Thank you for your patience. I would like to welcome everyone to the AAON Inc. Third Quarter 2025 Earnings Release Conference Call. I will now turn the call over to Joseph Mondillo, Director of Investor Relations. Please proceed.

Thank you, operator, and good morning, everyone. The press release announcing our third 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 our customary forward-looking statement policy. During the call, any statement presented dealing with the 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 detailed 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 the call today is Matt Tobolski, CEO and President; and Rebecca Thompson, CFO and Treasurer. Matt will start off with some opening remarks. Rebecca will then follow with a walk-through of the quarterly results, and Matt will 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. The third quarter marked a decisive inspection point in our operational recovery and capacity expansion. We saw substantial improvement in production throughput at both the Tulsa and Longview facilities, which drove meaningful sequential sales growth, while continued strength in bookings contributed to further backlog growth. While margins in the quarter continued to be impacted by operational inefficiencies in Longview and the early ramp-up of the new Memphis facility, we continue to make steady progress and expect sequential margin improvement to continue through the fourth quarter and into early 2026, putting us firmly on track toward our longer-term goals. The BASX brand continues to perform exceptionally well, fueled by strong momentum in the data center market, where favorably priced bookings have risen sharply and the pipeline of opportunities remains robust. BASX-branded backlog grew to $896.8 million, up 119.5% from a year ago and up 43.9% from the prior quarter. Demand for both our air-side and liquid cooling products remain strong, reflecting how well our custom solutions align with customer needs. To meet this growing demand, we remain laser-focused on ramping up production capacity at our new Memphis facility. This facility adds nearly 800,000 square feet of state-of-the-art manufacturing capacity which provides considerable growth to our BASX production capabilities and positions us well for continued growth. The ramp-up of the facility is progressing as planned, with large-scale production expected by year-end. With a strong backlog and significant increase in capacity, we expect the BASX brand to deliver meaningful growth in 2026. The AAON brand continues to perform well, with sales rising substantially from the prior quarter and bookings remaining strong. AAON-branded sales grew 28.1% sequentially, driven by over 20% production increases at both the Tulsa and Longview facilities and improved utilization of the ERP system, enabling us to better meet demand. Also production returned to prior year levels. In Longview, while still about 20% below last year showed strong progress. Based on September and October exit rates, we expect Longview is nearing full recovery. Enhanced production output of AAON-branded equipment resulted in a book-to-bill ratio for the brand below 1, successfully helping bring backlog in lead times of AAON-branded equipment closer to normalized levels. While backlog for the brand remains higher than desired, we are making steady progress in reducing it. We are committed to achieving this in the near term, ensuring we can effectively serve our customers and restore a normal business cadence. Despite a soft commercial HVAC market and extended lead times, AAON-branded bookings remained strong. While flat year-over-year due to a challenging comparison, bookings were up 15% on a 2-year stack reflecting continued strength in underlying demand. National account wins were particularly robust with bookings up 96% in the third quarter and 92% year-to-date, representing 35% of total bookings for the year. Bookings of Alpha Class air-source heat pump equipment also continued their strong momentum, up 45% quarter-over-quarter and 46% year-to-date. As I mentioned earlier, Longview's ERP implementation has progressed considerably. While production of AAON-branded equipment at the facility remained about 20% below target, output improved sequentially throughout the quarter and by quarter end, production of AAON-branded equipment was approaching full recovery. Production of the new BASX-branded equipment in Longview has performed exceptionally well with consistent year-to-date improvement. Despite the improvement in throughput, we continue to work through efficiency challenges that are weighing on facility profitability. We view these as temporary and expect meaningful margin improvement in the coming quarters. In Tulsa, average production levels for the quarter reflected a full recovery. And by quarter end, we're running ahead of target. We've made strong progress in improving coil supply, which supported the higher production volumes. And while our supply of coils remains constrained, we are effectively managing through these constraints. With the Longview implementation now well underway, we have gained valuable experience and insight, both operational and technical that will guide future ERP rollouts and greatly enhance our readiness to efficiently deploy the ERP system across our other facilities. While we continue to expect some level of operational impact as future sites transition, we are far better prepared to manage these challenges with strengthened internal processes, improved training programs, and a proven framework that positions us to execute future implementations with greater speed, precision and minimal disruption. We've applied the lessons learned from Longview to the Memphis go-live, which occurred on November 1. And we continue to expect Redmond to transition in the first half of 2026 with Tulsa following in the second half.

