UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 20202021
OR
☐ 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.) |
11800 Ridge Parkway, Suite 300, Broomfield, Colorado 80021
(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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐
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 growth company” in Rule 12b-2 of the Exchange
Act.
| | | | | | | | |
| Large accelerated filer ☐ | | Accelerated filer ☒ |
| | | |
| Non-accelerated filer ☐ | | Smaller reporting company ☐ |
| | |
| | Emerging growth company ☐ |
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 ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 under the Act). Yes ☐ No ☒
The number of shares of Common Stock outstanding was 14,773,72118,724,831 as of October 22, 2020.
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 theexpectations regarding improvements to DynaEnergetics’ end markets, planned reduction in spending and our 2020 capital budget,price increases at DynaEnergetics, our ability to access our ATM in the capital marketsfuture, our expected use of proceeds from equity offerings, expected continuing litigation costs, expected material and labor cost trends, the timing of shipment and financial impacts of NobelClad’s large titanium clad plate order received in the second quarter of 2021, the impacts of seasonality on DynaEnergetics’ business in the fourth quarter of 2021, our ability to claim the Employee Retention Credit (“ERC”) under the Coronavirus Aid, Relief, and Economic Security Act, as amended, and the availability of proceeds from our at-the-market offeringfunds to support our liquidity position and 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, 20192020 and such things as the following: impacts of COVID-19 and any related preventative or protective actions taken by governmental authorities and resulting economic impacts, including recessions or depressions; supply chain delays and disruptions; transportation disruptions; the ability to obtain new contracts at attractive prices; the size and timing of customer orders and shipments; product pricing and margins; our ability to realize sales from our backlog; fluctuations in customer demand; fluctuations in foreign currencies; competitive factors; the timely completion of contracts; the timing and size of expenditures; the timely receipt of government approvals and permits; the price and availability of metal and other raw material; fluctuations in tariffs or quotas; changes in laws and regulations, both domestic and foreign, impacting our business and the business of the end-market users we serve; the adequacy of local labor supplies at our facilities; current or future limits on manufacturing capacity at our various operations; our ability to successfully integrate acquired businesses; the impact of pending or future litigation or regulatory matters; the availability and cost of funds; our ability to access our borrowing capacity under our credit facility;facility or access the capital markets; and global economic conditions and political and economic developments, including the outcome of the U.S. presidential election and resulting energy and environmental policies.developments. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s analysis only as of the date hereof. We undertake no obligation to publicly release the results of any revision to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
INDEX
Part I - FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements
DMC GLOBAL INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands, Except Share and Per Share Data)
| | | | | | | | | | | |
| September 30, 2020 | | December 31, 2019 |
| (unaudited) | | |
| ASSETS | | | |
| Current assets: | | | |
| Cash and cash equivalents | $ | 24,604 | | | $ | 20,353 | |
| Accounts receivable, net of allowance for doubtful accounts of $2,709 and $967, respectively | 34,424 | | | 60,855 | |
| Inventories | 56,958 | | | 53,728 | |
| Prepaid expenses and other | 9,831 | | | 9,417 | |
| | | |
| | | |
| Total current assets | 125,817 | | | 144,353 | |
| Property, plant and equipment | 177,420 | | | 174,741 | |
| Less - accumulated depreciation | (70,018) | | | (66,507) | |
| Property, plant and equipment, net | 107,402 | | | 108,234 | |
| | | |
| | | |
| Purchased intangible assets, net | 4,383 | | | 5,880 | |
| Deferred tax assets | 4,070 | | | 3,836 | |
| Other assets | 17,611 | | | 15,118 | |
| Total assets | $ | 259,283 | | | $ | 277,421 | |
| | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
| Current liabilities: | | | |
| Accounts payable | $ | 22,123 | | | $ | 34,758 | |
| Accrued expenses | 7,375 | | | 6,903 | |
| | | |
| Dividend payable | 0 | | | 1,866 | |
| Accrued income taxes | 7,080 | | | 9,651 | |
| Accrued employee compensation and benefits | 7,376 | | | 10,668 | |
| Contract liabilities | 5,195 | | | 2,736 | |
| Current portion of long-term debt | 3,125 | | | 3,125 | |
| Other current liabilities | 1,804 | | | 1,716 | |
| | | |
| Total current liabilities | 54,078 | | | 71,423 | |
| Long-term debt | 8,867 | | | 11,147 | |
| | | |
| Deferred tax liabilities | 3,181 | | | 3,786 | |
| Other long-term liabilities | 23,206 | | | 18,924 | |
| Total liabilities | 89,332 | | | 105,280 | |
| Commitments and contingencies (Note 11) | | | |
| Stockholders’ equity | | | |
| Preferred stock, $0.05 par value; 4,000,000 shares authorized; 0 issued and outstanding shares | 0 | | | 0 | |
| Common stock, $0.05 par value; 25,000,000 shares authorized; 14,772,187 and 14,652,675 shares outstanding, respectively | 765 | | | 756 | |
| Additional paid-in capital | 90,069 | | | 85,639 | |
| Retained earnings | 116,584 | | | 119,002 | |
| Other cumulative comprehensive loss | (25,285) | | | (25,803) | |
| Treasury stock, at cost, and company stock held for deferred compensation, at par; 528,037 and 464,532 shares, respectively | (12,182) | | | (7,453) | |
| | | |
| | | |
| Total stockholders’ equity | 169,951 | | | 172,141 | |
| Total liabilities and stockholders’ equity | $ | 259,283 | | | $ | 277,421 | |
| | | | | | | | | | | |
| September 30, 2021 | | December 31, 2020 |
| (unaudited) | | |
| ASSETS | | | |
| Current assets: | | | |
| Cash and cash equivalents | $ | 37,020 | | | $ | 28,187 | |
| Marketable securities | 144,932 | | | 25,736 | |
| Accounts receivable, net of allowance for doubtful accounts of $2,693 and $2,605, respectively | 39,347 | | | 31,366 | |
| Inventories | 62,172 | | | 52,573 | |
| Prepaid expenses and other | 9,974 | | | 5,448 | |
| | | |
| | | |
| Total current assets | 293,445 | | | 143,310 | |
| Property, plant and equipment | 172,039 | | | 180,278 | |
| Less - accumulated depreciation | (66,902) | | | (70,867) | |
| Property, plant and equipment, net | 105,137 | | | 109,411 | |
| | | |
| | | |
| Purchased intangible assets, net | 1,829 | | | 3,665 | |
| Deferred tax assets | 5,747 | | | 4,582 | |
| Other assets | 30,217 | | | 18,677 | |
| Total assets | $ | 436,375 | | | $ | 279,645 | |
| | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
| Current liabilities: | | | |
| Accounts payable | $ | 24,436 | | | $ | 17,574 | |
| Accrued expenses | 7,459 | | | 5,301 | |
| | | |
| | | |
| Accrued income taxes | 8,101 | | | 7,279 | |
| Accrued employee compensation and benefits | 8,585 | | | 7,160 | |
| Contract liabilities | 9,759 | | | 4,928 | |
| Current portion of long-term debt | — | | | 3,125 | |
| Other current liabilities | 1,648 | | | 1,741 | |
| | | |
| Total current liabilities | 59,988 | | | 47,108 | |
| Long-term debt | — | | | 8,139 | |
| | | |
| Deferred tax liabilities | 1,373 | | | 2,254 | |
| Other long-term liabilities | 30,114 | | | 25,230 | |
| Total liabilities | 91,475 | | | 82,731 | |
| Commitments and contingencies (Note 12) | 0 | | 0 |
| 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; 19,294,745 and 15,917,559 shares issued, respectively | 965 | | | 796 | |
| Additional paid-in capital | 270,993 | | | 117,387 | |
| Retained earnings | 118,216 | | | 115,657 | |
| Other cumulative comprehensive loss | (25,803) | | | (22,962) | |
| Treasury stock, at cost, and company stock held for deferred compensation, at par; 569,914 and 528,274 shares, respectively | (19,471) | | | (13,964) | |
| | | |
| | | |
| Total stockholders’ equity | 344,900 | | | 196,914 | |
| Total liabilities and stockholders’ equity | $ | 436,375 | | | $ | 279,645 | |
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
DMC GLOBAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in Thousands, Except Share and Per Share Data)
(unaudited)
| | | Three months ended September 30, | | | Nine months ended September 30, | | | Three months ended September 30, | | Nine months ended September 30, |
| | | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
| Net sales | Net sales | $ | 55,281 | | | $ | 100,094 | | | $ | 172,048 | | | $ | 311,183 | | Net sales | $ | 67,175 | | | $ | 55,281 | | | $ | 188,271 | | | $ | 172,048 | |
| Cost of products sold | Cost of products sold | 41,688 | | | 63,870 | | | 127,381 | | | 196,481 | | Cost of products sold | 50,513 | | | 41,688 | | | 141,725 | | | 127,381 | |
| Gross profit | Gross profit | 13,593 | | | 36,224 | | | 44,667 | | | 114,702 | | Gross profit | 16,662 | | | 13,593 | | | 46,546 | | | 44,667 | |
| Costs and expenses: | Costs and expenses: | | | | | | | | Costs and expenses: | | | | | | | |
| General and administrative expenses | General and administrative expenses | 6,911 | | | 10,128 | | | 21,744 | | | 28,756 | | General and administrative expenses | 9,721 | | | 6,911 | | | 26,121 | | | 21,744 | |
| Selling and distribution expenses | Selling and distribution expenses | 4,705 | | | 6,983 | | | 18,720 | | | 20,531 | | Selling and distribution expenses | 5,593 | | | 4,705 | | | 16,380 | | | 18,720 | |
| Amortization of purchased intangible assets | Amortization of purchased intangible assets | 369 | | | 394 | | | 1,076 | | | 1,189 | | Amortization of purchased intangible assets | 211 | | | 369 | | | 823 | | | 1,076 | |
| | Restructuring expenses, net and asset impairments | 143 | | | 5,898 | | | 3,305 | | | 6,300 | | |
| Restructuring expenses and asset impairments | | Restructuring expenses and asset impairments | — | | | 143 | | | 127 | | | 3,305 | |
| | Total costs and expenses | Total costs and expenses | 12,128 | | | 23,403 | | | 44,845 | | | 56,776 | | Total costs and expenses | 15,525 | | | 12,128 | | | 43,451 | | | 44,845 | |
| Operating income (loss) | Operating income (loss) | 1,465 | | | 12,821 | | | (178) | | | 57,926 | | Operating income (loss) | 1,137 | | | 1,465 | | | 3,095 | | | (178) | |
| Other (expense) income: | | | | | | | | |
| Other income (expense): | | Other income (expense): | | | | | | | |
| Other (expense) income, net | Other (expense) income, net | (148) | | | 170 | | | (118) | | | 492 | | Other (expense) income, net | (198) | | | (148) | | | 304 | | | (118) | |
| Interest expense, net | Interest expense, net | (170) | | | (387) | | | (564) | | | (1,169) | | Interest expense, net | (14) | | | (170) | | | (230) | | | (564) | |
| Income (loss) before income taxes | Income (loss) before income taxes | 1,147 | | | 12,604 | | | (860) | | | 57,249 | | Income (loss) before income taxes | 925 | | | 1,147 | | | 3,169 | | | (860) | |
| Income tax provision (benefit) | Income tax provision (benefit) | 139 | | | 5,689 | | | (375) | | | 17,920 | | Income tax provision (benefit) | 522 | | | 139 | | | 610 | | | (375) | |
| | Net income (loss) | Net income (loss) | $ | 1,008 | | | $ | 6,915 | | | $ | (485) | | | $ | 39,329 | | Net income (loss) | $ | 403 | | | $ | 1,008 | | | $ | 2,559 | | | $ | (485) | |
| | | Net income (loss) per share | Net income (loss) per share | | | | | | | | Net income (loss) per share | | | | | | | |
| Basic | Basic | $ | 0.07 | | | $ | 0.47 | | | $ | (0.03) | | | $ | 2.67 | | Basic | $ | 0.02 | | | $ | 0.07 | | | $ | 0.15 | | | $ | (0.03) | |
| Diluted | Diluted | $ | 0.07 | | | $ | 0.46 | | | $ | (0.03) | | | $ | 2.64 | | Diluted | $ | 0.02 | | | $ | 0.07 | | | $ | 0.15 | | | $ | (0.03) | |
| Weighted average shares outstanding: | Weighted average shares outstanding: | | | | | | | | Weighted average shares outstanding: | | | | | | | |
| Basic | Basic | 14,820,881 | | | 14,632,276 | | | 14,759,062 | | | 14,589,655 | | Basic | 18,728,278 | | | 14,820,881 | | | 17,239,306 | | | 14,759,062 | |
| Diluted | Diluted | 14,820,881 | | | 14,851,166 | | | 14,759,062 | | | 14,800,132 | | Diluted | 18,739,085 | | | 14,820,881 | | | 17,250,525 | | | 14,759,062 | |
| | Dividends declared per common share | Dividends declared per common share | $ | 0 | | | $ | 0.125 | | | $ | 0.125 | | | $ | 0.165 | | Dividends declared per common share | $ | — | | | $ | — | | | $ | — | | | $ | 0.125 | |
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
DMC GLOBAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(Amounts in Thousands)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | | | Nine months ended September 30, | | |
| | 2020 | | 2019 | | 2020 | | 2019 |
| Net income (loss) | $ | 1,008 | | | $ | 6,915 | | | $ | (485) | | | $ | 39,329 | |
| | | | | | | |
| Change in cumulative foreign currency translation adjustment | 753 | | | (2,696) | | | 518 | | | (1,577) | |
| | | | | | | |
| Total comprehensive income | $ | 1,761 | | | $ | 4,219 | | | $ | 33 | | | $ | 37,752 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
| Net income (loss) | $ | 403 | | | $ | 1,008 | | | $ | 2,559 | | | $ | (485) | |
| | | | | | | |
| Change in cumulative foreign currency translation adjustment | (1,347) | | | 753 | | | (2,841) | | | 518 | |
| | | | | | | |
| Total comprehensive (loss) income | $ | (944) | | | $ | 1,761 | | | $ | (282) | | | $ | 33 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
DMC GLOBAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Amounts in Thousands, Except Share Data)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | Other | | Treasury Stock and | | | | |
| | | | | | Additional | | | | Cumulative | | Company Stock Held for | | | | |
| | Common Stock | | Paid-In | | Retained | | Comprehensive | | Deferred Compensation | | | | |
| | Shares | | Amount | | Capital | | Earnings | | Loss | | Shares | | Amount | | | | Total |
| Balances, June 30, 2021 | 19,294,745 | | | $ | 965 | | | $ | 269,375 | | | $ | 117,813 | | | $ | (24,456) | | | (569,737) | | | $ | (17,660) | | | | | $ | 346,037 | |
| Net income | — | | | — | | | — | | | 403 | | | — | | | — | | | — | | | | | 403 | |
| Change in cumulative foreign currency translation adjustment | — | | | — | | | — | | | — | | | (1,347) | | | — | | | — | | | | | (1,347) | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Stock-based compensation | ��� | | | — | | | 1,618 | | | — | | | — | | | — | | | — | | | | | 1,618 | |
| | | | | | | | | | | | | | | | | |
| Treasury stock activity | — | | | — | | | — | | | — | | | — | | | (177) | | | (1,811) | | | | | (1,811) | |
| | | | | | | | | | | | | | | | | |
| Balances, September 30, 2021 | 19,294,745 | | | $ | 965 | | | $ | 270,993 | | | $ | 118,216 | | | $ | (25,803) | | | (569,914) | | | $ | (19,471) | | | | | $ | 344,900 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | Other | | Treasury Stock and | | | | | | |
| | | | | | Additional | | | | Cumulative | | Company Stock Held for | | | | | | |
| | Common Stock | | | | Paid-In | | Retained | | Comprehensive | | Deferred Compensation | | | | | | |
| | Shares | | Amount | | Capital | | Earnings | | Loss | | Shares | | Amount | | | | Total |
| Balances, June 30, 2020 | 15,297,291 | | | $ | 765 | | | $ | 88,501 | | | $ | 115,576 | | | $ | (26,038) | | | (527,981) | | | (8,521) | | | | | $ | 170,283 | |
| Net income | — | | | — | | | — | | | 1,008 | | | — | | | — | | | — | | | | | $ | 1,008 | |
| Change in cumulative foreign currency translation adjustment | — | | | — | | | — | | | — | | | 753 | | | — | | | — | | | | | $ | 753 | |
| Shares issued in connection with stock compensation plans | 2,933 | | | — | | | 3 | | | — | | | — | | | — | | | — | | | | | $ | 3 | |
| | | | | | | | | | | | | | | | | |
| Stock-based compensation | — | | | — | | | 1,554 | | | — | | | — | | | — | | | — | | | | | $ | 1,554 | |
| | | | | | | | | | | | | | | | | |
| Treasury stock activity | — | | | — | | | 11 | | | — | | | — | | | (56) | | | (3,661) | | | | | $ | (3,650) | |
| | | | | | | | | | | | | | | | | |
| Balances, September 30, 2020 | 15,300,224 | | | $ | 765 | | | $ | 90,069 | | | $ | 116,584 | | | $ | (25,285) | | | (528,037) | | | $ | (12,182) | | | | | $ | 169,951 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | Other | | Treasury Stock and | | | | | | |
| | | | | | Additional | | | | Cumulative | | Company Stock Held for | | | | | | |
| | Common Stock | | | | Paid-In | | Retained | | Comprehensive | | Deferred Compensation | | | | | | |
| | Shares | | Amount | | Capital | | Earnings | | Loss | | Shares | | Amount | | | | Total |
| Balances, June 30, 2019 | 15,107,914 | | | $ | 756 | | | $ | 82,853 | | | $ | 121,107 | | | $ | (33,895) | | | (460,823) | | | (7,320) | | | | | 163,501 | |
| Net income | — | | | — | | | — | | | 6,915 | | | — | | | — | | | — | | | | | 6,915 | |
| Change in cumulative foreign currency translation adjustment | — | | | — | | | — | | | — | | | (2,696) | | | — | | | — | | | | | (2,696) | |
| Shares issued in connection with stock compensation plans | 1,750 | | | — | | | — | | | — | | | — | | | — | | | — | | | | | 0 | |
| | | | | | | | | | | | | | | | | |
| Stock-based compensation | — | | | — | | | 1,345 | | | — | | | — | | | — | | | — | | | | | 1,345 | |
| Dividends declared | — | | | — | | | — | | | (1,866) | | | — | | | — | | | — | | | | | (1,866) | |
| Treasury stock activity | — | | | — | | | — | | | — | | | — | | | (3,506) | | | (123) | | | | | (123) | |
| Balances, September 30, 2019 | 15,109,664 | | | $ | 756 | | | $ | 84,198 | | | $ | 126,156 | | | $ | (36,591) | | | (464,329) | | | $ | (7,443) | | | | | $ | 167,076 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | Other | | Treasury Stock and | | | | |
| | | | | | Additional | | | | Cumulative | | Company Stock Held for | | | | |
| | Common Stock | | Paid-In | | Retained | | Comprehensive | | Deferred Compensation | | | | |
| | Shares | | Amount | | Capital | | Earnings | | Loss | | Shares | | Amount | | | | Total |
| Balances, June 30, 2020 | 15,297,291 | | | $ | 765 | | | $ | 88,501 | | | $ | 115,576 | | | $ | (26,038) | | | (527,981) | | | $ | (8,521) | | | | | $ | 170,283 | |
| Net income | — | | | — | | | — | | | 1,008 | | | — | | | — | | | — | | | | | 1,008 | |
| Change in cumulative foreign currency translation adjustment | — | | | — | | | — | | | — | | | 753 | | | — | | | — | | | | | 753 | |
| Shares issued in connection with stock compensation plans | 2,933 | | | — | | | 3 | | | — | | | — | | | — | | | — | | | | | 3 | |
| | | | | | | | | | | | | | | | | |
| Stock-based compensation | — | | | — | | | 1,554 | | | — | | | — | | | — | | | — | | | | | 1,554 | |
| | | | | | | | | | | | | | | | | |
| Treasury stock activity | — | | | — | | | 11 | | | — | | | — | | | (56) | | | (3,661) | | | | | (3,650) | |
| Balances, September 30, 2020 | 15,300,224 | | | $ | 765 | | | $ | 90,069 | | | $ | 116,584 | | | $ | (25,285) | | | (528,037) | | | $ | (12,182) | | | | | $ | 169,951 | |
DMC GLOBAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Amounts in Thousands, Except Share Data)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | Other | | Treasury Stock and | | | | | | |
| | | | | | Additional | | | | Cumulative | | Company Stock Held for | | | | | | |
| | Common Stock | | | | Paid-In | | Retained | | Comprehensive | | Deferred Compensation | | | | | | |
| | Shares | | Amount | | Capital | | Earnings | | Loss | | Shares | | Amount | | | | Total |
| Balances, December 31, 2019 | 15,117,207 | | | $ | 756 | | | $ | 85,639 | | | $ | 119,002 | | | $ | (25,803) | | | (464,532) | | | $ | (7,453) | | | | | $ | 172,141 | |
| Net loss | — | | | — | | | — | | | (485) | | | — | | | — | | | — | | | | | (485) | |
| Change in cumulative foreign currency translation adjustment | — | | | — | | | — | | | — | | | 518 | | | — | | | — | | | | | 518 | |
| Shares issued in connection with stock compensation plans | 183,017 | | | 9 | | | 257 | | | — | | | — | | | — | | | — | | | | | 266 | |
| Adjustment for cumulative effect from change in accounting principle (ASU 2016-13) | — | | | — | | | — | | | (50) | | | — | | | — | | | — | | | | | (50) | |
| Stock-based compensation | — | | | — | | | 4,162 | | | — | | | — | | | — | | | — | | | | | 4,162 | |
| Dividends declared | — | | | — | | | — | | | (1,883) | | | — | | | — | | | — | | | | | (1,883) | |
| Treasury stock activity | — | | | — | | | 11 | | | — | | | — | | | (63,505) | | | (4,729) | | | | | (4,718) | |
| | | | | | | | | | | | | | | | | |
| Balances, September 30, 2020 | 15,300,224 | | | $ | 765 | | | $ | 90,069 | | | $ | 116,584 | | | $ | (25,285) | | | (528,037) | | | $ | (12,182) | | | | | $ | 169,951 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | Other | | Treasury Stock and | | | | |
| | | | | | Additional | | | | Cumulative | | Company Stock Held for | | | | |
| | Common Stock | | Paid-In | | Retained | | Comprehensive | | Deferred Compensation | | | | |
| | Shares | | Amount | | Capital | | Earnings | | Loss | | Shares | | Amount | | | | Total |
| Balances, December 31, 2020 | 15,917,559 | | | $ | 796 | | | $ | 117,387 | | | $ | 115,657 | | | $ | (22,962) | | | (528,274) | | | $ | (13,964) | | | | | $ | 196,914 | |
| Net income | — | | | — | | | — | | | 2,559 | | | — | | | — | | | — | | | | | 2,559 | |
| Change in cumulative foreign currency translation adjustment | — | | | — | | | — | | | — | | | (2,841) | | | — | | | — | | | | | (2,841) | |
| Shares issued in connection with equity offering | 2,875,000 | | | 144 | | | 123,317 | | | — | | | — | | | — | | | — | | | | | 123,461 | |
| Shares issued in connection with at-the-market offering program | 397,820 | | | 20 | | | 25,242 | | | — | | | — | | | — | | | — | | | | | 25,262 | |
| Shares issued in connection with stock compensation plans | 104,366 | | | 5 | | | 248 | | | — | | | — | | | — | | | — | | | | | 253 | |
| | | | | | | | | | | | | | | | | |
| Stock-based compensation | — | | | — | | | 4,799 | | | — | | | — | | | — | | | — | | | | | 4,799 | |
| | | | | | | | | | | | | | | | | |
| Treasury stock activity | — | | | — | | | �� | | | — | | | — | | | (41,640) | | | (5,507) | | | | | (5,507) | |
| | | | | | | | | | | | | | | | | |
