Q4 2023 AAON Inc Earnings Call
Operator: Good afternoon, ladies and gentlemen, and welcome to the AEON Inc. 4th Quarter 2022 Earnings Conference Call. At this time, all lines are in a listen-only mode.
Good afternoon, ladies and gentlemen, and welcome to the NN, Inc. Fourth quarter 2020 earnings Conference call. At this time all lines are in a listen only mode. Following the presentation, we will conduct a question and answer.
Operator: Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Thursday, February 29, 2024. Thank you, Operator, and good afternoon, everyone. The press release announcing our fourth quarter financial results was issued after the market closed today and can be found on our corporate website, aaon.com. The call today is accompanied by a presentation that you can also find on our website as well as on the listen-only webcast. Please turn to slide two.
If at any time during this call anyway quite immediate assistance. Please press star zero for the operator. This call is being recorded on Thursday February 29, 2024, I would now like to turn the conference over to Joe Mondello. Thank you. Please go ahead.
Thank you operator, and good afternoon, everyone. The press release announcing our fourth quarter financial results was issued after market close today and can be found on our corporate website, a a O N dot com.
Today is accompanied with a presentation that you can also find on our website as well as on the listen only webcast.
Please turn to slide two.
Unknown Executive: We begin with our customary forward-looking statement policy. During 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, AON is subject to the occurrence of many events outside of AON's control that could cause AON's results to differ materially from those anticipated.
We begin with 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 Securities Act of 1933, and the Securities and Exchange Act of 1930 for each of them.
Mended.
As such it is subject to the occurrence of many events outside of <unk> control that could cause results to differ materially from those anticipated you're all aware of the inherent difficulties risks and uncertainties in making predictive statements.
Unknown Executive: You are all aware of the inherent difficulties, risks, and uncertainties in making predictive statements. Our press release in Form 10-K that we filed this afternoon details 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. Our press release and portions of today's call use non-GAAP financial measures as defined in Regulation G. [inaudible] Joining me on today's call is Gary Fields, CEO, Matt Tobolski, President and COO, and Rebecca Thompson, CFO and Treasurer. Gary will start the call off with some opening remarks.
Our press release and 10.
Form 10-K that we filed this afternoon detail some of the important risk factors that may cause our actual results could differ from those in our predictions. Please note that we do not have the duty to update our forward looking statements. Our press release and portions of today's call use non-GAAP financial measures as defined in regulation G.
You can find the related reconciliations to GAAP measures in our press release and presentation.
Joining me on today's call is Garry field CEO, Matt to Buskey, President and C O O and Rebecca Thompson, CFO and treasurer.
Jerry will start the call off with some opening remarks, Matt will then provide some details about our operations and market trends Rebecca will follow with a walk through of the quarterly results and before taking questions Gary will finish with our 'twenty 'twenty four outlook and closing remarks with that I will turn over the call to Gary.
Unknown Executive: Matt will then provide some details about our operations and market trends. Rebecca will follow with a walkthrough of the quarterly results. And before taking questions, Gary will finish with our 2024 outlook and closing remarks. With that, I will turn over the call to Gary. Thanks, Joe. Thank you, everyone, for joining us on our call today. If you will, please turn with me to slide three.
Thanks, Joe.
Thank you everyone for joining us on our call today.
You will please turn with me to slide three.
Gary D. Fields: Overall, we're very pleased with our 2023 results. 2023 marked our 35th anniversary as a company, and it lined up with some outstanding achievements. Most notably, we surpassed a billion dollars of sales for the first time in company history. Net sales for the year grew 31.5%, which followed a year in 2022 when we recorded organic growth of 46.8%. Over the last two years, organic volume was up 46.6%, including being up 14.5% in 2020.
Overall, we're very pleased with our 2023 results too.
2023 marked our 35th anniversary as a company and it lined up with some outstanding achievements, most notably we surpassed $8 billion of sales for the first time in company history.
Net sales in the year grew 31, 5%, which followed a year in 2022 when we recorded organic growth of 46, 8%.
Over the last two years organic volume was up 46, 6%, including being up 14, 5% in 2023.
Gary D. Fields: This is incredible performance for this industry. Along with the strong sales growth, we see solid margin expansion in 2023, reflecting not only the operating leverage from the increased volume but also significant enhancements in operational efficiency. Net income for the year grew over 75%, resulting in a second straight year of record earnings.
This is incredible performance for this industry.
Along with the strong sales growth, we recognized solid margin expansion in 2023, reflecting not only the operating leverage from the increased volume, but also significant enhancements and operational efficiencies.
Net income for the year grew over 75%.
Resulting in a second straight year of record earnings.
Gary D. Fields: Since 2021, we have more than tripled net income. All together, I'm very proud of how our team performed in the last calendar year. Please turn to slide four. You finished the year with strong results. Organic net sales in the fourth quarter were at 20.4%.
Since 2021 we have more than tripled net income.
Altogether I'm very proud of how our team performed in the last calendar year.
Please turn to slide four.
We finished the year with strong results organic net sales in the fourth quarter was up 24%.
Gary D. Fields: Gross profit was up 42.3%. Our Basics segment realized a record quarter, both in sales and profit. Net sales at the segment were up 33.6%, and gross profit was up 70.3%. Aon Oklahoma also performed very well.
Gross profit was up 42, 3%.
Our basics segment realized a record quarter.
Sales and profits.
Net sales at the segment were up 33, 6% and gross profit was at 73%.
Hey on Oklahoma also performed very well.
Gary D. Fields: Net sales at this segment were up 23.4%, and gross profit was up 45.3%. Gross profit margin for the company came in at 36.4%, up year over year by nearly 560 basis points and down only modestly from the seasonally strong third quarter. Despite the impact that holidays had on productivity in the fourth quarter, we were able to further improve operational efficiencies on top of the gains we recognized in the third quarter. This resulted in our strongest fourth quarter earnings in company history. Bookings and backlog also trended positively in the quarter. Bookings were up quarter over quarter for the second straight quarter and were the strongest since the first quarter of 2022, but they also outpaced production, resulting in a quarter over quarter increase in backlog. All around, it was a strong finish to the year; please turn to slide five. 35 years ago, our founder, Norm S. Bjornsson, created Aeon with one mission: to manufacture the best HVAC equipment in the world for the best value. At the time, the total addressable market for premium semi-custom equipment was very small.
Sales at this segment were up 23, 4% and gross profit was up 45, 3%.
Gross profit margin for the company came in at 36, 4% up year over year, nearly 560 basis points and down only modestly from the seasonally strong third quarter.
Despite the impact of holidays had on productivity in the fourth quarter, we were able to further improve operational efficiencies on top of the gains we recognized in the third quarter.
This resulted in our strongest fourth quarter of earnings in company history.
Bookings and backlog also trended positively in the quarter.
Bookings were up quarter over quarter for the second straight quarter and were the strongest since the first quarter of 2022.
