Chart Industries Inc (GTLS) 2012 Q1 法說會逐字稿

Good morning. Welcome to the Chart Industries Incorporated 2012 first quarter earnings conference call. All lines have been placed on mute to prevent background noise. After the speakers' remarks, there will be a question and answer session. As a reminder, today's call is being recorded.

You should have received the company's earnings release that was issued earlier this morning. If you have not received the release, you may access it by visiting Chart's website at www.chartindustries.com. A telephone replay of today's broadcast will be available following the conclusion of the call until Friday, May 11. The replay information is contained in the company's earnings release.

Before we begin, the company would like to remind you statements made during this call are not historical in fact and are forward-looking statements. Forward looking statements involve risks and uncertainties that could cause actual events results to differ materially from those expressed or implied in the forward looking statements. For further information about important factors that could cause actual results to differ materially from those expressed or implied in the forward looking statements, please refer to the information regarding forward looking statements and risk factors included in the company's earnings release in the latest filings with the SEC. These filings are available through the Investor Relations section of the company's website or through the SEC website, www.sec.gov. The company undertakes no obligation to update publicly or revise any forward looking statement.

I will like to turn the conferences over to Mr. Michael Biehl, Chart Industries Executive Vice President, CFO, and Treasurer. You may begin your conference.

Thank you, Laura. Good morning, everyone. I would like to thank all of you for joining us today. I will begin by giving you a brief overview of our first quarter results and Sam Thomas, our Chairman, President, and CEO will provide highlights from the first quarter and comments on current market and order trends we see in each business segment. I will finish up by commenting on our outlook for the remainder of 2012.

We recorded net income for the first quarter of 2012 of $14.1 million or $0.47 per diluted share. First quarter earnings would have been $0.48 per diluted share excluding the acquisition-related earnout adjustments of $0.5 million recorded in the quarter. This compares to first quarter 2011 net income of $7.5 million or $0.25 per diluted share. First quarter, 2011 earnings would have been $0.30 per share excluding $2.2 million of restructuring costs associated with acquisitions.

Sales for the quarter were $216 million and represented an increase of 33% compared to net sales of $163 million a year ago. Improvement was driven by greater volumes associated with strong end-market trends and acquisitions. Our gross profit for the quarter was $67.6 million, or 31.3% of sales, compared with $52.5 million, or 32.2%of sales, a year ago. We continue to progress with expansion projects that our E&C and D&S businesses but we experienced some higher costs affecting gross margin as we build capacity to handle continued growth.

With respect to E&C business, sales increased 62% to $68.8 million in the first quarter as we ramp up production on major projects added to backlog over the last year and a half, including equipment for the nitrogen rejection with integrated gas processes units in Qatar, natural gas liquids project in Saudi Arabia, and an LNG liquefaction plant in eastern Australia, all of which have added $22 million in revenue during the current quarter.

Gross margins improved to 31.5%in the first quarter compared to 27.8% in the same quarter of last year. In addition to improved volume, gross margin improved about 3.5% due to successful execution and completion of projects in the quarter including income recognition of project reserves as we perform better than expected on these projects.

In D&S sales increased 43% year-over-year to $105.1 million in the first quarter driven by substantial growth in LNG equipment along with notable gains in industrial product sales. The acquisition of GOFA, which closed in the third quarter of 2011, also accounted for approximately $5 million of the improvement. Gross margins for D&S declined to 28% compared to 29.6% a year ago. As mentioned previously, we are experiencing additional ramp-up costs as we expand capacity in China and North America in response to the growing demand for our products.

In our Biomedical business, sales declined 10% to $42.2 million in the first quarter of 2012 compared with $47.1 million for the same quarter in 2011. The decrease is largely attributable to the timing of large orders in Europe and overall weakness in that region. We are also seeing order delays in the U.S. due to the phase-in of Medicare competitive bidding impacting respiratory products. Biomedical gross profit margin decreased to 38.9% in the quarter, compared to 40.3% for the same period in 2011. Lower respiratory volume, a weaker euro, and product mix contributed to the decline.

