Press Release

Chart Industries Reports 2016 Second Quarter Results

Company Release - 7/28/2016 6:00 AM ET

CLEVELAND, July 28, 2016 (GLOBE NEWSWIRE) -- Chart Industries, Inc. (NASDAQ:GTLS), a leading diversified global manufacturer of highly engineered equipment for the industrial gas, energy and biomedical industries, today reported results for the second quarter ended June 30, 2016. Highlights include:

  • Record short lead-time shipments in the quarter
     
  • Strong operating cash flow of $49 million
     
  • Addition of William C. Johnson as President and Chief Operating Officer

Net income for the second quarter of 2016 was $21.2 million, or $0.68 per diluted share. Second quarter 2016 earnings would have been $0.72 per diluted share excluding $2.1 million, or $0.04 per diluted share, of restructuring and acquisition-related costs. This compares with net income of $17.2 million, or $0.56 per diluted share, for the second quarter of 2015. Second quarter 2015 earnings would have been $0.60 per diluted share excluding $1.7 million, or $0.04 per diluted share, of restructuring and acquisition-related costs, including facility shutdown costs.

Net sales for the second quarter of 2016 decreased 8.6% to $247.1 million from $270.3 million in the comparable period a year ago. Gross profit for the second quarter of 2016 was $87.0 million, or 35.2% of sales, versus $74.9 million, or 27.7% of sales, in the comparable quarter of 2015.

“We delivered better than anticipated results in our Energy & Chemicals (“E&C”) segment through solid project execution, several short lead-time replacement equipment opportunities supported by our newly created LifeCycle aftermarket service offering, and contract expiration fees related to project development, which highlight our unique capabilities and competitive strengths. The short lead-time shipments were a record in the quarter and eclipsed the prior record set in the fourth quarter of 2015," stated Sam Thomas, Chart’s Chairman and Chief Executive Officer.

Mr. Thomas added, “We are focused on our working capital initiatives and are making good headway as we delivered another consecutive quarter with strong operating cash flow, despite continued weakness in energy markets. Our geographic and product diversification highlights further advantages to support continued cash flow generation. In July 2016, Bill Johnson joined us as President and COO, bringing operational and strategic talent that will help further these initiatives.”

Orders received in the second quarter of 2016 were $270.3 million, an increase of $71.0 million over orders received during the first quarter of 2016. In addition to the typical seasonality of the business, order levels improved over the first quarter as we were awarded a number of significant projects across a variety of end markets within our Distribution & Storage ("D&S") and BioMedical segments, including a $16 million emerging energy application award and continued downstream LNG activity in D&S. Backlog at June 30, 2016 was $392.5 million, up 2.6% from the March 31, 2016 level of $382.4 million.

Selling, general and administrative ("SG&A") expenses for the second quarter of 2016 increased $3.3 million compared with the same period in 2015 to $48.9 million, or 19.8% of sales.  SG&A increased due to higher variable short-term compensation expense which was accelerated compared to the prior year quarter, as well as unfavorable reserves recorded at D&S Asia during the current quarter. Second quarter 2016 SG&A also included $1.0 million in severance costs associated with cost reduction initiatives and other restructuring-related charges.

Income tax expense was $11.0 million for the second quarter of 2016 and represented an effective tax rate of 35.9% compared with $6.9 million in the prior year quarter, or an effective tax rate of 28.7%.  The effective tax rate for the current quarter is higher than 2015's second quarter rate primarily as a result of tax losses in China, for which no benefit is recorded. 

Net interest expense was $4.2 million for the second quarter of 2016, which included $3.1 million of non-cash accretion expense associated with the Company’s Convertible Notes. Net cash interest was $1.1 million.

SEGMENT HIGHLIGHTS

E&C segment sales decreased 33.0% to $61.2 million for the second quarter of 2016 compared with $91.3 million for the same quarter in the prior year. The decline was due to lower sales volume seen across all product lines given continued challenging energy market conditions. E&C gross profit margins were 52.1% in the 2016 quarter compared with 30.3% in the same quarter of 2015. The improved margins were due to multiple short lead-time shipments, contract expiration fees, Lifecycle aftermarket services, favorable execution and project completions during the quarter. The impact from the short lead-time shipments and contract expiration fees contributed about $31 million to E&C’s gross profit in the quarter. These short lead-time opportunities are typically critical shut-down situations to our customers which require us to respond immediately to supply replacement equipment. Although the timing of these events is not predictable, they are recurring in nature and are an important part of our business and service to customers.