But also paste production, resulting in a quarter over quarter increase in backlog.
All around it was a strong finish to the year.
Please turn to slide five.
Yes.
35 years ago, our founder norm as Bjorn sudden created a day on with one mission.
The manufacturer the best HVAC equipment in the world for the best value.
At the time.
The total addressable market for premium semi custom equipment was very small.
Gary D. Fields: Much of the market consisted of basic equipment. This wasn't because the commercial real estate market was not interested in more sophisticated equipment, but it was because of the exorbitant price that premium equipment carried.
As much of the market consisted of basic equipment.
This wasn't because the commercial real estate market was not interested more sophisticated equipment.
It was because of the exorbitant priced at premium equipped macquarrie.
Gary D. Fields: To be competitive, Norm determined it required a revolutionary engineering and manufacturing process compared to common industry practices at the time. It has taken the company decades to perfect this unique method of manufacturing. Currently, our equipment is the most competitively priced than it's ever been. At the same time, we continue to lead in innovation, performance, and quality. At the same time, we continue to lead in innovation, performance, and quality. This progression has expanded our total addressable market across the HVAC industry immensely. Secular trends such as decarbonization, electrification driven by market demand shifts, and new regulations have expanded our total addressable market even more. Not too long ago, Aon was known as a niche player in this industry; being competitive on price has led to us being a mainstream solution. As I previously mentioned, NORM's mission 35 years ago was to provide the best HVAC equipment in the world for the best value. That mission remains true today, and the value of the equipment has never been more compelling. I'll now hand over the call to Matt Tobolski, who will speak more in depth about our operational strategy. Thank you, Gary.
To be competitive norm determined it required a revolutionary engineering and manufacturing process compared to common industry practices at the time.
It has taken the company decades to perfect. This unique way of manufacturing.
Currently our equipment is the most price competitive than it's ever been.
At the same time, we continue to lead in innovation performance and quality.
This progression has expanded our total addressable market across the HVAC industry immensely.
Secular trends such as de carbonization electrification, driven by market demand shifts and new regulations.
<unk> expanded our total addressable market even more.
Not too long ago.
Was known as a niche player in this industry.
Being competitive on price has led to us being a mainstream solution.
As I previously mentioned, nor as mission 35 years ago was to provide the best HVAC equipment in the world for the best value.
That mission remains true today and the value of the equipment has never been more compelling.
I'll now hand over the call to Matt Tobolski, who will speak more in depth about our operational strategy.
Thank you Gary if you turn to slide number six last November we issued a press release announcing several changes to the management structure of the company.
Matthew Tobolski: If you turn to slide number six, last November, we issued a press release announcing several changes to the management structure of the company. It's been a couple of months since we made those changes, and I wanted to start off by providing you with an update. Historically, Aon has had two locations, with the vast majority of sales being generated out of our flagship Tulsa location. We now have a location in Parkville, Missouri, and, with the acquisition of Basics, a location in Redmond, Oregon. Over the last year or so, we began integrating common departments across all locations. The goal was to promote collaboration and the sharing of best practices with the intent of maximizing the operational sophistication of the company. These recent organizational changes will accelerate this integration process, as well as improve our ability to manage the overall enterprise. Furthermore, the locations are beginning to overlap operationally.
It's been a couple of months since making those changes and I wanted to start off by providing you with an update.
Historically and is that two locations with the vast majority of sales being generated out of our flagship Tulsa location.
We now have a location in parkville, Missouri and with the acquisition of basics location in Redmond, Oregon over the last year or so we began integrating common departments across all locations. The goal was to promote collaboration and the sharing of best practices with the intent of maximizing the operational sophistication of the company.
These recent organizational changes will accelerate this integration process as well as improve our ability to manage the overall enterprise. Furthermore, the locations are beginning to overlap operationally.
Matthew Tobolski: This began last year, but it will escalate upon the completion of our Longview Manufacturing Expansion Project, which is expected to be complete by the end of this year. These leadership changes will be a huge benefit as production across the locations further increases. Two months into the change, I could not be more pleased with how things have progressed. In a short period of time, the teams have never been more collaborative and more energetic.
One. Notable example of this is allocating a some basics production to our Longview, Texas facility. This began last year, but it will escalate upon the completion of our long view manufacturing expansion project, which is expected to be complete by the end of this year.
These leadership changes will be a huge benefit as production across locations for their marriage two months into the change I can be not competing I could not be more pleased with how things have progressed in a short period of time. The teams have never been more collaborative and more energized I'm confident that these changes will have a meaningful impact in the near term under our current footprint.
Matthew Tobolski: I'm confident that these changes will have a meaningful impact in the near term under our current footprint. Although just as important, you should be aware that the intent of this is with the long term in mind. These changes will better position us in the future to grow out of the current footprint in the most efficient way possible. If you will, please turn to slide number seven.
Although it is important you should be aware that the intent of this is with long term in mind. These changes will better position us in the future to grow out of our current footprint in the most efficient way possible.
If you will please turn to slide number seven.
Matthew Tobolski: I want to touch on some of the main tranches of our operational strategy. As you can see, we have a multi-faceted approach when it comes to driving growth. This includes investing profits back into the business, incrementally providing support to our sales channel, developing market-leading products, leveraging secular market trends, and focusing on expanding our parts business. We have several large capital outlays that we are currently in the process of making. Capacity is being increased across all four of our locations. The two main projects are at our Longview, Texas and Redmond, Oregon facility.
To touch on some of the main tranches of our operational strategy as you can see we have a multifaceted approach when it comes to driving growth. This includes investing profits back into the business incrementally providing support to our sales channel developing market, leading products leveraging the secular market trends and focusing on expanding our parts business we have.
Several large capital outlays that we are currently in the process of making capacity is being increased across all four of our locations.
The two main projects are at our Longview, Texas and revenue, Oregon facilities in long view, we're increasing manufacturing square footage by roughly 50%. This is slated to be finished by the end of this year.
Matthew Tobolski: In Longview, we're increasing manufacturing square footage by roughly 50 percent. This is slated to be finished by the end of this year. And at Redmond, square footage will increase by approximately 15 percent, with this expected to be finished by the end of the third quarter. Both projects will yield much larger percentage increases in sales capacity due to expected increases in productivity. We have several other ongoing projects, and one that I'd like to highlight is the fact that we're building an additional training academy at a Tulsa location. This will be a state-of-the-art facility that will be utilized to train and certify our reps. This is expected to be finished in early 2025.
And at Red Man square footage will increase by approximately 15% with its expected to be finished by the end of third quarter.
Both projects will yield much larger percentage increases in sales capacity due to expected increases in productivity.
We have several other ongoing projects.
I'd like to highlight is the fact that we're building in additional training Academy at our Tulsa location. This will be a state of the art facility that will be utilized to train and certify our reps. This is expected to be finished in early 2025.
