Chart Industries Inc (GTLS) 2017 Q4 法說會逐字稿

Good morning, and welcome to the Chart Industries Inc. Fourth Quarter and Full Year 2017 Conference Call. (Operator Instructions) 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 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 Thursday, March 1. 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 risks and uncertainties that could cause actual events or results to differ materially from those expressed or implied in the forward-looking statement. 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 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 would now like to turn the conference call over to Jill Evanko, Chart Industries' CFO. You may begin your conference.

Thank you, Crystal. Good morning, everyone. Thank you for joining us today. I will begin by giving you an overview of our fourth quarter and full year 2017 results as well as our full year 2018 guidance. Then Bill Johnson will provide comments on current market and order trends across the 3 segments as we start 2018.

In order to facilitate the discussion on our 2017 results and given the moving pieces from tax reform, we have included as an exhibit to this morning's press release a supplemental deck, which I'll reference throughout the call. The deck can be located on our website under Investor Relations.

Starting with our fourth quarter of 2017 results on Page 3 of the supplemental deck. Fourth quarter sales of $306 million included $51.9 million from Hudson Products.

Fourth quarter sales were 43% higher, or 19% higher excluding Hudson, compared to the same period in 2016.

Net income for the fourth quarter of 2017 was $26.7 million, including the favorable impact of tax reform, compared to a net loss of $3.3 million for the fourth quarter of 2016.

Fourth quarter 2017 reported earnings per share of $0.85 compared to a loss of $0.11 in the fourth quarter of 2016.

Adjusted EPS in the fourth quarter of 2017 was $0.46 compared to breakeven in the fourth quarter of 2016.

It is important to note that adjusted 2017 earnings per share reflects several adjustments, including the impact of U.S. tax reform, restructuring and acquisition-related costs, refinancing debt extinguishment costs and a onetime Chinese court-ruled litigation award.

We will walk through the impacts to both the quarter and the full year adjusted EPS shortly.

First, I will provide additional details on the fourth quarter 2017 financial results.

Backlog, excluding Hudson, increased $52.9 million from the end of 2016 to $395.5 million and inclusive of Hudson ended at $461.3 million, with increases in both Distribution & Storage and Energy & Chemicals. This reflects the strong order activity we had throughout the year and our sequential order growth each quarter in 2017.

Bill will speak to more specifics around order and market trends later on this call.

Gross profit for the fourth quarter of 2017 was $82.9 million or 27.1% of sales and included $13.2 million from Hudson. This is sequentially down from the third quarter's 29.3% gross margin as a percent of sales, driven primarily by 2 lower-margined D&S projects. The first related to a prototype sale on a new product concept in test phase and the second related to a lower-margin, large customer project.

We expect the first quarter of 2018 total Chart gross margin as a percent of sales to increase over the fourth quarter of 2017 and increase compared to the full year of 2017.

Moving to Slide 4. Full year 2017 sales were $989 million, an increase of 15% over the full year of 2016, and included $58 million of sales from the Hudson Products acquisition.

Net income for the year 2017 was $28 million or $0.89 per diluted share compared to full year 2016 net income of $28.2 million or $0.91 per share.

On an adjusted basis, 2017 full year earnings per share was $0.96, the components of which we will walk through shortly on Slide 5.

Before moving to Slide 5, let me briefly touch on order, gross margin and SG&A results for the full year of 2017.

Orders were $1 billion, $150 million higher than orders in 2016 and included $31 million of orders from Hudson in our ownership period.

2017 order strength was driven by increases in natural gas processing plant activity, resulting in the strongest order year in our E&C air cooled heat exchanger product line since 2014, continued strength in packaged gas, European LNG vehicle tanks and improved order intake in D&S China.

While we did not have any large LNG liquefaction projects in our E&C segment in the year, we did book approximately $6 million for engineering work on Tellurian's Driftwood project.

Gross profit for the full year of 2017 was $272 million or 27.5% of sales, inclusive of an unfavorable $5.2 million of restructuring costs. This compares to full year gross margin as a percent of sales in 2016 of 31%.

2016 included favorable impacts from the AirSep insurance settlement of $15.2 million and $38.7 million from several short lead-time projects and contract expiration fees in our E&C segment as well as an unfavorable impact of $4.9 million from restructuring charges.

Normalizing for the above items and Hudson's $15 million of gross profit on $58 million of sales for our ownership period, 2017 gross margin as a percent of sales would have been 27.8% compared to a normalized 26.3% for the full year 2016.

