Business Overview
Chart Industries, Inc. (GTLS) is a leading global manufacturer and supplier of highly engineered equipment for the clean energy, industrial gas, and hydrocarbon industries. With a history dating back to 1963, the company has evolved from a regional provider of cryogenic equipment to a diversified global player serving a wide range of end markets.
Chart Industries was founded in 1962 and is headquartered in Ball Ground, Georgia. The company designs, engineers, and manufactures process technologies and equipment for the Nexus of Clean - clean power, clean water, clean food, and clean industrials. Chart's product portfolio is used across the entire liquid gas supply chain, including upfront engineering, service, and repair.
In its early years, Chart focused on producing cryogenic storage tanks and equipment. The company expanded its offerings over time to include heat transfer systems, specialty products, and repair, service, and leasing solutions. Key milestones included the acquisition of Hetsco in 2014, which expanded Chart's service and repair capabilities, and the acquisition of VRV in 2017, which broadened its specialty products portfolio.
During the 2010s, Chart faced challenges as it navigated an industry downturn and overcapacity issues. The company responded by implementing cost-saving initiatives and increasing operational efficiency through its Chart Business Excellence program. These efforts helped Chart weather the downturn and position the company for future growth.
Today, Chart operates in over 60 global manufacturing locations and 50 service centers, serving customers around the world. The company's diverse portfolio of products and services has made it a leader in the clean energy transition, with a focus on technologies related to liquefied natural gas, hydrogen, biogas, carbon capture, and water treatment, among other applications.
Chart's four reportable segments are Cryo Tank Solutions (CTS), Heat Transfer Systems (HTS), Specialty Products, and Repair, Service & Leasing (RSL). The CTS segment primarily serves the industrial gas and energy markets, providing bulk, microbulk, and mobile equipment. The HTS segment focuses on mission-critical engineered equipment used in the recovery, separation, liquefaction, and purification of hydrocarbons, LNG, and industrial gases. The Specialty Products segment supplies equipment for specialty end-market applications such as hydrogen, helium, LNG for vehicles, biofuels, carbon capture, and water treatment. The RSL segment provides installation, retrofitting, refurbishment, services, repairs, and preventative maintenance for Chart's products, as well as targeted equipment leasing solutions.
Financial Performance
Chart Industries has demonstrated strong financial performance in recent years, despite the challenges posed by the COVID-19 pandemic. In 2021, the company reported total revenue of $1.61 billion, a 21.8% increase from the previous year. Net income for 2021 stood at $59.1 million, with a net profit margin of 3.6%. The company's operating cash flow for 2021 was $-21.3 million, while free cash flow was $-74.0 million.
In 2022, Chart Industries continued its growth trajectory, reporting total revenue of $3.35 billion, a 108.1% increase from 2021. Net income for 2022 was $47.3 million, with a net profit margin of 1.4%. Operating cash flow and free cash flow for 2022 were $167.2 million and $31.6 million, respectively.
For the first nine months of 2024, Chart Industries reported total revenue of $3.05 billion, a 30.6% increase compared to the same period in 2023. Net income from continuing operations for the first nine months of 2024 was $153.0 million, with a net profit margin of 5.0%. Operating cash flow and free cash flow for the first nine months of 2024 were $221.6 million and $174.6 million, respectively.
In the most recent quarter (Q3 2024), Chart Industries reported revenue of $1.06 billion, a 22.4% increase year-over-year. Net income for the quarter was $69.0 million, with operating cash flow of $200.7 million and free cash flow of $174.6 million. The revenue increase was driven by growth across all four segments, particularly in the Heat Transfer Systems and Specialty Products segments, as the company continued to execute on LNG, other energy-related backlog, and hydrogen, CCUS, and water projects.
Chart Industries operates globally, with sales distributed across various geographic regions. In Q3 2024, 43.8% of sales were to North America, 30.7% to Europe/Middle East/Africa/India, 22.9% to Asia-Pacific, and 2.6% to Rest of World.
Liquidity
The company's financial position remains strong, with a net debt position of $3.65 billion as of December 31, 2023. Chart's current ratio and quick ratio stood at 1.18 and 0.87, respectively, indicating a solid liquidity position. As of September 30, 2024, the company reported a current ratio of 1.27 and a quick ratio of 1.00, showing further improvement in its liquidity position.
The debt-to-equity ratio was 1.314 as of September 30, 2024. Cash and cash equivalents were $310.20 million, with an additional $832.60 million of unused borrowing capacity under its senior secured revolving credit facility.
Acquisitions and Divestitures
Chart Industries has been active in both acquiring and divesting businesses to enhance its strategic focus and capabilities. In 2023, the company completed the acquisition of Howden, a leading global provider of mission-critical air and gas handling products and services, for $4.39 billion. This transformative acquisition significantly expanded Chart's global footprint and product portfolio, providing a platform for future growth.
To streamline its operations, Chart divested its Roots, American Fan, and Cofimco businesses in 2023. These divestitures allowed the company to focus on its core competencies and higher-margin end markets.
Competitive Landscape and Market Opportunities
Chart Industries operates in a highly competitive and fragmented global market, with both large, diversified industrial conglomerates and smaller, specialized competitors. Key competitors include Linde, Air Products, Cryogenic Industries, and Parker Hannifin, among others.
