Chart Industries - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 delivered solid top-line and margin expansion: sales $1.00B (+6.6% organic), gross margin 33.9% (+210 bps YoY), adjusted operating margin 19.9% (+190 bps), and adjusted EPS $1.86; orders were $1.32B (+17.3%) and backlog reached a record $5.14B.
• Versus consensus: Adjusted EPS and EBITDA were beats while revenue was essentially in line; Q2 setup points to typical seasonality and book-to-bill >1.0, with guidance reiterated for FY 2025 (revenue $4.65–$4.85B, adj. EBITDA $1.175–$1.225B, adj. EPS $12.00–$13.00).
• Management highlighted tariff mitigation actions (gross annual impact ~$50M before mitigations) and emphasized resilience from aftermarket (RSL ~1/3 of revenue) and a robust LNG and data center pipeline as demand drivers.
• Stock-reaction catalysts: guidance reiteration despite tariff overhang, data center pipeline acceleration (~$400M next 12–18 months), LNG pipeline (~$1B next 12 months), and record backlog; focus remains on deleveraging to sub-2.5x net leverage in 2025.

What Went Well and What Went Wrong

• What Went Well

  • Broad-based demand and record backlog: Orders $1.32B (+17.3%) with strength in nuclear, space, marine, HLNG vehicle tanks; backlog first time above $5B.
  • Margin expansion and disciplined cost: gross margin 33.9% (fourth consecutive quarter ≥33%), SG&A at 14.1% of sales; adjusted operating margin up 190 bps YoY.
  • Data center and LNG momentum: “pipeline of potential customers… over 50” and ~$400M near-term data center pipeline; LNG-specific pipeline ~$1B expected to enter backlog within 12 months.

• What Went Wrong

  • Negative free cash flow in Q1 due to seasonal cash uses (interest, insurance, bonuses): FCF -$80.1M.
  • CTS softness YoY and RSL margin mix: CTS sales -4.1% YoY (though sequentially +2.0%); RSL gross margin -200 bps on lower high-margin spares mix vs prior year.
  • Tariff uncertainty: communicated gross annualized impact of ~$50M before mitigations; management is implementing regional sourcing, price increases, and exemptions.

Transcript

Operator (participant)

Good morning and welcome to the Chart Industries 2025 first quarter results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. The company's release and supplemental presentation were issued earlier this morning. If you have not received the release, you may access it by visiting Chart's website at www.chartindustries.com. A telephone replay of today's broadcast will be available approximately two hours following the conclusion of the call until May 8, 2025. The replay information is contained in the company's press release. Before we begin, the company would like to remind you that statements made during this call that are not historical, in fact, are forward-looking statements. Please refer to the information regarding forward-looking statements and risk factors included in the company's earnings release and latest filings with the SEC.

The company undertakes no obligations to update publicly or revise any forward-looking statement. During this conference call, references may be made to non-GAAP financial measures. To assist you in understanding these non-GAAP terms, Chart has posted reconciliations to the most directly comparable GAAP financial measures on the Chart Industries website. We have provided a supplemental slide presentation to support our comments on this call that can be accessed in the events and presentation section of the Chart website at www.chartindustries.com. I would now like to turn the conference over to Jill Evanko, Chart Industries CEO. You may begin.

Jillian C. Evanko (CEO)

Thank you, Lydie. Good morning and thank you for joining our First Quarter 2025 earnings call. Joining me today is our CFO, Joe Brinkman. We will begin on slide four of the supplemental deck that was released this morning. When compared to the first quarter of 2024, orders of $1.32 billion increased 17.3% and included the addition of Woodside, Louisiana LNG, phase II. Woodside, Louisiana LNG is utilizing our IPSMR process technology and associated equipment for their project. As of the end of the first quarter of 2025, LNG makes up approximately a quarter of our backlog. Sales of $1 billion organically grew 6.6%, and three of our four segments had an increase in sales. Our gross margin of 33.9% marked the fourth consecutive quarter of gross margin above 33%.

By leveraging our 14.1% SG&A, we achieved a 190 basis point expansion in adjusted operating income margin, reflecting the last two years of cost synergies from the integration of Howden dropping through to operating income. Adjusted EBITDA of $231.1 million was 23.1% of sales, an increase of 80 basis points. Reported adjusted diluted earnings per share was $0.99, and adjusted was $1.86, an increase of 38.8%. Free cash flow was negative $80.1 million due to the uses of cash customary for our first quarter, yet still represented an improvement of $55.6 million when compared to the first quarter of 2024's free cash flow. March 31st, 2025, net leverage ratio was 2.91, and we reiterate our target net leverage ratio of 2-2.5 expected to be achieved in 2025.

Looking ahead, we continue to see positive demand trends as we start the second quarter of 2025 across the majority of the business, and we'll share more information on that as well as on anticipated gross impact from tariffs, for which the team has been very nimble to address and take mitigating actions to date. We also reiterate our full year guidance outlook for 2025, and we'll share specifics around that shortly, given our strong backlog, as well as aftermarket service repair being approximately a third of our business. The first quarter of 2025 order activity demonstrated continued broad-based demand. Examples of this activity are shown on slide five. I already mentioned Woodside, Louisiana LNG phase II being booked in Q1. Note that Woodside anticipates phases three and four that are not yet in our backlog, each of which is the same content as phase II.

First quarter 2025 orders in space exploration, HLNG vehicle tanks, nuclear, and marine were each greater than the full year 2024 orders in those end markets. Highlights for the quarter include booking the first serial production order for HLNG vehicle tanks with Volvo-Eicher, a brazed aluminum heat exchanger order with Honeywell UOP, multiple tank and heat exchanger orders with a space exploration customer, multiple rail cars with a large industrial gas customer, and an order with Enaon EDA for three regas plants in Europe. Additionally, RSL orders were strong and included a carbon capture retrofit for a coal-fired power plant. As of now, despite the many uncertainties associated with global tariffs and general economic conditions, we are not seeing demand decline. Our commercial pipeline remains robust at approximately $24 billion, even as we convert larger projects in that pipeline into our backlog.

