Chart Industries, Inc. (GTLS) Q1 2012 Earnings Report, Transcript and Summary

Good morning, and welcome to the Chart Industries, Incorporated 2012 First Quarter Earnings Conference Call. 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 releases, 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 Friday, May 11. 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 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, the 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 statement. I would now like to turn the conference call over to Mr. Michael Biehl, Chart Industries’ Executive Vice President, CFO and Treasurer. You may begin your conference

Thank you, Laura. Good morning, everyone. I would like to thank all of you for joining us today. I’ll begin by giving you a brief overview of our first quarter results and Sam Thomas, our Chairman, President and CEO will provide highlights from the first quarter and comments on current market and order trends we see in each business segments. I’ll finish up by commenting on our outlook for the remainder of 2012. Reported net income for the first quarter of 2012 were $14.1 million or $0.47 per diluted share, first quarter earnings would have been $0.48 per diluted share, excluding the acquisition related earn-out adjustments of $0.5 recorded in the quarter. This compares to first quarter 2011 net income of $7.5 million or $0.25 per diluted share. First quarter, 2011 earnings would have been $0.30 per share excluding $2.2 million of restructuring costs associated with acquisitions. Sales for the quarter were $216 million. It represented an increase of 33% compared to net sales of $163 million a year ago. Improvement was driven by greater volumes associated with strong end market trends and acquisitions. Our gross profit for the quarter was $67.6 million or 31.3% of sales compared with $52.5 million or 32.2% of sales a year ago. We continue to progress with expansion projects at our E&C and D&S businesses, but we experienced some higher cost affecting gross margin as we build capacity to handle continued growth. With respect to the E&C business, sales increased 62% to $68.8 million in the first quarter as we ramp up production on major projects added to backlog over the last 1.5 years including equipment for the nitrogen rejection with integrated gas processes units in Qatar, natural gas liquids project in Saudi Arabia and LNG liquefaction in Eastern Australia, all which added $22 million in revenue during the current quarter. Gross margins improved to 31.5% in the first quarter compared to 27.8% in the same quarter of last year. In addition to improve volume, gross margin improved about 3.5% due to successful execution and completion of projects in the quarter including income recognition of project reserves as we performed better than expected on these projects. In D&S sales increased 43% year-over-year to $105.1 million in the first quarter driven by substantial growth in LNG equipment along with notable gains in industrial product sales. The acquisition of GOFA which closed in the third quarter of 2011 also accounted for approximately $5 million of the improvement. Gross margins for D&S declined to 28% compared with 29.6% a year ago. As mentioned previously, we are experiencing additional ramp-up costs as we expands capacity in China and North America in response to the growing demand for our products. In our Biomedical business, sales declined 10% to $42.2 million in the first quarter of 2012 compared with $47.1 million for the same quarter in 2011. The decrease is largely attributable to the timing of large orders in Europe and overall weakness in that region. We are also seeing order delays in the U.S. due to the phase in the Medicare competitive bidding impacting respiratory products. Biomedical gross profit margin decreased to 38.9% in the quarter compared to 40.3% for the same period in 2011. Lower respiratory volume, a weaker EURO and product mix contributed to the decline. SG&A expenses for the quarter were $40.6 million, up $5.8 million from the same quarter a year ago. The increase was due to the GOFA acquisition, increased stock compensation expense and additional employee related costs to support sales growth. SG&A as a percentage of sales was 18.8% compared to 21.4% in the prior year quarter. In addition, first quarter 2012, SG&A includes the acquisition related earned out adjustments of a $0.5 million. Net interest expense was $4 million, unchanged from the prior year quarter, however the current year quarter included $2.2 million of non-cash accretion expenses associated with the company’s convertible notes. Therefore, cash interest expense decreased to $1.8 million for the current quarter compared to $4 million for the first quarter of 2011. We also announced today that we have amended our senior secured credit facility, the amended facility consists of a $75 million term loan and a $300 million revolving credit facility. This increases the facility to a total of $375 million from $200 million and also extends the maturity two years to April, 2017. The amended facility includes more favorable terms, lowers our borrowing costs and provides expansion option for up to an aggregate of $150 million in term loans and our revolving credit commitments with the existing or potential new lenders. We believe this amended facility will significantly improve the company’s flexibility to grow and adds liquidity to our already strong balance sheet. The amended facility includes financial covenants related to our leverage, interest coves that are the same as our prior facility. I’ll now turn the call over to Sam Thomas.

