Good morning, ladies and gentlemen, and welcome to the AAON, Inc. Fourth Quarter 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 zero or star zero for the operator. This call is being recorded on February 27, 2025. I would now like to turn the conference over to Joseph Mondillo, Director of Investor Relations. Please go ahead.

Thank you, operator, and good morning, everyone. The press release announcing our fourth quarter financial results was issued earlier this morning and can be found on our corporate website, AAON.com. The call today is accompanied by a presentation that you can also find on our website as well as on the listen-only webcast. Please go to slide two. 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 all are aware of the inherent difficulties, risks, and uncertainties in making predictive statements. Our press release and Form 10-K that we filed this morning detail 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 are Gary Fields, CEO; Matt Tobolski, President and COO; and Rebecca Thompson, CFO and Treasurer. Gary will start off with some opening remarks. Rebecca will follow with a walk-through of the quarterly results. Matt will then provide further details on the segments and about our operational strategy. Before taking questions, Gary will finish with our 2025 outlook and closing remarks. With that, I will turn the call over to Gary. Prior to diving into the results, I want to briefly address the news that

we announced last week related to CEO succession. As many of you know by now, I will be stepping down as CEO at our annual stockholders meeting on May 13th, and Matt Tobolski will be taking over the role. I will remain on the board and I also will become a special adviser to the company to ensure a smooth transition. Years ago, I was very transparent that a part of my strategy with the company was to put together such a strong leadership team that my services as leader would not be required any further. We have reached that point. The team that we have put together over the last several years has been tested in many ways and has proven to be incredibly capable. I can confidently say this is the strongest leadership team this company has ever seen. Since the end of 2023, Matt has been leading the team and fully managing the day-to-day operations. Over this time, I took a step back from the day-to-day. I could not be happier with how the team performed throughout this transition, giving me the utmost confidence that this is the right timing for this. Matt is an extremely talented individual with a huge skill set. His bandwidth is incredibly large, and he is a very effective leader. I have strong conviction he will be very successful and that this transition will be extremely smooth. Now please turn to slide three. As we look back on 2024, it was a year of both triumphs and obstacles. Early in the year, we were coming off of a two-year stretch of extremely strong organic volume growth and share gains. We said at the time that in addition to the year-over-year comps being tough, 2024 was going to be a slower year due…

Thank you, Gary. I'd like to begin by discussing the comparative results for the three months ended December 31, 2024, versus December 31, 2023. Please turn to slide five. Net sales were down 2.9% to $297.7 million from $306.6 million. The year-over-year decline was largely driven by the AAON Oklahoma segment, which realized a decline of 16.1%. This was partially offset by the AAON Coil Products segment, which realized growth of 129.9%. Moving to slide number six. Our gross profit decreased 30.5% to $77.6 million from $111.7 million. As a percentage of sales, gross profit margin was 26.1% compared to 36.4% in 2023. The decrease in gross profit margin largely reflects lower volumes and the related deleveraging of fixed costs at the AAON Oklahoma segment. We also had a temporary decline in gross margin for the AAON Coil Products and Basics segments as we build out additional capacity for future growth. Please turn to slide seven. Selling, general, and administrative expenses increased 0.7% to $48.2 million from $47.9 million in 2023. As a percentage of sales, SG&A increased to 16.2% compared to 15.6% in the same period in 2023. The increase in SG&A as a percent of sales was primarily related to an increase in depreciation expense associated with investments we are making for long-term growth, offset by a reduction of profit-sharing expenses due to lower earnings. Moving to slide eight. Diluted earnings per share decreased 46.4% to $0.30 per share from $0.56 per share. The fourth quarter benefited from a large excess tax benefit of $4.6 million relating to stock-based compensation compared to $2.5 million in the same period a year ago. Turning to slide nine. Our balance sheet remains strong. Cash, cash equivalents, and restricted cash totaled $6.5 million at December 31, 2024, and total outstanding debt was $154.9 million. Our leverage ratio in the quarter was 0.57. We had a working capital balance of $313.3 million at December 31, 2024, versus $282.2 million at December 31, 2023. The increase in working capital reflects necessary inventory purchases made to accommodate production of orders in backlog for early 2025. Capital expenditures in the fourth quarter were $99.3 million, up nearly fourfold from a year ago. The increase was primarily associated with the $63.4 million spent in December on the closing of our new facility in Memphis. In 2024, capital expenditures totaled $213.2 million, up 94.7% from 2023. In 2025, we anticipate capital expenditures to be approximately $220 million. The majority of our investments will be related to getting the Memphis facility up to speed for production later this year. I'll now hand the call over to Matt Tobolski, who will speak more in-depth regarding the business segments and our operational strategy.