We have a meaningful pipeline also of potential large global LNG work that we believe has a significant likelihood to come into backlog in 2025, given natural gas and LNG demand and the current U.S. administration support for LNG. Additionally, aftermarket is holding up strongly across all of our regions to date. Even with the strong orders in Q1 for nuclear, marine, and space, we have already in April booked over $54 million for these three end markets. Yesterday, we booked an order for nuclear application for power generation in Europe, which will utilize a series of our distillation, recirculation, and storage solutions. Our customers' latest feedback for specific end markets reflects expectations for continued positive trends in marine, metals, mining, energy, natural gas, space exploration, nuclear, data centers, aftermarket, carbon capture, and hydrogen specifically in Europe.

Generally, water treatment, general industrial, LNG vehicle tanks, and food and beverage are in line with our original expectations that we had coming into 2025. Finally, we are watching uncertainty in the industrial gas and hydrogen market specifically in the Americas. We are pleased to see industrial gas orders via our CTS segment increase sequentially by 10% from Q4 2024 to Q1 2025. In total, we anticipate that our second quarter 2025 orders will be higher than our second quarter 2024 orders. Data centers and AI continue to be a driver for the growing energy demand globally. Our existing portfolio of heat rejection, cryogenic storage, water treatment, and digital monitoring solutions, as shown on slide six, support data center customer needs. We continue to see this end market as an area for near, medium, and long-term addressable market for us.

Since adding a dedicated data center commercial team member a couple of months ago, our pipeline of potential customers in this space has grown to over 50. We are in discussions about partnerships to utilize our solutions with two specific companies beyond our existing customer base, and the next 12-18 month commercial pipeline for data centers specifically has expanded to approximately $400 million of opportunities. Now, Joe will take you through Q1 specifics.

Joe Brinkman (CFO)

Slide seven is a summary of the first quarter compared to Q1 2024, and we will cover these in more detail starting on slide eight. Slides eight and nine show our key financial metrics compared to the first quarter of 2024. From left to right on slide eight, sales increased 5.3% with a headwind from FX of 1.3%. Adjusted operating profit grew over 16%. Adjusted operating margin of 19.9% reflected further productivity actions, favorable project mix as we execute backlog, and benefits of increased efficiencies in our new manufacturing lines. Additionally, Q1 was the first quarter since 2022 of Specialty products gross margin above 30%, and we continue to leverage our SG&A on more throughput. This contributed to adjusted EBITDA of over $231 million, an increase of nearly 9%.

We continue to take cost out via productivity initiatives and improve throughput via our Chart Business Excellence as we track to our medium-term 2026 goal of mid-30s gross margin percentage. Turning to slide nine, you can see gross, operating, and EBITDA margin expanded on both a reported and adjusted basis. In particular, we are continuing to leverage SG&A as we deliver more volumes to our shops, which is reflected in the 190 basis point improvement in adjusted operating margin. Turning to slide ten, first quarter free cash flow was negative $80.1 million, driven by typical first quarter cash outlays, including our senior secured notes interest payment, timing of insurance costs, and bonus payments, among other seasonal items. As a reminder, the senior secured notes interest payment of approximately $79 million occurs in the first and third quarter of the year.

Our capital expenditures for 2025 are anticipated to be in the 2-2.5% of sales range, and we continue to focus on improving working capital. Our CapEx is related to capacity for compressors and productivity and automation for more throughput in our shops. First quarter 2025 working capital defined as net accounts receivable, net inventory, unbilled contract revenue, accounts payable, customer advances, and billings in excess, as a percent of last 12 months sales was 16.3%. In February 2025, we shared that we signed a letter of intent with a new counterparty to replace our HTEC put-call option that could have been exercised by I Squared Capital on or after May 1st, 2025. The new agreement was executed this week on April 30th.

Based on the put option triggers in the new agreement, which are substantially similar to the previous arrangement, we do not expect any balance sheet or cash impact with respect to such option prior to 2028. We remain committed to and reiterate our financial policy, as shown on the right-hand side of slide nine. Until we are within our target net leverage ratio of 2-2.5, we will not do any material cash acquisitions or share repurchases. We reiterate that we anticipate ending 2025 with approximately $3 billion of net debt and achieve our sub-2.5 target net leverage ratio in 2025 based on full year 2025 free cash flow generation between $550 and $600 million.

Jillian C. Evanko (CEO)

Let's move to slide 11 to discuss our Q1 2025 segment result. Starting with Cryo Tank Solutions, or CTS. First quarter 2025 CTS orders of $152.6 million decreased 4.2% when compared to the first quarter of 2024. It is important to note that CTS orders, as I mentioned earlier, increased over 10% sequentially versus the fourth quarter of 2024, resulting in the first sequential quarter increase in CTS backlog in a year. CTS first quarter 2025 sales of $153 million declined 4.1%, yet grew 2% sequentially versus the fourth quarter. CTS first quarter 2025 adjusted operating income margin of 12.7% improved 220 basis points and reflects operational efficiencies as well as improved long-term agreement constructs. Moving to Heat Transfer Systems, or HTS. First quarter 2025 HTS orders of $220.7 million declined 7% when compared to the first quarter of 2024.

HTS end market demand, including traditional energy, LNG, and data centers, all remain robust, as does our commercial pipeline, and we anticipate larger orders in these end markets for the balance of 2025. HTS sales of $267.3 milli`on increased 5.4%, driven by conversion of LNG and data center backlog. HTS adjusted operating margin in the first quarter 2025 was 25.5%, a 460 basis point improvement compared to the first quarter of 2024, as SG&A remains consistent even as we deliver higher volumes. In specialty products, for the first quarter of 2025, orders were $487.7 million and increased 24.6% when compared to the first quarter of 2024. This included record orders in nuclear, space exploration, marine, and HLNG vehicle tanks that I described earlier.

