April 29, 2022 06:00 ET | Source: Chart Industries, Inc. Chart Industries, Inc.
Ball Ground, Georgia, UNITED STATES
ATLANTA, April 29, 2022 (GLOBE NEWSWIRE) -- Chart Industries, Inc. (NYSE: GTLS) today reported results for the first quarter ended March 31, 2022. Further details can be found in the supplemental presentation accompanying this release and published in the investor relations section of our website.
Energy independence, resiliency, security and sustainability are key drivers of record orders ($636.8 million) and backlog ($1,477.0 million); accelerating activity in both Liquefied Natural Gas (“LNG”) and Specialty Products.
The first quarter 2022 was our highest order quarter in our history, with $636.8 million of new orders booked, including $228.4 million related to Big LNG export terminals. This is our second consecutive record order quarter and four out of our last five quarters set new order quarter records. This resulted in our sixth consecutive quarter of record backlog ($1,477.0 million); backlog is 58.1% higher than one year ago. Also in the first quarter 2022, we booked 65 orders that each were over $1 million (more than twice as many as the first quarter 2021) along with 84 new customers and 28 first-of-a-kind (“FOAK”) orders including a first Earthly Lab’s CiCi Elm unit sale to new customer Troeg’s Brewery, with continued broad-based demand in Specialty Products across a variety of applications.
In addition to the broad-based demand we experienced exiting 2021 and to start 2022, demand for our products, in particular LNG and other energy alternative solutions and equipment, accelerated as the result of the Russia-Ukraine conflict that began February 24, 2022. We have seen an increase in actual orders as well as inquiries from both public and private sector entities surrounding the need for infrastructure to access molecules to support energy security, access, independence and resiliency, all with the backdrop of the requirement for alternative sources of supply and continued focus on sustainability. For example, the United Kingdom as part of their revised energy strategy, has doubled its 2030 hydrogen target. What is critical to note is that this recent activity has spotlighted the need for construction and action now to address these topics.
Specific examples of new orders received reflecting the acceleration of energy activity following the initiation of the Ukraine-Russia conflict include:
And while not in our guidance, we continue to expect additional progress from other LNG export terminal operators to FID with the potential for additional Big LNG as well as ssLNG orders with Chart releases in 2022.
Specialty Products orders continued to demonstrate consistency and strength, with the first quarter 2022 being our fifth consecutive quarter of Specialty Products orders above $100 million. We are also seeing numerous synergy sales opportunities across our Nexus of Clean™ newly acquired companies – ranging from cross-selling water treatment solutions to food and beverage customers to cross selling carbon capture processes to water customers. Two examples from the first quarter 2022:
Gas By Rail™, carbon capture and space exploration orders each grew over 20% when compared to the first quarter of 2021, while water treatment grew over 500%. Food & beverage orders grew 14% for that same period, driven by first quarter 2022 new restaurant starts and distributor activity significantly (20%) over plan. While the first quarter of any given year in food and beverage orders typically can be slow due to weather, this year we did not see slowdown. Additionally, Chick-Fil-A started an upgrade program with our tanks, and we are proud to provide our nitrogen dosers to a major beverage company for their newly released, first of a kind, nitrogen-infused cola. Our expectation is that demand for our food & beverage products will continue to increase throughout 2022. As we expected, we did not book any hydrogen or helium liquefier orders in the first quarter, yet demand for our hydrogen equipment continued, with $30 million of hydrogen-related equipment orders. What is also noteworthy in hydrogen is the increase in the variety of customers as well as the broader geographic locations of these orders; for example, in the past six months, we have increased the number of individual hydrogen customers that have placed orders with us by 70% and we received our first orders from Nikola and expanded our customer set to South Korea, including SK Korea.
Delivering on our record backlog is supported by our organic investment in capacity and automation as well as strategic sourcing actions. We recognized our highest first quarter sales in our history in the first quarter of 2022 ($354.1 million).
To open the second quarter 2022, we received a tens of millions order from a European government organization for mobile equipment. This order is one of many that supports increasing and strong volume for our in-flight capital project of capacity expansion in our Goch, Germany trailer manufacturing facility. This order builds upon our record trailer order year in 2021 and a very strong first quarter of 2022, with 140 trailers ordered globally.
