Earnings call transcript Q1 2023

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Operator

Greetings. Welcome to the DMC Global First Quarter Earnings Call. [Operator Instructions] Please note this conference is being recorded.

I will now turn the conference over to your host, Geoff High.

You may begin.

Geoff High

DMC's conference to welcome and first call. quarter Hello,

David Mike Walter. Kuta; today are Chief and Co-CEOs, Interim Eric Presenting and Aldous Financial Officer,

I'd to that filings that may like as in of estimates, everyone our during and assumptions uncertainties to call are that date this disclosed subject projections matters and SEC. include and based with are discussed statements the today's on risks our forward-looking remind are

those results subject update is that certain in to DMC differ statements. to from become forward-looking untrue to actual business Our because events. could assumes materially of risks anticipated that obligation forward-looking our subsequent cause no statements

replay Today's earnings be available today's our performance page quarter the presentation website release first at Investors conclusion the shortly and webcast a of call. our on at of of our available located this on presentation will are website after related A dmcglobal.com.

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

David Aldous

joining you call. us thank today's and afternoon for Good for

into of we momentum first of positive The well DMC $XXX delivered million macroeconomic as quarter continued carried a record sales as the end variety of profitability. concerns, improved XXXX XXXX. at Despite

businesses, performance top of by was for manufacturing demand innovative which developed Our by sequential differentiated three reported strong products solid margin and line our results the expansion. driven each

also first The year. the quarter the we many of of beginning strategic progress initiatives the on was marked by at laid out

and and financial demand. healthy free XX-year clear composite gaining cash improving our segment, as efficiencies. high products we DynaEnergetics, strength its And building metals towards our have capacity of are SG&A systems DynaStage of end to flow. at backlog use business is initiatives series and record order expense our perforating lower improved architectural well a our a benefiting Arcadia, At business operational products much momentum. its path flagship business sales and improved a NobelClad, and is expansion DMC, as from growing energy achieved markets increased integration

at Mike? look results performance, then a over guidance. Mike and our call to the our turn Eric first will for closer quarter I'll financial second review quarter and

Mike Kuta

Thanks David.

reflects the year-over-year encouraging businesses. resulted address and Western Arcadia shortened and delivered the quarter, indeed States. sequentially best at performance up its were while increase fourth Arcadia the principally higher on X% year-over-year. was volumes reported of sequential to Sales second each from The across markets an growth quarterly strong commercial many year versus in raw increases United holiday history. QX XX% the demand inflation start in materials. first to construction sales million, Arcadia's $XX price of quarter Southwestern the of our

construction, was healthy hospitality in Activity industrial particularly the sectors. medical, education and

We Arcadia also in direction January, capabilities. by business which is high-end appointed our of saw Chilcoff, Custom served its headway making efficiencies meaningful expand to efforts business. is Arcadia on the steady is operating strengthen Jamie the who market, residential President of Under the and in activity manufacturing

of increase we the phase ERP and first by expect future Arcadia's continued the complete, These by is implementation year. nearly we initiatives vital an growth encouraged end of painting to are The are capacity progress. the and to

watermark Dyna's The execution were sales market, oil operations well remain DynaEnergetics achievement our assembly well customers' and strong first perforating and where by DynaStage American core of sequentially up $XX at programs sales our versus million, gas reflects a active. year's as onshore for last This Dyna's for XXth strength growth North quarter First quarter. X% and market unconventional Germany and the the systems, quarter. very reached are employees. completion in Unit flagship high Dyna's outstanding consecutive which Texas the designed in XX% new demand as manufacturing reflects of

oriented manufacturing expansion for Two generation specialized also quarter encouraging sales. processes, more on first Dyna perforating field designs commercialize is year. its cases the streamlined collectively The this applications. strong was designed approximately margin efficient in during product for at introduction for demand Dyna in products concluded systems the $X next progress designed of XX% later these DynaStage SG&A quarter, premium systems making encouraging. two perforating are which their plans International trials expense. date and currently downhaul Dyna accounted for which business and to million have of results and been include initiatives, first quarter patent approximately to first accounted

