BOOM - Earnings call transcript Q2 2020

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Operator

Good day, ladies and gentlemen, and welcome to the DMC Global Second Quarter 2020 Earnings Conference Call. All lines have been placed on a listen-only mode and the floor will be open for your questions and comments following the presentation. At this time, it is my pleasure to turn the floor over to your host to Mr. Geoff High, VP of Investor Relations. Sir, the floor is yours.

Geoff High

DMC's 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 two call. the will the for that, are replay release. be news And available over I'll call hours approximately

Kevin Longe

Geoff. Thank you,

inventory. primary second completion quarter by The a the marked quarter. which challenging slowdown versus led by activity slowdown used COVID-XX demand very The DynaEnergetics, environment a created oilfield States, products completions The has to work in United well our slowdown the was been In undifferentiated business, second difficult XX% a well in in component gas oil energy corresponding altogether. of pandemic and and markets. activity. to collapse year’s dropped our saw conditions last perforating stopped This customers companies challenging. many for completion Other backlogs through

of systems, benefit capital. operating investments our efficiency, this perforating just-in-time that perforating transitioning investments also reliable from significantly field completed infrastructure. achieving delivery also They in reducing assembly significant work and in transition Customers their with companies. leading more and the best-performing several of working are personnel closely while most of their have and are related it from industry's improvements reducing Many industry's However, in while operators to systems. enabling factory-assembled, DynaEnergetics the service assembled components performance-assured to is which

that quarter results order and and second met ballistic order sector designs tool for isolates included complexity is enables DynaEnergetics’ stage the rock its our additions DMC’s to We investments the Intrinsically portfolio. which in by systems to is in continue modest on in while formations a new that of DS wider continues up service DS of finally, market, new applications increase well, a expand surrounding from to completion generation XXX MicroSet and ISX technology metals range set system, business innovation, increased emerging in and delivered first Safe focus that XX%. perforating enabled to is designs pursuing in petrochemical well new deployment composite by product our These make which patent-pending that and is end The metals expectations an initiating MicroSet long-term our single expanding strategy, individual and perforating a products now the perforating and a a our the tailor NobelClad, to perforating business, DS for more downstream of DynaEnergetics both composite several of release the disengage to completion reservoirs. its DS run. engineers and and system backlog. than product the opportunities tools Liberator plug markets. enabling Echo, for to product as factory-assembled well growing sustained string. include is These investments exemplified enables Liberator, business offering addressable and in used systems market the the to completion two expand DynaEnergetics’ DS portfolio Frac their the re-frac well the company a development. are

ever. and much our at We healthy to While based have delays, match stronger than last manufacturing activity quoting demand our that project call its prospects costs COVID-related discussed is experiencing remains in lower activity levels. sites certain reduced are NobelClad we long-term our

act six limited which magnitude this reduced reduce past to facilities, the costs to years, Over we significantly charges quickly the and modernized of our restructuring footprint and year. us enabled manufacturing our

business We have on restructuring in with a the long-term reductions deliver highly We or capability efficient anticipate our model further cost to place capital and strategy. don't charges. meaningful

balance the from increased of financial for the reflected million strength enhanced as first and to at $X.X position, the net the a which both DynaEnergetics differentiated DMC $X.X efficient model and is the of asset-light improvement business well million strategies Our proven our highly cash second in quarter sheet our in at end quarter. has as end NobelClad.

optimistic second inventory for to balance take of challenges, will industry the will cautiously DynaEnergetics, the several COVID-related however, are of work that low downturn additional overhang. demand it series for fundamental a strained months through an sheets point represent including quarter weakness, and We the

We of Mike fewer, expect I'll healthier Mike? which fundamentals, confident DMC With business performance. we call review a be of strong to see one for consolidation made in market, up and companies. our them. stronger turn the financial to the will quarter over attrition will of a in our industry, now are result second

Mike Kuta

Thanks, Kevin.

