Good morning and welcome to the Chart Industries Inc. AdEdge Acquisition Earnings Conference Call. All lines have been placed on mute to prevent background noise. After the speaker's remarks, there will be a question-and-answer session. The company's supplemental presentation was issued earlier this morning. If you have not received the release, you may access it by visiting Chart's website at www.chartindustries.com. A telephone replay of today's broadcast will be available following the conclusion of the call until Monday, September 20, 2021. 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 the risk factors included in the company's earnings release and latest filings in the SEC.
The company undertakes no obligation to state publicly or revise any forward-looking statements. I will now turn the conference over to Jill Evanko, Chart Industries CEO.
Thanks, Valerie, and good morning, everyone. Thanks for joining us today to discuss our newest complementary addition to the Chart family, which builds upon our Nexus of Clean full solution and equipment offering, AdEdge. We are excited to welcome AdEdge in full to the Chart family. We closed on the equity purchase this past Friday for $40 million in cash, subject to customary adjustments. This is a great addition to ChartWater, which has seen expanding demand over the past year since we added BlueInGreen to our portfolio last November and included second quarter 2021 record water treatment orders, with 70% of those orders having both Chart and BlueInGreen content.
Today, you'll hear how AdEdge brings us water treatment processes and products that we did not have previously, even with BlueInGreen, and how these together will support clean power, clean water, clean food, and clean industrials. As I have stated on numerous occasions, I believe the water portion of our specialty portfolio is the most underappreciated. Slide four shows, in part, why I say that. The water industry's challenges are tailwinds for ChartWater. Many of these are familiar and/or self-explanatory, but let me take a moment to touch on D, E, and F. D describes a problem for the sector, which is that between 2016 and 2026, there's an estimated nearly 11% of the water sector workforce that will retire each year, and with that, an average of 20 years of experience potentially lost due to retirement.
ChartWater addresses this challenge through remote monitoring, automated processes, field service, service agreements, and user-friendly designs for easier training, as well as hundreds of hours of training provided for our customers each year. E describes a growing issue of the mega drought, such as we have seen in California, where 90% of the state is in drought status, or in places like Egypt where agriculture cannot be sustained without water treatment and additional water access. Our global solutions address this, and within the past year, we won an equipment order for what is anticipated to be the world's largest water treatment facility in North Egypt for the agricultural application. And F is one that likely is less thought about, but a growing and significant issue: emergency planning and response revolving around building resilient drinking water systems.
This was made glaringly apparent during the winter freeze in Houston and Dallas, Texas. The second component of F is utility security. An example of this was this past February's cyber hack of a Florida water utility system, which has prompted a focus on drinking water utility security, which our offering supports through various avenues. Moving to slide five, this shows what we have been strategically building: a cryogenic portfolio of technologies and equipment that provide our customers a molecule-agnostic choice, as well as a choice between a full integrated solution of process and equipment or an à la carte menu if they choose to only need equipment and use a different process. AdEdge is another significant offering to round out the water and wastewater treatment offering that we have.
While the natural way to think about the AdEdge addition to our ChartWater offering is for clean water, it also overlaps into the other three pieces of clean, as shown with the green up and down arrows. The reality is that all four of the Nexuses of Clean are tied together. Just a few examples, all of which are real life for us and in the works, and I'll touch on them further into the deck. Quickly, clean water for electrolysis, treatment for LNG fracking, wastewater around biogas, using ozonated water to wash fruits and vegetables, or treating water for bottling, working with carbon capture on opportunities to capture CO2 and reuse it on site at a pulp and paper mill, and that can be used with pH adjustment through our water treatment processes.
As I said in a few slides, I'll explain the interplay with some illustrations so you can better understand the nexus concept. AdEdge is a water treatment technology and solution provider specializing in the design, development, fabrication, and supply of water treatment solutions, specialty medias, legacy, and innovative technologies that remove a wide range of contaminants from water. Located in Duluth, Georgia, which is very convenient to our global headquarters and one of our larger U.S. manufacturing facilities, AdEdge is extremely complementary to our current water offering. We'll go into those specifics on the next slide. Let me tell you first about some of the very appealing parts of this acquisition.
The business has grown considerably in the past four years, with a 35% revenue CAGR from 2017 to 2020, and gross margin as a percent of sales ranging from 32% to over 35%, encroaching on 40% depending on the product or solution. While that growth rate is impressive, it is just the start. With record backlog currently and a very robust commercial pipeline of opportunities totaling $88 million right now, the future growth is at the top end of our specialty markets. AdEdge is also well accepted in the market, with over 900 installations in the field. The same tenets that Chart operates with, innovation and customer orientation and customer stickiness, are embodied by AdEdge, and evidenced with over 100 new product launches for multi-contaminant removal in the past 10 years, as well as a 98% customer retention rate.
