使用警語:中文譯文來源為 Google 翻譯,僅供參考,實際內容請以英文原文為主
Operator
Good afternoon.
At this time, I would like to welcome everyone to the first quarter earnings conference call.
(Operator instructions) After the speakers' remarks, there will be a question-and-answer session.
(Operator instructions)
I would now like to turn the conference call over to Mr.
Geoff High of Pfeiffer High Investor Relations.
Please go ahead, sir.
Geoff High - IR
Good afternoon and welcome to Dynamic Materials' first 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 the 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 would now like to turn the call over to Yvon.
Yvon Cariou - President, CEO
Our first quarter financial performance included a revenue of $30.4 million, which slightly exceeded the forecast we gave you in March.
We also reported an expected net loss of just over $400,000.
In spite of the prolonged global recession and the impact it has had on many of our end markets, this was the first quarterly net loss DMC has reported since the second period of 2004.
We believe these 22 consecutive quarters of profitability are but one illustration of the strengths of our business model.
Like all of you, we have been closely following the latest round of economic forecasts and corporate financial reports, and much of what we are hearing suggests that several areas of the global economy are showing convincing signs of recovery.
We are optimistic that these improvements will ultimately lead to rebounding capital spending, particularly in the industrial processing space.
Recent activity in our end markets is very consistent with what we reported to you last month during our year-end conference call.
Quoting volume continues to be relatively healthy, but in many sectors the conversion rate of quotes into firm orders remains well below historic levels.
Not all of our target markets are so sluggish.
For instance, we continue to see strong demand for our [hydrometallurgy] products from the aluminum production market.
Opportunities remain very compelling in the upstream oil and gas sector, where we are working to address demand for specialized clad pipe.
We continue to believe this could be a sizeable, long-term opportunity.
Prior to the downturn, you may recall that we occasionally were awarded sizeable orders for projects that emerged quickly and spent little time on our hotlist.
We recently received such an order which came out of the specialty chemical sector.
With some of the world's largest chemical companies reporting improved demand and stronger growth forecasts, we are hopeful that we could see an elevation in activity from this sector in the coming quarters.
We are making considerable progress with the expansion of our oilfield products business.
We expect to finalize our Austin Explosives acquisition later this quarter, and are pleased with the progress we have made at integrating LRI Oil Tools.
Activity in the global operation and production industry appears to be picking up and we believe our efforts to expand this business segment will prove to be well timed.
Despite the recent slowdown in our business, we remain as confident as ever in the fundamental strength of our company and the long-range, strategic vision we have established.
As capital spending resumes, both domestically and in emerging economies, we are confident DMC will return to a position of growth.
I will now turn the call over to Rick for discussion of our financial performance.
Rick?
Richard Santa - SVP, CFO
As you just heard, our first quarter sales came in at $30.4 million, versus $49.8 million in last year's first quarter.
Our gross margin came in at 23% and was slightly higher than expected due to changes in the timing of shipments on our Gorgon orders, which are now expected in the second and third quarters.
Operating income was $245,000, and we reported a first quarter net loss of $412,000, or $0.03 per diluted share.
By comparison, in last year's first quarter, we reported operating income of $8.3 million and net income of $4.9 million, or $0.38 per diluted share.
Our first quarter adjusted EBITDA was $3.5 million, versus $11.5 million in the first quarter last year.
Please see the section of our news release regarding our use of EBITDA, which is a non-GAAP measure.
Looking at expenses, we reduced SG&A by 11%, or $381,000 as compared with last year's quarter.
If you exclude the incremental G&A expense associated with our acquisition of LRI, G&A cost reductions were actually 15%, or $556,000.
Our selling expense was flat, quarter over quarter, but the impact of the LRI acquisition masked a 21% or $485,000 reduction in selling expenses that we achieved prior to factoring in the LRI transaction.
Interest expense increased by 32% to $1.1 million versus last year's first quarter.
The increase was principally related to a non-cash charge of $251,000 associated with the prepayment of our Euro term loan.
We are anticipating that interest expense in the second quarter will decline to approximately $700,000.
Through March 31st, we generated operating cash flow of $13.8 million, versus the $3.2 million generated during the first three months of fiscal 2009.
