DMC Global Inc (BOOM) 2012 Q4 法說會逐字稿

Greetings and welcome to the Dynamic Materials Corporation 2012 fourth-quarter conference call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation.

(Operator Instructions).

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Geoff High, investor relations for Dynamic Materials Corporation. Thank you. Sir, you may begin.

Thank you, Roya. Good afternoon and welcome to Dynamics Materials fourth-quarter conference call. Presenting on behalf of the Company will be President and CEO, Yvon Cairou; Chief Operating Officer and incoming CEO, Kevin Longe; and Senior Vice President and Chief Financial Officer, Rick Santa.

I'd like to remind everyone that the matters discussed during this call may include forward-looking statements 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 Dynamic Materials 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. Dynamics Materials 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 dynamicmaterials.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 and webcast our available in today's news release. With that I will turn the call over to Yvon Cairou. Yvon?

Thanks, Geoff, and thanks to all of you who have joined us for a review of our fourth-quarter and full fiscal year. This being my last conference call I just want to thank all of you, again, for your continued interest in our story. I also want to thank you for your patience with my speaking impediment. I hope I do a little better today. We accomplished a great deal during 2012 and I believe our efforts have further strengthened and expanded the Company's prospects for long-term success. We spent much of 2012 solidifying our foundation as we prepare for the next chapter in the DMC narrative.

During the year, we added some very talented leaders to the management teams of all three business segments. We established a physical presence in South Korea as part of our Asia expansion strategy. We made progress expanding our presence in China. We commenced construction on our new shaped charge facilities in Russia and North America. And we brought in the customer base and end markets served by AMK Welding. Of course, our most important accomplishment was the completion of our search for DMC's next Chief Executive Officer. As most of you know, I will retire Friday after 13 years as DMC's CEO and Kevin Longe will concurrently take on the leadership role for the Company. I have worked closely with Kevin during the past eight months and could not be more pleased with or confident in our selection. I will now turn the call over to Kevin for some remarks about the business and the opportunities we are pursuing. Kevin?

Thanks, Yvon, and good afternoon everyone. I want to start by saying it is very reassuring to have such a strong vote of confidence from Yvon and the Board of Directors. I am very excited about leading the DMC team and pursuing the many opportunities we see on the horizon. As Yvon noted, we have been working during the past year to strengthen our Corporate structure and enhance the sales, earnings and cash generation performance of our three businesses. We've also established a number of near-term operational initiatives, and during the coming year our efforts will be directed squarely behind the execution of these projects. They include capturing some of the sizable contract opportunities our NobelClad business is pursuing, completing the construction of DYNAenergetics shaped charge facility in Texas and advancing the build out of our new plant in Siberia, strengthening DYNAenergetics product and inventory management programs, and expanding our sales and marketing presence in China and increasing our market share throughout Asia.

Although capital spending in several industrial markets we serve was relatively weak during 2012, we anticipate improvements during the coming year. As I mentioned earlier, NobelClad is pursuing some large industrial infrastructure projects, particularly in the upstream energy and petrochemical sectors, and these projects appear to be nearing the execution phase. At DYNAenergetics our sales team is reporting signs of improving demand across several of the regions we serve. In North America, where it appears the steady decline in the rig count has abated, we soon will recognize the cost and distribution benefits of having our own regional source of shaped charge production.

Looking further out, we believe there are opportunities to accelerate the growth of the Company, both organically and through potential strategic acquisitions. We have established a strong presence in various segments of the global energy, infrastructure and industrial markets, and believe DMC represents an ideal platform on which to add complementary technology niche businesses. The execution of this strategy is obviously a long-term process. It also is an objective we are taking seriously and one we will actively pursue as the year unfolds. I'll now turn the call over to Rick for a review of our fourth-quarter financial performance. Rick?

Thanks, Kevin, and good afternoon, everyone. Sales during the fourth quarter came in at $52.5 million, which was down 3% from the fourth quarter last year. This decline reflects a slight pullback in sales at NobelClad and an 8% decline at DYNAenergetics. Sales at AMK were up 16% versus 2011 fourth quarter. Gross margin improved to 31% from 27% in last-year's fourth quarter and was above our forecast level of 29%.

