Q3 2023 Chart Industries Inc Earnings Call

Participants

Jillian C. Evanko; CEO, President & Director; Chart Industries, Inc.

Joseph Robert Brinkman; CFO; Chart Industries, Inc.

Atidrip Modak; Research Analyst; Goldman Sachs Group, Inc., Research Division

Benjamin Joel Nolan; MD; Stifel, Nicolaus & Company, Incorporated, Research Division

Craig Kenneth Shere; Director of Research; Tuohy Brothers Investment Research, Inc.

Eric Stine; Senior Research Analyst; Craig-Hallum Capital Group LLC, Research Division

Marc Gregory Bianchi; MD & Senior Energy Analyst; TD Cowen, Research Division

Martin Whittier Malloy; Director of Research; Johnson Rice & Company, L.L.C., Research Division

Pavel S. Molchanov; MD & Energy Analyst; Raymond James & Associates, Inc., Research Division

Robert Duncan Brown; Senior Research Analyst; Lake Street Capital Markets, LLC, Research Division

Sherif Ehab Elmaghrabi; Research Analyst; BTIG, LLC, Research Division

Presentation

Operator

Good morning, and welcome to Chart Industries, Inc. 2023 Third Quarter Results Conference Call.
(Operator Instructions)
The company's release and supplemental presentation were issued earlier this morning. If you have not received the release, you may access it by visiting Chart's website at www.chartindustries.com. A telephone replay of today's broadcast will be available following the conclusion of the call until Friday, November 24, 2023. The replay information is contained in the company's press release.
Before we begin, the company would like to remind you that statements made during this call that are not historical, in fact, are forward-looking statements. Please refer to the information regarding forward-looking statements and risk factors included in the company's earnings release and latest filings with the SEC. The company undertakes no objection to update publicly or revise any forward-looking statements.
I would now like to turn the conference over to Jill Evanko, Chart Industries' President and CEO. Please go ahead.