$XX.X sales down quarter. and a XX% XX% year's of million, versus down quarter last $XX.X and last sequentially million, same were down second versus DynaEnergetics reported quarter quarter sales decline XX% year. second Second XX% the of sequentially

and relates North The year-over-year sales was abrupt of second million, first by an last capacity quarter quarter of gross also resulted of versus of decline the an charge Consolidated year's unconventional DynaEnergetics, second versus the research magnitude completion year's XX%, million. fixed from the first primarily in gross from prices sales and $X.X second impacted XXXX XX% of reserves XX% lower XX% development Sales at or and downturn million which from last and sequentially was diluted America. XX% second decline XX% down second well selling quarter. were the $X the significant share. the expenses. of margin X% down capacity reflects manufacturing $X.XX down in X% quarter and the also to XXXX inventory down DynaEnergetics XXXX. to activity overhead quarter of in Low decline in excess XX% margin DynaEnergetics in As NobelClad in quarter DynaEnergetics quarter. led The decline reported Kevin per utilization of facilities at underabsorption and mentioned, $XX.X in

mentioned, quarter. XX% DynaEnergetics in quarter also ago second XX% recorded the million As reported first share. inventory $X.X XX% $X.XX per reserves diluted of of in year and gross the second NobelClad margin or quarter versus

reported excludes Looking expenses, of of second $X.X ago $XXX,XXX million, at loss second consolidated adjusted operating million, and quarter which expense, both first We includes bad quarter year $X which million the debt of consolidated $X $XX.X second SG&A excess million primarily in in in capacity $XX expense. versus operating in declined was in the bad asset $XXX,XXX XX% operating charges, includes the our million. $X.X to a quarter. inventory income related impairments adjusted charges, Adjusted wind-down XXXX restructuring The million and expenses quarter and Siberia. reserves debt in loss

reported and adjusted while million million. undrawn was end $X.X second was the Second million, facility $X.XX fully leverage reported in and year's loss quarter. a was further quarter $XX.X quarter net quarter $X.XX equivalents $XX loss of NobelClad adjusted were $X.X quarter ratio $XX adjusted credit and debt financial EBITDA EBITDA XX, $X.X million last million debt-to-adjusted quarter. of $X.X credit a positive We revolving net $XX.X $XX.X We our million of second million. in with loss $X.X first DynaEnergetics Total million and first versus And diluted versus June of strengthened cash our second positive income at million the cash as facility at EBITDA end million in was of amended and quarter second or with net was ended adjusted our $XX.X X.X. million share the or quarter. our at per of in per last the $X.X share Adjusted net million year's available. quarter the position. the compared second cash Cash EBITDA of the diluted

at lot as our it to we our we markets the a that, materially, to do change know. Should With see you for third end Looking quarter now. in will There guidance. our COVID-XX. of let due performance want financial we uncertainty estimates best provide outlook remains

million in million $XX versus business $XX.X DynaEnergetics XXXX of in report the the are level, sales sales to million to $XX versus million expected At $XX quarter in reported the quarter. to second expected the Third reported million be is in to million $XX a quarter. the $XX.X range second of range the

DynaEnergetics. second in Consolidated improvement versus quarter. excess are $XX While $XX.X XX.X% XXXX margin charges anticipated expected NobelClad expected reported XX% range to at quarter. The in is capacity the XX% the in million reserves of versus million the is and non-recurrence the a range to expected the second sequential in inventory due sales to gross of of $XX million

expected the expense $XX.X general to last versus selling, $XXX,XXX. expected million of be $XX quarter expected Third Interest is range be in and the is $XX.X million to million administrative EBITDA in while quarter, XXXX to to quarter. in of is to $X.X approximately reported in range amortization expense the $XXX,XXX million the $XXX,XXX. negative of $X.X range expected million Adjusted $X the is versus expense million second

cash in expect minimal borrowings to quarter facility. credit to position We on $XX to zero slightly end and our positive revolving third million a net the neutral

Third that, questions. $X of million take we are Operator? With the range to expenditures ready quarter to capital million. are expected in $X any

Operator

first Moll our take Stephens. Tommy We'll Instructions] [Operator you. Thank question from with

go ahead. Please open. is line Your

Tommy Moll

thanks Good taking questions. afternoon, for and my

Kevin Longe

afternoon, Good Tommy.