| Balances, September 30, 2021 | 19,294,745 | | | $ | 965 | | | $ | 270,993 | | | $ | 118,216 | | | $ | (25,803) | | | (569,914) | | | $ | (19,471) | | | | | $ | 344,900 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | Other | | Treasury Stock and | | | | | | |
| | | | | | Additional | | | | Cumulative | | Company Stock Held for | | | | | | |
| | Common Stock | | | | Paid-In | | Retained | | Comprehensive | | Deferred Compensation | | | | | | |
| | Shares | | Amount | | Capital | | Earnings | | Loss | | Shares | | Amount | | | | Total |
| Balances, December 31, 2018 | 14,987,962 | | | $ | 749 | | | $ | 80,077 | | | $ | 89,291 | | | $ | (35,014) | | | (82,186) | | | $ | (817) | | | | | $ | 134,286 | |
| Net income | — | | | — | | | — | | | 39,329 | | | — | | | — | | | — | | | | | 39,329 | |
| Change in cumulative foreign currency translation adjustment | — | | | — | | | — | | | — | | | (1,577) | | | — | | | — | | | | | (1,577) | |
| Shares issued in connection with stock compensation plans | 121,702 | | | 7 | | | 351 | | | — | | | — | | | 7,502 | | | — | | | | | 358 | |
| | | | | | | | | | | | | | | | | |
| Stock-based compensation | — | | | — | | | 3,756 | | | — | | | — | | | — | | | — | | | | | 3,756 | |
| Dividends declared | — | | | — | | | — | | | (2,464) | | | — | | | — | | | — | | | | | (2,464) | |
| Treasury stock activity | — | | | — | | | 14 | | | — | | | — | | | (389,645) | | | (6,626) | | | | | (6,612) | |
| Balances, September 30, 2019 | 15,109,664 | | | $ | 756 | | | $ | 84,198 | | | $ | 126,156 | | | $ | (36,591) | | | (464,329) | | | $ | (7,443) | | | | | $ | 167,076 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | Other | | Treasury Stock and | | | | |
| | | | | | Additional | | | | Cumulative | | Company Stock Held for | | | | |
| | Common Stock | | Paid-In | | Retained | | Comprehensive | | Deferred Compensation | | | | |
| | Shares | | Amount | | Capital | | Earnings | | Loss | | Shares | | Amount | | | | Total |
| Balances, December 31, 2019 | 15,117,207 | | | $ | 756 | | | $ | 85,639 | | | $ | 119,002 | | | $ | (25,803) | | | (464,532) | | | (7,453) | | | | | $ | 172,141 | |
| Net loss | — | | | — | | | — | | | (485) | | | — | | | — | | | — | | | | | (485) | |
| Change in cumulative foreign currency translation adjustment | — | | | — | | | — | | | — | | | 518 | | | — | | | — | | | | | 518 | |
| Shares issued in connection with stock compensation plans | 183,017 | | | 9 | | | 257 | | | — | | | — | | | — | | | — | | | | | 266 | |
| Adjustment for cumulative effect from change in accounting principle (ASU 2016-13) | — | | | — | | | — | | | (50) | | | — | | | — | | | — | | | | | (50) | |
| Stock-based compensation | — | | | — | | | 4,162 | | | — | | | — | | | — | | | — | | | | | 4,162 | |
| Dividends declared | — | | | — | | | — | | | (1,883) | | | — | | | — | | | — | | | | | (1,883) | |
| Treasury stock activity | — | | | — | | | 11 | | | — | | | — | | | (63,505) | | | (4,729) | | | | | (4,718) | |
| Balances, September 30, 2020 | 15,300,224 | | | $ | 765 | | | $ | 90,069 | | | $ | 116,584 | | | $ | (25,285) | | | (528,037) | | | $ | (12,182) | | | | | $ | 169,951 | |
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, | | | Nine months ended September 30, |
| | | 2020 | | 2019 | | 2021 | | 2020 |
| Cash flows provided by operating activities: | Cash flows provided by operating activities: | | | | Cash flows provided by operating activities: | | | |
| Net (loss) income | $ | (485) | | | $ | 39,329 | | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | |
| Net income (loss) | | Net income (loss) | $ | 2,559 | | | $ | (485) | |
| Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: | | Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: | | | |
| | Depreciation | Depreciation | 7,167 | | | 6,178 | | Depreciation | 8,400 | | | 7,167 | |
| Amortization of purchased intangible assets | Amortization of purchased intangible assets | 1,076 | | | 1,189 | | Amortization of purchased intangible assets | 823 | | | 1,076 | |
| Amortization of deferred debt issuance costs | Amortization of deferred debt issuance costs | 154 | | | 130 | | Amortization of deferred debt issuance costs | 168 | | | 154 | |
| Stock-based compensation | Stock-based compensation | 4,154 | | | 3,908 | | Stock-based compensation | 4,904 | | | 4,154 | |
| | Deferred income taxes | Deferred income taxes | (839) | | | 1,660 | | Deferred income taxes | (2,046) | | | (839) | |
| Loss on disposal of property, plant and equipment | 113 | | | 343 | | |
| Restructuring expenses, net and asset impairments | 3,305 | | | 6,300 | | |
| (Gain) loss on disposal of property, plant and equipment | | (Gain) loss on disposal of property, plant and equipment | (298) | | | 113 | |
| Restructuring expenses and asset impairments | | Restructuring expenses and asset impairments | 127 | | | 3,305 | |
| | Change in: | Change in: | | | | Change in: | | | |
| Accounts receivable, net | Accounts receivable, net | 26,890 | | | (12,505) | | Accounts receivable, net | (8,562) | | | 26,890 | |
| Inventories | Inventories | (2,228) | | | (8,357) | | Inventories | (10,620) | | | (2,228) | |
| Prepaid expenses and other | Prepaid expenses and other | (2,855) | | | (923) | | Prepaid expenses and other | (15,892) | | | (2,855) | |
| Accounts payable | Accounts payable | (10,563) | | | 2,475 | | Accounts payable | 6,861 | | | (10,563) | |
| Contract liabilities | Contract liabilities | 2,376 | | | 1,456 | | Contract liabilities | 4,957 | | | 2,376 | |
| Accrued anti-dumping duties and penalties | 0 | | | (8,000) | | |
| | Accrued expenses and other liabilities | Accrued expenses and other liabilities | (6,911) | | | 1,913 | | Accrued expenses and other liabilities | 6,713 | | | (6,911) | |
| Net cash provided by operating activities | 21,354 | | | 35,096 | | |
| Net cash (used in) provided by operating activities | | Net cash (used in) provided by operating activities | (1,906) | | | 21,354 | |
| | Cash flows used in investing activities: | Cash flows used in investing activities: | | | | Cash flows used in investing activities: | | | |
| Investment in marketable securities | | Investment in marketable securities | (123,984) | | | — | |
| Proceeds from maturities of marketable securities | | Proceeds from maturities of marketable securities | 4,799 | | | — | |
| | Acquisition of property, plant and equipment | Acquisition of property, plant and equipment | (9,682) | | | (22,377) | | Acquisition of property, plant and equipment | (6,348) | | | (9,682) | |
| Proceeds on sale of property, plant and equipment | Proceeds on sale of property, plant and equipment | 20 | | | 1,258 | | Proceeds on sale of property, plant and equipment | 1,019 | | | 20 | |
| | Net cash used in investing activities | Net cash used in investing activities | (9,662) | | | (21,119) | | Net cash used in investing activities | (124,514) | | | (9,662) | |
| | Cash flows used in financing activities: | | | | |
| Repayments on bank lines of credit, net | 0 | | | (10,999) | | |
| Cash flows provided by (used in) financing activities: | | Cash flows provided by (used in) financing activities: | | | |
| | Repayments on capital expenditure facility | Repayments on capital expenditure facility | (2,344) | | | (2,344) | | Repayments on capital expenditure facility | (11,750) | | | (2,344) | |
| | Payment of dividends | Payment of dividends | (3,749) | | | (896) | | Payment of dividends | — | | | (3,749) | |
| Payment of debt issuance costs | Payment of debt issuance costs | (88) | | | 0 | | Payment of debt issuance costs | — | | | (88) | |
| Net proceeds from issuance of common stock through equity offering | | Net proceeds from issuance of common stock through equity offering | 123,461 | | | — | |
| Net proceeds from issuance of common stock through at-the-market offering program | | Net proceeds from issuance of common stock through at-the-market offering program | 25,262 | | | — | |
| Net proceeds from issuance of common stock to employees and directors | Net proceeds from issuance of common stock to employees and directors | 266 | | | 358 | | Net proceeds from issuance of common stock to employees and directors | 253 | | | 266 | |
| Treasury stock purchases | Treasury stock purchases | (1,123) | | | (1,079) | | Treasury stock purchases | (2,476) | | | (1,123) | |
| | Net cash used in financing activities | (7,038) | | | (14,960) | | |
| Net cash provided by (used in) financing activities | | Net cash provided by (used in) financing activities | 134,750 | | | (7,038) | |
| | Effects of exchanges rates on cash | (403) | | | (209) | | |
| Effects of exchange rates on cash | | Effects of exchange rates on cash | 503 | | | (403) | |
| | Net increase (decrease) in cash and cash equivalents | 4,251 | | | (1,192) | | |
| Net increase in cash and cash equivalents | | Net increase in cash and cash equivalents | 8,833 | | | 4,251 | |
| Cash and cash equivalents, beginning of the period | Cash and cash equivalents, beginning of the period | 20,353 | | | 13,375 | | Cash and cash equivalents, beginning of the period | 28,187 | | | 20,353 | |
| Cash and cash equivalents, end of the period | Cash and cash equivalents, end of the period | $ | 24,604 | | | $ | 12,183 | | Cash and cash equivalents, end of the period | $ | 37,020 | | | $ | 24,604 | |
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
DMC GLOBAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands, Except Share and Per Share Data)
(unaudited)
1. BASIS OF PRESENTATION
The information included in the condensed consolidated financial statements is unaudited but includes all normal and recurring adjustments which, in the opinion of management, are necessary for a fair presentation of the interim periods presented. Certain 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, 2019.2020.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The condensed consolidated financial statements include the accounts of DMC Global Inc. (“DMC”, “we”, “us”, “our”, or the “Company”) and its controlled subsidiaries. Only subsidiaries in which controlling interests are maintained are consolidated. All significant intercompany accounts, profits, and transactions have been eliminated in consolidation.
Marketable Securities
We typically invest in highly rated securities with the primary objectives of preserving principal, providing access to liquidity to fund the ongoing operations and strategic needs of the Company and its subsidiaries, and achieving a yield that is commensurate with low risk and highly liquid securities.
Our investments in marketable debt securities are classified as either trading, available-for-sale or held-to-maturity based on the nature of the securities and their availability for use in current operations. The Company classifies its marketable debt securities in the Condensed Consolidated Balance Sheet as current or non-current based on related maturities and expectations of sales and redemptions in the subsequent twelve-month period. The Company may sell certain of its marketable debt securities prior to their stated maturities to manage liquidity, credit risk, or asset allocation.
As of September 30, 2021 and December 31, 2020, our investments had maturities ranging from three to twelve months, and all such investments have been classified and accounted for as trading securities.
The Company’s investments in marketable securities consisted of the following:
| | | | | | | | | | | |
| September 30, 2021 | | December 31, 2020 |
| U.S. Treasury securities | $ | 76,591 | | | $ | 25,736 | |
| Commercial paper (A-1 or P-1 rated) | 68,341 | | | — | |
| Marketable securities | $ | 144,932 | | | $ | 25,736 | |
The Company’s U.S. Treasury securities have annual yields between 0.01% and 0.04% and the commercial paper securities have annual yields between 0.09% and 0.10%. The Company’s investments in marketable securities are measured at fair value with gains and losses recognized in the Condensed Consolidated Statement of Operations within “Other (expense) income, net." For the three and nine months ended September 30, 2021, the net gains on marketable securities were $2 and $12, respectively.
Accounts and Notes Receivable
In June 2016, the Financial Accounting Standards Board (FASB) issued a new accounting pronouncement regarding credit losses for financial instruments. The new standard requires entities to measureCompany measures expected credit losses for certain financial assets held at the reporting dateits 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's financial instruments within the scope of this guidance primarily include accounts receivable.
On January 1, 2020, we adopted the new standard under the modified retrospective approach, such that comparative information has not been restated and continues to be reported under accounting standards in effect for those periods. The Company recognized the cumulative effect of the new accounting standard as an adjustment to the January 1, 2020 balance of Retained Earnings in the Condensed Consolidated Balance Sheet, and the adoption of the new accounting standard did not have a material impact on the Company’s financial position and results of operations given limited historical write-off activity within each of the Company’s segments.
In accordance with the new standard, 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, rather than the historical approach of establishing reserves when accounts receivable balances age or demonstrate they will not be collected.recognized. To measure expected credit losses, we have elected to pool trade receivables by segment and analyze DynaEnergetics and NobelClad accounts receivable balances as separate populations. Within each segment, receivables exhibit similar risk characteristics.
During the three and nine months ended September 30, 2020, we increased2021, our expected loss rate continued to reflect uncertainties in market conditions present in both of our businesses due to the ongoing COVID-19 pandemic-related collapse in oil and gas demand and resulting downturn in well completions.pandemic. In addition, we continued to reviewreviewed receivables outstanding, including aged balances, and in circumstances where we are aware of a specific customer’s inability to meet its financial obligation to us, we recorded a specific allowance for credit losses (with the offsetting expense charged to “Selling and distribution expenses” in our Condensed Consolidated Statements of Operations) against the amounts due, reducing the net recognized receivable to the amount we estimate will be collected. In total, provisions of $3,327 were recorded duringDuring the three and nine months ended September 30, 2020.2021, provisions of $4 and $100, respectively, were recorded.
The following table summarizes year-to-date activity in the allowance for credit losses on receivables from DynaEnergetics and NobelClad customers:
Table of Contents | | | | | | | | | | | | | | | | | |
| DynaEnergetics | | NobelClad | | DMC Global Inc. |
| Allowance for doubtful accounts, December 31, 2020 | $ | 2,590 | | | $ | 15 | | | $ | 2,605 | |
| | | | | |
| Current period provision for expected credit losses | 100 | | | — | | | 100 | |
| | | | | |
| Recoveries of amounts previously reserved | (10) | | | — | | | (10) | |
| Impacts of foreign currency exchange rates and other | (2) | | | — | | | (2) | |
| Allowance for doubtful accounts, September 30, 2021 | $ | 2,678 | | | $ | 15 | | | $ | 2,693 | |
| | | | | | | | | | | | | | | | | |
| DynaEnergetics | | NobelClad | | DMC Global Inc. |
| Allowance for doubtful accounts, December 31, 2019 | $ | 945 | | | $ | 22 | | | $ | 967 | |
| Adjustment for cumulative effect from change in accounting principle | 50 | | | 0 | | | 50 | |
| Current period provision for expected credit losses | 3,015 | | | 312 | | | 3,327 | |
| Write-offs charged against the allowance | (1,066) | | | (201) | | | (1,267) | |
| Recoveries of amounts previously reserved | (208) | | | (134) | | | (342) | |
| Impacts of foreign currency exchange rates and other | (27) | | | 1 | | | (26) | |
| Allowance for doubtful accounts, September 30, 2020 | $ | 2,709 | | | $ | 0 | | | $ | 2,709 | |
Revenue Recognition
The Company’s revenues are primarily derived from consideration paid by customers for tangible goods. The Company analyzes its different goods by segment to determine the appropriate basis for revenue recognition. Revenue is not generated from sources other than contracts with customers and revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities. There are no material upfront costs for operations that are incurred from contracts with customers.
Our rights to payments for goods transferred to customers arise when control is transferred at a point in time and not on any other criteria. Payment terms and conditions vary by contract, although terms generally include a requirement of payment within 30 to 60 days. In instances when we require customers to make advance payments prior to the shipment of their orders, we record a contract liability. We have determined that our contract liabilities do not include a significant financing component given the short duration between order initiation and order fulfillment within each of our segments. Please refer to Note 5 “Contract Liabilities” for further information on contract liabilities and Note 910 “Business Segments” for disaggregated revenue disclosures.
Income Taxes
We recognize deferred tax assets and liabilities for the expected future income tax consequences of temporary differences between the financial reporting and tax basis 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 is 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 that it will be sustained upon examination, including the resolution of any related appeals or litigation. The tax benefits recognized in the consolidated financial statements from such a position are measured as the largest benefit that is more likely than not to be realized upon ultimate resolution. We recognize interest and penalties related to uncertain tax positions in operating expense.
Earnings Per Share
TheIn periods with net 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 withof net income as they receive non-forfeitable rights to dividends similar to common stock. Restricted stock awards do not participate in net losses.
Basic EPS is calculated by dividing net income available to common stockholders of the Company by the weighted average number of shares of common stock outstanding during the period. Diluted EPS adjusts basic EPS for the effects of restricted stock awards, performance share units and other potentially dilutive financial instruments (dilutive securities), only in the periods in which such effect is dilutive. The effect of the dilutive securities is reflected in diluted EPS by application of the more dilutive of (1) the treasury stock method or (2) the two-class method assuming nonvested shares are not converted into
shares of common stock.method. For the periods presented, diluted EPS using the treasury stock method was less dilutive than the two-class method; as such, only the two-class method has been included below.
| | | Three months ended September 30, | | | Nine months ended September 30, | | | Three months ended September 30, | | Nine months ended September 30, |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
| Net income (loss), as reported | Net income (loss), as reported | $ | 1,008 | | | $ | 6,915 | | | (485) | | | 39,329 | | Net income (loss), as reported | $ | 403 | | | $ | 1,008 | | | 2,559 | | | (485) | |
| Less: Distributed net income available to participating securities | 0 | | | (14) | | | 0 | | | (19) | | |
| | Less: Undistributed net income available to participating securities | Less: Undistributed net income available to participating securities | (17) | | | (39) | | | 0 | | | (287) | | Less: Undistributed net income available to participating securities | (3) | | | (17) | | | (25) | | | — | |
| Numerator for basic net income (loss) per share: | Numerator for basic net income (loss) per share: | 991 | | | 6,862 | | | (485) | | | 39,023 | | Numerator for basic net income (loss) per share: | 400 | | | 991 | | | 2,534 | | | (485) | |
| Add: Undistributed net income allocated to participating securities | Add: Undistributed net income allocated to participating securities | 17 | | | 39 | | | 0 | | | 287 | | Add: Undistributed net income allocated to participating securities | 3 | | | 17 | | | 25 | | | — | |
| Less: Undistributed net income reallocated to participating securities | Less: Undistributed net income reallocated to participating securities | (17) | | | (39) | | | 0 | | | (283) | | Less: Undistributed net income reallocated to participating securities | (3) | | | (17) | | | (25) | | | — | |
| Numerator for diluted net income (loss) per share: | Numerator for diluted net income (loss) per share: | 991 | | | 6,862 | | | (485) | | | 39,027 | | Numerator for diluted net income (loss) per share: | 400 | | | 991 | | | 2,534 | | | (485) | |
| Denominator: | Denominator: | | | | | | | | Denominator: | | | | | | | |
| Weighted average shares outstanding for basic net income (loss) per share | Weighted average shares outstanding for basic net income (loss) per share | 14,820,881 | | | 14,632,276 | | | 14,759,062 | | | 14,589,655 | | Weighted average shares outstanding for basic net income (loss) per share | 18,728,278 | | | 14,820,881 | | | 17,239,306 | | | 14,759,062 | |
| Effect of dilutive securities (1) | Effect of dilutive securities (1) | 0 | | | 218,890 | | | 0 | | | 210,477 | | Effect of dilutive securities (1) | 10,807 | | | — | | | 11,219 | | | — | |
| Weighted average shares outstanding for diluted net income (loss) per share | Weighted average shares outstanding for diluted net income (loss) per share | 14,820,881 | | | 14,851,166 | | | 14,759,062 | | | 14,800,132 | | Weighted average shares outstanding for diluted net income (loss) per share | 18,739,085 | | | 14,820,881 | | | 17,250,525 | | | 14,759,062 | |
| Net income (loss) per share | Net income (loss) per share | | | | | | | | Net income (loss) per share | | | | | | | |
| Basic | Basic | $ | 0.07 | | | $ | 0.47 | | | $ | (0.03) | | | $ | 2.67 | | Basic | $ | 0.02 | | | $ | 0.07 | | | $ | 0.15 | | | $ | (0.03) | |
| Diluted | Diluted | $ | 0.07 | | | $ | 0.46 | | | $ | (0.03) | | | $ | 2.64 | | Diluted | $ | 0.02 | | | $ | 0.07 | | | $ | 0.15 | | | $ | (0.03) | |
(1) For the three and nine months ended September 30, 2020, 30,08730,967 and 19,394 respectively, shares have been excluded as their effect would have been anti-dilutive.
