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DMC Global Inc.  (NASDAQ:BOOM)
Q4 2018 Earnings Conference Call
Feb. 21, 2019, 5:00 p.m. ET

Contents:

Prepared Remarks:

Operator

Greetings and welcome to the DMC Global 2018 Fourth Quarter Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host Mr. Geoff High, VP of Investor Relations. Thank you, Mr. High. You may begin.

Geoff High -- Vice President of Investor Relations and Corporate Communications

Hello and welcome to DMC's fourth 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?

Kevin T. Longe -- Chief Executive Officer, President & Executive Director

Thanks, Geoff, and hello, everyone. DMC concluded the most successful year in its history with fourth quarter sales of $90.3 million, which were a quarterly record and exceeded our forecasts. Sales were up 66% versus last year's fourth quarter and 3% sequentially. DynaEnergetics, our oilfield products business reported sales of $63.2 million, which were at the high end of our forecasted range. The results were up 70% versus last year's fourth quarter and down 5% sequentially. The sequential decline resulted from the fourth quarter slowdown in North American well completion activity.

Sales at NobelClad, our composite metals business, were $27.1 million, up 56% versus the same quarter a year ago and up 25% sequentially. The results were above our forecast due to the accelerated production of clad plates for a chemical project in China. NobelClad ended the year with an order backlog of $29.9 million, down from $36.3 million at the end of the third quarter. The business reported a trailing 12-month book-to-bill ratio at December 31 of 0.87. NobelClad has seen a pickup in repair and maintenance bookings during the first quarter and currently is betting on several large projects. We expect its book-to-bill ratio will increase as the year progresses.

Fourth quarter consolidated gross margin was 35%, up sequentially from 34% in the third quarter and 33% in the 2017 fourth quarter. The increase versus both periods resulted from a more favorable project mix at NobelClad and improved productivity at DynaEnergetics' new manufacturing facilities in Blum Texas. At the business level, DynaEnergetics reported gross margin of 39%, up from 37% in the third quarter and 38% in the fourth quarter of the prior year.

NobelClad reported gross margin of 25%, unchanged from the third quarter and up from 22% in the comparable prior-year quarter. Adjusted operating income was $13.6 million and excludes $561,000 in restructuring charges, related to the consolidation of NobelClad's European manufacturing facilities, which was completed in the fourth quarter.

Adjusted operating income in last year's fourth quarter was $4.3 million. DynaEnergetics reported operating income of $13.7 million and NobelClad reported operating income of $2.7 million. DMC's fourth quarter adjusted net income which excludes restructuring charges and non-cash tax valuation allowances was $7 million or $0.46 per diluted share which compares with adjusted net income of $1.3 million or $0.09 per diluted share in the fourth quarter of 2017.

Adjusted EBITDA was $16.9 million and included litigation expense of $2.5 million while adjusted EBITDA in the third quarter was $17.2 million and included litigation expense of $2.2 million. Adjusted EBITDA in the prior year fourth quarter was $7.7 million. DynaEnergetics reported adjusted EBITDA of $15.2 million and NobelClad reported adjusted EBITDA of $4 million.

For the full fiscal year DNC reported record consolidated sales of $326.4 million record gross margin of 34% and record adjusted EBITDA of $59.6 million which included $7.6 million in litigation expense. Our 2018 financial growth was primarily due to the commercial success of DynaEnergetics' factory-assembled performance-assured DynaStage perforating system. DynaEnergetics sold more than a half million DynaStage units during 2018 and despite the recent slowdown of well completion activity, several new customers adopted the system during the fourth quarter.

The DynaStage system is highly unique within the oil and gas industry. Its key point of differentiation is its patent-protected intrinsically safe initiating system which is immune to radio frequencies stray electrical currents and stray voltage. The wireless low-volted initiator combines a detonator a circuit board and an addressable switch into a single compact device. The initiator is installed by our customers at the wellsite in a process that takes a matter of seconds. The inherent safety of the initiating system enables concurrent wellsite operations while our perforating systems are being armed and deployed.

It also enables surface testing of the entire perforating string including all switches and detonators before deployment. This process has elevated the reliability of the DynaStage system to above 99.9%. By eliminating field wiring and assembly customers utilizing DynaStage can reduce the size of their perforating crews and are reporting significant improvements in wellsite efficiency.

Once perforation is complete, the DynaStage system is completely disposable eliminating the need for reclamation of reusable components. To support the commercial success of DynaStage, DynaEnergetics added 74000 square feet of new manufacturing assembly and administrative space at its industrial campus in Blum, Texas during the fourth quarter.