Specialty product sales of $276.1 million increased 16.7% when compared to the first quarter of 2024, driven primarily by backlog conversion in hydrogen, water treatment, and power generation. Specialty products adjusted operating income margin of 18.9% grew 560 basis points compared to Q1 2024, driven by backlog conversion, greater efficiencies, and leverage of SG&A. Contributing to this was specialty products gross margin of 30.3%, the first quarter that we achieved gross margin in specialty above 30% since 2022. Finally, repair service and leasing, which is a very strong segment for aftermarket service and repair. RSL first quarter 2025 orders of $454.6 million grew 36.1% when compared to the first quarter of 2024, driven in part by a retrofit order for a coal-fired power plant. RSL sales grew 1.3% compared to the first quarter of 2024, which was driven by timing of certain projects and fieldwork being scheduled for post-Q1.

RSL adjusted operating margin of 32.4% decreased 270 basis points when compared to the first quarter of 2024 as a result of lower spare sales in Q1 2025, which we attribute to timing. We expect and continue to expect, looking ahead, RSL gross margin to be in our normal mid-40% range for the year. Continuing on with some more detail on how we plan to continue to grow RSL, which is a third of our revenue approximately and half of our operating profit. Let's look at slide 12, where you can see some of the statistics from the first quarter of 2025. We expanded the number of service and framework agreements by 10.7% since the end of 2024, and we have continued to leverage our e-commerce tools to drive more spares using our website chartParts.

Specifically, orders on the website increased 9% in Q1 2025 when compared to Q1 2024. In addition to growing our install-based coverage globally, we see more and more opportunity for global coverage for screw compressors and axial fans in Asia-Pacific, as well as recip compressors and steam turbines in the Middle East. The Howden Screw Compressor brand is well known for reliability and quality, and we are gaining install-based coverage with customers that are managing critical processes. Retrofits of existing brownfield facilities is another area that we're seeing more interest from customers, such as we saw with our fans retrofit at Cheniere Sabine Pass facility and also a growing pipeline for more nitrogen rejection unit opportunities.

We've received very favorable feedback on our newly developed digital LNG dashboards, which utilize Digital Uptime with a customer in Europe that is testing these at their LNG fueling stations, which were purchased from us as a new build. We see this area in application as well as in geography as a large, meaningful opportunity for us in aftermarket service and repair, in particular on mobility applications. These are just a few examples of the many ways within our own control that we can expand the aftermarket piece of our business with our capabilities for the supply of equipment, extensive service network, and LTSA solutions for our long-term partners. Another reason that we're thrilled to have approximately a third of our business in the RSL segment. On slide 13, you can see our gross annual estimated impact from tariffs on the left-hand side is approximately $50 million.

With eight months remaining in 2025, this would be a remainder of the year gross impact of estimated approximately $34 million if none were mitigated based on known tariffs as of yesterday. Our team has remained very agile and has taken already certain steps and has further steps underway. I'll share a few of these, which are certainly not all inclusive. We're leveraging our in-region sources of supply and our global sourcing for best costs where possible, taking advantage of our flexible manufacturing footprint across the globe, continuing to deploy Chart business excellence, and focusing on cost structure and productivity. We're passing through certain cost increases as well as getting exemptions in certain regions for specific products. For example, for specific aluminum parting sheets, we have an exemption until September of 2025 to import material duty-free.

We are ensuring that we have more than one supplier for every input, which supports our in-region supply strategy. In our book-and-ship business, we issued a price increase in early April. As a reminder, we are the only manufacturer of brazed aluminum heat exchangers in the United States, with the world's two largest brazing furnaces. We also have a strong air cooler and fan manufacturing footprint in the United States, as well as the world's largest shop-built cryogenic tanks in our Theodore, Alabama facility, where this week we shipped two of our large space exploration customers their 1,700 cubic meter tanks. Specific to steel and aluminum, most of our steel is sourced domestically and is not directly impacted. To the extent that U.S. market pricing goes up for domestic steel, we anticipate that we can pass that along to many of our customers.

Finally, with specific actions to tariffs, we do purchase project-based materials at the time of order as a general rule, and so we have largely locked in our costs on steel and aluminum for existing backlog. Though we have not yet seen it in our results, we do recognize that we face an uncertain global environment for the remainder of 2025. Currently, we reiterate our anticipated 2025 outlook as shown on slide 14. Setting tariff-related uncertainty aside, we have not seen any material changes in the business. Our full year 2025 sales are anticipated to be in the range of $4.65 billion-$4.85 billion. Our full year 2025 anticipated adjusted EBITDA range is $1.175 billion-$1.225 billion. As we have previously mentioned, our second half 2025 will be higher than our first half of the year.

This is driven by the timing-specific project revenue and service work in our backlog. Examples of this include, but are not limited to, the timing of revenue on the nitrogen rejection unit that we booked a few months ago, Woodside Louisiana LNG timing of revenue, specific mining projects that were booked in the first quarter, and the timing of the larger backlog for space exploration and marine that came into our backlog in Q1. We continue to anticipate achieving our leverage ratio sub of 2.5 in 2025. As Joe described earlier, we are committed to our financial policy as we focus on operational cash generation for debt paydown to achieve that range. As shown on slide 15, once we are within our target net leverage ratio range, we will evaluate allocating capital in a conservative way in the category shown on the bottom of the slide.

These include high ROI organic capital expenditures for value creation, including but not limited to expanding our aftermarket footprint and capabilities, machine automation for additional throughput and innovation related to R&D activities. Additionally, we will consider other ways to return to shareholders, inclusive of potential share repurchases, which we consider an investment in our company and it creates value when buying stock at a discount to fair value. We will also evaluate potential bolt-on acquisitions that focus in the repair and services area, specific technologies, and high-pressure, low-temperature capabilities. All of these are, as shown on slide 15, underpinned with our commitment to a simplified balance sheet and capital structure. Finally, to conclude our prepared remarks, I would like to thank our global OneChart team members for all of their continued team efforts that drove our first quarter results. Lydie, please open it up for Q&A.

Operator (participant)

Thank you, Jill. Ladies and gentlemen, we will now begin the question and answer session. To ask a question, you may press the star followed by the number one on your cell phone keypad. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, you may do so by pressing star two to cancel. With that, your first question comes from the line of Scott Gruber with Citigroup. Please go ahead.

