | |
Long-term debt | | | $ | 8,139 | |
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
Syndicated credit agreement: | |
| | |
|
U.S. Dollar revolving loan | $ | 22,250 |
| | $ | 16,250 |
|
Euro revolving loan | — |
| | — |
|
| | | |
Long-term lines of credit | 22,250 |
| | 16,250 |
|
Less: debt issuance costs | 292 |
| | 518 |
|
Lines of credit | $ | 21,958 |
| | $ | 15,732 |
|
Syndicated Credit Agreement
As of December 31, 2016,On March 8, 2018, we hadentered into a five-year $75,000 syndicated credit agreement (“credit facility”) that allowedwhich replaced in its entirety our prior syndicated credit facility entered into on February 23, 2015. The credit facility is with a syndicate of 3 banks, with KeyBank, N.A. acting as administrative agent. The facility is secured by the assets of DMC including accounts receivable, inventory, and fixed assets, as well as guarantees and share pledges by DMC and its subsidiaries. The credit facility allows for revolving loans of $65,000up to $50,000 with a $20,000 US dollar equivalent sublimit for alternative currency loans. In addition, the agreement provided for a $25,000 Capital Expenditure Facility (“Capex Facility”) which was used to assist in U.S. dollars and $10,000financing our DynaEnergetics manufacturing expansion project in alternative currencies as well asBlum, Texas. At the end of year one, the Capex Facility converted to a term loan which was amortizable at 12.5% of principal per year with a balloon payment for the outstanding balance upon the credit facility maturity date in 2023. In February 2021, we repaid the remaining Capex Facility balance of $11,750.
The credit facility has a $100,000 accordion feature to increase the commitments in any ofunder the revolving loan classesclass and/or by adding a term loan subject to approval by applicable lenders. The credit facility matures on February 23, 2020.
On March 6, 2017, we entered into a third amendment of our credit facility which, among other changes, reduced the amount of borrowings availableBorrowings under the credit facility, increased the maximum debt-to-EBITDA leverage ratio for the first, second, and third quarters of 2017, and also waived the applicability of the minimum debt service coverage ratio for the first,
second, and third quarters of 2017, and added a minimum EBITDA covenant for those same periods and is inapplicable thereafter. The maturity of the credit facility did not change with the amendment.
After the amendment, our credit facility allows for borrowings up to $35,000, consisting of$50,000 revolving loans of $30,000 in U.S. dollars and $5,000 in alternate currencies as well as a $25,000 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 European operations. This line of credit provides a borrowing capacity of €4,000, of which €2,478 is available after considering outstanding letters of credit.
U.S. borrowings under the amended credit facility can be in the form of Alternateone-, two-, three-, or six-month LIBOR rate loans. Additionally, US dollar borrowings on the revolving loan can be in the form of Base Rate loans (“ABR”(Base Rate borrowings are based on the greater of adjustedthe administrative agent’s Prime rates, adjusted CD rates, oran adjusted Federal Funds rates)rate or one, two, three, or six month London Interbank Offered Rate (“LIBOR”) loans. ABR loans bear interest at the defined ABR rate plus an applicable margin andadjusted LIBOR rate). LIBOR loans bear interest at the applicable LIBOR rate plus an applicable margin.margin (varying from 1.50% to 3.00%). Base Rate loans bear interest at the defined Base rate plus an applicable margin (varying from 0.50% to 2.00%).
Borrowings under the $20,000 alternate currency sublimit can be in euros, Canadian dollars, pounds sterling, and in any other currency acceptable to the administrative agent. Alternative currency borrowings under the amended credit facility can bedenominated in Canadian Dollars, Euros, Pounds Sterlingeuros, pounds sterling, and any other currency that is freely transferable and convertible to U.S. Dollars. Alternative currency borrowings denominated in Canadian Dollarsdealt with on the London Interbank Deposit Market shall be comprised of Canadian Dealer Offered Rate (“CDOR”) Loans or Canadian Prime Loans, at our option, and bear interest at the CDOR rate plus applicable margin or the applicable Canadian Prime Rate plus an applicable margin, respectively. Alternative currency borrowings denominated in Euros shall be comprised of Euro Interbank Offered Rate (“EURIBOR”) loans and bear interest at the EURIBOR rate plus an applicable margin. Alternative currency borrowings denominated in any other alternative currency shall be comprised of EurocurrencyLIBOR loans and bear interest at the LIBOR rate plus an applicable margin.
LIBOR, EURIBOR, and CDOR applicable margins varymargin (varying from 1.75%1.50% to 3.25%, and ABR and Canadian Prime applicable margins vary from 0.75% to 2.25%3.00%).
On June 25, 2020, we entered into an amendment ("Amendment") to the credit facility. The Amendment set the minimum LIBOR at 0.75%. The other provisions of the Amendment, including waiver of the debt service coverage ratio, were applicable through the quarter ended March 31, 2021 and Restrictionswere no longer applicable beginning with the quarter ended June 30, 2021.
Our existing loan agreements includeOn October 22, 2020, in connection with the commencement of our at-the-market offering, we entered into an amendment to the credit facility to waive the requirement that we repay outstanding balances under the credit facility from the proceeds of any equity offering.The waiver applies to at-the-market offerings up to $75 million.
The credit facility, as amended, includes 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 SeptemberJune 30, 2017,2021, we were in compliance with all financial covenants and other provisions of our debt agreements.
We also maintain a line of credit with a German bank for certain European operations. In July 2020, the German Bank Facility was amended to increase the borrowing capacity from €4,000 to €7,000. Of the €7,000 borrowing capacity, €4,085 was available as of June 30, 2021 after considering outstanding letters of credit.
Given that we had 0 outstanding debt as of June 30, 2021, our deferred debt issuance costs of $374 were reported in the “Other assets” line item in our Condensed Consolidated Balance Sheet. Our deferred debt issuance costs of $486 as of December 31, 2020 were reported in the “Long-term debt” line item in our Condensed Consolidated Balance Sheet. Deferred debt issuance costs are being amortized over the remaining term of the credit facility which expires on March 8, 2023.
8. EQUITY OFFERINGS AND PROGRAM
Equity Offering
On May 3, 2021, the Company announced a registered public offering (“Offering”) of its stock under an automatic shelf registration statement on Form S-3ASR filed on May 3, 2021. The Company entered into an underwriting agreement with KeyBanc Capital Markets Inc. (“KeyBanc”), as representative of the underwriters (collectively, the “Underwriters”), pursuant to which the Company agreed to sell 2,500,000 shares of its $0.05 par value common stock to the Underwriters. In addition, the Underwriters were granted an option, exercisable within 30 days, to purchase up to an additional 375,000 shares of common stock to cover over-allotments, if any, on the same terms and conditions.
On May 7, 2021, DMC issued a total of 2,875,000 shares of its common stock, which included the exercise of the over-allotment option, at a market price of $45 per share resulting in gross proceeds of $129,375. Net proceeds from the offering were $123,461, after deducting underwriter fees and other expenses of $5,914. We intend to use the net proceeds from the offering for general corporate purposes, which may include acquisitions. Pending use of the proceeds as described, we invested the proceeds of the offering in highly liquid marketable securities, including commercial paper and U.S. Treasury securities. Please see discussion of our marketable securities in Note 2.
At-the-Market Equity Program
On October 22, 2020, the Company commenced an at-the-market ("ATM") equity program under its shelf registration statement, which allows it to sell and issue up to $75 million in shares of its common stock from time to time. The Company entered into an Equity Distribution Agreement on October 22, 2020 with KeyBanc relating to the issuance and sale of shares of common stock pursuant to the program. KeyBanc is not required to sell any specific amount of securities but will act as our sales agent using commercially reasonable efforts consistent with its normal trading and sales practices, on mutually agreed terms between KeyBanc and us. There is no specific date on which the ATM equity program will end and there are no minimum purchase requirements. KeyBanc will be entitled to compensation for shares sold pursuant to the program in an amount up to 1.5% of the gross proceeds of any shares of common stock sold under the Equity Distribution Agreement.
During the three months ended June 30, 2021, the Company did 0t sell any shares of common stock through its ATM equity program. During the six months ended June 30, 2021, the Company sold 397,820 shares of common stock through its ATM equity program for gross proceeds of $25,647 at a weighted average price per share of $64.47. Net proceeds from such sales were $25,262, after deducting commissions paid to the sales agents of approximately $385. Since the inception of the program, the Company has sold 1,006,180 shares of common stock for gross proceeds of $51,779 at a weighted average price per share of $51.46.
9. INCOME TAXES
The effective tax rate for each of the periods reported differs from the U.S. statutory rate primarily due to variation in contribution to consolidated pre-tax income from each jurisdiction for the respective periods, differences between the U.S. and foreign tax rates (which range from 20% to 34%), permanent differences between book and taxable income, and changes to valuation allowances on our deferred tax assets.
We assess the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use existing deferred tax assets. Additionally, a three-year cumulative loss at a Consolidated Financial Statement level may be viewed as negative evidence impacting a jurisdiction that by itself is not in a three-year cumulative loss position. During the six months ended June 30, 2021 and June 30, 2020, we did not record any adjustments to previously established valuation allowances, except for adjustments related to the changes in balances of the related deferred tax assets. The Company will continue to monitor the realizability of deferred tax assets and the need for valuation allowances and will record adjustments in the periods in which facts support such adjustments.
The Tax Cuts and Jobs Act (“TCJA”) provides that foreign earnings generally can be repatriated to the U.S. without federal tax consequence. We have assessed the assertion that cumulative earnings by our foreign subsidiaries are indefinitely reinvested. We continue to permanently reinvest the earnings of our international subsidiaries and therefore we do not provide for U.S. income taxes or withholding taxes that could result from the distribution of those earnings to the U.S. parent. Nevertheless, if any such earnings were ultimately distributed to the U.S. in the form of dividends or otherwise, or if the shares of our international subsidiaries were sold or transferred, we could be subject to additional U.S. federal and state income taxes. Due to the multiple avenues in which earnings can be repatriated, and because a large portion of these earnings are not liquid, it is not practical to estimate the amount of additional taxes that might be payable on these amounts of undistributed foreign income.
During the fourth quarter of 2019, our German operating entities commenced a tax audit for fiscal years 2015 through 2017. The audit concluded in the second quarter of 2021, and we are awaiting final assessments from the German authorities. We do not anticipate any material adjustments to our previously recorded accruals.
10. BUSINESS SEGMENTS
Our business is organized into two2 segments: NobelCladDynaEnergetics and DynaEnergetics.NobelClad. DynaEnergetics designs, manufactures and distributes products utilized by the global oil and gas industry principally for the perforation of oil and gas wells. NobelClad is a global leader in the production of explosion-welded clad metal plates for use in the construction of corrosion resistant industrial processing equipment and specialized transition joints. DynaEnergetics designs, manufactures and distributes products utilized by the global oil and gas industry principally for the perforation of oil and gas wells.
The accounting policies of all of the segments are the same as those described in the summary of significant accounting policies included herein and in our Annual Report on Form 10-K for the year ended December 31, 2016. Our reportable segments are separately managed strategic business units that offer different products and services. Each segment’s products are marketed to different customer types and require different manufacturing processes and technologies.
Segment information is presented for the three and nine months ended September 30, 2017 and 2016 as follows:
|
| | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Net sales: | | | | | | | |
NobelClad | $ | 16,841 |
| | $ | 16,915 |
| | $ | 54,145 |
| | $ | 68,374 |
|
DynaEnergetics | 35,320 |
| | 19,638 |
| | 84,169 |
| | 50,028 |
|
| | | | | | | |
Consolidated net sales | $ | 52,161 |
| | $ | 36,553 |
| | $ | 138,314 |
| | $ | 118,402 |
|
Segment information is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Net sales | | | | | | | |
DynaEnergetics | $ | 42,268 | | | $ | 23,643 | | | $ | 80,440 | | | $ | 76,863 | |
NobelClad | 23,170 | | | 19,560 | | | 40,656 | | | 39,903 | |
Net sales | $ | 65,438 | | | $ | 43,203 | | | $ | 121,096 | | | $ | 116,766 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Operating income (loss) | | | | | | | |
DynaEnergetics | $ | 3,201 | | | $ | (6,895) | | | $ | 4,720 | | | $ | 1,711 | |
NobelClad | 3,371 | | | 1,985 | | | 4,976 | | | 3,459 | |
Segment operating income (loss) | 6,572 | | | (4,910) | | | 9,696 | | | 5,170 | |
| | | | | | | |
Unallocated corporate expenses | (2,177) | | | (1,639) | | | (4,403) | | | (4,256) | |
Stock-based compensation | (1,727) | | | (1,441) | | | (3,335) | | | (2,559) | |
Other income (expense), net | 108 | | | (85) | | | 502 | | | 32 | |
Interest expense, net | (81) | | | (156) | | | (216) | | | (394) | |
Income (loss) before income taxes | $ | 2,695 | | | $ | (8,231) | | | $ | 2,244 | | | $ | (2,007) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Depreciation and amortization | | | | | | | |
DynaEnergetics | $ | 2,083 | | | $ | 1,772 | | | $ | 4,083 | | | $ | 3,544 | |
NobelClad | 945 | | | 881 | | | 1,884 | | | 1,715 | |
Segment depreciation and amortization | 3,028 | | | 2,653 | | | 5,967 | | | 5,259 | |
Corporate and other | 92 | | | 64 | | | 175 | | | 164 | |
Consolidated depreciation and amortization | $ | 3,120 | | | $ | 2,717 | | | $ | 6,142 | | | $ | 5,423 | |
The disaggregation of revenue earned from contracts with customers based on the geographic location of the customer is as follows.
