Q3 2020 Chart Industries Inc Earnings Call
Ladies and gentlemen, please remain on your line the chart industries Inc. 2023rd quarter Conference call will begin momentarily. Once again is the chart industries Inc. 2023rd quarter Conference call will begin momentarily. Please remain on your line. Thank you.
[music].
Good morning, and welcome to the chart industries Inc., 2023rd quarter Conference call all lines.
And she had been placed on mute to prevent background noise.
The speakers remarks, there will be a question and answer session.
The company's supplemental presentation was issued earlier this morning.
We have not received the release you may access it by visiting charts website at Www Dot chart industries Dot com.
A telephone replay of today's broadcast will be available following the conclusion of todays 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 FCC.
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 Joey Banco chart Industries' CEO.
Thanks, Andrew Good morning, and thank you everyone for joining our call today here with me, it's got Merkel, our Chief Accounting Officer, and we'll talk through our third quarter results. Our recent announcements are already benefiting us in how our strong order book in backlog is setting 2021 up to be a great year I'm very.
I'm very pleased with the performance in the third quarter in particular, our order in bottom line execution amid active deal both buy and sell side, it's surprising to me as I read the initial picks up in the morning that people will consider that be interested in the clean energy transition in our long term strategies had a mixed reaction to the quarter a timing this on.
Revenue, but not lost to competition a beat Onep, yes in 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 if you're on the call will help you better understand why we are extremely pleased with our current position.
As you know we've spent the last two and half years executing on various steps to set up the position we're in today [laughter].
The focus on our core cryogenic engineering and product offering that is a very unique play in the high growth space is a clean energy specialty products and repair services and leasing well getting stickier with our customers through broader long term agreement with.
Well walk through the supplemental deck released this morning, as we typically do.
All figures in the deck and press release are continuing operation for those who've asked for year to date results for the discontinued operations of the Cryo bio sale. That's included on the last slide in 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 and use the orange or letters KNL solar and wind are being utilized in conjunction with many of the other fuel through our recent partnerships in particular with green hydrogen provider makes tea, we will be able to participate on more projects.
That involve a coupling of these types of power sources.
Let's 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 announcement that further set us up to be a pivotal player at this inflection point in the E S C and clean energy transition.
This is also fundamental to understand or strategy seems you will continue to here and a good way to understand potential upcoming investments and how they will build upon this foundation so.
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 or geographic footprint expansion through acquisitions, such as the Viavi as well through the formation of our global commercial team.
Year to date 2020, we've booked orders with 407, new customers, including 115 related to specialty market.
55% of these customers are outside of North America.
Second expanding or stickiness with our customers through long term agreements that encompass our entire set of products as well as repair and service this year.
This year to date alone we have completed 15 agreements for L. wise and three in the U.S ranging from the virtual pipeline in India with Exxon Mobil, LNG and iOS heel to equipment for Molson breweries New production line. Historically, we would typically have had no more than five agreement at any one point in time.
In conjunction with these expanded LTAC, we have extended our repair and service footprint as well as our leasing fleet offering our customers a one stop shop inclusive of installation or refurbishment, while giving flexibility.
Any customer and project lead that we would not have that access to without our rental program in place.
And finally through our acquisitions that have helped US accomplish these strategic building block, we have been able to expand our talent, including keeping strategic industry leaders such as the spot of brothers the former the RV owners and extending our skilled workforce in the case of our recently acquired Alabama location.
Our recently announced divestiture of the cryo bio business for $320 million in cash not only with our final stuff in selling noncore product lines from our portfolio. It also opened up opportunities for further investment in our high growth high margin businesses, including giving us access to acquire Worthington cryogenic trailer in hydro.
And trailer business, which was completed on October 13th.
We have long desired their transport business based in Theodore Alabama, we called entity trailers, not only to extend or hydrogen equipment product line to larger size transport, but also for the Q occasion to manufacturing capacity the chat.
The challenge previously was that we competed head to head on cryo biological 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 when 20 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 a our 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 end. For example, we collected over $12 million from one customer the first.
Because October 6 million from another and 5 million from a third.
We closed the sale of the cryo bio 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 Thirtyth 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 stuff has also opened up the ability to invest in our target markets products and technologies. In addition to debt pay down and the Worthington trailer acquisition, we invested in MCSI, especially his company in zero carbon hydrogen production and distribution equipment through this.
Through this we also executed a commercial I know, you, which will give us access to multiple new projects and customers. It has.
It has been one week since the transaction closed and already we have identified had been pulled into discussions on five new projects that we previously would not have had involvement.
Many of the asked if there are other investments or acquisitions on the horizon there or.
There are three near term potential acquisition 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 or our organic investment to that.
To that I would like to point out or the hiring hydrogen engineers and commercial resources globally and the expansion of our leasing fleet in.
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 addition.
Additionally, we have added 20 standard transports to our leasing fleet with 20 more in process and will expand the leasing fleet hydrogen trailers.
We are already seeing the benefits in our order book from these investments for example, we both record repair service and leasing orders of over $35 million in third quarter compared to the prior record of 13 million working to.
We continue 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 money is on these leases, which is not booked as part of an order.
