AAON, Inc.

Good morning, ladies and gentlemen, and welcome to the Aon, Inc. second quarter 2025 earnings release conference call. At this time, note that all participant lines are in the listen-only mode. Following the presentation, we will conduct a question and answer session. And if at any time during this call you require immediate assistance, please press star zero for the operator. Also note that the call is being recorded on Monday, August 11, 2025. And I would like to turn the conference over to Joseph Mandillo, Director of Investor Relations. Please go ahead, sir.

Thank you, and good morning, everyone. The press release announcing our second quarter financial results was issued earlier this morning and can be found on our corporate website, aaon.com. The call today is accompanied by a presentation that you can also find on our website, as well as on the listen-only webcast. We begin with a customary forward-looking statement policy. The 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 AON's control that could cause AON'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 gap measures in our press release and presentation. Joining me on today's call is Matt Tobolsky, CEO and President, and Rebecca Thompson, CFO and Treasurer. Matt will start off with some opening remarks. Rebecca will follow up with a walkthrough of the quarterly results, and Matt will then finish with our outlook for the rest of the year and some closing remarks. With that, I will turn the call over to Matt.

Thanks, Joe, and good morning. Starting on slide three, our second quarter results that we reported this morning fall short of our expectations and do not reflect the high standard we set for ourselves as an organization. We remain committed to providing transparency to our investors. As previously shared during our investor day in June, we've experienced challenges related to our ERP implementation. In this update, we want to provide a comprehensive view of where things stand today the key factors that contributed to the recent underperformance, and most importantly, how we are moving forward. We are committed to addressing this directly and taking the necessary steps to restore your trust. I want to assure you that our confidence in the strength of our strategy remains unwavering. While we're navigating some near-term challenges, we firmly believe that the actions we're taking today will significantly strengthen the company for the long term. We don't want that bigger picture to be lost, but given the challenges we faced, we will start with providing some incremental detail on what went wrong. We turn to slide four. I would like to start by giving some context to the recent events. Over the past few years, and especially following our acquisition of BASICS at the end of 2021, it became increasingly clear that our existing business systems required a significant upgrade to support our growing scale and complexity. On April 1st, we went live with our new ERP system at our first site in Longview. We always anticipated some slowdown in production, but we saw a more prolonged impact on Aon-branded equipment in coils production. The slowdown ultimately impacted our broader operations as Tulsa procures the majority of its coils from Longview. We had a contingency plan in place, but unfortunately, both of our primary external coil suppliers were simultaneously undergoing their own ERP upgrades. This unexpected overlap significantly constrained Tulsa's ability to source coils in a timely manner, compounding the challenges we faced. The end result was that at Tulsa, while production improved month to month from April to July, the ramp was slower than expected. At Longview, production of Aon-branded equipment was significantly impacted early in the quarter as teams adapted to the new system. However, as production and supporting functions gained experience and familiarity, we saw a steady improvement throughout the remainder of the quarter. I turn to slide five. This slide illustrates how recent production rates of Aon branded equipment have trended compared to normalized levels, which we've benchmarked against the first nine months of 2024. This KPI measures the consolidated production of Aon branded equipment across both the Aon Oklahoma and Aon coil product segments in measured levels of efficiency. We've overlaid the total company gross margin on the same timeline. And as you'll see, there's a strong correlation between production efficiency metric and the gross margin performance. The biggest takeaway here is that after bottoming out in April, the total production consistently improved month to month throughout the quarter. And while it's not shown here, we continue to see improvement through July. Also with 6% below that benchmark pace in July, And while Longview still has some ground to make up, improvements began to accelerate starting in the second half of June. Looking ahead, we expect production levels at both our Tulsa and Longview facilities to continue to improve from July levels. As production stabilizes and scales, we also anticipate a corresponding improvement in gross margins. Said another way, when we hit our production metrics, we deliver our corresponding gross margin targets. Please turn to slide six. Here, you can see our total backlog of Aon branded equipment, which are manufactured across both our Tulsa and Longview facilities. Bookings in Q2 and year-to-date remain strong. This, combined with the improving production trends, supports my earlier point regarding our expectation of a strong recovery in the second half of the