Earnings call transcript Q4 2022

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Operator

Good day, everyone, and welcome to the DMC Global Fourth Quarter Earnings Call. At this time all participants have been placed on a listen-only mode and the floor will be opened for your questions and comments after the presentation.

It is now my pleasure to turn the floor over to your host, Geoff High, Vice President, Investor Relations. Sir, the floor is yours.

Geoff High

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

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

be In available replay hours approximately are two call. today's to addition, replay after release. news the the in will available Details telephone the for listening

now And the with to call David? David I'll turn that, Aldous. over

David Aldous

for you, us joining on thank today's and Thank Geoff, you call.

since a been as been I've DMC's past it For the Board with than my for I've Board In those background, five DMC has Directors company, and with stronger who is familiar the years. of the member of aren't today. of the XXXX, decade been affiliated I've you of never Chairman served

innovation markets businesses and offered and by are of terms differentiated strategy permeates services and positions businesses organization. the asset-light that products These Our our their were respective our is the leadership our share three both profitability. leaders sound manufacturing of culture in in market built and on

NobelClad. exceeds included Arcadia, and accomplishments forecast strategic consolidated XXXX and at milestone was sales, adjusted DMC a our EBITDA that for record year and DynaEnergetics, several

returns our to XXXX, is entered improve we for DMC's As objective stakeholders. primary

for are strongest focus investment on strategic believe that company. We have returns will decisions making generate our excellence we operational and the the sharpened

products capability, – effective priorities near-term new management. of the working profitability success improve manufacturing through targeted and ensure strengthen and Our more DMC's capital integration reductions its cost of flow accelerate the Arcadia NobelClad's commercial and cash are DynaEnergetics, the expand of highest to capital

of XXth, is January Eric we from was announced where role and closely team, officially joining already CFO with an Officer. culture. our joined finance Walter us company's He excellent He DMC and and month Mike clear with CFO with Eric will as Financial was Tuesday. Jacobs, the DMC's the spent On largest people working today our next that past it's the us he new he's division. fit and Chief assume

We to him as the excited are part have of team.

call of the turn now over and a Mike? operations financial I'll for our performance. Mike review to

Mike Kuta

welcome contributions have In Thanks, already worked is David. finance clear addition made he team. DMC we outstanding organizations. and he's It to Eric. And the want is month I an together, the also important do to to the leadership

by marked important efficiencies year. finish our a David sales DynaEnergetics, year year achievements the As the unit than from our XXXX. businesses system more at noted, full by manufacturing was to and prior teams execution across than and facility were our America's demand established integrated strong full delivered record expanded well XX% The North of strong capacity Germany. the of Texas fully each accomplishment improved completion industry, Blum, reflects XXXX and perforating DMC, higher At DS outstanding in America in and North

period quarter We quarterly sales improved often increase of product introduction strongest was since series XX% believe of DynaEnergetics' reflects collectively quarter, slowdown. recent DynaEnergetics points combined the is transformed up in X the customers premium expected gross continued America's reported a a process second percentage and growth North margin DynaEnergetics in North shortfall large versus fourth the business XXXX. was industry. increases, during three ago maintaining strong low-XX% planned sales improved international of well perforating and sequential XXXX. objectives. addition fourth our make with of a quarter, demand The year below fourth year-end We has an product was in The sales during customers. reserves. a support it that by the It mix DynaEnergetics markets. to but improvements, and products, DynaEnergetics' our our quarter and price performance to for America to marked principally due even intend innovation, investments improve range three inventory technology, will write-offs outstanding stronger margins new the by

Full company. higher up quarter sales Building versus were driven periods raw Architectural by XXXX, both increases costs. our material XX% and in solid XX% as first XXXX. a business, The increased versus implemented Products had year Arcadia, year in comparable improvements a were price quarter DMC fourth address sales the to

of As in At shipped Arcadia's during of aluminum Commercial the XXXX division, prices aluminum gross led averages material that first during as we price half the raw previously increases were half inventory have second lagged high-priced the sales, fourth generates increases below Arcadia costs. most the discussed, Arcadia's XX% quarter. to remaining historic in of a approximately margins spike which

