Chart Industries Inc (GTLS) 2022 Q1 法說會逐字稿

Good morning, and welcome to the Chart Industries, Inc. 2022 First Quarter Results Conference Call. (Operator Instructions) 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 telephone replay of today's broadcast will be available following the conclusion of the call until Friday, May 6, 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 SEC. 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 Brinkman, but you won't hear from him verbally as he has a cold so his voice is pretty rough. We're going to try to save it for next week's Investor Day, which is next Thursday, May 5.

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 3. The quarter included our 6th consecutive record quarter of backlog, our highest ever quarter of orders and our continued progress of closing the gap of pricing and cost which is demonstrated through our sequentially improving margin profile as well as our continued completion of various acquisition integrations and capacity expansion projects. You will see this reflected in our add-backs to earnings per share, excluding the mark-to-market gains and losses of our inorganic investments net of FX, are down 42% when compared to Q4 2021.

But first, let's walk through what's 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 24, 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 and continue focus on sustainability.

We continue to hear from various entities that the conflict has spotlighted the need for construction and action now to address these themes. Slide 3 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 $1.5 billion, but perhaps more meaningfully reflected in our growing pipeline of commercial opportunities, the largest pipeline we have ever had.

On Slide 4, you can see that these records were not just driven by 1 segment or product category on the left-hand side of the chart. 2 of our 4 segments as well as the total company posted all-time record backlog in the first quarter, while 7 product groupings within those segments also ended with record backlogs. Total company backlog increased over 58% 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'll talk through 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.

While much of the past 2 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 installed base 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 100,000 to 200,000 tons of green hydrogen a year and have 50,000 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 Cemvita Factory's Gold Hydrogen synthetic biology process. You can see some of the Factory's early successes through their collaboration with United Airlines and Oxy Low Carbon Ventures for commercialization of sustainable aviation fuel. As an aside, we are hearing more about SAF, which is another opportunity for us. While 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 SAF 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, 2 years ago this month, we were talking with approximately 30 potential hydrogen customers. And 1 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 to by 70% in the past 6 months, further evidence that there continues to be ongoing support of hydrogen as a key part of the energy transition.

Now turning to Slide 5. 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 2. We're very excited and proud to continue our work with NSE on their Fast LNG unique, expeditious and creative solution, and we kicked off April with a letter of intent for Fast [LNG]. EMEA and India first quarter 2022 orders were a 9% sequential increase over the fourth quarter of 2021 and the strongest first quarter of the year in the history of the region. It is rare in our Cryo Tank Solutions segment to have sequential Q4 to Q1 increase in orders, but that is the case this year and we do expect additional success in the later quarters this year. We 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 1.8 or excluding the Big LNG orders of 1.15 in the quarter. I just shared our record orders in backlog, which are included on Slide 6. 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 4 segment sales increased more than 14% over that same period with Specialty Products leading the way on a year-over-year increase of 39%.

Slide 7 visually shows our continued progress on pricing and cost actions reflected in our first quarter 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 start-up capacity costs. This demonstrates our progress in incremental and sequential quarterly improvement in our margin profile. I would also note that we continued to face, in the first quarter, additional headwinds that we do not adjust for in either gross or operating margin. Some 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 synergies from our recent acquisitions. And still others were truly onetime in Q1, such as inefficiencies from robotic cell repair, which is now completed and the repair of our collapsed storm sewer in Minnesota.

You can review Slide 8 specifics on your own, but the takeaway is that our add-backs, excluding mark-to-market net of FX 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 costs 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 $0.28 included a negative impact of $0.11 from the quarter's mark-to-market of our inorganic investments net of tax as well as operational onetime costs related to restructuring, start-up capacity and deal and integration totaling $0.26. While adjusting for these items, adjusted non-diluted EPS was $0.65, as shown on Slide 9. Our analysts were debuting our first slide in the appendix, which we thought was a great recommendation from 1 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 2 slides that you have seen for the past few quarters, providing our perspective on direct business impacts from the 6 biggest challenges in our current operating environment. Material cost and availability is by far our highest ongoing concern, and we focus our discussion on the 3 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 in 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 in the past 6 weeks to buy at nonpeak 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 cost, which has proven to be a near-term success, considering the 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 is nothing meaningfully new to discuss on this topic shown on Row 2.