Jillian C. Evanko

Thank you, Sylvie. Good morning, everyone, and thank you for joining. Joe Brinkman, our CFO, and me to walk you through our record third quarter 2023 results, starting on Slide 5 of the supplemental deck.
We are very pleased with our team's positive momentum on integration progress, financial results, deleveraging and delivering on the broad-based demand that we saw continued through the third quarter. One very positive accomplishment that I want to start with is that we have achieved approximately $500 million of cash proceeds from a subset of the originally defined divestiture perimeter, with the signing and closing yesterday of the sale of our American Fans business to Arcline for $111 million in an all-cash deal with multiples in line with prior Chart transactions.
In addition, we expect approximately $80 million next Tuesday from the earlier-than-expected Cofimco sale closing and also expect to close the EUR 4.25 million Cryo Diffusion sale next week. We have one additional business that was considered in the original asset sale perimeter that has not been sold, and we are evaluating whether we will proceed with the divestiture or keep the business within our portfolio.
We also generated net cash from operating activities from continuing operations of $104.4 million and $142.2 million when adjusted for M&A transaction fees and cash costs. Combined with our margin strength, we are at 3.59 net leverage ratio, which were in pro forma for the announced divestitures is 3.47. We reiterate our expectation to achieve our target net leverage range of 2.5 to 2.9 by the middle of 2024.
With respect to margin strength, since the close of the Howden acquisition on March 17, we have performed above 30% on reported and over 31.5% on adjusted gross margins and expect to continue to be at or above this level going forward. In the third quarter, we posted a record operating income, EBITDA, EBITDA margin and adjusted EBITDA margin. Adjusted EBITDA margin of 21.7%, grew 440 basis points compared to the pro forma third quarter of 2022 on top line sales growth of approximately 10%.
The team has made incredible strides in achieving our year 1 cost and commercial synergies. We have already surpassed our year 1 commercial synergy target by double, only 7 months post-acquisition with $297.9 million of synergy orders booked across hydrogen, LNG, carbon capture and multiple other end markets. To date, we have achieved $135.6 million of cost synergies and are on track to hit or exceed our year 1 target of $175 million.
The commercial synergy wins were one of many contributors to our record orders, excluding Big LNG. We did not book any Big LNGs in the third quarter and still had $1.13 billion of orders, resulting in record backlog of $4.14 billion. We've included Slides 6 and 7 to show our continued achievement of our targets on time or early, and the material on these slides will be discussed throughout today.
Moving to Slide 9. The third quarter and year-to-date 2023 figures we present are results from continuing operations. This excludes the Roots results for our entire ownership period as Roots has moved to discontinued operations previously and the divestiture closed on August 18.
The following are included in continuing operations for the third quarter and Q3 year-to-date but are not included in our 2023 or 2024 forward-looking outlook.
Cofimco fans, which is anticipated to close next Tuesday on October 31. For the third quarter and year-to-date, Cofimco is treated as an asset held for sale. Yesterday, we divested American Fans, as I said previously. And effective then, the business is no longer part of Chart. And we expect to close on the sale of Cryo Diffusion next week, the business is also not in our outlook. Throughout today, we will reference 2022 comparison periods. All references are pro forma for the combined business of Chart and Howden. We will not refer always to pro forma each time we reference 2022.
Slide 10 shows both the sequential comparison of the third quarter to second quarter 2023 as well as versus third quarter 2022. Starting compared to third quarter 2022, orders, excluding Big LNG, grew 1.5% against the strong comparison. Meaningful margin expansion has occurred with reported gross margin expanding 240 basis points, reported EBITDA dollars up 35% and reported EBITDA margin up 350 basis points.
Sequentially, compared to the second quarter of 2023, we had significant growth above 30% in non-Big LNG orders as well as growth in total orders of 6%, even when considering the approximately $200 million big LNG order booked in Q2. Additionally, gross operating and EBITDA margins all were consistent with or above the second quarter, with new records set in Q3 for both reported and adjusted EBITDA margins in the combined business.
Third quarter 2023 record reporting -- reported operating income of $104.4 million, increased 9% compared to the second quarter of 2023. And when adjusted for onetime costs primarily associated with the Howden integration and deal, both adjusted operating income of $161.4 million and adjusted operating margin of 18% were records. Additionally, operating margin increased in 3 of the 4 segments sequentially when compared with the second quarter of 2023 and when excluding Big LNG, all 4 segments.
Third quarter 2023 sales of $897.9 million grew about 10% when compared to the third quarter of 2022 and included record sales for CTS and Specialty products. During the third quarter, we saw a revenue push out to future periods related to customer project design and schedule changes, supply chain delayed deliveries impacting percent of completion and revenue recognition and timing within our RSL book and ship business, while a smaller impact, we also prioritize certain customer schedule within our facilities that created timing changes between projects and backlog.
Third quarter revenue would have been above $1 billion absent these timing impacts. Based on current order and market trends, we are confident in realizing this revenue, which is still in our backlog during the fourth quarter in 2024. As a reminder, historically, order cancellation rates have been significantly below 1%. And since the Howden acquisition, we have only had 0.19% of backlog canceled.
Slides 11 and 12 show the continued trend of increasing both gross and EBITDA margin, as I've already touched on. Since closing the Howden acquisition, we've consistently been at or above 30% on reported gross margin and 17.5% and 21.5% for reported and adjusted EBITDA. Our freight and material input costs have tempered significantly compared to the past 3 years, as you can see on Slide 13. Carbon steel is back to 2020 levels. Stainless steel is off its peak and behaving fairly consistently, while aluminum is more available similar to 2021 cost levels and has declined since the beginning of this year.
We expect input costs to further normalize, although we continue to see late deliveries and longer than lead times from our suppliers. Whenever cost increase be that material, labor or other, including across the past few years, we respond quickly with price increases to protect our margins and profitability. As costs decline, our margins are anticipated to reflect improvement from these price increases. We also anticipate a tailwind in 2024 as we continue to execute on supply chain synergies.
Slides 14 through 16 adds some more detail around our third quarter results. I'm going to start on Slide 14. Safety is our #1 priority. Our total recordable incident rate decreased again this quarter ending at 0.52 and achieving our lowest lost time incident rate in our history. I'd like to thank our team for 70% of our sites being accident-free for more than 1 year, and all of our European sites being accident-free in the month of September. Strong progress in our certification and industry leadership position was also made in Q3, and we'll discuss a few of these in a moment.
Turning to Slide 15. Repair, Service & Leasing, which comprises over 30% of our annual revenue is performing exceptionally strong year-to-date. Third quarter 2023 book-to-bill for RSL was 1.22. RSL orders increased more than 20% when compared to third quarter 2022. Year-to-date Q3, RSL orders increased 15.7% when compared to that same period in 2022 and RSL sales increased 15.5% for the same period comparison.
Third quarter 2023 RSL backlog is at a record $609.7 million, an increase of more than 35%, compared to the third quarter of 2022. We love that we're seeing tangible commercialization of Howden's Digital Uptime offering to the Chart legacy business, including applying Uptime to 51 LNG refueling stations from Chart legacy customers across 15 different customers. Additionally, the team is working on bringing Uptime to regasifications, heat exchangers, turbo expanders and earthly labs in the near term. Uptime brings reduced risk and liability to our customers, cost savings via less downtime and less feed at sites.
Given the many macro and geopolitical factors happening in the world today, we are sharing some insights on our regions on Slide 16. EBITDA margin is fairly consistent across all of our regions with some variability between quarters. Our Americas and Europe regions are 2 largest and each is seeing double-digit growth across many of the financial metrics. Our Middle East and Africa region continues to deliver stellar quarterly and year-to-date results. Many have asked us about our presence in the Middle East, considering the current war situation. We have 35 people physically located full time in the UAE and historically, the Middle East, excluding Africa, has done between about $35 million and $50 million per year in sales. We have not seen any disruptions to the business so far in this region.
