AAON - NASDAQ

Good morning, ladies and gentlemen, and welcome to the AAON, Incorporated's First Quarter 2025 Earnings Release Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] This call is being recorded on Thursday, May 1,2025. I would now like to turn the conference over to Joe Mondillo, Director of Investor Relations. Please go ahead.

Thank you, operator, and good morning, everyone. The press release announcing our first quarter financial results was issued earlier this morning and can be found on our corporate website, aaon.com. The call today is accompanied with a presentation that you can find on our website as well as on the listen-only webcast. Please turn to Slide 2. We begin with our customary forward-looking statement policy. During the call, any statement presented dealing with information that is not historical is considered forward looking and made pursuant to the safe harbor provisions of the Securities Litigation Reform Act of 1995, the Securities Act of 1933, and the Securities and Exchange Act of 1934, each as amended. As such, it is subject to the occurrence of many events outside of AAON'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 details some of the important risk factors that may cause our actual results to differ from those in our predictions. Please note that we do not have the duty to update our forward-looking statements. Our press release and portion of today's call use non-GAAP financial measures as defined in Regulation G. You can find the related reconciliations to the GAAP measures in our press release and presentation. Joining me on today's call is Gary Fields, CEO; Matt Tobolski, President and COO; and Rebecca Thompson, CFO and Treasurer. Gary will start us off with some opening remarks. Rebecca will follow with a walk-through of the quarterly results. Matt will then provide further details on our operations and outlook going forward. And before taking questions, Gary will finish with some closing remarks. With that, I will turn the call over to Gary.

Starting on Slide 3. Prior to jumping into the results, I want to start off by reminding you of our core strategic pillars. These pillars consist of leading in innovation and custom solutions, driving sustainable organic growth and being a best-in-class operator. These three pillars help guide our long-term strategic planning and remind us of what we are trying to accomplish when forming tactical strategies. All of these pillars did not always exist at AAON. Since our founding, leading in innovation has always been core to who AAON is. Over the past several years, our strategy has built upon this with a focus on developing ways to drive sustainable long-term organic growth and being a best-in-class operator. All of the tactical initiatives that we've taken, such as transitioning to a leadership team, putting in place succession planning, formally constructing and documenting long-term strategy planning, adopting a One AAON principle, and I could go on and on. All of this was to better leverage our core to drive sustainable and efficient long-term growth. This company has never had a better long-term strategy with a better leadership team to execute it. What we're doing with the development of heat pumps on the AAON side of the business, and custom airside and liquid cooling data center solutions on the basics side is very exciting. The strategies we're taking regarding the other two pillars ensures that we will fully leverage these innovations, along with the already premier solutions we provide to drive market share gains at highly profitable levels. Now turning to Slide 4. The first quarter was a solid quarter for AAON. Net sales, margin and earnings per share notably improved from the fourth quarter and backlog grew to a record level. Total net sales grew year-over-year 22.9%. Sales of BASX-branded equipment were up 374.8%. Both airside and liquid cooling solutions for data centers were driving factors. Partially offsetting this strength, sales of AAON-branded equipment were down 19.1%. Production of our rooftop units was impacted by the weak bookings we received throughout most of the fourth quarter. Additionally, supply chain issues with certain components associated with the new R454B refrigerant were also a factor. On a positive note, bookings of this equipment year-to-date have been strong. We also have begun to see these supply chain issues abate early in the second quarter. Total gross margin contracted 840 basis points versus the comparable quarter a year ago. This reflected weak production volume of AAON-branded rooftop units and the resulting operating deleverage effect. Gross margin at the AAON Oklahoma segment was down 1,380 basis points. Strong sales of BASX-branded equipment, along with operational efficiency improvements drove solid gross margin expansion at the AAON Coil Products and BASX segments. Gross margin at these two segments were up year-over-year 100 and 350 basis points, respectively. Total backlog finished the quarter at a record level of $1 billion, up year-over-year 83.9%, and up quarter-over-quarter 18.4%. First quarter bookings of both AAON-branded and BASX-branded equipment were robust. Backlog of AAON-branded equipment was up quarter-over-quarter 23.4%, and this was the highest level since the first quarter of 2023. Bookings of rooftop units were very strong and strengthened throughout the quarter. Backlog of BASX-branded equipment was up quarter-over-quarter 15.4%, driven by bookings of both airside and liquid cooling data center equipment. Given the backlog on both sides of the business, we're positioned well entering the second quarter. I will now hand it off to Rebecca Thompson, who will walk through the quarterly financials in more depth.

