Chart Industries

Phase A — Understand the business

Company Overview

Chart Industries designs, engineers and manufactures process technologies and equipment for moving and transforming gas/liquid molecules — what it brands the "Nexus of Clean" (clean power, water, food, industrials). It is, in plain terms, the cryogenic + heat-transfer + air/gas-handling equipment company that sits inside almost every LNG, industrial-gas, hydrogen, and CO2-capture value chain. FY2025 sales were $4,264.0M (2023: $3,352.5M; 2024: $4,160.3M). 62–63 manufacturing sites, >50 service centers, 11,777 employees, >10,000 customers.

Four reportable segments:

• Cryo Tank Solutions (14.6%) — bulk/microbulk/mobile cryogenic storage & distribution for industrial gases and LNG.
• Heat Transfer Systems (29.0%) — brazed-aluminum heat exchangers, cold boxes, the proprietary IPSMR® liquefaction process; the LNG/gas-processing engine. Also air-cooled heat exchangers + fans into HVAC, data centers, power, refining.
• Specialty Products (25.8%) — hydrogen/helium, carbon capture (CCC/DAC), water treatment (incl. PFAS), food & bev, aerospace, space, nuclear, marine, mining, lasers.
• Repair, Service & Leasing (30.6%) — aftermarket: parts, retrofits, 24/7 service, leasing, plus the Uptime™ digital monitoring platform and Ventsim™ mine-ventilation software (2,500+ mines).

Business model = highly-engineered, often custom, project-and-aftermarket equipment. Revenue recognition is ~77% over-time (percentage-of-completion) and ~23% point-in-time. Contracts often carry advance payments, LCs and performance bonds. Top-10 customers = 27% of sales in 2025; no single customer >10%. 58% of sales international. Built largely via M&A — the transformational $4.4B Howden acquisition (Mar 2023), which added the rotating-equipment / air-and-gas-handling franchise.

Supply Chain

Upstream inputs → Chart → end customer, with named stakeholders:

• Raw-material inputs: aluminum (sheet/bar/plate/piping — special grades for brazed-aluminum heat exchangers), stainless steel, carbon steel, palladium oxide, valves, gauges, fabricated metal. Chokepoint: special-grade aluminum and compressors are single-/few-source, with long lead times, explicitly flagged as a supplier-concentration risk. Commodity inputs (Al, stainless, carbon steel) are tariff-exposed in 2026 — and tariffs were already a named drag on Q1-26 gross margin.
• Chart's own conversion: 150 facilities, ~12.9M sq ft (~8.9M owned). Manufacturing concentrated US + Europe (Heat Transfer), global for Cryo Tank / Specialty.
• Downstream customers (named end markets / buyer types): global industrial-gas majors (Air Liquide, Linde, Air Products-type producers/distributors — Chart both sells to and competes with their captive equipment arms); LNG EPC contractors and export-terminal developers (Chart equipment is in ~90% of global LNG projects per the acquirer's own diligence); data-center / HVAC / power buyers for air-cooled exchangers (a fast-growing Heat Transfer demand driver); hydrogen mobility via its 25% stake in HTEC.
• New chain signal: Chart began factoring trade receivables (limited recourse) in June 2025 — $42.2M sold in Q1-26. That is a working-capital/liquidity-management tell worth noting (see Lens 10).

Competitive Advantages (moats)

• Process IP + installed base in LNG/cryo. The IPSMR®/IPSMR+® liquefaction process is pitched as lower-capex-per-ton than competing processes. ~160 years of hydrogen-equipment heritage and a large installed base feed a high-margin aftermarket. The acquirer's stated rationale leans on Chart being in ~90% of global LNG projects — that is the single strongest moat claim, though it is the buyer's framing.
• Aftermarket annuity. Repair, Service & Leasing is the largest segment (30.6% of sales) at the highest gross margin (44.3% FY2025). Servicing its own and competitors' equipment widens the moat. Uptime™ digital monitoring raises switching costs.
• Breadth + scale vs. regional point players. Management's repeated framing: competitors are "regionally focused or product-specific," Chart supplies the full range globally. Brazed-aluminum heat exchangers have only a handful of global (European/Asian) competitors.
• Caveat — IP is NOT the moat by the company's own admission. "No one [patent] is considered… of such importance that its expiration… would have a material adverse effect"; it depends on know-how and process, not patents. Patents expire 2026–2046. So the moat is scale + installed base + know-how, not a patent wall.
• Bargaining power is mixed. It sells to industrial-gas majors who also make some of their own equipment and to EPCs that competitively bid — pricing power is real in specialty/aftermarket, weaker in commoditized fabrication (air-cooled exchangers, "many smaller fabrication-only facilities").