year. While we entered the third quarter with production levels below our initial expectations, we remain confident in a solid upward trajectory, anticipate strong growth, in Aon-branded production over the remainder of the year. I'd also like to point out that our backlog is favorably priced relative to input cost. Almost all of our production in Q2 was associated with orders received prior to our January 1st 3% price increase and a 6% tariff surcharge that was put in place in March. Directionally, this will begin contributing positively to both sales and margin in the third quarter with a more meaningful impact anticipated in the fourth quarter. Please turn to slide seven. I want to take a moment to give you some more color on our ERP upgrade, both in terms of what we are looking to achieve and how we see the rollout mapping from here. Given the size and the growing complexity of our organization, including the expanded manufacturing operations, it has become evident that continuing to scale at the growth rates we target will require more sophisticated integrated systems. After years of planning, development, and preparation, we went live with the new ERP system at our Longview facility on April 1st. Our ERP rollout strategy was very intentional. To limit disruption and manage risk, we intentionally adopted a phased rollout approach, implementing the system one location at a time and not moving on to the next site until the prior location was operating smoothly and meeting our performance expectations. We made the decision to begin the rollout at our Longview facility because it produces both Aon-branded and Basics-branded equipment, as well as manufacturers' coil, a critical component not only used at Longview, but also at other sites in the production of those products. This approach allowed us to fully vet the ERP solution across our entire product portfolio, helping to reduce risk and minimize disruptions during future site implementations. Beyond product mix, When considering our organizational structure, where shared services support multiple functions across all sites, starting with Longview enables these teams to build proficiency with the new ERP solution before we proceed with additional site rollouts. This ensures that by the time we transition to Redmond, which produces only basics branded equipment, or to our largest site, Tulsa, which primarily manufactures AM branded products, Our shared services teams will be fully up to speed and well-equipped to support a smoother and more efficient go-live at these locations. We've also gained valuable insights from the Longview go-live that will help us to ensure a smoother, more efficient transition for production teams at our other sites. We brought team members from our other sites to Longview to observe best practices firsthand, and we're conducting additional training at those locations to ensure they're well-prepared for their own transitions. I want to remind everyone, that while this transition is creating some near-term challenges, we remain confident that once fully implemented, the new system will deliver significant operational and economic benefits across the organization. We anticipate full implementation will be complete by year-end 2026. And while it's too early to discuss the outlook for 2026, factoring in subsequent ERP rollouts, particularly in the quarter when we go live in Tulsa, We expect to achieve double-digit year-over-year growth in margin improvement for the year, trending towards our long-term target of 32 to 35%. Now, please turn to slide eight. While it's important to clearly understand the challenges we face this quarter, we must also keep sight of the strong underlying fundamentals that continue to drive our business forward. With that in mind, here are some of the positives that we've achieved in the second quarter. First, the Basics brand continued to demonstrate strength within the data center market in Q2. Basics branded data center sales were up 127% in Q2 and 269% year-to-date. Second, our liquid cooling solutions continued to gain traction in the rapidly evolving data center market, as evidenced by incremental orders we secured during the quarter. Year-to-date, liquid cooling equipment accounted for approximately 40% of total BASICS branded data center sales, highlighting its increasing significance within our product portfolio. Third, during the quarter, BASICS announced a strategic partnership with Applied Digital, under which it will supply thermal management solutions for their AI factory, including custom-designed free cooling chillers for their data centers. This partnership resulted in a significant order further reinforcing BASICS leadership in advanced cooling solutions. Fourth, Our national account strategy within the Aon brand is gaining meaningful traction. National accounts orders grew year over year by 163% in Q2, and they're up 90% year to date, reflecting the effectiveness of our targeted approach, deeper customer engagement, and the strong value proposition of our equipment, which uniquely aligns with the needs of these customers. In the first half of the year, national accounts made up approximately 35% of total Aon branded orders, up from approximately 20% a year ago. And finally, the Aon branded AlphaClass heat pump business continues to disrupt the market with its high performance offering. AlphaClass sales grew 8% in Q2, while hooking surged approximately 61% during the same period, highlighting strong momentum in growing market adoption. I will now turn it over to Rebecca who will walk through the financials in more detail.