Good morning and welcome to Chart Industries, Inc. Fourth Quarter and Full Year 2019 Earnings Call. All lines have been placed on mute to prevent background noise. After the speakers’ remarks, there will be a question-and-answer session. The company's earnings release and supplemental presentation was issued earlier this morning. If you have not received the earnings release, you may access it by visiting Chart's IR website at www.ir.chartindustries.com. A telephone replay of today's broadcast will be available following the conclusion of the call until Thursday, February 20, 2020. The replay dial-in information is included in the earnings release or on the company's IR website. 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. Please refer to the information regarding forward-looking statements and risk factors including in the company's earnings release and latest filings with the SEC. The company undertakes no obligation to update publicly or revise any forward-looking statement. I would now like to turn the conference over to Jill Evanko, Chart Industries' CEO.

Thank you Justin. Good morning everyone and thank you for joining us today to go through our current outlook for 2020 and 2019 results. Joining me today is John Bishop, our Chief Operating Officer; and Scott Merkle, our Chief Account Officer. You'll hear about the significant progress we have made in the past quarter each aspect of the key drivers of our business for 2020 and the coming decade as we walk through our supplemental presentation that was released this morning. These themes are shown in the strategy circle shown on slide 3, which you have seen both on last quarter's call as well as at our Investor Day in November. Today I'll start with our increased 2020 guidance for which we have much higher conviction after the record order and backlog quarter to end 2019. As a reminder, we focus our guidance on the base business and provide color around what additional opportunities in particular big LNG exist that are not in the base outlook. Our revenue outlook is $1.645 billion to $1.71 billion compared to the prior revenue outlook of $1.615 billion to $1.68 billion. The increase is driven from the timing shifts of fourth quarter 2019 orders and revenue related to three of the four segments. We have not revised our E&C FinFans revenue outlook from the prior quarter. Both guys are and were inclusive of $100 million of Calcasieu Pass related revenue. We expect full year adjusted earnings per diluted share to be in the range of $4.90 to $5.50 per share on approximately 36.1 million weighted average shares outstanding. This is an increase from our prior outlook of $4.75 to $5.25 per share, which was on approximately 35.8 million weighted average shares outstanding. Our 2020 tax rate is assumed at 20%. This is an improvement…

Thanks, Jill. As part of our margin expansion and integration activities, we continue to work to optimize our manufacturing footprint by determining, where the best locations are to make our products, both from a cost and a lead time perspective, a theme you will hear from us throughout 2020. In 2019, we completed projects that will deliver $38.3 million of annualized cost savings from restructuring, footprint consolidations, operational improvements, product line rationalizations and acquisition cost synergies. Included in this $38.3 million is $13.2 million of structural cost reductions and $25.1 million of acquisition-related synergies from VRV and AXC. We are expanding our 80/20 efforts to Europe and Asia where we expect to realize similar benefits as we did in D&S West. Global sourcing initiatives continue with the most notable Q4 savings achieved by developing new suppliers and negotiating broader supply agreements to better leverage Chart's global scale and volumes. In the fourth quarter, we have put our primarily non-cryogenic valve product line FEMA based in Europe in held for sale. FEMA is very small from a revenue impact less than $5 million per year and its products are not core to our cryogenic offering. And, therefore, we can better utilize the productive capacity for core products with high demand. This is an example of our continued evaluation of our portfolio to focus on where we bring the most strategic value to our customers. Turning to our acquisitions. While our official 12 months of integration is over for VRV, we will continue to have dedicated resources to execute on margin expansion initiatives like the standardization of tanks between our Czech Republic and Italian facilities, which is underway and expected to be complete by mid-year 2020. We have completed the in-sourcing of our inner and outer vessels into our Italian facility, saving…

