Q2 2021 Chart Industries Inc Earnings Call
[music].
Earlier. This morning, if you have not received the release you may access it by visiting charts website at Www Dot chart industries Dot com.
Telephone replay of today's broadcast will be available following the conclusion of the call until Thursday July 29, 2021. The replay information is contained in the company's press release before we begin the company would like to remind you that statements made during this call that are.
Not historical in fact are forward looking statements. Please refer to the information regarding forward looking statements and risk factors included in the company's earning release and latest filings with the SEC.
The company undertakes no obligation to update publicly or revise any forward looking statements I would now like to turn the conference over to Jill Evanko chart industries CEO. Thank you. Please go ahead.
Thanks, Stacy and good morning, everyone. Thanks for joining us today for our second quarter of 2021 earnings call.
Today, I'm going to start by providing a picture of why we believe this decade is going to be the Roaring 2000, Twenty's for chart and also why I continue to say that the metric to look at it as orders as this profitable growth story is not about 'twenty 'twenty..1 it's about the coming years, which we believe are going to be the perfect storm of industrial gas LNG clean energy all happened.
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Were strategically positioned with an extremely differentiated product offering for this broad based growth for the processes and equipment that we provide to a variety of different end markets.
1 of the beautiful parts of our business is that we aren't reliant on picking 1 winner in the clean energy transition, we benefit from all of them having a place.
That's also of the benefit of being molecule agnostic. So let me set the stage with the 3 key reasons or fundamental that's the wire business will experience significant or explosive growth first.
First there are numerous macro tailwind across the clean energy and industrial gas applications and markets.
We are experiencing broad based demand with record orders in Q2, our third consecutive quarter of record order activity and third our recent strategic inorganic and organic investments set us up with the right geographic footprint, the right partners and access to significant commercial penetration globally in the nexus of clean.
Whether we're talking about hydrogen biogas carbon capture of water treatment or clean food and beverages.
The first driver of that support this growth are the global macro tailwind as shown on slide 4 of the supplemental presentation released this morning.
The 4 main areas that continue to drive our demand increasing global economic activity clean energy transition government support for that transition and finally LNG activity.
Let me take a moment to talk about broad based global economic activity that is happening whether its seo to food and beverage even pockets of the legacy oil and gas I'll pick 1 of these macro trends to go into which is food and beverage, but there are similar data points for each market and application that we can share with you if desired.
Restaurants reopened and this resulted in eating and drinking locations, reaching $70 billion in sales in June alone globally Junior.
The Union represented the fifth solid increase in restaurant sales in the past 6 months and as a result chart beverage sales continued to increase.
On June Mcdonalds Chick Fil, a yum in an hour of Jack in the box Kwik trip target of Jimmy John's and theater groups, Cinemark and Regal order for new construction as well as retrofit from us.
The clean energy transition what can I say about this this could take of day to walk through all of the happenings in the market around the focus on clean power, Let me point out of few macro updates here.
The 90 countries, representing 80% of the world's GDP are now committed to net zero target.
More than 30 countries have national hydrogen strategies and of the allocated $76 billion of government funding.
In June and July alone the U S.
The department of energy announced funding and policy to enhance the energy transition.
British Columbia in Ottawa in Canada announced involvement in clean fuel funds in the EU launch they're fit for 55 plan.
Even Greece announced 44 billion euros of Green funding.
A lot of times, the clean energy discussion centers around North America, and Europe, China, and the emerging as a hydrogen leader and expects the hydrogen to comprise 10% of its energy share in the coming 3 decades.
And we're further differentiate it and our global hydrogen offering with our group code of China certification on our liquid hydrogen storage tank, which is really not easy to get.
Additionally, India's surfacing with numerous actions around green hydrogen planning and we're well positioned as a founding member of the India hydrogen alliance with partners, such as reliance industries and J S. W.
Don't forget the pressures mounting on the private sector as well for sustainability and ESG. This is taking on many shapes and forms and 1 kind of little neat 1 is Tokyo of hotels that announced the launch of their first hydrogen hotel will.
We'll come back around to LNG later in today's discussion.
So how are all of these headwinds translating to us.
We booked 44 points of $447.9 million of orders in the second quarter of record high.
This translates the all time record high backlog of nearly $1.1 billion and sets up 2022, very well, including very strong second quarter industrial gas orders, which insignificant part is an indicator of our customers' confidence in 2022.
Won't run through all of these as you can see them on slide 5 but the point out a few.
Our specialty segment had record orders backlog and sales in the second quarter.
We had 16 first of the kind of orders contributing to a record water treatment orders was the first of the kind for an odor treatment system for significant brewery in the U S.
Also received our first order for a complete LNG station in the Czech Republic, and apparently a heck of a lot of people are brewing beer and making 1 of these days as we booked first time orders for nitrogen doses with 13 different customers.
133, new customers placed orders 63 per cent of whom are outside of North America. Another great growing trend that we're well positioned for outside of North America.
Another way to think about this widespread growth is how many individual orders greater than $1 million in any given period and in the second quarter, we had 60 of them.
Hydrogen orders of $81.9 million, where a third consecutive record and included of helium liquefaction plant for a company in Russia as well as 22 liquid hydrogen trailers.
It looked more overall trailer orders. So this is total mobiles in the first half of 'twenty 'twenty 1 than in the full year of 2020.
338 trailers this year to day compared to 335 for the full year of 2020 and 355 for the full year of 2019.
And China continued its streak of records, including record orders as well as shipping the largest fault, Inc, and our chart China history.
With our portfolio of structured in the way that we can pull on multiple levers for this decade of anticipated growth I thought and that would be a good time to address many questions that we received about what of 2030 total addressable market could look like for our business based solely on what is in our portfolio today and excluding new product introductions that we anticipate to have across the coming years.
Note that this is the product and market level bottoms up build from our team and we have specific assumptions for each specialty area.
As you can see at 36, and a half a billion dollars of addressable market in 2030, we have considerable runway for growth.
And of market like hydrogen, which is 1 of them with very fast evolution, where over the next 2 to 5 years of options in the value chain will be assessed in chosen we're well positioned I would note that hydrogen council just released updated data that indicate announced hydrogen projects increased by $200 billion since February of this year, bringing the total.
The amount of investment in this decade to 500 billion. This is the 67% increase in 6 months on these announced projects.
Additionally, we're currently in various commercial discussions with over 300 potential and current hydrogen customers globally.
If you remember when we started sharing number of customers in April of last year, we were at 30.
Slide 7 of the familiar slide and shows you our evolution of adding partnerships and capabilities inorganically over the past 12 months.
These investments in acquisitions of already returned to us in many cases, even though theyre. All the recent addition, so turning to slide 8 you can see some of the impacts each has already had the chart.
Pointed out of few.
Our cryogenic hydrogen trailer acquisition for $10 million from Worthington and the fourth quarter of 2020 has resulted in record orders for hydrogen trailers and record backlog levels in the second quarter as I mentioned already we booked 22 liquid hydrogen trailers to give you a sense of this in relation to history in any given year. The most trailers sold prior.