Scott Gruber (Director)

Yes, good morning.

Jillian C. Evanko (CEO)

Hey, good morning, Scott.

Scott Gruber (Director)

A couple of questions here. First, I'll just start with kind of the number one inbound we've got on Chart over the last month or so is just your exposure to China. Are you able to discuss the major sales verticals into China? I think it's tanks and maybe some mining equipment, et cetera. Where you fabricate the equipment and overall your ability to shift any U.S. based fabrication destined for China to other locations?

Jillian C. Evanko (CEO)

Yes. Specifically in China, we manufacture primarily cryogenic tanks, and we can manufacture certain trailers. In addition to that, equipment on the Howden side related to power generation. Industrial gas and power gen are kind of the two main verticals in China that we manufacture in China. We have a de minimis amount that we actually import from other regions, in particular the United States, into China in terms of intercompany activity. In terms of material inputs from the United States to China, we have that reflected in the gross tariff number that you see on one of the slides there, which we have been able to, over the course of the last week or so, get certain exemptions on codes actually in China specific. We have seen that gross exposure reduced by about 40% in the last week with those exemptions on any inbound specific material.

Ultimately, industrial gas, power gen, and manufacturing in China for China primarily, and then the inbound material as I just described.

Scott Gruber (Director)

I appreciate that, color. It does look like the overall tariff impact is rather modest in part because of the manufacturer in China for China. Are there other moving pieces that are helping you offset it and keep the overall EBITDA guide for the year? Is there a segment where you see margins maybe a little bit stronger than you originally anticipated or revenues across certain segments? Just some color on what gave you the confidence to hold the EBITDA in light of the tariffs and risk around a general economic slowdown?

Jillian C. Evanko (CEO)

Yeah. Let me start just with the kind of overarching aspect of the business that I think is really important for people to recognize that on the new build side, we are very backlog-driven, and that's something that we've worked hard over the last five to seven years to really focus on. The second piece being the amount of aftermarket service repair in the business today, which is very different than it was even three years ago. Those two things really help us with the visibility in the business. When you look at tariffs specifically, I laid out some of the mitigating actions that we've been taking. The team's been working really hard at this. The in-region supply strategy, I think, is a very important one as to why you see that gross number being manageable.

That really came as the result of the learnings that we had in the 2021 supply chain crisis. I'd also point to what we call flexible manufacturing strategy, where we make nearly all of our parts in more than one location. That stemmed from wanting to be close to customer projects, especially with larger equipment, to give us advantage commercially. Over the years, that flexible manufacturing footprint in conjunction with the regional supply is proving to help us in this current situation. When you look at other things that gave us more confidence in reiterating our guide, I can't drumbeat enough our focus on the aftermarket service repair side of the business, and that business is continuing to grow, and margins are in line with what we have said our expectations are for 2025, and we see multiple other ways to continue to grow that particular segment.

I was very pleased to see specialty products gross margin at over 30% for the first time since Q3 of 2022. That was what we had been really working toward to get more efficiencies, in particular in the specialty shops that we have expanded, such as Teddy One and Teddy Two, such as Tulsa for specialty brazed aluminum heat exchangers. Those are a couple of the segments that I would point to. Finally, as we get more IPSMR LNG content, clearly leading with the technology and then the associated equipment gives us visibility into the timing around those projects as they come into backlog. We are really still very bullish on the net gas side of the business.

Scott Gruber (Director)

All right. Great, color, Jill. Thank you.

Jillian C. Evanko (CEO)

Thank you, Scott.

Operator (participant)

Your next question comes from the line of Saurabh Pant with Bank of America. Please go ahead.

Saurabh Pant (Director)

Hi. Good morning, Jill and Joe.

Jillian C. Evanko (CEO)

Hey, good morning, Saurabh.

Joe Brinkman (CFO)

Good morning, Saurabh.

Saurabh Pant (Director)

Jill, maybe I want to just continue with that line of thinking from Scott. I know the guidance is unchanged, which is fantastic to see despite the uncertainty, right? I think if I'm looking at the slide deck correctly, you are assuming that general economic activity remains stable, right? That's where a lot of people are concerned about a lot of uncertainty. Jill, maybe walk us through what could be potential risks for you from a macroeconomic standpoint, right? Maybe talk about backlog coverage. Obviously, your RSL business, right? Just walk us through how we should think about potential scenarios.

Jillian C. Evanko (CEO)

Absolutely. Thanks, Saurabh, for the question. What I would point to is not only, again, the backlog-driven business, the aftermarket service repair, and the visibility that that lends to us, but also the diverse end markets that we serve are really kind of proving out to be supportive where if we're seeing some caution in end markets such as industrial gas. I mean, certainly, we signaled that in China back in the third quarter of 2024. We did not really see it get better. In the fourth quarter of 2024, we had softness in general in our thinking around industrial gas. While Q1 does not make a trend, we were pleased to see sequential order growth in Q1 versus Q4 in the CTS segment. That is a watch market for me. I would say, I think this is not new news, right?

Hydrogen in the Americas in particular is an area that we anticipate to be impacted by the uncertainty that we're all describing here. Outside of that, I mean, just the fact that we started the year with more orders in space exploration, nuclear, marine, HLNG vehicle tanks in Q1 than the entire year of 2024. And 2024 was a strong year. That gives us, again, some more confidence around as we see the rest of the year go through backlog into the guide. The diverse end markets and the two end markets I just named would be the risk areas. We'll watch those very carefully, and we'll also be watching very carefully if we see anything meaningfully different in terms of cancellations of projects in backlog. In the first quarter, the only meaningful cancellation we had was one hydrogen project out of backlog.

That has, again, not been a trend so far. The last part of my answer, I think, which is important, is just as we think about the low end and the high end of our outlook, the high end will require certain larger projects that we anticipate coming in in the first half to do so and to release on the time schedules for manufacturing that we would anticipate based on what the customers are telling us now. That is, I think, an important thing too when I'm answering your question around uncertainty. That would be the other thing for us that we're watching as the second quarter unfolds.

