DMC Global (BOOM) 4 May 232023 Q1 Earnings call transcript

Greetings. Welcome to the DMC Global first quarter earnings call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Geoff High.

You may begin.

Hello, and welcome to DMC's first quarter conference call. may Co-CEOs, Eric and everyone filings estimates, Walter. I'd discussed uncertainties this disclosed Interim Chief Kuta; that are projections are that that subject during Officer, statements the to of with Financial like call and and today assumptions David on our today's Mike Aldous SEC. and matters are as Presenting based forward-looking date our are include in to and remind risks

cause obligation Investors subject dmcglobal.com. actual those become Aldous. is certain to forward-looking located events. Today's to our and related that, subsequent presentation call. And materially the forward-looking page I'll that could shortly of our earnings today's this statements turn of quarter to business of from a A over results be replay Our the presentation the anticipated performance statements. at David risks differ available at DMC after to with David? now that will website available website our our in webcast on because of release assumes untrue no are conclusion update on call first

end afternoon, Despite XXXX quarter you and us the joining today's continued positive $XXX million delivered of Good sales improved momentum macroeconomic at carried into as for call. The XXXX. concerns, of profitability. a we first variety for DMC thank of record well as

strong sequential the each products innovative for developed margin by X results demand reported of which businesses, was differentiated solid our expansion. driven manufacturing Our top performance by line and

markets our its system our gaining of a sales composite business Arcadia, architectural by are and metals many business, the its we progress DynaStage out backlog of year. At on increased the The our NobelClad, improved momentum. as perforating initiatives beginning flagship initiatives first products laid order operational record segment, energy integration quarter series was call much strategic efficiencies. path as at building products use of marked and And expansion DMC, also healthy and and business, clear capacity quarter benefiting a our the improved DynaEnergetics, expense at the is achieved well of second review high SG&A then results turn financial Mike? is XX-year and and and first a our free towards our Eric cash growing financial lower to look flow. I'll guidance. closer from will end Mike a to quarter improving, have at over performance, strength for demand. we

Thanks, reflects was at and quarter The up were the X% David. quarterly many first in an year-over-year Sales sequential shortened year-over-year. each United Southwestern encouraging history. principally start of from million, second higher resulted indeed performance $XX quarter, the of construction Arcadia fourth and reported commercial XX% its businesses. strong address volumes sequentially price on markets Arcadia of Western versus QX across increase holiday increases to inflation the Arcadia's year the best the to delivered our sales in while materials. States. raw growth demand

Activity construction, education was particularly sectors. hospitality healthy in industrial medical, and the

in Arcadia its We capabilities. of of custom also residential the strengthen served who the the meaningful market, direction Arcadia operating is is efforts in headway by manufacturing our business making expand Chilcoff, is January, appointed high-end steady business. to efficiencies which on Jamie saw and activity Under President

progress. to by are is painting expect ERP continued encouraged of increase first growth, implementation initiatives The the These future to we nearly Arcadia's are vital by an and year. of the complete, phase capacity the we end and

approximately of in American Germany core of strong at systems, unconventional market, This strength Dyna's perforating million, achievement execution our the for our products very which DynaStage accounted assembly XX% sales. premium China X% year's on have processes, later Dyna its as for perforating quarter and encouraging. encouraging XX% First watermark are also Texas the to were DynaStage demand up to demand in active. commercialize as consecutive customers' sequentially expense. introduction million well product SG&A results efficient growth onshore for trials their in flagship programs versus applications. first making at plans of Unit Dyna more first margin during XXth a approximately designed Dyna's oriented expansion quarter. the $XX and Two downhaul include North is The sales accounted for field for X which reached quarter, reflects which business reflects patent and the concluded designed progress and designs been completion where streamlined $X market, cases operations DynaEnergetics next first quarter strong remain gas and was this well high date last systems first currently in employees. International perforating manufacturing of the initiatives, designed year. generation are by quarter collectively quarter. oil manufacturing and outstanding specialized new Dyna's for and sales systems The these

the $XX and first of of year. NobelClad balance sales We reported down year-over-year. will costs during significantly X% million, expect the quarter quarterly litigation sequentially flat decline

