Joseph Brinkman

Third-quarter 2024 reported net cash from operating activities of $200.7 million, less capital expenditures of $26.1 million, resulted in $174.6 million of free cash flow. Our September 30, 2024, net leverage ratio was 3.04, as shown on slide 10. We reiterate our financial policy that until we are in our target net leverage ratio range of 2 to 2.5 times and we will not do any share repurchases or material cash acquisitions.
The strength in Q3 cash reflects our ongoing cash culture efforts, Chart Business Excellence, coordination of milestone billing and increasing operational throughput. As we have previously indicated, we are coming off a period of heavy CapEx spend for capacity.
Our CapEx spend is now normalizing, and we expect normalized CapEx to be between 2% and 2.5% of sales. Net working capital, defined as accounts receivable inventory, accounts payable, unbilled contract revenue, customer advances and billings in excess as a percent of trailing 12-month sales improved to 16%.
As a reminder, we had our semiannual unsecured interest payment of $79 million in the third quarter that will not repeat in the fourth quarter. Additionally, the fourth quarter has multiple milestones scheduled for collection and tax is typically a tailwind to free cash flow in Q4. We continue to look to optimize our capital structure.
We anticipate our 2017 seven-year convertible note to settle at maturity in November 2024 and with a principal of approximately $259 million paid in cash and the premium settled with equity. Note that the share count will change upon settlement, which is contemplated in our outlook.
Moving to slide 11. Our full-year 2024 sales outlook is approximately $4.2 billion to $4.3 billion, with anticipated full year 2024 adjusted EBITDA of approximately $1.015 billion to $1.045 billion. This reflects a year-over-year 18% to 21% sales growth range, which, as Jill described in her comments, reflects our year-to-date sales growth and margin progress.
The sales growth at the lower end of the range is based on our confidence in what we have been able to consistently achieve year-to-date and backlog coverage. Achieving the higher end of the range will depend on larger project timing and further operational throughput actions already underway, which will continue into 2025.
Our associated anticipated full year 2024 adjusted diluted EPS is anticipated to be approximately $9 based on an anticipated tax rate of approximately 22%. Free cash flow is anticipated to be approximately $400 million. Our 2025 sales are anticipated to be in the range of $4.65 billion to $4.85 billion and anticipated adjusted EBITDA between $1.175 billion and $1.225 billion.
We have strong backlog coverage for 2025 and also have line of sight to additional larger orders that we anticipate closing in the coming months. We anticipate our 2025 adjusted diluted EPS and to be approximately $12 to $13 on a tax rate of approximately 22%. Additionally, we anticipate ending 2025 with approximately $3 billion of net debt based on full year 2025 free cash flow generation of approximately $550 million to $600 million.
We look forward to sharing additional details of our 2025 outlook at our Investor Day on November 12. Joel, please open it up for Q&A.

Question and Answer Session

Operator

(Operator Instructions) Eric Stine, Craig Hallum.

Eric Stine

So I guess on 2025 guidance, I know that it's kind of been an ongoing focus of yours to try to better incorporate the project -- more project-based nature of your business. So could you go into the thought process, Joe, I know you just talked a little bit about the backlog coverage, line of sight to new orders. But maybe thought process on -- did you haircut this guidance, what gets you to the high -- the low end and the high end, that would be very helpful.

Jillian Evanko

Yes. Joe, feel free to chime in on this one. What I would say, Eric, is that we have really worked to incorporate our learnings from the movements that we have and things we've talked about throughout 2024. And that's reflected in our 2025 outlook.
And that's something that we feel very confident in this outlook given backlog coverage that we have, Joe, what you referred to as stronger than typical backlog coverage, which we've got about 61% of our [9/30] backlog that's going to that is scheduled to convert in the next 12 months.
So we feel that we've kind of gotten through this evolution of getting to the point of incorporating all of the learnings that we've had over the last few quarters into our 2025 construct which was our goal to do and feel good about being down the fairway on that.
In terms of the higher end of that range, which is approximately a 12% growth off of the higher end of the '24's range is around more conversion of the backlog that we currently have. And also, we do see movement of new orders that come in, and we have good line of sight to the next few months of some of the larger orders that if something does move and a new order comes in, that can be offsetting to get to the higher end.
But that was our thought process, Eric, around incorporating everything that we've learned when we have to move things between quarters just simply because we've become a much longer cycle company.

