Chart Industries, Inc.

Good morning, and welcome to the Chart Industries, Inc. 2021 Third Quarter Results 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 release and 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 the call until Thursday, October 28, 2021. 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 statements. I would now like to turn the conference call over to Joe Ivanko, Chart Industries CEO.

Thanks, Gigi. Good morning, everyone, and thanks for joining us today for our third quarter 2021 earnings call and update to 2022 outlook. With me today is Joe Brinkman, a Chart Industrial Gas veteran and now our CFO, who will take you through the quarterly results later in the call. Today's discussion is twofold and similar to what you've heard, I'm certain, from other companies. First, the near-term macro challenges that we faced in the third quarter, their impacts on our quarter, and what actions we have and continue to take in order to manage through it and come out with a structurally higher margin profile amidst what we expect to be record-setting years ahead. And second, the continued strong broad-based order activity we're seeing for which all indicators suggest underlying demand for our products will continue. So starting on slide four of the supplemental deck that was released today, our third quarter 2021 orders of $350 million demonstrated continued demand across the business and were significantly above our expectations coming into the quarter, which were around 300 million-ish, considering that we did not expect nor did we get any large local faction orders within the third quarter. This quarter's order level was 33 percent above the third quarter of 2020, and brings our year-to-date order levels 53 percent higher than the first nine months of 2020. Additionally, specialty products orders grew over 100 percent this quarter versus the third quarter of 2020, and over 150 percent for the year-to-date timeframes. Cryotank Solutions has also shown impressive growth in these periods, growing 35 percent for the quarter and 53 percent for the nine months. Third quarter orders contributed to our fourth consecutive record backlog quarter, with backlog now over $1.1 billion, stepping up our confidence in our 2022 outlook, as well as now seeing a trend to quarterly consistency at this higher level of order activity. Going to the left-hand side of slide four, which demonstrates what we believe is our expected new normal quarterly order levels, what in pre-COVID and pre-clean energy times, or 2016 through 2019, was an average of $238 million of orders a quarter, is now consistently above $300 million a quarter. A few additional items to note around our order activity in the quarter. We booked 60 orders in the third quarter that were greater than $1 million each and 152 of those this year. The third quarter was our second one in a row with 60 orders greater than $1 million. We also had 21st of kinds and orders with 65 new customers. Year to date through the third quarter of 2021, all of our specialty products categories orders have exceeded their respective full year 2020 order levels. So said differently, in our first nine months of this year, those specialty products orders, all those categories are above the full 12 months of 2020. Q3 beverage orders were up 68% over Q3 of 2020, which is quick book and ship business and quoted with current material cost levels. So a section of this business that has not experienced the margin erosion from escalating material costs. We are beginning to see somewhat of a recovery, albeit later than we had anticipated, in our traditional oil and gas markets, inclusive of upstream and natural gas compression, evidenced by air-cooled heat exchangers having the two highest months of orders in the year of 2020, 2021, excuse me, in August and September, and the third quarter of 2021 being the highest order quarter of the year for air-cooled heat exchangers. Another example of our products being agnostic to the molecule, so we're positioned to benefit as oil recovers while the energy transition continues. So now let's turn to the details on the cost burdens and what actions have been taken to offset the expected continued drag from higher than anticipated costs on slide five and six. While we expect the third quarter of 2021 was the bottom in terms of the negative margin impact from these cost challenges, as some of them have been completely mitigated while others persist and will gradually improve with offsetting actions taken, we expect subsequent quarters margin improves yet we also are tempering our next quarter outlook both for sales timing shifts as well as for the cost pressures. We previously indicated that we anticipated that in the third quarter of 2021, we would need to monitor whether material costs and availability were improving or getting worse and then respond quickly. Things did get worse in the quarter, and despite the strong order and backlog growth, supply chain labor and logistics issues weighed on our results. We responded quickly with surcharges, additional price increases, and operational cost reductions yet none of our in-quarter actions were immediately impactful to margins within the quarter itself. We are currently projecting the timing of backlog and pricing surcharges, as well as normalized labor and operational efficiencies resulting thereof to result in a stair-step return to typical margins with step one of the staircase starting in Q4 and continuing through to Q2 2022, which is incorporated into our 2022 outlook. Let's step back and get into the challenges and what we've done about them. Slide 5, row 1, shows how material costs continued to rapidly increase in the third quarter of 2021, increasing another 12% in stainless steel, 18% in aluminum, and 24% in carbon steel from June 30th to September 30th. We implemented a broad price increase on July 1st, yet given the timing of our backlog and the in-quarter cost increases, we did not see much offset in Q3. Additionally, we added a surcharge to all new orders starting in the middle of the third quarter of 2021, and have already issued another price increase in October 2021. Our project-based work allows for current material pricing and bid validity, so all of those quotations have been updated as well. The second row shows the supply chain disruptions, whether port congestion, availability of drivers, trucks, containers, materials. Obviously, none of this is chart-specific, and our teams did work to minimize the sales timing shifts due to supply chain disruption. This furthered, though, the grab of safety stock where we could, in turn impacting near-term free cash flow. Speaking of availability of drivers and trucks, the third row shows an often less discussed but highly disruptive, unanticipated challenge that we faced from August 11th until October 7th. Force majeure was issued to industrial gas customers, including us, from our industrial gas supplier on nitrogen and argon allocations due to their need to respond to the resurgence of COVID-19 oxygen needs, in particular in the United States. While we were in the privileged position to use one of our own cryogenic trucks from our leasing fleet and hire a certified driver through our distribution network to deliver gas to keep our production running, this disruption certainly added cost and inefficiencies to our operations. On a positive note, this force majeure has been lifted as of October 7th, and allocations are currently back to normal. Moving to slide six, row four, we face the issues of availability and cost of labor, including COVID-19 labor impacts. We believe we have taken enough actions to not have the fourth quarter impacted by the labor challenges, with the exception of the direct labor hourly wage increase, which is not temporary, and put in place in the third quarter in response to our need to retain and hire a significant number of production team members. We hired 372 people in the quarter, and over 98 percent are still with us. While we will continue to incur the wage increases, we also, in the quarter, utilize sign-on incentives which negatively impacted expenses but are not embedded into the base pay. The second labor challenge, which has dramatically improved in October to date, was the resurgence of COVID-19 through our U.S. manufacturing facilities. From August 1st to September 30th, we had an average of 3.7 percent of our production workforce at key facilities in the United States out with COVID by week. Month to date in October, we have had very few direct labor in these shops out. This created additional operational inefficiencies changes to schedules, and additional shifts with our direct labor covering different areas of the shop. We had two of our production facilities briefly disrupted by Hurricane Ida during the quarter with lost work time. These were temporary impacts, had no ongoing or permanent damage or impact. And finally, we anticipate and have planned for ongoing Chinese energy enforcement at our locations in China. We have numerous mitigation strategies in place as needed, but at this time, our China operations will have weekly power supply changes as either five normal, two restricted, or four normal, three restricted, which, if the current situation remains throughout the quarter, will allow us to hit our Q4 midpoint China forecast, barring no further restrictions. We've been continually responding to the material cost changes as well as the other cost changes through price increases and surcharge. You can see on slide seven the increases to material costs on the top half of the slide. Since the beginning of the year, increases of 33%, 40%, and 65% in stainless aluminum and carbon steel, respectively, are three main raw material categories. The first 20 days in October, we have seen stabilization in carbon and stainless steel, yet aluminum continues to increase in cost and decrease in availability, given the situation with magnesium. With that said, and before I get into the necessary pricing and surcharges we have put in place and the rationale for the differences between the approaches, Let me address our comfort level on safety stock. As you're aware, since the beginning of the year, we've been adding safety stock where it makes sense, temporarily driving inventory balances higher than typical and thus impacting free cash flow. Yet this strategic decision has allowed us to not have had any material missed deliveries for our customers. For example, we've locked in certain one- and two-year contracts, securing the first half of 2022 with cost savings compared to current levels based on the timing of when we secured the inputs. Regarding pricing, we do not anticipate material cost to increase as they did respectively from the end of Q2 to the end of Q3. When we saw this, we implemented a surcharge effective mid-quarter in addition to the pricing changes implemented July 1st and the re-quoting of all material for open bids on projects with bid validity timing. Even with these changes, that was not enough to keep up with the rapidly accelerating costs. Therefore, we have implemented another price increase into effect for all new orders, which will be both temporary and permanent depending on the product. We've worked with and continue to work with our industrial gas customers that are under long-term agreements to assist us with utilizing the material cost pricing mechanism in those agreements more frequently, considering these inflationary times persist where a quarterly lag in the adjustment mechanism just isn't effective in hyperinflationary times. And to our customers who have been fantastic to work with on this and support our longstanding relationships, This mechanism will return to their regular schedule, whether quarterly or semiannually, as macro conditions temper. A big thank you to each of them that have been working with us to ensure we are able to deliver their product as desired, but do so without negative harm to our business. And a second thank you to those who are working with pre-price increase backlog to appropriately support additional material pass-through costs for certain existing orders in our backlog. You will note that we have structured these increases in two different manners that's on purpose. The first is that some of our pricing will remain at higher levels after the cost situation tempers and returns to normal, which would be a typical action on our part periodically to adjust pricing. The second is around surcharges, which are temporary, albeit indefinitely temporary at this time. So we will have certain price stickiness while being fair to our customers as they're working to be fair to us. I'm now going to hand it over to Joe to take you through our structural cost actions and the third quarter results before I talk about our 2022 outlook.

