Chart Industries, Inc. Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Cash Flow: Generated $200.7 million of net cash from operating activities in Q3 2024, with free cash flow of $174.6 million after $26 million CapEx. Reduced net debt, achieving a September 30 net leverage ratio of 3.04x.
• Order and Sales Growth: Orders increased 5.4% vs Q3 2023 pro forma, sales were $1.06 billion, a 22.4% increase. Year-to-date through September 30, sales increased 19.6% vs year-to-date Q3 2023 pro forma.
• Margins: Reported gross margin was 34.1%, up 350 basis points. Adjusted operating margin was 22.2%, adjusted EBITDA was 24.5% of sales. Year-to-date operating margin increased 510 basis points.
• Throughput and Synergies: Surpassed original year three target of $250 million annualized cost synergies. Implemented Kaizen events, optimized assembly locations, and added testing stations to improve throughput.

Segment Performance

• Cryo Tank Solutions (CTS): Third quarter 2024 orders were $126.2 million, a 17.5% decrease compared to Q3 2023, primarily due to no repeat of a large railcar order from Q3 2023. Sales were $162.5 million, a 4.6% increase vs Q3 2023. Reported gross profit margin was 25%, up 280 basis points vs Q3 2023 and 480 basis points sequentially.
• Heat Transfer Systems (HTS): Orders in Q3 2024 were $424.7 million, a 151% increase vs Q3 2023, driven by LNG and traditional energy equipment awards. Sales were a record $256.2 million, a 12.5% increase vs Q3 2023. Q3 gross profit margin was 29.8%, up 340 basis points vs Q3 2023.
• Specialty Products: Orders in Q3 2024 were $237.8 million, a ~49% decrease vs Q3 2023 due to timing of larger hydrogen-related orders. Sales were a record $283 million, a 25.9% increase vs Q3 2023. Reported gross profit margin was ~26%, up 60 basis points vs Q3 2023 but down sequentially vs Q2 2024.
• Repair, Service and Leasing (RSL): Orders in Q3 2024 were $377.9 million, a 16.5% increase vs Q3 2023, driven by a larger aftermarket equipment sale. Sales were $360.5 million, a 36% increase vs Q3 2023. Reported gross profit margin was 47%, driven by larger-than-typical aftermarket equipment sales.

Guidance

• 2024: Full-year sales expected $4.2 billion to $4.3 billion, adjusted EBITDA $1.015 billion to $1.045 billion, adjusted diluted EPS ~$9, free cash flow ~$400 million.
• 2025: Sales anticipated $4.65 billion to $4.85 billion, adjusted EBITDA $1.175 billion to $1.225 billion, adjusted diluted EPS $12 to $13. Anticipate ending 2025 with net debt of $3 billion based on free cash flow generation.

Risks

• Potential impact of US election outcomes on hydrogen and carbon capture policies, but no significant risk to 2025 guidance anticipated as the company is well-positioned across various molecules and end-markets.

Q: On 2025 guidance, thought process behind the range?

A: Jill Evanko stated 2025 outlook incorporates learnings from 2024, with backlog coverage and line of sight to new orders. Higher end of range depends on larger project timing and operational throughput.

Q: Talk about $23 billion pipeline and $2 billion of commitments not in backlog?

A: Jill Evanko said majority of end markets except China have strong demand. $23 billion pipeline includes HTS and specialty, with new orders like Exxon's Rovuma LNG project. $2 billion of commitments not in backlog include potential orders in 4Q.

Q: Fourth quarter order progression?

A: Jill Evanko expects 4Q book-to-bill to be 1 or greater. Sequential growth expected in HTS, Specialty, and RSL, with CTS consistent.

Q: Nuclear and SMR impact on business?

A: Jill Evanko said the company serves traditional and new SMR technologies, with fans, gas circulators, and tanks being key offerings. Also, data centers and water treatment present multi-segment opportunities.

Q: Hydrogen liquefaction demand and mining project award?

A: Jill Evanko said market is seeing larger liquefaction projects, with a ~$40 million mining project award expected in 4Q, primarily using Howden legacy equipment.