Row 3 is the continued force majeure we are under from our United States gas suppliers to our manufacturing plants. This started with nitrogen in the Southeast in August of 2021, and now helium is the challenge across the U.S. We have not had a month without being under force majeure from the supply base since August of 2021. 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 to row 6 as rows 4 and 5 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 team 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. (foreign language)

Also, we anticipate the second quarter to have some logistics headwinds in our China facility, less specific to our shop, but more so as a result of port congestion, the worst it has been in 6 months in the South China hubs as well as a growing backlog at Shanghai. We're [still seeing] COVID 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 our last earnings call, 2021 pricing actions taken. We've included it here just for sequential reference. So now moving on to Slide 13, what actions we've taken year-to-date 2022. As you've heard, material costs and other hyperinflationary trends continued throughout the first quarter. We continue to update pricing based on market conditions in our 3 main categories of pricing mechanisms as shown on the right-hand side of Slide 13. In the first quarter, we had our long-term agreement index adjusted price updates. All standard price list had pricing adjustments, specific regions had increases based on material cost in that region. Our 15% market condition surcharge was in effect the entire first quarter 2022 for noncontract customers, and we increased the surcharge after the material cost changes did not temper but rather increased.

An example of one of the variety of macro headwinds that we have been improving through specific actions as shown on Slide 14, is the delta between freight costs and 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 3 years. From January of 2021 to January of 2022, you can see the dramatic increase in freight cost of over 300%. And that comes on the heels of the prior 12-month cost increase of over 200.

Now turning your attention to the right-hand graph, which is our delta between freight cost and freight we passed 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 6 quarters of closing this gap. This comes as a result of standardizing our approaches to freight 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 are updates today. The first is that we have completed our vacuum insulated pipe manufacturing lines in our European shop. The second is our first quarter 2022 CapEx spend of $12.6 million. And finally, we plan to share our next series 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 Brazed Aluminum Heat Exchanger furnace in line. An update is shown on Slide 16, and this line is scheduled to be fully operational in the first quarter of 2023. This adds flexibility for a variety of core sizes as well as adding a location that's close to New Iberia, Louisiana for ease of transport of the brazed cores to our water-adjacent cold box facility. Also making great progress is our Sri City India expansion on Slide 17, primarily for tanks and potentially trailers. Already partially in use as of this month, 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'll utilize it as we expand 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 an adjusted gross margin as a percent of sales sequentially increased not just for Chart as a whole, but in each of our 4 segments compared to the fourth quarter of '21.

So Slide 19 is our menu of clean solutions that you've seen on numerous occasions for the nexus of clean, clean power, clean water, clean food and clean industrials. While much of the past 2 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're seeing multiple different in-flight types of focus on ways 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 we're seeing numerous opportunities across these interlinkages of clean options. And you can see some of those examples on Slide 20. L.A. Turbine had their highest order quarter in 5 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 '22 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 ChartWater business from my perspective is seeing the cross-selling between our core food and beverage customers, BlueInGreen and AdEdge's water customers, Earthly lab, small-scale carbon capture breweries, wineries and distilleries and our larger scale carbon capture business, SES. One example is BlueInGreen sold the largest industrial sale in our history for containerized STOC unit to International Flavors & Fragrances or IFF. BlueInGreen introduced IFF 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 greater than $40 million if each comes to fruition. In this month, we launched our sustainable brewery solutions package, an all-encompassing approach to beer [brewing operations]. That includes rain harvesting, water treatment and reuse, CCUS and dosing. This is a perfect example of the nexus 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 of the first week of April 2022, we had 252 and have sent 148 proposals out were under 81 NDAs for our SCS large-scale carbon 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 3 facets of our LNG offering were all increasing at the same time. Those 3 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, coupled with a few Chart specific wins is driving the opportunity even higher. You can read the macro bullets on your own, but let me add a little bit of color to the right-hand side of the slide. Modular 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 IPSMR process opportunities were typically solely North American. IPSMR and IPSMR+ continue to receive qualification by LNG operators, including international companies, most recently qualified by TotalEnergies for their upcoming projects.