We took aggressive steps to reduce our debt during the quarter.
We eliminated the balance on our European term loan, cut our total debt by $16.5 million, and reduced our net debt by $12.5 million.
We ended the quarter with a cash position of $18.4 million and had working capital on March 31 of approximately $36 million.
With respect to guidance, we are anticipating that second quarter sales will increase by approximately 10% to 15%, compared with the first quarter.
Our expectations anticipate that the first half of the $14.8 million in orders associated with the Gorgon Natural Gas project will ship during the quarter, with the balance shipping in the third quarter.
Our gross margin is expected in a range of 20% to 22%.
We have not adjusted our full-year expectations, which anticipate sales in a range of flat to down 5% compared to 2009.
Our full-year gross profit margin forecast remains at 22% to 24%.
Our first quarter tax rate decreased to 27% from 33% in last year's first quarter, and we are now anticipating a blended effective tax rate for 2010 in the range of 25% to 28%.
This is below our prior four-year forecast of between 33% to 35%.
The reduction is due, in part, to the expected decline in our 2010 consolidated, pre-tax income, versus what we reported in 2009.
We expect that our blended effective tax rate will return to a normalized level of 33% to 35% beginning in 2011.
We are now ready to take any questions.
Operator
(Operator instructions) Your first question comes from Avinash Kant from D.A.
Davidson.
Avinash Kant - Analyst
First, on the guidance, you have maintained your full-year guidance for flat to down 5%.
If I plug in the numbers that you're talking about for Q2, maybe 10 to 15% upside from Q1 levels, it looks like the second half is doing significantly better than the first half in order to get to those numbers.
Am I thinking it right?
Richard Santa - SVP, CFO
Yes, Avinash, and that relates to the shifting of the Gorgon orders from Q2 to Q3.
The previous guidance had anticipated that that full order would ship by the end of the second quarter.
Avinash Kant - Analyst
Right, but as it is divided half and half, are you expecting the rest of the business to improve in the September quarter compared to the June quarter?
Richard Santa - SVP, CFO
Yes, we would expect that to be the case based on what's in our current backlog and shifting some of that Q2 work to Q3.
Our Q3 forecast, absent the Gorgon orders, would remain what they were and then you add the impact of the Gorgon orders to that number.
Avinash Kant - Analyst
Right, and it does look like your bookings have started to improve some, although not a lot, but still they are improving, right?
In the quarter, bookings are higher than the previous quarter?
Richard Santa - SVP, CFO
That is correct.
Avinash Kant - Analyst
Could you say which segment of the market seems to be improving at this point?
Yvon Cariou - President, CEO
Yes, Avinash, I think it's pretty steady as compared to the previous quarter.
It's still oil and gas, it's still aluminum, good support in power generation, and still in existence in hydrometallurgy, and somewhat sluggish in chemical, but maybe we've turned a corner.
We did book a significant order during the quarter for a specialty chemical application.
Avinash Kant - Analyst
But it looks like in order to meet the guidance for the year on net returns, your bookings have to improve meaningfully from here on, and do you see that happening at this point?
Yvon Cariou - President, CEO
We see the possibility of that happening, given again, the quoting activity.
The hotlist is reasonably steady as where we were, but we have seen an uptick in request to quotations, particularly at the end of Q1, and we understand that the way to recovery is not going to be a linear curve.
Nevertheless, it looks like we see more uptick, so we are encouraged that indeed, the certain part of the year carries potential to do quite a bit better.
Avinash Kant - Analyst
Any other quarters for the year you expect to be losing money, or you expect to make money in the rest of the quarters?
Richard Santa - SVP, CFO
I think the best way to answer that, Avinash, is in the second quarter, we expect sales to go up 10 to 15%.
We expect margins to decline some.
I think we've indicated earlier that the Gorgon orders do not carry our normal historic margins.
We had to provide more aggressive pricing on that project work as well as other project work.
Another factor, in the first quarter, we had sizeable shipment that involved customer-supplied metals, and if DMC had provided the metal on that order, the equivalent sales for Q1 would have moved up by $3.5-$4 million.
So in essence, we're forecasting flat volume with a lower gross margin, which leads to a second quarter in terms of operating income.
