Chart Industries, Inc. (GTLS) Earnings Call Transcript & Summary

Good morning, and welcome to the Chart Industries, Inc. 2024 Fourth Quarter and Full Year Results Conference Call. [Operator Instructions] The company's release and supplemental presentation were issued earlier this morning. If you have not recieved the release, you may access it by visiting Chart's website at www.chartindustries.com. A telephone replay of today's broadcast will be available approximately 2 hours following the conclusion of the call until Friday, March 28, 2025. The replay information is contained in the company's press release. Before we begin, the company would like to remind you that statements made during this call that are not historical, in fact, are forward-looking statements. Please refer to the information regarding forward-looking statements and risk factors included in the company's earnings release and latest filings with the SEC. The company undertakes no obligation to update publicly or revise any forward-looking statements. During this conference call, references may be made to non-GAAP financial measures. Just as you in understanding these non-GAAP terms, Chart has posted reconciliations to the most directly comparable GAAP financial measures on the Chart Industries website. We have provided a supplemental slide presentation to support our comments on this call that can be asked in the presentations and webcast section of the chart website at www.chartindustries.com. I would now like to turn the conference call over to Ms. Jill Evanko, Chart Industries' CEO. Thank you. Please go ahead.

Thank you, Ina. Good morning, everyone, and thank you for joining our fourth quarter and full year 2024 earnings call. Joining me today is our CFO, Joe Brinkman. We will begin on Slide 4 of the supplemental deck that was released this morning. Results shown are from continuing operations. When referring to any comparative period, all metrics are pro forma for continuing operations of the combined business of Chart and Howden. Pro forma excludes the following businesses that were divested in 2023, Roots, American Fan, Cofimco and Cryo Diffusion. In the fourth quarter 2024 we generated $281.5 million of net cash from operating activities and after $20.5 million of CapEx spend had free cash flow of $261 million attributing to full year 2024 free cash flow of $388 million. This cash was used to reduce net debt and resulted in our year-end 2024 net leverage ratio of 2.8, making further progress to our net leverage ratio target of 2 to 2.5x, which we expect to hit in 2025. When compared to the fourth quarter 2023 pro forma, orders were $1.55 billion, an increase of 29.4%, including Phase 1 of Woodside Louisiana LNG, which was received in December 2024. This contributed to full year 2024 orders of $5 billion, a 13% increase compared to 2023. Fourth quarter 2024 sales of $1.11 billion increased 10.8%, excluding FX, contributing to full year organic sales growth of 16.9%. Fourth quarter 2024 had a $17 million headwind from foreign exchange in terms of sales when compared to our forecast heading into the quarter. Fourth quarter reported operating income of $188.3 million was $243.4 million when adjusted for unusual items, primarily related to integration and restructuring. This reflects lower cost and leveraging SG&A, resulting in 22% adjusted operating margin and 33.6% gross margin. For the full year 2024, adjusted operating margin was 21.1%, an increase of 400 basis points. Adjusted EBITDA for the quarter of $283.6 million or 25.6% of sales contributed to our full year adjusted EBITDA of $1.014 billion and EBITDA margin of 24.4%, a year-over-year increase of 330 basis points. Although adjusted operating profit exceeded our internal expectations, fourth quarter 2024 adjusted diluted earnings per share of $2.66 faced headwinds from foreign exchange, the delta and the tax rate compared to our forecast, the change in share count due to market price movement and interest expense, which combined were approximately a $0.33 headwind to Q4 EPS. The Slide 5 is a summary of the fourth quarter compared to Q4 '23 pro forma, and we'll cover those in the coming few slides. So moving on to Slide 6. You can see some specific order examples from the fourth quarter '24 on Slide 6. Starting in the upper row, left-hand side, as I mentioned earlier, we received the Phase 1 order for Woodside Louisiana LNG, and we expect to receive Phase 2 in 2025. Moving left to right in the top row, we have seen an increasing need for Nitrogen Rejection Units or NRUs as gas composition in the U.S. Gulf Coast becomes more varied. We are pleased to have received an NRU award from Energy Transfer and look forward to working closely to help them and other midstream and downstream providers solve these challenges to natural gas. While this is a global opportunity for Chart in the United States, we are specifically seeing more nitrogen and other inerts in gas coming out of the ground as well age and are drilled deeper. Many pipelines have 3% limit on nitrogen and for LNG, the nitrogen limit drops only 1%. Importantly, this is not driven by policy, but rather customer efficiency. We anticipate seeing more activity in the NRU market during 2025 and beyond as the global NRU market is expected to grow at a 6.3% CAGR from 2025 to 2033. We recently announced Charts carbon capture solution and helium storage for Pulsar Helium, utilizing our Earthly Labs technology, which has been scaling larger in recent quarters. On the bottom row of Slide 6, you can see a few other fourth quarter wins, including air coolers for a data center as well as an order from our recently announced partnership with Bloom Energy. Together, we intend to offer a solution to customers such as data centers and manufacturers who are seeking power solutions that can be deployed rapidly without compromising reliability or emission goals. We also received a $26 million order from an African power utility, which includes field installation at site. Finally, we had orders totaling $28.4 million for the space exploration end market in the fourth quarter of the highest space exploration order quarter of the year. Additionally, we've now received orders for the space exploration end market to date in the first quarter of '25 totaling approximately $60 million. A few other notes to the start of 2025 so far in Q1 in terms of some of the larger orders received to date. We received a $35 million mining award, additional EGR blowers, a multimillion dollar order for tanks for an Asia Pacific chip manufacturing site and multiple brazed aluminum heat exchanger orders for various energy applications. Additionally, aftermarket has started the year strong, and just yesterday, we executed an LTA with an industrial gas major. The above illustrates the breadth of the end markets and customers that we serve with our flexible manufacturing capacity, as well as the focus we have of not relying on one large project for one end market. In 2024, we sold 267 new customers as compared to 322 in 2023. Additionally, we had our best order year for hydrogen in Europe in 2024 and record hydrogen sales in the fourth quarter and the full year 2024. We currently have approximately $24 billion in our commercial pipeline of opportunities. that are not yet in backlog. And we also have customers who have committed work to us that is not yet in backlog, totaling approximately $2 billion of commitments. Our LNG end market ended 2024 with strength. And as we look ahead, we are seeing an expanded commercial pipeline of global opportunities. India, the Philippines and Japan have recently shared their intent to import U.S. LNG supported by the current U.S. administration support of growing American Energy production. As you can see on the left-hand side of Slide 7, and as previously discussed, we booked the Woodside Louisiana LNG Phase 1 order in the fourth quarter. As a reminder, the full potential for the Woodside Louisiana LNG site is 3 additional phases of 5.5 million tonnes per annum each. We are pleased to support Cheniere and Bechtel Energy on the Corpus Christi Stage 3 liquefaction project with our IPSMR process technology. Cheniere's first cargo out of CCL Stage 3 was last week, meaningfully ahead of schedule. As we extend our process technology installed base, we are also supporting our customers with more service arrangements and we look forward to supporting Cheniere over the coming years with our recently executed master services agreement. Our recently executed master goods and services agreement with ExxonMobil includes partnering on the supply of LNG equipment as well as the utilization of our IPSMR process technology. And lastly, on LNG, there is an increasing global interest in small-scale LNG in particular, around hub-and-spoke models in development in South America, Africa, Southeast Asia and Europe, driven at least in part by the distribution for local power generation and industrial use to support growing power demand. Now Joe will speak to our fourth quarter and full year results as well as cash.

