Chart Industries Q4 2024 Earnings Call Transcript

Quartr
Provided by Quartr
February 28, 2025
Skip to Participants
Operator

Good morning, and welcome to the Chart Industries, Inc. Twenty twenty four Fourth Quarter and Full Year Results 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. The company's release and supplemental presentation were issued earlier this morning.

Operator

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 approximately two hours following the conclusion of the call until Friday, 03/28/2025. The replay information is contained in the company's press 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. 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.

Operator

The company undertakes no obligation to update publicly or revise any forward looking statements. During this conference call, references may be made to non GAAP financial measures. To assist you in understanding these non GAAP terms, Chart has posted reconciliations to the most directly comparable GAAP financial measures on the Chart Industries website. We have provided a supplemental slide presentation to support our comments on this call that can be accessed in the presentation and webcast section of the Chart website at www.chartindustries.com. I would now like to turn the conference call over to Ms.

Operator

Silibanko, Chart Industries' CEO. Thank you. Please go ahead.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

Thank you, Ina. Good morning, everyone, and thank you for joining our fourth quarter and full year twenty twenty four earnings call. Joining me today is our CFO, Joe Brinkman. We will begin on Slide four of the supplemental deck that was released this morning. Results shown are from continuing operations.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

When referring to any comparative period, all metrics are pro form a for continuing operations of the combined business of Chart and Howden. Pro form a excludes the following businesses that were divested in 2023: Roots, American Pan, COFIMCO and Creo Diffusion. In the fourth quarter twenty twenty four, we generated $281,500,000 of net cash from operating activities and after $20,500,000 of CapEx spend had free cash flow of $261,000,000 contributing to full year 2024 free cash flow of $388,000,000 This cash was used to reduce net debt and resulted in our year end 2024 net leverage ratio of 2.8, making further progress to our net leverage ratio target of 2% to 2.5%, which we expect to hit in 2025. When compared to the fourth quarter twenty twenty three pro form a, orders were $1,550,000,000 an increase of 29.4% including Phase one of Woodside, Louisiana LNG, which was received in December 2024. This contributed to full year 2024 orders of $5,000,000,000 a 13% increase compared to 2023.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

Fourth quarter '20 '20 '4 sales of $1,110,000,000 increased 10.8% excluding FX, contributing to full year organic sales growth of 16.9%. Fourth quarter twenty twenty four had a $17,000,000 headwind from foreign exchange in terms of sales when compared to our forecast heading into the quarter. Fourth quarter reported operating income of $188,300,000 was $243,400,000 when adjusted for unusual items primarily related to integration and restructuring. This reflects lower costs and leveraging SG and A, resulting in 22% adjusted operating margin and 33.6 gross margin. For the full year 2024, adjusted operating margin was 21.1%, an increase of 400 basis points.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

Adjusted EBITDA for the fourth quarter of $283,600,000 or 25.6 percent of sales contributed to our full year adjusted EBITDA of $1,014,000,000 and EBITDA margin of 24.4%, a year over year increase of three thirty basis points. Although adjusted operating profit exceeded our internal expectations, fourth quarter twenty twenty four adjusted diluted earnings per share of $2.66 faced headwinds from foreign exchange, the delta in the tax rate compared to our forecast, the change in share count due to market price movement and interest expense, which combined were approximately a $0.33 headwind to Q4 EPS. Slide five is a summary of the fourth quarter compared to Q4 'twenty three pro form a and we'll cover these in the coming few slides. So moving on to Slide six. You can see some specific order examples from the fourth quarter twenty twenty four on Slide six.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

Starting in the upper row left hand side, as I mentioned earlier, we received the Phase one order for Woodside Louisiana LNG and we expect to receive Phase two in 2025. Moving left to right in the top row, we have seen an increasing need for nitrogen rejection units or NRUs as gas composition in The U. S. Gulf Coast becomes more varied. We are pleased to have received an NRU award from Energy Transfer and look forward to working closely to help them and other midstream and downstream providers solve these challenges to natural gas.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

While this is a global opportunity for Chart, in The United States, we are specifically seeing more nitrogen and other inerts and gas coming out of the ground as wells age and are drilled deeper. Many pipelines have a 3% limit on nitrogen, and for LNG, the nitrogen limit drops only 1%. Importantly, this is not driven by policy, but rather customer efficiency. We anticipate seeing more activity in the NRU market during 2025 and beyond as the global NRU market is expected to grow at a 6.3% CAGR from 2025 to 02/1933. We recently announced Chart's carbon capture solution and helium storage for Pulsar Helium utilizing our Earthly Labs technology, which has been scaling larger in recent quarters.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

On the bottom row of Slide six, you can see a few other fourth quarter wins, including air coolers for a data center as well as an order from our recently announced partnership with Bloom Energy. Together, we intend to offer a solution to customers such as data centers and manufacturers who are seeking power solutions that can be deployed rapidly without compromising reliability or emission goals. We also received a $26,000,000 order from an African power utility, which includes field installation at site. Finally, we had orders totaling $28,400,000 for the space exploration end market in the fourth quarter of 'twenty four, the highest space exploration order quarter of the year. Additionally, we've now received orders for the space exploration end market to date in the first quarter of twenty twenty five, totaling approximately $60,000,000 A few other notes to the start, of 2025 so far in Q1 in terms of some of the larger orders received to date.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

We received a $35,000,000 mining award, additional EGR blowers, a multimillion dollar order for tanks for an Asia Pacific chip manufacturing site and multiple brazed aluminum heat exchanger orders for various energy applications. Additionally, aftermarket has started the year strong and just yesterday, we executed an LTA with an industrial gas major. The above illustrates the breadth of the end markets and customers that we serve with our flexible manufacturing capacity as well as the focus we have of not relying on one large project for one end market. In 2024, we sold to 167 new customers as compared to three twenty two in 2023. Additionally, we had our best order year for hydrogen in Europe in 2024 and record hydrogen sales in the fourth quarter and the full year 2024.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

We currently have approximately $24,000,000,000 in our commercial pipeline of opportunities that are not yet in backlog. And we also have customers who have committed work to us that is not yet in backlog, totaling approximately $2,000,000,000 of commitments. Our LNG end market ended 2024 with strength. And as we look ahead, we are seeing an expanded commercial pipeline of global opportunities. India, The Philippines and Japan have recently shared their intent to import U.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

S. LNG supported by the current U. S. Administration support of growing American energy production. As you can see on the left hand side of Slide seven and as previously discussed, we booked the Woodside, Louisiana LNG Phase one order in the fourth quarter.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

As a reminder, the full potential for the Woodside, Louisiana LNG site is three additional phases of 5,500,000 tons per annum each. We are pleased to support Cheniere and Bechtel Energy on the Corpus Christi Stage three liquefaction project with our iPSMR process technology. Cheniere's first cargo out of CCL Stage 3 was last week meaningfully ahead of schedule. As we extend our process technology installed base, we are also supporting our customers with more service arrangements and we look forward to supporting Cheniere over the coming years with our recently executed master services agreement. Our recently executed master goods and services agreement with ExxonMobil includes partnering on the supply of LNG equipment as well as the utilization of our iPSMR process technology.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

And lastly, on LNG, there is an increasing global interest in small scale LNG, in particular around hub and spoke models in development in South America, Africa, Southeast Asia and Europe, driven at least in part by the distribution for local power generation and industrial use to support growing power demand. Now Joe will speak to our fourth quarter and full year results as well as cash.