Matthew Tobolski: Now let's transition to our sales channel. As we've spoken to you in the past, we have never been more aligned with our channel partners and have never provided them with as much support and resources as we do today. Building this new academy in Tulsa is a perfect example.
Now, let's transition to our sales channel as we've spoken to you in the past we have never been more aligned with our channel partners and have never provided them with as much support and resources as we do today building. This new Academy in Tulsa is a perfect example, likewise last year, we hosted a grand opening of our exploration Center, a one of a kind facility at our headquarters that show.
Matthew Tobolski: Likewise, last year, we hosted the grand opening of our Exploration Center, a one-of-a-kind facility at our headquarters that showcases our products alongside market alternative equipment. This is a powerful resource for a sales rep to utilize to help sell the value proposition of Aon Equipment, a value proposition that is apparent once a customer walks through that facility. Something that we're also beginning to focus on much more is what we call the complete customer experience. Historically, AN was primarily a product development company solely focused on designing and manufacturing some of the best HVAC equipment in the world.
Cases, our products alongside market alternative equipment.
This is a powerful resource for our sales reps to utilize to help sell the value proposition of Aon equipment, a value proposition that is apparent once the customer walks through that facility.
Something that we are also beginning to focus on much more is what we call. The complete customer experience historically and was primarily a product development company solely focused on designing and manufacturing some of the best HVAC equipment in the world.
Matthew Tobolski: We want to continue to hold true to that reputation, but we want to also be known for providing a premium customer experience from day one of the sales process through the entire lifecycle of the equipment, including installation, operation, and maintenance. This is an opportunity and one that we're now addressing by adding resources to take advantage of. We're also investing in sales and marketing. Marketing is something that Aon hasn't previously spent a lot of resources on. Although our premium equipment now offers the most compelling value ever, Aon is still a small company in an industry with much larger players and brands. We think that small investments in marketing will go a long way for us.
I continue to hold true to that reputation, but we want to also be known for providing a premium customer experience from day, one of the sales process through the entire lifecycle of the equipment, including installation operation and maintenance this as an opportunity and one that we're now addressing and adding resources to take advantage of.
We're also investing in sales and marketing marketing is something that Aon hasn't previously spent a lot of resources on although our premium equipment now offers the most compelling value than ever and it's still a small company in an industry with a much larger players and brands. We think that small investments in marketing will go a long way for us by getting our name and brand out there more and educating the market.
Matthew Tobolski: By getting our name and brand out there more and educating the market about the attractive value proposition of our premium equipment, we expect it will assist our sales reps in penetrating the market quicker. This is just another example of how we're incrementally providing support to our sales channel partners. Earlier, Gary mentioned that one of our core missions is to design and manufacture the best HVAC equipment in the world.
About the attractive value proposition of our premium equipment, we expect it will assist our sales rep success in penetrating the market quicker. This is just another example of how we're incrementally providing support to our sales channel partners.
Earlier, Gerry mentioned that one of our core missions is to design and manufacture the best HVAC equipment in the world as we enter 2024, we are leading the industry with two product developments first we have been accepting orders for new 454 being refrigerant equipment since January one.
Matthew Tobolski: As we enter 2024, we are leading the industry with two product developments. First, we have been accepting orders for new 454B refrigerant equipment since January 1st. Most of the industry won't be offering new refrigerant equipment until the second half of this calendar year. Second, last year, we introduced our newly branded Alpha class equipment. The Alpha Class is an air-sourced, heat-pump powered rooftop unit that is operable down to 0 degrees Fahrenheit. No other competitor in the marketplace has such an offer. Most other air source heat pumps on the market today are operable only down to 25 to 30 degrees Fahrenheit, giving us an advantage in this ever-increasing part of the market.
Most of the industry won't be offering new refrigerant equipment until the second half of this calendar year.
Second last year, we introduced our newly branded Alpha class equipment, the Alpha class as an air source heat pump out rooftop unit that is operable down to zero degrees Fahrenheit no other competitor in the marketplace has such an offering.
Most other air source heat pumps in the market today are operable just down to 25 to 30 degrees Fahrenheit, giving us an advantage and as ever we ever increasing.
Part of the market.
Matthew Tobolski: Sales of this equipment still make up a small percentage of total sales, but bookings for the second half of 2023 have nearly doubled when compared to the first half of the year for Alpha products, so there is solid momentum thus far. We expect our Alpha class to fully leverage several secular trends that A.N. has already been benefiting from. Again, with an increased focus on decarbonization, electrification, and energy efficiency, as well as the accelerated impact from government regulations, AM's superior performing, highly energy efficient equipment is well positioned to take advantage of such trends. Lastly, I want to touch on Aon's parts and service. Normally, we don't talk much about service because AON doesn't have a direct service business. However, our reps do provide services that we indirectly benefit from.
Sales of his equipment still make it a small percentage of the total sales, but bookings in the second half of 'twenty three three have nearly doubled when compared to the first half of the year for alpha products. So there is solid momentum thus far we expect our alpha glass to fully leverage <unk> several secular trends that aon has already been benefiting from.
Again, with an increased focus on decarbonization electrification and energy efficiency as well as the accelerated impact from government regulations and superior performing highly energy efficient equipment is well positioned to take advantage of such trends lastly.
Lastly, I wanted to touch on <unk> parts and service normally we don't talk much about service because it doesn't have a direct service business. However, our reps do you provide service that we indirectly benefit from it.
Matthew Tobolski: As we touch on parts, our parts business will be one of Aon's fastest growing business segments going forward. It will also be our most profitable business. Parts sales grew 26.3% in 2023.
As we touch on parts, our parts business would be one of Aon is fastest growing business segments going forward.
We'll also be our most profitable business part sales grew 26, 3% in 2023, and we anticipate a strong double digit growth rate in 2024, we're making several investments to help support this growth in 2023 parts made up five 8% of total sales.
Matthew Tobolski: And we anticipate a strong double-digit growth rate in 2024. We are making several investments to help support this growth. In 2023, parts made up 5.8% of total sales.
Matthew Tobolski: And we think that we can double this portion of the business in three to four years, at which time it should represent closer to 10% of sales. Now, as we touch on service, as part of our initiative to improve the all-around customer experience, we intend to be much more focused on making sure our reps are providing a premium level of service to our customers. Like most OEM rep firms in any other industry, our reps know the equipment and the customer more than anyone else in the field. As such, to provide the best customer experience, we will instill upon them a sense of providing the best service possible in this office. In the end, our customers and refs, as well as our business and brand, will benefit substantially. Before handing it off to Rebecca, I will close with this. I'm extremely proud to be part of and help lead this organization.
Think that we can double this portion of the business in three to four years at which time it should represent closer to 10% of sales.
Now, let me touch on service as part of our initiative improving the all around customer experience, we intend to be much more focused on making sure. Our reps are providing a premium level of service to our customers.
Like most OEM rep firms in any other industry or no the equipment and the customer more than anyone else in the field.
