Q1 2022 Chart Industries Inc Earnings Call
Today's conference is scheduled to begin momentarily. Please continue to standby. Thank you for your patience.
[music].
Good morning, and welcome to the chart Industries, Inc. 2022 first quarter results conference call.
All lines have been placed on mute to prevent background noise.
After the Speakers' remarks, there will be a question and answer session.
The company's release and supplemental presentation was issued earlier this morning and can be accessed by visiting chart website at Www Dot chart Industries' Dot com.
A phone replay of today's broadcast will be available following the conclusion of the call until Friday may six 2022. The replay information is contained in the company's press release.
Before we begin the company would like to remind you that statements made during this call that are not historical in fact are forward looking statements.
Please refer to the information regarding forward looking statements and risk factors included in the company's earnings release and latest filings with the S. E C.
The company undertakes no obligation to update publicly or revise any forward looking statement.
I would now like to turn the conference call over to Jill Evanko chart Industries' CEO .
Thank you Liz good morning, everyone and thanks for joining us today for our first quarter 2022 earnings call with me today is our CFO , Joe Brakeman, but you won't hear from Ann verbally as he has a cold. So his voice is pretty rough we're gonna try to save it for next week's Investor Day, which is next Thursday may 5th So you're stuck with me today, but as usual.
I will refer to the supplemental presentation, which can be found on our website starting on slide three the quarter included our sixth consecutive record quarter of backlog, our highest ever quarter of orders and our continued progress closing the gap with pricing and cost which is demonstrated through our sequentially improving margin profile as well as our continued <unk>.
<unk> of various acquisition integrations and capacity expansion projects.
You will see this reflected in our add that's the earnings per share excluding the mark to market gains and losses of our inorganic investments none of us are down 42% when compared to Q4, 2020 , one, but first lets walk through whats happening in our markets.
Demand for our products in particular, LNG and other energy solutions and equipment accelerated as a result of the Russia, Ukraine conflict that began February 24th our last earnings call.
We have seen an increase in actual orders as well as inquiries from both public and private sector entities surrounding the need for infrastructure to access molecules to support energy security independence, and resiliency all with the backdrop of the requirement for alternative sources of supply.
On sustainability we.
We continue to hear from various entities that the conflict has spotlighted the need for construction and action now to address these themes.
Slide three provides some examples from the past 45 days of actions taken by governments and private industry to support this energy independence resiliency security and sustainability. These themes were in part reflected in our record orders of $636 $8 million and record backlog of just about one and a half million dollars, but perhaps more meaningfully reflect.
In our growing pipeline of commercial opportunities the largest pipeline we have ever had.
On slide four you can see that these records were not just driven by one segment or product category on the left hand side of the chart.
Two of our four segments as well as the total company posted all time record backlog in the first quarter, while southern product groupings within those segments also ended with record backlogs.
Total company backlog increased over 50, when compared to the same quarter in 2021, and cryo tank solutions specialty products and heat transfer systems backlog were each up 49%, 55% and 77% respectively.
We will talk to your orders and sales in the next few slides, but before we get into those specifics, let me take a moment to share a few other noteworthy highlights from our first quarter some of which are shown on the right hand side of the slide a few to point out specifically around the hydrogen side of the business well.
Well most of the past few months has been around immediacy of natural gas and LNG. There has not been a slowdown in the focus and actions surrounding more sustainable and ESG oriented answers. For example, we completed a memorandum of understanding with a major industrial gas customer for liquid hydrogen equipment globally, which adds to the continued expansion of our hydrogen install.
Based in a variety of different geographic regions.
Additionally, we see China as a meaningful future hydrogen region with an announcement in March from their National Development and Reform Commission that China aims to produce a 100 to 200000 tons of green hydrogen in a year and have 50000 hydrogen fueled vehicles by 2025.
We executed an LOI with greenstone renewables to be their exclusive liquefaction technology and equipment supplier for their 100% renewable solar hydrogen production project.
We have not yet booked an order associated with this but expect to do so later this year.
We became the first founding member of some Vita factories gold hydrogen synthetic biology process, you can see somebody factories early successes through their collaboration with United Airlines, and Aussie low carbon ventures for commercialization of sustainable aviation fuel as an aside we are hearing more about S. A S which is another opportunity for us.
Well the end product is an alternative liquid fuel there are situations, where the hydrogen needs to be stored and transported from the production site to the SaaS producers plants.
We're currently quoting on 30 different hydrogen liquefaction projects with 30 different potential customers and these 30 are part of the 419 potential customers. We are currently working with for liquefaction storage transport and end use hydrogen solutions.
Just as a point of reference two years ago. This month, we were talking with approximately 30 potential hydrogen customers and one year ago. This month, we were talking with 214 of them.
We've increased the number of individual customers that we have sold hydrogen technology or equipment, two by 70% and in the past six months further evidence that there continues to be ongoing support of hydrogen as a key part of the energy transition.
Now turning to slide five you can see our $636 $8 million of all time record orders when backing out the $228 million of Big LNG orders received in the first quarter, we booked over $400 million of non big LNG orders, which included new fortress Energy's order for fast LNG to.
We're very excited and proud to continue our work with N. S. C on their fast LNG unique expeditious and creative solution and we kicked off April with a letter of intent for fast.
EMEA and India first quarter 2022 orders were a 9% sequential increase over the fourth quarter 2021, and the strongest first quarter of the year in the history of the region. It is rare in our cryo tanks solution segment to have sequential Q4 to Q1 increase in orders, but that is the case this year and we do expect <unk>.
<unk> success in the later quarters this year.
Also booked 65 individual orders each greater than $1 million in magnitude twice as many of those as we booked in Q1 of 2021 and making this our fourth consecutive quarter with this metric being over 60 individual orders per quarter.
All of this contributed to our book to Bill ratio of one eight or excluding the big LNG orders of 1.15 in the quarter.
I just shared a record orders and backlog, which are included on slide six.
Sales of $354 million was our highest first quarter sales in our history, an increase of 22, 7% when compared to the first quarter of 2021, all four segments sales increased more than 14% over that same period with specialty products, leading the way on a year over year increase of 39%.
Slide seven visually shows our continued progress on pricing and cost actions reflected in our first quarter of 2022 reported gross margin as a percent of sales of 23, 6% and adjusted gross margin as a percent of sales of 26, 1% when excluding restructuring and organic startup capacity costs.
This demonstrates our progress in incremental and sequential quarterly improvement in our margin profile.
I would also note that we continue to face in the first quarter additional headwinds that we do not adjust for in either gross or operating margin.
All of these we anticipate to continue throughout the remainder of the year, such as additional logistics transport and freight costs, others, we anticipate will improve in the second half, including China, Covid impacts electricity and gas costs in our European shops, as weather improves and manufacturing inefficiencies of previously outsourced products brought in house as we leverage the synergy.
From our recent acquisitions and still others were truly one time in Q1, such as inefficiencies from robotic cell repair, which is now completed and the repairs are collapsed storm sewer in Minnesota.
