AAON, Inc. (NASDAQ:AAON) is a premier manufacturer of high-performance, energy-efficient HVAC solutions for commercial and industrial applications. With a strong focus on innovation, customization, and operational excellence, the company has established itself as a leader in its industry, poised for continued growth and long-term value creation.
Business Overview and History Incorporated in 1987 and headquartered in Tulsa, Oklahoma, AAON has evolved over the past three decades into a highly respected provider of premium HVAC equipment. The company's foundation is built upon its industry-leading engineering capabilities, which enable it to design and manufacture highly configurable, semi-custom, and custom HVAC systems tailored to the exact needs of its customers.
From its inception, AAON established a reputation for innovation and quality, developing a range of semi-custom and custom rooftop units, air handling units, and other HVAC products. The company's proprietary design capabilities and commitment to R&D allowed it to stand out in a crowded HVAC market dominated by larger competitors. AAON's unique go-to-market strategy of working closely with independent sales representatives also helped it gain traction and win business.
Throughout its history, AAON has faced various challenges, including navigating cyclical downturns in the commercial construction market, managing supply chain disruptions, and addressing changes in environmental regulations. In 2020, the COVID-19 pandemic presented significant operational hurdles, as the company worked to keep its manufacturing facilities running safely while meeting evolving customer needs.
Despite these obstacles, AAON has demonstrated resilience and the ability to adapt. In 2021, the company expanded its product portfolio and capabilities through the strategic acquisition of BASX, a manufacturer of custom, high-performance cooling solutions for the data center market. This diversified AAON's end-market exposure and positioned it to capitalize on the rapid growth in data center construction and demand for specialized cooling equipment.
AAON's product portfolio includes a diverse range of offerings, such as rooftop units, data center cooling solutions, cleanroom systems, air handling units, geothermal/water-source heat pumps, packaged outdoor mechanical rooms, makeup air units, energy recovery units, condensing units, coils, and controls. The company's commitment to innovation is exemplified by its development of groundbreaking technologies, such as its Alpha Class air source heat pump units, which can operate at temperatures as low as -20°F, and its industry-first large-scale liquid cooling solution for data centers.
Financials and Key Metrics Financials In the fiscal year 2024, AAON reported total revenue of $1.20 billion, a modest 2.7% increase from the previous year. The company's net income for the year stood at $168.56 million, with a net profit margin of 14.0%. AAON's operating cash flow and free cash flow figures for the full year were not provided in the given information.
For the fourth quarter of 2024, AAON reported revenue of $297.7 million, down 2.9% year-over-year, and net income of $24.69 million, down 46.4% year-over-year. The year-over-year decline in revenue and net income was primarily driven by weaker performance in the AAON Oklahoma segment, which experienced a 16.1% decline in sales. This was partially offset by strong growth in the AAON Coil Products segment, which saw a 129.9% increase in sales.
AAON's sales are primarily focused on the domestic U.S. market. Foreign sales accounted for approximately 2.5% of total revenue in 2024, 3.4% in 2023, and 3.1% in 2022.
Liquidity AAON's balance sheet remains strong, with a debt-to-equity ratio of 0.019 as of December 31, 2024. The company's current ratio stands at 2.79, and its quick ratio is 1.72, indicating a healthy liquidity position. AAON's return on equity (ROE) for the fiscal year 2024 was 21.4%, showcasing the efficient use of its capital.
As of the end of 2024, AAON had $6.5 million in cash and cash equivalents, with an additional $123.2 million available under a $200 million revolving credit facility.
Segment Performance and Growth Drivers AAON operates through three reportable segments: AAON Oklahoma, AAON Coil Products, and BASX.
