NASDAQ:AAON AAON Q1 2024 Earnings Report $98.92 -0.45 (-0.45%) Closing price 05/5/2025 04:00 PM EasternExtended Trading$98.83 -0.09 (-0.09%) As of 04:28 AM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings HistoryForecast AAON EPS ResultsActual EPS$0.46Consensus EPS $0.53Beat/MissMissed by -$0.07One Year Ago EPS$0.45AAON Revenue ResultsActual Revenue$262.10 millionExpected Revenue$284.76 millionBeat/MissMissed by -$22.66 millionYoY Revenue Growth-1.40%AAON Announcement DetailsQuarterQ1 2024Date5/2/2024TimeAfter Market ClosesConference Call DateThursday, May 2, 2024Conference Call Time5:15PM ETConference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Quarterly Report (10-Q)Earnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by AAON Q1 2024 Earnings Call TranscriptProvided by QuartrMay 2, 2024 ShareLink copied to clipboard.There are 9 speakers on the call. Operator00:00:00Good evening, ladies and gentlemen, and welcome to the AAON, Inc. Q1 2024 Earnings Conference Call. At this time, all lines are in listen only mode. Following the presentation, we will conduct a question and answer session. This call is being recorded on I now would like to turn the conference over to Joseph Mondello, Director of Investor Relations. Operator00:00:30Please go ahead. Speaker 100:00:32Thank you, operator, and good afternoon, everyone. The press release announcing our Q1 financial results was issued after market closed today and can found on our corporate website, aa0n.com. The call today is accompanied with a presentation that you can also find on the website as well as on the listen only webcast. Please go to Slide 2 in the presentation. We begin our customary forward looking statement policy. Speaker 100:00:59During the call, any statement presented dealing with information that is not historical is considered forward looking and made pursuant to the Safe Harbor provisions of the Securities Litigation Reform Act of 1995, the Securities Act of 1933 and the Securities and Exchange Act of 1934, each as amended. As such, it is subject to the occurrence of many events outside of Aon's control that could cause AAAN's control that could cause AAAN's results to differ materially from those anticipated. You are all aware of the inherent difficulties, risks and uncertainties in making predictive statements. Our press release and Form 10 Q that we filed this afternoon detailed some of the important risk factors that may cause our actual results to differ from those in our predictions. Please note that we do not have the duty to update our forward looking statements. Speaker 100:01:49Our press release and portions of today's call use non GAAP financial measures as defined in Regulation G. You can find the related reconciliations our President and COO, Matt Tabalski and our our President and COO, Matt Tabalski and our CFO and Treasurer, Rebecca Thompson. Gary will provide some opening remarks. Matt will then provide some commentary on the operations, followed by Rebecca, who will walk through the financials, and we'll finish with Gary, who will update you on the outlook before opening it up to Q and A. With that, I will turn the call over to Gary. Speaker 200:02:30Good afternoon. Let's start on Slide 3. 1st quarter performance was mixed relative to our expectations. Bookings remained strong and were in line with our expectations. This was consistent across all three of our segments. Speaker 200:02:46Total backlog increased for a 2nd straight quarter. Compared to a year ago, it was down just 6.9%, which is positive considering how abnormally large backlog was when supply chain issues were adversely affecting our lead times. Sales and earnings were a little soft to start the year due to lighter than expected volumes. A large factor to this was timing of backlog conversion at our Aon Core Products and Basics segments. Order trends at both segments remained solid though and backlogs at both increased substantially throughout the quarter. Speaker 200:03:27In addition, beyond what is currently in the backlog, both have significant opportunities with the data center market. Thus, while these two segments were a large reason for the soft results in the Q1, we are very confident both will improve going forward. Despite volumes levels being down in the quarter, profit margins were better than we expected. We've executed well from a price cost perspective, while at the same time strategically balancing the price premium of our equipment. Now I'd like you to turn to Slide 4. Speaker 200:04:06Looking forward, we remain cautiously optimistic on the near term, while maintaining a bullish outlook on the long term. Our traditional markets remain stable despite high interest rates and other economic headwinds. The sentiment amongst our channel partners is positive and all indications lead us to believe there is strong level of activity within the market. We still think orders could be volatile this year due to the refrigerant transition. However, we also think as we progress further into the year and approach the point in time in which we will be unable to accept orders for R-410A equipment, it is likely we see a short term wave of orders related to projects already designed for 410A refrigerant. Speaker 200:04:57At the same time, we are well positioned to take advantage of customers who are seeking the new refrigerant equipment, as we are currently accepting orders for a comparable price to 410A equipment. We are also strategically positioned from a pricing and product development standpoint. Our narrower price premium makes us more competitive and all indications tell us we're going to be even more competitive from a cost of manufacturing perspective as the markets transition to the lower GWP refrigerant. As far as product development, the advancements of our fully electric heat pump technology, Alpha class branded products, positions us extremely well as the industry begins to focus more and more on electrification. Earlier this month, the Department of Energy announced a program to expedite development and adoption of cold climate commercial heat pump rooftop units. Speaker 200:05:59AAON already has a considerable lead in the advancement of this technology, which will allow us to capitalize on early adopters. Initially, this will most likely be large corporations with wide ranging footprints of buildings, which would potentially make this a big opportunity for us. Beyond our traditional markets, we are increasingly excited about the data center market and how we can capitalize on the growth cycle of this end market. The pipeline of work over the next several years is immense and current activity is moving at an aggressive pace. Our engineering and sales teams are executing at a 1st class rate. Speaker 200:06:45All the feedback we are receiving from our customers leads us to believe we are in the midst of becoming the best in class solutions provider for both air side and liquid cooling applications. To best capitalize, we are working diligently to increase our capacity, ensuring we maximize our opportunities. I'll now hand over the call to Matt Tobalski, who will speak more in-depth about our operational strategy. Speaker 300:07:14And thank you, Gary. If you will, please turn to Slide 5. We utilized this slide in our Q4 call, but the only difference being we've added a 6 flights to the pie, which is our data center solutions. Data center vertical has been an integral factor to the robust growth that the Basic segment has realized over the last several years. We expect this market will become an even larger part of the overall organization going forward given the current makeup of backlog in the pipeline of future opportunities. Speaker 300:07:42Over the last 6 to 9 months with the advancements of semiconductor chip technology and the anticipation of increased computing demand fueled by artificial intelligence, data center companies have accelerated their construction plans aggressively. Over this time, Aon's engineering and operational teams have been diligently working with customers helping them design solutions to fulfill their ambitious goals. Given the capacity and