Deferred compensation
The Company maintains a Non-Qualified Deferred Compensation Plan (the “Plan”) as part of its overall compensation package for certain employees. Participants are eligible to defer a portion of their 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 be settled either by delivery of a fixed number of shares of DMC’s common stock or in cash, in accordance with participant contributions and elections. For deferred equity awards, subsequent to equity award vesting and after a period prescribed by the Plan, participants can elect to diversify contributions of equity awards into other investment options available to Plan participants. Once diversified, contributions of equity awards will be settled by delivery of cash.
The Company has established a grantor trust commonly known as a “rabbi trust” and contributed certain assets to satisfy the future obligations to participants in the Plan. These assets are subject to potential claims of the Company’s general creditors. The assets held in the trust include unvested RSAs,restricted stock awards (“RSAs”), vested company stock awards, company-owned life insurance (“COLI”) on certain employees, and money market and mutual funds. Unvested RSAs and common stock held by the trust are reflected in the Consolidated Balance Sheets within “Treasury stock, at cost, and company stock held for deferred compensation, at par” at the par value of the common stock or unvested RSAs. These accounts are not adjusted for subsequent changes in the fair value of the common stock. COLI is accounted for at the cash surrender value while money market and mutual funds held by the trust are accounted for at fair value. The balances of $6,455 as of September 30, 2020 and $4,461 as of December 31, 2019 were reflected in the Consolidated Balance Sheets within “Other assets.”
Deferred compensation obligations that will be settled in cash are accounted for on an accrual basis in accordance with the terms of the Plan. The balances of $9,924 as of September 30, 2020 and $6,143 as of December 31, 2019 were reflected in the Consolidated Balance Sheets within “Other long-term liabilities.” These obligations are adjusted based on changes in value of
the underlying investment options chosen by Plan participants. Deferred compensation obligations that will be settled by delivery of a fixed number of previously vested shares of the Company’s common stock are reflected in the Consolidated Statements of Stockholders’ Equity within “Common stock” at the par value of the common stock or unvested RSAs. These accounts are not adjusted for subsequent changes in the fair value of the common stock.
The balances related to the deferred compensation plan were as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Consolidated Balance Sheet location | | September 30, 2021 | | December 31, 2020 |
| Deferred compensation assets | | Other assets | | $ | 13,261 | | | $ | 7,596 | |
| Deferred compensation obligations | | Other long-term liabilities | | $ | 15,695 | | | $ | 11,894 | |
| | | | | | |
| | | | | | |
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 accounts receivable and payable, accrued expenses, revolving loans under our credit facility and borrowings under our capital expenditure facility, when outstanding, approximate their fair value.
Our U.S. Treasury marketable securities are valued using quoted prices in active markets that are accessible as of the measurement date. Our revolving loans and borrowings under our capital expenditure facility, when outstanding, reset each month at market interest rates. Money market funds and mutual funds of $8,629 as of September 30, 2021 and $4,244 as of December 31, 2020 held to satisfy future deferred compensation obligations are valued based upon the market values of underlying securities. We classify these assets as Level 1 in the fair value hierarchy.
Our commercial paper marketable securities are valued using quoted market prices in non-active markets. Our foreign currency forward contracts are also valued using quoted market prices in non-active markets or are determined using a yield curve model based on current market rates. As a result, we classify these investments as Level 2 in the fair value hierarchy. Money market funds and mutual funds of $3,322 as of September 30, 2020 and $2,420 as of December 31, 2019 were held to satisfy future deferred compensation obligations are valued based upon the market values of underlyingcommercial paper marketable securities and therefore we classify these assetsforeign currency forward contracts as Level 2 in the fair value hierarchy.
We did not hold any Level 3 assets or liabilities as of September 30, 20202021 or December 31, 2019.
Recently Adopted Accounting Standards
In June 2016, the FASB issued a new accounting pronouncement regarding credit losses for financial instruments. The new standard requires entities to measure expected credit losses for certain financial assets held at the reporting date using a current expected credit loss model, which is based on historical experience, adjusted for current conditions and reasonable and supportable forecasts. The Company adopted the new standard on January 1, 2020. The Company's financial instruments within the scope of this guidance primarily include accounts receivable. Please refer to “Accounts Receivable” for further information.
Recent Accounting Pronouncements
In December 2019, the FASBFinancial Accounting Standards Board issued a new accounting pronouncement regarding accounting for income taxes. The new standard removes certain exceptions to the general principles in ASC 740 Income Taxes and also clarifies and amends existing guidance to provide for more consistent application. The new standard will becomebecame effective for the Company in the first quarter of fiscal 2021 and early adoption is permitted. We are evaluating thedid not have a material impact that the adoption of this update will have on our consolidated financial statements.
3. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or net realizable value. Significant cost elements included in inventory are material, labor, freight, subcontract costs, and manufacturing overhead. As necessary, we adjust inventory to its net realizable value by recording provisions for excess, slow moving and obsolete inventory. We regularly review inventory quantities on hand and values, and compare them to estimates of future product demand, market conditions, production requirements and technological developments.
| | | | | | | | | | | | | | | | | |
| DynaEnergetics | | NobelClad | | DMC Global Inc. |
| Raw materials | $ | 13,865 | | | $ | 8,923 | | | $ | 22,788 | |
| Work-in-process | 13,486 | | | 6,808 | | | 20,294 | |
| Finished goods | 18,251 | | | 634 | | | 18,885 | |
| Supplies | — | | | 205 | | | 205 | |
| Inventories | $ | 45,602 | | | $ | 16,570 | | | $ | 62,172 | |
Inventories consisted of the following:following at December 31, 2020:
| | | September 30, 2020 | | December 31, 2019 | | DynaEnergetics | | NobelClad | | DMC Global Inc. |
| Raw materials | Raw materials | $ | 28,695 | | | $ | 26,173 | | Raw materials | $ | 13,250 | | | $ | 11,903 | | | $ | 25,153 | |
| Work-in-process | Work-in-process | 16,374 | | | 12,194 | | Work-in-process | 7,062 | | | 6,682 | | | 13,744 | |
| Finished goods | Finished goods | 11,587 | | | 15,045 | | Finished goods | 12,806 | | | 669 | | | 13,475 | |
| Supplies | Supplies | 302 | | | 316 | | Supplies | — | | | 201 | | | 201 | |
| | $ | 56,958 | | | $ | 53,728 | | |
| Inventories | | Inventories | $ | 33,118 | | | $ | 19,455 | | | $ | 52,573 | |
4. PURCHASED INTANGIBLE ASSETS
Our purchased intangible assets consisted of the following as of September 30, 2020:
| | | | | | | | | | | | | | | | | |
| Gross | | Accumulated
Amortization | | Net |
| Core technology | $ | 17,868 | | | $ | (13,485) | | | $ | 4,383 | |
| Customer relationships | 36,139 | | | (36,139) | | | 0 | |
| Trademarks / Trade names | 2,075 | | | (2,075) | | | 0 | |
| Total intangible assets | $ | 56,082 | | | $ | (51,699) | | | $ | 4,383 | |
| | | | | | | | | | | | | | | | | |
| Gross | | Accumulated
Amortization | | Net |
| Core technology | $ | 16,052 | | | $ | (14,223) | | | $ | 1,829 | |
| Customer relationships | 36,110 | | | (36,110) | | | — | |
| Trademarks / Trade names | 2,069 | | | (2,069) | | | — | |
| Total intangible assets | $ | 54,231 | | | $ | (52,402) | | | $ | 1,829 | |
Our purchased intangible assets consisted of the following as of December 31, 2019:
| | | | | | | | | | | | | | | | | |
| Gross | | Accumulated
Amortization | | Net |
| Core technology | $ | 17,717 | | | $ | (11,837) | | | $ | 5,880 | |
| Customer relationships | 35,091 | | | (35,091) | | | 0 | |
| Trademarks / Trade names | 1,988 | | | (1,988) | | | 0 | |
| Total intangible assets | $ | 54,796 | | | $ | (48,916) | | | $ | 5,880 | |
| | | | | | | | | | | | | | | | | |
| Gross | | Accumulated
Amortization | | Net |
| Core technology | $ | 17,899 | | | $ | (14,234) | | | $ | 3,665 | |
| Customer relationships | 37,638 | | | (37,638) | | | — | |
| Trademarks / Trade names | 2,194 | | | (2,194) | | | — | |
| Total intangible assets | $ | 57,731 | | | $ | (54,066) | | | $ | 3,665 | |
The change in the gross value of our purchased intangible assets from December 31, 20192020 to September 30, 20202021 was due to foreign currency translation and an adjustment due to the recognition of the tax benefit of tax deductible goodwill amortization previously appliedrelated to certainthe 2007 acquisition of our German subsidiaries. Prior to the impairment of the goodwill related to the NobelClad and DynaEnergetics reporting units. After the goodwill was written offunits at September 30, 2017 and December 31, 2015, respectively, the tax benefit of tax amortization
reduced the goodwill balance. After we fully impaired the goodwill, which is only written off for U.S. GAAP purposes, the tax benefit of tax goodwill amortization reduces other noncurrentthe gross value of the purchased intangible assets related to the historicalthis acquisition.
5. CONTRACT LIABILITIES
On occasion, we require customers to make advance payments prior to the shipment of goods in order to help finance our inventory investment on large orders or to keep customers’ credit limits at acceptable levels. Contract liabilities were as follows:
| | | | | | | | | | | |
| September 30, 2020 | | December 31, 2019 |
| NobelClad | $ | 4,813 | | | $ | 1,427 | |
| DynaEnergetics | 382 | | | 1,309 | |
| | | |
| Total | $ | 5,195 | | | $ | 2,736 | |
| | | | | | | | | | | |
| September 30, 2021 | | December 31, 2020 |
| NobelClad | $ | 9,450 | | | $ | 4,450 | |
| DynaEnergetics | 309 | | | 478 | |
| Total | $ | 9,759 | | | $ | 4,928 | |
We generally expect to recognize the revenue associated with contract liabilities over a time period no longer than one year. Ofyear, but unforeseen circumstances can cause delays in shipments associated with contract liabilities. Approximately 78% of the $2,736$4,928 recorded as contract liabilities at December 31, 2019, $2,0152020 was recorded to net sales during the nine months ended September 30, 2020.2021.
6. LEASES
The Company leases real properties for use in manufacturing and as administrative and sales offices, and also leases automobiles and office equipment. The Company determines if a contract contains a lease arrangement at the inception of the contract. For leases in which the Company is the lessee, leases are classified as either finance or operating. Right of use (ROU)
assets are initially measured at the present value of lease payments over the lease term plus initial direct costs, if any, with the classification affecting the pattern of expense recognition. If a lease does not provide a discount rate and the rate cannot be readily determined, an incremental borrowing rate is used to determine the future lease payments. Lease and non-lease components within the Company’s lease agreements are accounted for together.
Nearly all of the Company’s leasing arrangements are classified as operating leases. ROU asset and lease liability balances were as follows for the periods presented:
| | | September 30, 2020 | | December 31, 2019 | | September 30, 2021 | | December 31, 2020 |
| ROU asset | ROU asset | 10,751 | | | 10,423 | | ROU asset | $ | 11,198 | | | $ | 10,733 | |
| | Current lease liability | Current lease liability | 1,804 | | | 1,716 | | Current lease liability | 1,648 | | | 1,741 | |
| Long-term lease liability | Long-term lease liability | 10,155 | | | 9,777 | | Long-term lease liability | 10,432 | | | 10,066 | |
| Total lease liability | Total lease liability | $ | 11,959 | | | $ | 11,493 | | Total lease liability | $ | 12,080 | | | $ | 11,807 | |
The ROU asset was included in “Other assets” while the current lease liability was reported in “Other current liabilities” and the long-term lease liability was reported in “Other long-term liabilities” onin the Company’s Condensed Consolidated Balance Sheet. Cash paid for operating lease liabilities are recorded as cash flows from operating activities in the Company’s Condensed Consolidated Statements of Cash Flows. For the three months ended September 30, 20202021 and 2019,2020, operating lease costs were $1,055$1,064 and $784,$1,055, respectively. For the nine months ended September 30, 20202021 and 2019,2020, operating lease costs were $3,051$3,074 and $2,220,$3,051, respectively. Operating lease costs were included in the Company’s Condensed Consolidated Statements of Operations. Short term and variable lease costs were not material for the three and nine months ended September 30, 20202021 and 2019.2020.
Certain of the Company’s leases contain renewal options and options to extend the leases for up to five years, and a majority of these options are reflected in the calculation of the ROU asset and lease liability due to the likelihood of renewal.
The following table summarizes the weighted average lease terms and discount rates for operating lease liabilities:
| | | | | |
| September 30, 20202021 |
| Weighted average remaining lease term (in years) | 8.507.71 |
| Weighted average discount rate | 5.55.4 | % |
The following table represents maturities of operating lease liabilities as of September 30, 2020:
2021: | | | | | |
| Due within 1 year | $ | 1,8041,648 | |
| Due after 1 year through 2 years | 1,8852,379 | |
| Due after 2 years through 3 years | 1,7692,160 | |
| Due after 3 years through 4 years | 1,6152,019 | |
| Due after 4 years through 5 years | 1,5471,642 | |
| Due after 5 years | 5,7065,067 | |
| Total future minimum lease payments | 14,32614,915 | |
| Less imputed interest | (2,367)(2,835) | |
| Total | $ | 11,95912,080 | |
7. DEBT
OutstandingSeptember 30, 2021 we had no outstanding borrowings under our credit facility. As of December 31, 2020, outstanding borrowings consisted of the following:
| | | | | | | | | | | |
| September 30, 2020 | | December 31, 2019 |
| Syndicated credit agreement: | | | |
| U.S. Dollar revolving loan | $ | 0 | | | $ | 0 | |
| | | |
| Capital expenditure facility | 12,531 | | | 14,875 | |
| | | |
| Outstanding borrowings | 12,531 | | | 14,875 | |
| Less: debt issuance costs | (539) | | | (603) | |
| Total debt | 11,992 | | | 14,272 | |
| Less: current portion of long-term debt | (3,125) | | | (3,125) | |
| Long-term debt | $ | 8,867 | | | $ | 11,147 | |
| | | | | | | |
| | | |
| Syndicated credit agreement: | | | |
| | | |
| | | |
| Capital expenditure facility | | | $ | 11,750 | |
| | | |
| Outstanding borrowings | | | 11,750 | |
| Less: debt issuance costs | | | (486) | |
| Total debt | | | 11,264 | |
| Less: current portion of long-term debt | | | (3,125) | |
| Long-term debt | | | $ | 8,139 | |
Syndicated Credit Agreement
On March 8, 2018, we entered into a five-year $75,000 syndicated credit agreement (“credit facility”) which replaced in its entirety our prior syndicated credit facility entered into on February 23, 2015. The credit facility is with a syndicate of three banks, with KeyBank, N.A. acting as administrative agent. The facility is secured by the assets of DMC including accounts receivable, inventory, and fixed assets, as well as guarantees and share pledges by DMC and its subsidiaries. The credit facility allows for revolving loans of up to $50,000 with a $20,000 US dollar equivalent sublimit for alternative currency loans. In addition, the agreement provided for a $25,000 Capital Expenditure Facility (“Capex Facility”) which was used to assist in financing our DynaEnergetics manufacturing expansion project in Blum, Texas. At the end of year one, the Capex Facility converted to a term loan which iswas amortizable at 12.5% of principal per year with a balloon payment for the outstanding balance upon the credit facility maturity date in 2023. TheIn February 2021, we repaid the remaining Capex Facility bears interest at a LIBOR-based variable rate which at September 30, 2020 was 2.50%. In 2019, we prepaid an additional $7,000 above the required amortization amount. balance of $11,750.
The credit facility has a $100,000 accordion feature to increase the commitments under the revolving loan class and/or by adding a term loan subject to approval by applicable lenders. We entered into the credit facility with a syndicate of 3 banks, with KeyBank, N.A. acting as administrative agent. The syndicated credit facility is secured by the assets of DMC including accounts receivable, inventory, and fixed assets, as well as guarantees and share pledges by DMC and its subsidiaries.
Borrowings under the $50,000 revolving loan can be in the form of one, two, three,one-, two-, three-, or six monthsix-month LIBOR rate loans. Additionally, US dollar borrowings on the revolving loan can be in the form of Base Rate loans (Base Rate borrowings are based on the greater of the administrative agent’s Prime rates, an adjusted Federal Funds rate or an adjusted LIBOR rate). LIBOR loans bear interest at the applicable LIBOR rate plus an applicable margin (varying from 1.50% to 3.00%). Base Rate loans bear interest at the defined Base rate plus an applicable margin (varying from 0.50% to 2.00%). All revolver loan borrowings and repayments have been in the form of one-month or two-month loans and are reported on a net basis in our Condensed Consolidated Statements of Cash Flows.
Borrowings under the $20,000 alternate currency sublimit can be in euros, Canadian dollars, pounds sterling, and in any other currency acceptable to the administrative agent. Alternative currency borrowings denominated in euros, pounds sterling, and any other currency that is dealt with on the London Interbank Deposit Market shall be comprised of LIBOR loans and bear interest at the LIBOR rate plus an applicable margin (varying from 1.50% to 3.00%).
On June 25, 2020, we entered into an amendment ("Amendment") to the credit facility. The Amendment waives the debt service coverage ratio covenant for the quarters ending September 30, 2020, December 31, 2020, and March 31, 2021. The debt service coverage ratio minimum of 1.35 to 1 was applicable for the quarter ending June 30, 2020 and will resume beginning with the quarter ending June 30, 2021 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, cash income taxes and Consolidated Unfunded Capital Expenditures (as defined in the credit facility) to Debt Service Charges (as defined in the credit facility).
Additionally, the Amendment added a Minimum Liquidity covenant requiring the total of cash and cash equivalents held by U.S. subsidiaries and available borrowing capacity under the credit facility to exceed $10,000 for the quarters ending September 30, 2020, December 31, 2020, and March 31, 2021. The Minimum Liquidity covenant is not required after the quarter ending March 31, 2021.
During the period from the Amendment through August 31, 2020, borrowings outstanding under the credit facility bore interest at LIBOR plus a margin of 1.75% or at a Base Rate (as defined in the credit facility) plus a margin of 0.75%. For the period from September 1, 2020 through the date of receipt of the covenant compliance certificate for the quarter ending March 31, 2021, borrowings outstanding under the credit facility will bear interest at LIBOR plus a margin of 1.75% to 3.00% or at a Base Rate plus a margin of 0.75% to 2.00%. In each case, the margin is based on the Company's Leverage Ratio of
Consolidated Funded Indebtedness (as defined in the credit facility) on the last day of such period to Consolidated Pro Forma EBITDA for such period. Additionally, the Amendment sets the minimum LIBOR at 0.75%.
The credit facility, as amended, includes various covenants and restrictions, certain of which relate to the payment of dividends or other distributions to stockholders; redemption of capital stock; incurrence of additional indebtedness; mortgaging, pledging or disposition of major assets; and maintenance of specified ratios. As of September 30, 2020, we were in compliance with all financial covenants and other provisions of our debt agreements.
On October 22, 2020, in connection with the commencement of our at-the-market offering, we entered into an amendment to the credit facility to waive the requirement that we repay outstanding balances under the credit facility from the proceeds of any equity offering. The waiver applies to at-the-market offerings up to $75 million.
The credit facility, as amended, includes various covenants and restrictions, certain of which relate to the payment of dividends or other distributions to stockholders; redemption of capital stock; incurrence of additional indebtedness; mortgaging, pledging or disposition of major assets; and maintenance of specified ratios. As of September 30, 2021, we were in compliance with all financial covenants and other provisions of our debt agreements.
We also maintain a line of credit with a German bank for certain European operations. In July 2020, the German Bank Facility was amended to increase the borrowing capacity from €4,000 to €7,000. Of the €7,000 borrowing capacity, €3,511€4,000 was available as of September 30, 20202021 after considering outstanding letters of credit.
