Welcome to the Chart Industries, Inc. 2016 first quarter conference call. All lines have been placed on mute to prevent any background noise. After the speakers there will be a question-and-answer session. As a reminder today's calling is being recorded. You should have already received the Company's earnings release that was issued earlier this morning if you ever not 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 the atomic. The replay information is contained in the Company's earnings release. Before we begin the Company would like to reminder you that statements made during today's call are not historical and a 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. For furthermore information about important factors that could cause actual results to differ materially from those expressed or imply in the forward-looking statements please refer to the income regarding forward-looking statements and Risk Factors excludes in the Company's earnings release an latest filing with the SEC. These are available through the Investor Relations section of the Company's website or the SEC website Web the Company takes publicly or revise any forward-looking statements. I would now like to turn conference call over to Ken Webster, Chart Industries Vice President and CFO. You may begin your conference.

Thank you, Eric. Good morning everyone. I would like to thank all of you joining us today. I would begin by giving a brief overview of our first quarter results and outlook for the remainder of 2016. Then Sam Thomas will provide comments on current market around order friends we see in each of our business segments. Net income for the first quarter of 2016 was a loss of $4.7 million or $0.15 per diluted share. This exclude severance and other restructuring costs and cost reduction initiatives and acquisition-related costs recorded in the quarter of approximately $4.3 million. During the quarter we also finalized and insurance settlement related to flood damages incurred at one of our European operations in 2013 which favorably impacted gross margins by approximately $1 million. Excluding these items first quarter 2016 earnings would have been a loss of $0.8 diluted share. This compares with net income of 5 4.2 million dollars or $0.17 per diluted share for the first quarter of 2015. First quarter of 2015 earnings would have been $0.19 per diluted share including the $0.2 impact of restructuring and acquisition - acquisition-related costs including facility shut down costs in the prior-year period. Sales for the quarter were $193.8 million, a decrease of 20.9% from the prior year quarter. This was largely due to a decline in energy-related sales in our energy chemicals or E&C business as customers continued to there a and defer projects due to uncertainties around oil prices. Our gross profit for the quarter was $52.7 million or 27 4.2% of sales compared with 7 $2.5 million or 29.6% of sales a year-ago. Overall our gross profit was down due to lower sales volume and higher restructuring related costs. Orders received in the first quarter total add $199.3 million down sequentially from…

Thank you, Ken and good morning, everyone. We entered the quarter with approximately $160 million of cash from strong operating cash flow in the quarter due to timing of project payments and collections. We continue to demonstrate our ability to generate solid cash flow despite weak energy markets which highlights the diversity of our business given our industrial, life science and respiratory offerings. In addition, our global footprint highlight our geographic diversity. The D&S business in the U.S. and Europe had a great quarter despite the restructuring efforts which help offset the continued weakness in China. We also saw strong revenues in our life science product within our BioMedical segment across all regions. The macro-environments challenging. However, the new Management Team we put in place D&S decline late last year has done a great have been at right-sizing the business and making necessary changes to focus on operational improvements. Last call we implemented a number of different cost reduction action during the first quarter. This includes the closing of satellite sales offices an headcount reductions targeted at SG&A including executive. We continue to restructure our business to improve efficiencies and reduce costs and we'll take further actions as necessary. At the a same time we're retaining key employees for when market conditions improve particularly around our engineering and project execution capabilities with E&C. We continue to see for large project opportunities in E&C is very well-positioned to benefit when the market turn and we're committed to the long-term despite the current energy downturn. We remain confident in our long-term fundamental drivers of growth. Our industry and regional diversification gives us the ability to withstand the current energy down cycle and return even stronger. Let me now comment on specific highlights for each of our businesses. Our Energy & Chemicals business…

[Operator Instructions]. Our first question comes from Eric Stine from Craig-Hallum. Your line is now open.

Maybe we could just start on E&C and I know you talked about it that this is pretty similar at that what you have seen in past down cycles but this is the lowest order quarter I think since early 2009. So maybe just some commentary on what you're seeing here in Q2. I mean is this something where at least as you sit here today you think that this kind of level continues for a while or - or could change and then along with that I mean have your conversations started to change with customers with this rebound in oil over the last months or so?

