AAON, INC. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the notes thereto, which are included in this report, and our audited consolidated financial statements and the notes thereto, which are included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024. This discussion contains or incorporates by reference “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not historical facts, but rather are based on expectations, estimates, assumptions and projections about our industry, business and future financial results, based on information available at the time this report is filed with the SEC or, with respect to any document incorporated by reference, available at the time that such document was prepared. Our actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors, including those identified in the section entitled “Forward-Looking Statements” in this Item 2 of this Quarterly Report on Form 10-Q and in the section entitled “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2024. We do not assume any obligation to update or revise any forward-looking statements to reflect changed assumptions, the occurrence of anticipated or unanticipated events, new information or circumstances or otherwise, except as required by law. Overview AAON is a leader in HVAC solutions for commercial and industrial indoor environments. The Company’s industry-leading approach to designing and manufacturing highly configurable equipment to meet exact needs creates a premier ownership experience with greater efficiency, performance, and long-term value. AAON is headquartered in Tulsa, Oklahoma, where its world-class innovation center and testing capabilities enable continuous advancement toward a cleaner and more sustainable future. We engineer, manufacture, and sell premium heating, ventilation, and air conditioning equipment consisting of semi-custom and custom rooftop units, data center cooling solutions, cleanroom systems, packaged outdoor mechanical rooms, air handling units, makeup air units, energy recovery units, condensing units, geothermal/water-source heat pumps, coils, and controls. These products are marketed and sold to a variety of vertical markets including retail, manufacturing, educational, lodging, supermarket, data centers, medical and pharmaceutical, industrial, and other commercial markets. We sell our products to all 50 states in the United States and certain provinces in Canada. Foreign sales were approximately $11.3 million of our total net sales for the three months ended March 31, 2025, and $7.4 million of our sales during the same period of 2024. Our business can be affected by a number of economic factors, including the level of economic activity in the markets in which we operate. Both the new construction and replacement markets are cyclical. If the domestic economy were to slow or enter a recession, this could result in a decrease in our sales volume and profitability. Sales in the commercial and industrial new construction markets generally lag the housing market, which in turn is influenced by cyclical factors such as interest rates, inflation, consumer spending habits, employment rates, the state of the economy and other macroeconomic factors over which we have no control. Sales in the replacement markets are driven by various factors, including general economic growth, the Company’s new product introductions, fluctuations in the average age of existing equipment in the market, government regulations and stimulus, change in market demand between more customized, higher performing HVAC equipment and lower priced standard equipment, as well as many other factors. When new construction is down, we emphasize the replacement market. We sell our products to property owners and contractors mainly through a network of independent manufacturers’ Representatives. This go-to-market strategy is unique compared to most of our larger competitors in that most control their sales channel. We value the independent sales channel as we think it is a more effective way of increasing market share. Although we concede full control of the sales process with this strategy, the entrepreneurial aspect of the independent sales channel attracts the most talent and provides greater financial incentives for its salespeople. Further, the independent sales channel sells different types of equipment from various manufacturers, allowing it to operate with more of a solutions-based mindset, as opposed to an internal sales department of a manufacturing company that is incentivized to only sell its equipment regardless if it is the best solution for the end customer. We also