Aaon, Inc. Q2 FY2024 Earnings Call

Good afternoon, ladies and gentlemen, and welcome to the AAON, Inc. Second Quarter of 2024 Earnings Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. This call is being recorded on Thursday, August 1, 2024. I would now like to turn the conference over to Joe Mondillo, Director of Investor Relations. Please go ahead.

Thank you, operator, and good afternoon, everyone. The press release announcing our second quarter financial results was issued after market closed 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 our website as well as on the listen-only webcast. Joining me on today's call is Gary Fields, CEO; Matt Tobolski, President and COO; and Rebecca Thompson, CFO and Treasurer. Please turn to Slide 2. We begin with our customary forward-looking statement policy. During the call, any statement presented dealing with information that is not historical is considered forward-looking and made pursuant to the safe harbor provisions of the Securities Litigation Reform Act of 1995, the Securities Act 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. With that, I will turn the call over to Gary.

Good afternoon. Starting on Slide 3. Our second quarter performance exceeded expectations. Production issues from the first quarter were largely resolved, leading to increased volume output and productivity across all three segments. This resulted in record sales, earnings, and backlog. The BasX segment had an exceptional quarter. Net sales at this segment were up 58.3% from one year ago and 103.7% compared to the first quarter. This is especially notable considering that the reconfiguration of the production layout within the Redmond, Oregon facility, which disrupted operations in Q1, continued into Q2. The growth at BasX has been largely fueled by the data center market. Sales of our BasX brand and data center equipment produced at both our Oregon and Texas facilities were up year-over-year, 142.4%. We stated on our Q1 call that data center sales made up approximately 10% of total net sales for 2023 and about 20% of bookings. In the first half of this year, sales in this market made up 10.5%. And in Q2, it was 13.7%. In our packaged rooftop business, which makes up most of the AAON Oklahoma segment, we are continuing to realize growth but at a moderated rate compared to the last couple of years. Considering our volume was up 48.7% over the last two calendar years, along with the softening macro conditions and disruptions related to the refrigerant transition, we are pleased with the performance. All of these factors make for a difficult operating environment as well. Near-term visibility is more limited than was the case over the last few years, and week-to-week orders are volatile. This makes production planning much more difficult. Despite this, the operations team has been performing exceptionally well. Total company backlog at the end of the quarter was a record $650 million, up sequentially for a third straight quarter. Compared to a year ago, backlog was up 23.5%. And relative to the end of the first quarter, it was up 16.4%. The increase was largely driven by the BasX segment and the data center market. With that, I'll now hand it over to Matt Tobolski, who will speak more in depth about our operational strategy.