Segments

FY2025 vs FY2024 — sales, gross margin, operating income:

Read the trend carefully:

• Heat Transfer Systems is accelerating hard — sales +19.5%, op income +56% (+$131M), margin 22.5%→29.4% — driven by strong backlog conversion and data-center demand for air-cooled exchangers.
• Specialty Products decelerated on revenue (-1.4%) and margin (27.0%→25.7%) even as its orders exploded — Specialty orders +$518.9M to $2,080.9M and Specialty backlog +$789.3M to $2,677.4M (carbon capture, nuclear, HLNG, marine, space, mining). Revenue is lagging orders — backlog being built, not yet shipped.
• Repair, Service & Leasing softened (-5.0% sales, margin 47.0%→44.3%) because FY2024 had a high-margin emergency field-service repair + large aftermarket sale that didn't repeat.
• Consolidated operating margin collapsed 15.6%→8.4% — but that is almost entirely the $266M Flowserve termination fee + $22.8M deal costs sitting in Corporate ($(476.8)M vs $(184.0)M). Underlying segment operating income actually rose ($835M of segment op income in FY25 before Corporate, vs $831M in FY24). Geography: foreign 57.8% of sales.

Q1-26 segment detail: Cryo $145.6M / HTS $246.1M / Specialty $214.5M / RSL $278.6M; every segment's operating income fell YoY (HTS $66.9M→$32.1M; Specialty $48.3M→$8.4M) on lower volume, mix and tariffs.

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Phase B — Measure performance

Earnings Result (latest print: Q1 2026, reported May 11, 2026)

The most recent print is weak on the P&L but the backlog is the opposite:

• Sales $884.8M, down 11.7% YoY ($1,001.5M Q1-25) — declines across all four segments.
• Gross margin 28.4% vs 33.9% — compressed by lower volume, unfavorable product mix, and tariffs on certain products (explicitly cited).
• Operating income $52.6M vs $152.3M. Net loss attributable to common of $(17.1)M, $(0.36) diluted EPS, vs +$49.5M / +$0.95 a year ago. (FY2025 full year: net income to common $13.5M / $0.30 diluted EPS, depressed by the $266M termination fee; ex one-timers, FY2025 op income was ~$647M-equivalent. Adjusted EBITDA FY2025 ~$1.01B, 23.8% of sales.)
• Balance-sheet / cash flags (important): operating cash flow was $(248.0)M used in Q1-26 (vs $(60.0)M Q1-25) — Q1 is seasonally working-capital-heavy, but unbilled contract revenue rose to $1,045.6M and accounts payable fell $203.7M. Net debt rose to ~$3,519M (long-term debt $3,786.7M; cash $267.9M) as the revolver was drawn $498.9M. Effective tax rate 46.8% (one-off, audit settlement + foreign WHT) explains some of the loss optics.
• Orders $1,280.3M; total backlog $6,282.9M (vs $5,143.6M a year ago, +22%). Remaining performance obligations $6,282.9M, ~42% to convert in 12 months.
• Market reaction is muted and deal-pinned: the stock sits at ~$208.50 (June 26, 2026) against the $210 cash price — the print barely matters because the equity is a bond-like claim on deal close.

Unusual vs. its own history: the net loss and the negative operating cash flow would be alarming standalone signals; here they are a mix of (i) genuine cyclical/tariff softness in the new-equipment lines and (ii) deal-pendency distortion (the company is run "in the ordinary course," buybacks frozen).