With our restructuring actions complete as of December 31, gross margin as a percent of sales is expected to increase in 2018 with each of the 3 segments' gross margins as a percent of sales expected to expand over 2017.

SG&A for the full year of 2017 was $215 million, inclusive of $20.5 million of acquisition and restructuring related costs, $3.4 million of onetime charges from the Chinese court ruling and $5.7 million of Hudson SG&A.

SG&A for the full year of 2016 was $196 million, inclusive of $6.9 million of restructuring costs.

With the completion of our recent restructuring activities, we expect full year 2018 organic SG&A dollars to decline as compared to 2017 on 5% to 7% top line organic growth.

Moving to Slide 5 of the deck. You can see the adjustments for the fourth quarter and full year of 2017 and 2016.

On an adjusted basis, 2017 earnings per share was $0.96. When comparing normalized adjusted EPS on a comparable basis, adjusted EPS grew from $0.65 in 2016 to $0.96 in 2017.

While we do not adjust for short lead-time replacement equipment sales and contract expiration fees in our Energy & Chemicals segment, there was an unusually significant level of these in 2016, which contributed approximately $38.7 million of gross margin to 2016's results compared to $6 million of gross margin related to these types of sales in 2017.

Briefly walking through each 2017 adjustment as shown on Slide 5 and in order from A through D.

Restructuring and acquisition-related costs totaled $25.7 million or $0.57 of EPS. Restructuring costs were $15.6 million in the year and are expected to return $15 million of annual savings in 2018. These costs were related to the previously announced actions of the headquarter move from Ohio to Georgia, which was completed as of year-end; the Buffalo BioMedical Respiratory Facility consolidation, which was completed at the end of the first quarter of 2017; the Chinese facility consolidations, which were substantially complete at year-end; and a reduction in force in all 3 segments in the third quarter of 2017.

Acquisition-related costs of $10.1 million for the full year were primarily related to the completion of the Hudson and VCT Vogel acquisitions as well as costs associated with the acquisition of Skaff Cryogenics, which closed January 2, 2018. Bill will speak to the strategic nature of the Skaff acquisition to our Distribution and Storage segment later in the call.

During the quarter, we refinanced our 7-year convertible notes, which were coming due on August 1, 2018, as well as our senior secured revolving credit facility.

We issued $259 million of 7-year convertible notes at a 1% coupon, while retiring $193 million out of the total of $250 million 7-year notes at a 2% coupon, and amended and extended our $450 million revolver.

We recorded $4.9 million of debt extinguishment costs or $0.10 per share as shown on line B.

Over the prior 5 years, we were involved in litigation in China with a former external sales representative over disputed commissions. In years prior to 2017, we accrued $4.6 million as our best estimate of the contingent liability. Based on the China court ruling that we recently received, the claimant was awarded $8.3 million.

As a result of this ruling, we accrued an additional $3.7 million in the fourth quarter of 2017. The onetime EPS impact from this ruling was $0.11 as shown on Line C.

The final adjustment for 2017 on Slide 5 is $0.71 of positive impact to full year EPS from U.S. tax reform.

Flipping to Slide 6. The left-hand side of the slide walks through our total tax benefit of $18.3 million in the fourth quarter and $15.9 million for the full year. The onetime benefit totaled $22.5 million, driven by $26.9 million from our revaluation of our deferred tax liabilities in the U.S. to the new 21% Federal tax rate, which was nearly all in the Hudson Products entities. Partially offsetting the onetime benefit was transition tax expense of $4.5 million related to the deemed repatriation of foreign earnings.

Moving to our outlook for 2018 on Page 7 of the slide deck. The following guidance includes full year impacts from the 3 acquisitions completed in 2017 as well as that of the Skaff acquisition completed January 2, 2018.

Guidance also includes the anticipated impact from tax reform and the execution of our tax planning strategy. Additionally, guidance includes the anticipated impact from the revenue recognition accounting standard change effective January 1, 2018, which we expect to be immaterial to the full year.

Sales guidance is expected to be in the range of $1.15 billion to $1.2 billion for the full year of 2018.

We expect full year adjusted earnings per diluted share to be in the range of $1.65 to $1.90 per share on approximately 31.5 million weighted average shares outstanding. This excludes any restructuring costs and acquisition-related costs and includes approximately $0.15 of anticipated benefit from the Tax Cuts and Jobs Act, moving our normalized effective tax rate from approximately 34% to a range of 27% to 29%.

