GTLS - NYSE

Good morning, and welcome to the Chart Industries, Inc. 2024 Fourth Quarter and Full Year Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. The company's release and supplemental presentation were 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 approximately two hours following the conclusion of the call until Friday, March 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 facts 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. 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 presentations and webcast section of the Chart website at www.chartindustries.com. I would now like to turn the conference call over to Miss Jill Evanko, Chart Industries CEO. Thank you. Please go ahead.

Thank you, Operator. Good morning, everyone, and thank you for joining our fourth quarter and full year 2024 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. When referring to any comparative period, all metrics are pro forma for continuing operations of the combined business of Chart and Howden. Pro forma excludes the following businesses that were divested in 2023: Roots, American Fan, Cofimco, and Cryo Diffusion. In the fourth quarter of 2024, we generated $281.5 million of net cash from operating activities, and after $20.5 million of CapEx spend, had free cash flow of $261 million contributing to full-year 2024 free cash flow of $388 million. 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 of 2023 pro forma, orders were $1.55 billion, 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 billion, a 13% increase compared to 2023. Fourth quarter 2024 sales of $1.11 billion increased 10.8% excluding FX, contributing to full-year organic sales growth of 16.9%. The fourth quarter of 2024 had a $17 million headwind from foreign exchange in terms of sales when compared to our forecast heading into the quarter. Fourth quarter reported operating income of $188.3 million was $243.4 million when adjusted for unusual items primarily related to integration and restructuring. This reflects lower cost and leveraging SG&A resulting in a 22% adjusted operating margin and a 33.6% gross margin. For the full year 2024, adjusted operating margin was 21.1%, an increase of 400 basis points. Adjusted EBITDA for the fourth quarter of $283.6 million or 25.6% of sales contributed to our full-year adjusted EBITDA of $1.014 billion and an EBITDA margin of 24.4%, a year-over-year increase of 330 basis points. Although adjusted operating profit exceeded our internal expectations, fourth quarter 2024 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 2023 pro forma, 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 of 2024 on slide six. 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 US 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. While this is a global opportunity for Chart, in the United States, we are specifically seeing more nitrogen and other inert 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 to 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 2033. 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. 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 million order from an African power utility, which includes field installation at the site. Finally, we had orders totaling $28.4 million for the space exploration end market in the fourth quarter of 2024, 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 2025, totaling approximately $60 million. A few other notes to the start of 2025 so far in Q1. In terms of some of the larger orders received today, we received a $35 million mining award, additional EGR blowers, a multi-million 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, 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 267 new customers as compared to 322 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. We currently have approximately $24 billion 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 billion 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 US LNG supported by the current US administration's support of growing American energy production. As you can see on the left-hand side of slide seven, as previously discussed, we booked the Woodside Louisiana LNG phase one order in the fourth quarter. As a reminder, the full potential for the Woodside Louisiana LNG site is three additional phases of 5.5 million 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 three 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. 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. Slide eight and nine show the fourth quarter 2024 results compared to the fourth quarter of 2023 pro forma. 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 2024 sales of $1.11 billion increased 10.1%. Each quarter in 2024, sales sequentially increased, and full year 2024 sales of $4.16 billion 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 $188.3 million and when adjusted was $243.4 million 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 2024 adjusted operating margin was 22.1% compared to the first half of 19.9%, reflecting synergies flowing through the P&L as well as leveraging SG&A. Adjusted EBITDA for Q4 of $283.6 million contributed to our full year 2024 $1.014 billion or 24.4% increase of 330 basis points. We also continue to have confidence in our mid-thirties gross margin percent medium-term target. Fourth quarter 2024 free cash flow was $261 million, contributing to our end of the year 2024 net leverage ratio of 2.8 as shown on slide ten. We reiterate our financial policy and until we are in our target net leverage ratio range of 2 to 2.5, we will not do any share repurchases or material cash acquisitions. As reflected in the second half of 2024, our CapEx spend is now normalizing, and we expect CapEx to be approximately $110 million. 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 of 2024 by fully settling our convertible note that came due in November 2024. Additionally, in our minority investment in HTEC, we have a put-call option that could have been exercised following the September 2024 three-year mark. We have signed an 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.