Thanks, John. In 2019, normalizing for acquisition price in a pro forma first six months of Air-X-Changers, we generated $123 million of free cash flow including unusual working capital activities in the first quarter of the year related to integration of VRV into our public company supplier payment practices. Also noteworthy is that cash from operating activities was $134 million in 2019, a 12% increase over 2018 driven by strict working capital management and the results from our 80/20 activities in D&S West, which reduced lead times in 27 of our 44 product lines. We expect free cash flow in 2020 to be between $180 million and $210 million including approximately $30 million from Calcasieu Pass. We continue to prioritize debt paydown and organic reinvestment in the business with the cash generated. At the end of 2019, our leverage ratio was 3.1 down from 3.3 post close of the AXC acquisition. Our target at year end 2020 is to be under 2.0. Sales of $342.4 million in the fourth quarter were 18% higher than the fourth quarter of 2018 and a 3.9% organic increase. Full year sales of $461.7 million were a record for D&S West. E&C Cryo's fourth quarter sales of $58.9 million included $16.7 million of revenue related to the Calcasieu Pass project. Full year sales of $1.3 billion is a 20% increase over 2018 representative of the continued order strength we saw throughout 2019. 2019 full year sales were a record for Chart and an organic sales record as well excluding VRV and Air-X-Changers. Our aftermarket parts, service and repair revenue continues to increase. It's currently at 13% for 2019 and is projected to incrementally increase with the expected 2020 activities of the industrial gas majors and the increasing opportunities of retrofitting Brownfield LNG facilities that Jill…

On slide 15 there were two noteworthy items in the fourth quarter and you can see what those are and we included those in our press release. So I'd just comment that we pushed the volume into 2020 given the timing as well as the adjusted EPS related to the ramp-up of our resourcing for both E&C Cryo as well as D&S east. Regarding Fin-Fans the fourth quarter also had an under absorption and the second week of January we reduced headcount by 137 people anticipating similar volume levels in the first quarter. All of the above is included in our 2020 guidance. I'll now turn it over to the operator to open it up for questions.

Thank you. [Operator Instructions]. And our first question is going to come from Rob Brown from Lake Street Capital Markets. Your line is now open.

Good morning, Jill.

Hi, Rob.

I just wanted to clarify your kind of color on the orders shifting out of Q4 into next year or 2020. I guess could you reconcile how that $30 million flows in if Q1 is lower in terms of revenue? Does that flow in later in the year, or how is that $30 million kind of shift out?

Yes. So there's a small portion of it that starts in March, which will be recognized and that's about $3 million to $4 million of it. We see the rest of that so call it another $25 million fairly evenly spread between Q2 and Q3 and that's a portion of that relates to the order for LNG by rail that I mentioned which was $21 million. So a piece of that comes into 2020 and then the rest of that was around some of the LNG vehicle tank timing that I touched on.

Okay. Okay. Good. And then maybe just the order kind of uptake that you're seeing, I think you mentioned a number of things in – already in 2020 that you received. But maybe some kind of color on the overall order pipeline in 2020, I guess in terms of LNG vehicle tanks in particular and then maybe Air-X as well while you mentioned some things there. But just clarifying kind of the strength in the orders into this year and what you're seeing in terms of tailwinds?

Yes. So January has started off fairly well for us in terms of the quarter. With respect to the LNG vehicle tanks these are in 2019, we had a full year revenue of $65 million. Our capacity right now without the additional European capacity is about $90 million out of our Georgia facility. We've been told and until we have the purchase orders this isn't guaranteed, but we've been told that these customers want as much as we can produce in 2020. So I'd anticipate that that ramps up fairly quickly here in late Q1 and into Q2. And I think it will ramp even further once we start first production in April in Italy. So that has a lot of positive implications to us. We've built on $72 million into our guide. So that gives you a sense of kind of where we have kind of down the fairway LNG vehicle tank. With respect to the other pipeline on the FinFan side of things January started out pretty strong and we had a total of $28 million in January in FinFans. $17.5 million of that was Air-X-Changers related, as I mentioned the highest month since January of 2019. And certainly, for total FinFans that month has surpassed the prior four. In terms of the other three segments the base businesses continue to kind of tick along. I think there's a lot of opportunity in the East certainly in the first half of the year around continuing these record levels in fueling stations as well as trailers.

Okay. Thank you. I will turn it over.

