Chart Industries, Inc. (“Chart”) (NASDAQ: GTLS) today announced
that it has signed a definitive agreement to divest its
cryobiological products business (MVE Biological Products) within
the Distribution & Storage Western Hemisphere (“D&S West”)
segment to Cryoport, Inc. (“Cryoport”) (NASDAQ: CYRX) for $320
million in cash. The sale is expected to close early in the
fourth quarter 2020, following the satisfaction of customary
closing conditions, including regulatory requirements.
Accompanying this release is a supplemental presentation that
will be reviewed during a conference call scheduled today at 9:30am
eastern time. Strategic highlights of the sale and other
recent events include:
- Supports Chart’s strategic expansion into additional
clean energy offerings that fit the core cryogenic engineering and
products for industrial gas and renewable energy while exiting
non-core life science and animal breeding products
- Debt paydown from proceeds expected to result in pro
forma July 31, 2020 net leverage ratio of 1.78X
- Announces partnership with FirstElement Fuel to
continue to develop equipment for the hydrogen fuel and mobility
market
- Entered into memorandum of understanding (“MOU”) with a
major industrial gas customer to develop specific hydrogen
applications in Asia
- Investment in expanded leasing fleet expected to drive
over $15 million incremental revenue per year, such as the already
awarded $8 million, 5-year leasing contract for ISO containers with
New Fortress Energy
- Booked orders with 84 new customers in the third
quarter 2020 to date, bringing year-to-date new customers to
344
- 2020 full year guidance for continuing operations
revenue of approximately $1.2 billion and associated adjusted
diluted EPS of approximately $2.25
- Releases 2021 outlook for continuing operations of
$1.25 to $1.325 billion of revenue and associated adjusted diluted
EPS of $2.90 to $3.25 with no additional Big LNG
projects
The strategic decision to divest the
cryobiological products business reflects Chart’s strategy and
capital allocation approach to focus on its core capabilities and
offerings while continuing to expand its presence in clean energy
applications including LNG, hydrogen, biogas/biomethane, carbon
capture and other renewable fueling sources. This divestiture
follows the 2018 sale of our oxygen-related products business,
which at the time was a portion of the previous BioMedical
segment. The other portion of the BioMedical segment was our
cryobiological products which have since been managed by and
reported through the D&S West segment. Cryobiological
products are used for transport of biological samples and storage
of vaccinations, tissue, cells, blood and plasma as well as animal
breeder applications. Our medical oxygen related products for
critical care applications such as COVID-19 will remain with the
Chart business, as they are bulk, microbulk and mobile equipment
that serve various industrial gas applications in addition to
medical grade oxygen, and have been reported in our D&S West
and D&S East segments.
The cryobiological products have virtually no
overlapping customers with the rest of our business and require
specialty sales relationships with high knowledge in life sciences
and breeding. Additionally, these products go into highly
regulated applications and have a significantly higher risk profile
than our other product offerings. The three cryobiological
manufacturing locations are standalone with no other Chart products
produced in any of these locations.“This is a logical next step in
our strategy to stay disciplined in our core cryogenic businesses
that share common customers, technologies and end markets.
Having a strategic life sciences buyer like Cryoport will provide a
platform for the cryobiological products business to grow in
medical and animal breeding spaces that are non-core to Chart,”
stated Jill Evanko, Chart’s President and Chief Executive
Officer. “We will initially utilize the proceeds from the
sale to pay down debt and subsequently continue to expand our
presence, both organically and inorganically, into our high-growth
focus areas, including hydrogen, carbon capture and other specialty
markets.”Net of the proceeds from the sale, our pro forma net
leverage ratio at June 30, 2020 would have been 1.78X. In
addition, these proceeds will be used to fuel (pun intended!)
organic and inorganic investment in strategic growth areas.
For example, we will expand our rental and leasing fleet as part of
our aftermarket, repair and service growth. This organic
investment of $5 million over the next 6 months is expected to
result in additional total lease values of over $15 million in
2021. Since we launched our expanded rental fleet on June 1,
2020, we have booked $11 million of leases including $8 million
from New Fortress Energy to deliver ISO containers over the coming
5 years. This investment, coupled with our $7 million
greenfield repair and service location in South Carolina, USA, will
contribute to our short-term goal of 20% of sales from aftermarket,
repair, service and leasing. To date in the third quarter
2020, we completed two additional long-term agreements (“LTA”), one
master agreement with Flint Hills Resources for air cooled heat
exchangers, one hydrogen partnership, and a MOU with a major
industrial gas customer for hydrogen development in Asia which is
expected to yield between $7 to $10 million of hydrogen related
revenue over the coming 5 years. Our strategy of executing
extended duration and product long-term agreements inclusive of
repair and service with a broader set of customers contributes to
our ability to profitably grow throughout a cycle while we pivot to
higher growth but early stage clean energy spaces.