Another immediate impact from these investments have been in hydrogen as shown on slide six we were.
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 appeal earlier this week for $2 million for gay gaseous hydrogen trailers out of our Germany location.
It's worth pointing out that the traditional customer discussion from the hydrogen investments have brought attention to our European hydrogen capabilities, including both gases and liquid equipment we.
We currently have discussions underway with 74 different hydrogen customers and have 29 and use in place with a subset of those if you remember we ended the first quarter with four he did indeed.
This morning, we put out a separate press release, describing our participation in the U.S. Department of Energys HQ at scale, Texas project, which intends to show that renewable hydrogen can be a cost effective fuel for multiple end use application, including fuel cell electric vehicles, when coupled with large baseload consumers that use hydrogen for clean.
And reliable stationary power, we're partnering with companies throughout the hydrogen value chain, including Frontier Energy Toyota Motor North America shale Mitsubishi heavy industries and are the key on two related projects.
Older recent hydrogen announcements further our commercial reach as well 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 quarters 10, new agreements to L. widen Oneml you show the differentiation and diversity of our product offerings.
Example, Daniel you was for significant new hydrogen project in Asia one.
In L.Y. related to LNG mobile and storage equipment in Africa, well, another with remote from breweries new production line.
We've always stated that its important not to meet our major industrial gas customers and in that vein. We completed a first time lpa within industrial gas meter in the United States inclusive of bulk originally equipment and repair and service capabilities.
Five new long term agreements in Europe were completed including two for multiyear LNG fueling station Buildout 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 is close to our customers as possible and for a variety of applications and.
In Q3, we built on this by signing an agreement for air cooled heat exchanger global supply with Flint Hills.
We've already discussed our hottest specialty products for our hottest specialty market, which is hydrogen.
The great thing no better products is that they are used in a variety of end markets and applications in our molecule agnostic.
Other high growth areas, including water treatment and space exploration are worth watching too.
Slide eight 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've 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 powered terminal in water treatment facilities built near in conjunction with each other.
This offers us a very unique opportunity. We are currently working with customers and locations such as Africa on Oh. These 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 2020, we both record orders for six facilities.
This is meaningful as in all prior years or average for full year would be equipment for five facilities include.
Included in Q3 was a contract for $3.7 million with Archer western for designing its advocating liquid oxygen system for the Dallas, Texas water utility ozone improvement project as well as the 1 million dollar order for equipment for the world's largest wastewater treatment plants 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.
Specialty products for beverage carbonation cannabis concrete curing and craft breweries are in high demand coupled with end use demand with <unk> recent CEO to supply disruptions driving end users to minimize supply risk with larger volume onsite storage system, and we have significant order increases for our small bulk liquid CEO to take.
Thanks.
2019 full year for these tanks averaged 137 units per month.
Year to date September this year has averaged 155 per month you didnt.
Even more meaningful though has been a third quarter 2020 average of 220 per month compared to January and February precluded level of 143.
In telling you also about first of a kind orders and activities in the first quarter, mainly due to more of them are rising around the transition to clean energy.
Since then we have noted a broader set of folk opportunities or as our team called then Woking orders, including 23 in the third quarter from left to right on slide nine.
We have executed a three year exclusive design and supply agreement for liquefaction truck loading and pipe for ice doors proprietary liquid or energy system I store stores energy using an offsite electric driven cryogenic processed during off peak hours, returning that stored energy to the system. During on peak hours. This is targeted for various look.
Patients around the United States.
The middle first of kind is for the engineering of straddle launches liquid oxygen tank for use on a carrier plane. The picture you see there is there actual rendition. This will also give us a jumping off point for cryogenic tanks that can be used for other molecules that will sit and smaller onboard aircraft spaces.
Just this past month research showed that the space industry is expected to grow by over one trillion dollars in the next decade.
Recent NASA grants to companies such as you all a 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 is Starship program Raptor engine development, our supply of you will ease Balkan launch site ground support systems, and Cape Canaveral and for Lockheed our liquid nitrogen system, the thereof, acoustic chambers and test their equipment before sending it to state.
And finally, our always underappreciated piece of equipment the doser as shown on the far right hand side of the slide the dose or is amazing it helps customers cut down on plastic inner ball. It makes knight drew coffee it cans beer and wine it puts the right amount of molecule into I last year and now it's being used in household this.
In fact in packaging of penal inside the low so 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 disinfectant take Mexico City, where the packaging has done a high elevation location the.
The product is then distributed into lower elevated cities such as can't tuner Guadalajara.
Without the counter pressure from liquid nitrogen dosing the product package will collapse with the change in elevation the label when I hear correctly and in turn consumers will not pick the product up from grocery store shelves, making me scratch products.
I would not have thought it would be telling you that even with the current situation unresolved any election weeks way 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. N T trial backlog, excluding kelk to 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 in hydrogen as described earlier repair service and leasing driven by extended leasing fleet LNG re gas.
So 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 each LNG vehicle tank order quarter about $20 million in the third quarter. As a reminder of the second quarter of this year was the only other each LNG vehicle tanks 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 own 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 a 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 and this is the first time, we've been able to enter the southern region of China for LNG.