Couple this with our ongoing differentiation via many international patents and our latest process patent, which we had announced on our last call. Our process lends itself to retrofitting for increased gas output in brownfield locations, and IPSMR efficiency leads to lower CO2 per ton of LNG. So our heavy hydrocarbon removal process handles the extreme gas compositions while maximizing LNG production. And finally, IPSMR has proven to be an ideal solution for floating LNG.

So now turn to Slide 23, and you can see the increase in our real commercial opportunity pipeline. 3 main contributors: first, the resurrection of more big LNG projects; second, 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 permitted, received DOE approval for an increase to Magnolia LNG's authorization to export an additional 0.8 million tons 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 2 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 hasn't dramatically increased, the number of and dollar amount of projects that we think move ahead this year certainly has. Looking some of these opportunities in the coming few months could drive the potential to reach the higher end of our guidance range as shown on Slide 24.

Our anticipated 2022 full year sales outlook is in the range of $1.725 billion to $1.85 billion, with associated nondiluted adjusted EPS of $5.35 to $6.50 on approximately 35.83 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'd 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 range providing here today is in the second half.

Recently, key customers from our HLNG vehicle tank products lowered their 2022 purchasing forecast as a result of the macroeconomic challenges in the vehicle industry. Citing specifically the second quarter 2022 impacts. We do anticipate that this is timing into 2023 as the vehicle industry works through their supply challenges. There are specific opportunities, as 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 will continue to have a margin drag from historical levels from the ongoing macro challenges but increasingly be offset 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 outlook 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 this strategic decision, our net cash used by operating activities was only negative $22 million, and when adjusted for unusual items was positive $8 million. This included an increase in inventory 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. So 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 just a couple of notable items.

Last year, we reduced our GHG 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's awards too. And in summary, we contribute to 5 of the United Nations' sustainable development goals. Part of ESG is safety as our #1 priority, including as of the end of March 2022, having our lowest-ever 12-month total recordable incident rate. Many of you [know] how easy is it for competition to enter these very attractive applications in markets that we play in. I've shared on new that cryogenics 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 the #1 priority, given the high pressures, flowability and other varying characteristics of handling these molecules. Our biggest safety advocated chart, and I would go so far as to say in the cryogenic industry, is Tom Drube, one of our very own engineering fellows and Vice President of Engineering. This month, Tom received the distinguished Charles H. Glasier Safety Award for 2022, which is presented annually by the Compressed Gas Association or CGA to an individual and recognition of their safety leadership in the industrial gas industry. We are very proud to be on the same team as you, Tom. Thanks for all of your safety work.

And now, Liz, please open it up for Q&A.

(Operator Instructions) Our first question comes from John Walsh with Credit Suisse.

And congrats on the quarter. So I guess, kind of the first question, appreciate the detail around that big order pipeline increase for the Big LNG projects. Given how strong you're seeing demand, can you talk about any changes you're making in terms of maybe the percent you get as an upfront payment, anything 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 our shops are set up and the absorption impacts, they are higher than our average target 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 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 towards the front end.

I would say that as a whole -- on all of these projects we're 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 appropriately purchase materials. And that same discussion applies fairly broad [on the] smaller scale side, too. There could be some exceptions on the smaller scale side, just depending on what project it is or if it's a new application. And then in terms of pricing as a whole, we're very transparent with the customers on these big projects where this is the material cost environment that we're in. And so it's not us trying to grab a massive share of additional prices, 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 pricing side.