We continue to be well-positioned to participate
in the broad set of clean energy solutions, many of which utilize
our existing portfolio of products. The following are just a
few examples of how we are supporting this transition to a carbon
neutral environment:
- Thermal Storage: As highlighted with the
recent issues in California, a responsive, distributed energy
supply is critical to support integration of intermittent renewable
resources and overall grid resiliency. Our liquid air
solutions utilizing Chart cold boxes and bulk storage tanks provide
cost effective thermal batteries, offering responsive peak power
capacity and load shifting capability. We are working with
our customers to further integrate this into the gas fired
generation infrastructure that backstops these intermittent
sources.
- Carbon Capture: Imagine a giant bank of
air-cooled heat exchangers in a basin – that is one of the projects
we are currently pursuing with a large international oil company
for direct air carbon capture systems.
- Bio Diesel Production: There are
multiple announced and planned conversions of existing refineries
to bio diesel production, including Holly Frontier, P66, and Shell,
as well as greenfield bio diesel production (REG). Our
breech lock heat exchangers and air coolers are integral to the
scope in any of these conversions.
And we continue to build upon and invest in our
hydrogen strategy which is very similar to our LNG strategy in that
we are focused on the equipment and liquefaction related to
hydrogen versus owning or operating the production plant or the
molecules themselves. We partner with companies that have
those capabilities, including our existing industrial gas customer
base, to offer a full solution to the end hydrogen users. One such
example is our recent partnership with FirstElement Fuel where
together we will continue to develop equipment for the hydrogen
fuel and mobility market. Organically, we are investing in
our hydrogen, carbon capture and biogas engineering and commercial
resources globally; these investments have already resulted in many
pilot projects and orders in the hydrogen area, and we continue to
build upon our 50 years of liquid hydrogen experience. For example,
we started the year working four confidential projects with
customers, expanded to eight projects under NDAs in the second
quarter 2020 and have entered into two additional NDAs for new
opportunities related to renewable diesel plants and the
development of a green hydrogen based fueling station in
Europe. Multiple customers of our HLNG vehicle tanks have
also announced plans for hydrogen trucks, for which we expect
commercial production to occur within the next 5 years. Our
HLH2 fuel system solution serves these customers as they look at
enabling existing truck platforms to adopt hydrogen in the same
locations used for diesel.While we do not expect these investments
to immediately replace the cryobiological products business revenue
of approximately $90 to $100 million per year and associated
earnings per share of approximately $0.70 to $0.75 per year, this
transaction serves as an enabler to pivot early into these
embryonic markets and be a significant part of the power generation
capacity stack in the coming decades. We continue to see high
growth in the global renewable infrastructure buildout, with
continued demand for our LNG fueling stations, HLNG vehicle tanks
for over-the-road trucking, and small-scale terminals
globally. As a reminder, we entered into a MOU in the fourth
quarter of 2019 with Energy Capital Vietnam (ECV) to jointly
promote the distribution of LNG within Vietnam, with Chart
supplying the downstream equipment into ECV’s terminal
projects. On August 13, 2020, the Government Office of
Vietnam released an official announcement stating that the Prime
Minister issued a directive to add ECV’s Mui Ke Ga (MKG) project to
the National Power Development Plan period 2021-2030. This is
another step toward the continued utilization of small-scale LNG
and the associated infrastructure that delivers this clean burning
fuel to the developing world. We continue to see strong
interest in similar small-scale liquefaction and distribution
throughout Southeast Asia, Latin America and Africa. Another
example of this growth is our fueling station order activity, with
year-to-date July 2020 orders for 42 fueling stations, compared to
60 for the full year of 2019. Additionally, in August, we
completed pricing agreements for multiple stations with two
significant European customers.
We are committed to continuing to provide as
much transparency as possible to shareholders, in particular on our
highest growth areas of our business and visibility to more easily
understand our product offering. We will continue to
externally report in our current segmentation until the close of
the transaction, at which time Chart will contemplate reporting in
the following four segments: (i) Heat Transfer Systems, (ii) Cryo
Tank Solutions (Bulk and Microbulk Products), (iii) Repair,
Service, Leasing and (iv) Specialty Products. At the time
with which this would go into effect, we will provide three-year
historical quarterly and full year information.
- Heat Transfer Systems would include revenue related to our
brazed aluminium heat exchangers, air cooled heat exchangers, shell
& tube heat exchangers, fans and cold boxes as well as our
integrated system solutions. This would be our most cyclical
segment yet also contains the significant high margin, big LNG
upside potential of over $750 million in the coming four
years.