Joe Brinkman
Joe Brinkman
Vice President and Chief Financial Officer at Chart Industries

Slide eight and nine show the fourth quarter twenty twenty four results compared to the fourth quarter of twenty twenty three pro form a. The full year 2024 metrics are in the appendix on Slides sixteen and seventeen. For the full year 2024, orders, sales, gross profit dollars and margin, operating profit dollars and margin, EBITDA dollars and margin and free cash flow were records. Fourth quarter twenty twenty four sales of 1,110,000,000 increased 10.1%. Each quarter in 2024, sales sequentially increased.

Joe Brinkman
Joe Brinkman
Vice President and Chief Financial Officer at Chart Industries

And full year 2024 sales of $4,160,000,000 was a year over year organic increase of 17.5% with a negative 0.6% foreign exchange headwind. Reported operating income in the fourth quarter was $188,300,000 and when adjusted was $243,400,000 or 22% of sales. Supporting the full year 2024 adjusted operating margin of 21.1, an increase year over year of 400 basis points. The second half of twenty twenty four adjusted operating margin was 22.1% compared to the first half of 19.9%, reflecting synergies flowing through the P and L as well as leveraging SG and A. Adjusted EBITDA for Q4 of $283,600,000 contributed to our full year $20.24 $1,014,000,000 or 24.4% of sales when adjusted, an increase of three thirty basis points.

Joe Brinkman
Joe Brinkman
Vice President and Chief Financial Officer at Chart Industries

We also continue to have confidence in our mid-30s gross margin percent medium term target. Fourth quarter twenty twenty four free cash flow was $261,000,000 contributing to our end of the year 2024 net leverage ratio of 2.8 as shown on Slide 10. We reiterate our financial policy that until we are in our target net leverage ratio range of 2% to 2.5%, we do not do any share repurchases or material cash acquisitions. As reflected in the second half of twenty twenty four, our CapEx spend is now normalizing and we expect CapEx to be approximately $110,000,000 Net working capital defined as accounts receivable, inventory, accounts payable, unbilled contract revenue, customer advances and billings in excess as a percent of trailing twelve month sales improved to 13.4%. We continue to look to optimize our capital structure and took a step toward this in the fourth quarter twenty twenty four by fully settling our convertible note that came due in November 2024.

Joe Brinkman
Joe Brinkman
Vice President and Chief Financial Officer at Chart Industries

Additionally, in our minority investment in HTech, we have a put call option that could have been exercised following the September 2024 '3 year mark. We have assigned LOI to modify the option so that it will be structured similar to the 2021 option and it will not be exercisable until 2028. Therefore, we do not expect any balance sheet impact or cash impact from the option until at least that time.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

Moving to Slide 11, we'll provide some color around the segments and the setup to our reiterated 2025 outlook. Starting with Cryotank Solutions or CTS, fourth quarter twenty twenty four CTS orders of 138,500,000 decreased 11.9% when compared to the fourth quarter of twenty twenty three, primarily driven by softer European industrial gas demand and the fourth quarter of twenty twenty three having three customers that ordered larger projects in The Americas. Demand to start 2025 and the commercial pipeline for 2025 in CTS is picking up and expected to drive year over year increases in both orders and sales. Fourth quarter CTS sales of $150,000,000 decreased 26.4% when compared to the fourth quarter of 'twenty three, which had approximately $17,000,000 of specific project sales that did not repeat in the fourth quarter of 'twenty four. Reported gross profit margin of 24.4% for CTS increased two ten basis points compared to the prior year.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

Continued efforts in efficiency and operational improvements drive an improvement in gross margin, in 2024 for the full year in CTS of 140 basis points. In Heat Transfer Systems or HTS, the fourth quarter order sales, gross profit, gross margin, operating income, operating income margin and EBITDA and EBITDA margin were records for the segment for that quarter and any quarter in our history. With that said, we continue to expect HTS, orders and sales to grow 2025 over 2024, driven by traditional energy as well as LNG. Fourth quarter twenty twenty four HTS orders of $536,000,000 increased over 66% when compared to the fourth quarter of twenty twenty three, driven by the large LNG Phase one order that we got as well as growth in the order book for all other HTS. Excluding the Woodside order, HTS orders still grew in the fourth quarter twenty twenty four.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

HTS sales for the quarter were $288,800,000 which grew 14.2% compared to Q4 twenty twenty three and had associated gross profit margin of 31.8, the highest quarter of the year for HTS. Moving to specialty products, fourth quarter 'twenty four specialty products orders of $5.00 $9,000,000 increased 27.7% when compared to the fourth quarter of 'twenty three, driven by orders in carbon capture, energy recovery, infrastructure, and space exploration each more than doubling compared to the fourth quarter of twenty twenty three. Fourth quarter 'twenty '4 specialty product sales of $317,000,000 increased 47.7% when compared to Q4 'twenty three, driven by a combination of meaningful increases, meaning 30% or more, in sales in carbon capture, hydrogen, LNG vehicle tanks, infrastructure, water treatment, space exploration, energy recovery and marine. Reported gross profit margin of 27.4% decreased 120 basis points when compared to the fourth quarter of twenty twenty three in specialty, although gross margin increased 110 basis points sequentially compared to the third quarter of twenty twenty four. The Q4 twenty twenty four gross margin reflected specific third party expenses and inefficiencies in our start up, which we incurred at the Theodore, Alabama or Teddy II facility.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

