Good evening, ladies and gentlemen, and welcome to the AAON, Inc. Q1 2024 Earnings Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Thursday, 02/05/ 2024. I now would like to turn the conference over to Joseph Mondillo, Director of Investor Relations. Please go ahead. 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 two in the presentation. We begin our customary forward-looking statement policy. During the call, any statement presented dealing with information that is not historical is considered forward-looking and is made pursuant to the Safe Harbor Provisions of the Securities Litigation Reform Act of 1995, the Securities Act of 1933, and the Securities 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 we'll 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. Good afternoon. Let's start on slide three. First quarter performance was mixed relative to our expectations. Bookings remained strong and were in line with our expectations. This was consistent across all three of our segments. Total backlog increased for a 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 start the year due to lighter-than-expected volumes. A large factor to this was timing of backlog conversion at our AAON Coil Products and BASX 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 are 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 four. 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 is a 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 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 R410A 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 R410A 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 us 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 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 are 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. Thank you, Gary. If you will, please turn to slide five. We utilized this slide in our fourth quarter call, but the only difference being we've added a sixth slice to the pie, which is our data center solutions. Data center vertical has been an integral factor to the robust growth that the BASX segment has realized over the last several years. We expect this market will become an even larger part of the overall organization going forward, given the current makeup of backlog and the pipeline of future opportunities. Over the last six-nine 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, AAON's 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 BASX's core is all about, and is what sets the business apart from most in the industry. With assistance from the rest of AAON'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 include 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%. But given the scale of some of the orders we anticipate, we expect the increased capacity in terms of revenue to be much greater than 15%. Both projects are on schedule. The Redmond expansion is expected to be finished by the end of Q3 of this year, and the Longview 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 offered with the new refrigerant since the start of this year. We're also well ahead of the industry with the advancement of commercial heat pump technology. We are 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 and electrify 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 and market share goals. The consolidation of the channel is helping accelerate the sharing of best practices, and our increased support through marketing, parts, and service will further help our reps become more successful in penetrating the market. Altogether, we expect these strategies will allow us to continue to gain market share over the coming years. 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 financials. Thank you, Matt. Please turn to slide six. 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 were driven by the AAON Coil Products and BASX segments, which realized total sales declines of 27.4% and 9.3%, respectively. Both segments had strong backlogs entering the quarter compared to a year ago, so the revenue declines at both were largely based on timing of backlog conversion. The AAON Oklahoma segment realized an increase in total sales of 4%. Volumes at 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 an almost flat backlog and also partially contributing to the lower volumes. Moving to slide seven, 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 commodity material cost inflation, offset slightly by higher labor costs. Please turn to slide eight. 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 increase relative to sales is primarily attributable to the lower volumes, increased employee compensation, incremental investments we've made in technology, and increased professional and legal fees. Overall, SG&A expenses were in line with our expectations. Moving to slide nine. Diluted earnings per share was $0.46, slightly up from a year ago. Included in the net results 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%-26%. Turning to slide 10. Our balance sheet remains strong. Cash, cash equivalents, and restricted cash totaled $28.4 million on 31/03/ 2024, and debt at the end of the quarter was $0. 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 to $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 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. Operator, I think we may have dropped Gary potentially. Yes, I see- I'm just gonna finish out the closing remarks, and then we can open it up to Q&A. Okay. Please, 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 in transforming this company from a niche application-based provider to a mainstream solutions provider. The last two 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, have 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, little doubt we will be able to achieve our long-term goal of 10%+ annual revenue growth. In the near term, following two very strong years for AAON, in a time when the economy is slowing and we're preceding an 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, 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% of sales, we now anticipate a 50-100 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. Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touch tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the two. If you're using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from Chris Moore, from J... Sorry, CJS. ... Terrific. Hey, thanks, guys. Thanks for taking a couple questions. Yeah, maybe we could start with BASX. So obviously, you know, looks like the timing of BASX backlog conversion, you know, contributed to a softer quarter. It's harder to gauge, you know, kind of quarter to quarter on BASX. Can you give any sense in terms of, you know, BASX as a piece of the backlog, you know, as a percentage? Has that changed much over the last year, or, you know, just kinda how we should be thinking about that? Yeah, Chris, you can take that one. Yeah, of course. Yeah, Chris, great question, and certainly from a kind of contribution of BASX from the backlog, I guess the simple way to kind of look at it, we talked, you know, during the last quarter call, kind of on the 2023 kind of performance, which was, you know, BASX as a whole in 2023, was approximately 10% of the overall revenue within the enterprise, but contributed 20% to bookings for the year. Or I should say, yeah, sorry, 20% of that bookings for the year. And as we look forward and kind of this quarter and beyond, we're continuing to see that, if not more, contribution from the BASX backlog. So we certainly see there being a lot of strength within the BASX 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 BASX products built down there as we continue the expansion with data center products. So it certainly is gonna become more and more relevant going forward as a percentage of the overall revenue of AAON. And definitely see it, you know, contributing substantially greater growth kind of on a year-annualized basis compared to legacy business. Yeah, one other thing, Chris. Got it. I think we had stated before that BASX 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. Got it. No, that makes sense for sure. I think one of the things you talked about, Gary, in your prepared remarks, was that order flow will further improve at the point in time this year, that customer's no longer able to order equipment with the R410A refrigerant. Do you have a kind of a best guess as to when that point is? It's going to be a bit... It's dependent on lead time, for this reason: You cannot deliver equipment with R410A, our type of equipment, beyond December thirty-first. So if you say, "Well, I wanna have a two or three week buffer between December 31 and the last unit I produced, just to make sure I don't have some kind of stub 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're gonna try and push people towards a cutoff ahead of that, so that we don't end up with a problem. You know, the problem could be, and I've heard other manufacturers talk about this, if we get a surge of orders, people wanting to get R410A at the last minute, then the lead times could easily bump out, and then, you know, where are you at? So this is a, it's kind of a 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. I think that's driving some people to say, "Well, I, I'll just go ahead and get R410A, because I don't have to have this additional expense for these refrigerant management strategies that are required by this new code." Just to summarize that, I would say somewhere in August, we're probably gonna see a surge. Got it. That's very helpful. Maybe just a last one to kind of follow up on, on the point you just made in terms of the increased costs. It sounds like you guys are in really good shape from, from that perspective. My understanding is that the new refrigerant requirements are really not gonna cost AAON any more. You, you have the new safety device that you'll have to, you know, include with it, but you're manufacturing that internally. So it sounds like, you know, from a competitive standpoint, you should be in a really good position for this changeover. Am I looking at that correctly? Yeah, I think so. You know, as we went through unit by unit, that holds true for a 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 size units. But I think mostly the way we've portrayed that is correct, yes. Okay. All right. I appreciate it, guys. I'll jump back in line. Your next question is from Ryan Merkel, from William Blair. Please go ahead. ... 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, and when did the production issues hit you exactly? Well, actually, each month had something just a little different at those two factories. January wasn't too bad. Towards the end of January, we had some weather events that hit us more in BASX than it did anywhere else. But more prevalently, 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. Then I don't wanna 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're using now, but it's somewhat disruptive. But in Oregon, they have disrupted... Of the two primary buildings up there, one of them's had a reasonable disruption in rearranging what we're doing in there, getting it ready to move into the new building that we're building. And, you know, it's just, it's not without impact. It's not substantial. It's not prolonged. It's not something we're gonna put up with, you know, for a very long time, but we did see a little bit related to that. Are you able to quantify the sales impact from some of these issues in the quarter? Well, each segment reported, so you can see that, you know, both of those two segments that I just spoke of, ACP and Basics, were both below 2023. You know, the growth, while it was marginal, was in Tulsa. You know, Tulsa just, it has no disruptions of any magnitude, you know, a little bit of weather-related for some of our customers. 