Thanks, Rob.

Thank you. And our next question comes from Eric Stine from Craig-Hallum. Your line is now open.

Good morning.

Hey, good morning.

Maybe I will just start with kind of a high-level question. But just – kind of what's going on in the market? I know you're – the three big LNG awards that you're targeting in 2020 not necessarily impacted by this as much since they're kind of down the road. But just maybe the push and pull you're seeing in the market between the spot price of LNG and the forward curve which is much more constructive for projects. How you see that impacting the business today? And then maybe as you look out a couple of years?

Yeah. So I mean, certainly supply and demand have not crossed yet from an LNG perspective and low natural gas prices and the lower LNG prices as a general are a headwind to some of these projects. What we see in particular to those projects that we call out for expectation for FID in 2020 is really around the thought process that these are 5 to 10-year type project. So the short-term macro situations, while maybe impact a quarter or two as we said before whether it was tariffs, whether it was low natural gas prices, whether it's coronavirus. These guys are in it for the long-haul. They have a lot of approvals. And our understanding is it's at the finish line in the first half of 2020.

Got it. Okay. And then I guess maybe last one for me just on China. I think in your prepared remarks you just talked about that you're starting to see a little bit of an order uptick there. So maybe just outlook on that side and realizing that coronavirus that's kind of to be determined although you're hopeful. But then should we also take the tax rate and I know some of that is tax planning but as part of that that you expect China to be profitable in 2020?

So first around the coronavirus situation certainly, what you read in the news is the same thing we're reading. So we're kind of taking that day-by-day. But you got a sense of the fact that we're back into at least parse production in all of our facilities. Very – I'm very positive on the recent order intake in China in particular the fact that the order intake is for exports from China into regions like Europe. So that's an interesting change in the last six months and it's a positive from my perspective both from an order standpoint, but also from a margin standpoint. Just by way of anecdote, we had planned for single-digit order intake in January, and we actually beat that even with the holiday and with the coronavirus in our China locations. So that's a good start to the year for us. We do anticipate a profitable year. Again, take profitable in China to be fairly low. So it's not breakeven but that does help us. As you commented around our tax rate, we feel very good about our guided 20% tax rate. And while without giving anything more away that could improve as we see the situation in China unfold.

Okay. Thank you.

Thanks, Eric.

Thank you. And our next question comes from Ben Nolan from Stifel. Your line is now open.

So, my first question relates to something that Scott mentioned that the aftermarket was 13% in 2019. And I believe that you guys had indicated that for 2021 you were looking for that to be 21% of the business. Does it still stand? I mean is that target kind of still what you're looking to do? And any thoughts around that.

Yes. That's still our target. And we have a pretty good line of sight on some incremental increases in year 2020. I'll give you two of those. One is around committed volume levels in some of our major customer LTAs that are currently in the negotiation process and some of those that we already have completed negotiation on as those customers continue to refine their supply chain strategy as well as their optimism of their own assets that are in the field. The second line of sight that we have is around something that we didn't spend a lot of time on today, but we've touched on at least in the last couple of months which is the opportunity for us to have retrofit potential on some of the projects for LNG exports that are brownfield or existing that need to be optimized to keep up with the driving down of LNG pricing. So, we did book in January a $1.2 million order in our FinFans business for a retrofit on an existing brownfield facility. So, I think you'll see that incrementally move into the mid-teens -- mid to high teens in 2020 given some of the additional activity that we have underway.

Perfect. And then for my follow-up it's a little bit more industry related. But away from maybe some of the big LNG projects in the United States there have been a number of big projects elsewhere in the world in Russia, in Mozambique, in Nigeria for instance that have all gone FID. And I think it's very likely that Qatar will do the same in the next few months. Do you guys have any content in any of those, or is that something that incrementally to what's already on the books could be added as we look forward?

