Contrasting Q2 Results: Brookfield Renewable Partners and Chart Industries

Brookfield Renewable Announces Strong Second Quarter Results

All amounts in U.S. dollars unless otherwise indicated BROOKFIELD, NEWS, Aug. 02, 2024 (GLOBE NEWSWIRE) -- Brookfield Renewable Partners L.P. (TSX: BEP.UN; NYSE: BEP) ("Brookfield Renewable Partners", "BEP") today reported financial results for the three and six months ended June 30, 2024. "We had another strong quarter, building on our momentum to start to the year with operating results and growth initiatives that position us to deliver our target 10%+ FFO per unit growth target for 2024. We were successful deploying significant capital into opportunities that further enhance the market-leading reach and scale of our business. Our investments focused on adding leading platforms in attractive markets with scale operating businesses and development pipelines that complement our current operations and further diversify our cash flows," said Connor Teskey, CEO of Brookfield Renewable. "Renewables are not simply a decarbonization solution, they are a growth enabler. They are the lowest cost source of bulk power, and as more renewables come online, it makes more low-cost electricity available to businesses, which facilitates even greater demand - all while decarbonizing global electricity grids. With this backdrop, we remain focused on leveraging our access to scale capital and global team to continue growing our capabilities and delivering differentiated solutions to our partners." Brookfield Renewable reported FFO of $339 million in the quarter, representing a 9% increase compared to the prior year, or $0.51 per unit. Our strong results reflect growth from M&A and organic development, as well as the benefits of our increasingly diverse operating fleet. After deducting non-cash depreciation and other expenses including marking-to-market on certain hedging instruments, our Net loss attributable to Unitholders for the three months ended June 30, 2024 was $154 million. During the quarter, we successfully invested in businesses with established operating portfolios and development pipelines in attractive markets, where demand for clean power is growing. Further, our growth activities this quarter enabled us to expand into some new high value renewables markets, where broader Brookfield has been a prominent and successful investor for years. Along with our institutional partners we signed an agreement to acquire ~53% of the outstanding shares of publicly-listed Neoen. Neoen is a leading global renewable platform with best-in class management and market leading positions in each of France, Australia and the Nordics. The company has 8,000 megawatts of highly contracted operating or under construction assets, and a 20,000-megawatt advanced stage pipeline with completed technical studies, and land and interconnection already secured. Neoen's three core markets represent some of the fastest growing markets for renewables, with strong corporate demand and high barriers to entry. The addition of Neoen to our portfolio immediately makes us a top player in each of these very attractive markets, where we can supplement Neoen's local capabilities with our commercial, procurement and operating expertise. With our combined capabilities and access to capital, we intend to support the company, with a view to increasing Neoen's development activities, to meet increasing demand for renewable energy. In addition, the transaction will enable us to enhance on our ability to serve the needs of the largest corporate customers globally. In particular the mega-cap technology players have increasingly large requirements given their growing investment in data center development to support cloud and AI technologies. We are continuing to differentiate ourselves with our large operating fleet and expansive development pipeline, which now stands at over 230,000 megawatts, of which approximately 65,000 megawatts has advanced stage land, interconnection and permitting status in core renewable markets. This large, advanced pipeline and our credibility in delivering projects continues to enhance our position as the partner of choice for the largest buyers of clean power. After regulatory approvals, which are expected in the fourth quarter of this year, we will launch a tender offer for the remaining shares of Neoen. Our offer to acquire 100% of the outstanding shares of the company is for $6.7 billion ($540 million net to Brookfield Renewable). Along with our institutional partners, we acquired Leap Green, a leading wind focused commercial and industrial renewable business in India with ~500 megawatts of operating capacity and an almost 3,000-megawatt development pipeline for ~$200 million (~$40 million net by Brookfield Renewable). We began investing in the Indian market in 2017 and now operate one of the largest renewable energy businesses in the country, with over 3,000 megawatts of operating assets and a ~20,000-megawatt development pipeline. We made our first investment in South Korea, a very attractive market for renewables with strong policy objectives and corporate demand for clean power that is outpacing supply. With our institutional partners we acquired the operating and development platform of Hanmaeum Energy, a full-service platform with 340 megawatts of operating and near construction distributed generation capacity and over 4,000 megawatts of development projects and identified acquisition opportunities for up to ~$500 million of upfront and follow-on growth capital (~$100 million net to Brookfield Renewable). South Korea is home to many high-quality power-intensive corporates with decarbonization objectives and has government mandated renewable portfolio requirements for energy companies, creating a strong market for renewable energy credits and capital recycling. And while this market is new for our renewables business, the broader Brookfield has been a long-time successful investor in the country. Delivering Competitive Energy Solutions Over the past two decades, solar and wind have gone from a negligible source of global electricity production to over thirteen percent of total supply and have also become the most cost competitive sources of power globally. New build solar and wind now cost less than running existing fossil fuel plants in most markets. We are seeing a similar scenario play out with batteries, where costs have declined 85% in the past decade and 60% in the past six years. Batteries are benefiting from economies of scale with the growth of the electric vehicle market, from incremental demand for capacity and grid stabilizing services, and by enabling increased penetration of low-cost renewables by providing a power solution for customers when the sun is not shining, or the wind is not blowing. As a result, the cost curve for batteries is now declining at a steeper pace than traditional renewables. With lower capital costs, higher potential revenues and increasing demand for this type of solution from customers, we are focused on deploying capital into battery energy storage solutions in select markets. This quarter, we were awarded twenty-year capacity contracts for 400 megawatts of battery storage from the grid operator in Ontario through a joint venture with our First Nations partner. The projects have attractive risk-adjusted return profiles given the long-dated fixed revenue stream and high-quality offtaker. It should also be noted that Neoen (soon to be us) participated in the same Ontario auction, winning an equal amount of these attractive contracts. We also began construction on 220 megawatts of battery storage capacity in Texas, targeting commissioning in the second half of 2025 and strong returns. With these development projects and the closing of our Neoen acquisition, we will be one of the largest battery developers globally with 2,300 megawatts of operating and under construction capacity. Including our pumped storage assets, which are benefitting from the same demand drivers as batteries, we will have 5,000 megawatts of operating and under construction storage capacity. Alongside our hydro