Thank you, Matt. Net sales in the quarter increased year-over-year $57 million or 17.4% to $384.2 million. The increase was driven by a 95.8% rise in BASX-branded sales due to continued demand for data center solutions, and increasing production out of our Memphis facility. AAON-branded sales were roughly in line with the prior year, declining 1.5% but increased 28.1% sequentially, driven by solid production gains at both Tulsa and Longview facilities. Gross margin was 27.8%, down from 34.9% in the prior year, but up 120 basis points sequentially. The year-over-year contraction was primarily due to operational inefficiencies associated with the ERP system implementation and unabsorbed fixed costs related to the new Memphis facility. Sequentially, the improvements reflect progress made in optimizing the new ERP system and the resulting increases in production throughput at both the Tulsa and Longview facilities. Non-GAAP adjusted EBITDA margin was 16.5%, down from 25.3% a year ago, but up 160 basis points in the previous quarter. Diluted EPS was $0.37, down 41.3% from a year ago, but up 94.7% sequentially. Below the line pressures included elevated DD&A from Memphis and technology consulting fees related to the ERP implementation. Looking at the segment financials, starting with AAON, Oklahoma, net sales grew 4.3% year-over-year and 29% sequentially. The growth was driven by a strong backlog entering the quarter and improved production throughput that enabled higher backlog conversion. Coil supply also improved, allowing us to efficiently scale production of AAON-branded equipment. Segment gross margin was 31.5%, down from 36.8% in the prior year period, but up sequentially 400 basis points. The year-over-year contraction was primarily due to approximately $4.5 million in unabsorbed fixed costs associated with the new Memphis facility. AAON Coil Product sales increased $35 million or 99.4% from the year ago period. The year-over-year increase was driven by $46.5 million in BASX-branded liquid cooling product sales, a category that was not in production during the prior year period. AAON-branded sales at this segment declined $10.9 million or 31.6% due to the ERP implementation disruptions. Sequentially, AAON-branded sales grew 36.2% reflecting improved utilization of the new ERP system and the resulting increase in production throughput since its go-live in April. Despite the improved throughput, gross margin declined sequentially, reflecting several discrete items which collectively impacted gross margin by 1,050 basis points in the quarter. We expect these challenges to be resolved with our ERP progress. And over time, we expect this segment will deliver gross margin of around 30% based on the strength of pricing within the backlog. Sales of the BASX segment grew 19.2% driven by sustained demand of data center solutions as the market continues to demonstrate strong momentum, and the business captures additional market share. Initial production from our new Memphis facility played a key role in driving growth. Gross margin contracted modestly due to higher indirect warehouse personnel costs associated with operating the Redmond facility near full capacity. Optimization efforts at this facility remain a focus and are expected to accelerate as the Memphis facility continues to ramp. Cash, cash equivalents and restricted cash balances totaled $2.3 million on September 30, 2025, and debt at the end of the quarter was $360.1 million. Our leverage ratio was 1.73. Year-to-date, we had cash outflows from operations of $18.8 million compared to cash inflows of $191.7 million in the comparable period a year ago. Capital expenditures for the first 3 quarters, including expenditures related to software development, increased 22.1% to $138.9 million. We had net borrowings of debt of $205 million over this period, largely to finance investments in working capital, capital expenditures and $30 million in open market stock buybacks that we executed in the first quarter, all of which we anticipate will generate attractive returns. Overall, our financial position remains strong. We anticipate cash flow from operations will turn significantly positive in the fourth quarter as working capital, including contract assets become a source of cash, reflecting payments received on a large order that was recently started deliveries. This gives us flexibility and allows us to continue to focus on investments that will drive growth and generate attractive returns. We now anticipate 2025 capital expenditures will be $180 million compared to our previous estimate of $220 million. The reduction primarily reflects project timing and the inability to fully deploy funds this year with the majority of these expenditures expected to shift into 2026.

