AAON, Inc. (AAON) Earnings Call Transcript & Summary

All right. Good morning, everyone. My name is Joe Mondillo, Director of Investor Relations, for those who don't know. Thank you for all for coming. I know this takes a lot of time out of your day, so we appreciate it. Those on the webcast, we also appreciate your participation. So the last time we did one of these was 2023. A lot of people asked, when is the next time you think you'll do one of these things? And at the time, I remember saying that I think 12 months, the story doesn't change a whole lot. In 3 years, it's probably going to be too much. And I think that's exactly where we are, 2 years was the right time in my thought process. And here we are, a lot has changed with the story. So I think this is going to be a useful worth of your time today. Before we get started, I just want to remind you of everyone of the forward-looking statement disclaimer that we have. You're all aware, we're not required to update any forward-looking statements said today. Joining me today, the team, Matt Tobolski, CEO; Rebecca Thompson, CFO and Treasurer; Stephen Wakefield, our General Manager of the AAON business unit; Matt Shaub, General Manager of our BASX business unit. And we also have here today who will be participating in the Q&A, Andrew Edmondson, our Vice President of Sales and Marketing. Our agenda today, it's going to be about -- it's actually going to be about a 2.5-hour presentation, give or take. We'll have a 15-minute break in the middle. We'll finish with a Q&A 30 to 40 minutes or so. So hopefully, we'll get all your questions answered. And I think that's about it. Before I hand it off to Matt, we want to start and kick it off with a brief video for you all. [Presentation]

