Common stock repurchases from share-based compensation plans
(3.3)
(3.0)
Dividend distribution to noncontrolling interests
—
(12.2)
Dividends paid on mandatory convertible preferred stock
(20.4)
(20.5)
Net Cash Provided By Financing Activities
6.8
1,678.0
Effect of exchange rate changes on cash and cash equivalents
4.6
(0.4)
Net increase (decrease) in cash, cash equivalents, restricted cash, and restricted cash equivalents including cash classified within current assets held for sale
111.4
(2,440.4)
Less: net increase in cash classified within current assets held for sale
—
(5.0)
Net increase (decrease) in cash, cash equivalents, restricted cash and restricted cash equivalents
111.4
(2,445.4)
Cash, cash equivalents, restricted cash, and restricted cash equivalents at beginning of period (1)
201.1
2,605.3
CASH, CASH EQUIVALENTS, RESTRICTED CASH, AND RESTRICTED CASH EQUIVALENTS AT END OF PERIOD(1)
$
312.5
$
159.9
(1)Includes restricted cash and restricted cash equivalents of $2.3 and $12.8 classified within other current assets as of September 30, 2024 and December 31, 2023, respectively, and $12.8 and $1,941.7 as of September 30, 2023 and December 31, 2022, respectively.
See accompanying notes to these unaudited condensed consolidated financial statements.
Notes to the Unaudited Condensed Consolidated Financial Statements – September 30, 2024
(Dollars and shares in millions, except per share amounts)
NOTE 1 — Basis of Preparation
The accompanying unaudited condensed consolidated financial statements of Chart Industries, Inc. and its consolidated subsidiaries (herein referred to as the “Company,” “Chart,” “we,” “us,” or “our”) have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for annual financial statements. These financial statements should be read in conjunction with the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2023. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine months ended September 30, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024.
On March 17, 2023, we completed the acquisition of Howden (“Howden”), a leading global provider of mission critical air and gas handling products and services, from affiliates of KPS Capital Partners, LP. Results from continuing operations include results of Howden from the date of acquisition and exclude Roots™ (“Roots”) business financial results for our entire ownership period of March 17, 2023 through the divestiture date, August 18, 2023. The results of Roots are presented as discontinued operations in the condensed consolidated statements of operations and comprehensive income (loss) and have been excluded from both continuing operations and segment results for the three and nine months endedSeptember 30, 2023. See Note 2, “Discontinued Operations and Other Businesses Sold” for further information regarding the Roots divestiture and also the 2023 divestitures of Cofimco and American Fan, and Note 13, “Business Combinations”, for further information regarding the acquisition of Howden (the “Howden Acquisition”).
Nature of Operations: We are an independent global leader in the design, engineering, and manufacturing of process technologies and equipment for gas and liquid molecule handling for the Nexus of Clean™ – clean power, clean water, clean food, and clean industrials, regardless of molecule. Our unique product portfolio across both stationary and rotating equipment is used in every phase of the liquid gas supply chain, including upfront engineering, service and repair. Being at the forefront of the clean energy transition, Chart is a leading provider of technology, equipment and services related to liquefied natural gas, hydrogen, biogas, carbon capture and water treatment, among other applications. We are committed to excellence in environmental, social and corporate governance (ESG) issues both for our company as well as our customers. With 64 global manufacturing locations and over 50 service centers from the United States to Asia, India and Europe, we maintain accountability and transparency to our team members, suppliers, customers and communities.
Principles of Consolidation: The unaudited condensed consolidated financial statements include the accounts of Chart Industries, Inc. and its subsidiaries. Intercompany accounts and transactions are eliminated in consolidation.
Use of Estimates: The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements. These estimates may also affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and assumptions, based on a number of factors including the current macroeconomic conditions such as inflation and supply chain disruptions, as well as risks set forth in our Annual Report on Form 10-K.
Reclassifications: Certain amounts have been reclassified within the condensed consolidated statement of cash flows for the nine months endedSeptember 30, 2023 to conform with the current period presentation.
Recently Issued Accounting Standards (Not Yet Adopted): In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” The amendments in this update enhance the transparency and decision usefulness of income tax disclosures. This update enhances the rate reconciliation by requiring an entity to disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. The update also requires an entity to disclose on an annual basis enhanced information about income taxes paid, income from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign, and income tax expense (or benefit) from continuing operations disaggregated by federal (national), state, and foreign. The amendments in this update are effective for fiscal years beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. We are currently assessing the effect this ASU will have on our disclosures.
Notes to the Unaudited Condensed Consolidated Financial Statements – September 30, 2024
(Dollars and shares in millions, except per share amounts) – Continued
In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.” The amendments in this update improve reportable segment disclosure requirements through enhanced disclosures about significant segment expenses. Among other things, this update requires an entity to disclose significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”) and included within each reported measure of segment profit or loss. The update also requires entities to disclose other segment items, provide all annual disclosures about a reportable segment’s profit and loss and assets currently required by this Topic in interim periods, disclose the title and position of our CODM, and an explanation of how the CODM uses the reported measures of segment profit or loss in assessing segment performance and deciding how to allocate resources. The amendments in this update are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. We expect this ASU to result in expanded disclosure of segment financial information, with no impact on our financial position and results of operations.
Recently Adopted Accounting Standards: In June 2022, the FASB issued ASU 2022-03, “Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions.” The amendments in this update clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the security and, therefore, is not considered in measuring fair value. The amendments also clarify that an entity cannot recognize and measure a contractual sale restriction and adds additional disclosures for equity securities subject to contractual sale restrictions. We adopted this guidance effective January 1, 2024. The adoption of this guidance did not have an impact on our financial position, results of operations, and disclosures.
NOTE 2 — Discontinued Operations and Other Businesses Sold
Roots™ Divestiture
On June 11, 2023, we signed a definitive agreement to divest our Roots business, which we acquired as part of the Howden Acquisition, to Ingersoll Rand Inc. (New York Stock Exchange: IR) (“buyer”) for a base purchase price of $300.0, subject to customary adjustments. The sale was completed on August 18, 2023 with proceeds totaling $291.9 before customary estimated closing working capital adjustments, which are complete. The purchase price was subject to a final net working capital adjustment of $2.5, settled in the first quarter of 2024.
We previously determined that our Roots business qualified for discontinued operations and as such, the financial results of the Roots business are reflected in our unaudited condensed consolidated statements of operations and comprehensive income (loss) as discontinued operations for our entire ownership period of March 17, 2023 through August 18, 2023.
Notes to the Unaudited Condensed Consolidated Financial Statements – September 30, 2024
(Dollars and shares in millions, except per share amounts) – Continued
Summarized Financial Information of Discontinued Operations
The following table represents (loss) income from discontinued operations, net of tax:
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Sales
$
—
$
17.5
$
—
$
58.8
Cost of sales
—
15.4
—
41.4
Gross profit
—
2.1
—
17.4
Selling, general and administrative expenses
0.5
2.1
1.0
6.9
Operating (loss) income
(0.5)
—
(1.0)
10.5
Other expenses:
Other expense, net
—
3.0
—
9.0
(Loss) income before income taxes
(0.5)
(3.0)
(1.0)
1.5
Income tax (benefit) expense
(0.1)
0.5
(0.2)
1.6
Loss from discontinued operations before loss on sale of business
(0.4)
(3.5)
(0.8)
(0.1)
Loss on sale of business, net of $0.0, $7.5, $0.5 and $7.5 of taxes (1) (2)
—
2.5
2.0
2.5
Loss from discontinued operations, net of tax
$
(0.4)
$
(6.0)
$
(2.8)
$
(2.6)
___________
(1)The loss on sale of the Roots business was $0.0 and $2.5 before taxes for the three and nine months endedSeptember 30, 2024, respectively.
(2)The gain on sale of the Roots business was $5.0 before taxes for both the three and nine months endedSeptember 30, 2023.
Other Businesses Sold
On October 26, 2023, we signed and closed on the divestiture of our American Fan business to Arcline Investment Management, L.P, with net proceeds totaling $109.7 after customary closing working capital adjustments, which are complete.
On October 31, 2023, we completed the sale of our Cofimco fans business (“Cofimco”) to PX3 Partners, with net proceeds totaling $67.4 after customary closing working capital adjustments, which are complete.
NOTE 3 — Reportable Segments
We go to market through One Chart global commercial, engineering, products, operations, and aftermarket organizations. Further, our engineered solutions are utilized across a molecule’s value chain from production to distribution and storage to consumption. We have four reportable segments which operate globally that are also our operating segments: Cryo Tank Solutions, Heat Transfer Systems, Specialty Products and Repair, Service & Leasing. Our Cryo Tank Solutions segment, which has principal operations in the United States, Europe and Asia, serves most geographic regions around the globe, supplying bulk, microbulk and mobile equipment used in the storage, distribution, vaporization, and application of industrial gases and certain hydrocarbons. Our Heat Transfer Systems segment, with principal operations in the United States and Europe, also serves most geographic regions globally, supplying mission critical engineered equipment and systems used in the recovery, separation, liquefaction, and purification of hydrocarbons, liquefied natural gas (LNG) and industrial gases that span gas-to-liquid applications. Our Specialty Products segment supplies products used in specialty end-market applications including engineered liquefaction, storage and compression equipment for hydrogen and helium, LNG for over-the-highway vehicles, biofuels, carbon capture, food and beverage, aerospace, nuclear, marine, mining, lasers and water treatment end markets. Our Repair, Service & Leasing segment provides installation, retrofitting and refurbishment, services and repairs, preventative and contractual maintenance, and digital solutions of Chart’s stationary (liquefaction, fueling stations, among other products) and rotating equipment (compression, fans, among other products) globally in addition to providing targeted equipment leasing solutions.
Notes to the Unaudited Condensed Consolidated Financial Statements – September 30, 2024
(Dollars and shares in millions, except per share amounts) – Continued
Corporate includes operating expenses for executive management, accounting, tax, treasury, corporate development, human resources, information technology (“IT”), investor relations, legal, internal audit, risk management and share-based compensation expenses. Corporate support functions are not allocated to the segments.
We evaluate performance and allocate resources based on operating income as determined in our condensed consolidated statements of operations and comprehensive income (loss).
Notes to the Unaudited Condensed Consolidated Financial Statements – September 30, 2024
(Dollars and shares in millions, except per share amounts) – Continued
Total Assets
Corporate assets mainly include cash and cash equivalents and long-term deferred income taxes as well as certain corporate-specific property, plant and equipment, net and certain investments. Our allocation methodology for property, plant and equipment, net of the reportable segments differs from our allocation method of depreciation expense of a reportable segment and therefore, depreciation expense does not entirely align with the related depreciable assets of the reportable segments. Furthermore, since finite-lived intangible assets are excluded from total assets of reportable segments while amortization expense is allocated to each of our reportable segments, amortization expense by segment inherently does not align with the related amortizable intangible assets of the reportable segments.
Notes to the Unaudited Condensed Consolidated Financial Statements – September 30, 2024
(Dollars and shares in millions, except per share amounts) – Continued
Revenue recognized for the three months ended September 30, 2024 and 2023, that was included in the contract liabilities balance at the beginning of the year was $65.0 and $17.3, respectively. Revenue recognized for the nine months ended September 30, 2024 and 2023, that was included in the contract liabilities balance at the beginning of each year was $284.9 and $162.7, respectively. The amount of revenue recognized during the nine months ended September 30, 2024 from performance obligations satisfied or partially satisfied in previous periods as a result of changes in the estimates of variable consideration related to long-term contracts, was not significant.
Remaining Performance Obligations
Remaining performance obligations represent the transaction price of firm signed purchase orders or other written contractual commitments from customers for which work has not been performed, or is partially completed, and excludes unexercised contract options and potential orders. As of September 30, 2024, the estimated revenue expected to be recognized in the future related to remaining performance obligations was$4,535.3. We expect to recognize revenue on approximately61%of the remaining performance obligations over the next 12 months and the remaining over the next few years thereafter.
NOTE 5 — Inventories
The following table summarizes the components of inventory:
September 30, 2024
December 31, 2023
Raw materials and supplies
$
287.3
$
274.8
Work in process
125.5
155.4
Finished goods
126.6
146.1
Total inventories, net
$
539.4
$
576.3
The allowance for excess and obsolete inventory balance at September 30, 2024 and December 31, 2023 was $9.0 and $9.9, respectively.
NOTE6 — Leases
Lessee Accounting
We lease certain office spaces, warehouses, facilities, vehicles and equipment. Our leases have maturity dates ranging from October 2024 to September 2042. Leases with an initial term of twelve months or less are not recorded on the balance sheet. Operating lease right-of-use (“ROU”) assets are classified as property, plant and equipment, net in the condensed consolidated balance sheets. Finance lease ROU assets are classified as other assets in the condensed consolidated balance sheets. Operating lease liabilities are classified as operating lease liabilities, current and operating lease liabilities, non-current. Finance lease liabilities are classified as other current liabilities and other long-term liabilities in the condensed consolidated balance sheets.
We incurred $6.8 and $13.8 of rental expense under operating leases for the three months ended September 30, 2024 and 2023, respectively, and $19.2 and $23.6 for the nine months ended September 30, 2024 and 2023, respectively. Certain operating leases contain rent escalation clauses and lease concessions that require additional rental payments in the later years of the term. Rent expense for these types of leases is recognized on a straight-line basis over the minimum lease term. This expense consisted primarily of payments for base rent on building and equipment leases. Payments related to short-term lease costs and taxes and variable service charges on leased properties were immaterial. In addition, we have the right, but no obligation, to renew certain leases for various renewal terms.
