Good morning. And welcome to the Chart Industries, Inc. 2020 Third Quarter 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 supplemental presentation was issued earlier this morning. If you have not received the release, you may access it 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 Thursday, October 29, 2020. 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, Andrew. Good morning and thank you everyone for joining our call today. Here with me is Scott Merkle, our Chief Accounting Officer; and we will talk through our third quarter results, how our recent announcements are already benefiting us and how our strong order book and backlog is setting 2021 up to be a great year. I am very pleased with the performance in the third quarter in particular order and bottomline execution amidst active deals both buy and sell side. It’s surprising to me, as I read the initial picks from the morning that people would consider that interested in the clean energy transition and our long-term strategists have a mixed reaction to the quarter, a timing miss on revenue, but not lost the competition, a beat on EPS and multiple record orders in a variety of diverse applications, coupled with a very strong start to October seems inconsistent. But hey, let’s see if what I share on the call helps you better understand why we are extremely pleased with our current position. As you know, we have spent the last two and a half years executing on various steps to set up the position we are in today. The focus on our core cryogenic engineering and product offering that is a very unique place in the hydro spaces of clean energy, specialty products and repair, service and leasing, while getting stickier with our customers through broader long-term agreements. We will walk through the supplemental deck released this morning as we typically do. All figures in a deck and press release are continuing operations. For those who have asked for year-to-date results for the discontinued operations of the CryoBio sale. That’s included on the last slide of the appendix of the presentation. Starting on the right-hand side…

Thanks, Jill. Sales of $273 million were down 19.2% when compared to the third quarter of 2019, entirely driven by E&C FinFans. Excluding FinFans the rest of the business’ sales were up 11.1% year-over-year, with D&S East up 20.9%. Year-to-date 2020 sales are down only 3.3% from 2019 year-to-date or down 4.9% organically, which reflects the diversification of our business. As we frequently discussed, most of our changes on sales are movements between quarters versus lost volume. We had over $22 million of expected sales in the third quarter related to specific projects shift due to customer delivery timing, with the majority of that shifting into the first half of 2021. The breakdown is $12 million in E&C Cryo, $4 million in E&C FinFans and $6.5 million in D&S East. The rest of the shortfall was around the recovery related to beverage equipment, where it occurred later in a third quarter than we expected, but when it did, it recovered in a bigger bang for the buck way than we expected and in turn will have a positive impact on the fourth quarter of 2020. Even with certain shipments being pushed out, we were able to deliver reported gross margin as a percent of sales of 28.8% and when normalized for restructuring cost was 29.7%, bringing our year-to-date normalized gross margin as a percent of sales to 29.2%. We expect the fourth quarter gross margin as a percent of sales to be the highest of the year. Gross Margin combined with our continued cost improvements in SG&A resulted in reported diluted earnings per share of $0.43 and adjusted diluted earnings per share of $0.63 with the adjustments related to the restructuring for our Tulsa to Texas facility consolidation in E&C FinFans and deal related costs. Reported and adjusted diluted EPS…

Thank you. [Operator Instructions] And our first question comes from the line of James West with Evercore ICI -- ISI.

Hey. Good morning, Jill.

Hey, James.

I want to first talk about your base industrial gas business because the -- if we are looking at the all the economic indicators that I am looking at consumer and housing is leading this recovery pretty substantially and we are in a very big V shaped economic recovery. And so the major chemical and industrial gas providers should be huge beneficiaries, because they are early cycle beneficiaries. So I was curious if you could just comment on your conversations when you are talking to Linde or you are talking to their products or others. What are they saying about their businesses right now, which should be, I think, in a nice recovery form and how much is that going to help your kind of base business ex all the other really positive things are going on in hydrogen, LNG, et cetera?

Yes. Very much in line with what you just stated is the feedback that we are getting. But let me just step back, we still haven’t seen a full recovery to pre-COVID activity levels on the order side with those industrial gas majors and that’s primarily related to continue travel restrictions for the field installation folks.

Right.

Which is actually very positive setting us up for Q4 and 2021. So coupling that return to the field with this consumer and housing strength on the recovery, we see upside potential to our base forecast that we have with the industrial gas guys. We also are hearing that the fourth quarter will be very strong. In some cases, these customers are actually telling us that it is going to be stronger than the third quarter, which obviously was recovered fairly well. The other element on the industrial gas players are independent distributors that play in pockets where business may be too small for a major to take or they have a particular product category that they focusing on. And we have seen…

Right.

… independent distributors really come out very strong around the food and beverage side of the business and there’s a lot of coating activity with those guys, too. So we stand to benefit both from the majors, as well as from the independent as we head into next year.