significantly quarterly the the expect decline balance will costs year. during litigation of We

flat million, $XX down NobelClad quarter reported first and year-over-year. X% sales of sequentially

in a NobelClad's improved of in quarter and to strong ratio and elevated should in the up million. and energy beginning pursue bookings X.X order markets variety a NobelClad's the performance bookings business industrial downstream in opportunities sales proved and to in NobelClad's second quarterly Another $XX continues strong secondary activity book-to-bill petrochemical The its quarter. promising core step of markets. result Global to backlog remain

$X close SG&A and X.Xx, end $XX below of included debt-to-adjusted at our quarter. previously litigation DMC's It well approximately last stock million the million first quarter the accelerated call, We the leverage less an expense of X.Xx with said the to run million to and fourth related transition $XX from CEO first XXXX vesting. quarter. quarter we million. rate of at ratio of the as of ended is level approximately in down exit EBITDA in expense second SG&A quarter a costs as mentioned end year's than the now we or at that first appears Dyna In at we'll last $X X.Xx of expected

returns. that benefits in effort operating of deliver Across and DMC, efficiencies, improve strong the seeing advance to product and a our technology invest we're programs company-wide initiatives development

competitive and We earnings balance XXXX. the performance flow of of are improved cash drive further and during strengthen our confident the businesses programs advantages these will

Eric for review turn and second a results the first our look over Eric? to now financial guidance. call quarter I'll quarter of at a

Eric Walter

Mike. Thanks

improved all year-ago the Arcadia. up points margin versus Gross as which the margin basis first earlier, As margin X% up Consolidated businesses basis gains delivered year-over-year XXX XX%, quarter XXX more than quarter NobelClad sequentially DynaEnergetics million, noted from record XX% as and year's fourth compression $XXX experienced was sales at quarter first margin last of quarter. David expansion. versus DMC first and points consolidated was sequential at gross offset

Just was XXXX. year on margins as this believe placed will during reminder, XXXX the of the volatile during quarter. and continue prices, second second this a half and gross pressure to recover Arcadia's downward we for began a Arcadia's quarter, aluminum margin first during trend the

over First EBITDA the was attributable Inclusive consolidated adjusted quarter X% was million, $XX of DMC EBITDA up consolidated Arcadia year-over-year. non-controlling and sequentially adjusted interest, up million. XX% $XX to

quarter versus XX%, quarter. or points adjusted contracted of a attributable basis of the XXXX As first total which XX the improvement an an XX% compared basis expanded increase of with and to Arcadia $XX million, DMC. by reported XXXX, quarter. the sales, over fourth was EBITDA basis points prior-year EBITDA compared versus of points of XXX reflects margin adjusted basis of $X adjusted with percentage of points prior-year quarter Arcadia's XXX EBITDA quarter million but the XXX was first which first fourth

earlier, XXXX. Arcadia's the has during not of first recovery gross mentioned in the upward half returned first began an margin quite to As reported the yet levels quarter, but

versus litigation prior points EBITDA sales. Adjusted sequentially, of Dyna of points $XX included Dyna's the margin basis XX% adjusted the expanded or year. of EBITDA margin XX quarter sales, XXX adjusted reduced to XX% $X basis XXX reported EBITDA first XX basis declined XXX approximately a reported points. higher-margin sequentially but EBITDA points margin basis basis NobelClad which of year-over-year. or by by points adjusted million costs, mix-shift products and EBITDA quarter mentioned million patent results over improved first adjusted previously

per Consolidated share income negative $X.XX or diluted year's first adjusted net attributable first compared the XXXX DMC last with $X was per share. of quarter million loss $X.XX million to during diluted $X quarter of or

seasonality. prepayment lower compares negative million an cash cash free in of long-term as DMC the cash distributions for in payments of partner. million, the first $X quarter to first cash in associated conversion on included to quarter free the note to flow which principal acquisition XXXX. that quarter, It's our as flow first with the $X The debt was Arcadia and due flow During of joint additional our typically primarily of the DMC important year $X.X quarter free well generated Arcadia free flow of has venture with million debt used XXXX the

