Greetings, and welcome to the Dynamic Materials Corporation 2014 fourth quarter conference call. [Operator instructions.] I would now like to turn the conference over to your host, Mr. Geoff High, director of investor relations for Dynamic Materials Corporation. Thank you, Mr. High. You may now begin.

Thank you, operator. Good afternoon and welcome to DMC's fourth quarter conference call. Presenting on behalf of the company will be President and CEO Kevin Longe and Chief Financial Officer Mike Kuta. I’d like to remind everyone that matters discussed during this call may include forward-looking statements that are based on management’s estimates, projections, and assumptions as of today’s date and are subject to risks and uncertainties that are disclosed in DMC’s filings with the Securities and Exchange Commission. The company’s business is subject to certain risks that could cause actual results to differ materially from those anticipated in its 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 made available beginning approximately two hours after the conclusion of this call. Details for listening to today’s replay or webcast are available in today’s news release. And with that, I’ll now turn the call over to Kevin.

Thanks, Geoff, and good afternoon everyone. Sales in the fourth quarter came in at $52 million, a 5% improvement over the 2013 fourth quarter. The growth was driven by the performance of our DynaEnergetics business, which delivered a 47% top line increase versus the 2013 fourth quarter. Although U.S. oil prices in December were down more than 40% from their 2014 highs, DynaEnergetics had not yet seen a decline in demand from customers in the oilfield services sector. Sales growth at DynaEnergetics more than offset a 23% top line decline at NobelClad, which continues to see soft demand from its industrial end markets. Consolidated gross margin improved to 30% versus 26% in the 2013 fourth quarter. The improvement reflected sales of a more favorable product mix at DynaEnergetics. Fourth quarter operating income, excluding restructuring charges related to NobelClad’s European consolidation program, was $3.2 million, up from $1.1 million in the prior fourth quarter. Operating income included a $931,000 reserve adjustment at DynaEnergetics for excess, slow moving, and obsolete inventory, which reflects an ongoing program of evaluating aged inventory and matching it against anticipated customer demand. In the fourth quarter of 2013, DynaEnergetics took an $808,000 inventory reserve adjustment for aged inventory. Both the 2014 and 2013 fourth quarter were impacted by various other expenses, which are detailed in today’s earnings release. Income from continuing operations, excluding restructuring expenses, were $839,000 or $0.06 per diluted share versus $95,000 or $0.01 per diluted share in the 2013 fourth quarter. Fourth quarter adjusted EBITDA was $7.2 million, up from $5.4 million in Q4 of 2013. At the business level, DynaEnergetics reported fourth quarter sales of $29.3 million, up from $19.9 million in last year’s fourth quarter. The growth was primarily due to higher sales in North America of the DynaSelect integrated switch detonator,…

Thanks, Kevin, and good afternoon everyone. I’ll start with a look at our 2014 fourth quarter [unintelligible], including general and administrative costs of $6.7 million, or 13% of sales, versus $6 million or 12% of sales in the fourth quarter of 2013. Selling and distribution expense was $4.5 million or 9% of sales versus $4.1 million or 8% of sales in last year’s fourth quarter. As Kevin noted, DynaEnergetics recorded a Q4 reserve adjustment of $931,000 for excess, slow moving, and obsolete inventory. We also recorded restructuring expenses of $6.8 million or $5.1 million after tax related to the consolidation of NobelClad’s European cladding operations. $3.9 million of this expense was noncash impairment charges tied to a metalworking plant in Germany as well as leasehold improvements at the facility in France. Both of these facilities are being closed under the consolidation program. We previously anticipated fourth quarter restructuring charges of $1.5 million to $3 million, but they did not include the $3.9 million in noncash impairment charges. There also were $682,000 in other expenses during the fourth quarter, primarily related to the devaluation of the Russian ruble and associated foreign currency translation losses. Turning to our balance sheet, we ended the year with cash and cash equivalents of $9.4 million and had working capital of $62.6 million. Current liabilities were $32.5 million and total liabilities were $63.9 million. Again, net debt was $13.4 million, down from the $18.7 million at the end of 2013. Looking at cash flow, for the full fiscal year, we generated net cash from operating activities of $23.1 million versus $30.2 million in 2013. A $9.9 million net increase in working capital during 2014 was the primary reason for the increase and was largely related to sales growth at DynaEnergetics. With respect to guidance, we currently…

[Operator instructions.] Our first question comes from the line of Edward Marshall from Sidoti & Company. Please proceed with your question.