SG&A expenses for the quarter were $40.6 million, up $5.8 million from the same quarter a year ago. The increase was due to the GOFA acquisition, increased stock compensation expense, and additional employer-related costs to support sales growth.

SG&A is a percentage of sales was 18.8% compared to 21.4%in the prior year quarter. In addition, first quarter of 2012 SG&A includes the acquisition-related earnout adjustments of $0.5 million.

Net interest expense was $4 million, unchanged from the prior year quarter. However, the current year quarter included 2.2 million of non-cash accretion expense associated with the company's convertible notes. Therefore, cash interest expense decreased to $1.8 million for the current quarter compared to $4 million for the first quarter of 2011.

We also announced today that we have amended our senior secured credit facility, the amended facility consists of a $75 million term loan and a $300 million revolving credit facility. This increases the facility to a total of $375 million from $200 million and also extends the maturity of two years to April, 2017. The amended facility includes more favorable terms, lowers our borrowing costs, and an provides expansion option for up to an aggregate of $150 million in term loans and a revolving commitment with existing or potential new lenders. We believe this amended facility will significantly improve the company's flexibility to grow and add some liquidity to our already strong balance sheet. The amended facility includes financial covenants related to our leverage and interest coverage that are the same as our prior facility.

I will now turn the call over to Sam Thomas.

Thank you, Michael. And good morning, everyone.

Overall, we are very pleased with our first quarter operating results, a strong overall performance across our E&C and the D&S segment is a reflection of our ability to position the company to benefit from the systematic shift of demand for energy infrastructure equipment. As Chart is an integrated supplier of equipment to stakeholders across the value chain, we continue to benefit from the increased use of natural gas. As you know, our equipment is used in processing, liquefaction, distribution and storage, and the end use of LNG.

For the first quarter of 2012, orders were a record $385.1 million, which is up 69% sequentially from the strong quarter intake we saw in the 4th quarter of 2012. We set quarterly order records in E&C and D&S groups. Our E&C business received 2 significant orders this quarter, both of which were related to large-scale base load, LNG liquefaction projects in Australia. This quarter also marked an acceleration of orders in our D&S group, particularly for LNG-related equipment in North America.

Biomedical orders were weak in the quarter, primarily in Europe. As Michael pointed out, we have also had some impact from the phase-in of Medicare competitive bidding in the US, creating changes in respiratory equipment order patterns.

As demand for natural gas continues to increase, we expect to be operating at record levels. We are taking the necessary steps to grow our work force and expand factory capacity.

Our expansion plans are progressing as expected. We are focussed on hiring and carefully training qualified personnel, as they will be essential to Chart's long-term success. The building addition for the New Iberia, Louisiana plant expansion was completed on schedule at the end of March. The next phase includes a new [inaudible] yard and it's expected to be completed by the end of June.

Phase I in 2012 of the D&S China expansion is complete and we have successfully our transitioned transportation equipment in an expanded leases facility. Phase II includes the addition of a new wholly owned building with construction expected to be complete by the end of the third quarter.

Distribution and storage US expansion includes a leased facility in Owatonna, Minnesota. We expect that facility to be fully operational by September, but we've already started shipping product out of that facility during the first quarter. We will be expanding our New Prague, Minnesota facility during 2012 as well. We have and will continue some pressure on operating margins in 2012 due to higher employee training costs combined with additional general administrative and overhead expenses as we have previously indicated.

Let me comment now on each of our business segments. Within Energy & Chemical, demand is accelerating across all product lines, record order activity is primarily due to the ramp-up of final investment decisions in global scale LNG liquefaction, especially in the Australian Pacific region. As previously announced, first quarter orders included a contract award for $110 million for liquefaction equipment for the Wheatstone LNG project. We announced today a receipt of another order in excess of $40 million for an LNG liquefaction project in eastern Australia. We recorded $9 million in small LNG liquefier orders from China during the quarter and we expect it to be a growing opportunity for us. Finally, in North America, orders and inquiries for national gas processing and national gas petrochemical projects are robust.