Slide 8 and 9 show the fourth quarter 2024 results compared to the fourth quarter of 2023 pro forma. The full year 2024 metrics are in the appendix on Slides 16 and 17. For the full year 2024, orders, sales gross profit dollars and margin, operating profit dollars and margin, EBITDA dollars and margin and free cash flow were records. Fourth quarter 2024 sales of $1.11 billion increased 10.1%. Each quarter in 2024, sales sequentially increased and full year 2024 sales of $4.16 billion was a year-over-year organic increase of 17.5%, with a negative 0.6% foreign exchange headwind. Reported operating income in the fourth quarter was $188.3 million, and when adjusted was $243.4 million or 22% of sales, supporting the full year 2024 adjusted operating margin of 21.1%, an increase year-over-year of 400 basis points. The second half of 2024 adjusted operating margin was 22.1% compared to the first half of 19.9%, reflecting synergies flowing through the P&L as well as leveraging SG&A. Adjusted EBITDA for Q4 of $283.6 million contributed to our full year 2024 $1.014 billion or 24.4% of sales when adjusted an increase of 330 basis points. We also continue to have confidence in our mid-30s gross margin percent -- medium-term target. Fourth quarter 2024 free cash flow was $261 million, contributing to our end of the year 2024 net leverage ratio of 2.8 as shown on Slide 10. We reiterate our financial policy and until we are in our target net leverage ratio range of 2 to 2.5x, we do not do any share repurchases or material cash acquisitions. As reflected in the second half of 2024, our CapEx spend is now normalizing, and we expect CapEx to be approximately $110 million. Net working capital, defined as accounts receivable, inventory, accounts payable unbilled contract revenue, customer advances and billings in excess as a percent of trailing 12-month sales improved to 13.4%. We continue to look to optimize our capital structure and took a step toward this in the fourth quarter 2024 by fully settling our convertible note that came due in November 2024. Additionally, in our minority investment in HTEC, we have a put call option that could have been exercised following the September 2024 3-year mark. We have assigned LOI to modify the option so that it will be structured similar to the 2021 option, and it will not be exercisable until 2028. Therefore, we do not expect any balance sheet impact or cash impact from the option until at least that time.

