Good morning and welcome to the Chart Industries, Inc. 2023 First Quarter Results Conference Call. All lines have been placed on mute to prevent background noise. After the speaker’s remarks there will be a question-and-answer session. The company’s release and supplemental presentation was issued earlier this morning. If you have not received the release, you may access it by visiting Chart's website at www.Chartindustries.com. A telephone replay of today's broadcast will be available following the conclusion of the call until Friday, May 5, 2023. The replay information is contained in the company's press release. Before we begin, the company would like to remind you that statements made during this call that are not historical, 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 statement. I would now like to turn the conference over to Jill Evanko, Chart Industry's CEO. Please go ahead.

Thank you and good morning. Thanks everybody for joining us this morning. With me today is Joe Brinkman, our CFO. We will share our strong first quarter 2023 results as well as the ahead of schedule cost and commercial synergy progress that we have made following our completion of the Howden acquisition on March 17th. There are two important data points related to the presentation we released this morning. First, all results discussed relate to continuing operations and the only discontinued operations in the quarter are related to the March 2023 settlement for the Pacific Fertility Clinic litigation matter related to our 2020 divestiture of our CryoBio business. Second, unless otherwise noted, the first quarter of 2023 results are full charge stand-alone for the quarter, plus Howden's Q1 results from our stub ownership period, which was March 17th to March 31, 2023. Starting on Slide 4, we have over the past six months executed each step of our plan as laid out either on schedule or ahead of schedule. We will continually reiterate that mantra of executing on time or early to our target, including our 2023 increased guidance and our activities related to debt pay downs. Slide 6 shows the strength in our first quarter 2023 financial results, starting with record backlog of $3.9 billion for the combined company as well as record backlog at both Chart and Howden on a stand-alone basis. This was supported by Q1, broad-based order demand totaling $747.7 million with Howden contributing $121 million of orders in their two-week stub period. We'll go into more detailed order information throughout the presentation. First quarter 2023 sales were a record $537.9 million. The Howden stub period contribution to Q1 sales was approximately $110 million. Note that for timing reasons, the stub revenue is not indicative of anticipated results for any given two-week period. Sales for three of our four segments, inclusive of the Howden two-week ownership period grew more than 18% when compared to the first quarter of 2022. Repair, service and leasing grew 144% in that time frame. And Chart stand-alone first quarter 2023 RSL grew 11.2% compared to Q1 2022. Including our Howden's ownership period, first quarter 2023 also had record sales in RSL, HTS and specialty. Both RSL and HTS had record sales on a Chart stand-alone basis. Hydrogen sales increased 12.2% in Q1 compared to Q1 2022 with Howden’s stand-alone full first quarter 2023 hydrogen sales in both new build and aftermarket growing over 10% each compared to Howden stand-alone first quarter 2022. Howden had record trailing 12-month sales, which were an increase of 11% on a reported basis when compared to the first quarter 2022 LTM, and this would have been 19% growth if excluding the FX impact. We are also pleased with our first quarter 2023 margin performance in both the reported and adjusted metrics. Reported gross profit as a percent of sales of 28.2% increased 460 basis points compared to Q1 2022. When adjusted for one-time costs, gross margin as a percent of sales was 28.6%. This contributed to first quarter 2023 adjusted EBITDA margin of 19%, an increase of 350 basis points compared to Q1 2022.

Slide 15 has been shown a few times previously, so a quick reiteration here. Not only do Chart, Howden and the combined businesses have record backlogs as of March 31st, the backlogs are complementary to each other on revenue and shipments, supporting consistent double-digit growth throughout the cycle. The message on Slide 16 is that material input costs are either decreasing or at a minimum becoming more consistent as is availability. And therefore, we are comfortable that the current macro operating environment is stable, especially as compared to the last two years, and we are cautiously optimistic that it is improving. Note that these top inputs are similar for both Chart and Howden. We continue to hold pricing and take further action as needed.

