Q2 2024 Chart Industries Inc Earnings Call

Speaker Change: Good morning and welcome to the Chart Industries Inc. 2024 Second Quarter Results Conference Call. All lines have been placed on mute to prevent background noise. After the speaker's remarks, there will be a question and answer session.

Unknown Executive: for a results conference call. All lines have been placed on mute to prevent background noise.

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.

Speaker Change: 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.

Unknown Executive: A telephone replay of today's broadcast will be available approximately two hours following the conclusion of the call until Sunday, September 1, 2024. The replay information is contained in, 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 statements. I would now like to turn the conference over to Jill Evanko, Chart Industries' CEO. Please go ahead.

Speaker Change: A telephone replay of today's broadcast will be available approximately two hours following the conclusion of the call until Sunday, September 1, 2024. The replay information is contained in the company's press release.

Speaker Change: 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.

Speaker Change: 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.

Speaker Change: The company undertakes no obligation to update publicly or revise any forward-looking statements.

Speaker Change: I would now like to turn the conference over to Jill Evanko, Chart Industries CEO . Please go ahead.

Jillian Evanko: Thank you, Joelle. Good morning, and thank you for joining Joe Brinkman, our CFO, and me to walk through our second quarter 2024 results. We are executing consistently and on the path to our reiterated medium-term financial targets, including organic sales CAGR of mid-teens, mid-30% gross margin, adjusted diluted EPS growth CAGR of mid-40%, and free cash flow conversion to attain our target net leverage ratio range of 2 to 2 12. For all periods referenced, all metrics are pro forma for continuing operations of the combined business of Chart and Howden unless otherwise noted, which also excludes all assets divested in 2023.

Jill Evanko: Thank you, Joelle. Good morning and thank you for joining Joe Brinkman, our CFO , and me to walk through our second quarter 2024 results.

Jill Evanko: We are executing consistently and on the path to our reiterated medium-term financial targets.

Jill Evanko: Including Organic Sales Kager of Mid-Teens.

Jill Evanko: Mid-30% Gross Margin

Jill Evanko: Adjusted Diluted EPS Growth CAGR of mid 40%.

Jill Evanko: and Free Cash Flow Conversion to attain our target net leverage ratio range of 2 to 2.5. For all periods referenced, all metrics are pro forma for continuing operations of the combined business of Chart and Howden, unless otherwise noted, which also excludes all assets divested in 2023.

Jillian Evanko: Starting on slide 5, I would point you to the far right-hand column of the table showing the growth in each metric from second quarter 23 through second quarter 24. We had numerous all-time historical records in Q2. These included all-time record reported sales, backlog, gross profit, gross margin, operating income, and margin, EBITDA, and EBITDA margin. All of the associated adjusted metrics for these are also all-time records.

Jill Evanko: Starting on slide 5, I would point you to the far right hand column of the table showing the growth in each metric from the second quarter 23 through the second quarter 24.

Speaker Change: We had numerous all-time historical records in Q2. These included all-time record reported sales, backlog, gross profit, gross margin, operating income and margin, EBITDA, and EBITDA margin. All of the associated adjusted metrics for these are also all-time records.

Jillian Evanko: Orders were $1.16 billion, an increase of 12%, and an increase of about 40% excluding big LNG. Demand remains robust. In a few slides, we will take you through some examples of key wins in the second quarter, including a $40 million data center win for our air-cooled heat exchangers and record orders for carbon capture, metals, mining, water treatment, and field service. Record sales of $1.04 billion increased 18.8%. Repair Service Leasing, or the aftermarket segment, as we use for shorthand, was about 35% of our second quarter sales.

Speaker Change: Orders were $1.16 billion, an increase of 12%, and an increase of about 40% excluding big LNG.

Speaker Change: Demand remains robust. In a few slides, we will take you through some examples of key wins in the second quarter, including a $40 million data center win for our air-cooled heat exchangers and record orders for carbon capture, metals, mining, water treatment, and field service.

Speaker Change: Record sales of $1.04 billion increased 18.8%. Repair service leasing, or aftermarket segment as we use for shorthand, was about 35% of our second quarter sales.

Jillian Evanko: We had record reported gross margin of 33.8% and record reported operating income of $167.8 million, or 16.1% of sales. This was also a record $225.7 million when adjusted for specific items primarily related to the Howden integration and consolidation and restructure of our Asia-Pacific region into our Middle East and Africa region, resulting in a 21.7% record adjusted operating margin. Record reported EBITDA of $229.6 million was also a record When adjusted, EBITDA margin was a record 24.7% of sales. We are focused on simplifying metrics. Therefore, we have included the negative impact of the mandatory preferred dividend in our adjusted diluted EPS, which was not included in prior periods, nor was it in our prior outlook.

Speaker Change: We had record reported gross margin of 33.8% and record reported operating income of $167.8 million or 16.1% of sales.

Speaker Change: This was also a record $225.7 million when adjusted for specific items primarily related to the Howden integration and consolidation and restructure of our Asia-Pacific region into our Middle East and Africa region.

Speaker Change: resulting in 21.7% record-adjusted operating margin.

Speaker Change: Record reported EBITDA of $229.6 million was also a record 22.1% of sales. When adjusted, EBITDA margin was a record 24.7% of sales.

Speaker Change: We are focused on simplifying metrics. Therefore, we have included the negative impact of the mandatory preferred dividend in our adjusted diluted EPS, which was not included in prior periods, nor was it in our prior outlook.

Jillian Evanko: So compared to the prior outlook, the second quarter adjusted EPS had a negative $0.14 impact from that. And our updated full year guidance compared to the prior has a negative $0.60 impact from that, from this definitional change, which has no impact on the underlying business nor anticipated operational performance. The reported diluted EPS of $1.10 when adjusted was adjusted diluted EPS of $2.18, which again includes that negative 14 cent impact of the mandatory preferred dividend and 4 cents of negative foreign exchange.

Speaker Change: So compared to the prior outlook, the second quarter adjusted EPS had a negative 14 cent impact from that, and our updated full year guidance compared to prior has a negative 60 cent impact from that.

Speaker Change: From this definitional change, which has no impact on the underlying business, nor anticipated operational performance.

Speaker Change: Reported diluted EPS of $1.10 when adjusted was adjusted diluted EPS of $2.18, which again includes that negative 14 cent impact of the mandatory preferred dividend and 4 cents of negative foreign exchange.

Jillian Evanko: Our June 30th net leverage ratio of 3.26 has declined from 4.08 since closing on Howden five quarters ago. We'll discuss cash in more detail in a moment. Turning to slide 6, our four key takeaways are shown here, which we will touch on throughout the deck today. On slide 7, you can see both the increases in each metric year over year, as well as the sequential increases in each metric from Q1 to Q2 2024.

Speaker Change: Our June 30th net leverage ratio of 3.26 has declined from 4.08 since closing on Houdin five quarters ago. We'll discuss cash in more detail in a moment.

Speaker Change: Turning to slide six, our four key takeaways are shown here, which we will touch on throughout the deck today.

Speaker Change: On slide 7, you can see both the increases in each metric year over year, as well as the sequential increases in each metric from Q1 to Q2 2024.

Jillian Evanko: Every segment and every region's sales increased year over year, and there were record sales in both the RSL and specialty products segments in the second quarter of 24. We are pleased with our operational margin expansion, as you can see on this page and again on slide 8, which shows the gross margin dropping through to operating profit and margin. The incremental 2Q23-2Q24 operational margin improvements increased meaningfully, and all metrics shown on slide 8 were records this quarter. Reported gross margin was a 310 basis point improvement. The adjusted operating margin grew 490 basis points.

Speaker Change: Every segment and every region's sales increased year over year, and there were record sales in both the RSL and Specialty Products segments in the second quarter of 24.

Speaker Change: We are pleased with our operational margin expansion, as you can see on the page and again on slide 8, which shows the gross margin dropping through to operating profit and margin.

Speaker Change: The incremental 2Q23-2Q24 operational margin improvements increased meaningfully, and all metrics shown on slide 8 were records this quarter.

Speaker Change: Reported gross margin was a 310 basis point improvement, adjusted operating margin grew 490 basis points, and adjusted EBITDA margin increased 330 basis points.

Jillian Evanko: And the adjusted EBITDA margin increased 330 basis points. It is important to note that we do have more room to expand margins ahead. We will continue to execute further cost synergies. We have established a Chart of Business Excellence and associated Six Sigma continuous improvement activities throughout the organization. And we continue to anticipate and execute on further productivity and throughput improvements. Both cost and commercial synergies have been a key part of our operational margin expansion being ahead of schedule.

Speaker Change: It is important to note that we do have more room to expand margin ahead. We will continue to execute further cost synergies.

Speaker Change: We have established Chart Business Excellence and associated Six Sigma continuous improvement activities throughout the organization.

Speaker Change: and we continue to anticipate and execute on further productivity and throughput improvements ahead. Both cost and commercial synergies...

Jillian Evanko: As you can see on slide 9, we have exceeded both the size and timing goals of our original year three commercial synergies target, which was $350 million by March of 2026. As of yesterday, we have achieved $924 million in commercial synergies and are well on our way to the billion-dollar mark, which we anticipate hitting in the third quarter of 2024. Cost synergies are tracking ahead of schedule toward our original Year 3 target of $250 million, with $223 million already achieved.

