Title

Presentation

AAON, Inc. beats earnings expectations. Reported EPS is $0.48, expectations were $0.31.

Operator: Hello, and welcome to the AAON,Inc. First Quarter 2026 Earnings Conference Call. [Operator Instructions]. I would now like to turn the conference over to Joseph Mondillo, Director of Investor Relations. You may begin.

Joseph Mondillo: Good morning, everyone. The press release announcing our first quarter 2026 financial results was issued earlier this morning and can be found on our corporate website, aaon.com. Call today is accompanied by a presentation that you can also find on our website as well as on the listen-only webcast. We begin our customary forward-looking statement policy during the call, any statement presented dealing with information that is not historical is considered forward-looking and made pursuant to the safe harbor provisions of the Securities Litigation Reform Act of 1995, the Securities Act of 1933 and in the Securities and Exchange Act of 1934, each as amended. As such, it is subject to the occurrence of many events outside of AM’s control that could cause AAON’s results to differ materially from those anticipated.

You are all aware of the inherent difficulties, risks and uncertainties in making predictive statements. Our press release and Form 10-Q that we filed this morning detail some of the important risk factors that may cause our actual results to differ from those in our predictions. Please note that we do not have a duty to update our forward-looking statements. Our press release and portions of today’s call use non-GAAP financial measures as defined in Regulation G. You can find the related reconciliations to GAAP measures in our press release and presentation. Joining me on today’s call is Matthew Tobolski , President and CEO; Andy Cheung, our new Chief Financial Officer, who joined the company in April and Rebecca Thompson, our Chief Accounting Officer.

Matt will start with some opening remarks, Andy will follow with a walk-through of the quarterly results and Matt will finish up with our updated outlook for 2026. With that, I will turn the call over to Matt.

Matthew Tobolski: Thanks, Joe, and good morning. Q1 was a strong start to the year and an important execution quarter for AAON. As the organizational leadership and capacity investments that we have been deliberately building began to show up more clearly in our results. In addition to delivering record sales and 37% earnings growth, we recorded a book-to-bill well above 1, resulting in backlog of $2.1 billion, more than double from a year ago and marking the sixth consecutive quarter at record levels. . Both brands continue to demonstrate the strength of their value propositions through highly engineered, configurable and custom solutions, consistent with the strategy we have executed against over multiple years. This led to strong customer demand and translated into solid growth in share gains during the quarter.

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Demand remained exceptionally strong in basics, supported by the strength of the data center market and our differentiated solutions that deliver improved performance, greater efficiency and ease of maintenance. Basics branded sales grew 72% year-over-year, even against a lofty comparison and sales in the prior year period nearly quintupled. Increased production from our expanded facilities in Longview and Memphis supported a higher throughput while we also continue to increase output from our Redmond side. Operationally, we executed well for our customers with all 3 facilities delivering record basics branded sales during the quarter. This performance reflects not just strong demand but improving execution driven by deeper leadership benches, clear accountability and more disciplined operating processes as capacity scales with a more mature operating structure.

In addition to higher throughput, we delivered another quarter of strong bookings. Basics posted a book-to-bill ratio over 2, driving a record backlog of basics branded orders, up 160% from a year ago and 24% sequentially. Against the data center thermal management market growing at approximately 30%, our revenue and order growth raised supported continued market share gains at Basics. The AAON brand also performed well. gaining share even as market conditions remain soft and our extended lead times persistent. A key positive during the quarter was a notable improvement in production rates which drove AAON branded sales growth of 42% year-over-year and 11% sequentially. These improvements contributed to shorter lead times and a sequential reduction in backlog, though further progress is necessary.

With volumes within the unitary HVAC market growing just modestly year-over-year, these first quarter results suggest meaningful share gains. Bookings of AAON branded equipment increased approximately 9% year-over-year and were up about 15% on a trailing 12-month basis. In the quarter, growth was driven by strength in our traditional transactional business while national account bookings were comparable with the prior year period. The improvement in transactional business reflects an acceleration in demand, which is encouraging considering this business was soft for much of last year. orders of alpha-class equipment, which comprise our AAON branded fully electric heat pump configurations also contributed to growth, increasing 56% during the quarter.