Our APAC and India region delivered record bookings in the third quarter and continues with excellent cash conversion. We see this region as a heavy hitter ahead on synergy orders, especially in countries where hydrogen and other clean energy solutions are becoming more and more prominent, such as Australia, Japan and Korea, for which Howden brought us a much stronger presence.
And finally, our China region has performed at or above forecast each quarter this year in all metrics. Not only have we been able to repatriate $35 million of cash from China to the U.S. this year-to-date, we are seeing demand increasing in the region. For China, we anticipate a stronger second half of 2023 versus first half and also approximately 20% or higher orders in 2024.
Slide 17 shows the strength in the order book and strength in base heat transfer system demand outside of Big LNG with a 72% plus increase in non-Big LNG orders when compared to the second quarter of 2023. On the upper right-hand side of Slide 17, you can see some key wins from Q3, including another ChartWater win in India and an order from tech house AS for the supply of a steam turbine generating set for a new project for the (inaudible) if you would see, one of three integrated platforms operated by Equinor ASA. We had our highest ever quarter for individual orders, each greater than $1 million booked in the third quarter with 139 of these and expect to be above 100 in future quarters.
Slide 18 shows specific momentum gaining end markets that we serve with a complete solution set. Each continues to increase in terms of commercial pipeline for us. This is driven by both continued traditional energy investment as well as the breadth of climate policies and increasing funding systems for renewable projects including the EU Renewable Energy Directive. The energy transition also drives demand for clean metals and mining. And as a result, we have seen increasing demand for our Fans and our Ventsim products.
We will discuss LNG and hydrogen in the coming slides, so let me touch on water treatment and carbon capture here. Not only were orders from both end markets in Q3, the highest order quarter in our combined history, both are experiencing macro tailwinds. For example, the global PFAS water treatment market is projected to reach $546 billion by 2030, a market well served by our water treatment technology. We booked water orders at 15 new customers in the third quarter, including one for treating trace amounts of TNT in wastewater.
Our carbon capture bookings are getting larger in size, indicating more movement to larger scale as well as progress to actual build versus just engineering studies. To demonstrate our expectation for continued increasing demand across the entire business, you can see the takeaway on Slide 18 that we have over $20.3 billion of potential orders in our commercial pipeline, including over $1.3 billion that are potential synergy orders an increase from $800 million of potential synergy awards in May. Note that our total commercial pipeline of opportunity that could close between now and year-end 2023 or in the next 2 months, is $5.94 billion.
Slide 19 shows the way we serve the LNG market. We are bullish on all 4 of these aspects of LNG, including Big LNG for both macro and Chart specific reasons. Multiple LNG projects are underway, and we believe there is now consensus around the thought that the energy crisis is not over as there continues to be geopolitical unrest, returning high visibility to energy security and energy access.
From left to right on Slide 19, starting with Big LNG. The takeaway is that we anticipate Big LNG orders and revenue each year for the foreseeable future. This is driven by expected LNG sanctioning, expanded sizes of projects and the movement to modular midscale for international projects, many of which have already qualified our IPSMR process technology. We're very excited to share in Q3, we had our IPSMR technology selected for an international Big LNG modular project, for which we anticipate booking a full order in late 2024 or 2025, with engineering work already underway. There are multiple other Big LNG projects in our pipeline, as you saw on the previous slide.
To the right of Big LNG on the slide, it's a small and floating category, which has grown significantly over the past 18 months and continues to do so, especially in Southeast Asia and Africa, where we have dozens of imminent opportunities. Just last week, we were awarded a FEED study for [Chemtex] for a 0.4 MTPA plant expected to move to full order in 2024.
In LNG infrastructure category, ISO containers, LNG fueling stations and regas have been very consistent. The one aspect of LNG infrastructure that has been depressed the past 2 years is LNG over-the-road vehicle tanks. We're finally seeing some rebound in demand for these tanks with our highest order quarter for this product since the first quarter of 2022. Also remember that the LNG over-the-road vehicle tanks, we're the jumping off point for our unique liquid hydrogen onboard tank that has gained early and often traction so far.
And finally, a growing category for our equipment and solutions is the retrofit service and repair for existing LNG facilities. Driven by operators desiring optimization of output from existing capital, reducing downtime and in some cases, necessity of a retrofit to keep the facility running. We currently have 3 nitrogen rejection unit FEED studies underway for customers that are dealing with high nitrogen content natural gas, which can create challenges in liquefaction output and consumption of LNG. We have an extremely differentiated solution to handle this.
So moving to Slide 20. This shows the U.S. Department of Energy has announced selection of 7 regional hydrogen hubs in which we are a partner in the HyVelocity Hub. More importantly, though, for our future demand is that each of the 7 hubs is not a single project in a single location but rather each will be a collection of projects across the hydrogen value chain. We've been in discussion with many of the projects that will now potentially be down selected by the regional hub partners, and we anticipate multiple orders across the hubs in the coming years.
This federal funding is expected to also catalyze many private sector investments in hydrogen and is estimated to be over $40 billion of that private sector investment spend. Both gases and liquid hydrogen demand is expanding globally across various geographies. So this isn't just a U.S. story, as you can see on the lower right-hand map on Slide 21. Not only at hydrogen and helium than our #1 end market for synergy orders, the third quarter was also record order quarters for this market.
We continue to be a leader in global certification and first related to hydrogen, including delivering KGS certified liquid hydrogen trailers, the first that will deliver liquid hydrogen in South Korea. There are other first shown on the left-hand side of Slide 21. So I've already shared the strong third quarter synergy achievements at the outset of the call, which are repeated on Slide 23. We also have more cost synergy potential ahead not only with renewals on the calendar year-end cycle but also optimizing the use of our Mexico facilities, legal entity consolidations, tax reductions and executing on additional identified in-sourcing opportunities.
Slide 24 shows 4 commercial synergy wins from the third quarter generated from both Chart and Howden legacy customers as well as new customers. These are the result of the breadth of Howden's field service footprint and resources, shared capabilities for in-sourcing internal testing, thus accelerating lead times and therefore, getting synergy orders, full solutions with all mission-critical manufacturing in-house, and strong relationships with key customers in multiple end markets that both Chart legacy and Howden legacy bring to the table.
Commercial and cost synergies are very tangible but what is less so tangible is the OneChart culture that our global team members have embodied together to achieve these results. Slide 25 shows some examples of this, including the QR code app that the team came up with that we used to submit new synergy ideas. Another great example was our teams working together to improve our 2023 Eco beta sustainability ratings from bronze to silver for certain European sites. I spent time already on our robust aftermarket service and repair capabilities.
Slide 26 shows that there are still a significant amount of synergies available to us, which are accelerating as we close 2023 and head into 2024, and support continued double-digit plus growth in the RSL segment. I want to just share a one example of this, and this is just in the last day or so, we received about EUR 0.5 million order from customer [VGO]. You may recall me talking about VGO early on as an early synergy in the RSL segment where we were able to take Chart legacy fueling stations and get a long-term service agreement with this customer as a result of Howden's U.K. field service folks.
This is -- this order this week is the second station that's going to be installed by the Howden U.K. team and in a meeting with this customer this week, they were really positively impressed by the performance of the service team in the U.K. And in turn, we were able to book this additional order, which, by the way, is not included in the $297.9 million of commercial synergies that we reported today. We shared our progress on net leverage ratio so far at 3.59, forward expectations, and now we reiterate our financial policy as shown on Slide 28.
Our third quarter 2023 ending liquidity level of $700 million covers all material 2024 debt service needs even before our fourth quarter expected cash generation and divestiture cash proceeds in the fourth quarter. It's also worth noting that we have no major debt due until 2030.
Now turning it over to Brinkman, who has been extremely instrumental in our deleveraging as well as our synergy execution.

