AAON, Inc. (NASDAQ: AAON) discussed its first-quarter earnings for 2024 on May 2, revealing a mixed financial performance. Despite lower-than-expected sales and earnings, the company reported strong bookings and an increased total backlog. AAON also highlighted better-than-expected profit margins due to effective cost management. The company's long-term outlook remains positive, with anticipation of volatility in orders as the industry transitions to new refrigerants. Investments in new capacity for the data center market and a strong balance sheet with no debt underscore AAON's confidence in its growth strategy and market share gains. Notably, the company expects a 10%+ annual revenue growth over the long term.
Key Takeaways
- AAON reported strong bookings and an increase in total backlog despite lower sales and earnings due to timing issues.
- Profit margins exceeded expectations, benefiting from effective cost control.
- The company remains optimistic in the long term, expecting to capitalize on the refrigerant transition and data center market growth.
- Net sales saw a slight decline, while gross profit margin improved.
- Expenses rose to $45.3 million, driven by lower volumes and increased investments in technology and personnel.
- Diluted earnings per share (EPS) increased to $0.46, and the company reported a strong cash flow from operations.
- AAON maintains a robust financial position with significant cash reserves and no debt.
Company Outlook
- AAON anticipates order volatility due to the refrigerant transition but expects a short-term surge in orders for R410A refrigerant projects.
- The company is investing in new capacity to meet increasing demand from the data center market.
- Management expects volume to be down low single digits to flat in 2024, with improvements in the second half of the year.
- They forecast a mid-single-digit contribution from pricing and an increase in gross margin year-over-year.
Bearish Highlights
- Sales and earnings for Q1 were lower than expected, attributed to timing issues with backlog conversion.
- Selling, general, and administrative expenses increased due to higher employee compensation and other investments.
Bullish Highlights
- The company reported a strong backlog and is confident in its ability to gain market share.
- AAON is well-positioned in the new refrigerant equipment market and the data center market.
- The balance sheet remains strong with a significant cash position and no debt.
Misses
- Net sales experienced a slight decline from the previous year.
- The Oklahoma rooftop business and basics segments reported sales below 2023 growth, except for Tulsa.
Q&A Highlights
- Gary Fields and Matt Tobolski provided insights into the company's performance and strategies.
- Fields noted that weather delays impacted the enterprise but had a lesser effect on the Tulsa segment.
- Tobolski discussed increased parts sales, supply chain stabilization, and the company's focus on unique data center solutions.
- The company is optimistic about the conversion of liquid cooling efforts into orders and expects pent-up orders to drive strong revenue growth in the second half of the year.
AAON's Q1 earnings call highlighted a company navigating industry changes with strategic investments and a focus on long-term growth. Management's confidence in the face of mixed results points to a resilient business model prepared to leverage market opportunities. With a strong financial foundation and a clear vision for the future, AAON is poised to continue its pursuit of market leadership.
InvestingPro Insights
AAON Inc. has demonstrated a robust financial stance in its Q1 2024 earnings report, with a focus on strategic investments and market opportunities. In light of AAON's current performance and future outlook, here are some key insights based on real-time data from InvestingPro and InvestingPro Tips:
InvestingPro Data Metrics:
- AAON boasts a strong market capitalization of $7.46 billion, reflecting investor confidence in the company's market position.
- The company has achieved a notable revenue growth of 19.83% in the last twelve months as of Q1 2024, indicating a solid trajectory in sales performance.
- AAON's gross profit margin stands at an impressive 35.56%, which aligns with the company's reported better-than-expected profit margins due to effective cost management.
InvestingPro Tips:
- Despite two analysts revising their earnings downwards for the upcoming period, AAON is trading at a low P/E ratio relative to near-term earnings growth, which could signal a potential undervaluation to consider.
- The company has maintained dividend payments for 19 consecutive years, showcasing its commitment to shareholder returns and financial stability.