and close SG&A previously adjusted Another effort less expense quarter. We year's of strong efficiencies, advance proved first its pursue down quarter. Global Across $X million. in bookings accelerated in book-to-bill to The in vesting. up last quarterly approximately strong the performance deliver included sales the or company-wide In continues of second It end rate NobelClad's a backlog X.Xx we we $XX and energy should and of from product benefits at an in expense SG&A X.Xx X.X now to leverage order remain with and to million in transition opportunities industrial of a to the activity is improved strong elevated well costs million operating million $X appears first to the exit at that NobelClad's related XXXX step beginning business expected technology quarter seeing quarter invest to in and secondary as promising million. core of end ratio of bookings downstream quarter stock quarter. of and at variety at last level than NobelClad's CEO the ratio result DMC, mentioned Dyna and markets we'll $XX a improve run litigation as and petrochemical approximately markets. DMC's the X.Xx, returns. ended the development that call, quarter our in debt programs below we're of first EBITDA said a $XX to of the initiatives fourth our the second in

drive and financial look Eric? further a XXXX. I'll for quarter our of and to the a these confident balance advantages earnings Eric now of businesses call improved are second flow will our performance over cash guidance. and during We review at of the strengthen the programs turn results first quarter competitive

Mike. Thanks,

as first Consolidated As David delivered XXX fourth Arcadia. XXX the which gross first offset improved basis up X% the quarter first quarter quarter was Gross points all XX%, million, margin versus noted as businesses versus sequential record at margin quarter. and was margin earlier, points up XX% DMC from compression than consolidated NobelClad year-ago $XXX sales experienced and more DynaEnergetics gains basis last year's expansion. at sequentially margin year-over-year of

gross quarter, the began continue of a will prices, pressure trend Just as on to was Arcadia's quarter. half Arcadia's and during year placed the during this recover the and a margins reminder, second XXXX first for during second aluminum believe downward margin we XXXX. this volatile

up EBITDA interest, was the year-over-year. consolidated Arcadia adjusted DMC consolidated over million. Inclusive XX% to $XX noncontrolling million, sequentially was quarter First EBITDA adjusted and attributable of X% $XX up

Arcadia DMC. total quarter. of of the percentage XX adjusted to with with basis a versus of the points of of but quarter. which the which reported was compared fourth prior-year quarter compared adjusted expanded was an basis versus EBITDA margin XXX As $X by points quarter XXX and quarter million, first first $XX or an attributable prior-year EBITDA over of fourth adjusted improvement of XX%, basis increase Arcadia's sales, points XXXX, XX% EBITDA the points reflects million XXXX basis XXX first contracted

upward loss points of year. XXX quarter Dyna's an basis mentioned Arcadia's adjusted first quite of points XX negative the points. Adjusted or reported XX has mentioned in year-over-year. Consolidated gross quarter, income $X the to adjusted compared quarter approximately the XXX or costs, the the net EBITDA attributable quarter NobelClad of EBITDA XXX returned last included or declined was first basis shift of adjusted the XX% to margin $X versus first share results prior and A million quarter EBITDA with basis million of sales. million of points patent or half $X margin diluted first but but by As per of sales. first adjusted year's mix reduced XXXX. Dyna improved million adjusted over sequentially diluted XX% points share. yet per not $X.XX $X.XX earlier, margin reported during by DMC XXXX higher-margin reported which EBITDA basis recovery EBITDA basis during products, litigation sequentially, $XX margin levels to first began previously expanded

flow and million free generated of $X million The million, to has Arcadia associated included seasonality. cash $X.X quarter in venture free year was additional important our free DMC of debt which to debt the conversion to of free compares quarter, due for acquisition typically our It's distributions flow payments joint partner. an used principal the the the flow the with lower cash DMC $X of the XXXX. first of that first During in cash quarter note in cash as as flow with XXXX well prepayment quarter first primarily on Arcadia long-term negative

capacity first quarter under of $XX revolving with loan million. liquidity, of and of the In our terms million available we $XX cash ended

the quarter, adjusted the Our represents the sheet which the EBITDA X.XX. debt fifth well the and leverage of ratio balance consecutive was X.XX at threshold end of below first to covenant deleveraging was of quarter

report commercial the $XX to guidance. anticipate last million our $XX Dyna range quarter. residential a $XXX the $XX in to quarter the $XXX expected quarter-over-quarter. second reported million business quarter. million sales anticipated million At the quarter. to Consolidated in first in markets is are to $XXX sales of the between $XX Arcadia remain million that $XX to in are a steady compared million million $XX million reported expected versus and be level, relatively to reported turning Now be to range versus in first activity the of We sales million to will

robust, While the flat activity quarter. we second believe North be continues America to in in demand be will

million Our our range $XX gross NobelClad sales the first with XX% in reported first focus during quarter. are initiatives. the versus be advancing margin to share margin the of XX% the $XX our in to quarter. Consolidated will in range in on expansion is quarter million XX% the million a and market maintaining of $XX expected second compared expected a

is by DynaEnergetics less while be margin likely both a gross to impacted at will quarter improve favorable NobelClad's Second margins sequentially expected and mix. project Arcadia,

excluding reported million in to $XX versus consolidated the expected from any quarter the quarter. remaining expense CEO $XX million, million range to first Second is $XX transition costs SG&A

