Q4 2023 Aaon Inc Earnings Call
Participants
Joseph Mondillo; Director - Investor Relations; Aaon Inc
Gary Fields; Chief Executive Officer & Presiden; Aaon Inc
Matt Tobolski; Chief Operating Officer & President; Aaon Inc
Rebecca Thompson; Chief Financial Officer, Vice President - Finance & Treasurer; Aaon Inc
Chris Moore; Analyst; CJS Securities, Inc.
Julio Romero; Analyst; Sidoti & Company, LLC
Brent Thielman; Analyst; D.A. Davidson & Co. (Research)
Presentation
Operator
Good afternoon, ladies and gentlemen, and welcome to the AAON, Inc., fourth-quarter 2023 earnings conference call. (Operator Instructions) This call is being recorded on Thursday, February 29, 2024.
I would now like to turn the conference over to Joe Mondillo. Thank you. Please go ahead.
Joseph Mondillo
Thank you, operator. And good afternoon, everyone. The press release announcing our fourth quarter financial results was issued after market close today and can be found on our corporate website, AON. dot 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.
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 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 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 10 Form 10 K 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 will 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 Gary Fields, CEO; Matt Tobolski, President and COO; and Rebecca Thompson, CFO and Treasurer. Gary will start the call off with some opening remarks. Matt will then provide some details about our operations and market trends. Rebecca will follow with a walk through of the quarterly results. And before taking questions, Gary will finish with our 2024 outlook and closing remarks.
With that, I will turn over the call to Gary.
Gary Fields
Thanks, Joe. And thank you, everyone, for joining us on our call today. If you will, please turn with me to Slide 3. Overall, we're very pleased with our 2023 results. 2023 marked our 35th anniversary as a company, and it lined up with some outstanding achievements. Most notably, we surpassed $1 billion of sales for the first time in company history. Net sales in the year grew 31.5%, which followed a year in 2022 when we recorded organic growth of [46.8%] over the last two years, organic volume was at 46.6%, including being up 14.5% in 2023.
This is incredible performance for this industry, along with the strong sales growth, we recognized solid margin expansion in 2023, reflecting not only the operating leverage from the increased volume, but also significant enhancements and operational efficiencies. Net income for the year grew over 75%, resulting in a second straight year of record earnings. It's 2021. We have more than tripled net income, all together, I'm very proud of how our team performed in the last calendar year.
Please turn to Slide 4. We finished the year with strong results. Organic net sales in the fourth quarter was up 20.4% and gross profit was up 42.3%. Our basics segment realized a record quarter, both sales and profits. Net sales in the segment were up 33.6% and gross profit was up 70.3%. Aaon Oklahoma also performed very well. Net sales of this segment were up 23.4% and gross profit was up 45.3%.
Gross profit margin for the Company came in at 36.4%, up year over year, nearly 560 basis points and down only modestly from the seasonally strong third quarter. Despite the impact that Holiday's had on productivity in the fourth quarter, we were able to further improve operational efficiencies on top of the gains we recognized in the third quarter. This resulted in our strongest fourth quarter of earnings in company history. Bookings and backlog also trended positively in the quarter. Bookings were up quarter over quarter for the second straight quarter and were the strongest since the first quarter of 2022, but also outpaced production resulting in a quarter-over-quarter increase in backlog. All around it was a strong finish to the year.
Please turn to Slide 5. 35 years ago. Our founder norm is Bjørn Hansen created Aon with one mission to manufacture the best HVAC equipment in the world for the best value at the time, the total addressable market for premium semi-custom equipment was very small as much of the market consisted of basic equipment.
This wasn't because the commercial real estate market was not interested in more sophisticated equipment. It was because of the exorbitant price that premium equipment carried to be competitive. Norm determined it required a revolutionary engineering and manufacturing process compared to common industry practices at the time it has taken the Company decades to perfect this unique way of manufacturing. Currently, our equipment is the most price competitive than it's ever been. At the same time, we continue to lead in the innovation performance and quality.
This progression has expanded our total addressable market across the HVAC industry. Immensely secular trends such as decarbonization, electrification, driven by market demand shifts and new regulations has expanded our total addressable market even more not too long ago, Aon was known as a niche player in this industry. Being competitive on price has led to us being a mainstream solution.
As I previously mentioned, Northern's mission 35 years ago was to provide the best HVAC equipment in the world for the best value. That mission remains true today and the value of the equipment has never been more compelling.
I'll now hand over the call to Matt Tobolski, who will speak more in depth about our operational strategy.
