Good morning. This is Craig Shere with Tuohy Brothers. We're very happy to have on the call with us today Chart Industries' President and CEO, Jill Evanko. We are on a recorded line. Given compliance considerations associated with this call's proximity to earnings, I'll personally shoulder the entire Q&A session, and there will be no questions on pending quarterly results. What prompted this call was last week's Biden Administration pause on U.S. LNG export project approvals and ensuing, surprisingly, GTLS-focused investor reaction and issuance of a late Friday Chart press release reiterating base guidance through 2026 and noting already announced traction in two international LNG projects. Accordingly, the majority of today's discussion will be around LNG. Jill, I'd like to start off focusing on the 29 projects included in your previously disclosed $8.5 billion commercial pipeline of potential Big LNG opportunities.
First, do you see this Big LNG commercial pipeline notably impaired in any way post last week's Biden Administration LNG pause? Second, are both the recent announced IPSMR award for two trains and a larger modular international Big LNG project and the major foreshadowed international Big LNG project award due late this year or early next included in that $8.5 billion commercial pipeline but excluded in your Analyst Day revenue growth guidance through 2026?
First of all, Craig, thank you very much for having us today. Let me start at a high level about the Chart business. So, as a reminder, we're molecule agnostic. We serve a variety of end markets, and thereby we're not dependent on any one molecule winning, any one market or project to drive to our profitable growth target. We also have the benefit that multiple pieces of our equipment that we manufacture are used in a variety of different applications, so we don't have to change our manufacturing capabilities to serve a variety of applications that range from LNG, as you suggest, hydrogen, water treatment, CCUS, oil, to name a few.
I'd also hit on, and I think we'll come back around on this later, the addition of Howden to our portfolio has also reduced this reliance on any project and added geographic diversity as well as meaningful aftermarket service and repair into the portfolio. So let me get into specifics addressing the administration's LNG export approval pause that you referred to that was announced officially on Friday. We do not anticipate that this impairs our pipeline, nor does it have a meaningful impact on our midterm outlook. There's a variety of reasons for this, so I'm going to walk through these. It's going to be a long answer, but I think all of these aspects are really important to address why we don't see this as having an impact on the pipeline.
At a very macro level, if the U.S. isn't exporting LNG, influenced countries are going to get their gas from other locations. We serve those locations, as you mentioned, with our four pillars of LNG. A different way to look at it is, if not gas, then the need for other sources of energy will be addressed. And in some cases, this could be a different type of clean energy. It could be coal, it could be oil or gas. And the need for molecules to get where they're going to, to where they need to be to support the energy transition, is not going away. Our IPSMR technology, in conjunction with our manufacturing capacity for the main equipment and with our partners, is ideally suited to deliver the technology where and when it's needed to support this.
That's seen in that pipeline, whether it's land-based projects in Southern Africa, floating projects in Southeast Asia, or scalable projects in Latin America. Moving into Chart specifically versus the macro perspective on it, as a reminder, we stated at our November 28th, 2023, Investor Day that our medium-term financial targets do not include any additional Big LNG projects that were not included in our September 30th, 2023, backlog, nor any awards related to the Department of Energy's $7 billion Hydrogen H ub investment. Let's break down the Big LNG order leading up to the September 30th, 2023, backlog and how they relate to having Non-FTA and FTA approvals, which is really the heart of the matter of this LNG pause. This is all based on information that we've previously put in the public domain.
There's a lot of details to build up to this, so if you would like to go to the source documents, reach out to Walsh or our IR team, and they can point you to the respective earnings releases where the details are included. But in summary, across the past five years, from the first quarter of 2019 through the third quarter of 2023, we publicly shared each time that we won a Big LNG award. We were able to cite the specific project operator names for many of them, as well as our direct customer's names, which is an EPC or other technology provider. This is an important point as our customer that places a PO with us is not the LNG exporter themselves. We did have one award in the second quarter of 2023 where we were asked to keep the project confidential.
So all the projects we've announced through this time frame, including the confidential one, have given us customer full notice to proceed and have made their payments as scheduled. If you add up the Big LNG awards that we announced in that time frame, the total value of the associated announced orders was just over a billion dollars, $1.0557 billion. And of that, the only one that we did not identify was the approximately $200 million one in the second quarter of 2023. So even if you assume that the project doesn't yet have the approvals, you can see that all other U.S. Big LNG we've booked have received all required approvals to proceed. So to add to that, Investor Day, and therefore wouldn't have been included in our midterm outlook. We announced in December of 2023 multiple LNG awards.
