Chart Industries Q1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
May 1, 2025

Key Takeaways

  • Chart Industries delivered a Q1 beat with orders up 17.3% to $1.32 B, sales +6.6%, gross margin of 33.9%, adjusted EBITDA at 23.1% of sales, and adjusted EPS of $1.86 (+38.8%), while reaffirming full-year 2025 guidance.
  • Backlog remains robust at ~$24 B, with LNG representing ~25% (including $1 B of potential IPSMR projects) and strong demand across space, nuclear, marine, hydrogen vehicle tanks and a growing data center pipeline (~$400 M over 12-18 months).
  • Tariffs pose a gross annual headwind of ~$50 M (~$34 M for the rest of 2025), but Chart is mitigating impacts via regional sourcing, price increases, duty exemptions and flexible manufacturing to preserve margins.
  • Q1 free cash flow was –$80 M (seasonal) but improved by $55.6 M YoY; net leverage stands at 2.91× with a target of 2–2.5× by year-end supported by $550–600 M of FCF.
  • Segments remain diversified: CTS orders down 4.2% YoY but up sequentially +10% with margin recovery, HTS pipeline strong despite a 7% orders dip, Specialty Products posted 24.6% orders growth and >30% gross margin, and Aftermarket/RSL orders jumped 36%.
AI Generated. May Contain Errors.
Earnings Conference Call
Chart Industries Q1 2025
00:00 / 00:00

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Operator

Good morning, and welcome to the Chart Industries twenty twenty five First Quarter Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' 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.

Operator

A telephone replay of today's broadcast will be available approximately two hours following the conclusion of the call until 05/08/2025. 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 obligation to update publicly or revise any forward looking statement.

Operator

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 Presentations section of the Chart website at www.chartindustries.com. I would now like to turn the conference over to Jill Ivankoe, Chart Industries' CEO. You may begin.

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

Thank you, Ludi. Good morning, and thank you for joining our first quarter twenty twenty five earnings call. Joining me today is our CFO, Joe Brinkman. We'll begin on Slide four of the supplemental deck that was released this morning. When compared to the first quarter of twenty twenty four, orders of $1,320,000,000 increased 17.3% and included the addition of Woodside Louisiana LNG phase two.

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

Woodside Louisiana LNG is utilizing our IPSMR process technology and associated equipment for their project. As of the end of the first quarter of twenty twenty five, LNG makes up approximately a quarter of our backlog. Sales of $1,000,000,000 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 and 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.

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

Adjusted EBITDA of $231,100,000 was 23.1% of sales, an increase of 80 basis points. Reported adjusted diluted earnings per share, was 99¢, and adjusted, was a dollar 86, an increase of 38.8%. Free cash flow was negative $80,100,000 due to the uses of cash customary for our first quarter, yet still represented an improvement of $55,600,000 when compared to the first quarter twenty twenty four's free cash flow. 03/31/2025 net leverage ratio was 2.91, and we reiterate our target net leverage ratio of two to 2.5 expected to be achieved in 2025. Looking ahead, we continue to see positive demand trends as we start the second quarter of twenty five across majority of the business, and we'll share more information on that as well as an unanticipated gross impact from tariffs for which the team has been very nimble to address and take mitigating actions to date.

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

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 twenty twenty five order activity demonstrated continued broad based demand. Examples of this activity is shown on Slide five. I already mentioned Woodside Louisiana LNG phase two being booked in q one. Note that Woodside anticipates phases three and four that are not yet in our backlog, each of which is the same content as phase two.

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

First quarter 20 five 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 run order for HLNG vehicle tanks with a Volvo Iker, a brazed aluminum heat exchanger order with Honeywell UOP, multiple tank and heat exchanger orders with a space exploration customer, multiple railcars with a large industrial gas customer, and an order with NAON 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 $24,000,000,000 even as we convert larger projects in that pipeline into our backlog.

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

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 US administration support for LNG. Additionally, aftermarket is holding up strongly across all of our regions to date. Even with the strong orders in q one for nuclear, marine, and space, we've already, in April, booked over $54,000,000 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.

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

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 were pleased to see industrial gas orders via our CTS segment increase sequentially by 10% from Q4 'twenty four to Q1 'twenty five. In total, we anticipate that our second quarter twenty twenty five orders will be higher than our second quarter twenty twenty four orders. Data centers and AI continue to be a driver for the growing energy demand globally.

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

Our existing portfolio of heat rejection, cryogenic storage, water treatment, and digital monitoring to 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 twelve to eighteen months commercial pipeline for data centers specifically has expanded to approximately $400,000,000 of opportunities. Now Joe will take you through Q1 specifics.