Included in long-termGiven that we had no outstanding debt wereas of September 30, 2021, our deferred debt issuance costs of $539 and $603$318 were reported in the “Other assets” line item in our Condensed Consolidated Balance Sheet. Our deferred debt issuance costs of $486 as of September 30, 2020 and December 31, 2019, respectively.2020 were reported in the “Long-term debt” line item in our Condensed Consolidated Balance Sheet. Deferred debt issuance costs are being amortized over the remaining term of the credit facility which expires on March 8, 2023.
8. EQUITY OFFERINGS AND PROGRAM
Equity Offering
On May 3, 2021, the Company announced a registered public offering (“Offering”) of its stock under an automatic shelf registration statement on Form S-3ASR filed on May 3, 2021. The Company entered into an underwriting agreement with KeyBanc Capital Markets Inc. (“KeyBanc”), as representative of the underwriters (collectively, the “Underwriters”), pursuant to which the Company agreed to sell 2,500,000 shares of its $0.05 par value common stock to the Underwriters. In addition, the Underwriters were granted an option, exercisable within 30 days, to purchase up to an additional 375,000 shares of common stock to cover over-allotments, if any, on the same terms and conditions.
On May 7, 2021, DMC issued a total of 2,875,000 shares of its common stock, which included the exercise of the over-allotment option, at a market price of $45 per share resulting in gross proceeds of $129,375. Net proceeds from the offering were $123,461, after deducting underwriter fees and other expenses of $5,914. We intend to use the net proceeds from the offering for general corporate purposes, which may include acquisitions. Pending the use of the proceeds as described, we invested the proceeds of the offering in highly liquid marketable securities, including commercial paper and U.S. Treasury securities. Please see discussion of our marketable securities in Note 2.
At-the-Market Equity Program
On October 22, 2020, the Company commenced an at-the-market ("ATM") equity program under its shelf registration statement, which allows it to sell and issue up to $75 million in shares of its common stock from time to time. The Company entered into an Equity Distribution Agreement on October 22, 2020 with KeyBanc relating to the issuance and sale of shares of common stock pursuant to the program. KeyBanc is not required to sell any specific amount of securities but will act as our sales agent using commercially reasonable efforts consistent with its normal trading and sales practices, on mutually agreed terms between KeyBanc and us. There is no specific date on which the ATM equity program will end and there are no minimum purchase requirements. KeyBanc is entitled to compensation for shares sold pursuant to the program in an amount up to 1.5% of the gross proceeds of any shares of common stock sold under the Equity Distribution Agreement.
During the three months ended September 30, 2021, the Company did not sell any shares of common stock through its ATM equity program. During the nine months ended September 30, 2021, the Company sold 397,820 shares of common stock through its ATM equity program for gross proceeds of $25,647 at a weighted average price per share of $64.47. Net proceeds from such sales were $25,262, after deducting commissions paid to the sales agents of approximately $385. Since the inception of the program, the Company has sold 1,006,180 shares of common stock for gross proceeds of $51,779 at a weighted average price per share of $51.46. Total net proceeds from sales through the ATM program have been $51,002. We intend to use the net proceeds from the ATM equity program for general corporate purposes, which may include working capital, debt repayment and potential acquisitions or investments in businesses, products or technologies. Pending the use of the proceeds as described, a portion of the proceeds from the ATM program has been invested in highly liquid marketable securities, including commercial paper and U.S. Treasury securities, while the balance remains in cash. Please see discussion of our marketable securities in Note 2.
9. INCOME TAXES
The effective tax rate for each of the periods reported differs from the U.S. statutory rate primarily due to variation in contribution to consolidated pre-tax income from each jurisdiction for the respective periods, differences between the U.S. and foreign tax rates (which range from 20% to 34%), permanent differences between book and taxable income, and changes to valuation allowances on our deferred tax assets.
We assess the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use existing deferred tax assets. Additionally, a three-year cumulative loss at a Consolidated Financial Statement level may be viewed as negative evidence impacting a jurisdiction that by itself is not in a three-year cumulative loss position. During the nine months ended September 30, 2021 and September 30, 2020, we did not record any adjustments to previously established valuation allowances. At March 31, 2019,allowances, except for adjustments related to the Company was no longerchanges in a three-year cumulative loss position inbalances of the U.S. and we believe sufficient future taxable income will be generated to use existingrelated deferred tax assets in that jurisdiction. Accordingly, during the three months ended March 31, 2019, we released valuation allowances of $368 in that jurisdiction and certain states.assets. The Company will continue to monitor the realizability of deferred tax assets and the need for valuation allowances and will record adjustments in the periods in which facts support such adjustments.
The Tax Cuts and Jobs Act (“TCJA”) provides that foreign earnings generally can be repatriated to the U.S. without federal tax consequence. We have reassessedassessed 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. IfNevertheless, if any such earnings were ultimately distributed to the U.S. in the form of dividends or otherwise, or if the shares of our international subsidiaries were sold or transferred, we could be subject to additional U.S. federal and state income taxes. Due to the multiple avenues in which earnings can be repatriated, and because a large portion of these earnings are not liquid, it is not practical to estimate the amount of additional taxes that might be payable on these amounts of undistributed foreign income.
During the fourth quarter of 2019, our German operating entities commenced a tax audit for fiscal years 2015 through 2017. If any issues addressedThe audit concluded in the audit are resolved in a manner not consistent with our expectations,second quarter of 2021, and we recorded additional tax expense of $25 after receiving all material assessments from the Company could be required to adjust its provision for income taxes in future periods.German authorities.
9.10. BUSINESS SEGMENTS
Our business is organized into 2 segments: DynaEnergetics and NobelClad. DynaEnergetics designs, manufactures and distributes products utilized by the global oil and gas industry principally for the perforation of oil and gas wells. NobelClad is a global leader in the production of explosion-welded clad metal plates for use in the construction of corrosion resistant industrial processing equipment and specialized transition joints.
Our reportable segments are separately managed strategic business units that offer different products and services. Each segment’s products are marketed to different customer types and require different manufacturing processes and technologies.
Segment information is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | | | Nine months ended September 30, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
| Net sales | | | | | | | |
| DynaEnergetics | $ | 34,201 | | | $ | 77,356 | | | $ | 111,065 | | | $ | 245,820 | |
| NobelClad | 21,080 | | | 22,738 | | | 60,983 | | | 65,363 | |
| Net sales | $ | 55,281 | | | $ | 100,094 | | | $ | 172,048 | | | $ | 311,183 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | | | Nine months ended September 30, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
| Operating income | | | | | | | |
| DynaEnergetics | $ | 2,171 | | | $ | 14,911 | | | $ | 3,886 | | | $ | 64,834 | |
| NobelClad | 2,483 | | | 2,219 | | | $ | 5,941 | | | $ | 5,972 | |
| Segment operating income | 4,654 | | | 17,130 | | | 9,827 | | | 70,806 | |
| | | | | | | |
| Unallocated corporate expenses | (1,594) | | | (3,067) | | | (5,851) | | | (8,972) | |
| Stock-based compensation | (1,595) | | | (1,242) | | | (4,154) | | | (3,908) | |
| Other (expense) income, net | (148) | | | 170 | | | (118) | | | 492 | |
| Interest expense, net | (170) | | | (387) | | | (564) | | | (1,169) | |
| Income (loss) before income taxes | $ | 1,147 | | | $ | 12,604 | | | $ | (860) | | | $ | 57,249 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | | | Nine months ended September 30, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
| Depreciation and amortization | | | | | | | |
| DynaEnergetics | $ | 1,866 | | | $ | 1,772 | | | $ | 5,410 | | | $ | 4,890 | |
| NobelClad | 879 | | | 845 | | | 2,594 | | | 2,477 | |
| Segment depreciation and amortization | 2,745 | | | 2,617 | | | 8,004 | | | 7,367 | |
| Corporate and other (1) | 75 | | | 0 | | | 239 | | | 0 | |
| Consolidated depreciation and amortization | $ | 2,820 | | | $ | 2,617 | | | $ | 8,243 | | | $ | 7,367 | |
(1) Prior to Q4 2019, the Company fully allocated corporate and other depreciation to the segments. | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
| Net sales | | | | | | | |
| DynaEnergetics | $ | 44,237 | | | $ | 34,201 | | | $ | 124,677 | | | $ | 111,065 | |
| NobelClad | 22,938 | | | 21,080 | | | 63,594 | | | 60,983 | |
| Net sales | $ | 67,175 | | | $ | 55,281 | | | $ | 188,271 | | | $ | 172,048 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
| Operating income | | | | | | | |
| DynaEnergetics | $ | 1,585 | | | $ | 2,171 | | | $ | 6,307 | | | $ | 3,886 | |
| NobelClad | 3,620 | | | 2,483 | | | 8,595 | | | 5,941 | |
| Segment operating income | 5,205 | | | 4,654 | | | 14,902 | | | 9,827 | |
| | | | | | | |
| Unallocated corporate expenses | (2,499) | | | (1,594) | | | (6,903) | | | (5,851) | |
| Stock-based compensation | (1,569) | | | (1,595) | | | (4,904) | | | (4,154) | |
| Other (expense) income, net | (198) | | | (148) | | | 304 | | | (118) | |
| Interest expense, net | (14) | | | (170) | | | (230) | | | (564) | |
| Income (loss) before income taxes | $ | 925 | | | $ | 1,147 | | | $ | 3,169 | | | $ | (860) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
| Depreciation and amortization | | | | | | | |
| DynaEnergetics | $ | 2,012 | | | $ | 1,866 | | | $ | 6,095 | | | $ | 5,410 | |
| NobelClad | 967 | | | 879 | | | 2,851 | | | 2,594 | |
| Segment depreciation and amortization | 2,979 | | | 2,745 | | | 8,946 | | | 8,004 | |
| Corporate and other | 102 | | | 75 | | | 277 | | | 239 | |
| Consolidated depreciation and amortization | $ | 3,081 | | | $ | 2,820 | | | $ | 9,223 | | | $ | 8,243 | |
The disaggregation of revenue earned from contracts with customers based on the geographic location of the customer is as follows.
DynaEnergetics
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | | | Nine months ended September 30, | | |
| | 2020 | | 2019 | | 2020 | | 2019 |
| United States | $ | 23,324 | | | $ | 67,361 | | | $ | 80,931 | | | $ | 210,642 | |
| Canada | 1,856 | | | 2,586 | | | 2,504 | | | 8,962 | |
| Iraq | 1,049 | | | 218 | | | 3,238 | | | 1,104 | |
| India | 601 | | | 160 | | | 5,624 | | | 236 | |
| Indonesia | 542 | | | 225 | | | 1,488 | | | 1,406 | |
| Pakistan | 482 | | | 262 | | | 866 | | | 601 | |
| Egypt | 388 | | | 876 | | | 2,642 | | | 2,610 | |
| Kuwait | 198 | | | 123 | | | 1,226 | | | 869 | |
| Germany | 126 | | | 455 | | | 513 | | | 535 | |
| Malaysia | 114 | | | 648 | | | 1,026 | | | 772 | |
| United Arab Emirates | 32 | | | 349 | | | 783 | | | 4,447 | |
| Rest of the world | 5,489 | | | 4,093 | | | 10,224 | | | 13,636 | |
| Total DynaEnergetics | $ | 34,201 | | | $ | 77,356 | | | $ | 111,065 | | | $ | 245,820 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
| United States | $ | 36,453 | | | $ | 23,324 | | | $ | 96,316 | | | $ | 80,931 | |
| Canada | 2,798 | | | 1,856 | | | 9,304 | | | 2,504 | |
| Egypt | 671 | | | 388 | | | 2,398 | | | 2,642 | |
| Oman | 665 | | | 1,148 | | | 2,117 | | | 1,842 | |
| Rest of the world | 3,650 | | | 7,485 | | | 14,542 | | | 23,146 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Total DynaEnergetics | $ | 44,237 | | | $ | 34,201 | | | $ | 124,677 | | | $ | 111,065 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | | | Nine months ended September 30, | | |
| | 2020 | | 2019 | | 2020 | | 2019 |
| United States | $ | 10,589 | | | $ | 12,883 | | | $ | 30,094 | | | $ | 34,830 | |
| Canada | 1,985 | | | 1,143 | | | 5,446 | | | 4,502 | |
| Germany | 982 | | | 1,210 | | | 2,770 | | | 3,041 | |
| Spain | 763 | | | 1,029 | | | 2,636 | | | 1,375 | |
| India | 733 | | | 267 | | | 880 | | | 546 | |
| Belgium | 647 | | | 409 | | | 1,057 | | | 1,892 | |
| Australia | 587 | | | 241 | | | 1,193 | | | 1,086 | |
| Sweden | 541 | | | 400 | | | 1,097 | | | 1,538 | |
| Netherlands | 361 | | | 519 | | | 1,276 | | | 1,531 | |
| United Arab Emirates | 310 | | | 287 | | | 2,930 | | | 1,561 | |
| France | 300 | | | 529 | | | 2,392 | | | 2,182 | |
| Norway | 297 | | | 1,359 | | | 1,937 | | | 3,519 | |
| Greece | 40 | | | 11 | | | 228 | | | 37 | |
| Singapore | 32 | | | 6 | | | 857 | | | 6 | |
| South Korea | 0 | | | 438 | | | 1,212 | | | 1,319 | |
| Rest of the world | 2,913 | | | 2,007 | | | 4,978 | | | 6,398 | |
| Total NobelClad | $ | 21,080 | | | $ | 22,738 | | | $ | 60,983 | | | $ | 65,363 | |
NobelClad | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
| United States | $ | 11,033 | | | $ | 10,589 | | | $ | 30,448 | | | $ | 30,094 | |
| Russia | 1,519 | | | — | | | 3,586 | | | — | |
| Canada | 1,254 | | | 1,985 | | | 3,985 | | | 5,446 | |
| Singapore | 1,009 | | | 32 | | | 1,009 | | | 857 | |
| United Arab Emirates | 929 | | | 310 | | | 2,030 | | | 2,930 | |
| China | 892 | | | 1,448 | | | 3,775 | | | 1,543 | |
| Italy | 831 | | | 301 | | | 1,268 | | | 685 | |
| Germany | 761 | | | 982 | | | 1,539 | | | 2,770 | |
| Australia | 576 | | | 587 | | | 1,171 | | | 1,193 | |
| France | 509 | | | 300 | | | 1,929 | | | 2,392 | |
| Netherlands | 507 | | | 361 | | | 1,628 | | | 1,276 | |
| Sweden | 494 | | | 541 | | | 676 | | | 1,097 | |
| Rest of the world | 2,624 | | | 3,644 | | | 10,550 | | | 10,700 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Total NobelClad | $ | 22,938 | | | $ | 21,080 | | | $ | 63,594 | | | $ | 60,983 | |
During the three months ended September 30, 2021, one customer in our DynaEnergetics segment accounted for approximately 11% of consolidated net sales. During the three months ended September 30, 2020, andone customer in our DynaEnergetics segment accounted for approximately 11% of consolidated net sales. During the nine months ended September 30, 2021 no single customer accounted for greater than 10% of consolidated net sales. During the nine months ended September 30, 2020, one customer in our DynaEnergetics segment accounted for approximately 11% and 12% of consolidated net sales, respectively. During the three and nine months endedsales. As of September 30, 2019,2021, one customer in our DynaEnergetics segment accounted for approximately 12% of consolidated accounts receivable. As of December 31, 2020 no customerssingle customer accounted for greater than 10% of consolidated net sales.
10.11. DERIVATIVE INSTRUMENTS
We are exposed to foreign currency exchange risk resulting from fluctuations in exchange rates, primarily the U.S. dollar to euro, the U.S. dollar to Canadian dollar, and, to a lesser extent, other currencies, arising from inter-company and third-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. We 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 (expense) income, 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 is the possibility that a loss may occur from the nonperformance of a counterparty to the agreements. 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’ ability to perform.
As of September 30, 20202021 and December 31, 2019,2020, the notional amounts of the forward currency contracts the Company held were $3,187$11,746 and $22,860,$2,092, respectively. At September 30, 20202021 and December 31, 2019,2020, the fair values of outstanding foreign currency forward contracts were $0.
The following table presents the location and amount of net gains (losses)losses from hedging activities:
| | | Three months ended September 30, | | | Nine months ended September 30, | | | Three months ended September 30, | | Nine months ended September 30, |
| Derivative | Derivative | Statements of Operations Location | 2020 | | 2019 | | 2020 | | 2019 | Derivative | Statements of Operations Location | 2021 | | 2020 | | 2021 | | 2020 |
| Foreign currency contracts | Foreign currency contracts | Other (expense) income, net | $ | (1,045) | | | $ | (182) | | | $ | (917) | | | $ | (113) | | Foreign currency contracts | Other (expense) income, net | $ | (253) | | | $ | (1,045) | | | $ | (187) | | | $ | (917) | |
|
11.
12. COMMITMENTS AND CONTINGENCIES
Contingent Liabilities
The Company records an accrual for contingent liabilities when a loss is both probable and reasonably estimable. If some amount within a range of loss appears to be a better estimate than any other amount within the range, that amount is accrued. When no amount within a range of loss appears to be a better estimate than any other amount, the lowest amount in the range is accrued.
Legal Proceedings
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent 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 aggregate, a material adverse effect on our business, financial condition or operating results.
Purchase Commitments
13. RESTRUCTURING EXPENSES AND ASSET IMPAIRMENTS
During the first quarter of 2021, NobelClad entered into a contractrecorded an accrual for additional severance liabilities of $116 which were agreed to with local labor authorities for employees terminated as part of closing manufacturing operations in 2018 with a supplier to purchase roll bonded products for resale. The agreement includes minimum annual thresholds that run through December 31, 2022. If NobelClad were not to meet any of the obligations under the contract, the potential exposure would be $180France in 2020 and an aggregate of $1,220 for the final two years of the agreement ending December 31, 2022. As of September 30, 2020, the contingent liability related to this agreement was not considered probable, and 0 accrual was recorded.
12. RESTRUCTURING AND ASSET IMPAIRMENTS2018.
During the third quarter of 2020, DynaEnergetics sold its Tyumen, Siberia production facility to a third-party for $448, which was equal to the carrying value of the assets held for sale.
During the second quarterquarter of 2020 the COVID-19 pandemic-related collapse in oil and gas demand led to a downturn in well completions and the corresponding demand for DynaEnergetics’ products. As a result, DynaEnergetics recorded asset impairment charges of $1,181 on certain manufacturing assets that will no longer be utilized in production at its Blum, Texas and Troisdorf, Germany facilities. Additionally, both DynaEnergetics and NobelClad further reduced the respective workforces during the quarter. Finally, DynaEnergetics continued activities to prepare its Tyumen, Siberia facility for sale.
During the first quarter of 2020, DMC reduced its workforce by 264 positions to address a sharp decline in well completions in the Company’s core oil and gas end market principally due to the COVID-19 pandemic. The workforce reduction impacted full-time, part-time and temporary direct-labor roles in manufacturing and assembly at DynaEnergetics as well as general and administrative positions at DynaEnergetics, NobelClad, and at DMC’s corporate office.
During the third quarter of 2019, DynaEnergetics completed a series of capacity expansion initiatives at its plants in North America and Germany. The new capacity improved DynaEnergetics’ operating efficiencies and enabled the business to more effectively serve its global customer base. Capitalizing on its more efficient manufacturing footprint, DynaEnergetics ceased its operations in Tyumen, Siberia in September 2019. In conjunction with shutting down operations, DynaEnergetics recorded a non-cash asset impairment charge of $4,620 within “Restructuring expenses, net and asset impairments”, which was calculated by comparing the estimated fair value less costs to sell to the carrying value of the assets. DynaEnergetics also recorded $1,260 in severance charges within “Restructuring expenses, net and asset impairments” and a non-cash inventory write down of $630 recorded within “Cost of products sold” associated with the decision to cease operations in Siberia.
During the fourth quarter of 2017, NobelClad announced plans to consolidate its European production facilities by closing manufacturing operations in France. During the second quarter of 2019, NobelClad sold its production facility and related assets and other machinery and equipment to third-parties for a gain of $519. Additionally, it moved certain machinery and equipment to its manufacturing facility in Germany. During the second quarter of 2019, NobelClad also recorded an additional accrual of $712 for known and probable severance liabilities related to employees terminated as part of closing the manufacturing operations in France. The additional severance accrual was recorded based, in part, on a successful appeal of the severance benefits by some terminated employees during the second quarter of 2019.