Matt Tobolski
Thank you, Gary. If you turn to slide number six last November, we issued a press release announcing several changes to the management structure of the Company. It's been a couple of months since making those changes, and I wanted to start off by providing you with an update.
Historically, Air has had two locations with the vast majority of sales being generated out of our flagship Tulsa location. We now have a location in Parco, Missouri and with the acquisition of basics location in Redmond, Oregon. Over the last year or so, we began integrating common departments across all locations. The goal was to promote collaboration and the sharing of best practices with the intent of maximizing the operational sophistication of the company.
These recent organizational changes will accelerate this integration process as well as improve our ability to manage the overall enterprise. Furthermore, the locations are beginning to overlap operationally. One notable example of this is allocating some basics production to our Longview, Texas facility. This began last year, but it will escalate upon the completion of our Longview manufacturing expansion project, which is expected to be complete by the end of this year.
These leadership changes will be a huge benefit as production across locations for the merge two months into the change, I can be none competing. I could not be more pleased with how things have progressed in a short period of time, the teams have never been more collaborative and more energized. I'm confident that these changes will have a meaningful impact in the near term under our current footprint, although just as important, you should be aware that the intent of this is with long-term in mind, these changes will better position us in the future to grow out of the current footprint in the most efficient way possible.
If you will, please turn to slide number seven. I want to touch on some of the main traunches of our operational strategy. As you can see, we have a multifaceted approach when it comes to driving growth. This includes investing profits back into the business, incrementally providing support to our sales channel, developing market-leading products, leveraging secular market trends and focusing on expanding our parts business.
We have several large capital outlays that we are currently in. The process of making capacity is being increased across all four of our locations. The two main projects are at our Longview, Texas and revenue, Oregon facilities. In Longview, we are increasing manufacturing square footage by roughly 50%. This is slated to be finished by the end of this year. And at Redmond, square footage will increase by approximately 15% with it's expected to be finished by the end of third quarter. Both projects will yield much larger percentage increases in sales capacity due to expected increases in productivity.
We have several other ongoing projects and one that I'd like to highlight is the fact that we're building an additional training academy at our Tulsa location. This will be a state-of-the-art facility that will be utilized to train and certify our reps. This is expected to be finished in early 2025.
Now trend was transition to our sales channel. As we've spoken to you in the past, we have never been more aligned with our channel partners and have never provided them with as much support and resources as we do today, building this new Academy in Tulsa as a perfect example. Likewise, last year, we hosted the grand opening of our exploration Center, a one-of-a-kind facility at our headquarters that showcases our products alongside market alternative equipment.
This is a powerful resource for our sales reps to utilize to help sell the value proposition of a on equipment, a value proposition that is apparent once the customer walks through that facility, something that we've also beginning to focus on much more is what we call the complete customer experience historically and was primarily product development company solely focused on designing and manufacturing some of the best HVAC equipment in the world like continue to hold true to that reputation, but we want to also be known for providing a premium customer experience from day one of the sales process through the entire lifecycle of the equipment, including installation, operation and maintenance.
This is an opportunity and one that we're now addressing and adding resources to take advantage of. We're also investing in sales and marketing marketing is something that a hasn't previously spent a lot of resources on, although our premium equipment now offers the most compelling value than ever, and it's still a small company in an industry with a much larger players and brands.
We think that small investments in marketing will go a long way for us by getting our name and brand out there more and educating the market about the attractive value proposition of our premium equipment. We expect it will assist our sales reps success in penetrating the market quicker. This is just another example of how we are incrementally providing support to our sales channel partners.
Earlier, Gary mentioned that one of our core missions is to design and manufacture the best HVAC equipment in the world. As we enter 2024, we are leading the industry with two product developments. First, we have been accepting orders for new for 54 b. refrigerant equipment since January first, most of the industry won't be offering new refrigerant equipment until the second half of this calendar year.
Second, last year, we introduced our newly branded ultra-class equipment, the ultra-class and air source heat pump powered rooftop unit that is operable down to zero degrees Fahrenheit. No other competitor in the marketplace has such an offering most other air source heat pumps on the market today are operable just down to 25 to 30 degrees Fahrenheit, giving us an advantage and has ever really ever increasing part of the market.
Sales of this equipment still making a small percentage of the total sales, but bookings in the second half of 23 and three have nearly doubled when compared to the first half of the year for alpha products. So there's solid momentum thus far. We expect our Alpha glass to fully leverage several of several secular trends that a and has already been benefiting from. Again with an increased focus on decarbonization, electrification and energy efficiency as well as the accelerated impact from government regulations and superior performing highly energy-efficient equipment is well-positioned to take advantage of such trends.
