AAON Q4 2024: Orders Up Mid-Teens%, $1B Data Center Target
- Robust Data Center Growth Potential: Executives emphasized significant order momentum in data center projects and an aggressive capacity expansion plan—targeting over $1 billion in data center revenue within a few years, supported by new investments in facilities like Memphis and Longview.
- Normalizing Order Book and Recovery in Bookings: Despite temporary softness from the refrigerant transition, Q&A discussion highlighted that bookings were up mid-teens% year-over-year for the first three months of 2025, suggesting a strong rebound in order visibility and sales normalization in upcoming quarters.
- Product Innovation and Competitive Pricing: The leadership defended their pricing strategy, noting that the new R-454B units are competitively priced—with only a modest 3% annual increase not specific to the new product—and stressed innovations (such as proprietary cost-efficient refrigerant leak monitoring devices) that support margin stability and a technological edge.
- Refrigerant Transition Impact: Management noted that the shift to new refrigerant equipment has led to delayed order conversion, particularly in the AAON Oklahoma segment, where softer Q1 sales are expected due to the timing of the new equipment implementation and pushouts in demand.
- Operational Inefficiencies and Margin Pressure: The need to outsource production and ramp up new facilities like Memphis and improve operations at Redmond has led to temporary inefficiencies. This has increased costs and put pressure on margins until these production issues are fully resolved.
- Dependence on Backlog Conversion Amid Uncertainty: While bookings remain strong, there is significant reliance on converting this backlog into revenues. With seasonality effects and macroeconomic uncertainties (especially in the commercial and nonresidential segments), there is risk that the expected revenue and margin improvements may not materialize as forecasted.
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Data Center Target
Q: Timeline for $1B data center revenue?
A: Management expects the data center business to hit $1B in 3–4 years—eventually doubling to around $2B—driven by expanded capacity and strong demand. -
Oklahoma Outlook
Q: Q1 outlook for Oklahoma sales?
A: They indicated Q1 sales will be modest due to delayed backlog conversion and seasonal timing, with a rebound expected later in the year. -
Pricing Strategy
Q: What's the plan for 454B pricing?
A: The new 454B pricing includes a 3% hike for inflation with no extra premium over legacy units, while further adjustments will depend on booking strength. -
BASX Margins
Q: When will BASX margins normalize?
A: Management projects sequential margin improvements throughout 2025, anticipating normalized margins by 2026 as capacity and efficiency challenges ease. -
Operational Inefficiencies
Q: How will production inefficiencies be addressed?
A: Temporary outsourcing and ramp-up issues in facilities like Longview, Redmond, and Memphis are being resolved, with expected overhead leverage improvements as equipment comes fully online. -
Order Visibility
Q: How’s rooftop order momentum?
A: Orders for rooftop units are beginning to accelerate, with booking conversions expected to strengthen by Q2 after a mild Q1 from backlog transition. -
Dense Data Demand
Q: Are denser data centers boosting demand?
A: Rising AI-driven, higher-density compute is fueling demand for liquid cooling solutions, supporting robust future prospects. -
D&A Costs & Reporting
Q: What D&A increases are anticipated?
A: D&A is set to rise in both COGS and SG&A due to new capacity investments, with plans for clearer segment reporting by the end of the year. -
Clean Room Market
Q: What's the clean room market update?
A: Clean room projects remain somewhat lumpy, yet steady, buoyed by onshoring trends and ongoing investments. -
BASX Sales Performance
Q: Why did BASX sales decline?
A: The modest decline was mainly due to capacity limitations at the Oregon facility, despite a strong backlog for BASX branded products.