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01/10 16:34
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call summary and Q&A reveal strong growth expectations and strategic improvements, including a promising second half of 2025 and ERP optimization. Despite some challenges in margin improvement and unclear guidance on certain metrics, the overall sentiment is positive, driven by robust demand, production enhancements, and a strategic focus on high-growth areas like data centers and rooftop products. The management's confidence and proactive strategies suggest a positive stock price movement, likely in the 2% to 8% range, assuming a moderate market cap.
Net Sales $384.2 million, increased by $57 million or 17.4% year-over-year. The increase was driven by a 95.8% rise in BASX-branded sales due to continued demand for data center solutions and increasing production out of the Memphis facility.
AAON-branded Sales Declined 1.5% year-over-year but increased 28.1% sequentially. The sequential increase was driven by solid production gains at both Tulsa and Longview facilities.
Gross Margin 27.8%, down from 34.9% in the prior year but up 120 basis points sequentially. The year-over-year contraction was due to operational inefficiencies associated with the ERP system implementation and unabsorbed fixed costs related to the new Memphis facility.
Non-GAAP Adjusted EBITDA Margin 16.5%, down from 25.3% a year ago but up 160 basis points sequentially. The decline was due to operational inefficiencies and elevated costs.
Diluted EPS $0.37, down 41.3% from a year ago but up 94.7% sequentially. The decline was attributed to elevated DD&A from Memphis and technology consulting fees related to the ERP implementation.
AAON Oklahoma Net Sales Grew 4.3% year-over-year and 29% sequentially. Growth was driven by a strong backlog entering the quarter and improved production throughput.
AAON Coil Product Sales Increased $35 million or 99.4% year-over-year. The increase was driven by $46.5 million in BASX-branded liquid cooling product sales, a category not in production during the prior year period.
BASX Segment Sales Grew 19.2% year-over-year. Growth was driven by sustained demand for data center solutions and initial production from the new Memphis facility.
Cash, Cash Equivalents, and Restricted Cash $2.3 million as of September 30, 2025. Debt at the end of the quarter was $360.1 million, with a leverage ratio of 1.73.
Year-to-Date Cash Flow from Operations Outflows of $18.8 million compared to inflows of $191.7 million in the prior year. The decline was due to investments in working capital, capital expenditures, and stock buybacks.
Capital Expenditures $138.9 million year-to-date, up 22.1% from the prior year. The increase was due to expenditures related to software development and other investments.
BASX-branded products: Strong performance driven by data center market demand. Backlog grew to $896.8 million, up 119.5% YoY and 43.9% QoQ. Production ramping up at the new Memphis facility, which adds 800,000 square feet of manufacturing capacity. Large-scale production expected by year-end.
AAON-branded products: Sales grew 28.1% sequentially due to production increases at Tulsa and Longview facilities. Bookings remained strong, with national account wins up 96% in Q3 and 92% YTD. Alpha Class air-source heat pump bookings up 45% QoQ and 46% YTD.
Data center market: Continued strong demand for BASX-branded products, capturing additional market share. New Memphis facility supports growth.
Commercial HVAC market: Soft market conditions, but AAON bookings remained strong, up 15% on a 2-year stack. National account wins and Alpha Class heat pump bookings contributed to resilience.
Production improvements: Substantial improvement in production throughput at Tulsa and Longview facilities. Longview nearing full recovery, while Tulsa exceeded targets by quarter-end.
ERP system implementation: Progress in Longview and Memphis facilities, improving production efficiency. Lessons learned to guide future rollouts in Redmond (2026) and Tulsa (H2 2026).
Memphis facility ramp-up: New facility adds significant capacity for BASX production. Ramp-up progressing as planned, with large-scale production expected by year-end.
Capacity expansion: Memphis facility adds 800,000 square feet of manufacturing space, supporting BASX growth.
ERP system strategy: Future rollouts planned for Redmond and Tulsa facilities in 2026, leveraging lessons from Longview and Memphis implementations.
