Aaon (AAON -8.90%), a leading manufacturer of heating, ventilation, and air conditioning (HVAC) equipment, reported earnings for Q2 2025 on August 11, 2025. The results highlighted operational setbacks that resulted in lower-than-expected performance for the period. Revenue (GAAP) was $311.6 million, compared to an analyst consensus of $324.98 million, while non-GAAP adjusted earnings per share (EPS) fell to $0.22, missing the $0.33 non-GAAP estimate. Profitability and margins saw steep declines compared to the prior year, with GAAP gross profit margin falling from 36.1% to 26.6%. However, the company’s total backlog reached a record $1.12 billion, suggesting robust underlying demand as management works to resolve temporary execution issues. Overall, this quarter reflected a significant operational hiccup but ongoing positive signs in bookings and demand fundamentals.
| Metric | Q2 2025 | Q2 2025 Estimate | Q2 2024 | Y/Y Change |
|---|---|---|---|---|
| EPS (Non-GAAP) | $0.22 | $0.33 | $0.62 | (64.5%) |
| Revenue (GAAP) | $311.6 million | N/A | $313.6 million | (0.6%) |
| Adjusted EBITDA Margin | 14.9% | 26.1% | (11.2 pp) | |
| Non-GAAP Adjusted SG&A as % of Sales | 18.0% | 14.6% | 3.4 pp | |
| Backlog (as of June 30) | $1.12 billion | $650 million | 71.9% |
Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q1 2025 earnings report.
Business Overview and Key Strategies
Aaon designs and manufactures HVAC equipment, serving both niche and mainstream markets in North America. Its products are used in commercial buildings, data centers, cleanrooms, and other temperature-sensitive settings.
The company’s approach centers on innovation at its Norman Asbjornson Innovation Center and on flexible manufacturing, allowing it to offer mass semi-customized HVAC solutions. Key areas of focus include ongoing research and development, aggressive backlog and order capture—especially in high-growth segments like data centers—and advancements in sustainability and energy efficiency.
Quarter Highlights and Developments
Revenue (GAAP) declined 0.6% year-over-year and missed analyst estimates by 4.1% for GAAP revenue. The most significant drop was in earnings, as non-GAAP adjusted EPS fell 64.5% year-over-year and was well below consensus projections. Management attributed the miss to major operational hurdles, primarily linked to the rollout of a new enterprise resource planning (ERP) system at its Longview, Texas facility. This ERP system, a complex software platform for integrating company operations, caused disruptions in production, particularly in coil supply, and these difficulties limited production volume for AAON-branded product lines.
Gross margins and profitability contracted considerably (GAAP). The overall adjusted EBITDA margin dropped to 14.9%, down from 26.1% last year (non-GAAP). Segment-level results showed wide variation: AAON Oklahoma, which produces rooftop heating and cooling units, had GAAP sales fall 18.0% and saw its gross margin shrink from 37.2% to 27.5%. AAON Coil Products, focused on custom coils and data center cooling, posted an 86% GAAP net sales increase driven by liquid cooling shipments but experienced gross margin compression due to costs related to ERP disruption.
BASX, the segment making custom cooling for data centers and cleanrooms, grew sales by 20.4% with a slightly lower gross margin. This area benefited from strong demand for custom liquid cooling products tailored for artificial intelligence (AI) and hyperscale data centers. The company noted “exceptionally strong” demand and cited a $200 million order, with $80 million recognized so far and the remainder expected to be spread out over the rest of this calendar year, with additional follow-on orders from the customer.
Order backlogs were a bright spot. Total backlog at June 30, 2025, reached $1.12 billion, up 71.9% year-over-year and 8.8% quarter-over-quarter from March 31, 2025, to June 30, 2025. The AAON-branded backlog surged 93.4% year-over-year, with management crediting national account momentum (multiyear equipment and service contracts with large customers) and growing presence in data center markets. Despite short-term supply constraints, these record bookings indicate the company continues gaining market share, especially in data centers and among large national customers, as evidenced by strong bookings and backlog trends for both AAON-branded and BASX-branded equipment. Data center cooling, both airside (moving air for cooling) and liquid cooling (directly passing coolants over hot electronic components), is a central tailwind.
Higher costs weighed on profitability. Selling, general and administrative expenses (SG&A) increased to 19.0% of sales, up from 14.6% for Q2 2024 (GAAP), with management linking this rise to higher payroll and technology investments as well as nonrecurring items like a $3.4 million incentive fee for the new Memphis, Tennessee plant. Investment in the Memphis facility aims to add future production capacity but contributed costs without contributing much revenue. Capital expenditures remain high, reflecting ongoing investment in manufacturing and technology upgrades.
The company’s new $500.0 million credit facility was finalized, with Long-term debt was $317.3 million as of June 30, 2025, more than double the level at the end of 2024. Cash flow from operations (GAAP) for the first half of 2025 (Q1–Q2 2025) was negative, totaling $(31.0) million, reflecting greater working capital needs and higher SG&A expenses.
The quarterly dividend was raised 25% to $0.10 per share in Q1 2025.
Looking Ahead: Management Guidance and Investor Considerations
Aaon’s management revised its full-year sales growth guidance downward from the prior “mid to high teens” to “low teens” in percentage terms for FY2025. For Q3 2025, sales growth is expected to be in the low single digits year-over-year, with a significant acceleration forecast in the fourth quarter. Company leaders anticipate gross profit margin for FY2025 will land between 28% and 29%, below the previous year’s level and reflecting ongoing elevated costs.
Company leaders acknowledged margin recovery depends on smooth execution in the second half of 2025, scaling up production at newly affected facilities, and resolving final ERP and supply chain bottlenecks. Investors tracking Aaon should closely watch margin improvement, capital spending, and the pace at which backlog translates into delivered sales and earnings, especially in the rapidly expanding data center segment. The material increase in long-term debt and negative operating cash flow for the first half of 2025 also warrant ongoing attention.
Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.
