Chart Industries, Inc. (GTLS) Q1 2015 Earnings Report, Transcript and Summary

Good morning and welcome to the Chart Industries 2015 First Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. As a reminder, today's call is being recorded. You should have already received the company's earnings release that was issued earlier this morning. If you have not received the release, you may access it by visiting Chart's website at www.chartindustries.com. A telephone replay of today's broadcast will be available following the conclusion of the call until Thursday, May 7. The replay information is contained in the company's earnings release. Before we begin, the company would like to remind you that statements made during this call that are not historical in fact are forward-looking statements. Forward-looking statements involve risks and uncertainties that could cause actual events or results to differ materially from those expressed or implied in the forward-looking statements. For further information about important factors that could cause actual results to differ materially from those expressed or implied in the forward-looking statements, please refer to the information regarding forward-looking statements and risk factors included in the company's earnings release and latest filings with the SEC. These filings are available through the Investor Relations section of the company's website or through the SEC website, www.sec.gov. The company undertakes no obligation to update publicly or revise any forward-looking statements. I would now like to turn the conference call over to Michael Biehl, Chart Industries' Executive Vice President and CFO. You may begin your conference. Michael F. Biehl - Executive Vice President & Chief Financial Officer: Thank you, Tyrone. Good morning, everyone. I'd like to thank you all for joining us today. Begin by giving you a brief overview of our first quarter results, and then Sam Thomas will provide comments on current market and order trends we see in each of our business segments. I'll then finish up by commenting on our outlook for the remainder of 2015. Net income for the first quarter of 2015 was $5.2 million, or $0.17 per diluted share. This included acquisition-related retention costs as well as Owatonna facility shutdown and other severance costs recorded in the quarter for approximately $900,000, or $0.02 per diluted share. Excluding these items, first quarter 2015 earnings would have been $0.19 per diluted share. This compares with net income of $12 million or $0.38 per diluted share for the first quarter of 2014. First quarter 2014 earnings would have been $0.41 per share excluding $800,000 or $0.02 per diluted share of acquisition-related costs in that period, as well as a $0.01 per diluted share impact associated with Chart's convertible notes. In addition, we had a foreign currency transaction loss of $3.1 million for the first quarter of 2015, or $0.07 per diluted share, as the strength of the U.S. dollar had a significant negative impact on our European operations. We also had foreign currency loss in the first quarter of 2014 but it was relatively small, $100,000. Sales for the quarter were $245.1 million, an 8% decline from the prior-year quarter. This was largely due to a decline in LNG sales in our D&S business, particularly in China. The currency translation had an unfavorable impact as well. Translation effect from the strong dollar reduced revenues about $8 million and gross profit by about $1.9 million in the first quarter of 2015 on a constant currency basis. Our gross profit for the quarter was $72.5 million, or 29.6% of sales, compared with $77.5 million or 29.1% of sales a year ago. Overall margin dollars were down due to lower sales volume in our D&S business, while the gross margin percentage improved due to product mix and lower material costs in D&S, and improved volume and lower warranty costs in our BioMedical business. Orders received in the first quarter totaled $219.5 million were down sequentially from fourth quarter 2014 adjusted orders of $251.7 million, which excludes the $33 million backlog adjustment in China during the fourth quarter of last year. We did see about $4.5 million of order cancellations in our E&C segment in the first quarter of 2015, a consequence of the current energy environment due to lower oil prices. In the E&C business, sales increased 1.5% to $87.5 million for the first quarter of 2015 as lower sales volume in brazed aluminum heat exchangers was more than offset by higher volume in process systems and air cooled heat exchangers. Gross margins were 28.4% in the quarter compared with 28.7% in the prior-year quarter. The negative margin impact of lower brazed aluminum heat exchanger volume was mostly offset by improved execution and project mix of process systems and air cooled heat exchangers. In our D&S business, first quarter sales decreased 19% year-over-year to $105.1 million. Although industrial gas volume increased over the prior-year quarter, lower L&G sales volume globally as well as currency impact on European results more than offset the improvement. Gross margins improved 28.6% compared with 28.1% a year ago due to product mix and lower material costs. In BioMedical, sales increased 4% year-over-year to $52.6 million. This increase was primarily due to higher sales volume in commercial oxygen generation systems. BioMedical gross profit margins improved to 33.5% in the quarter, compared with 32.6% for the same period in 2014 due to higher volume and lower warranty costs associated with respiratory therapy products. SG&A expense for the quarter was $53.2 million, up $2.3 million compared with the same quarter a year ago. The increase was largely due to an acceleration of stock-based compensation expense associated with retirement eligible participants. Under accounting rules, we are required to accelerate expense for employees who are retirement-eligible even if they have not retired. Therefore, first quarter SG&A expense is higher than what we'd expect for the remaining three quarters of 2015. Income tax expense was $2.4 million for the first quarter and represented effective tax rate of 31% compared with $5.2 million for the prior year's quarter, which was an effective tax rate of 29.7%. The increase in the effective tax rate was primarily due to an increased mix of U.S. earnings, which are taxed at a higher rate. I'll now turn the call over to Sam Thomas. Samuel F. Thomas - Chairman, President & Chief Executive Officer: Thank you, Michael, and good morning, everyone. Our first quarter results reflect solid execution across many of our businesses despite the challenges we are facing due to the impact of lower oil pricing and currency headwinds. We continue to take aggressive actions to reduce cost. Over the past several months, we've initiated cost reduction actions, including a head count reduction of 8% of our global workforce, with annualized savings of approximately $30 million. This includes the $20 million of annualized cost savings that we previously disclosed in our February earnings release. We also announced the shutdown of our D&S LNG equipment manufacturing facility in Owatonna, Minnesota due to a slowing of the LNG infrastructure build-out in North America. We're still convinced LNG is compelling as a long-term diesel fuel replacement for high horse power applications such as truck fueling, marine, rail, mining, oil and gas, and power generation. However, consistent with our focus on reducing costs, we believe