Q1 2024 AAON Inc Earnings Call
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<unk> Press Star zero for the operator this call is being recorded on Thursday may 2nd 'twenty 'twenty four I now would like to turn the conference over to Joseph Mondello Director of Investor Relations. Please go ahead.
Joseph Mondello: Thank you operator, and good afternoon, everyone. A press release announcing our first quarter financial results was issued after market close today and can be found on our corporate website, a H O N. Dotcom Cole today is accompanied with a presentation that you can also find on the website as well as on the listen only webcast.
Joseph Mondello: Please go to slide two in the presentation. We begin 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.
Joseph Mondello: <unk> 1933, and the Securities Exchange Act of 1934, each as amended as such it is subject to the occurrence of many events outside of bands control that could cause <unk> results could differ material materially from those anticipated you're all aware of the inherent difficulties risks and uncertainties in making predictions.
Joseph Mondello: The statements.
Joseph Mondello: Our press release and Form 10-Q that we filed this afternoon detailed some of the important risk factors that may cause our actual results to differ from those in our predictions. Please note that we do not have the duty to update our forward looking statements. Our press release and portions of today's call use non-GAAP financial measures as defined in regulation.
Joseph Mondello: G. You can find the related reconciliations to GAAP measures in our press release and presentation join.
Joseph Mondello: Joining me on today's call is our CEO, Gary fields, our president and C O O Matt Tobolski.
Joseph Mondello: <unk> and our CFO and Treasurer Rebecca Thompson.
Joseph Mondello: He will provide some opening remarks, Matt will then provide some commentary on the operations followed by Rebecca who will walk through the financials and we'll finish with Gerry who will update you on the outlook before opening it up to Q&A with that I will turn the call over to Gary.
Gary: Good afternoon, let's start on slide three.
Matthew Tobolski: First quarter performance was mixed relative to our expectations bookings remained strong and were in line with our expectations. This was consistent across all three of our segments.
Joseph Mondello: Total backlog increased for a second straight quarter.
Joseph Mondello: <unk> two a year ago. It was down just six 9%, which is positive considering how abnormally large backlog was with supply chain issues were adversely affecting our lead times.
Joseph Mondello: Sales and earnings were a little soft to start the year did a lighter than expected volumes.
Joseph Mondello: A large factor to this was timing of backlog conversion at our core products and basics segments.
Joseph Mondello: What are the trends at both segments remained solid, though and backlogs at both increased substantially throughout the quarter.
Joseph Mondello: In addition, beyond what is currently in the backlog both have significant opportunities with the data center market.
Joseph Mondello: Thus, while these two segments, where a large reason for the soft results in the first quarter.
Joseph Mondello: We're very confident both will improve going forward.
Joseph Mondello: Despite volumes and production levels being down in the quarter profit margins were better than we expected.
Joseph Mondello: We've executed well from a price cost perspective, while at the same time strategically balancing the price premium of our equipment.
Speaker Change: Now I'd like you to turn to slide four.
Joseph Mondello: Looking forward, we remain cautiously optimistic on the near term, while maintaining a bullish outlook on the long term.
Joseph Mondello: Our traditional markets remained stable despite high interest rates and other economic headwinds.
Joseph Mondello: The sentiment amongst our channel partners is positive and all indications lead us to believe there is strong level of activity within the market.
Joseph Mondello: We still think orders could be volatile this year due to the refrigerant transition.
Joseph Mondello: However, we also think as we progress further into the year and approach the point in time in which will we will be unable to accept orders for our <unk> equipment.
Joseph Mondello: It is likely we see a short term wave of orders related to projects already designed for 410 a refrigerant.
Joseph Mondello: At the same time, we are well positioned to take advantage of customers, who are seeking the new refrigerant equipment.
Joseph Mondello: As we are currently accepting orders for a comparable price to 410 a equipment.
Joseph Mondello: We are also strategically positioned from a pricing and product development standpoint.
Joseph Mondello: Our narrower price premium it makes us more competitive and all indications tell us we're going to be even more competitive from a cost of manufacturing perspective, as the markets transition to the lower <unk> refrigerant.
Joseph Mondello: As far as product development, the advancements of our fully electric heat pump technology.