Notes to the Unaudited Condensed Consolidated Financial Statements – September 30, 2024
(Dollars and shares in millions, except per share amounts) – Continued
The following table presents the lease balances within our condensed consolidated balance sheets, weighted average remaining lease term and weighted average discount rates related to our leases:
Lease Assets and Liabilities
September 30, 2024
December 31, 2023
Assets
Operating lease, net
$
81.2
$
69.1
Finance lease, net
16.0
16.1
Total lease assets
$
97.2
$
85.2
Liabilities
Current:
Operating lease liabilities
$
20.4
$
18.5
Finance lease liabilities
2.3
3.0
Non-current:
Operating lease liabilities
61.7
50.7
Finance lease liabilities
14.2
14.2
Total lease liabilities
$
98.6
$
86.4
Weighted-average remaining lease terms
Operating leases
6.3 years
5.1 years
Finance leases
7.7 years
7.9 years
Weighted-average discount rate
Operating leases
7.1%
6.6%
Finance leases
6.9%
6.7%
Leased assets obtained in exchange for new finance and operating lease liabilities for the nine months ended September 30, 2024 were $0.1 and $20.1, respectively.
The following table summarizes future minimum lease payments for non-cancelable operating leases and for finance leases as of September 30, 2024:
Finance
Operating
2024
$
0.9
$
6.2
2025
3.0
23.5
2026
2.7
18.1
2027
2.6
13.2
2028
2.4
11.1
Thereafter (1)
10.3
30.8
Total future minimum lease payments
$
21.9
$
102.9
Less: Present value discount
(5.4)
(20.8)
Lease liability
$
16.5
$
82.1
_______________
(1) As of September 30, 2024, future minimum lease payments for non-cancelable operating leases for the period subsequent to 2028 relate to forty-two leased facilities.
Notes to the Unaudited Condensed Consolidated Financial Statements – September 30, 2024
(Dollars and shares in millions, except per share amounts) – Continued
Lessor Accounting
We lease equipment manufactured by Chart as sales-type and operating leases. As of September 30, 2024 and December 31, 2023, our short-term net investment in sales-type leases was $28.2 and $21.4, respectively, and is included in other current assets in our condensed consolidated balance sheets. Our long-term net investment in sales-type leases was $80.6 and $62.1 as of September 30, 2024 and December 31, 2023, respectively, and is included in other assets in our condensed consolidated balance sheets.
Operating leases offered by Chart may include early termination options. At the end of a lease, a lessee generally has the option to either extend the lease, purchase the underlying equipment for a fixed price or return it to Chart. The lease agreements clearly define applicable return conditions and remedies for non-compliance to ensure that leased equipment will be in good operating condition upon return.
The following table represents sales from sales-type and operating leases:
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Sales-type leases
$
11.5
$
6.0
$
36.9
$
25.2
Operating leases
1.7
1.9
4.8
4.2
Total sales from leases
$
13.2
$
7.9
$
41.7
$
29.4
The following table represents scheduled payments for sales-type leases as of September 30, 2024:
2024
$
6.9
2025
28.6
2026
26.5
2027
20.3
2028
17.3
Thereafter
56.0
Total
155.6
Less: unearned income
46.8
Total
$
108.8
The following table represents the cost of equipment leased to others:
Notes to the Unaudited Condensed Consolidated Financial Statements – September 30, 2024
(Dollars and shares in millions, except per share amounts) – Continued
NOTE 7 —Goodwill and Intangible Assets
Goodwill
The following table represents the changes in goodwill by segment:
Cryo Tank Solutions
Heat Transfer Systems
Specialty Products
Repair, Service & Leasing
Consolidated
Balance at December 31, 2023
$
219.3
$
480.4
$
567.9
$
1,639.2
$
2,906.8
Purchase accounting adjustments (1)
2.6
1.3
10.9
27.8
42.6
Foreign currency translation adjustments and other
0.7
(0.5)
0.6
37.5
38.3
Balance at September 30, 2024
$
222.6
$
481.2
$
579.4
$
1,704.5
$
2,987.7
Accumulated goodwill impairment loss at December 31, 2023
$
23.5
$
49.3
$
35.8
$
20.4
$
129.0
Accumulated goodwill impairment loss at September 30, 2024
$
23.5
$
49.3
$
35.8
$
20.4
$
129.0
_______________
(1)Purchase accounting adjustments, which were recorded during the first quarter 2024, related to the Howden Acquisition. See Note 13, “Business Combinations” for further information.
Intangible Assets
The following table displays the gross carrying amount and accumulated amortization for finite-lived intangible assets and indefinite-lived intangible assets (exclusive of goodwill) (1):
September 30, 2024
December 31, 2023
Estimated Useful Lives
Gross Carrying Amount
Accumulated Amortization
Gross Carrying Amount
Accumulated Amortization
Finite-lived intangible assets:
Customer relationships
4 to 18 years
$
1,847.6
$
(267.1)
$
1,836.4
$
(185.2)
Technology
5 to 18 years
493.2
(104.6)
496.7
(78.8)
Patents, backlog and other
2 to 10 years
140.3
(69.6)
138.6
(35.6)
Trademarks and trade names
5 to 23 years
3.3
(1.9)
3.3
(1.9)
Land use rights
50 years
10.3
(2.1)
10.2
(1.9)
Total finite-lived intangible assets
2,494.7
(445.3)
2,485.2
(303.4)
Indefinite-lived intangible assets:
Trademarks and trade names (2)
611.0
—
610.1
—
Total intangible assets
$
3,105.7
$
(445.3)
$
3,095.3
$
(303.4)
_______________
(1)Amounts include the impact of foreign currency translation. Fully amortized or impaired amounts are written off.
(2)Accumulated indefinite-lived intangible assets impairment loss was $16.0 at both September 30, 2024 and December 31, 2023.
Amortization expense for intangible assets subject to amortization was $48.4 and $49.0 for the three months ended September 30, 2024 and 2023, respectively, and $143.9 and $115.0 for the nine months ended September 30, 2024 and 2023, respectively.
Notes to the Unaudited Condensed Consolidated Financial Statements – September 30, 2024
(Dollars and shares in millions, except per share amounts) – Continued
NOTE 8 — Investments
Equity Method Investments
The following table presents the activity in equity method investments:
Equity Method Investments
Balance at December 31, 2023
$
109.9
Equity in loss of unconsolidated affiliates
(2.4)
Dividend received from equity method investment
(1.6)
Foreign currency translation adjustments and other
(2.0)
Balance at September 30, 2024
$
103.9
Investments in Equity Securities
The following table presents the activity in investments in equity securities:
Investment in Equity Securities,
Level 1
Investment in Equity Securities, Level 2
Investments in Equity Securities, All Others (1)
Investments Total
Balance at December 31, 2023
$
4.8
$
6.1
$
80.3
$
91.2
New investments
—
—
13.1
13.1
(Decrease) increase in fair value of investments in equity securities
(1.8)
0.9
11.7
10.8
Foreign currency translation adjustments and other
—
—
1.1
1.1
Balance at September 30, 2024
$
3.0
$
7.0
$
106.2
$
116.2
_______________
(1)Consists of investments in equity securities without a readily determinable fair value. Such investments are measured at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for an identical or a similar investment of the same issuer.
Notes to the Unaudited Condensed Consolidated Financial Statements – September 30, 2024
(Dollars and shares in millions, except per share amounts) – Continued
Co-Investment Agreement
On September 7, 2021 (the “Closing Date”), we entered into a Co-investment agreement with I Squared Capital (“ISQ”), an infrastructure-focused private equity firm (the “Co-Investment Agreement”), pursuant to which Chart and ISQ have agreed to the following:
•In the following circumstances, ISQ shall have the right but not the obligation to require Chart to purchase all (and not less than all) of the shares of Hydrogen Technology & Energy Corporation (“HTEC”) common stock acquired as part of ISQ’s investment described above (the “Put Option”):
i.the third anniversary of the Closing Date,
ii.the date Chart undergoes a change of control (subject to certain exceptions),
iii.the date upon which Chart, during the period from the Closing Date through the third anniversary of the Closing Date, has made certain distributions to its shareholders (including cash or other dividends, or via a spin-off transaction), in excess of $900.0,
iv.the date, if any, upon which our leverage ratio exceeds certain thresholds and
v.the date, if any, of a bankruptcy event (including certain insolvency-related actions) involving Chart.
•In the event that ISQ exercises its Put Option, we shall pay to ISQ an amount in cash in exchange for the HTEC common stock then held by ISQ such that ISQ shall realize the greater of (i) an internal rate of return of 10% and (ii) a multiple on ISQ’s invested capital of 1.65x.
•Conversely, at any time after the third anniversary of the Closing Date, we shall have the right to purchase from ISQ up to 20% of the shares of HTEC common stock acquired as part of the ISQ Investment. In exchange for the common stock, we shall pay ISQ the greater of (i) an internal rate of return of 12.5% and (ii) a multiple on ISQ’s invested capital of 1.65x.
•In addition, we shall have (i) a right of first offer: if ISQ desires to transfer any of its HTEC common stock to any third party, we shall have the right to first offer provided that upon notice, we shall have the option to make a first offer to purchase the offered interest in cash exclusively and (ii) a right of first refusal: if ISQ desires to sell its HTEC common stock to any third party pursuant to a definitive agreement therewith, we shall have the right of first refusal provided that the purchase consideration paid by Chart to ISQ upon our exercise of such right of first refusal must be equal to 102% of the purchase consideration agreed to be paid by such third party.
•The Co-Investment Agreement shall terminate automatically upon the consummation of an initial public offering by HTEC of its common stock.
Our equity method investment in HTEC was $77.1 and $82.3 at September 30, 2024 and December 31, 2023, respectively.
Accounting Treatment of Put and Call Options
We record the Put and Call Options (together “the Options”) at fair value and record any change in fair value through earnings at each reporting period. The fair value of the Options was not material on the Closing Date or at September 30, 2024 and December 31, 2023.
Hy24 (f/k/a FiveT Hydrogen Fund and Clean H2 Infra Fund)
On April 5, 2021, we were admitted as an anchor investor in Hy24 (the “Hydrogen Fund”). Hy24 is a joint venture between Ardian, a European investment house, and FiveT Hydrogen, an investment manager specialized purely on clean hydrogen investments. Investments to date include a green steel manufacturing plant that integrates green hydrogen located in Sweden, upstream e-Methanol and sustainable aviation fuel production in Europe, and green hydrogen production projects (electrolysis) in Europe. Our total investment to date is euro 14.2 million (equivalent to $15.9), making our unfunded commitment euro 35.8 million (equivalent to $40.1).
Notes to the Unaudited Condensed Consolidated Financial Statements – September 30, 2024
(Dollars and shares in millions, except per share amounts) – Continued
NOTE 9 — Debt and Credit Arrangements
Summary of Outstanding Borrowings
The following table represents the components of our borrowings:
September 30, 2024
December 31, 2023
Senior secured and senior unsecured notes:
Principal amount, senior secured notes due 2030
$
1,460.0
$
1,460.0
Principal amount, senior unsecured notes due 2031
510.0
510.0
Unamortized discount
(24.4)
(26.9)
Unamortized debt issuance costs
(29.8)
(32.9)
Senior secured and senior unsecured notes, net of unamortized discount and debt issuance costs
1,915.8
1,910.2
Senior secured revolving credit facilities and term loans:
Term loans due March 2030
1,631.0
1,631.0
Senior secured revolving credit facility due April 2029
142.3
102.8
Unamortized discount
(32.5)
(35.8)
Unamortized debt issuance costs
(33.4)
(32.5)
Senior secured revolving credit facility and term loan, net of unamortized discount and debt issuance costs
1,707.4
1,665.5
Convertible notes due November 2024:
Principal amount
258.7
258.7
Unamortized debt issuance costs
(0.2)
(0.9)
Convertible notes due November 2024, net of unamortized debt issuance costs
258.5
257.8
Other debt facilities
2.9
1.4
Total debt, net of unamortized debt issuance costs
3,884.6
3,834.9
Less: current maturities (1)
260.7
258.5
Long-term debt
$
3,623.9
$
3,576.4
_______________
(1)Our convertible notes due November 2024, net of unamortized debt issuance costs, are included in current maturities for both periods presented. Also included in current maturities for the current period is $2.2 of other debt facilities.
Senior Secured and Unsecured Notes
On December 22, 2022, we completed the issuance and sale of (i) $1,460.0 aggregate principal amount of 7.500% Secured Notes at an issue price of 98.661% and (ii) $510.0 aggregate principal amount of 9.500% Unsecured Notes (together with the Secured Notes, the “Notes”), at an issue price of 97.949%. The Secured Notes mature on January 1, 2030, and the Unsecured Notes mature on January 1, 2031. The effective interest rate on the Secured Notes and Unsecured Notes is 7.8% and 9.9%, respectively, after accounting for original issue discounts and debt issuance costs. The Notes were issued to finance the Howden Acquisition. Net proceeds received from the offering of each series of Notes was deposited in an escrow account and classified as restricted cash.
Notes to the Unaudited Condensed Consolidated Financial Statements – September 30, 2024
(Dollars and shares in millions, except per share amounts) – Continued
Senior Secured Revolving Credit Facility and Term Loans
Senior Secured Revolving Credit Facility
Our fifth amended and restated credit agreement dated as of April 8, 2024, as amended (the “Credit Agreement”) provides for a senior secured revolving credit facility (the “SSRCF”). The SSRCF had a borrowing capacity of $1,250.0 and includes sub limits for letters of credit and swingline loans. At September 30, 2024, there were $142.3 in borrowings outstanding under the SSRCF bearing an interest rate of 6.4% (6.2% as of December 31, 2023) and $275.1 in letters of credit and bank guarantees outstanding supported by the SSRCF. As of September 30, 2024, we had unused borrowing capacity of $832.6.
A portion of borrowings outstanding under the SSRCF are denominated in euros (“EUR Revolver Borrowings”). EUR Revolver Borrowings outstanding were euro 78.0 million (equivalent to $87.3) at September 30, 2024 and euro 88.5 million (equivalent to $97.8) at December 31, 2023.
Significant financial covenants for the SSRCF include financial maintenance covenants that (i) require the ratio of the amount of Chart and its subsidiaries’ consolidated total net indebtedness to consolidated EBITDA to be less than the Maximum Total Net Leverage Ratio Levels and (ii) require the ratio of the amount of Chart and its subsidiaries’ consolidated EBITDA to consolidated cash interest expense to be greater than the Minimum Interest Coverage Ratio Levels. The SSRCF includes a number of other customary covenants. At September 30, 2024, we were in compliance with all covenants.
