Q1 2024 Chart Industries Inc Earnings Call

Unknown Executive: Good morning, and welcome to the Chart Industries Inc. 2024 first quarter results conference call. All lines have been placed on mute to prevent any background noise.

Good morning, and welcome to the chart Industries, Inc. 2024 first quarter results conference call.

Unknown Executive: After 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 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, May 31, 2024. 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.

Unknown Executive: I would now like to turn the conference over to Ms. Jill Evanko, Chart Industries CEO. Thank you. Please go ahead.

All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be 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 might be shifting charts website at Www Dot chart Industries' Dot com.

Telephone replay of today's broadcast will be available approximately two hours. Following the conclusion of the call until Friday may one 2024.

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 the 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 I would now like to turn the conference over to MS. Jill Evanko chart Industries' C E O.

Jillian C. Evanko: Please go ahead.

Jillian C. Evanko: Thank you, Ina. Good morning, everyone.

Jillian C. Evanko: Thank you good morning, everyone and thank you for joining Joe Brakeman, our CFO and me to walk through our first quarter 2024 results for.

Jillian C. Evanko: Thank you for joining Joe Brinkman, our CFO, and me to walk through our first quarter 2024 results. For all periods referenced, all metrics are pro forma for continuing operations of the combined business of Chart and Howden unless otherwise noted. Starting on slide five of the supplemental presentation, the first quarter is typically our lowest quarter of the year, and this year is expected to be no different. What is different is that the first quarter of 2024 was stronger than our typical Q1 across the board, resulting in setting first-quarter records for orders, backlogs, sales, reported and adjusted gross margin, reported and adjusted operating margin, reported and adjusted EBITDA, and associated EBITDA margin.

Jillian C. Evanko: For all periods referenced all metrics are pro forma for continuing operations of the combined business of chart and housing unless otherwise noted.

Joseph Robert Brinkman: Starting on slide five of the supplemental presentation. The first quarter is typically our lowest quarter of the year and this year is expected to be no different what is different is that the first quarter of 2024 was stronger than our typical Q1 across the board, resulting in setting first quarter records for orders and backlog sales.

Joseph Robert Brinkman: Reported and adjusted gross margin reported an adjusted operating margin reported in adjusted EBITDA and associated EBITDA margin to summarize orders were up 4% organic sales up 18% reported EBITDA up 73% and reported gross margin up 260 basis.

Jillian C. Evanko: To summarize, orders were up 4%, organic sales up 18%, reported EBITDA up 73%, and reported gross margin up 260 basis points. We'll discuss comparative financial metrics on the next slide, but a few standout items. First quarter sales of $950.7 million grew 17.4% or 18.3% excluding the foreign exchange headwind in the quarter.

Joseph Robert Brinkman: Place.

Joseph Robert Brinkman: We will discuss comparative financial metrics on the next slide, but a few standout items.

First quarter sales of $957 million grew 17, 4% or 18, 3%, excluding the foreign exchange headwind in the quarter.

Jillian C. Evanko: Also, Q1 2024 sales were our second highest sales quarter ever in our history, which is rare for a Q1. It also sets the stage for sequential growth in 2024, as we have not yet had a full quarter of Teddy 2, our Theodore, Alabama, jumbo cryogenic tank facility, and our Tulsa facility, CapEx, that is still in progress. The reported gross margin of 31.8% was an increase, as I mentioned earlier, of 260 basis points compared to Q1'23.

Joseph Robert Brinkman: Also Q1 2024 sales were our second highest sales quarter ever in our history, which is rare for Q1. It also sets the stage for sequential growth in 2024, and we have not yet had a full quarter of <unk> to our Theodore Alabama, Jumbo cryogenic tank facility and our Tulsa facility Capex that is still.

Joseph Robert Brinkman: <unk> progress.

Joseph Robert Brinkman: Reported gross margin of 31, 8% was an increase as I mentioned earlier, a 260 basis points compared to Q1 'twenty three.

Jillian C. Evanko: This was also our second sequential quarter with gross margin at or above 31.8%, and all quarters since we closed on the Houghton Acquisition have been above 30% reported gross margin. This, as well as seeing the P&L benefits from our Synergy actions taking hold, drove adjusted operating margin of 18% and adjusted EBITDA margin of 22.3%.

Joseph Robert Brinkman: This was also our second sequential quarter with gross margin at or above 31, 8% in all quarters. Since we closed on how that acquisition has been above 30% reported gross margin.

This as well as seeing the P&L benefits from our synergy actions, taking hold drove adjusted operating margin of 18% and adjusted EBITDA margin of 22, 3% similar to gross margin. This is the second sequential quarter, where adjusted EBITDA margin has stepped up to be at or above 22% and since the.

Jillian C. Evanko: Similar to gross margin, this is the second sequential quarter where adjusted EBITDA margin has stepped up to be at or above 22%. And since the acquisition of Howden, each quarter has been at or above 21.5% adjusted EBITDA margin. Strong end market and chart-specific demand continues, resulting in a record backlog of $4.33 billion. Demand is also reflected in our increasing commercial pipeline, our highest ever at over $22 billion, up from approximately $21 billion prior.

Joseph Robert Brinkman: Of Howden each quarter has been at or above 21, 5% adjusted EBITDA margin.

Joseph Robert Brinkman: Strong end market and chart specific demand continues resulting in record backlog of $4 $33 billion.

Joseph Robert Brinkman: Demand is also reflected in our increasing commercial pipeline, our highest ever at over $22 billion up from approximately 21 billion prior.

Jillian C. Evanko: We have identified more synergies opportunities, and open production at TEDDI2, and so, in turn, there's an increase in our commercial funnel for marine, space, and rail, water treatment traction, and we're seeing broader content on international LNG projects, to name a few contributors to this increased commercial pipeline. First quarter 2024 orders of $1.12 billion included record repair service and leasing segment orders, which increased 10.5% compared to Q We also saw first quarter stronger demand than typical in our European industrial gas end market. And we're seeing that strong start already through April.

Joseph Robert Brinkman: We have identified more synergy opportunities open production at <unk> and so in turn there was an increase in our commercial funnel for marine space and rail water treatment traction and we're seeing broader content on international LNG projects to name a few contributors to this increased commercial pipeline.

First quarter 2024 orders of $1 2 billion.

Joseph Robert Brinkman: Included record repair service and leasing segment orders, which increased 10, 5% compared to Q1 'twenty three.

Joseph Robert Brinkman: We also saw first quarter stronger demand than typical in our European industrial gas end market.

Joseph Robert Brinkman: We're seeing that strong start already through April.

Jillian C. Evanko: All of this resulted in a 1.18 book to bill ratio, which is expected to continue to be above 1 through the year. The strength in terms of Q1 versus typical Q1 is also a contributor to us reiterating our full year outlook for 2024. Slide six shows the first quarter 24 versus pro forma first quarter 23.

Joseph Robert Brinkman: All of this resulted in a 1.18 book to Bill, which is expected to continue to be above one through the year.

Joseph Robert Brinkman: The strength in terms of Q1 versus typical Q1 is also a contributor to us reiterating our full year outlook for 2024.

Slide six shows the first quarter 'twenty four versus pro forma first quarter 'twenty three I'd point, you to the far right hand column, which is a year over year changes in each metric.

Jillian C. Evanko: I'd point you to the far right hand column, which is the year over year changes in each metric. On the prior slide, I commented on the 18% adjusted operating margin. This is a 620 basis point increase compared to last Q1. Both reported and adjusted EBITDA margins grew more than 550 BIPs, as shown in rows 10 and 12, and adjusted diluted EPS of $1.49 reflects a higher first quarter 2024 tax rate than is anticipated for the full year, as we continue to expect full year ETR of approximately 20%. Finally, free cash flow was negative $136 million, which included $47 million of CapEx, $24 of that related to our Teddy II facility.

Joseph Robert Brinkman: On the private side I commented about the 18% adjusted operating margin. This is a 620 basis point increase compared to last Q1.

Joseph Robert Brinkman: Both reported and adjusted EBITDA margin grew more than 550 bps as shown in row 10 and 12.

And adjusted diluted EPS of $1 49 reflects a higher first quarter 2020 for tax rate than is anticipated for the full year as we continue to expect full year ETR of approximately 20%.

Joseph Robert Brinkman: Finally free cash flow was negative $136 million, which included $47 million of Capex 24 of that related to our <unk> facility.

Jillian C. Evanko: This free cash flow was in line with our internal expectations and included specific first quarter cash outflows that are shown on slide seven. As I shared on our fourth quarter 23 earnings call, the first quarter always has specific cash outflows that occur once a year. And there were other specific cash outflows related to the 2023 divestiture fees and the Teddy 2 manufacturing facility CapEx payments. As you can see in rows A through G on the table on slide 7, there were $219 million of specific first quarter cash outflows outside of working capital and normal course capital.

This free cash flow was in line with our internal expectations and included specific first quarter cash outflows that are shown on slide seven.

Joseph Robert Brinkman: As I shared on our fourth quarter 23 earnings call. The first quarter always has specific cash outflows that occur once a year and there were other specific cash outflows related to the 2023 divestiture fees and Teddy to manufacturing facility Capex payments.

Joseph Robert Brinkman: As you can see <unk> on the table on slide seven there were $219 million of specific first quarter cash outflows outside of working capital in normal course capex.

Jillian C. Evanko: Approximately $165 million of these are not expected to repeat in the second quarter of 2024. On the bottom left-hand side of the slide, you can see that we continue to opportunistically optimize our balance sheet, and we recently completed an amendment to our revolving credit facility with very strong bank support. This extends our RCF maturity date to 2029, and we received other favorable changes to terms and conditions. We continue to reiterate our financial policy, as shown on the bottom right of the slide, until we are within our target net leverage ratio range of 2 to 2.5%.

Joseph Robert Brinkman: Approximately $165 million of these are not expected to repeat in the second quarter 2024.

Joseph Robert Brinkman: On the bottom left hand side of the slide you can see that we continue to opportunistically optimize our balance sheet and we recently completed an amendment to our revolving credit facility with very strong bank support.

This extends our Rcs maturity date to 2029, and we received other favorable changes to terms and conditions.

Joseph Robert Brinkman: We continue to reiterate our financial policy is shown on the bottom right of the slide until we are within our target net leverage ratio range of two to two and a half.

Jillian C. Evanko: As I commented, there were about $165 million of specific cash outflows across five items that will not repeat in the second quarter. Turning to slide 8, you can see our outlook for free cash flow in Q2 is approximately $175 million. It's clear we need to be explicit to align outlooks on free cash flow based on quarterly information, and therefore, we are providing the next quarter's outlook, and we'll do the same for the third quarter at the end of the second.

Joseph Robert Brinkman: As I commented there were about $165 million of specific cash outflows across five items that will not repeat in the second quarter turning to slide eight you can see our outlook for free cash flow in Q2 was approximately $175 million. It's.

Joseph Robert Brinkman: It's clear we need to be explicit to align outlooks on free cash flow based on quarterly information and therefore, we are providing the next quarter's outlook and we'll do the same for the third quarter at the end of the second.

Jillian C. Evanko: Our Q2 cash outlook is driven by the non-repeating Q1 cash outflows, as well as by items shown on the lower left-hand side of the slide, including sequential improvement in working capital. We anticipate the receipt of project payments in Q2 of approximately $125 million across our top projects, and additional collections obviously beyond those globally. We also expect lower and final sequential CapEx related to Teddy 2. We did have $6 million of Q1 CapEx for our Tulsa facility to increase capacity and throughput on the Braves line there, and $2 million for our Gofa trailer facility expansion in Germany, all of which have existing backlog that will flow through these locations in the second half of 2024. And finally, we have no second quarter semi-annual cash interest payment.