You can review slide eight specifics on your own but the takeaway is that our add backs, excluding mark to market net of the effects were sequentially, 42% lower in the first quarter than they were in the fourth quarter of 2021.
We continue to complete acquisition integrations, we do not anticipate refinancing cost this year and some of our organic capacity comes online throughout 2022.
Note that we will continue to have mark to market adjustments each quarter.
Our first quarter of 2022 reported non diluted EPS of <unk> 28 cents included a negative impact of 11 cents from the quarter's mark to market of our inorganic investments net of tax as well as the operational onetime costs related to restructuring startup capacity and deal and integration totaling 26 cents.
When adjusting for these items adjusted non diluted EPS was <unk> 65 cents as shown on slide nine.
Our analysts were debuting our first slide in the appendix, which we thought was a great recommendation from one of our analysts and is intended to make the walk from reported to adjusted with dollars much easier.
So moving to slide 10. This is the first of two slides that you have seen for the past few quarters, providing our perspective on direct business impacts from the six biggest challenges in our current operating environment.
Material costs and availability is by far our highest ongoing concern and we focus our discussion on the three main material inputs in our business aluminum stainless and carbon steel.
Throughout 2021, we strategically decided to increase our on hand inventory balance as a result of increases in material costs and the frequently discussed availability challenges of materials.
Given the uncertain supply chain and material cost environment that worsened as a result of the Russia, Ukraine conflict. We've chosen to continue to strategically build safety stock of key raw material inputs, especially given our ability to source. These globally, while attempting to procure them at lower cost points in the market.
Because we did build safety stock last year, we are able to monitor pricing and purchase at better entry points based on the material price indices.
Cost per ton does vary by the hour. So we've taken advantage of those entry points to the past six weeks to buy at non peak levels. In some cases, we had put in place the option to forward buy and pay a current month fixed costs. We did this in the United States for stainless steel in early February at the prior month fixed costs, which has proven to be a near term success considering a surcharge.
On this particular supplier stainless is up 57.
Now compared to February .
We like most companies are not immune to the well documented supply chain disruptions, yet there's nothing meaningfully new to discuss on this topic shown on row two.
Rose three is the continued force measure we are under from our United States gas suppliers, who are manufacturing plant. This started with nitrogen in the south East in August of 2021 and now helium is a challenge across the U S. We have not had a month without being under force majeure from the supply base.
Since August of 'twenty, 'twenty, one and while we have a variety of alternatives that are in play and underway. It still creates inefficiencies for us we expect that the situation will improve in the summer yet we are planning for the worst case of continuation throughout the remainder of the year, which is included in our current outlook.
On slide 11, I'm going to skip the rose six as rose four and five are currently in decent shape.
Chart, China exceeded their first quarter 2022 forecast, even when faced with a week of Covid related Lockdown, where no production could be done the teamed rather gathered a small group of our assemblers and was given clearance to ship yet the team had to stay 24 hours on site for that time period. So congratulations and thank you to our chart China team.
Do you, who washash was doing guar TWA Dewey.
Also we anticipate the second quarter to have some logistics headwinds in our China facility lets specific to our shop, but more so as a result of port congestion. The worst it has been in six months in the south China hubs as well as a growing backlog of Shanghai.
Touching COVID-19 restrictions and the risk of additional sourcing challenges given the situations in particular in Q2. It is worth noting though that we do have other options globally on sourcing and shipping.
Slide 12 is the same information that was shown on the last earnings call 2021 pricing actions taken we've included it here just for sequential reference so not now moving on to slide 13, what actions we've taken year to date 2022.
As you've heard material cost and other hyper inflationary trends continued throughout the first quarter, we continue to update pricing based on market conditions in our three main categories of pricing mechanisms as shown on the right hand side of slide 13 in the first quarter. We had a long term agreement index adjusting price updates all standard price list had pricing adjustment.
It's specific regions had increases based on material cost in that region are 15% market condition surcharge was in effect for the entire first quarter 2022 for non contract customers and we increase the surcharge after the material cost changes did not tempur, but rather increased.
An example of one of the variety of the macro headwinds that we have been improving through specific actions as shown on slide 14 is the delta between freight costs in our ability to pass that through to our customers. The left hand graph on the slide shows the global container freight index for the past three years.
From January 2021 to January of 2022, you can see the dramatic increase in free cost of over 300%.
And that comes on the heels of the prior 12 months cost increase of over 200.
Now turning your attention to the right hand graph, which is our delta between freight cost and freight we pass to our customers you can see that the first quarter of 2022 was the smallest gap or said differently. The best quarter. We've had in the past six quarters of closing. This gap. This comes as a result of standardizing our approaches to free cost pass through and eliminating free freight.
On volume discounts.
So coupling the cost out activities and pricing actions with our capacity expansions will allow us to continue to profitably grow on slide 15, you can see our anticipated capex for 2022, which is unchanged from our prior guidance in the range of $50 million to $55 million for the full year. The green boxes. Our updates today. The first is that we have completed our vacuum.
Weighted pipe manufacturing line in our European shop. The second is our first quarter 2022, capex spend of $12 $6 million and finally, we plan to share next year use of Capex projects for 2023 through 2025 at our Investor Day next week.
Now, we don't always time, our capacity expansion perfectly we came pretty close with the timing of our newest braised aluminum heat exchanger furnace in line and update as shown on slide 16, and this line is scheduled to be fully operational in the first quarter of 2023. This added flexibility for a variety of core sizes as well as adding a location that's close to new Iberia, Louisiana.
Hannah for ease of transport of the brief scores to our water adjacent cold box facility.
Also making great progress as our Sri City, India expansion on slide 17, primarily for tanks and potentially trailers alright.
<unk> already partially in use as of this month is expected to be 100% operating in July of this year.
It adds another level of flexibility for us in the region for India for India manufacturing as well as for export and we will utilize it as we extend our water treatment business in India. As a reminder, we booked record orders in India as a whole last year.
Now, let's look at the progress by segment as well as some specific wins in our Nexus of clean starting on slide 18.
As I mentioned previously each segment sales were up 14% or more when compared to the first quarter of 2021 and the record specialty orders from 2021 are starting to convert to sales as well.
Both reported and adjusted gross margin as a percent of sales sequentially increased not just for charter as a whole, but in each of our four segments compared to the fourth quarter of 'twenty one.
So slide 19 is our menu of cleaning solutions that you've seen are numerous occasions for the nexus of clean clean power clean water clean food and clean industrials.
Much of the past two months has been around immediacy of natural gas and LNG. There has not been a slowdown in the focus on actions surrounding more sustainable and ESG oriented answers. That's the second time that I've said that exact sentence in this call to date and that's really important because we are seeing multiple different inflate types of focus on.
We used to solve for the energy discussion that we've been having in the macro environment.
So we're pleased that we inorganically completed the acquisitions and investments that we did in late 2020 and throughout 2021 as were seeing numerous opportunities across these inter linkages of clean options and you can see some of those examples on slide 20.
