UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended March 31, 2024
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from to
Commission File Number: 1-11442
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||||||||
(Address of principal executive offices) (ZIP Code)
(770 ) 721-8800
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
x | Accelerated filer | ☐ | |||||||||
Non-accelerated filer | ☐ | Smaller reporting company | |||||||||
Emerging growth company | |||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No x
As of April 29, 2024, there were 42,801,041 outstanding shares of the Company’s common stock, par value $0.01 per share.
CHART INDUSTRIES, INC.
INDEX
| Page | |||||
2
PART I. FINANCIAL INFORMATION
Item 1.Financial Statements
CHART INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in millions, except per share amounts)
| March 31, 2024 | December 31, 2023 | ||||||||||
| ASSETS | |||||||||||
| Current Assets | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
Accounts receivable, less allowances of $ | |||||||||||
| Inventories, net | |||||||||||
| Unbilled contract revenue | |||||||||||
| Prepaid expenses | |||||||||||
| Other current assets | |||||||||||
| Total Current Assets | |||||||||||
| Property, plant, and equipment, net | |||||||||||
| Goodwill | |||||||||||
| Identifiable intangible assets, net | |||||||||||
| Equity method investments | |||||||||||
| Investments in equity securities | |||||||||||
| Other assets | |||||||||||
| TOTAL ASSETS | $ | $ | |||||||||
| LIABILITIES AND EQUITY | |||||||||||
| Current Liabilities | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Customer advances and billings in excess of contract revenue | |||||||||||
| Accrued salaries, wages, and benefits | |||||||||||
| Accrued interest | |||||||||||
| Accrued income taxes | |||||||||||
| Current portion of warranty reserve | |||||||||||
| Current portion of long-term debt | |||||||||||
| Operating lease liabilities, current | |||||||||||
| Other current liabilities | |||||||||||
| Total Current Liabilities | |||||||||||
| Long-term debt | |||||||||||
| Long-term deferred tax liabilities | |||||||||||
| Accrued pension liabilities | |||||||||||
| Operating lease liabilities, non-current | |||||||||||
| Other long-term liabilities | |||||||||||
| Total Liabilities | |||||||||||
3
| March 31, 2024 | December 31, 2023 | ||||||||||
| Equity | |||||||||||
Preferred stock, par value $ | |||||||||||
Common stock, par value $ | |||||||||||
| Additional paid-in capital | |||||||||||
Treasury stock; | ( | ( | |||||||||
| Retained earnings | |||||||||||
| Accumulated other comprehensive (loss) income | ( | ||||||||||
| Total Chart Industries, Inc. Shareholders’ Equity | |||||||||||
| Noncontrolling interests | |||||||||||
| Total Equity | |||||||||||
| TOTAL LIABILITIES AND EQUITY | $ | $ | |||||||||
See accompanying notes to these unaudited condensed consolidated financial statements.
4
CHART INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)
(Dollars and shares in millions, except per share amounts)
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Sales | $ | $ | |||||||||
| Cost of sales | |||||||||||
| Gross profit | |||||||||||
| Selling, general and administrative expenses | |||||||||||
| Amortization expense | |||||||||||
| Operating expenses | |||||||||||
| Operating income | |||||||||||
| Acquisition related finance fees | |||||||||||
| Interest expense, net | |||||||||||
| Other expense, net | |||||||||||
| Income (loss) from continuing operations before income taxes and equity in loss of unconsolidated affiliates, net | ( | ||||||||||
| Income tax expense (benefit) | ( | ||||||||||
| Income (loss) from continuing operations before equity in loss of unconsolidated affiliates, net | ( | ||||||||||
| Equity in loss of unconsolidated affiliates, net | ( | ( | |||||||||
| Net income (loss) from continuing operations | ( | ||||||||||
| (Loss) income from discontinued operations, net of tax | ( | ||||||||||
| Net income (loss) | ( | ||||||||||
| Less: Income attributable to noncontrolling interests of continuing operations, net of taxes | |||||||||||
| Net income (loss) attributable to Chart Industries, Inc. | $ | $ | ( | ||||||||
5
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Amounts attributable to Chart common shareholders | |||||||||||
| Income (loss) from continuing operations | $ | $ | ( | ||||||||
| Less: Mandatory convertible preferred stock dividend requirement | |||||||||||
| Income (loss) from continuing operations attributable to Chart | ( | ||||||||||
| (Loss) income from discontinued operations, net of tax | ( | ||||||||||
| Net income (loss) attributable to Chart common shareholders | $ | $ | ( | ||||||||
| Basic earnings per common share attributable to Chart Industries, Inc. | |||||||||||
| Income (loss) from continuing operations | $ | $ | ( | ||||||||
| (Loss) income from discontinued operations | ( | ||||||||||
| Net income (loss) attributable to Chart Industries, Inc. | $ | $ | ( | ||||||||
| Diluted earnings per common share attributable to Chart Industries, Inc. | |||||||||||
| Income (loss) from continuing operations | $ | $ | ( | ||||||||
| (Loss) income from discontinued operations | ( | ||||||||||
| Net income (loss) attributable to Chart Industries, Inc. | $ | $ | ( | ||||||||
| Weighted-average number of common shares outstanding: | |||||||||||
| Basic | |||||||||||
| Diluted | |||||||||||
| Other comprehensive income (loss): | |||||||||||
| Net income (loss) | $ | $ | ( | ||||||||
| Other comprehensive loss, net of tax: | |||||||||||
| Foreign currency translation adjustments, net | ( | ||||||||||
| Pension liability adjustments, net of taxes | ( | ||||||||||
| Total other comprehensive (loss) income, net of tax | ( | ||||||||||
| Comprehensive loss, net of taxes | ( | ( | |||||||||
| Less: Comprehensive income attributable to noncontrolling interests, net of taxes | |||||||||||
| Comprehensive loss attributable to Chart Industries, Inc., net of taxes | $ | ( | $ | ( | |||||||
See accompanying notes to these unaudited condensed consolidated financial statements.
6
CHART INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in millions)
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| OPERATING ACTIVITIES | |||||||||||
| Net income (loss) | $ | $ | ( | ||||||||
| Less: (Loss) income from discontinued operations, net of tax | ( | ||||||||||
| Net income (loss) from continuing operations | ( | ||||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Bridge loan facility fees | |||||||||||
| Depreciation and amortization | |||||||||||
| Employee share-based compensation expense | |||||||||||
| Financing costs amortization | |||||||||||
| Unrealized foreign currency transaction (gain) loss | ( | ||||||||||
| Unrealized loss on investments in equity securities | |||||||||||
| Equity in loss of unconsolidated affiliates | |||||||||||
| Loss on sale of business | |||||||||||
| Other non-cash operating activities | |||||||||||
| Changes in assets and liabilities, net of acquisitions: | |||||||||||
| Accounts receivable | ( | ( | |||||||||
| Inventories | ( | ||||||||||
| Unbilled contract revenues and other assets | ( | ( | |||||||||
| Accounts payable and other liabilities | ( | ||||||||||
| Customer advances and billings in excess of contract revenue | |||||||||||
| Net Cash (Used In) Provided By Continuing Operating Activities | ( | ||||||||||
| Net Cash Used In Discontinued Operating Activities | ( | ( | |||||||||
| Net Cash Used In Operating Activities | ( | ( | |||||||||
| INVESTING ACTIVITIES | |||||||||||
| Acquisition of businesses, net of cash acquired | ( | ||||||||||
| Capital expenditures | ( | ( | |||||||||
| Investments | ( | ( | |||||||||
| Proceeds from sale of assets | |||||||||||
| Other investing activities | ( | ( | |||||||||
| Net Cash Used In Investing Activities | ( | ( | |||||||||
7
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| FINANCING ACTIVITIES | |||||||||||
| Borrowings on credit facilities | |||||||||||
| Repayments on credit facilities | ( | ( | |||||||||
| Borrowings on term loan | |||||||||||
| Payments for debt issuance costs | ( | ( | |||||||||
| Proceeds from issuance of common stock, net | |||||||||||
| Proceeds from exercise of stock options | |||||||||||
| Common stock repurchases from share-based compensation plans | ( | ( | |||||||||
| Dividends paid on mandatory convertible preferred stock | ( | ( | |||||||||
| Net Cash Provided By Financing Activities | |||||||||||
| Effect of exchange rate changes on cash and cash equivalents | ( | ||||||||||
| Net decrease in cash, cash equivalents, restricted cash and restricted cash equivalents | ( | ( | |||||||||
Cash, cash equivalents, restricted cash, and restricted cash equivalents at beginning of period (1) | |||||||||||
CASH, CASH EQUIVALENTS, RESTRICTED CASH, AND RESTRICTED CASH EQUIVALENTS AT END OF PERIOD (1) | $ | $ | |||||||||
(1)Includes restricted cash and restricted cash equivalents of $3.6 and $12.8 classified within other current assets as of March 31, 2024 and December 31, 2023, respectively, and $2.5 and $1,941.7 as of March 31, 2023 and December 31, 2022, respectively.
See accompanying notes to these unaudited condensed consolidated financial statements.
8
CHART INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)
(Dollars in millions)
| Common Stock | Preferred Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Income (Loss) | Non-controlling Interests | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares Outstanding | Amount | Shares Outstanding | Amount | Treasury Stock | Retained Earnings | Total Equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | $ | ( | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation expense | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued from share-based compensation plans | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock repurchases from share-based compensation plans | ( | — | — | — | ( | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred stock dividend | — | — | — | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other | — | — | — | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2024 | $ | $ | $ | $ | ( | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Preferred Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Loss | Non-controlling Interests | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares Outstanding | Amount | Shares Outstanding | Amount | Treasury Stock | Retained Earnings | Total Equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | $ | ( | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net (loss) income | — | — | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issuance, net of equity issuance costs | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation expense | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued from share-based compensation plans | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock repurchases from share-based compensation plans | ( | — | — | — | ( | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred stock dividend | — | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Purchase of noncontrolling interest | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Other | — | — | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2023 | $ | $ | $ | $ | ( | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
See accompanying notes to these unaudited condensed consolidated financial statements.
9
CHART INDUSTRIES, INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements – March 31, 2024
(Dollars and shares in millions, except per share amounts)
NOTE 1 — Basis of Preparation
The accompanying unaudited condensed consolidated financial statements of Chart Industries, Inc. and its consolidated subsidiaries (herein referred to as the “Company,” “Chart,” “we,” “us,” or “our”) have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for annual financial statements. These financial statements should be read in conjunction with the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2023. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024.
On March 17, 2023, we completed the acquisition of Howden (“Howden”), a leading global provider of mission critical air and gas handling products and services, from affiliates of KPS Capital Partners, LP. Results from continuing operations include results of Howden from the date of acquisition and exclude Roots™ (“Roots”) business financial results for our entire ownership period of March 17, 2023 through the divestiture date, August 18, 2023. The results of Roots are presented as discontinued operations in the condensed consolidated statements of operations and comprehensive loss and have been excluded from both continuing operations and segment results for the three months ended March 31, 2023. See Note 2, “Discontinued Operations and Other Businesses Sold” for further information regarding the Roots divestiture and Note 13, “Business Combinations”, for further information regarding the acquisition of Howden (the “Howden Acquisition”).
Nature of Operations: We are an independent global leader in the design, engineering, and manufacturing of process technologies and equipment for gas and liquid molecule handling for the Nexus of Clean™ – clean power, clean water, clean food, and clean industrials, regardless of molecule. Our unique product portfolio across both stationary and rotating equipment is used in every phase of the liquid gas supply chain, including upfront engineering, service and repair. Being at the forefront of the clean energy transition, Chart is a leading provider of technology, equipment and services related to liquefied natural gas, hydrogen, biogas, carbon capture and water treatment, among other applications. We are committed to excellence in environmental, social and corporate governance (ESG) issues both for our company as well as our customers. With 64 global manufacturing locations and over 50 service centers from the United States to Asia, India and Europe, we maintain accountability and transparency to our team members, suppliers, customers and communities.
Principles of Consolidation: The unaudited condensed consolidated financial statements include the accounts of Chart Industries, Inc. and its subsidiaries. Intercompany accounts and transactions are eliminated in consolidation.
Use of Estimates: The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements. These estimates may also affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and assumptions, based on a number of factors including the current macroeconomic conditions such as inflation and supply chain disruptions, as well as risks set forth in our Annual Report on Form 10-K.
Reclassifications: Certain amounts have been reclassified within the condensed consolidated statement of cash flows for the three months ended March 31, 2023 to conform with the current period presentation.
Recently Issued Accounting Standards (Not Yet Adopted): In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” The amendments in this update enhance the transparency and decision usefulness of income tax disclosures. This update enhances the rate reconciliation by requiring an entity to disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. The update also requires an entity to disclose on an annual basis enhanced information about income taxes paid, income from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign, and income tax expense (or benefit) from continuing operations disaggregated by federal (national), state, and foreign. The amendments in this update are effective for fiscal years beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. We are currently assessing the effect this ASU will have on our disclosures.
10
CHART INDUSTRIES, INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements – March 31, 2024
(Dollars and shares in millions, except per share amounts) – Continued
In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.” The amendments in this update improve reportable segment disclosure requirements through enhanced disclosures about significant segment expenses. Among other things, this update requires an entity to disclose significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”) and included within each reported measure of segment profit or loss. The update also requires entities to disclose other segment items, provide all annual disclosures about a reportable segment’s profit and loss and assets currently required by this Topic in interim periods, disclose the title and position of our CODM, and an explanation of how the CODM uses the reported measures of segment profit or loss in assessing segment performance and deciding how to allocate resources. The amendments in this update are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. We expect this ASU to result in expanded disclosure of segment financial information, with no impact on our financial position and results of operations.
Recently Adopted Accounting Standards: In June 2022, the FASB issued ASU 2022-03, “Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions.” The amendments in this update clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the security and, therefore, is not considered in measuring fair value. The amendments also clarify that an entity cannot recognize and measure a contractual sale restriction and adds additional disclosures for equity securities subject to contractual sale restrictions. We adopted this guidance effective January 1, 2024. The adoption of this guidance did not have an impact on our financial position, results of operations, and disclosures.
NOTE 2 — Discontinued Operations and Other Businesses Sold
Roots™ Divestiture
On June 11, 2023, we signed a definitive agreement to divest our Roots business, which we acquired as part of the Howden acquisition, to Ingersoll Rand Inc. (New York Stock Exchange: IR) (“buyer”) for a base purchase price of $300.0 , subject to customary adjustments. The sale was completed on August 18, 2023 with proceeds totaling $291.9 before customary estimated closing working capital adjustments. The purchase price was subject to an additional net working capital adjustment of $2.5 , settled in the first quarter of 2024. No further adjustments to the purchase price are anticipated.
We previously determined that our Roots business qualified for discontinued operations and as such, the financial results of the Roots business are reflected in our unaudited condensed consolidated statements of operations and comprehensive loss as discontinued operations for our entire ownership period of March 17, 2023 through August 18, 2023.
Summarized Financial Information of Discontinued Operations
The following table represents income from discontinued operations, net of tax:
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Sales | $ | $ | |||||||||
| Cost of sales | |||||||||||
| Gross profit | |||||||||||
| Selling, general and administrative expenses | |||||||||||
| Operating (loss) income | ( | ||||||||||
| (Loss) income before income taxes | ( | ||||||||||
| Income tax expense | |||||||||||
| (Loss) income from discontinued operations before loss on sale of business | ( | ||||||||||
Loss on sale of business, net of $ | |||||||||||
| (Loss) income from discontinued operations, net of tax | $ | ( | $ | ||||||||
11
CHART INDUSTRIES, INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements – March 31, 2024
(Dollars and shares in millions, except per share amounts) – Continued
Other Businesses Sold
On October 26, 2023, we signed and closed on the divestiture of our American Fan business to Arcline Investment Management, L.P, with net proceeds totaling $109.7 after customary closing working capital adjustments.
