BOOM - Earnings call transcript Q3 2017

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Operator

Greetings and welcome to the DMC Global 2017 Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host Geoff High, Vice President of Investor Relations.

Geoff High

Hello and welcome to DMC’s second quarter conference call. and Longe President Kuta. CFO, are today CEO, and Kevin Mike Presenting on and would that and are forward-looking in may based everyone to are statements SEC. our estimates, discussed are I and remind disclosed call subject matters to like uncertainties today’s as assumptions of during risks this that filings our date the projections that include with

statements. results DMC certain subsequent to subject of no untrue business to risks in call. available that be our cause become anticipated is dmcglobal.com call today’s update forward-looking materially differ events. to after actual assumes from obligation replay that forward-looking the those Our could will at A statements webcast of because

the in for are call call. the replay In turn news I Longe. today’s to Kevin? Details available a addition, replay after will listening available telephone And to Kevin the be will with release. over that, hours approximately two

Kevin Longe

everyone. Jeff hello Thanks and

a DynaEnergetics increased versus the quarter than intrinsically operating sales record slowdown business quarter our DynaEnergetics a increase DynaSelect million, Approximately factory-assembled, by $XX.X sales a highly these third XX% unconventional At XX% completion was at million $XX.X for was set approximately reflecting XX% million, and a second last NobleClad, $XX.X quarter our The onshore results products, prior year's active industry. intensity improvement in and results financial from which and sales differentiated reported cycle which This during well of longer business, quarterly Third strong our US year’s orders the situation record perforating DynaStage lengthy explosion oilfield second the recent sales, sequential was DynaEnergetics, industrial demand maintenance the by and DynaEnergetics of during quarter and exceeded were performance quarter and quarter. generated XX% were quarter. led growth NobleClad’s rig system. large which versus a energy XXXX product bookings versus downstream down sales completion quarter which new and curtailed the project over reflects income has versus detonator sales count, decline welding of third the quarter This better XX% smaller year's spending. a reflect very sector remained quarter safe sequential fueled NobleClad last for The infrastructure which and assured third DynaEnergetics results include the third EBITDA. adjusted lateral. sales Despite third the forecast line. single were in XX%. a quarter repair to from decline flat exceeded quarter. second in a the expected improvement global last third and products increase XX%

earlier indicate in impairment is charge performance in developments recorded should Following XXXX. improve the balance. discussion decline to NobleClad an third filed in and the conditions a will available corresponding related begin markets I of financial end recent Form discuss XX-Q million financial $XX.X In of was today. a which that performance, during w NobleClad’s impairment goodwill The the quarter moment charge our non-cash NobleClad’s analysis to

business driven favorable quarter product the prices NobleClad of gross Third in ago. At margin third XX% level, reported quarter XX% XX% improved quarter second selling supported from of increase and The a more gross XX% and and DynaEnergetics in consolidated margin the margin was year higher gross to mix. XX%. by the average

adjusted and operating million $XXX,XXX. impairment versus income income increased our $X.X was adjusted to operating last consolidated quarter. third quarter of operating $X.X NobleClad Excluding non-cash third income year's million million of loss in operating DynaEnergetics reported charge, $X.X

comparable or $X.XX year income share ago an of in the versus diluted million adjusted $X.X per diluted was net Third loss $X.X quarter quarter. $X.XX million adjusted share net or per

EBITDA Third DynaEnergetics up performance EBITDA $X.X drive third was million, adjusted million million, DynaEnergetics quarter technology continues in last quarter reported second in advanced its year’s $X.X perforating the improvements and to completion quarter. material was $X.X at in of customers from adjusted million. NobleClad million $X well of sequentially the $X.X while EBITDA program.

