Edited Transcript of BOOM earnings conference call or presentation 20-Feb-20 10:00pm GMT

Consolidated gross margin in the fourth quarter was 35%, which was down sequentially from 36% in the third quarter and flat versus the 2018 fourth quarter. DynaEnergetics reported fourth quarter gross margin of 38% versus 39% in the third quarter and 39% in the prior year fourth quarter. NobelClad reported fourth quarter gross margin of 27%, up from 26% in the third quarter and 25% in the fourth quarter of 2018.

We reported consolidated adjusted operating income of $13.8 million, which excludes $13.2 million in restructuring charges, primarily related to the closure of our manufacturing plant in Tyumen, Siberia. $12.1 million of the charges were noncash.

Adjusted operating income in the 2018 fourth quarter was $13.6 million.

Fourth quarter adjusted net income was $9.5 million or $0.65 per diluted share versus adjusted net income of $7 million or $0.46 per diluted share in the 2018 fourth quarter. Fourth quarter adjusted EBITDA was $17.6 million versus $23.2 million in the third quarter and up from $16.9 million in the 2018 fourth quarter.

DynaEnergetics reported fourth quarter adjusted EBITDA of $18.5 million, while NobelClad reported adjusted EBITDA of $2.4 million.

For the full fiscal year, consolidated sales were a record $397.6 million, up 22% from 2018. Gross margin improved to 36% from 34% in the prior year. We reported adjusted operating income of $78.7 million and adjusted net income of $55.6 million or $3.75 per share. Full year adjusted EBITDA was $93.8 million, and we reported cash flow from operations of $64.6 million.

Our financial performance during 2019 was driven in large part by growing customer adoption of our DynaStage DS factory-assembled performance-assured perforating systems. Operators and service companies across North America are increasingly reliant on these systems to improve well-site safety, enhance efficiency and reliability and drive down the cost of their well-completion programs. Today, more than 20% of the perforating systems deployed in North America are either DS systems or controlled by our IS2, intrinsically safe initiating systems.

The slowdown during the second half of 2019 reflects a shift among North America’s exploration and production companies to a greater capital discipline and funding operations from cash flow. While the near-term impact of this shift has been a reduction in drilling and completion activity, we believe that change represents a critical step towards improving the long-term health of our industry. The decline in completion activity is intensified pricing pressure across much of the oil and gas industries’ product and service sector. As a provider of highly differentiated products, we continue to focus on pricing discipline and on achieving margins that reflect the inherent value of our products.

This commitment is exemplified by DynaEnergetic’s performance during January 2020, when it achieved 40% gross margin on sales of approximately $21 million. DynaEnergetics further strengthened its product portfolio during 2019, with the addition of 2 highly advanced perforating systems. DS Trinity and DS NLine are enabling well completion engineers to pursue increasingly complex well designs as they seek to enhance production volumes and lower completion costs. Our continued investment in research and development will result in several additional product introductions during 2020.

We also continue to invest in the expansion of DynaEnergetics intellectual property portfolio. During 2019 alone, DynaEnergetics was awarded 17 new patents and filed a 126 patent applications in the U.S. and abroad. From an IP perspective, 2019 was DynaEnergetics’ most active year ever, we now hold 63 patents and 186 pending patent applications, covering a total of 73 patent families.

At NobelClad, a successful application development program has led to several recent orders from new customers seeking to address specialized industrial design challenges. The first quarter has brought a notable pickup in booking activity from both new and traditional end markets, and we are optimistic 2020 will be a year of meaningful sales growth at NobelClad. We have entered 2020 with a strong balance sheet, a very efficient organizational structure and highly differentiated product offerings within both of our businesses. We are also well positioned to navigate the challenges our businesses face at both the macro and industry levels, and I’m confident 2020 will be another year of strong profitability and cash flow, further improving DMC’s financial strength.

I’ll now turn the call over to Mike for more detail on our fourth quarter and a look at our guidance. Mike?

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Michael L. Kuta, DMC Global Inc. – CFO [4]

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Thanks, Kevin. I’ll begin with a look at our fourth quarter expenses. Consolidated SG&A was $16.2 million or 19% of sales versus SG&A of $17.2 million or 19% of sales in last year’s fourth quarter. Amortization expense was $355,000 or less than 1% of sales. We ended the fourth quarter with net cash of $6.1 million as compared with net debt of $16 million at the end of the third quarter and net debt of $28 million at December 31, 2018.