DynaEnergetics | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
United States | $ | 32,032 | | | $ | 11,335 | | | $ | 59,863 | | | $ | 57,607 | |
Canada | 2,804 | | | 0 | | | 6,506 | | | 658 | |
Ukraine | 1,645 | | | 933 | | | 2,081 | | | 1,235 | |
Kuwait | 863 | | | 520 | | | 1,127 | | | 1,029 | |
Norway | 716 | | | 37 | | | 907 | | | 131 | |
Egypt | 674 | | | 943 | | | 1,727 | | | 2,254 | |
Oman | 671 | | | 514 | | | 1,452 | | | 694 | |
India | 268 | | | 4,707 | | | 661 | | | 5,023 | |
Iraq | 7 | | | 2,188 | | | 7 | | | 2,189 | |
Rest of the world | 2,588 | | | 2,466 | | | 6,109 | | | 6,043 | |
| | | | | | | |
| | | | | | | |
Total DynaEnergetics | $ | 42,268 | | | $ | 23,643 | | | $ | 80,440 | | | $ | 76,863 | |
|
| | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Operating income (loss) | | | | | | | |
NobelClad | $ | (17,030 | ) | | $ | 701 |
| | $ | (14,313 | ) | | $ | 6,340 |
|
DynaEnergetics | 6,867 |
| | (977 | ) | | 8,908 |
| | (2,959 | ) |
| | | | | | | |
Segment operating income (loss) | (10,163 | ) | | (276 | ) | | (5,405 | ) | | 3,381 |
|
| | | | | | | |
Unallocated corporate expenses | (1,543 | ) | | (1,614 | ) | | (5,240 | ) | | (5,057 | ) |
Stock-based compensation | (743 | ) | | (552 | ) | | (2,125 | ) | | (1,673 | ) |
Other income (expense), net | (436 | ) | | (157 | ) | | (965 | ) | | 178 |
|
Interest expense | (367 | ) | | (265 | ) | | (1,203 | ) | | (826 | ) |
Interest income | — |
| | — |
| | 2 |
| | 2 |
|
| | | | | | | |
Loss before income taxes | $ | (13,252 | ) | | $ | (2,864 | ) | | $ | (14,936 | ) | | $ | (3,995 | ) |
NobelClad | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
United States | $ | 11,068 | | | $ | 10,462 | | | $ | 19,415 | | | $ | 19,505 | |
China | 2,645 | | | 9 | | | 2,883 | | | 96 | |
Belgium | 2,176 | | | 46 | | | 2,217 | | | 410 | |
Canada | 1,707 | | | 1,693 | | | 2,731 | | | 3,461 | |
Russia | 1,046 | | | 0 | | | 2,067 | | | 0 | |
France | 570 | | | 602 | | | 1,239 | | | 2,092 | |
Germany | 569 | | | 802 | | | 959 | | | 1,788 | |
Netherlands | 530 | | | 369 | | | 1,121 | | | 915 | |
United Arab Emirates | 437 | | | 1,881 | | | 1,101 | | | 2,620 | |
Rest of the world | 2,422 | | | 3,696 | | | 6,923 | | | 9,016 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Total NobelClad | $ | 23,170 | | | $ | 19,560 | | | $ | 40,656 | | | $ | 39,903 | |
|
| | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Depreciation and amortization: | | | | | | | |
NobelClad | $ | 932 |
| | $ | 1,006 |
| | $ | 2,927 |
| | $ | 3,000 |
|
DynaEnergetics | 1,757 |
| | 1,763 |
| | 5,137 |
| | 5,047 |
|
| | | | | | | |
Segment depreciation and amortization | $ | 2,689 |
| | $ | 2,769 |
| | $ | 8,064 |
| | $ | 8,047 |
|
During the ninethree and six months ended SeptemberJune 30, 2017 and 2016,2021, no single customers accounted for greater than 10% of consolidated net sales. During the three months ended June 30, 2020, no customer accounted for greater than 10% of consolidated net sales. During the six months ended June 30, 2020, one customer accounted for more than 10%approximately 15% of totalconsolidated net sales.
9.11. DERIVATIVE INSTRUMENTS
We are exposed to foreign currency exchange risk resulting from fluctuations in exchange rates, primarily the U.S. dollar to euro, the U.S. dollar to Canadian dollar, the euro to the Russian ruble, and, to a lesser extent, other currencies, arising from inter-company and third partythird-party transactions entered into by our subsidiaries that are denominated in currencies other than their functional currency. Changes in exchange rates with respect to these transactions result in unrealized gains or losses if such transactions are unsettled at the end of the reporting period or realized gains or losses at settlement of the transaction. During the third quarter of 2017, we began usingWe use foreign currency forward contracts to offset foreign exchange rate fluctuations on foreign currency denominated asset and liability positions. None of these contracts are designated as accounting hedges, and all changes in the fair value of the forward contracts are recognized in "Other“Other income (expense), net"net” within our Condensed Consolidated Statements of Operations.
We execute derivatives with a specialized foreign exchange brokerage firm.firm as well as other large financial institutions. The primary credit risk inherent in derivative agreements representsis the possibility that a loss may occur from the nonperformance of a counterparty to the agreements, and thus weagreements. We perform a review of the credit risk of our counterparties at the inception of the contract and on an ongoing basis. We anticipate that our counterparties will be able to fully satisfy their obligations under the agreements but will take action if doubt arises regarding the counterparties'counterparties’ ability to perform.
As of SeptemberJune 30, 2017,2021 and December 31, 2020, the notional amounts of the forward currency contracts the Company held to purchase currencies were $19,297,$7,625 and $2,092, respectively. At June 30, 2021 and December 31, 2020, the notional amounts of forward contracts the Company held to sell currencies were $2,910. The fair values of outstanding foreign currency forward contracts were not material at September 30, 2017.$0.
The following table presents the location and amount of net gains (losses) from hedging activities for the three and nine months ended September 30, 2017 and 2016:activities:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | Six months ended June 30, |
Derivative | Statements of Operations Location | 2021 | | 2020 | | 2021 | | 2020 |
Foreign currency contracts | Other income (expense), net | $ | 12 | | | $ | (706) | | | $ | 67 | | | $ | 128 | |
| | | | | | | | |
|
| | | | | | | | | | | | | | | | | | |
| | Gain/(Loss) Recognized in Income on Derivatives |
| | | | Amount |
| | | | Three months ended September 30, | | Nine months ended September 30, |
Derivatives | | Income Statement Location | | 2017 | | 2016 | | 2017 | | 2016 |
Foreign currency contracts | | Other income (expense), net | | $ | (193 | ) | | $ | — |
| | $ | (193 | ) | | $ | — |
|
Total gain (loss) | | | | $ | (193 | ) | | $ | — |
| | $ | (193 | ) | | $ | — |
|
10.12. COMMITMENTS AND CONTINGENCIES
Contingent Liabilities
The Company records an accrual for contingent liabilities when a loss is both probable and reasonably estimable. If some amount within a range of loss appears to be a better estimate than any other amount within the range, that amount is accrued. When no amount within a range of loss appears to be a better estimate than any other amount, the lowest amount in the range is accrued.
Anti-dumpingLegal Proceedings
From time to time, we may become involved in various lawsuits and Countervailing Duties
In June 2015, U.S. Customs and Border Protection (“U.S. Customs”) sent us a Notice of Action that proposed to classify certain of our imports as subject to anti-dumping duties pursuant to a 2010 anti-dumping duty (“AD”) order on Oil Country Tubular Goods (“OCTG”) from China. A companion countervailing duty (“CVD”) order on the same product is in effect as well. The Notice of Action covered one entry of certain raw material steel mechanical tubing made in China and imported into the U.S. from Canada by our DynaEnergetics segment during 2015 for use in manufacturing perforating guns.
In July 2015, we sent a response to U.S. Customs outlining the reasons our mechanical tubing imports do not fall within the scope of the AD order on OCTG from China and should not be subject to anti-dumping duties. U.S. Customs proposed to take similar action with respect to other entries of this product and requested an approximately $1,100 cash deposit or bond for AD/CVD duties.
In August 2015, we posted the bond of approximately $1,100 to U.S. Customs. Subsequently, U.S. Customs declined to conclude on the Company's assertion that the mechanical tubing the Company has been importing is not within the scope of the AD order on OCTG from China. As a result, on September 25, 2015 the Company filed a request for a scope ruling with the U.S. Department of Commerce ("Commerce Department").
On February 15, 2016, the Company received the Commerce Department’s scope ruling,legal proceedings which determined certain imports, primarily used for gun carrier tubing, are includedarise in the scopeordinary course of the AD/CVD orders on OCTG from China and thus are subject to AD/CVD duties.
On March 11, 2016, the Company filed an appeal with the U.S. Court of International Trade (“CIT”) related to the Commerce Department’s scope ruling. On February 7, 2017, the CIT remanded the scope ruling to the Commerce Department to reconsider its determination. The Commerce Department filed its remand determination with the CIT on June 7, 2017 continuing to find that the Company's imports at issue are within the scope of the AD/CVD orders on OCTG from China. This determinationbusiness. However, litigation is subject to the CIT's reviewinherent uncertainties, and an adverse result in the ongoing appeal, which is continuing.
On December 27, 2016, we received noticethese or other matters may arise from U.S. Customstime to time that it may pursue penalties against us related to the AD/CVD issue and demanding tender of alleged loss of AD/CVD duties in an amount of $3,049, which was covered byharm our reserve. We filed a response to the notice on February 6, 2017 asserting our position that any decision to pursue penalties would be premature in light of the Remand Order and that penalties would not be appropriate under the applicable legal standards. On February 16, 2017, we received notice that U.S. Customs was seeking penalties in the amount of $14,783. U.S. Customs also reasserted its demand for tender of alleged loss of AD/CVD duties in the amount of $3,049. We tendered $3,049 in AD amounts (“Tendered Amounts”) on March 6, 2017 into a suspense account pending ultimate resolution of the AD/CVD case. We believe that this penalty assessment is premature and patently unreasonable in the face of the ongoing CIT appeal and that penalties are not appropriate under applicable legal standards. Further, even if penalties are found to be justified, we
believe the amount of penalties asserted by U.S. Customs is unreasonable and subject to challenge on various grounds. We submitted a petition for relief and mitigation of penalties on May 17, 2017 asserting these and other points and seeking a stay of the penalty proceedings pending ultimate resolution of the CIT appeal and any further appeals.business. We are awaiting a response from U.S. Customs and U.S. Customs Headquarters on this petition.
For the nine months ended September 30, 2017, the Company recorded $84currently not aware of interest on its reserve for AD/CVD duties, bringing the total reserved amount related to AD/CVD duties as of September 30, 2017 to $3,585. The Tendered Amounts were applied to reduce the reserve. The Companyany such legal proceedings or claims that we believe will continue to incur legal defense costs and could also be subject to additional interest and penalties. Accruals for the potential penalties discussed above are not reflected in our financial statements as of September 30, 2017 as we do not believe they are probable at this time.
Patent and Trademark Infringement
On September 22, 2015, GEODynamics, Inc., a US-based oil and gas perforating equipment manufacturer based in Fort Worth, TX, filed a patent and trademark infringement action against DynaEnergetics US, Inc., (“DynaEnergetics”), a wholly owned subsidiary of DMC, in the United States District Court for the Eastern District of Texas (“District Court”) regarding alleged infringement of US Patent No. 9,080,431 granted on July 14, 2015 (the “431 patent”) and a related US trademark for REACTIVE, alleging that DynaEnergetics’ US sales of DPEXTM shaped charges infringe the ‘431 patent and the trademark. The 431 case went to trial in late March 2017, and on March 30, 2017, the jury found in favor of DynaEnergetics on all counts. A bench trial on related matters, including the trademark infringement action occurred on April 20, 2017, and the Court ordered cancellation of GEODynamics' REACTIVE trademark.
On July 1, 2016, GEODynamics filed a second patent infringement action against DynaEnergetics in District Court alleging infringement of US Patent No. 8,544,563 (the “563 patent”), also based on DynaEnergetics’ US sales of DPEX shaped charges. DynaEnergetics denies validity and infringement of the 563 patent and plans to vigorously defend against this lawsuit. On September 20, 2016, DynaEnergetics filed an Inter Parties Review (IPR) against the 563 patent at the U.S. Patent Trial and Appeal Board (“PTAB”), requesting invalidation of the 563 patent. On March 17, 2017, DynaEnergetics' IPR request was instituted by the PTAB, and a decision is expected in early 2018. Trial on the 563 patent has been stayed pending resolution of the IPR.
On April 28, 2017, GEODynamics filed a third patent infringement action against DynaEnergetics in District Court alleging infringement of U.S. Patent No. 8,220,394 (the “394 patent”), based on DynaEnergetics' sales of its DPEX and HaloFrac® shaped charges. DynaEnergetics denies validity and infringement of the 394 patent and plans to vigorously defend against this lawsuit. On June 9, 2017, DynaEnergetics filed a motion to dismiss for improper venue,have, individually or in the alternative to change venue, and the District Court’s decision is pending. On August 28, 2017, DynaEnergetics filed an IPR against the 394 patent at the PTAB, requesting invalidation of the 394 patent.
On August 21, 2017, GEODynamics filed a patent infringement action against DynaEnergetics GmbH & Co. KG and DynaEnergetics Beteiligungs GmbH, both wholly owned subsidiaries of DMC (collectively, “DynaEnergetics EU”), in the Regional Court of Düsseldorf, Germany, alleging infringement of European patent EP 1 671 013 B1 granted on June 29, 2011, a patent related to the 394 patent (the “EP 013 patent”), based on the manufacturing, sale and marketing of DPEX shaped charges in Germany. DynaEnergetics EU denies validity and infringement of the EP 013 patent and plans to vigorously defend against this lawsuit.
