Breaking Down AAON, Inc. (AAON) Financial Health: Key Insights for Investors

You're looking at AAON, Inc. (AAON) and seeing a classic growth-vs-margin story, and honestly, the third quarter of 2025 results give us a clear map of the tension. The top line is defintely surging, with Q3 net sales jumping 17.4% year-over-year to hit $384.2 million, driven almost entirely by the massive demand for their BASX-branded data center cooling equipment, which saw sales soar 95.8% to $124.8 million. That's a huge structural tailwind. But, the profit side tells a different story: net income fell to $30.8 million, a sharp drop from the same quarter last year, because of the expected operational drag from their new Enterprise Resource Planning (ERP) system rollout and unabsorbed costs at the new Memphis facility. The good news is the future revenue is locked in; the record backlog now stands at a staggering $1.32 billion, up over 103% year-over-year, which is why analysts project full-year 2025 revenue to reach approximately $1.35 billion. The core question is simple: can they convert that backlog into profit without the ERP system eating all the margin?

Revenue Analysis

You need to know where AAON, Inc. (AAON) is making its money, and the story for 2025 is a clear shift: the growth engine is now firmly in data center cooling. The company is projected to hit full-year 2025 revenue of approximately $1.35 billion, which signals strong growth expectations despite some internal headwinds.

The trailing twelve-month (TTM) revenue, as of the end of the third quarter of 2025, stood at a robust $1.32 billion, representing an 8.77% year-over-year increase. That's solid expansion, but the quarterly performance shows a more nuanced picture of the transition underway. Q3 2025 net sales were $384.2 million, a 17.4% jump from the prior year, but Q2 2025 saw a slight dip of 0.6% to $311.6 million due to supply chain issues in one segment.

Primary Revenue Streams and Segment Contribution

AAON's revenue comes from three core segments, each focusing on different parts of the Heating, Ventilation, and Air Conditioning (HVAC) market. Historically, the semi-custom and custom HVAC systems from the AAON Oklahoma segment have been the majority revenue driver. However, the BASX segment, which handles high-performance cooling for data centers and cleanroom environments, is where the explosive growth is happening.

Here's the quick math on the segment contribution for the third quarter of 2025, which gives you the most recent view of the business mix:

Note that the AAON-branded sales figure of $259.5 million is a broader product category, which includes sales from the AAON Oklahoma segment. The AAON Coil Products segment also contributes, focusing on heating and cooling coils, and it saw a massive 99.4% sales increase in Q3 2025, largely driven by $46.5 million in BASX-branded liquid cooling products that weren't even in production a year prior.

The Data Center Pivot: A Significant Revenue Shift

The most important takeaway for investors is the dramatic change in revenue mix. The company's strategic pivot toward data center cooling is defintely paying off. Look at the numbers: BASX-branded sales surged an incredible 374.8% year-over-year in Q1 2025 to reach $132.6 million, driven by demand for both air-side and liquid cooling equipment. This is a secular trend you want to be aligned with.

But to be fair, this growth is offsetting weakness elsewhere. Sales of traditional AAON-branded equipment declined 19.1% in Q1 2025 and were still down 1.5% in Q3 2025, falling to $259.5 million, largely due to a temporary lull in orders and some supply chain issues. The total backlog, however, reached a record $1.32 billion by the end of Q3 2025, up 103.8% year-over-year, which suggests strong future revenue visibility, especially in BASX-branded products.

This is a story of two brands: one is mature and facing market softness, and the other is riding a massive wave of data center demand. You can read more in our full analysis: Breaking Down AAON, Inc. (AAON) Financial Health: Key Insights for Investors.

• Monitor BASX sales growth for continued data center momentum.
• Watch for recovery in AAON-branded sales as production normalizes.
• Track the $1.32 billion backlog conversion rate closely.

Next step: Finance needs to model a scenario where BASX accounts for 50% of total revenue by the end of 2026.

Profitability Metrics

You're looking for a clear picture of AAON, Inc.'s profitability, not just raw sales growth. The direct takeaway is that while AAON's margins are currently pressured by internal operational changes, their underlying profitability remains solid and competitive against industry averages, with a clear path to recovery in the near term.

