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.

Moving to slide 11, we'll provide some color around the segments and the setup to our reiterated 2025 outlook. Starting with cryotank solutions or CTS, fourth quarter 24 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 in the fourth quarter of 2023, having three customers that ordered larger projects in the Americas. Demand to 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 23. which had approximately $17 million of specific project sales that did not repeat in the fourth quarter of 24. 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 were 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 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 24. HTS sales for the quarter were $288.8 million, which grew 14.2% compared to Q4 23 and had associated gross profit margin of 31.8%, the highest quarter of the year for HTS. Moving to specialty products, fourth quarter 24 specialty products orders of $509 million increased 27.7% when compared to the fourth quarter of 23. 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 24 specialty product sales of 317 million increased 47.7% when compared to Q4 23, 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 23 in specialty, although gross margin increased 110 basis points sequentially compared to the third quarter of 24. The Q4 24 gross margin reflected specific third-party expenses and inefficiencies in our startup, which we incurred at the Theodore, Alabama, or Teddy II 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 the Q4 2023, driven by general strong aftermarket trends, as well as a $25 million retrofit order for a utility. This past year, we 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 on products such as Earthly Labs, ORCAs, and LNG fleets, and continuing to drive LTSAs and framework agreement increases as we've discussed earlier. So finally, moving to slide 12, 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 I 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 that 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 25. 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 growth 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 disruption 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. The strong United States manufacturing footprint can also help our customers as they navigate their supply needs. Before we open it up for Q&A, we want to take a moment to share our enormous thanks to our Global One Chart team members for their focused execution and dedication to accomplish this past year's results and for the start to 2025. Thank you all for all of your efforts And now, Ina, please open it up for Q&A.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the one on your telephone keypad. You will hear a prompt that your hand has been raised. And should you wish to cancel your request, please press star followed by the two. If you're using a speakerphone, please leave the handset before pressing any keys. One moment, please, for your first question. Your first question comes from the line of Saurabh Pant from Bank of America. Please go ahead.

Hi, good morning, Jill and Joe. Good morning, Saurabh. Jill, if you don't mind, if I start at a little bit higher level on 2025 guide, I know the revenue guide is unchanged despite the FX headwinds, which is good to see. Can you, Jill, maybe just remind us of how you were 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 or something else is slightly offsetting, just to walk us through that.

Absolutely. Thanks, Saurabh. So you commented on RSL, and we see many, many actions that are well underway to achieve that and consistently achieve that ahead is our expectation in the 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 being very active right now. In particular, when we talked to our customers the last couple of months, 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 to in 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 25 when compared to 24.

Okay, fantastic, Jill. And then I know, Jill, you just talked about HDS 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 ask is that 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, 25 versus 24? And then what does that mean for HDS margins?

Okay. First of all, I really thank you for pointing out the IPSMR traction. We're thrilled with the what's happened to date in terms of the first liquid and the first cargo for Chenier's Corpus Christi stage three project, a new fortress energy sharing that fast LNG is producing a meaningfully above main plate capacity. So gaining that traction globally for IPSMR has been a positive, including 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 kind 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 25, the timing of Woodside, obviously, we refer to it being a Q4-24 order, so you can kind of apply that type of logic to it. Also, having strong just 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 to achieve our 2025 growth in margin for the total company, with HTS being a key contributor to that.

Fantastic. Okay, Jill, thanks for that color. I'll turn it back.

Thanks, Arab. 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 over, but it sounds like 1Q 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 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'm going to take China broadly second. In terms of CTS, so far pleased to the start of 25, especially coming off declining orders and sales kind of year over year in the fourth quarter in the segment, which interestingly enough, you know, the second half of 24, 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 24 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, first quarter in China, obviously you have Chinese New Year in there, but we're seeing consistency in China 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's supply chain. We have other sources of supply. We're very regionalized in our supply chain. really as the 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. We feel positioned well to be agile in response to what's happening in China.

Great. And then for just another quick one, the I appreciate the color that you gave on NRUs. We're hearing a lot about it too. Can you maybe just frame in how big of a business it is now just so that I can understand a little bit about what it could be for you?

Yes. So maybe to give a sense of kind 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 of chart content to could be upward of $75 million per NRU. It just depends on the scope, the application, et cetera. Definitely an area that we have seen a meaningful increase in terms of customer inbounds around this. Yeah, 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, Joe.

All right. Thanks, Ben. Appreciate it.

Thank you. And your next question comes from the line of Scott Grover from CT Group. Please go ahead.

Yes, good morning. Hey, Gail. I want to start on aftermarket. You had a good growth year in 24, but last couple quarters kind of flattish. You mentioned a strong start to the inbound in 1Q. But can you speak specifically to the growth outlook for aftermarket in 25? 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?