So good morning. My name is Matt Tobolski, Chief Executive Officer of AAON. For those of you that don't know me, I joined AAON about 3.5 years ago as part of the BASX acquisition, a company I cofounded. And really, it's been an awesome journey to be part of this organization through some tremendous growth, some tremendous transformation. And really from the perspective of where we're going, we've just got some fantastic technology, fantastic team and really an exciting future that we're happy to share with you all today and really happy to also answer plenty of questions afterwards on kind of where the direction of the organization is going. I always like to start off with really kind of who we are as an organization. And when we think about the HVAC space, as my kids tell me, it's a pretty boring industry. But I'd like to remind them that we're not just an HVAC company. We're not a product manufacturer. We truly are a solutions provider, and that's a mindset that this entire organization embodies. We're not out there trying to pitch products and really put those into someone's application. We're trying to solve a problem. We're trying to take a consultative approach, and we're really trying to create value inside the marketplace. And that mindset is really founded on this just core belief and really driving and pushing boundaries and innovating technology inside the HVAC space. When I look at the mindset of who we are, we are a disruptor. That is the mindset of kind of how our team wakes up, how the engineering organization really looks to kind of redefine what the industry is doing. And what's really fun is it's that mindset, it's that sort of entrepreneurial spirit that's embodied inside this organization that it's really fun to sit here and say, we're a $1 billion-plus organization and the entire team, the engineering talent, like they're always sitting there kind of like a start-up mindset of how do we redefine how do we disrupt, how do we change the way things are doing. And that mindset, coupled with an amazing best-in-class manufacturing footprint is really what's allowing this organization to outperform, to acquire market share and really create a differentiated position in the marketplace. And so it's a really fun organization to be a part of. It's really fun to be sitting here and really looking at this as not just being an HVAC manufacturer, but truly solving problems, truly providing value to our customers. And so as an organization, for those of you that are newer to the story, so the organization is founded back in 1988. And really, it was founded with a mindset of bridging a gap between, at the time, catalog products, so kind of the no-frills, no feature product set, and the custom products. And it was really trying to blend or kind of provide that middle ground solution where you could provide a semi-custom solution, really provide a tremendous amount of value, but do it at a very cost competitive price point. And that was really the original foundation of Norm's vision when he founded AAON. And that's really been sort of the value mindset, the driving solutions mindset that's really embodied in the organization today. It's amazing to think of where this organization over the last 37 years has evolved. 1988, 160,000 square feet of manufacturing space till today, 4 million square feet of manufacturing footprint across 5 locations. And that is backed by some of the greatest test engineers, some of the greatest product engineers that the industry has. And we have the most capable test capabilities in the HVAC space that really supports the mindset of our engineers that are pushing boundaries and driving solutions. As an organization, we really operate under 2 brands. And this is sort of a mindset shift that's kind of been happening over the last couple of years, which is transitioning the way we think about this business into truly 2 differentiated brands, the AAON brand, the BASX brand. And the organization, fundamentally an innovation and solutions mindset is consistent across the brands, but each brand has its own kind of unique way of delivering that value proposition. So the AAON brand really in that semi-custom mindset where the BASX brand is really kind of more in a custom mindset, serving the data center industry, clean rooms and kind of the industrial and commercial, where in the AAON space, primarily rooftop units, split systems in the K-12, educational, health care, retail markets, but both founded on a common mindset of really delivering innovation to the space. As an organization, we talk about and kind of intro this a little bit. Today, as an organization, we report in segments. And those segments are really defined by geographic boundaries. But as we look into the future and really the conversation today, we're transitioning the mindset from those segments and really focusing the conversation around the 2 brand strategies that exist. And so as we continue moving through time and moving kind of throughout this year, we're continuing to put more and more systems in place to be able to really provide a better lens into this organization around that brand strategy because that really is the way we're executing. We're leveraging that manufacturing footprint, and we're no longer looking at this business really around the mindset of geographic limits and geographic boundaries from a reporting perspective. As an organization, $1.2 billion in revenue last year, but really supported by an immense amount of interest and demand for our products and solutions, which is really kind of driving that $1 billion backlog that exists at the end of the first quarter. Really from an operations perspective, really strong operations, continuing to drive improvements in our operations and really driving investments in efficiency, which is helping really provide that kind of growth in the margin profile. But something I always focus on that's a little bit unique. When you look at the CapEx and the R&D that we reinvest into the company, this really is an organization that is driving organic growth and driving investments in kind of the value proposition that we provide. And so a very healthy kind of reinvestment of our profits to really drive that organic growth, to drive that product differentiation and really fuel the innovation that exists within AAON. So today, really, the conversation is going to be founded around really 5 strategic pillars that are really driving value from an investment perspective. And these are the pillars that kind of we're operating on from an organizational perspective that really drive the decision-making that we do kind of going forward. And I always start with this pillar #1, which is really the mindset of winning with that superior innovation. #2 is really driving results and really trying to empower our leaders to really drive value delivery from our kind of custom solutions and semi-custom solutions in the marketplace. Pillars 3 and 4 really around driving growth through some secular trends, whether the data center solutions kind of off the BASX brand or a lot of the heat pump decarbonization and national account strategies inside of the AAON brand. And then the final pillar is really the drive to be a best-in-class operator and really kind of do it in a very profitable and really solid manner. So we'll dive into these 5 pillars kind of in more detail, but this really is the overarching theme of the conversation of really where that value within the AAON kind of organization is going to derive from. So innovation, and we could sit here and I can -- you're going to hear this conversation time and time again. You're going to hear it from me. You're going to hear it from Stephen, you're going to hear it from Matt. And you're going to hear almost beating a dead drum kind of on this conversation because innovation is the lifeblood of who we are as an organization. Innovation is something that truly sets AAON apart, both the AAON brand and the BASX brand. And it's the mindset of pushing boundaries. It's the mindset of answering questions that the industry didn't even know to ask it. And if you look at the sort of focus that we have within our innovation, within our engineering team, we have some of the most capable, talented engineers that are looking into the future. They're looking past regulations. They're looking past kind of chasing industry trends in the background, and they're defining those industry trends. And the amazing part, and you'll hear this discuss more, especially in Stephen's section is it's supported by the most capable technical lab in the industry. And so the ability for us to really drive new product concepts to drive new solutions kind of into the industry and actually validate and support those is something that's allowed AAON to really drive market share acquisition over the last 10 years, and it's going to continue being a major driver for us because we're able to stay ahead of those regulations, stay ahead of those trends and really redefine what the industry is chasing. But that second pillar, and really, this is something that we introduced at the end of last year and really kind of an organizational structure kind of going forward, it's really the reorganization of this business. It's really that rethinking the way we segment the organization, rethinking the way we manage this business. And really, it's trying to decouple the mindset of geographic locations defining how we manage the business and really looking forward to say, what is the value proposition that's delivered by both of our brands? What is the introduction of the product strategy? What is the way that we're providing value to our customers and to the industry as a whole? And then looking at that and saying that manufacturing footprint, that 4 million square feet of capacity, that supports the brands. That supports the brand strategy. And so the mindset is really kind of looking at that and saying, we've got this great tool in manufacturing, but let's focus the way we lead the business, let's focus the way we think about the innovation around the brand, around the product and around the value proposition that we deliver to our customers. And so that really was the reorganization and kind of the 2 business units that you'll hear Matt and Stephen both talk about. And their job is really to define what the next-generation product looks like to look at the product management mindset, to look at the innovation mindset, the engineering and really have a hyper focus on customer care and customer delivery to really provide a best-in-class customer experience, both from a technology perspective and from a delivery perspective and then leverage that capacity, leverage that manufacturing footprint from a best-in-class manufacturing fleet to support both brands. And so we'll talk later in this presentation about what that means. It means we no longer look at Tulsa as being just an AAON piece of the organization. We don't look at Longview as just being a part of the AAON coil products or AAON kind of brand historically. We look at it and say, given the opportunity, given the drivers that we have as a business, how do we leverage that manufacturing footprint to really deliver value for our customers. And then obviously, with scale comes some efficiencies in the way we manage the back office. And so really kind of providing a consolidation and providing a much more streamlined back office fueled by some technology investments to really allow us to manage this business more proactively. So when we think about the business, we've got our 2 primary brands, AAON and BASX, but I mentioned this earlier, and I'll kind of reiterate it again here. I mean the common overlap here and part of the reason why when AAON approached the conversation with BASX 3.5, I guess, 4 years ago now in the conversation, part of the reason why we made the decision to sell was that overlap. It was the fact that while we're 2 different businesses with 2 different kind of product types and really touching different parts of the market, that mindset of innovation, that mindset of providing a premium value, premium experience, like that is core and core to the culture of both organizations. And that was one of the big drivers when we made the decision to actually sell BASX to AAON was because of that commonality of culture and mindset and how we actually drive value in the marketplace. Number -- the 2 brands are different. Number one, big difference, obviously, is the markets that they're really focused on. And really, the AAON brand is really focused on the nonres commercial HVAC market, driving value with packaged rooftops and split systems in a semi-custom fashion, whereas the BASX brand is really -- it's built around a, I'll say, a high-value customer data centers, mission-critical applications, clean rooms and delivering value through a more customized approach, kind of a clean-sheet approach to really be able to kind of solve very challenging problems with products that don't exist in the industry or exact configurations and really rightsize solutions to drive tremendous value in the marketplace. Now today, this is looking at the previous 12 months of kind of where that revenue breakdown is. So roughly 1/4 of the revenue today is coming from the BASX brand and then 75% of that, 3/4 of that is coming from the AAON brand. But as we look forward, and you'll hear this kind of repeated throughout the day and conversation, while both brands have tremendous growth opportunities, the BASX brand certainly has a huge driver in really delivering value to the data center space and delivering a lot of value and growth kind of off that data center demand. So as we look into the future, that 1-quarter, 3-quarter split is really 3 to 5 years out, going to look more like an even playing field between 2 of these brands. And that really is kind of the story and the kind of way to think about this organization going forward is 2 equal brands kind of driving value to the marketplace. So talking about that third pillar, and Matt Shaub is going to dive into a lot more detail around the BASX brand, the BASX value proposition. But that third pillar kind of in that growth strategy, value delivery strategy is around that BASX brand. And it's really around capitalizing on secular trends inside the data center space. And when we kind of step back and say to ourselves, what is the value proposition, the value drivers of the BASX brand, it really comes from that kind of that far left item there. It's really that solutions-based approach. It's that mindset that we are truly solving problems. And so when we go into a customer's office to discuss a project, we're not walking in with a catalog of products that we're attempting to get applied into an overall project. We're walking into a customer's office with a blank sheet of paper, listening to them, understanding what their drivers are, what their needs are and then really taking that and providing a solution that checks all the boxes. Matt will give an example of a case study of a project that BASX really won and provided tremendous value with. And it was exactly that mindset of basically listening, driving value and answering questions that nobody else could actually provide solutions to. And that's all supported by the engineering teams. It's all solved by that manufacturing footprint. It's all kind of collaboratively solved by a tremendously talented team that can create solutions, validate those solutions and then manufacture them at scale efficiently. And as we look at the past 40% growth in a market growing 10%, it's been a story about market share acquisition. It will continue to be a story about market share acquisition inside that BASX brand. Inside the space, and again, Matt will dive into more detail on the actual products. But historically, the BASX brand has been built on airside solutions. It's historically been driving growth in the data center space from a cloud computing perspective. And I always like to just pause in this conversation because everybody is excited about AI. The drivers around the data center story is all driven and all focused on AI, at least the excitement in the marketplace. But I always pause and say, cloud computing growth hasn't gone away. Data center operators continue to invest and build cloud computing data centers. A couple -- about a year ago, Andy Jassy from Amazon made a comment that less than 20% of services that can be in the cloud today are actually in the cloud. So there's a huge runway of basically investment that's happening around cloud, and we're layering on top of that the AI conversation. And so as we think about the BASX brand going forward, it's both the airside solutions serving cloud and AI, plus a layered approach with liquid cooling to support AI on top of that. So tremendous growth drivers around product strategy, about innovation and really allowing our products and leveraging that custom mindset to really provide those solutions going forward. Now I think we can all agree, data centers are growing, but also I'd like to really kind of put a pin on the fact that the BASX brand, the demand for the product, the demand for the innovation that's provided in the BASX kind of realm and BASX brand of the business is gaining tremendous drive in acquisition of kind of new customers inside the data center space. And this backlog is kind of the example of how that demand is materializing. When we look at the first quarter, when we look at this continued increase in our backlog, that's also happening while capacity is coming online. It's happening while the revenue conversion is accelerating as well. And so we're sitting here with a tremendous amount of demand with tremendous capacity coming online, really kind of showcasing the value proposition and really how it's resonating within the data center space, allowing this to be a great growth driver for the organization going forward. So one thing I also want to touch on is when we talk about the brand strategy going forward, and this is something that's an evolution within the BASX brand. So we talked earlier that the BASX brand was launched with this mindset of a true custom solution clean sheet. And then we talk about how AAON as an organization was founded to bridge the gap between catalog products and custom solutions. And so a couple of years ago, as a team, we were sitting back saying this kind of aha moment of wait a minute, why don't we take a page from the playbook of why AAON was founded in the first place? And why don't we expand the reach of the actual applicability of BASX products and BASX solutions going forward. And so that mindset was basically to say, let's expand our portfolio within BASX beyond just the custom product and actually take that page from the playbook of AAON and launch a semi-custom configurable solution. And the reason we do that, the reason that mindset is there is when you look at where the custom solutions really resonate, they resonate with those large hyperscale data center customers. They resonate with these very large developers that really understand the value proposition of that true custom solution. But there's a lot of other players inside the data center space that maybe don't have the same level of focus on driving kind of complete unique bespoke solutions. So if we launch a software-driven configurable product, the exact same way that we launched AAON with the same manufacturing footprint to support it, we're opening ourselves -- providing access to more of the industry in the data center space and providing more ability for us to provide that value in the data center space. And so we look at this product strategy and this evolution as an organization where we hold both custom solutions and semi-custom solutions in balance as a huge driver to really diversify our customer base and drive more growth inside the space. So really just to reiterate, I mean, when we look at the overall BASX organization, I mean, we're sitting here as a value-driven product -- value-driven solutions provider that's really resonating within our customer base in a dynamically growing market. We've got product portfolio evolution from airside to liquid cooling applications plus additional product introductions around that semi-custom