Q4 2019 Earnings Call
Ladies and gentlemen, today's conference is scheduled to begin shortly please continue to stand by and thank you for your patience.
[music].
Good morning, and welcome to chart industries, Inc. fourth quarter and full year 2019, earning call.
All lines have been placed on mute to prevent background noise. After the speaker's remarks, there'll be a question and answer session.
The companys, earning release and supplemental presentation was issued earlier this morning.
We have not received the earnings release, you may access it by visiting chart IR website at Www Dot IR dot targeted industries dotcom.
Telephone replay of today's broadcast will be available following the conclusion of the call until Thursday February Twentyth 2020. The replay dial in information is included in the earnings release or on the Companys IR website before we begin the company wouldn't like to remind you that statements made during this call.
Oh that are not historical in fact, our forward looking statements. Please refer to the information regarding forward looking statements and risk factors, including in the Companys, earning release, a latest filings with the S. You see.
Company undertakes no obligation to update public sleep well revise any forward looking statement I would now like to turn the conference over to Jim Your Banca Char industry CEO.
Thank you Justin good morning, everyone and thank you for joining us today to go through our current outlook for 2020, and 2019 result, joining me today as John Bishop Our Chief operating officer, it's not Merkel, our chief Accounting 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 becoming decade as you walk through our supplemental presentation that was released this morning.
These seemed are shown in the strategy circle shown on slide three which you had seen both on last quarter's call as well as at our Investor Day in November.
Today ill start with our increased 2020 guidance for which we have much higher conviction after the record order and backlog at quarter 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 1.64, or 5 billion $1.71 billion compared to the prior revenue outlook of $1.615 billion to $1.68 billion increase is driven from the timing shifts a fourth quarter 2019 orders and revenue related to three of the four segments, we have not revised our NCCN fans.
The revenue outlook from the prior quarter.
Those guys are and weren't inclusive of $100 million of Calcs you pass related revenue.
We expect full year adjusted earnings per diluted share to be in the range at $4, a 90 cents to $5.50 per share on approximately 36.1 million weighted average shares outstanding. This is an increase from our prior outlook for dollars and 75 cents to $5.25 per share, which is on approximately 35.8 million weighted average.
Shares outstanding.
Our 2020 tax rate is assumed at 20%.
This is an improvement from our prior outlook the tax rate of 21% driven by the strategic tax planning efforts completed in the fourth quarter of 2019.
Our capital expenditure outlook remains between 35 in $40 million inclusive of $30 million of maintenance Capex and between five and 10 million related to our productivity and strategic capacity expansion activities, including the completion of our LNG vehicle tank line in Italy, supporting our two customers with sole source LTAC.
This range is consistent with our 2019 actual capex a $36.2 million.
Our free cash flow outlook is 180 million to $210 million inclusive of approximately 30 million a free cash flow related to campus you pass.
As we indicated in October November our 2020 outlook is weighted to the second half of the year for both revenue and earnings.
Typically the first quarter of the year is our lowest quarter and we expect that will hold true in 2020.
We anticipate the first quarter 2020, well be at or slightly below the fourth quarter 2019, not only from traditional seasonality within the year, but also from the negative impacts from the Corona virus, which we will explain today.
Additionally, Calcs you pass revenue recognition will primarily be in the third and fourth quarter.
As you can see on the far right hand side of the page there are additional big LNG opportunities that we have direct line of sight booking in 2020, we've chosen not to include them in guidance at the timing is not specifically known yet. So we do have high confidence and then moving ahead to F.I.D. This year, you'll also hear about these today.
Our 2020 increased guidance is the result of a very busy and noisy fourth quarter 2019.
Pacific fourth quarter activities that increased our confidence in 2020 included continued optimization of our global footprint cost structure and margin expansion activities combined with cost synergies from our recent acquisition.
Actions that we have completed as of December 31st 2019 are expected to read turned over $38 million to the bottom line in 2020.
Necessary ramping of resources for NT cryogenic big LNG projects in preparation for deliveries of our de any DNS east record backlog for trailer and fueling stations is another contributor. Many of you have asked about the availability of resources to ramp to the demand expected with big LNG in particular, given the low U.S. unemployment.
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We had the opportunity in the fourth quarter to bring back skilled former chart team members and took advantage of that opportunity ahead of the exact timing of the demand. We added 18 additional heads in Q4 at or Brazed aluminum heat exchanger facility in lacrosse, and 29 at the Cobots facility in New Iberia, Louisiana.
With full year 2019 increases of 79 heads in new Iberia and 41 animal across.
Well this cost burden the fourth quarter it keeps our 2020 delivery schedule on track.
We also completed strategic tax planning work, which reduces our forecasted tax rate to 20% as I. Previously mentioned, we had timing of certain orders in the business, which reduced our fourth quarter sales. The bolsters, our 2020 outlook, specifically LNG vehicle tank book and ship orders were less than expected in the fourth quarter driven by a key customer changing design.
To a different leader size tank and the receipt of over $120 million orders in the last month of the year, which while reducing the revenue able to be recognized in 2019 increases our 2020 guidance.
And most impactful was the exceptional order activity, resulting in numerous records and record backlog levels.
It's rare that we had multiple record orders and a quarter and even rare when we have multiple record orders in year. We had this situation in both Q4 and a full year 2019 moving to slide five.
Fourth quarter orders of $344 million worth 20% increase over the third quarter of 2019.
Perhaps most notable was that it was driven by 20% plus growth in three of our four segments. So wide reach of string.
Also noteworthy is easy cryo was 55% sequential increase with no significant big LNG orders received.
Yes, West fourth quarter 2019 orders were the highest in the history the business with significant contributions from a variety of end markets, which will speak to shortly.