Thank you, Rebecca. Please turn to slide ten. As Rebecca stated, much of the softness in the quarter was driven by the AAON Oklahoma segment. On the third quarter call, we cautioned that we expected a temporary lull in the adoption of new 454B refrigerant equipment after we stopped accepting orders for the legacy 410A refrigerant equipment in September. Knowing that many of the state building codes were not updated to allow 454B equipment until the fourth quarter, and this was the first refrigerant transition that also had building code implications, it was difficult to gauge what the impact was going to be. The downturn in demand following the refrigerant transition proved to be steeper, causing us to slow production in the quarter more than anticipated. This resulted in lower volumes in the AAON Oklahoma segment in the quarter. We believe the downturn is temporary and was created by the refrigerant transition timing. As such, we chose not to reduce headcount significantly to prepare for the rebound in demand. As a result, the impact was magnified from a profit margin standpoint. Bookings were strong as we rounded out the year, resulting in a double-digit increase in the segment year-end backlog. However, this preceded a modest price increase that went into effect on January 1st, so some of this demand would be pulled forward out of the price increase. The positive is this suggests there is pent-up demand in the market. Furthermore, as of the end of January, the trailing three months of bookings were up in the mid-teens compared to the same three-month period a year ago, and backlog remains solid. We continue to believe as we move through the first half of the year, we will see continued improvement in demand. That said, much of the fixed cost associated…

Please turn to slide twelve. Prior to walking through the 2025 outlook, I want to take a step back and talk about where we are in our business cycle and where we are going. Matt did a good job of speaking to where we are going, but I want to frame where we are from a higher-level perspective. The last five years, we have experienced a tremendous amount of growth, growing organic revenue at a CAGR of 17%. It has not been a straight line, though, which it never is in business. In 2020, we had an exceptional year. 2021 was flattish. 2022 and 2023 were phenomenal, and 2024 was flattish. Last year was an unusual year, largely disrupted by unprecedented government regulation that the industry had never experienced. The positive is most of the impact of that regulation is behind us. I point this out because sometimes we get overly focused on three months' worth of financials and sometimes lose the forest for the trees. We are at the early stages of another multiyear period of robust growth. The fundamentals of both of our brands, AAON and Basics, are extremely strong. Basics has a huge tailwind from data center development and its leveraging of its unique engineering and custom design capabilities. AAON also is in a strong position. Our semi-custom designed equipment is of the highest quality, best performing, and most energy-efficient equipment in the industry. Our advanced development of heat pump technology is revolutionary. Moreover, we are proving we can build our traditional equipment more efficiently than anyone, which is reflected in a narrowing price premium and strong margins. Given the backlog and the fundamentals, we see both brands accelerating in growth over the next several years, resulting in annual growth similar to our trailing five-year CAGR. We are investing and positioning this business for the long term. The recent reorg and investments that we have made into the business give you confidence that we will not only be able to absorb this robust growth but do so efficiently. With that, I will now walk you through our 2025 outlook. Please turn to slide thirteen. For the year, we anticipate sales growth in the mid to high teens, at a gross margin similar to what we realized in 2024. SG&A as a percent of sales will realize a decline of 25 to 50 basis points. CapEx will be approximately $220 million. For the first quarter, due to general seasonality, lasting impacts of the refrigerant transition, and ramp-up costs related to Memphis, we anticipate sales and earnings will be modestly down from the fourth quarter. In closing, I want to finish by thanking all of our employees, sales channel partners, and customers. I also want to announce that we will be attending Sidoti & Company's virtual small-cap conference on March 13th and William Blair's conference in June. I hope to see some of you there at these events. Thank you. And I will now open the call for Q&A.

