Q3 2025 AAON Inc Earnings Call

Thank you for standing by.

At this time I would like to welcome everyone to the Aeon in third quarter 2025 earnings release conference call.

All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question and answer session.

if you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad,

If you would like to withdraw your question, press star 1 again, thank you. I would now like to turn the call over to Joseph mandelo director of investor relations. You may begin.

Thank you, operator and good morning everyone. The press release announcing our third quarter Financial results with this. We would earlier this morning and can be found on our corporate website. Aaon.com, the call today is a company by a presentation that you can also find on our website as well as on the list and only webcast.

We begin with our customary 4 looking statement policy during the call any statement presented dealing with the 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 aoins control that could cause aoins results to differ materially from those anticipated,

You are all aware of the inherent difficulties risks and uncertainties and making predictive statements.

Our press release informed 10 q that we filed this morning details. 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 a 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 the call today is Matt dowski CEO and president in Rebecca Thompson CFO and Treasurer. Matt will start off with some opening remarks. Rebecca will then follow with a walk through of the quarterly results and Matt will finish with our outlook for the rest of the year and some closing remarks.

With that, I will turn the call over to Matt.

Thanks Joe and good morning. The third quarter marked a decisive inflection. Point in our operational recovery and capacity expansion. We saw substantial Improvement in production throughput. At both the Tulsa and Long View facilities which drove meaningful sequential sales growth while continued strengthening bookings contributed to further backlog growth.

While margins in the quarter continued to be impacted by operational. Inefficiencies in Long View in the early ramp up of the new Memphis facility. We continue to make steady progress, in expects, sequential margin Improvement to continue through the fourth quarter and into early 2026. Putting us firmly on track toward our longer term goals.

the basics, brand continues to perform exceptionally well fueled by strong momentum in the data center Market, where favorably priced bookings, have risen sharply and the pipeline of opportunities remains robust

Basic branded backlog, grew to 896.8 million up 1119 and a half percent from a year ago and up 43.9% from the prior quarter. Demand for both our air side, and liquid cooling products remains strong reflecting how well our custom Solutions aligned with customer needs.

To meet this growing demand. We remain laser focused on ramping up production capacity at our new Memphis facility.

This facility adds nearly 800,000 square feet of state-of-the-art manufacturing capacity. Which provides considerable growth to our Basics production capabilities in positions, us well for continued growth.

A couple of the facilities is progressing as planned, with large-scale production expected by year-end.

With a strong backlog. In significant increase in capacity. We expect the basic brand to deliver meaningful growth in 2026.

The Aeon brain continues to perform well with sales Rising substantially from the prior quarter in bookings remaining strong.

Aeon, branded sales, grew 28.1% sequentially driven by over 20%, production increases. At both the Tulsa and Long View facilities and improved, utilization of the Erp system, enabling us to better meet demand.

Pulse of production returned to Prior year levels. In Long View while still about 20% below last year, showed strong progress, based on September and October exit rates. We expect Long View is nearing full recovery.

Enhanced production, output of basic, sorry of Aion branded equipment resulted in a book to Bill ratio for the brand below 1.

Successfully helping bring backlog and Lead times with a unbranded equipment, closer to normalize levels.

While backlogs for the brand, remains higher than desired. We are making steady progress in reducing it. We are committed to achieving this in the near term. Ensuring we can effectively serve our customers and restore a normal business. Cadence.

Despite a soft commercial HVAC market and extended lead times, Aeon-branded bookings remain strong while flat year-over-year due to a challenging comparison. Bookings were up 15% on a 2-year stack, reflecting continued strength in underlying demand.

National account wins were particularly robust with bookings of 96% in the third quarter and 92% of your date representing 35% of total bookings for the year.

Looking up Alpha class air source heat pump equipment. Also, continued their strong momentum up 45% quarter over quarter and 46% year to date.

As I mentioned earlier, long views Erp implementation has progressed to considerably.

While production of Aion branded equipment at the facility, remained about 20% below targets output, improved sequentially throughout the quarter. And by quarter, end production of Aion branded equipment was approaching full recovery.

Production of the new Basics branded equipment along with view has performed exceptionally well with consistent year-to-date Improvement.

Despite the Improvement in throughput, we continue to work through efficiency challenges that are weighing on facility profitability. We view these as temporary and expect meaningful margin Improvement in the coming quarters.

In Tulsa average production levels for the quarter, reflected a full recovery. And by quarter end, we're running ahead of Target.