Arcadia continue out effect were half ship Custom, went of of the market, that will to price into serves into At backlog high-end residential increases XXXX. before which orders second quoted the

businesses and abate, we demand and expect backlogs. throughout are order both pricing issues Arcadia's levels historic inventory margins Arcadia's and XXXX. back commercial to these strong reporting high-end will As trend residential healthy

and better operating increased efficiencies primary during address is demand objective this to through Our improved capacity. XXXX

will first scheduled quarter, ERP place by of phase new go end believe year. the capacity system painting the the we is and to live in be of Arcadia's in increased second The

large vendor of a business is pickup and gas liquified believe is prospects. stands orders joints, business by for industry Order XX-year the to is tracking a positioned demand encouraged moving to transition that order We of well these cryogenic number Cylindra also and natural is new increased NobelClad participate are during phase. Our high NobelClad its projects its and now the an strong in are from seeing closer increasingly selection growth the The seeing and quarter, million. sequentially XX% activity. anticipated $XX.X backlog at fourth

performance. fourth line businesses pro growth a were now All of of sales up line And prior year’s sales. results, quarter financial our third up XX% top compared year-over-year fourth recapping quarter but with fourth million $XX.X flat quarter, basis. for on a quarter forma to and this top review XXX.X Quickly Arcadia’s sales reported the fourth year XX% were but pro sequentially, XXXX. compared forma X% quarter the million, down with strong our

of from third by quarter the decline The was impacts the anticipated driven and maintenance. seasonality

average prices, to While on growth the were to implemented inflation was raw due key primarily materials. higher selling year-over-year address which

million, by in sold DynaStage North in XX% a over units quarter fourth XX% driven DynaEnergetics of sales with sales prior by America. a price reported system modest in growth North a grew XX% quarter year up $XX.X compared market demand increase sequentially American driven

year driven Sales million, growth in by slightly down increase at sequentially, price up an was NobelClad selling average were to but The higher the $XX.X prior raw offset costs. versus year-over-year. material X%

the quarter in was Consolidated the XX%, down experience from all the XX% third in fourth quarter margin businesses is compression. gross margin

We will improve expect quarterly margins incrementally throughout XXXX.

from margin last Arcadia. than businesses margin a is increased and forma gained XX% from DynaEnergetics the pro more NobelClad On gross from year basis, offset compression

was year-over-year and Arcadia, consolidated as in forma with based investments travel Looking previous higher SG&A at our fourth related compared well as up compensation at quarter increase expenses. expenses a the million and fourth XXXX. support quarter quarter pro was growth, flat The $XX.X public company million, in stock attributable with people $X.X was cost expenses, to which to

third $XX.X versus quarter year’s $X.XX income DMC million. share net $X.X last $X.XX a share diluted in $X.X per We of report operating Fourth or income consolidated net income adjusted million was per quarter. of to or attributable diluted adjusted million

Adjusted to EBITDA attributable to on which DMC million, XXX% was a prior compared the year quarter was sequentially, basis. pro XX% forma down over $XX.X up but

Arcadia quarter attributable adjusted which DMC. reported $X.X million reflects EBITDA which reported growth and fourth XXX% EBITDA adjusted of fourth million growth of of $XX.X quarter XX% DynaEnergetics X% quarter-over-quarter or was year-over-year. over to $X.X million,

sequentially which and of EBITDA fourth of to XX% reported up the million, XXXX. NobelClad quarter $X.X compared adjusted flat was

ended Arcadia with million. cash long-term the at distributions with flow DMC venture on $XX.X Arcadia fourth cash We our and of XX, payments partner. $XX.X principal used XXXX. associated to generated December debt million of was cash That $XX.X acquisition free versus joint million our the of fund to quarter

below ratio X.XX X.XX. at Our adjusted December well of threshold XX, covenant EBITDA debt leverage the to XXXX was

average XX.X weighted million. count now total Our is share

in first the of business At million the a range $XXX.X expected of are $XXX is the quarter fourth sales quarter. Arcadia $XX.X in $XX XXXX versus $XXX versus million guidance, million to to $XX quarter. to a the level, to fourth at report range be million reported in Looking million expected the reported in sales million

in the sales XX compared XX report to sales million $XX fourth to quarter. range expected reported quarter. to fourth the be million in to are the XX.X is the in million million versus expected million to million of of $XX in DynaEnergetics $XX.X NobelClad range XXXX a