strategy, all that are going to provide a tremendous driver of growth for the BASX brand going forward and really kind of helping support that good growth, not just today, but well into the future. So touching on that fourth pillar. And again, I always have this conversation where we have a lot of talks during investor conferences, and we were in Chicago last week, and I think 80% of the questions, 80% of the comments and conversations were around data centers. And really, I'd like to reset the stage in the conversation because when we think about the 2 brands, we think about AAON, we think about BASX, AAON, the sort of fundamentals, the drivers of growth, the story around the AAON brand is a shining star. The only problem is when we're looking at BASX, we're looking at the data center demand right now, you're staring at the sun. And so people start to really forget what that story looks like around the AAON brand, and it becomes a secondary conversation. But in an HVAC space, in the nonresidential commercial space, the AAON brand is and will continue to be the differentiated products inside the marketplace, huge value, semi-custom strategy that provides tremendous value to the industry in a very cost competitive level. And it's really supported by some great secular trends around decarbonization, around heat pump -- a lot of the innovation we have in heat pumps, around a lot of the technology innovations we have kind of across the board, regulatory environments, helping compress price premium. All these things are driving tremendous growth where AAON is in the best position it's ever been. And so we're sitting here and we're a little bit of the conversation gets lost just because of the excitement of the industry right now around the data center space, but the AAON brand is in the best position it's ever been. And we think about those 3 drivers, those 3 secular trends, first and foremost, the desire and drive to reduce carbon emissions and electrify heating sources, coupled with the innovation that AAON has is driving a tremendous value proposition inside the marketplace, and it's going to be a huge growth driver from a product mix perspective. Beyond that, regulations, whether it's efficiency standards, whether it's refrigerant, continue to really drive the sort of ability for AAON to be ahead of the market and really provide opportunities for us to really capitalize on great growth drivers, plus it's forcing a lot of our competition closer to where AAON has always been in terms of high efficiency standards and better performing products. And all of that is combining itself to basically really resonate with the AAON economics conversation. The price premium gap is closing. It's allowing the TCO conversation, total cost of ownership conversation to become more and more attractive. And those will all be part of that growth driver within the next 3 years of mid-single-digit growth. Now I just want to pause when we say mid-single because AAON historically is a high single-digit growth company. And we as a sector right now, a non-res kind of HVAC sector, it's a down year. And so when we say mid-single-digit growth, we're not saying the long-term proposition of high single digits is going away. We're just saying the 2025 calendar year has a lot of industry kind of headwinds that are going to push volumes down. But kind of on a go-forward basis, that high single-digit growth that you've seen of AAON with that noise from the industry out of the way is going to continue to accelerate and get back to where it's always been. So talking real quick on heat pumps, talking about the national account kind of combination, by themselves, the heat pump innovation that AAON has is a growth driver. By itself, we think about the ability for us to reduce carbon emissions and provide fantastic technology is a driver of growth. And you look at what AAON is doing in heat pumps, you look at the industry as a whole that has baseline heat pump products that go to 37, 40 degrees Fahrenheit, AAON has heat pump technology that can operate all the way down to negative 20 degrees Fahrenheit. We have a portfolio, a 3-tiered product inside the heat pump space that can really provide electrified heating across the vast majority of the U.S. No other commercial HVAC manufacturer has a portfolio that can achieve the level of performance across the country that AAON has. So that by itself is a great driver of growth. Now you take that same conversation and you marry it with our national account strategy, and all of a sudden, you've really just provided a solution to a problem that the industry has been asking for an answer to. You look at the ability for us to go to a national account customer and have a conversation where we say, we have the most capable heat pump, but it's 3 tiers. We have a version that can be operating in a very cost-effective manner in the lower states. But we also have an ultra-high performance version that can provide you electrified heating in the northern states. And we can select the right product in that portfolio, the right tier in that portfolio to answer the most economical way to kind of build those products going forward. And that is a huge differentiator. Nobody else has the ability to provide that level of performance. And so we talk about what that means. We talk about our pipeline, our visibility what we have. That -- and Stephen will talk more on this later on, but national accounts historically have not been a huge piece of the AAON story. And we're sitting here with multiple hundreds of millions of dollars of pipeline and opportunity in national accounts. That's incremental conversation. And when we talk about where does that materialize, these are longer plays, right? These aren't the normal bid plan and spec type project where it's a relatively quick conversion from a bid to an overall order, there's a little bit more of a time line there because you're really providing solutions to really provide answers across the country. So it's a little bit longer sales cycle. So why I'm saying that is that doesn't all materialize. A few hundred million dollars in pipeline doesn't materialize in 2025. It will start materializing in '25. But it's a '26 and beyond story when you really see these large projects, these multiyear development projects really start to be a huge driver of top line growth from a sales perspective. We've talked a lot about the refrigerant transition. I don't want to belabor this. You've heard me talk about this over and over again. I just want to start off by saying, obviously, this is an industry-first refrigerant transition in that we had building code implications and we had a regulatory requirement from EPA. That caused a tremendous amount of noise in the industry. We've messaged that for over 1.5 years that it was going to disrupt 2024. It did. Obviously, Q4, Q1 results really driven by some challenges on sort of the transition timing in the industry. AAON as a semi-custom manufacturer was more susceptible to some of that air pocket compared to manufacturers that are building catalog products to distribution. But I want to say and really reiterate that was a temporary conversation. We talk about -- we look at Q1 backlog, we look at Q1 orders growth. We look at kind of how orders continue to materialize and it's showcasing the value proposition of AAON is exactly -- is stronger than it's ever been, and the overall disruption from the refrigerant transition is behind us. There's some hangover on some supply chain across the industry, some little challenges here and there, air pockets here and there. But by and large, the big impacts of that refrigerant transition are behind us. The sales book, the cadence and the competitiveness of the product has never been better. And really looking forward, we're happy to be beyond this conversation and be able to focus on the future without this transition being a driver or sort of an impairment to the overall AAON conversation. And so touching on that final -- touching on kind of what that means kind of a growth driver in the AAON side, I mentioned the economics perspective. The conversation around AAON and price premium has always been or historically been 5-plus years ago around this premium product that was 15% to 20% more expensive. Through regulation, through a lot of requirements, over the past couple of years, the efficiency standard requirements that came into the industry in 2023, plus a lot of other drivers caused that price premium gap to close. Now AAON still sells a higher-quality product. AAON still delivers value, better value proposition, better efficiency, better maintainability of our product compared to our competition. But through some of that regulatory change, a lot of costs had to go into our competitors' products to be able to meet those efficiency standards. So that helped close that gap. Well, as we look at where we're at, where we're sitting today, that gap has continued to close a little bit. There's been a lot of noise over the last 12 to 18 months around the price dynamics around this new refrigerant equipment. And at one point, there was conversation around 15% to 20% more cost going into our 454B equipment relative to 410A. Now did 15% to 20% materialize? No. And as time progressed, the messaging in the industry went from 15% to 20% down to 8% to 10%. Is there more cost in our competitors' equipment? Yes. But that gap is closed maybe 1% or 2%. It hasn't closed. We're not sitting at price parity. We're not sitting at some neutral position with their competition. That gap's closed a little bit. But every little bit that gap closes, the value proposition and the story of AAON becomes that much easier to sell to our competition. It allows us to acquire that much more market share. And why I want to bring that up is as the price premium gap closes, it's not that we're sitting here getting more market share at the expense of overall margin performance. We're doing it with the ability to also execute in the most efficient way possible and getting rid of the noise of Q4, Q1 from the refrigerant transition, the actual input cost dynamics, plus that volume will provide not only more volume at a lower price premium but we'll do it at increasing financial performance. We'll be seeing better margins delivered kind of in that environment. So it really is a unique situation where we're not giving up margin to get volume, but we're able to maintain and actually accelerate some of that. And so I started off by saying this on the intro, but really just to reiterate, I mean, as a brand, as an organization, the AAON brand is in the best position it's ever been. The fundamentals are the strongest they've ever been in the history of this organization. And with that kind of noise around the refrigerant transition behind us, when we look forward beyond kind of a year that's a down year from a macroeconomic standpoint, when we look forward, the brand is in the best position to continue capitalizing on market share acquisition and really in a position to really continue showcasing the great value that AAON provides. So touching on that final pillar, it's really around being a best-in-class operator, really looking at who we are as an organization. And obviously, there's some year-to-year noise in there. This little thing called COVID happened at one point in there. But when we look at the organization kind of from '18 to 2024, we've had great growth in our gross profit margins. In the past, AAON really looked and really set pricing strategy with a desire to really deliver margins between 28% and 30%. And a couple of years ago, we were very vocal that we really reframed the way we look at margins. We want to make sure that when we're pricing our equipment, we are pricing our equipment to properly reflect the value proposition it's providing to the marketplace. And so we rethought about the way we price our equipment. And you'll see that we actually -- we're increasing our pricing, increasing our margins while also having some of our price premium kind of sit a little bit smaller than it used to be. But we're doing that with improving margins because of the cost that we're putting into the product and really the pricing strategy, coupled with the investments we've made to be a best-in-class manufacturer. If you look at the efficiency metrics that we stare at on a daily, weekly basis, the efficiency in the organization in terms of productivity in our production lines and really throughput and efficiencies in manufacturing are at some of the best levels they've ever been. And so that pricing strategy plus those investments in the operational strategy has allowed us to continue really moving that margin to sort of a new level within our expectations and really our expectations going forward. We're also looking at saying from a manufacturing standpoint, how do we make sure we really support those 2 brands? How do we support the growth drivers of both brands? And really, it's leveraging and making strategic investments to get the manufacturing footprint capable of servicing the needs of AAON going forward in the future. It's not -- as I talked about with AAON, it's not a BASX or AAON story, it's a BASX and AAON brand story. And these investments in capacity are being made to support both brands. They're being made to say, while Memphis is a conversation that a lot of people attribute to data centers, it certainly is a huge driver of the investment we made, but it also supports the growth inside the AAON brand as well. It's a tool to be able to leverage and provide capacity to support the national account strategy that we're focusing on. It's really looking at this and saying, we're going to make the investments ahead of where that demand is driving us so that we have the capacity to really deliver on those solutions, but do it in a very financially responsible way. So we think about that footprint and we think about what it looks like, when Joe was putting the slide together, I laugh and I said, it will never actually look like that. But this is a mindset of the way we think about that manufacturing footprint. It's saying, hey, when we think about it today, what could that look like? So we say, hey, based on a lens today, yes, Memphis could be mostly data centers. But guess what, if we see the traction that we know we're going to see around national account strategy, we might actually move some production from Tulsa to Memphis. So that conversation that these sliders, it becomes a conversation about how do we actually support the growth drivers on both brands. And one of the unique things about AAON and BASX brands, the back-of-house manufacturing equipment that really drives the product and drives a lot of the value we put into our product is the same with both brands. The sheet metal fabrication, the electrical panel shops, the coating systems, the coil manufacturing, all of those systems that support manufacturing are identical between AAON and BASX brands. And so that means that as we make the investments in really streamlining our manufacturing process and really tuning the system up to be able to transfer technology between one brand to one site to another, it becomes a huge 4 million square foot tool for us to use and leverage to really capitalize on that growth. And so when we think about capacity we're adding, just one little data point when we look at the last couple of years, kind of a unique thing. When we look at the square footage that we've added between Longview, Texas and our Memphis investment, roughly 1 million square feet of incremental capacity has been added inside the overall AAON organization. When we look at that from a data center perspective, that's equivalent to our top 3 peers combined. And so obviously, we're making investments to get a lot of square footage in there, but we're doing it in a way where we're fiscally responsible. The building itself is relatively cheap in the grand scheme of things. And for us to be able to have that footprint to be able to leverage the investments in back of house that we're making to support manufacturing and leveraging the leadership talent at that site is very intentional. And we look at the building and buying a bigger building being a very intentional piece of our strategy because it's easier for us to then grow into that than try to have a bunch of smaller disparate locations across the country. To us, building and getting this large square footage provides us a very good platform to really grow into, to put investments into in equipment and fabrication systems and other things but do it in a way where we have the leadership concentration already there versus having to really look at that limited resource. We look at people as being our biggest bit of sort of value drivers inside the organization. The manufacturing pieces, the facilities, they're critically important to what we do, but the people are the most important part of what we have in this organization and leveraging top-tier leadership talent is one of the biggest parts of our strategy and part of why we actually made some of these bigger investments and bigger square footage facilities to really provide us a leverage off of that talent. So just to reiterate and really, you'll hear these drumbeats kind of hit throughout this entire conversation, but just reiterating, number one, first and foremost, we are an innovative company. We are driven by innovation, driven by disrupting the industry. We look at those semi-custom and custom solutions as being huge value drivers that are really unique to the organization and unique to the story about how we deliver value to our customers. The secular trends, decarbonization, data centers, those are what's going to drive that great robust growth, and we're going to do it in a very profitable manner with improving efficiencies and strategic investments to support that demand. As Joe mentioned, our last Investor Day was a couple of years ago in Tulsa. I certainly appreciate a lot more people made the track to New York than to Tulsa. I think we're probably 3 or 4x more people here than we had in Tulsa. But at that 2023 Investor Day, we talked about the conversation being a 10-plus percent growth story. And in that same period from '22 to '24, we delivered 16% growth kind of in that time frame. And we had set that bar where we reset the conversation where margins used to be 28% to 30% sort of the target within AAON. And we kind of reset that conversation to say, hey, at 2022 -- sorry, 2023 Investor Day, that 30% that used to be the ceiling is now the floor of our expectations in margin, and we delivered 33% during that 2024 calendar year. As we look forward and kind of look at that next 3-year target, so looking at growth coming off of that 2024 calendar year, top line organic growth in that 12.5% range. Now that's made up of mid-single-digit growth in AAON and about 40% growth in the BASX brand. But I do want to just pause once again to say that mid-single-digit growth in the AAON brand in that 3-year period, it has 1 year in there with a relatively soft market. So while the current year has some headwinds against it, when we look to next year and beyond, we're back to that high single-digit growth expectation. And so it's a point in time that's kind of skewing that number a little bit. But when we think about margins, where in our 2023 Investor Day, we had reset that floor to be that 30% range. We're kind of moving that needle again. So you'll see we've reset the expectations from our last Investor Day 2 years ago and boosted our -- about 250 basis points more in our kind of top line growth story and kind of expectations and also 200 basis points in our overall margin profile that we look at kind of going forward. So we really do look at this being a tremendous growth conversation from an industrial perspective, driven by 2 great brands and really some great differentiation from a manufacturing standpoint that's going to be a great kind of overall growth story in the industrial space and the HVAC space going forward. So with that, we're going to lead in and before Stephen comes up, have a little video here on the AAON business unit. And then from that, Stephen will come up. But look forward to more conversations. [Presentation]

