AAON Q2 2024 Data Center Bookings Strong, Revenue Pushed to Q4
- Robust data center growth: The executives highlighted tremendous data center bookings, with new production capacity (e.g., the 245,000‐square-foot expansion in Longview allocated 100% to data center orders) and a strong pipeline to convert backlog into sales, which bodes well for future revenue growth.
- Improving margin profile: The discussion emphasized productivity gains and a favorable product mix—particularly within the BasX and Coil Products segments—that are driving higher margins even amid market headwinds, supporting a stronger profitability outlook.
- Customized, innovative cooling solutions: AAON’s ability to deliver tailored solutions in both air-cooled and liquid-cooled projects reinforces strong customer retention and positions the company well as data center cooling needs evolve, enhancing its competitive advantage.
- Rooftop sales headwinds: Despite a history of strong growth, the rooftop segment’s volume remained flat with only a 4% increase due to pricing, and current market conditions—such as the refrigerant transition, interest rate concerns, and broader macro uncertainties—make it difficult to foresee a clear path back to robust growth [Index 13].
- Regulatory and transition risks for new R-454B equipment: The transition from R-410A to R-454B poses risks as several states have not yet updated building codes to allow the new refrigerant. This regulatory uncertainty could lead to order delays or a surge in 410A equipment orders near the transition deadline, creating near-term booking volatility [Index 9].
- Delayed data center backlog conversion due to capacity constraints: Although data center orders are strong, production capacity issues mean that much of the new order volume may only convert in Q4 and beyond. This delay in converting the robust backlog could defer near-term revenue growth and impact short-term operating performance [Index 6][Index 7].
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Refrigerant Transition
Q: Risk timing for R‑454B transition?
A: Management pointed to customer hesitancy from building code delays, expecting a cutoff for 410A orders in October and switching to R‑454B by January 1, which should mitigate the risk thereafter . -
Data Center Capacity
Q: Will capacity boost Q4 sales?
A: Strong data center bookings and enhanced production—especially at the new Longview facility—are expected to drive a better Q4 performance ** **. -
BasX Growth
Q: How will BasX growth evolve?
A: BasX growth is set to slow in Q3 with moderate backlog conversion, then accelerate in Q4 and into 2025 as capacity ramps up . -
Pricing Strategy
Q: Any price hikes on 454B equipment?
A: Although competitors are planning price increases, management remains cautious, choosing not to hike prices aggressively to preserve competitive margins . -
Liquid Cooling Edge
Q: How competitive is liquid cooling?
A: Custom-tailored liquid cooling solutions are enhancing customer relationships and show margins comparable to air cooling, reinforcing their market edge . -
Rooftop Outlook
Q: What are rooftop sales prospects?
A: Rooftop sales are expected to remain flat volume-wise while modest price increases support revenue, though outlook remains challenging . -
Oklahoma Margins
Q: How will Oklahoma margins hold?
A: Margins are to be managed through careful productivity improvements and cost control, despite inherent volatility in order bookings . -
M&A Pipeline
Q: Any strategic acquisition plans now?
A: There are no current M&A targets after the strategic BasX acquisition, as management sees no fitting opportunities at the moment . -
Sticky Retention
Q: Update on retention initiatives in data centers?
A: Ongoing efforts include crafting custom engineering solutions that enhance customer stickiness in the evolving data center market .
Research analysts covering AAON.