Total restructuring and impairment charges incurred for these programs are as follows and are reported in the “Restructuring expenses net and asset impairments” line item in our Condensed Consolidated Statements of Operations:
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| Three months ended September 30, 2020 | | | | | | | | | | |
| Severance | | | | Contract Termination Costs | | | | Other Exit Costs | | Total |
| DynaEnergetics | $ | 109 | | | | | $ | 8 | | | | | $ | 16 | | | $ | 133 | |
| NobelClad | 0 | | | | | 0 | | | | | 10 | | | 10 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Total | $ | 109 | | | | | $ | 8 | | | | | $ | 26 | | | $ | 143 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine months ended September 30, 2021 |
| Severance | | | | | | | | Other Exit Costs | | Total |
| | | | | | | | | | | |
| NobelClad | $ | 116 | | | | | | | | | $ | 11 | | | $ | 127 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Total | $ | 116 | | | | | | | | | $ | 11 | | | $ | 127 | |
| | | Three months ended September 30, 2019 | | | Three months ended September 30, 2020 |
| | Severance | | Asset Impairment | | Contract Termination Costs | | Equipment Moving Costs | | Other Exit Costs | | Total | | Severance | | | Contract Termination Costs | | | Other Exit Costs | | Total |
| DynaEnergetics | DynaEnergetics | $ | 1,260 | | | $ | 4,620 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 5,880 | | DynaEnergetics | $ | 109 | | | | $ | 8 | | | | $ | 16 | | | $ | 133 | |
| NobelClad | NobelClad | 2 | | | 0 | | | (4) | | | 7 | | | 13 | | | 18 | | NobelClad | — | | | | — | | | | 10 | | | 10 | |
| | Total | Total | $ | 1,262 | | | $ | 4,620 | | | $ | (4) | | | $ | 7 | | | $ | 13 | | | $ | 5,898 | | Total | $ | 109 | | | | $ | 8 | | | | $ | 26 | | | $ | 143 | |
| | | Nine months ended September 30, 2020 | | | Nine months ended September 30, 2020 |
| | Severance | | Asset Impairment | | Contract Termination Costs | | Equipment Moving Costs | | Other Exit Costs | | Total | | Severance | | Asset Impairment | | Contract Termination Costs | | Equipment Moving Costs | | Other Exit Costs | | Total |
| DynaEnergetics | DynaEnergetics | $ | 936 | | | $ | 1,181 | | | $ | 19 | | | $ | 126 | | | $ | 660 | | | $ | 2,922 | | DynaEnergetics | $ | 936 | | | $ | 1,181 | | | $ | 19 | | | $ | 126 | | | $ | 660 | | | $ | 2,922 | |
| NobelClad | NobelClad | 244 | | | 0 | | | 0 | | | 0 | | | 20 | | | 264 | | NobelClad | 244 | | | — | | | — | | | — | | | 20 | | | 264 | |
| Corporate | Corporate | 119 | | | 0 | | | 0 | | | 0 | | | 0 | | | 119 | | Corporate | 119 | | | — | | | — | | | — | | | — | | | 119 | |
| | Total | Total | $ | 1,299 | | | $ | 1,181 | | | $ | 19 | | | $ | 126 | | | $ | 680 | | | $ | 3,305 | | Total | $ | 1,299 | | | $ | 1,181 | | | $ | 19 | | | $ | 126 | | | $ | 680 | | | $ | 3,305 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine months ended September 30, 2019 | | | | | | | | | | |
| Severance | | Asset Impairment / (Gain on Asset Disposal) | | Contract Termination Costs | | Equipment Moving Costs | | Other Exit Costs | | Total |
| DynaEnergetics | $ | 1,260 | | | $ | 4,620 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 5,880 | |
| NobelClad | 714 | | | (636) | | | 39 | | | 234 | | | 69 | | | 420 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Total | $ | 1,974 | | | $ | 3,984 | | | $ | 39 | | | $ | 234 | | | $ | 69 | | | $ | 6,300 | |
During the nine months ended September 30, 2020,2021, the changes to the restructuring liability associated with these programs is summarized below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2019 | | Net expense (1) | | Payments and Other Adjustments | | Currency Adjustments | | September 30, 2020 |
| Severance | $ | 2,404 | | | $ | 1,299 | | | $ | (2,393) | | | $ | (139) | | | $ | 1,171 | |
| Contract termination costs | 0 | | | 19 | | | (11) | | | 0 | | | 8 | |
| Equipment moving costs | 0 | | | 126 | | | (126) | | | 0 | | | 0 | |
| Other exit costs | 271 | | | 680 | | | (1,129) | | | 178 | | | 0 | |
| Total | $ | 2,675 | | | $ | 2,124 | | | $ | (3,659) | | | $ | 39 | | | $ | 1,179 | |
(1) Excludes asset impairment expenses | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 | | Net expense | | Payments and Other Adjustments | | Currency Adjustments | | September 30, 2021 |
| Severance | $ | 958 | | | $ | 116 | | | $ | (56) | | | $ | (57) | | | $ | 961 | |
| | | | | | | | | |
| | | | | | | | | |
| Other exit costs | — | | | 11 | | | (11) | | | — | | | — | |
| Total | $ | 958 | | | $ | 127 | | | $ | (67) | | | $ | (57) | | | $ | 961 | |
13. SUBSEQUENT EVENTS
At-the-Market Offering Program
On October 22, 2020, the Company commenced an at-the-market equity program under its shelf registration statement, which allows it to sell and issue up to $75 million in shares of its common stock from time to time. The Company entered into an Equity Distribution Agreement on October 22, 2020 with KeyBanc Capital Markets Inc. relating to the issuance and sale of shares of common stock pursuant to the program. KeyBanc is not required to sell any specific amount of securities but will act as our sales agent using commercially reasonable efforts consistent with its normal trading and sales practices, on mutually agreed terms between KeyBanc and us. There is no specific date on which the at-the-market equity program will end and there are no minimum purchase requirements. KeyBanc will be entitled to compensation for shares sold pursuant to the program in an amount up to 1.5% of the gross proceeds of any shares of common stock sold under the Equity Distribution Agreement.
Debt Amendment
On October 22, 2020, the Company entered into an amendment to its credit facility. Please refer to Note 7 “Debt” for further information.
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our historical consolidated financial statements and notes, as well as the selected historical consolidated financial data that is included in our Annual Report filed on Form 10-K for the year ended December 31, 2019.2020.
Unless stated otherwise, all currency amounts are presented in thousands of U.S. dollars (000s).
Overview
General
DMC Global Inc. (“DMC”) operates two technical product and process business segments serving the energy, industrial and infrastructure markets. These segments, DynaEnergetics and NobelClad, operate globally through an international network of manufacturing, distribution and sales facilities.
Our diversified segments each provide a suite of unique technical products to niche sectors of the global energy, industrial and infrastructure markets, and each has established a strong or leading position in the markets in which it participates. With an underlying focus on generating free cash flow, our objective is to sustain and grow the market share of our businesses through increased market penetration, development of new applications, and research and development of new and adjacent products that can be sold across our global network of sales and distribution facilities. We routinely explore acquisitions of related businesses that could strengthen or add to our existing product portfolios, or expand our geographic footprint and market presence. We also seek acquisition opportunities outside our current markets that would complement our existing businesses and enable us to build a stronger and more diverse company.
DynaEnergetics
DynaEnergetics designs, manufactures and distributes products utilized by the global oil and gas industry principally for the perforation of oil and gas wells. These products are sold to oilfield service companies in the U.S., Europe, Canada, Africa, the Middle East, and Asia. DynaEnergetics also sells directly to end-users. The market for perforating products, which are used during the well completion process, generally corresponds with oil and gas exploration and production activity. Exploration activity over the last several years has led to increasingly complex well completion operations, which in turn has increased the demand for high quality and technically advanced perforating products.
Cost of products sold for DynaEnergetics includes the cost of metals, explosives and other raw materials used to manufacture shaped charges, detonating products and perforating guns as well as employee compensation and benefits, freight in, depreciation of manufacturing facilities and equipment, manufacturing supplies and other manufacturing overhead expenses.
NobelClad
NobelClad is a global leader in the production ofproduces explosion-welded clad metal plates for use in the construction of corrosion resistant industrial processing equipment and specialized transition joints. While a significant portion of the demand for our clad metal products is driven by maintenance and retrofit projects at existing chemical processing, petrochemical processing, oil refining, and aluminum smelting facilities, new plant construction and large plant expansion projects also account for a significant portion of total demand. These industries tend to be cyclical in nature and timing of new order inflow remains difficult to predict. We use backlog as a primary means to measure the immediate outlook for our NobelClad business. We define “backlog” at any given point in time as all firm, unfulfilled purchase orders and commitments at that time. Most firm purchase orders and commitments are realized, and we expect to fill most backlog orders within the following 12 months. NobelClad’s backlog increased to $42,553$42,867 at September 30, 20202021 from $31,660$39,884 at December 31, 2019.2020.
Cost of products sold for NobelClad includes the cost of metals and alloys used to manufacture clad metal plates, the cost of explosives, employee compensation and benefits, freight in, outside processing costs, depreciation of manufacturing facilities and equipment, manufacturing supplies and other manufacturing overhead expenses.
Factors Affecting Results
•Consolidated sales of $55,281$67,175 increased 28%3% versus the second quarter of 20202021 and declined 45%22% versus the third quarter of 2019.2020. DynaEnergetics reported a 19% sequential increase in unit sales of its fully integrated and factory-assembled DS perforating systems in North America. The sequential improvementincrease was partially offset by supply chain bottlenecks that impacted certain international orders at both DynaEnergetics and NobelClad. The year-over-year increase in consolidated sales primarily was relateddue to increased well completion activitya recovery in North America and related demand for DynaEnergetics’ perforating systems. The decline versus last year primarily was attributable to lower crude oil prices and energy demand, due to the COVID-19 pandemic, which negatively impacted unconventionalNorth American drilling and completionwell completions activity and sales at DynaEnergetics.DynaEnergetics, which has been severely impacted by the COVID-19 pandemic.
•DynaEnergetics sales of $34,201$44,237 in the third quarter of 20202021 increased 45%5% compared with the second quarter of 2020 primarily2021 due to a modest recovery in sequentialenergy demand and prices, which led to higher North American drilling and well completion activitycompletions, and increased sales of DynaEnergetics’ DS perforating systems. The increase in North America. The 56% declineAmerica was offset by a slowdown in international sales volume driven by supply chain disruptions and travel restrictions. Sales increased 29% compared with the third quarter of 2019 primarily2020, which was attributable to lower crude oil prices and energy demand due toseverely impacted by the COVID-19 pandemic, which negatively impacted unconventional drilling and completion activity in North America.pandemic.
•NobelClad’s sales of $21,080$22,938 in the third quarter of 2020 increased 8%2021 decreased 1% compared to the second quarter of 20202021 primarily due to shipping and decreased 7%supply chain bottlenecks and increased 9% compared with the third quarter of 2019 due to the timing of shipment2020 reflecting increased shipments of projects out of backlog.
•Consolidated gross profit ofwas 25% in the third quarter of 2020 decreased from 36%2021 versus 26% in the second quarter of 2021 and 25% in the third quarter of 2019. The decline occurred at DynaEnergetics where a 56% year-over-year sales decline caused under-absorption2020. Gross profit was flat versus last year as the third quarter of fixed overhead2021 and research and development expenses. Lower average selling prices at DynaEnergetics also contributed toreflects receipt of $1,800 ERC under the year-over-year decrease in gross profit percentage. Additionally,CARES Act, while the third quarter of 2020 included a lower proportion ofbenefited from higher-margin international sales inat DynaEnergetics relative to NobelClad compared with the prior year.that were $4.6 million greater than this year’s third quarter.
•Consolidated selling, general and administrative expenses were $15,314 in the third quarter of 2021 compared with $11,616 in the third quarter of 2020 compared with $17,111 in the third quarter of 2019.2020. The decreaseincrease primarily was due to lower outside servicehigher litigation expenses related to patent enforcement actions against companies that we believe infringe on DynaEnergetics’ patents, restoration of variable bonus, payrollcompensation, and payroll-related costs, and travel expenses.resumption of business-related travel. These increases were partially offset by receipt of $769 ERC under the CARES Act.
•Restructuring expenses net and asset impairments of $143 in the third quarter of 2020 primarily related to costs associated with the sale of the Tyumen, Siberia manufacturing facility.
•Net cashCash and marketable securities of $12,612$181,952 increased $6,531$128,029 from $6,081$53,923 at December 31, 20192020. The increase primarily duerelates to a decreaseproceeds from our registered public equity offering in working capital, which included a significant reduction in accounts receivables. Net cash is a non-GAAP measure calculated as total cashMay 2021 and cash equivalents ($24,604 at September 30, 2020) less total debt ($11,992 at September 30, 2020)under our at-the-market equity offering program (“ATM equity program”).
Outlook
In response to the COVID-19 pandemic, we took substantial steps worldwide to keep our employees safe. This included remote-working arrangements, redesigning our officeSupply chain disruptions and manufacturing layouts and workspaces, travel restrictions adopting new processeschallenged the international operations of both DMC businesses during the third quarter of 2021. As a result, consolidated sales were below our expectations. DynaEnergetics’ international sales were down $2.8 million sequentially versus the $7.4 million reported in second quarter; and at NobelClad, disruptions in global metals supplies slowed activity at its U.S. and European manufacturing facilities.
We remain in a period of rising material and labor costs at both DynaEnergetics and NobelClad; both of which could also be impacted by supply-chain disruptions and availability of direct labor. NobelClad was awarded an $8,800 order during the second quarter of 2021 for interactions with our supplierstitanium clad plates that will be used to fabricate specialized equipment for a large purified terephthalic acid (PTA) plant. The plant was engineered in Europe, will be built in Southwest Asia and customerswill include titanium-clad equipment fabricated in China. The clad plates, which will be used to fabricate pressure vessels and making additional investmentsheat exchangers, are being manufactured at NobelClad’s production facility in employee safety equipmentMt. Braddock, Pennsylvania. This large order should help offset the pandemic-related downturn in NobelClad’s base repair and processes. These effortsmaintenance business. However, receipt of the raw materials required to produce the order has been delayed due to supply chain bottlenecks, and while NobelClad still expects to receive the materials and fulfil the order during the fourth quarter, there remains a risk that some, or all, of the shipment will continue as the pandemic continues and as we navigate the continually evolving regulatory environment at each of our locations.occur after year end.
In light of the unprecedented downturn in global economicNorth America, rising crude prices led to higher well completion activity and the pandemic-related impact on oil and gas demand, DMC implemented several cost-containment actions in the second quarter to reduce our activity-based cost structure, limit spending and protect our balance sheet. These actions included reducing our workforce by 32%, implementing reduced work weeks at DynaEnergetics, significantly cutting selling, general and administrative expenses, reducing our capital expenditures budget by 50% and suspending the quarterly dividend. The decline in crude oil prices and oil and gas demand accelerated early in the secondthird quarter of 2020. To further preserve liquidity, we entered into an amendment to our credit facility on June 25, 2020 to, among other provisions, maintain our $50,000 revolving credit facility2021, which drove a strong increase in unit sales of DynaEnergetics’ fully integrated and waive the debt service coverage ratiofactory-assembled DS perforating systems. However, pricing for the quarters ending September 30, 2020, December 31, 2020,products and March 31, 2021.
We have also taken action to allow future flexibility in accessing the capital markets. We filed a shelf registration statement on Form S-3services remained weak. Additionally, rising material and labor costs combined with the Securities and Exchange Commission, which became effective on May 28, 2020, pursuant to which we registered up to $150 millionavailability of certain of our securities for potential sale from time to time and on terms that we may determine in the future. On October 22, 2020, we commenced an at-the-market equity program, which allows us to sell and issue up to $75 million in shares of our common stock from time to time. Although there is no certainty as to the amount or timing of any offering proceeds or whether we will obtain any such proceeds, the at-the-market equity program has the potential to further support our liquidity position.
At DynaEnergetics, we expect completions activity and demand in North America through the end of 2020 to not materially change from the third quarter. We have continued to invest in technology, product and market development initiatives to ensure we maintain our competitive advantages and future growth. During the second quarter of 2020, we introduced a series of products that are designed for new well-perforating applications and collectively increase its addressable market by more than 20%. The DS EchoTM perforating system positions DynaEnergetics in the emerging re-frac market, while DS MicroSetTM and DS LiberatorTM address plug setting and tool-string disengagement applications.
direct labor are negatively impacting the recovery in DynaEnergetics. As market conditions continue to improve and operators implement their 2022 budgets, we believe pricing will begin to improve as well. We expect DynaEnergetics will be among the first to benefit from strengthening prices, as it offers a highly differentiated product line. Factory-assembled DS systems are delivered just in time to the wellsite, eliminating assembly operations and requiring fewer people on location.
NobelClad’s order backlog atIn the endfourth quarter of 2021, DynaEnergetics announced a 5% price increase that will go into effect November 22, 2021. The increase was implemented to offset higher labor and material costs, as well as the anticipated wind down of the CARES Act. DynaEnergetics expects to implement additional increases during 2022 as it seeks to return margins to levels that reflect the inherent value of its products.
We believe many of the pre-wired carriers in the market incorporate features that violate DynaEnergetics patents, and we are taking aggressive legal action against the companies that make these products. DynaEnergetics has made significant investments in technologies and products that have improved the safety, efficiency and performance of its customers’ well completions, and have enhanced the effectiveness and profitability of the industry as a whole. Our patent strategy is designed to protect these investments and provide transparency so others can innovate without violating our intellectual property. These lawsuits have increased our general and administrative expenses in the first nine months of 2021, and we expect these costs to be ongoing throughout the remainder of 2021 and into 2022.
In the third quarter of 2021, NobelClad introduced DetaPipe™, a high-performance clad-pipe solution for the chemical and metal-processing markets. This product offering is expected to provide customers with a better-performing, cost-effective alternative to solid zirconium or titanium pipe in their high-pressure, high temperature processing environments.
In March 2021, provisions of legislation modified and extended the ERC under the CARES Act through December 31, 2021 for eligible companies. Under this extension, we were able to claim the refundable tax credit for the quarter ended September 30, 2021, but at this time there is no guarantee that we will be able to claim the credit for the quarter ended December 31, 2021. This could negatively impact our gross profit margin and operating income in the fourth quarter of 2021.
From time to time, we also may continue to use our ATM equity program, which commenced in October 2020, remained flat withto raise additional capital efficiently and responsibly. We did not sell shares under our ATM equity program during the second quarter. NobelClad’s customers inor third quarters of 2021. During the downstream energy industry have delayed various repairfirst quarter of 2021, we sold 397,820 shares of common stock at a weighted average price per share of $64.47 through our ATM equity program and maintenance projectsreceived net proceeds of $25,262. In addition to sales under our ATM equity program, during the second quarter of 2021 we issued a total of 2,875,000 shares of our common stock through a registered public offering at a market price of $45 per share and one customer has delayed the awardreceived net proceeds of a large prospective petrochemical order.$123,461.
Use of Non-GAAP Financial Measures
Adjusted EBITDA is a non-GAAP (generally accepted accounting principles) measure that we believe provides an important indicator of our ongoing operating performance and that we use in operational and financial decision-making. We define EBITDA as net income or loss plus or minus net interest, taxes, depreciation and amortization. Adjusted EBITDA excludes from EBITDA stock-based compensation, restructuring and impairment charges and, when appropriate, other items that management does not utilize in assessing DMC’s operating performance (as further described in the tables below). As a result, internal management reports used during monthly operating reviews includefeature Adjusted EBITDA and certain management incentive awards are based, in part, on the amount of Adjusted EBITDA achieved during the year.
Adjusted operating income (loss) is defined as operating income (loss) plus restructuring and impairment charges and, when appropriate, other items that management does not utilize in assessing DMC’s operating performance.
Adjusted net income (loss) is defined as net income (loss) plus restructuring and impairment charges and, when appropriate, other items that management does not utilize in assessing DMC’s operating performance. Adjusted diluted earnings per share is defined as diluted earnings per share plus restructuring and impairment charges and, when appropriate, other items that management does not utilize in assessing DMC’s operating performance.
Adjusted operating income (loss), adjusted net income (loss), and adjusted diluted earnings per share are presented because management believes these measures are useful to understand the effects of restructuring and impairment charges on DMC’s operating income (loss), net income (loss) and diluted earnings per share, respectively.
Net cash and net debt areis a non-GAAP measuresmeasure we use to supplement information in our Condensed Consolidated Financial Statements. We define net cash as total cash, and cash equivalents and marketable securities less total debt and net debt as total debt less cash and cash equivalents.debt. In addition to conventional measures
prepared in accordance with GAAP, the Company uses this information to evaluate its performance, and we believe that certain investors may do the same.
The presence of non-GAAP financial measures in this report is not intended to suggest that such measures be considered in isolation or as a substitute for, or as superior to, DMC’s GAAP information, and investors are cautioned that the non-GAAP financial measures are limited in their usefulness. Because not all companies use identical calculations, DMC’s presentation of non-GAAP financial measures may not be comparable to other similarly titled measures of other companies.
