Welcome to the AAON Acquisition of BasX Solutions Call. At this time, all lines are in a listen-only mode. Later, we will conduct a question-and-answer session. At that time, if you have a question, you will be asked to press the star one on your touchtone phone. If you are listening to the event via the web and would like to ask a question on the telephone, please dial in using the instructions provided to you, then press star one. As a reminder, this event is being recorded. For those of you listening through the web, you can access the presentation handouts at the bottom of your screen. I would now like to turn the event over to your host, Mr. Joseph Mondillo, Director of Investor Relations. Mr. Mondillo, please go ahead. Thank you, Michelle, and good morning, everyone. The press release announcing our membership interest purchase agreement to acquire BasX Solutions was issued yesterday evening and can be found on our corporate website, aaon.com. On the call this morning are Gary Fields, our President and CEO, and Rebecca Thompson, our CFO and Treasurer. 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 may be pursuant to the Safe Harbor Provisions of the Securities Litigation Reform Act of 1995, the Securities Act of 1933, and the Securities and Exchange Act of 1934, each as amended. As such, 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 aware of the inherent difficulties, risks, and uncertainties in making predictive statements. Our press release in the Form 8-K that we filed yesterday, as well as our other SEC filings, 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. Finally, more detailed information concerning the content of this call are included in an investor presentation, which for those on the webcast can access at the bottom of the screen, and for those dialed in can access in our company website, aaon.com. With that, I will turn it over to Gary. Thank you, Joe. Good morning. Today, we're pleased to announce that AAON has entered into a membership interest purchase agreement to acquire privately held BasX, LLC, who does business as BasX Solutions. The transaction, subject to closing conditions, including regulatory approvals and the signing of a real estate sale, is currently expected to close before the end of the calendar year. Headquartered in Redmond, Oregon, BasX Solutions is an industry leader in the manufacturing of high-performance data center, data center cooling solutions, clean room systems, custom HVAC systems, and modular solutions. The company was founded in 2012 by Dave Benson and Matt Tobolski, who are the current CEO and President of BasX respectively. BasX has 200,000 sq ft of manufacturing space and about 260 employees. The company has experienced robust growth with a five-year sales compounded annual growth rate of 45%. They're projected to generate approximately $70 million of sales in 2021. Throughout the supplemental slides we provided, you can see some of the products they offer. Most of their products are highly engineered and customized for critical applications where the cost of failure can be significant. About half of their sales are associated with cooling solutions for the rapidly growing hyperscale data center market. Roughly 1/3 is related to clean room environments for the biopharmaceutical, semiconductor, medical, and agricultural markets. About 15% is related to custom air handlers and modular solutions for a vast array of commercial markets. BasX has strong customer relationships with blue-chip companies. One big difference between AAON and BasX is unlike how we sell through an independently owned sales channel, BasX has a direct-to-market sales approach. This is partially because of the concentration of its end-market customers, especially within the data center and clean room markets. As such, the business focuses more on national accounts that require a closer relationship between engineering, manufacturing, and the end user's project managers. One of the many attractions we have with BasX is their end-market exposure. So I wanna cover a little bit of that with you. The hyperscale data center market makes up about half of BasX's sales. This is a market that AAON has had minimal participation in. The market is $6.5 billion in size, so it increases our total addressable market significantly. It's also a growing market, as most of you know. With cloud-based infrastructure expanding, construction of new data center capacity is growing rapidly. The biggest bottleneck to construction is within the HVAC supply chain, so BasX is capitalizing on this. We anticipate this market will grow 10%-12% annually over the next four years, essentially twice as fast as the non-residential HVAC market. BasX's data center sales have grown at a three-year compounded annual growth rate of 100%, so they're taking market share. They've essentially doubled their data center sales each year over the last three years. BasX works with most of the top providers that you can think of. The business is known for their innovative cooling solutions, which helps drive market penetration. With the backing of the AAON brand and financial support we can provide, we can help accelerate this penetration. We're very excited to help leverage that part of our business. We also find the fundamentals of the clean room market to be attractive. This makes up about a third of their sales. Cleanroom market is about an $8 billion market that is also growing quicker than the overall commercial HVAC market. It's also a market that AAON has had minimal exposure to in the past. Cleanrooms are utilized mostly in biopharmaceutical, semiconductor, medical, and agriculture sectors, all of which we find to be attractive for long-term growth potential. BasX has a best-in-class sales and product team with decades of experience and relationships. They also offer differentiated solutions. We expect