So, there are potential incremental adds for us and we would have a content on many of those projects more with respect to pretreatment for Brazed Aluminum Heat Exchanger content versus the full liquefaction. Those projects tend to have been longer in the tooth. So, they would have been baseload projects that had different equipment and different liquefaction process before our mid-scale IPSMR came out. So, these projects for us would be content ranging between $10 million and $50 million depending on the size and depending on the construct of the pretreatment facilities. Those aren't built into our guidance.

Okay. I appreciate. Thanks Nigel.

And our next question comes from J.B. Lowe from Citi.

I think you guys did a good job of kind of laying out the timing differences between the revenue shortfall in 4Q moving into 2020. I'm just wondering do you think that maybe 2020 should have a wider range of EPS guidance. I mean what do you think you have more confidence going to 2020 that the business can be a little bit more stable? I know it's been lumpy in the past. But I'm just wondering what gives you confidence in the range given some of the timing issues?

Yes. I mean part of it is philosophical right? I mean you go three or four years ago you would have seen a range from $0.10 to $1. And it's kind of hard to really get a sense of the confidence level in a range such as that. In the current environment that we sit in given what we talked about today on order and backlog and our understanding the timing coupling that with -- we know the earnings from Calcasieu, we know the impacts from the $38-plus million of completed synergies and margin expansion. So, we have a pretty darn tight bridge to walk from our $2.52 in 2019 to our $4.90 to $5.50. So, I think we would say we give the range because there is variables that can impact the year, that's why the low and high. But you won't see us expand the range beyond the $0.60 that we have between $4.90 and $5.50.

Okay. Just a couple of quick ones. The LNG tank capacity that you mentioned the throughput of $200 million a year. Are you actually going to hit that number in the back half?

I don't think we'll hit $200 million. So, I think it will be certainly better than the $72 million and change that we have in our forecast right now. But that $200 million would require everything to tick right out of the gate for a full year and so I'd say it's probably better than the $72 million but not at the 200s.

I guess when are you going to hit the run rate though in the back half?

That will depend on whether these two sole source customers do what they are telling us they're going to do. If they do that yes.

Okay. And then last quick one. If you were to get one of these other big LNG projects FID-ed in 2020 when you start doing work on those projects do you think you'd need to add additional headcount beyond the guys that you brought back for the Calcasieu Pass work?

Right now we could take on one more with the guys we have in-house. If we get more than one, we'll have to continue to ramp up. One of the great things that happened kind of in our downturn in the Cryo business is that in particular the La Crosse Brazed Aluminum facility did a lot of optimization of the footprint, but also around some of the robotics and the machining. So, where at the last peak we had one big LNG project running through that shop we had 470 people with three big LNG projects running through that shop now. We'd probably be at about 350 total. So, you'd ramp another 50 to 70 heads, if we got to this year in that facility.

Okay. Great, thanks.

Thanks.

Thank you. And our next question comes from Martin Malloy from Johnson Rice. Your line is now open.

Good morning.

Good morning.

On the LNG infrastructure, and -- is including equipment for re-gas facilities. Can you break out roughly what that was on a revenue basis in 2019? And kind of maybe a range for where that might be in 2020, excluding the big LNG and the Gimi project?

Sure. So, we kind of break the re-gas from the small scale. So if you just take the small scale, and I comment that we have $50 million of small scale related revenue in 2020's guide. That's compared to $30 million in 2019. If you look at the re-gas side of things, we had about the same equivalent in 2019. And in our 2020 forecast, it's basically the same as the small scale. So, in totality about $100 million related to those of revenue.

Okay. And then the rest of the LNG infrastructure in terms of the tanks and the fueling stations and everything else would fall into that infrastructure bucket?

It would. Correct. Yeah. So, we said we -- just the way we think about it, we separate it that way. But if you lumped it all together, it's hundreds of millions.

Okay. Great. And then just on the Fin-Fan segment quite a drop-off from third quarter. In the fourth quarter you mentioned that the orders were strong early this year. Could you maybe talk about your confidence in the outlook for that segment in 2020? And maybe some of the potential positives and negatives that might occur?

