AAON, Inc. (AAON): Business Model Canvas [11-2024 Updated]

In the competitive landscape of HVAC solutions, AAON, Inc. (AAON) stands out with a robust business model designed to meet the diverse needs of its customers. This model is built around key partnerships, innovative value propositions, and a focus on sustainability. By leveraging strong relationships with independent representatives and a commitment to research and development, AAON not only delivers high-quality products but also ensures exceptional customer service. Discover how each component of their business model works together to drive success in the HVAC industry.

AAON, Inc. (AAON) - Business Model: Key Partnerships

Collaborations with independent manufacturer representatives

AAON, Inc. collaborates with independent manufacturer representatives to enhance its market reach and sales capabilities. These partnerships enable AAON to leverage local expertise and networks, resulting in increased sales opportunities and customer engagement. The company reported a net sales increase of 4.9% for the three months ending September 30, 2024, driven in part by these collaborations.

Partnerships with suppliers for raw materials and components

AAON maintains strategic partnerships with suppliers to secure raw materials and components essential for manufacturing its HVAC systems. The company primarily sources materials such as copper, galvanized steel, and aluminum from domestic suppliers. For instance, the average raw material cost per pound as of September 30, 2024, was:

Material	Cost per Pound (2024)	Cost per Pound (2023)	% Change
Copper	$5.39	$5.68	(5.1%)
Galvanized Steel	$0.59	$0.68	(13.2%)
Stainless Steel	$2.54	$3.33	(23.7%)
Aluminum	$2.40	$2.44	(1.6%)

These partnerships enable AAON to mitigate risks associated with price fluctuations by entering into contractual agreements with suppliers for periods of six to eighteen months.

Engagement with third-party service providers for installation and maintenance

AAON also engages with third-party service providers to offer installation and maintenance services for its products. This collaboration is crucial for ensuring customer satisfaction and operational efficiency. The company has seen significant growth in its data center solutions segment, which reported a 90.1% increase in net sales for the three months ending September 30, 2024, highlighting the effectiveness of these partnerships in meeting customer demands.

AAON, Inc. (AAON) - Business Model: Key Activities

Design and manufacturing of HVAC systems

AAON, Inc. specializes in the design and manufacturing of high-efficiency heating, ventilation, and air conditioning (HVAC) systems. For the nine months ended September 30, 2024, AAON reported net sales of $902.9 million, representing an increase of 4.8% compared to $861.9 million for the same period in 2023. The company’s production capabilities are supported by significant capital investments, totaling $113.8 million in capital expenditures and software development during the same period.

In the three months ended September 30, 2024, AAON's net sales were $327.3 million, with the following breakdown by segment:

Segment	Net Sales (in thousands)	Percentage of Total Sales
AAON Oklahoma	$228,887	69.9%
AAON Coil Products	$35,232	10.8%
BASX	$63,133	19.3%
Total	$327,252	100%

Research and development for new product innovations

AAON invests heavily in research and development (R&D) to innovate and enhance its product offerings. The company’s R&D efforts are focused on improving energy efficiency and developing new technologies for HVAC systems. As of September 30, 2024, AAON's gross profit increased to $319.5 million, reflecting a gross profit margin of 35.4%. This improvement is partly due to R&D initiatives aimed at reducing production costs and enhancing product performance.

In the nine months ended September 30, 2024, AAON's investments in innovation contributed to a significant increase in data center cooling solutions, with sales rising by 85.1%. The company also experienced a backlog growth of 32.0%, reaching $647.7 million, driven by demand for advanced HVAC solutions.

Sales and distribution through independent representatives

AAON's sales strategy relies heavily on independent representatives who facilitate the distribution of its HVAC products. For the nine months ended September 30, 2024, payments to representatives totaled $31.7 million, down from $46.4 million in the same period of 2023. The company utilizes a combination of direct and indirect sales channels to reach a diverse customer base, including commercial and industrial sectors.

The independent representatives are integral to AAON's market penetration, helping to maintain a robust sales pipeline and manage customer relationships. The following table summarizes the compensation paid to representatives over recent periods:

Period	Payments to Representatives (in millions)
Three Months Ended September 30, 2024	$10.7
Three Months Ended September 30, 2023	$20.1
Nine Months Ended September 30, 2024	$31.7
Nine Months Ended September 30, 2023	$46.4

AAON, Inc. (AAON) - Business Model: Key Resources

Manufacturing facilities in Oklahoma, Texas, and Oregon

AAON operates multiple manufacturing facilities strategically located across the United States. Key facilities include:

• Oklahoma: The primary manufacturing site, contributing significantly to AAON's output.
• Texas: A newer facility that supports the production of specialized equipment.
• Oregon: This facility enhances AAON's ability to serve the West Coast market, particularly in the data center cooling segment.

