AAON anticipates mid-teens sales growth and 28%–28.5% gross margin for 2025 as BASX backlog surges 119.5%

Earnings Call Insights: AAON, Inc. (AAON) Q3 2025

MANAGEMENT VIEW

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Matthew Tobolski, President, CEO & Director, stated that "the third quarter marked a decisive inspection point in our operational recovery and capacity expansion." He highlighted substantial improvement in production throughput at both Tulsa and Longview facilities, which drove sequential sales growth and further backlog growth. The BASX brand continued to perform exceptionally well, driven by strong momentum in the data center market. BASX-branded backlog reached $896.8 million, up 119.5% from a year ago and 43.9% from the prior quarter. Tobolski emphasized the company's focus on ramping up production at the new Memphis facility, adding nearly 800,000 square feet of manufacturing capacity, with large-scale production expected by year-end and meaningful BASX growth anticipated in 2026.

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The AAON brand also saw substantial sequential sales growth of 28.1%, driven by over 20% production increases at both Tulsa and Longview and improved ERP utilization. National account bookings were up 96% in the third quarter and 92% year-to-date, making up 35% of total bookings. Bookings for Alpha Class air-source heat pump equipment increased 45% quarter-over-quarter.

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Rebecca Thompson, Interim Principal Accounting Officer, VP of Finance, CFO & Treasurer, reported, "Net sales in the quarter increased year-over-year $57 million or 17.4% to $384.2 million." She added that gross margin was 27.8%, down from 34.9% in the prior year but up 120 basis points sequentially. Diluted EPS was $0.37, down 41.3% from a year ago but up 94.7% sequentially. Thompson noted that the company had year-to-date cash outflows from operations of $18.8 million compared to cash inflows of $191.7 million in the prior year and that capital expenditures for the first three quarters increased 22.1% to $138.9 million.

OUTLOOK

* Tobolski stated, "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%." He also noted expectations for double-digit revenue growth in the fourth quarter driven by production recovery and earlier pricing actions. The company is focusing on continued production ramp and expects BASX to deliver meaningful growth in 2026. Capital expenditures for 2025 are now anticipated to be $180 million, down from the previous estimate of $220 million, with most of the shift moving into 2026.

FINANCIAL RESULTS

* Net sales for Q3 2025 were $384.2 million, a year-over-year increase of $57 million or 17.4%, primarily due to a 95.8% rise in BASX-branded sales. Gross margin was 27.8%, sequentially improving by 120 basis points. Adjusted EBITDA margin was 16.5%. Diluted EPS was $0.37. Cash and equivalents at quarter end were $2.3 million and debt was $360.1 million. Year-to-date capital expenditures were $138.9 million. Backlog for AAON and BASX brands increased significantly, with the BASX backlog up 119.5% year-over-year.

Q&A

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Ryan Merkel, William Blair: Asked about the drivers for BASX orders and confidence in 40% to 50% growth for the segment. Tobolski explained that increased capacity, particularly with the Memphis facility, and strong demand for both air-side and liquid cooling solutions are driving backlog and order visibility. "We're having a lot of interest really across the product portfolio and tremendous amount of conversations across the sort of entire network of data center developers."

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Merkel also questioned gross margins and normalized levels for Oklahoma. Tobolski responded that "mid-30s with some headroom on top of that really is where we see the Oklahoma segment kind of on a normalized basis."

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Merkel referenced a short report on accounting changes and margins. Tobolski addressed the claims directly, stating, "We take the integrity of our financial reporting incredibly seriously, and it is regularly reviewed by our independent auditors... the demand for our products, the pricing of our products remains incredibly strong."

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Noah Kaye, Oppenheimer: Inquired about the impact of lowered CapEx guidance. Thompson clarified, "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."

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Christopher Moore, CJS Securities: Asked about pricing and market outlook for rooftop. Tobolski described two price increases in 2025 and ongoing analytics for 2026 pricing but gave no specific forward guidance. He noted continued strong bid activity despite a soft market.

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Timothy Wojs, Baird: Questioned lead times and ERP implementation at Tulsa. Tobolski said lead times are about 50% higher than desired but focus remains on ramping execution and production to restore normalcy.

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Wojs also asked about the new COO. Tobolski highlighted the COO’s experience in lean manufacturing and managing large-scale operations as being critical for AAON’s growth phase.

SENTIMENT ANALYSIS

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Analysts’ tone was positive, focusing on growth drivers, order visibility, and margin normalization. Concerns centered on gross margin recovery, CapEx timing, and ERP implementation risks.

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Management was confident in both prepared remarks and Q&A, directly addressing concerns about accounting practices and operational execution. Phrases such as "we are extremely excited about the opportunities that 2026 will bring" and "we're incredibly confident in the strength of our business" were prevalent.

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Compared to the previous quarter, there was a shift from a defensive posture regarding ERP challenges to a more confident outlook, with management emphasizing operational recovery and capacity expansion.

QUARTER-OVER-QUARTER COMPARISON

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The current quarter highlighted a significant recovery in production and sales, while the previous quarter was marked by ERP-related disruptions and underperformance.

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Backlog growth in BASX accelerated sharply this quarter, while the previous quarter showed flat backlog and concerns about capacity constraints.

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Management’s tone moved from apologetic and cautious in Q2 to upbeat and forward-looking in Q3, as operational improvements materialized and future growth drivers came into focus.

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Analysts in the current quarter focused on growth sustainability and operational execution, compared to last quarter’s focus on risk mitigation and recovery.

RISKS AND CONCERNS

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Operational inefficiencies at Longview and the Memphis ramp-up continue to weigh on margins, but management expects these to be temporary.

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ERP implementation risks remain as further rollouts are planned, but lessons learned are expected to minimize disruption.

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The commercial HVAC market remains soft, and lead times for AAON-branded products are still elevated, though backlog reduction is ongoing.

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Analyst concerns included the sustainability of gross margin improvement, the impact of CapEx timing, and the integrity of financial reporting.

FINAL TAKEAWAY

AAON’s third quarter 2025 call emphasized a decisive improvement in operational execution, strong backlog growth—especially for BASX—and a solid outlook for continued margin and revenue expansion. Management reaffirmed confidence in the company's core strategy, operational recovery, and financial integrity, while forecasting mid-teens sales growth and a gross margin of 28% to 28.5% for 2025, positioning the company for robust growth in 2026 as expanded manufacturing capacity comes online.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/aaon/earnings/transcripts]

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