An important element of this expansion is an advance shaped charge manufacturing center. The first of two automated shaped charge production lines was commissioned in January more than doubling our shaped charge capacity in Blum. The third line will be operational in July. DynaEnergetics recently announced an important addition to the DynaStage product family with the introduction of the Trinity system. Trinity features three shaped charges aligned on a single plane and at eight inches in length it is 3.5 times shorter than conventional perforating guns, enabling greater perforating intensity and increased operating efficiency.

The Trinity system performed exceptionally well in field trials and the first commercial shipments are scheduled for the end of the first quarter. The introduction of this extension to the DynaStage family further demonstrates DynaEnergetics' commitment to developing industry leading products.

In addition to our financial and operational accomplishments, the 2018 fourth quarter was marked by DynaEnergetics' successful defense in its third consecutive patent infringement case the resolution of two related patent disputes in Europe. The business also concluded a protracted case with the U.S. Customs Department.

NobelClad is benefiting from the consolidation of its manufacturing operations in Liebenscheid, Germany, a process that was initiated more than five years ago. NobelClad also is capitalizing on the recent expansion of its composite metals product offering and recent additions to its application development and sales teams.

I am encouraged by the significant progress NobelClad and DynaEnergetics made during 2018 to streamline and strengthen their businesses. We entered the new year well positioned to maintain our growth and deliver additional value to our stakeholders.

I'll now turn the call over to Mike for further detail on our fourth quarter financial performance and a look at our guidance. Mike?

Michael Kuta -- Chief Financial Officer

Thanks Kevin, and hello, everyone. Looking at our fourth quarter expenses consolidated SG&A was $17.2 million or 19% of sales and included $2.5 million in litigation expense. SG&A in last year's fourth quarter was $12.5 million or 23% of sales. Fourth quarter amortization expense was $579,000 or less than 1% of sales.

We ended the fourth quarter with cash and cash equivalents of $13.4 million. Net debt was $28 million, down from $30.4 million at the end of the third quarter and up from $9 million at December 31, 2017. The increase from the end of last year principally relates to higher working capital requirements associated with growth at DynaEnergetics as well as borrowings to fund DynaEnergetics' capacity expansion. We generated $21.1 million in cash from operating activities during the fourth quarter and $27.6 million during the full fiscal year.

Turning to guidance, we anticipate first quarter sales in a range of $82 million to $85 million, up from the $67.3 million in last year's first quarter. DynaEnergetics sales are expected in a range of $64 million to $67 million versus $49.1 million reported in last year's first quarter.

Sales at NobelClad are expected to be approximately $18 million, down slightly from the same quarter a year ago. First quarter consolidated gross margin is expected to be approximately 34% flat from the year ago first quarter. We expect SG&A will be approximately $16.5 million versus the $13.4 million reported in last year's first quarter.

Amortization expense is expected to be approximately $400,000 and interest expense should be approximately $500000. First quarter adjusted EBITDA is expected in a range of $14 million to $15 million, up from $11.6 million in last year's first quarter.

For the full fiscal year, we expect sales in the range of $350 million to $370 million, up from $326.4 million reported last year. Sales at DynaEnergetics are expected in a range of $270 million to $285 million, while NobelClad sales should be in a range of $80 million to $85 million.

We expect full year gross margin in a range of 34% to 35% versus the 34% reported last year. SG&A should be in a range of $60 million to $64 million versus $61.2 million reported last year. Our 2019 SG&A will include increased investments in sales and marketing programs at both DynaEnergetics and NobelClad. We expect full year amortization expense of approximately $1.6 million down from $2.9 million in 2018. The reduction reflects the full amortization of a portion of DynaEnergetics' intangible asset balance.

Full year interest expense is expected in the range of $2 million to $2.25 million and our effective tax rate is expected to be approximately 30%. We expect adjusted EBITDA in a range of $73 million to $78 million up from $59.6 million in 2018. Full year adjusted net income per share is expected in a range of $2.50 to $2.70 versus the $2.07 reported last year.

Capital expenditures in 2019 are expected to range from $25 million to $30 million and will include additional investments in capacity at our Blum, Texas facility, maintenance projects at our other global manufacturing plants, development of digital apps and technologies that enhance the buying process for our customers and upgrades to the ERP systems at both of our businesses.

With that we are ready to take questions. Operator?

Questions and Answers:

Operator

(Operator Instructions) Our first question comes from the line of Tommy Moll of Stephens Incorporated. Please proceed with your question.

Tommy Moll -- Stephens Incorporated -- Analyst

Good afternoon. Thanks for taking my questions.