With respect to Distribution & Storage, we received record orders in the first quarter driven by demand for LNG filling stations and LNG vehicle tanks in both the US and China. Chart has been a leader in LNG technology for decades, and our experience has given us a strong competitive position. The result of our efforts to position this business is beginning to show and we reaffirmed our strategic path and vision to grow as a leading integrated supplier for LNG applications. Distribution and storage booked $42 million of LNG related orders with strong growth in North America.

The build-out of infrastructure for LNG filling stations in the US had accelerated in the past few months. We believe customer order activity will continue to grow as engine options improve, and heavy duty trucks leave to convert run on cheaper, cleaner, natural gas.

Our industrial gas business has also been strong. We believe US manufacturing is recovering nicely, especially energy intensive industries. Lower energy and foot costs in North America should drive increased usage of industrial gas product and, in turn, fuel demand for our core products across a broad spectrum of manufacturing industries.

We believe industrial gas usage per capita in Asia is growing nicely. Comments from our customers indicate that despite the tightening by China's central bank, Chinese industrial companies are still growing and are finding ways to use industrial gases to improve efficiency in their processes.

Our Biomedical experience experienced some weakness in the first quarter. The timing of large orders and overall weakness in the European market has impacted particularly the respiratory business. The phase-in of Medicare competitive bidding in the US has also impacted us during the quarter. Now that suppliers must compete to be contract suppliers under Medicare, this has delayed orders with a number of customers who are in the process of becoming qualified. We believe the European market and Medicare competitive bidding in the US are more timing related issues and expect to rebound over the remainder of the year.

I should also point out the weaker euro continues to affect average selling prices when translated into dollars. Most of our Biomedical products are manufactured in the US We incur costs and dollars which has also pressured margins somewhat. However, the business continues to command attractive overall margins, produce a strong cash flow and is repositioning itself with new product development and geographic expansion opportunities.

Mike will now provide you with our outlook for 2012.

Thanks, Sam. Our first quarter results are strong as we anticipated. The business is growing profitably and our capacity expansion plans are progressing on schedule.

Our expectations for continued growth in 2012 and in the future have not changed. Therefore, based on our current backlog and order expectations, we are reaffirming our 2012 sales and earnings expectations. Sales for 2012 are still expected to be in the range of $950 million to $1 billion, also full-year diluted earnings per share for 2012 are still expected to be in the range of $2.60 to $2.90 per diluted share based on out standing weighted average shares of 31 million. We still expect a full year effective tax rate in the 30% to 32% range. Our earnings range includes the impact of our amended senior credit facility announced today in addition to the acquisition related earn-out adjustments recognized in the quarter.

I would now like to open it up for questions. Laura, please provide instructions for the participants to be able to ask questions.

(Operator Instructions). Our first question comes from Jeff Spittel from Global Hunter Securities.

Thanks. Good morning, guys.

Good morning, Jeff.

I thought maybe we could start off with natural gas processing in North America with the shift going onto the more liquids-intensive plays. Correct me if I'm wrong, but I think there is a little bit of a product mix benefit for Chart specifically there. Could you give us a sense of how quickly that is growing and maybe rough orders in magnitude of how big that business could be over the next year or two?

Sure. We have seen the natural gas processing market for the US, or for North America, grow consistently over the past two years is as major E&P producers began their shift from dry gas drilling to focusing solely on either oil shale or high-liquids content natural gas.

We have seen a ramp up of all of our various customers producing both custom and standard gas processing plants. I'd say that that's been one of the leading strong spots and they continue to have robust forecasts and robust order patterns. So that, you know, we can continue to see our backlog grow in those areas. I would estimate right now that it's running within natural gas processing for North America, sort of a $50 million to $75 million range for us and I anticipate some growth in that, and also current projections are that that will extend out for a number of years.

Excellent.

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

If I could go back 6 or 12 months, I would have accelerated some of our investment expansion decisions.

Okay.

Our lead times have gone out a bit and we are working very hard to add incremental capacity in order to bring them back in as well as looking at more significant capacity expansions that will take us 12 to 18 months to fully execute on. So based on the current involvement, I would like to have more capacity but we are well in process to do that.

