Chart Industries Inc (GTLS) 2016 Q3 法說會逐字稿

Good morning and welcome to Chart Industries Inc. 2016 third quarter conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks there will be a question and answer session. As a reminder, today's call is being recorded.

You should have already received the company's earnings release that was issued earlier this morning. If you've 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 Thursday, November 3rd, the replay information is contained in the company's earnings release.

Before we begin, the company would like to remind you that statements made during this call, that are not historical in fact are forward-looking statements. Forward-looking statements involve risk and uncertainties that could cause actual events or results to differ materially from those expressed or implied in the forward-looking statements. For further information about important factors that could cause actual results to differ materially from those expressed or implied in the forward-looking statements please refer to the information regarding forward-looking statements and risk factors included in the company's earnings release and latest filings with the SEC.

These filings are available through the Investors Relations section on the company's website or through the SEC website www.SEC.gov. The company undertakes no obligation to update publicly or revise any forward-looking statement.

I would now like to turn the conference call over to Ken Webster, Chart Industries' President and CFO. You may begin your conference.

Thank you, Shannon. 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 third quarter results, an outlook for the remainder of 2016, then Sam Thomas, Chairman and CEO, and Bill Johnson, President and COO, will provide comments on current market and order trends we see in each of our business segments.

That income for the third quarter of 2016 was $15 million or $0.48 per diluted share, this included severance costs from cost reduction initiatives, acquisition related retention, and asset impairment charges recorded in the quarter of approximately $1.5 million. Excluding these items, third quarter of 2016 earnings would have been $0.53 per diluted share. This compares with net income of $4.8 million or $0.15 per diluted share for the third quarter of 2015.

Third quarter 2015 earnings would have been $0.26 per share, excluding the $0.11 per diluted share impact of the Owatonna facility shutdown, severance costs from cost reduction initiatives and acquisition related retention. Sales for the quarter were $203.9 million, a decrease of 22.8% from the prior year quarter, this was largely due to a decline in our energy-related sales and energy and chemicals or ENC business, as customers continued to delay projects and competitive pressures remain in this challenging market.

Our gross profit for the quarter was $69.6 million or 34.1% of sales compared with $68.3 million or 25.9% of sales in the prior year quarter. Overall gross profit was up largely due to an insurance recovery related to the prior AirSep acquisition. This represents partial recovery of losses experienced over the past several years within biomedical associated with higher than anticipated warranty claims experienced in certain AirSep product lines.

We have corrected these legacy warranty issues, which is reflect in the higher margins of the past few quarters as our accrual for future warranty expenses is more in line with expectations when we acquired the business. Excluding the insurance recovery during the quarter, gross profit would have been 26.7% of sales, which is still up compared to the prior year quarter due to improved margins in the distribution and storage of DNS business and biomedical segments.

Additionally the third quarter of 2015 DNS margin included restructuring costs and inventory reserves that negatively impacted the margin. Orders received in the third quarter totaled $201.2 million, and were down 25.5% from second quarter 2016 primarily due to a number of large projects that were received in the second quarter in DNS, including an $8 million order for storage tanks at an LNG terminal in Gibraltar, a $16 million order for an emerging energy application, and a $5 million order for the remaining portion of the Indian LNG terminal import terminal award that was split between the first and second quarters.

Backlog at the end of the third quarter was $384.4 million, which is down 2.1% from the second quarter of 2016. In the ENC business sales decreased 69.8% to $23.7 million for the current quarter compared with the third quarter of 2015. The decline was due to continued weakness in upstream natural gas processing, petrochemical and LNG markets. Gross margins were 7.6% in the quarter compared with 23.4% in the same quarter of 2015.

The decrease in margins is related to the competitive environment pressuring margins on the few available projects that are moving forward and lower overhead recovery as a result of dramatically lower throughput. In our DNS business, third quarter sales decreased 2.3% compared to the third quarter of 2015 to $126.6 million.

This decrease is primarily due to lower LNG sales in Asia and the US, as well as the currency with the weakening Chinese Renminbi. Partially offsetting these reductions are improvements in Europe, which continuing to see very healthy downstream LNG activity.

The DNS gross margins were 26.4% compared with 23.9% in the prior year quarter. The margin increase is due to favorable product mix and increased deficiencies in the US and Europe as well as lower construction costs, as the prior year included costs associated with the shutdown of the Owatonna, Minnesota facility.