this division of the company will continue to take market share. BasX cleanroom sales have grown at a three-year compounded annual growth rate of 40%. Finally, the rest of BasX's business designs and manufactures custom air handlers, modular solutions for a vast array of commercial markets. This business is a bit different than our existing air handler business in that their units are much larger and more customized. It is fully complementary, though, as it significantly increases the size of our air handling product portfolio. This part of the non-residential HVAC market is about $3 billion in size, has very good fundamentals, so this supports why we just doubled our capacity at Longview. Electrically powered air source heat pumps are going to continue to take market share due to being highly energy efficient and the push by our customers to decarbonize their footprint. BasX also manufactures their own supply fan in-house, which is something we do not do currently. Their knowledge of manufacturing this component could greatly help us vertically integrate. This division of BasX has grown at a three-year CAGR of 6%. That includes a down year in 2020 due to the pandemic. In 2021, sales of this division are expected to be up double digits. Now I'd like to hand it off to Rebecca Thompson, our CFO, to go through the financials of the deal. Thank you, Gary. The terms of the transaction include an upfront payment of $100 million. Additional payments are subject to earn-out milestones that extend through 2023. We expect to close on the transaction by year-end, conditional on AAON signing a real estate purchase agreement with BasX Properties, LLC to acquire property utilized by BasX for $22 million. We would expect this real estate transaction to close by the end of the first quarter of 2022. The upfront payment of $100 million will be funded with cash on hand. We estimate transaction fees to be approximately $4 million, which we expect to use availability under our $30 million revolving credit agreement to fund those fees and our near-term working capital needs. Additional payments subject to earn-out milestones will be funded with AAON stock. In regard to the financial contribution to AAON, we estimate BasX will generate sales of approximately $70 million in 2021 and EBITDA margins in the mid- to high-teens. Excluding upfront acquisition-related costs and ongoing non-cash purchase accounting amortization expenses, we expect the acquisition will be accretive to earnings. We also anticipate there will be cost synergies that will escalate over the next several years. These cost synergies are related to material and component procurement, productivity improvements, and vertical integration opportunities. As for the balance sheet, most of our cash position will be utilized to fund the upfront costs of the deal. Post-closing, we would anticipate a small cash-plus position and a small debt position of a similar size. The separate real estate acquisition, which is expected to close by the end of the first quarter, will be mostly funded with our credit facility. We have a very long outstanding relationship with our lender, Bank of Oklahoma. We are excited about our future growth and have plans to update our revolving credit facility to meet our future needs. With that, I will hand the call back over to Gary. Oh, thank you, Rebecca. Before I open up to question and answer, I wanna walk through the strategic rationale of the acquisition. I think there's several reasons why this deal makes a lot of sense. First, BasX brings exposure to the attractive end markets that AAON had minimal exposure, such as data center and clean room. We estimate these markets essentially double our total addressable market by approximately $15 billion. Next, the products BasX manufacture are highly engineered, customized products. This fully complements our existing business. There are high barriers to entry into BasX's business. Sophistication of the equipment they manufacture, the high cost of the failure aspect if the equipment fails, and strong customer relationships with a concentrated group of blue-chip companies all act as a moat to this business. The next reason is growth. The business has a proven track record of taking market share from rapidly growing end markets. Total sales have grown at a five-year compounded annual growth rate of 45%, and earnings have been growing even faster. The backlog is strong. We see no sign that their end markets are slowing. We see revenue synergies. We think the AAON brand and financial support will help BasX penetrate the markets even more successfully. We also see cross-selling opportunities with AAON's core business and BasX customers. Geography is also a factor we think will result in revenue synergies over the long term. BasX is located in Oregon, which makes it costly to ship product to the East Coast. Over time, there's an opportunity in expanding BasX capacity at our existing facilities located in the middle of the country. Cost synergies. I think there's significant near-term potential here related to material and component procurement. Over the longer term, we also see opportunity with productivity improvements related to the sharing of best practices and also some vertical integration opportunities. Financially, we think this deal makes a lot of sense. We expect it'll be accretive to organic revenue and EBITDA growth, and we anticipate it will be accretive to earnings, excluding upfront acquisition-related costs and the ongoing purchase accounting expenses. Our balance sheet will also remain in a strong position. Last but not least, I purposely chose to finish with this point, and that is BasX's strong leadership team. BasX is led by a management team that has multi-decade track record of developing many products that have shaped today's industry. This deal was made with the condition that