Chart Industries, Inc. (GTLS) Earnings Call Transcript & Summary

Good morning and welcome to the Chart Industries, Inc. 2020 strategic positioning and cryobiological divestiture conference call. [Operator Instructions] 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. And a telephone replay of today's broadcast will be available following the conclusion of the call until Tuesday, September 1, 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, including the company's earnings release and latest filings with the SEC. The company undertakes no obligation to update publicly or revise any forward-looking statements. I would now like to turn the conference call over to Jill Evanko Chart Industries' CEO.

Thank you, Kevin, and thank you all for joining us today to discuss this morning's announcement of our signing of a definitive agreement to sell our cryobiological products business for $320 million in an all-cash transaction with no financing contingency. The cryobiological products included in this transaction are used for the transport of biological samples and storage of vaccinations, tissue, cells, blood and plasma as well as animal breeder applications. These are not medical oxygen-related products for critical care, such as COVID-19. Those products will remain with the Chart business as they are bulk, micro bulk and mobile equipment that serve various industrial gas applications in addition to medical-grade oxygen. We will walk through the supplemental deck released this morning to explain the strategic decision to divest these noncore products and further focus on our strategy and capital allocation in our core capabilities while expanding our presence in clean energy applications, including LNG, hydrogen, biogas, carbon capture and other renewable fueling sources. But first, I realize there are a lot of moving pieces included in today's news, so I want to provide 4 important topics for you to capture today. First, not only why CryoBio does not fit our strategy, but also how this transaction shores up our balance sheet while allowing us to accelerate our breadth in clean energy and specialty market applications. Second, our view on 2020, which is consistent with our prior guidance; third, our thought process on how we view the easiest way for investors to understand the business, in particular, providing visibility to our high growth areas, specialty products and repair service and leasing. And finally, our initial view of 2021, which has benefited from our updated knowledge of timing of certain notices to proceed on small scale projects. Now let's start on Slide 3. Back in April of this year, we received multiple inbound requests from interested parties in this business, ranging from strategics to private equity firms. While we originally had not anticipated this timing, we acknowledged the noncore nature of the products, our strategic pivoting to clean energy applications in specialty markets and decided to take advantage of the opportunistic situation, enhanced by the focus on life science products because of COVID-19. We ran a mini process, which resulted in the transaction you see today with Cryoport. Cryoport is a strategic buyer and a long time Chart customer of CryoBio products. The purchase price reflects an 11.7x stand-alone EBITDA multiple and is anticipated to result in a pretax $255 million gain on the sale. The proceeds from the sale will pay down debt and result in July 31, 2020, pro forma net leverage ratio of 1.78. Coupling that with our continued strong free cash flow generation in our core businesses, we anticipate our net leverage ratio will be below 1.25 within the next 12 months, absent any strategic expenditures that we may choose to make. Note the bottom 2 bullets on Slide 3 indicate pro forma figures. These are actual July 31 numbers. Pro forma July 31 net debt would be $358.8 million. Now that you have the facts of the deal, let's talk about why we are making this strategic move. The strategy wheel on the left-hand side of Slide 4 is unchanged from our pre-COVID strategy. We have leveraged our broad of product and solution offerings into various different clean energy applications without reliance on any one single answer. The hybrid clean energy transition and destination that is well underway globally will benefit us as we serve as the arms dealer of clean energy equipment and process. Today, you will hear more about how we will penetrate these diversified and extensive applications across the coming years with this next strategic step in our laser-focused strategy in the industrial gas and clean energy markets. Slide 5 gives you an overview of our products. And in the highlighted box, you can see the one set of products that does not play in our core area, the cryobiological or MVE biological products. These are our only products that touch animal breeder customers and were our only remaining dedicated products to Life Science applications. Recall that in December of 2018, we divested our oxygen concentrator business, which at the time was a portion of the previous biomedical segment. The other portion of that biomedical segment was our cryobiological products, which have since been reported through the D&S West segment. Some of you might ask why divest products that supported COVID-19 critical care over the past 6 months. To be clear, and flipping to Slide 6, these products did not directly support the treatment of coronavirus patients. Rather, our medical oxygen-related products for critical care applications are bulk, micro bulk and mobile equipment, as I said previously, which also serve various industrial gas applications and continue to be products used in hospitals, nursing homes and pop-up mobile medical treatment centers, to name a few. That is one of the unique parts of our bulk and micro bulk product line. They serve a variety of gases, which also makes them perfectly positioned to serve specialty applications as well as whatever renewable energy solutions are chosen as part of the carbon neutral movement. These products will be retained as part of the Chart business. Slide 7 reflects my earlier comments that the CryoBio products were reported in their entirety through D&S West after the sale of the oxygen concentrator business in 2018. First half 2020 CryoBio sales were $40.1 million with associated operating income of $15.3 million. Outside the end markets not being core to Chart, Slide 8 shows other elements of this product category that answer the question of why are these products not core to the business. The cryobiological products have virtually no overlapping customers or suppliers with the rest of our business and require specialty sales relationships. In order to grow this business, we would need a different strategy, different capabilities and different risk and working capital profiles. Additionally, these products go into highly regulated applications and have a significantly higher risk profile than our other offerings. For example, they comprise approximately 65% of our legal spend and 90% of our lawsuit count. Other than our giving customary reps and warranties, the buyer is generally assuming all liabilities of the business, including for product liability, subject to our providing a specific and relatively small cap indemnification after closing. The 3 cryobiological manufacturing locations are stand-alone with no other Chart products produced in any of these 3 locations. Not only will the $320 million of proceeds further improve our balance sheet position, it will fuel our organic and inorganic investments for further profitable growth in our high margin areas of repair, service, leasing, clean energy and specialty markets, as