Joseph Robert Brinkman

We continue to undertake actions to generate more cash for debt pay down and optimize our balance sheet, including repatriating over $25 million of cash in the third quarter, favorable repricing of our term loan B and closing on the sale of our South African facility for $2.2 million. We anticipate closing the sale of 2 other properties in the fourth quarter.
On Slide 30, you can see additional details of our Theodore, Alabama, jumbo tank and rail expansion. This is a high ROI project for us, and the additional capacity is needed to deliver on the $115 million of orders already in backlog for this facility. We accelerated our capital spend timing to take advantage of market opportunities that arose primarily in the space exploration, rail and marine markets where multiple blue-chip customers needed deliveries as early as possible in 2024. We were able to work with our building contractors to accelerate the pouring of the very thick concrete floor, which holds tanks up to 1 million pounds and expedite the arrival and erection of the building steel. You can also see on Slide 30 where the site was as of June 30 and the incredible progress as of this week.
Also, the steel workers remain on site, and we expect to have all of the building columns complete by Sunday. We originally had a multiphase CapEx optionality on this project, which was to be determined based on future demand. Given the early railcar demand and backlog, we also decided to accelerate what was originally a Phase 2 scope with the site's rail spur edition and revamp. We now expect occupancy in the beginning of operations earlier than originally anticipated. Pulling forward this related capital expenditure spend was instrumental in securing to $58 million of third quarter 2023 orders booked specifically for this facility.
On Slide 31, the table walks from U.S. GAAP reported statement of cash flows, cash from operations, which includes both continuing and discontinued operations as well as assets held for sale movements to our adjusted free cash flow from continuing operations of $84.8 million, which is a metric we are using for guidance.
We are also showing normalized free cash flow on this table to reflect the Teddy 2 accelerated capital spend and not repeating stub interest payment, which when adjusted was $128.8 million. It should be noted that we also had 1 key customer with $25 million accounts receivable due in September that is now expected to be a tailwind for us for fourth quarter cash.
Slides 33 and 34 cover our guidance metrics. We are updating our full year 2023 sales forecast to approximately $3.45 billion to $3.5 billion, this is driven by the earlier-than-expected divestiture completions for American Fan, Cofimco and Cryo Diffusion, which is a positive; and third quarter 2023 revenue timing discussed earlier. All of our divestitures in 2024 represent annualized revenue of approximately $225 million and EBITDA multiples in line with prior chart transactions.
We are updating our full year adjusted EBITDA guidance to reflect the lower revenue in 2023, which has now moved into 2024 due to supply chain and customer delivery timing. We expect to see a nice sequential step-up in free cash flow in the fourth quarter of 2023. Our cash available for debt paydown now reflects the $111 million from the American Fans divestiture as well as the updated free cash flow guidance and higher CapEx spending in Q3.
While there is some modestly lower interest expense flowing through our guidance in Q4, we will not see most of the benefit until 2024, which brings us to the next slide, Slide 34 and our 2024 outlook. Our EBITDA forecast of approximately $1.3 billion remains unchanged since November 2022, despite the divestitures done in 2023, which are being offset by continued strong order growth in commercial and cost synergy wins.
As you can see here, we are initiating a 2024 revenue outlook of approximately $5.1 billion, which is supported by our record Q3 2023 backlog of $4.1 billion and strong commercial synergies still expected to be announced in the fourth quarter and early 2024. Remember, as the company shifts to more of a solution provider, that extends our orders to sales conversion cycle. We anticipate free cash flow. We are moving -- we are removing the word adjusted for 2024 in the range of $575 million to $625 million. We are also guiding 2024 adjusted EPS to $14 plus. Additional details are on the slides. We look forward to seeing you at our November 28 Investor Day, where we will provide a 3-year forward outlook as well as a longer-term view on our markets.
And now Sylvie, please open up for Q&A.

Question and Answer Session

Operator

(Operator Instructions) And your first question will be from Ben Nolan at Stifel.