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 number 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 number two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from Ryan Merkel from William Blair. Please go ahead.

Everyone, good morning. Thanks for the questions. I wanted to start with the first quarter outlook for the Oklahoma sales. I think you said flat sales versus what you just reported in Q4. Is the reason that you are seeing that still pushouts because there is an inventory of R410A in the channel? Is that the main reason?

Well, that certainly has an impact on it, Ryan. We did book very nicely right there at the end of the year. But the lead time being what it is, it is towards the end of the first quarter before those accelerated bookings start hitting the plant floor. So working off of the backlog we saved earlier in the month, earlier in Q4, that is why the run rate is still not accelerated. R410A had a whole lot to do with it. We cut that off, like we said, back in September. So everything that we have in the backlog now is R454B. And it is taking just a moment to get that momentum back.

Okay. And then in the quarter, Basics sales down year over year is a little bit of a surprise. I did not catch the reason. Why is that just given the big backlog?

Yeah. So when they on a Basics perspective, I think the one thing, Ryan, we have to really frame looking forward is thinking about this more on the Basics brand. And so the ACP, you know, the strong growth in ACP, that is really driven by Basics branded equipment. So when we look at Basics as a whole, we are definitely seeing strong growth coming out of that overall business. Within the segment reporting, so the Basics segment as reported today is really reflective of Redmond production, and there are just fundamental limitations of capacity within that facility that are really kind of the throttle of what you are going to see from an overall sales perspective in that segment. But the demand, to your point, the demand, the backlog, of Basics branded product is extremely strong.

I got it. So, yeah, you are saying Basics as a whole, if you include Coil, it is still strong.

Correct. And that is really, you know, we talk about the kind of business unit realignment and kind of future reporting, it is really trying to reflect that because as we go forward, the Basics brand is going to really be the Redmond facility, the vast majority of Longview, and really the bulk of Memphis from a ramp-up perspective, that is all for Basics branded product.

Okay. One more and I will pass it on. The outlook for mid-teens to high-teens growth in 2025, that is a little below what I was thinking. Can you just unpack some of the assumptions there? I was thinking, you know, data centers, you know, both Basics and Coil could be up, you know, 75%, 80% again, just given that backlog, and I think you mentioned you convert a lot of that. And then I was thinking then the Oklahoma side, you would be up low single digits, mid-single digits. So correct me if, you know, what am I missing on that?

Yeah. It is heavy. The big driver is, you know, Oklahoma, I will say, is the sort of piece that is offsetting that dynamic growth in the data center space. And so Gary's comment earlier, coming off of the Q4 bookings into Q1, you are going to see a little bit of an expected reduction from Q4 to Q1 when you look at the bookings conversion to sales in Q1 plus traditional seasonality in that segment. So in Q1, we are just starting off at a weaker point than would be normal in that segment. And as we look, you know, there is still uncertainty exactly how the commercial market, the macroeconomic market, and non-res really recover throughout the year. And so we are just putting a little bit of caution in there with uncertainty around the Oklahoma segment. And so that is really where the kind of put and take is on the overall guide from top-line revenue is, yes, to your point, very strong expectations of growth within the data center segment, with a little bit of softness coming off of that in the Oklahoma segment.

Can we just put a finer point on that? Maybe you do not want to give too much detail, but is the Oklahoma segment going to be even flat in 2025?

We are not bifurcating down to segment guidance at this point. But definitely, it is just, you know, again, when we start off kind of in that Q1, we were starting off in Q1, obviously, it is going to put us a little behind from a year-over-year perspective.

Got it. Alright. I will pass it on.

Alright. Your next question comes from Chris Moore from CJS Securities. Please go ahead.

Hey. Good morning, guys. First, congratulations both to Gary and to Matt. Job well done. Maybe we can start on data centers. Obviously, there has been some talk of bigger players, you know, canceling or downsizing data center construction. What are you hearing from customers, potential customers, you know, on that front?