Slide 21 shows our segment results, including first quarter 2023, HTS and RSL reported gross margin as a percent of sales that, as I mentioned earlier, each increased by over 1,100 basis points when compared to the first quarter of 2022. These exceptional results were driven by more project work in HTS and additional field service work in RSL, as well as strong cryo lease gross profit in the quarter. We expect continued strength in the RSL results in Q2 as it will be our first full quarter with Howden's aftermarket service and repair in-house. Today is my first chance to verbally introduce Massimo Bizzi to you. Massimo is Joe and my partner, working alongside our combined executive team to deliver the synergies on and ahead of schedule and we're well on our way to do that. Massimo was the COO of Howden and will be a key partner to me not only on integration, but also as a permanent senior executive of the Chart team.

To further articulate the fact that we are continuing to see widespread demand across the combined business we have included Slide 45 to share some of our month-to-date April orders. What I like about this is you can see that we have 1 million-plus dollar orders from a variety of customers ranging from the marine market to the LNG re-gas skids in Europe to South African power customer spares and service to brace for energy applications to water treatment to ISOs to continued high demand for processed gas screw compressors and multiple hydrogen orders, and our industrial gas customers remain consistent.

Thank you, operator. Hi, Jill and Joe. I'll combine my question and follow-up into one. My first question is about the 3.7 billion dollar midpoint of revenue guidance. For modeling purposes, you mentioned that about a third of that is anticipated to come from aftermarket. Could you provide more detail on how the various segments contribute to that?

You got it, thanks for rolling them into one, Ben. Okay, so the first part of the question on the breakdown in terms of the various segments. So we've given kind of a pro forma on the RSL segment. So I'd start there at just above 30% of full year revenue, and that can apply for this kind of stub calendar year as well. And the second part of your question on the nitrogen rejection unit, your comment is spot on that we are hearing the same thing you described in particular, as you mentioned on the U.S. Gulf Coast with respect to the gases coming through pipelines from West Texas. And we have a very unique offering to not just NRU but also heavy hydrocarbon removal systems, which gets into just technicalities. But for us, the opportunity in one of these for what you'd call kind of a standard size, big LNG export terminal on the U.S. Gulf Coast a little bit depends on content, which is always the caveat on these types of trains. But NRU and HHC add-on to one of the projects that we would be doing is going to be somewhere in the $70 million to $100 million range, and that's per opportunity.

Hey Jill, hi Joe. Good morning. So maybe can we just talk about on the order side, I mean, obviously, your two-week period, $112 million from Howden, that's obviously not a number that we can play out throughout the whole quarter. I know in the past for Chart only you've given a I think it's somewhere $400 million to $450 million is how you kind of think about a baseline for orders and with upside to that.

Yes. Thanks for the question, Eric. And also for clarifying in your question, you can't take any two-week period and multiply it by 26 to get a full year. But with that said, I think the way to think about the Howden orders is similar to how we framed. So we framed last year on a Chart stand-alone basis, kind of an average of 350 as our new average quarter.

Thank you. And for my follow-up question obviously, it looks like a lot of momentum on the small scale and floating LNG side and IPSMR. Could you maybe talk a little bit more about acceptance of IPSMR out there in the market and if you can maybe characterize if that momentum is expected to continue on the small scale and the FLNG order side?

Yes, thank you for bringing that up, Marty. We have been really impressed by the level of market acceptance for IPSMR and how quickly it has gained traction. A significant factor contributing to this is its efficiency. It requires lower capital expenditure for the initial installation, and the efficiency during the operational cycle of the process technology for that 1 to 1.4 MTPA train size is unmatched in our view. Additionally, we are observing a shift in the market where LNG players are increasingly moving towards small-scale and floating LNG solutions.

Thanks for taking the question. Joe, you said you're bullish on all things LNG. Just to kind of put a finer point on that, the European energy crisis a lot of people feel is subsiding. Gas prices are at the lowest level since the war started. Are you seeing any sense that maybe there is less appetite in Europe to take off more LNG offtakes or partner with external LNG suppliers?