In the fourth quarter contributed to a record order year for us with full year orders of 1.413 billion, a 24% increase and 11% organic increase over the full year of 2018.
We also had full year record orders in trailers LNG fueling stations lasers, hydrogen cannabis and water treatment as well as for cryogenic equipment in India.
Our Viavi acquisition, which concluded its first full year in 2019 as part of the chart family expanded that geographic reach specifically, we had $16.2 million synergy related orders in 2019 with 5.8 million in the month of December alone.
As I've said on numerous occasions, we love multiple orders in this range versus waiting on one or two big orders in the fourth quarter took our prior quarters record and blew away.
In the fourth quarter, we booked 37 orders greater than $1 million each.
Another record for us in this quarter of those 12 orders were greater than $2 million. Each three in each segment. So a nice balance of broad based consistent growth.
So where are these orders coming from.
Moving to slide six the two areas of our business that are driving above market growth and we'll continue to do so in the coming years are the global clean energy infrastructure, Buildout and our specialty markets.
Starting with the right hand side of the slide specialty markets has grown considerably in 2019 with record order levels and lasers hydrogen candidates and water treatment. We expect these product categories to increase above 10% in 2020, both in orders and revenues and it's very possible that we could have a breakthrough year in both over the road trucking and hydrogen.
For over the road trucking, our European LNG vehicle tank capacity expansion project will be in production in the second quarter of the year once ramped up this will more than double or capacity over $200 million of revenue throughput here. This is well timed as our customers on sole source long term agreements have indicated just a few weeks ago that they will be needing considerably more.
Tanks and what is included in our 2020 outlook part of this is driven by the change to the newest tank model, which occurred in late fourth quarter 2019, impart is driven by the increasing movement to expedite cleaner fuel options in Europe.
I will discuss the increasing hydrogen activity momentarily, but first let me speak to our continued investment in these specialty applications in markets.
We have dedicated R&D and new product development engineering teams, who are working with multiple customers on continental pilot programs.
Seven new products for specialty market applications are in the pipeline from <unk> production release in the coming 12 month.
The second aspect of our investment is our newly created commercial team dedicated to specialty markets.
This team, which currently is comprised 14 people, including commercial in engineering resources will be significantly expanded to further penetrate the markets. We have already described as well as new market opportunities, including carbon capture plant based meets or Botanicals as my team would correct me and exploring other applications, including ones currently underway.
Customer pilot programs, such as liquefied biogas renewable storage and micro scale LNG.
Working with our emerging leaders the team also focus on taking specialty markets to the east from its existing base in DNS West.
With the double digit growth expected in 2020, any additional market opportunities with existing products. We hope to have this turn into our fifth segment in 2021.
Our second above market growth drivers global clean energy infrastructure build out which ranges from big LNG to small scale LNG terminals to transportation, whether by rail road or ship to the fueling stations and bunkering needed to accommodate the changing energy landscape.
LNG fueling stations continue to be in high demand with new record orders of 55 stations in 2019 compared to 30 in 2018.
This is a steady increasing trend since 2017, where we had single digit fueling stations.
Under our emo you would AG NP, we've begun to contribute to the infrastructure Buildout in India, including five related stations ordered at the end of December.
Additionally, 2019 is our second consecutive year of record orders for trailers within nearly 10% increase over 2018.
[noise]. It's also important to note that this infrastructure Buildout is truly global at the end of 2018, we sold into 21 countries at the end of 2019, we sold into 52 countries and we're bidding on work now in 71 different countries, even our China facility, you're seeing an increase in infrastructure order activity, mainly for exports with the fourth quarter being a higher.
This order quarter in China since the third quarter of 2015.
Finally, we received 1.2 million dollar engineering released order in December for one of our U.S. Gulf Coast Big LNG projects. We consider this meaningful at is as it is key step on an already one project that we have not yet booked as we await if I'd.
This wasn't the only meaningful order in the fourth quarter, so flip to slide seven to understand the impact on 2020 from our record order quarter.
Not only do we received the engineering release on one of the Big LNG projects. We also saw broad base order strength in the businesses a quick comment on a few of these starting on the left hand side of the page. We received the 23 million dollar order to supplier cryogenic PDH separation system in Canada.
We booked at 21 million dollar order for LNG by rail for a customer in Mexico in the last week of the year, which is our first significant locomotive order for gas by rail products.
In December or Viavi and see team was awarded the 12 million dollar Dax. He order for 10 Crystallizer vessels for a plant in China to provide polymers for applications like synthetic textiles librarian balls.
The $9 million small scale LNG equipment order for a facility in the Caribbean and over $5 million of LNG fueling stations with a key customer in Europe.
Our emel, you with AG and P is paying off with more orders for fueling stations in India.
An application for hydrogen that we haven't spoken about previously is computer chips, and we received a $3 million related order in December for this application.
We continue to collaborate with the Indians based research organization for which we received the 2.7 million dollar order in fourth quarter supporting Moody's make in India approach.
Finally, while air coolers for the mid and upstream end markets began slowing in the second half of 2019 December order activity picked up including the receipt of one order for $2.6 million as we indicated in October we took our thin fans 2020 revenue Ellis down to the low end of what we thought would be possible for the year, indicating that we were in a wait and see mode relating to the.
Admitted upstream customers order activities through Q1 2020 in wealth and fans is off to stronger than anticipated orders in January with air exchangers, having their highest order month in the past year, we're maintaining our prior outlook for this segment for 2020 at this time.
Also in January received the L. alive for Eagles, Jacksonville small scale terminal, which includes our IPO. Some more process technology, a 2.3 million dollar iOS yell refinery order for LNG fueling stations from a new customer and multiple million dollar trailer orders.
Moving to slide eight.