Kevin T. Longe -- Chief Executive Officer, President & Executive Director

Yes. Good afternoon, Tom.

Tommy Moll -- Stephens Incorporated -- Analyst

Kevin, I wanted to start on DS Trinity. It sounds like two of the key aspects to keep in mind are you've got shaped chargers in a single plane and it's also a lot shorter than conventional guns. So could you just walk us through the benefits of each of those aspects? And then also maybe this one is for Mike, what kind of growth rate or adoption is embedded in your guidance for the DS Trinity?

Kevin T. Longe -- Chief Executive Officer, President & Executive Director

Okay. Well, first of all, the Trinity is part of our DynaStage product line and it includes our DynaSelect detonator -- the intrinsically safe detonator. And by packaging the shaped charges in the same plane that shortens the gun significantly from a length standpoint. And the way that we've incorporated our detonator into the connection for the adjacent guns also shortens the length of the gun significantly. And what that does is allows us to get more shaped charges in a given space and the perforating intensity of the lateral allows for greater oil recovery -- oil or gas recovery. It also by reducing the length of it, it significantly reduces the operational friction and constraints that go into moving guns up and down the well and makes the wellsite assembly much easier.

Regarding the guidance, it is included in the guidance. It's being -- we just introduced the product. We're beginning to receive orders for it. We'll -- we've done the testing and had extremely good results. We'll start shipping this product in March and April, but the numbers will be included in our DynaStage revenues going forward as well as units. We're not going to break it out separately, because it's just really a packaging of the components in a new and different way.

Tommy Moll -- Stephens Incorporated -- Analyst

Sure. Okay. For a follow-up, I wanted to ask for any more details you can give us on the Blum facility. Just any kind of anecdotes about what the ramp-up has looked like there? What you think the net impact might be for any gross margin progression throughout the year? And then, also, you mentioned some of the CapEx budget for the year will be dedicated to some more upgrades at Blum? If you could just let us know how much of the CapEx is reserved for Blum and what the upgrades involve? Thank you.

Kevin T. Longe -- Chief Executive Officer, President & Executive Director

Yeah. Sure, sure. First of all, the facility as of January is fully operational. It included gun assembly and gives us the capacity that we need for to match demand. It also included the addition of 15 CNC-controlled machining centers, which were there, which were purchased for insourcing our TSA components.

Those are still coming up to design capacity. We're going slow on the ramping up the usable time until we get the scrap rate to where we'd like it to be. And we expect that to be fully operational in meeting our design capacity and metrics by the end of March.

Those systems in -- when it comes to predicting the gross margin, there's a couple of influences. We're seeing increased efficiency operationally. Even though we're not at design capacity with the TSAs, we are getting the benefits for the units that we're producing and that's adding or improving our gross margin.

The fourth quarter and going into early in the first quarter, January, we saw severe pricing pressure in the market not from like systems, but from our customers coming under pressure. And we supported our customers those who support us to help them in competitive situations.

And so we see some degradation of margin on pricing which we expect to be behind us after the first quarter. And so between the pricing and adjusting to some of the things that we've seen from the competitive situation to the improved gross margin on the in-house manufacturing, it's somewhat of a wash. But we expect to be -- to return to over 40% gross margins before mid-year.

Tommy Moll -- Stephens Incorporated -- Analyst

Thank you. That's all from me.

Operator

Our next question comes from the line of Stephen Gengaro of Stifel. Please proceed with your question.

Stephen Gengaro -- Stifel -- Analyst

Thanks. Good afternoon gentlemen. Two things -- and just talking on the margin front and I was just curious. As I think about the two segments, right, and obviously, you sound like an acceleration of deliveries at NobelClad that helped the fourth quarter. But when I think about the two segments, am I right in assuming that the margin ramps you'll see are almost completely DynaEnergetics in 2019? Kind of on a year-over-year basis that's where you're getting the growth in the incremental should be pretty healthy as you kind of get through this first quarter? Is that the right way to think about the margin progression in the two segments?

Michael Kuta -- Chief Financial Officer

It is. And we're I think guiding to revenue in the same neighborhood for NobelClad. And NobelClad is a very efficient business and it's a good margin business from a contribution margin standpoint. And so we don't see operational improvements necessarily, that's strictly a volume -- and their volume is in the same ballpark as 2018 going into 2019.

Kevin T. Longe -- Chief Executive Officer, President & Executive Director

Yes, so the incremental margins are coming from DynaEnergetics.

Michael Kuta -- Chief Financial Officer

All DynaEnergetics, yes.

Stephen Gengaro -- Stifel -- Analyst

And NobelClad's margins -- I mean on a year-over-year basis, you're guiding revenue down a little, but operating income probably kind of in the same ballpark?