<unk> turbine had their highest order quarter in five years, while earthly labs had a historical record high orders, including orders with 12, new customers. These 12, new customers contributed to our total 84, new customers in the first quarter.
Water treatment sales grew over 500% from Q1 21 to Q1, 'twenty two and sequentially grew 21% over the fourth quarter. Despite the water treatment shop team members being hit hard by Covid. The first part of this quarter one of the very exciting parts of the chart water business from my perspective is seeing the cross selling between our core food and beverage customers.
Blue and Green and Ed edges water customers earthly lab small scale carbon capture breweries wineries and distilleries and our larger scale carbon capture business S. Yes.
One example is blue and green until the largest industrial sale in our history for Containerized S. Docs unit, two international flavors and fragrances are ISF Blue and Green introduced Iff's to Ses and they did a paid engineering study for our cryogenic carbon capture technology for large scale industrial manufacturing.
Since earthly labs joined us in December of 2022, and coupling up food and beverage water solutions and small scale carbon capture we've had 28 cross selling opportunities between these businesses already with total order potential of greater than $40 million if each comes to fruition.
And this month, we launched our sustainable brewery solutions package and all encompassing approach to beer.
<unk>.
That includes rain harvesting water treatment and reuse CCC U S and dosing. This is a perfect example of the next of clean.
Industrial carbon capture opportunities continue to increase in January of this year, we had 199 potential CCC or Ses cryogenic carbon capture customers as the first week of April 2022, We had 252 and has sent a 148 proposals out we're under 81 NDA for Ses large scale curve.
Capture technology.
This past quarter. There's also been an all at once interest in our gas by rail offering as seen on slide 21, we saw orders come in for argon railcars with a pipeline of more to potentially follow and a large commercial pipeline of LNG railcars on the horizon with commercialization taking hold in other geographies.
We're uniquely positioned to serve the gas by rail industry, we expect to increase the size of our addressable market for this offering in the coming months. If the commercial pipeline continues as it has this past quarter.
Slide 22 addresses why we are seeing more LNG opportunities. We shared last quarter that was the first time in our history, where the three facets of our LNG offering where all increasing at the same time, those three being big LNG small and utility scale LNG and LNG equipment. This quarter's macro environment as I laid out at the outset of the call.
With a few charts specific wins is driving the opportunity even higher.
You can read the macro bolt on your own, but let me add a little bit of color to the right hand side of the slide.
How do you learn midscale approach to export terminals is gaining traction beyond the U S Gulf coast, including in regions, such as South Africa, which is different than before when our larger Ips EMR process opportunities, where typically solely north American.
Tomorrow, and Ips EMR plus continue to receive qualification by LNG operators, including international companies. Most recently qualified by hotel energies for their upcoming projects coupled this with our ongoing differentiation via many international patents and our latest process patents, which we had announced on our last call.
Our process lends itself to retrofitting for increased gas output in brownfield locations and.
And Ips of more efficiency leads to lower C. O two per ton of LNG. So our heavy hydrocarbon removal process handle the extreme gas compositions, while maximizing LNG production and finally Ips tomorrow is proving to be an ideal solution for floating LNG.
So now turning to slide 23, and you can see the increase in our real commercial opportunity pipeline three main contributors first the resurrection of more big LNG projects.
The addition of specific international liquefaction opportunities and third the increase in potential floating projects.
Export terminal projects that were either considered dead or at a minimum a long shot are now back with fervor. For example, just yesterday the Magnolia LNG project for which we will have content. This is a project that's already FERC and Doe permit permitted received <unk> approval for an increase to Magnolia LNG is authorization to X <unk>.
<unk> dollars 8 million tonnes per annum.
This trend in general is reflected in the doubling of the number of reasonably possible projects to move to order stage in the next two years.
I'd also point you to the second from the bottom row on the lower chart, showing the doubling of floating LNG projects in our bid pipeline.
And while the order potential size of small scale LNG hasnt dramatically increased the number of in dollar amount of projects that we think move ahead. This year certainly has.
Booking some of these opportunities in the coming few months could drive the potential to reach the higher end of our guidance range is shown on slide 24.
Our anticipated 2022 full year sales outlook is in the range of $1 75 to 1.85 billion with associated non diluted adjusted EPS of $5 35 to $6.50 on approximately.
<unk> 30, 583 million weighted shares outstanding the weighted shares outstanding number is an increase from our prior guidance, which was $35 6 million shares.
All of this assumes a 19% tax rate.
Our current sales outlook includes approximately $25 million to $40 million of big LNG related revenue in the year.
We want to reiterate again that our sales timing is expected to sequentially increase throughout the year with the big LNG revenue primarily in the latter part of 2022, and I say latter half latter part we debated semantics on that but suffice it to say that there's nothing meaningful from big LNG revenue in Q2, but the the.
Providing here today is in the second half.
Recently, a key customers from our H LNG vehicle tank products lowered their 2022 purchasing forecast as a result of the macroeconomic challenges in the vehicle industry, citing specific specifically the second quarter of 2022 impacts we do anticipate that this is timing into 2023 as the vehicle industry works through their supply challenges.
There are specific opportunities I mentioned on the last slide in our commercial pipeline that is booked as orders in the coming few months could drive our outlook toward the higher end of the range. As we said previously we do anticipate the first half of 2022, we'll continue to have a margin drag from historical levels from the ongoing macro challenges, but increasingly be off.
As the year progresses by the positive impact from the actions that I've laid out today.
Now with Big LNG orders booked and anticipating additional big LNG orders later this year, our 2023 through 2025 outlooks all increased meaningfully and perhaps this is the biggest modeling takeaway of the call.
As I mentioned earlier in the call. We made the decision to continue our strategic safety stock inventory build and in turn this resulted in lower free cash flow for the first quarter of 2022. It allows us to meet our customers' ongoing delivery timeliness and record demand levels, thereby continuing to secure additional business.
Even with these challenges and the strategic decision our net cash used by operating activities was the only negative $20 million to $22 million and when adjusted for unusual items was positive 8 million. This included an increase.
In the first quarter of 2022, driven by the strategic sourcing decisions, we made to add the safety stock the increases in material costs and the purchasing of material for our larger projects that were booked in the fourth quarter of 2021, and the first quarter of 2022.
We even considering the inventory headwinds, we do continue to anticipate that with the payment schedules for big LNG project work in backlog.
And some of the other working capital activities on the horizon that our full year 2022, adjusted free cash flow will be in the range of $175 million to $225 million.
This month, we did release, our third annual sustainability report, which we're very proud of highlighting the meaningful progress we have made toward our 30% carbon emission reduction target by 2030 as well as all progress on all of the elements of our ESG activities I encourage you to read the entire report as I, obviously can't cover it all on this call, but I'm going to point out is just a couple.
A notable items last year, we reduced our ghd intensity metric by about 14%.
