AAON(AAON) - 2025 Q2 - Quarterly Results

Q2 2025 Financial & Operational Highlights Overview of the company's second quarter 2025 financial and operational performance, highlighting key results and strategic responses Second Quarter 2025 Performance Summary Q2 2025 results fell short of expectations due to ERP implementation issues, impacting sales and profitability, despite strong backlog growth Q2 2025 Key Financial Metrics (Year-over-Year) | Metric | Q2 2025 (USD) | Q2 2024 (USD) | Change | | :--- | :--- | :--- | :--- | | Net Sales | $311.6 million | $313.6 million | -0.6% | | Gross Profit Margin | 26.6% | 36.1% | -950 bps | | GAAP Diluted EPS | $0.19 | $0.62 | -69.4% | | Non-GAAP Adj. Diluted EPS | $0.22 | $0.62 | -64.5% | | Non-GAAP Adj. EBITDA Margin | 14.9% | 26.1% | -1,120 bps | - The primary driver of underperformance was poor operational execution, mainly associated with the implementation of a new ERP system at the Longview, TX facility, which impacted production at both Longview and Tulsa[6] - Despite operational setbacks, booking trends remain strong for both AAON- and BASX-branded equipment, leading to a significant 71.9% year-over-year increase in adjusted backlog to $1.12 billion, suggesting continued market share gains[7][8] - The company is taking immediate actions to address production issues and expects sequential improvement in the second half of the year, but has revised its full-year 2025 outlook downward due to the challenges[6][8] Segment Performance Detailed analysis of financial performance across AAON Oklahoma, AAON Coil Products, and BASX segments AAON Oklahoma AAON Oklahoma segment experienced an 18.0% decrease in net sales and a 970 basis point gross margin contraction due to ERP-related coil shortages and supply chain issues AAON Oklahoma Q2 Performance | Metric | Q2 2025 (USD) | Q2 2024 (USD) | Change | | :--- | :--- | :--- | :--- | | Net Sales | $185.1 million | $225.7 million | -18.0% | | Gross Profit | $50.9 million | $83.9 million | -39.3% | | Gross Profit Margin | 27.5% | 37.2% | -970 bps | - The sales decrease was driven by lingering supply chain issues from the refrigerant transition and coil supply shortages from the Longview facility's ERP implementation[10] - Gross profit margin contraction was primarily caused by suboptimal overhead absorption from lower volumes and $3.0 million in costs from the new Memphis plant with minimal offsetting sales[11] AAON Coil Products AAON Coil Products saw 86.4% sales growth driven by BASX products, but ERP implementation caused significant production disruptions and a 1,990 basis point gross margin contraction AAON Coil Products Q2 Performance | Metric | Q2 2025 (USD) | Q2 2024 (USD) | Change | | :--- | :--- | :--- | :--- | | Net Sales | $58.5 million | $31.4 million | +86.4% | | Gross Profit | $12.9 million | $13.2 million | -2.2% | | Gross Profit Margin | 22.0% | 41.9% | -1,990 bps | - Sales growth was driven by BASX branded products for a large liquid cooling data center, while AAON branded products declined due to disruptions from the new ERP system[13] - Gross margin contracted significantly to 22.0% from 41.9% a year ago, a result of production inefficiencies from the ERP system implementation[14] BASX The BASX segment delivered strong results with 20.4% net sales growth driven by data center demand, maintaining a stable gross profit margin with sequential improvement BASX Q2 Performance | Metric | Q2 2025 (USD) | Q2 2024 (USD) | Change | | :--- | :--- | :--- | :--- | | Net Sales | $68.0 million | $56.5 million | +20.4% | | Gross Profit | $19.0 million | $16.1 million | +18.2% | | Gross Profit Margin | 27.9% | 28.5% | -60 bps | - The primary driver of the year-over-year sales increase was stronger demand for data center equipment[16] - Gross profit margin showed sequential improvement for the second straight quarter, reflecting continued operational improvements[17] Financial Position and Outlook Overview of the company's balance sheet, cash flow, backlog, and revised full-year 2025 financial guidance Balance Sheet & Cash Flow The company maintained $1.3 million in cash, drew $317.3 million on its credit facility, and secured a new $500.0 million facility to support $220.0 million in 2025 capital expenditures - At the end of Q2 2025, the company had cash, cash equivalents and restricted cash of $1.3 million and a balance on its revolving credit facility of $317.3 million[18] - A new $500.0 million credit facility was closed during the quarter to provide liquidity for growth investments. Capital expenditure plans for 2025 remain unchanged at $220.0 million[18] Backlog Total backlog surged 71.9% year-over-year to $1.12 billion, driven by strong demand for both AAON-branded and BASX-branded equipment, indicating significant market share gains Backlog by Brand | Brand | June 30, 2025* (USD) | March 31, 2025 (USD) | June 30, 2024 (USD) | YoY Change | QoQ Change | | :--- | :--- | :--- | :--- | :--- | :--- | | AAON-branded | $494.2 million | $403.9 million | $255.5 million | +93.4% | +22.4% | | BASX-branded* | $623.4 million | $623.0 million | $394.5 million | +58.0% | +0.1% | | Total | $1.12 billion | $1.03 billion | $650.0 million | +71.9% | +8.8% | - The significant growth in AAON-branded equipment backlog, despite weakness in the nonresidential construction market, indicates substantial market share gains[20] - Demand from data center customers