Q3 2023 Chart Industries Inc Earnings Call
Good morning, and welcome to chart Industries, Inc. 2023 third quarter results conference call all lines have been placed on mute to prevent background noise.
The speaker's remarks, there will be a question and answer session.
The company's release and supplemental presentation were issued earlier this morning.
If you have not received the release you may access it by visiting <unk> website at Www Dot chart industries Dot Com a telephone replay of today's broadcast will be available. Following the conclusion of the call until Friday November 24th 2000, Twenty's sweep the replay information is <unk>.
Paint 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.
The company undertakes no obligation to update publicly or revise any forward looking statement.
I'd now like to turn the conference over to Jill Evanko chart Industries', President and CEO. Please go ahead.
Thank you Sylvie and good morning, everyone and thank you for joining Joe Brakeman, our CFO and me to walk through our record third quarter 2023 results starting on slide five of the supplemental deck. We're very pleased with our team's positive momentum on integration progress financial result, deleveraging and delivering on the broad based demand that we saw it continue through that.
Third quarter.
One very positive accomplishment that I want to start with is that we have achieved approximately $500 million of cash proceeds from a subset of the originally defined divestiture perimeter with the signing and closing yesterday of the sale of our American fans business to arc line for $111 million in an all cash deal with multiples in line with prior chart.
Transactions. In addition, we expect approximately $80 million next Tuesday from the earlier than expected co Pimco sale closing and also expect to close the $4 million to $5 million.
Cryo diffusion sale next week.
We have one additional business that was considered in the original asset sale perimeter that has not been sold and we are evaluating whether we will proceed with the divestiture or keep the business within our portfolio.
We also generated net cash from operating activities from continuing operations of $104 $4 million and $142 $2 million when adjusted for M&A transaction fees and cash costs combined with our margin strength. We're at 3.59 net leverage ratio, which from pro forma for the announced divestitures.
3.47, we reiterate our expectation to achieve our target net leverage range of 2.5 to 2.9 by the middle of 2024.
With respect to margin strength since the close of the <unk> acquisition on March 17th we have performed above 30% on a reported and over 31, 5% on adjusted gross margins and expect to continue to be at or above this level going forward.
In the third quarter, we posted record operating income EBITDA EBITDA margin and adjusted EBITDA margin adjusted EBITDA margin of 21, 7% grew 440 basis points compared to the pro forma third quarter 2022 on top line sales growth of approximately 10%.
The team has made incredible strides in achieving our year, one cost and commercial synergies we have already surpassed our year, one commercial synergy target by double only seven months post acquisition with $297 $9 million of synergy orders booked across hydrogen LNG carbon capture and multiple other end markets.
To date, we have achieved $135 $6 million of cost synergies and are on track to hit or exceed our year, one target of $175 million.
The commercial synergy win or one of many contributors to our record orders excluding big LNG, We did not book any big LNG in the third quarter and still had $1.13 billion of orders, resulting in record backlog of $4, one 4 billion.
We've included slides six and seven to show our continued achievement of our targets on time early in the material on these slides will be discussed throughout today.
Moving to slide nine the third quarter and year to date 2022 figures, we present our results from continuing operations. This excludes the roots results for our entire ownership period as it reaches moved to discontinued operations previously and the divestiture closed on August 18th.
The following are included in continuing operations for the third quarter and Q3 year to date, but are not included in our 2023 or 2024 forward looking outlook call Simcoe fans, which is anticipated to close next Tuesday on October 31 for.
For the third quarter and year to date <unk> is treated as an asset held for sale.
Yesterday, we divested American fans as I said previously and effective than the business is no longer part of chart.
Throughout today, we will reference 2022 comparison periods. All references are pro forma for the combined business of chart and Howden will not refer always to pro forma each time, we referenced 2022.
Slide 10 shows both the sequential comparison of the third quarter to second quarter 2023, as well as versus third quarter 2022.
Starting compared to the third quarter of 2022 orders, excluding big LNG grew one 5% against a strong comparison.
Meaningful margin expansion has occurred with reported gross margin expanding 240 basis points reported EBITDA dollars up 35% and reported EBITDA margin up 350 basis points.
Sequentially compared to the second quarter 2023, we had significant growth above 30% and non big LNG orders as well as growth in total orders of 6%, even when considering the approximately $200 million Big LNG order booked in Q2. Additionally.
Additionally, gross operating and EBITDA margins, all were consistent with or above the second quarter with new record set in Q3 for both reported and adjusted EBITDA margins in the combined business.
Third quarter 2023 record reporting reported operating income of $104 $4 million increased 9% compared to the second quarter 2023, and when adjusted for onetime costs, primarily associated with the hiring of integration and deal. Both adjusted operating income of $161 4 million and adjusted operating.
Margin of 18% were records. Additionally.
Additionally, operating margin increased in three of the four segments sequentially when compared with the second quarter of 2023, and when excluding big LNG all four segments.
Third quarter 2023 sales of $897 $9 million grew about 10% when compared to the third quarter of 2022 and included record sales for Cts and specialty products.
During the third quarter, we saw revenue push out to future periods related to customer project design and schedule changes supply chain delayed deliveries impacting percentage of completion revenue recognition and timing within our RSL book and ship business.
Dollar impacts, we also prioritize certain customer schedules within our facilities that created timing changes between projects and backlog.