Joseph Mondello: Alpha class branded products positions us extremely well as the industry begins to focus more and more on electrification.
Joseph Mondello: Earlier this month the Department Department of Energy announced a program to expedite development and adoption of cold climate commercial heat pump rooftop units.
Joseph Mondello: <unk> already has a considerable lead in the advancement of this technology.
Joseph Mondello: Which will allow us to capitalize on early adopters.
Joseph Mondello: Initially this will most likely be large corporations with wide ranging footprints of buildings, which would potentially make this a big opportunity for us.
Joseph Mondello: Beyond our traditional markets. We are increasingly excited about the data center market and how we can capitalize on the growth cycle of this end market.
Joseph Mondello: The pipeline of work over the next several years is immense and current activity is moving at an aggressive pace.
Joseph Mondello: Our engineering and sales teams are executing at a first class right.
Joseph Mondello: All the feedback we're receiving from our customers leads us to believe we are in the midst of becoming the best in class solutions provider for both air side and liquid cooling applications.
Joseph Mondello: To best capitalize we're working diligently to increase our capacity, ensuring we maximize our opportunities.
Joseph Mondello: I'll now hand over the call to Matt Tobolski, who will speak more in depth about our operational strategy.
Matthew Tobolski: And thank you Gary.
Matthew Tobolski: Please turn to slide five we utilize this slide in our fourth quarter call, but the only difference being added a sixth slice to the pie, which is our data center solutions data.
Matthew Tobolski: Data center vertical has been an integral factor to the robust growth, but the basic segment has realized over the last several years. We expect this market will become an even larger part of the overall organization going forward given the current makeup of backlog and the pipeline of future opportunities.
Matthew Tobolski: Over the last six to nine months with the advancements that semiconductor chip technology and the anticipation of increased computing demand fueled by artificial intelligence data center companies have accelerated their construction plan to aggressively.
Joseph Mondello: Over this time and engineering and operational teams have been diligently working with customers, helping them design solutions to fulfill their ambitious goals.
Joseph Mondello: Given the capacity and density of these new AI data centers.
Joseph Mondello: They're looking for providers, who can develop unique air side and liquid cooling solutions. This type of custom engineering is exactly what basis core is all about and is what sets the business apart from most of the industry.
Joseph Mondello: With assistance from the rest of an operational teams, we have executed nearly flawlessly recently, leading big impressions with some of the biggest customers in the industry.
Joseph Mondello: From my point of view, considering our success in this market to date, we are positioned to be the best in class provider for this market.
Joseph Mondello: In preparation of supplying the increased demand our datacenter customers required we've been aggressively investing in new capacity. The two primary projects that have been underway since last year, including extensions of our Redmond facility and our Longview, Texas facility in total the two projects will increase the overall company's total manufacturing square footage by approximately 15.
Joseph Mondello: Percent.
Joseph Mondello: But given the scale of some of the orders we anticipate we expect the increased capacity in terms of revenue to be much greater than 15%. Both projects are on schedule. The Redmond expansion is expected to be finished by the end of Q3 of this year and the long view expansion expected to be complete by the end of this year.
Joseph Mondello: The rest of our growth strategy is also progressing our product development continues to lead the industry currently much of the industry is concerned with meeting the upcoming LOE GW P. Refrigerant requirements. Meanwhile, we've had our complete portfolio of equipment offering with the new refrigerant and since the start of this year. We're also well ahead of the industry with the advancement of that commercial.
Joseph Mondello: Heat pump technology, we're the only company in the commercial market with a portfolio of fully electric heat pump powered rooftop units that are operable down to zero degrees.
Joseph Mondello: Being the first to market with this technology is going to position us to fully benefit from the increasing demands to decarbonize and electrify buildings are.
Joseph Mondello: Our complete portfolio of rooftop units, including the cold climate heap and configurations provide us with a big opportunity with National accounts Lastly, our already World class sales channel continues to strengthen which is going to be integral to our continued growth and market share goals.
Joseph Mondello: The consolidation of the channel is helping accelerate the sharing of best practices and our increased support through marketing parts and service will further help our reps become more successful in penetrating the market altogether. We expect these strategies will allow us to continue to gain market share over the coming years.
Joseph Mondello: In conclusion, we had a sound growth strategy that the team is executing upon that.