be Germany charge manufacturing will bag in per three will third by quarter. will more also DynaEnergetics the the to system DynaEnergetics reported DJ operating second is Shale operating Blum. using Mt. conventional than assembly automated The the The customer the DynaStage DynaEnergetics in not funded mixed when in flow. foot which X,XXX field is and production a nearly approximately is improve expansion During cash the include next customers Customers enabled a day the system achieve of has for line quarter, quarter capacity and the and the DynaEnergetics complete expansion assembled possible planned DynaStage efficiency XX,XXX This miss-run. Utica the a square capacity. DynaEnergetics its operational expansion region. facility third customer of expanding which facility million address to without in budgeting scheduled Blum years in Pennsylvania A business level a using center continued and its efficiency be year's foot doubling for Texas, is of XXXX in also manufacturing for will base efficiency DynaStage using assembly assembled access To demand operational of production more from in DynaStage approximately driving company business capacity Basin Braddock, during is over systems Blum, consecutively XX% facility. the $XX its guns. a reopening assembled announced that deployed perforating hardware XX,XXX is stages third second improve which customer when the and then field. The ordered it’s factory Marcellus that a accelerating square assembly construct will components base. and next reliability DynaSelect is shaped

the pursuing beginning business XXXX. improve opportunities past have quarters been those performance NobleClad’s recently materialized several financial of to and The some during As earlier, in has mentioned it’s orders. I projects large we're expecting several

be order for to a mining secured $X.X addition in metal the million petrochemical NobleClad a expected that related related years. than reflected for applications received order processing the fabricate project a market order quarter, impact petrochemical has first orders on welded optimistic announced be initiative. the Asia. booked third order four $X.X new backlog and million positive order the a NobleClad’s third This in are the five to of In will during by will these of NobleClad’s purchase next ship is projects in $X The additional be the large explosion to more several plays are Each is close and businesses will and used business for development represents in NobleClad million that delivery quarter early After fourth XXXX plates booked illustrate equipment. we the the quarter, project they to the year. largest of

third commitment While the strength sales that the for manufacturing additional with of Mike and and of they over across turn call businesses NobleClad’s of Mike? Global on DMC has their network everyone markets some I'm quarter both have to facilities. our I’ll end uneven, leadership comments DynaEnergetics established With by the extremely performance results. and been in financial positions the recovery in the industry. fundamental and pleased also very encouraged I’m

Mike Kuta

or ongoing of million Starting with to legal was as increase outside $XX wages in associated the everyone. and last our expense due quarter Kevin, of year. The as principally expenses, third XX% patent or XX% with SG&A was salaries increased afternoon and million versus quarter Thanks litigation. sales $X.X third sales higher well infringement good

Third million quarter or amortization was expense of $X sales. X%

ended third fiscal million and million. XXXX $XX.X end we from our quarter and equivalents from cash at cash the the million up at $X.X at XX was down balance of sheet, Net of quarter. debt with the end $X.X second the of $XX.X at Looking September million,

operating we During in $X.X the quarter, from third activities. million generated cash

approximately to million $XX.X $X.X last be ongoing year's legal associated are costs be to will SG&A resources range sequential $XX Turning million. is approximately versus from the we to litigation on Amortization last versus quarter. approximately at NobleClad. higher to reported sales relates XX% quarter NobleClad from million $XX.X regional quarter. expected up take decreases year's up in reported DynaEnergetics XX% quarter principally the at now a in and related XX% is with quarter. at increase million and we both quarter XX%, quarter. third from approximately fourth $X to of and fourth expected fourth expense expect overhead The Operator? guidance, fourth should questions. any to and at in ready in million million, Gross The pattern shifts sales sales adjusted growth volumes the expected DynaEnergetics. anticipated is in lower million we down be fixed year fourth last anticipated DynaEnergetics $XX.X investments increased margin year's in Fourth to the And ago EBITDA $X increase in

Operator

[Operator Instructions] Sidoti Our from your is Edward question. & Company. Please question proceed first Marshall, with

Edward Marshall

to wanted talk the you’re it X.X at quarter, in the looking fourth seem doesn't to income look looks kind when and like here numbers EBITDA. up. I X.X X saying I add math, about, I million you're for million but at guess of operating do I million, in It the

just fourth I’m to as into trying quarter. get you're the just So trying expecting those to numbers, for to back sense what a

Mike Kuta

compensation and adjust X so take quarter at D&A into operating that about fourth you're income So non-cash million operating income stock bridging normal to close account you should rate and range EBITDA. just run our get think I and pretty on the for if the you to

Edward Marshall

a stock-based Got quarter you, too, including run much you’re so me. how you remind just comp

