DMC (BOOM) - 2020 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements Unaudited statements show a significant performance decline in Q2 2020, with a 61% drop in net sales and a net loss of $5.6 million Condensed Consolidated Balance Sheets Total assets decreased to $252.0 million due to lower receivables, while liabilities also declined Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2020 (unaudited) | December 31, 2019 | | :--- | :--- | :--- | | Total Current Assets | $119,111 | $144,353 | | Accounts receivable, net | $33,684 | $60,855 | | Total Assets | $252,017 | $277,421 | | Total Current Liabilities | $49,891 | $71,423 | | Total Liabilities | $81,734 | $105,280 | | Total Stockholders' Equity | $170,283 | $172,141 | Condensed Consolidated Statements of Operations The company reported a Q2 2020 net loss of $5.6 million, driven by a 61% decrease in net sales Q2 2020 vs Q2 2019 Performance (in thousands, except per share data) | Metric | Q2 2020 | Q2 2019 | | :--- | :--- | :--- | | Net Sales | $43,203 | $110,954 | | Gross Profit | $6,604 | $42,073 | | Operating (Loss) Income | ($7,990) | $24,653 | | Net (Loss) Income | ($5,648) | $17,244 | | Diluted EPS | ($0.38) | $1.15 | Six Months 2020 vs 2019 Performance (in thousands, except per share data) | Metric | Six Months 2020 | Six Months 2019 | | :--- | :--- | :--- | | Net Sales | $116,766 | $211,089 | | Gross Profit | $31,070 | $78,478 | | Operating (Loss) Income | ($1,645) | $45,105 | | Net (Loss) Income | ($1,493) | $32,414 | | Diluted EPS | ($0.10) | $2.17 | Condensed Consolidated Statements of Cash Flows Operating cash flow decreased to $11.1 million for the six-month period, resulting in a net cash decrease Cash Flow Summary (in thousands) | Activity | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $11,128 | $23,302 | | Net cash used in investing activities | ($7,462) | ($15,025) | | Net cash used in financing activities | ($6,200) | ($6,757) | | Net (decrease) in cash | ($3,105) | $1,506 | | Cash and cash equivalents, end of period | $17,248 | $14,881 | Notes to Condensed Consolidated Financial Statements Notes detail accounting policies, segment performance, and $2.0 million in restructuring charges - Adopted a new accounting standard for credit losses on January 1, 2020, which did not have a material impact on the financial statements upon adoption[33] - Increased the allowance for credit losses by $3.3 million during the first six months of 2020 due to the COVID-19 pandemic's impact on the oil and gas industry[35][37] - In Q2 2020, DynaEnergetics recorded asset impairment charges of $1.2 million on manufacturing assets and continued efforts to sell its Tyumen, Siberia facility[104] Restructuring & Impairment Charges (Q2 2020, in thousands) | Segment | Severance | Asset Impairment | Other Costs | Total | | :--- | :--- | :--- | :--- | :--- | | NobelClad | $191 | $0 | $4 | $195 | | DynaEnergetics | $121 | $1,181 | $549 | $1,851 | | Total | $312 | $1,181 | $553 | $2,046 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the 61% sales decline due to COVID-19's impact on oil and gas demand and responsive cost-cutting measures Overview and Outlook The company outlines the severe impact on its DynaEnergetics segment and its strategic cost-cutting and liquidity actions - Consolidated sales decreased 61% versus Q2 2019, primarily due to a plunge in global crude oil prices and energy demand from the COVID-19 pandemic, which negatively affected DynaEnergetics[120] - Implemented cost-containment actions including a 32% workforce reduction, a 25% cut in SG&A expenses, a 50% reduction in the capital expenditures budget, and suspension of the quarterly dividend[122] - Amended its credit facility to waive the debt service coverage ratio for the quarters ending Sep 30, 2020, Dec 31, 2020, and Mar 31, 2021 to preserve liquidity[122] - NobelClad's backlog increased to $42.9 million at June 30, 2020, from $31.7 million at December 31, 2019[117] Consolidated Results of Operations Consolidated Q2 sales fell 61% to $43.2 million, leading to an operating loss of $8.0 million Consolidated Results - Q2 2020 vs Q2 2019 (in thousands) | Metric | Q2 2020 | Q2 2019 | Change (%) | | :--- | :--- | :--- | :--- | | Net Sales | $43,203 | $110,954 | (61)% | | Gross Profit | $6,604 | $42,073 | (84)% | | Operating (Loss) Income | ($7,990) | $24,653 | (132)% | | Net (Loss) Income | ($5,648) | $17,244 | (133)% | | Adjusted EBITDA | ($1,786) | $29,026 | (106)% | Consolidated Results - H1 2020 vs H1 2019 (in thousands) | Metric | H1 