Chart Industries Reports 2020 Fourth Quarter & Full Year Results

Source: www.gulfoilandgas.com 2/18/2021, Location: North America

Chart Industries, Inc. reported results for the fourth quarter and full year ended December 31, 2020. Further details can be found in the supplemental presentation included with this release. All figures in this release and supplemental presentation represent our continuing operations in our new external reportable segments of Cryogenic Tank Solutions (“CTS”), Heat Transfer Systems (“HTS”), Specialty Products (“Specialty”) and Repair, Service & Leasing (“RSL”). Highlights include:

- Full year 2020 records include: backlog of $810 million (boosted by fourth quarter 2020 orders of $417 million), gross margin dollars of $332 million, gross margin as a percent of sales of 28.2% (29.1% adjusted), SG&A as a percent of sales of 15.1% (14.3% adjusted), operating income dollars of $108 million, operating income as a percent of sales of 9.2% (10.9% adjusted) Booked orders with 65 new customers in the fourth quarter 2020, resulting in record full year 2020 new customers of 472 (of which 109 were in Specialty)

- Completed four acquisitions and one investment related to carbon capture, water treatment and hydrogen in the fourth quarter 2020 as well as a $15 million investment in carbon capture company Svante on February 2, 2021

- Acquired Cryo Technologies on February 16, 2021 adding proven hydrogen and helium liquefaction to our portfolio and expanding our specialty markets addressable market size to $5.75 million Generated $60.2 million of net cash provided by operating activities resulting in $49.6 million of free cash flow (“FCF”), the second highest cash flow quarter in our history, contributing to consolidated full year FCF of $134.8 million (inclusive of $37.9 million of capital expenditures)

- Fourth quarter 2020 reported diluted earnings per share (“EPS”) of $1.28 (+178% compared to Q4 2019) contributed to full year 2020 reported earnings per diluted share of $2.22 (+149% compared to full year 2019); when adjusted for one-time costs, adjusted diluted EPS for the fourth quarter 2020 was $1.27 and full year 2020 adjusted diluted EPS was $2.73, the highest in our history

- Full year 2021 guidance of revenue of approximately $1.32 billion to $1.38 billion (increase from prior outlook of $1.26 billion to $1.335 billion) and associated non-diluted adjusted EPS of $3.50 to $4.00, an increase from the prior 2021 outlook of $3.10 to $3.45 The fourth quarter of 2020 was Chart’s highest quarter of the year for orders ($417.0 million), sales ($312.4 million), gross margin ($87.9 million) and free cash flow ($49.6 million after $10.6 million of capital expenditures). The strength in the quarter contributed to multiple full year 2020 records, and in combination with our strategic investments and acquisitions completed in the fourth quarter of 2020 and year-to-date 2021, sets us up for expected double digit revenue growth in 2021. Our full year 2020 records include:

Late third quarter 2020 demand recovery from the low point of the second quarter 2020 began to show in fourth quarter sales of $312.4 million. The increasing mix of higher margin aspects of the business and maintaining discipline in our streamlined cost structure (over $60 million of annualized cost was reduced from the business in the first half of 2020) contributed to full year reported EPS of $2.22. When adjusted for one-time costs, full year 2020 adjusted EPS of $2.73 was a record. Full year EPS benefitted significantly from the fourth quarter adjusted diluted EPS of $1.27 (reported diluted EPS of $1.28) resulting from broad based execution across the business, including record operating income (and operating income as a percent of sales). Note that we closed on our McPhy investment (30 million euros for 4.59% ownership, with commercial MOU) on October 15, 2020, and in the fourth quarter, that investment contributed $0.36 of after tax earnings per share. We also closed on four acquisitions in the clean energy, clean water, clean food and clean industrial spaces (BlueInGreen water treatment, Worthington’s cryogenic trailer and hydrogen trailer business, Worthington’s former microbulk business and Sustainable Energy Solutions (SES) carbon capture process technology) as well as one investment (HTEC) in expanding our hydrogen commercial opportunities in Canada.

In addition to these investments, the sale of the cryobiological business for $320 million (all cash) was closed on October 1, 2020 and allowed us to increase our balance sheet capacity to continue to invest organically and inorganically in our high growth markets. After posting our second highest net cash provided by operating activities from continuing operations and free cash flow in history in the fourth quarter 2020 ($60.2 million and $49.6 million, respectively after $10.6 million of capital expenditures), our net leverage ratio as of December 31, 2020 was 1.59 (1.71 when excluding the mark-to-market benefit of McPhy). Pro forma December 31, 2020 net leverage ratio for our February 2, 2021 $15 million Svante carbon capture investment (for just under 10% ownership) and our February 16, 2021 acquisition of Cryo Technologies for $55 million was 1.88 (2.02 when excluding the mark-to-market benefit of McPhy).

We finished the full year of 2020 with record backlog of $810 million driven by strength in the second half of 2020 orders. Second half 2020 orders of $679.7 million was a 28% increase compared to the first half of the year reflecting broad-based order strength heading into 2021. Specifically, the fourth quarter 2020 was a record order quarter for our Specialty Products segment, Cryo Tank Solutions segment, and across multiple product lines in each segment (i.e. hydrogen, food & beverage, HLNG vehicle tanks, medical oxygen equipment, mobile equipment, and air-cooled heat exchangers). Additionally, representative of the broad-based growth were 80 orders each over $1 million in the fourth quarter 2020.