For the full fiscal year 2025, AAON's management has guided for a Gross Margin between 28.0% and 28.5%. This is a critical figure because it shows the profit left after the direct costs of manufacturing, or Cost of Goods Sold (COGS), are paid. The recent recorded Gross Margin is about 28.67%. To be fair, this is slightly below the broader HVAC industry average, which typically ranges from 30% to 40% for equipment manufacturers.

The company's Operating Margin (Earnings Before Interest and Taxes, or EBIT, divided by Revenue) gives us a cleaner view of core business efficiency. AAON's recent Operating Margin is approximately 12.47%. This is a strong number. When you look at the third quarter of 2025, their Non-GAAP Adjusted EBITDA Margin-a good proxy for operating profit-was 16.5%, which sits comfortably within the solid industry range of 10% to 20% for EBITDA.

Here's the quick math on the bottom line: AAON's recent Net Profit Margin (Net Income divided by Revenue) is around 9.7%. When you use the recorded annual Net Income of $168.56 million against the $1.32 billion in recorded annual revenue, the margin is actually closer to 12.77%. This puts the company at the high end of the general HVAC industry average, which is typically around 10%.

The trend in profitability over 2025 is the real story here. The margins have been volatile, which is a near-term risk you need to watch. The Gross Margin dropped to 26.6% in Q2 2025 from 26.8% in Q1 2025, before recovering to 27.8% in Q3 2025. This contraction and subsequent sequential improvement is a direct result of operational inefficiencies caused by the Enterprise Resource Planning (ERP) system implementation at the Longview facility and unabsorbed fixed costs from the new Memphis facility. That's a temporary hit, but it defintely impacts the numbers now.

Operational efficiency is a tale of two companies right now, which you can see in the segment results:

• AAON-branded equipment: Production was temporarily disrupted by the ERP rollout, leading to lower margins.
• BASX-branded equipment: This segment, focused on data center cooling, saw sales rise 95.8% in Q3 2025, driving sequential improvement and demonstrating strong underlying demand for specialized products.

The key is that the margin pressure is coming from a one-time, necessary investment in infrastructure (ERP and new facilities), not a lack of demand or a fundamental flaw in the business model. The strong backlog of $1.32 billion as of Q3 2025 provides excellent visibility for future revenue and margin expansion as those operational kinks get ironed out. To understand the strategic drivers behind this, you should review the company's long-term goals: Mission Statement, Vision, & Core Values of AAON, Inc. (AAON).

The action here is to monitor the Q4 2025 and Q1 2026 earnings for continued sequential margin improvement. If the Gross Margin can push back toward the 30% level, it will confirm the ERP issues are resolving and the investment is paying off.

Debt vs. Equity Structure

You want to know how AAON, Inc. (AAON) is funding its growth, especially with the recent push into data center cooling. The quick answer is that the company is taking on more debt to finance its ambitious capacity expansions, but its balance sheet remains remarkably conservative compared to its industrial peers. For the quarter ending June 30, 2025, AAON, Inc.'s total debt-to-equity ratio was approximately 40.3%, which is right in line with the broader Industrials sector average of 40.8%.

The company's financing strategy is shifting, though. Historically, AAON, Inc. maintained a very low debt profile, relying heavily on retained earnings (equity) to fund operations. However, the need to quickly scale up manufacturing-especially for its high-demand BASX-branded data center equipment-has led to a significant increase in borrowing. This is a deliberate, strategic move to fund capital expenditures (CapEx) for new facilities and technology, like the recent Enterprise Resource Planning (ERP) system implementation that caused some temporary production hiccups.

Here's the quick math on the debt structure based on the Q1 2025 filing data, which gives us the clearest breakdown:

• Short-Term Debt: AAON, Inc. reported approximately $16.0 million in short-term debt as of March 31, 2025.
• Long-Term Debt: This figure jumped to $236.417 million in Q1 2025, up from $138.891 million at the end of 2024.
• Total Stockholders' Equity: The equity base remains strong at $815.852 million as of March 31, 2025.

By the end of the second quarter of 2025, total debt had climbed further to around $317 million (or $317.3 million), reflecting the ongoing investment cycle. This 269.43% year-over-year increase in long-term debt as of June 30, 2025, shows that management is comfortable using debt to accelerate growth, but they are doing so from a position of strength with a substantial equity cushion.