We made strong progress in improving, coal supplies, which supported the higher production volumes. And while our supply of coils remains constrained, we are effectively managing through these constraints.

With the Long View implementation now, well underway. We have gained valuable experience and insight both operational and Technical that will guide future Erp rollouts in greatly enhanced, our Readiness to efficiently deploy the Erp system across our other facilities.

While we continue to expect some level of operational impact as future sites. Transition, we are far better prepared to manage these challenges with strengthened internal processes improved training programs and a proven framework that positions us to execute future implementations with greater speed, precision and minimal disruption.

We've applied the lessons learned from Long View to the Memphis go live which appeared on November 1st and we continue to expect Redmond to transition in the first half of 2026 with Tulsa following in the second half.

I will now turn the call over to Rebecca who will walk through the financials in more detail.

Thank you, Matt.

Net sales in the quarter, increased year-over-year, 57 million, or 17.4% to 2 384.2 million.

The increase was driven by a 95.8% rise in Basics, rated sales due to continued demand for data center Solutions and increasing production out of our Memphis facility.

Aeon branded cells were roughly in line with the prior year, declining 1.5%. However, they increased 28.1% sequentially, driven by solid production gains at both the Tulsa and Long View facilities.

Gross margin was 27.8%, down from 34.9% in the prior year but up 120 basis points sequentially.

The year-over-year contraction was primarily due to operational, inefficiencies associated with the Erp system implementation and unabsorbed. Fixed costs related to the new Memphis facility.

The improvements reflect progress, made and optimizing the new Erp system and the resulting increases in production throughput. At both the Tulsa and Long View facilities,

Non-gaap adjusted IBA dub Argent, with 16.5% down from 25.3% a year ago but up 160 basis points in the previous quarter.

Diluted EPS was 37 cents down 41.3% from a year ago, but up 94.7% sequentially.

Below the line, pressures included, elevated ddna from Memphis and Technology Consulting fees related to the Erp implementation.

Looking at the segment financials starting with aeon Oklahoma, net sales, grew 4.3% year-over-year and 29% sequentially.

The growth was driven by a strong backlog, entering the quarter and improved production, throughput that enabled higher backlog conversions.

Coil Supply also improved allowing us to efficiently scale production of Aion branded equipment.

Segment gross margin was 31.5% down from 36.8% in the prior year period but up sequentially 400 basis points.

The year-over-year contraction was primarily due to approximately 4.5 million in unabsorbed, fixed costs associated with the new Memphis facility.

Aaon coil product sales increased 35 million or 99.4% from the year ago, period.

The year-over-year increase was driven by 46.5 million in Basics. Branded liquid cooling products sales at category that was not in production during the prior year period.

aeon branded sales at the segment declined, 10.9 million or 31.6% due to the Erp implementation disruptions

Sequentially aeon branded sales grew 36.2% reflecting improved utilization of the new Erp system and the resulting increase in production throughput since its go live in April.

Despite the improved throughput gross, margin declined, sequentially reflecting several discrete items which collectively impacted gross margin by 1,050 basis points in the cart quarter.

We expect these challenges to be resolved with our Erp progress. And over time, we expect this segment will deliver gross margin of around 30% based on the strength of pricing within the backlog.

Sales at the basics segment, grew 19.2% driven by sustained demand of data center Solutions as the market continues to demonstrate strong momentum in the business, captures additional market share.

Initial production from our new Memphis facility played a key role in driving growth.

Gross margin contracted modestly due to higher indirect Warehouse Personnel costs associated with operating the Redmond facility near full capacity.

optimization efforts at this facility, remain a focus and are expected to accelerate as the Memphis facility continues to ramp

Cash Cash equivalents and restricted. Cash, balances totaled, 2.3 million on September 30th, 2005 in debt. At the end of the quarter was 36060.1 Million.

Our leverage ratio was 1.73.

Year to date, we had cash outflows from operations of 18.8 million compared to cash inflows of 191.7 million in the comparable period a year ago.

Capital expenditures for the first 3 quarters, including expenditures related to software development increased 22.1% to 138.9 million.

We had net, borrowings of debt of 205 million over this period. Largely to finance investments in working capital, capital expenditures, and 30 million in Open Market stock BuyBacks that we execute it in the first quarter.

All of which we anticipate will generate attractive returns.

Overall, our financial position remained strong.

