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 September 30, 20172023
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.
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Large accelerated filer☐ | | Accelerated filer ☒ |
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Non-accelerated filer ☐ | | Smaller reporting company ☐ |
| | |
Large accelerated filer o
| | Accelerated filer x
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Non-accelerated filer o
(Do not check if smaller reporting company)
| | Smaller reporting company o
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| | 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 14,769,34219,761,581 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 North American well completion activity in the fourth quarter of 2023, anticipated profit margin improvements resulting from changes in manufacturing processes and other statementsthe introduction of new products in DynaEnergetics, our expectations regarding our expected financial position and operating results,the decrease in patent litigation expenses in DynaEnergetics during the remainder of 2023, the expected impactsimproved performance in Arcadia during the remainder of 2023, the expected benefits of the completion of phase one of the new accounting standards andenterprise resource planning system at Arcadia, projected increases in demand at NobelClad, our backlog at NobelClad, our ability to access capital markets transactions in the timingfuture, the availability 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, 20162022 and such things as the following: changes in globalgeopolitical and economic conditions;instability, including recessions or depressions; inflation; supply chain delays and disruptions; the availability and cost of energy; 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, aluminum, and other raw material;materials; 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;Arcadia; 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; global economic conditions; and general economic conditions, both domesticwars, terrorism and foreign, impacting our business and the business of the end-market users we serve.armed conflicts. 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, 2023 | | December 31, 2022 |
| (unaudited) | | |
ASSETS | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 28,060 | | | $ | 25,144 | |
Marketable securities | 7,516 | | | — | |
Accounts receivable, net of allowance for doubtful accounts of $945 and $925, respectively | 105,519 | | | 94,415 | |
Inventories | 185,777 | | | 156,590 | |
Prepaid expenses and other | 9,945 | | | 10,723 | |
| | | |
| | | |
Total current assets | 336,817 | | | 286,872 | |
Property, plant and equipment | 217,791 | | | 211,277 | |
Less - accumulated depreciation | (91,696) | | | (81,832) | |
Property, plant and equipment, net | 126,095 | | | 129,445 | |
Goodwill | 141,725 | | | 141,725 | |
| | | |
Purchased intangible assets, net | 200,925 | | | 217,925 | |
Deferred tax assets | 6,843 | | | 7,633 | |
Other assets | 83,873 | | | 95,378 | |
Total assets | $ | 896,278 | | | $ | 878,978 | |
| | | |
LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST, AND STOCKHOLDERS’ EQUITY | | | |
Current liabilities: | | | |
Accounts payable | $ | 45,589 | | | $ | 46,816 | |
Accrued expenses | 12,623 | | | 8,415 | |
| | | |
| | | |
Accrued income taxes | 11,527 | | | 4,256 | |
Accrued employee compensation and benefits | 15,638 | | | 14,441 | |
Contract liabilities | 28,557 | | | 32,080 | |
Current portion of long-term debt | 15,000 | | | 15,000 | |
Other current liabilities | 8,693 | | | 7,042 | |
| | | |
Total current liabilities | 137,627 | | | 128,050 | |
Long-term debt | 104,460 | | | 117,798 | |
| | | |
Deferred tax liabilities | 3,336 | | | 1,908 | |
Other long-term liabilities | 58,167 | | | 63,053 | |
Total liabilities | 303,590 | | | 310,809 | |
Commitments and contingencies (Note 11) | | | |
Redeemable noncontrolling interest | 187,522 | | | 187,522 | |
Stockholders’ equity | | | |
Preferred stock, $0.05 par value; 4,000,000 shares authorized; no issued and outstanding shares | — | | | — | |
Common stock, $0.05 par value; 50,000,000 shares authorized; 20,457,257 and 20,140,654 shares issued, respectively | 1,022 | | | 1,007 | |
Additional paid-in capital | 312,152 | | | 303,893 | |
Retained earnings | 146,421 | | | 125,215 | |
Other cumulative comprehensive loss | (29,846) | | | (28,758) | |
Treasury stock, at cost, and company stock held for deferred compensation, at par; 693,538 and 605,723 shares, respectively | (24,583) | | | (20,710) | |
| | | |
| | | |
Total stockholders’ equity | 405,166 | | | 380,647 | |
Total liabilities, redeemable noncontrolling interest, and stockholders’ equity | $ | 896,278 | | | $ | 878,978 | |
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| | | | | | | |
| 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 |
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Accrued income taxes | 958 |
| | 548 |
|
Accrued employee compensation and benefits | 5,437 |
| | 3,307 |
|
Customer advances | 2,772 |
| | 2,619 |
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| | | |
Total current liabilities | 33,029 |
| | 30,747 |
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| | | |
LINES OF CREDIT | 21,958 |
| | 15,732 |
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| | | |
DEFERRED TAX LIABILITIES | 1,040 |
| | 1,448 |
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| | | |
OTHER LONG-TERM LIABILITIES | 2,534 |
| | 2,219 |
|
| | | |
Total liabilities | 58,561 |
| | 50,146 |
|
| | | |
COMMITMENTS AND CONTINGENT LIABILITIES |
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| |
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|
| |
| | |
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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 |
|
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, |
| 2023 | | 2022 | | 2023 | | 2022 |
Net sales | $ | 172,147 | | | $ | 174,465 | | | $ | 545,152 | | | $ | 479,012 | |
Cost of products sold | 119,550 | | | 123,127 | | | 378,454 | | | 338,669 | |
Gross profit | 52,597 | | | 51,338 | | | 166,698 | | | 140,343 | |
Costs and expenses: | | | | | | | |
General and administrative expenses | 16,259 | | | 19,796 | | | 60,285 | | | 56,330 | |
Selling and distribution expenses | 12,454 | | | 10,748 | | | 36,978 | | | 31,383 | |
Amortization of purchased intangible assets | 5,667 | | | 7,385 | | | 17,001 | | | 33,154 | |
| | | | | | | |
Restructuring expenses and asset impairments | 515 | | | 8 | | | 515 | | | 53 | |
| | | | | | | |
| | | | | | | |
Total costs and expenses | 34,895 | | | 37,937 | | | 114,779 | | | 120,920 | |
Operating income | 17,702 | | | 13,401 | | | 51,919 | | | 19,423 | |
Other income (expense): | | | | | | | |
Other income (expense), net | 302 | | | 120 | | | (337) | | | (35) | |
Interest expense, net | (2,392) | | | (1,771) | | | (7,205) | | | (4,058) | |
Income before income taxes | 15,612 | | | 11,750 | | | 44,377 | | | 15,330 | |
Income tax provision | 4,087 | | | 3,537 | | | 13,187 | | | 4,938 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Net income | $ | 11,525 | | | $ | 8,213 | | | $ | 31,190 | | | $ | 10,392 | |
Less: Net income attributable to redeemable noncontrolling interest | 2,642 | | | 1,496 | | | 7,695 | | | 1,411 | |
Net income attributable to DMC Global Inc. stockholders | $ | 8,883 | | | $ | 6,717 | | | $ | 23,495 | | | $ | 8,981 | |
| | | | | | | |
Net income per share attributable to DMC Global Inc. stockholders: | | | | |
Basic | $ | 0.38 | | | $ | 0.46 | | | $ | 1.07 | | | $ | 0.20 | |
Diluted | $ | 0.38 | | | $ | 0.46 | | | $ | 1.07 | | | $ | 0.20 | |
Weighted average shares outstanding: | | | | | | | |
Basic | 19,543,251 | | | 19,381,489 | | | 19,492,212 | | | 19,352,638 | |
Diluted | 19,596,575 | | | 19,381,794 | | | 19,540,978 | | | 19,357,333 | |
| | | | | | | |
| | | | | | | |
Reconciliation to net income attributable to DMC Global Inc. stockholders after adjustment of redeemable noncontrolling interest for purposes of calculating earnings per share
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Net income attributable to DMC Global Inc. stockholders | $ | 8,883 | | | $ | 6,717 | | | $ | 23,495 | | | $ | 8,981 | |
Adjustment of redeemable noncontrolling interest | (1,263) | | | 2,256 | | | (2,289) | | | (4,996) | |
Net income attributable to DMC Global Inc. stockholders after adjustment of redeemable noncontrolling interest | $ | 7,620 | | | $ | 8,973 | | | $ | 21,206 | | | $ | 3,985 | |
| | | | | | | |
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
|
| | | | | | | | | | | | | | | |
| 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 |
|
DMC GLOBAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in Thousands)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Net income | $ | 11,525 | | | $ | 8,213 | | | $ | 31,190 | | | $ | 10,392 | |
| | | | | | | |
Change in cumulative foreign currency translation adjustment | (2,303) | | | (3,472) | | | (1,088) | | | (7,263) | |
Other comprehensive income | $ | 9,222 | | | $ | 4,741 | | | $ | 30,102 | | | $ | 3,129 | |
| | | | | | | |
Less: comprehensive income attributable to redeemable noncontrolling interest | 2,642 | | | 1,496 | | | 7,695 | | | 1,411 | |
| | | | | | | |
Comprehensive income attributable to DMC Global Inc. stockholders | $ | 6,580 | | | $ | 3,245 | | | $ | 22,407 | | | $ | 1,718 | |
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
DMC GLOBAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSSSTOCKHOLDERS’ EQUITY AND REDEEMABLE NONCONTROLLING INTEREST
(Amounts in Thousands)Thousands, Except Share Data)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Other | | Treasury Stock, at cost, and | | Total | | Redeemable |
| | | | | Additional | | | | Cumulative | | Company Stock Held for | | DMC Global Inc. | | Non- |
| Common Stock | | Paid-In | | Retained | | Comprehensive | | Deferred Compensation, at par | | Stockholders’ | | Controlling |
| Shares | | Amount | | Capital | | Earnings | | Loss | | Shares | | Amount | | Equity | | Interest |
Balances, December 31, 2022 | 20,140,654 | | | $ | 1,007 | | | $ | 303,893 | | | $ | 125,215 | | | $ | (28,758) | | | (605,723) | | | $ | (20,710) | | | $ | 380,647 | | | $ | 187,522 | |
Net income | — | | | — | | | — | | | 909 | | | — | | | — | | | — | | | 909 | | | 1,230 | |
Change in cumulative foreign currency translation adjustment | — | | | — | | | — | | | — | | | 769 | | | — | | | — | | | 769 | | | — | |
Shares issued in connection with stock compensation plans | 258,807 | | | 13 | | | (13) | | | — | | | — | | | — | | | — | | | — | | | — | |
Stock-based compensation | — | | | — | | | 4,795 | | | — | | | — | | | — | | | — | | | 4,795 | | | 232 | |
Distribution to redeemable noncontrolling interest holder | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (2,600) | |
Adjustment of redeemable noncontrolling interest | — | | | — | | | — | | | (1,138) | | | — | | | — | | | — | | | (1,138) | | | 1,138 | |
Treasury stock activity | — | | | — | | | — | | | — | | | — | | | (77,184) | | | (3,705) | | | (3,705) | | | — | |
Balances, March 31, 2023 | 20,399,461 | | | $ | 1,020 | | | $ | 308,675 | | | $ | 124,986 | | | $ | (27,989) | | | (682,907) | | | $ | (24,415) | | | $ | 382,277 | | | $ | 187,522 | |
Net income | — | | | — | | | — | | | 13,703 | | | — | | | — | | | — | | | 13,703 | | | 3,823 | |
Change in cumulative foreign currency translation adjustment | — | | | — | | | — | | | — | | | 446 | | | — | | | — | | | 446 | | | — | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Shares issued in connection with stock compensation plans | 50,582 | | | 2 | | | 210 | | | — | | | — | | | — | | | — | | | 212 | | | — | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Stock-based compensation | — | | | — | | | 1,570 | | | — | | | — | | | — | | | — | | | 1,570 | | | 129 | |
| | | | | | | | | | | | | | | | | |
Distribution to redeemable noncontrolling interest holder | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (3,840) | |
Adjustment of redeemable noncontrolling interest | — | | | — | | | — | | | 112 | | | — | | | — | | | — | | | 112 | | | (112) | |
Treasury stock activity | — | | | — | | | — | | | — | | | — | | | (2,635) | | | (14) | | | (14) | | | — | |
| | | | | | | | | | | | | | | | | |
Balances, June 30, 2023 | 20,450,043 | | | $ | 1,022 | | | $ | 310,455 | | | $ | 138,801 | | | $ | (27,543) | | | (685,542) | | | $ | (24,429) | | | $ | 398,306 | | | $ | 187,522 | |
Net income | — | | | — | | | — | | | 8,883 | | | — | | | — | | | — | | | 8,883 | | | 2,642 | |
Change in cumulative foreign currency translation adjustment | — | | | — | | | — | | | — | | | (2,303) | | | — | | | — | | | (2,303) | | | — | |
Shares issued in connection with stock compensation plans | 7,214 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Stock-based compensation | — | | | — | | | 1,697 | | | — | | | — | | | — | | | — | | | 1,697 | | | 135 | |
Distribution to redeemable noncontrolling interest holder | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (4,040) | |
Adjustment of redeemable noncontrolling interest | — | | | — | | | — | | | (1,263) | | | — | | | — | | | — | | | (1,263) | | | 1,263 | |
Treasury stock activity | — | | | — | | | — | | | — | | | — | | | (7,996) | | | (154) | | | (154) | | | — | |
Balances, September 30, 2023 | 20,457,257 | | | $ | 1,022 | | | $ | 312,152 | | | $ | 146,421 | | | $ | (29,846) | | | (693,538) | | | $ | (24,583) | | | $ | 405,166 | | | $ | 187,522 | |
DMC GLOBAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND REDEEMABLE NONCONTROLLING INTEREST
(Amounts in Thousands, Except Share Data)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Other | | Treasury Stock, at cost, and | | Total | | Redeemable |
| | | | | Additional | | | | Cumulative | | Company Stock Held for | | DMC Global Inc. | | Non- |
| Common Stock | | Paid-In | | Retained | | Comprehensive | | Deferred Compensation, at par | | Stockholders’ | | Controlling |
| Shares | | Amount | | Capital | | Earnings | | Loss | | Shares | | Amount | | Equity | | Interest |
Balances, December 31, 2021 | 19,920,829 | | | $ | 996 | | | $ | 294,515 | | | $ | 111,031 | | | $ | (26,538) | | | (570,415) | | | $ | (19,479) | | | $ | 360,525 | | | $ | 197,196 | |
Net loss | — | | | — | | | — | | | (3,288) | | | — | | | — | | | — | | | (3,288) | | | (992) | |
Change in cumulative foreign currency translation adjustment | — | | | — | | | — | | | — | | | (1,204) | | | — | | | — | | | (1,204) | | | — | |
Shares issued in connection with stock compensation plans | 163,443 | | | 8 | | | (8) | | | — | | | — | | | — | | | — | | | — | | | — | |
Consideration adjustment related to redeemable noncontrolling interest | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (427) | |
Stock-based compensation | — | | | — | | | 2,267 | | | — | | | — | | | — | | | — | | | 2,267 | | | 102 | |
Distribution to redeemable noncontrolling interest holder | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (4,400) | |
Adjustment of redeemable noncontrolling interest | — | | | — | | | — | | | (5,717) | | | — | | | — | | | — | | | (5,717) | | | 5,717 | |
Treasury stock activity | — | | | — | | | — | | | — | | | — | | | (16,773) | | | (1,088) | | | (1,088) | | | — | |
Balances, March 31, 2022 | 20,084,272 | | | $ | 1,004 | | | $ | 296,774 | | | $ | 102,026 | | | $ | (27,742) | | | (587,188) | | | $ | (20,567) | | | $ | 351,495 | | | $ | 197,196 | |
Net income | — | | | — | | | — | | | 5,552 | | | — | | | — | | | — | | | 5,552 | | | 907 | |
Change in cumulative foreign currency translation adjustment | — | | | — | | | — | | | — | | | (2,587) | | | — | | | — | | | (2,587) | | | — | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Shares issued in connection with stock compensation plans | 35,657 | | | 2 | | | (2) | | | — | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Stock-based compensation | — | | | — | | | 2,133 | | | | | — | | | — | | | — | | | 2,133 | | | 158 | |
Distribution to redeemable noncontrolling interest holder | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (2,600) | |
Adjustment of redeemable noncontrolling interest | — | | | — | | | — | | | (1,535) | | | — | | | — | | | — | | | (1,535) | | | 1,535 | |
Treasury stock activity | — | | | — | | | — | | | — | | | — | | | (10,570) | | | (3) | | | (3) | | | — | |
Balances, June 30, 2022 | 20,119,929 | | | $ | 1,006 | | | $ | 298,905 | | | $ | 106,043 | | | $ | (30,329) | | | (597,758) | | | $ | (20,570) | | | $ | 355,055 | | | $ | 197,196 | |
Net income | — | | | — | | | — | | | 6,717 | | | — | | | — | | | — | | | 6,717 | | | 1,496 | |
Change in cumulative foreign currency translation adjustment | — | | | — | | | — | | | — | | | (3,472) | | | — | | | — | | | (3,472) | | | — | |
Shares issued in connection with stock compensation plans | 7,750 | | | 1 | | | (1) | | | — | | | — | | | — | | | — | | | — | | | — | |
Consideration adjustments related to redeemable noncontrolling interest | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 1,783 | |
Adjustment of redeemable noncontrolling interest | — | | | — | | | — | | | 2,256 | | | — | | | — | | | — | | | 2,256 | | | (2,256) | |
Stock-based compensation | — | | | — | | | 2,099 | | | — | | | — | | | — | | | — | | | 2,099 | | | 143 | |
Distribution to redeemable noncontrolling interest holder | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (3,400) | |
Treasury stock activity | — | | | — | | | — | | | — | | | — | | | (64) | | | (2) | | | (2) | | | — | |
Balances, September 30, 2022 | 20,127,679 | | | $ | 1,007 | | | $ | 301,003 | | | $ | 115,016 | | | $ | (33,801) | | | (597,822) | | | $ | (20,572) | | | $ | 362,653 | | | $ | 194,962 | |
|
| | | | | | | | | | | | | | |
| 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 | ) |
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.Statements
DMC GLOBAL INC.