Joseph Mondello: One Aon culture has never been so strong operations are running at some of the highest efficiency levels in years and overall I could not be more pleased with the progress we've been making and the extensive opportunities we have going forward and with that I will hand, it off to Rebecca to walk through the financials.
Rebecca A. Thompson: Thank you Matt.
Rebecca: Turn to slide six.
Rebecca A. Thompson: Net sales declined one 4% to $262 1 million from 266 million volumes were down five 7%, partially offset by pricing, which contributed four 3%.
Rebecca A. Thompson: The decline in volumes are given by the Aon coil products and basic segments, which realized total sales declines at 27, 4% and nine 3% respectively.
Rebecca A. Thompson: Both segments had strong backlogs entering the quarter compared to a year ago. So the revenue declines at both were largely based on timing of backlog conversion.
Rebecca A. Thompson: Aegon, Oklahoma segment realized an increase in total sales of 4%.
Rebecca A. Thompson: In this segment were down modestly, which was a result of a much smaller backlog at the beginning of the quarter compared to a year ago.
Rebecca: This segment also endured some volatility in orders throughout the quarter, resulting in the almost flat backlog and also partially contributing to the lower volumes.
Rebecca: Moving to slide seven.
Rebecca: <unk> profit increased 19, 6% to $92 2 million from $77 2 million as a percentage of sales gross profit was 35, 2% compared to 29% in the first quarter of 2023.
Rebecca: Gross profit margin was primarily a result of increased pricing and moderating material cost inflation offset slightly by higher labor costs.
Rebecca: Please turn to slide eight.
Rebecca: Selling general and administrative expenses increased 37, 5% to $45 3 million from $32 9 million in the first quarter of 2023 as a percent of sales SG&A increased to 17, 3% from 12, 4%.
Rebecca: The increase relative to sales is primarily attributable to the lower volumes.
Rebecca: Increased employee compensation incremental investments, we've made in technology and increased professional and legal fees.
Rebecca: SG&A expenses were in line with our expectations.
Rebecca: Moving to slide nine diluted earnings per share.
Rebecca: It was 46% slightly up from a year ago.
Rebecca: It is a net result was an excess tax benefit of $4 4 million from the share based compensation within the quarter.
Rebecca: For the remainder of the year, we anticipate an effective tax rate, excluding discrete events and a range of 25% to 26%.
Rebecca: Turning to slide 10.
Rebecca: Our balance sheet remains strong.
Rebecca: Cash cash equivalents and restricted cash totaled $28 4 million on March 31, 2024 and debt at the end of the quarter was zero.
Rebecca: Cash flow from operations in the first quarter was $92 4 million up from $4 8 million in the comparable quarter a year ago.
Rebecca: Working capital at the end of the first quarter declined $15 1 million or five 4% from a year ago, resulting in better cash conversion.
Rebecca: Capital expenditures, including expenditures related to software development increased 33% to $38 7 million.
Rebecca: Even with the higher Capex budget, we were.
Rebecca: Fully able to pay down our line of credit and finance the quarterly dividend, while marginally increasing our cash cash position all.
Rebecca: All in our financial position is strong, allowing us to fully capitalize on growth opportunities.
Rebecca: With that I'll now turn the call back over to Gary.
Rebecca: Yeah.
Rebecca: Yeah.
Gary D. Fields: Operator, I think we may have.
Speaker Change: <unk> dropped Gary potentially.
Speaker Change: Yes.
Speaker Change: I'm just going to finish out the closing remarks, and then we can open it up to Q&A.
Speaker Change: Okay.
Rebecca: Please turn to slide 11.
Rebecca: All in all we feel very good where we are currently for the last several years, we've made major strides in transforming the company from a niche application based provider to a mainstream solutions provider.
Rebecca: The last two years, we've really substantial growth in a captured market share.
Rebecca: In our view, though we've just started to scratch the surface. Many of the changes we've made from a business management perspective to sales and marketing to product development has yet to be fully realized.
Rebecca: We have the best product by far.
Rebecca: And the best for the best value.
Rebecca: These changes will leverage that and propel our share gains further.
Rebecca: Add to that the magnitude of opportunities we have within the data center market leads me Glen Little doubt, we will be able to achieve our long term goal of 10% plus annual revenue growth.