Operating income was $4.5 million versus $5.2 million in fourth\ quarter a year ago. The decline reflects $672,000 in stock-based compensation expense related to the accelerated vesting of restricted stock awards associated with management retirements. Net income was $2.9 million, or $0.21 per share, versus $3.6 million, or $0.27 per share in the year-ago fourth quarter. Adjusted EBITDA was $9.1 million versus $8.7 million in the same quarter last year. Our full-year cash flow from operating activities more than doubled to $21 million versus $9.7 million during the prior year. This increase reflects a stabilization of accounts receivable and inventory levels following significant increases in these working capital components in 2011.

Looking at expenses, G&A was $5.3 million up from $4.5 million in the fourth quarter last year. The increase was primarily a result of higher salaries and accrued compensation expense, as well as an increase in stock-based compensation expense. Selling and distribution costs increased 21% to $4.6 million from $3.8 million in last years fourth quarter. This increase in part reflects the expansion of the North American sales and distribution organization at DYNAenergetics. Total fourth-quarter SG&A of $9.9 million was a bit higher than our prior forecast of $9.5 million. Amortization of purchased intangible assets during the fourth quarter was $1.6 million.

Looking at the balance sheet, we closed the year with current close assets of $100.7 million, up from $91.2 million at the end of 2011. Total assets increased to $235.4 million from $213.4 million over the same period. Our acquisition of TRX Industries added approximately $10.3 million to the 2012 total. Current liabilities were $24.4 million versus $29.3 million at the end of 2011 and we ended the year with total liabilities of $72.9 million versus $67.4 million at the end of last year. We closed 2012 with working capital of approximately $76 million and the current ratio is better than 4.1 to 1.

Now to guidance. Given the economic challenges impacting many of our global end markets at the end of 2012, we are currently anticipating a relatively slow start to the fiscal year. We expect first quarter sales will be down by 7% to 10% versus last-year's first quarter sales of $50.2 million. We expect gross margin will be in a range of 27% and 28%. Also, during the first quarter we expect to recognize a one-time expense of approximately $3 million associated with management retirements. As Kevin noted earlier, NobelClad is pursuing some significant order opportunities and we are expecting a steady improvement during the year at our oil field products segment. We therefore are forecasting that full-year sales could increase by 8% to 10% from the $201.6 million we reported in 2012. Gross margin is expected in the range of 27% to 29%.

With respect to taxes, we are anticipating our blended effective tax rate for the full-year 2013 will be in a range of 20% to 22%. The anticipated reduction versus our 2012 tax rate of 29.3% reflects the impact of certain recently-enacted federal legislation that is applicable to 2012, but must be recognized in 2013 according to General Accepted Accounting Principles. To reflect the effective legislation, we will recognize a tax benefit of approximately $900,000 in the first quarter. Excluding the impact of the first quarter benefit, our blended effective tax rate for fiscal 2013 is expected to be in a range of 25% to 27%. We expect SG&A expense during the first quarter of approximately $12.5 million, which includes a $3 million expense associated with retirements. We expect first-quarter amortization expense of approximately $1.6 million. Interest expense for the full year is expected to be roughly $1 million. With that we are now ready to take any questions. Roya?

Thank you.

(Operator Instructions).

Ed Marshall from Sidoti & Company.

Yvon, enjoy your partial retirement, it's getting closer everyday.

Thank you very much, Ed.

Kevin, welcome. Rick, just so you don't feel left out, how are you doing this evening?

I'm doing great, Ed, how are you doing?

Thank you, Ed.

Absolutely. So you mentioned upstream energy chemical -- petrochem nearing some capital project work that maybe released and I'm just curious about your quoting activity. You mentioned it a couple of times in the past and I'm just curious as to what you maybe saw in the fourth quarter. Was there a material change? Has it stepped up, or is it just is active as it was?

I would say that it's as active as it was, but what we're seeing are a handful of large projects on top of what was our base business previously. And [while] they're large projects and with that comes possibly a longer or unpredictable duration we are seeing improved activity from a quoting standpoint.

Clearly the industry shows that there are some projects coming along, so you stand ready is basically what I hear?

Yes.

Okay. The oil field products business -- if I could for just a minute -- it seems -- did you say that you expect that -- Rick, did you say you expect it to be up pretty significantly in 2013? Is that what you said in your prepared remarks?

We do expect that to be up. I'm trying to go back to the remarks to see exactly what I did say.