Lastly, I want to touch on a on parts and service. Normally, we don't talk much about service because a and doesn't have a direct service business. However, our reps do provide service that we indirectly benefit from. As we touch on parts, our parts business will be one of our fastest growing business segments going forward will also be our most profitable business parts sales grew 26.3%.
In 2023, and we anticipate a strong double digit growth rate in 2024. We are making several investments to help support this growth. In 2023 parts made up 5.8% of total sales. And we think that we can double this portion of the business in three to four years at which time it should represent closer to 10% of sales.
Now let me touch on service. As part of our initiative of improving the all around customer experience, we intend to be much more focused on making sure our reps are providing a premium level of service to our customers like most OEM rep firms in any other industry. Our reps know the equipment and the customer more than anyone else in the field. As such to provide the best customer experience, we will instill upon them to provide the best service possible and was offering in the end, our customers' interests as well as our business and brand will benefit substantially.
Before handing it off to Rebecca, I will close with this. I'm extremely extremely proud to be part of and help lead this organization. While the growth we realized over the last two years has been incredible, there is still a lot of work to be done to realize the full potential of this organization. The team has never been more energized, and I look forward to continuing to build upon what we've already accomplished.
And with that, I will hand it off to Rebecca, who will walk through financials.
Rebecca Thompson
Thank you, Matt. I'd like to begin by discussing the comparative results of the three months ended December 31st, 2023 versus December 31st, 2022.
Please turn to Slide 8. Net sales were up 20.4% to $306.6 million and $254.6 million. Along with a healthy backlog that we entered the quarter with increased productivity resulted in volume growth of 9.3%. Adjusting total sales for inflation on a per day per production employee basis, sales in the fourth quarter were the best in over two years, reflecting the recognized productivity gains.
Pricing was largely the other contributor to growth. On a per segment basis, basics net sales in the quarter grew 33.6%, Aaon Oklahoma grew 23.4% while Aaon coil products declined 17.9%.
Moving to slide number 9, our gross profit increased 42.3% to $111.7 million from $78.5 million. As a percentage of sales, gross profit margin was 36.4% compared to 30.8% in 2022. The year-over-year improvement in gross profit margin was driven by incremental pricing, improved productivity and higher volumes leveraging our fixed costs.
Please turn to slide 10. Selling, general and administrative expenses increased 49.8% to $47.9 million from $31.9 million in 2022. As a percentage of sales, SG&A increased to 15.6% of total sales compared to 12.5% in the same period in 2022. The increase in SG&A was due to higher warranty expense and profit sharing expenses from our increased sales and earnings. Other increases are a result of increased depreciation and amortization and consulting expenses related to investments we're making in back-office technology.
Moving to slide 11, diluted earnings per share increased 19.1% to $0.56 per share from $0.47 per share. This marked the strongest fourth quarter of EPS in the company's history.
Turning to slide 12, you'll see our balance sheet remains strong. Cash, cash equivalents and restricted cash totaled $9 million at December 31, 2023, and outstanding debt on our revolver at the end of the quarter was $38.3 million. Within the quarter, we paid down approximately $40.1 million on our line of credit lowering our leverage ratio to 0.15 from 0.33 at the end of the third quarter and down from 0.46 at the end of 2022.
We had a working capital balance of $282.2 million at December 31, 2023 versus $203.5 million at December 31, 2022. Capital expenditures in 2023 were $104.3 million, up 93.1% from a year ago. As Matt addressed, we have several large capital projects that will increase production capacity, improve productivity and support future growth.
Several of the projects from 2023 will carry over into 2024. This will make for another heavy CapEx year. In 2024, we anticipate capital expenditures to be approximately $125 million. We consistently engage in a rigorous analysis of our capital projects. All the projects included in the budget will help our growth generate very compelling returns.
With that, I will now like to turn the call back over to Gary.
Gary Fields
As I stated in my opening remarks, bookings in the fourth quarter improved sequentially for a second straight quarter and output outpaced production in the fourth quarter as a result, we realized a modest quarter-over-quarter increase in the backlog year over year. Backlog was down modestly, but this was intentional to rightsize lead times for several months.
Now our lead times have been back to normal. Conversely, much of the industry still seems to be focused on bringing lead times down from elevated levels. Overall, market environment seems to be resilient despite what the headlines and some of the macro economic indicators have been signaling for some time. Now month to month, bookings have been steady and sentiment amongst our sales channel remains positive.