the decision to close out Owatonna is an appropriate and prudent course of action at this time. We'll continue to service our LNG equipment customers in North America from our other manufacturing facilities. We continue to closely monitor our end markets and order rates and will take additional timely action as we move through the year as necessary. In China, despite weak sales in the first quarter, we continue to see strong order prospects for D&S LNG equipment, and we expect demand to grow as the government continues to pursue its long-standing goal of improving air quality. However, the timing of awards is proving ever-more difficult to call and we are also seeing increased pricing pressure. Overall, as expected, 2015 is going to be a challenging year for Chart. We do expect some growth in our industrial gas and biomedical markets and have significant LNG liquefaction and distribution opportunities that could be larger than any Chart has captured in the past. We do face deteriorating near-term business prospects in the D&S LNG business for applications based on diesel fuel replacement and within E&C for petrochemical, natural gas processing and industrial gas applications. The headwinds associated with low oil prices and the strength of the U.S. dollar are real, the latter impacting the value of our European results in dollar terms. In addition, increased global competition continues to compress E&C pricing and margins. Before I move to talk specifically about each of our businesses, I'd like to emphasize that despite the short-term headwinds we are facing, we remain confident in the long-term fundamental drivers of our growth, including rising industrial production and increased demand for energy globally and natural gas specifically. We're continuing to invest for future growth, including actively pursuing potential acquisition candidates across many of our business segments. Let me now comment on specific highlights for each of our businesses. Within Energy & Chemicals, we booked $43 million in orders during the first quarter, net of order cancellations of approximately $4.5 million that Michael mentioned earlier. This is down sequentially from fourth quarter 2014 orders of $71 million. As reported last quarter, we're facing deteriorating short-term brazed aluminum heat exchanger prospects for petrochemical, natural gas processing and industrial gas applications globally. In addition, the timing of project awards is historically lumpy in the E&C segment and always a challenge to forecast. The 100,000 gallon per day LNG liquefier we delivered to Stabilis in 2014 successfully completed its start-up in the quarter and is now in production, providing LNG for high horse power applications that still benefit from the lower costs and emissions that LNG affords versus diesel. Additionally, both the Noble Energy and LNG Holdings' standard plant liquefiers that we have mentioned in previous calls are scheduled to be up and running later this year. As I alluded to earlier, we're encouraged by the continued interest and quoting activity for small scale LNG liquefaction and larger mid-scale multi-train liquefaction for LNG export facilities here in North America from customers who share our long-term view of the spread between oil and natural gas prices. We've received advanced engineering awards for both Venture Global LNG and Parallax Energy's Live Oak LNG project, both of which, if they go ahead, will employ Chart's IPSMR liquefaction process and proprietary Chart equipment. Parallax Energy also announced their acquisition of the Louisiana LNG project earlier this week, another mid-scale export project that will employ Chart's process technology and equipment. While remaining circumspect with regard to the impact of current oil prices on investment decisions for these projects, we're cautiously optimistic that equipment orders will be forthcoming, perhaps as early as late 2015. Within Distribution & Storage, we booked orders of $124 million in the first quarter, down 4% from our fourth quarter 2014 adjusted orders of $129 million, which takes into account the $33 million backlog adjustment in China during the fourth quarter of 2014. Orders were down primarily due to lower LNG equipment demand for diesel replacement applications in light of the narrow spread between natural gas and diesel. Global industrial gas activity is in line with expectations and should grow in 2014 (sic) [2015] (14:36) based on rising industrial production and major customer forecasts. While LNG orders globally within D&S has slowed, opportunities still exist. We continue to quote significant opportunities for distribution equipment that could result in orders later this year or in 2016. This includes ISO containers for transport on rail cars and ships, in addition to other equipment used in the virtual pipeline. On the topic of LNG for transport, this quarter saw the opening of Shell's first European LNG fueling station in Rotterdam, designed, manufactured and installed by Chart D&S Europe. Chart's scope of supply includes the LNG storage tank, offloading pump skids, control system and LNG dispensers, all supplied to Shell's exacting quality and safety standards. This follows similar openings for Shell and Travel Centers of America truck stop LNG stations in North America, all designed, manufactured and commissioned by Chart. Moving on to BioMedical, orders of $53 million were marginally up compared to the fourth quarter of 2014. Order intake for respiratory and life sciences was as expected. Orders for commercial oxygen systems were up from the prior quarter but still low due to project timing, which is again lumpy. First quarter 2015 results provided further evidence that respiratory therapy demand has stabilized. Orders and revenues have now been consistent for the last three quarters. We still expect to see some growth in the respiratory therapy business in the second half of 2015 as we start to penetrate the China market with a focus on delivering higher-quality products and innovative solutions, a theme that is consistent across all areas of our BioMedical business. Finally, we remain confident that our commercial oxygen system applications will show growth as we move through 2015 on the back of improved product lead times and external customer financing options that we have introduced for waste-water applications. Michael will now provide our outlook for the remainder of 2015. Michael F. Biehl - Executive Vice President & Chief Financial Officer: Thanks, Sam. As we originally anticipated, second half results are expected to be stronger than the first half. Given current business expectations, the company is reaffirming its previously announced sales and earnings guidance. We still expect sales for 2015 to be in a range of $1.05 billion to $1.2 billion and diluted earnings per share expected to be in a range of $1.60 to $2.10 per diluted share on approximately 30.7 million weighted average shares outstanding. This includes the first quarter foreign currency transaction loss of $3.1 million but excludes any restructuring costs and potential dilution impacting – from our convertible notes. With respect to restructuring costs, we anticipate an additional $3 million in costs associated with the Owatonna facility shutdown expected to be recognized in the second quarter, primarily related to the existing lease for this facility. I'd now like to open it up for questions. Tyrone, please provide instructions to the participants to be able to ask questions.