Joseph Robert Brinkman: Our Q2 cash outlook is driven by the non repeating Q1 cash outflows as well as by items shown on the lower left hand side of the slide including sequential improvement in working capital. We anticipate the receipt of a project payments in Q2 of approximately $125 million across our top projects and additional collections obviously beyond those.

Joseph Robert Brinkman: Globally.

Joseph Robert Brinkman: We also expect lower and final sequential capex related to <unk>.

Joseph Robert Brinkman: We did have $6 million of Q1, Capex for our Tulsa facility to increase capacity and throughput on the Breeze line, there and $2 million for Argo for trailer facility expansion in Germany, all of which have existing backlog that will flow through these locations in the second half of 2024.

Joseph Robert Brinkman: Finally, we have no second quarter semiannual cash interest payment.

Jillian C. Evanko: To date, the second quarter 2024 cash generation has started. Turning to slide 9, a few points on the segment results. Starting with cryogenic tank solutions, or CTS. First quarter CTS orders of $159 million decreased about 4% when compared to the first quarter of 23, driven by a large rail car order booked in the first quarter of 2023. The increase in CTS orders sequentially from the fourth quarter 2023 is what is important to today in our outlook, as we see continuing pickup in demand for global industrial gas, as well as having completed certain large customer long-term agreement renewals in March and April of 24. Additionally, the first quarter general industrial orders within CTS were the highest in our history. First quarter CTS sales of $160 million increased 13.6% when compared to the first quarter last year.

Joseph Robert Brinkman: To date second quarter 2020 for cash generation has started strong.

Joseph Robert Brinkman: Turning to slide nine a few points on the segment results, starting with cryo tanks solutions or Cts first quarter Ccs orders of $159 million decreased about 4% when compared to the first quarter of 'twenty three driven by a large railcar order booked in the first quarter of 2023.

Jillian C. Evanko: This is very strong year-over-year growth given that typically CTS grows in low to mid single digits. Reported gross profit, margin of 20.5%, is back in its normal range coming off of the 2021-2022 lows from material price cost lag. Next, heat transfer systems or HTS. First quarter 24 HTS orders of $237 million decreased about 30% when compared to the first quarter of 23, primarily driven by specific large project bookings in the first quarter of 23, including big LNG.

Joseph Robert Brinkman: The increase in Cts orders sequentially from the fourth quarter of 2023 is what is important to today and our outlook as we see continuing pickup in demand in global industrial gas as well as having completed certain large customer a long term agreement Reals in March and April 24.

Joseph Robert Brinkman: Additionally, the first quarter general industrial orders within Cts were the highest in our history.

Joseph Robert Brinkman: First quarter Cts sales of $160 million increased 13, 6% when compared to the first quarter of last year. This is very strong year over year growth given that typically cts grows in low to mid single digits.

Joseph Robert Brinkman: Reported gross profit.

Joseph Robert Brinkman: Margin of 25% is back in its normal range coming off of the 2021 2022 lows from material price cost lag.

Joseph Robert Brinkman: Next he transfer systems or HTS first quarter 2000, and for HTS orders of $237 million decreased about 30% when compared to the first quarter of 'twenty three primarily driven by specific large project bookings in the first quarter of 'twenty, three including Big LNG.

Jillian C. Evanko: March 31st HDS backlog was about $1.7 billion and does not include the IPSMR International Big LNG Award from an IOC that we expect to book in early 2025. First quarter 24 HDF sales of $254 million had an associated reported growth margin of 27.6%, a 160 basis point increase compared to the first quarter 23, and sales increased about 35% for HTS. Moving to RSL, which is a gem of a segment when you look at its margins, in particular.

March 31st HTS backlog was about $1 $7 billion.

Joseph Robert Brinkman: And does not include the Ips of more international Big LNG Award from an IOC that we expect to book in early 2025.

Joseph Robert Brinkman: First quarter 2000, and for HTS sales of $254 million had associated reported gross margin of 27, 6%, a 160 basis point increase compared to the first quarter 'twenty three and.

Joseph Robert Brinkman: And sales increased about 35% for HTS.

Moving to RSL, which is a gem of a segment when you look at margins in particular.

Jillian C. Evanko: First quarter 24 RSL orders were a record at $334 million. Orders increased 11.1%, and associated sales of $301 million increased about 15% when compared to the first quarter of 23. It's also worth noting that we have had orders and sales growth above 10% consistently each quarter in RSL since we closed on the Howden acquisition. We're seeing a lot of demand, in particular in APAC, for upgrades to refineries for environmentally friendly equipment. The reported RSL gross profit margin of 46.7% was another RSL record, and gross margin in RSL has been above 43% each quarter since we closed on Howden.

Joseph Robert Brinkman: First quarter 'twenty four RSL orders were a record of $334 million, whereas increased 11, 1% and associated sales of $301 million increased about 15% when compared to the first quarter of 'twenty three.

Joseph Robert Brinkman: It's also worth noting that we have had orders and sales growth above 10% consistently each quarter and ourselves since we closed on the Howden acquisition.

Joseph Robert Brinkman: We're seeing a lot of demand in particular in APAC for upgrades to refineries for environmentally friendly equipment.

Joseph Robert Brinkman: Reported <unk> gross profit margin of 46, 7% was another RSL record in gross margin and RSL has been above 43% each quarter since we closed on housing.

Jillian C. Evanko: And finally, the specialty products segment. In the first quarter of 24, specialty products orders were $391 million, which increased 40.5% compared to the first quarter of 23, and decreased about 2% when compared to the fourth quarter of 23. The sequential decline was primarily driven by a decrease in marine projects, as we had a very strong fourth quarter twenty-three marine booking.

Joseph Robert Brinkman: And finally specialty products segment in the first quarter of 'twenty for specialty products orders were $391 million, which increased 45% compared to the first quarter of 'twenty, three and decreased about 2% when compared to the fourth quarter of 'twenty three the sequential decline was primarily driven by a decrease in marine projects as we had.

Joseph Robert Brinkman: A very strong fourth quarter twenty-three marine bookings, we expect marine and maritime bookings to increase throughout 2024, and we now have the Teddy to capacity will come back to marine and heavy duty sustainable transport applications in a few slides.

Jillian C. Evanko: We expect marine and maritime bookings to increase throughout 2024, as we now have the Teddy 2 capacity. We'll come back to marine and heavy duty sustainable transport applications in a few slides. Returning to specialty, in Q1, we had our highest ever order quarter for carbon capture, utilization, and storage, or CCUS, in our history, driven by increasing activity in larger-sized projects, for us in particular, in Earthly Labs. First quarter 24 sales of $237 million increased 6.7% compared to last year and sequentially increased just over 10% compared to the fourth quarter of 23, driven by timing of project revenue and the start of Teddy 2 pre-production Reported Gross Margin and Specialty was about 25%, and this was lower than we expect for the rest of the year due to specific project mix and first-of-a-kind projects in the first quarter.

Joseph Robert Brinkman: Returning to specialty in Q1, we had our highest ever order quarter for carbon capture utilization and storage or <unk> in our history, driven by increasing activity in larger sized projects for us in particular in earthly labs.

Joseph Robert Brinkman: First quarter 'twenty four sales of $237 million increased six 7% compared to last year and sequentially increased just over 10% compared to the fourth quarter of 23, driven by timing of project revenue and start a teddy to preproduction.

Joseph Robert Brinkman: Reported gross margin in specialty was about 25% and this was lower than we expect for the rest of the year due to specific project mix and first in kind project in the first quarter.

Jillian C. Evanko: We do bring first-of-kind projects in as there are multiple volume opportunities ahead as well as aftermarket associated with the new build. On slide 10, we're showing the historical last 12 months or LTM proforma trend. A key takeaway from this slide is that despite potential quarterly variances due to customer timing, the trend lines are all positive. I'd also point out that there was no significant drop-off in our order book, even when considering $620 million of big LNG orders in 2022.

Joseph Robert Brinkman: We do bring first of client projects in our other multiple volume opportunities ahead, as well as aftermarket associated with the Newbuild.

Joseph Robert Brinkman: On slide 10, we're showing the historical last 12 months or LTM pro forma trends a key takeaway from this slide is that despite potential quarterly variances due to customer timing. The trend lines are all positive I'd also point out that there was no significant drop off in our order book, even when considering $620 million of big LNG.

Joseph Robert Brinkman: Orders in 2022.

Jillian C. Evanko: This is another way that shows the diversity of our end markets and the resilience of our aftermarket business. We've grown sales to $3.7 billion on an LTM basis from $3.3 billion in 2022. We've taken our gross profit margin to 31.6% on an LTM basis from 27.8% in 2022.

Joseph Robert Brinkman: This is another way that shows the diversity of our end markets and the resilience of our aftermarket business.

Joseph Robert Brinkman: We've grown sales to $3 7 million.

On an LTM basis from $3 3 billion in 2022, and we've taken our gross profit margin to 31, 6% on LTM from 27, 8% in 2022, and we feel that this is just the beginning as our demand remains robust.

Jillian C. Evanko: And we feel that this is just the beginning, as our demand remains robust. Our backlog and commercial pipeline are both benefiting from key macro tailwinds, of which four of the main ones are shown on slide 12. First, starting in row one, is global energy access. This is not only access but security, stability of energy, and the fact that the world uses energy in everything we do. We continue to expect natural gas and LNG to be a part of that because our customers are telling us so.

Joseph Robert Brinkman: Our backlog in commercial pipeline are both benefiting from key macro tailwind of which four are the main ones are shown on slide 12.

First starting a real one is global energy access this is not only access the security stability of energy and the fact that the world uses energy and everything we do we.

Joseph Robert Brinkman: We continue to expect natural gas and LNG to be a part of this.

Joseph Robert Brinkman: Our customers are telling us this the proof, though it was in our backlog with a variety of global gas associated orders.

Jillian C. Evanko: The proof, though, is in our backlog with a variety of global gas-related orders. Let's spend a minute on some things happening in the LNG market. You have the Cedar LNG project moving ahead with chart content, multiple LNG players buying their own ship fleets, and a lot of infrastructure being built globally. Beyond natural gas and LNG, hydrogen continues to have public and private support, and we're seeing this across multiple types of orders, ranging from liquefaction to storage to end use, including recently receiving a duplicate of our largest liquid hydrogen storage order in Europe to date.

Joseph Robert Brinkman: Let's spend a minute on some things happening in the LNG market.

Joseph Robert Brinkman: The Cedar LNG project moving ahead with chart content multiple LNG players buying their own ship fleets in a lot of infrastructure being built globally.

Joseph Robert Brinkman: Beyond natural gas and LNG hydrogen continues to have public and private support and we're seeing this across multiple types of orders ranging from liquefaction to storage and use including recently receiving a duplicate of our largest liquid hydrogen storage order in Europe to date.

Jillian C. Evanko: We also have strong visibility to the second quarter and the rest of the year, in particular in our hydrogen pipeline. Moving to row two, as we say in our nexus of clean, clean power, clean water, clean food, and clean industrials, they are all intertwined. This is the case with the macro driver of clean water scarcity, and it's getting more and more attention, in particular with the recent US EPA designation of PFAS as hazardous substances. It's also important to note that in certain countries, clean water is a major political platform for government officials, and clean water touches clean power, when speaking to green hydrogen as an example.

