Chart Industries, Inc.

A telephone replay of today's broadcast will be available approximately two hours following the conclusion of the call until May 8, 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 industry's website. We have provided a supplemental slide presentation to support our comments on this call that can be accessed in advance and presentation section of the chart website at www.chartindustries.com. I would now like to turn the conference over to Jill Ivanko, Chart Industries CEO. You may begin.

Thank you, Ludi. Good morning, and thank you for joining our first quarter 2025 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. When compared to the first quarter of 2024, Orders of $1.32 billion increased 17.3% and included the addition of Woodside Louisiana LNG phase two. Woodside Louisiana LNG is utilizing our IPSMR process technology and associated equipment for their project. As of the end of the first quarter of 2025, LNG makes up approximately a quarter of our backlog. Sales of $1 billion organically grew 6.6% and three of our four segments had an increase in sales. Our gross margin of 33.9% marked the fourth consecutive quarter of gross margin above 33%. By leveraging our 14.1% SG&A, we achieved a 190 basis point expansion in adjusted operating income margin, reflecting the last two years of cost synergies from the integration of Howden dropping through to operating income. Adjusted EBITDA of $231.1 million was 23.1% of sales, an increase of 80 basis points. Reported adjusted diluted earnings per share was 99 cents, and adjusted was $1.86, an increase of 38.8%. Free cash flow was negative $80.1 million due to the uses of cash customary for our first quarter. yet still represented an improvement of $55.6 million when compared to the first quarter of 2024's pre-cash flow. March 31st, 2025 net leverage ratio was 2.91, and we reiterate our target net leverage ratio of 2 to 2.5 expected to be achieved in 2025. Looking ahead, we continue to see positive demand trends as we start the second quarter of 25 across the majority of the business. and we'll share more information on that, as well as on anticipated gross impact from tariffs, for which the team has been very nimble to address and take mitigating actions to date. We also reiterate our full year guidance outlook for 2025, and we'll share specifics around that shortly, given our strong backlog, as well as aftermarket service repair being approximately a third of our business. The first quarter 2025 order activity demonstrated continued broad-based demand, Examples of this activity is shown on slide five. I already mentioned Woodside, Louisiana LNG phase two being booked in Q1. Note that Woodside anticipates phases three and four that are not yet in our backlog, each of which is the same content as phase two. First quarter 25 orders in space exploration, HLNG vehicle tanks, nuclear, and marine were each greater than the full year 2024 orders in those end markets. Highlights for the quarter include booking the first serial run order for HLNG vehicle tanks with Volvo Iker, a brazed aluminum heat exchanger order with Honeywell UOP, multiple tank and heat exchanger orders with a space exploration customer, multiple rail cars with a large industrial gas customer, and an order with Eneon EDA for three regas plants in Europe. Additionally, RSL orders were strong. and included a carbon capture retrofit for a coal-fired power plant. As of now, despite the many uncertainties associated with global tariffs and general economic conditions, we are not seeing demand decline. Our commercial pipeline remains robust at approximately $24 billion, even as we convert larger projects in that pipeline into our backlog. We have a meaningful pipeline also of potential large global LNG work that we believe has a significant likelihood to come into backlog in 2025, given natural gas and LNG demand and the current U.S. administration support for LNG. Additionally, aftermarket is holding up strongly across all of our regions to date. Even with the strong orders in Q1 for nuclear, marine, and space, we've already in April booked over $54 million for these three end markets. Yesterday, we booked an order for nuclear application for power generation in Europe, which will utilize a series of our distillation, recirculation, and storage solutions. Our customers' latest feedback for specific end markets reflects expectations for continued positive trends in marine, metals, mining, energy, natural gas, space exploration, nuclear, data centers, aftermarket, carbon capture, and hydrogen specifically in Europe. Generally, water treatment, general industrial, LNG vehicle tanks, and food and beverage are in line with our original expectations that we had coming into 2025. Finally, we are watching uncertainty in the industrial gas and hydrogen market, specifically in the Americas. We were pleased to see industrial gas orders via our CTS segment increase sequentially by 10% from Q4 24 to Q1 25. In total, we anticipate that our second quarter 2025 orders will be higher than our second quarter 2024 orders. Data centers and AI continue to be a driver for the growing energy demand globally. Our existing portfolio of heat rejection, cryogenic storage, water treatment, and digital monitoring solutions, as shown on slide six, support data center customer needs. We continue to see this end market as an area for near, medium, and long-term addressable market for us. Since adding a dedicated data center commercial team member a couple of months ago, our pipeline of potential customers in this space has grown to over 50. We are in discussions about partnerships to utilize our solutions with two specific companies beyond our existing customer base. And the next 12 to 18 month commercial pipeline for data centers specifically has expanded to approximately $400 million of opportunities. Now, Joe will take you through Q1 specifics.

Slide 7 is a summary of the first quarter compared to Q1 2024, and we will cover these in more detail starting on slide 8. Slides 8 and 9 show our key financial metrics compared to the first quarter of 2024. From left to right, on slide 8, sales increased 5.3%, with a headwind from FX of 1.3%. Adjusted operating profit grew over 16%. Adjusted operating margin of 19.9% reflected further productivity actions, favorable project mix as we execute backlog, and benefits of increased efficiencies in our new manufacturing lines. Additionally, Q1 was the first quarter since 2022 of specialty products gross margin above 30%, and we continue to leverage our SG&A on more throughput. This contributed to adjusted EBITDA of over $231 million an increase of nearly 9%. We continue to take cost out via productivity initiatives and improve throughput via our chart business excellence as we track to our medium-term 2026 goal of mid-30s gross margin percentage. Turning to slide nine, you can see gross operating and even a margin expanded on both a reported and adjusted basis. In particular, we are continuing to leverage SG&A as we deliver more volumes to our shops, which is reflected in the 190 basis point improvement in adjusted operating margin. Turning to slide 10, first quarter free cash flow was negative 80.1 million, driven by typical first quarter cash outlays, including our senior secured notes interest payment, timing of insurance costs, and bonus payments, among other seasonal items. As a reminder, the senior secured note Interest payment of approximately $79 million occurs in the first and third quarter of the year. Our capital expenditures for 2025 are anticipated to be in the 2% to 2.5% of sales range, and we continue to focus on improving working capital. Our capex is related to capacity for compressors and productivity and automation for more throughput in our shops. First quarter 2025 working capital, defined as net accounts receivable, net inventory, unbilled contract revenue, accounts payable, customer advances, and billings in excess, as a percent of last 12-month sales was 16.3%. In February 2025, we shared that we signed a letter of intent with a new counterparty to replace our HTEC put-call option that could have been exercised by I2 Capital on or after May 1, 2025. The new agreement was executed this week on April 30th. Based on the put option triggers in the new agreement, which are substantially similar to the previous arrangement, we do not expect any balance sheet or cash impact with respect to such option prior to 2028. We remain committed to and reiterate our financial policy as shown on the right-hand side of slide nine. Until we are within our target net leverage ratio of two to two and a half, we will not do any material cash acquisitions or share repurchases. We reiterate that we anticipate ending 2025 with approximately $3 billion of net debt and achieve our sub-2.5 target net leverage ratio in 2025 based on full-year 2025 free cash flow generation between $550 and $600 million.