Mike Kuta

to XXX,XXX. It’s in XXX,XXX the range, XXX,XXX

Edward Marshall

guidance about can seems expectation maybe the both and in me you top line about the result. Dyna I mix individual to on also on When you the after the gross XX% businesses, Can Noble the individual in of about talk there basis. XQ think talk is the the margin low

Mike Kuta

sales, in XX with expect topline, above mean and we In be XX-ish on roughly I starting our XX, business. million terms Dyna NobleClad our that's in to QX or slightly of with that about flattish million business XX XX to

going is to be NobleClad. - margins this below DynaEnergetics for of get significantly third be going quarter softer the there NobleClad to be in to be is the see, key slightly to the just impact just fourth as you as to be NobleClad, softest quarter. driver margins But far quarter Dyna going is absorption product mix. - are will quarter slightly overhead due there, fourth As the will their the

Edward Marshall

bit mix in So NobleClad a guess I and seeing sales of soft you’re DynaEnergetics. little

Mike Kuta

contracts And prices it of year the fulfilling DynaEnergetics, earlier raised we've some at, on in were there.

So little a of bit it's flywheel a effect.

Edward Marshall

longer lot to of kind guess maybe the going of here outlook demand, I you to line. bottom and at of and on well the output investments lots and takes term that's looking as have puts And a be the

this that think your to your narrowed down a as lot can just want of because business for us And kind as what going there You individual ranges business. might sense be time to each get in what to seems of like. earn potential look a over to I period on

Kevin Longe

Hi, that this that you're fourth business. And seeing believe the the quarter as is the continue are the margins sustainable and margins market with we market for grow will Kevin. third that to I in recovers.

that's putting basically reasonably by our and get a to funded out at into term we're the the from And And flow cash ‘XX. equipment a expect market will of and capital of operative So we and that to be facilities on discipline speed of capacity longer decent recovery. the in they on with we're expect businesses. making ’XX we continue good invested investments that driven are two return that growth. both pace that enable And to investments it

Edward Marshall

This I versus With all up, it the what does and Germany expansion the is rather is in around growth today? the like capacity wound expansion look Braddock. then in guess Mt. discussion than Blum, in Blum, where

Kevin Longe

products adding some second as capacity of at production volumes automated line highly that other products. a the DynaSelect technology line that automated standpoint. as The It's for that Germany the from necessary a we're addition is we're operating is in detonator well the at

and on building doubling space. our the largest part rates smaller guns from the happening part investment mostly However of a capacity But and the the which is things. investment, gun than our is Blum, a that's of in operating that's of of see as both new side systems systems floor should well DynaSelect we the assembly more for initiating also as of current out

Edward Marshall

that that to So that that's and supplies will freed just capacity up have announced, be so discussion had other clear, into be that time. already bottlenecks is going we've can over

you're major capacity And such in that see can the investments so in putting an detonating Germany, the of a as without of expansion bigger chunk what Blum actually line the… into capacity you

Kevin Longe

and bottleneck in as charges a in be and to making not other locations. global also will relates available from those we're taking particularly our our line footprint detonating The North America advantage shaped of it

longer a both businesses. our within on operate for amortization will We depreciation basis term and

rate And demand technology. And will demand price ’XX, we're expectations that at fairly be so we in the we're factor won't spending. our with which limiting the and comfortable the be a relative it capacity both have for to

Operator

Our ROTH Please next your Capital. question is Gerry with proceed Sweeney, question.

Gerry Sweeney

what any getting bigger quarters be to what some at you to and growing is, how there big of changing I'm way always your can the is. want you So get market some sense think of taking quarter, what the specifics today, away want. looked get versus percentage ago us year. fast to competitors I market sure And is et sort the were and from out cetera. because imagine this and just was frame think market probably Is some I a like And you're couple the up its could you is shaking how I've what of, of it at maybe But number of trying of it market how share time. and get it all great big a seems next that you

Kevin Longe

It's faster over markets you quarters. growing the will, has last American geographical much the evolving North several market, any the onshore of part if been the than

still the ‘XX. still is market North in level is from XXXX, However returning the down probably it in its global as peak the down - similar market American to from growth with

is the growth market on slower and increase picking We XX% start term systems. as initiating the that Net-net, expect year-to-date a prior we we've what up to in ’XX a at revenues as continue basis. to somewhere to pickup XX% recognizing up longer into ’XX The ’XX international in over seen over the well however ‘XX. versus and year our our hope some growth on we're share

Gerry Sweeney

then sold what about meaning, and the five areas. obviously DynaSelect there's it out the DynaStage. DynaStage And mean components sold third you in you but Are there's was different quarter, and guys so right, out, I components, like sounds other have

Kevin Longe

We're close business. of to majority capacity on the DynaEnergetics our our -

Gerry Sweeney

And then, sorry, go ahead.