have a small internal sales force that supports the relationships between the Company and our sales channel partners. BASX sells highly customized products for unique applications for a more concentrated customer base and an internal sales force is more effective for such products. The principal components of cost of sales are labor, raw materials, component costs, factory overhead, freight out, and engineering expense. The principal high volume raw materials used in our manufacturing processes are steel, copper, and aluminum, and are obtained from domestic suppliers. We also purchase from domestic manufacturers certain components, including coils, compressors, motors, and electrical controls. - 31 - The price levels of our raw materials fluctuate given that the market continues to be volatile and unpredictable as a result of the uncertainty related to the U.S. economy and global economy. At March 31, 2025, the price (year to date average) for copper and aluminum increased 6.5% and 3.0%, respectively, while galvanized steel and stainless steel decreased 3.4% and 30.8%, respectively, as compared to the price (year to date average) at March 31, 2024. We attempt to limit the impact of price fluctuations on these materials by entering into cancellable and non-cancellable contracts with our major suppliers for periods of six to 18 months. We expect to receive delivery of raw materials from our contracts for use in our manufacturing operations. We occasionally increase the price of our products to help offset any inflationary headwinds. In recent years, price increases have been more frequent due to the amount of inflation the business has endured. We implemented a recurring 1.0% monthly price increase on October 1, 2023, and carried that through February 1, 2024, for AAON branded products. On January 1, 2025, we implemented a one-time 3.0% price increase for AAON branded products. On April 1, 2025, we implemented a 6.0% surcharge on all AAON branded products as a result of the uncertainty of international tariffs. BASX branded products are priced by job and in most cases, provide the ability to increase the price if the order is outside normal lead times. Macroeconomic Conditions Beginning in January 2025, the current United States (“U.S.”) Administration began enacting a series of tariffs affecting nearly all goods imported into the U.S. In retaliation, numerous foreign countries imposed reciprocal tariffs and restricted certain exports to the U.S. The continuous changes and uncertainty in tariff policy could impact our cost of materials, parts, or components imported into the U.S. and could impact the availability of supply from our vendors. We expect to continue to pass along some of these costs to our customers, but the increased price of our products could adversely affect the demand, which could have an adverse effect on our business and our earnings. Due to our favorable liquidity position, we are well positioned to make strategic purchases of materials when we see opportunities or potential disruptions in our supply chain. While we source a significant amount of our inventory and supplies from domestic vendors, certain vendors may source components internationally. We have experienced supply chain challenges related to specific manufacturing parts, which could be exacerbated by the trade conflict. We manage our supply chain challenges through strong vendor relationships as well as expanding our list of available vendors. Additionally, we continue to experience challenges in a tight labor market, especially the hiring of both skilled and unskilled production labor. We continue to implement human resource initiatives to retain and attract labor to further increase production capacity. We have implemented the following wage increases to remain competitive and to attract and retain employees: • In March 2024, we awarded annual merit raises for an overall 3.3% increase to wages. • In March 2025, we awarded annual merit raises for an overall 4.0% increase to wages. Despite efforts to mitigate the potential business impacts of trade conflict, supply chain challenges, and a tight labor market, future increases in the cost of materials, parts, components, or labor, in addition to supply chain disruptions, while temporary, could negatively impact our consolidated financial position, results of operations, and cash flows. - 32 - Backlog Segment Brands Produced Brand Products AAON Oklahoma AAON Rooftop units and aftermarket parts AAON Coil Products AAON / BASX Condensing units, air handling products, data center cooling solutions, and geothermal/water-source heat pumps