Q4 2020 Chart Industries Inc Earnings Call
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Ladies and gentlemen on today's conference is scheduled to begin shortly please continue to stay on buy and thank you for your patience.
[music].
Yes.
Good morning, and welcome to the chart Industries, Inc, 2024th quarter and full year results conference call on.
All lines have been placed on mute to prevent background noise.
After the Speakers' remarks, there would be a question and answer session.
The company's supplemental presentation was issued earlier this morning.
If you have not received the release you may access it by just seen chart charts website at Www Dot chart industries Dot com.
A telephone replay of today's broadcast will be available following the conclusion of the call until Thursday February 25 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 on this call that are not historical in fact, all 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 hand, the conference over to your Speaker Ms. Jill Evanko you may begin.
Thank you Wanda and good morning, everyone I'll, let's dive right into the supplemental presentation that was released this morning, starting on slide three we officially began reporting in our new segmentation as shown here, which we believe is clear for shareholders to understand the key drivers of our growth and margin. Additionally, all discussion is around continuing operations as we closed on the divestiture.
Here on Cryo bio on October one.
So now let's get into the meat of our result, and get going on explaining why we believe <unk> 'twenty 'twenty. One is set up to be a breakthrough year for our company. We set multiple records in 2020, which we'll share today and expect some of those to be beat in 2021 moving to slide four our focus over the past two and a half years had been on executing our strategy to be the world leader.
In providing cryogenic profit technology and equipment for the industrial gas and clean energy end markets. Our strategic focus areas has been on expanding our high growth higher margin areas of the business, creating and penetrating repair service and aftermarket capabilities, incorporating geographic diversity into our manufacturing as well as our leadership creating.
On a broader customer base and stickier relationships with those customers through repair capabilities as most flexibility on targeted long term agreement and finally do you layer on the cost structure of the organization.
Focus on these actions will continue and I will share some progress from 2020 and the fourth quarter, specifically today as we walk through these resolved.
We executed 33, new long term agreements and master supply agreements in 2020. This is extremely meaningful and historically the only had agreements with a handful of north American customers also meaningful is that of these 33 agreements for the first time ever we have 14 repair and service long term agreement and 10 agreements from customers outside.
In the United States.
We have broad based and more consistent order activity. For example, we booked 80 orders greater than $1 million each in fourth quarter and had orders with 472, new customers in 2020 of which 109 were in specialty.
In the first half of 2020, we took out over $60 million of annualized cost by eliminating luxury layers in the org structure and also finding areas in the business, where we could promote high potential talent.
We're very pleased with our strategic investments completed in 2020 and those that we have executed to date. So far this year, which you can see on the bottom of slide five we approach these investments with two fundamentals.
First the investment brings access to customers and commercial projects that could not be accessed without significant organic investment and second the investment brings access to regions or geographies for their respective products and applications that otherwise could not readily be accessed.
As we've stated we have a very unique offering that addresses the clean power water food and industrial Nexus and one of our most recent inc.
Blue and Green, which was completed in early November has already generated synergies.
Our water treatment orders for 2020 were a record and then the six weeks of ownership are big in Q4, we sold 10 water treatment orders totaling $4 1 million $3 2 million of those having both chart cryogenic equipment and bowling Green's dissolution solution.
2021, starting with three additional water treating and order.
As we shared when we announced the acquisition from the Green we felt the non U S markets would have great potential for the combination of <unk> technology and our equipment case in point in the December win that we had a contract in Brazil with the government water utilities, serving the state of Sao Paulo was 46 million people, but weighted background, Brazil ranked 112.
Out of 200 countries and sanitation. This project is in the center of the city. The first of its kind on a state wide environmental remediation plan to treat Brazil's polluted water bodies directly using a distributed network of oxygenation oxygenation installation.
The Worthington cryogenic and hydrogen trailer acquisition also closed on the fourth quarter and came out of gate strong contributing to our hydrogen trailer record orders for the year fourth.
Fourth quarter was our highest order quarter in history for hydrogen trailers and currently there are 16 liquid hydrogen trailers in backlog in the U S and it doesn't nearly a dozen gaseous hydrogen trailers and backlog in Europe.
The completion of the S. Yes acquisition for cryogenic carbon capture technology, followed by early February investment in.
Another carbon capture business has resulted in multiple new commercial opportunities as I've. Previously said, we think carbon capture is on the brink of having a hydrogen style break out in terms of project activity.
We're collaborating closely with our partners and exceed on H tech on hydrogen opportunities ranging from liquefaction to fueling stations to trailers and currently we have over 20 projects that we're bidding on together with one or both of them.
It isn't just our inorganic investments that contribute to our unique position on the clean power water food industrial Nexus as shown on slide six on commercializing each day more and more it's also our organic R&D efforts that further differentiate us 82% of our products have intellectual property associated with them.
We continue to increase that percentage through our organic new product development efforts, which I'll share with you today the status on two key hydrogen product development.
But before we get into hydrogen and hydrogen hydrogen let's start with what is very exciting about our 2020 year on what sets us up from a breakthrough 2021 on slide seven you can see our full year 2020 Records for chart as well as for each of the segments.
While there are many accomplishments, including record gross margin and operating income Lewis SG&A as a percentage of sales highest adjusted earnings per share. The one that is most important to us as a company on safety and we achieved our lowest total recordable incident rate and number of accidents in our history in 2020.
Second half 2020 orders increase sequentially over the first half by 28% as you can see on the right hand, slide seven and flipping to slide eight you can see that each of our segments had second half order growth above 24% when compared to the first half the broad based order activity contributed to our year end record backlog of 810.
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On the right hand side of slide eight you can see fourth quarter 2020 records and I would point out that food and beverage was asleep for surprise given the dramatic slowdown that occurred in the second quarter due to the global restaurants shutdowns from the pandemic, we saw specific fast food chains and beverage companies move ahead with orders in December for their new building franchises.
As we have mentioned previously we continue to adapt to meet the medical oxygen equipment needs of our customers as they serve hospitals and nursing homes dealing with COVID-19, the fourth quarter on the highest quarter of 2020 for medical oxygen related equipment, primarily driven by demand in Europe.
And while not a record the demand for trailers in the eastern hemisphere doubled in the second half of 2020, when compared to the first half of the year, which sets. The second half of 2021 revenue on trailers off very well.
Slide nine shows you our near term and total addressable market size for specialty products is now $5 75 billion an increase in the last weeks of 1.25 billion. The increase was driven by three things first the inclusion of liquid hydrogen onboard vehicle tanks, resulting from the status of our testing and prototype tank.