XX% a in margin XX% gross of XX% in to with the Consolidated quarter. fourth range is expected compared

is quarter and gross impacted by while NobelClad First project a expected, mix. favorable margin anticipated Arcadia DynaEnergetics sequentially both improved is to at less be

selling, quarter general, range million the in reported the in $XX is million $XX of fourth administrative expected XXXX $XX.X and First a expense million versus to quarter.

approximately of on patent of of but at million DMC the quarter the to cost guidance CEO. First includes former SG&A $X DynaEnergetics, expense excludes resignation expense $X.X litigation related approximately

our decline SG&A of excluding the year, by be as run expenses also quarter percent expect of per a and million end We will will rate the $XX one-time below sales.

accounting X.X million expected are amortizing of sequential respectively. and the methodology customer intangible. million amortization reflects to expense The relationship X.X depreciation increase quarter DMC’s First approximately and Arcadia be

It’s not will important the end more to weighted front straight and note lined. amortization be that

can future on found footnotes. detail be Additional XX-K estimates of the in financial amortization statement

annualized rate the is $X.X be our be expected year. expense Interest XX% is in to and tax quarter forecasted effective full the first and to million for XX%

EBITDA $XX.X Full Arcadia's $XX expected and attributable capital painting quarter. be to the million ERP million of $X of Capital include in is are approximately expected system $XX $XX in be year to expenditures to range are million million the million. will capacity. to in $X expenditures in expected adjusted quarter versus First DMC and range fourth the investments million XXXX to

any With that, to Operator? take ready we're questions.

Operator

will Stephen a is we Your first [Operator time, question Gengaro Stifel. from from question-and-answer conducting session. be Instructions] this At Certainly. coming

live. Your line is

Stephen Gengaro

good and everybody. afternoon Thanks

Mike Kuta

Stephen. Hi,

David Aldous

Hello.

Stephen Gengaro

Hi.

solid, pretty quarter as if rig think if with, seeing markets and talk I hearing you're as I plateauing there's seems you are seeing – sloppy. DynaEnergetics And count – mind we've concerned? expectation been but you're I you share seeing give gas business? in starting the can us with mean you your I'm and far sense and about gains a first your customers So in the conversations in what mean, Can any market what curious are just just don't guidance guidance for we

Mike Kuta

the for Yes. I to mean, year. your Stephen, a seeing question. strong We're thanks start

strong been February. And a and so January month carried into has that

onboard seen comments, in customers we've DynaStage the new As some system. my I noted come and adopting

pretty good feel first quarter. we So the about

David Aldous

Stephen, add. I if could just

going certainly IEA XXXX. are be production the oil crude look all you for day. strong if forecast EIA at level, in to reports barrels the a of macro a up at couple or they're think I And million reports,

indicator the we still strong gas know, So softness marketplace. gas you and it's seasonal pretty in crude. well, side And down, coming as medium-term but strong prospects in on a as with somewhat there the the that's of is see demand prices

Stephen Gengaro

that, you I were gaining Thanks. seemed you more thing front positive And we pricing you seeing it just mean time was the is right on like some on I traction, now? have last – – how there think spoke. one Are anything pricing? a

Mike Kuta

are into stable got improve these of our particular that we that right say we've versions gun margin. where some pretty mean in now. We're specialty oriented is pricing can systems. new of go mean kind fronts I'd going of I gun systems, of X.X working market, we couple products the on think to a I

think So I design that there some going we've marketplace. are new win got the in to features

to and them. mix, look we're efficiencies going product think as favorable hit some and those where take price we some I well we'll opportunities see a operational at see

that our up QX. So for implies to are going but and from a of margins marching off XX% here QX to keep guidance think it's a north I factors I that there march essentially QX, those low to QX combination we're going think

Stephen Gengaro

Okay, great. Thank you.

