BOOM - Earnings call transcript Q2 2018

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Greetings, and welcome to the DMC Global 2018 Second Quarter Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [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

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

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

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

Kevin Longe

XX% which of of and quarter $XX million, at NobelClad XX% all-time first XXXX sales up end the up Geoff, sequential were this second a quarter a quarter quarter million, increase delivered and hello, of ended explosion improvement NobelClad order second record. from XX% $XX.X backlog results quarter. quarterly the year trailing last of $XX business first $XX.X are second last million, year's this and safe first DMC an versus Thank second the versus XX-month welding of versus you, and up ratio were book-to-bill and quarter quarter XX% with everyone. second $XX.X The continued X.XX consolidated strong gas industry. intrinsically the quarter. was were the driven million quarter. at and perforating million The and by year's in versus second year's X% a for well sales ours. DynaEnergetics' XXX% systems, versus unconventional the growth quarter primarily demand sales completion the oil and first was helping which process America's transform detonators North DynaEnergetics an

in last gross year's Our consolidated a margin down but quarter year-over-year first was XX% drove favorable this pricing product DynaEnergetics second from year's Improved increase. and quarter. from XX% up mix at the XX%, in

increase with as capacity material as expansion well However, program, its costs, a the associated sequential inefficiencies led operational DynaEnergetics in to higher-than-expected decline.

restructuring in product NobelClad's from year-over-year second As income last versus the at in XX%, $XX.X adjusted quarter will improve of in a $X.X income, reported million, -- DynaEnergetics XX% decline to its DynaEnergetics a discuss million of the NobelClad which last to first reported up XX%, expense in operating the excludes and DynaEnergetics reported reflects quarter. year's $XXX,XXX project from which year-ago of was second million. XX% NobelClad, I quarter income $XX.X address At margin down from up NobelClad business moment, the performance. number was in quarter. in XX% but inefficiencies gross The margin year's is operating of operating while XX% of adjusted level, changes down margin in gross income Adjusted million steps operational from taking reported second mix. of operating first in $X.X quarter.

diluted Second per adjusted $XXX,XXX income the $X.XX versus net adjusted or share was quarter. income $X.XX share million second quarter diluted or net of year-ago per $X.X in

$X million, of the NobelClad and quarter million At quarter. litigation $XX.X this year's $XX.X second million adjusted in $XX.X quarter in in $X.X expense, level, adjusted DynaEnergetics million includes was quarter $X.X last million. while which EBITDA reported EBITDA, versus reported Second year's business million second first

in vertical $XX $XX capital million of million additional from components Given integration the XXXX. the the performance-assured million expenditure at enable budget DynaStage for have used growing announced The the will system. we increased systems, factory-assembled, XXXX demand we perforating outset DynaEnergetics' $XX of safe DynaEnergetics' to key intrinsically our

more campus over manufacturing installed Blum, at the We next DynaEnergetics' several Texas. XX machining have months be ordered advanced in will which centers, than

address ordered our delivered will safe recently also and additional to be take have demand the effect a growth lines, institute to and automated costs. in increase We DynaEnergetics anticipated intrinsically price detonator material which perforating The shaped systems. charge for increase August address announced year recent next rise will production it X. X% will

R&D year. year. of improved DMC with transition coupled continued to I'll revenue to growth year-to-date performance. The year. half quarter during margin DynaEnergetics' the now during of Mike to select performance expect accomplishments of We turn very deliver to during of lead commercial We effectiveness of our performance. our balance many our over proud continued the Mike? price half record call employees additional organizations of in-house the on increase, the second components, operational and financial forward strong to the for I and detail Kuta the second am financial our the and enabled and look manufacturing the first

Michael Kuta

our in second litigation headcount everyone. $XX.X of with SG&A quarter good second and increased distribution year. XX% and increase the The XX% $XX.X compensation sales Kevin, Starting was of last additions, versus and expense consolidated or variable or Thanks, afternoon, higher million costs. quarter million sales expenses, from resulted

expense $XXX,XXX sales. amortization quarter or Second X% was of

XXXX. equivalents of the the Net ended versus $XX.X $X and capacity as associated with end DynaEnergetics' Looking increase first well at million. to borrowings as quarter relates increased was requirements the to capital December balance second XX, cash million million at $X.X program. debt cash expansion growth at of our fund The quarter sheet. DynaEnergetics primarily with $XX at million We and working

