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

I think we'll move on. We got Chart Industries with us for the next fireside chat. I'm Saurabh Pant, I'm the energy services analyst at Bank of America. I'm based in New York and Chart Industries is a very unique company in my coverage. There's still a lot of people ask me why is the ticker GTLS, doesn't sound like Chart, right? And I have to remind them, it's gas to liquid systems. You moved way beyond cryogenics, right? You do a lot of non-cryogenic processing. You acquired Howden, got a lot of compression, not to mention aftermarket services, much more diversified now. I have with me Jill Evanko, who's the CEO of the company. She joined Chart in 2017, Jill, right, and assumed the CEO role in 2018. Jill, I'll hand it over to you. You'll kick start us maybe with some opening remarks.

Thanks, Saurabh. So what I thought I'd do just for a few opening remarks is give a high-level overview of Chart as a company, talk about what we're seeing in terms of the evolution of the business, the demand, the increasing demand in global energy and then talk a little bit about the optimization of our balance sheet, and then we'll move into Q&A. So for Chart, we engineer, design and manufacture process technologies and key equipment for the energy and industrial gas end markets in various different applications. In this, we provide process technologies for a variety of molecules. We provide equipment for storage and transport all the way through to end use as well as life cycle services and aftermarket service and repair. So really what we would deem to be the molecule value chain. In that, we have about 35% of our 11,700 team members around the world that have an engineering background. So that's important as we get sticky with our customers early in pre-FEED and FEED work, and then we're able to provide the mission-critical equipment that we manufacture in-house in our 64 new build manufacturing locations around the world as well as our 50 service centers. So what we would refer to in a very short nutshell is that we are engineers, designers, manufacturers of equipment and processes for all molecules. So we like to deem ourselves to be molecule agnostic. If you look back 8 years, as Saurabh described when I took over the role here, we have evolved our portfolio from about 0% of aftermarket service repair to about 1/3 of our revenue today in aftermarket service repair. We expect that part of our business to continue to grow in high single digits to about 10%. It's a variety of different levers for us to pull to achieve that. In addition to adding aftermarket service repair, we have invested organically and inorganically in different process technologies, bringing us the ability to serve LNG liquefaction, hydrogen, helium liquefaction, water treatment. We have a cryogenic carbon capture technology to name a few. As I mentioned, we have multiple manufacturing sites around the world, and this supports our flexible manufacturing strategy, where we make nearly all of our equipment in more than one location around the world. We've implemented what we call Chart Business Excellence, or CBE, for continuous improvement with a focus on throughput and margin expansion and generating consistent operating free cash flow. When you talk about the ability to be molecule agnostic, coupling that with our multiple flexible manufacturing locations, we're able to be very agile and serve a variety of different end markets. Hence, the ability for us to pivot very quickly when we see an end market that's a gas to liquid system. And what we've seen recently is a ramp-up in global energy, and that's really being driven in part by data centers and artificial intelligence, which we're able to serve with our existing manufacturing capabilities. The increasing global energy serves our portfolio very well. And with that, we have booked orders for air coolers related to the data center end market in 2024 of approximately $80 million. And we see that end market in the near term, approximately 3 years, the next 3 years to be about $500 million of addressable opportunity, and that really is focused on the heat rejection side of the business. LNG is a key part of our portfolio. We serve LNG in kind of four broad categories. The first is around LNG exports, so larger LNG export terminals. I'll talk in a moment about that. The second is serving small-scale