As we continue to anticipate growing sales across our solutions offerings, our capacity expansion capital plan combined with our automation activities remains on schedule. In the first quarter 2022 we completed the implementation of our vacuum insulated pipe (“VIP”) line in Lery, France, and we expect our additional brazed aluminum heat exchanger (“BAHX”) line to be operating in Tulsa, Oklahoma by the first quarter of 2023. Our SriCity, India tank capacity expansion is already partially in operation this month and expected to be fully complete by July 2022.
Our sales in the first quarter 2022 were $354.1 million, our highest first quarter sales in our history, driven by a combination of sequential order growth in Cryo Tank Solutions as well as timing and record backlog heading into the year. Sales increased 22.7% when compared to the first quarter of 2021 (27.0% when excluding Big LNG from both periods) and reflected record sales in water treatment, carbon capture, Heat Transfer Systems (“HTS”) project work, and Repair Service and Leasing (“RSL”) parts, repair, service as well as fans aftermarket.
Throughout 2021, we strategically decided to increase our on-hand inventory balance as the result of increases in material costs and the frequently discussed availability challenges of materials. This decision resulted in lower than typical free cash flow in 2021. We entered 2022 with higher than typical inventory levels, yet at the time anticipated that free cash flow for 2022 would reflect the tempering of these challenges as the year progressed. Given the uncertain supply chain and material cost environment that worsened as the result of the Russia-Ukraine conflict, we have chosen to continue to strategically build safety stock of key raw material inputs, including carbon steel, stainless steel and aluminum, especially given our ability to source these globally while attempting to procure them at lower cost points in the market. This continued strategic safety stock inventory build resulted in lower than typical free cash flow for the first quarter 2022 yet allows us to meet our customers’ ongoing delivery timelines and record demand levels, thereby continuing to secure additional business. Even with these challenges and this strategic decision, our net cash used by operating activities was only ($22) million, and when adjusted for unusual items, was $8 million. This included an increase to our inventory of $35 million in the first quarter of 2022, driven by the strategic sourcing decisions we made to add safety stock (+$19 million), the increases in material costs and the purchasing of material for our larger projects that were booked in the fourth quarter of 2021 and the first quarter of 2022. Even considering the inventory headwinds, we continue to anticipate that with the payment schedules for Big LNG project work in backlog that our full year 2022 adjusted free cash flow will be in the range of $175 million to $225 million.
Continued progress on pricing and cost actions are reflected in our first quarter 2022 reported gross margin as a percent of sales of 23.6% (adjusted gross margin as a percent of sales of 26.1% when excluding restructuring and organic startup capacity costs), demonstrating our progress in incremental and sequential quarterly improvement in our margin profile.
As 2022 began, we continued to take further pricing and cost reduction actions to progress faster against our lagging cost to price backlog. During the first quarter, we took additional steps than what was originally anticipated after seeing the material availability and cost impacts after the start of the Russia-Ukraine conflict. We implemented additional price increases in the first quarter 2022 and increased our temporary surcharges yet again and combined with our 2021 actions are expected to cover our additional costs on new orders. We have made additional progress in the first quarter on addressing the continuing inflationary and unique macro challenges as well as bringing new capacity online. Examples include (details can be found on slides 11 through 18 of the supplemental presentation):
The steps taken in the second half of 2021 as well as the first quarter of 2022 resulted in our improving reported gross margin as a percent of sales of 23.6%, a sequential increase of 190 basis points over the fourth quarter of 2021. While this still lagged behind first quarter 2021 gross margin percentage given the timing differences between raw material cost increases and our corresponding pricing actions, as discussed elsewhere, we expect this timing gap to narrow as the year progresses. When adjusted for one-time items including primarily restructuring and organic startup capacity costs, gross margin as a percent of sales in the first quarter 2022 was 26.1%, which was not adjusted for first quarter impacts such as our highest four week stretch of COVID-19 absences, inefficiencies from Force Majeures issued by our gas suppliers to our factories, higher transport and logistics costs, additional team member retention payments as well as other labor inefficiencies.
Our first quarter 2022 reported non-diluted EPS of $0.28 included a negative impact of $0.14 ($0.11 net of tax) from the quarter’s mark-to-market of our inorganic investments as well as operational one-time costs related to restructuring, startup/capacity and deal and integration totaling $0.26 net of tax. When adjusting for these items, adjusted non-diluted EPS was $0.65. Sequentially when compared to the fourth quarter 2021, our addbacks to earnings per share, excluding the mark-to-market gains and losses of our inorganic investments net of FX, are down 42%, which demonstrates our expectation that we will continue to have fewer adjustments to EPS as the result of acquisition integrations completing after year one of ownership, not anticipating any debt or refinance costs in 2022 and the timing of new organic capacity and product lines coming online throughout the year.
