Chart Industries, Inc.

Good morning and welcome to the Chart Industries, Inc. 2020 third quarter conference call. All lines have been placed on mute to prevent background noise. After the speaker's remarks, there will be a question and answer session. The company's supplemental presentation was 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 today's call until Thursday, October 29, 2020. 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 obligation to update publicly or revise any forward-looking statement. I would now like to turn the conference call over to Jill Ivanko, Chart Industries CEO.

Thanks, Andrew. Good morning, and thank you, everyone, for joining our call today. Here with me is Scott Merkel, our Chief Accounting Officer, and we'll talk through our third quarter results, how our recent announcements are already benefiting us, and how our strong order book and backlog is setting 2021 up to be a great year. I'm very pleased with the performance in the third quarter, in particular our order and bottom-line execution amidst active deals both buy and sell side. It's surprising to me, as I read the initial takes from the morning, that people who consider themselves to be interested in the clean energy transition and are long-term strategists have a mixed reaction to the quarter, a timing miss on revenue but not loss to competition, a beat on EPS, and multiple record orders in a variety of diverse applications, coupled with a very strong start to October, seems inconsistent. But hey, let's see if what I share on the call helps you better understand why we are extremely pleased with our current position. As you know, we have spent the last two and a half years executing on various steps to set up the position we are in today. The focus on our core cryogenic engineering and product offering that is a very unique play in the high-growth spaces of clean energy, specialty products, and repair service and leasing is while getting stickier with our customers through broader long-term agreements. We'll walk through the supplemental deck released this morning as we typically do. All figures in the deck and press release are continuing operations. For those who have asked for year-to-date results for the discontinued operations of the cryobio sale, that's included on the last slide of the appendix of the presentation. Starting on the right-hand side of slide three, the blue power sources are where our current equipment offering directly is used. The orange, or letters K and L, solar and wind, are being utilized in conjunction with many of the other fuels. Through our recent partnerships, in particular with green hydrogen provider McPhee, we will be able to participate on more projects that involve a coupling of these types of power sources. I'd like to take a moment to step back on slide four to a few key steps in our transformation over the past couple of years and why they are important in conjunction with our recent announcements that further set us up to be a pivotal player at this inflection point in the ESG and clean energy transition. This is also fundamental to understand our strategy, themes you will continue to hear, and a good way to understand potential upcoming investments and how they will build upon this foundation. So what's different from three years ago? First, we have a lower customer concentration with higher end market and geographic diversity. This came in part as a result of our geographic footprint expansion through acquisitions such as VRV, as well as through the formation of our global commercial team. Year-to-date 2020, we have booked orders with 407 new customers, including 115 related to specialty markets, and 55% of these customers are outside of North America. Second, expanding our stickiness with our customers through long-term agreements that encompass our entire set of products, as well as repair and service. This year to date alone, we have completed 15 agreements, four LOIs, and three MOUs, ranging from the virtual pipeline in India with ExxonMobil, LNG, and IOCL, to equipment for Molson Brewery's new production lines. Historically, we would typically have had no more than five agreements at any one point in time. In conjunction with these expanded LTAs, we have expanded our repair and service footprint, as well as our leasing fleet. offering our customers a one-stop shop inclusive of installation and refurbishment while giving flexibility to our customer and project leads that we would not have had access to without our rental program. And finally, through our acquisitions that have helped us accomplish these strategic building blocks, we have been able to expand our talent, including keeping strategic industry leaders such as the Spada brothers, the former VRV owners, and expanding our skilled workforce in the case of our recently acquired Alabama location. are recently announced by vestiture of the cryo-bio business for $320 million in cash, not only with our final step in selling non-core product lines from our portfolio, it also opened up opportunities for further investments in our high-growth, high-margin businesses, including giving us access to acquire Worthington's cryogenic trailer and hydrogen trailer business, which was completed on October 13th. We have long desired their transport business, based in Theodore, Alabama, we call them Teddy Trailers, not only to expand our hydrogen equipment product line to larger size transports, but also for the key location and manufacturing capacity. The challenge previously was that we competed head-to-head on cryobiological with them, and therefore we were unable to get this deal completed. Once we were no longer competing on those products, it became easier to acquire the business. This past week, which was our first week of owning the business, we have already received commitments for $9 million of hydrogen trailer orders. We continue to generate strong free cash flow, which has been used to pay down debt, as you can see on slide five. We expect the fourth quarter free cash flow generation to be the highest cash generation 2020, with full year expected free cash flow to be between $120 and $140 million, again on a continuing basis. The third quarter free cash flow was lower than the second quarter due to AR collections from the timing of sales, in particular with September being considerably higher than July and August, as well as noticeable customers holding payments at the end of their quarters or fiscal year-ends. For example, we collected over $12 million from one customer the first week of October, $6 million from another, and $5 million from a third. We closed the sale of the CryoBio business on October 1st. The proceeds were used to pay down debt, and as you can see in the bottom left-hand table, the September 30th pro forma net leverage ratio was 1.75%. After the investments we've made in mid-October, pro forma would be 1.98. It's also worth noting that we have $120 million of cash on our balance sheet. This strategic step has also opened up the ability to invest in our target markets, products, and technologies. In addition to debt paydown and the Worthington trailer acquisition, we invested in McPhee, a specialized company in zero-carbon hydrogen production and distribution equipment. Through this, we also executed a commercial MOU, which will give us access to multiple new projects and customers. It has been one week since the transaction closed, and already we have identified and been pulled into discussions on five new projects that we previously would not have had involvement. Many have asked if there are other investments or acquisitions on the horizon. There are three nearer-term potential acquisitions, with nearer-term meaning sometime in the next two to six months if we can get to agreement. All are related to our specialty products or markets, and each would be less than $30 million headline prices. Not to be overlooked are our organic investments. Two that I would like to point out are the hiring of hydrogen engineers and commercial resources globally and the expansion of our leasing fleet. In the third quarter, we hired nine hydrogen external resources to our commercial and engineering teams, enhancing our already meaningful team focused on this growing area. Additionally, we have added 20 standard transports to our leasing fleet with 20 more in process, and we'll expand the leasing fleet to hydrogen trailers. We are already seeing the benefits in our order book from these investments. For example, we booked record repair service and leasing orders of over $35 million in the third quarter compared to the prior record of $13 million. We're continuing to see traction on leasing with eight new sales leases and 18 new operating leases signed in the third quarter alone. Keep in mind as well that we receive interest monies on these leases which is not booked as part of an order. Another immediate impact from these investments has been in hydrogen, as shown on slide six. We've received commitments on orders for $6.4 million and $2.4 million this past week for the Teddy trailer business, and also received a PO earlier this week for $2 million for gaseous hydrogen trailers out of our Germany location. It's worth pointing out that the additional customer discussions from the hydrogen investments have brought attention to our European hydrogen capabilities, including both gaseous and liquid equipment. We currently have discussions underway with 74 different hydrogen customers and have 29 NDAs in place with a subset of those. If we remember, we ended the first quarter with four hydrated NDAs. This morning, we put out a separate press release describing our participation in the U.S. Department of Energy's H2 at Scale Texas project, which intends to show that renewable hydrogen can be a cost-effective fuel for multiple end-use applications, including fuel cell electric vehicles, when coupled with large baseload consumers that use hydrogen for clean, reliable stationary power. We're partnering with companies throughout the hydrogen value chain, including Frontier Energy, Toyota Motor North America, Shell, Mitsubishi Heavy Industries, and Air Liquide on two related projects. All of our recent hydrogen announcements further our commercial reach, as well as collaboration to bring our equipment to this accelerating market. We take every opportunity to expand our agreements to more customers and, again, to be inclusive of our very unique product offering as well as repair and service. This quarter's 10 new agreements, two LOIs, and one MOU show the differentiation and diversity of our product offering. For example, the