Good day, ladies and gentlemen. And welcome to your DMC Global Third Quarter Earnings Call. All lines have been placed in a listen-only mode and the floor will be open for your questions and comments following the presentation. [Operator Instructions] At this time, it is my pleasure to turn the floor over to Geoff High, VP of Investor Relations.

Sir, the floor is yours..

Hello. And welcome to DMC’s third quarter conference call. Presenting today are President and CEO, Kevin Longe; and CFO, Mike Kuta.

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, I will now turn the call over to Kevin Longe.

Kevin?.

Thanks, Geoff. Both of DMCs businesses delivered year-over-year sales growth and margin improvements during the third quarter, and this was achieved during an increasingly challenging environment for the energy industry. Consolidated sales for the third quarter were $100.1 million, up 14% versus the 2018 third quarter and down 10% sequentially.

Sales at DynaEnergetics are oilfield products business were $77.4 million, up 17% from the 2018 third quarter, and down 13%, sequentially. Sales of NobelClad, our composite metals business, were $22.7 million, up 5% versus last year’s third quarter and up 2%, sequentially.

NobelClad ended the third quarter with an order backlog of $33.2 million versus $38.8 million at the end of the second quarter. Trailing 12-month book-to-bill ratio at the end of the quarter for NobelClad is 0.97.

DMC reported third quarter adjusted gross margin of 37%, which excludes a write-down of inventory related to the planned closure of DanaEnergetics manufacturing facility in Tyumen, Siberia. Gross margin of last year’s third quarter was 34% and it was 38% in this year’s second quarter.

DanaEnergetics reported adjusted gross margin up 40% versus 37% in the same quarter a year ago and 41% in this year’s second quarter. NobelClad’s gross margin was 26% up from 25% in the 2018 third quarter and flat versus this year’s second quarter.

Consolidated adjusted operating income was $19.3 million versus $13.9 million in last year’s third quarter. Adjusted operating income at DanaEnergetics was $21.4 million and adjusted operating income at NobelClad was $2.2 million.

Consolidated adjusted net income was $13.4 million or $0.90 per diluted share versus adjusted net income of $10 million or $0.68 per diluted share in the 2018 third quarter. Adjusted EBITDA was $23.2 million up from $17.2 million in last year’s third quarter and down from $29 million in the second quarter.

DynaEnergetics reported adjusted EBITDA of $23.2 million while NobelClad reported adjusted EBITDA of $3.1 million.

From a commercial perspective, DynaEnergetics is taking advantage of a slowdown in well completion activity to onboard new service companies with the IS2 intrinsically safe initiating system in the DynStage DS factory-assembled performance-assured perforating systems.

Our sales team also is spending more time with exploration and production companies, which are seeking to improve safety, maximize efficiencies and drive down well completion costs. If the operators learn more about the benefits of DynaEnergetics perforating systems they are increasingly specifying them into their well completion programs.

We believe the recent commercialization of two new DS models will accelerate customer adoption rates. DS NLine which enables the pre-alignment of shaped charges at surface and then the orientation of the gun string once it’s in the wellbore is already being specified by a growing number of operators.

DS Trinity 3.5 which is the industry’s most compact perforating system is now being shipped to customers. The system is 7 inches long and features three shaped charges on a single radial plane. Recent studies show that in select formations this charge configuration can improve frac performance and reduce breakdown pressure by up to 25%.

This could lead to a material reduction in horsepower requirements for hydraulic fracturing and decrease wear and tear on pressure pumping equipment. In addition, DS Trinity 3.5 enables operators to deploy a higher gun and charge counts within each stage.

Customer reaction to the field trials is very positive and we are pleased the system is now commercially available. In NobelClad, new composite metal applications are generating increased interest within a variety of end markets, including alternative energy, mining and aerospace.

These emerging opportunities reflect the successful effort of NobleClad’s expanded market development team, which is demonstrating the benefits of our composite metal solutions to end users around the world. Meanwhile, the NobleClad’s sales organization is bidding on a number of large projects that are expected to be awarded in the coming months.

Collectively, we believe these opportunities could result in meaningful sales growth at NobleClad during 2020. The third quarter brought continued improvement in DMC’s financial strength. Our net debt at the end of the quarter improved by 43% versus the end of the year and our trailing 12-month return on invested capital was 30%.