Moving to Slide 11. We'll provide some color around the segments and the setup to our reiterated 2025 outlook. Starting with Cryo Tank Solutions, or CTS. Fourth quarter 24 CTS orders of $138.5 million decreased 11.9% when compared to the fourth quarter of 2023, primarily driven by softer European industrial gas demand in the fourth quarter of 2023 having 3 customers that ordered larger projects in the Americas. Demand to start 2025 and the commercial pipeline for 2025 in CTS is picking up and expected to drive year-over-year increases in both orders and sales. Fourth quarter CTS sales of $150 million decreased 26.4% when compared to the fourth quarter of '23, which had approximately $17 million of specific project sales that did not repeat in the fourth quarter of '24. Reported gross profit margin of 24.4% for CTS increased 210 basis points compared to the prior year. Continued efforts and efficiency and operational improvements drive an improvement in gross margin in 2024 for the full year in CTS of 140 basis points. In Heat Transfer Systems, or HTS, the fourth quarter order sales, gross profit, gross margin, operating income, operating income margin and EBITDA and EBITDA margin were records for the segment for that quarter and any quarter in our history. With that said, we continue to expect HTS orders and sales to grow 2025 over 2024, driven by traditional energy as well as LNG. Fourth quarter 2024 HTS orders of $536 million increased over 66% when compared to the fourth quarter of 2023, driven by the large LNG Phase 1 order that we got as well in the order book for all other HTS. Excluding the Woodside order, HTS orders still grew in the fourth quarter '24. Sales for the quarter were $288.8 million, which grew 14.2% compared to Q4 '23 and had associated gross profit margin of 31.8%, the highest quarter of the year for HTS. Moving to Specialty Products. Fourth quarter '24 Specialty Products orders of $509 million increased 27.7% when compared to the fourth quarter of '23, driven by orders in carbon capture, energy recovery, infrastructure and space exploration each more than doubling compared to the fourth quarter of 2023. The fourth quarter '24 specialty product sales of $317 million increased 47.7% when compared to Q4 '23, driven by a combination of meaningful increases, meaning 30% or more in sales in carbon capture, hydrogen LNG vehicle tanks, infrastructure, water treatment, space exploration, energy recovery and marine. Reported gross profit margin of 27.4% decreased 120 basis points when compared to the fourth quarter of '23 in specialty. Although gross margins increased 110 basis points sequentially compared to the third quarter of '24. The Q4 '24 gross margin reflected specific third-party expenses and inefficiencies in our start-up, which we incurred at the Theodore, Alabama or Teddy 2 facility. Looking at the full year Specialty Products gross margin of 27% and if we did not have the inefficiencies related to the Teddy costs that I just referred to, Specialty gross margin would have been approximately 29%. Repair service and leasing for the fourth quarter orders were $369 million, which increased 14.2% compared to Q4 2023 driven by general strong aftermarket trends as well as a $25 million retrofit order for a utility. This past year, we saw consistent retrofit service and repair awards, and we have good visibility to more ahead for 2025. Q4 RSL sales of $351 million increased 4% and associated gross profit margin of 44.8% was in line with our typical gross profit margin in the RSL segment. Q4 RSL contributed to growth in the full year 2024 RSL order book of 10.5% year-over-year and sales growth for the year of 19.2%. RSL is now approximately 1/3 of our business, an increase from a few years ago in the low teens. We expect it to continue to grow in the approximately high single-digit to 10% range driven by multiple actions that are underway. To give a few examples of those actions, those are around covering our installed base globally in geographies that we have less current coverage, penetrating our digital uptime offering and coverage, including deploying digital uptime on products such as Earthly Labs, Orcas and LNG fleets and continuing to drive LTSAs and framework agreement increases as we've discussed earlier. So finally, moving to Slide 12, we reiterate our prior 2025 outlook as shown here. I want to point out a few 2025 considerations about the outlook. Our strong December 31, 2024 backlog, including the Woodside LNG Phase 1 order that we referred to as well as a few specific larger orders received quarter-to-date in Q1, such as the mining order I referred to and the strong start to the year in the space exploration end market. supports our backlog conversion for our full year 2025 guidance range, offsetting the potential negative foreign exchange impact that if it holds as it is currently for the full year would have an approximately 2% negative impact on sales. Faster conversion and commercial pipeline conversion to backlog would be key contributors to achieving the higher end of our outlook. We anticipate the second half of 2025 to sequentially increase when compared to the first half of 2025. Our first quarter is anticipated to be our lowest quarter of the year as is typical. Additionally, the first quarter of our year is typically a use of cash, given the timing of insurance, taxes, bonuses and our senior note interest and other seasonal cash uses. As a reminder, we have our semiannual unsecured interest payment of approximately $79 million in the first and third quarter of '25. Regarding tariffs, this is not explicitly in our guidance as there is little clear yet on the breadth and specificity of the actions as well as the length of their respective durations. To offer a point of information based on our work on this topic done to date internally, potential gross impacts from tariffs as we understand them today would fall within our EBITDA range. We also want to point out a few things that we have done and continue to do to mitigate impacts from tariffs. We believe that we are much better positioned today not only for tariffs, but also potential supply chain disruptions following the last round of tariffs as well as the supply chain challenges of 2021 and our associated actions taken subsequently around multiple sources of supply and regional as well as global supply structures. As we referred to before, we have flexible manufacturing and flexible supply chain in our business. We've worked very hard on instilling our Chart Business Excellence or CBE process, and we're seeing traction from this effort. And as a reminder, we are the only manufacturer of Brazed Aluminum Heat Exchanger in the United States including the world's 2 largest furnaces in our facilities. We have a strong air cooler and fan manufacturing footprint also in the United States as well as the world's largest shop built cryogenic fabrication in our Theodore, Alabama facility. The strong United States manufacturing footprint can also help our customers as they navigate their supply needs. Before we open it up for Q&A, we want to take a moment to share our enormous thanks to our global OneChart team members for their focused execution and dedication to accomplish this past year's results and for the start to 2025. Thank you all for all of your efforts. And now Ina, please open it up for Q&A.

[Operator Instructions] Your first question comes from the line of Saurabh Pant from Bank of America.