Looking at the full year specialty products gross margin of 27%, if we did not have the inefficiencies related to the Teddi cost that I just referred to, specialty gross margin would have been approximately 29%. Repair, service and leasing, for the fourth quarter, orders were $369,000,000 which increased 14.2% compared to Q4 twenty twenty three, driven by general strong aftermarket trends as well as a $25,000,000 retrofit order for a utility. This past year, we saw consistent retrofit service and repair awards and we have good visibility to more ahead for 2025. Q4 RSL sales of $351,000,000 increased 4% and associated gross profit margin of 44.8% was in line with our typical gross profit margin in the RSL segment. Q4 RSL contributed to growth in the full year 2024 RSL order book of 10.5% year over year and sales growth for the year of 19.2%.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

RSL is now approximately one third of our business, and increased from a few years ago in the low teens. We expect it to continue to grow in the approximately high single digit to 10% range, driven by multiple actions that are underway. To give a few examples of those actions, those are around covering our installed base, globally in geographies that we have less current coverage penetrating our digital uptime offering and coverage, including deploying digital uptime on products such as Earthly Labs, orcas and LNG fleets and continuing to drive LTSAs and framework agreement increases as, as we discussed earlier. So, finally, moving to slide 12, we reiterate our prior 2025 outlook as shown here. I want to point out a few 2025 considerations about the outlook.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

Our strong 12/31/2024 backlog, including the Woodside LNG Phase one order that we referred to, as well as a few specific larger orders received quarter to date in Q1, such as the mining order I referred to and the strong start to the year in the space exploration end market, supports our backlog conversion for our full year 2025 guidance range, offsetting the potential negative foreign exchange impact that if it holds as it is currently for the full year would have an approximately 2% negative impact on sales. Faster conversion and commercial pipeline conversion to backlog would be key contributors to achieving the higher end of our outlook. We anticipate the second half of twenty twenty five to sequentially increase when compared to the first half of twenty twenty five. Our first quarter is anticipated to be our lowest quarter of the year as is typical. Additionally, the first quarter of our year is typically a use of cash given the timing of insurance, taxes, bonuses and our senior note interest and other seasonal cash uses.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

As a reminder, we have our semi annual unsecured interest payment of approximately $79,000,000 in the first and third quarter of twenty twenty five. Regarding tariffs, this is not explicitly in our guidance as there is little clarity yet on the breadth and specificity of the actions as well as the length of their respective durations. To offer a point of information based on our work on this topic done to date internally, potential growth impacts from tariffs as we understand them today would fall within our EBITDA range. We also want to point out a few things that we have done and continue to do to mitigate impacts from tariffs. We believe that we are much better positioned today not only for tariffs but also potential supply chain disruptions following the last round of tariffs as well as the supply chain challenges of 2021 and our associated actions taken subsequently around multiple sources of supply and regional as well as global supply structures.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

As we referred to before, we have flexible manufacturing and flexible supply chain in our business. We've worked very hard on instilling our Chart Business Excellence or CVE process and we're seeing traction from this effort. And as a reminder, we are the only manufacturer of brazed aluminum heat exchangers in The United States, including the world's two largest furnaces in our facilities. We have a strong air cooler and fan manufacturing footprint also in The United States as well as the world's largest shop built cryogenic fabrication in our Theodore, Alabama facility. This strong United States manufacturing footprint can also help our customers as they navigate their supply needs.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

Before we open it up for Q and A, we want to take a moment to share our enormous thanks to our global OneChart team members for their focused execution and dedication to accomplish this past year's results and for the start to 2025. Thank you all for all of your efforts. And now, Nina, please open it up for Q and A.

Operator

Thank you. Your first question comes from the line of Saurabh Pant from Bank of America. Please go ahead.

Saurabh Pant
Saurabh Pant
Analyst at Bank of America

Hi, good morning Jill and Joe.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

Good morning, Saurabh.

Saurabh Pant
Saurabh Pant
Analyst at Bank of America

Jill, if you don't mind if I start at a little bit higher level on 2025 guide, I know that revenue guide is unchanged despite the FX headwinds, which is good to see. Can you just maybe just remind us of how you are thinking about the four segments? I know you talked about that at your Capital Markets Day. And at Didier, you say that RSL should still grow high single digit to 10%. But maybe if you can step through some of the other segments, if one is looking better, something else is slightly offsetting, just to walk us through that.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

Absolutely. Thanks, Saurabh. So you commented on RSL and we see many, many actions that are well underway to, to achieve that and consistently achieve that ahead is our expectation in RSL segment. In HTS, we expect growth in 2025 over 2024. LNG is a driver of that.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

So, we would expect LNG sales, to be higher in 2025 compared to 2024. We also see, just traditional energy applications being very active right now, in particular. When we talk to our customers the last couple of months, you know, that's really around we're going to take this opportunity under the current administration to build out the energy framework, but also just this growing demand for, for all things energy, energy intensity around, applications that we hear about every day, whether that's data centers or whether that's providing LNG globally. So, that HTS segment, we expect it to grow with a tailwind from LNG. And CTS, what we said, traditionally for CTS is this is kind of our low to mid single digit grower.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

We would expect to see approximately mid single digits to in the CTS segment. And, we've seen a good start to Q1 in terms of, CTS orders. And then finally in specialty, backlog conversion on specialty is a key driver to our expected growth in that particular segment. We started to see some improving backlog conversion in 2024 in the specialty segment. And we expect that to continue to pick up the pace, especially with some of these carbon capture projects that we've referred to and some of the orders that came into the order book in the second half of twenty twenty four.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

So we anticipate growth across each of the four segments in 2025 when compared to 2024.

Saurabh Pant
Saurabh Pant
Analyst at Bank of America

Okay, fantastic, Jill. And then, I know Jill, you just talked about HTS and LNG contributing to growth over there. If you can dive a little deeper, Jill, on that LNG side of things, especially big LNG, if you think about what's in your backlog, how that converts to revenue in 2025? How should that grow? Part of the reason I ask is it's a full solution offering if it's ITSMR, by the way, Good to see really good traction, project starting up right.

Saurabh Pant
Saurabh Pant
Analyst at Bank of America

How does that convert out of backlog next year, '25 versus '24? And then what does that mean for HTS margins?