In biomedical, sales decreased 4.5% year-over-year to $53.6 million due to lower US and European respiratory sales. These decreases were partially offset by continued strength in our life sciences product lines. Biomedical gross profit margin increased to 64.2% in the quarter compared with 33.8% for the same period in 2015.

As I mentioned earlier, this is due to an insurance recovery we received related to our AirSep acquisition. Excluding the impact of the recovery, biomedical margins would be 35.9%, which is up due to product mix and lower warranty expense. SG&A expense for the quarter was $45.4 million, down $2.7 million or 5.6% compared with the same quarter a year ago. The decrease was largely due to lower restructuring related expenses and the impact of cost reduction initiatives around payroll and discretionary spend.

These decreases were partially offset by higher variable short-term compensation expense reflective of our improved operating income this quarter given the favorable impact from the insurance recovery. We also recorded $1.2 million worth of asset impairment charges during the quarter related to our DNS Asia business given continued softness in this market.

Income tax expense was $1.8 million for the third quarter of 2016 and represented an effective tax rate of 11.4% compared with expense of $6.1 million in the prior year quarter or an effective tax rate of 58.8%. The insurance recovery received during the current quarter is considered an adjustment to our purchase price of AirSep shares and as such is not currently taxable, which contributed to the lower rate.

In addition, the prior year's quarter's rate was unusually high as a result of a reserve against certain accumulated tax loss balances, which made up 15 percentage points in the prior year quarter.

Moving on to our outlook for the remainder of the year, given our year to date performance and forecast expectations, we are narrowing our sales guidance to be in the range of $850 million to $875 million and diluted earnings per share to be in the range of $1.20 to $1.30 a share on approximately 31.1 million weighted average shares outstanding. This excludes the impact from any restructuring costs and assumes an annual effective tax rate of 31%.

I'll now turn the call over to Sam Thomas.

Thank you, Ken, and good morning, everyone.

Despite lower earnings for the year we continue to generate significant operating cash adding $59.8 million during the third quarter. Our working capital improvement initiatives, reduction in capital expenditure, and the non-cash nature of some of our operating expenses has had a meaningful impact on free cash flow.

During the quarter we benefited from the successful recovery of past warranty related costs associated with our 2012 acquisition of AirSep. Since the acquisition we've incurred higher warranty expenses and satisfaction of more warranty claims than initially expected as our operations and balance sheet have been impacted by this since the acquisition we have not adjusted this out of our earnings during the quarter.

We have corrected these legacy warranty issues and are rebuilding our reputation in the marketplace. We're investing in product development along with sales and marketing efforts to reestablish our respiratory product lines market position. Within energy markets, downstream LNG opportunities continue for our DNS US and European operations.

As new LNG production capacity comes on line, our DNS operations will reap the benefits through our diverse product offerings. Although currently LNG oversupply continues to negatively impact our ENC business, we are seeing opportunities with quoting activity for a handful of new natural gas processing plants and feed studies for modular mid-scale LNG export facilities. We remain encouraged by the progress in constructive discussions with customers on the growth of our new Lifecycle business.

From a capital allocations standpoint, a major component of our overall growth strategy remains acquisition activities. Our growing cash on hand of $267 million coupled with zero borrowing against our $450 million revolving credit facility enables us to assess some interesting investment options in the pipeline.

Let me now turn the call over to Bill Johnson.

Thank you, Sam. Good morning, everyone.

In my first 90 days I've spent a lot of time getting to know the business and understanding our operations. But also working on initiatives to streamline our operations to make them more efficient. You will be hearing more about this in the coming quarters as we begin implementing some of those initiatives here in the fourth quarter.

As our business and leaders prepare for the annual plan in the coming months, I've challenged the groups with identifying new ways to expand revenues and focus on productivity initiatives. It is evident that we can withstand this energy downturn, so we will focus on expanding our profits, irrespective of market recovery timing.

Let me now comment on specific highlights for each of our businesses. During the third quarter, our ENC business booked $27.9 million in orders, which is down from second quarter 2016 orders of $53 million. The prior quarter included record levels of short lead team projects that were received and shipped in the same period. Excluding these short lead time projects, order levels remain relatively flat in the current period.

Our big challenges within ENC continues to be winning awards as backlog as dipped to levels last seen in 2010. Approximately 35% of ENC backlog relates to the Magnolia LNG project that has been delayed until mid-2017. During the quarter we also had $5.3 million of canceled orders primarily related to LNG liquefiers in China.

Despite the current pause seen in the marketplace, we remain heavily involved with our customers. For example, we're conducting a few key feed studies for customers that could lead to future orders for large projects. We're also inspecting customer plants for preventative maintenance opportunities and entering into service agreements through the Lifecycle business.