density of these new AI data centers, customers are looking for providers who can develop unique air side and liquid cooling solutions. This type of custom engineering is exactly what basic core is all about and is what sets the business apart from most in the industry. With assistance from the rest of Aon's operational teams, we have executed nearly flawlessly, recently leaving big impressions with some of the biggest customers in the industry. Speaker 300:08:31From my point of view, considering our success in this market to date, we are positioned to be the best in class provider for this market. In preparation of supplying the increased demand our data center customers require, we've been aggressively investing in new capacity. The 2 primary projects that have been underway since last year include expansions of our Redmond facility and our Longview, Texas facility. In total, the two projects will increase the overall company's total manufacturing square footage by approximately 15%. But given the scale of some of the orders we anticipate, we expect the increased capacity in terms of revenue to be much greater than 15%. Speaker 300:09:08Both projects are on schedule. Redmond expansion is expected to be finished by the end of Q3 of this year and the Longview expansion is expected to be complete by the end of this year. The rest of our growth strategy is also progressing. Our product development continues to lead the industry. Currently, much of the industry is consumed with meeting the upcoming low GWP refrigerant requirements. Speaker 300:09:29Meanwhile, we've had our complete portfolio of equipment offered with the new refrigerant since the start of this year. We're also well ahead of the industry with the advancement of commercial heat pump technology. We're the only company in the commercial market with a portfolio of fully electric heat pump powered rooftop units that are operable down to 0 degrees. AAON being the first to market with this technology is going to position us to fully benefit from the increasing demand to decarbonize and electrify buildings. Our complete portfolio of rooftop units, including the cold climate heat pump configurations, provide us with a big opportunity with national accounts. Speaker 300:10:06Lastly, our already world class sales channel continues to strengthen, which is going to be integral to our continued growth and market share goals. The consolidation of the channel is helping accelerate the sharing of best practices and our increased support through marketing, parts and service will further help our reps become more successful in penetrating the market. Altogether, we expect these strategies will allow us to continue to gain market share over the coming years. In conclusion, we have a sound growth strategy that the team is executing upon. The 1 Aon culture has never been so strong. Speaker 300:10:38Operations are running at some of the highest efficiency levels in years And overall, I could not be more pleased with the progress we've been making and the extent of opportunities we have going forward. And with that, I will hand it off to Rebecca to walk through financials. Speaker 400:10:52Thank you, Matt. Please turn to Slide 6. Net sales declined 1.4% to $262,100,000 from $266,000,000 Volumes were down 5.7%, partially offset by pricing, which contributed 4.3%. The decline in volumes were driven by the Aon Coil Products and Basics segments, which realized total sales declines of 27.4% and 9.3% respectively. Both segments had strong backlogs entering the quarter compared to a year ago, so the revenue declines at both were largely based on timing of backlog conversion. Speaker 400:11:32The Aegon Oklahoma segment realized an increase in total sales of 4%. Volumes at this segment were down modestly, which was a result of a much smaller backlog at the beginning of the quarter compared to a year ago. This segment also endured some volatility in orders throughout the quarter, resulting in an almost flat backlog and also partially contributing to the lower volume. Moving to Slide 7, gross profit increased 19.6 percent to $92,200,000 from $77,200,000 As a percentage of sales, gross profit was 35.2% compared to 29% in the Q1 of 2023. The improvement in gross profit margin was primarily a result of increased pricing and moderating material cost inflation offset slightly by higher labor costs. Speaker 400:12:24Please turn to Slide 8. Selling, general and administrative expenses increased 37.5 percent to $45,300,000 from $32,900,000 in the Q1 of 2023. As a percent of sales, SG and A increased 17.3% from 12.4%. The increase relative to sales is primarily attributable to the lower volumes, increased employee compensation, incremental investments we've made in technology and increased professional and legal fees. Overall, SG and A expenses were in line with our expectations. Speaker 400:13:04Moving to Slide 9, diluted earnings per share was $0.46 slightly up from a year ago. Included in the net results was an excess tax benefit of $4,400,000 from the share based compensation within the quarter. For the remainder of the year, we anticipate an effective tax rate, excluding discrete events in a range of 25% to 26%. Turning to Slide 10. Our balance sheet remains strong. Speaker 400:13:34Cash, cash equivalents and restricted cash totaled $28,400,000 on March 31, 2024 and debt at the end of the quarter was 0. Cash flow from operations in the Q1 was $92,400,000 dollars up from $4,800,000 in the comparable quarter a year ago. Working capital at the end of the Q1 declined 15,100,000 or 5.4 percent from a year ago, resulting in better cash conversion. Capital expenditures, including expenditures related to software development, increased 33 percent to 38,700,000 dollars Even with the higher CapEx budget, we were fully able to pay down our line of credit and finance the quarterly dividend while marginally increasing our cash position. All in, our financial position is strong, allowing us to fully capitalize on growth opportunities. Speaker 400:14:29With that, I'll now turn the call back over to Gary. Speaker 100:14:59Operator, I think we may have dropped Gary potentially. Speaker 400:15:06Yes. I see Gary. Speaker 100:15:07I'm just going to finish out the closing remarks and then we can open it up to Q and A. Okay. Please turn to Slide 11. All in all, we feel very good where we are currently. For the last several years, we've made major strides in transforming this company from a niche application based provider to a mainstream solutions provider. Speaker 100:15:28The last 2 years, we've really had substantial growth and have captured market share. In our view though, we've just started to scratch the surface. Many of the changes we've made from a business management perspective to sales and marketing to product development have yet to be fully realized. We have the best product by far and the best for the best value. These changes will leverage that and propel our share gains further. Speaker 100:15:55To add to that, the magnitude of opportunities we have within the data center market leaves me with little doubt we will be able to achieve our long term goal of 10% plus annual revenue growth. In the near term, following 2 very strong years for AAON, in a time when the economy is slowing and we're proceeding in election, we expect growth to temporarily moderate, but for the reasons previously stated that this does not concern me at all. If I have any question any concern at all, it would be we can would be we can we can we continue to build capacity quick enough in an efficient manner to keep up with the growth we foresee? In 2024, we are now looking for volume to be down low single digits to flat. We anticipate year over year comps for volume would improve throughout the year with much of the improvement occurring in the second half. Speaker 100:16:50We continue to anticipate pricing will be in a mid single digit contributor and that gross margin will be up year over year. For SG and A as a percent of sales, we now anticipate a 50 basis point to 100 basis point increase and we maintain our CapEx guidance of $125,000,000 For the Q2, we