“We are pleased with our pricing and cost reduction progress, reflected in our improving gross margin as a percent of sales and expected to continue throughout the remainder of the year,” stated Jill Evanko, Chart’s President and CEO. “In addition, we continue to hit key milestones of one-year acquisition integrations on schedule while completing capacity and productivity projects throughout 2021 and 2022. These activities also support our ability to deliver our solutions on-time to our customers as we continue to see record demand, including the first quarter of 2022 being our sixth consecutive quarter of setting a new historical backlog record and our highest order quarter ever.”
Additional Partnerships Executed in Q1 2022. In the first quarter 2022, we continued to build upon our industry partnerships via investment, collaborations, LOIs, and MOUs. We are pleased to share the following partnerships that were executed this quarter:
Update 2022 Outlook With Increased Confidence in Higher 2023 and 2024 Outlooks. Our anticipated 2022 full year sales outlook is in the range of $1.725 billion to $1.85 billion with associated non-diluted adjusted EPS of $5.35 to $6.50, both revised from our prior guidance. There are a few noteworthy items in our current outlook:
Certain statements made in this press release are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements concerning the Company’s business plans, including statements regarding completed acquisitions, divestitures, and investments, cost synergies and efficiency savings, objectives, future orders, revenues, margins, segment sales mix, earnings or performance, liquidity and cash flow, inventory levels, capital expenditures, supply chain challenges, material cost and pricing increases, business trends, clean energy market opportunities including addressable markets, and governmental initiatives, including executive orders and other information that is not historical in nature. Forward-looking statements may be identified by terminology such as "may," "will," "should," "could," "expects," "anticipates," "believes," "projects," "forecasts," “outlook,” “guidance,” "continue," “target,” or the negative of such terms or comparable terminology.
Forward-looking statements contained in this press release or in other statements made by the Company are made based on management's expectations and beliefs concerning future events impacting the Company and are subject to uncertainties and factors relating to the Company's operations and business environment, all of which are difficult to predict and many of which are beyond the Company's control, that could cause the Company's actual results to differ materially from those matters expressed or implied by forward-looking statements. Factors that could cause the Company’s actual results to differ materially from those described in the forward-looking statements include: the Company’s ability to successfully integrate recent acquisitions and achieve the anticipated revenue, earnings, accretion and other benefits from these acquisitions; slower than anticipated growth and market acceptance of new clean energy product offerings; inability to achieve expected pricing increases or continued supply chain challenges including volatility in raw materials and supply; risks relating to the outbreak and continued uncertainty associated with the coronavirus (COVID-19) and the conflict between Russia and Ukraine and the other factors discussed in Item 1A (Risk Factors) in the Company’s most recent Annual Report on Form 10-K filed with the SEC, which should be reviewed carefully. The Company undertakes no obligation to update or revise any forward-looking statement.
USE OF NON-GAAP FINANCIAL INFORMATION
This press release contains non-GAAP financial information, including adjusted gross profit as a percent of sales, adjusted earnings per non-diluted share, net income attributable to Chart Industries, Inc. adjusted, free cash flow and adjusted free cash flow and EBITDA and adjusted EBITDA. For additional information regarding the Company's use of non-GAAP financial information, as well as reconciliations of non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with accounting principles generally accepted in the United States ("GAAP"), please see the reconciliation pages at the end of this news release and the slides titled "First Quarter 2022 Earnings Per Share," "Segment Sales and Gross Margin Information," "First Quarter 2022 Free Cash Flow", "Segment Information," and "First Quarter 2022 Adjusted EBITDA" included in the supplemental slides accompanying this release.
The Company believes these non-GAAP measures are of interest to investors and facilitate useful period-to-period comparisons of the Company’s financial results, and this information is used by the Company in evaluating internal performance. With respect to the Company’s 2022 full year earnings outlook, the Company is not able to provide a reconciliation of the adjusted earnings per non-diluted share or adjusted free cash flow because certain items may have not yet occurred or are out of the Company’s control and/or cannot be reasonably predicted.