Tommy Moll

them is management with currently these your in these you new several – a that some are service assembly to And terms from leaning these pre-assembled are? discussions might along seeking toward you tell operators and that current you into in companies far are us, customers field to you dialog Kevin, of customers or of Could say, away transition mentioned opportunity are and they're bring entirely? these platform. that would how

Kevin Longe

small of customers it's customers completely to moved model There both, just-in-time existing systems. factory-assembled complete business a they're is the and of the who and our Tommy, our benefit of group customers. delivery new have Sure. seeing

not perforating downturn operations they're in frankly, of they and quite which better. transfer want as particularly they our position Some don't guns, inventory did systems, a and in who volatile again, moving be short-cycled we seeing do to assembly that investing this And got market. completely that can things in the other and to in to tight, of trapped make the or are one people considering the in

done haven't extensive people we from with move So new we're in past work getting interest a are model. of of the amount business to an our that companies that to lot

with a amount customers of And there deeper revenue and going new onboarding so low, of while significant is some existing customers. is

Tommy Moll

for Kevin. a significant segment, very guidance That's look at your And third quarter DynaEnergetics the it improvement. if helpful, we implies sequential related a question,

have – just described elsewhere? we on for assumption that there you the embedded wondered, So just outlook I in regarding some customers or just is the driven conversions an or I is if industry big visibility more

Kevin Longe

what marketplace, a kind on XX% existing of quarter see in a based we're of particularly currently XXXX, to will say, work that industry quarter to onboarding. on potential rate going expect that fully two, in it's of was systems. it and market the is a customers our the needs are they inventory, two And the or And and either probably a to component was of people the mountain component to market through. lot is that at hardware that think, It's selling current is, I take of things and before we I metal systems is through to in new the through. XX% driven. inventory the customers convert XX% parts or market. to We'd of work there one currently quarters working first inventory the experiencing

we but meaningful increase in slight until seeing pickup so we are the – activity year, quarter. next don't in third a a And see really into

Tommy Moll

one the Blum, positioned in to structure. first a And I so stress sneak much. past you just couple this – of this big couple model, been you completed really if downdraft since DynaEnergetics, to is very have speak. primarily you that And variable in. have past these Thank have final a could quarters On that Okay. question business the cost to facility

Blum that there. and the you at as characterize in example, decrementals But got look the in capacity past the second operation the as some positioned wood there to the as over in of it is the the kind charge inventory if the So through noise that more you of streamlining are or when you've of structure? those, excess we terms reserve still is chop you've just facility quarter, performing expected pierce cost you in built couple would if years you and an

Kevin Longe

that pleased very facility We're of performance with and business. the

when noise, actually in-sourced us we industrial to line it of outsourced that this right is Our downturn at an will. see our in variable some our would level actually labor structure period and into to although our have but but our cost team activity, footprint, we're will – and previously to structure March we've pleased all uplift have in terms the we structure continue improved and the facility. And of brought seven five of leadership brought really, to in beginning of cost now, in our with accomplished. very that should employees time it the our labor, stronger activity over that you quality they've and components in what hit hard if And the year indirect it's Blum March, But market. have as at our margins direct efficiencies do cost we with and line, this a give the

Tommy Moll

Thank turn you, Kevin. I back. will it

Operator

at Stephen to next Stifel. [Operator Instructions] go We'll Gengaro

is Your open. line

Stephen Gengaro

Thanks. Good afternoon, gentlemen.

Kevin Longe

afternoon, Good Stephen.