Now with 9 in a year.
We're tracking to over 1 per week this year.
We certainly wouldn't of books of the helium liquefaction of order without cryo technologies in house and through this acquisition, we have increased our probability of winning our hydrogen and helium liquefy, our orders of which we are quoting on over 30 now.
Mixed Ian H Tech have brought us numerous commercial opportunities that are currently being worked many of which are under NDA. So I can't go into detail there, but I would also point out the each has relationships with their respective in French and Canadian governments that of physician chartwell on regional hydrogen projects.
I also wanted to take a moment and congratulate savant day on their 25 million dollar of investment from the Canadian government together Savant Afcs and chart has been working on numerous carbon capture projects and this quarter, we signed an Mou with Teco 2030 on developing a technology solution for carbon capture for the marine industry.
I would be remiss not to comment on the incredible synergies we have seen in our first 8 months of wound green ownership, including second quarter 2021 record water treatment orders booked over $7 million of water orders and 70% of these orders had both chart and blue and Green content.
On our latest flow acquisition L. A turbine closed on July 1.
He is the global leader in terrific standard design Engineering manufacturing Assembly and testing process for new and aftermarket equipment.
And most importantly, with significant in house engineering expertise.
As I commented on the <unk> acquisition call. There is a very unique expanded required for hydrogen and helium liquefaction, which is difficult to obtain in the market due to a limited number of companies like <unk> that are capable of designing and producing it.
These are very specialized extenders and as I said, they're difficult to design and produce as they require very high efficiency in some cases oil free machines.
And this is part of the local fire. That's 1 of the longest lead times of 1 to 2 years, depending on the configuration.
We're very excited to have the capabilities in house and gives us a.
Very expansive position in the expanding liquefaction market.
But perhaps most meaningful is the number of customer inbounds. We've received in our first weeks of the ownership about access to la turbines ICH standards, usually I discount revenue synergies, but based on the quality of customers asking for quotes I'm very confident in the outlook. We have for this business in 2022 and beyond.
Wont comment on all of them on the slide, but certainly each on its own and many of them working together of already proven to be beneficial to have as partners. So now turning to the second quarter results on slide 10 Merck.
Our second quarter orders were significantly above our expectations and Joe has already described this broad based demand sales.
Sales and adjusted EPS were slightly above consensus driven by our team's continued execution.
Reported gross margin as a percentage of sales of 25, 8% reflected onetime restructuring and startup costs as well as material cost headwinds, which I will talk about on the next slide.
The 1 time costs were primarily were primarily related to our startup activities in our manufacturing locations, where we are adding capacity such as steady trailer tanks and Beasley, Texas.
Opening our repair and service Greenfield facility in South Carolina, and creating flexible manufacturing and Tulsa, Oklahoma.
When normalized for those gross margin as a percentage of sales was 29% and we expect that sequentially between now and year end gross margin as a percentage of sales will increase.
RSO had a sequential negative swing in gross margin as a percentage of sales driven by less quick turn service projects and specific product mix.
As you can see on slide 11, we faced significant material cost pressure in the second quarter and as I'm certain you have read or heard from others material and supply chain disruptions that plagued the global sourcing world.
Given already stressed meals for stainless steel carbon steel and aluminum we made the strategic decision to secure raw materials through the end of 2021 by a contract.
Which in part impacted first half 2021 inventory levels and free cash flow.
Additionally, we built inventory for the second half of 2021 anticipated shipment levels consciously understanding that we expect the broad based demand we have seen year to date <unk> will not continue at record levels continue significantly above the historical typical demand rates.
This is a good problem to have coupling the global macro supply chain challenges with customer expectations for on time delivery, we needed to make sure we didn't run into a shortage.
With that said and our anticipated higher sales in the second half, we expect inventory levels to decline in both Q3 and Q4.2021, So let me chime in here.
We're very pleased with our strategic and I'd call out specifically temporary decision to increase inventory and I can tell you that many of my counterparts of indicated the chosen chart because we can hit their much needed deadlines and in some cases on a normal competition could not because of the material supply and also if you take a look at free cash flow and you add back 1 time adjustments divestiture.
Tax payment and temporary inventory build year to date, we would've been right in line on our progress to our original $200 million free cash flow target.
So on to the cost side.
Current quarter 2021 cost of materials were negatively impacted and although our agreements allow for surcharge of material escalation. This is typically 3 months delayed per pass through.
For other products and customers that do not have surcharge mechanisms, we needed to increase price.
Price increases went into effect July 1 averaging 8% to 12% depending on product category.
We do think there was a portion of our end of June order book that reflected certain customers ordering ahead of the price increase so take that into account. If you are forecasting Q3 order levels.
Back to you Joe for segment specifics. So 1 of the segment results briefly since you can read the slides on your own and spend a little time on each segment the areas of significant growth of key points as we head into the second half of the year starting on slide 12 specialty I'd summarize this with the simple statement of just widespread and for all of specialty products as evidenced by record orders backlog.
And sales in the second quarter with.
The sales and orders increased over 100% compared to the second quarter of 2020, and both increased sequentially compared to the first quarter of this year by over 30%.
The gross margin as a percentage of sales was consistent with prior quarter and we will continue to be in the mid to high 30% range, depending on the mix within the product category sales.
Slide 13 shows you our hydrogen activity, which has been off the charts in the second quarter, we booked nearly $82 million of hydrogen related orders, our third consecutive quarter of increasing and record hydrogen orders.
The primary areas of current demand are for liquefaction hydrogen trailers and hydrogen storage tanks and vaporizers.
Said differently in the last 6 months alone, we have booked $153 million of orders for hydrogen processor equipment.
Also noteworthy is the fact that in addition to our trailers and backlog. We currently of formal proposals to our customers for over 100 additional liquid hydrogen trailers and our quoting as I commented earlier on 30 hydrogen liquefaction projects.
I was with some business colleague last week and we got started on a random conversation on unique places to go in the World and 1 Guy says the Oregon because of claims to have the second highest mountain and the second highest waterfall and the second test in the second that and Thats. The brilliant because no 1 can ever take the time, nor do they want to to prove whether the second is actually true.
I tell the story because we had chart don't want to be we want to be first and with the most offering which is why I'm excited to share more of our inorganic and organic activities that further differentiate our hydrogen offering.
We received our first liquid hydrogen ISO container order in the first week of July.
In the liquid hydrogen ISO is now commercially available.
Our organically developed hydrogen onboard vehicle tank will be commercially available in August and introduced in conjunction with our recently announced partners highs on motors for which we executed the joint agreement for heavy duty long haul trucking this past quarter.
And finally, our hydrogen test facility received its first of all of the hydrogen is actively being utilized by our customers for their hydrogen testing needs.
Now moving to slide 14 repair service and leasing RSL posted record sales in the second quarter driven in part by significant shipments from China, which were lower than typical margin also while we saw less quick turn on field work, which tends to be higher margin. We do expect that gross margin as a percentage of sales returns in both the third and fourth quarter into the 30%.
Cryo lease revenue in May was $5.4 million in June was $8.6 million.
