Q3 2019 Earnings Call
Ladies and gentlemen, thank you for your patience. Please remain on the line your confidence will begin momentarily again, we do appreciate your patience. Please remain on the line your conference will begin momentarily. Thank you.
Good day, ladies and gentlemen, and welcome to your D. N C Global third quarter earnings call. All lines have been placed in a listen only mode and the floor will be opened for your questions and comments. Following the presentation. If you should require assistance throughout the conference. Please press star zero at this time. It is my pleasure to turn the far over to Jeff Hi.
VP of Investor Relations, Sir the floor is yours.
Hello, and welcome to de M.C., its third quarter conference calls.
Presenting today, our president and CEO , Kevin long and CFO , Mike Queued up.
To remind everyone that matters discussed during this call may include forward looking statements that are based on our estimates projections on assumptions as of today's date and are subject to risks and uncertainties that are disclosed in our filings with the FCC.
Business is subject to certain risks that could cause actual results to differ materially from those anticipated in our forward looking statements.
Do you ever she assumes no obligation to update forward looking statements that become untrue because of subsequent events.
Webcast replay of today's call will be available at DMC Global Dot 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'll now turn the call over to Kevin long Kevin.
Thanks, Jeff both of DMC is businesses delivered year over year sales gross 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 $100.1 million.
14% versus the 2018 third quarter and down 10% sequentially.
So the dining our genetics, our oilfield products business were $77.4 million.
17% from the 2018 third quarter and down 13% sequentially.
So that no flatter composite metals business were $22.7 billion.
<unk> percent versus last year's third quarter and up 2% sequentially.
Don't quite ended the third quarter with an order backlog of $33.2 million versus $38.8 billion at the ended the second quarter.
Trailing 12 month book to Bill ratio at the ended the quarter for noble classes 0.97.
DMC reported third quarter, adjusted gross margin of 37%, which excludes the write down of inventory related to the plant closure of done energetics manufacturing facility into him in Siberia.
Gross margin in last year's third quarter was 34%.
And it was 38% in this year second quarter.
[noise] Dynaenergetics reported adjusted gross margin of 40% versus 37% in the same quarter a year ago.
And 41% and this year second quarter.
Noble class gross margin was 26% up from 25% in that 2018 third quarter.
And flat versus this year second quarter.
Consolidated adjusted operating income was $19.3 million versus $13.9 million in last year's third quarter.
Adjusted operating income in dining energetics was $21.4 million.
And adjusted operating income and noble Clyde was $2.2 million.
Consolidated adjusted net income was $13.4 million or 90 cents per diluted share.
First as adjusted net income of $10 million or 68 cents per diluted share in that 2018 third quarter.
Adjusted EBITDA was $23.2 billion up from $17.2 million in last year's third quarter and down from $29 billion into second quarter.
John Energetics reported adjusted EBITDA of $23.2 million, well noble Clyde reported adjusted EBITDA of $3.1 million.
From a commercial perspective.
Energetics is taking advantage of a slowdown in well completion activity to onboard new service companies with the I guess to intrinsically safe initiating system.
And the dynasties Diaz factory assembled performances shirt perforating systems.
Our sales team also spending more time, the exploration and production companies, which are seeking to improve safety maximize efficiencies and drive down well completion costs.
It's 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 D. S models will accelerate customer adoption rates.
D. is inline which enables the pre alignment of shape charges at surface.
And then orientation of the gun straight once it's in the Wellbore is already being specified by growing number of operators.
D.S. Trinity 3.5, which is the industry's most compact perforating system is now being shipped to customers.
The system is seven inches long and features threeshape charges on a single radio plane.
Recent studies show that in select formations discharge configuration can improve product 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 higher gun and charge covenants within each stage.
Customer reaction to the field trials was very positive and we are pleased the system is now commercially available.
And noble clad new composite metal applications are generating increased interest within a variety of end markets, including alternative energy mining in aerospace.
These emerging opportunities reflect this successful efforts of noble clad expanded market development team.
Which is demonstrating the benefits of her composite metal solutions to end users around the world.