Year-end cash and cash equivalents were $20.4 million. Total debt at December 31 was $14.3 million, and our debt-to-adjusted-EBITDA leverage ratio was 0.2.

Turning to guidance. We anticipate consolidated first quarter sales in the range of $80 million to $84 million versus the $86.4 million we reported in 2019 fourth quarter. Sales at DynaEnergetics are expected in a range of $62 million to $65 million versus the $64.6 million we reported last quarter.

We expect NobelClad to report first quarter sales in the range of $18 million to $19 million versus the $21.8 million reported in the fourth quarter. Consolidated gross margin is expected in the range of 34% to 35% versus the 35% in the 2019 fourth quarter.

SG&A is expected in the range of $16 million to $17 million versus the $16.2 million reported last quarter. We anticipate amortization expense to be approximately $350,000, while interest expense should be approximately $400,000. We expect adjusted EBITDA in a range of $14 million to $15 million versus the $17.6 million in the fourth quarter.

Earnings per share are expected in the range of $0.50 to $0.55 versus adjusted EPS of $0.65 in the fourth quarter. And looking at the full fiscal year, we anticipate sales will begin to improve during the second quarter based on our new product introductions. However, it is unclear what impact macro developments, including coronavirus outbreak in China will have on global economic activity in oil and gas demand. Based on the information we have today, we expect full year 2020 sales in a range of $370 million to $400 million versus the $397.6 million we reported in 2019.

Sales at DynaEnergetics are expected in the range of $280 million to $300 million versus the $310.4 million reported in 2019, while NobelClad sales are expected in the range of $90 million to $100 million versus the $87.1 million in 2019.

We expect full year gross margin in a range of 34% to 35% versus the 36% reported in 2019. SG&A is expected in a range of $62 million to $64 million versus the $65.5 million we reported in 2019.

Full year amortization expense is expected to be approximately $1.3 million and interest expense is expected to be approximately $700,000.

We estimate our full year effective tax rate will be in the range of 28% to 29%. We are forecasting adjusted EBITDA in the range of $80 million to $90 million versus the $93.8 million we reported in 2019.

Full year net income per share is expected in a range of $3 to $3.30 versus adjusted net income per share of $3.75 in 2019. We anticipate capital expenditures will be in the range of $20 million to $25 million in 2020.

With that, we are ready to take any questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions)

We’ll go first to Stephen Gengaro at Stifel.

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Stephen David Gengaro, Stifel, Nicolaus & Company, Incorporated, Research Division – MD & Senior Analyst [2]

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I guess I’d start with the guidance. And as we think about your full year guidance and even in the first quarter to the extent you could talk about it, how are you thinking about, on the DynaEnergetics side, the interplay between pricing, volumes and market share?

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Kevin T. Longe, DMC Global Inc. – President, CEO & Executive Director [3]

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When you look at our guidance, the unknown is primarily the completion activity going into the second, third and fourth quarters. We expect our market share to stay relatively constant and our pricing to stay relatively constant. There’s a fair amount of price competition in the industry, but we’re not participating in that. Over the last 2 quarters, our share has been stable, plus or minus a couple of percent. And we don’t think that we’re going to see more intense pricing competition going forward. And I don’t think that the price competition that we have seen is working for others. And so when you look at our guidance, it’s primarily a focus on — or it’s driven by the estimate of what we think completions are going to be and the adoption of our systems.

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Stephen David Gengaro, Stifel, Nicolaus & Company, Incorporated, Research Division – MD & Senior Analyst [4]

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And Kevin, is there any thought as far as a change in perf guns per stage, either just from changes in the industry and also from the addition of the DS NLine?

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Kevin T. Longe, DMC Global Inc. – President, CEO & Executive Director [5]

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We expect that, and we’re starting to see that pick up. And we actually believe that’s what’s going to accelerate in the second, third and fourth quarters of the year. And we would expect the adoption to be up 15% to 20% — not the adoption, but the number of guns per stage.

