Dynamic Materials Corporation (BOOM)

Q2 2010 Earnings Call Transcript

July 29, 2010 5:00 pm ET


Geoff High – IR

Yvon Cariou – President and CEO

Rick Santa – SVP, CFO and Secretary


Mark Parr – KeyBanc Capital Markets

Avinash Kant – D.A. Davidson

Dan Whalen – Capstone Investments

Phil Gibbs – KeyBanc Capital Markets

Mike Shonstrom – GVC Capital



Good afternoon. My name is Tapika and I will be your conference operator today. At this time I would like to welcome everyone to the Dynamic Materials Corporation Second Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. (Operator Instructions) I would now like to turn the call over to Yvon Cariou. Sir, you may begin.

Geoff High

Tapika, hi. This is Geoff High, I’ll actually be starting out here. And first of all I like to welcome everybody to our second quarter conference call. Presenting on behalf of the company will be President and CEO, Yvon Cariou and Senior Vice President and Chief Financial Officer, Rick Santa.

I would like to remind everyone that matters discussed during this call may include forward-looking statements that are based on management's estimates, projections and assumptions as of today's date and are subject to risks and uncertainties that are disclosed in Dynamic Materials' filings with the Securities and Exchange Commission. The company's business is subject to certain risks that could cause actual results to differ materially from those anticipated in its forward-looking statements. Dynamic Materials assumes no obligation to update forward-looking statements that become untrue because of subsequent events.

A webcast replay of today's call will be available at dynamicmaterials.com after the call. In addition, a telephone replay will be made available beginning approximately two hours after the conclusion of this call. Details for listening to today's replay or webcast are available in today's news release.

And with that, I will now turn the call over to Yvon. Yvon?

Yvon Cariou

Thanks, Geoff. Our top line performance during the second quarter surpassed our prior forecasts thanks to better than expected sales results within each of our business segments. Shipments out of core explosion-welding business were slightly ahead of plan and we saw particularly strong results from our Oilfield Products and AMK Welding segments.

Oilfield Products is benefiting from increased activity in the exploration and production industry, as well as our strategic acquisition, Pogon [ph], which has boldly expanded our global sales and distribution network. Sales from this segment increased 116% compared with the second quarter last year.

Excluding our recent acquisitions in the U.S., Canada and Russia, this division still achieved top line growth of 13% versus last year's second quarter. We are currently projecting that full year sales for this segment will likely exceed $40 million. This would compare with 21.8 million in 2009.

Second quarter sales at our AMK Welding business equaled the segment's all time quarterly high. We currently believe that AMK sales during the second of the year will be equivalent to those in the first half.

We saw a dip in our explosion-welding on the backlog which came in about $40 million at the end of the quarter, down from 51 million at the end of the first quarter. This decline was a result of sizable shipments associated with the Gorgon auditor and continued sluggishness in bookings.

In spite of this pullback in backlog, we remain confident that all the volume will ultimately pick up particularly in light of quoting levels we are seeing. Our sales team in the United States reported that RFQs during June reached a four year high. European quoting activity has also been strong.

Upstream oil and gas remained an active explosion-welding end market and we continue to see growing interest from the chemical and petrochemical sector, a traditionally large market for us, but one that has been relatively quiet for many quarters. Sales to the power generation and eliminating pollution markets have remained relatively strong and our initial from the transportation sector was actually larger than anticipated.

Because of uncertainty caused by the globalization, customers in many end markets have been preserving cash and investing very little on capital projects. We think this situation has constrained a lot of basic maintenance work, not to mention new infrastructure projects. We also believe this situation is leading to substantial buildup of unaddressed work and this may be part of the reason we are seeing the increase in quoting activity.

Of course, we have no way to predict when these prospective orders will start to flow but, as I have said, we are confident it will ultimately happen. As the worldwide leader of an explosion-welding plate production, we are also confident DMC will benefit when infrastructure expanding improves.

I will now turn the call over to Rick for discussion of our financial performance. Rick?

Rick Santa

Thanks, Yvon. Hello everyone. Our second quarter sales of $38.3 million were up moderately from the 37.8 million we reported in last year's second quarter and our gross margin was flat at 234%.

Operating income was $2.1 million versus $3 million in the second quarter last year. The decline was due primarily to increased selling, general and administrative expenses associated with our acquisitions of LRI, Austin Explosives and the Russian joint ventures. Combined, these acquisitions added incremental SG&A of $1.1 million during the quarter versus the same period last year.

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