DMC Global Inc. - Quarter Report: 2023 March (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2023
OR
☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO .
Commission file number 001-14775
DMC GLOBAL INC.
(Exact name of Registrant as Specified in its Charter)
Delaware | 84-0608431 | |||||||
| (State of Incorporation or Organization) | (I.R.S. Employer Identification No.) | |||||||
11800 Ridge Parkway, Suite 300, Broomfield, Colorado 80021
(Address of principal executive offices, including zip code)
(303) 665-5700
(Registrant’s telephone number, including area code)
| Title of each class | Trading Symbol | Name of exchange on which registered | ||||||||||||
Common Stock, $0.05 Par Value | BOOM | The Nasdaq Global Select Market | ||||||||||||
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer ☒ | |||||||
Non-accelerated filer ☐ | Smaller reporting company ☐ | |||||||
Emerging growth company ☐ | ||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 under the Act). Yes ☐ No ☒
The number of shares of Common Stock outstanding was 19,716,554 as of April 28, 2023.
CAUTIONARY NOTE ABOUT FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q contains “forward-looking statements” within the meaning of section 27A of the Securities Act of 1933 and section 21E of the Securities Exchange Act of 1934. We intend the forward-looking statements throughout this quarterly report on Form 10-Q to be covered by the safe harbor provisions for forward-looking statements. Statements contained in this report which are not historical facts are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from projected results. These statements can sometimes be identified by our use of forward-looking words such as “may,” “believe,” “plan,” “anticipate,” “estimate,” “expect,” “intend,” and other phrases of similar meaning. Such statements include expectations regarding the resiliency of DynaEnergetics’ end markets and customer pricing, potential price increases at DynaEnergetics, anticipated profit margin improvements resulting from changes in manufacturing processes and the introduction of new products in DynaEnergetics, the resiliency in Arcadia’s core geographic regions and end markets, plans to install additional finishing capacity and targets for such lines to be operational, the expected timing and benefits of the completion of phase one of the new enterprise resource planning system at Arcadia, projected increases in demand at NobelClad, our backlog at NobelClad, our ability to access our at-the-market offerings or the capital markets in the future, the completion of the search process for our next Chief Executive Officer, expected material and labor cost trends, the availability of funds to support our liquidity position and our expected future liquidity position. The forward-looking information is based on information available as of the date of this quarterly report and on numerous assumptions and developments that are not within our control. Although we believe that our expectations as expressed in these forward-looking statements are reasonable, we cannot assure you that our expectations will turn out to be correct. Factors that could cause actual results to differ materially include, but are not limited to, those factors referenced in our Annual Report on Form 10-K for the year ended December 31, 2022 and such things as the following: geopolitical and economic instability, including recessions or depressions; inflation; supply chain delays and disruptions; the availability and cost of energy; transportation disruptions; the ability to obtain new contracts at attractive prices; the size and timing of customer orders and shipments; product pricing and margins; our ability to realize sales from our backlog; fluctuations in customer demand; fluctuations in foreign currencies; competitive factors; the timely completion of contracts; the timing and size of expenditures; the timely receipt of government approvals and permits; the price and availability of metal, aluminum, and other raw materials; fluctuations in tariffs or quotas; changes in laws and regulations, both domestic and foreign, impacting our business and the business of the end-market users we serve; the adequacy of local labor supplies at our facilities; current or future limits on manufacturing capacity at our various operations; our ability to successfully integrate Arcadia; the impact of pending or future litigation or regulatory matters; the availability and cost of funds; our ability to access our borrowing capacity under our credit facility or access the capital markets; global economic conditions; and wars, terrorism and armed conflicts. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s analysis only as of the date hereof. We undertake no obligation to publicly release the results of any revision to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
INDEX
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3
Part I - FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements
DMC GLOBAL INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands, Except Share and Per Share Data)
| March 31, 2023 | December 31, 2022 | ||||||||||
| (unaudited) | |||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 19,647 | $ | 25,144 | |||||||
Accounts receivable, net of allowance for doubtful accounts of $772 and $925, respectively | 109,332 | 94,415 | |||||||||
| Inventories | 179,545 | 156,590 | |||||||||
| Prepaid expenses and other | 17,069 | 10,723 | |||||||||
| Total current assets | 325,593 | 286,872 | |||||||||
| Property, plant and equipment | 214,243 | 211,277 | |||||||||
| Less - accumulated depreciation | (85,448) | (81,832) | |||||||||
| Property, plant and equipment, net | 128,795 | 129,445 | |||||||||
| Goodwill | 141,725 | 141,725 | |||||||||
| Purchased intangible assets, net | 212,258 | 217,925 | |||||||||
| Deferred tax assets | 7,669 | 7,633 | |||||||||
| 87,963 | 95,378 | ||||||||||
| Total assets | $ | 904,003 | $ | 878,978 | |||||||
| LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST, AND STOCKHOLDERS’ EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | 71,408 | $ | 46,816 | |||||||
| Accrued expenses | 11,099 | 8,415 | |||||||||
| Accrued income taxes | 5,837 | 4,256 | |||||||||
| Accrued employee compensation and benefits | 14,586 | 14,441 | |||||||||
| Contract liabilities | 31,198 | 32,080 | |||||||||
| Current portion of long-term debt | 15,000 | 15,000 | |||||||||
| 12,823 | 7,042 | ||||||||||
| Total current liabilities | 161,951 | 128,050 | |||||||||
| Long-term debt | 111,686 | 117,798 | |||||||||
| Deferred tax liabilities | 2,122 | 1,908 | |||||||||
| 58,445 | 63,053 | ||||||||||
| Total liabilities | 334,204 | 310,809 | |||||||||
Commitments and contingencies (Note 11) | |||||||||||
| Redeemable noncontrolling interest | 187,522 | 187,522 | |||||||||
| Stockholders’ equity | |||||||||||
Preferred stock, $0.05 par value; 4,000,000 shares authorized; no issued and outstanding shares | — | — | |||||||||
Common stock, $0.05 par value; 50,000,000 shares authorized; 20,399,461 and 20,140,654 shares issued, respectively | 1,020 | 1,007 | |||||||||
| Additional paid-in capital | 308,675 | 303,893 | |||||||||
| Retained earnings | 124,986 | 125,215 | |||||||||
| Other cumulative comprehensive loss | (27,989) | (28,758) | |||||||||
Treasury stock, at cost, and company stock held for deferred compensation, at par; 682,907 and 605,723 shares, respectively | (24,415) | (20,710) | |||||||||
| Total stockholders’ equity | 382,277 | 380,647 | |||||||||
| Total liabilities, redeemable noncontrolling interest, and stockholders’ equity | $ | 904,003 | $ | 878,978 | |||||||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
4
DMC GLOBAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in Thousands, Except Share and Per Share Data)
(unaudited)
| Three months ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Net sales | $ | 184,341 | $ | 138,716 | |||||||
| Cost of products sold | 132,130 | 101,810 | |||||||||
| Gross profit | 52,211 | 36,906 | |||||||||
| Costs and expenses: | |||||||||||
| General and administrative expenses | 26,500 | 17,718 | |||||||||
| Selling and distribution expenses | 12,824 | 10,090 | |||||||||
| Amortization of purchased intangible assets | 5,667 | 12,976 | |||||||||
| Restructuring expenses | — | 32 | |||||||||
| Total costs and expenses | 44,991 | 40,816 | |||||||||
| Operating income (loss) | 7,220 | (3,910) | |||||||||
| Other expense: | |||||||||||
| Other expense, net | (200) | (209) | |||||||||
| Interest expense, net | (2,381) | (1,024) | |||||||||
| Income (loss) before income taxes | 4,639 | (5,143) | |||||||||
| Income tax provision (benefit) | 2,500 | (863) | |||||||||
| Net income (loss) | $ | 2,139 | $ | (4,280) | |||||||
| Less: Net income (loss) attributable to redeemable noncontrolling interest | 1,230 | (992) | |||||||||
| Net income (loss) attributable to DMC Global Inc. stockholders | $ | 909 | $ | (3,288) | |||||||
| Net loss per share attributable to DMC Global Inc. stockholders: | |||||||||||
| Basic | $ | (0.01) | $ | (0.47) | |||||||
| Diluted | $ | (0.01) | $ | (0.47) | |||||||
| Weighted average shares outstanding: | |||||||||||
| Basic | 19,462,636 | 19,301,126 | |||||||||
| Diluted | 19,462,636 | 19,301,126 | |||||||||
Reconciliation to net income (loss) attributable to DMC Global Inc. stockholders after adjustment of redeemable noncontrolling interest for purposes of calculating earnings per share
| Three months ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Net income (loss) attributable to DMC Global Inc. stockholders | $ | 909 | $ | (3,288) | |||||||
| Adjustment of redeemable noncontrolling interest | (1,138) | (5,717) | |||||||||
| Net loss attributable to DMC Global Inc. stockholders after adjustment of redeemable noncontrolling interest | $ | (229) | $ | (9,005) | |||||||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
5
DMC GLOBAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Amounts in Thousands)
(unaudited)
| Three months ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Net income (loss) | $ | 2,139 | $ | (4,280) | |||||||
| Change in cumulative foreign currency translation adjustment | 769 | (1,204) | |||||||||
| Other comprehensive income (loss) | $ | 2,908 | $ | (5,484) | |||||||
| Less: comprehensive income (loss) attributable to redeemable noncontrolling interest | 1,230 | (992) | |||||||||
| Comprehensive income (loss) attributable to DMC Global Inc. stockholders | $ | 1,678 | $ | (4,492) | |||||||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
6
DMC GLOBAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND REDEEMABLE NONCONTROLLING INTEREST
(Amounts in Thousands, Except Share Data)
(unaudited)
| Other | Treasury Stock, at cost, and | Total | Redeemable | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Additional | Cumulative | Company Stock Held for | DMC Global Inc. | Non- | |||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Paid-In | Retained | Comprehensive | Deferred Compensation, at par | Stockholders’ | Controlling | |||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Capital | Earnings | Loss | Shares | Amount | Equity | Interest | |||||||||||||||||||||||||||||||||||||||||||||
| Balances, December 31, 2022 | 20,140,654 | $ | 1,007 | $ | 303,893 | $ | 125,215 | $ | (28,758) | (605,723) | $ | (20,710) | $ | 380,647 | $ | 187,522 | |||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | 909 | — | — | — | 909 | 1,230 | ||||||||||||||||||||||||||||||||||||||||||||
| Change in cumulative foreign currency translation adjustment | — | — | — | — | 769 | — | — | 769 | — | ||||||||||||||||||||||||||||||||||||||||||||
| Shares issued in connection with stock compensation plans | 258,807 | 13 | (13) | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Distribution to redeemable noncontrolling interest holder | — | — | — | — | — | — | — | — | (2,600) | ||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | 4,795 | — | — | — | — | 4,795 | 232 | ||||||||||||||||||||||||||||||||||||||||||||
| Adjustment of redeemable noncontrolling interest | — | — | — | (1,138) | — | — | — | (1,138) | 1,138 | ||||||||||||||||||||||||||||||||||||||||||||
| Treasury stock activity | — | — | — | — | — | (77,184) | (3,705) | (3,705) | — | ||||||||||||||||||||||||||||||||||||||||||||
| Balances, March 31, 2023 | 20,399,461 | $ | 1,020 | $ | 308,675 | $ | 124,986 | $ | (27,989) | (682,907) | $ | (24,415) | $ | 382,277 | $ | 187,522 | |||||||||||||||||||||||||||||||||||||
7
DMC GLOBAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND REDEEMABLE NONCONTROLLING INTEREST
(Amounts in Thousands, Except Share Data)
(unaudited)
| Other | Treasury Stock, at cost, and | Total | Redeemable | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Additional | Cumulative | Company Stock Held for | DMC Global Inc. | Non- | |||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Paid-In | Retained | Comprehensive | Deferred Compensation, at par | Stockholders’ | Controlling | |||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Capital | Earnings | Loss | Shares | Amount | Equity | Interest | |||||||||||||||||||||||||||||||||||||||||||||
| Balances, December 31, 2021 | 19,920,829 | $ | 996 | $ | 294,515 | $ | 111,031 | $ | (26,538) | (570,415) | (19,479) | $ | 360,525 | $ | 197,196 | ||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | (3,288) | — | — | — | (3,288) | (992) | ||||||||||||||||||||||||||||||||||||||||||||
| Change in cumulative foreign currency translation adjustment | — | — | — | — | (1,204) | — | — | (1,204) | — | ||||||||||||||||||||||||||||||||||||||||||||
| Shares issued in connection with stock compensation plans | 163,443 | 8 | (8) | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Consideration adjustment related to redeemable noncontrolling interest | — | — | — | — | — | — | — | — | (427) | ||||||||||||||||||||||||||||||||||||||||||||