For readers looking to delve deeper into AAON's financial health and future prospects, there are an additional 13 InvestingPro Tips available at https://www.investing.com/pro/AAON. These tips provide valuable insights into the company's valuation multiples, profitability, and stock performance trends. To access these insights and more, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro. This exclusive offer allows investors to stay ahead with comprehensive analysis and advanced metrics tailored to informed decision-making.
Full transcript - AAON (AAON) Q1 2024:
Operator: Good evening, ladies and gentlemen, and welcome to the AAON, Inc. Q1 2024 Earnings Conference Call. [Operator Instructions] This call is being recorded on Thursday, May 2, 2024. I now would like to turn the conference over to Joseph Mondillo, Director of Investor Relations. Please go ahead.
Joseph Mondillo: Thank you, operator, and good afternoon, everyone. The press release announcing our first quarter financial results was issued after market close today and can be found on our corporate website, aaon.com. The call today is accompanied with a presentation that you can also find on the website as well as on the listen-only webcast. Please go to Slide 2 in the presentation. We begin our customary forward-looking statement policy. During the call, any statement presented dealing with information that is not historical is considered forward-looking and made pursuant to the Safe Harbor provisions of the Securities Litigation Reform Act of 1995, Securities Act of 1933, and the Securities and Exchange Act of 1934, each as amended. As such, it is subject to the occurrence of many events outside of AAON's control that could cause AAON's results to differ materially from those anticipated. You are all aware of the inherent difficulties, risks, and uncertainties in making predictive statements. Our press release and Form 10-Q that we filed this afternoon detail some of the important risk factors that may cause our actual results to differ from those in our predictions. Please note that we do not have the duty to update our forward-looking statements. Our press release and portions of today's call use non-GAAP financial measures as defined in Regulation G. You can find the related reconciliations to GAAP measures in our press release and presentation. Joining me on today's call is our CEO, Gary Fields; our President and COO, Matt Tobolski; and our CFO and Treasurer, Rebecca Thompson. Gary will provide some opening remarks. Matt will then provide some commentary on the operations, followed by Rebecca, who will walk through the financials and will finish with Gary, who will update you on the outlook before opening it up to Q&A. With that, I will turn the call over to Gary.
Gary Fields: Good afternoon. Let's start on Slide 3. First quarter performance was mixed relative to our expectations. Bookings remain strong and we are in line with our expectations. This was consistent across all three of our segments. Total backlog increased for the second straight quarter compared to a year-ago it was down just 6.9%, which is positive considering how abnormally large backlog was when supply chain issues were adversely affecting our lead times. Sales and earnings were a little soft to the start the year, did lighter than expected volumes. A large factor to this was timing of backlog conversion at our AAON core products and basic segments. Order trends at both segments remained solid though, and backlogs at both increased substantially throughout the quarter. In addition, beyond what is currently in the backlog, both have significant opportunities with the data center market. Thus, while these two segments were a large reason for the soft results in the first quarter, we're very confident both will improve going forward. Despite volumes and production levels being down in the quarter, profit margins were better than we expected. We've executed well from a price cost perspective, while at the same time strategically balancing the price premium of our equipment. Now, I'd like you to turn to Slide 4. Looking forward, we remain cautiously optimistic on the near-term, while maintaining a bullish outlook on the long-term. Our traditional markets remain stable despite high interest rates and other economic headwinds. The sentiment amongst our channel partners is positive and all indications lead us to believe there's strong level of activity within the market. We still think orders could be volatile this year due to the refrigerant transition. However, we also think as we progress further into the year, and approach the point in time, in which will -- we will be unable to accept orders for R410A equipment. It is likely we see a short-term wave of orders related to projects already designed for 410A refrigerant. At the same time, we are well-positioned to take advantage of customers who are seeking the new refrigerant equipment. As we are currently accepting orders for a comparable price to 410A equipment. We are also strategically positioned from a pricing and product development standpoint. Our narrower price premium makes us more competitive, and all indications tell us we're going to be even more competitive from a cost of manufacturing perspective as the markets transition to the lower GWP refrigerant. As far as product development, the advancements of our fully electric heat pump technology, Alpha Class branded products, positions as extremely well as the industry begins to focus more and more on electrification. Earlier this month, the Department of Energy announced a program to expedite development and adoption of cold climate commercial heat pump rooftop units. AAON already has a considerable lead in the advancement of this technology, which will allow us to keep capitalize on early adopters. Initially, this will most likely be large corporations with wide ranging footprints of buildings, which would potentially make this a big opportunity for us. Beyond our traditional markets, we're increasingly excited about the data center market and how we can capitalize on the growth cycle of this end market. The pipeline of work over the next several years is immense, and current activity is moving at an aggressive pace. Our engineering and sales teams are executing at a first class rate. All the feedback we are receiving from our customers leads us to believe we are in the midst of becoming the best-in-class solutions provider for both airside and liquid cooling applications. To best capitalize, we are working diligently to increase our capacity, ensuring we maximize our opportunities. I'll now hand over the call to Matt Tobolski, who will speak more in depth about our operational strategy.