As of September 30, 2024, AAON reported a backlog of $647.7 million, reflecting a 32% increase from $490.6 million a year earlier, primarily driven by demand in data center equipment.

Skilled workforce and engineering talent

AAON's competitive advantage lies in its skilled workforce, which includes:

• Approximately 3,168,608 shares of stock options were outstanding as of September 30, 2024, indicating a strong incentive structure to retain talent.
• Investment in employee training and development to enhance engineering capabilities, particularly in HVAC and cooling solutions.
• A commitment to competitive wage rates, with significant increases in starting wages in recent years to attract and retain skilled labor.

The company reported cash flows from operations of $191.7 million for the nine months ended September 30, 2024, an increase of 78.9% compared to the previous year, allowing continued investment in workforce development.

Intellectual property, including patents and trademarks

AAON holds a robust portfolio of intellectual property that includes:

• A range of patents related to energy-efficient HVAC systems and innovative cooling technologies, which provide a competitive edge in the market.
• Trademarks that bolster brand recognition, contributing to customer loyalty and trust in AAON's products.
• Investment in research and development, with $113.8 million allocated for capital expenditures and software development in 2024.

Furthermore, the company's stock repurchase activity, including the repurchase of 1.4 million shares for $107.5 million in 2024, underscores its financial strength and commitment to enhancing shareholder value.

Key Resource	Details
Manufacturing Facilities	Oklahoma, Texas, Oregon
Workforce	3,168,608 stock options outstanding
Cash Flow from Operations	$191.7 million (up 78.9% YoY)
Intellectual Property	Patents on HVAC technologies
R&D Investment	$113.8 million for capital expenditures
Stock Repurchase	1.4 million shares for $107.5 million

AAON, Inc. (AAON) - Business Model: Value Propositions

Customizable HVAC solutions tailored to customer needs

AAON, Inc. specializes in providing customizable heating, ventilation, and air conditioning (HVAC) solutions that cater to specific customer requirements. The company offers standard, semi-custom, and fully custom HVAC systems, ensuring flexibility in meeting diverse client needs across various industries.

For the three months ended September 30, 2024, AAON reported net sales of $327.3 million, with significant contributions from their customizable solutions. The AAON Oklahoma segment accounted for 69.9% of total sales, generating $228.9 million.

High efficiency and environmentally friendly products

AAON emphasizes the development of high-efficiency HVAC systems that are environmentally friendly. The company’s commitment to sustainability is reflected in their product designs, which aim to reduce energy consumption and minimize environmental impact.

In 2024, AAON's products have seen a substantial increase in demand for data center cooling solutions, with sales increasing by 90.1% in Q3 2024 compared to the same period in 2023. This growth is attributed to the rising need for energy-efficient solutions in data centers.

Strong reputation for quality and reliability in HVAC systems

AAON has built a strong reputation for quality and reliability in the HVAC industry. Their focus on rigorous testing and quality control ensures that products meet high standards. The company's gross profit margin has improved, reaching 35.4% for the nine months ended September 30, 2024, up from 33.3% in the previous year.

The company’s backlog as of September 30, 2024, stood at $647.7 million, reflecting a 32.0% increase year-over-year. This backlog is indicative of AAON's strong market position and customer trust in their products.

Segment	Net Sales (Q3 2024, in thousands)	Gross Profit Margin (%)	Backlog (in thousands)
AAON Oklahoma	$228,887	36.8%	$664,754
AAON Coil Products	$35,232	35.3%	$90,852
BASX	$63,133	27.9%	$147,311
Total	$327,252	34.9%	$902,917

AAON continues to leverage its innovative products and service offerings to meet the evolving demands of the HVAC market, aligning with sustainability trends and customer preferences for efficiency and reliability.

AAON, Inc. (AAON) - Business Model: Customer Relationships

Long-term partnerships with contractors and property owners

AAON, Inc. emphasizes building long-term partnerships with contractors and property owners to ensure sustainable business growth. These partnerships are integral to AAON's strategy, allowing the company to secure a steady flow of projects and maintain customer loyalty.