As such to provide the best customer experience, we will instill upon them to provide the best service possible in this offering in the end our customers in reps as well as our business and brand will benefit substantially.
Before handing it off to Rebecca I will close with this I'm extremely proud to be part of and help lead this organization, while the growth we've realized over the last few years has been incredible there is still a lot of work to be done to realize the full potential of this organization. The team has never been more energized and I look forward to continuing to build upon what we've already accomplished and with that I will hand it off.
Rebecca A. Thompson: While the growth we've realized over the last two years has been incredible, there is still a lot of work to be done to realize the full potential of this organization. The team has never been more energized, and I look forward to continuing to build upon what we've already accomplished. And with that, I will hand it off to Rebecca, who will walk us through the finances. Thank you, Matt. I'd like to begin by discussing the comparative results of the three months ended December 31st, 2023, versus December 31st, 2021. Please turn the slide.
To Rebecca who will walk through financials.
Matt.
I'd like to begin by discussing the comparative results of the three months ended December 31, 2023 versus December 31 2022.
Please turn to slide eight.
Net sales were up 24% to $306 6 million and $254 6 million along with a healthy backlog that we entered the quarter with increased productivity resulted in volume growth of nine 3%.
Adjusting total sales for inflation on a per day per production employee basis sales in the fourth quarter were the best in over two years, reflecting the recognized productivity gains.
Rebecca A. Thompson: Net sales were up 20.4% to $306.6 million from $254.8 million in 2018, along with a healthy backlog that we entered the quarter. Additionally, increased productivity resulted in volume growth of 9%. Adjusting Total Sales for inflation on a per-day, per-production employee basis, sales in the fourth quarter were the best in over two years, reflecting the recognized productivity. However, pricing was largely the other contributor, on a per-segment basis. Basics net sales in the quarter grew 33 points. Aon, Oklahoma, group 23.4, while Aeon Coil Products declined. Moving to slide number nine. Our gross profit increased 42.3% to $111.7 million from $78.5 million. As a percentage of sales, our gross profit margin was 36.4%, compared to 30.8%. The Year-over-Year Improvement in Gross Profit was driven by incremental pricing, improved productivity, and higher volumes leveraging our fixed, Please turn to slide 10. Selling general and administrative expenses increased by 49.8%.
Pricing was largely the other contributor to growth.
On a per segment basis.
Basic net sales in the quarter grew 33, 6% Aon, Oklahoma grew 23, 4% well Aon coil products declined 17, 9%.
Moving to slide number nine.
Gross profit increased 42, 3% to $111 7 million and $78 5 million as a.
A percentage of sales gross profit margin was 36, 4% compared to 38% in 2022.
The year over year improvement in gross profit margin was driven by incremental pricing improved productivity and higher volumes leveraging our fixed costs.
Please turn to slide 10.
Selling general and administrative expenses increased 49, 8% to $47 9 million from $31 9 million in 2022 as a percentage of sales SG&A increased to 15, 6% of total sales compared to 12, 5% in the same period in 2022.
Rebecca A. Thompson: 47.9 million from 31.9 million. As a percentage of cells, sGNA increased to 15.6% of total cells, compared to 12.5% of. The increase in ST&A was due to higher warranty expense and profit sharing expenses from our increased sales and earnings. Other increases are a result of increased depreciation and amortization. Moving to slide 11, diluted earnings per share increased 19.1%.
The increase in SG&A was due to higher warranty expense and profit sharing expenses from our increased sales and earnings.
Other increases are a result of increased depreciation and amortization and consulting expenses related to investments, we're making in back office technology.
Moving to slide 11.
Diluted earnings per share increased 19, 1% to 56 cents per share from 47 cents per share. This marked the strongest fourth quarter of EPS in the company's history.
Rebecca A. Thompson: 56 cents per share from 47 cents. This marked the strongest fourth quarter for EPS. Turn to slide 12.
Turning to slide 12, you'll see our balance sheet remained strong cash cash equivalents and restricted cash totaled $9 million at December 31, 2023, and outstanding debt on our revolver at the end of the quarter was $38 3 million.
Rebecca A. Thompson: You'll see our ballot sheet remains strong. Cash, cash equivalents, and restricted cash totaled $9 million at December 31, 2021. An outstanding bet on our revolver at the end of the quarter was $38,000. During the quarter, we paid down approximately $40.1 million on our line of business. Lowering our leverage ratio to 0.15 from 0.3 at the end of the third quarter and down from 0.4. We had a working capital balance of $282.2 million on December 31.
Within the quarter, we paid down approximately $40 1 million on our line of credit lowering our leverage ratio to the airplane one five from 0.33 I didn't know the third quarter and down from 0.46 at the end of 2022.
We had a working capital balance of $282 2 million at December 31, 2023 versus $203 5 million at December 31, 2022.
Rebecca A. Thompson: 203.5 million at the, Capital expenditures in 2023 were $104.3 million, up 93.1% from a year ago. As Matt mentioned, we have several large capital projects that will increase production capacity, improve productivity, and support the future. Several of the projects, This will make for another heavy capacity. In 2024, we anticipate capital expenditures to be approximately 125. We consistently engage in a rigorous analysis of our capital projects.
Capital expenditures in 2023, we're having $4 3 million up 93, 1% from a year ago is not addressed we have several large capital projects that will increase production capacity improve productivity and support future growth.
Several other projects from 2023 will carry over into 2024. This will make for another heavy capex year in 2024, we anticipate capital expenditures to be approximately $125 million, we consistently engage in a rigorous analysis of our capital projects. All the projects included in the budget will help guys.
Rebecca A. Thompson: All the projects included in the budget will help our growth generate very compelling results. With that, I'll now like to turn the call back over to Gary. As I stated in my opening remarks, bookings in the fourth quarter improved sequentially for a second straight quarter and outpaced production in the fourth quarter. As a result, we realized a modest quarter over quarter increase in the backlog.
Growth rate very compelling returns with that.
I would now like to turn the call back over to Gary.
As I said in my opening remarks bookings in the fourth quarter improved sequentially for a second straight quarter and outpace.
Outpaced production in the fourth quarter.
As a result, we realized a modest quarter over quarter increase in the backlog.
Gary D. Fields: Year over year, backlog was down modestly, but this was intentional to right-size lead time. For several months now, our lead times have been back to normal. Conversely, much of the industry still seems to be focused on bringing lead times down from elevated levels.
Your over year backlog was down modestly, but this was intentional to rightsize lead times for.
For several months now our lead times have been back to normal Conversely, much of the industry still seems to be focused on bringing lead times down from elevated levels.
Gary D. Fields: Overall, the market environment seems to be resilient despite what the headlines and some of the macroeconomic indicators have been signaling for some time now. Month to month, bookings have been steady, and sentiment amongst our sales channel remains positive. Furthermore, the pipeline of large projects, particularly in our Basics and Aeon Coil Products segments, is robust.