On October 31, 2023, we completed the sale of our Cofimco fans business (“Cofimco”) to PX3 Partners, with net proceeds totaling $67.4 after customary closing working capital adjustments.
The previously disclosed sale of our Cryo Diffusion business remains subject to potential net working capital adjustments.
NOTE 3 — Reportable Segments
As reported in our Annual Report on Form 10-K for the year ended December 31, 2023, we have four reportable segments, which are also our operating segments: Cryo Tank Solutions, Heat Transfer Systems, Specialty Products and Repair, Service & Leasing.
Our Cryo Tank Solutions segment, which has principal operations in the United States, Europe and Asia, serves most geographic regions around the globe, supplying bulk, microbulk and mobile equipment used in the storage, distribution, vaporization, and application of industrial gases and certain hydrocarbons. Our Heat Transfer Systems segment, with principal operations in the United States and Europe, also serves most geographic regions globally, supplying mission critical engineered equipment and systems used in the separation, liquefaction, and purification of hydrocarbon, liquefied natural gas (LNG) and industrial gases that span gas-to-liquid applications. Operating globally, our Specialty Products segment supplies products used in specialty end-market applications including hydrogen, LNG for over-the-highway vehicles, biofuels, carbon capture, food and beverage, aerospace, lasers and water treatment, among others. Our Heat Transfer Systems, Specialty Products and Cryo Tank Solutions segments also include new build products from the Howden Acquisition such as compressors, blowers and fans, rotary heaters and steam turbines. Our Repair, Service & Leasing segment provides installation, service, repair, maintenance, refurbishment and digital monitoring of Chart’s products globally in addition to providing equipment leasing solutions.
Corporate includes operating expenses for executive management, accounting, tax, treasury, corporate development, human resources, information technology, investor relations, legal, internal audit, risk management and share-based compensation expenses. Corporate support functions are not allocated to the segments.
We evaluate performance and allocate resources based on operating income as determined in our condensed consolidated statements of operations and comprehensive loss.
Segment Financial Information
| Three Months Ended March 31, 2024 | |||||||||||||||||||||||||||||||||||||||||
| Cryo Tank Solutions | Heat Transfer Systems | Specialty Products | Repair, Service & Leasing | Intersegment Eliminations | Corporate | Consolidated | |||||||||||||||||||||||||||||||||||
| Sales | $ | $ | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||
| Depreciation and amortization expense | |||||||||||||||||||||||||||||||||||||||||
| Operating income (loss) | ( | ||||||||||||||||||||||||||||||||||||||||
| Three Months Ended March 31, 2023 | |||||||||||||||||||||||||||||||||||||||||
| Cryo Tank Solutions | Heat Transfer Systems | Specialty Products | Repair, Service & Leasing | Intersegment Eliminations | Corporate | Consolidated | |||||||||||||||||||||||||||||||||||
| Sales | $ | $ | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||
| Depreciation and amortization expense | |||||||||||||||||||||||||||||||||||||||||
Operating income (loss) (1) | ( | ||||||||||||||||||||||||||||||||||||||||
_______________
(1)Acquisition-related contingent consideration credits in our Specialty Products segment related to our 2020 acquisition of Sustainable Energy Solutions, Inc. was $7.4 for the three months ended March 31, 2023.
12
CHART INDUSTRIES, INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements – March 31, 2024
(Dollars and shares in millions, except per share amounts) – Continued
Sales by Geography
| Three Months Ended March 31, 2024 | |||||||||||||||||||||||||||||||||||
| Cryo Tank Solutions | Heat Transfer Systems | Specialty Products | Repair, Service & Leasing | Intersegment Eliminations | Consolidated | ||||||||||||||||||||||||||||||
| North America | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Europe, Middle East, Africa and India | |||||||||||||||||||||||||||||||||||
| Asia-Pacific | ( | ||||||||||||||||||||||||||||||||||
| Rest of the World | |||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||
| Three Months Ended March 31, 2023 | |||||||||||||||||||||||||||||||||||
| Cryo Tank Solutions | Heat Transfer Systems | Specialty Products | Repair, Service & Leasing | Intersegment Eliminations | Consolidated | ||||||||||||||||||||||||||||||
| North America | $ | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||
| Europe, Middle East, Africa and India | ( | ||||||||||||||||||||||||||||||||||
| Asia-Pacific | ( | ||||||||||||||||||||||||||||||||||
| Rest of the World | |||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||
Total Assets
Corporate assets mainly include cash and cash equivalents and long-term deferred income taxes as well as certain corporate-specific property, plant and equipment, net and certain investments. Our allocation methodology for property, plant and equipment, net of the reportable segments differs from our allocation method of depreciation expense of a reportable segment and therefore, depreciation expense does not entirely align with the related depreciable assets of the reportable segments. Furthermore, since finite-lived intangible assets are excluded from total assets of reportable segments while amortization expense is allocated to each of our reportable segments, amortization expense by segment inherently does not align with the related amortizable intangible assets of the reportable segments.
| March 31, 2024 | December 31, 2023 | ||||||||||
| Cryo Tank Solutions | $ | $ | |||||||||
| Heat Transfer Systems | |||||||||||
| Specialty Products | |||||||||||
| Repair, Service & Leasing | |||||||||||
| Total assets of reportable segments | |||||||||||
| Goodwill | |||||||||||
| Identifiable intangible assets, net | |||||||||||
| Corporate | |||||||||||
| Total | $ | $ | |||||||||
13
CHART INDUSTRIES, INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements – March 31, 2024
(Dollars and shares in millions, except per share amounts) – Continued
NOTE 4 — Revenue
Disaggregation of Revenue
The following tables represent a disaggregation of revenue by timing of revenue along with the reportable segment for each category:
| Three Months Ended March 31, 2024 | |||||||||||||||||||||||||||||||||||
| Cryo Tank Solutions | Heat Transfer Systems | Specialty Products | Repair, Service & Leasing | Intersegment Eliminations | Consolidated | ||||||||||||||||||||||||||||||
| Point in time | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Over time | ( | ||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||
| Three Months Ended March 31, 2023 | |||||||||||||||||||||||||||||||||||
| Cryo Tank Solutions | Heat Transfer Systems | Specialty Products | Repair, Service & Leasing | Intersegment Eliminations | Consolidated | ||||||||||||||||||||||||||||||
| Point in time | $ | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||
| Over time | ( | ||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||
Refer to Note 3, “Reportable Segments,” for a table of revenue by reportable segment disaggregated by geography.
Contract Balances
The following table presents our contract assets and contract liabilities balances:
| March 31, 2024 | December 31, 2023 | ||||||||||
| Contract assets | |||||||||||
| Accounts receivable, net of allowances | $ | $ | |||||||||
| Unbilled contract revenue | |||||||||||
| Contract liabilities | |||||||||||
| Customer advances and billings in excess of contract revenue | $ | $ | |||||||||
Revenue recognized for the three months ended March 31, 2024 and 2023, that was included in the contract liabilities balance at the beginning of each year was $137.5 and $68.0 , respectively. The amount of revenue recognized during the three months ended March 31, 2024 from performance obligations satisfied or partially satisfied in previous periods as a result of changes in the estimates of variable consideration related to long-term contracts, was not significant.
Remaining Performance Obligations
Remaining performance obligations represent the transaction price of firm signed purchase orders or other written contractual commitments from customers for which work has not been performed, or is partially completed, and excludes unexercised contract options and potential orders. As of March 31, 2024, the estimated revenue expected to be recognized in the future related to remaining performance obligations was $4,331.1 . We expect to recognize revenue on approximately 63 % of the remaining performance obligations over the next 12 months and the remaining over the next few years thereafter.
14
CHART INDUSTRIES, INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements – March 31, 2024
(Dollars and shares in millions, except per share amounts) – Continued
NOTE 5 — Inventories
The following table summarizes the components of inventory:
| March 31, 2024 | December 31, 2023 | ||||||||||
| Raw materials and supplies | $ | $ | |||||||||
| Work in process | |||||||||||
| Finished goods | |||||||||||
| Total inventories, net | $ | $ | |||||||||
The allowance for excess and obsolete inventory balance at March 31, 2024 and December 31, 2023 was $11.3 and $9.9 , respectively.
NOTE 6 — Leases
Lessee Accounting
We lease certain office spaces, warehouses, facilities, vehicles and equipment. Our leases have maturity dates ranging from April 2024 to September 2036. Leases with an initial term of twelve months or less are not recorded on the balance sheet. Operating lease right-of-use (“ROU”) assets are classified as property, plant and equipment, net in the condensed consolidated balance sheets. Finance lease ROU assets are classified as other assets in the condensed consolidated balance sheets. Operating lease liabilities are classified as operating lease liabilities, current and operating lease liabilities, non-current. Finance lease liabilities are classified as other current liabilities and other long-term liabilities in the condensed consolidated balance sheets.
We incurred $6.1 and $5.1 of rental expense under operating leases for the three months ended March 31, 2024 and 2023, respectively. Certain operating leases contain rent escalation clauses and lease concessions that require additional rental payments in the later years of the term. Rent expense for these types of leases is recognized on a straight-line basis over the minimum lease term. Adjustments for straight-line rental expense for the respective periods was not material and as such, the majority of expense recognized was reflected in cash provided by operating activities for the respective periods. This expense consisted primarily of payments for base rent on building and equipment leases. Payments related to short-term lease costs and taxes and variable service charges on leased properties were immaterial. In addition, we have the right, but no obligation, to renew certain leases for various renewal terms.
15
CHART INDUSTRIES, INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements – March 31, 2024
(Dollars and shares in millions, except per share amounts) – Continued
The following table presents the lease balances within our condensed consolidated balance sheets, weighted average remaining lease term and weighted average discount rates related to our leases:
| Lease Assets and Liabilities | March 31, 2024 | December 31, 2023 | |||||||||
| Assets | |||||||||||
| $ | $ | ||||||||||
| Finance lease, net | |||||||||||
| Total lease assets | $ | $ | |||||||||
| Liabilities | |||||||||||
| Current: | |||||||||||
| Operating lease liabilities | $ | $ | |||||||||
| Non-current: | |||||||||||
| Operating lease liabilities | |||||||||||
| Total lease liabilities | $ | $ | |||||||||
| Weighted-average remaining lease terms | |||||||||||
| Operating leases | |||||||||||
| Finance leases | |||||||||||
| Weighted-average discount rate | |||||||||||
| Operating leases | |||||||||||
| Finance leases | |||||||||||
Leased assets obtained in exchange for new finance and operating lease liabilities for the three months ended March 31, 2024 were $1.4 and $3.6 , respectively.
The following table summarizes future minimum lease payments for non-cancelable operating leases and for finance leases as of March 31, 2024:
| Finance | Operating | ||||||||||
| 2024 | $ | $ | |||||||||
| 2025 | |||||||||||
| 2026 | |||||||||||
| 2027 | |||||||||||
| 2028 | |||||||||||
Thereafter (1) | |||||||||||
| Total future minimum lease payments | $ | $ | |||||||||
| Less: Present value discount | ( | ( | |||||||||
| Lease liability | $ | $ | |||||||||
_______________
(1) As of March 31, 2024, future minimum lease payments for non-cancelable operating leases for the period subsequent to 2028 relate to twenty-four leased facilities.
16
CHART INDUSTRIES, INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements – March 31, 2024
(Dollars and shares in millions, except per share amounts) – Continued
Lessor Accounting
We lease equipment manufactured by Chart primarily through our Cryo-Lease program as sales-type and operating leases. As of March 31, 2024 and December 31, 2023, our short-term net investment in sales-type leases was $23.4 and $21.4 , respectively, and is included in other current assets in our condensed consolidated balance sheets. Our long-term net investment in sales-type leases was $67.4 and $62.1 as of March 31, 2024 and December 31, 2023, respectively, and is included in other assets in our condensed consolidated balance sheets.
Operating leases offered by Chart may include early termination options. At the end of a lease, a lessee generally has the option to either extend the lease, purchase the underlying equipment for a fixed price or return it to Chart. The lease agreements clearly define applicable return conditions and remedies for non-compliance to ensure that leased equipment will be in good operating condition upon return.
The following table represents sales from sales-type and operating leases:
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Sales-type leases | $ | $ | |||||||||
| Operating leases | |||||||||||
| Total sales from leases | $ | $ | |||||||||
The following table represents scheduled payments for sales-type leases as of March 31, 2024:
| 2024 | $ | ||||
| 2025 | |||||
| 2026 | |||||
| 2027 | |||||
| 2028 | |||||
| Thereafter | |||||
| Total | |||||
| Less: unearned income | |||||
| Total | $ | ||||
The following table represents the cost of equipment leased to others:
| March 31, 2024 | December 31, 2023 | ||||||||||
| Equipment leased to others, cost | $ | $ | |||||||||
| Less: accumulated depreciation | |||||||||||
| Equipment leased to others, net | $ | $ | |||||||||
The following table represents payments due for operating leases as of March 31, 2024:
| 2024 | $ | ||||
| 2025 | |||||
| 2026 | |||||
| 2027 | |||||
| 2028 | |||||
| Thereafter | |||||
| Total | $ | ||||
17
CHART INDUSTRIES, INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements – March 31, 2024
(Dollars and shares in millions, except per share amounts) – Continued
NOTE 7 — Goodwill and Intangible Assets
Goodwill
The following table represents the changes in goodwill by segment:
| Cryo Tank Solutions | Heat Transfer Systems | Specialty Products | Repair, Service & Leasing | Consolidated | |||||||||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Purchase accounting adjustments (1) | |||||||||||||||||||||||||||||
| Foreign currency translation adjustments and other | ( | ( | ( | ( | |||||||||||||||||||||||||
| Balance at March 31, 2024 | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Accumulated goodwill impairment loss at December 31, 2023 | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Accumulated goodwill impairment loss at March 31, 2024 | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
_______________
(1)All purchase accounting adjustments during the period related to the Howden Acquisition. See Note 13, “Business Combinations” for further information.
Intangible Assets
The following table displays the gross carrying amount and accumulated amortization for finite-lived intangible assets and indefinite-lived intangible assets (exclusive of goodwill) (1):
| March 31, 2024 | December 31, 2023 | ||||||||||||||||||||||||||||
| Estimated Useful Lives | Gross Carrying Amount | Accumulated Amortization | Gross Carrying Amount | Accumulated Amortization | |||||||||||||||||||||||||
| Finite-lived intangible assets: | |||||||||||||||||||||||||||||
| Customer relationships | $ | $ | ( | $ | $ | ( | |||||||||||||||||||||||
| Technology | ( | ( | |||||||||||||||||||||||||||
| Patents, backlog and other | ( | ( | |||||||||||||||||||||||||||
| Trademarks and trade names | ( | ( | |||||||||||||||||||||||||||
| Land use rights | ( | ( | |||||||||||||||||||||||||||
| Total finite-lived intangible assets | ( | ( | |||||||||||||||||||||||||||
| Indefinite-lived intangible assets: | |||||||||||||||||||||||||||||
Trademarks and trade names (2) | — | — | |||||||||||||||||||||||||||
| Total intangible assets | $ | $ | ( | $ | $ | ( | |||||||||||||||||||||||
_______________
(1)Amounts include the impact of foreign currency translation. Fully amortized or impaired amounts are written off.