the primary leaders, which include a handful of individuals, remain on board. The best part is this condition was of mutual interest. We view this acquisition more of a partnership than a takeover. I cannot express enough about this team, which I have known for a very long time. I'm excited to discover what AAON can learn from them. We look forward to welcoming the whole BasX team to the AAON team and are excited about the opportunities ahead. With that, operator, I'd like to open up the call for questions. Thank you. The floor is now open for questions and answers. If you would like to ask a question and have already dialed in, simply press star one on your telephone keypad. If you're only listening to the live event via the web and would like to ask a question on the telephone, please dial in using the instructions provided, then press star one. Brent with D.A. Davidson, your line is unmuted. Please ask your question. Hi. Thanks. Congratulations on the transaction. Thank you, Brent. Gary, I guess my first question is a little bit more big picture before diving into BasX. You know, historically, AAON hasn't done a lot of big transactions. Is this a unique circumstance? Is it a bit of a change in strategy where we, you know, we could begin to see more M&A down the road? That's two or three questions wrapped up in one, Brent. Let me start with this. Going back a few quarters at earnings announcements in the Q&A, you and others asked us what we were gonna do with this large cash balance that we had. We said that we would continue to pay 25%-30% of our earnings in dividends. We would remain aggressive with CapEx. You may recall this, and it seemed maybe a little flippant at the time, but it was really a genuine seed planting event. I said I may get a phone call. Well, I planted that seed two or three times, and I got that phone call. Actually, this was a company that I'd kinda had in mind all along when I was saying that. The founder of this company, he and I have had business dealings most of my career, and I admire what he does, and I admire the company that he has built. They'd already reached out to us five years ago on advice on sheet metal manufacturing, and they had chosen to take our advice, and they utilized AMB equipment like us. There was a lot of strategy in this that we believed we wanted to be in the data center and clean room business, and the only way to do that was to purchase a company. This was a company that I had strong ties with the leadership and the founders and a lot of confidence in that. In fact, as in my past life at Texas AirSystems, I benefited greatly from the innovations that this group has put together. They built another company that recently sold to Madison Industries, and that was called Huntair and CleanPak. I would say that we don't have an open appetite for M&A so much as we do a strategic thought process on what we wanna build out as a total portfolio. I'm very familiar with the capabilities of our sales channel and how they can assist with this. While currently 85% of BasX business is sold by in-house sales personnel, which is the de facto method of marketing to data centers and clean rooms, the commercial custom air handlers are traditionally done through an independent agency like what AAON has. I guess wrapping that up is I don't particularly have a strategy of M&A as an open thought process. It's more when something fits strategically with what we're doing or if it was to vertically integrate some of our existing things that we purchased. Like if you go back to the other acquisition we did under my leadership, that was the WattMaster Corporation in Parkville, Missouri. We did that four years ago. That was enabled by the need for vertical integration of that particular component they were manufacturing. That's good color, Gary. I appreciate that. I guess my next question would just be, you know, some of the supply chain raw material pressures you and others in the industry have felt. Have they felt that, too? Is that impacting this year's financials, the $70 million in revenue, the mid- to upper-teens EBITDA margins? In other words, would those levels been a lot higher without some of these pressures that are out there? No. They have yet to be impacted by anything material. Now, no telling what's on the horizon. These things tend to pop up rather spontaneously, not some without any warning at all. Their growth this year is phenomenal in percentage of revenue and percentage of improved earnings. I mean, it's absolutely phenomenal over 2020 and over 2019. As I said, you know, the compounded annual growth rate was like 45%. EBITDA percentage is stable and EBITDA dollars are going up at least at the same rate, maybe even gaining a little more. I don't see any impediments to 2021. Going forward, one of the things that we'll be able to do is our purchasing department has proven very adept at managing the supply chain disruptions and interruptions. We'll just be able to broaden that capability within the BasX organization by assisting them should something arise. Okay. Let me just my last one, Gary. The business, as you said, has been growing a lot. Are they capacity constrained at this point? Do they need more capital to expand out the footprint? Maybe that's what this real estate transaction is also associated with. Any color there? Yeah. About the time we began discussions with them in February, they had already started construction on doubling their plant size. That is largely completed. The manufacturing portion is completed. They're also adding some office type space when they're doing this, and that's yet to be completed. That's the reason the real estate transaction doesn't have a finite date on it, is condition of closing is that the construction be totally complete to have a certificate of occupancy on the entire facility. Right now they have a certificate of