anticipate sales would be comparable to the same period a year ago and EPS will be modestly down. In closing, we just want to finish by thanking all of our employees, sales channel partners and customers. Thank you to our shareholders. This company has never been more well managed than it is today, and we look forward to generating returns that you expect for us. Speaker 100:17:34We can now open up the call for Q and A. Operator? Operator00:17:39Thank you. Ladies and gentlemen, we will now begin the question and answer Your first question comes from Chris Moore from CJS. Speaker 500:18:16Terrific. Hey, thanks guys. Thanks for taking a couple of questions. Maybe we could start with Basic. So obviously, it looks like the timing of basics backlog conversion contributed to a softer quarter. Speaker 500:18:30It's harder to gauge kind of quarter to quarter on basics. Can you give any sense in terms of basics as a piece of the backlog, as a percentage? Has that changed much over the last year or just kind of how we should be thinking about that? Speaker 200:18:52Yes, Chris, you can take that one. Speaker 300:18:54Yes, of course. Yes, Chris, great question. And certainly from a kind of contribution of basics in the backlog, I guess the simple way to kind of look at it, we talked during the last quarter call kind of on the 2023 kind of performance, which was basics as a whole in 2023 was approximately 10% of the overall revenue within the enterprise, but contributed 20% to bookings for the year. I should say, yes, sorry, 20% of that bookings for the year. And as we look forward and kind of this quarter and beyond, we're continuing to see that if not more contribution from the basics backlog. Speaker 300:19:31So we certainly see there being a lot of strength within the basics backlog and really also kind of helping drive the coil products business down in Longview as well as we kind of start to really engage to get the basics products built down there as we continue the expansion with data products. So it certainly is going to become more and more relevant going forward as a percentage of the overall revenue of Aon. And definitely see it contributing substantially greater growth kind of on a year annualized basis compared to legacy business. Speaker 200:20:04Yes. One other thing, Chris. I think we have stated before that basics had been about 10% of our total revenue and we expected at some point not too far in the future that would be closer to 20% because they were growing so rapidly. Speaker 500:20:24Got it. No, that makes sense for sure. I think one of the things you talked about, Gary, in your prepared remarks was that the order flow will improve will further improve at point in time this year that customers no longer able to order equipment with the R410a refrigerant. Do you have a kind of a best guess as to when that point is? Speaker 200:20:51It's going to be a bit it's dependent on lead time for this reason. You cannot deliver equipment with 410A, our type of equipment beyond December 31. So if you say, well, I want to have a 2 or 3 week buffer between December 31st and the last unit I produced just to make sure I don't have some kind of stub my toe moment. And you have roughly a 10 week lead time. So let's just put that at 12 weeks. Speaker 200:21:27So just back up 12 weeks from the end of the year and that's got to be the absolute cutoff. Well, we're going to try and push people towards a cutoff ahead of that so that we don't end up with a problem. The problem could be and I've heard other manufacturers talk about this. If we get a surge of orders, people wanting to get 4.10.8 the last minute, then the lead times could easily bump out. And then where you at? Speaker 200:21:57So this is a it's kind of an unusual situation that we've not really encountered before. When we had a refrigerant change before, there was no building codes associated with it. This time, there's building codes necessary in order to utilize the new refrigerant, while there's also additional expense in the buildings. And I think that's driving some people to say, well, I'll just go ahead and get 410A because I don't have to have this additional expense for these refrigerant management strategies that are required by this new code. So just to summarize that, I would say somewhere in August, we're probably going to see a surge. Speaker 500:22:50Got it. It's very helpful. And maybe just last one to kind of follow-up on the point you just made in terms of the increased costs. It sounds like you guys are in really good shape from that perspective. The my understanding is that the new fridge requirements are really not going to cost Anne anymore. Speaker 500:23:14You have the new safety device you'll have to include with it, but you're manufacturing that internally. So it sounds like from a competitive standpoint, you should be in a really good position for this changeover. Am I looking at that correctly? Speaker 200:23:30Yes, I think so. As we went through unit by unit, that holds true for vast majority. There's cases in there where we lost capacity when we converted. And so you've got to add something to get more capacity. That's not across the board. Speaker 200:23:55It's not prevalent, but it does appear here and there on certain size units. But I think mostly the way we portrayed that is correct, yes. Operator00:24:15Your next question is from Ryan Merkel from William Blair. Please go ahead. Speaker 600:24:22Thanks. Good afternoon. Gary, it sounds like the big issue this quarter is the timing of backlog conversion. Can you unpack what happened with production this quarter? And when did the production issues hit you exactly? Speaker 200:24:37Well, actually each month had something just a little different at those 2 factories that we saw January wasn't too bad. Towards the end of January, we had some weather events that hit us more in basics than it did anywhere else. But more prevalently was it hit some of our customers. And our customers asked us to slow down on certain projects just a little bit. They said, hey, we don't have anywhere to put this equipment. Speaker 200:25:12Can you slow down just a little? So there was some weather event in there. And then I don't want to discount entirely the impact of the construction going on at both of those locations. Both of them have substantial construction going on. What's going on in Longview is probably less disruptive because it's outside of the building we're using now, but it's somewhat disruptive. Speaker 200:25:40But in Oregon, they have disrupted of the 2 primary buildings up there. 1 of them has had a reasonable disruption in rearranging what we're doing in there, getting it ready to move into the new building that we're building. And it's just it's not without impact. It's not substantial. It's not prolonged. Speaker 200:26:05It's not something we're going to put up with for a very long time, but we did see a little bit related to that. Speaker 600:26:16And are you able to quantify the sales impact from some of these issues in the quarter? Speaker 200:26:24Well, each segment reported, so you can see that both of those two segments that I just spoke of, ACP and basics were both below 2023. The growth, while it was marginal, was in Tulsa. And Tulsa just it has no disruptions of any magnitude, a little bit of weather related for some of our customers. We had customers saying you're shipping too early to us. With this weather, we're having weather delays. Speaker 200:27:03Can you slow down a little? That happened across the whole enterprise, but Tulsa was less impacted by it. Does that answer your question, Ryan? Speaker 600:27:14Yes, I think so. I think maybe the follow on would be, it sounds like I think you said 2nd quarter sales flat. So we're not seeing a lot of improvement in 2Q. When do you expect that these timing of backlog issues or the production issues that you talked about, when do you see that getting back to normal? Speaker 200:27:37Well, my perspective is that it will be improving through Q2, but it will be Q3 before it's relatively normal. Operator00:27:56Your next question comes from Giulio Romero from Sidoti