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

anticipate third NobelClad $XX the to be last sales DynaEnergetics should versus we $XX million We year's approximately third quarter. of range million a million, to $XX Turning to sales $XX.X $XX range of to reported are while quarter $XX a million million. in in be in million be sales expected will guidance.

expected million range be third XXXX $XX increase to quarter. gross consolidated XX% $XX up in XX% expense $X be which is Amortization is $XXX,XXX. to be of preparing patent a higher in million $XX should $XXX,XXX approximately of to SG&A million largely third quarter in infringement the versus last in expect at The expense margin quarter. million, litigation We case. second approximately the relates last the versus trial from the an October year's expected related expense a should DynaEnergetics, for Interest year. to approximately

expect quarter. million, third third range million million litigation We in $XX a quarter from EBITDA, last which expense, includes to $X.X in adjusted of year's $XX up

Looking at the fiscal year. full

systems to $XXX will expanding expansion of We $XXX demand a certain DynaEnergetics increase capacity growing achieve confidence of that prior The our reflects forecast $XXX second XXXX $XXX perforating to DynaEnergetics' during intrinsically are year. the versus increasing million million of for objectives million. to range our range sales the million half and safe

$XXX We expect to million range our of DynaEnergetics of $XXX million million versus $XXX a sales million. will to prior $XXX forecast be in

We $XX are is to maintaining XX%, to million. previously expected full is the XX%. $XX range to NobelClad's in of which our million year forecast XX% gross forecast year be of high margin sales a range Full in of approximately end

expense approximately We higher our change in up $XX a expense $X expected from the Amortization to of interest expense to is full be SG&A adjusted The million approximately range expected reflects forecast $X.XX primarily to a expectations million. our $X expected is million, and range of litigation year have million. at million DynaEnergetics. prior of $XX $XX million, to

of $XX up million, the million. to be expenditures from capital guidance noted, approximately is Kevin expected year $XX prior for our As

effective range XXXX to tax Our XX% of remains XX%. expected for rate in a

to Our diluted a $X.XX. earnings and inclusive range full $X per million $X.XX in of for to is year of expected forecast expense, share, $XX million litigation

$X.XX penalties, antidumping accrued with million prior to and of range anticipate $XX Operator? of expense, to earnings but million. expected adjusted restructuring we Excluding is per now from range adjusted million including $XX up $XX a EBITDA of $X. in to questions. any We share to in are take million, range ready And that, a litigation a $XX

Operator

line the first Instructions] question Roth Sweeney from Capital. [Operator Our of Gerry comes from

Gerry Sweeney

Or about before, do of spoken from we've gauge is? to over even well, American how the look market I've market or market, But say guidepost different quarters. trying many sources. the the peak and or is versus what last next maybe et the develop trying some to going cetera? relative unconventional Just market to the bit on DynaEnergetics -- size you and we several been have to this idea to any at cycle, triangulate better So a size North maybe as of this the get little

Kevin Longe

the market has the we're longer will. in slow year-to-date. international of Where North American in flat the exceeding we result just and peak believe The relatively completions, 'XX, And stages, previous Gerry, been growth, if you approaching more or more possibly laterals, seeing and is unconventional. that's already that's onshore the

Gerry Sweeney

Okay.

just is happen, of levered there But were to because mentioned expectations you I your Just (inaudible), of your impact -- to intensity think North is American in to the the the unconventional, have would side. revenue? what most kind business could if some that of or the point overall -- at -- future on mean, At that international and have some market some for since of international it. point I that obviously,

Kevin Longe

the would our would year. to add put the that and that we forth of see the but factored start year, the to into that 'XX 'XX. It's for to guidance balance forecasted obviously, being we and we compared And prior flat for guidance

in guidance would to position So not but it yet give a XXXX. we're improve, for

Gerry Sweeney

we market targeted your Or I share Have targeted as even curious there target? -- opportunity And where hit your, with stand an that. you to Okay. mean, that at I expand is to goals? guess,

Kevin Longe

Yes.

we're demand yet products. have most for hitting probably, not importantly, think our the we I that

sold organization we sales year-to-date, more and could Our our we've have than what delivered. customers,

the been would demand-constrained. acceptable in I And year-to-date context customer than rather margins -- in put so requirements that's and of interested our it at we're capacity-constrained meeting

share so keep our future. we for us near in improving an the to opportunity market see And

