GTLS - NYSE

Good morning and welcome to Chart Industries, Inc. 2022 Second 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's website at www.chartindustries.com. A replay of today's broadcast will be available following the conclusion of the call and it can also be accessed through the Investor Relations section of the Company’s website. Before we begin, the company would like to remind you that statements made during this call that are not historical, in fact, are forward-looking statements. Please refer to the information regarding forward-looking statements and risk factors included in the company's earnings release and latest filings with the SEC. The Company undertakes no obligation to update publicly or revise any forward-looking statements. I would now like to turn the conference call over to Jill Evanko, Chart Industries CEO.

Thanks Catherine and thanks everybody for joining us today for our second quarter 2022 earnings. As usual we will reference the supplemental deck that was included with the press release and can be found on our website under the Investor Relations section. With me today is our CFO, Joe Brinkman. Let’s start on Slide 3 where we are extraordinarily pleased to share our second quarter 2022 all-time records in order a whopping $887 million of them, backlog and sales, which you can see is broad based including records for all in hydrogen and water treatment. And not only do we post our third consecutive record order quarter, which is five record quarters out of the last six. This quarter was also our seventh consecutive quarter of record backlog of $1.95 billion. Additionally we are starting to see the strong backlog and price cost actions take hold through the P&L with our second quarter also being our all-time record reported growth margin dollars and reported operating income dollars. We continue to see penetration of our FOAK solutions from process technologies through to cryogenic equipment in particular and what we refer to as the Nexus of Clean; Clean Power, Clean Water, Clean Food and Clean Industrials. This reflects the current focus on energy security, access, resiliency, which is complementing not offsetting energy transition or said differently the focus on sustainable solutions. Rather, these two are actually both needed and we’re differentiated in offering that. One of the ways we look at our differentiation is through our First-of-a-Kind orders, or as we call them internally, our FOAK-ing orders. In the quarter, we booked 23 First-of-a-Kinds, bringing year-to-date FOAKs to 51 as well as 85 orders with new customers this quarter bringing year-to-date to 169 new customer orders. Both the First-of-a-Kind and new customer metrics are on track to meet or exceed 2021, demonstrating that there is considerable further potential growth in our addressable market globally. To give you a sense of the First-of-a-Kind and new customers that we’re working with, here are a few examples of ones booked in Q2. An arsenic [ph] water treatment system for world’s travel stop, our first Earthly Labs Carbon Capture System for a brewery in Troegs and [indiscernible], an order for Chart’s heaviest onsite cryogenic tanks to date from a U.S. space exploration company, and a feed study for supply of LNG bunkering systems for LNG ferries in the Greek Islands. We continued our trend of more consistent and frequent orders of over $1 million each with 61 of them booked in the second quarter, making us our fourth consecutive quarter with over 60 such individual orders. And finally, our partnership and collaborations through memorandums of understandings and long-term agreements continued to grow. In Q2 we executed eight MOUs and agreements including two for LNG, three for carbon capture, two for hydrogen, and one for air-cooled heat exchanger master supply. One of the MOUs in carbon capture is with Wolf Carbon Solutions U.S. LLC, an affiliate of Wolf Midstream. Wolf and its affiliate are committed to the development of world scale CO2 carbon capture, transportation and sequestration infrastructure. Wolf Midstream owns and operates the Alberta Carbon Trunk Line which has infrastructure that includes CO2 conditioning and compression and one of the world’s largest capacity CO2 pipeline where captured CO2 is currently being used for enhanced oil recovery with future access for the Wolf Midstream sequestration hub currently under development. Through our cooperation agreement, we will work together using our SES Cryogenic Carbon Capture Technology at mutually agreed upon host sites located along Wolf’s Mt. Simon Hub carbon pipeline system.

As our demand continues to be broad based, we have four meaningful capacity expansions underway currently, a few of which we will discuss on the next few slides. Portions of the related capital expenditures are in our full year CapEx outlook of approximately $55 million to $60 million. Year-to-date through June 30th our CapEx is $29.8 million. It is worth noting that these expansions all have backlog seated to be first volumes when the capacity comes online. While some of the figures by project have shifted between years or amounts since our May 5th Investor Day CapEx outlook, overall across the next few years, we continue to anticipate spending approximately $200 million to $220 million on organic capital. Slide 17 shows the progress of our brazed aluminum heat exchanger line in our Tulsa, Oklahoma flex manufacturing facility. To date, all that remains on the original go live date is our furnace being delivered next month. The core piece of equipment for our cores. Slide 18 shows our German industrial gas and hydrogen trailer main capacity expansion on existing property, which is underway with operation set to begin in mid to late 2023. We received our first order totaling more than $20 million, which will be produced in this expanded facility. On this side of the pond, Slide 19 shows the site of our future supersized tank facility, where we will manufacture large bulk storage tanks all the way up to 1500 cubic meters or 400,000 gallons. These jumbos are used in a variety of applications, ranging from space exploration to bio gas as examples and our $16 million orders received for these jumbos in the second quarter will be produced and water shipped from this location. We have included Slide 20 to further demonstrate the increasing demand for jumbo or supersized bulk tanks. These tanks are used across multiple industries, as you can see listed in the upper right hand corner of the slide. The picture on this slide shows three more jumbo cryogenic tanks that were sent from our facility in the Czech Republic to Germany, home of a new 100,000 ton per day, bio-LNG plant. Each tank stores 1 million liters of LNG, which is enough to fuel more than 1000 heavy haulage trucks with cleaner burning biogas.