Operational inefficiencies: Operational inefficiencies in the Longview facility and the early ramp-up of the new Memphis facility are impacting margins. These inefficiencies are weighing on facility profitability and are expected to improve in the coming quarters.
ERP system implementation: The implementation of the ERP system at the Longview facility caused disruptions, leading to production being about 20% below target. While improvements have been made, challenges remain, and future ERP rollouts at other facilities may also cause short-term production impacts.
Supply chain constraints: Coil supply remains constrained, which, although being managed effectively, continues to pose challenges to production scalability.
Unabsorbed fixed costs: The new Memphis facility has led to unabsorbed fixed costs, impacting gross margins. These costs are expected to normalize as production ramps up.
Soft commercial HVAC market: The commercial HVAC market is soft, which could impact bookings and sales growth despite the company's resilience in maintaining strong demand.
Cash flow challenges: Year-to-date cash outflows from operations were $18.8 million compared to inflows of $191.7 million in the prior year, reflecting increased investments in working capital and capital expenditures.
Debt levels: Debt at the end of the quarter was $360.1 million, with a leverage ratio of 1.73, reflecting increased borrowings to finance investments and stock buybacks.
Future ERP rollouts: Future ERP rollouts at the Memphis, Redmond, and Tulsa facilities may cause operational disruptions, although lessons learned from Longview are expected to mitigate these risks.
Sequential Margin Improvement: The company expects sequential margin improvement to continue through the fourth quarter of 2025 and into early 2026, aligning with its long-term goals.
BASX Brand Growth: The BASX brand is expected to deliver meaningful growth in 2026, supported by a strong backlog and increased production capacity at the new Memphis facility.
Memphis Facility Ramp-Up: Large-scale production at the Memphis facility is expected by year-end 2025, with the facility adding nearly 800,000 square feet of manufacturing capacity.
AAON Brand Production Recovery: Production at the Longview facility is nearing full recovery, with expectations for continued improvement in the near term.
ERP System Implementation: The ERP system will be implemented at the Tulsa facility in the second half of 2026, with minimal disruption expected based on learnings from previous implementations.
2025 Revenue and Margin Outlook: The company anticipates full-year 2025 sales growth in the mid-teens, with a gross margin of 28% to 28.5% and adjusted SG&A as a percentage of sales at 16.5% to 17%.
Capital Expenditures: 2025 capital expenditures are now expected to be $180 million, down from the previous estimate of $220 million, with the majority of expenditures shifting into 2026.
Fourth Quarter 2025 Revenue Growth: Double-digit revenue growth is expected in the fourth quarter of 2025, driven by production recovery and pricing actions implemented earlier in the year.
Stock Buyback: $30 million in open market stock buybacks were executed in the first quarter of 2025.
The earnings call summary and Q&A reveal strong growth expectations and strategic improvements, including a promising second half of 2025 and ERP optimization. Despite some challenges in margin improvement and unclear guidance on certain metrics, the overall sentiment is positive, driven by robust demand, production enhancements, and a strategic focus on high-growth areas like data centers and rooftop products. The management's confidence and proactive strategies suggest a positive stock price movement, likely in the 2% to 8% range, assuming a moderate market cap.
The earnings call summary indicates mixed signals. While there are strong bookings and strategic partnerships that suggest positive growth, there are concerns about ERP implementation, temporary cost drags from the Memphis facility, and lower production efficiency. The Q&A reveals cautious optimism but also highlights uncertainties, particularly regarding ERP impacts and margin recovery. Overall, the positive and negative elements balance each other, leading to a neutral sentiment prediction.
The earnings call presents a mixed picture. Financial performance shows a strong increase in net sales and backlog, but gross profit and EPS have declined. The Q&A section reveals positive market share growth and competitive positioning, but supply chain issues and tariff impacts are ongoing concerns. The unchanged guidance and management's evasiveness on certain topics add uncertainty. The stock buyback plan is a positive factor, but overall, the sentiment is balanced, suggesting a neutral stock price movement.
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