All the fourth quarter activity contributed to a record backlog of $762 million, even when comparing with years, where we had big LNG projects such as Wheatstone in backlog at the same time as we had hundreds of millions of China LNG related backlog. This record backlog is an increase of 34% from the fourth quarter of 2018.
In our backlog or multiple orders that will help our customers achieve their U.S.G. targets in particular, the sustainability portion.
As we shared with you at our Investor Day in November we are focused on E.S.G. with three female directors out of our eight board members nearly 50% of our workforce being diverse and a new internal U.S.G. scorecard, perhaps our biggest contribution to sustainability, though is what we do for customers carbon reduction targets.
So turning to slide nine as I mentioned earlier, we are seeing increasing demand for liquid hydrogen storage tanks and other associated equipment in particular for the development of SC. These stations in California in other regions. The world. After recently, joining the hydrogen council, we see even further support for hydrogen as a clean energy source and there is considerable public desire for now.
College around the CP cost in availability of hydrogen which will be a key fuel at the Tokyo Olympics. This summer.
Hydrogen is expected to be a two and a half trillion dollar industry by 2015, and we're at the forefront of technology for liquid hydrogen.
Our work on providing hydrogen components and solutions has directly held their customers achieve their sustainability targets well not naming specific customers as many are developing additional carbon zero solutions with us we design and build liquid hydrogen storage tanks for customers, who integrate them into hydrogen fuel cell vehicles fueling stations for cars buses and forklifts.
You can see some of the statistics around the cleanliness of hydrogen including that well transportation accounted for 17% of global Seo to emissions fuel cell vehicles had zero tailpipe emissions.
We're pleased with the continued education, increasing demand for liquid hydrogen equipment, which we expect to grow significantly in the next decade as cost differentials between hydrogen and traditional fuels our reduced.
Another example is our dosing offerings, where we are working with beverage customers to support their sustainability efforts. For example, certain large beverage customers recently have publicly stated that they are working to eliminate waste and lower their carbon footprint, while maintaining customer satisfaction with customer friendly bottled packaging.
Through our liquid nitrogen dosing product solution. We are assisting these beverage customers in their efforts to reduce plastic bottle weight and utilize less plastic for transportation and storage.
In addition to the strong above market demand and customer U.S.G. support we see continued broad based macro tailwinds in our markets driven by the overall move toward a cleaner energy future I will walk you through each of these as you've heard the global growth to our order and backlog activity, but to market drivers were updating the first regulatory specifically IMO 2020, which went into effect.
Your first it's clear that the demand is increasing for LNG as a marine fuel and while we have not seen a direct impact from the regulation to date and we do not have any IMO marine orders in our 2020 guide we believe the activity will pick up as the year progresses, a year ago, we made investments into two marine specific resources to build what we believe will be a growth platform in the next decade.
As well as joining see LNG in the fourth quarter, we booked over $10 million of marine related orders in the second half of 2019 and expect to build upon that in 2020.
The second driver our government in country specific moves toward cleaner energies in 2019 global emissions were unchanged at 33 gig of times, even as the world economy expanded by nearly 3%.
This is reflected of the increasing focus on expanding role of renewables and alternative energy sources as well as increasing focus of the country level. This list is extensive with Scotland announcing the reduction to carbon emissions net zero by 2045, Spain targeting no colon power plants by 2030, Germany determining that they will start burning coal for electricity.
By 2038 et cetera, et cetera for today, let's just talk about India, which recently indicated that they are planning a network of LNG fueling stations along their 6000 kilometer Golden quadrilateral highways about 350, LNG fueling stations will be needed to cover that highway and regulations only permit those with Citi gas distribution licenses.
To set up the station.
In addition to the stations. The plan also includes getting 10000 LNG trucks I LCL is one of these developers and they're working with companies such as Exxon Mobil, India, LNG, who signed in MW in October with iOS Hill. As a reminder, we also have an LNG oriented and we'll use iOS yet so we expect to work closely with them Exxon Mobil and others as the.
Restructured continues to be built.
Before we get to big LNG on Slide 11, it's quickly touch on small scale LNG in our 2020 guidance, we have built and $50 million a small scale LNG related revenue, we already have multiple schools small scale LNG related equipment orders and the 9 million dollar Caribbean project in our backlog. Therefore, just the Eagle LNG Jacksonville Award alone.
And if that's idea occurs by early second quarter would achieve forecasted small scale revenue in 2020.
Big LNG is additional potential upside to 2020 as shown on page 11, we're well underway on the production of the Breeze heat exchangers and associated cold boxes for venture growth Globals, Calcs, who passed project with $100 million associated revenue included in our guidance a few quick updates on the middle column projects ones that we have high confidence in and expect S. IDN 20.
Really which would trigger the booking of the orders for us.
In no particular order to learning continues to make consistent progress toward their 16.6 million ton per annum first phase of their driftwood facilities indications that the remaining 4 million tons needed to F.I.D. The three plants will be complete in the coming months, followed by completion of their credit arrangements. Recent news indicate that's we're in and Petro net will complete their agreement in the.
Coming weeks during the Modi President Trump India visit.
In addition to having all permits secured in mid December FERC approved the driftwood site preparation work.
Perhaps the best way to characterize our confidence level in driftwood moving ahead with F.I.D. and notice to proceed in 2020 isn't the words of Meg gentle jewelry and CEO herself just last month.
Florian has already made the decision to go forward with this project. The only thing remaining is the incremental notice that is given at the end of financing.
Shin years Corpus Christi Phase 310 million ton per annum expansion project received FERC when November and is expected F. idea and 2020 with a total of seven trains and stage three and leveraging their shared infrastructure with stages, one and two we expect to receive notice to proceed on the project in 2020 for a total seven train order size of just over three.
