DMC Global’s sales steady but short of forecasts

BROOMFIELD – Oilfield services provider DMC Global Inc. (Nasdaq: BOOM) on Friday reported third-quarter sales that were similar to those of the same period last year but fell short of what the company had predicted.

“Our third quarter sales of $172.1 million were comparable to the third quarter of 2022, but below our forecasts,” said Michael Kuta, president and CEO, in a prepared statement. While DMC Global’s adjusted earnings before taxes, interest, depreciation and amortization “was within our forecasted range and we delivered solid free cash flow,” he added, “our sales shortfall was disappointing and was principally due to lower-than-expected top-line results at our Arcadia and DynaEnergetics businesses.
“Arcadia, our architectural building products business, saw steady demand at its primary regional service centers and its ultra-high-end residential business,” Kuta said. “However, third quarter sales of $71.5 million were down 11% year-over-year due to lower product pricing, soft demand for commercial interior products, and brief operational challenges related to the go-live of a new [enterprise resource planning] system.”

Kuta said adjusted EBITDA margin was 18.8%, up from 15% in the 2022 third quarter, as the decline in product pricing was not as pronounced as the year-over-year drop in raw material costs.

DynaEnergetics, DMC Global’s energy products business, reported sales of $73 million, up 4% versus last year’s third quarter and down 14% sequentially. Demand in Dyna’s core North American market was impacted by a 10% sequential decline in U.S. well completions, as well as customer project delays late in the quarter. The sales decline in North America was partially offset by the continued strong performance of Dyna’s international business, which Kuta said is on pace to deliver record full-year sales. Dyna’s third quarter adjusted EBITDA margin was 17.2%, down from 19.8% in last year’s third quarter and 23% in this year’s second quarter. The decline was related to lower absorption and customer mix.

NobelClad, DMC Global’s composite metals business, reported third quarter sales of $27.7 million, up 18% versus last year’s third quarter and the strongest quarterly performance in nearly 10 years, Kuta said. Adjusted EBITDA margin was 23.1%, up from 14.6% in last year’s third quarter. NobelClad is benefitting from robust activity across several industrial end markets, including liquified natural gas, downstream energy and petrochemicals. Order backlog at the end of the third quarter was $61 million versus $64 million at the end of the second quarter. Rolling 12-month bookings increased sequentially to $110.9 million from $108.4 million; and the book-to-bill ratio at the end of the quarter was 1.1.

“Arcadia and DynaEnergetics both are taking steps to strengthen sales, profit margins and cash flow,” Kuta said. “Arcadia has nearly completed the first phase of an expansion in paint capacity, which will increase the sales potential of its commercial and ultra-high-end residential businesses. We also expect Arcadia’s new ERP system will deliver incremental operational benefits in the coming quarters. DynaEnergetics is implementing a series of automation, lean manufacturing and cost-reduction initiatives designed to enhance profitability and improve quality. DynaEnergetics has incurred approximately $1 million in fourth-quarter restructuring expenses, which we anticipate will result in roughly $3 million in annualized savings.”

DMC Global recorded approximately $22 million in third-quarter free cash flow, which chief financial officer Eric Walter said reflected the company’s focus on maximizing profitability and reducing inventory. “We further strengthened our balance sheet in the third quarter,” he said, “improving our debt-to-adjusted EBITDA leverage ratio to 1.26x, and our net-debt leverage ratio to 0.89x. This was the seventh consecutive quarter in which we de-levered DMC’s balance sheet.”

Walter said roughly half of this year’s $20 million capital expansion budget has been allocated to the fourth quarter. “Our fourth quarter expenditures should be in a range of $8 million to $10 million and will include additional investments in painting capacity at Arcadia and manufacturing automation at DynaEnergetics,” he said.

At midafternoon Friday, shares of DMC Global were off 9.4% at $17.20, down from Thursday’s closing price of $18.99.

“Despite macro-economic uncertainties, I am encouraged by the resiliency of Arcadia’s and NobelClad’s diverse end markets and by the expected acceleration in well-completion activity in DynaEnergetics’ core North American market beginning early next year,” Kuta said. “Our long-term strategy is to deliver adjusted EBITDA margins of 20% or better at the business level, and we are positioning our businesses to achieve this objective with greater consistency. I want to thank DMC’s employees for their consistent dedication and hard work.”

DMC Global was founded in Boulder as Dynamic Materials Corp. in the 1960s as a metals manufacturer focused on explosion welding, hence the BOOM stock ticker.

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