Stephen Gengaro

do how just the severe. of next components – sort drop. expect very I with obviously, quarters, it in market going pretty And was in steep market you the the buying mean, positive seems to get Q, people but evolve to expect but obviously, mean, helpful. kind to term, you your do I In it's assuming over and around wanted think start it kind do, started I will of momentum add short to of color to that a it One, looked more get the of kind you'll right are back demand I U.S. things. do on that do business the two what guess, like position U.S. DynaEnergetics that And think you're that of Any how recovery two pretty of we kind your you and could share you to front? would broke out sequential in market? a be the now. piece the a six approaching share When sort the about how you I

Kevin Longe

April and lot was had and into a wasn't lot safe the we're – the day a companies suspension, in in on very inventory very a field-assembled it XX system, that period in it difficult to quarter part market service – significant it's to market second I time little in on amount is systems inventory wasn't probably that manufacturers is – and – you Yes, our through and collapsed demand into the even basically component turn think, that first selling about the our performance cash, to a that in chasing market the their wanting quarter all, a people very people if even – of expected it's – to of inventory performed will, of not the going of pricing a that. It into in either cash was difficult, and about third quarter say better a there than books though that turn cost. about March with inventory from of and had so over or second

market well prices markedly of And with down systems okay. the declined probably that's is the market not at on systems has The sold declined, to are that focused our down long-term. sustainable. going being the We're scenario, share in which of kind so medium those and

capital this will books. to see margins puts fewer the of companies the really be perform You coming at on downturn, to and well they better, service our fewer and of takes reliable, begin – There a company they people and is and they're it also out it our well a site the systems costs of more require site. in we at be It people they won't going working seeing that be they're report. to value safer, will replenished as of because

inventory the systems and it quarter this relatively has demand quarter, or customers been works Factory-Assembled, give my for as we'll balance now. they're I because the can never two proposition perform and next inventory the to working of of downturn think not day through converted to who our our industry. so that is its I have systems our And stuck in a they have we'll we systems – the for because just-in-time inventory they And our they're And give suspension this first and cash career, the way into through inventory, probably highlighted what we're right is that delivery the inventory value stronger. people is sunny good has high sheet. because for But it's the on on for Performance-Assured not that time trying this saving guess, – turn say And but model. we're of strength and

market to actually were I and – our we the downturn. margin this expect where to I'd at So we our beginning expect recover of past share go think,

Stephen Gengaro

well component just Okay. overall and people a the create, this even components sold, that And ago, then, inventory, channel, two and still demand a is is were cliff so had what activity being inventory when function you you the a component at there caused mentioned summing site normal in just because fell are just falling just fast, off demand that of so and the that? quarters

Kevin Longe

In material-on-order, XXXX, turned market just lower demand, quarter balance out XX to a the through. that that while for take completions. coming took different most two to for in of took XXXX, this And effect and going inventory had be XX% the a work years of market it second days it's This the that there's to the flywheel to year. than it Yes. was for a decline systems-on-order and companies activity in

the field-assembly market of component a has XX but of primary a business And percent talk market. systems has guns. plus to of with – XX%, And perforating the still been so there been is a have about lot supplier there of we lot are – the been systems

and the a in dogs, hardware explosive will, of you of and of manufacturers. so there manufacturers HEMP of cats is And small group if a lot just

about year. ready their some this that And fully market of they've product systems lines, and weren't talked for mature

this quite probably hardware good backed shaped happened, inventory and we're out back market. companies some further declining feeling the some when be frankly, to where charges focus of which and the of of leading to of I'll our again for downturn, put behind been scrambling and the system to And when downturn into pretty selling going are off have And so about the customers go sell-through their recover. them to that's starts a price market have coming components

Stephen Gengaro

Thank you.

it one more and pass I'll Just on. the

there your Is sales in Q, the versus should spike million be was a as like we – a see, more? at in be Looking far India almost opportunity investigating that? can should it something I big about zero there? back driving What's I thinking as in a $X.X market bit there is last and

Kevin Longe

kind and now is in you years. pronounced, more by it's that's we shift put there certain and an been a but a India annual project There that awarded of requirement see was this can standpoint, from on in pronounced the It more QX. in a were tender that project previous case, out countries, it

a kind a it of as an annual event. So – it's would view I

we year it, we sometimes more performance. win this Sometimes, just of don't, marked our but it terms in was