I wanted to just clarify, because you talked about oil prices I guess throughout the press release and you said in the fourth quarter, that hasn’t affected orders as of yet. I’m not necessarily sure that you said you’re feeling the impact in Q1 in Europe, but I guess you’re implying that. I just want to clarify, are you seeing a decline in the order activity of DynaEnergetics? Or is the decline more anecdotal at this point?

We are seeing a decline in the first quarter.

To what degree?

I believe Mike gave the 10-15% down in the first quarter from a revenue standpoint. The majority of that is related to DynaEnergetics.

And Ed, when you think about Q1, NobelClad’s probably going to look similar to Q1 of last year. So as Kevin commented, the softness is all driven by DynaEnergetics.

Do you anticipate that that’s going to be kind of the run rate for the year, or do you think that it has further to go? What are your customers telling you at this juncture as to the look into the industry itself?

Well, there’s three things at play, quite frankly. There’s the drop in rig count, which is down approximately 40%. What we’re experiencing is a further drop from the rig count due to both inventory correction and our customers are not completing some of the wells that are being drilled. And so when we first put together our plans for 2015, we thought that we’d have a strong first quarter and we’d feel more of the downturn in the second half of the year. What’s unfolding is that that’s been pulled up earlier in the year than we anticipated. And we’re seeing a pretty dramatic decline in the first quarter.

So you’re implying that the first half will see the brunt of it, and then the second half will kind of level out from there?

I think so, and that not completing the wells, even though they’re being drilled, while it’s working against us in the first half of this year, depending on obviously the price of oil, could work in our favor in the second half of the year.

The cost savings from the closures and the restructuring of the DynaEnergetics facilities, I think that we’ve talked about this before, I think that would have been done regardless of the market, but have you kind of put some numbers around to what kind of cost savings? I think you might have mentioned some in your prepared remarks, but can you talk about maybe the cost benefits to the business overall, maybe even from an operating structure as well, not just the fixed costs?

In approximate numbers, we’ve taken over $5 million out of our fixed costs on an annualized basis. Roughly 40% of that is in SG&A. The other 60% of it is in cost of goods sold. But I’ll add to this, given the revenue decline, and there’s a change in business mix that’s happening in our business where in 2014, we were approximately 55% DynaEnergetics and 45% NobelClad, that ratio’s reversing in 2015. So we’re going to be back to over 55% NobelClad, 45% DynaEnergetics. And as you know, the gross margin’s higher, mid-30s, versus mid to low 20s between the two businesses. And so the cost savings somewhat get masked through the volume reduction, and also, the change in business mix.

Just to back up though, the $5 million is the consolidated business, I guess is what you’re saying, and not DynaEnergetics specifically? Or is it DynaEnergetics and the mix of the two businesses will offset that?

The $5 million is across our corporate office, DynaEnergetics, and NobelClad. But that reduction is not going to offset the change in the lower volume in 2015 and the change in business mix. And so there’s a number of moving parts there.

You talked about some consolidation in Whitney, you talked about closure of facilities in Hobbs and in Alberta and changes in Edmonton. I’m curious, is that part of that $5 million? Or is there additional coming?

No, it’s part of it, and stepping back, and it’s an effort that started before the downturn in the markets, and so this does play to the discussion that these are changes we would make even in a strong market, is that we’re consolidating our NobelClad business in Europe, which, as a combined business, has been less profitable than the Americas business, primarily because of higher fixed overhead. And the new Liebenscheid facility is allowing us to consolidate as well as increase our capacity and capability. But then conversely, on DynaEnergetics, we’re consolidating in the Americas through both distribution centers and perforating gun manufacturing. And we’re moving pretty quickly on these programs because they quite frankly were started before the downturn. Admittedly, we did accelerate the reduction in our corporate expenses given the headwinds that we’re facing in 2015, but we’re very comfortable with how we’re positioned from a corporate expense standpoint.

The $931,000 in inventory reserves, the adjustment, that was in cost of goods I assume?

Yes.