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Stephen David Gengaro, Stifel, Nicolaus & Company, Incorporated, Research Division – MD & Senior Analyst [6]

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Okay. And then just one other question. When we think about your sales process, and I know you’ve spent an increasing amount of time as an organization talking directly to E&Ps versus wireline companies. Can you give us an update on the success of that? And then and as part of that, when we think about the ability to sell the product, I would guess the E&Ps having — when the E&Ps have more power, it’s probably a little bit easier. But I’m just kind of curious how that process is going and what you’re seeing from those discussions?

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Kevin T. Longe, DMC Global Inc. – President, CEO & Executive Director [7]

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We’re seeing — there’s really kind of a bifurcation in the market between the leading E&P companies that have strong balance sheets and those that might have — or do have weaker balance sheets. And it has to do with really the longer-term focus on safety, reliability and operating efficiency versus just the immediate cost of completing a well. And we’re seeing more and more of the stronger company specifying our products, and we’re seeing greater pull-through there. And then we’ve seen on the other end of it, that’s probably where we’ve been — had less success where price is more of the focus near term. And we’re not chasing volume or market share, it’s more important for us to focus on the value that we create for our customers and make sure that we’re paid fairly for that value because that ultimately translates into the value that we create for our shareholders.

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Operator [8]

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We’ll go next to George O’Leary at Tudor, Pickering, Holt & Company.

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George Michael O’Leary, Tudor, Pickering, Holt & Co. Securities, Inc., Research Division – MD of Oil Service Research [9]

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I was looking at the guidance that you guys provided for the first quarter of 2019, it’s actually basically the exact same range, $14 million to $15 million in EBITDA for the company, and you guys came out quite a bit better than that. I wonder if you could explain kind of the dynamics that drove the beat in the first quarter of 2019?

And then how what you’re seeing from an activity standpoint or a completion standpoint or a customer inventory destocking standpoint, that’s driving the guidance for the first quarter of 2020? Maybe what’s different and what’s the same year-over-year?

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Kevin T. Longe, DMC Global Inc. – President, CEO & Executive Director [10]

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Yes. The completions in January were about the same year-over-year. It’s really these — the rate at which those completions increase in February and March, where we’re given kind of the industry-specific challenges that we have in terms of balance sheets. And then also what recently has been an overlay of macro from an oil pricing standpoint. We’ve just — have guided to a slower start to this year compared to last year. And that’s primarily what’s reflecting the performance of the company in the first quarter compared to ’19. But we’re fairly confident that, that’s going to start increasing in the second and third quarter, the completions. And we do expect the perforating intensity to increase. We are being cautious because we’re forecasting an increase that we are anticipating, but haven’t seen yet. We didn’t see that in January. Where a year ago, we did see people ordering and building more at this time for the balance of the first quarter.

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George Michael O’Leary, Tudor, Pickering, Holt & Co. Securities, Inc., Research Division – MD of Oil Service Research [11]

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All right, this sounds like we — go ahead. Sorry.

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Michael L. Kuta, DMC Global Inc. – CFO [12]

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Maybe I’ll — George, sorry about that. So yes, I mean, in January, started the year weaker last year as well, February and March were stronger. But we also, last year, had a project in EMEA that we pulled forward into the first quarter as well that we weren’t sure we were going to be able to do last year. So fairly significant there as well last year.

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George Michael O’Leary, Tudor, Pickering, Holt & Co. Securities, Inc., Research Division – MD of Oil Service Research [13]

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Okay. That’s very helpful context. And then just thinking about the sales effort targeting more E&Ps, I wonder if you could just update us strategically on how that effort is going? And maybe frame what percentage of your customers today are actually E&P speccing in your systems to the wireline folks?

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Kevin T. Longe, DMC Global Inc. – President, CEO & Executive Director [14]

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Okay. So we’ve added over the last 12 months to our sales efforts, to our marketing efforts, marketing development roles, people that focus on the E&P companies, in particular, to go out and explain the value that our systems create for completing a well. And we’re seeing the speccing of our systems approaching 50%, which is quite an increase over the prior year. And so we feel that, that’s going to work well for us as the year progresses. And we — the value proposition is pretty straightforward. The — our products are a little bit more expensive, but it’s a fraction of the savings that we can create for an E&P company.

