Q4 2025 AAON Inc Earnings Call

March 2, 2026

Speaker #2: To signal for a question, simply press star and one on your telephone keypad, and your line will be placed into a queue for the Q&A session.

Speaker #2: Once again, that is star and one, ladies and gentlemen. Also, a reminder, today's session is being recorded. It is now my pleasure for opening remarks and introductions to turn the floor to Director of Investor Relations, Mr. Joseph Mondillo.

Operator: Once again, that is star and 1, ladies and gentlemen. A reminder, today's session is being recorded. It is now my pleasure for opening remarks and introductions to turn the floor to Director of Investor Relations, Mr. Joseph Mondillo. Welcome, sir.

Speaker #2: Welcome, sir. Thank you, Operator, and good morning, everyone. The press release announcing our fourth quarter and full year 2025 financial results was issued earlier this morning and can be found on our corporate website, AAON.com.

Joseph Mondillo: Thank you, operator, and good morning, everyone. The press release announcing our Q4 and full year 2025 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. 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 Private Securities Litigation Reform Act of 1995, the Securities Act of 1933, and the Securities 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.

Speaker #2: The call today is accompanied by a presentation that you can also find on our website, as well as on the listen-only webcast. We begin with our customary forward-looking statement policy.

Speaker #2: 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.

Joseph Mondillo: 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 Private Securities Litigation Reform Act of 1995, the Securities Act of 1933, and the Securities 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.

Speaker #2: 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.

Speaker #2: You are all aware of the inherent difficulties, risks, and uncertainties in making predictive statements. Our press release, along with the Form 10-K 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.

Joseph Mondillo: You are all aware of the inherent difficulties, risks, and uncertainties in making predictive statements. Our press release in Form 10-K 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 calls 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 Matt Tobolski, President and CEO, and Rebecca Thompson, CFO and Treasurer. Matt will start off with some opening remarks. Rebecca will follow with a walkthrough of the quarterly results, and Matt will then finish up with our outlook for 2026 and some closing remarks.

Speaker #2: 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.

Speaker #2: You can find the related reconciliations to GAAP measures in our press release and presentation. Joining me on today's call is Matt Tobolski, President and CEO, and Rebecca Thompson, CFO and treasurer.

Joseph Mondillo: You can find the related reconciliations to GAAP measures in our press release and presentation. Joining me on today's call is Matt Tobolski, President and CEO, and Rebecca Thompson, CFO and Treasurer. Matt will start off with some opening remarks. Rebecca will follow with a walkthrough of the quarterly results, and Matt will then finish up with our outlook for 2026 and some closing remarks.

Speaker #2: Matt will start off with some opening remarks. Rebecca will follow with a walkthrough of the quarterly results, and Matt will then finish up with our outlook for 2026 and some closing remarks.

Speaker #2: With that, I will turn the call over to Matt. Thanks, Joe, and good morning. 2025 was a year marked by several notable achievements, delivered alongside transformational investments that are building a more resilient and scalable business.

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

Matt Tobolski: Thanks, Joe, and good morning. 2025 was a year marked by several notable achievements delivered alongside transformational investments that are building a more resilient and scalable business. Importantly, we've made these investments with clear priorities in disciplined execution, strengthening our foundation and sustaining strong commercial momentum. Robust bookings and revenue momentum underscore demand for our products and custom solutions as customers seek greater operational efficiency, supporting continued market share gains. As we enter 2026, we have clear visibility into growth drivers and a well-defined plan that positions us for improved operating performance and margin expansion as temporary headwinds fade. The data center market continues to represent our most robust and dynamic growth opportunity. In 2025, BASX branded sales increased 143% to $548 million, while backlog grew 141% to $1.3 billion.

Speaker #2: Importantly, we've made these investments with clear priorities and a disciplined foundation, sustaining strong commercial momentum. Robust bookings and revenue momentum underscore demand for our products and custom solutions, as customers seek greater operational efficiency, supporting continued market share gains.

Matt Tobolski: Robust bookings and revenue momentum underscore demand for our products and custom solutions as customers seek greater operational efficiency, supporting continued market share gains. As we enter 2026, we have clear visibility into growth drivers and a well-defined plan that positions us for improved operating performance and margin expansion as temporary headwinds fade.

Speaker #2: As we enter 2026, we have clear visibility into growth drivers and a well-defined plan that positions us for improved operating performance and margin expansion as temporary headwinds fade.

Speaker #2: The data center market continues to represent our most robust and dynamic growth opportunity. In 2025, basic branded sales increased 143% to $548 million. While backlog grew 141% to $1.3 billion, strong demand resulted in a book-to-bill of 2.4 for the basic brand on the year.

Matt Tobolski: The data center market continues to represent our most robust and dynamic growth opportunity. In 2025, BASX branded sales increased 143% to $548 million, while backlog grew 141% to $1.3 billion.

Matt Tobolski: Strong demand resulted in a book-to-bill of 2.4 for the BASX brand on the year. Our differentiated custom airside and liquid cooling solutions continue to gain momentum as customers increasingly require highly engineered systems tailored to their specific performance and scalability needs. This dynamic aligns directly with BASX's core strengths: custom engineering, thermal management, innovation, and speed. It positions us well to grow with this increasingly demanding AI data center market. Our focus is now squarely on converting this demand into sustained profitable growth through disciplined program execution and capacity readiness. AAON branded sales and bookings remained resilient in 2025, particularly in light of a 16% decline in overall industry volumes.

Speaker #2: Our differentiated custom airside and liquid cooling solutions continue to gain momentum as customers increasingly require highly engineered systems tailored to their specific performance and scalability needs.

Speaker #2: This dynamic aligns directly with basic core strengths: custom engineering, thermal management innovation, and speed. In a position that's well suited to grow with this increasingly demanding AI data center market, our focus is now squarely on converting this demand into sustained, profitable growth through disciplined program execution and capacity readiness.

Matt Tobolski: This dynamic aligns directly with BASX's core strengths: custom engineering, thermal management, innovation, and speed. It positions us well to grow with this increasingly demanding AI data center market. Our focus is now squarely on converting this demand into sustained profitable growth through disciplined program execution and capacity readiness. AAON branded sales and bookings remained resilient in 2025, particularly in light of a 16% decline in overall industry volumes.

Speaker #2: AAON branded sales and bookings remain resilient in 2025, particularly in light of a 16% decline in overall industry volumes. Despite the refrigerant transition and the ERP rollout at our Longview facility, AAON branded sales declined just 8%, significantly outperforming the broader industry.

Matt Tobolski: Despite the refrigerant transition and the ERP rollout at our Longview facility, AAON branded sales declined just 8%, significantly outperforming the broader industry. Bookings saw even stronger performance, growing approximately 12%, driven primarily by national accounts, which increased 86%. This sales growth represents deliberate market share gains as customers increasingly recognize the total cost of ownership advantages our products deliver across their building portfolios. In other words, while we worked through near-term friction, we continued to take share in the places that matter most in where our differentiation is strongest. Building on the operational foundation established in prior years, we advanced several initiatives designed to drive margins to optimal levels and support durable long-term growth. These included strategic investments in people and leadership, in manufacturing capacity, supply chain management, product development, and IT systems and infrastructure.

Speaker #2: Bookings saw even stronger performance, growing approximately 12%, driven primarily by national accounts, which increased 86%. This sales growth represents deliberate market share gains as customers increasingly recognize the total cost of ownership advantages our products deliver across their building portfolios.

Speaker #2: In other words, while we work through near-term friction, we continue to take share in the places that matter most and where our differentiation is strongest.

Matt Tobolski: In other words, while we worked through near-term friction, we continued to take share in the places that matter most in where our differentiation is strongest. Building on the operational foundation established in prior years, we advanced several initiatives designed to drive margins to optimal levels and support durable long-term growth. These included strategic investments in people and leadership, in manufacturing capacity, supply chain management, product development, and IT systems and infrastructure.

Speaker #2: Building on the operational foundation established in prior years, we advanced several initiatives designed to drive margins to optimal levels and support durable, long-term growth.

Speaker #2: These included strategic investments in people and leadership, in manufacturing capacity, supply chain management, product development, and IT systems and infrastructure. Over the past 18 months, we have expanded our manufacturing footprint by more than 25% in meaningfully strengthened our leadership depth.

Matt Tobolski: Over the past 18 months, we have expanded our manufacturing footprint by more than 25% and meaningfully strengthened our leadership depth. Our investments in supply chain management will improve supply reliability, help reduce material costs, and improve working capital discipline going forward. These actions are practical, execution-focused, and designed to improve throughput, reduce variability, and enhance margin performance over time. Our focus on innovation drove meaningful advances in product development, most notably in support of AI data centers, where we introduced unique concepts designed to enhance scale, operating efficiency, and strategic flexibility. In 2025, we also became the first manufacturer in the commercial HVAC industry to commercialize rooftop units up to 40 tons with cold climate heat pumps that are capable of delivering reliable heating performance at ambient temperatures down to negative 20 degrees Fahrenheit.

Speaker #2: Our investments in supply chain management will improve supply reliability, help reduce material costs, and improve working capital discipline going forward. These actions are practical, execution-focused, and designed to improve throughput, reduce variability, and enhance margin performance over time.

Speaker #2: Our focus on innovation drove meaningful advances in product development, most notably in support of AI data centers, where we introduced unique concepts designed to enhance scale, operating efficiency, and strategic flexibility.

Matt Tobolski: Our focus on innovation drove meaningful advances in product development, most notably in support of AI data centers, where we introduced unique concepts designed to enhance scale, operating efficiency, and strategic flexibility. In 2025, we also became the first manufacturer in the commercial HVAC industry to commercialize rooftop units up to 40 tons with cold climate heat pumps that are capable of delivering reliable heating performance at ambient temperatures down to negative 20 degrees Fahrenheit.

Speaker #2: In 2025, we also became the first manufacturer in the commercial HVAC industry to commercialize rooftop units up to 40 tons with cold climate heat pumps that are capable of delivering reliable heating performance at ambient temperatures down to -20 degrees Fahrenheit.

Speaker #2: We also made significant progress in upgrading our legacy ERP system, which is critical to supporting long-term scalability. As expected in a transformation of this scale, when issues were encountered, we addressed them directly and implemented a revised rollout approach that prioritizes stability, customer deliveries, and execution certainty.

Matt Tobolski: We also made significant progress in upgrading our legacy ERP system, which is critical to supporting long-term scalability. As expected in a transformation of this scale, when issues were encountered, we addressed them directly and implemented a revised rollout approach that prioritizes stability, customer deliveries, and execution certainty. We are sequencing remaining ERP implementations under a disciplined governance framework, with Redmond scheduled for the back half of 2026 and Tulsa expected in 2027. This approach reflects control and intentionality, allowing us to protect service levels while preserving the long-term benefits of the system. Alongside these accomplishments, 2025 included several temporary challenges, most notably the industry's refrigerant transition early in the year and incremental complexity from our ERP upgrade.

Speaker #2: We are sequencing remaining ERP implementations under a disciplined governance framework, with Redmond scheduled for the back half of 2026 and Tulsa expected in 2027.

Matt Tobolski: This approach reflects control and intentionality, allowing us to protect service levels while preserving the long-term benefits of the system. Alongside these accomplishments, 2025 included several temporary challenges, most notably the industry's refrigerant transition early in the year and incremental complexity from our ERP upgrade.

