DMC Global Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. DMC operates DynaEnergetics, which serves the oil and gas well-completion market, and NobelClad, which makes explosion-welded clad metal products. Financial amounts below are in millions of U.S. dollars unless noted.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $67.2 | $55.3 | $188.3 | $172.0 |
| Gross profit / margin | $16.7 / 24.8% | $13.6 / 24.6% | $46.5 / 24.7% | $44.7 / 26.0% |
| Operating income (loss) | $1.1 | $1.5 | $3.1 | $(0.2) |
| Net income (loss) | $0.4 | $1.0 | $2.6 | $(0.5) |
| Diluted EPS | $0.02 | $0.07 | $0.15 | $(0.03) |
| Adjusted EBITDA (non-GAAP) | $5.8 | $6.0 | $17.3 | $15.5 |
Q3 revenue rose 22% year over year, led by DynaEnergetics’ 29% growth; NobelClad revenue increased 9%. Consolidated operating income fell 22% year over year, with lower DynaEnergetics earnings and higher corporate and litigation costs. Nine-month operating results improved from a loss to income, and adjusted EBITDA increased 12%.
Q3 gross margin was broadly stable year over year; the nine-month margin declined from 26.0% to 24.7%, reflecting lower DynaEnergetics selling prices and international sales mix. The company reported $6.4 million of Employee Retention Credits (ERC) for the first nine months, including $2.6 million in Q3, supporting reported operating results.
Cash flow, liquidity and capital
- Operating cash flow was negative $1.9 million for the first nine months, versus positive $21.4 million in 2020. Management attributed the change chiefly to working-capital investment, including higher receivables, inventory and prepaid expenses.
- Cash and marketable securities totaled $182.0 million at September 30, up from $53.9 million at year-end. Marketable securities were $144.9 million.
- No debt was outstanding at quarter-end; the company repaid the remaining $11.8 million capex term loan in February. It reported $50 million of available revolving capacity and compliance with its debt covenants.
- Financing included $123.5 million net proceeds from a May share offering and $25.3 million net proceeds from the ATM program during the first nine months. Shares issued increased the potential dilution to existing holders.
- NobelClad backlog was $42.9 million at September 30, compared with $39.9 million at December 31, 2020.
Outlook, commentary and risks
- Management cited recovery in North American drilling and well completions, but said supply-chain bottlenecks and travel restrictions constrained international sales and NobelClad production. Rising material and labor costs were pressuring both businesses.
- DynaEnergetics announced a 5% price increase effective November 22, 2021 and expected further increases during 2022. These actions were intended to offset higher costs and recover margins; the filing does not provide formal earnings guidance.
- NobelClad’s $8.8 million titanium-clad-plate order was expected to ship in Q4, but delayed raw-material deliveries created a risk that some or all shipments could slip beyond year-end.
- Management said Q4 ERC eligibility was uncertain; loss of the credit could reduce gross margin and operating income. It also expected patent-enforcement litigation costs to continue through the rest of 2021 and into 2022.
- Other risks discussed include COVID-19 impacts, supply and labor availability, customer demand and pricing, backlog conversion, capital-market access, and a proposed federal employee vaccination/testing rule that could raise costs or disrupt staffing.
- The quarterly dividend remained suspended. The company said it would continue to evaluate capital needs and possible acquisitions.
Key facts for investors to verify
- Whether the $8.8 million NobelClad order shipped on schedule and converted to revenue.
- Whether DynaEnergetics’ price increases offset inflation and improve margins without weakening demand.
- Whether DMC qualified for Q4 ERC and how results perform without that support.
- Whether operating cash flow recovers as working-capital investment normalizes.
- Future patent-litigation costs, outcomes, and any effect on DynaEnergetics’ products or market position.
- Use of remaining offering proceeds, any further equity issuance, and the effect on share dilution.