Which compares to historically doing of $1 million per year.
And while there will be variability month to month and quarter to quarter on RSL you get the idea that the leasing business is doing very well.
In June we officially opened our RSL site and strategically located South Carolina, the location that our industrial gas customers have been requesting.
We've already received numerous customer tanks on site another step to our over 20% of chart revenue being in the repair service and leasing segment within the next 2 years the.
The building blocks for this increase are shown on slide 15.
<unk> was 17% of our total revenue in the second quarter of 2021, driven in part by an increase in leasing revenue and in part by the fact that we know of 80 customers with repair and service agreements globally, including half of those outside of North America.
And after only 1 year of offering these capabilities in Europe, we already have 56 fueling stations in that region on long term service agreements.
Our investment in our broader yet disciplined standard of leasing fleet continues to return to us with 94, new leases signed already year to date.
Moving on to slide 16, which shows our cryo taste solutions segment results for Q2, Theres numerous noteworthy data points from Q2 that contribute to our confidence both in the second half of this year as well as the full year of 2022 outlook.
The market consumption of bulk tanks continues to be strong with shipments of over 200 tanks each quarter over the last 4 quarters and to provide a reference point on that 2 years ago. It would've been about 160 bulk tank shipments per quarter.
<unk> gross margin as a percentage of sales in Cts of 25, 9% as of historical record, even when considering the material cost challenges Mark described and perhaps most important is on slide 17.
Where we were talking earlier about the strong industrial gas order activity being 1 leading indicator of confidence in 9 to 12 months out demand across gas applications.
We've included slide 17 to go 1 step deeper which I thought was important to include because it demonstrates that the record orders weren't simply in 1 area of cryo tank solutions, but also of products across the <unk> tanks packaged gas equipment engineered systems and mobiles.
So very strong where ISO containers for which demand continues globally, we manufacture ices in various locations, although our lowest cost location for this product is China. The big Thank you to our team in China that is worked through expanding our ISO container manufacturing capacity, there by 50% for our 40 foot ISO and 67% for our.
2000 foot isos, so we're able to bring in more of this growing market.
The transfer gets the brunt of being our most cyclical segment and that remains true as you can see on slide 18, the <unk>.
Story of HTS and the second quarter was mainly at the comps specifically sales show a decline due to the comparison both in Q1.2021, and Q2.2020 with venture Global's Calcasieu pass the big LNG, respectively being included whereas the second quarter that we just completed only had $5 million as we shift our final cold boxes and heat.
Seniors I'd point out on time and in budget.
On the order side, our first quarter of 2021 included the bookings for new fortresses fast LNG project.
So with that replacement activity is high with plants running at higher capacity factors with changing capture in rejection mode, and we expect that the benefit both the HTS and RSL on the second half so let's not forget about LNG on slide 19.
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We thought we'd give you guys a little humor in the middle of the earnings season and.
The messages there when we think about our LNG business, we think of it in 3 categories Big LNG export projects small scale on utility scale, LNG and LNG infrastructure remember that additional big LNG is not included in our 2021 guide or our 2022 outlook, but.
But I am very bullish on 1 to 4 U S. Gulf Coast export projects that already have FERC approval moving ahead to FID in the first half of 2022, there was considerable second quarter 2021 activity announced in the space and Theyre also has generally been more market and government acceptance of LNG in recent months of far different attitude than it was in 2020.
As I commented Nse's fast LNG project progressed, the full notice to proceed within the second quarter of 2021, and we received the letter of intent for a small scale LNG plant in the northeastern United States, which has not yet been booked but we expect it will go to notice to proceed around year end of this year.
There continues to be widespread and strong demand for LNG vehicle tank fueling stations in trailers not only did we have record orders again in the second quarter for LNG vehicle tanks, including our largest LNG bus order in our history. It was also a record for our operations in India, where we booked the largest number of <unk> stations with our partner <unk>, India trusting us on it.
An additional 13 stations booked at the end of Q2.
I would reiterate that we are positioned as the leader in the segment in India and I do believe India is an underappreciated region and the energy transition.
On Slide 20, you can see our adjusted non diluted earnings per share of <unk> 80 for the second quarter 2021, which excludes the negative impact of our mark to market on our minority investments in particular this quarter driven by the share price swing in <unk>. You will note that we have included both adjusted non diluted EPS and <unk>.
Adjusted diluted EPS on a year to date basis through the first half of 2021, our adjusted non diluted EPS increased 88% when compared to the first half of 2020 and adjusted diluted EPS increased 76% compared to that same period.
Slide 22, and 'twenty 3 show a few different ways, we triangulated on compared to our full year 2021 sales guidance on slide 22, you can see the major product categories and the growth from the path to the second half we are increasing our full year of 2021 sales guidance to $1.3 5 billion to $1.43 5 billion.
As always does not include any additional big LNG revenue.
This increase the outlook is driven by a few factors that you can see on slide 23.
The slide 23 shows the comparison to our last full year guide I pointed out the 3 key drivers of our increased guidance first the addition of <unk>.
Second the shift of specific small scale LNG projects timing into 2022 simply based on their project schedules and less second half anticipated growth in heat transfer systems based on the legacy oil applications not recovering to their full historical $70 oil price levels. I'd also reiterate that in the prioritizing of reporting if he transfer.
The products are used in either specialty or RSL Theyre reported there. So those shops are still very active it's simply geography on reporting.
And finally more than offsetting the timing shifts in the HTS is the amazing demand in specialty as you can see every category within specialty as an increase in our forecast from the last guidance.
It's very important that you understand the largest sequential ramp in sales in the second half is expected to be from Q3 to Q4 of this year.
There will be an increase from Q2 to Q3, but a very significant step up from Q3 into Q4 due to the timing of our Rev. Rec on the already announced the liquefaction projects.
So that brings us to the rest of our 2021 full year guidance, we anticipate full year non diluted adjusted earnings per share to be approximately $3.80 to $4.25 on 35.5 million weighted average shares outstanding up from our previous estimate of $3.65 to $4.15.
Per share on.
Our assumed tax effective tax rate is 18% for the full year 2021, our expected capital expenditure outlook is unchanged from our prior guidance and then and expected to be in the $40 million to $50 million range. Although we have lowered our free cash flow outlook to approximately of $150 million due to the need for on hand.
<unk> as explained earlier.
Given our record backlog as of June 30, as well as visibility to anticipated broad based demand. We're sharing our first look for revenue for 2022 on slide 25 of.
2022 sales outlook is expected to be in the range of 1.6 to $1.7 billion.
And does not include any additional our new big LNG projects, Although we bullishly expect between 1 and 4 of these big LNG projects to move ahead.
You can see the walk from our existing nearly $460 million of 2022 backlog in the green box on the real 1 to the 1.6 to $1.7 billion initial book unrelated.
Additionally, note that rose, 9% and 10 are not included in this initial outlook.
We always like to provide an update either on how we're helping our customers achieve their ESG targets or progress on our own today, we share our diversity and inclusion contest winning tagline, which can be used in conjunction with cooler by design or on zone. So we're very proud to be chart cooler together congratulations to our winning members for our DNI Taglines and <unk>.
