Q3 2022 Aaon Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to Aam's third quarter 2022 earnings Conference call.
All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer session.
If you would like to ask a question. During this time. Please press star followed by the number one on your telephone keypad.
If you would like to withdraw your question again press Star one thank you.
Joe Mondello director of IR, you May begin your conference.
Thank you.
And good afternoon, everyone press release announcing our third quarter 2022 financial results was issued after market close today and can be found on our corporate website.
<unk> Dot com.
Joining me on the call today are Gary fields, President and CEO , and Rebecca Thompson, CFO and treasurer.
Shortly I'll be handing the call off to Rebecca for her to go through the third quarter results. Gary will then provide further insight on the quarter along with commentary on our outlook and then we'll open up the call to Q&A.
With that though we began our customary forward looking statement policy during the call any statements 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 19 at 33 and the Securities Exchange.
Active 1934, each as amended as such it is subject to the occurrence of many events outside of a and control and that could cause <unk> results to differ materially from those anticipated you're all aware of the inherent parent difficulties risks and uncertainties in making predictive statements.
Our press release and Form 10-Q that we filed this afternoon detail some of the most 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 and with that I will turn the call over to Rebecca.
Thank you Joe.
I'd like to begin by discussing the comparative results of the three months ended September 32022 versus September 30th 2021.
Net sales increased 75, 1% to $242 6 million from $138 6 million the largest driving factor to the growth with organic volume, which contributed 26, 9%.
Volume growth reflected the company's strong backlog and a third straight quarter of record production at.
Improved productivity, along with an approximate 18% increase in organic head count helped drive the increase production.
In addition to volume pricing contributed 24, 4% and the acquisition of basics contributed 23, 8%.
Similar to the legacy business basics performed extremely well in the quarter basics realized record sales and EBITDA of any quarter in its history, while increasing its backlog 33, 8% from the end of the second quarter of 2022.
Our gross profit increased 82, 1% to $65 6 million from $36 million as a percentage of sales gross profit was 27% compared to 26% in the third quarter of 2021.
I answered in gross profit margin was driven by higher pricing and improved productivity, partially offset by higher costs and adverse effects of supply chain issues.
Gross profit was the highest since the second quarter at 2021.
Similar to the trend realized in the second quarter of 2022 gross profit margin improved throughout the third quarter.
Selling general and administrative expenses increased 81, 7% to $28 9 million from $15 9 million in the third quarter of 2021.
As a percentage of sales SG&A increased to 11, 9% from 11, 5% in the third quarter of 2021.
Excluding basics SG&A expenses increased 41, 5% and totaled 10, 7% of sales down 80 basis points from a year ago. We continue to do a good job at controlling these expenses.
Income from operations increased 82, 3% to $36 7 million or 15, 1% of sales from $20 1 million or 14, 5% of sales in the third quarter of 2021.
Our effective tax rate increased to 23, 3% from 22, 5%. The company's estimated annual 2022 effective tax rate excluding discrete events is expected to be approximately 25%.
Net income increased to $27 5 million or 11, 3% of sales compared to $15 6 million or 11, 2% of sales in the third quarter of 2021.
Diluted earnings per share increased 75, 9% to 51 cents per share from 2009 cents per share.
Turning to the balance sheet, you'll see that we had a working capital balance of $193 9 million versus $131 3 million at December 31, 2021.
Unrestricted cash totaled $10 7 million on September 32022, and total debt at the end of the quarter totaled.
$76 3 million.
Within the quarter, we paid down approximately $30 million on our line of credit lowering our leverage ratio to 0.65 from 1.06 at the end of the second quarter.
Capital expenditures for the first nine months of the year were $41 6 million. We now expect capital expenditures for the year to be approximately $73 3 million, we monitor our growth trajectory and capacity regularly and we continued to invest in long term growth.
The company had stock repurchases of $8 9 million during the nine months ended September 32022.
Shareholders' equity per diluted share is $9 72 at September 32022, compared to $8 68 at December 31 2021.
I'd now like to turn the call over to our CEO and President Gary fields.