As a reminder, in the third quarter of 2023, we announced that an international oil company has chosen our IPSMR technology for their Big LNG international project. This isn't in our backlog. We expect that it will be added to backlog in late 2024 or early 2025. To conclude there, in that summary is you've got really good line of sight, the backlog not impacted, and pulling in international projects such as the one to be announced in December and the one that we've been awarded the technology ahead of us later this year. I'd point you to some of the commentary from our customers, such as Cheniere, about the implication of this pause. Cheniere says that they're confident we will continue to secure all regulatory approvals for our expansion projects within our expected timelines as we have for more than a decade under multiple administrations.
It bears reinforcing that we expect this pause to have no impact on the overall timelines for our expansion projects, including the CCL Midscale 8 and 9 project you cite, which was in response to a reporter inbound, and our commercial pipeline for Big LNG, as you shared, and as we shared at our third quarter of 2023 earnings call, was $8.5 billion, comprised of 29 potential projects, and I think it's important to note this balance between North America and international markets in the pipeline in terms of dollar content.
So I'd also point to the fact that there's multiple regulators that are pushing back on this, including you have commentary from Senator Manchin around the fact that he is chairman of the Senate Energy and Natural Resources Committee and plans to hold a hearing on LNG in the coming weeks to unveil the facts about the truth and just play in the markets. So all in all, we feel confident in the midterm outlook, as we shared late day on Friday, as well as the fact that we have provided full transparency around the Big LNG projects that we've been awarded since 2019. So I'll pause there, Craig, and see where you want to go with that.
Great. Thank you. I'd like to dig a little more into those two projects you had alluded to that were foreshadowed and/or announced for international LNG awards that you noted were post analyst day and above and beyond the guidance given at that time. I believe that both those utilize a full IPSMR technology suite. So would it be unreasonable to guesstimate that combined they could total $300-$400+ million ? And given one announcement only pertaining to two trains on a modular Big LNG project, is it reasonable to think there could be further follow-on brownfield expansion opportunities on that same project? Finally, what are the prospects for a more systemic U.S. LNG approval pause spurring even more international project traction? And related to that, how do you see Chart content market share shaping up internationally for Big LNG versus domestic?
Okay, so let me start by stating back here over the last five years that we have had numerous EPCs and operators that have validated, tested, and approved our IPSMR technology for use or potential use in their projects, and this includes not only U.S.-based EPCs and operators, but also international-based. These include, just as a few examples, Exxon, Cheniere, NFE, Wison, TotalEnergies, just to name a few of the over 20. It's starting to be seen in our order books, and like anything else, we started IPSMR five or six years ago, and through the validation process, we're now starting to see those awards come into backlog, and this is a positive at this point, obviously, given the global nature of the LNG markets and these recent U.S. developments as built-in resiliency to situations like this.
We shared previously to your question about content and dollar content that typically a project using our IPSMR technology plus equipment will have more Chart dollar content than one that only uses our equipment. And this is the case for the project that we announced in the third quarter, which we haven't yet booked. So for the big international LNG project, the one that we said we expect to book in about a year, late 2024, early 2025. And then we also, if you kind of step back and look at the one around the 28th of December announcement, the two trains is the international project. You're spot on, Craig, that it is reasonable to think that further trains could be added to this project in the future.
And that's something that's important around, as you commented, the evolution of the pipeline becoming more and more international-related and the fact that the international projects are moving toward modularity. So if you look at, I think what you're kind of getting at in this question, if you really want to peel back into the heart of the matter, if you wanted to assume that there's a delay in the one Big LNG project through the third quarter of 2023 that we didn't identify due to customer confidentiality, that would be approximately $200 million, as we shared. But since then, with these international announcements that, in the case of the IPSMR, would have more Chart content, that you see kind of the resiliency, again, of our medium-term outlook.
Finally, yeah, I said this before, but I think it's worth reiterating that that balance in that $8.5 billion pipeline for Big LNG is not heavily weighted, more heavily weighted to North America's balance between North America and international in terms of dollar content.
Great. And digging a bit further into the U.S. environmental considerations inherent in last week's announced LNG approval pause, can you opine on the comparative emissions of your IPSMR technology versus traditional liquefaction technologies and prospective Chart upside associated with perhaps more systemically pairing LNG with carbon capture?