Speaker #2: This approach reflects control and intentionality, allowing us to protect service levels while preserving the long-term benefits of the system. Alongside these accomplishments, 2025 included several temporary challenges, most notably the industry's refrigerant transition early in the year, and incremental complexity from our ERP upgrade.

Speaker #2: While these factors pressured margins in the near term, they are well understood, largely contained, and do not change our confidence in meaningful margin improvement as execution continues to strengthen.

Matt Tobolski: While these factors pressured margins in the near term, they are well understood, largely contained, and do not change our confidence in meaningful margin improvement as execution continues to strengthen. Before turning it over to Rebecca, I want to share my perspective on how we ended the year. Bookings and backlog remained strong in the Q4. BASX branded bookings again reached record levels, driving backlog to $1.3 billion, up 45% sequentially and 141% year-over-year. AAON branded bookings were also strong and increased 20% year-over-year, with backlog up 24% sequentially and 61% from the prior year period. That demand strength, paired with actions to improve execution, set the stage for a strong 2026. Operationally, production drove record sales.

Speaker #2: Before turning it over to Rebecca, I want to share my perspective on how we ended the year. Bookings and backlog remain strong in the fourth quarter.

Matt Tobolski: BASX branded bookings again reached record levels, driving backlog to $1.3 billion, up 45% sequentially and 141% year-over-year. AAON branded bookings were also strong and increased 20% year-over-year, with backlog up 24% sequentially and 61% from the prior year period. That demand strength, paired with actions to improve execution, set the stage for a strong 2026. Operationally, production drove record sales.

Speaker #2: Basic branded bookings again reached record levels, driving backlog to $1.3 billion, up 45% sequentially and 141% year over year. AAON branded bookings were also strong and increased 20% year over year, with backlog up 24% sequentially and 61% from the prior year period.

Speaker #2: That demand strength, paired with actions to improve execution, set the stage for a strong 2026. Operationally, production drove record sales. Basic branded sales more than doubled year over year.

Matt Tobolski: BASX branded sales more than doubled year-over-year, supported by the continued ramp at Memphis and strong throughput of liquid cooling solutions in Longview. AAON branded sales increased 9.5%, supported by a 42% increase in Alpha Class heat pump sales and represents the strongest quarterly growth since Q2 2024. Q4 margins reflected differing operational dynamics across our facilities. Margin momentum in Tulsa moderated sequentially due to normal seasonality and temporary supply chain constraints that reduced production volumes. Redmond delivered stable margins, balancing productivity gains with targeted investments to support strong BASX growth in Longview and Memphis. Memphis, though still a near-term margin headwind, remained on plan and achieved profitability for the first time in a quarter. Together, Tulsa, Redmond, and Memphis comprise the AAON Oklahoma and BASX segments, with Memphis results reflected in both.

Speaker #2: Supported by the continued rampant Memphis, and strong throughput of liquid cooling solutions in Longview. AAON branded sales increased 9.5%, supported by a 42% increase in Alpha Class heat pump sales, and represents the strongest quarterly growth since the second quarter of 2024.

Speaker #2: Fourth quarter margins reflected differing operational dynamics across our facilities. Margin momentum in Tulsa moderated sequentially due to normal seasonality and temporary supply chain constraints that reduced production volumes.

Matt Tobolski: Margin momentum in Tulsa moderated sequentially due to normal seasonality and temporary supply chain constraints that reduced production volumes. Redmond delivered stable margins, balancing productivity gains with targeted investments to support strong BASX growth in Longview and Memphis. Memphis, though still a near-term margin headwind, remained on plan and achieved profitability for the first time in a quarter.

Speaker #2: Redmond delivered stable margins, balancing productivity gains with targeted investments to support strong basic growth in Longview and Memphis. Memphis, though still a near-term margin headwind, remained on plan and achieved profitability for the first time in a quarter.

Speaker #2: Together, Tulsa Redmond and Memphis comprise the AAON Oklahoma and Basic segments, with Memphis results reflected in both. On a combined basis, fourth quarter sales grew 31% and incremental margins were a solid 25%.

Matt Tobolski: Together, Tulsa, Redmond, and Memphis comprise the AAON Oklahoma and BASX segments, with Memphis results reflected in both.

Matt Tobolski: On a combined basis, Q4 sales grew 31% and incremental margins were a solid 25%. While incremental margins remain below our long-term target, they are improving, and they reflect temporary pressures expected with ramping a new facility. With production volumes in Tulsa increasing materially in January and February and Memphis continuing to ramp, we expect strong growth and accelerated incremental margin going forward. At Longview, which represents the coil products segment, BASX production and profitability remained exceptionally strong, while AAON branded throughput and productivity improved sequentially. Margins reflected this progress, partially offset by the impacts of a 5-day closure to support a wall-to-wall inventory at year-end. In summary, the softer than expected Q4 margin was primarily driven by lower production at Tulsa. With a strong backlog and production already approaching record levels, Tulsa is positioned to become a meaningful tailwind in 2026.

Speaker #2: While incremental margins remain below our long-term target, they are improving and they reflect temporary pressures expected with ramping a new facility. With production volumes in Tulsa increasing materially in January and February, and Memphis continuing to ramp, we expect strong growth and accelerated incremental margins going forward.

Speaker #2: At Longview, which represents the coil product segment, basic production and profitability remained exceptionally strong, while AAON branded throughput and productivity improved sequentially. Margins reflected this progress, partially offset by the impacts of a five-day closure to support a wall-to-wall inventory at year-end.

Matt Tobolski: At Longview, which represents the coil products segment, BASX production and profitability remained exceptionally strong, while AAON branded throughput and productivity improved sequentially. Margins reflected this progress, partially offset by the impacts of a 5-day closure to support a wall-to-wall inventory at year-end. In summary, the softer than expected Q4 margin was primarily driven by lower production at Tulsa.

Speaker #2: In summary, the softer-than-expected fourth-quarter margin was primarily driven by lower production at Tulsa. With a strong backlog and production already approaching record levels, Tulsa is positioned to become a meaningful tailwind in 2026.

Matt Tobolski: With a strong backlog and production already approaching record levels, Tulsa is positioned to become a meaningful tailwind in 2026.

Speaker #2: Supported by robust basic backlog and accelerating momentum in Longview and Memphis, we are positioned for 2026 to be a strong year for growth and margin expansion.

Matt Tobolski: Supported by robust basics backlog and accelerating momentum in Longview and Memphis, we are positioned for 2026 to be a strong year for growth and margin expansion. We have a clear view of the drivers, our teams are executing, and we are confident in that trajectory. I will now turn the call over to Rebecca, who will walk through the quarterly financials in more detail.

Speaker #2: We have a clear view of the drivers. Our teams are executing, and we are confident in that trajectory. I will now turn the call over to Rebecca, who will walk through the quarterly financials in more detail.

Speaker #1: Thank you, Matt. Net sales in the fourth quarter increased 42.5% year over year, to $424.2 million. The increase was driven primarily by $138.8% growth in basic branded sales, reflecting continued strong demand for data center cooling solutions and higher utilization of our Memphis facility.

Rebecca Thompson: Thank you, Matt. Net sales in the Q4 increased 42.5% year-over-year to $424.2 million. The increase was driven primarily by a 138.8% growth in BASX branded sales, reflecting continued strong demand for data center cooling solutions and higher utilization of our Memphis facility. AAON branded sales were also additive to the year-over-year growth in the Q4, increasing 9.5%, driven by higher production levels at our Tulsa facility and a favorable comparison to the prior year period, which had been negatively impacted by the industry's refrigerant transition. Gross margin was 25.9% in the Q4, down from 26.1% in the prior year period. The modest year-over-year contraction was primarily driven by unabsorbed fixed costs with our new Memphis facility.

Speaker #1: AAON branded sales were also additive to the year-over-year growth in the fourth quarter. Increasing 9.5%, driven by higher production levels at our Tulsa facility and a favorable comparison to the prior-year period, which had been negatively impacted by the industry's refrigerant transition.

Rebecca Thompson: AAON branded sales were also additive to the year-over-year growth in the Q4, increasing 9.5%, driven by higher production levels at our Tulsa facility and a favorable comparison to the prior year period, which had been negatively impacted by the industry's refrigerant transition. Gross margin was 25.9% in the Q4, down from 26.1% in the prior year period. The modest year-over-year contraction was primarily driven by unabsorbed fixed costs with our new Memphis facility.

Speaker #1: Gross margin was 25.9% in the fourth quarter, down from 26.1% in the prior-year period. The modest year-over-year contraction was primarily driven by unabsorbed fixed costs with our new Memphis facility.

Speaker #1: Looking ahead, utilization and productivity at the Memphis facility continued to increase, and we are positioned for these capacity gains to provide meaningful operating leverage in 2026.

Rebecca Thompson: Looking ahead, utilization and productivity at the Memphis facility continued to increase. We are positioned for these capacity gains to provide meaningful operating leverage in 2026. As a result of these unabsorbed costs, Q4 non-GAAP adjusted EBITDA margin was 15.2%, down from 15.8% a year ago. The Q4 diluted EPS was $0.39, up 30% from Q4 2024. Looking at the segment financials, beginning with AAON Oklahoma, net sales increased 11.1% year-over-year to $215.5 million. This double-digit growth was driven by a strong starting backlog and improved production throughput, which supported higher backlog conversion despite a challenging industry backdrop. The Q4 benefited from a favorable comparison to the prior year period, which had been disrupted by the industry's refrigerant transition.

Speaker #1: As a result of these unabsorbed costs, fourth quarter non-GAAP adjusted EBITDA margin was 15.2%, down from 15.8% a year ago, and the fourth quarter diluted EPS was 39 cents, up 30% from the fourth quarter of 2024.

Speaker #1: Looking at the segment financials beginning with AAON Oklahoma, net sales increased 11.1% year over year, to $215.5 million. This double-digit growth was driven by a strong starting backlog and improved production throughput, which supported higher backlog conversion despite a challenging industry backdrop.

Rebecca Thompson: This double-digit growth was driven by a strong starting backlog and improved production throughput, which supported higher backlog conversion despite a challenging industry backdrop. The Q4 benefited from a favorable comparison to the prior year period, which had been disrupted by the industry's refrigerant transition.

Speaker #1: The fourth quarter benefited from a favorable comparison to the prior-year period, which had been disrupted by the industry's refrigerant transition. AAON Oklahoma gross margin was 27.5%, down from 30.7% in the prior-year period, as a result of incremental overhead expenses of $6.4 million associated with the new Memphis facility.

Rebecca Thompson: AAON Oklahoma gross margin was 27.5%, down from 30.7% in the prior year period, as a result of incremental overhead expenses of $6.4 million associated with the new Memphis facility. AAON Coil Products sales increased $49.6 million or 93.6% from the year ago period, driven by $75.3 million in BASX branded liquid cooling product sales, which grew 100% during the quarter. AAON branded sales at this segment declined year-over-year 1.8%, but increased 15.2% sequentially as production momentum improved. AAON Coil Products gross margin was 21.3% in Q4, up from 16.1% in the prior period and 11% from the prior quarter.

