Q4 2024 AAON Inc Earnings Call
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Joseph: Carl are for this call is being recorded on Thursday February 27, 2025, I would now like to turn the conference over to Joseph <unk> Director of Investor Relations. Please go ahead.
Good morning, ladies and gentlemen, and welcome to the E O and Inc. Fourth quarter 2004 earnings Conference call. At this time all lines are in listen only mode.
Okay.
Joseph: Yes.
Following the presentation, we will conduct a question and answer session.
Joseph: Yes.
Joseph: Thank you operator, and good morning, everyone. The press release announcing our fourth quarter financial results was issued earlier this morning and can be found on our corporate website.
If at any time during this call you required immediate assistance, please press zero or as far as zero for the operator.
A call or for this call is being recorded on Thursday February 27 2025.
Joseph: <unk> Dot com.
Joseph: The call today is accompanied with a presentation that you can also find on our website as well as on the listen only webcast.
I'd now like to turn the conference over to Josef Mandelbaum Director of Investor Relations. Please go ahead.
Joseph: Please go to slide two.
Joseph: 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 1095, The Securities Act of $19 33, and the Securities and Exchange Act of 19.
[music].
Yes.
Speaker Change: Thank you operator, and good morning, everyone. The press release announcing our fourth quarter financial results was issued earlier. This morning and can be found on our corporate website, a a O N dot com.
Speaker Change: The call today is accompanied with a presentation that you can also find on our website as well as on the listen only webcast.
Joseph: 34, each as amended.
Joseph: As such it is subject to the occurrence of many events outside of <unk> control that could cause <unk> results to differ materially from those anticipated you. All are aware of the inherent difficulties risks and uncertainties in making predictive statements.
Speaker Change: Please go to slide two.
Speaker Change: 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, The Securities Act of 1933.
Joseph: Our press release and Form 10-K that we filed this morning details some of the important risk factors that may cause our actual results to differ from those in our predictions.
Joseph: Please note that we do not have the duty to update our forward looking statements.
Speaker Change: <unk> and exchange Act of 1934, each as amended.
Joseph: Our press release and portions of today's call use non-GAAP financial measures as defined in regulation G.
Speaker Change: As such it is subject to the occurrence of many events outside of <unk> control that could cause <unk> results to differ materially from those anticipated.
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 Tobolski, President and COO, and Rebecca Thompson, CFO and treasurer.
Speaker Change: You all are aware of the inherent difficulties risks and uncertainties in making predictive statements.
Speaker Change: Our press release and Form 10-K that we filed this morning detailed some of the important risk factors that may cause our actual results could differ from those in our predictions.
Jerry will start off with some opening remarks, Rebecca will follow with a walk through of the quarterly results. Matt will then provide further details on the segments and about our operational strategy and before taking questions. Gary will finish with our 2025 outlook and closing remarks with that I will turn the call over to Gary.
Speaker Change: Please note that we do not have the duty to update our forward looking statements.
Speaker Change: A press release that portions of today's call use non-GAAP financial measures as defined in regulation G.
Speaker Change: You can find the related reconciliations to GAAP measures in our press release and presentation joining.
Joseph: Prior to diving into the results I want to briefly address the news that we announced last week related to CEO succession.
Speaker Change: Joining me on today's call is Garry field, CEO, Matt Tobolski, President and C O O and Rebecca Thompson, CFO and treasurer.
Speaker Change: As many of you know by now I'll be stepping down as CEO at our annual stockholders meeting on May 13th.
Speaker Change: Gary will start off with some opening remarks, Rebecca will follow with a walk through of the quarterly results. Matt will then provide further details on the segments and about our operational strategy and before taking questions. Gary will finish with our 2025 outlook and closing remarks with that I will turn the call over to Gary.
Matt: Matt <unk> will be taking over the role.
Matt: I will remain on the board and I also will become a special advisor to the company to ensure a smooth transition.
Matt: Years ago, I was very transparent that a part of my strategy with the company was to put together such a strong leadership team that my services as leader will not be required any further.
Speaker Change: Prior to diving into the results I want to briefly address the news that we announced last week related to CEO succession.
Speaker Change: You've reached that point.
Speaker Change: As many of you know by now I'll be stepping down as CEO at our annual stockholders meeting on May 13th.
Speaker Change: The team that we have put together over the last several years has been tested many ways and has proven to be incredibly capable.
Speaker Change: And Matt to biopsy will be taking over the role.
Speaker Change: I can confidently say this is the strongest leadership team this company has ever seen.
Speaker Change: I will remain on the board and I also will be kind of a special advisor to the company to ensure a smooth transition.
Speaker Change: Since the end of 2023, Matt has been leading the team and fully managing the day to day operations.
Speaker Change: Years ago, I was very transparent, but a part of my strategy with the company was to put together such a strong leadership team that my services as leader will not be required any further.
Speaker Change: Over this time I took a step back from the day to day.
Speaker Change: I could not be happier how the team performed throughout this transition.
Speaker Change: We've reached that point.
Speaker Change: <unk> media most confidence that this is the right timing for this.
Speaker Change: The team that we have put together over the last several years has been tested many ways and has proven to be incredibly capable.
Speaker Change: Matt is an extremely talented individuals with the huge skill set.
Speaker Change: I can confidently say this is the strongest leadership team this company has ever seen.
Speaker Change: As bandwidth is incredibly large and he is a very effective leader.
Speaker Change: I have strong conviction he will be very successful and that this transition will be extremely smooth.
Speaker Change: Since the end of 2023.
Speaker Change: He's been leading the team and fully managing the day to day operations over this time I took a step back from the day to day.
Speaker Change: Now please turn to slide three.
Speaker Change: As we look back on 2024, it was a year of both triumphs and obstacles.
Speaker Change: I could not be happier how the teams formed throughout this transition.
Speaker Change: Early in the year, we were coming off of a two year stretch of extremely strong organic volume growth and share gains.
Speaker Change: Giving me the most confidence that this is the right timing for this.
Speaker Change: That is an extremely talented individuals with the huge skill set.
Speaker Change: We said at the time that in addition to the year over year comps being tough that 2024 was going to be a slower year. This due to uncertainties and challenges related to the refrigerant transition.
Speaker Change: As bandwidth is incredibly large and he is a very effective leader.
Speaker Change: I have strong conviction he will be very successful and that this transition will be extremely smooth.
Speaker Change: Now please turn to slide three.
Speaker Change: Along with weaker macroeconomic conditions in the traditional nonresidential construction market.
Speaker Change: As we look back on 2024, it was a year of both triumphs and obstacles.
Speaker Change: While not everything went exactly how we expected.
Early in the year, we were coming off of a two year stretch of extremely strong organic volume growth and share gains.
Speaker Change: From an organic revenue standpoint.
Speaker Change: It was a flattish year, which was generally in line with our projections.
Speaker Change: We said at the time that in addition to the year over year comps being tough.
Speaker Change: Peeling back the onion, there were a lot of puts and takes.
Speaker Change: <unk> 24 was going to be a slower year, just due to uncertainties and challenges related to the refrigerant transition.
Speaker Change: The basics brand had a tremendous year driven by robust demand from the data center market.
Speaker Change: Strong execution from our engineering and sales teams.
Speaker Change: Long with weaker macroeconomic conditions in the traditional nonresidential construction market.
Speaker Change: The brand made a significant impact on the data center market with the industry's first large scale development and sale of custom designed liquid cooling solutions.
Speaker Change: Well not everything went exactly how we expected.
Speaker Change: From an organic revenue standpoint, it was a flattish year, which was generally in line with our projections.
Speaker Change: At the same time sales of its air side data center cooling equipment maintained exceptional performance.
Speaker Change: Peeling back the onion, there were a lot of puts and takes.
Speaker Change: Net sales of basics branded equipment for the year were up 35, 1%.
Speaker Change: The basics brand had a tremendous year driven by robust demand from the data center market and strong execution from our engineering and sales teams.
Speaker Change: And within that basics branded datacenter equipment sales were up approximately 85%.
Speaker Change: Bookings of basics branded equipment in 2024 were up approximately 100%.
Speaker Change: The brand made a significant impact on the data center market with the industry's first large scale development and sale of custom designed liquid cooling solution.
This performance led to the company's total backlog, finishing the year up 70%.
Speaker Change: At the same time sales of its air side data center cooling equipment maintained exceptional performance.
Speaker Change: The brand faced a more challenging year due to disruptions caused by the refrigerant transition and weaker nonresidential construction activity.
Speaker Change: Net sales of basics branded equipment for the year were up 35, 1%.
Speaker Change: These headwinds resulted in softer demand it created challenges within production planning.
Speaker Change: And within that basics branded datacenter equipment sales were up approximately 85%.
Speaker Change: Despite the obstacles sales of ion branded equipment were down just modestly in the low single digits.
Speaker Change: Bookings of basics branded equipment in 2024 were up approximately 100%.
Speaker Change: Bookings of Aon branded equipment was up in the mid teens and backlog at the end of the year.
Speaker Change: This performance led to the company's total backlog, finishing the year up 70%.
Speaker Change: The Aon brand faced a more challenging year due to disruptions caused by the refrigerant transition and weaker nonresidential construction activity.
Speaker Change: On branded equipment was up approximately 20%.
Speaker Change: Considering the tough year over year comps combined with the headwinds we deem the year to be a success.
Speaker Change: These headwinds resulted in softer demand created challenges within production planning.
Speaker Change: Please turn to slide four.
Speaker Change: Like the year the fourth quarter performance was mixed the bright shining star was that bookings were up approximately 62% at year end backlog finished at 70% to $867 1 million.
Speaker Change: Despite the obstacles sales are they on branded equipment were down just modestly in the low single digits.
Speaker Change: Bookings of Aon branded equipment was up in the mid teens and backlog at the end of the year as a unbranded equipment was up approximately 20%.
Speaker Change: This was primarily driven by bookings of datacenter equipment, including the large 200 million plus liquid cooling.
Speaker Change: Considering the tough year over year.
Speaker Change: Comps combined with the headwinds within the year to be a success.
<unk> order, we booked late last year.
Speaker Change: Please turn to slide four.
Speaker Change: We anticipate a majority of the total backlog will convert to revenue.
Speaker Change: Like the year the fourth quarter performance was mixed the bright shining star was that bookings were up approximately 62% at year end backlog finished.
Speaker Change: In 2025 positioning us for accelerated growth this year.
Speaker Change: Sales and earnings in the fourth quarter were softer than we were anticipating this.
Speaker Change: 70% to $867 $1 million.
Speaker Change: This was primarily driven by the Oklahoma segment.
Speaker Change: This was primarily driven by bookings of data center equipment, including the large 200 million plus liquid cooling.
Speaker Change: The fourth quarter was the first quarter in which we only accepted orders for equipment configured with the new refrigerant.
Speaker Change: <unk> order, we booked late last year.
Speaker Change: Bookings of rooftop units in October and November were soft, causing us to throttle down production more than we anticipated.
Speaker Change: We anticipate a majority of the total backlog will convert to revenue.
Speaker Change: In 2025 positioning us for accelerated growth this year.
Speaker Change: As a result volumes were lower than expected margin degradation at the segment was exacerbated.
Speaker Change: Sales and earnings in the fourth quarter were softer than we were anticipating.
Speaker Change: The positive is this slowdown is temporary and we believe we're closer to the end than the beginning.
Speaker Change: This was primarily driven by the Oklahoma segment.
Speaker Change: The severity of the downturn since October should also result in a steeper recovery for us as we deem most of this slowdown was a push out of demand.
Speaker Change: The fourth quarter was the first quarter in which we only accepted orders for equipment configured with the new refrigerant.