We anticipate cash flow from operations will turn significantly positive in the fourth quarter as working capital, including contract assets, becomes a source of cash, reflecting payments received on a large order that was recently started.

This gives us flexibility and allows us to continue focusing on investments that will drive growth and generate attractive returns.

We now anticipate 2025, Capital expenditures will be 180 million compared to our previous estimate of 220 million.

The reduction primarily affects project timing and the inability to fully deploy funds this year with a majority of these expenditures expected to shift into 2026.

Over to Matt.

Thank you, Rebecca.

As previously mentioned, the backlog remains strong across both brands, giving us the confidence and visibility to stay focused on production and execution.

The basics, brand Remains the key growth driver of the company fueled by exceptional demand from the data center market and the unique custom design solutions that we provide our customers.

In the quarter basic security, strong volume of new orders at attractive. Margins. Most of which are scheduled for production at our new Memphis facility in 2026.

This sets us up to rent production, efficiently, next year, optimize the fixed cost Investments, made in 2025 in Drive, robust, growth for the basics brand in 2026.

The Aeon brand also maintains strong momentum backlog. At the end of the quarter was up. 77.1% year-over-year reflecting strong demand across our business.

While backlog size and Lead times remain extended. We are actively managing this by ramping production despite commercial HVAC leads. The volume is being down double digits here to date, bookings, have stayed, strong demonstrating, the resilience of our business.

For the fourth quarter, we expect double digit Revenue, growth driven by continued production recovery and pricing actions implemented earlier this year. This positions us well for 2026 as comparisons ease.

However, looking to 2026. We also plan to implement the Erp system at our Tulsa facility in the second half of the Year. While we expect minimal disruption based on our Long View. Learnings, there may be some short-term production impact during the transition.

Turning to our 2026 or sorry, 2025 Outlook. We now anticipate full year, sales growth in the mid- teams at a gross margin of 28 to 28 and a half percent, adjusted sta. As a percent of sales, expected to be 16 and a half to 17%.

Before I hand it off for Q&A. I just want to finish by saying while we continue to navigate some near-term challenges. We're making steady progress across all areas of the business.

Our operational execution is improving. Production is ramping demand remains robust and cash flow is trending in the right direction as we look ahead. We are extremely excited about the opportunities that 2026 will bring.

With that, I will not open the call for Q&A.

At this time, I would like to remind everyone in order to ask a question. Press star, then the number 1 on your telephone keypad,

Your first question comes from the line of Ryan Merkel with William Blair. Please go ahead.

Hey, good morning everyone. Thanks for the questions and congrats on the quarter. Uh, a lot of things to like here.

So, um, let me start off. Yeah, good morning. I wanted to start off with, uh, the basics orders, which I, I think for me, is to headline. Uh, you talked about liquid cooling being strong. You talked about, this is fully coming online, but just speak to, you know, student drivers, speak to your confidence in, you know, your outlook for 40 to 50% growth uh for the basic segments. Um, and then you mentioned order visibility is pretty good. I just want to get a sense. If you can, if you continue to expect strong orders,

You had a great question and, and to start, you know, maybe you're looking back to the, the Q2 earnings call, uh, where the, the sort of backlog and Basics was was flat. And was obviously a point of question, from from a lot of individuals. Uh, We messaged on that, call that obviously, we have to have the capacity of the visibility in our ability to execute those orders in order to really start taking on large orders to support the Memphis growth.

As we've kind of progressed through the third quarter, we've had a lot more traction and visibility and kind of understanding what that ramp rate looks like. Which allowed us to effectively go out to the market and really start filling the coffers for the, the Memphis facility.

That coupled with continued strength on liquid cooling orders out of the The Long View site. Um airside solutions that both Memphis and uh and the Redmond site provided a lot of that backlog growth. And so the the Q3 sort of order security was really a, a good mix of borders from both airside, liquid side orders, kind of across all of our sites, but certainly with the strong amount of uh focus on the Memphis facility as we look to ramp that up in 2020, May 25 256.

So you know really we see the basics uh the the growth story, certainly being very strong. Uh certainly have have good growth in 2025 and as we go into 26, you know, we'll see continued. Good strength in converting that backlog into sales.

That's great. Okay perfect and then uh the 1 Nick this quarter was gross margin uh good to hear though, the Erp you're feeling strong there, you know, the implied guidance for for Q gross margin 31, you're showing a step up but let's just take the 2 pieces to an Oklahoma if I add back sort of the Memphis, you know, unabsorbed and you're going to be getting the full production there soon, it sounds like. And then the price cost which is really just a timing thing. Should we think about sort of gross margins on a normalized basis for the Oklahoma segment. At that 35.36 level, that's the first part of the question.

