DMC (US:BOOM)2021-02-21 16:00Part I Business DMC Global operates two main segments, DynaEnergetics and NobelClad, serving oil & gas and industrial processing markets - DMC Global operates as a diversified holding company with two primary segments: DynaEnergetics, serving the oil and gas market, and NobelClad, serving industrial processing and transportation markets14 - The company's strategy is to acquire and support well-run businesses, providing long-term capital and resources while fostering local innovation over centralized control15 DynaEnergetics Segment DynaEnergetics designs and sells perforating systems for the oil and gas industry, tied to exploration and production activity DynaEnergetics Sales Contribution | Year | Contribution to Consolidated Net Sales | | :--- | :--- | | 2020 | 64% | | 2019 | 78% | | 2018 | 73% | - DynaEnergetics focuses on advanced, safer perforating products like the IS2™ Intrinsically Safe Initiating Systems and the factory-assembled DS DynaStage systems, which improve well-site efficiency and safety2028 - In 2020, the segment expanded its product line with new systems for re-frac (DS Echo™), oriented perforating (DS Gravity™), and large entry holes (DS LoneStar™), as well as setting and release tools (DS MicroSet™, DS Liberator™), expanding its addressable market by an estimated 20%2934 - Research and development expenses for DynaEnergetics were $6.3 million in 2020, down from $7.1 million in 2019, focusing on new technology and products44 NobelClad Segment NobelClad specializes in explosion-welded clad metal plates for heavy industrial equipment in cyclical markets NobelClad Sales Contribution | Year | Contribution to Consolidated Net Sales | | :--- | :--- | | 2020 | 36% | | 2019 | 22% | | 2018 | 27% | - NobelClad's primary technology is explosion welding, a versatile process for joining dissimilar metals like titanium-steel or aluminum-steel, creating a bond stronger than the parent metals4547 - The main end-use markets are oil & gas and chemical/petrochemical, which made up approximately 60% of NobelClad's sales in 2020. Other key markets include alternative energy, shipbuilding, and power generation484952 - NobelClad manufactures a majority of its own explosives from standard raw materials, which it believes allows for higher quality and lower cost67 Human Capital DMC Global employed 531 individuals as of December 31, 2020, prioritizing health, safety, and diversity initiatives - As of December 31, 2020, the company employed 531 permanent and part-time employees, with 320 in the U.S. and 211 internationally. None of the manufacturing employees are unionized87 - The company prioritizes employee health and safety, with an OH&S management system aligned with ISO 45001:2018. Specific measures were taken to ensure employee safety during the COVID-19 pandemic89 - DMC plans to develop and adopt a formal diversity and inclusion program in 2021, building on its commitment to a diverse workforce92 Foreign and Domestic Operations and Export Sales DMC Global operates globally with manufacturing in the U.S., Germany, and Canada, experiencing decreased U.S. sales in 2020 Net Sales by Geographic Location (in thousands) | Region | 2020 (in thousands) | 2019 (in thousands) | 2018 (in thousands) | | :--- | :--- | :--- | :--- | | United States | $149,214 | $309,826 | $221,847 | | Canada | $10,428 | $17,688 | $30,126 | | India | $7,236 | $1,831 | $4,291 | | Germany | $5,704 | $4,900 | $4,067 | | China | $5,390 | $28 | $12,503 | | Rest of the world | $45,285 | $63,177 | $54,185 | | Total Net Sales | $229,161 | $397,550 | $326,429 | Risk Factors The company faces significant risks from cyclical markets, volatile oil/gas, COVID-19, supply chain, and regulatory compliance - Demand for DynaEnergetics' products is substantially dependent on the volatile expenditures of the oil and gas industry, which are influenced by oil and gas prices107108 - NobelClad's business is dependent on sales to a limited number of customers in cyclical heavy industries (e.g., oil and gas, chemicals, power generation) and is affected by metal prices125126 - The COVID-19 pandemic has had, and is likely to continue to have, a material adverse effect on the company's financial condition due to reduced economic activity, low oil prices, and supply chain disruptions135138 - The use of explosives in manufacturing processes subjects the company to extensive environmental, health, and safety regulations. Accidents could lead to significant liabilities and operational disruptions177179 - The company's operations are subject to risks from tariffs, such as the U.S. tariffs on steel and aluminum, which have increased costs and may lead to further trade conflicts156157 Unresolved