Commercial interest in our joint agreement with Ballard power currently we are discussing the use of each all aged.
Thanks, with 14 different potential customers.
Second. The addition of private technologies expanded hydrogen liquefaction capabilities and commercial pipeline opens up the very broad liquefaction process market from which our combined content on these types of projects ranges from 15 million to $100 million each.
Our combined content would be inclusive of the local fire storage and trailer loading and these estimates are for 5% to 60 ton per day plant in.
And third Cryo technology has access to an experience in the helium market not only provides us content on large helium liquefaction projects, but also storage ISO containers and transport core chart equipment.
So we thought we'd share some data by each of the new segments with you starting on slide 10 with specialty products.
19 included a large fourth quarter order for LNG by rail $22 million, making your order comparables more challenging, but what I would point out to you is that we saw 55% increase in fourth quarter of 2020 sales when compared to fourth quarter 2019 sales. So we're starting to see that strong order activity hitting the shipment.
And while less impactful in 2020 candidates in space exploration, our smaller specialty areas, both with unique position utilizing our existing equipment, we work with major space launch companies, including receiving a $1.4 million order from one on the last day of the year and we're pleased with our ongoing hydrogen tank deliveries for the Indians phase III.
Search organization.
In terms of candidates, we saw an increase in both alcohol and cannabis equipment demand the lockdowns and with federal candidates legalization gaining steam. This is another area, where our specialty market could go from very niche and embryonic to larger production scale.
Okay, you've weighted 11th slides for its hydrogen the topic that continues to be the hottest one in the clean energy portion of our specialty markets recently, there was an article titled the hydrogen economy is no longer a pipe dream, which I thought was apropos. The Atlantic Council hosted the fifth World Energy Forum in late January and in conjunction.
With that shared a survey of global energy leaders, when asked which carbon free energy technologies will see the greatest increase in investment in 2021, 31% said hydrogen followed by battery storage at 23%.
These stats prompted the think tank conducting the study to suggest that 2021 might be a year of hydrogen.
Couple that with 30 countries launching national hydrogen strategies and over $70 billion from 51 countries tagged for hydrogen work for US 2020 was the start on the decade of hydrogen as evidenced by our backlog of $39 million, which is all expected to ship this year.
Looking ahead to 2021, we're excited about many things hydrogen, including our start to the year on hydrogen orders, which is in line with our expectations that includes a variety of equipment sold such as tanks upgrades to gaseous hydrogen trailers already on order as well on lifecycle installation services.
The Secretary General of the China Standard Committee has released the drafting group, although it for comments a major milestone toward our expected April final approved liquid hydrogen bulk tank group code. This is a significant differentiator for our equipment can be built for and used in the hydrogen economy in China.
We along with 10 other companies launched hydrogen for a few weeks ago. As you know chart in our hydrogen foreign partner companies, including early keyed Anglo American Bloom energy CF industries come in on the Island day, Macdiarmid shell and Toyota are United under a shared belief in the environmental and economic benefits of hydrogen technologies.
Yeah.
With all this excitement we sometimes forget one of our greatest progresses over the last quarter, our organic product development activities for hydrogen equipment.
Our liquid hydrogen onboard vehicle tank prototypes as shown on the right hand side of slide 11 has been built and tested and we're excited about having it as an option for our heavy duty transportation customers, both existing ones and new potentials on the left hand side of slide you can see a rendering of our hydrogen test facility in Minnesota.
Jos to include only a rendering because actual photos have too much confidential information surrounding the components that we design and build.
We're collaborating with industry partners as we advanced safety and innovation at this facility figuring prominently in that effort and demonstrating our one of a kind liquid hydrogen pumping system.
Dakota. He gave it to me for Christmas, It's definitely still a few holidays to get through before being fully production ready, but it will be this year.
And while it could go on and on cutting things happening in hydrogen there are too many other areas of the business for which we are developing solutions for our customers and helping new customers achieve their ESG targets.
On the left hand side on Slide 12, you can see two examples of our recent folks and we had a whopping 31 folks in the quarter. We're very excited to partner with Pepsi to upgrade their C. O two capacity at one of their U S facilities, that's through our lifecycle team. Additionally.
Additionally, you may remember that our dosing technology is used regularly in nitro beverages, such as Starbucks Nitro coffee and it can't and we're now seeing applications for dosing for oxygen water. We're collaborating with the company called <unk> on their unique oxygen water, a functional hydration and recovery drink that makes clean lights using products thanks to that.
Their CEO, Dave Kulina for sending our team some of these tasty low calorie high energy drinks you can see me trying it in the picture on the bottom left we had to take it away from Merck. If you think you are on close gets an energetic you should've seen them with this thing.
A variety of applications with our a subset of our 65 new customers in the fourth quarter are shown on the right hand side of the slide pretty fun to see our equipment being used in Nitro beer kenwyne bottled egg alternatives whatever that is squeezable dips in for Eyeball research.
So moving on to slide 13 for the full year from per service of leasing was $13 five percentage of our total revenue. We expect this percent to significantly grow in 2021, driven by our extended leasing capabilities are 14 recently executed repair and service agreements.
Sam business, rebounding, which has a nice aftermarket component to it.
Our South Carolina Greenfield location is set to begin repairs in the second quarter 2021 next.
Next Thursday will hold the building dedication ceremony at the final beam is placed on the building and we look forward to welcoming our customers to the site in net.
I would point out the fourth quarter record our sales gross margin. This was driven by more installation and repair work from a lifecycle team, which is typically high margin work as well as a fantastic December in orca upgrades from our repair and service team in Minnesota.
Our investment in expanding our leasing fleet for standard product in particular ISO containers in mobile equipment has gained traction since we started investing in the leasing fleet expansion in may of last year.
Leasing lease adult who runs our global leasing team and her leadership team also known internally as the ladies of leasing had the new equipment being built leased before each piece was even completed.
Two points of reference for you.
From the first to the third quarter of 2020, we had 25, new leases signed in the fourth quarter. There were 28, new leases signed compared to six in the fourth quarter of 2019, which brings a total of 53 leases signed for the year. This compares to 18, new leases signed in 2019.
In January of 2021, we quoted 78, new leases with 28 different customers. So the group is off to a great start 37, new leases have already been signed only six weeks into 2021.
Moving to slide 14, and our crowds and segment, we saw growth in orders and expanded gross margin as our Chinese business executed the best It has in our history posting record operating income. Additionally, while we saw recovery in the traditional industrial gas aspects of the business in the fourth quarter purchasing from the majors was not yet back to pre COVID-19 level.