Last year, we instituted an ESG component to our short term incentive awards and we've maintained that metric driven target for this year towards two.
And in summary, we contributed five of the United Nations Nation sustainable development goals.
Part of the ESG is safety is our number one priority, including as of the end of March 2020 to having our lowest ever 12 month total recordable incident rate.
Many of you how easy is it for competition to enter these very attractive applications in markets that we plan.
I've shared on new gens that cryogenic is not easy not the process not the technology design or manufacturing of these types of solutions.
One such reason is that it has to be done with safety as our number one priority given the high pressures flammability and other varying characteristics of handling these molecules are.
Our biggest safety advocated chart and I would go so far as to say in the cryogenic industry is Tom Derby, one of our very own engineering Fellows and Vice President of Engineering. This month time received the distinguished Charles H Blasier Safety Award for 2022, which is presented annually by the compressed gas association or <unk> to an individual in recognition of their <unk>.
Safety leadership in the industrial gas industry, we are very proud to be on the same theme as you Tom. Thanks for all of your safety work and now Liz Please open it up for Q&A.
If you'd like to ask a question at this time. Please press. The Star then the number one key on your Touchtone telephone to withdraw your question press the pound key.
Yes.
Our first question comes from John Walsh with Credit Suisse.
Hi, good morning, and congrats on the quarter.
Thanks, John Good morning.
So I guess the first question.
I appreciate the detail around that big order pipeline increase for the.
The big LNG projects.
Given how strong you are seeing demand can you talk about any changes you're making in terms of maybe the percent you get as an upfront payment.
Thing around favorable pricing terms.
Anything else that you're able to kind of highlight there given the strong demand backdrop.
Definitely and I would say generally speaking on these larger projects as a whole historically, we given the size of them the ability to run them through our shops, where shops are set up and the absorption impact.
They are higher than our average chart gross margin and that's based on the 30% historical high rate.
In terms of the current state of affairs, we've been very conscious around ensuring bid validity timing with respect to material cost, which is an important piece of ensuring that we maintain the appropriate margin levels ourselves and then in conjunction with that given the difficulty of getting.
<unk> material and the higher prices of it working with those operators either directly or via the EPC to ensure that they understand what that material cost looks like and when the right time to buy that is which in turn does change that cash flow profile for us to be more tilted toward the front end I would say that.
As a whole on all of these projects were never upside down on cash flow with respect to material and that continues to be the case, maybe with a little bit more wiggle room upfront now just to give us some flexibility to be able to to appropriately purchase materials and in that same discussion applies a fairly broad.
Smaller scale side too there could be some exceptions on the smaller scale side I'm just depending on on what project. It is or if it's a new a new application and then in terms of pricing as a whole we were very transparent with the customers on these big projects, where yes. This is the material cost environment that we're in and so.
Not it's not us trying to grab a massive share of additional price. It's hey, this is the cost of materials right now and if you need to get started now. This is the amount that it has to be so I'd say as a whole we've been able to.
All in all maintain if not improve a little bit both the cash and the AR and the pricing side.
Great and then maybe just as a follow on to that.
Talking about better margins as we go through the year, if we kind of.
Price cost either on a dollar basis or a margin impact can you help us understand how that improves as we go through the year.
So.
It meaningful theres two pieces of the answer to that question, while there's obviously many more than that but let me summarize it into pieces to being the backlog burn off of the lag from last summer in the second and third quarter of last year, and then the second being the timing around.
Some of these mid scale small scale and larger projects, which we had.
Shrunk of and those are the types of projects that had material bid validity until we were able to to really get a meaningful mix as those start to take hold in the second half. So I'd step Q2 up moderately but really the biggest increase is gonna be Q2 to Q3.
And then we will see that that level exit the year, maybe a little bit better in Q4 that will really just depend on how some of the bigger LNG projects revenue recognition between Q3, and Q4 plays out but the most material stuff on the margin profile side on gross margin as a percent of sales will be Q2 to Q3.
Great. Thanks for taking the question.
Thank you John .
Our next question comes from Martin Malloy with Johnson Rice.
Good morning.
Hey, Marty.
Alright.
I was wondering if maybe you could expound a little bit.
Terms of what you're seeing for demand on.
The LNG equipment related equipment.
Once once it gets to the what's the LNG gets to the other sure the downstream LNG equipment in and in particular, what you're seeing in Europe .
For demand I know you mentioned in the press release from a European government organization I think it was tens of millions of dollars worth of book.
Equipment orders I assume that was the LNG related.
But maybe you could just help us with the magnitude of.
Demand that youre seeing for the.
Re gas transportation storage type equipment.
Great Great point, and I would say that on I think it was slide 23 in the deck, where we laid out we kind of split the big LNG export terminal opportunity increase and the smaller scale and in that we were fairly conservative on the smaller scale side on re gas expectations.
We have seen certainly an increase in inquiries around re gas terminals in Europe for each of the individual countries that you've seen in the news and we pointed out looking to gain some more independence from an energy perspective.
We haven't seen a material increase yet in orders with respect to regas terminals, where we're seeing.
More of that activity is on the infrastructure side itself. So if I need a near term solution. As an example, two I can get gas here, but now we need to move it.
ISO containers are a great example, and we're starting to see an uptick again in icos. The order that you referenced for the European government and one of the one of the European member States governments.
Is around trailers, so again around transport.
Fueling stations is another one that we continue to see high level of inquiry on so building the infrastructure. Once the gas gets there is definitely continuing to pace inquiries has increased on the regas side and so more and more to follow on that I think we're just starting to see see that happen the.
Biggest discussion there's two two.
Two parallel paths of discussion happening in particular with the EU member States.
One is I've got to make sure I saw for next winter and two is a better getting moving on a longer term plan and so we're seeing that manifest itself both through the equipment side on natural gas, but also through some of these alternative energy discussion point, so it's not completely.
Throwing the baby out with the bathwater on sustainability I still have to sell for that but I need to do these two these two things in parallel.
Great. Thank you and as a follow up question I think on the last call you talked about gross profit margins approaching around 30% second half of this year is that's still oh good.
<unk> targets.
Still a good target I think we characterize it is exiting the year and that just really goes to my answer to John's question around some of that bigger project work is it Q3 Q4. So it's it's very very fair, who still state that as the target.
Great. Thank you thanks Mark.
Our next question comes from Chase Mulvehill with Bank of America.
Hey, Good morning, Joe Hey, good morning, Jason.
I guess first question I'm going to stick on the LNG theme.
Obviously youre going to have some pretty strong where you've had some pretty shortly LNG orders. So far this year and those probably continue.
You just talked about the three larger orders.
Cheniere stage, three BG plug them in driftwood this year, but if we look past this.
You probably had discussions are ongoing discussions.
But could you talk about the timing.
No more big LNG.
Orders here in the U S.
And maybe I don't know Sars in Tpa or anything you want to kind of frame for us once we get past these three orders.