MOU was for a significant new hydrogen project in Asia, one LOI related to LNG mobile and storage equipment in Africa, while another was for Mocum Brewery's new production line. We've always stated that it's important not to our major industrial gas customers, and in this vein, we completed a first-time LTA with an industrial gas major in the United States, inclusive of bulk original equipment and repair and service capabilities. Five new long-term agreements in Europe were completed, including two for multi-year LNG fueling station build-outs and repair and service. And while our air-cooled heat exchanger business has been the hardest hit this year, we continue to execute on our strategy to be the global supplier of air coolers, manufacturing as close to our customers as possible, and for a variety of applications. In Q3, we built on this by signing an agreement for air-cooled heat exchanger global supply with Flint Hills. We have already discussed our hottest specialty products for our hottest specialty market, which is hydrogen. The great thing, though, about our products is that they are used in a variety of end markets and applications and are molecule agnostic. Other high-growth areas, including water treatment and space exploration, are worth watching, too. Slide 8 spotlights the water treatment aspect of our business. On the last earnings call, we discussed the demand growth in the United States. Since then, we have seen further demand for desalination as a solution for water scarcity in places such as the Middle East. This is the result of further regulation, increasing environmental concerns, and perhaps what is most interesting to me is the desire for there to be power terminals and water treatment facilities built near and in conjunction with each other. This offers us a very unique opportunity. We are currently working with customers in locations such as Africa on their in a network style fashion. Year to date through September, water treatment orders were $10.3 million compared to $6 million for the entire year of 2019. In the third quarter of 2020, we both record orders for six facilities. This is meaningful, as in all prior years, our average for a full year would be equipment for five facilities. Included in Q3 was a contract for $3.7 million with Archer Western for designing and fabricating a liquid oxygen system for the Dallas, Texas water utility ozone improvement project, as well as a $1 million order for equipment for the world's largest wastewater treatment plant being constructed in Egypt. And while we have not yet seen full return to the field from the major industrial gas players, we have seen a considerable ramp in carbon dioxide-related product demand in the last quarter. Specialty products for beverage carbonation, cannabis, concrete curing, and craft breweries are in high demand. Couple this end-use demand with recent CO2 supply disruptions, driving end-users to minimize supply risk with larger volume onsite storage systems, and we have significant order increases for our small, bulk liquid CO2 tanks. 2019 full year for these tanks averaged 137 units per month. Year-to-date September of this year has averaged 155 per month Even more meaningful, though, has been the third quarter 2020 average of 228 per month, compared to January and February pre-COVID levels of 140 per month. And telling you also about first-of-a-kind orders and activities in the first quarter, mainly due to more of them arising around the transition to clean energy. Since then, we have noted a broader set of folk opportunities, or as our team calls them, folking orders, including 23 in the third quarter. From left to right on slide 9, We have executed a three-year inclusive design and supply agreement for liquefaction, truck loading, and pipe for iStore's proprietary liquid air energy system. iStore stores energy using an off-site, electric-driven cryogenic process during off-peak hours, returning that stored energy to the system during on-peak hours. This is targeted for various locations around the United States. The middle first of kind is for the engineering of Straddle Launch's liquid oxygen tank for use on a carrier plane. The picture you see there is their actual rendition. This will also give us a jumping-off point for cryogenic tanks that can be used for other molecules that will fit in smaller onboard aircraft spaces. Just this past month, research showed that the space industry is expected to grow by over $1 trillion in the next decade. Recent NASA grants to companies such as ULA, SpaceX, and Lockheed will further progress commercial spaceflight, which in turn means more equipment for us to supply to various sites back here on Earth. A few recent examples include three tanks for SpaceX's Starship program Raptor engine development, our supply of ULA's Vulcan launch site ground support systems in Cape Canaveral, and for Lockheed, our liquid nitrogen system, they use their acoustic chambers and test their equipment before sending it to space. And finally, our always underappreciated piece of equipment, the doser, as shown on the far right-hand side of the slide. The doser is amazing. It helps customers cut down on plastic in their bottles. It makes nitro coffee. It cans beer and wine. It puts the right amount of molecule into eyelash serum. And now it's being used in household disinfectant packaging of Pinol and Fabuloso in Mexico and South America. To give you a sense of the need for our product and technology in this region for plastic bottle package disinfectants, take Mexico City, where the packaging is done, a high elevation location. The product is then distributed into lower elevated cities, such as Cancun or Guadalajara. Without the counterpressure from liquid nitrogen dosing, the product package will collapse with the change in elevation. The label won't adhere correctly, and in turn, consumers will not pick the product up from grocery store shelves, making these scratch products. I would not have thought I would be telling you that even with the COVID situation unresolved and the election weeks away, that we would have record backlog levels in both of the distribution and storage businesses, as well as an increase of 19% versus the same quarter of 2019 in the base E&C cryobacklog, excluding Calcasieu Pass. Much of this is the result of the organic investments we discussed already and is also driven by record orders in the third quarter, including water treatment and hydrogen, as described earlier, repair service and leasing, driven by our expanded leasing fleet, LNG regas, ISO containers for LNG applications. Demand for these ISO containers, which are intermodal shipping containers capable of transporting cryogenic liquids by ship, rail, and truck, has significantly increased with more movement to small-scale LNG. We had our second-ever HLNG vehicle tank order quarter above $20 million in the third quarter. As a reminder, the second quarter of this year was the only other HLNG vehicle tank quarter with orders above $20 million. We're also seeing activity from geographies besides Europe, including an order from a large Japanese auto company for their on-road trials. And as we mentioned in the release, many of these same customers are working on the possibility of liquid hydrogen onboard vehicles for the future, and we will have a prototype of this design completed before year-end. Finally, we continue to see record order levels for fueling stations, with year-to-date station orders totaling 56. a 37% increase over year-to-date 2019 levels. As we have commented previously, the LNG infrastructure activity is continuing to gain strength, and we expect that to continue over the next several years. We received a meaningful order in the third quarter from a leading LNG logistics company in South China. This order for trailers is strategically significant for us, as this is the first time we've been able to enter the southern region of China for LNG. Governments such as India are taking actions for L&D to continue to play a significant part in their energy transition plans, including plans to increase the share of gas from 6.3% to 15% of the country's energy by 2030. And on September 10th of this year, Minister Pradhan announced that the 11th city gas distribution authorization would launch very soon, extending the coverage of the network to 500 cities. The 11th round will include 50 to 100 districts, and our made-and-make-in-India offering is well-positioned to serve this expanding LNG infrastructure market. Finally, related to LNG, while we only have the remaining $46 million of Calcasieu Pass orders included in our revenue outlook and no additional Big LNG projects, we do continue to expect Big LNG to be upside to our outlook. We received an early engineering release for a Big LNG terminal for brazed aluminum heat exchangers and cold boxes to be used on the natural gas pretreatment train. This is not related to Venture Gold's Plaquemines Project, Chenier's Corpus Christi Stage 3, or Tellurian's Driftwood Project. While we haven't talked as much about COVID-related demand, it's still relevant. Medical oxygen-related orders increased 7.6% in the third quarter compared to the second quarter, making the third quarter the highest medical oxygen-related order quarter of 2020. We had expected to see a reduction to more typical pre-COVID-19 order levels for these applications, but the heightened need for oxygen equipment in India was the primary driver of the increase of this demand. And just early this morning, we received notification of a purchase order for $4 million for oxygen tanks for a customer supplying Egyptian hospitals fighting COVID. Finally, the EMC FinFans business, in particular air-cooled heat exchangers, has not dropped off further than what we saw in the second quarter, but we have not seen a recovery either. October order activity has started very strong in the first 21 days. Let me share a few key wins so far. We've had eight orders already over $1 million, a record hydrogen order quarter, and we're only 21 days in, a strong service order in our ENC lifecycle business for over $1.5 million in Algeria. We received verbal notification that we want an order for multiple LNG semi-trailers in Russia for a small-scale network. we expect that to be booked within the fourth quarter of 2020. And while beverage ended the third quarter strong, with the highest number of units ordered in September in any month since February, October month to date, we have already booked 80% of our September beverage orders. And those are just some examples. Now Merck can give you the cold hard facts of the quarter.