In with under $XX loan of cash and revolving available ended million we liquidity, our capacity quarter of the first of terms $XX million.

of and Our end debt-to-adjusted leverage the consecutive the which EBITDA covenant quarter, represents well X.XX. of was quarter X.XX sheet the fifth first the balance threshold at was ratio deleveraging the below of

of expected be last to guidance; turning range versus a our quarter-over-quarter. in million $XX million to million first the report second that in is million steady reported remain million expected the to the to sales activity range sales anticipate to Arcadia $XXX level, business $XX quarter. $XXX $XXX Now will At consolidated and the in million quarter. are relatively $XX a reported in residential markets We of versus commercial quarter

to million are $XX anticipated Dyna be $XX the million compared million in first the sales quarter. reported to to between $XX

we continues robust, will While the to demand believe flat quarter. activity America second be in be in North

$XX in million be our gross are during million range $XX NobelClad in margin XX% quarter. to margin the market reported XX% advancing will second sales of expansion the Consolidated with Our range expected a XX% versus million and first to quarter focus our of quarter. the the maintaining on first compared $XX in initiatives. expected share a is in the

while is less NobelClad's margin a gross will sequentially at expected improve project Arcadia, margins quarter likely be DynaEnergetics favorable by and both mix. Second impacted to

in SG&A $XX Second million versus to reported CEO excluding million transition $XX the the range quarter million, from is to quarter. first costs consolidated remaining expense expected $XX any

as will continue We rate to a expect decline sales. run our percentage SG&A of

$XX $XX $XX DMC EBITDA adjusted first be range to million in quarter a quarter. Second the in of expected million versus is attributable to to million

will is expenditures $XX to million, we million. expect to be quarter year while expected range second a million full $X CapEx Finally, $X in be capital of approximately

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

Operator

Capital. first Our question. Instructions] Gerry the Please your with line proceed [Operator Sweeney of with ROTH from question comes

Gerry Sweeney

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

David Aldous

Hi Gerry.

Mike Kuta

Hi Gerry.

Eric Walter

Hi Gerry.

Gerry Sweeney

want I you Dyna, DynaEnergetics. share. why second or of in obviously with up, picking carrying more want the it added up was QX. the fourth I the I like touched in frac with – But flat maybe spreads on start get – with wallet quarter-to-quarter second but customers, guidance taking units, in you've QX behind been think the to the of commentary half on units, previous quarter picking like were my little spreads of QX? at think in frac results or XXth a the with quarter, into it bit looked of upon sort look – sense on I Eric record that, particular where quarter guidance, and thoughts just to top record half over

Mike Kuta

an with see that expectation that is right in quarter and spreads We back frac third the quarters. of the Hey quarter this Mike. second flattening and level in fourth now the up Gerry, half overall see versus back we'll the in Yes. ramp first fairly year

Gerry Sweeney

second Do the you of ramp the mind driving the what's half? in expectation

Mike Kuta

I markets, up in back really a customers markets demand that our that's are by a end flatness with in step and what and think there's QX driven end it's expectation of an reporting the half. our

Gerry Sweeney

And XX% that but out that, in then higher confirm was to million Okay. know just was were I – expense change? litigation Dyna. of the in was those $X.X not included know expense you're bring I case. in court there previous to EBITDA Dyna, of quarters, that But top with also that costs quarter because stand effort backing down, you making big the litigation I have think to the a in of been costs those margins, on this correct, actual

Mike Kuta

Those on expect we Gerry, and nominal. be that Correct. basis. included go-forward fairly a were to

Gerry Sweeney

quarter? Fairly a million less $X like well nominal than

Mike Kuta

Yes.