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

Okay. First of all, I really thank you for pointing out the IPS Smart traction. We're thrilled with what's happened to date in terms of the first liquid and the first cargo for Cheniere's Corpus Christi Stage three project, and New Fortress Energy sharing that fast LNG is producing meaningfully above nameplate capacity. So gaining that traction globally for IPSMR, has been a positive, including any floating project. So, to address your question directly, when you see a big LNG project announced coming into the order book, what we would anticipate typically in those projects is revenue meaningfully starts approximately six to eight months after the order comes in.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

There's a little bit of revenue around engineering and maybe some order material ordering before that. But in terms of kind of the cadence of when it really starts to be consistent across coming quarters, it's that six to eight month mark. In terms of, what we would expect in 2025, the timing of Woodside, obviously, we refer to it being a Q4 twenty twenty four order, so you can kind of apply that type of logic to it. Also having strong just global LNG backlog not only around big LNG, we'd expect that to flow through the year with a first half to second half step up just simply because of the Woodside timing. And, LNG projects are nice contributors to our HTS segment margin, in particular when they utilize IPSMR.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

And so that is another factor in how we anticipate to achieve our 2025 growth in margin for the total company, with HTS being a key contributor to that.

Saurabh Pant
Saurabh Pant
Analyst at Bank of America

Fantastic. Okay. Cheers, thanks for that color. I'll turn it back.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

Thanks, Arup.

Operator

Thank you. And your next question comes from the line of Ben Nolan from Stifel. Please go ahead.

Benjamin Nolan
Benjamin Nolan
Managing Director at Stifel Financial Corp

Thanks. I appreciate it. So, Jill, I wanted to start on CTS, if we could. It was a little lower, but it sounds like 1Q is going pretty well. I know that China is a big part of that particular business.

Benjamin Nolan
Benjamin Nolan
Managing Director at Stifel Financial Corp

Are you seeing well, I guess the improvement that you're seeing, is it in China or is it elsewhere? And can you maybe talk through how you're thinking about the China exposure and sort of how that fits just broadly with what you have going on?

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

Absolutely. Good morning, Ben. Thanks for the questions. So let me just hit CTS first and then I'll kind of take China broadly second. In terms of CTS, yet so far pleased to the start of twenty twenty five, especially coming off declining orders and sales kind of year over year in the fourth quarter in this segment, which interestingly enough, the second half of twenty twenty four, we did see industrial gas slowdown in China, which would impact CTS.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

But also we saw kind of the summer slowdown in CTS in Europe as well and no real chunky orders in Q4 of twenty twenty four in that segment. The team is feeling good about order and sales growth in CTS for 2025. And so we'll continue to monitor that closely, not only specific to China, but kind of globally. Really pleased to have executed that LPA yesterday with one of the IG majors. So those types of things also help us have visibility to the forecast.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

When we're speaking to China, in China, First Quarter in China, obviously, you have Chinese New Year in there. But, we're seeing consistency in China right now. And, I think the other part of the question or at least that I want to address is around, supply chain in China in particular. We're not dependent on China supply chain. We have other sources of supply.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

We're very regionalized, in our supply chain, really as a result of the actions that, our global sourcing team has taken since 2021. And, we'll continue to dynamically assess and make those sourcing decisions based on the market conditions. But we feel positioned well to be agile in response to what's happening in China.

Benjamin Nolan
Benjamin Nolan
Managing Director at Stifel Financial Corp

Great. And then for just another quick one. I appreciate the color that you gave on NRUs. We're hearing a lot about it too. Can you maybe just frame in how big of a business it is now, just so that we can I can understand a little bit about what it could be for you?

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

Yes. So maybe to give a sense of kind of what the size of an NRU could be or is, I guess, in terms of chart content, depending on the size, an NRU is going to be anywhere between approximately $20,000,000 of chart content to, could be upward of $75,000,000 per NRU. It just depends on the scope, the application, etcetera. Definitely an area that we have seen a meaningful increase in terms of customer inbounds around this. Yeah, it's a CapEx decision spend, but it's also an optimization and efficiency spend for these plants.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

Currently, it's not a very large portion of our business. You'd have you would have had one or two NRUs in any given type of year, but we would expect that to step up meaningfully. And what we've had to date has been toward the lower end of what I described, NRE used to be.

Benjamin Nolan
Benjamin Nolan
Managing Director at Stifel Financial Corp

Okay. All right.

Benjamin Nolan
Benjamin Nolan
Managing Director at Stifel Financial Corp

Very helpful. I appreciate it. Thanks, Joe.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

All right.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

Thanks, Ben. Appreciate it.

Operator

Thank you. And your next question comes from the line of Seth Grover from Citigroup. Please go ahead.

Scott Gruber
Scott Gruber
Director - Oilfield Services & Equipment Research at Citi

Yes. Good morning.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

Hey, Seth.

Scott Gruber
Scott Gruber
Director - Oilfield Services & Equipment Research at Citi

Hey, Dale. I want to start on aftermarket.

Scott Gruber
Scott Gruber
Director - Oilfield Services & Equipment Research at Citi

You had a good growth year in 2024, but last couple of quarters kind of flattish. You mentioned a strong start to the inbound in 1Q. But can you speak specifically to the growth outlook for aftermarket in 2025? Will it be in line with that kind of high single digit longer term target you have? And what do we need to see from an order perspective early in the year to make that happen?

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

Yes. And the sequential kind of Q2 to Q3, Q3 to Q4, in terms of RSL, each of those had either a specific aftermarket or a service and repair order of a decent, of a decent size. And, we have good visibility to the LTSAs, the framework agreements, as well as, multiple service and repair projects that customers are looking to do in 2025. So, we feel confident in our, RSL growth outlook both for the order and the sales book. It's important that, we don't get behind in the year, I think is very is a key metric for us that we look at internally is, that we're seeing consistency in the aftermarket globally.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

And that is true so far to date, Q1 quarter to date. We don't want to get behind where we're sitting here in September saying we need to get a large service and repair order in order to hit that high single digit to 10%. But the visibility that we have to the pipeline, is strong around RSL. And then what we also want to do is take advantage of things that are within our own control on the RSL side and those are multiple different activities that our global aftermarket team and our regions working with them, are working on. That's, specific product line targeting in Europe, North Africa around piston compressor penetration for the aftermarket.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

Centrifugal compressors coverage globally is an area that is, on our our key activity list and then chart legacy coverage. We also are seeing more opportunities to have service agreements with the operators of larger plants. That's something that ties hand in hand to IPSMR in particular where, the EPC, once the first gas or first liquid is achieved, the EPC typically then is done with the project. And so having a relationship directly with the operator where it's our process technology is, is a way for us to further penetrate service agreements. And then the digital uptime, we're seeing great traction on taking that across specific products and we're about to introduce that into, into the heat exchanger offering as well.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

So those are just a few examples of kind of within our own control to make sure that we're not relying on market dynamics to achieve that, that growth that we have laid out for '25 in RSL.