D&S segment sales increased 6.4% to $129.6 million for the second quarter of 2016 compared with $121.8 million for the same quarter in the prior year. Sales in North America and Europe increased as a result of revenue recognized on projects related to both LNG and industrial gas applications. D&S gross profit margins were 25.6% compared with 23.4% in the prior year quarter due to lower restructuring costs and improved volume in the current quarter.

BioMedical segment sales decreased 1.4% to $56.3 million for the second quarter of 2016 compared with $57.1 million for the same quarter in the prior year. The decrease is primarily due to lower revenues in North American respiratory and commercial oxygen generation, partially offset by an increase of new product revenues in life sciences and liquid oxygen revenues in Europe. BioMedical gross profit margin increased to 38.8% in the quarter compared with 32.8% for the same period in 2015 primarily due to product mix and lower warranty costs.

OUTLOOK

Based on year-to-date results, continued weak order trends in E&C and business expectations for the remainder of 2016, we are adjusting 2016 guidance with sales now expected to be in the range of $850 million to $900 million. Full year adjusted earnings per diluted share (non-GAAP) are now expected to be in the range of $0.75 to $0.95 per share, on approximately 30.9 million weighted average shares outstanding. This compares with previous sales guidance of $900 million to $1.0 billion and adjusted earnings per diluted share (non-GAAP) guidance of $0.50 to $1.00. Adjusted earnings per diluted share is a non-GAAP measure, which excludes the impact from any restructuring and acquisition-related costs.

FORWARD-LOOKING STATEMENTS

Certain statements made in this news release are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements concerning the Company's plans, objectives, future orders, revenues, earnings or performance, liquidity and cash flow, capital expenditures, business trends, and other information that is not historical in nature. Forward-looking statements may be identified by terminology such as "may," "will," "should," "could," "expects," "anticipates," "believes," "projects," "forecasts," “outlook,” “guidance,” "continue," or the negative of such terms or comparable terminology.

Forward-looking statements contained in this news release or in other statements made by the Company are made based on management's expectations and beliefs concerning future events impacting the Company and are subject to uncertainties and factors relating to the Company's operations and business environment, all of which are difficult to predict and many of which are beyond the Company's control, that could cause the Company's actual results to differ materially from those matters expressed or implied by forward-looking statements. These factors and uncertainties include, among others, the following: the cyclicality of the markets that the Company serves and the vulnerability of those markets to economic downturns; a delay, significant reduction in or loss of purchases by large customers; fluctuations in energy prices; our ability to control our costs and successfully manage our operations; a delay in the anticipated timing of LNG infrastructure build out or a delay or failure to receive orders; the potential for negative developments in the natural gas industry related to hydraulic fracturing; competition; potential future impairment of the Company’s significant goodwill and other intangibles; changes in government energy policy or the failure of expected changes in policy to materialize; the modification or cancellation of orders in our backlog; loss of key employees; challenges and uncertainties associated with efforts to acquire and integrate product lines or businesses; economic downturns and deteriorating financial conditions; our ability to manage our fixed-price contract exposure; our reliance on key suppliers and potential supplier failures or defects; fluctuations or adjustments in the Company’s effective tax rate; changes in government healthcare regulations and reimbursement policies; litigation and disputes involving the Company, including product liability, contract, warranty, intellectual property, employment and environmental claims; fluctuations in foreign currency exchange and interest rates; general economic, political, business and market risks associated with the Company's international operations and transactions; variability in operating results associated with unanticipated increases in warranty returns of Company products; technological security threats; financial distress of third parties; our ability to protect our intellectual property; the regulation of our products by the U.S. Food & Drug Administration and other governmental authorities; the pricing and availability of raw materials; the cost of compliance with environmental, health and safety laws; claims that our products or processes infringe intellectual property rights of others; additional liabilities related to taxes; deterioration of employee or labor relations; increased governmental regulation; risks associated with our indebtedness, leverage and liquidity; and volatility and fluctuations in the price of the Company’s stock.

For a discussion of these and additional factors that could cause actual results to differ from those described in the forward-looking statements, see the Company's filings with the Securities and Exchange Commission, including Item 1A (Risk Factors) in the Company’s most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission, which should be reviewed carefully. The Company undertakes no obligation to update or revise any forward-looking statement.