Jill, If you don't mind, if I start at a little bit higher level on 2025 guide. I know the revenue guidance is unchanged despite the FX headwinds, which is good to see. Can you Jill maybe just remind us of how you are thinking about the 4 segments? I know you talked about that at your Capital Markets Day. And I did hear, you say that RSL should still grow high single digit to 10%. But maybe if you can step through some of the other segments if one is looking better, something else is slightly offsetting. Just to walk us through that.

Absolutely. Thanks, Saurabh. So you commented on RSL, and we see many, many actions that are well underway to achieve that and consistently achieve that ahead is our expectation in RSL segment. In HTS, we expect growth in 2025 or 2024. LNG is a driver of that. So we would expect LNG sales to be higher in '25 compared to 2024. We also see just traditional energy applications being very active right now in particular. When we talk to our customers in the last couple of months, it's really around -- we're going to take this opportunity under the current administration to build out the energy framework, but also just this growing demand for all things, energy, energy intensity around applications that we hear about every day, whether that's data centers or whether that's providing LNG globally. So that HTS segment, we expect it to grow with a tailwind from LNG. And CTS, what we said traditionally for CTS is this is kind of our low to mid-single-digit grower. We would expect to see approximately mid-single digits to -- in the CTS segment. And we've seen a good start to Q1 in terms of CTS orders. And then finally, in Specialty, backlog conversion on specialty is a key driver to our expected growth in that particular segment. We started to see some improving backlog conversion in 2024 in the Specialty segment, and we expect that to continue to pick up the pace especially with some of these carbon capture projects that we've referred to and some of the orders that came into the order book in the second half of 2024. So we anticipate growth across each of the 4 segments in '25 when compared to '24.

Okay. Fantastic, Jill. And then I know, Jill, you just talked about HTS and LNG contributing to growth over there. If you can dive a little deeper, Jill, on that LNG side of things, especially big LNG, if you think about what's in your backlog, how that converts to revenue in 2025? How should that grow? Part of the reason I ask is -- it's a full solution offering if it's IPSMR, by the way, good to see really good traction projects starting up right. How does that convert out of backlog next year, '25 versus '24? And then what does that mean for HTS margins?

Okay. First of all, I really thank you for pointing out the IPSMR traction. We're thrilled with the what's happened to date in terms of the first liquid and the first cargo for Cheniere's Corpus Christi Stage 3 project New Fortress Energy sharing that fast LNG is producing meaningfully above nameplate capacity. So gaining that traction globally for IPSMR has been a positive, including any floating project. So to address your question directly, when you see a big LNG project announced coming into the order book, what we would anticipate typically in those projects is revenue meaningfully starts approximately 6 to 8 months after the order comes in. There's a little bit of revenue around engineering and maybe some material ordering before that. But in terms of kind of the cadence of when it really starts to be consistent across coming quarters, it's that 6- to 8-month mark. In terms of what we would expect in '25, the timing of Woodside, obviously, we refer to it being a Q4 '24 order, so you can kind of apply that type of logic to it. Also, having strong just global LNG backlog not only around big LNG, we'd expect that to flow through the year with first half to second half step up just simply because of the Woodside timing. And LNG projects are nice contributors to our HTS segment margin, in particular, when they utilize IPSMR. And so that is another factor in how we anticipate to achieve our 2025 growth in margin for the total company with HTS being a key contributor to that.

And your next question comes from the line of Ben Nolan from Stifel.

I appreciate it. So Jill, I wanted to start on CTS, if we could. It was a little lower, but it sounds like 1Q is going pretty well. I know that I know that China is a big part of that particular business. Are you seeing -- well, I guess, the improvement that you're seeing, is it in China? Or is it elsewhere? And can you maybe talk through how you're thinking about the China exposure and sort of how that fits just broadly with what you have going on?

Absolutely. Ben, thanks for the questions. So let me just hit CTS first, and then I'll kind of take China broadly second. In terms of CTS, so far, pleased to the start of '25, especially coming off declining orders and sales kind of year-over-year in the fourth quarter in the segment, which interestingly enough, the second half of '24, we did see industrial gas slowdown in China, which would impact CTS. But also we saw kind of the summer slowdown in CTS in Europe as well and no real chunky orders in Q4 of '24 in that segment. The team is feeling good about order and sales growth in CTS for 2025. And so we'll continue to monitor that closely, not only specific to China, but kind of globally. Really pleased to have executed that LTA yesterday with one of the IG majors. So those types of things also help us have visibility to the forecast. When we're speaking to China, China -- first quarter in China, obviously, you have Chinese New Year in there, but we're seeing consistency in China right now. And I think the other part of the question or at least that I want to address is around supply chain in China, in particular. We're not dependent on China supply chain. We have other sources of supply. We're very regionalized in our supply chain really as a result of the actions that our global sourcing team has taken since 2021. And we'll continue to dynamically assess and make those sourcing decisions based on the market conditions. But we feel positioned well to be agile in response to what's happening in China.

Great. And then for just another quick one. The -- I appreciate the color that you gave on NRUs. We're hearing a lot about it, too. Can you maybe just frame in how big of a business it is now just so that we can -- I can understand a little bit about what it could be for you?