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

Thank you.

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

Good morning, gentlemen. Congratulations on the quarter.

Thanks, Tom.

Thank you.

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

The pricing environment, as you are well aware, we have gone from a period in 2008 with robust demand through a trough in demand in 2009, early 2010, which has recovered quite quickly late in 2011 and 2012 ramping up somewhat faster than we anticipated. There has not been the extent of raw material price growth that we had in that 2007/2008 time period. The consequence has been that within distribution and storage, due to some changes inefficiencies we have had, prices significantly lower now than they were in the 2007/2008 timeframe. But costs have grown.

The announced price increase reflects that but even with that increase, we are still at pricing levels below where we were. Compensating for that, raw material prices are lower. We believe we will be able to improve margins going into the latter part of the year on the basis that prices will be reasonably stable or improving somewhat and that raw material input costs will be relatively flat or perhaps some softening.

Okay. Great. Thanks.

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

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

Okay. Great. To follow up with Michael, can you give me your thoughts on CapEx for the year?

We would expect to be right now somewhere between, you know, high $30s million, you know, up to $50 million for the year from our expansion projects and the ones we are currently taking a look at.

Great. Thanks guys. Congratulations on the quarter.

Thank you.

Thank you.

The next question comes from Rob Brown of Craig Hallum.

Good morning. You mentioned small-scale liquefaction projects in China. Could you just give an update on whether that's a new product, and what potential that is?

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

And how the year lays out now, your margins right now are depressed. How do you see your revenue and margins laying out through the quarters for the rest of the year? Should we think they are much more back-end loaded or a little more moderate?

Second and third quarters generally are our strongest quarters -- we would see D&S improving as it went through the year. Biomed certainly improving as we go through the year. E&C, as you know, with the percentage of completion and the large orders that can bounce quarter to quarter, but, you know, we expect them to improve sales as we move forward. And in terms of margins, you know, on the E&C side, certainly expectations for at least E&C and D&S is that they average sort of in the high 20%s, you know, on an average basis for the year and Biomed, sort of that 40% range, as we've seen historically. All and all, combined, you know, in a 31% range on a gross margin basis.

On an operating margin basis, E&C and D&S sort of in the high teens. And Biomed sort of the low 20%s and overall when you factor in corporate expenses would be sort of in the 14% to 15% range for an operating margin.

Okay. But you think you can get the Biomed back to that 40% range even though it was --

Yes.

-- a little lower than that. Okay. Thank you.

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

Hi, Sam. Hi, Michael. Thank you for taking the questions.

Hi, Eric.

Good morning.

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

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

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

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

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

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

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

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

Okay. Understood. Congrats on the quarter.

Thank you.

The next question is from Greg McKinley from Dougherty & Company.

Good morning.

Good morning.

Hi. Could we talk a little bit about -- as I look at your expense levels by segment. We had in the energy and chemicals business, we almost doubled our revenues year-over-year and our operating expenses were essentially flat. I know, Michael, you made some comments about where you think operating margins might pan out by segment as the year unfolds, but similarly flat operating expenses and distribution and storage as well.

So I guess the implication is that there is going to be more additional investment in those segments later this year to support the volume you are expecting. Am I correct in that interpretation?

Yes.

What's that -- you know, maybe some examples of what that is.

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

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

I think it's a combination of both because you have people but if you look at, for example, the Owatonna facility that we are ramping up. Obviously, we are adding fixed overhead in that facility and it's not completely operational yet. And then we have a lot of training costs involved in training new people that have come on board and [inaudible] how to operate in a very quality-conscious mode. And that's being incurred, really, across the whole business.

Okay.

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

Yes.

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

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

The western European market for industrial products and some of the speed of LNG related applications are muted because of the uncertainty and economic conditions in Europe. Our ability to perform to our expectations in 2012 is not completely dependent on European markets because we are using that capacity to actually meet demands in North America, South America, and Asia. So still feel confident about our results from Europe.