Joseph Robert Brinkman: We also have strong visibility to the second quarter and the rest of the year in particular in our hydrogen pipeline.

Joseph Robert Brinkman: Moving to row too as we say in our Nexus of clean clean power clean water clean food and clean industrials are all intertwined. This is the case with the macro driver of clean water scarcity, and it's getting more and more attention and in particular with the recent U S. EPA designation of pizza hazardous substances.

Joseph Robert Brinkman: It's also important to note that in certain countries clean water is a major political platform for government officials and clean water touches clean power when speaking to green hydrogen as an example.

Jillian C. Evanko: In a couple of slides, we'll discuss our TART water offering and the associated commercial opportunity. So moving to the third row, as discussed in item one, there's growing demand for energy. It is in part being driven by artificial intelligence and data centers, which need electrification, energy storage, backup solutions, and cooling. All these applications fit our offerings very well, inclusive of CCUS, specialty compression, fans, and air coolers, just to name a few.

And a couple of slides I will discuss our chart water offering and the associated commercial opportunity.

Joseph Robert Brinkman: So moving to the third row I've discussed in item. One there is growing demand for energy period. It is in part being driven by artificial intelligence and data centers, which need electrification energy storage backup solutions and cooling all these applications fit our offerings very well inclusive of Cc U S specialty compression band Air coolers.

Joseph Robert Brinkman: Just to name a few.

Jillian C. Evanko: We have specific near-term commercial opportunities in these applications for data center heat rejection, power generation for base load and peak shaving, and energy storage. Just this week, the UFDOE's H2 At Scale initiative announced that a hydrogen demonstration facility was launched in Texas to provide power to the Texas Advanced Computing Center, or TACC. And please recall that we are one of the partners in H2 At Scale. The fourth row on the slide is the need to address existing and build new infrastructure combined with a focus on decarbonization, especially in heavy-duty transport applications.

Joseph Robert Brinkman: We have specific near term commercial opportunities in these applications for datacenter heat rejection power generation for Baseload and peak shaving and energy storage.

Joseph Robert Brinkman: Just this week the USDA Oes HQ at scale initiatives announced at a hydrogen demonstration facility has launched in Texas to provide power to the Texas Advanced Computing center or Tac and please recall that we are one of the partners in <unk> at scale.

Joseph Robert Brinkman: The fourth row on the slide is the need to address existing and build new infrastructure combined with a focus on de carbonization, especially in heavy duty transport applications.

Jillian C. Evanko: This is supported, again, by both the public and private sectors, including the Biden administration's March 25th announcement of $6 billion of awarded spending via DOE for demo projects to reduce GHG emissions in heavy industrial applications. The private sector is advancing this as well, with collaborations to study and develop low-emission trucks, trains, ships, and airplanes. This is one reason we're very well-positioned with our new Teddy II tank facility to serve these larger applications, in particular liquid hydrogen.

Joseph Robert Brinkman: This is supported again by both the public and private sector, including with vitamin administrations March 26 announcement of $6 billion of awarded spend via the D. O E for demo projects to reduce ghd emissions and heavy industrial applications.

Joseph Robert Brinkman: Private sector is progressing this as well with collaborations to study and develop a low emission trucks trains ships and airplanes and is one reason, we're very well positioned with our new Teddy to tank facility to serve these larger applications in particular in liquid hydrogen.

Joseph Robert Brinkman: So turning to slide 13, with our <unk> facility in total solution offering globally, we're able to serve much larger heavy duty transport applications, including aerospace space exploration.

Jillian C. Evanko: So turning to slide 13, with our Teddy 2 facility and total solution offering globally, we're able to serve much larger heavy-duty transport applications, including aerospace, space exploration, additional rail, and onboard marine and the associated onshore infrastructure for liquid hydrogen. One such example is our new partnership with Energy Observer, specific to the Energy Observer 2, a liquid hydrogen cargo ship under development. The aim is to build an integrated hydrogen ecosystem, reducing the overall cost of liquid hydrogen and promoting its use in maritime transport. The establishment of a low-carbon maritime energy hub combined with low-carbon hydrogen production and the installation of port infrastructures is essential to achieving these objectives.

Joseph Robert Brinkman: Additional rail and onboard marine and the associated onshore infrastructure for liquid hydrogen one such example is our new partnership with energy Observer specific to the energy observer to illiquid hydrogen cargo ship underdevelopment.

Joseph Robert Brinkman: The aim is to build an integrated hydrogen ecosystem, reducing the overall cost of liquid hydrogen in promoting its use in maritime transport.

Joseph Robert Brinkman: The establishment of a low carbon maritime energy hub combined with low carbon hydrogen production and installation of port infrastructures is essential to achieving these objectives.

Jillian C. Evanko: And we'll partner on associated equipment and technology both with Energy Observer and their other partners. Another example is our recently executed MOU with Gaslog LNG Services to study the development of a commercial-scale liquid hydrogen supply chain, leveraging Gaslog's latest development of a liquid hydrogen vessel and our extensive experience in cryogenics and large-scale liquefaction solutions for the global distribution network and infrastructure. Our commercial pipeline for marine, LNG, space exploration, and rail for our Teddy II facility is over $400 million.

We will partner on associated equipment and technology, both with energy observer and their other partners.

Another example is our recently executed Mou with Gaslog LNG services.

Joseph Robert Brinkman: To study the development of a commercial scale liquid hydrogen supply chain leveraging gaslog. The latest development of a liquid hydrogen vessel and our extensive experience in cryogenics and large scale liquefaction solutions for the global distribution network and infrastructure.

Joseph Robert Brinkman: Our commercial pipeline for Marine LNG space exploration and rail for our <unk> facility is over $400 million. Since we officially opened the facility a month ago, we've added an incremental $80 million to the commercial pipeline for this facility of potential opportunities.

Jillian C. Evanko: Since we officially opened the facility a month ago, we have added an incremental $80 million to the commercial pipeline for this facility of potential opportunity. As you can see on slide 14, we have solutions and products that serve the macro tailwind we discussed of water, treating contaminants, including PFAS, arsenic, and biological processes, to name a few. Currently, in our commercial pipeline, we have 65 opportunities for PFAS specifically, 11 of those are new since the beginning of this year.

Joseph Robert Brinkman: As you can see on slide 14, we have solutions and products that serve the macro tailwind we discussed the water treating contaminants, including teeth as arsenic biological processes to name a few.

Joseph Robert Brinkman: Currently in our commercial pipeline, we had 65 opportunities for P says specifically 11 of those are new since the beginning of this year.

Jillian C. Evanko: As we've stated numerous times over the past year, there have been many benefits of the Howden addition to our business. One of the top items on the list is the expanded aftermarket opportunity, as shown on slide 15. RSL was 32% of our total revenues in the first quarter, and with sales growth of 14% and consistent order growth over 10%, we're set to have this high-margin business become a larger part of our mix in the medium term. I'll now hand it over to Brinkman to talk about 2024 in our medium-term outlook.

Joseph Robert Brinkman: As we've stated numerous times over the past year there've been many benefits of the house. In addition to our business one of the top on the list is the expanded aftermarket opportunity as shown on slide 15.

Joseph Robert Brinkman: Ourselves is 32% of our total revenues in the first quarter and with sales growth of 14% consistent order growth over 10%. We're set to have this high margin business become a larger part of our mix in the medium term.

Joseph Robert Brinkman: Now I'll hand, it over to Brinkman to talk about 2024, and our medium term outlook.

Joseph Robert Brinkman: Thanks, Jill. On slide 16, to round out the key driver section, we show our main supply chain input. General EV prices have normalized from the highs we saw in 2021 and 2022. Carbon, stainless, and aluminum are all relatively stable, and each is near their lowest points over the past three years. We continue to watch freight carefully, given the Red Sea situation, yet we have not seen meaningful cost changes from it to date.

Brinkman: Thanks, Jill on slide 16 to round out the key drivers section we show our main supply chain inputs General. These have normal generally these have normalized from the highs we saw in 2021 and 2022.

Brinkman: Carbon stainless and aluminum are all relatively stable and each near their lowest lower points over the past three years, we continue to watch very carefully given the red Sea situation, you would have not seen meaningful meaningful cost changes from it today.

Brinkman: Turning to slide 18, with the foundation of the macro and specific key drivers. We just went through and based on our first quarter 2024 results being in line with our internal expectations, we reiterate our outlook.

Joseph Robert Brinkman: With the foundation of the macro and specific key drivers we just went through, and based on our first quarter 2024 results being in line with our internal expectations, we reiterate our outlook. Slide 19 is an update to a slide we introduced in early November 2023 for considerations when you're modeling our 2024. On the positive side, we have begun certain production in our Teddy 2 facility, so that is tracking well for 2024 revenue based on existing backlog.

Brinkman: Slide 19 is an update to a slide we introduced in early November 2023 for considerations when you're modeling our 2024.

Brinkman: Under positives, we have begun certain production in our <unk> facility. So that is dragging well for 2020 for revenue based on existing backlog.

Joseph Robert Brinkman: Additionally, we have approximately 63% of our next 12 months' outlook covered in backlog, and we are seeing a trend towards larger project sizes, especially for Houghton Content. As stated on our Q4 earnings call, we surpassed our year one Howden cost and commercial synergy expectations earlier than originally anticipated, and we are well underway on additional year two synergies.

Brinkman: Additionally, we have approximately 63% of our next 12 months outlook covered in backlog and we are seeing a trend towards larger project sizes, especially for howden content.

Brinkman: As stated on our Q4 earnings call, we surpassed our year, one holding cost and commercial synergy expectations earlier than originally anticipated we are well underway on additional year two synergies.

Joseph Robert Brinkman: In the middle column, it is worth noting that while we are not dependent on the U.S. IRA to achieve our financial targets, we anticipate the seven hydrogen hubs having potential incremental benefit to our backlog as they are deployed. When you think about our year and how the quarters play out, there are a few items to consider, including, but not limited to, further synergy realization timing in the back half of 2024; Teddy II revenue sequentially ramps throughout the year.

Brinkman: In the middle column it is worth noting that while we are not dependent on the U S. IRA to achieve our financial targets, we anticipate the seven hydrogen hubs, having potential incremental benefit to our backlog as they are deployed.

Brinkman: Where do you think about a year and how the quarters play out there are a few items to consider including but not limited to further further synergy realization timing in the back half of 2024.

Brinkman: Two revenue sequentially ramps throughout the year.

Joseph Robert Brinkman: Specific larger projects that came into backlog in Q1 of 2024 will be later in the year revenue and into 2025. You can see our return on invested capital targets on slide 21. Our medium-term outlook for ROIC is mid-teens, coming from a jumping-off point of the last three-year average of approximately 8%. We have made significant organic and inorganic investments to position our company for growth and are in the early days of reaping the associated benefits.

Brinkman: Specific larger projects that came into backlog in Q1 of 2024 will be later in the year revenue and into 2025.

Brinkman: You can see our return on invested capital targets on slide 21, our medium term outlook for our ROIC is mid teens coming from a jumping off point of the last three year average of approximately 8% we have made significant organic and inorganic investments to position our company for growth.

Brinkman: In the early days of reaping the associated benefits Howden is accretive to our ROIC and we now have less cyclicality with the shift to a higher portion of our business and aftermarket service and repair.

Joseph Robert Brinkman: Howden is accretive to our ROIC, and we now have less cyclicality with a shift to a higher portion of our business in aftermarket service and repair. On slide 22, we again reiterate our medium-term financial outlook, as we had previously shared in November 2023 and reiterated in January 2024.