Speaker #1: AAON coil product sales increased 49.6 million or 93.6% from the year-ago period, driven by 75.3 million in basic branded liquid cooling product sales. Which grew 100% during the quarter.

Speaker #1: AAON-branded sales in this segment declined year over year by 1.8%, but increased 15.2% sequentially as production momentum improved. AAON coil products gross margin was 21.3% in the fourth quarter, up from 16.1% in the prior period and 11% from the prior quarter.

Rebecca Thompson: AAON branded sales at this segment declined year-over-year 1.8%, but increased 15.2% sequentially as production momentum improved. AAON Coil Products gross margin was 21.3% in Q4, up from 16.1% in the prior period and 11% from the prior quarter.

Speaker #1: The year-over-year margin expansion reflected improved operating leverage on higher throughput at the Longview facility along with a favorable mix of high-margin basic branded sales.

Rebecca Thompson: The year-over-year margin expansion reflected improved operating leverage on higher throughput at the Longview facility, along with a favorable mix of high-margin BASX branded sales. This was partially offset by a full five-day plant shutdown at Longview at year-end to conduct a wall-to-wall inventory count. In the near term, BASX will continue to be a positive tailwind in dollars, but we do not expect product mix will be as favorable as we saw in Q4. Sales at the BASX segment grew 109.1% in Q4 to $106.1 million. The strong growth was driven by sustained demand for data center solutions as the market continues to demonstrate strong momentum and the business captures additional market share, as evidenced by our strong order intake and increasing backlog.

Speaker #1: This was partially offset by a full five-day plant shutdown at Longview at year-end to conduct a wall-to-wall inventory count. In the near term, basics will continue to be a positive tailwind in dollars, but we do not expect product mix will be as favorable as we saw in Q4.

Speaker #1: Sales at the basic segment grew 109.1% in the fourth quarter, to 106.1 million. The strong growth was driven by sustained demand for data center solutions as the market continues to demonstrate strong momentum and the business captures additional market share.

Rebecca Thompson: Sales at the BASX segment grew 109.1% in Q4 to $106.1 million. The strong growth was driven by sustained demand for data center solutions as the market continues to demonstrate strong momentum and the business captures additional market share, as evidenced by our strong order intake and increasing backlog.

Speaker #1: As evidenced by our strong order intake and increasing backlog. Increased utilization of our Memphis facility was also a significant contributing factor. Providing additional production capacity that was additive to the segment results.

Rebecca Thompson: Increased utilization of our Memphis facility was also a significant contributing factor, providing additional production capacity that was additive to the segment results. BASX segment gross margin was 27.1%, up from 18.8% in the prior year period. The strong year-over-year increase was largely a result of a favorable comparison to the prior year period, along with accelerated production from our new Memphis facility. Turning now to the balance sheet. Cash, cash equivalents, and restricted cash balances totaled $1.2 million on 31 December 2025, and debt at the end of the quarter was $398.3 million. Our leverage ratio was 1.77. In 2025, cash flow from operations was a source of cash of $0.5 million, compared to $192.5 million in 2024.

Speaker #1: Basic segment gross margin was 27.1%, up from 18.8% in the prior-year period. The strong year-over-year increase was largely a result of a favorable comparison to the prior-year period, along with accelerated production from our new Memphis facility.

Speaker #1: Turning now to the balance sheet, cash equivalents and restricted cash balances toted $1.2 million on December 31, 2025, and debt at the end of the quarter was $398.3 million.

Rebecca Thompson: Turning now to the balance sheet. Cash, cash equivalents, and restricted cash balances totaled $1.2 million on 31 December 2025, and debt at the end of the quarter was $398.3 million. Our leverage ratio was 1.77. In 2025, cash flow from operations was a source of cash of $0.5 million, compared to $192.5 million in 2024.

Speaker #1: Our leverage ratio was 1.77. In 2025, cash flow from operations was a source of cash of $0.5 million, compared to $192.5 million in 2024.

Speaker #1: Capital expenditures in 2025, including expenditures related to software development, decreased 3.9% to $204.9 million. Overall, we made substantial capacity and working capital investments to support our expanding backlog and ongoing market share gains.

Rebecca Thompson: Capital expenditures in 2025, including expenditures related to software development, decreased 3.9% to $204.9 million. Overall, we made substantial capacity and working capital investments to support our expanding backlog and ongoing market share gains. As return on these investments begin to materialize, we are positioned for operating cash flow to improve significantly in 2026, driven by higher earnings and improved working capital efficiency. That flexibility supports our continued growth investments, including planned 2026 CapEx of $190 million. I will now turn the call back over to Matt.

Speaker #1: As returns on these investments begin to materialize, we are positioned for operating cash flow to improve significantly in 2026, driven by higher earnings and improved working capital efficiency.

Speaker #1: That flexibility supports our continued growth investments, including planned 2026 CapEx of $190 million. I will now turn the call back over to Matt.

Rebecca Thompson: That flexibility supports our continued growth investments, including planned 2026 CapEx of $190 million. I will now turn the call back over to Matt.

Speaker #2: Thank you, Rebecca. Looking ahead, we enter 2026 with strong visibility across both brands and confidence in our ability to execute. That visibility allows us to remain focused on production prioritized throughput, improved delivery performance, and convert demand more efficiently as we move throughout the year.

Matt Tobolski: Thank you, Rebecca. Looking ahead, we enter 2026 with strong visibility across both brands and confidence in our ability to execute. That visibility allows us to remain focused on production, prioritize throughput, improve delivery performance, and convert demand more efficiently as we move throughout the year. The BASX brand remains the company's key growth driver, fueled by exceptional demand from the data center market and our differentiated custom design solutions. During the quarter, BASX secured strong volume of new orders at attractive margins, with the majority scheduled for production at our Memphis facility as it continues to scale. This demand profile and production mix position us to increase output efficiently, optimize the fixed cost investments made in 2025 and drive robust growth in 2026. As utilization improves, we are positioned for the economic benefits of that scale to increasingly flow through to margins.

Speaker #2: The basic brand remains the company's key growth driver, fueled by exceptional demand from the data center market and our differentiated custom-designed solutions. During the quarter, basic security's strong volume of new orders at attractive margins with the majority scheduled for production at our Memphis facility as it continues to scale.

Matt Tobolski: During the quarter, BASX secured strong volume of new orders at attractive margins, with the majority scheduled for production at our Memphis facility as it continues to scale. This demand profile and production mix position us to increase output efficiently, optimize the fixed cost investments made in 2025 and drive robust growth in 2026. As utilization improves, we are positioned for the economic benefits of that scale to increasingly flow through to margins.

Speaker #2: This demand profile and production mix position us to increase output efficiently optimized the kit fixed cost investments made in 2025 and drive robust growth in 2026.

Speaker #2: As utilization improves, we are positioned for the economic benefits of that scale to increasingly flow through to margins. The AAON brand also maintains strong momentum.

Matt Tobolski: The AAON brand also maintains strong momentum. Backlog at the end of Q4 was up 61% year-over-year, reflecting strong demand across the business. While backlog levels and lead times remain extended, we are actively managing this through production ramp up and improved execution across the network. Despite a soft commercial HVAC market, bookings have remained strong, underscoring the resilience of our business. Importantly, we are seeing improving operational cadence as we work through backlog and position AAON for stronger performance in 2026. 2025 was a year of meaningful structural change and strategic investment, building on AAON's strong foundation and positioning the company for sustained long-term performance. As we move into 2026, our focus shifts squarely to execution, leveraging that foundation, improving throughput, accelerating backlog conversion, and continuing progress towards our margin objectives.

Speaker #2: Backlog at the end of the fourth quarter was up 61% year over year, reflecting strong demand across the business. While backlog levels and lead times remain extended, we are actively managing this through production ramp-up and improved execution across the network.

Speaker #2: Despite a soft commercial HVAC market, bookings have remained strong, underscoring the resilience of our business. Importantly, we are seeing improving operational cadence as we work through backlog and position AAON for stronger performance in 2026.

Matt Tobolski: Importantly, we are seeing improving operational cadence as we work through backlog and position AAON for stronger performance in 2026. 2025 was a year of meaningful structural change and strategic investment, building on AAON's strong foundation and positioning the company for sustained long-term performance. As we move into 2026, our focus shifts squarely to execution, leveraging that foundation, improving throughput, accelerating backlog conversion, and continuing progress towards our margin objectives.

Speaker #2: 2025 was a year of meaningful structural change and strategic investment, building on AAON's strong foundation and positioning the company for sustained long-term performance. As we move into 2026, our focus shifts squarely to execution.

Speaker #2: Leveraging that foundation, improving throughput, accelerating backlog conversion, and continuing progress towards our margin objectives. For the year, we anticipate sales growth of 18 to 20 percent at gross margin of 29 to 31 percent.

Matt Tobolski: For the year, we anticipate sales growth of 18% to 20% at gross margin of 29% to 31%, with margin progression expected to be uneven by quarter as capacity ramps and product mix normalizes. SG&A as a percent of sales is expected to be about 16%, and depreciation and amortization expenses are expected to be in the $95 to 100 million range. These expectations reflect our confidence in demand, improving execution, and the operating leverage embedded in our cost structure. In closing, I want to thank our employees, customers, sales channel partners, and shareholders for their continued support. We enter 2026 with clear priorities, improving momentum, and confidence in our ability to execute and deliver stronger results. With that, I'll open the call for questions.

Speaker #2: With margin progression expected to be uneven by quarter as capacity ramps and product mix normalizes, SG&A is a percent of sales is expected to be about 16%, and depreciation and amortization expenses are expected to be in the 95 to $100 million range.

Speaker #2: These expectations reflect our confidence in demand improving execution and the operating leverage embedded in our cost structure. In closing, I want to thank our employees, customers, sales channel partners, and shareholders for their continued support.

Matt Tobolski: These expectations reflect our confidence in demand, improving execution, and the operating leverage embedded in our cost structure. In closing, I want to thank our employees, customers, sales channel partners, and shareholders for their continued support. We enter 2026 with clear priorities, improving momentum, and confidence in our ability to execute and deliver stronger results. With that, I'll open the call for questions.

Speaker #2: We enter 2026 with clear priorities, improving momentum, and confidence in our ability to execute and deliver stronger results. With that, I'll open the call for questions.

Speaker #3: And a reminder to our audience that it is Star and One on your telephone keypad. Pressing Star and One will place your line into a queue, and I will open them.

Operator: A reminder to our audience that it is star and one on your telephone keypad. Pressing star and one will place your line into a queue, and I will open them one at a time and you'll be invited to pose your questions. Our first question today will come from the line of Ryan Merkel at William Blair.

Speaker #3: One at a time, and you'll be invited to pose your questions. Our first question today will come from the line of Ryan Merkle at William Blair.

Speaker #4: Hey, everyone. Good morning and thanks for the question. Matt, can we just start on the gross margin in the quarter? I missed first your expectation.

Ryan Merkel: Hey everyone. Good morning and thanks for the question. Matt, can we just start on the gross margin in the quarter? I missed first your expectation. It sounds like Tulsa was the reason, but just clarify that for us. You made some comments about recovery in Q1. I'm curious in Q1 2026 if gross margins can get back into the range you gave for guidance for the year, kind of in that 30% range.

