10-K: AAON Reports Mixed 2025 Results Amid Strong BASX Growth

AAON, Inc. reported a 20.1% increase in net sales for 2025 driven by robust demand for BASX-branded data center cooling solutions, despite a decline in AAON-branded product sales and operational disruptions from an ERP system implementation.

Summary

• Net sales grew 20.1% to $1,442.1 million in 2025, primarily due to strong demand for BASX-branded products.
• BASX-branded product sales surged by 143.5% ($322.8 million) compared to 2024, largely from data center liquid cooling solutions.
• AAON-branded product sales decreased 8.3% ($81.4 million) due to a softer market (higher interest rates, slowing construction) and supply chain issues (refrigerant change, coil shortages).
• Gross profit decreased 2.9% to $385.7 million, with the gross profit margin falling from 33.1% in 2024 to 26.7% in 2025.
• Selling, General and Administrative (SG&A) expenses increased by $51.5 million, reaching $239.5 million (16.6% of sales), driven by higher salaries, benefits, depreciation, and technology consulting fees.
• Net income decreased to $107.6 million in 2025 from $168.6 million in 2024, resulting in diluted EPS of $1.29, down from $2.02.
• Total backlog increased 110.9% to $1,828.5 million at December 31, 2025, with BASX-branded backlog up 141.3% to $1,302.1 million.
• Capital expenditures were $204.9 million in 2025, reflecting continued investment in growth and intangible asset acquisitions.
• The company repurchased $39.7 million of shares in 2025.
• Quarterly dividends increased to $0.10 per share ($0.40 annualized) in 2025 from $0.08 ($0.32 annualized) in 2024.
• The company's leverage ratio was 1.77 to 1.0 at December 31, 2025, well within the covenant requirement of not being above 3 to 1.
• The Revolving Credit Facility was increased to $600.0 million, with $201.0 million available at year-end 2025.
• The One Big Beautiful Bill Act (OBBBA), enacted July 4, 2025, led to a $0.8 million increase in tax provision expense and generated Federal and State net operating loss (NOL) carryforwards of $57.0 million and $22.5 million, respectively.

Sentiment

Score: 5

Explanation: StockSavvy.ai views this as a neutral-to-slightly-negative report. While the BASX segment shows exceptional growth and strategic positioning in the data center market, the significant decline in overall profitability, AAON-branded sales, and gross margin, coupled with increased expenses and interest costs, offsets the positives. The ERP disruptions and macroeconomic headwinds present ongoing challenges.

Positives

• Overall net sales increased by 20.1% to $1,442.1 million in 2025.
• BASX-branded product sales surged by 143.5% ($322.8 million) due to strong demand in the hyperscale data center market.
• Total backlog increased by 110.9% to $1,828.5 million, with BASX-branded backlog up 141.3% to $1,302.1 million.
• The company maintains a strong balance sheet with a leverage ratio of 1.77, well below the 3.0 covenant limit.
• Available borrowings under the Revolving Credit Facility stood at $201.0 million at year-end 2025, after increasing the facility to $600.0 million.
• Continued significant capital investments ($204.9 million in 2025) in infrastructure, machinery, and production capacity (Redmond, Longview, Parkville, Memphis) for future growth.
• Introduction of new BASX liquid cooling portfolio products, including the proprietary Coolant Distribution Unit (CDU) and a water-free Free Cooling Chiller platform.
• Increased R&D expenses to $58.2 million in 2025, demonstrating commitment to innovation and product leadership.
• Dividend per share increased to $0.10 quarterly ($0.40 annualized) in 2025.
• Achieved Platinum level in the Sustainability Alliance Scor3card program in 2025 and 2024.
• Approximately 36% of the energy portfolio is derived from renewable sources.
• Successful transition to lower global warming potential R-454B refrigerant for HVAC systems by January 1, 2025.
• New Human Resources building opened in January 2025 to enhance employee engagement.
• New Electronics Prototyping Lab in Parkville, Missouri, to speed up time to market and integrate cutting-edge technology into control designs.