Our strong financial position enabled the recent increase in our annual dividend which we raised to $0.50 a share from $0.08 a share. As Mike will discuss shortly, we are maintaining our 2019 sales guidance and have increased our full year adjusted EPS forecast to a range of $3.65 to $3.80.

We also expect our full year results will establish new records for sales, income and return on invested capital. Our continued success would not be possible without the efforts of our employees around the world. I want to thank them for their dedication to the company. I also want to thank our customers for their continued support of DMC.

Now, I will turn the call over to Mike for further detail on our third quarter financial results and a look at our guidance.

Mike?.

Thanks, Kevin. Starting with third quarter expenses, consolidated SG&A was $17.1 million or 17% of sales versus SG&A of $15.1 million or 17% of sales in last year’s third quarter. Amortization expense was $394,000 or less than 1% of sales. We ended the third quarter of cash and cash equivalents of $12.2 million.

Net debt was $16 million, down from $28 million at December 31, 2018. We generated $35.1 million in cash from operating activities for the nine month period, which compares to $6.5 million generated during the nine month period last year.

Turning to guidance, we anticipate consolidated fourth quarter sales in the range of $92 million to $97 million, up from the $90.3 million we reported in last year’s fourth quarter. We expect DynaEnergetics will report sales in a range of $72 million to $75 million versus $63.2 million in last year’s fourth quarter.

NobelClad sales should be in a range of $20 million to $22 million versus the $27.1 million reported in the year ago fourth quarter. Consolidated gross margin is expected in a range of 34% to 35% versus the 35% reported in 2018 fourth quarter.

Pricing pressure North America’s oilfield products and services sector coupled with a less favorable project mix at NobelClad are the primary reasons for the expected decline. We expect SG&A will be approximately $17 million versus the $17.2 million in last year’s fourth quarter.

Amortization expense is expected to be approximately $400,000 and interest expenses also should be roughly $400,000. Fourth quarter adjusted EBITDA is expected in a range of $17.5 million to $20 million, up from the $16.9 million in last year’s fourth quarter.

As Kevin noted, we now expect our full-year adjusted earnings per share will be in a range of $3.65 to $3.80 up from the $2.07 we reported last year and above our prior forecasted range of $3.55 to $3.70. With that, we are ready to take any questions.

Operator?.

Thank you. [Operator Instructions] And we will take our first question from Stephen Gengaro with Stifel..

Thanks. Good morning, gentlemen. Good afternoon, I should say..

Good afternoon, Stephen..

So, two things, the first thing, I would like start with, if you don’t mind, you talked about on-boarding new customers and I always get the sense that in a slightly softer market on-boarding new customers with a premium product is harder not easier, but based on your gross margin performance, it seems like they have held up really well.

So can you help with rest of that and how we should think about that?.

Yeah. There is a lot of pricing pressure on the equipment suppliers that’s coming from the service industry today. We chose in the quarter and in previous quarters not to chase volume at the expensive margin. And I think it’s important to kind of share our point of view on that is that we are in an industry where demand is in elastic.

We are differentiated products with a high value and use, few well capitalized competitors and we have high variable costs, low fixed costs, and with explosives of high barriers to entry. And with that kind of industry structure it’s really a fool’s game to compete on price from a product standpoint.

And often once your prices go down it’s hard to get them back up. We feel our prices deserve the value that we create for our customers. And so it’s hard in this kind of environment, but we push back and not follow the same dynamics that exist on the service side of the industry.

And it’s important for, I guess, us to also note and we feel for our service customers. They also deal with an elastic demand.

Unfortunately, there’s many are poorly capitalized companies on the service side and because of their debt loads they are more inclined to chase completions at a lower price and we just feel for them but it’s just not the same economic environment on the product side of it..

Okay. Great. Thank you.

And then, two others one, one quick one and that just is, when you look at your EPS guidance range are you basing that off adjusted year-to-date EPS of about $3.07, so you are implying 58 to 73, am I thinking of that right?.

Yeah. It’s the $3.65 to $3.80 is based on $3.07 year-to-date..

Perfect. Okay. Thank you and then....

[Inaudible].