Scott Gruber
Scott Gruber
Director - Oilfield Services & Equipment Research at Citi

That's great color. And I want to come back to the IPSMR technology, given that it's gaining good traction. I believe that the payment structure on most of the contracts so far has been an upfront licensing fee. But with greater adoption and global MSAs like the one you have with Exxon, would you consider transitioning toward more of an ongoing fee structure for the technology?

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

What we currently have done is, as you described, there is a technology fee associated with the utilization of IPSMR. But we are flexible working with our customers around, what that could look like and how it's built into, into the contract. Our key on any of these larger projects with or without IPSMR is that we do not go upside down on working capital, so that, those milestones are tied to, are tied to our spend on material and that we're not, we're not behind the eight ball on that and that's been a key focus. So, I would say overarching, that's the first filter And then, we work with the individual customers on kind of what that technology see, how that's embedded, will go with their particular project. We're not adverse to it.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

It's just, customer specific.

Scott Gruber
Scott Gruber
Director - Oilfield Services & Equipment Research at Citi

Okay. I appreciate it. Thanks, Joe. I'll turn it

Scott Gruber
Scott Gruber
Director - Oilfield Services & Equipment Research at Citi

back.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

Thanks, Scott.

Operator

Thank you. And your next question comes from the line of Manav Gupta from UBS. Please go ahead.

Manav Gupta
Manav Gupta
Executive Director at UBS Group

Good morning. I just wanted to focus

Manav Gupta
Manav Gupta
Executive Director at UBS Group

on the data center market a little. How are the discussions progressing with the data center providers? And did the DeepSeek announcement any change any of those discussions? If you could just talk about that.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

Good morning, Moh. Data centers as a whole, maybe I'll just step back to the increasing need for global energy, is the theme. And that's that's inclusive of data centers. And our discussions, amongst multiple different hyperscalers is consistent would be my would be my one word I would use if you had to ask me to use one word. Consistent in that is that they're going to be spending money in this area in CapEx and they have a need for multiple different types of heat rejection, associated with with these data centers and that the energy and power demand is going to continue to increase as, artificial intelligence becomes smarter and there's more of it out there.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

So I think that deep seek or otherwise, there is not a change in direction of these folks looking for multiple different sources of power and multiple different ways to reject heat and that's really what we're hearing from them. We also because we're starting to see more demand in this market, we have recently hired a data center commercial team member, who will be joining our business development team here in the next week or so, who brings a breadth of data center background and market knowledge and connections. So, we would, we do see this as a meaningful opportunity ahead for us.

Manav Gupta
Manav Gupta
Executive Director at UBS Group

Perfect. My quick follow-up is here is your free cash flow guidance for next year is $550,000,000 to $600,000,000 and trying to understand what pushes it towards the top end of that guidance of $600,000,000 and similarly for EBITDA, trying to understand the blue sky scenario which pushes you towards the top end versus the midpoint of the guidance.

Joe Brinkman
Joe Brinkman
Vice President and Chief Financial Officer at Chart Industries

Sure. I can help on this one, Manav. So the free cash flow forecast for this year is coming from stronger EBITDA conversion, just conversion from the existing backlog. We do have some normalizing of CapEx that I mentioned in my comments earlier. So just the combination of the two there, and our overall growth is driving the free cash flow to the forecast that we have.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

And then to the I'm sorry, there is second part of Manav's question there to the higher end of the EBITDA guidance, which would also be a contributor to the higher end of free cash flow guidance. Do you want

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

to speak to that, Joe?

Joe Brinkman
Joe Brinkman
Vice President and Chief Financial Officer at Chart Industries

Yes. Just as Joe described there as well as lower tax rate

Joe Brinkman
Joe Brinkman
Vice President and Chief Financial Officer at Chart Industries

and just the

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

The backlog conversion.

Joe Brinkman
Joe Brinkman
Vice President and Chief Financial Officer at Chart Industries

The backlog conversion and lower deal integration costs.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

And then, Manav, if there's larger orders that come in early in the first half of or really in the first half of twenty twenty five, those would have the opportunity also to contribute some revenue in the second half toward the higher end. So, multiple different factors that go into achieving the higher end. But I would also say that it's just off of an absolute growth rate perspective. The higher end is would be year over year lower than what we achieved in 2024 over 2023 from the top line growth.

Manav Gupta
Manav Gupta
Executive Director at UBS Group

Thank you so much.

Operator

Thank you. And your next question comes from the line of Marc Bianchi from TD Cowen. Please go ahead.

Marc Bianchi
Managing Director at TD Cowen

Hi, thanks. Could you say what the out of twenty twenty four orders, how much was LNG? And how are you thinking about that number for 2025?

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

I'll approximate that, Mark, in terms of orders for LNG. And I'm going to approximate only because when you look at kind of LNG within HTS, that's a little bit larger and then you have LNG infrastructure for vehicle tanks, which would show up in specialty and then there's some LNG regas that can show up in CTS as well. I would estimate it's approximately, in the 20% to 25% range, kind of of orders. And then we would anticipate that, to be similar in 2025 compared to 2024.

Marc Bianchi
Managing Director at TD Cowen

Okay. I think some folks anticipate an increase in 2025 just given the change in the licensing for The U. S. And is that conservatism on your part? Or was it just some stuff fell into the back half of 2024 and that maybe makes it less likely for growth?

Marc Bianchi
Managing Director at TD Cowen

Maybe you could expand on that a little bit.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

Sure. I would say that it's kind of a down the fairway way to answer the question. So, an element of conservatism is in that given it's hard to predict on the larger pieces and parts, right. So, to stay consistent, we Phase one of Woodside coming in, in the back half of 2024. We mentioned we anticipate Phase two coming in 2025.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

There's also a handful, as you mentioned, of other LNG projects globally, not only in The U. S, that could move ahead. So, there's opportunity for that to be larger in 2025 compared to 2024, but that is not required for us to hit our 2025 guidance that we put out there. So that's kind of how we're thinking of coming into the year, the construct around it, really because there's variability of when these orders can or may come in. But with that said, our pipeline of LNG opportunities has grown in the last three months.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

So since we talked the last, the pipeline of LNG project opportunities not only for equipment but also for IPSMR potential has expanded. And that's definitely a direct result of, growing global demand for LNG, the U. S. Administration's bullishness on Alaska, on Pennsylvania, on The U. S.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

Gulf Coast, as well as projects that, we're hearing are much closer to moving ahead than they maybe were even six months ago. You've got folks talking out there about projects like like Avati LNG, with impacts like the Tanzanian LNG. You've got Delfin. That's definitely more likely than it was even a year ago. So, just to name a few, I think I think the opportunity set has increased in the last few months and we're really well positioned to play on many of them.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

It's just that it's hard to time some of the largers.