Okay. Okay. Great. And then with respect to hydrogen, obviously, you have taken pretty strong moves on the hydrogen side and partnerships, it seems to me that what’s going on behind the scenes is even stronger than what we might be seeing the public announcements here from various hydrogen committees and Boards, et cetera and then some of the players in the space. Is that a fair statement to make and did that suggests that the hydrogen narrative here which, obviously, we need public policy to kind of move this along, but if that seems to be there is that those hydrogen business taking off faster than perhaps we or you would have expected, say, three months to six months ago?

Absolutely. It’s a fair statement that you are making and you are probably not even making it strong enough to what’s happening, yeah.

Oh! Potentially perfect [ph].

Because there is so much activity and while the governments and the public sector play a part in it, you would be surprised that how much the private sector is making investments as well. A lot of the reason we don’t elaborate upon it further is that these companies making these investments and working are looking to have a competitive advantage as they do…

Right.

…. first projects in whether it’s marine or transporter fuel. Yeah, I will just give you an example. We are working with a potential customer on cooling for warehousing and cooling device, that type of activity, where the real long-term answer to achieve these decarbonisation goals for companies that have put a 2030 or 2050 target out is going to have to move toward hydrogen. And in a warehouse case, it’s going to have to be liquid hydrogen, because of the capacity to store it.

Sure. These customers, I know you mentioned kind of the smaller customers and my goodness, but I mean, I think, some of the other customers are not small. I mean, we are talking server farms for Microsoft and in places like Amazon for the cloud computing capabilities and others. I mean, some of the people that we have talked to in the last couple of weeks are major, major drivers of the economy that seem to be also moving the liquid hydrogen. Is that a fair statement to me?

Another fair statement. The names you just named are absolutely looking to move in that direction and you could list dozens and dozens more that are of that caliber and that size and magnitude.

Sure. Walmart is there, yeah.

There you go. Exactly. I mean or you look at it. On the other side of the coin, you have the Shells of the world and Total, they are also making…

Okay.

… investments in this area. So you have got multiple industries coming at this at the same time and working to achieve this network. So it’s way bigger than I would have even said three months ago.

Right. Okay. Perfect. Thanks, Jill.

Thank you.

Thank you. And our next question comes from the line of Walter Liptak with Seaport.

Hi, there. Thanks. Good morning. Good quarter.

Thanks, Walt. Good morning.

Good morning. I wanted to ask a -- just to stick on the hydrogen thing for a minute. The order intake for the Teddy Trailers. That looks like there was like one quarter worth of orders in just like a few weeks. Is that fair? And I think you guys gave a range of like $15 million to $20 million after the orders came in for the Teddy Trailers, you have to rethink that maybe increase the number of trailers or the revenue from those trailers over the next 12 months?

Yes. It’s accurate to say, the first couple of weeks is equivalent to what a typical quarter historically has been. So that’s off to a really good start. And I can elaborate on that that the coating activity behind that is substantial. So it’s not like those were the only orders on the horizon and it’s going to go dry. We have a great opportunity to leverage the manufacturing capacity in the Teddy Trailer location and we intend to be able to do that very quickly here. The historical high number of trailers that were done in that facility was nine and we are looking to do 20 in 2021. So we are going to see how this quarter orders rollout beyond this first kind of $10 million in the first couple of weeks and that would be the point where we would consider revising that $15 million to $20 million for 2021. There’s also a couple of additional capabilities in that facility that we are going to build upon and we are looking to increase in the fourth quarter, which could add-on capabilities for different equipment that goes along with the trailer. So we will see how that ramps up in Q4 along with the order book and potentially increase that coming February.

Okay. Great. Thanks for that. And then the fueling stations, I wonder if you could give us some color on the fueling station growth, maybe the geographic regions and the applications for those fueling stations?

Yes. The -- in -- let’s separate hydrogen fueling stations just to the total, the 56 number I gave year-to-date on fueling stations, which are primarily on LNG or LCNG and those 56 are spread between China, Southeast Asia and Northwest Europe. It’s split about half and half from Northwest Europe and China. And certain of those Chinese orders are for export to other Southeast Asian regions. It’s fairly widespread demand, meaning across customer bases and across countries within Northwest Europe, but the more recent [Technical Difficulty] has been a higher concentration in Germany.

Okay. Great. All right. Thank you. I will get back in queue.

Thanks, Walt.

Thank you. And our next question comes from the line of Eric Stine with Craig-Hallum.

Hi, Jill. Hi, Scott.

Hey, Eric.

Hi, Eric.

Hey. So just sticking with LNG and I’d love to talk about the vehicle. Thanks and thanks for all the detail on, I mean, the overall business you gave a lot there. But interested by kind of a geographic expansion that you are seeing where you are talking about South America, Russia and Japan, also different applications such as buses. Just -- how do we think about that in the context of the two long-term supply agreements that you have now in Europe and where do you service that from? Is that something that you are able to do that out of your location -- your VRV location in Europe or is that something where you are going to need a new facility or through a different part of your business?