CONDENSED CONSOLIDATED STATEMENT 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 |
|
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
DMC GLOBAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
(unaudited)
| | | | | | | | | | | |
| Nine months ended September 30, |
| 2023 | | 2022 |
Cash flows provided by operating activities: | | | |
Net income | $ | 31,190 | | | $ | 10,392 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
| | | |
Depreciation | 10,294 | | | 10,578 | |
Amortization of purchased intangible assets | 17,001 | | | 33,154 | |
Amortization of deferred debt issuance costs | 412 | | | 412 | |
Amortization of acquisition-related inventory valuation step-up | — | | | 430 | |
Stock-based compensation | 8,558 | | | 6,891 | |
| | | |
Deferred income taxes | 2,218 | | | (1,612) | |
Restructuring expenses and asset impairments | 515 | | | 53 | |
Other | (2,040) | | | (295) | |
| | | |
| | | |
Change in: | | | |
Accounts receivable, net | (11,416) | | | (24,421) | |
Inventories | (29,460) | | | (31,311) | |
Prepaid expenses and other | 14,185 | | | 3,736 | |
Accounts payable | (1,485) | | | 2,925 | |
Contract liabilities | (3,450) | | | 9,277 | |
| | | |
Accrued expenses and other liabilities | 6,226 | | | 4,126 | |
Net cash provided by operating activities | 42,748 | | | 24,335 | |
| | | |
Cash flows used in investing activities: | | | |
| | | |
Investment in marketable securities | (7,516) | | | — | |
| | | |
Consideration adjustments related to acquisition of business | — | | | (2,034) | |
| | | |
| | | |
Acquisition of property, plant and equipment | (7,455) | | | (11,277) | |
| | | |
| | | |
| | | |
Net cash used in investing activities | (14,971) | | | (13,311) | |
| | | |
Cash flows used in financing activities: | | | |
| | | |
Repayments on term loan | (13,750) | | | (11,250) | |
| | | |
| | | |
| | | |
| | | |
Payment of debt issuance costs | — | | | (179) | |
Distributions to redeemable noncontrolling interest holder | (10,345) | | | (10,293) | |
| | | |
| | | |
Net proceeds from issuance of common stock to employees and directors | 212 | | | — | |
Treasury stock purchases | (2,328) | | | (1,092) | |
| | | |
Net cash used in financing activities | (26,211) | | | (22,814) | |
| | | |
Effects of exchange rates on cash | 1,350 | | | (534) | |
| | | |
Net increase (decrease) in cash and cash equivalents | 2,916 | | | (12,324) | |
Cash and cash equivalents, beginning of the period | 25,144 | | | 30,810 | |
Cash and cash equivalents, end of the period | $ | 28,060 | | | $ | 18,486 | |
|
| | | | | | | |
| 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 statementsCondensed 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 condensedCertain information and footnote disclosures, including critical and significant accounting policies normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles, have been condensed or omitted for this quarterly presentation. 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, 2016.2022.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The condensed consolidated financial statementsCondensed 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.
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 business segment and analyze each segment’s accounts receivable balances as separate populations. Within each segment, receivables exhibit similar risk characteristics.
During the three and nine months ended September 30, 2023, our expected loss rate reflects uncertainties in market conditions present in our businesses, including supply chain disruptions, rising interest rates, as well as global geopolitical and economic instability. 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 against the amounts due, reducing the net receivable recognized to the amount we estimate will be collected. The offsetting expense for allowances recorded is charged to “Selling and distribution expenses” in our Condensed Consolidated Statements of Operations. During the three and nine months ended September 30, 2023, net provisions of $317 and $141, respectively, were recorded.
The following table summarizes year-to-date activity in the allowance for credit losses on receivables from customers in each of our business segments:
| | | | | | | | | | | | | | | | | | | | | | | |
| Arcadia | | DynaEnergetics | | NobelClad | | DMC Global Inc. |
Allowance for doubtful accounts, December 31, 2022 | $ | 244 | | | $ | 603 | | | $ | 78 | | | $ | 925 | |
| | | | | | | |
Current period provision for expected credit losses | — | | | 451 | | | — | | | 451 | |
Write-offs charged against the allowance | | | (120) | | | — | | | (120) | |
Recoveries of amounts previously reserved | (184) | | | (126) | | | — | | | (310) | |
Impacts of foreign currency exchange rates and other | — | | | 1 | | | (2) | | | (1) | |
Allowance for doubtful accounts, September 30, 2023 | $ | 60 | | | $ | 809 | | | $ | 76 | | | $ | 945 | |
Redeemable noncontrolling interest
On December 23, 2021, DMC completed the acquisition of 60% of the membership interests in Arcadia Products, LLC, a Colorado limited liability company resulting from the conversion of Arcadia, Inc. (collectively, “Arcadia”). The limited liability company operating agreement for Arcadia (the “Operating Agreement”) contains a right for the Company to purchase the remaining interest in Arcadia from the minority interest holder on or after the third anniversary of the acquisition closing date (“Call Option”). Similarly, the minority interest holder of Arcadia has the right to sell its remaining interest in Arcadia to the Company on or after the third anniversary of the acquisition closing date (“Put Option”). Both the Call Option and Put Option enable the respective holder to exercise their rights based upon a predefined calculation as included within the Operating Agreement.
The Company initially accounted for the noncontrolling interest at its acquisition date fair value. We determined that neither the Call Option nor the Put Option meet the definition of a derivative as the Operating Agreement does not allow for contractual net settlement, the options cannot be settled outside the Operating Agreement through a market mechanism, and the underlying shares are deemed illiquid as they are not publicly traded and thus not considered readily convertible to cash. Additionally, the settlement price for both options is based upon a predefined calculation tied to adjusted earnings rather than a fixed price, and the formula is based upon a multiple of Arcadia’s average adjusted earnings over a three-year period. As such, we have concluded that the Call Option and Put Option are embedded within the noncontrolling interest and therefore do not represent freestanding instruments.
Given that the noncontrolling interest is subject to possible redemption with redemption rights that are not entirely within the control of the Company, we have concluded that the noncontrolling interest should be accounted for in accordance with ASC 480 Distinguishing Liabilities from Equity ("ASC 480"). The noncontrolling interest is also probable of redemption, as the only criteria for the security to become redeemable is the passage of time. As such, the redeemable noncontrolling interest is classified in temporary equity, separate from the stockholders’ equity section, in the Condensed Consolidated Balance Sheets.
At each balance sheet date subsequent to acquisition, two separate calculations must be performed to determine the value of the redeemable noncontrolling interest. First, the redeemable noncontrolling interest must be accounted for in accordance with ASC 810 Consolidation (“ASC 810”) whereby income (loss) and cash distributions attributable to the redeemable noncontrolling interest holder are ascribed. After this occurs, applicable provisions of ASC 480 must be considered to determine whether any further adjustment is necessary to increase the carrying value of the redeemable noncontrolling interest. An adjustment would only be necessary if the estimated settlement amount of the redeemable noncontrolling interest, per the terms of the Operating Agreement, exceeds the carrying value calculated in accordance with ASC 810. If such adjustment is required, the impact is immediately recorded to retained earnings and therefore does not impact the Condensed Consolidated Statements of Operations or Comprehensive Income (Loss). As of September 30, 2023 and December 31, 2022, the redeemable noncontrolling interest is $187,522.
Promissory Note
In order to equalize after-tax consideration to the redeemable noncontrolling interest holder relative to an alternative transaction structure, immediately following the closing of the acquisition, the Company loaned $24,902 to the redeemable noncontrolling interest holder. The loan was evidenced by an unsecured promissory note, and the loan will be repaid out of proceeds from the sale of the redeemable noncontrolling interest holder’s interests in Arcadia, whether received upon exercise of the Put Option, the Call Option or upon sales to third parties permitted under the terms of the Operating Agreement. The loan must be repaid in full at the earlier of the exercise of the Put or Call Option, or by December 16, 2051, and has been recorded within “Other assets”in the Condensed Consolidated Balance Sheets.
Revenue Recognition
The Company’s revenues are primarily derived from consideration paid by customers for tangible goods. The Company analyzes its different products by business 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 within our DynaEnergetics and NobelClad business segments arise when control is transferred at a point in time and not on any other criteria. Our rights to payments for goods transferred to customers within our Arcadia business segment also generally arise when control is transferred at a point in time; however, at times, control of certain customized, project-based products passes to the customer over time. Payment terms and conditions vary by contract, although terms generally include a requirement of payment within 30 to 90 days across all of our segments. 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. Refer to Note 9 "Business Segments" for disaggregated revenue disclosures.
See additional revenue recognition policy disclosures specific to each of our business segments within our Annual Report filed on Form 10-K for the year ended December 31, 2022.
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 bases 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 are 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;position, that the tax position will be sustained upon examination, including the resolution of any related appeals or litigation. The tax benefits recognized in the consolidated financial statementsCondensed 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 as common stock. Restricted stock awards do not participate in net losses.
Basic EPS is calculated by dividing net income (loss) attributable to the Company’s stockholders after adjustment of redeemable noncontrolling interest by the weighted-average number of common shares outstanding during the period. Net income (loss) available to common shareholders of the Company includes any adjustment to the redeemable noncontrolling interest value as of the end of the period presented. Refer to the "Redeemable noncontrolling interest" section above for further discussion of the calculation of the adjustment of the redeemable noncontrolling interest. Diluted EPS adjusts basic EPS for the effects of restricted stock awards, restricted stock units, 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 applicable periods presented, diluted EPS using the two-class method was more dilutive than the treasury stock method; as such, only the two-class method has been included below.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Net income attributable to DMC Global Inc. stockholders, as reported | $ | 8,883 | | | $ | 6,717 | | | $ | 23,495 | | | $ | 8,981 | |
Adjustment of redeemable noncontrolling interest | (1,263) | | | 2,256 | | | (2,289) | | | (4,996) | |
| | | | | | | |
Less: Undistributed net income available to participating securities | (118) | | | (136) | | | (329) | | | (61) | |
Numerator for basic net income per share: | 7,502 | | | 8,837 | | | 20,877 | | | 3,924 | |
Add: Undistributed net income allocated to participating securities | 118 | | | 136 | | | 329 | | | 61 | |
Less: Undistributed net income reallocated to participating securities | (117) | | | (136) | | | (328) | | | (61) | |
Numerator for diluted net income per share: | $ | 7,503 | | | $ | 8,837 | | | $ | 20,878 | | | $ | 3,924 | |
Denominator: | | | | | | | |
Weighted average shares outstanding for basic net income per share | 19,543,251 | | | 19,381,489 | | | 19,492,212 | | | 19,352,638 | |
Effect of dilutive securities (1) | 53,324 | | | 305 | | | 48,766 | | | 4,695 | |
Weighted average shares outstanding for diluted net income per share | 19,596,575 | | | 19,381,794 | | | 19,540,978 | | | 19,357,333 | |
Net income per share attributable to DMC Global Inc. stockholders | | | | | | |
Basic | $ | 0.38 | | | $ | 0.46 | | | $ | 1.07 | | | $ | 0.20 | |
Diluted | $ | 0.38 | | | $ | 0.46 | | | $ | 1.07 | | | $ | 0.20 | |
(1) For the three and nine months ended September 30, 2023, 3,239 and 9,447 shares, respectively, have been excluded as their effect would have been anti-dilutive.
Deferred Compensation Plan
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, such contributions 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 current and former employees, and money market and mutual funds. Unvested RSAs and common stock held by the trust are reflected in the Condensed 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.
Deferred compensation obligations that will be settled in cash are accounted for on an accrual basis in accordance with the terms of the 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 Condensed Consolidated Statements of Stockholders’ Equity and Redeemable Noncontrolling Interest 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 for the periods presented. The amount included within “Prepaid expenses and other” and “Other current liabilities” pertains to scheduled distributions per the terms of the Plan to our former Chief Executive Officer (“CEO”) that will occur within twelve months of September 30, 2023. Refer to Note 12 for additional information regarding the CEO transition.
Computation and reconciliation of earnings per share of common stock are as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Balance Sheet location | | September 30, 2023 | | December 31, 2022 |
Deferred compensation assets | | Prepaid expenses and other | | $ | 1,428 | | | $ | — | |
Deferred compensation assets | | Other assets | | 8,087 | | | 13,566 | |
Deferred compensation obligations | | Other current liabilities | | 1,428 | | | — | |
Deferred compensation obligations | | Other long-term liabilities | | 11,673 | | | 15,292 | |
| | | | | | |
| | | | | | |
|
| | | | | | | | | | | | | | | |
| 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, accounts payable, and payables, accrued expenses and lines of credit approximate their fair value. Our marketable securities are valued using quoted prices in active markets that are accessible as of the measurement date. The carrying value of our revolving loans and term loan under our credit facility, when outstanding, approximate their fair value because of the variable interest rate associated with those instruments, which reset each month at market interest rates. All of these account balances are considered Level 1 assets and liabilities.