Meanwhile, Noble Clyde sales organization is bidding on a number of large projects that are that are expected to be awarded in the coming months.
Collectively we believe these opportunities could result in meaningful sales growth and noble Clyde during.
2020.
The third quarter quarter brought continued improvement in DMC its financial strength.
Our net debt is the ended the quarter improved by 43% versus the ended 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 weve paid based to 50 cents a share from eight cents a share.
As Mike will discuss shortly we're maintaining our 2019 sales guidance.
And have increased our full year adjusted EPS forecasts to a range of $3.65.
Two $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 ever 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 supportive DMC.
Now I'll turn the call over to Mike for further details on our third quarter financial results I looked at our guidance Mike.
Thanks, Kevin starting with third quarter expenses consolidated SGN, any was $17.1 million or 17% of sales versus SGN at $15.1 million or 17% of sales and last year's third quarter.
Amortization expense was $394000 or less than 1% of sales.
We ended the third quarter of cash and cash equivalence 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 a 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. It nobelclad are the primary reasons for the expected decline.
We expect SDMA will be approximately $17 million versus the $17.2 million in last year's fourth quarter.
Amortization expense is expected to be approximately $400000 and interest expense is also should be roughly $400000.
Fourth quarter adjusted EBITDA is expected in a range of $17.5 million to $20 million up from the $16.9 billion 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 in seven cents, 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 fly is now open for questions. If you do have a question. Please press star one telephone keypad joined next year.
Our using speakerphone, please pick up your handset to provide the best sound quality.
Well take our first question from Stephen Gengaro with Stifel.
Thanks, Good morning, gentlemen, good afternoon, I should say.
Good afternoon Steven.
Sure.
Two things I. The first thing I would like start with if you don't mind, you talked about onboarding, new customers and I.
I always get a sense that in a slightly softer market.
Onboarding new customers with a.
Premium product is harder not easier, but based on your gross margin performance seems like your they've held up really well. So can you kind of address that.
And how we should think about that.
There there is a lot of.
Pricing.
Pressure.
On the equipment suppliers that is coming from the service industry today.
We chose in the quarter and in previous quarters not to chase volume at the expense of margin.
And I think it's important.
You know to kind of share point of view on that is that we're in an industry where.
Demand is in elastic.
We are differentiated products.
With a high value and use.
Yes, you will capitalize competitors.
And we have high variable costs low this cost.
With explosives, a high barriers to entry.
And with that kind of industry structure, it's really a fools game to compete on price at a from a product standpoint.
And often once your prices go down it's hard to get them back up.
We feel our.
Prices do deserve.
The value that we create for our customers and so.
It's hard and this kind of environment.
But.
We pushed back.
And did not follow the same dynamics that existed on the service side of the industry.
And is it's important for I guess.
As to also note and we feel for our service.
Customers.
They also deal within elastic demand.
Unfortunately, theres many ours 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.
Okay.
Two others, one one quick one and that just is when you will get your EPS guidance range are you basing that off adjusted year to date bps of about three or seven for your apply and 58 at 73 am I figured out right.
Yes it.
365 to $3.80 is based on $3.11 year to date.
Perfect. Thank you and then.
Okay.
And then just the the final question is.
The biggest thing we here and talking to investors.
Is.
When you when you look at you know, particularly Halliburton and what they're doing internally versus I know there are big customer of yours, but do you can you give us any.
Hey details on on on how that relationship and the importance of how to two you et cetera, I mean could you address that all kinds of clearly the biggest.
Biggest thing I hear from investors that have you know that creates some concern.
I mean, how is very important company for the industry.
And what I think it's important for us to not get into specifics on.
Customer relationships and our business relationships with our customers yes.
This is not the place for it on the conference call.
Okay. That's fair thank you.
Good.
Our next question comes from Tommy Mall with Stephens, Inc.
Good afternoon, and thanks for taking my question.
Yes, hi timing.
So for Dyna energetics revenue.
The third quarter. It appears to have declined more rapidly than the broader industry.
But then Conversely, your Fourq you guide appears to be declining not as rapidly as the industry. If you use a few bogeys thrown out but some of the service companies in recent days.
