Now BASX, on the other hand, I’ll let Matt talk to that specifically. I think I’ve got a good grasp on it, but I’d like for him to go with that.
Matt Tobolski: Yes, very much in the BASX side of the business, there certainly still is a cost premium for the product, but much the same as legacy AAON products. We’re selling a value-driven product. And so typically, it is beyond just first cost and overall investment from a quality and efficiency perspective that kind of drives the value proposition of the product. And other huge drivers is the ease of implementation, the kind of project management and implementation of the product provides a huge value for the overall customer in terms of fees and time line with installation and basically getting up and running four facilities.
Gary Fields: Yes. Well, I won’t talk about this specific customer’s name, I’ll say a major customer came to us with an RFP, a request for proposal, they looked for a submittal in return. The submittal is all the technical details showing that you meet and comply with the RFP. They allowed six weeks, as I recall, for that response. We responded in three weeks, and the comment was given that we had the most stellar response that they had seen amongst any competitors and delivered it early. So that just speaks highly of the team that we have at BASX. And some of this alignment of leadership that was announced today is to capitalize on this so that we have a two-way communication globally connected. So a lot of the things that AAON has done very nicely for many years, can be complemented by a lot of the things BASX has done and vice versa. So no one’s yet asked me about these organizational changes. And I think that’s probably the biggest news of the day.
Christopher Moore: Got it. That’s very helpful. Great color. And maybe just my follow-up. You talked about it in your prepared remarks, Gary, but the lower global warming refrigerant sounds like you guys are ready, and I’m just trying to maybe understand the potential tailwind here. Would it be potentially greater market share gains in the second half of the year for – depending on lead times, et cetera?
Gary Fields: Well, it sure looks that way it’s shaping up. And kind of our data points are that we have multiple engineers that sit on industry councils where all of the peers are there in the industry councils. So they’re pretty talkative about where they’re at with developing things like this. And from the latest, we’ll call it chit chat at one of those industry councils, it was determined that we are way far ahead as far as being ready. We have it entirely introduced in our electronic catalog now. We’re accepting orders within the next 60 days and delivery within eight weeks of that. And I don’t think that that’s widespread across the industry at all. So for these few states that have put in place provisions to allow the utilization of the new refrigerant, we’re going to be an early adopters answer in those early adopted states.
So we do see that as an advantage to take some market share. So let’s just take one of those states. And they say, I need a store built with 20, 30, 40 ton rooftop units. And we’re the only ones that have the new refrigerant. While, would you want to go if that was available in your state, would you want to use an obsolete refrigerant on a change out, of course, not.
Christopher Moore: Got it. Very helpful. I will leave it there. Thanks guys.
Operator: We’ll move next to Julio Romero with Sidoti & Company.
Julio Romero: Hey. Good afternoon, Gary, Rebecca and Joe. Congratulations, Matt.
Matt Tobolski: Thank you.
Julio Romero: Hey. So Gary, you mentioned the backlog turnover is going to take longer than the traditional two to three months, especially considering customers booking further out and the BASX products factoring as well. Can you maybe level set for us how we should think about the new duration of the backlog turnover.
Gary Fields: Well, it’s so complex that there’s no – historically, prior to the pandemic, prior to BASX, you could take our backlog divided by our latest production figures and that it gives you lead time. The issue now is that because of the pandemic and because of extended lead times, people began to order with a longer thought process. I’ll give you an example or over – or close to, if not over 10 years, AAON Longview has been providing split systems for modular data centers. And we have always been hand-to-mouth on those. Like when they give us an order, they want them as fast as we can build them. And historically, that had been around eight weeks. Well, they got in a huge demand, and we got to where we couldn’t supply it.
And so they started ordering further and further ahead. From two of our clients for that, we have orders that are spaced out all the way through 2024, and here’s the good news with appropriate pricing attached. So we’re not stuck with a delivery down the road without reasonable pricing. So that being the case, Julio, that was a normal for BASX. It’s now becoming a normal in some – it’s the same customer base. It’s this data center customer base. They are long-term planners. I mean I heard, now this is not our company. It’s not our product, but another company selling a product, air-cooled chillers they have orders that are going out two and three years. So again, for data centers. So you’re seeing a lot of this related to data centers, so as that becomes a larger portion of our portfolio, the likelihood of this continuing is great.
Hope that answers. It’s just not a simple answer anymore. That’s the reality.
Julio Romero: No. There’s definitely some nuance to it, but I appreciate all the color you gave for sure. Maybe asking also about the refrigerant regulation. It sounds like you’re going to play some offense in 2024 given the product catalog positioned well for the new refrigerant. And you talked about some first-mover advantage as being a part of that strategy in some of the early stages. Do you also expect your pricing premium to potentially narrow relative to the competition as they have to kind of play catch-up with their product portfolio and that may factor into some of your offense strategy as well?
Gary Fields: Well, it’s interesting to ask that, we were at an industrial conference recently and several of the investors had come from a different conference, where some of these competitors of ours were announcing how much they expected to go up on their equipment over the next two years as a result of the refrigerant change. Well, we’re not seeing it the same way. We’re seeing that the refrigerant itself is less cost. We’re seeing that the pieces and parts – well, let me just back up, our vertical manufacturing – vertically integrated manufacturing strategy played well for this. On Monday last week or Tuesday last week, I was at our controls manufacturing facility in Parkville, Missouri, which part of our CapEx has gone to them.
And I was there to see it’s about 90% fleshed out and being utilized. We’re manufacturing our own control sensing system related to the safety for UL-60335 and everything else to do with this refrigerant. And the cost of it was just tremendously beneficial to us. I couldn’t be more proud of that group. It was one of those deals where two years ago, they came to me with this CapEx request and told me all these great things they could do with it. And I said, sure, it looks good. Their business plan showed like 14 months return on investment. And I said, go, go as fast as you can. Well, they have that in place and they’re building that product, and that’s going to be a major advantage for us. So I’m just loving what I’m seeing, Julio. I’m loving it.
Julio Romero: That’s very helpful. And maybe just one maybe for Rebecca. You mentioned some of the elevated SG&A in the quarter was due to profit sharing. Were there any kind of other factors that led to that? And are those factored into the 4Q guide?