Gerry Sweeney

completion Got And a you there, to any some have bit for of a just activity for it? XXXX Permian, or One, lot your I is anything issue little talk would that bottlenecks the there. Is removed, to it. to about takeaway I wanted been that fair guidance guess, any of trying way expect, et a of clarity. but if And looking look there's CapEx at that and some seen that Not sales? like of with cetera. get then expand flowing

Kevin Longe

Our constrained third again, into the on have -- been, of quarter year-to-date it. this third side going quarter and in capacity this

have experienced demand. slowdown We not a in

that such move smaller can are our with share the other our And We have a products basins. to demand the customers, Permian. in

And on and busy, staying customers than so they -- customers focus quite the the basins, are our more actually. we

Gerry Sweeney

question. much Got I as obviously, litigation, How loaded the think just because G&A, and some be to always things -- I even your step-up. that, is then there's And taking expense mean, I then an type your a you we've going open-ended left? trial we But in October it. it's patents a litigation or to question but... more at and got look talked like of protect know

Kevin Longe

expense Yes. not only. this to the call, clarity give around expense, and this And we as It try the litigation include we company. recurring that's does legal in that litigation in earnings expense the have a release

go X -- which defendant so will going litigation expense these into And away litigation probably X have recent that the cases forward had the go we we're fourth times had expense a We've in areas and in away. when major quarter.

pretty standpoint. a found record there and jury in would both we've case As going trademark of found from some be standpoint hope EU case, patent in DynaEnergetics, the DynaEnergetics us this remaining found is and us actions the in by was would case majority then in they a also this a behind favor an was busy infringement with which that year. another forward. so in the a the also there one a favor the we've second for and And DynaEnergetics. you of and litigation had jury of from the of -- filed that And favor the then from and also end defendant strategy will good on that of month October in we -- IP a year recall,

Operator

Our comes Marshall next from from question Company. the Sidoti & Edward line of

Edward Marshall

you you pressured delta on inflation could buckets, give quantify million margin about the curious the there margin. it to... -- that line, I within maybe X that in -- curious called weighted almost talk of $X and I'm if those was I'm gross inefficiencies kind if a average of out could DynaEnergetics you So kind

Kevin Longe

of with material of to to with -- do XX-plus had and Yes. had percent costs The but not components. majority purchased it do probably higher it probably, it

stronger meet freight than to have Our demand some we high components where the was and normally demand pricing of some order airfreighted quarter. increased. we purchased not had, those a components various the cost. But have domestic from have in countries that the of to anticipated such we And we would U.S. in

Edward Marshall

piece its referring that the because goods components, overall -- assuming was of we perforation I I I'm it in assuming about airfreight, product. your the to know a I'm you're small particular this on kind pipe. based Was of thought what cost guess? of of

Kevin Longe

we're we tandem then some but and things we've costs shaped domestically gun, have that in until getting is had was adapters also, which Europe, those -- anticipated. have import onstream also with which And charge consumable, sub the charge are We've there from supplied airfreight of we're on the than shaped cost the detonators, in that charges And associated and DynaStage freight U.S., production our both shaped we had components. the higher our internationally. capacity of

Edward Marshall

Got it.

that shaped adjustments charges a you're little to about some the can offset that do and not timing the kind the that just trying of capacity, of bit maybe other for of but mitigate. So maybe we talk

looks already starting third recover. is the for margin So the quarter, like to it

So through us walk maybe that.

Kevin Longe

they are. automated we And assembly -- line. the detonator Yes, another added

I The the mentioned capacity over that -- guns previously our That coming one for onstream, a that capacity facility think in we year. August manufacturing complete April bottlenecks. order of will addressed That that's an line may XX. DynaStage we assembling was started. for had be it that have a

likely And the X one see begin onstream September. capacity, quarter other relief shaped addition second America bringing most which we'll in charge first-- end charged of beginning the And we're the be in And some of additional the so in shaped September, on will of with XXXX. North to coming the October. lines,

Edward Marshall

the it. CapEx, encapsulate? does in increase what that Got And -- XX% is

Kevin Longe

our as increase primarily a into see more opportunity has higher-cost go supply of the some is in-house. the sourcing more we become products. And The that bringing in and in-house chain expand and by significant of difficult bringing manufacture components that to our that we're margins expensive,

Edward Marshall

et mentioned the sub you And tandem that what was some earlier, of adapters, cetera?