Overall, we're extremely pleased with third quarter results record sales production EBITDA earnings and record backlog.
He is performing very well, particularly compared to where we were just a couple of quarters ago.
Margin is still not where we want it to be but we have made substantial progress.
Gross margin and operating margin in the third quarter was the highest since second quarter of 2021.
I'm very pleased with the operations and the overall team and want to continue to commend their performance. The last 18 months been an extremely challenging environment and to be able to say, we just realized a third straight quarter of record production is truly commendable.
Organic volume growth of 26, 9% that was realized in the third quarter is pretty much unheard of in this industry.
And the comp was not easy.
In the third quarter of the year ago period was down 1% from our record third quarter in 2020.
On a two year stack volume was up 25%.
This performance is a result of several factors.
First as Rebecca mentioned head count the legacy company was up 18%.
We continue to do a good job with Onboarding new employees.
Second productivity has improved significantly when.
When we look at our unit sales on a per day per production employee basis. The third quarter was the highest it's been all year and that's when eliminating all the price increases.
The legacy operation is operating in a much improved level and I can say that this trend continued through October .
Lastly, the volume growth is also a reflection of our premier sales channel and the backlog our rep partners have been able to generate for us.
Like to thank all of our channel partners as well as all of our internal sales support our sales channel has never been as strong as it is right now and we're seeing it through the share gains we've been realizing.
Before diving deeper into the backlog and our sales channel I wanted to discuss our pricing and gross margins.
As we've discussed in the past dealing with hyper demand and hyperinflation, while at the same time, maintaining breast best practices with our channel partners has been challenging.
We've been saying the margin profile of the backlog has been on track to drive a recovery in gross margins I'm thrilled to report that's exactly what we saw in the third quarter.
The 27% gross margin realized in the quarter was up 430 basis points from the second quarter.
100 basis points from the year ago quarter.
It was the strongest gross margin since the second quarter of 2021.
We're very happy to see that.
We're still not where we need to be but gross margin improved throughout the quarter.
And profile of the current backlog is the best it's been in over a year, we're going to continue to see productivity improvements going forward.
Our gross margin is well on track to fully recover.
This improvement is largely related to a normalization of price versus cost.
In addition improved productivity is also a contributing factor.
Specifically see this at our core product segment, but it's happening throughout the organization.
In the third quarter, Hey on core products generated almost the exact amount of gross profit that it realized in all of 2021.
Not only a result of pricing.
Productivity improvements have been a driver to gross margin as well, we expect that factor will continue, especially as supply chain issues. He's.
Returning to the backlog and what we're seeing with demand.
Overall demand remained strong total backlog was up 183, 1% from a year ago and up 10, 9% for the end of the second quarter.
Organically backlog was up 109, 6% from a year ago.
Up four 7% from the end of second quarter.
The fact that backlog continues to increase sequentially as a sign that demand remains strong, particularly because our production is also increasing.
Organic bookings in the quarter were up year over year, 28%.
Sequentially. They were up 36, 7%, which is mostly volume driven.
Demand is very strong at basics bookings that basics compared to the second quarter were up 67%.
Backlog at basics is up 267, 1% since the end of 2021 and up 33, 8% from the end of second quarter.
While both the legacy business and basics continue to increase production to record levels backlog continues to grow.
Our lead times remain a contributing factor to the growth in bookings at both the legacy business in basics.
Demand continues to be fairly broad based as far as end markets lodging and office buildings remains soft but outside of that most sectors are quite strong.
Itis centers and semiconductor markets are very strong education remains solid health care and manufacturing are still good we're seeing robust demand in the grow facility.
Warehouse seems to be slowing a bit but remains still pretty good.
Overall demand is quite strong across the board, while we continue to monitor for the slowdown, but it seems everyone is anticipating we do not see it.
Sentiment among our channel partners remains very positive and the macro data. We track track is also encouraging.
Construction spending is back to pre pandemic levels and all of the leading indicators that we track such as the Abi The Dodge momentum index and construction starts are suggesting the next 12 months will continue to be strong.
Our biggest challenge right now is ramping up production fast enough.