Overall market environment seems to be resilient, despite the headlines and some of the macro economic indicators have been signaling for some time now month to month bookings have been steady and sentiment amongst our sales channel remains positive.
Furthermore, the pipeline of large projects, particularly at our basic today on core products segments is robust.
Gary D. Fields: Certain verticals, such as data centers, manufacturing, and education, remain strong, while some of our traditional markets, such as office buildings and retail, are soft. The non-residential construction market seems to be slowing as a whole, but it's definitely bifurcated. In addition to the slowing construction market, there's the uncertainty of how the market, especially the replacement market, will behave related to the refrigerant transition. So far, two months into this year, this doesn't seem to have had an impact yet.
Certain verticals, such as data centers manufacturing and education remains strong while some of our traditional markets such as office buildings and retail are soft.
The nonresidential construction market seems to be slowing as a whole, but its definitely bifurcated.
In addition to a slowing construction market there is the uncertainty of how the market, especially the replacement market well behaved related to the refrigerant transition.
So far two months into this year. This doesn't seem to have had an impact yet.
Gary D. Fields: That said, we still anticipate for at least a short period of time in the middle part of the year that some customers may choose to delay replacing their units, waiting for new refrigerant equipment. If this does happen, it will have a much bigger impact on the overall market than on us, as most of our equipment has been configurable with the new refrigerant since January 1st of this year. Given that, we are in an advantageous position if the market chooses to shift to new refrigerant equipment early in the year. However, there's also a possibility that much of that market overlooks the long-term maintenance cost of buying equipment with the old refrigerant, and we see a much more muted effect.
That said, we still anticipate for at least a short period of time in the middle part of the year that some customers may choose to delay, replacing their units waiting forward new refrigerant equipment.
This does happen we have a much bigger impact to the overall, our overall market than the us as most of our equipment has been configurable with the new refrigerant since January one of this year.
Given that we are in an advantageous position if the market chooses to shift to new refrigerant equipment early in the year.
There is also a possibility that much of that market overlooks the long term maintenance cost of buying equipment with the old refrigerant and we see a much more muted effect.
Gary D. Fields: Either way, we're prepared with respect to manufacturing capabilities and with respect to our supply chain for the new refrigerant component. All considered, we anticipate 2024 will be a slower growth year than we've experienced in the last couple of years. Transcribed by https://otter.ai. Not only do we have tougher comps that we are facing, but the economy and the non-residential construction sector are softer than a year ago. Turning to the outlet, please turn to slide 14.
Either way, we're prepared with respect to manufacturing capabilities and with respect to our supply chain of the new refrigerant components.
All considered we anticipate 2024 will be a slower growth year than we've experienced in the last couple of years.
Not only do we have tougher comps that we are facing but the economy and the nonresidential construction sector is softer than a year ago.
Turning to the outlook, please turn to slide 14.
For 2024, we anticipate pricing will be a mid single digit contributor to sales growth and we look for volume growth to be in the low single digits.
Gary D. Fields: For 2024, we anticipate pricing will be a mid single-digit contributor to sales growth, and we look for volume growth to be in the low single-digits. We'd expect gross margin to be up year over year, mainly due to the favorable comp in the first quarter. For SG&A as a percent of sales, we look for these expenses to be modestly up compared to 2023. As Rebecca stated, CapEx will be in the $125 million range. I would also like to remind you of the seasonality that we typically see in the first quarter. We expect both sales and earnings in the first quarter to be down when compared to the fourth quarter of 2023.
We would expect gross margin would be up year over year, mainly due to the favorable comp in the first quarter.
For SG&A as a percent of sales we look for these expenses to be modestly up compared to 2023.
As Rebecca stated Capex will be in the $125 million range.
I would also like to remind you of the seasonality that we typically see in the first quarter.
We expect both sales and earnings in the first quarter will be down when compared to the fourth quarter of 2023 year over year, we expect both sales and earnings for the first quarter to be up modestly.
Gary D. Fields: Year over year, we expect both sales and earnings in the first quarter to be up modestly. In closing, I want to finish by thanking all of our employees, sales channel partners, and customers. I also want to announce that we will be attending Sidotian Company's virtual Small Cap Conference on March 13, Wolf Research's Small and Mid-Cap Conference in New York on June 4, and Wells Fargo's Industrials Conference in Chicago on June 12. I hope to see some of you at these events.
In closing I want to finish by thanking all of our employees sales channel partners and customers.
Also wanted to announce that we will be attending Sidoti <unk> Companys virtual small cap conference on March 13th.
Wolfe Research's small and mid cap conference in New York.
June 4th and Wells Fargo's Industrials conference in Chicago on June 12, and hope to see some of you at these events. Thank you and I will now open up for Q&A.
Thank you ladies and gentlemen, we will now begin the question and answer session. So you have a question. Please press the star followed by the one on your telephone keypad. He will prompt that Johan has to be noise and should you wish to cancel your request. Please press the star followed by the two if you are using a speaker phone please lift the handset before.
Operator: Thank you, and I will now open up for Q&A. Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the 1 on your telephone keypad. You will hear a prompt that your hand has been raised, and should you wish to cancel your request, please press the star followed by the 2. If you are using a speakerphone, please leave the handset before pressing any keys.
Pressing any Keith one moment. Please for your first question.
Your first question comes from the line of Chris Moore from CJS Securities. Please go ahead.
Operator: One moment, please for your first question. Your first question comes from the line of Chris Moore from CJS Securities. Please go ahead.
Hey, good afternoon, guys congratulations on another.
Incredible quarter.
Thanks, It looks like.
<unk> is really kind of hitting on all cylinders I wonder if maybe we could we can focus on the data center market a little bit so I know.
Christopher Paul Moore: Hey, good afternoon, guys. Congratulations on another incredible quarter. Looks like Basics is really, you know, kind of hitting on all cylinders. I wonder if maybe we could focus on the data center market a little bit. So I know you have broken out the addressable market, roughly 30 billion data center cooling being about 6.5 billion of that. AI is driving data center growth, you know, rapidly over the next five, 10 years. I wonder if Matt could just talk about, you know, a little bit about what you're seeing from the AI and, you know, kind of what areas that you are especially well positioned for right now.
You had in the past you had broken out the addressable market roughly $30 billion data center cooling being about $6 5 billion of that.
AI is driving data center growth.
Rapid Lee over the next five to 10 years I Wonder if Matt could you just talk about you know a little bit about.
What youre seeing from from on the AI front.
And kind of what areas that you are especially well positioned for right now.
Matthew Tobolski: You know, it's a fantastic question, Chris, and certainly data centers as a whole market are certainly driving a tremendous amount of growth within Aon. Just kind of as a data point, you know, just above 10% of our revenue in 2023 came from the data center market, while in that same period, over 20% of our bookings for new orders came out of data centers. So strong demand is being pushed from that marketplace kind of within our business. And as we look forward, you know, we're well positioned from a product perspective and a relationship perspective to really support the kind of broad data center market. So we are actively involved in more traditional kinds of airside cooling solutions but are also very, very actively engaged in liquid cooling applications, kind of being driven by that high density AI application.