Specifically gas meter purchasing in the eastern hemisphere contributed to the highest order quarter in history for DNS products in the East. However, Q4 did not fully compensate for the low order intake in previous three quarters. So the full year of 2020 was still below 2019 in that region by six 2%.
Italy trailer orders were part of our Covid slowdown in the second quarter of 2020, we saw a significant increase in the fourth quarter and all trailer activity in 2021 is off to a strong start in this area with 114 trailers.
Ordered year to date as of yesterday compared to an average of 84 trailers per quarter last year.
Said differently, our highest order quarter for trailers in 2020 with Q3 with 115 trailers ordered and we're already at 114 year to date.
Slide 15 is our last segment to cover and certainly contain the most ups and downs in 2020, ranging from $98 million of revenue from Bg's Calcasieu pass project to a sudden and deep drop off of air cooled heat exchanger orders after the start of Covid and the OPEC situation to ending the year with a significant air cooler order of $70 million.
Application as well as a $30 million, the RV shell and tube heat exchanger order for processing facilities in the eastern hemisphere.
We are pleased to see the increasing activity in the carbon capture market and with the addition of Ses is carbon capture technology in our investment in Savant day, our commercial pipeline continues to grow.
One of our team members said, our commercial pipeline is actually off the charts right now for carbon capture opportunities.
We now have well over 50 potential customers that we're working with on various project quoting stages.
A significant percentage of the total carbon capture plant cost regardless of whether the process is post combustion carbon capture or direct aired carbon capture is equipment that we offer with air cooled heat exchangers, representing approximately 50% of total equipment cost or 20% to 25% of total project cost in amine processes.
On approximately 50% of total project cost indirect are carbon capture.
With the recent rise in LNG prices as seen on the left hand side on slide 16 in particular in GKN and the winter weather in Asia and just this week in Texas. There is a growing need for LNG supply after a hiatus of new export terminal construction. We expect this pricing trend to continue and in turn more big and small scale LNG projects to me.
S. I D. In 2021, you can see on the upper right hand chart, three big LNG projects that have the potential to be ready to roll this year.
Venture Global's Calcasieu pass project is tracking on schedule and our equipment revenue on this project is expected to conclude in the first 2021 D.
D. G. 's CEO recently indicated that the first phases blackman or 10 million tonnes per annum is expected to have necessary sales completed by mid year and also expected. This year as a reminder, our equipment for the first phase totaled approximately $125 million and this project is not included in our 2021 guidance.
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Our small and utility scale LNG pipeline is very robust with 24 potential projects in our bidding pipeline that could go in 2021 totaling approximately $150 million with a few shown on the bottom right hand side of slide 16 and.
And don't forget all of the infrastructure being built globally ranging from fueling stations to over the road trucking to storage to ISO is just one example of LNG is continued cost competitive and scalability with December the announcement that the central Indian government plans to create a gas infrastructure in India with an investment of $60 billion over the next four years.
Inclusive of LNG terminal.
And finally worth noting is that LNG is also getting greener.
In addition to our hydrogen development initiatives chart continues to develop energy transition solutions at lower emissions from LNG facilities menu.
Many of our LNG and traditional IOC customers are thinking of how to make their facilities. Other molecule ready. This ranges from gas stations being able to handle other molecules completely or hybrids of mixed molecules to setting up terminals that are 100% LNG now they can be switched all at once or gradually to income.
Our equipment and processes are well suited to be able to adapt to these changing requirements.
This past year chart.
<unk> completed a design study with hotel in conjunction with Siemens to evaluate technologies to reduce C O two per ton of LNG.
Study compared chart, the Ips Tomorrow, and Ips Tomorrow, plus designs with direct gas turbine drives an electric drive with combined cycle power plant. The Ips more plus configuration with electric drives in combined cycle power plant significantly improved overall plant efficiency and reduce C. O two emissions another efficient and cleaner option now for <unk>.
<unk> to choose from I'll now hand, it over to Mark to talk or maybe you can sing about our financials.
Thanks, Joe I'm going to pass on this thing.
The increasing mix of higher margin aspects of the business and maintain discipline in our streamlined cost structure, which is reflected in the $60 million of annualized cost that was reduced from the business in the first half of 2020 contributed to full year reported EPS of $2 22 said as shown on slide 17.
When adjusted for onetime costs full year 2020, adjusted EPS of $2 73 was a record.
Full year EPS benefited significantly from the fourth quarter adjusted diluted EPS of $1 27.
<unk> from broad based execution across the business, including record operating income.
Note that we closed on on but see investment of 30 million euros for $4 five net ownership added accompanying commercial Mou on October 15 2020.
And then the fourth quarter net investment contributed 36.
After tax earnings per share.
When excluding this investment gain our adjusted fourth quarter EPS was <unk> 91.
The current restructuring in our 2021 outlook is for the consolidation of our Tulsa, Oklahoma Air cooled heat exchangers into our 260 acre Beasley, Texas location, which is partially complete and expected to conclude by mid year.
Additionally, we are keeping our $500 a square foot Tulsa manufacturing facility to create additional capacity for certain product lines in high demand.
Moving to slide 18, we thought you would like to straightforward summary of our quarter and full year financials compared to that same period in 2019, I won't belabor the slide but we are very proud of the year over year increases, particularly in margin and cash, especially in light of the 4% decline in sales compared to the prior.
Year.
We also are encouraged by our record low SG&A as a percentage of sales or 15, 1% for 2020.
Slide 19 shows our continued disciplined approach to our balance sheet. We continue to prioritize the use of our strong free cash flow generation for debt Paydown organic investments and strategic inorganic investments our view of maintaining our net leverage ratio at two or below is unchanged.
The sale of the trials business closed in the fourth quarter of 2020 for $320 million of cash.
After posted our second highest net cash provided by operating activities from continuing operations and free cash flow in our history. During the fourth quarter of 2020, our net leverage ratio as of December 31 was 159 or $1 71, when excluding the mark to market benefits of fatigue.
Pro forma December 31, net leverage ratio for our Savant day carbon capture investment and our acquisition of Cryo technologies was $1 eight eight or $2 <unk> when excluding the mark to market benefit from Mitzi.
The growth in free cash flow as a percentage of sales is indicative of the cost.
Changes in the business working capital management.
On our improving margin profile.
Back to you Joe.
A version of slide 20, apparently on prior fan favorites and we brought it back even though this is a damned. If you do damned. If you don't slide. This particular walk provides 2020 by major category to the low end of our 2020 sales range, Yes, I can do one at the high end and the midpoint to just chose US as the low end is extremely realistic based on our backlog and typical order.
