DMC Global Inc.

Good day, ladies and gentlemen, and welcome to the DMC Global First Quarter 2020 Earnings Conference Call. All lines have been placed on a listen-only mode, and the floor will be open for your questions and comments following the presentation. At this time, it is my pleasure to turn the floor over to your host for today, Mr. Geoff High, VP of Investor Relations. Sir, the floor is yours.

Hello and welcome to DMC's first quarter conference call. Presenting today are President and CEO Kevin Long and CFO Mike Kuda. I'd like to remind everyone that matters discussed during this call may include forward-looking statements that are based on our estimates, projections, and assumptions as of today's date and are subject to risks and uncertainties that are disclosed in our filings with the SEC. Our business is subject to certain risks that could cause actual results to differ materially from those anticipated in our forward-looking statements. DMC 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 dmcglobal.com after the call. In addition, a telephone replay will be available approximately two hours after the call. Details for listening to the replay are available in today's news release. And with that, Alan, I'll turn the call over to Kevin Long. Kevin?

Thank you, Geoff, and hello, everyone. DMC's core energy market entered a very challenging period during the first quarter. Oil and gas demand collapsed as attempts to slow the COVID-19 pandemic sharply curtailed global economic activity. These difficulties were compounded by rapidly rising crude supplies and declining storage capacity. The supply-demand imbalance led to a 65% drop in oil prices during the first quarter. This price decline accelerated in the second quarter. Earlier this week, U.S. crude futures fell by more than 300% in a single day and turned negative for the first time in history. DMC is taking steps to withstand this downturn. We have a highly efficient operating structure, a strong financial position, and a compelling business strategy. Following the review of our first quarter financial results, I will summarize a number of actions we have taken to align our cost structure with lower activity levels. Consolidated sales for the first quarter were $73.6 million, down 15% sequentially and down 27% versus the 2019 first quarter. DynEnergetics, our oilfield products business, reported first quarter sales at $53.2 million, down 18% sequentially and 33% versus last year's first quarter. The decline reflects lower well completion activity, which was trending down throughout the quarter and then fell sharply in March. Sales at Noble Flat, our composite metals business, were $20.3 million, down 7% sequentially and flat versus last year's first quarter. Consolidated gross margin in the first quarter was 33%, down from 35% in last year's fourth quarter, and down from 36% in the 2019 first quarter. The decrease reflects the impact of lower volume on fixed manufacturing overhead at DynEnergetics, as well as a less favorable project mix at Novoclad, and a lower proportion of sales at DynEnergetics versus Novoclad. Dynaenergetics reported first quarter gross margin of 37% versus 38% in the 2019 fourth quarter and 39% in last year's first quarter. Novaclav reported first quarter gross margin of 25% versus 27% in the fourth quarter and 26% in the year-ago first quarter. We reported consolidated adjusted operating income of $7.5 million, which includes an increase of $2.3 million to our reserve for doubtful accounts, but excludes $1.1 million in restructuring charges. The restructuring charges primarily relate to severance expenses associated with a workforce reduction. adjusted operating income in the 2019 first quarter was $20.5 million. First quarter adjusted net income was $5.3 million, or $0.35 per diluted share, versus adjusted net income of $15.2 million, or $1.02 per diluted share in last year's first quarter. Adjusted EBITDA was $11.3 million, versus $17.6 million in the fourth quarter, and $23.9 million in last year's first quarter. Dyne Energetics reported first quarter adjusted EBITDA of $11.3 million, while Novoclad reported adjusted EBITDA of $2.4 million. As first quarter customer demand declined, we moved quickly to reduce our activity-based cost structure. Initiatives included the difficult process of reducing our workforce by approximately one-third. This primarily affected direct labor positions at DynEnergetics, where we also implemented shortened work weeks at our manufacturing facilities. Selling, general, and administrative expenses have been reduced by 25% versus our 2019 quarterly run rate. We have cut our 2020 capital budget by 50%. We now anticipate capital spending of approximately $13 million, which will be focused primarily on maintenance programs and completing current projects. We have also suspended our quarterly dividend. These initiatives are key to maintaining our financial strength as we navigate a challenging time for the economy and our industry in particular. These steps also will enable the continued execution of our medium to longer-term business strategy, which is to create value through investments in research and development, product and market development, digital transformation, and operational excellence. The expanding product offering at DynEnergetics continues to improve the safety, efficiency, and reliability of unconventional well completions. exploration and production companies and their service providers are abandoning the outdated process of assembling and hand wiring rudimentary components and have transitioned to our DynaStage DS factory assembled performance assured perforating systems. DS systems are delivered directly to the well site, reducing the need for assembly personnel in related facilities. They also reduce our customers' investments in inventory, supply chain resources, and working capital, and significantly improve their returns on invested capital. Novoclad booked $29 million in orders during the first quarter, making it the second strongest bookings quarter in five years. Novoclad's rolling 12-month bookings were $98 million, up from $90 million at the end of 2019. Order backlog at the end of the quarter was $41.3 million, a 30% sequential improvement. The economic downturn has severely disrupted our core energy markets. Operators and service companies are revisiting their activity plans daily, and we anticipate second quarter well completions could be down by more than 60% year over year. This volatility has made it very difficult to forecast our near-term performance and we therefore are not able to issue financial guidance for the second quarter or full year. Despite these challenges, DMC is well positioned for long-term success. We have taken aggressive action to maintain our liquidity and reduce costs, which will enable us to continue our investments in new technology, product, and market development. By concurrently focusing on innovation and financial strength, we are confident DMC will emerge from the downturn an even stronger company. I'll now turn the call over to Mike for a few comments on our expenses and balance sheet.