And then just the final question is the biggest thing we hear in talking to your investors is when you look at particularly Halliburton and what they are doing internally versus I know they are a big customer of yours but do you. Can you give us any details on how that relationship is and the importance of how to you, et cetera.

I mean can you address that at all, because clearly the biggest thing I hear from investors that has that creates some concern?.

Yeah. I mean HAL is a very important company for the industry and I think it’s important for us to not get into specifics on customer relationships and our business relationships with our customers. It’s just not the place for it on a conference call..

Okay. That’s fair. Thank you..

And our next question comes from Tommy Moll with Stephens, Inc..

Good afternoon and thanks for taking my questions..

Yeah. Hi, Tommy..

So for DynaEnergetics revenue in the third quarter it appears to have declined more rapidly than the broader industry, but then conversely your 4Q guide appears to be declining not as rapidly as the industry if you use a few bogies thrown out by some of the service companies in recent days.

Unfortunately those are the best bogies that we have to figure out if you are beating, tracking or trailing the industry. But for you guys as you think about your 4Q guide, what are the observations and assumptions that you guys use to build it and maybe that will help us get a better understanding.

And then, similarly on the margin side, you called out cost absorption as one driver of margin compression for Dyna in the fourth quarter, but anything else you could offer to help us understand those dynamics would be helpful? Thank you..

Yeah. I will tackle that last one first. DynaEnergetics had a 40% gross margin. I think it was 41% last quarter and so they have done a good job maintaining their gross margin in a very, very difficult environment. In that gross margin and our costs of good sold is legal and legal has picked up, excuse me, not legal but R&D.

And our R&D as a percent of revenues are slightly higher in the quarter. But we were actually very pleased with the 40% gross margin and but essentially it was a just under 28% operating income for DynaEnergetics in the quarter. And regarding volume, in the second quarter conference call, we anticipated a slowdown in the second half of this year.

And I think, we could see it come -- coming, I think, others could see it coming. A lot of that hit in the third quarter, but we think that the drop in the fourth quarter is going to be less, a big part of that hit was in the third quarter of this year.

And we are hoping that, that some of the development things that we are working on will help us to mitigate volume slight back in the fourth quarter. I do think it’s important to note that ‘18 was a very good year, ‘19 it was a better year for us than ‘18. We expect ‘20 to be a better year than ‘19.

It was just the second half of the year is weaker than the first half of the year. And Tommy just on the Q4 guide and the absorption, we also have NobelClad synergy softer in terms of sales and margins in the fourth quarter.

They performed very well from a margin standpoint in the first three quarters of the year and just have a less favorable project mix in Q4. So that’s an aspect that we are picking up in the guide is as well. And as Kevin said, just like DynaEnergetics, NobelClad, we are expecting to be very strong in 2020..

We also -- if I could add too, because I think the comment was made that we declined further than the industry. We don’t think that’s the case.

I know some other companies have reported their earnings already and there have been an apple and an orange in the sense that in our revenues, our -- the switch revenue, the addressable switch revenue and DynaEnergetics.

And one of our competitors had a very good quarter and that quarter included a switch company that they acquired at the end of the third quarter of last year. And so, we are -- we were impressed with their performance and we believe that their switch revenue was growing and that’s actually a benefit to DynaEnergetics and the DMC.

In 2017, the addressable switch market was estimated to be about 48% of perforating market and is expected to grow to 72% of the market in 2020 and we have been out in front with our addressable switch and we are glad to see that other companies are coming out with their product and helping to grow the higher end and the value-added part of this marketplace.

And so -- and then when you compare revenues, the product revenues with DynaEnergetics and the addressable switches, I think, that you would see that we are kind of growing nicely..

Thank you for all the detail there. And if I could shift gears to capital expenditures and more broadly capital allocation philosophy, understanding that you may not have your 2020 budget set for CapEx, but my sense is you probably need any more rough line expansion for the DynaEnergetics segment.

So some of this year’s budget I would think should fall away. Is there any range you could even give us for preliminary thoughts for next year or if not a range anything you can do to help us understand maybe that....

Okay. On….

… that we may not see recur..

Yeah. We are actually pleased we have come off of this year. I think our guidance was $30 million in terms of CapEx and that’s following $46 million in CapEx in ‘18.