Joe Brinkman
Joe Brinkman
Vice President and Chief Financial Officer at Chart Industries

Slide seven is a summary of the first quarter compared to Q1 twenty twenty four, 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 twenty twenty four. 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.

Joe Brinkman
Joe Brinkman
Vice President and Chief Financial Officer at Chart Industries

Additionally, Q1 was the first quarter since 2022 of Specialty Products gross margin above 30% and we continue to leverage our SG and A on more throughput. This contributed to adjusted EBITDA of over $231,000,000 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 and A as we deliver more volumes to our shops, which is reflected in the 190 basis point improvement in adjusted operating margin.

Joe Brinkman
Joe Brinkman
Vice President and Chief Financial Officer at Chart Industries

Turning to slide ten, first quarter free cash flow was negative $80,100,000 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 $79,000,000 occurs in the first and third quarter of the year. Our capital expenditures for 2025 are anticipated to be in the 2% to 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 twenty twenty five 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 twelve month sales was 16.3%.

Joe Brinkman
Joe Brinkman
Vice President and Chief Financial Officer at Chart Industries

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 05/01/2025. The new agreement was executed this week on April 30. 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 two to 2.5, we will not do any material cash acquisitions or share repurchases.

Joe Brinkman
Joe Brinkman
Vice President and Chief Financial Officer at Chart Industries

We reiterate that we anticipate ending 2025 with approximately $3,000,000,000 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 $550,000,000 and $600,000,000

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

So let's move to slide 11 to discuss our Q1 twenty twenty five segment results. Starting with Cryotank Solutions or CTS. First quarter twenty twenty five CTS orders of $152,600,000 decreased 4.2% when compared to the first quarter of twenty twenty four. It is important to note that CTS orders, as I mentioned earlier, increased over 10% sequentially versus the fourth quarter of twenty twenty four, resulting in the first sequential quarter increase in CTS backlog in a year. CTS first quarter twenty twenty five sales of $153,000,000 declined 4.1, yet grew 2% sequentially versus the fourth quarter.

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

CTS first quarter '20 '20 '5 adjusted operating income margin of 12.7% improved two twenty basis points and reflects operational efficiencies as well as improved long term agreement constructs. Moving to Heat Transfer Systems or HTS. First quarter twenty twenty five HTS orders of $220,700,000 declined 7% when compared to the first quarter of 'twenty four. 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 $267,300,000 increased 5.4% driven by conversion of LNG and data center backlog.

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

HTS adjusted operating margin in the first quarter twenty twenty five was 25.5%, a four sixty basis point improvement compared to the first quarter of twenty twenty four as SG and A remains consistent even as we deliver higher volumes. In Specialty Products, for the first quarter of twenty twenty five, orders were 487,700,000 and increased 24.6% when compared to the first quarter of twenty twenty four. This included record orders in nuclear, space exploration, marine, and HLNG vehicle tanks that I described earlier. Specialty products sales of $276,100,000 increased 16.7% when compared to the first quarter of twenty twenty four, 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 q one twenty four driven by backlog conversion, greater efficiencies, and leverage of SG and A.

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

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 twenty twenty five orders of $454,600,000 grew 36.1% when compared to the first quarter of twenty twenty four, driven in part by a retrofit order for a coal fired power plant. RSL sales grew 1.3% compared to the first quarter of twenty twenty four, which was driven by timing of certain projects and field work being scheduled for post Q1. RSL adjusted operating margin of 32.4% decreased two seventy basis points when compared to the first quarter of twenty four as a result of lower spare sales in q one twenty twenty five, which we attribute to timing.

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

We expect and continue to expect looking ahead RSL gross margin to be in our normal mid 40% range for the year. So 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. So let's look at slide 12, where you can see some of the statistics from the first quarter of twenty twenty five. We expanded the number of service and framework agreements by 10.7% since the end of twenty twenty four, and we have continued to leverage our ecommerce tools to drive more spares using our website chart parts. Specifically, orders on the website increased 9% in q one twenty five when compared to q one twenty four.

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

In addition to growing our installed base 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 steep turbines in The Middle East. The Howden screw compressor brand is well known for reliability and quality, and we are gaining installed base 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.

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

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 $50,000,000 With eight months remaining in 2025, this would be a remainder of the year gross impact of estimated approximately $34,000,000 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 cost where possible.

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

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 twenty twenty five 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.

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

And 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 US market pricing goes up for domestic steel, we anticipate that we can pass that along to many of our customers. And then 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 cost on steel and aluminum for existing backlog.

