Chart Industries (GTLS) Q1 2018 Earnings Conference Call Transcript

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Chart Industries (NYSE:GTLS)
Q1 2018 Earnings Conference Call
April 19, 2018 9:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning and welcome to the Chart Industries Inc. Fourth-Quarter and Full-Year 2017 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session.

As a reminder, today's call is being recorded.You should have 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.

Jillian C. Evanko -- Chief Financial Officer

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 markets and order trends across the three 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 will 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 one-time 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 and storage and energy and 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 the order in market trends later on this call.Gross profit for the fourth quarter of 2017 was $82.9, 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 two lower-margin 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 charge 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, the full-year 2017 sales were $989 million, an increase of 15% over the full year of 2016, and included $58 billion of sales from the Hudson Products acquisition.

Net income for the year 2017 was $28 million, or $0.89 per diluted share, compared to the full-year 2016 net income of $28.2 million, or $0.91 per share. On an adjusted basis, 2017 full-year earnings per share were $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 includes 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 of 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 three segments' gross margins as a percent of sales expected to expand over 2017.SG&A for the full year 2017 was $215 million, inclusive of $20.5 million of acquisition- and restructuring-related costs, $3.4 million of one-time 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 the 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 were $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 and chemical segment, there was an unusually significant level of these in 2016 which contributed approximately $38.7 million of gross margin to 2016's result, 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 three 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 seven-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 seven-year convertible notes, at a 1% coupon, while retiring $193 million out of a total of $250 million seven-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 five 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 a 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 one-time 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 one-time benefit totaled $22.5 million, driven by $26.9 million from the 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 one-time 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 three acquisitions completed in 2017, as well as that of the Skaff acquisition completed January 2, 2018. The guidance also includes the anticipated impact of tax reform and the execution of our tax planning strategy. Additionally, the guidance includes the anticipated impact of 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 15% of the anticipated benefit from the Tax Cuts and Jobs Act, moving our normalized effective tax rate from approximately 34% to the 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 the net leverage of three times 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 pay down 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.

William C. (Bill) Johnson -- Chief Executive Officer and President

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 are seeing early in 2018.In the LNG markets, we see momentum gradually building, supported by the following indicators: Spot prices on LNG are at their highest levels in three years, the 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 five 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 and 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 seven 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 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 two large-scale liquefaction trains to seven 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 in 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-Lite business.

We see continued strong performance in fans as these trends have continued into the first month of 2018.Now looking at the distribution and 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 the 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, 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 five 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 the 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 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 a 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 the global footprint of our 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 the D&S segment in the United States and Asia.

The primary areas of a strength to 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 the strengthening 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 in 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 cost in that period. Reduction in 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 will now open it up for questions. Crystal, please provide instructions to the participants to be able to ask questions.

Questions and Answers:

Operator

Thank you. Our first question comes from Matt Trusz from Gabelli and Company. Your line is open.

Matthew Trusz -- Gabelli & Company -- Analyst

Good morning. Thank you for taking my questions this morning. So you discussed the shale gas strength in E&C and orders for 2017. Do you see these persisting through the whole year of 2018? What geographical formations should we model in for this, and how much of the increase in the E&C backlog was related to the domestic shale gas and T&G infrastructure?

William C. (Bill) Johnson -- Chief Executive Officer and President

Yeah, 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, yeah, we see that continuing in the future.

Jillian C. Evanko -- Chief Financial Officer

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 carryover into 2018 will be at $20 million from that.

Matthew Trusz -- Gabelli & Company -- Analyst

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

Jillian C. Evanko -- Chief Financial Officer

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

Matthew Trusz -- Gabelli & Company -- Analyst

Thank you.

Operator

Thank you. Our next question comes from Martin Malloy from Johnson Rice. Your line is open.

Martin Malloy -- Johnson Rice -- Director

Good morning. On the LNG side, the mid-scale LNG, could you maybe talk about if any 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?

William C. (Bill) Johnson -- Chief Executive Officer and President

Well, the Tellurium 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 we look at it, that's pretty much the scope of it right now.

Martin Malloy -- Johnson Rice -- Director

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

William C. (Bill) Johnson -- Chief Executive Officer and President

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 it and we don't need the additional capacity in 2018. It's really setting ourselves up for the future, 2019 and 2020.

Martin Malloy -- Johnson Rice -- Director

Great. Thank you.

Operator

Thank you. Our next question comes from Rob Brown from Lake Street Capital Markets. Your line is open.

Rob Brown -- Lake Street Capital Markets -- Analyst

Good morning. 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 your thinking as you've got into it this far?

William C. (Bill) Johnson -- Chief Executive Officer and President

I mean we're in very early stages of it right now, looking at things. Hudson was a stand-alone 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 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 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, 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.

Jillian C. Evanko -- Chief Financial Officer

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 2018.

Rob Brown -- Lake Street Capital Markets -- Analyst

OK. Good. Good update. And then, maybe just touching to 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 do you feel like you've got that business sort of running now?