So I will start with the back half of your question. We now have production capabilities in both our Georgia, U.S. facility, as well as our VRV Italian facility. The combination of those two facilities capacity is about equivalent to $200 million of HLNG vehicle tanks per year. If you look here, we did about 65 million. We thought that -- we thought come mid-COVID time, we would be down in the $45 million to $50 million, but I think it’s actually going to return to similar 2019 levels and completely take off from there. The long-term agreement folks, which we have two of that are on these sole source supply agreements for this particular product. Though, some of those are also looking at equipment for other geographies. So, well, historically, they have been focused on the European region, they are starting to order for regions like Brazil and South America. What that does is it allows us to manufacture close to where the product is going to go and it also allows us to look at the type of tank that they are looking for. Some of these guys have a more proprietary tank than others. In terms of diversification, we have seen a lot of activity in the last three months to six months for, as I commented, Russia, which is really around mine haul trucks. In Southeast Asia, in particular, in Japan, we have been working on that geography for about seven years and we feel like we are at that tipping point with this large auto order that we received in the third quarter. If these trials go well, that will be nice incremental business that we don’t have included in our forecast for next year. And then the last region that we are seeing quite a bit of coating activity right now and it could be in the millions of dollars for any one particular order from this customer is in the country of Poland and that’s the buses.

Got it. Okay. No. Very helpful. Maybe just turning on -- turning to kind of the overall business, the pipeline. But I guess also big LNG and I’d love to hear your thoughts on how that’s maybe changed for the outlook has improved given that there’s been a very significant recovery in the JKM Index and the pricing that would underpin a lot of projects?

I’d start by saying, we are just so happy that we have been able to decouple the base business from the upside potential of big LNG that we don’t want to have anybody revert to starting to include that in our -- that upside opportunity in our base. But with that said, I agree with your sentiment that there has been a nice recovery even in the last few weeks around the JKM on the pricing side, which bodes well for some of these projects that are on the horizon. So the three we normally talk about which are Plaquemines, Cheniere Corpus Stage 3 and Tellurian and Driftwood. We don’t have a change in opinion. We have all long said that we believe that at least the Phase 1 will get to FID at some point in 2021 and without speaking out of turn, I think, that’s fair to continue to have that in our pipeline, which just to clarify for everyone else on the line means de minimis revenue impact to ‘21, but very nice revenue impact to ‘22, ‘23 and ‘24. In addition to that, Eric, I would say, that we have seen some more commercial activity on some of these other projects that we hadn’t spoken as much about. So that early engineering released for nat gas pre-treatment that we received in the third quarter was for a different big LNG project, one that wasn’t one of those three and then there’s some of these international opportunities on the horizon. I am pretty excited about the potential for a fairly large air cooled heat exchanger order that ties to one of these projects, which could be sometime in the next three months to six months, assuming we are successful in that and I think we are very well-positioned on that.

Okay. Thanks a lot.

Thank you.

Thank you. And our next question comes from the line of Conner Lynagh with Morgan Stanley.

Yeah. Thanks a lot. Good morning.

Hey, Con.

I was wondering if you could elaborate somewhat on the acquisition opportunities you were discussing, appreciate you don’t want to get too in the weeds here. But I was wondering if you could maybe just discuss, what some of the markets that you are focused on, and maybe additionally, what would this look like, should we think of this as something like the trailer capacity acquisition or it’s sort of a plug and play capacity expansion? Is it more of a technology acquisition or would you additionally consider something like the McPhy structure?

So these are all would be full acquisition, so not similar to the McPhy structure. They all relate to either process technology or equipment and engineering capabilities. They are very much in line with our desire to continue to grow our product offering, in particular around the specialty products that we have talked about and not just hydrogen, I should clarify that that’s important to note. While we continue to look for hydrogen opportunities, these are one of them’s related to hydrogen, one of them’s related to multiple specialty products and then one of them is related to one of the high growth markets that I have highlighted in the last couple of earnings calls. Without going into more detail on that, we are extremely familiar with all three of them, meaning that we work together with them, whether it’s going together in the current state on projects or whether it’s kind of a supply customer relationship, both directions. So there’s -- these are businesses we know very, very well. These are really natural fits and two of them are kind of in the similar to precise and one of them’s closer to that 20 to 30 mark. And I think they are, I guess, I will elaborate a tad bit more in that there are various different stages. And so there’s two that are a little more imminent, hence, we did this three-month to six-month range. So I think there’s the possibility that you get two done by January-ish and you get the third maybe in the first quarter.