Yes. So maybe to give a sense of kind of what the size of an NRU could be or is, I guess, in terms of Chart content, depending on the size, an NRU is going to be anywhere between approximately $20 million of Chart content to -- could be upward of $75 million per NRU. It just depends on the scope, the application, et cetera. definitely an area that we have seen a meaningful increase in terms of customer inbounds around this. It's a CapEx decision spend, but it's also an optimization and efficiency spend for these plants. Currently, it's not a very large portion of our business. You have -- you would have had 1 or 2 NRUs in any given type of year, but we would expect that to step up meaningfully. And what we've had to date has been toward the lower end of what I described NRUs to be.

And your next question comes from the line of Scott Gruber from Citigroup.

I want to start on aftermarket. You had a good growth year in '24. But last several quarters, kind of flattish. You mentioned a strong start to the inbound in 1Q. But can you speak specifically to the growth outlook for aftermarket in '25? Will it be in line with that kind of high single-digit longer-term target you have? And what do we need to see from an order perspective early in the year to make that happen?

Yes, yes. And the sequential kind of Q2 to Q3, Q3 to Q4 in terms of RSL, each of those had either a specific aftermarket or service and repair order of a decent size. And we have good visibility to the LTSA, the framework agreement as well as multiple service and repair projects that customers are looking to do in 2025. So we feel confident in our RSL growth outlook, both for the order and the sales book. It's important that we don't get behind in the year. I think, is very -- is a key metric for us that we look at internally is that we're seeing consistency in the aftermarket globally. And that is true so far to date, Q1 quarter-to-date. We don't want to get behind where we're sitting here in September saying we need to get a large service and repair order in order to hit that high single digits to 10%. But the visibility that we have to the pipeline is strong around RSL. And then what we also want to take advantage of things that are within our own control on the RSL side, and those are multiple different activities that our global aftermarket team and our regions working with them are working on that specific product line targeting in Europe, North Africa around piston compressor penetration for the aftermarket. Centrifugal compressors coverage globally is an area that is on our key activity list and then Chart legacy coverage. We also are seeing more opportunities to have service agreements with the operators of larger plants. That's something that ties hand-in-hand to IPSMR, in particular, where the EPC wants the first gas or first liquid is achieved, the EPC typically then is done with the project. And so having a relationship directly with the operator where it's our process technology is a way for us to further penetrate service agreements. And then the digital uptime, we're seeing great traction on taking that across specific products, and we're about to introduce that into the heat exchanger offering as well. So those are just a few examples of kind of within our own control to make sure that we're not relying on market dynamics to achieve that growth that we have laid out for '25 in RSL.

That's great color. And I want to come back to the IPSMR technology given that it's gaining good traction. I believe that the payment structure on most of the contracts so far has been an upfront licensing fee, but with greater adoption and global MSAs like the one you have with Exxon, would you consider transitioning toward more of an ongoing fee structure for the technology?

What we currently have done is, as you described, there's a technology fee associated with the utilization of IPSMR. But we are flexible working with our customers around what that could look like and how it's built into the contract. Our key on any of these larger projects with or without IPSMR is that we do not go upside down on working capital so that those milestones are tied to our spend on material and that we're not behind the eight ball on that, and that's been a key focus. So I would say overarching, that's the first filter. And then we work with the individual customers on kind of what that technology fee, how that's embedded will go with their particular project. We're not adverse to it. It's just customer specific.

And your next question comes from the line of Manav Gupta from UBS.

I just wanted to focus on the data center market in it. How are the discussions progressing with the data center providers and did the DeepSeek announcement, any change any of those discussions? If you could just talk about that.

Data centers as a whole, maybe I'll just step back to the increasing need for global energy is the theme, and that's inclusive of data centers. And our discussions amongst multiple different hyperscalers is consistent would be my one word I would use if you had to ask me to use one word consistent in that they're going to be spending money in this area in CapEx, and they have a need for multiple different types of heat rejection associated with these data centers and that the energy power demand is going to continue to increase as artificial intelligence becomes smarter and there's more of it out there. So I think the DeepSeek or otherwise, there is not a change in direction of these folks looking for multiple different sources of power in multiple different ways to reject heat, and that's really what we're hearing from them. We also -- because we're starting to see more demand in this market, we have recently hired a data center commercial team member who will be joining our business development team here in the next week or so, who brings a breadth of data center, background and market knowledge and connections. So we would -- we do see this as a meaningful opportunity ahead for us.

Perfect. My quick follow-up here is your free cash flow guidance for next year is $550 million to $600 million. I'm trying to understand what pushes it towards the top end of that guidance of $600 million. And similarly for EBITDA, trying to understand the blue sky scenario, which pushes you towards the top end versus the midpoint of the guidance.

Sure. I can help on this one, Manav. So the free cash flow forecast for this year is coming from stronger EBITDA conversion, just conversion from the existing backlog. We do have some normalizing of CapEx that I mentioned in my comments earlier. So just the combination of the 2 there and our overall growth is driving the free cash flow to the forecast that we have.

I'm sorry, there was a second part of Manav's question there to the higher end of the EBITDA guidance, which would also be a contributor to the higher end of the free cash flow guidance. Do you want to speak to that, Joe?

Yes. Just as Jill described there as well as lower tax rate and just...

The backlog conversion.

Backlog conversion and lower deal integration costs.

And Manav, if there's larger orders that come in early in the first half of -- or really in the first half of '25, those would have the opportunity also to contribute some revenue in the second half toward the higher end. So multiple different factors that go into achieving the higher end. But I would also say that it's just off of an absolute growth rate perspective, the higher end is -- would be year-over-year lower than what we achieved in '24 over '23 in terms of top line growth.