The same strength that AAON branded bookings limited the sequential decline in AAON branded backlog even with meaningful improvements in production. An branded backlog declined 3% sequentially and remained up 26% from a year ago. As a result, we remain focused on further ramping production to work down backlog in normalized lead times. In the midst of such strong growth, we have been intentionally investing in people, processes and tools to build a top-performing operating organization, one capable of sustaining higher growth rates while expanding margins over time. These investments are now moving from build phase to execution phase. Last quarter, we discussed the investments we’ve been making in supply chain management and lean manufacturing.

We continue to leverage these investments and expect to see accelerating benefits as the year progresses. Margin expansion remains central to our long-term value creation model. In the near term, we are intentionally prioritizing growth, customer delivery and system maturity over near-term margin maximization. That decision is reflected in the temporary use of outsourcing and ramp-related inefficiencies as we scale capacity. These are conscious, disciplined trade-offs made from a position of strength and visibility not demand-driven pressure or structural resets. We view them as economically positive decisions that accelerate market share gains and long-term returns on invested capital. Importantly, these decisions do not come at the expense of [indiscernible] growth.

Longer term, as capacity builds out and internal capabilities mature, reliance on these temporary measures will decline driving margin improvement through better fixed cost absorption and productivity. As a result, we now expect higher growth for the year, albeit with more modest margins near term while continuing to see directional margin improvement as the year progresses. Before handing it off, I want to welcome Andy Chang, our new Chief Financial Officer. Andy brings a strong financial background and a proven track record of leadership across strategy, financial planning and analysis and capital management. His experience and disciplined approach will be instrumental as we continue to scale the business, enhance execution and drive long-term value creation.

Andy’s insights and partnership will further strengthen our leadership team and support our focus on growth, margin improvement and operational excellence. I’d also like to thank Rebecca Thompson for his steadfast service as CFO. I look forward to her continued contributions and a return to the Chief Accounting Officer role. And with that, I will now turn it over to Andy, who will walk through the quarterly financials in more detail.

Chung Cheung: Good morning, everyone. I’ll start this morning by first sharing how excited I am to join AAON and to have the opportunity to partner closely with Matt and the leadership team. I’ve held financial leadership roles across multiple industries in my nearly 30 years tenure, including an extensive amount of time in the industrial HVAC space with a consistent focus on driving operational efficiency. I’m pleased to bring that experience to AAON, and look forward to helping drive the next stage of profitable growth and value creation. The company’s strong market position and the high growth opportunity is what initially attracted me to the role. And as I have become more familiar with the business over the past few weeks, I’ve been even more impressed by the strength of the underlying fundamentals and the sizable opportunity that lies ahead.

I look forward to working with the team to support profitable execution, enhance returns and deliver long-term value for our shareholders. With that, let’s turn to the first quarter financial results. First quarter net sales increased 54% year-over-year to a record $496.9 million. Growth was driven by strong performance across both basic and AAON brands. supported by elevated backlog levels and recent capacity investments that enabled higher production rates during the period. Basic branded sales increased 72% year-over-year. reflecting continued strong demand for data center cooling solutions and capacity gains from higher utilization of our facilities in Memphis, Longview and Redmond. AAON branded sales grew 42% in the first quarter, driven by improved production throughput as we work to reduce lead times at both our totall and long field facilities.

Gross margin was 25.1% in the first quarter, down 170 basis points from 26.8% in the prior year period. Gross margin was impacted by an increased amount of outsourced components to drive growth and share gains and absorb fixed costs at the new Memphis facility as well as tariff-related and general inflation pressures of which are temporary, despite these lead-term margin impacts, earnings growth remained strong, reflecting our exceptional growth trajectory.As internal capacity scales, utilization and productivity increase, reducing reliance on outsourced components and resulting in better fixed cost absorption. Additionally, we have taken margin actions through pricing and mix and those actions are embedded in the backlog. SG&A expenses as a percentage of sales declined 220 basis points to 13.7%.

Up 32% to $67.9 million. This reflects strong operating leverage and disciplined cost management, and demonstrates how our organizational investments are scaling as revenue grows. Driven by the strong top line performance, non-GAAP adjusted EBITDA increased 44% and from the prior year period to $78 million. Non-GAAP adjusted EBITDA margin was 15.7% compared to 17.6% a year ago. Diluted earnings per share in the first quarter of 2026 were $0.48, representing an increase of 37% from the first quarter of 2025. Turning now to the segment financials. Beginning with AAON Oklahoma. For the first quarter, net sales increased 51% year-over-year to $244 million. This outsized growth was driven by a strong beginning backlog and improve production throughput, which supported by higher backlog conversion despite a challenging industry backdrop.