To all of our team members, who submitted entries. This is another great example of the incredible 1 chart team and culture that we have with that I'll now turn it over to Stacy to open it up for questions.
Ladies and gentlemen, if you have a question at this time. Please press. The Star then the number 1 key on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the queue. Please press the pound key in order to allow as many callers as possible to ask a question. We request that you limit yourself to 1 question.
Plus 1 follow up question. Thank you. Our first question comes from Rob Brown of Lake Street capital.
Good morning, Joe.
Rob.
Hi, Good morning first of all day on.
The hydrogen trailer demand could you give us a sense of sort of what's driving all of those orders at this point of how sustainable that is and maybe kind of the price per unit on those.
Sure I think that I'll take your middle question first the sustainability around the increase in demand is going to continue throughout this decade, and I think we'll continue to see that tick up as instead.
Instead of Siloed projects happening there is now more of a network of production locations and users to consider the hydrogen transports kind of in the middle of the value chain and connecting the production locations to the end use locations. So that's really the the market driver of that I would also say, we're seeing a <unk>.
<unk> shift from what previously was focused on gaseous transport into liquid transport for all of the density pressure and pumping capabilities that liquid brings but really more than anything the longer haul distances that that look would give to these heavy duty trucks.
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The in terms of what we're quoting on right now I commented that we are quoting on over 100 additional trailers to the record backlog. In addition to the record backlog that we have already as of the end of June.
And the.
These are a really wide range of customers, which is something that I like so not heavily reliant on any 1 particular customer that's requesting needs. We're working to have at a minimum production of 1 trailer per week as we head into the second half, but we anticipate that we're going to need multiple trailer per.
Weak manufacturing capability to hit the increasing demand as we head into 2022 and 2023.
This typically range from kind of 1.25 million to $1.7 million for a liquid hydrogen transport.
It depends on the size and the structure.
The 28 floaters are 53 floaters tandem.
But that's kind of a good just wanted to pick off the middle for an average selling price that would that would work pretty well.
Okay, great. Thanks for the color on that and then on the margin improvement expected in the guidance.
Could you just kind of walk through how you expect gross margins to improve I guess, how quickly coming on board.
Pretty meaningful stuff on compiling and guidance.
Expand on how you can kind of get there.
Yes.
We had a.
As anticipated negative swing in RF sales gross margin as a percentage of sales in the second quarter, knowing that some of those shipments were around product mix that we're at much lower margin than our typical ourselves the products. So that is going to be a key step up from Q2 to Q3. Additionally.
Additionally, I was very pleased with our continued heat transfer systems.
Gross margin as a percentage of sales in the second quarter, especially given only having about $5 million of venture global Calcasieu pass revenue. So that's the that's a good indicator to us around the product mix that we have an HTS and not having that step down which I think was assumed in some of these other focuses on.
Outlooks and then Cts, we expect to continue at the record level that they showed in the second quarter and specialty step up a little bit from Q3 to Q4.
Again, a big part of that step up in Q3 to Q4 on the specialty side, given the liquefaction projects that we've announced and the timing of the Rev. Rec being very very heavily weighted into Q4.
Okay, great. Thank you I'll turn it on.
Sure.
Your next question comes from J B Lowe from Citi.
Hey, good morning, everybody Hey.
Hey, good morning.
Weighted first that was incredible.
Moving out there.
Thank you.
My question. My first question is just on the outlook for 'twenty 2.
That includes you know obviously you're in the.
Acquisitions, we've made.
At the midpoint, it's about a 17% year.
Year over year revenue increase I was just curious is because if you look at the the order numbers for <unk> were obviously.
Very strong even if you assume the orders come down on the back half.
No.
20% quarter over quarter or something.
Still looking at order growth year over year of 'twenty, 1 over 'twenty upwards of 30 plus percent range. So I'm just wondering like.
Why do you think the if orders were to do that wouldn't wouldn't you think the 2022 kind of a stronger revenue growth on what's implied in your guidance.
Yes, So let me plug off Theres 2 pieces of your question. The 1 is how do we think about order activity in the second half of 2021, we don't expect that it will look like Q2 for a couple of reasons.
I don't think were going to run it records just every single quarter, Although I did say that last quarter or 2 so shame on me.
But I do think youre looking at kind of somewhere in what used to be of $250 million of quarter run rate for orders. I think you can safely say is above $320 million on the run rate type of thing with.
No nothing thats really unique in that.
So take that take that at face value and figure out how you on model that.
Then the second part of your question is the 1.6 to $1.7 and conservative.
Based on the demand that we're seeing.
I think it is but pretty early here coming out with the 2020 to look and I just wanted to ensure that those who are looking at 2020 to understand that we don't think that the street is incorrect in being kind of at that $1.6 at that low end of the guide.
And we fully anticipate that we are.
We're updating this I think usual you know us pretty well JV or we don't put something out there that we don't think is very very achievable on so I think I think you call. This out right on that its just pretty early on.
To go to the high end aggressive $1.70 to 108 type of side.
Yes.
Second question was just on free cash.
Bring your guidance on the $1.50, I understand the puts and takes.
A little bit, but just if you're talking of if you're breaking up the tax.
Payment.
On the sale of the cryo bio and you're backing out.
What I believe was like 7 I mean are you backing up of full $70 million of inventory investment, but kind of bridging the gap between the $1.50 to 202 I think it was 220 <unk>.
Guidance, you had put out just I guess, what are the moving parts of that and.
<unk>.
Looking into next year, assuming the.
Some of these raw material shortages.
Whatnot kind of are alleviated.
The target for next year I would imagine remains in that kind of mid teens free cash to revenue range is that fair.
That's absolutely fair and yes, I wanted to try to use the word temporary on this inventory build because thats exactly how we think about it and I would stress that I can't tell you how many customers have told us they place orders with us because we said we can hit their delivery schedule. So I feel really good about that.
Hate missing the free cash side of things, but it is temporary so I, it's very safe to continue to assume that our normal years in that mid teens as a percentage of revenue from free cash flow generation and then the first half of the question. What we originally looked at it let's just take the 200 million dollar of point because it is a nice round number was like a $50 million.
Free cash flow generation in the first half of this year and then of heavy 150 in the back half of.
Which again relates to milestone payments around some of these projects and the timing on those as well is that heavy.
On a typical historically second half shipment.
The forecast versus first half shipment outlook. So those were kind of the 2 big drivers. So many of them maybe that we wouldn't have gotten exactly to the 50, but yeah somewhere in that range. We feel like if you normalize all of this inventory build we had we'd we'd be somewhere around there.
Okay fair enough. Thanks, Joe Thanks, Mark Thank.
Thank you.
Your next question comes from Andres Monaco from Evercore ISI.
Hey, good morning, Joe Good morning, guys.
Good morning.
I really appreciate the presentation provided the helpful details.
I think that highlights weighted skill set although all of them I'm unsure about his career in interior paint sales, but I do apologize his courage.
Coverage of putting yourself out there no pathway.
Total.