Speaker Change: Bookings of rooftop units in October and November were soft, causing us to throttle down production more than we anticipated.
Speaker Change: The most of our competition, which experienced a pull forward of demand.
Speaker Change: I will now hand, it off to Rebecca Thompson, who will walk through the quarterly financials in more depth.
Speaker Change: As a result volumes were lower than expected margin degradation at the segment was exacerbated.
Rebecca Thompson: Thank you Gary.
Rebecca Thompson: I'd like to begin by discussing the comparative results for the three months ended December 31, 2024 versus December 31, 2023, Please turn to slide five.
The positive is this slowdown is temporary and we believe we're closer to the end than the beginning.
Speaker Change: The severity of the downturn since October should also result in a steeper recovery for us as we deem most of the slowdown was a push out of demand.
Rebecca Thompson: Net sales were down two 9% to $297 7 million from $306 6 million a.
Speaker Change: The most of our competition, which experienced a pull forward of demand.
Rebecca Thompson: The year over year decline largely driven by the Aon, Oklahoma segment, which realized the decline of 16, 1%.
Speaker Change: I will now hand, it off to Rebecca Thompson, who will walk through the quarterly financials in more depth.
Rebecca Thompson: This was partially offset by the <unk> product segment, which realized growth of 129, 9%.
Speaker Change: Thank you Gary.
Speaker Change: I'd like to begin by discussing the comparative results for the three months ended December 31, 2024 versus December 31, 2023, Please turn to slide five.
Rebecca Thompson: Moving to slide number six.
Rebecca Thompson: Our gross profit decreased 35% to $77 6 million from $111 7 million as a percentage of sales gross profit margin was 26, 1% compared to 36, 4% in 2023.
Speaker Change: Net sales were down two 9% to $297 7 million from $306 6 million a.
Speaker Change: The year over year decline largely driven by the Aon, Oklahoma segment, which realized a decline of 16, 1%.
Rebecca Thompson: The decrease in gross profit margin largely reflects lower volumes and the related deleveraging of fixed costs at the Aon, Oklahoma segment.
Speaker Change: This was partially offset by the Aon quell product segment, which realized growth of 129, 9%.
Rebecca Thompson: We also had a temporary decline in gross margin for the Aon cloud products and basic segment as we build out additional capacity for future growth.
Speaker Change: Moving to slide number six.
Speaker Change: Our gross profit decreased 35% to $77 6 million from $111 7 million as a percentage of sales gross profit margin was 26, 1% compared to 36, 4% in 2023.
Rebecca Thompson: Turn to slide seven.
Rebecca Thompson: Selling general and administrative expenses increased.
Rebecca Thompson: 7% to $48 2 million from $47 9 million in 2023 as.
Rebecca Thompson: As a percentage of sales SG&A increased to 16, 2% compared to 15, 6% in the same period in 2023.
Speaker Change: The decrease in gross profit margin largely reflects lower volumes and the related deleveraging of fixed costs at the Aon, Oklahoma segment.
Speaker Change: We also had a temporary decline in gross margin for the Aon cloud products and basics segment as we build out additional capacity for future growth.
Rebecca Thompson: The increase in SG&A as a percent of sales was primarily related to an increase in depreciation expense associated with investments we are making for long term growth offset by a reduction in profit sharing expenses due to lower earnings.
Speaker Change: Please turn to slide seven.
Speaker Change: Selling general and administrative expenses increased.
Rebecca Thompson: Moving to slide eight.
Speaker Change: 7% to $48 2 million from $47 9 million in 2023.
Rebecca Thompson: Diluted earnings per share decreased 46, 4% to 30 cents per share from 56 per share the fourth quarter benefited from a large excess tax benefit of $4 6 million related to stock based compensation compared to $2 5 million in the same period a year ago.
Speaker Change: As a percentage of sales SG&A increased to 16, 2% compared to 15, 6% in the same period in 2023.
Speaker Change: The increase in SG&A as a percent of sales was primarily related to an increase in depreciation expense associated with the investments, we're making for long term growth.
Rebecca Thompson: Turning to slide nine.
Rebecca Thompson: Our balance sheet remained strong cash cash equivalent and restricted cash totaled $6 5 million at December 31, 2024, and total outstanding debt was $154 9 million.
Speaker Change: Set by a reduction in profit sharing expenses due to lower earnings.
Speaker Change: Moving to slide eight.
Speaker Change: Diluted earnings per share decreased 46, 4% to 30 cents per share from 56 per share the fourth quarter benefited from a large excess tax benefit of $4 6 million related to stock based compensation compared to $2 5 million in the same period a year ago.
Rebecca Thompson: Our leverage ratio in the quarter was $5 seven.
Rebecca Thompson: We had working capital balance at $313 3 million at December 31, 2024 versus $282 2 million at December 31, 2023, the increase in working capital reflects necessary inventory purchases made to accommodate production of orders in backlog for early 2025.
Speaker Change: Turning to slide nine.
Speaker Change: Our balance sheet remains strong cash cash equivalent and restricted cash totaled $6 5 million at December 31, 2024, and total outstanding debt was $154 9 million.
Rebecca Thompson: Yes.
Rebecca Thompson: Capital expenditures in the fourth quarter were $99 3 million up nearly four fold from a year ago.
Speaker Change: Our leverage ratios in the quarter was $5 seven.
Rebecca Thompson: Increase was primarily associated with the $63 4 million spent in December on the closing of our new facility in Memphis.
Speaker Change: We had working capital balance at 300.
Speaker Change: $13 3 million at December 31, 2024 versus $282 2 million at December 31, 2023, the increase in working capital reflects necessary inventory purchases made to accommodate production of orders in backlog for early 2025.
Rebecca Thompson: In 2024 capital expenditures totaled $213 2 million up.
Rebecca Thompson: 94, 7% from 2023.
Rebecca Thompson: In 2025, we anticipate capital expenditures to be approximately $220 million.
Speaker Change: Capital expenditures in the fourth quarter were $99 3 million up nearly four fold from a year ago.
Rebecca Thompson: The majority of our investments will be related to getting the Memphis facility up to speed for production later this year.
Speaker Change: Increase was primarily associated with the $63 4 million spent in December on the closing of our new facility in Memphis.
Speaker Change: I'll now hand, the call over to Matt Tobolski, who will speak more in depth regarding the business segments and our operational strategy.
Matt Tobolski: Thank you Rebecca please turn to slide 10.
Speaker Change: In 2024 capital expenditures totaled $213 2 million.
Speaker Change: As Rebecca stated much of the softness in the quarter was driven by the Aon, Oklahoma segment.
Speaker Change: 94, 7% from 2023.
Speaker Change: On the third quarter call, we caution that we expected a temporary low in adoption of immune <unk> refrigerants equipment. After we stopped accepting orders of the legacy <unk> refrigerant equipment at September and knowing that many of our states building codes were updated to allow <unk> equipment until the fourth quarter.
Speaker Change: In 2025, we anticipate capital expenditures to be approximately $220 million.
Speaker Change: The majority of our investments will be related to getting the Memphis facility up to speed for production later this year.
Speaker Change: I'll now hand, the call over to Matt Tobolski, who will speak more in depth regarding the business segment and our operational strategy.
Speaker Change: This was the first refrigerate transition that also had building code implications it was difficult to gauge what the impact is going to be.
Matt Tobolski: Thank you Rebecca please turn to slide 10.
Matt Tobolski: As Rebecca stated much of the softness in the quarter was driven by the Aon, Oklahoma segment.
Speaker Change: The downturn in demand following the refrigerant transition proved to be steeper, causing us to slow production in the quarter more than anticipated. This resulted in lower volumes and the outlook.
Matt Tobolski: On the third quarter call, we caution that we expected a temporary low in adoption of immune <unk> refrigerants equipment. After we stopped accepting orders up legacy esports <unk> refrigerant equipment at September and knowing that many of our states building codes were updated to allow <unk> until the fourth quarter.
Speaker Change: <unk> segment in the quarter, we believe the downturn is temporary and was created by the refrigerated transition timing as such we chose to not reduced head count significantly to prepare for the rebound demand as a result of the impact was magnified for a profit margin standpoint.
Matt Tobolski: This was the first refrigerate transition that also had building code applications. It was difficult to gauge what the impact was going to be.
Speaker Change: Bookings were strong as we rounded out the year, resulting in a double digit increase in this segment year end backlog. However, this preceded a modest price increase that went into effect on January one. So some of this demand with a cohort and if the price increase the positive is this suggests there is pent up demand in the market.
Matt Tobolski: The downturn in demand following the refrigerant transition proved to be steeper, causing us to slow production in the quarter more than anticipated. This resulted in lower volumes in the Oklahoma segment in the quarter. We believe the downturn is temporary it was created by the refrigerated transition timing as such we chose to not reduced head count significantly to prepare for the rebound.
Speaker Change: Furthermore, as of the end of January the trailing three months of bookings were up in the mid teens compared to the same three month period, a year ago and backlog remains solid we continue to believe as we move through the first half of the year, we'll see continued improvement in demand.
Matt Tobolski: Demand as a result of the impact was magnified for a profit margin standpoint.
Matt Tobolski: Bookings were strong as we rounded out the year, resulting in a double digit increase in this segment year end backlog. However, this preceded a modest price increase that went into effect on January 1st. So some of this demand with a cohort and if the price increase the positive is this suggests there is pent up demand in the market.
Speaker Change: That said most of the fixed costs associated with the new Mexico facility will be included in the Aon, Oklahoma segment until production ramps up to a certain level, which will likely not occur until Q4. This will be a drag on segment profits in the first half of the year, we anticipate incurring costs of $5 million to $7 million.
Matt Tobolski: As of the end of January the trailing three months of bookings were up in the mid teens compared to the same three month period, a year ago and backlog remained solid we continue to believe as we move through the first half of the year, we will see continued improvement in demand.
Speaker Change: With minimal revenues to offset.
Speaker Change: For the segment as a whole we expect the first quarter will look similar to the fourth quarter and expect sequential improvements throughout most of next year.
Speaker Change: The Aon coil products segment.
Matt Tobolski: That said most of the fixed costs associated with the new Mexico facility will be included in the Aon, Oklahoma segment.
Speaker Change: On an exceptional quarter.
Speaker Change: Sales and gross profits were up 129, 9% at 88, 9% respectively.
Matt Tobolski: Until production ramps up to a certain level, which will likely not occur until Q4. This will be a drag on segment profits in the first half of the year, we anticipate incurring costs of $5 million to $7 million with minimal revenues to offset.
Speaker Change: Frankly, large largely driven by the commencement of production of the new basic branded datacenter liquid cooling product Imus.
Speaker Change: Im extremely pleased with our operations have performed here with.
Speaker Change: We've added and trained a lot of people in a short period of time to scale up this operation and execute to the highest level for this customer.
Matt Tobolski: For the segment as a whole we expect the first quarter will look similar to the fourth quarter and expect sequential improvements throughout most of next year.
Speaker Change: Due to engineering and design modifications requested from the customer the initial ramp up of production has been delayed a couple of months as a result, we now expect the majority of this order will be produced and shipped in the second and third quarter of this year.
Matt Tobolski: The Aon coil products segment.
Matt Tobolski: On an exceptional quarter.
Matt Tobolski: And gross profits were up 149, 9% and 88, 9% respectively.
Matt Tobolski: Frankly, large largely driven by the commencement of production of the new basics branded datacenter liquid cooling product.
Speaker Change: That said, we should see solid sequential improvement in sales and profit in the first quarter with an acceleration starting in the second quarter.
Matt Tobolski: I am extremely pleased with our operations have performed here with.