Third quarter revenue would have been above $1 billion absent these timing impacts.
Based on current order and market trends, we are confident in realizing this revenue, which is still in our backlog during the fourth quarter in 2024.
As a reminder, historically order cancellation rates have been significantly below 1% and since the Howden acquisition, we have only had one 9% of backlog cancelled.
Slide 11, and 12 12 show the continued trend of increasing both gross and EBITDA margin as I've already touched on since closing the Howden acquisition, we've consistently been at or above 30% on a reported gross margin and 17, 5% and 21, 5% for reported and adjusted EBITDA.
Our freight and material input costs have tempered significantly compared to the past three years as you can see on slide 13.
Carbon steel is back to 2020 levels stainless steel is off its peak and behaving fairly consistently well aluminum is more available similar to 2021 cost levels. It has declined since the beginning of this year.
We expect input costs to further normalize although we continue to see late deliveries of longer than lead times from our suppliers.
Whenever cost increase be that material labor other including across the past few years, we respond quickly with price increases to protect our margins and profitability as costs decline our margins are anticipated to reflect improvement from these price increases.
We also anticipate a tailwind in 2024 as we continue to execute on supply chain synergies.
Slides 14 through 16 add some more detail around our third quarter results I'm going to start on slide 14.
He is our number one priority our total recordable incident rate decreased again this quarter ending at <unk>, five two and achieving our lowest lost time incident rate in our history I'd like to thank our team for 70% of our sites being accident free for more than one year and all of our European sites being accident free in the month of September.
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Strong progress in our certification industry leadership position was also made in Q3, and we will discuss a few of these in a moment.
Turning to slide 15 repair servicing leasing which comprises over 30% of our annual revenue is performing exceptionally strong year to date.
Third quarter 2023 book to Bill for RSO was one point to two <unk>.
Our sale orders increased more than 20% when compared to third quarter 2022.
Year to date Q3, RSL orders increased 15, 7% when compared to that same period in 2022, and RSL sales increased 15, 5% for the same period comparison.
Third quarter 2023, RSL backlog is at a record $609 $7 million, an increase of more than 35% compared to the third quarter of 2022.
We love that we're seeing tangible commercialization of how does the digital uptime offering to the chart legacy business, including applying uptime to 51 LNG refueling stations from chart legacy customers across 15 different customers. Additionally, the team is working on bringing uptime to re gas stations heat exchangers turbo Expanders and earthly law.
In the near term.
Uptime brings reduced risk and liability to our customers' cost savings via less downtime and less feet that site.
Given the many macro and geopolitical factors happening in the world today, we are sharing some insights on our regions on slide 16.
EBITDA margin is fairly consistent across all of our regions with some variability between quarters.
The Americas and Europe regions, our two largest largest and each is seeing double digit growth across many of the financial metrics.
Our middle East and Africa region continues to deliver stellar quarterly and year to date results.
Many have asked us about our presence in the middle East considering the current war situation we.
We have 35 people physically located fulltime in the UAE and historically the middle East Excluding Africa has done between about 35% and $50 million per year in sales, we have not seen any disruptions to the business. So far in this region.
Our APAC and India region delivered record backlog bookings in the third quarter and continues with excellent cash conversion, we see this region as a heavy hitter ahead on synergy orders, especially in countries, where hydrogen and other clean energy solutions are becoming more and more prominent such as Australia, Japan, and Korea for which Howard and brought us a much stronger presence.
And finally, our China region has performed at or above forecast each quarter. This year and all metrics not only have you been able to repatriate $35 million of cash from China to the U S. This year to date, we are seeing demand increasing in the region for China, We anticipate a stronger second half of 2023 versus first half and also a.
Proximately, 20% or higher orders in 2024.
Slide 17 shows the strength in the order book and strength in base heat transfer systems demand outside of the big LNG with a 72% plus increase in non big LNG orders when compared to the second quarter 2023.
On the upper right hand side of Slide 17, you can see some key wins from Q3, including another chart water win in India, and an order from Tech House a S for the supply of a steam turbine generating set for a new project for the Stat fjord C. One of three integrated platforms operated by Ecuador assay.
We had our highest ever quarter for individual orders each greater than $1 million booked in the third quarter with 139 of these and expect to be above 100 in future quarters.
Okay.
Slide 18 shows specific momentum gaining in markets that we serve with a complete solution set each continues to increase in terms of commercial pipeline for US. This is driven by both continued traditional energy investment as well as the breadth of climate policies and increasing funding systems for renewables projects, including the EU renewable energy directive.
The energy transition also drives demand for clean metals and mining and as a result, we've seen increasing demand for our fans and our Vince in products.
We will discuss LNG and hydrogen in the coming slides. So let me touch on water treatment and carbon capture here.
Not only were orders for both end markets in Q3, the highest order quarter in our combined history. Both are experiencing macro tailwind for example, the global piece as water treatment market is projected to reach $546 billion by 2030, a market well served by our water treatment technology we.
Just water orders with 15, new customers in the third quarter, including one for treating trace amounts of TNT and wastewater.
Our carbon capture bookings are getting larger in size, indicating more movement to larger scale as well as progress through actual build versus just engineering studies.