Slide 21 shows sales by segment and reported and adjusted operating income, while Slide 22 shows the gross margin information. Reported gross margin as a percent of sales in the second quarter was sequentially up more than 170 basis points in three out of the four segments when compared to the first quarter of 2022. Additionally, both reported and adjusted operating income as a percent of sales sequentially increased in three of the four segments also, each increasing more than 270 basis points compared to the first quarter of 2022. With the additional backlog shipped in the second quarter from CTS, we expect CTS margin to sequentially improve throughout the second half of the year. Our investments as shown on Slide 23, both organically and inorganically in our portfolio for the next are paying off in terms of commercial opportunities. In this week's news on the Inflation Reduction Act of 2022, which addresses the United States potential adoption of solutions through strategic investments that allow us to decarbonize, these investments and technologies are needed for all fuel types, from hydrogen, nuclear, renewables, fossil fuels, and energy storage, to be produced and used in the cleanest way possible, certainly will further support the continued traction we have already seen in the commercial adoption of our Nexus of Clean offerings. We're also seeing much greater interest from businesses across industries, in the technologies and funds that we were first investors in, including Cemvita Factory’s Gold Hydrogen, which is a novel source of carbon neutral hydrogen produced from depleted oil reservoirs that are ready for plug and abandonment, extending the life of the wells that would otherwise be a significant burden, but now producing hydrogen in place of hydrocarbons. Chart also has a synthetic biology process that has a potential to create a new way to produce sustainable fuel for aviation, in which both United Airlines and Oxy Low Carbon Ventures are investors. Another example of this is our Anchor investment FiveT Hydrogen Fund, which is now managed by and referred to as High 24 [ph]. Just last week, Airbus joined the fund as well, another potential user of cryogenic liquid hydrogen equipment for the future of aviation. This is just one example of how the focus in the private sector continues to be on ESG and more sustainable solutions. Another example is the agriculture and food and beverage industry responsible for approximately a third of greenhouse gas emissions globally. The industry is working to bait these emissions and our technologies can help customers address multiple ESG activities. One example of this is City Brewing. They're a customer that has purchased food and beverage equipment from us and now water treatment equipment in the first half of the year. Now we're discussing with them our Earthly Labs offering. So like many of our customers, they have several locations which presents repetitive and multiple opportunities for us across the Nexus of Clean. These Nexus of Clean activities are primarily reflected in our specialty product segment. Slide 24 shows our continued growth in the segment with the second quarter posting record orders and backlogs, even when taking into account the very low each LNG vehicle tank orders this year-to-date. Specialty also had plenty of broad based demand as you can see in the bullets on the right hand side of the slide. What is also exciting in this segment is not only the more diversified customer base that we are continuing from more geographic areas, but also the various non-investment partnerships we've been able to put in place, including the eight that I referenced earlier. Our Heat Transfer System segment is seeing very strong LNG supply side market demand, and obviously increased activity in Big LNG with multiple projects taking and expecting final investment decision. We are also seeing increased activity in new cryo plant builds, turnaround activity, expansion projects, and pet chem and ethylene markets, as well as strong activity in our air cooled heat exchanger business, which was one of the softest over the past few years. You can see the average order level for air coolers on the last bullet on the right hand side of Slide 25. In terms of margins, second quarter 2022 was our first reported operating income positive quarter for HTS since Q1 2021, so upward from here. Our second half 2022 HTS segment margin is one of the most meaningful contributors to our anticipated second half sequential, total chart margin improvement. This is driven by the projects already in backlog, as well as anticipated additional orders that are coming in the third quarter. Slide 26 is a slide to demonstrate our expanding LNG addressable market. We have previously discussed our LNG addressable market in three ways, Big LNG, small scale and utility LNG, which includes FLNG and regas opportunities, and third LNG infrastructure such as ISO containers, fueling stations and trailers. But from now on, we're going to speak to our LNG addressable market in four ways. These three, plus retrofit refurbishment opportunities for which we are seeing increasing inquiries and activity. I'll come back to the retrofit and replacement shortly, but first let me point you to a few of the data points on slide 26. Rows four and nine are powerful when you look back to February of this year. We had no Big LNG or small scale or floating booked yet in the year. Since then we've booked $667 million of related orders, and that does not include LNG infrastructure or retrofits. Row two we feel is important to our continued expanded future growth. We commented about the potential for international Big LNG projects, potentially using IPSMR and moving to modular mid-scale from base load stick-built facilities. This picked up momentum in the second quarter and while I cannot comment on specific projects due to NDAs in place, we are very optimistic about IPSMR being selected for use in one or more of these projects in the coming year. We have these international opportunities for both land-based mid-scale modular, as well as floating LNG using mid-scale modular. Additionally, we mentioned on last quarter's earnings call that Total Energy [ph] had approved our IPSMR process technology for use in their projects. We're pleased to share that this week another international operator has also qualified our IPSMR for use in their work. And a key takeaway is the increasing opportunity set in all of the categories shown on Slide 25. So as you might imagine, over the past few months, we've certainly received numerous inbounds from the public and private sector on addressing energy security access and resiliency. Our numerous Regas options are a key part as shown on Slide 27. Our most recently introduced Regas offering is our modular, moveable and quick to deploy Regas solution, which we call the DAGR, the drop and go Regas. This amongst our other Regas equipment and technology has increased in demand since the focus has heightened. We also appreciate that many of these customers are looking for us to be the maintenance providers. For example, Italgas has deployed 26 LNG Regas units, and we also are the 24x7 maintenance provider for these systems. We're currently quoting dozens of these opportunities for customers in central Europe, in particular in Germany, where the alternatives to pipeline gas are being explored. Back to the LNG retrofit, replacement and refurbishment, those -- we've had numerous jobs completed or underway year-to-date 2022, including related to removal installation of fans and motors and numerous field service repairs. In the second quarter, we received the Southeastern utility customers’ small scale LNG order for $26 million, which is also a replacement and an expansion project. The other opportunities in aftermarket are shown on Slide 28. This work is round the globe and includes opportunities in heavy hydrocarbon removal, nitrogen rejection units, vacuum related pipe, and Boil Off Gas, just to name a few. Our second quarter 2022 acquisitions of Fronti and CSC shown on Slide 29 are very natural fits for our cryogenic expertise and focus on expanded differentiated capabilities, as well as growth in our repair and service business. Fronti fits with what we were just talking about across the LNG spectrum, as well as with their specialized vacuum insulated cold box and pressure vessel capabilities is a particular strategic fit for hydrogen and helium applications, while CSC brings a strong service footprint in the Nordic region with many overlapping customers to Chart.