Got it. That’s helpful. Maybe to pivot here, FinFans was sort of the one of the weaker spots within the quarter. Can you help us think through sort of how derisked the revenues or margins are on that segment? Certainly, energy’s had a tough time for a while now and that’s a big market there. But can you just discuss how much of your backlog at this point is from a better market that seems unlikely going forward or is more reflective of the current run rate? And how should we think about sort of how much is more just book and ship versus converting on some longer cycle stuff?

Yeah. This business is more book and ships than the opposite. There’s a couple of projects here or there like that $3.8 million one that we commented shifted from the third quarter into either the fourth quarter of the first quarter. But for the most part, this is a book and ship, somewhere between kind of two months to five months depending on the product itself. There’s also a consistent revenue stream from the repair side, which is primarily fans less on the air coolers. Yeah, I have kind of reviewed the business theme where we sit. I think we are really bumping along the bottom. I don’t see any further precipitous drop off at this point and there’s a few bright spots out there. But I don’t want to give a false hope of a faster recovery than what I think, which is midyear ‘21 starts to come back. In terms of the margins, I think, what you saw on the third quarter is what you will continue to see with some improvements as we further complete the Tulsa to Texas consolidation. We really started that in July, mid-July is when we announced that internally, so you don’t even have a completed move at this point. We do think that will get done by the end of the first quarter of ‘21. So you will start to see that return quicker and we are doing it in pieces, so you should get a little bit of a benefit in the fourth quarter, as well as in the first. There’s -- I would say that, from how we built our outlook, there’s more upside than there is certainly downside to that outlook. But again, I am extremely cautious to provide that because while there’s an excessive amount of quotation activity, it’s that translating the quotation activity to the order itself and that’s really based on more of the midstream and upstream markets and multiple packagers looking to chase the same product -- projects as they come out and available. I do think that that will change as next year opens up in some of this shutting activity returns to more normal state, but bumping along the bottom, Conner.

All right. Appreciate it. I will turn it back.

Thanks.

Thank you. And our next question comes from the line of J.B. Lowe with Citi.

Yeah. Good morning, Jill. Hi, Scott.

Hey, J.B.

J.B. how are you doing?

I am good. Just looking at the bridge between 2020 and 2021, it’s one of the businesses we haven’t talked about yet. That being small scale LNG and pet chem. I am just wondering, how much of that business is already booked as backlog and you are just going to be converting the revenue over 2021. And then the outlook for each of those businesses is for 2022, is that something that could grow even further in 2022 or more of a steady state and any help on the small scale LNG side and the pet chem side would be great?

Yes. So we currently have three projects already booked, which equates to just about $35 million to $40 million on that line. There’s also one that we have the LOI for and we are waiting for notice to proceed, which is another $35 million. And additional one that our view is it does get across the finish line in the fourth quarter, which would be somewhere in that $20 million to $25 million range. On top of that there’s multiple other ones in the pipeline. But those are really the ones that I believe are kind of over that 90% mark of getting to the finish line. As you look at 2022 and beyond, I think, that there’s actually a stair step up in 2022 in this particular line. For two reasons, there are quite a few pet chem projects that got put on hold because of COVID that they aren’t going away timing around them and that’s not only in North America, but also in places like the Middle East and in Saudi. Coupling that with the small scale activity that we are seeing in some more of the remote regions like Vietnam and other areas of Southeast Asia. I think that there’s a nice build of import terminals, re-gas and small scale export that you see for utilities. So I am viewing ‘22 as considerably better than ‘21 and what you see here.

Okay. Great. My other question was just on the timing issues in terms of something is coming in hitting three Q versus four Q and then being pushed into next year. There is some concern that you addressed earlier in your remarks about how things are just shifting around. But is there something -- is there anything specific on the things that have been shifted, that we should just be expecting is kind of a normal part of the business or was it something specific, like a specific project that we have seen some of these things shift into next year?

It’s both. So our business does have projects that move in and out between quarters. We always kind of have commented that to us, six months is meaningless. Unfortunately, to some people that’s meaningful. We really look at it as, have we lost to competition and we feel like we are gaining market share certainly across the businesses with the exception of air coolers, where there is no market share to gain. So to clarify that. So there’s a little bit of a fundamental nature to our business. Like for us $25 million on 300 is, that’s a plus or minus type of thing in our internal discussions, but I realize it’s harder for people to understand. There is also specifics to what shifted this time and we, Merk walk through a couple examples of those. The D&S shifts are really related to customers that we are getting back to work from COVID and couldn’t accept the shipments. So that’s a shorter term type of problem. The larger pet chem projects was around the operators looking at when they wanted to take delivery. So frankly, I think that’s a timing shifts, given some of the economic conditions versus if the project had an execution problem, but rather, hey, we want to buy a little bit of time before we need to take delivery of this.

Okay. Great. Thanks, guys.

Thanks, J.B.

Thank you. And our next question comes from the line of Rob Brown with Lake Street Capital.