Term Loans
On October 2, 2023, Chart refinanced the remaining aggregate principal amounts of our term loans plus accrued interest in exchange for term loans due March 2030 in the aggregate principal amount of $1,781.0 which matures on March 18, 2030. On December 4, 2023, we voluntarily prepaid a portion of our term loans due March 2030 in the amount of $150.0, which effectively prepaid all equal quarterly installments for the life of the loan, and as of September 30, 2024, the aggregate principal amount of $1,631.0 is due at the March 18, 2030 maturity date. On July 2, 2024, we entered into amendment No. 7 to our Credit Agreement, which among other things reduces the interest rate margins applicable to the term loans due March 2030 by 75 basis points from 2.25% to 1.50% in the case of base rate loans, and from 3.25% to 2.50%, in the case of Secured Overnight Financing Rate (“SOFR”) loans and eliminates the 0.10% SOFR credit spread adjustment with respect to the term loans. As of September 30, 2024, the term loans due March 2030 bore an interest rate of 7.8% (8.7% as of December 31, 2023). The effective interest rate on the term loans due March 2030 is 9.1% after accounting for original issue discount and debt issuance costs.
Significant financial covenants and customary events of default for the term loans due March 2030 are substantially identical to those in the SSRCF.
2024 Convertible Notes
On November 6, 2017, we issued 1.00% Convertible Senior Subordinated Notes due November 2024 (the “2024 Notes”) in the aggregate principal amount of $258.8, pursuant to an Indenture, dated as of such date (the “Indenture”) and First Supplemental Indenture dated December 31, 2020. The 2024 Notes bear interest at an annual rate of 1.00%, payable on May 15 and November 15 of each year, beginning on May 15, 2018, and will mature on November 15, 2024 unless earlier converted or repurchased. The effective interest rate on the 2024 Notes is 1.4% after accounting for debt issuance costs.
The initial conversion rate for the 2024 Notes is 17.0285 shares of common stock (subject to adjustment as provided for in the Indenture) per $1,000 principal amount of the 2024 Notes, which is equal to an initial conversion price of approximately $58.725 per share, representing a conversion premium of approximately 35% above the closing price of our common stock of $43.50 per share on October 31, 2017. For purposes of calculating earnings per share, if the average market price of our common stock exceeds the applicable conversion price during the periods reported, shares contingently issuable under the 2024 Notes will have a dilutive effect with respect to our common stock. Since our closing common stock price of $124.14 at the end of the period exceeded the conversion price of $58.725, the if-converted value exceeded the principal amount of the 2024 Notes by $288.2 at September 30, 2024. As described below, we entered into convertible note hedge transactions, which are expected to reduce the potential dilution with respect to our common stock upon conversion of the 2024 Notes.
As of October 1, 2024 and until the close of business on the second scheduled trading day immediately preceding November 15, 2024, holders may convert their 2024 Notes at their option. The $258.7 principal amount of the 2024 Notes is due in November 2024 and was classified as a current liability in the condensed consolidated balance sheets at September 30, 2024 and December 31, 2023. There have been no significant conversions as of the date of this filing. We expect to fund the
Notes to the Unaudited Condensed Consolidated Financial Statements – September 30, 2024
(Dollars and shares in millions, except per share amounts) – Continued
maturing 2024 Notes with cash on hand and available borrowings under our credit facilities. We expect to pay cash up to the $258.7 aggregate principal amount of the 2024 Notes and settle any excess conversion value in shares of Chart common stock.
Convertible Note Hedge and Warrant Transactions Associated with the 2024 Notes
In connection with the pricing of the 2024 Notes, we entered into privately negotiated convertible note hedge transactions (the “Note Hedge Transactions”) with certain parties, including affiliates of the initial purchasers of the 2024 Notes (the “Option Counterparties”) which relate to 4.41 shares of our common stock and represents the number of shares of our common stock underlying the 2024 Notes. These Note Hedge Transactions are expected to reduce the potential dilution upon any future conversion of the 2024 Notes to the extent that the market price per share of our common stock exceeds the conversion price of $58.725 per share.
We also entered into separate, privately negotiated warrant transactions (the “Warrant Transactions”) with the Option Counterparties to acquire up to 4.41 shares of our common stock. The strike price of the Warrant Transactions will initially be $71.775 per share (subject to adjustment), which is approximately 65% above the last reported sale price of our common stock on October 31, 2017. The Warrant Transactions could have a dilutive effect to our shareholders to the extent that the market price per share of our common stock, as measured under the terms of the Warrant Transactions, exceeds the applicable strike price of the warrants.
The Note Hedge Transactions and Warrant Transactions effectively increased the conversion price of the 2024 Notes.
Other Debt Facilities
In various markets where we do business, we have local credit facilities to meet local working capital demands, fund letters of credit and bank guarantees, and support other short-term cash requirements. The facilities generally have variable interest rates and are denominated in local currency but may, in some cases, facilitate borrowings in multiple currencies. As of September 30, 2024 we had additional capacity of U.S. dollar equivalent $85.2.
Certain of our other debt facilities allow us to request bank guarantees and letters of credit. None of these facilities allow revolving credit borrowings. We have letters of credit and bank guarantees outside of our Credit Agreement that totaled U.S. dollar equivalent $160.6 and $134.3 as of September 30, 2024 and December 31, 2023, respectively.
Fair Value Disclosures
The following table summarizes the carrying values and fair values of our actively quoted debt instruments (1):
September 30, 2024
December 31, 2023
Carrying Value
Fair Value
Carrying Value
Fair Value
Term loans due March 2030
$
1,565.1
$
1,618.8
$
1,562.7
$
1,631.0
Senior secured notes due 2030
1,424.2
1,540.5
1,420.2
1,533.0
Senior unsecured notes due 2031
491.6
556.0
490.0
555.9
Convertible notes due November 2024
258.5
541.3
257.8
605.4
_______________
(1)The debt instruments noted above are actively quoted instruments and, accordingly, their fair values were determined using Level 1 inputs.
The carrying amounts of borrowings outstanding on our senior secured revolving credit facility approximate fair value, as interest rates are variable and reflective of market rates (categorized as Level 2 of the fair value hierarchy).
NOTE 10 — Shareholders' Equity
Series B Mandatory Convertible Preferred Stock
On December 13, 2022, we completed a preferred stock offering, through which Chart issued and sold 8.050 million depositary shares, each representing a 1/20th interest in a share of Chart’s 6.75% Series B Mandatory Convertible Preferred Stock, liquidation preference $1,000.00 per share, par value $0.01 per share (the “Mandatory Convertible Preferred Stock”). The amount issued included 1.050 million depositary shares issued pursuant to the exercise in full of the option granted to the
Notes to the Unaudited Condensed Consolidated Financial Statements – September 30, 2024
(Dollars and shares in millions, except per share amounts) – Continued
underwriters to purchase additional depositary shares. We received gross proceeds of $402.5 from the issuance of shares less $14.4 of equity issuance costs. We used the proceeds to fund the acquisition of Howden.
Dividends. Dividends on the Mandatory Convertible Preferred Stock will be payable on a cumulative basis when, as and if declared at an annual rate of 6.75% on the liquidation value of $1,000 per share. Chart may pay declared dividends in cash or, subject to certain limitations, in shares of common stock, or in any combination of cash and shares of common stock on March 15, June 15, September 15 and December 15 of each year, commencing on March 15, 2023 and ending on, and including, December 15, 2025. We declared and paid $6.8 in dividends for both the three months ended September 30, 2024 and 2023, and $20.4 and $20.5 for the nine months ended September 30, 2024 and 2023, respectively. These dividends were treated as a reduction to income attributable to common shareholders in the computation of earnings per share.
Mandatory Conversion. Unless earlier converted, each share of the Mandatory Convertible Preferred Stock will automatically convert on the mandatory conversion date, which is expected to be December 15, 2025, into not less than 7.0520 and not more than 8.4620 shares of common stock per share of Mandatory Convertible Preferred Stock, depending on the applicable market value and subject to certain anti-dilution adjustments. Correspondingly, the conversion rate per depositary share will be not less than 0.3526 and not more than 0.4231 shares of common stock per depositary share. The conversion rate will be determined based on a preceding 20-day volume-weighted-average-price of common stock.
The following table illustrates the conversion rate per share of the Mandatory Convertible Preferred Stock, subject to certain anti-dilution adjustments, based on the applicable market value of the common stock:
Applicable Market Value of Common Stock
Conversion Rate per Share of Mandatory Convertible Preferred Stock
Greater than $141.8037 (threshold appreciation price)
7.0520 shares of common stock
Equal to or less than $141.8037 but greater than or equal to $118.1754
Between 7.0520 and 8.4620 shares of common stock, determined by dividing $1,000 by the applicable market value
Less than $118.1754 (initial price)
8.4620 shares of common stock
The following table illustrates the conversion rate per depositary share, subject to certain anti-dilution adjustments, based on the applicable market value of the common stock:
Applicable Market Value of Common Stock
Conversion Rate per Depositary Share
Greater than $141.8037 (threshold appreciation price)
0.3526 shares of common stock
Equal to or less than $141.8037 but greater than or equal to $118.1754
Between 0.3526 and 0.4231 shares of common stock, determined by dividing $50 by the applicable market value
Less than $118.1754 (initial price)
0.4231 shares of common stock
Optional Conversion of the Holder. Other than during a fundamental change conversion period, at any time prior to December 15, 2025, a holder of the Mandatory Convertible Preferred Stock may elect to convert such holder’s shares of Mandatory Convertible Preferred Stock, in whole or in part, at the Minimum Conversion Rate of 7.0520 shares of common stock per share of Mandatory Convertible Preferred Stock (equivalent to 0.3526 shares of common stock per depositary share), subject to certain anti-dilution and other adjustments. Because each depositary share represents a 1/20th fractional interest in a share of Mandatory Convertible Preferred Stock, a holder of depositary shares may convert its depositary shares only in lots of 20 depositary shares.
Fundamental Change Conversion. If a fundamental change occurs on or prior to December 15, 2025, holders of the Mandatory Convertible Preferred Stock will have the right to convert their shares of Mandatory Convertible Preferred Stock, in whole or in part, into shares of common stock at the fundamental change conversion rate during the period beginning on, and including, the effective date of such fundamental change and ending on, and including, the earlier of (a) the date that is 20 calendar days after such effective date (or, if later, the date that is 20 calendar days after holders receive notice of such fundamental change) and (b) December 15, 2025. Holders who convert shares of the Mandatory Convertible Preferred Stock during that period will also receive a make-whole dividend amount comprised of a fundamental change dividend make-whole amount, and to the extent there is any, the accumulated dividend amount. Because each depositary share represents a 1/20th fractional interest in a share of the Series B Preferred Stock, a holder of depositary shares may convert its depositary shares upon a fundamental change only in lots of 20 depositary shares.
Notes to the Unaudited Condensed Consolidated Financial Statements – September 30, 2024
(Dollars and shares in millions, except per share amounts) – Continued
Ranking. The Mandatory Convertible Preferred Stock, with respect to anticipated dividends and distributions upon Chart’s liquidation or dissolution, or winding-up of Chart’s affairs, ranks or will rank:
•senior to our common stock and each other class or series of capital stock issued after the initial issue date of the Mandatory Convertible Preferred Stock, the terms of which do not expressly provide that such capital stock ranks either senior to the Mandatory Convertible Preferred Stock or on a parity with Mandatory Convertible Preferred Stock;
•equal with any class or series of capital stock issued after the initial issue date the terms of which expressly provide that such capital stock will rank equal with the Mandatory Convertible Preferred Stock;
•junior to the Series A Preferred Stock, if issued, and each other class or series of capital stock issued after the initial issue date that is expressly made senior to the Mandatory Convertible Preferred Stock;
•junior to our existing and future indebtedness; and
•structurally subordinated to any existing and future indebtedness of our subsidiaries as well as the capital stock of our subsidiaries held by third parties.
Voting Rights. Holders of Mandatory Convertible Preferred Stock generally will not have voting rights. Whenever dividends on shares of Mandatory Convertible Preferred Stock have not been declared and paid for six or more dividend periods (including, for the avoidance of doubt, the dividend period beginning on, and including, the initial issue date and ending on, but excluding, March 15, 2023), whether or not for consecutive dividend periods, the holders of such shares of Mandatory Convertible Preferred Stock, voting together as a single class with holders of all other series of voting preferred stock of equal rank, then outstanding, will be entitled at our next annual or special meeting of shareholders to vote for the election of a total of two additional members of our board of directors, subject to certain limitations. This right will terminate if and when all accumulated and unpaid dividends have been paid in full, or declared and a sum sufficient for such payment shall have been set aside. Upon such termination, the term of office of each preferred stock director so elected will terminate at such time and the number of directors on our board of directors will automatically decrease by two, subject to the revesting of such rights in the event of each subsequent nonpayment.
Embedded Derivatives. There are no material embedded derivatives that meet the criteria for bifurcation and separate accounting pursuant to ASC 815-15, Embedded Derivatives.
NOTE 11 — Derivative Financial Instruments
Derivatives and Hedging
We utilize a combination of cross-currency swaps and foreign exchange collars (together the “Foreign Exchange Collar Contracts”) as a net investment hedge of a portion of our investments in certain international subsidiaries that use the euro as their functional currency in order to reduce the volatility caused by changes in exchange rates. As a result of our acquisition of Howden, we are also a party to foreign currency contracts not designated as hedging instruments (the “Foreign Currency Contracts”) which are used to mitigate the risk associated with cash management activities and customer forward sale agreements denominated in currencies other than the applicable local currency, and to match costs and expected revenues where production facilities have a different currency than the selling currency.