Joseph Robert Brinkman: We have multiple contributors to achieving these, including: Our full solution mix is broader than just LNG and hydrogen, as you've heard today, and we play across the entire value chain globally. We now have a higher mix of aftermarket and services revenue and an incredibly large, diverse, and global installed base. Price-cost continues to be a positive driver for us. Volume, productivity, and other current business excellence activities also continue. And we have a midterm target of the mid-30s for our gross profit margin. On an LTM basis, we are at 31.6%, up nicely from a year ago and well on track to reach our 2026 target. And, last but certainly not least, we are benefiting as the industry is moving to a modular approach and IPSMR demand is going international.

Brinkman: On slide 22, we again reiterate our medium term financial outlook as we had previously shared in November 2023, and reiterated in January of 2024, we have multiple contributors to achieving these including <unk>.

Brinkman: Our full solution mix is broader than just LNG and hydrogen as you've heard today and where you play play across the entire value chain globally.

Brinkman: We now have a higher mix of aftermarket and services revenue and an incredibly large diverse and global installed base.

Brinkman: <unk> cost continues to be a positive driver for us.

Brinkman: Volume productivity and other chart business excellence activities continue.

Brinkman: And we have a midterm target of mid <unk> for gross profit margin on an LTM basis, we're at 31, 6% up nicely from a year ago and well on track to reach our 2026 targets.

And last but certainly not least we are benefiting as the industry is moving to a modular approach and Ips M. Our demand is growing international.

Joseph Robert Brinkman: Thank you to our entire One Chart Global team who delivered a record first quarter while continuing to deliver Year 2 synergies in the safest way possible, with a total recordable incident rate of 0.52, and 70% of our locations around the world having had 12 months or more without a recordable incident. Keep the momentum of safety with stakeholder orientation, strong work ethic, and giving back to our communities and operations. So thank you again to the OneChart global team. Ina, please open it up for Q&A. Thank you.

Brinkman: Thank you to our entire one to our global team, who delivered a record first quarter, while continuing to deliver a year two synergies and the safest way possible with a total recordable incident rate of 0.52, and 70% of our locations around the world, having had 12 months or more without a recordable incident.

Brinkman: Keep the momentum team safety with stakeholder orientation strong work ethic and getting back to our communities and operations. So thank you again to the one chart global team Ina. Please open it up for Q&A.

Unknown Executive: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star 4 by the 1 on your telephone keypad. You will hear a three-tone prompt acknowledging your request. Questions will be taken in the order received. Should you wish to cancel your request, please press star followed by 2. If you are using a speakerphone, please lift the handset before pressing any key. Your first question comes from the line of Martin Malloy from Johnson Rice. Please go ahead.

Speaker Change: Thank you ladies and gentlemen, we will now begin the question and answer session should you have any question. Please press star followed by one on your telephone keypad.

Brinkman: <unk> Dot com technology request.

Speaker Change: Questions will be taken in the order received should you wish to cancel your request. Please press star followed over to do if you're a <unk>.

Youre, saying your speaker phone please lift the handset before pressing any Keith your first question comes from the line of Martin Malloy from Johnson Rice. Please go ahead.

Martin Whittier Malloy: Good morning.

Martin Whittier Malloy: Hey, Marty. Hey, Marty.

Martin Whittier Malloy: Hey, Marty.

Martin Whittier Malloy: First question I wanted to ask about the RSL segment, and you've delivered several quarters of growth there in the order outlook. I just wanted to try to see if you could maybe talk a little bit more about the runway there and some of the drivers that are impacting this. Is this just putting more equipment through all the service centers that you acquired through Howden, monitoring the equipment in different ways? If you could maybe talk about that a little bit.

Martin Whittier Malloy: Alright.

Martin Whittier Malloy: First question I wanted to ask about the <unk> segment.

Speaker Change: Delivered several quarters of.

Martin Whittier Malloy: Growth there in the order outlook.

Martin Whittier Malloy: Just wanted to try to.

Martin Whittier Malloy: If you could maybe talk a little bit more about the runway there.

Martin Whittier Malloy: And some of the drivers that are impacting this is this.

Martin Whittier Malloy: Putting more equipment.

Martin Whittier Malloy: Through all of the service centers that you acquired throughout in MA.

Martin Whittier Malloy: Monitoring equipment different ways, if you could maybe talk about that a little bit.

Jillian C. Evanko: Absolutely. And thanks for starting with RSL.

Speaker Change: Absolutely and thanks for starting with our S. L. I mean as I commented in the prepared remarks. It really is a gem of the segment.

Double digit growth in orders and sales throughout the time, we've had how it and there's still quite a bit of runway here and one of the things that we're doing as part of our year two synergy activities as we've created a global revenue operations team led by one of the aftermarket leaders have held in a debt.

Speaker Change: You're going to pull together all of the remaining install base from chart legacy and what we're going to drive what we did in year one through that there is.

Speaker Change: Dozens of other actions are well underway to continue to take advantage of the runway that exists you're ranging from the digital uptime. Our installed base. We did have our first digital uptime connection in earthly labs.

With a real L brewery this past quarter and so there's opportunities like that as an example.

Speaker Change: In terms of drivers impacting the margin in the first quarter, we had a very strong mix in the Americas are in China are S. L. We had a very strong manufacturing operations efficiencies and so we see that opportunity continue ahead.

Jillian C. Evanko: I mean, as I commented in the prepared remarks, it really is a gem of the segment, the double-digit growth in orders and sales throughout the time we've had Howden. There's still quite a bit of runway here. And one of the things that we're doing as part of our year two synergy activities is we've created a global revenue operations team led by one of the aftermarket leaders at Howden that is going to pull together all of the remaining install base from ChartLegacy.

Speaker Change: In terms of the drivers of the demand and why why are we continuing to see this double digit demand.

Jillian C. Evanko: And we're going to drive what we did in year one through that. There are dozens of other actions well underway to continue to take advantage of the runway that exists here, ranging from the digital uptime installation base. We did have our first digital uptime connection in Earthly Labs with Real Ale Brewery this past quarter.

Jillian C. Evanko: And so there are opportunities like that as an example. In terms of drivers impacting the margin in the first quarter, we had a very strong mix in the Americas. In China RSL, we had very strong manufacturing operations efficiencies, and so we see that opportunity continue ahead. In terms of drivers of demand, and why are we continuing to see this double-digit demand? The first thing I would say is because of the global footprint that we have, and the ability to serve the world versus just North America and a little bit of the EU, like we had in Chart Legacy. That is really a key contributor.

Speaker Change: The first thing I'd say is because of the global footprint that we have and the ability to serve the world versus just North America, and a little bit of EU like we had in chart legacy is really a key contributor.

Speaker Change: Also seeing a real strong push in many of our Newbuild.

Speaker Change: Newbuild customers tore decarbonising their existing facilities and locations are in particular in the mining segment, where the need for again clean air hotter deeper mines is driving driving some retrofits happening there and then lastly, we are seeing.

Jillian C. Evanko: We're also seeing a real strong push from many of our new build customers toward decarbonizing their existing facilities and locations, in particular in the mining segment, where the need for, again, clean air, hotter, deeper mines is driving some retrofits happening there. And then lastly, we are seeing some repair service retrofit activity on existing facilities in LNG as well.

Speaker Change: Some repair service retrofit activity on existing facilities and LNG as well.

Jillian C. Evanko: Okay, great. And then for my second question, I wanted to talk about the water side and the new EPA regulations and kind of what it means to chart in terms of the scope that you're potentially able to sell into a municipal water plant.

Speaker Change: Okay, Great and then for my second question wanted to talk about the water side and the new EPA regulations and kind of what it means to chart in terms of the scope.

Speaker Change: You're potentially able to sell into a municipal water plant.

Jillian C. Evanko: Yeah, so this is an interesting one and certainly the EPA's new regulations are going to be a catalyst in this area for our business. Recall and setback, we acquired At-Edge water technologies as well as Blue and Green over the last four years to really bring the capability to treat any contaminant across the board. The At-Edge water technology is the one that targets PFAS in particular, and we've had an increase in our commercial pipeline.

Speaker Change: Yeah. So this is an interesting one and certainly the EPA new regulations are going we believe we're going to be a catalyst in this area for our business recall and setback, we acquired at Edgewater technologies, as well as Blue and Green over the last four years to really bring the capability to treat.

Any contaminant across the board are the at Edgewater technology is the one that targets. The piece that is in particular and we've had an increase in our commercial pipeline I think youre going to see us take a little bit of time to flow through in terms of the order book and in terms of the activities certainly private sector companies are trying to figure out what.

Jillian C. Evanko: I think you're going to see this take a little bit of time to flow through in terms of the order book and in terms of the activities. Certainly, you know, private sector companies are trying to figure out what it means to them, what the steps that they're taking, but just the sheer fact that we have had 11 new opportunities out of our total of 65 enter the commercial pipeline since the beginning of the year says that people are at least thinking about them and talking about them.

Speaker Change: What does it mean to them what are the steps that they're doing but just the sheer fact that we had 11 new opportunities out of our total of 65 enter the commercial pipeline since the beginning of the year. So that people are at least thinking about and talking about it. So I viewed it as a medium term catalyst for us and we're really well positioned to do that we're all seeing.

Jillian C. Evanko: So I viewed it as a medium-term catalyst for us, and we're really well positioned to do that. We're also seeing a lot of international opportunity, not specific to PFAS but rather to arsenic, so our treatment system is very targeted for that as well, and we've seen some really good international orders over the last 12 months with a strong pipeline ahead. So while water, you know, is a single digit percent of our total business, like in, you know, low single digits, the runway for growth ahead is really exceptional, and there's not a macro tailwind that doesn't support that.

Speaker Change: A lot of international opportunity not to necessarily the PFS, but rather to arsenic and so that's where our treatment system is a very targeted for that as well and we've seen some really good international orders over the last 12 months with a strong pipeline ahead, so while water L is.

Speaker Change: A single digit percent of our total business like in you know low single digits. The runway for growth ahead is really exceptional and theres not a macro tailwind that doesn't support that.

Jillian C. Evanko: Great. Thank you very much. I'll turn it back.

Speaker Change: Great. Thank you very much I'll turn it back.

Speaker Change: Thanks Marty.

Marc Gregory Bianchi: Thank you. And your next question comes from the line of Marc Bianchi from TD Cowen. Please go ahead.

Speaker Change: Thank you and your next question comes from the line.

Yankee: Yankee from PD Cowen. Please go ahead.

Marc Gregory Bianchi: Hi, thanks. I wanted to start with the orders. So solid orders here in the first quarter, but it didn't seem like there were any large items that were contributing. So the question is sort of, is this a good baseline level of orders to think about? And then we can add large items to that. And then, when I look at the year over year progression, I think last year you had some big LNG in it.

Yankee: Hi, Thanks.

Yankee: I wanted to start with the the orders so.

Yankee: Solid orders here in the first quarter.

Yankee: But it didn't seem like there were any large items that were contributing so.

PD Cowen: <unk> is sort of is this a good baseline level of orders to think about and then we can add large items to that.

PD Cowen: And then when I look at the year over year progression I think last year, you had some big LNG in it and if I take that out the growth rate is kind of like 20%. So that that seems pretty high for a base level, but maybe you could talk about.

Marc Gregory Bianchi: And if I take that out, the growth rate is kind of like 20 percent. So that seems pretty high for a base level, but maybe you could talk about the base level outlook and sort of what the growth rate for that should be.