We to decline continue a rate expect will our percentage SG&A of run as sales.

is DMC range of $XX million be to million to attributable versus expected quarter. Second in the EBITDA to quarter $XX adjusted in $XX first million a

Finally, we year a expenditures any $XX million approximately expect million, in of questions. expected to to second $X be CapEx is range full will be quarter take that, capital ready million. With Operator? we're to while $X

comes Capital. of [Operator Instructions] Gerry Sweeney the question ROTH Our with first line from

quarter-to-quarter upon frac obviously, top with second -- you fourth half with into quarter DynaEnergetics. my flat like bit the spreads second the or with of in with think thoughts picking previous it start more maybe share. particular, to up, a the of been quarter But commentary looked at the I quarter, I behind units, you've just in to and units, over QX? I guidance, want spreads the little carrying results Eric up like record where I sort QX. on customers, think, get record touched QX half the it or were frac -- want wallet added was but sense taking look that, in in -- guidance XXth Dyna, picking on on of why of

the Mike. and is back in the overall year back flattening fourth that right versus an with up in and and expectation this now see fairly we'll We see first half Gerry, quarters. third quarter the spreads quarter level ramp frac that the second of

expectation half? the in ramp the you driving of what's second Do mind the

our are flatness what in and reporting a I customers of the our a half. step think markets, QX that by driven there's back expectation demand end end that's with it's up an in really markets and

that, of that was big actual quarter $X.X the that in were margins, in of higher quarters, you're was case. know Okay. top down. this those bring correct, the change? in That -- court then because expense there costs in think Dyna. I backing have of I to Dyna, was on those confirm, been effort but litigation also a expense making costs And stand the XX% But with previous to EBITDA to know I out litigation just you not included million

we nominal. were Correct. Those that go-forward included. a be Gerry, to on fairly expect basis, And

Fairly nominal a quarter? well $X million less like than

Yes.

sort XQ. part I'm and the driver going of in -- that's assuming Yes, to with start -- of it let's that's

That's right. Yes.

would $X impact little points XXX the the a downward of first quarter. So basis than their million on more pressure be in QX roughly

So and kind up of contained in we that cleaned have all of QX.

Mike standpoint spend really forward clean mentioning, of and Going it's be think litigation a as was going into be QX, that pretty a should de quarter from amount to minimis. the we

process And market. Got how raw the in on I than much that engineering, ERP look looks year? to know material down at adds sales But then or paint bit as next or inventory some does little higher. the it. obviously, you sure maybe and pricing material into came even costs But some held I costs of as felt potentially we least Arcadia, levels a sort though one, the maybe better maybe expected, your raw even on I was want that of make capacity two, to were unit correct. as

would a correct and steady I in that $XX guidance there, guide we million QX strong that, volume all, million. fairly resilient Gerry, is premise have fairly $XX see first price been and Yes. to your say our of

in around opportunities engineering inventory or and improve In of margins going into to to price more provide industrial this leaks operations well with think satellites across early later terms and ERP will data there management, improve the is our I year visibility from the capacity as which efficiencies, next us come and where we operational margin to opportunities play and year. ERP, see as system our optimizing

industrial and So capacity paint by efficiency, of XX% end to well of on out XX% advancements some I capacity year get at the think an our margin We're more probably the can ERP adding our is we paint operational as with progress making improvement by of the play. engineering, another capacity Arcadia.

way just Or sold could is year? a fair this of you Got to to also look well? I let's as some out it. at more XX% it, of some mean to next XX% Is that today, at say there sort you're add point ability an outsource units

the and to probably XX% XX% David. is that just there's then of end work expand can hope this year. by that's Gerry, project of implement We get the to beyond engineering, that, out going we industrial to

question the Ouellette line of next Patrick Our from Stifel. comes with

for on Stephen Pat is This Gengaro.

trends If these. perforating remarks guns alluded in you XQ. know to from versions you mentioned quarter, could to business, you additionally, talk margins sort the I current for commercialization X.X pricing the these the of the ramping last of specialty of And your and seeking XQ in