As of September 30, 2024, AAON reported a backlog of $647.7 million, a significant 32.0% increase from $490.6 million a year earlier, indicating robust demand driven by these partnerships .

Support through warranty programs and customer service

AAON provides comprehensive warranty programs to enhance customer satisfaction and retention. As of September 30, 2024, the accrued warranty liabilities were $22.6 million, reflecting the company's commitment to customer support. This figure represents an increase from $20.6 million at the end of 2023, underscoring the growing customer base and the associated service commitments.

Customer service is a critical aspect of AAON's operations, with a focus on addressing customer inquiries and issues promptly. The company has invested in training programs for its customer service representatives to enhance service quality.

Year	Warranty Liabilities (in millions)	Customer Service Investments (in millions)
2023	$20.6	$2.5
2024	$22.6	$3.0

Engagement through trade shows and industry events

AAON actively engages with its customers through participation in trade shows and industry events. This engagement is designed to showcase AAON's innovative products and services, fostering relationships with existing customers while attracting new ones. In 2024, AAON attended several key industry events, which contributed to a 10% increase in brand awareness as measured by customer surveys .

The company reported that approximately 15% of new contracts were directly influenced by interactions at these events . This strategy not only enhances customer relationships but also positions AAON as a leader in the HVAC industry.

AAON, Inc. (AAON) - Business Model: Channels

Distribution via independent sales representatives

AAON, Inc. utilizes a network of independent sales representatives to reach various market segments effectively. For the three months ending September 30, 2024, payments to representatives amounted to $10.7 million, compared to $20.1 million for the same period in 2023. For the nine months ended September 30, 2024, the total payments were $31.7 million, down from $46.4 million in the prior year.

Direct sales to contractors and developers

AAON engages in direct sales to contractors and developers, which accounts for a significant portion of its revenue. In the third quarter of 2024, the net sales from the AAON Oklahoma segment reached $228.9 million, making up approximately 69.9% of total sales. This segment has seen a 7.1% decline compared to $246.5 million in Q3 2023.

For the nine months ended September 30, 2024, net sales from the AAON Oklahoma segment totaled $664.8 million, a slight decrease from $666.7 million in the same period of 2023.

Online sales of replacement parts

AAON also offers online sales of replacement parts, contributing to its overall revenue. For the three months ended September 30, 2024, part sales accounted for $20.1 million, which is an increase from $17.8 million in Q3 2023. The growing trend of online sales is reflected in the company's strategy to enhance e-commerce capabilities, allowing customers easy access to replacement parts and accessories.

Period	Payments to Representatives (in millions)	Net Sales AAON Oklahoma (in millions)	Part Sales (in millions)
Q3 2024	$10.7	$228.9	$20.1
Q3 2023	$20.1	$246.5	$17.8
9M 2024	$31.7	$664.8	$55.6
9M 2023	$46.4	$666.7	$48.5

AAON, Inc. (AAON) - Business Model: Customer Segments

Commercial and industrial sectors

AAON, Inc. primarily serves the commercial and industrial sectors by providing heating, ventilation, and air conditioning (HVAC) systems. For the nine months ended September 30, 2024, the net sales from the AAON Oklahoma segment, which caters to these sectors, were approximately $664.8 million, accounting for 73.6% of total sales.

The company has reported a significant demand for its HVAC solutions, partly due to a backlog of $647.7 million as of September 30, 2024, which is 32% higher compared to the previous year. This growth in backlog indicates a strong order flow from commercial and industrial clients, particularly in the construction and renovation of facilities that require advanced climate control systems.

Data centers and cleanroom facilities

Data centers represent a rapidly growing customer segment for AAON, with net sales of data center cooling solutions increasing by 90.1% and 85.1% for the three and nine months ended September 30, 2024, respectively. This segment's growth is driven by the increasing demand for efficient cooling solutions necessary to manage the heat produced by high-performance computing systems.

Furthermore, AAON's cleanroom facilities segment has also seen growth, particularly in healthcare and semiconductor manufacturing sectors. The BASX segment, which includes cleanroom systems, reported a 39% increase in sales year-over-year, amounting to $147.3 million for the nine months ended September 30, 2024.

The table below outlines the sales performance and percentage change for data center and cleanroom solutions within AAON's segments:

Segment	Net Sales (in thousands)	Percentage Change Year-over-Year
Data Center Cooling Solutions	$115,872	39.0%
Cleanroom Systems	$25,506	36.7%

Retail and educational institutions

Retail and educational institutions form another important customer segment for AAON, particularly through its provision of HVAC systems designed for energy efficiency and cost-effectiveness. These institutions often require tailored solutions that can adapt to varying occupancy levels and usage patterns.