I'll wrap it up on Slide 33 with our current 2022 full year sales guidance in the range of $1.725 billion to $1.8 billion. Current associated adjusted non-diluted EPS guidance is in the range of $5.20 to $5.60 on a $35.86 million shares outstanding increased from $35.83 million shares outstanding in our prior guide. We’re also forecasting a 20% full year tax rate compared to the prior guidance of 19%. Okay, here's the best part of this call. Wait for it. This is going to be the best part of the call and the best part of the day. This is for our analyst community. You guys were right. It looks like our analysts were already right in their modeling and so we're falling in line to our current guide, just reiterated. So there's considerations and assumptions in our guidance. I'm not going to step through them. They're in our press release and they are also on the slide in the deck. So you can read through the considerations and the assumptions that we have in our latest guide and we feel that we've taken into account the discussion of the not yet improving pieces and parts that we've laid out today. So to conclude this slide, given the second quarter activity, we're now even more confident in our 2023, 2024 and 2025 outlook, as well as opportunities ahead of us. With over $1.1 billion of backlog already for 2023 and beyond, we certainly have high confidence in our previously disclosed three-year CAGR on sales and adjusted earnings per share. Before I conclude and open it up for Q&A, I want to show Slide 34, which I want to say a personal thank you to our amazing summer interns from high schools and universities around the world. Take a moment to appreciate each and every one of our interns for their dedication this summer, and as part of our talent development, we look forward to having you back next summer or full time. So now Katherine, open it up for Q&A.

Thank you. [Operator Instructions] Our first question comes from John Walsh with Credit Suisse. Your line is open.

Hi, good morning Jill, Joe and Wade. How are you?

Hey, John, I’m doing great.

Excellent. Wondered if we could first talk a little bit about some of the visibility you have for the margin drivers in the second half versus the first half. So I heard kind of in the prepared remarks you got backlog, right volume. Maybe some of these frictional costs get a little easier, price costs. I don't know if you can quantify any of that, but we’d just love to hear your bridge on the margins H2 to H1.

Yes, sure. So there's multiple components that go into that incremental increase in the margins. The CTS backlog burn off that we commented three or four times in our prepared remarks is a key part of that. Also the timing of the backlog in terms of these mid-level size projects, so when I refer these $10 million to $50 million sized projects we booked four of those the last week of December of 2021, where primary revenue on those is in the second half, in addition to some of these other mid-scale orders that were laid out on, I think it was Slide 5 or four of the deck. So those are all kind of contributors based on the mix profile and less of this price cost lag backlog. There are some other contributors in terms of the macro environment and we tried to account for offsets in our guide related to things like FX and so on. Probably the only thing I'd specifically point out is, we focused on CTS in the prepared remarks, but HTS in terms of the air cooled heat exchanger business has really turned the corner in margin, both from organic automation and productivity improvements, but also really from the price cost coming out of that lag backlog as well. So all of those things together with higher specialty mix give us confidence in that stair set from 1H to 2H.

Great. And then I thought it was very interesting, this kind of fourth leg around LNG that you're talking about. I was just curious the Genesis on why now did the installed base hit a certain age, did something change? And then how do we actually see it in the P&L? Is some of it showing up in repair and service and parts of it through HTS if it's a replacement? Maybe just help us understand how that fourth leg flows through the P&L.