The balance is clear: AAON, Inc. is using debt to fuel an aggressive growth phase, but the debt-to-equity ratio is still competitive. This signals a healthy mix of financing where debt is used for strategic, high-return projects (like the data center push) while maintaining a solid equity foundation. The company also recently incurred about $0.3 million in debt issuance costs, which are being amortized, indicating recent formal debt transactions. You can see more about the market's reaction to this strategy in Exploring AAON, Inc. (AAON) Investor Profile: Who's Buying and Why?

What this estimate hides, however, is the full impact of the new debt on interest expense, which will rise. Still, with a current ratio of 3.1 (as of September 2025), the company has ample current assets to cover its short-term liabilities, defintely a marker of strong liquidity.

Liquidity and Solvency

You're looking for a clear picture of AAON, Inc.'s (AAON) ability to meet its near-term obligations, and the numbers for the 2025 fiscal year, specifically through the third quarter, are telling. The company's liquidity position is defintely strong, primarily driven by a high level of current assets. This is a business investing heavily in its future, and their balance sheet reflects that growth strategy.

As of September 30, 2025, AAON's liquidity ratios paint a very healthy picture of its ability to cover short-term debts. The Current Ratio sits at approximately 3.04 (Current Assets of $759.3 million divided by Current Liabilities of $250.2 million). This means AAON has over three dollars in current assets for every dollar of current liabilities, which is well above the typical 2.0 benchmark for comfort. That's a solid buffer.

However, the Quick Ratio (or Acid-Test Ratio), which strips out inventory-the least liquid current asset-is also strong at approximately 2.03. This is calculated by taking Current Assets less Inventories ($250.5 million) and dividing by Current Liabilities. A quick ratio above 1.0 is generally considered excellent, showing the company can pay its immediate debts using only its most liquid assets like cash and receivables. This high ratio is a key strength for AAON, Inc. (AAON).

Here's the quick math on their core liquidity position:

• Current Ratio (Q3 2025): 3.04
• Quick Ratio (Q3 2025): 2.03
• Working Capital (Q3 2025): $509.1 million

The trend in working capital is the most interesting near-term dynamic. Working capital has been an application of cash for much of 2025, meaning the company has been investing in its growth engine-stocking up on inventory and increasing contract assets (costs incurred on contracts not yet billed) to fulfill its record $1.32 billion backlog. Management anticipates this trend will reverse in the fourth quarter of 2025, with working capital becoming a significant source of cash as payments are received on large, recently delivered orders. This shift will further bolster the cash position.

The Cash Flow Statement overview for the nine months ended September 30, 2025, shows a clear strategy: fund growth now, collect later. While the company recorded $75.6 million in Net Income, the focus has been on:

• Investing Activities: Significant cash outflow, with a full-year capital expenditure plan of $180.0 million for facility and infrastructure investments. The twelve months ended June 30, 2025, saw a net cash outflow from investing activities of $467.0 million.
• Financing Activities: A major move was closing on a new $500.0 million credit facility in Q2 2025, which provided the necessary liquidity to fund the aggressive capital expenditure program. The balance on the revolving credit facility stood at $360.1 million as of September 30, 2025.

The primary potential liquidity concern is the low cash balance-cash, cash equivalents, and restricted cash were only $2.3 million as of September 30, 2025. However, this is largely mitigated by the substantial credit facility and the anticipated positive cash flow from operations in Q4 2025. The company is actively managing its liquidity to fund its expansion, essentially borrowing to build capacity and fulfill a record backlog, which is a calculated risk for a growth-focused enterprise. You can dive deeper into the market perception of this growth strategy by Exploring AAON, Inc. (AAON) Investor Profile: Who's Buying and Why?

Valuation Analysis

You want to know if AAON, Inc. (AAON) is a buy, a hold, or a sell right now. The quick answer is that the market is pricing in significant future growth, pushing the stock into a premium valuation territory, but analysts still see upside. The consensus rating is a Moderate Buy, with an average 12-month price target of $104.60, suggesting a modest return from the current price of around $94.04 as of November 2025.

When you look at the core valuation multiples for the 2025 fiscal year, AAON, Inc. appears expensive, which is typical for a high-quality industrial growth stock. The trailing twelve-month (TTM) Price-to-Earnings (P/E) ratio sits high at 79.87, and the forward P/E, based on 2025 earnings estimates, is still elevated at 49.59. Here's the quick math: you are paying nearly 50 times expected earnings for a company in the heating, ventilation, and air conditioning (HVAC) space. That's defintely a growth premium.