It's a fantastic question, Chris and certainly Datacenters as a as a whole market.
It is certainly driving a tremendous amount of growth within aon.
Kind of a data point, you know just above 10% of our revenue in 2023 came from the data center market.
We're in that same period over 20% of our bookings for new orders came out of data centers. So strong strong demand being pushed from that marketplace kind of within our business.
And as we look forward.
We're well positioned from a product perspective, and a relationship perspective to really support the kind of broad datacenter market. So we are actively involved in more traditional kind of air side cooling solutions.
But are also very very actively engaged in liquid cooling applications I'm kind of being driven by that identity AI application. So as we look forward you know a lot of the capital investment we talked about it a lot of the like.
Matthew Tobolski: So as we look forward, you know, a lot of the capital investment we talk about, a lot of the kind of growth we talk about within the Aeon Coil Products Group out of Longview is actually going to materialize kind of in the midterm as primarily data center products. So we're making the investments kind of across the fleet to really support this marketplace, as well as kind of product development efforts to really be well positioned from a solutions perspective. I got it.
Growth, we talk about it within the Aon coil products group out of long view is actually going to materialize.
Kind of in the in the midterm, it's going to materialize being primarily datacenter products. So we're making the investments kind of across the fleet to really support this marketplace.
Well, that's kind of the product development efforts to really be well positioned from a solutions perspective.
Got it.
Helpful.
And just.
I think Gary kind of hit on this but.
Matthew Tobolski: Very helpful. And just, I think, you know, Gary kind of, from just a general visibility standpoint, when you see where you are today versus this time last year, significantly different or similar. You know, anything that has changed over the last, you know, three to four months that you're seeing now, you might not have seen then. Yeah, I was gonna say, just for me, kind of what's changed over the last three to four months. The, you know, market dynamics, we certainly had plenty of, plenty of conversation and kind of macroeconomic indicators. And, you know, we've talked about in the last three to four months, and really still see it today that a lot of the trends that some of the indicators are kind of putting out there, really, the market is a little bit stronger and basically resilient against some of those indicators. So we continue to see, we don't see the slowdown that some of those indicators are kind of alluding to; we certainly see some softness in the marketplace.
From a just a general visibility standpoint.
When you see where you are today versus this time last year.
Significantly different or similar and anything that has changed over the last three to four months that youre seeing now you might not have seen that.
Okay.
Okay.
Yeah.
Yeah.
Yeah, I'm going to say just for me.
Kind of what's changed over the last three to four months I mean the.
You know the market dynamics.
Certainly had plenty of.
Plenty of conversation and kind of macroeconomic indicators and we.
We've talked about in the last three to four months and really it's still see it today that a lot of the trends.
Some of the indicators are kind of putting out there.
Really the market is a little bit stronger and basically resilient against some of those indicators. So we continue seeing.
We don't see the slowdown in some of those indicators.
Were kind of alluding to we certainly see some softness in the marketplace.
Gary D. Fields: But really, kind of, over the last three to four months compared to today, we're still seeing that kind of strength in the market. I would say, you know, certainly as we talk about the data center market, in particular, we certainly three to four months ago, and really this, compared to this time last year, for sure, are seeing an acceleration of investment. I mean, we definitely are seeing the amount of investment being made in that sector continuing to accelerate and really driving a lot of growth in the overall HVAC market as a whole, which, again, we're making the investments and ensuring that we have the products that really properly position us to be successful there. But, you know, I'd say there were no real major changes in the overall landscape in that last kind of three to four month timeframe.
But really kind of over the last three to four months compared to today, where you're still seeing that kind of strength in the market.
I would say certainly as we talk about the the datacenter market.
In particular.
We certainly three to four months ago and really this compared to this time last year for sure are seeing an acceleration of investment I mean, we definitely are seeing the.
A lot of investment being made in that sector continuing to accelerate.
And really.
Driving a lot of growth in the overall U T I C market as a whole, which again, we're making the investments in ensuring that we have the product they really properly positioned us to be successful there but I'd.
I'd say no no real major changes in the overall landscape in that last kind of three to four month time frame.
I had just one study.
Gary D. Fields: I'd like to add just one thing. AHRI furnishes data to us indicating what the overall market is and then what our market share is. The overall market has continued to soften just a little bit, but our market share continues to increase, and this has been many quarters in a row. That is terrific. Any specifics that you could add there? Well, the game. I would say that they're in the mid-sized tonnages and larger for unit sizes.
Hey.
Furnaces data to us, indicating what the overall market is and then what our market share is the overall market has continued to soften just a little bit but our market share continues to increase and this has been many quarters in a row there.
That is terrific and any specifics that you could add there.
While the game.
I would say that they are in the mid sized tonnage is in larger for four unit sizes.
Gary D. Fields: You know, the two through five ton units are the preponderance of all rooftop units manufactured as far as number of units, and we have a small percentage of that. Once you get up in, you know, above five tons, but particularly 20 to 40 tons, our market share becomes very, very substantial. Terrific. I will leave it there. I really appreciate it, guys.
The two through 510 units as a preponderance of all rooftop units manufactured as far as number of units and we have a small percentage of that.
Once you get up in above five tons, but particularly 20 to 40 times our market share becomes very very substantial.
Terrific I will leave it there I really appreciate it guys.
Yeah.
Christopher Paul Moore: Thank you. And your next question comes from the line of Julio Romero from CETO and Company. Please proceed. Hey, good afternoon, everyone.
Thank you and your next question comes from.
Your line of Yoga Romero from Sidoti and company. Please proceed.
Hey, good afternoon, everyone. You mentioned, you've already begun accepting orders for equipment that can use the new refrigerant.
Julio Alberto Romero: You mentioned you've already begun accepting orders for equipment that can use the new refrigerant as of January 1, I believe. Can you tell me when you expect to begin delivering those orders, and how much of the sales guidance is driven by that new equipment that uses the new refrigerant? Yeah, from a kind of quantity of orders received.
As of January one I believe can you when do you expect to begin delivering those orders and how much of the sales guidance is driven by that new equipment that uses the new refrigerant.
Yeah from a from a kind of quantity of orders received I mean, we just kind of opened up the opportunity to place orders kind of at the beginning of January so.
Matthew Tobolski: I mean, we just kind of opened up the opportunity to place orders kind of at the beginning of January, so we have certainly started to see orders being placed with a new refrigerant. Those, from a delivery perspective, are going to be kind of in the end of Q2 kind of timeframe. Just from an, you know, component availability perspective, it's a little bit more extended lead time compared to 410A products, but those will start converting to shipments in that kind of Q2 timeframe.
