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

Good morning, and welcome to Chart Industries Inc. Strategic Hydrogen Expansion 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. A telephone replay of today's broadcast will be available following the conclusion of the call until October 20, 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 over to Jill Evanko, Chart Industries CEO.

Thanks, Sonya, and thank you, everyone, for joining us on this exciting call to discuss today's announcement on our strategic hydrogen expansion. Early this morning, we signed and closed on the acquisition of Worthington Industries cryogenic trailer and hydrogen trailer business for a purchase price of $10 million. Later this morning, we announced our EUR 30 million investment in strategic commercial MoU with McPhy, a hydrogen pure-play company that specializes in zero-carbon hydrogen production and distribution equipment. We'll walk through our supplemental presentation that was issued with the second press release today, starting on Slide 3, to discuss the strategic and commercial nature of these transactions and how they will expand our addressable near-term market for hydrogen. You're all getting familiar with or sick of, Slide 3, our strategy and how we play in the clean energy transition. Our strategy focuses on leveraging our extensive cryogenic product offering across the high-growth and high-margin applications in clean energy, specialty products, and repair, service and leasing. We are often referred to as the arms dealer of equipment for these applications, and we believe a hybrid of power generation sources will result as the clean energy transition continues. Our products are agnostic to whether it's LNG, biogas, CNG, carbon capture or hydrogen. But we do see a significant acceleration in government, public and private sector interest and spend in the hydrogen space. It's hard to go an hour, let alone a day, without seeing news on hydrogen. As government's interest rises in this molecule, we stand to benefit from it. For example, just this past week, the Spanish government approved the country's hydrogen road map, a commitment to renewable hydrogen, which includes that by 2030, 25% of industrial hydrogen consumption will be of renewable origin. And also by 2030, they will have a fleet of at least 150 hydrogen buses, 5,000 light and heavy-duty hydrogen vehicles and 2 lines of hydrogen-powered trains. Very applicable to today's announcements are the recent French government announcement of the formation of a National Hydrogen Council as well as the speech given just a few days ago by the EU Commissioner of Energy. Commissioner Simson stated that the EU's targets for 2030 include commitment to a reduction of at least 55% of greenhouse gas emissions. And as she stated, this means that we must accelerate the pace of the transition and explore new solutions. She continued, hydrogen has the potential to be a game-changer in this context and in Europe. The EU has mapped out 3 steps in this hydrogen strategy. First, to scale up supply and demand in parallel. To kick start this process, they have launched first call to fund such projects from the EU budget. Also, they'll work on common standards, certifications and terminology, which will further advantage Chart, as we are a leader in regional certifications for our type of equipment. The second step will be creating competitive markets and infrastructure for cross-border trade of hydrogen. And the third step is their ongoing work to keep industry in Europe where Chart has 10 manufacturing locations ranging from France to Germany to Italy to the Czech Republic. These steps link directly to our investment and even more so, our commercial strategic agreement to expand both McPhy's and our equipment offerings to geographies that either one of us or both of us has a strong presence in. So moving to Slide 4, you see our recent announcements of penetrating the hydrogen market, a market that we have provided equipment into for over 50 years. At the end of September, we announced the joint development agreement with FirstElement Fuel and supply agreement with Plug Power. Today, we completed the acquisition of Worthington's trailer business, and this acquisition includes ownership of the Theodore, Alabama manufacturing site, all trailer-related intellectual property, manufacturing capabilities, equipment and repair backlog. The facility has approximately 300,000 square feet under roof, adjacent to the Port of Mobile, Alabama, another site with water access that allows us to create additional space in our Minnesota facility for expanding our hydrogen test facility. Additionally, we are excited as this brings another repair, service and leasing location to our U.S. footprint. This acquisition will produce strong synergies by combining Chart's deep knowledge of cryogenics and liquid hydrogen storage with the Theodore operation's expertise and experience in the packaging and assembly of liquid hydrogen trailers. The addition of the trailer business to Chart's mobile hydrogen equipment offering increases to larger-sized transports and brings another location already certified by multiple hydrogen customers. Finally, as we have said, it's not always about hydrogen. The Alabama site that comes with this deal gives us space to keep LNG ISO container inventory close to our North, Latin and Central American customers where ISO shorter lead times are a critical aspect of our customers' project schedules. Our investment in McPhy is a significant strategic move, in particular, surrounding our anticipated commercial opportunities across Europe and globally. In conjunction with the investment, we have executed a commercial memorandum of understanding, which will generate pull-through of our and McPhy's products and capabilities. Our respective teams will collaborate on a number of already identified projects, some