As previously announced, the Company will discuss its first quarter 2022 financial results on a conference call on Friday, April 29, 2022 at 8:30 a.m. ET. Participants may join the conference call by dialing (877) 312-9395 in the U.S. or (970) 315-0456 from outside the U.S., entering conference ID 5393386. Please log-in or dial-in at least five minutes prior to the start time.
A taped replay of the conference call will be archived on the Company’s website, www.chartindustries.com. You may also listen to a recorded replay of the conference call by dialing (855) 859-2056 in the U.S. or (404) 537-3406 outside the U.S. and entering Conference ID 5393386. The replay will be available beginning 11:30 a.m. ET, Friday, April 29, 2022 until 11:30 a.m. ET, Friday, May 6, 2022.
About Chart Industries, Inc. Chart Industries, Inc. is a leading independent global manufacturer of highly engineered equipment servicing multiple applications in the Energy and Industrial Gas markets. Our unique product portfolio 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 and CO2 Capture amongst 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 over 25 global manufacturing locations from the United States to China, Australia, India, Europe and South America, we maintain accountability and transparency to our team members, suppliers, customers and communities. To learn more, visit www.Chartindustries.com.
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CHART INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (Dollars and shares in millions, except per share amounts)
• $10.4, $10.7 and $10.4 for the three months ended March 31, 2022, March 31, 2021 and December 31, 2021, respectively.
• $0.1, $0.7, and $0.6 for the three months ended March 31, 2022, March 31, 2021 and December 31, 2021, respectively.
(3) Includes acquisition-related contingent consideration (credits)/charges of:
• $(0.8), $0.8, and $(1.2) in our Specialty Products segment for the three months ended March 31, 2022, March 31, 2021 and December 31, 2021, respectively.
(4) Includes deal-related and integration costs of $4.2 and $4.9 for the three months ended March 31, 2022 and December 31, 2021, respectively.
(5) In conjunction with the amendment of our credit facilities in 2021, we recognized charges of $4.1 in unamortized debt issuance cost write offs associated with previous credit facilities and new debt issuance costs, which are classified as financing costs amortization for the three months ended December 31, 2021.
(6) Includes an additional 4.72 and 4.74 shares related to the convertible notes due 2024 and associated warrants in our diluted earnings per share calculation for the three months ended March 31, 2022 and 2021, respectively. The associated hedge, which helps offset this dilution, cannot be taken into account under U.S. generally accepted accounting principles (“GAAP”). If the hedge could have been considered, it would have reduced the additional shares by 2.56 and 2.57 for the three months ended March 31, 2022 and 2021, respectively.
(7) Includes an additional 5.56 shares related to the convertible notes due 2024 and associated warrants in our diluted earnings per share calculation for the fourth quarter 2021. The associated hedge, which helps offset this dilution, cannot be taken into account under U.S. GAAP. If the hedge could have been considered, it would have reduced the additional shares by 2.94 for the fourth quarter 2021.
CHART INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Dollars in millions)
(1) Includes restricted cash and restricted cash equivalents of $0.2 as of both March 31, 2022 and December 31, 2021 and $1.0 as of March 31, 2021.
CHART INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Dollars in millions)
CHART INDUSTRIES, INC. AND SUBSIDIARIES OPERATING SEGMENTS (UNAUDITED) (Dollars in millions)
(1) Restructuring costs for the three months ended:
(2) Includes acquisition-related contingent consideration (credits)/charges of:
(3) Includes deal-related and integration costs of $4.2 and $4.9 for the three months ended March 31, 2022 and December 31, 2021, respectively.
CHART INDUSTRIES, INC. AND SUBSIDIARIES ORDERS AND BACKLOG (UNAUDITED) (Dollars in millions)
(1) Heat Transfer Systems orders for the three months ended March 31, 2022 include big LNG orders of $228.4 million.
CHART INDUSTRIES, INC. AND SUBSIDIARIES RECONCILIATION OF BASIC EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CHART INDUSTRIES, INC. TO NORMALIZED NON-DILUTED EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CHART INDUSTRIES INC. AND ADJUSTED NON-DILUTED EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CHART INDUSTRIES, INC. (UNAUDITED) (Dollars in millions, except per share amounts)
(1) Includes unrealized loss (gain) on the mark-to-market adjustments of our investments in equity securities related to McPhy (Euronext Paris: MCPHY – ISIN; FR0011742329) and Stabilis Energy, Inc. (NasdaqCM: SLNG) of $2.6 and $(2.0) for the three months ended March 31, 2022 and December 31, 2021, respectively, foreign currency loss of $1.6 and $1.2, for the three months ended March 31, 2022 and December 31, 2021, respectively, and equity in (loss) earnings of unconsolidated affiliates, net of $(0.3) and $0.2 for the three months ended March 31, 2022 and December 31, 2021 respectively.