Thanks, Jill. Sales of $273 million were down 19.2% when compared to the third quarter of 2019. entirely driven by E&C FinFans. Excluding FinFans, the rest of the businesses' sales were up 11.1% year-over-year, with DNS East up 20.9%. Year-to-date 2020 sales are down only 3.3% from 2019 year-to-date, or down 4.9% organically, which reflects the diversification of our business. As we frequently discuss, most of our changes on sales are movements between quarters versus lost volume, We had over $22 million of expected sales in the third quarter related to specific projects shift due to customer delivery timing, with the majority of that shifting into the first half of 2021. The breakdown is $12 million in ENC cryo, $4 million in ENC FinFans, and $6.5 million in DNS East. The rest of the shortfall was around the recovery related to beverage equipment, where it occurred later in the third quarter than we had expected that But when it did, it recovered in a bigger bang-for-the-buck way than we expected, and in turn will have a positive impact on the fourth quarter of 2020. Even with certain shipments being pushed out, we were able to deliver reported gross margin as a percent of sales of 28.8%, and when normalized for restructuring cost was 29.7%, bringing our year-to-date normalized gross margin as a percent of sales to 29.2%. We expect the four-quarter gross margin as a percent of sales to be the highest of the year. Gross margin combined with our continued cost improvements in SG&A resulted in reported diluted earnings per share of $0.43 and adjusted diluted earnings per share of $0.63, with the adjustments related to the restructuring for our Tulsa to Texas facility consolidation in E&C FinFans and deal-related costs. Reported and adjusted diluted EPS were both the highest of 2020. SG&A of $41.1 million in the third quarter of 2020 was $38.4 million when normalized for one-time expenses. Year-to-date, we have taken out over $66 million of annualized costs with associated restructuring charges of just over $12 million. This cost out is reflected in our positive trends in both gross margin and SG&A and has resulted in our year-to-date record low normalized SG&A as a percent of sales of 14.8%. Full-year 2020 sales are expected to be approximately $1.18 billion, inclusive of $23 million of venture global Calcasieu Pass revenue in the fourth quarter. We anticipate full-year diluted adjusted earnings per share to be approximately 2.25 cents on 35.3 million weighted average shares outstanding. Our assumed effective tax rate is 19% for the full-year 2020 sales. On to slide 13, our sales range for 2021 is unchanged from prior at $1.25 to $1.325 billion. In keeping with our new tradition of giving an approximate number, we would share approximately $1.28 billion for revenue with associated adjusted diluted earnings per share of $3 to $3.40 on 35.3 million weighted average shares outstanding. Adjusted EPS is increased from our previous estimate, $2.90 to $3.25 per share. You can see the puts and takes on the bridge on this slide, and I'm excited to continue to see the year unfold with many upside opportunities that are not included in our 2021 outlook. We also continue to expect strong free cash flow in the 14% to 15% of sales range. With that, I'll now turn it over to the operator to open up for questions.

Thank you. Ladies and gentlemen, if you have a question at this time, please press star then 1 on your telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. And our first question comes from the line of James West with Evercore ICI. ISI.

Hey, good morning, Jill.

Hey, Jim.

I want to first talk about your base industrial gas business because the If we're looking at all the economic indicators that I'm looking at, consumer and housing is leading this recovery pretty substantially, and we're in a very big V-shaped economic recovery. And so the major chemical and industrial gas providers should be huge beneficiaries because they're early cycle beneficiaries. So I was curious if you could just comment on your conversations when you're talking to Lindy or you're talking to their products or others. You know, what are they saying about – their businesses right now, which should be, I think, in a nice recovery form, and how much is that going to help your kind of base business, X, all the other really positive things you have going on in hydrogen energy, et cetera?