Yes. Yes, and so let's answer your first question twofold. Why now? I'll answer it for why now are we calling it out as a company and why now in the market. We're calling it out as a company right now, because we've seen enough actual magnitude in terms of the order book to have it be meaningful enough to talk about separately. In terms of why this happening in the market right now, there's definitely, I think since the Russia-Ukraine conflict has broken out there is need for speed and utilization of existing infrastructure is a key driver in that. So it's not just Greenfield and it's how do I get more gas faster. And that's allowing for capital decisions to be made around retrofitting and refurb. And I think the same applies to more traditional energy infrastructure as well. We're seeing a little bit of that in our HTS segment. In terms of where this flows through, it is to your exact point there split between RSL and HTS. So take as an example the Southeastern utility small scale replacement, that would flow through our HTS business because while it's a replacement for them, it's new equipment from us. Whereas if we have field service work, which I think year-to-date we've booked about $13 million, $14 million more related to LNG particular in this fourth leg that would primarily roll through RSL.

Great. I'll pass it along for the fellow analysts. Thank you.

Thank you.

Thanks, John. Our next question comes from Eric Stine with Craig-Hallum. Your line is open.

Hi, Jill, hi Joe.

Eric, good morning.

Hi, Eric.

Hey, good morning. Maybe just following up on that margin question, I mean, obviously not providing guidance for 2023 and going forward, but I would assume we should think about continued margin improvement, given the higher utilization, given some of the easing of the materials costs that you talked about. And also just maybe on price, maybe thoughts on you've obviously taken a lot of action, but ability you think to hold that, potentially if you do see those materials costs start to ease and if that's sustainable?

Yes. I have a very high confidence in increasing margins continuation through 2023, 2024 and that’s a function of some of the things you just named. It's a function of the high level of volume rolling through our shops, more the standardization internally what we call flexible manufacturing. So where we used to three to four years ago we would make a product in a shop and now we're in the path of optimizing where we make what, and so pieces and parts across our manufacturing footprint go together in a much more seamless and optimized way. So those are some of the organic things that are happening. We do anticipate that we can hold onto a meaningful portion of the price. We, in fairness to our customers will be giving the surcharge back when we see a trend on some of these higher costs abating. But that's why we designed the price surcharge the way that we did, so that there was a piece that we were going to, we were going to price at some point anyway and so we had to accelerate that and that's going to continue to be in in our margin profile. So all told, I have a high level of confidence, you know, if you look beyond 2022 out into the further opportunities to meaningfully improve by hundreds of bps the margin profile that we have.

Got it. That's helpful. And maybe last one from me, just in the release I think you cited seven MOUs and one of them you announced with Wolf. Here on the call you're talking eight. So maybe you're breaking a little bit of news that you've added an LNG MOU recently. But if you could just go into detail a little bit more, I know maybe you're limited as to what you can share, but whatever you can share on those eight MOUs would be great?

It’s funny you say that because I had somebody else reading the press release for a tick and tie and they read it as seven, and I was meaning to roll the prior sentence of talking about one plus seven. So obviously my grammatical, my grammar needs to be improved on that. So it is eight. One was recent though, to your point. And I can talk about a few of them that are in the public domain and I'm able to talk about. One on the hydrogen side of things is Black Tree [ph], and that one is related to us being the exclusive provider of hydrogen equipment, as well as liquefaction for their projects going forward. On the LNG side, there's a couple that I can't use their names, but these are EU customers that have signed maintenance and long-term repair and service agreements with us. What we love about that is the linkage to the original equipment customer is just gets stronger and stronger. So one of those was actually a repair and maintenance agreement of others' equipment and now we're seeing the reverse pull through where we're getting original equipment sales as a result of that agreement. Then there's some carbon capture ones. We talked about the Wolf one today. There's a couple of others that are similar in nature. And this is on the large scale SES Cryogenic Carbon Capture side of things. Those are really specific where we're seeing the most action on carbon capture is on the industrial application side in almost all cases the reuse case. So meaning customers that in their product that they're manufacturing, they use CO2. So you can start to get the economics to work a little bit better at a larger scale. So that's the upshot of the agreements. More specificity can't be shared just given NDAs, but all positive with meaningful commercial opportunities behind them. Sometimes companies get out there and they've got MOUs, et cetera, but that don't necessarily have immediate commercial opportunities. All of these have very soon commercial opportunities tied to them.

Okay, that's helpful. Thanks, Jill.

Thanks Eric. Talk to you soon.

Our next question comes from Ben Nolan with Stifel. Your line is open.

Hey, Jill and Joe. So I've got to, if I can work a, in real quick first, just in terms of thinking about the macro, obviously the order is fantastic and everything else. And you talked through the fact that so far you've not seen any slowdown, but I was wondering, especially in Europe, if it is a function of high energy prices and maybe the industrial economy slowing down a little bit, is how are you guys thinking about specifically the CTS business servicing traditional industrial gas guys, is that, have you started to see any slowing or any signs of concern at all around that part of the business?

We've not yet seen that. But I would agree with you, something that we're watching very closely. I think a portion of it is the result of the recent kind of focus on some of the other, some of these energy applications and the need for the energy independence is also showing through the CTS segment, because in many cases, some of the tanks flow through for those applications flow through CTS. The other piece that contributes to this is many of our CTS customers are global in nature. And so when they're buying, we don't always know the end geographic point for where the tank is going, but we haven't seen a slowdown in their behavior, compared to typical or compared to what we've expected on a global nature, that . That doesn't necessarily mean that that particular region is lower and another region is higher, but nothing specific that points to that. If there was a risk factor which we feel like we've contemplated in the guide, I would say the EU to your point, the EU CTS side would be where we'd be watching for that, but nothing yet.