Thank you, Gary. Please turn to Slide 5. Net sales for the quarter increased 22.9% to $322.1 million, up from $262.1 million in the first quarter of 2024. The year-over-year growth was driven by a 374.8% increase in BASX-branded equipment sales. This was reflected in the results of the BASX and AAON Coil Products segments. Net sales at these two segments were up 138.9% and 287.8%, respectively. Sales of AAON-branded equipment declined year-over-year 19.1%. This was largely reflected by the AAON Oklahoma segment, which realized a decline in net sales of 23%. Production of rooftop units were impacted by weak bookings throughout most of the fourth quarter. This was related to a temporary lull in demand as the market shifted from the legacy R-410A refrigerant to the new R454B refrigerant equipment. Bookings have since rebounded in a strong manner, suggesting that we're becoming more competitive with the new refrigerant equipment. Also impacting the first quarter was a tight supply of certain components associated with the new refrigerants, which temporarily constricted our production rates. Supply of these new components have recently begun to improve and will enable us to increase production rates significantly in the second quarter. Moving to Slide 6. Gross profit decreased 6.4% to $86.4 million from $92.2 million. As a percentage of sales, gross profit was 26.8% compared to 35.2% in the first quarter of 2024. Challenges from the industry regulated refrigerant transition and non-residential construction activity significantly affected our largest segment, AAON Oklahoma, resulting in decreased volumes and lower overhead absorption. Gross margins at this segment were down year-over-year 1,380 basis points to 23.5%. As we begin to see production volumes increase in the second quarter, we fully expect gross margins to recover. Production volumes of BASX-branded equipment acted as a partial offset. This allowed gross margin at the BASX and AAON Coil Products segments to expand. Operational efficiency improvements at both our Oregon and Texas facilities also contributed to improved segment margins. Please turn to Slide 7. Selling, general and administrative expenses increased 13.3% to $51.3 million from $45.3 million in the first quarter of 2024. As a percent of sales, SG&A decreased to 15.9% from 17.3%. Depreciation and amortization was up $3 million due to our increased investments in back-office technology, offset by a decrease in professional fees of $3.1 million due to various professional, regulatory and legal corporate requirements in 2024. SG&A expenses also included a $2.7 million fee due to our real estate broker associated with the December 2024 acquisition of our Memphis, Tennessee plant for a percentage of the incentives awarded to us by various entities. Moving to Slide 8. Diluted earnings per share was $0.35, down 23.9% from a year ago. Excluding the net impact of the $2.7 million real estate broker fee, adjusted earnings were $0.37, down 20% from a year ago. The decline in earnings fully reflects the lower production volumes and profits of AAON-branded equipment. Our effective tax rate in the quarter was 9.8%. The company's estimated annual effective tax rate, excluding discrete events, is expected to be approximately 25%. Turning to Slide 9. Cash, cash equivalents and restricted cash balances totaled $2.4 million on March 31, 2025, and debt at the end of the quarter was $252.4 million. Our leverage ratio was 0.95. Year-to-date, cash flow used in operations was $9.2 million compared to cash flows provided by operations of $92.4 million in the comparable period a year ago. Year-to-date, cash flow from operations largely reflected increased investments in working capital. Capital expenditures through the first quarter of the year, including expenditures related to software development, increased 30.2% to $50.4 million. We drew down $97.5 million on our revolving line of credit over this period, largely to finance the investments in working capital, capital expenditures and $30 million of open market stock buybacks. Overall, our financial position remains strong. This gives us flexibility and allows us to continue to fully focus on investments that will drive growth and generate attractive returns. For 2025, we continue to anticipate capital expenditures will be $220 million. I will now turn the call over to Matt, who will walk through operations in more detail and update you on our outlook.