Saurabh Pant (Director)

Right, right. No, that's super helpful, Jill. Maybe a quick follow-up on you talked about the diverse end markets. It's really good to see that slide on your data center opportunity. If I'm remembering it correctly, Jill, when we were in London together, we were talking about a $500 million opportunity over the next three years. Now you're saying $400 million over the next 12-18 months. It looks like a lot of that opportunity has come forward. Maybe talk to that a little bit. Just if you're looking at that slide outside of just the air coolers, where else are you seeing that opportunity accelerate?

Jillian C. Evanko (CEO)

Yeah, absolutely. Thank you for the question. You remember perfectly that our original kind of addressable market size of anticipated business that we had thought for three years was about $500 million. Now that we have really hammered into this market with a dedicated resource, we are seeing more and more opportunities for our existing product and solutions for this end market. That $400 million is a tangible number. That is actually built bottoms up from the customer pipeline and discussions that we have had over the last 60 days. That is good to see that accelerating.

The air coolers and fans, so what we would deem to be fin fans, so air-cooled heat exchangers, and then the breadth of the fans that we have ranging from the Tuf-Lite IV that has the very specific and unique sweeping blade design, which is really well equipped and suited for applications with high wind, for example, in regions that are like the Gulf Coast of the United States. That fan can really help serve data centers and certain applications. We're also in many discussions around the cryogenic cooling side of our business. As these AI projects and AI learning happen, the energy intensity continues to increase. In some cases, our cryogenic cooling solutions are really well suited for those applications.

You get into things that I consider adjacent but still good for this end market, which are our carbon capture solutions as well as our water treatment solutions. What we've primarily seen to date in terms of interest is cryogenic cooling, air coolers, and fans.

Saurabh Pant (Director)

Awesome. Okay, Jill, thanks for the color. I'll turn it back.

Jillian C. Evanko (CEO)

Thanks, Saurabh.

Operator (participant)

Your next question comes from the line of Marc Bianchi with TD Cowen. Please go ahead.

Marc Bianchi (Managing Director)

Hey, thanks. Another question on the tariffs and the impact, Jill. It sounds like this is not reflecting any mitigation efforts. Maybe could you talk about what the likelihood is of mitigating that, and how is that reflected in the guidance? Is the guidance assuming any benefit from mitigation efforts?

Jillian C. Evanko (CEO)

Correct, Marc. Good morning. The numbers that we show there is an annualized gross impact that we estimate for the year. Twelve months, obviously, we're in month starting month five here. That's just a mathematical calc. for the remaining eight months. Those do not reflect any of the mitigating actions that we've described here, of which many, many are underway. We're certainly the norm in terms of the war rooms attacking this with all hands on deck around the world to mitigate what these potential actions are. We do have good visibility to, obviously, the contracts in backlog and how they're structured and our ability to pass through cost to customers. I mentioned a few exemptions that we've already received to date.

I'd also mention that inclusive in that approximately $50 million annual gross number is if the 90-day pause were lifted and the 10% reverted back to a higher number. That is also in that. What I would say is we believe that we're well underway in mitigating these tariffs. That gives us confidence. I won't go into specifics. Some of it is very customer-specific. What I would say is that we felt confident in actions taken to date around being able to size the number within our guide range. What we've seen to date, we'll continue to evaluate the success of the actions that we have, but we've made some good progress to date on the mitigation efforts.

Marc Bianchi (Managing Director)

Okay, great. Yeah. I would just echo, I think it's definitely a much smaller number than a lot of people are anticipating. Going into second quarter and just some of the disruption that people are expecting to be out there, it doesn't seem like you're expecting it for the year. As we kind of go through the second quarter and into the back half of the year, is there anything different that we should expect from a seasonality perspective? If I think about typically what we've seen from 1Q to 2Q as revenue goes up 10%, maybe you get a couple of 300 basis points of margin, EBITDA margin improvement from 1Q to 2Q. Any reason that's not a good base case assumption?

Jillian C. Evanko (CEO)

No reason to assume 2025 is any different than the last couple of years in terms of seasonality.

Marc Bianchi (Managing Director)

Okay. Anything on the cash flow side that we should be thinking about? I know you mentioned the unusual or the typical payments that occur, but is there anything because of these tariffs or anything like that that should be called out from a cash flow perspective?

Jillian C. Evanko (CEO)

The two things, well, the three things, I guess Joe commented on the semiannual. Is semiannual twice a year?

Joe Brinkman (CFO)

Yeah, twice a year.

Jillian C. Evanko (CEO)

I never get that right.

Marc Bianchi (Managing Director)

Me too.

Jillian C. Evanko (CEO)

There are a couple of raw materials that we're going to buy ahead in Q2 on taking advantage of the exemptions that we have, which I wouldn't say is meaningful, but just for everybody's knowledge. Our tax payments, our normal tax payments generally are heftiest in Q2 and Q4.

Marc Bianchi (Managing Director)

Yep. Okay. Thanks, Jill. I'll turn it back.

Jillian C. Evanko (CEO)

Thank you, Marc.

Operator (participant)

Your next question comes from the line of Eric Stine with Craig-Hallum. Please go ahead.

Eric Stine (Senior Research Analyst)

Hi, Jill. Hi, Joe.

Jillian C. Evanko (CEO)

Hey, Eric.

Joe Brinkman (CFO)

Hey, Eric.

Eric Stine (Senior Research Analyst)

Good morning. You called out a number of these end markets where 2025 is better or first quarter better than all of 2024. Great color on the data center business. Probably in the category of that you view that as a sustainable business where it's matured to the point where you have pretty high confidence. Just curious on the other ones. I know business can be lumpy. Jill, you've been at this for a while. I mean, as you look at these other end markets, where's your confidence level that they've kind of reached a different level for you in terms of being a business that you can count on, that you see growth? It's kind of just moved beyond that really lumpy kind of startup of end markets.

Jillian C. Evanko (CEO)

Yeah. Thanks, Eric. You have been around as well for a while and kind of seen the evolution. That is what I would call it. That has really been a journey. I am so pleased as we sit here today to be able to have this discussion because we have worked really hard to get out of that super peaky, super trophy, reliant on a project or two, which, again, that just took us some time. Reiterating your point of having more visibility on the new build backlog that we have across a variety of end markets is super helpful.