Results also benefited from a favorable comparison to the prior year period, which have been disrupted by the industry’s refrigerant transition, contributing to regain market share. AAON Oklahoma gross margin was 26.3%, an increase of 120 basis points from 25.1% in the first quarter of 2025. Overhead expenses associated with the Memphis facility impacted segment margin by $9.8 million. Excluding these costs, Oklahoma margins were 29.6%. The remaining gap to our historical highs in the upper 30s is explained by 3 items: outsourcing, tariff-related pressures and general inflation none represent a structural change to Oklahoma long-term earnings power for its role as a core margin engine for AAON. All 3 have already been addressed with actions embedded in backlog, and new pricing actions.

These temporary headwinds will moderate as the year progresses. AAON coil products sales were $117.6 million in the first quarter, an increase of $23.6 million or 25% compared to the prior year period. Growth was driven by $93.2 million in base branded liquid cooling product sales which increased 40% during the quarter. This strength was partially offset by a 12% decline in AAON branded output within the segment. AAON Coil Products gross margin was 24.1% in the first quarter compared to 31.8% in the prior year period. and up 280 basis points sequentially from 21.3% in the fourth quarter. The sequential margin expansion reflected improved operating leverage from higher throughput at the Longview facility along with a favorable mix of higher-margin basic sales.

Sales at the basic segment grew 104% in the first quarter to $135.4 million. The robust growth was driven by sustained demand for data center solutions and new market share capture as basics continued its trend of strong order intake and growing backlog. Increased utilization of our Memphis facility was also a significant factor, providing additional production capacity that was additive to segment results. BSIC segment gross margin was 23.9%, essentially flat from the prior year period. The stable year-over-year margin reflected strong volume growth offset by incremental resources and investments lead to support the future growth and share gains. As utilization continues to improve, we expect basic segment sales and margins to expand through the balance of the year, with the second half weighted more favorably as fixed cost absorption improves.

Turning now to the balance sheet. Cash, cash equivalents and restricted cash balances totaled $1.1 million on March 31, 2026, and debt at the end of the quarter was $425.2 million. Our leverage ratio improved to 1.71x, down from 1.77x on December 31. During the first quarter, cash flow from operations was a positive $34 million, the highest level since the third quarter of 2024. This is compared favorably to a $9.2 million use of cash in the prior year period and was driven primarily by higher earnings and improved working capital efficiency. Capital expenditures totaled $52.9 million, reflecting continued investment in incremental capacity to support future growth. Looking ahead, we expect continued profitability and productivity improvements throughout 2026, which we believe will drive further cash flow improvement and strengthen the balance sheet in support of future growth.

I will now hand the call back to Matt.

Matthew Tobolski: We entered the second quarter the significant production momentum and a strong backlog that provides excellent visibility through the remainder of the year. Production throughput continues to ramp across all of our facilities, positioning the business to benefit from higher volumes and improved utilization. With this operational momentum and backlog strength, our focus remains squarely on execution and delivering for our customers. In the near term, we expect temporary cost pressures from outsourcing as we support strong growth and continued market share gains. However, these impacts are transitory and as internal capacity expands, these cost burdens will diminish, allowing margins to improve with demand remaining robust production continuing to scale and capacity investments coming online, we expect improving margins over the course of the year as operating leverage builds.

We remain focused on scaling the business efficiently and strengthening margins over time, while delivering for our customers and driving long-term value for our shareholders. For the year, we now anticipate sales growth of 40% to 45% at a gross margin of 27% to 28%. SG&A as a percentage of sales is expected to be between 14% and 15% and depreciation and amortization expenses are expected to be in the $95 million to $100 million range. These expectations reflect our confidence in demand, improving execution and the operating leverage embedded in our cost structure. Importantly, our full year outlook reflects a net improvement in both top and bottom line, with earnings up materially despite gross margins reflecting intentional timing and ramp decisions.

