Chart Industries, Inc. (GTLS) Q3 2015 Earnings Report, Transcript and Summary

Good morning and welcome to the Chart Industries, Inc., 2015 Third Quarter 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, November 5. The replay information is contained in the company's earnings release. Before we begin, the company would like to remind you that the statements made during this call that are not historical in fact are forward-looking statements. Forward-looking statements involve risks and uncertainties that can 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 including 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 publicity 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, Chanel. Good morning, everyone. Thank you all for joining us today. I'll begin by giving you a brief overview of our third quarter results and then Sam Thomas will provide comments on current market and order trends we see in each of the business segments. I'll then finish up by commenting on our outlook for the remainder of 2015. Net income for the third quarter of 2015 was $4.8 million, or $0.15 per diluted share. This included additional Owatonna facility shutdown costs as well as severance costs from cost reduction initiatives recorded in the quarter of approximately $4.9 million, or $0.11 per diluted share. Excluding these items, third quarter 2015 earnings would have been $0.26 per diluted share. This compares with net income of $22.9 million or $0.74 per diluted share for the third quarter of 2014. Third quarter 2014 earnings would have been $0.70 per share excluding the $0.03 per diluted share impact of acquisition-related costs and dilution impact associated with Chart's convertible notes in that period. Sales for the quarter were $264 million, 10% decline from the prior year quarter. This is largely due to decline in LNG sales in our D&S business, particularly in China, but currency translation had an unfavorable impact as well. The translation effect from the strong dollar reduced consolidated sales about $9 million and gross profit by about $2.3 million in the third quarter of 2015 on a constant currency basis. Our gross profit for the quarter was $68.3 million, or 25.9% of sales compared with $91.2 million, or 31% of sales a year ago. Overall gross profit was down due to lower sales volume and higher restructuring-related costs and inventory reserves in our D&S business. In addition, the prior year quarter included favorable project change orders that improved margins about 5% in our E&C business. Orders received in the third quarter totaled $252.8 million, and were up sequentially from second quarter 2015, primarily due to the Magnolia order received by E&C. Backlog was reduced in the third quarter of 2015 by $93.4 million for the removal of D&S orders received prior to the third quarter of 2015, primarily in China. While D&S customers did not cancel these orders, these orders have exceeded the expected time of performance. And current circumstances suggests that our customers are not likely to take delivery in the future. We believe this is primarily due to the impact of lower oil prices and the continued economic slowdown in China. We had a similar adjustment in the second quarter of 2015 when we reduced D&S backlog by $47.6 million. In the E&C business, sales decreased 20.6% to $78.4 million for the third quarter of 2015. The decline was due to lower sales volume in brazed aluminum heat exchangers given the weak order trends over the last several quarters. Gross margins were 23.4% in the quarter compared with 31.7% in the same quarter of 2014. Highly competitive market conditions and the impact from excess capacity as a result of lower operating levels impacted margins. In addition, favorable project change orders in the prior year quarter improved margins approximately 15% – or 5% as I mentioned earlier. In our D&S business, third quarter sales decreased 7.6% year-over-year to $129.6 million. Lower LNG sales volume driven by low oil prices, reduced China industrial activity, and the strength of the U.S. dollar contributed to the decline. Sales volumes are down about 30% in the current quarter over the prior year quarter in China. In addition, the currency translation impact in our D&S European business reduced sales by $5.5 million on a constant currency basis. D&S gross margins were 23.9% compared with 29% in the prior year quarter. Lower LNG volume, restructuring costs associated with the Owatonna, Minnesota shutdown and other cost reduction initiatives as well as inventory reserves led to the decline. These restructuring costs and inventory reserves lowered D&S margins by approximately 2% in the quarter. In BioMedical, sales increased 2.2% year-over-year to $56.1 million. The increase is largely due to higher respiratory sales volume in Europe and the U.S., partially offset by currency impact due to the strength of the U.S. dollar. The currency translation impact in our BioMedical business reduced sales by $3.3 million on a constant currency basis. BioMedical gross profit declined to 33.8% in the quarter compared with 35.1% for the same period in 2014 due to product mix. SG&A expense for the quarter was $48.1 million, up $1.7 million compared with the same quarter a year ago. Third quarter 2015 included $3.9 million in Owatonna shutdown and other severance costs. Excluding these costs, SG&A was lower in the third quarter due to favorable impact from our cost reduction initiatives. Income tax expense was $6.1 million for the third quarter of 2015 and represented an effective tax rate of 58.8% compared with $12.1 million in the prior year quarter, and effective tax rate of 34.4%. The unusually high effective tax rate for the quarter was driven by a reserve against certain of our accumulated tax loss balances, which represented 15 percentage points of the effective tax rate in the quarter. In addition, losses incurred by some of our international subsidiaries happened in the lower tax jurisdictions increased the rate as well as, in the quarter, requiring that we adjust to a revised effective annual tax rate of approximately 37%. 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 third quarter results reflect solid performance across many of our businesses, despite headwinds on energy pricing, China demand and U.S. dollar strength. Our North American and European industrial gas businesses delivered solid results, in particular, despite these headwinds. In our businesses where these headwinds are more pronounced, we have action plans to address the challenges. We continue to focus across our business on disciplined execution and aggressive cost cutting, including strict control on discretionary spending, reduction of capital expenditures and review and rationalization of production facilities where appropriate. We face challenging conditions currently in energy markets. In E&C, for example, our proprietary LNG liquefaction technologies and equipment continue to win praise for process optimization and project capital cost control, but we continue to face significant delays in LNG orders. Oil prices hit new lows in the third quarter on tepid global demand and diminished growth forecasts, consequently causing customers in the global LNG trade to defer investment decisions. Despite these