And your next question comes from the line of Marc Bianchi from TD Cowen.

Could you say what the -- out of 2024 orders, how much was LNG? And how are you thinking about that number for 2025?

I'll approximate that, Marc, in terms of orders for LNG. And I'm going to approximate only because when you look at kind of LNG within HTS, that's a little larger. And then you have LNG infrastructure for vehicle tank, which would show up in specialty and then there's some LNG regas that can show up in CTS as well. I would estimate it's approximately in the 20% to 25% range kind of orders. And then we would anticipate that to be similar in 2025 compared to 2024.

Okay. I think some folks anticipate an increase in '25, just given the change in the licensing for the U.S. And is it -- is that conservatism on your part? Or was it just some stuff fell into the back half of '24 and that maybe makes it less likely for growth? Maybe you could expand on that a little bit.

Sure. I would say that it's kind of down the fairway way to answer the question. So an element of conservatism is in that, given it's hard to predict on the larger pieces and parts, right? So to stay consistent, Phase 1 of Woodside coming in, in the back half of '24 we mentioned we anticipate Phase 2 coming in '25. There's also a handful, as you mentioned, of other LNG projects globally, not only in the U.S. that could move ahead. So there's opportunity for that to be larger in '25 compared to '24, but that is not required for us to hit our '25 guidance that we put out there. So kind of how we're thinking of coming into the year, the construct around it, really because there's variability of when these orders can or may come in. But with that said, our pipeline of LNG opportunities has grown in the last 3 months. So since we talked the last the pipeline of LNG project opportunities not only for equipment, but also for IPSMR potential has expanded, and that's definitely a direct result of growing global demand for LNG, the U.S. administration's bullishness on Alaska on Pennsylvania, on the U.S. Gulf Coast as well as projects that we're hearing are much closer to moving ahead than they maybe were even 6 months ago. You've got folks talking out there about projects like Abadi LNG with INPEX like the Tanzania LNG. You've got Delfin, that's definitely more likely than it was even a year ago. So just to name a few. I think the opportunity set has increased in the last few months. And we're really well positioned to play on many of them. It's just that hard to time some of the largers.

Yes. Yes, makes sense. The other one I had was on this Teddy 2 kind of cost thing that was happening. Just first of all, to clarify, I think you said it was like would margins would have been 29% without that. Was that for fourth quarter? Or was that for the full year?

That was for the full year. So as we look at the costs around inefficiencies, specific costs related to -- we had a challenge with one particular third-party supplier on a machine and getting that started up, which was a real challenge in the back half for us. So very specific costs that we would not anticipate repeating. And the reason we called that one out, Marc, was just because we wanted to clarify if you're looking at modeling '25 in the segments, where kind of the '24 to '25 jumping off points and what were some of the contributors to the less than where we want Specialty Products gross margin to be.

Yes, that's exactly what I was asking. So we should sort of be solving for like this impact happening in 2H '24 to solve for that 29% for the year. And that's kind of the clean margin going into like these issues are resolved now as we step into '25, right?

That's right. So -- and you thought about how they flowed in '24 very well. There was a little bit in Q2, but really it was Q3 and Q4. So I think you hit the nail on the head.

And your next question comes from the line of Arun Jayaram from JPMorgan.

Just a couple of quick ones for me. You had a strong quarter of bookings, $1.5 billion -- $1.55 billion of orders, about 2/3 between HTS and Specialty. I was just wondering if you could, Jill comment on the quality of the bookings and maybe the margin implications for HTS and specialty, in particular.

Yes. So it was a strong quarter on bookings as a whole. Obviously, the Woodside Louisiana LNG order being of meaningful magnitude given the utilization of IPSMR and the associated LNG equipment that we'll provide into that was a key contributor to that number. The LNG and the projects in HTS, those bookings are above average gross margin generally. So the way to think about that is the strong Q4 bookings as a whole across the segment were an elevator to margin and backlog. And then on the specialty side, very broad mix, as we pointed out, but I want to call out just maybe a couple of end markets in specialty that were strong performers in the fourth quarter. Carbon capture has -- we've seen some really strong progress commercially in the market, in particular, on reuse cases. We've talked about a couple of those, whether that was the Bloom Energy partnership or some of these other ones. But that's -- we're seeing that our carbon capture technology is now being used in larger chart content applications. And with the full solution mix comes generally improving margin. And then the other end market that I really would like to point out is space exploration. And I want to point that one out because it had a very strong -- that end market within specialty had a very strong Q4 in terms of orders, but an even stronger start to 2025 with approximately $60 million of orders in the space exploration market in combined January and February 2025. And as you might imagine, in a space type of end market, this is really low-temperature, high-pressure applications that cannot fail. And we're talking about providing storage tanks as well as heat exchangers into these applications. So that's another key contributor to nice margin in backlog.

Understood. That's clearly a mission-critical application. Maybe just a follow-up on just your outlook on orders. I think you highlighted around $2 billion of customer commitments that aren't yet quite in the backlog. Can you just maybe describe the breadth and depth of those commitments and thoughts on just backlog conversion or into backlog, sorry.