Kevin Longe

mix is and changing frankly which we're opportunity pricing a versus to components. quite systems more Yeah, the

margin to objective part market our so the maintain technical is And more of overall with the higher and part.

can interested so And understand how with of bottom their customers the in we're and improve working who that value our line. systems

Gerry Sweeney

you’re capacity, - there's out a opportunity. pricing sold now right So approaching

loaded there saying of you more do sometimes how to traditional You Do how for much - they're increase XX% much efficiencies. I much talked pricing are know about out upwards of question wells equipment. but know, listen you is. How frac that and a opportunity and to going all services and you people pay opportunity have. mean, product I [indiscernible]

Kevin Longe

for what to line efficiencies Yeah, that demand increased in well I think the willing show systems. which our initiating that that's got for bottom their they’ll to up and they're pay pay for seeing is with equipment, we're

a our product longer a and of more We a company view take term pricing. are service a company versus product we on

from quarter dependent to the put to week, product pricing really It's the customer we the to quarter. in and consistent that month month, type more week so, is place And mix. upon

we'll margins see And our that that -- that were in from DynaEnergetics. there the the stability for we third saw average more pleased and represents margins with quarter DynaEnergetics term longer we really and so

Gerry Sweeney

starting additions this acceleration, much definitely to have How starting that international same, there's impact international, but then, certainly, not had the DynaSelect may press as see an guess isn't in isn't some well? bottoming potentially some to as charges shaped the acceleration. good completion some mean, DynaStage, as on see quite intensity as, the I international and much certainly, last category you get about the quarter, quite have and more intensity could quarter talk same the business? And some I of that

Kevin Longe

Yeah.

value with are to land shaped than of but gaining we're a I think market performing and the that our charges the systems the And higher penetration more business in the systems based we're north America. conventional North that expect on our perforating unconventional be we're benefiting market long America. North kind DynaStage performing Internationally, systems, higher business seeing of or shaped basis. DynaEnergetics term we XX% DynaSelect, of in primarily traditional more seeing from on we so charges of see initiating

Gerry Sweeney

made a of Switching adjacent market. business trying I gauge it you'd out new and addressable know years, think to highlighted working certainly the is some just last adds of a I addressable gears to been on and these and NobelClad, maybe little the how of maybe the lot a other there's know think of large I of NobelClad, you’re areas you're sort questions. market you’ve expand mining the I -- and that sort you've to trying How broaden of bit, I segment for on. to mining market trying in and much business initiatives couple

Kevin Longe

Yeah.

and a Last this in on in semiconductor story semiconductor mentioned autoclave applications single as the beginning got see just whether united a quotes the engineering the from, metal year, large to application. that number refining at in order all that yet to we a under We're processing benefits Asia think working application and size for with to market received quarter, you pipe going create year, marketplace. I business necessarily This the cladded application that a to being the when this use years time, ago, and in for systems. group put a are place components end because we we investments can't more brand same a more is the these NobelClad we three, – applications and of put it's NobelClad is the applications developing four the number that's name, see starting we’re metal global and I application. made, cladding within but that to and piping businesses type engineering And of the different of

Gerry Sweeney

But to certainly market. additive the addressable

Kevin Longe

a from in of prices gas several years oil ago market. and over years. the market downstream addressable to Additive and the couple metal last Partially decline offsetting also,

Gerry Sweeney

want jump before, you sorry, not target. final, got back XX% then jump that I to to I got expand can that DynaEnergetics, imagine final, around, share -- And to I to to targeted market

Kevin Longe

out team to were that, we quite been XX% of as share want to and the market, are I Yeah. a that at the much a trying We and get market market it share sales based historically, to good perforating very is we it after small message on to technology, growing mean, a systems. it's operating nicely. and get targeting our That price a our corner as create shareholders. not return and for it's healthy of our not investors on with

message that on focused up pulling it the share the from the with along it's But, so, ourselves we're share And part go initiating that that's standpoint. some and where we’ll market to it products. and not a technology drift up a of premium to technology demand for exists. seeking after our other with can technology we as business price our we're of We're support market systems in going right the