assets which have significant reservoir capacity, these assets are increasingly critical to enabling the deployment of low-cost 24-7 renewable power solutions that meet customers' needs and represent a significant competitive advantage for our business. Operating Results We generated FFO of $339 million million this quarter, up 9% from the prior year, or $0.51 per unit, benefiting from asset development, recent acquisitions, and strong all-in pricing. We continue to diversify our business and enhance the durability of our cash flows and expect to achieve our 10%+ FFO per unit growth target for the year. Our hydroelectric segment delivered FFO of $136 million, benefiting from strong all-in pricing, particularly in North America, and solid generation in Brazil. Our wind and solar segments generated a combined $194 million of FFO, driven by recent additions in North America, Europe and India. The segment benefited from organic growth and M&A with an additional 7,200 megawatts of net operating capacity compared to the prior year. Our distributed energy, storage, and sustainable solutions segments generated a combined $86 million of FFO in the quarter as we continue to grow this segment through M&A and organic development. Westinghouse, our nuclear services business, continues to perform well, and the outlook is getting stronger. We are seeing long-term upside in the business expectations from when we acquired the business driven primarily by an improved outlook for the nuclear fuel business and new plant deployment as the only baseload carbon-free power at scale that exists with current proven technologies. As new nuclear generation is increasingly viewed as part of the solution to growing electricity demands, both for corporate customers, including technology players, and centralized utilities, we are exceedingly well-positioned to benefit, given Westinghouse's global leadership position and leading technology offering. We continued to grow and advance our development pipeline which now stands at 200,000 megawatts with 65,000 megawatts at the advanced stage. We expect to commission approximately 7,000 megawatts of new capacity this year, which when completed will add approximately $90 million of annual incremental FFO. We are scaling up our development activities and expect to grow our annual commissioning capacity to approximately 10,000 megawatts per annum over the next several years. Balance Sheet & Liquidity Our balance sheet is very strong and we have $4.4 billion of available liquidity providing us the flexibility to deploy scale capital in the current environment where we are seeing a significant volume of opportunities to invest at attractive risk adjusted returns. During the quarter we took advantage of tightening spreads by executing $1.7 billion of project level financings. We continue to execute on opportunities to refinance project level debt extending maturities in what is a constructive market for investment grade financings. In July, we opportunistically issued C$300 million of 10-year notes and C$100 million of 30-year notes at interest rates of approximately 4.9% and 5.4%, respectively. The issuances extended our average corporate debt maturity profile beyond 12 years at an attractive cost of capital. We continue to see opportunities to monetize de-risked operating assets at attractive returns. In the quarter, we executed on asset sales generating over $400 million in proceeds (~$250 million net to Brookfield Renewable) and two times our invested capital. We are well positioned to continue to rotate capital in this market, with both a large pipeline of development projects that we are de-risking and bringing into operation, as well as an expansive global portfolio of operating assets which we have acquired, de-risked, or developed over the years. We have been advancing several additional sales processes at very attractive returns and expect to generate approximately $3 billion ($1.3 billion net to Brookfield Renewable) in proceeds this year from recycling, our highest year ever. Distribution Declaration The next quarterly distribution in the amount of $0.355 per LP unit, is payable on September 27, 2024 to unitholders of record as at the close of business on August 30, 2024. In conjunction with the Partnership's distribution declaration, the Board of Directors of BEPC has declared an equivalent quarterly dividend of $0.3550 per share, also payable on September 27, 2024 to shareholders of record as at the close of business on August 30, 2024. Brookfield Renewable targets a sustainable distribution with increases targeted on average at 5% to 9% annually. The quarterly dividends on BEP's preferred shares and preferred LP units have also been declared. Distribution Currency Option The quarterly distributions payable on the BEP units and BEPC shares are declared in U.S. dollars. Unitholders who are residents in the United States will receive payment in U.S. dollars and unitholders who are residents in Canada will receive the Canadian dollar equivalent unless they request otherwise. The Canadian dollar equivalent of the quarterly distribution will be based on the Bank of Canada daily average exchange rate on the record date or, if the record date falls on a weekend or holiday, on the Bank of Canada daily average exchange rate of the preceding business day. Registered unitholders who are residents in Canada who wish to receive a U.S. dollar distribution and registered unitholders who are residents in the United States wishing to receive the Canadian dollar distribution equivalent should contact Brookfield Renewable's transfer agent, Computershare Trust Company of Canada, in writing at 100 University Avenue, 8th Floor, Toronto, Ontario M5J 2Y1 or by phone at 1-800-564-6253. Beneficial unitholders (i.e., those holding their units in street name with their brokerage) should contact the broker with whom their units are held. Distribution Reinvestment Plan Brookfield Renewable Partners maintains a Distribution Reinvestment Plan ("DRIP") which allows holders of BEP units who are residents in Canada to acquire additional LP units by reinvesting all or a portion of their cash distributions without paying commissions. Information on the DRIP, including details on how to enroll, is available on our website at www.bep.brookfield.com/stock-and-distribution/distributions/drip. Additional information on Brookfield Renewable's distributions and preferred share dividends can be found on our website at www.bep.brookfield.com. Brookfield Renewable Brookfield Renewable operates one of the world's largest publicly traded platforms for renewable power and sustainable solutions. Our renewable power portfolio consists of hydroelectric, wind, utility-scale solar and storage facilities in North America, South America, Europe and Asia. Our operating capacity totals over 34,000 megawatts and our development pipeline stands at approximately 200,000 megawatts. Our portfolio of sustainable solutions assets includes our investments in Westinghouse (a leading global nuclear services business) and a utility and independent power producer with operations in the Caribbean and Latin America, as well as both operating assets and a development pipeline of carbon capture and storage capacity, agricultural renewable natural gas and materials recycling. Investors can access the portfolio either through Brookfield Renewable Partners L.P. (NYSE: BEP; TSX: BEP.UN), a Bermuda-based limited partnership, or Brookfield Renewable Corporation (NYSE, TSX: BEPC), a Canadian corporation. Further information is available at https://bep.brookfield.com. Important information may be disseminated exclusively via the website; investors should consult the site to access this information. Brookfield Renewable is the flagship listed renewable power and transition company of Brookfield Asset Management, a leading global alternative asset manager with over $925 billion of assets under management. Please note that Brookfield Renewable's previous audited annual and unaudited quarterly reports filed with the U.S. Securities and Exchange Commission ("SEC") and securities regulators in