Michael Kuta -- Chief Financial Officer

Correct.

Stephen Gengaro -- Stifel -- Analyst

Okay. Thanks. And then the second question just from a competitive perspective, it's probably a two-part question. But I mean you delivered strong DynaEnergetics results in the fourth quarter in the face of a tough completions market and you've gained share clearly. What are you -- how are you looking at -- two of your big competitors are obviously behind you and trying to catch-up; one through acquisitions and the other through some internal development.

I mean what's your sense of the market as you kind of get into the second and third quarters and it sounds like your product's evolving as well, but how do you sort of think about that internally from a competitive position in the back half of 2019 and 2020?

Kevin T. Longe -- Chief Executive Officer, President & Executive Director

Well, first of all, we respect our competitors. They're good companies. Having said that their product line is not really new or different. What we're really hearing from them or reading -- or hearing in the marketplace is that they're just moving the assembly of their perforating gun from the wireline service company to their own crews.

And there's a significant difference between DynaStage and the guns that we're hearing that are being developed. Theirs are not intrinsically safe. They don't have the operating efficiency or reliability of DynaStage. They cannot be surface-tested or verified before they go down the well, so the reliability is less certain. They cannot operate concurrently because they're not having the intrinsically safe detonator. They require an interrupt for transport or field wiring at the well. They're not fully disposable. It requires increased personnel at the wellsite compared to DynaStage, which requires less. And so they're really -- it's really not different than what the market has today. It's just what's changing is, who's doing the assembly. Ours is truly a unique product and so it's kind of interesting -- we feel that we, in addition to the safety and increased reliability, our goal is to have fewer people at the wellsite not more. And that's a different process than what our competitors are looking at.

Stephen Gengaro -- Stifel -- Analyst

Great. That's very helpful. And then just one final I know you've talked a little bit about the increasing and improving sort of the technical aspect of your sales force and maybe if not selling directly to you but getting the E&Ps more linked into the conversations. How is that process evolving?

Kevin T. Longe -- Chief Executive Officer, President & Executive Director

We've -- quite well, we've -- I'm very pleased with the team and the additions to the team that we have and we are moving to a more technical sale to the service companies. And we promote the product to the E&P and we pull it through the service company who's buying our product and putting it down the well. And I think the quality of the sales team is stepped up and that's not to take anything away from the team before we've added to this team and we've added skills in the technical sale area and the results are kind of showing for themselves.

Stephen Gengaro -- Stifel -- Analyst

Very good. Thank you.

Kevin T. Longe -- Chief Executive Officer, President & Executive Director

Yes.

Operator

Our next question comes from the line of Edward Marshall of Sidoti and Company. Please proceed with your question.

Edward Marshall -- Sidoti and Company -- Analyst

Hey, guys. How are you? Good evening.

Kevin T. Longe -- Chief Executive Officer, President & Executive Director

Good evening, Ed.

Edward Marshall -- Sidoti and Company -- Analyst

Just had a quick question on the facility, the Blum facility, you mentioned previously the shaped charges you mentioned, the TSA. I'm just curious which capacity addition was this?

Kevin T. Longe -- Chief Executive Officer, President & Executive Director

Okay. So, in fact, I could add to an earlier question too on the CapEx. In 2018, we added 74,000 square feet. That 74,000 square feet included a significant amount of space dedicated to assembly of the DynaStage guns. It had room -- it has room for 12 out of the 15 CNC controlled machines. And it included room for two shaped charge lines. We see shaped charges actually, demand for shaped charges increasing even faster than guns themselves. And one of those lines for the shaped charges came onstream in January. It was part of 2018 CapEx, the production literally started up the first week of January. When we built the facility, we built the facility to take two additional shaped charge lines and that second line is being -- arrives in June and will be operational in July, second new shaped charge line.

And so we're in that CapEx is part of the 2019 CapEx, so there's $10 million to $12 million in carryover for a shaped charge line additional TSA machines, because they were not all delivered six out of the 15 are coming in 2019. And critically important, we have two automated intrinsically fully safe detonator lines in Germany. We added one in 2018 and we have two additional lines coming in 2019. And then that's the majority of the CapEx plus we have as Mike mentioned earlier we're investing in our digital transformation.

Edward Marshall -- Sidoti and Company -- Analyst

So what does this do to your physical capacity?

Kevin T. Longe -- Chief Executive Officer, President & Executive Director

We -- it gives us the capacity for the demand that we see for 2019 and 2020.