Stephen Gengaro

guidance recurring that quarter baseline mean item? business the next does a a percentage than your rises so at U.S. suggest And probably faster not that's because that in your

Kevin Longe

by highlight for Yes, strong drop-off second we're low-price in also choice, means design, DynaEnergetics would not because it chasing in which it quarter in that business the does. the And second faster quarter by international the DynaEnergetics is our business. the also and very

Stephen Gengaro

for Great, appreciate your I Thanks thank it. you. answers.

Operator

Taylor move Zurcher & Pickering Instructions] Holt. will Tudor, next We [Operator at to

open. is line Your

Taylor Zurcher

thank and it afternoon, onion moving I the sales as Dyna bit the in Kevin, some QX the of and guidance more little and wanted QX what a peel you. would on back relates imply. to to good Hey, pieces

midpoint and sequential So take you're for international XX% like of QX, if it guiding at lumpy sounds fall will line the some the chunky improvement off. or basically we a pieces top these

underpinning greater that underlying completions sequentially do QX guidance? that – wonder, than the what the So that's U.S. and XX% the view I on what in might probably activity inference U.S. improves you is a have in the do

Kevin Longe

in of Yes, of with us slight projects some a stronger completion – we're that May pickup a than I in Taylor. working pickup for and is little underlying see did there probably pickup a the there April, We in think July over bit timeframe slight June pickup a on was. what a the activity,

of the that versus and it that a of is the it we're And – of part completion the bit so a I with, think pickup some just third in of their with customers quarter a pickup with that second little is some working on deeper working are projects. them part we're

Taylor Zurcher

in follow-up of to related or cash My it. is half. cash as back flow source got capital over Okay, QX. Working came here a the back

Dyna one to we I QX most As half, about the starting half, think I the the up back back receivables working back imagine but think was collection is still sheet. of dynamic in to pick the balance the capital collections prior with inventory time you same going you of At responses in receivables on of the the reversing. have start bunch a talked about how

will play how cash out the curious those two any the capital factors there just in year. half in working back of whether you of might get into So

Kevin Longe

do them I expected of to in down, selling of come breakeven, to some – slightly, will, operating role the ours up to point if sell-through better because we'll Yes. but we're the income at high these it line, I inventory through line. our systems you be you expect out to or would receivables go are and income because this inventory and is hoping

neutral the be standpoint Mike, expect cash so from a And to do but, we quarter you? for

Mike Kuta

CapEx, million if is at what receivables – I that $X $X.X and positive, inventory saying much in working We're so look $X $X million mean, to gets Taylor. flattish a offsetting. to us with EBITDA our capital million Yes. slightly it and million in pretty neutral cash you to really to and as you

Taylor Zurcher

answers. me. That's it. from all Thanks Okay, the for got

Kevin Longe

Yes. Thanks, Taylor.

Operator

for call closing I no back Kevin holding, Longe, turn like to Mr. would additional questions the With any now DMC to remarks. CEO, other or Global's

Kevin Longe

your appreciate Thank in the company. you, We everybody. interest

operating of of half a the talented and a sheet strong and a portfolio entered a workforce. XXXX technologies have products, efficient differentiated with balance second structure, highly We

Our stronger strategy company. want job employees emerge and who done challenging we is an I'm have downturn an I sound the even period. DMC's thank will during from confident a very to exceptional

teams their dedication. while addressing appreciate sincerely and Our forward hard worked our the to to have of also Thank next continued next co-workers their stay around after world themselves and Everybody, safe and end to I effort effectively we the safe, of needs the keep you customers. look you. the quarter. talking

Operator

will gentlemen thank and call. for your participation. you today’s We Ladies that conclude

You at this may disconnect time, and have a great day.

DMC Global (BOOM) 23 Jul 202020 Q2 Earnings call transcript