What’s going on, in particular, in general and administrative? That number was excessively high in the quarter, and from an absolute dollar value, from a percentage of sales value, and it stands out over the past eight quarters or seven quarters or so. Was there something that particularly ran through this quarter that hadn’t hit in prior quarters that we should be aware of?

It’s just a few factors, really. We had the cost in DynaEnergetics, for supply chain and distribution centers, which now we’re consolidating some of those costs. And also, our investment in business development that we made in 2014, and which we’re pulling back on some of those activities as well. If you look at the prior year, it also includes some lower expenses from reversals, some items that were one-time reversal items.

You reduced some charges in Q4?

Yeah, prior year.

You reversed them in Q4 of 2014, though?

The expenses were reversed in the prior year, so it made the prior year a lower expense number.

I see, but on a run rate basis from Q1, five seven, five nine, five five, in Q4, six point seven. And based on your comments, you said some costs, supply chain, investment in business activity. Could you put some numbers around it? It ran $1 million, $1.2 million higher than normal.

Yeah, so it’s really in the prior year we had some items that came out of expense. We also did have overall higher salaries and wages, as I mentioned, and also, we had some changes in our stock compensation. We had to accelerate some vesting activity.

So there was catchup from the compensation [unintelligible].

Yeah.

Okay, so you underaccrued for the majority of the year, and you picked up in the fourth quarter.

Yeah, it was a change in vesting.

And final question, the tax rate. Even if, in the adjusted base, you’re looking at about 65%, did the charges throughout the year, the restatement, did they hit in Q4, and that was the adjustment there? Why such a high tax rate?

A couple items. We did push those adjustments back through the quarters through our restatement. When you look at the year to date rate as reported, I think you’re going to see about, as you said, I think it’s 67%. If you take out restructuring charges, because a lot of the restructuring charges were taxed at a lower rate, or the costs weren’t deductible, if you exclude those, in the center table in our press release, you come up with a tax rate of about 44%. So it’s a little bit more normalized, but we’ve also been taking valuation allowances continued in the fourth quarter for our losses in Germany and Siberia.

Right, but I’m specifically referring to the fourth quarter. I mean, it’s one five five nine over two three nine eight, which is 65%. Can you address that as opposed to the full year? That’s with your adjusted numbers.

Okay, yeah. Excuse me, I addressed the full year. The Q4 rate is really a push to get to the year to date rate.

So it was loaded with additional taxes.

Yeah.

And what was the absolute value of that number? I’m trying to get to your normalized rate on a go forward.

Well, so, we’re not necessarily providing guidance on our tax rate. I would look at it from a year to date perspective, and kind of look at that as a more normalized tax rate. I wouldn’t necessarily use that going forward, but at least for 2014, the tax rate excluding restructuring is what you should be looking at for year to date period.

We do have our next question coming from the line of Gerry Sweeney from Roth Capital.

I jumped on a little late, but you know, curious on the acquisition front. You did state in some of the comments that you do have a pretty good line of credit, etc. You’re looking at acquisitions, or expansion opportunities, but you also seem to be pulling back a little bit on that front, with Rick retiring. Thoughts around how you’re going to look at that on a go forward basis? Where your focus is going to be, etc.?

We’re actually not pulling back on the activities. We’re pulling back on the investment in that position. I can actually say that our activities have actually picked up dramatically. I think that Rick’s skills are more part of the due diligence and things that we would get into with his background as a CFO. And he is available on an as needed basis going forward. The sourcing is coming from within our businesses and myself, if you will, in terms of opportunities that fit strategically with the company.

Are you looking at [unintelligible] and [unintelligible]? Obviously, there’s a lot of discussion in the market, if it’s a good opportunity, or do you want to maybe go somewhere else?

I learned from a recent investor meeting that I had, I’m sort of borrowing this from somebody, that said, “Never waste a downturn” or “Never waste a crisis.” And you know, it’s unfortunate that we’re running into the headwinds that we are from a revenue standpoint, which will impact our income. But then on the other hand, we have such great new technology and new products that this is the type of market that you want to introduce new products in that benefit our customers operationally, both from an effectiveness standpoint and from a cost standpoint. So we’re pretty excited about the products that we’re introducing. There are additional products that we feel that would benefit our company in this energy sector, and quite frankly, the valuations were going up quite significantly over the last few years. They tend to go up like a rocket and come down like a feather, but they are coming down. And so it could be a good opportunity. Having said that, we’re also looking in the general industrial area. So it’s a little bit of everything.