Yeah, that's that's a really good point that well, let me address with some specificity here, so and I would piggyback I think Lorenzo a Baker Hughes commented 100 to 150 M. Tpa come in starting construction in the next couple of years, we we would concur with that general estimate.
And from there some of these projects might actually.
If there is potential that some of them aren't even after the three that we talk about publicly they could maybe fall in the middle there, but let's just talk about them as after those three we're seeing various different size and tpa projects. So some of them are.
Building upon existing projects in the United States, you would know the ones that are operating currently and no.
Those add ons are in the range kind of two to four and tpa to existing sites.
We're seeing the potential for and your question was specific to the U S, but I think.
One of these on U S. Maybe in the AR in the eight a M tpa range outside of the U S.
Has the potential to move ahead, and then you've got some more work on CP to that's venture Global's Calcasieu pass two I think that certainly is one that.
Move ahead in the coming couple of years and then you've got some of these other guys that.
Or on the U S Gulf Coast.
It ranging typical ones that I would say there are going to be in the 10 to 15 M. T. P. A range. So you would you you could get their names certainly and then maybe a little bit further out but certainly positive was just my comment about like Magnolia and Texas, LNG, but I'd put that in more of the second tranche so not the $23.
24 type of timing, maybe get started in 2000 and for that second tranche is pretty big two in my opinion, which is a little bit different than what we had believes before us. We believe that there would be this group in this cycle and then there'd be a hate us and maybe there was another cycle in 27 28, and we now view this has there.
Going to continue to stack on themselves, which.
Without that hiatus in the middle of the decade.
So the second tranche is would be in my category of we would have said they were dead or at least.
Far from being possible and there we're starting to see activity on those as well.
Okay. It makes sense can you kind of follow up real quickly on the one question you said agent Tpa.
On an international project would that wouldn't be modular as well.
Or are they kind of larger stick projects it would be modular as well. So we're pretty excited there is there's a couple of these internationally that have changed direction now too to modular mid scale from their original thought process and we're pretty far along in those discussions.
Okay.
And then real quick follow up on specialty products.
You talked a little bit about the softness in the first quarter.
But could you maybe just provide an outlook on expectations.
For the rest of the year.
Is this something that recovers, especially kind of maybe on the margin side.
Yes, so specialty continued on in terms of demand as we had expected it to be in the first quarter. So the demand side is in line I think somebody offline had asked me a question about hydrogen orders at $30 million. That's all equipment. So that's actually a pretty good quarter. When you were talking all equipment and no no liquefy.
So the demand side, we expect to continue to grow in specialty sequentially and build off of the starting point there from the from the profit side, what where the first quarter really the biggest impact on specialty.
Our perspective with the H LNG vehicle tanks. So we had to do some rejiggering around of of capacity. So we had planned for a different forecast and then you've heard these truckmakers indicate that there they're not able to get semiconductors. So we expect to sequentially stepped that out as the year continues on.
With let's see gross margin.
Increasing.
Sequentially every quarter.
Second half is stronger than the second quarter because of the timing on or a liquefaction, both or helium and hydrogen liquefaction revenue. So I'd stair step it but with the second half being certainly back in the mid 30 percents.
Okay.
Perfect ill turn it back over thanks, Joe.
Yes.
Sure.
Our next question comes from Eric Stine with Craig Hallum.
Hi, Joe.
Eric.
So maybe can we just talk about.
Any details you can provide on the hydrogen agreement with the industrial gas company, just interested as you've kind of seen a little bit of a shift from the first movers to now the really big players getting into it.
Maybe details on that agreement anything you can share on potential outlook in that regard.
Yeah that was a very big win for US we were really pleased with any of those types of agreements are very good but when you get customer. That's that's very well established in terms of handling and building larger scale.
Hydrogen that.
That's even more impactful I would say in the near term to to our hydrogen outlook.
Obviously, we can't tell you, which customer and we don't want to give away any competitive Intel on their behalf, but this covers.
Wide variety of geography, and I'd say that really goes from the U S. So obviously all the the majors play in the U S. It goes to Asia, and my comment around expectation for China hydrogen to extend this would be something that we would expect this particular.
Layer two T to do in that region, Europe , and North America, including Canada.
So all in all the this covers all of the equipment that we provide and.
That includes braised aluminum heat exchanger course, which is a really really big win for us. When you look back historically, we didnt typically serve any of these larger customers on the brain side.
There were incumbents like Sumitomo in in Kobe and since a couple of years back when the Sumitomo challenges were in play we've taken this market advantage to try to have our offering at least get tried in the field and that is.
<unk> to do that has proven that our brains cores are really really are high performing and high quality.
This is a win for scale, it's a win for speed and projects that are funded and happening now and it's a win for us on getting our equipment into a more of a variety of geographies all of which require specific equipment certification on the hydrogen side and us having that or at least theme park.
We own the certification process is another differentiator for others trying to enter that space.
Is that I mean is it fair to say there are other agreements like this out there given your place in the market given what you just talked about on the heat exchanger said.
It is fair to say that we have a variety of agreements at various stages on hydrogen on carbon capture.
On general products and now we're starting to see that actually step up a little bit on the water treatment side. So yes, it's very fair to make that statement.
Got it.
So then maybe just turning to big LNG I thought it was really interesting that plaquemines phase two that you got an order for that well in advance of even what you probably thought.
And certainly what they had discussed.
Publicly just curious.
Given the acceleration of the size and the timing of this and that this cycle probably goes longer.
And what are you seeing in terms of the advantage you've got scarcity of of production capacity.
Driving those potential orders your way.
Yes, I think I concur with everything you summarized there in particular that it wasn't a surprise to us as well to have that six of the 18 come our way. So early this year, we had anticipated that we might get it in this year, but certainly not early in the year with that.
<unk> said that I think the size of these and as you pointed out the continuation of them in order without the typical cycle going down and stopping and starting back up I think youre going to see a more steady state of construction over the coming decade.
With that said.
<unk>.
My prepared remark of we aren't very good at timing capacity expansion, but we got pretty close on this is.
It is proving to be very beneficial in the ability to take on more of these projects of all sizes.
The other thing that is helping in this in terms of speed and we've done. So many of these that we can do them in a very very short lead time and if the lead time, we quote isn't short enough and a customer says I need it a month or two or four sooner, we're able to make that happen.
And I think that's by far the biggest differentiator.
And couple that with this Tulsa expansion gives us a lot of confidence in our ability to continue to serve the specialty markets that also required braised aluminum heat exchangers for infection, whether that's helium or hydrogen or biogas. So.
I think it's the combination of our experience, making these products. They are proven in the field and the capacity that we have allows us to be flexible and work with the customer to meet their schedule.
Okay, that's great. Thanks, Joe.
Talk to you.
Our next question comes from Ben Nolan with Stifel.
Hey, Joe.
I wanted to get to something that didn't really come up much but seems like it should be increasingly thing is we're seeing a lot of oil and gas development drilling and rig counts going up everything.
An area that has sort of been a little nascent for a little while as the air cooled heat exchangers, and maybe developments on gas processing.