(2)Accumulated indefinite-lived intangible assets impairment loss was $16.0
18
CHART INDUSTRIES, INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements – March 31, 2024
(Dollars and shares in millions, except per share amounts) – Continued
NOTE 8 — Investments
Equity Method Investments
The following table presents the activity in equity method investments:
| Equity Method Investments | ||||||||
| Balance at December 31, 2023 | $ | |||||||
| Equity in loss of unconsolidated affiliates | ( | |||||||
| Dividend received from equity method investment | ( | |||||||
| Foreign currency translation adjustments and other | ( | |||||||
| Balance at March 31, 2024 | $ | |||||||
Investments in Equity Securities
The following table presents the activity in investments in equity securities:
Investment in Equity Securities, Level 1 | Investment in Equity Securities, Level 2 | Investments in Equity Securities, All Others (1) | Investments Total | ||||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | $ | |||||||||||||||||||
| New investments | |||||||||||||||||||||||
| (Decrease) increase in fair value of investments in equity securities | ( | ( | |||||||||||||||||||||
| Foreign currency translation adjustments and other | ( | ( | ( | ||||||||||||||||||||
| Balance at March 31, 2024 | $ | $ | $ | $ | |||||||||||||||||||
_______________
19
CHART INDUSTRIES, INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements – March 31, 2024
(Dollars and shares in millions, except per share amounts) – Continued
Co-Investment Agreement
On September 7, 2021 (the “Closing Date”), we entered into a Co-investment agreement with I Squared Capital (“ISQ”), an infrastructure-focused private equity firm (the “Co-Investment Agreement”), pursuant to which Chart and ISQ have agreed to the following:
•In the following circumstances, ISQ shall have the right but not the obligation to require Chart to purchase all (and not less than all) of the shares of Hydrogen Technology & Energy Corporation (“HTEC”) common stock acquired as part of ISQ’s investment described above (the “Put Option”):
i.the third anniversary of the Closing Date,
ii.the date Chart undergoes a change of control (subject to certain exceptions),
iii.the date upon which Chart, during the period from the Closing Date through the third anniversary of the Closing Date, has made certain distributions to its shareholders (including cash or other dividends, or via a spin-off transaction), in excess of $900.0 ,
iv.the date, if any, upon which our leverage ratio exceeds certain thresholds and
v.the date, if any, of a bankruptcy event (including certain insolvency-related actions) involving Chart.
•In the event that ISQ exercises its Put Option, we shall pay to ISQ an amount in cash in exchange for the HTEC common stock then held by ISQ such that ISQ shall realize the greater of (i) an internal rate of return of 10 % and (ii) a multiple on ISQ’s invested capital of 1.65 x.
•Conversely, at any time after the third anniversary of the Closing Date, we shall have the right to purchase from ISQ up to 20 % of the shares of HTEC common stock acquired as part of the ISQ Investment. In exchange for the common stock, we shall pay ISQ the greater of (i) an internal rate of return of 12.5 % and (ii) a multiple on ISQ’s invested capital of 1.65 x.
•In addition, we shall have (i) a right of first offer: if ISQ desires to transfer any of its HTEC common stock to any third party, we shall have the right to first offer provided that upon notice, we shall have the option to make a first offer to purchase the offered interest in cash exclusively and (ii) a right of first refusal: if ISQ desires to sell its HTEC common stock to any third party pursuant to a definitive agreement therewith, we shall have the right of first refusal provided that the purchase consideration paid by Chart to ISQ upon our exercise of such right of first refusal must be equal to 102 % of the purchase consideration agreed to be paid by such third party.
•The Co-Investment Agreement shall terminate automatically upon the consummation of an initial public offering by HTEC of its common stock.
Our equity method investment in HTEC was $79.3 and $82.3 at March 31, 2024 and December 31, 2023, respectively.
Accounting Treatment of Put and Call Options
We record the Put and Call Options (together “the Options”) at fair value and record any change in fair value through earnings at each reporting period. The fair value of the Options was not material on the Closing Date or at March 31, 2024 and December 31, 2023.
Hy24 (f/k/a FiveT Hydrogen Fund and Clean H2 Infra Fund)
20
CHART INDUSTRIES, INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements – March 31, 2024
(Dollars and shares in millions, except per share amounts) – Continued
NOTE 9 — Debt and Credit Arrangements
Summary of Outstanding Borrowings
The following table represents the components of our borrowings:
| March 31, 2024 | December 31, 2023 | ||||||||||
| Senior secured and senior unsecured notes: | |||||||||||
| Principal amount, senior secured notes due 2030 | $ | $ | |||||||||
| Principal amount, senior unsecured notes due 2031 | |||||||||||
| Unamortized discount | ( | ( | |||||||||
| Unamortized debt issuance costs | ( | ( | |||||||||
| Senior secured and senior unsecured notes, net of unamortized discount and debt issuance costs | |||||||||||
| Senior secured revolving credit facilities and term loans: | |||||||||||
| Term loans due March 2030 | |||||||||||
Senior secured revolving credit facility due April 2029 | |||||||||||
| Unamortized discount | ( | ( | |||||||||
| Unamortized debt issuance costs | ( | ( | |||||||||
| Senior secured revolving credit facility and term loan, net of unamortized discount and debt issuance costs | |||||||||||
| Convertible notes due November 2024: | |||||||||||
| Principal amount | |||||||||||
| Unamortized debt issuance costs | ( | ( | |||||||||
| Convertible notes due November 2024, net of unamortized debt issuance costs | |||||||||||
Other debt facilities | |||||||||||
| Total debt, net of unamortized debt issuance costs | |||||||||||
Less: current maturities (1) | |||||||||||
| Long-term debt | $ | $ | |||||||||
_______________
(1)Our convertible notes due November 2024, net of unamortized debt issuance costs, are included in current maturities for both periods presented. Also included in current maturities for the current period is $1.8 of other debt facilities.
Senior Secured and Unsecured Notes
On December 22, 2022, we completed the issuance and sale of (i) $1,460.0 aggregate principal amount of 7.500 % Secured Notes at an issue price of 98.661 % and (ii) $510.0 aggregate principal amount of 9.500 % Unsecured Notes (together with the Secured Notes, the “Notes”), at an issue price of 97.949 %. The Secured Notes mature on January 1, 2030, and the Unsecured Notes mature on January 1, 2031. The effective interest rate on the Secured Notes and Unsecured Notes is 7.8 % and 9.9 %, respectively, after accounting for original issue discounts and debt issuance costs. The Notes were issued to finance the Howden Acquisition. Chart deposited the gross proceeds from the offering of each series of Notes into an escrow account (each, an “Escrow Account”). The funds were held in the respective Escrow Account until certain release conditions were met including the consummation of the Howden Acquisition. As such, the proceeds were presented separately from cash and cash equivalents as restricted cash in the December 31, 2022 condensed consolidated balance sheet.
21
CHART INDUSTRIES, INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements – March 31, 2024
(Dollars and shares in millions, except per share amounts) – Continued
Senior Secured Revolving Credit Facility and Term Loans
Senior Secured Revolving Credit Facility
Our fifth amended and restated credit agreement dated as of October 18, 2021, as amended (the “Credit Agreement”) provides for a senior secured revolving credit facility (the “SSRCF”). The SSRCF had a borrowing capacity of $1,000.0 and includes sub limits for letters of credit and swingline loans. At March 31, 2024, there were $254.3 in borrowings outstanding under the SSRCF bearing an interest rate of 7.1 % (6.2 % as of December 31, 2023) and $223.9 in letters of credit and bank guarantees outstanding supported by the SSRCF. As of March 31, 2024, we had unused borrowing capacity of $521.8 .
A portion of borrowings outstanding under the SSRCF are denominated in euros (“EUR Revolver Borrowings”). EUR Revolver Borrowings outstanding were euro 78.0 million (equivalent to $84.3 ) at March 31, 2024 and euro 88.5 million (equivalent to $97.8 ) at December 31, 2023. During the three months ended March 31, 2024, we recognized an unrealized foreign currency gain of $2.1 relative to the translation of the EUR Revolver Borrowings outstanding. During the three months ended March 31, 2023, we recognized an unrealized foreign currency loss of $1.7 relative to the translation of the EUR Revolver Borrowings outstanding. These unrealized foreign currency gains and losses are classified within other expense, net in the condensed consolidated statements of operations and comprehensive loss for all periods presented.
Significant financial covenants for the SSRCF include financial maintenance covenants that (i) require the ratio of the amount of Chart and its subsidiaries’ consolidated total net indebtedness to consolidated EBITDA to be less than the Maximum Total Net Leverage Ratio Levels and (ii) require the ratio of the amount of Chart and its subsidiaries’ consolidated EBITDA to consolidated cash interest expense to be greater than the Minimum Interest Coverage Ratio Levels. The SSRCF includes a number of other customary covenants. At March 31, 2024, we were in compliance with all covenants.
On April 8, 2024, we entered into an amendment (“Amendment No. 6”), which amends the Credit Agreement. Among other things, as more fully set forth therein, Amendment No. 6 increases the total available revolving credit commitment from $1,000.0 to $1,250.0 and extends the maturity date of the revolving credit facility from October 18, 2026, to April 6, 2029. Amendment No. 6 is a “Refinancing Amendment” permitted under the terms of the Credit Agreement. Except as amended by Amendment No. 6, the remaining terms of the Credit Agreement remain in full force and effect.
Term Loans
On October 2, 2023, Chart refinanced the remaining aggregate principal amounts of our term loans plus accrued interest in exchange for term loans in the aggregate principal amount of $1,781.0 (“Amendment No. 5 Term Loan”) which matures on March 18, 2030. On December 4, 2023, Chart voluntarily prepaid a portion of the Amendment No. 5 Term Loan in the amount of $150.0 , which effectively prepaid all equal quarterly installments for the life of the loan, and as of March 31, 2024, the aggregate principal amount of $1,631.0 is due at the March 18, 2030 maturity date. As of March 31, 2024, the Amendment No. 5 Term Loan bore an interest rate of 8.7 % (8.7 % as of December 31, 2023). The effective interest rate on the Amendment No. 5 Term Loan is 9.1 % after accounting for original issue discount and debt issuance costs.
Significant financial covenants and customary events of default for the Amendment No. 5 Term Loan are substantially identical to those in the SSRCF.
2024 Convertible Notes
On November 6, 2017, we issued 1.00 % Convertible Senior Subordinated Notes due November 2024 (the “2024 Notes”) in the aggregate principal amount of $258.8 , pursuant to an Indenture, dated as of such date (the “Indenture”) and First Supplemental Indenture dated December 31, 2020. The 2024 Notes bear interest at an annual rate of 1.00 %, payable on May 15 and November 15 of each year, beginning on May 15, 2018, and will mature on November 15, 2024 unless earlier converted or repurchased. The effective interest rate on the 2024 Notes is 1.4 % after accounting for debt issuance costs.
The initial conversion rate for the 2024 Notes is 17.0285 shares of common stock (subject to adjustment as provided for in the Indenture) per $1,000 principal amount of the 2024 Notes, which is equal to an initial conversion price of approximately $58.725 per share, representing a conversion premium of approximately 35 % above the closing price of our common stock of $43.50 per share on October 31, 2017. For purposes of calculating earnings per share, if the average market price of our common stock exceeds the applicable conversion price during the periods reported, shares contingently issuable under the 2024 Notes will have a dilutive effect with respect to our common stock. Since our closing common stock price of $164.72 at the end of the period exceeded the conversion price of $58.725 , the if-converted value exceeded the principal amount of the 2024
22
CHART INDUSTRIES, INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements – March 31, 2024
(Dollars and shares in millions, except per share amounts) – Continued
Notes by $466.9 at March 31, 2024. As described below, we entered into convertible note hedge transactions, which are expected to reduce the potential dilution with respect to our common stock upon conversion of the 2024 Notes.
Holders of the 2024 Notes may convert their 2024 Notes at their option at any time prior to the close of business on the business day immediately preceding August 15, 2024 only under the following circumstances: (1) during any fiscal quarter commencing after December 31, 2017 (and only during such fiscal quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130 % of the applicable conversion price for the 2024 Notes on each applicable trading day; (2) during the business day period after any 10 consecutive trading day period (the “measurement period”) in which the “trading price” (as defined in the Indenture) per one thousand U.S. dollar principal amount of Notes for each trading day of such measurement period was less than 97 % of the product of the last reported sale price of our common stock and the applicable conversion rate for the 2024 Notes on each such trading day; or (3) upon the occurrence of specified corporate events described in the Indenture. On or after August 15, 2024 until the close of business on the second scheduled trading day immediately preceding November 15, 2024, holders may convert their 2024 Notes at the option of the holder regardless of the foregoing circumstances.
As of April 1, 2024, the 2024 Notes continue to be convertible at the option of the shareholders. This conversion right, which will remain available until June, 30, 2024, was triggered since the closing price of our common stock was greater than or equal to $76.3425 (130 % of the conversion price of the 2024 Notes) for at least 20 trading days during the last 30 trading days ending on March 31, 2024. We will reassess the convertibility of the 2024 Notes on a quarterly basis. The $258.7 principal amount of the 2024 Notes is due in November 2024 and was classified as a current liability in the condensed consolidated balance sheet at March 31, 2024 and December 31, 2023. There have been no significant conversions as of the date of this filing.
Convertible Note Hedge and Warrant Transactions Associated with the 2024 Notes
In connection with the pricing of the 2024 Notes, we entered into privately negotiated convertible note hedge transactions (the “Note Hedge Transactions”) with certain parties, including affiliates of the initial purchasers of the 2024 Notes (the “Option Counterparties”) which relate to 4.41 shares of our common stock and represents the number of shares of our common stock underlying the 2024 Notes. These Note Hedge Transactions are expected to reduce the potential dilution upon any future conversion of the 2024 Notes to the extent that the market price per share of our common stock exceeds the conversion price of $58.725 per share.
We also entered into separate, privately negotiated warrant transactions (the “Warrant Transactions”) with the Option Counterparties to acquire up to 4.41 shares of our common stock. The strike price of the Warrant Transactions will initially be $71.775 per share (subject to adjustment), which is approximately 65 % above the last reported sale price of our common stock on October 31, 2017. The Warrant Transactions could have a dilutive effect to our shareholders to the extent that the market price per share of our common stock, as measured under the terms of the Warrant Transactions, exceeds the applicable strike price of the warrants.
The Note Hedge Transactions and Warrant Transactions effectively increased the conversion price of the 2024 Notes.
Other Debt Facilities
In various markets where we do business, we have local credit facilities to meet local working capital demands, fund letters of credit and bank guarantees, and support other short-term cash requirements. The facilities generally have variable interest rates and are denominated in local currency but may, in some cases, facilitate borrowings in multiple currencies. As of March 31, 2024 we had additional capacity of U.S. dollar equivalent $86.2 .
Certain of our other debt facilities allow us to request bank guarantees and letters of credit. None of these facilities allow revolving credit borrowings. We have letters of credit and bank guarantees outside of our Credit Agreement that totaled U.S. dollar equivalent $129.9 and $134.3 as of March 31, 2024 and December 31, 2023, respectively.
23
CHART INDUSTRIES, INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements – March 31, 2024
(Dollars and shares in millions, except per share amounts) – Continued
Fair Value Disclosures
The following table summarizes the carrying values and fair values of our actively quoted debt instruments (1):
| March 31, 2024 | December 31, 2023 | ||||||||||||||||||||||
| Carrying Value | Fair Value | Carrying Value | Fair Value | ||||||||||||||||||||
| Term loans due March 2030 | $ | $ | $ | $ | |||||||||||||||||||
| Senior secured notes due 2030 | |||||||||||||||||||||||
| Senior unsecured notes due 2031 | |||||||||||||||||||||||
| Convertible notes due November 2024 | |||||||||||||||||||||||
_______________
(1)The debt instruments noted above are actively quoted instruments and, accordingly, their fair values were determined using Level 1 inputs.
The carrying amounts of borrowings outstanding on our senior secured revolving credit facility approximate fair value, as the interest rate is variable and reflective of market rates (categorized as Level 2 of the fair value hierarchy).
NOTE 10 — Shareholders' Equity
Series B Mandatory Convertible Preferred Stock
On December 13, 2022, we completed a preferred stock offering, through which Chart issued and sold 8.050 million depositary shares, each representing a 1/20th interest in a share of Chart’s 6.75 % Series B Mandatory Convertible Preferred Stock, liquidation preference $1,000.00 per share, par value $0.01 per share (the “Mandatory Convertible Preferred Stock”). The amount issued included 1.050 million depositary shares issued pursuant to the exercise in full of the option granted to the underwriters to purchase additional depositary shares. We received gross proceeds of $402.5 from the issuance of shares less $14.4 of equity issuance costs. The proceeds were used to fund the acquisition of Howden.