Yeah. I mean, obviously, there has been a lot of noise in the market around kind of what the data center outlook looks like. What I would say just from a fundamental visibility that we have, the market continues to be strong. It continues to strengthen. When we look at the pipeline visibility that we see in the marketplace as a whole, we see capital expenditures remaining strong and in a lot of areas actually increasing. And so from our perspective, everything we are seeing in the marketplace, everything we are seeing in various stages of conversation within the data center market and channel, the outlook, the strength, and the investments continue to remain strong. They really, you know, I think a lot of conversations around the deep state conversations really, you know, we continue to be firm believers and really subscribe to the mindset that the ability to create more effective models creates demand. It creates a higher adoption of AI and will actually be continuing to strengthen the investment versus the address.

Got it. That is helpful. And you mentioned a $1 billion target. Is that a three to four-year goal? Is that a five-plus-year goal? Just any way to frame that?

Yeah. I mean, we use it, you know, I will repeat the words as we say, it is a few years basically, is what we see as being able to get that to a billion dollars. And so that is in the three to four-year range is kind of where we see that target.

Got it. That is helpful. And maybe just a question on pricing. So how much more expensive is your R454B solution than the legacy 410A that is currently being sold? Just trying to get an understanding if there is a big price delta or it has to do with, you know, building code changes that would, you know, influence people to continue to buy the R410A for a while.

So for us, the 410A is behind us. We do not sell into a distribution channel where we pre-stocked and preloaded a big parking lot full of units. So there is no 410A left at AAON. That ended at the end of December. R454B is no more expensive from us. We had a 3% price increase that went into effect January 1st. That was just our annual price increase for everything that, you know, due to inflation, we will say. But nothing specific to R454B has emerged.

Got it. No. I understood you are not selling the 410A anymore. But so distributors can, and I am just wondering if you were going up against the 410A when trying to sell the 454B. Is really kind of what I was getting after.

Not materially, Chris. The people that buy units for a standard product like that are not our target client, never have been, it has never been material to our business. I am not going to tell you that we do not lose a project from time to time to it, but it is not really measurable what we would lose to 410A because it has not ever been our target client that buys that style of unit. So not only the more innovative application strategies that we have put in the market for several years in like, DOAS units and humidity control and building pressurization control and effective filtration. Those have been our marquee applications, but the air source heat pump is gaining a lot of share within the units that we are building today. And those are all built specifically for a project as well.

That is very helpful. Maybe just one last on price. So you guys have had much more pricing flexibility than the average company on the 454B. From a market standpoint, any sense in terms of where you are priced versus the other 454Bs at this stage? Now you said you have raised prices 3% beginning of the year.

Yep. We are just now getting into that season where we have good comparative data. Oftentimes, and I have stated this many times, in the K through 12 market, which historically has been 20% plus of our utilization of our units, bid forms oftentimes will be, AAON basis of design, and then they will list a matrix of other manufacturers and what their pricing is. Those bids have gone back to their normal cadence of in February, March, April bids, resulting in June and July deliveries. So we are very soon and in fact, on next quarter's talk, I think we will have empirical data to support where we are at with that. We have not yet seen anything material in that regard.

Got it. Very helpful. I will jump back online. Thanks, guys.

Thank you. As a reminder, if you wish to ask a question, please press star one. Your next question comes from Brent Thielman from Davidson. Please go ahead.

Hi. Thanks. Good morning. Gary or Matt, just on the potential kind of billion dollars in data center revenue here over the next few years. Could you talk about the current capacity coupled with kind of Memphis coming online permit you to do that? Is there more you need to spend to get there? And then also just a refresh on the timeline that Memphis asset becomes available to you.

Yeah. Go ahead and think of, yeah, when you think of kind of the total capacity that will be in place, I mean, obviously, within the Redmond segment, you know, we sort of said that in the below to mid $200 million was really kind of where that facility we thought is from a capacity standpoint. We have the Longview facility that we have added. And, you know, if you really just look at that from a potential capacity of that facility, it is, you know, more than 2x the space dedicated to data center production compared to Redmond. So more or less double that. And then Memphis is basically equal to the combination of those two. And so you start looking at that, and you are talking about overall capacity sitting in the, you know, $1 billion to $1.5 billion range once that is online. So the capacity investment in Memphis is really to support that objective that we see with headroom and with on top of that. In terms of when it comes online, you know, we look at Memphis, and we will be honest, we are aggressive at trying to get production pulled to push out of there. We actually built the first units at the beginning of the month in February. I say that with excitement, but also caution because, obviously, when we say we built units in Memphis, we really assembled units in Memphis. And so we had a lot of parts coming from a lot of places but really working aggressively to ramp that facility up so that by Q4, the equipment, the support equipment, and the team is really built out to be running not at that full capacity, but definitely with a meaningful impact to financials by the end of the year.