Benjamin Joel Nolan

Great. Jill and Joe, so I -- first of all, the orders are strong, the guidance is really strong. The backdrop, though, in this environment with higher interest rates is -- it feels a little less certain than maybe it has in past. In fact, I know and Joe, you would know that one of your competitors are at least a fraction of their business is competitive years was out sort of saying there's just too much uncertainty to have much confidence looking into next year. You don't seem to be reflecting that at all. And certainly, it's not in your orders.
So the question here is -- sorry, that was a long-winded start -- but the question here is, could you maybe talk through maybe segment by segment, what your line of sight is for next year? And maybe by those segments, what portion of the business is economically sensitive? And then what portion of it you think is maybe not?

Jillian C. Evanko

All right. Thanks, Ben, for the question and the tee up. And before I answer your question directly, thank you for recognizing the strength in the order book and the outlook ahead. So that leads me to our view and our confidence level -- our very high confidence level in these figures, in this outlook in particular, given our record backlog, record origin ex Big LNG, which I think is extremely important, right? It's the shift in the dynamic of the business away from that heavy reliance on one or two orders coming in.
And this broad-based demand where we have multiple end markets that we serve, which, oh, by the way, we don't have to change our manufacturing lines to serve, right? We can use the brazed aluminum heat exchangers, whether that's in Big LNG, whether that's in hydrogen liquefaction or helium liquefaction in some cases, carbon capture. So the list could go on and you're really familiar with that.
But that broad-based nature of our backlog, the visibility that we have to where those projects are in terms of progression is one of the shifts that Joe talked about in his remarks thereof, moving toward that solution provider gives us more visibility into that backlog. I'd also say, specifically, we have more than 65% of our backlog for -- that covers 65% of our 2024 covered by backlog. I think that's an important metric, right? We talk about also the ability for us to move schedules around and to be able to adapt how we serve our customers is another key element to how we deliver on that backlog.
And we did mention as well in our outlook that it does include commercial synergies. And I mean, heck, I think you commented on it in your early look report. We delivered 100% more of our year 1 synergies commercially in the first 7 months of our ownership of Howden. I mean that shows the combination in that full solution offering coming into our backlog.
All right. So let me talk about the segments because you really get into the question about what's sensitive and where we see those sensitivities, both from a positive and potential watchout perspective. Let's start with CTS. CTS is our shortest cycle -- shortest book and ship cycle. This is heavily industrial gas majors business and you can get the industrial gas majors outlook. But what we're hearing from a forecast perspective is kind of in line to what it always is generally and historically, which is in that like kind of mid-single-digit growth. When you look backwards at CTS, it's fairly insensitive in terms of being dramatically lower or dramatically higher.
Within CTS, I would point out that the EU and China regions serves the CTS segment. And in the remarks, I commented that we expect China orders year-over-year to be 20% or more higher than 2023 as we did -- we didn't see really a slowdown per se in those 2 regions in that market, but we're seeing some pickup in activity. The CTS, I think, is fairly insensitive and we have a very good line of sight to the next 12 months from those key customers.
In the HTS segment, so the Big LNG, we have good backlog for the coming couple of years on the Big LNG front. We do expect to book another Big LNG order around year-end and we have good line of sight to more for the coming years, inclusive of that IPSMR win that international win that we can't name but we have the technology, we haven't yet booked the order. But even without that, we see plenty of commercial pipeline, I'm not only for other LNG, including retrofit but I would like to hammer home that point on traditional energy, oil and gas.
Again, the beauty is we serve traditional energy and clean energy end markets with the same manufacturing lines, and we have seen traditional energy pick up. I think the metric that we showed was 72% in order increases ex Big LNG from the last quarter sequentially.
All right. Specialty. I think the Specialty is interesting because Specialty is kind of where I think the comments as you referred to one of our competitors or at least a small part of the business being a competitor, the comments there, probably would bring into the Specialty segment, if you were to try to pick out one of the segments here. But one thing I would say, if I know who you're talking about, one thing I would say that I fully agree with his waiting on the government to fund something is not a good strategy.
And that's absolutely not where we are with our Specialty end markets. These are, as Joe called them blue-chip customers, and we're talking in Specialty -- these are, in some cases, the IGs that I talked about in CTS. EPC, these are large companies that are making these investments and we're the beneficiary of them. With that said, I do think the government hubs and funding can be a catalyst for more but that's not what our -- basis of our outlook is built on. It's built on the projects that we have in backlog and what we think is real, real in the commercial pipeline.
In terms of the rest of the Specialty, right, this is also global. It's not a U.S.-only commentary, right? So take hydrogen, it's industrial gas, it's mobility, it's utility storage, and we're seeing a lot of pragmatic projects in the -- coming into the backlog versus the dreamers.
And then lastly, in RSL, I want to end with RSL. I purposely ending with RSL because RSL -- think back, one of the key elements of our strategy over the last 5 years and really amped up with the Howden acquisition was having a higher percent of our revenue in aftermarket service repair. And for exactly the idea that we're going to continue to grow double digits through a cycle. And this gives us a lot of resiliency and confidence in being able to do so.
And the other thing I would say is you heard me talk on the amount of opportunity in [pie] in RSL that we don't even touch today, and we don't even have a lot of our Chart legacy products that we serve outside of the United States, and there's just opportunity without having to have the actual end markets themselves grow dramatically for us to gain share and have this continue to grow double digit. So all in all, I think our confidence is high for different reasons perhaps than someone else's confidence may be a little bit less.

Operator

Next question is from Martin Malloy at Johnson Rice.