Thank you. Our first question is from Tom Hayes Northcoast Research. Your line is now open.

Thank you. Good morning, gentlemen. Samuel F. Thomas - Chairman, President & Chief Executive Officer: Good morning, Tom. Michael F. Biehl - Executive Vice President & Chief Financial Officer: Good morning, Tom.

Hey, fellows, you provided some good commentary on the pricing trends you're seeing on E&C. I'm just wondering if maybe you provide a little bit similar color what you're seeing on the D&S side. Samuel F. Thomas - Chairman, President & Chief Executive Officer: It's a similar situation. We've got everyone chasing diminished order prospects. And as you'd expect in that situation, pricing is competitive.

Okay. And then, I was just wondering if there's any update you could provide on the PetroChina shipment outlook, for the orders? Samuel F. Thomas - Chairman, President & Chief Executive Officer: Not a lot. PetroChina has been taking equipment and has indicated they expect to see more. But there is still a fair amount of turmoil and uncertainty in the Chinese market and for the nationally owned companies in particular.

Okay, thank you.

Thank you. Your next question is from Walter Liptak of Global Hunter. Your line is open.

Thanks. I wanted to ask one on the Venture Global and other larger projects. I wonder if you could help us understand the size of those market opportunities and what are some of the factors that you're thinking about in terms of timing. I think you mentioned late this year, or as early as late this year you might see some orders come through. Samuel F. Thomas - Chairman, President & Chief Executive Officer: Yes. As I've said, we're looking on advanced engineering contracts. Each of those companies have announced the size of their potential projects in terms of millions of ton per atom output. They are larger because it is our process technology and we're providing a complete package. The opportunities are larger than others we've historically had. It could be as much as 2 times to 3 times as big as we reported in previous LNG awards. In terms of timing and to what the ultimate size of those orders are, that's dependent on the final investment decisions and, for them, obtaining contracts for the output of those plants. So, there's not much point in speculating further as to timing of awards beyond what's been announced.

Okay. Okay, great. Thank you.

Next question is from Noah Kaye of Northland Capital. Your line is open.

Yes, thank you. You talked about quotations for transport on rail cars. As regulatory guidelines for LNG in rail car transport evolve, what's your view on when that market starts to come online, perhaps in North America specifically, and how big do you think that can be for you? Samuel F. Thomas - Chairman, President & Chief Executive Officer: Very difficult to forecast timing or the ultimate market size. There's a wide range of possibilities from 10% penetration for locomotive fueling over a two-year, three-year, four-year time period with primarily being prototype or beta type units going into service to ultimately replacing all of the rail fleet with LNG-powered units. But based on the long life of the equipment and the conservative nature of the rail industry in making that kind of move, I think for a significant penetration you're talking about time periods that are in the 8- to 15-year time period.