Hundred million dollars inclusive of air cooled heat exchangers, just this past Monday the deal we approved near stage three non FDA export authorizations.
And the big oil companies of which our IPO smart process technology has been validated by four of them are making additional investments in both big LNG and small scale LNG during our earnings call two hotels, so they're making a massive bet on the low gas prices for the long term in the U.S. and others such as shown Exxon Mobil are investing in the LNG global infrastructure with terminals pipelines.
And fueling stations.
We are carefully watching the impact from Corona virus as there is concern around what China is doing in terms of their imports of LNG.
Last week seen aka tempted to put into effect or force majeure clauses, Michelle and hotel in both rejected them. Our three big LNG projects that are expected to move ahead in 2020 or not solely reliant on China offtake as evidenced by square is expected completion of their agreement with Petronas.
It's also important to note that United States LNG supply has had to rely on markets outside of China. Since the tariffs were put in place in September of 2018, and as a result, the direct impact to the U.S. supply is less impactful then places like Australia in Qatar that have contracted volumes to China.
Speaking of China, we do have three manufacturing facilities in the country. So let me provide an update on the Corona virus situation for each of those are Chengdu facility, which produces cryo by aluminum tanks was released by the government to return to gradual production beginning last Monday February 10th we lost one we can production was which is expected to be recouped within the first quarter.
Our changshu fans facility, which is midstream on their consolidation returned to work on February 10th as well. This facility is in the process of being consolidated into other facilities and we'll close early in the second quarter of 2020.
Our main facility in China is in Chengdu management applied on February Threerd reopening per the government requirements and received approval to partially reopened beginning tomorrow February 14th the government has improved 32% of our workforce returned to work on Friday with certain restrictions.
This will negatively impact our first quarter results for which we are forecasted 18 in half million dollars of revenue. The current situation barring no. Further delays is incorporated into our guidance that the first quarter 2020 revenue and adjusted earnings per share is expected to be at or slightly below the fourth quarter of 2019.
We are supporting the efforts toward a cure of the virus and this past week, we donated cryobiological storage and transport tanks for research to the we'll hand Institute of neurology.
Even with the current players situation, we have continued to improve margin in China and other geographical cost structures I'll now hand, it over to JV to switch gears and discuss these margin expansion and acquisition integration activity on slide 12.
Thanks Joel.
As part of our margin expansion and integration activities, we continue to work to optimize our manufacturing footprint by determining where the best locations or 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 a $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 PRB in a exceed.
We are expanding our 80 20 efforts to Europe, and Asia, where we expect to realize similar benefits as we did and DNS West [noise].
Global sourcing initiatives continue with the most notable Q4 savings achieved by developing new suppliers and negotiating broader supply agreements to better leverage charge global scale and volumes.
In the fourth quarter, we've 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 VR B. 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 completed by mid year 2020.
We have completed the insourcing of our inner and outer vessels into our Italian facility saving costs as well as 10 days of lead time.
We will not report any viavi integration costs. It adjusted EPS in 2020, yet we will continue to report on cost and revenue synergy progress as we are extremely pleased with the progress to date, such as the 12, new customers and $16 million of revenue synergies from PRB and 29.
19.
We continue to integrate the air exchangers business into our fin fan segment with anticipated cost synergies of $29 million annualized by June of 2020 of which projects targeting $20 million have been completed as of December 30, Onest 29 team.
The 20 million of projects completed in 29 team did not have much margin impact in the fourth quarter, but will immediately take effect in Q1 2020.
Our overall integration efforts, our combined with our global footprint optimization and we've made the decision in Q4 to consolidate the China Changshu fans manufacturing facility operations into other existing fans operations with the expected consolidation to be completed by the end of April.
2020.
This builds on the previously discussed plan to consolidate our China manufacturing footprint, which we mentioned earlier in the year when we eliminated to unprofitable product lines in China.
The consolidation will not impact our ability to pursue our global strategic agenda, but focus our efforts on more profitable and productive operations.
Additionally in December we signed an agreement to sell our formal our former Chung job, China building, which has been consolidated in 2018.
That sales expected to close in the second quarter of 2020 at which time any game on the sale would be recognized.
Returning to other synergies from the Air X changers integration that were completed as of year end for underway.
We have consolidated three Tulsa plants into one.
We are moving into phase two of our a ICSI integration, which is targeting overall GNC fin fan business improvement.
This will include additional productivity enhancements, such as better utilization of our 50% owned joint venture in Mexico, increasing the supply of fabricated assemblies to sister plants.
By better utilizing Mexico, we received the benefit of low manufacturing prices and an increase dividends from our 50% ownership.
One of the key strategic steps in our air Exchangers integration is the movement of production to other geographic regions, including India.
We already participate in both Regasification and downstream infrastructure in India, such as LNG fueling stations storage and truck trailers.
India is expected to have a five year compound annual growth rate of 15% for air cooled heat exchangers.
Therefore, we are expanding our finance manufacturing footprint to our existing manufacturing facility in Chennai, where we're assembling our first air cooled heat exchangers by the end of Q1 2020.
Additionally, we are expanding our existing presence in Hyderabad, India, which came from the air exchangers acquisition.
To increase our global engineering resources to address growing project backlog across all segments.
Today, we have 40 engineers in Hyderabad, and we are targeting at least 20 additional hires in 2020, which have an advantage cost point relative to us and European engineers.
Now I'll hand, it over to Scott, who will take you through slide 13.
To discuss how these actions impact our financials going forward.
Thanks, John.
In 2019 normalizing for acquisition price and a pro forma first six months of air exchangers, we generated $123 million of free cash flow, including unusual working capital activities in the first quarter of the year related to integration of ERP 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 and DNS West, which reduce lead times and 27 of our 44 product lines.