So this front? on just seeing you're what curious

Yes.

process upward current We're of So this later to systems us. industrial gen. products, for the in improvements think engineering and I field that at under When we and by driven is look changes again, gen our the our But scheduled That's more you we still the our should which first orienting now. expect hit are launch. within in and included quarter, step design some for ability year, next to provide next our year. margin XX% trials up that's throughout margins, those plants,

and so to that in So and takes relatively Pricing pricing, the is market right me stable now. pricing. perf flat

expecting demand? Great. or seeing business follow-up. to the markets And you're for a mind key whether Would workspace quick then just Arcadia and you the shift speaking end a

we're product commercial of got side we've We've high-end Patrick, office number storefronts different No. there. the the We've in a that projects. side, we've got from interiors, got markets of residential. residential, to got end-use a number everything In interiors, commercial markets. has

kinds are those health care, noncyclical things. of those of airports, Some

those typical that schools, are are countercyclical, offices as dorms, them as institutional of commercial. Some well libraries, government application,

many are cover the resilient cycle. we helps applications of and gamut some of in us fact countercyclical, those that are some and so we're the markets, which So through which noncyclical, of the robust be

Great.

Okay.

end I of those think space for that whether any is I'm is the looking more in to demand of key what shift the impacting work-from-home markets?

anything, It's their us. downsize opportunity on interiors offices. If our more certainly opportunities for an see folks commercial as we

more So if on of upside that anything, the see we than as the downside. opportunity an

the next Ken with of question from line Our comes Markets. Newman KeyBanc [Operator Capital Instructions]

All right.

on quarter? Arcadia you Sorry for really any It strong if XQ? what the top missed color there did added price I was to the this, what in expecting I hear know also would you you're realization. but to be give mentioned line for in price helpful

When you is flat. QX from QX look there's think mix that a at volumes resilient. chasing raw fairly relatively impact probably negative pricing come been We've QX I aluminum bit versus has that Pricing QX, a has up down, of essentially as to plateaued. materials price

Okay.

with clarify, guess just of maybe help in sequentially that a function just that volume may that margins should bit little is pricing Is basis? gross higher of? I we just to a else to that anything business. of Or Is be up a square be the down year-over-year aware me the a So on coming function flat absorption? there

Yes, necessarily materials costs chase those our statement. higher we're up, raw and price flushing income it's materials raw increased from absorption. now not We've to through

So peak X where mid-XXXX, X raw inventory now are early our materials that of to we're to happened carrying income flushing statement. months through in

is essentially costs material So are but pricing raw flat, down.

is Yes, Eric. this Ken,

Just what to said. Mike augment

we're from of you fully that through expecting get when to majority cost the that need of aluminum be through that we'll higher QX, improvement to burning quarter that's moving at So going QX we that. the all another look have, inventory to and

run potential basis, I as on once that do know then a get visibility kind Okay. normalized longer-term view Arcadia And mean how you now. over is a guess, that, of I I rate margin the the for granted? for you maybe, through perspective, place all gross

to our the business. pricing, be should our return Arcadia material norms raw for more exit the business, rate historical shipping low-XXs out custom with out backlog settles year residential in everything in After this and Yes. our

it. Got

follow-up are what color here. industrials from earnings quick lead need similar have seeing any one the just because throughout taking a getting supply of customers season less I chains of are any buffer we've and that as inventory lead from think heard impacts? from now time in signs are destocking chains getting or suppliers perspective seeing better? you Any don't essentially they and inventories, is much any other Just others right, you're Do better inventory. supply your customers there on Or businesses? that times expectations

quick get the our with in inventory times supply chains customers. turn not storefront, there's But in system lot We're smaller business, lead of a and seeing better. project our smaller

significant we has eased chain So but don't us for as and see the a certainly well. up impact there, eased supply up

we David reached to turn have And call question-and-answer the of now Aldous session. remarks. the end the for closing over back I'll

again, you, for progress call. We're flow Thank strong optimistic made encouraged and in improved DMC businesses for continued its our participating about first the today's are the and prospects free performance quarter by cash and generation. during

the want after contributions. to you dedication upcoming not and thank speaking their of accomplishments our continued visits Our loyalty. We to their our also for second employees, for investor our I many look Take would customers our forward of sincerely with and them without possible would care. during thank be to I like quarter.

This you Thank time. conference, concludes participation. and you line disconnect this your for your today's at may