Our Foreign Currency Contracts are measured at fair value with changes in fair value recorded within other expense, net. We classify cash flows related to our Foreign Currency Contracts as operating activities within our condensed consolidated statements of cash flows. Our derivative contracts are entered into with major financial institutions in order to reduce credit risk and risk of nonperformance by third parties. We believe the credit risks with respect to the counterparties, and the foreign currency risks that would not be hedged if the counterparties fail to fulfill their obligations under the contract, are not material in view of our understanding of the financial strength of the counterparties. Our derivative contracts are not exchange traded instruments and their fair value is determined using the cash flows of the contracts, discount rates to account for the passage of time, implied volatility, current foreign exchange market data and credit risk, which are all based on inputs readily available in public markets and categorized as Level 2 fair value hierarchy measurements.
Notes to the Unaudited Condensed Consolidated Financial Statements – September 30, 2024
(Dollars and shares in millions, except per share amounts) – Continued
The following table represents the fair value of our asset and liability derivatives:
September 30, 2024
Notional Amount
Fair Value Other Current Assets
Fair Value Other Assets
Fair Value Other Current Liabilities
Fair Value Other Long-Term Liabilities
Derivatives designated as net investment hedge
Foreign Exchange Collar Contracts (1)
$
323.7
$
—
$
—
$
—
$
8.4
Derivatives not designated as hedges
Foreign Currency Contracts
$
540.3
$
6.1
$
0.3
$
2.6
$
0.1
December 31, 2023
Notional Amount
Fair Value Other Current Assets
Fair Value Other Assets
Fair Value Other Current Liabilities
Fair Value Other Long-Term Liabilities
Derivatives designated as net investment hedge
Foreign Exchange Collar Contracts (1)
$
320.8
$
—
$
—
$
—
$
6.0
Derivatives not designated as hedges
Foreign Currency Contracts
$
393.5
$
1.8
$
0.1
$
2.7
$
—
_________
(1)Represents foreign exchange swaps and foreign exchange options.
The following table represents the net effect derivative instruments designated in hedging relationships had on accumulated other comprehensive (loss) income on the condensed consolidated statements of operations and comprehensive income (loss):
Three Months Ended September 30,
Nine Months Ended September 30,
Derivatives designated as net investment hedge
2024
2023
2024
2023
Foreign Exchange Collar Contracts (1) (2)
$
(1.8)
$
(0.4)
$
(1.8)
$
1.1
_______________
(1)Our designated derivative instruments are highly effective. As such, there were no gains or losses recognized immediately in income related to hedge ineffectiveness during the nine months ended September 30, 2024 and 2023.
(2)Represents foreign exchange swaps and foreign exchange options.
The following table represents the effect that derivative instruments not designated as hedges had on net income:
Notes to the Unaudited Condensed Consolidated Financial Statements – September 30, 2024
(Dollars and shares in millions, except per share amounts) – Continued
The following table represents interest income, included within interest expense, net on the condensed consolidated statements of operations and comprehensive income (loss) related to amounts excluded from the assessment of hedge effectiveness for derivative instruments designated as net investment hedges:
Three Months Ended September 30,
Nine Months Ended September 30,
Derivatives designated as net investment hedge
2024
2023
2024
2023
Foreign Exchange Collar Contracts (1) (2)
$
(2.0)
$
0.4
$
(1.2)
$
1.2
_______________
(1)Represents amount excluded from effectiveness testing. Our Foreign Exchange Collar Contracts are designated with terms based on the spot rate of the euro. Future changes in the components related to the spot change on the notional will be recorded in other comprehensive income and remain there until the hedged subsidiaries are substantially liquidated. All coupon payments are classified in interest expense, net in the condensed consolidated statements of operations and comprehensive income (loss), and the initial value of excluded components currently recorded in accumulated other comprehensive loss as a foreign currency translation adjustment are amortized to interest expense, net over the remaining term of the Foreign Exchange Contract.
(2)Represents foreign exchange swaps and foreign exchange options.
NOTE 12 — Product Warranties
We provide product warranties with varying terms and durations for the majority of our products. We estimate our warranty reserve by considering historical and projected warranty claims, historical and projected cost-per-claim, and knowledge of specific product issues that are outside our typical experience. Total warranty reserve at September 30, 2024 and December 31, 2023, was $18.3 and $31.8, respectively. Product warranty usage, expense and changes in estimates, was 13.5 for the nine months ended September 30, 2024. Product warranty claims not expected to occur within one year are included as part of other long-term liabilities in the unaudited condensed consolidated balance sheets.
NOTE 13 — Business Combinations
Howden Acquisition
On March 17, 2023 we completed the Howden Acquisition pursuant to the previously disclosed Equity Purchase Agreement dated as of November 9, 2022. The acquisition purchase price was $4,387.4. We financed the purchase price for the Howden Acquisition with proceeds from borrowings under our SSRCF, Amendment No. 3 Term Loan, common and preferred stock issuance and a private offering of Secured Notes and Unsecured Notes. See Note 9, “Debt and Credit Arrangements,” for more information.
The following table shows the purchase price in accordance with ASC 805:
Description
Cash consideration to seller
$
2,788.3
Howden's debt settled at close
1,529.0
Settlement of seller transaction costs
67.2
Funds held in escrow
20.4
Working capital adjustment
(17.5)
Total ASC 805 purchase price
$
4,387.4
Howden is a leading global provider of mission critical air and gas handling products providing service and support to customers around the world in highly diversified end markets and geographies. The combination of Chart and Howden is complementary and furthers our global leadership position in highly engineered process technologies and products serving the Nexus of Clean™ – clean power, clean water, clean food and clean industrials.
We estimated the fair value of acquired developed technology and trade names using the relief from royalty method. The fair values of acquired customer backlog and customer relationships were estimated using the multi-period excess earnings method. Under both the relief from royalty and multi-period excess earnings methods, the fair value models incorporated
Notes to the Unaudited Condensed Consolidated Financial Statements – September 30, 2024
(Dollars and shares in millions, except per share amounts) – Continued
estimates of future cash flows, estimates of allocations of certain assets and cash flows, estimates of future growth rates, and management’s judgment regarding the applicable discount rates to use to discount such estimates of cash flows.
The excess of the purchase price over the estimated fair values is assigned to goodwill. The estimated goodwill was established due to expected cost synergies, anticipated growth of new customers, and expansion of equipment portfolio and process technology offerings. Goodwill recorded for the Howden Acquisition is not expected to be deductible for tax purposes.
The estimated fair values of the assets acquired and liabilities assumed disclosed in this note are inclusive of businesses identified to be sold as of the acquisition date. On August 18, 2023, we completed the sale of our Roots business, which we acquired as part of the Howden Acquisition. We have categorized the assets and liabilities of these discontinued operations on separate lines in the table below. Refer to Note 2, “Discontinued Operations and Other Businesses Sold” for further information.
The purchase price allocation reported at December 31, 2023 was preliminary and was based on provisional fair values. During the first quarter 2024, we received and analyzed new information about certain assets and liabilities, as of the March 17, 2023 acquisition date and subsequently decreased current assets by $10.4, increased current liabilities by $40.1, and decreased long-term deferred tax liabilities by $8.2 for post-closing adjustments, based on this information. During the first quarter of 2024, we finalized the Howden purchase price allocation.
Notes to the Unaudited Condensed Consolidated Financial Statements – September 30, 2024
(Dollars and shares in millions, except per share amounts) – Continued
The following table summarizes the fair values of the assets acquired and liabilities assumed in the Howden Acquisition as of the acquisition date:
Fair Value
Net assets acquired:
Cash and cash equivalents
$
62.5
Restricted cash
2.6
Accounts receivable
422.7
Inventories
256.8
Unbilled contract revenue
167.8
Prepaid expenses
51.9
Other current assets
101.4
Assets held for sale
225.7
Property, plant and equipment
325.1
Identifiable intangible assets
2,434.5
Equity method investments
12.0
Other assets
117.3
Accounts payable
(385.7)
Customer advances and billings in excess of contract revenue
(233.2)
Accrued salaries, wages and benefits
(103.3)
Accrued income taxes
(34.0)
Current portion of warranty reserve
(38.5)
Current portion of long-term debt
(1.4)
Other current liabilities
(158.8)
Liabilities held for sale
(43.9)
Long-term deferred tax liabilities
(663.6)
Operating lease liabilities
(52.3)
Finance lease liabilities
(8.1)
Accrued pension liabilities
(6.0)
Other long-term liabilities
(45.7)
Total identifiable net assets assumed
2,405.8
Noncontrolling interest (1)
(146.3)
Goodwill (2)
2,127.9
Net assets acquired
$
4,387.4
Assets acquired net of cash, cash equivalents and restricted cash
$
4,322.3
_______________
(1)As part of the Howden Acquisition, we acquired 82% of Howden Hua Engineering Co., Ltd, an entity based in China. The noncontrolling interest was valued at $146.0.
(2)Includes $102.2 and $49.7 allocated to the Roots and American Fan divestitures, respectively.
Notes to the Unaudited Condensed Consolidated Financial Statements – September 30, 2024
(Dollars and shares in millions, except per share amounts) – Continued
The following table summarizes information regarding identifiable intangible assets acquired in the Howden Acquisition:
Estimated Useful Lives
Fair Value
Finite-lived intangible assets acquired:
Customer relationships
18 years
$
1,533.0
Backlog
3 years
135.0
Technology
5 to 14 years
296.0
Total finite-lived intangible assets acquired
1,964.0
Indefinite-lived intangible assets acquired:
Trade names
470.5
Total intangible assets acquired
$
2,434.5
As part of the Howden Acquisition, we acquired defined benefit pension plans, which are predominately in Germany. As a result, we assumed pension assets of $38.7 and pension liabilities of $41.1, a net $2.4 liability.
As defined in Note 2, “Significant Accounting Policies” of our Annual Report on Form 10-K for the year ended December 31, 2023, we allocated the acquisition consideration to tangible and identifiable intangible assets acquired and liabilities assumed based on their fair values as of the acquisition date. The fair value of the acquired tangible and identifiable intangible assets was determined based on inputs that are unobservable and significant to the overall fair value measurement. The fair value is based on estimates and assumptions made by management at the time of the acquisition. As such, the acquisitions are classified as Level 3 fair value hierarchy measurements and disclosures.
Notes to the Unaudited Condensed Consolidated Financial Statements – September 30, 2024
(Dollars and shares in millions, except per share amounts) – Continued
NOTE 14 — Accumulated Other Comprehensive Income
The components of accumulated other comprehensive incomeare as follows:
Foreign currency translation adjustments (1)
Pension liability adjustments, net of taxes
Accumulated other comprehensive (loss) income
Balance at June 30, 2024
$
(87.5)
$
(2.5)
$
(90.0)
Other comprehensive income before reclassifications, net of taxes
155.8
—
155.8
Amounts reclassified from accumulated other comprehensive loss, net of income taxes
—
0.1
0.1
Net current-period other comprehensive income, net of taxes
155.8
0.1
155.9
Balance at September 30, 2024
$
68.3
$
(2.4)
$
65.9
Foreign currency translation adjustments (1)
Pension liability adjustments, net of taxes
Accumulated other comprehensive loss
Balance at June 30, 2023
$
(48.2)
$
(7.2)
$
(55.4)
Other comprehensive loss before reclassifications, net of taxes
(48.1)
—
(48.1)
Amounts reclassified from accumulated other comprehensive loss, net of taxes
—
0.2
0.2
Net current-period other comprehensive (loss) income, net of taxes
(48.1)
0.2
(47.9)
Balance at September 30, 2023
$
(96.3)
$
(7.0)
$
(103.3)
Foreign currency translation adjustments (1)
Pension liability adjustments, net of taxes
Accumulated other comprehensive income
Balance at December 31, 2023
$
13.2
$
(2.4)
$
10.8
Other comprehensive income before reclassifications, net of taxes
55.1
—
55.1
Amounts reclassified from accumulated other comprehensive income, net of taxes
—
—
—
Net current-period other comprehensive income, net of taxes
55.1
—
55.1
Balance at September 30, 2024
$
68.3
$
(2.4)
$
65.9
Foreign currency translation adjustments (1)
Pension liability adjustments, net of taxes
Accumulated other comprehensive loss
Balance at December 31, 2022
$
(50.5)
$
(7.5)
$
(58.0)
Other comprehensive loss before reclassifications, net of taxes
(45.8)
—
(45.8)
Amounts reclassified from accumulated other comprehensive loss, net of taxes
—
0.5
0.5
Net current-period other comprehensive (loss) income, net of taxes
(45.8)
0.5
(45.3)
Balance at September 30, 2023
$
(96.3)
$
(7.0)
$
(103.3)
_______________
(1)Foreign currency translation adjustments includes translation adjustments and net investment hedge, net of taxes. See Note 11, “Derivative Financial Instruments,” for further information related to the net investment hedge.
Income (loss) from continuing operations attributable to Chart
62.6
2.6
121.3
(20.4)
Loss from discontinued operations, net of tax
(0.4)
(6.0)
(2.8)
(2.6)
Net income (loss) attributable to Chart common shareholders
62.2
(3.4)
118.5
(23.0)
Earnings per common share – basic:
Income (loss) from continuing operations
$
1.49
$
0.06
$
2.89
$
(0.49)
Loss from discontinued operations
(0.01)
(0.14)
(0.07)
(0.06)
Net income (loss) attributable to Chart Industries, Inc.
$
1.48
$
(0.08)
$
2.82
$
(0.55)
Earnings per common share – diluted:
Income (loss) from continuing operations
$
1.34
$
0.05
$
2.59
$
(0.49)
Loss from discontinued operations
(0.01)
(0.12)
(0.06)
(0.06)
Net income (loss) attributable to Chart Industries, Inc.
$
1.33
$
(0.07)
$
2.53
$
(0.55)
Weighted average number of common shares outstanding – basic
42.05
41.98
42.04
41.96
Incremental shares issuable upon assumed conversion and exercise of share-based awards (1)
0.19
0.24
0.19
—
Incremental shares issuable due to dilutive effect of convertible notes (1) (2)
2.43
2.86
2.54
—
Incremental shares issuable due to dilutive effect of the warrants (1)
2.00
2.53
2.12
—
Weighted average number of common shares outstanding – diluted
46.67
47.61
46.89
41.96
_______________
(1)Zero incremental shares from share-based awards, convertible notes or the warrants are included in the computation of diluted net loss per share for periods in which a net loss from continuing operations attributable to Chart because to do so would be anti-dilutive. This is applicable for the nine months ended September 30, 2023.