To demonstrate our expectation for continued increasing demand across the entire business you can see the takeaway on slide 18, we have over $23 billion of potential orders in our commercial pipeline, including over $1 3 billion that are potential synergy orders, an increase from $800 million of potential synergy awards.
In may.
Note that our total commercial pipeline of opportunity that could close between now and year end 2023 or in the next two months is $5 $94 billion.
Slide 19 shows the way we serve the LNG market.
We are bullish on all four of these aspects of LNG, including Big LNG for both macro and chart specific reasons.
Multiple LNG projects are underway and we believe there is now consensus around the thought that the energy crisis is not over there continues to be geopolitical unrest, returning high visibility to energy security and energy access.
Left to right on slide 19, starting with big LNG, the takeaways that we anticipate big LNG orders in revenue each year for the foreseeable future.
This is driven by expected LNG sanctioning extended sizes of projects and the movement to modular mid scale for international projects, many of which have already qualified our <unk> process technology. We're very excited to share in Q3, we had our Ips EMR technology selected for an international Big LNG modular project for which we.
Paid booking a full order in late 2024 or 2025 with engineering work already underway.
There are multiple other big LNG projects in our pipeline as you saw on the previous slide.
To the right of Big LNG on the slide is a small and floating category, which has grown significantly over the past 18 months and continues to do so, especially in southeast Asia and Africa, where we have dozens of imminent opportunities.
Just last week, we were awarded a feed study for <unk> for a point for MTBE plant expected to move to full order in 2024.
And LNG infrastructure category ISO containers LNG fueling stations and re gas has been very consistent the one aspect of LNG infrastructure that has been depressed the past two years is LNG over the road vehicle tanks.
We're finally seeing some rebound in demand for these tanks with our highest order quarter for this product since the first quarter of 2022.
Also remember that the LNG over the road vehicle tanks, where the jumping off point for our unique liquid hydrogen onboard tank that has gained early and often traction so far.
And finally, a growing category for our equipment and solutions as a retrofit service and repair for existing LNG facilities, driven by operators desiring optimization of output from existing capital, reducing downtime and in some cases necessity of a retrofit to keep the facility running we currently have three nitrogen rejection unit feed studies underway.
For customers that are dealing with high nitrogen content natural gas, which can create challenges in liquefaction output and consumption of LNG we.
We have an extremely differentiated solution to handle this.
So moving to slide 20. This shows the U S Department of Energy has announced selection of seven regional hydrogen hubs in which we are a partner and the high velocity hub more importantly, though for our future demand is that each of the seven hubs is not a single project in a single location, but rather each will be a collection of projects across the hydrogen value chain, we've been in discussion.
With many of the projects that will now potentially be down selected by the regional hub partners and we anticipate multiple orders across the hubs in the coming years.
This federal funding is expected to also catalyze many private sector investments in hydrogen and is estimated to be over $40 billion of that private sector investment spend.
So cash isn't liquid hydrogen demand is expanding globally across various geographies. So this isn't just a U S story as you can see on the lower right hand map on slide 21, not only is hydrogen and helium than our number one end market for synergy orders. The third quarter was also record order quarters for this market.
We continue to be a leader in global certifications and first related to hydrogen, including delivering kgs certified liquid hydrogen trailers. The first that will deliver liquid hydrogen in south Korea.
There are other first shown on the left hand side side of slide 21.
So I've already shared the strong third quarter synergy achievements at the outset of the call which are repeated on slide 23. We also have more cost synergy potential ahead, not only with renewals on the calendar yearend cycle, but also optimizing the use of our Mexico facilities legal entity consolidations tax reductions and executing on additional.
<unk> in sourcing opportunities.
Slide 24 shows for commercial synergy wins from the third quarter generated from both chart and how to legacy customers as well as new customers.
These are the result of the breath of Houghton's field service footprint and resources shared capabilities for in sourcing internal testing, thus accelerating lead times and therefore getting synergy orders full solutions with all mission critical manufacturing in house and strong relationships with key customers in multiple end markets that both chart legacy.
And how did the legacy bring to the table.
Commercial and cost synergies are very tangible but what what is less so tangible is the one chart culture that our global team members have embodied together to achieve these results slide 25 shows. Some examples of this including a QR code out that the team came up with that we used to submit new synergy ideas. Another Great example was our <unk>.
Teams working together to improve our 2023 eco beta sustainability ratings from bronze to silver for certain European sites.
I spent time already on a robust aftermarket service and repair capabilities slide 26 shows that there are still a significant amount of synergies available to us which are accelerating as we close 2023 and head into 2024 and support continued double digit plus growth in RSL segment I wanted to share. One example of.
And this is just in the last day or so we received about $5 million Euro order.
From customer Vigo, you May recall me talking about V go early on as an early synergy.
In the <unk> segment, where we were able to take chart legacy fueling stations and get a long term service agreement with this customer as a result of Houghton's UK field service folks. This is this order. This week is a second station thats going to be installed by the Howden UK team and in a meeting with this customer.
Tomorrow or this week they were really positively impressed by the performance of the service team in the UK and in turn we were able to book this additional order, which by the way is not included in the 297 $9 million of commercial synergies that we reported today.
We shared our progress on net leverage ratio so far at 359 forward expectations and now we reiterate our financial policy as shown on slide 28.
Our third quarter 2023, ending liquidity level of $700 million covers all material 2020 for debt service needs, even before our fourth quarter expected cash generation and divestiture cash proceeds in the fourth quarter.