Our foreign currency forward contracts are valued using quoted market prices or are determined using a yield curve model based on current market rates. As a result, we intend to classify these investmentsinstruments as Level 2 in the fair value hierarchy. Money market funds and mutual funds of $3,175 as of September 30, 2023 and $8,444 as of December 31, 2022 held to satisfy future deferred compensation obligations are valued based upon the market values of underlying securities and are classified as Level 2 assets in the fair value hierarchy.
We did not did not hold any Level 3 assets or liabilities as of September 30, 20172023 or December 31, 2016. The goodwill impairment charge recorded in the third quarter of 2017 was calculated using Level 3 inputs.2022.
Recently Adopted Accounting Standards
In July 2015, the Financial Accounting Standards Board ("FASB") issued an accounting standards update ("ASU") to change the measurement of inventory from lower of cost or market to lower of cost and net realizable value. This pronouncement is effective for reporting periods beginning after December 15, 2016, and the Company has adopted it as of the first quarter of 2017. The adoption of this standard did not have a material impact on the Company's consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment,” to simplify the method of measuring a goodwill impairment charge in the event a reporting unit’s carrying amount exceeds its fair value. In those circumstances, the new standard requires the Company to recognize an impairment charge for the amount by which the carrying amount of the reporting unit exceeds its fair value. The Company adopted this standard during the third quarter of 2017 and applied it in the test for goodwill impairment described in Note 4.
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'sconsidered all recent accounting pronouncements issued, but not yet effective, and DynaEnergetics' revenue for the year ended December 31, 2016 and have preliminarily concluded that applying the new standardwe do not expect any to those contracts would not have a material impacteffect on our financial statements.the Company’s Condensed Consolidated 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 recordwrite down 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 September 30, 2017 and 2023:
| | | | | | | | | | | | | | | | | | | | | | | |
| Arcadia | | DynaEnergetics | | NobelClad | | DMC Global Inc. |
Raw materials | $ | 8,761 | | | $ | 25,215 | | | $ | 9,675 | | | $ | 43,651 | |
Work-in-process | 9,798 | | | 32,776 | | | 14,581 | | | 57,155 | |
Finished goods | 56,665 | | | 28,012 | | | — | | | 84,677 | |
Supplies | — | | | — | | | 294 | | | 294 | |
Total inventories | $ | 75,224 | | | $ | 86,003 | | | $ | 24,550 | | | $ | 185,777 | |
Inventories consisted of the following at December 31, 2016 and include reserves of $2,985 and $4,226, respectively:2022: | | | | | | | | | | | | | | | | | | | | | | | |
| Arcadia | | DynaEnergetics | | NobelClad | | DMC Global Inc. |
Raw materials | $ | 11,099 | | | $ | 23,701 | | | $ | 8,926 | | | $ | 43,726 | |
Work-in-process | 11,468 | | | 21,198 | | | 7,587 | | | 40,253 | |
Finished goods | 55,074 | | | 16,802 | | | 456 | | | 72,332 | |
Supplies | — | | | — | | | 279 | | | 279 | |
Total inventories | $ | 77,641 | | | $ | 61,701 | | | $ | 17,248 | | | $ | 156,590 | |
|
| | | | | | | |
| 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, asconsisted of the following at September 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 |
|
2023: | | | | | | | | | | | | | | | | | |
| Gross | | Accumulated Amortization | | Net |
Core technology | $ | 13,920 | | | $ | (13,902) | | | $ | 18 | |
| | | | | |
Customer relationships | 244,404 | | | (62,894) | | | 181,510 | |
| | | | | |
Trademarks / Trade names | 23,894 | | | (4,497) | | | 19,397 | |
Total intangible assets | $ | 282,218 | | | $ | (81,293) | | | $ | 200,925 | |
The following table presents details of ourOur purchased intangible assets other than goodwill, asconsisted of the following at 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 |
|
2022: | | | | | | | | | | | | | | | | | |
| Gross | | Accumulated Amortization | | Net |
Core technology | $ | 14,063 | | | $ | (14,031) | | | $ | 32 | |
Customer backlog | 22,000 | | | (22,000) | | | — | |
Customer relationships | 244,650 | | | (47,254) | | | 197,396 | |
| | | | | |
Trademarks / Trade names | 23,914 | | | (3,417) | | | 20,497 | |
Total intangible assets | $ | 304,627 | | | $ | (86,702) | | | $ | 217,925 | |
The change in the gross value of our unamortized purchased intangible assets at September 30, 2023 from December 31, 2016 to September 30, 20172022 was due to foreign currency translation and an adjustment due to recognition of tax benefit of tax amortization previously applied to certain goodwill related to the DynaEnergetics reporting unit. After the goodwill was written off at December 31, 2015, the tax amortization reduces other noncurrent intangible assets related to the historical acquisition.translation.
6. CUSTOMER ADVANCES5. CONTRACT LIABILITIES
On occasion,At times, we require customers to make advance payments prior to the shipment of goods in ordertheir orders to help finance our inventory investment on large orders or to keep customers’ credit limits at acceptable levels. Contract liabilities were as follows for the periods presented: | | | | | | | | | | | |
| September 30, 2023 | | December 31, 2022 |
Arcadia | $ | 16,564 | | | $ | 27,634 | |
NobelClad | 10,003 | | | 3,661 | |
DynaEnergetics | 1,990 | | | 785 | |
Total contract liabilities | $ | 28,557 | | | $ | 32,080 | |
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, primarily supply chain delays and disruptions.
6. LEASES
The Company leases real properties for use in manufacturing and as administrative and sales offices, and 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. If a lease does not provide a discount rate and the implicit rate cannot be readily determined, an incremental borrowing rate is used to determine the present value of future lease payments. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term within the Condensed Consolidated Statements of Operations. Lease and non-lease components within the Company’s lease agreements are accounted for together. Variable lease payments are recognized in the period in which the obligation is incurred. The Company has no leases in which the Company is the lessor.
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:
| | | | | | | | | | | |
| September 30, 2023 | | December 31, 2022 |
ROU asset | $ | 44,661 | | | $ | 48,470 | |
| | | |
Current lease liability | 7,290 | | | 7,041 | |
Long-term lease liability | 39,288 | | | 43,001 | |
Total lease liability | $ | 46,578 | | | $ | 50,042 | |
| | | |
The ROU asset is reported in “Other assets” while the current lease liability is reported in “Other current liabilities” and the long-term lease liability is reported in “Other long-term liabilities” in the Company’s Condensed Consolidated Balance Sheets. Cash paid for operating lease liabilities is recorded as operating cash outflows in the Company’s Condensed Consolidated Statements of Cash Flows.
Arcadia leases certain office, manufacturing, distribution and warehouse facilities from entities affiliated with the redeemable noncontrolling interest holder and former president of Arcadia. There were eight related party leases in effect as of September 30, 2023, with expiration dates ranging from calendar years 2023 to 2026, excluding any renewal options. As of September 30, 20172023, the total ROU asset and December 31, 2016, customer advances totaled $2,772related lease liability recognized for related party leases was $26,291 and $2,619,$27,062, respectively.
For the three months ended September 30, 2023 and 2022, operating lease expense was $3,349 and $2,872, respectively. For the nine months ended September 30, 2023 and 2022, operating lease expense was $9,504 and $8,413, respectively. Related party lease expense for the three and nine months ended September 30, 2023 and 2022 was $1,156 and $3,469, respectively, in each period and originated from several customers.is included in total operating lease expense. Short term and variable lease costs were not significant for any period presented.
7. DEBT
Lines of creditOutstanding borrowings consisted of the following at September 30, 2017 and December 31, 2016:at:
| | | | | | | | | | | |
| September 30, 2023 | | December 31, 2022 |
Syndicated credit agreement: | | | |
U.S. Dollar revolving loan | $ | — | | | $ | — | |
Term loan | 121,250 | | | 135,000 | |
| | | |
| | | |
Commerzbank line of credit | — | | | — | |
Outstanding borrowings | 121,250 | | | 135,000 | |
Less: debt issuance costs | (1,790) | | | (2,202) | |
Total debt | 119,460 | | | 132,798 | |
Less: current portion of long-term debt | (15,000) | | | (15,000) | |
Long-term debt | $ | 104,460 | | | $ | 117,798 | |
|
| | | | | | | |
| 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 ofOn December 31, 2016,23, 2021, we hadentered into a $75,000five-year $200,000 syndicated credit agreement (“credit facility”) that allowedwhich included a $150,000 Term Loan, which is amortizable at 10% of principal per year with a balloon payment for the outstanding balance upon the credit facility maturity date in 2026, and allows for revolving loans of $65,000 in U.S. dollars and $10,000 in alternative currencies as well as a $100,000up to $50,000. The credit facility has an 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$100,000 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 by adding 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 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 forsyndicate of four banks, with KeyBank, N.A. acting as administrative agent. The credit facility is secured by certain European operations. This lineassets of credit provides a borrowing capacity of €4,000, of which €2,478 is available after considering outstanding letters of credit.DMC including accounts receivable, inventory, and fixed assets, including Arcadia and its subsidiary, as well as guarantees and share pledges by DMC and its subsidiaries.
U.S. borrowingsBorrowings under the amended credit facility$150,000 Term Loan and $50,000 revolving loan limit can be in the form of AlternateAdjusted Daily Simple Secured Overnight Financing Rate ("SOFR") loans or one month Adjusted Term SOFR loans. Additionally, U.S. 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, orrate, an adjusted Federal Funds rates)rate or one, two, three, or six month London Interbank Offeredan adjusted SOFR rate). SOFR loans bear interest at the applicable SOFR rate plus an applicable margin (varying from 1.50% to 3.00%). Base Rate (“LIBOR”) loans. ABR loans bear interest at the defined ABR rate plus an applicable margin and LIBOR loans bear interest at the applicable LIBOR rate plus an applicable margin.
Alternative currency borrowings under the amended credit facility can be in Canadian Dollars, Euros, Pounds Sterling and any other currency that is freely transferable and convertible to U.S. Dollars. Alternative currency borrowings denominated in Canadian Dollars 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 PrimeBase Rate plus an applicable margin respectively. Alternative currency borrowings denominated in Euros shall be comprised(varying from 0.50% to 2.00%). As of Euro Interbank Offered Rate (“EURIBOR”) loans and bear interest atSeptember 30, 2023, no amounts were outstanding on the EURIBOR rate plus an applicable margin. Alternative currency borrowings denominated in any other alternative currency shall be comprised of Eurocurrency loans and bear interest at the LIBOR rate plus an applicable margin.revolver.
LIBOR, EURIBOR, and CDOR applicable margins vary from 1.75% to 3.25%, and ABR and Canadian Prime applicable margins vary from 0.75% to 2.25%.
Loan Covenants and Restrictions
Our existing loan agreements includeThe credit facility includes various covenants and restrictions, certain of which relate to the payment of dividends or other distributions to stockholders; redemption of capital stock; incurrence ofincurring additional indebtedness; mortgaging, pledging or disposition of major assets; and maintenance of specified financial ratios.
The leverage ratio is defined in the credit facility as the ratio of Consolidated Funded Indebtedness (as defined in the credit facility) on the last day of any trailing four quarter period to Consolidated Pro Forma EBITDA (as defined in the credit facility) for such period. The maximum leverage ratio permitted by our credit facility is 3.0 to 1.0 from the quarter ended June 30, 2023 and thereafter.
The debt service coverage ratio is defined in the credit facility as the ratio of Consolidated Pro Forma EBITDA less the sum of capital distributions paid in cash (other than those made with respect to preferred stock issued under the Operating Agreement), Consolidated Unfunded Capital Expenditures (as defined in the credit facility), and net cash income taxes divided by the sum of cash interest expense, any dividends on the preferred stock paid in cash, and scheduled principal payments on funded indebtedness. Under our credit facility, the minimum debt service coverage ratio permitted is 1.35 to 1.0.
As of September 30, 2017,2023, 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 with a borrowing capacity of €7,000 for certain European operations. This line of credit is also used to issue bank guarantees to customers to secure advance payments made by them. As of September 30, 2023 and December 31, 2022, we had no outstanding borrowings under this line of credit and bank guarantees of €2,491 and €2,221, respectively, were secured by the line of credit. The line of credit has open-ended terms and can be canceled by the bank at any time.
Included in “Long-term debt” are deferred debt issuance costs of $1,790 and $2,202 as of September 30, 2023 and December 31, 2022, respectively. Deferred debt issuance costs are being amortized over the remaining term of the credit facility, which expires on December 23, 2026.
8. 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 33%), permanent differences between book and taxable income, and income or loss attributable to the redeemable noncontrolling interest holder.
Arcadia is treated as a partnership for U.S. tax purposes. With the exception of certain state taxes, income or loss flows through to the shareholders and is taxed at the shareholder level. Tax impacts related to income or loss from Arcadia that are included in consolidated pretax results but are attributable to the redeemable noncontrolling interest holder are not included in the consolidated income tax provision.
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 three and nine months ended September 30, 2023 and September 30, 2022, we did not record any adjustments to previously established valuation allowances, except for corresponding adjustments related to changes in deferred tax asset balances. These adjustments had no impact on the Condensed Consolidated Statements of Operations. 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 changes.
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. 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.
9. BUSINESS SEGMENTS
Our business is organized into twothree segments: NobelCladArcadia, DynaEnergetics and DynaEnergetics.NobelClad. In December 2021, DMC acquired a 60% controlling interest in Arcadia. Arcadia supplies architectural building products, including exterior and interior framing systems, curtain walls, windows, doors, and interior partitions to the commercial construction market; it also supplies customized windows and doors to the high-end residential construction market. DynaEnergetics designs, manufactures and distributes highly engineered 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, andas well as specialized transition joints. DynaEnergetics designs, manufacturesjoints for use in construction of commuter rail cars, ships, and distributes products utilized by the global oil andliquified natural gas industry principally for the perforation of oil and gas wells.(LNG) processing equipment.
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.services, and each segment has separate financial information available that is evaluated regularly by the Chief Operating Decision Maker ("CODM") in allocating resources and assessing performance. Each segment’s products are marketed to different customer types and require different manufacturing processes and technologies.