Marc Bianchi
Managing Director at TD Cowen

Yes. Yes, makes sense. The other one I had was on this Teddi two kind of cost thing that was happening. Just first of all, to clarify, I think you said it was like what if margins would have been 29% without that? Was that for fourth quarter or was that for the full year?

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

That was for the full year. So, if we looked at the cost around inefficiencies, specific costs related to we had a challenge with one particular third party supplier on a machine and getting that started up, which was a real challenge in the back half for us. So very specific costs that we would not anticipate repeating. And the reason we called that one out, Mark, was just because we wanted to clarify, if you're looking at modeling 25 in the segment, where kind of the 24 to 25 jumping off points and what were some of the contributors to the less than where we want specialty products gross margin to be?

Marc Bianchi
Managing Director at TD Cowen

Yes, that's exactly what I was asking. So, we should sort of be solving for like this impact happening in '24 to solve for that 29% for the year and that's kind of the clean margin going into, going into '25. Like these issues are resolved now as we step into '25, right?

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

That's right. So, and you thought about how they flowed in '24 very well. There was a little bit in Q2, but really it was Q3 and Q4. So, I think you hit the nail on the head.

Marc Bianchi
Managing Director at TD Cowen

Great. Thanks so much, Joe. It's turned back.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

Thank you, Mark.

Operator

Thank you. And your next question comes from the line of Arun Jayaram from JPMorgan. Please go ahead.

Arun Jayaram
Arun Jayaram
Analyst at JPMorgan Chase

Yes. Good morning. Just a couple of quick ones for me. You had a strong quarter of bookings, $1,500,000,000 5 point 5 billion dollars of orders, about two thirds between HTS and Specialty. I was just wondering if you could, Joe, comment on the quality of the bookings and maybe the margin implications for HTS and Specialty in particular?

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

Yes. Good morning, Arun. So, it was a strong quarter on bookings as a whole. Obviously, the Woodside, Louisiana LNG order being of meaningful magnitude given, given the utilization of IPSMR and the associated LNG equipment that we'll provide into that, was a key contributor to that number. The LNG and the projects in HTS, those bookings are above average gross margin generally.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

So the way to think about that is, the strong Q4 bookings as a whole across the segments, were an elevator to margin and backlog. And then on the specialty side, very broad mix as we pointed out, but I want to call out just maybe a couple of end markets in specialty that were strong performers in the fourth quarter. Carbon capture has, we've seen some really strong progress commercially in the market, in particular on reuse cases. We've talked about a couple of those, whether that was the Bloom Energy Partnership, or some of these other ones. But that's we're sealing we're seeing that, our carbon capture technology is now being used in larger chart content applications.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

And, with the full solution mix comes generally, improving margin. And then the other end market that I really would have liked to point out is, space exploration. And I want to point that one out because it had very strong that end market within specialty had a very strong Q4 in terms of orders, but an even stronger start to 2025 with approximately $60,000,000 of orders in, the space exploration market in combined January and February 2025. And, as you might imagine, in a space type of end market, this is really low temperature, high pressure applications that cannot fail. And we're talking about providing storage tanks as well as heat exchangers into these applications.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

So, that's another key contributor to nice margin in backlog.

Arun Jayaram
Arun Jayaram
Analyst at JPMorgan Chase

Understood. That's clearly a mission critical application. Maybe just a follow-up on just your outlook on orders. I think you highlighted around $2,000,000,000 of customer commitments that aren't yet quite in the backlog. Can you just maybe describe the breadth and depth of those commitments and thoughts on this backlog conversion or keeping that into backlog?

Arun Jayaram
Arun Jayaram
Analyst at JPMorgan Chase

Sorry.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

Yes, absolutely. So on that $2,000,000,000 it's pretty broad. There's a couple of larger LNG projects in there. You'd have the ExxonMobil, Mozambique, Rovuma in that mix. So that's not in backlog, but that's included in that 2,000,000,000 of commitments.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

And, you there's a couple of other in there that would be LNG related. And so the timings of those aren't easily predictable, but you've heard what, the larger folks and operators have said around their timing, associated with FID. So, I would anticipate, you know, about, let's say half of that $2,000,000,000 is related to LNG end markets. And then you have, a handful of carbon capture applications, that haven't been booked because they would be dependent on, government grant funding. And so, the timing of that will be, related to when they get their funding.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

And so that will likely be around clarity on funding for from certain states or, in one case, Canada. That's a small that's a small handful within there. So, it's not a meaningful dollar amount, but I thought worth calling out because of the end market itself. And, then you have a couple of hydrogen related projects that are, international projects and have have sites, have permits and are and have offtake and are very close on, on their financing, the respective financing. That those would be we'd anticipate in 2025.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

So that's, probably $150,000,000 or so associated with those guys. And then the last, is around a particular helium project, outside of North America. And, that project we have, we have the award and waiting for their final go on their full financing. It's a very large project, a few about $300,000,000 for that particular project. And, we'd anticipate that that one either will move forward in 2025 or just won't move forward.

Arun Jayaram
Arun Jayaram
Analyst at JPMorgan Chase

Great. Thanks for the color.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

Thanks, Arun.

Operator

Thank you. And your next question comes from the line of Eric Spine from Craig Hallum. Please go ahead.

Eric Stine
Senior Research Analyst at Craig-Hallum Capital Group LLC

Hi, Jill. Hi, Jill.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

Hey, Eric.

Eric Stine
Senior Research Analyst at Craig-Hallum Capital Group LLC

Hey, good morning. So just sticking with the customer commitments that you just detailed, I mean, is it fair to say, as you kind of rattle those off, it doesn't sound like that is very exposed to any of the issues or uncertainty at the federal level, U. S. Federal level. So I guess, that would be first.

Eric Stine
Senior Research Analyst at Craig-Hallum Capital Group LLC

And then second, when we think about that number, is there any way to kind of compare that to what you've seen in the past? I mean, that obviously seems like a pretty elevated number, but just looking for some context how to compare that to other periods.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

Yes. Thanks, Eric, for the question. You're absolutely right on the first part, which is that there's really very limited exposure to the decision making, at the federal US government level, or really at any government level, I should say, across across the the world on these. Most of them really are, you know, in the case of Exxon taking FID, on the project. In the case of the larger Helium one is getting their final full funding over the fence.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

So those, that's a positive I guess in my mind just given the changing kind of dynamic in landscape with people looking for certainty from the U. S. Government, that's not the driver of these. And then the second part compared to the past, that's a really interesting question. As I was thinking about it in the last couple of weeks, what I think we said, gosh, I can't remember what exactly what you said, it was probably like $1,500,000,000 or so, maybe nine months ago.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

And then we at one point in the last six or eight months on that list was Woodside Phase one. So even with booking Woodside Phase one, we've seen that funnel increase or at least stay flat and that funnel meaning customer commitment funnel. And so that to me is another kind of tidbit of information around how we're viewing the demand profile of this coming twelve months.