Furthermore, the pipeline of large projects, particularly at our basics today on core product segments, is robust. Certain verticals such as data centers, manufacturing and education remain strong while some of our traditional markets such as office buildings and retail are soft. The nonresidential construction market seems to be slowing as a whole, but it's definitely bifurcated in addition to a slowing construction market there's the uncertainty of how the market, especially the replacement market will behave related to the refrigerant transition so far, two months into this year. This doesn't seem to have had an impact yet.
That said, we still anticipate for at least a short period of time in the middle part of the year that some customers may choose to delay replacing their units waiting for new refrigerant equipment. If this does happen, we have much bigger impact to the overall our overall market than to us as most of our equipment has been configurable with the new refrigerant since January 1st of this year. Given that we are in an advantageous position, if the market chooses to shift to new refrigerant equipment early in the year, there's also a possibility that much of that market overlooks the long-term maintenance cost of buying equipment with the old refrigerant.
And we see a much more muted effect either way we are prepared with respect to manufacturing capabilities and with respect to our supply chain of the new refrigerant components, all considered, we anticipate 2024 will be a slower growth year than we've experienced in the last couple of years. Not only do we have tougher comps that we are facing, but the economy and the nonresidential construction sector is softer than a year ago.
Turning to the outlook, please turn to Slide 14. For 2024, we anticipate pricing will be a mid single digit contributor to sales growth and we look for volume growth to be in the low single digits. We'd expect gross margin will be up year over year, mainly due to the favorable comp in the first quarter for SG&A as a percent of sales. We look for these expenses to be modestly up compared to 2023.
As Rebecca stated, CapEx will be in the $125 million range. I would also like to remind you of the seasonality that we typically see in the first quarter. We expect both sales and earnings in the first quarter will be down when compared to the fourth quarter of 2023. Year over year, we expect both sales and earnings in the first quarter to be up modestly.
In closing, I want to finish by thanking all of our employees, sales, channel partners and customers also want to announce that we will be attending Sidoti & Company's virtual Small Cap Conference on March 13, Wolfe Research's Small and Mid-Cap Conference in New York on June 4, and Wells Fargo's Industrials Conference in Chicago on June 12. I hope to see some of you at these events.
Thank you. And I will now open up for Q&A.
Question and Answer Session
Operator
Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. (Operator Instructions)
Chris Moore, CJS Securities.
Chris Moore
Hey, good afternoon, guys. Congratulations on a another incredible quarter. It looks like big basics is really kind of hitting on all cylinders. I wonder if maybe we could we can focus on the data center market a little bit. So I know you had in the past you have broken out addressable market, roughly $30 billion data center, cooling being about $6.5 billion of that AI is driving data center growth rapidly over the next 5, 10 years.
I wonder if Matt, you just talked about a little bit. It sounds like what you're seeing from from on the AI front and kind of what areas that you are especially well positioned for right now?
Matt Tobolski
It's a fantastic question Chris. And certainly data centers as a as a whole market is certainly driving a tremendous amount of growth within a I'm just kind of as a data point, just above 10% of our revenue in 2023 came from the data center market, and we're in that same period. Over 20% of our bookings for new orders came out of data centers. So strong, strong demand being pushed from that marketplace kind of within our business.
And as we look forward, we're well positioned from a product perspective and relationship perspective to really support the kind of broad data center market. So we are actively involved in more traditional kind of airside cooling solutions, but are also very, very actively engaged in liquid cooling applications kind of being driven by that identity AI application.
So as we look forward, a lot of that capital investment, we talked about a lot of the kind of growth we talked about within the A. on coil products group out of Longview is actually going to materialize kind of in the in the mid term is going to materialize being primarily data center products. So we're making the investments kind of across the fleet to really support this marketplace and as well as kind of the product development efforts to really be well positioned from a solutions perspective.
Chris Moore
Got it. Very helpful. And just I think Gary kind of hit on this from a from just a general visibility standpoint. And when you see where you are today versus this time last year, significantly different or similar? And anything that that has changed over the last three to four months that that you're seeing now you might not have seen then?
Gary Fields
Go ahead, Matt.
Matt Tobolski
Yeah, I can say just for me kind of what's changed over the last three to four months. I mean the market dynamics, we certainly had plenty of plenty of conversation and kind of macroeconomic indicators. And we've talked about in the last three to four months and really still see it today that a lot of the trends that some of the indicators are kind of putting out there. Really the market is a little bit stronger and basically resilient against some of those indicators.