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George Michael O’Leary, Tudor, Pickering, Holt & Co. Securities, Inc., Research Division – MD of Oil Service Research [15]

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Very interesting. I’ll sneak one more in, if I could. I think you guys had historically guided to the desire to continue to increase market share, and I realize the environment has changed and competition and pricing have heated up. Is the guidance for kind of flattish market share year-over-year, just that change in competitive landscape? Or is there something else that’s kind of driving the apprehension to say you’ll go after a couple of hundred basis points or you will achieve a couple hundred more basis points of market share in 2020 versus 2019?

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Kevin T. Longe, DMC Global Inc. – President, CEO & Executive Director [16]

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So we’re — it’s primarily context in which we’re operating rather than how we’re operating. When we look at the completion activity and how that picks up, we — the pricing in the market is kind of all across the map right now. I believe it’s going to settle down. It’s not working for some of those companies, and you can see it in the reported performance. And so we’re just being cautious and focused on executing and executing well. We do believe that with the pricing going down in some of these areas and our — adoption of our newer products going forward, that we are going to pick up a couple of percent market share. But what’s really driving our guidance is the overall activity.

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Operator [17]

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(Operator Instructions)

We’ll move next to Gerry Sweeney at Roth Capital.

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Gerard J. Sweeney, Roth Capital Partners, LLC, Research Division – MD & Senior Research Analyst [18]

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I apologize if any of this was said. I broke connection, had to dial back in. But over the course of this — over the course of 2019, competitors have been talking about adding some new products to compete against your systems. Curious if you’ve had a chance to see any of these products? We all know that you have a lot of technology embedded in your systems, but anything that materially changes your position with any of these new product rollouts?

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Kevin T. Longe, DMC Global Inc. – President, CEO & Executive Director [19]

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Not really. I think that — first of all, we welcome the competition on systems. I think that it does bring greater efficiency and single source responsibility to perforating and improve the safety and the reliability around the well site. What we see are some innovative and creative packaging designs coming from others in the market. However, their packaging, the technology that’s been used for years in the market, it’s not really challenging our integrated switch detonator, and doesn’t have the same safety and operational benefits. We feel that there’s more to gain as the — for us as the market moves towards systems. And that’s kind of why we welcome the competition because it does help grow the market for systems. And we feel that our product line stands on its own and is in a great competitive position.

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Gerard J. Sweeney, Roth Capital Partners, LLC, Research Division – MD & Senior Research Analyst [20]

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Got it. And speaking of just additional technology and things like that, Trinity, NLine and — you — obviously, the traditional DynaEnergetics which saves on manpower efficiency, say, and helps on safety. But we’ve also started talking a little bit about enhanced oil recovery with some of these newer products. Any data, quantitative or qualitative, you can interject into the conversation on that?

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Kevin T. Longe, DMC Global Inc. – President, CEO & Executive Director [21]

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We’re just seeing the Trinity work its way into the marketplace. It was introduced in the second half of ’19. The adoption is picking up, that information is just starting to come in. It’s still a relatively small part of our overall DS systems business. But that’s something that probably by the second or third quarter, we’ll be able to share more information on. Yes. We’re careful right now because it’s a small group that we’re developing that are working with, and there’s proprietary information there.

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Gerard J. Sweeney, Roth Capital Partners, LLC, Research Division – MD & Senior Research Analyst [22]

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Got it. Understood. And then this may be for Mike. EBITDA guidance, $80 million to $90 million for 2020. I think you said your CapEx, $25 million. This paints a picture of potentially free cash flow, who knows, $45 million, $50 million, is that sort of in the ballpark? Obviously, there’s some working capital adjustments, but that may actually be a positive, at least in the near term in 2020. Any thoughts on sort of that rough sketch?

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Michael L. Kuta, DMC Global Inc. – CFO [23]

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Yes. Gerry, I think that $20 million to $25 million on CapEx, and given that adjusted EBITDA range that I provided, free cash flow and, call it, the $30 million to $40 million range after the CapEx of $20 million to $25 million. So maybe just a little bit of working capital drag there.

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Gerard J. Sweeney, Roth Capital Partners, LLC, Research Division – MD & Senior Research Analyst [24]

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Okay. Got it. Any thoughts on — obviously, you instituted a dividend earlier this year. And I think that was a vote of confidence in your balance sheet. You’ve got some excellent metrics, return on invested capital, the balance sheet net cash positive, improving free cash flow is going to be very nice this year. Potential buybacks or anything like that in terms of capital allocation?