Earnings Calls (sentiment trend)

No transcripts/ on the research shelf (transcripts=0) — so this is web/derived. Sentiment arc over the last ~4 quarters is dominated by the deal, not operations:

• Q1 2025 (May 2025): results "miss expectations" — soft start to the year on timing.
• June 2025: announces Flowserve "merger of equals" (~$19B EVEnterprise valueWhat it would cost to buy the whole company: its market value plus its debt, minus the cash you would get with it. Often very different from market cap. all-stock) — tone shifts entirely to portfolio/strategy.
• July 28–29, 2025: terminates Flowserve, signs Baker Hughes $210 cash ("Superior Chart Proposal") — tone becomes deal-execution + regulatory cadence.
• Q2/Q3 2025 + Q4/FY (Feb 2026): delivered $1.01B adjusted EBITDA for the year; commentary centers on backlog strength (Specialty, data-center HTS) and the regulatory timeline. CEO Jill Evanko announced departure (Nov 2025) to Duravant, staying as senior advisor through close. The "things they stopped saying": standalone capital-return / medium-term-target talk is gone — replaced by close-timing language. Recurring phrase: deal "on track to close mid-2026."

Comps

Read: the $13.6B EV / ~$1.01B FY25 adj. EBITDA ≈ 13.5x EV/EBITDA take-out multiple ÷ $1.01B adj. EBITDA ] — squarely in line with where flow-control/industrial peers (FLS ~14.3x, IR ~14.5x, DOV ~15.6x) trade, i.e. BKR is paying a fair-to-slightly-below-peer multiple, not a stretch. That matters for deal durability: it is not a price a buyer walks away from on second thoughts, and it limits the odds of a topping bid (none has emerged).

Stock-Price Catalysts (last ~5 years, moves >5%)

Mostly + the deal record:

• Mar 2023 — Howden close + financing: the $4.4B debt-and-equity-funded deal reset the leverage and share-count story; high volatility around the raise.
• 2024 — convertible-preferred overhang + de-levering: the 6.75% Series B mandatory convertible (issued Dec 2022 for Howden) was a persistent dilutionDilutionIssuing new shares, so each existing share owns a smaller slice of the same company. overhang until it converted to ~2.84M shares in Dec 2025.
• June 4, 2025 — Flowserve "merger of equals" announced (~$19B EV): both stocks initially up on scale narrative, then wobbled.
• July 28–29, 2025 — the decisive move: Flowserve terminated, Baker Hughes $210 all-cash signed — a ~22% premium to the undisturbed price. This is the catalyst that converted GTLS into an arb.
• Nov 6, 2025 — HSR clearance (US antitrust gate cleared) — spread tightened.
• May–June 2026 — EU Phase-I review: spread sensitivity now keys entirely off EU headlines (remedies submitted May 21; decision window late June; deadline July 10). Pattern: pre-deal, GTLS reacted to LNG/order cycles, leverage, and dilution; post-July-2025 it reacts only to deal-completion probability. The market reacts to regulatory and macro/energy-policy news for this name far more than to a single customer.

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Phase C — Judge people & books

Management

• Track record (strong, M&A-built): Jill Evanko ran Chart ~9 years (CEO from 2018), architecting the pivot to a clean-energy/industrial molecule-handling platform and executing the transformational Howden deal — then selling the company twice in two months (Flowserve MoE → the superior $210 BKR cash bid). Crystallizing a ~22% cash premium for holders is a genuinely shareholder-friendly capital-allocation outcome.
• Tenure & skin in the game / transition: Evanko departs early 2026 to become CEO of Duravant, staying as senior advisor to Chart through deal close to ensure continuity; the board names an interim CEO from within. Insider-ownership detail: n/a (no our figures on shelf).
• Capital-allocation history: levered up for Howden ($4.4B), then deleveraging discipline — explicit financial policy of no material cash acquisitions until below 2.5x net leverage; $250M buyback authorized Dec 2024 (now frozen under the merger covenant); mandatory-preferred converted Dec 2025, removing the 6.75% dividend drag. ROE/ROIC depressed in FY25 by the termination fee; underlying segment returns solid (HTS op margin 29.4%).
• Red flags: the back-to-back merger flip-flop (agree to Flowserve, pay it $266M to walk, take BKR cash 8 weeks later) is unusual and drew stockholder M&A litigation (two NY suits, since mooted by supplemental disclosures). Not fraud — but it shows a board willing to break a signed deal for a better number (good for this holder, a governance data point generally). No related-party or comp scandals surfaced.
• Archetype: professional manager / serial acquirer-integrator, not founder-operator — appropriate for a roll-up that is now being rolled up into a larger strategic (BKR).