It's also worth noting that we have no major debt due until 2030.
Now turning it over to brakeman, who has been extremely instrumental in our deleveraging as well as our synergy execution.
We continue to undertake actions to generate more cash for debt paydown and optimize our balance sheet, including repatriating over $25 million of cash in the third quarter favorable repricing of our term loan b and closing on the sale of our South African facility for $2 $2 million, we anticipate closing the sale of two.
Other properties in the fourth quarter.
On Slide 30, you can see additional details of our Theodore Alabama, Jumbo tank and rail expansion.
This is a high ROI project for us and the additional capacity is needed to deliver on the $115 million of orders already in backlog for this facility.
Celebrated our capital spend timing to take advantage of market opportunities that arose primarily in the space exploration rail and marine markets, where multiple blue chip customers needed deliveries as early as possible in 2024.
We were able to work with our building contractors to accelerate the pouring of the very thick concrete floor, which holds tanks up to 1 million pounds.
Expedite the arrival interaction of the building steel.
You can also see on slide 30, where the site was as of June 30, and the incredible progress as of this week also the steelworkers remain on site and we expect to have all of the building columns complete by Sunday.
We originally had a multiphase capex optionality on this project, which was to be determined based on future demand given the early railcar demand and backlog. We also decided to accelerate what was originally phase II scope with the sites rail spur edition and revamp.
We now expect occupancy in the beginning of operations earlier than originally anticipated pulling forward. This related capital expenditure spend was instrumental in securing the $58 million of third quarter 2023 orders book specifically for this facility.
On slide 31, the table walks from U S. GAAP reported steep statement of cash flow as cash from operations, which includes both continuing and discontinued operations as well as assets held for sale movements to our adjusted free cash flow from continuing operations of $84 8 million, which is a metric we are using for guide.
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It should be noted that we also had one key customer with 25 million dollar account accounts receivable due in September that is now expected to be a tailwind for us for fourth quarter cash.
Slides 33, and 34 cover our guidance metrics, we are updating our full year 2023 sales forecast to approximately $3 45 to $3 5 billion.
This is driven by the earlier than expected divestiture completions for American fan to firm go in crowd to fusion, which is a positive and third quarter 2023 revenue timing discussed earlier.
All of our diverse divestitures in 2024 represent annualized revenue of approximately $225 million and EBITDA multiples in line with prior chart transactions.
We are updating our full year adjusted EBITDA guidance to reflect the lower revenue in 2023, which has now moved into 2024 due to supply chain and customer delivery delivery timing.
We expect to see a nice sequential step up in free cash flow in the fourth quarter 2023, our cash available for debt Paydown now reflects the $111 million from the American fans divestiture as well as the updated free cash flow guidance and higher capex spending in Q3.
While there is some modestly lower interest expense flowing through our guidance in Q4, we will not see most of the benefit until 2024.
Which brings us to the next slide slide 34, and our 2020 for outlook, our EBITDA forecast of approximately $1 3 billion remains unchanged. Since November 2022, despite the divestitures done in 2023, which are being offset by continued strong order growth in commercial and cost synergy wins as you can.
See here, we are initiating a 2020 for revenue outlook of approximately $5 1 billion.
Which is supported by our record Q3, 2023 backlog of $4 1 billion and strong commercial synergy is still expected to be announced in the fourth quarter and early 2024 remember as the company shifts to more of a solution provider that extends our orders to sales conversion cycle, we anticipate free cash flow we are moving.
We're removing the word adjusted for 2024.
In the range of $575 million to $625 million. We are also guiding 2020 for adjusted EPS to $14 plus.
Additional details are on the slides.
We look forward to seeing you at our November 28th Investor Day, where we will provide three year forward outlook as well as a longer term view on our markets.
And now Sylvia Please open up for Q&A.
Thank you, ladies and gentlemen, I would like to ask a question. Please press star followed by one on your Touchtone phone you will then hear a tone prompt acknowledging your request and should you wish to withdraw from the question queue. Please press star followed by two.
And if you are using a speaker phone we do ask that you. Please lift the handset before pressing any keys. Please go ahead and Crestar. One now if you have any questions.
And your first question will be from Ben Nolan at Stifel. Please go ahead.
Great, Thanks, Hey, Jill and Joe.
So.
First of all the orders are strong.
The guidance is really strong.
The backdrop, though in this environment with higher interest rates.
Is it feels a little less.
Certainly than maybe it has in past in fact, I know NGL U.
You would know that one.
One of your competitors or at least a fraction of their business is competitive years.
Was out.
Sang.
There's just too much uncertainty to have much confidence looking into next year.
You don't seem to be reflecting that at all.
And certainly it's not.
Your orders. So the question here is are there was a long winded start with quest.
Question here is could you maybe talk through maybe segment by segment.
What your line of sight is through next year and.
Maybe by those segments what portion.
The business is economically sensitive and then what portion of it you think.
Maybe not.
Alright, Thanks, Ben for the question the Tee up and before I answer your question directly. Thank you for recognizing the strength in the order book and the outlook ahead.
So that leads me to our view and our confidence level, our very high confidence level. In these figures in this outlook in particular, given our record backlog and record origin ex Big LNG, which I think is extremely important right. It's the shift in the dynamic of the business away from that heavy reliance on one or two orders.