Mike Kuta

Stephen. Thanks,

Operator

you. Thank

Gerry Your is Capital. coming question from from ROTH next Sweeney

line live. Your is

Gerry Sweeney

for Thanks taking Good call. afternoon, Hi. my Geoff. Mike, David,

Mike Kuta

Gerry. Hi,

David Aldous

Hi, Gerry.

Gerry Sweeney

on look the and But on the few move that of much Arcadia. DynaEnergetics customers Just you you what's products. wins or did does getting obviously, you're to see onboarding How the there? a a opportunity the And customer customers then How feel that front? like? follow-up over out I'll mention pipeline

Mike Kuta

customers. to mention I where with really want our Gerry, one we're existing lot definitely is is thing winning a that of

excellent And so what we're seeing we've and is the got partners. believe product we best

we're our partners on So the service side. seeing win frac

big And so that's a driver.

that actually existing some we have. partnerships So more share comes adoption, through of market through but of the that comes

Gerry Sweeney

Got it.

in Arcadia, until to or to I we'd are you I Is in highlighted volumes, growth share volumes price. Switching degree. happened efficiencies that – get mean, the what and constrained – you there think, revenue, wallet some not to was some gears So – Curious, just the XX% as Just specifically near-term. – you up with at how volumes? in curious place? near-term look curious

Mike Kuta

Yes.

mean, I part, high-watermark in Arcadia million. most the see you was For QX at $XX the

So probably for and QX point. had constrained to maintenance. down little we that's the $XX.X shut a seasonality million, dipped bit some

unlock plans to and got we've so. got So to capacity there, we've do

As I putting capacity that's unlock think in grow. line, my mentioned comments, to a and to paint I ability in we're that some going of and

Gerry Sweeney

sort down management second matching Will it. it's And of though Got looks help cost inventory up? margins, – – and ERP that in the coming the inventory it then sounds some with as of quarter. that of

Mike Kuta

Yes.

phases. full no We're from into system. So going to we're two ERP system that a ERP breaking

X to give we product, that's margins May, a across of sell Phase product expect products to done we be lot our going to and and satellites. us visibility So in line, how

be that we'll able So price and possible across to that margin business. look and close leaks at

And is which two, supply in of by step chain is getting end tools. really putting XXXX, place. excited more management we're that so And then in about the

where So more, side I sheet we're impact inventory. be to and the gets balance and planning into to inventory around that's that and scheduling, and going get we're to the efficient more going able think

ERP project deal. plural, So projects, the big is and

to think of I going out lot is that. a come

Gerry Sweeney

for Okay, me. great. That's it

Mike. So I appreciate Thanks, it.

Mike Kuta

Gerry. you, Thank

Operator

Thank you.

from Your next KeyBanc from coming Ken Newman question Capital. is

line live. is Your

Ken Newman

guys. afternoon Good Hi.

Mike Kuta

Ken. Hi,

David Aldous

Ken. Hi,

Ken Newman

if and year, the talk work a and quarter curious at bit how just to think on as more how is the should whether you done inventory be we process I little quarter in flushed on you you're provide the or the out, there's write-offs some could Dyna look maybe through inventory about say. I'm this if color that more Hey, move you build at side inventory looking

Mike Kuta

in year-end, doing some up. Yes, and our Ken, quarter, we combination think had putting physical fourth a and It's just I reserves to some got sorted the got place inventory – think we cleanup. we year-end we've so cleaned of We inventory. that in

few quarter. points small So the us items, – that a and cost in two other

two far think I confident a up seeing per that points we're quickly reasons So we're going the inventory, that other can se that in we're and margin those of QX. pretty to DynaEnergetics. And build mentioned marching back the for we get lot as as then seen here, inventory – start we've

we're than a this better So expecting working year capital year XXXX.