(2)The convertible note hedge offsets any dilution upon actual conversion of the 2024 Notes up to a common stock price of $71.775 per share. The hedge cannot be taken into account under U.S. GAAP because it is anti-dilutive. If the hedge could have been considered, it would have reduced the diluted shares by 2.43 and 2.86 for the three months ended September 30, 2024 and 2023, respectively, and by 2.54 for the nine months ended September 30, 2024. For further information, refer to Note 9, “Debt and Credit Arrangements.”
Notes to the Unaudited Condensed Consolidated Financial Statements – September 30, 2024
(Dollars and shares in millions, except per share amounts) – Continued
Diluted earnings per share does not reflect the following cumulative preferred stock dividends and potential common shares as the effect would be anti-dilutive:
(1)We calculate the basic and diluted earnings per share based on net income, which approximates income available to common shareholders for each period. Earnings per share is calculated using the two-class method, which is an earnings allocation formula that determines the earnings per share for common stock and any participating securities according to dividends declared (whether paid or unpaid) and participation rights in undistributed earnings. The Series B Mandatory Convertible Preferred Stock and the 2024 Convertible Notes are participating securities. Undistributed earnings are not allocated to the participating securities because the participation features are discretionary. Net losses are not allocated to the Series B Mandatory Convertible Preferred Stock, as it does not have a contractual obligation to share in the losses of Chart. Basic net income per share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted net income per common share is computed by dividing net income available to common shareholders by the sum of the weighted average number of common shares outstanding and any dilutive non-participating securities for the period.
NOTE 16 — Income Taxes
Income tax expense relating to continuing operations of $26.6 and $0.1 for the three months ended September 30, 2024 and 2023, respectively, represents taxes on both U.S. and foreign earnings at a combined effective income tax rate of 26.5% and 1.0%, respectively. Income tax expense (benefit) relating to continuing operations of $50.9 and $(4.2) for the nine months ended September 30, 2024 and 2023, respectively, represents taxes on both U.S. and foreign earnings at a combined effective income tax rate of 24.7% and 840.0%, respectively.
The effective income tax rates of 26.5% and 24.7% for the three and nine months ended September 30, 2024, respectively, differed from the U.S. federal statutory rate of 21% primarily due to income earned by certain of our foreign entities being taxed at higher rates than the U.S. federal statutory rate and withholding taxes on foreign earnings not permanently reinvested offset by the U.S. impact of foreign operations and research and development credits.
The effective income tax rates of 1.0% and 840.0% for the three and nine months ended September 30, 2023, respectively, differed from the U.S. federal statutory rate of 21% primarily due to income earned by our certain foreign entities being taxed at higher rates than the U.S. federal statutory rate, the U.S. taxation of international operations with the expanded global footprint and transaction costs from the Howden Acquisition offset by research and development credits and excess tax benefits associated with share-based compensation.
NOTE 17 — Share-based Compensation
During the nine months ended September 30, 2024, we granted 0.07 stock options, 0.09 restricted stock units and 0.04 performance units. The total fair value of awards granted to employees during the nine months ended September 30, 2024 was $20.8. In addition, our non-employee directors received stock awards with a total fair value of $1.1.
Stock options generally have a four-year graded vesting period. Restricted stock and restricted stock units generally vest ratably over a three-year period. Performance units generally vest at the end of a three-year performance period based on the
Notes to the Unaudited Condensed Consolidated Financial Statements – September 30, 2024
(Dollars and shares in millions, except per share amounts) – Continued
attainment of certain pre-determined performance condition targets. During the nine months ended September 30, 2024, 0.06 restricted stock and restricted stock units vested, and 0.02 performance units vested.
Share-based compensation expense was $4.2 and $2.6 for the three months ended September 30, 2024 and 2023, respectively, and $14.3 and $9.2 for the nine months ended September 30, 2024 and 2023, respectively. Share-based compensation expense is included in selling, general and administrative expenses in the unaudited condensed consolidated statements of operations and comprehensive income (loss). As of September 30, 2024, total share-based compensation of $22.0 is expected to be recognized over the weighted-average period of approximately 2.0 years.
NOTE 18 — Commitments and Contingencies
Environmental
We are subject to federal, state, local, and foreign environmental laws and regulations concerning, among other matters, waste water effluents, air emissions, and handling and disposal of hazardous materials, such as cleaning fluids. We are involved with environmental compliance, investigation, monitoring, and remediation activities at certain of our owned and formerly owned manufacturing facilities and at one owned facility that is leased to a third party, and, except for these continuing remediation efforts, believe we are currently in substantial compliance with all known environmental regulations. Undiscounted accrued environmental reserves at both September 30, 2024 and December 31, 2023 were not material.
Legal Proceedings
We are occasionally subject to various legal claims related to performance under contracts, product liability, taxes, employment matters, environmental matters, intellectual property, and other matters incidental to the normal course of our business. Based on our historical experience in litigating these claims, as well as our current assessment of the underlying merits of the claims and applicable insurance, if any, management believes that the final resolution of these matters will not have a material adverse effect on our financial position, liquidity, cash flows, or results of operations, except that our results of operations for any particular reporting period may be adversely affected by any potential or actual loss that is accrued in such period. Future developments may, however, result in resolution of these legal claims in a way that could have a material adverse effect.
NOTE 19 — Restructuring Activities
Restructuring costs of $1.7 and $11.1 for the three and nine months ended September 30, 2024, respectively, were primarily related to cost reduction actions relative to Howden integration. Restructuring costs of $4.2 and $11.2for the three and nine months ended September 30, 2023, respectively, were also primarily related to cost reduction actions relative to Howden integration.
We closely monitor our end markets and order rates and continue to take appropriate and timely actions as necessary.
The following table summarizes severance and other restructuring costs, which includes employee-related costs, facility rent and exit costs, relocation, recruiting, travel and other:
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion of our results of operations and financial condition should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements. Actual results may differ materially from those discussed below. See “Forward-Looking Statements” at the end of this discussion and Item 1A. “Risk Factors” for a discussion of the uncertainties, risks and assumptions associated with this discussion.
Overview
We are an independent global leader in the design, engineering, and manufacturing of process technologies and equipment for gas and liquid molecule handling for the Nexus of Clean™ – clean power, clean water, clean food, and clean industrials, regardless of molecule. Our unique product and solution portfolio across stationary and rotating equipment is used in every phase of the liquid gas supply chain, including engineering, service and repair from installation to preventive maintenance and digital monitoring. Chart is a leading provider of technology, equipment and services related to liquefied natural gas, hydrogen, biogas and carbon capture among other applications. We are committed to excellence in environmental, social and corporate governance (ESG) issues both for our company as well as our customers. With 64 global manufacturing locations and over 50 service centers from the United States to Asia, Australia, India, Europe and South America, we maintain accountability and transparency to our team members, suppliers, customers and communities.
On March 17, 2023, we completed the acquisition of Howden (the “Howden Acquisition”), a leading global provider of mission critical air and gas handling products and services, from affiliates of KPS Capital Partners, LP. Results from continuing operations include results of Howden from the date of acquisition and exclude Roots™ (“Roots”) business financial results for our entire ownership period of March 17, 2023 through the divestiture date, August 18, 2023. The financial information presented and discussion of results that follows is presented on a continuing operations basis unless stated otherwise.
Macroeconomic Impacts
Geopolitical instability continues to create uncertainty in the global economy, including the current conflict between Russia and Ukraine and the related sanctions imposed by countries against Russia, along with the heightened tensions between the United States and China. Moreover, unrest in the Middle East may impact our business and operations and has strained global supply chains, especially those dependent on Red Sea shipping routes. Additionally, geopolitical uncertainty regarding energy policies may affect the timing of certain projects. We are unable to predict the impact these actions will have on the global economy or on our business, financial condition and results of operations. These events did not have a material adverse effect on our reported results for the third quarter of 2024. We continue to actively monitor the impact of these macroeconomic developments on our results of operations for the remainder of 2024 and beyond.
Environmental, Social, Governance
Chart is proud to be at the forefront of the clean energy transition as a leading provider of technology, equipment and services related to liquefied natural gas (LNG), hydrogen, biogas, carbon capture and water treatment, among other applications. We also have a unique offering for the Nexus of Clean™ – clean power, clean water, clean food and clean industrials. This leadership position is possible not only because we have the broadest offering of clean innovative solutions for the various end markets we serve, but also because we are committed to global responsibility. Reporting our ESG performance is one of the ways we demonstrate accountability and transparency to our team members, suppliers, customers, shareholders and communities. Below are some highlights of our ESG efforts, and further information can be found in our fifth Annual Sustainability report with scorecard which was released in April 2024.
We measure our ESG and sustainability targets and progress against them.
•We measure progress through the Sustainability Accounting Standards Board (SASB) and Task Force on Climate Related Financial Disclosures (TCFD) indices, as well as contributing to the Global Reporting Initiative (GRI) and United Nations Sustainable Development Goals (SDGs). We contribute to 11 of the 17 United Nations Sustainable Development Goals (SDGs). Chart also looks to align with the Organization for Economic Co-Operations and Development (OECD) and has joined the UN Global Compact in 2024.
•Safety: Total Recordable Incident Rate (TRIR) of 0.43 as of September 30, 2024, which has improved from 0.52 as of January 31, 2024.
•Many of our safety programs and practices reflect requirements of the ISO 45001 Occupational Health and Safety standard for management systems. Chart has voluntarily certified all major manufacturing and fabrication facilities to this internationally recognized standard to increase safety and reduce workplace risks.
•We utilize iPoint analytics software which collects and manages conflict mineral declarations from our suppliers, allowing us to meet our obligations for conflict mineral compliance and reporting and supports our due diligence and risk management process.
•We utilize Sphera’s cloud-based AI platform which combines different data sources, including ESG matters such as labor, health & safety, environmental and regulatory issues to provide early risk detection and real time monitoring of supply chain risks.
•Chart reduced its greenhouse gas (GHG) emissions intensity in 2023 by 27% relative to 2022, achieving its goal of reducing GHG emissions intensity 50% by 2030 (relative to a 2020 baseline) seven years ahead of target. Chart remains committed to achieving net-zero emissions by 2050 and also commits to rebaselining and conducting a double materiality assessment in 2024, at which point we plan to set updated targets. We made plant improvements including energy efficient upgrades for various equipment – including replacement of diesel powered equipment with electric and installation of LED lighting in office spaces. In addition, we plan to achieve our targets by switching energy from fossil fuel based to carbon free supply and installing on-site renewables where applicable, as well as continuing to participate in ongoing energy audits. At a local site level, we also continue to find ways to reduce both waste-to-landfill as well as mains water usage.
•For the second year in a row, we continue to track and report our global water consumption and waste recycled, an effort that speaks to our commitment to ESG transparency.
•In 2023, our executive leadership team was made up of 38% women, with a target for 40% of our leadership team to be women by 2030.
•We actively participate in local communities through donations and volunteering, working with charitable organizations including Cancer Research, local hospitals, food banks, school and emergency services. 19.6% of our global team participated in Chart-related volunteering in 2023. We remain committed to our target to achieve 25% volunteer participation by 2030.
We provide our One Chart global team members with various programs and practices to support our ESG and employee-drive culture:
•We have a Global Sustainability Committee, Global Safety Council, and Global Diversity & Inclusion Committee, all comprised of team member volunteers and engagement from our global locations. Each of these programs expanded in 2023.
◦Our Global Sustainability Committee has five sub-committees focused on energy management, zero waste, electrification, renewable energy and water management. In 2023, this committee focused on sustainable global best practice and knowledge sharing between the Chart and Howden businesses.
•We have numerous employee resource groups (ERG), including:
◦Chart Network of Women (NOW) with a mission of empowering women both personally and professionally with local chapters globally across the United States, Europe, and Asia.
◦Chart Pride ERG supporting LGBTQIA+ team members.
◦In 2024, we launched Chart RISE for younger professionals, Chart PRIME for more seasoned professionals with the intent to provide mentoring opportunities for team members, and Chart’s Veterans ERG.
•Chart’s Bright Futures community volunteering program, which is now a facet of Chart’s Giving Back Program, is focused around giving back to the younger generation, with particular focus on promoting STEM.
•We have an employee relief fund for our own team members that need assistance.
We are our helping customers to achieve their own sustainability targets in a number of different ways whether that’s through reducing the amount of plastic used in packaging to lowering greenhouse gas emissions by enabling the transition towards cleaner fuels.
•A single gas-gas heater is estimated to avoid 64,000 tons of CO2 emissions from flue gas. Our current gas-gas heater installed base (doubled since 2022) saves approximately 32 million tons of CO2 per year.
•Our ChartWater team treats over 4.5 billion gallons of water a day in the United States and provides clean water to approximately a billion people worldwide daily.
•We helped to eliminate nearly 280 million pounds of PET (plastic) used in water bottles in the United States. Our liquid nitrogen doser enables customers to produce 432,000,000 cans of water annually (instead of plastic bottles) which avoids production of 8.21 billion grams of plastic per year.
•In 2023, Chart products produced about 65 million tons of LNG to replace coal fired power generation (non-U.S.).
•In 2023, Chart products reduced over 800 million liters of diesel used by over-the-road trucks.
•Ventsim™ DESIGN is used by over 2,800 mines, universities, consultants, government, and research organizations in 70 countries. Ventsim™ CONTROL has been successfully installed on over 30 mine sites in 5 continents. For example, a mining customer is seeing a 56% reduction in underground ventilation electricity costs by utilizing Ventsim™ CONTROL for mine optimization.
Our governance supports our ESG focus
•We have an independent Board of Directors that is comprised of ten directors (nine are independent, four are female and two are diverse) and governed with a separate independent Chair and CEO.