Coming in and this broad based demand, where we have multiple end markets that we serve which oh by the way we don't have to change our manufacturing lines to serve right. We can use the braves aluminum heat exchanger, whether that's in big LNG, whether that's in hydrogen liquefaction or helium liquefaction in some cases carbon capture so the list could go on and you are really some.
With that but that broad based nature of our backlog the visibility that we have to where those projects are in terms of progression.
Is one of the shifts that Joe talked about in his remarks, there of moving toward that solution provider gives us more visibility into that backlog.
I'd also say specifically of more than 65% of our backlog for that cover 65% of our 'twenty 'twenty four covered by backlog I think that's an important.
Metric traveling we talk about also.
The ability for us to move scheduled around and to be able to adapt.
How we serve our customers is another key element to how we deliver on that backlog and we did mentioned as well in our outlook that it does include commercial synergies and I mean Heck I think you commented on it in your early look report.
We delivered.
100% more of our year, one synergies commercially in the first seven months of our ownership of Howden I mean.
That shows the combination and that full solution offering coming into our backlog alright. So let me let me talk about the segments because you really get into the question about what sensitive and where we see those sensitivities both from a positive and potential watch out.
Perspective, let's.
Let's start with Cts.
Cts is our shortest cycle sure. It is book and ship cycle. This is heavily industrial gas majors business and you can get the industrial gas majors outlooks, but what we're hearing from a forecast perspective is kind of inline to what it always is generally and historically, which is in that like kind of mid.
Single digit growth.
When you look backwards at Cts, it's fairly insensitive in terms of being dramatically lower or dramatically higher.
Within Cts I would point out that.
The EU and China regions.
Serves the Cts segment and in the remarks, I commented that we expect China orders year over year to be 20% or more higher than 2023, as we didn't we didn't see really a slowdown per se in those two regions in that market, but we're seeing some pickup in activity the cts.
Thank is fairly insensitive and we have very good line of sight to the next 12 months from those key customers.
In HTS segment, so our big LNG, we have we have.
Good backlog for the coming couple of years on the Big LNG front, we do expect to book another Big LNG order around year end dish.
And we have good line of sight to more for the coming years inclusive of that Ips EMR.
When that international win that we can't name, but we have the technology, we havent yet book the order, but even without that we see plenty of commercial pipeline not only for other LNG, including retrofits, but I don't like to Hammer home that point on traditional energy oil and gas.
Again, the beauty is we serve traditional energy and clean energy end markets with the same manufacturing lines and we have seen traditional energy pick up I think the metric that we showed was 72% in order increases ex big LNG.
From from last quarter sequentially Alright.
Alright specialty I think the specialty is interesting because specialty is kind of where I think the key.
Comments as you referred to.
One of our competitors are at least small part of their business being competitor. The comments, there probably would ring ring into the specialty segment. If you were to try to pick out one of the segments here.
One thing I would say if I, if I know who you are talking about one thing I would say that I fully agree with is waiting on the government to fund something is not a good strategy and thats, absolutely not where we are with with our specialty end markets. You know these are as Joe called them Blue chip customers and.
We're talking in specialty and these are in some cases, the iag's that I talked about in Cts EPC. These are large companies that are making these investments and we're the beneficiary of them with that said I do think the government.
Hubs in fundings can be a catalyst for more but that's not what our basis of our outlook is built on its built on the projects that we have in backlog and what we think is real real in the commercial pipeline.
In terms of the rest of the specialty rate. This is also global it is not a U S. Only commentary right so take hydrogen.
It's industrial gas its mobility, it's utility storage and we're seeing a lot of pragmatic projects in the coming into the backlog versus the Dreamers, and then lastly, and RSL I want to end with our SLA purposely amending with RSL because RSL.
Think back one of the key elements of our strategy over the last five years and really amped up with the Howden acquisition was having a higher percent of our revenue and aftermarket service repair and for exactly the idea that we're going to continue to grow double digit through a cycle and this gives us a lot of resiliency and confidence in <unk>.
Being able to do so.
Yes, the other thing I would say as you heard me talk on the amount of opportunity in Pi and RSL that we don't even touch today and we don't even we don't even have a lot of our chart legacy products that we serve outside of the United States and there is just opportunity without having to have the actual end markets themselves grow dramatically for us to gain share and have this continue to grow.
Low double digit so all in all I think our our confidence is high for different reasons, perhaps than someone else's confidence may be a little bit less.
Alright that was extremely thorough I appreciate it thanks, Joe Thanks.
Thanks, Dan I appreciate the question.
Next question will be from Martin Malloy of Johnson Rice. Please go ahead.
Good morning.
Hi, Marty.
Hi, I wanted to ask a question about the <unk>.
Hydrogen outlook.
The graphs on do you have on 'twenty one.
Was wondering if maybe you could help us with thinking through.
The scope of potential awards to chart for say.
<unk> tons per day.
Hydrogen production liquefaction plant coming online.
Assuming that the hydrogen is going to be used for transportation or stationary power.
When you think about all of the storage and transportation end use.
<unk> that you might sell.
Yes, Thanks, Marty for the question and I appreciate you looking into the detail that we have put out in the deck. So let me touch on a few things on that slide 21, and that upper right hand graph.