We do not believe that the 563 patent, the 394 patent, the EP 013 patent or infringement claims based on the patents are valid, and we do not believe it is probable that we will incuraggregate, a material lossadverse effect on our business, financial condition or operating results.
13. RESTRUCTURING EXPENSES AND ASSET IMPAIRMENTS
During the 563 matter, the 394 matter or the EP 013 matter. However, if it is determined that the patents are valid and that DynaEnergetics or DynaEnergetics EU, as applicable, has infringed them, it is reasonably possible that our financial statements could be materially affected. We are not able to provide a reasonable estimate of the range of loss, and we have not accrued for any such losses. Such an evaluation includes, among other things, a determination of the total number of infringing sales in the United States or infringing products manufactured in Germany, as applicable, what a reasonable royalty, if any, might be under the circumstances; or, alternatively, the scope of damages and the relevant period for which damages would apply, if any.
11. RESTRUCTURING
There was no restructuring activity in the thirdfirst quarter of 2017. In2021, NobelClad recorded an accrual for additional severance liabilities of $116 which were agreed to with local labor authorities for employees terminated as part of closing manufacturing operations in France in 2018.
During the second quarter of 2017,2020 the COVID-19 pandemic-related collapse in oil and gas demand led to a downturn in well completions and the corresponding demand for DynaEnergetics’ products. As a result, DynaEnergetics announcedrecorded asset impairment charges of $1,181 on certain manufacturing assets that will no longer be utilized in production at its Blum, Texas and Troisdorf, Germany facilities. Additionally, both DynaEnergetics and NobelClad further reduced the closure ofrespective workforces during the quarter. Finally, DynaEnergetics continued activities to prepare its operations in Kazakhstan after legislative changes increased our costs to do business while the overall sales in Kazakhstan were not significant to our results. Tyumen, Siberia facility for sale.
During the first quarter we recorded severance expense, wrote off remaining receivables,
prepaid assets,2020, DMC reduced its workforce by 264 positions to address a sharp decline in well completions in the Company’s core oil and inventory, recorded an asset impairment to mark the fixed assets down to their salable value, and recorded to the statement of operations foreign exchange losses that had previously been recorded to the balance sheet through currency translation adjustments,gas end market principally due to the substantial liquidation of the entity. In the second quarter of 2016,COVID-19 pandemic. The workforce reduction impacted full-time, part-time and temporary direct-labor roles in manufacturing and assembly at DynaEnergetics reduced headcount in Troisdorf, Germanyas well as general and Austin, Texas.administrative positions at DynaEnergetics, NobelClad, and at DMC’s corporate office.
Total restructuring and impairment charges incurred for these programs are as follows and are reported in the “restructuring expenses”“Restructuring expenses and asset impairments” line item in our Condensed Consolidated StatementStatements of Operations:
| | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended June 30, 2021 |
| Severance | | | | | | | | Other Exit Costs | | Total |
| | | | | | | | | | | |
NobelClad | $ | 116 | | | | | | | | | $ | 11 | | | $ | 127 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Total | $ | 116 | | | | | | | | | $ | 11 | | | $ | 127 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, 2020 |
| Severance | | Asset Impairment | | | | Equipment Moving Costs | | Other Exit Costs | | Total |
DynaEnergetics | $ | 121 | | | $ | 1,181 | | | | | $ | 126 | | | $ | 423 | | | $ | 1,851 | |
NobelClad | 191 | | | 0 | | | | | 0 | | | 4 | | | 195 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Total | $ | 312 | | | $ | 1,181 | | | | | $ | 126 | | | $ | 427 | | | $ | 2,046 | |
| | | Nine months ended September 30, 2017 | | Six months ended June 30, 2020 |
| Severance | | Asset Impairment | | Other Exit Costs | | Total | | Severance | | Asset Impairment | | Contract Termination Costs | | Equipment Moving Costs | | Other Exit Costs | | Total |
DynaEnergetics | $ | 20 |
| | $ | 143 |
| | $ | 295 |
| | $ | 458 |
| DynaEnergetics | $ | 828 | | | $ | 1,181 | | | $ | 11 | | | $ | 126 | | | $ | 643 | | | $ | 2,789 | |
NobelClad | | NobelClad | 244 | | | 0 | | | 0 | | | 0 | | | 10 | | | 254 | |
Corporate | | Corporate | 119 | | | 0 | | | 0 | | | 0 | | | 0 | | | 119 | |
| | | | | | | | |
Total | $ | 20 |
| | $ | 143 |
| | $ | 295 |
| | $ | 458 |
| Total | $ | 1,191 | | | $ | 1,181 | | | $ | 11 | | | $ | 126 | | | $ | 653 | | | $ | 3,162 | |
|
| | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, 2016 |
| Severance | | Contract Termination Costs | | Equipment Moving Costs | | Other Exit Costs | | Total |
DynaEnergetics | $ | (41 | ) | | $ | 370 |
| | $ | 1 |
| | $ | 43 |
| | $ | 373 |
|
| | | | | | | | | |
Total | $ | (41 | ) | | $ | 370 |
| | $ | 1 |
| | $ | 43 |
| | $ | 373 |
|
|
| | | | | | | | | | | | | | | | | | | |
| Nine months ended September 30, 2016 |
| Severance | | Contract Termination Costs | | Equipment Moving Costs | | Other Exit Costs | | Total |
DynaEnergetics | $ | 684 |
| | $ | 386 |
| | $ | 15 |
| | $ | 43 |
| | $ | 1,128 |
|
Corporate | 74 |
| | — |
| | — |
| | — |
| | 74 |
|
| | | | | | | | | |
Total | $ | 758 |
| | $ | 386 |
| | $ | 15 |
| | $ | 43 |
| | $ | 1,202 |
|
During the ninesix months ended SeptemberJune 30, 2017,2021, the changes to the restructuring liability associated with these programs is summarized below: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 | | Net expense | | Payments and Other Adjustments | | Currency Adjustments | | June 30, 2021 |
Severance | $ | 958 | | | $ | 116 | | | $ | (28) | | | $ | (32) | | | $ | 1,014 | |
| | | | | | | | | |
| | | | | | | | | |
Other exit costs | 0 | | | 11 | | | (11) | | | 0 | | | 0 | |
Total | $ | 958 | | | $ | 127 | | | $ | (39) | | | $ | (32) | | | $ | 1,014 | |
|
| | | | | | | | | | | | | | | |
| December 31, 2016 | | Expense | | Payments and Other Adjustments | | September 30, 2017 |
Severance | $ | 62 |
| | $ | 20 |
| | $ | (62 | ) | | $ | 20 |
|
Contract termination costs | 112 |
| | — |
| | (102 | ) | | 10 |
|
| | | | | | | |
Total | $ | 174 |
| | $ | 20 |
| | $ | (164 | ) | | $ | 30 |
|
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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 December 31, 2016.2020.
Unless stated otherwise, all currency amounts are presented in thousands of U.S. dollars (000s).
Overview
General
DMC Global Inc., formerly Dynamic Materials Corporation ("DMC" (“DMC”), operates two technical product and process business segments serving the energy, industrial and infrastructure markets. These segments, NobelCladDynaEnergetics and DynaEnergetics,NobelClad, operate globally through an international network of manufacturing, distribution and sales facilities.
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 free-cashgenerating free cash flow, generation, 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 U.S., Europe, Canada, Africa, the Middle East, and Asia. DynaEnergetics also sells directly to end-users. The market for perforating products, which are used during the well completion process, generally corresponds with oil and gas exploration and production activity. Exploration activity over the last several years has led to increasingly complex well completion operations, which in turn has increased the demand for high quality and technically advanced perforating products.
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 is a global leader in the production ofproduces explosion-welded clad metal plates for use in the construction of corrosion resistant industrial processing equipment and specialized transition joints. While a largesignificant portion of the demand for our clad metal products is driven by new plant construction and large plant expansion projects, 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'sNobelClad’s backlog increased to $31,994$45,134 at SeptemberJune 30, 20172021 from $31,634$39,884 at December 31, 2016. 2020.
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 third quarter of 2017, activity in NobelClad’s primary end markets slowed considerably. NobelClad experienced a significant decline in its small size core maintenance bookings within the oil and gas industry. Additionally, certain large petrochemical projects previously forecasted to ship in the next twelve months were delayed, and uncertainty exists as to the ultimate timing of booking and shipping these potential orders. As a result, we determined that a potential indicator of goodwill impairment existed during the third quarter of 2017. We utilized an income approach (discounted cash flow analysis) to determine the fair value of the NobelClad reporting unit and concluded that our long-term forecasts were not materializing and needed to be revised downward. We determined that the estimated fair value of the NobelClad reporting unit was less than its carrying value due primarily to the factors described above and their related impact on expected future cash flows. As the carrying value of the NobelClad reporting unit exceeded the fair value by more than the book value of goodwill, we recorded an impairment charge of $17,584 to fully impair the goodwill related to this reporting unit as of September 30, 2017.
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 large, mid-sized, and small oilfield service companies in the U.S., Europe, Canada, South America, Africa, the Middle East, Russia, and Asia. DynaEnergetics also sells directly to end-users. The market for perforating products, which are used during the well completion process, generally corresponds with oil and gas exploration and production activity. Exploration activity over the last several years has led to increasingly complex well completion operations, which in turn, has increased the demand for high quality and technically advanced perforating products.
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, freight and other manufacturing overhead expenses.
Factors Affecting Results
During the three and nine months ended September 30, 2017, the following factors most affected our financial performance:
DynaEnergetics•Consolidated sales of $35,320 in$65,438 increased 18% versus the thirdfirst quarter of 20172021 primarily due to higher shipments out of backlog at NobelClad and the continued recovery in DynaEnergetics’ upstream oil and gas markets. Consolidated sales increased 80% compared with the third quarter of 2016 and increased 32% sequentially51% versus the second quarter of 2017. Despite a slowdown2020, in which energy demand, North American drilling and well completions activity and sales at DynaEnergetics was severely impacted by the growth of the U.S. onshore rig count, the unconventional well-completions sector remained very active during the third quarter of 2017, reflecting increased completion intensity and longer laterals. This fueled strong demand for DynaEnergetics’ intrinsically safe perforating products, which include the DynaSelect detonator and the factory-assembled, performance-assured DynaStage system.COVID-19 pandemic.
NobelClad’s
•DynaEnergetics sales of $16,841 in the third quarter of 2017 were essentially flat compared to the third quarter of 2016 and decreased 17% from the second quarter of 2017. In 2017, weak capital spending in NobelClad's industrial infrastructure and energy markets has led to a downturn in both large-project orders and smaller repair and maintenance work.
A non-cash goodwill impairment charge of $17,584 was recorded in third quarter of 2017 related to the NobelClad reporting unit.
Consolidated gross profit of 33% in the third quarter of 2017 improved from 23% in the same period of 2016 and 30%$42,268 in the second quarter of 2017.2021 increased 11% compared with the first quarter of 2021 due to improved oil and gas demand, which led to higher North American drilling and well completions, and increased demand for DynaEnergetics’ DS perforating systems. In addition, DynaEnergetics international sales volume improved sequentially. Sales increased 79% compared with the second quarter of 2020, which was severely impacted by the COVID-19 pandemic.
•NobelClad’s sales of $23,170 in the second quarter of 2021 increased 33% compared to the first quarter of 2021 and increased 18% compared with the second quarter of 2020 reflecting increased shipments of projects out of backlog which included shipments that were pushed into the second quarter due to widespread logistical bottlenecks and shipping delays in the first quarter of 2021.
•Consolidated gross profit was 26% in the second quarter of 2021 versus 23% in the first quarter of 2021 and 15% in the second quarter of 2020. The sequential improvement from last year primarily relates to DynaEnergetics due to the impact of higher sales volume on fixed expenses and nonrecurring excess capacity charges that were recorded in 2020. In addition, the improvement from last year in NobelClad partly relates to improved project mix. Consolidated gross profit in the first and second quarter of 2021 also benefited from the receipt of $846 and $1,488, respectively, related to the Employee Retention Credit (“ERC”) under the Coronavirus Aid, Relief, and Economic Security Act, as amended (“CARES Act”). In the first quarter of 2021, under provisions of legislation enacted in December 2020 the Company became eligible for the ERC under the CARES Act. As a higher proportionresult of DynaEnergetics sales relativethe new legislation, the Company was able to NobelClad sales, coupled with higher averageclaim a refundable tax credit equal to 70% of the qualified wages they paid to employees during the first and second quarters of 2021, limited to $10 per employee per quarter. Thus, the maximum ERC amount available to the Company was $7 per employee during the first and second quarters of 2021.
•Consolidated selling, prices and improved product mix in DynaEnergetics.
Consolidated general and administrative expenses were $6,535$14,015 in the thirdsecond quarter of 20172021 compared with $5,685$12,195 in the thirdsecond quarter of 2016.2020. The increase primarily was due to higher patent litigation expenses related to patent enforcement actions against companies we believe infringe DynaEnergetics’ patents, restoration of variable compensation, and resumption of business-related travel. These increases were partially offset by a $765 CARES Act benefit.
•Restructuring expenses and asset impairments of $2,046 in the second quarter of 2020 primarily related to impairments of manufacturing assets at DynaEnergetics and costs associated with the sale of DynaEnergetics’ Tyumen, Siberia manufacturing facility.
•Cash and marketable securities of $181,294 increased salaries and wages.