The level of debate.
Giving you an approximate number versus a range, but felt that the range captured more of the opportunity available to us to get to the high at the top end of our new range is $1 3 billion. So what would shape your thinking on where in the range you want to be.
<unk> acceleration throughout the second half of the year in 2020 and order activity. We built some conservatism into our low end with a thought process that those levels might temper, we have not seen net tempering yet.
Second specialty products in particular hydrogen are still on the newer and as customer behavior. So we did not build a significant amount in the first half orders into the outlook. Obviously this could be significantly higher than the organic growth shown on this slide with just a few drop in orders in Q1 or Q2.
Third is H LNG order levels continue as they did in the second half of 2020 that figure is considerably conservative.
And one last data point, although I can provide a bunch more around other specialty markets et cetera is that its liquefaction projects again, regardless of molecule come into the order book early enough in the year we.
We would recognize meaningful revenue later in the year.
Do remember that full year 2021 sales includes $21 million from Calcasieu pass revenue in the first quarter of 2021, as well as $30 million of 'twenty 'twenty one revenue from the acquisition of Cryo technologies. There is no additional big LNG revenue included in our outlook. Although we do believe new orders will be received during the year, which would be additive to our <unk>.
Guide is important to note that our pre COVID-19 typical year would have little first and fourth quarters with the second and third typically the highest quarters in year. This year and we expect the first half to be lower than the second half based on the lead time on our backlog. We also expect the first quarter of 2021 to be sequentially down when compared to the fourth from 'twenty, but up.
When compared to the first quarter of 2020 so.
So that brings us to the rest of our guide on slide 21.
We anticipate full year non diluted adjusted earnings per share to be approximately $3 50 to $4 on 35 5 million weighted average shares outstanding up from our previous estimate of $3 10 to $3 45 or.
Our assumed effective tax rate is 18% for the full year 2021, we expect capital expenditure spend to be in the $40 million to $50 million range driven by organic investments in our high growth areas inclusive of expanding product capabilities and our Teddy trailer and tank facility completion of our repair and service facility in South Carolina R&D New.
This development for hydrogen and continued targeted lease fleet expansion, even with these additional capex investments, we have increased our free cash flow guidance to $190 million to $220 million, reflecting a 14% to 16% of sales range.
Finally on slide 22, the appropriate place to conclude today's prepared remarks is our unique position to not only focus on our own ESG scorecard, but also help our customers achieve theirs.
You can see the continued growth in our customers' movements towards accomplishing their ESG targets through the utilization of chart equipment, including an over 100% increase in water treated in the U S. When compared to the prior year and a greater than 100% increase and a reduction on diesel using heavy duty over the road trucks as a result of our equipment and processes.
And as we released in December this year 2021 hour from incentive targets for everyone. On the executive team include a portion related to our chart carbon emissions reduction target for the year.
Personal and measure two keys to success in achieving it.
Finally, before we open it up for Q&A, we have an open issue. That's not included in our results, which was brought up last night by our external audit firm regarding the Air X Changers training as of October one 2020, which is our test for impairment Ironically chosen by the auditors to avoid last minute subjective issues. The ex E trade name has full book.
Value of $55 million all of the discussion is around $12 million of that to give you a little more color on this everyone involved including Deloitte agrees that the carbon capture market is taking off and going to be very active over the next decade.
We hired another big four firm to prepare the impairment analysis on the trade name, which includes challenging of the inputs and review of results and they included the carbon capture potential and their conclusion was no impairment. So the outstanding debate at this point is what exactly could have been known by projects for the next 10 years exactly on the October 1st day, and where it is in the spreadsheet.
Whether it was known or not at that day. So you get the idea that this is a technical accounting items and the outcome will be included in our 10-K filing which we expect to file within the next few days.
If the resolution of this is different than our teams position.
<unk> per share would be correspondingly reduced however, adjusted earnings per diluted share would be unchanged from what had been reported as it would be a onetime noncash non operational items, regardless of the outcome you've heard what we think of the potential growth from carbon capture market, where our air coolers are very well positioned with that I'll now turn it over to Wanda.
To open it up for questions.
Thank you.
Ladies and gentlemen to ask a question you would need to press Star then one on your telephone.
To withdraw your question press the pound key.
Again, Thats star one to ask a question. Please stand by while we compile the Q&A roster.
Our first question comes from the line of James West with Evercore ISI. Your line is open.
Hey, good morning, Joe.
James.
So you've got a flurry of investments.
Actions M&A on the last couple of months.
It seems to me that most of these or companies you know well.
They werent sourced by bankers I think she does on there so so.
<unk> shouldnt be a concern, but I'd love to hear just your thoughts on Paul on the integration of these businesses.
And if we.
If I'm correct in that this is going to be fairly seamless even though it is M&A.
Yes, and thanks, James for pointing out the fact that we've done these without using bankers on the thing that's an underappreciated element of these transactions and the relationships that we have in the market.
We are very familiar with all of the companies that we've either investing in or acquired and the integration assumption that you're making is at.
Just given 20 plus years of working together, whether it's with blue and green or whether it was with cryo technologies on it.
We've acted as if were one when we go to customers and when we have a supplier customer relationship on so there's not.
Much heavy lifting around the integrations and we will continue to ensure that the engineering teams work together, which they already have even pre pre deal.
Okay, Okay, Great and then maybe a related follow up for me, if we look at kind of specialty markets of carbon capture hydrogen.
Water treatment.
Q3 that are on the green or sustainability spectrum here.
What do you see as the cadence of which ones are going to hit.
Your piano first which ones are coming on later result come at the same time kind of how do you think about managing that growth.
Well certainly on hydrogen is continues to be active so as I as I commented on.
<unk> has built a little bit of conservatism into our thinking purely because it only became so active really starting in may of last year, and we wanted to make sure. We didnt kind of get out over our skis you know somebody I think asked the question of I thought you guys on linear at $55 million of revenue in your range of <unk> 43.
<unk> pre cryo technologies at the low end of the range. So obviously 55 is very realistic.
I think it will continue to see a hydrogen step up I think it will become much more active on the liquefaction side. So the liquid hydrogen side, especially on these heavy duty transport activities that are really ramping up between now and 2024.
The carbon capture is almost view carbon capture is 12 months.
It is and its evolution is feels like it's about 12 months behind where hydrogen is and so we're starting to see quite a bit of that activity like that 50 potential customers on carbon capture but just like early last year, where hydrogen customers were sorting through do I wanted to a green hydrogen project or do I want to be maybe a little more.