Yeah, I know in in certainly uh the maths you're doing is, is putting you in that range. So, when we back out the, the Memphis impact and we back out that price cost differential kind of on that uh that near-term kind of tariff dislocation uh that does put you right in that mid-30s um, certainly we see some additional pressures that existed. Um, when we look at the kind of year-over-year comp from 24 to 25 in Q3, um, certainly you got another 200 basis points, um, of kind of Gap there. And really, what I would say is we've been ramping up production kind of meeting some near-term needs of Basics products, um, inside the Oklahoma segment which while profitable in a sales.

Um it certainly is a a new product introduction into that facility that just caused some manufacturing inefficiencies, where production lines aren't optimized kind of to build that but we were doing it to ensure we met customer demand.

Uh, so I'd say that, you know, mid-30s with some Headroom on top of that really is, is where we see the Oklahoma segment kind of at a normalized basis.

Got it. All right, I'll, I'll leave the ACP questions for others, but it sounds like there's some discreet items there and 30% long term as the target. So that's kind of what I expected. Matt, I wanted to give you an opportunity before I turn it over to just comment on the short report uh that was out. I don't know if that's something you want to do. So I'll give you that out but

Um, there were two claims that I was hoping you could respond to. One, the change in accounting has inflated revenues; and then two, large liquid cooling gross margins are in the 20% range. Just any thoughts there?

Yeah, so I just need you to start off with that report and really, just to to hit this head on, you know. Uh, we want to just kind of reaffirm that we take the Integrity of our financial reporting incredibly seriously and it is regularly reviewed by our independent Auditors and so these statements that are prepared and presented are fully in accordance with gaap and with the rules of ASC 606.

Um from a, from a confidence standpoint, you know, we're incredibly confident in the strength of our business and the appropriateness of our accounting practices and our operations overall. So you know, with that just saying that the the demand for our products, the pricing of our products, um, remains incredibly strong and our focus is on executing our strategy, serving the customers and making sure we deliver that long-term value for our shareholders.

Um, as we talk through the, you know, the the purported changes in accounting practice, um just to state that you know, that is the ASC 6066 standard which is how Revenue has been recognized for the basics, brand kind of throughout its history. And since being acquired by Aion,

Um, when we look at, you know, the, the Dynamics, um, there were certainly an increase in contract Assets in the first half relative to that 1 large liquid cooling order, uh which is recognized as a, you know, Custom Engineered custom, manufactured product um recognize that a percent of completion basis. And so when we think about this in context that 1 order that was acquired um, late late in the year last year and kind of converting through it. This year. It was nearly the size that single order was nearly the size of all the basics in 2024.

And so that's just mathematically is going to drive that that change, um, in a near-term perspective on the contract assets. But in Q3, you saw those contract assets decline, you saw the receivables jump, um, showing that conversion and shipping, um, and billing to that customer

And so that that conversion is going to drive cache strengths, um, as as receivables are kind of converted to to cash in hand, throughout the fourth quarter.

For the customer, we're delivering the quality that customer expects, and we continue to receive add-on orders with that product, um, as well as developing in collaborating on other Cutting Edge Innovations, for the data center space. So all that to say, I mean, this is, this is, you know, executing in in accordance, with with regulations. It's executing incredibly well and profitably for our customers and some of that ACP near-term stuff is and looking to do with the price perspective on the product. It's it's a inefficiencies as we've kind of rolled out some of that growth.

Eric Claire, thank you. I'll pass it on.

your next question comes from the line of

Okay, with Oppenheimer, please go ahead.

Mr. K, your line is open.

Hey, thanks so much, Matt and Rebecca, great to be on with you for the first time and uh, a good quarter to be, uh, on for the first time on. Um, you know, I I want to go to your capex uh guide uh lowering it to 180 and and the comments you made Rebecca. Um, anything we should read or infer from that into kind of the timing of your plan capacity ramp whether at Memphis or or elsewhere in the business that we should be thinking about.

No, I I don't think so. It's just a slight shift uh, from moving some amounts between Q4 to q1. So I don't think um you know the lowering of that capex is going to slow down the ramp up of Memphis. Um the Memphis facility is already um really built out with most of the equipment. We need to do the ramp up right now. So next year's, um, additional plants would just be increasing capacity for future growth. So, uh, it should not impact those ramp up plans at all.