Thank you, Gary. Please turn to Slide 4. The second quarter was an excellent quarter for the company. Many of the issues that weighed on our performance in Q1 were resolved, allowing for higher volumes and greater productivity. That said, the quarter did not go without its own challenges, which puts the overall performance into an even brighter light. The disruptions related to reconfiguring the layout of the BasX facility in Oregon continued into Q2. Equipment was still being rearranged and the outsourcing of parts we would otherwise produce in-house was necessary. As a result, while productivity improved from Q1, there is room for continued improvement. Despite these challenges, the segment posted record sales and record gross profit. Most of the heavy lifting and temporary disruptions related to the production layout reconfiguration and capacity expansion is behind us. We expect the new capacity will be up and running by the end of the third quarter, positioning BasX for robust growth and improved margins in the second half of the year, driven by increased throughput and operational efficiency. BasX has a strong backlog entering the back half of the year and upbeat fundamentals amongst the data center market. Furthermore, beyond what is in the backlog of BasX is a robust pipeline of data center projects in which we are heavily engaged and are optimistic we'll be able to convert into bookings. I will note the timing of backlog conversion at this segment is weighted more in Q4 and beyond than it hits in Q3. This brings me to the AAON Coil Products segment, which is increasingly becoming an extension of BasX in the manufacture of data center cooling equipment. Similar to BasX, this segment finished the quarter with a strong backlog and a robust pipeline of future opportunities within the data center vertical. In fact, just last week, we ended a large liquid cooling order that increased the segment's backlog by over 50%. This order is associated with a large data center company and is the first tranche of a multi-phase, multiyear project. We are extremely excited about where this business is headed. Like BasX, the capacity expansion project that this segment is on schedule and is expected to be finished by year-end with production expected to commence early next year. The new space is allocated to BasX branded data center products and will add an incremental 245,000 square feet of manufacturing capacity, an increase in this location of roughly 50%. This will help absorb the immense growth we foresee in the data center market for both airside and liquid cooling projects. It will also help improve productivity. In fact, we've already begun to see this. In the second quarter, gross margin of the segment was 41.9%, up from 24.9%. And in the first half of the year, gross margin was 38.3%, up from 23.1% in the first half of 2023. Finally, the AAON Oklahoma segment's performance from an operational perspective was also outstanding, particularly considering the softening construction environment and disruptions related to the new refrigerant regulations. Over the last couple of years, our Tulsa, Oklahoma manufacturing facility has transformed into what I describe as a well-oiled machine. The engineering team has never been stronger, and manufacturing is as precise and efficient as it has ever been. The comparisons this business is facing when compared to the last couple of years are very tough, and yet we've been able to maintain volumes comparable to a year ago. Furthermore, as I stated, the macro environment has become more challenging, and the new refrigerant transition has created disruption. As a result, bookings have been unusually volatile this year from a week-to-week and month-to-month perspective. Looking at the segment through the first half of the year, we are up from a year ago, but the increased volatility introduces challenges when it comes to production planning. All that considered, the operational performance has been stellar. As for the back half of the year, the operations team will have to remain nimble. While we still think demand will increase somewhat ahead of our phase-out dates of our R-410A refrigerant equipment later this year, our visibility is limited. A positive thing we have going for us is that our lead times are still an industry best, which means we can likely expect orders for R-410A equipment later than most of our competitors. If we do see an increase in near-term demand, this could position us to have a strong finish through Q4. It is important to note that this scenario could also result in a soft order book in Q4, which would result in a slow start to 2025. At this point in time, we're unsure exactly how it will play out, but the bottom line is that we expect continued volatility in the near term, and we are confident we will manage through it better than most. Looking to next year, we've been producing R-454B equipment longer than any of our competitors. That means we are best prepared when it comes to inventory and production. Additionally, for us, the cost of manufacturing new refrigerant equipment versus our old refrigerant equipment is not changing at all, potentially giving us an edge if some of our competitors have suggested increasing costs associated with the new refrigerant equipment. Regardless, we are already more cost-competitive than we were years ago as the price premium of our higher-quality equipment is the narrowest it has ever been. Beyond product evolution associated with the refrigerant transition, we continue to lead the industry in innovation and are well ahead of anyone on the development of cold climate air source heat pumps. Sales of our traditional heat pumps continued to outperform overall AAON, Oklahoma sales in Q2, and sales of our cold climate heat pumps outperformed traditional heat pump sales. Overall, while the near-term sales of heat pumps remain volatile, we're very optimistic regarding the medium to long term. And with that, I will hand it off to Rebecca to walk you through the financials.

Thank you, Matt. Please turn to Slide 5. Net sales increased 10.4% to $313.6 million from $284 million in the second quarter of 2023. The year-over-year growth was largely driven by the BasX segment, which realized an increase in net sales by 58.3%, a majority of which was spurred by sales related to data center cooling solutions. Sales at AAON, Oklahoma and AAON Coil Products segments grew 3.4% and 4.3%, respectively. Moving to Slide 6. Gross profit increased 20.3% to $113.1 million from $94 million. As a percentage of sales, gross profit was 36.1% compared to 33.1% in the second quarter of 2023. The realization of price increases, along with the slowing of inflation for raw materials at the AAON Oklahoma and AAON Coil Products segments, improved overall consolidated margin performance. Please turn to Slide 7. Selling, general and administrative expenses increased 16.9% to $45.9 million from $39.3 million in the second quarter of 2023. As a percent of sales, SG&A increased to 14.6% from 13.8%. The increase relative to sales is primarily attributable to an increase in investments made in technology, professional and legal fees, increased travel, and consulting expenses. Moving to Slide 8. Diluted earnings per share was $0.62, up 12.7% from a year ago. Our tax rate in the quarter was 22.1%. The company's estimated annual effective tax rate, excluding discrete events, is expected to be approximately 25%. Turning to Slide 9. Our balance sheet remains strong with a current ratio of 3.0. Cash, cash equivalents, and restricted cash totaled $12.1 million on June 30, 2024, and debt at the end of the quarter was $85.9 million. Our leverage ratio was 0.3x. Year-to-date, cash flow from operations was $127.9 million, up from $59.9 million in the comparable period a year ago. Capital expenditures for the first half of the year, including expenditures related to software development, increased 24.4% to $75.4 million. During the quarter, we also repurchased $100 million of shares outstanding, reflecting our confidence in the long-term prospects of the company and our commitment to delivering value to our shareholders. The combination of the capital investments and share repurchases led us to draw down on our revolving line of credit. We anticipate paying just over half of that off by the end of the year. All in all, our financial position is strong, giving us flexibility and allowing us to continue to fully focus on growth opportunities. With that, I'd now like to turn the call back over to Gary.