Thank you, Michael. And good morning, everyone. Overall, we are very pleased with our first quarter operating results, a strong overall performance across our E&C and D&S segment that’s a reflection of our ability to position the company to benefit from the systematic shift in demand for energy infrastructure equipment. Since Chart’s an integrated supplier of equipment to stakeholders across the entire LNG value chain, we continue to benefit from the increased use of natural gas. As you know our equipment is used in processing, liquefaction, distribution, storage and the end use of LNG. For the first quarter of 2012, orders were a record $385.1 million, which is up 69%, sequentially from the strong quarter intake we saw in the fourth quarter of 2011. We set quarterly order records in both E&C and D&S groups. Our E&C business received 2 significant orders this quarter, both of which were related to large-scale base load, LNG liquefaction projects in Australia. This quarter we also marked an acceleration of orders in our D&S group particularly for LNG related equipment in North America. Biomedical orders were weak in the quarter, primarily in Europe. As Michael pointed out, we have also had some impact from the phase-in of Medicare competitive bidding in the U.S. creating changes in respiratory equipment order patterns. As demand for natural gas continues to increase, we expect to be operating at record levels. We’re taking the necessary steps to grow our work force and expand factory capacity. Our expansion plans are progressing as expected. We are very focused on hiring and carefully training qualified personnel and they will be essential for Chart's long-term success. The building addition for the New Iberia, Louisiana plant expansion was completed on schedule at the end of March. The next phase includes a new lay and yard and it’s expected to be completed by the end of June. Phase I in 2012 of the D&S, China expansion is complete and we have successfully transitioned our transportation equipment in an expanded leases facility. Phase II includes the addition of a new wholly owned building with construction expected to be complete by the end of the third quarter. Distribution and storage U.S. expansion includes a leased facility in Minnesota. We expect that facility to be fully operational by September, but we’ve already started shipping product out of that facility during the first quarter. We will be expanding our New Prague, Minnesota facility in 2012 as well. We have and will continue to face some pressure on operating margins in 2012 due to higher employee training costs combined with additional general administrative and overhead expenses, as we have previously indicated. Let me comment now on each of our business segments. Within energy and chemical, demand accelerating across all product lines, activity is primarily due to the ramp-up of final investment decisions in global scale LNG liquefaction, especially in the Australian Pacific region. This previously announced, first quarter orders included a contract award for $110 million for liquefaction equipment for the Wheatstone, LNG project. We also announced today a receipt of another order in excess of $40 million for an LNG liquefaction project in Eastern Australia. We recorded $9 million in small LNG liquefier orders from China during the quarter and we expect it to be a growing opportunity for us. Finally, in North America, orders and inquiries for national gas processing and natural gas petrochemical projects are robust. With respect to distribution in storage, we received record orders in the first quarter driven by demand for LNG filling stations and LNG vehicle tanks in both the U.S. and China. Chart has been a leader in LNG technology for decades and our experience has given us a strong competitive position. The result of our efforts to position this business are being able to show and we reaffirmed our strategic path of vision to grow as the leading integrated supplier for LNG applications. Distribution and storage book $42 million of LNG related orders with strong growth in North America. The build-out of infrastructure for LNG filling stations in the U.S. has accelerated in the past few months. We believe customer order activity will continue to grow as engine options improve and heavy duty trucks leads to convert to run on cheaper, cleaner, natural gas. Our industrial gas business has also been strong. We believe U.S. manufacturing is recovering nicely, especially energy and intensive industries. Lower energy input costs in North America should drive increased usage of industrial gas products and, in terms global demand for our core products across a broad spectrum of manufacturing industries. We believe industrial gas usage per capita in Asia is growing nicely. Comments from our customers indicate that despite the tightening by China’s Central Bank, Chinese industrial companies are growing and are finding ways to use industrial gases to improve efficiency in their processes. Our Biomedical business experienced some weakness in the first quarter. The timing of large orders and overall weakness in the European market has impacted particularly the respiratory business. The phase-in of Medicare competitive bidding in the U.S. has also impacted us during the quarter. Now that suppliers must compete to be contract suppliers under Medicare and this has delayed orders with a number of customers who are in the process of becoming qualified. We believe the European market and Medicare competitive bidding in the U.S. are more timing related issues and expect to rebound over the remainder of the year. I should also point out the weaker euro continues to effect average selling prices when translated into dollars. Most of our biomedical products are manufactured in the U.S. We incur costs in dollars which has also pressured margins somewhat. Our business continues to command attractive overall margins, produce a strong cash flow and is repositioning itself with new product development and geographic expansion opportunities. Mike will now provide you with our outlook for 2012.

