AAON, Inc.

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. Unabsorbed fixed costs at the new Memphis facility, as well as tariff-related and general inflation pressures, all of which are temporary. Despite these military margin impacts, earnings growth remains 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, long gap adjusted EBITDA increased 44% from the prior year period to $78 million. long-gap 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 Aon, 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 improved 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 had been disrupted by the industry's refrigerant transition, contributing to a regained market share. Aon, Oklahoma, gross margin was 26.3 percent, an increase of 120 basis points from 25.1 percent 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 percent. The remaining gap to our historical highs in the upper 30s is explained by three items, outsourcing, tariff-related pressures, and general inflation. None represent a structural change to Oklahoma's long-term earnings power or its role as a core margin engine for Aon. All three have already been addressed, with actions embedded in backlog and new pricing actions. These temporary headwinds will moderate as the year progresses. Aeon 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 Basex-branded liquid cooling product sales, which increased 40% during the quarter. This strength was partially offset by a 12% decline in Aon branded output within the segment. Aon 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 basics 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. ASIC 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 needed 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. Coming now to the balance sheet, cash, cash equivalents, and restricted cash balances totaled $1.1 million on March 31st, 2026, and debt at the end of the quarter was $425.2 million. Our leverage ratio improved to 1.71 times, down from 1.77 times on December 31st. 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.

Thank you, Andy. We entered the second quarter with 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 in 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, In 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 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 carries strong incremental contribution and accelerates absorption, productivity, and capacity payback. This is a timing issue tied to how we are 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 disciplines position us well to continue improving performance in delivering long-term value. And with that, I will open the call for questions.

Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. If you would like to withdraw your question, simply press star 1 again. Your first question comes from Ryan Merkle with William Blair. Your line is open.