Yes, very much in line with what you just stated is the feedback that we're getting. But let me just step back. We still haven't seen a full recovery to pre-COVID recovery. activity levels on the order side with those industrial gas majors, and that's primarily related to continued travel restrictions for the field installation folks, which is actually very positive, setting us up for Q4 in 2021. So coupling that return to the field with this consumer and housing strength on the recovery, we see upside potential to our base forecast that we have with the industrial gas guys. We also are hearing that the fourth quarter will be very strong. In some cases, these customers are actually telling us that it's going to be stronger than the third quarter, which obviously was recovered fairly well. The other element on the industrial gas players are independent distributors that play in pockets where business may be too small for a major to take or they have a particular product category that they focus in on. And we've seen those independent distributors really come out very strong around the food and beverage side of the business. And there's a lot of quoting activity with those guys, too. So we stand to benefit both from the majors as well as from the independents as we head into next year.

Okay. Okay, great. And then with respect to hydrogen. obviously you're making pretty strong moves on the hydrogen side and partnerships. It seems to me that what's going on behind the scenes is even stronger than what we might be seeing with public announcements here from various hydrogen committees and boards, et cetera, and some of the players in the space. Is that a fair statement to make? And Does that suggest that the hydrogen narrative here, which obviously we need public policy to kind of move this along, but that seems to be there, is that there's a hydrogen business taking off faster than perhaps we or you would have expected, say, three to six months ago?

Absolutely. It's a fair statement that you're making, and You're probably not even making it strong enough to what's happening because there is so much activity. And while the governments and the public sector play a part in it, you'd be surprised at how much the private sector is making investments as well. A lot of the reason we don't elaborate upon it further is that these companies making these investments and working are looking to have a competitive advantage as they do first projects, whether it's marine or transport or fuel. Yeah, I'll just give you an example. We're working with a potential customer on cooling for warehousing and cooling for data sites, that type of activity, where the real long-term answer to achieve these decarbonization goals for companies that have put a 2030 or 2050 target out, is going to have to move toward hydrogen. And in a warehouse case, it's going to have to be liquid hydrogen because of the capacity to store it.

Sure. You know, these customers, I know you mentioned kind of the smaller customers that might get missed, but, I mean, I think some of the other customers are not small. I mean, we're talking server farms for Microsoft and things like Amazon for the cloud computing capabilities and others. I mean, some of the people that we've talked to in the last couple of weeks are, you know, major, major drivers of the economy that seem to be also moving to liquid hydrogen. Is that a fair statement to make?

Another fair statement. The names you just named are absolutely looking to move in that direction, and you could list dozens and dozens more that are of that caliber and that size and magnitude.

Sure, Walmart, for example, yeah.

There you go, exactly. I mean, or you look at it on the other side of the coin, you have the shells of the world and hotels that are also making investments in this area. So you've got multiple industries coming at this at the same time and working to achieve this network. So it is way bigger than I would have even said three months ago.

Right. Okay, perfect. Thanks, Jill.

Thank you.

Thank you. And our next question comes from the line of Walter Liptak with Seaport.

Hi there. Thanks. Good morning. Good quarter.

Thanks, Walt. Good morning.

I wanted to ask, just to stick on the hydrogen thing for a minute, the order intake for the Teddy trailers, that looks like that was like one quarter worth of orders in just like a few weeks. Is that fair? And, you know, I think you guys gave a range of like 15 to 20 million after the orders came in for those Teddy trailers. Do you have to rethink that, maybe increase the number of orders? trailers or the revenue from those trailers over the next 12 months?

Yes. It's accurate to say the first couple of weeks is equivalent to what a typical quarter historically has been. So that's off to a really good start. And I can elaborate on that, that the quoting activity behind that is substantial. So it's not like those were the only orders on the horizon and it's going to go dry. We have a great opportunity to leverage the manufacturing capacity in the Teddy Trailer location, and we intend to be able to do that very quickly here. The historical high number of trailers that were done in that facility was nine, and we're looking to do 20 in 2021. So we're going to see how this quarter orders roll out beyond this first kind of 10 million in the first couple weeks, and that would be the point where we would consider revising that 15 to 20 for 2021. There's also a couple of additional capabilities in that facility that we're going to build upon, and we're looking to increase in the fourth quarter, which could add on capabilities for different equipment that goes along with the trailer. So we'll see how that ramps up in Q4 along with the order book and potentially increase that come February.

Okay, great. Thanks for that. And then on the fueling stations, I wonder if you could give us some color on the fueling station growth, maybe the geographic regions and the applications for those fueling stations.

Yes. And let's separate hydrogen fueling stations just to the total, the 56 number I gave year-to-date on fueling stations. which are primarily on LNG or LCNG. And those 56 are spread between China, Southeast Asia, and Northwest Europe. It's split about half and half from Northwest Europe and China. And certain of those Chinese orders are for export to other Southeast Asian regions. It's fairly widespread demand, meaning across customer bases and across countries within Northwest Europe. But the more recent third quarter has been a higher concentration in Germany.

Okay, great. All right, thank you. I'll get back in queue.

Thanks, Walt.

Thank you. And our next question comes from the line of Eric Stein with Craig Hallam. Hi, Jill.

Hi, Scott. Hey, Eric. Hi, Eric. Hey, so just sticking with LNG, and I'd love to talk about the vehicle tanks, and thanks for all the detail on the overall business. You gave a lot there. But interested by kind of the geographic expansion that you're seeing where you're talking about South America, Russia, and Japan, also different applications such as buses, How do we think about that in the context of the two long-term supply agreements that you have now in Europe? And where do you service that from? Is that something that you're able to do that out of your VRV location in Europe, or is that something where you're going to need a new facility or through a different part of your business?

So I'll start with the back half of your question. We now have production capabilities in both our Georgia U.S. facility as well as our BRV Italian facility. The combination of those two facilities' capacity is about equivalent to $200 million of HLNG vehicle tanks per year. If you look here, we did about $65 million. We thought that We thought come mid-COVID time, we would be down in the $45 to $50 million, but I think it's actually going to return to similar 2019 levels and completely take off from there. The long-term agreement folks, which we have two of that are on these sole source supply agreements for this particular product, some of those are also looking at equipment for other geographies. So while historically they've been focused on the European region, they're starting to order for regions like Brazil and South America. What that does is it allows us to manufacture close to where the product is going to go, and it also allows us to look at the type of tank that they're looking for. Some of these guys have a more proprietary tank than others. In terms of diversification, We've seen a lot of activity in the last three to six months for, as we commented, Russia, which is really around mine haul trucks. In Southeast Asia, in particular in Japan, we've been working on that geography for about seven years, and we feel like we're at that tipping point with this large auto order that we received in the third quarter. If these trials go well, that will be nice incremental business that we don't have included in our forecast for next year. And then the last region that we're seeing quite a bit of quoting activity right now, and it could be in the millions of dollars for any one particular order from this customer, is in the country of Poland, and that's the buses.