Good morning, Jill.

Hey, Rob.

On your kind of outlook build up you talk about specialty products and service growing at about 10% -- that’s nice growth. But how do you sort of see that line growing over time? Should it accelerate, given the step up in hydrogen and in your service focus, but maybe just sense what that can grow sort of sustainably over time?

Yes. You went right to the heart of the matter there, Rob. We have seen this surge in specialty products from an order activity perspective even 30% plus year-over-year and even 17% sequentially. So, I think, we are right there even for ‘21. But there’s, you kind of give this range where there’s puts and takes in other lines. So we tried to get you get you kind of down the fairway. I think that grows more at a 15% to 20% as the years unfold here. So we have now seen a couple of quarters, a few quarters where the orders in specialty have been in that 20% to 30% growth range. And we will be coming up on a year of that as we exit 2020, which gives you a much better line of sight to be able to see how that’s going to flow through your revenue line. So there’s upside potential in that in ‘21. But certainly would be -- we expect that to be higher than that 10% as we go into ‘22 and ‘23 and from there. Part of that also -- we haven’t -- we have commented more around hydrogen and how that’s ramping, which I think is a big part of this, the water treatment that we commented on. But there’s also this -- all this activity around the HLNG vehicle tanks too. I think blends itself to a really nice revenue few years ahead of us. What happens after that on the HLNG vehicle tanks is, I think, it becomes part of our regular business and we calibrate the specialty to make sure that we are encompassing new potential markets. So that’s how we are thinking about it.

Okay. Great. Thank you. And then kind of going back to small scale LNG, you talked about a fair amount of that’s already in the pipeline. Maybe just a sense of sort of what’s happening there and what new things could develop. Are these -- is this ISO tanks or is it kind of re-gas terminals or maybe just what kind of makes up those projects at this point?

So there’s two pipelines of activity that they coincide with each other. The LNG ISO containers have been very hot lately and we expect that will continue. I mean, you have seen the New Fortress news out there and they are a great customer of ours that relates to this growing trend towards small scale and that’s focused in North South America, the Caribbean. We are seeing that trend also start to happen in some of these new build locations, like the Indonesia, Myanmar, Vietnam, as well as in India. India, we haven’t touched much on ISO containers, but in 2021 that’s when we move to commercial production with ExxonMobil LNG and IOCL on the virtual pipeline, which our main product for that virtual pipeline is ISO containers. So as that particular project ramps up, there’s quite a bit of activity that will be related to that. On the terminal side and these obviously take a little bit longer to get from pre-FEED engineering to FID, because they are more of that upfront capital costs for full terminal, somewhere between $100 million and $140 million, with our portion somewhere between $10 million and $35 million. Yet, this is another area that we expect to continue to step up, especially as the network continues to get built out and especially as utilities make their decisions around how they are going to handle peak shaving. This is in the United States the hottest topic in the Northeast of the U.S. is where we are seeing the most activity and I think has breakthrough potential there. And then re-gas is primarily related to Southeast Asia where the pipeline of order activity is for us.

Okay. Great. Thank you. I will turn it over.

Thank you.

Thank you. And our next question comes from the line of Ben Nolan with Stifel.

Hey. Good morning, Jill, Scott.

Hey, Ben.

Hi, Ben.

I wanted to touch on something that you mentioned I think was in the press release about an order that you had for gaseous hydrogen?

Yes.

I assume that is pressurized, is that correct? Is that what how I should interpret that?

That’s correct. So these were -- the orders were for gaseous hydrogen trailers or transports and that is pressurized, yes.

And obviously, you guys are probably are really cryogenic focus, but I was curious just how big of a business that is. I think there’s a lot of -- at least we have heard a lot of discussion about, yeah, hydrogen grow and we will see how much of the business is -- transportation business cryo versus pressurized depends on, how far you are from the source of consumption everything else? But could you maybe talk through that a little bit and how you are position aside from the cryo aspect of it?

Yes. And it also to all the comments that you just made on top of that, it’s also regional in terms of preference. So we see much more liquid which is cryogenic in the States in particular. In Europe, it’s still very much gaseous and that’s where these particular trailers are for and our being made. Our capabilities for gaseous hydrogen transports is out of our Goch, Germany facility or GOFA facility and we do all kinds of trailers out of that facility. So, again, agnostic to the molecule, agnostic to the use and we have plenty of capacity in that particular facility to continue to do that. It’s our intention that we have that capability as well in the United States and we also do trailers out of our India facility, and we do some transports out of our China facility. So we are well-positioned regionally, because obviously, these are not something you are going to ship on the water. These are going to be made close to where they are going to be used. In terms of the size of that business, it’s fairly small right now, the majority of our hydrogen, I’d say, 75/25 split of liquid to gaseous is the current state of our hydrogen activity.