The greater for next year and I, just remember of comment from last year. Following 1 of your cost out programs that the.
The majority of those costs would remain my move even as volumes return of 2.
2 or surpassed 2019 levels. So is that still a fair assumption in terms of run rate of SG&A or with the business each of investor expand certain teams of facilities in order to meet those higher anticipated volumes.
It's still a fair assumption so we stand by that comment and I remember that was actually around we can get up to about 2 billion in revenue around kind of the consistent cost structure. Now don't you know, we still have to have cost of living adjustments and those types of things. So you got to build that in but it's not a we need to meet.
Fully add.
Thousands of people to in order to achieve this.
Where I would clarify and make sure I'm very transparent on this where we're spending the investment in order to be able to hit these levels is around the capex side. So as Mark commented the.
Capacity on the flex manufacturing in Tulsa, the expansion in Beasley, Texas are Teddy trailer line, making sure that we have.
Every single every single product line, we have we'll have more than 1 location, where it can be manufactured that is a key part of our strategy. So those investments that are happening in 2021 relate to ensuring that we can hit those demand levels, but it is not about SG&A.
Okay, great. Thank you for clarifying that and then my second question pertains to comment on me around your industrial gas customers. So.
There are definitely seems like there's a number of bright spots among the industrial gas meters right now and it seems like the sector is experiencing some secular growth tailwind in terms of electronics and healthcare maybe.
Maybe just 1 example, as potentially providing third party gas supply for semiconductor chip fabrication plants or what have you. So I guess my question is what end markets are you seeing strength thing.
All of this customer cohort do you expect the uptick in the separation of demand and kind of related to that just how much of the market share do you think you'll be able to.
Keep here versus prior cycles.
Yeah, I mean, I think the industrial gas business is it.
It's showing what it was always considered I think just kind of a normal business and a steady Eddie type of business and it's really proving to be a very unique and differentiated part of our offering as you point out Andre surround the semiconductors and what we're seeing a lot of is this.
<unk> of new manufacturing facilities still it takes some of the relocation of companies that you've seen from California to Texas and as they build their facilities. This is these are opportunities that certainly we.
Have access to and in many cases already of book. So that's an area that we're seeing increase in activity. We're also seeing an increase of around what I call regional industrial gas players or independence that hat through COVID-19 kind of found their niche with providing a molecule or 2 and so they are expanding there.
Our fleet not at the levels at the majors do but certainly in their respective regions and the.
Then I think ers up demand is going to continue to tick up and I don't think that I don't think thats a 6 to 9 months thing I think that's gonna have been for a few years here and I think on the semiconductor fronts at the same the same thing I don't think that the correction that happens in a quarter.
And then market share wise, you really got to get down into the geography level. So U S Europe and in Asia or China, specifically.
Certainly.
We have.
I'd say, 60%, maybe even close to 70% in the U S. In this particular space for our product offering.
Around 40 ish 45 in Europe, and then more about 15% in <unk>.
China and Southeast Asia, which is by choice just given the margin profile.
Great. Thanks, very much and I'll turn it back to the queue.
Your next question is from Eric Stine from Craig Hallum.
Hi, Joe Hi, Scott.
Eric Eric Good morning.
So it's been.
Some time since you've been this bullish on the big LNG it'd be helpful. For me. If you could maybe just give an update whether things have changed in terms of size with the main free that you've talked about in the past.
Sure. So each 1 and you are right I mean, we kind of.
I almost even didn't talk about it for a period of time, there because the customers Werent really doing anything and I'd say may and June has been as active as I've seen in 4 to 5 years of what they've done what these bigger LNG export guys have done and progressing toward construction in <unk>.
Hillary in their <unk> Driftwood project, which if you recall has the Ips EMR as well as our equipment on it they're going to start with the 2 trains. So the $10.4 million tonnes project and that for us would be around.
$300 million ish for that first phase.
If you look at Cheniere Corpus Christi stage 3 so that's the 7 train project and we.
We can't speak on their behalf on how many chains are going to do but of 7 train project for.
Stage 3 for us to be about somewhere between $2.50, and $2.75.
Again depends on the material pass through on that type of thing and the.
The venture Global's Plaquemines.
Other intending to start phase 1 is 10 million tons of instead of the full 'twenty and that 1 is.
Essentially a replica of calcasieu.
And I would anticipate our content is about $130 million on that project.
Got it and then maybe just following up on that.
Of the 3 that I mean, correct me, if I'm wrong, but those of the 3 you've talked about in the past and in the release today you talked about before.
That you think potentially go to a positive 5 day in the first half of next year.
Disclose on that fourth project, what that is does it use the <unk>.
That sort of thing.
Sure and maybe I should say, how I said, 1 to 4 I think that after Covid, what you really see in big LNG land is kind of 8 or 9 around the world that have.
The strong viability to continue on.
I would say before I kind of said alright of half of the subset of these moves pretty quickly here on so that's 1 way to think about it but there is a I was talking about port Arthur as the fourth.
Yeah Okay.
Okay. Thank you and we would have content that's.
The audience there.
No that's helpful things Okay.
Your next question comes from Chase net of Hail from Bank of America.
Hey, good morning, everyone, It's Michael Dell on for James.
Hey, Mike.
We go on.
Just kind of wondering.
Joe You had mentioned 30 hydrogen liquefaction plants that you are bidding on right now in the prepared remarks.
Can you I guess, just walk us through what timing of it looks like on those kind of average order size, what you think market share looks like.
Is that a good run rate going forward.
Sure.
Yes, 30, you're right Mike was our comment there.
These are $25 million to $55 million each type of sizes and it really depends of the $10.15.3100 tonnes per day. So that's why it's a pretty broad range, but the 25 of the at the very low end on 1 of these.
The there are less easy to predict as you can imagine like it in terms of consistent order flow just because they are pretty big capital decision by the operators, but I would say the.
That is.
Nice spread of customers within their sort of like similar comments to the trailer side, where youre not heavily dependent on like Oh of 1 customer has to make a decision for 10 of these.
So that's the that's a good trend that we're seeing we're also seeing them very globally. So this is spread U S Australia.
Korea, and the EU are kind of the main areas that we're.
Quoting on local fires.
Would say.
So we booked 3 year to date so far.
That there is the potential to book.
2 to 3 in the second half.
Again.
I stress for the listeners that Inc.
In our world of quarter shift means nothing and so it's important that you understand the how.
That works and then lastly, I'd say in liquefaction in general in particular, the actual liquefaction process. There are very few competitors in the world and essentially.
3.
And with that.
US on a really good spot and in liquid hydrogen overall, we would estimate our market share is probably upward of.
Of 60 plus percent.
Yeah.
Got it that was all super helpful.
And then.
Just lastly.
How comfortable are you guys with the price increases that you've talked.
<unk> talked about pushing through that.
Can those fully offset cost inflation pressures you are seeing and then if you need to do you think there's more room to push another round of pricing through this year if necessary.
Okay.
That's a loaded question, Mike I can't say that I can predict what's going to happen on the material cost side in the second half we've seen some tempering of that on the the average pricing is kind of of generic overall average the pieces in <unk>.