Rebecca: In the near term following two very strong years for Aon and a time when the economy is slowing and we're proceeding in election, we expect growth to temporarily moderate but for the reasons previously stated.
Rebecca: Does not concern me at all.
Rebecca: If I had any question any concern at all it will be we can.
Rebecca: Would be we can.
Rebecca: Can we can we continue to build capacity quick enough in an efficient manner to keep up with the growth we foresee.
Rebecca: In 2024, we are now looking for volume to be down low single digits to flat, we anticipate year over year comps for volume would improve throughout the year with much of the improvement occurring in the second half. We continue to anticipate pricing will be in a mid single digit contributor and that gross margin will be up year over year for SG&A as a.
Rebecca: Percent of sales, we now anticipate a 50 to 100 basis point increase.
Rebecca: Maintain our capex guidance of $125 million.
Rebecca: For the second quarter, we anticipate sales will be comparable to the same period, a year ago, and EPS will be modestly down.
Rebecca: In closing, we just want to finish by thanking all of our employees sales channel partners and customers.
Speaker Change: Thank you to our shareholders. This company has never been more well managed than it is today and we look forward to generating returns that you expect for us.
Speaker Change: We can now open up the call for Q&A operator.
Speaker Change: Thank you ladies and gentlemen, we will now begin the question answer session should you have a question. Please press the star followed by the one on your Touchtone phone, you'll hear a prompt that your hand has been raised should you wish to decline from the polling process. Please press the star followed by the two if you are you.
Speaker Change: Using a speaker phone please lift the handset before pressing any keys.
Speaker Change: One moment. Please for your first question.
Speaker Change: Your first question comes from Chris Moore from Jay Sorry, C. J S.
Christopher Paul Moore: Terrific. Thanks, guys. Thanks for taking a couple of questions.
Christopher Paul Moore: Maybe we could start with with basic so obviously it looks like the timing of basics backlog conversion and contributed to a softer quarter, it's harder to gauge.
Christopher Paul Moore: And a kind of quarter to quarter on an basis can you give any sense in terms of you know basics.
Christopher Paul Moore: Basics as a as a piece of the backlog.
Christopher Paul Moore: As a percentage is that changed much over the last year or just kind of how we should be thinking about that.
Speaker Change: Yes, great.
Speaker Change: That one yeah of course, yeah, Chris Great question, and certainly from a kind of contribution of basics in the backlog I guess, the simple way to kind of look at it we talked during the last quarter call kind of on the <unk>.
Speaker Change: 'twenty three kind of performance, which was basically as a whole in 2003 was approximately 10% of the overall revenue within the enterprise.
Christopher Paul Moore: But contributed 20% of bookings for the year, perhaps you'd say, hey, guys, sorry, 20% of that bookings for the year.
Christopher Paul Moore: And as we look forward in kind of this quarter and beyond we are continuing to see that if not more contribution from the basic backlog.
Christopher Paul Moore: So we certainly see there being a lot of strength within the the basic backlog and really also kind of helping drive the <unk>.
Christopher Paul Moore: Oil products business down and along with me as well as we kind of start to get really engaged to get the basics products built down there as we continue the expansion with data center products. So it certainly is going to become more and more relevant going forward as a percentage of the overall revenue of Aon.
Christopher Paul Moore: And definitely see it contributing.
Christopher Paul Moore: Substantially greater growth kind of on a year annualized basis compared to the legacy business.
Speaker Change: Got it I.
Christopher Paul Moore: I think we stated before the basics had been about 10% of our total revenues and we expected it.
Christopher Paul Moore: At some point not too far in the future that would be closer to 20% because they were growing so rapidly.
Christopher Paul Moore: Yeah.
Speaker Change: Got it no that makes sense for sure.
Christopher Paul Moore: I think one of the things you talked about Gary in your prepared remarks was that the order flow will improve.
Christopher Paul Moore: Further improve at the point in time this year that customers no longer able to order equipment with the R for 10 a refrigerant.
Christopher Paul Moore: Do you have a kind of a best guess as to.
Christopher Paul Moore: When that point is.
Christopher Paul Moore:
Gary D. Fields: It's going to be a bit it's dependent on lead time for this reason you cannot deliver equipment with for our type of equipment beyond December 31.