The additional volume we are taking on this year carry strong incremental contribution and accelerate absorption, productivity and capacity payback. This is a timing issue tied to how we’re choosing to ramp and execute. Not a reset in long-term margin structure. As absorption improves, outsourcing declines and pricing flows through, margin expansion follows as these temporary factors unwind. In closing, I want to thank our employees, our customers, sales channel partners and shareholders for their continued support. We are seeing clear momentum in our operations as recent investments translate into stronger execution. Our visibility, execution priorities and operating discipline position us well to continue improving performance and delivering long-term value.

And with that, I will open the call for questions.[Operator Instructions] Your first question comes from Ryan Merkel with William Blair.

Ryan Merkel: Congrats on the quarter, very well done. So Matt, you’re not going to be surprised about my first question, which is gross margin. There’s a lot going on but I think it would be helpful if you could just talk about Oklahoma because the margins there, I think you said normalized for close to 30%, but the quarter was 26. So that 500 basis points, if I have that right, can you just unpack each of the temporary issues? And then the second part of the question is, how should we think about 2Q and why will 2Q improve sequentially? What are the drivers?

Matthew Tobolski: So touching on Oklahoma margins, just to clarify, the margin as reported includes the overhead impacts of the to Memphis investments and so when we back that out, the Oklahoma margin for the quarter is sitting around 30%. And so when we think about that 30% compared to 2024 high in the higher 30s, the 3 key drivers that are embedded in there is, first off, some intentional choices to outsource to help fuel the growth. And when we think about it from a system perspective, we’ve got demand coming across the entire platform for internal manufacturing resources. And so as we balance exactly where all those resources are driving kind of throughput for the overall enterprise, some of that decision, especially in coil production in places like Longview, we’re centered on supporting some of the liquid cooling products we have.

So because we tied up some of that capacity in the Longview site for basics, we did some more outsourcing in the Oklahoma site, which shows up in the overall margin. But beyond that, there’s a little bit of price cost dynamic and a little bit of dilutive nature from the tariff surcharge and actual costs incurred. But I want to touch on the fact that the price cost issues and the tariff impact were identified and actually pricing actions have been taken at the back half of last year. So embedded in backlog is actually intentional actions to increase that price already. and we will continue to monitor the input costs and really maintain discipline around pricing strategy.

Ryan Merkel: Got it. Okay. That’s helpful. And then 2Q, can you provide us any kind of color on where you think the margins will land?

Matthew Tobolski: Yes. I mean, Q2, we’re expecting sequential improvement quarter-over-quarter in the Oklahoma segment. And so that includes both with and without Memphis. The only thing I’d touch on is Oklahoma does traditionally have seasonality in Q4 and Q1. So we anticipate seeing sequential progression in the Oklahoma segment margin in Q2 and Q3 and there still is a little bit of potential pullback in Q4 with normalized seasonality. But all in all, we expect to see consistent improvement kind of during the main peak months in the summer.

Ryan Merkel: Got it. Okay. And then just quickly on basics, I mean the revenues and orders were way above what I was thinking and maybe even what you were thinking, if I go back to what you told us in 4Q. So why did basics revenue in the quarter beat so much and then what is embedded in the guide for basics growth at this point? Because I think prior, you had said 25% growth.

Matthew Tobolski: Yes. So, it’s a good question on what changed or what allowed us to accelerate the sales and the bookings guidance. And really, what I’d say is as we look kind of within our customer base as well as new customer conversations, we continue to see incredibly strong strength in the data center market from an underlying perspective. And as we mapped out kind of our execution plan to really capitalize on the opportunity, especially with our differentiated product, we made the choice to accelerate some of the productivity or production ramp, which is part of that additional cost structure that came in on the outsourcing. But when we saw the opportunity and we really mapped out how we can take advantage of that, we made it a point to really accelerate revenue, which allowed us to then also accelerate bookings.

So as that demand really started to come online and show good legs and we gain more and more confidence in our ability to drive more volume through. It allowed us to continue adding more sales or bookings as well. So that’s really the big driver of really the acceleration, both on the sales and the booking side. I would just say, high level, what’s embedded in the overall guide for the year is when we zoom out and we look at kind of the new 40% to 45% kind of marker from a top line revenue perspective that implies roughly $1 billion in basics revenue for the year.

Ryan Merkel: That’s incredible. Okay. I’ll get back in line.

