CHART INDUSTRIES INC Q2 FY2024 earnings call

• Reiterated medium-term financial targets: organic sales CAGR mid-teens, gross margin mid-30%, adjusted diluted EPS growth mid-40%, free cash flow conversion to reach net leverage 2-2.5.
• Numerous all-time historical records in Q2: sales, backlog, gross profit, margin, operating income, EBITDA.
• Key wins in Q2: $40 million data center win for air-cooled heat exchangers, record orders in carbon capture, metals, mining, water treatment, field service.
• Combined Asia Pacific and Middle East/Africa regions for back office synergies.
• Commercial synergies achieved $924 million, on track for $1 billion by Q3 2024; cost synergies at $223 million, on track to exceed year-three target by end of 2024.
• Q2 commercial wins include compressor packages for DRI, cryogenic storage tanks for semiconductor, and space exploration orders.
• Data center and AI opportunities: $500 million potential from 3 gigawatts of data center addition per year, using Tuf-Lite IV fans.
• RSL segment sales record, margin record, with upside opportunity.

In the second quarter of 2024, Chart Industries had several key segment performance highlights. Reported sales were $1.04 billion, a 18.8% increase. The aftermarket segment (RSL) was approximately 35% of second quarter sales, with RSL sales at a record and growing over 26%, and margin at a record 49%. Reported gross margin was a record 33.8%, operating income was a record $167.8 million (16.1% of sales), and adjusted operating income was $225.7 million (21.7% margin). Reported EBITDA was a record $229.6 million (22.1% of sales), and adjusted EBITDA was $225.7 million (24.7% of sales). Orders were $1.16 billion, up 12% (excluding big LNG), with numerous all-time historical records in various metrics.

• Full-year 2024 sales range $4.45B-$4.6B (inclusive of ~1% FX headwind).
• Adjusted EBITDA range $1.08B-$1.15B.
• Adjusted EPS range $10.75-$11.75.
• Free cash flow range $400M-$475M.
• Medium-term outlook through 2026: sequential sales growth in 2025-2026, margin expansion, capital expenditures 2-2.5% of sales.
• Excludes big LNG projects not in backlog and US Hydrogen Hub benefits.

• Timing shifts in project execution due to customer schedule changes, supply chain inputs, and priority changes.
• Impact of US presidential election not foreseen to materially affect outlook, but general project timing and execution risks.

Q: Dig in on cooling solutions, data centers, SMRs.

A: Expanded addressable market, air-cooled heat exchangers, fans, Howden's screw compression for heavy industrial chilling.

Q: Guidance and timing of projects.

A: Revised guide reflects timing shifts, medium-term targets unchanged, fourth quarter expected to be strong but not hockey-stick.

Q: EBITDA and free cash flow back half.

A: Fourth quarter expected to be stronger than third, sequential improvement, cash positive in third and fourth.

Q: Hydrogen hub funding.

A: Global hydrogen demand growing, breadth of applications, not built into medium-term outlook.

Q: Q4 revenue and order slips.

A: Strong backlog, visibility into backlog and order timing, guide includes timing moves.

Q: Cost plan and synergies.

A: Cost synergies tracking ahead, global sourcing, localization, renewal contracts for further synergies.

Q: UK green hydrogen opportunities.

A: Strong presence in UK via Howden, opportunities in green hydrogen, industrial PCUS parks, water treatment.

Q: LNG offerings comparison.

A: IPSMR modular technology, compares favorably, in-house engineering for organic development.

Q: Timing issues in segments.

A: Larger projects across segments, timing of orders within quarters, customer schedule changes, supply chain impacts.

Q: RSL segment sustainability.

A: Strong margin, Howden synergies, digital offerings, LTSAs, pricing rationalization for growth.

Q: Free cash flow bridge.

A: Long-term balance sheet changes (deferred tax), specific project timing issues in second quarter, tailwinds in second half.

Q: IPSMR and Origin LNG revenue.

A: Three big LNG projects with ~$1.5B Chart content.

Q: CCUS orders.

A: Larger CCUS projects, expanding end markets, sequential record orders.