Dividends. Dividends on the Mandatory Convertible Preferred Stock will be payable on a cumulative basis when, as and if declared at an annual rate of 6.75 % on the liquidation value of $1,000 per share. Chart may pay declared dividends in cash or, subject to certain limitations, in shares of common stock, or in any combination of cash and shares of common stock on March 15, June 15, September 15 and December 15 of each year, commencing on March 15, 2023 and ending on, and including, December 15, 2025. We declared and paid $6.8 and $6.9 in dividends for the three months ended March 31, 2024 and 2023, respectively, which was treated as a reduction to income attributable to common shareholders in the computation of earnings per share.
Mandatory Conversion. Unless earlier converted, each share of the Mandatory Convertible Preferred Stock will automatically convert on the mandatory conversion date, which is expected to be December 15, 2025, into not less than 7.0520 and not more than 8.4620 shares of common stock per share of Mandatory Convertible Preferred Stock, depending on the applicable market value and subject to certain anti-dilution adjustments. Correspondingly, the conversion rate per depositary share will be not less than 0.3526 and not more than 0.4231 shares of common stock per depositary share. The conversion rate will be determined based on a preceding 20-day volume-weighted-average-price of common stock.
The following table illustrates the conversion rate per share of the Mandatory Convertible Preferred Stock, subject to certain anti-dilution adjustments, based on the applicable market value of the common stock:
| Applicable Market Value of Common Stock | Conversion Rate per Share of Mandatory Convertible Preferred Stock | |||||||
Greater than $ | ||||||||
Equal to or less than $ | Between | |||||||
Less than $ | ||||||||
24
CHART INDUSTRIES, INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements – March 31, 2024
(Dollars and shares in millions, except per share amounts) – Continued
The following table illustrates the conversion rate per depositary share, subject to certain anti-dilution adjustments, based on the applicable market value of the common stock:
| Applicable Market Value of Common Stock | Conversion Rate per Depositary Share | |||||||
Greater than $ | ||||||||
Equal to or less than $ | Between | |||||||
Less than $ | ||||||||
Optional Conversion of the Holder. Other than during a fundamental change conversion period, at any time prior to December 15, 2025, a holder of the Mandatory Convertible Preferred Stock may elect to convert such holder’s shares of Mandatory Convertible Preferred Stock, in whole or in part, at the Minimum Conversion Rate of 7.0520 shares of common stock per share of Mandatory Convertible Preferred Stock (equivalent to 0.3526 shares of common stock per depositary share), subject to certain anti-dilution and other adjustments. Because each depositary share represents a 1/20th fractional interest in a share of Mandatory Convertible Preferred Stock, a holder of depositary shares may convert its depositary shares only in lots of 20 depositary shares.
Fundamental Change Conversion. If a fundamental change occurs on or prior to December 15, 2025, holders of the Mandatory Convertible Preferred Stock will have the right to convert their shares of Mandatory Convertible Preferred Stock, in whole or in part, into shares of common stock at the fundamental change conversion rate during the period beginning on, and including, the effective date of such fundamental change and ending on, and including, the earlier of (a) the date that is 20 calendar days after such effective date (or, if later, the date that is 20 calendar days after holders receive notice of such fundamental change) and (b) December 15, 2025. Holders who convert shares of the Mandatory Convertible Preferred Stock during that period will also receive a make-whole dividend amount comprised of a fundamental change dividend make-whole amount, and to the extent there is any, the accumulated dividend amount. Because each depositary share represents a 1/20th fractional interest in a share of the Series B Preferred Stock, a holder of depositary shares may convert its depositary shares upon a fundamental change only in lots of 20 depositary shares.
Ranking. The Mandatory Convertible Preferred Stock, with respect to anticipated dividends and distributions upon Chart’s liquidation or dissolution, or winding-up of Chart’s affairs, ranks or will rank:
•senior to our common stock and each other class or series of capital stock issued after the initial issue date of the Mandatory Convertible Preferred Stock, the terms of which do not expressly provide that such capital stock ranks either senior to the Mandatory Convertible Preferred Stock or on a parity with Mandatory Convertible Preferred Stock;
•equal with any class or series of capital stock issued after the initial issue date the terms of which expressly provide that such capital stock will rank equal with the Mandatory Convertible Preferred Stock;
•junior to the Series A Preferred Stock, if issued, and each other class or series of capital stock issued after the initial issue date that is expressly made senior to the Mandatory Convertible Preferred Stock;
•junior to our existing and future indebtedness; and
•structurally subordinated to any existing and future indebtedness of our subsidiaries as well as the capital stock of our subsidiaries held by third parties.
Voting Rights. Holders of Mandatory Convertible Preferred Stock generally will not have voting rights. Whenever dividends on shares of Mandatory Convertible Preferred Stock have not been declared and paid for six or more dividend periods (including, for the avoidance of doubt, the dividend period beginning on, and including, the initial issue date and ending on, but excluding, March 15, 2023), whether or not for consecutive dividend periods, the holders of such shares of Mandatory Convertible Preferred Stock, voting together as a single class with holders of all other series of voting preferred stock of equal rank, then outstanding, will be entitled at our next annual or special meeting of shareholders to vote for the election of a total of two additional members of our board of directors, subject to certain limitations. This right will terminate if and when all accumulated and unpaid dividends have been paid in full, or declared and a sum sufficient for such payment shall have been set aside. Upon such termination, the term of office of each preferred stock director so elected will terminate at such time and the number of directors on our board of directors will automatically decrease by two, subject to the revesting of such rights in the event of each subsequent nonpayment.
25
CHART INDUSTRIES, INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements – March 31, 2024
(Dollars and shares in millions, except per share amounts) – Continued
Embedded Derivatives. There are no material embedded derivatives that meet the criteria for bifurcation and separate accounting pursuant to ASC 815-15, Embedded Derivatives.
NOTE 11 — Derivative Financial Instruments
Derivatives and Hedging
We utilize a combination of cross-currency swaps and foreign exchange collars (together the “Foreign Exchange Collar Contracts”) as a net investment hedge of a portion of our investments in certain international subsidiaries that use the euro as their functional currency in order to reduce the volatility caused by changes in exchange rates. As a result of our acquisition of Howden, we are also a party to foreign currency contracts not designated as hedging instruments (the “Foreign Currency Contracts”) which are used to mitigate the risk associated with cash management activities and customer forward sale agreements denominated in currencies other than the applicable local currency, and to match costs and expected revenues where production facilities have a different currency than the selling currency.
Our Foreign Currency Contracts are measured at fair value with changes in fair value recorded within foreign currency (gain) loss. We classify cash flows related to our Foreign Currency Contracts as operating activities within our condensed consolidated statements of cash flows. Our derivative contracts are entered into with major financial institutions in order to reduce credit risk and risk of nonperformance by third parties. We believe the credit risks with respect to the counterparties, and the foreign currency risks that would not be hedged if the counterparties fail to fulfill their obligations under the contract, are not material in view of our understanding of the financial strength of the counterparties. Our derivative contracts are not exchange traded instruments and their fair value is determined using the cash flows of the contracts, discount rates to account for the passage of time, implied volatility, current foreign exchange market data and credit risk, which are all based on inputs readily available in public markets and categorized as Level 2 fair value hierarchy measurements.
The following table represents the fair value of our asset and liability derivatives:
| March 31, 2024 | |||||||||||||||||||||||||||||
| Notional Amount | Fair Value Other Current Assets | Fair Value Other Assets | Fair Value Other Current Liabilities | Fair Value Other Long-Term Liabilities | |||||||||||||||||||||||||
| Derivatives designated as net investment hedge | |||||||||||||||||||||||||||||
Foreign Exchange Collar Contracts (1) | $ | $ | — | $ | — | $ | — | $ | |||||||||||||||||||||
| Derivatives not designated as hedges | |||||||||||||||||||||||||||||
| Foreign Currency Contracts | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| December 31, 2023 | |||||||||||||||||||||||||||||
| Notional Amount | Fair Value Other Current Assets | Fair Value Other Assets | Fair Value Other Current Liabilities | Fair Value Other Long-Term Liabilities | |||||||||||||||||||||||||
| Derivatives designated as net investment hedge | |||||||||||||||||||||||||||||
Foreign Exchange Collar Contracts (1) | $ | $ | — | $ | — | $ | — | $ | |||||||||||||||||||||
| Derivatives not designated as hedges | |||||||||||||||||||||||||||||
| Foreign Currency Contracts | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
(1)Represents foreign exchange swaps and foreign exchange options.
26
CHART INDUSTRIES, INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements – March 31, 2024
(Dollars and shares in millions, except per share amounts) – Continued
The following table represents the net effect derivative instruments designated in hedging relationships had on accumulated other comprehensive (loss) income on the condensed consolidated statements of operations and comprehensive loss:
| Three Months Ended March 31, | |||||||||||
| Derivatives designated as net investment hedge | 2024 | 2023 | |||||||||
Foreign Exchange Collar Contracts (1) (2) | $ | $ | |||||||||
_______________
(1)Our designated derivative instruments are highly effective. As such, there were no gains or losses recognized immediately in income related to hedge ineffectiveness during the three months ended March 31, 2024 and 2023.
(2)Represents foreign exchange swaps and foreign exchange options.
The following table represents the effect that derivative instruments not designated as hedges had on net income:
| Three Months Ended March 31, | ||||||||||||||
| Derivatives not designated as hedges | Location of loss recognized in income | 2024 | 2023 | |||||||||||
| Foreign Currency Contracts | Other expense, net | $ | $ | |||||||||||
The following table represents interest income, included within interest expense, net on the condensed consolidated statements of operations and comprehensive loss related to amounts excluded from the assessment of hedge effectiveness for derivative instruments designated as net investment hedges:
| Three Months Ended March 31, | |||||||||||
| Derivatives designated as net investment hedge | 2024 | 2023 | |||||||||
Foreign Exchange Collar Contracts (1) (2) | $ | $ | |||||||||
_______________
(1)Represents amount excluded from effectiveness testing. Our Foreign Exchange Collar Contracts are designated with terms based on the spot rate of the euro. Future changes in the components related to the spot change on the notional will be recorded in other comprehensive income and remain there until the hedged subsidiaries are substantially liquidated. All coupon payments are classified in interest expense, net in the condensed consolidated statements of operations and comprehensive loss, and the initial value of excluded components currently recorded in accumulated other comprehensive loss as a foreign currency translation adjustment are amortized to interest expense, net over the remaining term of the Foreign Exchange Contract.
(2)Represents foreign exchange swaps and foreign exchange options.
NOTE 12 — Product Warranties
We provide product warranties with varying terms and durations for the majority of our products. We estimate our warranty reserve by considering historical and projected warranty claims, historical and projected cost-per-claim, and knowledge of specific product issues that are outside our typical experience. We record warranty expense in cost of sales in the unaudited condensed consolidated statements of operations and comprehensive loss. Product warranty claims not expected to occur within one year are included as part of other long-term liabilities in the unaudited condensed consolidated balance sheets.
The following table represents changes in our consolidated warranty reserve:
| Balance at December 31, 2023 | $ | ||||
| Acquired warranty reserve | |||||
| Accrued warranty expense | |||||
| Warranty usage | ( | ||||
| Foreign exchange translation effect | ( | ||||
| Balance at March 31, 2024 | $ | ||||
27
CHART INDUSTRIES, INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements – March 31, 2024
(Dollars and shares in millions, except per share amounts) – Continued
NOTE 13 — Business Combinations
Howden Acquisition
On March 17, 2023 we completed the Howden Acquisition pursuant to the previously disclosed Equity Purchase Agreement dated as of November 9, 2022. The acquisition purchase price was $4,387.4 . We financed the purchase price for the Howden Acquisition with proceeds from borrowings under our SSRCF, Amendment No. 3 Term Loan, common and preferred stock issuance and a private offering of Secured Notes and Unsecured Notes. See Note 9, “Debt and Credit Arrangements,” for more information.
The following table shows the purchase price in accordance with ASC 805:
| Description | |||||
| Cash consideration to seller | $ | ||||
| Howden's debt settled at close | |||||
| Settlement of seller transaction costs | |||||
| Funds held in escrow | |||||
| Working capital adjustment | ( | ||||
| Total ASC 805 purchase price | $ | ||||
Howden is a leading global provider of mission critical air and gas handling products providing service and support to customers around the world in highly diversified end markets and geographies. The combination of Chart and Howden is complementary and furthers our global leadership position in highly engineered process technologies and products serving the Nexus of Clean™ – clean power, clean water, clean food and clean industrials.
We estimated the fair value of acquired developed technology and trade names using the relief from royalty method. The fair values of acquired customer backlog and customer relationships were estimated using the multi-period excess earnings method. Under both the relief from royalty and multi-period excess earnings methods, the fair value models incorporated estimates of future cash flows, estimates of allocations of certain assets and cash flows, estimates of future growth rates, and management’s judgment regarding the applicable discount rates to use to discount such estimates of cash flows.
The excess of the purchase price over the estimated fair values is assigned to goodwill. The estimated goodwill was established due to expected cost synergies, anticipated growth of new customers, and expansion of equipment portfolio and process technology offerings. Goodwill recorded for the Howden Acquisition is not expected to be deductible for tax purposes.
The estimated fair values of the assets acquired and liabilities assumed disclosed in this note are inclusive of businesses identified to be sold as of the acquisition date. On August 18, 2023, we completed the sale of our Roots business, which we acquired as part of the Howden Acquisition. We have categorized the assets and liabilities of these discontinued operations on separate lines in the table below. Refer to Note 2, “Discontinued Operations and Other Businesses Sold” for further information.
The purchase price allocation reported at December 31, 2023 was preliminary and was based on provisional fair values. During the current quarter, and prior to March 31, 2024, we received and analyzed new information about certain assets and liabilities, as of the March 17, 2023 acquisition date and subsequently decreased current assets by $10.4 , increased current liabilities by $40.1 , and decreased long-term deferred tax liabilities by $8.2 for post-closing adjustments, based on this information. During the first quarter of 2024, we finalized the Howden purchase price allocation.
28
CHART INDUSTRIES, INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements – March 31, 2024
(Dollars and shares in millions, except per share amounts) – Continued
The following table summarizes the fair values of the assets acquired and liabilities assumed in the Howden Acquisition as of the acquisition date:
| Fair Value | |||||
| Net assets acquired: | |||||
| Cash and cash equivalents | $ | ||||
| Restricted cash | |||||
| Accounts receivable | |||||
| Inventories | |||||
| Unbilled contract revenue | |||||
| Prepaid expenses | |||||
| Other current assets | |||||
| Assets held for sale | |||||
| Property, plant and equipment | |||||
| Identifiable intangible assets | |||||
| Equity method investments | |||||
| Other assets | |||||
| Accounts payable | ( | ||||
| Customer advances and billings in excess of contract revenue | ( | ||||
| Accrued salaries, wages and benefits | ( | ||||
| Accrued income taxes | ( | ||||
| Current portion of warranty reserve | ( | ||||
| Current portion of long-term debt | ( | ||||
| Other current liabilities | ( | ||||
| Liabilities held for sale | ( | ||||
| Long-term deferred tax liabilities | ( | ||||
| Operating lease liabilities | ( | ||||
| Finance lease liabilities | ( | ||||
| Accrued pension liabilities | ( | ||||
| Other long-term liabilities | ( | ||||
| Total identifiable net assets assumed | |||||
Noncontrolling interest (1) | ( | ||||
Goodwill (2) | |||||
| Net assets acquired | $ | ||||
| Assets acquired net of cash, cash equivalents and restricted cash | $ | ||||
_______________
(1)As part of the Howden Acquisition, we acquired 82 % of Howden Hua Engineering Co., Ltd, an entity based in China. The noncontrolling interest was valued at $146.0 .
