GTLS. Probably not the best day to be pushing an aggressive guide for next year when you disappoint the analysts estimates. To be fair, the updated guide for FY23 was within their previous guide from Q2:
"Our full year 2023 adjusted EPS range is $6.05 to $6.25 vs $6.20 consensus (in line with our prior outlook)"
And, they are reporting a) record backlog, b) record orders, c) record EBITDA as percentage of rev, and strong industry fundamentals:
Highlights include:
Continued broad-based demand with no indicators of slowing ahead.
Third quarter 2023 backlog of $4.1 billion set a new record, following the prior historical high backlog of $3.96 billion as of the end of the second quarter 2023. This reflects strong demand across our business and end markets which we expect to continue throughout the remainder of 2023 and the coming years. Third quarter 2023 orders of $1.13 billion did not include any Big LNG orders and resulted in a book-to-bill ratio of 1.26. We continue to expect one additional Big LNG order around year-end 2023. We are also very proud to announce that during the third quarter 2023 our IPSMR® liquefaction technology was chosen for a major international Big LNG project (modular design) for which the order is expected to be booked in late 2024 or early 2025 and engineering is already underway. We also received another patent for our mixed refrigerant technology in August 2023.
Updating 2023 Outlook and Providing 2024 Forecast.
We are updating our full year 2023 sales forecast to approximately $3.45 billion to $3.50 billion (prior 2023 full year sales forecast of $3.66 billion to $3.80 billion). This is driven by the removal of sales associated with American Fan, Cryo Diffusion, and Cofimco due to the accelerated closing as compared to the originally anticipated closing timing as well as our expectation of the timing of the delayed revenue recognition moving into 2024 primarily from supply chain delivery timing. Our full year adjusted EBITDA is anticipated to be in the range of $745 million to $760 million (prior 2023 full year forecast of $780 million to $810 million). In aggregate, we divested a total of approximately $225 million of annualized revenue at EBITDA multiples in-line with prior Chart transactions, as previously discussed. We expect to see a sequential step up in adjusted free cash flow in the fourth quarter 2023, resulting in a full year 2023 outlook for adjusted free cash flow of $335 million to $350 million, above the mid-point of our prior range of $300 million to $350 million. Our expected full year 2023 adjusted EPS is in the range of $6.05 to $6.25, narrowed from our prior outlook range of $5.70 to $6.70.
Our 2024 adjusted EBITDA forecast of approximately $1.3 billion remains unchanged from November 2022 despite the divestitures we announced year-to-date 2023. We are initiating a 2024 sales outlook of approximately $5.1 billion and an adjusted earnings per share estimate of $14.00 plus. In addition, we anticipate our full year 2024 free cash flow to be in the range of $575 million to $625 million.
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The analysts on the call expressed some concerns about the impact of higher rates on GTLS' customers and their ability to properly forecast the timing and completion of their projects in backlog. Here is an example:
Ben Nolan
So I – first of all, the orders are strong. The guidance is really strong. The backdrop though, in this environment with higher interest rates, it feels a little less certain than maybe it has in the past. In fact, I know, Jill, you would know that one of your competitors, or at least a fraction of their businesses 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 longwinded 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?
Jill 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 in our confidence level, our very high confidence level in these figures, in this outlook, in particular, given our record backlog, record orders 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 base demand where we have multiple end markets that we serve, which, 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 of 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 one synergies commercially in the first seven months of our ownership of Howden. I mean, that shows the combination and that full solution offering coming into our backlog.
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It will be interesting to see what the new estimates are for FY24 and whether that triggers some buying among investors in the coming days. Given the selling today, you'd think that they cut guidance in half instead of providing a new estimate for FY24 revenue and for adjusted eps to more than double over FY23. The current average of estimates for FY24 eps is 10.71/sh. (Projected EBITDA remains the same as before). Reminds me of when CROX got crushed after they announced a big acquisition (Hey Dude) that added a lot more debt to their balance sheet....similar story here. Chart (GTLS) bought Howden a year ago and closed the deal in March 2023. The stock went from 230 down to the low 100s in about 1 month. So its had some brutal corrections before, but it generally recovers because its in a highly desirable niche market for LNG production. The demand seems clear, but i guess the execution risk is what the market is concerned about right now.