of which I'll share in a moment. Moreover, the complement of their activities with our own puts us in an optimal position to work on large projects in industry, mobility and energy. We also expect not only our investment to help McPhy scale up industrial capabilities, but also to leverage Chart's extensive global manufacturing footprint to continue to make hydrogen cost-competitive by manufacturing closer to the end users. We expect this partnership will result in both companies playing a leadership role in the global build-out of competitive zero carbon hydrogen and on the decarbonization of industrial processes, energy storage and mobility. One thing we've consistently stated is that partnerships and collaborations commercially to offer the full hydrogen value chain without having to own production or end-use outright is part of our hydrogen strategy, and also will help accomplish the reduction of cost, one of hydrogen challenges in the current state. The McPhy's strategic partnership not only offers much commercial pull-through directly with them, but also brings with it other partners in the value chain, as shown on Slide 5. These include anchor investors EDF, Ecotechnologies Fund managed by Bpifrance and Technip Energies. EDF provides a direct link to the French public utility, while Technip will provide the elements of EPC to joint projects, a much needed aspect of [ full constellation ] through the first gas or liquid. Together, along with our other partners and customers, we're excited to bring integrated production and liquefaction, liquid hydrogen backup options at on-site electrolysis locations and mobility offerings straight through from production to trailer filling. And yes, those would be our trailers, too. Slide 6 illustrates our approach to staying disciplined in being the arms dealer of equipment, again, similar to our LNG strategy. I won't go through this again as many of you are familiar with this slide by now, but I would pause here as it's important that you understand the extent of what we have provided in hydrogen over the past 5 decades. Said differently, we're not a new entrant to this arena. We have built over 800 hydrogen storage tanks through our history in sizes from 3,000 gallons to 170,000 gallons. We have supplied tanks into many applications, including FCEV fuel stations, fuel cell forklift fueling, liquefaction, aerospace and industrial. We built a number of liquid hydrogen trailers starting around 25 years ago, and now we'll do even more with the addition of the trailer business from this morning's acquisition. We designed and built the largest liquid hydrogen storage tank in India, and our flow instruments, meters and measurement devices are utilized in fueling applications globally. But not to be left out are our brazed aluminum heat exchangers for hydrogen services. These units are custom-designed for applications around hydrogen purification, recovery and liquefaction. And we did sell one of these into [indiscernible] in the third quarter, which we'll share more about next week on our earnings call. The addition of the trailer business expands our capacity, our customer base, backlog and size options of available trailers in our offering. This is shown on Slide 7, and we want to reiterate that we continue to progress on our organic product development as well, and expect that within the next 3 to 4 quarters, we'll have production-ready expanded equipment for mobility, transport and automotive applications. On the next slide, you can see our updated addressable market for our hydrogen offering across the next 3 years. It is now estimated to be $1.1 billion, increased through these deals by approximately $500 million. We originally estimated that trailers and transports were approximately $20 million to $25 million of addressable market. The trailer acquisition triples that opportunity. The other significantly expanded opportunity through the McPhy transaction is around storage tanks and equipment that can be used in liquefaction, regardless of what process technology is used. One aspect of the hydrogen transition is movement from gray to blue to green, and I think the pink and purple hydrogen at this point. Our equipment can handle it all. Another aspect of the transition is also from gaseous to liquid hydrogen. The reasons for this include the fact that liquid hydrogen is more volumetrically efficient than gaseous hydrogen, specifically, liquid is approximately 3x denser than the common gaseous transports and FCEVs. This increases payload for hydrogen and increases range of hydrogen fuel cell vehicles. Liquid hydrogen is also much easier to transfer between containers since it is a liquid that can be pumped and pumped much more quickly in larger quantities than gaseous hydrogen, which typically requires pressure transfer or a slower, more costly compressor. And finally, liquid hydrogen storage fuel stations can store more fuel and deliver to more vehicles in a smaller footprint than the equivalent gaseous hydrogen storage stations. As this transition to liquid occurs, we expect our addressable market to further expand beyond what is shown here. Realizing that sometimes it's difficult to understand what types of commercial opportunities exist through partnerships, we included Slide 9, which shows some examples of those types of opportunities. In these examples, McPhy's customer base opens up opportunities for Chart equipment. And beyond the 2 shown here, our respective teams have identified 15 more opportunities in the next 3 years to go after together. I'll end my prepared remarks with exactly how global and, shall I even say blessed, hydrogen is right now. Even Pope Francis has a hydrogen-powered car. He received a specially made hydrogen power Toyota Mirai from the Catholic Bishops' Conference of Japan just this past week. All right. Now with that, Sonya, we can open it up for some Q&A now.