Moving to slide eleven, we'll provide some color around the segments and the setup to our reiterated 2025 outlook. Starting with Cryo Tank Solutions or CTS, fourth quarter 2024 CTS orders of $138.5 million decreased 11.9% when compared to the fourth quarter of 2023, primarily driven by softer European industrial gas demand and the fourth quarter of 2023 having three customers that ordered larger projects in the Americas. Demand could 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 million decreased 26.4% when compared to the fourth quarter of 2023, which had approximately $17 million of specific project sales that did not repeat in the fourth quarter of 2024. Reported gross profit margin of 24.4% for CTS increased 210 basis points compared to the prior year. 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, 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 in 2025 over 2024, driven by traditional energy as well as LNG. Fourth quarter 2024 HTS orders of $536 million increased over 66% when compared to the fourth quarter of 2023, 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 of 2024. HTS sales for the quarter were $288.8 million, which grew 14.2% compared to Q4 2023 and had an associated gross profit margin of 31.8%, the highest quarter of the year for HTS. Moving to specialty products, fourth quarter 2024 specialty products orders of $509 million increased 27.7% when compared to the fourth quarter of 2023, driven by orders in carbon capture, energy recovery, infrastructure, and space exploration, each more than doubling compared to the fourth quarter of 2023. Fourth quarter 2024 specialty product sales of $317 million increased 47.7% compared to Q4 2023, 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 2023 in specialty, although gross margin increased 110 basis points sequentially compared to the third quarter of 2024. The Q4 2024 gross margin reflected specific third-party expenses and inefficiencies in our startup, which we incurred at the Theodore, Alabama Teddy 2 facility. Looking at the full year specialty products gross margin of 27%, if we did not have the inefficiencies related to the Teddy 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 million, which increased 14.2% compared to Q4 2023, driven by general strong aftermarket trends, as well as a $25 million retrofit order for a utility. This past year saw consistent retrofit service and repair awards, and we have good visibility to more ahead for 2025. Q4 RSL sales of $351 million 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%. RSL is now approximately one-third of our business, an increase 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 install base globally in geographies that we have less current coverage, penetrating our digital uptime offering and coverage, including deploying digital uptime products such as Earthly Labs, ORCAs, LNG fleets, and continuing to drive LTSAs and framework agreement increases as we've discussed earlier. So finally, moving to slide twelve. We reiterate our prior 2025 outlook as shown here. I want to point out a few 2025 considerations about the outlook. Our strong December 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, but 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 2025 to sequentially increase when compared to the first half of 2025. 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. As a reminder, we have our semiannual unsecured interest payment of approximately $79 million in the first and third quarter of 2025. Regarding tariffs, this is not explicitly in our guidance as there is little clarity yet on the breadth and specificity of the action 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 gross 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. As we've 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 CBE 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. A strong United States manufacturing footprint can also help our customers as they navigate their supply needs. Before we open it up for Q&A, I want to take a moment to share our enormous thanks to our global One Chart team members for their focus, execution, and dedication to accomplish this past year's results and for the start of 2025. Thank you all for all of your efforts. And now, Operator, please open it up for Q&A.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. You will hear a prompt that your hand has been raised. Should you wish to cancel your request, please press star followed by the two. If you're using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from the line of Sarah Akers from Wells Fargo. Please go ahead.

Hi. Good morning, Jill and Joe. Good morning. It's Sarah. Jill, if you don't mind, I start at a little bit higher level on the 2025 guide. I know the 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 I did hear 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.

Absolutely. Thanks, Sarah. So you commented on RSL, and we see many, many actions that are well underway to achieve that and consistently achieve that ahead. Ahead is our expectation in our RSL segment. In HTS, we expect growth in 2025 over 2024. LNG is a driver of that, so we would expect LNG sales to be higher in 2025 compared to 2024. We also see just traditional energy applications even being very active right now. In particular, when we talk to our customers the last couple of months, you know, it'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 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. We would expect to see approximately, you know, mid-single digits 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 2024. So we anticipate growth across each of the four segments in 2025 when compared to 2024.

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 asked is it's a full solution offering if it's IPSMR. By the way, good to see really good traction. Project starting up, right, how does that convert out of backlog next year? 2025 versus 2024? And then what does that mean for HTS margins?

Okay. First of all, I really thank you for pointing out the IPSMR 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. New Fortress Energy sharing that fast LNG is producing meaningfully above nameplate capacity. So gaining traction globally for IPSMR has been a positive, including the 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. There's a little bit of revenue around engineering and maybe some material ordering before that, but in terms 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 2024 order, so you can apply that type of logic to it. Also, having strong 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. And so that is another factor in how we anticipate achieving our 2025 growth in margin for the total company with HTS being a contributor to that.

Fantastic. Okay. Thanks for that color. I'll turn it back.

Thanks, Sarah.

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

Thanks. I appreciate it. So, Jill, I wanted to start on CTS if we could. It was a little lower, but it sounds like Q1 is going pretty well. I know that China is a big part of that particular business. 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, you know, just broadly with what you have going on?

