AAON (AAON) Q2 2025 earnings summary

Executive summary

• Net sales for Q2 2025 declined 0.6% year-over-year to $311.6 million, with ERP rollout and supply chain disruptions significantly impacting AAON branded production and margins, while BASX-branded data center sales surged 127% in Q2 and 269% year-to-date.

• Operating income for Q2 2025 was $23.6 million, a 65% decrease from $67.2 million in Q2 2024, with diluted EPS at $0.19 (down 69.4%) and adjusted EPS at $0.22 (down 64.5%).

• Adjusted EBITDA margin fell 1,120 basis points to 14.9%, reflecting lower volumes and higher SG&A expenses.

• Backlog reached $1.12 billion at June 30, 2025, up 71.9% year-over-year, driven by robust BASX demand and national account strategies.

• National account strategy and Alpha Class heat pump products contributed to substantial order growth and market share gains despite a soft non-residential construction market.

Financial highlights

• Gross margin contracted 950 basis points to 26.6%, mainly due to lower production volumes and ERP-related inefficiencies.

• SG&A expenses rose to $59.1 million (19.0% of sales), up from $45.9 million (14.6%) in Q2 2024, driven by higher salaries, technology consulting, and Memphis plant incentive fees.

• Cash flow from operations was negative $31 million year-to-date, compared to positive $127.9 million a year ago, reflecting higher working capital investments.

• Capital expenditures totaled $82.5 million in the first half, with a full-year plan of $220 million for capacity, technology, and facility expansion.

• Debt outstanding under the revolver was $317.3 million at June 30, 2025, after expanding the facility to $500 million; leverage ratio was 1.4x.

Outlook and guidance

• Full-year 2025 sales growth now expected in the low teens, with gross margin guidance revised to 28%-29% and adjusted SG&A at 16.5%-17% of sales.

• Sequential growth in sales and margins anticipated in Q3 and Q4, with ERP headwinds expected to lessen and price increases/tariff surcharges to benefit results.

• 2026 margin profile expected to approach long-term target of 32%-35% as ERP rollout completes and Memphis facility ramps up.

• The company believes its liquidity, cash flow, and expanded credit facility will support working capital, capital expenditures, and other needs for 2025 and beyond.

• The reinstatement of 100% bonus depreciation and repeal of R&D capitalization under the OBBBA is expected to increase tax deductions and improve cash flow in the second half of 2025.