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

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've not seen any material changes in the business. Our full year 2025 sales are anticipated to be in the range of $4,650,000,000 to $4,850,000,000 Our full year 2025 anticipated adjusted EBITDA range is 1,175,000,000 to $1,225,000,000 As we have previously mentioned, our second half twenty twenty five 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.

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

Examples of this include, but are not limited to, timing of revenue on 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 pay down 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 and D activities.

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

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, are underpinned with our commitment to a simplified balance sheet and capital structure. And 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. Ludi, please open it up for Q and A.

Operator

Thank you, Jill. And ladies and gentlemen, we will now begin the question and answer session. And with that, your first question comes from the line of Scott Gruber with Citigroup. Please go ahead.

Scott Gruber
Scott Gruber
Director - Oilfield Services & Equipment Research at Citi

Good morning.

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

Hey. Good morning, Scott.

Scott Gruber
Scott Gruber
Director - Oilfield Services & Equipment Research at Citi

Couple of questions here. So first, I'll just start with kind of the number one inbound we've got on chart over the last month or so. It's 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, etcetera.

Scott Gruber
Scott Gruber
Director - Oilfield Services & Equipment Research at Citi

Where do you fabricate the equipment and and overall your ability to shift any US based fabrication, you know, destined for China to to other locations?

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

Yes. So when we specifically in China, we manufacture primarily cryogenic tanks, and we can manufacture certain trailers in addition to that equipment on the Houdon side related to power generation. So 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 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've been able to, over the course of the last week or so, get certain exemptions on codes actually in China specific.

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

So we've seen that gross exposure reduced by about 40% in the last week with those exemptions on any inbound specific material. So, ultimately, industrial gas, power gen, and manufacturing in China for China, primarily, and then the inbound, material as I just described.

Scott Gruber
Scott Gruber
Director - Oilfield Services & Equipment Research at Citi

I appreciate that color. And then it does, you know, look like the overall tariff impact is is rather modest, in part, you know, because of the manufacture in China for China. But are there other moving pieces that are helping you offset it and and keep, you know, the overall EBITDA guide for the year? Are there 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 you know, the the tariffs and, you know, risk around a a general economic slowdown?

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

Yeah. So let me start just with the the kinda overarching aspect of the business that I think is really important for people to to recognize that, on the new build side, we're 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. And then 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 with the visibility in the business. When you look at tariffs specifically, you know, I laid out some of the mitigating action actions that we've been taking.

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

The team's been working really hard at this. The in region supply strategy, I think, is 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 twenty twenty one supply chain crisis. I'd I'd also point to this what we call flexible manufacturing strategy where, we make nearly all of our parts in more than one location. That that stems from wanting to be close to customer projects, especially with larger equipment to give us advantage, commercially.

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

But over the years, that flexible manufacturing footprint in conjunction with the regional supply, is proving to to help us, in this current in this current situation. When you look at other things that gave us more confidence in, reiterating our guide, you know, I I 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%, I guess, for the first time since q three of twenty twenty two. And, you know, that 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, braze oil and heat exchangers. So, those are a couple of the segments that I would point to.

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

And then finally, as we get more IPSMR LNG content, clearly leading with the technology and then the associated equipment, gives us visibility into, into the timing around those projects as they come into backlog. So we're really still very bullish on the nat gas side of the business.

Scott Gruber
Scott Gruber
Director - Oilfield Services & Equipment Research at Citi

That's great color, Jill. Thank you.

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

Thank you, Scott.

Operator

And your next question comes from the line of Saurabh Plant with Bank of America. Please go ahead.

Saurabh Pant
Saurabh Pant
Analyst at Bank of America

Hi. Good morning, Jill and Joe.

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

Hey. Good morning, Jill,

Saurabh Pant
Saurabh Pant
Analyst at Bank of America

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? But I think, if I'm looking at the slide deck correctly, you are assuming that general economic activity remains stable. Right?

Saurabh Pant
Saurabh Pant
Analyst at Bank of America

And that's where a lot of people are concerned about a lot of uncertainty. Then 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 the potential scenarios.

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

Absolutely. Thanks, Hara, for the question. What I would point to is is not only, you know, 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, 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 twenty four. We didn't really see it get better.

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

In the fourth quarter of twenty four. We had softness in general in our thinking around industrial gas. So while q one does not make a trend, we we were pleased to see sequential order growth in q one versus q four in the CTS segment. But I that's a that's a watch that's a watch market for me. I would say, I think this is not new news.