Then we have interest, which we expect to be reduced some, so you have a second quarter that, except for the interest expense reduction, looks a lot like the first quarter.
Avinash Kant - Analyst
All right, so close to half a million reduction in the interest expense, you say?
Richard Santa - SVP, CFO
No, we said interest expense should be around $700,000.
Avinash Kant - Analyst
It was $1.14 or so this quarter.
Richard Santa - SVP, CFO
Let's see, yes, I guess that does come to almost that much money.
Yes, so we've got $1.14 of net interest expense.
Net interest expense, $1 million, just a little over $1.1 million, so that guidance was really for a net interest expense, so we're saying net interest expense will go from about $1.1 to $700,000.
Avinash Kant - Analyst
Okay, and any trends in pricing?
Where do you see pricing going?
Yvon Cariou - President, CEO
Not much change.
There is still overcapacity with the people who do roll bond and as long as that's going to stay, I don't think there's going to be a lot of opportunity for pricing increase.
Outside even of that segment, again, pricing pressure is pretty high.
I think even if we see metals increasing, that's going to be a positive for us, but constrained by what I just said regarding the overcapacity existing still in the roll bond business.
Avinash Kant - Analyst
Perfect.
Operator
Your next question comes from James Bank of Sidoti & Company.
James Bank - Analyst
Just getting into the selling expense and G&A a little bit more, from what I understand, a lot of that is from the LRI acquisition.
Is this sort of a run rate we should expect through the rest of the year or do you think you'll get better cost synergies from that acquisition maybe in the last six months of the year?
Richard Santa - SVP, CFO
It's a run rate that can be expected for the second quarter, but as you know, some of our incentive compensation is based upon net income or operating income, so very little is being recorded during Q1 and Q2.
We'd expect with the positive second half of the year to have some of that expense, and then sales commissions are also a variable.
James Bank - Analyst
So as you expect volume to come in, then we'd expect those types of accruals to come in as well?
Richard Santa - SVP, CFO
Right, but we don't expect any meaningful synergies this year associated with the LRI acquisition.
Yvon Cariou - President, CEO
No, we think we have acquired overall in the oilfield products, a good human structure.
It's working well.
We need to make them work even better together, but we want to use all of the power available there to gain market shares.
So we are not going to be visiting the structure to attempt to reduce much of it.
The reduction in selling cost will come from the top-line growth.
James Bank - Analyst
Okay, and for the oilfield service segment, is that something we could maybe see break even by the June quarter, or I guess at least by the third quarter?
Richard Santa - SVP, CFO
I think at least by the third quarter.
James Bank - Analyst
Okay.
Rick, any other further dept pay down, do you think, as significant as you just did, in the March quarter by the end of the year?
Richard Santa - SVP, CFO
Nothing is planned at this point other than the scheduled repayment of the US term loan in November.
That, I believe is a $6,750,000 payment.
James Bank - Analyst
Okay, and Rick, the segment and gross profit, if I could?
Richard Santa - SVP, CFO
I'm ready for this one, James.
Cladding 21.9%.
Oilfield products 27.5% and AMK Welding 22.5%.
James Bank - Analyst
Lastly, that specialty chemical project that you guys want, could you at least say, is that domestic or was that an international win?
Yvon Cariou - President, CEO
It's North America.
James Bank - Analyst
And, Yvon, the clad pipe, I couldn't quite catch that in your prepared remarks.
Could you run through that market again for me, please, and just elaborate a little bit on the potential you have there?
Yvon Cariou - President, CEO
As you have heard, the Gorgon Natural Gas Project, the order we got is not for clad pipe; it's for a piece of equipment.
But in the process of developing that product and producing it, we feel that we are establishing the base technology that will allow us to be put-on-shelf candidates in the general clad pipe business.
The reason why we may have opportunity there is that it seems like in the new gas fields that are being explored, which are in politically stable countries, they seem to be deeper, hotter, dirtier coats, meaning more corrosion associated with those and higher pressure.
All of that would seem to lead to thicker product, thick in the sense of the thickness of the pipe, and higher nickel alloys.
That combination is very favorable for explosion welding.
James Bank - Analyst
Thank you for that.
That is all I have.