Thank you, Rebecca. As previously mentioned, backlog remains strong across both brands, giving us the confidence in visibility to stay focused on production and execution. The BASX brand remains the key growth driver of the company, fueled by exceptional demand for the data center market and the unique custom design solutions that we provide our customers. In the quarter, BASX secured a strong volume of new orders at attractive margins, most of which are scheduled for production at our new Memphis facility in 2026. This sets us up to ramp production efficiently next year, optimize the fixed cost investments made in 2025 and drive robust growth for the BASX brand in 2026. The AAON brand also maintained strong momentum. Backlog at the end of the quarter was up 77.1% year-over-year, reflecting strong demand across our business. While backlog size and lead times remain extended, we are actively managing this by ramping production. Despite commercial HVAC volumes being down double digits year-to-date, bookings have stayed strong, demonstrating the resilience of our business. For the fourth quarter, we expect double-digit revenue growth driven by continued production recovery and pricing actions implemented earlier this year. This positions us well for 2026 as comparison fees. However, looking to 2026, we also plan to implement the ERP system at our Tulsa facility in the second half of the year. While we expect minimal disruption based on our Longview learnings, there may be some short-term production impact during the transition. Turning to our 2025 outlook. We now anticipate full year sales growth in the mid-teens at a gross margin of 28% to 28.5%. Adjusted SG&A as a percent of sales expected to be 16.5% to 17%. Before I hand it off for Q&A, I just want to finish by saying, while we continue to navigate some near-term challenges, we're making steady progress across all areas of the business. Our operational execution is improving, production is ramping, demand remains robust and cash flow is trending in the right direction. As we look ahead, we are extremely excited about the opportunities that 2026 will bring. With that, I will now open the call for Q&A.

Your first question comes from the line of Ryan Merkel with William Blair.

Congrats on the quarter, a lot of things to like here. I wanted to start off with the BASX orders, which I think for me is the headline. You talked about liquid cooling being strong. You talked about Memphis fully coming online. But just speak to the drivers, speak to your confidence in your outlook for 40% to 50% growth for the BASX segment. And then you mentioned order visibility is pretty good. I just want to get a sense that you continue to expect strong orders.

Yes, that's a great question. Looking back to the Q2 earnings call, the flat backlog in BASX raised some concerns for many. We mentioned that we needed to have the capacity and visibility to execute those orders in order to accept larger orders for the Memphis growth. As we progressed through the third quarter, we gained more traction and visibility into the ramp rate, which enabled us to start securing orders for the Memphis facility. Additionally, we saw continued strength in liquid cooling orders from the Longview site and air-side solutions from both the Memphis and Redmond sites, contributing to the backlog growth. The third quarter's order securing consisted of a good mix of both air-side and liquid-side orders across all sites, with a strong emphasis on the Memphis facility as we prepare for a ramp-up in late 2025 into 2026. Regarding our visibility, the activity from our team in pipeline discussions and projects with existing and new customers remains robust. We are experiencing significant interest across our entire product portfolio, leading to numerous conversations with data center developers, allowing us to capitalize on ongoing growth and align our unique value proposition with those customers. Overall, we view the growth story for BASX as very promising, expecting strong growth in 2025 and continued strength in converting backlog into sales as we move into 2026.

That's great. Okay. Perfect. And then the one nitpick this quarter was gross margin. Good to hear though the ERP, you're feeling strong there. The implied guidance for 4Q gross margin, 31%, you're showing a step-up. But let's just take the two pieces. So, in Oklahoma, if I add back sort of the Memphis unabsorbed and you're going to be getting the full production there soon, it sounds like, and then the price cost, which is really just a timing thing, should we think about sort of gross margins on a normalized basis for the Oklahoma segment at that 35%, 36% level? That's the first part of the question.

