Good morning and welcome to the Chart Industries, Inc. Second Quarter 2018 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. The Company's earnings release 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, July 26th. 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 the important factors that could cause actual results to differ materially from those expressed or implied, 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. The filings are available through the Investor Relations section of 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 over to Jill Evanko, Chart Industries' President, CEO and CFO. You may begin your conference.

Thank you, Michelle. Today, we'll provide details of our second quarter results, market and order trends, and an updated full year outlook. In order to facilitate the discussions on our second quarter 2018 results, we have included a supplemental deck as an exhibit to this morning's press release, which I'll reference throughout the call. The deck can be located on our website under Investor Relations. Starting with our second quarter of 2018 results on Page 3 of the supplemental deck, sales of $319.9 million increased 14% over the first quarter of 2018. All three segment sales increased over the first quarter by 12% or more. Favorable market tailwinds combined with specific wins in LNG vehicle tanks for trucking in Europe, air cooled heat exchangers for natural gas processing and space applications are driving the increases. We expect favorable margins across each of our three segments to continue throughout the remainder of 2018. Compared to the second quarter 2017, sales increased 34% or 14% organically. The year-over-year increase in revenue was driven by energy and chemical, increases in demand for equipment, for natural and industrial gas applications, distribution and storage, packaged gas volume, LNG vehicle tank, and increases in parts, repair and aftermarket as well as the release of the new portable oxygen concentrator in BioMedical. The growth in sales reflects continued strength in orders across all three business segments in the first half of 2018. The second quarter of 2018 is our sixth consecutive quarter of sequential order growth with 12% growth over the first quarter of 2018, and sequential growth in orders in all three segments. Orders increased 43% or $107.7 million above the second quarter of 2017 and included $92.2 million of Hudson orders. Hudson had a $28 million orders for air cooled heat exchangers on a larger…

[Operator Instructions] Our first question comes from Matt Trusz of Gabelli & Company. Your line is open.

Jill, as you highlighted, there’s just a significant order growth in the first half of this year and coming from a diverse range of sources. As you see it today, do you see all these pieces coming together for the same cadence of growth to continue in the second half? And then of the opportunities you mentioned, are there specific drivers you’re focusing on?

So, yes we would expect to continue to see this level of orders, but normalized for the three specific large orders that I called out, in the DNS and the E&C segment. So if you do that and pull that through Q3 and Q4, we’d be at pretty similar levels. And then the second half of our question with respect to specific areas that we’ll focus on, we’re continuing to focus on our European LNG vehicle tank opportunities as well as some of the LNG bunkering and ship opportunities that I just described. On the E&C side of the business, we’re continuing to see demand on the natural gas processing side of the house as well as starting to see engineering work on the larger projects.

And then also congrats on your new role and the results you’ve had in the last year and a half. I was wondering if you could provide any more color on the recent transaction just with respect to reasons why the Board fired the prior CEO. It appeared I guess abrupt the external observers?

Yes. So, let me start by addressing the fact that this was not a one-off event. There was no financial fraud or any other type of unethical event that caused the change. The Board made a decision with respect to the prior CEO's leadership style, and while there’s never a good time for an executive change such as this, the decision was made to do at this point in time once they had decided to move ahead with it. The other element to this answer is that, the remainder of the senior leadership team that I just described on the call with the three segment presidents, our CHRO and our legal guy, we will continue to move forward with the strategy as we laid out, we all participated in developing that strategy that we talked about at Investor Day in early June, and now we plan to continue to execute upon it with no significant changes to what was described.

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

Maybe just on the LNG vehicle tanks I know in the prepared comments you talked about some specific wins, but obviously given your optimism, it's also is it the more broad market trend. So maybe just talk about, if you could, what you’re seeing there? And I also know in the past you’ve mentioned that you completed the expansion and it might not be that long before you need to look at another expansion so just maybe some thoughts on that as well?