Operator
Your next question comes from Phil Gibbs of KeyBanc.
Phil Gibbs - Analyst
I had a question about potential opportunities in the shale gasification market.
Obviously, unconventional wells are becoming almost conventional at this point in the US and around the world.
I just wondered how much of that is an opportunity for you as we look at some of these energy sources going forward?
Yvon Cariou - President, CEO
Shale gas potentially could have some opportunity for us.
I think deeper configuration will probably carry a bigger potential as opposed to shallow situation.
Phil Gibbs - Analyst
Is there any noticeable change between the North American and European markets in general from what you're seeing?
Is Dynaplat or your shop up in Mount Braddock, is there a difference in activity?
Yvon Cariou - President, CEO
The way we look at it, first, when we say US, it means US-based operation servicing South and North America, and the Far East region and Australia, while Europe-based, including Dynaplat, Nobelclad and Nitro Metall, service Europe, Russia, India and the Middle East.
So both industrial bases really service a global market.
I think we see them both carrying opportunities that can be somewhat different, maybe more oil and gas in this part of the world, although in the Middle East you have certainly opportunities, but a lot of the fabrication for the Middle East project can be in Asia, for example.
In Europe, we've been quite successful in the aluminum sector for some of the emerging economies where we have a great product line.
So the product mix is different from one region to the next, and I think they are both carrying a good potential.
One thing that may be a little bit of a crystal ball indicator for us is that we have an internal jargon here, and we call that "cats and dogs," meaning small projects, as opposed to a "white elephants," that would be a big project.
We see more "cats and dogs" across the world, and although they are not going to carry us into huge growth, they are an indication that things are starting to come back.
Phil Gibbs - Analyst
Thanks for that color.
I was more curious on your view of the rate of recovery between the two regions.
Seemingly to us, Europe appears to be somewhat lagging and I'm just curious of your perception now with the debt issues.
Yvon Cariou - President, CEO
Yes, Europe may be lagging, but again, our Europe platform services all the markets in Europe, which includes India, the Middle East and Russia.
So we have other opportunities in that region.
I named aluminum, is one.
Power generation would be another one that could be of significance, while maybe chemical would be more in this part of the world, or oil and gas.
When I say this part of the world, what is serviced from North America, which includes the Far East and Australia and South America.
Phil Gibbs - Analyst
That's perfect.
I think that's all I've got.
Operator
Your next question comes from Daniel Hazelwood of Compliance Technologies.
Daniel Hazelwood - Analyst
Do you see the stock price staying in line with last year's figures, or are we looking at something that may bump based on dividends?
Yvon Cariou - President, CEO
We really will not guide on that, and I don't think we would be able to guide on that intelligently, Daniel.
Daniel Hazelwood - Analyst
Are there dividends based on the earnings?
Yvon Cariou - President, CEO
We have a policy of dividends that was instituted in 2006 and we've been paying first yearly dividends, and we switched to quarterly dividends last year.
I think we are a company that will probably stick with that general policy.
I don't think it will be altered in any significant way.
Daniel Hazelwood - Analyst
As a personal investor of over $30,000, I see the future with you guys as pretty exciting, and I've seen the stock kind of dip over the last six to eight months.
Nothing to be alarmed about, but I just wanted to make sure that you guys are on the right track too.
Yvon Cariou - President, CEO
We are very excited about our opportunities, both our global expansion in the explosion welding world is still not complete, so we have work to do that should give us growth, and we are very excited about the oilfield products segment where we feel we have serious opportunity for organic and external growth as well.
Daniel Hazelwood - Analyst
Is that based on the rate of the US dollar falling, or are we looking at international currencies that play into that?
Yvon Cariou - President, CEO
No, it's just based on the growth of the general economies and opportunities in developed economies and growing economies.
Operator
This concludes the Q & A session.
Mr.
Cariou, do you have any closing remarks?
Yvon Cariou - President, CEO
Yes, I'd like to thank everybody for participating, for your continued interest.
We remain extremely bullish on the future of DMC and with the great support of our employees and great guidance of our board of directors, we think we are going to deliver what investors desire.
I look forward to speaking with you all again next quarter.
Thank you.
Operator
This concludes today's conference.
You may now disconnect.