Yeah, 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 RSL 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 point. 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 we're sitting here in September saying we need to get a large service and repair order in order to hit that high 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 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's specific product line targeting in Europe, North Africa, around piston compressor penetration for the aftermarket. 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, once the first gas or first liquid is achieved, the EPC typically then is done with the project. And so having the relationship directly with the operator where it's our process technology is a way for us to further penetrate service agreements um and then the digital uptime we're seeing great traction on taking that across specific products and we're about to introduce that into um into the uh 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 um that growth that we have laid out for 25 in rsl oh it'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 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 are tied to our spend on material and that we're not behind the eight ball on that, and that's been a 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, will go with their particular project. We're 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 Kripta 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 DeepSeq 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. And our discussions amongst multiple different hyperscalers is consistent, would be my one word I would use if you had to ask me to use one word, consistent in that They're 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 and 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 DeepSeq or otherwise, there's not a change in direction of These folks looking for multiple different sources of power and 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 here is your free cash flow guidance for next year is $550 to $600 million, and 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 on 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. So just the combination of the two there and our overall growth is driving the free cash flow to the forecast that we have.

And then to the second part of Mano's question there, to the higher end of the EBITDA guidance, which would also be a contributor to the higher end of the free cash flow guidance. Do you want to speak to that, Joe?

Yeah, just as Jill described there, as well as...

um lower tax rate and uh and uh just just uh the backlog conversion backlog conversion and and lower deal integration costs and in mono if there's uh larger orders that come in early in the first half uh of or the really in the first half of 25 those would have the opportunity also to contribute some revenue in the second half toward the higher end. So multiple different factors that go into achieving the higher end. But I would also say that it's just off of an absolute growth rate perspective. The higher end would be year over year lower than what we achieved in 24 over 23 from the top line growth.

Thank you so much.

Thank you. And your next question comes from the line of Mark Bianchi from TD Common. 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 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 25, just given the change in the licensing for the U.S. Is that conservatism on your part, or was it just some stuff fell into the back half of 24, 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, phase one of Woodside coming in in the back half of 24, we mentioned we anticipate phase two coming in 25. There's also a handful, as you mentioned, of other LNG projects globally, not only in the U.S., that could move ahead. So there's opportunity for that to be larger in 25 compared to 24, but that is not required for us to hit our 25 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 about the pipeline of LNG project opportunities not only for equipment but also for IPS MR potential has expanded and that's definitely a direct result of growing global demand for LNG. The US administration's bullishness on Alaska on Pennsylvania on the US Gulf Coast as well as projects that we're hearing are much closer to moving ahead than they maybe were even six months ago. You've got folks talking out there about projects like Abadi 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 largest.

Yep. Yep. Makes sense. The other one I had was on this Teddy to kind of cost thing that was happening. Just first of all, to clarify, I think you said it was like, would it margins would have been 29% without that? Was that for fourth quarter or was that for the full year?

That was for the full year. So if we looked at the costs around inefficiencies, specific costs that, 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 costs 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 25 in the segments, where kind of the 24 to 25 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 2H24 to solve for that 29% for the year. And that's kind of the the clean margin going into like these issues are resolved now as we step into 25, right?

That's right. So and you thought about how they flowed in 24 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 Aaron Jairam. from JP Morgan. Please go ahead.

Yeah, good morning. Just a couple quick ones for me. You had a strong quarter of bookings, 1.5 billion, 5.5 billion of orders, about two-thirds between HTS and specialty. I 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 booking 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. The 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 across the segments were an elevator to margin and backlog. And then on the specialty side, very, you know, very broad mix, as we pointed out, but I want to call out just maybe a couple of end markets and 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 about a couple of those, whether that was the Bloom Energy Partnership or some of these other ones, but 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 a very strong, that end market within specialty had a very strong Q4 in terms of orders, but an even stronger start to 2025 with 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 is really low temperature, high pressure applications 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 customer 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, yep. Absolutely. On that $2 billion, it's pretty broad. There's a couple of larger LNG projects in there. You'd have the ExxonMobil Mozambique Revuma 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. So I would anticipate, you know, about let's say half of that $2 billion is related to LNG and 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 will be related to when they get their funding. And so that will uh likely be around clarity on funding for from certain states or uh in one case canada uh that's a small that's small handful within there so it's not a meaningful dollar amount but i thought worth calling out because of the end market itself and then you have a couple of hydrogen related projects that are international projects and have have site have permits and are and have offtake and are very close on um on their financing their respective financing uh that those would be we'd anticipate in 2025 so that's uh probably 150 million or so associated with those guys and then the last um is around a particular helium project uh outside of north america and uh that project we have uh we have the award and waiting for their final go on their full financing. It's a very large project, a few, about $300 million for that particular project. And we'd anticipate that that one either will move forward in 25 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 Hallam. Please go ahead.