Got it. Really helpful, Matt. Maybe just on Basics, I guess, specific to the Oregon facility. Just sounds like you just essentially have some things to work through in efficiency right now. Could you just clarify when you think that business sort of returns to the margins you sort of expect out of it?

Yeah. I mean, in that segment from, you know, today's reporting perspective, we expect we are going to see sequential quarter-over-quarter improvement in margin throughout 2025. The reality is there is just when you attempt to put too much product through a facility, there is actually a negative implication versus a positive in terms of your ability to effectively manufacture. And the incredible demand for the product, and really the target for us to deliver on expectations from a lead time and a shipping perspective, we push that facility very hard to turn products to customers. And productivity, in terms of the number of units produced, was certainly up that last quarter, but it felt strange, obviously, from it. It resulted in strain from a financial perspective. So we really think throughout the calendar year, we are going to see improvement. And getting into 2026, we are going to be getting closer to being in that normalized margin rate that we are targeting.

Got it. Just last one, Matt or Gary, I guess, you know, we are sort of two-thirds the way through the first quarter. I just want to come back to rooftop. And could you discuss the order visibility you are starting to see for the new product? Is it still a wait and see? In terms of that coming in, excuse me, the new refrigerant product? I am just trying to get a sense since we are

It is a good way to order? No. It is beginning to accelerate. We were in Orlando at HR just visiting with a lot of our sales channel partners. We did not have any display there. But the general tenor was we are going to be seeing increasing orders on the normal seasonal basis that we had in years back. So I guess the way to frame that up is we are confident that we have got the right product at the right price for the rooftops. And we will reassume our growth profile here shortly.

And just to add one piece to that too. You know, in the prepared remarks, I want to just kind of reiterate one comment we made, which is when we look at the three months ending January 2025, compared to the year previous, November, December, January bookings, they are up mid-teens year over year. And so the, you know, the normalization, like, growth profile in there is certainly starting to reassume. And kind of tells you where we are at from a competitive perspective marketplace. Where we caution that Q1 softness again really is about backlog conversion. That booking cadence does not really start hitting, as Gary mentioned, on the first question, until the latter part of Q1. And really makes a meaningful impact into Q2. So we definitely see that product positioned well. It is just getting past that refrigerant transition to get the sales back to a normalized growth profile.

And just to add one more thing to that, going back a few years ago, when we will say the markets were relatively normal with lead times, bid activity, and so forth in their seasonality, we would see in the range of 20% variance from the low to the high. And the bookings always led that by a process and on that bookings time frame. That converts into units in Q2. So that historic roughly 20% seasonality increase for Q2 and Q3 looks to be valid once again.

Alright. Really helpful, caller. Thank you, guys.

Thank you. And your next question comes from Julio Romero from Sidoti & Company. Please go ahead.

Good morning. This is Alex Handman on for Julio. Thanks for taking questions. I know we spoke about, you know, more efficient models driving more data center demand. I was curious if you could talk a little bit about demand for sensor data centers. Know those are, you know, typically a little bit better suited to liquid cooling. So we would just love to have your take on that.

Yeah. Certainly, in the data center space, really around the model development side, so the machine learning aspects of AI. That is pretty much all higher density compute that is basically producing those models. And so that higher density compute is pushing everything towards liquid cooling from a server perspective in that space. I always like to really make sure we hammer this home because I think it is a little bit misunderstood kind of in the overall market perspective. But even when we have a true pure play, as we would call it, liquid-cooled data center, which is what we are supporting with that Longview product. There is still a great amount of air-side cooling required in that data center. And so it drives growth. That investment in AI, that investment in the machine learning side at higher densities is driving growth both in liquid cooling and air-side cooling. But definitely, yeah, we are seeing a huge push into higher densities within that AI.

