Good morning and welcome to Chart Industries, Inc. 2023 Third Quarter Results Conference Call. All lines have been placed on mute to prevent background noise. After the speakers’ remarks, there will be a question-and-answer session. The company’s release and supplemental presentation were issued earlier this morning. If you have not received the release, you may access it by visiting Chart’s website at www.chartindustries.com. A telephone replay of today’s broadcast will be available following the conclusion of the call until Friday, November 24, 2023. The replay information is contained in the company’s press release. Before we begin, the company would like to remind you that statements made during this call that are not historical facts 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 call over to Jill Evanko, Chart Industries’ President and CEO. Please go ahead.

Thank you, Sylvie. Good morning, everyone, and thank you for joining Joe Brinkman, our CFO, and me to walk through our record third quarter 2023 results starting on Slide 5 of the supplemental deck. We are very pleased with our team’s positive momentum on integration progress, financial results, deleveraging, and delivering on the broad-based demand that we saw continue through the third quarter. One very positive accomplishment that I want to start with is that we have achieved approximately $500 million of cash proceeds from a subset of the originally defined divestiture perimeter with the signing and closing yesterday of the sale of our American Fans business to Arcline for $111 million in an all-cash deal with multiples in-line with prior Chart transactions. In addition, we expect approximately $80 million next Tuesday from the earlier than expected Cofimco sale closing and also expect to close the $4.25 million Cryo Diffusion sale next week. We have one additional business that was considered in the original asset sale perimeter that has not been sold, and we are evaluating whether we will proceed with the divestiture or keep the business within our portfolio. We also generated net cash from operating activities from continuing operations of $104.4 million and $142.2 million when adjusted for M&A transaction fees and cash costs. Combined with our margin strength, we are at 3.59 net leverage ratio which was pro forma for the announced divestitures of 3.47. We reiterate our expectation to achieve our target net leverage range of 2.5 to 2.9 by the middle of 2024. With respect to margin strength, since the close of the Howden acquisition on March 17th, we have performed above 30% on reported and over 31.5% on adjusted gross margins and expect to continue to be at or above this level going forward.…

We continue to undertake actions to generate more cash for debt pay down and optimize our balance sheet, including repatriating over $25 million of cash in the third quarter, favorable re-pricing of our Term Loan B, and closing on the sale of our South Africa facility for $2.2 million. We anticipate closing the sale of two other properties in the fourth quarter. On Slide 30, you can see additional details of our Theodore, Alabama jumbo tank and rail expansion. This is a high ROI project for us, and the additional capacity is needed to deliver on the $115 million of orders already in backlog for this facility. We accelerated our capital spend timing to take advantage of market opportunities that arose primarily in the space exploration, rail and marine markets where multiple blue chip customers needed deliveries as early as possible in 2024. We were able to work with our building contractors to accelerate the pouring of the very thick concrete floor, which holds tanks up to 1 million pounds and expedite the arrival and erection of the building steel. You can also see on Slide 30 where the site was as of June 30 and the incredible progress as of this week. Also, the steel workers remain on site and we expect to have all of the building columns complete by Sunday. We originally had a multi-phase CapEx optionality on this project, which was to be determined based on future demand. Given the early railcar demand and backlog, we also decided to accelerate what was originally Phase 2 scope with the site’s rail spur addition and revamp. We now expect occupancy and the beginning of operations earlier than it originally anticipated, pulling forward this related capital expenditure spend was instrumental in securing the $58 million of third quarter 2023…

Thank you. [Operator Instructions] And your first question will be from Ben Nolan at Stifel. Please go ahead.

Great. Thanks. Hey, Jill, and Joe.

Hey, Ben.

Hey, Ben.

So I – first of all, the orders are strong. The guidance is really strong. The backdrop though, in this environment with higher interest rates, it feels a little less certain than maybe it has in the past. In fact, I know, Jill, you would know that one of your competitors, or at least a fraction of their businesses competitive years, was out sort of saying there’s just too much uncertainty to have much confidence looking into next year. You don’t seem to be reflecting that at all, and certainly, it’s not in your orders. So the question here is, sorry, that was a longwinded start, but the question here is, could you maybe talk through, maybe segment by segment, what your line of sight is for next year? And maybe by those segments, what portion of the business is economically sensitive and then what portion of it you think is maybe not?