you can see on Slide 9. I will walk through some examples of these on the coming slides. We continue to pursue disciplined organic and inorganic investment in strategic growth areas. For example, we will expand our rental and leasing fleet as part of our aftermarket repair & service growth. Our recent organic investment of $5 million is expected to result in additional total lease values of approximately $15 million in 2021. Since we launched our expanded rental fleet on June 1 of this year, we have booked $11 million of leases, including $8 million from New Fortress Energy to [indiscernible] containers over the coming 5 years. This investment, coupled with our greenfield repair & service location in South Carolina, will contribute to our short-term goal of 20% of sales from aftermarket service repair and leasing. We are well on our way to rounding out our specialty engineering and commercial teams and have identified further products to make in India, which will increase the number of new customers by giving us the ability to play in projects where it wasn't economical to ship large products from The States to these regions. Momentarily, I will discuss the inorganic avenues we are pursuing, nearly all of which are investments or partnerships versus outright acquisitions as we see a unique opportunity in the current embryonic state of certain renewables to organically develop and own the IP, while partnering with those who play in aspects of the value chain that we do not intend to own. One of the most unique aspects of our business is the number of diverse levers we have around profitable growth and all very close to our core. We continue to strategically position our core consistent business in order to fuel some of the higher growth but less mature opportunities. We do this through our strategy of executing extended duration and broader product long-term agreements, LOIs, and long-term customer partnerships with a broader set of customers than ever before. To date, in the third quarter of 2020, we completed 2 additional long-term agreements related to fueling stations in Europe, 1 partnership related to hydrogen and an MOU with a major industrial gas customer for hydrogen development in Asia, which is expected to yield between $7 million to $10 million of hydrogen-related revenue over the coming few years. We also signed a master agreement with Flint Hills Resources for air-cooled heat exchangers. Additionally, we expect to complete at least 2 more LTAs within the third quarter. This type of customer stickiness allows us to profitably grow throughout a cycle while we pivot to higher growth, but early stage clean energy spaces. So turning to clean energy on Slide 12. One of the misnomers about Chart is that only some of our products play in the move toward a carbon-neutral environment. In fact, nearly all of our products are and can be used in various clean energy applications, even air-cooled heat exchangers, back to that arms dealer concept. A couple of examples of newer technologies and applications that we are participating in include thermal storage. As highlighted with the recent issues in California, a responsive distributed energy supply is critical to support integration of intermittent renewable resources and overall grid resiliency. Our liquid air solutions, utilizing Chart cold boxes and bulk storage tanks, provide cost-effective thermal batteries, offering responsive peak power capacity and load shifting capability. Carbon capture is another area on the brink of breakout growth. Imagine a giant bank of air-cooled heat exchangers in a basin. That's actually one project we are currently pursuing with a large international oil company for direct air carbon capture systems. On Slide 12, you can see our 3 global infrastructure build-out opportunities, which strictly pertain to LNG, totaling over $2 billion in potential Chart content. Said differently, these dollar amounts do not include hydrogen, which is another $600 million of potential addressable market for us in the next 3 to 4 years or carbon capture or biogas, et cetera. As mentioned before, LNG is certainly the most mature fuel considered green or even renewable from a cost and scale perspective. We are experiencing continued demand for our LNG fueling stations HLNG vehicle tanks for over the road and small-scale terminals globally. As a reminder, we entered into an MOU in the fourth quarter of 2019 with Energy Capital Vietnam to jointly promote the distribution of LNG within Vietnam with Chart supplying the downstream equipment into Energy Capital's terminal projects. On August 13 this year, the government office of Vietnam released an official announcement stating that the Prime Minister issued a directive to add ECV's MKG project to the National Power Development Plan period 2021 to 2030. Another example of this growth is our fueling station order activity with year-to-date July 2020 orders for 42 fueling stations compared to 60 for the full year of 2019. Additionally, in August, we completed pricing agreements for multiple stations with 2 meaningful European customers, which shows the commitment to filling in the missing pieces of infrastructure in locations that are well on their way toward LNG. Like our LNG strategy, our hydrogen strategy is focused on the equipment and liquefaction related to hydrogen versus owning or operating the production plant or the molecules themselves or owning the end use application. As you can see on Slide 13, we offer a broad set of hydrogen, liquefaction, distribution, storage and end-use equipment. The red boxes to the left and right of our product offering, shown in the middle of the page, are the 2 areas that we will not play in, but rather in an effort to offer a full value hydrogen supply chain, we are partnering with companies that have those capabilities to offer a full solution to the end hydrogen users. We are well under way with partnerships with our customers, such as FirstElement Fuel, and are in the process of working toward an investment and/or partnership in the electrolyzation area or the production element of the value chain that is on the left-hand side of the slide. One aspect of our organic investment is the product development for our liquid hydrogen pump hydrogen vehicle tanks that would operate in a similar fashion to our successful HLNG vehicle tanks for over-the-road trucking and additional sizes of hydrogen trailers for transport, as shown on Slide 14. We have successfully hired a head of hydrogen on our commercial team and will take advantage of the near-term commercial opportunities that we see in the Americas, EMEA and China. In addition to the clean energy transition, we see double-digit growth in the next 3 years for our leasing, repair & service business. Currently, this comprises 13% of our total revenue. We're targeting over 20% of revenue within the next 2 years from this offering. There are multiple ways for us to achieve this, not the least of which is our recently signed long-term agreements, inclusive of volume commitments for repair & service. We also have expanded our leasing fleet in the past 4 months. Many of you might not even be aware that we have a leasing line. This came with our Skaff repair & service acquisition in 2017 and provided approximately $1 million of revenue a year. We received specific customer feedback that an expanded mobile equipment and ISO container leasing offering would be well received and would not cannibalize our original equipment sales. The reason for this is that they are looking for additional equipment but have specific capital budgets. So we have invested in expanded fleet, all of which has been leased out already. We