We expect free cash flow in 2020 to be between 180 $210 million, including approximately 30 million from Telecos who pass.
We continue to prioritize debt paydown and organic reinvestment in the business with a cash generated at the end of 2019, our leverage ratio was 3.1 down from 3.3 post close of the ICSI acquisition, our target at year end 2020 is to be under 2.0.
Sales of $342.4 million into 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 DNS west.
NC Cryo was fourth quarter sales of $58.9 million included $16.27 million of revenue related to the Kalamazoo past 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 viavi and air exchangers.
Our aftermarket parts service and repair revenue continues to increase its 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 are retrofitting brownfield LNG facilities that Joe referenced earlier.
Gross margin in SDMA had many moving pieces in both Q4 and the full year. So it's important to understand the pieces to get a normalized figure as the jumping off point heading into 2020.
Full year normalized yesterday of 195.5 million is 15% of sales compared to full year 2018, normalized yesterday of 175.4 million or 16.2% of sales.
The 2020 equity in a run rate is expected to stay at 2019 normalized levels, even inclusive of the additional volume and big LNG included in our outlook.
Reported gross margin as a percentage of sales of 25.9% included onetime cost is purely as previously described when normalized for those costs full year 2019 gross margin as a percent of sales was 27.9% from the business.
Including AMC cryo snap normalized 19.2%, which included ramp up cost for 2020 production that dragged on the margin profile in the second half and we're not adjusted in the normalization.
We expect chart gross margins to be over 29% in 2020, resulting from the higher volumes NMC cryo. The savings already described from Rightsizing, the cost structure and acquisition integration along with higher margin product mix in DNS west.
[noise] onto slide 14 fourth quarter reported earnings included cost.
Associated with the continued.
Exchangers integration the conclusion of our Viavi integration costs and cost out actions and ramp up activities as we head into 2020.
Full year 2019, adjusted earnings per share of $2.52 or an increase of 25% over 2018, and a record year for the business.
The following adjustments are included in row, one rule, one relates to restructuring and transaction related costs. These costs were associated with the organic cost out actions taken throughout 2019 as well as the transaction costs for the air exchanger business.
Grow too is the integration costs associated with Viavi ICSI integrations as mentioned previously was one year under our belt post Viavi acquisition. These costs will no longer be specifically called out.
[noise] grocery is related to other onetime costs throughout the year, specifically related to our third quarter 2019 legal settlement.
And finally ROE for is a reduction to our adjusted earnings per share of seven cents per tax effected.
I will send it back to gel to complete of conclude our prepared remarks on slide 15. There are two noteworthy items in the fourth quarter you can see what those are we included those in our press release onsite I'd just comment that we push the volume into 2020, given the timing as well as the adjusted EPS related to the ramp up of our Resourcing for both PNC.
Trial, as well as DNS east regarding since and the fourth quarter also had a under absorption in the second week of January we reduced head count by 137 people anticipating similar volume levels in the first quarter.
All of the bonds is included in our 2020 guidance on I'll turn it over the operator to open it up for questions.
Thank you as a reminder of asked a question.
You will need to press star one on your telephone to withdraw your question press the pound Keith and we ask that you limit yourself to one question and one follow up in our first question is going to come from Rob Brown from Lake Street Capital markets. Your line is now open.
Good morning, Joe.
There are up.
Just wanted to clarify your kind of color on the order shifting out of Q4 and 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 point later in the year or arms at 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 three to 4 million of it we see the rest of that we'll call. It another 25 million on fairly evenly spread between Q2 in Q3, and that's a portion of that relates to the on order for LNG by rail that.
I mentioned, which was $21 million. So piece of that comes into 2020, and then the rest of that was around some of the LNG vehicle tank timing that that I touched on.
Okay. Okay. Good and then maybe just the order kind of a uptake that you're seeing I think you mentioned a number of things in already in 2020 that you've received.
But maybe some kind of color on the overall order order pipeline in 2020, I guess in terms of LNG. Thanks particular, and then maybe Eric as Paul you mentioned things there, but just clarifying.
Kind of the strengthen the orders for this year in what you're seeing in terms of Tailwinds.
Yes. The 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 you know 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'll ramp even further once we start first production in April in Italy. So that has a a lot of positive implications to us we've built $72 million into our guide. So that gives you a sense is kind of where where we have a kind of down the fairway LNG vehicle tank with respect.
Back to the other pipeline on the demand side of things January started out pretty strong and we had a total of $28 million in January and since and 17 and a half of that was air exchangers related as I mentioned, the highest months since January of 2019, and certainly for total thin.
And.
That that month has surpassed the prior for in terms of the other three segments. The based businesses continue to kind of take along I think theres 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.
Thank you I'll 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 was kind of a high level question, but you know just kind of what's going on in the market I know you're you know the three big LNG awards that you're targeting in 2020.
You know not necessarily imply impacted by this is 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 or have not cross yet from an LNG perspective, and low natural gas prices in the lower LNG prices.
As a general.
Our a headwind to some of projects what we see in particular to the projects that we call out for expectation for F. Idea in 2020 is really around the thought process that these are five to 10 year type projects. So the short term macro situation, while it may or may be impacted quarter, two as well.
Said before whether it was tariffs whether it was low natural gas prices, whether its farone alaris.
You guys are in it for the long haul they have a lot of approvals and.
Our understanding is it.
At the finish line in 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 are starting to see a little bit of an order uptick there. So maybe just outlook on that side and realizing that corona virus, 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 on the first around the current desire situation certainly what you read in the news and 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 partial production and all are facilities very I'm very positive on the recent order intake in China and particular, the fact that the order in.
Take is for exports from China into regions like Europe. So that's that's an interesting change in the last six months and it's a positive from my perspective, both 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 Corona virus in our China locations. So that's a that's a good start to the year for.