(2)Includes $102.2 and $49.7 allocated to the Roots and American Fan divestitures, respectively.
29
CHART INDUSTRIES, INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements – March 31, 2024
(Dollars and shares in millions, except per share amounts) – Continued
The following table summarizes information regarding identifiable intangible assets acquired in the Howden Acquisition:
| Estimated Useful Lives | Fair Value | ||||||||||
| Finite-lived intangible assets acquired: | |||||||||||
| Customer relationships | $ | ||||||||||
| Backlog | |||||||||||
| Technology | |||||||||||
| Total finite-lived intangible assets acquired | |||||||||||
| Indefinite-lived intangible assets acquired: | |||||||||||
| Trade names | |||||||||||
| Total intangible assets acquired | $ | ||||||||||
Chart’s condensed consolidated financial statements include Howden’s sales and net income of $103.3 and $4.8 , respectively, from date the of acquisition through March 31, 2023. We incurred $25.4 in transaction related costs during the first quarter of 2023 related to the Howden Acquisition which were recorded in selling, general and administrative expenses on the condensed consolidated statements of operations and comprehensive loss. No interest expense is allocated to Howden’s net income for our period of ownership.
As part of the Howden Acquisition, we acquired defined benefit pension plans, which are predominately in Germany. As a result, we assumed pension assets of $38.7 and pension liabilities of $41.1 , a net $2.4 liability.
Unaudited Supplemental Pro Forma Information
The following unaudited pro forma combined financial information for the three months ended March 31, 2023 gives effect to the Howden Acquisition, and the Roots and American Fan divestitures, as if each occurred on January 1, 2022. The unaudited pro forma information is not necessarily indicative of the results of operations that actually would have occurred under the ownership and management of the Company. In addition, the unaudited pro forma information is not intended to be a projection of future results and does not reflect any operating efficiencies or cost savings that might be achievable.
The following adjustments are reflected in the unaudited pro forma financial table below:
•the effect of increased interest expense related to the repayment of the Howden term loans, senior notes and revolving credit facility net of the additional borrowing on the Chart senior secured revolving credit facility and senior secured and unsecured notes,
•amortization of acquired intangible assets,
•an adjustment to reflect the change in the estimated income tax rate for federal and state purposes,
•nonrecurring acquisition-related expenses incurred by Howden prior to the close of and directly attributable to the Howden Acquisition were adjusted out of the pro forma net loss attributable to Chart Industries, Inc. from continuing operations for the periods presented, and
•nonrecurring acquisition-related expenses incurred by Chart and directly related to the Howden acquisition were adjusted out of the pro forma net loss attributable to Chart Industries, Inc. from continuing operations for the periods presented.
| Three Months Ended March 31, 2023 | ||||||||
| Pro forma sales from continuing operations | $ | |||||||
| Pro forma net loss attributable to Chart Industries, Inc. from continuing operations | ( | |||||||
As defined in Note 2, “Significant Accounting Policies” of our Annual Report on Form 10-K for the year ended December 31, 2023, we allocated the acquisition consideration to tangible and identifiable intangible assets acquired and liabilities assumed based on their fair values as of the acquisition date. The fair value of the acquired tangible and identifiable intangible assets was determined based on inputs that are unobservable and significant to the overall fair value measurement. The fair value is based on estimates and assumptions made by management at the time of the acquisition. As such, the acquisitions are classified as Level 3 fair value hierarchy measurements and disclosures.
30
CHART INDUSTRIES, INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements – March 31, 2024
(Dollars and shares in millions, except per share amounts) – Continued
NOTE 14 — Accumulated Other Comprehensive (Loss) Income
The components of accumulated other comprehensive (loss) income are as follows:
Foreign currency translation adjustments (1) | Pension liability adjustments, net of taxes | Accumulated other comprehensive income (loss) | |||||||||||||||
| Balance at December 31, 2023 | $ | $ | ( | $ | |||||||||||||
| Other comprehensive loss before reclassifications, net of taxes | ( | ( | |||||||||||||||
| Amounts reclassified from accumulated other comprehensive income (loss), net of income taxes | ( | ( | |||||||||||||||
| Net current-period other comprehensive loss, net of taxes | ( | ( | ( | ||||||||||||||
| Balance at March 31, 2024 | $ | ( | $ | ( | $ | ( | |||||||||||
Foreign currency translation adjustments (1) | Pension liability adjustments, net of taxes | Accumulated other comprehensive loss | |||||||||||||||
| Balance at December 31, 2022 | $ | ( | $ | ( | $ | ( | |||||||||||
| Other comprehensive income before reclassifications, net of taxes | |||||||||||||||||
| Amounts reclassified from accumulated other comprehensive loss, net of taxes | |||||||||||||||||
| Net current-period other comprehensive income, net of taxes | |||||||||||||||||
| Balance at March 31, 2023 | $ | ( | $ | ( | $ | ( | |||||||||||
_______________
(1)Foreign currency translation adjustments includes translation adjustments and net investment hedge, net of taxes. See Note 11, “Derivative Financial Instruments,” for further information related to the net investment hedge.
31
CHART INDUSTRIES, INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements – March 31, 2024
(Dollars and shares in millions, except per share amounts) – Continued
NOTE 15 — Earnings Per Share
The following table represents calculations of net earnings per share of common stock:
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Amounts attributable to Chart common shareholders | |||||||||||
| Income (loss) from continuing operations | $ | $ | ( | ||||||||
| Less: Mandatory convertible preferred stock dividend requirement | |||||||||||
| Income (loss) from continuing operations attributable to Chart | ( | ||||||||||
| (Loss) income from discontinued operations, net of tax | ( | ||||||||||
| Net income (loss) attributable to Chart common shareholders | ( | ||||||||||
| Earnings per common share – basic: | |||||||||||
| Income (loss) from continuing operations | $ | $ | ( | ||||||||
| (Loss) income from discontinued operations | ( | ||||||||||
| Net income (loss) attributable to Chart Industries, Inc. | $ | $ | ( | ||||||||
| Earnings per common share – diluted: | |||||||||||
| Income (loss) from continuing operations | $ | $ | ( | ||||||||
| (Loss) income from discontinued operations | ( | ||||||||||
| Net income (loss) attributable to Chart Industries, Inc. | $ | $ | ( | ||||||||
| Weighted average number of common shares outstanding – basic | |||||||||||
Incremental shares issuable upon assumed conversion and exercise of share-based awards (1) | |||||||||||
Incremental shares issuable due to dilutive effect of convertible notes (1) (2) | |||||||||||
Incremental shares issuable due to dilutive effect of the warrants (1) | |||||||||||
| Weighted average number of common shares outstanding – diluted | |||||||||||
_______________
(1)Zero incremental shares from share-based awards, convertible notes or the warrants are included in the computation of diluted net loss per share for periods in which a net loss from continuing operations attributable to Chart because to do so would be anti-dilutive.
(2)The convertible note hedge offsets any dilution upon actual conversion of the 2024 Notes up to a common stock price of $71.775 per share. The hedge cannot be taken into account under U.S. GAAP because it is anti-dilutive. If the hedge could have been considered, it would have reduced the diluted shares by 2.48 for the three months ended March 31, 2024. For further information, refer to Note 9, “Debt and Credit Arrangements.”
32
CHART INDUSTRIES, INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements – March 31, 2024
(Dollars and shares in millions, except per share amounts) – Continued
Diluted earnings per share does not reflect the following cumulative preferred stock dividends and potential common shares as the effect would be anti-dilutive:
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Numerator | |||||||||||
Mandatory convertible preferred stock dividend requirement (1) | $ | $ | |||||||||
| Denominator | |||||||||||
| Anti-dilutive shares, Share-based awards | |||||||||||
| Anti-dilutive shares, Convertible notes | |||||||||||
| Anti-dilutive shares, Warrants | |||||||||||
Anti-dilutive shares, Mandatory convertible preferred stock (1) | |||||||||||
| Total anti-dilutive securities | |||||||||||
_______________
(1)We calculate the basic and diluted earnings per share based on net income, which approximates income available to common shareholders for each period. Earnings per share is calculated using the two-class method, which is an earnings allocation formula that determines the earnings per share for common stock and any participating securities according to dividends declared (whether paid or unpaid) and participation rights in undistributed earnings. The Series B Mandatory Convertible Preferred Stock and the 2024 Convertible Notes are participating securities. Undistributed earnings are not allocated to the participating securities because the participation features are discretionary. Net losses are not allocated to the Series B Mandatory Convertible Preferred Stock, as it does not have a contractual obligation to share in the losses of Chart. Basic net income per share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted net income per common share is computed by dividing net income available to common shareholders by the sum of the weighted average number of common shares outstanding and any dilutive non-participating securities for the period.
NOTE 16 — Income Taxes
Income tax expense (benefit) relating to continuing operations of $8.8 and $(6.7 ) for the three months ended March 31, 2024 and 2023, respectively, represents taxes on both U.S. and foreign earnings at a combined effective income tax rate of 34.0 % and 31.2 %, respectively.
The effective income tax rate of 34.0 % for the three months ended March 31, 2024 differed from the U.S. federal statutory rate of 21% primarily due to income earned by certain of our foreign entities being taxed at higher rates than the U.S. federal statutory rate, withholding taxes on foreign earnings not permanently reinvested and the build of valuation allowances offset by research and development credits.
The effective income tax rate of 31.2 % for the three months ended March 31, 2023 differed from the U.S. federal statutory rate of 21% primarily due to income earned by our certain foreign entities being taxed at higher rates than the U.S. federal statutory rate, the U.S. taxation of international operations with the expanded global footprint and transaction costs from the Howden Acquisition offset by research and development credits and excess tax benefits associated with share-based compensation.
NOTE 17 — Share-based Compensation
During the three months ended March 31, 2024, we granted 0.07 stock options, 0.07 restricted stock units and 0.04 performance units. The total fair value of awards granted to employees during the three months ended March 31, 2024 was $19.4 . In addition, our non-employee directors received stock awards with a total fair value of $0.4 .
Stock options generally have a four-year graded vesting period. Restricted stock and restricted stock units generally vest ratably over a three-year period. Performance units generally vest at the end of a three-year performance period based on the attainment of certain pre-determined performance condition targets. During the three months ended March 31, 2024, 0.04 0.02 performance units vested.
33
CHART INDUSTRIES, INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements – March 31, 2024
(Dollars and shares in millions, except per share amounts) – Continued
Share-based compensation expense was $6.0 and $4.0 for the three months ended March 31, 2024 and 2023, respectively. Share-based compensation expense is included in selling, general, and administrative expenses in the unaudited condensed consolidated statements of operations and comprehensive loss. As of March 31, 2024, total share-based compensation of $29.5 is expected to be recognized over the weighted-average period of approximately 2.6 years.
NOTE 18 — Commitments and Contingencies
Environmental
We are subject to federal, state, local, and foreign environmental laws and regulations concerning, among other matters, waste water effluents, air emissions, and handling and disposal of hazardous materials, such as cleaning fluids. We are involved with environmental compliance, investigation, monitoring, and remediation activities at certain of our owned and formerly owned manufacturing facilities and at one owned facility that is leased to a third party, and, except for these continuing remediation efforts, believe we are currently in substantial compliance with all known environmental regulations. Undiscounted accrued environmental reserves at both March 31, 2024 and December 31, 2023 were not
Legal Proceedings
We are occasionally subject to various legal claims related to performance under contracts, product liability, taxes, employment matters, environmental matters, intellectual property, and other matters incidental to the normal course of our business. Based on our historical experience in litigating these claims, as well as our current assessment of the underlying merits of the claims and applicable insurance, if any, management believes that the final resolution of these matters will not have a material adverse effect on our financial position, liquidity, cash flows, or results of operations, except that our results of operations for any particular reporting period may be adversely affected by any potential or actual loss that is accrued in such period. Future developments may, however, result in resolution of these legal claims in a way that could have a material adverse effect.
NOTE 19 — Restructuring Activities
Restructuring costs of $5.1 for the three months ended March 31, 2024 were primarily related to cost reduction actions relative to Howden integration. Restructuring costs of $1.6 for the three months ended March 31, 2023 were primarily related to moving and employee severance costs relative to restructuring at our Beasley, Texas, Houston, Texas and Tulsa, Oklahoma facilities.
We closely monitor our end markets and order rates and continue to take appropriate and timely actions as necessary.
The following table summarizes severance and other restructuring costs, which includes employee-related costs, facility rent and exit costs, relocation, recruiting, travel and other:
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Severance: | |||||||||||
| Cost of sales | $ | $ | |||||||||
| Selling, general, and administrative expenses | |||||||||||
| Total severance costs | |||||||||||
| Other restructuring: | |||||||||||
| Cost of sales | |||||||||||
| Selling, general, and administrative expenses | |||||||||||
| Total other restructuring costs | |||||||||||
| Total restructuring costs | $ | $ | |||||||||
34
CHART INDUSTRIES, INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements – March 31, 2024
(Dollars and shares in millions, except per share amounts) – Continued
The following table summarizes restructuring costs by reportable segment:
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Cryo Tank Solutions | $ | $ | |||||||||
| Heat Transfer Systems | |||||||||||
| Specialty Products | |||||||||||
| Repair, Service & Leasing | |||||||||||
| Corporate | |||||||||||
| Total restructuring costs | $ | $ | |||||||||
The following tables summarize our restructuring activities:
| Balance at December 31, 2023 | $ | ||||
| Restructuring charges | |||||
| Cash payments and other | ( | ||||
| Balance at March 31, 2024 | $ | ||||
| Balance at December 31, 2022 | $ | ||||
| Restructuring charges | |||||
| Cash payments and other | ( | ||||
| Balance at March 31, 2023 | $ | ||||
NOTE 20 — Subsequent Event
On April 8, 2024, we entered into an amendment which amends our fifth amended and restated credit agreement. Refer to Note 9 “Debt and Credit Arrangements” for further discussion.
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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion of our results of operations and financial condition should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements. Actual results may differ materially from those discussed below. See “Forward-Looking Statements” at the end of this discussion and Item 1A. “Risk Factors” for a discussion of the uncertainties, risks and assumptions associated with this discussion.
Overview
We are an independent global leader in the design, engineering, and manufacturing of process technologies and equipment for gas and liquid molecule handling for the Nexus of Clean™ – clean power, clean water, clean food, and clean industrials, regardless of molecule. Our unique product and solution portfolio across stationary and rotating equipment is used in every phase of the liquid gas supply chain, including engineering, service and repair from installation to preventive maintenance and digital monitoring. Chart is a leading provider of technology, equipment and services related to liquefied natural gas, hydrogen, biogas and carbon capture among other applications. We are committed to excellence in environmental, social and corporate governance (ESG) issues both for our company as well as our customers. With 64 global manufacturing locations and over 50 service centers from the United States to Asia, Australia, India, Europe and South America, we maintain accountability and transparency to our team members, suppliers, customers and communities.
On March 17, 2023, we completed the acquisition of Howden (the “Howden Acquisition”), a leading global provider of mission critical air and gas handling products and services, from affiliates of KPS Capital Partners, LP. Results from continuing operations include results of Howden from the date of acquisition and exclude Roots™ (“Roots”) business financial results for our entire ownership period of March 17, 2023 through the divestiture date, August 18, 2023. The financial information presented and discussion of results that follows is presented on a continuing operations basis.
Macroeconomic Impacts
The current conflict between Russia and Ukraine and the related sanctions imposed by countries against Russia, along with the heightened tensions between the U.S. and China and recent unrest in the Middle East continue to create uncertainty in the global economy. We are unable to predict the impact these actions will have on the global economy or on our business, financial condition and results of operations. These events did not have a material adverse effect on our reported results for the first quarter of 2024, however we will continue to actively monitor in terms of their potential impact on our results of operations beyond the first quarter of 2024.