and Company. Please go ahead. Speaker 700:28:04Thanks. Hi, good afternoon. Maybe switching to parts a little bit, it was nice to see the parts sales growth of 10% in the quarter. But was that performance in parts partially due to having more than expected capacity for parts since volumes were a little depressed due to the issues you just outlined? Speaker 200:28:24Matt, do you have any perspective on that? Speaker 300:28:27Yes. I wouldn't say that the I wouldn't say the impact of volumes on the ACP and basic segments provided excess capacity of parts. I'd say that the parts growth is really parts demand. And also from just a kind of year over year comp, also from last year to this year, just also a normalization of supply chain has really also kind of made it easier to transact parts in a kind of global sense. There's a lot of noise that kind of supply chain created in terms of being able to actually manage part sales that's really stabilized now. Speaker 300:29:00So it's really just driven by demand of parts, nothing to do with the kind of slower volumes off any of the sites. Speaker 700:29:10Okay, understood. And then maybe if we could talk about data centers. As you guys are assisting some of these data center customers and kind of being a hand holder of sorts, Is there any opportunity to provide any sticky products or sticky solutions that can embed you with those data center customers for the longer term? Speaker 300:29:31That's a fantastic question. Yes, I would say at a high level that's sort of where we specialize in providing kind of value add to our customers. And so that does afford us the opportunity to really put us in unique positions with our customers and develop solutions that really provide us a far better opportunity within those customers. And so that is actually actively in our prepared remarks when we talk about the engagement of our engineering and operations teams, that's exactly what they've been doing. It's really developing unique and really solutions tailored for given owners kind of business models. Speaker 300:30:10And that's one of the great benefits of being a manufacturer with that kind of custom DNA where we can really solution something for the owners and then convert that to a mass produced product and really add a lot of value. So definitely it's what we're most excited about. We certainly see opportunity to really ingrain ourselves in kind of their growth story and then really be able to kind of be at the forefront of enabling that. Speaker 700:30:38Excellent. I'll pass it on. Thanks very much. Operator00:30:47Our next question comes from Brent Thielman from D. A. Davidson. Please go ahead. Speaker 800:30:54Hey, thanks. Good evening. Matt, actually just kind of following up on that. Could you actually talk about the opportunity on the liquid cooling side for basics? And are you beginning to see orders for that specific market? Speaker 300:31:10Yes. No, it's an interesting one. And I'll say the surge in AI, it's really caused the industry to kind of really kind of look at how do you develop and deploy capacity to the marketplace that also has flexibility to kind of serve more traditional cloud compute as well as AI and kind of how you blend your development strategy around that. And we've really been working pretty heavily in that kind of market where we're developing solutions and really working with customers to solve the air side and liquid side kind of conundrum and how we kind of go forward. And that has already gotten us to a point where we've got orders in hand and really substantial opportunities in the liquid cooling realm. Speaker 300:31:58And really the fun of it's been kind of crafting solutions that really do provide flexibility in the deployment. So we see that actually as a really good strong suit because it provides a better opportunity to deploy products where you don't necessarily know exactly what that future demand at that given location is going to look like. And that greater flexibility really is attractive to the overall end user, and kind of as they look to deploy capital. So we're excited to be seeing the conversion to actually orders off of the liquid cooling efforts we're doing. And really from a pipeline Speaker 800:32:42Okay. And then, a lot of the focus in the commentary has been just around some of the delays, I suppose, with Longview and Basics. I guess my question would be was that with the core sort of Aon Oklahoma rooftop business what you would have expected this quarter or were there some delays in timing there as well? Speaker 200:33:08I think it's been relatively close, maybe just a slight bit softer than what we expected. But it's we thought that we would see more seasonality in that business than what we had seen in recent years. And I believe that's mostly what we saw in the Q1 was the fact that Q1 historically has been a softer quarter for that product. The last few years, we've had exceptions for various reasons. There were times when we had extraordinary lead time and others didn't that we got past some of that seasonality. Speaker 200:33:55There was buying habits that changed. There was just a whole lot going on. I think we're in a relatively normal cadence of business now. And our sales channel partners have strong backlogs themselves that they're processing, strong pipelines that they're processing and sending to us. And so while it was just a touch softer than what we may have expected, it wasn't entirely unexpected. Speaker 800:34:26Okay. And then just some of the pent up or built up sort of orders here, I suppose, with basics Longview, does that, I mean, all start to flow into the second half? I mean, should we see a huge catch up here? How do we think about that? I know you've got your expectations for the Q2. Speaker 800:34:45It sounds like it won't happen, but when does that ultimately flow? Yes, we certainly see the kind of Speaker 300:34:54second half orders conversion to revenue definitely being strong in those segments. And really that's also kind of going to be aided by the as Gary mentioned, there's a lot of disruption in the projects that are going on at both sites. And so as we also look forward to Redmond site wrapping up in the Q3 timeframe and in Longview at the end of the year, that's really going to help also kind of fuel some of that growth and kind of clean up some of the noise that's kind of happening on those sites. So we definitely do see that kind of second half kind of helping accelerate kind of from a volume in an overall revenue perspective kind of at both sites kind of given those constraints. Speaker 800:35:37Okay. Thanks, Matt. Appreciate it. Operator00:35:45There are no further questions. I will now turn the call over to Joseph. Speaker 100:35:55I'd like to thank everyone for joining on today's call. If anyone has any questions over the coming days weeks, please feel free to reach out to myself. Have a great rest of the day, and we look forward to speaking with you in the future. Thank you. Operator00:36:11Ladies and gentlemen, this concludes the call for today.