So a ramp to get to that point, but certainly the increasing EBITDA of margin profile helps that, drives that, the fact that we anticipate continuing to paydown debt. So the discipline on our target to the net leverage ratio. And we’ve said toward 2 to 2.5 is our target. But in the near-term, in 2024, mid-2024, the high twos that we’ve said before. So there’s a way to get there. There’s a path to get there. It requires us to continue to deliver margin, continue to paydown debt, and also we feel really good that there’s more and more synergies out there that we’re seeing that can help drive that.
Joe Brinkman: Yeah. And I would just add to that. As we highlighted in the earlier comments, we’re coming off of a pretty significant CapEx expend cycle with $47 million in Q1 here, but for the year we expect that more on the $120 million range. So we’re just finishing up on some very large CapEx expenditures needed to convert backlog, add that additional throughput, which is going to drive the sales. And the CapEx expending will come down as a percent of sales here towards the end of this year and into 2025.
Roger Read: Okay, thanks. Appreciate that. Yeah. And I mean, like James said earlier, right, I mean, the order trends backlog for you all are much better than what we’re seeing from others. So next step to conversion, right? But thanks and good luck.
JillianEvanko: Thanks, Roger. Appreciate it.
Joe Brinkman: Thanks.
Operator: Thank you. [Operator Instructions] And your next question comes from the line of Eric Stine [Craig-Hallum]. Please go ahead.
Eric Stine: Hi, Jill. Hi, Joe.
JillianEvanko: Hey, Eric.
Joe Brinkman: Hey.
Eric Stine: Hey, so maybe just go back to the carbon capture a little bit. I know you touched on it earlier. But just want to kind of contrast it with how you’ve discussed it in the past, and I know you’ve viewed hydrogen as what, 12 to 18 months ahead. Is this quarter, given your commentary, something where you think it actually is now going to be a more repeatable, predictable business? You still think this is kind of stops and starts here in advance of that? Just maybe how are you thinking about that and maybe contrast it with where hydrogen is in its kind of development?
JillianEvanko: Yeah. Thanks for pointing it out, because we are — as you know and one of our longstanding followers, we’ve talked about it here for four and a half years. And I think that it took longer than I — certainly we had anticipated, but we’re pleased to get the technologies in when we did, because it allowed us to really develop early feed and pre-feed relationships with a lot of the folks that some of them will move ahead. So I think it’s definitely starting to be real and tangible. We actually debated internally as to how to talk about — at some point here, we’re going to start talking about carbon capture, water as a percent of our total business because they’re starting to get sticky enough that that’s a metric that can give you guys a jumping off point.
We didn’t do it this quarter, but it’s pretty damn close to being ready to share that. So that is a qualitative statement, but I definitely think that what we’re starting to see is global traction on carbon capture. I also think that it’s — in the last few years on carbon capture, it was really okay, you’ve got people doing demonstrations or you have in our case Earthly, which had great traction from day one because it was economical, easy to install solution, and solved for CO2 shortages. The larger scale was taken a little bit longer, but now we’ve got the pipeline that we had before and an increasing pipeline related to all of the discussion that you hear on artificial intelligence and all of these kind of energy-intensive actions. And so I think that’s also kind of a relatively near-term catalyst.
Is it 12 to 18 months behind hydrogen? I think it’s accelerating, so it was really kind of three years behind hydrogen, in my opinion, but we’re seeing it accelerate. And certainly, with Q1 orders in carbon capture being a record, that’s a pretty good place to jump off from as we head into the rest of this year. And then maybe my last data point for you on carbon capture is, yeah, we’ve got our highest backlog in carbon capture as of the end of the first quarter that we have ever had, obviously given record quarters, but it’s sequentially stepped up. Backlog has sequentially stepped up, or essentially doubled since a year ago for carbon capture.
Operator: Thank you. And your next question comes from the line of Bob Brown from Lake Street Capital Markets. Please go ahead.
Robert Brown: Good morning, Jill and Joe.
JillianEvanko: Good morning.
Robert Brown: I just wanted to follow up on the year two synergy kind of effort on, I guess, the cost side. What’s sort of the key areas you’re focused on, and how do you see that playing out for the rest of the year?
JillianEvanko: Yeah. It’s interesting because as we said at our Q4 earnings call, okay, we surpassed early both the cost and commercial synergies, and we’re going to keep going on years two and three. I’ve said that externally we’ll let you know when we hit a billion dollars in commercial synergy orders, and we’re well on our way toward that number, certainly to be achieved here in the coming next couple of quarters, if not in the next quarter. And on the cost side, it’s really around, year one was heavy low hanging fruit, hitting our supply base, restructuring facility consolidations were applicable, which there were only a few there. And now we’re into is things like entity rationalization, where we can optimize entities from a cost standpoint, but also you get benefits like tax savings and ETR benefits, which Joe will think referenced in his comments, and things around just tangible costs like audit fees, right, where you had audit fees for 10 different auditors on statutory or larger costs in year one, that type of thing.