Christopher Paul Moore: So if you say well I want to have a two or three week buffer between December 31st and the last unit at produce just to make sure I don't have some kind of stubbed my toe moment.
Speaker Change: And you have.
Christopher Paul Moore: Roughly a 10 week.
Christopher Paul Moore: Lead time.
Christopher Paul Moore: So, let's just put that at 12 weeks. So just back at 12 weeks.
Christopher Paul Moore: From the end of the year and that's got to be the absolute cutoff, well, we're going to try and.
Christopher Paul Moore: Ill push people towards a cutoff ahead of that so that we don't end up with.
Christopher Paul Moore: Our problems.
Christopher Paul Moore: The problem could be and I've heard.
Christopher Paul Moore: Other manufacturers talk about this if we get a surge of orders people wanting to get 410 eight the last minute then the lead times could easily bump out and then where are you at so this is a.
Christopher Paul Moore: It's kind of a.
Christopher Paul Moore: Unusual situation that we've not really encountered before.
Christopher Paul Moore: When we had a refrigerant change before there was no building codes.
Christopher Paul Moore: Associated with it this time Theres building codes NES it necessary in order to.
Christopher Paul Moore: Utilize the new refrigerant well, there's also additional expense in the buildings and I think that's driving some people to say.
Christopher Paul Moore: Say well I'll just go ahead and get <unk>, because I don't have to have this additional expense for these refrigerant management.
Christopher Paul Moore: Strategies that are required by this new code so just to summarize that.
Christopher Paul Moore: I would say.
Christopher Paul Moore: Well somewhere.
Christopher Paul Moore: In August we were.
Christopher Paul Moore: Probably going to see a surge.
Speaker Change: Got it that's very helpful and maybe just a last wanted to kind of follow up on the point you just made in terms of the increased cost.
Speaker Change: It sounds like you guys are in really good shape from from that perspective the.
Speaker Change: <unk>.
Speaker Change: My understanding is that the new refrigerant.
Speaker Change: Our requirements are really not going to cost and anymore. You have the new safety device that youll have to.
Speaker Change: Yeah.
Speaker Change: Include with it what your manufacturing that internally so it sounds like from a competitive standpoint, you should be in really good position for this changeover am I looking at that correctly.
Speaker Change: Yes, I think so.
Speaker Change: No.
Speaker Change: As.
Christopher Paul Moore: We went through unit by unit.
Christopher Paul Moore: That holds true for vast majority theres cases than there were.
Christopher Paul Moore: We lost capacity when we converted and so you've got to add.
Christopher Paul Moore: Something to get more capacity.
Christopher Paul Moore: That's not across the board, it's not prevalent but it does appear here and there on certain size units.
Christopher Paul Moore: I think <unk>.
Christopher Paul Moore: Mostly the way we have portrayed that is correct yes.
Christopher Paul Moore: Okay.
Speaker Change: Alright, I appreciate it guys I'll jump back in line.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Your next question is from Ryan Merkel from William Blair. Please go ahead.
Ryan James Merkel: Thanks, Good afternoon.
Ryan James Merkel: Well actually it each month.
Ryan James Merkel: Something just a little different at those two factories.
Ryan James Merkel: That.
Speaker Change: We saw.
Speaker Change: January wasn't too bad towards the end of January we had some weather events.
Speaker Change: That hit us more in basics and it did anywhere else.
Speaker Change: But more prevalent Lee was it hit some of our customers.
Speaker Change: And our customers asked us to slow down on certain projects just a little bit you said, hey, we don't have anywhere to put this equipment can you slow down just a little.
Speaker Change: So there was some weather event in there.
Speaker Change: And then I don't want to discount entirely the impact of the construction going on at both of those.
Speaker Change: Locations both of them have substantial construction going on what's going on in long view is probably less disruptive because it's outside of the building we are using now, but it's somewhat disruptive but.
Speaker Change: In Oregon.
Speaker Change: They have disrupted of the two.
Speaker Change: Mary buildings up there one of them has had a reasonable disruption in.
Speaker Change: Rearranging, what we're doing and they're getting it ready to move into the new.
Speaker Change: Building that we're building and.