Yes. And certainly, the math you're doing is putting you in that range. So, when we back out the Memphis impact and we back out that price cost differential kind of on that near-term kind of tariff dislocation, that does put you right in that mid-30s. Certainly, we see some additional pressures that existed. When we look at the kind of year-over-year comp from '24 to '25 in Q3, certainly, you've got another 200-ish basis points of kind of gap there. And really, what I would say is, we've been ramping up production, kind of meeting some near-term needs of BASX products inside the Oklahoma segment, which while profitable in its sales, it certainly is a new product introduction into that facility that just caused some manufacturing inefficiencies where production lines aren't optimized kind of to build that, but we were doing it to ensure we met customer demand. So, I'd say that mid-30s with some headroom on top of that really is where we see the Oklahoma segment kind of on a normalized basis.

Got it. All right. I'll leave the ACP questions for others, but it sounds like there's some discrete items there and 30% long term is a target. So, that's kind of what I expected. Matt, I wanted to give you an opportunity before I turn it over to just comment on the short report that was out. I don't know if that's something you want to do, so I'll give you that out. But there were two claims that I was hoping you could respond to. One, the change in accounting has inflated revenues. And then two, large liquid cooling gross margins are in the 20% range. Just any thoughts there.

Yes, to begin with the report, I want to emphasize that we take the integrity of our financial reporting very seriously, and it undergoes regular reviews by our independent auditors. The financial statements we prepare and present comply fully with GAAP and ASC 606. We have strong confidence in our business, our accounting practices, and our overall operations. The demand for our products and their pricing remains robust, and we are focused on executing our strategy to serve our customers and deliver long-term value to our shareholders. Regarding the changes in accounting practices, I want to clarify that we have adhered to the ASC 606 standard for revenue recognition for the BASX brand since its acquisition by AAON. We did see an increase in contract assets in the first half due to a large liquid cooling order recognized as a custom engineered and manufactured product on a percentage of completion basis. This order, acquired late last year, was nearly the size of all of BASX's business for 2024, which mathematically affects our contract assets in the near term. In Q3, contract assets decreased while receivables increased, indicating that we are converting and shipping that order to the customer, which will enhance our cash flow as receivables turn into cash in the fourth quarter. The liquid cooling order is a custom engineered product developed according to BASX's established processes to support our customers. It is priced appropriately and is not a low-margin product. We are executing well, meeting quality expectations, and we continue to receive additional orders for this product while also developing innovative solutions for the data center market. Overall, we are operating in accordance with regulations and are achieving profitability for our customers. Some near-term challenges are not related to pricing but rather to inefficiencies as we manage our growth.

Your next question comes from the line of Noah Kaye with Oppenheimer.

Matt, Rebecca. Great to be on with you for the first time and a good quarter to be on for the first time on. I want to go to your CapEx guide lowering it to $180 million and the comments you made, Rebecca. Anything we should read or infer from that into kind of the timing of your planned capacity ramp, whether at Memphis or elsewhere in the business that we should be thinking about?

No, I don't think so. It's just a slight shift from moving some amounts between Q4 to Q1. So, I don't think the lowering of that CapEx is going to slow down the ramp-up of Memphis. The Memphis facility has already really built out with most of the equipment we need to do the ramp-up right now. So, next year's additional plants would just be increasing capacity for future growth. So, it should not impact those ramp-up plans at all.

Okay. And then since Ryan teed it up, I might as well ask about the discrete one-time items at ACP. Can you just give a little color on that and kind of how you lap them as we go into 4Q in '26 here?

Yes. To begin, let's focus on the ACP segment and examine its performance from a quarter-over-quarter viewpoint. We observed significant strength and growth in the ACP segment, and without the specific one-time items mentioned, margins would be around 27%, indicating solid quarter-over-quarter growth in both throughput and overall margin profile. Some of the discrete items in question include operational inefficiencies, most of which will be resolved with the optimization of the ERP, along with further improvements in manufacturing processes. These issues are unrelated to pricing. The liquid cooling order is competitively priced, and as I mentioned earlier, it represents a solutions-based product, not driven by a low-bid scenario. Our focus is on ensuring effective execution. Moving forward, we are confident that this segment can achieve at least a 30% gross margin based on our backlog and the margin profile within it, as we concentrate on executing for both the BASX and AAON brands.

Yes. Is ACP where we expect to see the most sequential improvement in the fourth quarter to help us reach the 31% gross margin mentioned earlier?