Unfortunately, those are the best Bogeys that we have to figure out if your.
Beating tracking or or trailing the industry.
But for you guys as you think about your Fourq you guide.
What are the observations and assumption.
You guys used to build it and maybe that'll 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 Dinah and the fourth quarter, but anything else you could offer to help us understand those dynamics would be helpful. Thank you.
Yeah.
I'll tackle that last one first.
Dining energetics had a 40% gross margin.
I think it was 41% last quarter and so so they've done a.
Good job maintaining.
Their gross margin in a very very difficult environment.
In that gross margin and in our cost of goods sold is legal and legal has picked up.
She's been out legal, but R&D and our R&D as a percent.
Revenues is slightly higher in the quarter.
But we were actually very pleased with the 40% gross margin.
And what Oh essentially was.
Just under 28% operating income for Dynaenergetics in the quarter.
And.
Regarding volume.
In the second quarter.
Conference call, we anticipated slowdown in the second half of this year.
And you know I think we can see it come coming I think others could see it coming.
You know a lot of that hit in the third quarter, we think that the drop in the fourth quarter, it's going to be.
Last but.
Part of that hit was in the third quarter of this year.
And.
We're hoping that.
You know that some of the development things that we're working on.
We'll.
We will help us to mitigate volume slide back in the fourth quarter.
I do think it's important to note that.
18 was a.
Very good year 19.
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.
For Q guide and the absorption we also have.
No doubt, but it's going to be 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 it.
Aspect.
That we're picking up in the in the guide is as well and as Kevin said you know.
A slight dynaenergetics nobelclad, we're expecting to be very strong in 20 Tony.
We also if I could add too because I think the comment was made that that weve decline further than the industry and we don't think that's the case.
No I I know some other companies have reported there.
Earnings already.
And.
That's an apple in an orange in the sense that up.
In our revenues are.
Switch from revenue the addressable switch revenue.
And in the energetics.
And.
One of our competitors.
Had a very good quarter in that quarter included a switch company that they acquired at the end of the third quarter last year.
And so.
We're.
Yes.
We were impressed with their performance and we believe that their switch revenue is growing.
And that's actually a benefit to to dine energetics into DMC.
In 2017, the addressable switch market was estimated to be about 48% of the perforating market.
And is expected to grow to 72% of the market in 2020.
And we've been out in front with our addressable switch and we're glad to see that other companies or.
Coming out with their product in helping to grow.
The higher end in the value added part of this marketplace and so.
And then when you compare.
Revenues product revenues with energetic and addressable switches I think that you'd see that we're kind of growing nicely.
Thank you for all the detail there and if I could shift gears.
To cap capital expenditures and.
More broadly capital allocation philosophy.
Understanding that you may not have your 2020 budget set for Capex, but my sense as you probably don't need anymore roofline expansion.
For the Dynaenergetics segment. So some of this year's budget I would think fall away.
Is there any range you could even give us for preliminary thoughts for next year or or it's not a range anything you can do to to help us understand maybe the.
Okay and that we may not see.
Occur.
Yeah.
We're actually.
Please we've come off of this year I think our guidance was 30 million in terms of Capex and that is following 46 million in Capex in 18 and.
When we put the capacity in place for.
Factory assembled systems.
We expect our capex to to to be in the 15 to 20 million range.
Next year, we Havent, 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.
Yes.
Our next question comes from Jerry Sweeney with Roth capital.
Hey, good afternoon, Kevin, Mike and Jeff, Yes, Yes, Hi, Jerry.
Question on the energetic side right and Kevin I know you go out and do some of these sales calls right, you're very active and meeting with customers.
How.
I'm going to try and franchise, where it makes sense, but when you're talking to customers.
Charge technology come into the equation.
And when you're talking to them, so the efficiency and everything that Donna stage brings to the table more than outweigh a lot of.
Okay around shape charge technology.
Or another way.
Great.
Does your shape charge technology as good as anyone else within the industry and it's really not.
Real component on the sales portion when you're out there with dynasty.
It's a huge component on the sales portion.
This is all about this perforating is all about shake charge.
Without the.
Energetic and quality energetics.