We have certainly started to see orders being placed with the new refrigerant.
Those from a delivery perspective are going to be kind of more in the end of Q2 kind of timeframe.
You know.
Component availability perspective, it's a little bit more extended lead time compared to your <unk> products, but.
And it doesn't start converting to you to shipments and that kind of Q2 timeframe.
Matthew Tobolski: You know, Gary mentioned kind of in the main narrative, there's certainly a lot of uncertainty around exactly how the adoption or kind of timing of adoption of the new refrigerant equipment is going to come into play throughout the calendar year. I think, though, again, to the point, we certainly see ourselves best positioned from an ability to deliver both the 410A and 454B products kind of within that, I'll say, noisy period of the middle of the year. And so while we do see potential for some noise to kind of be in that mid-year order trend driven by the changeover, we certainly have the product portfolio to support it. And we expect to see, you know, increasing sales conversion, obviously, as we progress through the year, but definitely, kind of in the latter half of the year, we expect to see a substantial contribution from new refrigerant equipment orders. I want to add just a little to that.
You know Gary mentioned kind of in the main narrative V. Theres certainly a lot of uncertainty around exactly how the adoption or kind of timing of adoption of the new refrigerant equipment is going to kind of come into play throughout the calendar year.
I think though again due to the point, we certainly see ourselves best position from a ability to deliver both the 410, a unfortunately for b products kind of within that I'll say noisy period of kind of middle of the year.
And so while we do.
See potential for some noise to kind of be in that mid year order trend driven by the changeover and we certainly have the product portfolio to support it and we expect to see increasing sales conversion, obviously as we progress through the year.
But definitely kind of in the latter half of the year and expect to see a substantial contribution from new refrigerant equipment orders.
I wanted to add just a little too that our extremely close relationship with our sales channel.
Gary D. Fields: Our extremely close relationship with our sales channel allows us to have a much better view of what the customer is looking to do with regards to this refrigerant change. And so I feel that we can pivot and respond very, very quickly and have the appropriate inventory of these components ready to go, as a result. Okay, understood. So deliveries will begin in 2Q. The guide is kind of expecting some delayed replacement happening in the back half, but maybe orders are accelerating, but that would benefit 25. Yeah, I mean, certainly 25 is, you know, it's that kind of lead-up in the second half.
Allows us.
A lot.
Better view of what the customer is looking to do with regards to this refrigerant change.
And so I feel like that we can pivot and respond very very quickly.
And have the appropriate inventory of these components ready to go.
As a result of that.
Okay.
Okay understood.
Deliveries begin to queue. The guide is kind of expecting some delayed replacement happening in the back half, but maybe order is accelerating.
But that would benefit 'twenty five.
From a delivery standpoint.
Yes, I mean, certainly 25 is.
Is that kind of lead up in the second half, but to your point, we do expect to see kind of that velocity really accelerating in the second half of the year from orders and really conversion to sales as well.
Julio Alberto Romero: But to your point, we do expect to see kind of that velocity really accelerating in the second half of the year from orders and really conversion to sales as well. Okay, got it. That's helpful.
Okay.
Okay got it that's helpful and then.
Matthew Tobolski: And then, Matt, you talked about the capital investment into Longview and Redmond that should be finished by 4Q and 3Q of this year. Any way to help us kind of conceptualize how much increased capacity results from those investments? That's a great question, Julio.
Matt you talked about the capital investments into Longview in Redmond that should be finished by four Q3 Q of this year any way to help us kind of conceptualize how much increased capacity results from those investments.
Julio Alberto Romero: And I'll say it's a very product mix-dependent answer to that. But the investments that are being made are being made with the ability to really capitalize on the large volume growth within data center sales. And so I would just leave it at the product mix potential, in other words, kind of low variability, high volume data center solutions. There is substantial upside potential, kind of relative to the investment cost, or relative to the capacity increase from a square footage perspective, given that product mix potential. Got it. Very helpful. I'll pass it on. Thank you very much.
It's a great question here and I'll say, it's a very product mix dependent.
The answer to that but the investments that are being made are being made with the ability to to really capitalize on the large volume growth within data center sales.
So I would just leave it at with the product mix potential in other words kind of a low variability high volume data Center solutions.
There is a substantial upside potential kind of relative to the investment cost or relative to the capacity increase from a square footage perspective, I'm kind of given that product mix potential.
Got it very helpful. I'll pass it on thanks very much.
Brent Edward Thielman: Thank you. And your next question comes from the line of Brent Thielman from DA Davidson. Please go ahead.
Thank you and your next question comes from the line of Brent Thielman from D. A Davidson. Please go ahead.
Brent Edward Thielman: Hey, great. Thanks, Gary or Matt. Can you just update us on the pricing strategy? I think you were out with 1% increases a month, be where you're at today and where you plan to go going forward. Sure, I'll take that one real quick.
Hey, great.
Gary or Matt can you just update us on the pricing strategy I think you are at with 1% increases in months.
Where you're at today, and where you plan to go going forward.
Sure I'll take that one real quick so we began nose, let's see I think it was October October November December January February Yes, we began those October one and we continued through February 1st.
Gary D. Fields: So we began those, let's see, I think it was October 1, October 2, November 1, December 1, January 1, February. Yeah, we began those on October 1, and we continued through February 1. And at this point in time, we don't have any direct intent of continuing. But we reserve the right to change our minds should something change in the world. But as we see right now, we've secured the gross margin targets that we intend to maintain. And, you know, while our gross margin might vary a little because of volume and absorption of fixed costs, It's not, we're not having any problems with labor or material costs beyond what we had already estimated recovering with those 5-1 percenters. So at this point in time, I think we're good to go for a while. Okay, Gary, any rough sense of where that kind of bridge is relative to the industry from a pricing perspective? I know you've talked about that in the past, but where does that fit today?
And at this point in time, we don't have any.
Direct intent of continuing now we reserve the right to change our mind should something change in the world.
But as we see it right now we've secured the.
Gross margin targets that we intend to.
<unk> maintained.
And.
Our gross margin my very little because of volume and absorption of fixed cost.
It's not we're not having any problems with labor or material costs beyond what we had already est.
Estimated recovering with those 501 per centers. So at this point in time I think we're good to go for a while.
Yeah.
Okay, Gary any rough sense of where that.
Kind of bridges relative to the industry from a pricing perspective, I know you've talked about that in the past, but where does that sit today from where you can see well.
Gary D. Fields: Well, I don't have anything different than what I've been saying that we used to be around 15% as a result of the 2023 energy standard, or, you know, everybody had to come closer to us or, you know, we were still above that standard, but they had to come up, you know, very close to us. And there was a cost associated with that. So that narrowed the gap to somewhere around 8 to 10%, probably closer to 10. Now, we'll have some empirical evidence of that here very, very soon because a lot of school districts will position their bid documents such that they'll say, basis of design, base bid is Aon, give us an add or deduct for these other manufacturers. And that's one of the primary places that we pick up real empirical data on that. We also get some other, more subjective data from our reps. They'll say, well, you know, we got this job, and the best that anybody could align with us was X. And this looks like what our premium was, but oftentimes, the bill of materials doesn't match real well. So it, like I say, it's a bit subjective, but
I don't have anything different than what I've been saying that we used to be around 15% and as a result of the 2023.