And when we put the capacity in place for factory assembled systems, we expect our CapEx to be in the $15 million to $20 million range next year and we haven’t, we haven’t gone into our planning and budgeting yet. But we do expect the CapEx to be significantly lower than it has been the last two years..

Okay. Thank you for that. And I will turn it back..

Yeah..

And our next question comes from Gerry Sweeney with ROTH Capital..

Hey. Good afternoon Kevin, Mike and Geoff..

Yeah. Hi..

Yeah. Hi Gerry..

Question on the energetics side, right, and Kevin, I know you go out and do some of these sales calls, you are very active in meeting with customers. How -- I am going to trying to phrase it the word makes sense.

But when you talking to the customers, where that the shaped charge technology come into the equation, I mean, when you are talking to them, does the efficiency and everything that DynaStage brings to the table more than outweigh a lot of talk around shaped charge technology or in other way to phrase it.

Is your shaped charge technology as good as anyone else is in the industry and it’s really not a real component on the sales portion, when you are out there with DynaStage?.

It’s a huge component on the sales portion. This is all about -- this perforating is all about shaped charge without the energetics and quality energetics, the packaging options really don’t matter. And so we have a section for our lab, we do -- we tailor a lot of our discussions for rock optimized charges.

We have as broad not a broader shaped charge line than any other company in the industry, and at times, we even sell shaped charges to companies who make shaped charges because they don’t have the breadth of product line that we have.

And so, you know yeah there’s been a lot of focus on our initiating systems and in the safety and reliability and the convenience that that’s brought to a completion program. We have to equally be strong in shaped charge -- charges in order to be successful. And our shaped charges are up significantly year-over-year not just with our gun volume..

Got it.

So it’s suffice to say you are very competitive in the energetics market?.

Yeah. I mean, the -- without a doubt, I mean, the energetics market itself according to Sphere’s ‘19 versus ‘18, stages are comparable, but the energetics is up 11%, 12% and we are up twice to almost three times that..

Got it. Another question here, so essentially with DynaStage in some ways you are -- the technology helps to eliminate some of the assembly crews and in some ways you almost bake your technology or your product into your clients supply chain. I mean two things, one I would assume that makes your products more sticky than buying components.

And two, at some point do you get a little bit more insight into the client’s activity because you are part of that supply chain? And are you talking -- are they giving you a little bit of information as to what they are seeing for a quarter or two out?.

I think, we are not trying to be all things to all people in the marketplace and we would like to partner with customers, and work together to try to have solid completion programs, and have it be efficient for all parties. And the only way to do that is to have trusted and respected relationships and dialogues.

And so we feel that for the customers that we are working with that we have got a good insight into the types of things that they are working on and that’s very important..

Got it..

The….

Sorry, go ahead..

No. Go ahead..

I was just going to ask one short follow-up question and then jump back in line. Any idea what percent of revenue you think the perforating market or what percentage of the market will go to factory assembled versus maybe component itself..

I think it’s very hard. It’s a very difficult to value proposition for the service company to be the assembler integrator of a perforating system when they are not basic in the components and it puts a burden on them in terms of staffing capital expenditures, working capital.

And I think a large part of the industry is starting to move towards factory assembled systems. And it’s natural, I mean, the major companies, Core, Hunting Titan, OilStates, ourselves in the merchant market. I mean, we are basic in the energetics and the technologies to assemble these guns and we have a more controlled environment for doing that.

And so I would see the industry -- 75%, 80% of the industry and if not the majority of the land based going to factory assembled guns. And in times like this there’s a lot of scrappy component guys out there that are trying to put together guns to compete with the majors, but it’s not a sustainable business model.

They are not they don’t deploy it and they are not basic in the manufacturing of it. So, I think, that there’s a lot of noise around other component manufacturers getting into this space that they don’t have the resources or the skill set in order to compete against the majors..

Got it..

I don’t want to underestimate them, but I also don’t want to overestimate them..

Yeah. I got you. So I appreciate it. Thanks. I will jump back in line..

And our next question comes from Edward Marshall with Sidoti..

Hello, there.

How are you, guys?.

Good. Fine, Ed.

How are you?.