Canada, are available on our website at https://bep.brookfield.com, on SEC's website at www.sec.gov and on SEDAR+'s website at www.sedarplus.ca. Hard copies of the annual and quarterly reports can be obtained free of charge upon request. Quarterly Earnings Call Details Investors, analysts and other interested parties can access Brookfield Renewable's Second Quarter 2024 Results as well as the Letter to Unitholders and Supplemental Information on Brookfield Renewable's website at https://bep.brookfield.com. The conference call can be accessed via webcast on August 2, 2024 at 9:00 a.m. Eastern Time at https://edge.media-server.com/mmc/p/7my4iqqw/ The following chart reflects the generation and summary financial figures on a proportionate basis for the three months ended June 30: PROPORTIONATE RESULTS FOR THE SIX MONTHS ENDED JUNE 30 The following chart reflects the generation and summary financial figures on a proportionate basis for the six months ended June 30: RECONCILIATION OF NON-IFRS MEASURES The following table reflects Adjusted EBITDA and provides a reconciliation from Net income (loss) to Adjusted EBITDA for the three months ended June 30, 2024: The following table reflects Adjusted EBITDA and provides a reconciliation from Net income (loss) to Adjusted EBITDA for the three months ended June 30, 2023: RECONCILIATION OF NON-IFRS MEASURES The following table reflects Adjusted EBITDA and provides a reconciliation to net income (loss) to Adjusted EBITDA for the six months ended June 30, 2024: The following table reflects Adjusted EBITDA and provides a reconciliation to net income (loss) to Adjusted EBITDA for the six months ended June 30, 2023: The following table reconciles the non-IFRS financial metrics to the most directly comparable IFRS measures. Net income is reconciled to Funds From Operations: The following table reconciles the per Unit non-IFRS financial metrics to the most directly comparable IFRS measures. Net income per LP unit is reconciled to Funds From Operations: All amounts in U.S. dollars unless otherwise indicated The Board of Directors of Brookfield Renewable Corporation ("BEPC" or our "company") (NYSE, TSX: BEPC) today has declared a quarterly dividend of $0.355 per class A exchangeable subordinate voting share of BEPC (a "Share"), payable on September 27, 2024 to shareholders of record as at the close of business on August 30, 2024. This dividend is identical in amount per share and has identical record and payment dates to the quarterly distribution announced today by BEP on BEP's LP units. The BEPC exchangeable shares are structured with the intention of being economically equivalent to the non-voting limited partnership units of Brookfield Renewable Partners L.P. ("BEP" or the "Partnership") (NYSE: BEP; TSX: BEP.UN). We believe economic equivalence is achieved through identical dividends and distributions on the BEPC exchangeable shares and BEP's LP units and each BEPC exchangeable share being exchangeable at the option of the holder for one BEP LP unit at any time. Given the economic equivalence, we expect that the market price of the Shares will be significantly impacted by the market price of BEP's LP units and the combined business performance of our company and BEP as a whole. In addition to carefully considering the disclosures made in this news release in its entirety, shareholders are strongly encouraged to carefully review BEP's continuous disclosure filings available electronically on EDGAR on the SEC's website at www.sec.gov or on SEDAR+ at www.sedarplus.ca. BEPC reported FFO of $219 million for the three months ended June 30, 2024 compared to $195 million in the prior year. After deducting non-cash depreciation, remeasurement of the BEPC exchangeable and class B shares, and other non-cash items our Net loss attributable to the partnership for the three months ended June 30, 2024 was $342 million. The following table reconciles Net income (loss) to Funds From Operations: Cautionary Statement Regarding Forward-looking Statements This news release contains forward-looking statements and information within the meaning of Canadian provincial securities laws and "forward-looking statements" within the meaning of Section 27A of the U.S. Securities Act of 1933, as amended, Section 21E of the U.S. Securities Exchange Act of 1934, as amended, "safe harbor" provisions of the United States Private Securities Litigation Reform Act of 1995 and in any applicable Canadian securities regulations. The words "will", "intend", "should", "could", "target", "growth", "expect", "believe", "plan", derivatives thereof and other expressions which are predictions of or indicate future events, trends or prospects and which do not relate to historical matters identify the above mentioned and other forward-looking statements. Forward-looking statements in this letter to unitholders include statements regarding the quality of Brookfield Renewable's and its subsidiaries' businesses and our expectations regarding future cash flows and distribution growth. They include statements regarding Brookfield Renewable's anticipated financial performance, future commissioning of assets, contracted nature of our portfolio (including our ability to recontract certain asset), technology diversification, acquisition opportunities, expected completion of acquisitions and dispositions, financing and refinancing opportunities, future energy prices and demand for electricity, global decarbonization targets, economic recovery, achieving long-term average generation, project development and capital expenditure costs, energy policies, economic growth, growth potential of the renewable asset class, the future growth prospects and distribution profile of Brookfield Renewable and Brookfield Renewable's access to capital. Although Brookfield Renewable believes that these forward-looking statements and information are based upon reasonable assumptions and expectations, you should not place undue reliance on them, or any other forward-looking statements or information in this letter to unitholders. The future performance and prospects of Brookfield Renewable are subject to a number of known and unknown risks and uncertainties. Factors that could cause actual results of Brookfield Renewable to differ materially from those contemplated or implied by the statements in this letter to unitholders include (without limitation) our inability to identify sufficient investment opportunities and complete transactions; the growth of our portfolio and our inability to realize the expected benefits of our transactions or acquisitions; weather conditions and other factors which may impact generation levels at facilities; adverse outcomes with respect to outstanding, pending or future litigation; economic conditions in the jurisdictions in which Brookfield Renewable operates; ability to sell products and services under contract or into merchant energy markets; changes to government regulations, including incentives for renewable energy; ability to complete development and capital projects on time and on budget; inability to finance operations or fund future acquisitions due to the status of the capital markets; health, safety, security or environmental incidents; regulatory risks relating to the power markets in which Brookfield Renewable operates, including relating to the regulation of our assets, licensing and litigation; risks relating to internal control environment; contract counterparties not fulfilling their obligations; changes in operating expenses, including employee wages, benefits and training, governmental and public policy changes, and other risks associated with the construction, development and operation of power generating facilities. For further information on these known and unknown risks, please see "Risk Factors" included in the Form 20-F of BEP and in the Form 20-F of BEPC and other risks and factors that are described therein. The foregoing list of important factors that may affect future results is not exhaustive. The forward-looking statements represent our views as of the date of this letter to unitholders and should not be relied upon as