BOOM Management Guidance Q4

As promised in my post from earlier today, here is a rundown of Q4 guidance based on information from the Q3 earnings release and 10Q.

(all numbers in thousands except EPS)

Sales

Based on the earning release, management expects Q4 sales to be comparable to Q2 sales of $63,183 million.

Guidance in the 10Q is a little more specific.

Explosive Welding – return to Q2 levels $52,996
AMK – consisted with Q1 and Q2. Average of Q1 and Q2 $2,282
Oilfield Products – 20-25% higher than Q3. 1.23 x Q3 $6,756 = $8310
Overall guidance - $63,588

Model Sales - $63,600

Gross Margin/Gross Profit

Earnings release 30%
10Q – comparable to Q1 and Q2 of 30.3% and 30.1%, respectively

Model Gross Margin - 30.2%

Model Gross Profit – $19,207

General & Administrative Expenses

No guidance was given for G&A expenses. G&A is not highly correlated with sales and the last two Qs should be fairly representative of Q4. For my model, I will use an average of Q2 and Q3 G&A.

Model G&A - $3,747

Selling Expenses

Selling expenses include commissions and therefore are more dependent on sales volume. As such, I will estimate selling expenses as a percent of sales. More specifically, I will take the average selling expense as a percent of sales over the last three quarters.

Model Selling Expenses - $2,972 (4.67% of sales)

Amortization Expense

Earnings release - $1,200 million
10Q - $7,500 million for 2008. Taking $7,500 and subtracting the amortization expense from Q1 to Q3 = $1,300.

Amortization will vary depending on the strength of the USD relative to the Euro.

At today’s exchange rate, I think the $1,200 is probably more accurate. The $7,500 in the 10Q was left over from the last 10Q when the USD was considerably weaker.

Model Amortization Expense - $1,200

Operating Expenses

G&A $3,747 + Selling $ $2,972 + Amortization $ $1,200 = $7,919

Operating Income

Gross Profit $19,207 – Operating Expenses $7,919 = $11,289

Interest Expense

Earning release - Pre-tax income will be impacted by approximately $1.2 million in interest expense.

Interest will be impacted somewhat by exchange rates because a portion, not all, of BOOM’s debt and LOCs are denominated in Euros.

In mid-November, BOOM will utilize cash to pay down a portion of the syndicated credit agreement. Assuming the interest rate on the cash deposits is less than the average interest rate of the Euro and USD portion of the syndicated credit agreement, the net effect of the pay down should result in lower interest expense.

It is not clear if the guidance for $1.2 million in interest expense is net of interest income. For purposes of this analysis, I will assume it is net of interest income.

Model Interest Expense – $1,200

Other Income and Equity Interest in JV

These numbers are too hard to predict and have fallen on either side of negative or positive and the past few quarters by modest amounts. I am going to just assume $0.

Model Other Income and Equity Interest in JV - $0

Income before Taxes

Operating Income $11,289 – Interest Expense $1,200 = $10,089

Tax Provision

Earning release and 10Q – Full-year 2008 tax provision to approximate 27%

Model Tax Provision - $3,000 (27.01% full-year 2008 and 29.74% for Q4)

Net Income

Income before Taxes $10,089 – Tax Provision $3,000 = $7,089

Weighted Average Diluted Shares Outstanding

I will assume a modest sequential increase similar to last few quarters.

Model Diluted Outstanding – 12,572 shares

EPS

Net Income $7,089 / Diluted Outstanding 12,572 shares = 56c

Average Estimates

Sales – $6,361
EPS – 60c

Average estimates likely reflect management's history of being conservative when giving guidance.

Sensitivity Analysis

Adjusting the gross margin up 100bps adds approximately 3-4c to EPS

An additional $2,000 in sales adds approximately 3c to EPS

I hope this helps.

Tuff