Absolutely. So I'm going to answer this kind of in three parts. The first part being, let me just address something that I've heard being referred to about modular design LNG, which is just inaccurate, period. We've seen some articles where people discuss environmental issues and failures due to modular design. My answer here is actually a very technical distinction, but is a very important one. In what has been discussed out there on this topic is actually related to the horizontal heat recovery steam generator, or HRSG. And the HRSG module, which is that piece of equipment, in the case of what I've heard and read about, is actually being confused with modular liquefaction design and fabrication. There's no design or quality issues with liquefaction. The problem that we've heard or read about is with the HRSG and the power plant, not the liquefaction plant. All right.
That was the technical. Let me just move on to piece two here, which is directly to answer your question about emissions and modularity. Modular LNG actually utilizes smaller train sizes, smaller piping, and equipment sizes than baseload plants, so this means smaller gas and liquid volumes, which can result in reduced flare loads and lower emissions, which we've tested out and had multiple simulations run on IPSMR. Also, from a Scope 1 emission standpoint, there is no sacrifice in CO2 equivalent emissions going from competing large train technologies versus modular solutions that incorporate IPSMR, and then our IPSMR process, which is designed with brazed aluminum heat exchangers, as you know, it really is around eliminating blowdown of refrigerants and a shutdown, or said differently, allows for restart without venting or flaring, so there's actually emission benefits in the cases of using IPSMR.
Then the third piece of the answer really goes to the potential integration of CCUS and LNG. In the case of pretreatment, CO2 for CCUS is removed in pretreatment unit in LNG facilities. This Chart has equipment to purify, liquefy, and transport CO2. CCUS can also be used in LNG facilities for Scope 1 emissions. That's around capturing a relatively high purity CO2 stream, again, off of the pretreatment systems of the incoming feed gas facility. Again, we have scope in that whole cycle of CCUS. Then on a broader note, if the question is pushing towards Scope 1 emissions associated with operating a plant inclusive of the primary CO2 emissions coming from combustion, then Chart would have a place for CCUS addition to that plant as well.
You've heard some operators already talk about the addition of CCUS or the potential addition of CCUS. This can come in a variety of different forms. Again, if that is the direction that some of these operators go, we would have a meaningful chance to play in that additional end market here.
Thank you. And before the Howden acquisition, Chart had already materially expanded both its geographic and end market diversity. And of course, as you've already alluded to, Howden deal puts this trend on steroids. One aspect of this was the ability to start manufacturing certain Big LNG equipment internationally, just as years of global energy company IPSMR vetting were reaching a conclusion, as you just addressed. Given this backdrop, should your Big LNG order book become increasingly global, how do you see this impacting manufacturing margins and associated equipment delivery costs?
Yeah. As you point out, Craig, we've worked hard over the past six years to not be reliant on any one end market or any one Big LNG project. This is a great example of why. We've taken numerous steps, Howden being one of them, to achieve this, whether moving the business to over 30% in aftermarket service repair, which I think everybody's aware, the number we've posted before is over 42% gross margins.
We've taken steps to ensure that we have a physical presence around the world to reach our customer base, which is important, as you point out, that not only does it give us access to more customers and more projects that we would have been priced out if we were shipping large equipment from the United States to them, but it also gives us the chance to really be efficient in terms of our own cost structure. We've deployed our physical manufacturing strategy, which is where we make nearly all of our products in more than one of our in-house locations, and then moving toward offering a fuller solution by bringing the technologies in-house. So all of this, therefore, gives us the optionality on how we utilize our footprint.
One of those activities underway throughout the Howden integration in these first 10 months of our ownership has been to insource certain activities, save equipment to be closer to our customers, use each other's local resources to win projects and serve them, and we see this as continuing. A good example of this in terms of integration was the Middle Eastern oil and gas win we had last summer, which we wouldn't have achieved without the physical Howden presence in the region, and we've seen also through this geographic diversity, the ability to bring existing equipment into new end markets. We just had an example of that earlier today in hitting a new end market the first of a kind with an existing piece of equipment that was in our portfolio.
Now, I think this is also a good place for me to comment on a couple of things that are maybe a little tangential to the question itself. The first is around the manufacturing footprint that we have and our ability to be flexible in terms of using the same equipment that goes into a variety of different end markets. And when we talk about brazed aluminum heat exchangers, cores, and cold boxes, where we are winning or losing is not on price. It is on lead time. And we're very active and busy in our shop, so we don't see any impact from timing shifts or anything like that having an impact on manufacturing absorption. Then the other is a place for me to reiterate our financial policy and focus on debt paydown as our number one priority.