Speaker Change: have been a key part of our operational margin expansion being ahead of schedule. As you can see on slide 9, we have exceeded both the size and timing goals of our original Year 3 Commercial Synergy Target, which was $350 million by March of 2026.

Speaker Change: As of yesterday, we have achieved $924 million of commercial synergies and are well on our way to the billion-dollar mark which we anticipate to hit in the third quarter of 2024.

Speaker Change: Cost synergies are tracking ahead of schedule toward our original year three target of $250 million, with $223 million already achieved. We expect to pass the three-year target by the end of 2024.

Jillian Evanko: We expect to pass the three-year target by the end of 2024. In the second quarter of 2024, we merged our Asia-Pac-India region with our Middle East-Africa region, achieving further back-office synergy. Going forward, we are accelerating the localization of products, utilizing our global footprint. Slide 10 shows some examples of the breadth of our Q2 commercial wins, including compressor packages for a Direct Reduction Iron, or DRI, application. We are seeing an increasing number of those opportunities in DRI, including this being our second consecutive quarter of orders for new green steel applications.

Speaker Change: In the second quarter of 2024, we combined our Asia-Pac-India region with our Middle East-Africa region, achieving further back-office synergies. Going forward, we are accelerating the localization of products, utilizing our global footprint.

Speaker Change: Slide 10 shows some examples of the breadth of our Q2 commercial WINS, including compressor packages for a direct reduction iron or DRI application.

Speaker Change: We are seeing an increasing number of those opportunities in DRI, including this being our second consecutive quarter of orders in new green steel applications.

Jillian Evanko: We also received an order for cryogenic storage tanks for a semiconductor company, as they continue to manufacture more in the United States, another benefit of our global manufacturing footprint as near-shoring trends occur. Q2 also continued our streak of strong orders that individually were each over $1 million, with 147 of those in the quarter and 24 first-of-a-kind orders. This diversity of awards also reflects our commercial pipeline's breadth across end markets, products, solutions, and applications.

Speaker Change: We also received an order for cryogenic storage tanks for a semiconductor company as they continue to manufacture more in the United States.

Speaker Change: Q2 also continued our streak of strong orders that individually were each over $1 million, with 147 of those in the quarter and 24 first-of-a-kind orders.

Speaker Change: This diversity of awards also reflects our commercial pipeline's breadth across end markets, products, solutions, and applications. This gives us the opportunity to have a relatively consistent order rate, as we have shown over the past 12 months, with book-to-bill consistently above 1.

Jillian Evanko: This gives us the opportunity to have a relatively consistent order rate, as we have shown over the past 12 months, with book-to-bill consistently above 1. The third quarter 2024 activity has started strong, with RSL booking a $10.5 million order for Power Africa power station spares, and further orders from this customer totaling over $25 million are expected to be awarded in the second half. In July, we also received an order for approximately $27 million for a significant petrochemical project in Asia-Pacific. Space exploration orders in July totaled $19 million.

Speaker Change: The third quarter 2024 activity has started strong, with RSL booking a $10.5 million order for Power Africa power station spares, and further orders from this customer totaling over $25 million are expected to be awarded in the second half.

Speaker Change: In July , we also received an order for approximately $27 million for a significant petrochemical project in Asia-Pac.

Jillian Evanko: Additionally, Airbus has awarded us a contract to fabricate a liquid hydrogen intervessel subsystem to integrate into an Airbus Zero E physical demonstrator program. As a result, we are able to serve the breadth of the end markets and applications just discussed without having to change our manufacturing operations. For example, we manufacture compressors at multiple locations globally, and they serve traditional energy applications, as well as specialty markets, including hydrogen and carbon capture. On slide 11, you can see examples of our equipment that are used across molecules, and From Traditional Energy to Energy Transition to Specialty Markets Because of this, we do not foresee a material impact on our outlook as a result of the U.S. presidential election, regardless of administration.

Speaker Change: Space exploration orders in July totaled $19 million. Additionally, Airbus has awarded us a contract to fabricate a liquid hydrogen intervessel subsystem to integrate into an Airbus Zero-E physical demonstrator program.

Speaker Change: We are able to serve the breadth of the end markets and applications just discussed without having to change our manufacturing operations.

Speaker Change: For example, we manufacture compressors at multiple locations globally, and they serve traditional energy applications as well as specialty markets including hydrogen and carbon capture. On slide 11, you can see examples of our equipment that are used across molecules and from traditional energy to energy transition to specialty markets.

Speaker Change: Because of this, we do not foresee a material impact to our outlook as a result of the U.S. presidential election, regardless of administration.

Jillian Evanko: Our ability to serve multiple applications and end markets with these existing manufacturing capacities, along with our synergies between Chart and Howden, are the primary drivers of our commercial pipeline of opportunities for the next three years, being at an all-time high of over $23 billion. We expect to further increase the pipeline from data centers and artificial intelligence cooling and storage needs, given the energy-intensive environment as shown on slide 12. As mentioned earlier, in the second quarter, we received an award from a data center provider for approximately $40 million for air-cooled heat exchangers for heat rejection. This is the starting point with a key customer that we anticipate will continue to expand volume in the future.

Speaker Change: Our ability to serve multiple applications and markets with these existing manufacturing capacities, along with our synergies between Chart and Howden, are the primary drivers of our commercial pipeline of opportunities for the next three years, being at an all-time high, over $23 billion.

Speaker Change: We expect to further increase the pipeline from data centers and artificial intelligence cooling and storage needs given the energy intensive environment as shown on slide 12.

Speaker Change: As mentioned earlier, in the second quarter, we received an award from a data center provider for approximately $40 million for air-cooled heat exchangers for heat rejection. The starting point with the key customer that we anticipate will continue to expand volume ahead.

Jillian Evanko: The Data Center and Artificial Intelligence opportunity for us specifically based on three gigawatts of data center additions per year is approximately $500 million, and it can expand from there to heavy industrial chilling using Howden's leading screw compressor. We anticipate also that our Tough Lite 4 fan offering will be a key part of data center cooling applications. You can see our Tough Light 4 in action in the photo in the middle right of slide 12, which is at a location in Texas. In this photo, you can see the uniquely designed backwards sweep characteristic, which improves efficiency and resiliency.

Speaker Change: The data center and artificial intelligence opportunity for us, specifically based on 3 gigawatts of data center addition per year, is approximately $500 million. And it can expand from there to heavy industrial chilling using Howden's leading screw compressors.

Speaker Change: We anticipate also that our Tough Light 4 fan offering will be a key part of data center cooling applications. You can see our Tough Light 4 is in action in the photo in the middle right of slide 12, which is at a location in Texas.

Speaker Change: In this photo, you can see the uniquely designed backwards sweep characteristic, which improves efficiency and resiliency. Tough Lite 4s are another good example of the same equipment being used in multiple end markets, and you will see this again in a few slides on LNG.

Jillian Evanko: The Tough Light 4s are another good example of the same equipment being used in multiple end markets, and you'll see this again in a few slides on LNG. In the second quarter, we booked two separate U.S. LNG export facility customers orders to utilize these fans in their terminals. And we are very proud to support Chenier's de-bottlenecking efforts with our Tough Light 4 fans at both their Sabine Pass and Corpus Christi

Speaker Change: In the second quarter, we booked two separate U.S. LNG Export Facility customers' orders to utilize these fans in their terminals. And we are very proud to support Chenier's de-bottlenecking efforts with our Tough Light 4 fans at both their Sabine Pass and Corpus Christi locations.

Jillian Evanko: Another end market that our products serve is nuclear and SMR, as you can see on slide 13, and this is a market that is gaining traction. For us, our applications include FANs and SMR applications, and most of our orders to date have been split between France and North America. As slide 14 shows, LNG activity continues very actively and globally, including a conscious move by LNG operators to more modular solutions, specifically benefiting our IPSMR process technology.

Speaker Change: Another end market that our products serve is nuclear and SMR as you can see on slide 13 and this is a market that is gaining traction. For us our applications include fans and SMR applications and mainly our orders to date have been split between France and North America.

Speaker Change: As slide 14 shows, LNG activity continues very actively and globally, including a conscious move of LNG operators to more modular solutions, specifically benefiting our IPSMR process technology.

Jillian Evanko: Our big LNG commercial pipeline expanded to 32 potential projects, with 16 potential international projects considering using IPSMR. We announced our liquefaction technology and equipment was chosen for Argent's anticipated 20 MTPA project, which is not yet booked into backlog and not included in our medium-term outlook.

Speaker Change: Our Big LNG commercial pipeline expanded to 32 potential projects, with 16 potential international projects considering using IPSMR.

Speaker Change: We announced our liquefaction technology and equipment was chosen for Argent's anticipated 20 MTPA project, which is not yet booked into backlog and not included in our medium-term outlook.

Jillian Evanko: The upper left-hand box on slide 14 shows Q2-23 pro forma orders to Q2-24 for the Total Company and for our HTS segment, which shows non-Big LNG orders growth for HTS being significant, representing a series of larger orders in the second quarter, including for air coolers and a South American small-scale LNG project, to name a couple. In LNG infrastructure, we booked our largest ever order for our Deccan Czech Republic facility for an LNG re-gas project, and as of this past week, we have sold 103 LNG trailer orders in China year-to-date 24, comparing to 25 and 15 for the full years 23 and 22.

