Executive Summary / Key Takeaways

• Chart Industries is executing a strategic transformation, leveraging its expanded portfolio following the Howden acquisition to become a more diversified, backlog-driven leader in cryogenic and rotating equipment for the "Nexus of Clean" markets.
• Recent financial performance, particularly in Q1 2025, demonstrates significant operational leverage with expanding gross and operating margins, driven by improved product mix, productivity gains, and execution on high-margin backlog, notably in Heat Transfer Systems and Specialty Products.
• The company holds a robust backlog of over $5.1 billion as of March 31, 2025, providing strong revenue visibility, complemented by a growing and resilient aftermarket service business contributing approximately one-third of total revenue.
• Management reiterates its full-year 2025 guidance, anticipating continued sales growth and margin expansion, underpinned by operational improvements and expected free cash flow generation of $550M-$600M to achieve its target net leverage ratio of 2.0x-2.5x.
• While macroeconomic and geopolitical uncertainties, including potential tariff impacts, pose risks, Chart's diversified end markets (LNG, data centers, space, nuclear, carbon capture) and proactive mitigation strategies position it to navigate these challenges and capitalize on secular growth trends.

Charting a Course Through Molecules: Strategy and Transformation

Chart Industries, Inc. stands as a global leader in the critical infrastructure required to handle gas and liquid molecules across various temperatures and pressures. Its business spans the design, engineering, and manufacturing of highly specialized equipment for the entire liquid gas supply chain, from liquefaction and storage to distribution and end-use applications. The company has strategically positioned itself at the forefront of the "Nexus of Clean," serving burgeoning markets in clean power, clean water, clean food, and clean industrials, alongside traditional energy sectors.

A pivotal moment in Chart's evolution was the acquisition of Howden, which significantly expanded its portfolio, particularly in rotating equipment like compressors and fans, and dramatically bolstered its aftermarket service capabilities. This integration, completed approximately five quarters ago, has been instrumental in transforming Chart into a more resilient, backlog-driven enterprise, less susceptible to the "super peaky, super troughy" cycles of its past. The Repair, Service & Leasing (RSL) segment, significantly enhanced by Howden's installed base and service network, now represents roughly one-third of Chart's total revenue, providing a more stable, higher-margin revenue stream. Complementary divestitures of non-core assets like Roots, American Fan, Cofimco, and Cryo Diffusion in 2023 further streamlined the business, sharpening its focus on core competencies.

Central to Chart's competitive differentiation is its proprietary technology, particularly in cryogenic applications and heat transfer. The company's vacuum insulated pipes, for instance, offer tangible benefits such as 15-20% greater energy efficiency compared to standard alternatives, translating directly into 10-15% lower operating costs for customers. In LNG liquefaction, Chart's IPSMR process technology is gaining traction for its modularity and efficiency, chosen for significant projects globally. The company also leverages its expertise in brazed aluminum heat exchangers, being the only manufacturer in the United States with the world's two largest brazing furnaces, offering unique capabilities for large-scale applications. Ongoing R&D efforts focus on enhancing efficiency and expanding applications, such as developing digital uptime solutions for predictive maintenance across its installed base and exploring larger-scale hydrogen liquefaction technologies. These technological advantages contribute to Chart's competitive moat, enabling it to command better margins and secure key projects, underpinning its long-term growth strategy.

In the competitive landscape, Chart operates alongside major industrial gas companies like Linde (LIN), Air Products (APD), and Air Liquide (AI), who also offer cryogenic solutions and gas processing equipment. While these larger players often possess greater scale and broader market share (LIN estimated at 20-25%, APD and AI at 15-20% in industrial gases), Chart differentiates itself through specialized equipment, application-specific engineering, and a strong aftermarket service network. Chart's modular IPSMR technology offers advantages in project flexibility and potentially lower upfront costs compared to some integrated systems offered by rivals. Its strategic focus on diverse, high-growth end markets like data centers, space exploration, and carbon capture, where its existing equipment portfolio is highly relevant, allows it to capture opportunities potentially faster than competitors more heavily focused on traditional industrial gas or large-scale hydrogen infrastructure. While Chart's net margins (TTM 6.10%) currently trail those of LIN (15-18%) and APD (14-16%), its revenue growth trajectory (TTM 12%) has recently outpaced some peers, and its Return on Invested Capital (ROIC) of 14% suggests efficient capital deployment relative to rivals. The growing RSL segment, with its consistently strong gross margins (mid-40%s expected), further enhances overall profitability and provides a competitive edge through customer lifecycle support.

Performance Reflecting Strategic Execution

Chart's financial performance in the first quarter of 2025 demonstrated solid execution against its strategic priorities, particularly in driving operational leverage and converting backlog. Consolidated sales increased by 5.3% year-over-year to $1001.5 million, primarily fueled by growth in the Heat Transfer Systems, Specialty Products, and Repair, Service & Leasing segments. This growth occurred despite a 1.3% headwind from foreign currency fluctuations.

Profitability saw meaningful expansion. Consolidated gross profit margin rose to 33.9% in Q1 2025 from 31.8% in the prior-year quarter. This improvement was broadly based across segments, with Cryo Tank Solutions, Heat Transfer Systems, and Specialty Products all contributing higher margins. Specialty Products notably achieved a gross margin above 30% for the first time since Q3 2022, reflecting improved project mix and increased efficiencies at facilities like Theodore, Alabama. While RSL margins were slightly lower year-over-year due to mix, they remained robust in the mid-40% range. The company also effectively leveraged its cost structure, with selling, general, and administrative (SG&A) expenses decreasing slightly by $0.5 million. This operational efficiency drove a significant increase in operating income, which rose to $152.3 million in Q1 2025 from $112.9 million in Q1 2024. Net income attributable to Chart Industries, Inc. from continuing operations saw a substantial increase to $51.5 million compared to $13.5 million in the prior-year quarter. Interest expense decreased by $6.7 million, benefiting from lower interest rate margins and reduced debt levels on term loans. The effective income tax rate in Q1 2025 was 24.5%, influenced by the geographic mix of earnings.

