Chart Industries, Inc.

Good morning and welcome to Chart Industries Inc. 2020 fourth quarter and four-year results conference call. All lines have been placed on mute to prevent background noise. After the speaker's remarks, there will be a question and answer session. The company's supplemental presentation was issued earlier this morning. If you have not received the release, you may access it by visiting Chart's website at www.chartindustries.com. A telephone replay of today's broadcast will be available following the conclusion of the call until Thursday, February 25, 2021. 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. The company undertakes no obligation to update publicly or revise any forward-looking statements. I would now like to hand the conference over to your speaker, Ms. Jill E. Ivanko. You may begin.

Jill Ivanko Thanks, Tawanda, and good morning, everyone. I'll just dive right into the supplemental presentation that was released this morning, starting on slide three. We officially have begun reporting in our new segmentation, as shown here, which we believe is clear for shareholders to understand the key drivers of our growth and margin. Additionally, all discussion is around continuing operations as we closed on the divestiture of CryoBio on October 1st. So now let's get into the meat of our results and get going on explaining why we believe 2021 is set up to be a breakthrough year for our company. We set multiple records in 2020, which we'll share today, and expect some of those to be beat in 2021. Moving to slide four, our focus over the past two and a half years has been on executing our strategy to be the world leader in providing cryogenic process technology and equipment for the industrial gas and clean energy end markets. Our strategic focus areas have been on expanding our high growth, higher margin areas of the business, creating and penetrating repair service and aftermarket capabilities, incorporating geographic diversity into our manufacturing as well as our leadership, creating a broader customer base and stickier relationships with those customers, through repair capabilities, as well as flexibility in targeted long-term agreements, and finally, de-layering the cost structure of the organization. The focus on these actions will continue, and I will share some progress from 2020, and the fourth quarter specifically today, as we walk through these results. We executed 33 long-term agreements and master supply agreements in 2020. This is extremely meaningful, as historically, we only had agreements with a handful of North American customers. Also meaningful is that of these 33 agreements, for the first time ever, we have 14 repair and service long-term agreements and 10 agreements with customers outside of the United States. We have broad-based and more consistent order activity. For example, we booked 80 orders greater than $1 million each in the fourth quarter and had orders with 472 new customers in 2020, of which 109 were in specialty. In the first half of 2020, we took out over $60 million of annualized costs by eliminating luxury layers in the org structure and also finding areas in the business where we could promote high potential talent. We're very pleased with our strategic investments completed in 2020 and those that we have executed to date so far this year, which you can see on the bottom of slide five. We approach these investments with two fundamentals. First, the investment brings access to customers and commercial projects that could not be accessed without significant organic investment. And second, the investment brings access to regions, or geographies for the respective products and applications that otherwise could not readily be accessed. As we have stated, we have a very unique offering that addresses the clean power, water, food, and industrials nexus. And one of our most recent ,, Blue and Green, which was completed in early November, has already generated synergies. Our water treatment orders for 2020 were a record. And in the six weeks of ownership of BIG and Q4, we sold 10 water treatment orders, totaling $4.1 million. 3.2 million of those having both chart cryogenic equipment and Blue and Green's dissolution solutions. January 2021 started with three additional water treatment orders. As we shared when we announced the acquisition of Blue and Green, we felt the non-U.S. markets would have great potential for the combination of BICS technology and our equipment. Case in point is the December win that we had, a contract in Brazil with the government water utility serving the state of Sao Paulo's 46 million people. By way of background, Brazil ranks 112th out of 200 countries in sanitation. This project is in the center of the city, the first of its kind in a statewide environmental remediation plan to treat Brazil's polluted water bodies directly using a distributed network of oxygenation installations. The Worthington