Matt Tobolski: Added and trained a lot of people in a short period of time to scale up this operation and execute to the highest level for this customer.
Speaker Change: Sales and gross profit at the basics segment were down 3% to 42, 7% respectively.
Speaker Change: Over the course of last year the facility to Oregon has been working through some growing pains. There is a lot of demand and a lot of backlog, which is positive but theres also limited capacity at this facility. This resulted in some temporary operational inefficiencies and is why the margins have been sub par for a number of quarters.
Matt Tobolski: Due to engineering and design modifications requested from the customer the initial ramp up of production has been delayed a couple of months as a result, we now expect the majority of this order will be produced and shipped in the second and third quarter of this year.
Matt Tobolski: That said, we should see solid sequential improvement in sales and profit in the first quarter with an acceleration starting in the second quarter.
Speaker Change: The positive is we've been working on this issue for a while and believe we are almost at a point.
Speaker Change: Where we should begin to see improvement.
Matt Tobolski: Sales and gross profit at the basics segment were down 3% to 42, 7% respectively.
Speaker Change: We're taking certain initiatives that will expand production throughput while balancing your head count appropriately.
Matt Tobolski: Over the course of last year the facility to Oregon has been working through some growing pains. There is a lot of demand and a lot of backlog, which is positive but there is also limited capacity at this facility. This resulted in some temporary operational inefficiencies and it's why the margins have been sub par for a number of quarters.
Speaker Change: This facility should also help greatly as we will be moving some high volume production from Redmond to this facility later this year.
Speaker Change: Which will result in higher production efficiency at Redmond.
Speaker Change: We expect their first quarter will look similar to the fourth quarter and anticipate sequential improvement going forward as.
Matt Tobolski: The positive is we've been working on this issue for a while and believe we are almost at a point.
Speaker Change: As we stated in the past we expect this segment will eventually return to margins we realized in 2023.
Matt Tobolski: Where we should begin to see improvement.
Speaker Change: Please turn to slide 11.
Matt Tobolski: We're taking certain initiatives that will expand production throughput while balancing your head count appropriately.
Speaker Change: Want to finish by briefly running through our strategic priorities with you and how they pertain to our tactical approach today.
Matt Tobolski: This facility should also help greatly as we will be moving some high volume production from Redmond to this facility later this year.
Speaker Change: We see our strategy existing with three main pillars.
Speaker Change: <unk> Foundation is and has always been built upon the <unk> being industry leader in innovation and customization, which is pillar number one.
Matt Tobolski: It will result in higher production efficiency.
Matt Tobolski: We expect their first quarter will look similar to the fourth quarter and anticipate sequential improvement going forward.
Speaker Change: Maintaining the industry's highest class of engineers in solving our customers' problems through Configurable and customized solutions is a foundational principle across the entire organization.
Matt Tobolski: As we stated in the past we expect this segment will eventually return to margins we realized in 2023.
Matt Tobolski: Please turn to slide 11.
Speaker Change: Simplify this today through various ways, most notably our highly technical fully custom developed data center solution and our cutting edge semi custom air source heat pump units.
Matt Tobolski: I want to finish by briefly running through our strategic priorities with you and how they pertain to our tactical approach today.
Matt Tobolski: We see our strategy existing with the three main pillars.
Speaker Change: The data center liquid cooling solution that we developed last year with a product that was uniquely configured in a way the industry had never seen before the product we provided with the exact solution that a customer is looking for and it was something none of our competition was able to deliver in the current time period, where the scope and design of data centers are rapidly changing these <unk>.
Matt Tobolski: Foundation is he has always been built upon the being industry leader in innovation and customization, which is pillar number one.
Matt Tobolski: And in the industry highest class of engineers and solving our customers' problems through Configurable and customized solutions is a foundational principle across the entire organization.
Matt Tobolski: We exemplify this today through various ways, most notably our highly technical fully custom developed data center solution and our cutting edge semi custom air source heat pump units.
Speaker Change: Engineering and manufacturing capabilities are immensely valuable.
Speaker Change: Our air source heat pump rooftop units sold under Alpha glass product family is another example of innovation.
Matt Tobolski: Data center liquid cooling solution that we developed last year with a product that was uniquely configured in a way the industry has never seen before the product we provided with the exact solution that a customer is looking for and it was something none of our competition was able to deliver.
Speaker Change: Today, we are one of only two manufacturers in the industry that provides certified air source heat pump solutions that are operable down to zero degrees.
Speaker Change: Over the course of this year, we will be introducing heat pump solutions that are operable all the way down to negative 20 degrees Fahrenheit.
Matt Tobolski: In the current time period, where the scope and design of Datacenters are rapidly changing these engineering and manufacturing capabilities are immensely valuable.
Speaker Change: This is instrumental in filling that growing demands from customers, who are attempting to decarbonize and electrify their footprints of buildings.
Speaker Change: You are just two examples we.
Matt Tobolski: Our air source heat pump rooftop units sold under Alpha class product family is another example of innovation.
Speaker Change: We have other innovations and development stages that we expect will be similarly, as impactful we look forward to sharing them with you in the future.
Matt Tobolski: Today, we are one of only two manufacturers in the industry that provides certified air source heat pump solutions that are operable down to zero degrees.
Speaker Change: Leads me to our second pillar, which is to drive sustainable and robust organic growth.
Speaker Change: They are annualized run rate of production of datacenter equipment amounts to a little over $200 million.
Matt Tobolski: Over the course of this year, we will be introducing Heathrow observations that are operable all the way down to negative 20 degrees Fahrenheit.
Speaker Change: Given the pipeline of data center development land and growing demand for customized solutions and it's everly rapid changing industry. We see this business growing to over $1 billion within a few years.
Matt Tobolski: This is instrumental in filling the growing demands for customers, who are attempting to decarbonize and electrify their footprints of buildings.
Speaker Change: Just two examples we.
Speaker Change: We have other innovations the development stages that we expect will be similarly, as impactful we look forward to sharing them with you in the future.
Speaker Change: In 2024 sales of our <unk> glass units amounted to a little over $100 million. It was up year over year by approximately 40%.
Speaker Change: We have made to our second pillar, which is to drive sustainable and robust organic growth.
Speaker Change: With demand for this technology growing significantly and much of the country requiring as copilot solution. We think this business can grow by multiples in the next few years. These two catalysts alone are going to drive significant growth and there are other initiatives. We're focusing on that will also contribute to continued growth.
Speaker Change: They are annualized run rate of production of datacenter equipment amounts to a little over $200 million given the pipeline of data center development plans and growing demand for customized solutions and it's everly rapid changing industry. We see this business growing to over $1 billion within a few years.
Speaker Change: This brings me to our final pillar, which is to be a best in class operator.
Speaker Change: 2024 sales of our <unk> units amounted to a little over $100 million. It was up year over year by approximately 40%.
Speaker Change: <unk> best in class operator to us means to consistently achieve high operational efficiencies quality control and on time delivery rates all reflected by consistent gross margins.
Speaker Change: With demand for this technology growing significantly and much of the country requiring is called pilot solution. We think this business can grow by multiples in the next few years. These two catalysts alone going to drive significant growth and there are other initiatives. We're focusing on that will also contribute to continued growth.
Speaker Change: To achieve this while generating robust growth rates, we are targeting we must carefully manage both our current operations at our capacity expansion plans.
Speaker Change: In order to do that we reorganized the company late last year.
Speaker Change: This new structure will allow us to quickly grow into approximately 1 million square feet of new manufacturing space.
Speaker Change: This brings me to our final pillar, which is to be a best in class operator.
Speaker Change: That we've constructed and acquired last year doing so while maintaining efficiencies and target margins.
Speaker Change: Being a best in class operator to us means to consistently achieve high operational efficiencies quality control and on time delivery rates all reflected by consistent gross margins.
Speaker Change: With that I will hand, it back to Gary who will walk through the outlook.
Speaker Change: Please turn to slide 12.
Speaker Change: To achieve this while generating the robust growth rates, we are targeting we must carefully manage both their current operations and our capacity expansion plans.
Gary: Prior to walk you through the 2025 outlook I want to take a step back and talk about where we are in a business cycle and where we're going.
Speaker Change: In order to do that we reorganized the company late last year.
Gary: Matt did a good job of speaking to where we're going but I want to frame, where we are from a higher level perspective.
Speaker Change: This new structure will allow us to quickly grow into approximately 1 million square feet of new manufacturing space.
The last five years, we have experienced tremendous amount of growth growing organic revenue at a CAGR of 17%.
Speaker Change: That we've constructed and acquired last year doing so while maintaining efficiencies and target margins.
Speaker Change: With that I will hand, it back to Gary who will walk through the outlook.
Gary: It hasn't been a straight line, though which it never is in business in 2020, we had an exceptional year 2021 was flattish.
Gary: Please turn to slide 12.
Gary: Prior to walk you through the 2025 outlook I want to take a step back and talk about where we are in a business cycle and where we're going.
Gary: <unk> thousand 22, and 2023 were phenomenal.
Gary: In 2024 was flattish.
Gary: Last year was an unusual year largely disrupted by an unprecedented government regulation that the industry had never experienced.
Gary: <unk> did a good job of speaking to where we're going but I want to frame, where we are from a higher level perspective.
Gary: The last five years, we have experienced tremendous amount of growth growing organic revenue at a CAGR of 17%.
Gary: The positive is most of the impact of that regulation is behind us.
Gary: Point this out because sometimes we get overly focused on three months worth of financials, and sometimes lose the forest for the trees.
Gary: It hasn't been a straight line, which it never is in business in 2020, we had an exceptional year 2021 was flattish.
Gary: We are at the early stages of another multi year period of robust growth.
Gary: <unk> thousand 22, and 2023 were phenomenal.
Gary: Fundamentals of both of our brands Aon and basics are extremely strong.
Gary: In 2024 was flattish.
Gary: Basics has a huge tailwind for data center development and it's leveraging of its unique engineering and custom design capabilities.
Speaker Change: Last year was an unusual year largely disrupted by an unprecedented government regulation that the industry had never experienced.
Gary: <unk> also is in a strong position our semi custom designed equipment is of the highest quality best performing most energy efficient equipment in the industry.
Gary: The positive is most of the impact of that regulation is behind us.
Gary: Point this out because sometimes we get overly focused on three months worth of financials, and sometimes lose the forest for the trees.
Gary: Our advanced development of heat pump technology is revolutionary.
Gary: We are at the early stages of another multi year period of robust growth.
Gary: Moreover, we're proving we can build our traditional equipment more efficiently than anyone which is reflected in the narrowing price premium and strong margins.
Gary: Fundamentals of both of our brands Aon and basics are extremely strong.
Gary: Basics has a huge tailwind for data center development and it's leveraging of its unique engineering and custom design capabilities.
Given the backlog and the fundamentals, we see both brands accelerating in growth over the next several years, resulting in annual growth similar to our trailing five year CAGR.
Gary: <unk> also is in a strong position our semi custom designed equipment is of the highest quality best performing most energy efficient equipment in the industry.
Gary: We are investing in positioning this business for the long term.
Gary: The recent reorganize estimates we've made into the business to give you confidence that we will not only be able to absorb this robust growth, but do so efficiently.
Gary: Our advanced development of heat pump technology is revolutionary.
Gary: Moreover, we're proving we can build our traditional equipment more efficiently than anyone which is reflected in the narrowing price premium and strong margins given.
Gary: With that I will now walk you through our 2025 outlook. Please.
Gary: Please turn to slide 13.
Gary: Given the backlog and the fundamentals, we see both brands accelerating in growth over the next several years.