Net debt (lines of credit less cash and cash equivalents) of $13,097 decreased $2,215 sequentially$127,371 from $15,312 at June 30, 2017 and increased $3,784 from $9,313$53,923 at December 31, 2016.2020. The increase primarily relates to proceeds from our registered public equity offering in net debt from December 31, 2016 primarily was attributableMay 2021 and under our ongoing at-the-market equity offering program (“ATM equity program”).
Outlook
Improving economic conditions led to borrowingincreased activity in several of our end markets during the second quarter of 2021. Rising energy prices drove improved demand for DynaEnergetics’ DS well perforating systems. We expect the demand recovery to fund working capital requirements from sales growthcontinue in DynaEnergetics,our primary upstream oil and gas end markets in the tendersecond half of $3,0492021. However, despite increased well completion activity in anti-dumping dutyNorth America, pricing pressure for products and countervailing duty (AD/CVD) amountsservices persists, and is delaying the margin recovery of our industry. During the recent market instability, a number of machine shops have taken advantage of extreme price sensitivity by commercializing undifferentiated and lower quality pre-wired carrier assemblies. These businesses are being supported and supplied by some of our industry’s large energetics manufacturers, which have not yet fully transitioned to U.S. Customs pending ultimate resolutiontheir own integrated systems.
We believe many of the AD/CVD casepre-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 DynaEnergetics associated with the patent infringement litigation.first six months of 2021, and we expect these costs to be ongoing throughout the remainder of 2021 and into 2022.
Business Outlook
To addressNobelClad was awarded an $8,800 order during the accelerating demandsecond quarter of 2021 for its intrinsically-safe perforating products, DynaEnergetics recently announced planstitanium clad plates that will be used to significantly expand the manufacturingfabricate specialized equipment for a large purified terephthalic acid (PTA) plant. The plant was engineered in Europe, will be built in Southwest Asia and assembly capacity of its DynaSelect, DynaStagewill include titanium-clad equipment fabricated in China. The clad plates, which will be used to fabricate pressure vessels and shaped charge product lines. A new 40,000 square foot manufacturing center isheat exchangers, will be manufactured at NobelClad’s production facility in Mt. Braddock, Pennsylvania, and are scheduled to open duringship in this year’s third and fourth quarters. This large order will help offset a pandemic-related downturn in NobelClad’s base repair and maintenance business, which tends to lag the cycles of the broader economy. In addition, NobelClad continues to pursue several large orders in a broad range of industrial end markets.
In the third quarter of 2018 in Blum, Texas, where2021, NobelClad introduced DetaPipe™, a high-performance clad-pipe solution for the businesschemical and metal-processing markets. This product offering is expected to double its shaped charge production capacity. Aprovide customers with a better-performing, cost-effective alternative to solid zirconium or titanium pipe in their high-pressure, high temperature processing environments.
We are in a period of rising material and labor costs at both DynaEnergetics and NobelClad; both of which could also be impacted by supply-chain bottlenecks and availability of direct labor. In March 2021, provisions of legislation modified and extended the ERC under the CARES Act through December 31, 2021 for eligible companies. Under this extension, we will be able to claim the refundable tax credit for the quarter ended September 30, 2021, but at this time there is no guarantee that we will be able to claim the credit for the quarter ended December 31, 2021. These factors could negatively impact our net sales, gross profit margin, or operating income in future quarters.
From time to time, we also may continue to use our ATM equity program, which commenced in October 2020, to raise additional capital efficiently and responsibly. We did not sell shares under our ATM equity program during the second automated DynaSelect detonator line is planned to be installed next year at DynaEnergetics’ facility in Troisdorf Germany, and the business also plans to re-open its DynaStage assembly center in Mt. Braddock Pennsylvania in the fourth quarter of 2017.
The recent decline in NobelClad’s core repair and maintenance orders from2021. During the downstream energy industry has continued into the fourthfirst quarter of 2017. In October 2017, NobelClad2021, we sold 397,820 shares of common stock at a weighted average price per share of $64.47 through our ATM equity program and received a $7.4 million purchase order related to a petrochemical project in Asia. The order will be reflected in NobelClad's fourth quarter backlog.net proceeds of $25,262.
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 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.
20
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.
Net Debtcash is a non-GAAP measure we use to supplement information in our Condensed Consolidated Financial Statements. We define net debtcash as lines of credittotal cash, cash equivalents and marketable securities less cash and cash equivalents.total debt. 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.
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 other similarly titled measures of other companies.
Consolidated Results of Operations
Three months ended SeptemberJune 30, 20172021 compared with three months ended SeptemberJune 30, 20162020
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | | | |
| 2021 | | 2020 | | $ change | | % change |
Net sales | $ | 65,438 | | | 43,203 | | | $ | 22,235 | | | 51 | % |
Gross profit | 16,971 | | | 6,604 | | | 10,367 | | | 157 | % |
Gross profit percentage | 25.9 | % | | 15.3 | % | | | | |
COSTS AND EXPENSES: | | | | | | | |
General and administrative expenses | 8,471 | | | 6,707 | | | 1,764 | | | 26 | % |
% of net sales | 12.9 | % | | 15.5 | % | | | | |
Selling and distribution expenses | 5,544 | | | 5,488 | | | 56 | | | 1 | % |
% of net sales | 8.5 | % | | 12.7 | % | | | | |
Amortization of purchased intangible assets | 288 | | | 353 | | | (65) | | | (18) | % |
% of net sales | 0.4 | % | | 0.8 | % | | | | |
| | | | | | | |
Restructuring expenses and asset impairments | — | | | 2,046 | | | (2,046) | | | (100) | % |
| | | | | | | |
| | | | | | | |
Operating income (loss) | 2,668 | | | (7,990) | | | 10,658 | | | 133 | % |
Other income (expense), net | 108 | | | (85) | | | 193 | | | 227 | % |
Interest expense, net | (81) | | | (156) | | | 75 | | | 48 | % |
Income (loss) before income taxes | 2,695 | | | (8,231) | | | 10,926 | | | 133 | % |
Income tax provision (benefit) | 971 | | | (2,583) | | | 3,554 | | | 138 | % |
Net income (loss) | 1,724 | | | (5,648) | | | 7,372 | | | 131 | % |
Adjusted EBITDA | $ | 7,515 | | | $ | (1,786) | | | $ | 9,301 | | | 521 | % |
|
| | | | | | | | | | | | | | | |
| | Three months ended September 30, | | | | |
| | 2017 | | 2016 | | $ change | | % change |
Net sales | | $ | 52,161 |
| | $ | 36,553 |
| | $ | 15,608 |
| | 43 | % |
Gross profit | | 17,162 |
| | 8,457 |
| | 8,705 |
| | 103 | % |
Gross profit percentage | | 32.9 | % | | 23.1 | % | | | | |
COSTS AND EXPENSES: | | | | | | | | |
General and administrative expenses | | 6,535 |
| | 5,685 |
| | 850 |
| | 15 | % |
% of net sales | | 12.5 | % | | 15.6 | % | | | | |
Selling and distribution expenses | | 4,446 |
| | 3,832 |
| | 614 |
| | 16 | % |
% of net sales | | 8.5 | % | | 10.5 | % | | | | |
Amortization of purchased intangible assets | | 1,046 |
| | 1,009 |
| | 37 |
| | 4 | % |
% of net sales | | 2.0 | % | | 2.8 | % | | | | |
Restructuring expenses | | — |
| | 373 |
| | (373 | ) | | (100 | )% |
Goodwill impairment charge | | 17,584 |
| | — |
| | 17,584 |
| | — | % |
Operating loss | | (12,449 | ) | | (2,442 | ) | | (10,007 | ) | | (410 | )% |
Other expense, net | | (436 | ) | | (157 | ) | | (279 | ) | | (178 | )% |
Interest income (expense), net | | (367 | ) | | (265 | ) | | (102 | ) | | (38 | )% |
Loss before income taxes | | (13,252 | ) | | (2,864 | ) | | (10,388 | ) | | (363 | )% |
Income tax provision (benefit) | | 812 |
| | 272 |
| | 540 |
| | 199 | % |
Net loss | | (14,064 | ) | | (3,136 | ) | | (10,928 | ) | | (348 | )% |
Adjusted EBITDA | | $ | 8,567 |
| | $ | 1,178 |
| | $ | 7,389 |
| | 627 | % |
Net sales increased $22,235 compared with 2016the second quarter of 2020. The increase primarily was due to the recovery in oil and gas demand, which led to increased drilling and well completion activity in North America and increased sales of DynaEnergetics’ DS perforating systems. The second quarter of 2020 was severely impacted by the drop in demand for oil and gas drilling and completion activity due to the COVID-19 pandemic.
Gross profit percentage increased to 25.9% compared with the second quarter of 2020 primarily due to the impact of higher volume on fixed manufacturing overhead expenses and improved project mix at NobelClad. Additionally, gross profit percentage was also favorably impacted by a $1,488 CARES Act benefit.
General and administrative expenses increased $1,764 compared with the second quarter of 2020 primarily due to an 80% increase in DynaEnergetics' net sales from increased demand for its intrinsically-safe, addressable initiating systems, coupled with an active unconventional well-completion industry in North America.
Gross profit percentage increased from a higher proportion of DynaEnergetics’ net sales relative to NobelClad and better price and product mix in DynaEnergetics.
General and administrative expenses increased compared with 2016outside services costs by $1,502, which was primarily due to higher outside legal expenses related to patent infringement defense costs, higher salarieslitigation in which DynaEnergetics is the plaintiff and wages, and higher stock-basedthe restoration of variable compensation expense.by $686. These increases were partially offset by a $344 CARES Act benefit.
Selling and distribution expenses increased $56 compared with 2016the second quarter of 2020 primarily due to higherincreases in depreciation expense by $334, the restoration of variable compensation by $289, resumption of business-related travel by $174, outside service costs by $166, salaries by $164, and wages.recruiting costs by $111. These increases were partially offset by reductions in provisions for expected credit losses by $907 and a $421 CARES Act benefit.
Restructuring expenses and asset impairments in 2016 included severance adjustmentsthe second quarter of2020 primarily related to headcount reductions announcedasset impairment charges on certain manufacturing assets that will no longer be utilized in prior quarters, lease termination costs to exit administrative offices in Austin,production at DynaEnergetics’ Blum, Texas and costs related to relocationTroisdorf, Germany facilities and charges associated with the anticipated sale of perforating gunDynaEnergetics’ Tyumen, Siberia manufacturing facility.
Operating income of $2,668 in Germany.
Goodwill impairment charge relates to fully impairing NobelClad's goodwill balance.
Operating lossthe second quarter of 2021 increased compared with 2016to the same period last year primarily due to the goodwill impairment charge, which partially was offset by improved earnings at DynaEnergetics and NobelClad, including a total CARES Act benefit of $2,253 in our DynaEnergetics segment.the second quarter of 2021.
Other expense,income, net of$108in 2017the second quarter of 2021 primarily related to net unrealized and 2016 primarily relates to realized and unrealized foreign currency losses. Ourexchange gains. Currency gains and losses can arise when subsidiaries frequently enter into inter-company and third partythird-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 gains or losses at settlement of the transaction. During the third quarter of 2017, we began usingcurrency, including foreign currency forward contracts generally with maturities up to one month,used to offset foreign
exchange rate fluctuations on certain foreign currency denominated asset and liability positions. None
Interest expense, net of$81decreased compared with the second quarter of these contracts are designated as accounting hedges, and all changes2020 primarily due to the repayment in full of our outstanding debt in the fair valuefirst quarter of the forward contracts are recognized immediately in "Other income (expense), net" within our Condensed Consolidated Statements of Operations.2021.
Interest income (expense), net increased compared with 2016 due to higher interest rates on a higher average outstanding line of credit balance.
Income tax provision of $812$971 was recorded on income before income taxes of $2,695. Our most significant operations are in the United States, which has a 21% statutory income tax rate, and Germany, which has a 33% statutory income tax rate. The mix of income or loss before income taxes between these jurisdictions is one of the primary drivers of the difference between our 21% statutory tax rate and our effective tax rate. We recorded an income tax benefit of $2,583 on loss before income taxes of $8,231 for the thirdsecond quarter of 2017 compared with a provision of $272 for the third quarter of 2016. 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.2020.
Net loss income for the three months ended SeptemberJune 30, 20172021 was $14,064,$1,724, or $0.98$0.10 per diluted share, compared with $3,136,to net loss of $5,648, or $0.22$0.38 per diluted share, for the same period in 2016.2020.