We've shared this in nearly all of our prior presentations, and financial policy is unchanged. We continue to have debt paydown as our number one focus. And the financial policy that we've shared previously, but I'll restate it and reiterate it here, is that we will not do any material cash acquisitions or any share buyback until we are at our target net leverage ratio range of 2-2.5. So just restating that and making sure it's clear because then we specifically asked not to talk about outlooks or anything like that, but that's not changed, and that's still our focus.
Very good. And Jill, you've long noted that Big LNG is but one arrow in your quiver, which also includes small-scale LNG, floating LNG, retrofits, storage and transportation equipment, and even truck fuel tanks. To what degree, if any, do you see these additional notable LNG end markets impacted by a U.S. LNG project moratorium? And how would the aggregate of these additional LNG-related markets stack up against Big LNG, both in terms of contribution towards midterm guidance and prospective commercial upside?
So I would definitely refer back to my earlier comment about importing countries of LNG or going to find other sources that's not the U.S. and/or other energy sources. And therefore, we would expect our other two pillars of LNG, which, as a reminder for everybody, we've got the Big LNG category, small-scale floating, LNG infrastructure, and service and repair to continue to be in demand. What you've seen over the last few years is an increase in frequency and geographic diversity for small-scale and floating. In particular, we see more activity in regions like Southeast Asia, regions around Africa as well. And as of a couple of years back, when the Russia-Ukraine conflict broke out, more activity on the re-gas side and the ability for storage and transport in Europe specifically.
The frequency and more commonality of small-scale and floating has already been accelerated and has the capability to continue to accelerate in these non-U.S. locations, as well as in the U.S., although most of small-scale in the U.S. we've seen is related to shaving in particular. It's also important here to note that in the U.S., particularly, and this would really relate to category four service and repair for LNG, we had previously shared that we've started to see some optimization work being awarded to us for existing LNG export facilities. This is our existing brownfield where operators are trying to either reduce downtime or get more LNG out of existing trains.
That can be through a variety of different activities, whether that's retrofitting certain pieces of equipment or whether that's addressing the challenges of heavy hydrocarbons and the input gas, where our NRU or nitrogen rejection unit capabilities are really well suited. But I think you're going to continue to see a lot of that activity happen. And again, the consistency and, in the case of the last couple of years, increasing frequency on the smaller-scale activities.
And then the last piece, which is more of a speculative comment, but not necessarily out of the question, would be acceleration of projects that do have all of their permits in the U.S., so all of the FTA and non-FTA approvals, but that have specific needs to achieve their first export buy. And this could be for both big and small operators. That can be an interesting dynamic ahead of us here, where folks that the pool might become smaller and might get accelerated based on the expiration of existing permits as well.
Very good point. Beyond LNG, Chart has a number of repeat, low-risk, and fast-growing business lines from aftermarket services and repair, as you've already alluded, from water, food and beverage, and much more. Outside of Big LNG and hydrogen, how would you characterize the size and growth of the rest of Chart's operations?
Yeah. So let me start with the aftermarket service and repair business because, again, this is something that's important and was strategically in action and we wanted to get to was having that more heavily weighted aftermarket service repair as a portion of our business. So currently, we sit just over 30% of our total businesses in aftermarket service repair. As we've shared previously, we expect to continue to grow in double digits. And I'll refer to my year-to-date third quarter 2023 comments that we made on the third quarter earnings call with respect to repair service leasing segment or RSL. Our sales increased 15.5% year-to-date compared to year-to-date third quarter of 2022. So just tangibly, this is happening, and we're seeing that traction in the aftermarket service repair business, which, as many people are well aware, is consistent across the cycle.
Water treatment is another market that I think is important to point out has numerous tailwinds, including another U.S. government involvement in the EPA PFAS requirements. Through the third quarter, we had started to see some of that treatment as a service and PFAS backlog increase, and then food and beverage, exploration, molecule by rail, biogas, mining, nuclear, amongst others, really give us the ability to serve numerous high-growth markets with our existing manufacturing capabilities and capacities. Two particular end markets that we called out at our investor day in terms of later in the decade, accelerating total addressable markets for hydrogen and CCUS.
I did comment in response to your first question about the fact that not only did we, in our mid-term outlook at Investor Day, not include any additional Big LNG that was ahead of us, but we also did not include any awards related to the Department of Energy's Hydrogen Hub investment, and the reason we did that, by the way, was because some of the stuff's hard to time, and that was the case for the Hydrogen Hub because there's a series of steps that have to happen. But we do see that trend continuing, and we continue to see private and public sector in the hydrogen investment piece. This is an area that we play both on the liquid side and the gaseous side for hydrogen.