representing our views as of any subsequent date. While we anticipate that subsequent events and developments may cause our views to change, we disclaim any obligation to update the forward-looking statements, other than as required by applicable law. No securities regulatory authority has either approved or disapproved of the contents of this letter to unitholders. This letter to unitholders is for information purposes only and shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of these securities in any state or jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state or jurisdiction. Cautionary Statement Regarding Use of Non-IFRS Measures This news release contains references to FFO and FFO per Unit, which are not generally accepted accounting measures under IFRS and therefore may differ from definitions of Adjusted EBITDA, FFO and FFO per Unit used by other entities. We believe that FFO and FFO per Unit are useful supplemental measures that may assist investors in assessing the financial performance and the cash anticipated to be generated by our operating portfolio. None of FFO and FFO per Unit should be considered as the sole measure of our performance and should not be considered in isolation from, or as a substitute for, analysis of our financial statements prepared in accordance with IFRS. For a reconciliation of FFO and FFO per Unit to the most directly comparable IFRS measure, please see "Reconciliation of Non-IFRS Measures - Three Months Ended June 30" included elsewhere herein and "Financial Performance Review on Proportionate Information - Reconciliation of Non-IFRS Measures" included in our unaudited Q2 2024 interim report. For a reconciliation of FFO and FFO per Unit to the most directly comparable IFRS measure, please see "Reconciliation of Non-IFRS Measures - Quarter Ended June 30" included elsewhere herein and "Financial Performance Review on Proportionate Information - Reconciliation of Non-IFRS Measures" included in our unaudited Q2 2024 interim report. References to Brookfield Renewable are to Brookfield Renewable Partners L.P. together with its subsidiary and operating entities unless the context reflects otherwise. Endnotes For the three and six months ended June 30, 2024, average LP units totaled 285.2 million and 286.0 million, respectively (2023: 277.6 million and 276.5 million, respectively). Non-IFRS measures. Refer to "Cautionary Statement Regarding Use of Non-IFRS Measures". Average Units outstanding for the three and six months ended June 30, 2024 were 663.3 million and 664.1 million, respectively (2023: 649.6 million and 647.8 million, respectively), being inclusive of our LP units, Redeemable/Exchangeable partnership units, BEPC exchangeable shares and general partner interest. The actual Units outstanding as at June 30, 2024 were 663.2 million (2023: 667.0 million). Normalized FFO assumes long-term average generation in all segments and uses 2023 foreign currency rates. For the three and six months ended June 30, 2024, the change related to long-term average generation totaled $66 million and $78 million, respectively (2023: $50 million and $49 million, respectively) and the change related to foreign currency totaled $3 million and $1 million, respectively. Balance includes restricted cash, trades receivables and other current assets, financial instrument assets, and due from related parties. Balance includes goodwill, deferred income tax assets, assets held for sale, intangible assets, and other long-term assets. Balance includes current and non-current portion of corporate borrowings. Balance includes current and non-current portion of non-recourse borrowings on the consolidated statement of financial position. Balance includes accounts payable and accrued liabilities, financial instrument liabilities, due to related parties, provisions, liabilities directly associated with assets held for sale and other long-term liabilities. Direct operating costs exclude depreciation expense disclosed below. Balance includes change in working capital, dividends received from equity accounted investments and changes due to or from related parties. Other corresponds to amounts that are not related to the revenue earning activities and are not normal, recurring cash operating expenses necessary for business operations. Other also includes derivative and other revaluations and settlements, gains or losses on debt extinguishment/modification, transaction costs, legal, provisions, amortization of concession assets and Brookfield Renewable's economic share of foreign currency hedges and realized disposition gains and losses on assets that we developed and/or did not intend to hold over the long-term that are included within Adjusted EBITDA Amount attributable to equity accounted investments corresponds to the Adjusted EBITDA to Brookfield Renewable that are generated by its investments in associates and joint ventures accounted for using the equity method. Amounts attributable to non-controlling interest are calculated based on the economic ownership interest held by non-controlling interests in consolidated subsidiaries. By adjusting Adjusted EBITDA attributable to non-controlling interest, our partnership is able to remove the portion of Adjusted EBITDA earned at non-wholly owned subsidiaries that are not attributable to our partnership. Other corresponds to amounts that are not related to the revenue earning activities and are not normal, recurring cash operating expenses necessary for business operations. Other also includes derivative and other revaluations and settlements, gains or losses on debt extinguishment/modification, transaction costs, legal, provisions, amortization of concession assets and the company's economic share of foreign currency hedges and realized disposition gains and losses on assets that we developed and/or did not intend to hold over the long-term that are included in Funds From Operations. Amount attributable to equity accounted investments corresponds to the Funds From Operations that are generated by its investments in associates and joint ventures accounted for using the equity method. Amounts attributable to non-controlling interest are calculated based on the economic ownership interest held by non-controlling interests in consolidated subsidiaries. By adjusting Funds From Operations attributable to non-controlling interest, our partnership is able to remove the portion of Funds From Operations earned at non-wholly owned subsidiaries that are not attributable to our partnership. Other corresponds to amounts that are not related to the revenue earning activities and are not normal, recurring cash operating expenses necessary for business operations. Other balance also includes derivative and other revaluations and settlements, gains or losses on debt extinguishment/modification, transaction costs, legal, provisions, amortization of concession assets and the company's economic share of foreign currency hedges and realized disposition gains and losses on assets that we developed and/or did not intend to hold over the long-term that are included in Funds From Operations. Balance is included within interest expense on the consolidated statements of income (loss). Amount attributable to equity accounted investments corresponds to the Funds From Operations that are generated by its investments in associates and joint ventures accounted for using the equity method. Amounts attributable to non-controlling interest are calculated based on the economic ownership interest held by non-controlling interests in consolidated subsidiaries. By adjusting Funds From Operations attributable to non-controlling interest, our company is able to remove the portion of Funds From Operations earned at non-wholly owned subsidiaries that are not attributable to our company. Any references to capital refer to Brookfield's cash deployed, excluding any debt financing. Available liquidity of over $4.4 billion refers to "Part 5 - Liquidity and Capital Resources" in the Management Discussion and Analysis in the Q2 2024 Interim Report. 12-15% target returns are calculated as annualized cash return on investment.