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallAAON Q1 202400:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckPress Release(8-K)Quarterly report(10-Q) AAON Earnings HeadlinesDA Davidson Has Bearish Forecast for AAON FY2025 EarningsMay 6 at 2:43 AM | americanbankingnews.comAaon (AAON) Receives a Rating Update from a Top AnalystMay 6 at 12:17 AM | theglobeandmail.comOur $1 AI stock to buy right nowDid Elon Musk just set the stage for the next AI stock explosion? One 30-year Wall Street veteran thinks so. Musk has been quietly creating one of the most ambitious AI ventures in history.May 6, 2025 | Behind the Markets (Ad)William Blair Forecasts AAON's Q2 Earnings (NASDAQ:AAON)May 5 at 2:21 AM | americanbankingnews.comWilliam Blair Has Optimistic Outlook of AAON FY2025 EarningsMay 3 at 2:51 AM | americanbankingnews.comQ1 2025 Aaon Inc Earnings CallMay 3 at 12:52 AM | uk.finance.yahoo.comSee More AAON Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like AAON? Sign up for Earnings360's daily newsletter to receive timely earnings updates on AAON and other key companies, straight to your email. Email Address About AAONAAON (NASDAQ:AAON), together with its subsidiaries, engages in engineering, manufacturing, marketing, and selling air conditioning and heating equipment in the United States and Canada. The company operates through three segments: AAON Oklahoma, AAON Coil Products, and BASX. It offers rooftop units, data center cooling solutions, cleanroom systems, chillers, packaged outdoor mechanical rooms, air handling units, makeup air units, energy recovery units, condensing units, geothermal/water-source heat pumps, coils, and controls. The company markets and sells its products to retail, manufacturing, educational, lodging, supermarket, data centers, medical and pharmaceutical, and other commercial industries. It sells its products through a network of independent manufacturer representative organizations and internal sales force, as well as online. The company was incorporated in 1987 and is based in Tulsa, Oklahoma.View AAON ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Is Reddit Stock a Buy, Sell, or Hold After Earnings Release?Warning or Opportunity After Super Micro Computer's EarningsAmazon Earnings: 2 Reasons to Love It, 1 Reason to Be CautiousRocket Lab Braces for Q1 Earnings Amid Soaring ExpectationsMeta Takes A Bow With Q1 Earnings - Watch For Tariff Impact in Q2Palantir Earnings: 1 Bullish Signal and 1 Area of ConcernVisa Q2 Earnings Top Forecasts, Adds $30B Buyback Plan Upcoming Earnings Fortinet (5/7/2025)ARM (5/7/2025)DoorDash (5/7/2025)AppLovin (5/7/2025)MercadoLibre (5/7/2025)Lloyds Banking Group (5/7/2025)Manulife Financial (5/7/2025)Novo Nordisk A/S (5/7/2025)Uber Technologies (5/7/2025)Johnson Controls International (5/7/2025) Get 30 Days of MarketBeat All Access for Free Sign up for MarketBeat All Access to gain access to MarketBeat's full suite of research tools. 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There are 9 speakers on the call. Operator00:00:00Good evening, ladies and gentlemen, and welcome to the AAON, Inc. Q1 2024 Earnings Conference Call. At this time, all lines are in listen only mode. Following the presentation, we will conduct a question and answer session. This call is being recorded on I now would like to turn the conference over to Joseph Mondello, Director of Investor Relations. Operator00:00:30Please go ahead. Speaker 100:00:32Thank you, operator, and good afternoon, everyone. The press release announcing our Q1 financial results was issued after market closed today and can found on our corporate website, aa0n.com. The call today is accompanied with a presentation that you can also find on the website as well as on the listen only webcast. Please go to Slide 2 in the presentation. We begin our customary forward looking statement policy. Speaker 100:00:59During the call, any statement presented dealing with information that is not historical is considered forward looking and made pursuant to the Safe Harbor provisions of the Securities Litigation Reform Act of 1995, the Securities Act of 1933 and the Securities and Exchange Act of 1934, each as amended. As such, it is subject to the occurrence of many events outside of Aon's control that could cause AAAN's control that could cause AAAN's results to differ materially from those anticipated. You are all aware of the inherent difficulties, risks and uncertainties in making predictive statements. Our press release and Form 10 Q that we filed this afternoon detailed some of the important risk factors that may cause our actual results to differ from those in our predictions. Please note that we do not have the duty to update our forward looking statements. Speaker 100:01:49Our press release and portions of today's call use non GAAP financial measures as defined in Regulation G. You can find the related reconciliations our President and COO, Matt Tabalski and our our President and COO, Matt Tabalski and our CFO and Treasurer, Rebecca Thompson. Gary will provide some opening remarks. Matt will then provide some commentary on the operations, followed by Rebecca, who will walk through the financials, and we'll finish with Gary, who will update you on the outlook before opening it up to Q and A. With that, I will turn the call over to Gary. Speaker 200:02:30Good afternoon. Let's start on Slide 3. 1st quarter performance was mixed relative to our expectations. Bookings remained strong and were in line with our expectations. This was consistent across all three of our segments. Speaker 200:02:46Total backlog increased for a 2nd straight quarter. Compared to a year ago, it was down just 6.9%, which is positive considering how abnormally large backlog was when supply chain issues were adversely affecting our lead times. Sales and earnings were a little soft to start the year due to lighter than expected volumes. A large factor to this was timing of backlog conversion at our Aon Core Products and Basics segments. Order trends at both segments remained solid though and backlogs at both increased substantially throughout the quarter. Speaker 200:03:27In addition, beyond what is currently in the backlog, both have significant opportunities with the data center market. Thus, while these two segments were a large reason for the soft results in the Q1, we are very confident both will improve going forward. Despite volumes levels being down in the quarter, profit margins were better than we expected. We've executed well from a price cost perspective, while at the same time strategically balancing the price premium of our equipment. Now I'd like you to turn to Slide 4. Speaker 200:04:06Looking forward, we remain cautiously optimistic on the near term, while maintaining a bullish outlook on the long term. Our traditional markets remain stable despite high interest rates and other economic headwinds. The sentiment amongst our channel partners is positive and all indications lead us to believe there is strong level of activity within the market. We still think orders could be volatile this year due to the refrigerant transition. However, we also think as we progress further into the year and approach the point in time in which we will be unable to accept orders for R-410A equipment, it is likely we see a short term wave of orders related to projects already designed for 410A refrigerant. Speaker 200:04:57At the same time, we are well positioned to take advantage of customers who are seeking the new refrigerant equipment, as we are currently accepting orders for a comparable price to 410A equipment. We are also strategically positioned from a pricing and product development standpoint. Our narrower price premium makes us more competitive and all indications tell us we're going to be even more competitive from a cost of manufacturing perspective as the markets transition to the lower GWP refrigerant. As far as product development, the advancements of our fully electric heat pump technology, Alpha class branded products, positions us extremely well as the industry begins to focus more and more on electrification. Earlier this month, the Department of Energy announced a program to expedite development and adoption of cold climate commercial heat pump rooftop units. Speaker 200:05:59AAON already has a considerable lead in the advancement of this technology, which will allow us to capitalize on early adopters. Initially, this will most likely be large corporations with wide ranging footprints of buildings, which would potentially make this a big opportunity for us. Beyond our traditional markets, we are increasingly excited about the data center market and how we can capitalize on the growth cycle of this end market. The pipeline of work over the next several years is immense and current activity is moving at an aggressive pace. Our engineering and sales teams are executing at a 1st class rate. Speaker 200:06:45All the feedback we are receiving from our customers leads us to believe we are in the midst of becoming the best in class solutions provider for both air side and liquid cooling applications. To best capitalize, we are working diligently to increase our capacity, ensuring we maximize our opportunities. I'll now hand