Real estate can get it done faster and do FMR blue hydrogen if that type of discussion on the carbon capture side. So I anticipate that's going to get rolling very quickly and incentives around that also has been evolving.
A lot of our a lot of our customers conversations is alright, heck, let's do a let's do in hydrogen ready LNG terminal and while we're at it let's have carbon capture associated with it. So there's this inter linkage concept to starting to to happen and water is just more consistent.
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My my opening remark about that Brazilian water treatment project is meaningful because these governments that are in places where there's water hasn't been treated previously are starting to think of this as an important step in campaigning and platforms et cetera. So we're really pleased to be.
First in the door on that Brazil project, because it has the potential to have a serious behind it.
Okay, great. Thanks, Phil Thanks, James.
Thank you.
Our next question comes from the line of J B Lowe with Citi. Your line is open.
Hey, good morning, Joe.
Hey.
Well, thank you for that slide 20.
A big fan of previous versions of that.
I wanted to thank you for taking it.
[laughter].
I wanted to touch on.
Just the air cooled heat exchanger and fans business I know that 2020 was kind of a tough year for.
That business, but only a 3% rebound in 2021 wondering if you could walk us through the moving parts of that.
Sure.
Way that we've thought of it is we're going to wait and see we're starting to see considerable recovery and again. This is to the low end as a reminder, here and then on the very bottom section a portion of that business is in the aftermarket. So it's in the RSL bucket, which you can see growing at 10%.
And then tack on that specific project column to with the $20 million and that's the portion of that $70 million order that we expect to be in the fourth quarter from a revenue perspective.
So overall, we are starting to see that business rebound in like.
I answered James's question around the carbon capture opportunities are starting to become more real.
I don't have any carbon capture built in to this particular outlook at the low end.
But that certainly has the potential to have one of these projects are content. If its equipment alone is somewhere between six and $10 million if its equipment and process between 15 and 20 on the demonstration projects. So I do believe that we will surpass the figures on this page on air coolers, but again, we're trying to give you.
You have a sense of.
How we're waiting to see some of that mid to higher end of our range rollout and to be Frank if order levels continue the way the second half was in 2020.
It's not a it's not a hard target to hit at the higher end.
Got you, Okay that makes sense my.
My other one was just on the LNG market.
We talked about one or two projects going ahead on the on the small scale on the large scale <unk> being one.
Have conversations.
On projects kind of beyond those those first couple that you guys have better line of sight to just given everything that's happening in the market and what kind of timing are you guys thinking about for incremental projects that could potentially come after those.
So I'm going to split my answer between Big LNG in small scale LNG small scale LNG actually has accelerated in terms of the conversations and speed with which the operators want to go from where from start to finish so you know what.
It used to be okay to say I'm going to work on and work on small scale terminal between <unk>.
18, and 24 months from now.
In order to first gas is now can you get it done and sort of 18 months. So that's we view that as a positive for our business because it's a quicker book and ship once the decision is made and once it's there it's ultimately.
Shifting dynamic on a small scale side, where there is the thought process around how do I get my terminal to be ready for other molecules, how do I get.
The opportunity for this to be standard so is able to be replicated and those are the conversations that have evolved really since COVID-19 happened on the big LNG side, we haven't really seen a shift outside of our.
Basically hit the skids in the mid middle of last year, and we didn't see a ton of conversation around these projects until really December type of timeframe and in the beginning of this year and the conversations have heated up very dramatically in particular on the engineering and making sure that we're ready to go when the signal is.
Given and then from there.
Next set of projects, there's kind of the same set of operators at this point, so you're dealing now with what used to be dozens and dozens of companies or operators that had the idea that I'm going to do a big LNG project and now it's homes on this set of <unk>.
And true operators out in the World on then.
Those are the guys that are looking at doing neither of the series and learning from what they had before I think that there also probably getting more.
More.
Activity around.
Efficiencies and that's where the process is coming to play et cetera.
Perfect. Thanks, so much.
Thank you.
Thank you. Our next question comes from the line of Craig Shere.
Two brothers your line is open.
Good morning.
So on the great quarter. Thanks, so much.
Can you provide a little more color around the sequentially declining specialties margins as a percentage of sales.
Sequentially rising margins repair service and leasing leasing.
And are you referring to Q3 to Q4.
Correct.
Okay, Yes, so in terms of the repair service and leasing side.
Had quite a bit of installation work and repair work on heat exchangers and those are projects that are quicker turn projects and they require quite a bit of skill set. Additionally on there we had a really strong December on ortho repairs and so those are those are again quick turn.
Type of repair activities and.
We'll continue to see any kind of that higher margin mix based on what we have on the backlog right now on.
On the RFS business.
On the.
Specialty side of things that really it just it depends on the types of products in specialty. So it really is a mix item on what's being shipped shipped at that point in time. So it's product specific is it a beverage tank I'm not going to go into detail on which are higher and lower margins within our <unk>.
Those categories, but there is movement around that.
Two quarter.
So it sounds like the <unk>.
<unk> higher margins are at least from now sustainable growth.
On a sequentially lower specialty margin, maybe bouncing around it could go higher.
That's a fair statement.
How meaningful could a full industrial customer order recovery post COVID-19.
And how much is really baked into 2021 guidance.
So we gave an anecdote in I think it was in my Cts comments around the fact that we saw rebounding activity from the industrial gas side in the fourth quarter and it had been very very soft from kind of Q1 to Q3, but even that strength you didn't make up for the softness in the rest of the year. So.
And that was on the eastern Hemisphere side of things I think we've built in a fair recovery here, but not an overly aggressive recovery on.
On the industrial gas side of things so.
That's the only could be a stronger bounce back and I think the way I would characterize the first six weeks of the year has been very active on the industrial gas side of the business but.
Six weeks does not yet make a trend and so forth.
We're just going to wait and see a little bit about that and some of it also depends on as these companies open up their field service guys coming back to being able to travel and so on.
During this a little bit higher too.
Thanks, and then lastly on the repair service and leasing the traction is really impressive.
I think if I understood you correctly, there were 78, new leases recently signed.
Sure.
What the average duration is of those leases and what do you think this segment's revenues could perhaps rise to over the next couple of years.
We quoted on 78, new ones in January.
I think we have 37 find and that's definitely getting a lot of traction certainly an aspect of the business. That's given on our commercial team a lot of flexibility in our Prs and leasing team is just on a great job in terms of what can it be and what we've built in the 15% growth.