Government such as India are taking actions for LNG to continue to play a significant part in their energy transition plan, including plans to increase the share of gas from 6.3% to 15% of the country's energy by 2030.
On September 10th of this year Minister proud Han announced that the 11 city gas distribution authorization would launch very soon extending the coverage of the network to 500 cities 11th round will include 50 to 100 districts in our made in making India offering is well positioned to service expanding LNG infrastructure market.
Finally related to LNG, well, we only have the remaining $46 million of Kelk issue 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 goals Blackmun's project Juniors Corpus Christi stage, three or two lorien strictly project.
Well, we haven't talked as much about proving 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'd expected to see a reduction to more typical precluded 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 customers supplying Egyptian hospitals fighting cold.
Finally, the NCCN fans 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 where activity has started very strongly first 21 days.
Let me share a few key wins, so far you've had.
Eight orders already over $1 million.
A record hydrogen order quarter and were only 21 days in.
Strong service order in our SNC lifecycle business for over a million and half dollars in Algeria.
Received verbal notification that we won an order for multiple LNG semi trailed trailers in Russia for small scale network.
We expect that to be booked within the fourth quarter of 2020 and while.
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 stats for the quarter.
Thanks, Joe.
Sales of $273 million were down 19.2% when compared to the third quarter of 2018 entirely driven by and she Finfet Ics.
Excluding cynthia's 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 diverse diversification of our business.
As we frequently discuss most of our changes on sales our movements between quarters first lost volume.
We had over $22 million of expected sales in the third quarter related to specific projects shift due to customer delivery timing, where the majority of that shifting into the first half of 2021.
The breakdown is 12 million and AMC, Cryo 4 million and agency Finfet and six and a half million new 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, but when it did it recovered at a bigger bang for the Buck way than we expected and in turn will have a positive impact on the fourth quarter of 2012.
Even with certain shipments being pushed out we were able to deliver a reported gross margin as a percent of sales of 28.8% and when normalized for restructuring costs was 29.7%, bringing our year to date normalized gross margin as a percent of sales 29.2%.
We expect the fourth quarter gross margin as a percent of sales to be the highest of the year gross.
Gross margin combined with our continued cost improvements and Sq day resulted in reported diluted earnings per share of 43 cents EPS and adjusted diluted earnings per share of 63 cents with the adjustments related to the restructuring for our Tulsa, The Texas facility consolidation and she's been advantage and deal related costs.
Reported and adjusted diluted EPS were both the highest of 2020.
Yesterday of $41.1 billion in the third quarter of 2020 and was $38.4 million when normalized for onetime expenses.
Year to date, we have taken out over $66 million of annualized cost with associated restructuring charges of just over $12 million.
This cost out is reflected at our positive trends in both gross margin and EPS unity and has resulted in our year to date record low normalized yesterday as a percent of sales of 14.8%.
Full year 2020 sales are expected to be approximately 1.8 $1.18 billion inclusive of about $23 million venture global Coca surpassed revenue in the fourth quarter, we anticipate full year diluted adjusted earnings per share to be approximately 2.25 cents on 35 point.
3 million weighted average shares outstanding.
Our assumed effective tax rate is 19 point to 19% for the full year 2020.
On slide 13, our sales range for 2021 is unchanged from prior at $1.25 billion to $1.325 billion in cash.
In keeping with our new tradition of giving at approximate number we would share approximately $1.28 billion for revenue with associated adjusted diluted earnings per share of $3 to $3 or 40 cents on 35.3.
Million weighted average shares outstanding.
Adjusted EPS increase from our previous estimate.
Good idea $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 rate.
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 one 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 ISI.
Hi, ESI.
Hey, good morning, Joe.
Okay.
Hello.
First talking about your base industrial gas business because the if.
If we're looking at the all the economic indicators that that I'm looking at consumer and housing as leaders in this recovery, so pretty substantially and we're in a.
Very big V shape.
Malik recovery and so the major chemical and industrial gas providers should be huge beneficiary because early cycle beneficiary. So I was curious if you could just comment on your conversations when you're talking to Lindy are talking to your products or others, what are they saying about their business.
Their businesses right now, which should be I think in a in a nice.
A nice recovery.
Form and how much is that going to help your base business EXL dealer.
Was that things are going on hundreds of LNG et cetera.
Yes, very much in line with what you. Just stated is the feedback that feedback that were getting but let me just step back we still haven't seen a full recovery to pre coded.
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 which is actually very positive setting us up for Q4 in 2021 until coupling that return to the field with this consumer in housing on 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.
In the third quarter, which obviously was recovered fairly well the other element on the industrial gas players our independent distributors that play on in pockets, where business, maybe too small for a major to take or they have a particular product category that the focus in on and we've seen that in independent.
Distributors really come out very strong around the food and beverage side of the business and there is 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.
You know, obviously, you're making pretty is pretty strong moves from 100 side and and partnerships.
It seems to me that what's going on.
Hi machines is even stronger than what we might be seeing Republic.
Announcements here from various you hired a committees and boards et cetera that in 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.
This along but that seems to be there is that the hydrogen business taken off faster than perhaps.
We or you would have expected say three to six months ago.
Absolutely Yeah. It's a fair statement that you are making and you're probably not even making it strong enough to weather.