There is a lot to digest here. The first thing being that we are continuing to see more and more commercialization in hydrogen the second being that.
The three facets of the hydrogen value chain production storage and transport and then and use you can see for the last couple of years. The primary our primary customer spend was in production and storage and transport and now if you look at that last category. We're starting to see an increase in orders for end use whether that's mobile reef.
<unk>.
That could be fueling stations things like that and that that to us is a positive indicator for the years ahead, given that you have to have for the ecosystem to work you have to have supply and demand and you're seeing that and use the the demand.
Starting to grow so that's the takeaway the two takeaways on that upper right hand chart on slide 21 now.
Now.
What your question was what is kind of chart content and what are we seeing on let's take whether it's a 10 tonne per day, we're seeing most of the local fires. We see are either 15 ton per day or 30 ton per day, so I'm going to just use 15 ton per day as an example, and.
If you take the liquefy our itself those typically are 15 ton per day is going to cost.
Our content will be $35 million to $50 million.
On a 15 tons per day, and obviously with variability depending on.
Aspects and customization that the customer may want, but the second half of your question, which I really really think as Stewart is around used for transport or stationary power, which brings us more equipment.
<unk> around the production side.
And that is.
Typically what we're seeing right now storage tanks and trailers.
What.
What our hydrogen team tells me is that the trailers are usually ordered.
About a year after the production equipment is ordered or the production technology and so I think we'll see given the local fire activity that we've seen in 'twenty three I would expect we'd see a pickup in trailers late 'twenty four and 2025, so I like the I like the.
Staggered newness of the way that the.
Full solution and the exceptional hydrogen portfolio that we have has been rolling out I also really like.
The point, we want to try to drill here is that it's not U S. Only and you see that on the bottom right hand map.
These are orders across multiple geographies and.
We had a.
And compression order for about $16 million in the third quarter and that was again that was for <unk> in Asia.
In Asia location, so it's really broad based global.
We serve all of these facets of the value chain and in transporter stationary power, which really are the more pragmatic applications, where hydrogen we get the benefit of equipment technology on the production side as well as the ancillary pieces and parts.
Great. Thank you very much.
Marty.
Next question will be from Eric Stine at Craig Hallum. Please go ahead.
Hi, Joe Hi, Joe.
Hey, good morning, Eric.
Good morning.
Hey, so I appreciate that you're limited as to what you can say, but curious just on the new LNG Award.
Our new LNG opportunity that you expect to book later next year.
I'm wondering if you can give any detail in terms of size and also just curious is this one of the counterparties that <unk> been qualified with is this a new customer details would be helpful. Yes.
Yes.
We're qualified Ips Amara qualification without boring you with the technical detail is a big deal and it's a big ordeal to get there is multi years with in particular with international oil companies and we have a couple of I think close to a dozen of these validation and qualification technically and.
We had I think last quarter, we said.
Nine international potential projects have fallen this category now we say we have 10 plus the one that we know we were awarded the technology.
Meaningful step for us I think part of that.
Direct answer yes, it with one that has qualified us.
The way that these typically work is the qualification happens through engineering and then the project team is the one who actually makes the decision because they have to implement it and so that's again, that's a separate process and a longer process. So we're super excited about this win this is a high dollar if youre looking at historically the way we range out.
Our big LNG projects, you know when you say 102.
Few hundred million. This is certainly going to be at the high end of that range in terms of size and content and.
I can't tell you the international there's very limited locations geographically internationally that are that have.
Very sticky and established LNG activity and so you can probably at least hone in on that from from my answer there, but I think even bigger when you are talking about future potential growth.
Unlocks having this type of win unlocks.
An entire market within big LNG that we never played in or played extremely limited in before and so that's it.
Yes.
My takeaway is the strategy for profitable growth continued consistency consistency and big LNG bookings and now we have this whole other facet of the world that.
Is going to use Ips Maher.
I love it.
And I guess safe to assume that this.
This large company has a backlog beyond just this project.
That is the or at least the pipeline.
Yes, you are correct there Okay and then last one for me you mentioned the 65% coverage in backlog I mean, obviously thats a great number for chart solo but.
Just contact context now that Howden is is added as well I mean should we kind of view them.
Seems that that is a.
Historically high level of backlog coverage.
Okay.
Oh, yes, absolutely.
65%.
Historically for Howden is excellent backlog coverage.
Okay. Thanks.
Thank you next question will be from Marc Bianchi at TD Cowen. Please go ahead.
Thank you I'm going to honor Jon's question ask just one question.
Thanks Mark.
So the fourth quarter guidance here and then for 'twenty four.
Just trying to think about the progression as we get into 'twenty four because I think typically you would have some seasonal downturn in the first part of the year and then it ramps over the course of the year, maybe that's dampened a bit by Howden.
But even if that happens it would seem that you would need to be exiting 2020 for margins, maybe quite a bit above the 25% EBITDA margin that's implied by the guidance. So maybe if you could just provide a little bit of a.
Progression on how this should play out in 24 to give us a sense of the exit rate.
Yes, thanks for the question, Mark and what I would say.
Cut back too since our since we closed on the Houghton deal who we've been at.
Above the 21, 5% adjusted EBITDA margin, we see the cost synergies are really starting to flow through the P&L here in <unk>.
Particular on SG&A as an example.