Thank you, Rebecca. Starting on Slide 10. Gary and Rebecca covered this pretty well, but here, you will see how AAON-branded sales performed relative to BASX-branded sales. Total revenue growth of 22.9% was fully driven by BASX-branded equipment sales growing 374.8%. This is driven by data center demand for both airside cooling equipment manufactured at the BASX segment and liquid cooling equipment manufactured in the newly expanded space at the AAON Coil Products segment. BASX segment sales were up 138.9% and AAON Coil Products sales were up 287.8%. This helped drive an expansion in segment gross margin of 350 basis points to 24% at BASX and 100 basis points to 34.6% at AAON Coil Products. At both segments, we also began to benefit from the initiatives we're taking to improve operational efficiencies, particularly at the BASX segment where we're rightsizing capacity at the Oregon facility and focusing more on productivity of the facility. We expect to see more improvement at the BASX segment throughout the year, especially in the second half of the year. AAON-branded sales were down 19.1%, driven by rooftop production volumes being down at the AAON Oklahoma segment. AAON Oklahoma segment sales were down 23%. This was largely reflective of the weak bookings we realized throughout most of the fourth quarter. Supply chain issues with components associated with the new refrigerant also contributed to lower production volumes. This was a temporary issue related to refrigerant transition that is a challenging to manage occurrence and difficult to anticipate. As the market transitioned to production of the new refrigerant equipment, component manufacturers were challenged with keeping up with demand. In hindsight, we would have increased inventory levels for some of these components, but it was tough to predict at the time. As a result, the lack of access to certain parts caused us to maintain lower production levels despite a large backlog of bookings. The positive is, that we're beginning to see improvement in the supply chain, which is allowing us to increase production rates in the second quarter. Given the size of the backlog, we anticipate production will continue to increase over the next several months. Now, please turn to Slide 11. Total backlog at the end of the first quarter finished at a record level of $1 billion and up year-over-year 83.9%, and up quarter-over-quarter 18.4%. Backlog of AAON-branded equipment was $404 million, up year-over-year 44.9% and up quarter-over-quarter 23.4%. This backlog was the highest level since the first quarter of 2023. Since the beginning of the year, bookings at this side of the business have been strong. We received a lot of positive commentary from our sales channel, and we believe our competitiveness with the new refrigerant equipment has never been better. We're still trying to get an idea on exactly where our price premium lies, but it seems that we have narrowed a little. Also helping drive the backlog, we continue to realize strong demand of our heat pump configured rooftop units, otherwise known as Alpha Class. In April, we started to introduce our next generation of the Alpha Class series, which is operable down to negative 20 degrees Fahrenheit. By the end of this year, our entire product portfolio of rooftop units will be configurable with this low-temperature configurability, meeting the DOE's commercial heat pump challenge two years in advance of the set 2027 goal. The strong backlog on this side of the business positions us well entering the second quarter. Our goal is to drive a lot more volume through the Tulsa facility. And as we do this, you'll see margins at the AAON Oklahoma segment begin to recover. With the supply chain issues abating and given the size of the backlog, we should begin to see production and profitability improve in the second quarter and continue through the third quarter. The fourth quarter will depend on the bookings we receive over the next few months. The macroeconomic environment remains in pretty poor shape, which is creating a lot of uncertainty on the back half of the year. For now, though, we are taking market share. Despite the macro uncertainties, the sentiment across our sales channel is relatively upbeat. We are making headway with our national account strategy and are optimistic we will see meaningful impact, especially with our industry-leading Alpha Class air source heat pumps. These national accounts are large in volume and are multiyear replacement programs. And if we're successful, it will be material to growth. Backlog for BASX-branded equipment was $623 million, up year-over-year 122.7%, and up quarter-over-quarter 15.4%. Bookings of both airside and liquid cooling equipment for data centers have been strong year-to-date. This puts us in a great position for the rest of the year and provide much more visibility and certainty of sustainable growth into 2026. With such a large backlog in hand, we can manage production more efficiently, which you will see in the margins of the AAON Coil products and BASX segments. We continue to anticipate margin improvement, most notably in the BASX segment as we progress throughout the year, particularly in the second half. Our capacity expansion plans continue to progress well. Production of our liquid cooling data center equipment at the AAON Coil Products segment has been ramping well. In the new space, we currently have three production lines in place with plans to increase that to five later this year. At BASX, we are making great progress with rightsizing capacity. We've already begun to see these operational improvements in the margin, and you should expect to see more improvement in the second half of the year. The expansion in Memphis is also progressing. We've started to assemble equipment there at a small scale. Now, it won't be as efficient as our other facilities until we get the vertically integrated production set up, but it is helping us achieve our on-time delivery commitments and goals. We expect meaningful production to begin in the fourth quarter of this year with a sharper ramp-up of volumes throughout 2026. Until we get this production in place, we continue to expect the facility will incur about $5 million to $7 million of costs with minimal revenue to offset. In the first quarter, these costs amounted to approximately $2.8 million. In addition, we realized a $2.7 million fee associated with various incentives relating to Memphis. Now, please turn to Slide 12. We maintain our full year outlook. We anticipate full year sales growth to be in the mid- to high-teens at a gross margin similar to what we realized in 2024. SG&A as a percent of sales will realize a decline of 25 to 50 basis points, and CapEx will be approximately $220 million. For the second quarter, we look for sales and earnings to be up modestly from the first quarter. Note that the tax rate was unusually low in Q1, and that our interest expense in Q2 will be up with the higher debt balance. The implication is that operating income will be up quarter-over-quarter more than just modestly as indicated in the earnings guide. Finally, inclusive of the updated annual outlook is our tariff mitigation surcharge of 6%, which recently went into effect. The outlook assumes this surcharge will be in effect throughout the remainder of the year. Of course, trade policy is very fluid. At any moment, depending on how policy evolves, we could increase or decrease the surcharge. We anticipate the surcharge will fully neutralize the impact of tariffs on our costs and margin. Lastly, I would like to highlight that we are hosting an Investor Day on June 10 in New York City. Please find additional information on our corporate website under the Investors section. I hope to see some of you there. Now with that, I will hand the call back to Gary for closing remarks.