will continue to invest with discipline in these targeted products. And given its margin profile, not only expect significant growth in revenue, but also this will be a key contributor to our expanding operating income margin profile for the total business. All of these profitable growth areas also tie very closely to our goals of helping our customers achieve their ESG targets. Slide 16 links our products, efforts and accomplishments to 4 of the 16 United Nations Sustainable Development Goals: access to clean water and sanitation, affordable and clean energy, sustainable cities and communities and climate action. And in many cases, we help our customers with these sustainability goals through our specialty products. On Slide 17, you can see a few of our customers that use our dosing and micro bulk tank product to reduce their plastic or glass packaging or in their stores or theaters to serve food and beverages. One of the more recent innovations is Nitro key, and we are serving multiple customers creating this product, including Fordham & Dominion Brewing company, whose brand is Hoop tea, shown on the left-hand side of the slide. We are pleased to be a key part of bringing name brand products into your household and helping our customers achieve their ESG targets at the same time. Another specialty market with double-digit growth is water treatment. As you can see on Slide 18, there are nearly 15,000 wastewater treatment facilities that operate in the United States today, and there is over $700 billion of capital earmarked to improve drinking water facilities and wastewater and storm systems. Even though your lines are muted, I'm certain I will still be able to hear your groans when I discuss how we're thinking about our segments upon close of the transaction. Let me repeat, we will continue to externally report in our current segmentation until the close of the transaction, at which time we will contemplate reporting in the 4 segments shown on Slide 19. One of the reasons for our current segmentation was to provide you with visibility to synergies from acquisition integrations in D&S East and E&C FinFans, and we're getting to the point where that is no longer necessary. After numerous discussions with investors, we have heard the feedback that quarterly information about our highest growth areas of our business would be well received and having a more complete understanding of how our product offering works together would help with understanding the complexities of our unique company. Upon closing, the following 4 segments could be utilized, and at that point in time, we would provide 3-year historical quarterly and full year information. Heat transfer systems would include revenue related to our brazed aluminum, air-cooled, breach lock and shell and tube heat exchangers in addition to fans and cold boxes. This was our most cyclical segment, yet also contains the significant high margin Big LNG upside potential of over $750 million in the coming few years. As our Chart FP&A guru Greg says, "Heat transfer would be our cyclical segment, but it's cyclical with the cherry on top." The upside opportunity exists with Big LNG, but we don't need to rely on it to achieve our outlook. Rather, we rely on our cryogenic D&S products, which are consistently growing low to mid-single digits and where we have over 50% of our revenue associated with long-term agreements. These would be reflected in cryo tank solutions, which would include our global bulk, micro bulk, packaged gas and mobile equipment products. This segment would be closely aligned with our industrial gas major customers and would reflect consistent growth, margin and free cash flow across the cycle. And then the other 2 would focus on sharing our execution against our highest growth and highest profitability areas of business. Repair service and leasing would include all parts, service and repair that currently are reported across the 4 segments. Additionally, our global leasing group revenues would be included in this segment. Finally, specialty products would relate to products used in our specialty market applications, including food and beverage, space exploration, lasers, cannabis and water treatment, amongst others. We expect these products revenues to grow over 10% annually in the coming 3 years. Again, let me emphasize that this won't affect how we run or assess our businesses, but only have a better way for external analysts and investors to understand our full capabilities. The third quarter 2020 started in line with our expectations and prior guidance. July 2020 orders were $82.8 million, of which $6.8 million were related to the cryobiological business. Quarter-to-date, we have received orders from 84 new customers, bringing our year-to-date new customer count to 344. Of our third quarter-to-date 84 new customers, 65% are outside of North America. Additionally, while E&C FinFans air-cooled heat exchanger demand levels continued to be depressed, it has been slowly improving with targeted capacity adds in the midstream and upstream end markets, quick turnaround of replacement projects as well as multiple first-of-a-kind client applications. Our prior guidance was a range, which was meant to bound reasonable possibilities. After many times stating a range is a range is a range, invariably, people have gone to the midpoint rather than listen to the probabilities around those possibilities within a range. Most of the elements of the range and associated changes to a low or high end are just timing, so it doesn't really matter in the big picture, the timing matters in the year. So now I'm going to take a more direct approach and give you an approximate answer, recognizing that it won't be exact. You're welcome to low or raise this as you see fit once you determine what approximate means in terms of a plus or minus against what likely will be assumed at the midpoint. And for clarity purposes, the delta between our prior and current full year 2020 guidance is the movement of the CryoBio product line into discontinued ops. Our revenue guide is approximately $1.2 billion with associated adjusted diluted earnings per share of approximately $2.25. Our capital expenditure guidance of $30 million to $35 million is unchanged. Finally, we are providing a free cash flow outlook, which is in the range of $120 million to $140 million for the year, and we see free cash flow generation growing over the coming 2 years to mid-teens as a percent of revenue. And yes, I know I just gave you a range on that free cash flow. Certainly, at this point in the year, everyone is turning their attention to 2021. On the right-hand side of Slide 21, you can see the walk from our 2020 outlook to our current 2021 thinking. Note that 2021 does not include any additional Big LNG revenue beyond the $23 million of Calcasieu Pass, which is in our backlog and will be complete by the end of the first quarter of 2021. We do anticipate the 3 mid-scale LNG export terminal committed projects to proceed to FID in the 2021 year, with a high probability that 1 moves forward in the first half of 2021, thereby providing us an additional 2021 revenue opportunity. Our 2021 outlook for continuing operations is a revenue range of $1.25 billion to $1.325 billion and associated full year diluted adjusted earnings per share of $2.90 to $3.25 on 35.3 million weighted average shares outstanding, with an effective tax rate of 18%. Capital expenditures are also expected to be in the range of $30 million to $35 million. With that, I'll now turn it over to Kevin to open it up for questions with Scott Merkle, our Chief Accounting Officer; Wade Suki, our Director of Investor Relations; and myself. Kevin?