Speaker Change: It's just it's not without impact it's not substantial it's not prolonged it's not something we're going to put up with for a very long time.
Speaker Change: But we did see a little bit related to that.
Speaker Change: And are you able to quantify the sales impact from some of these issues in the quarter.
Speaker Change: Okay.
Speaker Change: While each segment reported.
Speaker Change: So you can see that.
Speaker Change: <unk>.
Speaker Change: Both of those two segments that I just spoke of ACP and basics were both below 2023.
Speaker Change: The growth while it was marginal was was in Tulsa.
Speaker Change: Tulsa, just it has no disruptions of any magnitude.
Speaker Change: A little bit of weather related for some of our because we had customers, saying youre shipping too early to us.
Speaker Change: With this weather, we're having weather delays can you slow down a little that happened across the whole enterprise, but.
Speaker Change: Tulsa was less impacted by it.
Speaker Change: Does that answer your question Ryan.
Ryan: Yeah, I think so.
Speaker Change: I think maybe the follow on would be it sounds like I think you said second quarter sales flat. So we're not seeing a lot of improvement in <unk>. When do you expect that these timing of backlog issues or the production issues that you talked about when do you see that getting back to normal.
Speaker Change: Well my perspective is.
Ryan: That it'll be improving through Q2, but it will be Q3 before it's relatively normal.
Speaker Change: Got it alright, thanks ill pass it on.
Speaker Change: Yeah.
Speaker Change: Your next question comes from Julio Romero from Sidoti <unk> Company. Please go ahead.
Julio Alberto Romero: Thanks, Hey, good afternoon.
Julio Alberto Romero: Maybe maybe switching to parts a little bit it was nice to see the parts sales growth of 10% in the quarter.
Julio Alberto Romero: That performance in parts, partially due to having.
Julio Alberto Romero: More than expected capacity part since volumes were a little depressed due to the issues you just outlined.
Julio Romero: Matt do you have any perspective on that.
Matthew Tobolski: I wouldn't I wouldn't say that.
Matthew Tobolski: I Wouldnt see the impact of volumes on the ACP and basic segments provided excess capacity of part I would say the parts growth is really parts demand.
Matthew Tobolski: And also from just a kind of year over year comp.
Matthew Tobolski: Also.
Matthew Tobolski: From last year to this year just to also a normalization of supply chain is really also that have made it easier to.
Matthew Tobolski: To transact park, and it kind of global sense.
Speaker Change: There's a lot of noise that kind of supply chain created in terms of being able to actually manage part sales. That's really stabilized now. So it's really just driven by demand in parts nothing to do with the kind of slower volumes off any of the sites.
Speaker Change: Okay understood and then.
Speaker Change: Maybe if we could talk.
Speaker Change: Talk about data centers.
Speaker Change: Yes, as you guys are assisting some of these data center customers and kind of being a holder of sorts is there any opportunities to take it provide any sticky products are sticky solutions that can embed you with those data center customers for the longer term.
Speaker Change: So it's a fantastic question.
Speaker Change: I would say at a high level, that's sort of where are we.
Speaker Change: We specialize in providing kind of value value add to our customers and so that does afford us the opportunity to really put us in a unique positions with our customers and develop solutions that really for.
Speaker Change: In our prepared remarks, when we talk about the engagement of our engineering and operations teams, that's exactly what they've been doing and it's really developing unique and really.
Speaker Change: Solutions tailored for forgiving owners kind of business models, and that's one of the great benefits of being a manufacturer would that kind of accustomed DNA, where we can really solution something for the owners.
Speaker Change: And then <unk>.
Speaker Change: Convert that to a mass produced product and really add a lot of value. So.
Speaker Change: That's what we're most excited about we certainly see opportunity to really ingrain ourselves in kind of their growth story and really be able to kind of be at the forefront of enabling that.
Speaker Change: Excellent I'll pass it on thanks very much.
Speaker Change: As a reminder, please press star followed by the one should you have for your question. Our next question comes from Brent Thielman from D. A Davidson. Please go ahead.
Brent Edward Thielman: Hey, Thanks, good evening.
Brent Edward Thielman: Actually just kind of following up on that could you actually talk about the opportunity on the liquid cooling side for pace X.