If I could give some color on that. In the North American, or the American region, the rig count was down in the second half of 2012 and we've seen that stabilize and not necessarily tick up yet but stabilizing. What's changing our prospects in that market is we've made a number of significant investments in gun manufacturing, shaped charge manufacturing, which is coming on this year and it's reflected in our SG&A. We're investing in sales and distribution and we hope to benefit from those investments as well as hopefully there will be a market pickup at some point in the near future.

I would've thought -- as you mentioned all this investment in the business and some of the CapEx and some of the slowing in the recount and so forth, I would have thought that -- first, the quarter was relatively strong on the top line but the margin looked pretty good and I would've thought the investment would have impeded the margin just a hair and it didn't, it seemed like it held in pretty well. Is there anything you can speak to on the operating margin side that would've offset some of those other weights, would you say, on the investments and so forth in that business?

I think there's two categories in the investments that we're making and one is on the income statement side of it right now in the sales and distribution expense and we're trying to balance that. We're little bit out in front of ourselves with where we expect that to be on a long-term basis, but we're trying to balance that with what the market activity is.

The other category of investments that we're making are the capital part of it, both building the Siberian facility and also the Blum, Texas, facility and those are -- right now is really more balance sheet than cash flow. They haven't shown up on our income statement yet. So, it's balancing these things so that we can maintain and improve our margins as our business grows.

I see.

And part of the steady improvement that I alluded to relates to the continued geographical expansion of our oil field products business. We're actively looking at South America to establish a distribution center in Columbia. We're looking harder and harder at China and see some opportunities there, probably longer term, not much in 2013.

And then as we start to manufacture shaped charges in North America, we expect to find a home for what we manufacture. We think that there's a lot of opportunity as the rig counts stabilize. The rig count tells only a certain piece because there's a lot of other well completion activities that drives demand for our products, including the reperforation of existing wells.

So when you mentioned 8% to 10% revenue guidance and followed that with the breadth that oil field products would a steady improvement for us for 2013, is that to say that explosive welding or cladding isn't necessarily baking in much growth into your expectations?

No, they are in the sense that we expect that 8% to 10% is on the overall business. The clad segment, Nobelclad segment, is a large part of our Company today and so we would expect to see growth from clad that is in line with that average.

Okay. Thank you.

Avinash Kant from D.A. Davidson and Company.

Welcome, Kevin, and of course, Yvon, congratulations on your new role.

Thank you.

If I'm looking at the guidance for Q1 and I'm baking in all of the additional costs, like the $3 million that you talked about, are you going to lose money in Q1 on an EPS basis?

We provided you with the sales guidance, we provided you with the gross margin guidance, we provided you with the SG&A guidance, we've provided you with full-year interest guidance, so I think it depends on --

He's just asking for one more piece, Rick. (laughter)

I think you have all the pieces, Avinash.

That's something very rare, that's why.

Yes, I think after all of those charges you actually would expect a loss in Q1. We can't get away from that.

Okay.

With the lower sales and the lower gross margins than we expect.

Now, if you think of the explosion clad business and the bookings there, of course, came down a little further. Would you expect -- and I think this was being asked in the previous question also -- that if you're expecting somewhere 8% and 10% growth in 2013, what kind of growth is modeled for the explosion clad side and how much in the oil field? AMK seems to running at a good run rate.

Yes, I don't think we want to get into start providing separate top-line guidance on the two business segments.

I see. And then --

But we do expect growth on both sides of the business.

Also, looking at the full-year guidance, it does feel like there's going to be a significant ramp from Q2 onwards so basically for the rest of the year. How should we think of the growth over the quarter? Should we think of sequential growth all through the end of the year, or one or two quarters could be much higher than the others? How should we think of that?

I would say we always see some unevenness in our quarterly performance even one's growth is more dramatic than what we expect in 2013, but I think with where the backlog stands at the end of the year the sequential growth scenario is a likely one.

Yes, I would certainly concur with that view, Avinash. We may book something larger projects, but they will probably even out in the shipments of those and the sequential view is probably the best.

Maybe one more comment. What kind of bookings activity have you seen thus far in the quarter? We are pretty much two months into the quarter, have we seen it improve from the previous-quarter's run rate, or previous-year's run rate, what are you looking at right now?

I would think it's steady as it goes for Q1 as compared to where we were in the previous quarter. There was nothing significant enough that we would make a separate announcement of some sort. As Kevin indicated, we're working very hard on some -- several larger projects and they are very hard to predict. Those international projects have a life of their own and we thought two months ago we were done, and here we are, it's not done yet.