PD Cowen: The base level outlook and sort of what the growth rate for that should be.

Jillian C. Evanko: Yeah, thanks, Marc. And definitely, you know, a strong order quarter, especially for Q1. We normally wouldn't have seen such broad-based growth in a Q1 coming off of people spending in Q4. So that's a good, robust demand indicator that we see. One of the things that is happening in terms of our business is that the more we're taking our products into these high growth end markets that are solution set oriented or project oriented, we're now starting to get more frequent kinds of medium size orders.

Speaker Change: Yeah, Thanks, Mark and definitely you know strong order quarter, especially for our Q1, we normally wouldn't have seen such broad based in a Q1, just coming off of people spend in Q4. So that's a good robust demand indicators that we see what one of the things that.

Speaker Change: Is happening in terms of our businesses the more we're taking our products into these high growth end markets that our solution set oriented or project oriented is we're now starting to get more frequent kind of medium size orders and it's not dependent on just LNG as an example, or just hydrogen as an example, I do want.

Jillian C. Evanko: And it's not dependent on just LNG as an example, or just hydrogen as an example. I do want to pause there and say we have a really good line of sight on strong Q2 hydrogen orders. So I expect that's going to continue. So it's hard to call out, you know. We always historically have called out big LNG because that was really the thing that was the only kind of large of its size.

Speaker Change: Pause there and say we have a really good.

Speaker Change: Good line of sight on strong Q2 hydrogen order activity.

Speaker Change: I expect that's going to continue so it's hard to call out you know, we always historically had called out big LNG because that was really the thing that the only kind of large of its size and now there's more consistency in the medium sized projects in multiple end markets and so to directly answer your question I would expect.

Jillian C. Evanko: And now, there's more consistency in medium-sized projects in multiple end markets. And so to directly answer your question, I would expect that, you know, robust demand continues. If you look back over the last, I think, seven quarters, six of the seven were billion dollars or above. So that's kind of the proxy that I use on it, or the one book to bill kind of consistent one book to bill on a regular basis.

Speaker Change: That you know robust demand continues a if you look back over the last I think seven quarters six of the seven were a $1 billion or above so that's kind of the proxy that I use on it or the one <unk> book to Bill and a consistent one book to Bill on a regular basis.

Jillian C. Evanko: From Q1 to Q1, you're correct, we did have large LNG activity, big LNG, and large project activity in the first quarter of this year. You know, we were pleased, though, when you look at peers and other industrial and other oilfield companies, you look at it, and having just orders for a period of 4%, we were very pleased with kind of the absolute metrics in the first quarter, especially again, coming off of such a strong fourth quarter.

Speaker Change: From Q1 to Q1, you are correct we did have.

Speaker Change: The large LNG activity Big LNG large project activity in the first quarter of 'twenty three.

Speaker Change: Yeah. We were pleased though you know when you look at <unk>.

Speaker Change: Here's another industrial and other oilfield companies you know you look at it and having just orders period up 4%. We were very pleased with kind of the absolute metrics in the first quarter, especially again coming off of such a strong fourth quarter.

Speaker Change: Okay. Okay. Thanks for that Joe and then the other one I had was just on free cash.

Speaker Change: So sure if you're going to do the 175 in the second quarter, that's $40 million for the first half approximately you would need to be doing $5 50 in the back half.

Speaker Change: To be to the midpoint of guidance and that that's like a really high conversion of of what consensus has for the back half of EBITDA with which I think is yes. There is some exceptional items expected there in the back half could you talk about what those might be.

Marc Gregory Bianchi: Could you talk about what those might be? If there are, you know, one-off cash inflows in the back half that are supporting the outlook, maybe there's some seasonality in there, and what the sort of run rate conversion of EBITDA ought to be when we get past all this Howden noise.

Speaker Change: If there are one off cash inflows in the back half that are supporting the outlook.

Speaker Change: Maybe there's some seasonality in there and what the sort of run rate conversion of EBITA at a b when we get past all this noise.

Marc Gregory Bianchi: Okay, yeah, so... Stepping to the first part of your question, I'm going to try to take it in pieces, Marc.

Speaker Change: Okay, Yeah. So.

Speaker Change: Stepped stepping to the first part of your question I'm going to try to take it in pieces Marc.

Jillian C. Evanko: What I would say is that, quarter to quarter, we have movements between that, between working capital, AR, AP, just kind of normal in our business. There's nothing in working capital outside of the fact that inventory hasn't spiked, right? We have a good line of sight of our CapEx timing.

Speaker Change: I would say is that we do have.

Speaker Change: Quarter to quarter, and we have movements between that between working capital.

Speaker Change: Just kind of normal in our business there.

Speaker Change: Theres nothing in working capital outside of the fact that inventory Hasnt spikes right. We had good line of sight of our Capex timing. So two H capex in particular is going to step down from Q. The first half of our Capex in 2024.

Jillian C. Evanko: So 2H CapEx in particular is going to step down from the first half of our CapEx in 2024. I'd also point to some of the things that we had just in Q2 on slide 8 that we talked about around project milestone payments and project payments. These are payments for work done. They're not payments for buying material or anything like that. We called out a few there for the second quarter.

Speaker Change: I'd also point to some of the things that we had just on Q2 on slide eight that we talked about around project milestone payments and project payment. So these are payments for work done they're not payments for buying material or anything like that.

Jillian C. Evanko: If you look at kind of how our year ramps based on more projects coming into backlog in Q4, Q1, Q4-23, Q1-24, that is the number one outside of the normal course and CapEx step down. That will really sequentially drive 2H higher from 1H on CapEx. One rate conversion was, I think, the last part of your question. So yeah, we look at it as free cash flow as a percent of sales, and kind of mid teens is our target.

Speaker Change: So that we called out a few there for the second quarter. If you look at kind of how our year ramps based on more projects coming into backlog in Q4, Q1, Q4 23 in Q1 'twenty for that kind of that is the number one outside of normal course, and Capex step down.

Speaker Change: That'll really sequentially drive to H hire from one age on cash.

Speaker Change:

Speaker Change: Run run rate conversion was I think the last part of your question. So.

Speaker Change: Yeah, we looked at it as a free cash flow as a percent of sales and had a mid mid teens is is our target.

Marc Gregory Bianchi: Got it. Thanks very much. I'll turn it back.

Speaker Change: Got it thanks, very much I'll turn it back.

Speaker Change: Yes.

James Carlyle West: Thank you. And your next question comes from the line of James West from Evercore. Please go ahead.

Speaker Change: Thank you and your next question comes from the line of James West from Evercore. Please go ahead.

James Carlyle West: Hey, good morning, Joe.

James Carlyle West: Okay.

James Carlyle West: So really nice first quarter execution, good order, especially relative to your global industrial peers who are all down in terms of orders. So just wanted to highlight that. But really, my first question is around both CCUS and hydrogen and kind of what you're seeing there in terms of demand and what you think gets pulled forward first, because we've had this kind of multi-year of back and forth on, well it's hydrogen, well it's CCUS, and I'm kind of curious, it seems like both are actually starting to go and starting to get pulled forward and starting to move you know kind of in tandem now, and I'm curious if that's what you are, if you agree with that, if that's what you're seeing in terms of demand.

James Carlyle West: So really nice first quarter, our execution, good order, especially relative to your global industrial peers role.

James Carlyle West: Now.

James Carlyle West: In terms of orders so just wanted to highlight that.

James Carlyle West: But.

James Carlyle West: My first question is around <unk> and hydrogen.

James Carlyle West: Kind of what you're seeing there in terms of demand and what you think gets pulled forward first.

James Carlyle West: Because we've had this kind of multi year or back and forth on well it's hydrogen.

James Carlyle West: U S.

James Carlyle West: Kind of curious it seems like both are actually starting to go.

James Carlyle West: Starting to get pulled forward and starting to move.

Speaker Change: And I'm curious if that's what you are would you agree with that and if that's what you're seeing in terms of demand.

Jillian C. Evanko: Yeah, thanks James. And first of all, thanks also for the call out on the absolute first quarter metrics. We're extremely pleased with those. When you look at CCUS and hydrogen, I think you summarized it perfectly in terms of what we're seeing where they both seem to be increasing in activity, and in some cases together. Our first quarter being our highest order quarter ever in CCUS is an indicator of that.

Speaker Change: Yeah, Thanks, James and first of all Thanks also for the.

Speaker Change: The call out on the absolute first quarter metrics. We are extremely pleased with those when you look at Ccs and hydrogen I think I think you summarized it perfectly in terms of what we're seeing where they both seem to be increasing in activity and in some cases, together, where our first quarter.

Jillian C. Evanko: You know better than anybody that I've been talking about CCUS for four years, and it's just been a little bit slow to get rolling, but now we're seeing real projects. And what I would say is super interesting from our view in our portfolio is that we're seeing the Earthly Labs offering, which we call small scale, is now what was originally, you know, half million dollar orders. We're now getting one to $5 million orders because the size is increasing.

Speaker Change: Being our highest order quarter ever in D. C. U S is an indicator of that you you know better than anybody that I've been talking to use us for four years and it's just been a little bit slow to get rolling but now we're seeing real projects and what I would say that's super interesting from our view in our portfolio that we're seeing the Earth city.

Speaker Change: Labs, offering, which we call small scale is now what was originally a half million dollars orders were now getting $1 million to $5 million orders because of the size is increasing so it's the scale is increasing.

Jillian C. Evanko: So the scale is increasing. And yeah, I think that you're going to see that continue to be a key part of all this. Then you start getting down the path of like the data center stuff and how CCUS correlates with that. And there's an immense amount of opportunity associated with the need for CCUS with respect to data centers.

Speaker Change: Yeah, I think that youre going to see that continue to be a key part of all of this then you start getting down the path of like the data center stuff in House U S correlates with that and there's an immense amount of opportunity associated with the need for a six U S with respect to data centers hydrogen we've seen hydrogen.

Jillian C. Evanko: Hydrogen, we've seen hydrogen be fairly consistent. I was very pleased with the fourth quarter and the first quarter hydrogen activity, mainly setting aside the absolute dollar amount and number of projects, the fact that it is truly going global. Like, we're truly seeing real projects with real money behind them, ranging from compression for heavy industry in Europe to liquid hydrogen storage tanks in Europe. That one's interesting to me, too, because historically, Europe has been gaseous, mainly, and now we're starting to see some liquid infrastructure coming into play.

Speaker Change: Fairly consistent I was very pleased with the fourth quarter and the first quarter hydrogen activity, mainly setting aside the absolute dollar amount and number of projects. The fact that it is truly going global like we're truly seeing real projects with real money behind.

Speaker Change: Them ranging from compression.

Speaker Change: Or heavy industrial in Europe to the liquid hydrogen storage tank tanks in Europe that that one is interesting to me too because historically Europe has been gaseous mainly and now are starting to see some liquid infrastructure coming into play.

Speaker Change: The we highlighted you know the energy observer, because youre seeing now a correlation of hydrogen liquid hydrogen for heavy duty transport and the onshore infrastructure. So good momentum on the thing that we do watch carefully is the fact that.

Jillian C. Evanko: We highlighted the Energy Observer because you're now seeing a correlation between hydrogen, liquid hydrogen for heavy-duty transport, and the onshore infrastructure. Good momentum. The thing that we do watch carefully is the fact that there are a lot of people that want to do projects in hydrogen, and not all of them get to FID, and so ensuring that there is funding available, financing available for these types of projects is something that we watch carefully.

