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Introduction & Market Context
AAON Inc (NASDAQ:AAON) presented its first quarter 2025 earnings results on May 1, showing signs of recovery following a disappointing fourth quarter. The company’s stock responded positively, trading up 8.56% in pre-market at $99.08, after closing at $91.27 on April 30. This rebound comes after AAON’s shares had fallen 17.75% following its Q4 2024 earnings miss.
The HVAC manufacturer’s strategic pivot toward data center cooling solutions is beginning to yield results, with significant growth in its BASX-branded equipment offsetting weakness in traditional product lines. The company’s record backlog of over $1 billion suggests strong demand visibility extending into 2026.
Quarterly Performance Highlights
AAON reported Q1 2025 sales of $322.1 million, representing a 22.9% year-over-year increase and a sequential improvement from Q4 2024. However, profitability metrics showed mixed results, with gross profit margin at 26.8%, down 840 basis points year-over-year but up 75 basis points quarter-over-quarter.
As shown in the following comprehensive financial summary:
Adjusted EBITDA came in at $56.7 million, down 6.3% year-over-year, with a margin of 17.6%. Adjusted diluted EPS was $0.37, representing a 20% decline from the prior year. The company noted that Q1 sales and earnings improved from Q4 results, and the strong backlog is expected to drive a steep recovery in the second half of 2025.
Segment Performance Analysis
The company’s performance revealed a stark contrast between its two main product lines. BASX-branded equipment sales, largely driven by data center cooling solutions, surged 374.8% year-over-year to $132.6 million. This exceptional growth was partially offset by a 19.1% decline in AAON-branded equipment sales, which fell to $189.5 million.
The following chart illustrates this divergent performance:
When examining performance by segment, AAON Oklahoma sales decreased 23.0% to $161.8 million with gross profits down 51.6% to $38.0 million. Meanwhile, AAON Coil Products sales surged 287.8% to $94.0 million with gross profits up 299.1% to $32.5 million. The BASX segment grew 138.9% to $66.2 million with gross profits increasing 179.5% to $15.9 million.
This detailed breakdown of sales and profits by segment reveals the company’s shifting business mix:
Gross margin contraction year-over-year was attributed primarily to lower volumes and reduced absorption of fixed costs at the AAON Oklahoma segment. However, the company noted that right-sizing capacity to meet growing demand at AAON Coil Products and BASX segments resulted in substantial margin expansion in those divisions.
Balance Sheet and Capital Allocation
AAON’s balance sheet showed significant changes from the previous year, with cash and cash equivalents decreasing to $8.4 million from $20.0 million a year earlier. The company took on $252.4 million in debt, compared to zero debt in Q1 2024, while working capital increased to $365.1 million from $267.1 million.
The following chart details these balance sheet changes:
Capital expenditures have increased substantially, with the company spending $213.2 million in 2024, up from $109.5 million in 2023. AAON expects approximately $220 million in capital expenditures for 2025, primarily related to preparing its new Memphis facility for production later this year. Despite the increased investment, the company’s leverage ratio at the end of the first quarter was 0.95, and management repurchased $30 million of shares outstanding.
Forward Outlook and Guidance
Perhaps the most significant indicator of AAON’s future prospects is its backlog, which reached $1.03 billion at the end of Q1 2025, representing an 83.9% increase year-over-year and an 18.4% increase quarter-over-quarter. This record backlog provides strong visibility into future revenue streams.
The backlog breakdown shows particularly strong growth in BASX-branded products:
AAON reaffirmed its 2025 outlook, projecting sales growth in the mid- to high-teens with gross margins expected to remain at similar levels to 2024. The company anticipates SG&A as a percentage of sales to decline by 25-50 basis points. For Q2 2025, AAON expects sales and EPS to improve modestly from the first quarter.
Management also addressed potential tariff impacts, noting that they have implemented a 6% surcharge which they anticipate will fully neutralize any impacts on costs and margins. The company expressed confidence that with supply chain issues abating, production volumes will increase, allowing for more efficient operations throughout 2025.
The robust demand for air-side and liquid cooling solutions for data centers is expected to continue, providing AAON with strong visibility into 2026 and supporting what management describes as "robust growth for the foreseeable future."
Full presentation:
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