Okay. No. That’s helpful. I appreciate it. And then the follow-up, I was just curious, given sort of how you have seen the ramp up in the leasing business, but also new order flow and everything else? Has there been any change in the way you are thinking or aspiring to get to with respect to recurring revenue and the mix of revenue or is it playing out the way that you thought that it would?

There has been no change in our thinking on that and it’s stepping along as we thought it would. The recent agreements and the agreements are setting us up to continue to move toward that target.

Okay. Perfect. Thanks.

Thanks.

Thank you. And our next question comes from the line of Pavel Molchanov with Raymond James.

Thanks for taking the question. Back to M&A, one of the capabilities vis-à-vis recurring revenue that you guys have not historically focused on is software of various kinds. But of course, and anything related to the energy transition SaaS is getting more and more attention. And I am curious if you would be open to bringing some software capabilities in-house through an M&A deal?

Yes. Absolutely. And darn it, Pavel you are like a mind reader on this stuff. One of the three that we are talking about does have that capability for a specific product category.

Okay. Got it. Hydrogen and specifically electrolyzers as part of the European climate law, which still pending, not final yet. But supposedly 30 gigawatts of electrolyzers by 2030 is going to be the target. From your perspective, would you be interested in getting into electrolysis in a direct sense or would you just kind of limit yourself to storage and the more ancillary parts of hydrogen?

We will stay focused on the equipment. But a lot of that equipment can be used in the electrolysis process itself. In terms of owning the molecule, that’s not something that is in our strategy, not for the least of which is we are not experts at it. And then the second quick follow-on to that is, we have great customers that are really good at that and we make our money on the equipment that goes into that. So we will definitely see a commercial benefit for especially in the U.S., you reference, but that will be for equipment at those locations.

Okay. Thanks very much, Jill.

Thanks, Pavel.

Thank you. And our next question comes from the line of John Walsh with Credit Suisse.

Hi. Good morning.

Good morning.

I wanted to talk a little bit about the cash flow, so you called out some timing, when we look at your running, I think, the $83 million year-to-date is the correct number to use. As I look to Q4, which is usually always a good cash quarter for you and the range you have out there? Is there anything we should be aware of as we think about it, because it would seem like, that range is definitely very achievable at least as we look at it?

We feel the same way, John, and you are accurate, that Q4 is typically a good cash quarter. We think this Q4 will actually better than the typical Q4s for the combination of the timing of our sales as we got through -- are getting through the pandemic, I guess, is a better way to say it. Also some of that cash collection activity that I briefly referenced. And we did build that inventory up at the beginning of the COVID timing in March and April and we are still seeing that kind of drive down. Couple that with the HLNG vehicle tank timing of the order to shipment. We have got a large, very large order at the end of June and then a ramp up of larger orders at the end of the third quarter and so we will see some of that bleed off as those get shipped in Q4. So those are the only kind of atypical items, which would be more positive impacts to above a typical Q4.

Got you. That’s helpful. And then, maybe just a finer point around some of the opportunity here with the balance sheet, I mean, if we go back to the last Analyst Day, you talked about a target leverage sub-two turns. Obviously, you have changed the portfolio since then. Is that still where you are comfortable or it sounds like there’s some things here that maybe we could flex up and come back down to that level or do you think you can actually run a little bit higher now that you have remixed the portfolio?

We could run higher, but we don’t have any desire to, our sub-two is certainly achievable with the cash that we generate on an ongoing basis, even with these investments. We kind of ran at our -- if we spend $20 million tomorrow leverage those up to $205 million, something like that, but then within a month, it’s back down under $2 million. So our internal thought process is we like being in that little leverage point, we like having cash on hand, but we are not handcuffed to continue to invest in all the things that we have described. So we are very pleased with where the balance sheet sits today.

Great. Thank you. I will pass it along.

Thanks, John.

Thank you. And our next question comes from the line of Marc Bianchi with Cowen.

Thank you.

Hey, Marc.

Hey. Just, yeah, I am working the math over here on my end and I -- it very well may be wrong, but if I look at kind of what’s implied for the 2021 gross margin, it seems to be in kind of the 28%, 29% range and recognizing I could have that wrong, but just curious if you could comment on what’s embedded for gross margin? And if it is down from where you are exiting the year here, is there something specific driving that or is it just sort of conservatism?

We actually are at 29.8% for 2021 in our internal thought process in modeling. So but I am not sure where the disconnect is there, but.

Yeah. No. We could definitely follow-up on that.

Yeah.

What -- how do you see that playing out as the year progresses? I mean, do you think that it’s pretty even over the course of the year or is it exiting at a higher rate than the average? And what are some of the puts and takes maybe in the low end and the high end of guidance, as you think about gross margin?