Matt Tobolski: Thank you, Gary. If you will, please turn to Slide 5. We utilize this slide in our fourth quarter call. But the only difference being we've added a sixth slice of the pie which is our data center solutions. Data centre vertical has been an integral factor to the robust growth, but the basic segment has realized over the last several years. We expect this market will become an even larger part of the overall organism going forward, given the current makeup of backlog in the pipeline of future opportunities. Over the last 6 to 9 months, with the advancements of semiconductor chip technology, and the anticipation of increased computing demand fueled by artificial intelligence, data center companies have accelerated their construction plans aggressively. Over this time, and engineering and operational teams have been diligently working with customers helping them design solutions to fulfill their ambitious goals. Given the capacity and density of these new AI data centers, customers are looking for providers who can develop unique, airside and liquid cooling solutions. This type of custom engineering is exactly what basics core is all about. And it's what sets the business apart from most in the industry. With assistance from the rest of AM's operational teams we have executed nearly flawlessly recently leaving big impressions with some of the biggest customers in the industry. From my point of view, considering our success in this market to date, we are positioned to be the Best in class provider for this market. In preparation of supplying the increased demand our data center customers require, we've been aggressively investing in new capacity. The two primary projects that have been underway since last year including expansions of our Redmond facility, and our Longview, Texas facility. In total, the two projects will increase the overall company's total manufacturing square footage by approximately 15%. Given a scale of some of the orders we anticipate, we expect the increase capacity in terms of revenue to be much greater than 15%. Both projects are on schedule. The Redmond expansion is expected to be finished by the end of Q3 of this year. In the long view expansion is expected to be complete by the end of this year. The rest of our growth strategy is also progressing. Our product development continues to lead the industry. Currently, much of the industry is consumed with meeting the upcoming low GWP refrigerant requirements. Meanwhile, we've had our complete portfolio of equipment offering with the new refrigerant since the start of this year. We're also well ahead of the industry with the advancement of heat commercial heat pump technology. We're the only company in the commercial market with a portfolio of fully electric heat pump powered rooftop units that are operable down to zero degrees. AAON being the first to market with this technology is going to position us to fully benefit from the increasing demand to decarbonize in electrified buildings. Our complete portfolio of rooftop units, including the cold climate heat pump configurations, provide us with a big opportunity with national accounts. Lastly, our already world class sales channel continues to strengthen which is going to be integral to our continued growth in market share goals. The consolidation of the channel is helping accelerate the sharing of best practices in our entry support through marketing, parts and service will further help our reps become more successful in penetrating the market. Altogether, we expect these strategies will allow us to keep continue to gain market share over the coming years. In conclusion, we have a sound growth strategy that the team is executing upon. The one AAON culture has never been so strong. Operations are running at some of the highest efficiency levels in years. And overall, I could not be more pleased with the progress we've been making and the extent of opportunities we have going forward. With that I will hand it off to Rebecca to walk through your financials.