Yes. I don't expect a significant improvement in second quarter order intake. We have seen as oil has rebounded a change of sentiment particularly around the LNG space. I think over the - the past four months up until roughly 45 days ago the market - the sentiment was becoming increasingly negative and forecasts of when the current LNG oversupply from the new LNG export facility would be fully absorbed by the market were tending to mover out from what had been forecast 18 months ago or even 12 months ago of needing more capacity in the 2018, 2019 timeframe they had moved out by February, early March to forecast being primarily of that excess supply not being absorbed until 2022 or 2023 and we have seen a general consensus starting to emerge more recently in the last 45 days that perhaps that excess will be absorbed by - by 2020, 2021. So it's - I hope that's not clutching at straws, but in terms of forward sentiment we seem to have gone from an increasingly negative bias to a more positive bias.

I don't expect that to create immediate results, but it does mean that I'm - I'm encouraged to continue to maintain our capability and we certainly are having more active discussions with both - with all steps in the value chain.

Got it. Okay. That is for that. And just sticking with E&C I know you talked about some of the large opportunities those continue to move forward. I guess magnolia would be the most - the most timely right NOI. I mean first to confirm is it still safe to say that - in your guidance range at the low end you're assuming that interests - you get no revenue in the year from magnolia? I guess that would be the first question.

Yes, situation as we described it in the last conference call.

I guess I'll leave it at that. Then maybe just one last one just to clarify. It looks like of you have been given where E&C margins are it looks like you had a little [indiscernible] business. Is that correct? And then anything you can chair on potentially makes of that business in Q2?

You are correct. There's some contribution from the lifecycle business. Minor. And the - the only caution I would have regarding E&C margins is - is that they're going to - they're going to bounce around quite a bit over the next four to six quarters.

Okay. I mean given where your guidance is, though, is it safe to assume that given minimal impact from the lifecycle business not much quick ship that we can view this as potentially a low point as it bongs around over the next four to six quarters?

That's a reasonable assumption. I say the margins are going to bounce around because I have little confidence in - in our forecasting ability to call out quarterly results.

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

I know this is a little hard to predict but where would you say you're at in sort of the cyclical downturn? Are you sort of feeling like you're getting to the middle of it or based on history are you still sort of feeling you're way through it or where are you at in sort of the timeline on that and historically what is that timeline?

Well, I guess the best characterization is I put the razor blade back in the [indiscernible]. We - we have come off a period ever significant investment in our key markets and there's plenty of new capacity around in many of our end-markets so that I don't expect in in tan TANE curious recovery. I would say that I expect the duration of this cycle to be longer than the 2008-2009 downturn and to be more like previous cycles particularly 2003 or perhaps worse than that going back to 1981. Having said that, we're very well-positioned with respect to LNG opportunities and while with any significant capital investment with the growth of LNG and world trade which I believe is now firmly established, it's going to be challenging to predict what you will but you will l see down cycles followed by dramatic up-cycles. That I think will come back earlier than the more generalized petrochemical markets or U.S. natural gas processing or industrial air separation business. So I don't think there's much opportunity for trying to be precise on calling the bottom or - or predicting when a significant up-cycle will happen. What we do is size the business appropriately, make sure we have the capability to respond to opportunities as they occur and focus on our ability to rapidly scale-up or scale down as required or redeploy assets and I feel good about the - where we're in relation to that and the opportunities we see.

Then your lifecycle business I know it's just getting started but what sort of a typical order size or contract size in that business an external of strategically how do you see that kind of growing? Is this a - is becoming kind of I don't know what percent of revenue I guess is the question. Thank you.

Too early to say. It's a business that's - that's been under development for a little over two years and we're gaining traction. The size of opportunities goes everywhere from $50,000 projects to $5 million projects an durations of 30 days to execute to multi-year contracts. The it's a fascinating space. We've been very encouraged by customer reactions as we have come off a period of lots of investments and not a huge operational focus by many of our customers we're finding them welcoming the ability to make their capital plans more effective and more reliable and safer.

Thank you. Our neck question comes from the line of Nicholas Chen from Alembic Global. Your line is now open.

I was hoping that we could just get an update on sort of your forecast for cash flow conversion. It seems like it will be in excess of net income for 2016. Do you envision anything tempering that thesis as of now. Can you just sort of walk us through how working Capital Management is trending?