Operator: Your next question comes from Chris Moore with CJS Securities.

Christopher Moore: Nice quarter. Maybe we’ll start with — on the rooftop side. So obviously, you’re ramping production there, lowering the lead times sounds like you’re taking some share. Just maybe you could talk a little bit about kind of what you’re thinking about from the rooftop market for the balance of ’26?

Matthew Tobolski: Yes. I mean the rooftop market as a whole, we talked through last year of obviously making some great strides in our national account success throughout the calendar year. But as we came into 2026, we continue to see good strength in the national account structure. But beyond that, what we saw was some really — some solid movement in the more traditional transactional market. And so a lot of that growth in bookings that we saw in the quarter actually was driven by the more traditional market, which from our vantage point, it shows signs of recovery. We look at the age or data kind of through second quarter it shows a low single digits recovery in volumes going through, which obviously we’re outperforming on.

So we’re taking share. We’re really capitalizing on the value proposition of the overall portfolio, seeing a lot of strength in the off glass heat pumps. We’re seeing good strength out of in our local markets. And so we continue to expect to see ramping production in the Oklahoma segment through Q2 and Q3. And again, a little bit of question mark in Q4 on normal seasonality, but really see good strength from our value proposition and driving good revenue and share gains through the year.

Christopher Moore: Got it. In terms of the premium pricing? Is that’s still holding up?

Matthew Tobolski: Yes. I think one thing to point out and kind of mentioned in my response to Ryan’s question, but embedded in the backlog has been intentional pricing actions that we’ve been taking through the back half of last year. So it’s important to note, implying there obviously is we’re maintaining discipline on how we price our product and maintain that premium and we continue to see strength in bookings. So with that price, we continue to see the value proposition shine through with those share gains and outperformance on the overall bookings. So, we definitely think the pricing strategy remains intact. We see the value proposition very much intact, but continued focusing on delivering innovative products to the marketplace.

Christopher Moore: Got it. And maybe just one on basics. And it sounds like you’re talking about $1 billion in revenue this year. Just from a capacity standpoint, kind of where you’ll be at the end of ’26 and kind of what’s your longer-term target in terms of data center capacity.?

Matthew Tobolski: Yes. I mean, we’ve talked in the past and again, this is sort of what’s rough napkin math in the past around about $1.5 billion of capacity. But last quarter, I indicated in a lot of the conversations and really response to questions, which was we truly see a lot of upside actually beyond that. So embedded inside the initial investments that we made in both Longview and Memphis is actually more revenue potential than that original $1.5 billion. We continue to work to really quantify that. Mix is obviously a huge component of that as we continue to capitalize on the market opportunity. But we definitely see the capacity embedded in there being above $2 billion per share.

Christopher Moore: Got it, i’ll leave it there.

Matthew Tobolski: So we’ve got headroom I would just touch too. I mean there’s obviously sequential investments that come along with more equipment. But I’d say the big lifts have already been embedded in the investments we’ve been making.

Operator: Your next question comes from Noah Kaye with Oppenheimer. .

Noah Kaye: Matt, Yes, another really strong orders quarter for basics. Can you talk a little bit about the nature of the orders you’re seeing now, how that’s evolving? Some of these wins is existing customers, new customers, mix — any color on that and how that’s informing your ramp at Memphis would be helpful.

Matthew Tobolski: Yes, a great question. So when we look at the overall kind of what is embedded inside not only the bookings but also I’d say the pipeline, which I think is also equally as important about longevity. There is a solid base, obviously, of existing customers. but we continue to engage with and secure orders with new customer base as well. And so we see the delivery and the execution and the value proposition of the product, helping anchor continued orders from our current customers, but also we see continued engagement and a lot more opportunity with broadening that customer base, which, as we’ve talked about in the past, is actually one of the key focuses that we have as a business. We love — we love the customer base that we have.

We also want to be very intentional about diversification and ensuring we spread out the overall kind of concentration risk within a broader customer base. And so we continue to focus on that. We continue to see it driving success in the overall results. And just kind of maybe moving one step further beyond just the customer base, I also want to just talk about the kind of overall product portfolio embedded in the conversation. One thing we’re seeing in the midst of all this is really a broad-based demand for our entire portfolio. So if not isolated on one product or another. We’re seeing good strength and consistent strength in our traditional airside products that built the base brand from the beginning days. So we see the good strength in air side.