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

Right? But hydrogen in The Americas, in particular, is an area that we anticipate to be, to be impacted by the uncertainty that that we're all describing here. But outside of that, I mean, just just the fact that we started the year with more orders in space exploration, nuclear, marine, HLNG vehicle tanks in q one than the entire year of '24, and '24 was a strong year. That that gives us again, some more confidence around, as we see the rest of the year go through backlog, into the guide. So the diverse end markets and, the two end markets I just named would be the risk areas.

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

If we we'll watch those very carefully, and 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 the only meaningful cancellation we had was one hydrogen project out of backlog. So that has, again, not been a trend so far. And then my the last part of my answer, I think, is which is important is just as we think about the low end and the high end of our outlook, you know, the 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, that we would anticipate based on what the customers are telling us now. So that that's, I think, an important thing too when I'm answering your question around uncertainty.

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

That would be the other thing for us that we're watching as the second quarter unfolds.

Saurabh Pant
Saurabh Pant
Analyst at Bank of America

Right. Right. No. That's super helpful, Jill. And maybe a quick follow-up on you talked about the diverse end markets.

Saurabh Pant
Saurabh Pant
Analyst at Bank of America

It's really good to see that slide on your data center opportunity. And if I'm remembering it remember remembering it correctly, Jill, when we were in London together, we were talking about $500,000,000 opportunity over the next three years. Now you're saying 400 over the next twelve to eighteen months. So it looks like a lot of that opportunity has come forward. So maybe talk to that a little bit and just if you are looking at that slide outside of just the air coolers, where where else are you seeing that opportunity accelerate?

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

Yeah. Absolutely. Thank you for the question. And you remember perfectly that our original kind of addressable market size of anticipated business that we had thought for three years was about $500,000,000. Now that now that we've really hammered into this market with a dedicated resource, we're seeing more and more opportunities for our existing product and solutions for this end market.

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

And that that 400,000,000 is a tangible number. That is actually bid built bottoms up from the customer pipeline and discussions that we've had over the last sixty days. So that that is good to see that accelerating. And the air coolers and fans, so our fin 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 Tuff Lite four that has the very specific and unique, sweeping blade design, which is, is really well equipped and suited for applications with, high wind, for example, in regions that that are like the Gulf Coast Of The United States. And so that that sand can really help serve data centers in certain applications.

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

We're also in many discussions around the cryogenic cooling side of our business As these as these AI projects and AI learning happen, the energy intensity continues to increase. And so in some cases, our cryogenic cooling solutions are really well suited for those applications. And then you get into things like, 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
Saurabh Pant
Analyst at Bank of America

Awesome. Okay. Thanks for that color. I'll turn it back.

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

Thanks, Arab.

Operator

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

Marc Bianchi
Managing Director at TD Cowen

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

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

Correct, Mark. Yeah. Good morning. So that is the numbers that we show there is an annualized gross impact, that we estimate for the year. And so twelve months, obviously, we're in month starting month five here.

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

So, that's just a mathematical calc for this the remaining eight months. Those do not reflect any of the mitigating actions that we've described here, of which many, many are underway. You know, we're we're certainly the norm in terms of the war rooms attacking this with all all hands on deck around the world to to mitigate what these potential actions are. We do have good visibility to, obviously, the contracts and backlog and how they're structured and our ability to pass through cost to customers. I I mentioned a few exemptions that we've already received to date.

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

I'd also mentioned that inclusive in that approximately 50,000,000 annual, gross number is if, the ninety day pause were lifted and it went in the 10% reverted back, to a higher number. So that's also in that. So what I would say is that we we believe that we've that we're well underway in mitigating these tariffs, and that gives us confidence. I won't go I won't go into specifics because some of it is customer 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.

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

And what we've seen to date, you will continue to 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 at TD Cowen

Okay. Great. Yeah. And I I would just echo, like, I think it's definitely a much smaller number than a lot of people are anticipating. On on going into second quarter and just some of the, you know, disruption that we've people are expecting to be out there, it doesn't seem like you're expecting it for the year.

Marc Bianchi
Managing Director at TD Cowen

But 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? Like if I think about typically what we've seen from 1Q to 2Q is revenue goes up 10%, maybe you get a couple 300 basis points of margin EBITDA margin improvement from from one q to February. Any reason that's not a good base case assumption?

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

No reason to assume '25 is any different than the last couple of years in terms of seasonality.

Marc Bianchi
Managing Director at TD Cowen

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

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

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

Joe Brinkman
Joe Brinkman
Vice President and Chief Financial Officer at Chart Industries

Yeah. Twice a year. It's probably an annual.

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

Is it I I never get that right.