[laughter] because there is so much activity and well well the governments in the public sector play a part in it you'd be surprised at how much the private sector is making investments as well on a lot of the reason we don't elaborate upon it further is that these companies, making these investments in working are looking to have a.
Edited advantage as they do run first projects and whether its marine or transport fuel.
Just give you. An example, we're working with a potential customer on cooling for warehousing in cooling midnight that type of activity, where the real long term answer to achieve these de carbonization goals.
For a company that has put a 23 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.
These these customers.
You mentioned kind of the smaller customers like this but I mean, I think some of the.
Customers are not small I mean, we're talking server farms or Microsoft.
That's like Amazon cloud computing.
Well, let's computing capabilities and and others have been some of the people that we've talked in the last couple of weeks or major major drivers of the economy that seem to be also moving to liquidity is.
Is that a fair vote for statements of me.
And another fair statement. The names you just named are absolutely looking to move in that direction. I mean, you could list dozens and dozens more that are of that caliber in that size and magnitude on EPS Walmart.
There you go exactly I mean, when you look at it and on the other side of the plane you have the shelves of the world into hotels that are also making investments in this area. So you've got multi.
Multiple industries coming at this at the same time and working to achieve this network. So it's it is.
Way bigger than I would have even said three months ago.
Okay perfect. Thanks, so thank you.
Thank you.
Next question comes from the line of Walter Liptak with seat.
Hi, there thanks, good morning, good quarter. Thanks.
Thanks, Paul Good morning.
One thing I wanted to ask.
Just to stick on the hydrogen thing for a minute.
Order intake for the TV trailers.
It looks like that was like one quarter worth of orders and just like a few weeks is that fair.
I think you guys gave a range of like 15 to 20 million.
After the orders came in for the steady trailers you have to rethink that maybe increase the number of trade.
Trailers, where the revenue from those trailers over the next 12 months.
Yes, it's accurate to say the first couple of weeks is equally went to a typical quarter. Historically has been on so that is 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 horizon's going to go dry we.
We have a great opportunity to leverage the manufacturing capacity in the take your 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.
So we're going to see how this quarter quarters rollout beyond this first kind of 10 million in the first couple of weeks and that would be the point, where we would consider revising that 15 to 20 through 2021 Theres 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 killed it which could add on capabilities for on different equipment that goes along with the trailer. So we'll see how that how that ramps up in Q4, along with the order booking.
Potentially increase that come February.
Okay great.
Thanks for that and then on the.
The fueling stations I Wonder if you could give us some color on that.
Fueling station growth, maybe the geographic regions.
Yes obligations for those fueling stations.
Yes, it in let's separate hydrogen fueling stations just to the total to 56 number I gave year to date on fueling stations, which are primarily on LNG or l. CNG and those 56, our spread between China Southeast Asia and northwest Europe.
On its 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 on demand, meaning across customer bases and across countries within northwest Europe, but the.
More recent third.
He has been a higher concentration in Germany.
Okay, Great all right. Thank you I'll get back in queue. Thanks will.
Thank you and our next question comes from the line of Eric Stine with Craig Hallum.
Hi, gentlemen, Scott.
Hey, so just.
Sticking with LNG and I'd love to talk about the vehicle. Thanks, and thanks for all the detail on the overall business you gave a lot there.
But interested by kind of the geographic expansion that.
Expansion that you're seeing where you're talking about South America, Russia and.
In Japan also different applications such as buses you know just 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 where do you service that from is that something that you're able to do that out of.
Location, you're viavi location in Europe, or is that something where you're going to need a new facility.
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 Viavi Italian facility. The combination of those two facilities capacity is about equals $1 million to $200 million of H LNG vehicle tanks per year on a deal.
Sure we did about $65 million, we thought that we thought can you know mid Kobin 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 to have that are on these sole source supply agreements for this particular product so.
Some of those are also looking at equipment for other geographies, so well historically they've been focus on the European region. They are 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.
So allows us to look at the type of tank that they're looking for some of these guys have a more proprietary tanks and others.
In terms of diversification, we've seen a lot of activity in the last three to six months for as a as a comment in 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.
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 active right now and it could be in the millions of dollars for any one particular order.
Her from this customer is in the in the country and Poland and Thats the buses.
Got it okay.
Very helpful.
Maybe just turning on 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 how Thats maybe changed for the outlook has improved given that there has been a very significant recovery in the J Cam index.
And the pricing that would on a you know that would underpin a lot of projects.
I'd start by saying, 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 in our that upside opportunity in our base, but with that said I agree with your sentiment that there has been a.
Nice recovery on even in the last few weeks around the JK am 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 seniors Corpus Christi stage, three ancillary and driftwood, we don't have a change in opinion, we've all long said that we believe that.
At least the fees ones will get to EPS idea at some point in 2021 and without speaking out of turn I think thats fair to to continue to have that in our.
Which you just to clarify for everyone else on the line means diminimus revenue impact to 21, but very nice revenue impact to 22, 23 and 24.
In addition to that Eric I would say that.
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 I'm, 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 Commerce Linae.
Morgan Stanley.
Yeah. Thanks, good morning take on.