Speaker #4: It sounds like Tulsa was the reason, but just clarify that for us. And then you made some comments about recovery and getting back into the range you gave for guidance for the year, kind of in that 30% range.

Speaker #5: Yeah, and good morning, Ryan. Thanks for the questions. So first, touching on the fourth quarter margin, when we look at the driver, the single biggest driver of that margin kind of against expectation was around Tulsa volumes.

Matt Tobolski: Good morning, Ryan. Thanks for the questions. First touching on the Q4 margin. When we look at the driver, you know, the single biggest driver of that margin, kind of against expectation was around Tulsa volumes. Our volumes in Tulsa had normal seasonality, which certainly we expected, but we had some additional supply chain constraints that put some pressures on the overall throughput and velocity in the quarter. I want to touch on the supply chain piece because I mentioned in the call and you and I have certainly talked about this in the past, there's been a lot of investment that we're making to really strengthen the capacity and the sophistication in our supply chain organization. A lot of that is to improve reliability.

Speaker #5: And so our volumes in Tulsa had normal seasonality, which certainly we expected. But we had some additional supply chain constraints that put some pressures on the overall throughput and velocity in the quarter.

Matt Tobolski: I want to touch on the supply chain piece because I mentioned in the call and you and I have certainly talked about this in the past, there's been a lot of investment that we're making to really strengthen the capacity and the sophistication in our supply chain organization. A lot of that is to improve reliability.

Speaker #5: I want to touch on the supply chain piece because I mentioned in the call and you and I have certainly talked about this in the past.

Speaker #5: There's been a lot of investment that we're making to really strengthen the capacity and the sophistication in our supply chain organization. And a lot of that is to improve reliability.

Speaker #5: There's going to be economic benefits, certainly, from better purchasing strategies, with our supply base. But most importantly, we anticipate strengthening reliability of deliveries to be one of the biggest drivers of our progress in supply chain.

Matt Tobolski: There's going to be economic benefits certainly from better purchasing strategies with our supply base. Most importantly, we anticipate strengthening reliability of deliveries to be one of the biggest drivers of our progress in supply chain. That's gonna really help alleviate some of these, I'll say, speed bumps that we've had going forward. As we look forward, you mentioned on the call that when I think about the Tulsa volumes in January and February, we have accelerated substantially out of Q4 within our Tulsa segment. When we think about what that's gonna mean, it's gonna mean a substantial benefit from overall velocities that are gonna be able to provide us some of that margin uplift that we're expecting.

Speaker #5: And so that's going to really help alleviate some of these speed bumps that we've had going forward. And so as we look forward, you mentioned on the call that when I think about the Tulsa volumes in January and February, we have accelerated substantially out of Q4 within our Tulsa segment.

Matt Tobolski: As we look forward, you mentioned on the call that when I think about the Tulsa volumes in January and February, we have accelerated substantially out of Q4 within our Tulsa segment. When we think about what that's gonna mean, it's gonna mean a substantial benefit from overall velocities that are gonna be able to provide us some of that margin uplift that we're expecting.

Speaker #5: And when we think about what that's going to mean, it's going to mean a substantial benefit from overall velocities that are going to be able to provide us some of that margin uplift that we're expecting.

Speaker #5: That will be a little bit offset in the first quarter from product mix that we'd expect to see out of our Longview site.

Matt Tobolski: That will be a little bit offset in Q1 from product mix that we'd expect to see out of our Longview site. Longview had a very large contribution of BASX revenue, but as we continue ramping the AAON branded revenue in Longview, you will see some pressures in Longview. You know, net of that, there's a little bit of, you know, offset from Longview, but Tulsa will certainly be driving improvement in Q1 out of Q4.

Speaker #5: Long view had a very large contribution of basic revenue. But as we continue ramping the AAON branded revenue and long view, you will see some pressures in long view.

Speaker #5: And so net of that, there's a little bit of offset from long view, but Tulsa will certainly be driving improvement in the fourth quarter into the first quarter out of fourth quarter.

Speaker #4: Got it. Okay. So, just to bottom-line it there—the supply chain issues we've kind of been talking about—it sounds like you've got some plans to stabilize that, and we shouldn't see that be an issue going forward.

Ryan Merkel: Got it. Okay. Just to bottom line it there, the supply chain issues we've kind of been talking about, sounds like you've got some plans there to stabilize that and we shouldn't see that be an issue going forward. Is that right?

Speaker #4: Is that right?

Speaker #5: Yeah, we're getting a lot better visibility into supply chain performance. And so, going forward, anticipate a lot of the noise that we saw in 2025 around supply reliability to abate.

Matt Tobolski: Yeah. We're getting a lot better visibility into supply chain performance, so we going forward anticipate a lot of the noise that we saw in 2025 around supply reliability to abate. What I would say is, while there were challenges in Q4 from a supply base perspective, they were substantially lower than they were earlier in the year. We are seeing the incremental progress in supply chain stability. A lot of that is reflecting the efforts and investments we're making in our supply chain organization.

Speaker #5: And so, what I would say is, while there were challenges in Q4, from a supply-based perspective, they were substantially lower than they were earlier in the year.

Speaker #5: And so we are seeing the incremental progress in supply chain stability. And a lot of that is reflecting the efforts and investments we're making in our supply chain organization.

Speaker #4: Got it. Okay. Thanks for that. And then just on the guide for revenue for '26, just looking for a few more details, obviously basics, the orders and the backlog is really strong.

Rebecca Thompson: Got it. Okay. Thanks for that. Just on the guide for revenue for 2026, just looking for a few more details. Obviously, BASX, the orders and the backlog is really strong. I'm curious, are you gonna be in that kind of 40% to 50% BASX revenue growth in 2026 that you've talked about, or could it be a bit better? Comment on the light commercial market. Are you assuming sort of a flat market there? I think you had some price increases that came in Q4, so I'm curious how much price you have in the guide for 2026.

Ryan Merkel: Got it. Okay. Thanks for that. Just on the guide for revenue for 2026, just looking for a few more details. Obviously, BASX, the orders and the backlog is really strong. I'm curious, are you gonna be in that kind of 40% to 50% BASX revenue growth in 2026 that you've talked about, or could it be a bit better? Comment on the light commercial market. Are you assuming sort of a flat market there? I think you had some price increases that came in Q4, so I'm curious how much price you have in the guide for 2026.

Speaker #4: I'm curious, are you going to be in that kind of 40 to 50 percent basics revenue growth in '26 that you've talked about, or could it be a bit better?

Speaker #4: And then comment on the light commercial market. Are you assuming sort of a flat market there? And then I think you had some price increases that came in four Q's.

Speaker #4: I'm curious, how much price do you have in the guide for '26?

Speaker #5: Yeah. So from a growth driver perspective, the growth in the basic side is not really up to that 50% range. It's definitely about half of that is sort of built into the guide.

Matt Tobolski: Yeah. From a growth driver perspective, the growth in the BASX side is not really up to that 50% range. It's definitely about half of that is sort of built into the guide. A lot of the growth is gonna be coming out of the AAON brand and in particular, coming out of the Tulsa organization. As we enter the year, our AAON Oklahoma segment has backlogs that are extended beyond where we want them to be. That is certainly partly driven by some of the supply challenges that we've had, but really coming out of the, I'll say, improving supply stability, coupled with the improving velocity in the plants, you're gonna see the AAON side of the business provide meaningful growth inside that segment in Tulsa.

Speaker #5: A lot of the growth is going to be coming out of the AAON brand and in particular coming out of the Tulsa organization. So as we enter the year, our AAON Oklahoma segment has backlogs that are extended beyond where we want them to be.

Matt Tobolski: As we enter the year, our AAON Oklahoma segment has backlogs that are extended beyond where we want them to be. That is certainly partly driven by some of the supply challenges that we've had, but really coming out of the, I'll say, improving supply stability, coupled with the improving velocity in the plants, you're gonna see the AAON side of the business provide meaningful growth inside that segment in Tulsa.

Speaker #5: That is certainly partly driven by some of the supply challenges that we've had, but really coming out of the, I'll say, improving supply stability coupled with the improving velocity in the plants, you're going to see the AAON side of the business provide meaningful growth inside that segment in Tulsa.

Speaker #5: We're already seeing that as we're kind of two-thirds of the way through the first quarter, with AAON Oklahoma running near record volumes as we sit today.

Matt Tobolski: We're already seeing that as we're kind of two-thirds of the way through the Q1 with AAON Oklahoma running near record volumes as we sit today. Certainly seeing the drivers being, you know, great growth out of the BASX segment, but also a really strong recovery in the AAON segment, that's gonna be a huge driver of growth in 2026. Your question on pricing. If you kind of recall last year, we had really 2 pricing actions. We had a price increase at the beginning of the year, and then really, I'll say a surcharge that really was in response to tariffs, but also the sort of secondary effects of price, cost dynamics around the tariff backdrop.

Speaker #5: So certainly seeing the drivers being great growth out of the basic segment, but also really strong recovery on the AAON segment that's going to be a huge driver of growth in 2026.

Speaker #5: And your question on pricing, so if you kind of recall last year, we had really two pricing actions. We had a price increase at the beginning of the year.

Matt Tobolski: If you kind of recall last year, we had really 2 pricing actions. We had a price increase at the beginning of the year, and then really, I'll say a surcharge that really was in response to tariffs, but also the sort of secondary effects of price, cost dynamics around the tariff backdrop.

Speaker #5: And then really I'll say a surcharge that really was in response to tariffs, but also the sort of secondary effects of price cost dynamics around the tariff backdrop.

Speaker #5: And so when we look in what was done towards the end of the year, there was really not any big pricing actions that were taken on the back half of the year on the AAON side of the business.

Matt Tobolski: When we look in what was done towards the end of the year, there was really not any big pricing actions that were taken at the back half of the year on the AAON side of the business. Really that growth that you're looking at, that is really growth in volume that we're talking about going forward into 2026.

Speaker #5: So really, that growth that you're looking at—that is really growth in volume that we're talking about going forward in the '26.

Speaker #4: All right. Thanks for the call. I'll pass it on.

Rebecca Thompson: All right. Thanks.

Ryan Merkel: All right. Thanks.

Matt Tobolski: Actually, I'm sorry, the other one piece too, sorry, I meant to touch on is you asked the question on the commercial rate stack market and the backdrop in that sense. Yeah, to your point, I mean, the indicators and kind of how we see the market from a high level perspective is flattish in 2026. We don't see a huge recovery in the market as a whole. Really, I would say the intentional efforts that we have with our Alpha Class air-source heat pump, coupled with the national account strategy, that's what's driving outperformance in our bookings and what we see as being the big driver of outperformance going into 2026.

Speaker #5: I'm sorry. Yeah, the one piece too. Sorry, I meant to touch on is you asked the question on the commercial HVAC market and the backdrop in that sense.

Speaker #5: And yeah, to your point, I mean, the indicators and kind of how we see the market from a high-level perspective is flattish in 2026.

Speaker #5: We don't see a huge recovery in the market as a whole. But really, I would say the intentional efforts that we have with our Alpha Class air source heat pump, coupled with the national accounts strategy, that's what's driving outperformance in our bookings and what we see as being the big driver of outperformance going into 2026.