| Distribution to redeemable noncontrolling interest holder | — | — | — | — | — | — | — | — | (4,400) | ||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | 2,267 | — | — | — | — | 2,267 | 102 | ||||||||||||||||||||||||||||||||||||||||||||
| Adjustment of redeemable noncontrolling interest | — | — | — | (5,717) | — | — | — | (5,717) | 5,717 | ||||||||||||||||||||||||||||||||||||||||||||
| Treasury stock activity | — | — | — | — | — | (16,773) | (1,088) | (1,088) | — | ||||||||||||||||||||||||||||||||||||||||||||
| Balances, March 31, 2022 | 20,084,272 | $ | 1,004 | $ | 296,774 | $ | 102,026 | $ | (27,742) | (587,188) | $ | (20,567) | $ | 351,495 | $ | 197,196 | |||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements
8
DMC GLOBAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
(unaudited)
| Three months ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Cash flows provided by (used in) operating activities: | |||||||||||
| Net income (loss) | $ | 2,139 | $ | (4,280) | |||||||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | |||||||||||
| Depreciation | 3,400 | 3,359 | |||||||||
| Amortization of purchased intangible assets | 5,667 | 12,976 | |||||||||
| Amortization of deferred debt issuance costs | 138 | 132 | |||||||||
| Amortization of acquisition-related inventory valuation step-up | — | 258 | |||||||||
| Stock-based compensation | 5,027 | 2,358 | |||||||||
| Deferred income taxes | 178 | (2,714) | |||||||||
| Other | (405) | 41 | |||||||||
| Change in: | |||||||||||
| Accounts receivable, net | (14,664) | (7,480) | |||||||||
| Inventories | (22,678) | (19,877) | |||||||||
| Prepaid expenses and other | 1,131 | (2,324) | |||||||||
| Accounts payable | 24,336 | 7,162 | |||||||||
| Contract liabilities | (906) | 5,968 | |||||||||
| Accrued expenses and other liabilities | 3,702 | (163) | |||||||||
| Net cash provided by (used in) operating activities | 7,065 | (4,584) | |||||||||
| Cash flows used in investing activities: | |||||||||||
| Acquisition of property, plant and equipment | (2,226) | (1,536) | |||||||||
| Net cash used in investing activities | (2,226) | (1,536) | |||||||||
| Cash flows used in financing activities: | |||||||||||
| Repayments on term loan | (6,250) | (3,750) | |||||||||
| Payment of debt issuance costs | — | (97) | |||||||||
| Distributions to redeemable noncontrolling interest holder | (2,600) | (4,400) | |||||||||
| Treasury stock purchases | (2,157) | (1,088) | |||||||||
| Net cash used in financing activities | (11,007) | (9,335) | |||||||||
| Effects of exchange rates on cash | 671 | 21 | |||||||||
| Net decrease in cash and cash equivalents | (5,497) | (15,434) | |||||||||
| Cash and cash equivalents, beginning of the period | 25,144 | 30,810 | |||||||||
| Cash and cash equivalents, end of the period | $ | 19,647 | $ | 15,376 | |||||||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
9
DMC GLOBAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands, Except Share and Per Share Data)
(unaudited)
1. BASIS OF PRESENTATION
The information included in the Condensed Consolidated Financial Statements is unaudited but includes all normal and recurring adjustments which, in the opinion of management, are necessary for a fair presentation of the interim periods presented. Certain information and footnote disclosures, including critical and significant accounting policies normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles, have been condensed or omitted for this quarterly presentation. These Condensed Consolidated Financial Statements should be read in conjunction with the financial statements that are included in our Annual Report filed on Form 10-K for the year ended December 31, 2022.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The Condensed Consolidated Financial Statements include the accounts of DMC Global Inc. (“DMC”, “we”, “us”, “our”, or the “Company”) and its controlled subsidiaries. Only subsidiaries in which controlling interests are maintained are consolidated. All intercompany accounts, profits, and transactions have been eliminated in consolidation.
Accounts Receivable
The Company measures expected credit losses for its accounts receivable using a current expected credit loss model, which is based on historical experience, adjusted for current conditions and reasonable and supportable forecasts. The Company has disaggregated pools of accounts receivable balances by business, geography and/or customer risk profile and has used history and other experience to establish an allowance for credit losses at the time the receivable is recognized. To measure expected credit losses, we have elected to pool trade receivables by business segment and analyze each segment’s accounts receivable balances as separate populations. Within each segment, receivables exhibit similar risk characteristics.
During the three months ended March 31, 2023, our expected loss rate reflects uncertainties in market conditions present in our businesses, including supply chain disruptions, rising interest rates, as well as global geopolitical and economic instability. In addition, we reviewed receivables outstanding, including aged balances, and in circumstances where we are aware of a specific customer’s inability to meet its financial obligation to us, we recorded a specific allowance against the amounts due, reducing the net receivable recognized to the amount we estimate will be collected. The offsetting expense for allowances recorded is charged to “Selling and distribution expenses” in our Condensed Consolidated Statements of Operations. During the three months ended March 31, 2023, net recoveries of $154 were recorded.
The following table summarizes year-to-date activity in the allowance for credit losses on receivables from customers in each of our business segments:
| Arcadia | DynaEnergetics | NobelClad | DMC Global Inc. | ||||||||||||||||||||
Allowance for doubtful accounts, December 31, 2022 | $ | 244 | $ | 603 | $ | 78 | $ | 925 | |||||||||||||||
| Current period provision for expected credit losses | — | 32 | — | 32 | |||||||||||||||||||
| Recoveries of amounts previously reserved | (184) | (2) | — | (186) | |||||||||||||||||||
| Impacts of foreign currency exchange rates and other | — | 1 | — | 1 | |||||||||||||||||||
Allowance for doubtful accounts, March 31, 2023 | $ | 60 | $ | 634 | $ | 78 | $ | 772 | |||||||||||||||
10
Redeemable noncontrolling interest
On December 23, 2021, DMC completed the acquisition of 60% of the membership interests in Arcadia Products, LLC, a Colorado limited liability company resulting from the conversion of Arcadia, Inc. (collectively, “Arcadia”). The limited liability company operating agreement for Arcadia (the “Operating Agreement”) contains a right for the Company to purchase the remaining interest in Arcadia from the minority interest holder on or after the third anniversary of the acquisition closing date (“Call Option”). Similarly, the minority interest holder of Arcadia has the right to sell its remaining interest in Arcadia to the Company on or after the third anniversary of the acquisition closing date (“Put Option”). Both the Call Option and Put Option enable the respective holder to exercise their rights based upon a predefined calculation as included within the Operating Agreement.
The Company initially accounted for the noncontrolling interest at its acquisition date fair value. We determined that neither the Call Option nor the Put Option meet the definition of a derivative as the Operating Agreement does not allow for contractual net settlement, the options cannot be settled outside the Operating Agreement through a market mechanism, and the underlying shares are deemed illiquid as they are not publicly traded and thus not considered readily convertible to cash. Additionally, the settlement price for both options is based upon a predefined calculation tied to adjusted earnings rather than a fixed price, and the formula is based upon a multiple of Arcadia’s average adjusted earnings over a three-year period. As such, we have concluded that the Call Option and Put Option are embedded within the noncontrolling interest and therefore do not represent freestanding instruments.
Given that the noncontrolling interest is subject to possible redemption with redemption rights that are not entirely within the control of the Company, we have concluded that the noncontrolling interest should be accounted for in accordance with ASC 480 Distinguishing Liabilities from Equity ("ASC 480"). The noncontrolling interest is also probable of redemption, as the only criteria for the security to become redeemable is the passage of time. As such, the redeemable noncontrolling interest is classified in temporary equity, separate from the stockholders’ equity section, in the Condensed Consolidated Balance Sheets.
At each balance sheet date subsequent to acquisition, two separate calculations must be performed to determine the value of the redeemable noncontrolling interest. First, the redeemable noncontrolling interest must be accounted for in accordance with ASC 810 Consolidation (“ASC 810”) whereby income (loss) and cash distributions attributable to the redeemable noncontrolling interest holder are ascribed. After this occurs, applicable provisions of ASC 480 must be considered to determine whether any further adjustment is necessary to increase the carrying value of the redeemable noncontrolling interest. An adjustment would only be necessary if the estimated settlement amount of the redeemable noncontrolling interest, per the terms of the Operating Agreement, exceeds the carrying value calculated in accordance with ASC 810. If such adjustment is required, the impact is immediately recorded to retained earnings and therefore does not impact the Condensed Consolidated Statements of Operations or Comprehensive Income (Loss). As of March 31, 2023 and December 31, 2022, the redeemable noncontrolling interest is $187,522.
Promissory Note
In order to equalize after-tax consideration to the redeemable noncontrolling interest holder relative to an alternative transaction structure, immediately following the closing of the acquisition, the Company loaned $24,902 to the redeemable noncontrolling interest holder. The loan was evidenced by an unsecured promissory note, and the loan will be repaid out of proceeds from the sale of the redeemable noncontrolling interest holder’s interests in Arcadia, whether received upon exercise of the Put Option, the Call Option or upon sales to third parties permitted under the terms of the Operating Agreement. The loan must be repaid in full by December 16, 2051 and has been recorded within “Other Assets” in the Condensed Consolidated Balance Sheets.
Revenue Recognition
The Company’s revenues are primarily derived from consideration paid by customers for tangible goods. The Company analyzes its different products by business segment to determine the appropriate basis for revenue recognition. Revenue is not generated from sources other than contracts with customers, and revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities. There are no material upfront costs for operations that are incurred from contracts with customers.
Our rights to payments for goods transferred to customers within our DynaEnergetics and NobelClad business segments arise when control is transferred at a point in time and not on any other criteria. Our rights to payments for goods transferred to customers within our Arcadia business segment also generally arise when control is transferred at a point in time; however, at times, control of certain customized, project-based products passes to the customer over time. Payment terms and conditions vary by contract, although terms generally include a requirement of payment within 30 to 90 days across all of our segments. In
11
instances when we require customers to make advance payments prior to the shipment of their orders, we record a contract liability. We have determined that our contract liabilities do not include a significant financing component given the short duration between order initiation and order fulfillment within each of our segments. Refer to Note 9 "Business Segments" for disaggregated revenue disclosures.
See additional revenue recognition policy disclosures specific to each of our business segments within our Annual Report filed on Form 10-K for the year ended December 31, 2022.
Income Taxes
We recognize deferred tax assets and liabilities for the expected future income tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities. Any effects of changes in income tax rates or tax laws are included in the provision for income taxes in the period of enactment. The deferred income tax impact of tax credits are recognized as an immediate adjustment to income tax expense. We recognize deferred tax assets for the expected future effects of all deductible temporary differences to the extent we believe these assets will more likely than not be realized. We record a valuation allowance when, based on current circumstances, it is more likely than not that all or a portion of the deferred tax assets will not be realized. In making such determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies, recent financial operations and their associated valuation allowances, if any.
We recognize the tax benefits from uncertain tax positions only when it is more likely than not, based on the technical merits of the position, that the tax position will be sustained upon examination, including the resolution of any related appeals or litigation. The tax benefits recognized in the Condensed Consolidated Financial Statements from such a position are measured as the largest benefit that is more likely than not to be realized upon ultimate resolution. We recognize interest and penalties related to uncertain tax positions in operating expense.