Okay, that's good color. I appreciate it, Jill. And then secondly, you talked about some of the big LNG developments and being improved by oil majors and or Total. And one of the things that we had seen, I guess, last week was that Exxon was looking to pivot their Mozambique project. And I know you can't talk about specific projects or whatever, but my question was, is it possible to sort of quantify where, where you think your market share has been for some of that Big LNG stuff on a global basis, not just in the Gulf coast and given what you're seeing, I mean, what's realistic from your perspective as to sort of where you might be able to push that?

That's a really good point. And yes, certainly we're seeing, I think we added, what was it, something like seven or eight new international opportunities into one of the categories on the Big LNG side. So generally speaking, international work for these projects to date we hadn't had any IPSMR adopted. We've had some equipment in those projects outside of the U.S. Gulf Coast which primarily when it's a base load facility is going to be a spiral round exchanger versus a Brazed Aluminum Heat Exchanger, so most of our equipment would be in pre-treatment historically. Now what we're seeing is a very strong movement in that international market toward this modular mid-scale, and whether it's Mozambique specifically or these regions of off the coast of South Africa or off the coast of Europe also in other regions of Southeast Asia, all of those regions we're seeing potential customers and current customers looking at moving to the modular side. So if I globally said Big LNG share from a process technology side, it would be zero international right now. And yes, probably guesstimate 40% in the U.S. Gulf Coast, guesstimating, and combine both of those numbers meaningfully increase with both the qualifications, but also this market move towards modularity.

Perfect, I appreciate the color and detail there, Jill. Thanks.

Thank you, Ben.

Our next question comes from Chase Mulvehill with Bank of America. Your line is open.

Hey, good morning, Jill.

Good morning, Chase.

Yes, so I just want to come back to margins and think about the progression in the back half. I know you've kind of talked about some of this at a high level, but maybe may, I don't know if you want me to do this, but I'm going to try, I'm going to try to pin you down on some margin numbers. So, obviously I think you've been talking about 3Q kind of having a noticeable step up and so just want to make sure if that's still the case? And then do we expect margins to step up again in the fourth quarter or do you have any kind of seasonality when we think about margins in the fourth quarter?

So typically we would have some seasonality, but just based on how the backlog is flowing out on the project work, it will actually be this year at least sequential Q3 to Q4 increase. And also based on how the backlog flows out, you'll have a more meaningful Q4 -- between Q3 and Q4, Q4 is going to be higher on both revenue and profit and margin percent of sales. And so, you'll see a step up from Q2 to Q3, step up from Q3 to Q4. And I think your other comments are accurate as well around yes, a meaningful step up from Q2 to Q3.

In your guidance, maybe at the low end of your guidance applied for the back half, do you mind kind of giving us a gross profit margin percentage that you expected in the fourth quarter?

Yes, somewhere in the 31 in change.

Okay, all right, perfect. And then, follow up question here. I mean, I think Ben kind of asked about potential slowdown in Europe, but we've been getting a lot of questions on just kind of the overall energy crisis and the potential for -- and the risk for kind of power rationing during the winter. So I guess there are a couple of questions for you. Number one, could you just kind of talk about your European manufacturing footprint and the energy intensity of that footprint? And then number two is, when you think about your supply chain, how reliant are you on Europe on your supply chain and kind of how are you -- what are you doing to kind of potentially manage some of this risk as we get into the winter?

So let's step back to the first part of the question. We manufacture in our European facilities about approximately 225, 250 of our total annual revenue-ish on average. There's a couple of primary, a few primary facilities in that number. The Czech Republic, Italy and Germany are the three primary locations in our EU footprint and with more heavy revenues coming from the Czech Republic and Germany. With that said, we've seen, we actually have sort of heightened our utility, electricity, energy input cost two quarters ago. We saw a little bit of that tempering. Some of that's a construct on just how the billing works and how the arrangement is. But we have continued to see certainly higher than typical cost side of things. From an input perspective, we're able to manufacture everything that we make in those facilities somewhere else. Now it would not be nearly as efficient as what we do in those locations, in particular, given the level of backlog and capacity we have open in other locations. But suffice it to say that if there was a long-term issue of being able to operate there, we could move things around to other facilities, which has been part of our strategy to make every product that we have in our portfolio in more than one chart location, which we're over 95% of the way there across the total portfolio. When you look at the supply chain side, we've worked very hard necessarily as a result of this potential issue in Europe, but really as a result of last year's issues in the supply chain to have multiple levers to pull in our vendor base. What I mean by that is, historically meaning three or four years ago, we were looking to be on global supply arrangements. We still like those where they're applicable and where there's cost savings, but we also have backup supply on a regional basis. So we can go both directions on global or local. And we've already looked at and started to deploy other supply chains in anticipation that this could be an issue. But all that to say is that we don't expect any interruption in our manufacturing from this and what I just dialogued there anecdotally is all the reasons why, and all of the things that have gone into our thinking to prepare for that type of scenario.

Okay, it all makes sense. I appreciate all the color there and I'll turn it back over. Thanks Jill.

Thank you, Chase.

Our next question comes from Marc Bianchi with Cowen. Your line is open.