Absolutely. Good morning, Ben. Thanks for the questions. So let me just hit CTS first and then I'll take China broadly second. In terms of CTS, yeah, so far pleased with the start of 2025, especially coming off declining orders and sales year over year in the fourth quarter in the segment, which interestingly enough, you know, was the second half of 2024, we did see industrial gas slowdown in China, which would impact CTS. But also, we saw kind of the summer slowdown in CTS in Europe as well. And no real chunky orders in Q4 of 2024 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 LTA yesterday with one of the IG majors. So those types of things also help us have visibility to the forecast. 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 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. 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.

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. And can you maybe just frame how big of a business it is now? Just so that we can understand a little bit about what it could be for you?

Yes. So to give a sense 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 million Chart content to could be upward of $75 million per NRU. It just depends on the scope, the application, etc. Definitely an area that we have seen a meaningful increase in terms of customer inbounds around this. It's a CapEx decision spend, but it's also an optimization and efficiency spend for these plants. Currently, it's not a very large portion of our business. 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 NRUs to be.

Okay. Very helpful. I appreciate it. Thanks, Jill.

Alright. Thanks, Ben. Appreciate it.

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

Yes. Good morning. It's Scott. I want to start on aftermarket. You know, you had a good growth year in 2024, but, you know, the last couple of quarters were kind of flattish. You mentioned a strong start to the inbound in Q1. Can you speak specifically to the growth outlook for aftermarket in 2025? You know, 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?

Yes. And, you know, 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 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 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 a key metric for us that we look at internally. Is that we're seeing consistency in the aftermarket globally. And that is true so far to date, Q1 quarter to date. We don't want to get behind where, you know, we're sitting here in September saying we need to get a large service repair order in order to hit that 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 specific, you know, product line targeting in Europe, North Africa, around piston compressor penetration for the aftermarket. The centrifugal compressors coverage globally is an area that is on 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 wants the first gas or first liquid is achieved, the EPC typically then is done with the project, and so having the relationship operator where it's our process technology is a way for us to further penetrate service agreements. And then the digital uptime seeing great traction on taking that across specific products. And we're about to introduce that into the heat exchanger offering as well. 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 growth that we have laid out for 2025 in RSL.

Oh, 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, you know, global MSAs like the one you have with Exxon, would you consider transitioning toward more of an ongoing fee structure for the technology?

What we currently have done is, as you just described, there's 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 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 our spend on material and that we're not behind the eight ball on that, and that's been the 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 fee, how that's embedded. We'll go with their particular project. So not adverse to it. It's just customer specific.

Okay. I appreciate it. Thanks, Jill. I'll turn it back.

Hey. Thanks, Scott.

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

Good morning. I just wanted to focus on the data center market a little. How are the discussions progressing with the data center providers? And did the DeepSpeak announcement change any of those discussions? If you could just talk about that.

Good morning, Manav. Data centers as a whole, maybe I'll just step back to the increasing need for global energy is the theme. And that's inclusive of data centers. Multiple different hyperscalers and our discussions amongst them are consistent would be my one word I would use if you had to ask me to use one word. Consistent in that they are going to be spending money in this area in CapEx and they have a need for multiple different types of heat rejection associated with these data centers and that the energy power demand is going to continue to increase as artificial intelligence becomes smarter and there's more of it out there. So I think that DeepSpeak or otherwise, there's not a change in direction of these folks looking for multiple different sources of power, 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 do see this as a meaningful opportunity ahead for us.

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

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

I'm sorry. There's a 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. You want to speak to that, Joe?

Yeah. Just as Jill described there, as well as a lower tax rate, and just the backlog conversion, the backlog conversion and lower deal integration costs. And then, Manav, if there's larger orders that come in early in the first half of or really in the first half of 2025, those would have the opportunity also to contribute some revenue in the second half towards the higher end. So multiple different factors that go into achieving the higher end. I would also say that it's just off of an absolute growth rate perspective on the higher end would be year over year lower than what we achieved in 2024 over 2023 from the top-line growth.

Thank you so much.

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

Hi. Thanks. Could you say what the out of 2024 orders, how much was LNG? And how are you thinking about that number for 2025?

I'll approximate that, Mark. In terms of orders for LNG, and I'm going to approximate it 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 of orders. And then we would anticipate that to be similar in 2025 compared to 2024.

Okay. I think some folks anticipate an increase in 2025 just given, you know, the change in the licensing for the US and is it is that conservatism on your part, or was it just, you know, some stuff fell into the back half of 2024 and that maybe makes it less likely for growth. Maybe you could expand on that a little bit.