Ken Newman

segment right competitive. the is Okay. And you to generally clarify, it sounds heard inventory like as pricing over I think stable, getting but this your mentioned incrementally on that you pricing getting – shouldn't maybe in is this skis or cleanup earlier, the we if of environment

Mike Kuta

not that's what No, is. that

Ken Newman

some that think in pieces, aware on on the should moving it. side, sequential for specifically that segment there. Arcadia, amort is through Got hear the leverage to we Switching else anything you think, there year? of? improvement we margins over for should as expectations the be How we I but Obviously, the gross move SG&A about I

Mike Kuta

got work on I that, we’ve to think side. the some SG&A No, opportunities

which a is I sales operating to get think But top leverage this in nearing again, end in the a range. XX we line we’ve at, XX line. of limited we’re is the expect by on past, been can of year right that capacity paint bit have level the us there that because the

David Aldous

add. could I And Ken, just if

be the the I wins think some opportunity an on the year. capacity more will to industrial engineering there’s the there but line, end shorter top towards of on side, incremental steps get term

Ken Newman

remarks initiatives, easiest now? [ph]? to primary the the in you your in integration to the bang you three force where the margins goals of what’s now management, – with rank for you more of right fruit pick started if Yes. then, where Dyna, terms buck is call capital accelerating had three to effective choose, the priority working And had right those biggest strengthening those David, off lastly And Arcadia, in and prepared the the for me,

David Aldous

both and already side, to We Obviously, pricing and high The aluminum raw relatively Dyna operational Dyna prices up this side Arcadia we’re Mike. think, highlighted mix in, add don’t on the the stable for me side. think is new see pound if Mike got at you Arcadia Well, I could solutions efficiencies, on the product products, on on material has start, think big the but we’ve working you think premium $X.XX margin, a We going happened. let as us soon. I Can by and they’re be wrong, anytime carrot that point. we products, will.

margins get so to think And back and is opportunity that to capacity. historical incrementally business there we increased the

Ken Newman

one the just of those anything fourth kind about to what that’s a how think been goals, you’re there that is here sorry, term, capacity? achieve I’m these I but anything told? here. here been the longer always in is know over we’ve objective I have the So to you I quarter incremental When incremental relative clarification mean, quicker those more there changing on relative spending

Mike Kuta

from million it our There’s in CapEx in that guidance, to to to run going then a higher already – in call you’ll covered nothing Ken, be that to QX we we’re rate in fact, build QX sub and not from have we’re SG&A that’s going level, an you’re standpoint question asking a you but or to be the a need our guidance. that’s see QX. a SG&A sub expect XX If

– that’s slug existing these not just on there is in slug capital or our numbers. executing initiatives. there’s So isn’t not a this And SG&A

Ken Newman

Thanks. Understood.

Mike Kuta

Thank you.

David Aldous

Ken. you, Thank

Operator

you. Thank

question from coming Askeladden Samir Patel next Your Capital. from is

is line live. Your

Samir Patel

guys. had I just question the Mike, guidance. on clarifying SG&A Hey quick a

out said supposed it’s the to balance figure. for think excluding XX items. in be litigation XX, that the of included then million to going year, below you that it’s QX that’s to also in but head called I XX, but charges And one-time said of, you X So you

was, And so kind a be of wasn’t material difference. item, if that was would sure a one-time if it not I litigation as

So maybe you on could that? just provide a little clarification

Mike Kuta

thanks, time Samir. associated CEO. that – going calling one This saying is departure so the not I’m and is time. to the one of litigation some ongoing I’m Yes, we’re with departure costs restructuring costs. have What the

We million legal X about coming say, to right see down, over legal seven million. last that our And in it million coming I should litigation, that And were rate. rate years. run going down the call we’re see we several $X – around run so we decrease couple dollars. We at

it [ph] seeing because just we We’re QX in did VHT trial.