While everyone is happy to see backlog growing we'd actually like to see backlog start to come down led by improving lead times, which I think we're going to start to see in 2020 three.
The team is doing a great job with adding head count while improving productivity at the same time and we're continuing to invest in capacity. Our capex. This year is probably going to be about 8% of sales.
And capex, both on an absolute basis and as a percent of sales will most likely increase in 2023.
We want to continue to provide our channel partners and customers with the best lead times to do this we're going to continue to invest in the business we.
We feel strongly that we have the best product offering the best value to accommodate the increasing demands related to decarbonization energy efficiency and indoor air quality.
As we continued to deliver at a very competitive lead time, we're going to set our channel partners that for maximum success enabled enabled them to continue to take share.
I want to provide a little color on our water source heat pump business and the decision we made to exit a couple of product lines.
In 2015 prior to my arrival the company entered this market organically with the thought that it would complement our product portfolio of energy efficient equipment and that the market had vulnerabilities we can capitalize on.
We've determined to terminate a portion of this business, specifically, our horizontal and vertically configured indoor units.
As Quintin equipment is very standard and has minimal pricing power and we haven't been able to generate profit margins that we expect.
Furthermore, the upcoming refrigerant regulations would require a capital investment we decided would not be the best use of capital.
It's not unusual for an innovative company like Aon to make changes like this and as we've always done we'll continue to monitor the financial performance of our product portfolio.
This portion of the business generated approximately $10 million of sales in 2021 and is on track to do similar in 2022 so its only about 1% of sales.
We wouldn't normally address something so immaterial to revenue, but we've openly discuss the water source heat pump business since inception.
Such we felt it would be appropriate to provide some information on what we're doing.
Also by doing this it's going to land more capacity for high margin high growth equipment.
We will repurpose head count and equipment once the production of this product line has wound down which would be in early 2023.
Also wanted to touch briefly on our parts business.
<unk> still make up a small percentage of sales at six 6%, but it's something we've been focusing a lot on both internally and with our channel partners, we've been having great success.
Parts sales in the third quarter were up 31, 4% and were a quarterly record for the company for the second straight quarter.
The 31, 4% growth was against a comp of 15.4% growth realized in the third quarter of 2021.
Compared to 2020 part sales were up 51, 7% in this past quarter.
Cards generate some of the strongest gross margins in our company. So growing this business will continue to be a strong focus of ours.
Before finishing up and hand, it off the call for Q&A I want to provide some information on our outlook for the rest of the year.
Based on the size of the backlog the improving margin margin profile of the backlog and the increasing production capacity and productivity. We anticipate we will finish off the year on a high note.
Sales in the fourth quarter, most likely will be comparable to the third quarter due to the holidays, we see in the quarter.
Margins and earnings will continue to improve sequentially.
Expect gross margins will finally fully recovered to the target range of 28% to 32% that we've been talking about.
Looking out to 2020 three it's still early but we remain optimistic.
<unk> will be entering the year up substantially from a year ago, and we will continue to realize more price, which should pave the way for continued margin improvement.
Long term, we're continuing to invest in capacity and growth.
In closing I want to finish by thanking all of our employees sales channel partners and customers and I will now open up for Q&A.
At this time, if you would like to ask a question. Please press star followed by the number one on your telephone keypad.
Your first question comes from the line of Chris Moore with CJS Securities. Your line is open.
Hey, Greg good afternoon.
Congratulations on a great quarter, maybe thanks for just taking a couple of questions. So.
And historically has been priced at roughly a 15% premium to the market even with your.
Recent price increases the pricing Delta looks to be you know maybe the high single digits in some cases close to parity can you maybe talk a little bit about what's driving that that closing gap and do you expect this to be the new normal.
Yeah.
Well, we're watching that carefully we've always.
Kind of managed to margin not so much to market.
But I think we need to pay attention to that because we are a value over most of our competitors. So I think that the equipment definitely warrants a bit of a premium.
As I've said in.
Past calls quite a while back.
At a 15% premium there's a fair amount of work goes into proving the.
<unk>.
And in the past there it took some pretty strong talents in the sales channel to do that.