During the quarter we executed several master service agreements with large midstream and petrochemical companies. As Sam touched on earlier, the Lifecycle addition to the ENC portfolio has brought about a number of proactive opportunities for us, which is helping partially offset the market conditions we are currently facing. With ENC's longer lead times and backlog visibility we were able to plan accordingly for this market pause.

Over the past year, we implemented lean initiatives, facility re layouts, to impact the financial impact of this downturn. We expect to implement similar process improvements projects next year in other areas of the business.

In our DNS business we booked orders of $121 million in the third quarter, down 22.4% from our second quarter 2016 orders of $156 million. The prior quarter included a number of large orders in the US and Europe, which included a couple of sizable LNG import terminals, as Ken previously mentioned. The current quarter included $9 million for LNG terminals out of our operation in Czech Republic.

Backlog for the quarter decreased 2.5% to $246.2 million. At the end of September our DNS European operations had record backlog. Achieving the necessary throughput to execute on the backlog has meant leveraging available ENC resources, including assigning key engineers and managers to these projects.

Within DNS Asia gross margins were negatively impacted during the quarter as we increased our excess on obsolete reserves on balance sheet through the industrial and commodity deflation. We're also modifying inventory for customers in order to deal with the changing regulations for LNG fueling stations.

As for DNS in the US, we continue to monitor the potential impact of customer consolidations within the industrial business, including potential customer excess inventory and pricing pressures after the integration efforts are finalized. Our North American DNS business is performing well as we benefit from our reputation for quality and reliability.

We continue to benefit from our cost reduction initiatives, which have driven margin improvements. Moving to biomedical, third quarter orders of $52.3 million were down from $61.2 million in the second quarter of 2016 as we received a $6.7 million award to supply military oxygen concentrators in North America. As well as strong respiratory tender orders in Europe in the prior quarter. Within respiratory, we are investing in a space that we fully expect will sustain long-term growth driven by a growing global prevalence of COPD and other lung diseases.

We are focusing our efforts on new product innovation and quality as well as making significant changes to the organization in terms of sales and customer engagement as well as operational efficiency. We're also very encouraged by our continued success to grow our position in China.

In the prior quarter we highlighted record sales volumes we've seen in the life science segment of biomed. This continued into the third quarter, especially with our cryobiological freezer line with continued strength in our new (inaudible) product lines. However, this strength was offset by market weakness for aluminum doors into the artificial insemination market.

With that I will now open it up for questions. Shannon, please provide instructions to the participants to be able to ask questions.

(Operator Instructions). Our first question is from Eric Stein with Craig-Hallum. You may begin.

Good morning, everyone. I just wanted to clarify your commentary there related to industrial gas in the consolidation in the market. And, I guess, you know asking this, given that it looks like your DNS orders were at their lowest levels since 2012. Are you seeing an impact now or is it something that you -- it's a wait-and-see, and you haven't seen it yet, but you possibly do as you get into 2017?

I'd say it's a wait and see. There may be some effect in the third quarter. We had particularly strong orders in North America DNS in the second quarter. So not overly concerned at this point.

Okay. Got it. You know, maybe just turning to your quoting activity, you mentioned, you know, petrochemical and some ongoing feed studies. Just curious how that's changed. I know you've been doing a lot of those feed studies, or some of them for some time. I mean, have you seen any pickup in that activity now that, you know, you've seen a little bit better conditions in energy markets?

You know, curious on that, but also your thoughts on when you look at the price of oil is it the price that's more important or is it stability that's more important for a lot of these things moving forward?

Well, anecdotally, I would say that things are progressing and we get more positive vibes from around end customers as well as our customer base of proceeding with projects to be ready to launch them. To respond to your question about oil price or stability, I don't know.

When we talked about the increase in quoting activity for national gas processing, the last two quarters -- the prior two quarters had gone to virtually zero, and there was reports of complete standardized -- standard size plants being in inventory. As we see activity pick up in the Permian Basin, that does seem to be driving these new inquiries and discussions for gas processing plants.

So I'd say it's a bit of both, stability and price that as the oil services industry and production companies find ways to reduce the cost of drilling wells and bringing new production into place, it does require additional gas processing capability.

Got it. Maybe last one for me, just related to the LNG outlook. You know, starting to hear more about supply potentially getting tight in the 2020-2021 time frame. I mean, is that kind of in line with your -- you previously talked about that you think that that activity starts to pick for you late 2017 and 2018. Is that still your thinking or has that changed at all?