(2) Includes a $2.6 gain from the remeasurement of our initial 15% investment in Earthly Labs Inc. for the three months ended December 31, 2021.
(3) Includes debt refinance costs of $4.1 related to the refinance of our credit facilities during the three months ended December 31, 2021.
(4) Restructuring related costs during the three months ended March 31, 2022 and December 31, 2021 of $5.3 and $7.4, respectively, were comprised of relocation and facility start-up costs and departmental restructuring, including headcount reductions.
(6) Start-up costs (organic) during the during the three months ended March 31, 2022 and December 31, 2021 of $1.8 and $2.8, respectively, were comprised of Richburg, South Carolina repair facility start-up costs, Tulsa, Oklahoma product line start-up costs and incremental costs related to our flex manufacturing facility in Tulsa, Oklahoma.
(7) For the three months ended December 31, 2021, other one-time costs include labor disruption, freight, sourcing and safety costs directly related to manufacture and fulfillment of critical care products. Other one-time costs for the quarter ended December 31, 2021 also include costs related to commercial and legal settlements and storm damage. _______________
Normalized non-diluted earnings per common share attributable to Chart Industries, Inc. and adjusted non-diluted earnings per common share attributable to Chart Industries, Inc. are not measures of financial performance under U.S. GAAP and should not be considered as an alternative to earnings per share in accordance with U.S. GAAP. Management believes that normalized non-diluted earnings per common share attributable to Chart Industries, Inc. and adjusted non-diluted earnings per common share attributable to Chart Industries, Inc. facilitate useful period-to-period comparisons of our financial results and this information is used by us in evaluating internal performance. Our calculation of these non-GAAP measures may not be comparable to the calculations of similarly titled measures reported by other companies.
CHART INDUSTRIES, INC. AND SUBSIDIARIES RECONCILIATION OF NET INCOME ATTRIBUTABLE TO CHART INDUSTRIES, INC. TO NET INCOME, ADJUSTED (UNAUDITED) (Dollars in millions)
Net income, adjusted is not a measure of financial performance under U.S. GAAP and should not be considered as an alternative to net income in accordance with U.S. GAAP. Management believes that net income, adjusted, facilitates useful period-to-period comparisons of our financial results and this information is used by us in evaluating internal performance. Our calculation of this non-GAAP measure may not be comparable to the calculations of similarly titled measures reported by other companies.
RECONCILIATION OF NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES TO FREE CASH FLOW AND ADJUSTED FREE CASH FLOW (UNAUDITED) (Dollars in millions)
Free cash flow and adjusted free cash flow are not measures of financial performance under U.S. GAAP and should not be considered as an alternative to net cash (used in) provided by operating activities in accordance with U.S. GAAP. Management believes that free cash flow and adjusted free cash flow facilitate useful period-to-period comparisons of our financial results and this information is used by us in evaluating internal performance. Our calculation of these non-GAAP measures may not be comparable to the calculations of similarly titled measures reported by other companies.
CHART INDUSTRIES, INC. AND SUBSIDIARIES RECONCILIATIONS OF GROSS PROFIT TO ADJUSTED GROSS PROFIT AND OPERATING INCOME (LOSS) TO ADJUSTED OPERATING INCOME (LOSS) (UNAUDITED) (Dollars in millions)
CHART INDUSTRIES, INC. AND SUBSIDIARIES RECONCILIATIONS OF GROSS PROFIT TO ADJUSTED GROSS PROFIT AND OPERATING INCOME (LOSS) TO ADJUSTED OPERATING INCOME (LOSS) (UNAUDITED) (CONTINUED) (Dollars in millions)
Adjusted gross profit and adjusted operating income (loss) are not measures of financial performance under U.S. GAAP and should not be considered as an alternative to gross profit and operating income (loss) in accordance with U.S. GAAP. Management believes that adjusted gross profit and adjusted operating income (loss) facilitate useful period-to-period comparisons of our financial results and this information is used by us in evaluating internal performance. Our calculation of these non-GAAP measures may not be comparable to the calculations of similarly titled measures reported by other companies.