[Operator Instructions] Our first question comes from Martin Malloy with Johnson Rice.

I just -- maybe going back to Slide 14 for a moment. When you look at those list of different applications or technologies, can you maybe highlight the ones that would really be differentiated for Chart to have and provide a competitive advantage?

So we are very differentiated with the current hydrogen product offering that we have for a few different reasons. The first of which is we're one of the only companies in the world that have been manufacturing this type of equipment for over 50 years. That gives you a lot of reliability, but it also addresses some of the safety concerns that go hand-in-hand with hydrogen. In terms of the new development that's underway, the most differentiating will be the liquid, and that's because there are very few that exist in the world today and very few that work the way that will be required for the level of volumes and pressures that are going to happen at these combination gashes and liquid stations.

Okay. And then you mentioned partnerships in the presentation, press release and with respect to electrolyzers. Could you maybe talk a little bit more about the potential there, any capital -- the size of potential capital requirements, that you're thinking about?

Yes. So there is one particular one that we're well on our path on. I can't give any more specifics on that. But generally, these types of investments/partnerships would require somewhere between kind of USD 25 million and USD 35 million type of investments.

Our next question comes from Connor Lynagh with Morgan Stanley.

So I think the framework you've proposed for the new segments makes a lot of sense here. I'm wondering if you could maybe just sort of help people think through -- so you've got this first half 2020 revenue, but obviously, we know we're in sort of an odd portion of the cycle, I guess, you could say. So could you maybe provide some balance to think about -- how you think about -- and I think you've got some of this in the release, but how do you think about longer-term growth? How you think about, particularly on the heat transfer system, sort of what the peak to trough could kind of look like? Just how should people think about what the growth in these respective end markets can look like over the next few years?