Energy standard or <unk>.
Everybody had to come up closer to us or.
We were still above that standard, but they had to come up.
Close to us and there was cost associated with that so that narrowed the gap to somewhere around 8% to 10% probably closer to 10.
Now we'll have some empirical evidence of that here very very soon because a lot of school districts will position their bid documents sets. It does say basis of design base bid as a on give us an add or deduct for these other manufacturers and that's one of the primary places that we pick up real empirical data on that.
We get some other.
More subjective data from our reps they'll say well you know.
We got this job and the best that anybody could align with US was X and this looks like what our premium was but oftentimes the bill of materials doesn't match real well, so like I say, it's a bit subjective but.
Gary D. Fields: We're still thinking we're around 8% to 10%. Now, with the conversion to R54B, or call it the new refrigerant because Daikin's using R32, is my understanding. There are some manufacturers that have been very open about the fact that they're going to have to charge more money for that. We've been equally open about it, and we don't see that in our materials cost or development cost or anything like that. So at this point in time, we don't have any change in price to go from 410A to 454B. But if these other manufacturers have additional costs to do that, that could narrow this gap just a bit more. Okay, forget the mid single-digit price expectation for this year. It's reflective of what you've done.
We're still thinking we're around 8% to 10% now with the conversion to <unk> or call. It the new refrigerant because they can use in our 32 is my understanding.
There are some manufacturers that have been very open about the fact that theyre going to have to charge more money for that we've been equally open about it that we don't see that in our materials cost or development cost or anything like that so at this point in time, we don't have any change in price.
Go from $4 10 to 454 B. So if these other manufacturers have additional cost to do that that could narrow this gap just a bit more.
Yeah.
Okay. So the mid single digit price expectation for this year is reflective of what you've done.
Gary D. Fields: Today, yes, maybe there's upside if you decide to resume. Got it. Okay. And then you're back to basics. I mean, data centers look like they're growing very nicely. It looks like the clean room systems are a little slower, just kind of parsing through the different product lines. Is that a function of you allocating more resources to the data center market right now, just given how strong it is? Is it just
To date, yes, maybe there is upside if you decided to resume got it okay.
And then back on basics I mean data centers, let's say, it's growing very nicely.
It looks like the clean room systems, a little slower just kind of parsing through the different product lines is that a function of you allocating more resources to the data center market right now just given how strong. It is is it just timing and I guess is there any line of sight with the chip Socs.
Matthew Tobolski: And I guess, is there any line of sight with the chip sack to see that part of the business accelerate? Yeah, we certainly saw the kind of semiconductor clean room market, the kind of conversion of the kind of new facility construction be slower than originally expected. So we've definitely seen that investment be a little bit slower out of the gate. But certainly on the data center side, one of the advantages of data centers' ability to grow from a revenue perspective is the kind of single design, high repetition that allows us to really scale that production up faster. And so we're really able to kind of optimize manufacturing processes and really drive efficiency and productivity kind of with that product type. So, the combination of those two factors has really helped the data center market really outpace the cleaner market within the basic segment from a growth perspective. Thanks, Matt. And then just the last one, the Coil Products Division, or Longview.
See that.
Part of the business accelerate.
Yeah, we certainly saw the the.
They kind of semiconductor clean room market.
Kind of conversion of of the kind of new facility construction be slower than kind of was it originally expected. So we've definitely seen that investment would be a little bit slower out of the gate.
But certainly on the datacenter side.
You know one of the advantages of data centers kind of ability to grow from a revenue perspective is the kind of single design high reputation that allows us to really scale that production up faster.
And so we're really able to kind of optimize manufacturing processes, and really drive efficiency and productivity kind of with that product type. So.
That has really helped us kind of the combination of those two factors is really helps kind of the data center market really outpaced the cleaner market within the basic segment from a growth perspective.
Got it thanks, Matt and then just the last one.
Coiled products division or a long view.
Brent Edward Thielman: I think you've maybe had some inefficiencies there just as you're sort of implementing the basics. You've got a huge expansion you're working on. I'm sure that's created a few things to work through. What's embedded in this outlook for this year, just in terms of that division? Yeah, within, I mean, just from a very valid point, from the standpoint of there's a lot of stuff going on down within the Longview facility itself. As we look at kind of converting a lot of these investment efforts, they're definitely not a flip of a switch. And so as we look at bringing the new facility expansion online and moving some more basic production lines down to that facility. You know, that really, from a 2024 perspective, is not going to materialize huge impacts on the numbers. That investment and that real growth are going to really materialize in 2025 revenue and sales. And so really, the 2024 outlook, or at least the kind of expectation that a long view is, is growth, but definitely not the dynamic growth we expect when a lot of that capacity comes online.
I think you've had maybe some inefficiencies there just this year for implementing basics, obviously, you've got a huge expansion.
Working on I'm sure, that's creating a few things to work through what what's embedded in this outlook for this year just in terms of that division.
Yeah, and I mean.
Just from a very valid point from a standpoint of Theres a lot of stuff going on down with MBA, the Longview facility itself.
As we look at kind of converting a lot of these investment efforts and they're definitely not a flip a switch and so as we look at bringing online the veneer facility expansion and moving some more basics production lines down to that facility.
That really from a 2024 perspective is not going to materialize huge impacts in the numbers.
That investment in that real growth is going to really materialize in 2025 revenue and sales.
So really the 2024 outlook or at least the kind of expectation that a long view is is growth, but definitely not the dynamic growth. We expect with a lot of that capacity comes online and we can really really start bringing in some more production capacity in the data center market and meaningfully impact the results there.
Matthew Tobolski: And we can really, really start bringing some more production capacity to the data center market and meaningfully impact the results, understood. Thank you. Thank you. Once again, should you have a question, please press star then the number one on your telephone keypad. There are no further questions at this time, Mr. Mondillo, please proceed. All right, thank you everyone for joining us on today's call. If anyone has any questions over the coming days and weeks, please feel free to reach out to me.
Yeah.
Got it understood. Thank you.
Thank you once again should you have a question. Please press Star then the number one on your telephone keypad.
Okay.
There are no further questions I Miss Tim when dealer. Please proceed.
Alright. Thank you 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.
Joseph Logan Mondillo: Have a great rest of the day, and we look forward to speaking with you in the future. Thank you. Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you all for participating. You may now disconnect. [inaudible]
Thank you, ladies and gentlemen that does conclude our conference for today. Thank you all for participating you may all disconnect.
Okay.
Yes.
Okay.
Yeah.
Yeah.