•We regularly hold reviews on ESG and cybersecurity with our Board of Directors.
•We link our executives and their direct reports short-term incentive payout (25% of the strategic and operational goals) to a metric driven, percentage-reduction ESG metric, and have done this for three years (and continue to do so in 2024).
•We offer every team member worldwide one paid day off each year to volunteer in our communities. In 2021, Chart started matching employee donations up to $250 per employee per year to charitable organizations.
Third Quarter 2024 Highlights
Strong order activity contributed to ending total backlog of $4,535.3 million as of September 30, 2024 compared to $4,140.7 million as of September 30, 2023 and $4,426.0 million as of June 30, 2024. We had consolidated orders of $1,167.5 million for the three months ended September 30, 2024 compared to $1,127.3 million and $1,164.7 million for the three months ended September 30, 2023 and June 30, 2024, respectively. The increase in orders versus the three months ended September 30, 2023 was largely driven by higher orders in our Heat Transfer Systems and Repair, Service & Leasing segments, partially offset by lower orders in the Specialty Products and Cryo Tank Solutions segments.
Consolidated sales were $1,062.5 million in the three months ended September 30, 2024 compared to $897.9 million in the three months ended September 30, 2023 and $1,040.3 million in the three months ended June 30, 2024. Sequentially compared to the second quarter 2024, sales were up 2.1%, driven by higher sales in Heat Transfer Systems and Specialty Products. The increase in Heat Transfer Systems was driven by the continued progress on LNG backlog and other energy related backlog, and the increase in Specialty Products was driven by continued project execution in our hydrogen, carbon capture (“CCUS”) and water projects. Compared to the same quarter in 2023 this represents increases in all four segments. Consolidated gross profit margin for the three months ended September 30, 2024 of 34.1% increased from 30.8% for the three months ended September 30, 2023, and from 33.8% at June 30, 2024. This increase from the three months ended September 30, 2023 was primarily driven by our continued execution of commercial and cost synergies as well as improved mix of the business.
Consolidated Results for the Three Months Ended September 30, 2024 and 2023, and June 30, 2024
The following table includes key metrics used to evaluate our business and measure our performance and represents selected financial data for our operating segments for the three months ended September 30, 2024 and 2023 and June 30, 2024 (dollars in millions).
Results of Operations for the Three Months Ended September 30, 2024 and 2023, and June 30, 2024
Sales for the third quarter of 2024 compared to the same quarter in 2023 increased by $164.6 million, from $897.9 million to $1,062.5 million, or 18.3%, and increased by $22.2 million, from $1,040.3 million to $1,062.5 million, or 2.1%, compared to the three months ended June 30, 2024. The increase compared to the same quarter in 2023 was primarily driven by an increase in all four segments with the largest increases in the Repair, Service & Leasing and Specialty Products. The increase compared to the second quarter 2024 is primarily attributed to higher sales in Heat Transfer Systems and Specialty Products as we continued to execute on our LNG, other energy related backlog and hydrogen, CCUS and water projects.
Gross profit was $362.6 million for the third quarter of 2024, an increase of $86.4 million, or 31.3%, compared to $276.2 million for the same quarter in 2023 and an increase of $11.0 million or 3.1% compared to $351.6 million for the second quarter in 2024. Gross profit margin of 34.1% for the third quarter of 2024, was an increase of 330 basis points from 30.8% in the third quarter of 2023 and a 30 basis points increase from the second quarter of 2024. The gross profit increases compared to the same quarter 2023 were seen in all four segments, and the increase in gross profit from the second quarter of 2024 was primarily driven by the Cryo Tank Solutions and Heat Transfer Systems segments and partially offset by decreases in gross profit within our Specialty Products and Repair, Service & Leasing segments. The decrease in Specialty Products was driven by specific expenses incurred at our newly opened Theodore facility related to a supplier’s machinery startup challenges and associated inefficiencies on specific space related projects. The decrease in Repair, Service & Leasing was driven by emergency field service work that did not repeat in the third quarter of 2024.
Consolidated selling, general and administrative (“SG&A”) expenses increased by $12.9 million or 10.5% during the third quarter of 2024 compared to the same quarter in 2023. This increase in costs is primarily related to integration related costs, other information technology cost timing and a contingent consideration fair value adjustment that did not repeat in the third quarter of 2024.
Amortization expense decreased by $0.6 million to $48.4 million for the third quarter of 2024, compared to $49.0 million for the same quarter of 2023.
The following table presents the components of interest expense, net (dollars in millions):
Three Months Ended September 30,
2024
2023
Interest expense term loans due March 2030
$
32.7
$
41.3
Interest expense senior secured notes due 2030
27.4
27.3
Interest expense senior unsecured notes due 2031
12.1
12.1
Interest expense senior secured revolving credit facility due April 2029
7.8
9.2
Interest expense convertible notes due November 2024
0.7
0.6
Financing costs amortization
4.8
4.8
Interest income
(3.0)
(1.9)
Capitalized interest
(2.2)
(1.6)
Discontinued operations interest expense, net
—
(3.0)
Other
0.3
1.7
Interest expense, net
$
80.6
$
90.5
Interest expense, net decreased by $9.9 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. The decrease in interest expense, net, was mainly driven by the December 4, 2023 prepayment of term loans due March 2030 in the amount of $150.0 million and associated interest rates reduction from the July 2, 2024 credit agreement amendment, which resulted in lower interest expense incurred in the current period.
Financing costs amortization was $4.8 million for both the three months ended September 30, 2024 and 2023.
Income Tax Expense
Income tax expense of $26.6 million and $0.1 million for the three months ended September 30, 2024 and 2023, respectively, represents taxes on both U.S. and foreign earnings at a combined effective income tax rate of 26.5% and 1.0%, respectively. The effective income tax rate of 26.5% for the three months ended September 30, 2024 differed from the U.S. federal statutory rate of 21% primarily due to income earned by certain of our foreign entities being taxed at higher rates than the U.S. federal statutory rate and withholding taxes on foreign earnings not permanently reinvested offset by the U.S. impact of foreign operations and research and development credits.
The effective income tax rate of 1.0% for the three months ended September 30, 2023 differed from the U.S. federal statutory rate of 21% primarily due to one-time impacts from acquisitions and income earned by our certain foreign entities being taxed at higher rates than the U.S. federal statutory rate, offset by research and development credits and excess tax benefits associated with share-based compensation.
Net Income Attributable to Chart Industries, Inc. from Continuing Operations
As a result of the foregoing, net income attributable to Chart Industries, Inc. from continuing operations for the three months ended September 30, 2024 and 2023 was $69.4 million and $9.4 million, respectively.
Discontinued Operations
The financial results of the Roots business are reflected in our consolidated financial statements as discontinued operations for three months ended September 30, 2023. For further information, refer to Note 2, “Discontinued Operations and Other Businesses Sold” of our unaudited condensed consolidated financial statements included under Item 1, “Financial Statements” in this report.
Consolidated Results for the Nine Months Ended September 30, 2024 and 2023
The following table includes key metrics used to evaluate our business and measure our performance and represents selected financial data for our operating segments for the nine months ended September 30, 2024 and 2023 (dollars in millions). The following financial data includes results of Howden from the March 17, 2023 date of acquisition and excludes the Roots business financial results for our entire ownership period of March 17, 2023 through August 18, 2023.
Current Year-to-date vs. Prior Year-to-date Period
September 30, 2024
September 30, 2023
Variance ($)
Variance (%)
SG&A Expenses % of Sales
Cryo Tank Solutions
9.8
%
11.3
%
Heat Transfer Systems
4.6
%
5.7
%
Specialty Products
9.7
%
10.0
%
Repair, Service & Leasing
11.2
%
12.7
%
Consolidated
13.5
%
15.2
%
Operating Income (Loss)
Cryo Tank Solutions
$
53.5
$
31.9
$
21.6
67.7
%
Heat Transfer Systems
157.6
120.5
37.1
30.8
%
Specialty Products
122.0
84.6
37.4
44.2
%
Repair, Service & Leasing
265.1
121.0
144.1
119.1
%
Corporate
(139.0)
(123.3)
(15.7)
12.7
%
Consolidated
$
459.2
$
234.7
$
224.5
95.7
%
Operating Margin
Cryo Tank Solutions
11.0
%
7.3
%
Heat Transfer Systems
21.1
%
18.9
%
Specialty Products
15.3
%
14.0
%
Repair, Service & Leasing
25.9
%
17.6
%
Consolidated
15.0
%
10.0
%
Results of Operations for the Nine Months Ended September 30, 2024 and 2023
Sales for the first nine months of 2024 compared to the same period in 2023increased by $716.0 million, from $2,337.5 million to $3,053.5 million driven by increases in all four segments with the largest driver coming from increases in Repair, Service & Leasing driven by commercial synergies and the impact of Howden reporting a full first quarter in 2024 compared to a partial first quarter in 2023.
Gross profit increased during the first nine months of 2024 compared to the first nine months of 2023 by $310.4 million or 44.0%, while gross profit margin of 33.3% for the first nine months of 2024increased from 30.2% in the first nine months of 2023. The increase in gross profit margin for the first nine months of 2024 compared to the same period in 2023 was primarily driven by a higher mix of aftermarket service and repair with higher margins and achievement of cost synergies. Restructuring costs recorded to cost of sales were $0.7 million and $0.2 million for the nine months ended September 30, 2024 and 2023, respectively.
Consolidated SG&A expenses increased by $57.0 million or 16.0% during the first nine months of 2024 compared to the same period in 2023 primarily driven by the inclusion of Howden SG&A expenses in the current period.
Interest Expense, Net and Financing Costs Amortization
The following table presents the components of interest expense, net (dollars in millions):
Nine Months Ended September 30,
2024
2023
Interest expense term loans due March 2030
$
104.3
$
81.0
Interest expense senior secured notes due 2030
81.5
82.1
Interest expense senior unsecured notes due 2031
36.1
36.3
Interest expense senior secured revolving credit facility due April 2029
22.4
23.6
Interest expense convertible notes due November 2024
2.2
1.9
Financing costs amortization
14.2
12.0
Interest income
(7.7)
(24.9)
Capitalized interest
(6.2)
(3.0)
Discontinued operations interest expense, net
—
(8.9)
Other
1.9
2.6
Interest expense, net
$
248.7
$
202.7
The increase in interest expense, net, is primarily due to higher borrowings outstanding, specifically our term loan, drawn on March 17, 2023 for the Howden Acquisition and an additional incremental term loan drawn on June 30, 2023, compared to borrowings outstanding during the nine months ended September 30, 2023. Interest expense, net for the nine months ended September 30, 2023, included $24.9 million in interest income earned from deposits of proceeds from the senior secured notes due 2030, senior unsecured notes due 2031, common stock and preferred stock offerings into interest bearing accounts until the consummation of the Howden Acquisition.
Financing costs amortization was $14.2 million for the nine months ended September 30, 2024 as compared to $12.0 million for the nine months ended September 30, 2023. The increase of $2.2 millionwas primarily due to the amendment of our senior secured revolving credit facility due April 2029 as well as the issuance of incremental term loans on March 17, 2023 and June 30, 2023, which increased deferred debt issuance costs.
Income Tax Expense (Benefit)
Income tax expense (benefit) of $50.9 million and $(4.2) million for the nine months ended September 30, 2024 and 2023, respectively, represents taxes on both U.S. and foreign earnings at a combined effective income tax rate of 24.7% and 840.0%, respectively. The effective income tax rate of 24.7% for the nine months ended September 30, 2024 differed from the U.S. federal statutory rate of 21% primarily due to income earned by our certain foreign entities being taxed at higher rates than the U.S. federal statutory rate and withholding taxes on foreign earnings not permanently reinvested offset by the U.S. impact of foreign operations and research and development credits.
The effective income tax rate of 840.0% for the nine months ended September 30, 2023 differed from the U.S. federal statutory rate of 21% primarily due to one-time impacts from acquisitions and income earned by our certain foreign entities being taxed at higher rates than the U.S. federal statutory rate, offset by research and development credits and excess tax benefits associated with share-based compensation.
Net Income Attributable to Chart Industries, Inc. from Continuing Operations
As a result of the foregoing, net income attributable to Chart Industries, Inc. for the nine months ended September 30, 2024 and 2023 was $141.7 million and $0.1 million, respectively.
Segment Results
Our reportable and operating segments include: Cryo Tank Solutions, Heat Transfer Systems, Specialty Products and Repair, Service & Leasing. Corporate includes operating expenses for executive management, accounting, tax, treasury, corporate development, human resources, information technology, investor relations, legal, internal audit, risk management and share-based compensation expenses. Corporate support functions are not allocated to the segments. For further information, refer to Note 3, “Reportable Segments” of our unaudited condensed consolidated financial statements included under Item 1, “Financial Statements” in this report. The following tables include key metrics used to evaluate our business and measure our
performance and represent selected financial data for our operating segments for the three months ended September 30, 2024 and 2023 (dollars in millions):
Cryo Tank Solutions — Results of Operations for the Three Months Ended September 30, 2024 and 2023
Three Months Ended
Current Quarter vs. Prior Year Same Quarter
September 30, 2024
September 30, 2023
Variance ($)
Variance (%)
Sales
$
162.5
$
159.0
$
3.5
2.2
%
Gross Profit
40.7
35.2
5.5
15.6
%
Gross Profit Margin
25.0
%
22.1
%
SG&A Expenses
$
15.4
$
16.5
$
(1.1)
(6.7)
%
SG&A Expenses (% of Sales)
9.5
%
10.4
%
Operating Income
$
23.5
$
17.1
$
6.4
37.4
%
Operating Margin
14.5
%
10.8
%
For the third quarter of 2024, Cryo Tank Solutions net sales increased by $3.5 million as compared to the same quarter in 2023. The increase is primarily driven by increased demand in mobile equipment.