Speaker Change: You have a lot of people that wanted to do projects in hydrogen and not all of them get to S. E and so ensuring that there is funding available financing available for these types of projects is something that we watch carefully and then my last comment realizing it's a very long answer that you.

Jillian C. Evanko: And then my last comment, realizing this is a very long answer, that you do think the hydrogen hubs in the United States, the seven, are going to coalesce around the projects that they're going to do here, likely later this year or early next, in terms of when you start to see some of those orders get deployed in the supply chain.

Speaker Change: We do.

Speaker Change: Do think the hydrogen hubs in the United States. The seven are going to coalesce around the projects that they're going to do here likely later this year early next in terms of when you start to see some of those orders get deployed to the supply chain.

James Carlyle West: Right. Okay. Okay. Got it.

Speaker Change: Right. Okay. Okay got it and then maybe just a quick follow up for me on the margin the margin performance.

James Carlyle West: And then maybe just a quick follow up for me on the margin. The margin performance was excellent in the quarter. And curious, and I know you guys aren't stopping here.

Speaker Change: Excellent.

Speaker Change: The quarter.

And curious.

Speaker Change: I know you guys arent stopping here.

James Carlyle West: You're going to take that margin higher. But how much more room do you think we have to go with respect to margin? And have we seen the full benefits of the O'Halloran and the increased aftermarket in the margin yet? Or is there still? You know, I guess that easy, easy pickings to see here and the margin of performance. So we definitely, as

Speaker Change: Take that higher.

Speaker Change: But how much more room do you think we have to go.

Speaker Change: With respect to margin.

Speaker Change: Have we seen the full benefits of <unk>.

Speaker Change: However, the increased aftermarket and the margin yet or is or is there still some I.

Speaker Change: I guess the easy easy pickings.

Speaker Change: Sure.

Speaker Change: A year in margin performance.

Jillian C. Evanko: And now we're kind of in a rhythm. And now what we're seeing is, okay, let's optimize. Let's look at where there are efficiencies and where, you know, year one, it was really low-hanging fruit. And now it's really about optimizing.

Jillian C. Evanko: So we definitely, as Brinkman said, you have that medium-term outlook, which is the mid-30% gross margin, and we are well, well on our way to that. There's much more ahead here. I think what you see, year one with Howden was great.

Speaker Change: So we definitely as Brinkman said, you'll have that medium term outlook, which is the mid 30% gross margin and well well on our way to that there is much more ahead here I think what you see year, one with Houghton was great and now we're kind of in a cadence and now what we're seeing is okay with.

Speaker Change: <unk>, let's look at where there's efficiencies and where year. One it was really low hanging fruit and now it's really about the optimization.

Speaker Change: A good example is we had the opportunity to consolidate as we operate internally a couple of our regions together and so there's your savings there just from having a certain number of entities as an example, but definitely more room to go and I think the other side of it is the more.

Jillian C. Evanko: You know, a good example is that we had the opportunity to consolidate, as we operate internally, a couple of our regions together. And so there's savings there just from having a certain number of entities, as an example, but definitely more room to go. And I think the other side of it is the more project business and full solution business that we get, while I understand that it's not, it's hard having movements between three month periods or quarters, is actually a really good thing.

Speaker Change: Project business and full solution business that we get while I understand that it's not it's hard having movements between three months periods or quarters is actually a really good thing.

Jillian C. Evanko: If you look across a year or 12 month period, because we're getting that engineering work, the technology, and the equipment associated with it, and I think we had noted in our notes that the project sizes for our content are getting larger, in particular Howden. I was chatting with one of our Howden presidents that had been in business for many years, and he said, I've never seen before the number of projects in our commercial pipeline that are above $5 million because, historically, $5 million for Howden on its own would have been a big order.

Speaker Change: If you look across a year 12 months period to the margin profile, because we are getting that engineering work the technology and the equipment associated with it and.

Speaker Change: I think we had somewhere in our notes that are the project sizes for our content are getting larger in particular on housing I was chatting with one of our Howden President.

That had done with the business for many years and he said I've never seen before.

Speaker Change: Yes.

Speaker Change: Number of projects in our commercial pipeline that are above $5 million, because typically 5 million historically for howden on its own would have been a big word, but now that portion of the total project size for them is getting even larger so tons of opportunity and then my last answer tears to your <unk>.

Jillian C. Evanko: But now that portion of the total project size for them is getting even larger, so tons of opportunity. And then my last answer to your question is RSL, the aftermarket. It's done exactly what we wanted it to do in terms of margin, in terms of growth, and in terms of helping us not have that whipsaw cyclicality if a big LNG project goes away or something like that.

Speaker Change: <unk> is it ourself aftermarket.

Speaker Change: It's not it's done exactly what we wanted it to do in terms of margin in terms of growth.

Speaker Change: And in terms of helping us not have that whipsaw cyclicality is a big LNG project goes away or something like that.

Speaker Change: Got it thanks, Joe.

Speaker Change: Thank you.

Benjamin Joel Nolan: Thank you. And the next question comes from the line of Ben Nolan from Stiefel. Please go ahead.

Speaker Change: Thank you and the next question comes from the line of Ben Nolan from Stifel. Please go ahead.

Benjamin Joel Nolan: Thanks. Hey, Jill. Hey, Joe. Hey, Ben. I have a couple.

Speaker Change: Thanks.

Benjamin Joel Nolan: Hi, Joe Hi, Joe.

Benjamin Joel Nolan: Hey, Ben.

Benjamin Joel Nolan: First, I wanted to go back to the RSL and appreciate that that's probably an area where you're capturing some of the most synergistic benefit from the Halden acquisition. But I think it's a little over a third of the revenue mix now, and it's growing at a pretty good clip, longer term. What do you think, Jill, is a fair assumption for what RSL will be out of revenue after things settle out? I mean, is it going to be half of what you do? Or, you know, 40%? Just curious how you're thinking about where we land.

Benjamin Joel Nolan: Hum.

Benjamin Joel Nolan: A couple first I wanted to go back to the yard.

Benjamin Joel Nolan: RSL and appreciating that.

Benjamin Joel Nolan: That's probably an area, where you're capturing some of the most synergistic benefit.

From Howden acquisition, but what.

What I think it's a little over a third of the revenue mix now it's growing.

Benjamin Joel Nolan: Pretty good clip.

Longer term.

Benjamin Joel Nolan: What do you think gel is a is a fair assumption or what what RSL will be out of our out of revenue after things settle out I mean is it going.

It be half of what you do or or 40% just curious how that how you're thinking about where we land.

Jillian C. Evanko: Yeah, thanks for the question, Ben, and thanks for the call out on RSL. I mean, as I just said, it's just really done what we expected it to do, and in some cases, more. There's a lot more to go here, and I'm very excited about it. What I'm really excited about is, you know, taking a first-of-a-kind opportunity that we get on the new build side, and that's great, because historically, we take the first-of-a-kind to either be an innovator in the market or help the market make or see, like, a lot of volume ahead for the new build side.

Speaker Change: Yeah. Thanks for the question Ben and thanks for the color on ourselves I mean, it is as I. Just said, it's just really done what we expected it to do and in some cases more there's there's a lot more to go here and that's I'm very excited about it.

Speaker Change: I'm really excited about as you take like a first of a kind opportunity that we get in and on the Newbuild side and that's great because used to historically, we would take the first of a kind to either be an innovator in the market or help market make or see a lot of volume ahead for the newbuild side, but now with the aftermarket presence that we have we also take those.

Jillian C. Evanko: But now, with the aftermarket presence that we have, we also take those types of first-of-a-kinds if we see a tail for the aftermarket repair service side of things. In an ideal world, you know, I think our split would be somewhere in the 45% for RSL, and that's a long way, you know, clearly based on the growth rates. You do the math to get to the longer term, but I took your question to be, where do we see it kind of in an optimal construct of the business?

Speaker Change: Types of first of a kind if we see a tail for the aftermarket repair service side of things.

Speaker Change: In an ideal world you know I think our our split would.

Speaker Change: We'd be somewhere in the 45% for our S. L b.

Speaker Change: And that has a long and clearly based on the growth rates you do the math to get to the longer term, but I took your question to be to be where do we see it kind of in an optimal construct of the business.

Benjamin Joel Nolan: Okay, now that's helpful. And then the other question is... We have... We have seen some elevated pricing for things like aluminum and carbon steel, and I know that that was an issue a couple years ago. You guys took some steps to, at the time, ensure that, you know, you could pass through those costs. Could you maybe just talk through a little bit how, you know, how that stands if there is an element of whether we should see increased pricing in lockstep with increased costs of goods sold, or is there any risk of, you know, a timing gap or anything like that?

Speaker Change: Okay No that's helpful.

Speaker Change: And then the other question is.

Speaker Change: We have.

We have seen some elevated pricing for things like aluminum and carbon steel and I know that that was an issue a couple of years ago. You guys took some steps to.

Speaker Change: At the time ensure that you know.

You can pass through those costs could you, maybe just talk through a little bit how.

Speaker Change: How how that stands.

Speaker Change: If there is an element of.

Speaker Change: Yeah, I don't know, whether we should see.

Speaker Change: Increased pricing in lock step with increased cost of goods sold or is there any risk of a timing gap or anything like that.

Jillian C. Evanko: Yeah, as we've talked before, Ben, the pricing mechanisms that we have in place protect us quite well from changes in carbon, steel, and aluminum. We're able to, for projects specifically, lock in the costs at the time of order and for very nearly thereafter, so we have very little susceptibility to market swings. Like we saw in the deck, the carbon, steel, and aluminum costs have largely stabilized. Aluminum's had a little bit of an uptick recently, but nothing too alarming, so we're well positioned to pass increases in those costs along in the price card.

Speaker Change: Yeah, as we've talked to before Ben were.

Speaker Change: The pricing mechanisms that we have in place protect.

Speaker Change: Protect us quite well from from changes in the AR.

Speaker Change: The carbon steel aluminum and we're able to do.

Speaker Change: For for projects, specifically lock in the cost at the time of order early very nearly thereafter, so we have very little susceptibility to market swings.

Like we had in the deck.

Speaker Change: The carbon steel and aluminum has largely stabilized aluminum has had a little bit of an uptick recently, but nothing too alarming. So we're well positioned to to pass pass increases and those those costs along.

Speaker Change: And the price cost.

Benjamin Joel Nolan: Okay, and just to clarify, about how much is the cost of those commodities in the Cost of Goods Sold? I assume most of it's labor, but

Speaker Change: Okay, and just to just to clarify about how much is the cost of those commodities in the AR.

Speaker Change: Cost of goods sold.

I assume most of its labor, but.

Speaker Change: Just to frame it.

Jillian C. Evanko: Those three commodities

Speaker Change: Those three commodities.

Jillian C. Evanko: Well, you're basically using your commodities as part of your cost, how big of a slug. I would say it's less than 20% of the cost.

Speaker Change: Well Youre basically your your commodities as part of your cost of goods sold.

Speaker Change: Wow.

Speaker Change: How big of a slug of it.

Jillian C. Evanko: I would say it's less than 20% of the cost, actually.

Speaker Change: I'd say its less than 20% of the cost there.

Speaker Change: Okay.

Thank you.

Speaker Change: Okay.

Roger David Read: Thank you. And your next question comes from the line of Roger Read from Wells Fargo. Please go ahead.

Thank you and your next question comes from the line of Roger read from Wells Fargo. Please go ahead.

Roger David Read: Yeah, thank you. Good morning. Hey, Roger. Jill, Joe.

Roger: Yes, Thank you and good morning.