With this being my last earnings conference call, I wanted to close by thanking all of our stakeholders. To our stockholders, our employees, sales channel partners, customers and vendors, thank you. I also would like to thank our founder, Norman Asbjornson, for giving me this opportunity. It has truly been a pleasure and honor managing this company for nearly 10 years. A lot of change has taken place over the last decade, and I can confidently say the company is in a much better state than when I arrived. I always said one of my principal goals since day one was to work myself out of a job. I've done that. The day has come. The management team of this company under Matt's leadership has never been better. The growth prospects are better than ever. With that, thank you again, and I will now open the call for Q&A.

[Operator Instructions] Your first question comes from the line of Julio Romero from Sidoti. Please go ahead.

Great. Good morning, Gary, Rebecca, Matt and Joe. I want to start off, congratulations again, Gary, for all your work over the years.

Thank you.

Maybe to start on what you're seeing on K-12 public bid data, what does that data tell you in terms of where the industry is in terms of pricing of equipment and where AAON's pricing delta currently stands relative to the competition?

Well, we just had a national sales meeting a week or so ago, and Matt presided over that. I'm going to ask him to respond to that one for us.

Yes, of course. And we look at the kind of feedback we're getting from the sales channel partners and really from the bid activity, and all indicators definitely say the AAON price premium is definitely contracted, which is a positive that we're seeing from a competitiveness standpoint. Certainly hasn't gotten to parity, but definitely is showing 1% or 2% of closure in that price premium, which is allowing us to continue taking market share and really make it a lot easier to be able to sell that value proposition that the AAON product offers.

Got it. That's very helpful. And then, can you give us a sense of where your market share stands today with regards to national accounts, and where you think you can take that over time by leveraging your heat pump technology?

Yeah. National accounts as they stand today, I mean, there's definitely a good amount of national accounts within the AAON portfolio, but a lot of the ones that exist today in our books are, I'll say, kind of smaller scale national accounts. And so when we look at the overall market share in national accounts, it's certainly low as it stands today inside the AAON portfolio. What I would say, though, is the acceleration that we have seen with intentional effort in really positioning the product, is showing a very noticeable acceleration of national account activity around the AAON brand. And really, when you look at the kind of trajectory that we see in the national account segment, it will make a meaningful impact to the AAON brand. I mean, we're seeing a tremendous amount of activity, a lot of adoption and understanding of the value proposition. And with the Alpha Class product and really being able to offer an incredibly flexible heat pump solution that really offers a great option, not just in cold climates, but also in warmer climates. We have a portfolio that can really check the boxes for the entire industry and for the entire national account across countries, across the country. And so, we're seeing a tremendous amount of involvement there. The activity that our national sales team in partnership with our sales channel is engaged right now is tremendous. And so, we see that being a meaningful impact for AAON kind of on a go-forward basis. The one thing I always want to point out, though, is national accounts do not just transition overnight. I mean it's a process. Because of the scale of these accounts, the sales cycle tends to be a little bit longer than, let's say, a traditional K-12 type project. And so there's a lot more conversation around the value proposition. There's a lot more positioning of the product because we're setting up multiyear programs, not just a single project. And so, why I say that is, we're going to see these materializing in '25. We'll start seeing more and more national accounts materialize. But definitely with the trajectory, I think it's going to be later '25, you'll start seeing the acceleration, but '26 is really the year that a lot of today's work is going to convert to revenue. But when we look at that Alpha Class solution and really what we just announced at our national sales meeting a couple of weeks ago, being able to have a heat pump solution that can operate all the way down to negative 20 degrees is a tremendous option to be able to present to our customers and national accounts where we can handle those coldest climates. We call that the extreme series for us with the negative 20 operating conditions. We're able to really capture a tremendous amount of those northern states in a true heat pump operation mode, but we also have what we branded the ECO and the Pro series, which provide flexibility and more cost-effective solutions as you kind of move to those southern states. And so that portfolio of Alpha Class products from the extreme cold temperatures to the warmer climates is really an all-encompassing product portfolio that is really resonating with our national account customers.