Yeah. So, we slashed the guide on that segment back in October. And we did that purposely to take it to what we believe was kind of the Armageddon scenario for 2020. So, that we didn't have to come back around sitting here today and do it again. And that's why we haven't raised anything from that $190 million to $200 million of the total segment -- for the AXC part of the total segment for 2020. I would say right now where I sit I would put it as cautious still. I wouldn't even say cautiously optimistic. I think January was a good month, but one month does not make a trend. I'll have a much better answer for you in what we see for the rest of the year once we see the February and March numbers come through.

Great. Thank you.

Thanks, Martin.

Thank you. And our next question comes from Walter Liptak from Seaport. Your line is now open.

Hi. Thanks and good morning.

Good morning.

Good morning. I wanted to ask about the funnel of projects in India. It sounds like things are going well there. I wonder if you could help us understand the opportunity for that India highway project in terms of what's the size of it and what do you expect this year? And then anything else in India that we should be thinking about that could build in the funnel as the year goes on?

Absolutely. We're very, very bullish on India across the board. And it's a combination of the things we talked about on the call. Some things that we can't talk about that we're in confidential agreements under that we expect to progress this year, which could be pretty needle moving again not built in the guide. But with some of the big oil companies that are starting to put footprints in India as well. As J.B. mentioned, we'll have our first air cooler. That will be assembled in India. So that opens a new market which interestingly enough the highest growth region for air coolers in all of the world is India with a 15%-plus CAGR forecasted between now and 2023 for growth on air coolers. So kind of -- what I really like about the India opportunity is, it's widespread across our business. So it hits D&S East. It hits E&C Cryo and it hits E&C Fin-Fans. And that gives us a lot of levers to pull. I also really like that it is a race for people to be involved our customers whether it's the big oil companies or the local IOC, IOCLs, GAILs, AGPs. So I would say the size for us if they do 10,000 over the road vehicles, that's -- you figure one vehicle for us is two tanks type of thing. And you'd probably get per vehicle $10,000 of content ish. And then you can kind of figure out the math from there. So it's a pretty big potential. Again, we've built into our 2020 guide just an incremental increase of 7% to 8% over our 2019 numbers. So it could move quicker than what we're talking about here. And we're really excited, especially given the $6 million of orders in India in December -- in the month of December alone. So, we think that that trend continues on.

Okay, great. And then just as a follow-up to the discussion you had about the meaningful orders. It looked like that was pretty broad-based. And I wondered about pricing on those engineering costs. What does the margin mix look like in the orders that you took in in the quarter?

That would probably put me at a competitive disadvantage to answer that specifically. But the best way to think about it is that through our 80/20 process in particular in the D&S business as well as the negotiations on our long-term agreements, these projects as well as the total backlog margin in backlog for us we feel real confident in that 29%-plus total chart gross margin that Merk [ph] mentioned in his prepared remarks.

Okay. Great. Thank you.

Thank you. And our next question comes from Conner Lynagh from Morgan Stanley. Your line is now open.

Thanks. Good morning.

Hey, Conner.

I was wondering if we could come back to FinFans a little bit here. It's good to hear the outlook is relatively unchanged. Could you just comment on how the shape of this – the guidance that you're expecting for 2020 looks relative to the first quarter that you're expecting? Just trying to get a feel for how front half versus back half weighted the expectations are.

Yes. So the first quarter I would model very similar to the fourth quarter. Given the January order activity you can ramp that up starting in April. So generally the FinFans business is kind of a book and ship of 12 to 20-weeks type of time frame. And so some of the orders that came in in late January will start hitting in March from a revenue standpoint. And we see it going where Q1 and Q4 are the lowest quarters of the year and Q2 and Q3 are the highest for FinFans in terms of shipments. The other thing maybe Conner is worth noting is what we're hearing from the customers is that they expect summer to be the busiest period for them. So there are some orders and some ramping manufacturing wise that's happening now so that they're prepared to take the equipment come end of May and June timing.

Got it. That's helpful. And then similar sort of nitpicking question. We've covered the interesting stuff. The E&C Cryo business just so we can get a base for 2019, how do you think – how much big LNG revenue did you actually end up earning in 2019? And then I guess I'm wondering, what's the year-over-year step up including Calcasieu but net of some projects that are rolling off?