Joseph Brinkman

Yes, nothing really significant to add to that, Eric, just like Jill said, understanding the things that can make thing revenue move between quarters and incorporating that into our approach as we forecast moving forward.

Eric Stine

Okay. And when you talk about new potential orders that come in, I mean I would assume if those are LNG orders, then those would have to be early in the year, and that would probably at best have a late impact in the year? And is that how we should think about it that this would be more skewed to some of the other segments in terms of those order opportunities impacting '25?

Joseph Brinkman

Yes, that's the right way to think about it.

Operator

Marc Bianchi, TD Cowen.

Marc Bianchi

I wanted to start with the order outlook, Jill, you talked about a $23 billion pipeline, nearly $2 billion of commitments that are not in backlog. And if we look at third quarter, you had this really good HTS performance, but there was some weakness in specialty. So maybe just talk to us about put that $23 billion and $2 billion of commitments in context for us, where was that recently. And how has that changed? And then how are you thinking about the order progression in 4Q and into early '25.

Jillian Evanko

Yes. Thanks, Mark. What I would say is across the majority of our end markets, with the exception of China, we continue to see good demand and a very strong pipeline things like the acceptance of IPSMR internationally with the Rovuma, the Exxon Rovuma LNG project. have added to that pipeline recently. So the more that our technologies and solutions get out in the field, the more that pipeline seems to grow.
When I look at the nearly $2 billion of commitments, about $1.5 billion of that is HTS and the other $0.5 million or $450 million is specialty -- is entirely specialty. Since the $1.5 billion of HTS related that we had talked about previously, we've added few small scale into that number.
The other opportunity that has been increasing for us is around data centers. And so we did have our second quarter data center order that we talked about on air-cooled heat exchangers. And as we started October, we got another order for air coolers related to data centers. So that's another contributor to -- into that $23 billion of pipeline. That's not included in the $1.95 billion of commitments that we referred to that are not yet booked.
In terms of specialty weakness, what I look at is structurally, is there weakness structurally in these end markets or in our offering for them? Or is it really just timing? And what I would say around specialty in the third quarter is it really truly was just timing.
And with the mining order that one that we have verbally been awarded, and we're just working on Ts and Cs at the customer right now. That's over $40 million, as an example. We have a few -- a handful of potential in the hydrogen space that are in the $20 million to $35 million range. So these are orders in FIDs and financing that sometimes take a little more time than what we had originally thought.
And a couple of those in that $1.95 on the specialty side were -- could have been bookable in terms of our policy, but we didn't not feel comfortable that they were at the point of completing their financing far enough along in that to put them into our backlog.
So overall, the only area of kind of what I would say, structural concern in end markets right now is just China industrial gas.

Marc Bianchi

Okay. And would you anticipate that fourth quarter book-to-bill could be greater than one?

Jillian Evanko

Yes, one or greater is our outlook.

Operator

Ben Nolan, Stifel.

Benjamin Nolan

I appreciate it. is only on -- so I'll start with this one -- or I guess I'll end with this one, too. as you think about the fourth quarter, just the is normally an uplift in the fourth quarter. I think in guidance, you're calling for roughly I think, $150 million of incremental sales. Can you maybe talk through maybe segment by segment, how that plays out? Like where are you expecting the uplift in 4Q to reach your updated guidance?