Edward Marshall -- Sidoti and Company -- Analyst

Do you think if you had them online right now, and I think I've asked this question before, but if you had the investment on the ground operational today, what utilization rate would you be operating at? I'm trying to get a sense as to what type of demand you have that's maybe not showing up in the numbers as of yet.

Kevin T. Longe -- Chief Executive Officer, President & Executive Director

Yeah. I think -- so I would say that the fourth quarter of 2018 and the first quarter our guidance for 2019 are reflecting the demand for the product at the prices that we find acceptable.

Edward Marshall -- Sidoti and Company -- Analyst

And so bringing on the additional capacity, does what reduce pricing for your existing guns and shaped charges or?

Kevin T. Longe -- Chief Executive Officer, President & Executive Director

Yes. The TSAs, I mean, the TSA is actually a make-versus-buy that's a margin improvement and also quality improvement. And we've got the capacity to match the demand in the marketplace, we can scale with the market for the foreseeable future.

Edward Marshall -- Sidoti and Company -- Analyst

Got it. And then if I could ask on competing technologies, I had to step away for a second, so I'm not sure if you addressed. But maybe competing technologies, I know there's been one of your close competitors mentioned something on their conference call recently. And I'm trying to get a sense on how pricing might get affected by maybe not as good of technology, but what that might do to your pricing and what kind of feedback you're getting from your sales force et cetera?

Kevin T. Longe -- Chief Executive Officer, President & Executive Director

Well, first of all, on the technology side we're not seeing new technology. We're seeing a repackaging of existing technology by our competitors. So we don't necessarily see a change in the competitive dynamics there.

Edward Marshall -- Sidoti and Company -- Analyst

So the other manufacturer, the other internal manufactured gun is just a rebranding and repackaging?

Kevin T. Longe -- Chief Executive Officer, President & Executive Director

Well, every gun going down the well is assembled. The question is who's assembling it. And so, we're assembling guns, but that's not the differentiation. That's a small part of the differentiation. The real strength has to do with our technology and our energetics and also in the nervous system the intrinsically safe integrated detonator switch and microelectronics. And that is what gives the operating performance and the reliability and the safety in the field. And the ability to ship a fully assembled gun from our factory, because when we send it from the factory, it doesn't include the detonator. And the design of our detonator like a battery that you drop into a flashlight you just push it in, in the field, it takes seconds. Nobody has that. And so there's a lot of -- you know, I don't want to underestimate our competition because they're good companies, but we're not seeing a challenge on the technology. We see just a different business model on how the assembled gun gets delivered to the well.

Edward Marshall -- Sidoti and Company -- Analyst

And just for conversation's sake, so even second best doesn't necessarily cause any price compression or you wouldn't anticipate that it would cause any price compression and that you'll be able to kind of maintain pricing in that environment?

Kevin T. Longe -- Chief Executive Officer, President & Executive Director

You know, that's a business decision on our competitors. We do not lead with price. We lead with technology. And our understanding of what we think they're doing is going to raise their costs not lower it. And so in their...

Edward Marshall -- Sidoti and Company -- Analyst

I'm sorry raise the costs for them? For the manufacturer or for the user, the supplier, the service company?

Kevin T. Longe -- Chief Executive Officer, President & Executive Director

It will raise their costs as a manufacturer to compete with DynaStage. And we respect these companies. They manage their business for a healthy margin also. And so we're not trying to corner the market with DynaStage. There's room for everybody and we're not going to compete on price.

Edward Marshall -- Sidoti and Company -- Analyst

Right. And just to be clear they talked about 30% to 40% market share which seemed very similar to the kind of numbers you've talked about. Can the industry -- and I understand the math -- but can the industry hold two significant players for perforating guns at those types of market share grabs?

Kevin T. Longe -- Chief Executive Officer, President & Executive Director

Yes. Our market, our target market share is lower than those numbers. I think the -- everybody will seek their natural place. And I think it would be quite aggressive for anybody to say that they're going to get 40% of the market.

Edward Marshall -- Sidoti and Company -- Analyst

Got it. I appreciate your comments. Thanks very much.

Operator

Our next question comes from the line of Gerry Sweeney of Roth Capital. Please proceed with your question.

Gerry Sweeney -- Roth Capital -- Analyst

Hi, good afternoon Geoff, Mike and Kevin.

Kevin T. Longe -- Chief Executive Officer, President & Executive Director

Yeah. Hi, Gerry.

Gerry Sweeney -- Roth Capital -- Analyst

I wanted to touch a little bit -- you've touched on it a little bit on this call and specifically in the press release. But at the end of the day what we're talking about the key differentiator between DynaEnergetics business and the competition is DynaSelect the intrinsically safe initiating system. That core piece of technology that has multiple pieces within it the initiation the microchip etc. that's the key difference between you and your competitors. And as far as you know, you're not seeing similar technology out there in the field currently?