challenging market conditions, we continue to achieve significant operating cash flow and maintain a strong balance sheet. We're focused on controlling our capital expenditures, and we expect to continue to deliver strong free cash flow through next year and remain in full compliance with all our debt covenants. Diversity of end markets for Chart's products is serving our company well during this difficult period. While we spend a lot of time discussing our significant growth opportunities in energy-related businesses, we should not overlook the many broad industrial and consumer needs our equipment serve. These businesses continue to perform well in the global competitive environment, delivering significant value to our customers. We've spoken a lot about China, but I want to point out that sales in China represent less than 10% of our current consolidated sales. Investment decisions on equipment purchases for LNG application replacing coal are moving forward; however, lower commodity prices, substantially reduced industrial activity, reduced capital investment and continuing government investigations of state-owned enterprises have translated to a more temperate pace than we expected for investment in our equipment. We expect demand to recover as the Chinese government continues to support its pollution control goals, but we do not expect significant improvement in the near term. Since we began our cost-cutting efforts in the fourth quarter of 2014, our head count reduction now stands at 16% of our global workforce. We have action plans in place to continue to rationalize costs in our business as market conditions warrant into late 2015 and 2016. We remain confident that our focus on meeting and exceeding customer needs in our market will deliver results. The long-term fundamental drivers of our growth remain intact. These include rising industrial production, an increased global demand for energy and natural gas in particular, and the growing need for respiratory healthcare, particularly in developing countries. We're continuing to invest for future growth including pursuing potential acquisition candidates and we'll be well-positioned for growth when the current business cycle turns. Let me now comment on specific highlights for each of our businesses. Our E&C business booked $77 million in orders during the third quarter. This is up sequentially from second quarter 2015 orders of $23 million as E&C booked a significant Magnolia LNG export order, but project timelines in our order pipeline are slipping out into the future. We continue to win fee contracts as the selected technology provider for modular mid-scale LNG liquefaction facilities. The lower capital cost of our proprietary LNG liquefaction process and equipment continues to be attractive to project sponsors in a period of tight capital spending budgets. We are focusing on an expanded service offering in our E&C business to assist our customers in getting better reliability and lower cost in their operations. We believe this will be an area of opportunity during this period of constrained capital budgets. The energy industry continues to place a premium on achieving greater reliability, safety and service life across all process applications. Our equipment is often a key component in larger process plants and our expertise should serve our customers in reducing their total lifecycle costs. Moving to the Distribution & Storage business, we booked orders of $125 million in the third quarter, down from our second quarter 2015 orders of $150 million. As Michael mentioned, we reduced our Distribution & Storage backlog largely in China. The clear impact of lower oil prices and the continued economic slowdown in China has led us to conclude customer performance on this order backlog is unlikely in the current environment. We had strong industrial gas orders in the quarter in North America, and we continue to drive good operating performance in the industrial gas business in North America and Europe. Global industrial gas activities remains in line with expectations, and is still expected to grow marginally over the next year, slightly offset by lower prices for metals included in our equipment where commodity savings may pass through to the customer. Industrial gas equipment for food packaging and beverage applications have shown solid growth in North America. LNG opportunities remain in our D&S business even during this period of depressed demand resulting from low oil prices. These opportunities range from LNG infrastructure in remote areas to LNG vehicle tanks and infrastructure, particularly for marine applications. We think there continues to be good opportunities for Chart in this space, despite current pricing. Clean energy opportunities aren't limited to LNG, of course. Our technologies and equipment support the hydrogen economy as well. Recently, we experienced increased demand for liquid hydrogen equipment as industrial gas customers ramp up their hydrogen infrastructure to support hydrogen fuel cell powered lift trucks at North American warehouses and distribution centers. Moving on to BioMedical, third quarter orders of $51 million were down from $59 million in the second quarter of 2015. We continue to be encouraged by prospects in BioMedical storage and commercial oxygen systems, although our recent respiratory therapy orders have been tempered by increasing competitive pressures from customer consolidation. We focus on new product development across all of our BioMedical product applications and we're confident that new product development efforts in respiratory therapy and life science in particular will win increased business. We're also investing to grow our respiratory business in China, as incomes rise, with a preference for high-quality products. Given demographic trends and poor air quality in many regions of China, we believe there is significant market opportunity for our respiratory products in China. Our life science businesses will continue to be positively impacted by opportunities in emerging markets, including Africa and India, where we have had recent successes. Overall, our BioMedical business offers significant synergies in Chart's total business portfolio. BioMed has significant technology and production overlap with other Chart businesses and is minimally affected by the commodity cycle. BioMed provides substantial free cash flow and has good growth prospects with positive demographic trends. Michael will now provide our outlook for the remainder of 2015. Michael F. Biehl - Executive Vice President & Chief Financial Officer: Thanks, Sam. Based on year-to-date results and order trends including further expected weakness in China and continued delays in global LNG projects, we are lowering our previously announced 2015 guidance range. Sales are now expected to be approximately $1 billion, and diluted earnings per share are now expected to be in a range of $1 to $1.10 per diluted share, or approximately 30.7 million weighted average shares outstanding. This excludes the impact from any restructuring costs and assumes a revised effective annual tax rate of approximately 37%. I would now like to open it up for questions. Chanel, please provide instructions to the participants to be able to ask questions.