2020 | H1 2019 | Change (%) | | :--- | :--- | :--- | :--- | | Net Sales | $116,766 | $211,089 | (45)% | | Gross Profit | $31,070 | $78,478 | (60)% | | Operating (Loss) Income | ($1,645) | $45,105 | (104)% | | Net (Loss) Income | ($1,493) | $32,414 | (105)% | | Adjusted EBITDA | $9,499 | $52,923 | (82)% | Business Segment Financial Information DynaEnergetics' sales plummeted 73%, while NobelClad's sales saw a smaller 12% decline DynaEnergetics Results - Q2 2020 vs Q2 2019 (in thousands) | Metric | Q2 2020 | Q2 2019 | Change (%) | | :--- | :--- | :--- | :--- | | Net Sales | $23,643 | $88,628 | (73)% | | Gross Profit | $1,967 | $36,341 | (95)% | | Operating (Loss) Income | ($6,895) | $26,813 | (126)% | | Adjusted EBITDA | ($3,272) | $28,532 | (111)% | NobelClad Results - Q2 2020 vs Q2 2019 (in thousands) | Metric | Q2 2020 | Q2 2019 | Change (%) | | :--- | :--- | :--- | :--- | | Net Sales | $19,560 | $22,326 | (12)% | | Gross Profit | $4,802 | $5,884 | (18)% | | Operating Income | $1,985 | $1,923 | 3% | | Adjusted EBITDA | $3,061 | $3,082 | (1)% | Liquidity and Capital Resources The company maintained liquidity through cash reserves, an undrawn credit facility, and a suspended dividend - Net cash provided by operating activities was $11.1 million for the first six months of 2020, down from $23.3 million in the prior-year period[200] - On June 25, 2020, amended its credit facility to waive the debt service coverage ratio for Q3'20, Q4'20, and Q1'21, and added a minimum liquidity covenant of $10 million for those quarters[190][191] - As of June 30, 2020, the company had $50 million available under its revolving credit facility and was in compliance with all financial covenants[193][196] - The Board of Directors suspended the quarterly dividend indefinitely on April 23, 2020, due to economic uncertainty from the COVID-19 pandemic[204] Item 3. Quantitative and Qualitative Disclosure about Market Risk No material changes were reported in market risk exposures for currency and interest rates - There were no material changes in market risk for changes in foreign currency exchange rates and interest rates from the information provided in the company's Annual Report on Form 10-K for the year ended December 31, 2019[206] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective with no material changes - The CEO and CFO evaluated the company's disclosure controls and procedures and concluded they are effective as of June 30, 2020[207] - No changes occurred during the fiscal quarter that have materially affected, or are reasonably likely to materially affect, internal controls over financial reporting[209] PART II - OTHER INFORMATION Item 1. Legal Proceedings The company is not aware of any legal proceedings expected to have a material adverse effect - The company is not aware of any legal proceedings or claims that it believes will have a material adverse effect on its business, financial condition, or operating results[103][211] Item 1A. Risk Factors The COVID-19 pandemic is highlighted as a significant risk factor affecting demand, operations, and financial condition - A significant new risk factor is the adverse effect of pandemics, such as COVID-19, on the business, results of operations, financial condition, cash flows, and stock price[212] - The impacts of COVID-19 have reduced demand for oil and gas, which has significantly impacted demand for the company's products, pricing, and ability to collect receivables[214] - The extent of future impact from COVID-19 is highly uncertain and unpredictable, but may materially adversely affect the business and could be heightened by any resulting economic recession or depression[214] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company retained 1,988 shares of common stock to satisfy employee tax withholding obligations - In Q2 2020, the company retained shares of common stock to satisfy withholding tax obligations related to the vesting of restricted stock under its equity incentive plans[215] Share Purchases in Q2 2020 | Period | Total number of shares purchased | Average price paid per share | | :--- | :--- | :--- | | May 1 to May 31, 2020 | 1,988 | $25.21 | | Total | 1,988 | $25.21 | Item 4. Mine Safety Disclosures No mine safety violations, orders, or fatalities were reported for the quarter ended June 30, 2020 - During the quarter ended June 30, 2020, the company had no specified health and safety violations, orders, citations, or mining-related fatalities requiring disclosure under Section 1503(a) of the Dodd-Frank Act[221]