Very helpful. Thanks, again.

Your next question is from the line of Ryan Merkel from William Blair. Please go ahead.

Hey, everyone, good morning. Nice quarter. And let me also say congrats, Gary. It's been great working with you. Wish you best of luck.

Thank you much.

So, my first question is just on the core rooftop business. You guys talked about strengthening orders through the quarter. Can you just talk about a couple of things? The pushouts that you saw last quarter, did those come back as you expected? Do you think you're taking market share just given where you're priced? And then, I'm a little curious if you saw kind of a pop in March ahead of that surcharge that you put it in April.

Yeah, Matt, go ahead.

So, as it relates to the pushouts, definitely, there's volatility in Q4 in bookings. And really, a lot of that was just on the adoption cycle with that new refrigerant. We talked very openly on that Q4 call that while the first couple of months of Q4 were soft, we definitely saw that reinvigoration in December, and we continued seeing strength in bookings throughout Q1. And so, what that's telling us is that sort of softness in those pushouts that we saw in Q4 are largely behind us from an overall kind of impact from the refrigeration transition and really see that now materializing in the consistent order cadence that we're seeing and that we would expect in this kind of normal seasonal booking cadence. Your question definitely, I mean, obviously, you put a 6% surcharge, there's going to be a lot of conversation and activity trying to get ahead of that. But Ryan, one thing we were very intentional on was not allowing this to be an open-ended bring all your orders in, and [indiscernible] before that surcharge comes in. We were very open with our sales channel that we had capped the amount of orders that we would accept without a surcharge in place really based on financial modeling and inventory levels that we had for the vast majority of components. And so, while there was definitely a lot of activity ahead of that surcharge in March, there would have been a lot more if we didn't put a cap on that. And so, we capped that and said, this is the amount of orders we're willing to accept prior to implementing a surcharge. And why that's important is as we came on the back end of that surcharge, I mean, obviously, the day after the surcharge went in effect, there was certainly a dip relative to the day before. But if you look at the overall order cadence that's come on the back side of that surcharge being put in place, we continue seeing the traditional strengthening of orders that we would normally see within the Q2 bookings. So, while there was a little bit of pull forward, we didn't allow that to be overwhelming to the overall operation. And we're definitely seeing a traditional bookings cadence in the last 45 days on the heels of that surcharge being put in effect. And so, we definitely see this normalizing. And really, what's telling us as well is relative to some of our peers, we're definitely seeing, I'll say, stronger bookings, which really tells us, number one, our price competitive -- our price positioning is definitely more competitive than it's historically been, and also it's telling us that we are definitely getting market share.

Got it. Okay. That's encouraging, and that was the answer I was looking for actually. Thanks for that. And then I'd like to put a finer point on the 2Q guide. The Street is about $0.60. You just did adjusted $0.37 and you're talking about up modestly. Can you just help us with that? And help us think through sales and margins. I'm just wondering if there's a potentially bigger margin impact in 2Q because of the Memphis facility that maybe we don't appreciate, but just any help there would be great.