Thanks, Jill. Slide 8 shows certain organic structural costs and capacity actions. What you see on the slide captures two goals, the first to operationally reduce costs and the second to ensure we have the appropriate capacity in the appropriate locations to meet our customers' lead time demands. On the left-hand side of the page, you can see a subset of our cost reduction actions taken or underway in the third quarter. This is certainly not a comprehensive list. We have consolidated our Tulsa air cooler production to our Beasley, Texas manufacturing location, creating a flexible manufacturing facility in our Tulsa location, which is in various stages of starting up, depending on the product line. Adding the flexible lines in Tulsa gives us access to skilled talent, and allows us to move bottleneck production from other locations. For example, our move of vacuum-insulated pipe and sub-assemblies from New Prague, Minnesota is complete, and the associated benefits are anticipated to begin in the fourth quarter of 2021. The same Beasley location is set to house our Houston repair and services business, which over the course of the next few months will consolidate from our standalone Houston repair site. You can see some of the other efficiency moves underway on the slide, both in the U.S. and in Europe. Lastly, we continue to refine our SG&A structure with specific position eliminations taken in the quarter. On to slide nine, third quarter 2021 sales of 328.3 million increased over 20% over the third quarter of 2020, and organically 13.4%. As a reminder, the third quarter of 2020 included approximately $25.6 million of venture global Calcasieu Pass sales, and the second quarter, 2021, had approximately $5 million, while the third quarter of 2021 had no associated Big LNG revenue. Excluding sales from the Big LNG project in the respective periods, organic revenue increased 25.2% in the third quarter of 2021 when compared to the third quarter of 2020. and 13.6% year-to-date 2021 when compared to year-to-date 2020. Third quarter 2021 sales included records and sequential quarterly growth in specialty products and crowd tank solutions. CTS sales increased 14.7% sequentially from the second quarter of 2021 and 10% versus the same time last year, while specialty products increased 9.5% sequentially from the second quarter of 2021 and 108.8% from the third quarter of 2020. Repairs, service, and leasing and specialty products comprise 49.7% of our total net sales, the second quarter in a row at approximately 50%, and compared to 34.1% for the full year of 2020. Our third quarter 2021 gross margin was negatively impacted by the cost Jill described. Reported gross margin as a percent of sales of 22.8%, included one-time costs associated with facility startup costs, integration, restructuring, and facility consolidation. When adjusted for the one-time costs, adjusted gross margin as a percent of sales was 26.5 percent, reflecting the cost burden we experienced within the quarter from the rapidly increasing freight, supply chain, and material costs. Adjusted gross margin as a percent of sales is flat to the third quarter of 2020. when excluding big LNG and a sequential decline from the second quarter of 2021. The challenges were less impactful to the adjusted gross margin as a percent of sales for specialty products and repair service and leasing. Specialty products adjusted gross margin as a percent of sales was just over 37%, consistent with the second quarter 2021 and indicative of the profile of that business. The specialty products business is predominantly either project-based pricing with near-term cost validity or product with faster book-to-ship timeframes, capturing more current costs in our ongoing pricing. Repair service and leasing adjusted gross margin as a percent of sales of 28.7 percent included restructuring charges related to our decision to consolidate the Houston, Texas repair facility. RSL adjusted gross margin was a sequential increase of 510 basis points in the second quarter of 2021, which had a low margin shipment from China backlog included in it. The most challenged gross margin and adjusted gross margin was in heat transfer systems. Given the heavy material content in the segment, lost production time, and higher margin project-based revenue recognition timing. Sequential second quarter 2021 to third quarter SG&A increases are driven by the additions of LA Turbine and Ad Edge. Jill will talk about the next few quarters, timing of cost offsets, and larger project margin impacts in a moment. Slide 10 shows our third quarter and year-to-date adjusted non-diluted earnings per share of 55 cents and $2.09 respectively, including any activity on our mark-to-market of our investments, which was a net positive impact in the third quarter as well as year-to-date. Adjustments to earnings per share related to specific one-time cost for restructuring, severance costs, start-up facilities and production lines, and other non-repeating items. We have not included add-backs from negative production or efficiency impacts from the challenges you hear about today, given that our guide anticipates certain continuance of them, as well as the timing around our expected offsets resulting from the structural actions you heard about. In an effort to be more time-sensitive to prepared remarks and Q&A, We have included segment-specific details and first-of-a-kind and new customer information in the appendix. Additionally, we frequently get the question of timing of the 10Q filing. We plan to file it later today.