Thanks, Sam. Our first quarter results are strong as we anticipated. The business is growing profitably and our expansion plans are progressing on schedule. Our expectations for continued growth in 2012 and in the future have not changed. Therefore, based on our current backlog and order expectations, we are reaffirming our 2012 sales and earnings expectations. Sales for 2012 are still expected to be in the range of $950 million to $1 billion. Also full-year diluted earnings per share for 2012 are still expected to be in the range of 260 to 290 per diluted share based on our outstanding weighted average shares of $31 million. We still expect a full year effective tax rate in the 30% to 32% range. Our earnings range includes the impact of our amended senior credit facility announced today, in addition to the acquisition related earn-out adjustments recognized in the quarter. I’d now like to open it up for questions. Laura, please provide instructions to the participants to be able to ask questions.

[Operator Instructions] And our first question comes from Jeff Spittel of Global Hunter Securities.

I thought maybe we could start off with natural gas processing in North America with the shift going onto the more liquids intensive plays. And correct if I am wrong, I think there is a little bit of a product mix benefit for Chart specifically there. Could you give us a sense of how quickly that is growing and it may be rough orders in magnitude of how big that business could be over the next 1 or 2 years?

Sure. We have seen the natural gas processing market for the U.S. or for North America grow consistently over the past 2 years is as major E&P producers began their shift from dry gas drilling to focusing solely on either oil shale or high-liquids content natural gas. We’ve seen a ramp-up of all of our various customers producing both custom and standard gas processing plants. I would say that that’s been one of the leading strong spots and they continue to have robust forecasts and robust order patterns. So that, we can continue to see our backlog grow in those areas. I would estimate right now that it’s running within natural gas processing for North America, sort of a $50 million to $75 million range for us. And I anticipate some growth in that and also current projections are that, that will extend out for a number of years.

Excellent. And then shifting over to the capacity expansions, obviously, you guys have been talking about this and articulated that you saw a lot of this award flow coming on the large scale LNG front and in the other complementary businesses. I sometimes get the question with North American liquefaction potentially being in play here, would you be in a situation where you might not be able to accommodate all of this award flow? My response has generally been, no, I am pretty sure they are on top of this and they have seen it coming. Is there anything incremental if the market continues to accelerate that you think you might need to do from a capacity standpoint, or do you think what’s currently in place is more than sufficient?

If I could go back 6 or 12 months, I would have accelerated some of our investment expansion decisions. Our lead times have gone out a bit and we’re working very hard to add incremental capacity in order to bring them back in as well as looking at more significant capacity expansions that will take us 12 to 18 months to fully execute on. So based on the current environment I would like to have more capacity, but we’re well in process to do that.

Certainly a high-grade problem to have. Another great quarter.

Our next question is from Tom Hayes of Thompson Research Group.

I guess my first question is just kind of on the pricing environment. You announced recently a price increase in the D&S segment, I was just wondering if you could maybe expand on your thoughts on that and what it’s going to cover and impacts on the balance of the year?

The pricing environment, as you are well aware, we’ve got it from a period in 2008 with robust demand through a trough in demand in 2009, early 2010, which has recovered quite quickly late in 2011 and 2012 ramping up somewhat faster than we anticipated. There has not been the extent of raw material price growth that we had in that 2007, 2008 time period. The consequence has been that within the distribution and storage, due to some changes in efficiencies we’ve had, prices are actually lower than they -- significantly lower now than they were in the 2007, 2008 timeframe, but costs have grown. The announced price increase reflects that but even with that increase, we’re still at pricing levels below where we were. Compensating for that, raw material prices are lower. We believe we will be able to improve margins going into the latter part of the year on the basis that prices will be reasonably stable or improving somewhat and that raw material input costs will be relatively flat or perhaps some softening.

Okay. Great. Thanks. And maybe a follow-up to Jeff’s question previously on the capacity expansion, I was just wondered if you are willing or capable to talk about maybe kind of a percentage of capacity that you are adding. Are you adding, 10%, 25%, 50% capacity to your current levels?