Good morning. I was just sitting here thinking I could have told my mom I could have been a movie star. So my name is Stephen Wakefield. I'm the GM of the AAON business unit, and I've been with the company since the 1990s, more than half my life. And for me, I just thought I'd take a moment to make it crystal clear to everybody in the room that AAON is not a job for me. It has been a part of my life. These are people that are my family. We bled, sweat and cry together to build this company. And I just want you to all know that before I even start. Technical presentations, like I can do that, motivate you to go to war to build air conditioners. That's my thing. So I just wanted to start with that. I've had the pleasure of getting to work for all 3 CEOs now in the company's history. And I can tell you to go from kind of a wild west in the 1990s to being able to attract a CEO like Matt Tobolski, that's strong evidence, really strong evidence for people that are in your shoes looking at investing in our company. Key takeaways make this very succinct to start with. Innovation is our thing. Everything that we do, we're thinking outside of the box. We're thinking how can we do something that breaks barriers, and we're okay with learning from a mistake and pushing forward. We're not afraid to change how the industry does things. We're going to push. We're solutions-based, best-in-class operator. And we've got this magical thing happening right now where our price premium is narrowing. The trends that are happening in the world are playing into our hands. And then on top of that, we've got a history of very capable leaders that were very much salesmen in their former lives before coming to AAON and therefore, knew how to attract and build the very best sales organization in our industry. And I witnessed them do this, and it was not easy, and they demanded supreme excellence and a business partner type of mentality with our company. So we have that in spades today. So please take with you today from my part of the presentation at least these key takeaways. A quick brand overview. The AAON brand has about $1 billion in revenue. 80% of that is rooftop units. That's our bread and butter. It's complemented with air handlers and condensing units and parts. And 88% as of right now of the AAON brand is built in the Tulsa facility. And then the other 12% is in Longview. So these are our gap bridgers. These are the products that we build that are not custom and not cookie cutter. And if you look at these and you look at them through an engineer's eyes like I do, you see that this is a tremendous amount of diversity for a catalog set of products. Any one of these products on here has dozens and dozens and hundreds and maybe even thousands of different versions and options that can allow a very capable salesperson to apply a particular version of our product to a customer's particular need. What makes AAON brand special? Well, this is what I like talking about. We were born with a fearless innovative DNA. And I mean that. The man that started this company, he didn't know how to spell fear. He scared all of us because he didn't know what it meant at times, but he taught us how to absolutely push the limits in that a lot of times, customers don't even really know what they need. Back in the 1990s, it was a thing just to put piano hinges on air conditioner doors. So here we are 25, 30 years later, and we have created expectations by things that we did even that long ago that have affected what a customer expects in an air conditioning unit. We have a very personal cherish culture at AAON that inspires great things to happen. And we demand that. We expect that. Every person that interacts with another person at AAON, we pay attention to how that's done. If it's not done in a way that advances our company and makes great people like the people in this front row want to come be a part of our team, and we're going to correct that. And then we have dynamic products. They're very flexible, very dynamic. And on top of that, they're also industry-leading when it comes to performance. It's a combination that's really hard to do both. It's easy to do one or the other. It's very difficult to do both. Why we can't be replicated? This is probably my best slide. So everybody paid real close attention to this one. This is the one I got to sell. This is why they pick me to talk about this because you might be thinking how can we replicate -- why can't another company just replicate what you do? Why can't they just do that? Well, the reason why is because our entire foundation of how we think, how we draw a part, how we put a bin on a piece of sheet metal, how we move parts through our factory was completely undone in the very, very early days of the company because we had an epiphany of a way of doing things that has still not been replicated 30 years later, and we built -- we undid and rebuilt everything because we were a small company, so we could do it. We could -- here again, that fearless DNA, we could redo set up everything that we do based on this method. And if you can imagine that method like sparking a fire and becoming something that was like, wow, this actually works better than we thought and us building relationships with vendors that started creating special machines just for us based on our needs. And then we built everything on top of that -- Oh, I see Jerry back there. Jerry. Good to see you, bud. So our entire way of doing things, the engineers' mindset when they look at their computer, our fabricator's mindset when they touch a button on a machine, it is all built on this method that we came up with all those years ago. So to replicate that, they could hire half the AAON team talking about a competitor, and they could say, go replicate AAON. And what that team would come back and say is, okay, let's stop doing everything we do, let's undo it all and start over. Nobody is going to do that. It's going to be an unbelievable undertaking because it affects so many things. Think overhaul of everything you do and learn as you go, all the mistakes that AAON learned when we were a much smaller company and we could afford to do so. Here's a basic table of us versus them. When it comes to production, our competitors are going to be mass produced. They're going to be standard processes. We're going to have soft tools that are automated. So we can say, "Oh, we don't like that one little thing. We're going to adjust it a little bit. We can do it that fast. Whereas a competitor, it's an arduous process that they got to go through to change any particular little thing. We can drop the whole thing and change it. I can recall a time in 2005, where we released a product and we just flat out didn't like it. We redid the entire thing, start to finish in 60 days. And I can tell you just engineer redid the whole thing. I know the person very well, 60 days, redid the whole entire product. This is our method. Price. Our competitors are going to be a budget-friendly affordable price. AAON is going to be a premium price because of the higher quality. Now here we are in this very fortuitous environment where that price premium is shrinking. Durability, a novice can go put their hands on an AAON unit versus a competitor unit, and they can tell real quick that an AAON unit is going to last a whole lot longer. It is built considerably different than a typical high-volume competitor product. Customization, competitors aren't going to do that. It's going to be very limited. An AAON product is very customizable right out of the catalog. And on top of that, we have an applications engineering team that can help you do something special to our already semi-custom product, and we do that every day. Maintenance, here again, this is one of the special sauces that was part of the early days of AAON. We decided we were going to design products around being maintainable. Now the theme, the concept, the common opinion in the HVAC industry in the 1990s is nobody is going to pay for that and the service tax can deal with it. Well, our team decided, no, we're going to serve the service tax and that word is going to get back to the people making decisions to buy the product. So our products are designed from the get-go for ease of maintenance. Now we talk about innovation, we talk about innovation, we talk about innovation. For a long time, we figured out a way to do that with maybe limited tools. Well, that changed when the NAIC, which is a 134,000 square foot innovation supercharger, when that was commissioned. So now we have more capacity to test than the big famous third-party testers in our industry. We have the ability to go really fast now because it's in our DNA to go fast. We have a method of doing it. And now we have a way to proof it very quickly that we're in control of. This decreases risk. This laboratory is world-class. There's nothing in the industry like it. It has formidable specs. It's got the largest reverberant sound chamber in the entire world. And it's also third-party accredited by -- certified by third parties like AMCo and ISO. Now on top of that, you're going to hear a lot of theme today about us equipping our world-class sales channel and in the early days of the company, we really depended on talented salespeople and gave them a particular niche way of selling our products. But in today, modern day AAON, we are investing tremendous amounts of energy and dollars in giving that sales team tools to dominate with, not to win with, we want them to dominate with. So we have now commissioned the Gary D. Fields Exploration Center. And what this is, is it's an absolutely beautiful showroom that has AAON products and competitors' products sitting in the showroom with no propaganda. There's no propaganda necessary. You can walk in there as a novice and you can tell very quickly what differentiates an AAON product from a competitor product. I talked about the sales channel. In the early days of the company, when we didn't have a lot of leverage, we struggled to have just a few good outlets for our products. Today, under the leadership of Norm and Gary Fields and now Matt, we have a sales channel partnership, if you will. These are the very most premium companies on the sales side of the business, independent sales reps that look at AAON like business partner. I called several of the owners of our rep channel a few months ago because of an issue we were having. And I expected them to be upset with me, and it was a very temporary thing. But instead, what I got back, the feedback I got back from every one of them was, we're your business partners, we're in this with you, it will be just fine. in a nutshell. So we have this extraordinarily equipped, extraordinarily capable business partner mindset sales channel in full action. So here we are today with the most equipped, most capable sales channel we've ever had. We have a parts and service strategy that is relatively new. We have this customer exploration center. We have mobile experience, which is a $1 million semi-truck that can go anywhere and basically represent AAON products. We have world-class new training academy under construction right now. We have invested in director-led customer experience focused leadership that is completely focused on improving our customer experience from start to finish. And then on top of that, and you can take it from me, the old school AAON person in the room that we have a newfound supercharged marketing effort that is unlike anything I've ever seen in my career. All this is happening at the same time. Market opportunity. This is real simple. There's tons of more market for us to get, 6% total market share right now. Lots of room here to grow for the company. Now let's talk about this -- I look at this as kind of like a fortuitous situation. All of a sudden, the secular market trends that are happening are pushing the HVAC industry towards what AAON has been doing for 30 years. It's like, well, that's kind of a gift because we already know how to do it. We're already very experienced doing this. When it comes to decarbonization, we've all heard about -- heard this word a lot. Well, AAON is emphatically leading the HVA (sic) [ HVAC ] industry when it comes to heat pump technology. There's no comparison. Nobody can do what we can do. Energy efficiency, we've been doing that since the 1980s. We know how to create a product that will perform very efficiently, not just by a couple of numbers that are labeled like when you buy a new pickup truck and it says, this is what your gas module is going to be. We all know that, that's limited and what that really means. Our engineers are both brilliant and practical, a combination that I can tell you is not normal, and they know how to make a product that has a complete total cost of ownership focus. Now on top of all this, the government has been regulating to push product towards -- the government has been pushing product towards doing things that we were already doing. I've now experienced both refrigerant transitions, the last one being in 2010. We were 2 years ahead of that, and it was totally smooth. The last one that just happened, like Matt had mentioned before, was not simple because it affected building codes. Good time to get something caught in your throat. So this particular time, you've got a mildly flammable refrigerant, which, of course, has got everybody worked up and building codes are different in every state. And so AAON is ready to go right out of the gate. Early 2024, you can order products from us that are R-454B, this new refrigerant. But the industry was spooked a little bit. The customer spooked. And what happened is that it was late adopted, which, of course, was like throwing a monkey wrench in our system. They dried us out and then they overwhelmed us. Well, you can't turn the titanic in a minute. And this is why Matt emphatically said, this is going to be temporary. It's temporary. And we're great at dealing with things like this, but it's still painful in the meantime. So we've been doing this a long time, folks. Competitors are now having to learn how to do it. And what's resulting is a narrowing price premium and more of a spotlight on what we do great because they're a long way away from being able to give a presentation like this. And then on top of all that, the cherry on top is while our competitors were working on catching up to what the government is now regulating and now they're probably trying to catch up when it comes to decarbonization movement. We decided, well, let's get more efficient while they're doing that. So under Gary Fields, we compiled a team of people that completely attacked our operational efficiency. I mean, attacked it. And you can see the proofs in the pudding and tremendous improvements in our gross margin in a short period of time. This slide, what more can I say, I've been with the company so long, I can tell you that it's always thought outside of the box and had innovation at the forefront. And I can tell you, as a former design engineer that would sit at a computer and look at a design, my mindset was it's okay if I get this wrong, if I'm thinking in such a way that I'm going to break barriers and do something different than nobody else has done before. Our culture motivated me to do that. It did not motivate me to be scared about making a mistake. It motivated me to do something that would change the industry. And from our first day, 1988, having configurable semi-custom products to 2025 releasing the most advanced heat pump in the industry that no one else can do, we have a history of innovation, and we've proved it. The Alpha Class heat pumps, you're going to -- you've probably already heard a lot about this in 2023. We broke barriers, released air source heat pumps that can operate at 0 degrees Fahrenheit. 2025, we, I think, shocked everybody when Matt released this at our national sales meeting, we upped it again and said, not only do we have a line of heat pumps that can operate at 0 degrees, but now we can operate at negative 20 degrees Fahrenheit. This is an extraordinary thing that we believe is going to gain us market share. A great way that, that could happen, Matt's already alluded to this, is that the very early days of the company, we had a few national accounts and we were smaller, but that has not been the focus of our company since probably 2000 or so. So here we are today with secular trends pushing large customers towards products that we exclusively have. And what's happening is that we're getting this huge pipeline of potential national account customers that is quite extraordinary in how it's looking right now. Let's talk about current day and going forward. This refrigerant change has just been extraordinarily challenging. I believe in my heart that AAON is the best in the industry at dealing with outside world chaos and change. And I can tell you that the industry and the market, both were not really prepared to deal with mildly flammable refrigerant. But let me emphasize that we weathered this storm. We did it with gusto on the inside and did not panic in any way, shape or form, but it certainly affected us in the short term, but it's temporary. It is absolutely a temporary thing. This will not last. Here's proof of that. You can see that our backlog has already started to recover from the challenges of the spook of the refrigerant change. So here to finish, I want to reiterate what we started with. Innovation is how we think. It's not a word that's on a wall inside the walls of AAON, the buildings. This is a way of thinking that everybody has ingrained in them as an AAON employee. We are here to provide solutions to our customers, and we intend to be a best-in-class operator, and we prove that, and we also prove that we don't accept where we're at. We want more. We want to continue to improve. This narrowing price premium situation is absolutely real, and it's kind of remarkable. And then because of our innovation, because of our narrowing price premium, because we can do things others can't do, here we are sitting on a pipeline of opportunity with national accounts that's unprecedented in the history of our company. All right. Now I get to tell you that you get to take a 15-minute break, and then we will reconvene. [Break]