Slide 10 does not mean that we will be giving quarterly guidance going forward, but rather we wanted to provide more specificity about the coming quarter. By way of background on how we thought about the fourth quarter, our team is built into some additional contingency in the sales and earnings outlook for the fourth quarter compared to how we would normally guide, assuming that the supply chain shipping and freight challenges might not improve. On slide 10, you can see the walk from our prior approximated internal sales forecast to the low end of our prior outlook range for the third and fourth quarters, and that's shown on row one. And the larger moving pieces in rows two through nine, which are not wholly comprehensive, but consolidate the largest movements, including timing of heat transfer, system projects and backlog and notices to proceed. These updates result in our updated low end of the sales range for the fourth quarter of 2021 of $370 million. The range is $370 million to $390 million for the fourth quarter. As mentioned, this is entirely due to projected revenue timing shifting to 2022, none of which is lost revenue. Our new guidance results in expected 11% to 13% sales growth for the full year 2021 compared to 2020. Slide 11 shows our current 2021 outlook, which takes into account the macro challenges presented earlier, as well as the actions taken to date and the timing with which they offset those challenges, given current information. We anticipate that gross margin as a percent of sales increases in the fourth quarter 2021 in each segment except cryotank solutions, for which the third quarter is reflective of the fourth quarter's margin and backlog and lags due to the price timing. RSL and specialty product segment gross margin as a percent of sales increases are expected to be driven by the product mix and backlog and price increase timing, while the anticipated slight increase in HTS margins is the result of larger project, higher margin-specific sales. Associated full-year 2021 non-diluted adjusted EPS is expected to be in the range of approximately $2.75 to $3.10 on approximately 35.5 million weighted average shares outstanding. And this assumes a 19.5% effective tax rate, which is an increase from our prior estimate of 18%. We expect the third quarter of 2021 was bottom in terms of the negative margin impact, and subsequent quarters are sequentially improved, in particular as a result of the specific projects with margin visibility that will have material revenue recognized. The pricing and surcharges beginning to show in margins and generally higher volumes to assist in labor absorption. Yet, as mentioned already, we need some contingency given the uncertain environment. Moving to slide 13, our full-year 2022 outlook. Generally, we have good visibility to specific projects and anticipated continuance of the broad-based demand we have seen this year, record backlogs for 2022, and price increase impacts. We are increasing our expected 2022 full-year sales outlook to the range of $1.7 billion to $1.85 billion. This revised guidance does not include any additional or new big LNG projects, Although we were very bullish and we expect three of the U.S. Gulf Coast big LNG projects that already have FERC approval to move to final investment decision in 2022, two of which we currently anticipate will hit our order book in the first half of the year. In a moment, I'll share these potential dollar amounts for each of the big LNG projects and why our conviction has increased. But to quickly walk you through the 2022 sales buildup on slide 13, row one shows our current backlog for scheduled 2022 shipments. There's some backlog that goes out to 2023 that has the potential to be shipped in 2022, but that's not included here. Rows 2 and 3 show typical book and ships that would be expected to ship in 2022, given these assumed levels. Rows 4 through 6 are specific small-scale LNG projects that we had expected to be booked already, but due to timing shifts, are now expected in the coming six months in the associated anticipated 2022 revenue impacts. And row seven provides a view of 2022 potential revenue based on booking additional liquefaction projects early in the year. And lastly, row eight is the anticipated impact from the full year of the ad-edge and L.A. turbine acquisitions. Associated non-diluted adjusted EPS is expected to be in the range of $5.25 to $6.50 on approximately 35.5 million weighted shares outstanding, and this assumes a 19% effective tax rate and, again, does not include any big LNG. With our current backlog visibility, we expect more linear typical sales by quarter in the year compared to this year where we had a distinct second half sequential increase. Included in this thinking is that we anticipate the first half of 2022 includes a continued drag from the challenges we are currently experiencing along with the incremental offsets from the positive impact actions already taken to date. Now let's step back and talk about the continued broad-based demand. So the tale of two cities as being the second portion of what's happening in the business. This continued broad-based demand supports our conviction of our strategy as well as our future outlook. We are differentiated by our molecule-agnostic processes and equipment, and we believe the energy transition will be a hybrid of solutions, all of which we'll benefit from, as well as benefiting from any recovery or rebound in traditional oil and gas. So we've captured the three big tailwind buckets of what we believe will drive behavior the next decade on slide 15. but the overarching trend being the public and private sector working toward more sustainable options. The International Energy Agency and their roadmap to net zero indicates that today's climate pledges would result in only 20% of the emissions reductions by 2030 that are necessary to put the world on a path towards net zero by 2050. Another way to think of this is that if we don't start now, even if you did everything in full force later this decade, it would be impossible for the world to catch up to accomplish these targets. Additionally, 90 countries have announced zero targets. That's 78% of global GDP. 82% of the world's GDP now falls under CO2 regulation, and 32 countries have government-backed hydrogen strategies. If you compare this to one year ago, the increases in these numbers is substantial and shows the evolution of the global mindset towards sustainability. There is increasing pragmatism also toward how we get there, while ensuring energy resiliency and consistency as renewables grow in scale and infrastructure. Natural gas is a key part of that. The third row on slide 16 is important. This goes to the immediate needs of energy without interruption and disruption, as well as bringing power, in some case, for the first time to populations and locations such as South Africa and India. The combination of the need for consistent energy and the desire for cleaner and greener answers will both benefit us. So moving on to slide 16, around our inorganic activity that we've done over the last 12 months and how it's positioned us well with our full menu of clean process technologies and associated equipment. I won't spend much time on this slide except to say that our portfolio across the nexus of clean, clean power, clean water, clean food, and clean industrials is well established without the need for further inorganic activity. Our customers can choose from our broad set of processes and equipment, again, all of which is molecule agnostic and technology agnostic. so they can choose a full solution or pick a component from our offering. As a result of the inorganic additions over the past year, completed at what we view as very reasonable valuations, we are now well positioned for this transition. Having the full solution set is beginning to contribute to and expected to continue to grow our higher margin specialty products businesses. Additionally, our inorganic businesses are on track with their integration activity and we expect less deal related and integration related costs in 2022. The acquisitions we have done over the past year are shown on slide 17. They are substantially contributing to our backlog and will begin to flow through the P&L in a meaningful manner in 2022. The four acquisitions completed between October of 2020 and June of 2021 have a total purchase price of $105 million for all four and have pulled in over $175 million of orders since their respective deal close dates. Additionally, on the bottom left portion of the slide, you can see some of the other synergies from these combinations, and I point out in particular the combination of blue and green at edge and chart into chart water has gained a lot of early traction in what I believe to be, as I said previously, our most underappreciated portion of specialty for growth in the years ahead, which is water treatment. For example, at edge posted its best month of orders of 2021 in September, which was our first month of ownership and treatment as a service for water treatment. and industrial applications grew by 62 percent since we acquired Blue and Green last November. Slide 18 shows our hydrogen activity, which continues to surpass our expectations as to the consistency of the strength of the order book, even without any liquefier orders in the quarter. We've booked approximately $200 million of hydrogen-related orders this year so far in nine months. We posted record hydrogen sales, gross profit, and operating profit in the third quarter, which in combination with our release of our commercially ready liquid onboard vehicle tank and this quarter's introduction of our PSI, the 1,000 bar PSI liquid hydrogen pump, gives us confidence and potentially allows us to increase our near-term addressable market for hydrogen in the coming months slash quarters. And this is a small but important piece of information because it shows the level of traction compared to where we were just 12 months ago. One of the bullets on the slide is delivering now because we are a unique way to play hydrogen profitably now as well as not being wholly dependent as hydrogen as the only winner in the energy transition. This is further supported by our current quotations on approximately $1 billion of potential hydrogen processing equipment work to over 325 customers and potential customers. With over $500 million of that pipeline expected to have decision points between now and the end of the third quarter of 2022. The pipeline includes trailer quotations for over 115 units for customers around the world, including Europe, North America, Korea, and Australia, approximately 30 fueling stations, and dozens of liquefaction opportunities, including six that we anticipate may be awarded within the next six months. We also booked a $9.7 million liquid hydrogen storage tank order in China in the third quarter of 2021, and we started the fourth quarter off with a 30 ton per day hydrogen liquefaction engineering order in the U.S., as well as an order for a confidential project in Korea. These examples show that our geographic disbursement of hydrogen order activity has become much broader over the past few months, which is not just a positive for our business going forward, it's also a positive indicator for the global acceptance of hydrogen. Regarding hydrogen trailers, we've booked over 60 of them in the past 12 months, and we shipped seven in the month of September. An example of our capacity expansion toward exiting this year at a run rate of 52 trailers a year and we continue to work toward doubling that capacity in 2022. More and more of our customers are honing in on liquid hydrogen as the answer for heavy-duty transportation, ranging from trucks to trains to planes. One example is Stokes Space Technologies, who purchased their hydrogen run-take in the quarter. Another example is our partnership with Hyzon Motors for a 1,000-mile heavy-duty Class 8 truck using that recently introduced liquid hydrogen onboard tank. Slide 19 shows third quarter carbon capture activity, and I view this quarter as a catalyst for expectations of increasing activity and commercialized CCUS activity in the near term. Last year, I had indicated that I thought carbon capture was about a year behind hydrogen in terms of its commercial activity, which turned out to be more like 18 months behind hydrogen given various market developments. But this quarter's activities, which included our partnerships with TECO 2030, Ionata, and F.L. Smith, hitting on key markets that carbon capture will be a critical part of their decarbonization efforts, including marine, cement, industrial, and power. We're also notified recently of our $5 million U.S. Department of Energy funding award for SES's cryogenic carbon capture technology to design, build, commission, and operate our process at Central Plains Cement Company, which is a wholly owned subsidiary of Eagle Materials, and doing this at their cement plant in Missouri. The project will scale our CCC system to a capacity of 30 tons per day, while also demonstrating that the system captures more than 95% of the CO2 from the fluegrass slipstream and produces a liquid CO2 stream that is more than 95% pure. We expect the purity to actually be above 99%. And also meaningful in the quarter was an actual booking of an engineering order for our carbon capture offering from a publicly traded industrial manufacturing company producing materials for the heavy construction industry. as well as one engineering order for CCUS with KAUST in the Middle East. Both of these engineering work orders are expected to move to full carbon capture and storage project orders within the coming 12 months. And finally, our SES carbon capture technology was recognized by researchers at MIT and Exxon as the most competitive carbon capture solution with the determination that the cost to produce cement and capture CO2 using our CCC technology is 24% higher than producing cement with no CO2 capture, while other carbon capture technologies range from a 38% increase to a 134% increase in the cost of producing cement and capturing CO2 versus producing cement and not capturing CO2. So the ultimate takeaway here in this discussion is that 2030 carbon emission reduction goals cannot be accomplished without carbon capture and storage. So stay tuned as this market continues to grow. An important topic, and we discussed this briefly on our second quarter earnings call, but I'm going to spend a little more time in the details around LNG because our bullishness on impending big LNG notices to proceed has increased again in the past few weeks. And a subset of our commercial pipeline of potential orders related to LNG project work, which you can see on slide 20, is also increasing. As a reminder, we think of our LNG business in three buckets. The first, infrastructure, including over-the-road trucks, fueling stations, transport, ISO containers, LNG by rail. The second, small-scale and utility-scale projects. And the third, big LNG, which we don't include in our guidance or outlook, but we have approximately $1 billion of potential bookings on the horizon over the next year as these projects move ahead to final investment decision. So LNG is kind of at the nice edge in the market with tightness of the supply-demand balance shifting trend of shorter off-take contracts to an acceleration of long-term offtake agreements. In particular, we're seeing that on the U.S. Gulf Coast export terminal projects. We anticipate three big LNG U.S. Gulf Coast export terminal projects to proceed to FID in 2022. And as I said earlier, with expectations for two of the three progressing to orders for us in the first half of the year. None of these projects, again, have been booked into backlog at this point, and none of them are included in our 2022 outlook. We conservatively anticipate Venture Global Plaquemines Phase 1, which is 10 million tons per annum, to move ahead to FID in the first half. And note I said conservatively anticipate. We also anticipate that this project will include over $135 million of chart content. And in the third quarter, VG and the Polish Oil and Gas Company finalized an agreement under which PGNIG will purchase an additional 2 million tons from Venture Global for 20 years. Salarian's driftwood project phase one, which is 11 million tons per annum, in which we anticipate will include over $350 million of chart content. They signed sale and purchase agreements with Shell in the third quarter, resulting in the completion of LNG sales for their first two plants and intent to proceed to construction in early 2022. And Cheniere, whose Corpus Christi stage three project, which we anticipate will include over $375 million of chart content, announced last week that ENN LNG has agreed to purchase approximately 0.9 million tons per annum of LNG. An engineer's words marks another milestone in our efforts to contract our LNG capacity on a long-term basis in anticipation of a FID of Corpus Christi stage three, which we expect will occur next year. The second category of LNG, small scale. We have two LOIs in hand for projects not yet booked that were a primary piece around our thinking of 2022, and you saw that in the walk. These projects are for Eagle, Jacksonville, and Florida, and a utility scale project in New England. The New England project is awaiting approval from the city council, and the council has had it on its agenda over the past few months meeting, but they run out of time at these meetings, which is incredible in and of itself. But we're hopeful that it will be approved at the council meeting this afternoon, and we expect notice to proceed imminently thereafter. And finally, in the infrastructure category, we continue to see growth, even coming off of records, for LNG vehicle tanks, ISO containers, and other associated equipment. At the end of September, we were awarded a $19 million purchase order for a series of LNG by rail tender cars, our second of this magnitude in as many years. Third quarter 2021 LNG over-the-road vehicle tank orders continued very strong, over $33 million, bringing year-to-date 2021 orders to approximately 105 million, higher than any full year in our history, and included new customer orders in Poland and India indicating wider acceptance of LNG as a fuel during the energy transition. Finally, we were awarded an engineering study for a US ship owner as part of a planned conversion to LNG fueled gas propulsion of two American vessels in the coming quarters.