Okay. Thanks. And then, since Ryan teed it up, I might as well ask about the discrete 1 times. Uh, at ACP. You can just give a little color on that and, you know, kind of how you lap them as we go into a 4 q and, uh, in 26 here.

Yeah, just to start off. You know I want to maybe just take the ACP segment for a second and and look at this from a quarter over quarter perspective. You know we saw a really good strength and growth in the ACP segment.

And absolutely is free to items that that we kind of reference. You know, you'll be seeing margin at around 27%, which is showing uh, good quarter over quarter growth in both the the throughput as well as the overall margin profile.

Uh, somebody's discreet items that kind of are in question. I mean there, there's essentially operational, inefficiencies, uh, some of which are going to, or most of which will Abate kind of with the optimization of the Erp, the rest of which just was some additional manufacturing process Improvement.

Nothing to do with pricing. Uh, the liquid cooling order is priced at very compelling levels. And, you know, as I mentioned earlier, uh, to Ryan's question that liquid cooling order itself is a solutions-based product Solutions based win, uh, was not a, a low bid type situation. So so price. Well, um, and really just focus on getting that execution, uh, kind of fully in order and looking forward, you know, we're confident when we say the segment is a, at least a 30% gross margin business. Uh based on what we have in the backlog, based on what we have, the margin profile on the backlog and really just focus on execution, for both the basics and aeon brands.

Yeah. And and is that um is ACP where we see the most improvements sequentially into 4 q, to kind of help us get to that 31%. Uh that was referenced earlier.

If that's the right number for most marketing for 4.

Uh, definitely a quarter of a quarter. You're going to see see strong Improvement uh ACP definitely being a big driver that Improvement. But I would say, I mean you're also going to see some incremental Improvement within the Oklahoma segment as well. It's kind of has that price cost Dynamic uh get them the right side from the Tariff impact.

Okay, perfect. And last, you know, obviously really strong data center orders uh for Basics this quarter uh, great to see the increase in backlog. Can you talk a little bit about the customer mix and profile? Their, you know, you you mentioned liquid versus are side but just give us a sense of, um, you know, the demand profile across the customer base.

Yes, a pretty pretty broad base, actually. And I would say that when we look at the, the amount of interaction and conversation in the space right now, um, it is, it is a cross sort of the entire, uh, profile of data center developers. So obviously there's there's good strength and continued strength within the, the hyperscalers. But within a lot of the, uh, you know, I'll say the contract, Builders the collocation providers, the Neo clouds, we're seeing strength really across the profile, um, in the order activity, and in the, uh, code activity, in that space.

All right. Excellent, thank you. I'll turn it over.

Will shift from Basics to to Rooftop. Like, can you just talk a little bit about pricing at this point in time? You know, the the current aeon premium and

And maybe just your big picture thoughts on on Rooftop in in 26.

Yes. So from a, from a pricing standpoint, I mean obviously we put on price twice this current calendar year. So early January 1st put in 3% and then additional 6% kind of came in through the Tariff surcharge. So sitting sitting a little about 9% compounded for the year. Um, as we look forward, you know, we're we're definitely in the midst right now, of of really kind of all of our analytics um and kind of where cost drivers are looking as we go into 2026. So no real guidance. At this point, I'm kind of what pricing actions are going to come in the, the near the midterm. But would say that, you know, we we certainly see the the price premium of Aion equipment, still existing. Uh, for sure, it's kind of inside the space. Um, you know, maybe ever so slight contraction from last year to this year but really seeing the uh, the price premium and the value proposition is still being sold uh, kind of throughout that product brand.

Looking to your question more, I'll say on the the market perspective. I mean, certainly the the space, you know, it remains soft, the commercial HVAC space remains soft, you know, as we do a lot of our checks, with our sales Channel Partners, um, a lot of the comments area, we're getting is there's actually a pretty substantial uptick in bid activity. Um, but still

Soft in the overall order conversion. So I say that to say that's a, it's a positive indicator. Uh, certainly showing there's a lot of activity, kind of, um, kind of Brewing inside the space, but obviously, in the near term, it's not converting to actual orders. It's not converting to new projects. And so when we think about what that looks like into 26, you know, it kind of indicates we're going to enter 26 kind of in in continued softness, but I'd say that demand we're seeing with that that bid activity, we would we would look to see that sort of start converting Midway through the year and just sort of strengthening of the overall order. Cadence from a macro perspective.