Yes. So we had $17 million of big LNG revenue in 2019 all Calcasieu related. And we have the $100 million in total built into 2020 all Calcasieu related. That's the only big LNG that's in our outlook.

Okay. And last one. If in fact some of these other big projects do come through how should we think about the free cash flow impact? Is that a – is it a net positive because you got some early progress payments, or is it a net negative because you have to ramp working capital?

If any of them are a net positive to us we only book them. So there is milestone payments. And then in particular the structure around some of the process technology is cash upfront.

All right. Perfect. Thanks for the color.

Thanks, Conner.

Thank you. And our next question comes from Craig Shere from Tuohy Brothers. Your line is now open. If your phone is on mute could you please unmute it? Craig, your line is now open.

Hello?

Hey, Craig. We can hear you now.

I'm sorry, Craig Shere. So two follow-ups here. Jill you had some really positive comments in the Q&A about the opportunities for over-the-road trucking also in India. But if I understand it correct the $200 million run rate you talked about was potentially from two primary European customers. Is that correct?

That's correct.

So if those European customers do indeed take everything you can produce even after the upsizing to meet the opportunities in India, you'd have to expand again?

Correct.

Okay. And in terms of cost and timing for that how easy would it be? Is that something that could be started in the second half? And how much would you be looking to spend?

Sure. So we – with our India facility that came with our VRV acquisition the great part of that is we own the land adjacent to the facility. So there is the ability to add a bay right on the existing land. We've done a lot of homework in the last three months around specific product lines that we might want to manufacture in India. Bishop talked a little bit about that. But we've really looked at it from a total global product line perspective inclusive of what you're talking about. And in order to accommodate what we would want to do it's a $5 million to $6 million investment and we believe we could get it done in six to eight months. We're not ready to pull that trigger yet and we'll just keep an eye on some of the demand activity and what we're seeing from commitments in the region.

That sounds pretty quick and a nominal cost. What would that do to your run rate capacity?

It depends on the product line but if you just took the over-the-road in particular. And obviously there's some design elements and there's some confidentiality elements around models. But let's just say we took kind of down the fairway between the models that we have right now. We could probably add another US$75 million of capacity if we were to do a similar line to what we're doing in Italy. And probably worth noting that every line that we do that is for the same product we get more and more efficient and we lay things out better and we're more thoughtful. And once you've done it once or twice, you start to get better, right? It's like the outliers book.

That sounds terrific. And last question. I wonder if the opportunity for upsizing capacity on existing operating liquefaction facilities around the world is pushed out a little bit, because of the 2020 oversupply. And whether it's pushed out or not, if you have any further color around the potential size of that opportunity over the next two to three years?

Craig, hey, it's John. Jill has talked in the past about what we think ultimately the retrofitting opportunity is. We actually think that in the low price environment, what you might actually see is, more people looking to increase the efficiency of existing assets. And so, we're actually seeing those conversations ramp up right now, as opposed to go down from a level that we discussed earlier. So in a low price environment, we think those conversations could increase and potentially even adding to the number that we've given previously.

Do you think you could exceed what's baked into guidance in 2020 on that?

You always get us on this, Craig. You always get us on. We think that we've given a very fair and achievable guide for 2020 and we've kind of talked very transparently about where there might be upside opportunities. But we'll see with -- if we can double our EPS this coming year from last year. We feel pretty darn good about achieving that.

Fair enough. Thank you.

Thank you. And our next question comes from Andres Menocal from Evercore. Your line is open.

Hey, Jill. How are you? It's Andre. So I'm just stepping in for James, because he got pulled away to a meeting.

Hey, Andre. It's great to hear from you.

So most of the questions have been answered already, but I do have one question about how we should think about working capital usage for this year. So you mentioned that you guys had a pretty tight discipline in 2019. And I'm just trying to see how much of your $200 million free cash flow guidance is depending on working capital efficiency? And what kind of leverage you can pull to keep that at similar levels, or if it's going to slip out a little bit this year, based on the order book that you have going?