Sure. So I'll start with the easy ones, which are the high growth kind of what would be the new 2, so repair service and leasing. This is easily a 10% a year growth business and in the case of next year, we actually expect it to be over 25% growth in business. If you pro forma that right now, it'd be somewhere in the $150 million to $170 million a year type of range just to kind of give you a general starting point. The specialty products also 10-plus percent, and there's nuances within the different specialty products, but that's kind of a nice peanut butter average across them, whereas you could have a breakthrough specialty product or specialty market within that, that could accelerate that growth. And specialty products are somewhere, again, similar to repair service and leasing in that kind of $150 million to $170 million range for a full year. The 2 kind of more core or traditional what would be segments would be the cryo tank solutions, and that's probably somewhere in the kind of $450 million to $500 million range for a full year-ish. And that one, it doesn't -- there's not a lot that moves the needle on that up or down, so kind of a GDP-plus style growth rate, but very consistent. And we have good line of visibility on what's being forecasted just given the nature of our customers in that bucket. And then the most difficult is the heat transfer system category, which really is your conglomeration of what we would today call energy and chemicals products. And we've done a lot of work around kind of minimizing those peaks and troughs by saying that Big LNG is icing on the cake, and that continues to be the case. And the interesting part of this segment is it will become less and less cyclical as we see our products going into these clean energy applications. And that's -- even in the last 2 months, even since we talked on the Q2 earnings call, the amount of quoting and bidding that we're doing with our traditional heat exchanger products into clean energy has just been going game busters. So I'd say, generally speaking, that'll be somewhere in kind of a $500 million to $600 million type of across-the-cycle range. And if you included Big LNG, obviously, any given year, you could have another $300-plus million tacked on to that. But the downside to this is -- would be about $500 million or so, and that would be kind of where you're ticking along the bottom in the cases of compression in midstream and upstream like we are today.

Got it. That's all helpful. I guess it's kind of interesting, the repair, service and leasing business doesn't strike me on the surface is a high-growth business, and I know it's something you've talked about for some time. But can you just sort of remind us the sort of thesis there in terms of how you're going to penetrate the market? And why that's relatively high growth opportunity in the near term here?

Yes. So there's a few different levers for this to be as high a growth as I just articulated. The first biggest delta that we've been able to accomplish in 2020 compared to previously is linking the repair & service into these long-term agreements, and that was something that just never existed before. And without going into specifics, because we're under confidentiality around that, there are volume commitment amounts of spend associated with that. That's the biggest mover in terms of -- we didn't have it at all in 2019. We'll have it for part of 2020. And then we'll have it for the committed period, which, in many cases, is between 3 and 6 years. So that's number one. The second is this leasing business that historically, we haven't talked a lot about just because it was about $1 million a year, so it's just completely de minimis. But we've taken the time to understand which products make sense to put into this bucket. And by [ expanding ] early in the second quarter, we saw this kind of waterfall or this gully opened up of new potential projects that we otherwise wouldn't have even been invited to be on by not having equipment that we were willing to lease. But also our core customers that don't want to have to own an extra mobile medical trailer, but they want to lease one for the next 2 or 3 years because they're trying to get ahead of the coming fall flu season or something like that. So that's also been a really big change in terms of how we go about growing this business. And then finally, I would say there is a distinction between the distribution storage products in the energy and chemical products in terms of how they behave toward repair & service and growth there. We have had a lot of success in terms of taking repairs back in or [ quarters ] back in on heat exchangers and finding ways to repair or service those while also having the ability to have a piece of equipment out on lease while you're repairing that. So those are the 3 big levers to have this be such a high growth in the coming 3 years.

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

I would just love to chat about some of the new opportunities in more detail here than you've given in the past and some of the things done since the start of the quarter, but you mentioned thermal storage, carbon capture, biodiesel. Just curious, I guess, maybe specific to thermal storage, who the ideal partner would be there? And then when you look at all of these, when do you see those as starting to contribute? And then maybe when do you see those as actually being meaningful contributors?

Yes. So we are starting to see them contribute in the order book now. And it is still fairly early days, so when we say starting to contribute, these are pilot projects or a customer that's heading down this avenue. Some of the more recent and quicker accelerators in these areas have been existing traditional oilfield customers that are looking to take brownfield sites that they own and find ways to turn them into, for a lack of a better term, renewable but at least green in the case of some of these. And so those are the ones that I see as the most near-term meaningful revenue opportunities because these are customers that they're pivoting and they're saying, I've got to do something with this. I can't just have it sit there idling for the next 2 to 3 years. In terms of the thermal storage and carbon capture, I think similarly in terms of partnering and who we'd be -- who we're working with on that, the biggest movers in that are going to be your international oil companies. And so without going into specific names, those are the types of customers that we're working with on that. In terms of partners, there are some unique start-up style companies that have specific technology that would couple very well with our existing equipment. And these would be companies that most of the world wouldn't be familiar with their names, but they have related capital and investment that are generally tied to a big name customer. You could pick any of the names and you'd identify them.

Okay. Got it. That is helpful. And then maybe just to clarify something. You talked about 3 projects FIDs in 2021 with 1 early. Just clarifying, were you talking small-scale LNG? And then maybe just some thoughts on Big LNG. You had that slide with India and how you play across everything in the value chain. Just maybe confidence levels near term and then longer term, just given all the dynamics where the spot price LNG is, et cetera.