Hey, thanks. I wanted to ask about orders. So you had this very helpful slide, number 4 and then on slide 5, you talked about the $445 million of orders excluding Big LNG here. I think that's what that’s referring to, but anyhow, what's the outlook for orders ex-Big LNG here in the back half of the year? You had a really nice hydrogen liquefier award in the second quarter so maybe you could just sort of talk to all of that for the back half?

Yes, thanks Marc. We -- and thank you for -- talking about orders, because we were pretty pleased with our nearly $900 million order quarter. And there were a couple, a few hydrogen liquefiers in the second quarter. So we had actually anticipated that. We'd get one and there'd be one or two more in the second half of the year. So we had a few in Q2 and we still anticipate getting at least one more in the second half is kind of our thinking maybe too. With that said, your prior call question was, would we be at or above 1 on a book-to-bill? And the answer is across the second half is yes. We continue to expect to be above 1 on book-to-bill.

Does that include Big LNG awards?

That would not include Big LNG awards. No, that would be everything else, but Big LNG orders, which to your comment is what that $445 million is on slide 5, that’s the average ex-Big LNG.

Yes, okay super. And how much Big LNG revenue is now contemplated in 2022? I think that was like 25 to 40 before and then given the awards you've now, how much should we be or how much is scheduled for 2023?

Yes, and I purposely stopped calling that out because now it's kind of becoming, I won’t say it’s regular part of our business, but essentially it's going to be part of our answer for the next three years. And so we're not going to call it out specifically every quarter since then we'd have to start calling out other things every quarter. With that said, similar to what we had anticipated before is what we're thinking now. There's obviously variability to have that move between quarters depending on, POC and rev rec timing and shipments and so on. But the majority, the meaningful majority of the $528 million that we booked will be revenue after 2022.

Okay. If I could just ask one more on the -- sticking with LNG and this Regas and retrofit opportunity, how big is that today or maybe over the last 12 months or two years, whatever kind of timeframe you want to talk about, just so we get a sense of what the base is?

Yes, really up until this year today, we saw -- we periodically, but I mean, we're talking $5 million, $10 million a year type of level. And year-to-date, we booked $39 change million on it. And there's just a ton of things in our commercial pipeline related to this particular bucket that could be meaningful. For example, right now we're quoting onto nitrogen rejection units, which in terms of magnitude of an NRU for our content would be above $50 million per NRU, most of them above $75 million. So that gives you a sense that there's material potential orders in this space with a first half with nothing of that magnitude of about $40 million to date.

Great, thanks so much.

Thank you, Marc.

We have a question from Rob Brown with Lake Street. Your line is open.

Hi, Jill. Hi Joe.

Hi Rob.

On the Brazed Aluminum Heat Exchanger business, that seems to be coming up off the bottom. How is that market dynamics ramping? And do you see that having several quarters of improvement here or how does that look at this point?

Yes, and I'll expand your question to also talk about air coolers, because both of them are improving and will continue to improve for two different reasons I would say. The air cool business is primarily more book and ship business and so we've both priced better, but also gotten the standard work that we do in that particular shop and completing the move from Tulsa, Oklahoma to Beasley, Texas for that particular product line is also going to help continue to raise the margin profile in air coolers. On the Brazed side, the market dynamics is not only improving it is positive right now, and that's across multiple applications that use Brazed and I'll comment on it with respect to HTS first, and then I'm going to take it over to specialty. So on HTS side, we're seeing the market dynamics improve on things that were, I would say essentially on hiatus for the last two years, things that were not speculative capital build, but more traditional applications like the pet-chems and the PDHs of the world. Then we're seeing as Ben was asking about this traction on the IPSMR process technology for both small scale, not both, small scale floating as well as Big LNG. So that's gaining more traction for Brazed because Brazed fits very well with IPSMR obviously. And then if you take it to the specialty side where the Brazed Aluminum Heat Exchangers are used in multiple specialty applications, inclusive of hydrogen and helium. So we're excited to continue to see that those markets evolve, which we've obviously spent more time in our prepared remarks over the last year specialty and that momentum continues where the hydrogen liquefier orders that we booked in the second quarter, they will all include a Brazed Aluminum Heat Exchanger in a cold box which will be -- the cold box will be done at Fronti in Allentown, Pennsylvania. So lots of pieces and parts kind of coming together from a market dynamic side, as well as from a Chart footprint side and capacity side with a very strong order book.

Okay, great. Thank you. And then I know HLNG business, I know it's sort of in a weaker spot. What are you seeing in the market there and is there any signs that that's turning or is it still low visibility?

Yes, we -- as we came into the second quarter, we had tempered our expectations, but they did really improve through the second quarter for HLNG side of things. The customers though are extraordinarily, or at least what they tell us is they're extraordinarily bullish still on the LNG commercial truck market, and so this has been in their talk to us a temporary slowdown. Now with that said, we've basically said there's minimal recovery in the second half of the year. Then yesterday morning we get $1.7 million order for HLNG vehicle tanks. So it's pretty, I would say volatile right now in terms of being able to predict it. So that's why we've tried to bake in a lower look, all that, that there's been no indication that it won't come back. It's just timing. And I think that's a key message kind of across the board on a lot of this, when I keep saying, well for in our world a quarter -- a shift from a quarter to another quarter is not at all meaningful in terms of how we operate. And that's similar in nature to the HLNG operators as well as they navigate through their other supply chain such as semiconductors. So I'm confident that it will come back and just I am not confident that it comes back in 2H.