I was wondering if you could elaborate somewhat on the acquisition opportunities you were discussing appreciate you.
I want to get too in the weeds here, but I was wondering if you could maybe just discuss what some of the markets that you're focused on.
And maybe additionally, what would this look like how should we think of this as something like the trailer capacity acquisition, where it sort of a plug and play capacity expansion.
Is it more of a technology acquisition or would you additional I consider something like that structure.
So these are all would be full acquisition, so not not similar to the 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.
Our one of them is related to hydrogen one of them is related to multiple specialty products and then one of them is related to on one of the high growth markets that I've highlighted in the last couple of earnings calls we.
Without going into more detail on that we're extremely familiar with all three of them meeting that we work together with them, whether it's going to.
Going together in the current state on projects or whether it's kind of a supply customer relationship both directions.
There's.
Either businesses, we know very very well either really natural fits and.
In two of them are kind of in a similar too precise in loans closer.
Closer to that 20 to 30 Mark.
I think there I guess I will elaborate a tad bit more in that they're at various different stages and so you know there's there's two that are a little more eminent hence we did this three to six month range. So I think there is a possibility that you get to done by January ish and you get third maybe.
In the first quarter.
Got it thats helpful maybe to pivot here.
Fans with sort of the.
The weaker spots during the quarter.
Can you help us think through sort of how de risks the revenues or or.
You know margins are on that segment certainly energy has had a tough time for a while now.
Big market, there, but can you just discuss how much.
How much of your backlog at this point is is from UBS.
A better market that that seems unlikely going forward or is more reflective of the current run rate how should we think.
How should we think about sort of how much is more just booking ship.
Versus converting on quantum longer cycle stuff.
Yeah. This businesses is more book and ship than the opposite and there's a couple of projects, you're there like that $3.8 million or one that we commented shifted from the third quarter into 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.
He is also consistent revenue stream from the on the repair side, which is primarily sands less so on the air coolers.
Yeah, it's kind of.
Reviewed the business seen where we said I think were really bumping along the bottom I don't see any further precipitous drop off at this point and there is a few bright spots out there, but I don't want to give a false hope of a faster recovery than than what I think which is a mid year 21 starts to come back.
In terms of the margins, yes, I think we 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 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, we should get a little bit of the benefit in the fourth quarter as well as in the first there's.
I would say that from how we built our outlook there's.
More upside and there is certainly downside to that outlook, but again I'm extremely cautious to provide that because while others in excessive amount of quotation activity, it's that translating that quotation activity to the order itself and Thats really based on more.
The midstream and upstream markets and.
Well packagers looking to chase the same product projects as they come out and available I do think that that will change as next year opens up in some of this shut in activity returns to more normal state but.
But.
Well, it's been a long bumping along the bottom corner.
All right I appreciate it I'll turn it back.
Okay.
Thanks.
Thank you and our next question comes from the line of JB Lowe City.
Hey, Good morning, Joel has got 80 Jvs.
I'm good I'm just looking at the bridge between 2020 in 2021.
It's one of the businesses, we haven't talked about yet.
That being small scale LNG and Petrochem I'm just wondering.
How much of that business is already.
Bookings backlog and we're just going to be converting to revenue.
Over 2021 and.
And then.
The outlook for each of those those businesses is for 2022 is that something that could grow even further in 2022 or more of a steady state just any help on the small scale LNG side in the past some side would be great.
Yes. So we currently have three projects already booked which equates to I'm, just about $35 million to $40 million on that line. There's also one that we have the ela life for and we're waiting for a notice to proceed which is another 35 million.
And in additional one that our view is it does get across the finish line in the fourth quarter, which would.
Which would be somewhere in that 20% to 25 million dollar range on top of that there is multiple other ones in the pipeline, but those are really the ones that I believe are kind of.
Kind of over that 90% mark of getting to the finish line on EPS.
As you look at 2022 and beyond I think that Theres actually a stair step off in 2022 in this particular line for two reasons. There are quite a few pet chem projects that got put on hold because of co bid that they aren't going away the timing around them.
And that's not only in North America, but also in places like the middle East and in Saudi.
Applying 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 all import terminals re gas and small scale export that you see for utilities. So.
I'm I'm viewing 22 as considerably better than 21, and what you see here.
Okay great.
My other question was just on the.
The timing issues in terms of some things coming and hitting Threeq you versus Fourq, two and then being pushed into next year. There is some concern.
Certain that you addressed earlier in your remarks about.
How things are just shifting around but is there.
Is there something.
Is there anything specific on the things that have been shifted that we should just be expecting.
Kind of.
Normal part of the business.
Or was it something specific like a specific project that we've seen some of these things shifted into next year.
It's both so our business does have projects that move in and out between quarters. We always kind of have commented that to us six months is meaningless. Unfortunately to some people that meaningful we really.
We really look at it is have we lost to competition and we feel like we're gaining market share I'm certainly across the businesses with the exception of air Coolers, where there is no market share gain so to clarify that so there's a little bit of a fundamental nature to our business like breast $25 million on 300 is Ah, that's a plus or minus type thing.
And our internal discussions, but I realize it's hard for people to understand there is also specifics to what shifted this time and we and Merck walk through a couple examples of those the DNS shifts are really related to customers that we're getting.