The other enterprise multiples tell a similar story of high expectations. The Price-to-Book (P/B) ratio is at 9.65, showing investors place a huge value on the company's intangible assets and future earnings power, far beyond its net tangible assets. Furthermore, the Enterprise Value-to-EBITDA (EV/EBITDA) ratio is a hefty 41.49. This multiple is high, especially when compared to the Industrials sector average, indicating the market has a lot of confidence in AAON, Inc.'s future cash flow generation.

• P/E (TTM): 79.87 (Expensive, signals high growth expectations)
• Forward P/E (FY 2025): 49.59 (Still a premium valuation)
• P/B Ratio: 9.65 (High, values brand and growth over book assets)
• EV/EBITDA (TTM): 41.49 (Market anticipates strong future cash flow)

Looking at the stock's movement over the last 12 months, it's been a volatile ride. The stock hit its 52-week high of $144.07 in November 2024, only to drop to a 52-week low of $62.00 by August 2025. This 2025 year-to-date decline of over 20.26% shows the risk of owning a high-P/E stock when growth visibility temporarily clouds over. The stock has rebounded somewhat, but the volatility is a clear warning sign that the market is quick to punish any perceived miss on growth. You need to be prepared for that kind of swing.

For income-focused investors, AAON, Inc. is not a primary choice. The company maintains a conservative dividend policy, which is smart for a growth-oriented manufacturer that needs to reinvest capital. The annual dividend is $0.40 per share, resulting in a low dividend yield of about 0.43%. The good news is the payout ratio is sustainable at only 33.06% of trailing earnings, giving the company plenty of room to continue its modest dividend growth streak while funding its expansion plans.

The analyst community is generally bullish but not overly aggressive. The consensus is a Moderate Buy, with five analysts rating it a 'Buy' and two a 'Hold.' The price targets range from a low of $95.00 to a high of $115.00, which means the average target of $104.60 offers about a 10% upside from the current price. What this estimate hides is the potential for a significant re-rating if the company accelerates its backlog conversion and capitalizes on the energy efficiency trend, which is a key theme covered in Breaking Down AAON, Inc. (AAON) Financial Health: Key Insights for Investors.

Risk Factors

You're looking at AAON, Inc. (AAON) because of its strong position in data center cooling, but the near-term story is all about operational execution. The primary risks right now are internal, stemming from the massive capacity expansion and the associated systems overhaul. We've seen a clear impact on profitability, even as demand remains high.

The company has a record backlog of approximately $1.32 billion as of Q3 2025, up 104% year-over-year, which is fantastic, but it also highlights the core risk: capacity constraints and production inefficiencies are preventing them from converting that demand into profit efficiently. If they can't fix the production bottlenecks fast, that backlog becomes a liability, not an asset.

Here's the quick math on the operational hit: The Q3 2025 gross margin fell to 27.8%, a significant drop from 34.9% in the prior year period. This contraction is defintely tied to two key internal issues.

• ERP System Disruption: The Enterprise Resource Planning (ERP) system rollout at the Longview facility caused major production slowdowns, which directly impacted AAON-branded sales, causing a 31.6% decline in that segment year-over-year in Q3 2025.
• New Facility Underutilization: The ramp-up of the new Memphis facility, which adds nearly 800,000 square feet of manufacturing space, incurred approximately $4.5 million in unabsorbed fixed costs in Q3 2025 alone, dragging down the overall margin.

Beyond the factory floor, there are financial and strategic risks you need to watch. The company's debt has climbed to $360.1 million as of Q3 2025, up from zero debt a year prior, to fund this capacity expansion, which is a manageable but notable change to the balance sheet. More strategically, the company has faced scrutiny regarding the accounting practices for its high-growth BASX data center segment, which keeps earnings quality and corporate governance questions in the spotlight.

On the external front, AAON, Inc. is exposed to the cyclical nature of the commercial construction market. Economic downturns could reduce demand, and the ongoing regulatory transition to new refrigerants adds complexity and potential cost increases to their product lines.