On.
Excluding the air coolers, and the fans after market and kind of netting it at 13.
Internally, we've kind of talked around 17%.
On that business in this year and as it as the leases gained more traction that's going to go up from there certainly in 2022 and 2023.
So from a percent growth perspective also on the jumping off year and then.
The lease durations range anywhere from five to 10 years. So these are long term leases with full commitments they have down payments and then they have interest associated with them that.
<unk> is a good level of interest rate compared to if someone were just going out to the banks and borrowing money.
Thank you.
Our next question comes from the line of John Walsh with Credit Suisse. Your line is open.
Hi, good morning.
Hey, I appreciate all that Capex details on slide 21.
And.
Obviously, you have a lot of growth Capex, there and some of these end markets are still accelerating so just wanted to know if it was a fair assumption to think that the Capex line could run a little hotter here, but youre still able to do that mid teens kind of free cash flow margin on a go.
Forward basis, or however, you guys are thinking about it.
That's exactly right John So we still think that even with this higher capex compared to our normal kind of maintenance at 30 or sub sub 30 that will still be able to achieve that.
Free cash flow as a percentage of sales and that's really driven by you know the earnings profile, our working capital management.
Our supply chain.
Opportunities that we continue to go after around terms and inventory et cetera. So we're confident in that free cash flow figure.
Great.
And then obviously you highlighted it earlier I think a couple of people have already touched on it but.
The execution here around the long term agreements.
Pretty big step up obviously, I know you've been Incentivising the organization, but.
Maybe if you could just remind us how you've been incentivising the organization and if you think we should still think that there is kind of a step function change in front of us source.
Piece of long term agreements should start to normalize that at some point.
So we still think that there is incrementally more long term agreements and agreements with our customers to go after so.
Our goal with the organization is to continue to increase that breadth and depth of those agreements breadth being the number of them across multiple customers as well as multiple end markets and the depth of being on the types of products and the repair and service side being included in the.
On the organization.
We have multiple different types of incentive programs, but our commercial team. The biggest change that we made there was creating a global team with our chief commercial officer, leading that charge and so they they're structured and incentive to continue to go after making our customers sticky with us and.
Offering the flexibility that customers look for in terms of being able to say, yes to them and so you know I'll I'll spare you. The details of the types of the types of incentives associated with that but certainly think that the trend can continue it should normalize at some point right, but I don't it's not going to normalize in 2021.
So there'll be a tipping point, where we've hit kind of that customer set in.
The reason I say, it's not 2021 is because we're still.
We're still gaining new markets and new geographies and in those new markets and geographies that previously we just didn't have touch points in whether it was for a lack of manufacturing in that region or lack of commercial coverage. Those are where we're seeing a lot of activity hitting kind of first chances to say, let me show you what we can do and you can get.
Sticky with us.
Great. Thank you very much thank you.
Q.
Our next question comes from the line of Marc Bianchi with Cowen Your line is open.
Thank you.
I was curious if you could share with us what gross margin G&A and DNA is embedded in the guidance here.
Certainly so from me.
I'll start with a.
Side of things I think we've got about $70 million embedded which is split somewhere between.
<unk> $36 million to $38 million on depreciation and the rest of us being amortization.
And then in terms of the gross margin, while we don't guide to gross margin on this.
Around the 30% Mark as a whole for the company.
Okay and general administrative.
The G&A so you'd have to just back into that based on the numbers I gave you I don't have it handy here.
Okay.
For that.
And I guess, just thinking about the progression. So you said I think I heard that.
First quarter would be down sequentially, but up year over year.
Then.
We play out the rest of the year as you get into the second quarter, you've got calculus to rolling off.
But perhaps some other tailwind I'm just kind of curious as is it potentially second quarter lower than first quarter.
So that's kind of the first part of the question that I would call.
Sure. So we see actually incremental step up from Q1, Q2, Q2 to Q3 Q3 Q4.
Okay. Okay, Great and then as you think about the composition of the backlog that's driving the back half of the year here.
I mean is there.
As we get into 'twenty, two with the back half of this year's run rate be a reasonable starting point going forward or.
What are kind of the puts and takes as you.
Think about that run rate.
That's a very reasonable starting point as you head into 2022.
I use the term reasonable because again, while we will get challenged on maybe being too conservative at the low end of the guide you know as we see what happens in the first half with some of these newer specialty markets and the growth associated with them on me.
On the jumping off point being the second half of this year will be very valuable to think about 2022.
Thanks, a lot Joe I'll turn it back.
Mark.
Thank you.
Our next question comes from the line of people more channel with Raymond James Your line is open.
Thanks for taking the question.
Once they could tour back in time to the middle of 2019 ancient history. When you were talking about an upside case for earnings with large LNG project.
I think the at.
At the peak you said $3 annually is what it.
Moving to add that.
Best case scenario with everything materializes is that number still valid given given everything thats changed in the last two years.
That number is still valid, yes, and we think about it as alright in broad brushes $150 million of revenue on a big LNG project somewhere.
Somewhere between kind of yeah, 80 cents to a dollar ish.
On the earnings side.
Obviously that depends on what project depends on the content on all of that but on that.
It's a fairly decent proxy to use.
That's helpful.
Kind of a conceptual question about the service segment.
If you had an opportunity as a company to own and operate.
A part of carbon capture project than for example, collect.
The section 45, Q tax credit.
<unk>.
Would that be something that you have an openness to doing.
We haven't had that opportunity to date, primarily because we've consistently positioned ourselves as the process and the equipment supplier, but through our investment in Savant day that certainly is an avenue to be able to participate in that and it's not something that we would be adverse to given that the market.
Definitely embryonic and there's lots of creative ideas happening out there.
I'd say the best way to characterize my responses.
While we don't have that happening right now there's a lot of creativity happening in carbon capture and we certainly don't say no to thinking about those types of options.
Got it thanks very much.
Thanks, a lot.
Thank you.
Our next question comes from the line of Connor Lynagh with Morgan Stanley. Your line is open.
Yes. Thanks.
We've done a fair bit on specialty market. So I just wanted to sort of step back to some of your core.
Industrial customers I guess I would say overall 2020 held up a lot better than we would've expected coming into.
And the Lockdown I guess what.
What I'm wondering is if you can characterize or there are there pockets of your business that have.
Outperformed in some pockets of your business that have underperformed and basically what I'm wondering is if you can sort of help set the stage for if we start reopening the economy.
Later this year, what does that look like.
And some of your sort of base industrial business.