Environmental, Social, Governance
Chart is proud to be at the forefront of the clean energy transition as a leading provider of technology, equipment and services related to liquefied natural gas (LNG), hydrogen, biogas, carbon capture and water treatment, among other applications. We also have a unique offering for the Nexus of Clean™ – clean power, clean water, clean food and clean industrials. This leadership position is possible not only because we have the broadest offering of clean innovative solutions for the various end markets we serve, but also because we are committed to global responsibility. Reporting our ESG performance is one of the ways we demonstrate accountability and transparency to our team members, suppliers, customers, shareholders and communities. Below are some highlights of our ESG efforts, and further information can be found in our fifth Annual Sustainability report with scorecard which was released in April 2024.
We measure our ESG and sustainability targets and progress against them.
•We measure progress through the Sustainability Accounting Standards Board (SASB) and Task Force on Climate Related Financial Disclosures (TCFD) indices, as well as contributing to the Global Reporting Initiative (GRI) and United Nations Sustainable Development Goals (SDGs). We contribute to 11 of the 17 United Nations Sustainable Development Goals (SDGs). Chart also looks to align with the Organization for Economic Co-Operations and Development (OECD) and has submitted an application to join the UN Global Compact for 2024.
•Safety: Total Recordable Incident Rate (TRIR) of 0.52 as of March 31, 2024, our lowest in our history. We have continued to improve upon our 12-month rolling TRIR in early 2024.
•Many of our safety programs and practices reflect requirements of the ISO 45001 Occupational Health and Safety standard for management systems. Chart has voluntarily certified all major manufacturing and fabrication facilities to this internationally recognized standard to increase safety and reduce workplace risks.
•We utilize iPoint and Sphera analytics to proactively monitor our supply chain for proper governance in our supplier network including their climate targets and other ESG activities.
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•Chart reduced its greenhouse gas (GHG) emissions intensity in 2023 by 27% relative to 2022, achieving its goal of reducing GHG emissions intensity 50% by 2030 (relative to a 2020 baseline) seven years ahead of target. Chart remains committed to achieving net-zero emissions by 2050 and also commits to rebaselining and conducting a double materiality assessment in 2024, at which point we plan to set updated targets. We made plant improvements including energy efficient upgrades for various equipment – including replacement of diesel powered equipment with electric and installation of LED lighting in office spaces. In addition, we plan to achieve our targets by switching energy from fossil fuel based to carbon free supply and installing on-site renewables where applicable, as well as continuing to participate in ongoing energy audits. At a local site level, we also continue to find ways to reduce both waste-to-landfill as well as mains water usage.
•For the second year in a row, we continue to track and report our global water consumption and waste recycled, an effort that speaks to our commitment to ESG transparency.
•In 2023, our executive leadership team was made up of 38% women, with a target for 40% of our leadership team to be women by 2030.
•We actively participate in local communities through donations and volunteering, working with charitable organizations including Cancer Research, local hospitals, food banks, school and emergency services. 19.6% of our global team participated in Chart-related volunteering in 2023. We remain committed to our target to achieve 25% volunteer participation by 2030.
We provide our One Chart global team members with various programs and practices to support our ESG and employee-drive culture:
•We have a Global Sustainability Committee, Global Safety Council, and Global Diversity & Inclusion Committee, all comprised of team member volunteers and engagement from our global locations.
◦Our Global Sustainability Committee has five sub-committees focused on energy management, zero waste, electrification, renewable energy and water management. In 2023, this committee focused on sustainable global best practice and knowledge sharing between the Chart and Howden businesses.
•We have numerous employee resource groups (ERG), including:
◦Chart Network of Women (NOW) with a mission of empowering women both personally and professionally with local chapters globally across the United States, Europe, and Asia.
◦Chart Pride ERG supporting LGBTQIA+ team members.
◦In 2024, we launched Chart RISE for younger professionals, Chart PRIME for more seasoned professionals with the intent to provide mentoring opportunities for team members, and Chart’s Veterans ERG.
•Chart adopted Howden’s Bright Futures community volunteering program, which is now a facet of Chart’s Giving Back Program. Bright Futures is a program focused around giving back to the younger generation, with particular focus on promoting STEM.
•We have an employee relief fund for our own team members that need assistance.
•Our team members raised over $25,000 to support women in the Dress For Success campaign in March 2023. This is the third year in a row raising $25,000 for this cause.
•Our team members raised over $60,000 in 2023 through an internal STEPtember campaign, coordinated by our finance organization.
We are our helping customers to achieve their own sustainability targets in a number of different ways whether that’s through reducing the amount of plastic used in packaging to lowering greenhouse gas emissions by enabling the transition towards cleaner fuels.
•A single gas-gas heater is estimated to avoid 64,000 tons of CO2 emissions from flue gas. Our current gas-gas heater installed base (doubled since 2022) saves approximately 32 million tons of CO2 per year.
•Our ChartWater team treats over 4.5 billion gallons of water a day in the United States and provides clean water to approximately a billion people worldwide daily.
•We helped to eliminate nearly 280 million of PET (plastic) used in water bottles in the United States. Our liquid nitrogen doser enables customers to produce 432,000,000 cans of water annually (instead of plastic bottles) which avoids production of 8.21 billion grams of plastic per year.
•In 2023, Chart products produced about 65 million tons of LNG to replace coal fired power generation (non-U.S.).
•In 2023, Chart products reduced over 800 million liters of diesel used by over-the-road trucks.
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•Ventsim™ DESIGN is used by over 2,800 mines, universities, consultants, government, and research organizations in 70 countries. Ventsim™ CONTROL has been successfully installed on over 30 mine sites in 5 continents. For example, a mining customer is seeing a 56% reduction in underground ventilation electricity costs by utilizing Ventsim™ CONTROL for mine optimization.
Our governance supports our ESG focus
•We have an independent Board of Directors that is comprised of ten directors (nine are independent, four are female and two are diverse) and governed with a separate independent Chair and CEO.
•We regularly hold reviews on ESG and cybersecurity with our Board of Directors.
•We link our executives and their direct reports short-term incentive payout (25% of the strategic and operational goals) to a metric driven, percentage-reduction ESG metric, and have done this for three years (and continue to do so in 2024).
•We offer every team member worldwide one paid day off each year to volunteer in our communities. In 2021, Chart started matching employee donations up to $250 per employee per year to charitable organizations.
First Quarter 2024 Highlights
Strong order activity contributed to record ending total backlog of $4,331.1 million as of March 31, 2024 compared to $3,858.3 million as of March 31, 2023 and $4,278.8 million as of December 31, 2023. We had consolidated orders of $1,121.6 million for the three months ended March 31, 2024 compared to $740.7 million and $1,209.1 million for the three months ended March 31, 2023 and December 31, 2023, respectively. The increase in orders versus the three months ended March 31, 2023 was largely driven by the impact of the Howden acquisition as well as continued growth in clean energy applications and strong order intake for fans aftermarket, parts, repairs and services.
Consolidated sales were $950.7 million in the three months ended March 31, 2024 compared to $531.5 million in the three months ended March 31, 2023 and $1,015.0 million in the three months ended December 31, 2023. Sequentially compared to the fourth quarter 2023, sales were down approximately 6.3%, with slightly better than typical sequential seasonality as we had anticipated. Compared to the same quarter in 2023 this represents increases in all four segments. Sales increased in our Heat Transfer Systems segment driven by favorable sales in big and small-scale LNG. Sales increased in our Cryo Tank Solutions segment as sales increased across all end markets we serve. Sales increased in our Repair, Service & Leasing segment largely attributable to the Howden acquisition and in our Specialty Products segment with favorable sales in space, marine, metals, water and clean energy applications. Consolidated gross profit margin for the three months ended March 31, 2024 of 31.8% increased from 28.1% for the three months ended March 31, 2023, resulting from our ongoing cost out actions, productivity, early synergy achievement and pricing actions.
Consolidated Results for the Three Months Ended March 31, 2024 and 2023, and December 31, 2023
The following table includes key metrics used to evaluate our business and measure our performance and represents selected financial data for our operating segments for the three months ended March 31, 2024 and 2023 and December 31, 2023 (dollars in millions). The following financial data includes results of Howden from the March 17, 2023 date of acquisition and excludes the Roots business financial results for our entire ownership period of March 17, 2023 through August 18, 2023, therefore the movements compared to the three months ended March 31, 2023 do not solely reflect organic business trends.
38
Selected Financial Information (1)
| Three Months Ended | Current Quarter vs. Prior Year Same Quarter | Current Quarter vs. Prior Sequential Quarter | |||||||||||||||||||||||||||||||||||||||
| March 31, 2024 | March 31, 2023 | December 31, 2023 | Variance ($) | Variance (%) | Variance ($) | Variance (%) | |||||||||||||||||||||||||||||||||||
| Sales | |||||||||||||||||||||||||||||||||||||||||
| Cryo Tank Solutions | $ | 159.7 | $ | 123.5 | $ | 205.6 | $ | 36.2 | 29.3 | % | $ | (45.9) | (22.3) | % | |||||||||||||||||||||||||||
| Heat Transfer Systems | 253.6 | 167.5 | 255.2 | 86.1 | 51.4 | % | (1.6) | (0.6) | % | ||||||||||||||||||||||||||||||||
| Specialty Products | 236.5 | 126.2 | 217.0 | 110.3 | 87.4 | % | 19.5 | 9.0 | % | ||||||||||||||||||||||||||||||||
| Repair, Service & Leasing | 301.0 | 118.5 | 340.7 | 182.5 | 154.0 | % | (39.7) | (11.7) | % | ||||||||||||||||||||||||||||||||
| Intersegment eliminations | (0.1) | (4.2) | (3.5) | 4.1 | (97.6) | % | 3.4 | (97.1) | % | ||||||||||||||||||||||||||||||||
| Consolidated | $ | 950.7 | $ | 531.5 | $ | 1,015.0 | $ | 419.2 | 78.9 | % | $ | (64.3) | (6.3) | % | |||||||||||||||||||||||||||
| Gross Profit (Loss) | |||||||||||||||||||||||||||||||||||||||||
| Cryo Tank Solutions | $ | 32.8 | $ | 21.5 | $ | 46.5 | $ | 11.3 | 52.6 | % | $ | (13.7) | (29.5) | % | |||||||||||||||||||||||||||
| Heat Transfer Systems | 70.1 | 41.3 | 76.7 | 28.8 | 69.7 | % | (6.6) | (8.6) | % | ||||||||||||||||||||||||||||||||
| Specialty Products | 58.9 | 35.9 | 62.5 | 23.0 | 64.1 | % | (3.6) | (5.8) | % | ||||||||||||||||||||||||||||||||
| Repair, Service & Leasing | 140.5 | 50.6 | 148.6 | 89.9 | 177.7 | % | (8.1) | (5.5) | % | ||||||||||||||||||||||||||||||||
| Consolidated | $ | 302.3 | $ | 149.3 | $ | 334.3 | $ | 153.0 | 102.5 | % | $ | (32.0) | (9.6) | % | |||||||||||||||||||||||||||
| Gross Profit (Loss) Margin | |||||||||||||||||||||||||||||||||||||||||
| Cryo Tank Solutions | 20.5 | % | 17.4 | % | 22.6 | % | |||||||||||||||||||||||||||||||||||
| Heat Transfer Systems | 27.6 | % | 24.7 | % | 30.1 | % | |||||||||||||||||||||||||||||||||||
| Specialty Products | 24.9 | % | 28.4 | % | 28.8 | % | |||||||||||||||||||||||||||||||||||
| Repair, Service & Leasing | 46.7 | % | 42.7 | % | 43.6 | % | |||||||||||||||||||||||||||||||||||
| Consolidated | 31.8 | % | 28.1 | % | 32.9 | % | |||||||||||||||||||||||||||||||||||
| SG&A Expenses | |||||||||||||||||||||||||||||||||||||||||
| Cryo Tank Solutions | $ | 16.9 | $ | 15.3 | $ | 21.6 | $ | 1.6 | 10.5 | % | $ | (4.7) | (21.8) | % | |||||||||||||||||||||||||||
| Heat Transfer Systems | 13.9 | 9.0 | 17.6 | 4.9 | 54.4 | % | (3.7) | (21.0) | % | ||||||||||||||||||||||||||||||||
| Specialty Products | 28.7 | 6.9 | 22.4 | 21.8 | 315.9 | % | 6.3 | 28.1 | % | ||||||||||||||||||||||||||||||||
| Repair, Service & Leasing | 39.5 | 9.8 | 29.0 | 29.7 | 303.1 | % | 10.5 | 36.2 | % | ||||||||||||||||||||||||||||||||
Corporate | 42.5 | 51.9 | 39.3 | (9.4) | (18.1) | % | 3.2 | 8.1 | % | ||||||||||||||||||||||||||||||||
| Consolidated | $ | 141.5 | $ | 92.9 | $ | 129.9 | $ | 48.6 | 52.3 | % | $ | 11.6 | 8.9 | % | |||||||||||||||||||||||||||
| SG&A Expenses (% of Sales) | |||||||||||||||||||||||||||||||||||||||||
| Cryo Tank Solutions | 10.6 | % | 12.4 | % | 10.5 | % | |||||||||||||||||||||||||||||||||||
| Heat Transfer Systems | 5.5 | % | 5.4 | % | 6.9 | % | |||||||||||||||||||||||||||||||||||
| Specialty Products | 12.1 | % | 5.5 | % | 10.3 | % | |||||||||||||||||||||||||||||||||||
| Repair, Service & Leasing | 13.1 | % | 8.3 | % | 8.5 | % | |||||||||||||||||||||||||||||||||||
| Consolidated | 14.9 | % | 17.5 | % | 12.8 | % | |||||||||||||||||||||||||||||||||||
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| Three Months Ended | Current Quarter vs. Prior Year Same Quarter | Current Quarter vs. Prior Sequential Quarter | |||||||||||||||||||||||||||||||||||||||
| March 31, 2024 | March 31, 2023 | December 31, 2023 | Variance ($) | Variance (%) | Variance ($) | Variance (%) | |||||||||||||||||||||||||||||||||||
| Operating Income (Loss) | |||||||||||||||||||||||||||||||||||||||||
| Cryo Tank Solutions | $ | 14.0 | $ | 4.3 | $ | 22.6 | $ | 9.7 | 225.6 | % | $ | (8.6) | (38.1) | % | |||||||||||||||||||||||||||
Heat Transfer Systems (3) | 51.2 | 27.3 | 55.3 | 23.9 | 87.5 | % | (4.1) | (7.4) | % | ||||||||||||||||||||||||||||||||
Specialty Products (2) | 25.1 | 21.8 | 35.1 | 3.3 | 15.1 | % | (10.0) | (28.5) | % | ||||||||||||||||||||||||||||||||
| Repair, Service & Leasing | 65.1 | 33.1 | 82.3 | 32.0 | 96.7 | % | (17.2) | (20.9) | % | ||||||||||||||||||||||||||||||||
Corporate | (42.5) | (51.9) | (39.3) | 9.4 | (18.1) | % | (3.2) | 8.1 | % | ||||||||||||||||||||||||||||||||
| Consolidated | $ | 112.9 | $ | 34.6 | $ | 156.0 | $ | 78.3 | 226.3 | % | $ | (43.1) | (27.6) | % | |||||||||||||||||||||||||||
| Operating Margin | |||||||||||||||||||||||||||||||||||||||||
| Cryo Tank Solutions | 8.8 | % | 3.5 | % | 11.0 | % | |||||||||||||||||||||||||||||||||||
| Heat Transfer Systems | 20.2 | % | 16.3 | % | 21.7 | % | |||||||||||||||||||||||||||||||||||
| Specialty Products | 10.6 | % | 17.3 | % | 16.2 | % | |||||||||||||||||||||||||||||||||||
| Repair, Service & Leasing | 21.6 | % | 27.9 | % | 24.2 | % | |||||||||||||||||||||||||||||||||||
| Consolidated | 11.9 | % | 6.5 | % | 15.4 | % | |||||||||||||||||||||||||||||||||||
_______________
(1)Results for the three months ended March 31, 2024 and December 31, 2023 reflect our ownership of Howden for the full periods. Results for the three months ended March 31, 2023 include the results of Howden from the acquisition date of March 17, 2023.