BASX BASX Data center cooling solutions, cleanroom products, and air handling products The following table shows our historical backlog levels: March 31, 2025 December 31, 2024 March 31, 2024 (in thousands) AAON Products $ 403,863 $ 327,343 $ 278,636 BASX Products $ 623,006 $ 539,747 $ 279,807 Total Backlog $ 1,026,869 $ 867,090 $ 558,443 At March 31, 2025, our consolidated backlog is at a record $1,026.9 million, an increase of 83.9%, or $468.4 million, as compared to March 31, 2024. Backlog was up from a year ago for both AAON Products and BASX Products with BASX Products increasing 122.7%, or $343.2 million, when compared to March 31, 2024. Most of these orders were associated with the BASX branded data center liquid cooling solutions. Consolidated Results of Operations Three months ended March 31, 2025 2024 (in thousands) Net sales $ 322,054 $ 262,099 Cost of sales 235,690 169,857 Gross profit 86,364 92,242 Selling, general and administrative expenses 51,293 45,288 Loss (gain) on disposal of assets (40) (16) Income from operations $ 35,111 $ 46,970 The following are recent highlights and items that impacted our results of operations, cash flows and financial condition: • Consolidated net sales for the three months ended March 31, 2025, increased 22.9%, or $59.9 million, due to an increase in sales of our BASX branded products. BASX branded products increased 374.8%, or $104.6 million when compared to 2024, offset by a decrease of our AAON branded products of 19.1%, or $44.7 million when compared to 2024. • We increased our dividend from $0.08 per share per quarter to $0.10 per share per quarter, an increase of 25.0%. • We continue to invest in the future growth of the Company as evidenced by our $50.4 million in capital expenditures in 2024, an increase of $11.7 million or 30.2% when compared to 2024. • We completed the repurchase of 0.4 million shares for $30.0 million during the three months ended March 31, 2025. - 33 - We report our financial results based on three reportable segments: AAON Oklahoma, AAON Coil Products, and BASX, which are further described in “Segments” (Note 21) within our notes to the consolidated financial statements. The Company’s chief operating decision maker (“CODM”), our CEO, allocates resources and assesses the performance of each operating segment using information about the operating segment's net sales and gross profit. The CODM does not evaluate operating segments using asset or liability information. Segment Operating Results for Three Months Ended March 31, 2025 and Three Months Ended March 31, 2024 Three Months Ended March 31, 2025 Percent of Sales 1 March 31, 2024 Percent of Sales 1 $ Change % Change (in thousands) Net Sales 2 AAON Oklahoma $ 161,838 50.3 % $ 210,140 80.2 % $ (48,302) (23.0) % AAON Coil Products 94,023 29.2 % 24,247 9.3 % 69,776 287.8 % BASX 66,193 20.6 % 27,712 10.6 % 38,481 138.9 % Net sales $ 322,054 $ 262,099 $ 59,955 22.9 % Cost of Sales 2 AAON Oklahoma $ 123,865 76.5 % 131,729 62.7 % $ (7,864) (6.0) % AAON Coil Products 61,538 65.4 % 16,107 66.4 % 45,431 282.1 % BASX 50,287 76.0 % 22,021 79.5 % 28,266 128.4 % Cost of sales $ 235,690 73.2 % $ 169,857 64.8 % $ 65,833 38.8 % Gross Profit 2 AAON Oklahoma $ 37,973 23.5 % $ 78,411 37.3 % $ (40,438) (51.6) % AAON Coil Products 32,485 34.6 % 8,140 33.6 % 24,345 299.1 % BASX 15,906 24.0 % 5,691 20.5 % 10,215 179.5 % Gross profit $ 86,364 26.8 % $ 92,242 35.2 % $ (5,878) (6.4) % 1 Cost of sales and gross profit for each segment are calculated as a percentage of the respective segment’s net sales. Total cost of sales and total gross profit are calculated as a percentage of total net sales. 2 Presented after intercompany eliminations. Total net sales increased $60.0 million, or 22.9%. BASX increased by 138.9%, or $38.5 million, and AAON Coil Products increased 287.8%, or $69.8 million, both primarily related to demand from the BASX branded data center products. AAON Oklahoma sales decreased 23.0%, or $48.3 million due to challenges from the industry-regulated refrigerant transition and nonresidential construction activity that experienced weakened demand during the three months ended March 31, 2025 as compared to 2024. Gross profit as a percent of sales decreased to 26.8% during the three months ended March 31, 2025 as compared to 35.2% in 2024. As noted above, challenges from the industry-regulated refrigerant transition and nonresidential construction activity significantly affected our largest segment, AAON Oklahoma, resulting in decreased volumes and lower overhead absorption. Our AAON Coil Products segment gross profit increased $24.3 million, or 299.1%, as