and floating LNG. Both of those two categories, small-scale floating as well as the big LNG export, we serve with our IPSMR process technology, which stands for integrated pre-cooled single mixed refrigerant. This is really focused on where the macro environment has moved for LNG liquefaction to modularity and our process technology serves that very well. Recently, IPSMR was used in Cheniere's Corpus Christi Stage 3 LNG export facility. And just about a week ago or 10 days ago, Cheniere was able to substantially complete Train 1 meaningfully ahead of schedule with the utilization of IPSMR. Additionally, New Fortress Energy uses IPSMR in their FAST LNG project in Altamira, and they shared that the technology is producing approximately 20% above nameplate capacity. And this is a great tool for IPSMR and the operators to be able to optimize the output in smaller CapEx spend and smaller operating dollar spend. We're really proud to have announced our ExxonMobil Master Goods and Services Agreement about 2 months ago. And in conjunction with that, we also have been awarded the IPSMR process technology for Mozambique Rovuma when that moves forward. To note, that is not currently in our backlog. What is in our backlog as of December 31, 2024, is Woodside Phase 1. So that's Woodside Louisiana LNG Phase 1. The Phase 1 is 11 million tonnes per annum. And that project also utilizes our equipment and our IPSMR process technology. Today, I'm pleased to announce that we have also received Woodside Louisiana LNG Phase 2 order this month. And as a reminder, Phase 2 is 5.5 million tonnes per annum. This is just a few examples of the pipeline that we continue to see for LNG. Even as the pipeline converts into orders, we see additional projects come in to that commercial pipeline of opportunities, in particular, as IPSMR has gained more traction. But it's not just about LNG when we talk about the global energy demand increasing. There's multiple different ways that we play in the energy area, both in traditional energy as well as the energy transition. And that also comes when we talk about our Bloom Energy partnership that we recently announced for our cryogenic carbon capture system. That's power targeted to data centers and recent helium increases in both the pipeline as well as the opportunity set for helium liquefaction itself. So I'll close my opening comments here with a focus on debt paydown that we've talked about over the last 2.5 years, balance sheet optimization and getting into our target net leverage ratio range of 2x to 2.5x. When we talk about debt paydown, we're really focused on the operational cash flow generation in the business. From Q2 to Q4, so the last 3 quarters that we reported on of 2024, we generated approximately $524 million of free cash flow or just over 16% of sales. We expect that we're going to continue to generate free cash flow consistently in the years ahead and a lot of actions are underway in the business around our cash culture to achieve that, ranging from actions to manage working capital which has consistently been in the mid-teens area, 2.5% of sales after we came off of higher CapEx spend related to growth, productivity and capacity. And a focus, as I commented earlier, on our Chart business excellence continuous improvement as well as tax optimization activities. And in the tax optimization activities, if you look at coming out of 2024 and as we started 2025, we entered the year at a 24.8% effective tax rate, or ETR, and we're currently working on projects to reduce that tax rate that are being implemented, including intercompany debt optimization, legal entity rationalization and U.S. foreign tax credit planning. All of that is underpinned by us continuing to reiterate our financial policy, which is that until we get into that target net leverage ratio range of 2x to 2.5x, we will not do any material cash acquisitions nor do any share repurchases. And as a reminder, our first quarter is typically our lowest quarter of the year for the metrics based on typical year's seasonality. In the first quarter, we do have our semiannual senior secured interest payment, bonus payments, insurance payments, et cetera. So I just wanted to remind how our years typically go, which has been the same over the past 5 years. So with that, Saurabh, I'll hand it over to you. I appreciate everybody's time and attention today, and thanks for the opportunity.