Yes. I think obviously we had very strong operating cash flow performance in the first quarter. By good collection action and timing of projects cash flow there. So that was generally the key driver in the first quarter. I would expect that we could continue to deliver positive operating cash flow for each quarter here through the balance of the year with working capital being certainly a component of that. So I would not expect that - I mean what you saw in the first quarter is probably going to be similar what you can see over the balance of the year.

And then just finally on cost cutting initiatives and restructuring do you see any additional facility [indiscernible], an what's the current run-rate of savings that you expect to achieve by the end of 2016?

We quoted a number at the - back in February when we came out with our fourth quarter earnings year-ends announcement but annualized cost savings of $60 million. That took into account first quarter actions that we were contemplating taking so that number still stand. At this point we have no additional facility plants closures at this time, but obviously depending on market conditions and order trends we obviously will have to re assess that, but at this point no additional acts contemplated there.

Okay. And if you don't mind, I just wanted to actually get in one more final question in terms of your M&A outlook. Are you guys closely reviewing any transactions at this moment? And in terms of pricing are you seeing any sort of distress the assets out there that would be worth looking at just given the low valuations?

Yes. There are opportunities. We're actively looking at them. As you would expect already distressed assets we evaluate carefully. I would also temper there by saying there's - also seeing enough private equity capital available that more desirable assets are not transacting at full strength.

Thank you. Our next question comes from the line of Chase Jacobson William Blair. Your line is now open.

So, Sam, I wanted to ask kind of a bigger picture a strategic question as it relates to E&C. You know, it's a business that requires a good amount of capacity if you want to be successful when things are good, but at the same time you're talking about maybe an extended down cycle. So I guess longer-term is there a scenario where you look to kind of keep winding down the capacity here and maybe just license out your technology where you can make a pretty good margin and pretty good cash flow off that and have somebody else manufacture it presumably at a lower cost?

We always evaluate those options and we work to develop flexible capacity which may not be wholly-owned by us with partners or subcontractors to give ourselves more flexibility. Often times the manufacturing costs that we electric elect to build equipment or to attempt ting to a lower cost country is not a - did are is not a simple decision either because of shipping costs, logistics or because of end user preferences. As an example while air separation plants for the global industrial gas industry have gravitated to these manufacturers in China there are many parts of the natural gas or hide carbon industry where large projects the end use customers are not yet prepared to take the risk of producing in China or what they perceive to be a risk of producing in China. So it's not a simple, but I would say that we will always have within E&C a balance of in-house capability as well as outsourced capability. I don't see us going to a model of simply you have offering technology licenses although I'm not saying that's impossible.

Okay. And I guess a more near-term question, you know, looking at the guidance you maintain the revenue, you maintain the EPS but you lower the tax rate. It's not a big difference, but I think it assumes maybe 4% or 5% lower EBIT. What changed in there versus the guidance last quarter?

Well, I think the other thing you have to factor in there, Chase, is the impact of the impairment charge lowering our go forward amortization expense. It is certainly going down about $3.5 million to $4 million a year from where it was. I think that is something - probably one item that is there, that was in the guidance, though?

At the time we put our guidance together that came together late, yes, that was d that was technically in our guidance, but I would venture to say that a number of analysts had not included is that your guidance. So I think when you look at our forecast and you look at what we have in backlog and where we expect the business to be and what we know today, we're comfortable with that guidance range where we're at and we did expect a very weak first quarter in our own internal forecast and in fact did somewhat better than where we were projecting in the first quarter. So first quarter is seasonally a very weak quarter for us. You look back in time that's the way it always runs and we tend to improve second, third and fourth quarters so I mean that's typically the way it is and so we're very comfortable with that forecast range of guidance at this point.

Okay. And then just one more if I could. When you look at - you made the comment about how you're benefiting now from the work that you did in the past, right? More of the work now in D&S seems to be on the import terminal side or the re gas or vaporization. Does that type of - does the equipment that you sell to those projects have a different margin profile than the equipment that you sell on the liquefaction side?

There's a wide mix and I would say in general that if you look at the - at the range of E&C margins through the cycle and the range of D&S margins through the cycle, that the over what we're seeing on LNG downstream equipment or [indiscernible] Distribution & Storage versus LNG liquefaction the - the overall gross margins of those two businesses through the cycle are indicative of the margins in the - the various parts of the LNG business.

Thank you. Our next question comes from the line of [indiscernible] from Johnson Rice. Your line is now open.