Back to work from coated including except the shipments. So that's a shorter term type of problem. The larger petrochem projects was around the operator.
The operators looking at when they wanted to take delivery. So frankly, I think thats, a timing shift given some of the economic conditions versus a <unk>.
The project had an execution problem, but rather hey, we want to we want to buy a little bit of time before we take delivery of this.
Okay great.
Thanks, guys.
Jamie.
Thank you and our next question comes from the line of Rob Brown with Lake Street capital.
Morning, Joe.
On your on your kind of outlook build up you talked about specialty products and service growing at about 10%.
That's that's nice growth, but how do you sort of see that line growing over time should accelerate given the given the step up of hydrogen to enter service focus, but maybe a sense of what that can grow.
Sustainably over time.
Yes.
Keith you went right to the heart of the matter there Rob we we've seen this surge.
Surge in specialty products from an order activity perspective, you know, even 30% plus year over year, and even 17% sequentially. So I.
I think were 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 tried to get you 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 it will be coming up on a year of that on as we 2020, which gives you a much better line of sight to be able to see how that kind of flow through your revenue line. So there's.
So there's upside potential in that in 21, but certainly would be we expect that to be higher than that 10%. As you go into 22, and 23 and from there on part of that.
Part of that also we haven't we've commented more around hydrogen and how that's ramping which I think is a big part of this on the water treatment that we commented on but there is also this the and all this activity around the H LNG vehicle tanks to I think lends itself to a really nice revenue few years ahead of us on what happened after.
Through that on the H LNG vehicle tanks is I think it becomes part of our regular business in we calibrate the specialty to make sure that we're encompassing new 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 a fair amount of that's already in the in the pipeline.
Maybe give us a sense of sort of what's what's happening there and what new things could develop are these.
Is this ISO tanks or is it a is it.
Regas terminals or Im just wondering what kind of make up those projects at this point.
So there 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, youve seen the new fortress news out there and they're a great customer of ours that really to this growing trend towards multi.
Gail and that's focused in a north South America. The Caribbean, we're seeing that trend also start to happen in some of these new build locations like the Indonesia, Mayan Maher Vietnam on as well as in India.
India, we haven't touched much on ISO containers, but in 2021, that's when we move to commercial production with Exxon Mobil, LNG and I LTL and 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 really.
Added to that on the terminal side in these obviously take a little bit longer to get from pre feed engineering to EPS I'd because they are more of that upfront capital cost for a full terminal somewhere between 101 hundred $40 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 North East of the U.S. is where we're seeing the most activity and I think has.
Breakthrough potential there and then re gas 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 Stifel.
Hey, good morning, Scott.
Yes.
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 does that is that correct.
What.
How I should interpret that.
That's correct. So these were the orders refer gaseous hydrogen trailers or transports and that is pressurized yes.
And you know obviously you guys are probably bar really cryogenic focus, 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 hydro grow and we'll see how much of the businesses, we're transportation business cryo versus where it's a pressurized depends on.
You know how far you are from the sorts of consumption everything else, but.
Can you maybe talk through that a little bit and and how how your position.
How your position aside from the cryo aspect of it.
Yes, and it also to all the comments that you just made on top of that 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 gashes in that's where these these particular trailers are.
For and are being made our capel our abilities for gaseous hydrogen transports is out of our go Germany facility or Gopher facility and we do all kind of trailers out of that facility. So again I'm agnostic to the molecule agnostic to 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.
Not something you're going to ship on the water either you're going to be made close to where they are going to be used on in terms of the size of that business. Its fairly small right now the majority of our hydrogen I'd say 70 525 split of liquid to gashes is the currency 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're seeing the ramp up in the leasing business, but also new order flow and everything else.
Has there been any change in the way, you're thinking or or aspiring to get to with respect to recurring revenue and that the mix of revenue.
Or is it playing out the way that you saw that with.
Theres been no change in our thinking on that and it's it's stepping along as we thought it would the recent agreements in the agreements are setting us up to continue to move toward that target.
Okay perfect. Thanks, Mike.
Thank you.
Next question comes from the line of Pavel Molchanov with Raymond James.
Thanks for taking the question back to M&A.
One of the capabilities.
That would be.
Pulling revenue that you guys have not.
Historically focused on his software of various kinds, but of course than anything related to the energy transition sox's is getting more and more attention and I'm curious if you would be open to.
Bringing some software capabilities in house.
But on an M&A deal.
Yes, absolutely and Oh darn it failure, you're like a mind reader on this stuff one of the three that we're talking about EUR does have that capability for a specific product category.
Okay got it.
Hypertension, and specifically Electrolyzers as part of the European Climate Law, which you know still still pending not final yet.
Supposedly 30, Gigawatts cell electrolyzers by 20.
2030 is going to be that target.
From from your perspective would you be interested in getting into I'll call. It the.
In a direct sun or would you just kind of limit yourself to storage and the more ancillary parts of hydrogen.
Yeah, we will 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 or not for the.
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 on benefit for especially in the EU as you referenced.
But that will be for equipment at those locations.
Okay. Thanks.
Thanks, very much I'll think about.