Yes, yes, absolutely. So on that $2 billion, it's pretty broad. There's a couple of larger LNG projects in there. You'd have the ExxonMobil, Mozambique Rovuma in that mix. So that's not in backlog, but that's included in that $2 billion of commitments. And there's a couple of other in there that would be LNG related. And so the timing of those aren't easily predictable, but you've heard what the larger folks and operators have said around their timing associated with FID. So I would anticipate about, let's say, half of that $2 billion is related to LNG end markets. And then you have a handful of carbon capture applications that haven't been booked because they would be dependent on government grant funding. And so the timing of that will be related to when they get their funding. And so that will likely be around clarity on funding from certain states or in one case, Canada. That's a small handful within there. So it's not a meaningful dollar amount, but I thought worth calling out because of the end market itself. And then you have a couple of hydrogen-related projects that are international projects and have site, have permits and are -- and have offtake and are very close on their financing, the respective financing. That -- those would be -- we'd anticipate in 2025. So that's probably $150 million or so associated with those guys. And then the last is around a particular helium project outside of North America. And that project, we have the award and waiting for their final go on their full financing. It's a very large project, a few -- about $300 million for that particular project. And we'd anticipate that, that one either will move forward in '25 or just won't move forward.

And your next question comes from the line of Eric Stine from Craig-Hallum.

So just sticking with the customer commitments that you just detailed, I mean, is it fair to say, as you kind of rattled those off, it doesn't sound like that is very exposed to any of the issues at the -- or uncertainty at the federal level, U.S. federal level. So I guess that would be first. And then second, when we think about that number, is there any way to kind of compare that to what you've seen in the past? I mean that obviously seems like a pretty elevated number, but just looking for some context how to compare that to other periods.

Yes. Thanks, Eric, for the question. You're absolutely right on the first part, which is that there's really very limited exposure to the decision-making at the federal U.S. government level. or really at any government level, I should say, across the world on these. Most of them really are in the case of Exxon taking FID on the project. In the case of the larger helium one is getting their final full funding over the fence. So those -- that's a positive, I guess, in my mind, just given the changing kind of dynamic in landscape with people looking for certainty from the U.S. government, that's not the driver of these. And then the second part compared to the past, that's a really interesting question. As I was thinking about it in the last couple of weeks, what -- I think we said -- gosh, I can't remember exactly what we said, but it's probably like $1.5 billion or so, maybe 9 months ago. And then we -- at one point in the last 6 or 8 months on that list was Woodside Phase 1. So even with booking Woodside Phase 1, we've seen that funnel increase or at least stay flat. And that funnel meaning customer commitment funnel. And we -- and so that to me is another kind of tidbit of information around how we're viewing the demand profile of this coming 12 months.

Okay. Got it. Very helpful. And then maybe just on orders. I mean, you obviously called out Woodside and that's broad-based. I'm just curious, I mean, do you attribute any of the strength to a year-end push on the part of your customers? Or I mean, is this a true indication of the strength of the overall business? And then is it fair to assume 2025, while there can be quarter-to-quarter variability, book-to-bill above 1?

Yes. The book-to-bill above 1 in '25. We absolutely, you actually took the words right out of my mouth. And I would say that we anticipate that Q1 book-to-bill will be 1 or above.

And your next question comes from the line of Rob Brown from Lake Street Capital Markets.

Joe, Jill. I just wanted to dig in a little bit on your gross margin expansion discussion. Where do you sort of see that getting to, I guess, over time, where can that settle at? Just a sense of where that can be?

Yes. Just as I mentioned in my comments, mid-30 gross margin still is our midterm target. Nothing changing on that.

I think over time, that's a journey, Rob, would be the way we would describe it that we anticipate to get beyond the mid-30s, right? That's really truly a medium term. And when we laid the medium term out, that was for 2026. And I think we're in early innings of our Chart Business Excellence activities as well.

Yes. So continue to deliver synergies. As Jill mentioned, the mid-30s was our medium-term target, and we'll continue to expand beyond that favorable product mix across our RSL and specialty and the specific business we're booking in HTS will continue to drive those margins up over time.

Okay. Great. And then I think you talked about the LTA with the industrial gas major. How much penetration is there to go in kind of that customer base in terms of getting LTAs and sort of visibility there?

Yes. So on the -- with the majors, those we've typically had over the years. And when they come up for renewal, we work really hard with -- in conjunction with them and partner with them on what their needs are and what the challenges both sides faced in the last go around. And so how do we optimize that for win-wins. So on the major side, I think there's more opportunity to penetrate other products within those LTAs, and that's an area that we have -- we're working with them on as well as penetrating more on the aftermarket service repair aspects of those agreements. In terms of kind of other industrial gas folks, we tend to speak to the majors, but there's also multiple different others that play in industrial gas from an independence perspective, we call them independent. So these would be the nonindustrial gas major folks that are more localized or regionalized industrial gas. And we see a meaningful opportunity to work more closely with them. And we have been -- over the last year or so, we've been working to develop those partnerships to move them to LTAs in particular. And that is primarily a North American and European comment. I think there's 1 or 2 real strong potentials in Europe for this in 2025 and a handful in the United States that we could get done in the next 18 months or so. So there's more opportunity for us and -- but would be more of them at lower volumes just because of the size of their businesses.

And your next question comes from the line of Sherif Elmaghrabi from BTIG.

First, with this moratorium Saga for U.S. LNG projects, and you talked about a growing funnel. If all these projects have been paused at the starting line, so to speak, and are looking at FID around the same time, could long-lead equipment for these projects become sort of a bottleneck and just to ask it all once, I guess, between that and tariffs, would you say pricing is it becoming more flexible? Or should we still think about $30 million per MTPA for IPSMR?