Generally, on the basis of continuance improvement activities within our existing footprint and by adding people, we are in process adding on the order of 25% to 35% capacity. Our capacity additions in terms of new plants or new lease plants generally are aimed at 25% to 40% capacity of additions on top of that.

Okay great. And to follow-up with Michael, can you just maybe provide your thoughts on CapEx for the year?

We would expect to be right now somewhere between, high 30s, up to $50 million for the year.

Yes.

For some of the expansion projects, ones that we are currently taking a look at.

Great. Thanks, guys, congratulations on the quarter.

The next question comes from Rob Brown of Craig Hallum.

Good morning. You mentioned small scale liquefactions projects in China, could you just give an update on whether that’s a new products and then what the potential of that is?

It’s not a new product. It’s an extension of the technology we’ve used for the past 25 years in small, small-scale plants for peat shaving in North America. We have been selling the heat exchangers and coal boxes and ramping that business up for about 5 years in China. The process is accelerating. So that we expect roughly 50% increase in 2012 in orders booked over that and was booked to 2011 and anticipate that based on China exploiting its current conventional natural gas stranded gas fields that it will stay at those 2012 levels or continue to grow slightly for 3 or 4 years and depending on the speed with which China is able to bring its coal bed methane and shale gas reserves to market would extend that time period significantly.

Okay good. And then on the kind of how the year lays out, how your margins sort of right now are little depressed, how do you see your, I guess, your positive revenue and margins playing out through the quarters, for the rest of the year? Should we think they are more much more back-end loaded or is it, or is a little more moderate?

Yes I mean second and third quarter is generally our strongest quarters. We would see D&S improving as it left through the year and BioMed certainly improving as we go through the year. E&C, as you know, with the percentage of completion and the large orders that we have in there can bounce quarter to quarter, but we expect them to improve sales as we move forward. And in terms of margins, on the E&C side, certainly expectations both on BP and CEN and D&S is that do average sort of in the high 20s, on an average basis for the year and BioMed, sort of that 40% range. So as we have seen historically. So all in all, combined, sort of 31% range on a gross margin basis. And then on an operating margin basis E&C and D&S sort of in the high teens, and BioMed sort of the low 20s and overall when you factor in corporate expenses would be sort of in the 14% to 15% range for an operating margin.

Okay. But you think you can get the BioMed back to that 40% range even though it was little lower than that?

Yes.

And our next question comes from Eric Stine of Northland Capital Markets.

Just wanted to touch on the competitive environment a little bit, I know you have been talking that you would like to have more capacity, taking steps to do that. Fair to say the industry is in that same situation and then just curious how you think that might impact the timing of some of these large projects, whether domestic or international moving forward?

Certainly across both our distribution and storage and E&C business, industry capacity is more fully utilized. So, I think that there is a tremendous benefit available to us for being able to execute on expanding our capacity and improving our deliveries to customers and that’s what we are focused on.

Is this -- I guess I am curious also your ability to handle some of the quick turn, higher margin business. I mean I would assume that’s limited somewhat here in the near-term given the expansion but just how that is now, ability to fit some of those projects in and how it plays outgoing forward.

You are right Eric. Our ability to do that is somewhat constrained. But we focus a lot of attention on having that capability available and work very hard to have flexibility to meet customer demands.

You have got a little bit of room or some flexibility to do that now but obviously that gets better going forward?

For the next couple of quarters, it’s very tight.

Okay. Understood. And then last one for me just on the D&S side, you did provide some color on the orders and that was an extremely strong number. And I know this is historically sometimes a seasonally low quarter for that segment. I was just wondering if there were any specific things driving that in the quarter or if this is kind of the new normal going forward.

Well, excluding the large LNG project releases, it’s a bit of a new normal. Although, with that influx in the first quarter, causing us to quote larger lead times, I would, I don’t expect it to continue at that pace over the next couple of quarters. I would expect that order intake and our shipments would be -- would reasonably match each other, so that I wouldn’t anticipate significant backlog growth over the next couple of quarters.

Okay. Understood. Congrats on the quarter.

And the next question is from Greg McKinley from Dougherty & Company.

