AAON(US:AAON)2025-11-06 15:02Financial 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]