As with BlueInGreen, historically, the target market simply due to commercial resourcing for AdEdge was the United States. But there also are huge global opportunities, and we will leverage our commercial team to take advantage of this, as well as take advantage of AdEdge's branch in India, a region that is in need of both power and water. The AdEdge patented processes are new additions to our portfolio and highly complementary to our existing technologies and products. You can see the BlueInGreen offerings on the left-hand side of slide seven and the AdEdge offerings on the right. AdEdge's patented processes have unique benefits based on how the bacteria are being manipulated or leveraged to accomplish specific treatment tasks.
I won't go into the technical details of each, as the point of the slide is to show that everything on this page is additive to Chart. The only one I will point out is an area of clean sustainability that has yet to be exploited across the board, whether carbon capture, clean fuels, and in this case, clean water. This is the residential market, shown in the last bullet on this slide. We also love AdEdge's expertise in modeling these unique treatment processes, and their ability to predict performance is top-notch. This is engineering know-how that we can leverage for burning platforms like PFAS, which I'll describe in detail on the next slide, as well as heavy metals such as arsenic and chromium-6. Remember Erin Brockovich? Those are the types of things we're talking about addressing, so slide eight shows the PFAS problem.
PFAS are man-made chemicals that can contaminate soil and drinking water and have adverse health effects on humans, including cancer. PFAS can enter the ecosystem in many ways, one of which is even through fire department training. AdEdge has various methods to treat PFAS using ion exchange, granular activated carbon, and other media, and in the bottom right-hand corner of slide eight, you can see the skid-mounted solution. That's one solution that they offer. They also offer a modular PFAS removal system. Both of these have a current installed base, it's worth noting. Thirty states have implemented policy efforts to address unforeseen and widespread health-related impacts of PFAS in drinking water, including testing requirements and prohibitions on specific materials, and just in January of this year, the EPA published final regulatory revisions for lead and copper under the Safe Drinking Water Act.
Just another regulatory support mechanism for this growing market. This is a highly synergistic deal for us, as with all of the inorganic acquisitions and investments we have been making. Like the others, we've known AdEdge in the industry for decades, and in turn, we were able to avoid going through a banker process and feel that this was a very, very fair valuation, even fairer when you add in the synergies. You can see many of the synergies on slide nine, ranging from market opportunity expansion, revenue pull-through, manufacturing optimization, and another building block in achieving our target of repair service and leasing being over 20% of our total revenue within the next couple of years.
Additionally, AdEdge's strong backlog of 93 projects spanning municipalities, industrial wastewater projects, institutional projects for schools, hospitals, and the like, as well as residential and aftermarket, are the foundation for our confidence in our 2022 expectation of an additional approximately $35 million-$40 million of revenue, inclusive of synergies, and $0.11-$0.16 of adjusted non-diluted earnings per share resulting from this acquisition. Slide 10 is an illustration of how Chart's products across all of our offerings interplay with each other, which was my opener to today's call. In this case, on slide 10, around the integration of green hydrogen production using electrolysis and then using that oxygen byproduct to treat the wastewater treatment. Power to treat wastewater consumes about 40%-70%, so 40%-70% of a typical municipal energy budget, mostly to provide oxygen to a biological treatment process.
Many municipalities, as well as industries, are moving toward renewables, as we all know, and meeting climate accords. So integrating electrolysis to generate green hydrogen for energy storage also in turn produces oxygen as a byproduct. So what do we do with the oxygen byproduct? We can use it to treat the wastewater using a biological process. BlueInGreen technology already allows us to reduce the energy consumed in the biological process by just about 50% over conventional technologies. Combining with fuel cell technology, the hydrogen is used to power plant operations, now 50% less with BlueInGreen, as I just talked about, and the oxygen is used on site to feed the process, greatly reducing the cost for wastewater treatment and making it much more sustainable. However, electrolysis requires high-purity water for reliable, consistent operation.
So AdEdge technologies can then be deployed to create this high-purity water, either from a freshwater source or reusing the treated wastewater. So there you get an idea of the full nexus. Whereas slide 11 is a completely different illustration, one that addresses post-combustion from existing assets and the subsequent solutions on carbon capture that we offer, with the next step of how we can help with the long-standing question of, "What do I do with the CO2 once it's captured?" Of course, if you can create a revenue stream, if you can find a valuable use for it on site to offset other costs, even better. And ChartWater through BlueInGreen can do that in several industries, such as power and pulp and paper. This is done by dissolving the CO2 into water and using it to neutralize pH instead of using acid.
However, processes like flue gas desulfurization and carbon capture oftentimes create liquid waste streams containing things like metals. AdEdge can be deployed to treat those waste streams, and also not shown on this page, but AdEdge technology has many other applications on the cooling water and boiler water systems related to power as well, so now you get the better sense with an illustration of the concept of the Nexus of Clean, so moving to slide 12, this is one of the easiest slides to talk to because we only invest in businesses that have strong leadership and engineering teams that will stay with the business. AdEdge is no different. With over 50 team members, half of whom are engineers, we can leverage the best of both teams to continue to innovate in this globally growing space.