Kevin T. Longe -- Chief Executive Officer, President & Executive Director

We're not seeing a technology in a single device that has the operational benefits of ours, correct.

Gerry Sweeney -- Roth Capital -- Analyst

Yes.

Kevin T. Longe -- Chief Executive Officer, President & Executive Director

And as far as assembly, that's a business model thing. We can assemble efficiently because of the technology that we have in the component and so that's a different aspect of assembling the gun in a controlled environment in a factory and arming it in the field without wiring it. But everything going...

Gerry Sweeney -- Roth Capital -- Analyst

And wiring it's the key aspect, right? I mean, that's where a lot of manual labor comes into play?

Kevin T. Longe -- Chief Executive Officer, President & Executive Director

And risk and room for uncertainty and cost and skill.

Gerry Sweeney -- Roth Capital -- Analyst

So by some of the competition coming out there and basically saying we're coming out with our own pre-assembled guns they're actually taking the cost of the service provider and putting it back on themselves because they're assembling the guns themselves and they don't have the technology that makes it faster, easier, safer, more efficient and more reliable?

Kevin T. Longe -- Chief Executive Officer, President & Executive Director

Correct. They're bringing -- they're ramping up their assembly of these guns in the field moving the cost to them and introducing the risk into the process itself because there's a number of very good wireline service companies that assemble guns in the field at very high efficiency and safety. And so by the manufacturer moving to do that it gives them...

Gerry Sweeney -- Roth Capital -- Analyst

They're moving away from a core -- they're taking a core competency away from somebody else and venturing into a non-core.

Kevin T. Longe -- Chief Executive Officer, President & Executive Director

Correct. That's our read of it. And what's different with ours is we have a core competency because of the component design that cannot be matched in the field.

Gerry Sweeney -- Roth Capital -- Analyst

Switching gears a here, can you -- is the Trinity system is that entirely built around DynaSelect? Could you make the same product, if you didn't have that technology? Because I know you've got to get in there. If you don't have the DynaSelect there's a wiring component you need some ability to get your hands in there and wire things up. So if -- I'm looking at it correctly that's -- its taking another step away from -- further away from the competition by going the Trinity system is? Is that fair?

Kevin T. Longe -- Chief Executive Officer, President & Executive Director

It is. It would be very difficult to do it without our patented technology.

Gerry Sweeney -- Roth Capital -- Analyst

these key things you said was on the Trinity system, I'm actually looking at my notes was perforating intensity increases and that leads to better oil recovery. So is that actually an added bonus you're getting from a Trinity system versus the legacy DynaSelect?

Kevin T. Longe -- Chief Executive Officer, President & Executive Director

DynaSelect is used throughout the DynaStage system whether it's legacy...

Gerry Sweeney -- Roth Capital -- Analyst

Oh yes I'm sorry. I meant the DynaStage I'm sorry. I inverted it. But go ahead sorry.

Kevin T. Longe -- Chief Executive Officer, President & Executive Director

Yes. And part of it too has to do with the engineering of the lateral and not every well is...

Gerry Sweeney -- Roth Capital -- Analyst

Created equal?

Kevin T. Longe -- Chief Executive Officer, President & Executive Director

You know is a candidate for the Trinity, OK? There are certain applications that it's better suited for than others. And I think the important thing here is that DynaStage is not a single product. This is a product family that combines our shaped charge technology, our initiating technology and the packaging of the components in different ways in order to have quite frankly one of the broadest product offerings in the industry for different applications. And it gives us the ability to tailor our product line toward the application and get the advantages of the intrinsically safe, the improved reliability and operational efficiency regardless of what the well type is.

Gerry Sweeney -- Roth Capital -- Analyst

Got it. Make sense. Okay. That's it. I really just wanted to focus on where you were versus the competition and I think that surmises it very well. Thanks guys congratulations on a great year. I know there was a lot going on and you executed very well. Congrats.

Kevin T. Longe -- Chief Executive Officer, President & Executive Director

Thank you.

Operator

(Operator Instructions) Our next question comes from the line of Jim Mcllree of Chardan Capital. Please proceed with your question.

Jim Mcllree -- Chardan Capital -- Analyst

Thank you. Good afternoon. A few minutes ago you guys were talking about market share. I was hoping you could update us on what your target market share is and how close you are to achieving or exceeding that?

Kevin T. Longe -- Chief Executive Officer, President & Executive Director

We feel we're in that 15% to 20% range and we're comfortable in that range to mid-20s as the market grows.