Jillian Evanko

Yes. So if you look at 4Q, sequentially, Q3 to Q4, historically, we'll do between 10% and 15% on average of an increase and then year-over-year really varies. If you look at our year over year for Q4 of this year, the lower end is a little bit lower as a percent than what we have been doing in the last few quarters in the high end is pretty consistent with what we've been doing in the last few quarters.
When you look at the segments themselves, we're continuing to see strength in throughput in HTS, Specialty and CTS, I would just say, is consistent. So that's the way to think about that on a relative basis of growth sequentially. And maybe one other quick add here on RSL is that we did have a larger field service work in the second quarter, and we had a larger than typical equipment sale in the third quarter in RSL.
So those were those were pretty strong quarters in that respect. And as we head into Q1, right, in 2025, Q1 is always our lowest quarter of the year, and we don't anticipate anything different for 2025 in that respect.

Benjamin Nolan

Got it. Okay. I appreciate it. And if I could sneak in just a super fast in I think, Jill, you said 16% was the unbilled revenue as a percentage of sales. What should that be on a normalized basis?

Jillian Evanko

That was working -- how we define working capital as a percent of sales, which is the aggregate of accounts receivable, inventory unbilled customer advances. And so that 16% is as a percent of an annualized sales number. we will share some more details on the specificity around what we expect that to be at our November 12 Capital Markets Day. But I think you've seen us perform in that particular metric in the low 20% to the high teens is kind of the range that it's been in the combined business the last 18 months.

Operator

Mark Malloy, Johnson Rice.

Martin Malloy

RSL is putting up another good quarter here. Just from a high level, can you maybe talk about where you are in terms of putting equipment on to maintenance service contracts or your digital offering and kind of the runway here for growth in that segment, how you look at it when you look out two or three years?

Jillian Evanko

Yes. Thanks, Marty, for recognizing that. We're very pleased with the aftermarket side of the business in the last few quarters and then 34% or 35% of our total revenue in RSL in the segment with strong performing gross margins. We just don't want people to get too far out over their skis on that RSL gross margin number.
We have meaningful ways to go in penetrating the installed base and penetrating the digital uptake offering from our digital uptime offering. We still are primarily concentrated in Howden legacy assets. And so the tool kits being taken across the Chart legacy assets, that just takes some time to integrate the various different digital offerings with that.
But what I would say is early innings on this. So we have a good ways to go. But on LTSAs and framework agreement, we have seen positive growth in terms of the numbers of and framework agreements year-to-date in 2024, and we saw the same in 2023. So we're getting traction there.
But what I would really like to see is a higher than 39%, 40% uptake that we currently have on customers with an installed base that are buying something aftermarket each quarter. So that, to me, that's a positive. To me, it's a positive because there's more to go in this aftermarket side of the business. And I'm very excited to see what we can do there.

Operator

Pavel Molchanov, Raymond James.

Pavel Molchanov

So based on the updated guidance, the trajectory of revenue recognition in 2024 is pretty balanced, almost 50-50 do you expect next year to be more back-end weighted or less back-end weighted?

Jillian Evanko

So we would expect that Q1 is -- I feel like I beat this strong, but I think it's really important that we've always seen Q1 be the lowest quarter of our financial metric year. But I do think that you'll see a little more balance in 2025, just given the backlog coverage that we have, especially on the new build side of things.
RSL is typically pretty balanced with the exception of Q3 tends to ex the larger equipment sale order that we had this time tends to be a little slower because of summer outages. But we have a real strong line of sight on the newbuild project solutions. But I do want to stress that Q1 is always seasonally our lowest quarter, but less of a ramp into Q4 than what we've seen historically.

Pavel Molchanov

And given that we are four days away from the US election, I have to ask -- is there a certain amount of revenue in 2025 that hypothetically could be at risk if the hydrogen or carbon capture policies in Washington were to change?

Jillian Evanko

The short answer, Pavel, is no, but I appreciate the top of the question given how close you are to the election and kind of the various different pieces and parts dependent on party. We're very well positioned regardless of the outcome, just given the fact that our equipment and solutions go into so many different molecules.
So -- but what I would say is we did think about not adding what could be pent-up demand into our '25 outlook. So there may be potential for a little upside, but we did not contemplate that in what we've put out here. But no, we don't believe that there's risk based on either outcome to the elections to our '25.