The AAON Oklahoma segment engineers, manufactures, and sells semi-custom and custom HVAC systems, designs and manufactures controls solutions, and sells aftermarket parts to customers through retail part stores and online. This segment includes operations at AAON's Tulsa, Oklahoma, Memphis, Tennessee, and Parkville, Missouri manufacturing facilities, as well as its Norman Asbjornson Innovation Center (NAIC) research and development laboratory. The NAIC facility allows AAON to continuously test its products under a variety of extreme environmental conditions to ensure optimal performance, efficiency, and value. AAON Oklahoma also operates the Exploration Center in Tulsa, which showcases the engineering, design, and quality of the company's equipment alongside competitor products. In 2024, this segment accounted for 71.5% of the company's total net sales, generating $858.71 million.
The AAON Coil Products segment engineers and manufactures a selection of AAON's semi-custom and custom HVAC systems, as well as a variety of heating and cooling coils for use in HVAC systems, primarily for the benefit of the AAON Oklahoma, AAON Coil Products, and BASX segments. This segment's operations are located at the company's Longview, Texas manufacturing facilities. The BASX branded products are also manufactured at the Longview location. In 2024, this segment contributed 12% of net sales, or $143.87 million.
The BASX segment engineers, manufactures, and sells an array of custom, high-performance cooling solutions for the rapidly growing hyperscale data center market, as well as ventilation solutions for cleanroom environments in the bio-pharmaceutical, semiconductor, medical, and agriculture markets, and highly custom air handlers and modular solutions for various other applications. BASX's operations are based out of the company's Redmond, Oregon manufacturing facilities. In 2024, this segment made up 16.5% of net sales, totaling $198.05 million. The BASX segment was a standout performer in 2024, with sales growing 35.1% year-over-year. This growth was primarily driven by the successful launch of AAON's industry-first large-scale liquid cooling solution for data centers, which has seen robust demand from customers.
The company's overall gross profit margin was 33.1% in 2024.
AAON's continued investment in capacity expansion, including the recent acquisition of a new manufacturing facility in Memphis, Tennessee, positions the company to capitalize on the growing demand for its products, particularly in the data center and commercial HVAC markets.
Risks and Challenges While AAON's growth prospects remain promising, the company is not without its risks and challenges. The HVAC industry is highly competitive, with larger players like Lennox, Trane, and Carrier posing ongoing competitive threats. Additionally, AAON's reliance on a network of independent sales representatives, while providing flexibility, also introduces potential risks related to the loss of key relationships.
The company's success is also tied to broader macroeconomic and industry trends, such as the health of the commercial construction market and the ongoing shift towards more energy-efficient and sustainable HVAC solutions. Any significant slowdown in new construction or delays in the adoption of new technologies could impact AAON's performance.
Furthermore, AAON's operations are subject to various regulatory changes, such as evolving environmental standards and building codes, which require the company to adapt its product offerings and manufacturing processes accordingly.
Outlook and Conclusion Despite the challenges faced in 2024, AAON remains well-positioned for continued growth. The company's strong backlog, which grew 70% year-over-year to $867.1 million as of the end of 2024, provides visibility into future revenue streams. Additionally, the company's focus on innovation, its expanding presence in the data center market, and its strategic capacity investments position AAON to capitalize on the increasing demand for high-performance, energy-efficient HVAC solutions.
For 2025, AAON is guiding for mid to high teens sales growth at a gross margin similar to 2024. SG&A as a percentage of sales is expected to decline 25-50 basis points. Capital expenditures are anticipated to be around $220 million. In the first quarter of 2025, sales and earnings are expected to be modestly down from Q4 2024 due to seasonality, lingering impacts from the refrigerant transition, and ramp-up costs related to the new Memphis facility.
AAON is targeting BASX-branded data center equipment sales to reach over $1 billion within a few years, up from the current annualized run rate of over $200 million. The AAON Oklahoma segment is expected to see a temporary lull in demand in early 2025 following the refrigerant transition, but AAON anticipates sequential improvements through the year.
With a seasoned leadership team, a strong balance sheet, and a proven track record of operational excellence, AAON is poised to deliver long-term value for its shareholders. As the company navigates the evolving HVAC landscape, investors will be closely watching for continued execution on its growth strategies and its ability to maintain its competitive edge in the industry.