As of September 30th, 2021, our net leverage ratio is 2.99. On October 18th of 2021, we closed on our refinance, which improves terms, adds capacity, spreads maturity of our instruments, and reduces costs, as shown on the left-hand side of slide 22. This $1 billion sustainably linked revolver increases our borrowing capacity on the revolver from 83 million to 430 million, eliminates 50 basis point floor on U.S. dollar borrowing, saving approximately 2.3 million dollars annually at current borrowing levels and removes the cash hoarding provision from COVID-related restrictions. For the first time in our history, we met the criteria for and included in our debt instrument a sustainability linked offering with the associated further cost savings tied directly to our achievement of greenhouse gas intensity reduction target over the next five years. The offering was committed at 150% of our targeted $1 billion, by 100 percent of our existing bank group. To conclude, you can see on slide 23 some of the recognition of our ESG actions, including this quarter being named the Emission Reduction Champion Organization of the Year by GASTEC, as well as being a finalist in the GASTEC Awards category of Organization Championing Diversity and Inclusion. Also last month, we were named finalists in S&P Global Platts Energy Awards for Corporate Social Responsibility. Both Jill and I wanted to take a moment amidst the challenging macroeconomic environment to thank our team members for staying focused, executing quickly on a variety of cost offset actions, and continuing to generate increasing interest and demand in our unique portfolio of sustainable solutions and molecule agnostic offerings. With that, I will turn it over to Gigi to open it up for questions.