remains exceptionally strong, driving continued backlog growth for BASX-branded equipment[21] Full-Year 2025 Outlook The company revised its full-year 2025 guidance downwards, anticipating low-teens sales growth and a 28%-29% gross profit margin, reflecting ongoing operational inefficiencies Updated Full-Year 2025 Outlook | Metric | Q3 2025 | Q4 2025 | FY25 | | :--- | :--- | :--- | :--- | | YoY Sales Growth | Low Single Digits | High Twenties | Low Teens | | Gross Profit Margin | 28.5%-29.5% | 30.0%-31.0% | 28%-29% | | Non-GAAP adj. SG&A % of sales | 17.0%-17.5% | 16.5%-17.0% | 16.5%-17.0% | Financial Statements and Reconciliations Presentation of unaudited consolidated financial statements and reconciliations of non-GAAP measures to their GAAP equivalents Consolidated Financial Statements Unaudited consolidated statements of income, segment results, balance sheets, and cash flows for the three and six months ended June 30, 2025, are presented with comparative 2024 data Consolidated Statements of Income Summary of the company's unaudited consolidated income statement for the three and six months ended June 30, 2025 Consolidated Statements of Income (Unaudited) | | Three Months Ended June 30, (USD) | Six Months Ended June 30, (USD) | | :--- | :--- | :--- | | | 2025 | 2024 | 2025 | 2024 | | Net sales | $311.6 million | $313.6 million | $633.6 million | $575.7 million | | Gross profit | $82.7 million | $113.1 million | $169.1 million | $205.3 million | | Income from operations | $23.6 million | $67.2 million | $58.7 million | $114.2 million | | Net income | $15.5 million | $52.2 million | $44.8 million | $91.2 million | | Diluted EPS | $0.19 | $0.62 | $0.54 | $1.09 | Segment Net Sales and Profit Breakdown of gross profit by segment for the three months ended June 30, 2025 and 2024 Segment Gross Profit (Unaudited) | Segment | Three Months Ended June 30, 2025 (USD) | Three Months Ended June 30, 2024 (USD) | | :--- | :--- | :--- | | AAON Oklahoma | $50.9 million | $83.9 million | | AAON Coil Products | $12.9 million | $13.2 million | | BASX | $19.0 million | $16.1 million | | Consolidated Gross Profit | $82.7 million | $113.1 million | Consolidated Balance Sheets Overview of the company's unaudited consolidated balance sheet as of June 30, 2025, and December 31, 2024 Consolidated Balance Sheet Highlights (Unaudited) | | June 30, 2025 (USD) | Dec 31, 2024 (USD) | | :--- | :--- | :--- | | Total current assets | $654.2 million | $488.2 million | | Total assets | $1.40 billion | $1.18 billion | | Total current liabilities | $210.7 million | $174.9 million | | Debt, long-term | $317.3 million | $138.9 million | | Total stockholders' equity | $832.7 million | $824.6 million | | Total liabilities and stockholders' equity | $1.40 billion | $1.18 billion | Consolidated Statements of Cash Flows Summary of the company's unaudited consolidated cash flow statement for the six months ended June 30, 2025 and 2024 Consolidated Cash Flow Highlights (Unaudited) | Six Months Ended June 30, | 2025 (USD) | 2024 (USD) | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(31.0 million) | $127.9 million | | Net cash used in investing activities | $(89.5 million) | $(75.4 million) | | Net cash provided by (used in) financing activities | $115.3 million | $(49.5 million) | | Net (decrease) increase in cash | $(5.2 million) | $3.1 million | Non-GAAP Financial Measures This section provides reconciliations of non-GAAP financial measures, including Adjusted Net Income, EBITDA, and Adjusted EBITDA, to their GAAP counterparts, primarily adjusting for a one-time incentive fee Reconciliation of Net Income to Non-GAAP Adjusted Net Income Reconciliation of GAAP net income to non-GAAP adjusted net income, highlighting adjustments for specific items - Non-GAAP adjusted net income for Q2 2025 was $17.9 million, or $0.22 per diluted share, after adjusting for a $3.4 million incentive fee related to the Memphis plant[37] Non-GAAP Adjusted Net Income Reconciliation (Q2 2025) | | Amount (USD) | | :--- | :--- | | Net income, a GAAP measure | $15.5 million | | Memphis incentive fee | $3.4 million | | Profit sharing effect | $(0.3 million) | | Tax effect | $(0.7 million) | | Non-GAAP adjusted net income | $17.9 million | Reconciliation of Net Income to EBITDA and Adjusted EBITDA Reconciliation of GAAP net income to EBITDA and Adjusted EBITDA, detailing adjustments for non-operating items - Adjusted EBITDA for Q2 2025 was $46.6 million, resulting in an Adjusted EBITDA margin of 14.9%, compared to 26.1% in the prior-year quarter. The adjustment accounts for the Memphis incentive fee[41] Adjusted EBITDA Reconciliation (Q2 2025) | | Amount (USD) | | :--- | :--- | | Net income, a GAAP measure | $15.5 million | | Depreciation and amortization | $19.9 million | | Interest expense, net | $4.0 million | | Income tax expense | $4.0 million | | EBITDA, a non-GAAP measure | $43.5 million | | Memphis incentive fee | $3.4 million | | Profit sharing effect | $(0.3 million) | | Adjusted EBITDA, a non-GAAP measure | $46.6 million | Reconciliation of SG&A to Non-GAAP Adjusted SG&A Reconciliation of GAAP SG&A expenses to non-GAAP adjusted SG&A, excluding specific non-recurring items - Non-GAAP adjusted SG&A expenses were $56.0 million in Q2 2025, or 18.0% of sales. This is adjusted from the GAAP SG&A of $59.1 million to exclude the Memphis incentive fee and its profit-sharing effect[42]