Matt Tobolski: Really, I would say the intentional efforts that we have with our Alpha Class air-source heat pump, coupled with the national account strategy, that's what's driving outperformance in our bookings and what we see as being the big driver of outperformance going into 2026.

Speaker #4: All right. Thanks. Good luck this year.

Rebecca Thompson: All right. Thanks. Good luck this year.

Ryan Merkel: All right. Thanks. Good luck this year.

Speaker #5: Thank you much.

Matt Tobolski: Thank you much.

Speaker #1: Our next question will come from the line of Noah K at Oppenheimer.

Operator: Our next question will come from the line of Noah Kaye at Oppenheimer.

Speaker #6: Hey, all. Thanks for taking the questions. Hey, can I just follow up on that last one? Matt, I think you said, if I heard correctly, that the guide at midpoint maybe assumes 25% or so revenue growth for basics.

Noah Kaye: Hey all. Thanks for taking the questions. Hey, can I just follow up on that last one? Matt, I think you said, if I heard correctly, you know, that the guide at midpoint maybe assumes 25% or so revenue growth for BASX. I'm just trying to foot that with where the backlog ended. You know, am I understanding that you only expect to ship about half of your backlog in 2026? Is that math right? If so, why would that be the case?

Speaker #6: And I'm just trying to foot that with where the backlog ended. So am I understanding that you only expect to ship about half of your backlog in '26?

Speaker #6: Is that math right? And if so, why would that be the case?

Speaker #5: Yes, that's a great question. And really, I would just start off by talking about the buying dynamics in the data center market. The data center segment space does not trade in the sort of lead time mindset that the commercial HVAC market does.

Matt Tobolski: Yeah. It's a great question, and really I would just start off by talking about the buying dynamics in the data center market. The data center segment and space does not trade in the sort of lead time mindset that the commercial HVAC market does. The dynamics that we see embedded in our backlog is, you know, a combination of. Or I should say, it's built upon a lot of longer duration, multi-phase projects and programs. Given that dynamic, while the backlog is certainly strong and robust, there definitely is an extended period that kind of is built into that backlog, and it's allowing us to ramp with a lot of clarity, not just in 2026, but going into 2027 as well.

Speaker #5: And so the dynamics that we see embedded in our backlog is a combination of, or I should say, it's built upon a lot of longer duration, multi-phase projects and programs.

Matt Tobolski: Given that dynamic, while the backlog is certainly strong and robust, there definitely is an extended period that kind of is built into that backlog, and it's allowing us to ramp with a lot of clarity, not just in 2026, but going into 2027 as well.

Speaker #5: And so given that dynamic, while the backlog is certainly strong and robust, there definitely is an extended period that kind of is built into that backlog.

Speaker #5: And it's allowing us to ramp with a lot of clarity, not just in 2026, but going into 2027 as well. And when we think about that backlog, there's potential for a little bit of movement in there, not as much driven by our production throughput, but really driven by just some of the constraints.

Matt Tobolski: When we think about that backlog, you know, there's potential for a little bit of movement in there, not as much driven by our production throughput, but really driven by just some of the constraints. You know, we see a little bit of movement in the market, the data center market as a whole, on project deliveries, just as the entire kind of supply network, you know, feels the pressure of the overall demand. You might see a little bit of that backlog move in or move out. Fundamentally, it's really driven by these longer duration programs.

Speaker #5: We see a little bit of movement in the market. The data center market as a whole on project deliveries just has the entire kind of supply network feel the pressure of the overall demand.

Speaker #5: So you might see a little bit of that backlog move in or move out. But fundamentally, it's really driven by these longer-duration programs.

Noah Kaye: Okay. Okay. Can we talk about cash generation? I mean, if I am doing my math right, you built something like $225 million in working capital in 2025. Can you put some finer points around your operating cash flow generation expectations for 2026? Kinda how you see the cadence of that. Are you know, starting to collect more on accounts receivable? And how quickly do you see debt reduction? I'm just trying to figure how to model your interest expense.

Speaker #6: Okay. Okay. Can we talk about cash generation? I mean, if I'm doing my math right, you built something like 225 million of working capital in '25.

Speaker #6: Can you put some finer points around your operating cash flow generation expectations for '26? Kind of how you see the cadence of that? Are you starting to collect more on accounts receivable?

Speaker #6: And how quickly do you see debt reduction? I'm just trying to figure out how to model your interest expense.

Speaker #3: Yeah. Certainly, no problem. First, I do want to point out, if you look at the cash flows on a quarterly basis, we did see improvement in our cash flows from operations to be positive Q3, Q4 with sequential improvement.

Rebecca Thompson: Yeah. Certainly, no problem. First, I do wanna, you know, point out, if you look at the cash flows on a quarterly basis, we did see improvement in our cash flows from operations to be positive Q3, Q4, with sequential improvement. I would expect this positive trend to continue into 2026. You can see, like, at the end of the year, you'll notice our accounts receivable is up, but in the year highlighting our conversion of our contract assets and contract liabilities. To this point, I'll also point out the contract liability that you see at the end of the year is part of our efforts to negotiate down payments.

Speaker #3: I would expect this positive trend to continue into 2026. So, you can see at the end of the year, you'll notice our accounts receivable is up, but in the year, highlighting our conversion of our contract assets and contract liabilities.

Rebecca Thompson: You can see, like, at the end of the year, you'll notice our accounts receivable is up, but in the year highlighting our conversion of our contract assets and contract liabilities. To this point, I'll also point out the contract liability that you see at the end of the year is part of our efforts to negotiate down payments.

Speaker #3: To this point, I'll also point out the contract liability that you see at the end of the year. It's part of our efforts to negotiate down payments on some of these upcoming jobs.

Operator: On some of these upcoming jobs, so that we can better manage our working capital and liquidity. We do anticipate cash flows to improve through our increased earnings, through a lot of these supply chain improvements that Matt has talked about in our buying practices, and then also through increased billings in conversion of our contract assets. When you think about debt, it will remain elevated for most of the year. We expect it to come down a little, maybe towards the back half of the year, but interest will be higher just given the starting point at the beginning of the year with a higher debt balance. We don't really expect that to remain elevated for most of the year.

Rebecca Thompson: On some of these upcoming jobs, so that we can better manage our working capital and liquidity. We do anticipate cash flows to improve through our increased earnings, through a lot of these supply chain improvements that Matt has talked about in our buying practices, and then also through increased billings in conversion of our contract assets. When you think about debt, it will remain elevated for most of the year.

Speaker #3: So that we can better manage our working capital and liquidity. So we do anticipate cash flows to improve. Through our increased earnings, through a lot of these supply chain improvements that Matt has talked about and our buying practices, and then also through increased billings and conversion of our contract assets.

Speaker #3: When you think about debt, it will remain elevated for most of the year. We expect it to come down little, maybe towards the back half of the year.

Rebecca Thompson: We expect it to come down a little, maybe towards the back half of the year, but interest will be higher just given the starting point at the beginning of the year with a higher debt balance. We don't really expect that to remain elevated for most of the year.

Speaker #3: But interest will be higher just given the starting point at the beginning of the year with a higher debt balance. And we don't really expect we expect that to remain elevated for most of the year.

Speaker #6: All right. I'll take the rest offline. Thank you.

Noah Kaye: All right. I'll take the rest off line. Thank you.

Speaker #1: Our next question this morning comes from Brent Fielman at DA Davidson.

Operator: Our next question this morning comes from Brent Thielman at D.A. Davidson.

Speaker #7: Hey, thanks. Good morning, Matt, Rebecca, Joe. Hey, Matt, just in terms of the composition of the basics backlog and, I guess, specifically orders this quarter—is it over-indexed to one or two big orders?

Brent Thielman: Hey, thanks. Good morning, Matt, Rebecca, Joe. hey, Matt, just in terms of the composition of the BASX backlog and I guess specifically orders this quarter, is it over-indexed to one or two big orders? Is it predominantly hyperscalers? Or are you getting some more traction outside of that customer segment? Just some more color around that.

Speaker #7: Is it predominantly hyperscalers, or are you getting some more traction outside of that customer segment? Just some more color around that.

Speaker #5: Yeah. Good morning, Brent. Yeah. So when we think about the backlog composition, obviously, we don't dive into the exact customers that are in that backlog, but at a high level, there certainly is diversity in that customer base and increasing kind of customers inside that backlog.

Matt Tobolski: Yeah. Good morning, Brent. Yeah, when we think about the backlog composition, you know, obviously we don't dive into the exact customers that are in that backlog, but at a high level, there certainly is diversity in that customer base and increasing kind of customers inside that backlog. The one thing I always, you know, point out is, while it's great, you know, bookings that we see in the quarter, certainly given the scale of data center orders, there's a little bit of skew, you know, given some of the orders. One order certainly can represent, I'll say a concentration in a customer in that given quarter.

Speaker #5: The one thing I always point out is, while it's great bookings that we see in the quarter, certainly given the scale of data center orders, there's a little bit of skew given some of the orders.

Matt Tobolski: The one thing I always, you know, point out is, while it's great, you know, bookings that we see in the quarter, certainly given the scale of data center orders, there's a little bit of skew, you know, given some of the orders. One order certainly can represent, I'll say a concentration in a customer in that given quarter.

Speaker #5: So one order certainly can represent, I'll say, a concentration in the customer in that given quarter. But what we are seeing kind of on a collective basis is introduction of new customers and introduction of diversity in customer base with hyperscalers some of these sort of build-to-suit whole location providers and co-location providers.

Matt Tobolski: What we are seeing kind of on a collective basis is introduction of new customers and introduction of diversity in customer base with hyperscalers, some of these sort of build-to-suit colocation providers and colocation providers. We continue seeing the efforts that we're focusing on to diversify our customer base pay off in the overall bookings cadence.

Speaker #5: So we continue seeing the efforts that we're focusing on to diversify our customer base pay off in the overall bookings cadence.

Speaker #6: Okay. And then I guess on the AAON-branded side, Matt, how do we think about sort of order intake going forward in that I'm sure you're ramping up production and Tulsa, but you've had some challenges here.

Brent Thielman: Okay. I guess on the AAON branded side, how do we think about sort of order intake going forward in that I'm sure you're ramping up production in Tulsa, but you've had some challenges here. Are you taking a step back from or do you feel comfortable that, you know, production levels are where you want them to be and, you know, you're gonna continue to ramp up, you know, new order intake here going forward on that side of the business?

Speaker #6: Are you taking a step back from or do you feel comfortable that production levels there are where you want them to be and you're going to continue to ramp up new order intake here going forward on that side of the business?

Speaker #5: Yeah. So on the AAON side, one thing I want to point out is certainly 2025 on the AAON side of the business does not represent the performance expectation that we hold for ourselves.

Matt Tobolski: Yeah. On the AAON side, you know, one thing I wanna point out is certainly 2025 on the AAON side of the business does not represent the performance expectation that we hold for ourselves. We certainly did not deliver the throughput and the reliability that our customers expect and deserve of us. When we think about going into 2026, you know, we are dedicated and focused to driving operational improvements and really increasing the execution certainty for our customer base. That's gonna result in sequential ramping of production throughout the year.

Speaker #5: And so we certainly did not deliver the throughput and the reliability that our customers expect and deserve of us. And so when we think about going into '26, we are dedicated and focused to driving operational improvements.