over the call to Matt Tobalski, who will speak more in-depth about our operational strategy. Speaker 300:07:14And thank you, Gary. If you will, please turn to Slide 5. We utilized this slide in our Q4 call, but the only difference being we've added a 6 flights to the pie, which is our data center solutions. Data center vertical has been an integral factor to the robust growth that the Basic segment has realized over the last several years. We expect this market will become an even larger part of the overall organization going forward given the current makeup of backlog in the pipeline of future opportunities. Speaker 300:07:42Over the last 6 to 9 months with the advancements of semiconductor chip technology and the anticipation of increased computing demand fueled by artificial intelligence, data center companies have accelerated their construction plans aggressively. Over this time, Aon's engineering and operational teams have been diligently working with customers helping them design solutions to fulfill their ambitious goals. Given the capacity and density of these new AI data centers, customers are looking for providers who can develop unique air side and liquid cooling solutions. This type of custom engineering is exactly what basic core is all about and is what sets the business apart from most in the industry. With assistance from the rest of Aon's operational teams, we have executed nearly flawlessly, recently leaving big impressions with some of the biggest customers in the industry. Speaker 300:08:31From my point of view, considering our success in this market to date, we are positioned to be the best in class provider for this market. In preparation of supplying the increased demand our data center customers require, we've been aggressively investing in new capacity. The 2 primary projects that have been underway since last year include expansions of our Redmond facility and our Longview, Texas facility. In total, the two projects will increase the overall company's total manufacturing square footage by approximately 15%. But given the scale of some of the orders we anticipate, we expect the increased capacity in terms of revenue to be much greater than 15%. Speaker 300:09:08Both projects are on schedule. Redmond expansion is expected to be finished by the end of Q3 of this year and the Longview expansion is expected to be complete by the end of this year. The rest of our growth strategy is also progressing. Our product development continues to lead the industry. Currently, much of the industry is consumed with meeting the upcoming low GWP refrigerant requirements. Speaker 300:09:29Meanwhile, we've had our complete portfolio of equipment offered with the new refrigerant since the start of this year. We're also well ahead of the industry with the advancement of commercial heat pump technology. We're the only company in the commercial market with a portfolio of fully electric heat pump powered rooftop units that are operable down to 0 degrees. AAON being the first to market with this technology is going to position us to fully benefit from the increasing demand to decarbonize and electrify buildings. Our complete portfolio of rooftop units, including the cold climate heat pump configurations, provide us with a big opportunity with national accounts. Speaker 300:10:06Lastly, our already world class sales channel continues to strengthen, which is going to be integral to our continued growth and market share goals. The consolidation of the channel is helping accelerate the sharing of best practices and our increased support through marketing, parts and service will further help our reps become more successful in penetrating the market. Altogether, we expect these strategies will allow us to continue to gain market share over the coming years. In conclusion, we have a sound growth strategy that the team is executing upon. The 1 Aon culture has never been so strong. Speaker 300:10:38Operations are running at some of the highest efficiency levels in years And overall, I could not be more pleased with the progress we've been making and the extent of opportunities we have going forward. And with that, I will hand it off to Rebecca to walk through financials. Speaker 400:10:52Thank you, Matt. Please turn to Slide 6. Net sales declined 1.4% to $262,100,000 from $266,000,000 Volumes were down 5.7%, partially offset by pricing, which contributed 4.3%. The decline in volumes were driven by the Aon Coil Products and Basics segments, which realized total sales declines of 27.4% and 9.3% respectively. Both segments had strong backlogs entering the quarter compared to a year ago, so the revenue declines at both were largely based on timing of backlog conversion. Speaker 400:11:32The Aegon Oklahoma segment realized an increase in total sales of 4%. Volumes at this segment were down modestly, which was a result of a much smaller backlog at the beginning of the quarter compared to a year ago. This segment also endured some volatility in orders throughout the quarter, resulting in an almost flat backlog and also partially contributing to the lower volume. Moving to Slide 7, gross profit increased 19.6 percent to $92,200,000 from $77,200,000 As a percentage of sales, gross profit was 35.2% compared to 29% in the Q1 of 2023. The improvement in gross profit margin was primarily a result of increased pricing and moderating material cost inflation offset slightly by higher labor costs. Speaker 400:12:24Please turn to Slide 8. Selling, general and administrative expenses increased 37.5 percent to $45,300,000 from $32,900,000 in the Q1 of 2023. As a percent of sales, SG and A increased 17.3% from 12.4%. The increase relative to sales is primarily attributable to the lower volumes, increased employee compensation, incremental investments we've made in technology and increased professional and legal fees. Overall, SG and A expenses were in line with our expectations. Speaker 400:13:04Moving to Slide 9, diluted earnings per share was $0.46 slightly up from a year ago. Included in the net results was an excess tax benefit of $4,400,000 from the share based compensation within the quarter. For the remainder of the year, we anticipate an effective tax rate, excluding discrete events in a range of 25% to 26%. Turning to Slide 10. Our balance sheet remains strong. Speaker 400:13:34Cash, cash equivalents and restricted cash totaled $28,400,000 on March 31, 2024 and debt at the end of the quarter was 0. Cash flow from operations in the Q1 was $92,400,000 dollars up from $4,800,000 in the comparable quarter a year ago. Working capital at the end of the Q1 declined 15,100,000 or 5.4 percent from a year ago, resulting in better cash conversion. Capital expenditures, including expenditures related to software development, increased 33 percent to 38,700,000 dollars Even with the higher CapEx budget, we were fully able to pay down our line of credit and finance the quarterly dividend while marginally increasing our cash position. All in, our financial position is strong, allowing us to fully capitalize on growth opportunities. Speaker 400:14:29With that, I'll now turn the call back over to Gary. Speaker 100:14:59Operator, I think we may have dropped Gary potentially. Speaker 400:15:06Yes. I see Gary. Speaker 100:15:07I'm just going to finish out the closing remarks and then we can open it up to Q and A. Okay. Please turn to Slide 11. All in all, we feel very good where we are currently. For the last several years, we've made major strides in transforming this company from a niche application based provider to a mainstream solutions provider. Speaker 100:15:28The last 2 years, we've really had substantial growth and have captured market share. In our view though, we've just started to scratch the surface. Many of the changes we've made from a business management perspective to sales and marketing to product development have yet to be fully realized. We have the best product by far and the best for the best value. These changes will leverage that and propel our share gains further. Speaker 100:15:55To add to that, the magnitude of opportunities we have within the data center market