With respect to GOFA, the trailer acquisition we made, we have seen good demand for industrial gas and LNG-related applications from that facility and there is also the ability to use its capacity outside of Europe. We have seen softness in some of their more traditional transportation products or the western European market.

Okay. All right. Thank you, guys.

Thank you.

Laura, have we lost you?

My apologies. Our next question is from Chase Jacobson from William Blair.

Good morning. Thank you for taking my questions.

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

Yes. Clearly, engineers that are involved in equipment design and project for energy-related applications and natural gas related applications are in demand. We have effectively filled with that by ramping up our training capabilities so that we can bring engineers that don't necessarily have that specific natural gas processing or cryogenic experience up to speed quickly, and by doing it at a number of sites outside of the Houston/Gulf Coast market in addition to continuing to do it there.

But, yes. Engineers and welders are a constrained resource in North America, particularly on the Gulf Coast.

Okay. But it sounds like, for now, you have it under control.

Are we dealing with it effectively? If I had more people available, we could use them productively.

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

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

Okay.

In terms of the project reserves, in the quarter, you know, that improved margins, it was somewhere in the $1 million dollar range --

Okay.

-- in gross profit. And where we execute better than expected.

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

Yes. We provide cold boxes for both ethylene expansions, for ethylene production from methane or natural gas liquid seed stocks and, also, for propylene production from the propane dehydrogenation process, so basically has propane as a feedstock.

There are, I think, two to four projects that are in backlog and announced projects, project opportunities of perhaps another four to eight over the next 12 to 18 months. And those are generally opportunities for us each in the $10 million to $15 million range.

Great. Thank you very much.

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

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

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

Okay.

That they were building those fuel stations. There are also inquiries and fairly advanced discussions of planning for perhaps four to five E&P companies and an additional four to perhaps as many as eight existing fuel stop operators looking at expansion of and providing fuel stations for LNG or LCNG stations.

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

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

So it's not just exclusively for their own fleet's use?

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

Okay. Thank you.

(Operator Instructions).

Our next question comes from Jagadish Iyer from Piper Jaffray.

Thank you for taking my question.

Two questions. First, you talked about the LNG fueling station. I was wondering whether could you provide us some color in terms of the average opportunity for you guys on a per station basis so we can kind of get an understanding of how this is going to expand? And as a follow-up with that, I just was wondering, like, you know, in your estimate, where are we with regard to the diesel guys? I mean the trucks trying to do this conversion to LNG? Where are we in terms of the adoption and where do you think it's going to take us in 2013 and 2014? And I have a quick follow-up after that.

Okay. With respect to opportunity for fueling stations, I would say that you can think of the opportunity to forward chart of putting a dispenser along with the associated storage tank and pumping at an existing truck stop as being in the $1.5 million to $2 two million range if we provided the entire package, which we do but we also oftentimes provide just components. For instance, the storage tanks for others to do the complete installation. And there is a full range of possibilities for Chart there. But the average opportunity perhaps would be in the $0.5 million to $0.75 million dollar range. And that's for a single dispenser station. As we have built dispensers of -- perhaps eight dispensers out of sight for a fleet the opportunity would grow significantly to perhaps being in $8 million to $10 million dollar range.

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

Yes. We are very much in the early innings with respect to North America. In particular, the Cummins 9-liter engine which provides rougher 325 horsepower is widely available and at prices at a very small premium to a diesel engine. Their production continues to grow.

Cummins, along with several of the other diesel engine manufacturers, are in late stage development programs with engines running on the road and intentions or announced plans to have production engines available latter part of 2012, 2013 so that when you get to 2014 Model Year, you should have the capability for producing thousands of diesel enginesannually or higher with, you know, meeting all emissions requirements as well as providing the full range of horsepower and torque options to take you up to Class 8 trucks.

Just a quick follow-up for Michael. Just on the Biomedical side, Michael, how should we had expect to think about, if you expect to bounce back, how should we think about the overall year-over-year growth for the Biomedical segment? And where do you think specifically gross margins could go from the first quarter through the year. Thank you.

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

Thank you. Congratulations.

Thank you.

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

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

Thank you all for listening today.

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