As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from the line of Ben Nolan from Stiefel. Your line is now open.

Yeah, thanks. Hey, Jill. Hey, Ben. Let's combine two in here quick and then turn it over. First should be a quick one. On the Corpus Christi Stage 3, is that number bigger than it used to be in terms of your content? It seems like it is. Just curious if there was some extra content that was maybe sold into that. But then the other question is a little bit more thematic in that, you know, obviously it was a little bit of a challenging quarter. There were some things that you didn't expect. that uh you know really nobody expected that that had an impact here but um given your your 22 just trying to get a sense of what the wiggle room is there and and you know is uh do you feel like there's if things you know if if things inevitably do sort of don't go exactly according to plan if there's enough room in your numbers such that it's already accounted for.

All right. Thanks, Ben. So let me pull off the first answer around the Corpus Christi Stage 3. The number is bigger than it was previously. And I would say also that this is the first time, which increases my confidence level, that the respective operators of the three projects that I described on Big LNG are all were comfortable with us putting our level of anticipated content out into the public domain. So that's a positive. And then directly answering your question, there's been some always in the way that these projects work, ongoing work in the background between the EPCs, the operators, and charts, around structures, what things are going to look like, what pieces go together. So there's scope changes with respect to that, which benefited us, as well as simply the comment around re-quoting and repricing, given the changes in the macro environment. So those two were the drivers of the increasing content on that particular project. And then with respect to the 2022 question, The low end of the guide builds in that wiggle room that you're describing, and the way that we think about this is sales being more evenly spread across the year, and you still have that drag on margin in the first quarter gets better in the second quarter, and we have good visibility around the way that backlog that we have already flows out, and where We get confidence at low end of the range, and we've built a little bit of that wiggle room in that first half margin in our thinking. Again, we don't guide quarterly, so somebody will ask me that question. But the way that we think about that is as we went through the details of our backlog in the first half of 2022, the most substantial portions of our backlog are in specialty products and cryotank solutions. And in specialty, we see more resiliency around that ongoing margin level. And then also, as Brinkman just commented, you know, pieces and parts of our specialty that are quicker in terms of book and ship and have kept up with the pricing slash cost lag. And then on the cryotank solutions, in that backlog in the first half, we also have the majority of that in EMEA, which has a tighter mechanism of passing that price through. So those two things give us a good view toward the first half, but the way I think about the year is much more evenly spread than 2021 has been with a step up in margin from Q4 to Q1, Q1 to Q2, and at a comfort level at the low end of that range.

Okay. I appreciate it. Thanks, Jill.

Thanks, Ben.

Thank you. As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound key. We ask that you please limit yourself to one question and one follow-up question. Our next question comes from the line of John Walsh from Credit Suisse. Your line is now open.

Hi. Good morning.

Hey, John. Hi.

Hey, and a welcome to Joe as well. Great. My first question, Jill, is really, I mean, obviously the order's better than expected. You know, what can you call out so that we can have confidence that those orders are going to translate into the profit we kind of all expect it will, whether it be your 80-20 actions? I know with Big LNG you had IPSMR that made the margins higher. Anything that you could give us to kind of that little bullet points around there would be helpful.

Yeah, definitely. And I think the starting point being on the mid-size projects, which are more in that $5 million to $50 million range, we're seeing more and more of that activity happening and coming in through the order book. And those projects, we have very good visibility to the margins, tend to require more of our full solution offering, which is typically at higher margins because we're providing the technology as well as the equipment. On the other side of the fence around the cost reduction activities and the ongoing efficiencies, we have hundreds of projects underway around that, but it's really, you could capture it in the 80-20 around the activities that we're doing on automation in certain shops, as well as looking at the ability to make product in the right locations. And so we're well underway on that. And what I mean by that is there are certain locations that pieces and parts of our answers and our products are higher value content, and then there's others that we can churn through, like a SCID as an example, and do that in a more cost-effective facility. And so we're well down the path on doing that. Still room to optimize that as well ahead. And so we have additional optimization and cost reduction operational actions that are underway that give us a little more headroom on the way we think about margin as well.

Great. And then, you know, I'll ask the question. I'm curious the answer. But, you know, one of your, I guess, customers, you know, had announced their intention to acquire a competitive viewers, particularly on the industrial gas side. I also believe on the cryogenic side, ACT. Just wondering how you're thinking about industry consolidation. You know, just there's obviously only a few players out there. Some of these are very niche technologies, but we'd just love to get your thoughts on what that might mean going forward from a market perspective.

Definitely. And, you know, it's interesting, of late we've seen a lot of interest in the industry, which was anticipated and, again, makes me feel good about the valuations that we paid for the pieces and parts that we've added over the last 12 to 14 months. With this specific ACT acquisition announcement from Plug Power, I'm going to address it in twofold. First is that PLUG continues to be a good partner to chart a great customer. We do a lot with them across the value chain of providing liquefaction facilities and processes to the equipment side. So it wasn't a surprise to us that they would look for the ability to have, given their amount of increasing need and forecasted increases to the trailer side, want to have that hydrogen trailer capability in-house. They've indicated to us, even as of the announcement date of the acquisition, that they intend to continue to purchase equipment from us, as well as liquefaction being a key part of that relationship. We view the acquisition actually as a positive implication to us. The reason we view it that way is on the industrial gas side of the house, where we think Plug will prioritize hydrogen trailers in this particular business for themselves, given their forecast. And in turn, we have over 90% of the 115-plus trailers that we're currently quoting on are with different customers than them. So if you think about that, as well as the industrial gas, regular liquid oxygen, liquid nitrogen, argon trailers. We anticipate that their ACTs' IG customers are going to look for alternative sources as well, and that's a positive to our business. So net-net, we congratulate, plug on that. We're thankful and appreciative of the ongoing relationship with them, and we anticipate that they'll be a key part of that, our liquefaction business as well in the near term.

Great. Appreciate the detailed responses. I'll pass it along.

Thanks, John. Thank you. Our next question comes from the line of Mark Bianchi from Cowan. Your line is now open.

Hey, thanks. I wanted to talk about the order outlook here. I know you've got the guidance there and how the orders that you expect to book flow into the revenue outlook, but, you know, we don't see it that way when you report, so... What kind of quarterly order report number should we expect for fourth quarter, and then what would be embedded in the guidance for 22?

Yeah, so what we've implied here for the fourth quarter would be consistent to the third, so at that $350 million level, and then into – 2022, the range of the guide implies a 300 to 325 million low-end order activity and a kind of 375 to 400 per quarter at the high end. So when you think about kind of that range, the high end is going to be achieved when you have a quarter where you get a liquefaction project or a small-scale terminal project, something like that. So that's the key delta between the 325 and the 375 to 400 is the more difficult to predict kind of middle sized projects.

And then just related to that, you know, you've got the 200 million of hydrogen orders so far this year. I assume there's going to be some more in fourth quarter. What does that number look like in 22 based on, I mean, obviously you laid out the awesome opportunity there, but just if you risk adjust it.