Please turn to Slide 10. We feel really good about our current position. The growth of the AAON, Oklahoma segment in the first half of the year was below our expected targets, but I want to remind everyone that the volume of equipment at this segment was up 48.7% from 2021 to 2023. That type of volume growth is unheard of for this industry. Furthermore, we've been operating all year with normal lead times and a lean backlog in this segment. That's far different than some of our competition who are still trying to catch up since the peak of the supply chain issues. All considered, including the slowing macro environment and disruptions from the refrigerant transition, the fact we have maintained comparable volumes to a year ago is terrific. The bottom line is we have the highest quality package rooftop equipment in the industry, currently selling for the smallest price premium in our history. Our sales channel continues to strengthen, and we are leading in innovation. If recent commentary coming from our competition regarding their cost of manufacturing the new refrigerant equipment is accurate, we're going to be in an even more advantageous position than we already are today. Either way, our package rooftop business is in great shape, and we expect growth will accelerate next year when some of these external issues are behind us. Matt spoke at length regarding data center opportunities at both BasX and AAON Coil Products segments. But I just want to add one comment and stress another that he mentioned. First, we are in the early stages of this cycle. The big increase in CapEx plans that our customers have announced occurred in 2024 through 2026. We are just scratching the surface. This is why we continue to speak to this pipeline of opportunity beyond what is already in our backlog, which is the comment I want to stress. I always say nothing is a guarantee until it makes its way into the backlog. However, the pipeline we referred to is not just a calculated estimate of market size or related to CapEx numbers. Our customers have announced. Our sales teams and engineering departments are working very closely with these customers, helping design very unique cooling solutions for the largest data centers ever built. Many of the solutions require a lot of equipment with highly customized designs due to the size of the buildings and heat being generated. The execution of everyone involved has been top-notch, and I'm confident we will benefit greatly from this pipeline of opportunity. Needless to say, I'm very excited about where our data center business is headed. Our updated outlook is as follows: in 2024, we are now looking for volume to be flattish. We continue to anticipate pricing will be a mid-single-digit contributor and that gross margin will be up year-over-year. For SG&A, as a percent of sales, we anticipate a 50 to 100 basis point increase, and we maintain our CapEx guidance of $125 million. In the back half of the year, we expect much of the year-over-year growth will be weighted to the fourth quarter. For the third quarter, we anticipate year-over-year sales growth to be flat to up modestly, and we expect GAAP earnings per share to be flat to down modestly from a year ago. In closing, I want to finish by thanking all of our employees, sales channel partners, and customers. To our shareholders, this company has never been more well-managed than it is today, and we look forward to generating the returns that you expect of us. I will now open the call for Q&A.

Your first question comes from Chris Moore with CJS Securities.

Terrific quarter. Maybe I will start with where Gary left off in terms of the Q4 sales stronger than Q3. Is it data center timing? Or is there something else that's driving that?

It's production capacity coming on board primarily for data centers. So the orders for rooftop units have been just steady, not strengthening. Maybe they're up over last year, but not enough to press on very hard. But the data center bookings have been tremendous. We'll have a little bit of a struggle to get any of it built in Q3 for any material amount because of both getting parts and pieces in and getting production facilities ready to go. The production facilities are coming along nicely and on schedule, as we said in the earlier part of the call.