Rebecca Thompson: Thank you, Matt. Please turn to Slide 6. Net sales declined 1.4% to $262.1 million from $266 million. Volumes were down 5.7% partially offset by pricing which contributed 4.3%. The decline in volumes are driven by the AAON coil products and basic segments, which realize total sales declines of 27.4% and 9.3%, respectively. Total segments had strong backlogs entering the quarter compared to a year ago. So the revenue declines at both were largely based on timing of backlog conversion. The AAON Oklahoma segment realized an increase in total sales of 4% volumes that this segment were down modestly, which was a result of a much smaller backlog at the beginning of the quarter compared to a year ago. This segment also endured some volatility in orders throughout the quarter, resulting in the almost flat backlog and also partially contributing to the lower volumes. Moving to Slide 7. Gross profit increased 19.6% to 92.2 million from 77.2 million. As a percentage of sales. Gross profit was 35.2% compared to 29% in the first quarter of 2023. The improvement in gross profit margin was primarily a result of increased pricing and moderating material cost inflation offset slightly by higher labor costs. Please turn to Slide 8. Selling, general and administrative expenses increased 37.5% to 45.3 million from 32.9 million in the first quarter of 2023. As a percent of sales, SG&A increased to 17.3% from 12.4%. The increased relative to sales is primarily attributable to the lower volumes, increased employee compensation, incremental investments we've made in technology and increased professional legal fees. Overall, SG&A expenses were in line with our expectations. Moving to Slide 9, diluted earnings per share was $0.46 slightly up from a year ago. included as a net result was an excess tax benefit of 4.4 million from the share based compensation within the quarter. For the remainder of the year, we anticipate an effective tax rate excluding discrete events in a range of 25% to 26%. Turning to slide 10. Our balance sheet remains strong. Cash, cash equivalents and restricted cash totaled 28.4 on March 31 2024. And debt at the end of the quarter was zero. Cash flow from operations in the first quarter was 92.4 million, up from $4.8 million in the comparable quarter a year ago. Working capital at the end of the first quarter declined 15.1 million or 5.4% from a year ago resulting in better cash conversion. Capital expenditures, including expenditures related to software development increased 33% to $38.7 million. Even with the higher CapEx budget, we were fully able to pay down our line of credit and finance the quarterly dividend while marginally increasing our cash, cash position. All-in, our financial position is strong, allowing us to fully capitalize on growth opportunities. With that, I'll now turn the call back over to Gary.
Joseph Mondillo: Operator, I think we may have dropped Gary potentially.
Operator: Yes, I [multiple speakers].
Joseph Mondillo: I'm just going to finish out the closing remarks, and then we can open it up to Q&A.
Operator: Okay.
Joseph Mondillo: Please turn to Slide 11.All in all, we feel very good where we are currently. For the last several years, we've made major strides of transforming this company from a niche application based provider to a mainstream solutions provider. The last 2 years, we've realized substantial growth and have captured market share. In our view, though, we've just started to scratch the surface. Many of the changes we've made from a business management perspective to sales and marketing, to product development, had yet to be fully realized. We have the best product by far and the best -- for the best value. These changes will leverage that and propel our share gains further. To add to that, the magnitude of opportunities we have within the data center market leaves me with little doubt we will be able to achieve our long-term goal of 10% plus annual revenue growth. In the near-term, following two very strong years for AAON in a time when the economy is slowing, and we are proceeding in election, we expect growth to temporarily moderate but for the reasons previously stated that this does not concern me at all. If I have any concern at all, it would be we can -- would be we can -- can we continue to build capacity quick enough in an efficient manner to keep up with the growth we foresee. In 2024, we are now looking for volume to be down low single digits to flat. We anticipate year-over-year comps for volume would improve throughout the year with much of the improvement occurring in the second half. We continue to anticipate pricing will be in a mid single-digit contributor and that gross margin will be up year-over-year. For SG&A as a percent of sales, we now anticipate a 50 basis point to a 100 basis point increase, and we maintain our CapEx guidance of $125 million. For the second quarter, we anticipate sales will be comparable to the same period a year ago, and EPS will be modestly down. In closing, we just want to finish by thanking all of our employees, sales channel partners and customers. Thank you to our shareholders, this company has never been more well-managed than it is today, and we look forward to generating returns that you expect for us. We can now open up the call for Q&A, operator.