I am doing great. So there is lot of chatter about competition on this call, past calls. And I am just curious, I mean, we took a look at, I guess, the emerging market and comparisons there, but I don’t think that’s a fair -- necessarily a fair comparison.

I am wondering if you have kind of any updates on maybe your share in the market and how that’s been trending.

And then, secondly, I think, in years past you have talked about how customers are sitting on the sidelines, because you just couldn’t get the product to them, does that dynamic still exist?.

I -- right now, we have additional capacity to serve the marketplace and we have as I mentioned earlier not to just change the volume at the expense of margins. Again, we have got a market that -- a market that and a lots of demand and differentiated product, high variable cost, so we are focused on getting the value for our products.

So we see some competitors, unfortunately, competing on price. And as I mentioned, it’s kind of a tough game to play if you are in a market that has an elastic demand, your volume is down because of the market overall is down. You are going to take yourself down further on price.

It’s just all good luck with that, right? So you know we have got capacity, which kind of ties with the question that from the asset that don’t need a lot of CapEx for next year. And so we are happy with where we are -- where we sit right now..

So, do you have an update on share?.

Share, we are in the low-20s, which is up….

Has that….

[Inaudible].

… has that grown or shrunk?.

It’s growing. I mean, last year ‘18 year end, we are in the high-teens, now we are in the low-20s..

Got up from the first half of this year?.

We think, it’s stable to growing..

Okay. Okay..

I think the market is in positive [ph]. What is reflected in, and again, the four quarters in this game and we focused on one year and we know that shaped charges are up roughly 12% year-over-year and we are up significantly higher than that. DynaEnergetics revenues are up 40%-plus and our operating income is up 84% year-over-year.

At healthy margins and I’d like to emphasize the margins, because I think that business is we target mid to upper 20% operating income margins and I think that’s probably the strongest reflection of the technology that we are deploying..

That’s good to hear. You talked about earlier and you said Trinity is now commercially available. I am curious if you have any data, how many you have shipped. And I think that’s a better margin product than even that the existing gun system.

Any comments or any further discussion we could have kind of regarding Trinity?.

Yeah. It’s just starting to shift. So year-to-date it’s been insignificant it’s the way we have evolved. And it’s one of a family of products, so we need to see over the next few quarters how the application Trinity takes hold. It’s not an answer to everything, but an answer to some applications.

And of course, that’s happening in the third quarter and fourth quarter, which is relatively long positive competitive what is happening [ph]. But we will have more information in our next conference call..

You and I have known each other for a long time you will probably appreciate the full circle of this question. But you guys are -- the balance sheet looks under levered at this point. As we kind of look forward, I know acquisitions and maybe another leg to your stool here is something that is to key to you.

What’s your tolerance for future acquisitions and timing of those acquisitions given the current environment, et cetera?.

We have -- two things, I mean, we are looking at things. We don’t need to acquire anybody. We are happy with where we are in some of the investment opportunities we have in our two businesses and they take propriety over an acquisition. Mike won’t let me have any capital for CapEx. So he stick [inaudible]. It’s very hard to predict.

We are not out in the market competing for auctions kind of properties. If we do anything, it’s going to be negotiated. It’s going to be quite. It’s going take some time. And we are not in a position right now to even talk about anything that we are working on..

Okay.

But if I am hearing you correctly, you are prepared for when -- you are prepared today market wouldn’t deter, you just need to find the right opportunity?.

The right opportunity and it also what will deter us is ourselves. We do not want to leverage our company not in the type of market that we are in. We have -- and we don’t view growth [inaudible] going after acquisitions, excuse me, acquisitions and growth and consistent with dividends. We raised our dividend.

We want to build cash and we don’t want to do a highly leveraged acquisition and risk our company. And so, right now, for us patience is a virtue. We need to get out of the banks and start building cash and that’s really what we are focused on..

It sounds to me and some of the questions are probably phrase this way.

But it sounds like to me that there’s several avenues to continue growing both the topline and earnings power for this business as we move forward, whether it’s the R&D investments, whether it’s other organic investments, the underutilization of the facilities and maybe the under levered balance sheet.

There’s plenty of opportunity for growth ahead of you?.