Having that more meaningful RSL or aftermarket service repair, especially when I was talking to our four presidents earlier this week and asking, "Hey, in your specific region, are you seeing anything that's alarming on the aftermarket service side?" Because that's an area that we really are leaning into here. To a T, the four of them said, "No, it's holding up very well." That was a big positive. I think the diversification of the end markets and more content on these projects also helps us in this evolution that we're under here, meaning like, "Hey, three years ago, space exploration was maybe, I'm going to spitball here, but maybe $10 million a year." Now we told you at the end of February, we told you that we had already booked $60 million of space exploration orders.

That number is now year to date around $95 million as of yesterday. These are end markets that we have more content. We're leading with technology. I would be remiss not to mention IPSMR, the LNG liquefaction process technology, and how having that out there in the market has really brought more consistency to the LNG business and more opportunities into the LNG business. I feel like we're at that precipice now where we're really seeing those two pieces of the puzzle contribute to us looking very different as a business than we did 8 to 10 years ago.

Eric Stine (Senior Research Analyst)

Yep. No, that's great. On repair service and leasing, I know you're talking about just making sure that that business is holding up. If I recall past times where maybe there was economic uncertainty, repair service and leasing actually was almost better off because customers are more likely to protect what they have rather than new. I'm curious. It seems like that would almost be a bit of a counter if things were to get worse or more uncertain, if that's possible. I'm just curious your thoughts on that.

Jillian C. Evanko (CEO)

Yeah, yeah. More uncertain if that's possible, right? It's an interesting time right now. I think what you said, I don't think I could have said what you just said better. That's how we view it in terms of aftermarket service repair. What we also really like about the RSL business is not only what you just described, where if the uncertainty or things get delayed on new build or CapEx or OpEx purchases, people are still not only retrofitting, but preventive maintenance and regular maintenance to keep plants running is very, very important. That's also where Digital uptime, the Howden Digital uptime preventive maintenance software that we're taking across other product lines, we've had a lot of interest in that as well. That way it's not a reactive where a customer has to come and ask for a quick ship of something, but rather a preventive.

All of those things we like because it's not one thing that's driving RSL. It's a lot of different things that are driving it. This whole idea of optimization for molecules. We talked a lot last year about the retrofit that's being passed for fans to help the customer get as much product out for them of the existing facility. I think we're going to see more and more of that. That's why we're also excited about the retrofit of a coal-fired power plant order. That was the first of that kind for our application using our SES cryogenic carbon capture technology.

Eric Stine (Senior Research Analyst)

Okay. Thank you.

Jillian C. Evanko (CEO)

Thanks, Eric.

Operator (participant)

Your next question comes from the line of Ben Nolan with Stifel. Please go ahead.

Benjamin Nolan (Managing Director)

Hey, Jill and Joe. Good quarter. My couple of quick ones are, number one, just from a macro perspective on the LNG side, just in paying attention to this every day, it feels like there's been a pretty material acceleration of activity maybe since the first of the year, but certainly even in this last month. I'm curious if you're seeing the same and how you're thinking about the development of potentially big LNG orders, I don't know, and then through the rest of the year or into next year.

Jillian C. Evanko (CEO)

Yeah. No, I think your observation is what we would have answered the question with as well. We're definitely seeing an acceleration. What our energy team tells me is that to a T, all of our customers are saying that they're going to take advantage of a pro-energy environment and pro-LNG and natural gas environment. I think you're seeing that with projects that are pushing really far ahead. It is good to see some of these offtake arrangements getting put in place for the projects. Yes, I would say that. What I didn't size in the prepared remarks, but I'll size it specifically now, is for our LNG-specific pipeline of potential orders that we would anticipate to come into backlog in the next 12 months is about $1 billion. That's a meaningful number.

That does not include the ExxonMobil Mozambique Rovuma that we already know is not in backlog, but we know will utilize IPSMR in our equipment. That number is excluding that. That is a handful of global LNG work. That pipeline continues to expand. The other piece of it that is a little bit tangential, but certainly hits this set of end markets, is the nitrogen rejection unit offering that we have. We have seen more and more of an increase in customers, potential customers talking to us about NRUs based on gas composition that they have in their projects or even midstream, upstream guys that may be looking at an NRU to serve their downstream customers.

Benjamin Nolan (Managing Director)

Right. The color is very helpful. Appreciate it. Secondly, just switching gears a little bit, I know maybe it's nothing, but it sounds like you're sort of changing how you refer to the RSL business being aftermarket service and repair. Maybe it's always been that way. I just didn't notice. Curious where the leasing part is in that. I mean, is that something that you're still looking to lean into? Or how do you think about the leasing as a function of sort of that part of the business?

Jillian C. Evanko (CEO)

Yeah. No, leasing still is an important part of that business as well. Internally, sometimes we flip-flop between how we refer to it. Sometimes we just even say aftermarket generally for the entire segment. That is probably just a little bit of semantics on my part. No, leasing is still a really important offering for our customers. We have staged the course on that being standard product. There is no change in our leasing strategy. The only thing I would answer, as it always has been, is that we do that within our financial policy. We are not going to go outside of our financial policy to build some massive leasing fleet on our own on our balance sheet.

Benjamin Nolan (Managing Director)

Got it. All right. I appreciate it. Thanks, Jill.

Jillian C. Evanko (CEO)

Thanks, Ben.

Operator (participant)

Your next question comes from the line of Arun Jayaram with JPMorgan Chase. Please go ahead.

Arun Jayaram (Research Analyst)

Yeah. Good morning, Jill. I was wondering if you could elaborate on the potential for more chunky orders in HTS. Just wanted to see if you could expand on your commentary on HTS.