Staff Comments The company reports that there are no unresolved staff comments - None201 Properties DMC's corporate headquarters are leased in Colorado, with DynaEnergetics and NobelClad operating owned and leased facilities across the U.S., Germany, and Canada - DynaEnergetics owns its key manufacturing and assembly sites in Blum and Whitney, Texas, and leases its main European manufacturing site in Troisdorf, Germany204206 - NobelClad owns its principal U.S. manufacturing facility in Mount Braddock, Pennsylvania, but leases its primary clad plate shooting site in Dunbar, Pennsylvania. It also owns a manufacturing site in Liebenscheid, Germany and a shooting site in Dillenburg, Germany209210211 Legal Proceedings Legal proceedings information is detailed in Note 9 of the Consolidated Financial Statements, with no material adverse effects expected - Information regarding legal proceedings is detailed in Note 9 to the Consolidated Financial Statements214 Mine Safety Disclosures The company's Coolspring property is subject to MSHA regulations, with no reportable mine safety violations or fatalities in 2020 - During the year ended December 31, 2020, the company had no reportable mine safety violations, orders, citations, or related events215 Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities DMC's common stock trades on Nasdaq under "BOOM"; the company purchased 42,957 shares in Q4 2020 and suspended its dividend - The company's common stock is traded on The Nasdaq Global Select Market under the symbol "BOOM"218 Issuer Purchases of Equity Securities (Q4 2020) | Period | Total Shares Purchased | Average Price Paid per Share ($) | | :--- | :--- | :--- | | Oct 2020 | 214 | $32.94 | | Nov 2020 | 23,303 | $39.92 | | Dec 2020 | 19,440 | $45.71 | | Total | 42,957 | $42.50 | - The Board of Directors suspended the quarterly dividend in April 2020 to preserve liquidity amid the COVID-19 pandemic, and there is no assurance it will be reinstated201 Selected Financial Data Selected financial data shows a significant decline in 2020, with net sales falling to $229.2 million and a net loss of $1.4 million Selected Financial Data (in thousands) | Metric | 2020 (in thousands) | 2019 (in thousands) | 2018 (in thousands) | | :--- | :--- | :--- | :--- | | Net sales | $229,161 | $397,550 | $326,429 | | Gross profit | $56,853 | $144,923 | $110,695 | | Operating (loss) income | $(996) | $58,425 | $37,424 | | Net (loss) income | $(1,412) | $34,041 | $30,473 | | Diluted (loss) income per share | $(0.10) | $2.28 | $2.04 | | Total assets | $279,645 | $277,421 | $240,418 | | Long-term debt | $11,264 | $14,272 | $17,984 | Management's Discussion and Analysis of Financial Condition and Results of Operations DMC's 2020 performance was severely impacted by COVID-19, with a 42% sales drop to $229.2 million, primarily in DynaEnergetics, offset by cost-containment Consolidated Results of Operations Consolidated net sales for 2020 decreased by 42% to $229.2 million, resulting in a net loss of $1.4 million and an 80% decline in Adjusted EBITDA Consolidated Results of Operations (2020 vs. 2019, in thousands) | Metric | 2020 (in thousands) | 2019 (in thousands) | $ Change (in thousands) | % Change | | :--- | :--- | :--- | :--- | :--- | | Net sales | $229,161 | $397,550 | $(168,389) | (42)% | | Gross profit | $56,853 | $144,923 | $(88,070) | (61)% | | Gross profit % | 24.8% | 36.5% | - | - | | Operating (loss) income | $(996) | $58,425 | $(59,421) | (102)% | | Net (loss) income | $(1,412) | $34,041 | $(35,453) | (104)% | | Adjusted EBITDA | $19,147 | $93,753 | $(74,606) | (80)% | - Selling, general, and administrative (SG&A) expenses decreased by $12.4 million year-over-year due to cost containment actions, including reduced spending on outside services, incentive compensation, and travel237259260 Reconciliation of Net (Loss) Income to Adjusted EBITDA (in thousands) | Line Item | 2020 (in thousands) | 2019 (in thousands) | | :--- | :--- | :--- | | Net (loss) income | $(1,412) | $34,041 | | Interest expense, net | $731 | $1,554 | | Income tax (benefit) provision | $(548) | $22,661 | | Depreciation & Amortization | $11,081 | $9,860 | | EBITDA | $9,852 | $68,116 | | Restructuring & Impairments | $3,387 | $19,503 | | Stock-based compensation | $5,675 | $5,204 | | Other adjustments | $233 | $800 | | Adjusted EBITDA | $19,147 | $93,753 | Business Segment Financial Information DynaEnergetics sales fell 53% to $146.4 million with operating income down 91%, while NobelClad sales decreased only 5% with stable operating income DynaEnergetics Segment Performance (2020 vs. 2019, in thousands) | Metric | 2020 (in thousands) | 2019 (in thousands) | % Change | | :--- | :--- | :--- | :--- | | Net sales | $146,395 | $310,424 | (53)% | | Gross profit | $38,072 | $122,703 | (69)% | | Gross profit % | 26.0% | 39.5% | - | | Operating income | $6,150 | $68,781 | (91)% | | Adjusted EBITDA | $16,335 | $94,541 | (83)% | NobelClad Segment Performance (2020 vs. 2019, in thousands) | Metric | 2020 (in thousands) | 2019 (in thousands) | % Change | | :--- | :--- | :--- | :--- | | Net sales | $82,766 | $87,126 | (5)% | | Gross profit | $19,433 | $22,840 | (15)% | | Gross profit % | 23.5% | 26.2% | - | | Operating income | $6,886 | $7,193 | (4)% | | Adjusted EBITDA | $10,736 | $11,118 | (3)% | - NobelClad's order backlog increased 26% to $39.9 million at the end of 2020 from $31.7 million at the end of 2019, indicating positive future prospects234 Liquidity and Capital Resources DMC significantly strengthened liquidity in 2020 with $30.4 million operating cash flow, raising $25.7 million via ATM, ending with $53.9 million cash - The company improved its net cash position from $6.1 million at year-end 2019 to $42.7 million at year-end 2020 through cost-containment actions and capital raising237 - In October 2020, the company commenced an at-the-market (ATM) equity program, selling 608,360 shares for net proceeds of $25.7 million in Q4 2020245291 - The company amended its credit facility in June 2020 to waive the debt service coverage ratio for three quarters and add a minimum liquidity covenant, enhancing financial flexibility290299 Contractual Obligations as of Dec 31, 2020 (in thousands) | Obligation Type | Less than 1 Year (in thousands) | 1-3 Years (in thousands) | 3-5 Years (in thousands) | More than 5 Years (in thousands) | Total (in thousands) | | :--- | :--- | :--- | :--- | :--- | :--- | | Credit facility | $3,125 | $8,625 | $0 | $0 | $11,750 | | Operating lease obligations | $1,741 | $3,805 | $3,351 | $5,200 | $14,097 | | Purchase obligations | $22,653 | $0 | $0 | $0 | $22,653 | | Total | $27,519 | $12,430 | $3,351 | $5,200 | $48,500 | Critical Accounting Policies and Estimates Management identifies revenue recognition, asset impairments, intangible assets, and income taxes as critical accounting policies requiring significant judgment - The most critical accounting policies involve significant management judgment and estimates in the areas of revenue recognition, asset impairments, intangible assets, and income taxes318 - Revenue is recognized at a point in time when control of the goods is transferred to the customer, based on the relevant Incoterms325327 - In 2020, the company recorded asset impairment charges on certain manufacturing assets in the DynaEnergetics segment due to the downturn in demand caused by the COVID-19 pandemic333 Quantitative and Qualitative Disclosures about Market Risk The company is exposed to market risks from foreign currency fluctuations, primarily the Euro, and variable interest rates, using forward contracts - The company's primary foreign currency risk exposure is the Euro. Sales in non-U.S. dollar currencies accounted for 17% of total sales in 2020339 - The company uses foreign currency forward contracts to offset exchange rate fluctuations on certain asset and liability positions. The notional amount of these contracts was $2.1 million at year-end 2020, down from $22.9 million at year-end 2019340 - All of the company's debt at year-end 2020 was at variable interest rates. A 1% change in average interest rates would have impacted 2020 interest expense by $146,000340 Financial Statements and Supplementary Data This section contains the company's audited consolidated financial statements for 2020, detailing a net loss of $1.4 million on $229.2 million revenue Report of Independent Registered Public Accounting Firm Ernst & Young LLP issued an unqualified opinion on DMC Global's 2020 consolidated financial statements and internal controls, identifying DynaEnergetics' inventory valuation as a critical audit matter - The auditor, Ernst & Young LLP, issued an unqualified (clean) opinion on both the financial statements and the company's internal control over financial reporting346347 - A critical audit matter was identified concerning the valuation of DynaEnergetics' finished goods inventory, specifically the estimates for excess and obsolete inventory, which are sensitive to future demand forecasts350352 Consolidated Financial Statements The 2020 consolidated financial statements show a net loss of $1.4 million on $229.2 million revenue, with $30.4 million operating cash flow Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2020 (in thousands) | Dec 31, 2019 (in thousands) | | :--- | :--- | :--- | | Cash & Marketable Securities | $53,923 | $20,353 | | Accounts Receivable, net | $31,366 | $60,855 | | Inventories | $52,573 | $53,728 | | Total