Adjusted EBITDA increased compared with 2016the second quarter of 2020 primarily due to the factors discussed above. See "Overview"“Overview” above for the explanation of the use of Adjusted EBITDA. The following is a reconciliation of the most directly comparable GAAP measure to Adjusted EBITDA. | | | | | | | | | | | |
| Three months ended June 30, |
| 2021 | | 2020 |
Net income (loss) | $ | 1,724 | | | $ | (5,648) | |
Interest expense, net | 81 | | | 156 | |
Income tax provision (benefit)) | 971 | | | (2,583) | |
Depreciation | 2,832 | | | 2,364 | |
Amortization of purchased intangible assets | 288 | | | 353 | |
EBITDA | 5,896 | | | (5,358) | |
| | | |
Restructuring expenses and asset impairments | — | | | 2,046 | |
| | | |
| | | |
| | | |
Stock-based compensation | 1,727 | | | 1,441 | |
Other (income) expense, net | (108) | | | 85 | |
Adjusted EBITDA | $ | 7,515 | | | $ | (1,786) | |
Adjusted Net Income and Adjusted Diluted Earnings per Share increased compared with the second quarter of 2020 due to the factors discussed above. See "Overview" above for the explanation of the use of non-GAAP measures. The following is a reconciliation of the most directly comparable GAAP measures to Adjusted Net Income and Adjusted Diluted Earnings Per Share.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, 2021 |
| Pre-Tax | | Tax (Benefit) | | Net | | Diluted weighted average shares outstanding | | Diluted EPS |
Net income, as reported | $ | 2,695 | | | $ | 971 | | | $ | 1,724 | | | 17,568,444 | | | $ | 0.10 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Adjusted net income | $ | 2,695 | | | $ | 971 | | | $ | 1,724 | | | 17,568,444 | | | $ | 0.10 | |
|
| | | | | | | | |
| | Three months ended September 30, |
| | 2017 | | 2016 |
Net loss | | $ | (14,064 | ) | | $ | (3,136 | ) |
Interest expense | | 367 |
| | 265 |
|
Interest income | | — |
| | — |
|
Provision for income taxes | | 812 |
| | 272 |
|
Depreciation | | 1,643 |
| | 1,760 |
|
Amortization of purchased intangible assets | | 1,046 |
| | 1,009 |
|
EBITDA | | (10,196 | ) | | 170 |
|
Restructuring expenses | | — |
| | 373 |
|
Goodwill impairment charge | | 17,584 |
| | — |
|
Stock-based compensation | | 743 |
| | 478 |
|
Other (income) expense, net | | 436 |
| | 157 |
|
Adjusted EBITDA | | $ | 8,567 |
| | $ | 1,178 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, 2020 |
| Pre-Tax | | Tax (Benefit) Provision | | Net | | Diluted weighted average shares outstanding | | Diluted EPS |
Net loss, as reported | $ | (8,231) | | | $ | (2,583) | | | $ | (5,648) | | | 14,832,242 | | | $ | (0.38) | |
Restructuring expenses and asset impairments: | | | | | | | | | |
DynaEnergetics | 1,851 | | | 728 | | | 1,123 | | | 14,832,242 | | | 0.08 | |
NobelClad | 195 | | | 65 | | | 130 | | | 14,832,242 | | | 0.01 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Adjusted net loss | $ | (6,185) | | | $ | (1,790) | | | $ | (4,395) | | | 14,832,242 | | | $ | (0.29) | |
Nine
Six months ended SeptemberJune 30, 20172021 compared with ninesix months ended SeptemberJune 30, 20162020
| | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended June 30, | | | | |
| 2021 | | 2020 | | $ change | | % change |
Net sales | $ | 121,096 | | | $ | 116,766 | | | $ | 4,330 | | | 4 | % |
Gross profit | 29,884 | | | 31,070 | | | (1,186) | | | (4) | % |
Gross profit percentage | 24.7 | % | | 26.6 | % | | | | |
COSTS AND EXPENSES: | | | | | | | |
General and administrative expenses | 16,400 | | | 14,831 | | | 1,569 | | | 11 | % |
% of net sales | 13.5 | % | | 12.7 | % | | | | |
Selling and distribution expenses | 10,787 | | | 14,015 | | | (3,228) | | | (23) | % |
% of net sales | 8.9 | % | | 12.0 | % | | | | |
Amortization of purchased intangible assets | 612 | | | 707 | | | (95) | | | (13) | % |
% of net sales | 0.5 | % | | 0.6 | % | | | | |
| | | | | | | |
Restructuring expenses | 127 | | | 3,162 | | | (3,035) | | | (96) | % |
| | | | | | | |
| | | | | | | |
Operating income (loss) | 1,958 | | | (1,645) | | | 3,603 | | | 219 | % |
Other income, net | 502 | | | 32 | | | 470 | | | 1,469 | % |
Interest expense, net | (216) | | | (394) | | | 178 | | | 45 | % |
Income (loss) before income taxes | 2,244 | | | (2,007) | | | 4,251 | | | 212 | % |
Income tax provision (benefit) | 88 | | | (514) | | | 602 | | | 117 | % |
Net income (loss) | 2,156 | | | (1,493) | | | 3,649 | | | 244 | % |
Adjusted EBITDA | $ | 11,562 | | | $ | 9,499 | | | $ | 2,063 | | | 22 | % |
|
| | | | | | | | | | | | | | | |
| | Nine months ended September 30, | | | | |
| | 2017 | | 2016 | | $ change | | % change |
Net sales | | $ | 138,314 |
| | $ | 118,402 |
| | $ | 19,912 |
| | 17 | % |
Gross profit | | 41,547 |
| | 28,750 |
| | 12,797 |
| | 45 | % |
Gross profit percentage | | 30.0 | % | | 24.3 | % | | | | |
COSTS AND EXPENSES: | | | | | | | | |
General and administrative expenses | | 19,821 |
| | 15,522 |
| | 4,299 |
| | 28 | % |
% of net sales | | 14.3 | % | | 13.1 | % | | | | |
Selling and distribution expenses | | 13,420 |
| | 12,352 |
| | 1,068 |
| | 9 | % |
% of net sales | | 9.7 | % | | 10.4 | % | | | | |
Amortization of purchased intangible assets | | 3,034 |
| | 3,023 |
| | 11 |
| | — | % |
% of net sales | | 2.2 | % | | 2.6 | % | | | | |
Restructuring expenses | | 458 |
| | 1,202 |
| | (744 | ) | | (62 | )% |
Goodwill impairment charge | | 17,584 |
| | — |
| | 17,584 |
| | — | % |
Operating loss | | (12,770 | ) | | (3,349 | ) | | (9,421 | ) | | (281 | )% |
Other income (expense), net | | (965 | ) | | 178 |
| | (1,143 | ) | | (642 | )% |
Interest income (expense), net | | (1,201 | ) | | (824 | ) | | (377 | ) | | (46 | )% |
Loss before income taxes | | (14,936 | ) | | (3,995 | ) | | (10,941 | ) | | (274 | )% |
Income tax provision | | 1,956 |
| | 321 |
| | 1,635 |
| | 509 | % |
Net loss | | (16,892 | ) | | (4,316 | ) | | (12,576 | ) | | (291 | )% |
Adjusted EBITDA | | $ | 15,461 |
| | $ | 7,499 |
| | $ | 7,962 |
| | 106 | % |
Net salesincreased $4,330 compared with 2016the first six months of 2020 primarily due to a 68% increasethe recovery in DynaEnergetics' net sales dueoil and gas demand, which led to increased onshore unconventional drilling and well completion activity in North America and strongincreased sales of DynaEnergetics’ DS perforating systems. The first six months of 2020 was severely impacted by the drop in demand for DynaEnergetics' intrinsically-safe, addressable initiating systems. This increaseoil and gas and related drilling and well completion activity due to the COVID-19 pandemic.
Gross profit percentage decreased to 24.7% compared with the first six months of 2020 primarily due to lower average selling prices at DynaEnergetics. The decline was partially was offset by a 21% declineexcess capacity charges and inventory reserves that were recorded at DynaEnergetics in NobelClad's net sales from a recent decline in core repair and maintenance orders from the downstream energy industry and absence of large-project bookings in 2017. In the second quarter of 2016 NobelClad shipped a large semiconductor-related project.
Gross profit percentage increased from higher average selling prices and improved product mix in DynaEnergetics, combined with better2020, as well as favorable project mix in NobelClad.NobelClad, and a $2,334 CARES Act benefit in the first six months of 2021.
General and administrative expenses increased $1,569 compared with 2016the first six months of 2020 primarily due to higher outside legal expenses related to patent infringement defense costs as well as higher salaries and wages.
Selling and distribution expenses increased compared with 2016 principally due to an increase in salaries and benefits and higher outside services expenses.costs by $1,469 mostly related to patent infringement litigation in which DynaEnergetics is the plaintiff and the restoration of variable compensation by $724. The increases were partially offset by a $679 CARES Act benefit.
Selling and distribution expenses decreased $3,228 compared with the first six months of 2020 primarily due to reductions in provisions for expected credit losses by $3,168 and an $816 CARES Act benefit. The decreases were partially offset by the restoration of variable compensation by $323.
Restructuring expenses for 2017 and asset impairments of $127 in the first six months of 2021 primarily related to the announced closure of DynaEnergeticsadditional severance accruals for employee terminations associated with closing manufacturing operations in Kazakhstan. In 2016, restructuring expenses France in 2018. Expenses in 2020 primarily related to severancedownsizing our direct labor workforce at DynaEnergetics in response to declining crude oil prices and corresponding demand for headcount reductions at DynaEnergetics locations in Troisdorf, Germany and Austin, Texas, lease termination costs to exit administrative offices in Austin, Texas, costs related to relocation ofwell perforating gun manufacturing in Germany, and the accelerated vesting of stock awards in connection with the elimination of certain positions.
Goodwill impairment charge relates to fully impairing NobelClad's goodwill balance.
Operating loss increased compared with 2016systems due to the goodwill impairment charge. However, the charge was offset by higher sales volumeCOVID-19 pandemic.
Operating income of $1,958 in 2021 reflect improved earnings at DynaEnergetics and favorable product mixNobelClad during 2021, including a total CARES Act benefit of $3,829 in DynaEnergetics.2021.
Other income, (expense), netof$502 in 2017the first six months of 2021 primarily was made uprelated to a gain on the sale of realizeda fully depreciated fixed asset by DynaEnergetics combined with net unrealized and unrealizedrealized foreign currency losses. In 2016, other income (expense), net principally consisted of realizedexchange gains. Currency gains and unrealized foreign currency gains. Ourlosses can arise when subsidiaries frequently enter into inter-company and third partythird-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 gains or losses at settlement of the transaction. During the third quarter of 2017, we began usingcurrency, including foreign currency forward contracts generally with maturities of one month,used to offset foreign exchange rate fluctuations on certain foreign currency denominated asset and liability positions. None of these contracts are designated as accounting hedges, and all changes in the fair value of the forward contracts are recognized immediately in "Other income (expense), net" within our Condensed Consolidated Statements of Operations.
Interest income (expense),expense, net increasedof$216decreased compared with 2016the first six months of 2020 primarily due to expensing $261the repayment in full of deferredour outstanding debt issuance costs in conjunction with amending our credit facility in March 2017 combined with higher interest rates on a higher average outstanding linethe first quarter of credit balance.2021.
Income tax provision of $1,956$88 was recorded on income before income taxes of $2,244. Our most significant operations are in the United States, which has a 21% statutory income tax rate, and Germany, which has a 33% statutory income tax rate. The mix of income or loss before income taxes between these jurisdictions is one of the main drivers of the difference between our 21% statutory tax rate and our effective tax rate. The effective income tax rate was impacted favorably by discrete stock-based compensation windfall benefits of $793. The rate was also impacted unfavorably by geographic mix of pretax income, state taxes, and certain compensation expenses that are not tax deductible in the U.S. We recorded an income tax benefit of $514 on loss before income taxes of $2,007 for the ninefirst six months of 2020. The effective income tax rate was impacted unfavorably by the geographic mix of pretax income, state taxes, and certain compensation expenses that are not tax deductible in the U.S. The effective rate was also impacted favorably by discrete items of $315.
Net income for the six months ended SeptemberJune 30, 2017 compared with $321 for the same period of 2016. 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 for the nine months ended September 30, 20172021 was $16,892,$2,156, or $1.18$0.13 per diluted share, compared to $4,316,net loss of $1,493, or $0.31$0.10 per diluted share, for the same period in 2016.2020.
Adjusted EBITDA increased compared with 2016the first six months of 2020 primarily due to the factors discussed above. See "Overview"“Overview” above for the explanation of the use of Adjusted EBITDA. The following is a reconciliation of the most directly comparable GAAP measure to Adjusted EBITDA. | | | | | | | | | | | |
| Six months ended June 30, |
| 2021 | | 2020 |
Net income (loss) | $ | 2,156 | | | $ | (1,493) | |
Interest expense, net | 216 | | | 394 | |
Income tax provision (benefit)) | 88 | | | (514) | |
Depreciation | 5,530 | | | 4,716 | |
Amortization of purchased intangible assets | 612 | | | 707 | |
EBITDA | 8,602 | | | 3,810 | |
| | | |
Restructuring expenses and asset impairments | 127 | | | 3,162 | |
| | | |
| | | |
| | | |
Stock-based compensation | 3,335 | | | 2,559 | |
Other income, net | (502) | | | (32) | |
Adjusted EBITDA | $ | 11,562 | | | $ | 9,499 | |
Adjusted Net Income and Adjusted Diluted Earnings per Share increased compared with the first six months of 2020 due to the factors discussed above. See "Overview" above for the explanation of the use of non-GAAP measures. The following is a reconciliation of the most directly comparable GAAP measures to Adjusted Net Income and Adjusted Diluted Earnings Per Share.
|
| | | | | | | | |
| | Nine months ended September 30, |
| | 2017 | | 2016 |
Net loss | | $ | (16,892 | ) | | $ | (4,316 | ) |
Interest expense | | 1,203 |
| | 826 |
|
Interest income | | (2 | ) | | (2 | ) |
Provision for income taxes | | 1,956 |
| | 321 |
|
Depreciation | | 5,030 |
| | 5,024 |
|
Amortization of purchased intangible assets | | 3,034 |
| | 3,023 |
|
EBITDA | | (5,671 | ) | | 4,876 |
|
Restructuring expenses | | 458 |
| | 1,202 |
|
Goodwill impairment charge | | 17,584 |
| | — |
|
Stock-based compensation | | 2,125 |
| | 1,599 |
|
Other (income) expense, net | | 965 |
| | (178 | ) |
Adjusted EBITDA | | $ | 15,461 |
| | $ | 7,499 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended June 30, 2021 |
| Pre-Tax | | Tax Provision | | Net | | Diluted weighted average shares outstanding | | Diluted EPS |
Net income, as reported | $ | 2,244 | | | $ | 88 | | | $ | 2,156 | | | 16,507,500 | | | $ | 0.13 | |
Restructuring expenses and asset impairments: | | | | | | | | | |
| | | | | | | | | |
NobelClad | 127 | | | — | | | 127 | | | 16,507,500 | | | 0.01 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Adjusted net income | 2,371 | | | 88 | | | 2,283 | | | 16,507,500 | | | 0.14 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended June 30, 2020 |
| Pre-Tax | | Tax (Benefit) Provision | | Net | | Diluted weighted average shares outstanding | | Diluted EPS |
Net loss, as reported | $ | (2,007) | | | $ | (514) | | | $ | (1,493) | | | 14,745,661 | | | $ | (0.10) | |
Restructuring expenses and asset impairments: | | | | | | | | | |
DynaEnergetics | 2,789 | | | 882 | | | 1,907 | | | 14,745,661 | | | 0.13 | |
NobelClad | 254 | | | 78 | | | 176 | | | 14,745,661 | | | 0.01 | |
Corporate | 119 | | | 25 | | | 94 | | | 14,745,661 | | | 0.01 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Adjusted net income | $ | 1,155 | | | $ | 471 | | | $ | 684 | | | 14,745,661 | | | $ | 0.05 | |
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, and net interest expense, and income tax provision.expense.