Is that premium comes down to 10% it becomes much easier to explain and people begin to take notice of it much better so I'd like to.
Sure that we stay in that range, but we've also added a lot of marketing tools that help explain that value.
We have a new building that's going to be opening up.
Probably first quarter of 2023, where we'll have our equipment along with different competitors equipment sitting side by side and the visual representation is quite strong by itself without a lot of calculations.
Got it very helpful.
Maybe just one more.
You guys have introduced some cold climate air source heat pumps. This year I guess, maybe a few questions. There how is the market reacting to them you know how significant they are you know relative to the whole deep carbonization trend in and lastly, how did the capabilities compared to the to the rest of the market.
Alright, I'll start with your first part of the market is loving it we had a significant built.
Building owners in the laboratory recently to for them to witness the testing of those units.
We have already proven their performance, but we keep a unit available to display to people. So they can see the performance characteristics with empirical data not some model data.
This particular client Oh his.
Kind of made.
Made the news recently for a not a.
Building quite as much as what they had originally intended to but what they're doing is going back and looking at some existing buildings and trying to bring them into our compliance.
Compliance with some of their de carbonization goals that they have so we have multiple clients looking at it that way and that's where you know.
E Commerce warehouses, maybe on a new construction basis have slowed down but.
Our impact on that is growing substantially.
And I think a lot of it's going to be change out.
Other thing you may recall it was when I came to the company six years ago, we were about 50%, new construction and 50% replacement and I made the statement than that our goal was to raise the replacement percentage while also growing the the new construction application.
We've been very successful with that I don't have latest figures on that but it's somewhere upwards of 60% approaching 65%. The last time I saw it on replacement and I think the cold climate capable of air source heat pump is driving a fair amount of that.
The next thing.
I I got your third part of your question on.
The capabilities.
I'll ask you to repeat the second here in a second.
You know how significant the this you know the there's products are relative to you know the whole de carbonization trend.
Well, they're very significant.
When you look at the the portion of the United States or North America for that matter that are zero degree Fahrenheit capable air source heat pump with good efficiency and good capacity applies its significant.
We have development ongoing with a new technology that will take us down to minus 25, Fahrenheit, but that's going to also be completed in conjunction with the refrigerant changeover. So at this point in time, we've opened up a lot of possibilities.
With zero degree capable and were seeing strong support for that as we get the new parts and pieces that are required for a minus 25, I think it'll be very very significant.
And.
Now I've forgotten your third part give me the third part again.
You know how does it compare to the rest of the market what else is out there yeah. Yeah, yeah, yeah. Okay. So the vast majority. According to the research that my team has provided me the vast majority of our air source heat pumps that are out there, which there is not that big of a selection in package rooftops there are great select.
<unk> is in a residential unitary split systems, but in package rooftops, there's not a huge selection, but most of them seem to.
Not be viable below maybe 30 degrees or even 35 degrees Fahrenheit, so being able to capture that delta will use the smaller number from 30 degrees down to zero degrees that captures a huge amount of operating hours and in areas that are not sun belt areas.
So it it's pretty significant and like I say with the the research we've got products that they they've already been in the lab and tested with prototype materials as those become commercially available where we're going to.
To be able to capture just a significant more of that.
People that want to Decarbonize.
Terrific very helpful I'll jump back in line.
Okay.
Your next question comes from the line of rent Thielman D. A Davidson your line is open.
Good afternoon, Brad Thanks.
Good afternoon, Congrats on a great result.
Hey, Gary.
It looks like you got about 24% from price of the 75% and total growth was wondering if any of the March price increase which I think was 7% is any of that represented in.
The revenue you've reported today and I guess, you've still got the one percentage point increases thereafter.
Yeah, our various I don't have the exact percentage, maybe rebecca might have that I'll ask her to look that up.
And see if she can get that for you percentage in the quarter I know in October we're getting a good bit more of the March price increase we looked at it and how that occurred.
At one time I was told of the 7% we got about 5%.
And in October .