Sure. So the 3 I was referring to were actually the mid-scale projects of Venture Global Plaquemines Phase 1, Cheniere Stage 3 and the Tellurian project. So I would expect one of those to go first half of 2021, and I'm not -- I'm unable to tell you anything beyond that as to why I have that level of confidence. But I think one Phase 1 happens in the first half, which gives us revenue opportunity that's above the outlook that we provided today. In terms of the small-scale side of things, that was part of my commentary on plus or minus on a range around timing of notices to proceed on the small scale. And we have a good level of confidence that we'll get some form of notice to proceed on the Eagle Jacksonville small-scale project sometime between now and January time frame-ish. And that project is not currently in our backlog, but it would be booked at the time we receive that notice to proceed, and it's just over $35 million. The other small-scale projects that we do have booked, including the $15-plus million one we booked at the end of June for a utility-scale project, we already have notice to proceed to be working on that. And then Slide 12, the global LNG infrastructure build-out. From a near-term opportunity, this is a really good position that we sit in today, which is LNG is certainly considered mature, and there's enough of an infrastructure that's scaled out there in the world today that it continues to be built upon. And so around cost competitiveness and scale, LNG is certainly a key part of the transition. [ What estimation ], people can argue that, but it's a heavy part of the transition for the coming decade at a minimum. We think that we'll continue to see accelerated growth in the fueling stations, in the LNG over-the-road trucking area and in the import regas side of things. So if I were picking where do I feel most confident in continued growth and size of the opportunity on Slide 12, I'd choose the regas, the LNG by road and the fueling stations. The LNG by rail is just too nichey right now and too targeted. And then the marine transport is possible that LNG -- LNG certainly plays a part and is addressing IMO 2020, but there's also other renewable energy opportunities that could skip level on the marine side of things. And then I think LNG kind of finds its place in that hybrid solution [ in the ], pick a number, 10 or 15 years type of time frame. And then some of the other renewables start getting scale around it. And so it becomes a smaller piece of the total pie ultimately, but it still is there because of its position in maturity today.

Our next question comes from Tom Hayes with Northcoast Research.

Jill, I was just wondering, you've mentioned a few times over the last couple of quarters, your interest in adding a cryogenic pump function. Does this sale move that priority up? And is this something you guys can develop internally?

This sale definitely increases the easy movement of funds to be able to pursue that. We are pursuing one inorganically, and we're also developing one inorganically. So we're parallel pathing this. And even if they both happen, there is enough unique capabilities and enough of a customer book of the acquisition target that we would be happy to have our own as well as purchase this one that we're chasing.

Okay. And then maybe any other color you could provide about the partnership you guys did with the FirstElement Fuel?

Yes. So we have been working with FirstElement Fuel for many years now, and FirstElement has been a first mover in the state of California around fueling station networks and the distribution of hydrogen itself. We're working together to create specific fuller solutions, in particular around 700 bar pressure type of applications in the stations, which, over time, we hope, evolve to being a bigger part of on-site production with another partner and having a full answer where you're not necessarily having to move hydrogen from an off-site storage to an on-site storage type of location. There's a lot more specifics around our partnership that we can't disclose.

Okay. I guess maybe one more, if I could, just staying on the partnership track. On the electrolyzer partnership, I'm assuming your involvement would be on the storage and transport solutions side versus -- it's like you said, you're trying to stay out of the molecule creation side.

Absolutely. Yes. So what we're really looking for there is to have a partner that we sit side-by-side with where they have that capability, the electrolyzer capability as well as kind of the plant, the molecule and then our equipment goes around that. And we're able to together have a commercial product category and a commercial solution that brings total cost of ownership down.

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

Just want to get a little further color on your appetite for acquisitions versus kind of partnerships and sort of what's your strategy there. How much is going to be more acquisition oriented versus partnerships? And maybe some color on how you view that proceeding?

The majority of our investment will be on either minority interest or partnerships from an inorganic standpoint. And there's a couple of reasons for that. Number one is the fact that we believe that we have the internal engineering capabilities to organically develop some of these game-changing [indiscernible] differentiated products, and we like to own the IP. I mean that is extremely important to us. And with that, though, there are the other areas of the value chain, and you can pick any of the gases, it doesn't have to be hydrogen. It could be biogas. It could be carbon capture, where it just doesn't make sense for us to go. And that's kind of been the same in LNG, where I don't want to own an export terminal. I don't want to be producing LNG, and the same is the case in these other gases. And so having that partnership or those partnerships, you're able to commercially have better opportunities, but we still continue to own the IP around our equipment. And it allows us to continue to play in this area of the arms dealer where we're agnostic to who's on -- who's the [ customer ] who's the molecule owner. In terms of outright acquisitions, we don't see any that are absolutely necessary to round out our offering in these areas that we see as high growth. But certainly, the cryogenic pump would be an easy answer if we're able to find the right target, and we don't get any, I would say, commoditized pumps with it. We're not in the market to own a centrifugal or a positive displacement pump. We're really looking for that targeted cryogenic pump.