The company's backlog remains a key indicator of future revenue visibility. As of March 31, 2025, total backlog stood at $5143.6 million, a significant increase from $4331.1 million a year prior. Approximately 55% of this backlog is expected to convert into revenue over the next 12 months. First-quarter 2025 orders totaled $1315.6 million, a 17.3% increase year-over-year, including a significant booking for Woodside Louisiana LNG Phase 2, which utilizes Chart's IPSMR technology. Orders in emerging end markets like space exploration, HLNG vehicle tanks, nuclear, and marine in Q1 2025 alone surpassed the full-year 2024 orders for each of these markets, highlighting the traction in diversification. While Cryo Tank Solutions orders saw a year-over-year decline due to softness in industrial gas, they increased sequentially, indicating potential stabilization. Specialty Products and RSL segments saw strong order growth, driven by areas like carbon capture, space, marine, nuclear, and retrofit projects.

Liquidity and capital management remain a core focus. Cash and cash equivalents stood at $296.2 million as of March 31, 2025. Cash used in operating activities improved significantly in Q1 2025 to $60.0 million compared to $95.1 million in Q1 2024, reflecting stronger operating performance. Capital expenditures were $20.1 million in Q1 2025, down from $46.1 million in Q1 2024, aligning with the company's plan for normalizing CapEx after capacity expansions. The company remains in compliance with its debt covenants and had $695.0 million in unused borrowing capacity under its revolving credit facility as of March 31, 2025. A recent modification to the HTEC co-investment agreement put option means no balance sheet or cash impact is expected prior to 2028, removing a potential near-term cash requirement.

Outlook and the Path Ahead

Chart Industries reiterates its full-year 2025 guidance, projecting sales in the range of $4.65 billion to $4.85 billion and adjusted EBITDA between $1.175 billion and $1.225 billion. This outlook is underpinned by the substantial backlog, anticipated continued strength in aftermarket services, and expected conversion of orders across diverse end markets. Management anticipates the second half of 2025 to be stronger than the first half, driven by the timing of revenue recognition from specific large projects and service work within the backlog.

The guidance assumes a stable general economic environment and successful execution on operational improvements, including further productivity gains and synergy realization. Capital expenditures for 2025 are expected to be in the 2% to 2.5% of sales range, focused on enhancing compressor capacity and improving productivity and automation in manufacturing facilities. A key financial objective for 2025 is to achieve a net leverage ratio below 2.5x, supported by anticipated free cash flow generation of $550 million to $600 million for the year. This focus on deleveraging is paramount, and the company maintains its financial policy of not pursuing material cash acquisitions or share repurchases until this target leverage range is met.

While the outlook is positive, several risks warrant investor attention. Geopolitical instability, including ongoing conflicts and trade tensions, could impact global supply chains and project timing. Macroeconomic factors such as potential volatility in interest rates and inflation could affect customer investment decisions and operational costs. Tariffs, particularly those recently announced or threatened, present a potential headwind. Chart estimates the gross annual impact from known tariffs at approximately $50 million. However, the company is actively employing mitigation strategies, including leveraging its flexible global manufacturing footprint, utilizing in-region sourcing, implementing price increases where possible, and securing exemptions, which are expected to keep the net impact manageable within the EBITDA guidance range. Specific market uncertainties, such as demand trends in industrial gas (particularly in China) and the pace of hydrogen project development in the Americas, are also being closely monitored. The successful realization of the higher end of the guidance range is contingent on the timely booking and execution of certain larger projects currently in the commercial pipeline, which could be subject to customer-driven timing shifts.

Chart's commercial pipeline remains robust at approximately $24 billion, including a meaningful pipeline of potential large global LNG work expected to materialize in 2025, leveraging its IPSMR technology. Opportunities in data centers and AI, requiring heat rejection and cryogenic storage solutions, are also expanding, with a specific 12-18 month pipeline estimated at $400 million. The RSL segment continues to grow its installed base coverage and digital offerings, providing a stable and growing profit engine. Post-deleveraging, the company intends to allocate capital towards high-ROI organic growth initiatives, potential bolt-on acquisitions in strategic areas like services and specialized technologies, and potentially returning capital to shareholders.

Conclusion

Chart Industries has successfully transformed its business model, integrating the Howden acquisition to create a more diversified, backlog-driven, and aftermarket-focused enterprise. Its strategic positioning at the "Nexus of Clean," coupled with proprietary cryogenic and rotating equipment technologies, provides a strong foundation for growth across secular trends in LNG, hydrogen, carbon capture, and emerging markets like data centers and space exploration.

The company's recent financial performance underscores its operational improvements and ability to expand margins through effective execution and favorable project mix. With a substantial backlog providing revenue visibility and a resilient aftermarket segment contributing stable, high-margin revenue, Chart is well-positioned to achieve its near-term financial targets. The commitment to deleveraging, supported by anticipated strong free cash flow generation, is a critical component of the investment thesis, promising a stronger balance sheet and increased financial flexibility. While global uncertainties and market-specific risks persist, Chart's diversified portfolio, proactive mitigation strategies, and ongoing operational enhancements provide resilience. The path ahead involves continued execution on its backlog, capitalizing on its expanding commercial pipeline, and leveraging its technological advantages to drive profitable growth and create value for shareholders.