So it was beginning to come into the quarter, but it would've been the very tail end. So there's quite a bit left to gain and then as you mentioned starting June 1st we had 1% per month and that's still in place.
We've not discontinued that yet.
Okay, that's great and then Gary I mean last quarter, you guys talked a bit about.
The <unk>, the basics is making and maybe some opportunity to produce product.
Out of long view or customer or maybe set of customers just any update on the progress on that front.
Yes, the Oh first prototype units had been built Oh, there's one on the way to the laboratory right now for final testing.
It may be there by now last week it was.
Finished in <unk>.
A long view that the manufacturing facility is ready to go.
We vetted out the process, we built three prototypes.
So that we could learn what was most manufacturer bowl to meet.
The expectations of the client.
And we actually ended up giving them.
A little more.
Than what we originally thought we were going to give them, but it was a more manufacturable unit. So.
We're not anticipating starting full blown production until around January 1st between now and then we'll be vetting out the manufacturing process refining it and so forth because remember you design and build one of these units once.
You you design it once and then you build it hundreds if not thousands of times.
So they are very very custom but.
You get to put a fairly large number in front of the bill of materials. When you. When you go doing it. So you want to make sure everything's as optimized as possible and that's what we're in the process of cleaning up and finishing up right now.
Hey, Brent I can circle back to you on that pricing question for the March price increase that was 7% we saw about 1% of it in August .
3% of that in September and a little over 6% of that in October .
Okay great. Thank.
Mhm.
Thanks, Rebecca Yeah, and then maybe just another one Gary you mentioned the potential for them.
Your backlog to come in here at some point in 2023 at your lead times improve.
Some of the competition out there has talked about.
Yeah.
You can stretch lead times in the industry, maybe you could just talk around that and I guess.
What you see in terms of the visibility for 2023 and even into 'twenty. Four if you can comment on at this point.
Well I wanted to go back to the beginning it's six years ago last week that I began as president of Aegon.
And when I became president and I took over all the sales engineering and manufacturing the back office stuff stayed with norm.
<unk> made the statement to me as I walked in the door that the company could build more than we could sell.
And so I went about working with the sales channel to improve a lot of things that I knew was holding them back from being more successful.
And Unfortunately, we proved norm incorrect on that statement, that's why 18.
17, we did pretty good 18, and 19, where very challenging third quarter and 19, we began to show that we had figured out this manufacturing deficiency had corrected it and we actually have good capacity now all of this process is well documented there's a lot of objectives that we monitor and measure and so we're very confident.
Didn't that we know what our capacity is so we we got well ahead of where we were as you've seen the capex investments have been substantial and additional capacity, let's just circle back to Longview for a second you know we built a new building and it won't be a two years that its been in.
<unk> until February of 'twenty three.
But they are now producing over double.
Of what they produced a prior to that new building. So we.
We have put a lot of investment into manufacturing capacity I felt certain that the demand was there for the equipment.
The sales channel prove that way back there in 17, 18, and they've continued to prove that they they've done a great job for us.
And we've listened to them intently on you know what.
What product positioning should look like for them Oh, what we can do for.
Just adding capabilities that help them to close sales more efficiently and so we've we've invested an awful lot in those aspects of the business and they're all finally coming to fruition and you began to see it like I said in fourth quarter of 19, but then the the.
Pandemic hit and kind of slowed things down for us for a little while so now we're able to.
The supply chain has thawed out a lot.
It's not totally without strain, but it's a substantially improved and were able to ramp up head count along with the availability of these components that have been a little scarce from time to time, we already had the manufacturing infrastructure. So all of these things are going to power us to increase production.
And the demand is very solid so like I say, if we were to reduce the backlog a little it's not going to be because of reduced bookings, it's going to be because of increased production.
Mhm.
Okay.
I appreciate the color I'll pass it on.
Your next question comes from the line of Julio Romero with Sidoti Your line is open.
Thanks, Hey, good afternoon.
If you guys could just talk about the customer reception to the shift in pricing strategy to that 1% must be and secondly is the order number.
You put up in the quarter kind of a cleaner order number with less noise so to speak.
So, let's talk about the 1% price increases.