Um, but that aside, you know, with that kind of, as the, the macro driver, we continue to remain incredibly focused on some of the unique growth drivers that are that are sort of providing us that outperform and bookings. Uh, things like the alpha class, Air Force, heat pump product differentiation, uh, really getting out in the marketplace and and those ensuring that we're selling, um, to the market and effectively communicating to the market that value proposition, as well as the the continued focus on that national account strategy. We see those being the I'll say the levers that are allowing us to continue outperforming from a booking aspect of this. The software macro backdrop.

A perfect very helpful. Uh, and maybe just follow up Back to Basics in terms of of gross, margins. You know, been we've had lots of discussions currently, and, and ultimately, in terms of of where the margins could be at the investor day and we talked about, you know, 29 to 32% a little bit below rooftop, um, and I'm just again, trying to understand, is there something structural in Basics that that couldn't get to the mid-30s or it's just um, you know, the the the rapid growth is going to make it difficult for for a while to to to get to that level.

No, it's a great. It's a great question and certainly, you know, our kind of putting it around that 30% level is really a sort of setting, what we see, as these sort of near-term, execution targets, um, kind of within that space, um, from a perspective, uh, standpoint, you know, it took a on, uh, 30, 30, some odd years to really get into that mid-30s range. And a lot of that was driven by really good execution around improvements around manufacturing process, coupled with obviously pricing competitiveness.

And so as we start getting more and more, I'll say um when we get the ability to really kind of get some more of our production lines stable, we can really start focusing on on pulling pulling in a cough and putting dollars to the bottom line in those spaces. And so um I would just say you know, from an expectation setting standpoint that 30% range is really kind of where we want to keep everyone grounded. Um but certainly, you know,

We're we're an organization that has focused it outperforming. And so for us, uh, looking at how do we keep driving better execution and really keep driving improvement of that is going to be something that is certainly front of Mind, as we keep progressing forward.

I got it. I appreciate it. I will leave it there.

Hey everybody get uh good morning. Thanks uh thanks to all the details.

um,

Year. Um, you know, from from the, you know, on the Erp side, um, I guess how are you kind of communicating that to to people in the channel and and how are you preparing for any sort of? I guess kind of order, uh, pull forwards, that might kind of happen as a result of um uh you know that implementation

Yeah, certainly a great questions. And on the lead times, you know, when we look at the Oklahoma segment, uh where they stand today, they're they're probably sitting around 50% higher than we want them to be. Uh and again our Focus here is is really I get that execution up getting that, that volume up at that facility and really start pulling that back down. So, you know, I 1 thing I'd say is, well, obviously backlog growth is a big conversation. Um, on the, the basics, out of the business, on the Aeon side, you know, our Our Big Driver here, let's get that backlog down. Let's get that, uh, lead time kind of back and check where we want them to be, just to be able to make sure that we're we're meeting the market demands appropriately.

Um, as we think about, you know, I'll say kind of getting ahead of things within the ERP side. We're certainly going to be uh,

Substantially more proactive. Again, I'll just say Lessons Learned around the Long View side to, to make sure we get ahead of it and provide some buffer, um, kind of in sort of what we communicate to the market to to make sure we deliver um and these schedules that are met with our our best foot forward. So that's going to be definitely definitely going to be part of our intentional uh kind of before go live messaging strategy. Uh ahead of the

Supposed to go live.

Uh, exactly what that's going to look like and kind of what buffer, you know. That's still certainly part of an operational conversation. But uh certainly will be something we're looking at throughout the the mid part of 26.

Okay, and speaking of operations. I mean you you just I think hired a COO, um, could could you maybe talk about what kind of those responsibilities are are going to be, you know, for him, um, in in kind of maybe the near and the intermediate term and kind of what he brings to Aeon.

Yeah I I really maybe what I'll do is I'll start by kind of just framing the perspective here which is, you know, we've been very fortunate to to go through some tremendous growth which is which is incredibly exciting. It's a, it's an awesome opportunity for our Organization for our team to grow and to really Thrive inside that, that space. And as we think about aeon 5 years ago versus aeon today, I mean, we've got, you know, 5 facilities. We've got some some monster growth coming out of brand new facilities. We've had massive expansion in Long View. Strong investment in Redmond, um, in in continued investment inside. But also the facility all of that supported by strong demand. So the company over the the last 5 to ten years, it's really transformed. Its kind of gotten a lot of legs below it and and really built itself up in stature and mass. And so when we think about what Roberto brings to the organization, it's the ability to effectively manage. Um, consistency across all 5 facilities.