Definitely quarter-over-quarter, you're going to see strong improvement. ACP definitely being a big driver of that improvement. But I would say, I mean, you're also going to see some incremental improvement within the Oklahoma segment as well, it's kind of as that price cost dynamic get on the right side from the tariff impact.

Okay. Perfect. And lastly, obviously, really strong data center orders for BASX this quarter, great to see the increase in backlog. Can you talk a little bit about the customer mix and profile there? You mentioned liquid versus air-side, but just give us a sense of the demand profile across the customer base.

Yes, it's a pretty broad-based actually. And I would say that when we look at the amount of interaction and conversation in the space right now, it is across sort of the entire profile of data center developers. So obviously, there's been strength and continued strength within the hyperscalers. But within a lot of the, I'll say, the contract builders, the colocation providers, the neocloud, we're seeing strength really across the profile in the order activity and in the quote activity in that space.

Your next question comes from the line of Chris Moore with CJS Securities.

Yes. Maybe we'll shift from BASX to rooftop. Can you just talk a little bit about pricing at this point in time, the current AAON premium, and maybe just your big picture thoughts on rooftop in '26.

Yes. From a pricing perspective, we have implemented price increases twice this year, starting with a 3% increase in early January, followed by an additional 6% from a tariff surcharge. This brings our total price increase to a little over 9% for the year. Looking ahead, we are currently analyzing our cost drivers as we prepare for 2026. At this moment, we cannot provide specific guidance on future pricing actions. However, we do see that the price premium for AAON equipment remains intact in the market, even though there has been a slight contraction compared to last year. Regarding the commercial HVAC market, it continues to be soft. Our checks with sales channel partners indicate a significant increase in bid activity, although overall order conversion remains weak. This suggests that while there is activity in the market, it is not yet translating into new projects. As we look to enter 2026, we expect to do so with continued softness, though we anticipate that increased bid activity will begin to convert into a stronger order cadence by mid-year. Additionally, we are focused on unique growth drivers, such as the differentiation of our Alpha Class air-source heat pump products and our national account strategy, which are helping us outperform in bookings despite the challenging macro environment.

Perfect. Very helpful. And maybe just a follow-up back to BASX. In terms of gross margins, we've had lots of discussions currently and ultimately, in terms of where the margins could be at the Investor Day. And we talked about 29% to 32%, a little bit below rooftop. And I'm just, again, trying to understand is there something structural in BASX that couldn't get to the mid-30s? Or it's just the rapid growth that is going to make it difficult for a while to get to that level?

No, it's a great question. And certainly, our kind of putting it around that 30% level is really, sort of, setting what we see as the, sort of, near-term execution targets kind of within that space. From a perspective standpoint, it took AAON 30-some-odd years to really get into that mid-30s range. And a lot of that was driven by really good execution around improvements around manufacturing process, coupled with obviously pricing competitiveness. And so, as we start getting more and more, I'll say, we get the ability to really kind of get some of our production lines stable, we can really start focusing on pulling our costs and putting dollars to the bottom line in those spaces. And so, I would just say from an expectation setting standpoint, that 30% range is really kind of where we want to keep everyone grounded. But certainly, we're an organization that is focused on outperforming. And so, for us, looking at how do we keep driving better execution and really keep driving improvement of that is going to be something that is certainly front of mind as we keep progressing forward.

Next question comes from the line of Tim Wojs with Baird.

On the Oklahoma business, Matt, I mean, where are your lead times today kind of relative to normal? And I guess as you think about kind of converting the Tulsa facility next year on the ERP side, I guess, how are you kind of communicating that to people in the channel? And how are you preparing for any sort of, I guess, kind of order pull forward that might kind of happen as a result of that implementation?

Yes. Certainly great questions. And on the lead times, when we look at the Oklahoma segment, where they stand today, they're probably sitting around 50% higher than we wanted to be. And again, our focus here is really on getting that execution up, getting that volume up at that facility and really start pulling that back down. So, one thing I'd say is, while obviously, backlog growth is a big conversation on the BASX side of the business. On the AAON side, our big driver here is, let's get that backlog down, let's get that lead time kind of back in check where we want them to be, just to be able to make sure that we're meeting the market demands appropriately. As we think about, I'll say, kind of getting ahead of things within the ERP side, we're certainly going to be substantially more proactive. Again, I'll just say lessons learned around the Longview side to make sure we get ahead of it. And provide some buffer kind of, in sort of, what we communicate to the market to make sure we deliver and these schedules that are met with our best foot forward. So, that's going to be definitely part of our intentional, kind of, before go-live messaging strategy ahead of a Pulse to go-live. Exactly what that's going to look like and kind of what buffer, that's still certainly part of an operational conversation, but certainly will be something we're looking at throughout the mid part of '26.