We definitely see 'twenty four in terms of progression we used to say.
Legacy we used to say, okay. The first quarter and the fourth quarter were the lowest quarters of the year.
We don't see that nearly as much just given the shift to the project nature of the business. What we do want to point out in particular on and I'm going to come back around on the margin point here, but in particular I want to make sure everybody noted the comments about the senior secured notes interest payments.
We pay in January and July so there are two payments a year. So that's an important because that flows through operating cash.
On the margin side, we have.
Increasing benefit from mix in backlog around the projects that we booked the synergies already touched on and then delivering through on the higher volume that we have so I would the way I would model. The year is kind of sequentially stepping up the EBITDA margin from where we sit today and.
You can see that reflected in the implied fourth quarter 'twenty three guidance and I don't see anything that says there is one quarter.
Like we used to have that really we should call out as being lower than the rest of them.
Okay.
Okay. Thank you very much.
Thank you Mark.
Next question will be from Pavel <unk> of Raymond.
Raymond James Please go ahead.
Thanks for taking the question.
Looking back on the previous question, but more zooming in on top line given how much the business mix has changed particularly the recurring service revenue.
Is the.
Got it.
Progression first half versus versus second half going to be meaningfully smoother going forward versus the.
Legacy.
Chart, which was very backend weighted.
Yes, <unk>. Thank you for the question. So the short answer is yes, the longer answer is that.
They're way.
I'll give you. An example, the way that the larger projects timing of deliveries that will take a big.
Big LNG project in the second quarter of this year, we had more big LNG related revenue because there was the delivery of a train for a customer that we got that that revenue into the quarter. We had less so in the third quarter because we're starting work on it on the next train or the next series of trains. So there is a little bit of.
How those project delivery schedules play out much smoother than historically.
If you look at our backlog you will have a step up from first half to second half in 'twenty four just based on the.
The big LNG projects that are in the backlog, but not nearly kind of this <unk>.
One to Q2 to Q3, and then down in Q4 like it used to be.
Okay.
Yes, I would just add.
One thing to add viable growing business is naturally going to have a bigger fourth quarter than the first quarter just because it is growing.
Okay.
Did that answer your question Vivek.
Perfect.
Thank you next question will be from Craig Shere.
Tissue brothers. Please go ahead.
Three brothers.
Okay.
Hey, Greg.
Hi.
So.
Given the commercial synergies are kind of doubling original guidance.
Kind of scratching my head a little bit.
Shouldn't that have aided 2023 revenue performance and kind of related to this question.
Can you elaborate a little bit.
The elongation of the non big LNG book to Bill.
Yes, Thanks, Craig for the question.
So.
Almost all of the synergies that we have booked the orders our full solution style bookings and so these are these would have engineering timing and ease and so in many cases are going to be across.
12 to 36 months type of Rev Rec cycles. So.
You don't really get anything in the very short term and the.
The amount of synergy we booked in the third quarter Youre really going to start to see that in the first quarter in terms of sales.
In terms of the elongation of the non big LNG book to Bill.
Thank you.
What I would say here is that.
Maybe I'll turn the question slightly differently, we continue to expect to see a book to bill above one.
That's kind of the way, we think about continuing to be able to grow the backlog to grow the top line at that 15% plus and <unk>.
Having these solution this full solution.
Differential is a way that we get sticky with these customers and in many many cases there is multiple projects behind.
The ones that are in the backlog so.
One is one of the points that I think is really important in the shift of our business from what we used to look like is that we're and I've said this time and time again here in the last hour is that we're no longer reliant on one or two things and that gives us that confidence level to be able to.
To grow through the cycle, and we love Big LNG, but we can grow without big LNG now I do want to hit the point home that we continue to expect big LNG orders here and we have a really good line of sight to the ones that we know we have content on it.
Across the coming foreseeable years here. So it's a good it's a great position to sit with record backlog, but also with the visibility we have to the full solution.
Commercial pipeline.
We expect to continue to come into the order book here throughout the years ahead.
Thank you.
Thank you next question will be from Goldman.
Goldman Sachs. Please go ahead.
Hi, Good morning, David.
Adding new hope.
Can you help us understand the moving pieces in the <unk> guidance between $100 million in revenue slippage what segments startups Greg.
Craig's question from earlier.
Synergies and the asset sales that how about Gordon and then 24 guidance seems like it remains unchanged did that already contemplate. The divestitures are are there any offsetting factors there.
Yes, thanks for the question.
So.
As we pointed out in our remarks. There was there were a few factors that went into the timing shift and I'll say this again I say it every quarter two to three months in our business, especially now that we have these long larger projects is it's really hard to get exact.
It's not lost revenue, it's timing of the revenue associated with whether Thats POC for supplier deliveries or progress, whether that's customers that call us and say hey, we want to add a capability or tweak or designed to get more output from the nameplate production or whether thats us moving.
<unk> and prioritizing our customer because they have an urgent situation and you would get less revenue rec in a quarter off of that so that's kind of the tactical side of things and then we.
We had at the end of the second quarter, obviously routes was in disc ops, but we had expected <unk>.
To close pretty close to year end of 'twenty. Three we're excited that it is going to close on the 30 <unk> of October.
For that cash in we hadn't expected.
Expected to have the American fans divestiture done in 'twenty three.
But that was really a nice win win.