Gary: For the year, we anticipate sales growth in the mid to high teens at a gross margin similar to what we realized in 2024.
Gary: <unk> and annual growth similar to our trailing five year CAGR.
Gary: We are investing in positioning this business for the long term the.
Gary: SG&A as a percent of sales will realize a decline of 25 to 50 basis points.
Gary: The recent re org and investments we have made into the business to give you confidence that we will not only be able to absorb this robust growth, but do so efficiently.
Gary: Capex will be approximately $220 million.
Gary: For the first quarter due to general seasonality lasting impacts of the refrigerant transition and ramp up costs related to Memphis, We anticipate sales and earnings will be modestly down from the fourth quarter.
Gary: With that I will now walk you through our 2025 outlook. Please.
Gary: Please turn to slide 13.
Gary: For the year, we anticipate sales growth in the mid to high teens at a gross margin similar to what we realized in 2024.
Gary: In closing I want to finish by thanking all of our employees sales channel partners and customers.
Gary: SG&A as a percent of sales will realize a decline of 25 to 50 basis points.
Gary: I also want to announce that we will be attending Sidoti <unk> Companys virtual small cap conference on March 13th and William Blairs Conference in June I hope to see some of you there at these events.
Gary: Capex will be approximately $220 million.
Gary: For the first quarter due to general seasonality lasting impacts of the refrigerant transition and ramp up costs related to Memphis, We anticipate sales and earnings will be modestly down from the fourth quarter.
Gary: Thank you and I will now open the call for Q&A.
Gary: Thank you.
Speaker Change: Ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press the star followed by number one on your Touchtone phone.
Gary: In closing I want to finish by thanking all of our employees sales channel partners and customers.
Gary: I also want to announce that we will be attending Sidoti <unk> Companys virtual small cap conference on March 13th and William Blairs Conference in June I hope to see some of you there at these events.
Speaker Change: You will hear a pump that Johan has been raised.
Speaker Change: Should you wish to declines from the pooling process. Please press the star followed by a number to it.
Speaker Change: If you are using a speaker phone.
Gary: Thank you and I'll now open the call for Q&A.
Speaker Change: Please lift the handset before pressing on this one.
Speaker Change: One moment. Please for your first question.
Gary: Thank you ladies.
Speaker Change: Ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press the star followed by number one on your Touchtone phone.
Speaker Change: Okay.
Speaker Change: Your first question comes from Ryan Merkel from William Blair. Please go ahead.
Speaker Change: You will hear a pump that Johan has been raised.
Speaker Change: Hey, everyone. Good morning, Thanks for the questions I wanted to start.
Speaker Change: Should you wish to declines from the billing process.
Speaker Change: But the first quarter outlook for the Oklahoma sales I think you said flat sales versus what you just reported <unk> and is the reason that youre seeing that is it is it still push outs because there's inventory of our form 10 in the channel is that the main reason.
Speaker Change: First the star followed by a number to it.
If you're using a speaker phone please lift the handset before pressing.
Speaker Change: One moment. Please for your first question.
Speaker Change: Okay.
Okay.
Speaker Change: Your first question comes from <unk>.
Speaker Change: Well, that's certainly got.
Speaker Change: Ryan Merkel from William Blair. Please go ahead.
Speaker Change: Any impact on it Brian.
Speaker Change: Sure.
Speaker Change: We did.
Speaker Change: Everyone. Good morning, and thanks for the questions I wanted to start with.
Book.
Speaker Change: Very nice right there at the end of the year, but the.
Speaker Change: First quarter outlook for the Oklahoma sales I think you said flat.
Speaker Change: Lead time being what it is it's towards the end of the first quarter before those accelerated bookings start hitting the plant floor.
Speaker Change: Versus what you just reported <unk>.
Speaker Change: The reason that Youre seeing that is it is it still push outs because there's inventory of <unk> 10 in the channel is that the main reason.
Speaker Change: So working off of the backlog.
Speaker Change: Yes.
Speaker Change: We will say earlier in the month earlier in Q4.
Speaker Change: Okay.
Speaker Change: Well, that's certainly got any impact on it.
Speaker Change: Why the run rate is still.
Speaker Change: Ian.
Speaker Change: Not accelerated.
Speaker Change: We did book.
Speaker Change: Book.
Speaker Change: <unk> had a whole lot to do with it we kept that off like we said back in September so everything that we have in the backlog now is 454 b.
Speaker Change: Very nice right there at the end of the year.
Speaker Change: But the.
Speaker Change: Lead time being what it is it's towards the end of the first quarter before those accelerated bookings start hitting the plant floor.
Speaker Change: It has taken just a moment to get that momentum back.
Speaker Change: So working off of the backlog.
Speaker Change: Okay.
Speaker Change: And then.
Speaker Change: Yes.
Speaker Change: In the quarter basics sales down year over year is a little bit of a surprise I didn't catch the reason why is that just given the big backlog.
Speaker Change: We will say earlier in the month earlier in Q4.
Speaker Change: Why the run rate as is still.
Speaker Change: Not accelerated.
Speaker Change: Yes.
Speaker Change: <unk> had a whole lot to do with it we cut that off like we said back in September so everything that we have in the backlog now is 454 b.
Speaker Change: On our basics perspective, I think the one thing Ryan we have to really frame looking forward.
Speaker Change: Is thinking about this more on the basics brand.
Speaker Change: <unk>.
Speaker Change: And so the ACP.
Speaker Change: It is taking just a moment to to get that momentum back.
Speaker Change: Growth in ACP that is really driven by basics branded equipment. So when we look at basically as a whole.
Speaker Change: Okay.
Speaker Change: And then.
Speaker Change: In the quarter basic sales down year over year is a little bit of a surprise I didn't catch the reason why is that just given the big backlog.
Speaker Change: We're definitely seeing strong growth coming out of that overall business.
Speaker Change: Within the segment reporting so the basic segment as reported today is really reflective of Redmond production and Theres, just fundamental limitations of capacity within that facility.
Speaker Change: Yes.
Speaker Change: On our basics perspective, I think the one thing Ryan we have to really frame looking forward.
Speaker Change: Are really kind of the throttle of what youre going to see from a from an overall sales perspective in that segment.
Is thinking about this more on the basics brand.
Speaker Change: And so the ACP.
Speaker Change: But the demand tends to your point the demand the backlog from a basis of branded product is extremely strong.
Speaker Change: <unk> growth at ACP.
Speaker Change: It is really driven by basics branded equipment. So when we look at basically as a whole.
Speaker Change: We're definitely seeing strong growth coming out of that overall business.
Speaker Change: Got it so, yes, youre, saying basics as a whole. If you include coil are still strong.
Speaker Change: Within the segment reporting so the basics segment as it reported today. He is really reflective of Redmond production and Theres just fundamental limitations of capacity within that facility that are really kind of the throttle of what youre going to see from a from an overall sales perspective in that segment.
Speaker Change: Correct and Thats really what were talking about the the kind of.
Speaker Change: Business unit realignment and kind of future reporting it's really trying to reflect that because as we go forward.
Speaker Change: <unk> brand is getting that really be.
Speaker Change: <unk> facility the vast majority of all of you and really the bulk of Memphis from a ramp up perspective that at all for basics branded product.
Speaker Change: But the demand is to your point the demand the backlog from a basis of branded product is extremely strong.
Speaker Change: Okay.
Speaker Change: I got it so yes, youre, saying basics as a whole are include coil is still strong.
Speaker Change: One more and I'll pass it on the outlook for mid teens to high teens growth and 25% that's a little below what I was thinking can you just unpack some of the assumptions there.
Speaker Change: Correct.
Speaker Change: That's really what we're talking about the the kind of.
Speaker Change: This unit realignment and kind of future reporting it's really trying to reflect that because as we go forward.
Speaker Change: Was thinking data centers, both basics and coil could be up 75%, 80% again, just given that backlog and I think you mentioned you convert a lot of that and then I was thinking then the Oklahoma side you'd be up low single digits mid single digits.
Speaker Change: Basic brand is getting that really be.
Speaker Change: Redmond facility the vast majority of all of you and really the bulk of Memphis from a ramp up perspective that at all for basics branded product.
Speaker Change: What am I missing on that.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Big driver is.
Speaker Change: One more and I'll pass it on is the outlook for mid teens to high teens growth and 25% that's a little below what I was thinking.
Speaker Change: Oklahoma I will say is the sort of piece that is offsetting that dynamic growth in the datacenter space and so the gary's comment earlier coming off of the Q4 bookings into Q1, youre going to see a little bit of a.
Speaker Change: Can you just unpack some of the assumptions there.
Speaker Change: I was thinking data centers, both basics and coil could be up 75%, 80% again, just given that backlog and I think you mentioned you convert a lot of that and then I was thinking that the Oklahoma side you'd be up low single digits mid single digits.
Speaker Change: Expected reduction from Q4 to Q1, when you look at the bookings conversion to sales in Q1, plus traditional seasonality in that segment. So in Q1, we're just starting off at a weaker point then would be would be normal for me in that segment.
Speaker Change: Correct me, if what am I missing on that.
Speaker Change: Yes.
Speaker Change: A big driver is.
Speaker Change: Oklahoma I will say is the sort of piece that is offsetting that dynamic growth in the data center space and so the Gary's comment earlier coming off of the Q4 bookings into Q1, youre going to see a little bit of a expected reduction from Q4 to Q1, when you look at the bookings conversion to sales.
Speaker Change: And as we look there is still uncertainty exactly how the the commercial market the macroeconomic market and non res really recover throughout the year.
Speaker Change: So we're just putting a little bit of caution in there with uncertainty around the Oklahoma segment.
Speaker Change: And so that's really where the kind of put and take is on the overall guide from top line revenue.
Speaker Change: Q1, plus traditional seasonality in that segment. So in Q1, we're just starting off at a weaker point then would be would be normal for me in that segment.
Speaker Change: Yes to your point very strong expectations of growth within the data center segment with a little bit of softness coming off of that in the Oklahoma segment.
Speaker Change: And as we look there's still uncertainty exactly how the the commercial market the macroeconomic market and non res really recover throughout the year.
Speaker Change: Can we just put a finer point on that maybe you don't want to give too much detail, but is oklahoma sudden convenient flat.
Speaker Change: 25.
Speaker Change: So we're just putting a little bit of caution in there with uncertainty around the Oklahoma segment.
Speaker Change: And I would not want to bifurcate them down to your segment guidance at this point.
Speaker Change: But definitely it's just again when we start off kind of in that Q1.
Speaker Change: And so that's really where the kind of put and take is on the overall guide from top line revenue.
Speaker Change: We're starting off in Q1, obviously is going to put us a little behind from a year over year perspective.
Speaker Change: Yes to your point very strong expectations of growth within the data center segment with a little bit of softness coming off of that in the Oklahoma segment.
Speaker Change: Got it.
Speaker Change: All right. Thanks, I'll pass it on.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: Alright. Your next question comes from the Mr. Chris Moore.
Speaker Change: Can we just put a finer point on that maybe you don't want to give too much detail, but is the Oklahoma study is going to be flat.
Speaker Change: C J Securities. Please go ahead.
Speaker Change: And 25.
Chris Moore: Hey, good morning, guys.
Speaker Change: I would bifurcate them down to segment guidance at this point.
Speaker Change: First congratulations to Gary and to Matt job well done.
Speaker Change: Definitely it's just again when we start off kind of in that Q1.
Speaker Change: Maybe you could start off on data center, obviously been some talk of bigger players canceling or downsizing data center construction.
Speaker Change: We're starting off in Q1, obviously, it's going to put us a little behind from a year over year perspective.