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Kevin T. Longe, DMC Global Inc. – President, CEO & Executive Director [25]

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We expect, as Michael was saying, to have a good cash year, and we’re going to be building cash. And it’s basically a discussion that we’re going to have with our Board as we go forward on how best to use that cash. We have a couple of growth opportunities that we see in front of us. And — but it’s important for us to return value to our shareholders. And so I would expect us to increase our targeted yield from where we are, which would also raise the dividend over time.

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Operator [26]

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(Operator Instructions) We’ll move next to Edward Marshall at Sidoti & Company.

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Edward James Marshall, Sidoti & Company, LLC – Senior Equity Research Analyst [27]

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So I’m just curious when — usually, you talk about a slowdown is a good environment for share gain, and you’re kind of looking at a constant

(technical difficulty)

for 2020. I’m curious as to how that discussion is going with your customers? And maybe why not — why aren’t you being a little more optimistic, kind of, on the share gain, considering that’s been the environment that you’ve seen success for in the past?

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Kevin T. Longe, DMC Global Inc. – President, CEO & Executive Director [28]

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I think it gets to that bifurcation. We would expect our shares are going to increase with the stronger E&P companies in the marketplace that are looking longer term. And there’s some part of the market where there’s what appears to be a nearer-term desperation, if you will. And it has to do with where balance sheets are, whether it’s an E&P company or a service company. And so it’s kind of a targeting and growing our base with a different type of customer going forward. A lot of this has to do with pricing and not chasing prices that don’t make sense for us. And we have in the low to mid-20s market share in terms of revenue, but I think that our market share is much higher than that if you just rolled up the reported operating income of the companies in this market. And it’s really the operating income market share that’s most important to us.

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Operator [29]

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And with no other questions holding, I’ll turn the conference back to Mr. Kevin Longe for any additional or closing comments.

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Kevin T. Longe, DMC Global Inc. – President, CEO & Executive Director [30]

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Yes, thank you, everybody, for joining today. We expect…

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Geoff High, DMC Global Inc. – VP of IR & Corporate Communications [31]

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I’m sorry, Jess, we did — I just saw one question come in.

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Operator [32]

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Yes, certainly. We’ll go to Jim Brilliant at Century Management.

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James David Brilliant, CM Advisors Family of Funds – CM Advisors Defensive Fund – Portfolio Manager [33]

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Q4, you actually — your EBITDA kind of outperformed what your revised guidance was. What was that due to?

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Michael L. Kuta, DMC Global Inc. – CFO [34]

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Yes. I mean, I think on a couple of — if you just go down the P&L, I think we outperformed in most of the lines, but we also had a favorable tax rate in the fourth quarter. Our adjusted ETR was 25.5% versus a full year, 28%. So we got a lot on the tax line. And…

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James David Brilliant, CM Advisors Family of Funds – CM Advisors Defensive Fund – Portfolio Manager [35]

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Yes, I was looking at — more at the EBITDA lines? Just on the EBITDA…

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Michael L. Kuta, DMC Global Inc. – CFO [36]

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Yes. So on the EBITDA, we certainly outperformed on the margin versus the guidance.

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James David Brilliant, CM Advisors Family of Funds – CM Advisors Defensive Fund – Portfolio Manager [37]

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Okay. And then did you say that January of 2020, DynaEnergetics did $21 million and 40% gross profit. Did I hear you right?

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Kevin T. Longe, DMC Global Inc. – President, CEO & Executive Director [38]

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I did.

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Michael L. Kuta, DMC Global Inc. – CFO [39]

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Yes.

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Kevin T. Longe, DMC Global Inc. – President, CEO & Executive Director [40]

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And what we’re seeing is that some of the cost savings that we have through our fourth quarter restructuring are already entering their way into our income statement. And I was quite pleased with that performance, which is why we mentioned it to — and it highlights, if you will, not only how quick our organization responds to market situations but also the fact that it’s a technology-driven business with good margins and high variable costs versus fixed costs and really getting the margins for our products is more important than just the absorption.