In Drive, best practice lean manufacturing uh visible manufacturing really across the organization and get the right visibility. Uh, to be able to tackle problems before they become problems.

And so you know, he's got experience um operating up to 23 facilities expertly in manufacturing and really something that the operations team and the whole team um of Aion. And Basics is incredibly excited about as we look to continue capitalizing on the growth drivers in a very profitable fashion.

Okay. Okay, that's great. And then, I guess just, um, 2 questions to, uh, to, to kind of modeling questions, I guess. First, is there any way to just quantify the, the free cash flow that you expect in the fourth quarter? And then, as as you kind of think about bringing on Memphis, do, do you have like a DNA number that we should think about for, for Aon in in 2026?

so,

don't have a qualification of, uh,

of the free cash flows for Q4. Um,

it should be considerably up, I mean especially you saw it turn positive this quarter. Um we're starting to um

We had delays in getting some of our buildings out, so we're collecting those now in the fourth quarter.

yeah, it it should be up significantly but I don't have a a good

To give you um, just off the cuff. Um

And then on, okay, your second question.

Yeah. So, for 2025, we expect the year will be in the 75 to 80 million range. Um, and then we expect to see another 20 to 25 million in 2026.

Okay, okay. That's helpful. Thank you very much.

Your next question comes from the line of Julio, Romero with sidon Company, please go ahead.

Good morning. This is Alex on for Julio. Thanks for taking questions.

Just to uh, yeah, actually, just to follow up on Erp. I know we talked a little bit about Lessons Learned and alluded to that but maybe we could get a little more specific on key Lessons Learned, you know, from Long View that you're replying to Memphis and uh maybe even what Milestones, you know, you thought about uh before green lighting, the roll out to Memphis.

Yeah, from a lessons learned perspective, I mean, uh, I'll say there's kind of a variety of people in the process sides of it, but just high level, what I would say is,

Uh, some of the configuration changes in lesson, learned that we've implemented into Long View, as well as Memphis is streamlining some of the automation, um, that can be provided in process flow inside the Erp. Um, that wasn't fully uh, implemented. I'll say kind of on the initial go live that caused too much manual, interaction. That's slowed down some of the production velocity. And so, uh, we really kind of streamline some of those processes and we've really greatly enhanced, the me Hands-On training within the system. I think the Lessons Learned is that a lot of training as part of the go live but a lot of it was more classroom setting versus uh getting really more live Hands-On on how you would live in the system on a day-to-day basis. And so

A lot of that kind of was Lessons Learned out of the The Long View site. Uh and really that was informing, the kind of go live strategy within the the Memphis site and you know, Memphis has been been live for about a week now and really been operating in a smooth fashion. Albeit, you know, lower volumes, uh, than what we have in Long of you but kind of on a go live and a ramp up perspective behaving very well.

Great, thanks for clarifying. I think, you know, going hand, in hand with streamlining and and Erp work. You know, might be automating with AI. So I was curious if you could touch on um, you know, any sort of uh work with that.

Yeah. I mean, certainly uh, as a as a manufacturer that greatly supports the, the explosive growth of the data center investment around AI. It's certainly also informs kind of how we we leverage AI as an organization, so there's a lot of things we're looking at. I mean, everything from how how we analyze uh, you know, warranty claims for for Trends, how we look at Predictive Analytics around unit performance. There's there's a lot of sort of projects going on but uh certainly as time progresses, you know, AI will will become more and more relevant kind of in our strategy. But what I would say now is we have a lot of things that are more in the sandbox and planning phase. Um, as we look at how to leverage AI both from a operations perspective but also from a value driver, for our customers perspective.

Great. Thanks for the caller. That's all from us.

Hey, great, thanks. Um, yeah. I guess the question, um, Matt, just as you peel back, um, kind of the layers here within the rooftop business. Your thoughts on what seems to be working in terms of the share capture strategy? I heard you comment on the National Accounts growth, um, maybe how that informs how the kind of strategy is working, um, and anything else in and around that.