Rich Cavagnaro, the founder of AdEdge, will continue to run the business within our ChartWater division. His over 30 years of international business experience spans industries such as catalysts, adsorbents, drinking water, process separations, paint and coatings, and adhesives and sealants. Also continuing with the business is AdEdge's CTO, Greg Gilles, adding to our amazing specialized process technology engineering cadre of team members that operate under our global CTO. Greg also brings over 30 years of treatment technology, industrial regulatory, and engineering experience, including having won the Innovative Technology Award from the Water Environment Federation for the development of arsenic removal systems. The addition of AdEdge to our portfolio increases our near-term total addressable market for water to $1 billion.
But the real meaningful increase, which is double our prior TAM, is the 2030 figure of $5 billion, driven by the complementary technologies and products we spoke about today, as well as the increasing support for PFAS removal. Another fun fact that Chris Milligan, who came to us from the BlueInGreen acquisition and runs ChartWater, told me, that water purity is key for microchip and circuit board processing. So yes, you will ask if our TAM is conservative. It is definitely considerably smaller than the entirety of the addressable market of water, but it is also a TAM that we can go after and be a double-digit market share owner. And as we have continually shared with you, we'll continue to drive our debt down and keep our balance sheet conservative, as shown on slide 14.
Even with the two acquisitions completed in the third quarter today, we are still below a three-net leverage ratio and expect that to decline. To conclude, our inorganic investment strategy continues to build upon itself. And as I commented at the beginning on the full solution or à la carte menu slide, many of these investments are and will work together in the Nexus of Clean. And while Wade is scarred from his "Don't you forget LNG" performance, he is keeping with our now tradition and overwhelmingly getting accolades from about 98% of the participants on our last call. So here's a little water treatment to the tune of "Splish Splash." Wade.
Splish Splash, when you're taking a bath, you want AdEdge into a path. Rub it up, just removing all the grub. ChartWater's teaching the kids to rise.
Okay. So with that, we'll turn it over to the operator for questions. Back to you, Valerie. Thank you.
Thank you. Ladies and gentlemen, if you'd like to ask a question, please press star and then one on your touch-tone telephone. Again, if you'd like to ask a question, please press star and then one. Our first question comes from Eric Stine of Craig-Hallum. Your line is open.
Good morning, everyone.
Hey, Eric.
Hey. So maybe if you could just talk about, well, I guess first of all, you kind of said that you think this rounds things out in water. I mean, should we take that as that you're done in this area, or maybe are there other areas that you might look at? And then would also just love to know how this maybe expands your content per project.
Yeah, I would say never consider us done in any of these areas because we're constantly looking at what technologies are out there and how the market is evolving. But this was a hole that we had, especially for the PFAS and PFOS that we needed to fill on the technology side because we think that's a key area of the future in terms of treatment and as you think about forever chemicals and forever contaminants and how we address those. So in terms of expanding our approach to this, there's a lot of synergies, both from a revenue perspective as well as from a cost perspective.
And so we like the addition of this not only from the addressable market side of things that I talked about in my prepared remarks, but also from the perspective of continuing to have this be a business that grows at a higher rate than many of the other parts of the legacy Chart business, but does so at margins that are meaningfully above the average gross margin as a percent of sales of the business. So you'll see us work together between the technologies as well as our equipment as one way to do this, and that's a key synergy.
But you can also, in part of our innovation between the processes and the technologies themselves, are taking the best of each world and having processes and technologies to treat the over 300 different types of contaminants that are out there, which is really the fundamental part of our offering, so that full solution or the à la carte concept. So those are just a few examples of how we'll take advantage of having these all in our portfolio. But the meaningful element is the addition of having PFAS and PFOS technology, which is going to be a key part of the growth space this decade.
Yep. Understood. Maybe last one for me, and then I'll jump back into queue. And this plays into it, but now you're two months into 3Q. So when you factor in the addition here, any updated thoughts on kind of how you maybe see the split between 3Q, 4Q, and the linearity of, I guess, revenues and EBITDA?
Yeah. I mean, it's no different than what we said at the end of the second quarter call, which is that Q4 is the most meaningful quarter of this year, and that's really based on those four larger projects: the Plug liquefiers, the Russian helium liquefier, and Fast LNG for New Fortress. And that's just based on how the timing of revenue recognition falls for those within the year. So Q3 would be a small step up from Q2, and then the more meaningful from Q3 to Q4. We are seeing revenue from L.A. Turbine come in, but that was already in our thinking at the end of the second quarter.
And then we'll provide a full update on the four months of revenue and earnings that we expect from AdEdge. Obviously, one month of that will be actual at the end of the third quarter. But I'd anticipate that it's a relatively immaterial amount for the last month of Q3, and then you get a full quarter, and you can kind of take the 2022 number, pull it back for 2021, just given that we're at record backlog heading into 2022 for the AdEdge business, and fairly evenly split that across the way the quarters would work in the way that they recognize revenue.
Okay. Thanks, Jill.
Thank you.
Thank you. Our next question comes from Ian Macpherson of Piper Sandler. Your line is open.