Consolidated Results of Operations
Three months ended September 30, 20202021 compared with three months ended September 30, 20192020
| | | Three months ended September 30, | | | | Three months ended September 30, | |
| | 2020 | | 2019 | | $ change | | % change | | 2021 | | 2020 | | $ change | | % change |
| Net sales | Net sales | $ | 55,281 | | | $ | 100,094 | | | $ | (44,813) | | | (45) | % | Net sales | $ | 67,175 | | | 55,281 | | | $ | 11,894 | | | 22 | % |
| Gross profit | Gross profit | 13,593 | | | 36,224 | | | (22,631) | | | (62) | % | Gross profit | 16,662 | | | 13,593 | | | 3,069 | | | 23 | % |
| Gross profit percentage | Gross profit percentage | 24.6 | % | | 36.2 | % | | Gross profit percentage | 24.8 | % | | 24.6 | % | |
| COSTS AND EXPENSES: | COSTS AND EXPENSES: | | COSTS AND EXPENSES: | |
| General and administrative expenses | General and administrative expenses | 6,911 | | | 10,128 | | | (3,217) | | | (32) | % | General and administrative expenses | 9,721 | | | 6,911 | | | 2,810 | | | 41 | % |
| % of net sales | % of net sales | 12.5 | % | | 10.1 | % | | % of net sales | 14.5 | % | | 12.5 | % | |
| Selling and distribution expenses | Selling and distribution expenses | 4,705 | | | 6,983 | | | (2,278) | | | (33) | % | Selling and distribution expenses | 5,593 | | | 4,705 | | | 888 | | | 19 | % |
| % of net sales | % of net sales | 8.5 | % | | 7.0 | % | | % of net sales | 8.3 | % | | 8.5 | % | |
| Amortization of purchased intangible assets | Amortization of purchased intangible assets | 369 | | | 394 | | | (25) | | | (6) | % | Amortization of purchased intangible assets | 211 | | | 369 | | | (158) | | | (43 | %) |
| % of net sales | % of net sales | 0.7 | % | | 0.4 | % | | % of net sales | 0.3 | % | | 0.7 | % | |
| | Restructuring expenses, net and asset impairments | 143 | | | 5,898 | | | (5,755) | | | (98) | % | |
| Restructuring expenses and asset impairments | | Restructuring expenses and asset impairments | — | | | 143 | | | (143) | | | (100 | %) |
| | Operating income | Operating income | 1,465 | | | 12,821 | | | (11,356) | | | (89) | % | Operating income | 1,137 | | | 1,465 | | | (328) | | | (22 | %) |
| Other (expense) income, net | (148) | | | 170 | | | (318) | | | (187) | % | |
| Other expense, net | | Other expense, net | (198) | | | (148) | | | (50) | | | (34 | %) |
| Interest expense, net | Interest expense, net | (170) | | | (387) | | | 217 | | | 56 | % | Interest expense, net | (14) | | | (170) | | | 156 | | | 92 | % |
| Income before income taxes | Income before income taxes | 1,147 | | | 12,604 | | | (11,457) | | | (91) | % | Income before income taxes | 925 | | | 1,147 | | | (222) | | | (19 | %) |
| Income tax provision | Income tax provision | 139 | | | 5,689 | | | (5,550) | | | (98) | % | Income tax provision | 522 | | | 139 | | | 383 | | | 276 | % |
| Net income | Net income | 1,008 | | | 6,915 | | | (5,907) | | | (85) | % | Net income | 403 | | | 1,008 | | | (605) | | | (60 | %) |
| Adjusted EBITDA | Adjusted EBITDA | $ | 6,023 | | | $ | 23,208 | | | $ | (17,185) | | | (74) | % | Adjusted EBITDA | $ | 5,787 | | | $ | 6,023 | | | $ | (236) | | | (4 | %) |
Net sales decreased $44,813increased $11,894 compared with 2019.the third quarter of 2020. The COVID-19 pandemic-related collapseincrease primarily was due to the recovery in energy demand and prices, which led to increased drilling and well completion activity in North America and increased sales of DynaEnergetics’ DS perforating systems. The third quarter of 2020 was negatively impacted by the drop in demand for oil and gas demand leddrilling and completion activity and low energy prices due to a downturn in well completions and demand for DynaEnergetics’ products.the COVID-19 pandemic.
Gross profit percentage decreasedincreased to 24.6%24.8% compared with 2019the third quarter of 2020 primarily due to the impact of lowerhigher volume on fixed manufacturing overhead expenses and lower average selling prices. The second quarterimproved project mix at NobelClad. Additionally, gross profit percentage was also favorably impacted by receipt of 2020 also included$1,800 ERC under the CARES Act. These favorable items were offset by a lower proportion ofdecline in high-margin international sales in DynaEnergetics relative to NobelClad compared with the second quarter of 2019.and higher material costs at DynaEnergetics.
General and administrative expenses decreased $3,217increased $2,810 compared with 2019the third quarter of 2020 primarily due to reductions in outside service costs by $2,329, employee salaries and wages and other payroll-related costs by $920, and travel expenses by $425. These decreases were offset by an increase in stock-basedoutside services costs by $2,251, which was primarily related to patent infringement litigation in which DynaEnergetics is the plaintiff, an increase from resumption of business-related travel by $344, an increase from the restoration of variable compensation expenseby $326, and salaries by $158 due to headcount additions and merit increases. These increases were partially offset by receipt of $281.$349 ERC under the CARES Act.
Selling and distribution expenses decreased $2,278increased $888 compared with 2019the third quarter of 2020 primarily due to reductionsincreases in salaries benefitsby $548 due to headcount additions and variable bonus expensesmerit increases, depreciation expense by $479,$354, increases from the resumption of business-related travel by $168, higher outside service costs by $428, travel expenses$176, and increases from the restoration of variable compensation by $389, and shipping and freight costs$156. These increases were partially offset by $335 on decreased sales volumes.receipt of $420 ERC under the CARES Act.
Restructuring expenses net and asset impairments of $143 in the third quarter of2020 primarily related to costs associated with the completed sale of DynaEnergetics’the Tyumen, Siberia manufacturing facility.
Operating income of $1,137 in the third quarter of 2021 decreased by $11,356compared to the same period last year primarily due to lowera decrease in earnings inat DynaEnergetics partially offset by higher earnings at NobelClad. Operating income was also favorably impacted by receipt of $2,569 ERC under the CARES Act in the third quarter of 2020.2021.
Other (expense) income,expense, net of $148198 in 2020the third quarter of 2021 primarily related to net unrealized and realized foreign currency exchange losses. Currency gains and losses can arise when subsidiaries enter into inter-company and third-party transactions that are denominated in currencies other than their functional currency, including foreign currency forward contracts used to offset foreign exchange rate fluctuations on certain foreign currency denominated asset and liability positions.
Interest expense, net of $17014 decreased compared with 2019the third quarter of 2020 primarily due to a lower averagethe repayment in full of our outstanding debt balance in 2020.
Income tax provision of $139$522 was recorded on income before income taxes of $925. Our most significant operations are in the United States, which has a 21% statutory income tax rate, and Germany, which has a 33% statutory income tax rate. The mix of income or loss before income taxes between these jurisdictions is one of the primary drivers of the difference between our 21% statutory tax rate and our effective tax rate. The rate was also impacted unfavorably by geographic mix of pretax income, state taxes, and certain compensation expenses that are not tax deductible in the U.S. We recorded an income tax benefit of $1,147.$139 on income before income taxes of $1,147 for the third quarter of 2020. The effective rate was impacted unfavorably by geographic mix of pretax income, state taxes, and certain compensation expenses that are not tax deductible in the U.S. The effective rate was also impacted favorably by discrete items of $247. We recorded an income tax provision of $5,689 on pretax income of $12,604 for the third quarter of 2019. The effective rate for the third quarter of 2019 was impacted unfavorably by restructuring expenses and asset impairments, related to the shutdown of production in Siberia, most of which is not tax deductible, and by favorable discrete items of $221.
Net income for the three months ended September 30, 20202021 was $1,008,$403, or $0.07$0.02 per diluted share, compared to net income of $6,915,$1,008, or $0.46$0.07 per diluted share, for the same period in 2019.2020.
Adjusted EBITDA decreased compared with 2019the third quarter of 2020 primarily due to the factors discussed above. See “Overview” above for the explanation of the use of Adjusted EBITDA. The following is a reconciliation of the most directly comparable GAAP measure to Adjusted EBITDA. | | | | | | | | | | | |
| Three months ended September 30, |
| | 2021 | | 2020 |
| Net income | $ | 403 | | | $ | 1,008 | |
| Interest expense, net | 14 | | | 170 | |
| Income tax provision | 522 | | | 139 | |
| Depreciation | 2,870 | | | 2,451 | |
| Amortization of purchased intangible assets | 211 | | | 369 | |
| EBITDA | 4,020 | | | 4,137 | |
| | | |
| Restructuring expenses and asset impairments | — | | | 143 | |
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| Stock-based compensation | 1,569 | | | 1,595 | |
| Other expense, net | 198 | | | 148 | |
| Adjusted EBITDA | $ | 5,787 | | | $ | 6,023 | |
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| Three months ended September 30, | | |
| | 2020 | | 2019 |
| Net income | $ | 1,008 | | | $ | 6,915 | |
| Interest expense, net | 170 | | | 387 | |
| Income tax provision | 139 | | | 5,689 | |
| Depreciation | 2,451 | | | 2,223 | |
| Amortization of purchased intangible assets | 369 | | | 394 | |
| EBITDA | 4,137 | | | 15,608 | |
| | | |
| Restructuring expenses, net and asset impairments | 143 | | | 5,898 | |
| Restructuring related inventory write down | — | | | 630 | |
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| Stock-based compensation | 1,595 | | | 1,242 | |
| Other expense (income), net | 148 | | | (170) | |
| Adjusted EBITDA | $ | 6,023 | | | $ | 23,208 | |
Adjusted Net Income and Adjusted Diluted Earnings per Share decreased compared with the third quarter of 2020 due to the factors discussed above. See "Overview" above for the explanation of the use of non-GAAP measures. The following is a reconciliation of the most directly comparable GAAP measures to Adjusted Net Income and Adjusted Diluted Earnings Per Share.
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| Three months ended September 30, 2021 |
| Pre-Tax | | Tax (Benefit) | | Net | | Diluted weighted average shares outstanding | | Diluted EPS |
| Net income, as reported | $ | 925 | | | $ | 522 | | | $ | 403 | | | 18,739,085 | | | $ | 0.02 | |
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| Adjusted net income | $ | 925 | | | $ | 522 | | | $ | 403 | | | 18,739,085 | | | $ | 0.02 | |
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| Three months ended September 30, 2020 |
| Pre-Tax | | Tax (Benefit) Provision | | Net | | Diluted weighted average shares outstanding | | Diluted EPS |
| Net income, as reported | $ | 1,147 | | | $ | 139 | | | $ | 1,008 | | | 14,820,881 | | | $ | 0.07 | |
| Restructuring expenses and asset impairments: | | | | | | | | | |
| DynaEnergetics | 133 | | | (39) | | | 172 | | | 14,820,881 | | | 0.01 | |
| NobelClad | 10 | | | 3 | | | 7 | | | 14,820,881 | | | — | |
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| Adjusted net income | $ | 1,290 | | | $ | 103 | | | $ | 1,187 | | | 14,820,881 | | | $ | 0.08 | |
Nine months ended September 30, 20202021 compared with nine months ended September 30, 20192020
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| Nine months ended September 30, | | | | |
| 2021 | | 2020 | | $ change | | % change |
| Net sales | $ | 188,271 | | | $ | 172,048 | | | $ | 16,223 | | | 9 | % |
| Gross profit | 46,546 | | | 44,667 | | | 1,879 | | | 4 | % |
| Gross profit percentage | 24.7 | % | | 26.0 | % | | | | |
| COSTS AND EXPENSES: | | | | | | | |
| General and administrative expenses | 26,121 | | | 21,744 | | | 4,377 | | | 20 | % |
| % of net sales | 13.9 | % | | 12.6 | % | | | | |
| Selling and distribution expenses | 16,380 | | | 18,720 | | | (2,340) | | | (13 | %) |
| % of net sales | 8.7 | % | | 10.9 | % | | | | |
| Amortization of purchased intangible assets | 823 | | | 1,076 | | | (253) | | | (24 | %) |
| % of net sales | 0.4 | % | | 0.6 | % | | | | |
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| Restructuring expenses | 127 | | | 3,305 | | | (3,178) | | | (96 | %) |
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| Operating income (loss) | 3,095 | | | (178) | | | 3,273 | | | 1,839 | % |
| Other income (expense), net | 304 | | | (118) | | | 422 | | | 358 | % |
| Interest expense, net | (230) | | | (564) | | | 334 | | | 59 | % |
| Income (loss) before income taxes | 3,169 | | | (860) | | | 4,029 | | | 468 | % |
| Income tax provision (benefit) | 610 | | | (375) | | | 985 | | | 263 | % |
| Net income (loss) | 2,559 | | | (485) | | | 3,044 | | | 628 | % |
| Adjusted EBITDA | $ | 17,349 | | | $ | 15,524 | | | $ | 1,825 | | | 12 | % |
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| Nine months ended September 30, | | | | | | |
| 2020 | | 2019 | | $ change | | % change |
| Net sales | $ | 172,048 | | | $ | 311,183 | | | $ | (139,135) | | | (45) | % |
| Gross profit | 44,667 | | | 114,702 | | | (70,035) | | | (61) | % |
| Gross profit percentage | 26.0 | % | | 36.9 | % | | | | |
| COSTS AND EXPENSES: | | | | | | | |
| General and administrative expenses | 21,744 | | | 28,756 | | | (7,012) | | | (24) | % |
| % of net sales | 12.6 | % | | 9.2 | % | | | | |
| Selling and distribution expenses | 18,720 | | | 20,531 | | | (1,811) | | | (9) | % |
| % of net sales | 10.9 | % | | 6.6 | % | | | | |
| Amortization of purchased intangible assets | 1,076 | | | 1,189 | | | (113) | | | (10) | % |
| % of net sales | 0.6 | % | | 0.4 | % | | | | |
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| Restructuring expenses, net and asset impairments | 3,305 | | | 6,300 | | | (2,995) | | | (48) | % |
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| Operating (loss) income | (178) | | | 57,926 | | | (58,104) | | | (100) | % |
| Other (expense) income, net | (118) | | | 492 | | | (610) | | | (124) | % |
| Interest expense, net | (564) | | | (1,169) | | | 605 | | | 52 | % |
| (Loss) income before income taxes | (860) | | | 57,249 | | | (58,109) | | | (102) | % |
| Income tax (benefit) provision | (375) | | | 17,920 | | | (18,295) | | | (102) | % |
| Net (loss) income | (485) | | | 39,329 | | | (39,814) | | | (101) | % |
| Adjusted EBITDA | $ | 15,524 | | | $ | 76,131 | | | $ | (60,607) | | | (80) | % |
Gross profit percentage decreased to 24.7% compared with the nine months of 2020 primarily due to lower average selling prices and a decrease in international sales at DynaEnergetics. The decline was partially offset by excess capacity charges and inventory reserves that were recorded at DynaEnergetics in the second quarter of 2020, as well as favorable project mix in NobelClad, and receipt of $4,134 ERC under the CARES Act in the first nine months of 2021.
General and administrative expenses increased $4,377 compared with the nine months of 2020 primarily due to an increase in outside services costs by $3,721 mostly related to patent infringement litigation in which DynaEnergetics is the plaintiff, restoration of variable compensation by $1,050, and an increase in stock-based compensation expense by $890. The increases were partially offset by receipt of $1,028 ERC under the CARES Act.
Net sales decreased $139,135 compared with 2019. The decline primarily related to sharply lower demand for well perforating systems at DynaEnergeticsas the COVID-19 pandemic-related collapse in oil and gas demand led to a downturn in well completions in the U.S.
Gross profit percentage decreased to 26.0% compared with 2019 primarily due to the impact of lower sales volume on fixed manufacturing overhead expenses, including excess capacity charges, lower average selling prices, and an increase in reserves for excess inventories. The nine months of 2020 also included a lower proportion of sales in DynaEnergetics relative to NobelClad compared with the first nine months of 2019.
General and administrative expenses decreased $7,012 compared with 2019 primarily due to reductions in outside service costs by $3,499, wages, employee benefits expenses and payroll taxes by $2,316, variable bonus expenses by $1,479. These decreases were partially offset by an increase in depreciation expense by $361.
Selling and distribution expenses decreased $1,811$2,340 compared with 2019the same period of 2020 primarily due to reductions in wages, employee benefits expensesprovisions for expected credit losses by $3,227 and payroll taxes by $1,089, shipping and freight costs by $921 on decreased sales volumes, travel expenses by $697, outside service costs by $654, and variable bonus by $458. Thesereceipt of $1,236 ERC under the CARES Act. The decreases were partially offset by an increaseincreases in depreciation expense by $900, salaries by $517 due to headcount additions and merit increases, increases from the provision for expected credit lossesrestoration of $2,985 during the first nine months of 2020.variable compensation by $479, and higher outside service costs by $271.
Restructuring expenses net and asset impairments of $3,305$127 in the nine months of 2021 primarily related to additional severance accruals for employee terminations associated with closing manufacturing operations in France in 2018. Expenses in 2020 primarily related to downsizing our direct labor workforce at DynaEnergetics in response to declining crude oil prices and corresponding demand for well perforating systems at DynaEnergetics.due to the COVID-19 pandemic.
Operating loss incomeof $178 primarily was due to lower$3,095 in 2021 reflect higher earnings at DynaEnergetics and NobelClad during 2021, including receipt of $6,398 ERC under the CARES Act in the first nine months of 2020.2021.
Other (expense) income, net of $118304 in 2020the nine months of 2021 primarily related to a gain on the sale of a fully depreciated fixed asset by DynaEnergetics partially offset with net unrealized and realized foreign currency exchange losses. Currency gains and losses can arise when subsidiaries enter into inter-company and third-party transactions that are denominated in currencies other than their functional currency, including foreign currency forward contracts used to offset foreign exchange rate fluctuations on certain foreign currency denominated asset and liability positions.
Interest expense, net of $564230 decreased compared with 2019the nine months of 2020 primarily due to a lower averagethe repayment in full of our outstanding debt balance in 2020.the first quarter of 2021. Interest expense, net was also favorably impacted by interest on our investments in marketable securities.
Income tax benefitprovision of $375$610 was recorded on income before income taxes of $3,169. Our most significant operations are in the United States, which has a 21% statutory income tax rate, and Germany, which has a 33% statutory income tax rate. The mix of income or loss before income taxes between these jurisdictions is one of the main drivers of the difference between our 21% statutory tax rate and our effective tax rate. The effective income tax rate was impacted favorably by discrete stock-based compensation windfall benefits of $832. The rate was also impacted unfavorably by geographic mix of pretax income, state taxes, and certain compensation expenses that are not tax deductible in the U.S. We recorded an income tax benefit of $375 on loss before income taxes of $860.$860 for the nine months of 2020. The effective rate was impacted unfavorably by geographic mix of pretax income, state taxes, and certain compensation expenses that are not tax deductible in the U.S. The effective rate was also impacted favorably by discrete items of $549. We recorded an income tax provision of $17,920 on pretax income of $57,249 for the same period of 2019. The effective rate for the first nine months of 2019 was impacted unfavorably by restructuring expenses and asset impairments, related to the shutdown of production in Siberia, most of which is not tax deductible and by favorable discrete items of $1,536.
Net lossincome for the nine months ended September 30, 20202021 was $485,$2,559, or $0.03$0.15 per diluted share, compared to net incomeloss of $39,329,$485, or $2.64$0.03 per diluted share, for the same period in 2019.2020.
Adjusted EBITDA decreasedincreased compared with 2019the first nine months of 2020 primarily due to the factors discussed above. See “Overview” above for the explanation of the use of Adjusted EBITDA. The following is a reconciliation of the most directly comparable GAAP measure to Adjusted EBITDA. | | | | | | | | | | | |
| Nine months ended September 30, |
| | 2021 | | 2020 |
| Net income (loss) | $ | 2,559 | | | $ | (485) | |
| Interest expense, net | 230 | | | 564 | |
| Income tax provision (benefit)) | 610 | | | (375) | |
| Depreciation | 8,400 | | | 7,167 | |
| Amortization of purchased intangible assets | 823 | | | 1,076 | |
| EBITDA | 12,622 | | | 7,947 | |
| | | |
| Restructuring expenses and asset impairments | 127 | | | 3,305 | |
| | | |
| | | |
| | | |
| Stock-based compensation | 4,904 | | | 4,154 | |
| Other (income) expense, net | (304) | | | 118 | |
| Adjusted EBITDA | $ | 17,349 | | | $ | 15,524 | |
Adjusted Net Income and Adjusted Diluted Earnings per Share increased compared with the first nine months of 2020 due to the factors discussed above. See "Overview" above for the explanation of the use of non-GAAP measures. The following is a reconciliation of the most directly comparable GAAP measures to Adjusted Net Income and Adjusted Diluted Earnings Per Share.
| | | | | | | | | | | |
| Nine months ended September 30, | | |
| | 2020 | | 2019 |
| Net (loss) income | $ | (485) | | | $ | 39,329 | |
| Interest expense, net | 564 | | | 1,169 | |
| Income tax (benefit) provision | (375) | | | 17,920 | |
| Depreciation | 7,167 | | | 6,178 | |
| Amortization of purchased intangible assets | 1,076 | | | 1,189 | |
| EBITDA | 7,947 | | | 65,785 | |
| | | |
| Restructuring expenses, net and asset impairments | 3,305 | | | 6,300 | |
| Restructuring related inventory write down | — | | | 630 | |
| | | |
| | | |
| Stock-based compensation | 4,154 | | | 3,908 | |
| Other expense (income), net | 118 | | | (492) | |
| Adjusted EBITDA | $ | 15,524 | | | $ | 76,131 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine months ended September 30, 2021 |
| Pre-Tax | | Tax Provision | | Net | | Diluted weighted average shares outstanding | | Diluted EPS |
| Net income, as reported | $ | 3,169 | | | $ | 610 | | | $ | 2,559 | | | 17,250,525 | | | $ | 0.15 | |
| Restructuring expenses and asset impairments: | | | | | | | | | |
| | | | | | | | | |
| NobelClad | 127 | | | — | | | 127 | | | 17,250,525 | | | 0.01 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Adjusted net income | 3,296 | | | 610 | | | 2,686 | | | 17,250,525 | | | 0.16 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine months ended September 30, 2020 |
| Pre-Tax | | Tax (Benefit) Provision | | Net | | Diluted weighted average shares outstanding | | Diluted EPS |
| Net loss, as reported | $ | (860) | | | $ | (375) | | | $ | (485) | | | 14,759,062 | | | $ | (0.03) | |
| Restructuring expenses and asset impairments: | | | | | | | | | |
| DynaEnergetics | 2,922 | | | 896 | | | 2,026 | | | 14,759,062 | | | 0.14 | |
| NobelClad | 264 | | | 77 | | | 187 | | | 14,759,062 | | | 0.01 | |
| Corporate | 119 | | | 25 | | | 94 | | | 14,759,062 | | | 0.01 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Adjusted net income | $ | 2,445 | | | $ | 623 | | | $ | 1,822 | | | 14,759,062 | | | $ | 0.13 | |
Business Segment Financial Information
We primarily evaluate performance and allocate resources based on segment revenues, operating income and adjusted EBITDA as well as projected future performance. Segment operating income is defined as revenues less expenses identifiable to the segment. Segment operating income will reconcile to consolidated income before income taxes by deducting unallocated corporate expenses, including stock-based compensation, net other expense, and net interest expense.