Saurabh Pant
Saurabh Pant
Analyst at Bank of America

Me too.

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

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

Operator

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

Eric Stine
Senior Research Analyst at Craig-Hallum Capital Group LLC

Hi, Joe. Hi, Joe.

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

Hey, Eric.

Joe Brinkman
Joe Brinkman
Vice President and Chief Financial Officer at Chart Industries

Hey, Eric.

Eric Stine
Senior Research Analyst at Craig-Hallum Capital Group LLC

Good morning. So you called out a number of these end markets where 25% is better or first quarter, better than all of 24%. Great color on the data center business. So 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.

Eric Stine
Senior Research Analyst at Craig-Hallum Capital Group LLC

Know, I know business can be lumpy, and, 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 kinda reached a different level for you in terms of being a business that you can count on, that you see growth? And it's kinda just moved beyond that really lumpy kind of start up of end markets.

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

Yeah. Thanks, Eric. And you've been you've been around as well for a while and seen kind of seen the evolution, and that's that's what I would call it. That has really been a journey. And and I'm so pleased as we sit here today to be able to to have this discussion because we've worked really hard to get out of that super peaky, super troughy, reliant on a project or two, which, you know, again, that just that just took us some time.

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

So reiterating your point of, you know, having more visibility on the new build backlog that we have across a variety of end markets is super helpful, and then having that more meaningful RSL or aftermarket service repair, especially when we when I was talking to our four presidents earlier this week and asking, like, 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. And to a to a t, the four of them said, no. It's holding up very well.

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

And, so that that was a big positive. I think the diversification of the end markets and more content on these projects also, helps us in this, in this evolution that we're under here. Meaning, like, hey, space three years ago, space exploration was maybe I'm gonna I'm gonna spitball here, but maybe a $10,000,000, style a year. And now, you know, we told you at the end of, February, we told you that we had already booked 60,000,000 of space exploration orders. And that number is now, year to date, around 95,000,000 as of, yesterday.

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

So these are end markets that we have more content. We're leading with technology. And then I would be, 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. So I feel like we're we're we're at that precipice now where we're we're really seeing those two pieces of the puzzle contribute to us looking very different as a business than we did eight to ten years ago.

Eric Stine
Senior Research Analyst at Craig-Hallum Capital Group LLC

Yep. No. That's great. And on repair service and leasing, I know you're talking about, you know, just making sure that that business is holding up. But if I recall past, you know, times where maybe there was economic uncertainty, repair service and leasing actually was was almost better off because customers are more likely to protect what they have rather than new.

Eric Stine
Senior Research Analyst at Craig-Hallum Capital Group LLC

So I mean, curious. It seems like that would almost be a bit of a, you know, a counter if things were to get worse or more uncertain, if that's possible. Just curious your thoughts on that.

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

Yeah. Yeah. More uncertain, if that's possible. Right? It's a interesting time right now.

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

I think what you said I 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. But what we also really like about the RSL, business is not only what you just described where if, you know, the uncertainty or things things get delayed on new build or CapEx or OpEx purchases, then people are still not only retrofitting, but preventive maintenance and regular maintenance to keep keep plants running is very, very important. And that's also where digital uptime the Houdon digital uptime preventive maintenance software that we're taking across other product lines. We've had a lot of interest in that as well, so that's not a reactive where a customer has to come and ask for a quick ship of something, but rather a preventive.

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

So all those things we like because it's not it's not one thing that's driving RSL. It's a lot of different things that are driving it. And then this, whole idea of optimization for molecules. So, you know, we talked a lot last year about the retrofit. It's a bean pass for fans to help the customer get as much product out for them of the existing facility.

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

And I think we're gonna 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 its of that kind for our application using our SCS cryogenic carbon capture technology.

Eric Stine
Senior Research Analyst at Craig-Hallum Capital Group LLC

Okay. Thank you.

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

Thanks, Eric.

Operator

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

Benjamin Nolan
Benjamin Nolan
Managing Director at Stifel Financial Corp

Hey, Jill and Joe. Good quarter. Okay. So my my couple quick ones are, number one, just from a macro perspective on the LNG side, just in, you know, 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
Jillian C. Evanko
President, CEO & Director at Chart Industries

Yeah. No. I I think I think your observation is is what we would have answered the question with as well. We're definitely seeing an acceleration. You know, what our what our energy team tells me is that, to a tee, all of our customers are saying, that they're gonna take advantage of, pro energy environment and pro LNG and natural gas environment.