Matt Tobolski: When we think about going into 2026, you know, we are dedicated and focused to driving operational improvements and really increasing the execution certainty for our customer base. That's gonna result in sequential ramping of production throughout the year.

Speaker #5: And really increasing the execution certainty for our customer base. So that's going to result in sequential ramping up production throughout the year. So we're going to be driving productivity growth, especially in the Oklahoma and the Longview segments really to ensure that we get back to the lead times our customers want and need.

Matt Tobolski: We're gonna be driving productivity growth, especially in the Oklahoma and the Longview segments, really to ensure that we get back to the lead times our customers want and need, as well as ensuring that the delivery reliability is what they expect and deserve. You'll see strong kind of growth in the overall sales from an AAON side throughout the calendar year as we continue driving and executing on that strategy. I do wanna point out that even with the challenges that we faced in 2025, you know, we made huge investments in ensuring the support was there for our customer base.

Speaker #5: As well as ensuring that the delivery reliability is what they expect and deserve. And so, you'll see strong kind of growth in the overall sales from an AAON side throughout the calendar year as we continue driving and executing on that strategy.

Matt Tobolski: You'll see strong kind of growth in the overall sales from an AAON side throughout the calendar year as we continue driving and executing on that strategy. I do wanna point out that even with the challenges that we faced in 2025, you know, we made huge investments in ensuring the support was there for our customer base.

Speaker #5: But I do want to point out that even with the challenges that we faced in '25, we made huge investments in ensuring the support was there for our customer base.

Speaker #5: And so we've invested heavily in customer care and customer service departments to really bolster the customer experience, even in the midst of some turbulent times on the AAON side of the business.

Matt Tobolski: We've invested heavily in customer care and customer service departments to really bolster the customer experience, even in the midst of some turbulent times on the AAON side of the business. That is gonna continue being things we invest in going forward to ensure the customer experience is meeting the mark for where we hold ourselves from an overall business perspective. When we look at this kind of an aggregate, you know, we had a challenging year. We're driving velocities as we enter 2026 and throughout 2026 to really push more volume through our plants.

Speaker #5: That is going to continue being things we invest in going forward to ensure the customer experience is meeting the mark for where we hold ourselves from an overall business perspective.

Speaker #5: And so when we look at this kind of an aggregate, we had a challenged year. We're driving velocities as we enter 2026 and throughout '26 to really push more volume through our plants.

Matt Tobolski: When we look at this kind of an aggregate, you know, we had a challenging year. We're driving velocities as we enter 2026 and throughout 2026 to really push more volume through our plants.

Speaker #5: But even in that challenging backdrop, you saw the bookings growth remain strong and actually increase even in the midst of that, which really kind of highlights the value proposition and the focus that we have on doing what's right for our customers even in the midst of those challenging times.

Matt Tobolski: Even in that challenging backdrop, you saw the bookings growth remain strong and actually increase even in the midst of that, which really kind of highlights the value proposition and the focus that we have on doing what's right for our customers, even in the midst of those challenging times. We anticipate, even in that I'll say flattish commercial HVAC backdrop, we anticipate seeing our bookings growth continue to strengthen throughout 2026, supported additionally by really good ramp up in our execution and productivity at our plants.

Speaker #5: And so we anticipate even in that, I'll say, flattish commercial HVAC backdrop, we anticipate seeing our bookings growth continue to strengthen throughout 2026 supported additionally by really good ramp-up in our execution and productivity at our plants.

Speaker #6: Okay. Thank you.

Brent Thielman: Okay. Thank you.

Speaker #1: Our next question this morning. And caller, I do apologize if I mispronounce your name. We'll hear from Timothy Woys at Baird.

Operator: Our next question this morning, and caller I do apologize if I mispronounce your name, we'll hear from Timothy Wojs at Baird.

Speaker #6: Pretty close. Good morning, everybody. Maybe just to start on the Oklahoma business, Matt, just I guess where are your lead times at today? And I guess if you can maybe talk a little bit about how those tracked into the back half of the year and I guess when would you expect your lead times in the Oklahoma business to kind of fully get back to normal?

Operator: Pretty close. Good morning, everybody. Maybe just to start on the Oklahoma business, Matt, just I guess where are your lead times at today? I guess if you could maybe talk a little bit about, you know, how those tracked into the back half of the year. I guess when would you expect your lead times in the Oklahoma business to kind of fully get back to normal?

Timothy Wojs: Pretty close. Good morning, everybody. Maybe just to start on the Oklahoma business, Matt, just I guess where are your lead times at today? I guess if you could maybe talk a little bit about, you know, how those tracked into the back half of the year. I guess when would you expect your lead times in the Oklahoma business to kind of fully get back to normal?

Speaker #5: Yeah. So certainly, lead times are extended beyond where we want them to. And it's hard to put an exact kind of quantification on it because it does vary based on production lines and kind of product type within our plant.

Matt Tobolski: Yeah. Certainly lead times are extended beyond where we want them to. You know, it's hard to put an exact kind of quantification on it because it does vary based on production lines and kind of product type within our plant. They're definitely out substantially longer than where we want them to be. You know, for some of our more kind of high volume lines, they might be in the mid 20 weeks kind of timeframe, which is definitely beyond where we want them to be. You know, our goal throughout the year is to really drive throughput and really bring those lead times down.

Speaker #5: But they're definitely out substantially longer than where we want them to be. For some of our more kind of high-volume lines, they might be in the mid-20 weeks kind of timeframe, which is definitely beyond where we want them to be.

Matt Tobolski: You know, for some of our more kind of high volume lines, they might be in the mid 20 weeks kind of timeframe, which is definitely beyond where we want them to be. You know, our goal throughout the year is to really drive throughput and really bring those lead times down.

Speaker #5: And so our goal throughout the year is to really drive throughput and really bring those lead times down. Now, it's an interesting balance because as we look at how we kind of rounded out the back half of the year, we have certainly shown and delivered higher productivity than we had at the beginning of the year in the Oklahoma segment.

Matt Tobolski: Now, it's an interesting balance because as we look at how we kinda rounded out the back half of the year, we have certainly shown and delivered higher productivity than we had at the beginning of the year in the Oklahoma segment. We've been pushing more and more volume through our plant. As we think about that in, you know, basically the first couple of months of Q1 of this year, we're running at or near record levels of volume throughput within our site in Oklahoma. Yet in that backdrop, we see our backlog continuing to creep up, which is telling us that even in the midst of our challenging environment, we're continuing to see strength in our overall product offering, which is resulting in bookings exceeding some of our production volumes.

Speaker #5: We've been pushing more and more volume through our plant. And as we think about that and basically the first couple of months of Q1 of this year, we're running at or near record levels of volume throughput within our site in Oklahoma.

Matt Tobolski: As we think about that in, you know, basically the first couple of months of Q1 of this year, we're running at or near record levels of volume throughput within our site in Oklahoma. Yet in that backdrop, we see our backlog continuing to creep up, which is telling us that even in the midst of our challenging environment, we're continuing to see strength in our overall product offering, which is resulting in bookings exceeding some of our production volumes.

Speaker #5: Yet, in that backdrop, we see our backlog continuing to creep up, which is telling. Environment-wise, we're continuing to see strength in our overall product offering, which has resulted in bookings exceeding some of our production volumes.

Speaker #5: And so, because if we had a static input in our bookings, it’d be very easy to give you a mathematical description of where we kind of get back to normal as lead times.

Matt Tobolski: It's a little bit of a hard thing to kinda pin down because, you know, if we had a static input in our bookings, it'd be very easy to give you a mathematical description of where we kinda get back to normalized lead times. As we drive our volumes up, we're continuing to see our bookings strengthen, which is kinda creating a difficult dynamic to really drive them down as fast as we want them to be driven down. It is certainly a huge focus for us, is to responsibly grow the volumes within the Oklahoma segment, and really in doing so, drive those lead times back to more target levels kinda within our operation. It is gonna be a balancing act of how much production volume we push, coupled with kinda what the order cadence looks like.

Speaker #5: we're continuing to see our booking strengthen which has kind of created a difficult dynamic to really drive them down as fast as we certainly a huge focus for us is to responsibly grow the volumes within the Oklahoma segment and really in doing so drive those lead times back to more target levels kind of within our operation.

Matt Tobolski: It is certainly a huge focus for us, is to responsibly grow the volumes within the Oklahoma segment, and really in doing so, drive those lead times back to more target levels kinda within our operation. It is gonna be a balancing act of how much production volume we push, coupled with kinda what the order cadence looks like.

Speaker #5: But it is going to be a balancing act of how much production volume we push coupled with kind of what the order cadence looks like.

Speaker #6: Okay. Okay. That's helpful. And then I guess on the basics business, I mean, you're exiting the year at a billion three in backlog. I think your current footprint once it currently once it kind of gets fully ramped, I think you've outlined a billion five as the potential revenue.

Timothy Wojs: Okay. Okay, that's helpful. Then I guess on the BASX business, I mean, you're exiting the year at $1.3 billion in backlog. I think your current footprint, once it gets fully ramped, I think you've outlined $1.5 billion as the potential revenue. I guess, A, what is the expectation on your part in terms of, you know, what you need to do with capacity? Then, B, does that, you know, backlog versus ultimate revenue throughput in your current capacity limit your ability to take orders in the BASX business in the near term?

Speaker #6: I guess A, what is the kind of expectation on your part in terms of what you need to do with capacity? And then B, does

Speaker #6: revenue kind of throughput in your current capacity limit your ability to kind of take orders in the basic business in the near term?

Speaker #5: That's a great want them to be driven down. But it is maybe framing the way we look at capacity and really the investment and use of capital.

Matt Tobolski: That's a great question. Really I wanna start off by really framing the way we look at capacity and really the investment and use of capital. We've certainly made a huge investment in the last, you know, 18 months between the Longview expansion and the Memphis facility. That provides huge meaningful upside in the overall production volume that we have in our fleet. One of the things beyond just supply chain that we invested in in 2025 was really a strong focus in manufacturing and operations excellence within the organization and bringing in some really great talent to help take this organization to the next level and operate as a multi-site, a true multi-site manufacturer.

Speaker #5: We've certainly made a huge investment in the last 18 months between the Longview expansion and the Memphis facility. And that provides huge, meaningful upside in the overall production volume that we have in our fleet.

Matt Tobolski: One of the things beyond just supply chain that we invested in in 2025 was really a strong focus in manufacturing and operations excellence within the organization and bringing in some really great talent to help take this organization to the next level and operate as a multi-site, a true multi-site manufacturer.

Speaker #5: One of the things beyond just supply chain that we invested in in 2025 was really a strong focus in manufacturing and operations excellence within the organization and bringing in some really great talent to help take this organization to the next level and operate as a multi-site, a true multi-site manufacturer.

Speaker #5: And I bring that up because, as we sit here as an executive team, a leadership team, and we stare at this investment that we've made, the challenge that we have in front of the team is to drive as much volume through these existing investments as possible before we have to have another substantial uptick in the overall capital investment.

Matt Tobolski: I bring that up because as we sit here as an executive team, a leadership team, and we stare at this investment that we've made, the challenge that we have in front of the team is to drive as much volume through these existing investments as possible before we have to have another substantial uptick, kind of in the overall capital investment. While we look at that $1.5 billion sort of footprint capacity that we've talked about in the past, the challenge to the team, and really, you know, what they're looking to do is actually unlock more capacity inside the existing investment to unlock more than just $1.5 billion of capacity and really drive better returns for our investors in doing so.