Dissipate a profitable year again ill take profitable in China to be fairly low so it's not breakeven, but that does help us as as you commented around our tax our tax rate.
We feel very good about our guided 20% tax rate and while you know well without giving anything more away that could improve on 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.
Hey.
Team.
My first question relates to something that that Scott mentioned that the aftermarket was 13% 20 Ninetynine I believe that you guys had indicated that for 2021, you are looking for that to be 21% of the.
Of the business. It does it still stand I mean is that is that target still what you're looking to do any thoughts around that.
Yeah, that's still our target and we have a pretty good line of sight on some incremental increases in the year 2020 on I'll give you to those one is.
Committed volume levels in some of our major customer LTA days that are currently in the negotiation process in 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 in some of their own assets that are in the field. The second line side 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 export that our 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 million to order in our fin fans business for a retrofit on an existing.
Infield facility. So I think you'll see that increment incrementally move into the mid teen mid to high teens in 2020 on 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 and Mozambique.
Nigeria for instance that have all gone if I'd I think is very likely that Qatar world.
At the same in the next few months do you guys have any content and any of those or is that something that incrementally to what's already on the books could be added as we look forward.
So they are there are potential incremental adds for us and we would have a it content on many of those projects more with respect to treat treatment for raise loom heat exchanger content versus the full liquefaction those projects tend to have been longer in the two onto they wouldn't event.
Caseload projects that had different equipment and different liquefaction process before our mid scale IPO Somar came out onto these projects for us would be content, ranging between 10 and $50 million, depending on the size and depending on the construct of the pre treatment facilities are those aren't built into our guide.
Okay, Alright, I appreciate it thanks, a lot Joe.
Thanks, Thank you and our next question comes from JB Lowe from Citi. Your line is now open.
Hi, good morning, everyone.
Maybe I can give to the good job of kind of laying out the.
The timing differences between move the revenue shortfall in Fourq you 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 into 2020 that.
The business can be little bit more stable I know, it's been lumpy in the past what I'm just wondering what gives you confidence in the in the range, giving some of the timing issues.
Yes, I mean part of this philosophical write any good three or four years ago, you would've seen a range from 10 cents to one dollar 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 hey on order and backlog in our understanding of the timing.
Coupling that with we know on the earnings from Calasu, We know the impacts from the 38 plus million dollars have completed on synergies in margin expansion. So we have a pretty darn height bridge to walk from our 252 in 19, two or 490 to 550.
So I think we we would say you know we do we give the range because there is variables that can impact the year and that's why the low and high but.
We won't see us expand the range beyond the 60 cents that we have in between 490 in 550.
Okay. Thanks for the answer just a couple of quick ones.
The LNG tank capacity that you mentioned the throughput of 200 million year, you're actually going to hit that number in the back half.
I don't think we'll have 200, so I think it'll be is certainly better than a 72 and change that we have in our forecast right now, but that 200 would require everything to tick right out of the gate for a full year and I'd say, it's probably better than the 72, but not.
Not at the 200.
I guess, we're going to at the run rate, though in the back up.
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 too to get one of these other big LNG.
Projects, if I do you.
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.
Good to talk through past work.
Right now we can take on one more with the guys. We have on in house, if we get more than one we'll have to continue to ramp up one of the one of the great things that happen tenant in our downturn in the cryo business is that the in particular, the lacrosse Brazed aluminum facility did a lot of optimization of the footprint, but also around.
In some of the robotics and the machining so were at the last peak, we had one big LNG projects 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 honestly you to ramp you know 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.
Im sorry.
Oh on the LNG infrastructure and.
Including equipment for re gas facilities.
Can you break out roughly what that was on a revenue basis in 19 in kind of maybe a range for.
Where that might be in 2020, excluding.
The the Big LNG give me project.
Sure. So we kind of break the re gas from the small scale. So if you just take the small scale as the comment we have 50 million of small scale related revenue in 2020 is guide that compared to 30 in 2019. If you look at the Reask side of things we had about the same equivalent.
In 2019 and in our 2020 forecasted.
Basically the same as a 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 the tanks and.
The the fueling stations and everything else you would fall into that that infrastructure bucket.
It would correct, yes that we set we just the way we think about it we separated that way, but if you if you lumped it all together, it's hundreds of millions.
Okay.
And then just on the the fund fan segment I'm 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 your conference in the outlook for that segment in 2020, and maybe some of the potential pot of positives and negatives that might occur.
Yes, so we we slashed the guide on that segment back in October on and we did that purposely to take into what we believed was it kind of the Armageddon scenario for 2020, so that we didn't have to come back around yeah sitting here today and do it again.
Thats why we haven't raised anything from that 190 200 for the total segment.
For the vaccine part of the total segment for 2020, I always say right now where I said.
I would put it as cautious still.
I wouldn't even say cautiously optimistic I think January was a good month, but one month not 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 to February and March numbers come through.
Great. Thank you.
Thanks, Marty thanks.
Thank you and our next question comes from Walter Liptak from Seaport. Your line is now open.
Hi, Thanks, good morning.
Oh I wanted to ask about morning, I Wonder what about.
The funnel of projects in India. It sounds like things are going well, there and I Wonder if you could.
Help us understand the opportunity for.
India Highway project.
In terms.
What's the size of that and what do you expect this year and then anything else in India that there we should be thinking about.
Could build in the final answer your goes on.
Absolutely and 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 talk about that we're in a 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 the big oil companies that are starting to.
Put footprints in India as well on as JB mentioned, we'll have our first air cooler that'll be assembled in India. So that opens a new market, which the interestingly enough the highest growth region for air coolers and all of the World is India with a 15% plus CAGR forecasted between now and 2023 offered.