Speaker Change: The upper left-hand box on slide 14 shows Q2-23 pro forma orders to Q2-24 for Total Company and for our HTS segment.

Speaker Change: which shows non-Big LNG orders growth for HTS being significant, representing a series of larger orders in the second quarter, including for air coolers and a South American small-scale LNG project, to name a couple.

Speaker Change: In LNG infrastructure, we booked our largest ever order for our Deccan Czech Republic facility for an LNG regas project, and as of this past week, we have sold 103 LNG trailer orders in China year-to-date 24, comparing to 25 and 15 for the full years 23 and 22.

Jillian Evanko: Slide 15 shows how effectively the RSL or aftermarket segment is executing on our profitable growth strategy, plus synergy attainment, which in turn increased RSL to about 35% of our second quarter sales. In the upper left-hand table, sales were a record and grew over 26%, and margin was a record 49% driven by strong fieldwork. Note that this level of RSL margin is not consistently typical.

Speaker Change: Slide 15 shows how effectively the RSL or aftermarket segment is executing on our profitable growth strategy plus synergy attainment, which in turn increased RSL to about 35% of our second quarter sales.

Speaker Change: In the upper left-hand table, sales were a record and grew over 26%, and margin was a record 49% driven by strong fieldwork.

Jillian Evanko: As a point of reference, all quarters to date since we acquired Howden, RSL has been above 43% gross margin, and margins in RSL have been on average 200 basis points higher than pro forma RSL pre-acquisition, driven by cost and commercial synergies. As a result of our fast response to customers and high value add to their operations, there does continue to be upside opportunity and margin benefits ahead in RSL. Second quarter 24 RSL orders of $312.4 million increased by a half of a percent when compared to the second quarter 23. However, the second quarter of 23 did include three less frequent larger spares orders.

Speaker Change: Note that this level of RSL margin is not consistently typical. As a point of reference, all quarters to date since we acquired Howden, RSL has been above 43% gross margin.

Speaker Change: And margins in RSL have been, on average, 200 basis points higher than pro forma RSL pre-acquisition, driven by cost and commercial synergies.

Speaker Change: As a result of our fast response to customers and high value add to their operations, there does continue to be upside opportunity and margin benefits ahead in RSL.

Speaker Change: Second quarter 24 RSL orders of $312.4 million increased a half of a percent when compared to the second quarter 23. The second quarter of 23 did include three less frequent larger spares orders.

Jillian Evanko: On the right-hand side of slide 15, I would like to point out a few key second quarter wins we had in RSL. We added a three-year LTSA to the business with a CNG station customer, another great Synergy example. Item B shown is an award for compressor LTSA in Turkey, and Item E is critical heater parts for a power plant in Mexico, a great $6 million win. Both Turkey and Mexico are geographies where we are beginning to see stronger traction and penetration.

Speaker Change: On the right-hand side of slide 15, I would like to point out a few key second quarter wins we had in RSL. We added a three-year LTSA to the business with a CNG station customer, another great synergy example.

Speaker Change: Item B shown is an award for compressor LTSA in Turkey, and Item E is critical heater parts for a power plant in Mexico, a great $6 million win. Both Turkey and Mexico are geographies where we are beginning to see stronger traction and penetration.

Jillian Evanko: We have seen great synergistic aftermarket wins to date, yet we do believe that we are at the beginning of these opportunities that exist in the combined business. For example, key legacy chart customers in refining power and gas production facilities have now engaged with the Howden local aftermarket teams for parts and services for cooling fans and air coolers. I'll now hand it over to Joe for the financial details of our 2024 and medium-term outlook.

Speaker Change: We have seen great synergistic aftermarket wins to date, yet we do believe that we are at the beginning of these opportunities that exist in the combined business.

Speaker Change: For example, key Legacy Chart customers in refining power and gas production facilities have now engaged with the Howden local aftermarket teams for parts and services for cooling fans and air coolers.

Speaker Change: I'll now hand it over to Joe for the financial detail in our 2024 and medium-term outlook.

Joe Brinkman: Moving to slide 16, you can see our free cash flow first and second quarter results. On the table, we are showing each category of the calculation that is considered operational cash in a period so that you can tie it directly to the beginning and ending balances on the balance sheet.

Joe: Moving to slide 16, you can see our free cash flow first and second quarter results. On the table, we are showing each category of the calculation that is considered operational cash in a period, so that you can tie directly to the beginning and ending balances on the balance sheet.

Joe Brinkman: The net cash from operating activities of $115 million includes long-term, beyond one-year balance changes that are not reflective of our quarterly operating activity, nor how we provide, or previously provided, our annual cash flow outlook. Removing those, combined with our $28 million of second quarter 2024 CapEx spend, our comparable Q2 operating free cash flow was approximately $115 million, as compared to our original prior second quarter cash flow outlook of $175 million. The difference is due to two specific inter-quarter items that are cash flow timing issues that occurred in Q2.

Joe: Net cash from operating activities of $115 million includes long-term, beyond-one-year balance changes that are not reflective of our quarterly operating activity, nor how we provide, or previously provided, our annual cash flow outlook.

Joe: Removing those, combined with our $28 million of second quarter 2024 CapEx spend, our comparable Q2 operating free cash flow was approximately $115 million, as compared to our original prior second quarter cash flow outlook of $175 million.

Joe: The difference is due to two specific inter-quarter items that are cash flow timing that occurred in Q2.

Joe Brinkman: These were business decisions that we chose to make to drive stronger customer relationships with key long-term customers and are timing-related where cash is expected in the second half of 2024. First, an emergency field service situation arose within the quarter.

Joe: These were business decisions that we chose to make to drive stronger customer relationships with key, long-term customers and are timing related where cash is expected in the second half of 2024.

Joe: First, an emergency field service situation arose within the quarter. We dedicated a large field service team from other work to respond, and the associated timing of cash payment will be in the second half 2024.

Joe Brinkman: We dedicated a large field service team from other work to respond, and the associated timing of cash payment will be in the second half of 2024. We also had a key customer, whose project had a cash milestone in the second half, request that they needed specific steps taken to hold the schedule, and the related materials purchased occurred earlier than we had previously planned. In the normal course of our larger project business, we achieve a cash positive or cash neutral position.

Joe: We also had a key customer, whose project has a cash milestone in the second half, request that they needed specific steps taken to hold schedule, and the related materials purchase occurred earlier than we had previously planned.

Joe: In the normal course of our larger project business, we achieve a cash-positive or cash-neutral position.

Joe Brinkman: We continue to see strong margins, capital spending is declining as expected as our significant capacity expansions complete, and working capital continues to be a source of cash, as shown on slide 17. As we had previously shared in our first quarter 2024 earnings call, we expected 125 million in milestone payments in the second quarter of 2024 for our top four projects, and we collected all of that.

Joe: We continue to see strong margins. Capital spending is declining as expected as our significant capacity expansions complete, and working capital continues to be a source of cash, as shown on slide 17.

Joe: As we had previously shared in our first quarter 2024 earnings call, we expected $125 million

Joe: of milestone payments in the second quarter of 2024 for our top four projects, and we collected all of that.

Joe Brinkman: As you can see on slide 17, when considering AR, inventory, AP, and the net of unbilled and customer advances, we have reduced our net working capital from 23% of sales a year ago to 20% of sales in the second quarter of 2024. We anticipate our full-year 2024 sales to be in the range of approximately $4.45 billion to $4.6 billion, inclusive of an approximate 1% foreign exchange headwind. Forecasted full-year adjusted EBITDA is in the range of $1.08 to $1.15 billion. Our anticipated 2024 full-year adjusted EPS range is $1075 to $1175. This range is based on an effective tax rate range of approximately 20 to 21 percent and a diluted share count of approximately $47 million.

Joe: As you can see on slide 17, when considering AR, inventory, AP, and the net of unbilled and customer advances, we have reduced our networking capital from 23% of sales a year ago to 20% of sales in the second quarter of 2024.

Joe: We anticipate our full year 2024 sales to be in the range of approximately $4.45 billion to $4.6 billion, inclusive of an approximate 1% foreign exchange headwind.

Joe: Forecasted full year adjusted EBITDA is in the range of $1.08 to $1.15 billion.

Joe: Our anticipated 2024 full-year adjusted EPS range is $1075 to $1175. This range is based on an effective tax rate range of approximately 20 to 21 percent, and a diluted share count of approximately $47 million.

Joe Brinkman: Free cash flow guidance is in the range of approximately $400 to $475 million. Compared to our prior 2024 full-year outlook, the main drivers of the change are foreign exchange, timing of sales on larger and longer projects, timing of larger awards received late in the second quarter 2024, having revenue impacts in 2025 and 2026, and a purely definitional change to our adjusted EPS calculation by no longer excluding the negative 60 cent mandatory preferred dividend EPS impact.

Joe: Free Cash Flow Guidance is in the range of approximately $400 to $475 million.

Joe: Compared to our prior 2024 full-year outlook,

Speaker Change: The main drivers of the change are foreign exchange, timing of sales on larger and longer projects, timing of larger awards received late in the second quarter 2024, having revenue impacts in 2025 and 2026,

Speaker Change: and a purely definitional change to our adjusted EPS calculation by no longer excluding the negative 60 cent mandatory preferred dividend EPS impact.