Great. Thank you for the color. And I know we talked a little bit on the call about, you know, decarbonization and that sort of end market potential. Previously, I think you also mentioned, you know, clean rooms. Could we just get a little bit of an update on, you know, the development of that end market?

Yeah. The premium product is, okay. We are market primarily in any data center a Basics driven product. So a lot of products from the Basics brand have gone into the clean room space both in the semiconductor, the pharmaceutical, as well as the EV and battery production facilities. I would say just as a macro perspective that market has been a little bit lumpy. And so it definitely has, you know, some ups and downs from a quarter-by-quarter productivity standpoint. Those projects tend to be large-scale programs and they are not quite as consistent in growth rate as data centers. And so you definitely see a little more volatility in the orders, bookings, and conversion. But we continue to see strong investment in the onshoring within the chip market as well as the build-out of battery facilities that we are seeing that we continue to support.

Great. Appreciate the color there. We will jump back in queue.

Thank you. And the next question we have from Timothy Wojs from Baird. Please go ahead.

Hey, guys. Good morning, everybody. Maybe just on, you know, Gary, on pricing with the new R454B system. It sounds like you took some price in Q1, but really just to kind of offset inflation. So could you just kind of articulate where you are in terms of the strategy around what you are going to do with price specifically for R454B?

Yes. We are going to monitor it a bit longer. We would like for bookings to strengthen a bit before we hit a price increase that could potentially be related to R454B. I think with the uncertainty of the impact of tariffs, there may be price increases to offset additional costs for that. They may not be R454B specific. But we will be monitoring that. We have a lot of capacity room in the Tulsa facility where we build the rooftop units, which is primarily where the R454B impact is at. And we want to get that plant loaded back up strongly. And if we have an opportunity to increase our price and thus our margin as a result of what others have for pricing pressure related to R454B, then I think we would very likely do that. You know, it is interesting I tried to figure out where their cost that they are declaring for R454B might be occurring. And I said early on that the monitoring and mitigation device, the refrigerant leak monitoring mitigation device that is required for R454B units, was something that we had invented in our own facilities and invented one for us. Perfected it, got it UL certified, and we are manufacturing it at a very low cost relative to what we could go purchase them for. Presumably, others are buying that component as opposed to having developed their own. At this point in time. One or two others on their calls have cited that device being one of the reasons that they have gone up. So, you know, I applaud our team for being innovative enough to come up with that device early, get it developed, get it certified, and put it into our system at a very advantageous price. So that was one of the areas that I have seen others cite as to their price increase. And so that explains a little bit why we do not need the price increase possibly, and they do. But I want to make sure that we get strong bookings. And once we get the bookings cadence going the direction we need to go, then we will look at being a bit more opportunistic and price increase.

Okay. That is helpful. And then I guess just from a, you know, is there a way to kind of quantify any of the inefficiencies with some of the increased capacity at Longview and just some of the inefficiencies that you saw at Basics? Like, is there a number that you can put on it in terms of what those costs were in the fourth quarter and in 2025?

Well, I will take the first stab at this and then let Matt fill in a few more details. While we were ramping up and while we are ramping up, Longview, there are certain things that we build and produce internally that we did not have enough capacity yet to produce because the new machinery was still coming online. See, we were outsourcing, we will say powder coat would be one of those in particular. We did not have a powder coat facility in Longview, so we were outsourcing that. Well, you can visualize making all these big panels and they are fairly large pieces of sheet metal, boxing them up, shipping them down the road even though it is only a few miles, but you still have the logistics of doing that, having them powder coated, bringing them back, a certain percentage of them are damaged, not usable because of the transportation logistics. And then just the overall inefficiency of that process. So that was one in particular. In Memphis, as Matt spoke to earlier, we produced units there but we have no manufacturing equipment yet commissioned and operating there. So it is strictly assembly. So we have either built components at other existing plants that we own or in some cases, we have outsourced some of that as well and brought in. And we did that in order to meet our delivery requirements with some of those clients. So the combination of the two puts pressure on the margins. But, Matt, go ahead and tell more about, you know, Redmond in particular.