Great. And then maybe just as a follow-on to that, you're talking about better margins as we go through the year. If we kind of isolate 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 -- there's 2 pieces of the answer to that question. well, there's obviously many more than that, but let me summarize it in 2 pieces, 2 being the backlog burn off of the lag from last summer and 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 chunk of and those are the types of projects that had material bid validity and so we were able 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 going to be Q2 to Q3 and then we'll see 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 step on the margin profile side on gross margin as a percent of sales will be Q2 to Q3.

Our next question comes from Martin Malloy with Johnson Rice.

I was wondering if maybe you could expound a little bit in terms of what you're seeing for demand on the LNG equipment, related equipment once it gets to the -- once the LNG gets to the other shore, the downstream LNG equipment 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 equipment orders. I assume that was LNG related. But maybe you could just help us with the magnitude of demand that you're seeing for the regas, transportation, storage-type equipment?

Yes, 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 in the smaller scale. And in that, we were fairly conservative on the smaller scale side on regas expectations. We have seen certainly an increase in inquiries around regas 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, to I can get gas here, but now I need to move it. And ISO containers are a great example, and we're starting to see an uptick again in ISOs. The order that you referenced for the European government, 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 levels of inquiry on. So building the infrastructure once the gas gets there is definitely continuing to pace, inquiries have increased on the regas side. And so more to follow on that. I think we're just starting to see that happen. The biggest discussion, there's 2 parallel paths of discussion happening in particular with the EU member states. One is I've got to make sure I solve for next winter and two is I better get 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 points. So it's not I have completely thrown the baby out with the bathwater on sustainability. I still have to solve for that, but I need to do these 2 things in parallel.

Great. 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 still a good target?

Still a good target. I think we characterized it as 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 very fair to still state that as the target.

Our next question comes from Chase Mulvehill with Bank of America.

I guess first question, I'm going to, I guess, stick on the LNG theme. Obviously, you're going to have some pretty strong -- you've had some pretty strong LNG orders so far this year, and those probably continue. You just talked about the 3 larger orders, Cheniere Stage 3, VG Plaque and Driftwood this year. But if we look past this and you probably had discussions or ongoing discussions. But could you talk about the timing of more Big LNG orders here in the U.S. and maybe, I don't know, size, MTPA or anything you want to kind of frame for us once we get past these 3 orders?

Yes, that's a really good point that -- let me address with some specificity here. So -- and I would piggyback, I think Lorenzo of Baker Hughes commented 100 to 150 MTPA coming -- starting construction in the next couple of years. 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 3 that we talk about publicly, they could maybe fall in the middle there, but let's just talk about them as after those 3. We're seeing various different size MTPA projects. So some of them are building upon existing projects in the United States, so you would know the ones that are operating currently.

And those add-ons are in the range of kind of 2 to 4 MTPA -- (inaudible) 2 existing sites. We're seeing the potential for -- and your question was specific to the U.S., but I think 1 of these on U.S. maybe in the -- in the 8 MTPA range outside of the U.S. has the potential to move ahead. And then you've got some more work on CP2 that's Venture Global Calcasieu 2. I think that certainly is one that moves ahead in the coming couple of years. And then you've got some of these other guys that are on the U.S. Gulf Coast, ranging typical ones that I would say there are going to be in the 10 to 15 MTPA range. So you could guess 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 gets started in '24. That second tranche is pretty big too, in my opinion, which is a little bit different than what we had believed before we believed that there would be this group in this cycle and then there'd be a hiatus and maybe there was another cycle in '27, '28. We now view this as they're 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. That makes sense. Can I kind of follow up real quickly on that one question. You said 8 MTPA for -- on an international project. Would that one be modular as well or they kind of be larger stick projects?

It would be modular as well. So we're pretty excited. There's a couple of these internationally that have changed direction now to modular midscale from their original thought process, and we're pretty far along in those discussions.

Okay. And then a real quick follow-up on Specialty Products. You talked a little bit about the softness in first quarter. But could you maybe just provide an outlook on expectations for the rest of the year as this segment 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're talking all equipment and no liquefaction. So the demand side, we expect to continue to grow in Specialty sequentially and build off of the starting point there. From the profit side, what were -- the first quarter, really the biggest impact on Specialty margin perspective was HLNG vehicle tanks. So we had to do some rejiggering around of capacity. So we had planned for a different forecast, and then you've heard these truck makers indicate that they're not able to get semiconductors.