Earnings Per Share
In periods with net income, the Company computes earnings per share (“EPS”) using a two-class method, which is an earnings allocation formula that determines EPS for (i) each class of common stock (the Company has a single class of common stock), and (ii) participating securities according to dividends declared and participation rights in undistributed earnings. Restricted stock awards are considered participating securities in periods of net income as they receive non-forfeitable rights to dividends as common stock. Restricted stock awards do not participate in net losses.
Basic EPS is calculated by dividing net income (loss) attributable to the Company’s stockholders after adjustment of redeemable noncontrolling interest by the weighted-average number of common shares outstanding during the period. Net income (loss) available to common shareholders of the Company includes any adjustment to the redeemable noncontrolling interest value as of the end of the period presented. Refer to "Redeemable noncontrolling interest" section above for further discussion of the calculation of the adjustment of the redeemable noncontrolling interest. Diluted EPS adjusts basic EPS for the effects of restricted stock awards, restricted stock units, performance share units and other potentially dilutive financial instruments (dilutive securities), only in the periods in which such effect is dilutive. The effect of the dilutive securities is reflected in diluted EPS by application of the more dilutive of (1) the treasury stock method or (2) the two-class method.
12
| Three months ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Net income (loss) attributable to DMC Global Inc. stockholders, as reported | $ | 909 | $ | (3,288) | |||||||
| Adjustment of redeemable noncontrolling interest | (1,138) | (5,717) | |||||||||
| Less: Undistributed net income available to participating securities | — | — | |||||||||
| Numerator for basic net loss per share: | (229) | (9,005) | |||||||||
| Add: Undistributed net income allocated to participating securities | — | — | |||||||||
| Less: Undistributed net income reallocated to participating securities | — | — | |||||||||
| Numerator for diluted net loss per share: | (229) | (9,005) | |||||||||
| Denominator: | |||||||||||
| Weighted average shares outstanding for basic net loss per share | 19,462,636 | 19,301,126 | |||||||||
Effect of dilutive securities (1) | — | — | |||||||||
| Weighted average shares outstanding for diluted net loss per share | 19,462,636 | 19,301,126 | |||||||||
| Net loss per share attributable to DMC Global Inc. stockholders | |||||||||||
| Basic | $ | (0.01) | $ | (0.47) | |||||||
| Diluted | $ | (0.01) | $ | (0.47) | |||||||
(1)Given we were in a net loss position after the adjustment of redeemable noncontrolling interest for the three months ended March 31, 2023 and 2022, all potentially dilutive shares were anti-dilutive and were therefore excluded from the determination of diluted EPS.
Deferred Compensation Plan
The Company maintains a Non-Qualified Deferred Compensation Plan (the “Plan”) as part of its overall compensation package for certain employees. Participants are eligible to defer a portion of their annual salary, their annual incentive bonus, and their equity awards through the Plan on a tax-deferred basis. Deferrals into the Plan are not matched or subsidized by the Company, nor are they eligible for above-market or preferential earnings.
The Plan provides for deferred compensation obligations to be settled either by delivery of a fixed number of shares of DMC’s common stock or in cash, in accordance with participant contributions and elections. For deferred equity awards, subsequent to equity award vesting and after a period prescribed by the Plan, participants can elect to diversify contributions of equity awards into other investment options available to Plan participants. Once diversified, such contributions will be settled by delivery of cash.
The Company has established a grantor trust commonly known as a “rabbi trust” and contributed certain assets to satisfy the future obligations to participants in the Plan. These assets are subject to potential claims of the Company’s general creditors. The assets held in the trust include unvested restricted stock awards (“RSAs”), vested company stock awards, company-owned life insurance (“COLI”) on certain employees, and money market and mutual funds. Unvested RSAs and common stock held by the trust are reflected in the Condensed Consolidated Balance Sheets within “Treasury stock, at cost, and company stock held for deferred compensation, at par” at the par value of the common stock or unvested RSAs. These accounts are not adjusted for subsequent changes in the fair value of the common stock. COLI is accounted for at the cash surrender value while money market and mutual funds held by the trust are accounted for at fair value.
Deferred compensation obligations that will be settled in cash are accounted for on an accrual basis in accordance with the terms of the Plan. These obligations are adjusted based on changes in value of the underlying investment options chosen by Plan participants. Deferred compensation obligations that will be settled by delivery of a fixed number of previously vested shares of the Company’s common stock are reflected in the Condensed Consolidated Statements of Stockholders’ Equity and Redeemable Noncontrolling Interest within “Common stock” at the par value of the common stock or unvested RSAs. These accounts are not adjusted for subsequent changes in the fair value of the common stock.
The balances related to the deferred compensation plan were as follows for the periods presented. The amount included within “Prepaid expenses and other” and “Other current liabilities” pertains to scheduled distributions per the terms of the Plan to our former Chief Executive Officer (“CEO”) that will occur within twelve months of March 31, 2023. Refer to Note 12 for additional information regarding the CEO transition.
13
| Balance Sheet location | March 31, 2023 | December 31, 2022 | ||||||||||||||||||
| Deferred compensation assets | Prepaid expenses and other | $ | 5,798 | $ | — | |||||||||||||||
| Deferred compensation assets | Other assets | $ | 8,098 | $ | 13,566 | |||||||||||||||
| Deferred compensation obligations | Other current liabilities | $ | 5,798 | $ | — | |||||||||||||||
| Deferred compensation obligations | Other long-term liabilities | $ | 11,424 | $ | 15,292 | |||||||||||||||
Fair Value of Financial Instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We are required to use an established hierarchy for fair value measurements based upon the inputs to the valuation and the degree to which they are observable or not observable in the market. The three levels in the hierarchy are as follows:
•Level 1 — Inputs to the valuation based upon quoted prices (unadjusted) for identical assets or liabilities in active markets that are accessible as of the measurement date.
•Level 2 — Inputs to the valuation include quoted prices in either markets that are not active, or in active markets for similar assets or liabilities, inputs other than quoted prices that are observable, and inputs that are derived principally from or corroborated by observable market data.
•Level 3 — Inputs to the valuation that are unobservable inputs for the asset or liability.
The highest priority is assigned to Level 1 inputs and the lowest priority to Level 3 inputs.
The carrying value of cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses approximate their fair value. The carrying value of our revolving loans and term loan under our credit facility, when outstanding, also approximate their fair value because of the variable interest rate associated with those instruments, which reset each month at market interest rates. All of these account balances are considered Level 1 assets and liabilities.
Our foreign currency forward contracts are valued using quoted market prices or are determined using a yield curve model based on current market rates. As a result, we classify these instruments as Level 2 in the fair value hierarchy. Money market funds and mutual funds of $8,625 as of March 31, 2023 and $8,444 as of December 31, 2022 held to satisfy future deferred compensation obligations are valued based upon the market values of underlying securities and are classified as Level 2 assets in the fair value hierarchy.
We did not hold any Level 3 assets or liabilities as of March 31, 2023 or December 31, 2022.
Recent Accounting Pronouncements
We have considered all recent accounting pronouncements issued, but not yet effective, and we do not expect any to have a material effect on the Company’s Condensed Consolidated Financial Statements.
3. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or net realizable value. Significant cost elements included in inventory are material, labor, freight, subcontract costs, and manufacturing overhead. As necessary, we write down inventory to its net realizable value by recording provisions for excess, slow moving and obsolete inventory. We regularly review inventory quantities on hand and values, and compare them to estimates of future product demand, market conditions, production requirements and technological developments.
Inventories consisted of the following at March 31, 2023:
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| Arcadia | DynaEnergetics | NobelClad | DMC Global Inc. | ||||||||||||||||||||
| Raw materials | $ | 10,233 | $ | 22,463 | $ | 9,806 | $ | 42,502 | |||||||||||||||
| Work-in-process | 13,006 | 30,914 | 12,460 | 56,380 | |||||||||||||||||||
| Finished goods | 53,978 | 26,418 | — | 80,396 | |||||||||||||||||||
| Supplies | — | — | 267 | 267 | |||||||||||||||||||
| Total inventories | $ | 77,217 | $ | 79,795 | $ | 22,533 | $ | 179,545 | |||||||||||||||
Inventories consisted of the following at December 31, 2022:
| Arcadia | DynaEnergetics | NobelClad | DMC Global Inc. | ||||||||||||||||||||
| Raw materials | $ | 11,099 | $ | 23,701 | $ | 8,926 | $ | 43,726 | |||||||||||||||
| Work-in-process | 11,468 | 21,198 | 7,587 | 40,253 | |||||||||||||||||||
| Finished goods | 55,074 | 16,802 | 456 | 72,332 | |||||||||||||||||||
| Supplies | — | — | 279 | 279 | |||||||||||||||||||
| Total inventories | $ | 77,641 | $ | 61,701 | $ | 17,248 | $ | 156,590 | |||||||||||||||
4. PURCHASED INTANGIBLE ASSETS
Our purchased intangible assets consisted of the following at March 31, 2023:
| Gross | Accumulated Amortization | Net | |||||||||||||||
| Core technology | $ | 14,257 | $ | (14,229) | $ | 28 | |||||||||||
| Customer relationships | 244,980 | (52,880) | 192,100 | ||||||||||||||
| Trademarks / Trade names | 23,940 | (3,810) | 20,130 | ||||||||||||||
| Total intangible assets | $ | 283,177 | $ | (70,919) | $ | 212,258 | |||||||||||
Our purchased intangible assets consisted of the following at December 31, 2022:
| Gross | Accumulated Amortization | Net | |||||||||||||||
| Core technology | $ | 14,063 | $ | (14,031) | $ | 32 | |||||||||||
| Customer backlog | 22,000 | (22,000) | — | ||||||||||||||
| Customer relationships | 244,650 | (47,254) | 197,396 | ||||||||||||||
| Trademarks / Trade names | 23,914 | (3,417) | 20,497 | ||||||||||||||
| Total intangible assets | $ | 304,627 | $ | (86,702) | $ | 217,925 | |||||||||||
The change in the gross value of our unamortized purchased intangible assets at March 31, 2023 from December 31, 2022 was due to foreign currency translation.
5. CONTRACT LIABILITIES
At times, we require customers to make advance payments prior to the shipment of their orders in order to help finance our inventory investment on large orders or to keep customers’ credit limits at acceptable levels. Contract liabilities were as follows for the periods presented:
| March 31, 2023 | December 31, 2022 | ||||||||||
| Arcadia | $ | 24,335 | $ | 27,634 | |||||||
| NobelClad | 5,293 | 3,661 | |||||||||
| DynaEnergetics | 1,570 | 785 | |||||||||
| Total contract liabilities | $ | 31,198 | $ | 32,080 | |||||||
15
We generally expect to recognize the revenue associated with contract liabilities over a time period no longer than one year, but unforeseen circumstances can cause delays in shipments associated with contract liabilities, primarily supply chain delays and disruptions.
6. LEASES
The Company leases real properties for use in manufacturing and as administrative and sales offices, and leases automobiles and office equipment. The Company determines if a contract contains a lease arrangement at the inception of the contract. For leases in which the Company is the lessee, leases are classified as either finance or operating. Right-of-use (“ROU”) assets are initially measured at the present value of lease payments over the lease term plus initial direct costs, if any. If a lease does not provide a discount rate and the implicit rate cannot be readily determined, an incremental borrowing rate is used to determine the present value of future lease payments. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term within the Condensed Consolidated Statement of Operations. Lease and non-lease components within the Company’s lease agreements are accounted for together. Variable lease payments are recognized in the period in which the obligation is incurred. The Company has no leases in which the Company is the lessor.