Yes. No, Jill, thank you. Thanks for that. You touched on a lot of topics, and I'm going to dive a little deeper into each of them. But before that, one thing you said, Jill, in your opening remarks about being molecule agnostic. What does that mean? Why is it important? Why should investors understand that?

Yes. So molecule agnostic, it really means that, in how Saurabh described the company as originating with cryogenics. So we handle high-pressure, low-temperature molecules, but we're able to do that with the same equipment and many of the same processes that can be tweaked slightly. So that gives us the ability to take, for example, an air cooled heat exchanger, which originally our manufacturing focused on the end market of oilfield services, and that was 10 years ago. And then, what we saw was interest in air coolers for direct air capture for cryogenic carbon capture. They can be used in water treatment applications as well as now into heat rejection for data centers. And we've been able to do that without changing our manufacturing capability. We've added some capacity over the years, but that same heat exchanger can be used in a variety of different end markets. So what it really allows us to do is pivot with where the demand is for whatever is happening at any given time in the market. And that gives us great flexibility to be able to serve so many diverse end markets without having to go add a product category, add a product line, reengineer something.

Got it. Right, right. So like you said, right, I mean, you do have a nice diversified end market. And right now, we are living in a world where there's a new headline every day, sometimes multiple times a day, right, in that Trump 2.0 world, right? I mean, let's call it that. What are you hearing from your clients and customers about your end markets, your portfolio?

Yes. It's, as you said, multiple headlines, multiple times a day, but what we're hearing consistently really returns to the increasing need for global energy. And that's something that, again, serves our portfolio very well. Last week at CERAWeek, which is a large energy conference in Houston, Texas that happens every March, there were multiple themes around this drive for increasing energy power sources. And it ranged from the United States administration focusing on unleashing U.S. energy assets in a variety of different ways to LNG being a key part of where we sit today and the thought process from the customers being that this is going to be here for decades to come as well as the theme of the week was really data centers. And that's something that we heard over and over and over again in a variety of ways, but consensus around our customers and even their other suppliers is that data centers are going to have a build cycle here and the build-out is going to be over multiple years in multiple locations. So those are the key things that we're hearing. And then, the other on the cost side of the house is clearly around the tariff situation and what companies are doing to address tariffs and reduce the gross impact.

Right, right, right. No, tariff is a big point. I'll come back to it, Jill, in a moment. But on the LNG side of things, right, that's something that everybody expected going into the Trump 2.0 administration, right was part of the rhetoric before the new administration was going in. But -- just stepping back for a moment, right, like you said in your opening remarks, it's a very broad mix of portfolio, big LNG, small-scale, floating LNG, LNG infrastructure and then upgrade and repair, right? So just taking a step back, those four different buckets, how do you see those four buckets playing out in, let's say, a Trump 2.0 world?

Yes, definitely, all of the above is what we've been seeing. And the idea that there's continuous demand for this. So sites that are coming online, but also additional sites that have not yet been built from a greenfield perspective, we're hearing from our customers that they are bullish on their opportunity ahead here in the coming 5 to 7 years. When we talk about small-scale and floating, we're seeing more and more of global opportunity in that arena, in particular, in Southeast Asia and in Africa. So that's an area that has become much more globalized for us than even 3 or 4 years ago. And we're also seeing more of those, more frequent small-scale and floaters. Whereas 40 years ago, we would have had 1 or 2. And then on the LNG infrastructure side, I think this is an area that gets less discussion, but probably should not get less discussion, because if you're exporting the molecule, you have to have the infrastructure to import the molecule and move it around. So the areas that we're continuing to see develop are regas stations, LNG fueling stations, ISO containers for movement of the molecule is a big area. Those are kind of the main LNG infrastructure areas. And then the last, which is aftermarket service repair is fairly recent in terms of how it's been picking up for activity for us. We introduced a new fan, a new design fan called the TufLite IV about a year ago. And that TufLite IV has a very specific backward sweeping design, and it creates more efficiency. It also withstands weather on the U.S. Gulf Coast, as you might imagine. And so we had recently retrofit Cheniere's Sabine Pass facility with the TufLite IV, and we anticipate that there are other opportunities such as that as well as serving the installed base of the infrastructure like fueling stations with LTSAs, service agreements and preventive maintenance agreements. So overall, those four categories all seem to be very active at the moment.

Right. And it's important, right, because people see LNG as a cyclical business. Big LNG is more cyclical than any of the other aspects, right? So there is stability. And correct me if I'm wrong, I think half -- maybe less than half of your LNG portfolio is big LNG, right? Everything else is on those smaller buckets.

That's directionally.

Right. Roughly speaking.

That's correct. But also what I would say is what we've seen on the big LNG side is, if you look back 10 years, where you would see one big LNG project. Like in 2015, it was Wheatstone for us. And then when that ended, that was kind of a big gap to close. Where we sit today with this molecule agnostic ability to serve end markets and more projects that are in kind of the $10 million to $50 million range happening more frequently, we have far less reliance on one or two projects. And we do like that the larger LNG has been more consistent, which the build for us can be 2 to 4 years once one of those comes into the order book.