Sure, sure. And then, also you alluded to the increased global competition. I think your comments were focused on E&C, so we could just stay there. What, in your mind, would be some catalysts that can remove that overhang and open up more market opportunities for folks? What are you seeing in terms of the industry trajectory at this point? Samuel F. Thomas - Chairman, President & Chief Executive Officer: That industry has traditionally been capital spending or business cycle dependent, and increased demand, which can be driven by either higher energy prices or a growing global economy, will create additional demand for products. Pricing levels in the industry tend to be driven by utilization of capacity.

Okay, thanks. And then, maybe we could be a little bit more precise on what the head count and Owatonna reduction will mean for your capacity. Once that facility is closed, where would you put your capacity utilization at for your LNG D&S production? How much run room would you have if the market starts to come back? Samuel F. Thomas - Chairman, President & Chief Executive Officer: Significant. With respect to LNG distribution and storage related capacity, we'll be at less than 50% of our available capacity.

Okay, that's very helpful. Thank you so much.

Thank you. Our next question is from Chase Jacobson from William Blair. Your line is open. Chase A. Jacobson - William Blair & Co. LLC: Hi, good morning. Samuel F. Thomas - Chairman, President & Chief Executive Officer: Good morning, Chase. Michael F. Biehl - Executive Vice President & Chief Financial Officer: Good morning. Chase A. Jacobson - William Blair & Co. LLC: So looking at the guidance here, understanding that the first quarter is seasonally weak and there were some currency headwinds, it still assumes a pretty good pickup in sales as well as margin over the next three quarters. And, Sam, from your comments, there's clearly a good bit of uncertainty in the markets, whether it's in E&C or D&S. So, maybe if you could just talk to the confidence level in your guidance. Samuel F. Thomas - Chairman, President & Chief Executive Officer: Our guidance is based on bottom-up forecasts in all of our businesses, which we go through a formal process on a quarterly basis and we update on a monthly basis. The first quarter was weak. I think that's evidenced by reports from the energy industry as well as the first quarter reports from the industrial gas industry. But all of those markets, we either have confirmed delivery schedules that appear significantly better in the second half, assuming the second quarter – that the first quarter was also better in the second half. And then at a macro level, there appears to be some stabilization of oil prices, and reducing uncertainty, I believe, will improve demand and order intake. And I remain convinced that that's a reasonable assumption to make. Chase A. Jacobson - William Blair & Co. LLC: Okay. And then on the capital allocation, obviously the markets didn't play out the way many of us expected, but there were some big investments in North America LNG, in China. So as you go forward here, can you just – is Chart changing the way that it looks at capital allocation whether from an internal investment perspective or from an acquisition perspective based on kind of the events over the last few years? Samuel F. Thomas - Chairman, President & Chief Executive Officer: The commitments we made to increase capacity were based on a long-term view of the demand for LNG-related equipment. This is a cyclic pause, which we still believe the industry will recover from and demand will grow. And in the fullness of time, I'm confident that those will be judged as very effective investments in our capacity. Our past experience has been that when we've had capacity available and the ability to respond quickly to upturns in demand, the company is rewarded very well for having that. And I still believe that to be a case for the future. In terms of in the current environment what kind of investment decisions are we making, in view of the fact that we have significantly added to our capacity and feel well prepared for an upturn, we don't see the need to make continued capacity expansion although we continue to look for investment opportunities in capital expenditure for production equipment that will enable us to lower our costs and/or improve our throughput times. So, it won't go to zero. We remain bullish about the industries we're in. You also asked about acquisition opportunities. In cyclic downturns for our industries, we have been rewarded in the past for having the dry powder available to make acquisitions when other people are disheartened with the prospects for business. Again, with the view that through an upturn, we can be rewarded for making those kinds of investments. We'll continue to be cautious and somewhat conservative in making that type of acquisition. But we also believe that with diminished trading prospects, there are improved prospects for making good acquisitions. Chase A. Jacobson - William Blair & Co. LLC: Okay. And just lastly, Michael, can you tell us what the amount of the stock-based comp associated with retirements was in the quarter? Michael F. Biehl - Executive Vice President & Chief Financial Officer: About $3.5 million in total. Chase A. Jacobson - William Blair & Co. LLC: Okay, thanks a lot.

Our next question is from Eric Stine of Craig-Hallum. Your line is open.

Hi, Sam. Hi, Michael. Samuel F. Thomas - Chairman, President & Chief Executive Officer: Good morning, Eric.

Maybe just touching on orders, I know on the last call late February you indicated that you didn't feel like you'd really seen the full impact yet. And so, just wondering can you talk about maybe some of your discussions with customers, what you saw in March and maybe an early read on orders in the second quarter? Samuel F. Thomas - Chairman, President & Chief Executive Officer: I stand by the comments I made in February that we've seen more negative news since our February call. However, I think I would deem those comments from customers more on the fact of we're not quite sure what happened in the first quarter but it was ugly. But we don't see signs of customers throwing in the towel and saying we're closing up shop for the rest of the year, but we expect to see prospects improve. And I think generally, that's holding out from what we're seeing.