Joe Brinkman: We have included slide 20 as a bridge from first half 2024 actuals to the second half 2024 adjusted EBITDA outlook. On slide 22, you can see a reiterated medium-term financial outlook through 2026. Given the breadth of our end markets and applications, we have multiple macro growth drivers, including energy access, the growing need for energy, given the increasing artificial intelligence trends, and the continued era of natural gas with energy transition. Our medium-term financial targets are underpinned by continued throughput and productivity activities underway, anticipated further and additional cost energy achievement, and normalizing capital expenditure.

Speaker Change: We have included slide 20 as a bridge from first half 2024 actuals to the second half 2024 adjusted EBITDA outlook.

Speaker Change: On slide 22, you can see our reiterated medium-term financial outlook through 2026.

Speaker Change: Given the breadth of our end markets and applications.

Speaker Change: We have multiple macro growth drivers including energy access, growing need for energy given the increasing artificial intelligence trends, and the continued era of natural gas with energy transition.

Speaker Change: Our medium-term financial targets are underpinned by continued throughput and productivity activities underway, anticipated further and additional cost-energy achievement, and normalizing capital expenditures.

Joe Brinkman: We are already in the neighborhood of our midterm gross margin goal based on recent results. Additionally, this medium-term outlook doesn't include any big L&G projects that were not in our backlog as of September 30th, 2023. There are several known Big LNG Project awards not currently reflected in our backlog and not assumed in our guidance metrics, including IPSMR for an international oil company's Big LNG Project, Argence Facility, and the Driftwood 27 MTPA Export Terminal, which is already permitted. These three big LNG projects that are not yet in our backlog total approximately $1.5 billion in chart content. The medium-term outlook also excludes future benefits from U.S. hydrogen hub projects.

Speaker Change: We are already in the neighborhood of our midterm gross margin goal based on recent results.

Speaker Change: Additionally, this medium-term outlook doesn't include any big LNG projects that were not in our backlog as of September 30th of 2023.

Speaker Change: There are several known Big LNG Project awards not currently reflected in our backlog and not assumed in our guidance metrics, including IPSMR for an international oil company's Big LNG Project.

Speaker Change: Argence Facility, and the Driftwood 27 MTPA Export Terminal, which is already permitted.

Speaker Change: These three big LNG projects that are not yet in backlog total approximately $1.5 billion of chart content.

Speaker Change: The Medium-Term Outlook also excludes future benefits from the U.S. Hydrogen Hub projects. Just this week, the DOE's Office of Clean Energy Development finalized the second of seven projects that will receive funding.

Jillian Evanko: Just this week, the DOE's Office of Clean Energy Development finalized the second of seven projects that will receive funding. We anticipate sequentially growing sales in 2025 and 2026, each by double digits, continue our margin expansion, and generate more cash with capital expenditures as a percentage of sales in the two to two and a half percent range. To conclude, we are well on our way to our medium-term financial targets and would like to take this opportunity to thank our OneChart Global Team members for their efforts and for doing so safely, delivering our quarterly lowest rolling 12-month total reportable incident rate of.42. Joel, please open it up for Q&A.

Speaker Change: We anticipate to sequentially grow sales in 2025 and 2026, each in double digits, continue our margin expansion, and generate more cash with capital expenditures as a percentage of sales in the two to two and a half percent range.

Speaker Change: To conclude, we are well on our way to our medium financial...

Speaker Change: Medium Term Financial Targets and would like to take this opportunity to thank our OneChart Global Team members for their efforts.

Speaker Change: and for doing so safely, delivering our quarterly lowest rolling 12-month total reportable incident rate of .42.

Unknown Executive: Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you have a question, please press star followed by the number on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the. If you are using a speakerphone, please lift the handset before pressing any. We ask that you please limit yourself to one question. Your first question comes from James West with Evercore. Your line is now open.

Speaker Change: Joel, please open it up for Q&A.

Joel: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the two.

Joel: If you are using a speakerphone, please lift the handset before pressing any keys.

Joel: We ask that you please limit yourself to one question.

Joel: Your first question comes from James West with Evercore. Your line is now open. Hey, good morning, Jill. Morning, Jeff. Hey. Hey, James.

James West: Hey, good morning, Jill. Morning, Jeff. Hey, hey, Jim. So Jill, I wanted to dig in. Your cooling solutions, so obviously, we know Chart very well as an LNG liquid production provider and a producer, sorry, a company that's known for energy solutions and LNG solutions, but a lot of your compression and other equipment, especially the Halton equipment, is now being, as you alluded to in your prepared remarks, starting to be used in your data centers and SMRs and things like that where you need to keep things cooler, not hotter. And so I'd love to hear kind of how you're thinking about those parts of your business and what that opportunity set could be.

James West: So, Jill, I wanted to dig in on...

James West: Your cooling solutions, so obviously we know Chart very well as you know an LNG liquefaction provider and a producer, sorry

Speaker Change: a company that's known for energy solutions and LNG solutions, but

Speaker Change: A lot of your compression and other equipment, especially the Halton equipment, is now being, as you alluded to in your prepared remarks, starting to be used.

Speaker Change: Joseph Brinkman, J.D. We're going to be talking about data centers and SMRs and things like that where you need to keep things cooler, not hotter. And so I'd love to hear how you're thinking about those parts of your business and what that opportunity set could be.

Jillian Evanko: Yeah, thanks, James. We're very excited about that because it's really, you know, this is an expanded addressable market for us, and it's something that we have the equipment and the solutions already being produced for other applications, and they're perfect for the data center and the energy-intensive artificial intelligence arenas. So, air-cooled heat exchangers are really mission critical to these applications. We have the ability to build horizontally and vertically.

Speaker Change: Yeah, thanks, James. We're very excited about that because it's really, you know, this is an expanded addressable market for us, and it's something that we have the equipment and the solutions already being produced for other applications, and they're perfect for the data center and the energy-intensive artificial intelligence arenas. So, air-cooled heat exchangers are really mission critical to these applications. We have the ability to build horizontal, vertical. The one award that we referenced from the second quarter of $40 million is actually a uniquely designed air cooler, so our own design for that application.

Jillian Evanko: The one award that we referenced from the second quarter of $40 million is actually a uniquely designed air cooler, so it's our own design for that application. Then you get into fans. So fans work across these end markets too. Fans are critical not only for cooling and data centers but also to your point on the nuclear side of things. In July, we received almost a million dollars in orders for fans during nuclear outages.

Speaker Change: Then you get into fans. So fans work across these end markets too. Fans are critical not only for the cooling in data centers, but also to your point on the nuclear side of things. In July , we received almost a million dollars of orders for fans for nuclear applications.

Jillian Evanko: So you can see that gaining traction as, like you said, they need to get cooler. On the Howden side, absolutely, especially as more heavy industry occurs. So we're really excited about the screw compression capability that we have on the Howden side because that's perfect for chilling. When we talk about heavy industrial chilling applications, which again go to these energy-intensive, increasingly larger-sized projects that you're hearing about on a daily basis.

Speaker Change: So, you can see that gaining traction as, like you said, these...

Speaker Change: On the Howden side, absolutely, especially as more heavy industrial occurs, so we're really excited about the screw compression capabilities that we have on the Howden side, because that's perfect for chilling.

Speaker Change: When we talk about heavy industrial chilling applications, which again goes to these energy intensive, increasingly larger size projects that you're hearing about on a daily basis.

Jillian Evanko: Right. And then maybe just a quick, quick follow up for me. Did I hear correctly that you think the data center opportunity, based on I think it's three gigawatts, is half a billion or so?

Speaker Change: Right. And then maybe just a quick follow-up for me. Did I hear correctly that you think the data center opportunity, based on I think it's three gigawatts, is half a billion or so?

James West: Yeah, so that's our near-term next three years based on the pre-gig costs, and then as the heavy industrial chilling expands, we anticipate that that can add another 600 to 800 million dollars of addressable market for us, which is really targeted at the Houghton side of the business.

Speaker Change: Yeah, so that's our near term, next three years based on the three gigahertz, and then as the heavy industrial chilling expands, we anticipate that that can add another $600 to $800 million of addressable market for us, which is really targeted to the Houghton side of the business.

Jillian Evanko: Got it. Thank you.

Ben Nolan: Your next question comes from Ben Nolan with Stiefel. Your line is now open.

Speaker Change: Got it. Thanks, Jill. Thanks, James. Your next question comes from Ben Nolan with Stiefel. Your line is now open.

Ben Nolan: Yeah, thanks. Hey, Joe, Jill. Hey Ben, with respect to the guidance, appreciating that there's always moving parts and things can go wrong or whatever, but there's been a couple times now that slippage has sort of led to the need to change the guidance a little bit. Can you maybe talk through how you're thinking about maybe handicapping the timing of projects and maybe how that is baked into what your revised guidance is?

Ben Nolan: Yeah, thanks. Hey, Joe, Jill, so I, with respect to the guidance, appreciating that there's always moving parts and things, you know, can go wrong or whatever, but there's been a couple of times now that slippage has sort of led to a,

Ben Nolan: Can you maybe talk through how you're thinking about maybe handicapping the timing of projects and maybe how that is baked into what your revised guidance is?