Yeah. So, I want to start off by reaffirming the overall full year guide. And just kind of why I want to start there is by saying there's definitely a strong growth year and a strong performance here that you're going to see in 2025 out of AAON. Q2, we're coming on the heels of Q1 that would impact in the Oklahoma segment with some supply chain constraints. And so, as we said in the prepared commentary, yes, supply chain impacts are abating. But if you kind of think for a second, coming out of April into April, I should say, those were still lingering as we entered April. And so what that does is it starts us off a little bit slow in April, and slower than we want to be relative to the backlog we have and the overall demand for the product. So that's not given us that immediate pop that we'd want to see inside of the Oklahoma segment as we basically ramp up production as supply chain kind of gets to a more normalized cadence. So that is a little bit of an impact that is built into that guide. As you also think about the BASX and the ACP segments, Q1 was a very strong quarter. In Q1, definitely, we had some good uptick in productivity, especially inside that Coil Products segment. But there's also traditionally a little bit of lumpiness just on kind of how orders flow through, and just based on delivery schedules of these larger orders that kind of are associated with these data center projects. So, why I say that is I don't want to set an expectation for Q2 to build upon Q1. There's a little bit of noise, and you might see just a slight kind of pullback in overall sales inside the ACP BASX segment just coming off the heels of such a strong Q1. So that's sort of built into that guide. But the one part I want to also touch on is the overall operating income is going to be up far more than modestly, which is to your comment, showing strength in sales out of Oklahoma. And with that, you're going to see good margin recovery out of the Oklahoma segment in Q2. But as we kind of peel that back, Q1 had a very beneficial tax rate that we don't anticipate in Q2. And so, from a bottom line flush out, you can definitely see a tax rate impact in Q2 you didn't have in Q1. And you're also going to have growing interest expense as we've invested in working capital with the production rates ramping up in both Coil products and BASX. And so, if you look at the operating income perspective, you would see a great uptick in Q2, and that's just being hampered a little bit by that tax rate differential and the interest rate. That's kind of what's flushing that modest guide from an EPS perspective.

Okay. That's really helpful. I'll pass it on. Thanks so much.

Your next question is from the line of Chris Moore from CJS Securities. Your line is now open.

Hey. Good morning, guys. Thanks for taking a couple, and also congrats, Gary. Thanks for everything.

Thank you.

Sure. In terms of -- you still hear some big players canceling or downsizing data center construction. Just wanted to kind of go a little deeper in terms of what you're hearing from your customers. How much visibility do they give you in terms of their plans over the next three to five years?

Yeah, there's tremendous visibility from a pipeline perspective that we see with our customers and large data center operators that we work with, we're typically getting every month, every two months, we're getting an updated pipeline that is provided to us. And so that's giving us anywhere from a three- to seven-year kind of outlook on what these big players have in their projection. Is there noise in the data center industry right now? Sure. There's a lot of conversation around cancellations and pushouts. But what I would say is the pipeline that we see has never been stronger. The orders book that we see has never been stronger. And while there might be some near-term noise, it's still on a growing base. And so, we're seeing this continue to strengthen. We're seeing the inquiries, the pipeline visibility. We're seeing all of that in a very strong condition. We see it strengthening. There's definitely some near-term conversations, which, frankly, Chris, I think it's actually a good thing if you think about this systematically. I mean if we sort of have a more normalized but aggressive growth rate as an industry, not relative to AAON, but as an industry that's far easier to manage. And so we see this continued long-term strengthening cycle. We see tremendously good visibility into 2026 that's providing us confidence in that sort of next year performance continuing to build off a strong '25. And so, yes, there's noise in the industry, but I would just reaffirm that the visibility of the pipeline has never been stronger. The order activity within the BASX segment has never been stronger and the activity with our customers engaging with those customers has never been better.

Perfect. The $200 million-plus liquid cooling order, was -- I know it had gotten pushed a little bit. Was any of that or much of that in Q1?

So, of that order, if we look at the $200 million order that we talked about last year, so far, we've recognized about $80 million or so of that revenue. And so that's the sort of ramp-up -- that started off in Q4 of last year started, certainly had a very strong ramp in Q1 as we really work to get a baseline of inventory and really build up that product. That project, we talked about on the Q4 call, originally, we had said, hey, we anticipated that mostly converting the first half of the year with some spillover into Q3. I would just say that, that's the overall cycle or that project has, I'll say, spread a little bit. And so, really from our anticipation, we've recognized $80 million of that $200 million to date. We anticipate the rest of that to really spread out over the rest of this calendar year and that's kind of what we see. But we have additional follow-on orders with that customer. We have a tremendous amount of visibility into that 2026 and 2027 pipeline with that customer. And so, we're continuing to show that as an accelerating demand with that customer. It's just the initial build-out and really the ramp-up rate of that investment, is just taking a little bit longer to kind of materialize, not from a demand from their customers' perspective, but just all the construction activity that's associated with building these new AI data centers. It's just lengthening that cycle with that order just a little bit.

Got it. I appreciate that. I'll jump back in line. Thanks, Matt.