Additionally, our expected 27% to 29% tax rate continues to reflect unrecognized tax benefits in China, which, when realized, will reduce the rate to 22% to 24%. We expect that to occur in 2019.

It should be noted that we do not expect any material restructuring costs in 2018 as our recent restructuring actions are complete.

While we do not give quarterly guidance, our EPS reflects typical Chart seasonality throughout the year with a normal slower first quarter. We expect our capital expenditures for 2018 will be in the range of $35 million to $45 million, inclusive of all completed acquisitions' capital requirements.

Before handing the call over to Bill, I want to briefly touch on our capital deployment strategy, in particular, in light of our recent acquisitions and U.S. tax reform. With net leverage of 3x and continued strong cash flow generation, we will remain focused on deploying capital to support internal investments for growth and productivity, making targeted strategic acquisitions that fit our core cryogenic engineering and manufacturing competencies and paydown of debt.

In 2018, we expect to repatriate approximately $15 million of foreign cash under the new tax rules.

I will now turn the call over to Bill Johnson to discuss each segment's results and the trends in our end markets.

Thank you, Jill, and good morning, everyone. I will provide an update on each segment's fourth quarter and full year results as well as market trends as we're seeing early in 2018.

In the LNG markets, we see momentum gradually building as supported by the following indicators: spot prices on LNG are at their highest levels in 3 years; Chinese LNG market added 12 million tons of imports in 2017. As we discussed on our third quarter earnings call, I will touch on shortly in the D&S update.

We continue to be cautiously optimistic on the Chinese market. We see an uptick in industrial gas consumers securing access to LNG from ISO tank LNG distributors.

European LNG import levels were the highest in 5 years with France, Turkey and Italy all showing strength.

Additionally, the fleet of LNG-powered vessels is expected to double in 2018, which will result in more marine bunkering terminals, an area we continue to drive to take market share in.

Now turning to our Energy & Chemicals business. E&C segment sales of $99.2 million in the fourth quarter included $51.9 million from Hudson. This was a sequential organic increase of 17% over the third quarter of 2017.

For the full year of 2017, E&C sales were $225.6 million, $71.4 million above 2016's revenue and $13.4 million above 2016 for legacy E&C revenue.

During the fourth quarter, total E&C orders were $75.1 million, with 7 orders above $2 million each.

U.S. upstream oil and natural gas end markets have strengthened over the past 12 months, generating increased air cooled heat exchanger demand for natural gas processing plants. A multiyear build-out of natural gas transmission infrastructure continues to drive improved air cooled heat exchanger demand.

The Hudson acquisition, which closed on September 20, 2017, contributed $58 million in sales and $6.4 million of operating income to Chart for our period of ownership in 2017.

On a full year basis, Hudson performed as expected with revenues of $199.2 million and 21% EBITDA.

We expect our Hudson and Chart air cooled heat exchanger business to be up 2% year-over-year compared to the pro forma full year 2017.

As previously mentioned, during our earnings call last quarter, we continue to anticipate that the forecasted global supply/demand for liquefied natural gas balance will be driving LNG export facility orders in late 2018 and into early 2019.

Our IPSMR technology continues to generate a high-level interest in a number of mid-scale applications. During the quarter, Tellurian announced an agreement with Bechtel and Chart to proceed with utilizing Chart's IPSMR process technology and equipment on the Driftwood project.

Additionally, Cheniere announced it intends to switch from 2 large-scale liquefaction trains to 7 mid-scale modular trains on a Stage 3 expansion of the Corpus Christi project.

Chart is working with its partners on a full FEED and EPC proposal to complete by the end of fourth quarter 2018.

2018 for E&C has started with slightly stronger than expected natural gas processing activity and brazed aluminum and air cooled heat exchanger orders. Our Hudson fans business performed above expectations in the fourth quarter of 2017, driven by orders in the Hudson Cofimco business related to power generation as well as strong aftermarket activity in our Hudson Tuf-Life business.

We see continued strong performance in fans as these trends have continued into the first month of 2018.

Now looking at the Distribution & Storage business. D&S sales increased $43.2 million to $540.3 million for the full year 2017 compared to 2016.

Sequentially compared to the third quarter of 2017, sales increased $10.9 million to $150.2 million in the fourth quarter 2017.