Okay. So, I mean, you are seeing some positive trends here in April? Samuel F. Thomas - Chairman, President & Chief Executive Officer: Yeah. Nothing that's causing dancing in the streets or dancing in our hallways, but yes.

Okay, understood. Thanks for that color. Maybe then, just turning to the balance sheet, it looks like you had some working capital that impacted the first quarter. Looking back historically, it didn't happen in 2014. But in typical first quarters, that seems like it's the case. Maybe just some clarity there and expectations going forward. Samuel F. Thomas - Chairman, President & Chief Executive Officer: I would say that first quarter order rates and customer delivery uptake, particularly with regard to China, are the major causes of the increase in first quarter working capital. In other words, we were building to expected delivery schedules or order intake rates, both of which were disappointing in the first quarter, promise is that that's going to improve in the second quarter and the second half of the year, but we'll see.

Okay. Maybe last one for me. Just floating LNG, you've been involved in the past, and you did the first – Golar's first ship conversion. I know that they've moved forward on a second and potentially more, just thoughts on your potential involvement there. Thanks a lot. Samuel F. Thomas - Chairman, President & Chief Executive Officer: We still remain positive about it. For all of the LNG projects, there's a period of reflection as significant new LNG is coming online and off-take customers have been slow to make commitments in an environment where spot prices have been dropping. I think that long term, the price outlook is such that these projects will go ahead, but the near-term timing of them is difficult to predict based on that uncertainty.

Okay, thank you.

Our next question is from Alex Potter of Piper Jaffray. Your line is open. Alexander E. Potter - Piper Jaffray & Co (Broker): Thank you. I was wondering if you could comment a bit specifically on China D&S orders maybe over the last month or so. Obviously, that wouldn't have been reflected in Q1, but was just wondering what sort of impact that natural gas price cut domestically had in China on, I guess, A, your existing order rates right now and your expected order rates over the next couple of quarters. Samuel F. Thomas - Chairman, President & Chief Executive Officer: Improved but muted against expectations I guess would be the best characterization, Alex. We've got significant quotation activity, potential orders and orders coming through. But I think the view is that orders and delivery will be ramped and delivery requests will be ramping up in the second quarter and third quarter. Last year, order activity and shipping activity were heavily second-half-weighted and there's an anticipation that we may be seeing a repeat of that process. So, I guess the response is it hasn't been as strong as we'd hoped. There is apparently good traction for LNG replacement on the coastal areas where you've got low contract prices for imported LNG and even lower spot market prices, less traction for liquefiers that are based on pipelines where there hasn't been full adjustment of pipeline gas prices down to make LNG attractive for the liquefiers. Alexander E. Potter - Piper Jaffray & Co (Broker): Okay, fair enough. Thanks very much for that. I was wondering also I guess maybe a little bit more color on ForEx. You've kept the guidance range constant, but presumably your view on ForEx has changed over the last quarter. So, I'm wondering if it would be possible to kind of strip out the ForEx impact on guidance, what would guidance have been had there been no change in the ForEx outlook, if that's possible to do. Michael F. Biehl - Executive Vice President & Chief Financial Officer: So, I mean the $3.1 million transaction, foreign currency transaction loss, is in that guidance. I mean I don't think we would have changed our guidance one way or another. We don't forecast forward in terms of foreign currency losses or gains. We did lower our expectation on conversion rate for the euro, down to – I think it was $1.13, down to $1.06 in the ongoing forecast, expecting some further turbulence there. So, some of that is factored into the forecast. But again, it's unlikely that we would have raised our forecast without that. Alexander E. Potter - Piper Jaffray & Co (Broker): Right, okay. And then, I guess one last question on maybe the trajectory of E&C gross margins. Obviously, a lot of commentary there about capacity under-utilization across the supply chain and ASP pressure. I mean you did see some amount of gross margin degradation on a sequential basis, but not a ton. I'm wondering, I guess, what you would think on that line item going forward into the next couple quarters. Michael F. Biehl - Executive Vice President & Chief Financial Officer: The expectation is as backlog is worked off over the year, that it will decline. It was in the high 20%s first quarter. I would expect to be sort of about mid-20% range in the second quarter, and it could be lower than that over the remainder of the year, as low as in the 20% range just based upon order levels and backlog being worked off. It does not... Alexander E. Potter - Piper Jaffray & Co (Broker): Right, yeah. Michael F. Biehl - Executive Vice President & Chief Financial Officer: ...I was going to say it does not include – there's nothing in our forecast related to any of these large projects for Venture Global or Parallax as we built them, to make that clear. Alexander E. Potter - Piper Jaffray & Co (Broker): Right. Yeah, that's kind of what I was driving at. And I guess one – maybe I'll sneak this one in there, too. Is there any potential for some of these rush orders? Every once in a while, you see those rush orders come through and juice the gross margin... Michael F. Biehl - Executive Vice President & Chief Financial Officer: Yeah. Alexander E. Potter - Piper Jaffray & Co (Broker): ...in a quarter. That could potentially happen at some point? Michael F. Biehl - Executive Vice President & Chief Financial Officer: Yeah, because of the capacity that we have, that there's good opportunities for that over the remainder of the year. Alexander E. Potter - Piper Jaffray & Co (Broker): Okay, thanks a lot. Michael F. Biehl - Executive Vice President & Chief Financial Officer: Thank you.

