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Introduction & Market Context
AAON Inc. (NASDAQ:AAON) presented its Q2 2025 earnings results on August 11, 2025, revealing significant operational challenges that severely impacted profitability. The HVAC manufacturer’s stock plunged 14.37% in pre-market trading to $68.95, approaching its 52-week low of $68.98, as investors reacted to disappointing results and lowered guidance.
The sharp decline represents a dramatic reversal from Q1 2025, when AAON had exceeded analyst expectations with an adjusted EPS of $0.37 versus the forecasted $0.24. Today’s presentation highlighted how ERP implementation issues at the company’s Longview facility created ripple effects throughout operations, resulting in substantially lower earnings despite a strong order backlog.
Quarterly Performance Highlights
AAON reported Q2 2025 sales of $311.6 million, a slight decrease of 0.6% year-over-year, while profitability metrics declined significantly across the board. Gross profit margin contracted to 26.6%, representing a substantial 950 basis point decline from the 36.1% reported in Q2 2024.
As shown in the following comprehensive overview of key metrics:
Non-GAAP adjusted EBITDA fell 43.1% year-over-year to $46.6 million, with margins contracting to 14.9% compared to 26.1% in the prior year period. Most notably, non-GAAP adjusted diluted EPS plummeted 64.5% to $0.22 from $0.62 a year earlier, reflecting the severe impact of operational disruptions.
The detailed financial summary below illustrates the extent of the earnings decline:
Operational Challenges
The primary factor behind AAON’s disappointing performance was the implementation of a new SAP system at its Longview facility in April 2025, which significantly disrupted production. The company provided a timeline of events that led to the Q2 shortfall:
The ERP implementation created a cascading effect, as coil production issues at Longview limited production ramp-up at the Tulsa facility. Additional challenges emerged when two supplementary coil suppliers also experienced difficulties, further constraining production capabilities.
A waterfall chart breakdown reveals that while underlying volume demand was strong (+$30M), the ERP implementation and supply chain disruptions reduced sales by approximately $35 million:
The same chart shows that gross margin was impacted by approximately $20 million due to ERP implementation issues, with an additional $21 million reduction from startup costs and other factors.
Segment Performance
Results varied significantly across AAON’s business segments. AAON Oklahoma, the company’s largest division, saw net sales decline 18.0% to $185.1 million, with gross margin contracting to 27.5% from 37.2% in Q2 2024, primarily due to lower production rates.
In contrast, AAON Coil Products reported an 86.4% increase in net sales to $58.5 million, driven by $40.1 million in BASX-branded sales. However, gross margin at this segment plummeted to 22.0% from 41.9% due to ERP implementation challenges.
The BASX segment, focused on data center cooling solutions, continued to show strong growth with sales increasing 20.4% to $68.0 million, while maintaining a relatively stable gross margin of 27.9% compared to 28.5% in the prior year.
The company highlighted several bright spots amid the challenges:
Backlog and Future Outlook
Despite the operational challenges, AAON reported robust growth in its order backlog, which increased 71.9% year-over-year to $1.12 billion. This strong backlog provides a foundation for potential recovery in the second half of 2025.
The breakdown of backlog by brand shows significant growth across segments:
Based on these backlog figures and expected operational improvements, AAON has revised its full-year 2025 guidance:
The company now expects low-teens sales growth for the full year, down from its previous mid-to-high teens forecast. Gross margin is projected at 28%-29%, significantly below the approximately 33% previously anticipated.
A detailed breakdown of the revised outlook shows how various factors are expected to impact full-year results:
Financial Position
AAON’s balance sheet has undergone significant changes compared to the prior year. The company reported debt of $317.3 million as of Q2 2025, compared to zero debt in Q2 2024. Working capital increased to $443.4 million from $267.1 million a year earlier.
The company noted that its leverage ratio at the end of the first quarter was 1.40, and it recently closed on a new $500.0 million credit facility. Capital expenditures are expected to reach approximately $220 million in 2025, continuing the upward trend from $76.0 million in 2022 and $109.5 million in 2023 to $213.2 million in 2024.
Forward-Looking Statements
Management expressed confidence in a recovery during the second half of 2025, pointing to improvements in coil production at Longview and from suppliers beginning in July 2025. The company expects production to increase significantly in the second half, with gross margins projected to improve to 29%-31% from the 26% reported in the first half.
The strong demand for AAON’s air-side and liquid cooling solutions for data centers remains robust, with BASX-branded data center sales up 127% in Q2 and 269% year-to-date. Liquid cooling equipment sales represented approximately 40% of total BASX-branded data center sales in the year-to-date period.
AAON’s national accounts strategy is also gaining traction, with orders up 163% in Q2 and 90% year-to-date. Additionally, Alpha Class heat pump sales increased 8% in Q2, with bookings up 61%, indicating strong future demand for these products.
While the ERP implementation challenges have significantly impacted near-term results, the company’s substantial backlog and strategic positioning in growing markets like data centers and heat pumps provide a foundation for potential recovery as operational issues are resolved.
Full presentation:
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