AAON (AAON) Q4 FY25 earnings call: guidance and Q&A

What caused the Q4 gross margin miss, specifically Tulsa's role, and can Q1 2026 gross margins recover to the 30% range?

Q4 margin was primarily due to lower Tulsa volumes and temporary supply chain constraints. Tulsa volumes have accelerated substantially in Jan/Feb 2026, which will drive Q1 improvement, though partially offset by less favorable BASX product mix in Longview. Supply chain issues are abating due to investments.

“When we look at the driver, the single biggest driver of that margin kind of against expectation was around Tulsa volumes and so our volumes in Tulsa had normal seasonality which certainly we expected but we had some additional supply chain constraints that put some pressures on the overall throughput in velocity in the quarter.”

asked by Ryan Merkel · answered by Matthew Tobolski

Can you provide more details on the 2026 revenue guide, specifically BASX growth expectations, light commercial market assumptions, and price increase contribution?

BASX growth is expected to be about half of the 40-50% range (i.e., 20-25%). Significant growth will come from the AAON brand, particularly Tulsa, which is running near record volumes. The light commercial market is expected to be flattish in 2026. The growth is volume-driven, with no major pricing actions in H2 2025. Outperformance is driven by Alpha class heat pumps and national accounts.

“the growth in the BASX side is not really up to that 50% range. It's definitely about half of that is sort of built in on the guide. A lot of the growth is going to be coming out of the AAON brand, and in particular, coming out of the Tulsa organization.”

asked by Ryan Merkel · answered by Matthew Tobolski

Given the large BASX backlog, does the company only expect to ship about half of it in 2026, and if so, why?

The data center market involves longer-duration, multi-phase projects, so the backlog provides clarity for both 2026 and 2027. While some project delivery movement is possible due to overall supply network pressure, the backlog's nature means it's not all expected to convert within a single year.

“the data center segment space does not trade in the sort of lead time mindset that the commercial HVAC market does. And so the dynamics that we see embedded in our backlog is a combination of -- or I should say, is built upon a lot of longer duration multiphase projects and programs.”

asked by Noah Kaye · answered by Matthew Tobolski

What are the expectations for operating cash flow generation in 2026, including AR collection and debt reduction timeline?

Cash flow from operations showed sequential improvement in Q3 and Q4 2025 and is expected to continue this positive trend in 2026. Efforts include negotiating down payments on upcoming jobs to manage working capital. Debt is expected to remain elevated for most of 2026, potentially decreasing in the second half, leading to higher interest expense for the year.

“we did see improvement in our cash flows from operations to be positive Q3, Q4 with sequential improvement I would expect this positive trend to continue into 2026.”

asked by Noah Kaye · answered by Rebecca Thompson

Is the BASX backlog over-indexed to one or two large orders/hyperscalers, or is there increasing diversification among customers?

There is diversity in the customer base and an increasing number of customers. While large data center orders can create concentration in a given quarter, the company is seeing the introduction of new customers and diversity, including hyperscalers, build-to-suit, and colocation providers.

“But at a high level, there certainly is diversity in that customer base and increasing kind of customers inside that backlog.”

asked by Brent Thielman · answered by Matthew Tobolski

What are the current lead times for the AAON Oklahoma business, how have they tracked, and when are they expected to normalize?

Lead times are extended, with some high-volume lines in the mid-20 weeks range, which is beyond desired levels. The goal is to drive throughput and reduce them. Production in Q1 2026 is at or near record levels, but strengthening bookings make it a 'balancing act' to reduce lead times as quickly as desired.

“For some of our more kind of high-volume lines, they might be in the mid-20 weeks kind of time frame, which is definitely beyond where we want them to be.”

asked by Timothy Wojs · answered by Matthew Tobolski

Given the $1.3 billion BASX backlog and $1.5 billion potential revenue from current footprint, what are capacity expansion plans, and does backlog limit new order intake?

The company aims to unlock more than $1.5 billion capacity from existing investments before substantial new capital investment. Near-term capacity is not limiting new orders; the ramp rate is the limiting factor to ensure profitable, responsible, and high-quality execution. The focus is on quantifying and executing strategies to maximize existing footprint utilization.

“we do believe there's more capacity than $1.5 billion there. And that really is a lot of what we're focused on here in the first part of the year is quantifying that and creating a very executable strategy to drive that forward.”

asked by Timothy Wojs · answered by Matthew Tobolski