cryogenic and hydrogen trailer acquisition also closed in the fourth quarter and came out of gate strong, contributing to our hydrogen trailer record orders for the year. Fourth quarter was our highest order quarter in history for hydrogen trailers, and currently there are 16 liquid hydrogen trailers in backlog in the U.S., and nearly a dozen gaseous hydrogen trailers in backlog in Europe. The completion of the SES acquisition for cryogenic carbon capture technology, followed by our early February investment in another carbon capture business, has resulted in multiple new commercial opportunities. As I have previously said, we think carbon capture is on the brink of having a hydrogen-style breakout in terms of project activity. We're collaborating closely with our partners, McPhee and HTEC, on hydrogen opportunities ranging from liquefaction to fueling stations to trailers, and currently we have over 20 projects that we are bidding on together with one or both of them. It isn't just our inorganic investments that contribute to our unique position in the clean power, water, food, industrial nexus as shown on slide six that's commercializing each day more and more. It's also our organic R&D efforts that further differentiate us. Eighty-two percent of our products have intellectual property associated with them. We continue to increase that percent through our organic new product development efforts, which I'll share with you today, the status on two key hydrogen product developments. But before we get to hydrogen, hydrogen, hydrogen, let's start with what is very exciting about our 2020 year and what sets us up for a breakthrough 2021. On slide seven, you can see our full year 2020 records for chart, as well as for each of the segments. While there are many accomplishments, including record gross margin in operating income, lowest SG&A as a percent of sales, highest adjusted earnings per share, the one that is most important to us as a company is safety, and we achieved our lowest total recordable incident rate, and number of accidents in our history in 2020. Second half 2020 orders increased sequentially over the first half by 28%, as you can see on the right-hand side of slide seven. And flipping to slide eight, you can see that each of our segments had second half order growth above 24% when compared to the first half. The broad-based order activity contributed to our year-end record backlog of $810 million. On the right-hand side of slide eight, You can see fourth quarter 2020 records, and I would point out that food and beverage was a sleeper surprise given the dramatic slowdown that occurred in the second quarter due to the global restaurant shutdowns from the pandemic. We saw specific fast food chains and beverage companies move ahead with orders in December for their new builds and franchises. As we have mentioned previously, we continue to adapt to meet the medical oxygen equipment needs of our customers as they serve hospitals and nursing homes dealing with COVID-19. The fourth quarter was the highest-order quarter of 2020 for medical oxygen-related equipment, primarily driven by demand in Europe. And while not a record, the demand for trailers in the Eastern Hemisphere doubled in the second half of 2020 when compared to the first half of the year, which sets the second half of 2021 revenue on trailers up very well. Slide 9 shows you our near-term total addressable market size for specialty products, is now $5.75 billion, an increase in the last weeks of $1.25 billion. The increase was driven by three things. First, the inclusion of liquid hydrogen onboard vehicle tanks, resulting from the status of our testing and prototype tank, commercial interest, and our joint agreement with Ballard Power. Currently, we are discussing the use of HLH tanks with 14 different potential customers. The addition of Cryo-Technology's expanded hydrogen liquefaction capabilities and commercial pipeline opens up the very broad liquefaction process market for which our combined content on these types of projects ranges from $15 million to $100 million each. Our combined content would be inclusive of the liquefier, storage, and trailer loading, and these estimates are for 5 to 60 ton per day plants. And third, Cryo-Technology's access to and experience in the helium market not only provides us content, on large helium liquefaction projects, but also storage, ISO containers, and transport core charge equipment. So we thought we'd share some data by each of the new segments with you, starting on slide 10 with specialty products. 