3Q'26 Earnings Call - CHART INDUSTRIES INC

Explicit Guidance:

• FY2026 Full-Year: Increased adjusted EBITDA midpoint to $5.265 billion; expects free cash flow (FCF) conversion of 45–50% based on $2.1 billion YTD FCF.
• Q4 2026 (Guidance): Company revenue of $8.25 billion; adjusted EBITDA of $1.46 billion. IET revenue $3.55 billion; EBITDA $715 million. OFSE revenue $3.6 billion; EBITDA $640 million. Chart revenue ~$1.1 billion; EBITDA ~$195 million.
• FY2026 IET Orders: Raised outlook to $21.5–$23.5 billion (midpoint implies >1.6x book-to-bill), expecting demand to remain strong into 2027 with book-to-bill >1.0x.
• Chart EBITDA Margins: Targeted to reach 22–23% by the second half of 2028, with further expansion anticipated beyond that period.
• 2027 Outlook:
  • IET: Organic revenue growth in low-to-mid single digits; margins expected to improve as incremental turbine/generator capacity comes online.
  • OFSE: Full-year margin expansion driven by pricing to offset inflation; revenue growth driven by international/offshore activity.
  • Chart: Revenue growth at low-to-mid single-digit rates, with meaningful improvement in the second half supported by synergies and mix.
• Capital Allocation: Confidence in achieving net leverage of <1.5x by the second half of 2028.

Business-Segment Outlook:

• IET: Horizon 2 (beyond 2026) orders expected to exceed $50 billion, driven by sustained investment in gas infrastructure, offshore production, data centers, power systems, and emerging sectors (geothermal, space).
• Data Centers: Year-to-date orders $4.9 billion; sector expected to drive power systems orders toward $7 billion in 2026 and potentially approach $15 billion over Horizon 2.
• LNG: Equipment orders could reach ~$5 billion in 2026; entering Horizon 2, orders could again approach $10 billion as project FIDs accelerate.
• OFSE (Mature Asset Solutions - MASS): Targeting high single-digit CAGR with revenue reaching at least $3 billion by 2030; growing pipeline in Pakistan, Libya, Middle East, and Asia Pacific.
• Chart: Pipeline of order synergies expanding across data centers, geothermal, and space; commercial synergies with IET yielding early wins (e.g., power generation orders from legacy Chart customers).
• Backlog: IET RPO reached record $39.4 billion; 33% of combined GTE/CTS backlog scheduled to convert in 2026, extending revenue visibility beyond 2027.

Market and Competitive Outlook:

• Power Demand: Global power demand expected to double by 2040, driven by AI; ~100 gigawatts of incremental data center capacity expected by 2035 in the US alone.
• Grid Constraints: Persistent grid issues driving hyperscalers/industrial customers toward on-site and "behind-the-meter" power generation, favoring Baker Hughes' gas infrastructure and power solutions.
• LNG Capacity: Existing and committed projects to reach ~800 MTPA by 2030; future FIDs expected to support 950 MTPA by 2035 as countries prioritize supply diversification.
• Competitive Position: Expanding total addressable market (TAM) to >$400 billion via Chart acquisition; strong share gains in "balance of plant" and third-party equipment via Industrial Solutions (CORDENT).

Macro / Industry Outlook:

• Upstream Spending: Expected to be broadly flat year-over-year for the current period, with an improving outlook into 2027.
• Middle East: Near-term activity expected to moderate (return to Q2 levels) due to geopolitical tension; long-term outlook remains constructive with potential for rebuilding/upgrading infrastructure, power, and industrial sectors post-normalization.
• Geopolitics: Continued disciplined customer spending; risks include regional disruptions affecting logistics and execution, though long-term investment need for energy security remains clear.
• Supply Chain/Inflation: Monitoring Middle East supply chain constraints and general inflation (logistics/commodities), with pricing actions intended to offset cost pressures.

Strategic Initiatives:

• Chart Acquisition Integration: Targeting $325 million in annualized cost synergies within three years of closing; $70 million already realized. Expecting >$10 million of synergies in H2 2026.
• Baker Hughes Business System: Deployment into Chart to improve manufacturing sourcing, project execution, and commercial performance; aiming to double dry cooler revenue by 2029.
• Waygate Divestiture: Proceeds expected to support debt reduction in Q4 2026; one month of contribution included in Q4 guidance.
• MASS Strategy: Shifting to outcome-based/performance-linked commercial models in OFSE to optimize recovery and extend asset life; examples include OGDC (Pakistan) and BP (UK North Sea) contracts.
• Capacity Expansion: IET capacity additions for turbines/generators coming online in H1 2026 to support revenue growth.

Risks and Headwinds to Outlook:

• Middle East Geopolitics: Material changes in regional conditions could impact OFSE and IET results; specific risks include logistics disruptions and project delays.
• Supply Chain: Constraints in aero-derivative supply chains (IET) and logistics in the Middle East could impact execution and margins.
• Inflation: Higher logistics and commodity costs pose margin pressure, though pricing actions are planned to mitigate.
• Project Execution: Risks associated with permitting, fuel supply, and site development for data center projects may affect timing, though cancellations are not currently anticipated.
• Seasonality: Expected Q1 seasonal declines in revenue and margins across all segments.

Management Tone on the Future:

• Confidence: High confidence in "sustained investment" and "broad-based demand" across portfolios; describes order momentum as "exceptional" with a "record" RPO.
• Strategic Validation: Chart acquisition viewed as a "significant step" to reach a $400 billion TAM; integration progress described as "strong" with clear KPIs.
• Discipline: Emphasis on "disciplined execution" and "deleveraging" with a clear path to <1.5x net leverage by H2 2028.
• Outlook Language: Uses terms like "constructive," "acceleration," "meaningful improvement," and "durable growth" regarding 2027 and 2028 prospects, while noting 2027 growth may be "more modest" than current high-growth periods due to a longer backlog conversion profile.

Miscellaneous:

• Total Addressable Market (TAM): Expanded to >$400 billion following the Chart acquisition, with exposure to data centers, gas infrastructure, geothermal, space, and industrial gases.
• Installed Base Strategy: Emphasis on equipment orders expanding the installed base to drive long-term, high-margin aftermarket services, upgrades, and digital solutions.