So to step back we are exiting 2020 higher than the average, meaning that typically your Q4 -- your Q1 and your Q4 in our business are the lowest sales type of behavior, which in turn drives the margin down a tad. We think we will exit this year, very, very strong on gross margin as a percent of sales and that will hold as you head into ‘21 and Q1. And that will -- from there -- we actually build it with line of sight to step up on margin as the quarters go on in ‘21, which is somewhat related to some of the timing on when we know for example trailer is going to ship or one of the small scale terminals is completed based on POC Rev Rec. So, next year it’s probably a little bit different, which frankly if next year happens the way that we expect it to from our perspective, I consider that the new norm.

Okay. Super. And then the next question I had was kind of related to this hydrogen and LNG opportunity you guys have discussed before, we got the sort of three-year revenue opportunity of over $2 billion for LNG and then the three-year TAM of $1.1 billion for hydrogen, totally recognize the hydrogen pieces a little bit more back end loaded. But maybe just to set a baseline for us, what’s embedded in this guidance for ‘21 for total hydrogen revenue and total LNG revenue, and then how do you see that growth rate progressing?

Yeah. So for hydrogen, we are between $30 million and $40 million, and then for LNG, let’s say, you got to include the ‘23 for Calcasieu Pass and then we got about $40 million on small scale and a typical kind of $125 million, $150 million on top of that. So you are in the $300 type million range on specific LNG. And then there’s a lot of equipment around LNG that is on top of that would be considered in our typical distribution and storage either bulk or micro-bulk business.

Okay. And any thoughts on growth rates just sort of heading into ‘22, just to give maybe a placeholder to think about?

Okay. I am going to go out over my skies. I think that hydrogen, oh, it was Rob Brown that hit on it a little earlier kind of on specialty markets in general. We broad rush this at 10% and we are probably getting to that tipping point where we can’t use the excuse that we don’t know enough anymore. So hydrogen easily is a 25% grower from ‘21 to ‘22. LNG is separating out big LNG, okay? That’s…

Yah.

… I am not going to comment on that. But on LNG in its entirety, we would probably place that between 7% and 9% growth…

Okay.

… ‘21 to ‘22.

Yeah. Okay. And maybe just one more if I could, in terms of these targets that the $2 billion and $1.1 billion, when do you think or what are the types of milestones that you think you need to see and the market needs to see to really start plugging those into real kind of visibility and something that we can kind of count on? What are the news items you are looking for?

So I’d split LNG between the LNG export terminals for the mid-scale facilities, which is just about $750 million to $1 billion type of dollar size for our content, because that’s wholly dependent on the projects that already have regulatory approval getting to FIDs. So, we are bullish that they do at least phase ones and that’s really what to watch for. If you see any equipment provider say that they got notice to proceed related to any of these big projects then that’s a pretty good indicator that FID already happened or is going to come in the next 24 hours. The remaining half of that LNG is already out there and happening. So it’s less around any particular pricing of the gas or any particular government that needs to do something, because these are well under way. So these are half baked markets and infrastructures that need to continue to be built out. So it’s really just timing on the orders and as these players get their infrastructures built out. And we are -- as I commented in my prepared remarks, we are very excited about the opportunity with this 11th city gas network in India, because that’s 50 to 100 new potential stations as an example, in that time period. Hydrogen is very different. You are seeing quite a bit of pilot activity and government stimulus money. But I think there is still needs to be a way to figure out how to get scale and scale up and cost down. So I’d be watching for continued government announcements around hydrogen, because that’s been the number one way with grant money that these projects have gotten off the ground. And I also would watch for continued announcements where players really operating a plant versus talking about doing something in the future. So, for example, Plug Power is a great customer of ours and they have it figured out, because they are actually doing it, which is different than saying, I am going to do this project in the next five years and have a production-ready vehicle in 2026. So those are the types of things that we watch for among our customer base.

Awesome. Thanks so much Jill. I turn it back.

Thanks, Marc.

Thank you. And our next question comes from the line of Chase Mulvehill with Bank of America.

Hey. Good morning, Jill.

Hi, Chase.

So -- hey, a quick follow-up on Bianchi’s question. I think, when you talked about the margin profile included in 2021 guidance. Just to be clear that only includes big LNG for one quarter, correct?

That is correct. Yeah. So only $23 million of revenue and that’s all in the first quarter.

Okay. All right. So obviously, that’s very margin accretive. So if you end up having big LNG margins would be higher, is that right?

That is correct. Yes.

Okay. All right. And then coming back to hydrogen and when we think about the hydrogen build out, are you better positioned to benefit more in the U.S. or internationally? And then also could you maybe talk about your positioning on smaller more regional based hydrogen projects like things that Plug are doing versus kind of larger more global projects like Air Products and Saudi Nions [ph] project?