Roger: Hey, Roger.

Roger David Read: Yeah, I'd like to maybe Joe, some of the stuff you talked about on the medium-term targets and getting the, I guess, the gross margins and ultimately the EBITDA margins up, and Q1 did show progress on that. As you look within the orders, the backlog that you have, you mentioned discipline, price, and cost are part of getting there. How is that developing? You know, what is the visibility that you have within the orders and the backlog to say that that's holding, and that's there? And then, you know, how does that fit in with the productivity part, as you've now had Houghton for a year?

Roger: Joe Joe.

Roger: Yes, I'd like to just maybe drove some of the stuff you talked about on the medium term targets.

Uh huh.

I guess, the gross margins and ultimately the EBITDA margins up in Q1 did show progress on that as you look within the orders the backlog that you have you mentioned disciplined price cost as part of getting there.

Roger: How is that developing what is the visibility that you have within the orders and the backlog to say, that's holding and that's in there and then.

Roger: Does that fit and also with the productivity part is you've now had housing for a year.

Joseph Robert Brinkman: Yeah, well, just firstly, on the visibility of increasing EBITDA and margin over time here, and we've got, we've got the, you know, over 4 billion of backlog, 63% of the next 12 months covered here, and we've got good visibility on the cost price cost there. So we know where margins are going on a roll forward basis, and, you know, as we highlighted in our earlier comments, we've got, you know, as every quarter progresses here, we've got more of the cost synergies being realized and baked into our results here.

Roger: Yeah, well just firstly on the on.

Roger: The visibility of Av.

Roger: Of increasing EBITDA and margin over time here and we've got we've got the.

Roger: You know over 4 billion of backlog, 63% of the next 12 months covered here and we've got good visibility on the cost price cost. There. So we know our margins growing on a roll forward basis that and you know as as we highlighted in our earlier comments.

Roger: We've got you know.

Roger: As every quarter progresses here, we've got more of the cost synergies being.

Roger: Being realized and baked into our results here. So that's just.

Joseph Robert Brinkman: So that's just Margin tailwinds, if you will, so. You know, and then we have Chart Business Excellence, like I highlighted as well, generating additional cost out constantly. So we feel very strongly about our medium-term outlook.

Roger: Margin tailwind if you will so.

Roger: You know what I mean, we have charged business excellence like I highlighted as well generating additional cost out constantly so we feel very strongly about our medium term outlook.

Joseph Robert Brinkman: and he wrote, "I'm sorry. Go ahead.

Roger: Okay.

Speaker Change: Sorry, I sorry go ahead.

Joseph Robert Brinkman: One other point to that is the increasing mix of RSL just naturally helps us there.

Speaker Change: One other point to that is the you know the increasing mix of RSL just naturally helps us there.

Joseph Robert Brinkman: Yeah, definitely.

Speaker Change: Yeah definitely.

Roger David Read: Yeah, no, that business has been great in terms of the study is taking some of that seasonality out, as you mentioned. The other question I'd like to come to, and obviously, you've had to put a lot of explanation into the one-time factors here in Q1, how the what you see in terms of margin improvement is going to work into cash flow generation and free cash flow generation as we go forward.

Speaker Change: Yes.

Speaker Change: It's been great in terms of the steadiness has taken some of that seasonality seasonality out as you mentioned the.

The other question I would like to come to you and obviously you've had to put a lot of explanation of the onetime factors here.

Q1.

Speaker Change: How good.

Speaker Change: What you see in terms of margin improvement, how thats going to work and cash flow generation and free cash flow generation as we go forward I mean back at the time of the merger I mean different numbers were tossed around but you know it was 80.

Roger David Read: I mean, back at the time of the merger, different numbers were tossed around, but you know, it was 80% conversion to free cash flow from cash flow. I don't expect that every quarter, but what's the right way to think about free cash flow conversion? I mean, 95 to 100% seems pretty strong, but, you know, we haven't seen that in the first few quarters here with the Howden deal. So I'm just curious how to think about that, you know, with the occasional, you know, does that include the interest expense payments, the, you know, other items that can come along on a seasonal basis?

Speaker Change: 80% conversion to free cash flow from cash flow I don't expect that every quarter, but what's the right way to think about free cash flow conversion I mean, 95% to 100% seems pretty strong, but we haven't seen that in the first few quarters here with the Houghton deal. So I was just curious how it.

Think about that.

Speaker Change: With the occasional does that include the interest expense payments.

Speaker Change: Other items that can come along on a seasonal basis.

Jillian C. Evanko: Yeah, yeah, thanks for that question. I think it's a really important one. You know, I would say clearly, as I commented in my prepared remarks, that we have taken the feedback that we need to be more explicit on kind of what the next quarter looks like at least through 2024, given that it's our first full year of the combined business. And we've taken that to heart to try to give visibility to what we're seeing.

Yeah, Yeah. Thanks for that question I think it's a really important one yeah.

Speaker Change: Yeah, I'd say clearly as I commented in my prepared remarks that are we.

Speaker Change: Have taken.

Jillian C. Evanko: I think your point is extremely valid on how we ramp to that 95 plus percent of the cash conversion goal in the medium term goals. And it's going to take a little bit of stair-stepping to get there. But the metric itself does take into account all of the items that you referred to, interest, and these kind of different topics between quarters like we talked about in Q1.

Speaker Change: <unk> taken the feedback that we need to be more explicit on what does the next quarter. It looks like at least through 2024, given that it's our first full year of the combined business and we've taken that the hard to try to get a visibility to what we're seeing I think your point is extremely valid on the how we ramp to that 95 plus <unk>.

Speaker Change: <unk> of the cash conversion in the medium term goals and it's going to take a little bit of stair stepping to get there, but the metric itself doesn't take into account all of the items that are that you referred to interest in these kind of different different topics between quarters like we talked about on Q1.

Jillian C. Evanko: So a ramp to get to that point, but certainly the increasing EBITDA margin profile helps that, drives that. The fact that we anticipate continuing to pay down debt, so the discipline on our target to the net leverage ratio, and we've said toward two to two and a half is our target. But in the near term, in 2024, mid-2024, the high twos that we've said before. So there's a way to get there

Speaker Change: So a ramp to get to get to that point, but certainly the increasing EBITDA margin profile helps that drive that on the fact that we anticipate continuing to pay down debt. So the discipline on our target to the net leverage ratio and.

Jillian C. Evanko: There's a path to get there. It requires us to continue to deliver margin, and continue to pay down debt. And also, we feel really good that there are more and more synergies out there that we're seeing that can help drive that.

Speaker Change: We've said toward a two to two and a half is our target but in the in the near term in 2020 for mid 2024, the high twos that we've said before.

Speaker Change: So there is a way to get there there's a path to get there. It requires us to continue to deliver margin continuing to pay down debt and also yeah. We feel really good that there's more more and more synergies out there that we're seeing that can help drive that yeah, just I would just add to that.

Joseph Robert Brinkman: Yeah, and I would just add to that, you know, as we highlighted in the earlier comments, we're coming off of a pretty significant CapEx spend cycle, you know, with 47 million in Q1 here, but for the year, we expect that to be more in the 120 million dollar range. So, you know, Cap, we're just finishing up on some very large CapEx expenditures needed to convert backlog, add that additional throughput, which is going to drive sales, and the CapEx spending will come down as a percent of sales here. [inaudible] towards the end of this year and into 2025.

Speaker Change: You highlighted in the earlier comments, we're coming off of a pretty significant capex spend cycle with <unk>.

Speaker Change: $47 million in Q1 here, but for the year, we expect that more on the $120 million range, So cap where.

Speaker Change: We were just we're just finishing up on very large capex expenditures needed to convert backlog and that additional throughput which.

Speaker Change: Which is going to drive the sales and the Capex spending will come down as a percent of sales here.

Speaker Change: Towards the end of this year and into 2025.

Roger David Read: Okay, thanks. Appreciate that. Yeah. And I mean, like James said earlier, right, I mean, the order trends in backlog for y'all are much better than what we're seeing from others. So, you know, next, next, next step to conversion, right?

Speaker Change: Okay. Thanks, I appreciate that yes, I mean, like James said earlier right.

Speaker Change: Order trends backlog for you all are much better than what we're seeing from others. So.

Speaker Change: Next next next step the conversion right, but thanks and good luck.

Roger David Read: But thanks and good luck. Thanks, Roger. I appreciate it. Thank you.

Speaker Change: Thanks Roger.

Speaker Change: Thank you May I ask analysts to have a name may take one question each and your next question comes from the line of Eric Stine. Please go ahead.

Eric Andrew Stine: Thank you. May I ask the analysts, you have a limit of one question each, and your next question comes from the line of Eric Stine. Please go ahead.

Eric Andrew Stine: Hi, Joe Hi, Joe.

Eric Andrew Stine: Baird.

Eric Andrew Stine: Hey, so maybe we just go back to carbon capture a little bit. I know you touched on it earlier, but just want to kind of contrast it with how you've discussed it in the past. And I know you viewed hydrogen as 12 to 18 months ahead. You know, is this quarter, given your commentary, something where you think it actually is now, you know, going to be a more repeatable, predictable business?

Eric Andrew Stine: So maybe can we just go back to carbon capture a little bit I know you touched on it earlier, but just wanted to kind of contrast that with how you've discussed it in the past and I know you viewed hydro Jamie what 12 to 18 months ahead.

Eric Andrew Stine: Is this quarter given your commentary something where you think it actually is now going.

We're going to be a more repeatable predictable business do you still think this is kind of stops and starts.

Eric Andrew Stine: Do you still think this is kind of stops and starts here in advance of that? You know, just maybe. How are you thinking about that and maybe contrasting it with where hydrogen is in its kind of development?

Eric Andrew Stine: Of that.

Eric Andrew Stine: Maybe.

Eric Andrew Stine: How are you thinking about.

Eric Andrew Stine: Maybe contrast, it with where hydrogen.

Eric Andrew Stine: And it's kind of development.

Jillian C. Evanko: Yeah, yeah, thanks for pointing that out because we are, as you know, one of our long-standing followers. You know, we've talked about it here for four and a half years, and, you know, I think that it took longer than I, certainly we had anticipated, but, you know, we're pleased to get the technologies in when we did because it allowed us to really develop early feed and pre-feed relationships with a lot of the folks that, you know, some of them will move ahead.

Jillian C. Evanko: Yeah, yeah, thanks for pointing that out.

Speaker Change: Yeah, yeah, thanks for pointing it out because we are as you know and one of our longstanding followers.

Speaker Change: I've talked about it here for four and a half years and yeah I think the.

Speaker Change: That it took longer than I, certainly we had anticipated, but you know we're pleased to get the technologies in when we did because it allowed us to really develop.

Speaker Change: Early.

Speaker Change: And pre feed relationships with a lot of the folks that yes. Some of them will move ahead. So I think its definitely starting to be real intangible we actually debated internally as to how to talk about you know at some point here, we're gonna start talking about carbon capture water as a P.

Jillian C. Evanko: So I think it's definitely starting to be real and tangible. We actually debated internally as to how to talk about, you know, at some point here, we're going to start talking about carbon capture and water as a percent of our total business because they're starting to get sticky enough that that's a metric that can give you guys a jumping off point. We didn't do it this quarter, but we're pretty damn close to being ready to share that. So that's a qualitative statement, but I definitely think that what we're starting to see is global traction on carbon capture. I also think that it's...