Well, I also want to touch on one more thing in the Longview space. And really, with the growth rates that you see in Q4 in Longview and really what we are talking about seeing basically Q2 and Q3 with all the ramp-up for production, you also have a lot of pressures in the fact that you need to onboard and train personnel ahead of when you are producing. And so all of that basically puts strain from an indirect overhead perspective as you are basically getting those team members up to speed and efficient in production. So all of that creates margin strain. That definitely as we get to the volumes and we are in a more normalized state in Longview, you will definitely see margins improve from a reduction of the inefficiencies and the extra labor cost, also just fundamental leverage. You are going to get a lot of leverage in overhead as we get to some of those higher volumes. So Longview definitely going into Q2 and Q3 is going to see some great improvement in overall margin. In Redmond, yeah, to Gary's point, similar to Memphis, similar to Longview. With the demand and the product we were trying to get through, we just had to leverage an outsourcing as well as a lot of just inefficiencies and basically getting projects out the door from a delivery expectation to our customers. You know, there is one thing that we hold really, really strong and that is monitoring our commitments to our customers. And so sometimes to get deliveries out when we are a little bit behind, it takes a little bit extra work, aka costs, to get that done. So we have leveraged outsource partners inside the Redmond space as well and some logistics just trying to get all of that product produced that was expected. We have and we are kind of really at a point where all the equipment that was getting installed in Redmond is now installed. It is now operational. And really now we start to get the incremental leverage of efficiency off of these equipment installations. So really as we look forward, we do see kind of quarter by quarter improvements in that Redmond segment, getting all that outsource and inefficiency behind us, getting the equipment performing to expectations. And then really the great part is, you know, we have made the decision that Redmond is going to get to a certain point in terms of its overall throughput capacity, and we are going to basically maintain that. It is not going to be a continuous growth driver, which means we then convert from a capital program to efficiency programs. And so there will be a lot of effort throughout 2025 to drive efficiency and therefore drive margin improvement throughout the calendar year.

Okay. That is helpful. And then I have two other ones. Just the first is, what is the year-over-year increase in D&A going to be just given the CapEx? And where does that kind of land? And then the second one is just given the data center reporting in terms of where the stuff is landing from a production perspective. I mean, I think it is actually pretty difficult for investors to kind of follow what is going on. So is there a potential or a thought process about maybe just kind of having the rooftop business be a segment and then having data center be a segment? Because I think just some of the complexity of the reporting right now is kind of weighing a little bit on what is happening.

So tell you what, I will answer your second first because I know Rebecca is going to get you the solid answer on the D&A. So on your second question, I mean, that is exactly why we announced the reorg kind of into the business unit philosophy going into 2025. We have some limitation in our systems today to allow the full reporting of that. But as we get through 2026, our goal is to do exactly what you are asking, which is to do financial reporting really around the AAON business unit, which is the rooftop and the commercial split systems. And then reporting around the Basics segment. And in doing so, you will be able to understand the Basics revenue across and basically the drivers of revenue and profitability that comes from all of our production sites. And so that is definitely a target for the end of 2025 going into 2026. To get very easier to understand financial reporting around all those segments.

Okay. And then Rebecca.

Yeah. So can you repeat your first question? Just so I believe it was about D&A?

Yeah. Yeah. Just what is the because I think D&A in the like, if you look at the queue, I think the D&A number was probably up $6 million or something like that, $7 million year over year. I guess, what is that supposed to be up in 2025 as you bring on Longview? And Memphis? And just where does that land on the P&L in terms of SG&A or costs?

So it is going to land in both cost and SG&A. A lot of the Memphis D&A, that is going to be mostly in your cost of goods sold. And that is part of the drag on the gross margin that we alluded to in the earnings call. As far as, like, some of the fixed costs that are happening before we have the revenue. But we also have, as we have kind of also noticed, or alluded to in many of the calls, investments in some of the back-office technology. Catching up and doing automation. So you are going to see continued increases in D&A within the SG&A portion of the income statement as well related to those investments. So I would think that the increase in D&A in the next year could be consistent with our increase in sales.

Okay. Sounds good. I will talk to you guys in a bit. Thank you.

Thank you. Alright. So I do not see any further questions at this time. I will now hand the call over to Joseph Mondillo. Please go ahead.

Alright. Thank you, everyone, for joining today's call. 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.

Thank you, ladies and gentlemen. Today's conference call has concluded. You may now disconnect.