Operator

Manav Gupta, UBS.

Manav Gupta

It was great to see the deleveraging process restart strongly. My quick question here is you highlighted some parts in the opening comments. -- let's say we have a big uptick in the nuclear cycle driven by power demand. Can you help us understand the ways in which GTLS wins from that?

Jillian Evanko

Thank you, Manav. Thank you also for the comment about deleveraging. We're very, very focused on that, and we'll continue to be when you look at nuclear, it's definitely become more active, I would say, in our commercial pipeline. It's not something that we're serving new. It's something we always have.
It's just a matter of of how much interest there is there has been, and we're definitely seeing an increase there. Our -- there's multiple different ways that we play with nuclear. We do serve the traditional utility companies with our CTS applications.
So with tanks related to that, we serve a general nuclear space across the board with fans. And now we have the ability to support SMR technologies with the gas circulators and air coolers in addition to the fans. And that's, I would say, the fans and the tanks are primarily what we have seen to date and also recently, a little bit more of an uptick in spares and aftermarket for nuclear.
Now what we're seeing is the smaller SMR companies coming forward with various different technologies, and that's what we're quoting on right now. So it's a small percent of our total currently. But if this does become a bigger part of the energy transition for lack of a better description, we're very well positioned to play with equipment. We do not have a process technology for nuclear.

Operator

Rob Brown, Lake Street Capital.

Robert Brown

Just wanted to clarify kind of the specialty segment gross margins you think you can get. I know there were sort of onetime stuff in the quarter, but where do you think that can be as you ramp that business?

Jillian Evanko

Yes. I mean, I was disappointed in the third quarter, but at least we can pinpoint to what caused it. where we see this is in 30-plus, low 30s is where kind of in the near-term type of time frame, however you define near term, but I would say in the next five quarters type of time frame, it should be running in that in that level.
We'll also see a little bit of benefit from the more throughput that we get on specialty just naturally by design. But more than anything, it's getting out of start-up inefficiencies. And this particular one was unfortunately outside of our control, but it was fact and was a drag on our margin in Q3 in specialty.

Operator

Craig Shere, Tuohy Brothers.

Craig Shere

I want to dig a little bit more in the Manav's nuclear question and your comments around SMR. So a couple of things. One, most recently, there's been a couple well-advertised TRISO SMR data center opportunities that were announced. Now obviously, this is going into the early 2030s. But no one get a sense if the type of reactor technology has an impact on your ability to ultimately service gas circulators, fans and such.
And then another thing that's come up is relating to data centers is that they use a lot of water and you're in the water business. And so just wondering if this whole broader economic driver has a multisegment opportunity set for you.

Jillian Evanko

Yes. Thank you, Craig. And commercially, I think this is a great example of how we haven't had to go do something different from our traditional equipment and products that we have in serving new types of growing end markets or more nascent type of end market.
So let me peel this back just kind of from -- starting from nuclear -- we serve -- we can serve traditional and new SMR technologies and opportunities. We recently have had some activity with X-energy, which I think is a name that many people are tying to the space and also seeing I would say, an increase in the commercial pipeline, in particular in Europe around nuclear opportunities with various different SMR technologies.
So again, that really is the core offering that we serve into those, and it's primarily the Howden offering that brought -- came into the portfolio.
When we look at the water and the data center opportunity, this is pretty broad. So maybe start with the data center piece. We've talked about air coolers for the data center market. And it's not only around water, but also around heat rejection where there isn't necessarily access to water. But on the water treatment side, absolutely.
I mean I think there's -- the way to think about water treatment is there are so many secular tailwinds for water treatment that can benefit what we serve because we hit all of the contaminants that this could be a great opportunity ahead I would caveat that answer with we haven't seen a tonne of that linkage yet.
But I think it's early days on how the hyperscalers and other data center providers are thinking about their locations, in particular, in their size and their scale. Again, feel very well positioned without having to change our manufacturing lines or processes to achieve that.
And we'll share more end market specifics about how we play both in the new build and some of these end markets that we're discussing right now as well as an aftermarket at the November 12 Capital Markets Day.