Speaker Change: Got it.
Speaker Change: Great. Thanks, I'll pass it on.
Speaker Change: What are you hearing from customers potential customers on that front.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Alright. Your next question comes from the Mr. Chris Moore from CJS Securities. Please go ahead.
Speaker Change: Yes, I mean, obviously.
Speaker Change: It's been a lot of noise in the market around kind of what the datacenter outlook looks like.
Chris Moore: Hey, good morning, guys.
Speaker Change: What I would say just from a fundamental visibility that we have the the market continues to be strong it continues to strengthen.
Chris Moore: First congratulations to Gary and to match a job well done.
Speaker Change: Maybe you could start off on data center, obviously been some talk of bigger players canceling or downsizing data center construction.
Speaker Change: When we look at the pipeline visibility that we see in the marketplace.
Speaker Change: As a whole we see capital expenditures remaining strong and in a lot of areas actually increasing.
Speaker Change: What are you hearing from customers potential customers on that front.
Speaker Change: And so.
Speaker Change: From our perspective, everything we're seeing in the marketplace everything we're seeing in various stages of conversation within the data center market and channel.
Speaker Change: Yeah.
Speaker Change: Yes, I mean, obviously, there's been a lot of noise in the market around kind of what the datacenter outlet looks like.
Speaker Change: The outlook the strength and the investments continue to remain strong.
Speaker Change: What I would say just from a fundamental visibility that we have the the market continues to be strong it continues to strengthen.
Speaker Change: I think we really.
Speaker Change: I think a lot of a lot of conversation around the deep sea conversation.
Speaker Change: When we look at the pipeline visibility that we see in the marketplace.
Speaker Change: Really.
Speaker Change: We continue to be firm believers in really subtracting the mindset that the ability to create more effective model creates demand.
Speaker Change: As a whole we see capital expenditures remaining strong and in a lot of areas actually increasing.
Speaker Change: And so.
Speaker Change: From our perspective, everything we're seeing in the marketplace everything were seeing and in various stages of conversation within the data center market and channel.
Speaker Change: Creates a higher adoption of AI and will actually be continuing to strengthen the investment versus the adverse.
Got it that's helpful and you mentioned a $1 billion target is that is that a three to four year goal or is that a five question your goal.
Speaker Change: The outlook the strength and the investments continue to remain strong.
Speaker Change: We really I think a lot of a lot of conversation around Veeva deep sea conversation.
Speaker Change: Any way to frame that.
Speaker Change: Really.
Speaker Change: Yes, I mean, we use today.
Speaker Change: We continue to be firm believers in really subscribe to the mindset.
Speaker Change: Repeat the words as we say few years basically is what we see as being able to get that to $2 billion and so that's in the three to four year range is kind of where we see that target.
Speaker Change: The ability to create more effective models creates demand.
Speaker Change: Creates a higher adoption of AI and will actually be continuing to strengthen the investment versus the adverse.
Speaker Change: Got it that's helpful and maybe just a question on rooftop.
Speaker Change: Got it that's helpful. And then you mentioned the $1 billion target is that is that a three to four year goal or is that a five question your goals.
Speaker Change: On pricing so how much more expenses expensive as you're at 54 B solution than the legacy <unk>. That's currently being sold.
Speaker Change: Any way to frame that.
Speaker Change: Yes, I mean, we use it at all.
Speaker Change: Trying to get an understanding if it's.
Speaker Change: Repeat the words as we say its a few years basically is what we see as being able to get that to $2 billion and so that's in the three to four year range is kind of where we see that target up.
Speaker Change: If theres, a big price Delta or it has to do with building code changes that that wood.
Speaker Change: <unk> influence people to continue to buy the <unk> for a while.
Speaker Change: Got it that's helpful and maybe just a question on rooftop.
Speaker Change: So for us the <unk> is behind us exactly.
Speaker Change: On pricing so how much more expenses expensive as you're at 54 B solution than the legacy <unk>. That's that's currently being sold.
Speaker Change: We don't sell into a distribution channel, where we pre stocked it preloaded.
Speaker Change: Big parking lot full of units.
Speaker Change: So.
Speaker Change: There is no <unk>.
Just trying to get an understanding if it's if there's a big price delta or it has to do with building code changes that that wood.
Speaker Change: Left.
Speaker Change: Net debt ended at the end of December.
Speaker Change: 454, B is no more expensive from US we had a 3% price increase that went into effect January one that was just our annual price increase for everything that due to inflation well site.
Speaker Change: Influence people to continue to buy the <unk> for awhile.
Speaker Change: So for us the <unk> is behind us.
Speaker Change: We don't we don't sell into a distribution channel, where we pre stocked and pre loaded a big parking lot full of units.
Speaker Change: But nothing specific to $4 54, B has emerged.
Speaker Change: So.
Speaker Change: Got it no I understood.
Speaker Change: There is no <unk>.
Speaker Change: On the <unk> anymore, but distributors, Ken and I. Just wondering if you were if you were going up against the <unk> when trying to sell the 450 <unk>, it's really kind of where it was not an afterthought.
Speaker Change: Lift.
Speaker Change: Net debt ended at the end of December.
Speaker Change: 454, B is no more expensive from US we had a 3% price increase that went into effect January one that was just our annual price increase for everything that you do.
Chris Moore: Not materially Chris Okay.
Speaker Change: The people that buy units for.
Speaker Change: Okay.
Speaker Change: Our standard product like that are not our target client never have been.
Speaker Change: Due to inflation will say.
Speaker Change: But nothing specific to $4 54, B has emerged.
Speaker Change: Its never been material to our business.
Speaker Change: I am not going to tell you that we don't lose a project from time to time to it but it's not really measurable what what we would lose to <unk>, because it's not ever been our target client that buys that style of unit so not only the.
Got it no I understood Youre not you know I'd say on the <unk> anymore, but distributors, Ken and I. Just wondering if you were if you were going up against the <unk> when trying to sell the $4 54, B is really kind of what I was getting after so.
Chris Moore: Not materially Chris Okay.
Speaker Change: More innovative.
Speaker Change: Application strategies that we've put in the market for the for several years in like Dow as units.
Speaker Change: The people that buy units for.
Speaker Change: Okay.
Speaker Change: Our standard product like that are not our target client never have been.
Speaker Change: Humidity control and building pressurization control and effective filtration.
Speaker Change: Its never been material to our business.
Speaker Change: Im not going to tell you that we don't lose a project from time to time to it but it's not really measurable what were what we would lose to <unk>, because it's not ever been our target client that buys that style of unit.
Speaker Change: Those have been our marquee.
Speaker Change: Applications, but the air source heat pump is gaining a lot of.
Speaker Change: <unk>.
Speaker Change: Sure with the end of the units that were built.
Speaker Change: So not only the.
Speaker Change: Building today.
Speaker Change: And those are all built specifically for our project as well.
Speaker Change: More innovative.
Speaker Change: Application strategies that we've put in the market for the for several years in like Dow as units.
Speaker Change: Okay very helpful. Maybe just one one last one on price so.
Speaker Change: You guys have much more pricing flexibility than than the average company on a 454 b.
Speaker Change: Humidity control and building pressurization control and effective filtration.
Speaker Change: From a market standpoint, any sense in terms of.
Speaker Change: Those have been our marquee.
Speaker Change: Applications, but the air source heat pump is gaining a lot of.
Speaker Change: Where you're priced versus the other for fit for <unk> at this stage, how you see you've raised prices, 3% through the year.
Speaker Change: Sure with the end of the units that were built.
Speaker Change: We're just now.
Speaker Change: Building today.
Speaker Change: Getting into that season, where we have good comparative data.
Speaker Change: And those are all built specifically for our project as well.
Speaker Change: Often times and I've stated this many times in the K through 12 market, which historically has been 20% plus of our.
Speaker Change: Okay very helpful. Maybe just one one last one on price. So you you.
Speaker Change: You guys have much more pricing flexibility than than the average company on the 454 B.
Speaker Change: Awesome.
Speaker Change: Utilization of our units.
Speaker Change: Bid forms often times will be a on basis of design and then they'll list a matrix of other manufacturers and what their pricing is.
Speaker Change: From a from a market standpoint, any sense in terms of where you.
Speaker Change: You're priced versus the other 454 because at this stage you said you've raised prices, 3% beginning here yes.
Speaker Change: Those bids.
Speaker Change: <unk> gone back to their normal cadence of.
Speaker Change: We're just now.
Speaker Change: Getting into that season, where we have good comparative data.
Speaker Change: February March April.
Speaker Change:
Speaker Change: Bids resulting in.
Speaker Change: Often times and I've stated this many times in the K through 12 market, which historically has been 20% plus of our assets.
Speaker Change: June and July deliveries.
Speaker Change: So we're very soon.
Speaker Change: Fact is on next quarter's talk I think we will have empirical data to support where we're at with that but we've not yet seen anything material in that regard.
Speaker Change: Utilization of our units.
Speaker Change: Bid forms often times will be a on basis of design and then they'll list a matrix of other manufacturers and what their pricing is.
Speaker Change: Got it very helpful I'll jump back in line. Thanks, guys.
Speaker Change: Those bids.
Speaker Change: <unk> gone back to their normal cadence of.
Speaker Change: Thank you as a reminder, if you wish to ask a question. Please press star one.
Speaker Change: February March April.
Speaker Change: <unk>, resulting in.
Speaker Change: Your next question comes from Brent Thielman from.
June and July deliveries, so we're very soon.
Speaker Change: Davidson. Please go ahead.
Speaker Change: Fact is on next quarter's talk I think we'll have empirical data to support where we're at with that but we've not yet seen anything material in that regard.
Brent Thielman: Hey, thanks.
Brent Thielman: Good morning, Gary or Matt just on that.
Speaker Change: The potential of $1 billion in data center revenue here over the next few years could you talk about.
Speaker Change: Got it very helpful. I'll jump back on line. Thanks, guys.
Speaker Change: Does the current capacity, coupled with kind of Memphis coming on long online permit you to do that is there more you need to spend to get there and then also just a refresh on the timeline that meant this asset becomes available to you.
Speaker Change: Okay.
Speaker Change: Thank you as a reminder, if you wish to ask a question. Please press star one.
Speaker Change: Your next question comes from Brent Thielman from.
Speaker Change: Davidson. Please go ahead.
Speaker Change: Go ahead.
Brent Thielman: Hey, Thanks, good morning, Gary or Matt just on that.
Speaker Change: Yes, when we think of kind of the the total capacity that'll be in place.
Brent Thielman: The potential $1 billion in data center revenue here over the next few years could you talk about that.
Speaker Change: Within within the retina and segment.
Speaker Change: We sort of said that in the low to mid $200 million is really kind of where that facility's sweet spot is from a capacity standpoint.
Brent Thielman: Does the current capacity coupled with kind of meant this coming on long online commit you to do that is there more you need to spend to get there and then also just refresh on the timeline that meant this asset becomes available to you.
Speaker Change: We have long view facility that we've added.
Speaker Change: Do you really just look at that from a <unk>.
Speaker Change: The capacity of that facility.
Speaker Change: It's more than <unk>, the space dedicated to datacenter production compared to Redmond, so more or less double that.
Brent Thielman: Go ahead, yes.
Brent Thielman: When we think of kind of the the total capacity that'll be in place.
Speaker Change: And then Memphis.
Speaker Change: Is basically equal to the combination of those two and so you start looking at that and you are talking about overall capacity sitting in the.
Brent Thielman: I mean, obviously within within the retina and segment.
Brent Thielman: We sort of said that in the <unk>.
Brent Thielman: The low to mid $200 million is really kind of where that facility is sweet spot is from a capacity standpoint.
