AAON Q1 Earnings Call: Data Center Segment Drives Revenue Growth, Margins Under Pressure

Heating and cooling solutions company AAON (NASDAQ:AAON) reported Q1 CY2025 results topping the market’s revenue expectations, with sales up 22.9% year on year to $322.1 million. Its non-GAAP profit of $0.37 per share was 57% above analysts’ consensus estimates.

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StockStory’s Take

AAON’s first quarter results for 2025 were shaped by exceptional growth in its data center cooling segment, which offset declines in its traditional rooftop unit business. Management attributed the outperformance to a surge in BASX-branded equipment sales, particularly for liquid and airside cooling products used in data centers. CEO Gary Fields cited operational efficiencies and a rebound in bookings for AAON-branded equipment, while acknowledging that supply chain disruptions related to a refrigerant transition constrained production volumes in the Oklahoma segment.

Looking forward, management maintained a cautious outlook for the remainder of the year, emphasizing ongoing supply chain normalization and the effect of recently implemented tariffs. President and COO Matt Tobolski stated, “The macroeconomic environment remains in pretty poor shape, which is creating a lot of uncertainty on the back half of the year.” The company expects margin improvement as production ramps up, but noted that tariff-related surcharges and lingering macroeconomic pressures could impact both pricing and customer demand.

Key Insights from Management’s Remarks

AAON’s leadership provided clarity on the forces driving the quarter’s performance and addressed transitional challenges in both its core and emerging business lines.

• Data Center Demand Surge: BASX-branded equipment sales, especially for data center cooling, grew sharply as AAON capitalized on rising demand for both airside and liquid cooling solutions. Management cited strong pipeline visibility and multi-year outlooks with major customers.
• Rooftop Unit Weakness: The AAON-branded rooftop business saw a decline in sales due to lower bookings in the previous quarter and supply chain disruptions tied to the industry-wide refrigerant changeover. Management expects these issues to resolve in the near term as component availability improves.
• Supply Chain Recovery: Component shortages related to the new R454B refrigerant limited production, but leadership reported that these constraints began to ease early in the second quarter, allowing for increased output and anticipated margin recovery.
• Tariff Surcharge Implementation: In response to evolving trade policy, AAON instituted a 6% tariff mitigation surcharge. Management believes this will neutralize most tariff cost impacts, though the effect on customer order patterns remains to be seen.
• Operational Efficiency Gains: The company highlighted ongoing improvements at its BASX segment and AAON Coil Products facilities, citing rightsizing efforts and capacity expansions that contributed to margin gains in those segments despite broader margin compression at the Oklahoma facility.

Drivers of Future Performance

Management’s outlook for the next several quarters is shaped by ongoing recovery in rooftop unit production, continued demand from data center customers, and the impact of macroeconomic and regulatory factors such as tariffs.

• Production Ramp-Up: AAON anticipates higher output from its Oklahoma facility as supply chain issues abate, which should support improved margins and revenue for its core rooftop business.
• Sustained Data Center Pipeline: The company’s BASX and coil products divisions are expected to benefit from robust demand for both traditional and AI-focused data center cooling solutions, with management seeing strong order visibility into 2026.
• Tariff and Policy Risks: The impact of the 6% tariff mitigation surcharge and broader macro uncertainty, including customer purchasing behavior and potential further shifts in trade policy, could affect both revenue growth and profitability in the coming quarters.

Top Analyst Questions

• Julio Romero (Sidoti): Asked about AAON's price premium versus competitors and market share gains in national accounts. Management responded that the price gap has narrowed, improving competitiveness and supporting market share gains, particularly with the Alpha Class heat pump product line.
• Ryan Merkel (William Blair): Inquired about the rebound in rooftop unit orders and the influence of the tariff surcharge. Management stated that bookings recovered after Q4 softness, with minimal order pull-forward before the surcharge due to imposed order caps.
• Chris Moore (CJS Securities): Questioned the visibility and diversification of data center demand. Management emphasized a strong and growing pipeline with existing and new customers, noting that large orders have increased near-term customer concentration but diversification is improving.
• Brent Thielman (Davidson): Sought clarity on supply chain normalization and exposure to tariffs. Management expressed confidence that supply chain constraints are easing and highlighted AAON’s vertically integrated, U.S.-focused supply chain as a mitigating factor for tariff risk.
• Tim Wojs (Baird): Asked about the full-year outlook for the Oklahoma segment and the impact of the tariff surcharge. Management reiterated that guidance remains unchanged but acknowledged uncertainty, especially for Q4, with the surcharge’s revenue impact mostly appearing in the second half of the year.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will be monitoring (1) the pace of margin recovery in the Oklahoma segment as rooftop unit production ramps up, (2) continued strength and diversification in the data center cooling backlog, and (3) the effect of the tariff surcharge on customer order timing and overall demand. Facility expansion milestones and signs of sustained order growth in both core and emerging segments will remain key indicators of execution against AAON’s growth strategy.

AAON currently trades at a forward P/E ratio of 43.3×. Should you load up, cash out, or stay put? See for yourself in our free research report.

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