Eric Stine
Senior Research Analyst at Craig-Hallum Capital Group LLC

Yes. Okay. Got it. Very helpful. And then maybe just on orders, I mean, you obviously called out Woodside and that's broad based.

Eric Stine
Senior Research Analyst at Craig-Hallum Capital Group LLC

I'm just curious, I mean, do you attribute any of the strength to a year end push on the part of your customers? Or I mean, is this a true indication of the strength of the overall business? And then is it fair to assume 2025 while there can be quarter to quarter variability book to bill above one?

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

Yes. Book to bill above one in 2025, we absolutely you actually took the words right out of my mouth. And I would say that we anticipate that Q1 book to bill will be one or above.

Eric Stine
Senior Research Analyst at Craig-Hallum Capital Group LLC

Okay. Thank you.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

Thanks, Eric.

Operator

Thank you. And your next question comes from the line of Rob Brown from Lake Street Capital Markets. Please go ahead.

Rob Brown
Founding Partner, Senior Equity Research Analyst at Lake Street Capital Markets, LLC

Hi, Joe. Hi, Joe.

Rob Brown
Founding Partner, Senior Equity Research Analyst at Lake Street Capital Markets, LLC

Eric, just wanted

Rob Brown
Founding Partner, Senior Equity Research Analyst at Lake Street Capital Markets, LLC

to dig in a little bit

Rob Brown
Founding Partner, Senior Equity Research Analyst at Lake Street Capital Markets, LLC

on your gross margin expansion discussion. Where do you sort of see that getting to, I guess, over time? Where can that settle at?

Rob Brown
Founding Partner, Senior Equity Research Analyst at Lake Street Capital Markets, LLC

Just a

Rob Brown
Founding Partner, Senior Equity Research Analyst at Lake Street Capital Markets, LLC

sense of where that can be.

Joe Brinkman
Joe Brinkman
Vice President and Chief Financial Officer at Chart Industries

Yes. Just as I mentioned in my comments, mid-thirty gross margin still is our mid term target. Nothing changing on that.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

I think, over time, that's a journey, Rob, would be the way we would describe it, that we anticipate, to get beyond the mid-30s, right? That's really truly a medium term. And when we lay the medium term out, that was for 2026. And I think we're in early innings of, our Chart Business Excellence activities as well.

Joe Brinkman
Joe Brinkman
Vice President and Chief Financial Officer at Chart Industries

Yes. So continue to deliver synergies. Yes, as Joe mentioned, the mid-30s was our medium term target and we'll continue to expand beyond that favorable product mix across our RSL and specialty and the specific business for booking in HTS will continue to drive those margins up over time.

Rob Brown
Founding Partner, Senior Equity Research Analyst at Lake Street Capital Markets, LLC

Okay, great. And then you talked about the LPA with Industrial Gas major. How much penetration is there to go in kind of that customer base in terms of getting LTAs and sort of visibility there?

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

Yes. So on the, with the majors, those we've typically had, over the years. And when they come up for renewal, we work really hard with, in conjunction with them and partner with them on what their needs are, and, you know, what the challenges both sides faced in the last go around. And so how do we how do we optimize that for win win? So on the on the major side, I think there's more opportunity to penetrate other products within those LTAs and that's an area that we have, we're working with them on as well as penetrating more on the, the aftermarket service repair aspects of those agreements.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

In terms of the kind of other industrial gas folks, you know, the we we tend to speak to the majors, but there's also multiple different others, that play in industrial gas, from the independent perspective. We call them independent. So, these would be the non industrial gas majors, folks that are more localized or regionalized industrial gas. And we see a meaningful opportunity to, to work more closely with them. And we have been, over the last year or so, we've been working to develop those partnerships to move them to to LTAs in particular.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

And that is primarily a North American and European comment. We I think there's one or two real strong potentials in Europe for this in 2025 and a handful in The United States that we could get done in, in the next eighteen months or so. So, there's more opportunity for us and but would be more of them at lower volumes, just because of the size of their businesses.

Rob Brown
Founding Partner, Senior Equity Research Analyst at Lake Street Capital Markets, LLC

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

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

Thank you, Rob.

Operator

Thank you. And your next question comes from the line of Sherif Almagrabi from BTIG. Please go ahead.

Sherif Elmaghrabi
Equity Research Associate at BTIG

Hey, good morning. Thanks for taking my questions.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

Hey, Sherif.

Sherif Elmaghrabi
Equity Research Associate at BTIG

First with this hey Joe, how are you? First with this moratorium saga for U. S. LNG projects and you talked about growing funnel. If all these projects have been paused at the starting line, so to speak, and are looking to FID around the same time, Could long lead equipment for these projects become sort of a bottleneck?

Sherif Elmaghrabi
Equity Research Associate at BTIG

And just to ask it all at once, I guess, between that and tariffs, would you say pricing, is it becoming more flexible or should we still think about $30,000,000 per MTPA for IPSMR?

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

So so, it depends on the project in terms of the dollar per, per MTPA, but you just whether they have heavy hydrocarbon removals or various content. But I think you can directionally you need to directionally use an estimate of what we've said historically per MTPA. And definitely, growing, as you mentioned, growing utilization of IPSMR and there's brownfield opportunities from existing operators and then there's greenfield opportunities. I think the brownfield opportunities look similar to what they looked like even during the LNG moratorium, whereas greenfield opportunities are the ones that have expanded, in terms of ones that maybe prior thought of themselves as we're not going to move forward and now there is demand for it and so there is an opportunity for it to move forward. So with all of that said, we feel good about the fact that we expanded our capacity over the course of the last seven years to be able to serve not only the LNG market, but the heat, all things energy, all things molecules, and the heart and soul of that is around the heat exchanger capacity, and the tank capacity, and and as well as fans.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

So those three have been a key area of focus for us to ensure that we have the capacity and the size of the furnaces that are needed to be able to deliver these customers' needs. And so I think we're really well positioned capacity wise. Pipeline is growing and we'll just see how these how the projects timing and which ones move forward as the year and the years the next three years go on.

Sherif Elmaghrabi
Equity Research Associate at BTIG

That's very helpful. Thanks, Jill.