Chart Industries Reports Second Quarter 2024 Financial Results

ATLANTA, Aug. 02, 2024 (GLOBE NEWSWIRE) -- Chart Industries, Inc. (NYSE: GTLS) today reported results for the second quarter ended June 30, 2024. Results shown are from continuing operations. When referring to any comparative period, all metrics are pro forma for continuing operations of the combined business of Chart and Howden (pro forma excludes the following businesses that were divested in 2023: Roots™, American Fan, Cofimco and Cryo Diffusion). The second quarter 2024 is the first year-over-year quarter that includes the full impact of the Howden acquisition which closed on March 17, 2023. Second quarter 2024 highlights compared to second quarter 2023, pro forma: "With record sales growth of 18.8%, record gross margin of 33.8%, record reported operating income, record reported operating margin, record EBITDA, and associated EBITDA margin, w. are on the path to our reiterated three-year medium-term targets of mid-teen organic sales CAGR, reported gross margin in the mid-30%'s and our target net leverage ratio range of 2.0 to 2.5," stated Jill Evanko, Chart's CEO and President. "I would like to thank our One Chart team members who delivered these exceptional results safely, achieving our lowest quarterly total recordable incident rate in our history of 0.42 and nearing the $1 billion mark in commercial synergies between Chart and Howden." Second Quarter 2024 Summary Second quarter 2024 sales of $1.04 billion were an all-time record in our pro forma history and included record sales in both the Specialty Products and Repair, Service and Leasing ("RSL") segments. Second quarter 2024 sales increased 18.8% (19.7% if eliminating the foreign exchange headwind) when compared to the second quarter 2023 as we continue to deliver on our record backlog of $4.4 billion. Second quarter 2024 sales also increased 9.4% sequentially when compared to the first quarter of 2024. Each segment's and each region's sales grew when compared to the second quarter 2023, with RSL growing 26.2% and Specialty Products growing 20.8%. RSL also grew 19.8% sequentially when compared to the first quarter 2024 and comprised 34.7% of our total sales in the quarter. Demand continues broad-based across our end markets and regions, with second quarter 2024 orders of $1.16 billion, an increase of 12.1% when compared to the second quarter 2023. Excluding Big LNG orders (of which there were none in the second quarter 2024 and one in the second quarter 2023), orders increased approximately 40% compared to the second quarter 2023. The second quarter 2024 had record orders in our Specialty Products segment including record orders for carbon capture ("CCUS"), metals, mining, water treatment and strong, globally diverse hydrogen and helium awards ranging from compressors for a green power application, liquefaction, fueling stations, vacuum jacketed pipe, and offloading equipment. Third quarter 2024 order activity has started strong. RSL had a stronger than typical July 2024, including the receipt of a $10.5 million order for Power Africa power station spares, and further orders from this customer totaling over $25 million are also expected to be awarded in the second half 2024. We received an order for approximately $27 million for a significant petrochemical project in the Asia Pacific region where we will supply high-pressure vessels, gas coolers, and waste heat boilers. Space exploration orders in July 2024 were approximately $19 million. Airbus has awarded us a contract to fabricate a liquid hydrogen inner vessel sub system to integrate into an Airbus ZEROe physical demonstrator programme. The vessel will be used to test and prove the viability of LH2 fueled aircraft designs, processes, fuel, materials and equipment on the ground. This week, we signed a Memorandum of Understanding ("MOU") with Verdagy where both parties will collaborate on hydrogen compression solutions to enhance Verdagy's green hydrogen product offering. LNG activity continues globally, including a conscious move of LNG operators to more modular solutions, specifically benefitting our IPSMR® process technology. This is evidenced by more customers notifying us of their selection to utilize our IPSMR® technology as well as our expanded Big LNG commercial pipeline of 32 potential projects (an increase from 30 last quarter) with 16 potential international projects considering using IPSMR® (an increase from 15 last quarter). We announced our liquefaction technology and equipment was chosen for Argent's Port Fourchon anticipated 20 MTPA project (not yet booked into backlog). In LNG infrastructure, we booked our largest ever order for our Decin, Czech Republic facility for an LNG regas solution. LNG trailer orders in China continued their momentum in the first half of 2024, totaling 80 sold through June 30, 2024 year-to-date (103 as of July 29, 2024 year-to-date); this compares to 25 for the full year 2023 and 15 for the full year 2022. HLNG vehicle tank orders were over $10 million in both the first and the second quarter 2024, with year-to-date orders as of the end of the second quarter 2024 exceeding the full year 2023 HLNG vehicle tank orders (and July 2024 added another $4.7 million of HLNG vehicle tank orders). Our service and retrofit offering, particularly our Tuf-Lite IV fans, which have a uniquely designed backward sweep characteristic that offers improved efficiency and resiliency, continue to gain traction, as we booked orders in the second quarter 2024 for two separate U.S. LNG export facility customers to utilize these fans in their terminals. We are proud to support Cheniere's debottlenecking efforts with our Tuf-Lite IV fans at both their Sabine Pass and Corpus Christi locations. Artificial intelligence ("AI") and in turn, more and larger data centers are driving an increasing need for batteries, cooling and storage in an energy intensive environment. Data centers could consume 9% of the United States' electricity generation by 2030 -- double the amount consumed today, according to a study released in July 2024 by the Electric Power Research Institute. This trend positively impacts us, and in the second quarter 2024 we received an approximately $40 million award from a data center provider for a specific, uniquely designed air-cooled heat exchanger for heat rejection. The data center and AI opportunity for us specifically based on 3 Gigawatts of data center addition per year is approximately $500 million, and as it expands to heavy industrial cooling, where our blowers, heat exchangers, and compressors play, this adds an additional incremental $600 to $800 million of addressable market per year. Our commercial pipeline of opportunities for the next three years is at an all-time high, over $23 billion, and includes over $5 billion of hydrogen-related opportunities (approximately 35% of which are for the Americas, remainder for rest of the world). Reported gross margin of 33.8% was