Thank you. And our first question comes from Eric Stine of Craig-Hallum. Your line is now open. Please go ahead.

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

Maybe can we just touch on your plans for cost cutting? I know you touched on a little bit, but any way you can go more in-depth on some of the levers you may pull in potentially a dollar amount maybe versus what you've called out to this point in the year? I think you've talked about $40 million? Samuel F. Thomas - Chairman, President & Chief Executive Officer: I think we're deeply involved in our budgeting process. And I think it would be appropriate to defer giving specific dollar numbers until we've gone through that.

Okay. But I mean safe to say, though, it potentially is a pretty significant number? I mean, your... Samuel F. Thomas - Chairman, President & Chief Executive Officer: Well, our past performance has demonstrated we have the capability to significantly impact our total cost structure.

Yeah. Samuel F. Thomas - Chairman, President & Chief Executive Officer: It's different now.

Okay. Yeah, that's what I was getting at. All right, I'll stay tuned on that. And then, maybe just talk about the backlog adjustments. I know last quarter you made the adjustments and I think the impression was that there were probably more, but maybe not of this magnitude. So is this something – I guess, first, I mean, do you feel like this was really the big cut and you don't expect a whole lot more? And then, I guess, the second part of that question is, is PetroChina – I mean, is there much left in backlog for PetroChina? Samuel F. Thomas - Chairman, President & Chief Executive Officer: You're correct that we substantially cleaned the backlog. Prior to the end of the third quarter, there had been a expectation which, at this point, looks like it was just a hope, that there would be a third and, particularly, fourth quarter bump in China demand that would involve delivery of a significant amount of this equipment. The magnitude of that bump at this point in time in demand for China, which we experienced in the previous two years, in the – late in third and fourth quarter – is not expected to occur to that magnitude and the demand profile is changing. So, we made the decision on that basis. It's true that PetroChina was a large part of this. The backlog that we have with them is relatively small, less than 10% of their sales rate for the overall China business at this point. But we considered – we continue to see them as a significant customer in the future.