Forensic Red Flags

Acting as a forensic analyst — grounded in filings:

• Revenue recognition (watch): ~77% of revenue is over-time / cost-input percentage-of-completion — inherently estimate-driven (cost-to-complete judgment). Unbilled contract revenue $1,045.6M (a contract asset) is large and growing faster than sales ($986.4M at YE25; $735.1M at YE24) — i.e., revenue is being recognized ahead of billing, which is normal for project work but is the classic place to watch for aggressive POC. The company itself flags that inefficiency-driven cost revisions are expensed when known.
• Cash vs. earnings divergence (real): FY2025 operating cash flow $292.7M but that includes the $258M BHI termination-fee receipt — strip it and underlying OCF was ~$35M against $38.8M continuing net income, with a $219M working-capital drag from unbilled contract revenue. Backlog conversion is consuming cash. Q1-26 OCF was $(248.0)M. This is the single most important "quality" caveat — earnings are not converting to cash while the order book builds.
• Receivables factoring (new, June 2025): Chart started selling trade receivables with limited recourse ($42.2M in Q1-26) — a liquidity-management move that flatters reported operating cash flow vs. organic collection. Worth flagging precisely because it began the same year as the deal saga and the cash drag.
• Goodwill & intangibles (large, but tested clean): goodwill + indefinite-lived intangibles were $3,724.0M = 38.0% of total assets; Step-1 tested, no impairment at Oct 1, 2025. A Howden-overhang risk if industry conditions deteriorate, but not an issue today.
• Leverage: total debt $3,786.8M at coupons of 7.5% secured / 9.5% unsecured / ~6.2% term loan; ~3.5x gross / ~3.2x net on $1.01B adj. EBITDA. In compliance with all covenants at both YE25 and Q1-26. Notes carry a 101% change-of-control put — relevant to the BKR close mechanics.
• SBC: modest ($17.2M FY25) — not flattering non-GAAP materially.
• Off-balance-sheet: the HTEC put option — BDT&MSD can put HTEC shares to Chart for $323.0M ($51.20/share, accreting 11.25% after yr-3); not expected to hit before 2028; a contingent claim BKR inherits.
• Internal controls: effective; Deloitte unqualified opinion FY2025.

Regulatory findings (required):

• SEC Litigation Releases & AAERs: none. Verified via SEC EDGAR EFTS (LR + AAER) for 2021-06-30→2026-06-30 — 0 findings.
• 10-K Item 3 (Legal Proceedings): "Ordinary Course Litigation" only — contract/product-liability/tax/employment/environmental claims incidental to business, none expected to be material.
• Merger litigation: two NY stockholder suits (McDaniels, Johnson, Sept 11 2025) alleging an incomplete proxy — mooted by supplemental 8-KForm 8-KA filing for something that happened between reports and matters enough to tell shareholders now. disclosures Sept 25 2025; only a mootness-fee demand remains. Routine deal litigation, not substantive.
• Non-SEC enforcement (web): no material FTC/DOJ/FDA/penalty hits surfaced for "Chart Industries" beyond the antitrust review of the BKR acquisition itself.
• Net: No material regulatory or forensic-accounting findings — verified via SEC EDGAR EFTS (LR, AAER), 10-K Item 3, and web search as of 2026-06-30. The only "regulatory" item that matters is the EU merger review (a deal gate, not misconduct).

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Phase D — Project & stress-test

Forward Projection

This is a merger-arb, so the relevant projection is a deal-outcome distribution, not a 3-year EPS path. I give both.