Speaker #5: And so while we look at that 1.5 billion sort of footprint capacity that we've talked about in the past, the challenge to the team and really what they're looking to do is actually unlock more capacity inside the existing investment to unlock more than just 1.5 billion dollars of capacity.

Matt Tobolski: While we look at that $1.5 billion sort of footprint capacity that we've talked about in the past, the challenge to the team, and really, you know, what they're looking to do is actually unlock more capacity inside the existing investment to unlock more than just $1.5 billion of capacity and really drive better returns for our investors in doing so.

Speaker #5: And really drive better returns for our investors in doing so. And so part of what we're doing at the end of the year end of last year into this year is truly mapping where the opportunity exists inside that footprint to better quantify how much volume we can truly put through that investment.

Matt Tobolski: Part of what we're doing at the end of the year, end of last year into this year, is truly mapping where the opportunity exists inside that footprint to better quantify how much volume we can truly put through that investment. Because we do believe there's more capacity than $1.5 billion there. That really is a lot of what we're focused on here in the first part of the year, is quantifying that and creating a very executable strategy to drive that forward. In the near term, you know, we certainly don't see the capacity being a limit to our ability to take new orders. I would say that fundamentally, the gating mechanism is not the square footage, it's really just the ramp rate.

Speaker #5: Because we do believe there's more capacity than 1.5 billion dollars there. And that really is a lot of what we're focused on here in the first part of the year is quantifying that and creating a very executable strategy to drive that forward.

Matt Tobolski: That really is a lot of what we're focused on here in the first part of the year, is quantifying that and creating a very executable strategy to drive that forward. In the near term, you know, we certainly don't see the capacity being a limit to our ability to take new orders. I would say that fundamentally, the gating mechanism is not the square footage, it's really just the ramp rate.

Speaker #5: So in the near term, we certainly don't see the capacity being a limit to our ability to take new orders. I would say that fundamentally, the gating mechanism is not the square footage.

Speaker #5: It's really just the ramp rate. And I say that because ramping responsibly, and doing so in a way to drive margins, is critically important to our execution strategy.

Matt Tobolski: I say that because ramping responsibly and doing so in a way to drive margins is critically important to our execution strategy. We do wanna kind of moderate how fast we push on the gas pedal to make sure we do it in a profitable, responsible, and high quality manner. Near term, I don't see that as being really a limit, the footprint being a limit. I see the ramp rate being the limiting factor. In the long term, you know, we're certainly looking to figure out how much more we can drive in revenue in our existing investments beyond that $1.5 billion we talked about in the past.

Speaker #5: And so we do want to kind of moderate how fast we push on the gas pedal to make sure we do it in a profitable, responsible, and high-quality manner.

Speaker #5: So near term, I don't see that as being really a limit. The footprint being a limit. I see the ramp rate being the limiting factor.

Matt Tobolski: I see the ramp rate being the limiting factor. In the long term, you know, we're certainly looking to figure out how much more we can drive in revenue in our existing investments beyond that $1.5 billion we talked about in the past.

Speaker #5: But in the long term, we're certainly looking to figure out how much more we can drive in revenue in our existing investments beyond that $1.5 billion we talked about in the past.

Speaker #6: Okay, that's helpful. And then, just a last one—I don't know if you said it or not, but did you give the Memphis revenue contribution in the fourth quarter in the Basic segment?

Timothy Wojs: Okay. That's helpful. Just a last one. I don't know if you said it or not, but did you give the Memphis revenue contribution in the Q4 in the BASX segment?

Matt Tobolski: Rebecca, I don't know if we have that broken out or not. If you can just double-check that.

Speaker #5: Rebecca, I don't know if we have that broken out or not. If you can just double-check that.

Matt Tobolski: Rebecca, I don't know if we have that broken out or not. If you can just double-check that.

Speaker #2: I do not.

Rebecca Thompson: We do not.

Speaker #6: Okay.

Timothy Wojs: Okay.

Speaker #5: Which is at a high level I believe. Just kind of high level. I think it's around 25 to 30-ish million dollars in contribution in the fourth quarter.

Matt Tobolski: Which is, at a high level.

Timothy Wojs: Off you go.

Matt Tobolski: I believe, just, I'd say just kinda high level, I think it's around $25 to 30 million in contribution in Q4.

Speaker #6: Okay. Okay. That's great. Thanks, guys. Good luck on the share.

Timothy Wojs: Okay. Okay, that's great. Thanks, guys. Good luck on this year.

Speaker #5: Thank you much, Tim.

Matt Tobolski: Thank you much, Tim.

Speaker #4: And a reminder to our phone audience, it is Star and One if you would like to ask a question. We will hear next from Julio Romero at Sadoti and Company.

Operator: A reminder to our phone audience, it is star and one if you would like to ask a question. We will hear next from Julio Romero at Sidoti & Company.

Speaker #7: Thanks. Hey, good morning, everyone. I wanted to ask about at the midpoint, your 2026 sales growth guidance already implies sales dollars above what was implied by the three-year invested A targets that you had for '27.

Julio Romero: Thanks. Hey, good morning, everyone. Yeah, wanted to ask about, you know, at the midpoint your 2026 sales growth guidance already implies sales dollars above what was implied by the 3-year Investor Day targets that you had for 2027. Just, you know, how would you have us think about the other Investor Day targets, the gross margins and the SG&A 30% to 35%, 13%, 14%. Are those still on track? Do you see that that is more of a run rate for 2027, and entering 2028? You know, help us think about that there.

Speaker #7: Just how would you have us think about the other invested A targets, the gross margins, and the SG&A 32 to 35 percent, 13 to 14 percent?

Speaker #7: Are those still on track? Do you see that that is more of a run rate for '27 and entering '28? Help us think about that there.

Speaker #8: Yeah. Good morning, Julio. And yeah, certainly when we look at the revenue kind of numbers that we have certainly indicates that we're pushing harder than we kind of implied during investor day, which really I'd say a lot of that comes from visibility and clarity of our ramp rates and allowing us to execute that plan with a good level of visibility and clarity going forward.

Matt Tobolski: Yeah, good morning, Julio. Yeah, certainly when you look at the revenue, kind of numbers that we have certainly indicates that we're pushing harder than we kind of implied during Investor Day, which really, I'd say a lot of that comes from visibility and clarity of our ramp rates and allowing us to execute that plan with a good level of visibility and clarity going forward. Certainly the top line number, we've had a lot of clarity on how we can drive that forward. You know, margins, obviously you're gonna see a sequential margin improvement in 2026. As we think about 2027, you know, from a margin perspective, those targets are still what we're driving towards.

Speaker #8: So certainly the top line number, we've had a lot of clarity in how we can drive that forward. Margins, obviously, you're going to see a sequential margin improvement in 2026.

Matt Tobolski: Certainly the top line number, we've had a lot of clarity on how we can drive that forward. You know, margins, obviously you're gonna see a sequential margin improvement in 2026. As we think about 2027, you know, from a margin perspective, those targets are still what we're driving towards.

Speaker #8: As we think about '27 from a margin perspective, those targets are still what we're driving towards. The one thing I would say is, as we're pushing the revenue kind of harder, there is certainly some level of pressure that exists in margin.

Matt Tobolski: The one thing I would say is, as we're pushing the revenue kind of harder, there is certainly some level of pressure that exists in margin. In particular, I'm gonna use Memphis as an example in this piece, which is, when we're pushing growth fundamentally at those growth rates, we have got to be investing ahead of the overall throughput to allow us to effectively actually drive that throughput. There is some pressure that I would say, you know, kind of pins us towards the bottom end of that, kind of how we view 2027. Certainly there is upside as we continue driving velocity through Tulsa to sort of offset some of that. The margin profile certainly is something we're still driving towards in 2027 and really exiting 2027.

Speaker #8: And in particular, I'm going to use Memphis as an example in this piece, which is, when we're pushing growth fundamentally at those growth rates, we have got to be investing ahead of the overall throughput to allow us to effectively actually drive that throughput.

Speaker #8: And so there is some pressure that I would say kind of pins us towards the bottom end of that, kind of how we view 2027.

Matt Tobolski: There is some pressure that I would say, you know, kind of pins us towards the bottom end of that, kind of how we view 2027. Certainly there is upside as we continue driving velocity through Tulsa to sort of offset some of that. The margin profile certainly is something we're still driving towards in 2027 and really exiting 2027.

Speaker #8: But certainly, there is upside as we continue driving velocity through Tulsa to sort of offset some of that. So the margin profile certainly is something we're still driving towards in '27 and really exiting '27.

Speaker #8: But the SG&A side, that one's a little bit I'd say certainly a target we're driving towards, but there is some more pressure on the SG&A side as we really ramp up the facilities and get some of these investments in people and process and technology in place.

Matt Tobolski: The SG&A side, you know, that one's a little bit, I'd say certainly a target we're driving towards, but there is some more pressure on the SG&A side as we really ramp up the facilities and get some of these investments in people and process and technology in place. There is a little more pressure on the SG&A side. We haven't really quantified that at this point, but I would say, you know, we see our sequential decline year-over-year to 16% in our target for 2026. We anticipate continued leverage as we go forward, just don't have a quantified number on that quite yet.

Speaker #8: And so there is a little more pressure on the SG&A side. We haven't really quantified that at this point, but I would say we see our sequential decline year over year to 16% in our target for 2026.

Matt Tobolski: We haven't really quantified that at this point, but I would say, you know, we see our sequential decline year-over-year to 16% in our target for 2026. We anticipate continued leverage as we go forward, just don't have a quantified number on that quite yet.

Speaker #8: We anticipate continued leverage as we go forward. We just don't have a quantified number on that quite yet.

Speaker #7: Super helpful and makes a ton of sense. And on that topic, Matt, of investing ahead of throughput and ramping responsibly, can you just touch a little bit on the IT systems and infrastructure upgrades that you talked about in the deck and not less from a quantification perspective, but more just trying to understand what you're doing on that front?

Julio Romero: Super helpful and makes a ton of sense. On that topic, Matt, of investing ahead of throughput and ramping responsibly, can you just touch a little bit on the IT systems and infrastructure upgrades that you talked about in the deck and you know, less from a quantification perspective and more just trying to understand, you know, what you're doing on that front?

Speaker #5: Yeah, and in particular, the reference there is a lot around the technology investments around the ERP upgrades. I want to really just frame this in a sort of more perspective on really how we're focusing in 2026.

Matt Tobolski: Yeah, in particular, you know, the reference there is a lot around the technology investments around the ERP upgrades. I wanna really just frame this in a sort of more perspective on really how we're focusing in 2026. When we talk about sort of shifting out the go-lives in Redmond and Tulsa, it is not because of a lack of performance of the system. It's not because of a misconfiguration. It is solely driven by operational discipline and our hyper-focus on ensuring we can drive volumes to get our lead times down.

Speaker #5: So when we talk about sort of shifting out the go-lives in Redmond and Tulsa, it is not because of a lack of performance of the system.

Speaker #5: It's not because of a misconfiguration. It is solely driven by operational discipline and our hyper-focus on ensuring we can drive volumes to get our lead times down.