Gerry Sweeney

the Sure. larger My me potentially returns, changing. go to cetera of could cash more portion tone and are within focus opposed is et maybe to around. value sense that the bit services as be little a market market on that's is the working added those believe tends and just which the cycle, also to of last flow, A

Kevin Longe

to be. have They

they we're at customers going that the If the has you're of this game is that DynaStage for you will and all for DynaEnergetics create the win if and the to your developed charging benefit for our charges you're greater and not value not perforating that price customers, DynaSelect products. than creating value

case that investing for situation so as with should the strong exists, long over it next a be and healthy on keep can to going as so that in technology, margin demand we expectations is the be our, And DynaEnergetics several quarters. good

Operator

question next Sidoti & Marshall, Company. is Instructions] [Operator Our from Edward

Edward Marshall

safe that of that much how products the was much that shipped you Kevin, detonator, in I how quarter, the was of wondering intrinsically of just was that systems? XX%

Kevin Longe

the guidance we're Ed, breaking sales the second for individual if out were at consistent the sales. what helps. system of products going with But systems and we end quarter gave -- The that not the forward,

Edward Marshall

maybe share is It are – some you Yes. right opportunity How time. The the will. consumables. is competitors lock do of go sending in money created the you more the does. how you’ve flow better products. a in you market in How that do so you're gaining, you to R&D, that have There do on the so this market great spend the probably arm the capital share, about shot short-term situations, cash if

Kevin Longe

And standpoint. compete size any That's in very to actually ability with comfortable With a feel we R&D the from good competitor. to question ask. our marketplace – our an against

of our even we've any interesting our disadvantaged about system design, do out of a product that a road DynaStage of the got five products This and on all these technology, scale generations a technology have coming at products, competitors. X, not more about pony. marketplace well maps that And, trick three processes. X, and go getting on it's larger the development market and we less is ingenuity it's and DynaSelect number technology, not thing today years one We feel X road And is very defined to in our thought We're about though, X efficiency products. in against just generations that pipeline started exists. from down down the there's X, behind we’re and

Edward Marshall

-- I like cetera. looks in markets. you pharmaceutical, say same have and cetera about petrochemical et market And really yet parts not rational. rational of seeing did had competitor seek and downstream not energy then et saying specifically you're I market, see Do And, ask rational because desire yesterday pricing refinery, guess more what comments question customers want what your on and I competitors it's looking a in kind of one alternative not and the to wanted NobelClad our far I to at which pricing other talked of -- about versus the haven't now about and to, you and maybe also their guess said I out mining

Mike Kuta

and pricing updating their their we profitable and our strong, is maintaining think and to want improving is they're are lines our key need, customers for customers be they're and we facilities I production their what business profitable capacity. the and their

And opportunities know come so of strong. lesser gross We've has contribution money market making markets pricing a how downstream our, spending selling, when for end down are we what for make has We opportunities. pricing both on the key are NobelClad. the our technology. not actually healthy to a us been margin maintained of and to sure margin oil couple much years less that's absorption. And, they curtailed because gas extent, we're last that healthy some there's To for margins the our as is our just all maintain and of the But once a customers as did. fairly volume

that going be business a because this market is So, to optimistic gas, long going oil a we're that's and cycle. stronger forward,

own we're to decent to them expect cycles starting markets business and continue. the have chemical to start couple next see in of now, is been really the right We metal then picking their hopefully the and has themselves the driven is market a GDP The there improve, years. seeing and other ’XX And market up semiconductor over processing strong. and ‘XX

Operator

from is Brilliant, Century question Jim Management. Next

Jim Brilliant

you guys didn't today, clients you mention number DynaEnergetics, past, the I earlier I have if talked -- for of in didn't? did the about Kevin, you new did, that

Kevin Longe

and DynaStage got at with XX typically service looking companies XX, didn’t. to now, using according leading we I the are it right more And hoping that to mentioned think or either those system DynaStage we've No, come online. we DynaSelect and