Martin Whittier Malloy

I wanted to ask a question about the hydrogen outlook and some of the graphs on -- you have on 21. I was wondering if maybe you could help us with thinking through the scope of potential awards to Chart for, say, 10 ton per day hydrogen production liquefaction plant coming online. Assuming that the hydrogen is going to be used for transportation or stationary power. When you think about all the storage and transportation, end use equipment that you might sell?

Jillian C. Evanko

Yes. Thanks, Marty, for the question. And I appreciate you looking into the detail that we have put out in the deck. So let me touch on a few things on that Slide 21. In that upper right-hand graph, there's a lot to digest here. The first thing being that we are continuing to see more and more commercialization in hydrogen, the second being that -- the 3 facets of the hydrogen value chain, production, storage and transport, and then end use you can see for the last couple of years, the primary -- our primary customer spend was in production and storage and transport.
And now if you look at that last category, we're starting to see an increase in orders for end use, whether that's mobile refuelers that could be fueling stations, things like that. And that to us is a positive indicator for the years ahead given that you have to have -- for the ecosystem to work, you have to have supply and demand, and you're seeing that end use, the demand starting to grow. So that's the takeaway -- the 2 takeaways on that upper right-hand chart on Slide 21.
Now what your question was kind of Chart content and what are we seeing on, let's take whether it's a 10 ton per day. We're seeing -- most of the liquefiers we see are either 15 ton per day or 30 ton per day. So I'm going to just use 15 ton per day as an example. And if you take the liquefier itself, those typically a 15 ton per day is going to cost -- our content will be $35 million to $50 million on a 15 ton per day, obviously, with variability depending on aspects and customization that the customer may want.
But the second half of your question, which I really think is astute is around used for transport or stationary power, which brings us more equipment around the production site. And that is typically what we're seeing right now, storage tanks and trailers. What what our Hydrogen team tells me is that the trailers are usually ordered about a year after the production equipment is ordered or the production technology. And so I think we'll see -- given the liquefier activity that we've seen in '23, I would expect we'd see a pickup in trailers in late '24 and 2025.
So I like the staggeredness of the way that the full solution in the exceptional hydrogen portfolio that we have has been rolling out. I also really like the point we want to try to drill here is that it's not U.S. only. And you see that on that bottom right-hand map. These are orders across multiple geographies, and we had a Howden compression order for about $16 million in the third quarter. And that was -- again, that was for an Asia location.
So it's really broad-based global, we serve all these facets of the value chain and in transporter stationary power, which really are the more pragmatic applications for hydrogen. We get the benefit of equipment technology on the production side as well as the ancillary pieces and parts.

Operator

Next question will be from Eric Stine at Craig-Hallum.

Eric Stine

Jill, Joe, so I appreciate that you're limited as to what you can say. But curious, just on the new LNG award -- or new LNG opportunity that you expect to book later next year. I'm wondering if you can give any detail in terms of size? And also, just curious, is this one of the counterparties that you've been qualified with? Is this a new customer? Details would be helpful.

Jillian C. Evanko

Yes. Thank you, Eric, for the question. And I appreciate you picking up on our excitement around this particular win. We've -- we're qualified IPSMR qualification. Without boring you with the technical details, it's a big deal. And it's a big order deal to get there. It's multiyears with -- in particular, with international oil companies. And we have a couple, I think, close to a dozen of these validations and qualifications technically. And we had -- I think last quarter, we said 9 international potential projects that fall in this category. Now we say we have 10 plus the one that we know we were awarded the technology. That's a meaningful step for us.
I think part of that -- so the direct answer, yes, it's with one that has qualified us. The way that these typically work is the qualification happens through engineering and then the project team is the one who actually makes the decision because they have to implement it. And so that's -- again, that's a separate process and a longer process. So we're super excited about this win. This is a high dollar. If you're looking at historically the way we range out our Big LNG projects, we say [$100 million] to a few hundred million. This is certainly going to be at the high end of that range in terms of size and content.
And I can't tell you, international -- there's very limited locations geographically, internationally that are -- that have very sticky and established LNG activity. And so you can probably at least hone in on that from my answer there. But I think even bigger, when you're talking about future potential growth, it unlocks -- having this type of win unlocks an entire market within big LNG that we never played in or played extremely limited in before. And so that's -- my takeaway is the strategy for profitable growth, continued consistency in big LNG bookings. And now we have this whole other facet of the world that is going to use IPSMR. I love it.

Eric Stine

Right. And I guess, safe to assume that this large company has a backlog beyond just this project? Or at least a pipeline.

Jillian C. Evanko

That is the -- yes, you are correct, Eric.

Eric Stine

Okay. And then last one for me. You mentioned the 65% coverage in backlog. I mean, obviously, that's a great number for Chart. So a little just context now that Howden is added as well. I mean, should we kind of view them the same that, that is a -- that's a historically high level of backlog coverage?

Joseph Robert Brinkman

Yes, absolutely. Having 65% historically for Howden is excellent backlog coverage.

Operator

Next question will be from Marc Bianchi at TD Cowen.

Marc Gregory Bianchi

I'm going to honor John's request and ask just one question. The -- so the fourth quarter guidance here and then for '24, just trying to think about the progression as we get into '24 because I think typically, you would have some seasonal downturn in the first part of the year and then it ramps over the course of the year. Maybe that's dampened a bit by Howden. But even if that happens, it would seem that you'd need to be exiting 2024 at margins may be quite a bit above the 25% EBITDA margin that's implied by the guidance. So maybe if you could just provide a little bit of a progression on how this should play out in '24 to give us a sense of the exit rate?