Yes, great Great point and question on certainly overall the business.
Held out better than anyone would have thought of love back in March or April of last year, I would say that just the general industrial gas side of the business. It has the.
The potential as the world reopens to to do more than what we have included here and that's just around the travel restrictions the ability for.
Some of the larger companies to get their people out into the field that type of a restriction implication.
We also are seeing and I think we'll continue to see more on the food and beverage on a dosing side of the business as the world Reopens so that.
Naturally you can understand that linkages to restaurants reopening people, having confidence to go to stadiums.
Multiples D&S tank style projects that go into stadiums movie theaters that.
Could come back and certainly then built into our thinking on the low end of our range. So those are a couple of different examples.
And pleasantly surprised at the start of the year on the trailer side of the business that I commented on my remarks, we're on that certainly got hit and that's really around.
The trailers that people are using require people to be out and about and so the start to this year indicate that people are thinking that the world is going to reopen in some way shape or form just based on the lead times of those trailers.
Okay got it.
If I were to look at.
Your favorite slide 20 there.
I guess basically what what type of World are you envisioning for some of the lower growth segments.
I'm thinking of like storage equipment.
It's basically just cryo tanks solutions in general.
What are you sort of contemplating in terms of.
First half looking like versus second half looking like and what sort of order activity do we need to see in the first half to sort of validate or caused you to revise that view.
Sure and so you're right I mean, that's the certainly the most conservative outside of our air cooler. So I'd say, which one are you being most conservative on Jill as air coolers second to that would be the the CTF side, just because of what we just talked about on the industrial gas ramifications and we have it fairly even.
We spread across the year in terms of the growth profile here on just based on the way that these orders book and ship so.
By by that statement it implies I don't have much upside built in here and.
We're in a wait and see mode on too.
His seat to see what happens really in the first quarter in that particular business is the first quarter does better than or thinking that would be the point, where we would.
Revise us because we'd have a much better sense, given the shorter lead times and the Cts business.
Okay got it I'll turn it back thank you.
Thank you thank.
Thank you.
Our next question comes from the line of Brian Brown with Lake Street Capital markets. Your line is open.
Morning, Joe.
Yeah.
You've talked a little bit about the leasing business.
What's really driving the growth or is that just your focus on it you are taking some share or as the market shifted to more of a leasing model.
It's more our focus on it and the fact that we've incorporated into our model and the Optionality that we have so it's around the opportunities were out there previously and we just didn't have the offering to go after those opportunities and now we do.
Okay, Great and then just.
Step back.
With a lot of changes in the business, what's sort of your current view on where you think operating margins can get to over time here with the new mix.
Kind of the new models that you've put in place in terms of the some of the some of the areas.
Sure. So our 2020 adjusted operating income as a percentage of sales was about 11% and we expect that that goes up incrementally being 150 to 200 bps per year across the next three years. So high teens is what we've got built into our internal three year outlook.
On.
Yes.
Great. Thank you I'll turn it over thanks, Rob.
Thank you.
Our next question comes from the line of Ben Nolan with Stifel. Your line is open.
Hey, Joe.
Okay. So okay.
I wanted to start a little bit on the fueling stations if I could.
As we've talked about it sounds like more and more interest is.
Evolving around sort of multi fuel stations, where they can do.
LNG or hydrogen or sanjay or whatever.
And.
Im curious what that means from a from a chart content perspective that maybe mean fewer stations, but more chart content or just in general you're seeing your content go up or how should we maybe think about that.
I think youll see more stations, whether those are new stations are retrofitting of existing stations and chart content goes up.
So it's a positive for us in both directions, and the retrofits and interesting one that I think it'll take a little bit of time to evolve the retrofit concept, but just.
Just not gonna go adding right next door to you know to a diesel station a hydrogen station. So how the the folks that own. These networks are thinking about that is really I should utilize my existing site and let's figure out how to design on that particular part of space that I.
Already on.
Okay.
Obviously, it lowers the barrier to entry in.
Absolute capital cost I would think on their side.
Expedite the decision, making beyond just sort of.
Otherwise.
Purely economics.
Yes, correct.
And then and then as my follow up sort of completely unrelated maybe sort of related but.
As it relates to the Ballard agreement that you guys announced the memorandum of understanding.
I'm trying to wrap my head around that a little bit is it really just kind of memorializing something that was already happening anyway.
Or incrementally.
What is what is different what has changed is does it at.
It all preclude you guys from.
Similar arrangements with other.
The fuel cell providers.
Maybe any color you can provide there would be helpful.
Sure. So it does not preclude us from working with others and doesn't preclude us from selling our equipment directly to any end user on.
Either with them and their equipment or just on our own. So you know the market is evolving in terms of how they're thinking about what do I want to do for heavy duty transport with respect to hydrogen and what I mean by that is there's some.
There are some players out there that simply want a liquid hydrogen on board tank and theyre going to figure out how to incorporate it with the rest of their heavy duty truck solution. There is others that want a fuller or more more fulsome solution and that's where the combination of Ballard with us on.
Offers that option and so back to the idea of Ala carte menu choices for customers who.
Either are going to do a component solution and do it themselves or they're looking for a fuller solution. That's really what it's intended to do.
And there's yeah, there's been some evolution and we've held back on the expansion of the addressable market size until we saw this kind of hitting a more commercial near term opportunity and that's why on the.
On the combination of where our tank is in terms of being ready to go the additional solution for the utilization of the tank with Ballard solutions, and then just what customers and why we felt like now.
Now is the time, where we can say there is a market out there and it's it is going to happen here.
In the near term so that's really.
The upshot of that conversation, so you'll see lots of different partnerships in the hydrogen economy and that's the goal being that we all together find ways to create more cost competitive solutions for that molecule.
Okay, that's great. Thanks.
Thank you.
Thank you.
Our next question comes from the line of Walter Liptak with Seaport. Your line is open.
Alright. Thanks.
Good quarter and thanks for taking my question I wanted to ask about the <unk>.
The big fee gain in the quarter.
Just to understand a little bit on the accounting of how that happened.
A recurring thing.
So the next few gain as the mark to market on our investment so the movement in their share price from the start of our investment until the end of the quarter on that Mark to market will happen every quarter, so whatever direction. It goes.
Chose to share that just as an individual call outlined because some folks have estimate embedded in their outlook for the impact of mixed see through that and some folks don't and so we just wanted to be clear on.
However, each individual handled it themselves, but certainly we expect continued benefit from the relationship with <unk> non mark to market perspective, but also from the commercial opportunities that the two of US are working on together, which you would see day.