Parts of how we price range much more dramatic than the 8% to 12% average we shared.
So I guess I would say I'm pretty confident the team has done a good job in this as it is not an unusual activity for us because on.
Nearly all of our agreements have in place a form of the mechanism to either surcharge or pass it through.
But yes.
The the volatility of material costs in the first half was far more dramatic than I could have anticipated. So I'm a little hesitant to say that we've got it covered for sure but I do think that there is temporary and the market is becoming more availability.
<unk>.
If that is the case and continues that way, we're well covered.
If it's not then just like.
Every every supplier we have the saying Hey, I got to increase my price and I'm happy to have that same conversation with our customers. If that is the case, but we would only do that if we truly felt like it was penalizing us and needed we really needed to pass that through so.
So that'll be a wait and see game time decision as we see the second half way up.
Okay perfect. Thanks, Thanks, everyone.
Thank you.
Your next question is from John Walsh from Credit Suisse.
Good morning, and if you don't have of karaoke team I think we should be up for captain.
We actually have of karaoke machine in our corporate headquarters along with the Slushy machine and that's our that's our on boarding activity John.
Fantastic.
A lot of ground covered just maybe 1 quick 1 on that and then another question on pricing I think you've talked in the prepared remarks kind.
Kind of expectations back half for gross profit margin around RSL, but wondering if you could give us some commentary on the back half margins for specialty products and how we should think about that ramp.
Yes, so specialty is.
The in the second half I believe is going to prove out what our thesis here is which is our higher growth products are also are of higher margin products and so that's going to be a nice influencer on the overall margin and so we expect that to be the case in specialty in particular as you see.
Some of these more unique projects moving forward that are on the hydrogen side.
And also even on some of the.
The water side. These are capabilities that are pretty differentiated and.
Customers need them and we can charge for them. So I had to step up the specialty.
Sequentially with the biggest step up being Q3 to Q4, so as my same commentary around sales being we expect Q3 of the higher than Q2, but not.
Clearly the significance of step up from Q3 to Q4 and the same I would play into the margin profile and that's driven in part by these larger projects that have been announced.
Great.
Thanks, and then.
Circling back on pricing.
Obviously, thank you for that detail on the slide.
I would assume that on the larger stuff you talked about the pass through the surcharges, but is there a way to think about how much of the portfolio.
If you pushed through price.
Cause you have something unique even in a deflationary environment, if we get to the other side of this you would actually be able to keep that price is there of I don't know percentage of revenue, where you think you have that capability or maybe even just thinking about how much of the pricing of surcharge versus <unk>.
Real pricing that you would expect to hopefully stick.
Yes, I would say just off the cuff answer 85 per cent of that pricing will stick and 15% as surcharge related so.
That's a definitely has the potential to be an additional margin booster that we don't have in 2022 or 23 thinking right now.
So yes, I think it's a very very valid point John.
Great.
I appreciate it and I'll pass the baton.
<unk>.
Your next question comes from Ben Nolan from Stifel.
Thank you.
So.
I guess for my first 1 I wanted to hit the the <unk>.
<unk> thousand 30 Tam of.
A little bit just in terms of.
Just to clarify a little bit I mean, when does that start so it was sort of what's the the beginning point at the timeframe. There and then and then the second part of that question is I know the Jill on the past you've told me at least at the.
On the previous Tam you saw at 50%.
You guys could win perhaps 50% of sort of that total addressable amount does that hold for free.
Let's say through 2030 or would you maybe change to that.
Percentage at all.
Yes, so we do.
You have the kind of near term. The next few years at that $6.6 billion.
We really weren't bottoms up on this 2030 based on what we're seeing in the market and what we think's going to happen across the 10 years. So it's stepped up pretty quickly.
4 of 25 in that timeframe.
The biggest chunk of that being hydrogen and the way that we looked at the hydrogen market was really across the expected 500 billion of announced projects and their timing and how they ramp which the biggest ramp around that is 25% in 2006, and then we looked at the hydrogen for transportation markets around.
How does that play with the expected production of additional 11 million tons per annum of hydrogen production expected to be in place by 2000.22030.
All of this kind of played into our thinking so I'd say mid decade is really when you see the the more significant ramp toward or a total of $36.5 billion with hydrogen being the biggest.
Part of that the other thing I'd say around the 50%.
No I was talking to our guys. This morning, just because that's the exact question that we've been bantering internally and.
The most conservative team members said 50, and my most aggressive said 65%.
So if you just said you'll you pick it I'd probably go 60.
In terms of the market share on the stuff just simply because we don't have a lot of competition and even competition, that's going to come in it's going to have to prove themselves and the difficult molecule handling.
Okay.
Appreciate it.
Great color and then for my follow up the other thing that we've been hearing a lot about is.
The companies that are having difficulty finding people and hiring and retaining people.
And certainly seeing some wage inflation can you maybe talk through the is that something that you guys are seeing you are experiencing or is sort of the day.
The fact that a lot of you folks are engineers and technical sort of insulate you at all from that.
Yeah, I'd say, it's more the latter.
We aren't immune to it by any stretch the interim.
In particular pockets of trying to for example, find welders in particular geographic locations, but the other side of that coin is we do have our own welding team, we have our own welding training program, we have a well the council that is comprised of all of.
Our key welders from all of our global locations and the.
Led by John D'albert, Who's doing the great job. So there's a lot of programs that are internal to retaining folks and developing folks. The other thing I'd say on this is.
The thinking around how to be flexible for key talent is really important.
And that's been an area that we've tried to embrace.
Race, where if we find the talented individual let's just pick an engineer as an example, and they want to live in.
<unk> that's cool if they can do their job from Alaska type of thing and so thinking about that appropriately, but ultimately I would say.
We our compensation philosophy is to.
Hey people as well as we can and still return the way, we commit to our shareholders and I think that's that's sort of serving us well.
Wage inflation specifically.
I think that will.
To see wage inflation at normal levels as we head into 2022, we're not seeing anything that's the kind of driving and unusual.
Spike.
Labor spend in the mid year of this year.
Well, 1 area, where you might want to consider paying a little more weighted after that so.
But I appreciate the answers thanks, Joe.
Makes sense.
Your next question comes from Ian Macpherson from Piper Sandler.
The first 1 is really been beaten to death, but I need to repeat it weighted I'm. So sorry that she made you do that.
Yeah.
Yes.
Now the best way.
Wade.
You're kidding Nikhil.
Merck is going to do it with me no he's not.
Yeah.
Yes.
Good job of anyway.
Again, just the detailed follow up on that.
The specialties Tam on for 2030.
So, let's take 60 per cent of it for grants for now and that is of cumulative number through 2030 or of that as the year of 2030.
Okay.
The accumulative number.
Yes.
Okay.
So you've said.
With the appropriate prudence that youre seeing some tempering the on the inflationary and supply chain pressures.
But you wouldn't stake too much confidence.
Then it goes away completely in the second half so.
Let's say it doesn't and we're still running pretty hot through the second half of into next year.
Which parts of your business do you think would be the most.