Seem like pop up here are you starting to see any green shoots there.
No.
Yes.
Yeah.
I wish I had had you round earth to foot, what we're having in our script because I forgot about that one.
It is a little bit early on.
Making a broad based statement.
But in short the answer is yes, we're starting to see some green shoots on those more traditional whether it's pet chem or Nat gas processing, certainly many more in play and moving.
The metric I was using last year to kind of give a sense of what's happening in the market in those spaces was you know it is.
Quoting activity, increasing and now I'd say order activity is increasing so these are moving much quicker from okay. What's the price and what can you do to taking hold.
And you'd see that in our let's take a quick look at sequential yeah. The last the last couple of quarters, we've definitely seen that in the order book on the other the other place that we're seeing that that serves this market. A lot is our V RV shopping or nagao, and we've seen a couple of bigger projects bigger kind.
And eight to 12 range for these types of applications. So I think this year I think I think you make a good point this year, we could see that as.
As an increase that we very conservatively built a year out in terms of our current outlook.
Okay.
And then as a follow on could you you'd mentioned I think you said 30 hydrogen liquefaction plant.
Quoting on at the moment.
Any sense as to sort of how over the course of the year how are you.
The progress or how you see that playing out maybe relative to where we work.
So we had we didn't we did not originally anticipate that we would have the hydrogen local fire order in Q1, we kind of knew that heading in I'm not sure. If we vaguely signaled it are strongly signaled it but it wasn't a surprise that we only had equipment.
I will be extraordinarily.
Disappointed in our hydrogen commercial team if we don't have a local fire booked in Q2.
I think that youre going to see quite a bit more activity in the second half of the year because you are starting to get.
For capital into some of these projects that are individual projects. So starting to separate from the larger guys who are more established in doing repetitive projects now youre starting to see some other entrants in the space that are getting to the point of being fully funded and starting construction and they want to start getting online taking advantage of being a producer.
So I think one.
Big challenge to the commercial team to in Q2.
But realistically I think you got one in Q2 and then the second half you see you see you know two or three.
That's perfect I appreciate it thank you.
You bet.
Our next question comes from Robert Brown with Lake Street capital.
Good morning, Joe.
I just wanted to follow up a little bit on capacity given the demand growth. When do you see sort of see you have to add capacity and having capacity constraints or do you feel like you are pretty good for the next couple of years.
Okay. So our strategy on capacity expansion is to have.
Three to four meaningful capacity expansions in flight at any given moment, we have a very detailed plan on that which we'll share a little bit of some of its.
Competitively strategic that we don't want to share, but you see the staggering of how we have India coming online mid year. This year, we've got the breathing line coming on early next year.
The trailer expansion in Germany will come online middle of next year and what we what we do around our strategy on this as we look at the demand profile and whether or not we have base load volume to support the expansion or the Greenfield and that's an X.
It's very important step in this so for example, we already had base load volume in our Germany trailer facility expansion and then you throw that tens of millions of dollars of European government order on top of that and it says okay. This is a payback of sub one year.
That's our thinking on how we approach it so that we don't get behind the eight ball and typically these expansions take about 12 months for us to complete if their rooftop. So our next tranche of expansions are there will be let's see.
One to two that kick off later this year.
Hmm.
One will be on.
The energy side of the business and one will be on the tank side of the business.
And we that will allow us to meet some of them more of the specialty demand that we anticipate and continue to take on some of the small scale LNG. So all in all all said is it's a step approach of timing of these projects, which also allows the team to execute flawlessly and still deliver on time not missed any potential orders.
And we might be a little early on some of it but I'd rather be a little early than then too late to the party. So you'll see that continue through 2025 is kind of how far out we've planned at this point.
Okay, great. Thank you I'll turn it over.
Our.
Next question comes from Marc Bianchi with Cowen.
Hey, Thanks, and thanks for Slide 28, we made the morning go a lot more smoothly for me.
Yeah, I was going to call. It we were going to call. It the mark slide, but we didn't know if if you depreciate that or not.
Thank you for the suggestion pointing out my inability to do math.
But our confusing number so.
But good suggestion thanks, thanks Mark.
Thanks.
So on the so we've got like 25 to 40 million Bucks of Big LNG revenue baked into the revenue guide for this year, if I strip that out we're kind of like 107 to one eight.
For the non big LNG revenue this year I am curious you talked a little bit about the hydrogen order outlook, how do you see the order outlook.
Next big LNG, maybe on a book to bill ratio basis versus that 107 to one eight.
Yeah, I think our expectation in Q2 that we would be certainly.
Oh five range on book to Bill and then it steps up in the second half with some more of these mid mid.
Small to mid projects that are non big LNG liquefaction projects. So you you'd be you'd expect that to be closer to more similar to a one one to 1.13 book to bill in the second half.
Okay.
Okay, Okay Super.
And then the.
The next one just I know you don't want to guide.
<unk>, specifically to quarterly results or anything, but just maybe to give us a little bit of a steer or so.
So everybody's not over their skis on the second quarter, I mean, I'm thinking maybe revenues up in the ballpark of 10% and you get 100 basis points of margin expansion on gross profit, but just curious how you react to that.
Yes, and I will give my legal disclosure disclaimer that we will not give quarterly guidance I think you are spot on.
Okay, Great I'll turn it back thanks, Thanks Mark.
Our next question comes from Tom Hayes with Northcoast research.
Thanks, Jill good morning.
I was just wondering you guys called out in the formal announcements your expectations on the food and beverage line didn't get a lot of detail in the slides, but I'm just wondering your thoughts on what is really what's going to push that forward in 'twenty two.
Yeah, so the food and beverage yeah. It's interesting because you can't what is sometimes lost in how we communicate to.
The market is that Theres, a lot of different products that go into the food and beverage market. As an example, so when we talk food and beverage specifically, that's excluding like earthly lab small scale carbon capture because we capture that through the carbon capture side of the business, but you're still hitting the food and Bev customers. So let me answer it in two parts.
The first is the traditional food and Bev, which is our tanks in our doses are four you'd have national account applications like I referenced Chick Fil a.
These types of of.
Customers and the products that go into them, what we like about how the year is setting up is do you have a combination of folks that hadn't done much during the COVID-19 shutdowns on the restaurant side combined with quite a bit of infrastructure and franchise built this year.
And so we see the setup that Q1 was really good food and Bev was quite surprising to us actually in terms of the order book, but we see that continuing to increase as as the year unfolds and that's all in the tank and Doser side.
You have.
Only seen the start of the earthly labs order book.
The thing about the earthly labs solution is there are so many customers that we already have that this is a prime application for and so we're able to very quickly.
All that through through the whole team and you're hitting just a greater volume of customers and earthly on their own with just a few commercial folks were able to do and so what I like about that business as we're starting to sell the CCC Elm. So we were selling a smaller unit, which is the oak now we're starting to sell the elm, which is a large.