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

And I think you're seeing that with projects that are looking are pushing really far ahead. But, also, it's good to see some of these offtake arrangements getting getting put in place for the projects. So, yes, I would say that. What what I didn't size in the prepared remarks, but I'll 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 twelve months is about a billion dollars. That's a meaningful number, and that does not include the ExxonMobil, Mozambique, Rovuma, that we already that's not in backlog, but we know we'll utilize IPSMR in our equipment.

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

So that number is x that, and, the and those are that's a handful of global global LNG work, and that pipeline continues to expand. And then the other piece of it that's a little bit, tangential, but, certainly hits this 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
Benjamin Nolan
Managing Director at Stifel Financial Corp

Right. The color is very helpful. Appreciate it. And then secondly, just switching gears a little bit. I know you maybe nothing, but it sounds like you're sort of changing how you refer to the RSL business being aftermarket service and repair.

Benjamin Nolan
Benjamin Nolan
Managing Director at Stifel Financial Corp

Maybe it's always been that way, just didn't notice. But curious where the leasing part is in that? I mean, 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 that part of the business?

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

Yeah. No. Leasing still is an important part of that business as well. So we just internally, sometimes we'll we flip flop between how we refer to it, and sometimes we just even say aftermarket generally for the entire segment. So that's probably just a little bit of semantics on my part.

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

But now leasing is still a really important offering for our customers, and we've staged the course on that being standard product. So that's that there's no change in our leasing strategy. And the the only thing I would answer as it always has been, which is that, we do that within, you know, our financial policy. We're not gonna go outside of our financial policy to, to build some massive leasing fleet on our own on our balance sheet.

Benjamin Nolan
Benjamin Nolan
Managing Director at Stifel Financial Corp

Got it. Alright. I appreciate it. Thanks, guys.

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

Thanks, Ben.

Operator

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

Arun Jayaram
Vice President at JP Morgan Chase & Co

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

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

Yes. So, what what I was really trying to convey there in that commentary is that, orders, while down from q one twenty four to q one twenty five in HTS by about 7%, doesn't really reflect what we're seeing commercially in the market where, some of these are just timing. Like, can't can't always jam a 20 to $50,000,000 order, into March 30 or thirty first and maybe comes in in April type of thing. So that was really the the genesis of what I was trying to convey with that comment, is that we continue to be 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, kinda 20,000,000 at the lower end to, in that 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 two would be approximately a hundred and 40,000,000, or so.

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

And there's a couple of those in that pipeline, and then there's a handful of the 20 to 70 millions.

Arun Jayaram
Vice President at JP Morgan Chase & Co

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

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

Yeah. So I would say, you know, RSL was in line with what we had HTS, with the conversion of the data center and the LNG backlog, the more IPSMR backlog we have in HTS, the better for us. And so that that's, going that's 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, and that's, again, just specific product mix in that segment.

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

But we like to see we we like to see things like the rail car order that came in. That's that's good. That's good mix for us. Larger tanks are good mix for us, etcetera. And then finally, specialty is, is the one that, you know, kinda drumbeat here that over the last twenty four months, right, we've been we gotta get specialty back to that 30% mark.

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

That's that's been 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. But I feel like we're we're at that turning point and q one reflected that. So looking ahead, you know, we've said that the medium term, mid mid 30% gross margins, and, we feel like we're on our way on that path.

Arun Jayaram
Vice President at JP Morgan Chase & Co

Great. Thanks a lot.

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

Thanks, Arun.

Operator

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

J. David Anderson
J. David Anderson
Managing Director at Barclays

Hi. Good morning, Joe. 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?

J. David Anderson
J. David Anderson
Managing Director at Barclays

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
Jillian C. Evanko
President, CEO & Director at Chart Industries

Yeah. Absolutely. Thanks, Dave. And I appreciate you flip flopping between aftermarket and RSL. The Trying to.

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

So first, I would say that, we were very pleased that and when we look within RSL, right, we look at leasing, we look at retrofits slash service as a category, and then the third category being spares. And what we were very pleased to see was the, retrofit service and spares. Both of those orders were up, q one to q one. So that's good to see because it's not really it it's indicating that's not one particular driver. We did see a good we had a strong Americas q one, which we had we had anticipated, but it came through.

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

And that's a good thing because Americas is a large region for us. It's also a region that, out of the out of the four regions that we discussed, it currently has the lowest percent of its revenue as our cell. And so that is an indicator of gaining some share for us. And then that, the retrofit side was retrofit slash service side was kind of broad based demand, and then there were two that were a little bit larger. One being a mining South Africa service project that came in, and then the other being the CCUS with the retrofit on, with a utility customer.