Segment information is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Net sales: | | | | | | | |
Arcadia | $ | 71,455 | | | $ | 80,697 | | | $ | 230,951 | | | $ | 225,127 | |
DynaEnergetics | 72,998 | | | 70,372 | | | 239,720 | | | 186,776 | |
NobelClad | 27,694 | | | 23,396 | | | 74,481 | | | 67,109 | |
Net sales | $ | 172,147 | | | $ | 174,465 | | | $ | 545,152 | | | $ | 479,012 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Income (loss) before income taxes: | | | | | | | |
Arcadia | $ | 6,476 | | | $ | 3,742 | | | $ | 19,189 | | | $ | 3,521 | |
DynaEnergetics | 10,871 | | | 11,978 | | | 41,772 | | | 26,585 | |
NobelClad | 5,232 | | | 2,505 | | | 12,560 | | | 5,690 | |
Segment operating income | 22,579 | | | 18,225 | | | 73,521 | | | 35,796 | |
| | | | | | | |
Unallocated corporate expenses | (3,382) | | | (2,939) | | | (14,283) | | | (10,490) | |
Unallocated stock-based compensation* | (1,495) | | | (1,885) | | | (7,319) | | | (5,883) | |
Other income (expense), net | 302 | | | 120 | | | (337) | | | (35) | |
Interest expense, net | (2,392) | | | (1,771) | | | (7,205) | | | (4,058) | |
Income before income taxes | $ | 15,612 | | | $ | 11,750 | | | $ | 44,377 | | | $ | 15,330 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Depreciation and amortization: | | | | | | | |
Arcadia | $ | 6,621 | | | $ | 7,966 | | | $ | 19,631 | | | $ | 34,818 | |
DynaEnergetics | 1,697 | | | 1,957 | | | 5,212 | | | 5,908 | |
NobelClad | 712 | | | 899 | | | 2,152 | | | 2,725 | |
Segment depreciation and amortization | 9,030 | | | 10,822 | | | 26,995 | | | 43,451 | |
Corporate and other | 97 | | | 104 | | | 300 | | | 281 | |
Consolidated depreciation and amortization | $ | 9,127 | | | $ | 10,926 | | | $ | 27,295 | | | $ | 43,732 | |
* Stock-based compensation is not allocated to wholly owned segments DynaEnergetics and NobelClad. Stock-based compensation is allocated to the Arcadia segment as 60% of such expense is attributable to the Company, whereas the remaining 40% is attributable to the redeemable noncontrolling interest holder.
In the tables below, the geographic distribution of net sales for all business segments is based on the customer location. Net sales for Arcadia have been presented consistent with United States regional definitions as provided by the American Institute of Architects.
Arcadia
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
West | $ | 58,572 | | | $ | 63,281 | | | $ | 183,829 | | | 176,288 | |
South | 6,869 | | | 12,139 | | | 22,261 | | | 27,362 | |
Northeast | 4,001 | | | 2,958 | | | 17,991 | | | 11,880 | |
Midwest | 2,013 | | | 2,319 | | | 6,870 | | | 9,597 | |
Total Arcadia | $ | 71,455 | | | $ | 80,697 | | | $ | 230,951 | | | $ | 225,127 | |
DynaEnergetics
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
United States | $ | 56,739 | | | $ | 55,999 | | | $ | 189,104 | | | $ | 146,297 | |
Canada | 4,975 | | | 4,341 | | | 17,883 | | | 14,453 | |
Oman | 2,414 | | | 704 | | | 5,548 | | | 2,695 | |
| | | | | | | |
Kuwait | 1,342 | | | 193 | | | 3,492 | | | 1,272 | |
Indonesia | 630 | | | 1,051 | | | 2,318 | | | 1,903 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
United Arab Emirates | 548 | | | 308 | | | 4,506 | | | 1,524 | |
| | | | | | | |
Rest of the world(1) | 6,350 | | | 7,776 | | | 16,869 | | | 18,632 | |
Total DynaEnergetics | $ | 72,998 | | | $ | 70,372 | | | $ | 239,720 | | | $ | 186,776 | |
(1) Rest of the world does not include any individual country comprising sales greater than 5% of total DynaEnergetics revenue for the periods presented.
NobelClad
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, | | |
| 2023 | | 2022 | | 2023 | | 2022 | | |
United States | $ | 13,279 | | | $ | 9,120 | | | $ | 33,643 | | | $ | 29,055 | | | |
South Korea | 3,691 | | | 672 | | | 4,294 | | | 1,510 | | | |
Canada | 2,334 | | | 3,161 | | | 6,048 | | | 6,952 | | | |
Germany | 1,579 | | | 2,055 | | | 4,393 | | | 3,215 | | | |
Saudi Arabia | 1,106 | | | — | | | 3,104 | | | 1,995 | | | |
France | 1,021 | | | 472 | | | 2,101 | | | 1,625 | | | |
China | 743 | | | 1,100 | | | 3,810 | | | 3,467 | | | |
United Arab Emirates | 607 | | | 1,003 | | | 3,273 | | | 2,705 | | | |
Australia | 534 | | | 844 | | | 677 | | | 1,499 | | | |
| | | | | | | | | |
Belgium | 463 | | | 165 | | | 1,937 | | | 507 | | | |
Sweden | 353 | | | 1,096 | | | 871 | | | 2,179 | | | |
| | | | | | | | | |
| | | | | | | | | |
Netherlands | 276 | | | 357 | | | 1,038 | | | 1,464 | | | |
Brazil | 88 | | | 1,227 | | | 1,834 | | | 1,240 | | | |
| | | | | | | | | |
| | | | | | | | | |
Rest of the world (1) | 1,620 | | | 2,124 | | | 7,458 | | | 9,696 | | | |
Total NobelClad | $ | 27,694 | | | $ | 23,396 | | | $ | 74,481 | | | $ | 67,109 | | | |
(1) Rest of the world does not include any individual country comprising sales greater than 5% of total NobelClad revenue for the periods presented.
During the three and nine months ended September 30, 20172023, one DynaEnergetics customer accounted for approximately 15% and 201612%, respectively, of consolidated net sales. The same DynaEnergetics customer accounted for approximately 20% and 15% of consolidated accounts receivable 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 |
|
|
| | | | | | | | | | | | | | | |
| 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 | ) |
|
| | | | | | | | | | | | | | | |
| 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 |
|
September 30, 2023 and December 31, 2022, respectively. During the three and nine months ended September 30, 2017 and 2016,2022, no onesingle customer accounted for moregreater than 10% of totalconsolidated net sales.
9.
10. DERIVATIVE INSTRUMENTS
We are exposed to foreign currency exchange risk resulting from fluctuations in exchange rates, primarily the U.S. dollar to the euro, the U.S. dollar to the Canadian dollar the euro to the Russian ruble, and, to a lesser extent, other currencies, arising from inter-companyintercompany 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 September 30, 2017,2023 and December 31, 2022, the net notional amounts of the forward contracts the Company held to purchase currencies were $19,297,$32,333 and $21,907, respectively. At September 30, 2023 and December 31, 2022, the notional amountsfair value of outstanding 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.was $0.
The following table presentsreflects the location and amount of net gains (losses) from hedging activities for the threeperiods presented. These hedging net gains (losses) offset foreign currency gains and nine months ended September 30, 2017 and 2016:losses recorded in the normal course of business, which are not shown below.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
Derivative | Statements of Operations Location | 2023 | | 2022 | | 2023 | | 2022 |
Foreign currency contracts | Other income (expense), net | $ | (1,079) | | | $ | (637) | | | $ | (901) | | | $ | (789) | |
| | | | | | | | |
|
| | | | | | | | | | | | | | | | | | |
| | 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 | ) | | $ | — |
|
10.11. 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 these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have, individually or in the ongoing appeal,aggregate, a material adverse effect on our business, financial condition or operating results except as set forth below:
Wage and Hour Matters
Felipe v. Arcadia, Inc. and One Stop Employment Services, Inc. (“One Stop”). This complaint was filed on October 22, 2021 in Los Angeles Superior Court and purports to allege a class action on behalf of all non-exempt California employees who worked on behalf of One Stop or Arcadia at any time during the four years preceding the date of the complaint. One Stop is a staffing agency which is continuing.
On December 27, 2016, we received notice from U.S. Customsprovides temporary workers, including to Arcadia. The complaint states claims under California’s labor laws and under its general Unfair Business Practices Act, California Business & Professions Code section 17200. The plaintiff has subsequently dismissed the class action claims without prejudice, acknowledging 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 by our reserve. WeArcadia’s arbitration agreement likely bars such class claims. The plaintiff also filed a response toseparate action under California’s Private Attorneys General Act (“PAGA”) alleging essentially the notice on February 6, 2017 asserting our positionsame wage and hour violations. This action included other Arcadia employees. The California Supreme Court has recently ruled 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 penaltiesrepresentative PAGA claims are not appropriate under applicable legal standards. Further, even if penaltiesbarred by the arbitration agreement. The plaintiff has commenced arbitration on individual claims, with arbitration set for 2024. In the meantime, the PAGA representative claims are found to be justified, we
believe the amount of penalties asserted by U.S. Customs is unreasonablestayed 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. 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 $84 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 Companylikely 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 beenremain 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 infringementindividual arbitration claims or completion of the 394 patent and planssettlement in principle described below.
Mayorga v. Arcadia, Inc. This complaint was filed on November 15, 2021 in Los Angeles Superior Court. It purported to vigorously defend against this lawsuit. On June 9, 2017, DynaEnergetics filedallege a motionclass action on behalf of all of the Company’s non-exempt California employees who worked at the Company within four years before the date the complaint was filed. It asserts claims substantially similar to dismiss for improper venue, orthose asserted in the alternativeFelipe case but does not include One Stop as a defendant. The plaintiff amended his complaint to change venue,delete class action claims and any individual non-PAGA claims. Accordingly, plaintiff’s complaint is now limited to PAGA collective action claims. The plaintiff has however commenced arbitration on a solely individual basis of his wage and hour claims, and an arbitrator has been appointed to adjudicate those claims. The remaining Mayorga PAGA representative claims have now been assigned to the District Court’s decision is pending. On August 28, 2017, DynaEnergetics filed an IPR againstsame judge as the 394 patent at the PTAB, requesting invalidationFelipe case. As in Felipe, those PAGA representative claims are currently stayed and will likely remain stayed until completion 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”),settlement 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 infringementprinciple or of the EP 013 patentindividual arbitration if the settlement in principle is not consummated.
We have mediated the Mayorga claims, and plansas a result have reached a settlement in principle. Arcadia has agreed to vigorously defend against this lawsuit.
We do not believepay $375 of a total $600 settlement amount to resolve its portion of all PAGA claims in both the Mayorga and Felipe actions. As currently proposed, the parties have agreed in principle that the 563 patent,settlement will include the 394 patent, the EP 013 patent or infringementindividual claims based on the patents are valid, and we do not believe it is probable that we will incur a material loss on 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,plaintiff in Felipe. The settlement will become final only if the parties reach agreement on a final written document containing all settlement terms, and we have not accrued for anyonly if such losses. Such an evaluation includes, among other things, a determination ofsettlement is approved by 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. court. There is no guarantee either condition will occur.
11. RESTRUCTURING
There was no restructuring activity in the third quarter of 2017. In the second quarter of 2017, DynaEnergetics announced the closure of 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. During the quarter, we recorded severance expense, wrote off remaining receivables,
prepaid assets, 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, due to the substantial liquidation of the entity. In the second quarter of 2016, DynaEnergetics reduced headcount in Troisdorf, Germany and Austin, Texas.
Total restructuring and impairment charges incurred for these programs are as follows and are reported in the “restructuring expenses” line item in our Condensed Consolidated Statement of Operations:
|
| | | | | | | | | | | | | | | |
| Nine months ended September 30, 2017 |
| Severance | | Asset Impairment | | Other Exit Costs | | Total |
DynaEnergetics | $ | 20 |
| | $ | 143 |
| | $ | 295 |
| | $ | 458 |
|
| | | | | | | |
Total | $ | 20 |
| | $ | 143 |
| | $ | 295 |
| | $ | 458 |
|
|
| | | | | | | | | | | | | | | | | | | |
| 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 nine months ended September 30, 2017,2023, Arcadia reserved $375 which represents its current estimate of loss to resolve all PAGA claims. Under the changesEquity Purchase Agreement, the Company is indemnified for the liability recognized to date related to these matters. Therefore, an offsetting receivable was also recognized such that there was no impact to the restructuring liability associatedCompany’s Condensed Consolidated Statements of Operations during the nine months ended September 30, 2023.
With respect to Felipe’s remaining individual claims and to the extent not resolved through the settlement in principle, Arcadia intends to vigorously defend against the Felipe and Mayorga actions. Due to the nature of these matters and inherent uncertainties, it is not possible to provide an evaluation of the likelihood of an unfavorable outcome or an estimate of the amount or range of potential loss, if any, in this circumstance.
12. CHIEF EXECUTIVE OFFICER TRANSITION
During the first quarter of 2023, the Company and its former CEO entered into a separation agreement pursuant to which the former CEO received certain severance benefits consistent with these programs is summarized below:his pre-existing employment agreement with the Company. These severance benefits include 18 months of salary, a lump sum cash payment, and accelerated vesting of outstanding equity awards. During the nine months ended September 30, 2023, the Company recognized $1,621 of severance related expense and $3,040 of stock-based compensation expense related to the accelerated vesting of outstanding equity awards. These expenses were recognized in “General and administrative expenses” in the Condensed Consolidated Statements of Operations.
|
| | | | | | | | | | | | | | | |
| 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 statementsConsolidated Financial Statements and notes as well as the selected historical consolidated financial data that isare included in our Annual Report filed on Form 10-K for the year ended December 31, 2016.2022.
Unless stated otherwise, all currency amountsdollar figures are presented in thousands of U.S. dollars (000s).
Overview
General
DMC Global Inc. (“DMC”, formerly Dynamic Materials Corporation ("DMC")"we", "us", "our", or the "Company") owns and operates two technical productArcadia, DynaEnergetics and process businessNobelClad, three innovative, asset-light manufacturing businesses that provide differentiated products and engineered solutions to niche segments servingof the construction, energy, industrial processing and infrastructuretransportation markets. These segments, NobelClad and DynaEnergetics, operate globally through an international networkEach of manufacturing, distribution and sales facilities.
Our diversified segments each provideour businesses provides a unique suite of unique technicalhighly engineered products to niche sectors of the global energy, industrial and infrastructure markets,differentiated solutions, and each has established a strong or leadingleadership position in theits respective markets. Our businesses seek to capitalize on their product and service differentiation to grow market share, expand profit margins, increase cash flow and enhance shareholder value.
Our businesses follow clear and compelling strategies and are led by excellent leadership teams that we support with business resources and capital. We take a focused approach to capital allocation and work with our business leaders to identify investments that will advance their operating strategies and generate attractive returns. Our approach helps our portfolio companies grow their core businesses, launch new initiatives, upgrade technologies and systems, expand their markets in which it participates. With an underlying focus on free-cash flow generation, our objectiveand improve their competitive positions. Our culture is to sustain and growfoster local innovation versus centralized control. Headquartered in Broomfield, Colorado, DMC trades on Nasdaq under the market sharesymbol “BOOM.”
Arcadia
On December 23, 2021, DMC completed the acquisition 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.
NobelClad
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. While a large portion60% of the demand for our clad metalmembership interests in Arcadia Products, LLC, a Colorado limited liability company resulting from the conversion of Arcadia, Inc. (collectively, “Arcadia”). Arcadia supplies architectural building products, is driven by new plantincluding exterior and interior framing systems, curtain walls, windows, doors, and interior partitions to the commercial construction market. Additionally, Arcadia also supplies customized windows and large plant expansion projects, maintenance and retrofit projects at existing chemical processing, petrochemical processing, oil refining, and aluminum smelting facilities also account for a significant portion of total demand. These industries tenddoors to be cyclical in nature and timing of new order inflow remains difficult to predict. We use backlog as a primary means to measure the immediate outlook for our NobelClad business. We define “backlog” at any given point in time as all firm, unfulfilled purchase orders and commitments at that time. Most firm purchase orders and commitments are realized, and we expect to fill most backlog orders within the following 12 months. NobelClad's backlog increased to $31,994 at September 30, 2017 from $31,634 at December 31, 2016. high-end residential construction market.