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, you know, we phase one of Woodside coming in in the back half of 2024. We mentioned we anticipate phase two coming in 2025. There's also, you know, a handful, as you mentioned, of other LNG projects globally, not only in the US, that could move ahead. So there's an opportunity for that to be larger in 2025 compared to 2024, but that is not in 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. So since we talked with that, 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, you know, growing global demand for LNG. The US administration bullishness on, you know, Alaska, on Pennsylvania, on the US Gulf Coast, as well as projects that we're hearing much closer to moving ahead than they maybe were even six months ago. You've got folks talking out there about projects like like Avadi, LNG, with impacts like the Tanzania 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 the opportunity set has increased in the last few months and we're really well positioned to play on many of them. It's just that hard to time some of the larger.

Yep. Yep. Makes sense. The other one I had was on this Teddy 2 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 the fourth quarter or was that for the full year?

That was for the full year. So if we look at the cost around inefficiencies, specific costs, you know, related to we had a challenge with one particular third-party supplier on a machine and getting that started up, which was, you know, a real challenge in the back half for us. So very specific cost that we would not anticipate repeating. And the reason we called that one out, Mark, was just because we wanted to clarify, you know, if you're looking at modeling 2025 in the segments where kind of the 2024 to 2025 jumping off points and what were some of the contributors to the less than where we want specialty products gross margin to be.

Yeah. That's exactly what I was asking. So we should sort of be solving for like, this impact happening in 2H 2024 to solve for that 29% for the year, and that's kind of the clean margin going into 2025. Right?

That's right. So and you thought you thought about how they flowed in 2024 very well. There was a little bit in Q2, but it really was Q3 and Q4. So I think you hit the nail on the head.

Great. Thanks so much, Jill. I'll turn it back.

Thank you, Mark.

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

Yes. Good morning. Just a couple of quick ones for me. Had a strong quarter of bookings, $1.55 billion, $5 billion of orders. About two-thirds between HTS and specialty. Was wondering if you could, Jill, comment on the quality of the bookings and maybe the margin implications for HTS and Specialty in particular.

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 the utilization of IPSMR and the associated LNG equipment that we'll provide into that was a key contributor to that number. Though LNG and the projects in HTS, those bookings are above average gross margin generally. So the way to think about that is the strong Q4 bookings as a whole, 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 talked to a couple of those. Whether that was the Bloom Energy Partnership or some of these other ones, but that's we're seeing that our carbon capture technology is now being used in larger Chart content applications. And with the full solution mix comes generally improving margin. And then the other end market that I really would like to point out is space exploration. And I want to point that one out because it had very strong that end market within specialty. But an even stronger start to 2025, approximately $60 million 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 isn't this is really low temperature, high pressure application that cannot fail. And we're talking about providing storage tanks as well as heat exchangers into these applications. So that's another key contributor to nice margin in backlog.

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

Yep. Absolutely. So on that $2 billion, it's pretty broad. There's a couple of larger LNG projects in there. You know, you'd have the ExxonMobil Mozambique Rovuma in that mix. So that's not in backlog, but that's included in that $2 billion of commitments. And 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. I would anticipate, you know, about let's say, half of that $2 billion 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 would be related to when they get their funding, and so that will likely be around clarity on funding from certain states or, in one case, Canada. That's a small handful within there, so it's not a meaningful dollar amount, but I thought we're calling out because of the end market itself. And then you have a couple of hydrogen-related projects that are international projects and have site permits and are and have offtake and are very close on their respective financing, that those would be we'd anticipate in 2025. So that's probably $150 million 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 the award and waiting for their final go on their full financing. It's a very large project, a few $300 million for that particular project. And we'd anticipate that that one either will move forward in 2025 or just won't move forward.

Great. Thanks for the color.

Thanks, Arun.

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

Hi, Jill. Hi, Jill.

Hey, Eric. 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 rattled those off, it doesn't sound like that is very exposed to, you know, any of the issues or uncertainty at the federal level, US federal level. So I guess that would be first. And then second, you know, 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 on how to compare that to other periods.

Yeah. 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 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. So 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 US government. That's not the driver of these. And then the second part, compared to the past, is that's a really interesting question. As I was thinking about it in the last couple of weeks, you know, I think we said gosh. I mean, I can't remember exactly what we said probably, like, one and a half billion or so, maybe nine months ago. And then, you know, 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 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.

Okay. Got it. Very helpful. Then maybe just on orders. I mean, you obviously called out Woodside and, you know, that's broad-based. I'm just curious. I mean, do you attribute any of the strength, you know, to a year-end push on the part of your customers, or, I mean, is this a true indication of, you know, 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?