J. David Anderson
J. David Anderson
Managing Director at Barclays

So it I'm I'm just kinda curious. So Houghton came in, I guess, what, about two years ago. So 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 is kind of one of the watch markets. I'm just curious how you're thinking about some of the potential risks in aftermarket.

J. David Anderson
J. David Anderson
Managing Director at Barclays

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 we kind of delay some of this spending. Is there any concern that that could happen? Or counter to that is, are you just seeing kind of this build out of your of your backlog that kind of offsets any of those potential concerns?

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

Yeah. So let me start with the first part of the question on kind of how it in the aftermarket and how it performed, under in the private world, that I would it was very consistent. And, so the only time in how it in where there was even kind of a blip in a quarter for aftermarket was, summer of twenty twenty where, people couldn't go to site. And so that really pushed from, like, q two to q three, but it was within a year. So it performed consistently, in kind of the five years before we owned it, in aftermarket.

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

In terms of things that we're that could be pushed or look differently, maybe I'll start with the 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 in the kind of imminency here. But, also, could there be, somebody that says, hey. I'm not gonna do a retrofit of a facility. That's definitely a possibility. But I think with the global kind of service network and the spare side, on balance, I think those two things probably balance each other, is the way we think about it.

J. David Anderson
J. David Anderson
Managing Director at Barclays

Okay.

Joe Brinkman
Joe Brinkman
Vice President and Chief Financial Officer at Chart Industries

Yeah. No. I just I would add one thing there. I mean, the the installed base of Howard and equipment is mission critical in their applications. So so, you know, in a downturn, that that equipment is gonna continue to be maintained because the ramifications of it not being maintained far outweigh the cost of of the maintenance.

Joe Brinkman
Joe Brinkman
Vice President and Chief Financial Officer at Chart Industries

So that's, you know, we as Joe mentioned, we saw that when we're doing the Houghton diligence. It's not a cyclical segment.

J. David Anderson
J. David Anderson
Managing Director at Barclays

Okay. Thank you. Appreciate it.

Operator

And your next question comes from the line of Walt Lipak with Seaport Research. Please go ahead.

Walter Liptak
Industry Analyst at Seaport Research Partners

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

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

Thanks, Walt. We we really appreciate that that observation and couldn't agree more.

Walter Liptak
Industry Analyst at Seaport Research Partners

Okay. Oh, great. Thank you. So I wanna go back to the mitigation and ask about selling price increases versus surcharging, if if you've started doing any of that yet, especially around steel and how that might you know, 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
Jillian C. Evanko
President, CEO & Director at Chart Industries

Yeah. Thanks for the question. So, 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. So that that's kind of an insulated, piece of the business.

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

The second being things that are on long term agreements, which is primarily in the CTS segment, and those have a pricing mechanism, in those where it's really meant not to not to hurt or benefit either party. And, what we learned in the last supply chain crisis was that the lag time in terms of the mechanism, like flip flopping, was was something that we had to manage better, and subsequently, we've done that. And then 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're watching that carefully. But I think, overall, we feel like we've got a lot of good activities underway that would not materially impact margin as we see it today.

Joe Brinkman
Joe Brinkman
Vice President and Chief Financial Officer at Chart Industries

Yes. Thing I want to add on the our tariff exposure. One thing to remember is we don't 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.

Joe Brinkman
Joe Brinkman
Vice President and Chief Financial Officer at Chart Industries

We're largely manufacturing in The U. S. For The U. S. Market.

Joe Brinkman
Joe Brinkman
Vice President and Chief Financial Officer at Chart Industries

And so our exposure is on the raw material side. And in every case where we've sourced those raw materials internationally, we also have domestic sources. So we can pivot between the international raw material sources and the domestic raw material sources as the economic situation changes like tariffs. So not importing finished goods for resale and having exposure on the whole value of the finished goods one important aspect of our tariff exposure.

Walter Liptak
Industry Analyst at Seaport Research Partners

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

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

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

Walter Liptak
Industry Analyst at Seaport Research Partners

Okay. Great. Okay. And then am I thinking about it right to think that there could be a gross margin impact from, from some of this, or is this just sort of kinda still play in, you know, maybe even positively into, gross margin targets?

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

Yeah. I would say not. I wouldn't go to so far as to say positively at all. What I would say is that we feel like the, the gross potential impact is manageable, on an annualized basis. Clearly, that's based on what we know today, that we have the team has done an exceptional job in terms of being agile and, had been hitting these hard.

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

We we have also, some members of our executive leadership program that are on this daily, and we're tracking it and all of that. So our our intent would be, that through these mitigating actions, we're able to manage our way, where it does not have a meaningful impact to, gross or operating margin.