Hi, Jill. Hi, Joe. 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 any of the issues or uncertainty at the federal level, U.S. federal level. So I guess that would be first. And then second, 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 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 U.S. government level, or really at any government level, I should say, across the world on these Most of them really are, 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, That's a really interesting question. As I was thinking about it in the last couple of weeks, what I think we said, gosh, I can't remember exactly what we said, but it's probably like $1.5 billion or so maybe nine months ago. And then at one point in the last six or eight months on that list was Woodside Phase 1. So even with booking Woodside Phase 1, we've seen that funnel increase or at least stay flat. And that funnel meaning customer 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 12 months.

Yep. Okay. Okay. Got it. Very helpful. And then maybe just on orders, I mean, you obviously call that Woodside and, you know, that's broad-based. I'm just curious, I mean, do you attribute any of the strength 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, booked a bill above one?

Yes, booked bill above 1 in 25. Absolutely, you actually took the words right out of my mouth. And I would say that we anticipate that Q1 booked bill will be 1 or above.

Okay, thank you.

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

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

Yeah, just as I mentioned in my comments, mid-30 gross margin still is our midterm 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-30s, 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-30s, was our medium-term target and will continue to expand beyond that. Favorable product mix across our RSL and specialty and the specific business we're booking in HTS will continue to drive those margins up over time.

Okay, great. And then you talked about the LPA with industrial gas major. you know, how much penetration is there to go in kind of that customer base in terms of getting LTAs and sort of 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 are both sides faced in the last go around and so how do we how do we optimize that for win-win so on the on the major side uh i think there's more opportunity to penetrate other products within those ltas and that's an area that we have uh we're working with them on as well as penetrating more on the um the aftermarket service repair aspects of those agreements uh in terms of kind of other industrial gas folks. We tend to speak to the majors, but there's also multiple different others that play in industrial gas from the independent 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 to LTAs in particular, and that is primarily a North American and European comment. 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 18 months or so. So there's more opportunity for us but would be,

more of them at lower volumes just because of the size of their businesses great thank you thank you rob thank you and your next question comes from the line of sheriff elma grabby from big please go ahead hey good morning thanks for taking my questions first with this hey joe

How are you? First with this moratorium saga for USLG 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 at 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, whether they have heavy hydrocarbon removals or various content. But I think you can directionally use an estimate of what we've 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 looked like even during the LNG moratorium, whereas greenfield opportunities are the ones that have expanded in terms of one 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 the heat, all things energy, all things molecules. And the heart and soul of that is around the heat exchanger capacity. and the tank capacity, 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. Pipeline is growing, and we'll just see how the project's timing and which ones move forward as the year and the years, the next three years, go on.

That's very helpful. Thanks, Jill.

Thanks, Reese. 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 23 backlog was converted last year.

Yeah, so we would expect approximately 60% of year end 24 backlog to convert in 2025, and if I don't have the answer to the second part of your question on 23, but definitely could we could go back and provide that to you. I would probably. estimate um it yeah in the 55 to 60 percent but um not i i would need to check that figure to be 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 uh are key to that and um also In particular shops, I should say, like the compressor shops, as an example, the screw compressor shops in Europe, there was some bottleneck challenges there. We're getting more throughput in the heat exchanger shops, in particular the cold box shops. So 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 contributor, a definite contributor to this. And then there's also something like the large LNG project, like the Woodside, where we have pretty good visibility on the timing of that revenue and the associated engineering, the 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 increase.

start to flow through um throw through the top line here in 2025. got it and then just another one on trying to get more comfortable with the cts outlook right the backlog was down 20 percent uh last year and from the outside looking in that seems like a very high hurdle to get over uh 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 where the industrial gas guys are spending their money. And then the other part of the answer, Doug, is just to there's a handful of these projects that were a bit larger in 23 that we have visibility to similarly size ones for 25 with two of those being anticipated to come in in the first half of 25 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 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 Kathleen Donahue for Goldman Sachs. Please go ahead.

Good morning. I was wondering if you could give us an update of how you're seeing the hydrogen end market, especially with the increased color that we received from the 45 re-rules in early January. How 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 the market and the operators that were waiting, they really – I mean, the IRA was – IT WAS AN ANNOUNCEMENT IN AUGUST OF 2022, AND THERE WAS NO CLARITY UNTIL THE 45V CLARIFICATIONS 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 THE FOLKS WHO CAN'T DO IT OUT OF THE WAY AND THOSE WHO REALLY ARE, 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 the call. I'll turn it back.

Thank you. Thank you. And that ends your question and ends your session. I want to hand the call back to Ms. Jill Ivanko for any closing remarks.

Thank you, Ina. 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.

Thank you. And this concludes today's call. Thank you for participating. You may all disconnect.