[Operator Instructions] Our first question comes from Chase Mulvehill of Bank of America.

Jill, congratulations on the deal. Looks to be a nice opportunity here. I just wanted to ask, before I kind of talk specifically about the deal with McPhy, I guess, first, you talked about the advantages of gas versus liquid hydrogen when you think about transportation and storage. So when we look out over the next 5, 10, 20 years, and we think about the -- how much hydrogen will be consumed out there, how much do you actually think, like what percentage do you think will actually be liquefied?

So it really depends on the geography that you're talking about. In the U.S., there's more liquid hydrogen than there is in some of these other geographies, but the trend is really moving in that direction. We've had some conversations with folks that are linked to the governments within the EU, and that's become one of the top -- the hottest topics of the conversation in the last 2 to 3 months is how do we move to liquid hydrogen, primarily because of the long haul. It's less around storage than it is really around, I can transport a heavier-duty vehicle over a longer distance and also be able to fill it in a more efficient manner. So I'm not going to go and venture a guess, but I would say that [ they transitioned ] very quickly from gaseous to liquid hydrogen across the globe. And there's also the ability to have the combination thereof. And I think that you'll start to see some folks that previously had done gaseous hydrogen stations, as an example, move to liquid. So lots of opportunity on the horizon. And I also think that gaseous hydrogen is a key part of the here and the now. And as hydrogen, again, continues to make its way up the right direction on the cost curve, gaseous hydrogen is a key part of that as well.

Yes. And if we started to visage more of kind of the liquid hydrogen opportunity into kind of your addressable market, you put a $1.1 billion number out there. How much upside -- I don't know if you could frame the upside if you were to kind of start including some of the opportunities there as it relates to liquid hydrogen.

Well, there's liquid hydrogen included in our addressable market since our equipment is utilized for that in many cases already. And I would say that the key is going to be around -- this is definitely -- addressable market is definitely going to grow beyond year 3 and beyond the $1.1 billion that we've put out there. The question is how quickly can this become more prominent, a bigger scale, higher infrastructure across the world. And that's the hesitation I have with a larger number out there is this isn't going to happen in 1 year. It's going to take a few years to get to that point. So I can say, it's definitely going to be a lot larger than the $1.1 billion, but it's very difficult to put a size to that until we see how the commercial production unfolds in the today until year 3.

Okay. And the MoU with McPhy, obviously, that expands you to the production side of the value chain, but it also probably pulls through a lot of your current offering in other geographical markets that you did not maybe have much of a presence in. So maybe if you could talk to the geographic footprint expansion that the MoU actually brings you.

Yes. And we've said, Chase, all along, like, that we're going to stay disciplined on being the arms dealer of the equipment, and we don't want to own the electrolysis outright. But this is a great way for our equipment to pull through to some of the larger plants on these projects that are underway. So it's really a win-win, both from pulling our equipment onto applications that previously it didn't go on to, but also, as you point out, the geographic opportunities. McPhy is very, very well positioned in Europe. We're very well positioned in Europe from a manufacturing standpoint. So the combination of the 2 companies pulls the cost curve down, but also opens up a lot of opportunities for them to pull our equipment through. And then in many cases, we have customers that they didn't have access to and vice versa. So Europe is, by far, the biggest opportunity for us in our equipment pull-through. And I'd reiterate the point I made in my prepared remarks around the other partners that McPhy has as strategic partners inclusive of EDF. EDF will be a really big player in France, in particular, as the hydrogen strategy unrolls. And then vice versa, McPhy -- Chart has quite a broad customer base in hydrogen in the United States, and this is a geography that McPhy would like to get more involved in. So it's a really nice match, both directions and lots of complements, which is what we were looking for in the partner that would be on that side of the value chain.