All right. Thanks, Ben, for the question and the tee up. And before I answer your question directly, thank you for recognizing the strength in the order book and the outlook ahead. So that leads me to our view in our confidence level, our very high confidence level in these figures, in this outlook, in particular, given our record backlog, record orders ex-Big LNG, which I think is extremely important, right? It’s the shift in the dynamic of the business away from that heavy reliance on one or two orders coming in and this broad base demand where we have multiple end markets that we serve, which, by the way, we don’t have to change our manufacturing lines to serve, right? We can use the brazed aluminum heat exchangers, whether that’s in Big LNG, whether that’s in hydrogen liquefaction or helium liquefaction, in some cases carbon capture. So the list could go on. And you’re really familiar with that. But that broad based nature of our backlog, the visibility that we have to where those projects are in terms of progression is one of the shifts that Joe talked about in his remarks thereof moving toward that solution provider gives us more visibility into that backlog. I’d also say specifically of more than 65% of our backlog for that covers – 65% of our 2024 covered by backlog. I think that’s an important metric, right? We talk about also the ability for us to move schedules around and to be able to adapt, how we serve our customers is another key element to how we deliver on that backlog. And we did mention as well in our outlook that it does include commercial synergies. And I mean heck, I think you commented on it in your early look report. We…

All right, that was extremely thorough. I appreciate it. Thanks, Jill.

Thanks, Ben. I appreciate the question.

Next question will be from Martin Malloy at Johnson Rice. Please go ahead.

Good morning.

Hi, Marty.

Hi. I want to ask a question about the hydrogen outlook and some of the graphs, do you have on 21. I was wondering if maybe you could help us with thinking through the scope of potential awards to chart for, say, a 10 ton per day hydrogen production liquefaction plant coming online. Assuming that the hydrogen is going to be used for transportation or stationary power, when you think about all the storage and transportation and use equipment that you might sell.

Yes. Thanks, Marty, for the question and appreciate you looking into the detail that we have put out in the deck. So let me touch on a few things on that Slide 21. In that upper right hand graph, there’s a lot to digest here. The first thing being that we are continuing to see more and more commercialization in hydrogen. The second being that the three facets of the hydrogen value chain production, storage and transport and then end use, you can see for the last couple of years, the primary – our primary customer spend was in production and storage and transport. And now if you look at that last category, we’re starting to see an increase in orders for end use, whether that’s mobile re-fuelers that could be fueling stations, things like that. And that to us is a positive indicator for the years ahead, given that you have to have for the ecosystem to work, you have to have supply and demand. And you’re seeing that end use, the demand starting to grow. So that’s the two takeaways on that upper right hand chart on Slide 21. Now what your question was kind of chart content and what are we seeing on let’s take whether it’s a 10 ton per day. We’re seeing most of the liquefiers we see are either 15 ton per day or 30 ton per day. So I’m going to just use 15 ton per day as an example. And if you take the liquefier itself, those typically a 15 ton per day is going to cost, our content will be $35 million to $50 million on a 15 ton per day, obviously, with variability depending on aspects and customizations that the customer may want. But the second half of your question,…

Great. Thank you very much.

Thanks, Marty.

Next question will be from Eric Stine at Craig-Hallum. Please go ahead.

Hi, Jill. Hi, Joe.

Hey. Good morning, Eric.

Good morning. Hey, so I appreciate that you’re limited as to what you can say, but curious just on the new LNG award or new LNG opportunity that you expect to book later next year. I’ve been wondering if you can give any detail in terms of size and also just curious, is this one of the counterparties that you’ve been qualified with? Is this a new customer? Details would be helpful.