And they would – you would characterize them as a customer or some of the orders that, depending on how things play out – they potentially do come back? Michael F. Biehl - Executive Vice President & Chief Financial Officer: Yeah. And they... Samuel F. Thomas - Chairman, President & Chief Executive Officer: We continue to receive orders from them and continue to have discussions and ship to them. And we continue to have discussions of additional opportunities, so yes.

Okay. Maybe just last one for me, just quick commentary on the pipeline you're seeing, given the agreement with Bechtel for floating LNG. Thank you. Samuel F. Thomas - Chairman, President & Chief Executive Officer: Thank you.

Thank you. And our next question comes from Rob Brown of Lake Street Capital. Your line is now open. Please go ahead.

Good morning. Samuel F. Thomas - Chairman, President & Chief Executive Officer: Good morning, Rob.

Could you just give – I think you said there was some one-time margin hits in the third quarter – but your guidance implies some margin degradation, I think, going forward. But could you give us a sense of the D&S margin trends over the next few quarters and into next year? Michael F. Biehl - Executive Vice President & Chief Financial Officer: Right now, in terms of D&S, we expect somewhere in the – I would say the mid-20%s, based upon where capacity is and order expectations over the next few quarters, that factors in the China margins, too.

Okay, good. Thank you. And then on the U.S. LNG market, what's your latest thinking? I know you had some big projects that were moving toward a pipeline. Have they extended out as well? Or are they still tracking as before? Samuel F. Thomas - Chairman, President & Chief Executive Officer: Our specific customers remain optimistic. However, we do know from the press that getting off-take commitments from other LNG traders or end-users is reported to be very difficult to come by with people being reluctant to make commitments. So on that basis, we are less optimistic of near-term LNG export-related orders.

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

Thank you. And our next question comes from Alex Potter of Piper Jaffray. Your line is now open. Please go ahead. Alexander Eugene Potter - Piper Jaffray & Co (Broker): Yeah. Thank you. I was wondering if you could... Samuel F. Thomas - Chairman, President & Chief Executive Officer: Good morning, Alex. Alexander Eugene Potter - Piper Jaffray & Co (Broker): Hi. I was wondering if you could shed a little light on, I guess, the implied margin degradation. Obviously, the revenue guidance came down a bit, but not by as much as the EPS guidance came down. So I'm just wondering kind of what the change there is from a margin standpoint versus where you were at with guidance this time last quarter? Samuel F. Thomas - Chairman, President & Chief Executive Officer: Yeah. A large part of that is reduced commodity prices coming through in lower sales prices and reduced margins because of competitive pressure, particularly related to China and related to energy and chemical pricing for petrochemical and industrial gas applications. Alexander Eugene Potter - Piper Jaffray & Co (Broker): Okay. So it sounds like – I mean, the competition had been fierce last quarter. But from what it sounds like over the last several months, it has turned out to be even, I guess, more fierce than what you had expected and pricing pressure has resulted? Is that a fair way to characterize it? Samuel F. Thomas - Chairman, President & Chief Executive Officer: It is. And the areas where we have proprietary products and higher margins, less competitive intensity, are being more dramatically impacted by delays than some of our longer standing industrial products where there is more competition and hence more price pressure. Alexander Eugene Potter - Piper Jaffray & Co (Broker): So a bit of a mix impact there as well. Samuel F. Thomas - Chairman, President & Chief Executive Officer: Yes. Alexander Eugene Potter - Piper Jaffray & Co (Broker): Okay. Fair enough. And then, was wondering if you could help me stress-test margins in E&C, because obviously we're dealing with a situation where there's overcapacity industry-wide, and that's going to impact things. You have fixed cost de-levering, and it looks like we started to see that in the quarter. I'm just trying to understand if there's maybe a structural floor that we should consider for where gross margins could potentially go? I know that there's some precedent, if you look back several years to where gross margins were in the last down cycle. I'm just wondering if that's a decent kind of reference point, or what we should be thinking about for E&C gross margin specifically? Thanks. Samuel F. Thomas - Chairman, President & Chief Executive Officer: I would say that that's probably the most appropriate reference point, Alex. I don't believe there is a lot of downside risk in pricing over the next six months to 12 months. The margin degradation is going to be more related to just lower operating levels. Alexander Eugene Potter - Piper Jaffray & Co (Broker): Okay. Got it. Thanks.