Yes. Working capital is right down the middle from our 2019. So there's no -- there's nothing unusual in our forecast for it. We've actually accounted in the guide of $180 million to $210 million for some of the ramp-up that we've talked about around some of these product lines in terms of inventory and ensuring that we don't create lead time challenges for our customers. So there's really nothing unusual in that outlook. And we feel really good about that, what we've put out there for 2020. And coming off of $123 million in 2019 pro forma for what we talked about, with the $38 million of the cost savings that we talked about, combined with $30 million from Calcasieu, combined with the organic growth rate, everybody around the table would say, free cash is one of the metrics that we feel fantastic about heading into 2020.

Okay, great. Thank you for that. And then, the next question I have is -- regards to India. So no doubt the fundamentals in that country look good, especially from your guys' perspective. But I'm just trying to think, to what extent can that be consistently translate into profitable growth. So it seems like in D&S East is in kind of -- in trying to rightsize itself in its profitability. So what's your outlook for 2020 for -- in terms of India, just having a better year in terms of margins?

Yes. So we've built in, I would say, again, kind of, down the middle around margin improvement in the East. And the East is the most challenged around the fact that they should be in the high 20% gross margins. But it's many different pockets of having to handle different pricing structures, like China, like India, some of the ramp-up costs that we've talked about. So if you really kind of look at the East and how we think about margin, we think about it fairly regionally, China being the worst out of the regions, India being kind of in the middle and some of the efficiencies that we're putting in place and working on should dramatically improve that in 2020. So I'd say China stays similar to 2019. India dramatically improves and then Europe being the Czech Republic and Italy, improves but not as dramatically as India does. Some of that also comes from the optimization of the footprint in what we're doing there and how we're doing it. So we now have -- we have an expat that's over there that's in charge of the operations. He's working very closely with our major industrial gas customers on volumes and standardization of bottles. And once we get that standardization agreed upon and certified with the majors that drives margin as well. It also drives cost down for them, price down for them. So it's kind of a win-win, some of the activities that are underway. So, big margin that should be happening in the East and that's a couple of year process. So it will get their part of the way this year, but it's really 2021 when we start to see the full potential in the East.

Okay. Great. Thanks for that. I'll turn it back to the queue.

Thank you. And our next question is a follow-up question from Ben Nolan from Stifel. Your line is now open.

Hi. I appreciate you guys let me back. And I just had a quick one. Jill you talked about the possibility of maybe spinning the specialty business out into its own vertical maybe in 2021. I was just curious or maybe you can quantify how much revenue that would consist of? And is it all in D&S West, or is there a little bit in the Cryo areas or somewhere else?

Yeah. So, that is the goal. And one of the things that, we're in the process of doing is hiring, as I mentioned, kind of a fuller commercial team. The guys we have are just awesome at it. And we just don't have enough hands on deck. I think by the end of 2020, if that business is over $200 million, in terms of heading into 2021 that would probably be the break point. Obviously there's accounting implications. And that type of things, that we have to do our homework on, before we make that final determination. But that would be the tipping point for us to really move ahead with that segment. Primarily right now, it is D&S West. The goal is that it becomes in E&C Cryo, in particular. So some of this liquefied biogas opportunity and the renewable storage opportunity in the carbon capture our E&C activities. And that would -- that's part of this 2020 potential. But in the 2019 numbers all specialty markets are reported in D&S West.

Okay. And you said $200 million is sort of the carve-out target. Any sense of what it was in 2019?

Yeah. So if you take out -- we include over-the-road trucking right now, as a specialty market. I believe that, that really should start going into the base. Because it's part of that global clean energy infrastructure build-out. So strip the over-the-road trucking out of that, you kind of had a $100 million-ish of specialty markets or so, and so doubling it.

Okay. All right, well that would be -- especially, I guess if the guide is 10% growth that would be pretty impressive.

Yeah, absolutely.

So I appreciate you. Let me follow-on.