So we continue seeing and we don't see the slowdown that some of those indicators are kind of alluding to. We certainly see some softness in the marketplace, but really kind of over the last three to four months compared to today. We are still seeing that kind of strength in the markets. I would say, you know, certainly as we talk about the data center market in particular, we certainly three to four months ago and really compared to this time last year for sure, are seeing an acceleration of investment.
I mean, we definitely are seeing the amount of investment being made in that sector continuing to accelerate and really and driving a lot of growth in the overall HVAC market as a whole, which again, we're making the investments in ensuring that we have the product that really properly position us to be successful there. But I'd say no, no real major changes in the overall landscape in that last kind of three to four month timeframe.
Gary Fields
I'd like to add just one. HRI furnishes data to us indicating what the overall market is and then what our market share is the overall market that has continued to soften just a little bit, but our market share continues to increase and this has been many quarters in a row that is terrific and any specifics that you could add there?
Well, again, I would say that they're in the mid sized tonnages and larger for four unit sizes. The two through five, 10 units is preponderance, all rooftop units manufactured as far as number of units, and we have a small percentage of that once you get up in above five times, but particularly 20 to 40 tons, our market share becomes very, very substantial.
Chris Moore
Terrific. I will leave it there. I really appreciate it, guys.
Operator
Thank you. Julio Romero, Sidoti & Company.
Julio Romero
Hey, good afternoon, everyone. You mentioned you've already begun accepting orders for equipment that can use the new refrigerant as of January 1, I believe. When do you expect to begin delivering those orders? And how much of the sales guidance is driven by that new equipment? It uses the new refrigerant?
Matt Tobolski
Yeah. From a from a kind of quantity of orders received. I mean, we just kind of opened up the opportunity to place orders kind of at the beginning of January. So we have certainly started to see orders being placed with the new refrigerant, those from a delivery perspective are going to be kind of more in the end of Q2 kind of timeframe, just from an oil component availability perspective, it's a little bit more extended lead time compared to 14 A. products, but and does it start converting to you to shipments in that kind of Q2 timeframe?
You know, Gary mentioned kind of in the main narrative, the there's certainly a lot of uncertainty around exactly how the adoption or kind of timing of adoption of the new refrigerant equipment is going to kind of come into play throughout the calendar year. And I think that again, due to the point, we certainly see ourselves best position from a ability to deliver both the 14 A. and 54 B products.
I'm kind of within that, I'll say, noisy period of kind of middle of the year. And so while we do see potential for some noise to kind of be in that mid-year order trend driven by the changeover. We certainly have the product portfolio to support it, and we expect to see increasing sales conversion, obviously as we progress through the year, but definitely kind of in the latter half of the year expect to see a substantial contribution from new refrigerant equipment orders.
Gary Fields
I want to add just a little to that. Our extremely close relationship with our sales channel allows us a lot better view of what the customer is looking to do with regards to this refrigerant change. And so I feel like that we can pivot and respond very quickly and have the appropriate inventory of these components ready to go as a result of that.
Julio Romero
Okay. Understood. Deliveries begin 2Q. You guys kind of expecting some delayed replacement happening in the back half and maybe orders accelerating some, but that would benefit 25 from a delivery standpoint?
Matt Tobolski
Yeah. I mean, certainly 25 Is it that kind of lead up in the second half. But to your point, we do expect to see kind of that velocity really accelerating in the second half of the year from orders and really conversion to sales as well.
Julio Romero
Okay. Got it. That's helpful. Matt, you talked about the capital investments into Longview and Redmond that should be finished by 4Q and 3Q of this year. Any way to help us kind of conceptualize how much increased capacity results from those investments?
Matt Tobolski
Great question, Julio, and I'll say it's a very product mix dependent answer to that. But the investments that are being made are being made with the ability to to really capitalize on the large volume growth within data center sales. And so I would just leave it at with the product mix potential, in other words, kind of low variability high volume data center solutions. There is a substantial upside potential kind of relative to the investment cost or relative to the capacity increase from a square footage perspective, I'm kind of given that product mix potential.
Julio Romero
Got it. Very helpful. I'll pass it on. Thanks very much.
Operator
Thank you. Brent Thielman, D.A. Davidson.
Brent Thielman
Hey, great. Thanks. Gary or Matt, can you just update us on the pricing strategy? I think you are out with 1% increases a month can be where you're at today and where you plan to go going forward?
