Baron Funds, an investment management company, released its “Baron Real Estate Fund” third-quarter 2025 investor letter. A copy of the letter can be downloaded here. The fund delivered strong results in the quarter. The fund appreciated 10.25% (Institutional Shares) compared to the MSCI US REIT Index’s (the REIT Index) 4.49% and the MSCI USA IMI Extended Real Estate Index’s 5.65%. In addition, please check the fund’s top five holdings to know its best picks in 2025. In its third-quarter 2025 investor lett ...

Heating and cooling solutions company AAON (NASDAQ:AAON) reported revenue ahead of Wall Streets expectations in Q3 CY2025, with sales up 17.4% year on year to $384.2 million. Its non-GAAP profit of $0.37 per share was 14.9% above analysts’ consensus estimates. Is now the time to buy AAON? Find out in our full research report (it’s free for active Edge members). AAON (AAON) Q3 CY2025 Highlights: Revenue: $384.2 million vs analyst estimates of $337.5 million (17.4% year-on-year growth, 13.8% beat) Adjus ...

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Core Insights - The article emphasizes the investment philosophy focused on small cap companies, highlighting the importance of identifying mispriced securities through understanding financial drivers and utilizing DCF model valuation [1]. Group 1: Investment Philosophy - The investment approach is not confined to traditional categories such as value, dividend, or growth investing, but rather considers all prospects of a stock to assess risk-to-reward [1]. Group 2: Market Focus - The investment strategy encompasses markets in the US, Canada, and Europe, indicating a broad geographical focus for potential investment opportunities [1].

Core Insights - AAON's shares surged 18% following the release of its third-quarter 2025 results, which exceeded Wall Street expectations for both revenue and earnings [1] - The company reported revenue of $384.2 million, marking a 17.4% year-over-year increase, and adjusted earnings per share of $0.37, surpassing analyst estimates [1] - AAON's order backlog reached $1.32 billion, reflecting a 104% increase from the previous year, indicating strong future demand despite a decline in operating margin [1] Market Reaction - AAON's stock has shown significant volatility, with 23 movements greater than 5% in the past year, suggesting that the recent news has notably influenced market perception [3] - The broader market experienced caution, with the tech-heavy Nasdaq falling approximately 1.4%, as investors engaged in profit-taking amid concerns over high valuations following an AI-driven rally [4] - Leadership at Goldman Sachs and Morgan Stanley indicated a potential correction in equity markets over the next couple of years, viewing this cooling-off as a healthy aspect of a long-term bull market [4] Historical Performance - Year-to-date, AAON's stock is down 15%, trading at $100.20 per share, which is 28.8% below its 52-week high of $140.75 from November 2024 [5] - An investment of $1,000 in AAON shares five years ago would now be worth $2,365, indicating substantial long-term growth despite recent fluctuations [5]

Financial Data and Key Metrics Changes - Net sales increased by $57 million, or 17.4%, year-over-year to $384.2 million, driven by a 95.8% rise in Basics-branded sales [11][12] - Gross margin was 27.8%, down from 34.9% in the prior year, but up 120 basis points sequentially [11][12] - Diluted EPS was $0.37, down 41.3% from a year ago, but up 94.7% sequentially [13] Business Line Data and Key Metrics Changes - Basics branded backlog grew to $896.8 million, up 119.5% year-over-year and up 43.9% from the prior quarter [6] - AAON branded sales grew 28.1% sequentially, driven by over 20% production increases at both the Tulsa and Longview facilities [7] - AAON branded bookings were flat year-over-year but up 15% on a two-year stack, with national account wins up 96% in the third quarter [8] Market Data and Key Metrics Changes - Demand for airside and liquid cooling products remains strong, reflecting alignment with customer needs [6] - Backlog at the end of the quarter was up 77.1% year-over-year, indicating strong demand across the business [18] Company Strategy and Development Direction - The company is focused on ramping up production capacity at the new Memphis facility, which adds nearly 800,000 sq ft of manufacturing capacity [6] - The Basics brand is identified as the key growth driver, particularly in the data center market [18] - The company plans to implement the ERP system at the Tulsa facility in the second half of 2026, expecting minimal disruption based on learnings from Longview [20] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the operational recovery and capacity expansion, expecting sequential margin improvement through the fourth quarter and into early 2026 [5] - The company anticipates full-year sales growth in the mid-teens for 2025, with a gross margin of 28-28.5% [20] - Management highlighted the resilience of the business despite a soft commercial HVAC market, with strong bookings indicating continued demand [18] Other Important Information - Cash, cash equivalents, and restricted cash balances totaled $2.3 million, with debt at $360.1 million and a leverage ratio of 1.73 [15] - Capital expenditures for the first three quarters increased 22.1% to $138.9 million, with net borrowings of $205 million largely for working capital and capital expenditures [16] Q&A Session Summary Question: Drivers of Basics orders and growth outlook - Management noted strong traction and visibility in backlog growth, particularly in liquid cooling orders and airside solutions, with expectations for continued strong orders [27][30] Question: Gross margin expectations - Management indicated that gross margins for the Oklahoma segment could normalize to the mid-30s range as production ramps up and pricing dynamics improve [31][32] Question: Response to short report claims - Management reaffirmed the integrity of financial reporting, stating that revenue recognition follows GAAP standards and that demand for products remains strong [35][36] Question: CapEx guidance implications - Management clarified that the reduction in CapEx to $180 million does not impact the ramp-up of the Memphis facility, which is already well-equipped [42] Question: Operational efficiencies and future improvements - Management discussed operational inefficiencies impacting margins but expressed confidence in achieving a gross margin of at least 30% in the future [44] Question: Customer mix and demand profile - Management reported broad-based demand across various customer segments, including hyperscalers and colocation providers, indicating a diverse customer base [48][88]