Brent Edward Thielman: Are you beginning to see orders for that.
Brent Edward Thielman: It's a big market.
Speaker Change: Yes, it's an interesting one.
Speaker Change: I'll say the the the surge in AI.
Speaker Change:
Speaker Change: It's really caused the industry to kind of really kind of look at it how do you develop and deploy capacity to the marketplace that also has flexibility to to kind of.
Speaker Change: Serve more traditional cloud compute as well as AI and kind of how do you blend your development strategy around that and we've really been working pretty heavily in that kind of market, where we're developing solutions and really working with customers to <unk>.
Speaker Change: Solve the the air side and liquid side kind of a conundrum and how we kind of go forward.
Speaker Change: And that isn't that is already gotten us to a point, where we've got orders in hand, and it really substantial opportunities in the liquid cooling realm and really the front end, it's been kind of crafting a solution that really do provide flexibility.
Speaker Change: So we see that actually is a really good strong suit because it provides a.
Speaker Change: Better opportunity to deploy products, where you don't necessarily know exactly what that future demand at a given location is going to look like and that greater flexibility really is attractive to the overall end user kind of as they look to deploy capital. So.
Speaker Change: We're excited to be seeing the the conversion to actually orders off with liquid cooling efforts, we're doing I mean.
Speaker Change: And really from a pipeline perspective extremely optimistic on kind of what that's going to mean for the enterprise as a whole.
Speaker Change: Okay and then.
Speaker Change: A lot of the focus and the commentary has been just around some adult.
Speaker Change: <unk> plasma Guangdong base. Thanks.
Speaker Change: I guess my question would be was met with the core.
Speaker Change: Mr de Aon, Oklahoma rooftop business, what you would've expected this quarter.
Speaker Change: Or were there some delays in timing there as well.
Speaker Change: I think it's been relatively close may be just a slight bit softer than what we expected.
Speaker Change: But it it's.
Speaker Change: We thought that we would see more seasonality in that business than what we had seen in recent years.
Speaker Change: And I believe that's mostly what we saw in the first quarter was the fact that.
Speaker Change: Q1, historically has been a softer quarter for that product.
Speaker Change: Last few years, we've had exceptions for various reasons.
Speaker Change: There's times when we had extraordinary lead time and others didn't that we got past some of that seasonality.
Speaker Change: You know there was buying habits changed it was just a whole lot going on I think we're in a relatively normal cadence of business now and our sales channel partners have strong backlogs themselves that they're processing strong pipelines that they're processing and sending to us and.
Brent Edward Thielman: So.
Brent Edward Thielman: While it was just a touch softer than what we may have expected it wasn't entirely unexpected.
Brent Edward Thielman: Okay.
Brent Edward Thielman: And then just some of the pent up or built up sort of.
Brent Edward Thielman: Orders here I suppose with basics long view does that I mean, I'll start to flow into the second half I mean should we see a huge catch up year or how do we think about that I know you've got your expectations for the second quarter. It sounds like it won't happen but.
Brent Edward Thielman: When does that ultimately flow.
Speaker Change: Yeah, we certainly see the kind of second half orders conversion.
Brent Edward Thielman: Revenue definitely being strong in those segments.
Brent Edward Thielman: And really that's also kind of going to be aided by the as Gary mentioned, you know theres a lot of disruption in the projects that are going on at both sites and so as we also look forward to Redmond site wrapping up in the Q3 timeframe and a lot of you at the end of the year.
Brent Edward Thielman: That's really going to help also kind of fuel some of that growth and kind of clean up some of the noise thats kind of happening on their site. So we definitely do see that kind of a second half kind of helping.
Brent Edward Thielman: To accelerate category from a volume and an overall revenue perspective tenant at both sites kind of given those constraints.
Speaker Change: Okay. Thanks, Matt appreciate it.
Brent Edward Thielman: Okay.
Brent Edward Thielman: There are no further questions I will now turn the call over to Joseph.
Joseph Mondello: I'd 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 or.
Joseph Mondello: Great rest of the day and we look forward to speaking with you in the future. Thank you.
Speaker Change: Ladies and gentlemen, this concludes the call for today.
Speaker Change: Thank you for calling in please go ahead and disconnect your lines.
Joseph Mondello: Yes.