Okay. And speaking of operations, I mean, you just, I think, hired a COO. Could you maybe talk about what kind of those responsibilities are going to be for him in kind of maybe the near and intermediate term and kind of what he brings to AAON?

Yes. I want to start by providing some perspective. We have been fortunate to experience significant growth, which is very exciting. This presents an excellent opportunity for our organization and our team to thrive in this environment. When we compare AAON five years ago to where we are today, we now have five facilities, and we're seeing substantial growth from our new facilities. We've made considerable expansions in Longview, invested heavily in Redmond, and continue to invest in our Tulsa facility, all supported by strong demand. Over the past five to ten years, the company has truly transformed, gaining stability and increasing its stature. As we consider what Roberto brings to the organization, it involves managing consistency across all five facilities and implementing best practices in lean manufacturing throughout the organization. His expertise in operating up to 23 facilities and his focus on lean manufacturing are very promising for our operations team and the entire AAON and BASX team as we aim to leverage growth drivers in a profitable way.

Okay, that's great. I have two questions. First, can you provide an estimate of the free cash flow you anticipate for the fourth quarter? Also, regarding the integration of Memphis, do you have a DNA number in mind for AAON in 2026?

I don't have a specific figure for the free cash flows in Q4, but it should see a significant increase. We managed to turn positive this quarter, and we are now in the process of collecting billings that were delayed. So, I'm optimistic about a considerable rise, although I can't provide an exact estimate right now. As for your second question, for 2025, we anticipate revenue in the range of $75 million to $80 million, and for 2026, we expect an additional $20 million to $25 million.

Your next question comes from the line of Julio Romero with Sidoti & Company.

This is Alex on for Julio. Just a follow-up on ERP. I know we talked a little bit about lessons learned and alluded to that, but maybe we could get a little more specific on key lessons learned from Longview that you're applying to Memphis and maybe even what milestones you thought about before greenlighting the rollout to Memphis?

Yes. From a lessons learned, I mean, I'll say there's kind of a variety of people and process sides of it. But just high level, what I would say is, some of the configuration changes and lesson learned that we've implemented in Longview as well as Memphis is streamlining some of the automation that can be provided in process flow inside the ERP that wasn't fully implemented, I'll say, kind of on the initial go-live that caused too much manual interaction that slowed down some of the production velocity. And so, we really kind of streamlined some of those processes, and we've really greatly enhanced the amount of hands-on training within the system. I think the lessons learned is, we did a lot of training as part of the go-live, but a lot of it was more classroom setting versus getting really more live hands on how you would live in the system on a day-to-day basis. And so, a lot of that kind of was lessons learned out of the Longview site. And really, that was informing the kind of go-live strategy within the Memphis site. And Memphis has been live for about a week now and really been operating in a smooth fashion, albeit lower volumes than what we have in Longview, but kind of on a go-live and a ramp-up perspective, behaving very well.

Great. I think going hand-in-hand with streamlining and ERP work might be automating with AI. So, I was curious if you could touch on any sort of work with that.

Yes. I mean, certainly, as a manufacturer that greatly supports the explosive growth of the data center investment around AI, it certainly also informs kind of how we leverage AI as an organization. So there's a lot of things we're looking at. I mean, everything from how we analyze warranty claims for trends, how we look at predictive analytics around unit performance. So, there's a lot of sort of projects going on. But certainly, as time progresses, AI will become more and more relevant kind of in our strategy. But what I would say now is we have a lot of things that are more in the sandbox and planning phase as we look at how to leverage AI, both from an operations perspective, but also from a value driver from a customer's perspective.

Your next question comes from the line of Brent Thielman with D.A. Davidson.