Could we talk a little bit - as I just look at your expense levels by segment. We had in the energy and chemicals business, we almost doubled our revenues year-over-year and our operating expenses were essentially flat. I know, Michael, you made some comments about where you think operating margins might pan out by segment as the year unfolds but similarly flat operating expenses and distribution and storage as well. So I guess the implication is there is going to be more additional investment in those segments later this year to support the volume, we are expecting. Am I correct in that interpretation? And then…

Yes. I mean...

What’s that -- maybe some examples of what that is?

Includes adding people and as we go forward, provide the infrastructure and really drive the sales growth, which we have continued to do and not only at the business units but even at the corporate level, to provide the infrastructure for long-term growth of the business that not really just for 2012 but beyond that, that we are looking beyond in 2012 as to where we need to take it.

So it’s more personnel at these facilities. Would you say that’s a larger driver of your infrastructure investments this year rather than, I guess, in terms of things running through the P&L rather than, let's say like, adding fixed overhead from facilities that may not get absorbed into product costs or something to that effect?

I think it’s a combination of both because you have people, but if you look at, Minneapolis, the Owatonna facility that we are ramping up. Obviously, we are adding fixed overhead in that facility and it’s not completely operational yet. So that’s an example of some of the things they are doing and have a lot of training costs involved in training new people that have come on board that will operate, how it operates in a quality conscious mode. So that’s, something that’s being incurred, you know, really across the whole business.

Okay.

I think it’s important to point out that our customer base in this growing natural gas-related and LNG market are very large, sophisticated companies that have demanding requirements in terms of quality safety, environmental and health, which drives year-end costs significantly as we are ramping up to deliver those. Because it’s critical that in this growth phase of LNG infrastructure that there be no mistakes and no accidents?

Yes.

And we are trying to grow to make sure we do that safely and successfully.

Okay. That’s helpful. Thank you. And then, on -- in the D&S business, if we look outside of LNG, anything in Europe related to just economic headwinds in the industrial market over there that’s causing any differential versus how you looked at that business initially because obviously order intake and revenues there were very strong for D&S overall, just wondering if that element of the D&S business is performing differently than you might have thought?

The Western European market for industrial products and some of the speed of LNG related applications are muted because of the uncertainty and economic conditions in Europe. Our ability to perform to our expectations in 2012 is not completely dependent on European markets because we are using that capacity to actually meet demands in North America, South America, and Asia. So, still feel confident about our results from Europe. With respect to GOFA, the trailer acquisition we made, we have seen good demand for industrial gas and LNG related applications from that facility and there is also the ability to use its capacity outside of Europe. We have seen softness in some of their more traditional transportation products or the Western European market.

Our next question is from Chase Jacobsen of William Blair.

Just another question here on the capacity in terms of, you have talked a lot about the physical fabrication and manufacturing capacity. But when we look at engineers, have you seen any change in the hiring environment of new engineers over the last several months, given the opportunities or the strength in the U.S. energy markets right now?

Yes. Clearly, engineers that are involved in equipment design and projects for energy-related applications and natural gas related applications are in demand. We have effectively dealt with that by ramping up our training capabilities so that we can bring engineers that don’t necessarily have that specific natural gas processing or cryogenic experience up to speed quickly and by doing it at a number of sites outside of the Houston Gulf Coast market in addition to continuing to do it there. But, yes, engineers and welders are a constrained resource in North America particularly on the Gulf Coast.

Okay. But it sounds like for now you have growth...

We're dealing with it effectively. If I had more people available, we could use them productively.

Okay. And then question on the E&C side of the business. You rather obviously had some nice, large LNG - base load LNG orders this quarter and the last few quarters. Can you give us an update as to what the mix is in the backlog in terms of large baseload equipment versus the small and medium equipment? And, also, I don’t know if you disclose this, but what the recognition of reserves was on closing out projects in the quarter for that business?

In terms of E&C’s backlog it is $390 million in total. Approximately $160 million of that or $150 million of that is in large scale LNG liquefaction. Roughly another $120 million is associated with global scale natural gas processing, perhaps slightly higher numbers than that for global scale natural gas processing. And the balance is spread across smaller air separation, petrochemical and natural gas processing applications.

Okay.

In terms of the project reserves, in the quarter, that improved margins, it was somewhere in the $1 million range.

Okay.

And gross profit, and where we execute better than expected.

Okay. And last question here, on looking at the U.S., seeing a lot of new petrochem expansion projects popping up, can you just give us a sense as to, you know, maybe what type of -- what the size of your opportunities might be on some of these petrochem expansion projects?