All the above. So let me take your regional question first. As we step back and talk through kind of what we have done over the last two and a half years. A key part of that was we wanted geographic locations for manufacturing our products and doing -- and being able to do that in each region. And that’s we are able to do hydrogen manufacturing in China, in India, in Europe, as well as in the United States. That’s a key part of keeping that costs down when your consumer -- when your customers looking for buying equipment, it really has to be local. So we are very well-positioned there. On the small versus large projects, our major industrial gas customers have been front runners in hydrogen production in plants and equipment, and we continue to expect them to play a big part in this particular topic. So we are positioned with them as they look to scale and participate in projects like the H2@Scale Texas that we talked about this morning. On the smaller infrastructure and more localized infrastructure, we also have good direct relationships with the players that are taking on a regional state or a particular country location and that’s even further enhanced through some of the partnerships collaborations that we have recently have. So I can’t -- I won’t and I can’t, because it’s just not true to say we are better positioned in one or the other. We are very well-positioned in all of that.

Okay. Perfect. Good to hear. I will turn it back over.

Thank you.

Thanks.

Thank you. And our next question comes from the line of Greg Lewis with BTIG.

Yeah. Hey. Thanks, and good morning. I am realizing this call is running pretty long. Just one from me, Jill, you kind of touched on it around desalination and what that is. I guess my question is, as you start to kind of gain traction in the hydrogen and just thinking about the water aspect of hydrogen. Are your customers at all -- have discussions started around the opportunities for your desal into hydrogen? Yeah. That’s all from me. Thanks.

Hey, Greg. Fantastic point and thank you for listening carefully to our messaging. Yes. The short answer is, yes. And it’s -- in my prepared remarks, I commented on the combination of water treatment desalination and power source is not limited to just LNG in combination with that. It’s -- whether it’s the treatment facility or the utilization of the molecule into the production of the other molecule, both of these conversations are happening. And we think that without going into detail of our power and technology works together that combination is going to be really meaningful and unique to Chart as these types of projects get going. So that might be more of a medium-term comment that I am making, and again, I don’t want to give competitive advantage away, but that’s -- I think that has a lot of potential.

Thank you. And our next question comes from the line of Craig Shere with Tuohy Brothers.

Good morning. Thanks for taking the question.

Hi, Craig.

Good morning. One clarification, I realized that it’s really unclear where the hydrogen is going to come from and of today’s exporters of LNG may in fact or entirely not be the same as major suppliers of hydrogen in the future. But one question I have is, I am a little confused of what it takes to liquefy the stuff at the lower temperatures and if existing small scale or large scale facilities domestically or worldwide using your technology IPSMR or other technologies can be tweaked to support the hydrogen or not?

Yes. So we -- our IPSMR process technology with some tweaks, which our team already has done can liquefy hydrogen coupling that with the brazed aluminum heat exchangers which goes into liquefaction as well. We are in a good position. I would clarify that we want to make sure that we are agnostic. Our equipment is agnostic to which process. So it’s great if we get liquefaction opportunity for hydrogen. But we also are happy to have our equipment work with other hydrogen liquefaction processes. The other part of your question around how liquefaction occurs really goes more into not just the process, but how the equipment works with that process, because it has to withstand very high pressures and very low temperatures at the same time. And that’s probably our biggest competitive advantage in that, we have been doing these for 50-plus-years and our equipment is certified, it withstands a lot of the metal hydrogen embrittlement challenges that are out there. So the liquefaction part of it, yes. I think that’s something that easily jumps off from LNG. The equipment or the pipelines is a different story.

Excellent. And one last clarification, if you were to convert an existing LNG facility, say, 10 years later to support hydrogen, what kind of time and expense does that involve?

So the answer to that is, if that gets solved and whether it’s LNG or any other existing infrastructure, if the utilization of existing structure get solved to pull hydrogen through. You are probably talking about 50% to 60% cost reduction for the hydrogen cost challenge. So that would be a really nice win if that gets figured out. There is this kind of coming as a consensus in the industry that you can put 20% to 25% hydrogen in an existing pipeline and not create a problem, but that’s a 30,000 foot level. There is a lot more challenges around equipment that happen from there. Nobody has solved that. I don’t have a good answer on that, Craig, in terms of can it be done and how easily can it be done. We are working on it more from how does -- how can our equipment work together with a shift between molecule versus the transition of a full existing export facility to a production or electrolysis facility.

Understood.

Thank you. And with that, I will now turn the call back over to CEO, Jill Evanko for closing remarks.

Thanks everybody for joining us today and a big thank you to our Chart team members who continue to impress me each day with their efforts to make this company even better. We will talk to you very soon. Thanks, Andrew. Good-bye.

Ladies and gentlemen, this concludes today’s conference call. Thank you for participating and you may now disconnect.