DMC Global Inc. — 2018 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2018; filed February 21, 2019. Unless stated otherwise, dollar amounts are in millions. DMC operates DynaEnergetics, an oil-and-gas perforating products business, and NobelClad, an explosion-welded clad metals business.
Financial performance
| Metric | 2018 | 2017 |
|---|---|---|
| Revenue | $326.4 | $192.8 |
| Gross profit / margin | $110.7 / 33.9% | $59.4 / 30.8% |
| Operating income (loss) | $37.4 | ($12.3) |
| Net income (loss) | $30.5 | ($18.9) |
| Diluted EPS | $2.04 | ($1.31) |
| Adjusted EBITDA (non-GAAP) | $59.6 | $23.1 |
| Cash from operations | $27.6 | $6.7 |
| Cash and cash equivalents at year-end | $13.4 | $9.0 |
| Total debt, net of issuance costs | $41.4 | $18.0 |
| Total assets | $240.4 | $173.1 |
Capital expenditures were $45.1 million, primarily for the Blum, Texas expansion. Operating cash flow less capital expenditures was approximately negative $17.5 million. Net debt was $28.0 million, up from $9.0 million. The company reported $32.9 million of available borrowing capacity under its revolving facility and compliance with debt covenants.
Fourth quarter: Revenue was $90.3 million, gross profit $31.4 million, and net income $15.3 million, or $1.02 per diluted share. In fourth-quarter 2017, revenue was $54.5 million, gross profit $17.8 million, and net loss $2.0 million, or $0.13 per share.
Changes versus prior year
- Revenue grew 69%; DynaEnergetics revenue rose 96% to $237.4 million, while NobelClad revenue increased 24% to $89.0 million.
- DynaEnergetics’ growth reflected stronger North American unconventional well-completion activity, demand for advanced perforating systems, higher selling prices and volume. NobelClad benefited from three large capital-equipment projects and higher repair and maintenance volumes.
- Gross margin increased to 33.9% from 30.8%, supported by a greater sales mix from DynaEnergetics, pricing and product mix, and better absorption of fixed manufacturing costs.
- Results included an $8.0 million accrued U.S. Customs penalty related to anti-dumping/countervailing duties. The prior year included a $17.6 million NobelClad goodwill impairment and $4.3 million of restructuring costs; 2018 restructuring costs were $1.1 million.
Outlook, risks and unusual items
- Management forecast 2019 capital expenditures of $25–30 million, primarily to expand manufacturing capacity and capabilities in Blum. This is capex guidance; the filing does not provide clear revenue or earnings guidance.
- DynaEnergetics planned additional automated production capacity and reported successful early-2019 field trials of its DS Trinity system, with product versions planned for release during 2019. Management also continued to assess strategic alternatives for its Russia-based operations, which generated less than 2% of 2018 sales.
- Management cited the late-2018 decline in oil prices as a risk to customer spending and DynaEnergetics demand. Other key exposures include cyclical industrial end markets, customer and project concentration, raw-material costs and availability, tariffs, foreign exchange, and execution risks from expansion.
- The $8.0 million Customs penalty remained accrued at year-end. DMC had requested a waiver and expected a response by the end of first-quarter 2019; the outcome was unresolved in this filing.
- DMC paid $3.5 million of remaining accrued duties and interest during 2018. The GEODynamics patent disputes were globally settled in November 2018, with no negative financial impact reported.
- NobelClad completed its European production consolidation in Germany and closed its French manufacturing operations; a sale of the French plant was expected to close in first-quarter 2019. The Dillenburg shooting-site lease expires in 2021, and the company disclosed a related site-access risk.
- The 2018 income-tax provision was $4.1 million and included significant valuation-allowance releases; the realizability of deferred tax assets remains dependent on future taxable income. The auditor issued unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- Whether oilfield activity, pricing and demand for DynaEnergetics’ newer systems sustain the sharp 2018 growth, especially following the late-year oil-price decline.
- The resolution and ultimate cash cost, if any, of the $8.0 million Customs penalty waiver request.
- Returns and utilization from the Blum expansion, execution of the stated 2019 capex plan, and resulting cash flow and borrowing needs.
- Whether NobelClad’s backlog decline—from $37.5 million to $29.9 million—translates into weaker future shipments, and whether the French plant sale closes as expected.
- Debt, covenant headroom and liquidity under the variable-rate credit facility; management estimated a one-percentage-point rate increase would raise 2018 interest expense by about $0.35 million.