DMC Global Inc. — 2020 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2020. Unless otherwise noted, dollar amounts are in thousands. The filing also reports fourth-quarter results. DMC Global operates two segments: DynaEnergetics, which makes oil-and-gas well perforating products, and NobelClad, which makes explosion-welded clad metal for industrial equipment and transition joints.
Financial results and liquidity
| Metric | 2020 | 2019 |
|---|---|---|
| Net sales | $229,161 | $397,550 |
| Gross profit / margin | $56,853 / 24.8% | $144,923 / 36.5% |
| Operating income (loss) | $(996) | $58,425 |
| Net income (loss) | $(1,412) | $34,041 |
| Diluted earnings (loss) per share | $(0.10) | $2.28 |
| Adjusted EBITDA, non-GAAP | $19,147 | $93,753 |
| Net cash provided by operating activities | $30,362 | $64,594 |
- Sales fell 42% year over year. DynaEnergetics sales declined 53% to $146,395; NobelClad sales declined 5% to $82,766.
- DynaEnergetics’ segment operating income was $6,150, down from $68,781. NobelClad’s was $6,886, down from $7,193.
- Fourth-quarter sales were $57,113, gross profit was $12,186, and net loss was $927. Fourth-quarter 2019 sales were $86,367 and net loss was $5,288.
- At year-end, cash and cash equivalents were $28,187 and marketable securities were $25,736. Total debt was $11,264, including $11,750 of gross borrowings before debt issuance costs. The $50,000 revolving facility was undrawn and available.
- The filing presents net cash in two ways: $42,659 when marketable securities are included, versus $16,923 when calculated using cash and cash equivalents only, in each case less total debt. The latter compares with $6,081 at year-end 2019.
- Total assets were $279,645, compared with $277,421 in 2019. Current assets were $143,310 and current liabilities were $47,108.
- Investing cash outflow was $39,557, including $25,740 invested in marketable securities and $13,853 of property, plant and equipment purchases. Financing cash inflow was $17,317, including $25,740 net ATM proceeds.
Material changes and unusual items
- COVID-19, the collapse in oil and gas demand and lower crude prices sharply reduced North American well-completion activity, hurting DynaEnergetics’ volume and pricing. Lower utilization of fixed manufacturing costs and less favorable NobelClad project mix also reduced gross margin.
- Cost-containment measures included a workforce reduction of 32%, reduced work weeks at DynaEnergetics, lower discretionary and administrative spending, a 50% capital expenditure budget reduction and suspension of the quarterly dividend. SG&A declined, but included a $3,039 increase in the expected-credit-loss provision; the total 2020 provision for credit losses was $3,381.
- Restructuring and impairment charges were $3,387, including $1,361 of asset impairments and severance and other exit costs. DynaEnergetics sold the Tyumen, Siberia land and buildings for $448, equal to their carrying value.
- The company sold 608,360 shares through its ATM program for $25,740 net proceeds in 2020. The program permits sales of up to $75 million, subject to market conditions.
- The board suspended the dividend in April 2020. The company declared $0.125 per share for the first quarter; no reinstatement is promised.
- One DynaEnergetics customer represented approximately 12% of 2020 sales. NobelClad year-end backlog increased to $39,884 from $31,660 a year earlier.
Outlook, risks and contingencies
- Management reported strengthening North American unconventional activity in late 2020 and into early 2021, while noting that energy-product pricing recovery lagged activity. DynaEnergetics aimed to restore pricing as demand improved. No quantified earnings or revenue guidance was provided.
- NobelClad entered 2021 with approximately $40 million of backlog, which management said was about 25% higher than at the end of 2020, but expected a relatively slow start to the year. Backlog may be delayed, changed or canceled.
- Management expected liquidity from operations, available credit and potential ATM proceeds to support foreseeable operating needs, while cautioning that cash generation depends on backlog conversion, new orders, profitable pricing and cost control. It remained in cost-containment mode.
- Credit terms were amended in 2020 to waive the debt-service-coverage covenant through the first quarter of 2021 and impose a temporary minimum-liquidity covenant. The company reported compliance at year-end; its reported leverage ratio was 0.6 to 1.0. The debt-service-coverage covenant was scheduled to resume in the second quarter of 2021.
- Key risks include continuing pandemic effects; oil and gas and industrial market cyclicality; customer concentration and delayed payments; raw-material availability and tariffs; foreign exchange and variable interest rates; competition and product execution; and environmental, explosives-handling, permitting and regulatory risks. The Dillenburg shooting-site leases were due to expire in 2021, and access to the Dillenburg mine was identified as a risk.
- Management expected increased legal expense in 2021 related to intellectual-property development and enforcement. The filing disclosed no legal proceedings believed likely to have a material adverse effect. The German tax audit for 2015–2017 was expected to be completed in early 2021.
- Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting. Management and the auditor concluded controls were effective as of December 31, 2020.
Important facts for investors to verify
- Whether oilfield activity and DynaEnergetics’ selling prices recovered sufficiently to restore segment margins after the 2020 downturn.
- Whether NobelClad converts its backlog into timely shipments and revenue, and how customer changes or cancellations affect that conversion.
- The quality and collectability of receivables, including the elevated credit-loss provisions, and the valuation of DynaEnergetics finished-goods inventory, a critical audit matter.
- Liquidity and covenant headroom after temporary covenant relief ends, including the distinction between net cash measures that include or exclude marketable securities.
- The effect of ATM share issuance on dilution, and whether and when the board may reinstate dividends.
- Renewal or replacement of permits and leases necessary for explosive manufacturing and shooting-site operations, particularly at Dillenburg.