Nearly all of the Company’s leasing arrangements are classified as operating leases. ROU asset and lease liability balances were as follows for the periods presented:
| March 31, 2023 | December 31, 2022 | ||||||||||
| ROU asset | $ | 46,912 | $ | 48,470 | |||||||
| Current lease liability | 7,025 | 7,041 | |||||||||
| Long-term lease liability | 41,580 | 43,001 | |||||||||
| Total lease liability | $ | 48,605 | $ | 50,042 | |||||||
The ROU asset is reported in “” while the current lease liability is reported in “” and the long-term lease liability is reported in “” in the Company’s Condensed Consolidated Balance Sheets. Cash paid for operating lease liabilities are recorded as operating cash outflows in the Company’s Condensed Consolidated Statements of Cash Flows.
Arcadia leases certain office, manufacturing, distribution and warehouse facilities from entities affiliated with the redeemable noncontrolling interest holder and former president of Arcadia. There were eight related party leases in effect as of March 31, 2023, with expiration dates ranging from calendar years 2025 to 2031. As of March 31, 2023, the total ROU asset and related lease liability recognized for related party leases was $28,036 and $28,625, respectively.
For the three months ended March 31, 2023 and 2022, operating lease expense was $3,040 and $2,767, respectively. Related party lease expense for the three months ended March 31, 2023 and 2022 was $1,156 in each period and is included in total operating lease expense. Short term and variable lease costs were not significant for any period presented.
7. DEBT
Outstanding borrowings consisted of the following at:
| March 31, 2023 | December 31, 2022 | ||||||||||
| Syndicated credit agreement: | |||||||||||
| U.S. Dollar revolving loan | $ | — | $ | — | |||||||
| Term loan | 128,750 | 135,000 | |||||||||
| Commerzbank line of credit | — | — | |||||||||
| Outstanding borrowings | 128,750 | 135,000 | |||||||||
| Less: debt issuance costs | (2,064) | (2,202) | |||||||||
| Total debt | 126,686 | 132,798 | |||||||||
| Less: current portion of long-term debt | (15,000) | (15,000) | |||||||||
| Long-term debt | $ | 111,686 | $ | 117,798 | |||||||
16
Syndicated Credit Agreement
On December 23, 2021, we entered into a five-year $200,000 syndicated credit agreement (“credit facility”) which included a $150,000 Term Loan, which is amortizable at 10% of principal per year with a balloon payment for the outstanding balance upon the credit facility maturity date in 2026, and allows for revolving loans of up to $50,000. The credit facility has an accordion feature to increase the commitments by $100,000 under the revolving loan class and/or by adding a term loan subject to approval by applicable lenders. We entered into the credit facility with a syndicate of four banks, with KeyBank, N.A. acting as administrative agent. The credit facility is secured by the assets of DMC including accounts receivable, inventory, and fixed assets, including Arcadia and its subsidiary, as well as guarantees and share pledges by DMC and its subsidiaries.
Borrowings under the $150,000 Term Loan and $50,000 revolving loan limit can be in the form of Adjusted Daily Simple Secured Overnight Financing Rate ("SOFR") loans or one month Adjusted Term SOFR loans. Additionally, U.S. dollar borrowings on the revolving loan can be in the form of Base Rate loans (Base Rate borrowings are based on the greater of the administrative agent’s Prime rate, an adjusted Federal Funds rate or an adjusted SOFR rate). SOFR loans bear interest at the applicable SOFR rate plus an applicable margin (varying from 1.50% to 3.00%). Base Rate loans bear interest at the defined Base Rate plus an applicable margin (varying from 0.50% to 2.00%). As of March 31, 2023, no amounts were outstanding on the revolver.
The credit facility includes various covenants and restrictions, certain of which relate to the payment of dividends or other distributions to stockholders; redemption of capital stock; incurring additional indebtedness; mortgaging, pledging or disposition of major assets; and maintenance of specified ratios.
The leverage ratio is defined in the credit facility as the ratio of Consolidated Funded Indebtedness (as defined in the credit facility) on the last day of any trailing four quarter period to Consolidated Pro Forma EBITDA (as defined in the credit facility) for such period. The maximum leverage ratio permitted by our credit facility is 3.25 to 1.0 through the quarter ended March 31, 2023, and 3.0 to 1.0 from the quarter ended June 30, 2023 and thereafter.
The debt service coverage ratio is defined in the credit facility as the ratio of Consolidated Pro Forma EBITDA less the sum of capital distributions paid in cash (other than those made with respect to preferred stock issued under the Operating Agreement), Consolidated Unfunded Capital Expenditures (as defined in the credit facility), and net cash income taxes to the sum of cash interest expense, any dividends on the preferred stock paid in cash, and scheduled principal payments on funded indebtedness. Under our credit facility, the minimum debt service coverage ratio permitted is 1.35 to 1.0.
As of March 31, 2023, we were in compliance with all financial covenants and other provisions of our debt agreements.
We also maintain a line of credit with a German bank with a borrowing capacity of €7,000 for certain European operations. This line of credit is also used to issue bank guarantees to customers to secure advance payments made by them. As of March 31, 2023 and December 31, 2022, we had no outstanding borrowings under this line of credit and bank guarantees of €2,023 and €2,221, respectively, were secured by the line of credit. The line of credit has open-ended terms and can be canceled by the bank at any time.
Included in “Long-term debt” are deferred debt issuance costs of $2,064 and $2,202 as of March 31, 2023 and December 31, 2022, respectively. Deferred debt issuance costs are being amortized over the remaining term of the credit facility, which expires on December 23, 2026.
8. INCOME TAXES
The effective tax rate for each of the periods reported differs from the U.S. statutory rate primarily due to variation in contribution to consolidated pre-tax income from each jurisdiction for the respective periods, differences between the U.S. and foreign tax rates (which range from 20% to 33%), permanent differences between book and taxable income, and income or loss attributable to the redeemable noncontrolling interest holder.
Arcadia is treated as a partnership for U.S. tax purposes. With the exception of certain state taxes, income or loss flows through to the shareholders and is taxed at the shareholder level. Tax impacts related to income or loss from Arcadia that are included in consolidated pretax results but are attributable to the redeemable noncontrolling interest holder are not included in the consolidated income tax provision.
17
We assess the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use existing deferred tax assets. Additionally, a three-year cumulative loss at a consolidated financial statement level may be viewed as negative evidence impacting a jurisdiction that by itself is not in a three-year cumulative loss position. During the three months ended March 31, 2023 and March 31, 2022, we did not record any adjustments to previously established valuation allowances, except for corresponding adjustments related to changes in deferred tax asset balances. These adjustments had no impact on the Condensed Consolidated Statements of Operations. The Company will continue to monitor the realizability of deferred tax assets and the need for valuation allowances and will record adjustments in the periods in which facts support such changes.
The Tax Cuts and Jobs Act (“TCJA”) provides that foreign earnings generally can be repatriated to the U.S. without federal tax consequence. We have assessed the assertion that cumulative earnings by our foreign subsidiaries are indefinitely reinvested. We continue to permanently reinvest the earnings of our international subsidiaries and therefore we do not provide for U.S. income taxes or withholding taxes that could result from the distribution of those earnings to the U.S. parent. If any such earnings were ultimately distributed to the U.S. in the form of dividends or otherwise, or if the shares of our international subsidiaries were sold or transferred, we could be subject to additional U.S. federal and state income taxes. Due to the multiple avenues in which earnings can be repatriated, and because a large portion of these earnings are not liquid, it is not practical to estimate the amount of additional taxes that might be payable on these amounts of undistributed foreign income.
9. BUSINESS SEGMENTS
Our business is organized into three segments: Arcadia, DynaEnergetics and NobelClad. In December 2021, DMC acquired a 60% controlling interest in Arcadia. Arcadia supplies architectural building products, including exterior and interior framing systems, curtain walls, windows, doors, and interior partitions to the commercial construction market; it also supplies customized windows and doors to the high-end residential construction market. DynaEnergetics designs, manufactures and distributes highly engineered products utilized by the global oil and gas industry principally for the perforation of oil and gas wells. NobelClad is a leader in the production of explosion-welded clad metal plates for use in the construction of corrosion resistant industrial processing equipment, as well as specialized transition joints for use in construction of commuter rail cars, ships, and liquified natural gas (LNG) processing equipment.
Our reportable segments are separately managed, strategic business units that offer different products and services, and each segment has separate financial information available that is evaluated regularly by the Chief Operating Decision Maker ("CODM") in allocating resources and assessing performance. Each segment’s products are marketed to different customer types and require different manufacturing processes and technologies.
Segment information is as follows:
| Three months ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Net sales: | |||||||||||
| Arcadia | $ | 80,338 | $ | 67,968 | |||||||
| DynaEnergetics | 81,968 | 48,887 | |||||||||
| NobelClad | 22,035 | 21,861 | |||||||||
| Net sales | $ | 184,341 | $ | 138,716 | |||||||
18
| Three months ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Income (loss) before income taxes: | |||||||||||
| Arcadia | $ | 3,133 | $ | (2,443) | |||||||
| DynaEnergetics | 13,168 | 3,298 | |||||||||
| NobelClad | 2,621 | 705 | |||||||||
| Segment operating income | 18,922 | 1,560 | |||||||||
| Unallocated corporate expenses | (7,254) | (3,368) | |||||||||
Unallocated stock-based compensation* | (4,448) | (2,102) | |||||||||
| Other expense, net | (200) | (209) | |||||||||
| Interest expense, net | (2,381) | (1,024) | |||||||||
| Income (loss) before income taxes | $ | 4,639 | $ | (5,143) | |||||||
| Three months ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Depreciation and amortization: | |||||||||||
| Arcadia | $ | 6,469 | $ | 13,349 | |||||||
| DynaEnergetics | 1,787 | 1,984 | |||||||||
| NobelClad | 740 | 915 | |||||||||
| Segment depreciation and amortization | 8,996 | 16,248 | |||||||||
| Corporate and other | 71 | 87 | |||||||||
| Consolidated depreciation and amortization | $ | 9,067 | $ | 16,335 | |||||||
* Stock-based compensation is not allocated to wholly owned segments DynaEnergetics and NobelClad. Stock-based compensation is allocated to the Arcadia segment as 60% of such expense is attributable to the Company, whereas the remaining 40% is attributable to the redeemable noncontrolling interest holder.
19
In the tables below, net sales for Arcadia have been presented consistent with United States regional definitions as provided by the American Institute of Architects. The geographic distribution of net sales for DynaEnergetics and NobelClad is based on the customer location.
Arcadia
| Three months ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| West | $ | 62,282 | $ | 56,204 | |||||||
| South | 8,553 | 5,839 | |||||||||
| Northeast | 6,853 | 3,217 | |||||||||
| Midwest | 2,650 | 2,708 | |||||||||
| Total Arcadia | $ | 80,338 | $ | 67,968 | |||||||
DynaEnergetics
| Three months ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| United States | $ | 64,649 | $ | 38,743 | |||||||
| Canada | 7,040 | 4,749 | |||||||||
| United Arab Emirates | 1,788 | 1,213 | |||||||||
| Oman | 1,747 | 928 | |||||||||
| Kuwait | 1,357 | 542 | |||||||||
| Indonesia | 704 | 342 | |||||||||
| India | 623 | 230 | |||||||||
Rest of the world(1) | 4,060 | 2,140 | |||||||||
| Total DynaEnergetics | $ | 81,968 | $ | 48,887 | |||||||
(1) Rest of the world does not include any individual country comprising sales greater than 2% of total DynaEnergetics revenue.
NobelClad
| Three months ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| United States | $ | 9,119 | $ | 9,155 | |||||||
| China | 2,206 | 2,357 | |||||||||
| United Arab Emirates | 1,860 | 998 | |||||||||
| Canada | 1,855 | 1,438 | |||||||||
| Germany | 1,271 | 587 | |||||||||
| United Kingdom | 796 | 49 | |||||||||
| Italy | 671 | 413 | |||||||||
| France | 558 | 351 | |||||||||
| Sweden | 497 | — | |||||||||
| Belgium | 466 | 276 | |||||||||
| South Africa | 430 | 843 | |||||||||
| Norway | 365 | 234 | |||||||||
| Netherlands | 353 | 491 | |||||||||
| Spain | 295 | 199 | |||||||||
| India | 2 | 2,325 | |||||||||
| Rest of the world | 1,291 | 2,145 | |||||||||
| Total NobelClad | $ | 22,035 | $ | 21,861 | |||||||
(1) Rest of the world does not include any individual country comprising sales greater than 2% of total NobelClad revenue.