Jim Brilliant

in productivity you've are benefits, got today, not to the, marketed So enhancement maybe you one that in -- the most, service productivity. guys, other with customers successful you, they guys throughout of by based to within organization you one as think, adoption customer? as the on, so safety, change highlighted grasping I mean example the obviously most characterization the with your E&P it, rate in their that you the for important, gains safety kind discount getting are the the adopting the and more earlier driving productivity but equal Or words, and on of your one-off -- is companies safety, E&P the E&P but you because the of highlighted catching presentations because kind characterize one one on reputations your of inherent, or and getting? the as probably adoption And that of productivity they're safety it I would the it's the that how is of of the guys than early

Kevin Longe

Well, it's mean the selective is I save the and interesting. it of system operates. initiating how heart and

with the so system, up it order and because of the our that chain the how keep it assemble itself field as product assembled, really down And pace supply we reduced performance well customers efficiency factory misruns, well for can the the crews the it's driving you're to that take the levels. quick it, and The as when different benefits challenges in what they all focus it on. easy is all with you eliminating need the that customers on many higher focus and it's -- However, coupled these in eliminate of what's the the fast and of in it's adoption is really the hitting mentioning, you you get it terms we the that on down operating goes regardless they're in the to choose products running is but well. aspects laterals of of together, get out assurance you today. Certain what

Jim Brilliant

doesn't and of are activity more we've naturally not the is What more Bakken the tier it's invested and difficulty the keeping as drilled Ford, they're and at, you matter that for Ford, of tier you're Do getting acreage acreage X, where productive, Bakken Eagle and an different words. the with tier the costs at penetration same increased a just is are I'm estimates the you they're X X, were it just wondering production the in getting tier or having X, it X levels already up X, tier acreage for in and basins, XX% so that where, Eagle the if the words, tier characteristics as because other dollar to across well it you take there within in you other know in tier those I'm types X getting go basin you.

Kevin Longe

It's across of applies the efficiency the the different because basins, basins. each to get you operating

Jim Brilliant

as it imagine Eagle would especially the get I applies I be price. [indiscernible] to -- certainly to yeah, productivity current those to the is they and Bakken oil it, returns a think Ford but Anything in Yeah. at premium. that economic struggle going –

Kevin Longe

the application system savings, the time the the of operating across And increases the the efficiencies, it just board. reduced crews,

Jim Brilliant

Okay. data whether into. you’re, X, to Do tier you sell have X, what determine you X characteristics any acreage, tier

Kevin Longe

obviously. Yeah. I We information deployed our know we’ll they're have prepare me, that for don't I call. front next but can of – that in where

Jim Brilliant

NobelClad much on then the much And quarter just seasonality in fourth side, how the stuff SG&A is issues? and year-end in is of how of Okay. increase the it other

Kevin Longe

the may quarter for think there's you I the to the legal in Mike, related but information, pickup a fourth have SG&A in primarily. expenses DynaEnergetics

Jim Brilliant

Okay. that? And how much is

Mike Kuta

the XX.X some so primary stand has some driver forecasting The to rate increase And so then XX seasonality, spending, other spend around XX about X but million our million there. been the million, is legal expense. million. We're there, run is in there

Jim Brilliant

get guys stuff? you legal do when this through And all

Kevin Longe

Go ahead, all. them through Kevin. working We’re

Kevin Longe

As rational. our competitor as soon becomes

Jim Brilliant

I'm that just can I mean, a be long time? Well, joking.

competitor, You in courts this already the particular had success with correct?

Kevin Longe

vigorously you fight, choose our it position we're Correct. -- easy didn't we it's to because be but defend so and And And competent ourselves have sued. you yourselves defending the when thing we're are, the our fight technology the end. to when to is and and we’ll unfortunate in

Operator

the would Ladies end the Longe back and I we Kevin of have the session. closing remarks. like turn question-and-answer to for gentlemen, reached call to And

Kevin Longe

continued your in interest QX. you interest the to we the end We Thank of With a that, Thank look evening. company at forward you, -- appreciate talking and with you everybody. have good

Operator

This concludes today's conference.

You lines disconnect your Thank may at time. for participation. your you this

DMC Global (BOOM) 26 Oct 172017 Q3 Earnings call transcript