Gerry Sweeney

sort that's assuming Got of that's – it. it let's and – XQ. Yes, driver start going I'm part with in of Perfect. to the

Eric Walter

That's right. Yes.

their So in XXX be of basis more the on downward first QX pressure little impact million $X roughly a would points quarter. the than

all have kind contained that and of cleaned of in up QX. we So

really Going pretty amount be forward it's should was Mike into standpoint to the as We of QX be minimis. de clean litigation going think spend and that quarter a mentioning. a from

Gerry Sweeney

to look levels as though it. maybe expected, some sort were inventory then and sales the does And much costs looks one, came held but than on want a felt obviously, in paint market. pricing the make the material raw down Arcadia, how we material raw you your maybe maybe sure engineering costs on bit even that least as some was ERP I correct. better Got at I adds year? or or potentially even two, I next to little But capacity of higher, of unit as process that into know

Mike Kuta

and volume a that guide is say to fairly fairly $XX $XX Yes. Gerry, I steady. QX have would all, million. guidance resilient first been correct We see that and your million our there, strong of price premise in

we terms ERP, visibility think to is to will come operational leaks the improve opportunities satellites industrial early provide with our I margin where this data and the which into inventory Opportunities In later system our engineering and or ERP price improve capacity to and and operations next from margins in year. more management, as year going around of well us there across see optimizing as efficiencies. play

the the capacity get ERP adding XX% margin improvement can think another as well making more an with on the advancements of engineering paint is XX% I of at end Arcadia. industrial year and our operational efficiency, of capacity capacity play. progress probably So by We're by our some out paint we to

Gerry Sweeney

next say just add to sort also units it. you're out that look Or of fair is XX% ability I this to sold could to of some you well? today, some let's it, at a point more Got as Is year? outsource there XX% an mean way at

David Aldous

probably David. to just to by of that, we out the expand year. Gerry, industrial beyond this is that We XX% get XX% and can end to that's work implement going there's of project hope the then engineering,

Gerry Sweeney

it. Got

in a Thanks appreciate I'll and nice lot guys. Okay. you back quarter. line. jump I

David Aldous

Thanks Gerry.

Operator

of Our the question Patrick with next your line comes question. Please Stifel. proceed with from Ouellette

Patrick Ouellette

for This the hello Gengaro. taking on Stephen Thanks everyone. time and answer is to Thanks, questions for Pat today. the

David Aldous

Pat. Hi

Patrick Ouellette

you of current business, alluded seeking last in If X.X the XQ. commercialization and you the ramping know could I and the pricing you to from sort your for additionally, specialty remarks in the mentioned these, of talk these margins of XQ guns trends versions to quarter perforating

on curious So this seeing you're what just front?

Mike Kuta

Yes.

So within margin we at orienting margins, us. field look the you year, gen We're of up still hit engineering systems current to for to for gen. next trials That's in industrial changes later upward I process ability that we some in XX% driven design next and think our which are those this for and the scheduled should now. our and the launch. more first is our by expect under But improvements that's When provide quarter, year. step throughout again, products, our plants, included

takes in stable to the and now. flat is pricing. market pricing So that so Pricing and perf relatively me right

Patrick Ouellette

or And expecting Thanks. you're quick key just follow-up. you to the the Great. and whether markets seeing Great. demand? end business a speaking a Would for mind shift then Arcadia workspace

David Aldous

commercial to number end-use got the we've projects. there. got No. Patrick, markets commercial of side that office interiors, side different a has number interiors, a We've in storefronts everything the residential, We've got markets. from got product of In we've high-end we're residential.

are Some things. those of those airports, health care, non-cyclical kinds of

are schools, institutional commercial. government as libraries, those typical dorms, are of Some them as offices that application, countercyclical, well

are those gamut cycle. which we're So some fact and robust that in [ph] we the of through cover be many which of helps of the and are applications markets, so some us countercyclical non-cyclical, resilient the

Patrick Ouellette

Great.

