Release Date: August 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Chart Industries Inc (GTLS, Financial) achieved numerous all-time historical records in Q2 2024, including record reported sales, backlog, gross profit, gross margin, operating income, and EBITDA.
- Orders increased by 12% to $1.16 billion, with a significant 40% increase excluding big LNG projects.
- The company reported record sales of $1.04 billion, an 18.8% increase, with the aftermarket segment contributing about 35% of second-quarter sales.
- Chart Industries Inc (GTLS) achieved significant cost and commercial synergies, with $924 million of commercial synergies and $223 million of cost synergies already realized.
- The company has a strong commercial pipeline of opportunities for the next three years, valued at over $23 billion, driven by diverse end markets and applications.
Negative Points
- The mandatory preferred dividend had a negative impact of $0.14 on the second quarter adjusted EPS and a $0.60 impact on the full-year guidance.
- The net leverage ratio of 3.26, although improved from 4.08, still indicates a relatively high level of debt.
- The company had to adjust its full-year guidance due to timing shifts in project orders and foreign exchange headwinds.
- Free cash flow for Q2 2024 was lower than expected at $115 million, compared to the prior outlook of $175 million, due to specific inter-quarter timing issues.
- There is a risk of further timing shifts in project orders, which could impact future quarterly performance and guidance.
Q & A Highlights
Q: Jill, I wanted to dig in on your cooling solutions. How are you thinking about the opportunities for your compression and other equipment, especially the Howden equipment, in data centers and SMRs?
A: We're very excited about this expanded addressable market. Our equipment and solutions, such as air-cooled heat exchangers and fans, are perfect for data centers and energy-intensive AI arenas. We also see significant potential for Howden's screw compression capabilities in heavy industrial chilling applications.
Q: Did I hear correctly that the data center opportunity based on three gigawatts is around $0.5 billion?
A: Yes, that's our near-term estimate for the next three years. As heavy industrial chilling expands, we anticipate an additional $600 million to $800 million of addressable market, particularly targeting the Howden side of the business.
Q: Can you talk through how you're thinking about the timing of projects and how that is baked into your revised guidance?
A: We have better line of sight to project timings now and have built some of the inevitable quarterly movements into our updated full-year guide. Our medium-term targets remain unchanged, and we anticipate sequential growth in 2025 and 2026.
Q: How do you expect the back half of the year to unfold in terms of EBITDA and free cash flow?
A: We anticipate sequential growth through the back half of the year. Historically, Q4 has been strong for us, and we expect that to continue. We also expect Q3 cash flow to be positive, with Q4 being stronger.
Q: Can you talk a little bit more about what you're seeing on the hydrogen side of the business?
A: We see a very global demand for hydrogen, with a breadth of applications ranging from compressors for steel applications to liquefaction and onboard vehicle tanks. Future hydrogen hub activity is not built into our medium-term outlook, but we see multiple ways to play in the energy transition.
Q: Are there a number of projects that need to hit in Q4 to meet your guide, or are you contemplating that some revenues may slip into 2025?
A: We have strong backlog and good line of sight to the timing of orders. We have worked to build in potential timing shifts into our updated guide, given the historical timing moves we've experienced.
Q: What steps are to go in your cost synergy plan for the rest of the year, and how much visibility do you have there?
A: We are tracking ahead of plan on cost synergies and expect to hit our year-three target by the end of 2024. We see further opportunities in global sourcing, localization, and contract renewals.
Q: Can you compare and contrast your LNG offerings with recent market transactions, and are there similar acquisition opportunities for you?
A: We feel great about our process technologies like IPSMR, which is well-suited for modular solutions. We don't see any immediate needs to add to our portfolio through acquisitions, as we have strong in-house R&D capabilities.
Q: Can you elaborate on the long-term balance sheet changes not reflective of quarterly OCF and how they impact your reduced guidance?
A: These primarily include changes in deferred tax and specific project-related decisions made in the quarter. These will be cash tailwinds in the second half, but we adjusted our full-year cash outlook to reflect our updated EBITDA guidance and anticipated cash conversion.
Q: What is the revenue opportunity for the Origin LNG deal, given it's mid-scale LNG?
A: For the three big LNG projects not yet in backlog, including Origin, Driftwood, and an international project, the combined Chart content is approximately $1.5 billion.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