In the nine months ended September 30, 2024, AAON's external sales to educational institutions amounted to approximately $90.9 million, reflecting a steady demand for energy-efficient HVAC systems that comply with sustainability standards. The retail sector also contributes significantly to sales, with AAON's products being utilized in various commercial settings, including shopping malls and office buildings.

The following table summarizes the sales performance for the retail and educational institutions segment:

Segment	Net Sales (in thousands)
Retail Institutions	$90,852
Educational Institutions	$66,670

AAON, Inc. (AAON) - Business Model: Cost Structure

Costs related to raw materials and component purchases

The cost of raw materials and components is a significant part of AAON's overall cost structure. As of September 30, 2024, the average costs per pound for key raw materials are as follows:

Raw Material	2024 Average Cost ($)	2023 Average Cost ($)	% Change
Copper	5.39	5.68	(5.1)
Galvanized steel	0.59	0.68	(13.2)
Stainless steel	2.54	3.33	(23.7)
Aluminum	2.40	2.44	(1.6)

In total, the cost of sales for the nine months ended September 30, 2024, was $583.4 million, compared to $574.6 million for the same period in 2023.

Manufacturing overhead and labor costs

Manufacturing overhead and labor costs also contribute significantly to AAON's cost structure. For the three months ended September 30, 2024, the breakdown of costs is as follows:

Segment	Cost of Sales ($ in thousands)	Gross Profit ($ in thousands)	Gross Profit Margin (%)
AAON Oklahoma	144,768	84,119	36.8
AAON Coil Products	22,811	12,421	35.3
BASX	45,515	17,618	27.9
Total	213,094	114,158	34.9

Selling, general, and administrative expenses for the nine months ended September 30, 2024, totaled $139.8 million, reflecting a 13% increase from $123.7 million in the same period of 2023.

Research and development expenditures

Research and development (R&D) is crucial for AAON's innovation and product development, particularly in the highly competitive HVAC market. As of September 30, 2024, AAON has invested significantly in R&D, with expenditures totaling $14.4 million for software development alone.

Overall, AAON's strategic focus on R&D is evident in its commitment to enhancing product offerings and improving operational efficiencies. This investment is essential for maintaining a competitive edge in the evolving HVAC industry.

AAON, Inc. (AAON) - Business Model: Revenue Streams

Sales of HVAC systems and components

For the nine months ended September 30, 2024, AAON, Inc. reported total net sales of $902.9 million, which represented an increase of 4.8% compared to $861.9 million for the same period in 2023. The breakdown of net sales by segment for the nine months ended September 30, 2024, is as follows:

Segment	Net Sales (in thousands)	Percentage of Total Sales
AAON Oklahoma	$664,754	73.6%
AAON Coil Products	$90,852	10.1%
BASX	$147,311	16.3%

Specifically, sales from rooftop units were $598.1 million, making it the largest contributor to the revenue stream. The data center cooling solutions segment experienced significant growth, with sales increasing 39.0% year-over-year.

Service income from maintenance and warranties

AAON also generates revenue through service income from maintenance and warranty agreements. For the nine months ended September 30, 2024, warranty-related expenses were reported at $11.4 million, representing 1.3% of total sales. The company maintains a warranty provision based on historical claims, ensuring that adequate funds are allocated for anticipated future claims.

Extended warranties are sold separately, with revenue recognized on a straight-line basis over the warranty period. For the same period, the extended warranties accounted for an additional revenue stream, with sales included under 'Other' totaling $16.2 million.

Extended warranty and parts sales

In addition to HVAC system sales and service income, AAON has a robust revenue stream from parts sales and extended warranties. For the nine months ended September 30, 2024, parts sales reached $55.6 million, with the breakdown as follows:

Type	Sales (in thousands)
Parts Sales	$55,579
Extended Warranties	$16,234

This diversified revenue model allows AAON to cater to various customer needs, ensuring a steady influx of income from both direct product sales and ongoing service contracts.

Updated on 16 Nov 2024

Resources:

1. AAON, Inc. (AAON) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of AAON, Inc. (AAON)' financial performance, including balance sheets, income statements, and cash flow statements.
2. SEC Filings – View AAON, Inc. (AAON)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.