All right. We're going to get going if everyone can take their seats. Prior to Matt Shaub, our General Manager of BASX coming up and presenting the BASX BU. We're going to start with the video of BASX leading in. [Presentation]

Good to be with you this morning. Matt Shaub, and I have the privilege of leading our BASX business unit. I'm new to BASX, having just started in this role in January, but I'm not new in the industry. I spent the first 25 years of my career in product management, strategy, M&A and business unit leadership at another prominent OEM in the HVAC space. And I saw an opportunity with AAON really to be at the forefront of innovation in the market. And also to join a company, and as Stephen alluded, I perceive this was a top-notch culture. It has not disappointed. It's exceeded my expectations in every way. And so I just couldn't be more thrilled to lead BASX into this next season of growth. What I hope to convey here in the next few minutes is just a bit about who BASX is, what makes us special and then really how that distinct value proposition translates into economic benefit for the company and our shareholders. You'll see a few things. First, as you've heard time and again, we're a fully custom solutions provider. So we're tailoring our offerings to the exact requirements of our customers. We thrive on tackling challenges that others steer clear of. We're hyper focused on our customers. And so we really believe that we deliver a premier customer experience in the industry. And it's that combination of solution selling capabilities and our focus on the client that's allowed us to aggressively capture market share in industry and in particular, in the fast and growing data center market, which will be a focus in the conversation here this morning. We'll be sustaining that robust growth in the mid- to long term. And one of the reasons we can do that is because of the additional manufacturing capacity that we're bringing online really across our entire fleet of factories, but we'll zero in with emphasis on the recent investment we've made in Memphis, Tennessee. The history starts in 2014 with the founding of BASX by Matt Tobolski and Dave Benson. It was founded as a fully custom solutions provider in the HVAC space. And while most of our business here in the last few years has been concentrated in data centers, our experience really traverses the full gamut of applications from commercial and industrial applications to clean room systems to other mission-critical environments. We finished 2024 with $225 million in top line sales. You'll see the vast majority of that executed out of our Redmond, Oregon facility. And our backlog as of Q1 here was north of $600 million. So that's up 123% versus the same period last year. So that's certainly a real thrill for us. I'm going to talk about our strategic plan, and we'll really talk kind of in 3 lenses. We'll talk about our platform, which is distinct in industry. It's also very complementary to AAON. We'll talk about our capacity and manufacturing will come up a lot in this conversation, not just the Memphis facility, the new space we're bringing on, but also productivity and operational improvements in our existing plants that allow us to maximize throughput and meet the demand from our customers. And then finally, we'll just touch on our offerings. Of course, we lead with customized solutions, but we also have a growing number of configurable products that are helping us to win and capture more share. So what makes us special? And I recognize that the BASX business unit may not be as familiar to this audience as is the AAON segment. So let me just touch off on a few fundamentals. We'll just think of this as our BASX 101 course. And so it all starts with customized solutions. Literally, when we engage with a client, we start with a blank sheet of paper and a customer problem statement. That's how the conversation begins. From there, we iterate around potential concepts to address that need. We're solving for potential solutions in equipment and applications to try to address the concerns. And there could be any number of variables that the customer is concerned about. Generally, we're providing a fully customized solution that solves for the lowest total cost of ownership for that particular client. We employ the highest quality manufacturing. And of course, one of the cool things for BASX is that since the acquisition by AAON, we've got all the benefit of AAON's advanced manufacturing automation paired with the legacy of BASX custom craftsmanship in this space. And so it's a really, really neat marriage. And then finally, we'll talk a lot about customer experience. You've heard it from Matt. You heard it reemphasized by Stephen, but BASX is equally committed to delivering the premier customer experience in the industry that spans presale and post sales. So we're equally committed to that aftermarket experience, walking with the client through the life cycle of that project. Now you don't get to be an industry leader in solution selling if you don't have elite engineering capability. And so BASX has some of the most creative, innovative and experienced engineers driving both our solutions development with clients as well as our product development initiatives as well. And in addition to the people, our customers love that we've got dedicated R&D space that facilitates concept ideation as well as prototyping and validation of those designs with customer witness testing. But really, what sets us apart is the fast-paced and entrepreneurial culture, and that hails from our founders. It's embodied by every single employee in the team. Everyone understands our mission. We want to move quickly. We want to respond aggressively to the toughest challenges in the industry, and it really sets us apart. I mentioned already, we go to market primarily through customized solutions. And very frankly, customers often seek us out because they discover that an off-the-shelf product just misses the mark in some way. It either falls short in the area of performance, perhaps it's efficiency in the data center space, power utilization is a key conversation, right? And so if an off-the-shelf product fails to satisfy the power requirements in a facility, it can blow up the job. And so we step in and we solve that problem with a customized offering. Generally, for that client, we're solving for the lowest total cost of ownership, but we can optimize and customize around any and all of the variables that are of importance to the client. And generally, for the facility, we're providing a product that looks superior and is built to last for many years to come. The hallmark of BASX manufacturing starts with superior fan technology as well as exceptional quality in our cabinet design. I would put our products up against any manufacturer with regard to overall workmanship, quality, fit and finish and durability. And so that's certainly our pedigree. We also, with the acquisition by AAON, have obtained a higher degree of vertical integration content. And so that includes our thin tube coils that we produce down in Longview, Texas, as well as controls that are produced in Kansas City. So an increasing number of basics designs are having the opportunity to incorporate some of that content. As you'll hear Rebecca talk about, controlling our supply chain is a really important aspect of our go-to-market strategy. We think it gives us resilience in the market, allows us to serve our customers with consistency. I talked about the automated manufacturing. No one does automation like AAON with regard to sheet metal and a number of our basics designs have benefited from the capabilities that have come on board with the acquisition by AAON. From a customer perspective, again, we're hyper focused on customers, and we have a unique sales and delivery model that really creates stickiness, not just with our reps, but with the end clients as well. And in the relatively small data center market, and that might sound like an oxymoron, the number of folks that are actually shaping the market and driving the industry forward, it's a small cast of territories. We know very many of them. And many of those have migrated from company to company. They're advocating for basics. The word is spreading. So demand for basics equipment, our capabilities and our solutions is continuing to expand and garner repeat business for our team. And that's a real exciting thing for us. We go to market through the AAON independent national sales network. And so in addition to sales support, these reps are also supporting our customers with installation and service, which, again, in the data center industry, it's essential for winning in that segment. And the last thing I'll just mention is another aspect that sets us apart is our dedicated project management. So from day 1, when we engage with a client, we assign a project manager to walk beside them and to really narrate and manage every aspect of that engagement with the client. So from purchase order through project build, shipment, installation, startup, commissioning, that entire experience, we've got project managers that are walking hand-in-hand with the customer to really curate and deliver a fantastic experience. And I regularly get accolades from clients with regard to the capabilities of our project managers. Here's a case study that many of you will have heard about. This really showcases how our innovation and solution selling allowed us to win with a prominent hyperscaler in the data center space. And it goes back to 2023 when we were first engaged to respond to an RFP for a custom liquid cooling solution for a new data center design. And in the ensuing 3, 4 months, we engaged with the customer in technical discussion, a lot of problem solving, a lot of roll up the sleeves, meetings where we were trying to address, first to understand their needs, then to address those problems with a potential equipment solution. This happened to be a liquid air application. And the result was BASX was selected as the exclusive partner for this project, and it precipitated us winning $175 million. That was a record order for us. And as a note, that project is now being built in our Longview, Texas facility, okay? So that's where we're producing that. And of course, that was a thrill for the whole team. But actually, the cool part of the story is what happened when we began to perform, right? Because at that point, it was all just design work. But as we began to perform, that's where we began to follow through on the customer experience, deliver on our commitments. And it was that performance that actually allowed us to win some pull-through work and several of those are of significant size. So the add-on work has been growing our backlog and allowing us to continue to serve that customer. Let's turn our attention to the market. And specifically, we'll focus in on the data center market where north of 80% of our sales are concentrated. So no surprise, the data center industry is large. It's growing at every single turn. It continues to surprise us with regard to its pace of change and just the opportunities that are presented. And really, it doesn't matter what metrics you pay attention to. In this case, we're utilizing U.S. Census Bureau data. And so if you look in 2024, the put in place construction has the North America data center market at around $35 billion in total size. Now our internal estimates would put about 20% of that or roughly $5 billion to $7 billion for total cooling and infrastructure, right, total cooling equipment and infrastructure. Now that includes scope that goes beyond what BASX provides. But we estimate about 40% of that figure is thermal management equipment that's specifically addressable by BASX. And so if you just follow that math, we would estimate that we have roughly 7% of a $2.5 billion to $3 billion addressable market. And much of that share, we've picked up in the last 12 to 14 months. BASX is uniquely positioned to capitalize on a really important trend that's taking place in the industry today, and it's a shift away from air cooling applications to more efficient liquid cooling applications. Matt touched on this earlier. When I say a shift away from, that's based on pure mix. But the actual total number of air cooling installations is still growing, and that's just based on the sheer demand in industry based on the data center installations. But today, if you look at the mix of thermal management equipment, it's about 85% air cooling. It's the technology that's been utilized for years to condition cloud compute data centers. Even for a power-hungry AI data center, they still need air cooling. You're not going to have a facility that's a 100% liquid cooling application, they still need air cooling for their racks and other ancillary electronic equipment. And so the case for continued investment in air cooling remains strong. Now some of these data centers have matured in recent years. Some of these products have become a bit more commoditized. And so one of the responses that BASX is leading with is beginning to standardize some of these products for the masses to allow us to attract and win some of this business at more sensitive price points. Another major trend for the market is just the overall growth in the installed base, and that's both in terms of the number of projects as well as their size. If you look to total installed capacity from 2023 to 2024, we saw a doubling from 2 to 4 gigawatts of installed capacity. The experts are projecting another doubling here in the next few years, where annualized put-in-place construction is going to be in the range of 8 to 12 gigawatts of installed capacity, which is a staggering figure. But the macro construction pipeline supports the trend, even if you discount it by 50%, which we're inclined to do when we think about our projections and scenario planning, it's still huge opportunity for BASX. And of course, as the market continues to roll forward and grow, so does the BASX backlog. I believe we saw this picture earlier. We finished Q1 with north of $600 million in backlog. The other really important statistic just to bear in mind is that in addition to this backlog, we've got well over $1 billion in qualified high potential opportunities in our funnel. Those are projects that we're actively cultivating with clients, many of them hyperscalers, a good number of colocation customers as well. And so that's -- the funnel is as robust and it's hot as it's ever been. Of course, the demand in industry exceeds what BASX can provide. I suspect it exceeds what all of us can provide put together. And it puts us in a position where we can be selective. We can and must be selective in the jobs that we want to take. We want to work with the customers that we want to work with. We want to take the jobs that are ultimately going to deliver value for the company and our shareholders. We want to grow responsibly. It's not just about growth for growth's sake. We want to deliver top line growth, but we're also paying attention to margins and improving our bottom line results as well. We're in a great position to continue to aggressively grow market share. And of course, that's made possible by our comprehensive lineup of thermal management products and solutions. And so from our air handling units to our heat rejection chillers to our most recent product, our cooling distribution unit, or CDU, that's one of our latest liquid cooling solutions that we've taken to market. Really across the board, we're in a position to serve our data center clients with just about any product or solution they might need inside this space. And when we add it all up, we see the addressable market opportunity for BASX to be on the order of $1 billion to $1.5 billion per installed gigawatt of future capacity. Now as I mentioned, air cooling has been the prominent application. It's been the main driver for BASX success here over the last 3 years. And air cooling continues to be really, really important in the industry going forward. It's an important part of our business. And again, even those liquid cooling applications that are serving AI data centers are not going to be sufficient to cool that data center in total. You're still going to need air cooling to support that data center. The big opportunity for BASX, though, is in serving customers with liquid cooling. And this is driven by these AI data centers that have 10x the capacity of your typical cloud compute data center. And BASX has stamped out a leadership position as evidenced by that case study very early on in aligning with an early adopter, one of these hyperscalers. We've proven our capabilities, and now we're having the opportunity to deliver on that. Why the shift though? Well, liquid cooling is by nature, far more efficient than air cooling at conditioning these chips that are generating tons of heat and it really could look 1 of 2 ways. It could be a liquid-to-air application as was the example in the case study or it could be a liquid-to-liquid application as supported by the CDU here that you see on the screen. Now there was a lot of talk last quarter after DeepSeek, which is a Chinese AI company. They broke their news as to their low-cost AI training models. And of course, there were a lot of questions swirling. I don't doubt that many of you were paying attention and asking some of those same questions. And in a matter of days and next couple of weeks after that announcement, we saw a lot of value in the marketplace just evaporate as there was concern around where was the industry going and how might this news impact us. We asked some of the same questions. Would these U.S. hyperscalers pull back on their capital spend? What was going to happen to the basics backlog. And of course, since that time, we've become convinced this is a great thing for the industry. We think it's a good thing. We believe low-cost AI attracts more players into this space that are going to continue to innovate and disrupt and drive the market forward. It reduces the barriers to entry. And so from our perspective, we welcome this. We see it driving more data center construction as well as increased demand for basics equipment and solutions. There's another trend that's taking place right now, which is the shift from AI training models to AI reasoning models. So these are the models that are actually drawing inferences. They're actually getting at the heart of application and use cases for consumers and businesses alike. And we've barely begun to scratch the surface here with regard to what that total demand profile is going to look like here in the coming years because we can barely imagine what the application and use cases will become. And so again, we see the number of data centers that will be supporting application and inference dwarfing the number of data centers that were put in place to support AI training. BASX has the lineup of thermal management equipment to be able to support those customers and continue to capture market share as that growth moves forward. And of course, with the rise of AI and this continued growth, we've been investing aggressively in manufacturing capacity to make sure that we can perform and win at scale. And so I just want to talk about our manufacturing strategy. If we look at our mix of production, looking at 2024, the vast majority of what we produced was built in our Redmond, Oregon facility. That was the original BASX founding location. We had Longview, Texas supporting. In 2025, Longview is taking on a larger portion of our mix. from an overall production perspective. And Memphis is coming online. Memphis, as you'll see along that top shaded color, I can't tell you what that color is, but that top row, Memphis becomes the dominant producer, we expect of BASX branded product here in the next few years. Overall, we are doubling our basics production capacity. So we're doubling it here in the next few years. And Memphis becomes that really important player in the mix. The other thing, I think, Matt, you may have touched on this, we're also retooling our processes and our staff to make sure that we have the flexibility to leverage the fleet and build BASX branded products at any AAON factory. Why is that important? It gives us flexibility. It gives us optionality with how we serve customers, whether it's on a regional basis or to simply adjust as we have demand, and we think that really gives us a competitive advantage. We drill down on these 3 sites, Redmond is full. Make no mistakes about it. We are at capacity. And so our strategy in Redmond, which is roughly 240,000 square feet of available production capacity, our strategy there is maintain top line, continue to enhance margins, focus on throughput, productivity and drive improvements in our bottom line position. So that's essentially the play in Redmond right now. In Longview, Texas, we've just come off a major expansion there. And so we put 250,000 square feet in place dedicated to basics production, capable of supporting about $500 million in annualized revenue. We're only utilizing about 70% of that capacity right now. And so of course, in the next 2, 3 years, our plan is to continue to push, expand that, sell that capacity, optimize those lines for performance. Memphis, of course, is the new story. We acquired this facility back in December of 2024, and we're already in the process of trying to build that out. 490,000 square feet of dedicated manufacturing space to data centers today. And so we fully expect this is going to have the potential to outperform the other 2 put together based on how we're setting it up, and we've just barely begun to utilize the space. We'll be ramping that here over the next 3 to 5 years. Now how does this manufacturing strategy support economic benefit for the company? It's no secret we've been investing a lot in manufacturing expansion. We're now beginning to reallocate demand to these new facilities that have space available to support our strategy, but there's a cost associated with moving products around. There's a cost associated with starting up new production lines, and our margins of late have reflected this pressure. Throughout 2025, Longview, again, growing in its manufacturing capacity, taking on more of the mix from a basics production perspective. They'll be optimizing their margin performance. Redmond, again, continuing to improve coming off of a challenging 2024 as we had a lot of CapEx investment there. We saw a marked improvement in throughput from Q4 of last year to Q1 2025 in Redmond. And so our manufacturing build-out and our progress in each of these facilities is tracking to our expectations. But the key year to pay attention to will be 2026, where volumes are hitting their stride. We're achieving productivity in Memphis. That's when we believe we'll be getting back to our 30-plus percent margin targets. I've touched on Memphis now a couple of times. I can't hide my enthusiasm for this facility and just the overall program of standing this up. It's obviously central to our basics growth strategy. And it's just going to be a fantastic asset for AAON. I'm convinced it's going to be one of our flagship facilities. Not only is it centrally located in the U.S., it's in a vibrant labor market. We're just thrilled with the talent we've been able to place there. We've got several directors that we've placed that are top-notch in their field that have a long track record for performance. So we're really excited about the team we're building there. The facility itself has great bones. It's going to facilitate our manufacturing. And of course, we have a blank canvas to work with and optimizing it for data center production. And so that's thrilling as well. It's in a prostate business. We've got a fantastic chamber there that's been very supportive. We've got new manufacturing and technology partners that are moving into the market because they're excited about all that's happening in the Memphis area. And so we're thrilled about our choice to be in Memphis. We'll achieve meaningful production by the end of this year. That's our goal. But we actually began producing in February, which was far sooner than we imagined, and that was really just in response to the extreme demand we had in our Redmond facility. And so we had to shift, move some product down to Memphis to be able to capitalize on the space that we had. And of course, it actually serves as a great runway and ramp-up for training of the staff that we're hiring there. I also want you to note, of course, the facility is 787,000 square feet. I mentioned that roughly 500,000 is committed to basics. That means we've got approximately 300,000 that's reserved for flexible future use. And that could be additional data center business. It could be additional solutions and products under the BASX business or as Matt mentioned, it could be that we utilize that space for national accounts and other AAON opportunities. And so we're looking at this with kind of an arms open approach to say where are we going to steer this business going forward? We've got optionality. And of course, we're really pleased that we purchased a facility that gives us some flexibility for future growth. Now to understand our growth trajectory, I do want to step back and just look a bit at the clients that we serve. So the data center market broadly segments into 3 classes of customer. We've talked about the hyperscalers already. You know these guys by name. These are the Googles and the Microsofts. They dominate the headlines because of their massive investments, right, as well as the massive power that's required to run their facilities. And of course, they love us because we solve problems for them that no one else does. We approach those problems with a solutions mindset. We're delivering custom solutions to address the specific challenges that they have. The colocation customers are the ones that are essentially leasing their spaces to others, other data center users. What's important to them is versatility and flexibility in the infrastructure. And so they look to basics to support them with the unique challenges that come around that flexibility. Finally, you have enterprise customers, which essentially are small hyperscalers. Their data centers are owned and operated by a single facility for their own use. I mentioned hyperscalers, and I want to focus on them here because today, a disproportionate amount of our business is actually concentrated around a few large hyperscalers. And again, they love us for what capabilities we can bring to bear in solving their problems. We love them because they bring us a lot of volume. And so make no mistake, it's been a real win-win relationship for us. And in addition, partnering with the hyperscalers has actually put BASX at the very tip of the spear where we're partnered with early adopters where we get to learn and iterate through technology, which we can then leverage with some of our other customer conversations. So it's been a fantastic partnership. But as we look forward, we are intentionally expanding and diversifying our customer base to bring on new and oftentimes smaller customers such as those in the colo space or even enterprise clients. That's made possible because we've got additional manufacturing footprint to work with. We'll also talk about some of the configurable products that are actually going to serve some of those clients at more attractive price points. And of course, the one big advantage, a theme that's ringing through all of our presentations is the strength of our AAON national sales network, and that's the channel that's going to avail us of some of those new relationships. I've talked a lot about data centers. I do want to remind you that the BASX foundation, our hallmark is really in custom solutions of all kinds, regardless of industry, and our experience traverses multiple end markets. Yes, 83%, I believe 83% of our business is in data centers in 2024. We still have an important segment of our business that's focused on clean room. We did 13% of our sales in clean room systems in 2024. And so here, we're serving pharmaceutical and medical. We're serving the semiconductor and chip fab markets. And of course, that business has been dwarfed by the shiny object of the growing data center business, but we remain committed to staying diversified and continuing to diversify both the portfolio of offerings as well as the end markets that we're serving. And one of the opportunities is in commercial, where we've only got about 4% of our business today. We've got engineering teams that are actively working at solving for new configurable products that would allow us to increase our exposure and serve that market in a stronger way. And while BASX is all about custom solutions, that's not going to change. We do see productization as a path toward achieving greater scale and achieving that diversification that I talked about. And so there's really 2 ways that this is taking shape inside the company. One, we are beginning to cost reduce and standardize some of the data center offerings, right? Again, we're a custom solutions provider, but we've seen the opportunity to standardize some of those offerings, which we think puts us in a position to serve a more price discriminate customer, such as perhaps some of the small colo guys. And you'll see examples on the page here of our air side, our fame cooling wall as well as the liquid cooling solution, our CDU. The second opportunity, though, is with the semi-custom configurable air handler that Matt alluded to earlier. And so here's a case where pursuing this project puts us in a position to grow our presence in the commercial space, which would put us in a position to penetrate more health care, higher education, say, some government end markets, which would be analogous to some of the end markets that we're serving on the AAON side. And here, again, we're taking a page from the AAON playbook. We're leveraging Parametric/3D design, automated manufacturing to deliver a feature-rich, very configurable mass customized product. We put that in the hands of the most capable sales channel in the world and now all of a sudden, some really special things can happen that allows us to achieve scale without necessarily needing to task all of our custom solutions engineering, which is a very high-touch support model. So I trust I've been able to convey a bit about what makes BASX special, who we are and really how that distinct value proposition is helping us win in the market and aggressively capture share. Just to summarize again, we're a fully custom solutions provider. We deliver the premier customer experience in the industry. And it's really that one-two punch, the combination of those 2 things that's allowing us to aggressively grow our market share, specifically in the data center space. We're in a great position to sustain that winning track record and to continue to grow, continue to gain share. And a big piece of that is the manufacturing strategy that we're executing right now, which includes significant improvement in all of our facilities with the expansion and doubling of our footprint that supports BASX. All of that's going to contribute toward us sustaining that 40% plus CAGR here into the next few years. At this point, we're going to queue up another video before I invite Rebecca Thompson, our CFO and Treasurer, to the stage. [Presentation]