Jim Mcllree -- Chardan Capital -- Analyst

Okay. So when we're looking at this year, the revenue growth from DynaEnergetics is coming from some combination of pricing up or down market share gains and industry growth. Can you talk to how you think those three factors are impacting your expectations for this year?

Kevin T. Longe -- Chief Executive Officer, President & Executive Director

Yeah. I don't have it in front of me the breakdown between market share and price. We do need to recover some margin from a pricing standpoint. We don't feel that our products are properly valued right now. And the market is -- we're looking at low-to-mid single digits for 2019 over 2018. And so the balance would be a combination of price and share and probably more on the price. We don't want to gain volume for the sake of volume itself. Margin is very important to us.

Jim Mcllree -- Chardan Capital -- Analyst

Great. That's helpful. As far as the Trinity goes, what impact will that have on margins, if any?

Kevin T. Longe -- Chief Executive Officer, President & Executive Director

The designing of the packaging of our technology into these various applications are designed to meet our customer needs and at the same time equal or improve our margin from where we are today. And so, we would -- they would add to the margin that we have.

Jim Mcllree -- Chardan Capital -- Analyst

Okay. And I'm still -- I just would like a little clarification on the use of Trinity. Is this something that would -- that you expect to be adopted widely in a lot of different scenarios? Or is this more of a niche-ish, maybe a large niche, but more of a niche-ish application?

Kevin T. Longe -- Chief Executive Officer, President & Executive Director

I'd say, it's more of a niche application. A handful of unique customers that have a demand for this type of product that we see.

Jim Mcllree -- Chardan Capital -- Analyst

Okay, great. And my last one -- I'm sorry?

Kevin T. Longe -- Chief Executive Officer, President & Executive Director

Yeah. And I think I guess what we're trying to get across is, our DynaStage is not a single gun. It's a family of guns. We kind of talk about -- we somewhat confuse it as a product or as a product family and it's really a product family with many different variations.

Jim Mcllree -- Chardan Capital -- Analyst

Understood. Okay. So this is filling out the portfolio within that...

Kevin T. Longe -- Chief Executive Officer, President & Executive Director

Yeah.

Jim Mcllree -- Chardan Capital -- Analyst

...within that family? Okay.

Kevin T. Longe -- Chief Executive Officer, President & Executive Director

Correct. And it opens up some new applications for us.

Jim Mcllree -- Chardan Capital -- Analyst

Got it. Understood. And on NobelClad you enter the year -- you enter this year with a much lower backlog than you entered 2018 and I know you have revenue guidance down a bit. But it seems like you have a lot of, either book-and-ship business or maybe there was just some timing on some orders. And I know you said, repair and maintenance has gone up. I'm just -- I would just like to get a little bit of clarification about that dynamics between the reduced backlog and a lesser reduced revenue guidance?

Kevin T. Longe -- Chief Executive Officer, President & Executive Director

Sure. And the book and ship, which is a lot of replacement and retrofit kind of applications is more than half of that business, I want to say around 60% today at this lower volume. And then as we get into the balance of our projects and those projects are relatively large when they -- and you can see that in the fourth quarter when we shipped a large project for China.

Our book-to-bill, which we gave was 0.87 for the year, which would have put our bookings in the mid to upper 70s range. And the trailing 12-month booking at the end of January is $84 million to $85 million. And so just in the one month, we've come up dramatically in our book-to-bill and that supports the guidance that Mike shared with you earlier today. So it's -- a project can swing it dramatically is what I'm stating. And we have confidence given the trailing six-month and 12-month bookings that the guidance is proper.

Jim Mcllree -- Chardan Capital -- Analyst

Okay. That's great. Thanks a lot. Good luck with everything, and congrats on a great quarter.

Kevin T. Longe -- Chief Executive Officer, President & Executive Director

Yeah. Thank you.

Operator

We have a follow-up question from the line of Stephen Gengaro of Stifel. Please proceed with your follow-up.

Stephen Gengaro -- Stifel -- Analyst

Thank you. Just one quick follow-up as it pertains to DS Trinity. How does this play into the number of guns per stage dynamic that could help drive some growth going forward?

Kevin T. Longe -- Chief Executive Officer, President & Executive Director

It's capable of increasing it dramatically and -- yeah.

Stephen Gengaro -- Stifel -- Analyst

Oh, go ahead, sorry.

Kevin T. Longe -- Chief Executive Officer, President & Executive Director

Yeah, it's capable of increasing it dramatically because it's a smaller gun for given shaped charge capability. And so you can add them up pretty quick.