Yes. We provide coal boxes for both ethylene expansions, for ethylene production from ethane or natural gas liquid stocks and, also, for propane production from the propane de-hydrogenation process so basically with propane as a feed stock. There are, I think, 2 to 4 projects that are in backlog and announced projects, project opportunities of perhaps another four to eight over the next 12 to 18 months. And those are generally opportunities for us each in the $10 to $15 million range.

The next, we have a question from Dan Herbert of Delta Partners.

A question on the U.S. transportation side. You talked about that, ramping up significantly. I assume you are talking about LNG fueling stations for on-road transportation. Is that all one -- is that predominantly with one large client or customer, or is there - are there other people participating in this?

With respect to orders, it’s associated with 2 significant customers, both of whom have made public announcements.

Okay.

That they were being those fuel stations. There are also inquiries and fairly advanced discussions of planning for perhaps 4 to 5 E&P companies and an additional four to perhaps as many as 8 existing fuel stop operators looking at expansion of and providing fuel stations for LNG or LC&G stations.

Okay. From the E&P companies, is your sense they are just looking at building self-source stations, or are they also looking at something broader than that?

The approach of the E&P companies have been very much one of providing the seed level of investment to get over the chicken and egg of enough LNG liquid distribution and that liquid being available.

Certainly, it’s not just exclusively for their own fleet’s use?

That’s correct. Most of the projects that we’ve been involved in, there is a mix of them providing some base loading for their own usage and to stimulate the infrastructure, but they are also typically, we are designing all of these stations so that they can be public use.

[Operator Instructions] And our next question comes from Jagadish Iyer of Piper Jaffray.

Two questions. First, you talked about the LNG fueling station. I was wondering whether you could provide us some color in terms of the average opportunity for you guys on the per-station basis so that we can kind of get an understanding of how this is going to expand? And as a follow-up to that, I just was wondering, like in your estimate, where are we with regard to the diesel guys? I mean the trucks trying to do this conversion to LNG. Where are we in terms of the adoption and where do you think it’s going to take us in ‘13 and ‘14? And I have a quick follow-up after that.

Okay. With respect to opportunity for fueling stations, I would say that you can think of the opportunity to forward chart of putting a dispenser along with the associated storage tank and pumping at an existing truck stop as being in the $1.5 million to $2 million range, if we provided the entire package, which we do but we also often times provide just components. For instance, the storage tanks for others to do the complete installation. And there is a full range of possibilities for Chart there. But the average opportunity perhaps would be in the $500,000 to $750,000 range. And that’s for a single dispenser station. As we have built dispensers of perhaps 8 dispensers at a site for a fleet, the opportunity would grow significantly to perhaps being in $8 to $10 million range.

Okay. On the diesel conversion to LNG, where are we in the cycle please? Are we in the early innings? Where are we? And I just wanted to understand the long-term secular growth here?

We are very much in the early innings with respect to North America. In particular, the Cummins 9-liter engine which provides roughly 325 horsepower is widely available and it prices at a very small premium to a diesel engine. Their production continues to grow. Cummins along with several of the other diesel engine manufacturers are in I would say late stage development programs with engines running on the road and intentions or announced plans to have production engines available latter part of 2012, 2013. So that, when you get to 2014 model year, you should have the capability for producing thousands of diesel engines annually or higher with, meeting all emissions requirements as well as providing the full range of horsepower and torque options to take you up through Class A trucks.

Just a quick follow-up for Michael, just on the biomedical side. Michael, how should we not think about, you expect a bounce back, how should we think about the overall year-over-year growth for the biomedical segment and where do you think specifically gross margins could go from the first quarter through the year? Thank you.

Go through the year, sales we’ll, we expect them to ramp up in the second and third quarter which is usually their strongest quarters. They will sort of be in the, 200 to 210 range in terms of sales through the years. Wes till expect and on the gross margin as I indicated before, they should, get back to an average for the year of about a 40% gross margin and, low 20s operating margin for the year.

This concludes our question and answer session. I would like to turn the conference back over to Sam Thomas for any closing remarks.

Thank you. Major investments in natural gas and LNG are underway around the world. It’s especially exciting for us because Chart is involved in virtually every link of the LNG value chain. Our experience and our commitment to the highest standard of quality bode well for the continued success in the current growth cycle. We remain excited about our prospects at Chart Industries going forward. Thank you all for listening today.

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.