our highest in pro forma history. This represents an increase of 310 bps from the second quarter 2023 and a sequential increase in gross margin of 200 bps compared to the first quarter 2024. This strong gross margin for the second quarter 2024 contributed to record reported operating income of $167.8 million resulting in record reported operating margin of 16.1% and when adjusted for one-time and unusual items, specifically Howden integration and the consolidation of our APAC/India region into our Africa/Middle East region, resulted in a record adjusted operating income of $225.7 million and record adjusted operating margin of 21.7%. This contributed to our record EBITDA of $229.6 million (22.1% of sales), and adjusted EBITDA of $257.3 million (24.7% of sales). Second quarter 2024 segment results (as compared to the second quarter 2023, pro forma continuing operations unless noted otherwise). Cryo Tank Solutions ("CTS"): Second quarter 2024 CTS orders of $159.0 million increased 4.5% when compared to the second quarter 2023. Second quarter 2024 sales of $165.5 million increased 12.4% when compared to the second quarter 2023. Reported gross profit margin of 20.2% increased 170 bps compared to the second quarter 2023. Heat Transfer Systems ("HTS"): Second quarter 2024 HTS orders of $269.6 million decreased 9.4% when compared to the second quarter 2023. When excluding the one Big LNG project award in the second quarter 2023, HTS orders grew over 300%. This increase was driven in part by our air cooler data center award and a small-scale LNG award in South America. Second quarter 2024 HTS sales of $236.7 million grew 3.4% compared to the second quarter 2023 and had associated reported gross profit margin of 25.7%, a 280 bps decrease compared to the second quarter 2023. This decrease resulted from certain lower margin projects that were completed and are no longer in our backlog. Specialty Products ("SPC"): Second quarter 2024 Specialty Products orders of $423.7 million increased 48.4% when compared to the second quarter 2023. Second quarter 2024 Specialty Products sales of $277.6 million were an all-time high for the segment and increased 20.8% when compared to the second quarter 2023 driven by increasing throughput, the start of production at our new facility in Theodore, Alabama ("Teddy 2"), and timing of larger projects in backlog. Reported gross profit margin of 29.1% increased 430 basis points when compared to the second quarter 2023 and 420 basis points sequentially when compared to the first quarter 2024. As previously shared, we forecast Specialty Products sales mix to be a tailwind in 2024 relative to 2023, and the second quarter 2024 was a positive indicator of this trend. Repair, Service and Leasing ("RSL"): Second quarter 2024 RSL orders of $312.4 million increased 0.5% when compared to the second quarter 2023, which included a South African Air Heater Element pack for $17.2 million and approximately $19 million of orders related to two large APAC aftermarket projects. Second quarter 2024 sales of $360.5 million were a historical record, and grew 26.2%. Reported RSL gross profit margin of 49.0% was a record driven by strong field service work which commanded higher margins. This level of gross margin for RSL is not consistently typical; as a reference, gross profit as a percent of sales in RSL has been at or above 43% each quarter since we closed on the Howden acquisition (RSL margins have been on average 200 bps higher than RSL pro forma pre-acquisition, driven by cost and commercial synergies). As of June 30, 2024, our assets under management metric (Uptime, Framework agreements, LTSAs) has grown 27.0% since year-end 2023. Commercial synergies to date have far exceeded year-three's (2026) target of $350 million; cost synergies to date are on track to be ahead of year-three (2026) target of $250 million before year-end 2024. Commercial synergies of $924 million to date far exceeded year-three's target of $350 million. Cost synergies of $223 million to date are on track to be ahead of year-three (2026) target before year-end 2024. In the second quarter 2024, we executed a consolidation of two of our regional organization structures as part of further integration of Howden into Chart. Sourcing savings are ahead of schedule year-to-date 2024, with more expected in the second half 2024. Going forward we are accelerating the localization of products utilizing our global footprint. Within the third quarter 2024 we will complete the manufacture of the first Earthly Labs unit in Germany further expanding our European market opportunities for this product line. Reiterating our target net leverage ratio of 2.0 to 2.5. Reported net cash from operating activities of $116.1 million less capital expenditures of $28.1 million resulted in $88.0 million of free cash flow ("FCF") (when excluding long-term, beyond one year, balance sheet account changes this would be $114.7 million which compares to our $175 million second quarter 2024 outlook). Our June 30, 2024 net leverage ratio was 3.26, as we continue to focus on executing to achieve our target net leverage ratio range of 2.0 to 2.5. Our margins are strong, capital spending is anticipated to be related to our normal recurring capital spend as our significant capacity expansions complete, and working capital metrics continue to improve as a percent of revenue. As we had previously shared on our first quarter 2024 earnings call, we expected over $125 million of milestone payments in the second quarter 2024 for our top four projects and we collected all of that. In the second quarter 2024, our management of accounts receivable, accounts payable and inventory generated positive cash flows. The difference from our prior second quarter 2024 FCF outlook of $175 million was driven by timing. There were two decisions that occurred within the second quarter 2024 that affected cash flow. First, a major emergency field service situation arose within the second quarter 2024. We dedicated a large field service team from other work to respond, and the associated timing of cash payment will be in the second half 2024. We also had a key customer whose project has a cash milestone in the second half 2024 request that they needed specific steps taken to hold schedule and the related materials purchase occurred earlier than we had previously planned. We continue to take opportunistic steps to optimize our balance sheet, including the completion of our reprice of our Term Loan B, which resulted in 85 basis points of interest rate reduction, or approximately $14 million in annualized interest savings, as well as launching a targeted supply chain finance program to certain suppliers. 