Thanks. Good morning, Jill. Wade. Well done. So I was curious, when you talked about the synergies between AdEdge and BlueInGreen, can you speak to how historically those two different platforms have positioned in the market, either competitively or complementarily, and how you think about the overlap or just the sort of non-overlapping growth for the two businesses in your model going forward?
Yeah. When you look at it from the perspective of historically, typically, these guys would not be competing for the same types of projects with each other. That is really because of the different types of contaminants being dealt with. And you can boil it down into general categories, but you heard a lot of the detail around that today. So from a revenue perspective, we see the synergies resulting from the ability to utilize our global commercial team and our global sales group.
That's a key part of, look, these companies like BlueInGreen and like AdEdge. They have finite resources when they're run privately. So it's a really quick way for us to leverage a commercial team that knows the customers, knows the water area. Chart Equipment can be utilized in both of those types of processes. That's where we see a lot of the pull-through there. We also see some additional ability to leverage AdEdge's remote monitoring system. The IoT concept, which we've gotten more pieces and parts around specialty as the result of some of these investments we've done, like Earthly Labs and like AdEdge as well. Turn your attention to the other side of the house, which is streamlining lead times for AdEdge, also taking advantage of where we make what and where they make what.
Having our global manufacturing footprint is really a nice way to bring some things that had been outsourced by them in-house. And skid mounting is a great example of that, where we can do that in our flexible manufacturing facility now. And so I could go into a lot more detail, but hopefully, that kind of gives you the breadth of the types of revenue and cost synergies that we think we can accomplish in very short order, meaning right away, meaning we'll start to see those synergies in 2021.
That's great. Thanks, Jill. And then with the pipeline of $88 million that you highlight, can you tell us what that means in terms of how that might convert to firm bookings and timeframe? And just so we can sort of get a sense of what the growth slope of the business might look like now relative to the trailing CAGR that you provided, which is obviously quite steep.
Yeah. So it's a fairly even way to think about the year, whereas I've unfortunately had to beat the horse dead this year on Chart seasonality being different than it has been historically. AdEdge can be project-specific, and these projects can range anywhere from a few hundred thousand dollars to upward of a million dollars per project. And so it would be depending on the timeline that a municipality or an institutional or any of the types of customers that we have have around that.
What I would think about is you've got the backlog today that fully supports that $35 million at the low end of the 2022 revenue side. And then we just need a very little fill from an order perspective between now and year-end to get to the higher end of that 2022 range. What we're expecting out of that $88 million between now and year-end would be somewhere between $10 million and $12 million to be booked. And so then you can get a sense of how confident we feel in that $35 million to $40 million range for 2022. That $10-$12 that would be booked between now and the end of the year would be recognized in revenue Q3 and Q4 of next year. But what's in backlog today would be evenly spread across next year from a modeling purpose perspective.
Perfectly clear. Thanks, Jill. Appreciate it.
Thank you.
Thank you. Our next question comes from JB Lowe, Citi. Your line is open.
Hey. Morning, Jill. Morning, Wade.
Hey, JB.
Sounded like you pre-recorded that last song, which may have been a good idea.
He did. He did.
Question was on just the customer base of AdEdge. Who were the customers? I know you mentioned municipalities, institutional customers. Was there any overlap between the customer bases? Are these bringing in entirely new customers that you're going to be selling through other products to? You touched on some revenue synergies also. I just kind of wanted some more clarity on that.
Yeah. It's kind of a mixture of both, and I'd break it down into municipalities. So I'll focus on the U.S. when I'm answering this question, but you can think about it globally as well. Municipalities, in terms of backlog right now, there are 15 different states with numerous municipalities that are in AdEdge's backlog. Some of those are customers that we would have as well, but being treated for two different types of things. And others bring a completely new set of municipalities to the customer base for us. A lot of the equipment synergies that we see are through AdEdge's municipalities that we do not currently have access to or we have not historically through BlueInGreen or Chart had relationships with.
And as you guys may know, the relationship side of this business is really important in particular because you will have owners, engineers that make that decision on the dance card around both the process technology as well as the equipment in those decision-making. That is one set. Industrial wastewater, these are new customers, customers that we did not have. And these can be distilleries. These can be pig farms. They can be pulp and paper, like we referenced in the remarks. And then I'm excited about the residential and the aftermarket component of their business. That's an area that we just haven't historically played on the residential side. And we have some repair and service capabilities through our Treatment-as-a-Service.
So I imagine and envision as part of our synergies is that immediately we'll offer AdEdge's treatment through Treatment-as-a-Service. So kind of a pull-through of AdEdge through Chart's offering, but then vice versa with some of the field service and the remote monitoring that really goes to addressing that resiliency macro trend. And then the last bucket is around the schools and the hospitals. And that's a set of customers that historically we didn't have a lot of. So this brings us a larger portfolio of institutionals. So I'd probably weight it as 75% kind of new and opened that market up to us and 25% of similarities.
Okay. Cool. The resi side is interesting since you don't have any exposure there, really. Would that be? I mean, there's not going to be a consumer product involved in this. This would be more of a service on the monitoring side?