Yeah, okay, so I'd answer it twofold. In particular on the risk adjusted, you know, we've seen just astounding numbers amount of hydrogen order activity that was beyond what I had anticipated in terms of its consistency throughout the year this year. It was so new at the end of last year to being commercialized as an industry that it was hard to predict whether quarters were going to be consistent, and they've been way more consistent than I had expected. So I would very comfortably say that next year's hydrogen order activity would be up somewhere in that 40 to 50 percent type of range. It could be considerably higher than that, but I'm not going to go there right now because that really is dependent on how these liquefaction plant projects progress. The fact that we have six that we anticipate will move to decision and award in the next nine months that we're currently quoting on is a meaningful difference to kind of how it's been earlier this year. But it's still a new industry in terms of how its commercial behavior is. So I'd be comfortable risk adjusted at that, you know, 40% up year over year.

Okay, that's great, Jill. If I could just sneak one more in. So it looks like you dropped the free cash flow guidance that we had previously for this year, and I'm curious what the thought process is with that, and how should we think about free cash flow? I mean, we could... kind of get an inference from what the EPS guidance implies. Maybe it's like 40 to 50 million bucks in the fourth quarter and 220 to 260 in 22. Maybe if you could comment on that and if there's any other stuff we should be considering.

Yeah, and a good point on, I should have addressed that we dropped that outlook simply because of the uncertainty around the material side and availability of the material side. So we've had to kind of make a grab at safety stock where it even is able to be grabbed at higher levels than I had anticipated previously. So that made it more difficult because we view this inventory grabbing as something that's temporary but hard to tell what fourth quarter is. What I can say is that the fourth quarter, what you just described, I think is pretty darn accurate. There's a couple of things I'd point out. There's a $20 million inbound receivable that had been anticipated to come the end of September and move to the fourth quarter as an inbound cash payment. So that's something that will... benefit Q4 that we didn't call out specifically. And then there's also just around these larger project timings, which will more primarily impact 2022 from a benefit to free cash flow because we have, we get essentially better free cash flow off of these projects like the NFE fast project or the plug liquefiers or the helium liquefier for the Russian oil and gas customer. So the profile will improve with the more activity that we have in that kind of mid-project size range. I think your number you just implied for 2022 is certainly within the bands of how we're thinking about it. And we intend to come back around and provide what that will look like in 2022 as we come out of this year, because we think we'll have a better ability to give you an accurate number on that. So sorry for the long-winded answer, Mark. I just wanted to give you some detail on our thinking.

No, it was very helpful. Thanks so much. I'll turn it back.

Thank you. Thank you. Our next question comes from the line of Ian McPherson from Piper Sandler. Your line is now open.

Yeah, thanks. Good morning, Jill. I was going to ask on that free cash flow as well. I think that's helpful. And then revisiting the stair step margin recovery point that you made earlier. We were previously eyeing sort of low 30s gross margin on an enterprise level for next year, certainly by the middle of next year. And now I guess we walk up from Q3 to a higher destination. Is that still based on the initiatives that you have underway for recapturing pricing and efficiencies, is low 30s consolidated gross margins still the right destination to think about to get to your guidance for next year?

It is, yeah. It's interesting, we actually, thanks Ian for the question by the way, good morning. We actually kind of bantered about how much specificity did we want to provide around kind of how that first half, second half gross margin of percent of sales works, but you're absolutely still landing at the same place. I don't see a ton of drama between the first half, second half, but kind of work your way up to that. We're still thinking on the full year in that low 30s, you know, I think 30.5 to 31, depending on how things flow out. We were kind of thinking 27.5 to 29 coming into the year, or starting the year, I shouldn't say coming into, because that would imply that for the fourth quarter.

Great. Thanks. My other ones were answered. I'll pass it over. Thank you.

Thank you. Thank you. Our next question comes from the line of Eric Stein from Craig Hallam. Your line is now open.

Hi, Jill. Hi, Jill. Hey, Eric. Hey. So maybe just on the acquisition outlook, in your commentary in the release, you talk about that in 2022 you expect less deal-related costs. I mean, is that commentary more related to just the wind-down of costs associated with acquisitions you've done, or is that a bit of a way of signaling that maybe in 2022 things quiet down a little bit on the M&A front?

It's a way of signaling that we have what we felt like we needed to get to round out our full solution portfolio in the areas of our strategy and future growth expectations. And we had... indicated, I would say maybe it was September, October of 2020, we had indicated and we saw kind of this 12-month window where we thought that valuations would be reasonable and through our relationships that we could bring in the pieces and parts. That's kind of proving itself out to be true. We've looked at some deals recently that would be more opportunistic and felt that given the discipline around our investment approach and philosophy that that wasn't the right time to go after those. So we're signaling that there's less that we need to have. We feel really good about where we're positioned and are jumping off point right now to achieve what we've got in the coming decade. But that doesn't mean that we wouldn't be opportunistic if something came along and we felt like it would be a nice addition to the portfolio. More on the near term to your question. We have always stated that we would like to, over the course of time, in full, own HTEC and Earthly Labs. Those are the two of our minority investments that we feel like we would have a lot of synergies by bringing them ultimately in-house. I think those, you know, over the course of time, that's still in our thinking. It's just, you know, at what point are the owner is ready to do that as well as what is the structure of a deal like that. We also have different thinking around the utilization of GTLS equity slash cash and so on. But the upshot and way shorter answer is less M&A on the horizon for us given how we feel about what we currently have to achieve our strategy.

Yep. Got it. No, that's great color. Thanks for that. Maybe just one quick one on carbon capture. I know the commentary that it's, what, 18 months behind, but that you've been positively surprised just by the order activity. I mean, is this still something where you think, I mean, is it any chance that you start to see some results in 2022, or is this still more of a, you know, one of the reasons why you think this is a You know, you expect revenues to be at record levels in each of the next four years.

Both. So I think that we will start to see a onesie-twosie type of more meaningful carbon capture project into the order book in 2022. But it's more about that 23, 24, 25, where I think it has meaningful impact to us. My commercial guys tell me that are working on this particular facet of specialty that there's an enormous amount of activity happening and quoting happening. It's kind of staggered, and maybe the best way to describe it is it's staggered on there's pre-feed work, then there's engineering work, and then there's the decision point that we're going to pull the trigger to full construction on a carbon capture project. Most of what we're in right now is bucket one or two. And so I think in 22 you'll see a couple few of these go to bucket three in the order book. But more midterm.

Okay. Thanks a lot.

Take care. Thank you. Our next question comes from the line of Rob Brown from Lake Street. Your line is now open.

Morning, Jill. I understand the bullishness on the demand environment or the order environment. Are you seeing, as you increase prices, any weakening there, or how much room do you have on pricing, and what's your risk sort of view on whether pricing will impact the order rates?

We have seen less noise in response to the pricing of late than what I would have anticipated, meaning that it's been kind of a broadly, we need to have this conversation, and that's been accepted. And I think that's because we're not individually out in left field kind of going and doing this. This is the environment that industry is operating in right now. And that's also in our thinking is from a long-term relationship perspective, that's why we're doing some of this as price increases that we intend to keep after things temper, and some of it as just truly hyperinflationary response on the surcharges, and that seems to be pretty well accepted. But what we're also finding is those who are saying, I can't take your price change or your surcharge, we're saying, we don't want your work, and there's still enough work coming in to sustain the order levels that you're seeing so far this year.

Okay. Okay, great. And then are you, you know, on the repair service and leasing business, does sort of a dynamic pricing environment here cause people to do more in that business, or does that drive that business up, or is there any connection there to pricing?