We continue to see that market actually growing in demand for us, but also continued strength in the liquid cooling products with the CDUs, both liquid air and liquid conversations. But beyond that, we’re also seeing really good strength and interest in our kind of AI-centric free cooling chillers. So systems that are intentionally designed to operate at optimized levels within higher fluid camps supporting AI workloads. We continue to see increasing demand and increasing success there. So really the wins both from a sales and a bookings perspective are pretty broad-based around the customer set and the overall portfolio itself.

Noah Kaye: That’s helpful. And then I think you mentioned around the basic segment. There was some outsourcing also helping to accelerate sales there. Was that also coils outsourcing? Can you give us any more color on what was being outsourced?

Matthew Tobolski: Yes. There’s a variety of things that we look at from an operational perspective to see where the constraints are. And one thing I always say is manufacturing is a world of uncovering the constraints. No matter how much you solve one problem, you move it to the next one. And so as we look at overall constraints and really map out the sort of rocks that are in the way from accelerating revenue growth, coils obviously are a conversation that we continue to invest to expand our capacity. So it’s not a long-term outsourcing strategy on coils. It’s just essentially as we continue ramping internal production. We’re basically using that as a little bit of a short-term kind of hedge to be able to keep driving the volumes.

But same thing, as we think about a Memphis coming online, we’re adding a tremendous amount of internal manufacturing capacity in the Memphis site, whether it coil production, whether it’s sheet metal, whether weld and coating, all these things that are part of the puzzle. And as we push to really accelerate growth, we understand kind of the ramp rates of some of those internal investments. And we balance that with outsourcing to ensure that we can drive volumes while continuing to mature the internal operating processes. So that’s where we talk about. This is a temporary conversation on outsourcing. We continue to have more and more capacity internally coming online, which is what’s going to help drive margin improvement as we keep getting that capacity to mature.

Noah Kaye: Okay. That’s helpful. Matt. One more is just for Andy. First of all, welcome to the call. Maybe you could just talk for a minute about your priorities in the seat. It’s — it’s nice to come in a quarter where an operating cash flow is inflecting. But I know with your background, you probably see some more opportunities to improve operating cash conversion. Can you talk a little bit about that and just more broadly what you’re focused on here in the near term?

Chung Cheung: Yes, absolutely, Laura. I’m super excited to be joining AAON here. And as you can see, we have really strong fundamentals. In the last few weeks, I really learned a lot and starting to formulate my priorities. I would say, near term, I see 3 things as really important. One definitely is the margin discipline, the ability to grow our margin during this phase of ramping rapid growth. Second, as you mentioned, we do see opportunity in cash generation, particularly on working capital management. I think there are opportunities there. And then lastly, I think just from an overall finance function standpoint, the visibility, the connection with the rest of the management team, with our operating team, I think there’s a lot that we can do to enhance the capability of the overall leadership team. So yes, I’m super excited. These are 3 things. I’m definitely going to share more of my view in the next call in the next couple of months.

Noah Kaye: And we look forward to that.

Operator: Your next question comes from Timothy Wojs with Baird.

Timothy Wojs: I guess a couple of questions for me. Just on the gross margins, Matt, how much of the kind of reduction relative to the prior guide is actually the investments you’re making and any changes to kind of the Tulsa guide versus just higher mix of data center revenue now being in the sales line?

Matthew Tobolski: Yes. When we look at — first off, when we look at the sort of kind of prior guide expectation to really where we delivered in Q1, I would say the biggest driver of that sort of miss or dislocation is really driven by the intentional actions and decisions we made to accelerate volumes. And so the incremental cost that put on obviously affected multiple segments. But by and large, that decision to drive more volume and in doing so, relying on some more outsourcing activities certainly was a big driver in that. And so that plus the Oklahoma margin conversation around a little bit of that price cost that also had some near-term pressures — but beyond that, the additional pieces that are embedded in there is, as we look at the opportunity ahead, we look at that growth rate and we map out what it’s going to take.

We’ve additionally made some more investments internally within our people and our process and some other investments to support that level of growth throughout the year. So there’s a little bit of front load as well that kind of midway through the quarter, we undertook to really help fuel that growth throughout the year. So I mean, there’s certainly a variety of factors in there. The data center margin is lower that we talked about than the structural AAON Oklahoma margin in the high 30s. But again, we knew that going into the quarter, and that really wasn’t the prime driver of that disconnect.