All right. Good morning. Is this working, okay? All right. So I'm Rebecca Thompson. I'm AAON's Chief Financial Officer and Treasurer. I've been with the company since 2012. I came in as our Chief Accounting Officer and then transition into my role as CFO in 2021. And I do want to take a moment just to note not just how far we've come as a company, but also how far our finance organization has come. So one of the most notable things that this group will have seen is the hiring of Joe Mondillo and really just the increased shareholder engagement we've had in the past several years. Joe has really taken our Investor Relations to that next level. So we're doing these events like today, Investor Day. We're doing investor perception studies, and we're participating in conferences throughout the year. Another thing that we've never done is closing on the BASX acquisition. This was the largest acquisition in the company's history, and it really gave us a chance to create a playbook for future M&A opportunities. And if you've listened to any of our earnings calls in the past several years, you will have heard Gary talk about standing up an FP&A team. Now while this primarily serves us internally, it has also improved the quality of our earnings calls and the clarity of the information we're able to put out to the public. The last thing I want to touch on is our treasury. When I became Treasurer in 2017, AAON had a $30 million line of credit that we never used, and we were just building this war chest of cash. Well, you fast forward till today, we just closed on a new $500 million syndicated loan agreement. That's really setting us up for our future growth that we've been talking about this whole day. So that's all to say that we're not just growing and investing in our products, but we're growing and investing throughout the whole organization. And with our new organization structure, moving into the 2 business units and the creation of shared services, we're going to be able to drive those best practices throughout the whole company, which will create value for us as organizations, but also value for our shareholders. So our key takeaways for today. As we already discussed, the AAON and BASX brand will drive us to a new 3-year CAGR of 12.5%. We have a new margin target of 32% to 35%. By the end of 2027, you'll see the leveraging of SG&A down to 13% of sales. And while our capital allocation strategy will remain consistent, you will see lower CapEx dollars after 2025 upon completion of our expansion projects. When you look at this slide, you can see that we consistently deliver results. When we completed the sale or the purchase of the BASX company in 2021, from '21 to 2024, our revenues increased 125%. And during this time frame, we have been able to maintain healthy gross margins in some of the most challenging times of the company. When you look at 2020, we won during COVID. We were an essential business, and we were able to deliver products with superior indoor air quality during a pandemic when all of our competition was shut down. Now we did struggle with inflation and supply chain disruption in '22 and '23 -- or sorry, '21 and '22. But as you can see, we rebounded nicely in 2023 with record gross margins. All of this to say that we provide a healthy return on our shareholders' investments. So we want to reaffirm our outlook that we gave at our first quarter earnings call for 2025. Sales will grow in the mid- to high teens. Gross margin is expected to be consistent with 2024. SG&A, you'll see leverage slightly 25 to 50 basis points, and CapEx is still expected to be elevated with an estimated $220 million. I do want to take a quick moment to provide an update on Q2. We've talked a lot about these investments in technology, and one of those investments is a new ERP. Now our strategy for going live with our ERP is to go live site by site. So on April 1, we went live with our Longview, Texas location. Now we were intentional in picking Longview, Texas because it represents a good cross-section of the company and that it produces the AAON brand, the BASX brand and coils. Now while the solution is technically sound, it has caused some disruptions and slow production at that facility. As a result, we do anticipate our Q2 will be softer than what we guided to. So when we're affirming our 3-year targets, Stephen talked about our opportunities of the rooftop market are boundless. The AAON brand is well positioned to take market share with our Alpha Class heat pumps that can lead the industry in energy efficiency and decarbonization as well as they're positioned for national accounts. These opportunities will grow the AAON brand in the mid-single digits. The opportunity in the BASX brand in the data center market will grow the BASX brand approximately 40%. Together, these will result in our new CAGR target of 12.5% plus. Now when you look at our new margin target and the puts and takes to get there, we've been doing expansion projects for the past couple of years at all our locations. As these projects become complete, it will be less disruptive to our production facilities, and you'll see increased growth, increased revenues to leverage those fixed costs and drive margin expansion. Additionally, we'll continue to rightsize our headcounts. And with our new reorganization structural to have a global shared manufacturing service, we can drive best practices and efficiencies across all locations. Now while we can't control everything, and we anticipate there could be some headwinds like inflation and supply chain disruptions and volatility in government rules and regulations. We have policies in place to quickly identify and address these so that we can preserve our target margins. Lastly, as I just talked about, we are wrapping up some of our large technology projects that have weighted heavily on SG&A in '24 and '25. As these projects are completed, we can expect to see the leveraging of SG&A down to 13% of sales by the end of 2027. So a couple of things I'd like to point out about this slide. The first thing is that all these numbers are organic growth. The second thing is that we have a history of setting ourselves up for future growth. So when you look at 2021, we are focused on creating solutions to deal with hyperinflation and pressures on our gross margin while also negotiating and completing the acquisition of BASX and making strategic changes in leadership. All of these things set us up for double-digit growth in '22 and '23. Now again, when you look at 2024, we've had an intentional focus on reorganizing the company, completing the integration of BASX and expanding our facilities to accommodate future growth. You can see here in the past 5 years, we've been able to take market share a lot of this is what I referred to earlier with the beginning of COVID and being able to operate and deliver product while the rest of our competition was shut down. And then as Stephen has talked about, our price premium in recent years has narrowed, accelerating those share gains. And then as Matt touched on, the BASX strong CAGR is a result of its solution-based approach, leading to deeper customer relationships and better outcomes. Over the past 5 years, the rooftop business has -- or AAON's share of the rooftop business has increased from 5% to 7%. We are well positioned to continue to take market share given the high efficiency standards and increasing focus on superior air quality. Additionally, our shrinking price premiums makes our product more competitive and more mainstream. When you look at the BASX brand, a lot of that growth comes from the acquisition with AAON. So prior to the acquisition, BASX had relationships with many customers, including hyperscalers but because of their size, they could only get orders in the $5 million to $10 million range. After the acquisition, with the AAON name behind the BASX brand, they became a much less risky option for those customers. And as a result, are now able to get opportunities in the $30 million to $200 million range. As we discussed, the rooftop market is expected to be slightly down to flattish in the coming years. And this is primarily driven by current macroeconomic factors such as higher interest rate and slower construction starts. But we still believe that we can take market share during this down market. The AAON brand will gain this share through its national accounts and our Alpha class product that is well positioned to take advantage of the growing interest in highly efficient units with zero carbon emissions. We also look to price our premium -- price our product to the market. So we've talked about this historical price premium of 28%. And in the past several years, our competition has put in much larger price increases for inflation, for compliance with the DOE standards in 2023, for the new refrigerant change in 2025 and all their price increases were much larger than ours. With a smaller price premium, we'll be able to accelerate our share gains and maintain our new target gross profit. And then as Matt has already discussed for the BASX brand, cloud computing will continue to drive data centers on the air cooling side, while AI data centers will drive even more growth for liquid cooling solutions. We ended the first quarter with a record backlog of over $1 billion. And this is split pretty much about $400 million with the AAON brand and $600 million with the BASX brand. Now that represents a 45% and 123% year-over-year increase for the AAON and BASX band, respectively. When you look at the AAON backlog, we traditionally like to see a quarter's worth of sales. Now at the end of the first quarter, that was slightly extended due to supply chain disruptions with the refrigerant change, but we anticipate that brand will be able to ramp up in the back half of the year, bringing down our lead times and bringing down that backlog to a more normalized level. Now the basic backlog is slightly different from the AAON backlog and that customers are looking to secure future production given the data center demand. That business can also be lumpy in nature. We anticipate as that business grows and as that backlog grows, we'll be able to smooth some of that business out and also have the flexibility to schedule that production across our entire fleet of locations. So when you look at our margin expansion opportunities, all of our expansion projects in Redmond, Longview and Memphis will provide increased sales that will leverage our fixed costs and provide margin expansion. The reorganization of the company to drive manufacturing best practices across all locations will create improved productivity and efficiencies. You'll also see a shift in our product mix to more BASX product and national accounts and those high-volume orders will drive higher revenues and better overhead absorption. All of these things together will lead to our new margin targets of 32% to 35%. So let's talk about our capital allocation strategies. We always like to reinvest back into the company with CapEx. We like to increase our shareholder value through dividends and stock repurchases. And while we have traditionally not been an acquisitive company, we are always on the lookout for an opportunity that has a strategic fit and purpose. Our top priority has been and still is investing dollars back into the company through CapEx. When you look at the time line that we have here of our continuous investment in the company, it starts in 2020 with the build-out of a new building for Longview, Texas that added 220,000 square feet. When you fast forward to 2024, we doubled that building, adding another 250,000 square feet. Also in 2024, you had additions in Redmond for a new wealth shop and additional office space. And then at the end of 2024, with this large $200 million data center order, it created the need for additional capacity, and that's when we sought out our plant in Memphis, Tennessee, which closed in December of '24 for $64 million. Now in '25, we're wrapping up our expansion projects in Redmond and in Longview and really looking to get that Memphis plant up and going. Going forward, we expect that these projects will normalize and we will have a lower level of spending in CapEx. So over the years, we've clearly demonstrated that our investments in growth have certainly paid off. When you look at our ROIC, it has increased every year until we took a dip in '21 with the acquisition of BASX. But you can see it recover in '22 and '23 as we get the return on that acquisition until again, we make a significant investment in 2024 for the plant in Memphis. We evaluate all our capital projects and look for an internal rate of return of 20%. We have a long-term strategy for capital, and we're not looking for short-term gains. We continually evaluate the capital needs of the business and look to balance our uses of cash. So we do not like to provide a specified dividend payout ratio. Instead, we'd rather look to provide consistent and regular increases in our dividend. We also look to do share repurchases when we have excess funds on hand and when we believe our stock to be undervalued, providing yet another good return on your investment. Under our current authorization for share buybacks, we have $70 million remaining. We do plan to take a different approach to M&A. We are formalizing our M&A strategy to help us assess the market, identify potential targets and develop those relationships that could lead to opportunities in the future. We don't want growth just for growth's sake. We want to be intentional with our acquisitions and find opportunities that will complement our current product portfolio and help us do what we do best. Lastly, we love vertical integration. So I know like one of the things Gary always says is we don't assemble units, we manufacture them. So any opportunity that we have to purchase or improve our vertical integration will always be a consideration. So one of the ways AAON has also always won is through our strong balance sheet. Being conservative and low levered has put us well in times of financial stress and allow us to take on opportunities when our competitors could not. Now we have taken on borrowings in recent years, but you can still see that it's very conservative, and we're lowly levered at less than 1x EBITDA. As we grow, we will have additional working capital needs, and we will have this increased CapEx that we discussed that will cause temporary borrowings to increase but still be very conservative. We prioritize the paying down of debt above dividend increases and share repurchases. We also continue to evaluate our business needs for current -- for future liquidity and the future growth of the company. So in summary, our new 3-year CAGR target is 12.5% plus. We set a new target margin of 32% to 35%. We'll proactively manage the business to see leveraging of SG&A down to 13% of sales by the end of 2027, and you'll see a more normalized CapEx spend starting in 2026 as we've completed our expansion and investment projects. With that, I'll now turn it over to Mr. Tobolski to wrap things.

[indiscernible] investments. From the #1 piece, and again, just hammering this home, it is that innovation. It's that drive on product differentiation that is core to who we are, that is core to why we grow, it's core to why we differentiate ourselves in the market. That really materializes itself in that premium product offering and really a value-driven sale in the organization. When we look about the growth opportunities in front of us, again, really looking at this from a brand perspective, what is making up that 12.5% kind of growth target -- 12.5-plus percent growth target. When we think about that and bifurcate that, that mid-single-digit growth, one thing I want to touch on that doesn't really build into it the assumption that our tariff surcharge goes forward. And again, I say that just because there's a lot of uncertainty from a political policy standpoint. So our 6% surcharge is essentially assumed at some point to come back off. It's not assumed to be kind of in perpetuity given the volatility we've seen and sort of also some of the stabilization of some of the pricing dynamics. So that's not baked into that from the sort of mid-single-digit growth mindset in the AAON brand. that mid-single-digit growth is really looking at it from a standpoint of a relatively stable flat year within 2025 and then going forward, getting back to that high single-digit growth rate from a market share acquisition standpoint. To put it in perspective and just thinking about the AAON conversation for a minute, this is a challenging market from an overall kind of general commercial nonres perspective. As a data point, commercial rooftop sales volumes as an industry were down 24% in the first quarter, with AAON picking up share against that. And so the share dynamic that occurred, the disruption that occurred in 2024 around the refrigerant transition is behind us. And when we look at where AAON stands in a 2025 conversation, it's in a position where we have an attractive price point, a differentiated product and we will outperform and get back to a market share acquisition story kind of in that 2025 calendar year. And then beyond that, getting back to that normalized high single-digit growth rate perspective. And when you look at that and you kind of look for certainty in that, I really do think that the bookings cadence and the backlog that you see at the end of Q1 and the bookings cadence that we see going into Q2 continues to reaffirm that positioning and that kind of growth and stability within the AAON side of the business. As we look to the basic side of the business, really driving 40-plus percent growth rate inside that fully organic growth rate over the next 3 years, that's driven by that product differentiation and the strategic investments that we're making inside the overall capacity inside the space. And so that 40% growth rate inside of the data center segment is well beyond the growth rate of the data center segment. So once again, reaffirming the conversation that, that differentiated product and that value proposition that product provides is really fueling that 40% growth over the next few years. When we think about then how does that materialize itself into that sort of margin profile, really, again, 32% to 35%, well above the historic kind of mindset of AAON, well above what we set from a '23 target. But keep in mind, as we grow, there's pressures on margin on that basic segment. So as that basic segment continues to grow, there's just some pressures along the sort of, I'll say, margin pressures ahead of the capacity coming online as you ramp production. And so what you'll see throughout that 3-year period is continued improvement inside the BASX segment margin, but really a very strong and stable AAON performance in that mid-30s range with that BASX segment kind of growing and impacting the business as well as growing in kind of its margin performance. But that's when you look at this from a holistic standpoint, where this sort of conversation around margin is coming from. It's a very strong and stable AAON margin. It's a growing and strengthening margin within the basic segment on a dynamically growing business kind of over that 3-year period. But really, when we look at that from an industrial perspective, from a peer group perspective, really looking at this from a strong growth perspective, strong growth story inside the HVAC space driven by the 2 best brands in the marketplace within the AAON and BASX brand and really, from a standpoint of this 3-year story and beyond, getting back into that great strong growth, that great financial performance, operational excellence and really outperforming the marketplace going forward. So with that, we're going to spend a couple of minutes and just get some chairs set up here for Q&A. So just give us a couple of minutes to get the room set up, and then we will get the group up here to answer your questions.

All right. Before we get started here, I just want to mention specifically to the webcast participants, there is opportunity for you to ask a question. I'll be managing that. So if anybody on the webcast has a question, certainly put that through, and we'll try to get that in. And we'll just get things going, whoever wants to start. Let's start over here with Tim, and we can go with Ryan next.

Tim Wojs with Baird. Thanks for all the information today. Just maybe 2 questions. On the data center growth, I mean, if you take 40% plus out a couple of years, it gets you to like a $600 million, $650 million business. I mean, that's effectively your backlog as of Q1. So maybe you can just talk about what you see in that kind of out year because, I guess, mathematically, it does imply some slowing in the data center growth in '26 and '27? And I just want to kind of confirm if you're trying to say that or not.