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James David Brilliant, CM Advisors Family of Funds – CM Advisors Defensive Fund – Portfolio Manager [41]

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Well, clearly, you’ve done a great job on margins. So congratulations on that.

And then can you expand a little bit. I think you had made the comment that you expect that guns per string to be up 15% to 20%. I think I heard that right. Can you expand on that? And what you’re looking at through the remainder of the year with that respect? So volumes will be — gun volumes for you should be a bit higher than — I guess, due to the Trinity line and the NLine?

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Kevin T. Longe, DMC Global Inc. – President, CEO & Executive Director [42]

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Yes. We see, beginning in the second and then starting to accelerate, being up 15% to 20% more guns per stage going from, say, an average of 10% to 12%. And we’re starting to see that take hold right now. The conservative guidance has to do with the completions themselves being down. And…

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James David Brilliant, CM Advisors Family of Funds – CM Advisors Defensive Fund – Portfolio Manager [43]

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Okay. That number of guns per string, is that unique to you? Or do you see that in the industry?

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Kevin T. Longe, DMC Global Inc. – President, CEO & Executive Director [44]

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I believe it’s in the industry. I think that we’re in the forefront of enabling that with our product lines because of the optimized length of our perforating guns. And so I would put us at the forefront of that. And as our Trinity starts to take hold as the year progresses, we could see that accelerate dramatically. I would like to note too that the new products that we’re forecasting, we’re already in the market with today. It — we’re just being conservative on how fast they take hold.

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James David Brilliant, CM Advisors Family of Funds – CM Advisors Defensive Fund – Portfolio Manager [45]

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Right. So how far — so you’re way beyond pilot on some of these new products, you’re expanding that into the marketplace, not just beyond a handful of customers. This is now expanding, and it’s just a matter of — your conservatism is a matter of the overall uptake from a completions, not so much the technology.

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Kevin T. Longe, DMC Global Inc. – President, CEO & Executive Director [46]

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Correct. I mean we look at the EIA information on completions, which has proved to be fairly accurate, and completions were still down in January compared to where they were in December. And in the EIA information had completions down 13% in the fourth quarter compared to the 2019 third quarter. And so we — and that’s really the, if you will, the line of sight that we have going into the beginning of the year. And as I’m sure everybody on the phone is well aware, oil has pulled back from where it was at the beginning of the year, and you add in the concern on some of the balance sheets and the [well] activity, and I think this is a time to be conservative in terms of how we look at the growth of the year and how it accelerates.

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James David Brilliant, CM Advisors Family of Funds – CM Advisors Defensive Fund – Portfolio Manager [47]

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I guess one last…

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Kevin T. Longe, DMC Global Inc. – President, CEO & Executive Director [48]

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Yes, go ahead.

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Operator [49]

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(Operator Instructions)

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James David Brilliant, CM Advisors Family of Funds – CM Advisors Defensive Fund – Portfolio Manager [50]

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You said that there are some growth opportunities that you’re looking at, is — care to expand on that? Or is that something you’re not willing to go into yet?

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Kevin T. Longe, DMC Global Inc. – President, CEO & Executive Director [51]

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We actually are — will be introducing some new products as the year goes on that are in new product markets. So it’s really organic growth. And some of the investments we need to make for capacity at the time that those products are ready.

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James David Brilliant, CM Advisors Family of Funds – CM Advisors Defensive Fund – Portfolio Manager [52]

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Okay. And would that be above and beyond that 20% to 25%? Or is that inclusive — included in that estimate?

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Kevin T. Longe, DMC Global Inc. – President, CEO & Executive Director [53]

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It’s included in that estimate. And they have to do with the completion spring from ballistic release tools to setting tools. And they’re — these products are already in the market, too, being trialed.

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James David Brilliant, CM Advisors Family of Funds – CM Advisors Defensive Fund – Portfolio Manager [54]

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Okay. And so when would you expect those to go beyond trials and be available to the general market?

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Kevin T. Longe, DMC Global Inc. – President, CEO & Executive Director [55]

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The third quarter.

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James David Brilliant, CM Advisors Family of Funds – CM Advisors Defensive Fund – Portfolio Manager [56]

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Q3. Okay. And what kind of market — addressable market would that be addressing?