That still seems to be pertinent. We hear from more and varied quarters that that's the progression, particularly as you hear about floating LNG regas being introduced to new markets, and new countries, new markets, becoming LNG importers. I think that sets a positive tenor for absorbing the -- all the new capacity that's come on line and is coming online over the next couple years.

Got it. Okay. Thanks for the color.

Thank you. Our next question comes from Chase Jacobson with William Blair. You may begin.

Hi. Good morning.

Good morning, Chase.

I was hoping maybe you could talk about the recent patent announcement that you got on your LNG technology. Could you maybe just talk about that a little bit, some of the opportunities? Does getting the final patent approval on that kind of open up some award opportunities in the near term that you were waiting on? I was hoping to get some more color there because it seemed to get more color there, because it seemed like a pretty good positive for you guys.

It certainly is. It's certainly gratifying to the folks in our team who have worked long and hard to develop our mid-scale offering. The key feature here is that we've designed a robust, simple process, which at anywhere from a quarter million ton to one and a half million tons per annum LNG train saws is able to effectively match the operating efficiency of the historic large-scale four million to five million ton trains, but at the same time accomplish it at a significantly lower cost of capital per ton of output. So it's exciting and it demonstrates, I think, the patent of work demonstrates that our guys have done something very creative to accomplish that.

Okay. And in the ENC business, on the margin side of things, obviously it's a big drop-off in volume, but you talked about pricing as well. Can you maybe help us understand the dynamics between volume and pricing, kind of, if you could roughly break out how each of those are affecting the gross margin to try to give us a better sense of where that, you know, will kind of level out going forward?

That's a tough one. We struggle with that on a daily basis. But I think the best way to characterize it is to say that there are capacity constraints, globally incapacity at times of peak activity like 2011, 2012, 2013 and there's significant excess capacity and a number of our competitors -- we're not different than that -- wish to keep people employed.

And so they will quote jobs at marginal rates if there's a shortage of work available. I think we're well into the downturn and trough, but I don't think any of us are as yet confident to predict the trajectory coming out of the trough.

Okay. And I guess we'll have to see how that plays out. But on the M&A side, you know, clearly the cash balance is improving. Your comments, I think, were a little bit more optimistic, or -- about acquisition activity. You know, any color on timing or kind of types of business? Sounds like more service oriented? Is that a fair assessment? Any more color on the acquisition strategy would be great. Thank you.

Sure. I think that timing is -- with acquisitions -- is impossible to call, or very, very difficult. So I won't try and do that. In terms of why we're more positive, I think we've seen -- we are seeing a lowering of expectations as you get into the second and third year of a downturn in terms of seller's price expectations or their financial health causing them to be more interested sellers.

So from that standpoint we're comfortable. In terms of where we are looking, we're looking at adjacent businesses, similar markets. And, yes, we are attracted to service or after-market related businesses, simply because we're suffering the effects of a capital spending downturn, which tends to focus your attention on looking at those businesses.

I think that they can be healthy and accretive additions to Chart.

If you look at your ENC business and who the sales go to, whether it's the ENC company or the owner of the facility, do you feel that having a broader service offering is going to help you price in the future on the new equipment side?

I do. I think that -- we gain a better understanding of our value proposition, and hence make ourselves better connected to the end users and the value they get from our products. So the answer is yes.

Thank you.

Thank you. Our next question comes from Rob Brown with Lake Street Capital. You may begin.

Good morning. Thank you.

Hi, Rob.

Could you clarify, did you say that -- what portion of your ENC backlog is for the Magnolia project? And, I guess, related to that, how do you see that unfolding in the next year in terms of getting more orders from that project?

35%.

35% of the backlog is related to Magnolia. They've made positive sounds, but it is delayed till mid-2017. It's difficult for them to quantifying time more precisely than that. We're assuming it's dependent on satisfactorily getting offtake agreements.

Okay. Great. Thank you. And then in terms of the insurance settlement, I just wanted to clarify, what was the EPS number adjusting that out, both in terms of the quarter and your guidance?

Rob, for the year it's $0.50 a share, and for the quarter it's $0.52.

Okay. Good. Thank you. I'll turn it over.

Thank you. Our next question comes from Nicholas Chen with Alembic Global Advisors. You may begin.

Hi, thanks for taking my question this morning. In Q2 the quick shift business in Lifecycle was obviously a bright spot. I'm just trying to figure out, did that have any impact on Q3's results?

There was a contribution, yes, but clearly not nearly the same magnitude.