Operator: [Operator Instructions] Your first question comes from Chris Moore from J -- sorry, CJS.
Chris Moore: Terrific. Hey, thanks, guys. Thanks for taking a couple of questions. Maybe we could start with basics. So obviously, it looks like the timing of basics backlog conversion contributed to a softer quarter. It's harder to gauge kind of quarter-to-quarter on basics. Can you give any sense in terms of basics as a piece of the backlog as a percentage? Has that changed much over the last year, or just kind of how we should be thinking about that?
Gary Fields: Yes, Chris, Matt would take that one.
Matt Tobolski: Yes, of course. Yes. Chris, great question. And certainly from a kind of contribution of basics in the backlog, it's the simple way to kind of look at it, we talked during the last quarter call kind of on the '23 kind of performance, which was basics as a whole in '23 was approximately 10% of the overall revenue within the enterprise, but contributed 20% to bookings for the year. Or I should say -- sorry, 20% of that bookings for the year. And as we look forward in kind of this quarter and beyond, we are continuing to see that, if not more, contribution from the basics backlog. So we certainly see there being a lot of strength within the basics backlog and really also kind of helping drive the coil products business down in Longview as well as we kind of start to really engage to get the basics products built down there as we continue the expansion with data center products. So it certainly is going to become more and more relevant going forward as a percentage of the overall revenue of AAON, and definitely see it contributing substantially greater growth kind of on a year -- annualized basis compared to legacy business.
Chris Moore: Got it.
Gary Fields: Yes. One other thing, Chris, I think we have stated before that basics had been about 10% of our total revenue. And we expected at some point not too far in the future, that would be closer to 20% because they were growing so rapidly.
Chris Moore: Got it. No, that makes sense for sure. I think one of the things you talked about, Gary, in your prepared remarks was that the order flow will improve -- further improve at the point in time this year that customer is no longer able to order equipment with the R410A refrigerant. Do you have kind of a best guess as to when that point is?
Gary Fields: It's going to be a bit -- it's dependent on lead time for this reason. You cannot deliver equipment with 410A, our type of equipment, beyond December 31. So if you say, well, I want to have a 2 or 3-week buffer between December 31 and the last unit I produced just to make sure I don't have some kind of step my toe moment, and you have roughly a 10-week lead time, so let's just put that at 12 weeks, so just back up 12 weeks from the end of the year, and that's got to be the absolute cutoff. Well, we are going to try and push people towards a cutoff ahead of that so that we don't end up with a problem. The problem could be, and I've heard other manufacturers talk about this, if we get a surge of orders, people wanting to get 410A the last minute, then the lead times could easily bump out and then where you're at. So this is a -- it's kind of an unusual situation that we've not really encountered before. When we had a refrigerant change before, there was no building codes associated with it. This time, there's building codes necessary in order to utilize the new refrigerant, while there's also additional expense in the buildings. And I think that's driving some people to say, well, I'll just go ahead and get 410A because I don't have to have this additional expense for these refrigerant management of strategies that are required by this new code. So just to summarize that, I would say somewhere in August, we are probably going to see a surge.
Chris Moore: Got it. That’s very helpful. And maybe just last one to kind of follow-up on the point you just made in terms of the increased costs. It sounds like you guys are in really good shape from that perspective. The -- my understanding is that the new refrigerant requirements are really not going to cost AAON anymore. You have the new safety device that you'll have to include with if you're manufacturing that internally. So it sounds like from a competitive standpoint, you should be in a really good position for this changeover. Am I looking at that correctly?
Gary Fields: Yes, I think so. As we went through unit by unit, that holds true for vast majority. There's cases in there where we lost capacity when we converted. And so you've got to add something to get more capacity. That's not across the board. It's not prevalent, but it does appear here and there on certain sized units. But I think mostly the way we portrayed that is correct, yes.