compared to 2024. Our new Longview, Texas plant expansion was completed in early January 2025, increasing overall plant capacity to be primarily utilized for the production of BASX branded data center products. Our BASX segment gross profit also increased $10.2 million, or 179.5%, as compared to 2024. The temporary inefficiencies associated with our Redmond, Oregon facility construction in 2024 have abated and we continue to ramp up production of this facility. The increased production in Redmond helped improve gross profit as a percent of sales for the BASX segment, increasing it to 24.0% during the three months ended March 31, 2025 as compared to 20.5% in 2024. As shown in the table below, we have experienced fluctuations in the cost of several raw materials. - 34 - Raw Material Costs Three-month average raw material cost per pound as of March 31: 2025 2024 % Change Copper $ 5.92 $ 5.56 6.5 % Galvanized steel $ 0.57 $ 0.59 (3.4) % Stainless steel $ 1.89 $ 2.73 (30.8) % Aluminum $ 2.40 $ 2.33 3.0 % Selling, General and Administrative Expenses Three Months Ended Percent of Sales March 31, 2025 March 31, 2024 2025 2024 (in thousands) Warranty $ 3,211 $ 3,398 1.0 % 1.3 % Profit sharing 3,297 4,600 1.0 % 1.8 % Salaries & benefits 16,429 15,810 5.1 % 6.0 % Stock compensation 2,614 2,244 0.8 % 0.9 % Advertising 551 599 0.2 % 0.2 % Depreciation & amortization 6,886 3,870 2.1 % 1.5 % Insurance 2,056 1,971 0.6 % 0.8 % Professional fees 1,487 4,620 0.5 % 1.8 % Donations 174 170 0.1 % 0.1 % Other 14,588 8,006 4.5 % 3.1 % Total SG&A $ 51,293 $ 45,288 15.9 % 17.3 % Selling, general and administrative expenses increased $6.0 million for the three months ended March 31, 2025, from the prior year period. Depreciation and amortization increased $3.0 million during the three months ended March 31, 2025, due to increased investments in back office technology and automation. Professional fees decreased $3.1 million during the three months ended March 31, 2025, due to various professional, regulatory, and legal corporate requirements incurred in 2024. Other expenses increased $6.6 million or 82.2% during the three months ended March 31, 2025, due to increased travel, consulting expenses, and approximately $2.7 million of incentive fees due to our real estate broker associated with the acquisition of our Memphis, Tennessee plant for a percentage of the incentives awarded to us by various entities. Income Taxes Three Months Ended Effective Tax Rate March 31, 2025 March 31, 2024 2025 2024 (in thousands) Income tax provision $ 3,191 $ 7,792 9.8 % 16.6 % The Company’s estimated annual 2025 effective tax rate, excluding discrete events, is expected to be approximately 25.4%. During the three months ended March 31, 2025, the Company recorded an excess tax benefit of $7.2 million as compared to $4.4 million during the same period in 2024. The excess tax benefit is related to the timing of stock option exercises as a result of our high stock price during the three months ended March 31, 2025 and 2024, respectively. - 35 - Liquidity and Capital Resources Our working capital and capital expenditure requirements are generally met through net cash provided by operations and the use of the revolving bank line of credit based on our current liquidity at the time. Working Capital - Our unrestricted cash increased $1.0 million from December 31, 2024 to March 31, 2025. Our restricted cash decreased $5.1 million due to funding requirements related to our Longview, Texas expansion. Outstanding Debt - On December 16, 2024, we amended our Amended and Restated Loan Agreement dated November 24, 2021 (as amended, “Amended Loan Agreement”) to include an $80.0 million term loan (“Term Loan”) in addition to the $200.0 million revolving credit facility (the “Revolver”). As of March 31, 2025 and December 31, 2024, we had $178.0 million and $76.5 million outstanding under the Revolver, respectively. We have one standby letter of credit totaling $0.7 million as of March 31, 2025 and one standby letter of credit totaling $0.3 million as of December 31, 2024. At March 31, 2025, we have $21.4 million of borrowings available under the Revolver. The Revolver expires May 27, 2027. We have amended the Revolver to allow for the occurrence of transactions associated with the New Markets Tax Credit transactions (Note 18). The Term Loan had an outstanding balance of $74.4 million and $78.4 million as of March 31, 2025 and December 31, 2024 respectively. The Term Loan is payable in equal month installments, plus interest, over 60 months, expiring December 16, 2029. Any outstanding loans under the Revolver bear interest at