Current Assets | $143,310 | $144,353 | | Property, Plant & Equipment, net | $109,411 | $108,234 | | Total Assets | $279,645 | $277,421 | | Accounts Payable | $17,574 | $34,758 | | Total Current Liabilities | $47,108 | $71,423 | | Long-term Debt | $8,139 | $11,147 | | Total Liabilities | $82,731 | $105,280 | | Total Stockholders' Equity | $196,914 | $172,141 | Consolidated Statement of Operations Highlights (in thousands) | Account | 2020 (in thousands) | 2019 (in thousands) | 2018 (in thousands) | | :--- | :--- | :--- | :--- | | Net sales | $229,161 | $397,550 | $326,429 | | Gross profit | $56,853 | $144,923 | $110,695 | | Operating (loss) income | $(996) | $58,425 | $37,424 | | Net (loss) income | $(1,412) | $34,041 | $30,473 | Consolidated Statement of Cash Flows Highlights (in thousands) | Cash Flow Activity | 2020 (in thousands) | 2019 (in thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $30,362 | $64,594 | | Net cash used in investing activities | $(39,557) | $(25,947) | | Net cash provided by (used in) financing activities | $17,317 | $(30,562) | | Net increase in cash | $7,834 | $6,978 | Notes to Consolidated Financial Statements The notes provide detailed disclosures on accounting policies, debt, stock-based compensation, income taxes, segment performance, and 2020 restructuring activities - The company adopted a new credit loss standard on Jan 1, 2020, resulting in a $50 thousand adjustment to retained earnings. The allowance for credit losses increased from $1.0 million to $2.6 million during 2020, primarily due to increased provisions in the DynaEnergetics segment378382 - The company maintains a $50 million syndicated revolving credit facility and a term loan (Capex Facility), with $11.8 million outstanding on the Capex Facility at year-end 2020. The company was in compliance with all covenants438444 - In 2020, the company incurred $3.4 million in restructuring charges, primarily related to severance and asset impairments at DynaEnergetics due to the COVID-19 pandemic's impact502503510 Quarterly Financial Data 2020 (Unaudited, in thousands) | Quarter | Net Sales (in thousands) | Gross Profit (in thousands) | Net Income (Loss) (in thousands) | | :--- | :--- | :--- | :--- | | Q1 | $73,564 | $24,470 | $4,155 | | Q2 | $43,203 | $6,604 | $(5,648) | | Q3 | $55,281 | $13,593 | $1,008 | | Q4 | $57,113 | $12,186 | $(927) | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on any accounting or financial disclosure matters for 2020 - There were no changes in or disagreements with accountants on accounting and financial disclosure515 Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2020, with an unqualified auditor opinion - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of December 31, 2020516 - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2020521 - The independent registered public accounting firm, Ernst & Young LLP, also issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2020529 Other Information This section is not applicable - Not applicable537 Part III Directors, Executive Officers and Corporate Governance Information for this item is incorporated by reference from the company's 2021 Proxy Statement - Information is incorporated by reference to the Proxy Statement for the 2021 Annual Meeting of Stockholders541 Executive Compensation Information for this item is incorporated by reference from the company's 2021 Proxy Statement - Information is incorporated by reference to the Proxy Statement for the 2021 Annual Meeting of Stockholders542 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information for this item is incorporated by reference from the company's 2021 Proxy Statement - Information is incorporated by reference to the Proxy Statement for the 2021 Annual Meeting of Stockholders543 Certain Relationships and Related Transactions, and Director Independence Information for this item is incorporated by reference from the company's 2021 Proxy Statement - Information is incorporated by reference to the Proxy Statement for the 2021 Annual Meeting of Stockholders544 Principal Accounting Fees and Services Information for this item is incorporated by reference from the company's 2021 Proxy Statement - Information is incorporated by reference to the Proxy Statement for the 2021 Annual Meeting of Stockholders545 Part IV Exhibits and Financial Statement Schedules This item lists all exhibits filed with the annual report, including key corporate documents, material contracts, certifications, and financial schedules - Lists all exhibits filed with the Form 10-K, including material contracts, incentive plans, and certifications549550 - Includes Schedule II(a), which details the activity in the allowance for doubtful accounts548562