Growth on air Coolers, So you any kind of what I really like about the India opportunity is it widespread across our business. So it hits DNS east It hits easy cryo and hit antisense and 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 its.
The big oil companies or on the local iOS. He is yield gales agent piece so I.
I would say the size for us if they do 10000 over the road vehicles, you know that you figure one vehicle for us is.
Two tanks, all type of thing you'd probably get per vehicle, a $10000 a content ish and 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 78% over our 2019 numbers. So it could it could move quickly 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 trend continues on.
Okay, Great and then.
Just as a follow up too huh.
Discussion you had about a meaningful orders it looked like there was pretty broad based.
Excuse me I wondered about about pricing on those engineering costs, you know what does the margin mix look like.
The orders that you took 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 DNS business as well as the negotiations on our long term agreements these projects as well as the total back.
<unk> margin in backlog for us.
We feel confident in that 29% plus total chart gross margin that Mark mentioned in his prepared remarks.
Okay, great. Thank you.
Thank you next question comes from Connor Lynagh <unk> from Morgan Stanley. Your line is now open.
Thanks, Good morning.
Hey, guys.
I was wondering if we could.
Come back to finance little bit here, it's good to hear.
Yeah look it's relatively unchanged could you just comment on on how the shape of this.
The guidance that you're expecting for 2020 looks relative to that first quarter, you're expecting trying to get a feel for how front half or 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 finfet businesses kind of a book and ship of the 12 to 20 weeks type of timeframe and so some of the orders that came in late January will start hitting in March from a revenue standpoint.
And we see it going where Q1 in Q4 are the lowest quarters of the year in Q2 in Q3 are the highest for fans and in terms of shipments.
Yes, I think maybe conatus worth worth noting is what we're hearing from the customers is that they expect summer to be the busiest period for them.
So there's some orders in some rant ramping manufacturing wise, that's happening now so that they're prepared to take the equipment income end of May and June tiny.
Got it that's helpful. And then similar sort of pick your question. Please let's cover the interesting stuff the.
You can see cryo business, just so we can get a base for for 29 team.
How do you think how much how much big LNG revenue did you actually end up earning and 29 jaded.
And then.
I'm wondering what's the year over year step up including Calcs, you, but net of some projects that are rolling off.
Yes, So we had 17 million of big LNG revenue in 19, all Calcutta to related and we had the 100 million in total built into 2020, all calasu related that's the only big LNG that's in our outlook.
Okay and last last one if in fact some of these other big projects to come through how should we think about the free cash flow impacts that is at positive because you got some early progress payments or is it a net negative.
Working capital.
If any of them our net positive to us when we book them. So there's milestone payments and then.
In particular the structure around some of the process technology is a cash upfront.
Alright, perfect. Thanks for the color.
Thanks, Don.
Thank you and our next question comes from a Greg salaries and employee brothers. Your line is an open.
If you phones I'm you could you please UN mute it.
Greg Your line is now open.
Hello.
Hey, Craig we can hear you now Oh.
Sorry, which year [laughter].
Hey.
To follow ups here.
That's really pause.
Yes.
Opportunities.
Okay.
But if I understand it correct 200 million run rate you talked about.
Potentially from.
Sure Prime or European.
Customers is that correct.
That's correct.
So.
If those European customers.
Do when do you take everything you're just produce even after the upsizing to meet the opportunities in India.
To expand again.
Correct.
Okay.
In terms of cost of timing for that Oh, how easy way is that something.
Started in the second half, but how much would you be looking to spot.
Sure. So we with our India facility that came with our Viavi acquisition on 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 manufacturing and.
Yeah, they should pop 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 five to 6 million U.S. dollar investment and we believe we could get it done and six eight months I'm, 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 Clifton nominal cost what was that due 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 is some design elements in there some confidentially confidentiality elements around models, but let's just say we took kind of the down the fairway between the models that we have right now we could probably add another $75 million U.S.
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 work more thoughtful in once you've done at once or twice you start to get better right. It's like the outliers book.
That sounds terrific.
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 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.
Hey, it's John.
Just talked in the past about what we think ultimately to the retrofitting opportunity is we actually think that in the low price environment, which you might actually see us 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.
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 whats baked in the dog.
2020 on that.
[laughter] you only you always get us on this Craig you always get us.
We think that we've given a very fair and achievable guide for 2020 odd and we've kind of talked very transparently about where there might be upside opportunities but.
We will stay with the 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 Anders Medical Huh.
Evercore Your line is open.
Hey, Joe how are you as Andres from just stepping in for James you got pulled away to meeting.
Hey, Andre straight here for me.
So most questions have been answered already but I just one question about how we should think about working capital usage for this year. So you mentioned that you guys had pretty tight discipline tween 19, Im just trying to see how much of your 200 million dollar free cash flow guidance, depending on working capital efficiency and you will kind of.
Hi, levers you can point to you know to keep data.
Similar levels or if it's going to slow down a little bit this year based on the order book that you have going.
Yeah 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 to 210 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 there's really nothing unusual in that outlook and yeah.
We feel really good about that what we put out there for 2020 and coming off as you know 123 million in 2019, a pro forma for what we talked about with a 38 million of the cost savings that we talked about combined with 30 from Kalamazoo combined with the organic growth rate. It's.
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 my.
Your next question I have in regards to India. So no doubt the fundamentals, Matt if you look good, especially from your Guy's perspective, but I'm trying to seek to what extent and cannot be consistently translate into profitable growth. So it seems like DNS, we east is kind of.
Trying to right size yourself in this profitability so it would.
What's your outlook for 2020 from in terms of India Sammy.
Are you in terms of margins.
Yeah. So we've built in I would say again, you know kind of down the middle around margin improvement in the east in East is the most challenged around the fact that they should be in the high 20, percents gross margins, but its 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 in how we think about margin, we think about it fairly regionally China being the worst out of the region's 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 2012.