In terms of the U.S. demand on the Dawn stream LNG side, could you talk a little bit more about the types of projects that you're seeing there and with backlog having declined from third quarter 2014 until this most recent quarter do you think backlog for the Company has troughed around these levels?

I'm sorry. What was the first part of the question? I got distracted.

The downstream LNG opportunity that you're seeing in the U.S. I think you spoke about in Europe it's Marine oriented. Can you talk about the type munch multiple.

In the U.S. the attempts to be Marine oriented majority of the applications for transport schemes to the Caribbean islands or to - to South America displacing diesel fuel primarily for power general that's a bit weaker more recently as LNG spot market prices in Europe have even from relatively to small quantities have come down do 4 bald per million Btus it makes it difficult to get people excited about investing in the U.S. currently. Your second question as to whether we think we're at the trough of backlog I think that we're probably reasonably confident we're on the bottom within the D&S business. The E&C business can still come down further, but with a few orders would be on the upswing. It's just - there's not much upside for accuracy in calling the bottom or following the timing of an upturn.

Okay. And if I could ask one more question just on the lifecycle business. What do you think the addressable market is there in terms of annual potential revenue?

Huge. Too early to tell. It looks to be very interesting. If you look at the - the press and comments that are being made by some of the - the very large industrial players like GE and Xiamen focusing on their outlet [indiscernible] connective businesses you can view us as fast followers who are doing this in smaller chunks and with more personalized attention to our customers. So I think we're just exploring something that we think can be equal in size to our equipment manufacturing business but we frankly don't have any idea of how quickly that develops. I would say that's not a short-term prospect. It's something that we view as being an attractive growth opportunity over the next five to ten years.

Our next question comes from the line of [indiscernible] from Raymond James. Your line is now open.

If you look over the last let's say two years which is when the - the energy market really began to tank, in aggregate how much lower is your headcount today versus two years ago and how much lower is your production capacity versus two years ago?

Headcount, we're down about 23% of where we were by the end of 2014 versus where we're today in the end of March. Pass capacity wise. Capacity wise in terms of bricks and mortar an production equipment we have significantly greater capacity than we had at that time. Subject to bringing people back on which we're capable of doing we would have greater production capacity than we had he two years ago. Currently with our [indiscernible] it's lower.

Right. So when you put those two things together, the higher - more physical plant but obviously much reduced personnel, what level of revenue can you support and annualized revenue before you would have to - let's say before you run into a labor availability constraints?

Right now we can probably support 1.3 to 1.5 billion of revenue within a six month time frame which is kind of the - the time that's required for us to respond to orders booked. Remember if we take significant orders in E&C those projects are executed over 12 months to 24 months. And so the labor ramp-up is - can be for the - can be going on through half of that project. So I'm not really very concerned about our ability to ramp-up quickly. In most parts of the world just like the cycle labors relatively available and I would anticipate that that situation would continue into a - well into a recovery simply because in most industries particularly around the energy industry deployment [indiscernible].

[Operator Instructions]. And our next question comes from the line of Jeff Osborne with Cowen and Company.

I just had two quick ones. One, Ken, is there any contracts that you signed over the last 18 months that had deposits on them on the ENC side that would flow through if, you know, they were not to proceed? I know you mentioned that margins would be erratic over the next four to six quarters, I'm just trying to get a sense if that's one of the variables here.

Well, we certainly have deposits on contracts that were signed, that's a fact, I can't sit there and say, you know, - it was your question, will those flow through if they were canceled?

I wasn't sure if they actually had drop dead dates if something didn't proceed by, you know, July of 2016. Then, let's say for arguments sake, your $5 million deposit would flow through in terms of revenue on the P&L and, you know, that would be 100% margin.

I would classify that as comparatively sensitive.

And then the follow up question I had is just on the D&S side. Just given the challenges in the LNG space I imagine many of your competitors are focused on beverages and industrial gas. Can you just touch on, you know, what you're seeing in terms of, you know, margin over the next couple of quarters relative to where it might have been 12, 18 months ago?

Generally solid, flat to up slightly on the basis that we have some very good products that tend to perform significantly better than competitors and we also have a very strong market presence as well as good alignment both with our customers and their end users in those markets. We've done a lot of development work of tailoring products specifically to those applications and we have an attractive position.