Oh, the packaging options really don't matter.
And so we have a section for lab, we do we have.
We tailor a lot of our discussions for rock optimize charges, we have as broad if not a broader shape charge line than any other company in the industry.
And at times, we even sell shape charges, two companies, who make shape charges because they don't have that the breadth of product line that we.
And so.
Well, there's been a lot of focus on our initiating systems in the safety and reliability.
And the convenience that that's brought to.
A completion program.
We have to equally be strong in shape charge charges in order to be successful.
And.
And our shake charges are up significantly.
Year over year, I'm, not just with our gun volume.
Got it so.
Suffice to say you're.
Very competitive and energetic.
Yeah, I mean, the without a doubt I mean, the energetics market itself according to Spears.
19 versus 18.
You know stages are comparable but the energetics is up 11, 12% and and were up.
Twice to almost three times that.
Got it.
Another question here, so essentially with final stage in some ways you are.
Yes.
Technology helps eliminate some of the assembly crews and in some ways you almost be.
Your technology or your product into your clients supply chain I mean, two things one I would assume.
That makes your product.
More sticky than buying components and to at some point do you get a little bit more insight into the client activity. Because you are part of that supply chain and.
Are you talking are they giving a little bit information as to what they're seeing.
For quarter two out.
I think yeah, we are.
We're not trying to be all things to all people in the marketplace and we'd like to partner.
With customers and work together to to have solid completion programs.
And habit be sufficient 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 were working with that we've got a good insight into the types of things that they're working on.
And that's very important.
Got it the.
All right.
No go ahead.
This is going to ask one.
Follow up question and then not jump back in line.
Any idea of what percent of revenue comes from the perforating market or what percentage remarkable go too.
Factory assembled versus maybe a compelling itself.
I think it's very hard.
It's a very difficult value proposition for the service company.
To.
BV assembler integrator of a perforating system, when they're not basic in the components.
And 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.
You know factory assembled systems.
And it's natural I mean, the the the major companies.
Core hunting Titan.
Oil states ourselves in the merchant market I mean, we're we're basic in the energetics.
And the technologies to assemble these.
Guns, and and and we have.
A more controlled environment for doing that.
So I wouldn't see.
The industry 70, 580% of of the industry and if not the majority of the land based going to.
Factory assembled guns.
And you know in times like this theres a lot of.
Scrappy component guys out there that are trying to put together.
[noise] guns to compete with.
The majors, but it's not a sustainable business model, they're not they don't deploy it.
And they're not basic in the manufacturing of it.
So I I think that Theres a lot of noise around.
Other component manufacturers getting into this space, but they don't have the resources or the.
The skill set in order to to compete against the majors.
Got it otherwise for I don't want to him.
But I I also don't want to overestimated.
I got so I appreciate it thanks I'll jump back in line.
Our next question comes from Edward Marshall with Sidoti.
Hi, how are you guys.
Your final four years.
Doing great Tom so.
Chatter about competition on this call on past calls.
I'm just curious I mean, we took off a lot.
I guess, the merchant market and comparisons there, but I don't think does a fair can necessarily a fair comparison.
I'm wondering if you have kind of any updates on maybe your share.
In the market.
And how that's been trending and then secondly.
Thinking years past, you've talked about how customers are sitting on the sidelines could you just couldn't get the product to them.
Does that does that dynamic still exist.
I am I right now we have additional capacity.
To to serve the marketplace.
And.
We.
I mentioned earlier not to chase volume at the expense the margins.
Again, we've got us.
Market that hit a market that inelastic demand.
Differentiated products high variable costs, so what we're focused on getting the value for our products.
So we we see some competitors.
Unfortunately competing on price.
And as I mentioned is kind of.
A tough game is the play if you're in a market that has an elastic demand your volume is down because the market overall is down you're going to take yourself down further on price is just.
Good luck with that right.
So.
Yes.
Got capacity.
What kind of ties with the question that.
We also don't need a lot of Capex for next year.
And so we're happy with where we're where we separate accounts.
So do you have an update on onshore.
Share we're in the low twentys.
You know which is.
Has that grown wiser owner shrank.