Speaker Change: One $1 five ish billion range once that's online so the capacity investment in Memphis is really to support that.
Brent Thielman: Longview facility that we've added.
Can you really just look at that from a.
Brent Thielman: Potential capacity of that facility.
Speaker Change: Our objective that we see with headroom on top of that.
Brent Thielman: More than <unk>, the space dedicated to data center production compared to Redmond, so more or less double that.
Speaker Change: In terms of when it comes online.
Speaker Change: Look at Memphis, and we'll be honest, we're aggressive at trying to get production called the push out of there.
Brent Thielman: And then Memphis is basically equal to the combination of those two and so you start looking at that and you're talking about overall capacity sitting in the.
Speaker Change: We actually built the first units at the beginning of the month in February.
Speaker Change: I say that with excitement, but also caution because obviously when we say we built units in Memphis.
Brent Thielman: One $1 five ish billion range once that's online so the capacity investment in Memphis is really to support that.
Speaker Change: We've really assembled units in Memphis, and so we had a lot of parts coming from a lot of places.
Speaker Change: But really working aggressively to ramp that facility up so that by Q4.
Brent Thielman: Our objective that we see with headroom on top of that.
Speaker Change: The equipment the support equipment and the team has really built out you'd be running not at full capacity, but definitely with a meaningful impact to financials by the end of the year.
Brent Thielman: In terms of when it comes online.
Brent Thielman: Look at Memphis, and we'll be honest, we're aggressive at trying to get production called it pushed out of there.
Brent Thielman: He built the first units at the beginning of the month in February.
Matt Tobolski: Got it really helpful. Matt.
Brent Thielman: I say that with excitement, but also caution because obviously when we say we built units in Memphis.
Maybe just some basics I guess specific to the Oregon facility.
Matt Tobolski: It sounds like you just essentially have some things to work through inefficiencies right now could you just clarify when you think that business sort of returns to the margins.
Brent Thielman: We've really assembled units at Memphis, and so we had a lot of parts coming from a lot of places.
Brent Thielman: But really working aggressively to ramp that facility up so that by Q4.
Brent Thielman: The equipment the support equipment and the team has really built out you'd be running not at full capacity, but definitely with a meaningful impact to financials by the end of the year.
Matt Tobolski: Expect out of it.
Matt Tobolski: Yes, I mean in that segment from.
Matt Tobolski: Today's reporting perspective.
Speaker Change: We expect we're going to see sequential quarter over quarter improvement in margin throughout 'twenty five.
Brent Thielman: Okay.
Brent Thielman: Got it really helpful. Matt.
Brent Thielman: Yes, mainly just on basics I guess specific to the Oregon facility.
Speaker Change: The reality is there is just when you attempt to put too much product through our facility.
Speaker Change: It sounds like you just essentially add some things to work through inefficiencies right now could you just clarify when do you think that business sort of returns to the margins you saw.
Speaker Change: So there is actually a negative implication on versus the positive in terms of your ability to effectively manufacturer.
Speaker Change: And the incredible demand for the product and really the.
Brent Thielman: Expect out of it.
Speaker Change: The target for us to deliver on expectations from a lead time in shipping perspective, we push that facility are very hard to turn products for customers.
Brent Thielman: Yes, I mean in that segment from.
Today's reporting perspective.
Brent Thielman: We expect we're going to see sequential quarter over quarter improvement in margin throughout 'twenty five.
Speaker Change: And productivity.
Speaker Change: In terms of number of units produced was certainly up in that last quarter, but it felt strained obviously from it it.
Brent Thielman: The reality is theres, just when you attempt to put too much product through the facility.
Speaker Change: It resulted in a strange from a financial perspective, so we really think throughout the calendar year, we're going to see improvement and getting into 2020, thanks Ram getting closer to being at that normalized margin rate that we're targeting.
Brent Thielman: There is actually a negative implications versus a positive in terms of your ability to effectively manufacturer.
Brent Thielman: And the incredible demand for the product and really the.
Brent Thielman: The target for us to deliver on expectations from a lead time in shipping perspective, we push that facility very hard to turn products for customers.
Speaker Change: Got it.
Speaker Change: Last one Matt or Gary I guess.
Brent Thielman: And productivity.
Speaker Change: We're sort of two thirds the way through the first quarter.
Brent Thielman: In terms of number of units produced was certainly up in that last quarter, but it felt strained obviously from it.
Speaker Change: I just wanted to come back to rooftop and.
Speaker Change: Could you discuss the order visibility you're starting to see for the new product is it still a wait and see in terms of that coming in excuse me the new refrigerant product I'm.
Brent Thielman: It resulted in a strange from a financial perspective, so we really think throughout the calendar year, we're going to see improvement and getting into 2026 range and getting closer to being at that normalized margin rate that we're targeting.
Speaker Change: I'm, just trying to get a sense for it.
Speaker Change: Beginning quarter.
Speaker Change: No it's beginning to accelerate.
Brent Thielman: Okay.
Speaker Change: Got it just last one Matt or Gary I guess.
Speaker Change: We.
Speaker Change: We're in Orlando.
Speaker Change: HR.
Speaker Change: We're sort of two thirds the way through the first quarter.
Speaker Change: Just visiting with a lot of our sales channel partners, we didn't have any display there.
Speaker Change: I just wanted to come back to rooftop and.
Speaker Change: But.
Speaker Change: Could you discuss the order visibility you're starting to see for the new product is it still a wait and see in terms of that coming in excuse me the new refrigerant product I'm.
Speaker Change: The general tenor was.
Speaker Change: We're going to be seeing increasing orders.
Speaker Change: On the normal seasonal basis that we had.
Speaker Change: Im just trying to get a sense since our.
Speaker Change: Years back.
Speaker Change: Beginning border.
Speaker Change: So.
Speaker Change: No it's beginning to accelerate.
Speaker Change: I guess the way to frame that up is we're confident that.
Speaker Change: We.
Speaker Change: We're in Orlando.
We've got the right product at the right price.
Speaker Change: H R.
Speaker Change: For the rooftops and.
Speaker Change: Just visiting with a lot of our sales channel partners, we didn't have any display there.
Speaker Change: Will reassume our growth profile here shortly.
Speaker Change: But.
Speaker Change: And just to add one piece of that to prepay.
Speaker Change: The general tenor was.
Speaker Change: Our prepared remarks I wanted to just kind of reiterate one comment we made which is when we look at the three months ending January 2025, compared to the year previous that November December January bookings.
Speaker Change: We're going to be seeing increasing orders.
Speaker Change: On the normal seasonal basis that we had in years back.
Speaker Change: So.
Speaker Change: They are up mid teens year over year and so.
Speaker Change: I guess the way to frame that up is we're confident that.
Speaker Change: The normalization that growth profile in there.
Speaker Change: We've got the right product at the right price.
Speaker Change: We're certainly starting to re assume and it kind of tells you where we're at from a competitive perspective marketplace, where.
Speaker Change: For the rooftops.
Speaker Change: Will reassume our growth profile here shortly.
Speaker Change: We caution that Q1 softness again really it's about backlog conversion.
And just to add one piece of that too in the prepared remarks I wanted to just kind of reiterate one comment we made which is when we look at the three months ending January 2025, compared to the year previous but November December January bookings.
Speaker Change: That bookings cadence doesn't really start hitting or Gary mentioned on the first question until the latter part of Q1 and really makes the meaningful impact into Q2. So.
Speaker Change: We definitely see that product positioning well, it's just getting past that refrigerant transition to get the sales back to a normalized growth profile.
Speaker Change: They're up mid teens year over year, and so the the normalization that growth profile and there.
Speaker Change: Yeah, just to add one more thing to that.
Speaker Change: There is certainly starting to re assume and it kind of tells you where we're at but competitiveness perspective marketplace.
Speaker Change: Going back a few years ago.
Speaker Change: No.
Speaker Change: When we will say.
Speaker Change: Where are we cautioned that Q1 softness again really it's about backlog conversion.
Speaker Change: The markets were relatively normal with lease times bid activity and so forth in there there is seasonality.
Speaker Change: The bookings cadence doesn't really start hitting as Gary mentioned on the first question until the latter part of Q1 and really makes the meaningful impact into Q2. So.
Speaker Change: We would see in the range of 20%.
Speaker Change: <unk> from the low to the high.
Speaker Change: We definitely see that product positioned well, it's just getting past that refrigerant transition to get the sales back to a normalized growth profile.
Speaker Change: Yeah.
Speaker Change: And the bookings always led debt by approximately one quarter. While here we are at about 17% on that bookings.
Speaker Change: Yes, just to add one more thing to that.
Speaker Change: Going back a few years ago.
Speaker Change: No.
Speaker Change: Timeframe that converts into units in Q2, so that.
Speaker Change: When will say.
Speaker Change: The markets were relatively normal with lease times bid activity and so forth in there there is seasonality.
Speaker Change: Historically, roughly 20% seasonality increase for Q2 and Q3 looks to be.
Speaker Change: We would see in the range of 20%.
Speaker Change: Valid once again.
Speaker Change: <unk> from the low to the high.
Speaker Change: Really helpful color. Thank you guys.
Speaker Change: And the bookings always led debt by approximately one quarter. While here we are at about 17% on that bookings.
Speaker Change: Thank you and your next question comes from.
Julio Romero: Julio Romero Sidoti and company. Please go ahead.
Speaker Change: <unk> frame that converts into units in Q2, so that.
Speaker Change: Good morning. This is Alex on for Julio Thanks for taking questions.
Speaker Change: Historically, roughly 20% seasonality increase for Q2 and Q3 looks to be.
Speaker Change: I know we spoke about.
Speaker Change: More efficient models driving more data center demand.
Speaker Change: Valid once again.
Speaker Change: But I was curious if you could talk a little bit about demand for sensors data centers.
Speaker Change: Okay, Great really helpful color. Thank you guys.
Speaker Change: Okay.
Speaker Change: No those are typically a little bit better suited to liquid cooling so.
Speaker Change: Thank you and your next question comes from.
Speaker Change: Just wanted to have your take on that.
Julio Romero Sidoti and company. Please go ahead.
Speaker Change: Okay.
Speaker Change: Yes, certainly in the data center space and really around the the model development side to the machine learning aspects of AI.
Speaker Change: Okay.
Speaker Change: Good morning. This is Alex on for Julio Thanks for taking questions.
Speaker Change: I know we spoke about.
Speaker Change: That is pretty much all higher density compute that's basically producing those models and so that higher density compute is pushing everything towards liquid cooling.
Speaker Change: More efficient models driving more data center demand.
Speaker Change: But I was curious if you could talk a little bit about demand for censored data centers.
Speaker Change: From a server perspective in that space.
Speaker Change: No those are typically a little bit better suited to liquid cooling so well.
Speaker Change: Always slate to really make sure we hammer. This one because I think it's a little bit misunderstood.
Speaker Change: It would just love to have your take on that.
Speaker Change: And the overall market perspective, but even when we have a true pure play as we would call. It liquid cooled datacenter switches, but we're supporting with that long view product. There is still a great amount of air side cooling required in that data center and so it drive growth that investment in AI that investment in the machine learning side at higher.
Speaker Change: Yes, certainly in the datacenter space and really around the.
Speaker Change: The model development side to the machine learning aspects of AI.
Speaker Change: And that is pretty much all higher density compute that's basically producing those models.
Speaker Change: So that higher density compute is pushing everything towards liquid cooling.
Speaker Change: Entities is driving growth both in liquid cooling and air cooling.
Speaker Change: From a server perspective in that space.