Right, right. And then, just focusing on the big LNG side of things, congrats, by the way, on winning the second phase of Woodside Louisiana LNG. So that's good to see, right? But as you talk to your customers and maybe even end users, right, how do you think they are thinking about supply-demand balance for LNG in the medium term?

So the customers that we talk to you are EPCs and operators that are actually doing the development of the export facilities. And also, we talk with multiple end users that will be -- would be receiving or utilizing the molecule. And what we hear from the supply side is continued bullishness that the operators want to add more capacity to both brownfield locations as well as the potential for greenfield locations. I think that, that sentiment is anticipated to continue, in particular, under the current United States administration, also globally, seeing a variety of different geographies that are looking for more self-reliance and/or different relationships. So for us, the key is the movement from baseload LNG to modular LNG. And that gives us more and more opportunities, not just on the U.S. Gulf Coast. And so the pipeline has continued to grow. But I think overall, there's still bullishness on the medium term for LNG to be a key part of the energy story.

Got it. Right. No, that's very consistent, Jill, by the way, we had Baker over here. Yesterday, Lorenzo was speaking to things exactly in the same language, right? So it's very consistent, which is obviously reassuring to see, right? And then the other thing I wanted to touch on is you mentioned in your prepared remarks about IPSMR, right? That's your license to play in the full solution market versus just product, right? How does that make a difference? Like you said, those two projects with IPSMR are the first two to get started, right? So now is the critical time people are going to see that in application in action. How important is that?

Yes. It's wonderful to see, and it's been a long time in the making. Over many years, we have developed IPSMR and also had it validated with dozens of customers. The validation process for a process technology to be utilized in a project, you might imagine, is fairly complex to get this through and be able to work, because at the heart of gas to liquid solutions, you have to make sure that the process and the equipment work together. And our CapEx is 5% to 7% of the cost of a facility for LNG liquefaction. But if it doesn't work, the whole plant doesn't work. So the validation process was a key part of the last 7 years for us to get to where we sit today. Having first gas be or liquid in the case of Cheniere be early and ahead of schedule is a significant accomplishment for Cheniere and Bechtel and for Chart and the technology. So this has momentum building behind it. As you point out, that when people can see it working, see its capacity being above nameplate capacity and see the benefits of IPSMR, meaning around smaller pot size, the construct of this, having different ways to be more efficient and other process technologies, we've really gained some momentum. And you'd be surprised at how important some of these projects getting online are, but also how wonderful it's been to get the word out, because we've had more inbounds since the last 6 months on IPSMR, because people in the industry talk to each other about the fact that it does. It does more than what we say it can do.

Right, right, right. No, there's no bigger endorsement than seeing things in action and your customer is talking about it, right? And Exxon selected IPSMR, right? So that's a big endorsement for the process technology. Let's move on, Jill, maybe let's talk a little bit about hydrogen and CCS and hydrogen, obviously, it depends on what geo market you're looking at, right? Europe and U.S. can be very different from an outlook standpoint. Maybe talk to that, what are you seeing, U.S., Europe? What's the trend?

Yes, definitely, on the hydrogen side, you hit it spot on. It's geographic based on kind of where the momentum is or is not. In 2024, we had a record year for hydrogen in Europe. We've started to see projects move forward from demonstration projects into commercialization. We anticipate that geographies such as Europe will continue to invest in hydrogen. In places like India, we see kind of both natural gas and the development of hydrogen, so kind of a variety of different ways to play energy in geographies such as India, same with Southeast Asia. And then, when you talk about the United States, that's an area that people are definitely kind of looking at the 45V, how does this play? It's a little bit in a way similar to what we've had seen years back in LNG, where the projects that are self-sustaining, the projects that on their own have private funding and make a lot of sense to do are the ones that we're seeing move forward. So there's pros and cons to all the different aspects of looking at these different molecules as power and energy sources. But what I would say in U.S. hydrogen is clarity around 45V, but those that are moving ahead and spending money have private funding. And that's kind of a differentiator in the United States market for hydrogen. And then the Canadian hydrogen market is very supported by both the provincial and the federal government, and we would expect that to continue in Canada.