DynaEnergetics
Three months ended September 30, 20202021 compared with three months ended September 30, 2019
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | | | | | |
| 2020 | | 2019 | | $ change | | % change |
| Net sales | $ | 34,201 | | | $ | 77,356 | | | $ | (43,155) | | | (56) | % |
| Gross profit | 8,194 | | | 30,543 | | | (22,349) | | | (73) | % |
| Gross profit percentage | 24.0 | % | | 39.5 | % | | | | |
| COSTS AND EXPENSES: | | | | | | | |
| General and administrative expenses | 3,176 | | | 5,048 | | | (1,872) | | | (37) | % |
| Selling and distribution expenses | 2,445 | | | 4,405 | | | (1,960) | | | (44) | % |
| Amortization of purchased intangible assets | 269 | | | 299 | | | (30) | | | (10) | % |
| Restructuring expenses, net and asset impairments | 133 | | | 5,880 | | | (5,747) | | | (98) | |
| | | | | | | |
| Operating income | 2,171 | | | 14,911 | | | (12,740) | | | (85) | % |
| Adjusted EBITDA | $ | 4,170 | | | $ | 23,193 | | | $ | (19,023) | | | (82) | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | | | |
| 2021 | | 2020 | | $ change | | % change |
| Net sales | $ | 44,237 | | | $ | 34,201 | | | $ | 10,036 | | | 29 | % |
| Gross profit | 9,924 | | | 8,194 | | | 1,730 | | | 21 | % |
| Gross profit percentage | 22.4 | % | | 24.0 | % | | | | |
| COSTS AND EXPENSES: | | | | | | | |
| General and administrative expenses | 4,990 | | | 3,176 | | | 1,814 | | | 57 | % |
| Selling and distribution expenses | 3,260 | | | 2,445 | | | 815 | | | 33 | % |
| Amortization of purchased intangible assets | 89 | | | 269 | | | (180) | | | (67 | %) |
| Restructuring expenses and asset impairments | — | | | 133 | | | (133) | | | (100 | %) |
| | | | | | | |
| Operating income | 1,585 | | | 2,171 | | | (586) | | | (27 | %) |
| Adjusted EBITDA | $ | 3,597 | | | $ | 4,170 | | | $ | (573) | | | (14 | %) |
Net sales were $43,155 lower$10,036 higher than in 2019the third quarter of 2020 due to sharply lowera recovery in energy demand, for well perforating systems at DynaEnergetics as the COVID-19 pandemic-related collapse in oil and gas demandwhich led to a downturnincreased drilling and well completion activity in well completionsNorth America and increased sales of DynaEnergetics’ DS perforating systems. The year-over-year increase in the U.S.net sales from North American activity was partially offset by lower international sales.
Gross profit percentage decreased to 24.0%22.4% compared with 2019the third quarter of 2020 primarily due to a decline in high-margin international sales and higher material costs. These items were partially offset by receipt of $1,250 ERC under the impactCARES Act in the third quarter of lower sales volume on fixed manufacturing overhead expenses and lower average selling prices.2021.
General and administrative expenses decreased $1,872increased $1,814 compared with the third quarter of 2020 primarily due to reductionsan increase in outside serviceservices costs by $1,606 and salaries and wages, variable bonus and other payroll-related costs$1,969 mostly related to patent infringement litigation in which DynaEnergetics is the plaintiff. The increase was partially offset by $413.receipt of $100 ERC under the CARES Act.
Selling and distribution expenses decreased $1,960increased $815 compared with 2019the third quarter of 2020 primarily due to reductionsincreases in salaries, and wages, variable bonus and other payroll-relatedbenefits, other-payroll related costs by $440, shipping$359 due to headcount additions and freight costsmerit increases, increases in depreciation expense by $332 on decreased sales volumes,$335, higher outside service costs by $303,$170, increases from the restoration of variable compensation by $120, and an increase from resumption of business-related travel expenses by $261.$96. The increases were partially offset by receipt of $279 ERC under the CARES Act.
Restructuring expenses net and asset impairmentsof $133 in 2020 primarily related to costs associated with the sale of the Tyumen, Siberia manufacturing facility.
Operating income decreased $12,740$586 compared withthe third quarter of 2020 primarily due to lower unit sales volume, the impact of lower volume on fixed manufacturing overheadhigh margin international sales, higher material costs, and lower averagehigher selling, pricesgeneral and administrative expenses. The decline was partially offset by reduced general and administrative and selling and distribution spending.receipt of $1,629 ERC under the CARES Act.
Adjusted EBITDA decreased compared with 2019the third quarter of 2020 due to the factors discussed above. See “Overview” above for the explanation of the use of Adjusted EBITDA. The following is a reconciliation of the most directly comparable GAAP measure to Adjusted EBITDA.
| | | Three months ended September 30, | | | Three months ended September 30, |
| | 2020 | | 2019 | | 2021 | | 2020 |
| Operating income | Operating income | $ | 2,171 | | | $ | 14,911 | | Operating income | $ | 1,585 | | | $ | 2,171 | |
| Adjustments: | Adjustments: | | Adjustments: | |
| Restructuring expenses, net and asset impairments | 133 | | | 5,880 | | |
| Restructuring expenses and asset impairments | | Restructuring expenses and asset impairments | — | | | 133 | |
| | Adjusted operating income | | Adjusted operating income | 1,585 | | | 2,304 | |
| Depreciation | Depreciation | 1,597 | | | 1,473 | | Depreciation | 1,923 | | | 1,597 | |
| Amortization of purchased intangibles | Amortization of purchased intangibles | 269 | | | 299 | | Amortization of purchased intangibles | 89 | | | 269 | |
| Adjusted EBITDA | Adjusted EBITDA | $ | 4,170 | | | $ | 23,193 | | Adjusted EBITDA | $ | 3,597 | | | $ | 4,170 | |
Nine months ended September 30, 20202021 compared with nine months ended September 30, 20192020
| | | Nine months ended September 30, | | | | Nine months ended September 30, | |
| | 2020 | | 2019 | | $ change | | % change | | 2021 | | 2020 | | $ change | | % change |
| Net sales | Net sales | $ | 111,065 | | | $ | 245,820 | | | $ | (134,755) | | | (55) | % | Net sales | $ | 124,677 | | | $ | 111,065 | | | $ | 13,612 | | | 12 | % |
| Gross profit | Gross profit | 29,640 | | | 98,116 | | | (68,476) | | | (70) | % | Gross profit | 29,034 | | | 29,640 | | | (606) | | | (2) | % |
| Gross profit percentage | Gross profit percentage | 26.7 | % | | 39.9 | % | | Gross profit percentage | 23.3 | % | | 26.7 | % | |
| COSTS AND EXPENSES: | COSTS AND EXPENSES: | | COSTS AND EXPENSES: | |
| General and administrative expenses | General and administrative expenses | 10,164 | | | 13,360 | | | (3,196) | | | (24) | % | General and administrative expenses | 12,574 | | | 10,164 | | | 2,410 | | | 24 | % |
| Selling and distribution expenses | Selling and distribution expenses | 11,880 | | | 13,142 | | | (1,262) | | | (10) | % | Selling and distribution expenses | 9,702 | | | 11,880 | | | (2,178) | | | (18) | % |
| Amortization of purchased intangible assets | Amortization of purchased intangible assets | 788 | | | 900 | | | (112) | | | (12) | % | Amortization of purchased intangible assets | 451 | | | 788 | | | (337) | | | (43) | % |
| Restructuring expenses, net and asset impairments | 2,922 | | | 5,880 | | | (2,958) | | | (50) | | |
| Restructuring expenses and asset impairments | | Restructuring expenses and asset impairments | — | | | 2,922 | | | (2,922) | | | (100) | % |
| | Operating income | Operating income | 3,886 | | | 64,834 | | | (60,948) | | | (94) | % | Operating income | 6,307 | | | 3,886 | | | 2,421 | | | 62 | % |
| Adjusted EBITDA | Adjusted EBITDA | $ | 12,218 | | | $ | 76,234 | | | $ | (64,016) | | | (84) | % | Adjusted EBITDA | $ | 12,402 | | | $ | 12,218 | | | $ | 184 | | | 2 | % |
Net sales were $134,755 lower$13,612 higher than in 2019the same period of 2020 due to sharplya recovery in energy demand, which led to increased energy prices, drilling and well completion activity in North America, and increased sales of DynaEnergetics’ DS perforating systems. The year-over-year increase in net sales was partially offset by lower international sales. The first nine months of 2020 was severely impacted by the drop in energy demand for well perforating systems at DynaEnergetics asand related drilling and completion activity due to the COVID-19 pandemic-related collapse in oil and gas demand led to a downturn in well completions in the U.S.pandemic.
Gross profit percentage decreased to 26.7%23.3% compared with 20192020 primarily due to the unfavorable impact of lower sales volume on fixed manufacturing overhead expenses, including excess capacity charges in the second quarter, lower average selling prices and an increase in reserves for excess inventories.2021, which also contributed to lower fixed cost absorption, as well as a decline in high-margin international sales. The decline was partially offset by receipt of $2,696 ERC under the CARES Act.
General and administrative expenses decreased $3,196increased $2,410 compared with 20192020 primarily due to reductionsan increase in outside serviceservices costs by $2,134 and salaries and wages, variable bonus and other payroll-related costs by $1,447. These decreases were$3,525 mostly related to patent infringement litigation in which DynaEnergetics is the plaintiff. The increase was partially offset by an increasereceipt of $276 in depreciation expense.$333 ERC under the CARES Act.
Selling and distribution expenses decreased $1,262$2,178 compared with 20192020 primarily due to reductions in salariesprovisions for expected credit losses by $2,915 and wages and other payroll-related costs by $1,225, freight expenses by $918 on reduced shipping activity, outside service costs by $528, and travel expenses by $358.receipt of $800 ERC under the CARES Act. These decreases were partially offset by an increaseincreases in depreciation expense by $901, increases in salaries by $491 due to headcount additions and merit increases, and increases from the provision for expected credit lossesrestoration of $2,807 associated with specifically identified at-risk customer balances combined with an increase to our current expected credit loss reserve.variable compensation by $411.
Restructuring expenses net and asset impairmentsof $2,922 in 2020 primarily related to downsizing our direct labor workforce in response to declining crude oil prices and corresponding demand for well perforating systems. We also recorded asset impairments and incurred costs associated with the sale of the Tyumen, Siberia manufacturing facility.
Operating income decreasedby$60,948increased $2,421 compared with 2019primarily due to a sharp decline in unit2020 as increased sales volume, receipt of $3,829 ERC under the unfavorable impact of lower sales volume on fixed overhead expenses,CARES Act, and a reduction in the provisions for expected credit losses more than offset lower average selling prices, and increases in reserves for excess inventories and expected credit losses, partially offset by lower general and administrative expenses.prices.
Adjusted EBITDA decreasedincreased compared with 20192020 due to the factors discussed above. See “Overview” above for the explanation of the use of Adjusted EBITDA. The following is a reconciliation of the most directly comparable GAAP measure to Adjusted EBITDA.
| | | Nine months ended September 30, | | | Nine months ended September 30, |
| | 2020 | | 2019 | | 2021 | | 2020 |
| Operating income | Operating income | $ | 3,886 | | | $ | 64,834 | | Operating income | $ | 6,307 | | | $ | 3,886 | |
| Adjustments: | Adjustments: | | Adjustments: | |
| Restructuring expenses, net and asset impairments | 2,922 | | | 5,880 | | |
| Restructuring related inventory write down | — | | | 630 | | |
| Restructuring expenses and asset impairments | | Restructuring expenses and asset impairments | — | | | 2,922 | |
| | | Adjusted operating income | | Adjusted operating income | 6,307 | | | 6,808 | |
| Depreciation | Depreciation | 4,622 | | | 3,990 | | Depreciation | 5,644 | | | 4,622 | |
| Amortization of purchased intangibles | Amortization of purchased intangibles | 788 | | | 900 | | Amortization of purchased intangibles | 451 | | | 788 | |
| Adjusted EBITDA | Adjusted EBITDA | $ | 12,218 | | | $ | 76,234 | | Adjusted EBITDA | $ | 12,402 | | | $ | 12,218 | |
NobelClad
Three months ended September 30, 20202021 compared with three months ended September 30, 2019
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | | | | | |
| 2020 | | 2019 | | $ change | | % change |
| Net sales | $ | 21,080 | | | $ | 22,738 | | | $ | (1,658) | | | (7) | % |
| Gross profit | 5,577 | | | 5,811 | | | (234) | | | (4) | % |
| Gross profit percentage | 26.5 | % | | 25.6 | % | | | | |
| COSTS AND EXPENSES: | | | | | | | |
| General and administrative expenses | 878 | | | 1,032 | | | (154) | | | (15) | % |
| Selling and distribution expenses | 2,106 | | | 2,447 | | | (341) | | | (14) | % |
| Amortization of purchased intangible assets | 100 | | | 95 | | | 5 | | | 5 | % |
| Restructuring expenses, net and asset impairments | 10 | | | 18 | | | (8) | | | (44) | % |
| | | | | | | |
| Operating income | 2,483 | | | 2,219 | | | 264 | | | 12 | % |
| Adjusted EBITDA | $ | 3,372 | | | $ | 3,082 | | | $ | 290 | | | 9 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | | | |
| 2021 | | 2020 | | $ change | | % change |
| Net sales | $ | 22,938 | | | $ | 21,080 | | | $ | 1,858 | | | 9 | % |
| Gross profit | 6,883 | | | 5,577 | | | 1,306 | | | 23 | % |
| Gross profit percentage | 30.0 | % | | 26.5 | % | | | | |
| COSTS AND EXPENSES: | | | | | | | |
| General and administrative expenses | 933 | | | 878 | | | 55 | | | 6 | % |
| Selling and distribution expenses | 2,208 | | | 2,106 | | | 102 | | | 5 | % |
| Amortization of purchased intangible assets | 122 | | | 100 | | | 22 | | | 22 | % |
| Restructuring expenses and asset impairments | — | | | 10 | | | (10) | | | (100 | %) |
| | | | | | | |
| Operating income | 3,620 | | | 2,483 | | | 1,137 | | | 46 | % |
| Adjusted EBITDA | $ | 4,587 | | | $ | 3,372 | | | $ | 1,215 | | | 36 | % |
Net sales of $21,080 decreasedincreased $1,858 compared with 2019the third quarter of 2020 primarily due to the timing of shipment of projects out of backlog.
Gross profit percentage of 26.5%30.0% increased compared with 2019the third quarter of 2020 primarily due to better project mix.mix, higher sales volume on fixed overhead expenses and receipt of $550 ERC under the CARES Act.
General and administrative expenses decreased $154increased $55 compared with 2019the third quarter of 2020 primarily due to reductions in salariesincreases from the resumption of business travel by $36 and wages,the restoration of variable bonus and other payroll-related costscompensation by $95 and travel expenses by $36.$11.
Selling and distribution expenses decreased $341increased $102 compared with 2019the third quarter of 2020 primarily due to reductions inincreases from the resumption of business travel expenses by $128, outside service costs$72 and the restoration of variable compensation by $125, and salaries and wages, variable bonus and other payroll-related costs by $39.$36.
Restructuring expenses net and asset impairments of $10 in 2020 related to adjustments to severance expense after negotiated payouts and legal costs associated with severance agreements.the past closure of a manufacturing facility in France.
Operating income increased $264$1,137 compared with 2019the third quarter of 2020 primarily due to lowerimproved project mix, the favorable impact of higher sales volume on fixed overhead expenses, and receipt of $719 ERC under the CARES Act. The increase was partially offset by higher general and administrative and selling expenses offset by lower net sales.and distribution expenses.
Adjusted EBITDA increased compared with 2019the third quarter of 2020 primarily due to the factors discussed above. See “Overview” above for the explanation of the use of Adjusted EBITDA. The following is a reconciliation of the most directly comparable GAAP measure to Adjusted EBITDA.
| | | Three months ended September 30, | | | Three months ended September 30, |
| | 2020 | | 2019 | | 2021 | | 2020 |
| Operating income | Operating income | $ | 2,483 | | | $ | 2,219 | | Operating income | $ | 3,620 | | | $ | 2,483 | |
| Adjustments: | Adjustments: | | Adjustments: | |
| Restructuring expenses, net and asset impairments | 10 | | | 18 | | |
| Restructuring expenses and asset impairments | | Restructuring expenses and asset impairments | — | | | 10 | |
| | Adjusted operating income | | Adjusted operating income | 3,620 | | | 2,493 | |
| Depreciation | Depreciation | 779 | | | 750 | | Depreciation | 845 | | | 779 | |
| Amortization of purchased intangibles | Amortization of purchased intangibles | 100 | | | 95 | | Amortization of purchased intangibles | 122 | | | 100 | |
| Adjusted EBITDA | Adjusted EBITDA | $ | 3,372 | | | $ | 3,082 | | Adjusted EBITDA | $ | 4,587 | | | $ | 3,372 | |
Nine months ended September 30, 20202021 compared with nine months ended September 30, 20192020
| | | Nine months ended September 30, | | | | Nine months ended September 30, | |
| | 2020 | | 2019 | | $ change | | % change | | 2021 | | 2020 | | $ change | | % change |
| Net sales | Net sales | $ | 60,983 | | | $ | 65,363 | | | $ | (4,380) | | | (7) | % | Net sales | $ | 63,594 | | | $ | 60,983 | | | $ | 2,611 | | | 4 | % |
| Gross profit | Gross profit | 15,530 | | | 17,055 | | | (1,525) | | | (9) | % | Gross profit | 17,960 | | | 15,530 | | | 2,430 | | | 16 | % |
| Gross profit percentage | Gross profit percentage | 25.5 | % | | 26.1 | % | | Gross profit percentage | 28.2 | % | | 25.5 | % | |
| COSTS AND EXPENSES: | COSTS AND EXPENSES: | | COSTS AND EXPENSES: | |
| General and administrative expenses | General and administrative expenses | 2,649 | | | 3,378 | | | (729) | | | (22) | % | General and administrative expenses | 2,636 | | | 2,649 | | | (13) | | | — | % |
| Selling and distribution expenses | Selling and distribution expenses | 6,388 | | | 6,996 | | | (608) | | | (9) | % | Selling and distribution expenses | 6,230 | | | 6,388 | | | (158) | | | (2) | % |
| Amortization of purchased intangible assets | Amortization of purchased intangible assets | 288 | | | 289 | | | (1) | | | — | % | Amortization of purchased intangible assets | 372 | | | 288 | | | 84 | | | 29 | % |
| Restructuring expenses, net | 264 | | | 420 | | | (156) | | | (37) | % | |
| Restructuring expenses and asset impairments | | Restructuring expenses and asset impairments | 127 | | | 264 | | | (137) | | | (52) | % |
| | Operating income | Operating income | 5,941 | | | 5,972 | | | (31) | | | (1) | % | Operating income | 8,595 | | | 5,941 | | | 2,654 | | | 45 | % |
| Adjusted EBITDA | Adjusted EBITDA | $ | 8,799 | | | $ | 8,869 | | | $ | (70) | | | (1) | % | Adjusted EBITDA | $ | 11,573 | | | $ | 8,799 | | | $ | 2,774 | | | 32 | % |
Net sales decreased $4,380were $2,611 higher compared with 20192020 primarily due to the timing of shipment of projects out of backlog.
Gross profit percentage of 25.5% decreased28.2% increased compared with 2019of 2020 primarily due to improved project mix, the unfavorablefavorable impact of lowerhigher sales volume on fixed manufacturing overhead expenses.expenses, and receipt of $1,438 ERC under the CARES Act.
General and administrative expenses decreased $729were essentially flat compared with 2019 primarily due to reductions in salaries and wages, variable bonus and other payroll-related costs by $505.2020.
Selling and distribution expenses decreased $608$158 compared with 2019of 2020 primarily due to reductions in travel expenses by $339, salaries and wages, variable bonus and other payroll-related costs by $320, and outside service costs by $125. These decreases were partially offset by an increase in thea prior year provision for expected credit losses of $178 associated with a customer that declared bankruptcy during the first quarter of 2020.
Restructuring expenses net and asset impairmentsof $127 in 2021 related to additional severance liabilities for employees terminated as part of closing manufacturing operations in France in 2018. Expenses of $264 in 2020 related to severance costs.
Operating income decreased $31increased $2,654 compared with 20192020 primarily was due to lower net sales andimproved project mix, partially offset by lower generalthe favorable impact of higher sales volume on fixed expenses, and administrative and selling expenses.receipt of $1,958 ERC under the CARES Act.