Financial Data and Key Metrics Changes - Net sales increased by $57 million, or 17.4%, year-over-year to $384.2 million, driven by a 95.8% rise in BASX-branded sales due to demand for data center solutions [11][12] - Gross margin was 27.8%, down from 34.9% in the prior year, but up 120 basis points sequentially [11][12] - Diluted EPS was $0.37, down 41.3% from a year ago, but up 94.7% sequentially [13] Business Line Data and Key Metrics Changes - BASX-branded backlog grew to $896.8 million, up 119.5% year-over-year and up 43.9% from the prior quarter [5][6] - AAON-branded sales grew 28.1% sequentially, driven by over 20% production increases at both the Tulsa and Longview facilities [7][8] - AAON-branded bookings were flat year-over-year but up 15% on a two-year stack, reflecting continued strength in underlying demand [8] Market Data and Key Metrics Changes - Demand for airside and liquid cooling products remains strong, with bookings of Alpha-class air source heat pump equipment up 45% quarter-over-quarter [8][9] - National account wins were robust, with bookings up 96% in the third quarter and 92% year-to-date, representing 35% of total bookings for the year [8] Company Strategy and Development Direction - The BASX brand is positioned as the key growth driver, fueled by exceptional demand in the data center market [18] - The company plans to ramp up production capacity at the new Memphis facility, which adds nearly 800,000 sq ft of manufacturing capacity [6][18] - The AAON brand also maintains strong momentum, with a focus on reducing backlog and lead times to better serve customers [7][18] Management's Comments on Operating Environment and Future Outlook - Management expects sequential margin improvement to continue through the fourth quarter and into early 2026, despite current operational inefficiencies [5][9] - For 2025, the company anticipates full-year sales growth in the mid-teens with a gross margin of 28%-28.5% [20] - Management expressed confidence in the strength of the business and the appropriateness of accounting practices, addressing concerns raised in a recent short report [35][36] Other Important Information - Cash, cash equivalents, and restricted cash balances totaled $2.3 million, with debt at $360.1 million and a leverage ratio of 1.73 [15] - Capital expenditures for the first three quarters increased 22.1% to $138.9 million, with net borrowings of $205 million largely to finance investments [16][17] Q&A Session Summary Question: Can you speak to the drivers and confidence in the outlook for BASX segment growth? - Management highlighted improved visibility and traction in the third quarter, with strong order activity across airside and liquid-side solutions, particularly for the Memphis facility [27][29] Question: What are the expectations for gross margins in the Oklahoma segment? - Management indicated that normalized gross margins for the Oklahoma segment could be in the mid-30s range, factoring in the impact of the Memphis facility and pricing dynamics [31][32] Question: Can you address the recent short report claims regarding accounting changes? - Management reaffirmed the integrity of financial reporting, stating that all practices are in accordance with GAAP and ASC 606, and emphasized strong demand and pricing for products [35][36] Question: What is the current status of lead times in the Oklahoma segment? - Lead times are currently about 50% higher than desired, with a focus on reducing backlog and improving execution to meet market demands [60][61] Question: How is the company preparing for the ERP implementation at the Tulsa facility? - Management plans to be proactive in communication and preparation, applying lessons learned from the Longview implementation to minimize disruption [62][63]