And our next question comes from Rob Brown of Lake Street Capital Markets.

Just on the project sizes, you're kind of looking at with the McPhy relationship. Could you give us a sense of what the project size is in terms of equipment for Chart?

Yes. One of the things that went through in terms of the addressable market to understand how our equipment could get broader as a result of the relationship with McPhy. We didn't provide this in our materials, a little bit of competitive data and also competitive advantage around how we see this unfolding. But you would -- it depends on the size of the plant. So these are large megawatt style plants, or in the case of mobility, it would be similar to the equipment that we provide now for a fueling station, so somewhere in the USD 1 million to USD 2 million range per station. But the larger plants and the megawatt sites could get in the tens and tens of millions for Chart equipment where you have on-site storage, and then you also have the related transport, depending if it's off-site or on-site production. So a significant increase from more one-off componentry sales that we have been having with our equipment to a more -- a larger package, similar in nature to what I would characterize as like a small-scale LNG terminal project.

Okay. Great. That's a good overview. And then on the Worthington acquisition, did you -- basically, how much does that add to your current hydrogen trailer business or hydrogen business? And what sort of does that do in terms of technology that it brings you relative to what you had?

Yes. This is just a wonderful acquisition for us. And I'll tick through 3 or 4 things because it's not easy to answer in one. Their hydrogen business was just under $10 million in revenue. Now keeping in mind they have a fiscal year-end of May 31, we size next year's opportunity at somewhere in that kind of $15 million type range in a base case. They have a broader set of customers on the transport side than we had had and so it immediately opens up the book of business for us through those relationships and what's in their backlog already. We also see quite a bit of additional opportunity on facilities that they serve -- they have served trailers too in the past in the U.S., in particular, primarily in the Western and Southwestern United States, where they'll be opportunities somewhere between 5 and 20 trailers per site with a direct line of sight to 3 of those locations. And just by comparison, we might sell 1 or 2 trailers a year historically for hydrogen applications. And they're selling somewhere in the 4% to 8%, historically, and that's growing very quickly. The other element I would be remiss to not share is around the other equipment that -- the efficiencies that we get through putting other equipment into that Theodore site. It gives us quite a bit of additional space for some of our larger production. Perhaps we would put some of the ISOs, as I mentioned, [indiscernible] car repair, LNG tender cars, some of our larger bulk tanks. And what that would also do is allow us to create some pass-through to our customers, where, historically, is very -- a big challenge to get a large ball tank out of New Prague, transported across the road. In some cases, you got to take the stop lights down in the town to get it out and then get it to water. So we have a pretty thoughtful strategic plan in terms of manufacturing changes as well that I think will increase other elements of the Chart business.

And our next question comes from Connor Lynagh of Morgan Stanley.

I was wondering -- I think you were alluding to this in one of your answers to Chase's question, but the addressable market uptick, can you discuss -- we had previously been thinking of that as relatively back-end loaded as things sort of take time to ramp up and get the orders in. Would you say that, that is still the right way to think about this? And it's sort of everything sort of increases ratably? Do you think that your acquisitions have accelerated the time line on any of that? How should we think about the shape of that $1.1 billion of potential revenue?

From a macro answer, it's absolutely the same as it's been. So it's towards the back end of that time frame. There's a couple of near-term [indiscernible] the Worthington trailer acquisition did for us, which is around the transport, so where historically, we do 1 or 2 a year, now we're really looking at kind of somewhere between 5 and 10 a year. And so that's that is a here and now. I mean there's quoting activity happening in that business that there's multiples of that number I just described to you. And those are shorter lead times from order to delivery. So that could have a nice positive upside to 2021, but it's not in the hundreds of millions of dollars, it's in that kind of additional $20 million to $30 million type of range. On the strategic relationship with McPhy and other partners, these are much larger projects, and these take a little bit longer to get going to the point where it's actually revenue impact to us. And so we see that ramp accelerating quickly starting in 2022, and certainly goes from there in 2023 and beyond. And that's really just around lead time and the point in the project engineering studies that many of these are. But I think that -- if anything, it will accelerate from my time frame. I think I'm being reasonable, if not a tad bit conservative, but I don't want anybody to get out over their skis for '21.