20
During the three months ended March 31, 2023, one DynaEnergetics customer accounted for approximately 10% of consolidated net sales. The same DynaEnergetics customer accounted for approximately 15% of consolidated accounts receivable as of March 31, 2023 and December 31, 2022. During the three months ended March 31, 2022, no single customer accounted for approximately 10% of consolidated net sales.
10. DERIVATIVE INSTRUMENTS
We are exposed to foreign currency exchange risk resulting from fluctuations in exchange rates, primarily the U.S. dollar to the euro, the U.S. dollar to the Canadian dollar and, to a lesser extent, other currencies, arising from intercompany and third-party transactions entered into by our subsidiaries that are denominated in currencies other than their functional currency. Changes in exchange rates with respect to these transactions result in unrealized gains or losses if such transactions are unsettled at the end of the reporting period or realized gains or losses at settlement of the transaction. We use foreign currency forward contracts to offset foreign exchange rate fluctuations on foreign currency denominated asset and liability positions. None of these contracts are designated as accounting hedges, and all changes in the fair value of the forward contracts are recognized in “Other expense, net” within our Condensed Consolidated Statements of Operations.
We execute derivatives with a specialized foreign exchange brokerage firm as well as other large financial institutions. The primary credit risk inherent in derivative agreements is the possibility that a loss may occur from the nonperformance of a counterparty to the agreements. We perform a review of the credit risk of our counterparties at the inception of the contract and on an ongoing basis. We anticipate that our counterparties will be able to fully satisfy their obligations under the agreements but will take action if doubt arises regarding the counterparties’ ability to perform.
As of March 31, 2023 and December 31, 2022, the net notional amounts of the forward contracts the Company held were $28,335 and $21,907, respectively. At March 31, 2023 and December 31, 2022, the fair value of outstanding forward contracts was $0.
The following table presents the location and amount of net gains (losses) from hedging activities, which offset foreign currency gains and losses recorded in the normal course of business that are not presented below, for the periods presented.
| Three months ended March 31, | ||||||||||||||
| Derivative | Statements of Operations Location | 2023 | 2022 | |||||||||||
| Foreign currency contracts | Other expense, net | $ | 171 | $ | (127) | |||||||||
11. COMMITMENTS AND CONTINGENCIES
Contingent Liabilities
The Company records an accrual for contingent liabilities when a loss is both probable and reasonably estimable. If some amount within a range of loss appears to be a better estimate than any other amount within the range, that amount is accrued. When no amount within a range of loss appears to be a better estimate than any other amount, the lowest amount in the range is accrued.
Legal Proceedings
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial condition or operating results except as set forth below:
Wage and Hour Matters
Felipe v. Arcadia, Inc. and One Stop Employment Services, Inc. (“One Stop”). This complaint was filed on October 22, 2021 in Los Angeles Superior Court and purports to allege a class action on behalf of all non-exempt California employees who worked on behalf of One Stop or Arcadia at any time during the four years preceding the date of the complaint. One Stop is a staffing agency which provides temporary workers, including to Arcadia. The complaint states claims under California’s labor laws and under its general Unfair Business Practices Act, California Business & Professions Code section 17200. The plaintiff has subsequently dismissed the class action claims without prejudice, acknowledging that Arcadia’s arbitration agreement likely bars such class claims. The plaintiff also filed a separate action under California’s Private Attorneys General Act (“PAGA”) alleging essentially the same wage and hour violations. This action included other Arcadia employees. In Viking River Cruises,
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Inc. versus Moriana, the U.S. Supreme Court concluded that arbitration agreements may bar representative PAGA claims. However, Viking River left open certain state law issues, which the California Supreme Court has agreed to address. Currently, Felipe’s PAGA representative claims are stayed, and will likely remain stayed until a California Supreme Court ruling. The plaintiff has however commenced arbitration on individual claims, though no dates have yet been set in that arbitration.
Mayorga v. Arcadia, Inc. This complaint was filed on November 15, 2021 in Los Angeles Superior Court. It purported to allege a class action on behalf of all of the Company’s non-exempt California employees who worked at the Company within four years before the date the complaint was filed. It asserts claims substantially similar to those asserted in the Felipe case but does not include One Stop as a defendant. The plaintiff amended his complaint to delete class action claims and any individual non-PAGA claims. Accordingly, plaintiff’s complaint is now limited to PAGA collective action claims. As in Felipe, those PAGA representative claims are currently stayed and will likely remain stayed until the California Supreme Court addresses the state law issues left open by the U.S. Supreme Court’s decision in Viking River Cruises, Inc. versus Moriana. The plaintiff has however commenced arbitration on a solely individual basis of his wage and hour claims. The arbitral body has appointed an arbitrator to adjudicate those claims and a hearing has been set for 2024. The remaining Mayorga PAGA representative claims have now been assigned to the same judge as the Felipe case.
We have agreed to mediate the Felipe claims in May 2023, and in any settlement arising out of this process, we would intend to resolve the claims in both Mayorga and Felipe to the extent asserted on behalf of other employees.
Arcadia intends to vigorously defend against the Felipe and Mayorga actions. Due to the nature of these matters and inherent uncertainties, it is not possible to provide an evaluation of the likelihood of an unfavorable outcome or an estimate of the amount or range of potential loss, if any. Further, under the Equity Purchase Agreement, certain amounts have been placed in escrow pending resolution of these matters.
12. CHIEF EXECUTIVE OFFICER TRANSITION
During the first quarter of 2023, the Company and its former CEO entered into a separation agreement pursuant to which the former CEO received certain severance benefits consistent with his pre-existing employment agreement with the Company. These severance benefits include 18 months of salary, a lump sum cash payment, and accelerated vesting of outstanding equity awards. During the three months ended March 31, 2023, the Company recognized $1,621 of severance related expense and $3,040 of stock-based compensation expense related to the accelerated vesting of outstanding equity awards. These expenses were recognized in “General and administrative expenses” in the Condensed Consolidated Statements of Operations.
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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our historical Consolidated Financial Statements and notes that are included in our Annual Report filed on Form 10-K for the year ended December 31, 2022.
Unless stated otherwise, all dollar figures are presented in thousands (000s).
Overview
General
DMC Global Inc. (“DMC”, "we", "us", "our", or the "Company") owns and operates Arcadia, DynaEnergetics and NobelClad, three innovative, asset-light manufacturing businesses that provide differentiated products and engineered solutions to niche segments of the construction, energy, industrial processing and transportation markets. Each of our businesses provides a unique suite of highly engineered products and differentiated solutions, and each has established a leadership position in its respective market. Our businesses seek to capitalize on their product and service differentiation to grow market share, expand profit margins, increase cash flow and enhance shareholder value.
Our businesses follow a clear and compelling strategy and are led by excellent leadership teams that we support with business resources and capital. We take a focused approach to capital allocation and work with our business leaders to identify investments that will advance their operating strategies and generate attractive returns. Our approach helps our portfolio companies grow their core businesses, launch new initiatives, upgrade technologies and systems, expand their markets and improve their competitive positions. Our culture is to foster local innovation versus centralized control. Headquartered in Broomfield, Colorado, DMC trades on Nasdaq under the symbol “BOOM.”
Arcadia
On December 23, 2021, DMC completed the acquisition of 60% of the membership interests in Arcadia Products, LLC, a Colorado limited liability company resulting from the conversion of Arcadia, Inc. (collectively, “Arcadia”). Arcadia supplies architectural building products, including exterior and interior framing systems, curtain walls, windows, doors, and interior partitions to the commercial construction market; it also supplies customized windows and doors to the high-end residential construction market.
Cost of products sold for Arcadia includes the cost of aluminum, paint, and other raw materials used to manufacture windows, curtain walls, doors, and interior partitions as well as employee compensation and benefits, manufacturing facility lease expense, depreciation expense of property, plant and equipment related to manufacturing, supplies and other manufacturing overhead expenses.
DynaEnergetics
DynaEnergetics designs, manufactures and distributes highly engineered products utilized by the global oil and gas industry principally for the perforation of oil and gas wells. These products are primarily sold to oilfield service companies in the U.S., Europe, Canada, Africa, the Middle East, and Asia. The market for perforating products, which are used during the well completion process, generally corresponds with oil and gas exploration and production activity. Well completion operations are increasingly complex, which in turn has increased the demand for intrinsically-safe, reliable and technically advanced perforating systems.
Cost of products sold for DynaEnergetics includes the cost of metals, explosives and other raw materials used to manufacture shaped charges, detonating products and perforating guns as well as employee compensation and benefits, depreciation of manufacturing facilities and equipment, manufacturing supplies and other manufacturing overhead expenses.
NobelClad
NobelClad produces explosion-welded clad metal plates for use in the construction of corrosion resistant industrial processing equipment, as well as specialized transition joints for use in construction of commuter rail cars, ships, and LNG processing equipment. While a significant portion of the demand for our products is driven by maintenance and retrofit projects at existing chemical processing, petrochemical processing, oil refining, and aluminum smelting facilities, new plant construction and large plant expansion projects also account for a significant portion of total demand. These industries tend to
be cyclical in nature and timing of new order inflow remains difficult to predict. We use backlog as a primary means to measure the immediate outlook for our NobelClad business. We define “backlog” at any given point in time as all firm, unfulfilled purchase orders and commitments at that time. Most firm purchase orders and commitments are realized, and we expect to ship most orders in our backlog within twelve months. NobelClad's backlog increased to $59,989 at March 31, 2023 from $55,451 at December 31, 2022.
Cost of products sold for NobelClad includes the cost of metals, explosive powders and other raw materials used to manufacture clad metal plates as well as employee compensation and benefits, outside processing costs, depreciation of manufacturing equipment, manufacturing facility lease expense, supplies and other manufacturing overhead expenses.
Factors Affecting Results
•Consolidated sales were $184,341 in the first quarter of 2023 versus $138,716 in the first quarter of 2022, an increase of 33%. The improved performance primarily was driven by DynaEnergetics due to increased drilling and well completion activity in North America.
•Arcadia reported sales of $80,338 in the first quarter of 2023, representing an increase of 18% compared with the first quarter of 2022. The increase was largely attributable to higher customer pricing in response to aluminum metal inflation throughout a significant portion of 2022, as well as increases in other input costs.
•DynaEnergetics’ sales of $81,968 in the first quarter of 2023 increased 68% compared with the first quarter of 2022 due to higher North American drilling and well completions, which led to increased demand for its DynaStage (“DS”) perforating systems. Supply chain disruptions including a shortage of sand, which is a key material used to complete unconventional wells, impacted activity levels at end customers in North America in the first quarter of 2022. DynaEnergetics’ international sales also improved year over year, increasing 90% compared with the first quarter of 2022.
•NobelClad’s sales of $22,035 in the first quarter of 2023 increased 1% compared with the first quarter of 2022 reflecting a modest increase in shipments out of backlog.
•Consolidated gross profit was 28.3% in the first quarter of 2023 versus 26.6% in the first quarter of 2022. The improvement compared to the prior year was attributable to the impact of higher sales volume, primarily in unit sales of DS perforating systems at DynaEnergetics, on fixed manufacturing overhead expenses.
•Consolidated selling, general and administrative (SG&A) expenses were $39,324 in the first quarter of 2023 compared with $27,808 in the first quarter of 2022. During the first quarter, the Company and its former Chief Executive Officer (“CEO”) entered into a separation agreement. In conjunction with this change, we incurred total CEO transition charges of $2,965 inclusive of severance expense directly related to the former CEO of $1,621, as well as $3,040 of stock-based compensation expense related to the accelerated vesting of the former CEO’s outstanding equity awards. Remaining year-over-year SG&A increases were primarily attributable to higher outside service costs driven by patent infringement litigation costs at DynaEnergetics and payroll related expenses.