We believe so, I mean, it’s limited by our goals not the corner or any one of these markets is to carve out the higher technology, higher value added area and to be a solid industry contributor. And so we have got a number of things that we are working on.

I think, Trinity, that we went some in line and some of the other products that we are coming out with DynaEnergetics side of it. DynaEnergetics is the product and the technology company that we think that they can do the build around perforating. And now NobelClad is a application engineering company, it’s a composite metal.

And a President there, John Scheatzle, he’s done a great job of building, putting in place strong application development team and we expect that to start contributing going forward. So we are -- with the clean balance sheet and with the things that we have in front of us, e are looking forward to next year -- to next couple of years..

Perfect. I appreciate your comments. Have a good evening..

Yeah. Thanks, Ed..

And next we will move to Stephen Gengaro with Stifel..

Thanks. Two quick follow ups.

One, Kevin, can you talk a little bit about NobelClad and sort of the opportunities you see there going forward and anyway you could kind of bracket potential growth opportunities there as you look out to 2020?.

Yeah. I mean we are not in a position yet to give guidance for 2020. But they deal with the downstream petrochemical industry for 60% plus of their business and industrial processing for the other and they deal with major capital projects primarily.

And so those are long gestation period projects and the business that we are going to be doing next year, a year after is really stepped at. We started working at two, possibly three years ago.

And in my tenure with DMC, I was probably slow in terms of adding application engineering people because of that long time that it takes, but we are also consolidating their manufacturing footprint.

And they are right sized for their manufacturing and they have got modern and efficient facilities in a lower operating cost and they had at this time last year. And they have quite a bit of application development capability.

And so, we -- they are feeling a little bit like a second cousin with the growth of DynaEnergetics and we don’t want them to feel that way any longer, we are hoping that they will start growing with some of these new applications that they are going after, and we just -- we are excited about that business going forward.

I -- the applications, I have there are a whole host of kind of unique processing occupations. And I have been -- I don’t have the best record of predicting on when those are going to land. So we need to demonstrate this to all of you. But that’s -- we are going to build and grow that business..

Great. Thank you. And then, just as a follow-up, when you look at your -- what I am sort of just trying to triangulate your guidance a little bit for the fourth quarter, especially for the DynaEnergetics business. And when you look at kind of what some of the others have said, I mean, you are looking at a fairly small drop off in revenue.

It seems like others have guided down mid-double digits 12% to 15% range in general.

I mean I am just trying to sort of think about how your -- what’s your comfort level is with the DynaEnergetics topline guidance for the fourth quarter?.

Well, I mean, we -- we are -- we kind of took the hit. We kind of look at it as the second half of this year compared to the first half. And there’s a -- because of financial seasonality that’s entered into this marketplace that, as well as a lot of undercapitalized companies to focus balance sheet.

And so it’s -- we could see that coming, we anticipated it, we raised our EPS guidance. So I think we are hopeful that we can keep growing our market and aim the prices for our products..

Okay.

And then, when I think about the -- so, I guess, the other thing I was sort of thinking about when I look at the business on the DynaEnergetics side is, there’s well fracked stages and then there is perf guns per stage and that has been trending higher over the last several years, and I think with the Trinity Guns maybe it continues to trend higher.

What are you seeing as far as that dynamic is concerned both currently and kind of how do you expect it to play out?.

Yeah. I think we have referenced Spears earlier and in some of the statistics. I think, they recently come out with an assessment of the market. They brought down their forecast for 2020, patience being relatively stable. I think they are up 1% or so..

Yeah. Stages..

Stages. Yeah. Stages, but being perforating intensity per stage is going to increase yet again. And so, we see our market from a unit volume standpoint, going up another 10%, 12% in 2020. And we are hopeful that the pricing can hold on and that we see that in terms of revenue growth also for the industry..

Okay. Great. Now that’s helpful. I will take more off line. But I appreciate the comments..

And our next question comes from Tommy Moll with Stephens, Inc..

Thanks for letting me back and I just had a couple housekeeping items.

On the Russia facility that you have shuttered, can you quantify the depreciation benefit from that? And then also the pending charge that you mentioned in the release today, can you quantify that and give us your best guess on timing?.