Speaker Change: Always slate to really make sure we hammer. This one because I think it's a little bit misunderstood.
Speaker Change: But but definitely yes, we are seeing a huge push into higher densities within that AI space.
Speaker Change: And the overall market perspective, but even when we have a true pure play as we would call. It liquid cooled datacenter, which is what we're supporting with that long view product. There is still a great amount of air side cooling required in that data center and so it drives growth that investment in AI that investment in the machine learning side at higher <unk>.
Speaker Change: Okay.
Speaker Change: Great. Thank you for the color.
Speaker Change: And I know, we talked a little bit on the call about.
Speaker Change: The carbonization and that sort of end market potential.
Speaker Change: Previously I think you also mentioned clean rooms, so could we just get a little bit of an update on the <unk>.
Speaker Change: Of that end market.
Speaker Change: Entities is driving growth both in liquid cooling and air cooling.
Yeah, the premium product.
Speaker Change: Oh.
Speaker Change: But well definitely yeah, we're seeing a huge push into higher densities within that AI space.
Speaker Change: Hey, cleaner market, primarily been a datacenter.
Speaker Change: <unk> driven product.
Speaker Change: Great. Thank you for the color.
Speaker Change: A lot of products from the basics brand have gone into the clean room space.
Speaker Change: And I know, we talked a little bit on the call about.
Speaker Change: In the semiconductor the pharmaceutical as well as the EV and battery production facilities.
Speaker Change: The carbonization and that sort of end market potential.
Speaker Change: Previously I think you also mentioned clean rooms, so could we just get a little bit of an update on the development of that end market.
Speaker Change: I would say just as a macro perspective that market is has been a little bit lumpy and so it definitely has some ups and downs from a quarter by quarter productivity standpoint.
Speaker Change: Yes.
Speaker Change: Yeah, the premium product.
Speaker Change: Those projects tend to be large large scale programs and they're not quite as consistent in growth rate of Datacenters and so you definitely see a little more volatility in the orders bookings and conversion, but we continue to see strong investment and the onshoring within the chip market.
Speaker Change: Oh, Hey.
Cleaner market, primarily theres been a datacenter basics driven product.
Speaker Change: A lot of products from the basics brand have gone into the clean room space both in the semiconductor the pharmaceutical as well as the EV battery production facilities.
Speaker Change: I would say just as a macro perspective that market is has been a little bit lumpy and so it definitely has some ups and downs from a quarter by quarter productivity standpoint.
Speaker Change: As well as build out of battery facilities that will continue and we continue to support.
Speaker Change: Great I appreciate the color there will jump back in queue.
Speaker Change: Those projects tend to be large large scale programs.
Speaker Change: Thank you and the next question from Timothy <unk> from Baird. Please go ahead.
Speaker Change: And they're not quite as consistent in growth rate of Datacenters and so you definitely see a little more volatility in the orders bookings and conversion, but we continue to see strong investment in the onshoring within the chip market.
Timothy: Hey, guys good.
Speaker Change: Good morning, everybody.
Speaker Change: Maybe just on Gary on.
Speaker Change: On pricing with the new <unk>.
Speaker Change: As well as build out a battery facilities that will continue and we continue to support.
Speaker Change: <unk> 54 B.
Speaker Change: At this time.
It sounds like you took some price in Q1, but really just to kind of offset inflation. So.
Speaker Change: Great I appreciate the color there well jump back in queue.
Speaker Change: Could you just kind of articulate where you are.
Speaker Change: Okay.
Speaker Change: In terms of the strategy around what youre going to do with price specifically for our 54 B.
Speaker Change: Thank you and the next question from Timothy <unk> from Baird. Please go ahead.
Speaker Change: Yes.
Speaker Change: Yeah.
Speaker Change: We're going to monitor it.
Speaker Change: Hey, guys good morning, everybody.
Speaker Change: Longer than we'd like for bookings to strengthen a bit before we hit a price increase that could potentially be related to 454 b.
Speaker Change: Maybe just on Gary on.
Speaker Change: On pricing with the new <unk>.
Speaker Change: 54 B.
I think with the uncertainty of the impact of tariffs.
Speaker Change: It sounds like you took some price in Q1, but really just to kind of offset inflation. So.
Speaker Change: There may be price increases to offset additional costs for that they may not be 454 be specific but we will be monitoring that.
Speaker Change: Could you just kind of articulate where you are.
Speaker Change: In terms of the strategy around what youre going to do with price specifically for our 54 B.
Speaker Change: Yes.
Speaker Change: We have a lot of capacity room.
Speaker Change: We're going to monitor it.
Speaker Change: A bit longer than wed like for bookings to strengthen a bit before we hit our.
Speaker Change: The Tulsa facility, where we build the rooftop units, which is primarily where the 454 b impact does that.
Speaker Change: Price increase.
That could potentially be related to 454 b.
Speaker Change: We want to get the plant loaded back up strongly.
Speaker Change: I think with the uncertainty of the impact of tariffs.
Speaker Change: If we have an opportunity to increase our price and thus our margin as a result of what others have for pricing pressure related to 404, B then I think we would very likely do that.
Speaker Change: There may be price increases to offset additional costs for that they may not be 454 be specific.
Speaker Change: But we will be monitoring that.
Speaker Change: We have a lot of capacity room.
Speaker Change: It is interesting.
Speaker Change: The Tulsa facility, where we build the rooftop units, which is primarily where the 454 b impact is that.
Speaker Change: I tried to figure out where their cost they are declaring for four.
Speaker Change: We want to get that plant loaded back up strongly.
Speaker Change: <unk> might be occurring.
Speaker Change: And I said early on that.
Speaker Change: <unk>.
Speaker Change: Monitoring and mitigation device, the refrigerant leak monitoring mitigation devices required for <unk> B units.
Speaker Change: If we have an opportunity to increase our price and thus our margin as a result of what others have.
Speaker Change: Was something that we had invented.
Speaker Change: For pricing pressure related to 404, B, then I think we would very likely do that.
Speaker Change: Our own facilities.
Speaker Change: <unk>.
Speaker Change: Invented one for us.
Speaker Change: <unk>.
It is interesting I tried to figure out where their cost they are declaring for.
Speaker Change: Perfect got it UL certified and we're manufacturing it at a very low cost relative to what we could go purchased them for.
Speaker Change: 404, b might be occurring and.
Speaker Change: Presumably others are buying that component as opposed to having developed their own at this point in time.
Speaker Change: And I said early on that.
Speaker Change: Monitoring and mitigation device, the refrigerant leak monitoring mitigation devices required for <unk> B units.
Speaker Change: One or two others on their calls have decided that device as being one of the reasons that they've gone up.
Speaker Change: Was something that we had invented.
Speaker Change: So.
Speaker Change: Our own facilities.
Speaker Change: I applaud our team for being.
Speaker Change: And.
Speaker Change: Invented one for us.
Speaker Change: Innovative enough to come up with that device early.
Speaker Change: <unk> got it UL certified and we're manufacturing it at a very low cost relative to what we could go purchased them for.
Speaker Change: Get it developed.
Speaker Change: Get it certified and.
Speaker Change: Put it into our system.
Speaker Change: Very good.
Speaker Change: Presumably others are buying that component as opposed to having developed their own at this point in time.
Speaker Change: Advantageous price so that was one of the areas that I've seen other site as to the price increase and so that explains a little bit why we don't need the price increase possibly it may do.
Speaker Change: One or two others on their calls have decided that device as being one of the reasons that they've gone up so.
Speaker Change: I applaud our team for being <unk>.
Speaker Change: But.
I want to make sure that we get strong bookings and.
Speaker Change: Innovative enough to come up with that device early.
Speaker Change: <unk> developed.
Speaker Change: And once we get the bookings cadence going the direction, we need to go then we will look at.
Get it certified and.
Put it into our system.
Speaker Change: B and a bit more opportunistic again price increase.
Speaker Change: Very good.
Speaker Change: Advantageous price so that was one of the areas that I've seen other site as to their price increase and so that explains a little bit why we don't need the price increase possibly than they do.
Speaker Change: Okay. Okay, that's helpful and.
Speaker Change: And then I.
Speaker Change: Yes, just from a.
Speaker Change: Is there a way to kind of quantify.
Any of the inefficiencies with some of the improve the increased capacity at Longview and just some of the inefficiencies that you saw at basics like is there a is there a number that you can put on it in terms of what those costs were in the fourth quarter.
Speaker Change: But.
Speaker Change: I want to make sure that we get strong bookings in.
Speaker Change: And once we get the bookings cadence go in the direction, we need to go then we will look at.
And in 2025.
Speaker Change: Being a bit more opportunistic in price increase.
Speaker Change: Well.
Speaker Change: I'll take the first stab at this and then let Matt.
Speaker Change: Okay. Okay. That's helpful.
Speaker Change: Bill and a few more details.
Speaker Change: And then I guess just from a.
Speaker Change: While we were ramping up and while we are ramping up long view.
Speaker Change: Is there a way to kind of quantify.
Speaker Change: Any of the inefficiencies with some of the improved the increased capacity at Longview and just some of the inefficiencies that you saw at basics like its thereof.
Speaker Change: There are certain things that we build and produce internally that we didn't have.
Speaker Change: Enough capacity yet.
Speaker Change: Is there a number that you can put on it in terms of what those costs were in the fourth quarter.
Speaker Change: To produce because the new machinery was still coming online.
Speaker Change: In 2025.
Speaker Change: We were outsourcing.
Speaker Change: Well.
Matt Tobolski: I'll take the first stab at this and then let Matt.
Speaker Change: Well, let's say powder coat would be one of those in particular.
Matt Tobolski: Fill in a few more details.
Speaker Change: We didn't have the powder facility in long view. So we were outsourcing that well you can visualize making all these big panels and they are fairly large pieces of sheet metal box and then shipping them down the road, even though it's only a few miles, but you still have the logistics of doing that having them powder coated bringing him back certain.
Matt Tobolski: While we were ramping up and while we are ramping up long view.
Matt Tobolski: There are certain things that we build and produce internally that we didn't have.
Matt Tobolski: Enough capacity yet.
Matt Tobolski: To produce because the NIM machinery was still coming online. So we were outsourcing.
Speaker Change: Percentage of them are damaged not usable because of the transportation logistics.
Speaker Change: Well, let's say powder Cook would be one of those in particular.
Speaker Change: And then just the overall inefficiency of that process.
Speaker Change: We didn't have the powder facility in long view. So we were outsourcing that well you can visualize making all these big panels.
Speaker Change: So that was one in particular.
Speaker Change: In Memphis as Matt spoke to earlier, we produced units there, but we have no manufacturing equipment, yet commissioned and operating there. So it's strictly assembly. So we've either built components at other.
Speaker Change: Fairly large pieces of sheet metal box, and then shipping them down the road, even though it's only a few miles, but you still have the logistics of doing that having them powder coated bringing him back certain percentage of them are damaged.
Speaker Change: Existing plants that we own or in some cases, we've outsourced some of that as well and you're already on and we did that in order to meet our delivery requirements with some of those those clients so that.
Speaker Change: Usable because of the transportation logistics and then just the overall inefficiency is that process. So that was one in particular.
Speaker Change: In Memphis as Matt spoke to earlier, we've produced units there, but we have no manufacturing equipment, yet commissioned and operating there. So it's strictly assembly. So we've either built components at other.
Speaker Change: The combination of the two puts pressure on the margins, but Matt go ahead and tell us more about Redmond in particular.
Speaker Change: Well I'm not going to touch on one more thing.
Speaker Change: The Longview space and really with the growth rates that you see in Q4 in Longview and really what we're talking about to the basically.