Cost of products sold for NobelCladArcadia includes the cost of metalsaluminum, paint, and alloysother raw materials used to manufacture clad metal plates, the cost of explosives,in manufacturing as well as employee compensation and benefits, freight, outside processing costs,manufacturing facility lease expense, 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 highly engineered products utilized by the global oil and gas industry principally to perforatefor the perforation of oil and gas wells. These products are primarily 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 toWell completion operations are increasingly complex, well completion operations, which in turn has increased the demand for high qualityintrinsically-safe, reliable and technically advanced perforating products.systems.
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.
NobelClad
NobelClad produces explosion-welded clad metal plates for use in the construction of corrosion resistant industrial processing equipment and specialized transition joints for commuter rail cars, ships, and liquified natural gas (LNG) processing equipment. While most demand for our products is driven by maintenance and retrofit projects at existing plants and facilities, new projects for petrochemical processing, oil refining, and aluminum smelting facilities 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, defined as all unfilled firm purchase orders and commitments at that time, to measure the immediate outlook for our NobelClad business. Most firm purchase orders and commitments are realized and shipped within twelve months. NobelClad's backlog increased to $60,821 at September 30, 2023 from $55,451 at December 31, 2022.
Cost of products sold for NobelClad includes the cost of metals, explosive powders and other raw materials used to manufacture clad metal plates and transition joints as well as employee compensation and benefits, outside processing costs, depreciation of manufacturing equipment, manufacturing facility lease expense, supplies 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 $35,320were $172,147 in the third quarter of 2017 increased 80%2023 versus $174,465 in the third quarter of 2022, a decrease of 1%. The decline in sales performance was driven by lower sales at Arcadia.
•Arcadia reported sales of $71,455 in the third quarter of 2023, representing a decrease of 11% compared with the third quarter of 20162022. The decrease was largely attributable to lower customer pricing in response to reductions in base aluminum metal prices, and increased 32% sequentially versus the second quarter of 2017. Despite a slowdown in 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 stronglower sales volumes driven by softer demand for DynaEnergetics’ intrinsically safe perforatingcommercial interior products which includeand brief operational challenges from the DynaSelect detonator and the factory-assembled, performance-assured DynaStageimplementation of a new ERP system.
NobelClad’s
•DynaEnergetics’ sales of $16,841$72,998 in the third quarter of 2017 were essentially flat2023 increased 4% compared towith the third quarter of 20162022 due to an increase in unit sales of DS perforating systems. International sales increased 13% while North American sales increased 2%. North American sales growth was impacted by a decline in active drilling rigs and decreased 17% from the second quarterfracking crews which resulted in lower well completion activity.
•NobelClad’s sales 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%$27,694 in the third quarter of 2017 improved from 23% in2023 increased 18% compared with the same period of 2016 and 30% in the secondthird quarter of 2017. The sequential improvement primarily related to a higher proportion of DynaEnergetics sales relative to NobelClad sales, coupled with higher average selling prices2022 reflecting healthy activity in core energy and improved product mix in DynaEnergetics.petrochemical end markets.
•Consolidated general and administrative expenses were $6,535gross profit was 30.6% in the third quarter of 2017 compared with $5,6852023 versus 29.4% in the third quarter of 2016. The increase primarily was due2022. While gross profit dollars were comparable to higher patent litigation expenses in DynaEnergetics and increased salaries and wages.
Net debt (lines of credit less cash and cash equivalents) of $13,097 decreased $2,215 sequentially from $15,312 at June 30, 2017 and increased $3,784 from $9,313 at December 31, 2016. The increase in net debt from December 31, 2016 primarilythe prior year, the percentage improvement was attributable to borrowingmargin recovery at Arcadia as decreases in base aluminum metal prices exceeded declines in customer pricing. Favorable project and regional mix, as well as better absorption of fixed manufacturing overhead expenses at NobelClad, also contributed to fund working capital requirements from sales growththe percentage improvement.
•Consolidated selling, general and administrative (SG&A) expenses were $28,713 in DynaEnergetics, the tender of $3,049 in anti-dumping duty and countervailing duty (AD/CVD) amounts to U.S. Customs pending ultimate resolution of the AD/CVD case and legal expenses in DynaEnergetics associated with the patent infringement litigation.
Business Outlook
To address the accelerating demand for its intrinsically-safe perforating products, DynaEnergetics recently announced plans to significantly expand the manufacturing and assembly capacity of its DynaSelect, DynaStage and shaped charge product lines. A new 40,000 square foot manufacturing center is scheduled to open during the third quarter of 20182023 compared with $30,544 in Blum, Texas, where the businessthird quarter of 2022.
•Cash and marketable securities of $35,576 at September 30, 2023 increased $10,432 from cash of $25,144 at December 31, 2022. The increase was primarily attributable to cash generated from operations.
•The Company’s leverage ratio, calculated in accordance with its credit facility, was 1.26 to 1.0 as of September 30, 2023 in comparison to the maximum ratio permitted of 3.0 to 1.0. The Company’s adjusted leverage ratio, calculated using net debt as of September 30, 2023, was 0.89 to 1.0.
Outlook
Arcadia serves the commercial building products market primarily in the western and southwestern United States, and the high-end residential market across the United States. Phase one of a new enterprise resource planning (ERP) system went live in July 2023, and is expected to double its shaped charge production capacity. A second automated DynaSelect detonator line is planned to be installed next year at DynaEnergetics’ facility in Troisdorf Germany,enhance operating efficiencies and the internal control environment throughout Arcadia. While the ERP changeover led to a brief operational slowdown early in the quarter, Arcadia’s performance improved as the third quarter progressed. The business also plansexpects to re-open its DynaStage assembly center in Mt. Braddock Pennsylvaniabuild upon these improvements in the fourth quarter, of 2017.and is benefiting from steady demand in its diverse commercial exterior and high-end residential markets. The business expects that these improvements will be partially offset by seasonality and annual facility maintenance.
The recent
In North America, third quarter well completion activity declined by approximately 10% versus the second quarter, according to the U.S. Energy Information Administration. This decline, coupled with customer project delays experienced late in NobelClad’s core repair and maintenance orders from the downstream energy industry has continued intoquarter, negatively impacted demand at DynaEnergetics. We believe North American well completion activity will remain soft during the fourth quarter of 2017.2023 based on a decline in the number of active drilling rigs and fracking crews. DynaEnergetics is in the process of implementing more efficient manufacturing processes and is introducing several premium products in 2023 that collectively are expected to improve long-term profit margins. In October 2017, recent years and in the first quarter of 2023, patent litigation expenses have increased our general and administrative expenses; however, these costs were substantially lower in the second and third quarters of 2023 and are expected to remain lower for the balance of the year.
NobelClad receivedis experiencing increasing demand for its Cylindra™ cryogenic transition joints used in the LNG industry, while repair and maintenance work from downstream energy and petrochemical industries is also contributing to improved financial performance. NobelClad’s backlog was $60,821 as of September 30, 2023, up from $55,451 as of December 31, 2022. We expect to ship most orders in our backlog within 12 months.
In January 2023, the Company announced the appointment of Michael Kuta and David Aldous as interim co-President and Chief Executive Officers. In addition, DMC named Eric Walter as its new Chief Financial Officer, and Arcadia named James Chilcoff as its new President. On August 4, 2023, the Company appointed Michael Kuta as President and Chief Executive Officer and a $7.4 million purchase order related todirector. David Aldous remains a petrochemical project in Asia. The order will be reflected in NobelClad's fourth quarter backlog.member of the Company’s Board of Directors and was re-appointed as Chairman effective August 4, 2023. In connection with these leadership changes, near-term priorities include the acceleration of Arcadia’s integration, strengthening the profitability of DynaEnergetics, achieving commercial success with new products introduced by NobelClad, and improving the Company’s overall cash flow through more effective working capital management and targeted cost reductions.
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 (loss) plus or minus net interest, taxes, depreciation and amortization. Adjusted EBITDA excludes from EBITDA stock-based compensation, restructuring expenses and asset impairment charges (if applicable) and, when appropriate, othernonrecurring items that management does not utilize in assessing DMC’s operating performance (as further described in the tables below). Adjusted EBITDA attributable to DMC Global Inc. stockholders excludes the Adjusted EBITDA attributable to the 40% redeemable noncontrolling interest in Arcadia. For our business segments, Adjusted EBITDA is defined as operating income (loss) plus depreciation, amortization, allocated stock-based compensation (if applicable), restructuring expenses and asset impairment charges (if applicable) and, when appropriate, nonrecurring items that management does not utilize in assessing operating performance. As a result, internal management reports used during monthly operating reviews feature Adjusted EBITDA and certain management incentive awards are based, in part, on the amount of Adjusted EBITDA achieved during the year.
Adjusted net income (loss) and adjusted diluted earnings per share are presented because management believes these measures are useful to understand the effects of restructuring, impairment, and other nonrecurring charges on DMC’s net income (loss) and diluted earnings per share, respectively.
Net Debtdebt is a non-GAAP measure we use to supplement information in our Condensed Consolidated Financial Statements. We define net debt as lines of credittotal debt less total cash, cash equivalents and cash equivalents.marketable securities. 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. BecauseGiven that 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 September 30, 20172023 compared with three months ended September 30, 20162022
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | | | | | |
| 2023 | | 2022 | | $ change | | % change | | | | |
Net sales | $ | 172,147 | | | $ | 174,465 | | | $ | (2,318) | | | (1 | %) | | | | |
Gross profit | 52,597 | | | 51,338 | | | 1,259 | | | 2 | % | | | | |
Gross profit percentage | 30.6 | % | | 29.4 | % | | | | | | | | |
COSTS AND EXPENSES: | | | | | | | | | | | |
General and administrative expenses | 16,259 | | | 19,796 | | | (3,537) | | | (18 | %) | | | | |
% of net sales | 9.4 | % | | 11.3 | % | | | | | | | | |
Selling and distribution expenses | 12,454 | | | 10,748 | | | 1,706 | | | 16 | % | | | | |
% of net sales | 7.2 | % | | 6.2 | % | | | | | | | | |
Amortization of purchased intangible assets | 5,667 | | | 7,385 | | | (1,718) | | | (23 | %) | | | | |
% of net sales | 3.3 | % | | 4.2 | % | | | | | | | | |
| | | | | | | | | | | |
Restructuring expenses and asset impairments | 515 | | | 8 | | | 507 | | | 6,338 | % | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Operating income | 17,702 | | | 13,401 | | | 4,301 | | | 32 | % | | | | |
Other income, net | 302 | | | 120 | | | 182 | | | 152 | % | | | | |
Interest expense, net | (2,392) | | | (1,771) | | | (621) | | | 35 | % | | | | |
Income before income taxes | 15,612 | | | 11,750 | | | 3,862 | | | 33 | % | | | | |
Income tax provision | 4,087 | | | 3,537 | | | 550 | | | 16 | % | | | | |
Net income | 11,525 | | | 8,213 | | | 3,312 | | | 40 | % | | | | |
Less: Net income attributable to redeemable noncontrolling interest | 2,642 | | | 1,496 | | | 1,146 | | | 77 | % | | | | |
Net income attributable to DMC Global Inc. | 8,883 | | | 6,717 | | | 2,166 | | | 32 | % | | | | |
Adjusted EBITDA attributable to DMC Global Inc. | $ | 24,607 | | | $ | 21,751 | | | $ | 2,856 | | | 13 | % | | | | |
|
| | | | | | | | | | | | | | | |
| | 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 increasedwere $172,147 for the three months ended September 30, 2023, or a decrease of 1% compared with 2016the same period in 2022, primarily due to an 80% increase in DynaEnergetics' netlower sales from increased demand for its intrinsically-safe, addressable initiating systems, coupled with an active unconventional well-completion industry in North America.at Arcadia.
Gross profit percentage increased from a higher proportion was 30.6% versus 29.4% in the same period in 2022. The improvement compared to prior year was attributable to margin recovery at Arcadia as reductions in base aluminum metal prices exceeded declines in customer pricing. Favorable project and regional mix, as well as better absorption of DynaEnergetics’ net sales relativefixed manufacturing overhead expenses at NobelClad also contributed to NobelClad and better price and product mix in DynaEnergetics.the improved performance.
General and administrative expenses increaseddecreased $3,537 for the three months ended September 30, 2023 compared with 2016the same period in 2022. The lower expense was driven by decreases in patent infringement litigation costs at DynaEnergetics of $1,305, business segment compensation costs of $1,014, ERP system implementation costs at NobelClad of $447, stock-based compensation expense of $374, and depreciation expense of $135.
Selling and distribution expenses increased $1,706 for the three months ended September 30, 2023 compared with the same period in 2022. The higher expense was primarily due to higher outside legal expensesincreases in compensation costs of $1,011, bad debt expense of $354, and freight and supplies costs of $228.
Amortization of purchased intangible assets decreased $1,718 for the three months ended September 30, 2023 compared to the same period in 2022 as the Arcadia customer backlog purchased intangible asset was fully amortized in 2022.
Operating income was $17,702 for the three months ended September 30, 2023 compared to $13,401 in the same period in 2022. The increase in operating income was the result of improved financial performance at Arcadia and NobelClad.
Other income, net of$302for the three months ended September 30, 2023 primarily related to patent infringement defense costs, higher salaries and wages, and higher stock-based compensation expense.
Selling and distribution increased compared with 2016 primarily due to higher salaries and wages.
Restructuring expenses in 2016 included severance adjustments related to headcount reductions announced in prior quarters, lease termination costs to exit administrative offices in Austin, Texas, and costs related to relocation of perforating gun manufacturing in Germany.
Goodwill impairment charge relates to fully impairing NobelClad's goodwill balance.
Operating loss increased compared with 2016 primarily due to the goodwill impairment charge, which partially was offset by improved earnings in our DynaEnergetics segment.
Other expense, netin 2017 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 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 increased compared with 2016 due to higher interest rates on a higher average outstanding line of credit balance.
Income tax provision of $812 for the third 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.
Net loss $2,392for the three months ended September 30, 2017 was $14,064, or $0.98 per diluted share,2023 increased 35% compared with $3,136,the same period in 2022 due to an increase in floating interest rates related to the Term Loan.
Income tax provision of $4,087 was recorded on income before income taxes of $15,612 for the three months ended September 30, 2023. Our most significant operations are in the United States, which has a 21% statutory income tax rate, and Germany, which has a 32% combined statutory income tax rate. The mix of income or $0.22 per diluted share,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. The current quarter effective rate was impacted unfavorably by the geographic mix of pretax income and state taxes. The operating results of Arcadia that are attributable to the redeemable noncontrolling interest holder are not taxed at DMC, which resulted in a partially offsetting favorable impact to the effective tax rate. We recorded an income tax provision of $3,537 on income before income taxes of $11,750 for the three months ended September 30, 2022. The prior year rate was impacted by the same factors previously discussed.
Net income attributable to DMC Global Inc. for the three months ended September 30, 2023 was $8,883, compared to $6,717 for the same period in 2016.2022.