the daily compounded secured overnight financing rate (“SOFR”) plus the applicable margin. The Term Loan bears interest at the SOFR plus a credit spread adjustment of 0.10% per annum plus the Applicable Margin. Applicable margin, ranging from 1.25% - 1.75%, is determined quarterly based on the Company’s leverage ratio. The Company is also subject to letter of credit fees, ranging from 1.25% - 1.75%, and a commitment fee, ranging from 0.10% - 0.20%. The applicable fee percentage is determined quarterly based on the Company's leverage ratio. Fees associated with the unused portion of the committed amount are included in interest expense on our consolidated statements of income for the three months ended March 31, 2025 and 2024. Weighted average interest rate of our borrowings outstanding are as follows: March 31, 2025 March 31, 2024 Revolver 5.6% 6.6% Term loan 5.7% * 1 1 Funds were borrowed on December 16, 2024. No borrowings outstanding during the three months ended March 31, 2024 If SOFR cannot be determined pursuant to the definition, as defined by the Amended Loan Agreement, any outstanding effected loans will be deemed to have been converted into alternative base rate (“ABR”) loans. ABR loans would bear interest at a rate per annum equal to the highest of (a) the Prime Rate in effect on such day, (b) the Federal Funds Rate in effect on such day plus 0.50%, or (c) daily simple SOFR for a one-month tenor in effect on such day plus 1.00%. As of December 16, 2024, as defined by the Amended Loan Agreement, if the SOFR cannot be determined any outstanding balance will bear interest at the Prime Rate in effect on such day. At March 31, 2025, we were in compliance with our financial covenants, as defined by the Amended Loan Agreement. These covenants require that we meet certain parameters related to our leverage ratio. At March 31, 2025, our leverage ratio was 0.95 to 1.0, which meets the requirement of not being above 3 to 1. 2019 New Markets Tax Credit - On October 24, 2019, the Company entered into a transaction with a subsidiary of an unrelated third-party financial institution (the “2019 Investor”) and a certified Community Development Entity under a qualified New Markets Tax Credit (“2019 NMTC”) program pursuant to Section 45D of the Internal Revenue Code of 1986, as amended, related to an investment in plant and equipment to facilitate the expansion of our Longview, Texas manufacturing operations (the “2019 Project”). In connection with the 2019 NMTC transaction, the Company received a $23.0 million NMTC allocation for the 2019 Project and secured low interest financing and the potential for future debt forgiveness related to the expansion of its Longview, Texas facilities. Upon closing of the 2019 NMTC transaction, the Company provided an aggregate of approximately $15.9 million to the 2019 Investor, in the form of a loan receivable, with a term of 25 years, bearing an interest rate of 1.0%. This $15.9 million in proceeds plus capital contributed from the 2019 Investor was used to make an aggregate $22.5 million loan to a subsidiary of - 36 - the Company. This financing arrangement is secured by equipment at the Company’s Longview, Texas facilities, and a guarantee from the Company, including an unconditional guarantee of the NMTCs. 2023 New Markets Tax Credit - On April 25, 2023, the Company entered into a transaction with a subsidiary of an unrelated third-party financial institution (the “2023 Investor”) and a certified Community Development Entity under a qualified New Markets Tax Credit (“2023 NMTC”) program pursuant to Section 45D of the Internal Revenue Code of 1986, as amended, related to an investment in plant and equipment to facilitate the expansion of our Longview, Texas manufacturing operations (the “2023 Project”). In connection with the 2023 NMTC transaction, the Company received a $23.0 million NMTC allocation for the 2023 Project and secured low interest financing and the potential for future debt forgiveness related to the expansion of its Longview, Texas facilities. Upon closing of the 2023 NMTC transaction, the Company provided an aggregate of approximately $16.7 million to the 2023 Investor, in the form of a loan receivable, with a term of 25 years, bearing an interest rate of 1.0%. This $16.7 million in proceeds plus capital contributed from the 2023 Investor was used to make an aggregate $23.8 million loan to a subsidiary of the Company. This financing arrangement is secured by a guarantee from the Company, including an unconditional guarantee of the NMTCs. The unused net proceeds from the closing of the 2023 NMTC are included in restricted cash on our consolidated balance sheets required to be used for the 2023 Project. 