Yes. Understood. And just so you can clarify, I think we've discussed this, but the addressable market, as you guys are framing it, is that a total industry addressable market? What is the market share that you think will be reasonable for us or investors to apply to that opportunity set?

So that's an industry addressable market for our types of equipment and liquefaction. So in that are stations, trailers, tanks, which typically are storage tanks, liquefiers. There's a few $5 million of marine activity in there. The majority of this is where we will win, I would guess, 70% of -- would be on the stations, trailers and tanks, and that is about $700 million of that $1.1 billion. And then the rest of that is the marine and the liquefaction side. And I think we're really well-positioned from a liquefaction standpoint, but we're also extremely cognizant that there are others that have liquefaction capabilities, and we get more bang for our buck on equipment than we do just directly on a liquefier. So we don't want to go create angst with a customer that has an option on liquefaction but will still use our equipment. So I would say if you take 70% of $700 million and get pretty darn close, that's probably a little bit at the high end in the short-term period, but becomes pretty viable at the end of this 3 years and certainly in years 4 through 7. If you ask my commercial team that's hydrogen specific, they would size this thing much larger than I have for you guys. I told them once they hit a certain number in terms of orders in our order book, then I'll start incrementally increasing it. So stop making theoretical numbers and go sell something. Bob, Reid, Joe, that's for you, if you're listening.

And our next question comes from Eric Stine of Craig-Hallum.

So I was just curious, I mean, now you've made this acquisition. You've got 3 partnerships in place. I mean is this something that we should expect you to keep doing this as part of your strategy? And then as I look at your organic development targets, I mean, are there -- is there anything there -- I mean I know you've talked about the pumps, for instance. Is there anything there that could be accelerated by some potential other partnerships out there?

So there might be 1 or 2. More likely what you'll see us do is continue to work with the end user side and do supply agreements and broader agreements in that sense versus additional partners because you start to step on each other a little bit. But with that said, our organic development certainly is going to be accelerated with a couple of these partners that we just recently announced, primarily on the automotive side and the mobility side. And that's not just the ones today, but also from a couple of ones we announced for September 30. Pumps is extremely important to us to develop. So that really starts adding a broader and more complete product offering to the applications that are here and now on transport and fueling. But on the automotive side as well, there's a heavy amount of interest from Class 8 commercial truck companies for HLH2 is what we call it, but it's the equivalent of HLNG vehicle tanks for liquid hydrogen onboard. That might be -- again, that might be a few years away. And I think these 2 things happen in parallel, where vehicle tanks continue to grow exponentially over the next 3 years. But HLH2 development is happening in the background so that there's an offering for hydrogen-fueled Class 8 vehicle that is in production stage in the next 3 years or so. Those are probably the top 2 organic developments. And the only other comment I'd add to answer your question is around collaborations, partnerships and acquisitions. There are some other elements of our specialty products and specialty markets that are unrelated to hydrogen, where you'll see us do similar types of deals in the next 6 months because we do see really high-growth opportunities in spaces like food and beverage and spaces like water treatment, and we've talked on the vehicle tanks in hydrogen as well.

Got it. Very helpful. And then last one for me. I mean I know this is more about growth than anything else, but I don't know if you can disclose whether you expect this to be accretive at the start or breakeven? Or how do we think about it?

Well, so let me take each -- let me take the 2 by themselves. Worthington, we expect to be accretive -- Worthington -- they'd kill me if I said that, Worthington trailer business, we expect to be accretive out of the gate for us. And that's based on backlog and the production that we have on horizon there. The McPhy investment is handled a little bit differently. The investment itself is just mark-to-market on a quarterly basis. And we would expect it to commercially return to us from a revenue and earnings perspective starting really in terms of materiality in 2022. It will start helping the order book in '21, but financially '22.

Our next question comes from Martin Malloy of Johnson Rice.

Congratulations on the arrangements here. And first question is not related to hydrogen. Out of the Mobile, Alabama facility, could you maybe talk about this in the ISO container LNG market and New Fortress Energy? Is this -- will this help you service that type of market?