Joe Brinkman
Joe Brinkman
Vice President and Chief Financial Officer at Chart Industries

Thanks, Rhys.

Operator

Thank you. And your next question comes from the line of Doug Becker from Capital One. Please go ahead.

Doug Becker
Doug Becker
Co-Founder & Partner at Capital One Financial

Thank you. Jill, you had another strong quarter of orders including some large orders. There's the ongoing throughput initiatives. Just how much of year end backlog do you now expect to convert to revenue this year? And just any context you can provide around how much of year end 2023 backlog was converted last year?

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

Yes. So we would expect approximately 60% of year end 2024 backlog to convert in 2025. And if I don't have the answer to the second part of your question on '23, but definitely could, we could go back and and provide that to you. I would, you know, probably estimate, in the fifty five percent to 60%, but not I would need to check that figure to be specifically accurate on that.

Doug Becker
Doug Becker
Co-Founder & Partner at Capital One Financial

No, that's fair. And the higher conversion, is that a function of the throughput initiatives or is it just the type of projects in the backlog?

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

The throughput initiatives are key to that. And, also in particular shops, I should say, like the compressor shops as an example, the screw compressor shops in Europe, they there was some bottleneck challenges there. We're getting more and more throughput in, the heat exchanger shops, in particular the cold box shops. So those would be the three that really can drive improved backlog conversion with the efforts that we've done so far. We still have more to do on throughput improvements in 'twenty five and the teams are really working hard on that, but that that's a contributor, a definite contributor to this.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

And then, you know, and then there's also the something like the large LNG project like the Woodside where we have pretty good visibility on the timing of that revenue and the associated engineering, associated, milestones with that particular project as an example. So it's kind of combo of both, but I really want to see this self help throughput start to flow through, throw through the top line here in 2025.

Doug Becker
Doug Becker
Co-Founder & Partner at Capital One Financial

Got it. And then just another one on trying to get more comfortable with the CTS outlook, right? The backlog was down 20% last year and from the outside looking in that seems like a very high hurdle to get over. The LPA with the industrial gas major, is that in isolation enough to support growth in CTS this year? Or do you need some of those smaller independents to come in to actually see growth this year?

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

We did not rely our forecast does not rely on some of the small independents to come in. But it's not that one in particular LTA either that is the driver of the growth. It's kind of a broad based global, look at where the industrial gas guys are spending their money. And then the other part of the answer, Doug, is just to there's a handful of these projects that were a bit larger in '23 that we have visibility to similarly sized ones for '25, with two of those being anticipated to come in, in the first half of twenty five as well. So, I think the LTA is a nice contributor to it, but also just the general kind of demand profile globally is a key contributor to our outlook.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

Also the first couple of months start to the year, informed our thought process around it as well.

Joe Brinkman
Joe Brinkman
Vice President and Chief Financial Officer at Chart Industries

Yes. I would just add on the industrial gas side, there are ebbs and flows to their CapEx cycles, with some lumpiness to their ordering practices. So that can contribute on a quarter over quarter basis.

Doug Becker
Doug Becker
Co-Founder & Partner at Capital One Financial

Got it. Thank you.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

Thanks Doug.

Operator

Thank you. And your next question comes from the line of Kathleen Dunnouche from Goldman Sachs. Please go ahead.

Analyst

Good morning.

Analyst

I was wondering if you could

Analyst

give us an update

Analyst

on how you're seeing hydrogen end market, especially with the increased color that we received from the 45 year old in early January. How are you seeing that 7% to 10% growth through 02/1930 that you highlighted during your Capital Markets Day?

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

Yes. Thanks for the question. So I think the hydrogen end market at times gets pigeonholed into being a U. S. Discussion.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

And for us, it is a much more global discussion. We've seen, as I mentioned in the script, we saw a strong year in Europe in particular, on the hydrogen side, which for us was, storage tanks and compression. So those were kind of the two primary products that went into, to those applications. And, we're seeing continued continued demand in hydrogen from mostly the liquefaction side globally as well. In terms of the 45V and some of the clarifications that came out, what I'd say to that is the market and the operators that we're waiting, they really I mean, the IRA was an announcement in August of twenty twenty two and there was no clarity until the 45 v clarifications came out in the last couple of months.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

And so there was really two point five years of these guys waiting for those clarifications.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

I almost view it as

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

a catalyst in a positive way to, to move folks who can't do it out of the way and those who really are, have real projects here and real funding here and can utilize, the structure as it's been laid out positively as a good thing for The United States, and the industry. And I do think from a global perspective that, that high single digits to 10% for the CAGR between now and 02/1930 is very achievable for the market and for our company to play in that both gaseous and liquid end market.

Analyst

Thanks for the color. I'll turn it back.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

Thank you.

Operator

Thank you. And that ends your question and answer session. I will now hand the call back to Ms. Jill Evankov for any closing remarks.

Jillian Evanko
Jillian Evanko
CEO, President & Director at Chart Industries

Thank you, Ina. And thank you everyone for joining us this morning. We look forward to the coming months to provide further updates. Have a great rest of the day.

Operator

Thank you. And this concludes today's call. Thank you for participating. You may all disconnect.

Executives
    • Jillian Evanko
      Jillian Evanko
      CEO, President & Director
    • Joe Brinkman
      Joe Brinkman
      Vice President and Chief Financial Officer
Analysts
Powered by Quartr

Key Takeaways

  • Chart delivered $261 million of free cash flow in Q4 and $388 million for 2024, reducing net leverage to 2.8× and on track to reach the 2.0–2.5× target in 2025.
  • Q4 orders rose 29.4% year-over-year to $1.55 billion (full-year orders of $5 billion, +13%) and Q4 sales grew 10.8% ex-FX to $1.11 billion, driving 16.9% organic sales growth for 2024.
  • Adjusted operating margin expanded to 22% in Q4 (21.1% for the full year, +400 bps) and adjusted EBITDA margin reached 24.4% (+330 bps), with a medium-term gross margin target in the mid-30s.
  • Backlog conversion remains robust after booking Woodside Louisiana LNG Phase 1 and securing wins in NRUs, carbon capture, space exploration and data center cooling, supported by a $24 billion commercial pipeline and $2 billion of customer commitments.
  • All four segments are expected to grow in 2025: HTS led by LNG and traditional energy, Specialty Products from improved backlog conversion, CTS at mid-single-digit rates, and RSL at high-single-digit to 10% growth.
AI Generated. May Contain Errors.
Earnings Conference Call
Chart Industries Q4 2024
00:00 / 00:00

Transcript Sections