Sure. So, yes the market is going very strong on that LNG vehicle tank side, in particular geographically in Europe, we’re not seeing it in U.S. or in China right now, but there’s future potential for that market to the size of that market to increase kind of from the 50 million to 75 million on annual year to another 40 on top of that if China starts to move in that direction. So, overall, we expect that level to continue for 2018 and through 2019. Certainly, from a longer term outlook, we’re having conversations with our customers around what does the next five year level look like and that will drive our decision making around further capacity needs. Right now, with the completion of the capacity expansion in Georgia that I described, we do have enough capacity to fulfill the demand that we have already in backlog as well as the additional demand that we’re forecasting for 2018 and 2019. So, once we have a better view of the three years beyond the next two that would drive our decision making around further capacity needs.

And maybe just turning to China and just to confirm, I think you said it was profitable in the second quarter, but just curious about, is it still the expectation for the full year? And I know that that’s a key variable in your tax rate expectations for 2019? I think you said 22% for the overall in the past?

Correct, yes, so we continue to expect 22% starting for full year 2019, we do expect that operating profit positive will continue for the second half of the year. I will caveat my answer with when I say operating profit positive we’re not talking about millions of dollars, we’re talking about 100s of 1,000s of dollars versus larger numbers. So, we’re still writing the line there, but we’ve good actions in place that we’ll continue to drive that positive with the order trends in China and about 50 million in backlog there, we expect the volume to continue at levels that keep that positive.

Maybe last one for me just Hudson, I mean good to hear that air cooled heat exchanger order there. I mean is that the typical -- I mean, is this kind of a typical content level if you were to get world there? I mean, should we think about this as incremental to -- at the Investor Day you gave the big list and talked about if its IPSMR could be a 150 million to 500 million. Should we view Hudson as incremental to those types of projections?

You should, yes. So, what we provided at Investor Day did not have Hudson included in those numbers, and generally speaking using our kind of 20 million to 100 million additional increment depending on the size of the facility and the customer would be safety use for Hudson.

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

Sticking with Hudson, maybe you could just -- you kind of alluded to some of the revenue synergies possible there. Could you just kind of sketch out what might be some opportunities there? And what you’re seeing developed now that you’ve had it for a while?

Yes, absolutely. So, the most significant revenue synergy opportunity really is on these larger LNG projects, bringing Hudson through our relationship, our legacy E&C relationship with customers is what’s driving that. The other element is, Hudson does have a different set of top 10 customers on the air cooled side, then Chart legacy air cooled heat exchangers does. So that gives us opportunity from a cross selling perspective which would be smaller than the orders that we’ve described today but still considerable revenue upside opportunities. Historically, we’ve chosen to speak strictly to the cost synergies, but now that we’re seeing that leverage from the acquisition we felt good time to share that.

And then you talked a little bit about the service business or uptick strength. I guess now that you’ve had the acquisitions integrated. What are you seeing there? And what’s the opportunity for the service business growth going forward?

Yes, so, parts repair service, aftermarket as a lump number for Chart is about 13% of our total revenue right now. As we put out just in early June, we expect that to be over 20% of our revenue in the next three years. These acquisitions folded very nicely into our current parts, repair and service business within DNS. So for DNS, it’s definitely smaller than E&C in terms of the aftermarket side, but we’re expecting double digit growth on the parts, repairs, service side in 2018 in the DNS segment which is right in line with our expectations for what we had paid for these acquisitions.

Our next question comes from Martin Malloy of Johnson Rice. Your line is open.

First question, I just wanted to ask about the LNG bunkering facilities, and I know you’ve had strong demand in Europe. Are you starting to see bidding activities or opportunities outside of Europe? And are these related to IMO 2020?

So, the primary bidding activity we’re seeing is in Europe right now. So, I don’t want to oversell the other regions, but we are seeing a pretty active pipeline, can’t share the specifics around the given the customer confidentiality, but it is activity that’s picking up. To be clear and reiterate my earlier comment, these would be orders and activities starting in 2019, the driver is primarily the regulatory environment, so you’re correct on IMO 2020 being a driver, there’s a little bit of wait and see attitude right now in terms of whether the enforcement is going to happen in 2020, but certainly a very active pipeline, more active today than it was six months ago.