Certainly, that is what we're hearing, is that those who are saying, I'm good on original equipment for now. I'm going to pull some things back into service that I already own. That is what we're hearing. We've yet to see it, but that's what we're getting feedback from, in particular, customers on the tank side, as well as We had been seeing that on the air cooler side, yet now we're seeing a reversal with oil prices where they are and this kind of dipping the toe in the water toward compression and midstream, upstream starting to recover. So more so on the tank side.

Okay, thank you. I'll turn it over.

Thanks, Rob.

Thank you. Our next question comes from the line of Zach Schreiber from Point State. Your line is now open.

Questions have been asked and answered. I'll follow up offline. Thank you.

Thank you. Thank you. Our next question comes from the line of Connor Linau from Morgan Stanley. Your line is now open.

Yeah, thanks. Morning, all.

Hey, Connor.

I wanted to return to the 2022 outlook here, and I think we've kind of approached this a couple different ways, but I appreciate this isn't how you laid it out in the slides, so just high-level answers would be appreciated. But basically, if I look at fourth quarter, that seems like a pretty clean base. I don't think you have a lot of really big, discrete projects that you've talked about in that number, so that kind of gets you to about a $1.5 billion revenue run rate. So basically, what I'm trying to understand is, you know, in the guidance How much do you have in, you know, just outright discrete projects that get you to that higher level? How much pricing are you expecting to realize? And then how much sort of volume is underlying the remainder there? Just, yeah, appreciate any context you can provide on that. Thanks.

Sure. Yeah, no, totally makes sense. I follow your question. So specific projects, there's – Let's see, we've got the existing ones in backlog, the four that we've spoken about before, which will have somewhere in the total impact of 60 to 70-ish, let's say, in 2022. Then you'd have a few more on the small-scale side, which combined add up to, in total, over $55 million in of which the REVREC, we've only incorporated a portion of that in there. But the specific project timing is the largest bucket of those three buckets that you're describing. There is an element of volume around the book and ship business that we anticipate is consistent to the order levels that we've seen in the last couple of quarters. And then the pricing – which we've put in, we would prefer not to disclose specifics around the pricing in terms of what we did July, what we did mid-quarter, and what we've done in October, but you could safely, you know, put kind of a 10% around there.

Okay, got it. That's helpful context. And then more on the cost side, so obviously, you know, you've had some relatively large restructuring costs, and then I think you call out some other sort of what seem to be supply chain-related costs. So I'm wondering if you could clarify what that latter bucket is, basically what, you know, why you're calling it out, why you think it's sort of non-recurring, and what the outlook is for those different, those buckets of those non-recurring costs. Are you just going to sort of mitigate as we move through the next few quarters here?

Yeah, we anticipate that all of the ad-back buckets mitigate as we move into 2022. And if you take deal and restructuring, it's really my response to Eric Stein's question around there's less M&A on our horizon. And we also are, every one of our acquisitions to date is under various stages of its integration, but will be coming out of that in the first half of 2022. So we expect that that's the reason for less in 2022. Around the other costs, we have the restructurings. We have startup costs around facility greenfields, around the movements from Tulsa to Beasley, as well as from other locations into Tulsa. We have consolidations of product lines in Europe over to from Italy to France, from Czech Republic to Italy. We have other activities in India that are adding capacity, etc. So those are at very, again, at various stages of completion. I would expect that bucket mitigates closer, mitigates slash lowers, but doesn't go away in its entirety in 2022, but certainly mitigates by by the middle of the year because a lot of those projects have completion dates of Q4 and Q1, Q4 2021 and Q1 2022. And then you have specific one time around if we have severance for people, if we had a specific structure of a particular sign-on to get someone to come join the company, things like that that would be in that bucket, but we don't expect, we don't forecast an enormous amount of that going forward. And other than that, those are kind of the broad brushes on those.

Okay, got it. Thanks for the color. I'll turn it back here.

Thank you. Thank you. Our next question comes from the line of J.B. Lowe from Citi. Your line is now open.

Hey, guys. Good morning. Good morning. Just a couple quick ones. The carbon capture engineering orders that you got this quarter, are those on projects that you had expected to perhaps, in your previous expectations, been able to actually book equipment orders this year or sometime next year, or are those different projects?

No, those are a subset of the same projects, and we still expect to – anticipate to book equipment orders associated with those couple, certainly in 2022. But there's also a few dozen other ones that are in stages that we aren't really allowed to talk about that we would anticipate a subset of those to move ahead probably later in the year of 2022 to order stage. So no revenue impact in 22 from those, but certainly order book impact.

Okay. Is that the typical kind of cadence that you get the engineering side piece first before you get an actual equipment order? Are we going to hear about the engineering things before the equipment orders on an ongoing basis, or should we just expect to hear about actual bookings sometimes the first time we hear about these projects?

Yeah, you're going to hear about the engineering orders first because that's Okay, so twofold. You'll hear about the engineering orders first in both larger liquefaction projects for hydrogen as well as for carbon capture because that's truly a meaningful indicator in industry of a project getting to the serious point. So that's an important decision point for the operator, and that's why we would typically disclose that because it gives you a better line of sight to the higher probability equipment orders. But that's going to be typical.

Gotcha. Okay. My other question was on what's going on in China right now in terms of power curtailments. How much revenue do you, well, first question is, is any revenue that you're missing from China, was that also pushed into 2022? And what's the magnitude of that specifically from China?

Yeah, it's de minimis in terms of the push. And, you know, think about our China business. Gosh, it used to be like kind of 80 to 90 million a year, and I think this year we're tracking to over 100. Our fourth quarter forecast there is for external sales. And remember, we do interco sales from that Chinese facility, too. but external sales is kind of 30 to 40 million in our fourth quarter forecast. We use the midpoint of that at the kind of 35 mark, and assuming that we can keep this four days on regular power and three days disrupted power, or ideally like we had last week, five and two, then our – The lady who runs our Chinese business is just incredible. She's got it so under control that she can tell you if something's going to move by the $100,000 revenue mark. So it was really about a half million dollars of timing shift from Q3 to Q4 in that business, and the minimum is from 21 to 22. Okay. Okay.

Last question just is, again, on the 22 revenue bridge. You have about 40% of your expected revenue is going to be book and ship. Is that typical for you guys? Is that higher than normal, lower than normal?

That would be pretty typical. I think what I would say is higher than normal in that is the amount of activity in the pipeline that that 40% probability is being applied to. And so if you were kind of risk-adjusting that, that's what would – I'd take that to the low end of the guide, the lower end of the guide. All right, great. Okay, thanks, JB.

Thank you. Our next question comes from the line of Walt Liptack from C4. Your line is now open.

Hi, thanks. Good morning, guys.

Hey, good morning, Walt.

Hey, Walt. Hi. A lot of detail. So I wanted to try and ask one from 50,000 feet. You know, the oil and gas prices around the world have been going up. And just generally, how does that impact charts business now? You know, is this good for your customers and bad? Is this slow orders? Does it accelerate it? And, you know, I'm thinking about hydrogen carbon capture and then the traditional packaged gas or traditional energy customers.