Jillian C. Evanko

Yes. Thanks for the question, Marc. And what I would say, maybe I'll step back to since we closed on the Howden dealer, we've been at above the 21.5% adjusted EBITDA margin. We see the cost synergies are really starting to flow through the P&L here, in particular, on SG&A as an example. We definitely see 2024 in terms of progression. We used to say -- Chart legacy used to say, okay, the first quarter and the fourth quarter were the lowest quarters of the year. We don't see that nearly as much, just given the shift to the project nature of the business.
What we do want to point out in particular on -- and I'm going to come back around on the margin point here. But in particular, I want to make sure everybody noted the comments about the senior secured note interest payments where we pay in January and July. So there are 2 payments a year. So that's an important because that flows through operating cash.
On the margin side, we have increasing benefit from mix in backlog around the projects that we've booked. The synergies I already touched on and then the delivering through on the higher volume that we have. So I would -- the way I would model the year is kind of sequentially stepping up the EBITDA margin from where we sit today. And that's -- you can see that reflected in the implied fourth quarter '23 guidance. And I don't see anything that says there's 1 quarter like we used to have that's really, we should call out as being lower than the rest of them.

Operator

Next question will be from Pavel Molchanov at Raymond James.

Pavel S. Molchanov

Actually, digging back on the previous question but more zooming in on top line given how much the business mix has changed, particularly the recurring and service revenue. Is the kind of progression first half versus second half going to be meaningfully smoother going forward versus the legacy Chart, which was very back-end weighted?

Jillian C. Evanko

Yes. Pavel, thank you for the question. So the short answer is yes. The longer answer is that there -- the way -- I'll give you an example, the way that the larger projects timing of deliveries that we'll take a Big LNG project in the second quarter of this year, we had more Big LNG-related revenue because there was the delivery of a train for a customer that we got that revenue into the quarter. We had less so in the third quarter because we're starting work on the next train or the next series of trains.
So there is a little bit of kind of how those project delivery schedule play out, much smoother than historically. If you look at our backlog, you will have a step up from first half to second half in '24 just based on the Big LNG projects that are in the backlog but not nearly kind of this Q1 to Q2 to Q3 and then down in Q4 like it used to be.

Joseph Robert Brinkman

Yes. And I would just add that -- just one thing to add, Pavel, is a growing business is naturally going to have a bigger fourth quarter than first quarter just because it's growing.

Operator

Did that answer your question, Pavel?

Pavel S. Molchanov

Yes. Perfect.

Operator

Next question will be from Craig Shere at Tuohy Brothers.

Craig Kenneth Shere

So given the commercial synergies are kind of doubling original guidance, just kind of scratching my head a little bit that shouldn't that have aided 2023 revenue performance? And kind of related to this question, can you elaborate a little bit on the elongation of the non-Big LNG book-to-bill?

Jillian C. Evanko

Yes. Thanks, Craig, for the question. So almost all of the synergies that we have booked, the orders are full solution style bookings. And so these are -- these would have engineering timing and these in many cases are going to be across 12- to 36-month type of rev rec cycle. So you don't really get anything in the very short term. And the amount of synergies we booked in the third quarter, you're really going to start to see that in the first quarter in terms of sales.
In terms of the elongation of the non-Big LNG book-to-bill. What I would say here is that we -- maybe I'll turn the question slightly differently. We continue to expect to see a book-to-bill above 1. That's kind of the way we think about continuing to be able to grow the backlog to grow the top line at that 15% plus. And having the solution -- this full solution, differential is a way that we get sticky with these customers. And in many, many cases, there's multiple projects behind the ones that are in the backlog.
So one of the point that I think is really important in the shift of our business from what we used to look like, is that we're -- and I said this time and time again here in the last hour, is that we're no longer reliant on one or two things. And that gives us that confidence level to be able to grow through the cycle, and we love Big LNG but we can grow without Big LNG.
Now I do want to hit the point home that we continue to expect Big LNG orders here, and we have a really good line of sight to the ones that we know we have content on across the coming foreseeable years here. So it's a good -- it's a great position to sit with record backlog but also with the visibility we have to the full solution commercial pipeline that we expect to continue to come into the order book here throughout the years ahead.

Operator

Next question will be from Ati Modak at Goldman Sachs.

Atidrip Modak

Can you help us understand the moving pieces in the '23 guidance between the $100 million in revenue slippage, what segments that affect? And to Craig's question from earlier, the synergies and the asset sales that have occurred and then '24 guidance seems like it remains unchanged. Did that already contemplate the divestitures? Or are there any offsetting factors there?