William C. (Bill) Johnson -- Chief Executive Officer and President

Well, we certainly are in a better position than we were prior to Skaff. The Northeast was a big pool 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.

Rob Brown -- Lake Street Capital Markets -- Analyst

OK. Thank you. I'll turn it over.

Operator

Thank you. Our next question comes from Eric Stine from Craig-Hallum. Your line is open.

Eric Stine -- Craig-Hallum Capital Group -- Analyst

Hi, Bill. Hi, Jill. Maybe just turning to the LNG, the project pipeline, 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?

William C. (Bill) Johnson -- Chief Executive Officer and President

Well, yeah, I would say, we do that 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's a distinction there unless you're talking about where we're doing the installation acting as a general contractor.

Eric Stine -- Craig-Hallum Capital Group -- Analyst

I'm talking more the mid-scale, where there's 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 but maybe the mix versus what you've done traditionally in the past versus going forward are the markets move in more mid-scale?

William C. (Bill) Johnson -- Chief Executive Officer and President

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 really revolves around the off-take agreements and the ability for people to secure off-take. You saw, for example, that Cheniere just announced a $1.2 million dollar off-take agreement, or 1.2-million-ton off-take agreement, with China and I think that happened at that level that they're kind of seeing the off-take come in at and the modular mid-scale solutions that our IPSMR technology provides really bodes well into that arena. And 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.

Eric Stine -- Craig-Hallum Capital Group -- Analyst

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

William C. (Bill) Johnson -- Chief Executive Officer and President

It certainly will contribute at some point to the pipeline.

Eric Stine -- Craig-Hallum Capital Group -- Analyst

OK, fair enough. Maybe just turning to industrial gas. I know it's been a question for some time 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?

William C. (Bill) Johnson -- Chief Executive Officer and President

I think the Praxair-Linde merger is not done yet, all right? So, that will take some time in August. So, I think the jury is 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 see that being a problem going forward but we'll monitor it.

Eric Stine -- Craig-Hallum Capital Group -- Analyst

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

Jillian C. Evanko -- Chief Financial Officer

Correct, yes. Chart total tax rate.

Eric Stine -- Craig-Hallum Capital Group -- Analyst

OK. All right, thank you very much.

Operator

Thank you. Our next question comes from Tom Hayes from Northcoast Research. Your line is open.

Tom Hayes -- Northcoast Research -- Managing Director

Thank you. Good morning. Just wondering maybe, you teased it out a little bit, since it's been an area of focus is as far as, what was the level of service revenue in '17 and the expectations for '18?

Jillian C. Evanko -- Chief Financial Officer

The service revenue on [Inaudible] services after-market 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.

Tom Hayes -- Northcoast Research -- Managing Director

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

Jillian C. Evanko -- Chief Financial Officer

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

Tom Hayes -- Northcoast Research -- Managing Director

Great. And then, just maybe lastly for Bill, you mentioned that in 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, the order or the spec in time generally last a couple of quarters here or you're used to maybe tease that out a little bit?

William C. (Bill) Johnson -- Chief Executive Officer and President

Yeah. So in Europe, in particular, there's a lot of marine activity with LNG, and a lot of it's being driven by the regulations with sulfur emission regulations and standards that are going into effect. So, 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 a 1,000 cubic meters and there may be eight to 10 of these kinds of tanks at a terminal, and you have all the vacuum insulated piping and all the ancillary equipment that goes along with that for the bunkering.

Tom Hayes -- Northcoast Research -- Managing Director

Great. Thank you.

Operator

Thank you. And our next question comes from Pavel Molchanov from Raymond James. Your line is open.

Pavel Molchanov -- Raymond James -- Senior Vice President

Thanks for taking the question. When I look at your backlog versus your 2018 revenue guidance, it's just over a third or covers just over a third 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 toward more short cycle orders that are not included in the backlog?

Jillian C. Evanko -- Chief Financial Officer

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

Pavel Molchanov -- Raymond James -- Senior Vice President

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

Jillian C. Evanko -- Chief Financial Officer

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. So 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.

Pavel Molchanov -- Raymond James -- Senior Vice President

All right. Appreciate it.

Operator

Thank you. 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.

William C. (Bill) Johnson -- Chief Executive Officer and President

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 three-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 three 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.

Operator

[Operator signoff]

Duration: 41 minutes

Call Participants:

Jillian C. Evanko -- Chief Financial Officer

William C. (Bill) Johnson -- Chief Executive Officer and President

Matthew Trusz -- Gabelli & Company -- Analyst

Martin Malloy -- Johnson Rice -- Director

Rob Brown -- Lake Street Capital Markets -- Analyst

Eric Stine -- Craig-Hallum Capital Group -- Analyst

Tom Hayes -- Northcoast Research -- Managing Director

Pavel Molchanov -- Raymond James -- Senior Vice President

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