Great. Yes. I guess, question, Matt, just as you peel back kind of the layers here within the rooftop business, your thoughts on what seems to be working in terms of the share capture strategy. I heard you comment on the national accounts growth, maybe how that informs, how that, kind of, strategy is working and anything else in and around that?

Yes. So, to maybe peel it back in kind of two pieces. I think, when we look at what we call the more transactional type orders, the standard kind of end market orders, we see that softness kind of that you hear across the overall commercial HVAC space on the more everyday type orders. We see that kind of in our order cadence as well. And so, when we look at where the growth drivers have been, I'd say two things that are big differentiators for us that have allowed us to outperform in bookings has been the Alpha Class air-sourced heat pump. So, from an innovation and sort of a product differentiation standpoint, continue to see that getting some good traction inside the space as we really have a best-in-class solution that operates in sort of your southern climate all the way to your low-temp climates with sort of the more Alpha Class Extreme program. So that's definitely been a driver that's, sort of, allowing that differentiation of product to really capture the hearts and souls of a lot of organizations. And it really aligns well with that national account customer. So when we think about national account customers looking to reduce carbon footprints with portfolios of facilities all across the country, that Alpha Class product definitely is a huge conversation starter and a differentiator kind of inside the space. And with the three tiers of that product, we rolled that out in a way that provided solid pricing points, really depending on kind of what the market is from an environmental perspective. And so, we don't need to go all the way to the Alpha Class Extreme, low ambient air-source heat pump if I'm delivering a product in Florida. But when we look at some of the northern states, the solutions that we have in terms of efficiency, performance points and cost points really can't be beat inside the marketplace. And so, that's really allowed a broad conversation on that national account space, really around air-source heat pumps, decarbonization to be able to provide really a solution across the portfolio that really can't be met by anyone else in the marketplace. And so, a lot of that on some of that conversation and growth really in both the national accounts as well as really just transactional air-source heat pumps.

Got it. And then on the BASX side, whether you wanted to talk around the orders this quarter, Matt, or kind of an immediate pipeline. I mean, one of the objectives here is to try and get into maybe more of the standardized products. And I guess, question one is, are you starting to see those orders come through? Is it far too early for that? And two, maybe just the diversification of customers that are reflected in these orders?

And just to maybe put a clarifying point. When we look at the productization strategy, I wouldn't say we're going to a standard product by any stretch. What I would say is, really just, envision that as the same solution or the same mindset around how AAON goes to market with a software-driven semi-custom, still very much value-driven products just in a little bit more of a walled off platform that provides some more efficiencies in how we go to market. But I just want to kind of clarify that. I wouldn't really go to sort of a standardized product definition. It still very much is highly configurable value-driven solutions. But I would say, we're certainly starting to get into quote activity on those products. We're in the early innings, really on getting that into the marketplace. And so, certainly out there having the conversations, but that backlog growth that we see right now, that is reflective of the historic solution-based, the custom products that BASX brand has built itself on since its formation. Customer-wise, I mean, there's obviously a couple of large orders that exist inside that sort of backlog growth. But I would say there's also a spattering of other smaller customers kind of in there. So, there is definitely a couple of big hitters in that backlog growth, but there's also a diversity in the customer base in what we're growing right now.

Okay. Last one. Obviously, a big chunk of orders here is to fill the Memphis capacity that comes on to, I think, just based on past conversations, Matt, you sort of want to be deliberate about that, work through any inefficiencies as that facility ramps up. I guess the question I have is, do you have what you want for now? Or are you comfortable continuing to push and capture more orders for that facility even as that hasn't ramped up quite yet?

Yes, that’s a great question. There’s definitely a solid backlog that will support the gradual ramp-up of that facility, and there’s also potential for increased demand, particularly in the second half of next year. We have the capacity to continue boosting production as we expand operations at that facility. It's important to consider the timing of bookings for orders expected to deliver in the latter part of next year.

There are no further questions at this time. I will now turn the call back over to the management team for closing remarks.

Okay. Thank you, everyone, for joining us on today's call. 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. Thank you.

Ladies and gentlemen, that concludes today's call. Thank you for joining. You may now disconnect.