During the third quarter of 2024, Cryo Tank Solutions segment gross profit increased by $5.5 million as compared to the same quarter in 2023, and gross profit margin increased by 290 basis points. The increase in gross profit and gross profit margin was driven by improved mix and better manufacturing efficiencies.
Cryo Tank Solutions segment SG&A expenses decreased by $1.1 million during the third quarter of 2024 as compared to the same quarter in 2023. The decrease in SG&A expenses was mainly due to cost synergies achieved.
Cryo Tank Solutions — Results of Operations for the Nine Months Ended September 30, 2024 and 2023
Nine Months Ended
Current Year-to-date vs. Prior Year-to-date Period
September 30, 2024
September 30, 2023
Variance ($)
Variance (%)
Sales
$
487.7
$
435.2
$
52.5
12.1
%
Gross Profit
106.9
85.5
21.4
25.0
%
Gross Profit Margin
21.9
%
19.6
%
SG&A Expenses
$
47.8
$
49.3
$
(1.5)
(3.0)
%
SG&A Expenses (% of Sales)
9.8
%
11.3
%
Operating Income
$
53.5
$
31.9
$
21.6
67.7
%
Operating Margin
11.0
%
7.3
%
For the first nine months of 2024, Cryo Tank Solutions sales increased by $52.5 million compared to the same period in 2023. This increase is primarily driven by increased demand in bulk tanks, railcars and increased demand in North America and Europe.
During the first nine months of 2024, Cryo Tank Solutions segment gross profit increased by $21.4 million as compared to the same period in 2023, and the gross profit margin increased by 230 basis points. The increase in gross profit is largely attributed to the increased sales, and the related gross profit margin increase is largely driven by a lower portion of sales in traditional storage equipment.
Cryo Tank Solutions segment SG&A expenses decreased by $1.5 million during the first nine months of 2024 as compared to the same period in 2023. The decrease in SG&A expenses was mainly due to cost synergies achieved.
Heat Transfer Systems — Results of Operations for the Three Months Ended September 30, 2024 and 2023
Three Months Ended
Current Quarter vs. Prior Year Same Quarter
September 30, 2024
September 30, 2023
Variance ($)
Variance (%)
Sales
$
256.2
$
232.5
$
23.7
10.2
%
Gross Profit
76.4
61.5
14.9
24.2
%
Gross Profit Margin
29.8
%
26.5
%
SG&A Expenses
$
10.1
$
14.6
$
(4.5)
(30.8)
%
SG&A Expenses (% of Sales)
3.9
%
6.3
%
Operating Income
$
61.3
$
43.4
$
17.9
41.2
%
Operating Margin
23.9
%
18.7
%
For the third quarter of 2024, Heat Transfer Systems segment sales increased by $23.7 million as compared to the same quarter in 2023. This increase was driven by continued execution of our backlog largely in traditional energy and LNG.
During the third quarter of 2024, Heat Transfer Systems segment gross profit increased by $14.9 million as compared to the same quarter in 2023, and gross profit margin increased by 330 basis points. The increase in gross profit and gross profit margin is largely due to the increase in sales along with better productivity and project mix.
Heat Transfer Systems segment SG&A expenses decreased by $4.5 million during the third quarter of 2024 as compared to the same quarter in 2023. The decrease in SG&A expenses was mainly due to cost synergies achieved.
Heat Transfer Systems — Results of Operations for the Nine Months Ended September 30, 2024 and 2023
Nine Months Ended
Current Year-to-date vs. Prior Year-to-date Period
September 30, 2024
September 30, 2023
Variance ($)
Variance (%)
Sales
$
746.5
$
636.0
$
110.5
17.4
%
Gross Profit
207.3
170.1
37.2
21.9
%
Gross Profit Margin
27.8
%
26.7
%
SG&A Expenses
$
34.7
$
36.5
$
(1.8)
(4.9)
%
SG&A Expenses (% of Sales)
4.6
%
5.7
%
Operating Income (Loss)
$
157.6
$
120.5
$
37.1
30.8
%
Operating Margin
21.1
%
18.9
%
For the first nine months of 2024, Heat Transfer Systems segment sales increased by $110.5 million as compared to the same period in 2023. The increase in sales was driven primarily by increased sales in traditional energy and LNG.
During the first nine months of 2024, Heat Transfer Systems segment gross profit increased by $37.2 million as compared to the same period in 2023 primarily due to the increase in sales, and gross profit margin increased by 110 basis points largely due to project mix.
Heat Transfer Systems segment SG&A expenses decreased by $1.8 million during the first nine months of 2024 as compared to the same period in 2023 mainly due to impacts from restructuring activities.
Specialty Products — Results of Operations for the Three Months Ended September 30, 2024 and 2023
Three Months Ended
Current Quarter vs. Prior Year Same Quarter
September 30, 2024
September 30, 2023
Variance ($)
Variance (%)
Sales
$
283.3
$
240.0
$
43.3
18.0
%
Gross Profit
74.6
62.0
12.6
20.3
%
Gross Profit Margin
26.3
%
25.8
%
SG&A Expenses
$
28.3
$
22.8
$
5.5
24.1
%
SG&A Expenses (% of Sales)
10.0
%
9.5
%
Operating Income
$
41.9
$
33.7
$
8.2
24.3
%
Operating Margin
14.8
%
14.0
%
Specialty Products segment sales increased by $43.3 million during the third quarter of 2024 as compared to the same quarter in 2023. The increase in Specialty Products sales was driven by backlog conversion in hydrogen, helium and water treatment solutions.
Specialty Products segment gross profit increased by $12.6 million during the third quarter of 2024 as compared to the same quarter in 2023 largely due to the higher sales volume, while gross profit margin increased by 50 basis points due primarily to project mix partially offset by specific expenses incurred at our newly opened Theodore facility related to a supplier’s machinery startup challenges and associated inefficiencies on specific space-related projects.
Specialty Products segment SG&A expenses increased by $5.5 million during the third quarter of 2024 as compared to the same quarter in 2023 primarily driven by higher costs in Europe and a contingent consideration fair value adjustment that did not repeat in the third quarter of 2024.
Specialty Products — Results of Operations for the Nine Months Ended September 30, 2024 and 2023
Nine Months Ended
Current Year-to-date vs. Prior Year-to-date Period
September 30, 2024
September 30, 2023
Variance ($)
Variance (%)
Sales
$
797.4
$
602.9
$
194.5
32.3
%
Gross Profit
214.3
158.9
55.4
34.9
%
Gross Profit Margin
26.9
%
26.4
%
SG&A Expenses
$
77.7
$
60.2
$
17.5
29.1
%
SG&A Expenses (% of Sales)
9.7
%
10.0
%
Operating Income
$
122.0
$
84.6
$
37.4
44.2
%
Operating Margin
15.3
%
14.0
%
Specialty Products segment sales increased by $194.5 million during the first nine months of 2024 as compared to the same period in 2023. The increase in Specialty Products sales was due to the ownership of Howden for the entire first nine months of 2024 versus only part of the first nine months of 2023 as well as the conversion of backlog relative to hydrogen, CCUS and water treatment applications.
Specialty Products segment gross profit increased by $55.4 million during the first nine months of 2024 as compared to the same period in 2023 primarily due to higher volume which is largely due to ownership of Howden in the entire year-to-date 2024 results versus part of the year-to-date 2023 results.
Specialty Products segment SG&A expenses increased by $17.5 million during the first nine months of 2024 as compared to the same period in 2023 primarily driven by ownership of Howden for the entire year-to-date period in 2024 versus a partial period in 2023.
Repair, Service & Leasing — Results of Operations for the Three Months Ended September 30, 2024 and 2023
Three Months Ended
Current Quarter vs. Prior Year Same Quarter
September 30, 2024
September 30, 2023
Variance ($)
Variance (%)
Sales
$
360.5
$
271.3
$
89.2
32.9
%
Gross Profit
170.9
117.5
53.4
45.4
%
Gross Profit Margin
47.4
%
43.3
%
SG&A Expenses
$
31.9
$
36.8
$
(4.9)
(13.3)
%
SG&A Expenses (% of Sales)
8.8
%
13.6
%
Operating Income
$
102.0
$
42.3
$
59.7
141.1
%
Operating Margin
28.3
%
15.6
%
For the third quarter of 2024, Repair, Service & Leasing segment sales increased by $89.2 million as compared to the same quarter in 2023. The increase is primarily driven by continued strong demand for the combined business’ solutions and an increase in aftermarket equipment sales.
During the third quarter of 2024, Repair, Service & Leasing segment gross profit increased by $53.4 million as compared to the same quarter in 2023, and gross profit margin increased by 410 basis points. The increase in gross profit and gross profit margin was driven by continued commercial and cost synergies achieved, as well as an increase in equipment sales.
Repair, Service & Leasing segment SG&A expenses during the third quarter of 2024 decreased compared to the third quarter 2023 primarily due to continued centralization of certain IT costs and lower payroll costs.
Repair, Service & Leasing — Results of Operations for the Nine Months Ended September 30, 2024 and 2023
Nine Months Ended
Current Year-to-date vs. Prior Year-to-date Period
September 30, 2024
September 30, 2023
Variance ($)
Variance (%)
Sales
$
1,022.0
$
688.5
$
333.5
48.4
%
Gross Profit
488.0
291.6
196.4
67.4
%
Gross Profit Margin
47.7
%
42.4
%
SG&A Expenses
$
114.2
$
87.1
$
27.1
31.1
%
SG&A Expenses (% of Sales)
11.2
%
12.7
%
Operating Income
$
265.1
$
121.0
$
144.1
119.1
%
Operating Margin
25.9
%
17.6
%
For the first nine months of 2024, Repair, Service & Leasing segment sales increased by $333.5 million as compared to the same period in 2023. This increase is primarily due to the ownership of Howden for the entire first nine months of 2024 versus only part of the first nine months of 2023.
During the first nine months of 2024, Repair, Service & Leasing segment gross profit increased by $196.4 million as compared to the same period in 2023, and gross profit margin increased by 530 basis points. The increase in gross profit and gross profit margin was driven by the full ownership of Howden in the year-to-date results of 2024 versus a portion of the year-to-date results in 2023.
Repair, Service & Leasing segment SG&A expenses increased by $27.1 million during the first nine months of 2024 as compared to the same period in 2023, driven by the ownership of Howden for the entire year-to-date 2024 period versus part of the year-to-date 2023 period and restructuring associated with the acquisition integration.
Corporate
Corporate SG&A expenses increased by $17.9 million during the third quarter of 2024 as compared to the same quarter in 2023, driven by increased centralization of IT spend and ongoing integration activities. Corporate SG&A expenses increased by $15.7 million in the first nine months of 2024 compared to the same period in 2023, primarily due to increased payroll costs due to the comparative period only including Howden employees from March 17, 2023.
Our debt instruments and related covenants are described in Note 10, “Debt and Credit Arrangements” to the consolidated financial statements in our 2023 Annual Report on Form 10-K and Note 9, “Debt and Credit Arrangements” to our unaudited condensed consolidated financial statements included under Item 1, “Financial Statements” in this report.
Sources and Uses of Cash
The discussion of sources and uses of cash that follows is presented on a consolidated basis. Our cash, cash equivalents, restricted cash, and restricted cash equivalents totaled $312.5 million at September 30, 2024, an increase of $111.4 million from the balance at December 31, 2023. Our foreign subsidiaries held cash of $278.2 million and $170.1 million, at September 30, 2024, and December 31, 2023, respectively. No material restrictions exist to accessing cash held by our foreign subsidiaries. Cash equivalents are primarily invested in money market funds that invest in high quality, short-term instruments, such as U.S. government obligations, certificates of deposit, repurchase obligations, and commercial paper issued by corporations that have been highly rated by at least one nationally recognized rating organization, and in the case of cash equivalents in China, obligations of local banks. We believe that our existing cash and cash equivalents, funds available under our senior secured revolving credit facility due April 2029 or other financing alternatives, and cash provided by operations will be sufficient to meet our normal working capital needs, capital expenditures and investments for the foreseeable future.
Cash provided by operating activities was $221.6 million for the nine months ended September 30, 2024, an increase of $184.7 million compared to cash provided by operating activities of $36.9 million for the nine months ended September 30, 2023 primarily due to strong operating performance, cash management, and costs associated with the Howden Acquisition in the comparative period.
Cash used in investing activities was $121.6 million and $4,154.9 million for the nine months ended September 30, 2024 and 2023, respectively. During the nine months ended September 30, 2024, we used $100.3 million for capital expenditures and $13.1 million mainly for investments in Hy24. During the nine months ended September 30, 2023, we used $4,322.3 million for the Howden Acquisition, $115.4 million for capital expenditures and $8.8 million mainly for investments in Avina and Hylium Industries. During the nine months ended September 30, 2023, we received $291.9 million in proceeds from the sale of our RootsTM business.
Cash provided by financing activities was$6.8 million and $1,678.0 million for the nine months ended September 30, 2024 and 2023, respectively. During the nine months ended September 30, 2024, we borrowed $2,286.7 million and repaid $2,246.5 million in borrowings on our revolving credit facility and paid $20.4 million of dividends on our mandatory convertible preferred stock. During the nine months ended September 30, 2023, we borrowed incremental term loans in the aggregate principal amount of $1,534.8 million, in connection with the Howden Acquisition, and borrowed incremental term loans in the aggregate principal of $250.0 million, for general corporate purposes. During the nine months ended September 30, 2023, we borrowed $1,334.3 million on our revolving credit facilities and raised $11.7 million in proceeds for the issuance of common stock, primarily to fund the Howden Acquisition and repaid $1,234.3 million in borrowings on our credit facilities. A portion of debt repayments was funded with the proceeds from the divestiture of RootsTM. During the nine months ended September 30, 2023 we paid $133.5 million in debt issuance costs and paid $20.5 million of dividends on our mandatory convertible preferred stock. We also paid $12.2 million in dividend distributions to noncontrolling interest owners during the nine months ended September 30, 2023.
Cash Requirements
We do not currently anticipate any unusual cash requirements for working capital needs for the year ending December 31, 2024. Management anticipates we will be able to satisfy cash requirements for our ongoing business for the foreseeable future with cash generated by operations, existing cash balances and available borrowings under our credit facilities.
