DMC (BOOM) - 2023 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Consolidated sales for the third quarter were $172 million, flat compared to the previous year, and below prior forecasts [84] - Adjusted net income attributable to DMC was$ 10 million, with adjusted EPS of $0.50, up over 40% year-over-year [73] - Consolidated adjusted EBITDA was$ 25 million, or 14.3% of sales, which was within the forecasted range despite lower-than-expected sales [86] - Free cash flow for the quarter was $22 million, the highest quarterly level since 2019, up from$ 17 million in the same quarter last year [111] Business Line Data and Key Metrics Changes - Arcadia's sales were $72 million, down 11% year-over-year, impacted by pricing pressure and operational slowdown due to ERP transition [3] - NobelClad's sales improved 18% to$ 28 million, driven by strong demand for pressure vessel plates and specialized transition joints [4] - Dyna reported sales of $73 million, up 4% year-over-year but down 14% sequentially, affected by customer project delays [76] Market Data and Key Metrics Changes - The North American oil and gas market is expected to see continued consolidation, focusing on safety, technology, and efficiency [87] - Dyna anticipates maintaining its market share in North America, although overall activity levels are expected to remain soft due to year-end seasonality [31] Company Strategy and Development Direction - The company aims to position each business to deliver adjusted EBITDA margins of 20% or greater, with ongoing operational enhancements and investments [106] - Arcadia is implementing additional paint capacity and a new ERP system to drive long-term improvements in sales and profitability [72] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the strengths of their differentiated manufacturing businesses and prospects for profitable long-term growth [6] - The company expects a stable pricing environment going into 2024, with initiatives in place to drive margins [40][42] Other Important Information - Consolidated gross margin for the third quarter was 30.6%, up 110 basis points from the previous year, due to a favorable project mix at NobelClad [77] - SG&A expenses for the third quarter were$ 29 million, down from 17.5% to 16.7% of sales, primarily due to lower litigation expenses at Dyna [109] Q&A Session Summary Question: How does the commercial interior business compare with other businesses? - Management noted that the commercial interior business is currently experiencing a slowdown, while other segments are performing better [13][34] Question: What are the expectations for pricing and margins in Dyna and Arcadia going into 2024? - Management indicated that they expect pricing to stabilize and are implementing initiatives to drive margins, focusing on EBITDA margins rather than gross margins [40][42] Question: Can you elaborate on capital allocation and free cash flow expectations? - The company plans to continue deleveraging while reinvesting in the business, with expectations for strong free cash flow generation going forward [46][57] Question: What impact is the new ERP system expected to have? - The ERP system is expected to improve controls and visibility into data, enhancing inventory management rather than directly adding capacity [48][49] Question: How is the customer mix evolving? - Management noted a shift from a heavier private customer mix to a more balanced approach, aligning with leading end users and service companies [51][62]