- Cryo Tank Solutions (Bulk & Microbulk) would include
our global distribution and storage bulk, microbulk, packaged gas
and mobile equipment products. This segment would be closely
aligned with our industrial gas major customers, and would include
multiple long-term agreements that provide consistent growth,
margin and free cash flow across a cycle.
- Repair, Service and Leasing would include all aftermarket,
parts, service repair that previously were reported across the four
segments. Additionally, our global leasing group revenues
would be included in this segment. This business was 13% of
total revenue at June 30, 2020, and we intend to grow this to 20%
of total revenue in the next two years.
- Specialty Products relates to products used in our specialty
market applications including hydrogen, food and beverage, space
exploration, lasers, cannabis and water treatment, amongst
others. We expect these products to grow over 10% annually in
the coming three years.
The transaction will be funded by Cryoport’s
available cash on hand, debt under its current credit facility and
additional committed financing from an investor group. There
is no financing contingency in the agreement. The transaction
is subject to customary closing conditions including the expiration
of the applicable waiting period under the HSR Act. Winston
& Strawn LLP served as legal advisor to Chart.
OUTLOOK 2020
The third quarter 2020 started in line with our
expectations and prior guidance. July 2020 orders were $82.8
million, of which $6.8 million were related to the cryobiological
business. Quarter to date (Q3 2020), we have received orders
from 84 new customers, bringing our year-to-date new customer count
to 344 (57% of these are outside of North America).
Additionally, while E&C FinFans air cooled heat exchanger
demand levels continue to be depressed, it has been slowly
improving with targeted capacity adds in the midstream and upstream
end markets, numerous quick turnaround replacement projects, as
well as multiple first-of-a-kind applications for our products.
Following the signing of the definitive
agreement mentioned above, the cryobiological product line will be
reported in discontinued operations for the full year 2020 and
prior years. Full year 2020 sales from continuing operations
are expected to be approximately $1.20 billion and includes $46
million of Venture Global’s Calcasieu Pass revenue in the second
half of the year. We anticipate full year diluted adjusted
earnings per share to be approximately $2.25 on 35.3 million
weighted average shares outstanding. Note that our full year
2020 guidance does not include (a) the ongoing benefit of
approximately $8.5 million of saved interest expense expected
annually from the paydown of debt with the proceeds from the
transaction, (b) the associated annual insurance premium savings
and (c) legal cost savings. Our assumed effective tax rate is
19% for the full year 2020. We anticipate capex spend will be in
the $30 million to $35 million range, unchanged from our prior
guidance.
OUTLOOK 2021
Our 2021 outlook for continuing operations is a
revenue range of $1.25 to $1.325 billion, inclusive of $25 million
of revenue from Venture Global’s Calcasieu Pass project. This
guidance does not include any additional big LNG projects, for
which we anticipate receiving three orders between now and the end
of 2021. We anticipate full year diluted adjusted earnings
per share to be approximately $2.90 to $3.25 on 35.3 million
weighted average shares outstanding with an effective tax rate of
18%. Capital expenditures are expected to be in the range of
$30 to $35 million.
Further details on the divestiture of our
cryobiological products business and our strategic execution can be
found in the supplemental presentation included in this release and
will be discussed on our conference call at 9:30am Eastern Time
today. Further details on the divestiture of our
cryobiological products business and our strategic execution can be
found in the supplemental presentation included in this release and
will be discussed on our conference call at 9:30am Eastern Time
today. This webcast can be accessed through the Company's
website, www.chartindustries.com. Participants may also join the
conference call by dialing (877) 312-9395 in the U.S. or (970)
315-0456 from outside the U.S. The conference ID is
2390155. A taped replay of the conference call will be
archived on the Company’s
website, www.chartindustries.com. You may also listen to
a recorded replay of the conference call by dialing (855) 859-2056
in the U.S. or (404) 537-3406 outside the U.S. and entering
Conference ID 2390155. The replay will be available beginning
1:30 p.m. ET, Tuesday, August 25, 2020 until 12:30 p.m. ET,
Tuesday, September 1, 2020.
For more information, click here:
http://ir.chartindustries.com/
About Chart Industries,
Inc.
Chart Industries, Inc. is a leading independent
global manufacturer of highly engineered equipment servicing
multiple applications in the Energy and Industrial Gas
markets. Our unique product portfolio is used in every phase
of the liquid gas supply chain, including upfront engineering,
service and repair. Being at the forefront of the clean
energy transition, Chart is a leading provider of technology,
equipment and services related to liquefied natural gas, hydrogen,
biogas and CO2 Capture amongst other applications. We are committed
to excellence in environmental, social and corporate governance
(ESG) issues both for our company as well as our customers.
With over 25 global locations 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. To learn more, visit
www.Chartindustries.com.