2019 included a large fourth quarter order for LNG by rail of $22 million, making the order comparables more challenging, but what I would point out to you is that we saw a 55% increase in fourth quarter 2020 sales when compared to fourth quarter 2019 sales. So we're starting to see that strong order activity hitting the shipments. And while less impactful in 2020, cannabis and space exploration are smaller specialty areas, both with a unique position utilizing our existing equipment. We work with major space launch companies, including receiving a $1.4 million order from one on the last day of the year. And we're pleased with our ongoing hydrogen tank deliveries for the Indian Space Research Organization. In terms of cannabis, we saw an increase in both alcohol and cannabis equipment demand due to lockdowns, and with federal cannabis legalization gaining steam, this is another area where a specialty market could go from very niche and embryonic to larger production scale. Okay, you've waited 11 slides for it, hydrogen, the topic that continues to be the hottest one in the clean energy portion of our specialty markets. Recently, there was an article titled, The Hydrogen Economy is No Longer a Pipe Dream, which I thought was apropos. The Atlantic Council hosted the 5th World Energy Forum in late January, and in conjunction with that, shared a survey of global energy leaders. When asked which carbon-free energy technologies will see the greatest increase in investment in 2021, 31% said hydrogen, followed by battery storage at 23%. These stats prompted the think tank conducting a study to suggest that 2021 might be the year of hydrogen. Couple that with 30 countries launching national hydrogen strategies and over $70 billion from 51 countries tagged for hydrogen work. For us, 2020 was the start of the decade of hydrogen, as evidenced by our backlog of $39 million, which is all expected to ship this year. Looking ahead to 2021, we're excited about many things hydrogen, including our start to the year in hydrogen orders, which is in line with our expectations. That includes a variety of equipment sold, such as tanks, upgrades to gaseous hydrogen trailers already on order, as well as lifecycle installation services. The Secretary General of the China Standard Committee has released a drafting group public for comments, a major milestone toward our expected April final approved liquid hydrogen bulk tank group code. This is a significant differentiator for our equipment to be built for and used in the hydrogen economy in China. We, along with 10 other companies, launched Hydrogen Forward a few weeks ago, As you know, Chart and our hydrogen Ford partner companies, including Air Liquide, Anglo American, Bloom Energy, CF Industries, Cummins, Hyundai, Linde, McDermott, Shell, and Toyota, are united under a shared belief in the environmental and economic benefits of hydrogen technologies. With all this excitement, we sometimes forget one of our greatest progresses over the last quarter, our organic product development activities for hydrogen equipment. Our liquid hydrogen onboard vehicle tank prototype, as shown on the right-hand side of slide 11, has been built and tested, and we're excited about having it as an option for our heavy-duty transportation customers, both existing ones and new potentials. On the left-hand side of the slide, you can see a rendering of our hydrogen test facility in Minnesota. We chose to include only a rendering because actual photos have too much confidential information surrounding the components that we design and build. We're collaborating with industry partners as we advance safety and innovation at this facility. Figuring prominently in that effort is demonstrating our one-of-a-kind liquid hydrogen pumping system. Ducote gave it to me for Christmas. It's definitely still a few holidays to get through before being fully production ready, but it will be this year. And while I could go on and on about exciting things happening in hydrogen, there are too many other areas of the business for which we are developing solutions for our customers and helping new customers achieve their ESG targets. On the left-hand side of slide 12, you can see two examples of our recent folks, and we had a whopping 31 folks in the quarter. We're very excited to partner with Pepsi to upgrade their CO2 capacity at one of their U.S. facilities. That's through our lifecycle team. Additionally, you may remember that our dosing technology is used regularly in nitro beverages, such as Starbucks nitro coffee in a can, and we're now seeing applications for dosing for oxygen water. We're collaborating with a company called O2, on their unique oxygen water, a functional hydration and recovery drink that makes clean, life-giving products. Thanks to their CEO, Dave Colina, for sending our team some of these tasty, low-calorie, high-energy drinks. You can see me trying it in the picture on the bottom left. We had to take it away from Merck. If you think your end clothes get them energetic, you should have seen them with this thing. A variety of applications with a subset of our 65 new customers in the fourth quarter are shown on the right-hand side of the slide. Pretty fun to see our equipment being used in nitro beer, canned wine, bottled egg alternatives, whatever