It absolutely will. Great question, and I appreciate you asking something unhydrogen. Anyway, the -- a lot of the discussions we've had with, yes, New Fortress is a great example, but other folks in the LNG space, ISO containers are hot right now. They're in need for these -- it's broadly based. So it's in the U.S., North America, and as I mentioned, Latin, Central and South America, but also we're seeing it even related to our LNG virtual pipeline project with ExxonMobil LNG and IOCL, where we're going to be building ISO containers in our Sri City, India facility. And the biggest challenge is that regardless of project, this is -- these are high numbers that are required to go into these applications. So in the case of -- we announced the New Fortress one in July where we actually gave a number and said it was 100 ISOs. That's just the tip of the iceberg for the projects that they have on the horizon. But you can't say, I'll give you 100, but it's going to take me 3 years to make them. You have to say, I can do it in an x amount of time to make it competitive and it has to be cost competitive. So I'm happy to share this publicly because it's not a strategy that we wouldn't share and we want our customers to hear it, that we look at making standard bottles and then customizing and the plumbing around it. And by being able to do standard bottles in our locations, such as India or China, and then keeping that inventory on hand in places like North America or Europe, you cut down on the lead time when a customer is ready to go. I mean, you can cut down that lead time, in some cases, even to a month or 2 that could have been a year if you're looking to start the manufacturing from the point you get the order to delivery. So it's pretty meaningful in terms of the space there and what we can keep there. And then the other piece is really how we're creating more opportunity for ourselves in our Minnesota factory with this strategy of moving some of this larger type of build to Alabama and cutting down on that transport time and cost.

Okay. Great. And then just trying to learn more about the brazed aluminum heat exchangers and how they fit into the liquefaction process for hydrogen. Could you maybe talk about if there are any differences between the brazed aluminum heat exchangers used in LNG liquefaction versus hydrogen liquefaction? And I know hydrogen liquefies at a lower temperature. Is there any major change in terms of the amount of brazed aluminum heat exchanger capacity that you need for a similar amount of energy?

So yes. So hydrogen at negative 423. These are customs designed applications for hydrogen, so it's not a standard brazed aluminum heat exchanger. But the core capability that we have and the core IP that we have on the course, pun intended, is definitely similar to the traditional brazed aluminum heat exchangers that we make. And this is really around the heat exchangers and for hydrogen liquefaction and recovery and purification. Something we haven't talked a lot about is through our VRV acquisition, we actually got capability in Italy to do heat exchangers. And in their case, it's shell and tube and breech lock heat exchangers that have been used in hydrogen facilities in Southeast Asia. And we expect that, that's going to be a considerable area of growth for us as well through that. So ultimately, very similar in terms of how we build it and the IP around it with some customization, but it can -- our heat exchangers can handle that molecule with a very similar lead time and costs associated with the heat exchanger to what you would hear us sell it into an LNG or a nat gas processing type of application.

And our next question comes from Ben Nolan with Stifel.

Sorry, I was on mute. The -- so my -- I guess my first question, Jill, is as it relates to this JV with McPhy, how does it affect? Or is there any impact maybe on your other commercial relationships with now or whoever else that might be developing hydrogen production?

So just to clarify, it's not a JV with McPhy, it's a -- yes, it's an investment in a commercial MoU. And we were extremely careful and thorough in ensuring that we didn't step on other potential customers' toes, and that's part of why we don't want to own production outright. And we really thought of this as a way to have commercial pull-through and strategic partners in both McPhy as well as Technip. And not to mention, again, I can't stress enough the relationship with EDF in that particular geography. So there's -- the way the commercial MoU is structured doesn't preclude us from working with other customers that are interested in our equipment, and that's certainly something that we'll continue to do.

Okay. That's helpful. And then, I guess, for my second question, when -- and I -- first of all, I appreciate the color that you gave in terms of breaking out how the TAM is or what you think you might be able to get out of that number. But I was hoping that maybe back up just a step and say, okay, well, it's $1.1 billion in 3 years, what would you say is that number today? What is the actual 2020 addressable market relative to that $1.1 billion?

I would say it's probably $200 million, $250 million, somewhere in there. It may have even gotten bigger than that with the California funding of the stations in early September, but it's a third type of number.