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

Thanks, Rob.

Our next question comes from Martin Malloy with Johnson Rice Company. Your line in open.

Good morning.

Hey Marty.

Hi, just two questions, the first on Big LNG and there's been a steady pace of sales purchase agreements related to expansions and projects like Plaquemines and Corpus Christi, where you've got some recent awards and also some expansions of other projects domestically and some green fields. It looks like there's going to be a pretty heavy demand for the Brazed Aluminum Heat Exchanger out in 2024, 2025. And maybe if you could just talk about your manufacturing capacity and will there be need for further manufacturing capacity regards -- following on what you're doing in Tulsa to meet that demand, and also what this might mean for HTS margins, when you look out to 2024, 2025?

Yes, that's a great question. And what I would say is, starting with the capacity question that we have made strategic investments in our capacity over the past four and a half, five years purposely. The first one was the $25 million or so capital investment in our second world's largest Brazing furnace in our La Crosse, Wisconsin facility. We did that in anticipation of a cycle of LNG projects, and that was completed in 2018. We weren't exactly right on the timing of that, yet it’s proving to allow us to take these orders without having to contemplate, okay I got to move this around or I have to worry about delivery schedules. We're able to take all of these orders and all of the potential ones that are coming in with that capacity that we put in place in Wisconsin. Now, we also do need the capacity that Joe Brinkman just talked about in his remarks in our Tulsa facility, that furnace is going to be for 98 inch core. So that's like that's smaller than the world's largest one and we chose that because that's kind of the sweet spot of the Brazed core. And also that's the sweet spot of the cores for many of the special market applications, which is part of our thinking on where we put what, in terms of flow through of the shops. So we don't anticipate having to do more capacity on the brazed side of things. Then, flip to its partner of the cold box where we have a current organic expansion happening in our New Iberia facility. That's in Louisiana and that's specific to adding some roof lines. We were finding more and more customers want their boxes to be produced under roof and coupled that with the same comment of specialty cold boxes. We got that capacity through the Fronti acquisition at the end of May. So we're feeling very good about being able to take more of this work. And I would echo your comment on expecting demand in 2023, 2024, 2025 to continue to be very strong and not just these new export terminal projects. We are back to that leg four of LNG; we are definitely seeing proactive retrofitting of existing facilities as well, currently quoting on some retrofitting of pipe across one existing U.S. Gulf Coast facility, some add-ons like the NRUs and the heavy hydro systems. So very, very exciting time in the industry itself. And the last part of your question on what the gross margin profile for HTS look like? If you look back at the peak of a cycle historically the equivalent of HTS margins, so it would've been at the time E&C, but the equivalent translated, would've been about 36%, 37% at the peak. That was a year that did include a big -- a meaningful chunk of Big LNG work. I think it was like a $100 million something in that year. So the large project work certainly does drive that margin up, not pricing wise, but absorption wise is the most meaningful impact there.

Great, thank you. Next question on the specialty products side and impressive orders there, you cited space and water treatment. I was wondering maybe you could talk a little bit about your outlook for the pace of awards there?

I was thrilled with both space and water in terms of the last couple of quarters in demand. Space is an interesting one. It's -- historically for us, it's been, fairly de minimis in terms of size of orders and hard to predict when they'll come. The private space exploration industry takes their time and then hurries up. And so coupling that together, what we are seeing, pretty excited about is this movement from all of the space industry toward these super-sized tanks towards fuller cryogenic solutions. I'm also cautiously excited about the potential for the space customers to also look at owning their own liquefaction. So obviously they use multiple different molecules in their launches and there's been some talk in the industry about owning their own floating liquefiers, et cetera.

This quarter I commented about the India, second win of the year. So we have had two large India water awards, and we expect that the international market for water is going to continue to accelerate, both in the near medium term. So that's for us, we felt we’re well positioned in a certain part of that value chain and there's a lot of addressable market outside of the U.S. for us to go after.

Great, thank you.

Our next question comes from Greg Lewis with BTIG.

Yes, hey, thank you and good morning everybody, and thanks for taking my question. I guess my first question is around, congratulations on the orders, the hydrogen liquefier order. I guess what I'm trying to understand is, as we think about, not necessarily the long-term view outlook, because there's clearly opportunities everywhere, but as we think, as what's happening, like in the now, is there any way to kind of give us any color around geography and customer base, i.e., are we selling these largely to one customer or is there multiple customers that we're selling our hydrogen equipment too?