Adjusted EBITDA for the three months ended September 30, 2023 increased compared with 2016the same period in 2022 primarily due to the factors discussed above.improved performance at NobelClad. See "Overview"“Use of Non-GAAP Financial Measures” 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 September 30, |
| 2023 | | 2022 |
Net income | $ | 11,525 | | | $ | 8,213 | |
Interest expense, net | 2,392 | | | 1,771 | |
Income tax provision | 4,087 | | | 3,537 | |
Depreciation | 3,460 | | | 3,541 | |
Amortization of purchased intangible assets | 5,667 | | | 7,385 | |
EBITDA | 27,131 | | | 24,447 | |
Stock-based compensation | 1,832 | | | 2,242 | |
CEO transition expenses (1) | 805 | | | — | |
| | | |
Restructuring expenses and asset impairments | 515 | | | 8 | |
| | | |
| | | |
| | | |
| | | |
| | | |
Other income, net | (302) | | | (120) | |
Adjusted EBITDA | 29,981 | | | 26,577 | |
Less: adjusted EBITDA attributable to redeemable noncontrolling interest | (5,374) | | | (4,826) | |
Adjusted EBITDA attributable to DMC Global Inc. | $ | 24,607 | | | $ | 21,751 | |
(1) The Company and its former CEO entered into a separation agreement in the first quarter of 2023. In conjunction with this event as well as a reprioritization of near-term initiatives, we incurred certain expenses during the third quarter of 2023 related to CEO transition and executive search firm costs of $805.
Adjusted Net Income and Adjusted Diluted Earnings per Share for the three months ended September 30, 2023 increased compared with the same period in 2022 primarily due to the factors discussed above. See "Use of Non-GAAP Financial Measures" 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 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 September 30, 2023 |
| | | | | | | Amount | | Per Share (1) |
Net income attributable to DMC Global Inc. (2) | | | | | | | $ | 8,883 | | | $ | 0.45 | |
CEO transition expenses, net of tax | | | | | | | 620 | | | 0.03 | |
Restructuring expenses and asset impairments, net of tax | | | | | | | 358 | | | 0.02 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
As adjusted | | | | | | | $ | 9,861 | | | $ | 0.50 | |
(1) Calculated using diluted weighted average shares outstanding of 19,596,575
(2) Net income attributable to DMC Global Inc. prior to the adjustment of redeemable noncontrolling interest
| | | | | | | | | | | | | | | | | |
| | | | | | | Three months ended September 30, 2022 |
| | | | | | | Amount | | Per Share (1) |
Net income attributable to DMC Global Inc. (2) | | | | | | | $ | 6,717 | | | $ | 0.35 | |
| | | | | | | | | |
| | | | | | | | | |
NobelClad restructuring expenses, net of tax | | | | | | | 5 | | | — | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
As adjusted | | | | | | | $ | 6,722 | | | $ | 0.35 | |
(1) Calculated using diluted weighted average shares outstanding of 19,381,794
(2) Net income attributable to DMC Global Inc. prior to the adjustment of redeemable noncontrolling interest
Nine months ended September 30, 20172023 compared with nine months ended September 30, 20162022
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine months ended September 30, | | | | | | |
| 2023 | | 2022 | | $ change | | % change | | | | |
Net sales | $ | 545,152 | | | $ | 479,012 | | | $ | 66,140 | | | 14 | % | | | | |
Gross profit | 166,698 | | | 140,343 | | | 26,355 | | | 19 | % | | | | |
Gross profit percentage | 30.6 | % | | 29.3 | % | | | | | | | | |
COSTS AND EXPENSES: | | | | | | | | | | | |
General and administrative expenses | 60,285 | | | 56,330 | | | 3,955 | | | 7 | % | | | | |
% of net sales | 11.1 | % | | 11.8 | % | | | | | | | | |
Selling and distribution expenses | 36,978 | | | 31,383 | | | 5,595 | | | 18 | % | | | | |
% of net sales | 6.8 | % | | 6.6 | % | | | | | | | | |
Amortization of purchased intangible assets | 17,001 | | | 33,154 | | | (16,153) | | | (49 | %) | | | | |
% of net sales | 3.1 | % | | 6.9 | % | | | | | | | | |
| | | | | | | | | | | |
Restructuring expenses and asset impairments | 515 | | | 53 | | | 462 | | | 872 | % | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Operating income | 51,919 | | | 19,423 | | | 32,496 | | | 167 | % | | | | |
Other expense, net | (337) | | | (35) | | | (302) | | | 863 | % | | | | |
Interest expense, net | (7,205) | | | (4,058) | | | (3,147) | | | 78 | % | | | | |
Income before income taxes | 44,377 | | | 15,330 | | | 29,047 | | | 189 | % | | | | |
Income tax provision | 13,187 | | | 4,938 | | | 8,249 | | | 167 | % | | | | |
Net income | 31,190 | | | 10,392 | | | 20,798 | | | 200 | % | | | | |
Net income attributable to redeemable noncontrolling interest | 7,695 | | | 1,411 | | | 6,284 | | | 445 | % | | | | |
Net income attributable to DMC Global Inc. | 23,495 | | | 8,981 | | | 14,514 | | | 162 | % | | | | |
Adjusted EBITDA attributable to DMC Global Inc. | $ | 76,474 | | | $ | 54,618 | | | $ | 21,856 | | | 40 | % | | | | |
|
| | | | | | | | | | | | | | | |
| | 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 sales increasedwere $545,152 for the nine months ended September 30, 2023, an increase of 14% compared with 2016 due to a 68% increasethe same period in DynaEnergetics' net sales due to increased onshore unconventional drilling and completion activity in North America and strong demand for DynaEnergetics' intrinsically-safe, addressable initiating systems. This increase partially was offset by a 21% decline 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 better project mix in NobelClad.
General and administrative expenses increased compared with 20162022, 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 salariesunit sales of DynaEnergetics’ DS perforating systems, higher customer pricing at Arcadia in response to raw material and benefitslabor inflation, as well as improved performance at NobelClad attributable to increased activity in core energy and higher outside services expenses.petrochemical end markets.
Restructuring expenses for 2017 relatedGross profit percentage was 30.6% versus 29.3% in 2022. The improvement compared to the announced closure of DynaEnergetics operations in Kazakhstan. In 2016, restructuring expenses related to severance 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 of 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 2016 dueprior year was attributable to the goodwill impairment charge. However, the charge was offset byimpact of higher sales volume on fixed manufacturing overhead expenses, primarily due to increases in unit sales of DS perforating systems at DynaEnergetics. Favorable project mix at NobelClad and favorable product mixmargin recovery at Arcadia also contributed to the improved performance.
General and administrative expenses increased $3,955 for the nine months ended September 30, 2023 compared with the same period in DynaEnergetics.2022. The increase was driven by $4,343 of CEO transition charges, which was partially offset by lower business related travel of $472.
Selling and distribution expenses increased $5,595 for the nine months ended September 30, 2023 compared with the same period in 2022. The higher expense was primarily due to increases in compensation costs of $3,738, marketing and other outside services costs of $1,204, and freight and supplies costs of $506.
Amortization of purchased intangible assets decreased $16,153 for the nine months ended September 30, 2023 compared to the same period in 2022 as the Arcadia customer backlog purchased intangible asset was fully amortized in 2022.
Operating income was $51,919 for the nine months ended September 30, 2023 compared to $19,423 in the same period last year. The increase in operating income was the result of improved financial performance at all business segments.
Other income (expense),expense, net in 2017of$337for the nine months ended September 30, 2023 primarily was made up ofrelated to net realized and unrealized foreign currency exchange losses. In 2016, other income (expense), net principally consisted of realizedCurrency 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
Interest income (expense),expense, net increased compared with 2016 primarily due to expensing $261 of deferred debt issuance costs in conjunction with amending our credit facility in March 2017 combined with higher interest rates on a higher average outstanding line of credit balance.
Income tax provision of $1,956$7,205 for the nine months ended September 30, 20172023 increased 78% compared with $321 for the same period of 2016. We currently are unable to recognize tax benefits associated with losses incurred in certain jurisdictions 2022due to valuation allowancesan increase in floating interest rates related to the Term Loan.
Income tax provision of $13,187 was recorded against deferred tax assets in those jurisdictions.
Net loss on income before income taxes of $44,377 for the nine months ended September 30, 20172023. Our most significant operations are in the United States, which has a 21% statutory income tax rate, and Germany, which has a 32% 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. The current year effective rate was $16,892, or $1.18 per diluted share,impacted unfavorably by the geographic mix of pretax income, state taxes, and certain compensation expenses that are not tax deductible in the U.S. In addition, the effective rate was impacted unfavorably by discrete stock-based compensation impacts of $1,401. The operating results of Arcadia that are attributable to the redeemable noncontrolling interest holder are not taxed at DMC, which resulted in a favorable impact to the effective tax rate. We recorded an income tax provision of $4,938 on income before income taxes of $15,330 for the nine months ended September 30, 2022. The prior year effective rate was impacted unfavorably by discrete stock-based compensation impacts of $454. The rate was also impacted by the same factors previously discussed.
Net income attributable to DMC Global Inc. for the nine months ended September 30, 2023 was $23,495, compared to $4,316, or $0.31 per diluted share,$8,981 for the same period in 2016.2022.
Adjusted EBITDA for the nine months ended September 30, 2023 increased compared with 2016the same period in 2022 primarily due to the factors discussed above. See "Overview"“Use of Non-GAAP Financial Measures” 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.
| | | | | | | | | | | | |
| Nine months ended September 30, | |
| 2023 | | 2022 | |
Net income | $ | 31,190 | | | $ | 10,392 | | |
Interest expense, net | 7,205 | | | 4,058 | | |
Income tax provision | 13,187 | | | 4,938 | | |
Depreciation | 10,294 | | | 10,578 | | |
Amortization of purchased intangible assets | 17,001 | | | 33,154 | | |
EBITDA | 78,877 | | | 63,120 | | |
Stock-based compensation | 8,558 | | | 6,891 | | |
CEO transition expenses (1) | 4,343 | | | — | | |
Restructuring expenses and asset impairments | 515 | | | 53 | | |
| | | | |
| | | | |
Amortization of acquisition-related inventory valuation step-up | — | | | 430 | | |
| | | | |
| | | | |
| | | | |
Other expense, net | 337 | | | 35 | | |
Adjusted EBITDA | 92,630 | | | 70,529 | | |
Less: adjusted EBITDA attributable to redeemable noncontrolling interest | (16,156) | | | (15,911) | | |
Adjusted EBITDA attributable to DMC Global Inc. | $ | 76,474 | | | $ | 54,618 | | |
(1) The Company and its former CEO entered into a separation agreement in the first quarter of 2023. In conjunction with this event as well as a reprioritization of near-term initiatives, we incurred certain expenses, primarily including: (a) severance-related charges for the former CEO and other impacted employees of $1,948; (b) CEO transition and executive search firm costs of $1,893; and (c) contract termination costs of $350.
Adjusted Net Income and Adjusted Diluted Earnings per Share increased for the nine months ended September 30, 2023 compared with the same period in 2022 primarily due to the factors discussed above. See "Use of Non-GAAP Financial Measures" 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 |
|
| | | | | | | | | | | | |
| | Nine months ended September 30, 2023 |
| | Amount | | Per Share (1) |
Net income attributable to DMC Global Inc. (2) | | $ | 23,495 | | | $ | 1.20 | |
| | | | |
CEO transition expenses and accelerated stock-based compensation, net of tax (3) | | 6,284 | | | 0.32 | |
| | | | |
| | | | |
| | | | |
Restructuring expenses and asset impairments, net of tax | | 358 | | | 0.02 | |
| | | | |
| | | | |
As adjusted | | $ | 30,137 | | | $ | 1.54 | |
(1) Calculated using diluted weighted average shares outstanding of 19,540,978
(2) Net income attributable to DMC Global Inc. prior to the adjustment of redeemable noncontrolling interest.
(3) Includes CEO transition expenses of $4,343 and accelerated stock-based compensation of $3,040 related to the vesting of the former CEO’s outstanding equity awards, net of tax.
| | | | | | | | | | | | |
| | Nine months ended September 30, 2022 |
| | Amount | | Per Share (1) |
Net income attributable to DMC Global Inc. (2) | | $ | 8,981 | | | 0.47 | |
Amortization of acquisition-related inventory valuation step-up, net of tax | | 199 | | | 0.01 | |
| | | | |
NobelClad restructuring expenses, net of tax | | 36 | | | — | |
| | | | |
| | | | |
| | | | |
| | | | |
As adjusted | | $ | 9,216 | | | $ | 0.48 | |
(1) Calculated using diluted weighted average shares outstanding of 19,357,333
(2) Net income attributable to DMC Global Inc. prior to the adjustment of redeemable noncontrolling interest
Business Segment Financial Information
We primarily evaluate performance and allocate resources based on segment revenues, operating income and adjustedAdjusted 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 unallocated stock-based compensation, other income (expense), net, other expense, netand interest expense, and income tax provision.net.
NobelClad
Three months ended September 30, 20172023 compared with three months ended September 30, 20162022
| | | | Three months ended September 30, | | | | | | Three months ended September 30, | |
| | 2017 | | 2016 | | $ change | | % change | | 2023 | | 2022 | | $ change | | % change |
Net sales | | $ | 16,841 |
| | $ | 16,915 |
| | $ | (74 | ) | | — | % | Net sales | $ | 71,455 | | | $ | 80,697 | | | $ | (9,242) | | | (11 | %) |
Gross profit | | 3,560 |
| | 3,112 |
| | 448 |
| | 14 | % | Gross profit | 23,789 | | | 23,892 | | | (103) | | | — | % |
Gross profit percentage | | 21.1 | % | | 18.4 | % | | | | | Gross profit percentage | 33.3 | % | | 29.6 | % | |
COSTS AND EXPENSES: | | | | | | | | | COSTS AND EXPENSES: | |
General and administrative expenses | | 1,210 |
| | 907 |
| | 303 |
| | 33 | % | General and administrative expenses | 7,413 | | | 8,782 | | | (1,369) | | | (16 | %) |
Selling and distribution expenses | | 1,696 |
| | 1,409 |
| | 287 |
| | 20 | % | Selling and distribution expenses | 4,248 | | | 4,135 | | | 113 | | | 3 | % |
Amortization of purchased intangible assets | | 100 |
| | 95 |
| | 5 |
| | 5 | % | Amortization of purchased intangible assets | 5,652 | | | 7,233 | | | (1,581) | | | (22 | %) |
Goodwill impairment charge | | 17,584 |
| | — |
| | 17,584 |
| | — | % | |
Operating income (loss) | | (17,030 | ) | | 701 |
| | (17,731 | ) | | (2,529 | )% | |
| Operating income | | Operating income | 6,476 | | | 3,742 | | | 2,734 | | | 73 | % |
Adjusted EBITDA | | $ | 1,486 |
| | $ | 1,707 |
| | $ | (221 | ) | | (13 | )% | Adjusted EBITDA | 13,434 | | | 12,065 | | | 1,369 | | | 11 | % |
Less: adjusted EBITDA attributable to redeemable noncontrolling interest | | Less: adjusted EBITDA attributable to redeemable noncontrolling interest | (5,374) | | | (4,826) | | | 548 | | | 11 | % |
Adjusted EBITDA attributable to DMC Global Inc. | | Adjusted EBITDA attributable to DMC Global Inc. | $ | 8,060 | | | $ | 7,239 | | | 821 | | | 11 | % |
Net sales were flatdecreased $9,242 for the three months ended September 30, 2023 compared with 2016.