There's also a product. So you'd have a removal system, but the service and monitoring would be a key part of that resi side of the business. Yes.
Okay. Last one for me, actually, is just on a totally different topic. I was wondering if you could give an update on what's going on in big LNG. What are you guys hearing lately in terms of projects? What's the latest news on the ground you guys are hearing?
Yeah. We are continuing to hear positive and specific tactical elements toward the U.S. Gulf Coast projects moving ahead to FID in the first half of 2022. So my comments around bullish thought process on that are unchanged since the last time we talked. And the closer you get to it, the more confidence you have, obviously, right? So there's been some good elements there. I also am keenly cognizant of the storms that have rolled through the region over the last couple of days. From the Chart perspective, both of our shops in New Iberia, Louisiana, and Theodore, Alabama came away unscathed, which is a blessing for us. And our folks are in there today working. I talked to Venture Global this morning, and Calcasieu Pass survived just fine.
And so I think that, barring nothing further around the weather side of things, that there are no other hiccups. We feel really good about that first half with more than one big LNG project moving ahead and into our order book.
Awesome. Thanks for the update.
Thank you.
Thank you. Our next question comes from John Walsh of Credit Suisse. Your line is open.
Hi. Good morning, everyone.
Hey, John. Hey.
Maybe just a little bit of perspective here. I thought it was really interesting you talked about double-digit market share entitlement over time, if I got that right. I mean, we know one of your competitors, I mean, their install is 200,000 installations out there. So as you look to obtain that, what are the big investments you have to make? Is it salespeople? Is it R&D? Is it more service branches, geographic distribution? Just, can you help us? What are the ways to get there?
Yeah. I mean, definitely taking advantage of having the solution sets that previously were not part of Chart but were in kind of a finite resource environment is by far the number one way we get there. And that's leveraging the resource set that we already have in-house. And that's through our global commercial team as well as through locations that are out there. We'll continue to make sure that we have numerous locations that can make the equipment part of the offering. And that's something that's been part of our strategy, as you know, over the last few years for flexible manufacturing and where we make what, making sure that we make every product in more than one location so that we can be closer to the projects and to the customers.
Taking advantage of the global market is going to be the biggest driver of that, as I think the global macro trends, the non-US macro trends, are a key, key part of getting there. The other thing I would share, and it's probably a little more qualitative than what you're asking for, but just around my comments on the addressable market, we've put an addressable market that we think we can get the double-digit share of out there that's considerably smaller than the addressable market that you would hear or see for water as a whole. I mean, you'd see tens of billions. In some cases, we've seen market opportunities saying that the total global water treatment market is over $600 billion, which goes anywhere through parts and consumables to the chemicals to the construction and the EPC.
But we're really targeted into the market for the types of contaminants that we're addressing along with the pull-through of the equipment that we could get. So just to compare to some of the larger players in the market that are targeting a much broader part of the solution, inclusive of the construction and the EPC, that wouldn't be where we would be going after.
Great. No, that's super helpful. And then maybe another one around the PFAS opportunity. So please, if you see the market differently, let me know. But at least here in the U.S., there seems to be a couple of players of size in these earlier installations. To your point, states are moving ahead of any kind of updated federal mandate from the EPA. But then it seems to get incredibly fragmented. So could you talk a little bit about what was interesting about AdEdge's PFAS remediation that kind of differentiates it from that bottom part right now, at least today, that's highly fragmented?
Yeah. I would totally agree with the way you described the market. And as a matter of fact, that's actually how I have it written in my notes around, okay, you've got a couple of the big names, and then you kind of get into this niche category set of companies that offer it. And we've evaluated quite a few of these. A lot of the evaluation has been done by the BlueInGreen team as they're much more familiar with the treatment side of the market. And what we liked about this particular business outside of a lot of the synergies that I described is we liked the customer base. So some of the larger customers that you hear from your larger players in the market, we, i.e., AdEdge, have the relationships with them, and they're a customer of them.
So that indicates that they have confidence in having that stickiness with those customers was important to us. Whereas others are a little more, I would say, start-uppy when I look at kind of the four niche competitors. We also very much like that AdEdge systems are capable of treating kind of a wide variety of water types and contaminants. And so hitting on if there's 300 different types of contaminants out there, and I'm rounding that number, then hitting over a majority of them with the treatment type really allows you to have the flexibility for what customers are looking for, but also be able to very quickly address if regulatory changes occur regardless of your geography. The comprehensive portfolio kind of falls into that, and then we love the aftermarket.
We love the monitoring, and we love the kind of overall relationship of how the engineers work with the technology to how Chart's engineers work with our portfolio of technologies. So lots of different reasons went into our thinking and went into why this one, because as you're well aware, we do have numerous inbounds on topics like this, and we assess all the technologies very carefully before we make that decision.
No. Great. Thank you for the answers. I'll pass the baton.
All right. Thank you.
Thank you. Our next question comes from Ben Nolan with Stifel. Your line is open.