Got it. Okay. Okay. And then a little bit on the carbon capture side of things as well. I know you play both in the large scale and the small-scale side of things. Small scale over the quarters, it seems like you're gaining a lot of traction, right? And even that small scale is getting slightly bigger over time, right? So maybe just talk to that a little bit.

That's right. And I appreciate you pointing that out, because it's an area that we spend a lot of time working on. So we have two carbon capture technologies, both are cryogenic. One is called Earthly Labs, and that's the small scale, and that's Saurabh was referring to. And that -- the target markets originally for that were small scale for food and beverage primarily. So it's beverage grade, food grade capture and is typically for reuse cases where we would see wineries such as Opus One that utilizes Earthly Labs that emits CO2 in the making of their product and the Earthly Labs unit captures it and then they can reuse that CO2 in the making of the product. That is very kind of self-sufficient from an economic standpoint and hence, the commercialization kind of picking up steam. We have the second technology, which is our cryogenic carbon capture technology, CCC. That -- the origination of that is Sustainable Energy Solutions or SES. That is large-scale industrial cryogenic carbon capture. We've seen that gaining some traction, in particular, in cement and lime kilns' end market applications. So again, where CO2 is used in the product definitely helps the economics work. In the United States, in particular, we've seen stickiness around the credit system. And so that has given folks more confidence to move ahead with some of the larger projects. The -- I started to describe this with the two technologies that we have in the portfolio, because they really are blending together where you see Earthly kind of scaling up and the best of both of those technologies, because they are both cryogenic are being brought together to serve end markets such as biogas, fuel cells, and the cement and the industrial applications that I described. So we're excited about where we sit cryogenic carbon capture wise, which is very unique compared to some of the other technologies. And while all the technologies work, we have the benefit of our equipment supports all technologies and then the cryogenic technology has specific capabilities that certain customers are looking for. And the partnerships have expanded in that arena, such as the Bloom partnership and our partnership with GCC as well.

And then within specialty, there are several other very interesting businesses, right? You talked about space exploration on your quarterly call. I think you said fourth quarter was the highest quarter in 2024. And then just quarter-to-date, I think you said $60 million you had booked orders already quarter-to-date as of the call, right? So that's a big number for that business, right? What's the opportunity in space looking like?

That's an interesting market, kind of a good example of, hey, we don't have to do anything different from a manufacturing perspective to serve this end market. But the space exploration, in particular, private space exploration market in the last, I would say, 18 months has become very active for us. How we play in that is around jumbo sized cryogenic bulk tanks, which are used typically at the launch pad itself to store the fluids, to store the molecules for the launch itself. As you might imagine, the more launches that happen, the more frequency of those launches, the more tanks you would need to serve that capability or you need to be able to produce the molecule closer to site, all of that we can serve. In addition, heat exchangers are a key part of our offering for space exploration customers. And both of those have been very strong momentum into the backlog the last 15 months. So the opportunity in space is interesting because clearly, there are one or two more predominant space exploration parties that play in this area. But what we see is frequency increasing. So hence, we expect that to be volume increasing. And then what about space, right? So is it just the launch of the rocket is one thing, but also putting satellites into space and how that links to all of the energy dialogue that we have had, all of the Internet, the data centers, the AI had an interesting conversation with a counterpart last week and his company does exactly that, puts satellites into space and then they monitor actually emissions through those satellites. And so there's more and more ways that companies are playing space. And we think that we're very uniquely suited to serve that increasing scope that we want to do.

Right, right. And on data centers, Jill, you touched on that in your opening remarks, right? Correct me if I'm wrong, I think you said over 3 years, $500 million in opportunity, right, and $80 million you already have in your backlog. To get to that $500 million, you have all the products already in your portfolio?

We do. There's different ways you can play data centers. For our portfolio, the natural way is heat rejection for air cooled. And so we have those products. And then obviously, there's breadth of heat exchangers and how those play based on scale. And there's very few out there that have the air cooler capacity and size and scope that we have to serve heat rejection. You can also serve data centers with other solutions, water is another area, but we really focus on kind of what is in our core offering to serve the data center market. So we feel like we have what we -- what is core to us in our purview. And now where we are in the evolution of that is ensuring that we have the coverage with the customers that are building the data centers. And we recently added a member to our commercial team to target and focus on data centers with the data center backlog -- background so that the perspective of a technical air cooler person and the perspective of somebody that's lived in the data center world, we expect that, that should help with the commercialization opportunities in our pipeline.