And also, I think there was a little comment on the NobelClad direct attach, and I think the pipe market. I think, if my memory’s correct, there was maybe some opportunity there to service some markets maybe in 2015. Any comments on that? And then also, just the general NobelClad market - you’ve always talked about the chemical capex spend - and how you see that playing out?

Direct attach has been a conversation of ours for some time, but I think the change in our business and how we’re using direct attach going towards the market is that we’ve looked at one of the competing technologies against explosion clad has been roll bond. And roll bond, because of the process, it has limited materials and thicknesses that you can roll together, but it is lower cost than explosion clad in the thinner materials when you’re only looking at it on a plate by plate basis. But when these plates are rolled into shelves and the shelves have internal in them, whether it’s used in a heat exchanger, a vessel, or a reactor, the traditional method has been to strip back the cladding on the inside and attach the internals to the exterior structural material. With explosion clad, the bond has such greater integrity compared to roll bond, you can direct attach those internals to the clad material, and the overall cost of making a vessel out of explosion clad becomes much more cost competitive, and in fact the pricing swings the other way and it’s a benefit to explosion clad when we look at it on a finished cost basis over roll bond compared to just plain plate material. And so this is an argument or a position, if you will, that our marketing team has put together position papers on, and we’ve conducted the research to make the engineering argument for it. And we actually feel that we can expand our market and gain share against roll bond using the total cost rather than the plate cost. And so we’re pretty excited about what this will do long term to our business.

And any thoughts on the capital spend in opportunities for NobelClad?

We have the metrics in a dashboard that we track industry activity, and the dashboard is up significantly. You know, the backlogs of the EPC companies that we follow, although not equally. Some are up, some are down, but overall, the group is up dramatically over this time last year. However, it was down slightly from the fourth quarter. And so we’re seeing that it’s not declining, it’s improving. We expect it to get better. We haven’t yet seen it in our own backlog, but we do see the backlog of the engineering companies that focus on the projects that we would go after.

Our next question is a follow up question from the line of Edward Marshall from Sidoti & Company.

You gave the gross margins of the different segments in the K, but they were for the full year. Do you have them for the fourth quarter for both cladding and DynaEnergetics?

So for DynaEnergetics, up 36%, 35.7% for the fourth quarter, which is flat with Q3. And then NobelClad was 23.6% in the fourth quarter.

And just to be clear, the 35.7% includes the $931,000 of inventory allowance?

Correct. Closer to 39%, excluding reserves.

Our next question comes from the line of Robert Connors of Stifel Nicolaus.

I had a question just regarding the EPC clients’ backlogs. Yeah, they’re improving, but internally, are you guys seeing an improvement in bid requests for chemical related projects? And if so, just any color around that?

We’re seeing an increase in bidding, but just maybe to help with this a little bit, our bookings in 2014 were approximately the same as 2013. And so we see the bookings being relatively flat or soft, even though the bidding is picking up. Having said that, I think the last 90 days or so, there’s been a great deal of concern around oil pricing. But the NobelClad market is a longer wave, where the DynaEnergetics market responds faster to pricing.

And then I know you’re sort of reluctant at this time, because of the volatility, to give a tax rate, but just wondering what you’re thinking about just operating cash flow for 2015. Should we sort of model in line with what we see on the net income related, or is cash going to be a drag or net-net, cash tax is going to be a positive?

There’s a couple of things going on. I think we have restructuring charges that are hitting in the first quarter, and some of the payment of the restructuring charges in the fourth quarter happens in the first quarter of 2015. So the restructuring charges, and maybe Mike can give some color on that, will hit in 2015 primarily. From a cash flow standpoint, obviously, the revenue and earnings are going to be down, but the working capital should be down in line with that, and we’re still experiencing positive free cash flow for the year, probably in line with what we did in 2014.

There are no further questions in queue. I’d like to hand the call back over to Kevin Longe for closing comments.

Thank you, everybody, for joining us for today’s call, and we greatly appreciate your continued interest in the company and look forward to speaking with you soon at the end of our first quarter.