Hey, Jill. So I wanted to see if maybe you could just talk about, with the inclusion of this deal here, ChartWater more broadly, and maybe just talk about as you're looking at it. I know that you said 13% of this deal was aftermarket, but looking at it from where you stand now, can you maybe break down how much of what you're doing is service-oriented versus how much of it is providing equipment or a product? And how do you envision that evolving going forward in terms of how the revenue breaks out?
Yeah. So right now, if you look at ChartWater as a whole, the service componentry and service inclusive of aftermarket would be somewhere between kind of 15% and 16% in its entirety. But through the addition of the remote monitoring and then also we plan to do the treatment as a service unit through our repair and service and leasing fleet for AdEdge's offering, we expect that that will be well received from the customer base. So that's really around having the ability to have a unit that's ready to go and be able to go into the field. We also expect to take advantage or exploit some of the field service people that have different relationships with various municipalities that we didn't have before and expect that there'll be more back-end preventive maintenance and/or repair side.
So in the high teens is the target for this business, which would be a nice increase from where we sit today. And in that high teens, we expect that we've had that run rate exiting 2022 or in the second half of 2022 in that high teens %, which will be the result of those specific steps on the treatment- as- a- service and the remote and field work.
Gotcha. That's very helpful. And then just maybe holistically, you talked in a prepared remark sort of tying AdEdge and ChartWater in general into sort of all the other aspects of the business. But particularly now, this is not a cryogenic gas acquisition, right? Are you thinking about ChartWater, the water treatment business, as kind of a distinct leg of the stool here? Maybe you can add to it and widen the product offering into areas that maybe don't have anything at all to do with cryogenic applications but do offer a holistic water treatment solution. Is that how we should think about it, or it's still sort of connected at the hip?
It's very connected still. And don't forget that all of the equipment that's utilized in this is cryogenic equipment. So while the actual treatment process isn't cryogenic, the equipment and storage and dosing of the gases is utilizing cryogenic equipment. But that's probably less important to my answer than the second half, which is I think what you're getting at here is it's attached to the hip through this Nexus of Clean. And we really do see a very nascent and embryonic market of those interlinkages that we tried to describe on slides 10 and 11 around how can water treatment play when you're thinking of carbon capture and how does water treatment play when you're thinking of generating cleaner molecules like hydrogen.
Yeah, I still have the thesis that having these interconnection points is going to be really important as sustainability and ESG targets are attempted to be achieved. So that's what I mean by having it conjoined at the hip here. On its own, it does stand alone on its own as well, to your point, outside of utilizing our traditional distribution and storage types of equipment for it in the bulk tanks, the microbulk tanks. And I expect that it'll grow. And people have asked the question of, do you ever envision the pieces and parts of specialty maybe being spun off or sold when it's big enough? And certainly, that's always something that we talk about and could be in our thinking, but we're so early in this that we want to exploit the market growth opportunity at these really nice margins.
All right. Gotcha. I appreciate it. Thanks, Jill.
Thanks, Ben.
Thank you. Our next question comes from Rob Brown of Lake Street Capital. Your line is open.
Hi, Jill. Hi, Wade.
Hey, Rob.
My question's on just sort of the sales cycle of this product, sort of how quickly does that turn around and how much sort of specific engineering is done and how much is standard product?
Yeah. It'll depend on the type of application and the market itself. So let's break it back down into that. Municipalities, those tend to be sub-12-month projects. Obviously, it depends on capital allocation from those municipalities around whether that's lumpy or not in any given year. But that would be the kind of book-to-ship type of time frame. And those industrial projects, in some cases, are going to be longer than that, but it really depends on the complexity of those industrial projects. That's wastewater treatment for those. Residential projects are much faster terms, kind of more book-and-ship and similar to sub-6-month type of time frame. Institutionals would be kind of more similar to the municipalities.
The engineering side of this goes into the innovation and making sure that everything is up to speed on what's happening in the regulatory environment and continuing to refine and optimize so that we can also make sure that we're in the cost-competitive position. But the products themselves and the treatment processes themselves are standard.
Okay. Thank you. I'll turn it over.
Thanks, Rob.
Thank you. Our next question comes from Andres Menocal of Evercore ISI. Your line is open.
Hey. Good morning, Jill.
Hey, Andres.
So my first question is around the margin profile for the water business. I guess the revenue growth opportunity and the TAM expansion makes a lot of sense. What gives you confidence that you would be able to maintain the high margins on the water side, especially with the municipal customers? I'm just thinking access to clean and affordable water seen as somewhat of a basic human right, at least maybe under the U.N. Sustainable Development Goals. Do you foresee any potential for margin pressure or margin erosion over time as that becomes a greater need?
So we have not seen that in any of the businesses that comprise ChartWater to date. A portion of that is because you are addressing the industry's critical issues, in particular around water quality and, to your point, the Sustainable Development Goal of the U.N. And these are not easily replicable technologies and treatment processes, which you've heard me say that exact line when you start talking about hydrogen helium liquefaction. And so, having the ability to do it and having it not be alpha number one, installation number one is a key part of this. Where we can also ensure that we maintain this level of margin is around the synergy side of things. So very similar to what we described when we purchased Cryo Technologies for helium and hydrogen liquefaction.