leaves me with little doubt we will be able to achieve our long term goal of 10% plus annual revenue growth. In the near term, following 2 very strong years for AAON, in a time when the economy is slowing and we're proceeding in election, we expect growth to temporarily moderate, but for the reasons previously stated that this does not concern me at all. If I have any question any concern at all, it would be we can would be we can we can we continue to build capacity quick enough in an efficient manner to keep up with the growth we foresee? In 2024, we are now looking for volume to be down low single digits to flat. We anticipate year over year comps for volume would improve throughout the year with much of the improvement occurring in the second half. Speaker 100:16:50We continue to anticipate pricing will be in a mid single digit contributor and that gross margin will be up year over year. For SG and A as a percent of sales, we now anticipate a 50 basis point to 100 basis point increase and we maintain our CapEx guidance of $125,000,000 For the Q2, we anticipate sales would be comparable to the same period a year ago and EPS will be modestly down. In closing, we just want to finish by thanking all of our employees, sales channel partners and customers. Thank you to our shareholders. This company has never been more well managed than it is today, and we look forward to generating returns that you expect for us. Speaker 100:17:34We can now open up the call for Q and A. Operator? Operator00:17:39Thank you. Ladies and gentlemen, we will now begin the question and answer Your first question comes from Chris Moore from CJS. Speaker 500:18:16Terrific. Hey, thanks guys. Thanks for taking a couple of questions. Maybe we could start with Basic. So obviously, it looks like the timing of basics backlog conversion contributed to a softer quarter. Speaker 500:18:30It's harder to gauge kind of quarter to quarter on basics. Can you give any sense in terms of basics as a piece of the backlog, as a percentage? Has that changed much over the last year or just kind of how we should be thinking about that? Speaker 200:18:52Yes, Chris, you can take that one. Speaker 300:18:54Yes, of course. Yes, Chris, great question. And certainly from a kind of contribution of basics in the backlog, I guess the simple way to kind of look at it, we talked during the last quarter call kind of on the 2023 kind of performance, which was basics as a whole in 2023 was approximately 10% of the overall revenue within the enterprise, but contributed 20% to bookings for the year. I should say, yes, sorry, 20% of that bookings for the year. And as we look forward and kind of this quarter and beyond, we're continuing to see that if not more contribution from the basics backlog. Speaker 300:19:31So we certainly see there being a lot of strength within the basics backlog and really also kind of helping drive the coil products business down in Longview as well as we kind of start to really engage to get the basics products built down there as we continue the expansion with data products. So it certainly is going to become more and more relevant going forward as a percentage of the overall revenue of Aon. And definitely see it contributing substantially greater growth kind of on a year annualized basis compared to legacy business. Speaker 200:20:04Yes. One other thing, Chris. I think we have stated before that basics had been about 10% of our total revenue and we expected at some point not too far in the future that would be closer to 20% because they were growing so rapidly. Speaker 500:20:24Got it. No, that makes sense for sure. I think one of the things you talked about, Gary, in your prepared remarks was that the order flow will improve will further improve at point in time this year that customers no longer able to order equipment with the R410a refrigerant. Do you have a kind of a best guess as to when that point is? Speaker 200:20:51It's going to be a bit it's dependent on lead time for this reason. You cannot deliver equipment with 410A, our type of equipment beyond December 31. So if you say, well, I want to have a 2 or 3 week buffer between December 31st and the last unit I produced just to make sure I don't have some kind of stub my toe moment. And you have roughly a 10 week lead time. So let's just put that at 12 weeks. Speaker 200:21:27So just back up 12 weeks from the end of the year and that's got to be the absolute cutoff. Well, we're going to try and push people towards a cutoff ahead of that so that we don't end up with a problem. The problem could be and I've heard other manufacturers talk about this. If we get a surge of orders, people wanting to get 4.10.8 the last minute, then the lead times could easily bump out. And then where you at? Speaker 200:21:57So this is a it's kind of an unusual situation that we've not really encountered before. When we had a refrigerant change before, there was no building codes associated with it. This time, there's building codes necessary in order to utilize the new refrigerant, while there's also additional expense in the buildings. And I think that's driving some people to say, well, I'll just go ahead and get 410A because I don't have to have this additional expense for these refrigerant management strategies that are required by this new code. So just to summarize that, I would say somewhere in August, we're probably going to see a surge. Speaker 500:22:50Got it. It's very helpful. And maybe just last one to kind of follow-up on the point you just made in terms of the increased costs. It sounds like you guys are in really good shape from that perspective. The my understanding is that the new fridge requirements are really not going to cost Anne anymore. Speaker 500:23:14You have the new safety device you'll have to include with it, but you're manufacturing that internally. So it sounds like from a competitive standpoint, you should be in a really good position for this changeover. Am I looking at that correctly? Speaker 200:23:30Yes, I think so. As we went through unit by unit, that holds true for vast majority. There's cases in there where we lost capacity when we converted. And so you've got to add something to get more capacity. That's not across the board. Speaker 200:23:55It's not prevalent, but it does appear here and there on certain size units. But I think mostly the way we portrayed that is correct, yes. Operator00:24:15Your next question is from Ryan Merkel from William Blair. Please go ahead. Speaker 600:24:22Thanks. Good afternoon. Gary, it sounds like the big issue this quarter is the timing of backlog conversion. Can you unpack what happened with production this quarter? And when did the production issues hit you exactly? Speaker 200:24:37Well, actually each month had something just a little different at those 2 factories that we saw January wasn't too bad. Towards the end of January, we had some weather events that hit us more in basics than it did anywhere else. But more prevalently was it hit some of our customers. And our customers asked us to slow down on certain projects just a little bit. They said, hey, we don't have anywhere to put this equipment. Speaker 200:25:12Can you slow down just a little? So there was some weather event in there. And then I don't want to discount entirely the impact of the construction going on at both of those locations. Both of them have substantial construction going on. What's going on in Longview is probably less disruptive because it's outside of the building we're using now, but it's somewhat disruptive. Speaker 200:25:40But in Oregon, they have disrupted of the 2 primary buildings up there. 