Yes. I guess the way to think about it is the '25 calendar year obviously has a large uptick that you're going to see kind of in the materialization. That backlog kind of a data center space, I mean, it's representing out to 18 months kind of in a backlog perspective. And so you're going to see a huge impact in 2025 with the sort of materialization of the Longview capacity coming online. You certainly won't see that again. I mean, if you get down to like the math, I mean, roughly looking at that 1 order, it more or less tells you that you're doubling year-over-year from '24 to '25. Part of the reason why that can happen with bringing capacity online and seeing that come that quick is because Longview was a facility that had a lot of infrastructure in place. So just to kind of use that as a baseline, when you think about Memphis, yes, you drop in 787,000 square feet. But it's not a plant that's been operating. It doesn't have a lot of that system in place. And so its ramp to revenue is different than that. And so to your point, yes, it implies that, hey, we're going to see a big uptick in '25. It's going to slow, but it's still going to be 20-plus percent kind of growth rates going forward off of that new base. And when you look into the sort of that carrying out, it still kind of gets back to the same conversation of in that 3- to 4-year period, getting the data center sort of segment -- the BASX segment around $1 billion in revenue. That still does kind of drive that same conversation. We're not changing that outlook. It's just sort of the way this capacity is going to come online to support that. It's not going to be quite as a flip of a switch that you see in the Longview capacity coming online.

Okay. And then I guess just on national accounts within the AAON business, hundreds of millions of dollars of pipeline is pretty significant. It's a lot bigger than I would have thought. What does pipeline mean to you in terms of like what it is definitionally? And how would you kind of judge success in converting that pipeline to revenue?

Just high level, I'll touch on the pipeline first and let Stephen kind of dive into some of this as well and Andrew as well. Pipeline to us is basically defined as value of active conversations. And so it's people in which you're engaged in a conversation with. Now we certainly don't expect to see all of that materialize. We look at that and say there's a certain amount, but that's sort of like scale of conversations that you're having. And so in a traditional commercial HVAC market, non-national accounts, 30% success rate is considered a relatively good success rate in converting an order, pipeline to order. We think national accounts obviously have bigger impact there. But that's sort of at least how we frame the pipeline conversation. And I guess, Andrew, I guess you can dive in first on success and what success looks like?

Yes, sure. So I mean that's the current -- what we have visibility to, like Matt described in terms of customers that were speaking with, that our reps are coordinating and communicating our value proposition to. Certainly, the win rates in that area are much higher than the typical planted spec. We're not 1 bidder of 4 or 5, but rather we're having a detailed conversation around total cost of ownership, carbon goals, to what degree they want to achieve carbon reduction and balance their total cost of ownership. So those are very rich, deep conversations where we're already in close alignment with helping them make that value proposition decision. So therefore, the win rates are much higher. At the same time, coming out of our national sales meeting, which was referred to earlier today. We had a lot of conversation with our reps about the opportunity to grow into national accounts and out of that has gained a lot of momentum with additional national accounts being pursued. So while that's the current visibility we have, we have listed accounts and opportunity size that's continuing to grow as well.

I'll touch on the kind of operational side of that question, and that is whatever percentage comes in, the way that's turned, the way I look at this very much from an operational perspective is when you have a national account, you have considerably less diversity. And so what happens is, is that the management of that allows us to offset our very diverse product line that we have, and you can take a plant like Memphis or an area in the plant in Tulsa and you can do something very consistent. It will allow you to buffer tank, manage and set up quickly to execute that product, if that makes sense.

Ryan Merkel, William Blair. Thanks for all the details, really helpful. I want to start on gross margins, which I think is probably the main issue today. So can you talk about the assumptions that you're making at the low end for the 32% and then also the 35%? And Matt, you mentioned BASX is going to have some pressures as the factories are ramping. I think that might be what the Street has missed here. So specifically, what are you assuming for BASX in the outlook for gross margins?

It's a great question. I think the -- I will start off by saying, and as Stephen talked about in his presentation, the AAON side of this business, it's finished last year at 35%. It's got a great strength kind of inside that operational strategy. It's had pressures on volumes, but give it to that noise for a second, that organization, the process, the pricing strategy, all that is going to drive that mid-30s margin inside the AAON segment. And so today, over the last 12 months, that represents 75% of the revenue, BASX represented 25%. But over that same kind of window, the BASX segment is more in the high 20s, low 30s level. And so as we think about that is reflective of some of the manufacturing investments and frankly, manufacturing efficiencies that exist at BASX. And so when we rewind and say, let's think about a growth cycle, the growth cycle was going to put pressures because if I say I'm going to turn a manufacturing line on, to do that means I have brought in personnel well ahead of that line producing revenue that is going to put pressures on the margin. I'm going to have investments in D&A that is going to show up and hit the books before it's at 100% utilization. And so those things create pressures on the margin that you're seeing inside the BASX segment. And so as you think about that 3-year period where BASX is ramping at 40% relative to a mid- to high single-digit conversation year-over-year kind of in the AAON world, that is going to put pressure on the consolidated margin. When we think about like this in a future state perspective, how did AAON get to 35% margin? You got there by having stability. AAON -- in Tulsa, we weren't putting on 200,000, 300,000, 700,000 square feet of capacity. They got to 35% margin, to Stephen's point, by having the time available to drive efficiency programs inside there to really make those materialize. And when you look at the BASX side, yes, we're learning from all that. We're taking a lot of that logic around the efficiency programs that we're building into these investments in these new facilities. But during the ramp, there's just fundamental pressures that exist from a financial statement perspective that really burdened a little bit of that BASX side. And as it grows, it becomes more relevant. That's where that I'll say the lower end of 32% kind of gets to. Now as we look forward, there's no reason BASX can't get to a margin profile that is looking similar to AAON. There's no reason that all the things we've learned inside the AAON organization over the last 37 years can't materialize in margin improvement. But you just have to get past that dynamic growth cycle to be able to truly sit there and capitalize on that.

Okay. Great answer. And my second question, you mentioned 2Q is a little softer. Could you be a little more specific? And did those orders just push then into the second half?

No. So to dive into it, I think most people in this room, if not everyone in this room knows, we made investments in technology. One of those being an ERP implementation. And so we were very calculated on how we launched our new ERP. We were very calculated to go 1 site at a time. And so we went live in Longview with a very intentional method because Longview is actually the most complicated site because Longview has both AAON Business Unit and BASX Business Unit product, plus the vertical integration with coil manufacturing. So we went live the first day of Q2 in Longview with the new ERP system in Longview only. That did -- fundamentally, the solution is correct. But I think we can all acknowledge, any time you roll out a large systematic change in technology, there is a learning curve, and that learning curve is going to slow productivity. And so it put a little bit of pressure kind of inside the Longview segment. But I will say -- and the counter to that, it reaffirmed the strategy that we took, which said, let's only go live at 1 site, let's minimize the blast radius, let's minimize the impact of that kind of go-live strategy, which it certainly did. But it did impact some of the productivity in Q2 and put some pressures on that Longview kind of throughput, primarily in the AAON branded products. And so there's a little bit of pressure that's in there. And so that's just why we're saying there's a little bit of, I'll say, a little bit of headwind kind of inside the Q2 conversation. And frankly, we want to make sure we get that out here today and just have that conversation. It's not a drastic like massive impact. It just has a fundamental impact inside the Longview kind of operation.

Okay. But you reiterated the year, so it's contained?

100% contained, yes.

It's just pushed?

And we're being very, very strategic, very intentional in how we roll out any other site to ensure that the lessons learned, the process, everything is kind of built to minimize impact going forward. So yes, we look at this from a yearly perspective and say, yes, some of that softness that we're seeing, some of the delays, if you will, and the reduction in productivity in Longview is just going to extend kind of the overall delivery schedule in that product. But fundamentally, on the overall year, we don't have a change in kind of runway.

Over here, Brent.

Great. Thanks. Brent Thielman with Davidson. Just wanted to come back to BASX. I appreciated the slide where you ultimately won and hit a broader swath of customers into the future. My question was, over the next 3 years and within that 40% sort of growth rate you described, how much of that is still dependent on the few kind of key large hypers that you have? And if you get number -- hyper #4, #5, is it incremental to that growth rate?

Why don't you take that one, Matt, if you want.

Yes. So I would say at least 30% to 40% of that is still going to be focused on hyperscalers. We're intentional about trying to expand our customer base. And going back to Stephen's comment about national accounts, these hyperscalers allow us to deliver a consistent product, built time and time and time again. We're intentionally expanding customers because we think it derisks our business, but the variation in design, the changeover from model to model to serve these expanded customers does look different when you're operating inside a factory. But we see the benefit of continuing to serve those hyperscalers. That's where a lot of the demand remains. But whereas today, with 50% to 60% of our business concentrated with hyperscalers, we would see that pulling back to perhaps 30% to 40%.

Okay. And second question, Matt, for you, just really sort of officially taking this over to talk about possibility of acquisitions. How does that look like under you relative to the prior 2 CEOs, how mature is the pipeline? Any flavor for the size of businesses you might be looking at?

Yes. So it really -- I want to start off on the conversation around M&A to reset 1 thing, which is you're not going to see a major acquisition in the next 12 months, probably not even 24 months. I mean, just to -- we're going to build out the -- I'll say, the process and some of the tools inside to really more proactively be looking at opportunities. And the reason I say that is if you look at that organic growth opportunity, you look at kind of what we have going on as an organization, it would be, frankly, irresponsible to make a big acquisition right now. It would dilute the ability for us to execute on the organic strategy, it would dilute the ability for our leadership team to be able to really manage the growth and drive best practice in this new operating model. So the next 12 to 18 months, it is 100% focused on executing on really refining our operating engine that exists inside this organization and then building the tool set to be strategic and be able to start proactively looking at opportunities. Now to the 1 comment we recommend, if something falls in our lap around, especially a vertical integration conversation, that is something that we would always be looking at because we do truly look at the vertical integration play being something that does differentiate AAON. And so whether it's coils, whether it's controls, whether it's fans, these are things that drive kind of a unique differentiator inside of our products and our manufacturing strategy. So we're always eyes open to those type of opportunities. They're just smaller in scale relative to kind of a bolt-on. But really, when we think going forward and sort of the midterm kind of conversation, that's when we're going to be proactive on looking at what is in the marketplace from an M&A perspective. And the lens we look at M&A around kind of in that sort of the growth driver in organic kind of conversation, it's really around the similar mindset and culture, right? You think about gating gates that you had to go through and the sort of product style, the product strategy has got you aligned with kind of how we go to market. The sort of ability to leverage our very strong independent sales channel, like those 2 things, those are the initial gates. And then it comes down to what do we look at. We don't look at growth for growth's sake. We don't look at trying to buy market share. That's not sort of the mindset. We're looking at what can we add that's been a similar flare in product strategy. So is there a tangential product that we don't have in our portfolio that we can leverage our sales channel. Is there a market that we're not heavily engaged in that can be a great growth driver or diversifying kind of the overall exposure inside the marketplace. Those are the big conversations in the way we think about M&A from an inorganic kind of growth perspective. But again, that's going to be a couple of years out, so you should expect to see that kind of materialize.

Julio?

Julio Romero, Sidoti & Co. Thanks so much for all the color today. My first question is on CapEx. It sounds like Memphis won't come close to capacity anytime soon. And you talked about that undedicated space, I guess that implies CapEx steps down in 2027? Or are there going to be machines, equipment, marketing and other CapEx initiatives that would drive CapEx as a percentage of sales to kind of remain at a double-digit percentage run rate?

Yes. I'll touch on the Memphis for a second, Rebecca can kind of follow on that. But when we think about -- to your comment, like we can't flip a switch and bring on 787,000 square feet. We could do it, don't get me wrong, we can do it very irresponsibly, and you would see a heck of a lot more margin conversation around that. And so when we think about how that looks over the next couple of years, we'll be aggressive, 100%. We're going to be aggressive to bring on Memphis. We already are, as Matt alluded to and actually assembling product there back in February. But you think about the machinery and what truly makes a manufacturing facility a manufacturing facility, that takes time to come in place. And so we're progressively putting in more machinery throughout this year. But some of the lead times -- I mean, when we talk about strategy and increasing our vertical integration capacity, increasing our coil manufacturing capacity, that's a longer play. That's not a 6 month to get all that equipment. That's an 18-month conversation. So you're going to see that's where in that '25 and '26 calendar year, you're going to see elevated CapEx kind of around the build out of Memphis. A lot of that is able to still support that additional 280-some-odd thousand square feet. Again, we have commonality and manufacturing process, which lets us leverage that. So there might be some incremental kind of accretive investments that happen in '27 and beyond. But from an overall scale perspective, when we think about the existing fleet, there's definitely basically a reduction in overall CapEx kind of in '27.

Yes. So I would just say, when you talk about growth versus maintenance CapEx, right? So '24 and '25, most of our CapEx has been for growth. And going forward, we're looking more at a maintenance mode until, say, like, we have -- we need additional capacity in the other building. So you're really looking for that to come down as a percentage of sales starting in '26.

Great. And my second question is around cleanroom products. So those products are more complex, larger, longer product duration. Just talk a bit about how you price those cleanroom products, talk a little bit about the margin differential between cleanroom and data center. And then would it ever makes sense to expand cleanroom manufacturing beyond Redmond? Would that make sense in a place like Memphis?