So we expect to sequentially step that out as the year continues on with -- let's see, gross margin increasing sequentially every quarter. The second half is stronger than the second quarter because of the timing on our liquefaction, both our helium and hydrogen liquefaction revenue. So I'd stairstep but with the second half being certainly back in the mid-30%.

Our next question comes from Eric Stine with Craig-Hallum.

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.

Yes. That was a very big win for us. We're really pleased with -- any of those types of agreements are very good. But when you get customer that's very well established in terms of handling and building larger scale hydrogen, that's even more impactful, I would say, in the near term 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 a wide variety of geography. And I'd say that really goes from the U.S. So obviously, all the majors play in the U.S. It goes to Asia and my comment around expectation for China hydrogen to expand, this would be something that we would expect this particular player to do in that region, Europe and North America, including Canada.

So all in all, this covers all the equipment that we provide, and that includes Brazed Aluminum Heat Exchanger cores, which is a really, really big win for us. When you look back historically, we didn't typically serve any of these larger customers on the Brazed side. There were incumbents like Sumitomo and Kobay 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 in that ability to do that has proven that our brave cores are really are high performing and high quality. All 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 more variety of geographies all of which require specific equipment certification on the hydrogen side and us having that or at least being partially along 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 side?

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 2 that you got an order for that, I mean, 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, I mean what are you seeing in terms of the advantage you've got, scarcity of production capacity driving those potential orders your way?

Yes. I think I concur with everything you summarized there, in particular, that it was a surprise to us as well to have that 6 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 said, 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 then starting back up. I think you're going to see a more steady state of construction over the coming decade. With that said, the -- my prepared remark of we aren't very good at timing capacity expansions, but we got pretty close on this, 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, is 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 2 or 4 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 require Brazed Aluminum Heat Exchangers for liquefaction, whether that's helium or hydrogen or biogas. So I think it's the combination of our experience making these products, they're proven in the field and the capacity that we have allows us to be flexible and work with the customer to meet their schedule.

Next question comes from Ben Nolan with Stifel.

I wanted to get to something that didn't really come up much, but it seems like it should be increasingly a thing. As we're seeing a lot of oil and gas development or drilling and rig counts going up and everything, an area that has sort of been a little nascent for a little while is the air-cooled heat exchangers and maybe developments on gas processing that could seem like pop up here. Are you starting to see any green shoots there at all?

Yes. Yes. I wish I had you around us to put what we were 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 think the metric I was using last year to kind of give a sense of what's happening in the market in those spaces was -- 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 see that in our -- let me take a quick look at sequential. Yes, the last couple of quarters, we've definitely seen that in the order book. The other -- the other place that we're seeing that serves this market a lot is our VRV shop in Ornago, and we've seen a couple of bigger projects, bigger kind of in the 8 to 12 range for these types of applications. So I think this year, I think you make a good point this year, we could see that as an increase that we very conservatively built the year out in terms of our current outlook.

Okay. And then as a follow-on, if I could. You had mentioned -- I think you said 30 hydrogen liquefaction plants that you're, I guess, quoting on at the moment. Any sense as to sort of how over the course of the year, how you -- the progress or how you see that playing out sort of maybe relative to where we were?

So we had -- we didn't -- we did not originally anticipate that we would have a hydrogen liquefier order in Q1. We kind of knew that heading in. I'm not sure if we vaguely signaled it or 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 liquefier book in Q2. I think that you're going to see quite a bit more activity in the second half of the year because you're starting to get more capital into some of these projects that are individual projects. So starting to separate from the larger guys who are more established and doing repetitive projects. Now you're 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 too in Q2 but realistically, I think you got 1 in Q2 and then the second half, you see 2 or 3.

Our next question comes from Robert Brown with Lake Street Capital.