FORWARD-LOOKING STATEMENTS
Certain statements made in this press release
are forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Forward-looking
statements include statements concerning the Company’s business
plans, including statements regarding the proposed divestiture of
Chart’s cryobiological products business, completed acquisitions,
cost synergies and efficiency savings, objectives, future orders,
revenues, margins, earnings or performance, liquidity and cash
flow, capital expenditures, business trends, governmental
initiatives, including executive orders and other information that
is not historical in nature. Forward-looking statements may
be identified by terminology such as "may," "will," "should,"
"could," "expects," "anticipates," "believes," "projects,"
"forecasts," “outlook,” “guidance,” "continue," “target,” or the
negative of such terms or comparable terminology.
Forward-looking statements contained in this
press release or in other statements made by the Company are made
based on management's expectations and beliefs concerning future
events impacting the Company and are subject to uncertainties and
factors relating to the Company's operations and business
environment, all of which are difficult to predict and many of
which are beyond the Company's control, that could cause the
Company's actual results to differ materially from those matters
expressed or implied by forward-looking statements. Factors
that could cause the Company’s actual results to differ materially
from those described in the forward-looking statements
include: the ability of the Company and Cryoport to satisfy
closing conditions in connection with the proposed transaction; the
Company’s ability to successfully integrate recent acquisitions and
achieve the anticipated revenue, earnings, accretion and other
benefits from these acquisitions; risks relating to the recent
outbreak and continued uncertainty associated with the coronavirus
(COVID-19) and the other factors discussed in Item 1A (Risk
Factors) in the Company’s most recent Annual Report on Form 10-K
filed with the SEC and Quarterly Reports on Form 10-Q, which should
be reviewed carefully. The Company undertakes no obligation
to update or revise any forward-looking statement.
USE OF NON-GAAP FINANCIAL INFORMATION
This presentation contains non-GAAP financial
information, including EBITDA, EBITDA, adjusted, adjusted gross
profit, adjusted gross profit margin, and adjusted selling, general
and administrative expenses. For additional information
regarding the Company's use of non-GAAP financial information, as
well as reconciliations of non-GAAP financial measures to the most
directly comparable financial measures calculated and presented in
accordance with accounting principles generally accepted in the
United States ("GAAP"), please see the reconciliation pages in the
appendix of the supplemental deck. With respect to the
Company’s 2020 and 2021 full year earnings outlooks, the Company is
not able to provide a reconciliation of the adjusted earnings per
diluted share, a non-GAAP financial measure, because certain items
may have not yet occurred or are out of the Company’s control
and/or cannot be reasonably predicted. Furthermore, non-GAAP
financial measures shown in the presentation slide labeled
“External Segmentation” were not reconciled to the comparable GAAP
financial measures because the GAAP measures would require
significant effort to prepare and therefore are not available as of
the time of this news release.
For more information, click here:
http://ir.chartindustries.com/
See URL below for a link to our Supplemental Information:
http://ml.globenewswire.com/Resource/Download/f9f82be0-5a34-4eaf-85f5-da0906a7b2ee
Investor Relations Contact:
Wade Suki |
Director of Investor
Relations |
832-524-7489 |
wade.suki@chartindustries.com |
CHART INDUSTRIES, INC. AND
SUBSIDIARIESRECONCILIATION OF GROSS PROFIT TO
ADJUSTED GROSS PROFIT AND SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES TO ADJUSTED SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
(UNAUDITED)(Dollars in millions)
|
Year Ended December 31, 2019 |
Sales |
$ |
1,299.1 |
|
Gross profit as reported (U.S.
GAAP) |
336.8 |
|
Restructuring, transaction-related and other costs |
15.2 |
|
Integration and step up costs |
7.2 |
|
Aluminum cryobiological tank recall reserve expense |
0.2 |
|
Commercial and legal settlements |
2.4 |
|
Adjusted gross profit
(non-GAAP) |
$ |
361.8 |
|
Adjusted gross profit
margin (non-GAAP) |
27.9 |
% |
|
|
Selling, general and
administrative expenses as reported (U.S. GAAP) |
$ |
216.1 |
|
Restructuring,
transaction-related and other costs |
(16.7 |
) |
Integration and step up
costs |
(3.9 |
) |
Adjusted selling,
general and administrative expenses (non-GAAP) |
$ |
195.5 |
|
_______________
Adjusted gross profit, adjusted gross profit
margin and adjusted selling, general and administrative expenses
are not measures of financial performance under U.S. GAAP and
should not be considered as an alternative to gross profit and
gross profit margin in accordance with U.S. GAAP. Management
believes that adjusted gross profit, adjusted gross profit margin
and adjusted selling, general and administrative expenses
facilitate useful period-to-period comparisons of our financial
results, and this information is used by us in evaluating internal
performance. Our calculations of these non-GAAP measures may
not be comparable to the calculations of similarly titled measures
reported by other companies.
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