The continued elastic with big LNG slowdown of those project cost went up another 10%.
Imagine specialty would be the least.
Maybe you could just maybe walk through those.
Thanks.
Yeah, So I'd say specialty in Cts would be the lease the sensitive to that just given the variety of applications, but also the customer sentiment toward their schedules and their timing is really the driver on that and we have I'd say in specialty.
In particular, we have fewer conversations about price than we do about you better damn not be of daily on this thing so.
Definitely that would be my number 1 pick there on the opposite side I would say heat transfer is probably out of all of the segments.
The most impacted if that trend continues not necessarily big LNG and I'll comment on that in a moment, but more of your kind of air cooler side of the business, where you can unless you absolutely need to retrofit something or fix it at that point in time, you could probably kicked the can on the capex decision and wait for the.
Few months type of timeframe.
But on the Big LNG side, I would say I don't think it's as cost sensitive as it would have been 12 months ago 18 months ago 24 months ago because.
These are projects that sort of have survived and gotten to the point they have regulatory approval and they also know that there is a period of time that they've got to get going in order to construct this if theyre going to have a part in the global LNG.
Molecule party. So that's my view on it is they've reconciled themselves to I'm not going to make adjustments to what's been approved regulatory wise and I've got to move something ahead. The construction here.
And so that's why I think it's the less sensitive to that whereas I think the smaller scale LNG projects are more sensitive to it.
A little bit of anecdotal on.
Are there sorry about that Ian but.
I'll have to get into the product specific on.
If you wanted to go deeper.
No that's great.
Thank you.
Your next question is from Conor <unk> from Morgan Stanley.
Yes. Thanks.
Just a question high level on these on the 2030 times.
No.
There's obviously a lot of divergence in market opinions about the opportunity set in the hydrogen versus carbon capture.
But if I look at say the Iea's zero report hydrogen carbon capture honestly pretty similar order of magnitude.
Through 2030 in terms of the investment that's expected.
I'm just curious.
What why and you remind as hydrogen such a more significant opportunity is it more related to where your content on opportunity as fast or is it more related to.
Customer conversations and market sentiment.
Yeah from our perspective is more related to the customer conversations and market sentiment in terms of how I think it's going to be there and I don't disagree with the Ies perspective, I think it's more on how does it ramp through the next 10 years. So around hydrogen like these projects are happening and they are spending.
And I think that ramp that more significant ramp happens mid decade, whereas the <unk> side, the carbon capture side of it.
Still.
Piddling around I think I don't know.
The technical term, but figuring out kind of what we want to do where do you want to do amine or cryogenic capture how does this fit with what industries really work. So we built that ramp later into the decade in our addressable market size and if you kind of took it out into the 2030 to 2000.
40 decade, you'd probably see a little more parity between those 2 in our thinking.
And of the biggest 2 chunks of our over $5 billion for 2030 tanning carbon capture or the.
The large industrial post combustion <unk> systems, and the large utility post combustion so very little on direct air capture included in our thinking there.
Got it sort.
The sort of unrelated question here, but I was wondering.
Given that it's becoming a more important part of the portfolio and certainly it seems like there's a fair bit of volatility at the moment of the margins can you help us understand the sort of big product or a service categories within RSL and just how we should think about.
Why why margins moves of significantly 1 quarter of the other what the big drivers.
In mix actually are.
Yeah. So the the way I think about it as 3 big buckets.
<unk> lease is 1 thats the leasing business and that's had a little volatile utility in the last couple of quarters, but it will very much kind of steady itself out now that we have the leases in place at a at a more.
More material, it's still an immaterial to the total business, but kind of of that more of that $5 million of months type of run rate.
That's that one's pretty steady on the second bucket is around <unk>.
After market for the heat transfer side. So that's both air coolers as well as braised aluminum quick turn field work that 1 is.
Always will be volatile quick turn field work in heat transfer is highly highly profitable.
We always try to be really fair to the customers, but at the end of the day. If this is something that they need in a week.
It costs money to get it there and they are spending that money. So that their downtime doesn't go out of control of its a good trade off for them in that sense. So that's something that you will see volatility in and the.
Then the last bucket is what we call prs or parts repair and service and that's your typical kind of refurb very very steady the most unique part of the second quarter driving that gross profit margin as a percentage of sales down an RSL was there was a 1 time.
Shipment of a product.
We had agreed to take last year as we are.
Taking a defensive position in a certain product.
But we wanted to get us other business.
And that's kind of flushed through now so I'd say you won't see that it shouldn't be in the twenties.
<unk>.
I don't know if they ever again, but that isn't really of sleep this past quarter.
Got it Thats the Thats helpful. Thank you.
Thank you.
Your next question is from prevail small kind of from Raymond James.
Okay.
Thank you very much.
Kind of of short term question first we're watching.
Of these fly Mumbai Delhi Jakarta lit.
Literally running out of oxygen.
And you guys of course have.
A set of solutions.
For oxygen storage and shipping so in the context of Covid.
How have you been dealing with this burst of demand.
Yeah, We love your tracker superville, so it keeps them in that way.
Helpful. As we think about that question and the good news is we have we've continued to see that demand as you point out in particular in those locations that you. Just described on what we had done in November December of 2020 was build additional inventories for medical oxygen related apps.
Location in anticipation of unfortunately of another go round of kind of the height or peak of Covid. So having that inventory on hand has been super beneficial of not having to change our manufacturing processes or lines or shifts.
And we also have the capability in our global locations in particular in India, where the government has worked with us to have access to our.
Hey, so containers for oxygen. So it's continued on the demand has continued similar to as it has since the beginning of Covid and the good news is we haven't had the shift manufacturing capacity to accommodate it.
I appreciate that and I'll follow up asking kind of a bigger picture question on the large LNG opportunity, let's suppose that you are right and we get.
1 or 2 big projects moving forward sometime next year do you think that will be the final round of.
Of LNG Newbuild construction.
Globally forever essentially.
It always hit us with the hard questions for now.
I think it is a very valid question I would be.
I would say that I think theres probably.
1 more round after this kind of 2022 starting <unk>.
But I think it's much smaller and its probably a 1 off or 2 off on those larger scale projects. I think here you see this move toward the mid scale on the small scale the modularity.
Are you seeing of movement forward.
This hybrid concept to the multi multi molecule concept so.
1 or 2 cycles would be my speculation.
Understood. Thank you very much thank you.
Your next question is from Walter Liptak from Seaport.
Hi, Thanks, guys.
Most of the questions that I haven't been asked that I would ask the.
Clarifier on the.
The the karaoke weighted was that takes the previously or was that live for the call.
A lot of work.
Alright, okay, but for U sat right here the work.
And he managed to do it well the rest of us in the room or doubled over of laughter.
Okay.
Alright, I wanted to ask a clarifier on the turnkey trailers and if you could just go over those numbers again.
What your production rates are right now.
And you said.
You hope to get to a production level sometime in the future of if you could just clarify that.
Yeah, you got it.
I'll just run through of few of the stats on the you.
You can be throw wastewater in the.
Second quarter, we booked 22 liquid hydrogen trailers, which will be produced in <unk>.