As described in Note 9, “Debt and Credit Arrangements” to our unaudited condensed consolidated financial statements included under Item 1, “Financial Statements” in this report, our 2024 Notes mature on November 15, 2024, unless earlier converted or repurchased. As of October 1, 2024 and through the maturity date, the 2024 Notes continue to be convertible at the option of the holder. There have been no significant conversions as of the date of this filing. We expect to fund the maturing 2024 Notes with cash on hand and available borrowings under our credit facilities. We expect to pay cash up to the $258.7 million aggregate principal amount of the 2024 Notes and settle any excess conversion value in shares of Chart common stock. We entered into convertible note hedge transactions, which are expected to reduce the potential dilution with respect to our common stock upon conversion of the 2024 Notes.
We consider orders to be those for which we have received a firm signed purchase order or other written contractual commitment from the customer. Backlog is comprised of the portion of firm signed purchase orders or other written contractual commitments from customers for which work has not been performed, or is partially completed, that we have not recognized as revenue and excludes unexercised contract options and potential orders. Our backlog as of September 30, 2024 was $4,535.3 million, compared to $4,140.7 million as of September 30, 2023 and $4,426.0 million as of June 30, 2024.
The tables below represent orders received and backlog by segment for the periods indicated (dollars in millions):
Three Months Ended
September 30, 2024
September 30, 2023
June 30, 2024
Orders
Cryo Tank Solutions
$
126.2
$
155.6
$
159.0
Heat Transfer Systems
424.7
176.1
269.6
Specialty Products
237.8
469.1
423.7
Repair, Service & Leasing
377.9
331.2
312.4
Intersegment eliminations
0.9
(4.7)
—
Consolidated
$
1,167.5
$
1,127.3
$
1,164.7
As of
September 30, 2024
September 30, 2023
June 30, 2024
Backlog
Cryo Tank Solutions
$
316.5
$
449.4
$
358.2
Heat Transfer Systems
1,878.0
1,657.5
1,709.7
Specialty Products
1,755.3
1,460.7
1,806.4
Repair, Service & Leasing
593.4
609.7
562.7
Intersegment eliminations
(7.9)
(36.6)
(11.0)
Consolidated
$
4,535.3
$
4,140.7
$
4,426.0
Cryo Tank Solutions segment orders for the three months ended September 30, 2024 were $126.2 million compared to $155.6 million for the three months ended September 30, 2023 and $159.0 million for the three months ended June 30, 2024. The decrease in Cryo Tank Solutions segment orders during the three months ended September 30, 2024 when compared to the same quarter last year was primarily driven by the third quarter of 2023 having a non-repeating order for railcars of $19.2 million and slower demand in China. Cryo Tank Solutions segment backlog at September 30, 2024 totaled $316.5 million compared to $449.4 million as of September 30, 2023 and $358.2 million as of June 30, 2024.
Heat Transfer Systems segment orders for the three months ended September 30, 2024 were $424.7 million compared to $176.1 million for the three months ended September 30, 2023 and $269.6 million for the three months ended June 30, 2024. The increase in orders from the three months ended September 30, 2023 and three months ended June 30, 2024 was mainly driven by increased orders in LNG. Heat Transfer Systems segment backlog at September 30, 2024 totaled $1,878.0 million, as compared to $1,657.5 million and $1,709.7 million as of September 30, 2023 and June 30, 2024, respectively.
Specialty Products segment orders for the three months ended September 30, 2024 were $237.8 million compared to $469.1 million for the three months ended September 30, 2023 and $423.7 million for the three months ended June 30, 2024. The decrease in Specialty Products segment orders during the three months ended September 30, 2024 as compared to the three months ended September 30, 2023 and three months ended June 30, 2024 was mainly driven by lower orders in hydrogen and helium applications. Specialty Products segment backlog totaled $1,755.3 million as of September 30, 2024, compared to $1,460.7 million as of September 30, 2023 and $1,806.4 million as of June 30, 2024.
Repair, Service & Leasing segment orders for the three months ended September 30, 2024 were $377.9 million compared to $331.2 million for the three months ended September 30, 2023 and $312.4 million for the three months ended June 30, 2024. The increase in orders for the three months ended September 30, 2024 as compared to the three months ended June 30, 2024 was driven by an increase in aftermarket equipment orders.Repair, Service & Leasing segment backlog totaled $593.4 million as of September 30, 2024, compared to $609.7 million as of September 30, 2023 and $562.7 million as of June 30, 2024.
Our unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles and are based on the selection and application of significant accounting policies, which require management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ materially from those estimates. A summary of areas where we apply critical judgment can be found in our Annual Report on Form 10-K for the year ended December 31, 2023. In particular, judgment is used in areas such as goodwill, indefinite-lived intangible assets, long-lived assets (including finite-lived intangible assets), business combinations, investments in equity securities without a readily determinable fair value, contingencies, revenue from contracts with customers and income taxes. There have been no significant changes to our critical accounting estimates since December 31, 2023.
Forward-Looking Statements
We are making this statement in order to satisfy the “safe harbor” provisions contained in the Private Securities Litigation Reform Act of 1995. This Quarterly Report on Form 10-Q includes “forward-looking statements.” These forward-looking statements include statements relating to our business, including statements regarding completed and pending acquisitions and investments and related accretion or statements with respect to the use of proceeds or redeployment of capital from recent divestitures, as well as statements regarding our 2024 sales outlook, revenues, cost and commercial synergies and efficiency savings, objectives, future orders, margins, segment sales mix, earnings or performance, liquidity and cash flow, repayment or settlement of maturing debt, inventory levels, capital expenditures, supply chain challenges, inflationary pressures including materials costs and pricing increases, business trends, clean energy market opportunities including addressable market and projected industry-wide investments, carbon and GHG emission targets, governmental initiatives, including executive orders and other information that is not historical in nature. In some cases, forward-looking statements may be identified by terminology such as “may,” “will,” “should,” “expects,” “anticipates,” “believes,” “projects,” “forecasts,” “outlook,” “guidance,” “target,” “continue” or the negative of such terms or comparable terminology. Forward-looking statements contained herein (including future cash contractual obligations, liquidity, debt repayments, cash flow, orders, results of operations, projected revenues, margins, capital expenditures, industry and business, trends, clean energy and other new market or expansion opportunities, cost and commercial synergies and savings objectives, and government initiatives among other matters) or in other statements made by us are made based on management’s expectations and beliefs concerning future events impacting us and are subject to uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control, that could cause our actual results to differ materially from those matters expressed or implied by forward-looking statements.
These include: the other factors discussed in Item 1A. “Risk Factors” and the factors discussed in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2023, among others, could affect our future performance and liquidity and value of our securities and could cause our actual results to differ materially from those expressed or implied by forward-looking statements made by us or on our behalf. These factors should not be construed as exhaustive and there may also be other risks that we are unable to predict at this time.
All forward-looking statements attributable to us or persons acting on our behalf apply only as of the date of this Quarterly Report and are expressly qualified in their entirety by the cautionary statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, as the same may be updated from time to time. We undertake no obligation to update or revise forward-looking statements which may be made to reflect events or circumstances that arise after the filing date of this document or to reflect the occurrence of unanticipated events, except as otherwise required by law.
Item 3.Quantitative and Qualitative Disclosures About Market Risk
In the normal course of business, our operations are exposed to fluctuations in interest rates and foreign currency values that can affect the cost of operating and financing. Accordingly, we address a portion of these risks through a program of risk management.
Interest Rate Risk: Our primary interest rate risk exposure results from various floating rate pricing mechanisms contained in our senior secured revolving credit facility due April 2029 and term loans due March 2030. If interest rates were to increase 100 basis points (1 percent) from the weighted-average interest rate for our senior secured revolving credit facility due April 2029 of 6.4% at September 30, 2024, and assuming no changes in the $142.3 million of borrowings outstanding under the senior secured revolving credit facility due April 2029 at September 30, 2024, our additional annual expense would be approximately $1.4 million on a pre-tax basis. If interest rates were to increase 100 basis points (1 percent) from the interest rate for our term loans due March 2030 of 7.8% at September 30, 2024, and assuming no changes in the $1,631.0 million of
borrowings outstanding under our term loans due March 2030 at September 30, 2024, our additional annual expense would be approximately $16.3 million on a pre-tax basis.
Foreign Currency Exchange Rate Risk: We operate in the United States and other foreign countries, which creates exposure to foreign currency exchange fluctuations in the normal course of business, which can impact our financial position, results of operations, cash flow, and competitive position. The financial statements of foreign subsidiaries are translated into their U.S. dollar equivalents at end-of-period exchange rates for assets and liabilities, while income and expenses are translated at average monthly exchange rates. Translation gains and losses are components of other comprehensive income as reported in the unaudited condensed consolidated statements of operations and comprehensive income (loss). Translation exposure is primarily with the euro, the Czech koruna, the Chinese yuan, the South African rand, the British pound and the Indian rupee. During the third quarter of 2024, the U.S. dollar weakened in relation to the euro, Czech koruna, Chinese yuan, South African rand and the British pound by 4%, 4%, 2%, 6% and 6%, respectively. There was no notable movement between the U.S. dollar and the Indian rupee. At September 30, 2024, a hypothetical 10% strengthening of the U.S. dollar would not materially affect our financial statements.
EUR Revolver Borrowings: Additionally, assuming no changes in the euro 78.0 million in EUR Revolver Borrowings outstanding under the senior secured revolving credit facility due April 2029 and an additional 100 basis points (1 percent) strengthening in the U.S dollar in relation to the euro as of the beginning of 2024, during the three months ended September 30, 2024, our additional unrealized foreign currency gain would be approximately $0.8 million on a pre-tax basis.
Transaction Gains and Losses: Chart’s primary transaction exchange rate exposures are with the euro, the Chinese yuan, the Czech koruna, the Indian rupee, the Australian dollar, the British pound, the Canadian dollar and the South African rand. Transaction gains and losses arising from fluctuations in currency exchange rates on transactions denominated in currencies other than the functional currency are recognized in the unaudited condensed consolidated statements of operations and comprehensive income (loss) as a component of foreign currency gain.
Derivative Instruments: We enter into foreign currency contracts not designated as hedging instruments to mitigate foreign currency risk for anticipated and firmly committed foreign currency transactions. At September 30, 2024, a hypothetical 10% weakening of the U.S. dollar would not materially affect our outstanding foreign exchange forward contracts. We enter into a combination of cross-currency swaps and foreign exchange collars as a net investment hedge of our investments in certain international subsidiaries that use the euro as their functional currency in order to reduce the volatility caused by changes in exchange rates. As disclosed in Note 9, “Debt and Credit Arrangements,” we have an out-of-the-money protective call while writing a put option with a strike price at which the premium received is equal to the premium of the protective call purchased, which involved no initial capital outlay. The call was structured with a strike price higher than our cost basis in such investments, thereby limiting any foreign exchange losses to approximately $11.4 million on a pre-tax basis. We do not use derivative financial instruments for speculative or trading purposes. The terms of the contracts are generally one to three years.
Market Price Sensitive Instruments
In connection with the pricing of the 2024 Notes, we entered into privately-negotiated convertible note hedge transactions (the “Note Hedge Transactions”) with certain parties, including affiliates of the initial purchasers of the 2024 Notes (the “Option Counterparties”) which relate to 4.41 million shares of our common stock and represents the number of shares of our common stock underlying the 2024 Notes. These Note Hedge Transactions are expected to reduce the potential dilution upon any conversion of the 2024 Notes.
We also entered into separate, privately-negotiated warrant transactions with the Option Counterparties to acquire up to 4.41 million shares of our common stock. The warrant transactions will have a dilutive effect with respect to our common stock to the extent that the price per share of our common stock exceeds the strike price of the warrants unless we elect, subject to certain conditions, to settle the warrants in cash. The strike price of the warrant transactions related to the 2024 Notes was initially $71.775 per share. Further information is located in Note 9, “Debt and Credit Arrangements” to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Item 4.Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We performed an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15 under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”) as of September 30, 2024. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of September 30, 2024, our disclosure controls and procedures were effective to ensure that information required to be
disclosed by us in the reports we file or submit under the Exchange Act (1) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and (2) is accumulated and communicated to our management including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow for timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
We are occasionally subject to various other legal claims related to performance under contracts, product liability, taxes, employment matters, environmental matters, intellectual property, and other matters incidental to the normal course of our business. Based on our historical experience in litigating these claims, as well as our current assessment of the underlying merits of the claims and applicable insurance, if any, management believes that the final resolution of these matters will not have a material adverse effect on our financial position, liquidity, cash flows, or results of operations. Future developments may, however, result in resolution of these legal claims in a way that could have a material adverse effect.
Item 1A. Risk Factors
In addition to the other information set forth in this report, you should carefully consider the risk factors disclosed in Item 1A. “Risk Factors,” of our Annual Report on Form 10-K for the year ended December 31, 2023.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
Period
Total Number of Shares Purchased (1)
Average Price Paid Per Share (1)
Total Number of Shares Purchased As Part of Publicly Announced Plans or Programs
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
July 1 - 31, 2024
195
$
167.40
—
$
—
August 1 - 31, 2024
1,394
117.09
—
—
September 1 - 30, 2024
569
123.47
—
—
Total
2,158
123.32
—
$
—
_______________
(1)Includes shares of common stock surrendered to us during the third quarter of 2024 by participants under our share-based compensation plans to satisfy tax withholding obligations relating to the vesting or payment of equity awards for an aggregate purchase price of approximately $266,125. The total number of shares repurchased represents the net shares issued to satisfy tax withholding. All such repurchased shares were subsequently retired during the three months ended September 30, 2024.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
During the quarter ended September 30, 2024, no director or Section 16 officer adopted or terminated any Rule 10b5-1 trading arrangements or non-rule 10b5-1 trading arrangements, nor do any of the directors or Section 16 officers currently maintain any such arrangements.
* The Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
59
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.