Thank you. And our next question comes from Greg McKinley of Dougherty. Your line is now open. Please go ahead. Gregory J. McKinley - Dougherty & Co. LLC: Yeah, thank you. Following up on that last question, I'm wondering if you could try to help me separate out some of these charges by segment so that I can understand what the – I guess, you call it core performance would be versus the non-recurring. So we had indicated there's $4.9 million of charges and I think $1 million of that we said was due to facility shutdown and severance that hit cost of sales, but then separately we say restructuring reserves impacted D&S margins by 2%, which is... Michael F. Biehl - Executive Vice President & Chief Financial Officer: Well, restructuring reserves, and there was – in addition, there was inventory reserves that are classified as part of restructuring. So there's about $1.4 million of inventory reserves that were taken in Distribution & Storage, both in China and the U.S., lower cost of market reserves that we recorded in the quarter, that impacted the margin. So that's above and beyond the $4.9 million of restructuring expenses that we incurred in the quarter. Gregory J. McKinley - Dougherty & Co. LLC: Okay. So if I – so taking that in total, then we'd have – we had 2% in D&S, which would include the $1.4 million. Michael F. Biehl - Executive Vice President & Chief Financial Officer: Yeah. Gregory J. McKinley - Dougherty & Co. LLC: And then you had the $1 million of facility shutdown and severance costs, which is also within D&S. Michael F. Biehl - Executive Vice President & Chief Financial Officer: Yeah, the majority of it is. There's a small piece in BioMed, but nominal. Gregory J. McKinley - Dougherty & Co. LLC: Okay. Michael F. Biehl - Executive Vice President & Chief Financial Officer: And then SG&A, there was about $3.9 million of restructuring costs that hit SG&A, $3.6 million of it was in D&S and the balance was in BioMedical. Gregory J. McKinley - Dougherty & Co. LLC: Okay. All right. And then, in terms of understanding investment back into the business now, can you help us think about – I guess, first of all, how you see CapEx wrapping up for 2015? But then, as you look at 2016, is there really a need to invest capital in the business? Obviously, to maintain its infrastructure, yes, but what are – how should we think about capital spending plans? Michael F. Biehl - Executive Vice President & Chief Financial Officer: CapEx for the year, probably in the $50 million range in total is sort of a best guess right now. And going forward into 2016, one of the expectation is that it's probably going to be in the $25 million to $30 million range, wrapping up some projects that we are currently in, in 2015. And then most of it would be – the balance would be maintenance CapEx. We have the ability to cut it further. I mean, we could cut it down to sort of that $10 million to $20 million range if required, and really no projects that we see that we would have to invest in, new projects, unless we saw some significant orders to come forward. If that happened, then we would make some decisions to invest CapEx, and we're able to control it fairly well. Gregory J. McKinley - Dougherty & Co. LLC: Okay. And then, I guess with the operating environment being as difficult as it is, are there strategic acquisition opportunities which previously would have been priced out of your appetite range, that are becoming available? And if so, what kind of end markets are you seeing that in? Samuel F. Thomas - Chairman, President & Chief Executive Officer: We do think there will be opportunities in – we continue to be attracted to the markets we've talked about previously. I would say our sense is that prices are still in the high range and we plan to be very disciplined in acquisitions. I think at this point of the cycle, we'd be looking at acquisitions that we were confident would produce significant cash flow. We have plenty of upside growth opportunities within our existing organic portfolio. Gregory J. McKinley - Dougherty & Co. LLC: Thank you. Samuel F. Thomas - Chairman, President & Chief Executive Officer: Thanks, Eric.