Yes, thanks Eric, for the question. And I appreciate you picking up on our excitement around this particular win. We’re qualified IPSMR qualification without boring you with the technical details is a big deal and it’s a big ordeal to get there. It’s multi years – in particular with international oil companies and we have, I think, close to a dozen of these validations and qualifications, technically. And we had, I think, last quarter we said nine international potential projects that fall in this category. Now we say, we have ten, plus the one that we know we were awarded the technology. That’s a meaningful step for us, I think, part of that, so the direct answer, yes, it’s with one that has qualified us. The way that these typically work is the qualification happens through engineering and then the project team is the one who actually makes the decision, because they have to implement it. And so again, that’s a separate process and a longer process. So we’re super excited about this win. This is a high dollar. If you’re looking at historically the way we range out our big LNG projects, you say 100 to a few hundred million. This is certainly going to be at the high end of that range in terms of size and content. And I can’t tell you – international, there’s very limited locations geographically, internationally that have very sticky and established LNG activity. And so you can probably at least hone in on that from my answer there. But I think even bigger when you’re talking about future potential growth, it unlocks having this type of win unlocks an entire market within big LNG that we never played in or played extremely limited in before. And so that’s my takeaway, is the strategy for profitable growth, continued consistency in big LNG bookings, and now we have this whole other facet of the world that is going to use IPSMR. I love it.

Right. And I guess safe to assume that this large company has a backlog beyond just this project or at least a pipeline.

Yes, you are correct, Eric.

Okay. And then last one for me. You mentioned the 65% coverage and backlog. I mean, obviously that’s a great number for Chart solo, but just context now that Howden is added as well. I mean, should we kind of view them the same? That’s a historically high level of backlog coverage.

Yes, absolutely, Eric. Having 65% historically for Howden is excellent backlog coverage.

Okay, thanks.

Thank you. Next question will be from Marc Bianchi at TD Cowen. Please go ahead.

Thank you. I’m going to honor John’s request and ask just one question.

Thanks, Marc.

So the fourth quarter guidance here and then for 2024, just trying to think about the progression as we get into 2024 because I think typically you would have some seasonal downturn in the first part of the year and then it ramps over the course of the year. Maybe that’s dampened a bit by Howden. But even if that happens, it would seem that you’d need to be exiting 2024 at margins maybe quite a bit above the 25% EBITDA margin that’s implied by the guidance. So maybe if you could just provide a little bit of a progression on how this should play out in 2024 to give us a sense of the exit rate?

Yes. Thanks for the question, Marc. And what I would say maybe I’ll step back to since we closed on the Howden deal, we’ve been at above the 21.5% adjusted EBITDA margin. We see the cost synergies are really starting to flow through the P&L here. In particular on SG&A as an example, we definitely see 2024 in terms of progression. We used to say Chart legacy used to say, okay, the first quarter and the fourth quarter were the lowest quarters of the year. We don’t see that nearly as much just given the shift to the project nature of the business. What we do want to point out in particular on and I’m going to come back around on the margin point here. But in particular, I want to make sure everybody noted the comments about the senior secured note, interest payments where we pay in January and July. So there are two payments a year. So that’s important because that flows through operating cash. On the margin side, we have increasing benefit from mix in backlog around the projects that we’ve booked. The synergies I already touched on and then the delivering through on the higher volume that we have. So I would – the way I would model the year is kind of sequentially stepping up the EBITDA margin from where we sit today. And that’s – you can see that reflected in the implied fourth quarter 2023 guidance. And I don’t see anything that says there’s one quarter like we used to have that really we should call out as being lower than the rest of them.

Okay. Thank you very much.

Thank you, Marc.

Next question will be from Pavel Molchanov at Raymond James. Please go ahead.

Thanks for taking the question. Actually piggyback on the previous question, but more zooming in on top line. Given how much the business mix has changed, particularly the recurring and service revenue, is the kind of progression, first half versus second half going to be meaningfully smoother going forward versus the legacy Chart, which was very beckon weighted?

Yes. Hey, Pavel. Thank you for the question. So the short answer is yes. The longer answer is that the way you – I’ll give you an example. The way that the larger projects, timing of deliveries that will take a big LNG project. In the second quarter of this year, we had more big LNG related revenue because there was the delivery of a train for a customer that we got that revenue into the quarter. And we had less so in the third quarter because we’re starting work on the next train or the next series of trains. So there is a little bit of kind of how those project delivery schedules play out much smoother than historically. If you look at our backlog, you will have a step up from first half to second half in 2024, just based on the big LNG projects that are in the backlog. But not nearly kind of this Q1 to Q2 to Q3 and then down in Q4 like it used to be.

Thank you.