Hi, it's grown I mean last year 18, we were in the high teen sour and below 12.
From the first half of this year.
I think it's stable table the growing.
Okay. Thanks.
Getting buffeted.
Workloads with reflected.
In.
And again, we you know.
Third the four quarters in this game and we focused on a year.
And we know that shake charges or us.
You know roughly 5% year over year were up significantly higher than that.
Sign energy revenues are up.
40, plus percent and our operating incomes of 84% year over year.
At healthy margin and.
I'd like to emphasize the margins because I think that business is.
We target mid to upper Twentys operating income margins.
And Paul and I think thats, probably the strongest reflection of.
This technology that we're deploying.
It's good to hear.
Talked about earlier, you said trendy is now commercially available.
I'm curious if you have any data how many of shifts and I think that's.
A better margin product and then even.
The existing gun system.
Any comments or any further discussion we could have kind of regarding Trinity.
Yes, it's Jeff starting to shift so year to date has been insignificant.
So.
And.
And it's one of a family of products.
And so we need to see over the next few quarters how.
Application Trinity take hold.
It's not an answer both the everything the answer to file bankruptcy.
And.
And of course, that's happening at us.
The third and fourth quarter, which relatively composite can positively.
But we'll have more information on our next conference calls.
You and I've known each other for a long time, you'll probably appreciate the full circle of this question but.
You guys are.
The balance sheet looks under Levered at this point.
As as we kind of look followed I know acquisitions and maybe not.
Another leg to your store here is something that is key to you.
What's your tolerance for.
Future acquisitions and timing of those acquisitions, given the current environment et cetera.
You know we.
Two things I mean.
We are looking at things.
We don't need to acquire anybody we're happy with.
Where we are in some of.
The investment opportunities, we haven't our two businesses and they take priority over an acquisition.
Mike will let me have any capital for Capex.
So.
Steven.
Hello.
Yes.
It's very hard to predict.
We're not out in a market competing for.
Auctions kind of properties.
You know if we do anything it's going to be negotiated is going to be quiet, it's going to take some time.
And.
We're not in a position right now to even talk about anything that we're working on.
Okay, but if I'm hearing you correctly your prepared for one.
When you are prepared today market wouldn't deter you.
Can you just need to find the right opportunity.
Right opportunity and there's also.
Well the utterances ourselves.
We do not want to leverage our comes out in the cycle market.
We.
And we don't.
You growth is definitely.
Going after acquisitions.
In the acquisitions in growth and consistent with dividends, we raised our dividend, we want to build cash and and we don't want to do a highly leveraged acquisition and risk our company.
And so right now.
For us patients is a virtue we'd need to get out of the banks and start building cash.
And and that's really what we're focused on.
It sounds to me and some other questions are probably France. This way, but it sounds like to me that theres several avenues to continue growing.
Both the topline and an earnings power for this business as we move forward whether its.
R&D investments whether its.
Other organic investments the under utilization of the facilities and maybe the Underleveraged balance sheet. There's there's plenty of opportunity for growth ahead of you.
We believe so.
As Joe is limited by.
Our goal now corner or any one of these markets has the.
Carve out the higher technology higher value added.
Area.
Yes.
The.
Solid industry.
Contributor.
And so we.
We've got a number of things that we're working on it I think.
Entity that Vincent.
In line and.
Some of the other products that will coming out with.
And then as Dennis.
Dining our debt acts as a product.
The company's it's the things that they can do the build around.
Perforating.
And Paul double flat is that application.
Engineering company for composite Battle.
And our.
Our president there John Chesley has done a great job.
Bob building putting in place.
Strong application development scheme, and we expect that to.
Well.
There are contributing.
Forward so we're.
Yes, it was a clean balance sheet and with the things that weve out.
None of us through.
We're looking for the next year and the next couple of yours.
Alright I appreciate your comments have have a good evening.
Yes, Thanks Jess.
Next we'll move to Stephen Gengaro with Stifel.
Hi, Thanks, two quick follow ups one.
Kevin can you talk a little bit about noble Clyde and certainly the opportunities you see there going forward and.