Yeah, of course.

Your next question is from the line of Brent Thielman from Davidson. Please go ahead.

Hey, great. Thanks. Gary, I relay all the same. It's been a pleasure. I guess first question, just on the rooftop business, some of the supply chain issues you've felt here in the quarter, and it sounds like you continue to feel to some degree. Are you at the point where there's some confidence these issues are going to be behind you as you go into the second half of the year? And I guess just with that, I was curious, it didn't really seem like that impacted the BASX-branded product. I'm just wondering if that could still come or do you see it as a nonissue there.

Yeah. So, where the confidence comes from. And really, I'll say, Brent, the -- where we sit today, the acceleration of resolution that we're seeing in the supply chain with these new refrigerant components. I mean, it's all trending very positive. It's really -- as a whole industry, transition with that sort of hard stop on January 1 to go from 410 to 454B, it was just a lot of, I'll say, strains on the overall supply chain just in support of those new components because you're basically having to support the 410A products that were being built and flushed out through 2024, with also the impending new products that you had introduced in support of the 454B equipment. So there was just, say, some initial transition strains that were put there within the supply chain. But if we look month by month, we have continued to see these abate. And really, we saw the impact in Q1 waning, sorry, as the quarter kind of progressed and going into April, we still have a little bit of lingering issue, but by and large, we're seeing the light at the end of the funnel. And so that's definitely what's giving us that confidence going forward. You're not going to be operating in this environment, let's say, once we get into the second half of the year, these manufacturers are primarily building the 454B components. And so that definitely is alleviating some of the noise that was created in the supply chain in that first quarter. So, definitely a lot of confidence that these are abating and really providing kind of the support of our acceleration in our production levels within the Oklahoma segment in particular, that's going to really get that top line sales back where we want to be as well as the overall profit margins kind of with that volume getting back up. But relative to the BASX segment, most of the products that are made in the BASX segment, the vast majority of those products are not refrigerant-based systems, and so they do not have those same supply chain impacts. So really, in the BASX segment, we didn't see any of those impacts impacting our ability to manufacture there.

Really helpful, Matt. And then maybe as a follow-on, sort of beyond the issues associated with the refrigerant change and those associated components, can you talk about maybe broader exposure just now with the implementation of tariffs and what that might do to the kind of broader supply chain? How you think AAON is positioned around that, where you feel like you're well positioned or not, just for the things that we can't potentially see coming in terms of broader impacts to the supply chain?

Yeah, certainly. I mean tariffs definitely -- we had a bet going Brent, how long it was going to take for a tariff question to come. So, it came a little later than we expected on the overall Q&A. But when we think about the impact of tariffs within the AAON segment, I'll say one thing that we feel good about is we have a tremendous amount of vertical integration in our manufacturing process. And we also rely heavily and proudly rely heavily on a lot of our U.S. partners. So, the exposure to tariffs that we see from an AAON perspective are certainly less than what we see in some of our competition. So, to start off, we say that certainly, we see ourselves being better positioned in a tariff-ridden environment. Now, we'd be naive to not say they're going to impact us somehow. I mean supply chain, even for U.S. manufactured components that we might buy, a lot of components that go into those components might be sourced internationally. And so there's definitely some tariff impact. And obviously, that's reflected in our surcharge. But the general supply chain environment that we have, there'll be some noise that we think will come out of the tariffs. But by and large, the focus on U.S. manufacturing, the focus on vertical integration and really a pretty strong U.S.-based supply chain that we rely on for the vast majority of our components puts us in a position where we think those are going to be a smaller impact to AAON, especially relative to a lot of our competition.

Okay. Just last one, just on the basics branded products. Maybe more of a clarification, Matt, I think I heard you say, a lot of growth certainly aligned with one of the customers out there. Could you just talk about diversification of customers within that product line? Do you expect more diversity in the coming year, especially as you're bringing on new capacity? Just trying to get a sense around how much is aligned with a single customer versus a lot of different customers that are out there.