Chris Moore: All right. I appreciate it guys. I will jump back in line.
Operator: Your next question is from Ryan Merkel from William Blair. Please go ahead.
Ryan Merkel: Thanks. Good afternoon, Gary. it sounds like the big issue this quarter is the timing of backlog conversion. Can you unpack what happened with production this quarter, and when did the production issues hit you exactly?
Gary Fields: Well, actually, each month had something just a little different at those two factories that -- we saw January wasn't too bad. Towards the end of January, we had some weather events that hit us more in basics than it did anywhere else. But more prevalently was it hit some of our customers. And our customers asked us to slow down on certain projects just a little bit. They said, "Hey, we don't have anywhere to put this equipment, can you slow down just a little?" So there was some weather event in there. And then I don't want to discount entirely the impact of the construction going on at both of those locations. Both of them have substantial construction going on. What's going on in Longview is probably less disruptive because it's outside of the building we are using now, but it's somewhat disruptive. But in Oregon, they have disrupted -- of the two primary buildings up there, one of them has had a reasonable disruption in rearranging what we are doing in there, getting it ready to move into the new building that we are building, and it's just -- it's not without impact. It's not substantial. It's not prolonged. It's not something we are going to put up with for a very long time, but we did see a little bit related to that.
Ryan Merkel: And are you able to quantify the sales impact from some of these issues in the quarter?
Gary Fields: While each segment reported -- so you can see that both of those two segments that I just spoke of, ACP and basics were both below 2023, the growth, while it was marginal, was in Tulsa. And Tulsa just -- it has no disruptions of any magnitude, a little bit of weather related for some of our -- we had customers saying, "You're shipping too early to us. With this weather we're having weather delays. Can you slow down a little?" That happened across the whole enterprise. But Tulsa was less impacted by it. Does that answer your question, Ryan?
Ryan Merkel: Yes, I think so. I think maybe the follow-on would be, it sounds like -- I think you said second quarter sales flat. So we are not seeing a lot of improvement in 2Q. When do you expect that these timing of backlog issues or the production issues that you talked about, when do you see that getting back to normal?
Gary Fields: Well, my perspective is that it will be improving through Q2, but it will be Q3 before it's relatively normal.
Ryan Merkel: Got it. All right. Thanks. Pass it on.
Operator: Your next question comes from Julio Romero from Sidoti & Company. Please go ahead.
Julio Romero: Thanks. Hi, good afternoon. Maybe switching to parts a little bit. It was nice to see the parts sales growth of 10% in the quarter. Was that performance in parts partially due to having more than expected capacity for parts and volumes were a little depressed due to the issues you just outlined.
Gary Fields: Matt, do you have any perspective on that?
Matt Tobolski: Yes. I wouldn't say that the -- I wouldn't say the impact of volumes on the ACP and basics segments provided excess capacity of parts. I'd say the parts growth is really parts demand. And also from just a kind of year-over-year comp also from last year to this year, just also a normalization of supply chain has really also kind of made it easier to transact parts in a kind of global sense. There's a lot of noise that kind of supply chain created in terms of being able to actually manage part sales. That's really stabilized now. So it's really just driven by demand of parts, nothing to do with the kind of smaller volumes off any of the sites.
Julio Romero: Okay. Understood. And then maybe if we could talk about data centers. As you guys are assisting some of these data center customers and kind of being a hand holder of sorts, is there any opportunity to provide any sticky products or sticky solutions that can embed you with those data center customers for the longer term?
Matt Tobolski: That's a fantastic question. I would say at a high-level, that's sort of where we specialize in providing kind of value add to our customers. And so that does afford us the opportunity to really put us in unique positions with our customers and develop solutions that really provide us a far better opportunity within those customers. And so that is actually actively -- in our prepared remarks when we talked about the engagement of our engineering and operations teams, that's exactly what they've been doing. It's really developing unique and really solutions tailored for giving owners kind of business models. And that's one of the great benefits of being a manufacturer with that kind of custom DNA, where we can really solution something for the owners and then convert that to a mass produced product and really add a lot of value. So definitely, it's what we are most excited about. We certainly see opportunity to really ingrain ourselves and kind of their growth story and really be able to kind of be at the forefront of enabling that.