2024 New Markets Tax Credit On February 27, 2024, the Company entered into a transaction with a subsidiary of an unrelated third-party financial institution (the “2024 Investor”) and a certified Community Development Entity under a qualified New Markets Tax Credit (“2024 NMTC”) program pursuant to Section 45D of the Internal Revenue Code of 1986, as amended, related to an investment in real estate to facilitate 2023 Project. In connection with the 2024 NMTC transaction, the Company received a $15.5 million NMTC allocation for the 2023 Project and secured low interest financing and the potential for future debt forgiveness related to the expansion of its Longview, Texas facilities. Upon closing of the 2024 NMTC transaction, the Company provided an aggregate of approximately $11.0 million to the 2024 Investor, in the form of a loan receivable, with a term of 25 years, bearing an interest rate of 1.0%. This $11.0 million in proceeds plus capital contributed from the 2024 Investor was used to make an aggregate $16.0 million loan to a subsidiary of the Company. This financing arrangement is secured by a guarantee from the Company, including an unconditional guarantee of the NMTCs. The unused net proceeds from the closing of the 2024 NMTC are included in restricted cash on our consolidated balance sheets required to be used for the 2023 Project. Stock Repurchase - The Board has authorized stock repurchase programs for the Company. The Company may purchase shares on the open market from time to time. The Board must authorize the timing and amount of these purchases and all repurchases are in accordance with the rules and regulations of the SEC allowing the Company to repurchase shares from the open market. Our open market repurchase programs are as follows: Effective Date Authorized Repurchase $ Expiration Date November 3, 2022 $50 million 1 February 27, 2024 February 27, 2024 $50 million 1 June 4, 2024 June 4, 2024 $50 million 2 June 14, 2024 February 27, 2025 $100 million ** 3, 4 1 Repurchases made in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended. 2 Repurchases made in accordance with Rule 10b-18 of the Securities Exchange Act of 1934, as amended. 3 Expiration Date is at Board’s discretion. The Company is authorized to effectuate repurchases of the Company’s common stock on terms and conditions approved in advance by the Board. As of March 31, 2025, approximately $70.0 million remains under the current board authorization. 4 As of March 31, 2025, approximately $30.0 million of shares have been repurchased in accordance with Rule 10b-18 of the Securities Exchange Act of 1934, as amended. The Company also repurchases shares of AAON, Inc. stock related to our LTIP plans (Note 14) at current market prices. - 37 - Our repurchase activity is as follows: Three Months Ended March 31, 2025 March 31, 2024 (in thousands, except share and per share data) Program Shares Total $ $ per share Shares Total $ $ per share Open market 371,139 $ 29,992 $ 80.81 — $ — $ — LTIP shares 1 82,664 8,312 100.55 36,860 3,041 82.50 Total 453,803 $ 38,304 $ 84.41 36,860 $ 3,041 $ 82.50 1 Includes stock repurchased for payment of statutory tax withholding and/or stock repurchased to cover the strike price of stock options. Dividends - At the discretion of the Board, we pay cash dividends. Board approval is required to determine the date of declaration and amount for each cash dividend payment. Our recent cash dividends are as follows: Declaration Date Record Date Payment Date Dividend per Share Annualized Dividend per Share March 5, 2024 March 18, 2024 March 29, 2024 $0.08 $0.32 May 24, 2024 June 7, 2024 June 28, 2024 $0.08 $0.32 August 15, 2024 September 6, 2024 September 27, 2024 $0.08 $0.32 November 13, 2024 November 29, 2024 December 19, 2024 $0.08 $0.32 March 5, 2025 March 18, 2025 March 28, 2025 $0.10 $0.40 Based on historical performance and current expectations, we believe our cash and cash equivalents balance, the projected cash flows generated from our operations, our existing committed revolving credit facility (or comparable financing) and our expected ability to access capital markets will satisfy our working capital needs, capital expenditures, and other liquidity requirements associated with our operations in 2025 and the foreseeable future. Off-Balance Sheet Arrangements - We are not party to any off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues, expenses, results of operations, liquidity, capital expenditures, or capital resources. - 38 - Statement of Cash Flows The following