Chart is a leading diversified global manufacturer of highly engineered equipment for the industrial gas, energy, and biomedical industries. The majority of Chart's products are used throughout the liquid gas supply chain for purification, liquefaction, distribution, storage and end-use applications, a large portion of which are energy-related. Chart has domestic operations located across the United States and an international presence in Asia, Australia, Europe and South America. For more information, visit: http://www.chartindustries.com.

USE OF NON-GAAP FINANCIAL INFORMATION

To supplement the unaudited condensed consolidated financial statements presented in accordance with U.S. GAAP in this news release, certain non-GAAP financial measures as defined by SEC rules are used. The Company believes these non-GAAP measures are of interest to investors and facilitate useful period-to-period comparisons of the Company’s financial results, and this information is used by the Company in evaluating internal performance. See the last page of this news release for a reconciliation of adjusted earnings per diluted share, a non-GAAP measure included in this release.

With respect to the Company's full year earnings outlook, the Company is not able to provide a reconciliation of the adjusted earnings per diluted share because certain items may have not yet occurred or are out of the Company's control and / or cannot be reasonably predicted.

CONFERENCE CALL

As previously announced, the Company will discuss its second quarter 2016 results on a conference call on Thursday, July 28, 2016 at 10:30 a.m. ET.  Participants may join the conference call by dialing (877) 312-9395 in the U.S. or (970) 315-0456 from outside the U.S. A live webcast presentation will also be accessible at 10:30 a.m. ET at http://www.chartindustries.com. Please log-in or dial-in at least five minutes prior to the start time.

A taped replay of the conference call will be archived on the Company’s website, www.chartindustries.com, approximately one hour after the call concludes. You may also listen to a taped replay of the conference call by dialing (855) 859-2056 in the U.S. or (404) 537-3406 outside the U.S. and entering Conference ID 48515431. The telephone replay will be available beginning 1:30 p.m. ET, Thursday July 28, 2016 until 11:59 p.m. ET, Thursday, August 4, 2016.

For more information, click here:

http://ir.chartindustries.com/

CHART INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
(Dollars and shares in thousands, except per share amounts)

 Three Months Ended June 30, Six Months Ended June 30,
 2016 2015 2016 2015
Sales$247,095  $270,252  $440,852  $515,357 
Cost of sales160,144  195,372  301,200  367,954 
Gross profit86,951  74,880  139,652  147,403 
Selling, general and administrative expenses48,896  45,628  98,432  98,790 
Amortization3,116  4,123  6,244  8,527 
Operating expenses52,012  49,751  104,676  107,317 
Operating income34,939  25,129  34,976  40,086 
Other expenses:       
Interest expense, net4,171  3,999  8,265  7,921 
Financing costs amortization321  321  642  647 
Foreign currency (gain) loss(93) (3,141) 113  (77)
Other expenses, net4,399  1,179  9,020  8,491 
Income before income taxes30,540  23,950  25,956  31,595 
Income tax expense10,977  6,868  11,065  9,238 
Net income19,563  17,082  14,891  22,357 
Noncontrolling interests, net of taxes(1,590) (75) (1,611) (46)
Net income attributable to Chart Industries, Inc.$21,153  $17,157  $16,502  $22,403 
Net income attributable to Chart Industries, Inc. per common share:       
Basic$0.69  $0.56  $0.54  $0.73 
Diluted$0.68  $0.56  $0.53  $0.73 
Weighted average number of common shares outstanding:       
Basic30,582  30,495  30,575  30,481 
Diluted30,939  30,735  30,904  30,693 
        
Comprehensive income, net of taxes$13,471  $19,777  $15,315  $17,207 
Less: Comprehensive loss attributable to noncontrolling interests, net of taxes(1,708) (41) (1,705) (41)
Comprehensive income attributable to Chart Industries, Inc., net of taxes$15,179  $19,818  $17,020  $17,248 
                


CHART INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)