•Cash of $19,647 at March 31, 2023 decreased $5,497 from $25,144 at December 31, 2022. The decrease in cash primarily related to principal payments on the Company’s Term Loan under our credit facility.
Outlook
While we remain in a period of macroeconomic uncertainty, our businesses reported resilient demand for their products through the first quarter.
Arcadia serves the commercial building market primarily in the western and southwestern United States as well as the high-end residential market across the United States. Both commercial and residential operations have built substantial order backlogs and are benefiting from relatively strong markets, which collectively are expected to lead to continued sequential improvement in Arcadia’s financial performance in the second quarter of 2023. In addition, we expect to increase our finishing capacity during 2023, which will increase manufacturing throughput. The implementation of phase one of a new enterprise resource planning system is nearing completion and should improve operating efficiencies.
In North America, well completion activity remained healthy in the first quarter of 2023, which positively impacted demand at DynaEnergetics and led to record unit sales of DynaEnergetics’ fully integrated and factory-assembled DS perforating systems. We believe well completion activity and customer pricing will remain resilient during the balance of 2023. DynaEnergetics instituted price increases throughout 2022 to offset higher labor and material costs, and additional price
increases may occur in 2023 depending upon market dynamics. Additionally, DynaEnergetics is seeking to implement more efficient manufacturing processes and is planning to introduce several premium products in 2023 that collectively are designed to improve profit margins. DynaEnergetics offers a highly differentiated product line, and its factory-assembled DS perforating systems are delivered just in time to the well site, eliminating customer assembly operations and requiring fewer people on location. In the past several years, we have engaged in litigation seeking to enforce our patents and defend against accusations of infringement of others’ patents. These lawsuits have increased our general and administrative expenses in recent years and during the first quarter of 2023; however, we expect these costs to be substantially lower for the remainder of 2023.
NobelClad, DMC’s composite metals business, is experiencing increasing demand for its Cylindra™ cryogenic transition joints used in the liquified natural gas industry, while repair and maintenance work from downstream energy and petrochemical industries is also improving. NobelClad backlog was $59,989 as of March 31, 2023, up from $55,451 as of December 31, 2022. We expect to ship most orders in our backlog within 12 months.
In January 2023, the Company announced the appointment of Michael Kuta and David Aldous as interim co-Chief Executive Officers. In addition, DMC named Eric Walter as the new Chief Financial Officer, and Arcadia named James Chilcoff as its new President. In connection with these leadership changes, near-term priorities include the acceleration of Arcadia’s integration, strengthening the profitability of DynaEnergetics, achieving commercial success with new products introduced in NobelClad, and improving the Company’s overall cash flow through more effective working capital management and targeted cost reductions. Efforts to identify DMC’s next Chief Executive Officer have begun in earnest. A leading executive search firm has been retained to help in evaluating both external and internal candidates. This important process is expected to be completed before the end of the calendar year.
Use of Non-GAAP Financial Measures
Adjusted EBITDA is a non-GAAP (generally accepted accounting principles) measure that we believe provides an important indicator of our ongoing operating performance and that we use in operational and financial decision-making. We define EBITDA as net income (loss) plus net interest, taxes, depreciation and amortization. Adjusted EBITDA excludes from EBITDA stock-based compensation, restructuring expenses and asset impairment charges (if applicable) and, when appropriate, nonrecurring items that management does not utilize in assessing DMC’s operating performance (as further described in the tables below). Adjusted EBITDA attributable to DMC Global Inc. stockholders excludes the adjusted EBITDA attributable to the 40% redeemable noncontrolling interest in Arcadia. For our business segments, Adjusted EBITDA is defined as operating income (loss) plus depreciation, amortization, allocated stock-based compensation (if applicable), restructuring expenses and asset impairment charges (if applicable) and, when appropriate, nonrecurring items that management does not utilize in assessing operating performance. As a result, internal management reports used during monthly operating reviews feature Adjusted EBITDA and certain management incentive awards are based, in part, on the amount of Adjusted EBITDA achieved during the year.
Adjusted net income (loss) is defined as net income (loss) attributable to DMC Global Inc. stockholders plus restructuring expenses and asset impairment charges (if applicable) and, when appropriate, nonrecurring items that management does not utilize in assessing DMC’s operating performance. Adjusted diluted earnings per share is defined as diluted earnings per share attributable to DMC Global Inc. stockholders (exclusive of adjustment of redeemable noncontrolling interest) plus restructuring expenses and asset impairment charges (if applicable) and, when appropriate, nonrecurring items that management does not utilize in assessing DMC’s operating performance.
Adjusted net income (loss) and adjusted diluted earnings per share are presented because management believes these measures are useful to understand the effects of restructuring, impairment, and other nonrecurring charges on DMC’s net income (loss) and diluted earnings per share, respectively.
Net debt is a non-GAAP measure we use to supplement information in our Condensed Consolidated Financial Statements. We define net debt as total debt less total cash and cash equivalents. In addition to conventional measures prepared in accordance with GAAP, the Company uses this information to evaluate its performance, and we believe that certain investors may do the same.
The presence of non-GAAP financial measures in this report is not intended to suggest that such measures be considered in isolation or as a substitute for, or as superior to, DMC’s GAAP information, and investors are cautioned that the non-GAAP financial measures are limited in their usefulness. Given that not all companies use identical calculations, DMC’s presentation of non-GAAP financial measures may not be comparable to similarly titled measures of other companies.
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Consolidated Results of Operations
Three months ended March 31, 2023 compared with three months ended March 31, 2022
| Three months ended March 31, | |||||||||||||||||||||||
| 2023 | 2022 | $ change | % change | ||||||||||||||||||||
| Net sales | $ | 184,341 | $ | 138,716 | $ | 45,625 | 33 | % | |||||||||||||||
| Gross profit | 52,211 | 36,906 | 15,305 | 41 | % | ||||||||||||||||||
| Gross profit percentage | 28.3 | % | 26.6 | % | |||||||||||||||||||
| COSTS AND EXPENSES: | |||||||||||||||||||||||
| General and administrative expenses | 26,500 | 17,718 | 8,782 | 50 | % | ||||||||||||||||||
| % of net sales | 14.4 | % | 12.8 | % | |||||||||||||||||||
| Selling and distribution expenses | 12,824 | 10,090 | 2,734 | 27 | % | ||||||||||||||||||
| % of net sales | 7.0 | % | 7.3 | % | |||||||||||||||||||
| Amortization of purchased intangible assets | 5,667 | 12,976 | (7,309) | (56 | %) | ||||||||||||||||||
| % of net sales | 3.1 | % | 9.4 | % | |||||||||||||||||||
| Restructuring expenses | — | 32 | (32) | (100 | %) | ||||||||||||||||||
| Operating income (loss) | 7,220 | (3,910) | 11,130 | 285 | % | ||||||||||||||||||
| Other expense, net | (200) | (209) | 9 | (4 | %) | ||||||||||||||||||
| Interest expense, net | (2,381) | (1,024) | (1,357) | 133 | % | ||||||||||||||||||
| Income (loss) before income taxes | 4,639 | (5,143) | 9,782 | 190 | % | ||||||||||||||||||
| Income tax provision (benefit) | 2,500 | (863) | 3,363 | 390 | % | ||||||||||||||||||
| Net income (loss) | 2,139 | (4,280) | 6,419 | 150 | % | ||||||||||||||||||
| Less: Net income (loss) attributable to redeemable noncontrolling interest | 1,230 | (992) | 2,222 | 224 | % | ||||||||||||||||||
| Net income (loss) attributable to DMC Global Inc. | 909 | (3,288) | 4,197 | 128 | % | ||||||||||||||||||
| Adjusted EBITDA attributable to DMC Global Inc. | $ | 20,091 | $ | 10,505 | $ | 9,586 | 91 | % | |||||||||||||||
Net sales were $184,341 for the three months ended March 31, 2023, or an increase of 33% compared with the same period in 2022, primarily due to an increase in unit sales of DynaEnergetics’ DS perforating systems and higher customer pricing at Arcadia in response to raw material and labor inflation.
Gross profit percentage was 28.3% versus 26.6% in the same period in 2022. The improvement compared to the prior year was attributable to the impact of higher sales volume on fixed manufacturing overhead expenses, primarily due to increases in unit sales of DS perforating systems at DynaEnergetics. These favorable impacts were partially offset by higher material and other input costs at each business segment.
General and administrative expenses increased $8,782 for the three months ended March 31, 2023 compared with the same period in 2022. The increase was driven by CEO transition charges of $2,965 as well as higher stock-based compensation expense related to the accelerated vesting of our former CEO’s outstanding equity awards. In addition, outside service costs increased by $1,145 due primarily to patent infringement litigation costs at DynaEnergetics and non-capitalizable implementation costs incurred related to a new enterprise resource planning system at Arcadia. There was also an increase in salaries, benefits, and other-payroll related costs including variable incentive compensation of $1,860.
Selling and distribution expenses increased $2,734 for the three months ended March 31, 2023 compared with the same period in 2022. The increase primarily was due to higher salaries, benefits, and other-payroll related costs including variable incentive and stock-based compensation of $2,397 and higher outside services costs of $316.
Operating income was $7,220 for the three months ended March 31, 2023 compared to an operating loss of $3,910 in the same period in 2022. The increase in operating income was the result of improved performance at DynaEnergetics and Arcadia.
Other expense, net of $200 for the three months ended March 31, 2023 primarily related to net realized foreign currency exchange losses. Currency gains and losses can arise when subsidiaries enter into inter-company and third-party transactions that
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are denominated in currencies other than their functional currency, including foreign currency forward contracts used to offset foreign exchange rate fluctuations on certain foreign currency denominated asset and liability positions.
Interest expense, net of $2,381 for the three months ended March 31, 2023 increased compared with the same period in 2022 due to an increase in interest rates as the Term Loan under our credit facility has a variable interest rate.
Income tax provision of $2,500 was recorded on income before income taxes of $4,639. Our most significant operations are in the United States, which has a 21% statutory income tax rate, and Germany, which has a 32% combined statutory income tax rate. The mix of income or loss before income taxes between these jurisdictions is one of the primary drivers of the difference between our 21% statutory tax rate and our effective tax rate. The effective rate was impacted unfavorably by geographic mix of pretax income, state taxes, certain compensation expenses that are not tax deductible in the U.S and discrete stock-based compensation impacts of $1,298. The operating results of Arcadia that are attributable to the redeemable noncontrolling interest holder are not taxed at DMC, which resulted in a partially offsetting favorable impact to the effective tax rate. We recorded an income tax benefit of $863 on loss before income taxes of $5,143 for the three months ended March 31, 2022. The prior year effective rate was impacted unfavorably by discrete stock-based compensation impacts of $386. The rate was also impacted by the same factors previously discussed.
Net income attributable to DMC Global Inc. for the three months ended March 31, 2023 was $909, compared to net loss of $3,288 for the same period in 2022.
Adjusted EBITDA for the three months ended March 31, 2023 increased compared with the same period in 2022 primarily due to the improved performance of DynaEnergetics. See “Use of Non-GAAP Financial Measures” above for the explanation of the use of Adjusted EBITDA. The following is a reconciliation of the most directly comparable GAAP measure to Adjusted EBITDA.
| Three months ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Net income (loss) | $ | 2,139 | $ | (4,280) | |||||||
| Interest expense, net | 2,381 | 1,024 | |||||||||
| Income tax provision (benefit) | 2,500 | (863) | |||||||||
| Depreciation | 3,400 | 3,359 | |||||||||
| Amortization of purchased intangible assets | 5,667 | 12,976 | |||||||||
| EBITDA | 16,087 | 12,216 | |||||||||
| Stock-based compensation | 5,027 | 2,358 | |||||||||
CEO transition expenses (1) | 2,965 | — | |||||||||
| Restructuring expenses | — | 32 | |||||||||
| Amortization of acquisition-related inventory valuation step-up | — | 258 | |||||||||
| Other expense, net | 200 | 209 | |||||||||
| Adjusted EBITDA | 24,279 | 15,073 | |||||||||
| Adjusted EBITDA attributable to redeemable noncontrolling interest | (4,188) | (4,568) | |||||||||
| Adjusted EBITDA attributable to DMC Global Inc. | $ | 20,091 | $ | 10,505 | |||||||
(1) During the first quarter of 2023, the Company and its former CEO entered into a separation agreement. In conjunction with this event as well as a reprioritization of near-term initiatives, we have incurred certain transition expenses, primarily including: (a) severance related charges for the former CEO and other impacted employees of $1,906; (b) CEO transition and executive search firm costs of $557; and (c) contract termination costs of $350.