Anyway, you could kind of bracket potential growth opportunities there as you look out to 22020 him.
Yes, I mean, we're not in a position yet to give guidance for 2020.
But they they deal with the down stream.
Petrochemical industry.
You know for 60.
Plus percent other business and industrial processing for for for the other.
And and and they deal with major capital.
Projects primarily.
And.
So those are long gestation period projects.
And the business that we're going to be doing.
Next year the year after is really stuff that we started work to possibly three years ago.
And and.
You know in my tenure with DMC as probably slow in terms of adding application engineering people because of the long.
Okay.
That it takes.
But we're also consolidating the.
Their manufacturing footprint and they're they're right sized for their their manufacturing and.
And that got modern and efficient facilities.
The lower operating costs and they had.
This time last year.
And and they have quite a bit of application development capability.
And so.
We.
There are feeling a little bit like up.
A second cousin with the growth of done energetics and.
We don't want them to feel that way any longer and we're hoping that they.
They will start growing with some of these new applications that they're going after.
We.
We're excited about that business going forward.
Hi, yes, the applications I am I.
There are a whole host to kind of unique processing applications and I'd been I don't have the best record in predicting on windows are going to land.
So.
So yeah, we we need to demonstrate this to all of you.
We're going to build and grow that business.
Great. Thank you and then just.
And my follow up you know when you when you look at your.
Well I'm sort of trying to triangulate your guidance a little bit further for the fourth quarter, especially for the diner Genex business.
And we when you look at kind of what some of the others have said I mean, you're looking at.
A fairly small.
Drop off in revenue.
Got it seems like others have guided down you know made.
Mid double digits, you know, 12% to 15% range in general.
I'm, just trying to sort of think about how you're.
What are your comfort level is what the dynamics.
Blind guidance for the fourth core.
Well I mean, I mean, we.
We're.
We kind of took the head we kind of look at it is the second half of this year compared to the first half.
And.
And there's a.
I guess, a financial seasonality that's entered into this marketplace.
That that.
As well as.
A lot of undercapitalized companies to focus on.
On sheet and so.
You know it's.
We can see that.
Coming we anticipated.
We've raised our EPS guidance. So I think you know, we're we're hopeful that we can.
The growing our market and aim the.
The prices for our products.
Okay and then.
When I think about the.
So I guess, the only thing I was sort of thinking about when I when I look at the business on the die energetic side is.
You know there's.
There's.
I will track to Frac stages in energy perf ground per stage and that has been trending higher the big over the last several years I think what the with the trendy guidance maybe it continues to trend higher what are you seeing on as far as that dynamic is concerned.
Oh, yes currently in kind of how do you expect to play out.
Yes, I think.
We reference Spears earlier, and some of those statistics I think they recently come out with.
An assessment of the marketing they brought down.
Their forecast for 2020.
[laughter] lesions being relatively stable.
I think there were up 1% or so yes stages ages stages, but being perforating intensity per stage is going to increase yet again.
So we see our market from a from a.
Unit volume standpoint.
You know going up another 10, 12% in 2020.
And and we're hopeful that that the pricing can hold on and that we see that in and.
In terms of revenue growth also.
Well the industry.
Okay.
Great now that's helpful I'll take more offline, but I appreciate the comments.
<unk>.
Our next question comes from Tommy Mall with Stephens.
Thanks for let me back and I just had a couple housekeeping item.
On the.
Russia facility that Youve shuttered.
Can you quantify the depreciation benefit.
From that and then also.
The pending charge that you mentioned and 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 Mcs results.
And in terms of that the foreign currency translation sitting in equity that balance is about $8 million.
And.
Will charge that through restructuring through the income statement.
In the energy substantially liquidated.
Through.
Sale of the assets and so that we expect that to occur either late fourth quarter early first quarter and that's when you'll see that charge.
Non cash.
And.
Part part of our restructuring.
Perfect and then last one from me, Mike If you could clarify the share count you're using for the full year EPS range.
I'm using.
Roughly 15 million.
Okay.
Thank you very much.
Next we'll go to Jim brilliant battery management.
Afternoon, guys how are you done.
Yeah, Hi, Jim how are you.