Just wanted to follow up a little bit on capacity given the demand growth. When do you sort of see you have to add capacity and have capacity constraints? Or do you feel like you're pretty good for the next couple of years?

Okay. So our strategy on capacity expansion is to have 3 to 4 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 midyear this year. We've got the brazing line coming on early next year. The trailer expansion in Germany will come online middle of next year. And what we do around our strategy on this is we look at the demand profile and whether or not we have baseload volume to support the expansion or the greenfield. And that's a very important step in this. So for example, we already had baseload 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-1 year. That's our thinking on how we approach it so that we don't get behind the 8 ball. And typically, these expansions take about 12 months for us to complete if they're rooftop. So our next tranche of expansions, there will be, let's see, 1 to 2 that kick off later this year. 1 will be on the energy side of the business and 1 will be on the tank side of the business. And we -- that will allow us to meet some 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, it's a step approach of timing of these projects, which also allows the team to execute flawlessly and still deliver on time, not miss any potential orders. And we might be a little early on some of it, but I'd rather be a little early than too late to the party. So you'll see that continue through 2025 as kind of how far out we've planned at this point.

Our next question comes from Marc Bianchi with Cowen.

And thanks for Slide 28. Made the morning go a lot more smoothly for me.

Yes. I was going to call it -- we were going to call it the Marc slide, but we didn't know if you depreciate that or not.

Thank you for the suggestion.

Pointing out my inability to do math.

But our confusing numbers. So -- but good suggestion. Thanks, Marc.

So on the -- so we've got like $25 million to $40 million Big LNG revenue baked into the revenue guide for this year. If I strip that out, we're kind of like 1.7 to 1.8 for the non-Big LNG revenue this year. I'm curious -- you talked a little bit about the hydrogen order outlook. How do you see the order outlook ex-Big LNG, maybe on a book-to-bill ratio basis versus that 1.7 or 1.8?

Yes, I think our expectation in Q2 that we would be certainly 0.05 range on book-to-bill. And then it steps up in the second half with some more of these mid -- small to mid-projects that are non-Big LNG liquefaction projects. So you'd expect that to be closer to -- more similar to 1.1 to 1.13 book-to-bill in the second half.

Okay. Okay, super. And then the next one, just -- I know you don't want to guide specifically to quarterly results or anything, but just maybe to give us a little bit of a steer so everybody is 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 disclaimer that we will not give quarterly guidance, I think you are spot on.

Our next question comes from Tom Hayes with Northcoast Research.

I was just wondering you guys called out in the formal announcement, your expectations on the food and beverage line. I didn't get a lot of detail in the slides, but I was just wondering your thoughts on really what's going to push that forward in '22?

Yes. So the food and beverage, yes, it's interesting because you can -- what is sometimes lost in how we communicate the markets is that there's 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 Labs 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 2 parts.

The first is the traditional food and bev, which is our tanks and our dosers for -- you'd have national account applications like I referenced Chick-fil-A, those types of customers and the products that go into them. What we like about how the year is setting up is you have a combination of folks that hadn't done much during the COVID shutdowns on the restaurant side, combined with quite a bit of infrastructure and franchise build this year. And so we see the setup that Q1 was really good food and bev wise, quite surprising to us actually in terms of the order book, but we see that continuing to increase as the year unfolds. And that's on 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 pull that through the -- [through our] team and you're hitting just a greater volume of customers than Earthly on their own with just a few commercial folks were able to do.

And so what I like about that business is we're starting to sell the CC Elm. So we were selling the smaller unit, which is the Oak. Now we're starting to sell the Elm, which is a larger unit and is 6x the cost of the smaller unit. It obviously has value that goes along with that. And we're able to -- we sold the first one of that last quarter. We're seeing an abundance of interest in that. So to hit the food and bev answer, you're going to have to look both at food and bev and carbon capture.

Our next question comes from Ian MacPherson with Piper Sandler.

I guess Greenstone Renewables was 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 that project for you over time? And what are you doing and what's the duration, et cetera?