Gross profit percentage increased compared with 2016to the same period in 2022 primarily due to better margins onlower customer pricing in response to reductions in base aluminum metal prices, and lower sales volumes driven by softer demand for commercial interior products and brief operational challenges from the miximplementation of projectsa new ERP system.
Gross profit percentage increased to 33.3% for the three months ended September 30, 2023 compared to 29.6% for the same period in the current year.2022 primarily due to decreases in base aluminum metal prices which exceeded declines in customer pricing.
General and administrative expensesdecreased $1,369 forthree months ended September 30, 2023 compared to the same period in 2022 due primarily to lower headcount and variable compensation.
Amortization of purchased intangible assets decreased $1,581 for the three months ended September 30, 2023 compared to the same period in 2022 as the customer backlog purchased intangible asset was fully amortized in 2022.
Operating income increased $2,734 for thethree months ended September 30, 2023 compared with 2016 primarily due to higher salaries and employee benefits.
Selling and distribution expenses increased compared with 2016 primarily from higher salaries and benefits due to increased investmentthe same period in business growth resources.
Goodwill impairment charge relates to fully impairing NobelClad's goodwill balance.
Operating loss was $17,030primarily2022 due to the goodwill impairment charge.factors discussed above.
Adjusted EBITDA declinedincreased for the three months ended September 30, 2023 compared with 2016 primarilythe same period in 2022 due to the factors discussed above. See "Overview"“Use of Non-GAAP Financial Measures” 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 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 |
|
| | | | | | | | | | | |
| Three months ended September 30, |
| 2023 | | 2022 |
Operating income | $ | 6,476 | | | $ | 3,742 | |
Adjustments: | | | |
| | | |
| | | |
Depreciation | 969 | | | 733 | |
Amortization of purchased intangible assets | 5,652 | | | 7,233 | |
Stock-based compensation | 337 | | | 357 | |
| | | |
| | | |
Adjusted EBITDA | 13,434 | | | 12,065 | |
Less: adjusted EBITDA attributable to redeemable noncontrolling interest | (5,374) | | | (4,826) | |
Adjusted EBITDA attributable to DMC Global Inc. | $ | 8,060 | | | $ | 7,239 | |
Nine months ended September 30, 20172023 compared with nine months ended September 30, 20162022
|
| | | | | | | | | | | | | | | |
| | 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 | )% |
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine months ended September 30, | | | | |
| 2023 | | 2022 | | $ change | | % change |
Net sales | $ | 230,951 | | | $ | 225,127 | | | $ | 5,824 | | | 3 | % |
Gross profit | 73,342 | | | 70,364 | | | 2,978 | | | 4 | % |
Gross profit percentage | 31.8 | % | | 31.3 | % | | | | |
COSTS AND EXPENSES: | | | | | | | |
General and administrative expenses | 23,476 | | | 22,337 | | | 1,139 | | | 5 | % |
Selling and distribution expenses | 13,721 | | | 11,832 | | | 1,889 | | | 16 | % |
Amortization of purchased intangible assets | 16,956 | | | 32,674 | | | (15,718) | | | (48 | %) |
| | | | | | | |
| | | | | | | |
Operating income | 19,189 | | | 3,521 | | | 15,668 | | | 445 | % |
Adjusted EBITDA | 40,390 | | | 39,777 | | | 613 | | | 2 | % |
Less: adjusted EBITDA attributable to redeemable noncontrolling interest | (16,156) | | | (15,911) | | | 245 | | | 2 | % |
Adjusted EBITDA attributable to DMC Global Inc. | $ | 24,234 | | | $ | 23,866 | | | 368 | | | 2 | % |
Net sales decreasedincreased $5,824 for the nine months ended September 30, 2023 compared with 2016 due to a recent declinethe same period 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.
Gross profit percentage increased compared with 2016 primarily due to better margins on the mix of projects in the current year.
General and administrative expenses increased compared with 20162022 primarily due to higher salariescustomer pricing in response to raw material and employee benefits.labor inflation.
Gross profit percentage increased to 31.8% for the nine months ended September 30, 2023 primarily due to higher customer pricing implemented to offset significant cost inflation and to restore margins to historical levels.
General and administrative expenses were higher by $1,139 for thenine months ended September 30, 2023 compared to the same period in 2022 due to increases in outside services costs of $607 primarily attributable to the implementation of a new ERP system, depreciation expense of $248, and stock-based compensation expense of $200.
Selling and distribution expensesincreased $1,889 for thenine months ended September 30, 2023 compared with 2016 primarily from higher salaries and benefitsto the same period in 2022 due to higher compensation costs.
Amortization of purchased intangible assets decreased $15,718 for the nine months ended September 30, 2023 compared to the same period in 2022 as the customer backlog purchased intangible asset was fully amortized in 2022.
Operating income increased investment$15,668 for thenine months ended September 30, 2023 compared to the same period in business growth resources and higher outside services expenses.
Goodwill impairment charge relates to fully impairing NobelClad's goodwill balance.
Operating loss was$14,313primarily2022 due to the goodwill impairment charge combined with lower project volume and higher general and administrative as well as selling and distribution expenses.factors discussed above.
Adjusted EBITDA declinedincreasedfor the nine months ended September 30, 2023 compared with 2016 primarilythe same period in 2022 due to the factors discussed above. See "Overview"“Use of Non-GAAP Financial Measures” 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.
|
| | | | | | | | |
| | 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 |
|
| | | | | | | | | | | |
| Nine months ended September 30, |
| 2023 | | 2022 |
Operating income | $ | 19,189 | | | $ | 3,521 | |
Adjustments: | | | |
| | | |
| | | |
Depreciation | 2,675 | | | 2,144 | |
Amortization of purchased intangible assets | 16,956 | | | 32,674 | |
Stock-based compensation | 1,239 | | | 1,008 | |
CEO transition expenses | 331 | | | — | |
Amortization of acquisition-related inventory valuation step-up | — | | | 430 | |
Adjusted EBITDA | 40,390 | | | 39,777 | |
Less: adjusted EBITDA attributable to redeemable noncontrolling interest | (16,156) | | | (15,911) | |
Adjusted EBITDA attributable to DMC Global Inc. | $ | 24,234 | | | $ | 23,866 | |
DynaEnergetics
Three months ended September 30, 20172023 compared with three months ended September 30, 20162022 | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | | | |
| 2023 | | 2022 | | $ change | | % change |
Net sales | $ | 72,998 | | | $ | 70,372 | | | $ | 2,626 | | | 4 | % |
Gross profit | 19,585 | | | 21,237 | | | (1,652) | | | (8 | %) |
Gross profit percentage | 26.8 | % | | 30.2 | % | | | | |
COSTS AND EXPENSES: | | | | | | | |
General and administrative expenses | 3,095 | | | 4,924 | | | (1,829) | | | (37 | %) |
Selling and distribution expenses | 5,604 | | | 4,257 | | | 1,347 | | | 32 | % |
Amortization of purchased intangible assets | 15 | | | 78 | | | (63) | | | (81 | %) |
| | | | | | | |
| | | | | | | |
Operating income | 10,871 | | | 11,978 | | | (1,107) | | | (9 | %) |
Adjusted EBITDA | $ | 12,568 | | | $ | 13,935 | | | $ | (1,367) | | | (10 | %) |
|
| | | | | | | | | | | | | | | |
| | 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 thanincreased $2,626 for the three months ended September 30, 2023 compared to the same period in 20162022 due to an increase in unit sales of DS perforating systems. International sales increased 13% while North American sales increased 2%.
Gross profit percentage decreased to 26.8% for the three months ended September 30, 2023 primarily due to increased demand for its intrinsically-safe, addressable initiating systems, coupled withlower absorption of fixed manufacturing overhead costs and an active unconventional well-completion industry in North America.unfavorable customer mix.
Gross profit percentage increased compared with 2016 due to higher average selling prices, improved product mix and the favorable impact of higher volume on fixed overhead expenses.
General and administrative expenses increasedwere lower by $1,829 for the three months ended September 30, 2023 compared with 2016 primarilyto the same period in 2022 due to higher outside legal expenses related todecreases in patent infringement defenselitigation costs of $1,305, compensation costs of $231, and depreciation expense of $146.
Selling and distribution expensesincreased $1,347 for thethree months ended September 30, 2023 compared to the same period in 2022 due to increases in bad debt expense of $408, compensation costs of $352, marketing costs of $345, as well as increasesfreight and other supplies expense of $203.
Operating income decreased $1,107 for thethree months ended September 30, 2023 compared to the same period in salaries and employee benefits.2022 due to the factors discussed above.
Selling and distribution expenses increasedAdjusted EBITDAdecreased for the three months ended September 30, 2023 compared with 2016 primarily due to higher salaries and employee benefits.
Restructuring expenses the same period in 2016 included severance adjustments related to headcount reductions announced in prior quarters, lease termination costs to exit administrative offices in Austin, Texas, and relocation of perforating gun manufacturing in Germany.
Operating income was$6,867 due to higher unit volume, favorable product mix and higher average selling prices, partially offset by increased general and administrative expenses and selling and distribution expenses.
Adjusted EBITDA increased compared with 20162022 due to the factors discussed above. See "Overview"“Use of Non-GAAP Financial Measures” 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 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 |
|
| | | | | | | | | | | |
| Three months ended September 30, |
| 2023 | | 2022 |
Operating income | $ | 10,871 | | | $ | 11,978 | |
Adjustments: | | | |
| | | |
| | | |
Depreciation | 1,682 | | | 1,879 | |
Amortization of purchased intangible assets | 15 | | | 78 | |
Adjusted EBITDA | $ | 12,568 | | | $ | 13,935 | |
Nine months ended September 30, 20172023 compared with nine months ended September 30, 20162022
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine months ended September 30, | | | | |
| 2023 | | 2022 | | $ change | | % change |
Net sales | $ | 239,720 | | | $ | 186,776 | | | $ | 52,944 | | | 28 | % |
Gross profit | 70,574 | | | 53,805 | | | 16,769 | | | 31 | % |
Gross profit percentage | 29.4 | % | | 28.8 | % | | | | |
COSTS AND EXPENSES: | | | | | | | |
General and administrative expenses | 12,869 | | | 14,657 | | | (1,788) | | | (12 | %) |
Selling and distribution expenses | 15,888 | | | 12,318 | | | 3,570 | | | 29 | % |
Amortization of purchased intangible assets | 45 | | | 245 | | | (200) | | | (82 | %) |
| | | | | | | |
| | | | | | | |
Operating income | 41,772 | | | 26,585 | | | 15,187 | | | 57 | % |
Adjusted EBITDA | $ | 46,984 | | | $ | 32,493 | | | $ | 14,491 | | | 45 | % |
|
| | | | | | | | | | | | | | | |
| | 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 wereincreased $52,944 for the nine months ended September 30, 2023 compared to the same period in 2022 due to higher thanNorth American drilling and well completions, which led to increased demand for DS perforating systems. International sales also increased 26% for the nine months ended September 30, 2023 compared to the same period in 20162022.
Gross profit percentageincreased to 29.4% for the nine months ended September 30, 2023 compared to 28.8% in the same period in 2022 primarily due to increased onshore unconventional drilling and completion activity in North America and strong demand for DynaEnergetics' intrinsically-safe, addressable initiating systems.
Gross profit percentage increased compared with 2016 due to higher average selling prices, improved product mix and the favorable impact of higher sales volume on fixed manufacturing overhead expenses.
General and administrative expenses increaseddecreased $1,788 for the nine months ended September 30, 2023 compared with 2016to the same period in 2022 due to lower patent infringement litigation costs of $1,155 and depreciation expense of $400.
Selling and distribution expenseswere higher by $3,570 for the nine months ended September 30, 2023 compared to the same period in 2022 primarily due to higher outside legal expenses related to patent infringement defense costs.increases in marketing costs of $1,181, compensation costs of $1,026, freight and other supplies expense of $717, bad debt expense of $386, and business-related travel of $160.
Restructuring expenses in 2017 relatedOperating income increased $15,187for the nine months ended September 30, 2023 compared to the announced closure of operations same period 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$8,9082022 due to higher unit volume, favorable product mix and higher average selling prices, partially offset by increased general and administrative expenses.the factors discussed above.
Adjusted EBITDAincreased for the nine months ended September 30, 2023 compared with 2016to the same period in 2022 due to the factors discussed above. See "Overview"“Use of Non-GAAP Financial Measures” 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.
| | | | | | | | | | | |
| Nine months ended September 30, |
| 2023 | | 2022 |
Operating income | $ | 41,772 | | | $ | 26,585 | |
Adjustments: | | | |
| | | |
| | | |
Depreciation | 5,167 | | | 5,663 | |
Amortization of purchased intangible assets | 45 | | | 245 | |
Adjusted EBITDA | $ | 46,984 | | | $ | 32,493 | |
|
| | | | | | | | |
| | 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 |
|
NobelClad
Three months ended September 30, 2023 compared with three months ended September 30, 2022 | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | | | |
| 2023 | | 2022 | | $ change | | % change |
Net sales | $ | 27,694 | | | $ | 23,396 | | | $ | 4,298 | | | 18 | % |
Gross profit | 9,309 | | | 6,325 | | | 2,984 | | | 47 | % |
Gross profit percentage | 33.6 | % | | 27.0 | % | | | | |
COSTS AND EXPENSES: | | | | | | | |
General and administrative expenses | 1,106 | | | 1,475 | | | (369) | | | (25 | %) |
Selling and distribution expenses | 2,531 | | | 2,263 | | | 268 | | | 12 | % |
Amortization of purchased intangible assets | — | | | 74 | | | (74) | | | (100 | %) |
Restructuring expenses and asset impairments | 440 | | | 8 | | | 432 | | | 5,400 | % |
| | | | | | | |
Operating income | 5,232 | | | 2,505 | | | 2,727 | | | 109 | % |
Adjusted EBITDA | $ | 6,384 | | | $ | 3,412 | | | $ | 2,972 | | | 87 | % |
Net sales increased $4,298 for the three months ended September 30, 2023 compared to the same period in 2022 due primarily to higher activity in core energy and petrochemical end markets, including increased pressure vessel plate shipments.
Gross profit percentage increased to 33.6% for the three months ended September 30, 2023 due to a more favorable project and regional mix, as well as the impact of higher sales on fixed manufacturing overhead expenses.
General and administrative expenses decreased $369 for the three months ended September 30, 2023 compared to the same period in 2022 due to lower outside services costs driven by a decrease in ERP system implementation costs.
Selling and distribution expenses increased $268 for the three months ended September 30, 2023 compared to the same period in 2022 due primarily to higher compensation costs of $289, partially offset by a decrease in bad debt expense of $58.
Restructuring expenses and asset impairments increased $432 for thethree months ended September 30, 2023 compared to the same period in 2022 due to the impairment of a manufacturing asset that was removed from production.
Operating income increased $2,727 for thethree months ended September 30, 2023 compared to the same period in 2022 due primarily to an increase in gross profit.
