DMC (US:BOOM)2024-02-24 14:56Financial Data and Key Metrics Changes - For 2023, the company achieved a free cash flow conversion of 40% to 45%, with a target to increase this to the low to mid-50% range in 2024 due to expected tailwinds from working capital adjustments [1] - Fourth quarter adjusted EBITDA attributable to DMC remained flat year-over-year at $20 million, while consolidated adjusted EBITDA was $23 million, representing 13.4% of sales, an increase of 60 basis points compared to the previous year [4][12] - The company ended the fourth quarter with cash and marketable securities of $44 million and a debt to adjusted EBITDA leverage ratio of 1.25, well below the covenant threshold of 3.0 [5] Business Line Data and Key Metrics Changes - DynaEnergetics reported a 28% increase in international sales year-over-year, while North American unit sales of the DynaStage system increased by 4% sequentially [3] - Arcadia experienced a 9% year-over-year sales decline due to lower aluminum prices, but its adjusted EBITDA rose by 29% and expanded 400 basis points as a percentage of sales [31][46] - NobelClad's sales increased by 33% year-over-year, with adjusted EBITDA margins around 25%, benefiting from a favorable project mix [47] Market Data and Key Metrics Changes - The North American market is expected to remain flattish, while the international market shows strong growth potential [2][62] - The company anticipates a soft start to the year in Arcadia's key markets, with expectations for improvement throughout 2024 [32][46] Company Strategy and Development Direction - The company is pursuing separate strategic alternatives for DynaEnergetics and NobelClad to enhance shareholder value while focusing on growth and profitability in Arcadia [47] - New premium product offerings are expected to support margin improvement, with Dyna ramping up production of the new Gravity 2.0 perforating system [29] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the international business, expecting significant growth, while North America is projected to be more stable [62] - The company noted that pricing pressures from aluminum costs and market consolidation have impacted margins, but automation and operational excellence initiatives are expected to drive improvements [56] Other Important Information - The fourth quarter SG&A expense was $27 million, down from 17.5% to 15.6% of sales, primarily due to lower litigation and IT consulting fees [48] - Adjusted net income attributable to DMC was $5 million, with adjusted EPS of $0.26, an 18% increase compared to the previous year [49] Q&A Session Summary Question: Free cash flow expectations and working capital benefits - Management indicated that free cash flow conversion is expected to improve beyond the first quarter, with working capital benefits anticipated [17] Question: Competitive landscape in the perforating business - Management acknowledged pricing pressure due to market consolidation but highlighted ongoing margin improvement initiatives [39][56] Question: Outlook for Arcadia's business - Management noted that while the first quarter is expected to be weaker, they anticipate improvements in the second half of the year due to capacity expansions and organic growth efforts [40][51]