 Three Months Ended June 30, Six Months Ended June 30,
 2016 2015 2016 2015
Net Cash Provided By Operating Activities$48,650  $7,106  $86,829  $7,994 
Investing Activities       
Capital expenditures(4,186) (9,651) (9,418) (24,479)
Payments for land use rights  (11,043)   (11,043)
Proceeds from sale of assets  192    200 
Government grants612    612   
Acquisition of businesses, net of cash acquired(1,383)   (1,383) (320)
Net Cash Used In Investing Activities(4,957) (20,502) (10,189) (35,642)
Financing Activities       
Borrowings on revolving credit facilities  12,377  3,820  12,377 
Repayments on revolving credit facilities(760) (743) (3,816) (743)
Borrowings on term loan13,167    13,167   
Repayments on term loan(1,508)   (1,508)  
Proceeds from exercise of options5  47  17  469 
Excess tax benefit from share-based compensation30    54  130 
Payment of contingent consideration  (611)   (611)
Common stock repurchases(42) (15) (643) (823)
Other financing activities      (157)
Net Cash Provided By Financing Activities10,892  11,055  11,091  10,642 
Effect of exchange rate changes on cash(481) 1,859  1,719  (3,765)
Net increase (decrease) in cash and cash equivalents54,104  (482) 89,450  (20,771)
Cash and cash equivalents at beginning of period159,054  83,367  123,708  103,656 
Cash and Cash Equivalents at End of Period$213,158  $82,885  $213,158  $82,885 
                

CHART INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)

 June 30,
 2016
 December 31,
 2015
 (Unaudited)  
ASSETS   
Cash and cash equivalents$213,158  $123,708 
Accounts receivable, net150,902  183,514 
Inventories, net191,681  199,302 
Other current assets53,119  80,706 
Property, plant and equipment, net261,613  266,277 
Goodwill218,990  218,390 
Identifiable intangible assets, net100,339  106,714 
Other assets19,654  21,529 
TOTAL ASSETS$1,209,456  $1,200,140 
    
LIABILITIES AND EQUITY   
Current liabilities$234,948  $262,039 
Long-term debt228,810  213,798 
Other long-term liabilities49,122  48,567 
Equity696,576  675,736 
TOTAL LIABILITIES AND EQUITY$1,209,456  $1,200,140 
        

CHART INDUSTRIES, INC. AND SUBSIDIARIES
OPERATING SEGMENTS (UNAUDITED)
(Dollars in thousands)

 Three Months Ended June 30, Six Months Ended June 30,
 2016 2015 2016 2015
Sales       
Energy & Chemicals$61,195  $91,339  $99,154  $178,809 
Distribution & Storage129,600  121,813  237,097  226,884 
BioMedical56,300  57,100  104,601  109,664 
Total$247,095  $270,252  $440,852  $515,357 
Gross Profit       
Energy & Chemicals$31,873  $27,680  $37,344  $52,543 
Distribution & Storage33,230  28,485  62,645  58,533 
BioMedical21,848  18,715  39,663  36,327 
Total$86,951  $74,880  $139,652  $147,403 
Gross Profit Margin       
Energy & Chemicals52.1% 30.3% 37.7% 29.4%
Distribution & Storage25.6% 23.4% 26.4% 25.8%
BioMedical38.8% 32.8% 37.9% 33.1%
Total35.2% 27.7% 31.7% 28.6%
Operating Income (Loss)       
Energy & Chemicals$22,124  $19,540  $19,926  $34,831 
Distribution & Storage13,005  10,845  22,835  21,157 
BioMedical10,552  6,000  17,204  9,236 
Corporate(10,742) (11,256) (24,989) (25,138)
Total$34,939  $25,129  $34,976  $40,086 
                

CHART INDUSTRIES, INC. AND SUBSIDIARIES
ORDERS AND BACKLOG (UNAUDITED)
(Dollars in thousands)

 Three Months Ended
 June 30,
 2016
 March 31,
 2016
Orders   
Energy & Chemicals$53,016  $8,774 
Distribution & Storage156,030  139,376 
BioMedical61,221  51,109 
Total$270,267  $199,259 
        


 As of
 June 30,
 2016
 March 31,
 2016
Backlog   
Energy & Chemicals$114,562  $122,648 
Distribution & Storage252,502  239,978 
BioMedical25,433  19,819 
Total$392,497  $382,445 
        


CHART INDUSTRIES, INC. AND SUBSIDIARIES
RECONCILIATION OF EARNINGS PER DILUTED SHARE TO ADJUSTED EARNINGS PER DILUTED SHARE (UNAUDITED)
(Dollars in thousands, except per share amounts)

 Three Months Ended June 30,
 2016 2015
Earnings per diluted share$0.68  $0.56 
Restructuring and acquisition-related costs0.04  0.04 
Adjusted earnings per diluted share$0.72  $0.60 
        

 

Contact:

Ken Webster
Vice President and
Chief Financial Officer
216-626-1216
ken.webster@chartindustries.com

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Source: Chart Industries, Inc.