Got it. Okay. No, very helpful. Maybe just turning to kind of the overall business, the pipeline, but I guess also big LNG, and I'd love to hear your thoughts on how that's maybe changed or the outlook has improved given that there's been a very significant recovery in the JKM index and the pricing that would underpin a lot of projects.

I'd start by saying yes. We're just so happy that we've been able to decouple the base business from the upside potential of big LNG that we don't want to have anybody revert to starting to include that upside opportunity in our base. But with that said, I agree with your sentiment that there has been a nice recovery even in the last few weeks around the JKM and the pricing side, which bodes well for some of these projects that are on the horizon. So the three we normally talk about, which are Plaquemines, Cheniers, Corpus Christi, Stage 3, and Tellurians Driftwood, we don't have a change in opinion. We've all along said that we believe that at least the Phase 1s will get to FID at some point in 2021. And without speaking out of turn, I think that's fair to continue to have that in our which, just to clarify for everyone else on the line, means de minimis revenue impact to 21, but very nice revenue impact to 22, 23, and 24. In addition to that, Eric, I would say that we've seen some more commercial activity on some of these other projects that we hadn't spoken as much about. So that early engineering release for nat gas pretreatment that we received in the third quarter was for a different big LNG project, one that wasn't one of those three. And then there's some of these international opportunities on the horizon. I'm pretty excited about the potential for a fairly large air-cooled heat exchanger order that ties to one of these projects, which could be sometime in the next three to six months, assuming we're successful in that. And I think we're very well positioned on that.

Okay. Thanks a lot.

Thank you.

Thank you. And our next question comes from the line of Connor Linnegg with Morgan Stanley.

Yeah, thanks a lot. Morning.

Hey, Connor.

I was wondering if you could elaborate somewhat on the acquisition opportunities you were discussing. I appreciate you don't want to get too in the weeds here, but I was wondering if you could maybe just discuss you know, what some of the markets that you're focused on and maybe additionally, what would this look like? You know, should we think of this as something like the trailer capacity acquisition where it's sort of a plug and play capacity expansion? Is it more of a technology acquisition or would you additionally consider something like the mixed fee structure?

So these are all would be full acquisitions, so not similar to the mixed fee structure. They all relate to either process technology or equipment and engineering capabilities. They are very much in line with our desire to continue to grow our product offering, in particular around the specialty products that we've talked about, and not just hydrogen. I should clarify that that's important to note. While we continue to look for hydrogen opportunities, These are – one of them is related to hydrogen, one of them is related to multiple specialty products, and then one of them is related to one of the high-growth markets that I've highlighted in the last couple of earnings calls. Without going into more detail on that, we're extremely familiar with all three of them, meaning that we work together with them, whether it's going together in the current state on projects or whether it's kind of a supply-customer relationship, both directions. So there's, these are businesses we know very, very well. These are really natural fits and two of them are kind of in the similar to size and one of them's closer to that 20 to 30 mark. And I think they're, you know, I guess I we'll elaborate a tad bit more in that there are various different stages. And so, you know, there's two that are a little more imminent, hence we did this three to six month range. So I think there's the possibility that you get two done by January-ish and you get a third maybe in the first quarter.

Got it, a tough one. Maybe to pivot here, FinFans was sort of, you know, one of the weaker spots within the quarter. Can you help us think through sort of how de-risked the revenues or, you know, margins are on that segment? Certainly energy has had a tough time for a while now, and that's a big market there. But can you just discuss, you know, how much of your backlog at this point is from, you know, a better market that seems unlikely going forward or is more reflective of the current run rate? And how should we think about sort of how much is more just, you know, book and ship, you know, versus converting on some longer cycle stuff?

Yeah, this business is more book and ship than the opposite. There's a couple of projects here or there like that $3.8 million one that we commented shifted from the third quarter into either the fourth quarter or the first quarter. But for the most part, this is a book and ship, somewhere between kind of two to five months, depending on the product itself. There's also a consistent revenue stream from the repair side, which is primarily fans, less so on the air coolers. Yeah, I've kind of reviewed the business, seen where we sit. I think we're really bumping along the bottom. I don't see any further precipitous drop-off at this point, and there's a few bright spots out there, but I don't want to give a false hope of a faster recovery than what I think, which is mid-year, 21, starts to come back. In terms of the margins, I think what you saw in the third quarter is what you'll continue to see with some improvements as we further complete the Tulsa to Texas consolidation. We really started that in July, mid-July is when we announced that internally. So, you don't even have a completed move at this point. We do think that'll get done. by the end of the first quarter of 21, and so you'll start to see that return quicker. And we're doing it in pieces, so you should get a little bit of the benefit in the fourth quarter as well as in the first. I would say that from how we've built our outlook, there's more upside than there is certainly downside to that outlook. But again, I'm extremely cautious to provide that because while there's an excessive amount of quotation activity, it's that translating the quotation activity to the order itself, and that's really based on more of the midstream and upstream markets and multiple packagers looking to chase the same projects as they come out and available. I do think that that will change as next year opens up and some of this shut-in activity returns to a more normal state. But bump it along the bottom, Connor.

All right. Appreciate it. I'll turn it back.

Thanks.

Thank you. And our next question comes from the line of J.B. Lowe with Citi. Hey, good morning, Jill.

Hey, Scott.

Hey, J.B.

Jamie, how are you doing? I'm good. I'm just looking at the bridge between 2020 and 2021. It's one of the businesses we haven't talked about yet, that being small-scale NG and pet chem. I'm just wondering, you know, how much of that business is already booked as backlog and you're just going to be converting to revenue over 2021? And then, you know, the outlook for each of those businesses is, is for 2022, is that something that could grow even further in 2022 or more of a steady state? Any help on the small-scale NG side and the Petchem side would be great.

Yes. So we currently have three projects already booked, which equates to just about $35 to $40 million on that line. There's also one that we have the LOI for and we're waiting for notice to proceed, which is another $35 million. and an additional one that our view is it does get across the finish line in the fourth quarter, which would be somewhere in that $20 million to $25 million range. On top of that, there's multiple other ones in the pipeline, but those are really the ones that I believe are kind of over that 90% mark of getting to the finish line. As you look at 2022 and beyond, I think that there's actually a – stair-step up in 2022 in this particular line for two reasons. There are quite a few pet chem projects that got put on hold because of COVID, that they aren't going away, timing around them. And that's not only in North America, but also in places like the Middle East and in Saudi. Coupling that with the small-scale activity that we're seeing in some more of the remote regions like Vietnam and other areas of Southeast Asia. I think that there's a nice build of import terminals, regas, and small-scale export that you see for utilities. So I'm viewing 22 as considerably better than 21 in what you see here.