(a) Deal-value / spread model (the actual trade) — all-cash $210.00/share vs. last ~$208.50 (June 26, 2026):

• Gross spread ≈ $1.50/share ≈ 0.72%.
• Time to close ≈ ~1 month (target July 2026; EC deadline July 10).
• Annualized ≈ ~9–11% if it closes in ~30 days — before any deal-break downside.
• Break downside: undisturbed pre-deal price was ~$172 (implied by the "22% premium to $210" framing) ]. A clean break could see the stock fall toward ~$170–180 (offset somewhat by the strong standalone backlog and a possible re-rate as a clean-energy/LNG/data-center equipment compounder) — call it ~$30–40 of downside vs ~$1.50 of upside. Classic late-stage-arb asymmetry: small carry, large tail if the last gate fails.

(b) Standalone EPS path (the floor case, if the deal somehow broke):

• FY2025 base: diluted EPS $0.30 GAAP (distorted by the $266M fee); normalized continuing EPS ~$3.50–4.00 ex-termination-fee/ex-deal-costs.
• FY2026 base ~$5.00–5.50, bull ~$6.00+, bear ~$4.00: drivers — backlog of $6.28B (RPO 42% in 12 months) supports mid-single-digit revenue growth as Specialty/HTS orders convert; offsets = tariff margin pressure (Q1-26 GM −5.5pts), high interest cost ($300M/yr), negative near-term operating cash conversion. Margin mix improves as Specialty backlog ships.
• FY2027–28: low-double-digit EPS growth if orders keep converting and tariffs ease. High uncertainty — the order book is real but cash conversion and tariffs are the swing factors.

No our model create (per --watchlist rules + the fact that the binding outcome here is a deal close, not an EPS line). If forced to log one binary, the scoreable forecast would be: "GTLS / Baker Hughes merger closes at $210 cash by 2026-09-30, p≈0.90" — left unlogged in this unattended sweep.

Bull vs Bear

Bull (the arb / deal-completes case):

• All-cash $210, board + 100% stockholder approval secured (Oct 6 2025), US HSR cleared (Nov 6 2025) — only the EU Phase-I gate remains, and remedies have been submitted with both sides reiterating a July 2026 close. BKR is paying a fair ~13.5x EBITDA, has $325M synergy logic and double-digit Year-1 EPS accretion — strong strategic commitment, low walk-away risk. $500M reverse-termination fee if BKR fails to get antitrust clearance caps the acquirer's incentive to abandon. Underlying business gives a high floor: record $6.28B backlog, $1.01B adj. EBITDA, data-center + LNG + Specialty secular demand.
• Contrarian bull: the standalone business is better than the deal-pinned tape suggests — if the EU somehow blocked it, a re-rate of a clean-energy/LNG/data-center equipment leader with a 22%-richer order book could limit the downside materially below the naive "$172 undisturbed" number.

Bear (deal-break / permanent-impairment case):

• EU is a live risk: the Commission can reject the remedies, demand more, or open a 4-month Phase-II investigation. A Phase-II would push close into late-2026/2027, crushing the annualized return and raising MAC/financing risk.
• Financing condition: BKR must actually fund — the merger agreement's forward-looking risks explicitly include "the possibility that Baker Hughes may not be able to obtain sufficient financing".
• Standalone deterioration is real, not just optical: Q1-26 sales −11.7%, GM −5.5pts on tariffs/mix, OCF deeply negative, net debt rising, leverage ~3.2x, receivables factoring started — a broken deal hands you a levered, cash-consuming cyclical with a CEO who just left.
• Expectations baked in price: at ~$208.50 the market prices ~90%+ deal-completion odds — there is essentially no operational upside left and a 15–20% air-pocket below on a break.
• Pre-mortem (18 months out, thesis broke): the EU opened Phase II over LNG-equipment/heat-exchanger concentration, remedies proved insufficient, the deal slipped past the (extended) outside date or collapsed; GTLS reset to the high-$170s/low-$180s into a softening, tariff-hit new-equipment cycle with negative cash conversion — the arb "carry" of $1.50 was dwarfed by a $30+ drawdown.