occupancy on the manufacturing facility. They began utilizing this new portion of the manufacturing facility mid-summer, and which was exactly on target. I challenged. In fact I lost a $100 bet to Matt Tobolski over this. When I went out there, and he told me when he was gonna be using it for manufacturing, I bet him $100 that he was wrong, and I told him I hoped I had to pay. Well, I've already paid him. I went out there August 14th. Norm and myself and a couple others went out there. A few things about it. The addition, the engineering and arrangement, is just marvelous. Improved their processes substantially over their former portion that they were utilizing. Their former building didn't have enough height, didn't have overhead cranes, and so some of the large units they were building were really burdened by a lot of labor, material handling difficulties. The new building was built ideal with plenty of height in the bays, plenty of width and overhead cranes. This is one of the reasons we're confident that the EBITDA margins will continue to improve, because in our own facilities, we have modernized, updated, and seen significant improvement in labor content. What they have done is just state-of-the-art with regards to the type of equipment they're manufacturing. Having just recently completed the construction and utilization of the manufacturing, this gives them adequate capacity to supply the growth to build what they can sell for a few years into the future. That's the next thing we talked about was the longer term synergies. In both our Tulsa and Longview facilities, we have some space currently available, but we have intentions to add more space to both of those facilities over the next period of time. We'll migrate more and more of their manufacturing to have geographical advantage for shipping and also capacity addition. Okay. I'll pass it on. Congrats again on what looks like a great transaction. Thanks, Gary. Yeah, thanks very much, Brent. Julio with Sidoti. Go ahead with your question. Hey, good morning, guys, and congrats on the acquisition. Yeah, thank you. I guess if I could ask any color on the timeline cadence and amount of the cost synergies you expect. The timeline on the cost synergies is. It's a little fuzzy. What we've discussed is their method of procurement is a bit different than ours. They have been on a fairly tight working capital budget so that they don't inventory as many of the repetitive materials as we do, percentage wise. The other complicating factor is because everything they do is highly customized as opposed to semi-custom, they don't actually know what components to inventory a lot of times, because they're, you know, designing for a specific need with specific components. We'll be looking at some of the raw materials that they purchase. I mean, you know, they purchase steel and a coil like we do. They have the Salvagnini machines like we use in Tulsa and Longview. As I said, they took our advice five years ago when they came and met with us to discover what was best practice. I think it'll gradually feed into the equation. We've just looked at several of their raw materials and we have a much better price point than they do, and we'll see how that pans out to the overall. Those raw materials are actually a smaller percentage of their overall content than what they are for us, because some of these custom items that they put in there are very expensive percentage-wise. Okay, understood. On the margin front, I think you mentioned EBITDA margins in the mid- to high teens. You know, assuming BasX hits the earn outs and EBITDA doubles by 2023, can you maybe speak to how margins are expected to trend over that period? Do they get to the low twenties by 2023, or is that maybe a longer path to get there? You know, that's fairly speculative, but we believe that they will not be dilutive to our efforts somewhere in that time period, on a percentage basis. What our EBITDA now, I think, runs just north of 20%, as high as 23%. I would think that it's not unreasonable to expect by the end of 2023 that they're on that rate. Okay. Just last one for me here would be, you know, what would you say is the biggest mix change in mix post this deal to AAON? Would it be the acceleration of the end market exposure? Would it be, you know, the change on the product front? I guess how would you characterize as the biggest change to your mix? Well, one of the key things is while AAON is participating in data centers, we only provide equipment with our legacy business to the support areas of the data centers. The core data hall, which is what BasX focuses on, is a huge multiple of revenue opportunity. I'll give you a for instance. Two years ago, I sold 12 data center projects to MCI WorldCom. They had 40 AAON units on each one, and the total of that project, of those 12 data centers in 2000 was a $10 million sale. The person that sold the core data hall units, he had 88 units on each of those 12 facilities. His sale was almost a $100 million, about 10x mine. Well, when we look at some of our existing customers that we're doing data centers with, we see the same opportunity of the higher multiple of that. BasX has not been leveraging AAON into this support area of the buildings. You know, we're separate companies. We've had no consolidated effort, and only four or five AAON representatives are also BasX representatives. BasX, like I said, 85% of their sales goes through the internal sales group. One of the things that I plan on doing near term is working with their internal sales force to understand the offering of AAON equipment that they can leverage into these customers that they have. We have customers that are not overlapping with them currently in data centers. Our representatives will be working with BasX to leverage those customers into the whole data center offering. Does that answer your