Historically, when they were on their own, we would compete against them, and then they would need the equipment. And so they would have to come to Chart and purchase the brazed aluminum heat exchanger for that application. And therefore, we're making margin, and then they have to make margin on what they're selling to the customer. By having these things together and having that full solution offering, you cut out some of that waste on the steps of outsourcing and pulling together the pieces and parts. And so we envision that we are able to help the customer continue to reduce their cost while maintaining, or in some cases where we bring things in-house, improving the margins through some of the cost synergies that I described.
So probably the best way to think about it if you're looking for the visual is the combination on slide, let's see, five of our deck there with that full solution offering in the menu is where you can compress cost for the customer but keep margin.
Understood. Thank you.
Thanks, Andres.
My second question is from the perspective of M&A and getting this deal done with AdEdge. I mean, it makes a lot of sense. Our understanding expands the total addressable market for you guys, and it's adding to EPS. Why do you think Chart got so lucky? Why do you think AdEdge was willing to do this deal with you guys? I'd imagine that there was a number of interested parties looking at the business either this year or in the past. And so just kind of curious to hear what your thoughts are on the value-add of tying up with Chart.
Yeah. I agree with you completely in how you teed the question up. To us, we even contemplated whether or not we do a call this morning because it seems very logical, a really good valuation, and made immediately accretive. But we thought it would be good, just given the size of the deal, to talk a little bit more about the market that hasn't had as much attention paid to it in the public domain as it probably should. So I know how I would answer that question. I'm not sure I want to give away too much on behalf of the owners. So in fairness to them, what I would say is I think that they feel and have known Chart to be and BlueIn Green as well.
So BlueIn Green, I think, was a key part of, if we didn't have BlueIn Green, I don't know that we would have gotten the deal done the way that it got done. So maybe that's the first comment I should make. The second would be around the cultural fit and the way that we think about the culture of innovation and dealing with customers and how do we think about the business. And then there was an element of speed around how quickly we could get it done. But overall, I think we knew each other well enough. It certainly didn't hurt that we were both in Georgia, and there's lots of opportunity for taking advantage of the broader manufacturing footprint that we have.
So both sides had a good way to think about synergies and thinking about the business with the same culture helped a lot. That would be the best answer I could give you.
Yep. Understood. Thank you so much for that, and I'll turn it back to the queue.
Thank you.
Thank you. Our next question comes from Doug Becker of Northland Capital Markets. Your line is open.
Thanks. Jill, I was looking for a little more context about how you constructed the water TAM. In the past, you've talked about a capture rate of 60% for total specialty products through 2030. Does water fit into that same 60% capture rate?
So stepping back, we built the TAM similar to how we built all these other ones, which is really around talking through from a bottoms-up perspective, where do we see the growth? What are the macro drivers of that growth? Where do we think we can play? And so you saw that around various different categories from 2020 to 2030 in kind of odor control, disinfection, pH adjustment, aeration, and PFAS. PFAS, we think is going to be a very significant part of the water treatment market in the next decade. We view our kind of win rate here or potential % of the total pie as less than the 60% for the total specialty, in particular because there are a couple of the larger players. And this is a little more of a smaller competing against some of the other nichier players.
But certainly, in the more than double-digit, so I call it. I pick a number. Internally, we talk between 20% and 40% depending on the pieces and parts of water. And so you'd have to boil it all the way down, but you could average a 30% capture rate being the target that we have.
That makes sense. Then, as I back into the operating margins, it looks like it might be a little bit lower next year than the total company. But I just wanted to see if there was anything to that, particularly given that the gross margins certainly look accretive.
Yeah. No, we're just being conservative.
Got it. And then just one last one. Is it reasonable to think about orders for the third quarter over $400 million now with the acquisition and just the way business seems to be trending?
Sorry, Doug, for the fourth or the third?
For the third.
For the third, now, as I teed up, we didn't have the third. We expected to be somewhere between kind of $275 million and $325 million on the order side of things. We said, "All right, our new normal is kind of that $300 million mark for any given quarter without anything significant project-wise." So we didn't have any particular line of sight to a larger kind of somewhere between $20 million and $50 million order that we expected in the third quarter. We also knew that there was some buy-ahead order activity at the end of June around getting ahead of price increases from the industrial gas guys. And then the third element being your normal August summer vacations outside of the US. That's a typical less-than-active order side of things.
So tack this on top of it and some of the L.A. Turbine stuff should be slightly above the $300 million mark. And then we do have a line of sight to some of the larger projects coming in that we expect to come into the fourth quarter. And so we would expect the fourth quarter order activity to ramp up from the third.
Got it. Thank you.
Thank you.
Thank you. Our next question comes from Marc Bianchi of Cowen. Your line is open.
Hey, thanks. Jill, what's revenue for this business in 2021?
We haven't provided that, but I'm happy to share it for you, which would be somewhere in the high $20 millions.