(Inaudible), but your guidance does call for a meaningful uptick over the rest of the year.

Yes, and we believe in that. And remember, our production sites are very resourceful and they have proven several times in the past years that they can step up to the plate when needed. So even if the bookings come a little behind, we think we can catch up. The supply channel of metal seems to be in reasonably good shape these days so hence the guidance we gave.

So your guidance calls for a significant ramp but should I think you have not seen it yet in the explosion clad side, or you are starting to see it?

I think it's holding its own but we've got some near-term projects that could really change it dramatically.

Okay.

But those projects haven't -- are hard to predict and that's where you're hearing the hesitation, if you will.

Okay. Perfect. Thank you so much.

Phil Gibbs with KeyBanc Capital Markets.

There's a lot of things going on. You've got a lot of irons in the fire, which comes with a lot of responsibility because you don't want to get too far ahead of yourselves. How should we think about the next 12 months as far as order of operations on the execution side. What is priority number one, just because you mentioned a litany of things that you guys are working on?

2013 for us, Phil, is one where we're focusing on executing and that means different things in the different businesses. But each of our three businesses, it's really focusing on the fundamentals of what drives those businesses, both in terms of the application and the product development, as well as -- and particularly on the oil field services side of it, getting value out of the investments we've made in SG&A and distribution.

And we have two major capital -- we're right in the middle of two years back-to-back, 2012 and 2013, of significant capital investments and we want to get all three of our businesses generating significant positive cash flow by the end of the year and get these two major capital projects behind us.

So it goes from the capital projects on one hand, bringing inventories in line and getting the value out of the distribution investments we've made, and on a long-term basis for the organic growth, I'm a big believer in what -- and I know Yvon is and what we're driving into the organization is product development, technology development and very sound product management principles for all three businesses.

How do we think about the CapEx, Rick, for this year and next?

I think we've been indicating we expected around $20 million of spending in 2012 and spending of the same magnitude in 2013. We spent less than the $20 million in 2012, but that relates to carryover on these two projects. So we spent roughly $16 million in 2012 and would expect to be in the $24 million, $25 million range for 2013.

Okay. And your guidance, the 8% to 10% growth. How much of that -- not how much of that, but are you layering in benefits from the shaped charge facility in Texas in the second half of 2013?

Not substantially. It's minimal because it starts of the Q3 and it'll take a while to get to full production levels.

And I think, Phil, that's going to impact us most favorably on cost side of our business. We built up inventories of shaped charges in the US to address demand and so we're not supply constrained at this point. So really, the demand we're addressing through some of our expansion activities into new geographical areas.

I guess that just feeds into another question. How should we think about inventories this year around? What is it, at the end of the year somewhere around $50 million, $48 million, is that heavy, or is that where you want to be, or is that the level you want to maintain?

Yes, I don't have numbers in front of me but the inventory's heavy from my perspective, too heavy.

Okay, so we should expect inventories to move down, particularly as that shaped charge facility comes up?

Yes. The increase in inventory is -- and the turn of that inventory at a slower rate is most pronounced in our oil field products or DYNAenergetics business, and that's where you will see a reduction driven by the construction of the two facilities but also management focused on executing and turning faster in general.

Okay. I appreciate all of the color and if I could just ask my standard question on the segment gross margins, Rick, just for the quarter, would be great.

Okay. For cladding, 26.3% in the quarter -- fourth quarter of 2012 versus 23.4% in last-year's fourth quarter. Oil field products was at 37.7% in the fourth quarter of this year.

Any reason why that was so high, the 37.7%, is that sustainable?

It's probably -- I would think over time that's a sustainable level. There's a lot of product mix going on and there's also a lot of inter-Company activity where we capture some of the -- we can't capture all of the profit until we sell the inventory through to a third-party customer.

Okay.

It gets a little bit difficult to evaluate the final gross margin because of all of the inter-Company sales activity which -- but certainly long term this would be a goal to be at that level.

Okay.

And you'll see that simplify as we address the inter-Company through the additional facilities and also bring inventory down.

And that 37.7% was up from 33.3% from last-year's fourth quarter and then AMK was at 30.6% in the fourth quarter of 2012 versus 28.1% in the fourth quarter of 2011.

Excellent. Thank you very much and good luck, Kevin, and happy somewhat resting for Yvon.

Thank you, Phil.