Right. No, that makes sense. On the RSL side of things, right, you really expanded your exposure to that after the Howden acquisition, right? Like you said, 1/3 of it is now RSL of your total revenue, very high margin, mid-40s percent, right? But what's the growth outlook? Because high single digit, 10%, that sounds like a very strong number for the aftermarket business. Right? What's driving that?

Yes. We love the aftermarket service repair part of the business. This has been something that for the last couple of years, we've been really pleased with its performance. If you looked at orders last year was just over 10% increase year-over-year and sales was about 19%. In that 19%, we had a couple of specific larger service opportunities that we executed upon in 2024. LTSA and framework agreements is a key part of that. So let me kind of go back to the IPSMR and the process technology aspect of the portfolio. The more that our process technologies are being used in the market, the more opportunity for us to have long-term service agreements. And the way to think about that is, if you're just serving an operator, we'll pick on liquefaction, an operator with your equipment, typically, you're going to sell your equipment to the EPC. EPC does their thing and then both EPC and equipment component provider go away. When it's your technology, having the relationship both with the EPC and with the operator so that when the keys are handed over, in the case, we'll pick on the Cheniere example, Train 1 keys handed over to -- from Bechtel to Cheniere, then that's our IPSMR technology, and that relationship continues for decades to come as the plant operates. So the opportunity to increase LTSAs globally has -- is an area that we think is going to pick up speed. In '24, we were up 30% on LTSAs in the year. So that's something that we want to continue to drive that double-digit opportunity on LTSAs. And then, if you look at other specific opportunities, there's a lot of coverage of our installed base that we have to go. Right now, we're about 40%, which was the number we put out at our Capital Markets Day in November of '24. There's a goal to get to 80%. And there's a road map to get there. We have a tool internally where we maintain our installed base. And just recently, we added 3,800 air-cooled heat exchanger installations into that tool and many of those overlap with other products and other sites that our customers have. And that gives our commercial team a really clear way to talk to the customer, whether they're on a new build sale or an aftermarket sale. And then, I'd love to see the penetration of geographies that we weren't very strong in prior as Chart stand-alone, and we've been able to do that meaningfully in the last year or so and still see a great opportunity in Europe, great opportunity in certain aspects of the United States and then Southeast Asia. And then, I would -- I could go on this. The digital uptime opportunity is something that we haven't exploited to the way that I want to ahead. And then, there's e-commerce activities underway. So e-commerce, meaning that customers that want to get a spare can go on to the Chart Parts website and be able to do that with no or limited human interaction. And just a quick stat year-to-date, this was as of the end of February, we had 31 new customers place orders via that e-commerce Chart Part portal, and that 31 compared to 54 new customers in all of 2024. So we're picking up that capability and improving the customer experience through e-commerce tools. So I'll pause there.

Right, right. Now I mean, yes, let's pull back a little bit. I know you mentioned tariffs initially, right? And that's very topical, right? We want to make sure we touch on that. In the Trump 1.0, a lot of companies have got upside down on tariffs, then coming out of COVID, supply chain tightness, right? How are you planning this go around in the tariff uncertainty that we are all facing?