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? Yeah, I think so. I think, maybe the follow-on would be, it sounds like, I think you said second quarter sales flat, so we're not seeing a lot of improvement in 2Q. You know, 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? Well, my perspective is that it, it'll be improving through Q2, but it'll be Q3 before it's relatively normal. Got it. All right. Thanks. Pass it on. Your next question comes from Julio Romero of Sidoti & Company. Please go ahead. Thanks. Good afternoon. Maybe, maybe switching to parts a little bit. It was nice to see the parts sales growth of 10% in the quarter. But was that performance in parts partially due to having more than expected capacity for parts since volumes were a little depressed due to the issues you just outlined? Matt, do you have any perspective on that? Yeah, I wouldn't, I wouldn't say that. I wouldn't say the impact of volumes on the ACP and BASX 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, you know, 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 parts sales. That's really stabilized now. So it's really just driven by demand of parts, nothing to do with the kind of slower volumes off any of the sites. Okay. Understood. Then, maybe if we could talk about data centers. You know, as you guys are assisting some of these data center customers and kind of being a handholder 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? That's a fantastic question. Yeah, and 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, you know, in our prepared remarks, when we talk 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're most excited about. We certainly see opportunity to really ingrain ourselves in kind of their growth story and really be able to kind of be at the forefront of enabling that.... Excellent. I'll pass it on. Thanks very much. As a reminder, please press star, followed by the one, should you have a question. Our next question comes from Brent Thielman from D.A. Davidson. Please go ahead. 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 BASX? And are you, are you beginning to see orders for that specific market? Yeah, no, it's an interesting one, and I'll 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, you know, cloud compute as well as AI, and kind of how do you blend your development strategy around that. And we've really been working pretty heavily in that kind of market, where we're developing solutions and really working with customers to solve the air side and liquid side kind of conundrum and how we kind of go forward. And, you know, 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 crafting solutions that really do provide flexibility in the deployment. So we see that actually as a really good strong suit because it provides, you know, a better opportunity to deploy products where you don't necessarily know exactly what that future demand at that given location is gonna look like. And that greater flexibility really is attractive to the overall end user kind of as they look to deploy capital. So we're excited to be seeing the conversion to actually orders off of the liquid cooling efforts we're doing. And really from a pipeline perspective, extremely optimistic on kind of what that's gonna mean for the enterprise as a whole. Awesome. Okay, and then, you know, a lot of the focus in the commentary has been just around some of the, the delays, I suppose, with Longview and BASX. I guess my question would be: Was the, 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? 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, you know, Q1 historically has been a softer quarter for that product. The last few years, we've had exceptions for various reasons. You know, there was times when we had extraordinary lead time, and others didn't, that we got past some of that seasonality. You know, there was buying habits that changed. There was just a whole lot going on. I think we're in a relatively normal cadence of business now, and our sales channel partners have strong backlogs themselves that they're processing, strong pipelines that they're processing and sending to us. And so while it was just a touch softer than what we may have expected, it wasn't entirely unexpected. Okay. And then just some of the pent-up or built-up sort of orders here, I suppose, with BASX Longview, does that 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 you know, when does that ultimately flow? Yeah, 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 gonna be aided by the... As Gary mentioned, you know, there's a lot of disruption in the projects that are going on at both sites. And so as we also look forward to, you know, Redmond site wrapping up in the Q3 timeframe and Longview at the end of the year, you know, that's really gonna 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. We definitely do see that kind of second half kind of helping accelerate kind of from a volume in an overall revenue perspective, kind of at both sites, kind of given those constraints. Okay. Thanks, Matt. Appreciate it, all. There are no further questions. I will now turn the call over to Joseph. I'd like to thank everyone for joining on today's call. If anyone has any questions over the coming days and weeks, please feel free to reach out to myself. Have a great rest of the day, and we look forward to speaking with you in the future. Thank you. Ladies and gentlemen, this concludes the call for today.