Thank you and our next question comes from the line of John Walsh with Credit Suisse.
Hi, good morning.
Uh huh.
Wanted to talk a little bit about the cash flow. So you you called out some timing.
You know when we look at your running I think the 83 million year to date, the correct number to use.
As I look to Q4, which is usually always a good cash quarter for you in the range you have out there is there anything we should be aware of.
As we think about it because it would seem like.
That range is definitely very achievable.
At least as we look at it.
We feel the same way John and you're you're accurate that Q4 is typically a good cash quarter. We think this Q4 will actually be better than the typical Q fours for the combination of the timing of our sales as we got through the plant and you are getting through the pandemic I guess is a better way to say it also some of that cash collection activity that I bring.
We referenced and we did build that inventory up at the beginning of the Kobin timing on in March and April and we're still seeing that kind of drive down coupled that with the H LNG vehicle tanks timing of the order to shipment we've got a large very.
A 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, I'm supposed to be only kind of atypical items, which would be more positive impacts to above the typical Q4.
Got you that's helpful. And then 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 your.
Scribble or you know it sounds like there's some things here that maybe we could flex up and come back down to that level or do you think you can actually run a little bit higher now that youve remix the portfolio.
Oh, 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 ongoing basis, even with these investments we kind of ran said all right. If we spend 20 million tomorrow leverage goes up to a into tool five something like that but then within.
A month, it's back down under to it so our our internal thought process is we like.
Being in that low leverage point, we like having cash on hand, but were not handcuffed to continue to invest and all the things that we've described on so we are very pleased with where the balance sheet sits today.
Great. Thank you I'll pass it along thanks John.
Thanks, John.
Thank you and our next question comes from the line of Marc Bianchi with Cowen.
Thank you.
Hey.
Just yeah I'm working the mass over here on my end and I 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 right.
Recognizing I could have that wrong, but just curious if you could comment on what's embedded for gross margin and if it is down from where you're exiting the year here is there.
Is there something specific driving that or is it just sort of conservatism.
Oh, we actually are at.
29.8% for 2021.
Internal thought process and modeling so.
I'm not sure where that where the disconnect is there, but yeah. No. We can definitely get up on that yes. It would.
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 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 margin.
So the step back we're exiting 2020 higher than the average meaning that typically your Q4 Q1 in your Q4 in our business are the lowest sales type of behavior, which in turn drives the margin down a tad we think will exit this year very very strong.
On gross margin as a percent sale on and that will hold as you head into 21 in Q1.
And that will on 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 on some of the timing on when we know for example, a trailer is going to shift ship or one of the small scale terminals is completed.
On based on plc Rev. Rec on so next year is probably a little bit different which frankly is next year will happen the way that we expected to from a more effective I consider that the new norm.
<unk>.
Okay Super and then the next question I had was kind of related to this hydrogen and LNG opportunity you guys have discussed before we got the sort of three year revenue opportunity of over 2 billion for LNG and then the three year Tam of 1.1.
For Hydrogenics totally recognize the hydrogen pieces, a little bit more backend loaded, but maybe just to set.
Set a baseline for us what's embedded in this guidance for for 21 for.
For total hydrogen revenue and total total LNG revenue and then how do you see that that growth rate progressing.
Yes, so for hydrogen on working 30 and $40 million and then.
For LNG, let's see that include the 23 for Calix you pass and then you've got about 40 on small scale and a typical kind of 120 550 on top of that so you're in a $300 million range on specific LNG in others.
A lot of equipment around LNG that is on top of that which would be considered in our typical distribution and storage either bulker micrel bulk business.
Okay, and any thoughts on growth rates, just sort of heading into 22, just to give us maybe a place holder to think about.
Okay, I'm going to go out over my skis.
I think that it's Virgin Oh, you know it was Rob Brown that hit on it a little earlier kind of on specialty markets. In general you know we be broad rush. This at 10% and we're probably getting to that tipping point, where we.
We can't use the excuse that we don't know enough anymore. So yes hydrogen easily is a 25% grower from 21 to 22.
LNG.
Separating out big LNG, Okay. That's.
I'm not going to comment on that but on the LNG in its entirety, we'd probably place that between seven and 9% growth.
Okay, one to 22.
Yep, Okay, and maybe just one more if I could in terms of these targets. The 2 billion in the 1.1 when do you think or what what are the types of milestones that you think you need to see in 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 what are the dues items you're looking for.
So I'd split LNG between the LNG export terminals to the mid scale facilities, which is in just about seven or 50 to a billion type of dollar size for our content.
Because that's wholly dependent on the projects that already have regulatory approval getting to EPS I'd. So we are bullish that they do at least phase ones and that's really what to watch for it.
If you see any equipment providers see that they got notice to proceed related to any of these big projects and that's a pretty good indicator that EPS I'd already happened or is going to come in the next 24 hours. The remaining half of that LNG is already out there in happening on so it's less around any particular.
Our pricing of the of the gas or any particular government that needs to do something because these are well underway. So these are you know half baked markets and infrastructures that need to continue to be built out on so it's really just timing on the orders and as these players get get their infrastructures.