Yes. I'll touch on it, and then Matt, you can definitely dive in. One of the things, when you think about pricing and strategy perspective, again, some of the discipline that we talked about that we're adding in, we talked about we're fast, we're agile, but we're backing that up with some kind of process improvements and sophistication in the organization. And some of that is around pricing. It's around product management. It's around understanding the value proposition. And so when we look at cleanroom environments as an example, it is a market with fewer players with higher kind of value that's kind of driven into it. And pricing reflects higher margin. So we do historically price cleanroom products to reflect that sort of unique nature of the product. When we think about growth strategy going forward, I think you made a great comment that they're bigger products, they're bigger projects. And that is a fundamental constraint. We think about that 13% of revenue in the BASX business unit that you saw in '24, that's reflective of exactly that comment that they are bigger. And fundamentally, they're slower moving products to build. And so as we balance market dynamics, we just fundamentally didn't have the space to really support that. If you looked at it and said, blinders on for a second, hey, the margin that we would sort of bid in the project on a cleanroom may look higher, it would actually end up netting if we tried to reprioritize some of the Redmond space. It would have netted lower margins as an overall segment because you wouldn't be able to push the volume through. It just moves slower. And so when we think about blending that, there's an opportunity for sure to leverage the right space that's built for purpose around cleanroom products. And Memphis is a conversation that we've certainly had. I mean, we -- and I wouldn't even just say Memphis, I'd say we rewind all the way back and say, we've got 4 million square feet across multiple sites. Where is the right spot? And that's part of the evaluation. But we do see cleanroom continuing to be a meaningful conversation inside of our business. And we're going to continue -- we made investments in Redmond actually on a separate satellite building to support some of the cleanroom environmental controls in kind of its own space, really driving its value proposition. But going forward, yes, we're going to keep looking at that on a business perspective, saying where is the right spot to build this stuff and really make sure that we do kind of maintain diversification of the overall brand strategy.

Yes, I think the only thing I would add -- and this is something that Andrew and I have to solve for here, but as we continue to build relationships with the AAON rep channel and understand where they have gaps and opportunity for selling cleanroom solutions, I mean that's part of how we want to try to win with our reps as well as understanding how BASX can bring more capabilities to bear to help them grow their firms. And so it's balancing manufacturing. Of course, we didn't touch on engineering, but we've got limited engineering bandwidth, and you see our priorities where we're allocating focus today, which includes also productizing news and like custom air handlers and capabilities. So cleanroom is important to us. We want to keep diversified. We've committed some dedicated manufacturing space, which I think is the right play for now. And then we're going to have to assess the demand from our rep side and how we can best complement and build that into our growth plan.

We do have a question on the webcast. Does the target of mid-single-digit percentage organic growth within AAON segment include any potential market share gains within national accounts?

Yes. I mean I would say it includes market share gain fundamentally. So built into that is market share gain. But again, I just rewind. I mean we look at the current year, the soft macroeconomic environment, volumes down 24% and in a quarter is pretty substantial in the commercial HVAC rooftop market. I mean that is a big downturn. That is going to be a little bit of an anchor on kind of the year's growth rate. We're guiding to a flattish kind of overall performance, which is telling you we're seeing market share acquisition in this year in that backdrop. As we think going forward, yes, definitely, the national account is a piece of that. The national accounts, a couple of hundred million dollars in pipeline. Again, we don't assume we get all of that, but we certainly see there being potential to get a couple of good wins in there that will provide some opportunity. And certainly, if we get some bigger wins in there, there's upside to the conversation for sure.

And just a quick follow-up related to national accounts. Would this be an incremental revenue stream or cannibalistic to your existing business at all?

It's 100% incremental. I mean, we -- when you look at what AAON is doing today, we have some national accounts. But I mean, if you look at the scale of national accounts, they're very small. They're quick trip type locations like fast-serve locations, things like that. And so some of these large wholesale locations, some of these large distribution warehouse owners, these large retail owners, that is incremental. These are customers that we don't play with today. And so it is an add kind of an incremental perspective.

Adam Seessel with Gravity Partners. Matt, Rebecca, Joe, thanks for a very helpful day. Two quick ones for me. I was somewhat surprised to hear you say that industry volumes would be flattish over the next few years. What are some of the headwinds that are there?

Yes. And I would just, again, go back to the current calendar year. I mean if we look at this calendar year '25 and we look at the ABI, which is a 12-month kind of leading indicator, we look at construction starts and how that's actually materializing in material spend and material kind of growth, they are both showing a slowing market, not a growing market in the current calendar year. If you take that plus a lagging indicator in the AHRI rooftop data being down 24% in the first quarter, then that tells you that the current calendar year is the depressing starting -- not depressing, it's the anchor that is slowing down that growth rate. And so being down, if you look at that data, that data suggests that this current calendar year is going to be down in volumes, high-single digits. Just mathematically is what that data would tell you in the commercial nonres rooftop market. So that is where we say that, that's your starting point, and then we anticipate the rebound off of that. But just that on a 24 starting base relative year is just the math that's going to drive that sort of conversation.

Good. And then... [Audio Gap] but somewhat not. I see on your LinkedIn page that you are a commercial helicopter pilot. Anything we should be worried about there?

[Audio Gap] was academy bound. And unfortunately, back in the day, LASIK was still considered experimental. And so my lack of vision was kind of a deterrent. And so that was a little passion fill, kind of just trying to balance the original life goals in the world. I don't fly too much, unfortunately.

Right here, I probably should. I think I'll bide my time.

We do have another question on the webcast, if no one else has one. Can you expand on the emerging productization of your BASX offering? What does that exactly mean? And how big of an opportunity can this be? And is this primarily data center related or outside of the data center?

Matt, wouldn't you kind of handle all this? Because...

Yes. So specific for data centers, we really have 2 projects afoot. One is, there are a handful of our air cooling solutions that we are standardizing what I say, for the masses. And the way we'll go to market with these is through pre-engineered, configurable offerings that are predesigned. They're supported with selection software, collateral and tools that our independent sales channel can use to self-perform the design, selection, pricing, submittal process. So we're able to get scale in that way because there's very little of that workflow that's going to have to travel through our solution engineering department, right? So we can continue to be focused on delivering high-value contributions with our hyperscalers or other [ colo ] customers that are looking to us for customized solutions. Meanwhile, we're able to get leverage in our fleet of factories by growing product sales through our national sales reps. Not all of our customers are going to respond to that type of an offering, but we like the diversification and some optionality that gives us. And so it's a heavier engineering investment upfront because we have to predesign and think through all the configuration, flexibility and features, but then it's a relatively lower support model thereafter once it gets in the hands of our reps. So that's the first piece that's kind of data center oriented. The second piece, which takes us outside of the data centers it's really a complement to the work we would do in the data centers. That's the semi-custom air handling offering, which we believe could support data centers, but actually moves us and opens up further penetration in the commercial space. Same concept, though, preengineered using all of the automation and manufacturing and the capabilities that we can muster. And we think through that offering with the hand of our reps with a flexible offering that is going to appeal to the consulting engineers, the contractors that are serving more of that commercial space. And we think that gives us more diversification in end markets and product capabilities. So those are really the 2 major projects that we have that are kind of in that productization category.

Any other questions in the room? We do have another webcast question. For the AAON business, you lost share in 2024. How have orders trended through the early part of this year? Specifically, how has that continued into 2Q? Do you expect to regain the share that you lost in 2024?

Yes. I mean the simple answer there is yes. But when we think about the order trend, we look at the end of December orders, $150 million came in, in a 5-day period in the end of December. And then you look at the continued uptick in orders and backlog really inside of Q1, which continued to show strengthening order cadence kind of coming off of that disruption kind of on that refrigerant transition. And so we look at that and really shows good strength in kind of the value proposition of the order cadence. The -- what I'll say is the orders continue to stay in a good position kind of in Q2. There's obviously -- again, there's some dynamics in the macro market. And certainly, it's not an explosive growth conversation, but it's stability is what I would say in Q2.

And we have 1 last webcast question. You spoke of how it's very difficult for your peers to mimic your business model. Can you please explain that again and provide a few factors of why that is, especially given your company -- competitors, sorry, are so much larger and have more capital?

I feel like there's no one better to take this patch and answer than Stephen.

If I feel like they heard me say this is my slide and want me to do it again. Let me try to use a metaphor that makes this clear. Imagine you're building a 20,000 square foot super house. And the foundation that you pour under that, you realize that there's a better way to do the foundation when you finish framing the whole house. So what you would have to do to mimic AAON is you'd have to remove all the framing, take the whole thing down. All that cost, all that time, all those red tape, convincing that you've got to do. You have to go back, break the foundation up, rebuild it with this new method and then reframe it. So imagine the bigger the house gets, the more difficult it is to undo and redo. And because when AAON came up with this method, it was not anything anyone else was doing. The machinery required -- the manufacturers of such never thought of doing it that way. We kind of developed it with them when we were small and able to implement it in such a way that it didn't show up that much to the outside world. It was just kind of blood, sweat and tears. And when I say kind of blood, sweat and tears, I mean it. Blood, sweat and tears to develop the system internally. We had a check and balance system that a design engineer would come up with something and then it would go through this filter, and that filter would push back. And it's funny because 1 of those filters is now a very good friend of mine because we've worked together for so long. But back then, he wasn't nice to me. And he would come back and he would say, can't do this, can't do this, can't do it. So you had a very difficult dynamic between human beings to manage. You had a whole lot of undoing to build a new kind of method or foundation to your entire design process, fab process and assembly process for the finished product. So why is it hard to replicate? Well, because you've got to undo everything you do, break up your foundation, learn how to build the foundation, this other kind of secret way we do it and then start all the way over again.

Question over here?

Kevin Zhu with Ranger Investments. Your ERP rollout in Longview on April 1, I'm expecting you guys are going to roll it out to the rest of your facilities at some point. Do you guys have an update on that timing?

We don't. I mean, from our perspective, it is being very -- driven by -- ensure there's 100% stability and the impacts are all resolved in 1 site before you go to the next one. And so while it's easy to get excited and start thinking about what each 1 of those steps looks like, the internal discipline that we have is we don't make those moves until not only have we gotten the facility that went live operating how it should, but also all of those lessons learned built into the solution at the next site, including the training and sort of try to make each one a less impactful conversation. And really maintaining that discipline is something that Rebecca and I have very often with some of our team. Because the ERP, they really get down to it is going to enable a lot of great things within AAON. There's a lot of excitement around this ERP because it's going to provide us visibility that we've never had into this business. I mean if you get right down to it, forward-looking, the ability to do a lot of things from a financial visibility and understanding perspective, they just don't exist in sort of some of that legacy ERP that we have. So there's a lot of excitement on getting it on and getting it online, but really making sure that we don't make those decisions, make those moves until the previous site is fully stable, operating as it should, and everything has been trained out from a lessons learned perspective.

We have another question on the webcast. For BASX, are there any holes in the portfolio that customers would like you to fill? What is your exposure to direct-to-chip versus immersive cooling? And how do you see those technologies growing? Are you agnostic from a price and margin standpoint?

What was the last question?

Are you agnostic from a price and margin standpoint?

Do you want to get that first, Matt?

Yes. So let me start with -- the first part was around liquid cooling, I want to say.

Does your sales channel -- do your customers feel like the portfolio is well rounded? Or do you -- is there any products to fill?

Yes. So I would say as we're working with our AAON channel, they have other partners on their line card besides BASX. And of course, we're fighting for more wallet share at every single quarter. Generally, we've largely filled all of the holes that are most important to them. And remember, we approach solving problems with custom solutions. So it's not so much that we've got a menu or a catalog of offerings that they choose from and they identify, we've got 2 or 3 gaps. They bring us challenges, we put pen to paper and we solve those problems, and that's how so many of our offerings today have proliferated over the years. And so generally, we're plugging those holes as the opportunities come forward. With regard to liquid cooling, the majority of what we're involved in supporting today is direct-to-chip liquid cooling. And that seems to be where most of our customers are orienting either current designs or the designs that we're partnering with them to engineer for their facilities. And I would say -- if the question is around, are we agnostic to pricing margin, meaning might we entertain offerings, products or solutions that would challenge us or stretch our margin expectations, we take a look at those on a case-by-case basis. But ultimately, you saw our goal to be delivering blended margins of 30% plus. And all of that includes both our data center solutions plus the configurable products plus the cleanroom offerings that we continue to manage. So we look at it on a blended basis.

Just to add 1 little piece there, too, is there stuff that our customers say, "Hey, I love if you made this." Of course, there is. But we're also very pragmatic in ensuring that we're not chasing #1 growth for growth's sake, and we're not kind of throwing good money after things that really are kind of not the right opportunity. And so 1 example of that conversation. We've had many a customer come to us and say, man, I love if you mass produce an air-cooled chiller.

That's a great example.

Great if you look at it and you look at our peers and [ JCI ] and train, I mean, a lot of their growth in data centers is on air-cooled chillers. And so there's a lot of commentary saying we love it if you went after that. But when we step back and say, where is the market going, right, run where the ball is going to be thrown, not where it's sitting today, that's a conversation that we really get into with them because as you move into liquid cooling, the thermal management strategies look different. And the conversation around chillers looks different because when we move to liquid cooling, we're actually changing the way we actually design thermal management solutions, we're moving the fluid temperatures higher is really kind of a backbone of that. And in doing that, you start saying to yourself, there's a point in time where an air-cooled chiller isn't the right answer. And when we sit here and say how much money do you want to throw trying to build out capacity around air-cooled chillers in an evolving market where we don't see the long-term play providing the same growth story, that's the wrong investment strategy. And so when we have those conversations where they say, "Hey, there's a hole, we love if you fill this." We're going to be very open at where we see the opportunity, and we're going to make the smart investments and develop strategies to answer where the market is going. Because yes, could we make a chiller? By all means, we can make chillers. But we don't see the return on capital deployed in building out chiller production capacity being a long-term growth conversation for the overall BASX brand. And so we're focusing the energy of our capital, of our talented team on the opportunities that we see really where the market is evolving to, not where it's at.

Anyone else have any other questions? Nothing on the webcast. So going once, going twice. All right. Well, I just want to say thank you, everyone, for attending. We appreciate everything. And if you have any other follow-up questions, need to get ahold of us, my information is on the website if you don't already have it. So thank you and safe trip home.

Okay. Thanks, everybody.