Chart Industries, Inc.

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, 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 statement. 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 Ms. Sheila Vanko, CHART Industries CEO. Thank you. Please go ahead.

Thank you, Ina. 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 Creo 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 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%. Fourth quarter 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 costs and leveraging SG&A resulting in 22% adjusted operating margin and 33.6% gross margin. For the full year 2024, adjusted operating margin was 21.1% and 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 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 33-cent headwind to Q4 EPS. Slide five is a summary of the fourth quarter compared to Q4 23 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 24 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 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. 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 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 site. Finally, we had orders totaling $28.4 million for the space exploration and market in the fourth quarter of 24, the highest space exploration order quarter of the year. Additionally, we've now received orders for the space exploration and market to date in the first quarter of 25, 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 to date. 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 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 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 U.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. 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 Chenier and Bechtel Energy on the Corpus Christi Stage 3 local faction project with our IPSMR process technology. Chenier's first cargo out of CCL Stage 3 was last week, meaningfully ahead of schedule. As we extend our process technology install base, we are also supporting our customers with more service arrangements, and we look forward to supporting Chenier over the coming years with our recently executed master services agreements. 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. 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.

Slide eight and nine show the fourth quarter 2024 results compared to the fourth quarter of 2023 pro forma. The full year 2024 metrics are in the appendix on slides 16 and 17. For the full year 2024, orders, sales, gross profit dollars and margin, operating profit dollars and margin, EBITDA dollars in 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. In 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% of sales when adjusted, an 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 is 261 million dollars contributing to our end of the year 2024 net leverage ratio of 2.8 as shown on slide 10. we reiterate our financial policy and until we are in our target net leverage ratio range of two to two and a half we do 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. Networking capital, defined as accounts receivable, inventory, accounts payable, unbilled contract revenue, customer advances, and billings in excess, as a percent of trailing 12-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 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 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.