2024 Outlook We anticipate our full year 2024 sales to be in the range of approximately $4.45 billion to $4.60 billion with forecasted full year 2024 adjusted EBITDA in the range of $1.08 billion to $1.15 billion. Our anticipated 2024 full year adjusted EPS range is $10.75 to $11.75. This range is based on an effective tax rate range of approximately 20% to 21% and a diluted share count of approximately 47 million. FCF guidance is in the range of approximately $400 million to $475 million. Compared to our prior 2024 full year outlook the main drivers of the change are timing of sales recognition for backlog conversion on larger and longer projects (these are not cancellations; our cancellation rate remains substantially below 1% of backlog), negative foreign exchange, timing of larger awards in the second quarter 2024 having revenue impacts in 2025 and 2026 (we booked approximately $275 million for projects in late second quarter 2024 which will have 2025 and 2026 revenue impact) and a change to adjusted EPS calculation by no longer excluding the negative ($0.60) mandatory preferred dividend EPS impact. Our previous sales outlook was expected to be in a range of $4.7 to $5.0 billion; previously forecasted full year 2024 adjusted EBITDA in the range of $1.175 to $1.30 billion; Reported free cash flow (FCF) guidance of $575 million to $625 million and prior anticipated 2024 full year adjusted EPS range of $12.00 to $14.00 which did not include the full year $0.60 negative impact of the preferred mandatory dividend and was based on a prior full year effective tax rate of 20%. Medium Term Outlook With our strong momentum, additional cost synergies identified and anticipated, Chart Business Excellence ("CBE") productivity actions and backlog, we reiterate our medium-term outlook. These metrics do not include any additional Big LNG project revenue not already booked as of September 30, 2023. Further growth and margin is anticipated from several known big LNG projects awards not currently reflected in our backlog and not assumed in our guidance metrics, including IPSMR® for an integrated oil company's ("IOC") international Big LNG project, Argent LNG's Port Fourchon 20 MTPA facility and Driftwood LNG's 27 MTPA export terminal which is already permitted (these three Big LNG projects that are not yet in backlog total approximately $1.5 billion of Chart content). We anticipate to sequentially grow sales in 2025 and 2026 each in double digits, continue our margin expansion and generate more cash with capital expenditures as a percentage of sales in the 2.0 to 2.5% range. Our medium-term financial targets are: 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 completed acquisitions, divestitures, and investments, cost and commercial synergies and efficiency savings, objectives, future orders, revenues, margins, segment sales mix, earnings or performance, liquidity and cash flow, inventory levels, capital expenditures, supply chain challenges, inflationary pressures including material cost and pricing increases, business trends, clean energy market opportunities including addressable markets, and 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 Company's ability to successfully integrate the Howden acquisition and other recent acquisitions and achieve the anticipated revenue, earnings, accretion and other benefits from these acquisitions; slower than anticipated growth and market acceptance of new clean energy product offerings; inability to achieve expected pricing increases or continued supply chain challenges including volatility in raw materials and supply; risks relating to the outbreak and continued uncertainty associated with the coronavirus (COVID-19) and regional conflicts and unrest, including the recent turmoil in the Middle East and the conflict between Russia and Ukraine including potential energy shortages in Europe and elsewhere; 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, 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 press release contains non-GAAP financial information, including adjusted net income, adjusted operating income, adjusted earnings per diluted share, net income attributable to Chart Industries, Inc. adjusted, free cash flow and adjusted free cash flow and EBITDA and adjusted EBITDA. 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 at the end of this news release. The Company believes these non-GAAP measures are of interest to investors and facilitate useful period-to-period comparisons of the Company's financial results, and this information is used by the Company in evaluating internal performance. With respect to the Company's 2024 full year earnings outlook, the Company is not able to provide a reconciliation of the adjusted EBITDA, FCF or adjusted EPS because certain items may have not yet occurred or are out of the Company's control and/or cannot be reasonably predicted. CONFERENCE CALL As previously announced, the Company has scheduled a conference call for Friday, August 2, 2024 at 8:30 a.m. ET to discuss its second quarter 2024 financial results. Participants wishing to join the live Q&A session must dial-in with the following information: PARTICIPANT INFORMATION: Toll-Free - North America: (+1) 800 549 8228 Toll North America and other locations: (+1) 289 819 1520 Conference ID: 39844 A live webcast and replay, as well as presentation slides, will be available on the Company's investor relations website through the following link: Q2 2024 Webcast Registration. A telephone replay of the conference call can be accessed approximately two hours following the end of the call at 1-888-660-6264 with passcode 39844 through September 1, 2024. About Chart Industries, Inc. Chart Industries, Inc. is a leading 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. The company's 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 CO2 capture amongst other applications. Chart is committed to excellence in environmental, social and corporate governance (ESG) issues both for its company as well as its customers. With 64 global manufacturing locations and over 50 service centers from the United States to Asia, Australia, India, Europe and South America, the company maintains accountability and transparency to its team members, suppliers, customers and communities. To learn more, visit www.chartindustries.com Includes an additional 5.00, 4.31 and 4.53 shares related to the convertible notes due 2024 and associated warrants in our diluted earnings per share calculation for the three months ended June 30, 2024, June 30, 2023 and March 31, 2024, respectively. The associated hedge, which helps offset this dilution, cannot be taken into account under U.S. generally accepted accounting principles ("GAAP"). If the hedge could have been considered, it would have reduced the additional shares by 2.69, 2.38 and 2.48 for the three months ended June 30, 2024, June 30, 2023 and March 31, 2024, respectively. Includes an additional 4.77 shares related to the convertible notes due 2024 and associated warrants in our diluted earnings per share calculation for the six months ended June 30, 2024. The associated hedge, which helps offset this dilution, cannot be taken into account under U.S. GAAP. If the hedge could have