Stephen Gengaro -- Stifel -- Analyst

In a DynaStage system, you may not be able to answer this, but the guns would be roughly what percentage of the cost? I'm just trying to get a sense for if you're -- if there's a rising gun content per system, what that could mean from a -- like we're not selling -- just because you're selling more guns, doesn't mean you're going to sell that many more systems but there is a multiplier effect I would imagine on the revenue potential?

Michael Kuta -- Chief Financial Officer

Yeah. I mean, I don't have the breakout in front of me. The gun cost is not as significant in a DynaStage system, because of the integrated switch detonator, the nervous system that controls it and the technology is in the shaped charges. The gun itself is -- it's a reasonable I'm going to say 10% to 15% of the overall value. It's also the lower-margin part of it -- the gun barrels. And so -- what we get in the Trinity is more of the higher-value components in a smaller package.

Stephen Gengaro -- Stifel -- Analyst

Great. That helps. Thank you.

Operator

We have an additional follow-up question from the line of Edward Marshall of Sidoti & Company. Please proceed with your question.

Edward Marshall -- Sidoti and Company -- Analyst

Sorry, about that. The incremental margins in are going to -- I'm assuming they're going to change but for both businesses. And you've made some logical capacity adjustments some cost-saving adjustments in that capacity with say TSA and maybe some of the contributions -- the combinations of the European businesses. So I'm trying to get a sense if you could how the incremental margins might change and for -- maybe if we could look at it from DynaEnergetics as a whole. And you know that 30% incremental that you did in 2018, how does that change? And then ultimately looking at the first quarter around $18 million for NobelClad my sense is you're probably much better off than you were break-even from an operating perspective in that business as you kind of roll out of Q1. So any thought you could add to that would be helpful.

Michael Kuta -- Chief Financial Officer

Yes. Our contribution margins for both businesses are approximately in the 38% to 42% range. And we have significantly reduced our manufacturing footprint over the last several years as we've improved the facilities that we have. And our costs are mostly in place. There's -- we're investing in some digital assets and also market communications and awareness programs because of the growing need to differentiate our products in the marketplace or explain the differentiation to the market. But we always have managed the company for the long-term and we have been building the internal capability to match the products and the technologies that we're introducing. And we're really looking at the next couple of years as years that we can take advantage of all the things that we've worked on for the last three to five years. And so we'll be adding hopefully revenue at that 38% to 42% contribution margin range and our fixed costs will be falling in line even better because we feel that we have a lot of those costs in place.

Edward Marshall -- Sidoti and Company -- Analyst

And just to be clear you're speaking of gross margin with that 38% to 42%? Is that?

Michael Kuta -- Chief Financial Officer

Yes. Gross margin.

Edward Marshall -- Sidoti and Company -- Analyst

No, that's fine. I just wanted to make sure because I was originally talking about EBIT, but we can kind of -- we can work off that. That's not a problem.

Michael Kuta -- Chief Financial Officer

Yes. Let me correct that. It's -- contribution and gross margin are very close for DynaEnergetics. They're further apart for NobelClad given where they're operating. We reported in the fourth quarter a 25% gross margin but embedded in that was a 38%, 39% contribution margin. And so the incremental margin is the contribution margin for that business not the gross margin. We'll see that gross margin respond as the volume picks up.

Edward Marshall -- Sidoti and Company -- Analyst

Make sense to me. I really appreciate your help and all your comments and allowing me all this air time. Thanks so much.

Michael Kuta -- Chief Financial Officer

Yes, you are welcome, Ed.

Operator

There are no further questions over the audio portion of this conference. I would now like to turn the conference back over to Mr. Kevin Longe, President and CEO for closing remarks.

Kevin T. Longe -- Chief Executive Officer, President & Executive Director

Thank you everybody for joining us today. I would like to acknowledge the great effort of our employees in 2018 and their commitment for going forward and we appreciate everybody's interest in the company on the line and look forward to talking with you after the first quarter. Thank you.

Operator

This concludes today's conference. Thank you for your participation. You may disconnect your lines at this time. Have a wonderful rest of your day.

Duration: 58 minutes

Call participants:

Geoff High -- Vice President of Investor Relations and Corporate Communications

Kevin T. Longe -- Chief Executive Officer, President & Executive Director

Michael Kuta -- Chief Financial Officer

Tommy Moll -- Stephens Incorporated -- Analyst

Stephen Gengaro -- Stifel -- Analyst

Edward Marshall -- Sidoti and Company -- Analyst

Gerry Sweeney -- Roth Capital -- Analyst

Jim Mcllree -- Chardan Capital -- Analyst

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