table reflects the major categories of cash flows for the three months ended March 31, 2025 and 2024. For additional details, see the consolidated financial statements. Three Months Ended March 31, 2025 March 31, 2024 (in thousands) Operating Activities Net Income $ 29,292 $ 39,016 Income statement adjustments, net 29,117 17,380 Changes in assets and liabilities: Accounts receivable (17,631) 28,334 Income taxes (3,323) 8,221 Inventories (11,489) 16,699 Contract assets (53,235) (5,387) Prepaid expenses and other long-term assets (2,703) (4,349) Accounts payable 21,625 (9,968) Contract liabilities 1,508 2,770 Extended warranties 37 698 Accrued liabilities & other long-term liabilities (2,412) (1,044) Net cash (used in) provided by operating activities (9,214) 92,370 Investing Activities Capital expenditures (46,723) (34,688) Acquisition of intangible assets (3,717) (4,055) Other 52 29 Net cash used in investing activities (50,388) (38,714) Financing Activities Proceeds from financing obligations, net of issuance costs — 4,186 Payment related to financing costs — (417) Borrowings under revolving credit facility 235,925 115,130 Payments under revolving credit facility (138,411) (153,458) Stock options exercised 4,356 9,844 Repurchase of stock (31,536) — Employee taxes paid by withholding shares (6,768) (3,041) Cash dividends paid to stockholders (8,095) (6,556) Net cash provided by (used in) financing activities $ 55,471 $ (34,312) Cash Flows Provided by Operating Activities The Company currently manages cash needs through working capital as well as drawing on its line of credit. Collections and payments cycles are on a normal pattern and fluctuate due to timing of receipts and payments. Historically, the Company increased the purchase of inventory to take advantage of favorable pricing opportunities and also to mitigate the impact of future supply chain disruptions on our operations; however, we continue to make significant purchases of inventory related to data center orders. These purchases are allocated to customer jobs and show as increases to our contract assets. Current payment terms for BASX jobs primarily require the Company to fund the upfront working capital resulting in cash outflows related to our contract assets. Cash Flows Used in Investing Activities Capital expenditures during the three months ended March 31, 2025, relate to additional infrastructure and machinery for both replacement and production growth, finalizing our new production space in our Redmond, Oregon and Longview, Texas locations, additional equipment and production capacity in Parkville, Missouri, and new equipment for our Memphis, - 39 - Tennessee facility. We have also made investments to purchase or develop software for internal use in anticipation of future Company growth. Many of these projects are subject to review and cancellation at the discretion of our CEO and Board of Directors without incurring substantial charges. The capital expenditure program for 2025 is estimated to be approximately $220.0 million. Many of these projects are subject to review and cancellation at the discretion of our CEO and Board of Directors without incurring substantial charges. Cash Flows Provided by Financing Activities The change in cash from financing activities in 2025 is primarily related to borrowings under our revolving credit facility to manage our working capital needs, especially strategic purchases of inventory to avoid supply chain delays and the funding of certain capital expenditures, offset by repayments we were able to make due to our operating results and financial condition. During the three months ended March 31, 2025, we repurchased $30.0 million under our open market share repurchase programs. Furthermore, cash flows from financing activities is historically affected by the timing of stock options exercised by our employees. Commitments and Contractual Obligations We are occasionally party to short-term and long-term, cancellable and occasionally non-cancellable, contracts with suppliers for the purchase of raw material and component parts. We expect to receive delivery of raw material and component parts for use in our manufacturing operations. These contracts are not accounted for as derivative instruments because they meet the normal purchase and normal sales exemption. We had no material contractual purchase obligations as of March 31, 2025, except as described below. In 2023, the Company executed a five-year purchase commitment for refrigerants. Payments made in satisfaction of the purchase commitment were approximately $0.6 million and $3.6 million the three months