Thank you. And our next question comes from Chase Jacobson of William Blair. Your line is now open. Please go ahead. Chase A. Jacobson - William Blair & Co. LLC: Hi. Good morning. Samuel F. Thomas - Chairman, President & Chief Executive Officer: Good morning. Chase A. Jacobson - William Blair & Co. LLC: So I just wanted to ask about the cost-cutting, particularly as it relates to your comment about kind of what you've done in the past. If I look back, I think in the 2006 to 2008-2009 timeframe, you were running around 13% to 14% SG&A of sales. But over the last three years, 2013 to 2015, you've been closer to 17% on average and a little bit higher this year. I mean, when we look forward – and I know you're still going through the budgeting process, but can you get it back down to that lower double-digit level? Are we still looking at kind of a upper mid-teens percentage of sales for SG&A as we go forward? Samuel F. Thomas - Chairman, President & Chief Executive Officer: There's a balance between those two levels. We had consciously expanded our SG&A to enable us to go after the significant growth potential, particularly related to LNG markets. As that demand is tempered, we'll pull it back. There is a balancing act of trying to estimate how much capability to retain for future growth. We do believe we've got the business very well positioned, and we don't want to just exit those markets because we do believe there will be a normalization of oil prices and hence increased demand for our LNG offering. So I guess I would say I don't anticipate going back to the same levels, but I believe they will be lower than they have been. Chase A. Jacobson - William Blair & Co. LLC: Okay. And I guess along those same lines, I mean, if you look at the fourth quarter guidance, or the full year, where it implies I think a low-single-digit operating margin for the fourth quarter. And I know again you're not giving guidance for next year, but I mean with almost breakeven in the fourth quarter. Can you give us any help as to how we should interpret that for – as we look into next year? Samuel F. Thomas - Chairman, President & Chief Executive Officer: Well, I think that the best I can do is point to our order intake and backlog, pointing to lower revenues in 2016 and 2015. Chase A. Jacobson - William Blair & Co. LLC: Okay. And I guess one last question. I was interested in the comment – and we saw some news about the aftermarket business that you're trying to build up. Can you talk a little bit more about that? Maybe some ideas of when you think that could be more meaningful? What you're seeing early on? Any other color you could give on that would be great. Thank you. Samuel F. Thomas - Chairman, President & Chief Executive Officer: It's preliminary. We have significant customer interest and discussions, but preliminary to say that it would be significant business in 2016. Chase A. Jacobson - William Blair & Co. LLC: Okay. Thank you.

Thank you. And our next question comes from Pavel Molchanov of Raymond James. Your line is open. Please go ahead. Pavel S. Molchanov - Raymond James & Associates, Inc.: Thanks for taking the question, guys. First, about Magnolia, given that Magnolia has not yet finished its permitting cycle with FERC and the DOE, how are they in a position to place a firm order for equipment? Samuel F. Thomas - Chairman, President & Chief Executive Officer: They have enough equity capital to – and have committed to buy this equipment – in order to give them the ability to get online faster. Pavel S. Molchanov - Raymond James & Associates, Inc.: Okay. But if they don't get the permits, what would be the purpose? Samuel F. Thomas - Chairman, President & Chief Executive Officer: You have to direct that question to them. Pavel S. Molchanov - Raymond James & Associates, Inc.: Okay. Fair enough. Let me try a different one. Your book value right now is about $30 a share; the stock is obviously well below that. Bearing that in mind and the fact that your CapEx will be only $30 million next year, you're talking about being free cash flow positive. Are you feeling at all more enthused about share buyback? Samuel F. Thomas - Chairman, President & Chief Executive Officer: Our position hasn't changed. It's a topic of regular discussion with the board. We do have the ability to do that with our balance sheet and credit facility. But markets are tough, and we'll continue to evaluate and do what's best for shareholders, keeping a balance between share buyback as a potential and investments in the business. Pavel S. Molchanov - Raymond James & Associates, Inc.: All right. Appreciate it, guys.

Thank you. And our next question comes from Rob Norfleet of Alembic Global. Your line is now open. Please go ahead.

Good morning. This is actually Nick Chen for Rob this morning. Thanks for taking our questions. Samuel F. Thomas - Chairman, President & Chief Executive Officer: Hi.

Great. So just to clarify, first of all, something that was said earlier in the first question. Looking at the reductions in backlog in China, you commented that PetroChina now accounts for less than 10% of the overall China backlog. Is that correct? Michael F. Biehl - Executive Vice President & Chief Financial Officer: Yes, less than $10 million.

Less than $10 million. Michael F. Biehl - Executive Vice President & Chief Financial Officer: Yeah. Although, as Sam pointed out, they continue to give us new orders and they continue to take equipment from the backlog that we have.