So it depends on the project in terms of the dollar per MTPA, but just whether they have heavy hydrocarbon removals or various content. But I think you can directionally use an estimate of what we've said historically per MTPA. And definitely growing, as you mentioned, growing utilization of IPSMR and there's brownfield opportunities from existing operators and then there's greenfield opportunities. I think the brownfield opportunities look similar to what they looked like even during the LNG moratorium, whereas the greenfield opportunities are the ones that have expanded in terms of ones that maybe prior thought of themselves as we're not going to move forward and now there is demand for it. And so there's an opportunity for it to move forward. So with all of that said, we feel good about the fact that we expanded our capacity over the course of the last 7 years to be able to serve not only the LNG market, but the heat -- all things energy, all things molecules and the heart and souls of that is around the heat exchanger capacity and the tank capacity. and as well as fans. So those 3 have been a key area of focus for us to ensure that we have the capacity and the size of the furnaces that are needed to be able to deliver these customers' needs. And so I think we're really well positioned capacity-wise. Pipeline is growing, and we'll just see how these -- how the projects timing and which ones move forward as the year and the years -- the next 3 years go on.

And your next question comes from the line of Doug Becker from Capital One.

Jill, you had another strong quarter of orders, including some large orders. There's the ongoing throughput initiatives. Just how much of year-end backlog do you now expect to convert to revenue this year? And just any context you can provide around how much of year-end '23 backlog was converted last year?

Yes. So we would expect approximately 60% of year-end '24 backlog to convert in 2025. And if I don't have the answer to the second part of your question on '23, but definitely could -- we could go back and provide that to you. I would probably estimate in the 55% to 60%, but not -- I would need to check that figure to be specifically accurate on that.

No, that's fair. And the higher conversion, is that a function of the throughput initiatives? Or is it just the type of projects in the backlog?

The throughput initiatives are key to that. And also in particular shops, I should say, like the compressor shops, as an example, the screw compressor shops in Europe, there were some bottleneck challenges there. We're getting more throughput in the heat exchanger shops, in particular, the cold box shops. So those would be the 3 that really can drive improved backlog conversion with the efforts that we've done so far. We still have more to do on throughput improvements in '25, and the teams are really working hard on that. But that's a contributor, a definite contributor to this. And then there's also something like the large LNG project like the Woodside, where we have pretty good visibility on the timing of that revenue and the associated engineering, associated milestones with that particular project as an example. So it's kind of a combo of both. But I really want to see the self-help throughput start to flow through the top line here in 2025.

Got it. And then just another one on trying to get more comfortable with the CTS outlook, right? The backlog was down 20% last year. And from the outside looking in, that seems like a very high hurdle to get over. The LTA with the industrial gas major, is that in isolation enough to support growth in CTS this year? Or do you need some of those smaller independents to come in to actually see growth this year?

We did not rely -- our forecast does not rely on some of the small independents to come in, but it's not that one in particular LTA either that is the driver of the growth. It's kind of a broad-based global look at where the industrial gas guys are spending their money. And then the other part of the answer, Doug, is just to -- there's a handful of these projects that were a bit larger in '23 that we have visibility to similarly sized ones for '25 with 2 of those being anticipated to come in, in the first half of '25 as well. So I think the LTA is a nice contributor to it, but also just the general kind of demand profile globally is a key contributor to our outlook. Also, the first couple of months start to the year informed our thought process around it as well.

Yes. I would just add on the industrial gas side, there are ebbs and flows to their CapEx cycles with some lumpiness to their ordering practices. So that can contribute on a quarter-over-quarter basis.

And your next question comes from the line of [indiscernible] from Goldman Sachs.

I was wondering can you give us an update on how you're seeing the hydrogen end market, especially with the increased color that we received from the 45V rules in early January. How are you seeing that 7% to 10% growth through 2030 that you highlighted during your Capital Markets Day?

Yes. Thanks for the question. So I think the hydrogen end market at times gets pigeonholed into being a U.S. discussion. And for us, it is a much more global discussion. We've seen, as I mentioned in the script, we saw a strong year in Europe, in particular, on the hydrogen side, which for us was storage tanks and compression. So those were kind of the 2 primary products that went into those applications. And we're seeing continued demand in hydrogen from mostly the liquefaction side globally as well. In terms of the 45V and some of the clarifications that came out, what I'd say to that is the market and the operators that we're waiting, they really I mean the IRA was an announcement in August of 2022, and there was no clarity until the 45V clarifications came out in the last couple of months. And so there was really 2.5 years of these guys waiting for those clarifications. We almost view it as a catalyst in a positive way to move folks who can't do it out of the way and those who really are -- have real projects here and real funding here and can utilize the structure as it's been laid out positively as a good thing for the United States and the industry. And I do think from a global perspective, that high single digits to 10% for the CAGR between now and 2030 is very achievable for the market and for our company to play in that both gases and liquid end market.

And that ends our question-and-answer session. I will now hand the call back to Ms. Jill Evanko for any closing remarks.

Thank you, Ina, and thank you, everyone, for joining us this morning. We look forward to the coming months to provide further updates. Have a great rest of the day.

Thank you. And this concludes today's call. Thank you for participating. You may all disconnect.