So lots of different activities, but we’ll continue to optimize. And I also think that the more we get to know the businesses, the more we’re taking advantage of the talent throughout, and they’re coming up with new cost energy ideas. So we are tracking as of today to be on track for our year two target from the original acquisition model for cost and commercial.
Operator: Thank you. And your next question comes from the line of Pavel Molchanov from Raymond James. Please go ahead.
Pavel Molchanov: Thanks for taking the question. You flag the Chinese LNG orders. And I remember a decade ago when PetroChina was your biggest customer of — the whole company. Are we seeing another LNG transportation boom in China, or is this caused by something else?
JillianEvanko: We are definitely seeing LNG transportation infrastructure. I’m not sure I’d call it a boom yet, Pavel. Perhaps like a recovery taking advantage of lower natural gas prices. But this is very broad based, so it’s not concentrated with any one particular customer. So we’re seeing multiple orders related to, in particular, the LNG trailer side. So I think it’s reflective of having been lower the last couple of years, but also reflective of the fact that LNG natural gas is everyone’s view. I guess, I can’t speak for everyone, but broadly our customers are saying it’s going to continue to be a key part of their mix, their infrastructure, and their energy source. So I think we’ll continue to see that infrastructure for LNG, in particular on transport and ISOs movement in port terminal, that type of thing.
Operator: Thank you. And your next question comes from the line of Manav Gupta from UBS. Please go ahead.
Manav Gupta: Good morning. Can I get a little more details around this order with Element Resources for renewable green hydrogen, and then a little more details around the collaboration with GasLog LNG Services, I guess, both relate to hydrogen. So I’m assuming you could give us more details on those.
JillianEvanko: Yes. Thank you for the question. So let me — well, first, what I would point out is we like — those two are great examples of the breadth of the hydrogen being used in different applications, and then also different geographies. Element being further along in terms of their progress for the city of Lancaster, California. That project is liquefaction for their site in Lancaster, California. And just recently, I think last week, they announced the purchase of additional acreage and additional land for future expansion. So good traction there, and certainly, I think reflective of kind of how the U.S. hydrogen economy has started being specific to California, and now we’re seeing that hub structure here in the future that’s going to take similar opportunities around the United States.
And then — so future — there is more future opportunity for us with Element Resources. And they’re very disciplined and strong leadership in that business that has decades of both oil and molecule experience. And then on the GasLog side, so this is earlier days, this does not have an order related to it yet. This is a partnership, and so ahead what we love, and we started hearing this at COP28 in December of ’23, was that this large-scale infrastructure for liquid hydrogen is being focused in on and honed in on, whereas prior to that everybody was talking ammonia for marine, in particular. So this is around larger scale ship and marine transport with associated onshore infrastructure. And the cool part — I’ll wrap my answer up, and the cool part I see, the thing I like about this, is this onshore infrastructure for heavy-duty transportation can work together across industries.
And so while — right now, we’re having these studies and this work done with GasLog on the marine side as an example, or an Energy Observer on their infrastructure, or aerospace people on theirs, this is going to converge on itself and leave us with just an immense amount of future opportunity. The other thing about GasLog that is specific to our partnership is again starting to see what was traditionally a very gaseous siloed hydrogen market in Europe, turn toward longer distances, heavier transportation, decarbonization, which is liquid.
Operator: Thank you. And your last question comes from the line of Ati Modak from Goldman Sachs. Please go ahead.
Ati Modak: Hi, good morning, team.
JillianEvanko: Hey, Ati.
Ati Modak: Jill, you spoke a lot about carbon capture today, so keeping up with the theme, seems like Earthly Labs is getting a lot larger, which is great to see. But I initially thought SES was the driver in the quarter given its industrial scale. So curious on any color you can provide on that order in particular, and how close we are to increased commercialization and orders in SES going forward.
JillianEvanko: Yes. Thanks for the question, Ati, and good point. What we’ve done internally and haven’t really shared the sausage making externally, but the Earthly and the SES teams work very closely together. So you see kind of Earthly scale up and SES’s expertise at the larger end help them in their application. And SES gaining quite a bit of global traction. We did cite the Graymont agreement. There’s numerous others that were not able to speak to publicly just under NDA of work that’s being done. We’re definitely seeing that in the UAE in particular, so good near-term opportunities there for SES. And the other kind of end market I’d point to for SES is on the lime cement side of things, really quite a bit of traction there toward commercialization.