Adjusted EBITDA decreasedincreased compared with 20192020 primarily due to the factors discussed above. See “Overview” above for the explanation of the use of Adjusted EBITDA. The following is a reconciliation of the most directly comparable GAAP measure to Adjusted EBITDA.
| | | Nine months ended September 30, | | | Nine months ended September 30, |
| | 2020 | | 2019 | | 2021 | | 2020 |
| Operating income | Operating income | $ | 5,941 | | | $ | 5,972 | | Operating income | 8,595 | | | 5,941 | |
| Adjustments: | Adjustments: | | Adjustments: | |
| Restructuring expenses, net and asset impairments | 264 | | | 420 | | |
| Restructuring expenses and asset impairments | | Restructuring expenses and asset impairments | 127 | | | 264 | |
| | Adjusted operating income | | Adjusted operating income | 8,722 | | | 6,205 | |
| Depreciation | Depreciation | 2,306 | | | 2,188 | | Depreciation | 2,479 | | | 2,306 | |
| Amortization of purchased intangibles | Amortization of purchased intangibles | 288 | | | 289 | | Amortization of purchased intangibles | 372 | | | 288 | |
| Adjusted EBITDA | Adjusted EBITDA | $ | 8,799 | | | $ | 8,869 | | Adjusted EBITDA | 11,573 | | | 8,799 | |
Liquidity and Capital Resources
We have historically financed our operations from a combination of internally generated cash flow, revolving credit borrowings, and various long-term debt arrangements. The COVID-19 pandemic drove a sharp decline in ourDynaEnergetics' core oil and gas end marketmarkets and corresponding well-completion activity and demand for ourits perforating systems late in the first quarter of 2020. In April 2020, DMC announced several cost-containment actions to reduce our activity-based cost structure, limit spending and protect our balance sheet. These actions included reducing our workforce by 32%, implementing reduced work weeks at DynaEnergetics, significantly cutting selling, general and administrative expenses, reducing our capital expenditures budget by 50% and suspending the quarterly dividend. TheWhile the decline in crude oil prices and oil and gas demand accelerated early in the second quarter of 2020, and prices partially recovered duringsales volume has improved in the third quarter. Additionally, NobelClad’s order backlog at the end offour consecutive quarters through the third quarter of 2020 remained flat with the second quarter. Customers2021. Though NobelClad customers in the downstream energy industry have delayed various repair and maintenance projects, and one customer has delayed the award of a large prospective petrochemical order. To further preserve liquidity, we entered into an amendmentNobelClad’s order backlog increased to our credit facility on June 25, 2020 to, among other provisions, maintain our $50,000 revolving credit facility and to waive the debt service coverage ratio for the quarters ending September 30, 2020, December 31, 2020, and March 31, 2021. These measures enabled us to improve our net cash position from $2,920 at March 31, 2020 to $12,612$42,867 at September 30, 2020, maintain our fully undrawn and available $50,000 revolving credit facility, and provide covenant relief for three quarters.2021 from $39,884 at December 31, 2020.
We have also taken action to allow future flexibility in accessing the capital markets. We filed a shelf registration statement on Form S-3 with the Securities and Exchange Commission, which became effective on May 28, 2020, pursuant to which we registered for sale up to $150 million of certain of our securities from time to time and on terms that we may determine in the future. On October 22, 2020, we commenced an at-the-market equity program under thea shelf registration statement filed in May 2020, which allows us to sell and issue up to $75 million in shares of our common stock from time to time.time, and since the inception of the program during the fourth quarter of 2020 we have sold 1,006,180 shares of common stock for net proceeds of $51,002. In connection with the commencement of the at-the-market equity program, we also amended our credit facility to waive the requirement to repay outstanding amounts under the credit facility with proceeds from the program. This will allow us full flexibility as to the use of proceeds from the program, if and when they are available over time. Our ability to access thisremaining capital may be limited by market conditions at the time of any future potential sale. ThereWhile we were able to sell shares during the fourth quarter of 2020 and first quarter of 2021, there can be no assurance that any suchfuture capital will be available on acceptable terms or at all.
With due considerationAdditionally, on May 3, 2021, the Company announced a registered public offering of its stock under an automatic shelf registration statement on Form S-3ASR filed on May 3, 2021. The Company entered into an underwriting agreement with KeyBanc Capital Markets Inc. (“KeyBanc”), as representative of the COVID-19 global pandemicunderwriters (collectively, the “Underwriters”), pursuant to which the Company agreed to sell 2,500,000 shares of its $0.05 par value common stock to the Underwriters. In addition, the Underwriters were granted an option, exercisable within 30 days, to purchase up to an additional 375,000 shares of common stock to cover over-allotments, if any, on the same terms and conditions. On May 7, 2021 DMC issued a total of 2,875,000 shares of its common stock, which included the resulting severe disruptionexercise of the over-allotment option, at a market price of $45 for gross proceeds of $129,375. Net proceeds from the offering were $123,461, after deducting underwriter fees and other expenses of $5,914. We intend to use the net proceeds from the offering for general corporate purposes, which may include acquisitions. Pending use of the proceeds as described, we invested the proceeds of the offering in highly liquid marketable securities, including commercial paper and U.S. Treasury securities. Please see discussion of our end markets, wemarketable securities in Note 2 to the Condensed Consolidated Financial Statements.
These measures enabled us to improve our net cash position from $42,659 at December 31, 2020 to $181,952 at September 30, 2021, maintain our fully undrawn and available $50,000 revolving credit facility, and repay our capital expenditure term loan in full.
We believe that cash and cash equivalents and marketable securities on hand, cash flow from operations, funds available under our current credit facilities and any future replacement thereof, and potential proceeds from our at-the-market offering, will be sufficient to fund the working capital, debt service, if applicable, and other capital expenditure requirements of our current business operations for the foreseeable future. We may also execute capital markets transactions to raise additional funds if we believe market conditions are favorable. Nevertheless, our ability to generate sufficient cash flows from operations will depend upon our success in executing our strategies. If we are unable to (i) realize sales from our backlog; (ii) secure new customer orders; (iii) continue selling products at profitable margins; and (iv) continue to implement cost-effective internal processes, our ability to meet cash requirements through operating activities could be impacted. Furthermore, any restriction on the availability of borrowings under our credit facilities could negatively affect our ability to meet future cash requirements. We will continue to monitor the continuing unprecedented financial and market conditions, including the impacts COVID-19 will have on credit availability and capital markets. We also continue to pursue potential acquisitions; the completion of any acquisition may significantly increase our capital requirements.
Debt facilities
As of September 30, 2021 we had no outstanding borrowings under our credit facility. On March 8, 2018, we entered into a five-year $75,000 credit facility which replaced in its entirety our prior syndicated credit facility entered into on February 23, 2015. The credit facility allows for revolving loans of up to $50,000 with a $20,000 US dollar equivalent sublimit for alternative currency loans. In addition, the agreement provides for a $25,000 Capex Facility which was used to assist in financing our DynaEnergetics manufacturing expansion project in Blum, Texas. At the end of year
one, the Capex Facility converted to a term loan which iswas amortizable at 12.5% of principal per year with a balloon payment for the outstanding balance upon the credit facility maturity date in 2023. In 2019,February 2021, we prepaid an additional $7,000 aboverepaid the required amortization amount. outstanding Capex Facility balance of $11,750.
The facility has a $100,000 accordion feature to increase the commitments under the revolving loan class and/or to add a term loan subject to approval by applicable lenders. We entered into the credit facility with a syndicate of three banks, with KeyBank, N.A. acting as administrative agent. The syndicated credit facility is secured by the assets of DMC including accounts receivable, inventory, and fixed assets, as well as guarantees and share pledges by DMC and its subsidiaries.
Borrowings under the $50,000 revolving loan can be in the form of one, two, three,one-, two-, three-, or six monthsix-month LIBOR loans. Additionally, US dollar borrowings on the revolving loan can be in the form of Base Rate loans (Base Rate borrowings are based on the greater of the administrative agent’s Prime rates, an adjusted Federal Funds rate or an adjusted LIBOR rate). LIBOR loans bear interest at the applicable LIBOR rate plus an applicable margin (varying from 1.50% to 3.00%). Base Rate loans bear interest at the defined Base rate plus an applicable margin (varying from 0.50% to 2.00%). All revolver loan borrowing and repayments under the credit facility have been in the form of one-month or two-month loans and are reported on a net basis in our Condensed Consolidated Statements of Cash Flows.
Borrowings under the $20,000 Alternate Currency sublimit can be in euros, Canadian dollars, pounds sterling, and in any other currency acceptable to the administrative agent. Alternative currency borrowings denominated in euros, pounds sterling, and any other currency that is dealt with on the London Interbank Deposit Market shall be comprised of LIBOR loans and bear interest at the LIBOR rate plus an applicable margin (varying from 1.50% to 3.00%).
On June 25, 2020, we entered into an amendment ("Amendment") to the credit facility. The Amendment waives the debt service coverage ratio covenant for the quarters ending September 30, 2020, December 31, 2020, and March 31, 2021. The debt service coverage ratio minimum of 1.35 to 1 was applicable for the quarter ending June 30, 2020 and will resume beginning with the quarter ending June 30, 2021 and thereafter.
Additionally, the Amendment adds a Minimum Liquidity covenant requiring the total of cash and cash equivalents held by U.S. subsidiaries and available borrowing capacity under the credit facility to exceed $10,000 for the quarters ending September 30, 2020, December 31, 2020, and March 31, 2021. The Minimum Liquidity covenant is not required after the quarter ending March 31, 2021.
During the period from the Amendment through August 31, 2020, borrowings outstanding under the credit facility will bear interest at LIBOR plus a margin of 1.75% or at a Base Rate (as defined in the credit facility) plus a margin of 0.75%. For the period from September 1, 2020 through the date of receipt of the covenant compliance certificate for the quarter ending March 31, 2021, borrowings outstanding under the credit facility will bear interest at a LIBOR plus a margin of 1.75% to 3.00% or at a Base Rate plus a margin of 0.75% to 2.00%. In each case, the margin is based on the Company's Leverage Ratio of Consolidated Funded Indebtedness (as defined in the credit facility) on the last day of such period to Consolidated Pro Forma EBITDA for such period. Additionally, the Amendment sets the minimum LIBOR at 0.75%.
As of September 30, 2020, U.S. dollar revolving loans of zero and borrowings of $12,531.25 under2021 our Capex Facility were outstanding under our credit facility. Our available borrowing capacity was $50,000 as of September 30, 2020.$50,000. Future borrowings are subject to compliance with financial covenants that could significantly limit such availability.
As of September 30, 2020,2021, there were two significant financial covenants under our credit facility, a debt-to-EBITDA leverage ratio (“leverage ratio”) and a minimum liquidity ratio. The leverage ratio is defined in the credit facility for any trailing four quarter period as the ratio of Consolidated Funded Indebtedness (as defined in the agreement) on the last day of such period to Consolidated Pro Forma EBITDA for such period. For the September 30, 20202021 reporting period, the maximum leverage ratio permitted by our syndicated credit facility was 3.00 to 1.0. The actual leverage ratio as of September 30, 2020,2021, calculated in accordance with the credit facility, as amended, was 0.40.0 to 1.0.
The Minimum Liquidity covenant requires the total of cash and cash equivalents held by U.S. subsidiaries and available borrowing capacity underdebt service coverage ratio, as defined in the credit facility, means, for any period, the ratio of Consolidated Pro Forma EBITDA less the sum of cash dividends, cash income taxes and Consolidated Unfunded Capital Expenditures (as defined in the agreement) to exceed $10,000.Debt Service Charges (as defined in the agreement). The liquidity as ofminimum debt service coverage ratio permitted by our credit facility for the September 30, 2020, calculated in accordance with2021 reporting period is 1.35 to 1.0. The actual debt service coverage ratio for the credit facility, as amended,trailing twelve months ended September 30, 2021 was $63,156.6.0 to 1.0.
Our credit facility, as amended, also includes various other covenants and restrictions, certain of which relate to the payment of dividends or other distributions to stockholders, redemption of capital stock, incurrence of additional indebtedness, and mortgaging and pledging or disposition of major assets. As of September 30, 2020,2021, we were in compliance with all financial covenants and other provisions of our debt agreements.
We also maintain a line of credit with a German bank for certain European operations. In July 2020, the German Bank Facility was amended to increase theThis line of credit provides a borrowing capacity from €4,000 toof €7,000.
Other contractual obligations and commitments
Our long-term debt balance decreased to $8,867$0 at September 30, 20202021 from $11,147$8,139 at December 31, 2019. NobelClad entered into a contract in 2018 with a supplier to purchase roll bonded products for resale. The agreement includes minimum annual thresholds that run through December 31, 2022. If NobelClad were not to meet any of the obligations under the contract, the potential exposure would be $180 in 2020 and an aggregate of $1,220 for the final two years of the agreement ending December 31, 2022.2020. Our other contractual obligations and commitments have not materially changed since December 31, 2019.2020.
Cash flows (used in) provided by operating activities
Net cash provided byused in operating activities was $21,354$1,906 for the nine months ended September 30, 20202021 compared with $35,096net cash provided by operating activities of $21,354 in the same period last year. The decrease primarily was due to a declinean increased use of cash for working capital, which included higher accounts receivable, higher inventory levels to mitigate global supply chain bottlenecks and in net income, whichanticipation of increased sales activity in future periods, and higher prepaid expenses and other assets related in part to payments to fund our Non-Qualified Deferred Compensation Plan and other prepaid service contracts. The increases in working capital were partially was offset by a significant reduction in net working capital and nonrecurrence of anti-dumping duties and penalties in 2020. The net working capital change in 2020 included lower accounts receivable from a decline in sales and lowerhigher accounts payable and accrued expenses resulting from reducedincreased purchasing activity.
Cash flows used in investing activities
Net cash flows used in investing activities for the nine months ended September 30, 20202021 of $9,662$124,514 primarily related to investment in marketable securities of $123,984, using the proceeds from our May 2021 equity offering, and acquisitions of property, plant and equipment at DynaEnergetics.partially offset by proceeds from maturities of marketable securities of $4,799 from U.S. treasuries that were converted to cash upon maturity. Net cash flows used in investing activities for the nine months ended September 30, 2019 totaled $21,1192020 were $9,662 and primarily related to the acquisitions of property, plant and equipment for the construction of DynaEnergetics’ manufacturing, assembly and administrative space on its site in Blum, Texas and expenditures related to the relocation of DMC Global’s corporate office and NobelClad’s U.S. administrative offices. Net cash flows used in investing activities were partially offset by proceeds from the sale of NobelClad’s production facility in France during the second quarter of 2019.at DynaEnergetics.
Cash flows used inprovided by (used in) financing activities
Net cash flows provided by financing activities for the nine months ended September 30, 2021 of $134,750 included net proceeds from our equity offering of $123,461 and our ATM equity program of $25,262 partially offset by repayment in full of the Capex Facility of $11,750 and treasury stock purchases of $2,476. Net cash flows used in financing activities for the nine months ended September 30, 2020 of $7,038 primarily relatedwas due to payment of dividendsdividend payments, treasury stock purchases, and repayments on the capital expenditure facility. Net cash flows used in financing activities for the nine months ended September 30, 2019 of $14,960 primarily related to repayments on revolving loans and repayments on the capital expenditure facility.Capex Facility.
Payment of Dividends
We paid a quarterly cash dividend of $0.125 per share in the first quarter of 2020. In April 2020, and also paid a quarterly cash dividend of $0.02 per share in the first and second quarters of 2019 and $0.125 per share in the third quarter of 2019.
On April 23, 2020, DMC announced that its Board of Directorswe suspended the quarterly dividend indefinitely due to the uncertain economic outlook caused by the 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 income tax laws, and any other factors that our Board of Directors deems relevant. Any determination to pay cash dividends will be at the discretion of the Board of Directors.
Critical Accounting Policies
Except as described below, ourOur critical accounting policies have not changed from those reported in our Annual Report on Form 10-K for the year ended December 31, 2019.2020.
ITEM 3. Quantitative and Qualitative Disclosure about Market Risk
There were no material changes in market risk for changes in foreign currency exchange rates and interest rates from the information provided in Item 7A – Quantitative and Qualitative Disclosures About Market Risk in the company's Annual Report on Form 10-K for the year ended December 31, 2019.2020.
ITEM 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer have evaluated the Company’s disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this report, and they have concluded that these controls and procedures are effective.
Changes in Internal Control over Financial Reporting
There were no changes that occurred during the fiscal quarter covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
Please see Note 1112 to the Condensed Consolidated Financial 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, 2019,2020, except as provided below.
OurThe proposed new regulation concerning mandatory COVID-19 vaccination of employees could have a material adverse impact on our business and results of operations, financial condition, cash flows and stock price have been and may continue to be adversely affected by the recent outbreak of COVID-19.operations.
Our business, resultsOn September 9, 2021, President Biden announced a proposed new rule requiring all employers with at least 100 employees to ensure that their employees are fully vaccinated or require unvaccinated workers to get a negative test at least once a week. The Department of operations, financial condition, cash flowsLabor's Occupational Safety and stock priceHealth Administration (“OSHA”) is drafting an emergency regulation to carry out this mandate, which is expected to take effect in the coming weeks. We currently have beenno details as to the requirements of the regulations, and may continueit is not possible to predict with certainty the impacts the new regulation would have on us. As a company with more than 100 employees, we would be required to mandate COVID-19 vaccination of our workforce or require our unvaccinated employees to be adversely affectedtested on a weekly basis. This may result in increased costs, labor disruptions or employee attrition, which could be material as a substantial number of our employees are based in areas of the country where vaccination rates are below the national average. If we lose employees, it will be difficult in the current competitive labor market to find replacement employees, and this could have an adverse effect on future revenues and costs, which could be material. In addition, additional uncertainty could be caused by competing and potentially conflicting laws and regulations, such as the recent executive order issued by the outbreakgovernor of COVID-19. The outbreak has resulted in governments aroundTexas prohibiting vaccine mandates. Accordingly, the world implementing stringent measures to help control the spread of the virus, including quarantines, "shelter in place" and "stay at home" orders, travel restrictions, business curtailments, school closures, and other measures. These measures may be lifted, altered or re-imposed at any time, which requires our businesses and their customers and suppliers to continuously monitor and adjust to changing regulations and circumstances.In addition, governments and central banks in several parts of the world have enacted fiscal and monetary stimulus measures to counteract the impacts of COVID-19.
We are considered a critical infrastructure industry, as defined by the U.S. Department of Homeland Security. Although we have continued to operate our facilities to date consistent with federal guidelines and state and local orders, the outbreak of COVID-19 and preventive or protective actions taken by governmental authorities have had and may continue toproposed new OSHA regulation when implemented could have a material adverse effect on our workforcebusiness and operations, supply chain, customers and transportation networks. The impacts of COVID-19 have reduced demand for oil and gas, which has exerted downward pressure on oil and gas prices. Prices will likely also continue to be affected by actions by OPEC members and other oil exporting nations, the effect of U.S. energy, monetary and trade policies, U.S. and global economic conditions, U.S. and global political and economic developments, including the outcome of the U.S. presidential election, and resulting energy and environmental policies, and the impact of the ongoing COVID-19 pandemic and conditions in the U.S. oil and gas industry, all of which are beyond our control. These factors significantly impact the demand for our products, product pricing and our ability to collect receivables from our customers, and have had, and may continue to have, a material adverse impact on our financial condition, results of operations and cash flows.
Even after the COVID-19 pandemic has subsided, we may experience materially adverse impacts to our business due to any resulting economic recession or depression. Additionally, concerns over the economic impact of COVID-19 have caused extreme volatility in financial and other capital markets which has and may continue to adversely impact our stock price and our ability to access capital markets. The COVID-19 pandemic and its impacts on our customers, suppliers, and employees may also have the effect of heightening many of the other risks described in our Annual Report on Form 10-K for the year ended December 31, 2019.operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
In connection with the vesting of Company restricted common stock under our equity incentive plans during the third quarter of 2020,2021, we retained shares of common stock in satisfaction of withholding tax obligations. These shares are held as treasury shares by the Company.
| | | | | | | | | | | | | | |
| | Total number of shares purchased (1) (2) | | Average price paid per share |
| July 1 to July 31, 2020 | | 47 | | | $ | 27.60 | |
| August 1 to August 31, 2020 | | 1,163 | | | $ | 35.97 | |
| September 1 to September 30, 2020 | | 100,320 | | | $ | 36.03 | |
| Total | | 101,530 | | | $ | 36.02 | |
| | | | | | | | | | | | | | |
| | Total number of shares purchased (1) (2) | | Average price paid per share |
| July 1 to July 31, 2021 | | 64 | | | $ | 56.21 | |
| August 1 to August 31, 2021 | | 43,661 | | | $ | 41.31 | |
| September 1 to September 30, 2021 | | 320 | | | $ | 39.38 | |
| Total | | 44,045 | | | $ | 41.32 | |
(1) Share purchases in 20202021 included 556 share purchases177 shares withheld to offset tax withholding obligations that occurred upon the vesting of restricted common stock under the terms of the 2016 Equity Incentive Plan and 100,97443,368 share purchases
related to the participant elections to diversify contributions of equity awards into other investment options available to participants in the Company’s Amended and Restated Non-Qualified Deferred Compensation Plan.
(2) As of September 30, 2020,2021, the maximum number of shares that may yet be purchased would not exceed the employees’ portion of taxes withheld on unvested shares (398,434).(295,261) and potential purchases upon participant elections to diversify equity awards held in the Company’s Amended and Restated Non-Qualified Deferred Compensation Plan (142,565) into other investment options available to participants in the Plan.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Our Coolspring property is subject to regulation by the Federal Mine Safety and Health Administration (“MSHA”) under the Federal Mine Safety and Health Act of 1977 (the “Mine Act”). Pursuant to Section 1503(a) of the Dodd-Frank Wall Street
Reform and Consumer Protection Act (The “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, 2020,2021, we had no such specified health and safety violations, orders or citations, related assessments or legal actions, mining-related fatalities, or similar events in relation to our United States operations requiring disclosure pursuant to Section 1503(a) of the Dodd-Frank Act.
Item 5. Other Information
None.
Item 6. Exhibits
101 The following materials from the Quarterly Report on Form 10-Q of DMC Global Inc. for the quarter ended September 30, 2020,2021, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statement of Stockholders’ Equity, (iv) the Condensed Consolidated Statements of Cash Flows, and (v) the Notes to Condensed Consolidated Financial Statements, tagged as blocks of text.*
* Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | | | | | | |
| | | DMC Global Inc. |
| | | (Registrant) |
| | | |
| | | |
| Date: | October 22, 202021, 2021 | | /s/ Michael Kuta |
| | | Michael Kuta, Chief Financial Officer (Duly Authorized Officer and Principal Financial and Accounting Officer) |