Operator

Walt Liptak, Seaport Research.

Walter Liptak

I wanted to ask, you guys made a comment on free cash flow about the cash culture. And I know you guys have been focused on cash flow for a while. But was there a change? What does that mean? And then as a follow-up, there's some special cash flow actions, I guess, that you're taking in the fourth quarter. I wonder if you can quantify those. And then in the 2025 cash flow, are there any special kind of onetime actions.

Jillian Evanko

Yes. Thank you, Walt. So we're pleased to see the activities that we've had underway through the integration start to actually show up in the cash results here in the third quarter.
What I would say is the cash culture, when we describe it is kind of like we described Chart Business Excellence. It's embedded in the organization. It's something that we've had a concerted effort to make be sustainable and have multiple different element of our organization working together.
So whether it's the project management team, linking to the commercial team, linking to the operational team to ensure that the milestones are proper in the contract or make sure that the milestones are being hit by the operations team or the engineering team, making sure that the milestones are being built on time.
Some of those things probably sound fairly basic, but they are the types of efforts that we have had underway in cash culture. We've also incorporated into the organization, you treat the organization's money as if it were your own and focus on areas that each and every one of you can impact whether that's traditional trade working capital or areas that, to your point, you can find other ways to generate cash.
I do think the other piece that BR mentioned in his remarks was around the normalizing CapEx is an important factor as we head into 2025. We really came off of a period of heavy spend and we feel like we have good capacity in place. And so now CapEx is going to be more in that 2% to 2.5% of sales.
The second piece of your question was around other things that we're doing to generate cash. And we had talked, I think, a month or so ago or maybe a little six weeks or so ago about there's other non-operational actions that we are working on. And we kind of are constantly looking at the portfolio to see what those might look like.
And we have a small potential product line divestiture that we're working on. It's more opportunistic, and we would want to get the right price for that if we were to do it. We've got some cash repatriation actions. So if you look at the balance sheet, we do have a cash balance sitting there. And so Brinkman is working on that. You'll have some of that back in Q4.

Joseph Brinkman

We will be pulling back some cash from more restricted countries in Q4. and use that for debt paydown.

Jillian Evanko

So those are just a few examples of what you're describing. And -- but again, I think the real takeaway here is our goal of cash culture has been to make it sustainable and not have to rely on any nonoperational to hit the target net leverage ratio range. And we're pleased to see the traction starting to take hold in -- for the first time here in the third quarter.

Walter Liptak

Okay. Great. Are those nonoperational things in the 2024, 2025 free cash flow guidance?

Jillian Evanko

They are not.

Operator

Alexa Petrick, Goldman Sachs.

Alexa Petrick

On the hydrogen side, you announced an MOU for a 30 tonne per day liquefier. Can you talk a little more about the demand in the market today? And then it's 30 tonne per day becoming more common or still what you're seeing? Any conversations around that outlook would be really helpful.

Jillian Evanko

Thanks for the question, Alexa. What I would say on the liquefaction side is we're seeing more and more that are looking to go larger. And these are companies, not just the ones that we're looking at 30 tonnes per day.
There are companies that are fully strong balance sheets that you'd be familiar with that are looking at 100 tonne per day style. None of those are in backlog and none of those are anticipated in our order book here in the next even in '25 because it takes a little bit of development time.
But the concept in the market is to go larger, get more scale, be more interconnected to not have these hub and spokes regionally, but actually have a true infrastructure from production to end use. Still early days on that, but that's what we're seeing in terms of the direction that the market is going.
And the other thing I would say we're seeing in terms of linking to that is around the storage transport and end-use aspects of these more companies getting involved in that and trying to bring more than just California, as an example, in the United States into the mix.
Canada has been very strong in terms of support for hydrogen, whether that's through CIB or their other funding efforts. And I think you'll see Canada actually be one of the leaders in hydrogen infrastructure development.