Speaker Change: Percent of our total business, because they're starting to get sticky enough that that's a metric that can give you guys a jumping off point, we didn't do it this quarter, but it's it's pretty damn close to being ready to share that so that's that is a qualitative statement, but I definitely think that what we're starting to see is global trade.

Speaker Change: Action on carbon capture I also think that it's.

Jillian C. Evanko: In the last few years on carbon capture, it was really, okay; you've got people doing demonstrations, or you have, in our case, Earthly, which had great traction from day one because it was an economical, easy-to-install solution and solved for CO2 shortages. The larger scale is what's taken a little bit longer, but now we've got the pipeline that we had before, and an increasing pipeline related to all of the discussion that you hear about artificial intelligence and all of these energy-intensive actions, and so I think that's also what I would call a relatively near-term catalyst.

Speaker Change: In the last few years on carbon capture it was really okay. You've got people doing demonstrations or you have in our case earthly, which was which had great traction from day, one because it was economical easy to install solution and solved for C. O. Two shortages the larger scale is what's <unk>.

Speaker Change: A little bit longer but now we've got.

The pipeline that we had before and an increasing pipeline related to all of the discussion that you hear on artificial intelligence and all these kind of energy intensive actions and so I think that's also kind of a what I would say a relatively near term catalysts is it 12 to 18 months behind hydrogen.

Jillian C. Evanko: Is it 12 to 18 months behind hydrogen? I think it's accelerating, so it was really kind of three years behind hydrogen, in my opinion, but we're seeing it accelerate, and certainly with Q1 orders in carbon capture being a record, that's a pretty good place to jump off from as we head into the rest of this year, and then maybe my last data point for you on carbon capture is, Yeah, we've got our highest backlog in carbon capture as of the end of the first quarter that we have ever had, obviously given record quarters, but it's sequentially stepped up, backlog has sequentially stepped up, or essentially doubled since a year ago, for Carbon Capture. Thank you. And your next question calls from the line.

Speaker Change: I think it's accelerating so it was really kind of three years behind hydrogen in my opinion, but we're seeing it accelerate and certainly with Q1 orders in carbon capture being a record that's a pretty pretty good place to to jump off from as we head into the rest of this year and then maybe my last data point.

Speaker Change: For you on carbon capture is.

Speaker Change: Yeah, we got our highest backlog in carbon capture as at the end of the first quarter that we have ever had obviously given record quarters.

Speaker Change: But it is sequentially stepped up our backlog has sequentially stepped up.

Speaker Change: Essentially doubled.

Speaker Change: A year ago.

Okay.

Speaker Change: For carbon capture.

Jillian C. Evanko: Thank you, and your next question comes from the line of Rob Brown from Lake Street Capital Markets. Please go ahead.

Speaker Change: Thank you and your next question comes from the line of prop Brown from Lake Street Capital markets. Please go ahead.

Robert Duncan Brown: Morning, Joe Joe.

Joseph Robert Brinkman: Hey, good morning.

Robert Duncan Brown: Just wanted to follow up on the on the year two synergy kind of effort on the cost side, what's what's sort of the key areas you're focused on and how do you see that playing out.

Joseph Robert Brinkman: Sure.

Robert Duncan Brown: Yeah, it's interesting because, as we said on our Q4 earnings call, we surpassed both the cost and commercial synergies early, and we're going to keep going on years two and three. We, I've said that externally, we'll let you know when we hit a billion dollars in commercial synergy orders, and we're well on our way toward that, toward that number, certainly to be achieved here in the next couple of quarters, if not in the next quarter.

Robert Duncan Brown: Yes, it's interesting because as we said at our Q4 earnings call. Okay. We surpassed early both of cost and commercial synergies and we're going to keep going on years, two and three.

Robert Duncan Brown: I've I've said that externally and we'll let you know when we hit a $1 billion in commercial synergy orders and we're well on our way toward that toward that number certainly to be achieved here in the coming next couple of quarters, if not in the next quarter and on the cost side, Yeah, It's really.

Robert Duncan Brown: And on the cost side, you know, year one was heavy, low-hanging fruit, you know, hitting our supply base, restructuring, facility consolidations were applicable, which were, there were only a few there. And now what we're into is things like entity rationalization, where we can optimize entities from a cost standpoint, but also you get benefits like tax savings and ETR benefits, which Joe, I think, referenced in his comments, and things around just tangible costs, like audit fees, right, where you had audit fees for 10 different auditors on statutory or larger costs in year one, that type of thing.

Robert Duncan Brown: Round.

Robert Duncan Brown: Year, one was heavy low hanging fruit and hitting our supply base restructuring facility consolidations, where applicable which where there were only a few there and now we're we're into is things like entity rationalization, where we can optimize.

Robert Duncan Brown: Entities from a cost standpoint, but also you get benefits like tax saving.

Robert Duncan Brown: Savings and Tad ETR benefits, which we Joe I think referenced in his comments and things around just tangible costs like audit fees right where you.

Robert Duncan Brown: So lots of different activities, but we'll continue to optimize. And I also think that the more we get to know the businesses, the more we're taking advantage of the talent throughout, and they're coming up with new cost synergies ideas. So we are tracking, as of today, to be on track for our year two target from the original acquisition model for cost and commitment.

Robert Duncan Brown: You had audit fees for 10 different auditors on statutory or a larger.

Robert Duncan Brown: Costs in year, one that type of thing so lots of different activities, but we will continue to optimize and I also think that the more the more we get to know the businesses. The more we're taking advantage of the talent throughout and Theyre coming up with new plus synergy ideas. So we are tracking as of today too.

Robert Duncan Brown: Beyond tracked for a year or two target from the original acquisition model for cost and commercial.

Okay.

Pavel S. Molchanov: Thank you. And your next question comes from the line of Pavel Molchanov from Raymond James.

Jillian C. Evanko: Thank you. And your next question comes from the line of Pavel Molchanov from Raymond James. Please go ahead. Thanks for taking the question.

Robert Duncan Brown: Thank you and your next question comes from the line of Bill Phelan will connect from Raymond James. Please go ahead.

Pavel S. Molchanov: Please go ahead. Thanks for taking the time to join us today. I hope you have a great day. We'll see you next time.

Bill Phelan: Thanks for taking the question.

Bill Phelan: You flagged the Chinese LNG orders and I remember a decade ago, when Petro China was your biggest customer the whole company.

Bill Phelan: Or are we seeing another LNG transportation boom in China or is this caused by something else.

Jillian C. Evanko: We're definitely seeing LNG, transportation, and infrastructure. But I'm not sure I'd call it a boom yet, Pavel.

Speaker Change: We are definitely seeing LNG transportation infrastructure.

Pavel S. Molchanov: Perhaps like a recovery, taking advantage of lower natural gas prices, but this is very broad-based, so it's not concentrated with any one particular customer. So we're seeing multiple orders related to, in particular, the LNG trailer side. So I think it's reflective of having been lower in the last couple of years, but also reflective of the fact that LNG is the view of everyone. I guess I can't speak for everyone, but broadly, our customers are saying it's going to continue to be a key part of their mix, their infrastructure, and their energy source. So I think we'll continue to see that infrastructure for LNG, in particular for transport and ISOs, movement, import terminals, that type of thing. Thank you, and your next question comes from the line of Manav Gupta.

Speaker Change: I'm not sure I'd call it a boom yet hello, perhaps like a recovery taking advantage of lower natural gas prices and but this is its very broad based so it's not concentrated with any one particular customer so were seeing a multiple order orders related to in particular, the LNG trailer side.

Speaker Change: I think it's reflective of.

Speaker Change: Having been lower the last couple of years, but also reflective of the fact that LNG natural gas is everyone's view, let's say I guess I can't speak for everyone, but broadly our customers are saying, it's going to continue to be a key part of their mix their infrastructure and their energy source.

Speaker Change: I think we'll continue to see that infrastructure for LNG in.

In particular on transport and.

Speaker Change: So there's movement in port terminals that type of thing.

Yeah.

Manav Gupta: Thank you. And your next question comes from the line of Manav Gupta from UBS. Please go ahead.

Thank you and your next question comes from the line of Manhattan.

UBS: UBS. Please go ahead.

Manav Gupta: Yes, thank you for the question. So, first, what I would point out is that we like those two are great examples of the breadth of hydrogen being used in different applications and then also different geographies. Element being further along in terms of their progress for the city of Lancaster, California. That project is liquefaction for their site in Lancaster, California. And just recently, I think last week, they announced the purchase of additional acreage and additional land for future expansion.

Manav Gupta: So good traction there, and certainly, I think, reflective of kind of how the US hydrogen economy has started being specific to California. Now, we're seeing that hub structure here in the future that's going to take similar opportunities around the United States. And then, so the future, there is more future opportunity for us with Element Resources. And they're very disciplined and have strong leadership in that business that has decades of both oil and molecule experience. And then, on the gas log side, so this is from earlier days. This does not have an order related to it yet.

Jillian C. Evanko: This is a partnership. And so ahead, what we love, and we started hearing this at COP 28 in December of 23, was that this large-scale infrastructure for liquid hydrogen is being focused on and honed in on, whereas prior to that, everybody was talking about ammonia for marine applications, in particular. So this is around larger-scale ship and marine transport with associated onshore infrastructure. And the cool part? I'll wrap my answer up. The cool part I see, the thing I like about this is that this onshore infrastructure for heavy-duty transportation can work together across industries.

Jillian C. Evanko: And so while right now we're having these studies and this work done with a gas log on the marine side, as an example, or an energy observer on their infrastructure, or aerospace people on theirs, this is going to converge on itself and leave us with just an immense amount of future opportunity. The other thing about gas log that is specific to our partnership is that we're, again, starting to see what was traditionally a very gaseous, siloed hydrogen market in Europe turn toward longer distances, heavier transportation, and decarbonization, which is liquid. Thank you. And your last question comes from the line of Atid Modak from Goldman Sachs. Please go ahead. Hi, good morning team. [inaudible]

Atidrip Modak: Thank you. And your last question comes from the line of Atid Modak from Goldman Sachs. Please go ahead. Hi, good morning.

Jillian C. Evanko: Yes, thanks for the question, Adi, and good point. And what we've done internally, and haven't really shared the sausage making process externally, but the EARTHLY and the SES teams work very closely together. So you're seeing kind of EARTHLY scale up, and SES's expertise at the larger end helps them in their application, and SES is gaining quite a bit of global traction. We did cite the Graymont agreement; there are numerous others that we're not able to speak to publicly just under an NDA of work that's being done.

Jillian C. Evanko: We're definitely seeing that in The UAE in particular, so there are good near-term opportunities there for SES, and another kind of end market I'd point to for SES is on the lime cement side of things, really quite a bit of traction there toward commercialization. So yeah, your point is extremely valid, right?

Jillian C. Evanko: Initially, SES was for kind of this is going to be our big scale. We've learned a lot about what end markets that have the money to do this and that it makes sense for them to do it, and while we refer to EARTHLY and SES separately, it really is kind of one carbon capture solution that goes to different applications. Maybe my last comment on SES slashing EARTHLY or our carbon capture and market starting to see biogas also come into play there, which was a pull through from Howden's equipment and customer sets to pull our technology through, so that's getting some legs as well. We've had a few orders there.

Unknown Executive: Thank you. There are no further questions at this time. Ms. Evanko, please proceed.

Jillian C. Evanko: Thank you very much, and thank you to everyone for your time today. We look forward to providing updates as the quarter goes on and appreciate you attending our call this morning. Thank you. Have a great day.

Unknown Executive: Thank you. That concludes our conference for today. Thank you all for participating. You may all disconnect.