Yes. I would just add that just one thing to add Pavel is, our growing business is naturally going to have a bigger fourth quarter than first quarter just because it’s growing.

Did that answer your question, Pavel?

Perfect.

Thank you. Next question will be from Craig Shere at Tuohy Brothers. Please go ahead.

Tuohy Brothers. Thank you.

Hey, Craig.

Hi. So, given the commercial synergies are kind of doubling original guidance, just kind of scratching my head a little bit that shouldn’t that have aided 2023 revenue performance and kind of related to this question, can you elaborate a little bit on the elongation of the non-big LNG book to bill?

Yes. Thanks, Craig, for the question. So almost all of the synergies that we have booked, the orders are full solution style bookings. And so these have engineering timing and these in many cases are going to be across 12 months to 36 months type of revrec cycles. So you don’t really get anything in the very short term. And the amount of synergy we booked in the third quarter, you’re really going to start to see that in the first quarter in terms of sales. In terms of the elongation of the non-big LNG book to bill, what I would say here is that we – maybe I’ll turn the question slightly differently. We continue to expect to see a book to bill above one. That’s kind of the way we think about continuing to be able to grow the backlog, to grow the top line at that 15% plus and having this solution – this full solution differential is a way that we get sticky with these customers. And in many, many cases there’s multiple projects behind the ones that are in the backlog. So one of the points that I think is really important in the shift of our business from what we used to look like is that we’re – and I’ve said this time and time again here in the last hour, is that we’re no longer reliant on one or two things. And that gives us that confidence level to be able to grow through the cycle. And we love big LNG. But we can grow without big LNG. Now, I do want to hit the point home that we continue to expect big LNG orders here and we have a really good line of sight to the ones that we know we have content on across the coming foreseeable years here. So it’s a great position to sit with record backlog, but also with the visibility we have to the full solution commercial pipeline that we expect to continue to come into the order book here throughout the years ahead.

Thank you.

Thank you. Next question will be from Ati Modak at Goldman Sachs. Please go ahead.

Hi, good morning, team.

Hey Ari.

Can you help us understand the moving theses in the 2023 guidance between the $100 million in revenue slippage, what segments that affects? And to Craig’s question from earlier, the synergies and the asset sales that have occurred? And then 2024 guidance seems like it remains unchanged. Did that already contemplate the diversity or are there any offsetting factors there?

Yes. Thanks for the question, Ati. So, as we pointed out in our remarks there were a few factors that went into the timing shift. And I’ll say this again, I say it every quarter, two to three months in our business especially now that we have these long, larger projects, it’s really hard to get exact and it’s not lost revenue, it’s timing of the revenue associated with whether that’s POC for supplier deliveries or progress. Whether that’s customers that call us and say, hey, we want to add a capability or tweak a design to get more output from the nameplate production or whether that’s us moving and prioritizing a customer because they have an urgent situation and we get less revenue wreck in a quarter off of that. So that’s kind of the tactical side of things. And then we had at the end of the second quarter, obviously Roots was in disk ops, but we had expected Cofimco to close pretty close to year end of 2023 as we’re excited that it’s going to close on the 31st of October for that cash in. We hadn’t expected to have the American Fan divestiture done in 2023, but that was really a nice win-win. It’s ending up in a really good home for the fact that it’s 80% plus Navy oriented government, which isn’t core to our business. So those were the couple of divestiture piece that kind of shifted timing for the rest of 2023. When we look ahead to 2024, what we would share here in terms of the outlook being unchanged is while our guide in 2024, we haven’t really given – we had not given a revenue guide, we had given an EBITDA guide. And we had known the original asset sale perimeter, which I would point out again that we hit the number, the target even with a subset of the original perimeter just seven months post close of the acquisition. But when we look ahead, we had commercial synergies that we talked about on the last question from Craig that now come in stronger earlier into the order book. So that gives us earlier revenue in 2024 that which allows us to cover what we had sold out of the portfolio. If I were distilling it to one answer, that’s really it. And then of course, there’s things like the way that we talked about the step up in first half, the second half, and the timing of when these projects revenue recognition kind of ramps up. And having booked the big LNG order at the end of the second quarter, we see a good line of sight to that revenue ramping up. We have almost proceed on that, so that revenue really ramping up mid-2024 as well.