Yeah. The depreciation was nominal in terms of the impact of the DMC’s results. And in terms of the foreign currency translation sitting in equity that balances about $8 million and we will charge that through restructuring through the income statement and in the end we substantially liquidated through sale of the assets.

And so that we expect that to occur either late fourth quarter or early first quarter and that’s when you see that charge, non-cash and part of our -- part of those structuring..

Perfect. And then last one for me.

Mike, if you could clarify the share count you are using for the full year EPS range?.

I am using roughly $15 million..

Okay. Thank you very much..

And next we will go to Jim Brilliant with Century Management..

Good afternoon, guys.

How are you doing?.

Yeah. Hi, Jim.

How are you?.

Pretty good.

Kind of on the NobelClad, I know you are not ready to make any kind of projections in the next year but could you size the size of the contract for bidding on kind of the ranges are we talking about some of the new markets you are entering or is it also a combination of the chemical businesses starting to pick up?.

So they are trailing 12-month bookings, right? And they -- it is right about $90 million. And they are working on some fairly sizable projects that are in the $5 million to $15 million range and it’s a handful of them and we are hoping that we get a couple of those.

And that as you could see for a company that’s been in the $80 million to $90 million it really will move the needle on in terms of their performance next year, if they -- if those projects fall as -- and we will know more about that timing of those, when we give our guidance in the -- when do we give our guidance, February?.

February. Yeah..

February. Yeah..

Okay. All right. And then can you, could you expand a little bit on the new product offerings. So you mentioned something kind of interesting on the Trinity’s. If we look at when you introduced the factory assembled gun system you provided an efficiency to the well site in terms of the assembly at Wireline.

But now you are talking about adding efficiencies in the pressure pumping market. Can you expand on that? That’s a whole another avenue..

Yeah. And I think, the efficiencies have been there also on the pressure pumping over the last few years. With our equal hole and our -- which is our HaloFrac and our FracTune shaped charges and big hole shaped charges.

And so we just, in some respects the advancements that we have had on our shape charge development has been over shadowed by our own discussing of the packaging options and not just the pact -- it’s not just the packaging options, it’s the nervous system, the integrated switch detonator that that controls the perforations.

And we -- we are coming out with our whole host of different ways of packaging the shaped charges. And so that you can mix and match shaped charges with packaging designs. And they are designed for not just the shaped charge capacity and chemistry, and physics behind the channel development that they do.

But it is also how they are oriented, where they are position and it’s -- and they are rock optimized if you will formation optimize designs that we want as a partner and work with the exploration and production companies and tell them to design their completion systems for where these wells are being drilled and operated.

And so, there’s a limit to how far you can go in this industry or any industry on the cost side of it. And particularly in an industry that has very low oil recovery rates. And so, it’s not that we are actually focused on oil companies going forward through our shaped charge and our packaging design..

Okay.

So let me just clarify, so your new designs are focusing on oil -- improved oil recovery?.

Yeah. Yeah..

Okay..

Whether it’s in new wells or in refracked wells, we work….

Okay. So you just led into the next question, I have heard a lot about refracking, obviously, it’s an important part to the industry.

Where do you guys -- where are you with that and are you seeing an increase in refracs?.

Refracs are maybe 3%, 4% of well completion programs today growing, but from a very small base. We historically haven’t differentiated between perforating a new well or perforating an existing well.

We have a product line for that area that’s a smaller diameter gun with a larger shaped charge, equal hole design so that it can go through the various tubulars in order to refrac an existing well and we actually -- we call that product line the DX echo if you will.

And that’s why we haven’t put it together in terms of a piece of literature, because it’s just part of our standard completion program and perforating programs. But we think that will probably do more about going forward, more marketing on that because it’s -- with less drilling in some basins of refracting it’s increasing in certain basins..

Okay. And then I just want to clarify what I thought I heard earlier. We know ‘18 was better than ‘17, ‘19 was better than ‘18 and I think you said ‘20 is going to be better than ‘19. Is that….

Yeah..

Okay.

And your CapEx next year is $15 million to $20 million?.

Correct..

Okay.

So substantial free cash flow and have you thought about share repurchase?.

No. We would like to build some cash..

Fair enough..

I’d say that we want to do share repurchases. But answering your question we haven’t thought about it..