The fourth quarter was the highest sales quarter for D&S since the fourth quarter of 2014. Strengthened demand for mobile units for industrial gas, nitrogen and oxygen combined with packaged gas increases in Americas contributed to this quarter's sales levels.

In our D&S business, we booked orders of $153.2 million in the fourth quarter, up 14% to the third quarter of 2017.

Strong D&S order intake was driven by mobile equipment, industrial gas railcars and demand for beverage applications and packaged gas. We received a 57-piece LNG trailer order in Europe, totaling approximately $10 million.

Additionally, we expect small-scale LNG terminal activity in Europe to provide opportunity in 2018.

We anticipate global demand growth in LNG-fueled heavy-duty trucks over the next 5 years. This growth is driven by carbon emission regulations in some markets and the economics of LNG to diesel price delta in other markets.

Chart is expanding capacity in our Georgia facility to meet this growing demand for LNG vehicle tanks, a $3 million capital investment to double existing capacity by the end of the first quarter.

Industrial CO2 activity is driving increased volumes of our bulk and microbulk products in the United States. Applications such as industrial cleaning, dry ice production, food freezing and beverage carbonation are leveraging Chart technology. Additional agricultural and pharmaceutical demand is increasing.

D&S China continues to show signs of recovery with full year 2017 orders up 9% over 2016.

LNG vaporization stations drove much of the order intake increases in 2017. We continue to be cautiously optimistic about the activity in China but do not expect it in the near -- to near 2014 sales level in the next few years.

It is also worth noting that D&S China is nearing a full year of operating at EBITDA-positive margins. We are pleased with the completion of the Chinese facility consolidation and expect that D&S China will achieve positive operating income in 2018 while supporting 10%-plus growth.

As Jill mentioned, we completed the acquisition of Skaff Cryogenics on January 2. Skaff is approximately $7 million in annual revenue with projected EBITDA margins over 20%. Headquartered in New Hampshire, Skaff refurbishes and repairs stationary tanks, trailers and portable tanks. Until this point, Chart has had existing equipment contracts with major industrial gas players, yet lacked the geographic presence in the Northeast, where many of the tanks needing refurbishment are located.

The strategic Northeast location of Skaff fills out an area of the country previously left to other providers and completes the majority of U.S. coverage for us.

This acquisition also contributes to our global footprint of repair capabilities, which was enhanced in August of 2017 by the acquisition of VCT Vogel in Germany.

January of 2018 was a strong order month for D&S segment in the United States and Asia. The primary areas of strength continue to be LNG vehicle tank orders, industrial gas microbulk orders.

Finally, our BioMedical business. Fourth quarter 2017 BioMedical sales of $56.6 million increased from the third quarter sales of $54.7 million, driven primarily by strength in cryobiological stainless steel tanks and on-site gas generation growth.

Full year 2017 BioMedical sales grew 7% over 2016 with all product categories, respiratory, cryobiological and on-site gas generation, growing 5% or more year-over-year.

Cryobiological sales grew 9% in the year, making 2017 a record revenue year for the product line.

BioMedical SG&A for the full year 2017 was $42.1 million, inclusive of $2.5 million of restructuring charges. This compares to $45.7 million of SG&A in 2016, including $0.6 million of restructuring costs in that period.

The reduction in the year-over-year normalized SG&A was driven by facility consolidation completed in the first quarter of 2017 and the reduction in force completed in the third quarter of 2017.

In 2018, we anticipate continued macroeconomic tailwinds across all product lines in biomed. In particular, aging population, pollution in China and increased need for quality medical devices will contribute to our above-market forecasted organic growth in 2018.

I'll now open it up for questions. Crystal, please provide instructions to the participants to be able to ask questions.

(Operator Instructions) Our first question comes from Matt Trusz from Gabelli & Company.

So you discussed the shale gas strength in E&C in orders for 2017. Do you see this persisting through the whole year of 2018? Which geographical formations should we model for this? And how much of the increase in E&C backlog was related to the domestics shale gas and [TNG] infrastructure?

So yes -- to answer the macro question, we do see continued strength in the shale gas, gas processing plants into 2018. In our comments, we said it was going to be 2% over 2017 levels. But yes, we see that continuing in the future.

From a backlog perspective, Matt, we booked in 2017 orders related to that just under $30 million, of which about $10 million were shipped. So the carryover into '18 will be about $20 million from that.

