DMC Global Inc
For the period ended Dec 31, 2023. Filed Feb 23, 2024.
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FY2023 · Filed Feb 23, 2024
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Report of Independent Registered Public Accounting Firm (PCAOB ID:
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of DMC Global Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of DMC Global Inc. (the Company) as of December 31, 2023 and 2022, the related consolidated statements of operations, statements of comprehensive income (loss), statements of stockholders’ equity and redeemable noncontrolling interest and statements of cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework, and our report dated February 23, 2024 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Valuation of Goodwill
| Description of the Matter | At December 31, 2023, the Company had a consolidated goodwill balance of $141.7 million. As discussed in Note 2 to the consolidated financial statements, goodwill is tested for impairment at least annually during the fourth quarter or whenever events or changes in circumstances indicate the carrying value might not be fully recoverable. All goodwill recorded within the Consolidated Balance Sheet relates to the Arcadia reporting unit. The Company performed a quantitative impairment assessment by estimating the fair value of the Arcadia reporting unit using the discounted cashflow method. Auditing management's annual goodwill impairment test was complex due to the significant estimation involved in estimating the fair value of the Arcadia reporting unit. The Company used the income approach – discounted cashflow method to value the Arcadia reporting unit. The significant assumptions used to estimate the value of the Arcadia reporting unit included the discount rate and certain assumptions that form the basis of the forecasted results including revenue growth rates and gross profit. These significant assumptions are forward looking and could be affected by future economic and market conditions. |
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| How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company’s internal controls over the valuation of goodwill, including controls over management’s judgements and evaluation over the underlying assumptions with regard to the valuation model applied to determine the fair value of the Arcadia reporting unit and management’s review of its annual financial forecasts. We also tested management's internal controls to validate that the data used in the discounted cashflow model was complete and accurate.To test the estimated fair value of the Arcadia reporting unit, our audit procedures included, among others, evaluating the Company’s use of the income approach and testing the discounted cashflow model and significant assumptions as noted above used in the valuation models, including the completeness and accuracy of the underlying data. For example, we compared the significant assumptions to current industry and market trends and to the historical results of the Arcadia reporting unit. We also performed sensitivity analyses of the significant assumptions to evaluate the changes in the fair value of the Arcadia reporting unit that would result from changes in the assumptions. In addition, we involved internal valuation specialists to assist in our evaluation of the valuation methodology and certain significant assumptions as noted above used by the Company. Our internal valuation specialists’ procedures included, among others, developing a range of independent estimates for the discount rate and comparing those to the discount rate selected by management. In addition, we tested management’s reconciliation of the fair value of the reporting units to the market capitalization of the Company. |
/s/ Ernst & Young LLP
We have served as the Company's auditor since 2002.
Denver, Colorado
February 23, 2024
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