Financial Data and Key Metrics Changes - Net sales increased by $57 million, or 17.4%, year-over-year to $384.2 million, driven by a 95.8% rise in Basics-branded sales due to demand for data center solutions [12][16] - Gross margin was 27.8%, down from 34.9% in the prior year but up 120 basis points sequentially [12][16] - Diluted EPS was $0.37, down 41.3% from a year ago but up 94.7% sequentially [13][16] Business Line Data and Key Metrics Changes - Basics brand backlog grew to $896.8 million, up 119.5% year-over-year and up 43.9% from the prior quarter [5][6] - AAON-branded sales grew 28.1% sequentially, driven by over 20% production increases at both Tulsa and Longview facilities [7][12] - Sales at the Basics segment grew 19.2%, driven by sustained demand for data center solutions [15] Market Data and Key Metrics Changes - AAON branded bookings were flat year-over-year but up 15% on a two-year stack, reflecting continued strength in underlying demand [9] - National account wins were robust, with bookings up 96% in the third quarter and 92% year-to-date, representing 35% of total bookings for the year [9] Company Strategy and Development Direction - The company is focused on ramping up production capacity at the new Memphis facility, which adds nearly 800,000 sq ft of manufacturing capacity [6][18] - The Basics brand is identified as the key growth driver, fueled by exceptional demand for data center market solutions [18] - The company plans to implement the ERP system at the Tulsa facility in the second half of 2026, expecting minimal disruption based on learnings from Longview [19] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the operational recovery and capacity expansion, expecting sequential margin improvement to continue through the fourth quarter and into early 2026 [5][19] - The company anticipates full-year sales growth in the mid-teens for 2025, with a gross margin of 28-28.5% [19] - Management highlighted the resilience of the business despite a soft commercial HVAC market, with strong demand and bookings remaining robust [19] Other Important Information - Cash, cash equivalents, and restricted cash balances totaled $2.3 million, with debt at $360.1 million and a leverage ratio of 1.73 [15][16] - Capital expenditures for the first three quarters increased 22.1% to $138.9 million, with a reduction in anticipated 2025 capital expenditures to $180 million [16][17] Q&A Session Summary Question: Drivers and confidence in the outlook for Basics segment growth - Management noted strong traction and visibility in backlog growth, particularly in liquid cooling orders and airside solutions, indicating confidence in continued strong orders [22][25] Question: Gross margin expectations for the Oklahoma segment - Management indicated that normalized gross margins for the Oklahoma segment could be in the mid-30s range, considering the impact of unabsorbed costs and pricing dynamics [27][28] Question: Response to short report claims regarding accounting changes - Management reaffirmed the integrity of financial reporting, stating that all practices are in accordance with GAAP and ASC 606, emphasizing strong demand and pricing for products [30][31] Question: CapEx guidance and its impact on capacity ramp - Management clarified that the reduction in CapEx would not slow down the ramp-up of the Memphis facility, which is already well-equipped for production [36] Question: Lead times and order conversion in the Oklahoma business - Management reported that lead times are currently about 50% higher than desired, with a focus on reducing them through improved execution and backlog management [52][53] Question: Role of the new COO - The new COO is expected to manage consistency across facilities and drive best practices in lean manufacturing, enhancing operational efficiency [56][57] Question: Free cash flow expectations for Q4 - Management indicated that free cash flow should significantly improve in Q4, driven by the collection of delayed billings [58] Question: Customer mix and demand profile for Basics orders - Management noted a diverse customer base for Basics orders, with both large and smaller customers contributing to backlog growth [79]

Core Viewpoint - Aaon (AAON) reported quarterly earnings of $0.37 per share, exceeding the Zacks Consensus Estimate of $0.33 per share, but down from $0.63 per share a year ago, indicating a +12.12% earnings surprise [1] Financial Performance - The company posted revenues of $384.24 million for the quarter ended September 2025, surpassing the Zacks Consensus Estimate by 13.66% and up from $327.25 million year-over-year [2] - Over the last four quarters, Aaon has exceeded consensus EPS estimates two times and topped revenue estimates twice [2] Stock Performance - Aaon shares have declined approximately 20.6% since the beginning of the year, contrasting with the S&P 500's gain of 15.6% [3] Future Outlook - The company's earnings outlook is crucial for assessing future stock performance, with current consensus EPS estimates at $0.47 for the upcoming quarter and $1.36 for the current fiscal year [7] - The Zacks Rank for Aaon is currently 2 (Buy), indicating expectations for the stock to outperform the market in the near future [6] Industry Context - The Building Products - Air Conditioner and Heating industry is currently ranked in the bottom 23% of over 250 Zacks industries, which may impact Aaon's stock performance [8]

Q3 2025 Earnings Conference Call November 6, 2025 This presentation includes references to calculations that are not based on generally accepted accounting principles ("GAAP"). Reconciliations of each of those non-GAAP measures to the most directly comparable GAAP measures have been included in the Appendix. When forward-looking non-GAAP measures are provided, the Company does not provide quantitative reconciliations of forward-looking non-GAAP measures to the most directly comparable GAAP measures, because ...