I mean, it's definitely an uncertain environment. I think that's probably a common word that everybody uses. Yet I would say that we're better positioned than we were in the first go around during the supply chain crisis. We learned a lot from that. We implemented regional supply chains as well as leveraging global supply base. So we kind of -- we have the ability to tap into our regional supply base while taking advantage where it makes sense on the global sourcing opportunities. We make product in more than one location. So that does help us as well. That flexible manufacturing strategy helps us. We've also adjusted certain long-term agreements. That was a pain point in, I guess, supply crisis 1.0, whatever you want to call it, in particular, because certain LTAs had a pricing mechanism, which was meant to neither help nor harm either party. But there was a lag to it. And so that lag caught us up. So we've adjusted certain LTAs to address that pain point in the last 4 years. We do have a strong manufacturing footprint in the United States, as you're well aware. We're the only manufacturer of brazed aluminum heat exchangers in North America, and we do that in Wisconsin and in Oklahoma. That gives us a good opportunity also to serve our U.S. energy customers with made in the United States product. Currently, we -- I think a lot of people are talking price pass-through, and that's something that we're certainly in that category as well. That's pass-through opportunities to our customers in various different pricing constructs that we're in the middle of right now. And there are some of our suppliers that actually have tariff exemptions for a period of time. So those suppliers we're working with to have the inventory that they hold on hand that doesn't come into our working capital, but gives us the opportunity to have that tariff protection. And ultimately, I think like everyone else, there's a lot of activity going on in the tariffs situation, and we're responding to that on an hourly and daily basis. But the key is going to be not to get caught on your heels, but to be proactive in particular, in pass-through of price.

Yes, Jill, we've got 5 minutes remaining. I want to make sure we touch on the balance sheet on -- you mentioned the sustainability of free cash flow, right? So maybe let's start with the balance sheet. Your target is 2.5x or below you were at 2.8x. So you're getting pretty close there. But again, we know there's seasonality in the free cash flow dynamics, right? 2.5x, roughly when should investors expect you to get there and what happens after you get there?

Yes. So we expect to get to 2.5x or below in 2025. As you pointed out, we do have -- we always make sure everybody knows that Q1 is a use of cash for us based on all the reasons that we've laid out prior. But with that, we feel good about the consistency of the cash generation and the activities that have been underway in this cash culture. So we expect to get there in 2025, and we'll continue with optimization of milestones in our projects, and that's an important part of it, optimization of the working capital where it makes sense to pull different levers in working capital. And then, at the end of this year, December 15, 2025, our mandatory convertible that actually converts. And so after that, the quarterly dividend that we pay related to that will go away. So there's a lot of optimization. And then, we'll be pretty plain vanilla in terms of our instruments on our balance sheet with nicely staggered maturities beyond that. So the goal is to get there. We're hyper focused on getting there. We're hyper focused on debt paydown and free cash flow generation consistently across the year.

Right, right, right. And just on the free cash flow side of things, right? I mean, people often ask me what's the right way to think about free cash flow conversion for you, right? I think you define it as a percentage of net income, right? But if you want to talk about it like that or EBITDA, right, whatever, what's the best way to think about how much cash can Chart generate sustainably?

Yes. So our medium-term goal that we've laid out is 95% plus of cash conversion. What we've talked about it today is the percent of sales. So I referred to the last three quarters, 16.3% of sales was our free cash flow generation. I think that's going to be variable based on the quarter just because ours is not a 90-day business. But with that said, I think kind of that mid-teens proxy is a good goal for us to be chasing as a percent of sales.

Okay. Jill, maybe let's -- we've got a couple of minutes left. I think, let's see if there's any question in the audience, if somebody wants to ask anything, we can take something from the audience. I think we'll just have the mic come in.

Which is the -- once you get to your target gearing, how should we think about your capital allocation priorities after that? Obviously, you've been quite an acquisitive company historically. But how are you going to weigh the inorganic growth going forward versus other options of putting cash back to shareholders or whatever?

Yes. So the way that we will continue to evaluate it is around high ROIC return projects, so organic and inorganic opportunities. Yet I would also say that there's more and more dialogue about making sure that we evaluate all of the ways to possibly return to shareholders. One of the things that we also want to make sure that we reiterate is that we're not going to do any material cash acquisitions until we get into that target range. But that isn't to say that we haven't been looking at opportunities that have come along and that's -- we're pleased to say that there isn't something that we've said, oh, we really wish we would have had over that period of time. But with that said, we'll be very thoughtful about high ROIC spend versus other ways to return cash to shareholders.

Okay. Jill, I think let's wrap it over here. We are up on time, but thanks a lot for the time, Jill.

Thank you so much.

Really a pleasure.

Thank you, everybody.