We are tracking to in.
In the second half the on a run rate of making 1 trailer per week so of 50.
<unk> 52, a year would be kind of of our exit rate coming out of 2021, and what we're working toward of doubling that.
In 2022, because we're already seeing demand for bookings slots in the second half of 2002 and multiple customers looking for those same week deliveries.
So significant ramp up the good news is we have the space. We have the talent we have the machinery and so this is again just ensuring that we know we can hit the schedules we have the material we have the right suppliers.
Feeling really confident and.
We have.
And off day, Shane out of our Georgia facility that all of that just got promoted.
And he is running that facility now and very process driven so the ramp up has been just amazing in the last couple of months under his under his watch.
Okay, Great alright, thanks to the and then just the last 1.
Can you go over to the M&A pipeline and expectations for.
Hey deals on the back half or as you look out into 2022.
Yeah. It's a good question. So we constantly the new deals, especially as we've been fairly active over the last 12 months. So we get all of it quite a few inbounds on it.
We certainly pass on the majority of those after we evaluate them, but they give us a good sense of what's happening in terms of potentially disruptive technologies. So we can take a look at them, but in terms of the the real active pipeline there isn't anything that's out there that you would say Jill do you absolutely need to get.
In order to achieve anything you've talked about going forward in this next year or the next year or the decade and the answer in short is no we needed cryo technologies we needed.
And we got those and so we're feeling pretty good about it. So now we've kind of entered this opportunistic area and 1 of the things that you see as kind of look at and we commented on previously is there are certain minority investments that we have that might makes sense. The 1 and full of not all of them by any stretch, but some of them and we.
Pursue those when the founders and owners are ready on.
And anything that would come up that we.
We would want but is valued appropriately because I can tell you valuations of sharing and get just.
Out of our league things, we don't want to even do an.
That doesn't jive with our balance sheet philosophy in theory of the I'm trying to stay sub 3 tax on net leverage even 1 where most of the levered at any given point in time.
Okay, great. Thank you.
Yes.
Your next question is from Fabs, the fashion App from Coker and Palmer.
Hey, guys. Thank you for taking my questions.
And the.
The interest of time, just 2 quick ones.
We talked about gross margins increasing in the second half of.
Probably Michael My thinking is maybe it couldn't go to the 30% of something but maybe if you can just help us think about how bad it could be by the end of the year and more importantly, as we think over the next few years as the revenues grow where it can be go.
Yes, Yeah I think your I think your assumption is is spot on for as we go into the second half that you could get to the 30%.
Our high end scenario, where we got in Q4 over 31%, but that's our high end scenario, so somewhere in that 29, and a half of 30% in the second half is very very safe.
Safe assumption kind of full year, we look at that gross margin as a percentage of sales normalized for onetime items. It you know at that 29 in the half.
The 30% on the full year, so you'd have to step up Q4 of little bit to get there.
And as revenues ramp we anticipate that total chart gross margin as a percentage of sales increases into the level of 30%, which is really driven by the margin mix from increasing revenue on the specialty side in particular.
Got it got it.
And maybe I missed if you said like you talked about like second half of artist of maybe could be modestly below the 2.2 but I didn't know if you threw out a number.
If you do on I said Sir.
No that's okay, I didn't specifically give a number.
The way that we think about it is if you look back you know pre COVID-19.
Regular quarter order activity would of been somewhere between kind of $2.25, and $2.72 of $75 million per quarter.
And now.
I am very very comfortable saying that of regular order quarter is over $300 million and.
I expect my commercial team is listening and that means $400 million of quarter commercial team.
So I think you could say in the back half, but what we've what we've assumed 2022 off of is.
And that 300 of the $3.50, a quarter and so if it's above that then you definitely step up 2022 shipments but.
Yes, that's of sepsis.
Safe assumption.
Okay. That's helpful. Thank you for taking my questions.
Thank you.
Your next question is from Craig Shere from Tuohy Brothers.
Orlando.
Good morning, Craig.
Jill.
And team congratulations on another great quarter.
That's helpful.
The town.
Just wondering in terms of annual specialty market revenue.
If you could envision that segment.
Mid call it 2024, plus the 25.
Exceeding this year's total company revenue.
And given you see carbon capture of hitting more of the 2013.
Do you anticipate when you get to $1 billion to $2 billion of the year for specialty market sales.
But that could have very long legs on the.
Order of 10 to 20 plus years of.
Stable.
Not growing order flow.
I would answer that with 2 words and it would be hell, Yeah, I think the middle of this decade. The specialty business is in line with what you just the major assumption on those.
If it's taken to over 400 million this year, it's certainly.
The growth rate, we're seeing in demand that is not.
Its not an assumption I'd bucket and I think most people know that I tend to err on the side of the.
Less than the 50% Mark of practicality and I'm, a conservative when I come to putting numbers like that out but.
These.
Macroeconomic tailwind that are out there across the specialty area is are just phenomenal and broad based.
Frequently what.
What I think is underappreciated about our business is but we arent of pure play and that's a really good thing when youre looking at the hybrid that's happening in the world today.
I won't bite on your second half of your question of what could it be 10 to 20 fold.
But.
Listen the next couple of decades I just.
I can't imagine that suddenly the skids get hit.
There's this much build in the next 5.710 years, and then magically everything built and it stops and so.
I'm.
At the very 50000 foot level.
Bullish on how that growth unfolds, it just would be.
Out of my realm of speculating to try to give a.
On multiple.
Understood.
That's very helpful on that and to your point about nothing of pure play.
Kind of talked about this before but I wonder if you have any additional color you might wish to share.
When we adjusted the point.
So the market is bigger than the whole current company.
Obviously, it doesn't make sense topology of specialty markets.
You know then re segmentation becomes a possibility.
Then also.
Splitting things off entirely on letting things be a standalone subsidiary of our company.
Becomes a possibility.
Any thoughts on how the deal with this fast moving to the.
The division.
Number 1 is we want we want to exploit and take advantage of the market opportunities that are out there and we want to be the global leader in these areas and on the most market share that we can which equates to in 1 word for the chart team and they know this is execution and so that's our.
That's our priority around all of these areas. So that we can be having this exact conversation around.
These things are too big to be lumped together, but let's go execute on that first and foremost.
You will see us do and we've already started doing started doing in internally and how we go about capturing this market share is when we have a piece of specialty that is.
Hi, I'm hung up on the word explosive I keep using the word of closer than I have been told us pulling not good using cryogenic split.
The exclusive growth. So for example on yes.
We have a specialty group in the commercial team that reports of our Chief commercial officer. We saw hydrogen was getting so active that we split that off and its own commercial team that reports of the chief commercial officer, and so that brought us numerous more activities because we've been able to have a hyper focused group on that so I think you'll see us.
Most of our way to that conversation on that your pressure testing around he could these things be more valuable on their own we need a few years to just bring it on home and then look at that option.
Thank you.
Thank you.
There are no further questions at this time.
Ladies and gentlemen. This concludes today's conference call. Thank you for your participation and have a wonderful day you may all disconnect.
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