Detailed Narrative
Data Center Market Momentum and BASX Growth
The data center market remains AAON's most robust growth opportunity, with BASX branded sales increasing 143% to $548 million in 2025 and backlog growing 141% to $1.3 billion. The company's differentiated custom airside and liquid cooling solutions are gaining momentum as customers increasingly require highly engineered systems tailored to AI data center needs. The focus is on converting this strong demand into sustained profitable growth through disciplined program execution and capacity readiness, with BASX growth expected to be around 20-25% in 2026.
Operational Investments and ERP Rollout Strategy
AAON advanced several initiatives in 2025, including expanding its manufacturing footprint by over 25% and strengthening leadership. Investments in supply chain management are expected to improve reliability, reduce material costs, and enhance working capital discipline. The company also made significant progress upgrading its legacy ERP system, revising the rollout approach to prioritize stability and customer deliveries. Remaining ERP implementations are sequenced under a disciplined governance framework, with Redmond scheduled for H2 2026 and Tulsa in 2027, to protect service levels while preserving long-term benefits.
AAON Brand Resilience and Market Share Gains
Despite a 16% decline in overall industry volumes, AAON branded sales declined only 8% in 2025, significantly outperforming the broader industry. Bookings grew approximately 12%, driven primarily by an 86% increase in national accounts. This performance indicates deliberate market share gains as customers recognize the total cost of ownership advantages of AAON products. The company expects strong recovery and meaningful growth from the AAON segment in 2026, particularly from the Tulsa organization, which is running near record volumes in early 2026.
Memphis Facility Ramp-up and Margin Impact
The new Memphis facility achieved profitability for the first time in Q4 FY25, remaining on plan. While it contributed to unabsorbed fixed costs and pressured gross margins in the near term, increased utilization and productivity are expected to provide meaningful operating leverage in 2026. The facility is manufacturing a broader portfolio of products, including high-performance liquid cooling, and is positioned to increase output efficiently, optimize fixed cost investments, and drive robust growth.
Supply Chain and Production Throughput Improvements
Temporary supply chain constraints impacted production volumes and Q4 margins, particularly at Tulsa. However, AAON's investments in its supply chain organization are yielding better visibility and improved reliability, with challenges in Q4 being substantially lower than earlier in 2025. Production volumes in Tulsa increased materially in January and February 2026, and the company anticipates the abatement of supply reliability issues, which will support increased throughput and margin uplift.
Product Innovation and Competitive Positioning
AAON's focus on innovation led to meaningful advances, including unique concepts for AI data centers designed to enhance scale, operating efficiency, and strategic flexibility. In 2025, the company also commercialized rooftop units up to 40 tons with cold climate heat pumps capable of reliable heating performance down to negative 20 degrees Fahrenheit, positioning itself as a differentiated manufacturer in the HVAC industry.