NobelClad
Three months ended SeptemberJune 30, 20172021 compared with three months ended SeptemberJune 30, 20162020 | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | | | |
| 2021 | | 2020 | | $ change | | % change |
Net sales | $ | 42,268 | | | $ | 23,643 | | | $ | 18,625 | | | 79 | % |
Gross profit | 10,676 | | | 1,967 | | | 8,709 | | | 443 | % |
Gross profit percentage | 25.3 | % | | 8.3 | % | | | | |
COSTS AND EXPENSES: | | | | | | | |
General and administrative expenses | 4,012 | | | 3,157 | | | 855 | | | 27 | % |
Selling and distribution expenses | 3,300 | | | 3,595 | | | (295) | | | (8) | % |
Amortization of purchased intangible assets | 163 | | | 259 | | | (96) | | | (37) | % |
Restructuring expenses and asset impairments | — | | | 1,851 | | | (1,851) | | | (100) | % |
| | | | | | | |
Operating income (loss) | 3,201 | | | (6,895) | | | 10,096 | | | 146 | % |
Adjusted EBITDA | $ | 5,284 | | | $ | (3,272) | | | $ | 8,556 | | | 261 | % |
|
| | | | | | | | | | | | | | | |
| | Three months ended September 30, | | | | |
| | 2017 | | 2016 | | $ change | | % change |
Net sales | | $ | 16,841 |
| | $ | 16,915 |
| | $ | (74 | ) | | — | % |
Gross profit | | 3,560 |
| | 3,112 |
| | 448 |
| | 14 | % |
Gross profit percentage | | 21.1 | % | | 18.4 | % | | | | |
COSTS AND EXPENSES: | | | | | | | | |
General and administrative expenses | | 1,210 |
| | 907 |
| | 303 |
| | 33 | % |
Selling and distribution expenses | | 1,696 |
| | 1,409 |
| | 287 |
| | 20 | % |
Amortization of purchased intangible assets | | 100 |
| | 95 |
| | 5 |
| | 5 | % |
Goodwill impairment charge | | 17,584 |
| | — |
| | 17,584 |
| | — | % |
Operating income (loss) | | (17,030 | ) | | 701 |
| | (17,731 | ) | | (2,529 | )% |
Adjusted EBITDA | | $ | 1,486 |
| | $ | 1,707 |
| | $ | (221 | ) | | (13 | )% |
Net sales were flat compared with 2016.$18,625 higher than the second quarter of 2020 due to a recovery in oil and gas demand, which led to increased drilling and well completion activity in North America and increased sales of DynaEnergetics’ DS perforating systems. The second quarter of 2020 was severely impacted by the drop in demand for oil and gas and drilling and completion
activity due to the COVID-19 pandemic. The year-over-year increase in net sales was partially offset by lower international sales.
Gross profit percentageincreased to 25.3%compared with 2016the second quarter of 2020 primarily due to better marginsthe impact of higher sales volume on the mix of projectsfixed expenses, higher average selling prices, excess capacity charges and inventory reserves that were recorded in the current year.second quarter of 2020, and a CARES Act benefit of $1,009 in the second quarter of 2021.
General and administrative expenses increased $855 compared with 2016the second quarter of 2020 primarily due to higher salaries and employee benefits.an increase in outside services costs by $1,382 mostly related to patent infringement litigation in which DynaEnergetics is the plaintiff. The increase was partially offset by a CARES Act benefit of $112.
Selling and distribution expenses decreased $295 compared with the second quarter of 2020 primarily due to reductions in provisions for expected credit losses by $907 and a CARES Act benefit of $267. These decreases were partially offset by increases in depreciation expense by $336, restoration of variable compensation by $186, outside service costs by $137, and resumption of business-related travel by $104.
Restructuring expenses and asset impairments in 2020 primarily related to asset impairment charges on manufacturing equipment that was retired and charges associated with the sale of the Tyumen, Siberia manufacturing facility.
Operating income increased $10,096compared withthe second quarter of 2020 primarily due the impact of higher sales volume on fixed expenses, higher average selling prices, and a CARES Act benefit of $1,388.
Adjusted EBITDAincreased compared with 2016 primarily from higher salaries and benefits due to increased investment in business growth resources.
Goodwill impairment charge relates to fully impairing NobelClad's goodwill balance.
Operating loss was $17,030primarily due to the goodwill impairment charge.
Adjusted EBITDA declined compared with 2016 primarilysecond quarter of 2020 due to the factors discussed above. See "Overview"“Overview” above for the explanation of the use of Adjusted EBITDA. The following is a reconciliation of the most directly comparable GAAP measure to Adjusted EBITDA. | | | | | | | | | | | |
| Three months ended June 30, |
| 2021 | | 2020 |
Operating income (loss) | $ | 3,201 | | | $ | (6,895) | |
Adjustments: | | | |
Restructuring expenses and asset impairments | — | | | 1,851 | |
| | | |
| | | |
Adjusted operating income (loss) | 3,201 | | | (5,044) | |
Depreciation | 1,920 | | | 1,513 | |
Amortization of purchased intangibles | 163 | | | 259 | |
Adjusted EBITDA | $ | 5,284 | | | $ | (3,272) | |
Six months ended June 30, 2021 compared with six months ended June 30, 2020
| | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended June 30, | | | | |
| 2021 | | 2020 | | $ change | | % change |
Net sales | $ | 80,440 | | | $ | 76,863 | | | $ | 3,577 | | | 5 | % |
Gross profit | 19,111 | | | 21,442 | | | (2,331) | | | (11) | % |
Gross profit percentage | 23.8 | % | | 27.9 | % | | | | |
COSTS AND EXPENSES: | | | | | | | |
General and administrative expenses | 7,587 | | | 6,988 | | | 599 | | | 9 | % |
Selling and distribution expenses | 6,442 | | | 9,435 | | | (2,993) | | | (32) | % |
Amortization of purchased intangible assets | 362 | | | 519 | | | (157) | | | (30) | % |
Restructuring expenses and asset impairments | — | | | 2,789 | | | (2,789) | | | (100) | % |
| | | | | | | |
Operating income | 4,720 | | | 1,711 | | | 3,009 | | | 176 | % |
Adjusted EBITDA | $ | 8,803 | | | $ | 8,044 | | | $ | 759 | | | 9 | % |
Net sales were $3,577 higher than in the first six months of 2020 due to a recovery in oil and gas demand, which led to increased drilling and well completion activity in North America and increased sales of DynaEnergetics’ DS perforating systems. The year-over-year increase in net sales was partially offset by lower international sales. The first six months of 2020
|
| | | | | | | | |
| | Three months ended September 30, |
| | 2017 | | 2016 |
Operating income (loss) | | $ | (17,030 | ) | | $ | 701 |
|
Adjustments: | | | | |
Goodwill impairment charge | | 17,584 |
| | — |
|
Depreciation | | 832 |
| | 911 |
|
Amortization of purchased intangibles | | 100 |
| | 95 |
|
Adjusted EBITDA | | $ | 1,486 |
| | $ | 1,707 |
|
Nine months ended September 30, 2017 compared with nine months ended September 30, 2016
|
| | | | | | | | | | | | | | | |
| | Nine months ended September 30, | | | | |
| | 2017 | | 2016 | | $ change | | % change |
Net sales | | $ | 54,145 |
| | $ | 68,374 |
| | $ | (14,229 | ) | | (21 | )% |
Gross profit | | 11,885 |
| | 13,728 |
| | (1,843 | ) | | (13 | )% |
Gross profit percentage | | 22.0 | % | | 20.1 | % | | | | |
COSTS AND EXPENSES: | | | | | | | | |
General and administrative expenses | | 3,206 |
| | 2,754 |
| | 452 |
| | 16 | % |
Selling and distribution expenses | | 5,123 |
| | 4,348 |
| | 775 |
| | 18 | % |
Amortization of purchased intangible assets | | 285 |
| | 286 |
| | (1 | ) | | — | % |
Goodwill impairment charge | | 17,584 |
| | — |
| | 17,584 |
| | — | % |
Operating income (loss) | | (14,313 | ) | | 6,340 |
| | (20,653 | ) | | (326 | )% |
Adjusted EBITDA | | $ | 6,198 |
| | $ | 9,340 |
| | $ | (3,142 | ) | | (34 | )% |
Net sales decreased compared with 2016was severely impacted by the drop in demand for oil and gas and drilling and completion activity due to a recent decline in core repair and maintenance orders from the downstream energy industry and absence of large-project bookings in 2017. Additionally, during the second quarter of 2016, NobelClad shipped a large semiconductor-related project.COVID-19 pandemic.
Gross profit percentage increased decreased to 23.8%compared with 20162020 primarily due to better margins on the mixlower average selling prices in 2021 compared with 2020, which also contributed to lower fixed cost absorption. The decline was partially offset by a CARES Act benefit of projects in the current year.$1,446.
General and administrative expenses increased $599 compared with 20162020 primarily due to higher salaries and employee benefits.an increase in outside services costs by $1,555 mostly related to patent infringement litigation in which DynaEnergetics is the plaintiff. The increase was partially offset by a CARES Act benefit of $233.
Selling and distribution expenses decreased $2,993 compared with 2020 primarily due to reductions in provisions for expected credit losses by $2,856 and a CARES Act benefit of $521. These decreases were partially offset by increases in depreciation expense by $546 and restoration of variable compensation by $291.
Restructuring expenses and asset impairments in 2020 primarily related to measures taken in response to the COVID-19 pandemic-related impact on oil and gas demand. We downsized our direct labor workforce in response to declining crude oil prices and corresponding demand for well perforating systems and recorded asset impairments. We also incurred costs associated with the anticipated sale of the Tyumen, Siberia manufacturing facility.
Operating income increased $3,009compared with 2020 as increased sales volume, a CARES Act benefit of $2,200, and a reduction in the provisions for expected credit losses more than offset lower average selling prices.
Adjusted EBITDAincreased compared with 2016 primarily from higher salaries and benefits due to increased investment in business growth resources and higher outside services expenses.
Goodwill impairment charge relates to fully impairing NobelClad's goodwill balance.
Operating loss was$14,313primarily due to the goodwill impairment charge combined with lower project volume and higher general and administrative as well as selling and distribution expenses.
Adjusted EBITDA declined compared with 2016 primarily2020 due to the factors discussed above. See "Overview"“Overview” above for the explanation of the use of Adjusted EBITDA. The following is a reconciliation of the most directly comparable GAAP measure to Adjusted EBITDA. | | | | | | | | | | | |
| Six months ended June 30, |
| 2021 | | 2020 |
Operating income | $ | 4,720 | | | $ | 1,711 | |
Adjustments: | | | |
Restructuring expenses and asset impairments | — | | | 2,789 | |
| | | |
| | | |
Adjusted operating income | 4,720 | | | 4,500 | |
Depreciation | 3,721 | | | 3,025 | |
Amortization of purchased intangibles | 362 | | | 519 | |
Adjusted EBITDA | $ | 8,803 | | | $ | 8,044 | |
|
| | | | | | | | |
| | Nine months ended September 30, |
| | 2017 | | 2016 |
Operating income (loss) | | $ | (14,313 | ) | | $ | 6,340 |
|
Adjustments: | | | | |
Goodwill impairment charge | | 17,584 |
| | — |
|
Depreciation | | 2,642 |
| | 2,714 |
|
Amortization of purchased intangibles | | 285 |
| | 286 |
|
Adjusted EBITDA | | $ | 6,198 |
| | $ | 9,340 |
|
NobelClad
DynaEnergetics
Three months ended SeptemberJune 30, 20172021 compared with three months ended SeptemberJune 30, 20162020 | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | | | |
| 2021 | | 2020 | | $ change | | % change |
Net sales | $ | 23,170 | | | $ | 19,560 | | | $ | 3,610 | | | 18 | % |
Gross profit | 6,460 | | | 4,802 | | | 1,658 | | | 35 | % |
Gross profit percentage | 27.9 | % | | 24.6 | % | | | | |
COSTS AND EXPENSES: | | | | | | | |
General and administrative expenses | 889 | | | 797 | | | 92 | | | 12 | % |
Selling and distribution expenses | 2,075 | | | 1,731 | | | 344 | | | 20 | % |
Amortization of purchased intangible assets | 125 | | | 94 | | | 31 | | | 33 | % |
Restructuring expenses and asset impairments | — | | | 195 | | | (195) | | | (100) | % |
| | | | | | | |
Operating income | 3,371 | | | 1,985 | | | 1,386 | | | 70 | % |
Adjusted EBITDA | $ | 4,316 | | | $ | 3,061 | | | $ | 1,255 | | | 41 | % |
|
| | | | | | | | | | | | | | | |
| | Three months ended September 30, | | | | |
| | 2017 | | 2016 | | $ change | | % change |
Net sales | | $ | 35,320 |
| | $ | 19,638 |
| | $ | 15,682 |
| | 80 | % |
Gross profit | | 13,668 |
| | 5,399 |
| | 8,269 |
| | 153 | % |
Gross profit percentage | | 38.7 | % | | 27.5 | % | | | | |
COSTS AND EXPENSES: | | | | | | | | |
General and administrative expenses | | 3,186 |
| | 2,739 |
| | 447 |
| | 16 | % |
Selling and distribution expenses | | 2,669 |
| | 2,350 |
| | 319 |
| | 14 | % |
Amortization of purchased intangible assets | | 946 |
| | 914 |
| | 32 |
| | 4 | % |
Restructuring expenses | | — |
| | 373 |
| | (373 | ) | | (100 | )% |
Operating income (loss) | | 6,867 |
| | (977 | ) | | 7,844 |
| | 803 | % |
Adjusted EBITDA | | $ | 8,624 |
| | $ | 1,159 |
| | $ | 7,465 |
| | 644 | % |
Net sales were higher than in 2016increased $3,610 compared with the second quarter of 2020 primarily due to increased demand for its intrinsically-safe, addressable initiating systems, coupled with an active unconventional well-completion industry in North America.the timing of shipment of projects out of backlog.