Yes. And I put it in there purposely. I'm really glad you picked up on that, Ian. Thank you for that. The reason that we put that in there as the headline item is threefold. Number one is that it's an exclusive arrangement with us. So we are the provider of technology to them. I see it as a multi-plant opportunities, while we're just talking -- 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 a company that's looking to do more than 1 of these.

On the initial one, it's going to be kind of $35 million to $40 million in terms of headline price for that order. And so you see kind of a similar range on the equivalent of a traditional hydrogen liquefaction plant at 12 to 15 tonnes per day. So that's why, and 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, it's easy for us to manufacture and in turn, that the efficiencies that we get, we'll partially share that with the customer, but we'll also see that margin profile increase.

Great. That's interesting. The other thing I wanted to ask you about was on Slide 23, highlighting how basically the Big LNG pipeline for you has more than doubled in terms of number of projects and multiplied by more than that in terms of your potential revenue content over the next several years of bookings. But what we hear around the neighborhood is that E&C is probably going to be on the critical path in terms of their capacity bottlenecks to prosecute that much activity in that sort of time frame. Do you agree with that? Do you think there might be a better outlook than some believe with regard to that E&C bottleneck to double the cadence of especially domestic?

We would wholly disagree with that word on the street. The capacity, I think, is in general, fine and the 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 braze in a cold box and it could be shorter depending on the size of the core. It could be longer if it's much larger. But definitely, the flexibility that we have in play from the brazing side gives me confidence there. And then without going into a ton of detail, we've got some work underway on very near-term additional capacity on the cold box footprint.

Yes. No, I got you on the Chart side. I was really thinking more on the EPC capacity, probably more sensitive to labor pinch, et cetera?

Okay. I missed your point completely and sorry about that. I got you now, tracking with you. Yes, I think, first of all, the modular move helps that problem dramatically. So that's a positive because instead of having the stuff be 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 site, 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 depends on which EPC, it depends on which project, but we still talk to a ton of the EPCs 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 they're still looking and willing to and able to meet schedules, whether it's a small-scale hydrogen liquefier that they're bidding together with us on or one of these larger projects. So I think -- I'm guessing that you'll see some tension there, yet the EPCs seem to be figuring that out. The fab yard side of things might be a constraint. So where these things are put together at respective fab yard (inaudible) Coast, 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 project is dependent on fab yard 1. So spreading the wealth, I think, is going to be a trend that you'll also see in the market.

Ian, and you got me to tell that I'm expanding cold box capacity. Good job.

Our next question comes from Pavel Molchanov with Raymond James.

Back to Europe and specifically the green hydrogen build-out in the 60 days since the war started, have you noticed any substantive shift in the level of private sector or governmental awareness of green hydrogen as a displacement to Russian gas?

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 and other geographies I think are 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 action. So I view it as a first step in accelerating those conversations. Haven't seen it translate to the order book yet.

Understood. More of a kind of in-house question. I think the last 4 months is the longest period while you've been CEO that Chart has not done an extra M&A deal. Is that deliberate?

It is deliberate. And I love you, Pavel, you're going to get me to go down a path here and then I think it's really an important one. 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 absolutely necessary that we were passing on. So 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's outside of our disciplined valuation profile in terms of returns. All kinds of different reasons. So 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 I think that -- I hope that comes through in my commentary about the way that we're seeing these synergies start to unfold and very quickly, too.

Now the second part of my answer is it's deliberate, but it's not permanent. And so there are still opportunities in our pipeline. And next week, we're going to talk through specificity around the 3 or 4 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's not a big go out and spend $1 billion and have the company turn into a water treatment company as a whole. That's not the approach. We're going to stay with the Pac-Man approach that we've taken to date. And I feel really good about the integrations that have been completed so far. As we -- first quarter, we went live on JD Edwards, which is our universal global computer system at both Cryo Technologies as well as AdEdge. And so getting these types 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.

Our next question comes from Ati Modak with Goldman Sachs.

Can you talk to the competitive landscape and your position, particularly with the IPSMR technology as you think about the modular LNG change expectation going forward, what kind of market share do you think the process technology could have?

