Dynamic Materials Corporation

Q3 2010 Earnings Conference Call

October 28, 2010 5 PM ET


Geoff High – IR

Yvon Cariou – President and CEO

Rick Santa – SVP, CFO and Secretary


Dan Whalen – Capstone Investments

Avinash Kant – D.A. Davidson

Phil Gibbs – KeyBanc Capital Markets

Gregory Macosko – Lord Abbett



Good afternoon. My name is Silima and I will be your conference operator today. At this time I would like to welcome everyone to the Third Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions) I would now like to turn the call over to Geoff High of Pfeiffer High Investor Relations. Please go ahead.

Geoff High

Thank you Silima. Good afternoon and welcome to Dynamic Materials third 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.

With that, I will now turn the call over to Yvon Cariou. Yvon?

Yvon Cariou

Thanks Geoff. Our third quarter financial performance reflects abilities of the diversified revenue stream we have established in recent years. While sluggish demand from the industrial processing sectors continue to restrain growth at our exclusive metalworking business, the broader economic recovery has led to much improved reserves at both our Oilfield products and AMK Welding segments.

We told you during our last call about increased quoting activity for our external welded plates and we have not seen any level in RFQs during the past three past three months. The sales teams at both our US and European quoting businesses continue to track several projects that are percolating in a variety of end markets. The most active of the sectors we participate in continue to be upstream oil and gas, power generation, aluminum and transportation, our US end market, as well as the chemical and petrochemical space.

On the operations front, consolidation of our Nitro Metall business in Sweden into our Dynaplat facilities in Germany is proceeding on plan. Our relocation of specialized production equipment will give Dynaplat important new cladding capabilities, and because we are redundant shooting capabilities with France and Germany, we believe our European operations we have more than adequate capacity for the foreseeable future. We expect that consolidation process will be complete by the end of next year’s first quarter, and we lead to enhance efficiency in the operating cost for our overall European cladding business.

As I mentioned, we experienced strong sales growth at our Oilfield product segment during the third quarter, accelerating exploration and production activity combined with wider use of horizontal drilling technologies has increased worldwide demand for our perforating gun systems and related products. In the third quarter sales from our legacy Oilfield products business increased 56% versus the third quarter of last year.

When you layer on the incremental revenue from our recent acquisitions in Canada, the United States and Russia, our year-over-year sales were 158% compared with the third quarter of last year. We think the financial and geographic benefits we are getting from this new operations clearly validates our recent acquisition problem. I should note that the two large international order prospects I told you about during our last call were both awarded to our Oilfield products business.

Customers in the Middle East and India placed the orders, and deliveries will take place over the next several quarter. Our AMK Welding business also had a very solid third quarter, delivering a 41% year-over-year improvement in sales and a 95% increase in operating income. In spite of the slow speed of recovery at our Explosion Welding business, we are very confident about this segment’s long-range prospects for growth. Clad metals were continued to play an essential role in the build out of the world’s industrial processing infrastructure.

As the global economy recovery gains steam, we fully expect demand for our flat sheet products will increase. For more on our third quarter financial performance I will now turn the call over to Rick.

Rick Santa

Thank you Yvon, good afternoon everyone. Sales during the third quarter 19% to $41.3 million versus the same period last year. Gross margin during the comparable quarters improved to 26% from 25%. Gross margin at our Explosive Welding business declined to 19% from 26% due to less favorable absorption of fixed manufacturing costs and a very competitive pricing environment. However, our Oilfield products business delivered significant expansion in gross margins which increased to 39% from 22% in the third quarter last year.

The improvement is attributable to the segment’s strong sales increase, favorable changes in product and customer mix and the incremental margin we have picked up on inter-company sales to distribution businesses we recently acquired. We are optimistic that over the long-term we will see improvements in consolidated gross margin as market conditions improve for the cladding industry.

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