Again, I think it's important to point out the diversity of these end markets, in which many are high-growth end markets, and the fact that however you think about the energy transition, there is a world out there where, outside of the Western Hemisphere, there's many locations that don't have access to energy power at all, let alone clean energy or power, and so this is going to have to be served, and through this molecule agnostic play, we tend to benefit given how we serve this breadth of end markets.
Great. In my last question, I did try to carve out hydrogen in conjunction with LNG or Big LNG in a nod to growing clean energy investment concerns. ESG has certainly lost some of its luster of late, and a number of pure-play clean tech companies are now facing notable liquidity issues. Despite such trends, are you as confident today about achieving that mid-teen revenue growth target through 2026 as when first presented such guidance two months ago? And if so, what catalysts or mile markers should investors watch for to ameliorate their anxieties?
Absolutely. In terms of the confidence, and hence why we reiterated our midterm financial targets just a few days ago, I would say it is interesting that this administration not only has paused LNG export approvals, but just a few weeks back, they recently came out with stricter-than-expected 45V requirements. And I think that plays to your comment of maybe lackluster view on clean tech in particular. But again, back to my last answer is that you can't restrict everything here. There has to be some forward progress if the energy transition is going to continue. And I would say the other things to look for around here, around this particular question, I've said over and over again that we are not, and our outlook is not dependent on government stimulus or funding. That's really important.
And it's something that's very different than some of the clean tech companies you refer to that have faced liquidity issues. So that's important. And I would, as a side note, note that we are extremely careful with our customer base and ensure that we're paid upfront with any customer that has a particular requirement from us, and we're careful with that process. And then lastly, milestones, things to watch for are really around, I think, more private sector investment, what non-U.S. countries are doing around hydrogen in particular. Electrification is another good example. And you're seeing a lot of that action start to happen, in particular, in countries in Southeast Asia.
And that's a point that we had, gosh, I think it was during the investor day where we pointed out that our hydrogen, not only commercial pipeline, but existing footprint is in, I believe we said, over 25 different countries. And so that's an important thing that our hydrogen commercial pipeline is also not, is balanced between North American and international opportunities.
Thanks for that. One aspect of investor anxiety is simply politics. Can you comment on the degree of bipartisan U.S. support for hydrogen, carbon capture, water, and other environmental regulations and subsidies? And given the increasing geographic breadth of Chart's operations, how well positioned would you be to shrug off any U.S. clean energy policy pivots? And finally, am I correct in recalling that midterm guidance did not presume notable uncontracted tailwinds from the Inflation Reduction Act, Bipartisan Infrastructure Bill, and, as you've already alluded to, the Hydrogen Hubs?
All right. So let me start with the last part of your question first. You are absolutely correct that those medium-term financial targets did not include any of the references that you just gave that could occur ahead. And it really tied to multiple things we didn't want to get stuck in that we had included that, and we don't know the timing of it. The commercialization timing, obviously, hasn't been spot on over the last few years around the deployment of the IRA, as an example. So that was the impetus as to why we did not include those. But we definitely see those as future opportunities if and when those specifics of the public sector policies get sorted out.
So now, back to the first part of your question, I'll start by saying that I don't think you're going to actually see any extreme pivots, but always good to plan to do so. Regardless of your political views, the American public and industries, I believe, are looking for consistency in the messaging and deployment of policy to avoid whipsaw effects of every four years kind of potential changes. But obviously, that's not the case because here we sit and are having this conversation. So we've really worked to build a business and portfolio that's resilient regardless of administration or policy.
I think we've touched on numerous reasons today during our conversation up until now, whether that's the aftermarket piece, the ability to serve dozens of end markets without changing our manufacturing, visibility to outlook, demand as of the end of the third quarter, the stronger visibility on our backlog than we had typically had previously, our supply chain diversity, less reliance on top customers, more new customers and number of customers, the balance between our North American business and our international business, and subset that the foundation under all of this is we have a great and talented team to execute on it.
So all in all, we're going to have an interesting year ahead given the U.S. election year. But our business is set to be resilient to these types of changes, and we have a great number of large opportunities ahead of us across a variety of different end markets.
Thanks, Jill. That covers all the questions we had for today. It was a very timely and informative call. Participants can now disconnect.
Thank you, Craig. Thank you, everybody.