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Adjusted Net Income and Adjusted Diluted Earnings per Share for the three months ended March 31, 2023 increased compared with the same period in 2022 primarily due to the factors discussed above. See "Use of Non-GAAP Financial Measures" above for the explanation of the use of non-GAAP measures. The following is a reconciliation of the most directly comparable GAAP measures to Adjusted Net Income and Adjusted Diluted Earnings Per Share.
| Three months ended March 31, 2023 | |||||||||||
| Amount | Per Share (1) | ||||||||||
| Net income attributable to DMC Global Inc. | $ | 909 | $ | 0.05 | |||||||
CEO transition expenses and accelerated stock-based compensation, net of tax(2) | 5,235 | 0.27 | |||||||||
| As adjusted | $ | 6,144 | $ | 0.32 | |||||||
(1) Calculated using diluted weighted average shares outstanding of 19,462,636
(2) Includes CEO transition expenses of $2,965 and accelerated stock-based compensation of $3,040 related to the vesting of the former CEO’s outstanding equity awards, net of tax.
| Three months ended March 31, 2022 | |||||||||||
| Amount | Per Share (1) | ||||||||||
| Net loss attributable to DMC Global Inc. | $ | (3,288) | $ | (0.17) | |||||||
| Amortization of acquisition-related inventory valuation step-up, net of tax | 133 | 0.01 | |||||||||
| NobelClad restructuring expenses and asset impairments, net of tax | 22 | — | |||||||||
| As adjusted | $ | (3,133) | $ | (0.16) | |||||||
(1) Calculated using diluted weighted average shares outstanding of 19,301,126
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Business Segment Financial Information
We primarily evaluate performance and allocate resources based on segment revenues, operating income and Adjusted EBITDA as well as projected future performance. Segment operating income is defined as revenues less expenses identifiable to the segment. Segment operating income will reconcile to consolidated income (loss) before income taxes by deducting unallocated corporate expenses, including unallocated stock-based compensation, other expense, net, and interest expense, net.
Arcadia
Three months ended March 31, 2023 compared with three months ended March 31, 2022
| Three months ended March 31, | |||||||||||||||||||||||
| 2023 | 2022 | $ change | % change | ||||||||||||||||||||
| Net sales | $ | 80,338 | $ | 67,968 | $ | 12,370 | 18 | % | |||||||||||||||
| Gross profit | 22,094 | 20,245 | 1,849 | 9 | % | ||||||||||||||||||
| Gross profit percentage | 27.5 | % | 29.8 | % | |||||||||||||||||||
| COSTS AND EXPENSES: | |||||||||||||||||||||||
| General and administrative expenses | 7,857 | 6,143 | 1,714 | 28 | % | ||||||||||||||||||
| Selling and distribution expenses | 5,452 | 3,737 | 1,715 | 46 | % | ||||||||||||||||||
| Amortization of purchased intangible assets | 5,652 | 12,808 | (7,156) | (56 | %) | ||||||||||||||||||
| Operating income (loss) | 3,133 | (2,443) | 5,576 | 228 | % | ||||||||||||||||||
| Adjusted EBITDA | 10,470 | 11,420 | (950) | (8 | %) | ||||||||||||||||||
| Less: adjusted EBITDA attributable to redeemable noncontrolling interest | (4,188) | (4,568) | (380) | (8 | %) | ||||||||||||||||||
| Adjusted EBITDA attributable to DMC Global Inc. | $ | 6,282 | $ | 6,852 | (570) | (8 | %) | ||||||||||||||||
Net sales increased $12,370 for the three months ended March 31, 2023 compared to the same period in 2022 primarily due to higher customer pricing in response to raw material and labor inflation.
Gross profit percentage decreased to 27.5% for the three months ended March 31, 2023 primarily due to higher base aluminum metal prices and an increase in other input costs.
General and administrative expenses increased $1,714 for three months ended March 31, 2023 compared to the same period in 2022 due to higher outside services costs of $710 in part due to the implementation of a new enterprise resource planning system, higher salaries, benefits, and other-payroll related costs including stock-based compensation and variable compensation of $857, and higher depreciation expense of $147.
Selling and distribution expenses increased $1,715 for the three months ended March 31, 2023 compared to the same period in 2022 due to higher salaries, benefits, and other-payroll related costs including stock-based compensation of $1,903. This increase is primarily attributable to an increase in employee headcount and was offset by a decrease in bad debt expense of $209.
Amortization of purchased intangible assets decreased $7,156 for the three months ended March 31, 2023 compared to the same period in 2022 as the customer backlog purchased intangible asset was fully amortized over its 7 month useful life in 2022.
Operating income increased $5,576 for the three months ended March 31, 2023 compared to the same period in 2022 due to the factors discussed above.
Adjusted EBITDA for the three months ended March 31, 2023 decreased compared with the same period in 2022 due to the factors discussed above. See “Use of Non-GAAP Financial Measures” above for the explanation of the use of Adjusted EBITDA. The following is a reconciliation of the most directly comparable GAAP measure to Adjusted EBITDA.
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| Three months ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Operating income (loss) | $ | 3,133 | $ | (2,443) | |||||||
| Adjustments: | |||||||||||
| Depreciation | 817 | 541 | |||||||||
| Amortization of purchased intangible assets | 5,652 | 12,808 | |||||||||
| Stock-based compensation | 579 | 256 | |||||||||
| CEO transition expenses | 289 | — | |||||||||
| Amortization of acquisition-related inventory valuation step-up | — | 258 | |||||||||
| Adjusted EBITDA | 10,470 | 11,420 | |||||||||
| Less: adjusted EBITDA attributable to redeemable noncontrolling interest | (4,188) | (4,568) | |||||||||
| Adjusted EBITDA attributable to DMC Global Inc. | $ | 6,282 | $ | 6,852 | |||||||
DynaEnergetics
Three months ended March 31, 2023 compared with three months ended March 31, 2022
| Three months ended March 31, | |||||||||||||||||||||||
| 2023 | 2022 | $ change | % change | ||||||||||||||||||||
| Net sales | $ | 81,968 | $ | 48,887 | $ | 33,081 | 68 | % | |||||||||||||||
| Gross profit | 24,437 | 12,608 | 11,829 | 94 | % | ||||||||||||||||||
| Gross profit percentage | 29.8 | % | 25.8 | % | |||||||||||||||||||
| COSTS AND EXPENSES: | |||||||||||||||||||||||
| General and administrative expenses | 6,197 | 5,322 | 875 | 16 | % | ||||||||||||||||||
| Selling and distribution expenses | 5,057 | 3,903 | 1,154 | 30 | % | ||||||||||||||||||
| Amortization of purchased intangible assets | 15 | 85 | (70) | (82 | %) | ||||||||||||||||||
| Operating income | 13,168 | 3,298 | 9,870 | 299 | % | ||||||||||||||||||
| Adjusted EBITDA | $ | 14,955 | $ | 5,282 | $ | 9,673 | 183 | % | |||||||||||||||
Net sales increased $33,081 for the three months ended March 31, 2023 compared to the same period in 2022 due to higher North American drilling and well completions, which led to increased demand for DS perforating systems. Supply chain disruptions, including a shortage of sand which is a key material used to complete unconventional wells, impacted DynaEnergetics’ end customers’ activity levels in North America in the first quarter of 2022. International sales also increased 90% in the first quarter of 2023 compared to the same period in 2022.
Gross profit percentage increased to 29.8% for the three months ended March 31, 2023 primarily due to the impact of higher sales volume on fixed manufacturing overhead expenses.
General and administrative expenses increased $875 for the three months ended March 31, 2023 compared to the same period in 2022 due to higher outside services costs of $957 due primarily to patent infringement litigation costs.
Selling and distribution expenses increased $1,154 for the three months ended March 31, 2023 compared to the same period in 2022 due to higher salaries, benefits, and other-payroll related costs including variable incentive compensation of $658, higher outside services cost of $330, and an increase in business-related travel of $78.
Operating income increased $9,870 for the three months ended March 31, 2023 compared to the same period in 2022 due to the factors discussed above.
Adjusted EBITDA for the three months ended March 31, 2023 increased compared with the same period in 2022 due to the factors discussed above. See “Use of Non-GAAP Financial Measures” above for the explanation of the use of Adjusted EBITDA. The following is a reconciliation of the most directly comparable GAAP measure to Adjusted EBITDA.
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| Three months ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Operating income | $ | 13,168 | $ | 3,298 | |||||||
| Adjustments: | |||||||||||
| Depreciation | 1,772 | 1,899 | |||||||||
| Amortization of purchased intangible assets | 15 | 85 | |||||||||
| Adjusted EBITDA | $ | 14,955 | $ | 5,282 | |||||||
NobelClad
Three months ended March 31, 2023 compared with three months ended March 31, 2022
| Three months ended March 31, | |||||||||||||||||||||||
| 2023 | 2022 | $ change | % change | ||||||||||||||||||||
| Net sales | $ | 22,035 | $ | 21,861 | $ | 174 | 1 | % | |||||||||||||||
| Gross profit | 5,783 | 4,181 | 1,602 | 38 | % | ||||||||||||||||||
| Gross profit percentage | 26.2 | % | 19.1 | % | |||||||||||||||||||
| COSTS AND EXPENSES: | |||||||||||||||||||||||
| General and administrative expenses | 923 | 1,037 | (114) | (11 | %) | ||||||||||||||||||
| Selling and distribution expenses | 2,239 | 2,324 | (85) | (4 | %) | ||||||||||||||||||
| Amortization of purchased intangible assets | — | 83 | (83) | (100 | %) | ||||||||||||||||||
| Restructuring expenses | — | 32 | (32) | (100 | %) | ||||||||||||||||||
| Operating income | 2,621 | 705 | 1,916 | 272 | % | ||||||||||||||||||
| Adjusted EBITDA | $ | 3,361 | $ | 1,652 | $ | 1,709 | 103 | % | |||||||||||||||
Net sales were consistent for the three months ended March 31, 2023 compared to the same period in 2022.
Gross profit percentage increased to 26.2% for the three months ended March 31, 2023 primarily due to a more favorable project mix.
General and administrative expenses decreased $114 for the three months ended March 31, 2023 compared to the same period in 2022 due primarily to lower legal expense and business-related travel.
Operating income increased $1,916 for the three months ended March 31, 2023 compared to the same period in 2022 due primarily to an increase in gross profit.
Adjusted EBITDA for the three months ended March 31, 2023 increased compared with the same period in 2022 primarily due to the factors discussed above. See “Use of Non-GAAP Financial Measures” above for the explanation of the use of Adjusted EBITDA. The following is a reconciliation of the most directly comparable GAAP measure to Adjusted EBITDA.
| Three months ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Operating income | $ | 2,621 | $ | 705 | |||||||
| Adjustments: | |||||||||||
| Depreciation | 740 | 832 | |||||||||
| Amortization of purchased intangible assets | — | 83 | |||||||||
| Restructuring expenses | — | 32 | |||||||||
| Adjusted EBITDA | $ | 3,361 | $ | 1,652 | |||||||
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Liquidity and Capital Resources
We have historically financed our operations from a combination of internally generated cash flow, revolving credit borrowings, and various long-term debt arrangements. Our net debt position was $107,039 at March 31, 2023 compared to $107,654 at December 31, 2022. The decrease in net debt during the first quarter of 2023 was due to $6,250 in Term Loan repayments, including a $2,500 principal prepayment, offset by a reduction in cash and cash equivalents. We have a fully undrawn and available $50,000 revolving credit facility at March 31, 2023.