Your unit is six times the cost of the smaller unit. It obviously has a value that goes along with that and we're able to we sold the first one of that last quarter, we're seeing in London's of interest in that so to hit the food and Bev answer youre going to have to look both at food and Bev and carbon capture.
Great appreciate the color and looking forward to the meeting next week. Thank you. Thank you Tom look forward to it.
Our next question comes from Ian Macpherson with Piper Sandler.
Good morning, Jill and good morning.
I guess.
So on renewables.
Exciting enough for you that it's kind of a headline item in your release. So I just wanted to ask you to maybe expand on that opportunity how big is.
Is that.
Project for you over time.
What are you doing in.
What's the duration et cetera.
Yeah, and I put it in their purposely I'm really glad.
Picked up on that Ian Thank you for that.
The reason that we put that in there the headline items is threefold number one is that it is an exclusive arrangement with us. So we are the provider of.
Technology to them.
I see it as a multi plant opportunity while we're just talking you know we focused in on the one that we expect to potentially move to order later this year, there's I like the idea of exclusivity of the technology on.
Company, that's looking to do more than one of these on the initial one is going to be kind of 35 to 40 million in terms of.
Of headline price for.
For that order and so you'd see kind of a similar range on the equivalent of a traditional hydrogen liquefaction plant at 12 15 tons per day.
So that's why we're looking to do many more of these types of arrangements, where the customer has a plan to.
Have a multiyear build out and I like that because once you have the first design with them then it's really easy to replicate its easy for us to manufacture and in turn that the efficiencies that we get and will partially share that with customer, but we'll also see that margin profile increase.
Great that's interesting thanks, Mike.
The other thing I want to ask you about was on slide 23, highlighting how basically the big LNG pipeline for you is.
More than doubled in terms of number of projects.
Multiplied by more than that in terms of your potential revenue content over the next several years of bookings, but what.
What we hear around.
The neighborhood is that D&C is probably going to be on.
The critical path in terms of their capacity bottlenecks too.
<unk> that much activity in that short a timeframe.
Do you agree with that do you think there might be there might be a better outlooks in some believe with regard to that E&C bottleneck to to double the cadence of codes, especially domestic.
Sure.
We would wholly disagree with that word on the street.
The capacity.
I think is in general.
Fine and speed is the critical path is certainly not chart equipment.
In terms of long lead times. So all in all I think the short answer is absolutely. We think that we can take on much more of this work ourselves and deliver in.
12 to 14 months on a yeah on a breeze in the cold box and it could be shorter depending on the size of the core it could be longer if it's if it's much larger but definitely.
The flexibility that we have in play from the brazing side.
It gives me confidence there and then without going into a ton of detail.
Got it.
Some work underway on the <unk>.
Very near term additional capacity on the cold box footprint.
Yeah, No I got you on the chart side I was really.
Taking more on the EPC capacity.
Probably more sensitive to labor pants et cetera.
Oh, Okay I missed your point completely I'm, sorry about that I got you now.
It's tracking with you yeah I think.
First of all the modular.
Move helps that problem dramatically. So that's a that's a positive because instead of having the stuffy stick built at site you can do it with meaningfully less people at the location itself and you saw that with Calcasieu, where the number of folks that they had on say whether it was their own or the EPC.
Was dramatically lower than if you were doing a baseload type of facility. So I think that's also a plus in terms of the modularity side of things what we're hearing.
Is it.
It depends on which EPC it depends on which project but.
We still talk to a ton of the P. CS on a regular basis and no. One is telling US we don't want to go bid with you and that's on all size projects. So theyre still looking and willing to enable to meet schedules, whether it's a small scale hydrogen local fire that they're bidding together with us on or one of these larger.
Projects, So I think I'm guessing that youll see some tension there yet.
Yet the EPC seem to be figuring that out the fab yard side of things might be a constraint, so where where these things are put together at respective February post.
We're definitely seeing the interest in having multiple fab yards by some of the end users so not having that constraint be okay. My whole projects dependent on fab yard one so.
So spreading the wealth on I think is gonna be a trend that you also see in the market.
Yeah.
That's great. Thanks, I appreciate the comments and look forward to next week.
Thanks, Ian and you got me to tell that I'm, expanding cold box capacity.
Good job.
See you next week.
Right.
Hi.
Our next question comes from Pavel <unk> with Raymond James.
Thanks for taking the question.
Back to Europe , and specifically the green hydrogen built out in the <unk>.
60 days since the war started.
Have you noticed any.
A substantive shift in the level of.
Private sector or governmental awareness of green hydrogen as a displacement the Russian gas.
Ah, Yes, anecdotally would be my answer so there's certainly been an increase in conversations of speed on green hydrogen and that isn't that's in Europe , but also in other locations in other geos.
Think our.
Paying more attention now to I can't say that I'm going to do this in 2030 or 2040 I need to.
Really take my plan from hypothetical or theoretical into into action. So I view it as a first step in accelerating those conversations haven't seen it translate to the order book yet.
Understood.
I'm wondering kind of in house question I think the last four months is the longest period.
While you've been CEO .
That chart has not done.
And extra M&A deal.
Is that deliberate.
It is deliberate.
And and.
Yeah, I I Love I Love you Pablo you get what you get when you're going to get me to go down a path here and then I think it's really important one.
We had we had a view back in.
Late 2020 that there was a 12 month window of getting deals done that fit really closely into our portfolio and doing so at what we viewed as discipline to our investment principles that proved to be true. We started to see other deals that were not.
Not absolutely necessary that we were passing on deals we were getting first looks that you've certainly seen other companies go by that we said either.
A piece of this that we don't want and we'd have to figure out how to get rid of it or that are outside of our disciplined valuation profile in terms of returns all kinds of different reasons. So it's been.
It's been on purpose for the way that the market has shifted but also for absorbing and integrating the acquisitions that we have and and I think that I hope that comes through in my commentary about then the way that we're seeing the synergies start to unfold in and very quickly too.
Now the second part of my answer is.
It's it's deliberate but it's not permanent.
So there are still.
Opportunities in our pipeline and next next week, we're going to talk through specificity around the three or four key areas that we're still opportunistically looking at potentially inorganically spending some money in these deals that we are looking at are very similar in profile, meaning headline price. So there.
Not a big.
Go out instead of $1 billion and have the company turned into a water treatment company as a whole that's not the approach we're going to stay with the packing and approach that we've taken to date.
And I feel really good about the.
Integrations that have been completed so far and heck, we first quarter. We went live on JD Edwards, which is our universal global computer system at both cryo technologies as well as adage.
So getting these type of integrations under our belt really gives us the opportunity to leverage both the sales and the cost synergies and we expect that.
We expect to continue to do that in the first half of this year.
Very clear thanks again.
Yeah.
Our next question comes from Adam <unk> with Goldman Sachs.
Hey, Joe.
Can you talk to the competitive landscape and your position.
Particularly with the <unk> technology as you think about the modular LNG trains expectation going forward.
Kind of market share do you think the process technology could have.