The good news is management is taking clear action. They've applied lessons learned from the Longview ERP rollout-like enhancing hands-on training-to make the Memphis facility ramp-up smoother. They also hired a Senior Vice President of Operations to specifically focus on improving manufacturing efficiency across their five key sites. The full-year 2025 sales growth guidance was recently raised to mid-teens (up from a prior low-teens outlook), and gross margin is projected to recover to between 28.0% and 28.5%, signaling expected sequential improvement in the second half of the year.

Here is a summary of the key risks and the company's stated mitigation efforts for the 2025 fiscal year:

To understand the foundation of their long-term strategy, you should review the Mission Statement, Vision, & Core Values of AAON, Inc. (AAON).

Growth Opportunities

You're looking for a clear map of where AAON, Inc. (AAON) is headed, and the short answer is: data centers and efficiency mandates are driving a massive, near-term surge. The company has raised its full-year 2025 sales growth guidance to the mid-teens, a strong signal that its strategic bets are paying off, even with some temporary margin pressure from new facility ramp-ups. The key is converting the record backlog into revenue without further operational hiccups.

Honestly, the growth story for AAON, Inc. is a tale of two brands, each tackling a major secular trend. The BASX segment, acquired in 2021, is the rocket fuel, while the core AAON brand capitalizes on the push for sustainable, high-performance commercial HVAC (Heating, Ventilation, and Air Conditioning) solutions. This dual-engine strategy provides defintely more resilience than a single-market focus.

Key Growth Drivers: Data Centers and Decarbonization

The primary engine for future revenue is the insatiable demand from the data center market, particularly for hyperscale infrastructure. The BASX brand, which specializes in air-side and liquid cooling equipment, is capturing this momentum. This is clear from the Q3 2025 results: BASX-branded sales surged 95.8% to $124.8 million in the quarter, driven by liquid cooling products. The total backlog hit a record $1.32 billion, up an astonishing 103.8% year-over-year, with BASX accounting for a significant portion of that increase.

The second driver is the global mandate for energy efficiency and decarbonization (reducing carbon emissions). The core AAON brand is positioned to capitalize on this with products like cold climate heat pump rooftop units (RTUs) and geothermal heat pumps. This focus on high-efficiency, custom-made equipment is what keeps the traditional commercial and industrial customer base sticky.

• BASX: Liquid cooling for data centers, driving 119.5% backlog growth.
• AAON: Custom, energy-efficient HVAC for commercial electrification.
• Product Innovation: New RTUs meeting U.S. Department of Energy challenges.

Strategic Initiatives and Financial Outlook

To convert that record $1.32 billion backlog into sales, AAON, Inc. is executing a multi-year capital allocation plan focused on capacity and efficiency. The new Memphis manufacturing facility is crucial, as a meaningful part of the BASX backlog is slated for production there, which should support a steady ramp-up in throughput. Also, optimizing the new Enterprise Resource Planning (ERP) system is a major operational initiative aimed at improving production efficiency at the Tulsa and Longview plants.

Here's the quick math on the near-term outlook. The company's nine-month net sales through September 30, 2025, were already $1,017.9 million. With the raised guidance for full-year sales growth in the mid-teens, you are looking at substantial top-line expansion for the 2025 fiscal year. What this estimate hides, still, is that gross profit margin is guided to be in the 28.0%-28.5% range, lower than historical highs, due to the initial costs of ramping up the new Memphis facility and ERP integration.

Competitive Advantages and Positioning

AAON, Inc.'s competitive edge in the HVAC industry isn't just about technology; it's about their business model. They excel in offering highly configurable and custom HVAC solutions, which sets them apart from competitors who only offer standardized, off-the-shelf products. Plus, their vertically integrated manufacturing process gives them greater control over product quality and the supply chain, which is a major advantage in a market still dealing with component volatility.

The strategic acquisition of BASX, now fully integrated, gives them a dominant position in the high-growth, high-margin data center cooling space, a market that demands custom, high-performance solutions. This focus on premium, custom equipment, backed by their extensive lab testing space, allows them to command better pricing and maintain a strong market position even with broader construction market softness.

For a deeper dive into the balance sheet and valuation, you should read the full analysis: Breaking Down AAON, Inc. (AAON) Financial Health: Key Insights for Investors.

Next Step: Operations: Monitor Q4 2025 commentary on the Memphis facility utilization and ERP optimization to gauge margin recovery trajectory.