Sure. Well, we could have a long conversation about this one, so let me pluck it off on the gas side, on the high natural gas pricing. That has, we were watching that very carefully over the last couple of months to see if it had a delay impact on any of kind of the LNG infrastructure ordering activity, and that has not been the case. Our LNG infrastructure kind of risk that's in our thinking is for anybody who's doing a Class 8 commercial truck and that has chip shortages, that would be more impactful than what we're seeing on anybody's response to changing their demand forecast because of net gas prices. In terms of the oil part of the question, it's a little more complex. And what I say by that is, A few years ago, you'd say where oil price goes, that's going to drive activity. What used to be at $80 oil, you would see quite a bit of activity. We're not seeing that same trend right now. I'm more tempered on the way that higher oil price impacts our traditional customers' ordering activity. I think a little bit of that is they're not going to speculatively build anymore, and a little bit of that is impacted by the view toward how do I become cleaner, how do I participate more in the energy transition. So I'm tempered that the oil price drives a ton of response in that sector, but certainly we're seeing a slight recovery in activity there. I can go in more detail on any particular area that you'd like on that, Walt.

Okay. No, I think that's good. I'll leave it at that. Thank you.

Thank you. Thank you. Our next question comes from the line of Craig Shear from Too Wee Brothers. Your line is now open.

Morning. Thanks for fitting me in. Hey, Craig. Just a big picture question. at this level that you'd even temporarily have to worry about, you know, incenting talent, you know, from labor side, given the enormous growth you have ahead of you over the next three to five years. Imagine labor markets, although your outlook certainly brightens with an infrastructure bill and FIDs from Venture Global, Chenier, SEMPRA, and others, but that's only going to tighten the labor market that much further. I know that in response to part of John's question, you alluded to increased automation. But I just wonder if to really fulfill the promise of your specialty products opportunity set, are there really enough engineers and welders out there, period? Or do you really have to at some point increasingly pay up for talent and poach people? Or can you really automate this away?

So I would target the answer not to the engineer's side. We've had an enormous amount of success in bringing engineers into the business, in particular, as you described, driven by the variety of different applications and markets that we play in. And engineers in cryogenics particularly love these types of applications that are unique that we have on the process side. So that's not been an issue for us. And we're also seeing a trend of engineers leaving their industry longer term roles and saying, hey, I want to go into something that has the potential for this much higher growth than the GDP style year over year. So I'd target my comments more around the manufacturing and the welding side, which is where my commentary was on wage increases. I don't think we're alone in the need to increase wages to retain talent. That's something that we've seen across the board on industry. Actually, on average, we are still average on that side of things, which is something that's important. We also have an incredible set of talent in our welding base that teaches incoming folks that don't have the welding background how to weld to our specifications and criteria, whether that's TIG, MIG type of welding, and we have beefed up that program through our welding council over the course of the last 9 to 12 months where the welding council actually moves people between facilities and trains them so that we have the flexibility to move them. We saw that in the third quarter where we had less work in our new Iberia, Louisiana facility and we had about 50 people that moved between our Minnesota facility as well as our Teddy Trailer facility to help out where we had higher demand. So that's another piece of the puzzle. Automation is a part of this, but that's always been a part of this. It's always been a part of our thinking. It's always been part of our ongoing productivity strategy. But at the end of the day, there's some real specialized product that we make that requires specialized talent, and we also have customers on the big LNG side that take venture global. These are repetitive cold boxes and heat exchangers, and part of the value to them is they get a standard repeated product. And so we keep the same team that work on those particular projects together. So the answer is far more nuanced than I can give you in a two-minute quick summary, but those are the high points.

Great. Thank you.

Thank you. Our next question comes from the line of Vib Vashna from Cooper-Homer. Your line is now open.

Hey, good morning. How are you doing?

Hey, good morning, Vib. Good. How are you?

Good. So maybe if I just think about LNG and you laid out these three projects, but one of your equipment peers talked about 100 to 150 MTPA over the next few years. Can you help us frame, like, if we think about that kind of opportunity over the next few years, how should we think about your market share or what the potential opportunity could be for you?

Yeah, we think about it in terms of the specific projects that we have been, I guess, I don't know what the right term is, awarded but not yet booked, and then walk it from there around how we build up our opportunity set and I think what we're seeing and how I'd answer the question is, yeah, there's eight to ten global projects that have gotten to the point where we think they're going to move ahead over the coming few years. And that is a much smaller number than what you had pre-COVID because you had a lot of projects at various different stages and trying to grab pieces and parts of that, whatever your MTPA forecast is. So that's been a good thing for the industry because I think it's really honed in on those who are going to move to construction. Of those 8 to 10, we would have content on about 70% of those projects, but at varying different dollar content levels. We choose to talk about these three U.S. Gulf Coast projects, and I would actually say I'd call it four because I think Plaquemines Phase II, the other 10 million tons per annum, is not that far behind. But We choose to talk about those because we have much better line of sight to the activity around them as well as to the dollar amount of our content, our anticipated content. So that's really why. But there's certainly additional potential chart content beyond what we specifically call down on those, if that's helpful. Got it.

That's helpful. And maybe switching topic on inflation. So could you remind us, if I think about a hydrogen plant, how much – is your revenue opportunity? And then trying to think about what kind of inflation have we seen on those kind of opportunities?

Sure. So a hydrogen liquefaction plant for us, and it depends on the size. So at the low end, it's going to be like a 10 ton per day. We see mostly in the quoting activities of the 15 ton per day, but we're starting to see more activity on the 30 ton per day, the larger ones, just like the engineering award we won with Salisbury for the U.S. utility. So on the 15 ton per day, those can range from, you know, $25 to $50 million of chart content. Again, it just really depends on kind of what the location is, where is it, et cetera, but A conservative average number to use for those is going to be in the low 30s per project. Again, these are less inflationary sensitive because we quote with very narrow bid validity on the project in whole inclusive of material. That gives them a little bit more resilience than our standard product that's just ordered as a component. The Bigger projects, like a 30-ton per day, can be somewhere between $45 and $65 million of content is a pretty safe assumption to use on those.

I guess where I was going with was if I think about inflation and all this green hydrogen project cost inflation, not specifically to you because, as you said, the risk is pretty low for you guys, but just trying to think about inflation, if that's any – that you have seen any impact from this kind of inflation on those project conversations?

We have not to date seen that impact on those conversations. Not to say that it won't happen, but we've actually seen an increase in the conversations timelines to what their forecasted award dates are. And I'm not sure if that's a function of we're going to do it regardless. and move it ahead, or if that's just a function of getting more validity in the hydrogen industry as a whole, but haven't seen yet the inflationary impact on timing of those.

All right. That's very helpful. Thanks for taking questions.

Thank you, Vibh.

Thank you. Our next question comes from the line of Adi Mudatta from Goldman Sachs. Your line is now open.

Hey, Jen. I know that you spoke to some of the supply chain disruptions earlier, but could you help us understand, could you expand on the actions taken to the supply chain disruption that you highlight on slide five, specifically around the optionality around localization and the safety stock and how that helps you with the margin recovery through 4Q and 22?

Yes. So specifically to the safety stock, and I would I would comment that this is the current area of that is on aluminum because that's the biggest concern on availability. And where we're able to lock those down, we do so. And we've done that kind of over the last six months to try to keep costs in line with the current cost environment versus seeing potentially further increases. On the localization of the suppliers, that cuts down on the increased freight cost, the increased container cost, et cetera. If you look at just in the third quarter alone, container cost, this is a macro market figure, not a chart-specific figure, but container costs using the container freight index in the quarter itself increased 34%. And so we would be basically eliminating sending things overseas, eliminating the potential for delays, and keeping what we're seeing as the current cost state level versus further degradation.

Got it. Thanks. I'll turn it over.

Thank you.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.