Walter Liptak
Industry Analyst at Seaport Research Partners

Okay, great. Okay, thanks so much.

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

Thanks, Will.

Operator

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

Rob Brown
Founding Partner, Senior Research Analyst & CSO at Lake Street Capital Markets, LLC

Hi, Jill.

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

Hey, Rob.

Rob Brown
Founding Partner, Senior Research Analyst & CSO at Lake Street Capital Markets, LLC

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

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

Yeah. Thanks, Rob. Thanks for recognizing that too. It's kind of been a a long haul to get through some of the stuff, but we really needed to get that capacity in play given given what we're seeing in terms of demand. I'd be happy if, you know, this year, it hangs around the low thirties.

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

If if if we could consistently be 30% plus in the next, you know, in the next nine months or eight months, I'm gonna be pleased with that. What I think it should be is closer to, like, 33, 30 four percent. But in terms of 2025, you know, we still have we still have some efficiencies to gain in order to get to that. But in terms of, like, the project mix and the technologies and capabilities and some of the unique manufacturing capacity that we now have, that should that should be ticking closer to that 33, 30 four percent. But I don't wanna get out of our skis for what it could look like in '25.

Rob Brown
Founding Partner, Senior Research Analyst & CSO at Lake Street Capital Markets, LLC

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

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

Thanks, Rob.

Operator

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

Marty W. Malloy
Director of Research at Johnson Rice & Company L.L.C.

Good morning. Thank you for taking my questions.

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

Hi, Marty.

Marty W. Malloy
Director of Research at Johnson Rice & Company L.L.C.

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 for Chart, whether it's upright projects on existing large nuclear facilities or or maybe some of the the newer SMR designs. You potentially could sell under those areas?

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

Yeah. Thanks, Marty, for the question. We're excited about nuclear. We're excited about helium. We're excited about data center.

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

You know, there's a lot there's a lot going on that all kind of circled this energy intensity and energy security, concept. In terms of nuclear, there's a few different areas that we play in. So retrofitting existing is is primarily a smaller dollar work for us. So, take a fan as an example. Those that's that work is fairly consistent.

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

It's not huge. It's not large in terms of what we have right now, but it 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, like, an early it's it's more 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 wanna do, in particular in Europe, But we have good capabilities, on the on the howling, compression side for that. And then the third is what I call, like, nuclear slash helium.

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

And we have, current customers and a growing pipeline of potential new customers for helium circulation. That's that's one area. And that this category, liquefaction, compression goes into that as well. Compression kinda 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.

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

That pipeline in the first quarter, it grew three times what it was. And so it's it's becoming a hotter topic, and that's not a that's not a regional comment. It's a comment for both Europe and, North America.

Marty W. Malloy
Director of Research at Johnson Rice & Company L.L.C.

Oh, great. And from follow-up question, just wanted to ask about with respect to Chartwater. Are you all doing anything in terms of oilfield produced water pretreatment or or cleaning it up even further for beneficial reuse?

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

No. Not specific to that application. Most of our water treatment is S DOCS, oxidation, oxygenation, and PFAS, PFAS.

Marty W. Malloy
Director of Research at Johnson Rice & Company L.L.C.

Thank you.

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

Thanks, Marty.

Operator

And there are no further questions at this time. I would like to turn it back to Jill Ivankoe for closing remarks.

Jillian C. Evanko
Jillian C. Evanko
President, CEO & Director at Chart Industries

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, and thank you again to all of the global OneChart team members for all you do every day. Take care.

Operator

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

Executives
    • Jillian C. Evanko
      Jillian C. Evanko
      President, CEO & Director
    • Joe Brinkman
      Joe Brinkman
      Vice President and Chief Financial Officer
Analysts
    • Scott Gruber
      Director - Oilfield Services & Equipment Research at Citi
    • Saurabh Pant
      Analyst at Bank of America
    • Marc Bianchi
      Managing Director at TD Cowen
    • Eric Stine
      Senior Research Analyst at Craig-Hallum Capital Group LLC
    • Benjamin Nolan
      Managing Director at Stifel Financial Corp
    • Arun Jayaram
      Vice President at JP Morgan Chase & Co
    • J. David Anderson
      Managing Director at Barclays
    • Walter Liptak
      Industry Analyst at Seaport Research Partners
    • Rob Brown
      Founding Partner, Senior Research Analyst & CSO at Lake Street Capital Markets, LLC
    • Marty W. Malloy
      Director of Research at Johnson Rice & Company L.L.C.
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