Okay, great. My other question was just on the timing issues in terms of some things coming in, hitting 3Q versus 4Q and then being pushed into next year. You know, there is some concern that you addressed, you know, earlier in your remarks about how things are just shifting around. But is there something, is there anything specific on the things that have been shifted that we should just be expecting, you know, is kind of, you know, a normal part of the business? Or was it something specific, like a specific project that we've seen some of these things shift into next year?

It's both. So our business does have projects that move in and out between quarters. You know, we always kind of have commented that to us, you know, six months is meaningless. Unfortunately, to some people that's meaningful. We really look at it as have we lost to competition, and we feel like we're gaining market share certainly across the business's with the exception of air coolers where there is no market share to gain, so to clarify that. So there's a little bit of a fundamental nature to our business. Like for us, $25 million on 300 is – that's a plus or minus type of thing in our internal discussions, but I realize that's harder for people to understand. There is also specifics to what shifted this time, and Merck walked through a couple examples of those. The – DNS shifts are really related to customers that were getting back to work from COVID and couldn't accept the shipments. So that's a shorter term type of problem. The larger pet chem project was around the operators looking at when they wanted to take delivery. So frankly, I think that's a timing shift given some of the economic conditions versus the project had an execution problem, but rather, hey, we want to We want to buy a little bit of time before we need to take delivery of this.

Okay, great.

Thanks, guys.

Thank you.

Thank you. And our next question comes from the line of Rob Brown with Lake Street Capital.

Morning, Jill.

Hey, Rob.

On your kind of outlook buildup, you talk about specialty products and service growing at about 10%. That's nice growth, but how do you sort of see that line growing over time? Should it accelerate given the step up in hydrogen and your service focus, but maybe just a sense of what that can grow sort of sustainably over time?

Yes. You went right to the heart of the matter there, Rob. We've seen this surge in specialty products from an order activity perspective, you know, even 30% plus year over year and even 17% sequentially. So, I think we're light there even for 21, but there's, you know, you kind of give this range where there's puts and takes in other lines. So we try to get you kind of down the fairway. I think that that grows more at a 15% to 20% as the years unfold here. So we've now seen a couple of quarters, a few quarters where the orders in specialty have been in that 20% to 30% growth range. And we'll be coming up on a year of that as we enter 2020, which gives you a much better line of sight to be able to see how that's going to flow through your revenue line. So there's upside potential in that in 21, but certainly we expect that to be higher than that 10% as we go into 22 and 23 and from there. Part of that also, we've commented more around hydrogen and how that's ramping, which I think is a big part of this. the water treatment that we commented on. But there's also this – all this activity around the HLNG vehicle tanks, too, I think lends itself to a really nice revenue a few years ahead of us. What happens after that on the HLNG vehicle tanks is I think it becomes part of our regular business, and we calibrate the specialty to make sure that we're encompassing new potential markets. So that's how we're thinking about it.

Okay, great. Thank you. And then kind of going back to small-scale LNG, you talked about a fair amount of that's already in the pipeline. Maybe give us a sense of sort of what's happening there and what new things could develop. Are these isotanks or is it kind of regassed terminals or maybe just what kind of makes up those projects at this point?

So there's two pipelines of activity that they coincide with each other. The LNG ISO containers have been very hot lately, and we expect that will continue. I mean, you've seen the new Fortress news out there, and they're a great customer of ours. That relates to this growing trend towards small scale, and that's focused in North, South America, the Caribbean. We're seeing that trend also start to happen in some of these new build locations like Indonesia, Myanmar, Vietnam, as well as in India. India, we haven't touched much on ISO containers, but in 2021, that's when we moved to commercial production with ExxonMobil, LNG, and IOCL on the virtual pipeline, which our main product for that virtual pipeline is ISO containers. So as that particular project ramps up, there's quite a bit of activity that will be related to that. On the terminal side, these obviously take a little bit longer to get from pre-feed engineering to FID. because they are more of that upfront capital cost for a full terminal, somewhere between $100 and $140 million, with our portion somewhere between $10 and $35. Yet, this is another area that we expect to continue to step up, especially as the network continues to get built out, and especially as utilities make their decisions around how they're going to handle peak shaving. This is In the United States, the hottest topic in the northeast of the U.S. is where we're seeing the most activity and I think has breakthrough potential there. And then regas is primarily related to Southeast Asia, where the pipeline of order activity is for us.

Okay, great. Thank you. I'll turn it over.

Thank you.

Thank you. And our next question comes from the line of Ben Nolan with Stiefel. Hey, good morning, Jill Scott.

I wanted to touch on something that you mentioned, I think it was in the press release, about an order that you had for gaseous hydrogen. I assume that is pressurized. Is that correct? Is that how I should interpret that?

That's correct. So the orders were for gaseous hydrogen trailers or transports, and that is pressurized, yes.

And, you know, obviously you guys are are really cryogenic focused. But I was curious just how big of a business that is. I think there's a lot of, or at least we've heard a lot of discussion about, yeah, hydrogen can grow and we'll see, you know, how much of the business is clear transportation business cryo versus pressurized. It depends on, you know, how far you are from the source of consumption and everything else. But could you maybe talk through that a little bit and how – how your position aside from the cryo aspect of it?

Yes. And it also, too, all the comments that you just made on top of that, it's also regional in terms of preference. So we see much more liquid, which is cryogenic, in the States in particular. In Europe, it's still very much gaseous. And that's where these particular trailers are for and are being made. Our capabilities for gaseous hydrogen transports is out of our Germany facility or our GOFA facility. And we do all kinds of trailers out of that facility. So again, agnostic to the molecule, agnostic to the use. And we have plenty of capacity in that particular facility to continue to do that. It's our intention that we have that capability as well in the United States. and we also do trailers out of our India facility, and we do some transports out of our China facility. So we're well positioned regionally because obviously these are not something you're going to ship on the water. These are going to be made close to where they're going to be used. In terms of the size of that business, it's fairly small right now. The majority of our hydrogen is I'd say 75-25 split of liquid to gaseous is the current state of our hydrogen activity.

Okay. No, that's helpful. I appreciate it. And then the follow-up, I was just curious, given sort of how you've seen the ramp up in the leasing business but also new water flow and everything else, has there been any change in the way you're thinking or aspiring to get to with respect to recurring revenue and the mix of revenue? or is it playing out the way that you thought that it would?

There's been no change in our thinking on that, and it's stepping along as we thought it would. The recent agreements and the agreements are setting us up to continue to move toward that target.

Okay. Perfect. Thanks.

Thanks.

Thank you. And our next question comes from the line of Pavel Malkinov with Raymond James.