Gary Fields
Sure. I'll take that one real quick. So we began those. Let's see, I think it was October, October, November December, January, February -- yeah, we began those October first and we continued through February first. And at this point in time, we don't have any direct intent of continuing.
Now we reserve the right to change our mind should something change in the world. But as we see it right now, we've secured the gross margin targets that we intend to maintain. And while our gross margin might vary little because of volume and absorption of fixed cost. It's not we're not having any problems with labor or material costs beyond what we had already estimated recovering with those five one percenters. So at this point in time, I think we're good to go for a while.
Brent Thielman
Okay. Gary, any rough sense of where that kind of bridges relative to the industry from a pricing perspective. I know you've talked about that in the past. Where does that sit today from where you can see?
Gary Fields
Well, I don't have anything different than what I've been saying that we used to be around 15% as a result of the 2020 free of energy standard, where everybody had to come up closer to us or we were still above that standard, but they had to come up very close to us and there was cost associated with that. So that narrowed the gap to somewhere around 8% to 10%, probably closer to 10.
We'll have some empirical evidence of that here very, very soon because a lot of school districts will position their bid document sets, it does say basis of design base be it is a on give us an add or deduct for these other manufacturers. And that's one of the primary places that we pick up real empirical data on that. We get some other more subjective data from our reps.
They'll say, well, we got this job and the best that anybody could align with us was X and this looks like what our premium was, but oftentimes the bill of materials doesn't match real well. So let's say it's a bit subjective, but we're still thinking we're around 8% to 10%. Now we had the conversion to our fit to 4b or call it the new refrigerant because they can choose an R. 32 as my understanding home.
There are some manufacturers that have been very open about the fact that they're going to have to charge more money for that. We've been equally open about it that we don't see that in our materials cost or development cost or anything like that. So at this point in time, we don't have any change in price to go from 14 eight, four, 54 b. So if these other manufacturers have additional cost to do that, that could narrow this gap just a bit more.
Brent Thielman
Okay. The mid single digit price expectation for this year is reflective of what you've done to date?
Gary Fields
Yes.
Brent Thielman
Maybe there's upside if you decide to resume. Got it. Okay. And then you back back on basics, I mean data centers face growing very nicely. It looks like the clean room systems are a little slower and just kind of parsing through the different product lines. Is that a function of you allocating more resources to the data center market right now, just given how strong it is, is it just timing? And I guess is there any line of sight with the CHIPS Act to see that part of the business accelerate?
Matt Tobolski
Yeah, we certainly saw the the kind of semiconductor clean-room market kind of conversion of the kind of new new facility construction be slower than kind of was originally expected. So we've definitely seen that investment be a little bit slower out of the gate. But certainly on the data center side, one of the advantages of data centers, kind of ability to grow from a revenue perspective is the kind of single design, high repetition that allows us to really scale that production up faster.
And so we're really able to kind of optimize manufacturing processes and really drive efficiency and productivity kind of with that product type. So kind of that has really helped kind of the combination of those two factors has really helped kind of the data center market really outpace the cleaner market within the basic segment from a growth perspective.
Brent Thielman
Got it. Thanks. Matt. And then just the last one, the coil products division or Longview, I think you've had maybe some inefficiencies there just this year, sort of implementing basics. Obviously, you've got a huge expansion you're working on. I'm sure that's created a few things to work through what what's embedded in this outlook for this year, just in terms of that division?
Matt Tobolski
Yeah, with that I mean -- just from a very valid point from a standpoint of there's a lot of stuff going on down within the Longview facility itself. As we look at kind of converting a lot of these investment efforts there. They're definitely not a flip a switch. And so as we look at bringing online the new facility expansion and moving some more basics production lines down to that facility that really from me 2024 perspective is not going to materialize, huge impact in the numbers that investment and that real growth is going to really materialize in 2025 revenue and sales.
And so really the 2024 outlook or at least the kind of expectation, not a long view is growth. But definitely not the dynamic growth. We expect when a lot of that capacity comes online and we can really, really start bringing in some more production capacity in the data center market and meaningfully impact the results there.
Brent Thielman
Got it. Understood. Thank you.
Operator
Thank you. (Operator Instructions) There are no further questions at this time. Mr. Mondillo, please proceed.
Joseph Mondillo
All right. Thank you, everyone, for joining on today's call. If anyone has any questions over the coming days, and weeks. Please feel free to reach out to myself. Have a great rest of the day, and we look forward to speaking with you in the future. Thank you.
Operator
Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you all for participating. You may all disconnect.