Directionally in our P&L from from the from the ladder.
Okay got it so the 2021 EPS guidance excludes any future James from Mcafee that.
That is correct.
Okay great.
And then I just wanted to ask about.
The hydrogen business.
And I thought I heard you say on the comments that you were at a run rate now of 55 million, but I wanted to understand.
The guidance.
The acquisition in there.
What is the revenue run rate that you're at right now and then.
And then as that market continues to evolve in 2021, I think I was hearing that that could be a conservative number I wonder if you could just provide some more details.
You were definitely hearing that what we have built in on slide 'twenty could be conservative.
On the way that we have.
Slide 20 built is existing backlog as of the end of the year, which is 38 million $39 million plus drop in first half orders of about five plus $30 million for.
Cryo technologies to two or to our P&L on the year. So that's how you get to the $73 million built into our outlook.
In terms of the run rate.
We are yet to be able to give a run rate because there has been only a couple of quarters of this type of hydrogen order activity and so it's too difficult for us to say, yes. This is going to continue on every quarter. This way or this is how it's going to step up but the activity in that market is significant.
Just the amount of customer discussions that we have every single day on about hydrogen equipment is astounding.
And so that's really where we said alright ex.
<unk> Cryo technologies, 30, and you're at $43 million of sales in our 2020 outlook at the low end could that be 55, yes, right. So that's that was where the 55 comment came into play.
Okay, Alright, thank you very much.
Thank you.
Thank you.
Our next question comes from the line of Ian Macpherson with Simmons. Your line is open hi.
Good morning, Thanks for.
Taking the question here so.
You are below your your leverage threshold and you're you should generate a couple hundred million dollars of free cash this year.
Does your pipeline look like for additional bolt on.
I would presume that we would see a deceleration from the past six months, but I don't I wouldn't want to put those words in your mouth is there are there still interesting.
Targets out there and if not just maybe a couple of words on.
Deployment of surplus capital looking forward. Thanks.
And so yes, there certainly are more interesting targets out there there's not as many in as short a period of time is what's happened over the last three to four months, which of course as you're well aware you can't always time investing through acquisitions perfectly, but theres still appealing additional equipment that we.
We would like to tack on to the portfolio, if and when it becomes available but from here, we feel like we're really well set up for carbon capture for hydrogen for all of the liquefaction across the molecule set so there's nothing that we need this will be more around opportunistically.
<unk> finding.
The ability to fill in gaps and we also think about it on the organic side. So the deployment of capital right you saw us raise the capex outlook purposefully.
And that's because we think in some cases, it's easier and quicker and more beneficial to our financials to develop on the stuff ourselves and that's why you know think of it as all right, we're making an additional $10 million acquisition of our own stuff and developing it that way. So those are.
The two ways, we're thinking of capital deployment and I don't want to be remiss and exclude continued debt pay down because we do expect to generate mid teens as a percentage of sales free cash this year and our expectation as we continue to drive down our debt profile.
Perfectly clear thanks, Joe that's it from me.
Thanks, Ian every day.
Thank you. Our next question comes from the amount of Chase Mulvehill with Bank of America. Your line is open.
Hey, Thanks for squeezing me in I think by now my power in my water might be on.
So.
I was just curious you've taken so [laughter].
But I guess first I wanted to talk about gross profit margins.
I think in the quarter, there were a little bit light versus kind of expectations. I mean, obviously repair service and leasing where strong but the other segments came in a little bit light. So.
So maybe because you first kind of talk about maybe some.
On issues, there's some puts and takes to kind of what happened on the margin side in the fourth quarter and then how should we you said, 30% margins or kind of assumed in your 2021 guidance how should we think about those stepping up to the.
The step up back to closer to 30% in the first quarter or does it gradually kind of step up throughout the year.
Sure. So I'm glad to hear you were able to dial in I know, it's a complete mess on there so hope here.
If everything is okay and I appreciate the question.
No.
I commented on one of the earlier questions around product mix in some of these segments and specialty being one of those where that was the biggest driver on that side of things on the other it was really around.
Some of the timing and heat transfer system, where so those were the two drivers of the.
Sequential decline in gross margins from Q3 Q4, but overall for the full year being at over 29%, we think that the 30% Mark for 2021, given having a full year of all of that cost out that we talked about the $60 million plus of annualized cost out that we did in the first half of <unk>.
<unk> will get the full year of it this year on should give that 30% of very very very realistic shot.
But he always accuses me of conservatism.
And we'll see that step back up.
We expect that Q1 on that 28, 7% steps back up above 29% and probably closer to the 30% Mark in the first quarter.
Got it alright, that's very helpful.
The other follow up I had was on carbon capture and carbon capture opportunities on LNG projects.
So you've detailed three LNG projects.
It could potentially happen this year.
In your slide deck.
Could you talk about the opportunities are on carbon capture on those projects or are those.
Customers looking at carbon capture alternatives for these projects or the.
The other projects outside of the ones that you've listed here.
So I would say all of the LNG players are contemplating how to sure that I'm doing greener LNG or cleaner LNG on that doesn't necessarily mean, they're all thinking about it the same way so on the ones on the slide there's multiple different types of conversations happening there but.
What youre going to see cases that the small scale and utility scale LNG takes more of the carbon capture.
And so.
Those are the conversations that are near term.
Whereas the Midscale and the base load guys they've got it they've got to get through construction and so on and it's not.
And I'll say it is not difficult, but while it's always easier to design something and upfront and I think the urgency on the Midscale on diesel from an export standpoint is getting.
From where we are today to through construction into being able to produce and export gas, whereas on the smaller scale side given that these are more standardized projects, they're faster, they're 12 to 24 month projects. They they're thinking of let me figure out how to optimize my smaller footprint that I have in some case.
On close to an industrial end user in other cases on working with you know Inc.
In some cases it could be a country that is utilizing the small scale terminal the gas coming from it in that country is thinking about carbon capture at the other end. So I think you'll see the first of these kinds happen on the smaller utility scale projects.
Got it makes sense I appreciate the color.
Thank you.
Thank you.
Our next question comes from line of Greg Lewis with <unk>. Your line is open.
Check to see if you're on mute.
Greg are you there.
I have no response from him.
I'm showing no further questions in the queue I will now turn the call back over to Jill for closing remarks.
Okay Fantastic. Thank you to Wanda and Greg if you need to follow up with US just give us a shout offline and thanks, everybody for listening today, our excited about our increased outlook for 2021 and look forward to talking to you all very soon thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
Yes.
Okay.
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Moving on.
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