Yes. So the IPSMR process technology differentiation, I talked a little bit about how it's proving to be useful on the heavy hydrocarbon removal side, on the floating LNG side, on the retrofit for brownfield sites, where -- and 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, IPSMR is very good for that. It's highly efficient. And in many cases, it can actually generate more gas in the same space for the same amount of CapEx and OpEx than some of the others [companies] that are out there. We also have seen the ability for IPSMR and IPSMR+, which by the way, plus is something that you could actually retrofit IPSMR with the plus 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 liquefier, you can actually get 1.4 million tonnes per annum of gas out of that same liquefier using IPSMR.

Now there's a lot of technical details to make that happen, but those are the types of things that are creating differentiation for IPSMR. I'm very pleased with the pickup and the traction of IPSMR 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 there is going to be a mixed bag of answers as 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 use 1 technology on 1 plant and another on 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 aren't really even happening anymore. And then I'm excluding the small scale also because I think that's a 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 the small scale, I think it's a meaningfully higher number because there's less competition on the small scale side.

Great. And then you've talked 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 between organic and organic investments? And maybe the potential for balancing some of that growth with return of capital over time?

Yes. So certainly, we think right now, organic and inorganic investment for profitable growth is the right way 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, a 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 would make sense to add. And again, those would be at 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. We would actually anticipate we get to a point to be certainly sub [1] leverage ratio. And at that point, it becomes a meaningful conversation in the boardroom about what -- how do we think about a different way to return to shareholders.

So I think that there is the potential for that conversation in the near- to medium-term horizon. But certainly, in the current state, the investment for growth and debt paydown are our top allocation priorities.

Our next question comes from Craig Shere with Tuohy Brothers.

I want to pick up on Ati and Pavel's questions a little. On the 20 perspective, Big LNG orders, what proportion would you say are actively considering Chart's full IPSMR technology suite? And 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 we're seeing now versus a year or 2 ago? And finally, on the hydrogen question, do you see the increased 2023 to 2025 opportunity in LNG completely additive to at least the prior hydrogen outlook? Or could the latter, the hydrogen outlook have some deferral as traditional energy independence takes precedent over the next couple of years?

All right. Thanks for the questions, Craig. So let me take one by one. When we look at the percent of the potential project content and which ones would use IPSMR. I'm going to answer this based on 5 MTPA and above. So I'm going to exclude the small-scale stuff. Let's see, real quickly back of the envelope, I've got -- certainly 50% of these are -- would be in conversation for the potential to be IPSMR. Some of those have incumbents that are other process technologies. 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 locations. So trying to displace is a lot harder than trying to sell the process to somebody who doesn't have an incumbent. So the 50%, you'd have to risk adjust that for that discussion. But you could apply that as a 50% to the 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 -- and I feel like we're very well positioned. The international extensions or new builds are a little bit slower in terms of moving forward. So a lot of this has been us working at this for 3 or 4 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 IPSMR, 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 -- I guess I could answer it -- or I could answer it 2 ways. Hydrogen additive or is the LNG additive to the hydrogen, either way I'd answer it is we believe hydrogen is additive and not a displacer to the 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, I don't 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, a lot of the 419 are -- 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, yes, 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 rejiggerate 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 2, maybe step 3 later this decade.

How easy would it be for you to do a rejiggering or a brownfield adding 10% hydrogen to a large-scale facility?

So it would depend on a lot of factors, how easy it is. Let's describe it maybe that we have looked at this for multiple different customers, most of that has 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, in many cases, it's up to 25% or 30% hydrogen. So there are some elements of the design that make it easier if you're going to retrofit it later. The second answer to that is you can take hydrogen equipment, in many cases, that's going to be a different metallurgy, and we can accommodate multiple molecules, but it's not just an off-the-shelf type of product. I think the question is 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 and 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 point of various different companies that could work together on that. I don't 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 you're going to see more and more of that. But again, I don't think that's a '22, '23, '24 type of time frame.

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.