Yeah, we haven't seen a dramatic change in that behavior from Europe. We've continued to see infrastructure, just from a Chart perspective, Pavel. We continue to see infrastructure activity being built, meaning like the LNG regas skid that we just booked for $4.7 million, continuing to see the stations being built. From an offtake perspective, I would give credence to your comment on what we've seen inclusive of even this morning's Venture Global announcement on CP2, of the offtake with a lot of the APAC parties. We have seen an increase in our commercial pipeline related to LNG, although there has been continuing softness in HLNG over-the-road vehicle tank orders and sales. This is particularly relevant as our two main customers in that segment are located in Europe. While there are several nuances to consider, I believe it is definitely something to monitor. Overall, we continue to observe growth in the LNG sector.

Hey, good morning. Stick on the LNG track and dig into Port Arthur a little bit. I saw that you mentioned you booked air cooled heat exchangers, brazed aluminum heat exchanger, and ethylene storage tanks. So I mean, curious if you could put a dollar figure on that and short of that, just sort of describe how this particular order is different than what you booked for Cheniere and Venture Global?

Yes. Thanks for the question, Sam. Okay. So just due to confidentiality with our customer, we aren’t giving a dollar amount size on Port Arthur, but let me kind of give you the general range would be around several hundred million-ish type of number you could use. The second part addresses the difference between VG and Semper Port Arthur, which falls into one category of equipment orders for us. These involve various sizes and types of equipment, but there is no process technology from Chart associated with either. The specific scope, including whether it includes air coolers, multiple brads, or cold boxes, along with their designs, will determine the range involved. The other thing I would say is some of these guys have the heavy hydrocarbon removal system that I've described built into the design, whereas others do not, so that adds a factor into how this is priced. The third part of your question is on the two to three orders in the rest of 2023 in addition to Port Arthur that I called out and scope-wise, let's see, you'd have the opportunity in the bucket of opportunities. So obviously, two to three is a subset of the ones that could move to FID that we would have content on. I attend many of our customer meetings and the combined one Chart global commercial team is super energized over this combination. Slides 32 through 37 shows detailed cost and commercial synergies that we have underway and the teams are daily finding more and more opportunities for cost out as well. The largest increase in cost out opportunities from our original target is in the facilities category, which to date has not materially contributed to the $51 million achieved, but will begin to do so in the coming months. The short answer is we provided a guidance based on an exceptionally strong backlog, which offers us more coverage than we have ever experienced before as of March 31st. Additionally, we now have a more balanced relationship between project work in the backlog and the book to ship in the combined business. We see this as a positive development because it creates greater opportunities for upside in a quarter based on book and ship compared to our previous standalone situation as Chart.

Hi Jill. You mentioned several early wins regarding the commercial synergies. I’d like to know how confident you feel about those synergies as you begin to integrate your sales efforts. How do you envision that developing?

I'm excited you asked because I want to discuss the synergies from both cost and commercial perspectives. I previously inquired if your views had changed in the last six or seven months, and I can confidently say that I believe this strategic combination is exceptional. And if there's any treating of nuances, so you're not going to see us divest the business and then come out and have a significant reduction to our outlook.

Thank you. And one moment please for our next question. Our next question will come from Mark Bianchi of TD Cowen. Your line is open.

Thank you. I was hopeful, Jill, if you could say what the Howden contribution was to revenue and adjusted EBITDA in the first quarter?

Yes. Thanks for the question, Mark. It was approximately $110 million of revenue. We didn't give a bottom line impact, but it was by way of kind of proxy, it was above the 19% adjusted EBITDA as a percent of sales. So we wanted to on balance kind of give a view that there's not going to be an extreme hockey stick in the back half in the combined business, and we have more consistency across the period, whether that period is a year or a cycle. And that's really thanks to that meaningful aftermarket service repair contribution that Howden gives to us.

Hi, thanks. Good morning, Jill. I appreciate all the details you provided. I wanted to ask about the bonus compensation for this year being linked to free cash flow, which sounds promising. This is a follow-up to an earlier question.

Yes. So the number you called out is the cash available for debt pay down for the year. The free cash flow metric is the $300 million to $350 million range. And again, yes. And to your point, the Board has been very conscious about debt pay down being a top priority for us as a global organization.

Thank you. I also see that there are no further questions in the queue. So that will end the Q&A portion of the call. This will also conclude today's conference call. Thank you everyone for participating. You may now disconnect. Have a pleasant day, and enjoy your weekend.