that is, squeezable dips, and for eyeball research. So moving on to slide 13, for the full year, repair service and leasing was 13.5% of our total revenue. We expect this percent to significantly grow in 2021, driven by our expanded leasing capabilities, our 14 recently executed repair and service agreements, business rebounding, which has a nice aftermarket component to it. Our South Carolina Greenfield location is set to begin repairs in the second quarter of 2021. Next Thursday, we'll hold a building dedication ceremony as the final beam is placed on the building, and we look forward to welcoming our customers to the site in May. I would point out the fourth quarter record RSL gross margin. This was driven by more installation and repair work from the lifecycle team, which is typically high margin work, as well as a fantastic December in ORCA upgrades from our repair and service team in Minnesota. Our investment in expanding our leasing fleet for standard product, in particular ISO containers and mobile equipment, has gained traction since we started investing in the leasing fleet expansion in May of last year. Leasing Lisa Dole, who runs our global leasing team, and her leadership team, also known internally as the Ladies of Leasing, had the new equipment being built leased before each piece was even completed. A few points of reference for you. From the first to the third quarter of 2020, we had 25 new leases signed. In the fourth quarter, there were 28 new leases signed compared to six in the fourth quarter of 2019, which brings a total of 53 leases signed for the year. This compares to 18 new leases signed in 2019. And in January of 2021, we quoted 78 new leases with 28 different customers, so the group is off to a great start. 37 new leases have already been signed only six weeks into 2021. Moving to slide 14 in our crowd segment, we saw growth in orders and expanded gross margin as our Chinese business executed the best it has in our history, posting record operating income. Additionally, while we saw recovery in the traditional industrial gas aspects of the business in the fourth quarter, purchasing from the majors was not yet back to pre-COVID levels. Specifically, gas major purchasing in the eastern hemisphere contributed to the highest order quarter in history for our DNS products in the east. However, Q4 did not fully compensate for the low order intake in previous three quarters, so the full year of 2020 was still below 2019 in that region by 6.2%. Additionally, trailer orders were part of our COVID slowdown in the second quarter of 2020. We saw a significant increase in the fourth quarter in all trailer activity, and 2021 is off to a strong start in this area, with 114 trailers ordered year-to-date as of yesterday, compared to an average of 84 trailers per quarter last year. Said differently, our highest order quarter for trailers in 2020 was Q3, with 115 trailers ordered, and we're already at 114 year-to-date. Slide 15 is our last segment to cover, and certainly contained the most ups and downs in 2020, ranging from $98 million of revenue from VG's Calcitude Path project to a sudden and deep drop-off of air-cooled heat exchanger orders after the start of COVID and the OPEC situation, to ending the year with a significant air cooler order of $70 million for its application, as well as a $30 million VRV shell and tube heat exchanger order for processing facilities in the Eastern Hemisphere. We are pleased to see the increasing activity in the carbon capture market, and with the addition of SES's carbon capture technology in our investment in Savante, our commercial pipeline continues to grow. As one of our team members said, our commercial pipeline is actually off the charts right now for carbon capture opportunities. We now have well over 50 potential customers that we're working with on various project quoting stages. A significant percentage of the total carbon capture plant cost, regardless of whether the process is post-combustion carbon capture or direct air carbon capture, is equipment that we offer, with air-cooled heat exchangers representing approximately 50% of total equipment costs or 20% to 25% of total project cost in amine processes, and approximately 50% of total project cost in direct air carbon capture. With the recent rise in LNG prices as seen on the left-hand side of slide 16, in particular in JKM, and the winter weather in Asia and Justice Week in Texas, there is a growing need for LNG supply after a hiatus of new export terminal construction. We expect this pricing trend to continue and in turn, more big and small-scale LNG projects to move to FID in 2021. You can see on the upper right-hand chart three big LNG projects that have the potential to be ready to roll this year. Venture Global's Calcachute Pass project is tracking on schedule, and our equipment revenue on this project is expected to conclude in the first half of 2021. VG's