Great. Second on margins. Now that you've acquired Hudson and accomplished a lot of your restructuring objectives early on, what do you see is the go-forward incremental margin potential of the business either overall or if we look at it segment by segment?

So if we look at 2018, and I think it's -- we can look at it both overall and by segment. But we see total gross margin expansion for '18 in the 200 to 250 basis point range over 2017 in full for Chart consolidated. In each of the segments, breaking it down, BioMedical is the lowest of the 3 in terms of incremental from '17 to '18, primarily because we had 3 quarters of benefit from the restructuring and consolidation in the first quarter. D&S and E&C both contribute equally to the Chart expansion of growth margin.

Our next question comes from Martin Malloy from Johnson Rice.

On the LNG side, the mid-scale LNG, could you maybe talk about if any of that's flowing through backlog right now? Any of the FEED work that you have and maybe timing expectations for when some larger bookings might occur?

Well, the Tellurian has already passed through. And we talked about that for 2017. There are some other smaller LNG projects, where we're doing some studies that are going into 2018. We do anticipate the Cheniere project having some funds on that this year as well. But if we look at it, that's pretty much the scope of it right now.

Okay. And then, the La Crosse plant expansion, could you talk about how you expect that to impact capacity this year?

Yes. So the expansion will be done in the third quarter of this year. And it really relies on what the order intake comes in. We don't anticipate it having a material effect on -- we don't need the additional capacity in 2018. It's really setting ourselves up for the future 2019, 2020.

Our next question comes from Rob Brown from Lake Street Capital Markets.

On the Hudson -- maybe just update us on the Hudson integration. Where are you at on that? How much more is to go? And what's sort of your thinking as you've gotten into it this far?

Yes. So -- I mean, we're in the very early stages of it right now, looking at things. Hudson was -- as a standalone business was -- when we bought it, very profitable, excellent management team. There's a number of things that we wanted to look at in terms of suppliers -- supply -- we think that we can improve on some of the supply base and some of the suppliers they had actually helping us with our Tulsa operation. But when we did the acquisition, we said it was going to take about 18 months to complete the -- to get the effect of the synergies. And I think we said around $7 million in synergies. We're on track for that. I would say the nice part about it is that we haven't had any negative surprises with the acquisition. It's all been very positive. And we're very pleased with where we're at today.

And Rob, we expect, as we announced after we closed Hudson, that the EPS accretion remains in line with the numbers that we announced in September and October for '18.

Okay. Good. Great update. And then, maybe just touch on your acquisition strategy of the service businesses. Skaff completed. Are you still looking at pieces there or are there pieces that you still need? Or you feel like you've got that business sort of running now?

Well, we certainly are in a better position than we were prior to Skaff. The Northeast was a big hole for us that we needed to fill. I would say that there are other opportunities out there that we're looking at. We will continue to look at and evaluate, but we're certainly in a much better position than we were before January 2.

Our next question comes from Eric Stine from Craig Hallum.

Maybe just turning to the LNG, the project pipeline. Any -- I don't know if you're willing to divulge this, but maybe just the mix as you see it between projects where you're doing engineering work versus just supplying the equipment, obviously, given the big difference in content there.

Well -- yes. I would say, we do -- whether we're providing equipment or doing engineering work, we're doing engineering work, right? So we have to do engineering work to supply the equipment. So I'm not sure that there is a distinction there. Unless you're talking about where we're doing the installation, acting as a general contractor.

I'm talking more the mid-scale, where there is much more content on your end versus the traditional baseload, where there is just not as much content. So maybe I phrased the question wrong. Just -- but maybe the mix versus what you've done traditionally in the past versus going forward, the market's moving more mid-scale.

Yes. So what I would say there is that we are getting a lot more inquiries about our IPSMR modular mid-scale technology. People are very interested in that. And it's -- it really revolves around the offtake agreements and the ability for people to secure offtake. You saw, for example, that Cheniere just announced a $1.2 million offtake agreement -- a 1.2 million ton offtake agreement with China for -- and I think that (inaudible) level that they're kind of seeing the offtake come in at. And the modular mid-scale solutions that our IPSMR technology provides really bodes well into that arena. So I think we are seeing a lot of inquiries from major players in the industry and to understand what benefits our technology brings to the table.

Got it. So I mean, it sounds like that does make up a good portion of the pipeline.