1 of them has had a reasonable disruption in rearranging what we're doing in there, getting it ready to move into the new building that we're building. And it's just it's not without impact. It's not substantial. It's not prolonged. Speaker 200:26:05It's not something we're going to put up with for a very long time, but we did see a little bit related to that. Speaker 600:26:16And are you able to quantify the sales impact from some of these issues in the quarter? Speaker 200:26:24Well, each segment reported, so you can see that both of those two segments that I just spoke of, ACP and basics were both below 2023. The growth, while it was marginal, was in Tulsa. And Tulsa just it has no disruptions of any magnitude, a little bit of weather related for some of our customers. We had customers saying you're shipping too early to us. With this weather, we're having weather delays. Speaker 200:27:03Can you slow down a little? That happened across the whole enterprise, but Tulsa was less impacted by it. Does that answer your question, Ryan? Speaker 600:27:14Yes, I think so. I think maybe the follow on would be, it sounds like I think you said 2nd quarter sales flat. So we're not seeing a lot of improvement in 2Q. When do you expect that these timing of backlog issues or the production issues that you talked about, when do you see that getting back to normal? Speaker 200:27:37Well, my perspective is that it will be improving through Q2, but it will be Q3 before it's relatively normal. Operator00:27:56Your next question comes from Giulio Romero from Sidoti and Company. Please go ahead. Speaker 700:28:04Thanks. Hi, good afternoon. Maybe switching to parts a little bit, it was nice to see the parts sales growth of 10% in the quarter. But was that performance in parts partially due to having more than expected capacity for parts since volumes were a little depressed due to the issues you just outlined? Speaker 200:28:24Matt, do you have any perspective on that? Speaker 300:28:27Yes. I wouldn't say that the I wouldn't say the impact of volumes on the ACP and basic segments provided excess capacity of parts. I'd say that the parts growth is really parts demand. And also from just a kind of year over year comp, also from last year to this year, just also a normalization of supply chain has really also kind of made it easier to transact parts in a kind of global sense. There's a lot of noise that kind of supply chain created in terms of being able to actually manage part sales that's really stabilized now. Speaker 300:29:00So it's really just driven by demand of parts, nothing to do with the kind of slower volumes off any of the sites. Speaker 700:29:10Okay, understood. And then maybe if we could talk about data centers. As you guys are assisting some of these data center customers and kind of being a hand holder of sorts, Is there any opportunity to provide any sticky products or sticky solutions that can embed you with those data center customers for the longer term? Speaker 300:29:31That's a fantastic question. Yes, I would say at a high level that's sort of where we specialize in providing kind of value add to our customers. And so that does afford us the opportunity to really put us in unique positions with our customers and develop solutions that really provide us a far better opportunity within those customers. And so that is actually actively in our prepared remarks when we talk about the engagement of our engineering and operations teams, that's exactly what they've been doing. It's really developing unique and really solutions tailored for given owners kind of business models. Speaker 300:30:10And that's one of the great benefits of being a manufacturer with that kind of custom DNA where we can really solution something for the owners and then convert that to a mass produced product and really add a lot of value. So definitely it's what we're most excited about. We certainly see opportunity to really ingrain ourselves in kind of their growth story and then really be able to kind of be at the forefront of enabling that. Speaker 700:30:38Excellent. I'll pass it on. Thanks very much. Operator00:30:47Our next question comes from Brent Thielman from D. A. Davidson. Please go ahead. Speaker 800:30:54Hey, thanks. Good evening. Matt, actually just kind of following up on that. Could you actually talk about the opportunity on the liquid cooling side for basics? And are you beginning to see orders for that specific market? Speaker 300:31:10Yes. No, it's an interesting one. And I'll say the surge in AI, it's really caused the industry to kind of really kind of look at how do you develop and deploy capacity to the marketplace that also has flexibility to kind of serve more traditional cloud compute as well as AI and kind of how you blend your development strategy around that. And we've really been working pretty heavily in that kind of market where we're developing solutions and really working with customers to solve the air side and liquid side kind of conundrum and how we kind of go forward. And that has already gotten us to a point where we've got orders in hand and really substantial opportunities in the liquid cooling realm. Speaker 300:31:58And really the fun of it's been kind of crafting solutions that really do provide flexibility in the deployment. So we see that actually as a really good strong suit because it provides a better opportunity to deploy products where you don't necessarily know exactly what that future demand at that given location is going to look like. And that greater flexibility really is attractive to the overall end user, and kind of as they look to deploy capital. So we're excited to be seeing the conversion to actually orders off of the liquid cooling efforts we're doing. And really from a pipeline Speaker 800:32:42Okay. And then, a lot of the focus in the commentary has been just around some of the delays, I suppose, with Longview and Basics. I guess my question would be was that with the core sort of Aon Oklahoma rooftop business what you would have expected this quarter or were there some delays in timing there as well? Speaker 200:33:08I think it's been relatively close, maybe just a slight bit softer than what we expected. But it's we thought that we would see more seasonality in that business than what we had seen in recent years. And I believe that's mostly what we saw in the Q1 was the fact that Q1 historically has been a softer quarter for that product. The last few years, we've had exceptions for various reasons. There were times when we had extraordinary lead time and others didn't that we got past some of that seasonality. Speaker 200:33:55There was buying habits that changed. There was just a whole lot going on. I think we're in a relatively normal cadence of business now. And our sales channel partners have strong backlogs themselves that they're processing, strong pipelines that they're processing and sending to us. And so while it was just a touch softer than what we may have expected, it wasn't entirely unexpected. Speaker 800:34:26Okay. And then just some of the pent up or built up sort of orders here, I suppose, with basics Longview, does that, I mean, all start to flow into the second half? I mean, should we see a huge catch up here? How do we think about that? I know you've got your expectations for the Q2. Speaker 800:34:45It sounds like it won't happen, but when does that ultimately flow? Yes, we certainly see the kind of Speaker 300:34:54second half orders conversion to revenue definitely being strong in those segments. And really that's also kind of going to be aided by the as Gary mentioned, there's a lot of disruption in the projects that are going on at both sites. And so as we also look forward to Redmond site wrapping up in the Q3 timeframe and in Longview at the end of the year, that's really going to help also kind of fuel some of that growth and kind of clean up some of the noise that's kind of happening on those sites. So we definitely do see that kind of second half kind of helping accelerate kind of from a volume in an overall revenue perspective kind of at both sites kind of given those constraints. Speaker 800:35:37Okay. Thanks, Matt. Appreciate it. Operator00:35:45There are no further questions. I will now turn the call over to Joseph. Speaker 100:35:55I'd like to thank everyone for joining on today's call. If anyone has any questions over the coming days weeks, please feel free to reach out to myself. Have a great rest of the day, and we look forward to speaking with you in the future. Thank you. Operator00:36:11Ladies and gentlemen, this concludes the call for today.Read morePowered by