Thanks for taking the question. Back to M&A, one of the capabilities vis-à-vis recurring revenue that you guys have not historically focused on is software of various kinds, but of course anything related to the energy transition, SAS is getting more and more attention. And I'm curious if you would be open to bringing some software capabilities in-house through an M&A deal.

Yes, absolutely. And darn it, Pavel, you're like a mind reader on this stuff. One of the three that we're talking about does have that capability for a specific product category.

Okay, got it. Hydrogen, and specifically electrolyzers, as part of the European climate law, which is still pending, not final yet, but supposedly 30 gigawatts of electrolyzers by 2030 is going to be the target. From your perspective, would you be interested in getting into electrolysis in a direct sense, or would you just kind of limit yourself to storage and the more ancillary parts of hydrogen?

Yeah, we'll stay focused on the equipment, but a lot of that equipment can be used in the electrolysis process itself. In terms of owning the molecule, that's not something that is in our strategy, for the least of which is we're not experts at it, And then the second quick follow-on to that is we have great customers that are really good at that, and we make our money on the equipment that goes into that. So we'll definitely see a commercial benefit, especially in the EU, as you referenced, but that will be for equipment at those locations.

Okay. Thanks very much, y'all.

Thanks, Pavel.

Thank you. Thank you. And our next question comes from the line of John Walsh with Credit Suisse.

Hi. Good morning. Good morning. I wanted to talk a little bit about the cash flow. So you called out some timing. You know, when we look at you're running, I think, the 83 million year-to-date is the correct number to use. As I look to Q4, which is usually always a good cash quarter for you and the range you have out there, is there anything we should be aware of as we think about it? Because it would seem like, you know, that range is definitely very achievable, at least as we look at it.

We feel the same way, John, and you're accurate that Q4 is typically a good cash quarter. We think this Q4 will actually be better than the typical Q4s, for the combination of the timing of our sales as we are getting through the pandemic, I guess is a better way to say it. Also, some of that cash collection activity that I briefly referenced. And we did build that inventory up at the beginning of the COVID timing in March and April, and we're still seeing that kind of drive down. Couple that with the HLNG vehicle tank timing of the order to shipment We've got a large, very large order at the end of June and then a ramp up of larger orders at the end of the third quarter. And so we'll see some of that bleed off as those get shipped in Q4. So those would be only kind of atypical items, which would be more positive impacts to above a typical Q4.

Gotcha. That's helpful. And then You know, maybe just a finer point around some of the opportunity here with the balance sheet. I mean, if we go back to the last analyst day, you talked about a target leverage sub two turns. Obviously, you've changed the portfolio since then. Is that still where you're comfortable? Or, you know, it sounds like there's some things here that maybe we'd flex up and come back down to that level? Or do you think you can actually run a little bit higher now that you've remixed the portfolio?

We could run higher, but we don't have any desire to. Our sub-two is certainly achievable with the cash that we generate on an ongoing basis, even with these investments. We kind of ran and said, all right, if we spend $20 million tomorrow, leverage goes up to $205, something like that. But then within a month, it's back down under $2. So our internal thought process is we like being in that low leverage point. We like having cash on hand. but we're not handcuffed to continue to invest in all the things that we've described. So we are very pleased with where the balance sheet sits today.

Great. Thank you. I'll pass it along.

Thanks, John.

Thank you. And our next question comes from the line of Mark Bianchi with Callen.

Hey, thank you. Hey, Mark. Just, you know, I'm working the math over here on my end, and it very well may be wrong, but if I look at kind of what's implied for the 2021 gross margin, it seems to be in kind of the 28%, 29% range, and recognizing I could have that wrong, but just curious if you could comment on what's embedded for gross margin, and, you know, if it is down from where you're exiting the year here, is there something specific driving that, or is it just sort of conservatism?

We actually are at... 29.8% for 2021 in our internal thought process and modeling. So I'm not sure where the disconnect is there.

Yeah, no, we can definitely follow up on that. How do you see that playing out as the year progresses? I mean, do you think that it's pretty even over the course of the year, or is it exiting at a higher rate than the average? And what are some of the puts and takes maybe in the low end and the high end of guidance as you think about gross margins?

So to step back, we're exiting 2020 higher than the average, meaning that typically your Q4, your Q1 and your Q4 in our business are the lowest sales type of behavior, which in turn drives the margin down a tad. We think we'll exit this year very, very strong on gross margin as a percent of sales. And that will hold as you head into 21 and Q1. And that will, from there, We actually build it with line of sight to step up on margin as the quarters go on in 21, which is somewhat related to some of the timing on when we know, for example, a trailer is going to ship or one of the small-scale terminals is completed based on POC rev rec. So next year is probably a little bit different, which, frankly, if next year happens the way that we expect it to from a margin, I'd consider that the new norm.

Okay, super. And then the next question I had was kind of related to this hydrogen and LNG opportunity that you guys have discussed before. We've got the sort of three-year revenue opportunity of over $2 billion for LNG and then the three-year TAM of $1.1 for hydrogen. I totally recognize the hydrogen piece is a little bit more back-end loaded, but maybe just to set Set a baseline for us. You know, what's embedded in this guidance for 21 for total hydrogen revenue and total LNG revenue? And then how do you see that growth rate progressing?

Yeah, so for hydrogen, we're between 30 and 40 million. And then for LNG, let's see, you've got to include the 23 for Calcasieu Pass. And then you've got about 40 on small scale and a typical kind of $125, $150 on top of that. So you're in the $300 million range on specific LNG. And then there's a lot of equipment around LNG that is on top of that, which would be considered in our typical distribution and storage, either bulk or micro-bulk business.

Okay, and any thoughts on growth rates just sort of heading into 22 just to give us maybe a placeholder to think about?

Okay, I'm going to go out over my skis. I think that nitrogen, oh, you know, it was Rob Brown that hit on it a little earlier kind of on specialty markets in general. You know, we broad brushed this at 10%, and we're probably getting to that tipping point where – We can't use the excuse that we don't know enough anymore. So hydrogen easily is a 25% grower from 21% into 22%. LNG, separating out big LNG, okay, because I'm not going to comment on that. But on the LNG in its entirety, we'd probably place that between 7% and 9% growth, 21% to 22%.

Yep. Okay. And maybe just one more if I could. In terms of these targets, the $2 billion and the $1.1, when do you think or what are the types of milestones that you think you need to see and the market needs to see to really start plugging those into real kind of visibility and something that we can kind of count on? What are the news items you're looking for?