Negatives

• Net income decreased to $107.6 million in 2025 from $168.6 million in 2024.
• Diluted EPS decreased to $1.29 in 2025 from $2.02 in 2024.
• Gross profit decreased by $11.4 million (2.9%), and gross profit margin declined from 33.1% to 26.7%.
• AAON-branded product sales decreased 8.3% ($81.4 million) due to macroeconomic factors (higher interest rates, slowing construction starts) and supply chain issues (refrigerant change, coil supply shortages).
• ERP system implementation caused disruptions at the Longview, Texas facility, impacting AAON Coil Products segment and subsequently AAON Oklahoma's production.
• Increased interest expense to $17.7 million in 2025 from $2.9 million in 2024, primarily due to higher borrowings under the revolving credit facility.
• Selling, general and administrative expenses increased significantly by $51.5 million to $239.5 million.
• The new Memphis plant, part of AAON Oklahoma, contributed $16.1 million in overhead cost to AAON Oklahoma while its sales and gross profit are reflected in the BASX segment, impacting AAON Oklahoma's profitability.
• The 6.0% tariff surcharge on AAON-branded products, instituted April 1, 2025, initially did not cover additional costs from tariffs, though it improved by year-end.
• Increased working capital for extended periods due to growth and expansion at Longview and Memphis plants, and longer payment terms for some BASX-branded jobs.
• Tight labor market, especially for production labor, despite wage increases.

Risks

• Public health pandemics could disrupt business, supply chains, and raw material prices.
• Economic conditions, including interest rates, inflation, and consumer spending, can adversely affect sales in new construction and replacement markets.
• Loss of one or more major customers could significantly impact results of operations, financial condition, and cash flow due to customer concentration.
• Realization of sales from backlog orders is not guaranteed, as customers may reduce or defer firm orders, especially for BASX-branded products.
• Loss or impairment of relationships with major third-party representatives could materially and adversely affect revenue generation.
• Material costs may be incurred from warranty and product liability claims, potentially exceeding insurance limits or not being covered.
• Dependence on officers and senior leadership team means the loss of key employees or inability to attract/retain skilled employees could adversely affect the business.
• Operations may be affected by natural disasters (e.g., tornadoes, wildfires), especially with concentrated facilities in Tulsa, Oklahoma, and Oregon, potentially causing damage not fully covered by insurance.
• Variability in self-insurance liability estimates for employee health and workers' compensation could impact results of operations.
• Inability to compete favorably in the highly competitive HVAC business on factors like product reliability, performance, service, lead times, and price could lead to reduced prices or lost market share.
• Failure to successfully develop and market new products or keep pace with technological advances could materially adversely affect business and results of operations, potentially increasing inventory obsolescence.
• The lengthy sales cycle for certain BASX-branded products and unpredictable customer orders may cause revenues and operating results to vary significantly from period-to-period.
• Problems in the availability or increases in prices of raw materials (steel, copper, aluminum) and components could depress sales or increase product costs.
• Losses may result from the use of non-cancellable contracts if prices change unfavorably or if excess inventory is carried due to market downturns.
• Cybersecurity attacks could disrupt information technology infrastructure, leading to compromised data, reputational damage, litigation, and increased costs.
• Reliance on information technology means insufficient investment or complications with the new ERP system implementation could lead to outages, competitive disadvantage, or adversely affect internal controls.
• Artificial intelligence technologies may introduce operational, cybersecurity, reputational, and compliance risks, including data privacy, intellectual property, and regulatory scrutiny.
• Exposure to extensive and rapidly changing federal, state, and local environmental laws and regulations could impose liability for remediation costs or civil/criminal penalties.
• Potentially extreme governmental regulations and policies, including those related to refrigerants (e.g., New York State rule for 2034) and fossil fuels, could substantially impact product design, operations, and profitability, leading to a 'patchwork' of state requirements.
• Changes in U.S. or foreign trade policies, including additional tariffs or global trade conflicts, could increase product costs and adversely impact competitiveness and international sales.
• Adverse changes in tax laws, unfavorable findings in tax examinations, or differing interpretations by tax authorities could negatively affect tax expense or benefits.
• Subject to international regulations (e.g., Foreign Corrupt Practices Act), violations of which could result in criminal penalties or sanctions.