Dan Whalen of Topeka Capital Markets.

In terms of some of these larger scale order opportunities, my sense is that they're pretty far along either in development stage or negotiation stage just given the somewhat tight range you've given on the top line. Is that a fair way to look at that? Secondarily, how is the -- how competitive is the pricing negotiation with the -- certainly with the larger-scale products I know the pricing gets a bit more competitive, but if you could just talk about the pricing landscape a little bit, too, that'd be great.

A couple of these projects are well along and, obviously, because of the lead time issues for them to positively impact revenues this year in our clad business we would -- they've had to move further down the pipeline, so to speak. As I'm learning this business there's a funny dynamic between some of the margins. As you'd expect, the larger projects and the size of them tends to really have companies go after them aggressively because of what they could mean to their revenues, but paradoxically, as they get larger there's fewer companies who can handle these projects.

And both from -- on many aspects, sourcing materials, the surety of supply and production at the timetables that are demanded, and then the cost of quality because of the tight timetables and the materials that are involved. And so, one of the things that I've somewhat marveled at this group as I've gotten to know them is that they really know how to balance those things. And we don't need practice doing this stuff, we're not interested in trophy projects for trophy projects and so they have pretty healthy focus on margins.

Okay.

Certainly that's true. The impact on pricing as always it depends on what's a competitive solution. As you know, we have very few explosion welder competitors out there for large projects. So when we do meet our dear friend in the (inaudible) universe, that's where the talents that Kevin is alluding to are very important on both the supply chain side and how to read the project and to offer appropriate margin and price.

All right, great. Then when we were out visiting some of your facilities we learned about a little bit of a transition and strategy, so to speak, in some of your new appointments and historically you guys have had a lot of success in legacy business, so to speak, but it seems that you're becoming a bit more proactive from a marketing perspective to go beyond the legacy and get -- commit to new business. I know it's still a little early in terms of the process, but if you could talk a little bit about that and any early benefits you're seeing from that little transition?

Well, the levers, if you will, are slightly different depending on which business that we're talking about, but we have an extremely well-run clad business that the focus there is on new applications and product development, not just pursuing projects but developing clad products, such as transition joints that are used in a variety of industries. I think that's probably a renewed emphasis, if that is fair to say, Yvon, from an organic standpoint, as well as China and Asia in general, a geographical expansion for that business.

In oil field products or DYNAenergetics, wonderful technology, great strategies, great global thinking in terms of how they're approaching that business. The investments we're making there are in geographical expansion, also, into the Americas and South America in the near term, but that business will also benefit from the organization that we're putting together in China, too. We are really interested in maintaining and driving a product and technology leadership in that business and we're bringing more product management skills to a business that has grown rapidly and to really be a leader in their segment.

And on the AMK side of it, it's really a count, both in number and in penetrating some of the larger accounts that we deal with in that industry and we really want to have a strong balance of organic growth. But on a long-term basis we also need to leverage the knowledge of the end-use markets that we're serving as well as the geographical markets, and really look at additional product and application opportunities in those markets and those would be areas that we'd probably look towards acquisitions in.

But right now we need to get the cash that we spent last year and this year working for us, get all three businesses generating cash flow -- significant cash flow -- and stay focused on that for the near term. And then start thinking more strategically on a longer-term basis on how to add to our portfolio of businesses in the markets that we serve.

Got you. That sounds great, it sounds like you have some great plans ahead. And just lastly, Yvon, I just wanted to wish you the best in your next phase and also just genuinely congratulate you. You brought this Company a long way over the years, so congratulations to your success on that front.

Thank you very much and I really appreciate that and I'll be around and help as much as I can going forward.

Thank you. (Operator Instructions).

Ed Marshall with Sidoti & Company.

I respect that you need to be somewhat conservative because of your projects here are long-winded on the cladding side and I know they can be finicky from the timing of order placement or chatter to your side of the market and ultimately order placement so, I think that's fair. But my question is, you said that there were several projects out there that you were working on and I'm curious. First, how much of those projects did you bake into you guidance for 2013,or is that upside to your potential sales guidance? Secondly, are these orders domestic or are they international?

They're all international. Well, not quite. There's more international and some North America, which is a good thing. Whether it's -- I think certainly not all of those are baked into the guidance, some of those definitely would be an addition. And that's not new, it has always been the case.