Jillian Evanko: Sure, absolutely. Let me reiterate the revised guide here, the $4.45 to $4.6 billion on the top line, and then adjusted EBITDA of $1.08 to $1.15. If you look at those margins, that's EBITDA growth year-over-year of 44-plus percent, and that's top-line sales growth in the 20-percent range, so challenge that against the performance-to-date way that we look at it, and we feel really good about an all-time record quarter that we had in the second quarter, and the trajectory that the business is on, posting 24.7 percent adjusted EBITDA margins in

Speaker Change: Sure, absolutely. And, you know, let me reiterate the revised guide here, the $4.45 to $4.6 billion on the top line, and then adjusted EBITDA of $1.08 to $1.15. If you look at those margins, you know, that's EBITDA growth year over year of $44.

Speaker Change: plus percent, and that's top line sales growth is in the 20%.

Speaker Change: [inaudible]

Jillian Evanko: Clearly, at this point in the year, we have a better line of sight to those timings of the projects that, in particular, the orders that came in the first half and the associated timing to those orders, and so this is our look at where we sit today, where we think we are in a very reasonable, achievable target range here. And obviously, you know, I challenge anybody to compare our growth metrics against other companies in our end-market industries, but with Ours is not a quarterly business, and therefore, we looked to build some of that kind of inevitable quarterly movement into our updated full year guide.

Speaker Change: Clearly, at this point in the year, we have a better line of sight to those timings of the projects that, in particular, the orders that came in the first half and the associated timing to those orders. And so, this is our look at where we sit today, where we think is in.

Speaker Change: The very reasonable, achievable target range here, and obviously, you know, I challenge anybody to put our growth metrics against other companies in our in-market industries, but with that said, you know, we felt like we needed to give

Speaker Change: A range that we felt was very achievable, given the fact that we have had timing shifts. Ours is not a quarterly business.

Speaker Change: And therefore, we looked to build some of that kind of inevitable quarterly movement into our updated full year guide. The other thing I would just make sure to point out here.

Jillian Evanko: The other thing I would just make sure to point out here is that our medium-term targets are unchanged, right? So we've said our sequential growth is going to be sequential in 2025, sequential in 2026, and those medium-term targets don't include that billion and a half for those three big LNG projects. They don't include any future U.S. hydrogen hub anticipated opportunities. So again, we felt like we knew enough at this point in the year based on the timing of orders and based on the fact that our business is becoming more project-oriented, and there are movements between quarters that we needed to bake some of that into the year's outlook.

Speaker Change: is that our medium term targets are unchanged, right? So we've said our sequential growth is going to be sequential in 2025, sequential in 2026. And those medium term targets don't include that billion and a half for those three big LNG projects. They don't include any

Speaker Change: Future U.S. Hydrogen Hub anticipated opportunities, so again, we felt like that we know enough at this point in the year based on the timing of orders and based on the fact that our business is becoming more project-oriented and there's movements between quarters that we needed to bake some of that into the year's outlook.

Ben Nolan: Okay, I appreciate it, and just maybe, as a follow-up, as you're sort of going forward, do you expect to maybe handicap that a little bit more or, you know, any thoughts about sort of strategically how you think about doing it?

Speaker Change: Okay, I appreciate, and just maybe to, as a follow-up, as you're sort of going forward, do you expect to maybe handicap that a little bit more or, you know, any thoughts about sort of strategically how you think about doing it?

Jillian Evanko: Yeah, I mean, listen, we always put a range out that we think we can achieve with factors that can get us to the high end of the range. Clearly, as we have delivered these record results in the second quarter, again, across the board, we're well on our path here. So you know, Even with a more handicapped outlook, to your point, we're still on the trajectory to be ahead of our medium-term targets, which is where we sit today.

Speaker Change: Yeah, I mean, I think, listen, we always put a range out that we think we can achieve with factors that can get us to the high end of the range. Clearly, as we have delivered these record results, which in the second quarter, again, across the board, we're well on our path here. So you know.

Speaker Change: Even with a more handicapped outlook, to your point, we're still on the trajectory to be ahead of our medium-term targets, which is where we sit today. And so, even with a little handicap into that methodology, then we feel like we're...

Jillian Evanko: And so even with a little handicap built into that methodology, then we feel like we're still going to deliver what we said we would and not have to revise the current period because of timing shifts. So yes, to be very direct in your answer. All right, I appreciate it.

Speaker Change: Still going to deliver what we said we were and not have to revise the current period because of timing shifts. So yes, to be very direct in your answer.

Unknown Executive: Alright, I appreciate it. Thank you, Jill. Thanks, Ben. Your next question comes from...

Speaker Change: All right. I appreciate it.

Marc Bianchi: Your next question comes from Marc Bianchi with TD Cowen. Your line is now open.

Ben Nolan: Thanks, Ben.

Speaker Change: Your next question comes from Marc Bianchi with TD Cowen. Your line is now open.

Marc Bianchi: If I look historically on a pro forma basis, it looks like at least EBITDA is kind of flat. So if that's the case, I guess here for the third quarter, it would require a pretty sharp increase for the fourth quarter. But maybe you could just talk us through the back half, how the back half is expected to unfold.

Mark Bianchi: If I look historically on a pro forma basis, it looks like at least EBITDA is kind of flat. So if that's the case, I guess here for third quarter, it would require a pretty sharp increase for fourth quarter. But maybe you could just talk us through the back, how the back half is expected to unfold.

Jillian Evanko: Good morning, Marc. The first part of your question was cut off, so just to make sure I'm answering the question, how the back half is expected to unfold in terms of our outlook.

Speaker Change: Good morning, Marc. The first part of your question was cut off, so just to make sure I'm answering the question, how the back half is expected to unfold in terms of our outlook.

Marc Bianchi: Yeah, EBITDA for the third quarter and free cash flow for the third quarter. And then, you know, if those follow historical trends, they would seem to imply a pretty sharp increase in the fourth quarter, but maybe, maybe they're not going to follow historical trends. Okay.

Speaker Change: Yeah, EBITDA for the third quarter and free cash flow for the third quarter. And then, you know, if those follow historical trends, it would seem to imply a pretty sharp increase in the fourth quarter, but maybe maybe they're not going to follow historical trends.

Jillian Evanko: Okay, yeah, thanks for the clarification. The fourth quarter has historically been a very strong quarter for us, and we anticipate that to be similar this year. Yet again, sequential growth is what we anticipate through the back half. In addition, there's a slide in our deck on page 20 that can walk from the first half to the second half, pointing to specific conversion from various different projects in the backlog, as well as big LNG, as well as our cost synergies.

Speaker Change: Thanks for the clarification. The fourth quarter has historically been a very strong quarter for us, and we anticipate that to be similar this year, yet again, sequential growth is what we anticipate.

Speaker Change: through the back half.

Speaker Change: In addition, there's a slide in our deck on page 20 that can walk from the first half to the second half, pointing to specific conversion from various different projects.

Speaker Change: in the backlog as well as big LNG as well as our cost synergies.

Speaker Change: Q4 should hold true, but should not be what a hockey stick as you have seen sometimes in the past. On the cash side, we would expect the 3rd quarter cash to be positive and 4th quarter cash to be positive.

Jillian Evanko: So Q4 should hold true, but it should not be what a hockey stick, as you have seen sometimes in the past. On the cash side, we would expect the third quarter cash to be positive, and fourth quarter cash to be positive. We have very specific looks at the timing of the billings in the third quarter, based on how they roll out within the quarter, and same for the fourth. So I would say the fourth quarter will be stronger than the third. We're going to continue to see sequential improvement as we go through the back half of the year.

Speaker Change: Specific looks at the timing of the billings in the third quarter based on how they roll out within the quarter and same for the fourth. So I would say fourth quarter will be stronger than third quarter yet.

Speaker Change: We're going to continue to see sequential improvement as we go here through the back half of the year.

Marc Bianchi: Okay, so three Q free cash flow is better than two Q, is what I think I heard. And then on the EBITDA side, it sounds like three Q EBITDA would be better than two Q as well, just because there's sequential improvement throughout. And it's not as big of a hockey stick.

Speaker Change: Okay, so 3Q free cash flow is better than 2Q is what I think I heard. And then on the EBITDA side, it sounds like 3Q EBITDA to be better than 2Q as well, just because there's sequential improvement throughout, and it's not as big of a hockey stick.

Jillian Evanko: Yeah, so that's how we're thinking about the first half, second half, exactly like that. So I think you captured certainly the sequential anticipated improvement on the EBITDA side. Obviously, there are a lot of factors in cash flow that go into play here. But we do, even with the third quarter unsecured interest payment, anticipate cash to be positive.

Speaker Change: Yeah, so that's how we're thinking about first half, second half, exactly like that. So I think you captured, certainly, the sequential anticipated improvement on the EBITDA side. Obviously, there's a lot of factors in cash flow that go into play here, but we do, even with the third quarter unsecured interest payment, we do anticipate cash to be a positive.

Marc Bianchi: Okay, thanks, Jill. I'll turn it back. Thank you, Marc. Your next question comes from Manav Gupta with UBS. Your line is now open. Good morning.

Speaker Change: Okay, thanks, Jill. I'll turn it back. Thank you, Marc.

Manav Gupta: Your next question comes from Manav Gupta with UBS. Your line is now open. Good morning.

Speaker Change: Your next question comes from Manav Gupta with UBS. Your line is now open.