Operator

Okay. That's very helpful. And then just sticking with specialty products. You guys -- can you talk a little bit more about the mining project award expected in 4Q? Anything around the size of the award? Or any color you can provide on that?

Jillian Evanko

Yes. It's approximately USD40 million. It's for a project that is international project, a non-US project, and it would be primarily Howden legacy equipment.

Operator

Sherif Elmaghrabi, BTIG.

Sherif Elmaghrabi

I really want to piggyback on that last part of -- on hydrogen. Is there an upper limit to what Charts hydrogen liquefaction tech can do in terms of capacity? Like we talked about 30 tonnes per day, but you raised the point that, for example, what Petrojet could do could be 10x that size in the back half of the decade?
And can you speak to the medium-term trajectory for specialty margins as we see more hydrogen liquefaction compression, storage, comprised more of specialties mix.

Jillian Evanko

Thanks, Sherif. Thanks for the questions. What -- so technically, there is no upper limit to what we can do. We're actually working with a partner that's not somebody we've named that is looking at a 300 tonne per day as an example, in the medium term. So in the late latter part of this decade, and we're certainly capable to do it. It does require a different type of development in the engineering arena, but it's all based off of our current technology.
So it's around scale, it's around can you get the efficiencies. We've done a lot of work around like what is most efficient in the current state, is it a 60 or 70 tonne per day. So there's many factors that go into it, but there's not a limit to how we can scale. It's just a matter of what the customer is looking for.
And right now, what I would say the Egypt one we talked about is by far the largest we've seen, the potentially largest we've seen. Followed behind that is this other partner that we haven't disclosed who they are, but it's about a 300 tonne per day. Obviously, both of those are -- well, not obviously, the one is international. The other is also international.
When we look at medium-term trajectory for specialty. There's elements of specialty that are a little more mature than others. And if I pick the mature elements, those would be like in the category of mining. We're very well positioned currently. The mining customers are pretty consistent in what they do.
And we see their behavior being consistent, whereas there's other aspects of specialty that we think later in the decade, which we consider medium term, really take further hold in terms of growth. And that would be around the hydrogen side, the water side and the carbon capture side.
So whether it's our forecast or someone else's from a macro perspective, the later part of this decade is anticipated to accelerate further. And so we would we would expect specialty to continue to have a strong growth trajectory in the medium term for all the reasons that we've talked about.

Operator

Saurabh Pant, Bank of America.

Saurabh Pant

Maybe I wanted to go back and touch a little bit on the fact that post how you continue to become more and more project oriented versus more individual product oriented. And obviously, that has impact on cash milestone payment timing of free cash flow and all of those things.
Can you maybe talk to how you are managing that transition internally from a project management standpoint, your organizational setup standpoint, anything that you're doing internally to disposition the organization to better handle projects going forward?

Jillian Evanko

Sure. And I'd also just point out that post Howden, we also have 30% to 35% of our revenue in aftermarket, whereas before, we had about 13% to 14%, right? So just to be clear, the new build solution set is less as a percent of our total revenue.
But with that said, the -- many of the actions around the cash culture, but structurally, what we have done is we've set a One Chart global commercial team, the One Chart to our global engineering team. and a One Chart global project management team. And those groups work together with the regional operations that are working to increase the throughput that we've talked about.
So this is quite faceted. But I think the question in particular that you're asking is around structurally what have we done to work to improve the throughput on cash and in the project and solution that starts at the upfront with the customers the timing of the milestones, then it's through the project management and key account managers that manage the project themselves and work closely with the operations.
And then there's just an element also, I would say, of discipline. And ensuring that this isn't something that happens on a weekly basis, it happens on an hourly basis. And all of those things together will support we believe we'll continue to support the sustainable cash generation that we anticipate to have.

Operator

There are no further questions at this time. I will now turn the call over to Jill for closing remarks.

Jillian Evanko

Thanks, Joel, and thanks, everyone, for joining us today. We look forward to hosting you on November 12 at our Capital Markets Day, and thank you to all of our Global One Chart team members for all of your ongoing efforts. Have a great day.

Operator

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.