Are multiples too high? Not for the buyer — ~13.5x EBITDA is reasonable vs peers (FLS 14.3x, IR 14.5x, DOV 15.6x). The risk is regulatory/timing, not valuation.

Devil's Advocate (short-seller)

Dismantling the bull (i.e., the "just collect the spread" case):

• What structurally breaks the trade: the only thing standing between $208.50 and $210 is one European regulator, and the EC has explicitly reserved the right to go to Phase II — a 4-month deep-dive — over exactly the overlaps a $13.6B energy-equipment combination creates (LNG heat exchangers, compression, flow). The market is treating a binary regulatory decision as ~90% done; shorts would argue the tail is fatter than the 0.7% spread implies.
• Revenue concentration / cyclicality: new-equipment demand is cyclical and capex-dependent; LNG/energy project timing already slipped in 2025, and tariffs are actively compressing margins now. On a break you own that cycle, levered.
• Cash quality: the bear's sharpest point — earnings aren't converting to cash (ex-fee FY25 OCF ~$35M; Q1-26 OCF −$248M), unbilled contract revenue is ballooning, and the company resorted to receivables factoring. A standalone Chart at 3.2x leverage with negative working-capital trends and 7.5–9.5% notes is not a fortress.
• Most dangerous competitor bulls underrate: for the aftermarket annuity thesis, the industrial-gas majors' captive equipment/service arms (Linde, Air Liquide, Air Products) plus Baker Hughes' own rotating-equipment franchise — i.e., the synergy logic cuts both ways; a regulator could see the combination as foreclosing third-party equipment buyers.
• Worst capital-allocation optics: paying $266M to break the Flowserve deal eight weeks after signing it — great for the seller who got $210, but a sign of a board that will reverse course, and a reminder that signed merger agreements are not destiny.
• What permanently impairs: a Phase-II block + a tariff-driven margin reset + the cyclical roll-over arriving together. Plausibility: low-but-not-trivial (the EU has not blocked, HSR cleared, remedies are in) — which is precisely why the spread is thin and the asymmetry is ugly.

Management Questions (ordered by information value)

1. What specific EU remedies did Baker Hughes offer, and does the Commission's market test (customers/competitors) point to Phase-I clearance or a Phase-II referral? (the entire trade hinges on this)
2. If the EC signals Phase II, what is the revised outside date and at what point does either party have a walk right or a financing re-confirmation obligation?
3. What is Baker Hughes' committed financing structure for the $210 cash, and is it subject to any market-out?
4. Bridge FY2025 adjusted EBITDA of ~$1.01B to the ~$35M of underlying (ex-termination-fee) operating cash flow — what normalizes in 2026?
5. How much of the $219M FY25 / ongoing unbilled-contract-revenue build reverses to cash, and over what timeline as Specialty backlog ships?
6. What is the run-rate tariff impact on gross margin in 2026, and how much is recoverable via price/surcharge vs. permanent?
7. How durable are the Specialty orders (carbon capture, nuclear, space, marine) — firm POs with advances, or option-heavy/cancellable?
8. What share of the $6.28B backlog carries cancellation/termination protection, and what is the historical cancellation rate?
9. On the HTEC put ($323M, accreting 11.25% post-2028): base-case probability of exercise, and how does BKR view that liability?
10. With the $250M buyback frozen and the deal pending, what is the de-levering path on the $3.79B debt if (hypothetically) the deal broke?
11. What is the interim-CEO mandate and retention plan for key engineering/commercial talent through close (post-Evanko)?
12. How exposed is the order book to US energy-policy / LNG-permitting shifts and to China tensions (58% international)?
13. What is the data-center demand trajectory for Heat Transfer air-cooled exchangers, and is it structural or a 2024–25 spike?
14. Any goodwill-impairment risk to the $3.7B (38% of assets) if the cycle softens and the deal does not close?
15. What contingencies exist if palladium-oxide / special-grade-aluminum single-source supply is disrupted under tariffs?

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