Future Outlook

The company expects continued strength in the data center market with no meaningful signs of slowing and plans approximately $190.0 million in capital expenditures for 2026. It anticipates more state regulatory activity regarding refrigerants and fossil fuels, potentially leading to a 'patchwork' of different compliance regulations and increased costs. The company believes its cash, cash equivalents, projected cash flows, existing credit facility, and access to capital markets will satisfy working capital, capital expenditures, and liquidity requirements for 2026 and the foreseeable future, and expects to recognize deferred tax asset reversals in tax year 2026 due to NOL carryforwards. The 2019 New Markets Tax Credit put/call feature is expected to be exercised in 2026, potentially forgiving a portion of debt.

Management Comments

• "Our core nonresidential endmarkets entered a period of robust growth, increasing by approximately 50.0% between 2022 and 2024. By late 2024, however, these markets began to contract, and the softening continued through 2025, though at a moderate rate. While leading indicators signal a stabilization in activity, we have not observed clear indications of a significant reacceleration."
• "The growing maturity and adoption of Artificial Intelligence and high-performance compute is driving profound innovation across the data center market, resulting in increased demand for our products and solutions."
• "Between 2022 and 2025, total putinplace construction spending for data centers expanded by approximately 240.0%, and present indicators suggest continued strength with no meaningful signs of slowing in the foreseeable future."
• "In response, we have made substantial capital investments to expand our capacity and ensure we are fully equipped to support this accelerating growth trajectory."
• "We value the independent sales channel as we think it is a more effective way of increasing market share."
• "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."
• "Early in 2025, the amount of surcharge realized had not covered the additional costs from the tariffs, but had changed by the end of the year as we fully realized our surcharge."
• "We continue to implement human resource initiatives to retain and attract labor to further increase production capacity."
• "We believe that we will have sufficient funds available to meet our working capital needs for the foreseeable future."
• "We believe it is more likely than not that we will recognize the DTA reversals in tax year 2026."

Industry Context

StockSavvy.ai notes that AAON's performance reflects a bifurcation in the HVAC market: strong growth in specialized data center cooling (BASX brand) driven by AI and high-performance computing, contrasting with a softer traditional commercial/industrial HVAC market (AAON brand) impacted by macroeconomic headwinds like higher interest rates and slowing construction. The significant increase in data center construction spending (240% between 2022-2025) highlights a key industry trend that AAON is successfully capitalizing on through its BASX segment, while the broader commercial construction cycle lags residential markets. The company's strategic investments in R&D for liquid cooling and capacity expansion position it well within the high-growth data center segment, differentiating it from competitors focused solely on traditional HVAC. The challenges with refrigerant changes and potential "patchwork" regulations also reflect broader industry shifts towards sustainability and energy efficiency, which AAON is actively addressing.

Comparison to Industry Standards

• AAON's products are designed to substantially exceed DOE minimum efficiency standards and rank among the highest efficiency products available commercially, with packaged RTUs achieving AHRI Certified performance up to 18.0 SEER2 and 22.8 IEER.
• The Norman Asbjornson Innovation Center (NAIC) is a world-class research and development laboratory with unique capabilities, including the largest sound-testing chamber for HVAC equipment under full environmental load, allowing testing up to 300-ton AC systems and 540-ton chiller systems, exceeding voluntary industry certification programs (up to 63 tons).
• BASX's new Coolant Distribution Unit (CDU) platform supports rack densities exceeding 100 kilowatts, a critical metric for high-density AI and HPC deployments, positioning it competitively against specialized data center cooling providers like Vertiv and STULZ.
• The company's Alpha Class technology for air-source heat pumps operates in ambient temperatures as low as negative twenty degrees Fahrenheit, addressing accelerating demand for commercial building decarbonization, a key differentiator in the evolving market.
• AAON's go-to-market strategy emphasizes technical excellence and customer outcomes over initial price, contrasting with competitors like Lennox, Trane, and Carrier who may offer broader market appeal with lower-featured products.