So I'd split LNG between the LNG export terminals, so the mid-scale facilities, which is in just about $750 to $1 billion type of dollar size for our content, because that's wholly dependent on the projects that already have regulatory approval getting to FID. So we are bullish that they do at least phase once, and that's really what to watch for. If you see If you see any equipment provider say that they got notice to proceed related to any of these big projects, then that's a pretty good indicator that FID already happened or is going to come in the next 24 hours. The remaining half of that LNG is already out there and happening. So it's less around any particular pricing of the gas or any particular government that needs to do something. because these are well underway. So these are half-baked markets and infrastructures that need to continue to be built out. So it's really just timing on the orders and as these players get their infrastructures built out. And as I commented in my prepared remarks, we're very excited about the opportunity with this 11th city gas network in India, because that's 50 to 100 new potential stations as an example in that time period. Hydrogen is very different. You're seeing quite a bit of pilot activity and government stimulus money, but I think there still needs to be a way to figure out how to get scale up and cost down. So I'd be watching for continued government announcements around hydrogen, because that's been the number one way with grant money that these projects have gotten off the ground. And I also would watch for continued announcements where players are actually operating a plant versus talking about doing something in the future. So, for example, Plug Power is a great customer of ours, and they have it figured out because they're actually doing it, which is different than saying I'm going to do this project in the next five years and have a production-ready vehicle in 2026. So those are the types of things that we watch for amongst our customer base.

Awesome. Thanks so much, Jill. I'll turn it back.

Thanks, Mark.

Thank you. And our next question comes from the line of Chase Malthill with Bank of America.

Hey, good morning, Jill. Hi, Chase. Hey, quick follow-up on Bianchi's question. You know, I think when you talked about the margin profile included in 2021 guidance, just to be clear, that only includes big LNG for one quarter, correct?

That is correct, yes. So only $23 million of revenue, and that's all in the first quarter.

Okay. All right. So obviously that's very margin accretive. So if you end up having big LNG, margins would be higher. Is that right? That is correct, yes. Okay. All right. And then coming back to hydrogen, when we think about the hydrogen build-out, you know, are you better positioned to benefit more, you know, in the U.S. or internationally? And then also could you maybe talk about your positioning on, you know, smaller, more regional-based hydrogen projects like, you know, things that Plug are doing versus kind of larger, more global projects like air products and Saudi Neom's projects?

All of the above. So let me take your regional question first. As we stepped back and talked through kind of what we've done over the last two and a half years, a key part of that was we wanted geographic locations for manufacturing our products and being able to do that in each region. And we're able to do hydrogen manufacturing in China, in India, in Europe, as well as in the United States. That's a key part of keeping that cost down when your consumer, when your customer is looking for buying equipment. It really has to be local. So we're very well positioned there. On the small versus large projects, our major industrial gas customers have been front runners in hydrogen production in plants and equipment, and we continue to expect them to play a big part in this particular topic. We're positioned with them as they look to scale and participate in projects like the H2 at Scale Texas that we talked about this morning. On the smaller infrastructure and the more localized infrastructure, we also have good direct relationships with the players that are taking on a regional estate or a particular country location. That's even further enhanced through some of the partnerships collaborations that we've recently had. I can't I won't and I can't because it's just not true to say we're better positioned in one or the other. We're very well positioned in all of that.

Okay, perfect. Good to hear. I'll turn it back over.

Thank you.

Thanks.

Thank you. And our next question comes from the line of Greg Lewis with BTIG.

Hey, thanks, and good morning, and realizing this call is running pretty long. You know, just one for me, Jill. You kind of touched on it, you know, around desalinization and what that is. I guess my question is, as you start to kind of gain traction into hydrogen and just thinking about the water aspect of hydrogen, Are your customers at all – have discussions started around the opportunities for your desal into hydrogen yet? That's all for me. Thanks.

Hey, Greg. Fantastic point, and thank you for listening carefully to our messaging. Yes. The short answer is yes. And it's – in my prepared remarks, I commented on the combination of water treatment, desalination, and power source. It's not limited to just LNG in combination with that. Whether it's the treatment facility or the utilization of the molecule into the production of the other molecule, both of these conversations are happening. And we think that without going into detail of how our technology works together, that combination is going to be really meaningful and unique to chart as these types of projects get going. So that might be more of a medium-term comment that I'm making. And, again, I don't want to give competitive advantage away, but I think that has a lot of potential.

Thank you. And our next question comes from the line of Craig Shear with Tooley Brothers.

Good morning. Thanks for taking the question. Hi, Craig. Good morning. One clarification. I realize that it's really unclear where the hydrogen is going to come from and if today's exporters of LNG may in fact or entirely not be the same as major suppliers of hydrogen in the future. But one question I have is I'm a little confused about what it takes to liquefy the stuff at the lower temperatures and if existing small-scale or large-scale facilities domestically or worldwide using your technology, IPSMR, or other technologies, can be tweaked to support the hydrogen or not?

Yes. So we, our IPSMR process technology, with some tweaks, which our team already has done, can liquefy hydrogen. Coupling that with the brazil aluminum heat exchanger, which goes into liquefaction as well, we're in a good position. I would clarify that we want to make sure that we are agnostic, our equipment is agnostic to which process. So it's great if we get liquefaction opportunity for hydrogen, but we also are happy to have our equipment work with other hydrogen liquefaction processes. The other part of your question around how liquefaction occurs really goes more into not just the process, but how the equipment works with that process because it has to withstand very high pressures and very low temperatures at the same time. And that's probably our biggest competitive advantage in that we've been doing these for 50-plus years, and our equipment is certified. It withstands a lot of the metal hydrogen embrittlement challenges that are out there. So the liquefaction part of it, yes. I think that's something that easily jumps off from LNG. The equipment or the pipelines is a different story.

Excellent. And one last clarification. If you were to convert an existing LNG facility, say 10 years later, to support hydrogen, what kind of time and expense does that involve?

So, the answer to that is, if that gets solved, and whether it's LNG or any other existing infrastructure, if the utilization of existing infrastructure gets solved to pull hydrogen through, you're probably talking about, you know, 50 to 60 percent cost reduction for the hydrogen cost challenge. So, that would be a really nice win if that gets figured out. There's kind of common consensus in the industry that you can put 20% to 25% hydrogen in an existing pipeline and not create a problem, but that's a 30,000-foot level. There's a lot more challenges around equipment that happen from there. Nobody has solved that. I don't have a good answer on that, Craig, in terms of can it be done and how easily can it be done. We're working on it more from how can our equipment work together with a shift between molecules versus the transition of a full existing export facility to a production or electrolysis facility.

Understood. Thank you. And with that, I will now turn the call back over to CEO, Jilly Banco, for closing remarks.

Thanks, everybody, for joining us today, and a big thank you to our chart team members who continue to impress me each day with their efforts to make this company even better. We'll talk to you very soon. Thanks, Andrew. Goodbye.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating, and you may now disconnect. Thank you.