Jillian C. Evanko (CEO)

Yeah. What I was really trying to convey there in that commentary is that orders, while down from Q1 2024 to Q1 2025 in HTS by about 7%, does not really reflect what we are seeing commercially in the market where some of these are just timing. You cannot always jam a $20 million-$50 million order into March 30th or 31st and maybe it comes in in April type of thing. That was really the genesis of what I was trying to convey with that comment, that we continue to see bullishness in kind of the broader HTS end markets, but also that we do have a strong pipeline of these chunkier projects.

Chunkier for us can be anywhere from kind of $20 million at the lower end to in that pipe that I was just referring to in my last answer of LNG-specific, the largest beyond what we booked with Woodside phase II would be approximately $140 million or so. There are a couple of those in that pipeline. There is a handful of the $20 million-$70 million.

Arun Jayaram (Research Analyst)

Great. That's helpful. Margins in 1Q were quite a bit better than our model. You mentioned Marc talked about some of the historical season patterns. Can you talk about just the margin outperformance in 1Q and just how you see the setup for the rest of the year?

Jillian C. Evanko (CEO)

Yeah. I would say RSL was in line with what we had anticipated, HTS with the conversion of the data center and the LNG backlog. The more IPSMR backlog we have in HTS, the better for us. That is a driver currently, and we anticipate continues to be a driver in the coming years ahead. On CTS, yeah, I'd say CTS did a little bit better on the margin side than we anticipated. That is, again, just specific product mix in that segment. We like to see things like the railcar order that came in. That is good. That is a good mix for us. Larger tanks are a good mix for us, et cetera.

Finally, specialty is the one that I kind of drumbeat here that over the last 24 months, right, we've been we got to get specialty back to that 30% mark. That's been a really hefty focus for us. We did make some investments, and some of the, I would say, inefficiencies took a little bit longer to flow through the system. I feel like we're at that turning point, and Q1 reflected that. Looking ahead, we've said that the medium term, mid 30% gross margins, and we feel like we're on our way on that path.

Arun Jayaram (Research Analyst)

Great. Thanks a lot.

Jillian C. Evanko (CEO)

Thanks, Arun.

Operator (participant)

Your next question comes from the line of David Anderson with Barclays. Please go ahead.

John David Anderson (Managing Director)

Hi. Good morning, Jill. A couple of questions around the aftermarket business or RSL. You had a really strong quarter in orders this quarter, much more than we've seen in the past. Can you just tell us what was kind of incremental on that quarter? Was there anything kind of unique or kind of is this just kind of building up? Just kind of help us understand a little bit what's behind that.

Jillian C. Evanko (CEO)

Yeah. Absolutely. Thanks, Dave. I appreciate you flip-flopping between aftermarket and RSL.

John David Anderson (Managing Director)

I'm trying it.

Jillian C. Evanko (CEO)

First, I would say that we were very pleased that, and when we look within RSL, right, we look at leasing, we look at retrofit/service as a category, and then the third category being spares. What we were very pleased to see was the retrofit service and spares. Both of those orders were up Q1 to Q1. That is good to see because it is not really, it is indicating that it is not one particular driver. We did see good, we had a strong Americas Q1, which we had anticipated, but it came through. That is a good thing because Americas is a large region for us. It is also a region that out of the four regions that we discuss, it currently has the lowest percent of its revenue as RSL. That is an indicator of gaining some share for us.

The retrofit/service side was kind of broad-based demand. There were two that were a little bit larger, one being a mining, a South Africa service project that came in, and then the other being the CCUS with the retrofit on with a utility customer.

John David Anderson (Managing Director)

I'm just curious. Howden came in, I guess, what, about two years ago. We didn't really see how the aftermarket business performed during COVID or some other kind of demand changes out there. You highlighted industrial gas as kind of one of the watch markets. I'm just curious how you're thinking about some of the potential risks in aftermarket. I guess intuitively, if you have kind of economic uncertainty, I would think maybe some of your customers would push out, say, a retrofit or would kind of delay some of this spending. Is there any concern that that could happen? Counter to that is, are you just seeing kind of this build-out of your backlog that kind of offsets any of those potential concerns?

Jillian C. Evanko (CEO)

Yeah. Let me start with the first part of the question on kind of Howden's aftermarket and how it performed in the private world. It was very consistent. The only time in Howden where there was even kind of a blip in a quarter for aftermarket was summer of 2020 where people could not go to site. That really pushed from Q2 to Q3, but it was within a year. It performed consistently in kind of the five years before we owned it in aftermarket. In terms of things that could be pushed or look differently, maybe I'll start with the end answer, which is with the backlog that we have in RSL, that gives us a lot of confidence to what we're seeing in the kind of imminency here.

Also, could there be somebody that says, "Hey, I'm not going to do a retrofit of a facility"? That's definitely a possibility. I think with the global kind of service network and the spares side on balance, I think those two things probably balance each other is the way we think about it.

John David Anderson (Managing Director)

Okay.

Joe Brinkman (CFO)

Yeah. No, I would add one thing there. I mean, the installed base of Howden equipment is mission-critical in their applications. In a downturn, that equipment is going to continue to be maintained because the ramifications of it not being maintained far outweigh the cost of the maintenance. As Jill mentioned, we saw that when we were doing the Howden diligence. It's not a cyclical segment.

John David Anderson (Managing Director)

Okay. Thank you. Appreciate it.

Operator (participant)

Your next question comes from the line of Walt Liptak with Seaport Research. Please go ahead.

Walter Liptak (Industry Analyst)

Hi. Good morning. Congratulations, guys. I enjoyed that last discussion about Howden. I think diversity is your strength.

Jillian C. Evanko (CEO)

Thanks, Walt.

Joe Brinkman (CFO)

Thanks, Walt.

Jillian C. Evanko (CEO)

We really appreciate that observation and couldn't agree more.

Walter Liptak (Industry Analyst)

Okay. Great. Thank you. I want to go back to the mitigation and ask about selling price increases versus surcharging. If you've started doing any of that yet, especially around steel and how that might, if you're just passing through things with surcharges, how that might impact the gross margin and the aspirations for gross margin this year.