Oh pretty good.
And again kind of on the noble Clyde I know, you're not ready to make any kind of.
Projections into next year, but can you size the size of the contracts you're bidding on kind of a range is are we talking about.
Some of the new markets your.
Entering or is it also a combination of the chemical business is starting to pick up.
So so they're they're trailing Uh huh.
12 month.
You know and bookings right and they MB is right about 90 million.
And they're working on some fairly sizable projects that are in the.
$5 million to $15 million range.
And and it's a handful of them.
And.
And we're hoping that we get.
A couple of those.
And then as you can see for a company that's been in the.
Yeah.
80 to 90 million it really will move the needle on in terms of their performance next year, if they if those projects fall.
Has and we'll know more about that timing of those when we give our guidance and.
When do we give our guidance February .
February yes.
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 that on the Trinitys you know if we look at when you introduce the factory assembled.
One system, you provided an efficiency to the well site in terms of the assembly at wireline.
But now you're talking about adding efficiencies in the pressure pumping market.
Can you expand on that that that's a whole another avenue.
Yeah, and I think you know the.
The efficiencies have been there also on the pressure pumping over the last few years with our equal hole in our which is our halo frac in our frac tune shape charges in our in our big hole shape charges and and so we just it.
In some respects the.
The advancements that we've had on our shape charge.
Development has been overshadowed shadowed by.
Our own discussing of the packaging options and and.
Oh, and that's just the pack, it's not just the packaging options. It's the.
The nervous system the integrated switch.
Detonator that that controls the preparations.
And and you know we.
We're coming out with a whole host of of different ways of packaging.
The shape charges and.
And so that you can mix and match shave charges with packaging designs.
And there they're designed for not just the shape charge.
Capacity and.
Chemistry and physics behind.
The channel development that they do.
But it's it's also how their oriented where their position.
And as and their rock optimize if you will formation optimized designs that that.
We want as.
Partner and work with the exploration and production companies to them to design.
Completion systems or.
Where these wells are being drilled it operated and so.
Theres a.
There's a limit to how far you can go up in this industry or any industry on the cost side of it.
And particularly in an industry that has has very low.
Oil recovery rates and so.
Oh.
It's not that were.
Oh, we're actually focused on oil recovery going forward through through our shape charge and our package design.
Okay see so let me just clarify so your your new designs.
Focusing on oil improved oil recovery.
Yeah, Yeah, whether it's in whether it's in new wells or in Refract wells were no. Okay. So yeah, you just let into the next question I've 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.
Hi.
[noise] refracs or maybe three 4% of well completion programs today.
Growing but from a very small base.
Yeah, we.
We historically haven't differentiated between.
Perforating, a new well or perforating, an existing well.
Yeah, we.
We have a product line.
For that area, that's a smaller diameter gun with.
Larger shape charge equal whole design, so that we can go through.
The various tubulars in order to re fracking existing well and.
Yes, we actually we call that product line or do you have to Echo if you will and that's.
We.
We haven't put it together in terms of a piece of literature, but because it's just part of our standard completion program and perforating programs.
But.
Yeah, we think that.
We'll probably do more about going forward more marketing on that because its.
Less drilling in some basins that re fracking is increasing in certain basins.
Uh huh.
Okay, and then I just wanted to clarify when I thought I heard earlier.
We know you know 18 was better than 17 19 was better in 18 and I think you said 20 is going to be better than 19.
Yes is that.
Okay and your Capex next.
And your Capex next years 15 to 20 million.
Correct.
Okay, so substantial free cash flow and.
Have you thought about share repurchase.
No [laughter].
We'd like to built in cash.
Fair enough that we want to do share repurchases, but I'm answering your question, we haven't thought about it.
[laughter].
Alright, I guess I guess 111 last thing so you you.
You just came out with the.
The Trinity it's been in pilot now you're shipping when did you begin shipping Matt.
Within the last 10 days.
Okay.
So it's a little bit too early to tell but.
Any any kind of additional color on the pilots and and how it's being utilized.
Just yeah, what we mentioned in the earnings release and and.
We're hoping that we're just gaining more information.