Manav Gupta: Good morning. The data center opportunities seem pretty good. Can you talk a little bit more about what you're seeing on the hydrogen side of the business, especially as you're coming to a close of this administration, you know, do you expect more hydrogen hub fundings to be released before November and December ? Thank you.

Manav Gupta: Yeah, good morning. Thank you for the questions.

Speaker Change: Yeah, good morning. Thank you for the questions. On the hydrogen side of the business, we have seen a very global set of demand. And so that's something that's extremely positive. What I also really liked about the second quarter order set in hydrogen for us has been the breadth of the applications that we're seeing. So ranging from compressors for steel applications to

Manav Gupta: to liquefaction applications to onboard vehicle tanks for Class VIII heavy-duty trucks, etc.

Manav Gupta: We just saw recently the DOE's announcement for the funding for a second of the seven announced hubs.

Manav Gupta: I would anticipate that you'll continue to see that progress forward, but I would like to reiterate that any future Hydrogen Hub activity that

Speaker Change: could benefit us is not built into our medium-term outlook. So definitely global hydrogen is continuing to gain traction and be a part of the solution and the breadth of applications are now starting to hit the end-use side of the value chain. So all of those things are a tailwind to to us.

Jillian Evanko: You know, on the hydrogen side of the business, we have seen a very global set of demand. And so that's something that's extremely positive. What I also really liked about the second quarter order set for us has been the breadth of the applications that we're seeing. So ranging from, you know, compressors for steel applications to liquefaction applications to onboard vehicle tanks for class eight heavy duty trucks, etc.

Speaker Change: And then lastly, just want to...

Speaker Change: We continue to hit the drumbeat around the fact that we don't have to change our manufacturing operations. So much of the same equipment that we build that goes into hydrogen also goes into traditional energy applications across the board. So we see multiple different ways we can play in the energy transition itself.

Speaker Change: Thank you.

Jillian Evanko: We, we just saw recently the DOE's announcement about the funding for a second of the seven announced hubs. I would anticipate that you'll continue to see that progress forward. But I would like to reiterate that any future hydrogen hub activity that could benefit us is not built into our medium-term outlook. Definitely, global hydrogen is continuing to gain traction and be a part of the solution. And the breadth of applications is now starting to hit the end use side of the value chain.

Speaker Change: Thank you.

Speaker Change: Your next question comes from Eric Stine with Craig Hallam. Your line is now open.

Jillian Evanko: So all of those things are a tailwind for us. And then lastly, just want to continue to hit the drumbeat around the fact that we don't have to change our manufacturing operations. So much of the same equipment that we build that goes into hydrogen also goes into traditional energy applications across the board. So we see multiple different ways we can participate in the energy transition itself. Thank you.

Eric Stine: Your next question comes from Eric Stine with Craig Hallam. Your line is now open.

Eric Stein: So, can you hear me? Just making sure. Hey Eric, yeah, good morning. We can just hear you now.

Eric Stine: So, can you hear me? Just making sure. Hey Eric. Yeah, good morning. We can just hear you now.

Eric: Okay, good. A little lag there.

Eric Stein: So, I just want to come back to Q4 and just thinking about the guide. I mean, are there, because I know, I mean, as the previous question.

Speaker Change: Stated, I mean, you've got a lot of moving parts in your business. And obviously this quarter, a lot of records, but today it will likely take a back seat to the lower guide. So just thinking about fourth quarter, I mean, are there...

Eric Stine: Okay, good. There's a little lag there. So, I just want to come back to Q4 and just think about the guide. I mean, are there any surprises there? Because, as the previous question stated, you've got a lot of moving parts in your business and, obviously, this quarter has a lot of records, but today I'll likely take a back seat to the lowered guide. So, just thinking about the fourth quarter, I mean, are there, is that, a number of projects that you are anticipating need to hit in that quarter to meet that guide?

Speaker Change: Is that, are there a number of projects that you are anticipating need to hit in that quarter to meet that guide or are you contemplating that there is a decent amount of either orders or chances those orders may slip into 25?

Eric Stine: Or are you contemplating that there is a decent amount of either orders or chances those orders may slip into 25? I'm sorry, orders, I mean revenues. Sorry. Revenues, yeah, yeah, so we have a very strong backlog and good line of sight to what's in there and the timing associated with it. So we're contemplating what we see today based on our current backlog and or known orders in the third quarter.

Speaker Change: I'm sorry, orders, I mean revenues, sorry. Revenues, yeah, yeah, so we have a very strong backlog and good line of sight to what's in there and the timing associated with it. So we're contemplating what we see today based on our current backlog and or known orders in the third quarter.

Eric Stine: So the latter to answer your question specifically. But realizing, again, that it doesn't have an impact on the medium-term outlook. And you would agree, though, with the comment that you think you are appropriately hand-in-capping that fourth quarter because you could have stuff further slip as we just think about our confidence in the back half. Yeah, we were

Speaker Change: [inaudible]

Speaker Change: And you would you would agree though with the comment that you or that you think you are appropriately hand in capping that fourth quarter because you could have stuff further slip as we just think about our confidence in the back half.

Jillian Evanko: Yeah, we were very thoughtful around the updated guide, knowing that we are at this point in the year and the visibility that we have around the timing of orders that come in late Q2, as well as current backlogs. So yes, we worked to contemplate that and include it, which we felt like, given the timing moves historically that we've had, we really worked to build that in.

Speaker Change: Yeah, we were very thoughtful around the

Speaker Change: Updated guide knowing that we are at this point in the year and the visibility that we have around the timing of orders that came in in late Q2 as well as current backlogs. So yes, we worked to contemplate that and include it.

Speaker Change: which we felt like, given the timing moves historically that we've had, we've really worked to build that in.

Eric Stine: Okay, thanks. Thank you. Your next question? Rob Brown.

Rob Brown: Your next question comes from Rob Brown with Street Capital Markets. Your line is now open. Morning. Hey, good morning.

Speaker Change: Okay, thanks. Thank you.

Speaker Change: Your next question comes from Rob Brown with Leaps.

Speaker Change: Street Capital Markets. Your line is now open.

Rob Brown: Good morning.

Rob Brown: Hey, good morning Rob. I just want to hit a little bit on the cost energy plan for the rest of the rest of the year and getting to the to the goals.

Speaker Change: You know, what steps are to go and how much visibility do you have there?

Rob Brown: Yeah, thank you, Rob, for the question. And definitely tracking ahead of plan on the cost synergies, commented that we expect to hit our year three number by the end of 2024 on the cost synergy side. And there's still quite a bit of opportunity for us, whether that's around the sourcing side. So we expect to see more synergies from the global sourcing plan that we have in place. There are additional localization opportunities, which cut down on freight costs and things like that.

Speaker Change: Yeah, thank you, Rob, for the question and definitely tracking ahead of plan on the cost synergies, commented that we expect to be.

Rob Brown: [inaudible]

Rob Brown: We're also in the massive kind of massive agreement contract land of various different renewal cycles that come up, whether that's for, you know, services or systems and things like that, that we still have opportunity ahead of us here in the second half. So we're excited about the fact that we're executing against our original year three target early, but more so that we do continue to see opportunities for further cost savings.

Speaker Change: Massive, kind of massive agreement contract land of various different renewal cycles that come up, whether that's for, you know, services or systems and things like that, that we still have opportunity ahead of us here in the second half.

Rob Brown: So we're excited about the fact that we're executing against our original year three target early, but more so that we do continue to see opportunities for further cost synergies ahead.

Pavel Molchanov: Your next question comes from Pavel Molchanov with Raymond James. Please go ahead.

Rob Brown: Okay, thank you. I'll turn it over. Thanks, Rob.

Speaker Change: Your next question comes from Pavel Molchanov with Raymond James. Please go ahead.

Jillian Evanko: Thanks for taking the question. You called out the U.S. election in November. Of course, we had a lot of elections already this summer. If we zoom in on the U.K., where the Labour government is talking about kind of pushing green hydrogen among other sustainability initiatives. What's Chart's opportunity with that, particularly given the Howden presence in the UK? Yeah, great point. And we

Pavel Molchanov: Thanks for taking the question. You called out the U.S. election in November . Of course, we had a lot of elections already this summer. If we zoom in on the U.K., where the labor, the new labor government is talking about

Speaker Change: kind of pushing green hydrogen among other sustainability initiatives. What's Chart's opportunity with that, you know, particularly given the Howden presence in the UK?

Pavel Molchanov: Yeah, a great point. And we do have a good, strong presence in the UK with Howden on the compression side. And we see multiple opportunities in that particular geography. Recently, you know, I met with folks locally in the UK. Both public and private companies are looking at not only green hydrogen project opportunities but also around their industrial CCUS parks. There's also some planning for water treatment types of opportunities. So we are very well positioned in the UK.

Speaker Change: Yeah, great point. And we do have a good, strong presence in the UK with Howden on the compression side. And we see multiple opportunities in that particular geography. Recently, you know, met with folks

Speaker Change: Locally in the UK, both public and private companies are looking at not only the green hydrogen project opportunities, but also around their industrial CCUS parts.

Speaker Change: There's also some planning for...

Pavel Molchanov: And thanks to Howden's presence there, we have the connections to get into projects as early as possible. So see that as additional potential upside from what we had been seeing previously. Thanks very much. Next question comes from Ati Modak with Goldman Sachs.