Got you. So effectively, you're expecting -- or that number anticipates the market to triple or quadruple in the next 3 years is sort of how you're thinking about it?

Yes, absolutely. The market needs to go the direction we believe it will to have that be real.

Our next question comes from J.B. Lowe of Citi.

Just wanted to follow up on the liquefaction side. Can you kind of frame out your competitive positioning within hydrogen liquefaction? Like, what's the competitive landscape like in terms of heat exchangers for that market, specifically?

Yes. So there's really 2 pieces of liquefaction to answer your question: the one process itself or the process technology, if you were equating it to IPSMR for LNG; and then the brazed aluminum heat exchangers. And really, the landscape is identical on the latter, so on the equipment itself to what we see in all of the competitive nature for brazed aluminum. There's 4 competitors globally that can do a brazed aluminum heat exchanger, 2 in Japan, 1 is German and 1 is French, and all of their heat exchangers would have that capability to participate in hydrogen liquefaction. To be frank, I only know of 2 of them that have that equipment in use, but that doesn't mean that you couldn't enter into the space rather quickly with that technology. The process technology piece is actually more -- a little more complicated. And I stressed in my prepared remarks purposely that our equipment is agnostic to process technology. While we have a process for liquefaction, which is very efficient, similar in nature to IPSMR, we would -- we will win more if our equipment goes onto projects versus just having liquefaction and losing equipment on other associated projects. So we're kind of opportunistic on the process side of things, whereas on the actual equipment, we're very conscious of how we differentiate ourselves. And then the third point I'd just throw in that mix is similar to what we talked about over the last couple of years with our investment in the world's largest brazing furnace in La Crosse, Wisconsin, that gives us multiple-size cores larger is going to be a critical differentiator for us in the hydrogen space as well, especially as you start to see large projects unfold that are in the -- now you're talking 10- or 20-megawatt type of production facilities, but there's end users, industrial ones, in particular, around like steel production that are talking about 100-plus megawatt facilities. And as those facilities get more into production, you're going to need a certain size core that will be the only company in the current state to be able to do that.

Okay. That's great. My other question was on -- you kind of lay out the value chain as you guys are looking to attack it in terms of the liquefaction to distribution to storage. I guess which pieces of that value chain do you think you have the greatest opportunity. Where is your competitive advantage the highest? And is there any bit of that value chain that you still need to address, be it -- whether you come up with your own piece of equipment to kind of plug the gap or to go out and look to add to your portfolio?

Yes. I'm going to answer it directly on the equipment side, and then I'm going to answer it kind of from a backdoor perspective on these side of things because I think they're both -- it's kind of -- in my mind, there's 2 axes that you have to think through in order to really identify where those gaps might be. In terms of our strength, we are certainly very well positioned at this point on storage as well as on distribution. Today's acquisition on the trailer and transport side really shored that up for us, in addition to taking out what I would deem to be one of our best, if not best, competitors in this particular product offering. So those would be the top 2 that we have a really big gap between us and the next guys in terms of the total offering and where we sit. The liquefaction side is still fairly new in industry around how frequently it's being used. So a little more to be determined on how often we get called upon and pulled upon for brazed. But even, for example, like take Plug Power's acquisition of United Hydrogen, as they start to build their network out and have a more frequency around larger scale and refurbishment and repair, that's where you start to see the Chart equipment get pulled through quicker and more frequently. So it's really -- the liquefaction and the brazed will be tied more and more to the size and scale of the infrastructure itself. The other one I would point out on our equipment is -- very much underappreciated is our hydrogen flow. And that's manufactured out of our Monheim, Germany facility, where the flow meter and measurement devices are extremely difficult to make, and there's a lot of engineering that goes into them. And lots of times, we get our first commercial touch point simply because of a need for a flow meter at a station. And that's a great way for us to expand our other equipment to these types of applications. So then the other piece though is really -- yes, sorry, this is a long answer, but it's kind of important in terms of understanding where we're directionally going to go is around the marine, the transport, the refining, the industrial, the power generation, the storage, all of the end uses that -- the list is just huge that are going to be using this. And so when we think through what else might we want, the 2 that we've commented on that we're developing organically are important to us already, and we'll start to fill in some of those gaps. But the other thing that we're going to think very carefully through is around some additional marine capabilities. In particular because marine is one that I think possibly looks to leapfrog LNG, whereas everything else -- listen there, LNG is happening, it's growing, it's really important to Chart. In the background, hydrogen is growing also, and the 2 of them are going to play over the next couple of decades. But marine, this is about picking a fuel and sticking with it. And I think there's some areas of our equipment that we need to expand to have a full offering for ship propulsion systems to be a real player in that. So very long answer, but it's a great one.