Okay, great. That's very helpful. Thank you very much. In terms of capital allocation, are you seeing any sort of distressed or attractive targets in select markets right now? And would that be a priority use of cash? Samuel F. Thomas - Chairman, President & Chief Executive Officer: We are seeing offers of companies or assets for sale that are in financial distress. We evaluate all of them carefully. However, with the discipline that we exercise and the constraints on market share, I don't expect an enormous amount of acquisitions in that area.

Great. That's helpful. And then just, again, looking back at sort of the fixed cost absorption dynamic and the weaker pricing that's going on right now with margins, for E&C margins now in the sort of low 20% range, which is I think close to past trough levels, is the work that you're bidding on today similar to those margins or lower? We're just trying to sort of figure out the operating leverage of the business and what to expect in a low revenue environment. Samuel F. Thomas - Chairman, President & Chief Executive Officer: The blended rates – there is significant dispersion of the range of gross margins or pricing levels, but the blended rates would be comparable to that.

That's very helpful. Thank you very much. I'll hop back into the queue now.

Thank you. And our next question comes from Jeff Osborne of Cowen & Co. Your line is now open. Please go ahead. Jeffrey Osborne - Cowen & Co. LLC: Yeah, great. Good morning. I just had two questions. One is on the D&S side. I was wondering if you could just touch on what the exposure is to non-LNG applications? You talked about strength, Sam, in industrials and beverages, food processing, et cetera. Just can you remind us on how – what the level of investment or revenue that's coming through in that segment? And then, I had a follow-up, but I'll wait for the answer on that one. Samuel F. Thomas - Chairman, President & Chief Executive Officer: Well, I would guess that at this point something like 75% or 80% of our revenue and backlog is industrial gas related non-LNG. Jeffrey Osborne - Cowen & Co. LLC: Got it. That's helpful. And then I'm actually down in Dallas at the High-Horsepower conference that you're sponsoring this weekend, a lot of focus on marine. Can you just remind us on what your revenue content per boat would be, just roughly? Samuel F. Thomas - Chairman, President & Chief Executive Officer: That goes all over the map from the – depending on the application and the level of equipment we're providing in addition to a tank. But it could be anywhere from $0.25 million to $10 million or $15 million. So it's a pretty wide dispersion. Jeffrey Osborne - Cowen & Co. LLC: Very good. Thanks so much, guys. Samuel F. Thomas - Chairman, President & Chief Executive Officer: Thank you.

Thank you. And our next question comes from Anjali Voria of Thompson Research Group. Your line is now open. Please go ahead.

Good morning. With regards to your cost reduction initiative, do you have room to further idle or close additional facilities should you need to, or is the emphasis on head count reduction? In addition to that, if you could also speak to a D&S facility in China that I believe was slated to go online in Q4, could you update us on that as well? Samuel F. Thomas - Chairman, President & Chief Executive Officer: Yes. There are potential facility closures. We continue to evaluate them. The new facility in China, in Changzhou, will be operating – only parts of it will be operating at relatively low levels in 2016.

Okay, great. With regards to the BioMedical space, you highlighted a customer consolidation. Do you expect further softness in order flow, or could you sort of discuss how that should play out over the next few quarters? Samuel F. Thomas - Chairman, President & Chief Executive Officer: It is a dynamic situation. The customer consolidation that I talk about are in the home healthcare service provider space where you've seen a fairly regular stream of announcements of acquisitions and consolidation in that space. It's a – the market demand, the overall unit volume of respiratory concentrators is stable and growing at mid-single-digit rates, but there is significant competitive pressure. So it depends how successful we are in the marketplace and in providing superior products at the right pricing levels.

Is that translating into any price pressure as well? Or is this merely a market demand dynamic? Samuel F. Thomas - Chairman, President & Chief Executive Officer: Pricing in that market is very sharp and competitive.

Okay. Thank you very much.

Thank you. And I'm now showing no further questions at this time. I would now like to turn the call over to Mr. Sam Thomas for closing remarks. Samuel F. Thomas - Chairman, President & Chief Executive Officer: Thank you, Chanel. With the economic and energy price issues we've talked about quite a bit now being more persistent and expect to be longer than previously expected, we're actively working to continue to adjust our cost structure to reflect these challenging conditions. Chart provides excellent value to our customers, and we remain confident in the fundamental drivers of our business. We remain steadfast in our pursuit of our strategic goal of delivering long-term growth. Thank you everyone for listening today. Good bye.