(2)Acquisition-related contingent consideration adjustments in our Specialty Products segment for the three months ended:
•December 31, 2023 was an increase in fair value of $0.1.
•March 31, 2023 was a decrease in fair value of $7.4.
(3)Includes deal-related and integration costs of $6.5 for the three months ended March 31, 2024 and $81.7 and $8.9 for the three months ended March 31, 2023 and December 31, 2023, respectively.
Results of Operations for the Three Months Ended March 31, 2024 and 2023, and December 31, 2023
Sales for the first quarter of 2024 compared to the same quarter in 2023 increased by $419.2 million, from $531.5 million to $950.7 million, or 78.9% and decreased by $64.3 million, from $1,015.0 million to $950.7 million, or 6.3% compared to the three months ended December 31, 2023. The increase compared to the same quarter in 2023 was primarily driven by the Howden acquisition as well as growth in several specialty markets and favorable sales in LNG.
Gross profit was $302.3 million for the first quarter of 2024, an increase of $153.0 million, or 102.5%, compared to $149.3 million for the same quarter in 2023. Gross profit margin of 31.8% for the first quarter of 2024, was an increase of 3.7% from 28.1% in the first quarter of 2023. The increase in gross profit and the related margin was primarily driven by the first quarter of 2024 reflecting a full quarter of Howden ownership, ongoing cost out actions, productivity, early synergy achievement and pricing actions.
Consolidated SG&A expenses increased by $48.6 million or 52.3% during the first quarter of 2024 compared to the same quarter in 2023. This increase is due to the impact of a full quarter of Howden ownership in the first quarter of 2024.
Amortization expense increased by $26.1 million to $47.9 million for the first quarter of 2024, compared to $21.8 million for the same quarter of 2023. This increase is mainly due to the impact of a full quarter of amortization of Howden-related acquired intangible assets in the first quarter of 2024.
Acquisition Related Finance Fees
Acquisition related finance fees for the first quarter of 2023 were $26.1 million related to bridge loan financing for our acquisition of Howden. There was no comparable expense during the first quarter of 2024.
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Interest Expense, Net
The following table presents the components of interest expense, net:
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Interest expense term loan due March 2030 | $ | 35.8 | $ | 5.5 | |||||||
| Interest expense senior secured notes due 2030 | 26.8 | 27.4 | |||||||||
| Interest expense senior unsecured notes due 2031 | 11.8 | 12.1 | |||||||||
| Interest expense senior secured revolving credit facility due April 2029 | 6.9 | 2.6 | |||||||||
| Interest expense convertible notes due November 2024 | 0.9 | 0.6 | |||||||||
| Financing cost amortization | 4.7 | 2.8 | |||||||||
| Interest income | (2.2) | (21.3) | |||||||||
| Capitalized interest | (2.0) | (0.9) | |||||||||
| Other | 1.1 | (0.5) | |||||||||
| Interest expense, net | $ | 83.8 | $ | 28.3 | |||||||
The increase in interest expense, net, is primarily due to higher borrowings outstanding, specifically our term loan, drawn on March 17, 2023 for the Howden Acquisition and an additional incremental term loan drawn on June 30, 2023, compared to borrowings outstanding during the first quarter of 2023. The increase in interest expense, net was also driven by higher average interest rates during the first quarter of 2024 as compared to the first quarter of 2023. Interest expense, net for the first quarter of 2023 included $20.1 million in interest income earned from deposits of proceeds from the senior secured notes due 2030, senior unsecured notes due 2031, common stock and preferred stock offerings into interest bearing accounts until the consummation of the Howden acquisition.
Financing costs amortization was $4.7 million and $2.8 million for the three months ended March 31, 2024 and 2023, respectively. The increase of $1.9 million was primarily due to multiple amendments of our credit agreement, which increased deferred debt issuance costs.
Income Tax Expense (Benefit)
Income tax expense (benefit) of $8.8 million and $(6.7) million for the three months ended March 31, 2024 and 2023, respectively, represents taxes on both U.S. and foreign earnings at a combined effective income tax rate of 34.0% and 31.2%, respectively. The effective income tax rate of 34.0% for the three months ended March 31, 2024 differed from the U.S. federal statutory rate of 21% primarily due to income earned by our certain foreign entities being taxed at higher rates than the U.S. federal statutory rate, withholding taxes on foreign earnings not permanently reinvested and the build of valuation allowances offset by research and development credits.
The effective income tax rate of 31.2% for the three months ended March 31, 2023 differed from the U.S. federal statutory rate of 21% primarily due to one-time impacts from acquisitions and income earned by our certain foreign entities being taxed at higher rates than the U.S. federal statutory rate, offset by research and development credits and excess tax benefits associated with share-based compensation.
Net Income Attributable to Chart Industries, Inc. from Continuing Operations
As a result of the foregoing, net income attributable to Chart Industries, Inc. from continuing operations for the three months ended March 31, 2024 and 2023 was $13.5 million and $15.9 million, respectively.
Discontinued Operations
The financial results of the Roots business are reflected in our consolidated financial statements as discontinued operations for both the three months ended March 31, 2024 and 2023. For further information, refer to Note 2, “Discontinued Operations and Other Businesses Sold” of our unaudited condensed consolidated financial statements included under Item 1, “Financial Statements” in this report.
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Segment Results
Our reportable and operating segments include: Cryo Tank Solutions, Heat Transfer Systems, Specialty Products and Repair, Service & Leasing. Corporate includes operating expenses for executive management, accounting, tax, treasury, corporate development, human resources, information technology, investor relations, legal, internal audit, risk management and share-based compensation expenses. Corporate support functions are not allocated to the segments. For further information, refer to Note 3, “Reportable Segments” of our unaudited condensed consolidated financial statements included under Item 1, “Financial Statements” in this report. The following tables include key metrics used to evaluate our business and measure our performance and represent selected financial data for our operating segments for the three months ended March 31, 2024 and 2023 (dollars in millions):
Cryo Tank Solutions — Results of Operations for the Three Months Ended March 31, 2024 and 2023
| Three Months Ended | Current Quarter vs. Prior Year Same Quarter | ||||||||||||||||||||||
| March 31, 2024 | March 31, 2023 | Variance ($) | Variance (%) | ||||||||||||||||||||
| Sales | $ | 159.7 | $ | 123.5 | $ | 36.2 | 29.3 | % | |||||||||||||||
| Gross Profit | 32.8 | 21.5 | 11.3 | 52.6 | % | ||||||||||||||||||
| Gross Profit Margin | 20.5 | % | 17.4 | % | |||||||||||||||||||
| SG&A Expenses | $ | 16.9 | $ | 15.3 | $ | 1.6 | 10.5 | % | |||||||||||||||
| SG&A Expenses (% of Sales) | 10.6 | % | 12.4 | % | |||||||||||||||||||
| Operating Income | $ | 14.0 | $ | 4.3 | $ | 9.7 | 225.6 | % | |||||||||||||||
| Operating Margin | 8.8 | % | 3.5 | % | |||||||||||||||||||
For the first quarter of 2024, Cryo Tank Solutions net sales increased by $36.2 million as compared to the same quarter in 2023. The increase is primarily driven by increased demand in bulk tanks, rail cars and increased demand in North America.
During the first quarter of 2024, Cryo Tank Solutions segment gross profit increased by $11.3 million as compared to the same quarter in 2023, and gross profit margin increased by 310 basis points. The increase in gross profit was driven by improved product mix with a higher percentage of sales in general industrial markets.
Cryo Tank Solutions segment SG&A expenses increased by $1.6 million during the first quarter of 2024 as compared to the same quarter in 2023. The increase in SG&A expenses was mainly due to the full quarter of Howden SG&A during 2024.
Heat Transfer Systems — Results of Operations for the Three Months Ended March 31, 2024 and 2023
| Three Months Ended | Current Quarter vs. Prior Year Same Quarter | ||||||||||||||||||||||
| March 31, 2024 | March 31, 2023 | Variance ($) | Variance (%) | ||||||||||||||||||||
| Sales | $ | 253.6 | $ | 167.5 | $ | 86.1 | 51.4 | % | |||||||||||||||
| Gross Profit | 70.1 | 41.3 | 28.8 | 69.7 | % | ||||||||||||||||||
| Gross Profit Margin | 27.6 | % | 24.7 | % | |||||||||||||||||||
| SG&A Expenses | $ | 13.9 | $ | 9.0 | $ | 4.9 | 54.4 | % | |||||||||||||||
| SG&A Expenses (% of Sales) | 5.5 | % | 5.4 | % | |||||||||||||||||||
| Operating Income | $ | 51.2 | $ | 27.3 | $ | 23.9 | 87.5 | % | |||||||||||||||
| Operating Margin | 20.2 | % | 16.3 | % | |||||||||||||||||||
For the first quarter of 2024, Heat Transfer Systems segment sales increased by $86.1 million as compared to the same quarter in 2023. The increase was primarily driven by projects that utilized brazed aluminum heat exchangers and air coolers, and conversion of backlog relative to big LNG, floating LNG and small scale LNG applications as well as traditional energy applications.
During the first quarter of 2024, Heat Transfer Systems segment gross profit increased by $28.8 million as compared to the same quarter in 2023, and gross profit margin increased by 290 basis points. The increase in gross profit was primarily due to higher volume and the related margin increase is mainly due to overall product and project mix.
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Heat Transfer Systems segment SG&A expenses increased by $4.9 million during the first quarter of 2024 as compared to the same quarter in 2023. The increase in SG&A expenses was mainly due to the impact of the Howden acquisition.
Specialty Products — Results of Operations for the Three Months Ended March 31, 2024 and 2023
| Three Months Ended | Current Quarter vs. Prior Year Same Quarter | ||||||||||||||||||||||
| March 31, 2024 | March 31, 2023 | Variance ($) | Variance (%) | ||||||||||||||||||||
| Sales | $ | 236.5 | $ | 126.2 | $ | 110.3 | 87.4 | % | |||||||||||||||
| Gross Profit | 58.9 | 35.9 | 23.0 | 64.1 | % | ||||||||||||||||||
| Gross Profit Margin | 24.9 | % | 28.4 | % | |||||||||||||||||||
| SG&A Expenses | $ | 28.7 | $ | 6.9 | $ | 21.8 | 315.9 | % | |||||||||||||||
| SG&A Expenses (% of Sales) | 12.1 | % | 5.5 | % | |||||||||||||||||||
| Operating Income | $ | 25.1 | $ | 21.8 | $ | 3.3 | 15.1 | % | |||||||||||||||
| Operating Margin | 10.6 | % | 17.3 | % | |||||||||||||||||||
Specialty Products segment sales increased by $110.3 million during the first quarter of 2024 as compared to the same quarter in 2023. The increase in Specialty Products sales was driven by a full quarter impact of the Howden acquisition as well as growth in space and clean energy applications.
Specialty Products segment gross profit increased by $23.0 million during the first quarter of 2024 as compared to the same quarter in 2023 largely due to the Howden acquisition and volume, while gross profit margin decreased by 350 basis points due to project mix and costs.
Specialty Products segment SG&A expenses increased by $21.8 million during the first quarter of 2024 as compared to the same quarter in 2023 primarily driven by the full quarter of Howden ownership.
Repair, Service & Leasing — Results of Operations for the Three Months Ended March 31, 2024 and 2023
| Three Months Ended | Current Quarter vs. Prior Year Same Quarter | ||||||||||||||||||||||
| March 31, 2024 | March 31, 2023 | Variance ($) | Variance (%) | ||||||||||||||||||||
| Sales | $ | 301.0 | $ | 118.5 | $ | 182.5 | 154.0 | % | |||||||||||||||
| Gross Profit | 140.5 | 50.6 | 89.9 | 177.7 | % | ||||||||||||||||||
| Gross Profit Margin | 46.7 | % | 42.7 | % | |||||||||||||||||||
| SG&A Expenses | $ | 39.5 | $ | 9.8 | $ | 29.7 | 303.1 | % | |||||||||||||||
| SG&A Expenses (% of Sales) | 13.1 | % | 8.3 | % | |||||||||||||||||||
| Operating Income | $ | 65.1 | $ | 33.1 | $ | 32.0 | 96.7 | % | |||||||||||||||
| Operating Margin | 21.6 | % | 27.9 | % | |||||||||||||||||||
For the first quarter of 2024, Repair, Service & Leasing segment sales increased by $182.5 million as compared to the same quarter in 2023. The increase is primarily driven by the full quarter of Howden ownership.
During the first quarter of 2024, Repair, Service & Leasing segment gross profit increased by $89.9 million as compared to the same quarter in 2023, and gross profit margin increased by 400 basis points. The increase in gross profit and gross profit margin was driven by the Howden acquisition.
Repair, Service & Leasing segment SG&A expenses increased by $29.7 million during the first quarter of 2024 mainly due to the Howden acquisition. In connection with the Howden acquisition, the restructuring costs recorded in Repair, Service & Leasing segment SG&A expenses was $2.3 million.
Corporate
Corporate SG&A expenses decreased by $9.4 million during the first quarter of 2024 as compared to the same quarter in 2023, primarily due to costs associated with the Howden acquisition in the comparative period.
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Liquidity and Capital Resources
Debt Instruments and Related Covenants
Our debt instruments and related covenants are described in Note 10, “Debt and Credit Arrangements” to the consolidated financial statements in our 2023 Annual Report on Form 10-K and Note 9, “Debt and Credit Arrangements” to our unaudited condensed consolidated financial statements included under Item 1, “Financial Statements” in this report.
Sources and Uses of Cash
Our cash, cash equivalents, restricted cash, and restricted cash equivalents totaled $195.5 million at March 31, 2024, a decrease of $5.6 million from the balance at December 31, 2023. Our foreign subsidiaries held cash of approximately $172.8 million and $170.1 million, at March 31, 2024, and December 31, 2023, respectively, to meet their liquidity needs. No material restrictions exist to accessing cash held by our foreign subsidiaries. Cash equivalents are primarily invested in money market funds that invest in high quality, short-term instruments, such as U.S. government obligations, certificates of deposit, repurchase obligations, and commercial paper issued by corporations that have been highly rated by at least one nationally recognized rating organization, and in the case of cash equivalents in China, obligations of local banks. We believe that our existing cash and cash equivalents, funds available under our senior secured revolving credit facility due April 2029 or other financing alternatives, and cash provided by operations will be sufficient to meet our normal working capital needs, capital expenditures and investments for the foreseeable future.
Cash used in operating activities was $95.1 million for the three months ended March 31, 2024, a decrease of $63.0 million compared to cash used in operating activities of $32.1 million for the three months ended March 31, 2023 primarily due to higher interest payments in the current period and timing of progress billings.
Cash used in investing activities was $51.8 million and $4,373.8 million for the three months ended March 31, 2024 and 2023, respectively. During the three months ended March 31, 2024, we used $46.1 million for capital expenditures and $6.0 million mainly for investments in Hy24. During the three months ended March 31, 2023, we used $4,339.8 million for the Howden Acquisition and $31.4 million for capital expenditures, including a $11.3 million land purchase for our Theodore, Alabama facility expansion.
Cash provided by financing activities was $143.9 million and $1,967.8 million for the three months ended March 31, 2024 and 2023, respectively. During the three months ended March 31, 2024, we borrowed $634.2 million and repaid $479.3 million in borrowings on our revolving credit facility and paid $6.8 million of dividends on our mandatory convertible preferred stock. During the three months ended March 31, 2023, we borrowed $634.8 million on our revolving credit facility and $1,497.2 million on our term loan primarily to fund the Howden Acquisition, and repaid $45.0 million in borrowings on our revolving credit facility. During the three months ended March 31, 2023 we also paid $121.5 million in debt issuance costs and $6.9 million of dividends on our mandatory convertible preferred stock.