And our next question comes from the line of Anjali Voria from Thompson Research. Your line is now open.

You talked about volatility in the ENC margin side and I wanted to get some regular clarity around that. Would it be fair to say that outside of Lifecycle Services and the Magnolia Project that the rest of margins within your backlog is around that low teens level or are there other factors that might be within those numbers? So, I guess, the question is really what does that margin look like in your backlog numbers outside of Lifecycle and Magnolia?

The challenge with any ENC is that historically our ability to predict margins which has never been outstanding, is helped by having significant projects in backlog and that gives us - and that might account for 70%, 80% of revenue and margin in the forward quarter or quarters. At a time when our backlog is low a greater percentage of our business is short cycle for emergency applications or things where the customer is willing to pay a premium because of outages or shutdowns. And so depending on the level of actual sales there can be better margins but because those lead times are short we don't have a view, even as soon as the next three months, as to what part of the mix that will be. In terms of the margin in backlog, again, as you get towards the exhausting, the longer project lead time backlog and you're in a competitive environment, it tends to be lower so the margin in backlog, currently in backlog is generally lower than the margin we reported in the most recent quarter but adding on higher margin, short lead time projects can significantly impact that. We just don't know.

And then, just, you talked a lot about the Lifecycle aftermarket business. I wanted to understand - I assume this is a very high gross margin business but is it also high SG&A or do you assume that the operating margin's relatively similar to what ENC does?

That's good assumption. In the startup phases, with respect to margins, potential margins, there's not a lot of established competition. However, in the early phases it does require SG&A to develop that business. I think that we've got a great balance and a great team working on this and we're handling the startup issues by allocating resources from other parts of our business and, I have to say, it's been done pretty creatively so we're very pleased with the results to date and the prospects.

Is this, I guess as a follow-up, is this a business that your customers did internally themselves and your providing a service that's much needed or is this something that some other party used to provide and you're taking their place given your competitive angle here as the manufacturer? Does that make sense?

Anjali, it's a bit of all of the above. Many of our customers who are operating plants that include our equipment have had retirements or cut backs in experienced personnel. In many cases they are reacting to current lien times by saying we have to improve up time and efficiency or we can't stand to have the accidents or outages we've lived with in the past because so much was going on we couldn't deal with it. And so it's a sale, we're making the sale based on improving the effectiveness of their plants, improving the reliability of their plants. Or in the case of financial owners that have been brought about by LLC or [indiscernible] limited liability partnerships where there has been less experienced people operating more plants we're finding there's a willingness to get involved in engaging our services for risk mitigation.

And then, lastly, on the D&S business, two separate questions I guess. First off, when you look at 2016 as a whole within D&S/LNG what type of decline are you expecting? I think last year you saw about a 45% drop and I just, kind of, wanted a very general idea of where you think the D&S/LNG's going in 2016? And then, secondly, I was also curious if you are indeed seeing any benefit from the customer bankruptcy that you, excuse me, the competitor bankruptcy that, I think, you competed with in D&S and maybe even biomedical. Any, sort of, benefit from orders or anything like that that might be helping you out? And that's it for me. Thanks.

Yes, I guess to answer your first question around D&S/LNG, you know, basically last year, in 2015, D&S/LNG represented approximately 25% of orders and sales, would not anticipate that changing dramatically here in 2016 based on where we see opportunities and - say for instance, again, the [indiscernible] order in Lithuania was an LNG oriented order, the import terminal in India, that we announced, as well here. So, you know, again, those are LNG oriented revenues so don't expect that mix to change much in 2016 and, actually, that's been a good trend for us so I wouldn't see a major change there.

And I'm showing no further questions at this time. I would like to turn the call back to Sam Thomas for any closing remarks.

Thank you. We've certainly seen strong headwinds and talked about it for a long time. We're not unique in our upstream energy equipment business and we don't see a dramatic change in the near term. We do think we've reacted appropriately and our diverse bi-product portfolio will enable us to successfully navigate this downturn. We expect to continue to generate positive operating cash flows through the year and we'll continue to focus on our cost structure without losing sight of our strategic goal of delivering long-term growth. And, I remind everyone, in our business when confidence returns and people start to invest we tend to see our sales, our back log sales and operating leverage increase dramatically and we're determined to keep ourselves in the position to do that, prudently. So thank you very much for listening today. Goodbye.

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