Yes. The book to bill above one in 2025. Alright. We absolutely. Yeah. You took the words right out of my mouth. I would and I would say that we anticipate that Q1, but the bill will be one or above.

Okay. Thank you.

Thanks, Eric.

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

Hi, Jill. Hi, Jill. Just want to dig in a little bit on your gross margin expansion discussion, where do you sort of see that getting to, I guess, over time? Where can that settle at? A sense of where that can be.

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

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-thirties. 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.

Yeah. So continue to deliver synergies. Yeah. As Jill mentioned, the mid-thirties are 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. We'll continue to drive those margins up over time.

Okay. Great. And then you talked about the LTA with the industrial gas major. How much penetration is there to go in kind of that customer base? In terms of getting LTAs and visibility there.

Yeah. So with the majors, those we've typically had over the years and when they come up for renewal, we work really hard 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 optimize that for win-wins. So 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 been working with them on. As well as penetrating more on the aftermarket service repair aspects of those agreements. In terms of kind of other industrial gas folks, you know, we tend to speak to the majors, but there's also multiple different others that play in industrial gas from the independence 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 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 LTAs in particular. And that is primarily in North American and European comments. 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 the next eighteen months or so. So there's more opportunity for us, but it would be more of them at lower volumes just because of the size of their businesses.

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

Thank you, Rob.

And your next question comes from the line of Sherif Elmaghrabi from B. Please go ahead.

Hey. Good morning. Thanks for taking my questions.

Hey, Sherif. How are you?

Good. First with this moratorium saga for US LNG projects. And you talked about a 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? And just to ask it all at once, I guess, between that and tariffs, would you say pricing is becoming more flexible, or should we still think about $30 million per MTPA for IPSMR?

So it depends on the project in terms of the dollar per MTPA, but you just I whether they have heavy hydrocarbon removals or, you know, various contents, but I think you can directionally use an estimate of what we 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 look 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's demand for it and so there's 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, you know, the heat is it's all things energy, all things molecules. And the heart and soul of that is around the heat exchanger capacity and the tank capacity. And as well as fans. 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. The pipeline is growing, and we'll just see how these projects' timing and which ones move forward as the year and the years the next three years on.

That's very helpful. Thanks, Jill.

Thanks, Sherif.

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

Thank you. Jill, you had another strong quarter of orders including some large orders. There's the ongoing throughput initiatives. Just how much of your 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.

Yeah. 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 2023. But definitely could we could go back and provide that to you. I would, you know, probably estimate. It yeah. In the 55 to 60%, but not I would need to check that figure to be specifically accurate on that.

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?

The throughput initiatives are key to that. And also in particular shops, I should say, like the compressor shops as an example, the screw compressors shops in Europe. There were some bottleneck challenges there. We're getting more throughput in the heat exchanger shops, in particular, the cold box shops. 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 2025, and the teams are really working hard on that. But that's a definite contributor to this. And then, you know, and then there's also date something like the large LNG projects like the Woodside 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 a combo of both, but I really want to see this self-help throughput start to flow through the top line here in 2025.

Got it. And then just another one on trying to get more comfortable with the CTS outlook. Like, the backlog was down 20% last year. And from the outside looking in, that seems like a very high hurdle to get over. The LTA 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?

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 are there's a handful of these projects that were a bit larger in 2023 that we have visibility to similarly size ones for 2025 with two of those being anticipated to come in in the first half of 2025 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. Also, the first couple of months start to the year informed our thought process around it as well.

Yeah. 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.

Got it. Thank you.

Thanks, Doug.

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

Good morning. It's my pleasure to speak with you. I was wondering if you could give us an update on how you're seeing the hydrogen end market, especially with the anti-color that we received from the 45V rules early January. Are you seeing that 7% to 10% growth through 2030 that you highlighted during your Capital Markets Day?

Yeah. Thanks for the question. So I think the hydrogen end market at times gets pigeonholed into being a US discussion. 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 those applications. And we're seeing 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 that the market and the operators that were waiting, they really I mean, the IRA was an announcement in August of 2022, and there was no clarity until the 45V clarification came out in the last couple of months. And so there was really two and a half years of these guys waiting for those clarifications. I almost view it as a catalyst in a positive way to move folks who can't do it out of the way and those who really 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, you know, that high single digits to 10% for the CAGR between now and 2030 is very achievable for the market and for our company to play in that both gaseous and liquid end market.

Thanks for your call. I'll turn it back.

Thank you. And that concludes the question and answer session. I will now hand the call back to Miss Jill Evanko for any closing remarks.

Thank you, Operator, 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.