Many so I'd say trying to stay similar to 2019, India dramatically improves and then Europe being the Czech Republic in Italy improves, but not as dramatically as India.
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 <unk>, we have an ex Pat that's over there that's in charge of the operations. He is working very closely with our major industrial gas customers on volumes and standardization of bottles and once we get.
Standardization agreed upon and certified with the majors that drives margin as well. It also drive cost down for them price down for them. So it's kind of a win win so when they activities that are underway. So the big margin that should should be happening in the east and that's a couple of year process well it'll get their part of the way this year, but it's really 2020.
When we start to see the full potential in east.
Okay. Great. Thanks, then I'll turn it back to the Q.
Okay.
Thank you and our next question as a follow up question from Ben Nolan Stifel. Your line is now open.
Hi, I appreciate you guys, let me back and I I just had a quick one.
Joe you talked about the possibility of maybe spinning the specialty business out into its own vertical maybe in 2021.
I was just curious it maybe you can quantify how much how much revenue that.
Would you.
You know consist of an and and is it all and DNS west or or is there a little bit cryo errors or somewhere else.
Yes, so on that is the goals and one of the things that we're in the process of doing is hiring as I mentioned to kind of a fuller commercial teams as we have or just awesome at it and we just don't have enough hands on Dec I think by the ended 2020, if that business is over 200 million in terms of heading into 2021 that.
We probably need to break point, obviously, there is accounting implications and that type of thing that we have to do our homework on before we'd make that final determination, but that would be the tipping point for us to really move ahead with that system segment.
It primarily right now it is DNS west the goal is that it becomes a in NC cryo in particular, so some of this liquefied biogas opportunity I'm in the renewable storage opportunity in the carbon capture our NZ on activities and that would that's part of this 2020.
Potential but in the 2019 numbers all specialty markets are reported in DNS west.
Okay, and you said 200 million a sort of the carve out target any sense of what it was 29.
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 Buildout. So stripped the over the road trucking out of that you know you kind of at 100 million ish of specialty markets or so.
And yeah, so doubling it.
Okay, all right well that would be a especially I guess a b.
The guide is 10% growth that would be pretty impressive [laughter]. So yeah, let me call on.
I think there's a couple of breakthrough opportunities for our team this year that aren't in the guide to that that's probably a little bit of the contingency and I hope the healthy commercial team is listening to this call.
Alright appreciate you.
Thanks.
Thank you and our next question comes from Patrick Bollman from JP Morgan. Your line is now open.
Alright. Thanks, Good morning, Joe Good morning, John appreciate the a good morning.
I'm here.
Maybe just quickly on on the guidance.
For 2021.
Thank you mentioned, the first quarter below fourth quarters that revenue and EPS or both for or something else and then just curious phasing first half first and second half I know there's seasonality in the doesn't that's why I just want to make sure I'm kind of straight on that stuff.
Yes, first just to answer the question both would be.
Both revenue and EPS was what we think ultimately is where we will fall so.
Relative to where the fourth quarter it so.
As far as what the profile 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 weighted the business flows if you look at our historical revenues.
It tends to be stronger in the third and fourth quarter also thats going to be a product of what we ultimately think as some of the big LNG orders that come in so we think.
Significantly weighted to the back half of the year makes sense, so still very comfortable with the overall God.
Yes, and then what's the margin outlook embedded in the guidance per per operating margins.
For the year.
So we get 29% gross margin and we've got about 15, 14 at 15% SDMA and getting back into it that way or.
Or said differently, you know 200 200 million of Sq ne.
Got it okay.
And then any update on what you're seeing us from a midstream perspective as it relates to that exceed business that you bought it I think you said something about January picking up. So just curious if you give some more color that.
Yes, actually is you'll give a lot of color Patrick which we will reiterate now Oh is good I mean, I might've missed and I apologize no. Okay. All right. So we had we had a good order month in January that was as strong as it's been in a year in that business.
So we're feeling like we're off to a good start relatively to relative to the fourth quarter.
We're anticipating that that continues.
But we're seeing with ultimately our overall guide of the 180 200 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 as we think those capital spending in the US is but certainly is something that has softened.
Not widely in the public and research.
Yep Yep, I apologize I was hopping back and forth between cost and I might've missed that and then you sound pretty confident on underreported. So.
Maybe you just remind us with a project of that size, how that would impact your cash flow I assume the 180 to 210 free 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 180 210 is a calcs you pass cash or anything of that comes in 2020 related to the LNG would be on top of bad it would depend on which how many trains in phases that the projects do so take driftwood onto 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 even call. It 375 to 400 million for that 16.6.
We would get a portion of that of cash in the year. So if I were just round bowling it I'd say that 40 to 50 million of of free cash flow on in 2020, if that order comes by summertime.
Oh, I'm, sorry, which that 40 to 50, you said 40 40 to 50 in 2020, if we get notice to proceed in but you know by midyear.
By midyear got it okay. Appreciate the color. Thanks, a lot a good luck.
Thanks, Patrick appreciate your time.
Thank you if there are no more questions I will turn the call back over to the Jill Ivanka for some concluding remarks.
Thank you well, increasing our 2020 outlook. We're also investing in our future new specialty market commercial resources, our inaugural classes emerging leaders and hearing fellows in key experts program amongst other appropriate capacity in productivity related capital given the strength of our backlog to support our outlook in the upside opportunity, we believe 2020 as.
The breakthrough year for a chart as for our business.
Finally, thank you to all of our team members for your continued efforts, which make us cooler by design. Thank you all three times a day and goodbye.
Ladies and gentlemen, this concludes todays conference call. Thank you participating you may now disconnect.
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