DMC (BOOM) - 2020 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1: Condensed Consolidated Financial Statements This section presents DMC Global Inc.'s unaudited condensed consolidated financial statements for the three and nine-month periods ended September 30, 2020, including key financial statements and notes Condensed Consolidated Balance Sheets The balance sheet shows a decrease in total assets and liabilities from year-end 2019 to September 30, 2020, with stockholders' equity remaining relatively stable Condensed Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | Sep 30, 2020 (unaudited) | Dec 31, 2019 | | :--- | :--- | :--- | | Total current assets | $125,817 | $144,353 | | Total assets | $259,283 | $277,421 | | Total current liabilities | $54,078 | $71,423 | | Total liabilities | $89,332 | $105,280 | | Total stockholders' equity | $169,951 | $172,141 | Condensed Consolidated Statements of Operations The company experienced a significant year-over-year decline in financial performance, with net sales and income falling sharply in Q3 2020 and a net loss for the nine-month period Statement of Operations Summary (in thousands, except per share data) | Metric | Q3 2020 | Q3 2019 | Nine Months 2020 | Nine Months 2019 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $55,281 | $100,094 | $172,048 | $311,183 | | Gross profit | $13,593 | $36,224 | $44,667 | $114,702 | | Operating income (loss) | $1,465 | $12,821 | $(178) | $57,926 | | Net income (loss) | $1,008 | $6,915 | $(485) | $39,329 | | Diluted EPS | $0.07 | $0.46 | $(0.03) | $2.64 | Condensed Consolidated Statements of Cash Flows Net cash provided by operating activities decreased for the nine months ended September 30, 2020, while cash used in investing and financing activities also saw reductions Cash Flow Summary (Nine months ended Sep 30, in thousands) | Cash Flow Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $21,354 | $35,096 | | Net cash used in investing activities | $(9,662) | $(21,119) | | Net cash used in financing activities | $(7,038) | $(14,960) | | Net increase (decrease) in cash | $4,251 | $(1,192) | | Cash and cash equivalents, end of period | $24,604 | $12,183 | Notes to Condensed Consolidated Financial Statements This section provides detailed explanations of the company's accounting policies, segment information, debt facilities, restructuring, and subsequent events - On January 1, 2020, the company adopted a new accounting standard for credit losses, which requires measuring expected credit losses based on historical experience, current conditions, and forecasts, and the adoption did not have a material impact on the company's financial position[34][35] - Due to the COVID-19 pandemic's impact on oil and gas demand, the company increased its expected loss rate for accounts receivable, recording provisions of $3.3 million during the first nine months of 2020[37] - The company's business is organized into two segments: DynaEnergetics (products for oil and gas well perforation) and NobelClad (explosion-welded clad metal plates)[93] - In response to declining demand, the company initiated restructuring, including workforce reductions and asset impairments at its DynaEnergetics facilities, resulting in charges of $3.3 million for the first nine months of 2020[111][112][117] - Subsequent to the quarter end, on October 22, 2020, the company commenced an at-the-market (ATM) equity program to sell up to $75 million in common stock[118] Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the severe impact of the COVID-19 pandemic on financial performance, outlining consolidated and segment results, cost-containment, and liquidity preservation efforts Overview and Outlook The company's two segments faced significant COVID-19 impacts, leading to substantial cost-containment actions, liquidity bolstering, and new product introductions, with varied demand outlooks - The company implemented significant cost-containment actions in Q2 2020, including a 32% workforce reduction, a 50% cut in capital expenditures, and suspension of the quarterly dividend[132] - To preserve liquidity, the company amended its credit facility to waive the debt service coverage ratio for three quarters and established an at-the-market (ATM) equity program to potentially raise up to $75 million[132][133] - DynaEnergetics introduced new products (DS Echo™, DS MicroSet™, DS Liberator™) to expand its addressable market by over 20%, targeting applications like re-frac and plug setting[134] - NobelClad's backlog increased to $42.6 million at September 30, 2020, from $31.7 million at year-end 2019, though some customers have delayed projects[127][136] Consolidated Results of Operations Consolidated net sales and gross profit declined significantly in Q3 2020 and for the nine-month period, leading to an operating loss and substantial drop in Adjusted EBITDA Consolidated Results - Q3 2020 vs Q3 2019 (in thousands) | Metric | Q3 2020 | Q3 2019 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Net sales | $55,281 | $100,094 | $(44,813) | (45)% | | Gross profit | $13,593 | $36,224 | $(22,631) | (62)% | | Operating income | $1,465 | $12,821 | $(11,356) | (89)% | | Net income | $1,008 | $6,915 | $(5,907) | (85)% | Adjusted EBITDA Reconciliation - Nine Months Ended Sep 30 (in thousands) | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Net (loss) income | $(485) | $39,329 | | EBITDA | $7,947 | $65,785 | | Adjusted EBITDA | $15,524 | $76,131 | Business Segment Financial Information DynaEnergetics' Q3 2020 sales and operating income significantly declined, while NobelClad saw a modest sales decrease but improved operating income due to project mix and cost control DynaEnergetics Segment Results - Q3 2020 vs Q3 2019 (in thousands) | Metric | Q3 2020 | Q3 2019 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Net sales | $34,201 | $77,356 | $(43,155) | (56)% | | Operating income | $2,171 | $14,911 | $(12,740) | (85)% | | Adjusted EBITDA | $4,170 | $23,193 | $(19,023) | (82)% | NobelClad Segment Results - Q3 2020 vs Q3 2019 (in thousands) | Metric | Q3 2020 | Q3 2019 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Net sales | $21,080 | $22,738 | $(1,658) | (7)% | | Operating income | $2,483 | $2,219 | $264 | 12% | | Adjusted EBITDA | $3,372 | $3,082 | $290 | 9% | Liquidity and Capital Resources The company strengthened its liquidity through cost-containment, working capital management, and reduced capital expenditures, maintaining an undrawn credit facility and securing covenant relief - The company improved its net cash position from $2.9 million at March 31, 2020, to $12.6 million at September 30, 2020[191] - As of September 30, 2020, the company had an available borrowing capacity of $50 million under its revolving credit facility[202] - A June 2020 credit facility amendment waived the debt service coverage ratio for three quarters and added a minimum liquidity covenant of $10 million[199][200] - The Board of Directors suspended the quarterly dividend indefinitely in April 2020 due to the uncertain economic outlook[213] Item 3: Quantitative and Qualitative Disclosure about Market Risk There were no material changes in the company's market risk exposures for foreign currency exchange rates and interest rates since the prior year-end report - There were no material changes in market risk related to foreign currency exchange rates and interest rates since the 2019 year-end report[215] Item 4: Controls and Procedures The CEO and CFO concluded that disclosure controls and procedures were effective, with no material changes to internal controls over financial reporting during the quarter - The CEO and CFO evaluated the company's disclosure controls and procedures and concluded they are effective as of September 30, 2020[217] - No changes occurred during the quarter that have materially affected or are reasonably likely to materially affect internal controls over financial reporting[218] PART II - OTHER INFORMATION Item 1: Legal Proceedings The company is not aware of any legal proceedings or claims expected to have a material adverse effect on its business, financial condition, or operating results - The company is not aware of any legal proceedings that would have a material adverse effect on its business[107][220] Item 1A: Risk Factors This section updates risk factors, emphasizing the material adverse effects of the COVID-19 pandemic on business, operations, supply chain, and financial condition - The primary updated risk factor is the adverse effect of the COVID-19 pandemic on the company's business, operations, financial condition, cash flows, and stock price[221] - Impacts from COVID-19 include reduced demand for oil and gas, downward pressure on prices, and potential disruptions to the workforce, supply chain, and customer payments[223] - The company warns that even after the pandemic subsides, it may experience adverse impacts from a resulting economic recession or depression, and market volatility could affect its stock price and access to capital[224] Item 2: Unregistered Sales of Equity Securities and Use of Proceeds During Q3 2020, the company retained common stock shares to satisfy employee tax withholding obligations related to restricted stock vesting Share Purchases in Q3 2020 | Period | Total number of shares purchased | Average price paid per share | | :--- | :--- | :--- | | July 1 to July 31, 2020 | 47 | $27.60 | | August 1 to August 31, 2020 | 1,163 | $35.97 | | September 1 to September 30, 2020 | 100,320 | $36.03 | | Total | 101,530 | $36.02 | - Share purchases were made to offset tax withholding obligations upon vesting of restricted stock and for participant elections in the Non-Qualified Deferred Compensation Plan[225][229] Item 4: Mine Safety Disclosures The company's Coolspring property reported no specified health and safety violations, orders, citations, or fatalities during Q3 2020 under MSHA regulations - During Q3 2020, the company had no reportable mine safety violations, orders, or fatalities under the Dodd-Frank Act[231]