Yeah. I think there's, a couple of breakthrough opportunities for our team this year that aren't in the guide. So that's probably a little bit of the contingency. And I hope the commercial team is listening to this call.

All right, I appreciate, Jill.

Thanks.

Thank you. And our next question comes from Patrick Baumann from JPMorgan. Your line is now open.

Hi. Thanks good morning, Jill. Good morning, John. I appreciate the color.

Good morning.

Maybe just quickly on the guidance for 2020, I think you mentioned that first quarter below fourth quarter, Is that revenue and EPS, or both, or something else? And then just curious phasing first half versus second half, I know there's seasonality in the business. That's why I just want to make sure, I'm kind of straight on that stuff?

Yeah. First, just to answer the question, both would be -- both revenue and EPS was what we think ultimately is it will fall. So, relative to where the fourth quarter is. So as far as what the file looks like Patrick for the rest of the year, ultimately we feel that both revenue and EPS is going to be weighted to third and fourth quarter. That has naturally to do with the way that the business flows. If you look at our historical revenues, it tends to be stronger in the third and fourth quarter. Also that's going to be a product of what we ultimately think is some of the big LNG orders that come in. So, we think, significantly weighted to the back half of the year makes sense. But it's still very comfortable with the overall guidance.

Yeah. And then what's the margin outlook embedded in the guidance for operating margins, for the year?

So we had 29% gross margin. And we've got about 15% -- 14.5%, 15% SG&A. So you can pack into it that way. Or said differently $200 million of SG&A.

Got it. Okay. And then any update on what you're seeing in the U.S. from a midstream perspective as it relates to that AXC business that you bought there? I think you said something about January picking up. So just curious, if you could give some more color on that?

Yes. Actually as Jill gave a lot of color Patrick which we won't reiterate now...

I might have missed it I apologize.

It's all right. So we had a good order month in January that was as strong as it's been in a year in that business. And so we're feeling like we're off to a good start relatively -- relative to the fourth quarter. We're anticipating that that continues, but we're staying with ultimately our overall guide of the $180 million to $200 million. As you mentioned, there is some softness in overall capital spending in the gathering and processing and midstream area that we see. But we're finding our spots in terms of opportunities both in the U.S. and beyond which we think is offsetting a lot of that. We're not going to comment on where we think the capital spending in the U.S. is. But certainly it's something that has softened and have been talked about widely in the public and research.

Yes. I apologize, I was hoping back and forth between calls so I might have missed that. And then you seem pretty confident on Driftwood. And so maybe you just remind us with the project of that size how that would impact your cash flow? I assume the $180 million to $210 million cash flow guidance is before anything that might come from that or any other big LNG right?

That's correct. So the only thing in the $180 to $210 million is the Calcasieu Pass cash. Anything of that comes in 2020 related to big LNG would be on top of that. It would depend on which -- how many trains and phases that the projects do. So take Driftwood to your question specifically, the first phase right now is being looked at as 16.6 million tons per annum which the order size for us is call $375 million to $400 million for that 16.6 million. We would get a portion of that of cash in the year. So if I were just round balling it, I'd say that's $40 million to $50 million of free cash flow in 2020, if that order comes by summertime.

I'm sorry did you -- what'd you say? $40 million to $50 million you said?

$40 million to $50 million in 2020 if we get notice proceed in -- by midyear.

By mid year, got it. Okay, appreciate the color. Thanks a lot. Good luck.

Thanks Patrick. Appreciate your time.

Thank you. If there are no more questions I will turn the call back over to Jill Evanko for some concluding remarks.

Thank you. While increasing our 2020 outlook we're also investing in our future new specialty market commercial resources our inaugural class of the emerging leaders engineering fellows in key experts program amongst other appropriate capacity and productivity-related capital. Given the strength of our backlog to support our outlook and the upside opportunity we believe 2020 is a breakthrough year for our Chart business. Finally, thank you to all of our Chart team members for your continued efforts which make us cooler by design. Thank you all for your time today and goodbye.

Ladies and gentlemen this concludes this conference call. Thank you for participating. You may now disconnect.