It's ending up in a really good home for the fact that it's 80% plus navy oriented government, which isn't core to our business. So those those are the couple of divestiture pieces that kind of shifted timing for the rest of the 2023.
When we look ahead to 2024.
What we would.
Sure here in terms of the outlook being unchanged as well.
Our guide in 2004, we haven't really given that we had not given a revenue guide we have given an EBITDA guide and we had known the original asset sale perimeter, which I would point out again that we hit that number of the target even with a subset of the original perimeter.
Seven months post close of the acquisition, but when we look ahead, we we had.
Commercial synergies that we talked about on the last question from Craig that now.
Now I'll have come in stronger earlier into the order book, So that gives us earlier revenue in 2024 then.
What we had sold out of the portfolio.
If I were distilling into one answer to that is really it.
And then of course, there is things like.
The way that we talked about the step up in first half the second half and the timing of when these projects revenue recognition kind of ramps up and having booked.
The Big LNG order at the end of the second quarter and we see good line of sight to that revenue ramping up we have a full notice to proceed on that so that revenue really ramping up mid 2024 as well.
Thank you.
Got it.
Next question will be from Rob Brown Lake Street Capital. Please go ahead.
Good morning, Joe Joe.
Hey, Rob Hey, Rob just wanted just wanted to follow up given the really strong commercial synergies that youre showing.
And really better than you expected how do you see that continuing do you expect that to come.
Flow through in future periods, if you sort of think that that can be part of immuno ultimately expected.
No we've been we've been continually surprised by all of the synergy opportunities that we're seeing.
As we pointed out in her more remarks pivoting to more of a solutions provider here, you've got the traditional cryogenic liquid.
Background of charge, you've got the gas side of the business and how it and really coming together for solutions for customers in the hydrogen space and in other spaces.
To expect more synergy wins as we as.
As we put these these offerings together and Rob I'd I'd elaborate on that answer in that.
Think about we said $800 million of us commercial synergy pipeline available to us that was in may of this year and now we're saying one point.
$3 billion of commercial synergy pipeline here sitting at the end of October even after this $300 million of of already awarded commercial synergies that that's pretty exceptional in my mind, but what to me is even more so as you know we have we have.
Whatsapp group for the commercial team and we share wins amongst that and the amount and types and breadth of the synergy potential that these teams are working on and going out together. This is this is the value of the one chart commercial team is really amazing.
Other thing that I think has been fantastic around bringing these synergy opportunities forward Theres two things I would point out one is we have a dedicated.
Team that trains the commercial organization and the technical organization on the respective offerings that both short and how to legacy brought together and I think that's really driven their ability to sell so kudos to two Jesse Ian and the team that's been working on that and then the second piece is this this.
RSL opportunity.
Sure enough times, how much synergy potential on the RSL side, that's untapped yet and it's already been it's already gained a lot of traction.
I love the tools, Mark and his team up in Buffalo, the tools that they've been able to deploy to our commercial team whether that's in app to be able to see an install base when they go to a customer or just gathering gathering the opportunity of installed base.
<unk> has really been an accelerant to on the synergy achievement I'm not going to give a specific number but I don't see I don't see certainly it's slowing in 2024 by any means.
Okay.
Great. Thanks for the color and congratulations on the progress.
Thank you Rob.
Next question will be from Sheriff Almug Robby.
Please go ahead.
Hey, Thanks for taking my question.
Changing gears here you talked about high velocity hub really be in a group of projects can you give us more color on what kind of projects charts involved in at the hub.
And.
On the equipment side, given it's blue hydrogen or mostly blue hydrogen is there an opportunity for HTS and Cts here as well.
Yes, thanks for the question Sherry.
So yes.
Stepping back on the hubs I think well first of all I think BTG understands the hubs really well from what I read in the sense of in the sense of there.
Theyre not it wasn't just seven awards and that was it.
Sometimes we had some calls and saying well you were only in one hub will you actually just joined the hub, but being in the hub doesn't mean that you automatically are winning a project.
So we were in the high velocity hub, we think that in particular in high velocity, there is great opportunity for liquefaction, which would be.
Strong for our content.
Also in the high velocity hub, we have partners such as such as Cummins in this hub and so theres a lot of kind of behind the scenes opportunities for us to commercially work together, whether thats in the hub or not.
When we talk about across the hubs so as the regional hub partners down select the projects there will be multiple projects in the hubs and we.
We have been in conversations with existing customers and potential customers that all have projects that they would like to win within the hubs and think that there is plenty of opportunity both on the gaseous and the liquid side. So to your question on.
HTS, So we talked specialty rights on HTS or Cts content.
For hydrogen.
<unk> I'll, let Joe talk to the yes, I mean just.
The liquefaction flows through <unk> HTS, but as a reminder, any investment in liquefaction of hydrogen is going to lead to more hydrogen trailers needed and more hydrogen storage tanks downstream.
Those trailers are delivering and do so so we could pull through in both HTS and Cts with any of the of the hubs.
Okay. That's very helpful. Thanks for taking my questions. Thank.
Thank you Sherry.
At this time, we have no further questions. Please proceed.
Thank you for everyone for attending the call today, and we look forward to continuing the dialog going forward and a strong fourth quarter.
Thank you ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending and at this time, we do ask that you. Please disconnect your lines.
Yes.