question? It does. I'll pass it on. Congrats again on the deal. Thank you. John with Kansas City Capital, please ask your question. Morning, Gary and Rebecca. I'd like to offer my congratulations, too. Thank you, John. Gary, you know, I was reading up last night on the data center cooling market, and obviously there's a lot of big players in that market, a lot of big names. BasX has done a nice job of moving into that market. Is there a particular market niche, a particular niche in the data center market that they're operating in? You know, maybe size-wise, geography-wise, is there a particular niche? No, not so much. Dave Benson was the founder of Huntair, which is a huge player in data center. You know, recently, AAON has bought BasX Solutions. Another thing that Dave did, while multiple fans in a plenum were utilized by AAON prior to him patenting what he did, he patented a strategy called FANWALL TECHNOLOGY. It's become the go-to strategy, not only for data centers and clean rooms, but also in commercial custom air handlers. You know, Dave has got a very, very long history, and his team has a very long history of participation in the whole broad data center market. I mean, there's virtually no one that's a consumer of HVAC products for data center that's not familiar with Dave Benson and his team. What they have done is selectively, some of it has been geographic because of where they're located, but they still ship things, you know, nationwide and actually some overseas business. They've done business in Ireland and Israel. I think really what it is when you're looking at a one of these large data center owners and they look at the cost of failure, a failure to deliver equipment, you know, they're looking at revenue that's extremely high. Their schedules are extremely important because any day that they miss costs them a lot of revenue. BasX being a smaller company was probably being afforded some of the smaller opportunities that they just didn't have big enough foundation under them financially. With AAON's substantial backing and financial capabilities, we think this is gonna change quite a lot. Let's just say, right now, they're getting contract opportunities in the few tens of millions. You know, they have one contract's $26 million. Several contracts that they've had have been in the $15, $10, $15 million range. Well, I know for a fact that there are contract opportunities that are $50 and $100 million out there, that probably there's been some reservation on the part of the consumer to say, "You know what? That'd be a huge percentage of their net worth, their total production capacity. We'll just let them grow a little bit more before we take that chance on them." It's not the taking the chance on the people, it's not taking the chance on the equipment design. It's more the financial foundation that was under them. We believe this is gonna be a significant game changer. There would be no issues, you know, from a capacity standpoint, a physical standpoint for them to take on a $50 million project? Depends on the timing of the need for that. You know, you get a $50 million project that's got a 18-month construction schedule, it'd be no problem whatsoever. If you had one that had a 90-day schedule, that might be a little different. You know, there's most of those larger projects tend to have a little longer schedule. Yeah. I'm gonna say that there's going to be some reasonable visibility, the ability to get that kind of an order. Yes. Looking at their mix of business, 50% data center, 30% clean room, 20% commercial HVAC. Are the margins comparable within each segment? Or the data center market obviously looks like it's gonna grow faster than the other segments. Could we see a lift to margins just from a mix change? No, I don't think so. The data center is probably the median of the margins of the three. I would say the custom air handlers might be a little bit lower, and the clean room is a bit higher. If the clean room business was to accelerate, the margins would go up quicker. If the bulk of the business being data centers was to grow, then it would be no change. What we've got to really control is not letting the custom commercial air handlers become too large of a percentage. Mm-hmm. As we grow the base of data center and clean room, and that also gives us the ability to grow the base of the custom air handling and keep it in ratio. That's the one we'll keep an eye on to keep in ratio. All right, Gary. Thank you very much. Yes. If you would like to ask a question and have dialed in, please press star one on your telephone keypad. There are no further questions at this time. Gary, I'll turn it over to you for closing remarks. Well, I'd just like to say, thank you for participating and listening to the call this morning. This is a group of superstars. When you purchase a company, one of the foremost things that are of interest to me are the people themselves. You know, when I go back and look at the acquisition of WattMaster four years ago, we were able to retain 100% of those employees. The only employees we've lost from that so far have been to retirement. We're looking forward to the same sort of operation with BasX. They have a wonderful group of people that are just leaders in the industry, well-recognized, and this is exciting because of the people, more so than any other aspect of it. They make wonderful products. They have a culture that is so similar to AAON's culture in the way we think about how to do things. That's what makes this extremely appealing and just very exciting going forward. I'm absolutely looking forward to the next few years with them as part of the AAON family. With that, we'll talk to you later. I think our next call is maybe in February for our Q4 earnings. Take care. Bye-bye. Thank you. This concludes today's event. You may now disconnect and have a great day.