Thank you.

Got it.

Next question will be from Rob Brown at Lake Street Capital. Please go ahead.

Good morning, Jill and Joe.

Hey Rob.

Hey Rob.

Just wanted to follow up, given the really strong commercial synergies that you’re showing and really better than you expected, how do you see that continuing? Do you expect that to kind of flow through in future periods? And do you sort of think that that can be better than you ultimately expected?

No. We’ve been continually surprised by all the synergy opportunities that we’re seeing. As we pointed out in our remarks pivoting to more of a solutions provider here, you’ve got the traditional cryogenic liquid background of Chart. You’ve got the gas side of the business at Howden really coming together for solutions for customers in the hydrogen space and in other spaces. So, yes, continue to expect more synergy wins as we put these offerings together.

And Rob, I’d elaborate on that answer in that, you think about we said $800 million of commercial synergy pipeline available to us; that was in May of this year. And now we’re saying $1.3 billion of commercial synergy pipeline here sitting at the end of October, even after this $300 million of already awarded commercial synergies. That’s pretty exceptional in my mind, but what to me is even more so is we have this WhatsApp Group for the commercial team, and we share wins amongst that and the amount and types and breadth of the synergy potentials that these teams are working on and going out together. This is the value of the OneChart commercial team is really amazing. The other thing that I think has been fantastic around bringing these synergy opportunities forward, there’s two things I’d point out. One is we have a dedicated team that trains the commercial organization and the technical organization on the respective offerings that both Chart and Howden legacy brought together. And I think that’s really driven their ability to sell. So kudos to Jessie [ph] and the team that’s been working on that. And then the second piece is this RSL opportunity. I can’t share enough times how much synergy potential on the RSL side that’s untapped yet, and it’s already been – it’s already gained a lot of traction. I love the tools Mark and his team up in Buffalo, the tools that they’ve been able to deploy to our commercial team, whether that’s an app to be able to see an install base when they go to a customer or just gathering the opportunity of installed base has really been an accelerant to the synergy achievement. I’m not going to give a specific number, but I don’t see – I don’t see certainly it slowing in 2024 by any means.

Great. Thanks for the color, and congratulations on progress.

Thank you, Rob.

Next question will be from Sherif Elmaghrabi at BTIG. Please go ahead.

Hey, thanks for taking my question. Changing gears here, you talked about high velocity hub really being a group of projects. Can you give us more color on what kind of projects Chart’s involved in at the hub? And on the equipment side, given its blue hydrogen or mostly blue hydrogen, is there an opportunity for HTS and CTS here as well?

Yes. Thanks for the question, Sherif. So stepping back on the hub, I think well, first of all, I think BTIG understands the hubs really well. From what I read, in the sense of – in the sense of they are not – it wasn’t just seven awards and that was it. Sometimes we had some calls in saying; well you’re only in one hub. Well, you actually just join the hub, but being in the hub doesn’t mean that you automatically are winning a project. So we’re in the high velocity hub. We think that in particular, in high velocity, there’s a great opportunity for liquefaction, which would be strong for our content. Also in the high velocity hub, we have partners such as Cummins in this hub, and so there’s a lot of kind of behind the scenes opportunities for us to commercially work together whether that’s in the hub or not. When we talk about across the hubs, so as the regional hub partners down select the projects, there will be multiple projects in the hubs. And we have been in conversations with existing customers and potential customers that all have projects that they would like to win within the hubs and think that there’s plenty of opportunity both on the gaseous and the liquid side. And so to your question on HTS, so we talk specialty, rights on HTS or CTS content for hydrogen opportunities? I’ll let Joe talk to that.

Yes. I mean, just the liquefaction flows through HTS, but as a reminder any investment in liquefaction of hydrogen is going to lead to more hydrogen trailers needed and more hydrogen storage tanks downstream that those trailers are delivering into, so we get pull through in both HTS and CTS with any of the hubs.

And that’s very helpful. Thanks both for taking my question.

Thank you, Sherif.

Thank you. At this time we have no further questions. Please proceed.

Thank you for everyone for attending the call today, and we look forward to continuing the dialogue going forward in a strong fourth quarter. Goodbye.

Thank you. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time we do ask that you please disconnect your line.