Yeah. No, it's a great question, Brent. And I'll say that the math certainly is never in our favor when you get a $200 million order in terms of its impact on some concentration, at least in the near term. But what I would say is while that is a great win, and that's certainly something that is helping fuel a lot of the growth, it's also very front of mind for us to continue getting diversified customer base. And so, if you look at the activity that we have in terms of both bidding activity, in terms of some new orders that we have, large-scale orders, not small orders, there is a continuing diversification in that customer base. There's also an acceleration of new customer interactions. With the win of that liquid cooling product, we've got a tremendous amount of inertia in the industry regarding the solutions we can provide. And so, our sales and engineering teams are actively engaged with a large spread of new customers supporting both liquid cooling and traditional colocation data center projects. And that definitely, as we look forward, is going to be a continued focus to continue diversifying, continue building upon the great wins we have to be very intentional about continuing to build great wins with new customers as well. And so, going forward, I think you'll see our backlog continue diversifying in a customer base perspective and really not having us to over leverage on one single customer.

Very good. Thank you.

[Operator Instructions] Your next question comes from the line of Tim Wojs from Baird. Please go ahead.

Hey, everybody. Good morning. Just wanted to echo the same sentiments to Gary. It's been great working with you.

Thank you.

Maybe just -- I just have a couple of follow-ups. So, I guess, on the Oklahoma business, has there been any change to how you're thinking about the full year revenue guidance? I think previously, you had kind of said maybe the full year would be flat to down a little bit. Has that changed at all? Is it just kind of more back half weighted? And then, how do you think about kind of layering that surcharge part into that?

Yeah. The guide as it stands today has not changed. And Tim, what I'll say is there's the uncertainty definitely in that back half of the year and really, I'll say, uncertainty more on the Q4 side. As much as we are taking market share and we're continuing to see good order cadence here in late second quarter, there is definitely still uncertainty in an overall macro environment perspective that is certainly front of mind for us. And so our guide definitely has that built into it on kind of what Q4 looks like. The tariff part of it, the tariff itself, while it went in place in March essentially, the reality is we're not going to really start seeing that until the later part of Q3. And so, when that's going to really start hitting the production for hitting the revenue side, it's going to be a Q3 story is where it's going to start, and you'll see that kind of materialize in Q4. But it's going to have an impact, but obviously, from a full year perspective, it's not like we're getting a 6% uplift. It's going to definitely be more like a third of that from an overall kind of impact on the overall sales side of things. And so, really, what I'd say is that's the tariff aspect and just the uncertainty that's built into that Q4 guide, just given the unknowns around the macro is really where that guide is sitting today.

Okay. That's helpful. Thanks. And then just on the data -- kind of the BASX backlog, I mean, the $80 million to $85 million sequential increase, I guess, any color on kind of the mix of liquid cooling and airside cooling within that? And then I guess just in the total backlog, kind of the same question, kind of the mix of liquid versus air?

Yeah, definitely, there's more activity in liquid cooling that is in that backlog. Obviously, also some good run rates out of coil products that's eating down that. So we've replenished the covers a little bit with some more liquid cooling orders that came in, in Q1. There definitely though is airside continued acceleration in air side looking as well, a lot of activity around air side. And so, why I put that is really when we look at the activity that we're seeing, definitely, there's a lot of conversation, a lot of activity on the AI data center side of things, but there's also continued strength and we continue seeing the investments made in the more traditional data centers, cloud compute data centers, and we're seeing that kind of materialize with airside activity as well. So, we definitely are seeing the broad bookings kind of built into that backlog and into that business cadence. And there's a good amount of backlog sitting inside of liquid cooling, but it's not the majority. It's not like it's -- the vast majority of that is cooling. It's a pretty good spread between liquid and airside products.

Okay. Thanks for the color. Good luck on the rest of the year.

Thank you.

Your last question is from the line of [Tom Sandy from Sandy's] (ph). Please go ahead

Yeah. I'm a stockholder. Go back to [indiscernible]. And what's the problem with AAON being listed on the New York, on the Wall Street Journal? They were listed and now they're not. What's going on? How do we get the stockholders involved -- more stockholders involved in buying AAON stock?

Hey, Tom, this is Joe.

Hi, Joe.

Good morning. I think we've probably spoken about this in the past.

Yes.

Yeah. I think I'm still looking into that, not really serving the answer, but I'll try to provide you with an answer sometime soon.

Thank you.

There are no further questions at this time. I'd like to turn the call over to Joe Mondillo for closing comments. Sir, please go ahead.

All right. Thank you, operator. Just want to remind everyone that we'll be attending the William Blair Conference on June 4 in Chicago, and hosting an Investor Day in New York City on June 10. So I hope to see some of you there. I want to thank everyone for joining the call today. If anyone has any questions over the coming days and weeks, please feel free to reach out to myself. Have a great rest of the day, and we look forward to speaking with you in the future. Thanks.