Kevin Longe

machining to with that. Yes. placed centers the adapters which margin And supply allow for an will we tandem sub order comes on and us number self-sufficient the see that a of and be improvement

Edward Marshall

I'm timing curious, of though, when's install? the that

Kevin Longe

For there's of the our machining now been will that first between be or And last of night. the X the the first the was the centers, installed a component, weeks. balance machine, of -- X article product last in XX coming year. And have picture I and given end

So...

Edward Marshall

right? So all systems go,

Kevin Longe

go. systems All

Edward Marshall

But litigation to right? segment amount. was at revenue cross Dyna Let's to than was the -- our considerable get where I'm that's Is increase that So G&A -- the the stronger that seeing? within fingers, increase not level, a running through the the the those? expense nitty-gritty. what by Is that is

Kevin Longe

Yes.

Edward Marshall

And I'm hit Gerry through little June. data at Okay. guess earlier. bit on then, this the I looking Okay, a

slowing you, look You month you like talked about the outright, it June. duct at completion when telling it's data data, looks if not in that the of

So I'm curious.

you curious market where if the are seeing see didn't gains demand, right And good. You maybe shared of I'm the about improvement talk now? said versus you any slowdown you that's growth. and in can bulk

Kevin Longe

Yes. to some softening in longer-term maybe conference level there's us, larger I'd really it of demand, of a been factor the the other of some are we look particular. calls for a not and and of basis. seeing companies at We're in listened the that That's on talk. a these experiencing of in robust quarter third pretty kind a Permian, still

meet think of have the resolving that to causing coming the demand our things that of capacity that performance same we will themselves balance the our bit onstream. are others mentioned I at the year, a the that that in and be have lull is little I think guidance of for some time

Edward Marshall

kind for of and share of and or play market mean, right if gap you're adding taking as larger right? slow, But at kind will wireline some is work you're in now, kind the of in probably to that is the sense the is, in concerns might we of pickup. any capacity offset, service front of that The wait completion concern probably activity or guys market down, there I pipeline how some that providers least concern, Yes. that's my in.

Kevin Longe

mean, has of been also manufacturing big up the year-to-date. I Well, the the strong. growth been market that's of stepping the We're in impact terms a on in the terms industry market, needed come that supply of years, last and couple that's either onshoring we're the other that from from been for markets. Europe capacity the we've also of for have designing in products components or

we've capacity. so comfortable. had of are -- And a that very things number needs, and our we're impacting We're

right also We not strategy. be our demand because happen to are capital-intensive of business. step just a We business and a change capital-intensive terms our in now of

Edward Marshall

you. Got

If business bottlenecks, what mentioned place, to today after removing looking lot You into customer everything I from goes curious, I'm of are as capacity increase that's talked your from increase that now inclusive. you looked your at you final as demand? upgrades. that just a ability far year about at X percent capacity meet

Kevin Longe

Well, we're XXXX. for not giving guidance yet

Edward Marshall

that. understand I'm assuming... I No. not

Kevin Longe

Yes. Go ahead.

Edward Marshall

fully but what be. assuming not potential utilized, curious I'm just your total would capacity it'd I'm be

Kevin Longe

rather we fourth be By than capacity-constrained. this quarter the year, demand-constrained of will

I grow to for the a in with we we'll so We're compared because That's don't There's rate. But want pretty removing be rate to the of factors be at forecast to want based prior 'XX than up we're And that it's comfortable. believe just GDP it in continue, to guidance quarter capacity. year I that we're and certainly out fast number 'XX. significantly the to -- XXX%. the we're capacity, a a still on be I careful bottlenecks. into first but current go coming revenue And DynaEnergetics. faster of filling expect

Edward Marshall

finally, for flow year, you a the for cash free 'XX? And target it. Got have for do

Kevin Longe

Mike?