Okay. Thank you. And then just following up on something that we discussed last quarter, I think it was in late 2015, Worthington acquired a key competitor in the cryogenic space. We discussed that that created some level of market dislocation. I was just wondering, have you guys been able to capitalize on that at all and gain any market share?

I think the positive results in our biomedical life sciences business are partially due to that, and both within DNS and our North American packaged gas and bulk gas businesses I believe have benefited from that.

All right. Great. Final question. I was hoping you could provide a little bit of color on, sort of, the market conditions you're seeing in China right now.

Ouh, is probably the most apt discussion. It's tough. Industrial activity is low. There's lots of capacity available, so pricing is challenged. But there are peripheral competitors disappearing. So the market is consolidating.

There is slightly more optimism that this is the worst of it, but the Chinese, having seen so much growth for so long, tended to be much more optimistic in declining conditions than most other parts of the world. So I would say we're there in China. We are committed to being there long term, and being a significant competitor in our businesses, but it's not for the faint-hearted in the short time -- short-term.

Got it. Thank you so much. I'll jump back into the queue.

Thank you. Our next question is from Jeff Osborne with Cowen and Company. You may begin.

Good morning, guys. I just had a couple questions on the ENT side. So, obviously you've talked about the pickup in quoting activity. But what are you hearing from the people you're doing the quoting for in terms of their ability to (inaudible) and get financing?

They are perpetually optimistic, but as we talk to off-takers, end users, the utilities and the gas traders, they do seem to be acknowledging that while they're not in a rush to sign offtake agreements, that we're moving toward a period where they will need to make decisions and it will be appropriate for them to enter into agreements, but you should interpret my comments as there's still uncertainty as to when that will happen.

Got it. Makes sense.

(Inaudible).

Okay. And then beyond Magnolia are there any other chunky projects in the backlog? And then, also related to that, is there any deposits that kind of expire that might flow through the P&O on a highly profitable basis over the next six to 12 months? I'm trying to get a sense of the pipeline beyond Magnolia, you've talked about that one, and then, more importantly, the income statement impact, if some of these things in the past don't happen.

In terms of backlog or significant deposits, the answer is no to both questions. In terms of pipeline of discussions for future projects, which are not yet reflected in backlog or are not yet orders, activity has improved.

That's good to hear. One quick one. You mentioned in the prepared remarks, there was a change in the fueling standards for stations and the regulations therein, an inventory adjustment. Which market specifically was that for and what was the nature of the change?

That's China. And we have constructed a significant number of fully skidded LNG stations, which can be dropped on site for both -- for heavy-duty truck fueling. We were the initial developer of these for a couple of the national oil -- Chinese national energy companies, and developed them in conjunction with them.

As they went into service, provincial governments and the national governments stepped in, and set different standards than we had originally built to. We had some inventory of those stations, because we went from a rapid ramp-up to a halt being called, leaving us with inventory. In order to put them into the marketplace now they have to be modified to meet the current standards.

Got it. Perfect. I appreciate all the detail as always. Thank you.

Thank you.

Thank you. Our next question is from Pavel Mochanov with Raymond James. You may begin.

Thanks for taking the question, guys. Along the lines of what I think one of the prior guys asked, venture global, where is that in your pipeline/backlog/expected timetable?

It's not in our backlog. It is in our pipeline of potential projects going forward. And to the best of my knowledge, it's dependent on -- as all of the other LNG projects are -- it's dependent on signed offtake agreements to proceed.

Right. So for Magnolia you have a fairly precise timetable in mind. You know, you said delayed until the middle of 2017. I guess two things. Can you first remind us what the dollar value is, potential for venture global and secondly is there any kind of timetable for that one that you can anticipate?

Yes. On the dollar value, we said it was roughly 35%, which would be in the $35 million, $40 million range in backlog. With respect to timing, I don't have -- I don't have better information because the customer is dependent on signed off-take agreements to my knowledge.

Okay. Fair enough. Appreciate it, guys.

Thank you. Our next question is from Matthew [Truce] with Gabelli & Company. You may begin.

Good morning, guys. Thanks for taking my question. If we turn to biomedical, I guess, given the strength in life sciences but revenue's decreasing, can you give us a better sense for what your outlook is in the respiratory healthcare market relative to underlying growth rate of volumes versus pricing, and brand equity issues with AirSep and how you're (inaudible)? And then what the time frame is for recovering there?

I think in terms of time frame for recovery, you can look at the fact that we had deteriorating market position for a full three-year time period from the acquisition of AirSep and achieving a meaningful recovery I would expect to be a similar time frame to get back to the market position we had.