No, I mean, listen, we could talk about this all day, but I'll leave it there and I had several follow-ups. I'll just catch up with you guys off-line.

And our next question comes from Marc Bianchi of Cowen.

I wanted to go back to the $1.1 billion addressable market, just to make sure everybody is clear on this because I got a couple of questions from people during the call. We're talking about $1.1 billion of total hydrogen market over 3 years. So it's a cumulative figure for '21, '22 and '23, is that correct?

That's correct. We see it going to -- moving toward an annual figure as it expands. But as I answered somebody else's question earlier, that's hard for me to really size and put a time frame to. So your understanding is correct in that the addressable market for the equipment that we have in our portfolio as of this moment in time.

Yes. Great. And then just thinking about -- you've got this opportunity for hydrogen. You've previously talked about over $2 billion of opportunity for LNG. As you kind of progress towards those types of numbers in your business, what should we see in terms of overhead increase? I mean, is there a significant G&A component that goes along with this? How does this affect your business on a gross margin basis? Should we think about it being kind of consistent with what your current gross margin is? Or is there some kind of premium gross margin we should be thinking about? Just curious if you can talk through that.

So on the first part of the question related to adding additional resourcing, we don't see any incremental additions outside of what we've laid out in the current state around the engineering side of things, which we're currently hiring for. I think we've already hired 5 of the 8. And there is also the possibility of some additional engineering support to ensure that we take care of our base business, industrial gas and ensure that quotes are getting back and forth on that. So if anything, it's adds that would be part of our normal business as we grow. The direct labor side is where we would need to scale up and down. I would go so far as to say that I think we're pretty decent at kind of having a good line of sight to when we need to increase headcount and when we need to make sure that we take headcount out as demand is softening. Sadly, that's the result of having historically been [indiscernible] business, but that's something that we would be direct to volume, and so it wouldn't have a negative impact on your gross margin. We view the additional volume as well as the types of areas that are growing, at the rates that they are as margin accretive. So the combination of good absorption, so technical accounting type of thing with -- these are higher-margin markets in general that are going to be growing at higher than GDP-type rates.

And our next question comes from Greg Lewis of BTIG.

Realizing it's getting a little bit late here. Really just quick for me. Jill, you mentioned about the potential to kind of build out the facility outside of Mobile, kind of move stuff there. Is there any -- I mean realizing this happened or announced -- was announced a couple of hours ago, is there any thoughts about investment in the facility to kind of get it where you need to be?

Yes. We've done a lot of homework over our diligence period. So thankfully, we've had the opportunity to have -- Worthington has just been fantastic through this and given us great access to their resources and understanding the equipment that's needed there. So I would estimate that in year 1, we probably spend about $1.5 million in CapEx in that facility to some of the lines set up the way that we want them to. There's a couple of other moving pieces that could equate to maybe $0.5 million more that we have line of sight to. But that's going to result in considerable additional revenue coming out of that facility. So hopefully, that answers your question directly.

Yes. And then just the other one for me was, was this acquisition -- was this something that you guys were kind of targeting kind of to build out your portfolio? Or was this something that kind of just fell in your lap?

No, this was a target of ours. We have wanted this particular piece of their business. It really became a go after when we were able to execute on the CryoBio piece sale of our business because, typically, we would go head-to-head with them on the CryoBio side. So they have a nice CryoBio offering as well. Once we said, "All right, we're done with that. We've announced the divestiture. Let's have a real adult conversation about this product line in your business," we were able to move that forward.

And ladies and gentlemen, this does conclude our question-and-answer session. I would now like to turn the call back over to Jill Evanko for any closing remarks.

Thanks, everybody, for your time today. And just as a reminder, next Thursday, October 22, at 9:30 a.m. Eastern Time is our third quarter earnings call. So we'll talk to you then. Goodbye.

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