We always during these calls talk about the large projects and, of course, it's exciting, but half of our business is made up of non-large projects so we have that background business that's still going on and very often the large project makes the swing of a very high quarter or not so high quarter and we are always in the swing of things. We've been cautious, and Kevin is already seeing that we need to be cautious on the large projects because they are so hard to predict, but if we don't tell you anything it's not good either, so we are always in between here. I don't know how much more I can help you.

No, I think that's the right way we would like to see it characterized. They're out there, they're being tes -- they're testing the market and ultimately at some point they should be placed. It is just a matter of timing at this point and we don't know so why get your hopes up, in other words, right? That's what you're saying.

The one thing I want to say is that we are not leaving any stone unturned. All projects of significance, we are there, even the one where we think we don't have a chance. So we cover all of the bases and they will happen. And it's not -- we don't believe in hope as a strategy so we just working all the facets and I can see Kevin with the team and the additions made to the team they are going full-blast. It will happen.

You said something interesting in your remarks that they're mostly international and that's a good thing that it's not domestic, so to speak. Yet my sense is that the chatter about a chemical build in North America really hasn't shown up in the results yet and I think they're still in the planning range so I wouldn't expect they would. Is that what you were alluding to?

I was not alluded to that. I was alluding to the fact that it is good to have a mix of North America and rest of the world and it's a little stronger -- or it is stronger on the rest of the world. The America thing, you're right, though, has not come through yet. Some of it -- I think we touched on that in the last call -- is not necessarily corrosion process intensive. You heard a lot about polypropollant plant. It's not our sweet spot. What we hope for, what we believe is that downstream of that there will be all of the chemicals to be produced that will be more relying on corrosion-intensive processes so we are not quite there quite yet.

Kevin, as we switch leadership here just a tad, I'm curious about -- you have plenty of growth slated ahead for you and I'm wondering if you prioritize how you will allocate capital, how you will see to allocate capital? Because there's some organic growth capabilities where maybe capacity's coming -- is needed, R&D projects which I think you spent a lot on R&D over last year, and of course, I know we've talked in the past about acquisitions. Can you prioritize how you look at putting the capital to work here as we move forward into 2013 and beyond?

Given sufficient growth or return positive -- economic return on the investments, I'd much prefer organic versus acquisitions. Having said that, I think one of the things that we're trying to drive into the businesses is for them to start competing for capital so that we can take the capital that we're deploying and put it to the most effective return on capital. And that's really a factor of choices and almost -- in some respects portfolio choices for where to make these investments.

And the quickest bang for the buck for us is the geographical expansion followed by the new application of product development followed by acquisition. And from an acquisition standpoint, that will move up on the priority list as it helps us to accelerate in some of the markets that we're in. I don't know if that answers your question or not.

Absolutely. Very good. Thank you.

Phil Gibbs of KeyBanc Capital Markets.

My last question here was on the gross margins. The guidance is a bit tepid relative to where you finished last year. What did you guys do, 29.6%, you're getting to 27% to 29%. I would think that's somewhat conservative given the cost benefits you're looking for from some of the oil field services and the fact that the margins are coming back up again at AMK. What is the difference there? Are we conservative or are we looking at decent top-line projects in Nobelclad with lower margins?

I think it's principally the Nobelclad projects with lower margins than what we enjoyed in 2012.

It was product-mix driven.

Product-mix driven, and then 2012 benefited from one sizable project where the customer supplied some very expensive cladding material so that boosted margin significantly on that order.

We kept the dollar value of our margin the same, but the revenue went down because they supplied the materials, which brought of the gross margin.

Got you. Okay, that helps a lot. Thanks, guys.

Gentlemen we have no further questions at this time. I would now like to turn the floor over to you for closing comments.

Well, first of all, thank you again for joining us for today's call. However, before we go I want to say thank you to you, Yvon, for the past 13 years. Yvon has worked to build DMC into a worldwide leader in its field, and under his leadership the Company has achieved significant growth, built a strong balance sheet and shown great resiliency as the global economic crisis made for challenging business conditions for part of that tenure. The opportunities we have today are a tribute to what Yvon and his team have built.

Although he retires as CEO on Friday, he will remain active with the Company from his position on the Board, and he and I will continue to collaborate on growing the Company and enhancing shareholder value. My hope is that he will also find time to enjoy his retirement and hopefully buy the boat you've been thinking of. So Yvon, thank you, and to the rest of you I look forward to speaking again after the first quarter.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.