Speaker #5: And so really in that environment, with such strong backlogs, such strong demand for the product, the focus on pushing out the ERP is to allow our operations teams to drive the volume increase, to drive throughput, and really execute to be able to get those lead times down.

Matt Tobolski: Really in that environment with such strong backlogs, such strong demand for the product, the focus on pushing out the ERP is to allow our operations teams to drive the volume increase, to drive throughput, and really execute to be able to get those lead times down. The focus is not around adding an additional kind of complexity in there with the ERP go-lives. It's to really allow us to focus, hyper-focus on that execution to allow those lead times to get back where we want them to be throughout 2026. That really is the focus and the commentary on the overall go-live. I would touch on, you know, while we had pressures when we went live in the Longview site, we haven't had the same level of challenges within the Memphis site.

Speaker #5: And the focus is not around adding an additional kind of complexity in there with the ERP go-lives. It's to really allow us to focus—hyper-focus—on that execution to allow those lead times to get back where we want them to be throughout 2026.

Matt Tobolski: It's to really allow us to focus, hyper-focus on that execution to allow those lead times to get back where we want them to be throughout 2026. That really is the focus and the commentary on the overall go-live. I would touch on, you know, while we had pressures when we went live in the Longview site, we haven't had the same level of challenges within the Memphis site.

Speaker #5: So that really is the focus and the commentary on the overall go-live. I would touch on, while we had pressures when we went live in the Longview site, we haven't had the same level of challenges within the Memphis site.

Speaker #5: And so, sequential go-lives are improving, and really we're getting more and more runtime with the technology systems. And we're seeing the benefits of it.

Matt Tobolski: Sequential go-lives are improving, and really, you know, we're getting more and more runtime with the technology systems, and we're seeing the benefits of it. It's really just a focus on making sure we drive volumes through our plants.

Speaker #5: It's really just a focus on making sure we drive volumes to our plants.

Speaker #7: Great. Thanks for the caller.

Julio Romero: Great. Thanks for the color.

Speaker #4: And we'll move next to the line of Chris Moore at CJS Securities.

Operator: We'll move next to the line of Chris Moore at CJS Securities.

Speaker #9: Hey, good morning, guys. Thanks to a couple. So, on the revenue growth for this year—18 to 20 percent—just in terms of the quarterly revenue trajectory, maybe I missed it, but do you expect it to increase on a quarterly basis, or just any thoughts there?

Christopher Moore: Hey, good morning, guys. Thanks, Terry. A couple. On the revenue growth for this year, 18 to 20%, just in terms of the quarterly revenue trajectory, maybe I missed it, but you expect it to increase on a quarterly basis or just any thoughts there?

Chris Moore: Hey, good morning, guys. Thanks, Terry. A couple. On the revenue growth for this year, 18 to 20%, just in terms of the quarterly revenue trajectory, maybe I missed it, but you expect it to increase on a quarterly basis or just any thoughts there?

Speaker #5: Yes. I mean, obviously.

Matt Tobolski: Yes, I mean, I would say.

Speaker #4: Yeah, Chris, I would just.

Speaker #9: Sorry, go ahead, Jim.

Joseph Mondillo: Yeah, Chris, I would.

Christopher Moore: Go ahead, Jim.

Matt Tobolski: Go ahead, Jim.

Speaker #4: I was just going to say the year will start off softer, as far as absolute dollars, as well as year-over-year growth itself.

Joseph Mondillo: I was just gonna say, the year will start off softer as far as absolute dollars as well as year-over-year growth itself, and you should anticipate improvement as we move through the year, both on a year-over-year growth perspective, but also on an absolute sort of dollar perspective. We definitely expect that things will strengthen as we move throughout the year.

Speaker #4: And you should anticipate improvement as we move through the year, both from a year-over-year growth perspective, but also on an absolute sort of dollar perspective.

Speaker #4: So, we definitely expect that things will strengthen as we move throughout the year.

Speaker #7: Perfect. Appreciate that. And in terms of—you broke down about 37.8%, you said, was liquid cooling equipment. Do you expect that percentage to change much in '26, '27?

Christopher Moore: Perfect. Appreciate that. In terms of you broke down about 37.8% you said was liquid cooling equipment. Do you expect that percentage to change much, you know, 2026, 2027? Just trying to get a sense. Does that impact margins much moving forward?

Chris Moore: Perfect. Appreciate that. In terms of you broke down about 37.8% you said was liquid cooling equipment. Do you expect that percentage to change much, you know, 2026, 2027? Just trying to get a sense. Does that impact margins much moving forward?

Speaker #7: And just trying to get a sense—does that impact margins much moving forward?

Speaker #5: Yes. What I would say is that 37.8% liquid cooling—obviously, that's revenue being driven through the Longview plant, primarily for the BASX brand.

Matt Tobolski: Yes. What I would say is, you know, that 37.8% liquid cooling, you know, obviously that's revenue being driven through the Longview plant primarily for the BASX brand. As we layer on the Memphis site, Memphis certainly has a broader portfolio of products being manufactured there, including some of our high performance free cooling chiller products. I bring that up to say that as a percentage, that may moderate a little bit, but I would say, you know, total volume, total dollars, certainly, you know, we don't see that going down at all. We see that being a driver of growth.

Speaker #5: As we layer on the Memphis site, Memphis certainly has a broader portfolio of products being manufactured there, including some of our high-performance free-cooling chiller products.

Speaker #5: And so I bring that up to say that, as a percentage, that may moderate a little bit, but I would say total volume, total dollars—certainly, we don't see that going down at all.

Matt Tobolski: I bring that up to say that as a percentage, that may moderate a little bit, but I would say, you know, total volume, total dollars, certainly, you know, we don't see that going down at all. We see that being a driver of growth.

Speaker #5: We see that being a driver of growth, and so we're introducing more volumes of broader products to the overall basics platform. That, you would fundamentally think, as a percentage, might drive that down a little bit.

Matt Tobolski: You know, we're introducing more volumes of broader products to the overall BASX platform, that you would fundamentally think as a percentage might drive that down a little bit.

Speaker #7: Got it. And just from a competitive kind of standpoint, that 37.8% liquid cooling—I'm just trying to get a sense of the competitive environment today versus a couple of years ago. Is that a bigger percentage than you're seeing from most competitors? Just kind of understanding how the dynamics are evolving.

Christopher Moore: Got it. Just from a competitive kind of standpoint, that 37.8% liquid cooling, you know, I'm just trying to get a sense of the competitive environment today versus a couple of years ago. Is that, you know, a bigger percentage than you're seeing from most competitors? Just, you know, kind of understanding how the dynamics are evolving.

Chris Moore: Got it. Just from a competitive kind of standpoint, that 37.8% liquid cooling, you know, I'm just trying to get a sense of the competitive environment today versus a couple of years ago. Is that, you know, a bigger percentage than you're seeing from most competitors? Just, you know, kind of understanding how the dynamics are evolving.

Speaker #5: Yeah, I mean, I'll say it's a bit of a loaded question in the sense that we, broadly as an industry, talk about liquid cooling products.

Matt Tobolski: Yeah, I mean, that's a bit of a loaded question in the sense that, you know, we broadly as an industry talk about liquid cooling products. When I look at the competitive landscape, you know, one of our things I'll always harp on is the AAON and BASX brands, you know, they're not targeted at being V2 manufacturers. We're not chasing after what a lot of other people are doing. We're focused on differentiation, and a lot of that differentiation is coming through the sort of consultative approach and how we approach the market and really that engineering and technical backbone that we have. The liquid cooling orders that we have, they're focused on high-performance liquid cooling opportunities driven by scalability and platform development with our customers.

Speaker #5: And when I look at the competitive landscape, one of the things I'll always harp on is the 'A' on the basics brands—they're not targeted at being V2 manufacturers.

Speaker #5: We're not chasing after what a lot of other people are doing. We're focused on differentiation. And a lot of that differentiation is coming through the sort of consultative approach and how we approach the market, and really that engineering and technical backbone that we have.

Matt Tobolski: We're focused on differentiation, and a lot of that differentiation is coming through the sort of consultative approach and how we approach the market and really that engineering and technical backbone that we have. The liquid cooling orders that we have, they're focused on high-performance liquid cooling opportunities driven by scalability and platform development with our customers.

Speaker #5: And so the liquid cooling orders that we have—they're focused on high-performance liquid cooling opportunities, driven by scalability and platform development with our customers.

Matt Tobolski: They're not as much about a chasing kind of, I'll say, lower capacity, kind of high volume, lower margin type orders. You might see others with higher percentages or others with kind of liquid cooling that might be, you know, at the same level of scale within their overall portfolio. I would just point out, you know, we're fundamentally looking at the space a little bit differently and really focused on, unique and kind of more, high-value liquid cooling opportunities versus kind of high-volume liquid cooling opportunities. That's a little bit of what you see difference in the mix with us and some of our competitors.

Speaker #5: They're not as much about chasing kind of, I'll say, lower capacity kind of high-volume, lower margin type orders. And so you might see others with higher percentages or others with kind of liquid cooling that might be at the same level of scale within their overall portfolio.

Speaker #5: But I would just point out, we're fundamentally looking at the space a little bit differently and really focused on unique and kind of more high-value liquid cooling opportunities versus kind of high-volume liquid cooling opportunities.

Matt Tobolski: I would just point out, you know, we're fundamentally looking at the space a little bit differently and really focused on, unique and kind of more, high-value liquid cooling opportunities versus kind of high-volume liquid cooling opportunities. That's a little bit of what you see difference in the mix with us and some of our competitors.

Speaker #5: And that's a little bit of what you see, difference in the mix with us and some of our competitors.

Speaker #7: Got it. I appreciate that. I'll leave it there, Matt. Thank you.

Christopher Moore: Got it. I appreciate that. I'll leave it there, Matt. Thank you.

Chris Moore: Got it. I appreciate that. I'll leave it there, Matt. Thank you.

Speaker #5: Thanks, Chris.

Matt Tobolski: Thanks, Chris.

Speaker #4: And, ladies and gentlemen, that was our final signal from our audience. We thank each of our callers who signaled for a question today.

Operator: Ladies and gentlemen, that was our final signal from our audience, and we thank each of our callers who signaled for a question today. Mr. Mondillo, I'm happy to turn it back to you, sir, for any additional or closing remarks that you have.

Speaker #4: Mr. Mondillo, I’m happy to turn it back to you, sir, for any additional or closing remarks that you have.

Speaker #9: Yeah. Thank you, Jim. I'd just like to thank everyone for joining us on today's call. And that if anyone has any questions over the coming days and weeks, please feel free to reach out to myself.

Joseph Mondillo: Yeah. Thank you, Jim. I'd just like to thank 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 to you in the future. Thank you.

Speaker #9: Have a great rest of the day. And we look forward to speaking to you in the future. Thank you.

Speaker #4: Ladies and gentlemen, this does conclude the AON, INC. Q4, 2025 earnings release. We thank you all for your participation. And you may now disconnect your lines.

Operator: Ladies and gentlemen, this does conclude the AAON, Inc. Q4 2025 earnings release. We thank you all for your participation, and you may now disconnect your lines.

Q4 2025 AAON Inc Earnings Call

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