Yes, hi Greg. So I'm just going to answer your question because you wanted me to focus on them now. So right now what we're seeing is, a fairly even split between the liquefiers and associated equipment, whether that's storage tanks onsite or offsite or trailers or associated piping. With that, what we've seen over the last 12-months specifically. So let's step back to the start of when people cared about hydrogen, which was May of 2020, here we are two years later. The first year was grappling with the colors of hydrogen as well as the gases versus liquid, right applications and so on. Then the second year, meaning the last 12-months, what we've seen is, a convergence on gases and liquid are going to both be part of the solutions and a movement towards, I would say more action on scale. What that's done for our book of business is diversified our hydrogen customer set. So for example, the liquefiers that we're referencing this quarter, those there's more than one there, that's for two different customers and there are two new liquefier customers for us. So broader based still I'd say it still is very, as you commented embryonic market as a whole, yet the diversification of the potential liquefier customers is directionally very positive for us. And those types of customers range from utilities to pure play hydrogen customers, meaning the hydrogen guys that want to own the molecules through to the entire infrastructure, all the way to the next bucket being the industrial gas customers. And I always throw in, when I talk to the public domain; I throw in the fourth bucket of the dreamers. But we haven't really seen commercial, true commercial activity from the dreamers, the guys that are coming up with these more cutting edge type projects, it's really the first three. And then the geographic part of the question is, similar in terms of year one, it was pretty targeted U.S. and Europe. The last 12-months we've seen a broader base of geographic orders and that's been Canada, certainly U.S. and Europe are active too, continue to be active, but Canada has been very active. South Korea has been very active. China has been active behind the scenes. So we don't get permission to talk a lot about the hydrogen work that we do in China. Yes, we do have group code certification for the liquid hydrogen storage tanks, which is a nice differentiated station in that market. And we're starting to hear a little bit in central South America and Australia. But the first set of geographies I just described are where these orders are being placed from.

Okay, great. That was super helpful Jill, thanks. And then just one other question around LNG and I know that, clearly we're calling out brownfield retrofit opportunities. So it seems like this should be something that we could see here, over the next quarters or at least one to two years. Is there any way to kind of think about the difference between when Chart books a greenfield versus we'll call it brownfield order in terms of the cadence of revenue? And is there any difference around the margins that we should be thinking about for the -- a retrofit project versus a greenfield project?

So in terms of the cadence of revenue, it will depend on what kind of brownfield project we're talking about. If you were talking about an NRU or a heavy hydrocarbon removal system, at the short end that's going to be like a 12-month type of timeline, but it could be even longer than that. It depends on the size of it, depends on where it's going, et cetera. Whereas on the short end of things would be like a field service repair and something that you go out to the site, and that's kind of a quick turn within a quarter type of work. And the field service is going to generate meaningfully better margins than anything else that we're talking about, because typically that's going to be an emergency type of situation. Generally speaking, greenfield, brownfield margin profile will be similar to each other on the bigger LNG side of things. If you were just to say as a whole, but there's pieces within there that you could differentiate to be higher. The other piece on the brownfield in terms of timing would be things like if I'm going to change out all my pipes, in my facility that would be the lead time for the pipe itself. And, we tend to do medium-to-high diameter pipe, so the lead time on that would be something like…

20 weeks.

20 weeks BR says here, and then the install would be fairly quick after that. So a little bit shorter, I would say Greg compared to a greenfield.

Okay, super helpful. Thank you everybody. Have a great day.

Thanks Greg, you too.

Thank you. Our last question comes from Craig Shere with Tuohy Brothers. Your line is open.

Good morning. Thanks for taking the question.

Hey, good morning, Craig.

Jill, I basically have a question about the domino impact of catalysts across segments and decisions about how to allocate revenue amongst segments. As an example of the former curious about the implications of what you mentioned, hydrogen, completed oil wells and upstream HTS opportunities, and on the ladder, wonder why things like renewable diesel and sustainable aviation fuel would be an HTS and not the new economy, clean nexus specialty product segment. And at what point we start breaking out the more massive, bigger specialty pieces into their own standalone units?.

Yes. So let me start by just the construct of the way we prioritize, where things are reported and then I'll get into more specific answers. The construct would be if the application itself is for specialty, even if it's using equipment that historically would have been in a DNS or an ENC segment, which respectively would and or excuse me, CTS and HTS respectively. That, it will go into specialty. So specialty is first. If it's a repair or service, it will go through RSL. And then from there, if it's more traditional application in HTS, it will show up in HTS, or if it's a piece of something that is going into a larger facility for an end market that would be heat transfer, it would show up there. So I'll give a very specific example, like you said, on the specialty side, if it's a Brazed Aluminum Heat Exchanger for a hydrogen liquefier that will be reported through specialty. If it's a Brazed Aluminum Heat Exchanger for a PDH plant or a Nat gas processing plant, it will show here. The renewable diesel and FAS question specifically currently, it's a fairly, it's a very small portion of our order book. And they have been with existing customers and plants that are more traditional energy customers and locations. And we are contemplating kind of, as that grows, we think that it probably does need to go through specialty, but as part of something like bio-LNG, then we'll move it into the specialty bucket. At what point do we break out a market or an application like, so I obviously hydrogen would be the natural one we'd be talking about given our addressable market size and our continuation of strong order book in that sector. It's still early in terms of the market. And what I mean by that is in terms of consistency of this growth has proven to be better than I had anticipated originally for the hydrogen market. So that's a plus one, yet we're only truly two years into seeing how the market is going to evolve, even though we've been doing hydrogen related equipment for 57 plus years, it wasn't really truly a market until a couple of years ago. So it's a combination decision around the market itself and where we think it is, and the size of our business; that would make sense to report on. You could imagine people have a hard time as it is with our four segments, just given the diversity across them, that adding a fifth, we'd have to really be able to talk to all of these metrics consistently against good comparables that that would make it worthwhile to a shareholder.

Right. Just for the follow up, renewable diesel and sustainable aviation fuel, I mean combined, couldn't that be $100 million or $200 million annual revenue by [indiscernible]?

So sure.

Great, thank you.

Thank you, Craig.