Yeah, so you know, to to maybe peel it back and kind of 2 pieces, I think when we look at what we'll call the more transactional type orders that the standards kind of in Market orders, you know, we see that softness kind of that that you hear across the the overall commercial hcac, space on the more everyday type orders. Uh, we see that kind of in our, our order Keys as well. And so, when we look at where the growth drivers have been, um, you know, I'd say 2 things that are big differentiators for us that have allowed us to outperform. In bookings, has been uh, the alpha class air source heat pump, so from an innovation and sort of a product, differentiation standpoint, um, you know, continue to see that getting some good traction inside the space. Uh, as we really have a best-in-class solution that that operates in sort of your your Southern Finance all the way to your low low temp climates with with sort of the more Alpha class extreme program. So that's

Um, solid pricing points, uh, really depending on kind of what the market is from an environmental perspective. And so, uh, we don't need to go all the way to the alpha class, extreme low ambient, air source, heat pump if I'm delivering your product in Florida. Um, but when we look at some of the northern states, you know, these solutions that we have in terms of efficiency performance points and cost points, uh, you know, really can't be can't be beat inside the marketplace. And so that's really allowed the a broad conversation in that national account space, uh really around air source, heat pumps carbonization, uh, to be able to provide really a solution across the portfolio, that that really can't be met by anyone else in the marketplace. And so, a lot of that's been some of that conversation and growth, uh, really in both sides of the the, the national accounts as well as really just transactional air source, heat pumps.

Got it. And then on um the basic side, whether you wanted to talk around the orders, this quarter Matt or kind of the immediate pipeline. I mean, 1 of the

Objectives here is to to try and get into, maybe more of the standardized products. So I guess question 1 is, are you starting to see those orders come through? Is it far too early for that and

To maybe just the diversification of customers that are reflective in these orders.

And just to maybe, maybe put a clarifying point. When we look at the, the productization of strategy. Um, I wouldn't say we're going to a standard product by any stretch what I would say is really, just, you know, Envision that as the same solution, or the same mindset around, how aeon goes to Market with a software driven semi-custom. Um, still very much value driven products just in a little bit more of a, um, walls off platform. That provides some more efficiencies and, and how we go to market. But just want to kind of clarify that I wouldn't really go to the sort of a standardized product definition, and still very much is highly configurable value driven Solutions. Uh, but I would say, you know, we're, we're certainly starting to get into quote activity on those products. Uh, we're in the early Innings. Uh, really, I'm getting that in the marketplace. And so, certainly out there having the conversations, but that backlog growth that we see right now, that is reflective of the historic, uh, solution based the, the custom products. Um, that, that basic brand is built itself on since it's for me,

uh, customer lives. I mean, there's, you know, obviously a couple of large orders that that, that exists inside, that, that sort of backlog growth. But I would say there's also a spattering of of other, um,

Smaller customers kind of in there. So, you know, there is definitely a couple of couple of big hitters in that backlog growth, but there's also diversity in the customer base in in what we're going right now.

Okay, last 1. Um, you know, obviously big big chunk of borders here is to fill the um, the Memphis capacity that that comes on though, I think. Um, just based on past conversations, Matt, you sort of want to be delivered about that.

Um work through any inefficiencies, is that, is that facility ramps up? I guess the question I have is, um,

Do you have what you want for now? Or are you comfortable continuing to to push and capture more orders for that facility? Even as a has it ramped up quite yet?

Yeah, have a great question. I mean, I think the there's definitely good, uh, good backlog uh sitting in there right now to help ramp that facility. Um in a in a measured perspective. But there also is some Headroom in there especially as we get into the second half of next year, to to start putting in some more demand into that facility. And so there is room to definitely, uh, keep putting orders in there as we we get more and more traction. The, you know, facility, as it stands today. Um, just kind of maybe perspective, it has the ability to have 7 production lines put in place. Um you know we're sitting at 3 today we're adding we're we're working to add a couple more but um there's certainly is all of that, you know, 5 to 7 production lines are not fully booked out and so there is room to you know, as we keep growing it out to keep

Ramping up production at that facility, but I would definitely be thinking about that from a booking statements for orders. That would be coming in for, you know, start delivery in the the back, half of next year.

Okay, got it. Thank you.

There are no further questions at this time. I will now turn the call back over to the management team for closing remarks.

Okay, thank you everyone for joining us on today's call. If anyone has any questions over the coming days and weeks, please feel free to reach out to myself.

Have a great rest of the day and we look forward to speaking with you in the future. Thank you.

Ladies and gentlemen, that concludes today's call. Thank you for joining; you may now disconnect.