Hydrogen continues to be our hottest specialty market, with record orders ($38 million) and backlog ($39 million) in 2020. We expect over 70% in hydrogen sales growth in 2021 when compared to 2020. Year-to-date 2021, we have completed a MOU with Matrix Service Company for standardized small-scale hydrogen offerings and a joint development agreement with Ballard Power Systems to jointly develop integrated system solutions that include a fuel cell engine with onboard liquid hydrogen (“LH2”) storage and vaporization for the transportation industry, with a focus on heavy-duty applications including buses, trucks, rail and marine vessels. The interest in our liquid hydrogen onboard vehicle tank (“HLH2 tanks”) for the heavy duty truck market, its proximity to being “production ready”, and our joint development with Ballard Power Systems gives us confidence to now include the HLH2 tanks in our near-term addressable market size. Previously, HLH2 tanks were not included in our addressable market for hydrogen. Additionally, the acquisition of Cryo Technologies (“CT”), which closed on February 16, 2021, is a synergistic, natural fit to the Chart business. The combination brings both of our liquefaction engineering expertise together, Chart’s capabilities in precooling, brazed aluminum heat exchangers and cold box fabrication, and the high demand in the market for full liquefaction and equipment offerings, in particular on hydrogen and helium (which Cryo Technologies is one of the few in the world to have those capabilities). Between the HLH2 tank progress and the addition of CT’s hydrogen liquefaction capabilities, our addressable market size for hydrogen doubles to $2.1 billion.

Our repair, service and leasing business is accelerating, with 28 new leases signed in the fourth quarter 2020 compared to 6 new leases signed in the fourth quarter of 2019. In January of 2021, 78 new leases were quoted (our team has a new lease on life (pun intended) with our leasing fleet doubled since May of 2020), and there have been 37 signed already this year-to-date. RSL closed the year with record backlog, after full year record orders of $197 million, and also made significant strides in incrementally improving gross margin, resulting in the fourth quarter 2020 gross margin dollars and gross margin as a percent of sales (43.7%) being the highest in our history.

“The fourth quarter of 2020 capped a strong year in unprecedented times, thanks to the entire Chart team. In 2020, we made significant progress in penetrating the global high growth markets of clean energy, specialty and repair and service as evidenced by 472 new customers and 33 long-term agreements,” stated Jill Evanko, Chart’s CEO and President. “The combination of strong free cash flow, strategic investments, record backlog and operational execution resulted in multiple full year 2020 and fourth quarter 2020 records, but more importantly, puts us in position to make 2021 a breakthrough year for our business as we serve our global energy and industrial gas customers’ growing and changing needs.”

Those growing and changing needs are reflected in existing customers as well as new customers coming to us with needs for many new and unique FOAK-ing (“First of A Kind”) projects. We booked 31 FOAK-ing orders in the fourth quarter of 2020, bringing the full year to 88. While there is not enough space to cover them all, a few interesting ones include our first lifecycle order as a partner with Pepsi to upgrade their CO2 capacity at one of their United States’ facilities, dosing equipment for oxygenated water, and multiple new customers using our equipment for applications ranging from manufacturing squeezable dips to bottled egg alternatives to canned wine to eye research.

With a lot of activity surrounding our high growth businesses, we would be remiss not to comment on HTS and CTS, both of which had exceptional fourth quarters of 2020. We received two significant orders in HTS, one for $70 million for a downstream project (100% air-cooled heat exchangers) and one for shell & tube heat exchangers from our VRV (Italy) location for a Middle Eastern project. Additionally, our China team executed on $100 million in sales for the year while posting record operating income, primarily benefitting CTS.

To conclude, while hydrogen, biogas and carbon capture are the hottest topics right now, LNG is still extremely active, particularly as the cost fundamentals are competitive and infrastructure continues to be built worldwide. At the end of December, the Indian Minister of Petroleum and Natural Gas Pradhan stated that the central government plans to create a gas infrastructure in India with an investment of $60 billion over the next four years, inclusive of LNG terminals. India is just one region where LNG continues to be a good answer for a cost competitive, scalable step in the energy transition. We expect fueling stations (2020 full year was a record for fueling station orders of 71 stations, 18.3% increase over 2019) and HLNG vehicle tanks for onboard heavy duty trucks to continue at or above 2020 levels throughout 2021, and also expect two small-scale terminals and mid-scale (“big LNG”) projects to move ahead to Final Investment Decision (“FID”) in 2021.

GUIDANCE 2021
Full year 2021 sales are expected to be approximately $1.32 billion to $1.38 billion, inclusive of $21 million of Venture Global’s Calcasieu Pass revenue in the first quarter of 2021 as well as $30 million of 2021 revenue from the acquisition of Cryo Technologies. This is an increase over the prior full year 2021 sales guidance of $1.26 billion to $1.335 billion, resulting from the strong fourth quarter 2020 order book and commercial opportunities increasing from our inorganic investments and acquisitions completed in the fourth quarter 2020 and year-to-date 2021. There is no additional Big LNG revenue included in our outlook although we believe new orders will be received during the year. As we have indicated previously, there are many moving pieces that contribute to a range, and we have provided a walk to the low end of the range by segment and major market category in the supplemental presentation. It is important to note that our pre-COVID-19 typical year would have low first and fourth quarters, with the second and third typically the highest quarters in the year. This year, we expect the first half of 2021 to be lower than the second half of 2021 based on the lead-time of our backlog. We anticipate full year non-diluted adjusted earnings per share to be approximately $3.50 to $4.00 on 35.5 million weighted average shares outstanding, up from our previous estimate of $3.10 to $3.45 per share. Our assumed effective tax rate is 18% for the full year 2021. We expect capital expenditure spend to be in the $40 million to $50 million range, driven by organic investments in our high growth areas inclusive of expanding product capabilities in our Teddy Trailer and Tank facility, completion of our repair and service facility in South Carolina, USA, R&D new product development for hydrogen and continued targeted lease fleet expansion.


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