And then second question just on the E&C margins, maybe could you help us with what we should look for second half of the year what could be similar drivers. Was there any negative impact from the capacity expansion being finished up at La Crosse and Skaff in that? What can we -- what should we think about in terms of second half of the year for E&C margins?

So think about the full year for E&C about 24% to 25% on the gross margin side, and in terms of anything negative, the La Crosse facility continues to be doing great and we did not see anything negative from that capacity expansion, we’re very excited about that being completed. But if you look at first half to second half, we would expect 200 basis points of gross margin improvement in the second half over the first half in that segment.

Our next question comes from Walter Liptak of Seaport Global. Your line is open.

I wanted to ask you -- you’ve got into a lot of detail about the Hudson orders, but I wondered if I can just ask the question maybe in a different way. How much of the growth is market-related versus sales synergies? I am sure it’s probably a combination of both with higher production, but how much of these wins would Hudson have gotten without being part of Chart?

So, let me answer your question specifically to the two orders that we called out today. The $28 million order would not have happened if Hudson were not part of Chart, the $13 million order that would have happened. So, it’s kind of the specific ones that are synergistic from the acquisitions will be clear going forward on whether they would have had it or not but the 28 was definitely the result of being part of Chart.

And when you look out over the next six months, I think there’s a -- not favorable -- would you say there’s more opportunity just from the market picking up, the sector getting better or from sales synergies?

For the second half of the year I think it’s from the market more so than sales synergies, but for 2019 there’re specific projects that we’ve line of sight too, which we’re already in conversations about that are synergistic from the deal.

And then last, there hasn’t been any discussion about price cost yet but obviously your experienced material inflation. How did you feel about the price increases that were contractual or not contractual during the quarter? And what are you thinking about pricing in the second half?

So, we are -- in our forecast, we’ve included the levels of commodity pricing that we’ve seen in the second quarter, which on the majority of them have been at higher than typical level, so that’s reflected in our full year forecast. We do have mechanisms in DNS as well as in E&C that have come in form of protection for us around material escalation, but we also plan targeted price increases for pass-through starting in September in certain pockets of the business which our customers are aware of.

Our next question comes from Pavel Molchanov of Raymond James. Your line is open.

At the Analyst Day, we talked about the impact of at the time 25% steel tariff, as of two weeks ago there’s an additional 10% tariff on steel vis-à-vis China. Obviously, these things tend to compound, and I am curious kind of what the impact on cost of goods might be from this cumulative impact in the second half of the year and into 2019?

So as in my last answer around the protection that we’ve in our contracts as well as with the projects that we do in E&C gives us some air cover on that, also where we source from geographically makes a difference, we source quite a bit of our fuel in the United States and in Canada, there -- from -- built into our forecast perspective we’ve built 50 basis points of negative margins into the aggregate forecast, there’s certainly pockets around that which we don’t share the details on our spend. But we have that -- we’ve mechanisms to cover that as well in some of the productivity areas that we’re working on. There depending on future tariffs and some of the discussions that are out in the news right now, could cause us to be thinking about where do we source as well as where do we ship from, the good part for us is we do have manufacturing locations in the key geographies that we need to be in and we’ve a flexible capacity to be able to accommodate to that.

And then just quick follow-up you may have mentioned it’s earlier, but the $28 million LNGO order in Hudson was that Cheniere’s Corpus Christi?

I can’t provide who that was, but it was for a larger LNG that’s already underway.

Our next question comes from Tom Hayes of Northcoast Research. Your line is open. Tom, if your telephone's muted, please unmute. There’re no further questions, so I'll just turn the call back over to Jill Evanko for any closing remarks.

Thank you, Michelle. Our second quarter and first half 2018 results reflect our productivity and execution in our favorable markets as well as the opportunities generated from our new product pipeline and recent acquisitions. The increase to our full year sales and EPS guidance reflects the first half strength as well as our expectations for strong second half of the year given the past nine months of order activity across all three of our business segments. Year-to-date free cash flow generation of $28 million continues to support our strong balance sheet and allows further investment in targeted strategic growth areas. Thanks everybody for joining us today. Good bye.

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program and you may all disconnect. Everyone, have a great day.