Speaker Change: Existing plants that we own or in some cases, we've outsourced some of that as well and we're already in and we did that in order to meet our delivery requirements with some of those those clients so that.
Speaker Change: Q2, and Q3 with all the ramp up of production.
You also have a lot of pressures in the fact that you need to onboard and trained personnel ahead of when you are producing and so all of that basically puts strain from an indirect overhead perspective as youre basically getting those team members up to speed and efficient in production. So all of that creates margins trained.
Speaker Change: The combination of the two puts pressure on the margins, but go ahead and tell us more about redfin in particular.
Speaker Change: And I want to touch on one more thing.
Speaker Change: The Longview space and really with the growth rate that you see in Q4, and a long view and really what we're talking about you can see to the basically.
Speaker Change: That definitely as we get to the volumes that we're in a more normalized state in Longview.
Speaker Change: Youll definitely see margins improve from a from a reduction of the inefficiencies and the extra labor costs, but also just fundamental leverage you're going to get a lot of leverage and overhead as we get to some of those higher volume. So long as you're definitely going into Q2, and Q3 are going to see some some great improvement in overall margin and <unk>.
Speaker Change: Q2, and Q3 with all the ramp up of production.
Speaker Change: You also have a lot of pressures in the fact that you need to onboard and trained personnel ahead of when you're producing and so all of that basically puts strain from an indirect overhead perspective as youre basically getting those team members up to speed and efficient in production. So all of that creates margins trained.
Speaker Change: <unk> I think Gary's point similar to <unk> similar to Longview.
Speaker Change: With the demand and the product we were trying to get through we just had the leverage and outsourcing as well as a lot of just inefficiencies.
Speaker Change: That definitely as we get to the volumes and we're in a more normalized state in Longview.
Speaker Change: You'll definitely see margins improve from a from a reduction of the inefficiencies and the extra labor costs, but also just fundamental leverage I mean, you're going to get a lot of leverage and overhead as we get to some of those higher volume. So long as you're definitely going into Q2, and Q3 is going to see some some great improvement in overall margin and <unk>.
Speaker Change: Inefficiencies and basically getting projects out the door from a delivery expectations of our customers. There's one thing that we.
Speaker Change: We hold really really strong and that is monitoring our commitments to our customers and so.
Speaker Change: Sometimes to get deliveries out when when we're a little bit behind it takes a little bit extra work AK cost to get that done. So we've leveraged outsource partners inside the regimen space as well.
Speaker Change: Red Man to Gary's point, similar to <unk> similar to Longview.
Speaker Change: With the demand and the product we were trying to get through we just had the leverage and outsourcing as well as a lot of just inefficiencies and basically getting projects out the door from a delivery expectation to our customers. There's one thing that we.
Speaker Change: And in some logistics just trying to get all of that product produced that was expected.
Speaker Change: We have and we're kind of really at a point, where all of the equipment that was getting installed in Redmond is now installed is now operational and really now we start to get the incremental leverage of efficiency off vehicle equivalent installation. So really as we look forward, we do see kind of quarter by quarter.
Speaker Change: We hold really really strong and that is monitoring our commitments to our customers and so.
Speaker Change: Sometimes to get deliveries out when when we're a little bit behind it takes a little bit extra work AK a cost to get that done. So we've leveraged outsourced partners inside the regimen space as well.
Speaker Change: Improvements in that regimen segment, getting all that outsource inefficiency behind us getting the equipment performing to expectation.
Speaker Change: And some logistics just trying to get all of that product produced that was expected.
Speaker Change: And really the great part is we've made the decision that Redmond is going to get to a certain point in terms of its overall throughput capacity and we're going to we're going to.
Speaker Change: We have and we're kind of really at a point, where all of the equipment that was getting installed in Redmond is now installed is now operational and really now we start to get the incremental leverage of efficiency often people equivalent installation. So really as we look forward, we do see kind of quarter by quarter.
Speaker Change: Basically maintain that it's not going to be a continuous growth driver, which means we then convert from a capital programs perspective.
Speaker Change: To efficiency programs and so there'll be a lot of effort throughout 'twenty five to drive efficiency, and therefore driving margin improvement throughout the calendar year.
Speaker Change: Improvements in that regimen segment, getting all of that outsourced inefficiency behind us getting the equipment performing to expectation.
Speaker Change: Okay.
Speaker Change: Okay. That's helpful. And then I have two other ones just the first is what is the year over year increase in DNA going to be just given the capex and where does that kind of land.
Speaker Change: And then really the great part is we've made the decision that Redmond is going to get to a certain point in terms of its overall throughput capacity and we're going to we're going to.
Speaker Change: Basically maintain that it's not going to be a continuous growth driver, which means we then convert from a capital programs perspective.
Speaker Change: And then the second one is just just given the data center.
Speaker Change: Reporting in terms of where this stuff is landing from a production perspective, I mean, I think it's actually pretty difficult for investors to kind of follow what's going on so.
Fuel efficiency programs, and so there'll be a lot of effort throughout 'twenty five.
Speaker Change: To drive efficiency, and therefore driving margin improvement throughout the calendar year.
Speaker Change: Is there a potential or a thought process about maybe just kind of having the rooftop business segment, and then having data center beer segment TECOS.
Speaker Change: Okay.
Speaker Change: Okay. That's helpful. And then I have two other ones just the first is what is the year over year increase in DNA going to be just given the capex.
Speaker Change: I think just some of the complexity of the reporting right now is kind of weighing a little bit on what's happening.
Speaker Change: Where does that kind of land.
Speaker Change: And then the second one is just just given the data center.
Speaker Change: Yeah.
Reporting in terms of where the stuff is landing from a production perspective I mean.
Speaker Change: So I'll tell you what.
Rebecca Thompson: I will answer your second first because I know Rebecca is going to get you a solid answer on the first piece.
Speaker Change: It's actually pretty difficult for investors to kind of follow what's going on so is is there a potential or a thought process about maybe just kind of <unk>.
Rebecca Thompson: Yes. So on your second question I mean that is exactly why we announced the re org.
Rebecca Thompson: Kind of intuitive business unit philosophy going into 2025.
Speaker Change: Having the rooftop business via segment, and then having data center beer segment because.
Rebecca Thompson: We have some limitation and our systems today to allow the full reporting of that but as we get through 2026.
Speaker Change: I think just some of the complexity of the reporting right now is just kind of waiting a little bit on what's happening.
Rebecca Thompson: Our goal is to do exactly what you are asking which is to do financial reporting really around the on.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: So I'll tell you what.
Speaker Change: I will answer your second first because I know Rebecca is going to get you a solid answer on the first piece.
Rebecca Thompson: Business unit, which is the rooftop and the commercial split systems, and then reporting around the basic segment.
Speaker Change: Yes. So on your second question I mean that is exactly why we announced the re org.
Rebecca Thompson: And in doing so you'll be able to understand the the basics revenue across and basically the drivers of revenue and profitability.
Speaker Change: This business unit philosophy going into 2025.
Speaker Change: You have some limitation and our systems today to allow the full reporting of that but as we get through 2026.
Rebecca Thompson: That comes from all of our production sites and so that is definitely the target for the end of $2025 26 to.
Speaker Change: Our goal is to do exactly what you're asking which is to do financial reporting really around the <unk> business.
Rebecca Thompson: To get very.
Rebecca Thompson: Easier to understand financial reporting around all those segments.
Speaker Change: Business unit, which is the rooftop and the commercials, but systems and then reporting around the basics segment.
Rebecca Thompson: Okay, and then Rebecca yes.
Speaker Change: In doing so you'll be able to understand the the basics revenue across and basically the drivers of revenue and profitability.
Rebecca Thompson: So can you repeat your first question.
Speaker Change: I believe it was about DD&A.
Speaker Change: That comes from all of our production sites and so that is definitely the target for the end of 2025 going into 'twenty six to.
Rebecca Thompson: Yes.
Rebecca Thompson: Because I think DNA.
Rebecca Thompson: If you look at the Q I think the DNA number.
It was probably $6 million or something like that $7 million year over year, I guess, what is that supposed to be up 25% as you bring on Longview and.
Speaker Change: To get very.
Speaker Change: Easier to understand financial reporting around all those segments.
Rebecca Thompson: And Memphis, and just where does that land on the P&L in terms of SG&A or comps.
Okay, and then Rebecca yes.
Rebecca Thompson: So it's going to land in both Cogs and SG&A.
Rebecca Thompson: So can you repeat your first question.
Rebecca Thompson: Sort of the.
This deep DNA.
Rebecca Thompson: I believe it was about DD&A.
Rebecca Thompson: That's going to be most likely in your cost of goods solved and thats part of the drag on the gross margin that we alluded to in their earnings call.
Rebecca Thompson: Yes, yes.
Rebecca Thompson: <unk> DNA.
Look at the Q I think the DNA number was probably up.
Rebecca Thompson: $6 million or something like that $7 million year over year, I guess, what is that supposed to be up in 'twenty five as you bring on Longview and.
Rebecca Thompson: As far as like some of the fixed costs that are happening before we have the offset to revenue.
Rebecca Thompson: And Memphis, and just where does that land on the P&L in terms of SG&A or Cogs.
Rebecca Thompson: But we also have as we've kind of also notice.
Rebecca Thompson: <unk> two in many of the calls investment in some of the back office technology.
Rebecca Thompson: Okay.
Rebecca Thompson: So it's going to land in both Cogs and SG&A.
Rebecca Thompson: Catching up and doing automation.
Rebecca Thompson: A lot of the Memphis DD&A.
Rebecca Thompson: We're going to see continued increases in DD&A within the SG&A portion of the income statement as well related to those investments.
Rebecca Thompson: That's going to be mostly in your cost of goods sold and that's part of the drag on the gross margin that we alluded to in the earnings call.
Rebecca Thompson: So I would think that the.
Rebecca Thompson: As far as like some of the fixed costs that are happening before we have the offset to revenue.
Rebecca Thompson: Increase in DD&A in the next year.
Rebecca Thompson: But we also have as we've kind of also noticed or alluded to in many of the calls investment in some of the back office technology are catching up and doing automation.
Rebecca Thompson: I think I would be consistent with our increases.
Rebecca Thompson: Sales.
Rebecca Thompson: Okay.
Rebecca Thompson: You're going to see continued increases in DD&A within the SG&A portion of the income statement as well related to those investments.
Rebecca Thompson: Okay sounds good I'll talk to you guys. Thank you.
Rebecca Thompson: Thank you.
Rebecca Thompson: So I would think that the.
Rebecca Thompson: Alright, so I don't.
Speaker Change: Any further question at this time I will now hand, the call over to Joseph <unk>. Please go ahead.
Rebecca Thompson: Increase in DD&A in the next year.
Rebecca Thompson: Yeah.
Rebecca Thompson: Yeah.
Joseph: Alright. Thank you everyone for joining 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. Thanks.
Rebecca Thompson: I think it would be consistent with our increases.
Rebecca Thompson: With sales.
Rebecca Thompson: Yeah.
Rebecca Thompson: Okay.
Speaker Change: Okay sounds good I'll talk to you guys a bit thank you.
Speaker Change: Okay.
Speaker Change: Thank you, ladies and gentlemen, todays conference call has concluded you may now disconnect.
Speaker Change: Yeah.
Speaker Change: Thank you.
Speaker Change: Alright, so I don't.
Speaker Change: See any further question at this time I will now hand, the call over to Joseph <unk>. Please go ahead.
Speaker Change: Alright. Thank you everyone for joining 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. Thanks.
Speaker Change: Thank you, ladies and gentlemen, todays conference call has concluded you may now disconnect.
Speaker Change: Okay.