Speaker Change: For water treatment types of opportunities. So we are very well positioned in the UK and thanks to Howden, Howden's presence there, we have the connections to get in the projects as early as possible. So see that as as additional potential upside from what we had been seeing previously.

Atidrip Modak: Your next question comes from Atidrip Modak with Goldman Sachs. Your line is now open. Hi, good morning team.

Speaker Change: Thanks very much. Thanks, Pavel.

Speaker Change: Your next question comes from Ati Modak with Goldman Sachs. Your line is now open.

Ati Modak: Hi, good morning team. Jill, there was a recent transaction in the LNG and equipment sort of process business in the market. Can you compare and contrast the various components of your LNG offerings with that and are there similar opportunities for you to acquire that could be attractive?

Jillian Evanko: Thanks, Adi, for the question, and there's been a lot of LNG activity in the market, whether that's NFE's Fast First Gas, which uses IPSMR, whether that's Woodside's definitive agreement to purchase Tellurian's Driftwood, their Tellurian and the Driftwood project, or Venture Global getting their FERC approval, so lots of activity, but I think what you're referring to is Honeywell's purchase of Air Products' APCI, and what I would say is what we've seen comparing and contrasting generally IPSMR to other technologies is the move to more modular, and that's really what IPSMR's sweet spot is, with modular being Limited Plot Space Needs, also the ability to have higher efficiencies in many cases and partner up with e-drives and other ways to make LNG cleaner and greener. So what I would say is that we have, we feel great about our process technologies that are currently in the portfolio, whether that's IPSMR, which was organically developed, or our cryo technologies for hydrogen helium, which links up really well on heavy hydrocarbon renewal or NRU.

Jill Evanko: Thanks Adi for the question and there's been there's been a lot of LNG activity in the market whether that was you know NFE's fast first gas which uses IPSMR whether that's

Speaker Change: Woodside's definitive agreement to purchase Tellurian's Driftwood, or Tellurian and the Driftwood project, or Venture Global getting their FERC approval, so lots of activity, but I think what you're referring to is Honeywell's purchase of Air Products APCI.

Speaker Change: and what you know I would say is what we've seen comparing and contrasting generally IPSMR to other technologies is the move to more modular and that's really what IPSMR's sweet spot is with modular being

Speaker Change: Limited plot space needs, also the ability to have higher efficiencies in many cases and partner up with e-drives and other ways to make LNG cleaner and greener. So what I would say is that we feel great about our process technologies that are currently in the portfolio, whether that's IPSMR, which was organically developed, or our cryo technologies for hydrogen helium, which links up really well on heavy hydrocarbon renewal or NRU.

Jillian Evanko: So in terms of technologies, we feel great about how ours stacks up against the others. So we don't look, and we don't see any particular things out there with respect to this that we need in the portfolio. And the other kind of ad hoc item here is just the fact that if there are things that we want to add to the technology, we have an exceptional liquefaction engineering team in-house that does organic product development. And so there's a lot of behind-the-scenes R&D happening here too.

Speaker Change: So, um...

Speaker Change: In terms of technologies, we feel great about how ours stacks up against the others.

Speaker Change: So we don't see any particular things out there with respect to this that we need into the portfolio.

Speaker Change: and the other kind of...

Speaker Change: Ad Hoc item here is just the fact that if there are things...

Speaker Change: that we want to add to the technology. We have an exceptional local faction engineering team in-house.

Speaker Change: that

Speaker Change: does organic product development, and so there's a lot of behind-the-scenes R&D happening here, too.

Speaker Change: Appreciate the color. Thank you, Jill.

Walt Liptak: Your next question comes from Walt Liptak with Seaport Research. Your line is now open.

Audie: Thanks, Audie.

Speaker Change: Your next question comes from Walt Liptak with Speedport Research. Your line is now open.

Walt Liptak: Hey, thanks, good morning. I want to ask about the timing issue and try and get a little bit more detail about it. I think this was in the HTS segment that you saw some of the timing issues. And I think in the past that that's, you know, from my experience with following you guys, it's been, you know, sort of like a business where you get your lead times, your projects, you know, get, you know, their time schedule, and it's been pretty seamless.

Walt Liptak: I wonder if you could clarify which segment the timing issue was in and whether it was more a matter of when the orders came in during the quarter that they came in late or was it something with the customer schedules changing around?

Walt Liptak: Hey, thanks. Good morning.

Walt Liptak: I want to ask about the timing issue and try and get a little bit more detail about, I think this was in the HTS segment that you saw some of the timing issue.

Speaker Change: And I think in the past that, that's, you know, from my experience with following you guys, it's been, you know, sort of like a business where you get your lead times, your projects, you know, get, you know, their time schedule, and it's been pretty seamless.

Speaker Change: I wonder...

Speaker Change: What if you could clarify which segment the timing issue was in in two?

Speaker Change: Was it more a matter of when the orders came in during the quarter that they came in late?

Jillian Evanko: So what I would say is we have larger projects happening across the business than you had two or three years ago, which would have primarily been HTS. So we have larger projects happening across the segment. Obviously, RSL is aftermarket spares and service repair.

Speaker Change: Or was it something with the customer schedules changing around?

Speaker Change: So, what I would say is, we have more larger projects happening across the business than what you would have had two or three years ago, which would have primarily been HTS.

Speaker Change: So we have larger projects happening across the segments.

Walt Liptak: So that's not really impacted by this. We're really looking at specialty in HTS. If you were looking at the brunt of the changes, I would say that you can't really compare to a couple of years ago or a few years ago because of the fact that there are so many more across the business. That is a great thing because it gives us good medium visibility.

Speaker Change: Obviously, RSL is Aftermark Spares Service Repair, so that's not really impacted by this.

Speaker Change: We're really looking at specialty in HTS, if you were looking at the brunt of the changes. I would say that you can't really compare to a couple of years ago or a few years ago because of the fact that there's so many more across the business. That is a great thing because it gives us good medium visibility, but yet 60 or 90 days in a period is not really this type of business. So it's difficult to pinpoint.

Jillian Evanko: But yet, there are 60 or 90 days in a period that is not really this type of business. So it's difficult to pinpoint that exactly. What I would say is there's a couple of other factors that go into it. Like you said, the timing of quarters within and orders within a quarter. We had heavy order activity in the month of June. The other part of it being that things move around, customer schedules move around, and inputs from the supply chain move around.

Speaker Change: that exactly down. What I would say is, you know, there's a couple of

Speaker Change: Other factors that go into it, like you said, the timing of quarters within, of orders within a quarter. We had heavy order activity in the month of June .

Speaker Change: What is the other part of it being that things move around, customer schedules move around, inputs from the supply chain move around.

Jillian Evanko: That drives priority changes within a quarter that move where you have to shift some engineers to work on something that is a higher priority based on customer needs. So all of those things together drive timing between quarters.

Speaker Change: that drive in priority changes within a quarter that move where you have to shift some engineers to work on something that is a higher priority based on customer needs. So all of those things together drive timing between quarters.

Walt Liptak: Okay, got it. And then I wondered, too, maybe in a, you know, this This may not impact, but in the geographic region, you know, when you looked at those timing issues, it sounds like, you know, China with the trailers, that's going well for you. But what if you could talk about just kind of regionally where the timing issues are? are showing up. Thanks.

Speaker Change: Okay, got it. And then I wondered, too, maybe at a, you know,

Speaker Change: This may not impact, but in the geographic region, you know, when you looked at those timing issues, it sounds like, you know, China with the trailers, that's going well for you, but what if you talk about just kind of regionally where, you know, the timing issues?

Jillian Evanko: Well, our two biggest regions are Americas and Europe, so that's where the brunt of the larger project activity happens, and between those two regions would be where I'd focus. China and what we now call AIMA, A-I-M-A, so Asia Pac, India, Middle East, Africa, those are a little more book and ship oriented businesses as well.

Speaker Change: are showing up. Thanks.

Speaker Change: Well, our two biggest regions are America and Europe , so that's where the brunt of the larger project activity happens.

Speaker Change: and between those two regions would be where I'd focus. China and what we now call AIMA, A-I-M-A, so Asia-Pac, India, Middle East, Africa. Those are a little more book and ship oriented businesses as well.

Walt Liptak: Okay, great. Okay, thanks much.

Speaker Change: Okay, great. Okay, thanks much.

Martin Malloy: Your next question comes from Martin Malloy with Johnson Rice. Your line is now open.

Will: Thanks, Will.

Speaker Change: Your next question comes from Martin Malloy with Johnson Rice. Your line is now open.

Martin Malloy: Good morning. I wanted to ask you something about RSL this morning. That segment has been doing extremely well, and I'm just trying to get a better sense in terms of the sustainability of the results there and maybe now that you've had it for a while or since the acquisition, if you could maybe speak to some of the initiatives that you see out there that maybe you're thinking about pursuing to continue to drive the growth there and maybe some update on your thoughts there for the growth. Yeah, thanks, Marty. And we're very, very pleased.

Martin Malloy: Good morning. I wanted to ask about RSL this morning. That segment has been

Speaker Change: Thank you all for joining us today and we hope that you are doing extremely well and just trying to get a better sense in terms of the sustainability of the results there and maybe now that you've had it for a while or since the acquisition if you could maybe speak to some of the initiatives that you see out there that maybe

Speaker Change: You're thinking about pursuing to continue to drive the growth there, and maybe some update on your thoughts there for the growth.