Adjusted EBITDA increased for the three months ended September 30, 2023 compared with the same period in 2022 primarily due to the factors discussed above. See “Use of Non-GAAP Financial Measures” 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 September 30, |
| 2023 | | 2022 |
Operating income | $ | 5,232 | | | $ | 2,505 | |
Adjustments: | | | |
Depreciation | 712 | | | 825 | |
Amortization of purchased intangible assets | — | | | 74 | |
Restructuring expenses and asset impairments | 440 | | | 8 | |
| | | |
| | | |
| | | |
Adjusted EBITDA | $ | 6,384 | | | $ | 3,412 | |
Nine months ended September 30, 2023 compared with nine months ended September 30, 2022 | | | | | | | | | | | | | | | | | | | | | | | |
| Nine months ended September 30, | | | | |
| 2023 | | 2022 | | $ change | | % change |
Net sales | $ | 74,481 | | | $ | 67,109 | | | $ | 7,372 | | | 11 | % |
Gross profit | 23,113 | | | 16,532 | | | 6,581 | | | 40 | % |
Gross profit percentage | 31.0 | % | | 24.6 | % | | | | |
COSTS AND EXPENSES: | | | | | | | |
General and administrative expenses | 2,978 | | | 3,644 | | | (666) | | | (18 | %) |
Selling and distribution expenses | 7,135 | | | 6,910 | | | 225 | | | 3 | % |
Amortization of purchased intangible assets | — | | | 235 | | | (235) | | | (100 | %) |
Restructuring expenses and asset impairments | 440 | | | 53 | | | 387 | | | 730 | % |
| | | | | | | |
Operating income | 12,560 | | | 5,690 | | | 6,870 | | | 121 | % |
Adjusted EBITDA | $ | 15,152 | | | $ | 8,468 | | | $ | 6,684 | | | 79 | % |
Net sales increased $7,372 for the nine months ended September 30, 2023 compared to the same period in 2022 due primarily to higher activity in core energy and petrochemical end markets, including increased pressure vessel plate shipments.
Gross profit percentage increased to 31.0% for the nine months ended September 30, 2023 due to a more favorable project and regional mix, as well as the impact of higher sales on fixed manufacturing overhead expenses.
General and administrative expenses decreased $666 for the nine months ended September 30, 2023 compared to the same period in 2022 due primarily to lower outside services costs driven by a decrease in ERP system implementation costs.
Selling and distribution expenses increased $225 for the nine months ended September 30, 2023 compared to the same period in 2022 due primarily to higher variable incentive compensation due to improved performance against target metrics.
Restructuring expenses and asset impairments increased $387 for thenine months ended September 30, 2023 compared to the same period in 2022 due to the impairment of a manufacturing asset that was removed from production.
Operating income increased $6,870 for the nine months ended September 30, 2023 compared to the same period in 2022 due primarily to higher gross profit and lower general and administrative expenses.
Adjusted EBITDA increased for the nine months ended September 30, 2023 compared to the same period in 2022 due to the factors discussed above. See “Use of Non-GAAP Financial Measures” 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.
| | | | | | | | | | | |
| Nine months ended September 30, |
| 2023 | | 2022 |
Operating income | $ | 12,560 | | | $ | 5,690 | |
Adjustments: | | | |
Depreciation | 2,152 | | | 2,490 | |
Amortization of purchased intangible assets | — | | | 235 | |
| | | |
Restructuring expenses and asset impairments | 440 | | | 53 | |
| | | |
Adjusted EBITDA | $ | 15,152 | | | $ | 8,468 | |
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. Our net debt position was $83,884 at September 30, 2023 compared to $107,654 at December 31, 2022. The decrease in net debt through the first nine months of 2023 was due primarily to $13,750 in Term Loan repayments and a $7,516 investment in marketable securities. We have a fully undrawn $50,000 revolving credit facility at September 30, 2023.
We believe that cash and cash equivalents on hand, marketable securities, cash flow from operations, and funds available under our current credit facilities and any future replacement thereof will be sufficient to fund the working capital, required minimum debt interest service dividend payments, and other capital expenditure requirements of our current business operations for the foreseeable future.
We may also execute capital markets transactions, including at-the-market offering programs, to raise additional funds if we believe market conditions are favorable, but there can be no assurance that any future capital will be available on acceptable terms or at all. 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 with the Securities and Exchange Commission, which has been declared effective, and on which we registered for sale upWe will continue 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 bymonitor financial market conditions, atincluding the time of any future potential offering. There can be no assurance that any suchrelated impact on credit availability and capital will be available on acceptable terms or at all.markets.
Debt facilities
As ofOn December 31, 2016,23, 2021, we hadentered into a $75,000five-year $200,000 syndicated credit agreement (“credit facility”) that allowedwhich included a $150,000 Term Loan, which is amortizable at 10% of principal per year with a balloon payment for the outstanding balance upon the credit facility maturity date in 2026, and allows for revolving loans of $65,000 in U.S. dollars and $10,000 in alternative currencies as well as a $25,000up to $50,000. The credit facility has an 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$100,000 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 by adding 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 of credit with a German bank for certain DynaEnergetics operations. This line of credit provides a borrowing capacity of €4,000.
As of September 30, 2017, U.S. dollar revolving loans of $22,250 were outstanding under our credit facility. While we had approximately $12,750 of available revolving credit loan capacity as of September 30, 2017 under our various credit facilities, future borrowings are subject to compliance with financial covenants that could significantly limit such availability.
There are currently two significant financial covenants under our credit facility, a debt-to-EBITDA leverage ratio ("leverage ratio") and a minimum EBITDA covenant ratio. The leverage ratio is defined inentered into the credit facility with a syndicate of four banks, with KeyBank, N.A. acting as amended, for any trailing four quarter period,administrative agent. The credit facility is secured by the assets of DMC including accounts receivable, inventory, and fixed assets, including Arcadia and its subsidiary, as well as guarantees and share pledges by DMC and its subsidiaries.
Borrowings under the ratio of Consolidated Funded Indebtedness (as defined$150,000 Term Loan and $50,000 revolving loan limit can be in the agreement)form of Adjusted Daily Simple Secured Overnight Financing Rate ("SOFR") loans or one month Adjusted Term SOFR loans. Additionally, U.S. dollar borrowings on the last dayrevolving loan can be in the form of such periodBase Rate loans (Base Rate borrowings are based on the greater of the administrative agent’s Prime rate, an adjusted Federal Funds rate or an adjusted SOFR rate). SOFR loans bear interest at the applicable SOFR rate plus an applicable margin (varying from 1.50% to Consolidated Pro Forma EBITDA for such period. For3.00%). Base Rate loans bear interest at the September 30, 2017 reporting period, the maximum leverage ratio permitted by our 2015 syndicateddefined Base rate plus an applicable margin (varying from 0.50% to 2.00%).
The credit facility as amended, was 3.50 to 1.0. The actual leverage ratio as of September 30, 2017, calculated in accordance with the credit facility, as amended, was 1.40 to 1.0. The minimum EBTIDA coverage covenant requires Consolidated Pro Forma EBITDA of at least $6,500 for the September 30, 2017 reporting period. The actual Consolidated Pro Forma EBITDA for the September 30, 2017 period, calculated in accordance with the 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,stockholders; redemption of capital stock, incurrence ofstock; incurring additional indebtedness,indebtedness; mortgaging, and pledging or disposition of major assets.assets; and maintenance of specified ratios. As of September 30, 2017,2023, we were in compliance with all financial covenants and other provisions of our debt agreements.
The leverage ratio is defined in the credit facility as the ratio of Consolidated Funded Indebtedness (as defined in the credit facility) on the last day of any trailing four quarter period to Consolidated Pro Forma EBITDA (as defined in the credit facility) for such period. Consolidated Pro Forma EBITDA equals Adjusted EBITDA as calculated within the Consolidated Results of Operations section plus certain predefined add-backs, which include up to $5,000 for one-time integration expenses incurred in the twelve-month period following the closing date of the Arcadia acquisition. The maximum leverage ratio permitted by our credit facility is 3.0 to 1.0 from the quarter ended June 30, 2023 and thereafter. The actual leverage ratio as of September 30, 2023, calculated in accordance with the credit facility, as amended, was 1.26 to 1.0.
The debt service coverage ratio is defined in the credit facility as the ratio of Consolidated Pro Forma EBITDA less the sum of capital distributions paid in cash (other than those made with respect to preferred stock issued under the Operating Agreement), Consolidated Unfunded Capital Expenditures (as defined in the credit facility), and net cash income taxes divided by the sum of cash interest expense, any dividends on the preferred stock paid in cash, and scheduled principal payments on funded indebtedness. Under our credit facility, the minimum debt service coverage ratio permitted is 1.35 to 1.0. The actual debt service coverage ratio for the trailing twelve months ended September 30, 2023 was 3.30 to 1.0.
As of September 30, 2023, borrowings of $121,250 on the Term Loan under our credit facility were outstanding. No amounts were outstanding on the $50,000 revolver as of September 30, 2023.
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 on which no amounts were outstanding as of September 30, 2023.
Redeemable noncontrolling interest
The Operating Agreement for Arcadia contains a right for the Company to purchase the remaining interest in Arcadia from the minority interest holder on or after the third anniversary of the acquisition closing date (“Call Option”). Similarly, the minority interest holder of Arcadia has the right to sell its remaining interest in Arcadia to the Company on or after the third anniversary of the acquisition closing date (“Put Option”). Both the Call Option and Put Option enable the respective holder to exercise their rights based upon a predefined calculation as included within the Operating Agreement.
As of September 30, 2023, the settlement amount of the redeemable noncontrolling interest of $187,522 remains unchanged from December 31, 2022. Refer to Note 2 within Item 1 for further information related to the valuation of the redeemable noncontrolling interest.
Other contractual obligations and commitments
Our long-term debt balance, increasednet of deferred debt issuance costs, decreased to $22,250$119,460 at September 30, 20172023 from $16,250$132,798 at December 31, 2016.2022 for the reasons discussed above. Our other contractual obligations and commitments have not materially changed since December 31, 2016.2022.
Cash flows fromprovided by (used in) operating activities
Net cash provided by operating activities was $518$42,748 for the nine months ended September 30, 2017 and2023 compared to $24,335 in the declinesame period last year. The increase was primarily due to increasedhigher net income and a reduction in working capital and tendering $3,049 in AD/CVD amounts to U.S. Customs in March 2017 pending ultimate resolution of the AD/CVD case.cash usage as activity levels have stabilized.
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 reduced accounts receivable and inventory outweighed increases in accounts payable
Cash flows fromused in investing activities
Net cash flows used in investing activities for the nine months ended September 30, 2017 were $3,297 and were primarily due2023 of $14,971 related to the acquisitions of property, plant and equipment.equipment of $7,455 and investment in marketable securities of $7,516. Net cash flows used in investing activities for the nine months ended September 30, 2016 totaled $4,008 and were primarily due2022 of $13,311 related to acquisitionsthe acquisition of property, plant and equipment.equipment and consideration adjustments attributable to the Arcadia acquisition.
Cash flows fromused in financing activities
Net cash flows provided by financing activities for the nine months ended September 30, 2017 totaled $4,805, which primarily included net borrowings on bank lines of credit of $6,000, payment of quarterly dividends of $880 and treasury stock purchases of $336.
Net cash flows used in financing activities for the nine months ended September 30, 2016 totaled $12,945, which2023 of $26,211 primarily included net repaymentsdistributions to the redeemable noncontrolling interest holder of $10,345, required quarterly principal payments and a prepayment on bank linesour Term Loan of credit$13,750, and treasury stock purchases of $12,250$2,328. Net cash flows used in financing activities for the nine months ended September 30, 2022 of $22,814 primarily included distributions to the redeemable noncontrolling interest holder of $10,293, required quarterly principal payments on our Term Loan of $11,250, and paymenttreasury stock purchases of quarterly dividends of $861. $1,092.
Payment of Dividends
On August 30, 2017, ourApril 23, 2020, DMC announced that its Board of Directors declared asuspended the quarterly cash dividend of $0.02 per share which was paid on October 16, 2017. The dividend of $295 was payableindefinitely due to shareholders of record as of September 30, 2017. We also paid quarterly cash dividends of $0.02 per share in the first and second quarter of 2017 and $0.02 per share inuncertain economic outlook caused by the first three quarters of 2016.
We may continue to pay quarterly dividends in the future subject to capital availability and periodic determinations that cash dividends are in compliance with our debt covenants and are in the best interests of our stockholders, but we cannot assure you that such payments will continue.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 PoliciesEstimates
Preparation of financial statements in conformity with generally accepted accounting principles in the United States requires that management make estimates, judgments and assumptions that affect the amounts reported for revenues, expenses, asset, liabilities, and other related disclosures. Our critical accounting policiesestimates have not changed from those reported in ourItem 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s Annual Report filed on Form 10-K for the year ended December 31, 2016.2022.
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, 2022.
ITEM 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, under the supervision and with the participation of the 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
During the third quarter of 2023, Arcadia implemented a new enterprise resource planning (ERP) system. As a result of this transition, certain changes to our processes and procedures resulted in changes to our internal controls over financial reporting. We expect the new ERP will strengthen our internal financial controls by providing operational and reporting enhancements. For further discussion of the risks associated with Arcadia’s internal control environment, see risk factor, “The acquisition of Arcadia is expected to materially complicate the timely achievement of effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act, which could have a material adverse effect on our business and stock price” in Part I, Item 1A, Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2022.
There were no other 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 1011 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, 2016.2022.
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 or distributions of shares of common stock pursuant to our Amended and Restated Non-Qualified Deferred Compensation Plan (“deferred compensation plan”) during the firstthird quarter of 2017,2023, we retained shares of common stock in satisfaction of withholding tax obligations. We also retained shares of common stock as the result of participants’ diversification of equity awards held in the deferred compensation plan into other investment options. These shares are held as treasury shares by the Company.
| | | | | | | | | | | | | | |
| | Total number of shares purchased (1) (2) | | Average price paid per share |
July 1 to July 31, 2023 | | — | | | $ | — | |
August 1 to August 31, 2023 | | 8,064 | | | $ | 18.47 | |
September 1 to September 31, 2023 | | 196 | | | $ | 24.27 | |
Total | | 8,260 | | | $ | 18.61 | |
|
| | | | | | | |
| | 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) All shares purchased in 2017Share purchases during the period were to offset tax withholding obligations that occuroccurred upon the(i) vesting of restricted common stock under the terms of the 2006 Stock2016 Equity Incentive Plan.Plan and (ii) distributions of shares of common stock pursuant to deferred compensation obligations.
(2) As of September 30, 2017,2023, the maximum number of shares that may yetcould be purchased would not exceed the employees’ portion of taxes to be withheld on unvested shares (548,800 shares).(451,281) and potential purchases upon participant elections to diversify equity awards held in the deferred compensation plan (94,001) 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 September 30, 2017,2023, 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 September 30, 2017,2023, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Comprehensive Income (Loss), (iv) the Condensed Consolidated Statement of Stockholders’ Equity (iv)and Redeemable Noncontrolling Interest, (v) the Condensed Consolidated Statements of Cash Flows, and (v)(vi) 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.
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| | | DMC Global Inc. |
| | | (Registrant) |
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Date: | October 26, 2017November 2, 2023 | | /s/ Michael KutaEric V. Walter |
| | | Michael Kuta,Eric V. Walter, Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer) |
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Date: | November 2, 2023 | | /s/ Brett Seger |
| | | Brett Seger, Chief Accounting Officer (Duly Authorized Officer and Principal Accounting Officer) |
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