Jillian C. Evanko (CEO)

Yeah. Thanks for the question. In terms of maybe just stepping back, we think of our business pricing in kind of three major categories. The first is project-based pricing, which in that there's multiple mechanisms for change orders and things like that. That is kind of an insulated piece of the business. The second being things that are on long-term agreements, which is primarily in the CTS segment. Those have a pricing mechanism in those where it's really meant not to hurt or benefit either party. What we learned in the last supply chain crisis was that the lag time in terms of the mechanism, like flip-flopping, was something that we had to manage better. Subsequently, we've done that. The third is really the book-and-ship business with the price book.

We did launch a price increase earlier in April for that piece of the business, and we are watching that carefully. I think overall, we feel like we have got a lot of good activities underway that would not materially impact margin as we see it today.

Joe Brinkman (CFO)

Yeah. One thing I want to add on our tariff exposure, one thing to remember is we do not manufacture finished goods in other regions and then bring them into the U.S. and have tariff exposure on the whole value of the equipment. We are largely manufacturing in the U.S. for the U.S. market. Our exposure is on the raw material side. In every case where we have sourced those raw materials internationally, we also have domestic sources. We can pivot between the international raw material sources and the domestic raw material sources as the economic situation changes like tariffs. Not importing finished goods for resale and having exposure on the whole value of the finished goods is one important aspect of our tariff exposure.

Walter Liptak (Industry Analyst)

Okay. Great. With that April pricing, that was a price increase, not a surcharge. Is that right?

Jillian C. Evanko (CEO)

That was a price increase. That's a price increase. Correct.

Walter Liptak (Industry Analyst)

Okay. Great. Okay. Am I thinking about it right to think that there could be a gross margin impact from some of this, or does this just sort of kind of still play in maybe even positively into gross margin targets?

Jillian C. Evanko (CEO)

Yeah. I would say not. I would not go so far as to say positively at all. What I would say is that we feel like the gross potential impact is manageable on an annualized basis. Clearly, that is based on what we know today, that the team has done an exceptional job in terms of being agile and been hitting these hard. We have also some members of our executive leadership program that are on this daily, and we are tracking it and all of that. Our intent would be that through these mitigating actions, we are able to manage our way where it does not have a meaningful impact to gross or operating margin.

Walter Liptak (Industry Analyst)

Okay. Great. Okay. Thanks so much.

Jillian C. Evanko (CEO)

Thanks, Walt.

Operator (participant)

Your next question comes from the line of Rob Brown with Lake Street Capital Markets. Please go ahead.

Rob Brown (Senior Research Analyst)

Hi, Jill.

Jillian C. Evanko (CEO)

Hey, Rob.

Rob Brown (Senior Research Analyst)

On the specialty gross margins, which were improving nicely in the quarter, what's sort of the opportunity there? Where do you think you can get those to?

Jillian C. Evanko (CEO)

Yeah. Thanks, Rob. Thanks for recognizing that too. It's kind of been a long haul to get through some of the stuff, but we really needed to get that capacity in play given what we're seeing in terms of demand. I'd be happy if this year it hangs around the low 30s. If we could consistently be 30% plus in the next nine months or eight months, I'm going to be pleased with that.

What I think it should be is closer to like 33%-34%. In terms of 2025, we still have some efficiencies to gain in order to get to that. In terms of the project mix and the technologies and capabilities and some of the unique manufacturing capacity that we now have, that should be ticking closer to that 33%-34%. I don't want to get out over our skis for what it could look like in 2025.

Rob Brown (Senior Research Analyst)

Okay. Thank you. I'll turn it over.

Jillian C. Evanko (CEO)

Thanks, Rob.

Operator (participant)

Your next question comes from the line of Martin Malloy with Johnson Rice. Please go ahead.

Martin W. Malloy (Director of Equity Research)

Good morning. Thank you for taking my questions.

Jillian C. Evanko (CEO)

Hi, Marty.

Martin W. Malloy (Director of Equity Research)

The first question I had was on nuclear. I was just wondering if maybe you could talk a little bit more about the scope of potential award for Chart, whether it's upright projects on existing large nuclear facilities or maybe some of the newer SMR designs, what you potentially could sell into those areas.

Jillian C. Evanko (CEO)

Yeah. Thanks, Marty, for the question. We're excited about nuclear. We're excited about helium. We're excited about data center. There's a lot going on that all kind of circles this energy, intensity, and energy security concept. In terms of nuclear, there's a few different areas that we play in. Retrofitting existing is primarily smaller dollar work for us. Take a fan as an example. That work is fairly consistent. It's not huge. It's not large in terms of what we have right now, but it's generally coming from the players that you would anticipate it comes from. The second is SMR, and that's more of what I call an early it's a little bit more embryonic in where it is and its evolution. A lot of smaller players trying to sort out what they want to do in particular in Europe.

We have good capabilities on the Howden compression side for that. The third is what I call nuclear/helium. We have current customers and a growing pipeline of potential new customers for helium circulation. That is one area. In this category, helium liquefaction, compression goes into that as well. Compression kind of leads some of that, but also our cryogenic technologies do as well. That third category is where I see the largest opportunity in kind of the near medium term. That pipeline in the first quarter, it grew three times what it was. It is becoming a hotter topic. That is not a regional comment. It is a comment for both Europe and North America.

Martin W. Malloy (Director of Equity Research)

Great. For follow-up question, just wanted to ask about with respect to ChartWater. Are you all doing anything in terms of oil field-produced water, pretreatment, or cleaning it up even further for beneficial reuse?

Jillian C. Evanko (CEO)

No, not specific to that application. Most of our water treatment is SDOX, oxidation, oxygenation, and PFAS, PFOS.

Martin W. Malloy (Director of Equity Research)

Okay. Thank you.

Jillian C. Evanko (CEO)

Thanks, Marty.

Operator (participant)

There are no further questions at this time. I would like to turn it back to Jill Evanko for closing remarks.

Jillian C. Evanko (CEO)

Thank you so much to everyone for joining us today, and we look forward to keeping you updated across the coming few months and quarters ahead. Have a great day. Thank you again to all of the Global One Chart team members for all you do every day. Take care.

Operator (participant)

Thank you, presenters. Ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.