Our next question is from Rob Brown of Lake Street Capital. Your line is open.

Hi, good morning. Just wanted to... Michael F. Biehl - Executive Vice President & Chief Financial Officer: Hi, Rob. Samuel F. Thomas - Chairman, President & Chief Executive Officer: Rob.

...touch on the – Hi. I'd like to just touch on the E&C order cancellation, I guess. How much of your backlog is at risk of potential order cancellations? And is that something you sort of feel like has worked through, or is that still something that we could see more of? Samuel F. Thomas - Chairman, President & Chief Executive Officer: Currently, I would think that the impact of any additional cancellations would be minor. That's always challenging, but typically as we move into our backlog the customer's skin in the game is more significant. Having said that, I've been surprised in the past with customers cancelling projects that were fairly well along. It typically, because of contractual arrangement, doesn't have a significant negative financial impact on us. So, I guess the best answer to it is unknown... Michael F. Biehl - Executive Vice President & Chief Financial Officer: Yeah... Samuel F. Thomas - Chairman, President & Chief Executive Officer: ...although I don't think it's dramatic. It hasn't historically been dramatic. Michael F. Biehl - Executive Vice President & Chief Financial Officer: No, I was going to say, I think the most we've seen in a down cycle in prior years is about $20 million. And right now, we don't expect it to be at that level, but it's hard to say.

Okay, thank you. And then, kind of the same question on the margins with the D&S segment, how do you see that margin kind of playing out sequentially? Michael F. Biehl - Executive Vice President & Chief Financial Officer: Again, they're in the high-20%s, would expect them to maybe notch down 1%, 1.5% over the remainder of the year based upon the product mix going forward. And again, that could change depending upon whether we have more in China or more here in the U.S. or Europe. That pushes it around somewhat.

Okay, great. Thank you. I'll turn it over.

Our next question is from Greg McKinley of Dougherty. Your line is open. Gregory John McKinley - Dougherty & Co. LLC: Yes, thank you. And I apologize, you may have literally just answered this question and I didn't hear it. I was going to ask backlog margins in D&S, was that the 1% to 1.5% points you just mentioned? Michael F. Biehl - Executive Vice President & Chief Financial Officer: Yeah, in terms of the margins for the year, yeah. Gregory John McKinley - Dougherty & Co. LLC: Yes, and that was specific to D&S margins? Michael F. Biehl - Executive Vice President & Chief Financial Officer: Yes, correct. Gregory John McKinley - Dougherty & Co. LLC: Okay. Michael F. Biehl - Executive Vice President & Chief Financial Officer: You're getting predictable, Greg. We can anticipate your questions. Gregory John McKinley - Dougherty & Co. LLC: Yeah, that's right. So, you guys had talked about a $30 million in annualized cost savings. Now, how should we think of that in terms of is that a reduction to the operating expense structure as it existed, call it, at the beginning of the year, or is that the absence of increases to the cost structure that might have been planned previously? I guess maybe sort of trying to get at what does G&A look like in the context of the $30 million reduction. Michael F. Biehl - Executive Vice President & Chief Financial Officer: It's mostly head count reduction. I mean I would say 90%, 95% of it is head count reduction. But keep in mind that $30 million is on an annualized basis. So with restructuring costs and severance and things like that, the impact in the current year, it also gets offset by lower capacity and throughput. Samuel F. Thomas - Chairman, President & Chief Executive Officer: Those as opposed to the run rates in the fourth quarter of 2014, Greg. Gregory John McKinley - Dougherty & Co. LLC: Okay. So, that truly is $30 million less than the run rate. It's not the absence of changing a plan for future increases. Okay. thank you. And then from an order intake standpoint, can you handicap, if we look toward the bottom end of your revenue guidance range, toward the top end of your guidance range, what type of order intake maybe needs to occur June through December on either ends of that? Samuel F. Thomas - Chairman, President & Chief Executive Officer: Very challenging to answer intelligently. Michael F. Biehl - Executive Vice President & Chief Financial Officer: I mean it would be an increase, obviously, in the second quarter from where we're currently at, the first quarter. And with E&C being so lumpy, it could be a third quarter push. It is difficult to answer but it clearly our expectation would be that order that will increase as we go through the year. Gregory John McKinley - Dougherty & Co. LLC: Okay. And then, I guess, the last question, Sam – and this would be maybe even more difficult to answer – but as you look at the broader LNG market, what is the behavior of customers to enter into long-term take-or-pay contracts so that these projects can secure project financing? And is there a way for us to intelligently handicap how these massive opportunities late this year fit into that puzzle and help us inform the likelihood of those moving forward? Samuel F. Thomas - Chairman, President & Chief Executive Officer: I think a number of the comments that came out of the CERA Conference in Houston this past week are probably illustrative. But the kinds of comments we get from end users, the investment community and from these project developers are that lower spot prices particularly in Asia mean that Asian customers, utilities or national energy companies, are being hard-nosed in negotiating and not indicating enormous need to sign contracts immediately. The contracts, the projects that we think have the greatest likelihood of going forward in the near-term are those that have been focused on supply to Western European utilities trying to achieve diversity of energy supply. Gregory John McKinley - Dougherty & Co. LLC: Okay. Samuel F. Thomas - Chairman, President & Chief Executive Officer: And so in other words, a utility perspective in Western Europe, a stated goal is to have contracts which enable them to get supplied based on the relative output of various parts of the world for introducing supply diversity and reducing their overall risk. Gregory John McKinley - Dougherty & Co. LLC: Okay. Samuel F. Thomas - Chairman, President & Chief Executive Officer: And that's the current most attractive market that Gulf Coast or Atlantic Basin projects see as their best opportunity over the next 12 months. Gregory John McKinley - Dougherty & Co. LLC: Okay. Okay, thank you. Samuel F. Thomas - Chairman, President & Chief Executive Officer: Thank you.

