Chart Industries' CEO Discusses Q2 2012 Results - Earnings Call Transcript

Chart Industries, Inc. (GTLS)

Q2 2012 Earnings Call

August 2, 2012 10:30 AM ET

Executives

Michael Biehl – EVP, CFO and Treasurer

Sam Thomas – Chairman, President, and CEO

Analysts

Jeff Spittel – Global Hunter Securities

Eric Stine – Craig-Hallum

Rob Brown – Lake Street

Chase Jacobson – William Blair

Greg McKinley – Dougherty

Jagadish Iyer – Piper Jaffray

Martin Malloy – Johnson

Bill Priebe – Geneva Cap Management

Presentation

Operator

Good morning. And welcome to the Chart Industries Incorporated 2012 Second Quarter Earnings 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 have not received the release, you may access it by visiting the 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, August 17. 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, 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 would now like to turn the conference over to Mr. Michael Biehl, Chart Industries’ Executive Vice President, CFO, and Treasurer. You may begin your conference.

Michael Biehl

Thank you, Marine. 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 second quarter results then Sam Thomas, our Chairman, President, and CEO, provide highlights from the second quarter and comments on current market and order trends we see in each of our business segments. I will finish up then by commenting on our outlook for the remainder of 2012.

Reported net income for the second quarter of 2012 of 17.9 million or $0.59 per diluted share, second quarter earnings would’ve been $0.57 per diluted share excluding $1.1 million favorable earn-out adjustments related to prior acquisitions, partially offset by a non-cash impairment charges and the write-off of deferred financing fees associated with the credit facility amendment.

Due to higher forecasted costs and a delayed biomedical product launch of prior acquisition, earn-out liability was reversed, as it was determined that the reported gross profit targets would no longer be met. This provided a net $4.4 million benefit in the quarter, reflecting the net impact of our quarterly assessment of all of our prior acquisition announced.

In addition, we also took in impairment charge for the elimination of in process research and development intangible assets, established at the opening balance sheet, related to this prior acquisition. As a result, an impairment charge of 3.1 million was taken out of these assets in the quarter. The current quarter’s performance compares to the second quarter of 2011 net income of $10.6 million or $0.35 per diluted share.

Second quarter 2011 earnings would have been $0.41 per share excluding 2.8 million of restructuring costs associated with acquisitions.

I’d also like to point out that currency losses were 1.8 million during the quarter or $0.04 per diluted share excluding the currency impact adjusted earnings would’ve been $0.61 per diluted share in the quarter.

The euro volatility particularly impacted our biomedical business which largely manufactured that U.S. itself approximately 45% of its product in Europe. Sales for the quarter were 240 million, which represents a new quarterly record and an increase of 20% compared to net sales of 201 million a year ago.

Our gross profit for the quarter was 74.1 million and 30.9% of sales compared with 62.3 million or 31.1% of sales a year ago. We expect additional ramp-up costs as we continue to expand capacity globally to persist to the remainder of 2012 and into 2013.

With respect to the energy and chemicals of our E&C business, sales increased 67% to 77.1 million in the second quarter as large baseload projects are progressing as expected. As a reminder, our E&C business recognized the majority of its revenues on a percentage of completion bases.

Gross margins improved to 30.2% in the first quarter compared to 29% in the same quarter last year. The improvement is encouraging and reflects higher production throughput and improved pricing in the quarter. This completely offset higher training cost as the E&C continues to hire welders and engineers.

In Distribution & Storage, or our D&S business, sales increased 12% year-over-year to 113.4 million in the second quarter, driven by notable demand for LNG equipment especially mobile equipment and bulk storage tanks. The acquisition of growth for which closed in the third quarter of 2011 accounted for approximately 4 million of the improvement. Gross margin for D&S declined to 27.2% compared with 28.2% a year ago. Product and geographic mix as well as higher production costs in China due to challenges and meeting of the rapid growth and demand, negatively impacted margins compared with last year.

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