We believe that cash and cash equivalents on hand, cash flow from operations, funds available under our current credit facilities and any future replacement thereof will be sufficient to fund the working capital, required minimum debt service payments, and other capital expenditure requirements of our current business operations for the foreseeable future. We may also execute capital markets transactions, including at-the-market offering programs, to raise additional funds if we believe market conditions are favorable, but there can be no assurance that any future capital will be available on acceptable terms or at all. Nevertheless, our ability to generate sufficient cash flows from operations will depend upon our success in executing our strategies. If we are unable to (i) realize sales from our backlog; (ii) secure new customer orders; (iii) continue selling products at profitable margins; and (iv) continue to implement cost-effective internal processes, our ability to meet cash requirements through operating activities could be impacted. Furthermore, any restriction on the availability of borrowings under our credit facilities could negatively affect our ability to meet future cash requirements. We will continue to monitor financial market conditions, including the related impact on credit availability and capital markets.
Debt facilities
On December 23, 2021, we entered into a five-year $200,000 syndicated credit agreement (“credit facility”) which included a $150,000 Term Loan, which is amortizable at 10% of principal per year with a balloon payment for the outstanding balance upon the credit facility maturity date in 2026, and allows for revolving loans of up to $50,000. The credit facility has an accordion feature to increase the commitments by $100,000 under the revolving loan class and/or by adding a term loan subject to approval by applicable lenders. We entered into the credit facility with a syndicate of four banks, with KeyBank, N.A. acting as administrative agent. The credit facility is secured by the assets of DMC including accounts receivable, inventory, and fixed assets, including Arcadia and its subsidiary, as well as guarantees and share pledges by DMC and its subsidiaries.
Borrowings under the $150,000 Term Loan and $50,000 revolving loan limit can be in the form of Adjusted Daily Simple Secured Overnight Financing Rate ("SOFR") loans or one month Adjusted Term SOFR loans. Additionally, U.S. dollar borrowings on the revolving loan can be in the form of Base Rate loans (Base Rate borrowings are based on the greater of the administrative agent’s Prime rate, an adjusted Federal Funds rate or an adjusted SOFR rate). SOFR loans bear interest at the applicable SOFR rate plus an applicable margin (varying from 1.50% to 3.00%). Base Rate loans bear interest at the defined Base rate plus an applicable margin (varying from 0.50% to 2.00%). As of March 31, 2023, no amounts were outstanding on the revolver.
The credit facility includes various covenants and restrictions, certain of which relate to the payment of dividends or other distributions to stockholders; redemption of capital stock; incurring additional indebtedness; mortgaging, pledging or disposition of major assets; and maintenance of specified ratios. As of March 31, 2023, we were in compliance with all financial covenants and other provisions of our debt agreements.
The leverage ratio is defined in the credit facility as the ratio of Consolidated Funded Indebtedness (as defined in the credit facility) on the last day of any trailing four quarter period to Consolidated Pro Forma EBITDA (as defined in the credit facility) for such period. Consolidated Pro Forma EBITDA equals Adjusted EBITDA as calculated within the Consolidated Results of Operations section plus certain predefined add-backs, which include up to $5,000 for one-time integration expenses incurred in the twelve-month period following the closing date of the Arcadia acquisition. The maximum leverage ratio permitted by our credit facility is 3.25 to 1.0 through the quarter ended March 31, 2023, and 3.0 to 1.0 from the quarter ended June 30, 2023 and thereafter. The actual leverage ratio as of March 31, 2023, calculated in accordance with the credit facility, as amended, was 1.47 to 1.0.
The debt service coverage ratio is defined in the credit facility as the ratio of Consolidated Pro Forma EBITDA less the sum of capital distributions paid in cash (other than those made with respect to preferred stock issued under the Operating Agreement), Consolidated Unfunded Capital Expenditures (as defined in the credit facility), and net cash income taxes to the sum of cash interest expense, any dividends on the preferred stock paid in cash, and scheduled principal payments on funded indebtedness. Under our credit facility, the minimum debt service coverage ratio permitted is 1.35 to 1.0. The actual debt service coverage ratio for the trailing twelve months ended March 31, 2023 was 2.99 to 1.0.
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As of March 31, 2023, borrowings of $128,750 on the Term Loan under our credit facility were outstanding. No revolving loans were outstanding, and our available borrowing capacity was $50,000 as of March 31, 2023.
We also maintain a line of credit with a German bank for certain European operations. This line of credit provides a borrowing capacity of €7,000.
Redeemable noncontrolling interest
The Operating Agreement for Arcadia contains a right for the Company to purchase the remaining interest in Arcadia from the minority interest holder on or after the third anniversary of the acquisition closing date (“Call Option”). Similarly, the minority interest holder of Arcadia has the right to sell its remaining interest in Arcadia to the Company on or after the third anniversary of the acquisition closing date (“Put Option”). Both the Call Option and Put Option enable the respective holder to exercise their rights based upon a predefined calculation as included within the Operating Agreement.
As of March 31, 2023, the settlement amount of the redeemable noncontrolling interest of $187,522 remains unchanged from December 31, 2022. Refer to Note 2 within Item 1 for further information related to the valuation of the redeemable noncontrolling interest.
Other contractual obligations and commitments
Our debt balance decreased to $126,686 at March 31, 2023 from $132,798 at December 31, 2022 for the reasons discussed above. Our other contractual obligations and commitments have not materially changed since December 31, 2022.
Cash flows provided by (used in) operating activities
Net cash provided by operating activities was $7,065 for the three months ended March 31, 2023 compared with net cash used in operating activities of $4,584 in the same period last year. The increase primarily was due to higher net income, partially offset by an increase in accounts receivable, net, which is attributable to sales growth.
Cash flows used in investing activities
Net cash used in investing activities for the three months ended March 31, 2023 and 2022 of $2,226 and $1,536, respectively, related to the acquisition of property, plant and equipment.
Cash flows used in financing activities
Net cash flows used in financing activities for the three months ended March 31, 2023 of $11,007 included a distribution to the redeemable noncontrolling interest holder of $2,600, a quarterly principal payment and prepayment on our Term Loan of $6,250, and treasury stock purchases of $2,157. Net cash flows used in financing activities for the three months ended March 31, 2022 of $9,335 included a distribution to the redeemable noncontrolling interest holder of $4,400, a quarterly principal payment on our Term Loan of $3,750, and treasury stock purchases of $1,088.
Payment of Dividends
On April 23, 2020, DMC announced that its Board of Directors suspended the quarterly dividend indefinitely due to the uncertain economic outlook caused by the COVID-19 pandemic. Future dividends may be affected by, among other items, our views on potential future capital requirements, future business prospects, debt covenant compliance considerations, changes in income tax laws, and any other factors that our Board of Directors deems relevant. Any determination to pay cash dividends will be at the discretion of the Board of Directors.
Critical Accounting Estimates
Preparation of financial statements in conformity with generally accepted accounting principles in the United States requires that management make estimates, judgments and assumptions that affect the amounts reported for revenues, expenses, asset, liabilities, and other related disclosures. Our critical accounting estimates have not changed from those reported in Item Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.
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ITEM 3. Quantitative and Qualitative Disclosure about Market Risk
There were no material changes in market risk for changes in foreign currency exchange rates and interest rates from the information provided in Item 7A – Quantitative and Qualitative Disclosures About Market Risk in the Company's Annual Report on Form 10-K for the year ended December 31, 2022.
ITEM 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, under the supervision and with the participation of the Chief Executive Officers and Chief Financial Officer have evaluated the Company’s disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this report, and they have concluded that these controls and procedures are effective.
Changes in Internal Control over Financial Reporting
There were no changes that occurred during the fiscal quarter covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
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Part II - OTHER INFORMATION
Item 1. Legal Proceedings
Please see Note 11 to the Condensed Consolidated Financial Statements.
Item 1A. Risk Factors
There have been no significant changes in the risk factors identified as being attendant to our business in our Annual Report on Form 10-K for the year ended December 31, 2022.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
In connection with the vesting of Company restricted common stock under our equity incentive plans or distributions of shares of common stock pursuant to our Amended and Restated Non-Qualified Deferred Compensation Plan (“deferred compensation plan”) during the first quarter of 2023, we retained shares of common stock in satisfaction of withholding tax obligations. We also retained shares of common stock as the result of participants’ diversification of equity awards held in the deferred compensation plan into other investment options. These shares are held as treasury shares by the Company.
Total number of shares purchased (1) (2) | Average price paid per share | |||||||||||||
| January 1 to January 31, 2023 | 29,825 | $ | 21.81 | |||||||||||
| February 1 to February 28, 2023 | 76,167 | $ | 26.47 | |||||||||||
| March 1 to March 31, 2023 | 40,742 | $ | 25.57 | |||||||||||
| Total | 146,734 | $ | 25.28 | |||||||||||
(1) Share purchases during the period were to offset tax withholding obligations that occurred upon (i) vesting of restricted common stock under the terms of the 2016 Equity Incentive Plan and (ii) distributions of shares of common stock pursuant to deferred compensation obligations.
(2) As of March 31, 2023, the maximum number of shares that could be purchased would not exceed the employees’ portion of taxes to be withheld on unvested shares (476,521) and potential purchases upon participant elections to diversify equity awards held in the deferred compensation plan (94,265) into other investment options available to participants in the Plan.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Our Coolspring property is subject to regulation by the Federal Mine Safety and Health Administration (“MSHA”) under the Federal Mine Safety and Health Act of 1977 (the “Mine Act”). Pursuant to Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (The “Dodd-Frank Act”), issuers that are operators, or that have a subsidiary that is an operator, of a coal or other mine in the United States are required to disclose in their periodic reports filed with the SEC information regarding specified health and safety violations, orders and citations, related assessments and legal actions, and mining-related fatalities. During the quarter ended March 31, 2023, we had no such specified health and safety violations, orders or citations, related assessments or legal actions, mining-related fatalities, or similar events in relation to our United States operations requiring disclosure pursuant to Section 1503(a) of the Dodd-Frank Act.
Item 5. Other Information
None.
Item 6. Exhibits
10.1 Severance and Release Agreement, dated March 16, 2023, by and between Arcadia Products, LLC, DMC Global Inc. and James Schladen.
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10.2 Second Amended and Restated Limited Liability Company Agreement of Arcadia Products, LLC, dated February 28, 2023, by and among Arcadia Products, LLC, DMC Global Inc., DMC Korea, Inc., and New Arcadia Holdings, Inc.
31.1 Certification of the Co-President and Chief Executive Officer pursuant to 17 CFR 240.13a-14(a) or 17 CFR 240.15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of the Co-President and Chief Executive Officer pursuant to 17 CFR 240.13a-14(a) or 17 CFR 240.15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.3 Certification of the Chief Financial Officer pursuant to 17 CFR 240.13a-14(a) or 17 CFR 240.15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of the Co-President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of the Co-President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.3 Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101 The following materials from the Quarterly Report on Form 10-Q of DMC Global Inc. for the quarter ended March 31, 2023, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Comprehensive Income (Loss), (iv) the Condensed Consolidated Statement of Stockholders’ Equity and Redeemable Noncontrolling Interest, (v) the Condensed Consolidated Statements of Cash Flows, and (vi) the Notes to Condensed Consolidated Financial Statements, tagged as blocks of text.*
* Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| DMC Global Inc. | |||||||||||
| (Registrant) | |||||||||||
| Date: | May 4, 2023 | /s/ Eric V. Walter | |||||||||
| Eric V. Walter, Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer) | |||||||||||
| Date: | May 4, 2023 | /s/ Brett Seger | |||||||||
| Brett Seger, Chief Accounting Officer (Duly Authorized Officer and Principal Accounting Officer) | |||||||||||
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