Our next question is from Rob Norfleet of Alembic Global. Your line is open.

Hi, guys. Thanks so much for taking our call today. This is actually Nick Chen, filling in for Rob Norfleet on the call. Our question, just pertaining to the last several quarters, you guys have had some discussion just about your IP in China and just trying to protect that. Can you give us any updates in that area? Samuel F. Thomas - Chairman, President & Chief Executive Officer: No changes. It's a challenging area. China is a hyper-competitive market. But we don't see any changes in our ability to protect our IP significantly over the last few quarters. It's a continuous challenge and battle, but we think we're well equipped to fight it.

Okay, great. And then, we touched on it a little earlier in the call, sort of from more of a surface level, but I was wondering, in terms of FLNG projects, are you guys tracking the potential of the opportunity in that market? Samuel F. Thomas - Chairman, President & Chief Executive Officer: We are, yes, in our project pipeline, although I'll admit I'm not close enough to it to comment in specifics as to what the current projects in the pipeline are. I know there are a number of them, but I'm not close enough at the moment to give you an idea of how far away each of them are.

That's great. Thanks so much, guys.

Next question is from Pavel Molchanov of Raymond James. Your line is open. Pavel S. Molchanov - Raymond James & Associates, Inc.: Hey, guys. Going back to the two LNG export facilities that you have to feed contracts with, if you were to get a cold box order from either one at the end of 2015, which you said might be a possibility, what would the revenue recognition for that look like? In other words, would it be like a two-year cycle? What's the time table? Samuel F. Thomas - Chairman, President & Chief Executive Officer: Nominally, it would be a 18-month to 30-month cycle. Both of these facilities are multiple trains, so the delivery of cold boxes for them would be spread over that time period. And revenue recognition typically for projects of that size doesn't start until two to three months after receipt of a firm purchase order. But these facilities (52:33)... Pavel S. Molchanov - Raymond James & Associates, Inc.: Got it, yeah. Samuel F. Thomas - Chairman, President & Chief Executive Officer: ... they have project time lines going out to 2018, or in some cases into 2019. Pavel S. Molchanov - Raymond James & Associates, Inc.: Okay, that's helpful. And then on the shutdown of Owatonna that you alluded to, was there something specific in the last three months that sort of got you over the hump to actually pulling the trigger on that shutdown? I mean clearly the domestic LNG opportunity has been weak for a while, but what happened that got you to make that decision? Samuel F. Thomas - Chairman, President & Chief Executive Officer: There's two aspects to it. Since we had added the Owatonna facility, which was a leased facility, we had also increased capacity at our fully-owned facility in New Prague 30 miles away. And then, in the fourth quarter and early first quarter, with the continued fall of oil prices that slowed activity down for – and also the reduction in drilling, slowed down the supply of diesel fuel replacement equipment for oil production, was really the deciding factor. So, we had developed the ability to produce the products produced in Owatonna at other sites. And also, the near term, and I'll say through 2015, prospects for equipment to the heavy-duty diesel fuel replacement market, particularly for oil and gas production looked moribund. Pavel S. Molchanov - Raymond James & Associates, Inc.: Got it. Appreciate the color, guys. Thank you.