CEO recently indicated that the first phase of Plaquemines, or 10 million tons per annum, is expected to have necessary sales completed by mid-year, and also expected to FID this year. As a reminder, our equipment for the first phase totals approximately $125 million, and this project is not included in our 2021 guidance. Our small and utility-scale LNG pipeline is very robust, with 24 potential projects in our bidding pipeline that could go in 2021, totaling approximately $150 million, with a few shown on the bottom right-hand side of slide 16. And don't forget all of the infrastructure being built globally, ranging from fueling stations to over-the-road trucking to storage to ISOs. Just one example of LNG's continued cost competitive and scalability was December's announcement that the central Indian government plans to create a gas infrastructure in India with an investment of $60 billion over the next four years, inclusive of LNG terminals. And finally worth noting is that LNG is also getting greener. In addition to our hydrogen development initiatives, CHART continues to develop energy transition solutions that lower emissions from LNG facilities. Many of our LNG and traditional IOC customers are thinking of how to make their facilities other molecule ready. This ranges from gas stations being able to handle other molecules completely or hybrids of mixed molecules to setting up terminals that are 100% LNG now that can be switched all at once or gradually to include Our equipment and processes are well-suited to be able to adapt to these changing requirements. This past year, CHART completed a design study with Total in conjunction with Siemens to evaluate technologies to reduce CO2 per ton of LNG. The study compared CHART's IPSMR and IPSMR Plus designs with direct gas turbine drives and electric drives with combined cycle power plants. The IPSMR Plus configuration with electric drives and combined cycle power plants significantly improved overall plant efficiency. and reduce CO2 emissions, another efficient and cleaner option now for our customers to choose from. I'll now hand it over to Merck to talk or maybe even sing about our financials.

Merck. Thanks, Jill. I'm going to pass on the singing. The increasing mix of higher margin aspects of the business and maintaining discipline in our streamlined cost structure, which is reflected in the $60 million of annualized costs that was reduced from the business in the first half of 2020, contributed to full-year reported EPS of $2.22, as shown on slide 17. When adjusted for one-time costs, full-year 2020 adjusted EPS of $2.73 was a record. Full-year EPS benefited significantly from the fourth quarter adjusted diluted EPS of $1.27, resulting from broad-based execution across the business, including record operating income. Note that we closed on our McPhee investment of 30 million euros for 4.59 ownership at an accompanying commercial MOU on October 15, 2020. And in the fourth quarter, that investment contributed 36 cents of after-tax earnings per share. When excluding this investment gain, our adjusted fourth quarter EPS was 91 cents. The current restructuring in our 2021 outlook is for the consolidation of our Tulsa, Oklahoma air-cooled heat exchangers into our 260-acre Beasley, Texas location, which is partially complete and expected to conclude by mid-year. Additionally, we are keeping our 500,000 square foot Tulsa manufacturing facility to create additional capacity for certain product lines in high demand. Moving to slide 18, we thought you would like the straightforward summary of our quarter and full-year financials compared to that same period in 2019. I won't belabor this slide, but we are very proud of the year-over-year increases, particularly in margin and cash, especially in light of the 4% decline in sales compared to the prior year. We also are encouraged by our record low SG&A as a percent of sales of 15.1% for 2020. Slide 19 shows our continued disciplined approach to our balance sheet. We continue to prioritize the use of our strong free cash flow generation for debt pay down, organic investment, and strategic inorganic investments. Our view of maintaining our net leverage ratio at two or below is unchanged. The sale of the trial business closed in the fourth quarter of 2020 for $320 million of cash. After posting our second highest net cash provided by operating activities from continuing operations and free cash flow in our history during the fourth quarter of 2020, or 1.71 when excluding the mark-to-market benefit of McPhee. ProForm, a December 31st net leverage ratio for our Cervante carbon capture investment and our acquisition of Cryo Technologies was 1.88 or 2.02 when excluding the mark-to-market benefit of McPhee. The growth in free cash flow as a percent of sales is indicative of the cost structure changes in the business, working capital management, and our improving margin profile. Back to you, Jill.