Yes, so the idea of some of our process technology differentiation.
Talked a little bit about how it is proving to be useful on the heavy hydrocarbon removal side on the floating LNG side on the retrofit for green tea for brownfield sites, where in translating all of that to why which I think is your question is it the modularity.
And the way that the process design works with the equipment makes it really suitable for smaller plot sizes and so if you have a different shape or a smaller piece of land I P. S. Tomorrow is very good for that.
Daily efficient and in many cases, it can actually generate a more gas in the same space for the same amount of capex and opex than some of the other things that are out there. We also have seen the ability for Ips EMR in Ips or more plus.
By the way pluses something that you could actually retrofit Ics tomorrow with the bus at a future point in time, where you have the ability to get more if you say I'm doing a 1 million ton per annum liquefy or you can actually get.
1.4 million tonnes per annum of gas out of that team liquefy are using IP. It tomorrow now there was a lot of technical details to make that happen, but those are the types of things that are creating differentiation for Ips EMR.
I'm very pleased with the pick up in the traction of Ips EMR in the market as a whole and most as they most tickled by the fact that it's starting to get international attention too.
With that said the other technologies that are out there are also very good and so I think that theres going to be a mixed bag of answers as the the different operators unfold, what they want to do it could be I already have a plant and I want to stay with that technology. So I don't want to change we've seen some folks you.
One technology on one plant and another one another plant so I'd say all in all I think our potential for market share on the modular mid scale side. So I'm, excluding the baseload, which arent really even happening anymore, and then and excluding a small scale also because I think that the different answer the modular mid scale I'd size it to be.
The potential to be 40% to 50.
Market share in that space on a small scale I think it's a meaningfully higher number because there's less competition on the small scale side.
Great and then you talk about this a little bit before but given the macro landscape changes I wanted to ask how are you thinking about your capital allocation strategies.
Organic and inorganic investments and maybe potential for Bob and seeing some of that both with return of capital over time.
Yes, so certainly we think right now organic and inorganic investment for profitable growth is is the right way to spend to spend our money.
You're seeing us do more organic of late which is with respect to the capacity projects that we've described.
The inorganic is I'd say, it's sub bullet primarily because there's nothing we have to have into our portfolio. We're super pleased with this portfolio that over the course of time has come together and that's really been through our own R&D group as well as the inorganic side, but there's a few out there that I think.
<unk> would make sense to add and again those would be at a similar valuation or headline prices that you've seen us do over the last 18 months.
We do expect as we get paid for the big LNG work that accelerates our ability to pay down debt and get to a point, where we would actually anticipate we get to a point you know to be certainly sub <unk> leverage ratio and at that point it becomes a meaningful conversation in the.
Boardroom about what how how do we think about a different way to return to shareholders. So I think that there is the potential for that conversation in a in the near to medium term horizon, but certainly in the current state the investment for growth and debt pay down our top allocation priorities.
Thanks Anthony.
Thanks Eddie.
Our next question comes from Craig Shere with Tuohy brothers.
Hi.
Wanted to pick up on.
Audio and Paul's questions a little.
On the 20th perspective, Big LNG orders, what proportion would you say are actively considering charts full ipl's them our technology suite.
Internationally as you look at your opportunity sets can.
You kind of provide any color about the growing chart content opportunity per international order that were seeing now versus a year or two ago.
Finally on the.
Hydrogen question.
Hum.
Do you see the increased 2020 through to 2025 opportunities in LNG completely additive.
Two at least the prior hydrogen outlook.
Or could the ladder.
Hydrogen outlook have some deferral as traditional energy independence takes precedence over the next couple of years.
Alright, Thanks for the question Craig So let me take one by one when we look at the.
Percent of the potential project content, and which ones would use if he has some more I'm going to I'm going to answer this based on a five M tpa and above so I'm going to exclude the small scale stuff.
Let's see a real quickly back of the envelope I've got a.
Certainly is 60% of these are would be in conversation for the potential to be similar.
<unk>.
Some of those have incumbents that are other process technology. So if you wanted to Peel the onion back I think you'd have to risk adjust the ones that the incumbent has their process on their existing all locations. So trying to displaces a lot harder than trying to sell the process too.
Somebody who doesn't have an incumbent so the 60% you'd have to risk adjust that for that discussion, but you.
You could you could apply that has a 50% to 60% number.
The second question on the international opportunities.
I mean those were those are wholly additive to our position from where we were a quarter ago, if we get them.
And I feel like we're very well positioned is the international extensions or newbuild.
Or a little bit slower in terms of moving forward. So a lot of this has been us working at this for three or four years to get qualified and get to the right teams. In these larger organizations that are making the process technology decision, but those types of projects are similar if we are to get it.
<unk> would be similar in size to some of the U S. Gulf Coast work that we do.
And then the hydrogen question versus LNG, and whether the hydrogen opportunities would be well I guess I could answer it or I can answer it two ways hydrogen additive or is the LNG additive to the hydrogen.
Either way I would answer it is.
We believe hydrogen is additive and not a displacer two things that we're talking about at least in the first half of this decade.
I think over the course of time, how those how that line crosses.
Have a guess right now it's too early to tell in terms of the evolution of the hydrogen economy, yet the hydrogen folks that are working with US you know a lot of the 419.
Our have absolutely nothing to do with the LNG side, but we're starting to also see a little bit of a subset of the LNG players say.
Let me contemplate doing a mix, let me contemplate thinking about the next step here, but no. One is going now back to the authorities and going to rejigger, a LNG facility and add hydrogen in because that's just going to add length of time before construction starts. So I think that's probably.
Step two maybe step three later this decade.
How easy would it be for you too.
Re jiggering or brownfield, adding 10% hydrogen to a large scale facility.
So it would depend on a lot of factors, how how easy it is let's let's describe it maybe that we have looked at this for multiple different customers.
Most of that's been on the smaller scale side.
And in the context of what are the critical points to design into LNG today to be able to potentially blend.
And in many cases is up to 25 or 30% hydrogen. So there are some elements of the design that make it easier if youre going to retrofit. It later.
The second answer to that is.
You can take hydrogen equipment.
In many cases, that's gonna be different metallurgy, and we can accommodate multiple molecules, but it's not just an off the shelf type of product.
Thank the questions less applicable to us so our answer would be yes, we can do it and the question would be more applicable to some of the interconnection points with other people's equipment.
So having an interconnection point with a compressor in the compressor would need to be able to handle that the pipelines coming in and out so it's a fairly.
It's not a one company answer it would have to be an interconnection points of various different companies that can work together on that.
Think it's I think it's actually very realistic and I don't think it's one of these far fetched ideas I think youre going to see more and more of that but again I don't think that's a 'twenty two 'twenty three 'twenty four type of time frame.
Great. Thank you.
Yes.
I'm showing no further questions in queue at this time.
This concludes today's conference call. Thank you for participating you may now disconnect.
Yeah.
[music].
Sure.
Sure.
Hum.