Gross profit percentage of 27.9% increased compared with 2016the second quarter of 2020 primarily due to a favorable project mix, higher average selling prices, improved product mix and the favorable impact of highersales volume on fixed overhead expenses.expenses and a CARES Act benefit of $479.
General and administrative expenses increased $92 compared with 2016the second quarter of 2020 primarily due to higher outside legal expenses related to patent infringement defense costs as well as increases in salaries and employee benefits.restoration of variable compensation by $41.
Selling and distribution expenses increased $344 compared with 2016the second quarter of 2020 primarily due to higher salariesa bad debt expense recovery of $178 in the second quarter of 2020 and employee benefits.a restoration of variable compensation by $103.
Restructuring expenses and asset impairments of $195 in 2016 included severance adjustments2020 related to headcount reductions announcedseverance costs associated with the past closure of a manufacturing facility in prior quarters, lease termination costs to exit administrative offices in Austin, Texas, and relocation of perforating gun manufacturing in Germany.France.
Operating income was$6,867increased $1,386 compared with the second quarter of 2020 primarily due to a favorable project mix, the impact of higher unitsales volume favorable product mixon fixed expenses, and higher average selling prices,a CARES Act benefit. The increase was partially offset by increasedhigher general and administrative expenses and selling and distribution expenses.
Adjusted EBITDA increased compared with 2016the second quarter of 2020 primarily due to the factors discussed above. See "Overview"“Overview” above for the explanation of the use of Adjusted EBITDA. The following is a reconciliation of the most directly comparable GAAP measure to Adjusted EBITDA. | | | | | | | | | | | |
| Three months ended June 30, |
| 2021 | | 2020 |
Operating income | $ | 3,371 | | | $ | 1,985 | |
Adjustments: | | | |
Restructuring expenses and asset impairments | — | | | 195 | |
| | | |
Adjusted operating income | 3,371 | | | 2,180 | |
Depreciation | 820 | | | 787 | |
Amortization of purchased intangibles | 125 | | | 94 | |
Adjusted EBITDA | $ | 4,316 | | | $ | 3,061 | |
|
| | | | | | | | |
| | Three months ended September 30, |
| | 2017 | | 2016 |
Operating income (loss) | | $ | 6,867 |
| | $ | (977 | ) |
Adjustments: | | | | |
Restructuring expenses | | — |
| | 373 |
|
Depreciation | | 811 |
| | 849 |
|
Amortization of purchased intangibles | | 946 |
| | 914 |
|
Adjusted EBITDA | | $ | 8,624 |
| | $ | 1,159 |
|
NineSix months ended SeptemberJune 30, 20172021 compared with ninesix months ended SeptemberJune 30, 20162020
| | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended June 30, | | | | |
| 2021 | | 2020 | | $ change | | % change |
Net sales | $ | 40,656 | | | $ | 39,903 | | | $ | 753 | | | 2 | % |
Gross profit | 11,077 | | | 9,954 | | | 1,123 | | | 11 | % |
Gross profit percentage | 27.2 | % | | 24.9 | % | | | | |
COSTS AND EXPENSES: | | | | | | | |
General and administrative expenses | 1,702 | | | 1,771 | | | (69) | | | (4) | % |
Selling and distribution expenses | 4,022 | | | 4,282 | | | (260) | | | (6) | % |
Amortization of purchased intangible assets | 250 | | | 188 | | | 62 | | | 33 | % |
Restructuring expenses and asset impairments | 127 | | | 254 | | | (127) | | | (50) | % |
| | | | | | | |
Operating income | 4,976 | | | 3,459 | | | 1,517 | | | 44 | % |
Adjusted EBITDA | $ | 6,987 | | | $ | 5,428 | | | $ | 1,559 | | | 29 | % |
|
| | | | | | | | | | | | | | | |
| | Nine months ended September 30, | | | | |
| | 2017 | | 2016 | | $ change | | % change |
Net sales | | $ | 84,169 |
| | $ | 50,028 |
| | $ | 34,141 |
| | 68 | % |
Gross profit | | 29,863 |
| | 15,187 |
| | 14,676 |
| | 97 | % |
Gross profit percentage | | 35.5 | % | | 30.4 | % | | | | |
COSTS AND EXPENSES: | | | | | | | | |
General and administrative expenses | | 9,713 |
| | 6,510 |
| | 3,203 |
| | 49 | % |
Selling and distribution expenses | | 8,035 |
| | 7,771 |
| | 264 |
| | 3 | % |
Amortization of purchased intangible assets | | 2,749 |
| | 2,737 |
| | 12 |
| | — | % |
Restructuring expenses | | 458 |
| | 1,128 |
| | (670 | ) | | (59 | )% |
Operating income (loss) | | 8,908 |
| | (2,959 | ) | | 11,867 |
| | 401 | % |
Adjusted EBITDA | | $ | 14,503 |
| | $ | 3,216 |
| | $ | 11,287 |
| | 351 | % |
Net sales were $753 higher than in 2016compared with 2020 primarily due to increased onshore unconventional drilling and completion activity in North America and strong demand for DynaEnergetics' intrinsically-safe, addressable initiating systems.the timing of shipment of projects out of backlog.
Gross profit percentage of 27.9% increased compared with 2016of 2020 primarily due to higher average selling prices, improved product mix and the favorable impacta CARES Act benefit of higher volume on fixed overhead expenses.$888.
General and administrative expenses decreased $69 compared with 2020 primarily due to a CARES Act benefit of $56.
Selling and distribution expenses decreased $260 compared with of 2020 primarily due to a CARES Act benefit of $295 partially offset by a restoration of variable compensation by $32.
Restructuring expenses and asset impairments of $127 in 2021 related to additional severance liabilities for employees terminated as part of closing manufacturing operations in France in 2018. Expenses of $254 in 2020 related to severance costs.
Operating income increased $1,517 compared with 2020 primarily due to CARES Act benefits of $1,239.
Adjusted EBITDAincreased compared with 20162020 primarily due to higher outside legal expenses related to patent infringement defense costs.
Restructuring expenses in 2017 related to the announced closure of operations in Kazakhstan. In 2016, restructuring related to severance for headcount reductions in Troisdorf, Germany and Austin, Texas and the accelerated vesting of stock awards in connection with the elimination of certain positions.
Operating income was$8,908due to higher unit volume, favorable product mix and higher average selling prices, partially offset by increased general and administrative expenses.
Adjusted EBITDA increased compared with 2016 due to the factors discussed above. See "Overview"“Overview” above for the explanation of the use of Adjusted EBITDA. The following is a reconciliation of the most directly comparable GAAP measure to Adjusted EBITDA. | | | | | | | | | | | |
| Six months ended June 30, |
| 2021 | | 2020 |
Operating income | 4,976 | | | 3,459 | |
Adjustments: | | | |
Restructuring expenses and asset impairments | 127 | | | 254 | |
| | | |
Adjusted operating income | 5,103 | | | 3,713 | |
Depreciation | 1,634 | | | 1,527 | |
Amortization of purchased intangibles | 250 | | | 188 | |
Adjusted EBITDA | 6,987 | | | 5,428 | |
|
| | | | | | | | |
| | Nine months ended September 30, |
| | 2017 | | 2016 |
Operating income (loss) | | $ | 8,908 |
| | $ | (2,959 | ) |
Adjustments: | | | | |
Restructuring expenses | | 458 |
| | 1,128 |
|
Depreciation | | 2,388 |
| | 2,310 |
|
Amortization of purchased intangibles | | 2,749 |
| | 2,737 |
|
Adjusted EBITDA | | $ | 14,503 |
| | $ | 3,216 |
|
Liquidity and Capital Resources
We have historically financed our operations from a combination of internally generated cash flow, revolving credit borrowings, and various long-term debt arrangements. The COVID-19 pandemic drove a sharp decline in DynaEnergetics' core oil and gas end markets and corresponding well-completion activity and demand for its perforating systems late in the first quarter of 2020. In April 2020, DMC announced several cost-containment actions to reduce our activity-based cost structure, limit spending and protect our balance sheet. These actions included reducing our workforce by 32%, implementing reduced work weeks at DynaEnergetics, significantly cutting selling, general and administrative expenses, reducing our capital expenditures budget by 50% and suspending the quarterly dividend. While the decline in crude oil prices and oil and gas demand accelerated early in the second quarter of 2020, sales volume has improved in the four consecutive quarters through the second quarter of 2021. Though NobelClad customers in the downstream energy industry have delayed various projects, NobelClad’s order backlog increased to $45,134 at June 30, 2021 from $39,884 at December 31, 2020.
We have also taken action to allow flexibility in accessing the capital markets. On October 22, 2020, we commenced an at-the-market equity program under a shelf registration statement filed in May 2020, which allows us to sell and issue up to $75 million in shares of our common stock from time to time, and since the inception of the program during the fourth quarter of 2020 we have sold 1,006,180 shares of common stock for net proceeds of $51,002. In connection with the commencement of the at-the-market equity program, we also amended our credit facility to waive the requirement to repay outstanding amounts under the credit facility with proceeds from the program. Our ability to access remaining capital may be limited by market conditions at the time of any future potential sale. While we were able to sell shares during the fourth quarter of 2020 and first quarter of 2021, there can be no assurance that any future capital will be available on acceptable terms or at all.
Additionally, on May 3, 2021, the Company announced a registered public offering of its stock under an automatic shelf registration statement on Form S-3ASR filed on May 3, 2021. The Company entered into an underwriting agreement with KeyBanc Capital Markets Inc. (“KeyBanc”), as representative of the underwriters (collectively, the “Underwriters”), pursuant to which the Company agreed to sell 2,500,000 shares of its $0.05 par value common stock to the Underwriters. In addition, the Underwriters were granted an option, exercisable within 30 days, to purchase up to an additional 375,000 shares of common stock to cover over-allotments, if any, on the same terms and conditions. On May 7, 2021 DMC issued a total of 2,875,000 shares of its common stock, which included the exercise of the over-allotment option, at a market price of $45 for gross proceeds of $129,375. Net proceeds from the offering were $123,461, after deducting underwriter fees and other expenses of $5,914. We intend to use the net proceeds from the offering for general corporate purposes, which may include acquisitions. Pending use of the proceeds as described, we invested the proceeds of the offering in highly liquid marketable securities, including commercial paper and U.S. Treasury securities. Please see discussion of our marketable securities in Note 2 to the Condensed Consolidated Financial Statements.
These measures enabled us to improve our net cash position from $42,659 at December 31, 2020 to $181,294 at June 30, 2021, maintain our fully undrawn and available $50,000 revolving credit facility, and repay our capital expenditure term loan in full.
We believe that cash and cash equivalents and market securities on hand, cash flow from operations, and funds available under our current credit facilities and any future replacement thereof, and potential proceeds from our at-the-market offering, will be sufficient to fund the working capital, debt interest service, dividend payments,if applicable, and other capital expenditure requirements of our current business operations for the foreseeable future.
We may also execute capital markets transactions to raise additional funds if we believe market conditions are favorable. 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) sellcontinue selling products at attractiveprofitable margins; and (iv) continue to implement cost-effective internal processes, our ability to meet cash requirements through operating activities could be impacted. Also, continued heightened litigation costs could negatively impact our ability to meet future cash requirements. Furthermore, any restriction on the availability of borrowings under our credit facilities could also negatively affect our ability to meet future cash requirements. In March 2017, we filed a shelf registration statement on Form S-3 withWe will continue to monitor the Securitiescontinuing unprecedented financial and Exchange Commission, which has been declared effective, and on which we registered for sale up to $150 million of certain of our securities from time to time and on terms that we may determine in the future. Our ability to access this capital may be limited by market conditions, atincluding the timeimpacts COVID-19 will have on credit availability and capital markets. We also continue to pursue potential acquisitions; the completion of any future potential offering. There can be no assurance that any suchacquisition may significantly increase our capital will be available on acceptable terms or at all.requirements.