Jillian Evanko: Yeah, thanks, Marty. And we're very, very pleased with RSL and the aftermarket side of the business, pointing to just the margin performance, which we would attribute to bringing Howden's best practices across the chart legacy business in this particular area, as well as to the commercial synergies that we've seen with having field service proximity to where our customers' installation base is. Those have been really strong wins so far, but we're in the early, early innings; we see a lot more opportunities for the community to continue to expand RSL growth.

Speaker Change: Yeah, thanks, Marty. And we're very, very pleased with RSL and the aftermarket side of the business, pointing to just the margin performance, which we would attribute to bringing Howden's best practices across the chart legacy business in this particular area, as well as to the commercial synergies that we've seen with having field service proximity to where our customers install base is. Those have been really strong wins so far. But we're in early, early innings, we see a lot more opportunity to continue to expand the RSL growth. And that ranges anywhere from the digital offering to the LTSAs across our customer base, or to further, you know, rationalization on the pricing models. And that

Jillian Evanko: And that ranges anywhere from the digital offering to the LPSAs across our customer base to further, you know, rationalization on the pricing models. And that's kind of driving where we initially, five quarters ago, when we closed on Howden, had about 30% of our revenue in RSL. Obviously, it fluctuates between quarters, but this quarter, at 34.7%, we were pleased with that, as well as the margin expansion opportunity there. Yeah, I'm not going to lead you to say that every quarter is going to be in the high 40% gross margin because that really does depend on the mix in the segment between field service and spares. Yet, there we do see a meaningful opportunity to continue to grow this segment and increase its

Speaker Change: kind of driving where we initially five quarters ago when we closed on Howden had about 30% of our revenue in RSL. Obviously, it fluctuates between quarters, but this quarter at 34.7%, we were pleased with that, as well as the the margin expansion opportunity there. I'm not going to drive you to say that every quarter is going to be in the high 40% gross margin, because that really does depend on mix in the segment between field service and spares.

Speaker Change: Yet there we do see a meaningful opportunity to continue to grow this segment and grow its margin.

Craig Shere: Your next question comes from Craig Shere with Two Brothers. Your line is now open.

Speaker Change: Thank you, I'll turn it back. Thank you.

Speaker Change: Your next question comes from Craig Shere with Two Brothers. Your line is now open.

Craig Shere: Good morning. Thanks for taking the time to answer the question. On the free cash flow bridge, slide 16. I'm a little confused if you could elaborate about what exactly the long-term balance sheet changes not reflective of quarterly OCF refers to, and the next two lines sound like they're kind of like headwinds for the second quarter but should kind of, you know, be tailwinds into the second half and trying to square that with the reduced guidance for the full year. Sure.

Craig Shere: Good morning. Thanks for taking the question. On the free cash flow bridge on slide 16,

Craig Shere: I'm a little confused if you could elaborate about what exactly the long-term balance sheet changes not reflective of quarterly OCF refers to, and the next two lines.

Speaker Change: Sound like they're kind of like headwinds second quarter, but should kind of, you know, be tailwinds into the second half.

Speaker Change: And I'm trying to square that with the reduced guidance for the full year.

Jillian Evanko: Sure. So primarily in the long term, you know, these are these are balances for activities outside of one year. And when we talk about our cash value, we talk about a one year look, the primary primarily in there is changes in deferred And then the next two lines, the next two lines are, related to two specific projects that we talked about, or Joe referred to on the call here, then they, there are specific things we did in the quarter, when customers had a need, and we responded to it, so that we once again, continue to build that relationship and have those opportunities with these particular two customers.

Speaker Change: Sure. So primarily in the long term, these are balances for activities outside of one year. And when we talk about our cash value, we talk about a one-year look. Primarily in there is changes in deferred tax.

Speaker Change: And then the next two lines, the next two lines are.

Speaker Change: Related to the two specific projects that we talked about, or Joe referred to on the call here, then they were

Speaker Change: specific things we did in the quarter when customers had a need and we responded to it so that we once again continue to build that relationship and have those opportunities with these particular two customers and they these will be you know certainly cash

Jillian Evanko: And these will be, you know, certainly cash tailwinds in the second half. But when we looked at the outlook for the second half or the full year combined on cash, we had a change to our EBITDA outlook for the full year. So that flows through. And then we also looked at our cash conversion, which we felt was achievable based on the fact that we have timing moves, and built some of that in as well.

Speaker Change: tailwinds in the second half. But when we looked at the outlook for the second half in the full year combined on cash, we had a change to our EBITDA outlook for the full year, so that flows through. And then we also looked at our cash conversion that we felt was achievable based on the fact that we have timing moves.

Speaker Change: and built some of that in as well to the guide.

Ferit Almagrabi: Your next question comes from Ferit Almagrabi with BTIG. Your line is now open.

Speaker Change: All right. Thank you. Thanks, Craig.

Speaker Change: Your next question comes from Ferit Almagrabi with VTIG. Your line is now open.

Ferit Almagrabi: Good morning, thanks for taking my question. I'm hopping on a little bit late here, so I apologize if it's been asked before, but in the past, I believe you've talked about large-scale IPSMR orders being roughly $30 million per MTPA. So when it comes to the Origin LNG deal, because that's... I think we said mid-scale L&G, what is the revenue opportunity there?

Ferit Almagrabi: Good morning, thanks for taking my question.

Ferit Almagrabi: In the past, I believe you've talked about large-scale IPSMR orders being roughly $30 million per MTPA. So when it comes to the Origin LNG deal, because that's...

Speaker Change: I think we said mid-scale L&G. What is the revenue opportunity there?

Jillian Evanko: Yeah, thanks for the question. So if you look at the three projects, the three big LNG projects that we don't currently have in backlog, but we know that they will use our technology and equipment, that's Argent, that's Driftwood, and that is the international oil companies, big LNG project; that's an international project. Those three combined have chart content of approximately one and a half billion dollars. That is the way to think about it.

Speaker Change: Yeah, thanks for the question. So, if you look at the three projects,

Speaker Change: The three big LNG projects that we don't currently have in backlog, but we know that they will use our technology and equipment.

Speaker Change: That's Argent, that's Driftwood, and that is the International Oil Company's big LNG project, that's an international project. Those three combined have chart content of approximately one and a half billion dollars, is the way to think about it.

Ferit Almagrabi: That's helpful. And then at a higher level.

Speaker Change: That's helpful. And then at a higher level...

Jillian Evanko: PCS drove record ordering in specialty, or it was one of the drivers. So I'm just wondering if you could speak to that. Are you starting to see orders from industrial-scale projects, or is this order flow coming from localized stuff? So here I'm thinking about an individual refinery or a power plant. Sure, yeah, and Specialty had a...

Speaker Change: PCS drove record ordering and specialty, or it was one of the drivers, so I'm just wondering if you could speak to that. Are you starting to see orders from industrial scale projects, or is this order flow coming from localized stuff? So here I'm thinking about an individual refinery or a power plant.

Jillian Evanko: Sure, yeah, and you know, Specialty had a few different end markets that had records that we were very pleased with, and you know, kind of, I don't know if you heard during the prepared remarks, but the DRI end market, you know, supporting green applications, etc. But specific to CCUS, the scales are getting larger, so the sizes of the projects that we're doing are getting larger in a breadth of end markets as well, so a little more expanded kind of application. I would say that it's not yet. It's not yet integrated.

Speaker Change: Sure, yeah, and, you know, Specialty had a few different end markets that had records that we were very pleased with, and, you know, kind of, I don't know if you heard during the prepared remarks, but the DRI end market, you know, supporting green applications, etc., but specific to CCUS, the scales are getting larger, so the sizes of the projects that we're doing are getting larger, and a breadth of end markets as well, so a little more expanded kind of application

Speaker Change: I would say that it's not yet.

Jillian Evanko: There's still one project per customer style activity, but there are more of them happening, and there are more applications and markets that they're happening in. So, to us, you know, it's the second sequential quarter that CCUS has been a record in terms of orders. So the traction is there gaining steam, and very, I would say, pragmatic practical projects that are looking to use these applications in our technology.

Speaker Change: It's not yet integrated.

Speaker Change: There's still one project per customer style activity, but there's more of them happening and there's more applications and markets that they're happening in. So that to us, you know, it's the second sequential quarter that CCUS has been a record in terms of orders.

Speaker Change: So, the traction is there, gaining steam, and very, I would say, pragmatic, practical projects that are looking, that are using these applications in our technology.

Speaker Change: Thank you very much, Jill.

Unknown Executive: There are no further questions at this time. I will now call management for closing remarks.

Jill Evanko: Thank you.

Speaker Change: There are no further questions at this time. I will now call over to management for closing remarks.

Jillian Evanko: Thanks, everybody, for joining us today. And, as Joe concluded our prepared remarks, thank you to the Global OneChart team for all you do and for executing safely with our rolling 12-month TRIR of 0.42 as of the end of this quarter. So thanks, everybody, and I appreciate your time.

Speaker Change: Thanks everybody for joining us today. And as Joe concluded our prepared remarks, thank you to the Global OneChart team for all you do and for executing safely with our rolling 12-month TRIR of 0.42 as of the end of June . So thanks everybody and appreciate your time.

Unknown Executive: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.

Speaker Change: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.