Julio Romero: Excellent. I will pass it on. Thanks very much.
Operator: [Operator Instructions] Our next question comes from Brent Thielman from D.A. Davidson. Please go ahead.
Brent Thielman: Hey, thanks. Good evening. Matt, actually, just kind of following up on that, could you actually talk about the opportunity on the liquid cooling side for basics? And are you beginning to see orders for that specific market?
Matt Tobolski: Yes. No, it's an interesting one. And I will say the surge in AI, it's really caused the industry to kind of really kind of look at how do you develop and deploy capacity to the marketplace that also has flexibility to kind of serve more traditional cloud compute as well as AI and kind of how do you blend your development strategy around that. And we've really been working pretty heavily in that kind of market where we are developing solutions and really working with customers to solve the airside and liquid side kind of conundrum and how we kind of go forward. And that has already gotten us to a point where we've got orders in hand and really substantial opportunities in the liquid cooling realm. And really the fun of it's been kind of tracking solutions that really do provide flexibility in the deployment. So we see that actually as a really good strong suit, because it provides a better opportunity to deploy products where you don't necessarily know exactly what that future demand at that given location is going to look like. And that greater flexibility really is attractive to the overall end user and kind of as they look to deploy capital. So we are excited to be seeing the conversion to actually orders off of the liquid cooling efforts we are doing. And really, from a pipeline perspective, extremely optimistic on kind of what that's going to mean for the enterprise as a whole.
Brent Thielman: Okay. And then a lot of the focus in the commentary has been just around some of the delays, I suppose, with Longview and basics. I guess my question would be, was the core sort of AAON Oklahoma rooftop business, what you would have expected this quarter, or were there some delays in timing there as well?
Gary Fields: I think it's been relatively close, maybe just a slight bit softer than what we expected. But it's -- we thought that we would see more seasonality in that business than what we had seen in recent years. And I believe that's mostly what we saw in the first quarter was the fact that Q1 historically has been a softer quarter for that product. The last few years, we've had exceptions for various reasons. There were times when we had extraordinary lead time and others didn't that we got past some of that seasonality. There was buying habits that changed. There was just a whole lot going on. I think we are in a relatively normal cadence of business now. And our sales channel partners have strong backlogs themselves that they're processing strong pipelines that they're processing and sending to us. And so while it was just a touch softer than what we may have expected, it wasn't entirely unexpected.
Brent Thielman: Okay. And then just some of the pent-up or built up sort of orders here, I suppose, with basics Longview, does that -- I mean, all start to flow into the second half? I mean, should we see a huge catch up here? Or how do we think about that? I know you've got your expectations for the second quarter. It sounds like it won't happen, but when does that ultimately flow?
Matt Tobolski: Yes, we certainly see the kind of second half orders conversion to revenue definitely being strong in those segments. And really that's also kind of going to be aided by the -- as Gary mentioned, there's a lot of disruption in the projects that are going on at both sites. And so as we also look forward to Redmond site wrapping up in the Q3 time frame and Longview at the end of the year, that's really going to help also kind of fuel some of that growth and kind of clean up some of the noise that's kind of happening on those sites. So we definitely do see that kind of second half kind of helping accelerate kind of from a volume and an overall revenue perspective just kind of at both sites kind of given those constraints.
Brent Thielman: Okay. Thanks, Matt. I appreciate it all.
Operator: There are no further questions. I will now turn the call over to Joseph.
Joseph Mondillo: I would like to thank everyone for joining on today's call. If anyone has any questions over the coming days and weeks, please feel free to reach out to myself. Have a great rest of the day, and we look forward to speaking with you in the future. Thank you.
Operator: Ladies and gentlemen, this concludes the call for today. Thank you for calling in. Please go ahead and disconnect your lines.
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