The company is well-positioned to capitalize on several attractive market trends, including the global shift towards cleaner energy sources, the growing demand for industrial gases, and the increasing adoption of hydrogen as an alternative fuel. Chart's extensive product portfolio and engineering capabilities enable it to provide comprehensive solutions to customers across a wide range of end markets, including energy, industrial, food and beverage, and specialty applications.
Risks and Challenges
While Chart Industries has demonstrated strong growth and financial performance, the company faces several risks and challenges:
1. Macroeconomic and geopolitical risks: The company's global operations expose it to fluctuations in foreign exchange rates, as well as economic and political instability in certain regions.
2. Supply chain disruptions: Disruptions in the supply of raw materials, components, or equipment could impact the company's ability to fulfill customer orders in a timely manner.
3. Technological changes and competition: The industry is subject to evolving technological standards and intense competition, which could impact Chart's ability to maintain its competitive edge.
4. Regulatory and environmental compliance: The company must adhere to various regulations and standards related to safety, emissions, and environmental protection, which could increase costs and limit operational flexibility.
5. Integration and execution risks: The successful integration of acquisitions, such as Howden, is critical to realizing the expected synergies and benefits.
Despite these risks, Chart Industries' diversified product portfolio, global reach, and focus on clean energy solutions position the company well to navigate the challenges and capitalize on the growing opportunities in its target markets.
Outlook and Growth Initiatives
For the full year 2024, Chart Industries is forecasting sales in the range of $4.2 billion to $4.3 billion, representing 18% to 21% year-over-year growth. The company expects adjusted EBITDA to be in the range of $1.015 billion to $1.045 billion, with adjusted diluted earnings per share of approximately $9.00, based on an anticipated tax rate of 22%. Free cash flow is expected to be approximately $400 million for the full year 2024.
Looking ahead to 2025, Chart Industries is targeting sales between $4.65 billion and $4.85 billion, with adjusted EBITDA in the range of $1.175 billion to $1.225 billion. The company aims to achieve adjusted diluted earnings per share of $12 to $13, based on an anticipated tax rate of 22%. Free cash flow is projected to be in the range of $550 million to $600 million. The company expects to end 2025 with approximately $3 billion in net debt, driven by strong free cash flow generation.
It's worth noting that Chart Industries has already exceeded its original year 3 (2026) target of $250 million in annualized cost synergies in the third quarter of 2024. Additionally, year-to-date through September 30, 2024, the company's sales increased 19.6% compared to the year-to-date September 30, 2023 pro-forma, and their operating margin increased by 510 basis points year-over-year.
To drive future growth, Chart Industries is focused on several key initiatives:
1. Leveraging its global footprint and expanded product portfolio to cross-sell and capture synergies from the Howden acquisition. 2. Capitalizing on the growing demand for clean energy solutions, particularly in the hydrogen, LNG, and carbon capture markets. 3. Enhancing operational efficiency and throughput through its Chart Business Excellence (CBE) program. 4. Strengthening its aftermarket services and digital offerings to drive higher-margin recurring revenue. 5. Prudently managing its capital structure and allocating resources to drive shareholder value.
Segment Performance
Chart Industries' four reportable segments have shown strong performance in the third quarter of 2024:
Cryo Tank Solutions: Segment sales increased by 2.2% compared to Q3 2023, driven by increased demand in mobile equipment. Gross profit increased by 15.6%, and gross profit margin improved by 290 basis points due to improved mix and better manufacturing efficiencies. SG&A expenses decreased by 6.7% due to cost synergies.
Heat Transfer Systems: Segment sales increased by 10.2%, driven by continued execution of backlog in traditional energy and LNG. Gross profit increased by 24.2%, and gross profit margin improved by 330 basis points, largely due to the increase in sales and better productivity and project mix. SG&A expenses decreased by 30.8% due to cost synergies.
Specialty Products: Segment sales increased by 18.0%, driven by backlog conversion in hydrogen, helium, and water treatment solutions. Gross profit increased by 20.3%, while gross profit margin improved by 50 basis points, partially offset by expenses related to a supplier's machinery startup challenges at the new Theodore facility. SG&A expenses increased by 24.1%, primarily driven by higher costs in Europe and a contingent consideration fair value adjustment.
Repair, Service & Leasing: Segment sales increased by 32.9%, driven by continued strong demand for the combined business solutions and an increase in aftermarket equipment sales. Gross profit increased by 45.4%, and gross profit margin improved by 410 basis points, driven by continued commercial and cost synergies as well as an increase in equipment sales. SG&A expenses decreased by 13.3% due to centralization of certain IT costs and lower payroll costs.
Conclusion
Chart Industries has transformed itself from a regional cryogenic equipment provider to a global leader in clean energy and industrial gas solutions. The company's diversified product portfolio, strong engineering capabilities, and focus on high-growth end markets position it well to capitalize on the increasing demand for clean energy technologies and industrial gas applications worldwide. While the company faces various risks and challenges, Chart's proven track record of execution, strategic acquisitions, and growth initiatives instill confidence in its ability to navigate the dynamic market landscape and deliver long-term value for shareholders. With strong financial performance, successful integration of acquisitions, and a clear growth strategy, Chart Industries is well-positioned to continue its upward trajectory in the coming years.