It certainly will contribute at some point to the pipeline.

Okay. Fair enough. Maybe just turning to industrial gas. I know it has been a question for some time just given the consolidation in that industry. But given the positive trends you're seeing, I mean, is it safe to kind of give the "all clear" in terms of that industry consolidation that we've seen from your customers that's really not going to impact you?

I think the Praxair-Linde merger is not done yet, right? So that will complete sometime in August. So I think jury's still out there to see what's going to happen. The Airgas-Air Liquide merger has been completed for quite a while, and we continue to see good business from them. So I don't (inaudible) being a problem going forward, but we'll monitor it.

Okay. And then just one last one just to clarify something for Jill. Just -- did you say on the tax rate that is given, given what's going on in China that 2019, did you mean your overall tax rate at 22% to 24%?

Correct. Yes. Chart total tax rate (inaudible).

Our next question comes from Tom Hayes from Northcoast Research.

I just wondering maybe tease out a little bit since it's been an area of focus as far as, what was the level of service revenue in '17 and the expectations for '18?

So service, the revenue, Tom, we categorize service as aftermarket parts and service. It was 13% of our total revenue in 2017 and we expect that to grow to about 15% to 16% in 2018.

Okay. And then maybe since Hudson's relatively new for us, how should we think about the growth rate within the E&C between the core business and in the Hudson business in 2018?

Yes. So we look at the Hudson business combined with our Chart legacy air cooled heat exchanger business. And we expect that business to grow 2% in 2018 over 2017. And then we would expect Chart legacy, excluding those product lines, to grow around 5%.

Great. And then just maybe lastly for Bill. You mentioned the marine bunkering opportunity. Could you maybe just tease that out a little bit as far as what kind of products that might apply to? And then does that -- the order or the spec-ed in time generally lasts a couple of quarters a year? Just maybe tease that out a little bit.

Yes. So -- we -- in Europe, in particular, there is a lot of marine activity with LNG, and a lot of it's being driven by regulations, low sulfur emission regulations and standards that are going into effect. So the -- all the marine engines have to be either low-sulfur diesel or running some form of LNG in the near future. So we see more of that activity in terms of -- a lot of the LNG -- excess LNG right now is going to Europe. And so what we do is we provide the storage tanks for these smaller bunkering terminals up to 1,000 cubic meters. And there may be 8, 10 of these kind of tanks at a terminal. And then you have all the vacuum-insulated piping and all the ancillary equipment that goes along with that for the bunkering.

And our next question comes from Pavel Molchanov from Raymond James.

When I look at your backlog versus your 2018 revenue guidance, it's just over 1/3 or covers just over 1/3 of your projected revenue. And I think, historically, it used to be at least 50%, sometimes well north of that. So has there been a structural shift in the business now towards more short cycle orders that are not included in the backlog?

Pavel, yes, there has. So the combination of the addition of the Hudson fans business, which is a shorter cycle, the growth in our respiratory business biomedical side and then we have higher service and aftermarket (inaudible) revenue mix. So that drives the delta.

Okay. Understood. And thinking about the tax rate, so if the new federal rate is 21%, you're guiding to 27% to 29%. That seems to imply your international tax rate of 35%-plus. Is that a fair representation of why you're at 27% to 29%?

That is correct. So it's primarily driven by the losses in China that we have that ordinarily would result in tax benefit and reduce our total tax expense, but we've concluded that the losses are not likely to be used in the future. So we haven't recognized any tax benefit. So your implied rate is correct for the international side.

And I'm showing no further questions from our phone lines. I would now like to turn the conference call back over to Bill Johnson for any closing remarks.

Thank you, Crystal. We are pleased to announce our Investor Day, which is scheduled to take place June 7, 2018, at the JW Marriott Essex hotel in New York City. We will share our strategy, provide a 3-year outlook for the business and provide interaction with our segment Presidents. An invitation and RSVP instructions will be distributed in the first week of March.

Our fourth quarter and full year 2017 results reflect recovery in certain markets, our reduced cost structure and support our 2018 guidance. The combination of concluding our restructuring actions, refinancing our debt at lower cost, mid-single-digit organic growth in all 3 segments and ownership of Hudson Products, VCT Vogel and Skaff Cryogenics for the full year of 2018 supports adjusted EPS growth from $0.96 in 2017 to a range of $1.65 to $1.90 in 2018. Thank you, everyone, for listening today. Goodbye.

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