I took that advice from norm. He had lived through inflationary times in the seventies and had use that strategy once before and said it was very successful.
We needed to kind of get we had to make some big moves to get back between the proper range I call. It between the guardrails. Once we felt certain that we were there then with inflation running roughly just just short of 10%.
I felt like 1% per month was very appropriate so we did that and our sales channel.
Just really appreciates that they said, it's a very predictable they know exactly.
What to expect and we have not yet shut that off because inflation hasn't yet shut down I mean, where were looking at wage rate increases.
Electronic component increases.
Well, some raw materials have come down the component and material component cost have not so we feel like that we've got it handled really well with the 1% per month.
And we'll probably continue that for a while yet until we see things strengthen in our margins a bit.
Above historic.
Which you know very likely could happen in 'twenty three if we're able to keep these price increases. We also look at the bookings rate to make sure that we've not slowed bookings down and as you can see with the increased backlog in the bookings the way. They are we have not slowed down anything so where we're at.
Satisfied with what we're doing on on that price increase strategy.
And what was your second part Julio.
Yeah, you know on the order number I was just looking to see if.
My thought processes with the monthly price increase that's very predictable as you said you would see less kind of spikes. You know ahead of a price increase so just trying to see if that that order number is more indicative of underlying demand.
Or at least you know relative basis than prior quarters.
On a relative basis. It is we're not seeing when we had you know.
357, 8% price increases we saw a huge pull forward I mean January 1st was just absurd. We saw a pull forward on that was in the.
Not quite 200 million high high one hundreds that pulled forward and that's what damaged our margins for so long there for a couple of three quarters and so with the 1% we're not seeing much pull forward at all Oh, it's fairly insignificant, it's not totally absent, but it's it's pretty insignificant so I think that the.
The bookings rate is normalized I mean this goes all the way back to June now. So that's several months that we've done that and each month, our prediction or projection actually from.
The sales department, telling us what's going to happen that's pretty much what's happening, we're not having any surprises on the high side or the low side.
Got it and I guess with that change in pricing strategy, you talk about where you are with price cost alignment I think you mentioned some of those component costs are still.
If it's not rising at least not coming down.
Yeah. So.
We've put together an F. P N a team I'm very happy with the Oh information they've been providing to all of US. It. It's something that we were probably in need of if the market is very stable in F. P. N. A team's job is pretty boring. It's it's when it's so dynamic like it's been for the last couple.
The years that their value is just absolutely you know proven oh with what they're telling me.
Our margins are going to continue to strengthen what what we see in <unk> looks like we'll be well into that 28% to 32% range and then you know we might possibly see something a little stronger than the first quarter if things stay the way they are.
So we'll just have to monitor this along but I'm very confident that we're in that range and that we're capable of staying in that range.
Perfect and then just last one for me.
You just mentioned it on that higher margin backlog, that's flowing through you know.
I don't know.
What are your thoughts on the duration of that higher margin backlog like how long does that tailwind.
Potentially go on for you guys.
Well, if you look at absolute run rate and absolute backlog.
Looking at about six months, that's in the house and orders have not slowed down a bit.
Historically, the company had a bit of a bell curve on bookings.
Hmm.
The first quarter and the fourth quarter were always a little slower than second and third quarter, we've not yet seen that this has been a steady slope up.
And I think a lot of that is the.
Better products that we're putting together like the.
Our cold climate capable air source heat pumps, the the growth and opportunity as a result of.
Acquiring basics.
All of these things are keeping that going forward and up and with regards to the margin.
Again, we've we've got that margin, where we want it and you know it it's going to.
Going to continue to strengthen a bit.
Yeah.
Great. Thanks for taking my questions I appreciate it thank you.
Next question.
Question comes from the line of Jon Braatz with Kansas City Capital. Your line is open.
Gary and good afternoon.
Good afternoon, Hey, nice quarter.
One question.
You're moving a lot of product out the out the door and I think you indicated that head count was up 18% in the quarter year over year.
And as you look at the.
The production opportunities sales opportunities going forward.