Samir Patel

Okay. And sense. That a is Arcadia, you relatively, there, continue [indiscernible] makes just want follow-up as that a I clarify SG&A as that to figure.

something think that is couple can support you grow that you think next the you grow of over you Or businesses? degree as to to needs years, do growth? even to some continue revenue to hold fixed figure the So

Mike Kuta

that’s full off a Yes, so half discussion point number that, And what a want off to a I and into would of percent transition we XX.X, in XX% would that a a of range. get say percent the point, XXXX, of I’d want of when sales. kind for operating spend. as of we leverage are XX looking is as the our I SG&A We take to get year say at more that sales what and SG&A

Samir Patel

Thanks sense. the Makes Okay. for color.

Mike Kuta

you. Thank

David Aldous

you, Thank Samir.

Operator

[Operator is question Instructions] Your next coming Stephen from Gengaro from Thank Stifel. you.

line is Your live.

Stephen Gengaro

from Thanks, Two gentlemen. me. more

any I’m in we could from working trying perspective, XXXX? give would a flow cash capital about helpful? of guidance think first components think should how modeling you us and free be The the to about

Mike Kuta

Yes.

items, exiting in I getting maybe we way want without into to So our that that is to about goals XXXX range Xx X.XXx XXXX. and be the the think line

cash million so probably XX operations in is And from to that – XX means we’re generating range. that what million XX million that

guidance million. our XX of see CapEx You

cash So call million. – flow that’s of that’s it probably free $XX

million, be of and would that distributions partner the in in the principal call then rest XX debt, against XX in that X.XXx. And JV have Xx payments and XX you gets to We put XX us prepayments. which it

it I terms goals. cash just in flow, talk cash flow more broadly would about of So free our

Stephen Gengaro

guys the way And Thanks. if what but of other you it not the IP do DMC’s shift the one, on on continuing the is cost this, thinking in lawsuits? sure great. Okay, new maybe analysis is you versus viewing basically lawsuits I’m that? How And there the how way infringement leadership? I’ll benefit any with and address are ask you the can IRR think for about it these about

David Aldous

and market evolution continue question. mini leaders, the that, innovation clearly a new to kind of to Great the and We the in have perforating as leadership how of we’re Thanks, done. And product gets strategy. to continue Stephen. being revolution products invest going in lead

expect a lead investment, want we intellectual in in. Without need space to continue to So lead we protect to a our and continued that’s property. to

I with more we we’re maybe and pursue So that litigation that I think a think need litigation, on appropriate as trade going patents occasion, with to going little secrets discretionary and the and we’ll do discrete forward. see on to be but

the as and expect a do spend We coming we see on. the for continue to But at of that. the There result will to our technology to look down fight down. come that need of elements we we continue that to are key horizon, as litigate

Stephen Gengaro

that’s No, I color. appreciate it. Great. good

Operator

session. Thank Please concludes remarks. our hand back to go That David I’ll for now Aldous closing conference the ahead. you. Q&A

David Aldous

us momentum and perforating to capability, businesses its leader growth have you maintain forward. thank industry, on improve the Thank with considerable of DMC’s the to capacity, the the has strategy and products, profitability. Geoff. XXXX today’s the today thanks DynaEnergetics, you, call. and Matthew. started And established And in clear path for its you all the joining technology a

bookings Arcadia investing and in portfolio, build growth. should and pickup profitability NobelClad’s products application long-range and an that investments led significant are improve in capacity outlook. encouraging broad model development systems enable compelling and a have and to we long-term a the business and product in

take end you. employees to in their and our returns of shareholders improvements shareholders. work care. hard and our DMC continued to acknowledge DMC. we is and for believe of Given businesses their strength positioned want Thank Stay and our safe I our for well dedication markets, for the thank support deliver

Operator

event. Thank today’s everyone. concludes you, This

have at for Thank you may wonderful time, a day. your participation. and this You disconnect

DMC Global (BOOM) 23 Feb 232022 Q4 Earnings call transcript