Without and were as I commented in my prepared remarks, we're very excited about the opportunity with this 11 city gas network in India. Because that's you know the 50 to 100, new potential stations as an example in that time time period hydrogen.
Hydrogen is very different.
You're seeing quite a bit of a pilot activity and government stimulus money, but I think they're still needs to be a way to figure out how to get scale and scale up in cost down so I'd be watching for continued government announcements around hydrogen because that's.
Then the number one a way with grant money that these projects have gotten off the ground in <unk>.
And I also would watch for continued announcements where a players.
Operating a plant versus talking about doing something in the future on so for example in plug power is it is a great customer of ours and they haven't figured out because they are actually doing it which is different than saying I'm going to.
You. This project in the next five years and have a production ready vehicle in 26. So those are the types of things that we watch for amongst our customer base.
Awesome. Thanks, so much I'll turn it back.
[laughter].
Thank you and our next question comes from the line of Chase Mulvehill with Bank of America.
Hey, good morning, Joe Nike, So a quick follow up on own B. I think his question.
I think when you 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, Alright. So obviously, that's that's very margin accretive. So if you end up having big LNG margins would be higher so.
All right that is.
That is correct, yes, Okay, Alright, then.
Then coming back to hydrogen.
When we think about the hydrogen build out are you better positioned to benefit more in the U.S. or internationally and then also could you maybe talk about your positioning a little smaller more regional based hydrogen projects like things that plug are doing versus.
Versus kind of larger more global projects like air products in Saudi Neonodes project.
All of the above so let me take your regional question first.
As we step back and talk 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 in doing in being able to do that in each region and that we're able to do hydrogen manufacturing in China in India in Europe as well as in yet.
State that the key part of keeping that cost down when you're consumer when your customers looking for buying equipment. It really has to be local so we're very well positioned there on the small versus large projects are our major industrial gas customers have been front runners in hydrogen.
And production in plant and equipment and we continue to expect them to play a big part in on this particular topic. So.
So were positioned with them as they look to scale and participate in projects like the HQ at scale, Texas that we talked about this morning.
On the smaller infrastructure in the more localized infrastructure and we also have a good direct relationships with the players that are taking on a regional a state or a particular country location and that's even further enhanced through some of the partnerships collaborations that we've recently.
So 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 so I'll turn it back over thank you.
Thanks [noise].
Thank you and our next question comes from the line of Greg Lewis with BP I G.
Hey, Thanks, and good morning in realizing this call is running pretty long just one for me.
Just one for me Joe how are you kind of touched on it.
Around desalinization and what that is I guess my question is.
As you start to kind of gain traction into hydrogen.
Just thinking about the water aspects of hydrogen or your customers at all have discussion started around the opportunities for your de Sal into hydrogen yes, that's all from me. Thanks.
Hey, Greg a fantastic point and thank you for listening carefully to our messaging, yes. The short answer is yes, and it [noise].
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 on its whether its the treatment facility or the utilization of the molecule into the production of the other molecule both of these conversations.
Things are happening and we think that without going into detail of our power technology works together that combination is going to be really meaningful and unique to chart as as these types of projects getting going so that might be more of a medium term comment that I'm, making and again I don't want to give compare.
Additive advantage way, but that's I think.
I think that has a lot of potential.
Thank you.
And our next question comes from the line of Craig Shere with Tuohy Brothers.
Good morning, Thanks for taking the question.
Tom.
Morning, Oh, one clarification I realised.
It's it's really unclear where the hydrogen has got to come from kind of todays export of LNG may may in fact are entirely not be the same as major suppliers of hydrogen in future but.
But one question I have is I am a little confused but what it takes to liquefy the still at the lower temperatures and if existing small still are large scale facilities domestically or worldwide. Using your technology. Just some are or other technologies can be tweaked to support the hydrogen or no.
Yes, so we.
Our IPO somar process technology, with some tweaks, which our team already has done on can liquefy hydrogen couple.
Coupling that with the Brazed aluminum heat.
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 hydro.
And 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 that's probably our biggest competitive advantage in that we've been doing.
During these for 50 plus years and our equipment is certified it withstands a lot of the metal hydrogen in brutal meant challenges that are out there. So the liquefaction part of it yes, I think that's something that easily jumps off from LNG on the equipment or the pipeline is it.
Different story.
Excellent and one last clarification, if you were to convert an existing LNG facilities say 10 years later to support a hydrogen what.
What kind of time and expenses that vault.
So the answer to that is if that gets solved in whether its LNG or any other existing infrastructure. It if the utilization of exist pressure gets all to pull.
Pull hydrogen through you're probably talking about 50% to 60% cost reduction for the hydrogen costs challenge so that would be a really nice win if that gets figured out there's.
Theres kind of coming as a 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 30000 foot level, there's a lot more challenges around equipment that happened from there noble.
Nobody had solve that I don't have a good answer on that Craig in terms of can it be done and how easily it can it be done we're working on it more from how does how can our equipment worked together with the shift between molecule versus the transition of a full existing export facility.
To to a production or electrolysis facility.
Understood.
Thank you and with that I'll now turn the call back over to CEO, Julie Banco for closing remarks.
Thanks, everybody for joining us today and a big Thank you to our 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.
Right.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating and you may now disconnect.
[music].