Michael Kuta

We're working growth. $XX to $XX close to the probably in the pretty half to to the of neutral fund going be half and going the We're provide million free the the We're Yes. guidance in million first CapEx that. through negative half. -- cash flow second CapEx because second We capital. to didn't probably on the and

Operator

next [Operator question from line comes McIlree of the from Jim Instructions] Our Capital. Chardan

Jim McIlree

make I just want I I sure understand are to the place. expansions -- taking that capital

we've about for unit satisfy charge those ability the the demand in those lines the there. unit that's it to that gun talked and and That's demand. increased your past, call So out things mostly assembly, shaped let's increases are the the and are

Kevin Longe

Correct.

Jim McIlree

not spending of fair really it? that's right? of a of that Is really think not capital more investment. this we're that's afternoon, you mean, incremental referred units way The that, to to -- sold. margin being a Is the increasing it's number that I about

Kevin Longe

That's the proper also majority we There's in down some that is items but ahead order in lead thinking Jim. an XX- of placed XXXX. payments on the XX-week way lead time gone addition, detonator it, for a improvement. see of the lines these primarily, long are we've there's And there margin for additional items, of and need time to that expenditures

Jim McIlree

Okay.

the going side in half, out. that this when negative And for get the trying production, startup to the factors would second up margins DynaEnergetics on to impact those gross start you so be that for inefficiencies kinks are first costs,

positive (inaudible) robust sounds of should have side, you the plan capital in a in like to see costs more that pressure get -- as that right? kind second through some improved the place, really continues XXXX. margins. continued you And margin -- Is that things right? benefit of have would earlier. it's some capital really But expedited you on Is On the side, And half. then the it positive -- and well to you the referred these margin

Kevin Longe

the We in and will in quarter. the benefit see a third margin fourth

the recoup there's of cost not price but in increase us material beginning August. impacting specifically to the a industry, -- increases have that more we are of some that of general For

the our quarter. a see we've We the manufacturing, on supply paid that in TSA margins. going already of as third are in more in improvements that lessen freight this And bring will chain we our we're additional seeing pickup to

margin fourth actually become layered feel from the And margins that TSAs a unfolds. the we so year can in as there we're and the and grow forecasting in healthy more of we a return third quarter, to as or design

of have working is full through, So around And has half. into with August. XX% XX%, doing the then the behind a we we're end just we'll the year us also of us. will benefit be operational XXXX. to inefficiencies and and facilities that behind operating, do benefit obviously, that A in And are construction by lot second it they'll

Jim McIlree

Okay.

always not have you're I you work you do, not like it's on it's So like have but that. -- well to underway there's -- mean,

All you're as that right. still assumption pressure is too you pessimistic, probably have going my said. So to margin just

Kevin Longe

I the year-to-date margin our would to with half. and the think year improvement We're above be second expecting average, so. in for our that's

Jim McIlree

costs to so related just a the that you action. Got seem that sort it. of to any preview mentioned non-event None of higher far? tariff be Is

Kevin Longe

the starting tariffs. Maybe finger things. tariffs, seeing I think directly increase general metals in a and on put some apply steel indirectly. in We're you to cost that my components but seeing wouldn't to of would can't other increases we're

Jim McIlree

[Technical because better margins? mix the in Margin better of detail resulted is that what Difficulty] was mix. Can you

Michael Kuta

part the Jim, of we your lost first question.

You up. repeat broke that? you Can

Jim McIlree

Yes, sure.

and talked I'm because of mix, at about NobelClad was that what mix shift? You wondering margins just better

Kevin Longe

anything to primarily the see of had a brought -- start come first the at second. the and that contribution our And size in on margins the else. the in order beginning took went that first driving that it that partially shipped on is than the more down to the -- quarter margin, in the We quarter we really of mix normal projects, it lower more Yes. our and in project And over It's first quarter. as a we up. we margin, target it we mix is large

Jim McIlree

that how you've in on marginally generally? this the say, past, let's past there improving at it? talked -- characterize would recent the in Okay. you still least the still, -- about some seeing And again overall. Is NobelClad, improvements market is Is or in

Kevin Longe

our is base, a up very From book-to-bill year-to-date. Modestly. low

say improvement. I'd so it's a modest And

guidance our changed haven't NobelClad. We on

as Our the has DynaEnergetics progress. on stepped up guidance years

Operator

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

Kevin Longe

end look appreciate QX. interest on at forward We in and again you. you, of company our your the speaking with Thank everybody, to Thank call. you the

Operator

This concludes today's conference.

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

DMC Global (BOOM) 26 Jul 182018 Q2 Earnings call transcript