Okay. And then turning to the leasing business. What's a typical model in terms of leasing terms in that market? And what's sort of the return profile of the capital you put into that business?

Yes. So for us, the general model is 5, 7 or 10 years. So these are certainly depending on your definition of long term -- medium- to long-term leases. Generally speaking, they have some form of cash upfront and then a monthly payment with interest associated with that. Obviously, there's outliers, but that's kind of middle of your sign curve there. We tend to have customers that are very creditworthy customers. So existing original equipment customers that are looking for this as kind of an add-on option through our commercial team. In terms of returns, I'll answer it 2 ways. One is when we invest in expanding the fleet, whether it's an ISO container or a mobile equipment, typically, this returns to us within 12 to 14 months. And overall, from a margin profile, if we looked at just our total repair service and leasing breakdown, the margin -- gross margin on that is in the 39% to 41% range.

Our next question comes from Craig Shere with Tuohy Brothers.

Congratulations on the sale announcement.

Thanks, Craig. We're excited about it.

Jill, we've talked about this before, but what would you like to see before guiding to more robust specialty market growth that reflects those breakout opportunities across food and beverage, vehicle tanks, LNG by rail, water treatment, hydrogen and more? And given the challenges in forecasting exact timing of breakouts, could you eventually consider a multiyear outlook for that segment?

So first, and this kind of builds upon Eric Stine's question on what's really near term and when does this stuff become super commercial and in full production, for me, I'd like to see more order activity in a consistent nature associated with some of these breakout opportunities. So there's so many of these first-of-a-kind and breakout opportunities that we're working on right now. When I start to see it be not just 1 or 2, but really, you've got a handful at least of customers coming and saying, we are doing this as well, then I would definitely increase that look. So it's on the cusp of that, Craig, to be quite frank. I think -- I'm not going to give an exact timing, but it's not 3 years away from me being willing to kind of commit to a higher number on that. In terms of could we provide a multiyear outlook, at some point, we could and not quite yet. Again, it's just really trying to figure out when do these things become more commercialized versus embryonic nichey types of pilots. And if I were just a betting woman, which I am, I would say, in a couple of years, within 18 to 24 months, we will be there.

Great. And just on the deal, I want to better understand the divestiture multiple. Your EBITDA reconciliation slide on 23 reflects some healthy growth from '18 to '19. Was that continuing into this year? And what other overhead and/or working capital issues are not reflected in Slide 23?

Yes. So this was an estimation toward a stand-alone number. So obviously, there's elements of the business. This is a 1/10 -- less than 1/10 of our business in terms of total revenue. And so we have shared resources in back-office functions and tax, treasury, legal, IT, et cetera. And so this reconciliation was done together with Cryoport where they estimated, along with us, how much stand-alone cost would be needed, and that's how we landed on the reconciliation you see in the slide deck. In terms of other aspects that aren't captured here, certainly in working capital -- and again, I'll do this in reference to -- [ for ] the remainder of the Chart business because it's really an unfair comparison for a business like Cryoport, where they're wholly dedicated to life science and that is their business model and they're able strategically to handle the specialty sales and to handle the working capital needs way differently than we even want to do. So the working capital profile, in particular around inventory less so around payments and customer receipts, is about just under 1,000 basis point delta higher working capital as a percent of sales in the CryoBio business. Additionally, we have resources and costs that will go away as a full year comes into play, so as we head into 2021. Some of that relates to insurance premiums. We've seen a significant increase in our insurance premiums, just given the profile of this particular product line compared to the rest of the business, similarly around some of the legal costs that I referenced on the call. In terms of the growth from '18 to '19, we did have a recall of this product line in early 2018. And so through addressing that recall, which is a voluntary recall, we had lost sales in 2018. So that level of growth did not continue into 2020.

Great. I appreciate the explanation. A couple of last quick ones. On the capital gains on the divestiture and any specifics on tax leakage associated with that. And now that you're pretty flushed and under 2x, recognizing you have a lot of organic and organic growth opportunities, any thoughts on resuming share buybacks?

So this actually, from a tax perspective, is a nice deal for us and will overall improve our effective tax rate going forward. Just realizing that doesn't directly address your question, we expect somewhere between $30 million and $35 million of leakage on that. Around share buybacks, yes, we are continuing to have those conversations with our Board of Directors. And that is not out of the realm of possibility given that once we close this deal, where we sit in terms of net debt, the balance sheet and obviously exclusive of any other strategic investments we may decide to make.

Our next question comes from Pavel Molchanov with Raymond James.

Can you talk about the oil prices that are assumed in your guidance for 2021, given the leverage to both midstream and upstream?

Yes. So we assume somewhere between $40 and $50 in the price of oil, more toward the low end, frankly.

And what would be the sensitivity to your revenue based on plus or minus $5 either way?

About $20 million.

Our next question comes from Greg Lewis with BTIG.