On that <unk> will be.
Or.
MP companies that were working with and.
A handful of service companies and we're just.
Huh.
Gathering information on how it works.
I'm sorry did you say four evening did you say for SMB company.
Yes.
And it.
Starting and so we're just gather this information, but we're very encouraged with what the information that's coming in.
And.
Obviously.
As we build.
The strong data base, we'll share that data.
Base with the market to help move that product.
Uh huh.
So Kevin if you have you guys look out you know two three years and so if if the.
You said earlier than you know switches were about 48% pointed out 72% and made it pretty assembled.
Yeah going to is going to the logo.
And going delay and going to low seventies, I guess next year, but but the factory assembled is going to follow that too so as as the industry moves towards factory assembled.
What happens to those that.
Aren't doing it that way.
Currently I mean, you've spent $70 million over the last couple of years, adding capacity and adding.
The technology behind it.
It's not just the it's not all that easy for the industry to just flip a switch.
Huh.
And in order to go from a.
Component assembler to an integrated factory Assembly, how does how does that happen for the industry and what do you think the implications are for for the industry because of the demand. If you will from that factory assembled.
Out of the MP customer.
Well I.
I mean, the value aspect to the factory assembled is that.
You know and particularly in ourselves where were.
Basic and all the components, meaning we manufacture.
Integrated switch detonators that core.
Swedish shake charges, we've got.
Although mechanical processing on the.
The gun bodies the.
And and the.
Subs.
You know it's to me, it's kind of crazy to send all that is a bucket of both to to our customer and asked them do assembly.
And and it's any mission.
And so.
The.
Rationale for the factory assembled.
And performance assured as a big part of that is is that.
It's the most efficient way.
A manufacturing assembling a quality gun and getting it to the field and down the well and it and you take people off the well site.
Which makes that more efficient.
And and.
And so.
People, who are or companies that are.
Assembling guns that our basic in the manufacture of them.
They really don't they're market is a small market and that's more of the commodity market.
And there are having to sell to service companies that have more people on the wall site than those who are using a back through some book gun. So I just I don't think the economics are going to play out favorably.
For.
In land based unconventional.
People assembling.
This at the well site.
And.
<unk>.
You know to me it's just.
Common sense it's.
Some of these completion programs are more expensive than a car.
And and we you know.
The parts companies don't send all the components to 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.
Our last question comes from Michael with.
Just a quick follow up I mean, I look at Diana.
Each quarter this year, so improving incremental margins I think in the third quarter.
Over 50% close to 55.
Obviously, that's a testament for pricing and how well that's been holding off but I'm curious if you're carrying higher fixed cost now because of the unders absorb capacity.
What is is there a mix that might be helping that incremental or something else set up that we might be missing.
There and then secondly is there any idea on the sustainable incremental margin for for dine as we move forward.
Well I mean, we our objective is.
It is.
In the low fortys over so it was hard to investors.
And and innovating on the products.
In order to eat healthy margins and be competitive in the marketplace and.
You know we go with.
Being a technology company comes a legal expense both on.
The the defense side, which we had historically, but it also.
On the often side.
You know with.
Our growing.
<unk> portfolio.
And so.
You know we.
Yeah.
Yes, we have.
We don't have.
Hi fixed costs.
We have investments, we're making for future growth.
And.
Yeah, we feel pretty comfortable that as that company as that business grows that those margins will follow.
Probably right in the range is that we're at today, because I think that they're operating and they're very well balanced today.
Got it I appreciate your comments thank you.
And that does conclude today's session Frank I'll turn it back over to Kevin long for any closing remarks.
Yeah.
First of all I'd like to thank everybody for joining this this call and I'd like to highlight.
DMC dynamic genetics noble clouds employees.
And I want to thank everybody our employees.
Before they are considerable efforts we.
You have enabled now.
10 straight quarters of year over year revenue and adjusted EBITDA growth and.
And I think that's pretty significant.
And we look forward to.
To the future and also our future call in.
February so thank you everybody.
Okay.
That does conclude today's teleconference. We thank you for your participation you may disconnect your lines at this time.
[noise] [noise].