Okay. And what is water revenue for Chart overall if we include that? Just to get a sense of where we're going in the TAM.
Yeah. If you include the full year, like a pro forma for the full year, would be around close to $50 million in total.
Gotcha. Okay. Super. I guess separately, the stock has done really well here. You've done this deal for cash. I'm just curious how you think about cash versus stock going forward or other ways to use the stock that's become a really strong currency.
Yeah. I mean, definitely everything that's in our pipeline right now that is in the potential near term, meaning sub-next 12 months, are all discussions about utilizing equity, utilizing the stock in piece or part or in its entirety. So we're targeting in one case, it would be 50% stock, 50% cash. And that in part is the desire of the owners that are selling as well as the competitive process itself. So we definitely look to use the stock as currency where the sellers are amenable to that.
Do stock deals have the potential to be much larger, or should we maybe infer that the deals with equity would be a kind of larger notional value?
Still nothing in our pipeline really that we're dead serious about that's over $100 million. And most of the ones that we're in conversation with are similar in nature to what we've done so far, kind of that Pac-Man approach.
Gotcha. Great. Thanks so much. I'll turn it back.
Thanks, Marc.
Thank you. Our next question comes from Graham Price of Raymond James. Your line is open.
Hi. Good morning, and thanks for fitting me in. You touched on it before, but with what's happening with Hurricane Ida, I just wanted to get a status update, Louisiana, make sure everyone's safe, and just verify that you aren't seeing any disruptions there.
Well, thank you so much for the thoughtful question. We are very lucky so far. Our plants have fared with no damage that we're aware of, and our teams have been in there. Obviously, we're in there over the weekend preparing and then in there this morning to check things out. So the disruption that we could see this week, what we don't know the answer to is our team members and whether they had personal property damage that needs to be addressed. And so that would just be around accommodating and assisting them to make sure that they're able to prioritize those needs first and foremost. But we haven't had to shut down any shifts, and we haven't had to shut down production as a result of the weather.
Got it. Got it. Good to hear and very much hope everyone is safe.
Thank you.
For my follow-up, I just wanted to check on your expectations around the U.S. infrastructure plan, specifically on the water front, and potentially how you would see yourselves benefiting from that given today's announcement, and I guess thinking especially kind of on the PFAS side of things.
Yeah. No, great point. Really great point. And one of the numerous macro tailwinds that we see in this business supporting the growth, that outlook that we have. Definitely, water is a key part of that infrastructure plan. We actually stand to benefit broadly in all of the aspects of the infrastructure plan as there's pieces and parts for hydrogen, for carbon capture, for water. And in this particular case, we think that it further supports the PFAS and other emerging contaminants that are really important. So with that, tens of billions of dollars of infrastructure commitment to improve water quality, we're going to be able to certainly be a piece and part of the beneficiary of that plan.
Got it. Got it. Sounds great. Thank you very much.
Thank you for your time.
Thank you. Our next question comes from [Audio distortion] of Coker & Palmer. Your line is open.
Hey, good morning, and thank you, ma'am, for taking my question.
Hey, good morning, [Audio distortion].
Just could you remind us about how you think about the leverage? I know you talked about what we had debt leverages today, but just what are the specific targets that you have in mind?
Yeah. We like to be around or sub two times, but we also are very comfortable that we can do deals, increase that to kind of where we are today, and then decrease it through the generation of cash flow, etc. And so overall, what we'd like to use as our thought process is a two or sub two times on an ongoing basis is how we think about a "conservative balance sheet." The other thing I would point out in the answer there is there's lots of good deals out there today around borrowing capacity, etc. And so that's something that we consistently look at to make sure that we are not overpaying for interest rates, that we have the capacity that's out there, especially in this really borrower-friendly timeframe. So something that happens in the background regularly for us.
But we don't need to do anything different with our debt arrangements in order to continue to be very comfortably below our covenant, which is the net leverage ratio itself.
And just for clarification, that two times is on a total debt or net debt?
Two times would be on the net debt would be where we kind of target internally.
Got it. And I think in response to Mark's question, you talked about how you could potentially use equity. Maybe from a different perspective, how do you think about if you will have probably more acquisition opportunities where you can have more cash or equity? But in terms of cash returns to shareholders, how do you think about that?
Yes. So you summarized that well in terms of how we think about it. And then with respect to shareholder cash return, it's something that we regularly review, and we anticipate that there will be that conversation in a much more serious manner with our board as we have this kind of what we call the perfect storm, or for lack of a better phrase, where we're seeing the big LNG projects, which typically are very cash flow positive in conjunction with these higher other areas, higher growth, other areas of the business. And so at that point, that would be when we would say, "All right, we feel like now is the time to return cash to the shareholders."
Right now, our priorities are continuing to invest in the business organically and inorganically given the high growth profile of many aspects of the applications that our products are used in.
Got it. That's all for me. Thank you.
Thanks, [Audio distortion] .
Thank you. I'm showing no further questions at this time. Ladies and gentlemen, this does conclude today's conference. Thank you all for participating and have a great day. You may all disconnect.