Got it. That's helpful. And in terms of both Oregon and Texas, it sounds like you're getting there. Did you say earlier in the call that you're talking about increasing data center capacity even further beyond that? Or did I miss that?

The additions that we've got going in Oregon will give us considerable more production capacity there. The new addition in Longview, which is 245,000 square feet, is currently 100% allocated to data center because of the pipeline of work and the backlog of work that we have.

Got it. And maybe just the last one for me. So obviously, a very strong quarter for BasX. Operating margin was 28.5%. Matt talked about productivity issues that are winding down. You were at the 34% range at the end of Q2 and the third and fourth quarters last year. Can you get back up to there in the third quarter? Or is that more of a fourth quarter kind of target?

Yes, there in Q3 still definitely had some headwinds against it. The depression we saw in Q2 is during the rearrangement, not just productivity challenges, but also with the rearrangement of some of the fabrication equipment. There was a lot more outsourcing in there. So obviously, there's some cost pressures that come off of that. So that's going to continue weighing through Q3 and definitely kind of Q4 and beyond as we start getting back towards the normalized margin profile.

Your next question comes from Ryan Merkel with William Blair.

Congrats on the nice quarter. I wanted to ask about the transition to the R-454B equipment. What is the big risk exactly? Is it that customers are going to buy R-410A and not move as quickly to the new systems? And then the follow-up is, when is this risk over? Is it 2Q '25? So really, we just have to worry about 4Q and 1Q?

We cannot ship current refrigerant, meaning 410A beyond December 31. So all equipment that we ship beginning January 1 has to be 454B. Part of the hesitation on the part of our customers is many states have not yet put building codes in place to allow the utilization of 454B. Those building codes historically are put in place in October every third year. So in October, we anticipate that the vast majority of municipalities will be able to utilize the new refrigerant. Then comes the next part of the equation that I really didn't anticipate quite so well, I guess. Some buildings have to modify slightly to use the new refrigerant. They have to put in refrigerant purge systems if the refrigerant could get inside the building. So it's not all buildings. It's very complex, how it works. But there are instances where putting the new equipment with 454B on causes the building to be modified. So some of these people have been rethinking what they're doing, and we anticipate there could be a little surge in 410A equipment here towards the end of the useful life of it. And all of this will be behind us as far as order bookings and even shipments January 1.

Right. But you also make R-410A, so if that's what the market wants for the rest of the year, you could produce that.

Throughout 2024, it will become a challenging situation. If you expect a specific number of orders and have the necessary inventory and staffing levels to fulfill them before December 31, that's great. However, you will need to pinpoint the cutoff time to ensure production can be completed by that date. We have shared a schedule indicating when we will stop taking orders for certain products. For our longest lead items, which require specialized components and are produced in low volumes, we have already stopped taking orders for 410A. We have more milestones coming later this month, but I believe our final cutoff for 410A will occur sometime in October.

I appreciate all that. I know it's a little confusing here.

And I'm talking about taking orders. We won't take orders beyond those dates.

Right. Okay. And then the other question I had is just on BasX. I mean a really nice quarter, well above what we were thinking. So it sounds like 3Q the BasX growth rate will slow relative to 2Q and then 4Q once the production comes online, it should accelerate again. And then am I right that the BasX growth rate, just given the backlog should also accelerate into 2025?

Yes. Certainly, the, as you mentioned, kind of a little bit of deceleration in growth in Q3 is not going to show a huge backlog conversion. But really, backlog conversion is going to focus on Q4 when a lot of that capacity is online within Oregon. And really, that production capacity gets in full swing, helping to ramp that up sequentially throughout 2025.

Your next question comes from Julio Romero with Sidoti & Company.

This is Alex on behalf of Julio. Great quarter. I wanted to follow up on what you mentioned last quarter regarding allocating some engineering and operations resources to create more customized retention strategies in data centers. Could you provide an update on those developments?

Yes. I mean certainly, some of the resources that are really focusing on developing the creative and really innovative solutions at the data center market are reflected in the single order we mentioned kind of after quarter close, but technically booked inside the AAON Coil Product site. But that was a collaborative custom engineered solution for one of our data center customers within the liquid cooling space and really tailored to a unique operating strategy and an overall build strategy for that customer. And so that kind of engagement and really collaboration with our customers is the lifeblood of how BasX operates. And so that's really driving continued pipeline visibility activity and really backlog conversion as well.