Jillian C. Evanko

Yes. Thanks for the question, Ati. So as we pointed out in our remarks, there was -- there were a few factors that went into the timing shift, and I'll say this again, I say it every quarter, 2 to 3 months in our business, especially now that we have these long -- larger projects is it's really hard to get exact and it's not lost revenue, it's timing of the revenue associated with whether that's POC for supplier deliveries or progress, whether that's customers that call us and say, "Hey, we want to add a capability or tweak a design to get more output from the nameplate production, " or whether that's us moving and prioritizing a customer because they have an urgent situation, and we get less revenue rec in a quarter off of that. So that's kind of the tactical side of things.
And then we had, at the end of the second quarter, obviously, roots was in disc ops, but we had expected Cofimco to close pretty close to year-end of '23, we're excited that it's going to close on the 31st of October for that cash in. We hadn't expected to have the American Fans divestiture done in '23 but that was really a nice win-win. It's ending up in a really good home for the fact that it's 80% plus Navy oriented government, which isn't core to our business. So those were the couple of divestiture pieces that kind of shifted timing for the rest of 2023.
When we look ahead to 2024, what we would share here in terms of the outlook being unchanged is while our guide in 2024, we hadn't really given -- we had not given a revenue guide, we had given an EBITDA guide. And we had known the original asset sale perimeter, which I would point out again that we hit the number of the target even with a subset of the original perimeter, just 7 months post close of the acquisition.
But when we look ahead, we had commercial synergies that we talked about on the last question from Craig that now are coming stronger earlier into the order book. So that gives us earlier revenue in 2024 than -- which allows us to cover what we had sold out of the portfolio. If I were distilling it to one answer, that's really it. And then, of course, there's things like the way that we talked about the step-up in first half to second half and the timing of when these projects revenue recognition kind of ramps up, and having booked the Big LNG order at the end of the second quarter, we see good line of sight to that revenue ramping up. We have full notice to proceed on that. So that revenue really ramping up mid-2024 as well.

Operator

Next question will be from Rob Brown at Lake Street Capital.

Robert Duncan Brown

Jill, Joe, just wanted to follow up, given the really strong commercial synergies that you're showing and really better than you expected. How do you see that continuing? Do you expect that to kind of flow through in future periods? And do you sort of think that, that can be better than you ultimately expected?

Joseph Robert Brinkman

No, we've been continually surprised by all the synergy opportunities that we're seeing. As we pointed out in our remarks, pivoting to more of a solutions provider here, you've got the traditional cryogenic liquid. Background of Chart, you've got the gas side of the business and Howden really coming together for solutions for customers in the hydrogen space and in other spaces. So yes, continue to expect more synergy wins as we put these offerings together.

Jillian C. Evanko

And Rob, I'd elaborate on that -- answering that. You think about, we said $800 million of commercial synergy pipeline available to us that was in May of this year. And now we're saying $1.3 billion of commercial synergy pipeline here sitting at the end of October even after this $300 million of already awarded commercial synergies. That's pretty exceptional in my mind. But what to me is even more so is, we have this WhatsApp group for the commercial team, and we share wins amongst that. And the amount and types, and breadth of the synergy potential that these teams are working on and going out together, this is the value of the one Chart commercial team, it's really amazing.
The other thing that I think has been fantastic around bringing these synergy opportunities forward. There's 2 things I'd point out. One is we have a dedicated team that trains the commercial organization and the technical organization on the respective offerings that both Chart and Howden legacy brought together. And I think that's really driven their ability to sell. So kudos to Jesse and the team that's been working on that.
And then the second piece is this RSL opportunity. I can't share enough times how much synergy potential on the RSL side that's untapped yet, and it's already been -- it's already gained a lot of traction. I love the tools. Mark and his team up in Buffalo, the tools that they've been able to deploy to our commercial team, whether that's an app to be able to see an installed base when they go to a customer or just gathering the opportunity of installed base has really been an accelerant to the synergy achievement. I'm not going to give a specific number but I don't see certainly it's slowing in 2024 by any means.

Robert Duncan Brown

Great. Thank for the color and congratulations on the progress.

Jillian C. Evanko

Thank you, Rob.

Operator

Next question will be from Sherif Elmaghrabi at BTIG.

Sherif Ehab Elmaghrabi

Changing gears here. You talked about high velocity hub really being a group of projects. Can you give us more color on what kind of project Chart involved in at the hub? And on the equipment side, given it's blue hydrogen or mostly blue hydrogen, is there an opportunity for HTS and CTS here as well?

Jillian C. Evanko

Yes. Thanks for the question, Sherif. On -- so stepping back on the hubs, I think -- well, first of all, I think BTIG understands the hub is really well from what I read in the sense of they're not. It wasn't just 7 awards and that was it. Sometimes, we had some calls in saying, well, you're only in one hub, you actually just join the hub but being in the hub doesn't mean that you automatically are winning a project. So we were in the high velocity hub. We think that, in particular, in high velocity, there's a great opportunity for liquefaction, which would be strong for our content.
Also in the high-velocity hub, we have partners such as Cummins in this hub. And so there's a lot of kind of behind-the-scenes opportunities for us to commercially work together, whether that's in the hub or not. When we talk about across the hubs, so as the regional hub partners down select the projects, there will be multiple projects in the hubs. And we have been in conversations with existing customers and potential customers that all have projects that they would like to win within the hubs, and think that there's plenty of opportunity, both on the gas and the liquid side.
So to your question on HTS, so we talk Specialty, right? On HTS or CTS content for hydrogen opportunities, I'll let Joe talk to that.

Joseph Robert Brinkman

Yes. I mean just the liquefaction flows through HTS. But as a reminder, any investment in liquefaction of hydrogen is going to lead to more hydrogen trailers needed and more hydrogen storage tanks, downstream that those trailers are delivering into. So we get pull-through in both HTS and CTS with any of the hubs.

Operator

Thank you. At this time, we have no further questions. Please proceed.

Jillian C. Evanko

Thank you for everyone for attending the call today, and we look forward to continuing the dialogue going forward and a strong fourth quarter. Goodbye.

Operator

Thank you. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.