Debt facilities
As of December 31, 2016,June 30, 2021 we had no outstanding borrowings under our credit facility. On March 8, 2018, we entered into a five-year $75,000 credit facility which replaced in its entirety our prior syndicated credit agreement (“facility entered into on February 23, 2015. The credit facility”) that allowedfacility allows for revolving loans of $65,000up to $50,000 with a $20,000 US dollar equivalent sublimit for alternative currency loans. In addition, the agreement provides for a $25,000 Capex Facility which was used to assist in U.S. dollars and $10,000financing our DynaEnergetics manufacturing expansion project in alternative currencies as well asBlum, Texas. At the end of year one, the Capex Facility converted to a $25,000term loan which was amortizable at 12.5% of principal per year with a balloon payment for the outstanding balance upon the credit facility maturity date in 2023. In February 2021, we repaid the outstanding Capex Facility balance of $11,750.
The facility has a $100,000 accordion feature to increase the commitments in any of the loan classes subject to approval by applicable lenders. The credit facility matures on February 23, 2020.
On March 6, 2017, we entered into a third amendment of our credit facility which, among other changes, reduced the amount of borrowings available under the credit facility, increased the maximum debt-to-EBITDA leverage ratio for the first, second, and third quarters of 2017, and also waived the applicability of the minimum debt service coverage ratio for the first, second, and third quarters of 2017, and addedrevolving loan class and/or to add a minimum EBITDA covenant for those same periods and is inapplicable thereafter. The minimum EBTIDA coverage covenant requires Consolidated Pro Forma EBITDA (as defined in the agreement) of at least $6,500 for the September 30, 2017 reporting period. The maturity of the credit facility did not change with the amendment.
After the amendment, our credit facility allows for borrowings up to $35,000, consisting of revolving loans of $30,000 in U.S. dollars and $5,000 in alternate currencies as well as a $25,000 accordion feature to increase the commitments in any of theterm loan classes subject to approval by applicable lenders. We also maintain a line ofentered into the credit facility with a German bank for certain DynaEnergetics operations. This linesyndicate of three banks, with KeyBank, N.A. acting as administrative agent. The syndicated credit provides a borrowing capacityfacility is secured by the assets of €4,000. DMC including accounts receivable, inventory, and fixed assets, as well as guarantees and share pledges by DMC and its subsidiaries.
Borrowings under the $50,000 revolving loan can be in the form of one-, two-, three-, or six-month LIBOR loans. Additionally, US dollar borrowings on the revolving loan can be in the form of Base Rate loans (Base Rate borrowings are based on the greater of the administrative agent’s Prime rates, an adjusted Federal Funds rate or an adjusted LIBOR rate). LIBOR loans bear interest at the applicable LIBOR rate plus an applicable margin (varying from 1.50% to 3.00%). Base Rate loans bear interest at the defined Base rate plus an applicable margin (varying from 0.50% to 2.00%).
Borrowings under the $20,000 Alternate Currency sublimit can be in euros, Canadian dollars, pounds sterling, and in any other currency acceptable to the administrative agent. Alternative currency borrowings denominated in euros, pounds sterling, and any other currency that is dealt with on the London Interbank Deposit Market shall be comprised of LIBOR loans and bear interest at the LIBOR rate plus an applicable margin (varying from 1.50% to 3.00%).
On June 25, 2020, we entered into an amendment ("Amendment") to the credit facility. The Amendment set the minimum LIBOR at 0.75%. The other provisions of the Amendment, including waiver of the debt service coverage ratio, were applicable through the quarter ended March 31, 2021 and were no longer applicable beginning with the quarter ended June 30, 2021.
As of SeptemberJune 30, 2017, U.S. dollar revolving loans of $22,250 were outstanding under2021 our credit facility. While we had approximately $12,750 of available revolving credit loanborrowing capacity as of September 30, 2017 under our various credit facilities, futurewas $50,000. Future borrowings are subject to compliance with financial covenants that could significantly limit such availability.
There are currentlyAs of June 30, 2021, there were two significant financial covenants under our credit facility, a debt-to-EBITDA leverage ratio ("(“leverage ratio"ratio”) and a minimum EBITDA covenantliquidity ratio. The leverage ratio is defined in the credit facility as amended, for any trailing four quarter period as the ratio of Consolidated Funded Indebtedness (as defined in the agreement) on the last day of such period to Consolidated Pro Forma EBITDA for such period. For the SeptemberJune 30, 20172021 reporting period, the maximum leverage ratio permitted by our 2015 syndicated credit facility as amended, was 3.503.00 to 1.0. The actual leverage ratio as of SeptemberJune 30, 2017,2021, calculated in accordance with the credit facility, as amended, was 1.400.0 to 1.0.
The minimum EBTIDAdebt service coverage covenant requiresratio, as defined in the credit facility, means, for any period, the ratio of Consolidated Pro Forma EBITDA less the sum of at least $6,500cash dividends, cash income taxes and Consolidated Unfunded Capital Expenditures (as defined in the agreement) to Debt Service Charges (as defined in the agreement). The minimum debt service coverage ratio permitted by our credit facility for the SeptemberJune 30, 20172020 reporting period.period is 1.35 to 1.0. The actual Consolidated Pro Forma EBITDAdebt service coverage ratio for the Septembertrailing twelve months ended June 30, 2017 period, calculated in accordance with the2020 was 4.8 to 1.0.
Our credit facility, as amended, was $16,982.
Our credit facility also includes various other 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, and mortgaging and pledging or disposition of major assets. As of SeptemberJune 30, 2017,2021, we were in compliance with all financial covenants and other provisions of our debt agreements.
We also maintain a line of credit with a German bank for certain European operations. This line of credit provides a borrowing capacity of €7,000.
Other contractual obligations and commitments
Our long-term debt balance increaseddecreased to $22,250$0 at SeptemberJune 30, 20172021 from $16,250$8,139 at December 31, 2016.2020. Our other contractual obligations and commitments have not materially changed since December 31, 2016.2020.
Cash flows from(used in) provided by operating activities
Net cash used in operating activities was $6,021 for the six months ended June 30,
Net 2021 compared with net cash provided by operating activities was $518 forof $11,128 in the nine months ended September 30, 2017 and the declinesame period last year. The decrease primarily was primarily due to increasedan increase in cash used for working capital, which included higher accounts receivable, higher inventory build in anticipation of increased sales activity in the second half of 2021 and tendering $3,049higher prepaid expenses and other assets related to payments to fund our Non-Qualified Deferred Compensation Plan and other prepaid service contracts. The increases in AD/CVD amounts to U.S. Customs in March 2017 pending ultimate resolution of the AD/CVD case.
Net cash provided by operating activities was $17,839 for the nine months ended September 30, 2016. Net working capital improved $11,712 in the nine months ended September 30, 2016 as reducedwere partially offset by higher accounts receivablepayable and inventory outweighed increases in accounts payableaccrued expenses resulting from increased purchasing activity.
Cash flows fromused in investing activities
Net cash flows used in investing activities for the ninesix months ended SeptemberJune 30, 2017 were $3,2972021 of $121,433 primarily related to investment in marketable securities of $123,984, made with the proceeds from our May 2021 equity offering, and were primarily due to acquisitions of property, plant and equipment.equipment partially offset by proceeds from maturities of marketable securities of $4,799 from U.S. treasuries that were converted to cash upon maturity. Net cash flows used in investing activities for the ninesix months ended SeptemberJune 30, 2016 totaled $4,0082020 were $7,462 and were primarily duerelated to the acquisitions of property, plant and equipment.equipment at DynaEnergetics.
Cash flows fromprovided by (used in) financing activities
Net cash flows provided by financing activities for the ninesix months ended SeptemberJune 30, 2017 totaled $4,805, which primarily2021 of $134,775 included net borrowings on bank linesproceeds from our equity offering of credit$123,461 and our ATM equity program of $6,000, payment$25,262 partially offset by repayment in full of quarterly dividendsthe Capex Facility of $880$11,750 and treasury stock purchases of $336.
$2,451. Net cash flows used in financing activities for the ninesix months ended SeptemberJune 30, 2016 totaled $12,945, which primarily included net2020 of $6,200 was due to dividend payments, treasury stock purchases, and repayments on bank lines of credit of $12,250 and payment of quarterly dividends of $861. the Capex Facility.
Payment of Dividends
On August 30, 2017, our Board of Directors declaredWe paid a quarterly cash dividend of $0.02 per share which was paid on October 16, 2017. The dividend of $295 was payable to shareholders of record as of September 30, 2017. We also paid quarterly cash dividends of $0.02$0.125 per share in the first and second quarter of 2017 and $0.02 per share in2020. In April 2020, we suspended the first three quarters of 2016.
We may continuequarterly dividend indefinitely due 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 inuncertaineconomic outlook caused by the best interests of our stockholders, but we cannot assure you that such payments will continue.COVID-19 pandemic. Future dividends may be affected by, among other items, our views on potential future capital requirements, future business prospects, debt covenant compliance considerations, changes in federal income tax laws, orand any other factors that our Board of Directors deems relevant. Any decisiondetermination to pay cash dividends is and will continue to be at the discretion of ourthe 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, 2016.2020.
ITEM 3. Quantitative and Qualitative Disclosure about Market Risk
Foreign Currency Exchange Rates
Our NobelClad and DynaEnergetics subsidiaries operate globally through an international network of manufacturing, distribution and sales facilities and frequently enter into inter-company and third party transactions that are denominatedThere were no material changes in currencies other than their functional currency. We use foreign currency forward contracts to offset foreign exchange rate fluctuation on foreign currency denominated asset and liability positions. Foreign currency forward contracts are sensitive tomarket risk for changes in foreign currency exchange rates. Consistent withrates and interest rates from the use of these contracts to neutralize the effect of exchange rate fluctuations, such unrealized losses or gains would be offset by corresponding gains or losses, respectively,information provided in Item 7A – Quantitative and Qualitative Disclosures About Market Risk in the remeasurement ofcompany's Annual Report on Form 10-K for the asset and liability positions being hedged. As such, these forward currency contracts and the offsetting underlying asset and liability positions do not create material market risk.year ended December 31, 2020.
ITEM 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer have evaluated the Company’s disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this report, and they have concluded that these controls and procedures are effective.
Changes in Internal Control over Financial Reporting
There were no changes that occurred during the fiscal quarter covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
Information regarding legal proceedings is contained inPlease see Note 1012 to the Condensed Consolidated Financial Statements contained in this Report and is incorporated herein by reference.Statements.
Item 1A. Risk Factors
There have been no significant changes in the risk factors identified as being attendant to our business in our Annual Report on Form 10-K for the year ended December 31, 2016.2020.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
In connection with the vesting of Company restricted common stock under our equity incentive plans during the firstsecond quarter of 2017,2021, we retained shares of common stock in satisfaction of withholding tax obligations. These shares are held as treasury shares by the Company. | | | | | | | | | | | | | | |
| | Total number of shares purchased (1) (2) | | Average price paid per share |
April 1 to April 30, 2021 | | — | | | $ | — | |
May 1 to May 31, 2021 | | 307 | | | $ | 54.00 | |
June 1 to June 30, 2021 | | — | | | $ | — | |
Total | | 307 | | | $ | 54.00 | |
|
| | | | | | | |
| | Total number of shares purchased (1) (2) | | Average price paid per share |
July 1 to July 31, 2017 | | — |
| | $ | — |
|
August 1 to August 31, 2017 | | 1,877 |
| | $ | 13.10 |
|
September 1 to September 30, 2017 | | — |
| | $ | — |
|
Total | | 1,877 |
| | $ | 13.10 |
|
(1) AllShare purchases in 2021 included 307 shares purchased in 2017 werewithheld to offset tax withholding obligations that occuroccurred upon the vesting of restricted common stock under the terms of the 2006 Stock2016 Equity Incentive Plan.
(2) As of SeptemberJune 30, 2017,2021, the maximum number of shares that may yet be purchased would not exceed the employees’ portion of taxes withheld on unvested shares (548,800 shares).(299,565) and potential purchases upon participant elections to diversify equity awards held in the Company’s Amended and Restated Non-Qualified Deferred Compensation Plan (185,933) into other investment options available to participants in the Plan.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Our CoolspringsCoolspring property is subject to regulation by the Federal Mine Safety and Health Administration ("MSHA"(“MSHA”) under the Federal Mine Safety and Health Act of 1977 (the "Mine Act"“Mine Act”). Pursuant to Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (The "Dodd-Frank Act"“Dodd-Frank Act”), issuers that are operators, or that have a subsidiary that is an operator, of a coal or other mine in the United States are required to disclose in their periodic reports filed with the SEC information regarding specified health and safety violations, orders and citations, related assessments and legal actions, and mining-related fatalities. During the quarter ended SeptemberJune 30, 2017,2021, we had no such specified health and safety violations, orders or citations, related assessments or legal actions, mining-related fatalities, or similar events in relation to our United States operations requiring disclosure pursuant to Section 1503(a) of the Dodd-Frank Act.
Item 5. Other Information
None.
Item 6.
Exhibits
101The following materials from the Quarterly Report on Form 10-Q of DMC Global Inc. for the quarter ended SeptemberJune 30, 2017,2021, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statement of Stockholders’ Equity, (iv) the Condensed Consolidated Statements of Cash Flows, and (v) the Notes to Condensed Consolidated Financial Statements, tagged as blocks of text.*
*Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
| | | | | | | | | | |
| | | DMC Global Inc. |
| | | (Registrant) |
| | | |
| | | |
Date: | October 26, 2017July 22, 2021 | | /s/ Michael Kuta |
| | | Michael Kuta, Chief Financial Officer (Duly Authorized Officer and Principal Financial and Accounting Officer) |