Our next question is from Jeff Osborne of Cowen & Company. Your line is open. Jeffrey Osborne - Cowen & Co. LLC: Great. Good morning. I just had two quick questions. One is on the Shell Rotterdam facility. What's the pipeline for additional D&S applications in Europe, and is it all trucking-related or is there any other end market that's driving that? Samuel F. Thomas - Chairman, President & Chief Executive Officer: No. Shell and others continue to be interested in building out the infrastructure in Europe for the trucking market. Perhaps, one where there's greater activity and greater potential in the near term is for the marine market. Jeffrey Osborne - Cowen & Co. LLC: Great. Okay. And the last question I had was just you talked about the D&S weakness in China, I was wondering if you could just touch on the low pressure E&C side, the Wuxi acquisition that you made some time ago, is there any activity there or is that in a weaker position than even the D&S side? Samuel F. Thomas - Chairman, President & Chief Executive Officer: There is activity. There's continuing customer approvals and work going through there, but the demand for their products is very weak right now. There is very little LNG liquefaction activity going on because there's a number of plants that have been compete. There's been a large slug of new capacity for liquefaction in China completed over the last year. And at current pipeline gas prices is under-utilized, so not many prospects for orders there. With lower industrial activity, there's relatively little air separation progress going on right now or orders going on. Jeffrey Osborne - Cowen & Co. LLC: Understand it. Appreciate the comments. Thank you.

Thank you Next question is from Anjali Voria of Thompson Research. Your line is open.

Good morning. I think you guys have touched a lot on the natural gas side. Within D&S, I was wondering if you could speak to your industrial gas categories. I think you mentioned those are up year-over-year. I assume that growth rate's decelerated from Q4, and I was wondering if you could provide an indication of what that deceleration looked like or where growth rates were in Q4 versus Q1, and what you customers are saying now that we're in Q2. Samuel F. Thomas - Chairman, President & Chief Executive Officer: So I think it's – perhaps, I'll cover it across the three regions. In North America, we've seen through the second half of last year improving industrial gas activity. I would call the first quarter a plateauing of that demand. It continued strong in package gasses, less so in larger bulk tanks. But customers, and you can see it reflected in the first quarter reports of the industrial gas companies, saying that activity was down, that generally everybody was impacted more by the pull-back in energy-related capital expenditure than they'd anticipated. General industrial applications, I would say, going forward, our customers continue to be positive about increasing activity levels or a continuation of the activity levels. For Europe, we did see a significant slowdown in activity at the end of the first quarter in March, whereas we seem to have been building momentum and we have seen challenging price competition in Europe although the business has continued to perform well. In China, there was definitely the view that first quarter activity levels were low, that there was a pull-back in activity across-the-board. It's sometimes very difficult to read in China in the first quarter because of Chinese New Year, and Chinese New Year was later this year and that tends to just reduce activity for a longer period of time. But I would say overall, U.S., positive and continued positive, although a bit muted as you see GDP forecasts come down for the rest of the year. That reads through into expected demand. China uncertain, although still believe that the government will be able to stimulate things to have a better second half than first quarter. And Europe should be positive, but that wasn't evidenced in orders.

Just for clarification, do you perceive there to be a lag of – when you think about the slowdown at some customers, do you perceive there to be a lag in that – well, it's actually reflected in your sales – or do you think you immediately see that slowing in your sales based on what your customers have said? Samuel F. Thomas - Chairman, President & Chief Executive Officer: No definitive answers, because we've got significantly different lead times for our products. The products that have the shortest lead times, we generally take to be the leading indicators. Those are generally positive. It's tough to predict on some of the longer lead time products. And then, for our longer lead time products, our customers' time lines are also longer, so it's difficult to read.

And just one last question. Could you clarify on the cost savings announcement – last quarter I think it was $20 million, now I think you ramped it up to $30 million. Did you reach the full what would have been $5 million sort of run rate in Q1 in terms of cost savings, or was it perhaps a little bit more than that or less? Samuel F. Thomas - Chairman, President & Chief Executive Officer: I would suspect not, because some of those actions occurred in December but a number of them occurred in February or March. So, no, I would not anticipate that a full $5 million of savings was achieved in the first quarter.

Okay. Well, thank you.

Thank you. This ends the Q&A portion of today's conference. I'd like to turn the call over to Sam Thomas for any closing remarks. Samuel F. Thomas - Chairman, President & Chief Executive Officer: Thank you. Well, as we've spoken about throughout this call and also last quarter, 2015 is a challenging year. We expect to see some growth in our D&S industrial gas and BioMedical markets but expect that growth to be realized in the second half of the year rather than the first. In the meantime, we'll continue to focus on improving operations and aggressive cost cutting while serving our customers at the same high standards they've come to expect from Chart. We've demonstrated our ability to successfully manage and execute through cyclic downturns in the past, and we'll do so again. We will also continue to pursue our long-term strategic growth initiatives, including opportunistic acquisitions, and we'll be ready and able to respond when the cycle turns and growth returns, which it will. Thank you, everyone, for listening today. Good bye.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect. Have a wonderful day.