Okay. All right. I guess one last thing. So you just came out with the Trinity. It’s been in pilot now, you are shipping.

When did you begin shipping that?.

Within the last 10 days..

Okay.

So it’s a little bit too early to tell, but any kind of additional color on the pilots and how it’s being utilized?.

Just what we mentioned in the earnings release and we are hoping to -- we are just gaining more information on that, so we have four E&P companies that we are working with and a handful of service companies and we are just gathering information on it works..

I am sorry did you say four E&P companies?.

Yeah..

Okay..

It’s starting. And….

Yeah..

And so, we are just gathering this information, but we are very encouraged with what the information that’s coming in. And obviously, as we build strong data base, we will share that data base with the market to help move that product..

So, Kevin, if you guys look out two years or three years and so, if the -- I think you said earlier that you know switches were about 48% that then are now 72% and pre-assembled….

Going. Yeah. Going just -- going to the low-70s..

Going to low-70s, I guess, next year. But the factory assemble is going to follow that too. So as the industry moves towards factory assembled, what happens to those that aren’t doing it that way, currently? I mean, you have spent $70 billion over the last couple of years adding capacity and adding the technology behind it.

It’s not just that a -- it’s not all that easy for the industry to just flip a switch and in order to go from a component assembler to an integrated factory assembly.

How does that happen for the industry?.

What do you think the implications are for the industry because of the demand, if you will from that factory assembled out of the E&P customer?.

I mean, the value aspect to the factory assembled is that and particularly in ourselves where we are basic and in all the components, meaning, we manufacture integrated switch detonators and in the core call Swedish shaped charges. We have got all the mechanical processing on the gun bodies and the subs.

It’s to me it’s kind of crazy to send all that as a bucket of bulk to our customer and ask them to assemble it and its inefficient.

And so the rationale for the factory assembled and performance assured is a big part of that, is that -- it’s the most efficient way of manufacturing, assembling a quality gun and getting it to field and down the well, and you take people off the well site which makes that more efficient.

And so people who are or companies that are assembling guns that aren’t basic in the manufacture of them, they really don’t their market is a small market and it’s more of the commodity market and they are having to sell to service companies that have more people on the well sites than those who are using a factory assembled gun.

So I just -- I don’t think the economics are going to play out favorably for them in land based unconventional people assembling this at the well site. And to me it’s just common sense. It’s some of these completion programs are more expensive than a car and the parts companies don’t send all the components to a customer to assemble their own car.

Why would they do that with a perforating gun?.

Right. Okay. That’s all for me. Thanks guys..

And our last question comes from Ed Marshall with Sidoti..

Hey, Kevin. Just a quick follow up, I mean, I look at DynaEnergetics each quarter this year saw improving incremental margins and I think in the third quarter you are over 50%, close to 55%, obviously, that’s a testament for pricing and how well that’s been holding up.

But I am curious you are carrying higher fixed cost now because of the under absorbed capacity.

What -- is there a mix that might be helping that incremental or something else that we might be missing there? And then, secondly, is there any idea on the sustainable incremental margin for DynaEnergetics as we move forward?.

Well, I mean, we -- our objectives is in the low 40s for gross margin for that and to keep it on basing on the products in order to keep healthy margins and be competitive in the marketplace.

And we feel -- with being a technology company comes legal expense both on the defense side, which we had historically but then also on the offence side with our growing patent portfolio. And so we have -- we don’t have high fixed costs. We have investments we are making for future growth.

And we feel pretty comfortable that as that company, as that business grows that those margins will follow, probably right in the range that they are at today, because I think that they are operating and they are very well balanced today..

Got it. Appreciate your comments. Thank you..

And that does conclude our Q&A session for today. I will turn it back over to Kevin Longe for any closing remarks..

Yeah. First of all, I’d like to thank everybody for joining this call and I’d like to highlight DMC DynaEnergetics, NobelClad’s employees and I want to thank everybody, our employees for their considerable efforts.

We have been able now 10 straight quarters of year-over-year revenue and adjusted EBITDA growth and I think that that’s pretty significant. And we look forward to the future and also our future call in February. So, thank you, everybody..

And that does conclude today’s teleconference. We thank you for your participation. You may disconnect your lines at this time. And have a great day..