Timothy Wojs: Okay. Okay. That’s helpful. And I guess if $1 billion or so of basic branded is kind of the target for 26 now. I think it implies that there’s no real change in the AAON branded sales, I guess, is that math right?

Matthew Tobolski: Yes. I mean it’s — they’re in line. I mean there’s a little bit of upside, but it’s not markedly different on the AAON side.

Timothy Wojs: Okay. Okay. And then just the last one. Usually, you see kind of a several hundred basis point step up if you just look at also margins from Q1 to Q2. just from a seasonality and a revenue perspective? And I know you’re kind of kind of chewing through some backlog. So how would you kind of specifically expect the Tulsa business to perform Q1 to Q2 relative to normal seasonality?

Matthew Tobolski: Yes. I mean I would say you’re going to be — we anticipate being relatively in line with that normal seasonality. And so I would say you’re going to see uptick or we anticipate seeing uptick Q1 to Q2. But I would say, additionally, acceleration in that growth and margin profile really into Q3 before we expect some seasonality. So Q1 and Q2, I’d say, rough order magnitude, you’re in the ballpark of what we expect.

Operator: [Operator Instructions]Your next question comes from Julio Romero with Sidoti & Company.

Alex Hantman: This is Justin on for Julia. Can you give us an update on Memphis revenue contribution in Q1 specifically and help us frame the trajectory from roughly $25 million to $30 million in to where you expect Memphis to be exiting 2026 on a quarterly revenue run rate basis?

Matthew Tobolski: Yes. We don’t have Memphis explicitly called out in terms of that breakout of revenue. But what I would say is we anticipate — I mean we saw a good contribution step-up from Q4 to Q1. That’s obviously the big driver in some of that revenue gain for the quarter. We anticipate continuing to see growth in Memphis throughout the year. So as that facility continues to mature, and really gets more and more stability in the internal manufacturing process, it allows us to continue ramping that throughout the year. So we anticipate seeing strength and growth throughout the year. Really, the focus right now in Memphis is ensuring that we mature that operation and really drive consistent performance before we push the accelerator too hard. But we do see the opportunity throughout the year to keep driving sequential growth in that side of the business.

Alex Hantman: Very helpful. And then with capital expenditures being deployed towards investments in capacity, can you give us a sense of where the capacity investment is being directed and whether the $190 million full year CapEx plan is still intact or whether the demand environment is causing you to revisit that number?

Matthew Tobolski: Yes, it’s a great question. And so really, when we think about where that $190 million is spread out, obviously, there’s a huge concentration in terms of facility perspective on Memphis and continuing to build out Memphis throughout the year. So last year, obviously, we had a huge year of investment in putting more and more equipment into that facility. But obviously, that continues in this calendar year as we continue to mature that operation and build the back of house to sustain that continued growth. So I want to just anchor there for one second and say that initial investment in Memphis does provide a tremendous amount of revenue potential. So it’s not like there’s an immediate massive follow-up of additional CapEx to support the continued growth.

We have made a lot of investments over the last couple of years fleet-wide, whether Longview, Memphis and really Tulsa, Redmond and the Kansas City site as well. So we’ve been making investments over the last couple of years, which obviously show up in our financials. But those investments we’ve been making in the last couple of years have been very much framed around that forward-looking growth potential. So the investments we’re making this year, obviously centered in Memphis, but the investments we’ve been making are going to support a lot of this growth. It’s not triggering some massive investment that we have to make to be able to support this rate of growth in that $2 billion marker kind of from a revenue perspective.

Alex Hantman: And just to add on your question, we are still seeing $119 million is our current expectation for the year. Very helpful. and congrats on a nice quarter. Thanks so much. .

Operator: This concludes the question-and-answer session. I’ll turn the call to Joseph for closing remarks.

Joseph Mondillo: Okay. We thank everyone for joining today’s call. If anyone has any questions over the coming days and weeks, please feel free to reach out to me. Have a great rest of the day, and we look forward to speaking with you in the future. Thanks. .

Operator: This concludes today’s conference call. Thank you for joining. You now disconnect.

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