Great. Yes. And following what seems like a very successful BasX acquisition, could you comment on how you're thinking about M&A these days and what might be in the pipeline?

I don't have anything in the pipeline at the moment. BasX was very strategic. There was a long history with the former owners and myself. So it made it fairly certain what the outcome would be. We went on kind of a proactive search to see if there was anything out there that would work in a strategic manner similarly. We've come up empty-handed so far. But we keep our ear to the ground, and we listen to multiple investment bankers who talk to us frequently about deals they have running around. And we just have not yet found anything that would fit us in a strategic manner. We don't have any reason at all to purchase anyone other than that.

Your next question comes from Brent Thielman with D.A. Davidson.

Gary, I want to come back just to the expectations through the rest of the year. It sounds like essentially all of the growth is being driven by the ramp-up at BasX and kind of data center products. Can you help me kind of flesh out how you're thinking about the rooftop business from a sales perspective over the next couple of quarters? Because it sounds like maybe you think you'll have some headwind overall there.

Yes, I think that's reasonable. Rooftop sales increased by 4%, primarily due to price changes. The volume remained relatively flat, which is impressive considering the 48% growth we saw over the past two years. However, sustaining and growing that has proven challenging. You may remember that around this time last year, I indicated that difficulties were likely ahead. I mentioned that the refrigerant transition would create chaos, and I also expected interest rates and the upcoming election to have an impact. Sadly, my predictions seem to have been accurate. As we look forward to potential relief from interest rates this fall and move past the election, those factors should become clearer. The refrigerant transition is effectively over as of January 1, but how quickly the market rebounds remains uncertain. It is currently quite chaotic for our customers. Therefore, I'm not optimistic about seeing a clear path to growth in the rooftop sector in the next couple of quarters. While that is true, the data center business is very strong, as shown by our bookings and ongoing discussions with clients regarding their interests. When we launch our facility in Texas, it will be a significant achievement. In my eight years running this business, I have never opened a production facility that was fully booked from day one, but this one will be. Our Texas facility will be operational in the first quarter of 2025 and is already fully sold out.

Got it. No. Duly noted on calling a choppy year here, Gary. I guess just as a follow-up just related to Longview, kind of a two-part question. Can you help us understand what drove the really strong margin this quarter? And what's sustainable for that kind of business going forward? I mean it looks like year-to-date, you actually produced more data center product there last year than you did this year. Does that really reverse in a significant way in the second half or more into 2025?

While I know the answers to every one of those questions, I think Matt is just one notch closer to it than me, I'd like for him to answer those.

Yes. With respect to the margin profile, certainly, the margin uptick we saw in Q2 was driven by productivity as well as product mix. We had a pretty strong run of data center products we're building out of there for one of our customers with legacy AAON product. That product mix and the overall productivity through there really helped flesh out that good strong margin profile in the quarter. Certainly, as we look forward, to your second half of that question, yes, definitely, we see an uptick in sort of the percentage of revenue coming out of Longview driven by data centers in the latter half of this year. So there's a lot of activity in conversion of that order that booked after quarter end. We expect to convert a high probability of that backlog within Q4 of this year. So there certainly is a lot of drive in the data center market coming through the back half.

Your next question comes from Timothy Wojs with Baird.

Gary, just on the orders in the backlog. I was just kind of curious if you could give us a little bit of added color on what you're seeing on the data center side, it sounds like it's several orders, but I guess I want to kind of confirm that and just maybe what parts of the business or what products are you seeing some of the bookings and the backlog kind of growing?

Yes. With regards to the data center portion, it is multiple customers. Many of these customers have been on board with this for a good while. And as we've increased our production capabilities and have prospects of more production capabilities they've begun booking. As I said, the new building in Longview is essentially booked full right now, and it doesn't come online until January 1. But that fits their schedule. The type of products, they're both air-cooled and liquid cooled. And we have developed some unique solutions for certain clients on a collaborative basis for their liquid cooling needs. We continue to excel with our air-cooled products. I would look for liquid cooling to grow at a more rapid rate than air cooling going forward, but air cooling is not going away and it's not going down.