Management Changes

Corporate Governance

Legal Proceedings

• Havtech Litigation: A complaint filed by former independent sales representative firms, Havtech, LLC, et al., on January 24, 2022, challenging the termination of their business relationship. The case was settled for $7.5 million on October 25, 2023, and dismissed with prejudice. The settlement was included in selling, general and administrative expenses.

Related Party Transactions

• Sales to an entity managed by a board member's immediate family, which also serves as one of the company's Representatives, with payments made to this entity for third-party products.
• Purchases of supplies from entities controlled by two board members and a member of the executive management team.
• Periodic part sales and payments to a board member related to a consulting agreement.
• Periodic rental of space partially owned by a Director for company meetings, which ceased in the fourth quarter of 2025.
• Leasing flight time of an aircraft partially owned by the President and CEO.

Stakeholder Impact

• Shareholders: Experienced decreased net income and diluted EPS, but benefited from increased dividends and an ongoing share repurchase program. A three-for-two stock split occurred in 2023.
• Employees: Received wage increases (3.3% in March 2024, 4.0% in March 2025), saw increased headcount (from 3,856 in Feb 2025 to 5,897 in Feb 2026), and benefited from comprehensive benefits and an Executive Severance Plan for executives.
• Customers: Faced disruptions from ERP implementation and supply chain issues (refrigerant, coils) impacting AAON-branded product delivery. Experienced increased prices (3.0% in Jan 2025, 6.0% surcharge in April 2025) due to inflation and tariffs. Benefited from strong demand for BASX-branded data center solutions.
• Suppliers: May be impacted by tariffs, potentially passing increased costs to the company. The company manages its supply chain through strong vendor relationships and an expanding vendor list.
• Creditors: The company remains in compliance with financial covenants (leverage ratio 1.77 vs. 3.0 limit) and has increased its revolving credit facility to $600.0 million, indicating continued access to capital.

Next Steps

• Continue to invest in planning systems, plant scheduling, and supplier collaboration to improve inventory turnover and reduce cycle time.
• Actively monitor contract asset aging, billing milestones, and customer credit quality to manage liquidity and mitigate collection risk.
• Implement human resource initiatives to retain and attract labor to further increase production capacity.
• Evaluate the impact of new FASB ASUs (2024-03, 2025-05, 2025-06, 2025-10) on financial statements and disclosures.
• Continue to develop and manufacture non-fossil fuel-consuming units to provide sustainable commercial HVAC equipment.
• Address potential 'patchwork' of state regulations regarding refrigerants and fossil fuels.
• Estimated capital expenditure program for 2026 is approximately $190.0 million.
• The 2019 NMTC put/call feature is expected to be exercised in 2026, potentially forgiving debt.
• Annual Meeting of Stockholders scheduled for May 12, 2026.

Key Dates

Recommendation

AAON presents a mixed financial picture. While the BASX segment's explosive growth in the data center market and the substantial increase in backlog are strong positives, the significant decline in overall net income and EPS, coupled with a reduced gross profit margin and increased operating expenses, raises concerns. Operational disruptions from the ERP implementation and macroeconomic headwinds affecting the AAON-branded segment indicate challenges. The company's strategic investments and strong balance sheet provide a foundation, but the immediate profitability pressures suggest a "hold" position until there's clearer evidence of improved efficiency and a return to stronger overall earnings growth, especially from the core AAON segment.

Keywords

HVAC, Data Center Cooling, Commercial HVAC, Industrial HVAC, Air Conditioning, Heating, Ventilation, Liquid Cooling, Cleanroom Systems, Rooftop Units, Energy Efficiency, Sustainability, SEC Filing, 10-K, Financial Results, Earnings, Backlog, Capital Expenditures, Revolving Credit Facility, ERP System, Supply Chain, Tariffs, R&D, Corporate Governance, AAON, BASX