In terms of other indicators of the growth we can expect, that market we view as having high single digits to low double-digit market growth rates, slightly lower growth rates inherent for the life science -- or the biological storage portion of that business, in the sort of 5%, 6% growth rate. For the portion we singled out, in artificial insemination, that tends to track dairy production and milk prices, which currently are depressed after many years of significant growth.

And to my knowledge, those periods of depressed milk prices have had six months to 24-month durations. So it's positive, with the exception of near-term artificial insemination results being flat or down slightly.

Thanks for all the color. And then I guess just sort of embedded in that segment, have the industrial onsite generators been much of a drag?

I wouldn't term them a drag, but I would say that sales have been flat. Most of our upticks have come from larger size projects, which were perhaps 10% to 20% of the total sales in a given year and hose projects have been slow in coming forward in 2016.

Okay, okay. And then lastly for me, given the competitive at the end of last year, and you mentioned some of the attrition in China this year, if we have another year like this one, sort of from a profitability angle for competitors, do you think there's going to be a lot more attrition and opportunity for you to gain share and maybe pick up some depressed assets? How do you think about that going into 2017?

I think that's a very definite possibility, although I've learned over time to -- that it's very difficult to predict how long it takes a competitor who's financially troubled to throw in the towel.

All right. Great. Thank you for your time.

Thank you. Our next question is from David Cohen with Midwood. You may begin.

I guess, I was just hoping to understand better the logic of the inclusion of the warranty expense reversal in your adjusted numbers as opposed to actually backing that out in some form.

I guess I'm challenged to respond, because we debated the same issue. And it comes down to we're certainly encouraged by the SEC to highlight and report GAP numbers. And that settlement is certainly included in GAP numbers. Having said that, we covered it by giving it as much clarity as we could as to the magnitude of the settlement, its impact on our EPS and the way we treated it.

As we look forward, what sort of -- how should margins fall out in that segment, gross or operating, in terms of some normalized level of warranties? I guess what's sort of the excess that's caught up here that has a disproportionate impact on this quarter?

The impact is clearly stated and we've stated what the gross margin would be without the settlement included and you should also consider that we've reported several successive quarters of improving gross margin. I think the opportunity exists for us to continue that improved growth margin in that segment.

And how much will, now lower levels of warranty expense help margins going forward?

David, one comment I'll make to you, our warranty expense is a percent of sales. In the last couple years, in the biomedical business, have been running probably in the 4% to 5% range.

Okay.

Year-to-date, where we are today, it's about 1.5%. We would expect that rate to be our go-forward rate in the future.

All right. Thank you.

Thank you. (Operator Instructions). Our next question is a follow-up from Chase Jacobson with William Blair. You may begin.

Hi, guys. Two questions. The first is if you can give any detail on what manufacturing in industrial did within DNS. And then the second question, Bill, I don't want to let you off the hook here, when you're looking at, you know, incremental cost savings opportunities into next year, I know you're still going through the plan. Are you looking more at just straight traditional cost savings, like facility consolidations, lower head count, but is there an element of a change in the way Chart does business in one or any of the segments?

So I think the answer to that is yes, there's a little bit of both. We noted in the comments that we're going to be initiating some restructuring in the fourth quarter and that will be accretive to 2017 -- and into 2017. There are a number of those actions being planned. I think there is also a lot of productivity-type initiatives that we're looking at, some capital, deploying some capital and new equipment on processes to automate certain things. So I think there's a little bit of both.

I would add that there's -- that we are, from the standpoint of -- you questioned whether there -- is Chart going to market differently. The lessons that we're learning in the ENC Lifecycle business are also being applied to our industrial and industrial gas business, and LNG downstream activities. We believe we are becoming more astute at understanding our value proposition, delivering a better volume proposition to our customers, and hopefully we'll get top line growth in addition to productivity improvements.

Thank you. I'm showing no further questions at this time. I'd like to turn the call back over to Sam Thomas for closing remarks.

Thank you. To our regional and product diversification, we're able to minimize the current challenging market for our ENC segment and Asia DNS business. As Bill mentioned earlier, we will focus on setting concrete growth and productivity initiatives to draw further improvements in the organization over the coming year.

We're more than holding our own against a backdrop of energy market challenges. We're poised to hit the ground running when the energy market returns. We continue to actively work to grow our sales and profitability irrespective of energy market headwinds.

Thanks to everyone for listening today. Good-bye.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day.