been considered, it would have reduced the additional shares by 2.59 for the six months ended June 30, 2024. Includes restricted cash and restricted cash equivalents of $3.2, $12.5, $12.8 and $1,941.7 as of June 30, 2024, June 30, 2023, March 31, 2024 and December 31, 2022, respectively. Deal-related and integration costs for the three months ended: Deal-related and integration costs for the six months ended: Includes the mark-to-market of our inorganic investments in McPhy, Stabilis and certain of our minority investments as well as losses from strategic equity method investments. Includes third party support fees, one time costs due to acquisition and divestiture activities and other integration related costs of $7.4, $7.4 and $14.3 for the three months ended June 30, 2024, June 30, 2023 and March 31, 2024, respectively, and $21.7 for the six months ended June 30, 2024. Howden amortization includes amortization expense related to acquired intangible assets of $46.9, $46.2 and $46.6 for the three months ended June 30, 2024, June 30, 2023 and March 31, 2024, respectively, and $93.5 for the six months ended June 30, 2024. Includes restructuring costs of $4.3, $5.4, and $5.1 for the three months ended June 30, 2024, June 30, 2023 and March 31, 2024, respectively, and $9.4 for the six months ended June 30, 2024. Restructuring charges in Q2 2024 primarily related to the restructuring of our Asia Pacific region into our Middle East & Africa region (AIMA). Other one-time items include asset impairments resulting from integrating Howden and Chart systems and a one time adjustment related to a 2022 settlement of $2.0 for both three and six months ended June 30, 2024. _______________ Adjusted earnings per common share attributable to Chart Industries, Inc. is not a measure of financial performance under U.S. GAAP and should not be considered as an alternative to earnings per share in accordance with U.S. GAAP. Management believes that adjusted earnings per common share attributable to Chart Industries, Inc. facilitate useful period-to-period comparisons of our financial results and this information is used by us in evaluating internal performance. Our calculation of these non-GAAP measures may not be comparable to the calculations of similarly titled measures reported by other companies. Prior to the second quarter of 2024, the impacts of the mandatory convertible preferred stock dividend were excluded from adjusted earnings per common share attributable to Chart Industries, Inc. (non-GAAP). The impacts are now included in adjusted earnings per common share attributable to Chart Industries, Inc. (non-GAAP) and historical periods have been restated to reflect the change in treatment. Free cash flow is not a measure of financial performance under U.S. GAAP and should not be considered as an alternative to net cash provided by (used in) operating activities in accordance with U.S. GAAP. Management believes that free cash flow facilitates useful period-to-period comparisons of our financial results and this information is used by us in evaluating internal performance. Our calculation of this non-GAAP measure may not be comparable to the calculations of similarly titled measures reported by other companies. Adjusted operating income (loss) is not a measure of financial performance under U.S. GAAP and should not be considered as an alternative to operating income (loss) in accordance with U.S. GAAP. Management believes that adjusted operating income (loss) facilitates useful period-to-period comparisons of our financial results and this information is used by us in evaluating internal performance. Our calculation of these non-GAAP measures may not be comparable to the calculations of similarly titled measures reported by other companies. Pro forma orders, pro forma sales, pro forma gross profit and pro forma gross profit margin are not measures of financial performance under U.S. GAAP and should not be considered as an alternative to orders, sales, gross profit and gross profit margin in accordance with U.S. GAAP. Management believes that pro forma orders, pro forma sales, pro forma gross profit and pro forma gross profit margin facilitate useful period-to-period comparisons of our financial results and this information is used by us in evaluating internal performance. Our calculation of these non-GAAP measures may not be comparable to the calculations of similarly titled measures reported by other companies. Includes $7.4, $11.3, and $6.5 deal & integration costs, $0.0, $0.0, and $7.8 of divestment working capital charges related to fourth quarter 2023 divestitures, $4.3, $5.4, and $5.1 of restructuring costs, $7.5, $10.9, and $7.1 of step-up value amortization of inventory from the Howden acquisition, and $2.0, $1.7, and $0.1 of impairments and a one-time adjustment related to a 2022 settlement for the three months ended June 30, 2024, June 30, 2023 and March 31, 2024, respectively. Includes $13.9 and $33.5 of deal & integration costs, $7.8 and $0.0 of divestment working capital settlement charges related to businesses divested in the fourth quarter of 2023, $9.4 and $7.0 of restructuring costs, $14.6 and $10.9 of step-up value amortization of inventory from the Howden acquisition, and $2.0 and $3.9 of impairments and a one time adjustment related to a 2022 settlement for the six months ended June 30, 2024 and June 30, 2023, respectively. Includes the mark-to-market of our inorganic investments in McPhy, Stabilis and certain of our minority investments as well as losses from strategic equity method investments. _______________ EBITDA and Adjusted EBITDA are not measures of financial performance under U.S. GAAP and should not be considered as an alternative to net income (loss) from continuing operations in accordance with U.S. GAAP. Management believes that EBITDA and Adjusted EBITDA facilitate useful period-to-period comparisons of our financial results and this information is used by us in evaluating internal performance. Our calculation of these non-GAAP measures may not be comparable to the calculations of similarly titled measures reported by other companies. Pro forma orders, pro forma sales, pro forma gross profit, adjusted EBITDA, pro forma adjusted EBITDA, pro forma operating income and pro forma adjusted operating income are not measures of financial performance under U.S. GAAP and should not be considered as an alternative to sales and net income (loss) from continuing operations in accordance with U.S. GAAP. Management believes that pro forma orders, pro forma sales, pro forma gross profit, adjusted EBITDA, pro forma adjusted EBITDA, pro forma operating income and pro forma adjusted operating income facilitate useful period-to-period comparisons of our financial results and this information is used by us in evaluating internal performance. Our calculation of these non-GAAP measures may not be comparable to the calculations of similarly titled measures reported by other companies.