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Kevin T. Longe, DMC Global Inc. – President, CEO & Executive Director [57]

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The ballistic release tool, it’s actually a very small market, which we’ve made smaller through the operating efficiency of our products. So that’s not going to be necessarily meaningful from a revenue standpoint. However, it’s an important tool as part of the completion stream and the design of our products that we feel that would be a good value for our customers. The setting tool is probably a larger market, and we’ll see a greater impact in our revenues, probably beginning in the fourth quarter as we introduce it in the third quarter.

Regarding the size of the market, I would hold off on that until we have the data that comes back from our trial.

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Operator [58]

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And we’ll move next to Tommy Moll with Stephens.

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Thomas Allen Moll, Stephens Inc., Research Division – Research Analyst [59]

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Yes, so I wanted to start on the perforating market. For the full year, Kevin, as you have come to arrive at your outlook for DynaEnergetics, there’s some offsetting factors in the underlying market for perforating equipment where you’ve got capital discipline from the end user, but then conversely, you have perforating intensity increasing. So underlying your outlook, is the market flat, up or down for perforating volumes for the industry overall, not specific to you guys?

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Kevin T. Longe, DMC Global Inc. – President, CEO & Executive Director [60]

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Yes. I think we would say that it’s flat. You’ve got completions that are going to be down in the 10% to 15% range, and then you have a pickup in perforating intensity in the 15% range. They kind of offset one another. And so the variable in terms of the dollar value of the market is pricing. And while I said earlier I don’t see further declines, the average price going into 2020 has been lower than the average price going into 2019. And so that would have impacted that market and the — for most companies in the — probably the 5% to 7% range. And so that would be impacting the dollar value. And we expect our share to stay relatively constant, and we price our products based on our margin expectations as well as — but we are influenced by the relative premium over other products in the marketplace. So it does have an impact on our revenue. But we feel we’ve seen that. And so this market is really more about when does the completions start to kick back in. We saw a greater drop in the fourth quarter and in January than we expect for the full year. And the gun intensity increasing in order to see the revenue come back at the operating area that we were for 2019. And you can actually see that, if you took the following 3 quarters of 2020 from what we’ve guided for the first quarter, then you can see a pickup that we’re forecasting in the balance of the year.

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Thomas Allen Moll, Stephens Inc., Research Division – Research Analyst [61]

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And that’s exactly where I wanted to follow up, was on the cadence throughout this year. I want to make sure, Kevin, that embedded in the outlook, you’re assuming a pickup from some of the product introductions that are already in the market, but that those are separate from what you referenced a minute ago, is the growth opportunities from ballistics and setting tools, which won’t have a meaningful impact until 2021. Did I hear you correctly on that?

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Kevin T. Longe, DMC Global Inc. – President, CEO & Executive Director [62]

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You did.

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Thomas Allen Moll, Stephens Inc., Research Division – Research Analyst [63]

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I wanted to ask about China and potential coronavirus impacts. You referenced it in your earnings release, and I presume you meant as they may pertain to oil demand. I was just curious, from a supply chain standpoint for either NobelClad or DynaEnergetics, do you see any risk there?

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Kevin T. Longe, DMC Global Inc. – President, CEO & Executive Director [64]

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Not in our guidance, no. And we’re fairly self-sufficient in terms of our production. There is a large order that we’re working on in NobelClad for China, but we don’t feel that, that’s going to be negatively impacted by the coronavirus. So we — it’s really, as you mentioned, it’s the macro impact on demand and oil pricing and what that does to drilling and completion. That’s just — and uncertain at this point in time.

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Operator [65]

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And Mr. Longe, it appears we have no other questions holding.

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Kevin T. Longe, DMC Global Inc. – President, CEO & Executive Director [66]

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Okay. I appreciate the interest that everybody has in our company and joining us on today’s call. I would like to thank our employees for just an outstanding year in 2019 and the technology and opportunities that we have going into 2020 and beyond. And actually believe with our strong balance sheet and the work that we’re doing across both companies from specifying our products, it’s going to serve us well going forward. And so we look forward to updating everybody who’s on the phone and our employees as the year goes on. So thank you.

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Operator [67]

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Ladies and gentlemen, that will conclude today’s conference. We thank you for your participation. You may disconnect at this time. And have a great day.