What kind of additional head count might you need for for next year, obviously productivity is improving but do you need it that type of increase in head count next year or two.
We're monitoring it based on so that the manufacturing facility as a whole has probably around 40% more surplus capacity as a whole.
The head count we need to measure it in that somewhere between 15, and 18% head Count's, probably the maximum that you can measure in effectively if you bring them in to fast Julie there have turnover, you'll have low productivity and as you've seen we've measured in 18%, but our productivity has gone up so.
Our onboarding procedures training procedures are much advanced over what they were a few years ago.
So what we're monitoring now is supply chain and as parts are available then we're able to relay that to our HR and say bring us more people and so we've kind of been ratcheting back and forth between the two is more parts are coming that we're adding people. So I think.
Our limiting factor in 'twenty three is two fold I don't Wanna add people. So fast that we become inefficient. That's number one and number two is I don't want people standing around without parts to put together now you know we manufacture at very high content of our equipment one of the things that you know.
Go back four or five years ago, we bought what Master Corporation.
Now called Aon controls there in Parkville, Missouri, not far from you and we challenge them with designing and building more of the electronic components in our units than what they had historically supplied to us and they've been very successful with that they keep moving forward with that so we have a better handle on.
And that set of components than you know what.
We ever have had in the past. The next thing was that our fan manufacturer that we were buying 35 40000 fans a year are we.
We were able back in late April to purchase from them the intellectual property tooling.
Hum all the fixtures along with Oh instructions you know, they're they're teaching us how to build the fans.
So we're starting to build fans and Ah Tulsa here in another month or so slowed down a little bit by some of the major equipment, we had to purchase to do that those people had supply chain issues and ironically, our purchasing department went to bat for them.
And got them some of the parts to build our equipment for us, which I thought was fun.
Having a pretty innovative and so they're they're getting these are big pieces of equipment to us probably three months ahead of what they had told us are not so long ago.
But being able to build our own fans is another thing that we can control a lot of the supply questions. On so you know we we continue to look at our vertical integration you know what else is being constrained what else can we do and we're very creative and innovative with that we're going to continue to do that and some of our 22.
'twenty three capex is gonna be dedicated towards that exact quest is increasing our manufactured content even more.
Okay Gary.
One other question, obviously basically have had a good quarter, though what looks very very strong.
And maybe incorrectly I thought basically its more of a data center company, but we talked a little you talked a little bit about the semiconductor opportunities.
Hum.
Is that something that is.
Is sort of new and emerging and have they've done a lot of work with some of our semiconductor manufacturers before.
Well actually the founders heritage was from semi conductor.
Okay.
Dave Benson began his career with Intel.
And when he left Intel he went to a broad mcclung pace company in Portland, and built units for Intel.
So I would say he's got around five decades of experience with semiconductor it was probably.
I don't have the number off the top of my head, but I think they've been doing about 30% to 35% of their revenue with semiconductor and clean rooms, and that that is something that is accelerating.
The alignment with a on is allowing some of those cause see those companies by huge huge orders at a time.
And you know previously if they wanted to give him an order that they were capable of technologically.
Building, but maybe not physically building.
Because they didn't have enough physical infrastructure to do it. So now they've got more infrastructure are the new building. They built just prior to us purchasing them helped that and then the legacy a on facilities helped out a little bit too. So this is something that is a very very good opportunity for them they have very high.
High regard in the industry for their abilities and now they've got a strong foundation underneath them that will allow us to capitalize on those.
If if things.
If things continue well for basic do they have in combination with your legacy business do they have the footprint.
Two.
Let's say double sales.
Easily.
Well, what we're what we're able to do for them in long view just in the data center itself doubles their sales.
Yeah Okay.
Okay Alright.
Thank you very much.
Thank you John .
Okay.
There are no further questions at this time I'd like to turn the call back to Mr. Joe Mondello for closing remarks.
Alright, I would like to thank everyone for joining on today's call. If anyone has any questions over the coming days and weeks. Please.
Feel free to reach out to myself I have a great rest of the day and we look forward to speaking with you in the future. Thank you.
This concludes today's conference call you may now disconnect.
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