Cash Requirements
We do not currently anticipate any unusual cash requirements for working capital needs for the year ending December 31, 2024. Management anticipates we will be able to satisfy cash requirements for our ongoing business for the foreseeable future with cash generated by operations, existing cash balances and available borrowings under our credit facilities.
Orders and Backlog
We consider orders to be those for which we have received a firm signed purchase order or other written contractual commitment from the customer. Backlog is comprised of the portion of firm signed purchase orders or other written contractual commitments from customers for which work has not been performed, or is partially completed, that we have not recognized as revenue and excludes unexercised contract options and potential orders. Our backlog as of March 31, 2024 was $4,331.1 million, compared to $3,858.3 million as of March 31, 2023 and $4,278.8 million as of December 31, 2023.
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The tables below represent orders received and backlog by segment for the periods indicated (dollars in millions):
| Three Months Ended | |||||||||||||||||
| March 31, 2024 | March 31, 2023 | December 31, 2023 | |||||||||||||||
| Orders | |||||||||||||||||
| Cryo Tank Solutions | $ | 159.3 | $ | 140.6 | $ | 157.6 | |||||||||||
| Heat Transfer Systems | 237.3 | 311.2 | 324.7 | ||||||||||||||
| Specialty Products | 391.3 | 179.5 | 399.8 | ||||||||||||||
| Repair, Service & Leasing | 333.9 | 121.5 | 328.4 | ||||||||||||||
| Intersegment eliminations | (0.2) | (12.1) | (1.4) | ||||||||||||||
| Consolidated | $ | 1,121.6 | $ | 740.7 | $ | 1,209.1 | |||||||||||
| As of | |||||||||||||||||
| March 31, 2024 | March 31, 2023 | December 31, 2023 | |||||||||||||||
| Backlog | |||||||||||||||||
| Cryo Tank Solutions | $ | 367.5 | $ | 473.2 | $ | 361.9 | |||||||||||
| Heat Transfer Systems | 1,685.9 | 1,590.1 | 1,716.5 | ||||||||||||||
| Specialty Products | 1,678.2 | 1,316.0 | 1,631.1 | ||||||||||||||
| Repair, Service & Leasing | 611.3 | 524.3 | 587.9 | ||||||||||||||
| Intersegment eliminations | (11.8) | (45.3) | (18.6) | ||||||||||||||
| Consolidated | $ | 4,331.1 | $ | 3,858.3 | $ | 4,278.8 | |||||||||||
Cryo Tank Solutions segment orders for the three months ended March 31, 2024 were $159.3 million compared to $140.6 million for the three months ended March 31, 2023 and $157.6 million for the three months ended December 31, 2023. The increase in Cryo Tank Solutions segment orders during the three months ended March 31, 2024 when compared to the same quarter last year and prior quarter was primarily driven by higher order intake across general industrial applications such as large bulk tanks. Cryo Tank Solutions segment backlog at March 31, 2024 totaled $367.5 million compared to $473.2 million as of March 31, 2023 and $361.9 million as of December 31, 2023.
Heat Transfer Systems segment orders for the three months ended March 31, 2024 were $237.3 million compared to $311.2 million for the three months ended March 31, 2023 and $324.7 million for the three months ended December 31, 2023. The decrease in orders was mainly driven by a number of large orders in the three months ended March 31, 2023, including big and mid-scale LNG liquefaction systems and cold box projects, which has not been repeated to the same extent in the three months ended March 31, 2024. This was also the primary driving factor in the decreased orders when compared to the three months ended December 31, 2023.
Heat Transfer Systems segment backlog at March 31, 2024 totaled $1,685.9 million, as compared to $1,590.1 million and $1,716.5 million as of March 31, 2023 and December 31, 2023, respectively. The increase compared to the same period in 2023 is driven by several big LNG awards, multiple small, mid-size and large projects, along with the inclusion of Howden.
Specialty Products segment orders for the three months ended March 31, 2024 were $391.3 million compared to $179.5 million for the three months ended March 31, 2023 and $399.8 million for the three months ended December 31, 2023. The increase in Specialty Products segment orders during the three months ended March 31, 2024 as compared to the three months ended March 31, 2023 was mainly driven by increased orders in hydrogen & helium, metals and mining. Specialty Products segment backlog totaled a record $1,678.2 million as of March 31, 2024, compared to $1,316.0 million as of March 31, 2023 and $1,631.1 million as of December 31, 2023.
Repair, Service & Leasing segment orders for the three months ended March 31, 2024 were $333.9 million compared to $121.5 million for the three months ended March 31, 2023 and $328.4 million for the three months ended December 31, 2023. Compared to the three months ended March 31, 2023, the increase in orders was mainly driven by the Howden acquisition. Repair, Service & Leasing segment backlog totaled a record $611.3 million as of March 31, 2024, compared to $524.3 million as of March 31, 2023 and $587.9 million as of December 31, 2023.
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Critical Accounting Estimates
Our unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles and are based on the selection and application of significant accounting policies, which require management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ materially from those estimates. A summary of areas where we apply critical judgment can be found in our Annual Report on Form 10-K for the year ended December 31, 2023. In particular, judgment is used in areas such as goodwill, indefinite-lived intangible assets, long-lived assets (including finite-lived intangible assets), business combinations, investments in equity securities without a readily determinable fair value, contingencies, revenue from contracts with customers and income taxes. There have been no significant changes to our critical accounting estimates since December 31, 2023.
Forward-Looking Statements
We are making this statement in order to satisfy the “safe harbor” provisions contained in the Private Securities Litigation Reform Act of 1995. This Quarterly Report on Form 10-Q includes “forward-looking statements.” These forward-looking statements include statements relating to our business, including statements regarding completed and pending acquisitions and investments and related accretion or statements with respect to the use of proceeds or redeployment of capital from recent divestitures, as well as statements regarding our 2024 sales outlook, revenues, cost and commercial synergies and efficiency savings, objectives, future orders, margins, segment sales mix, earnings or performance, liquidity and cash flow, inventory levels, capital expenditures, supply chain challenges, inflationary pressures including materials costs and pricing increases, business trends, clean energy market opportunities including addressable market and projected industry-wide investments, carbon and GHG emission targets, governmental initiatives, including executive orders and other information that is not historical in nature. In some cases, forward-looking statements may be identified by terminology such as “may,” “will,” “should,” “expects,” “anticipates,” “believes,” “projects,” “forecasts,” “outlook,” “guidance,” “target,” “continue” or the negative of such terms or comparable terminology. Forward-looking statements contained herein (including future cash contractual obligations, liquidity, cash flow, orders, results of operations, projected revenues, margins, capital expenditures, industry and business, trends, clean energy and other new market or expansion opportunities, cost and commercial synergies and savings objectives, and government initiatives among other matters) or in other statements made by us are made based on management’s expectations and beliefs concerning future events impacting us and are subject to uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control, that could cause our actual results to differ materially from those matters expressed or implied by forward-looking statements.
These include: the other factors discussed in Item 1A. “Risk Factors” and the factors discussed in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2023, among others, could affect our future performance and liquidity and value of our securities and could cause our actual results to differ materially from those expressed or implied by forward-looking statements made by us or on our behalf. These factors should not be construed as exhaustive and there may also be other risks that we are unable to predict at this time.
All forward-looking statements attributable to us or persons acting on our behalf apply only as of the date of this Quarterly Report and are expressly qualified in their entirety by the cautionary statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, as the same may be updated from time to time. We undertake no obligation to update or revise forward-looking statements which may be made to reflect events or circumstances that arise after the filing date of this document or to reflect the occurrence of unanticipated events, except as otherwise required by law.
Item 3.Quantitative and Qualitative Disclosures About Market Risk
In the normal course of business, our operations are exposed to fluctuations in interest rates and foreign currency values that can affect the cost of operating and financing. Accordingly, we address a portion of these risks through a program of risk management.
Interest Rate Risk: Our primary interest rate risk exposure results from various floating rate pricing mechanisms contained in our senior secured revolving credit facility due April 2029 and term loans due March 2030. If interest rates were to increase 100 basis points (1 percent) from the weighted-average interest rate for our senior secured revolving credit facility due April 2029 of 7.1% at March 31, 2024, and assuming no changes in the $254.3 million of borrowings outstanding under the senior secured revolving credit facility due April 2029 at March 31, 2024, our additional annual expense would be approximately $2.5 million on a pre-tax basis. If interest rates were to increase 100 basis points (1 percent) from the interest rate for our term loans due March 2030 of 8.7% at March 31, 2024, and assuming no changes in the $1,631.0 million of
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borrowings outstanding under our term loans due March 2030 at March 31, 2024, our additional annual expense would be approximately $16.3 million on a pre-tax basis.
Foreign Currency Exchange Rate Risk: We operate in the United States and other foreign countries, which creates exposure to foreign currency exchange fluctuations in the normal course of business, which can impact our financial position, results of operations, cash flow, and competitive position. The financial statements of foreign subsidiaries are translated into their U.S. dollar equivalents at end-of-period exchange rates for assets and liabilities, while income and expenses are translated at average monthly exchange rates. Translation gains and losses are components of other comprehensive income as reported in the unaudited condensed consolidated statements of operations and comprehensive loss. Translation exposure is primarily with the euro, the Czech koruna, the Chinese yuan, the South African rand, the British pound and the Indian rupee. During the first quarter of 2024, the U.S. dollar strengthened in relation to the Czech koruna by 5%, British Pound by 1%, South African Rand by 3% and the euro by 2%. There was no notable movement between the U.S. dollar and the Indian rupee or Chinese yuan. At March 31, 2024, a hypothetical 10% strengthening of the U.S. dollar would not materially affect our financial statements.
EUR Revolver Borrowings: Additionally, assuming no changes in the euro 78.0 million in EUR Revolver Borrowings outstanding under the senior secured revolving credit facility due April 2029 and an additional 100 basis points (1 percent) strengthening in the U.S dollar in relation to the euro as of the beginning of 2024, during the three months ended March 31, 2024, our additional unrealized foreign currency gain would be approximately $0.8 million on a pre-tax basis.
Transaction Gains and Losses: Chart’s primary transaction exchange rate exposures are with the euro, the Chinese yuan, the Czech koruna, the Indian rupee, the Australian dollar, the British pound, the Canadian dollar and the South African rand. Transaction gains and losses arising from fluctuations in currency exchange rates on transactions denominated in currencies other than the functional currency are recognized in the unaudited condensed consolidated statements of operations and comprehensive loss as a component of foreign currency gain.
Derivative Instruments: We enter into foreign currency contracts not designated as hedging instruments to mitigate foreign currency risk for anticipated and firmly committed foreign currency transactions. At March 31, 2024, a hypothetical 10% weakening of the U.S. dollar would not materially affect our outstanding foreign exchange forward contracts. We enter into a combination of cross-currency swaps and foreign exchange collars as a net investment hedge of our investments in certain international subsidiaries that use the euro as their functional currency in order to reduce the volatility caused by changes in exchange rates. As disclosed in Note 9, “Debt and Credit Arrangements,” we have an out-of-the-money protective call while writing a put option with a strike price at which the premium received is equal to the premium of the protective call purchased, which involved no initial capital outlay. The call was structured with a strike price higher than our cost basis in such investments, thereby limiting any foreign exchange losses to approximately $11.4 million on a pre-tax basis. We do not use derivative financial instruments for speculative or trading purposes. The terms of the contracts are generally one to three years.
Market Price Sensitive Instruments
In connection with the pricing of the 2024 Notes, we entered into privately-negotiated convertible note hedge transactions (the “Note Hedge Transactions”) with certain parties, including affiliates of the initial purchasers of the 2024 Notes (the “Option Counterparties”) which relate to 4.41 million shares of our common stock and represents the number of shares of our common stock underlying the 2024 Notes. These Note Hedge Transactions are expected to reduce the potential dilution upon any future conversion of the 2024 Notes to the extent that the market price per share of our common stock exceeds the conversion price of $58.725 per share.
We also entered into separate, privately-negotiated warrant transactions with the Option Counterparties to acquire up to 4.41 million shares of our common stock. The warrant transactions will have a dilutive effect with respect to our common stock to the extent that the price per share of our common stock exceeds the strike price of the warrants unless we elect, subject to certain conditions, to settle the warrants in cash. The strike price of the warrant transactions related to the 2024 Notes was initially $71.775 per share. Further information is located in Note 9, “Debt and Credit Arrangements” to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Item 4.Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We performed an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15 under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”) as of March 31, 2024. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of March 31, 2024, our disclosure controls and procedures were effective to ensure that information required to be disclosed by
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us in the reports we file or submit under the Exchange Act (1) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and (2) is accumulated and communicated to our management including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow for timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We are occasionally subject to various other legal claims related to performance under contracts, product liability, taxes, employment matters, environmental matters, intellectual property, and other matters incidental to the normal course of our business. Based on our historical experience in litigating these claims, as well as our current assessment of the underlying merits of the claims and applicable insurance, if any, management believes that the final resolution of these matters will not have a material adverse effect on our financial position, liquidity, cash flows, or results of operations. Future developments may, however, result in resolution of these legal claims in a way that could have a material adverse effect.
Item 1A. Risk Factors
In addition to the other information set forth in this report, you should carefully consider the risk factors disclosed in Item 1A. “Risk Factors,” of our Annual Report on Form 10-K for the year ended December 31, 2023.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
| Issuer Purchases of Equity Securities | |||||||||||||||||||||||
| Period | Total Number of Shares Purchased (1) | Average Price Paid Per Share (1) | Total Number of Shares Purchased As Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs | |||||||||||||||||||
| January 1 - 31, 2024 | 13,204 | $ | 132.92 | — | $ | — | |||||||||||||||||
| February 1 - 29, 2024 | 9,734 | 122.84 | — | — | |||||||||||||||||||
| March 1 - 31, 2024 | 15 | 144.61 | — | — | |||||||||||||||||||
| Total | 22,953 | 128.65 | — | $ | — | ||||||||||||||||||
_______________
(1)Includes shares of common stock surrendered to us during the first quarter of 2024 by participants under our share-based compensation plans to satisfy tax withholding obligations relating to the vesting or payment of equity awards for an aggregate purchase price of approximately $2,952,903. The total number of shares repurchased represents the net shares issued to satisfy tax withholding. All such repurchased shares were subsequently retired during the three months ended March 31, 2024.
Item 4. Mine Safety Disclosures
Not applicable.
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Item 6.Exhibits
The following exhibits are included with this report:
10.1 Amendment No. 6, dated as of April 8, 2024, which amends that certain Fifth Amended and Restated Credit Agreement, dated as of October 18, 2021 (as amended by Amendment No. 1, dated as of November 21, 2022, Amendment No. 2, dated as of March 16, 2023, Amendment No. 3, dated as of March 17, 2023, Amendment No. 4, dated as of June 30, 2023 and Amendment No. 5, dated as of October 2, 2023, and as otherwise amended, restated, supplemented or otherwise modified prior to the date hereof) (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K, filed with the SEC on April 8, 2024 (File No. 001-11442)).
101.INS XBRL Instance Document *
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
_______________
(x) Filed herewith.
(xx) Furnished herewith.
* The Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Chart Industries, Inc. | ||
| (Registrant) | ||
| Date: | May 3, 2024 | By: | /s/ Jillian C. Evanko | ||||||||
| Jillian C. Evanko | |||||||||||
Chief Executive Officer, President and a Director | |||||||||||
| (Principal Executive Officer) | |||||||||||
| Date: | May 3, 2024 | By: | /s/ Joseph R. Brinkman | ||||||||
| Joseph R. Brinkman | |||||||||||
Vice President and Chief Financial Officer | |||||||||||
| (Principal Financial Officer) | |||||||||||
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