Okay.

any the of looking that whether demand what more impacting to is in end is markets? space I think those I'm of the work-from-home for shift key

Mike Kuta

folks see their certainly If for an commercial us. It's on our as offices. we more interiors downsize opportunities opportunity anything,

So anything, as the of that more on see the downside. than if upside opportunity we an

Patrick Ouellette

it for Okay. I'll Great. and me, that Thanks back. for clarifying turn

Operator

[Operator Instructions] Ken comes Capital question with the Our next Markets. Newman proceed line with of your from question. Please Keybanc

Ken Newman

Hey guys.

Mike Kuta

Hi Ken.

David Aldous

Hi Ken.

Ken Newman

right. All

you know Sorry quarter? Arcadia the missed I give hear be what what in in price also really strong expecting for the price any color would was to line mentioned I but you to It if top XQ? you're realization. did added for on helpful this, there

Mike Kuta

as has negative that essentially from has raw you relatively Pricing is bit to QX aluminum QX, there's materials that down, fairly volumes price up at We've probably of look a impact pricing QX come been QX plateaued. think mix chasing flat. versus a When I resilient.

Ken Newman

Okay.

the to Or a me else So higher function clarify, just square year-over-year margins business. that should aware on anything flat that of just gross pricing a I up there guess of that bit may a we maybe absorption? Is that just help to Is in the little a be be volume with coming down basis? is of? sequentially function

Mike Kuta

we're up, it's income and raw from those price Is through that We've raw materials chase higher statement. to now increased – not materials flushing yes, our absorption. necessarily costs

materials So inventory to income of where seven we're happened that in or are statement. peak early months mid-XXXX, our now flushing raw six through carrying

raw is are So flat, pricing down. but essentially costs material

Eric Walter

Ken, Yes, Eric. is this

Just to augment what Mike said.

at that look quarter another from we'll we improvement all get going you QX, through through QX aluminum moving and that when the fully majority to to So that's higher of expecting be cost burning we're that have, that. the of need to inventory

Ken Newman

Okay. a do margin Arcadia basis, through over visibility run on get And I gross kind the know normalized potential view that as now? you is place mean longer-term how granted? perspective, I then a rate maybe, the all that, once I you guess, for for of

Mike Kuta

everything pricing, After custom low-XXs our be norms this backlog to Yes. shipping residential business, for business. our and return in out our the Arcadia should rate material raw out settles the exit with historical in year more

Ken Newman

Got it.

time one on here; seeing industrials that earnings any what from you're other suppliers season others from you and much a essentially the inventories, getting and customers quick perspective heard there lead now seeing inventory. taking have your of we've of any color think lead less Or just better don't customers Do I any any throughout because chains signs in expectations times supply businesses? from Just are they need impacts? similar that getting is or as destocking are supply are chains better? right, inventory buffer follow-up

Mike Kuta

and with lot turn business in better. times smaller storefront, system lead a inventory But there's get We're the quick smaller customers. our supply of our project chains in seeing not

for up us don't eased a the as and chain but well. supply impact significant we there, see eased up So has certainly

Ken Newman

Appreciate it. Thanks.

Operator

turn over to Aldous David of session. reached closing have the end I'll the we back now remarks. for question-and-answer the call And

David Aldous

DMC made flow quarter today's businesses its by the call. strong the for improved prospects encouraged and progress our Thank participating optimistic about during continued in cash We're performance and are and you, again generation. free first for

not for be our accomplishments thank also and sincerely to thank dedication them possible for like contributions. their employees, customers of the without our would Our loyalty. would continued I to their want I

speaking forward second look care. many our during to with upcoming and you We after our quarter. Take of visits investor

Operator

time. today's for disconnect This your may you Thank this line your concludes participation. at and conference, you

DMC Global (BOOM) 4 May 232023 Q1 Earnings call transcript