Jill, I just wanted to touch a little bit more on the move. It sounds like you think there's a nice opportunity in leasing. And just given as we think about leasing and the focus on capital efficiency, how should we think about short maybe as the leasing business grows? I mean it just seems like the company is going to have to take on more debt, right? I mean, as you think about leasing assets, like what do you think is -- realizing that each asset that you're going to lease is probably going to be a little different, how should we think about the split between equity and debt on average as you kind of build out the lease portfolio?

Sure. And perhaps it's a little bit different than some other leasing models in that the amount of capital expenditures associated with building out our fleet is fairly de minimis. In the case of this year, we spent $5 million, and we've been able to lease all that out, and it will result in an equivalent of $15-plus million of revenue. So these are not hundreds of millions of dollars of investment. We are remaining very tight to specific standard products, and there's a reason for that. That's really around the ability to re-lease or lease-to-sell model, and that's on the standard trailer side of thing, inter mobile equipment and standard ISO containers. In terms of taking on additional debt, we're able to fund this through our cash generation and even we generate cash beyond our needs to invest in this leasing portfolio. So hopefully, that answers your question, Greg.

Okay. Yes. Great. And then just another one for me. I mean you touched on probably as we think about hydrogen going truck stations that a lot of that is going to be -- it looks like it's going to have to be inorganic -- or I'm sorry, organic. Just as I think about the competitive landscape in that business, realizing that you guys have been doing hydrogen for 50 years, but really in terms of hydrogen fuel stations, it's really kind of in its pre-infancy state. Just kind of curious on the competitive landscape there, I mean, how many companies are actually even focused on this niche business at this point, just given that real commercial viability looks to be at least a few years away?

Very few to none, depending on the product, the specific product that you're talking about in hydrogen. We are extremely unique in the set of the equipment that we [indiscernible] today, and we'll further put ourselves another 1 to 2 steps ahead of everyone else given the acceleration of the internal product development. So we're very well positioned competitively in this space.

Our next question comes from Marc Bianchi with Cowen.

First question on the free cash flow outlook that you have here. Just wanted to confirm that the 2020 free cash flow would be including the CryoBio business. Is that correct?

No, that's excluding the CryoBio business. So that's the -- no CryoBio in there.

Got it. Great. And then if I look at the delta in EPS, from 2020 to 2021, and just assuming that that's all free cash flow increase, it looks like the increase in free cash flow in 2021 is a bit more than the EPS increase. Is there something else that's aiding free cash that you could talk us through?

We're just getting better and better at working capital management is really what's driving that.

Got it. Got it. Okay. Couple of other points on the guidance. For 2021, you're talking about a recovery in air-cooled heat exchangers. And I know that's been -- we've had a pretty big drop off here during 2020, obviously, an unusual year. Could you maybe walk us through on a maybe quarterly revenue basis, what 2020 looks like and what's assumed in this 2020 outlook, just to give us a sense of the trajectory and recovery?

Sure. So in terms of -- let's just take the second half of 2020 for our FinFans business, somewhere in the kind of $120 million, $140 million range in that segment. So you can divide it out as you see fit. And then we would see that actually step up starting in the second quarter of 2021 and increase from there. What we're seeing in the market, I commented a little bit around some of the slowly recovering type of work that we're getting, some of the quick turnaround work. So there are targeted adds happening in the midstream and the upstream. What we're hearing from the customer base is they think first half of 2021 is the first time that they're going to be thinking about more investment. So the second half of 2020 has kind of been written off to be completely frank. So the way our business works on the air coolers is it's a book-and-ship business. So somewhere between 1 month and 5 months from a book to a ship, which we're able to accelerate given some of our strategic inventory build for certain customers that have asked us to do that. But I see that starting to step up not until the second quarter.

Okay. Great. And then just last one for me on the 2021 outlook. You've got this $0.45 of incremental restructuring and all. And if I just sort of look at the adjusted SG&A run rate from where we are today, it looks like it adds just about $0.15, just if I get a full year benefit of that. Can you -- is there additional savings that you're contemplating beyond what you've achieved so far today? Or is that just something coming from the segments? What would be the difference there?

Sure. So you'd have to go back to our second quarter press release, look at the table in there that lays out the timing of the restructurings that have been complete. And then we did a small additional restructuring a few weeks back in the month of August that tacks on a few million more dollars of annual savings. If you break that down, you'll see that incremental is approximately $30 million based on the timing of restructuring this year. And we have a little bit of offset for some of the investment in our engineering and commercial teams, which brings it down to the $0.45. And we're happy to send you the specifics, if you'd like.

And I'm not showing any further questions at this time. I'd like to turn the call back over to Jill for closing comments.

Thanks, Kevin. I'll conclude with reiterating the 4 topics from today to focus on. The fact that this transaction strengthens our balance sheet and accelerates our high growth opportunities in core end markets. 2020 and 2021 are consistent with prior expectations. And we look to continuing to provide useful and valuable information in how we show our segmentation upon closing. So with that, I thank everyone for joining us today, and goodbye.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.