ended March 31, 2025 and 2024, respectively. Estimated minimum future payments are $8.5 million, $10.5 million, and $11.2 million for 2025, 2026, and 2027, respectively. Critical Accounting Policies There have been no material changes in the Company’s critical accounting policies during the three months ended March 31, 2025. Recent Accounting Pronouncements See Note 1 of the Notes to the Consolidated Financial Statements for a discussion of recent accounting pronouncements. Forward-Looking Statements This Quarterly Report on Form 10-Q (or statements otherwise made by the Company or on the Company’s behalf from time to time in other reports, filings with the Securities and Exchange Commission (“SEC”), news releases, conferences, website postings, presentations or otherwise) includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements contained herein that are not historical facts are forward-looking statements and involve risks and uncertainties. For all of these forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the U.S. Private Securities Litigation Reform Act of 1995. Words such as “expects”, “anticipates”, “intends”, “plans”, “believes”, “seeks”, “estimates”, “confident”, “outlook”, “project”, “should”, “will”, and variations of such words and other words of similar meaning or similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions, which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. Important factors that could cause results to differ materially from those in the forward-looking statements include, among others: • market conditions and customer demand for our products; • the timing and extent of changes in raw material and component prices; • naturally-occurring events, pandemics, and other disasters causing disruption to our manufacturing operations, product deliveries and production capacity; • changes in U.S. or foreign trade policies, including additional tariffs or global trade conflicts; - 40 - • the impact caused by inflationary cost pressures, national or global health issues, such as the coronavirus pandemic (“COVID-19”), any variants or similar outbreaks (including the response thereto) and their effects on, among other things, demand for our products, supply chain disruptions, our liquidity and financial position, results of operations, stock price, payment of dividends, our ability to secure new orders, our ability to convert backlog to revenue and impacts to the operations status of our facilities; • natural disasters and extreme weather conditions, including, without limitation, their effects on locations where our products are manufactured; • the effects of fluctuations in the commercial/industrial new construction market; • the timing of introduction and market acceptance of new products; • the timing and extent of changes in interest rates, as well as other competitive factors during the year; • general economic, market or business conditions; • tightening of labor markets and the ability to hire employees for continued growth • creditworthiness of our customers and their access to capital; • changing technologies; • the material failure, interruption of service, compromised data or information technology security, phishing emails, cybersecurity breaches or other impacts to our information technology and related systems and networks (including any of the foregoing of third-party vendors and other contractors who provide information technology or other services); • costs and results of litigation, including trial and appellate costs; • economic, market or business conditions in the specific industry and market in which our businesses operate; • future levels of capital expenditures, research and development and indebtedness, including, without limitation, our ability to reduce indebtedness and risks associated with the same; • legal, regulatory, and environmental issues, including, without limitation, compliance of our products with mandated standards and specifications; and • integration of acquired businesses and our ability to realize synergies and cost savings. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. Except as required by federal securities laws, we undertake no obligation to update any forward-looking statement to reflect events, occurrences or developments after the date on which such statement is made. For a discussion of risks and uncertainties which could cause actual results to differ from those contained in the forward-looking statements, please see Item 1A “Risk Factors” included in our Annual Report on Form 10-K, and as otherwise disclosed from time to time in our other filings with the SEC.