Okay. Okay. That's helpful. And then maybe just on Oklahoma. It does sound like there is going to be a little bit more volatility on the top line in the back half of '24. How would you kind of think about the margins as you kind of chop through that? Is it just a situation where you have to manage through it, keep the employee base, keep everything and you just get a little bit more productive? Or are there levers you can pull where you can still maintain this kind of 37% to 38% gross margin?

Those are excellent questions, and we often talk about them. Currently, we're operating at a pace that supports these margins. If bookings don't improve soon, we may need to make some adjustments for that segment. In the past, we could simply halt hiring due to sufficient turnover at the lower end of entry-level positions. However, turnover is quite low now, as we are a favored employer, and our employees tend to stay. There are alternative measures we can implement if necessary, but we haven't reached that decision point yet. Bookings are satisfactory, though not as strong as we would prefer. As I mentioned earlier, there are times at the beginning of the month when things look concerning, but then activity picks up, and we end the month on a decent note. It's puzzling since no sales representative is compensated based on end-of-month performance, yet they somehow seem to submit their orders towards the end of the month more frequently. I wish there were more consistency in their scheduling. Nonetheless, we are managing this situation, and I anticipate some continued unpredictability for another one or two quarters.

Okay. Okay. Understood. And then just as you kind of think about the pricing on 454B. I think there's been some chatter in the marketplace; a couple of your competitors have talked about maybe 8% to 10% type price increases next year. When do you kind of solidify what you'll do with price? Is that kind of something where you go out with one big increase? Or do you think you slowly kind of price into where the market is going through next year?

Right now, we have strong margins, and there is minimal pressure on those margins. The pressure we face is more related to maintaining our run rate rather than material costs based on our current analysis. To maintain our margins, we need to sustain or increase our run rate, which helps manage our fixed costs. Overall, this positions us well. If our competitors raise their prices by 8% to 10%, we don't have to follow suit, which could diminish our premium. When comparing the value of our equipment to theirs, it becomes very compelling to choose AAON equipment because of the additional value it offers. If pricing isn't the main concern, we could see a significant increase in bookings. We're not completely certain this will happen, but as competitors express more confidence about their price increases related to refrigerant, we feel more assured that we won’t implement any. We have produced enough equipment to provide solid data supporting our pricing strategy, and it's an interesting situation we’ll continue to observe. I can only imagine how exciting it would be to be back in sales without being a price premium; that would be a lot of fun.

I look forward to watching it too. So thanks for the time, I'll turn it back.

Your next question comes from Jon Braatz with Kansas City Capital.

Matt, I have a question, and Gary touched on it a little bit on your liquid cooling solution for the data market, data center market. Can you talk a little bit about how that market is evolving? And maybe what your competitive position within that segment of the market is and maybe pricing and margin for that product versus air-cooled?

Yes, of course. So when we get down to kind of where the product is positioned and where that competitive advantage comes from, it's really driven by the ability for us to custom-tailor solutions to applications. When we think about the evolution inside the data center market around AI, we're driving pretty substantial increases in overall density from an IT compute perspective. We're also driving the need for higher capacity heat rejection solutions. Moving towards these larger and highly configured solutions is really the sweet spot for us to be in as an organization from developing and crafting solutions. The market is evolving in a way that's really positioning the BasX products in a much stronger light in this changing dynamic. As the infrastructure and design concepts of data centers are changing, the engineering know-how and resources that our team can provide to customers is really helping drive value in that design architecture and evolution. It's strengthening bonds with existing customers. Gary mentioned we're working with a lot of new customers, but we're also working with existing clients where our engineering know-how and thought process is providing a strong and sticky relationship going forward. As we think about pricing, there is certainly more price content living inside of a liquid-cooled data center right now from a price per KW perspective. As we deploy liquid-cooled data centers, airside doesn't go away. So we still have airside cooling in combination with liquid cooling for a variety of ancillary equipment. The overall project opportunity for us continues to evolve and get larger from a potential pricing standpoint. On the margin side, it's comparable to what we're doing today. The margin expectation is not markedly different than the margin for air-cooled.

There are no further questions at this time. Joe Mondillo, please continue.

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. Thanks.

This concludes today's call. Thank you for your participation. You may now disconnect.