Aaon Inc

Natural and catastrophic events · Climate change and environmental impact

Changes in environmental and energy efficiency standards and regulations related to global climate change are being implemented to curtail the use of hydrofluorocarbons which are used in refrigerants that are essential to many of our products. New York State released a final rule on December 23, 2024, that requires that we change our products to use refrigerants with a 20-year global warming potential less than 10 beginning January 1, 2034.

Geopolitical and trade · Trade policies tariffs and sanctions

There is currently significant uncertainty about the future relationship between the U.S. and various other countries with respect to trade policies and tariffs. The imposition of additional tariffs on our products (or on materials, parts or components we use to manufacture our products) by the U.S. or other countries would increase the cost of our products and could increase further to the extent that retaliatory tariffs or similar additional trade restrictions are implemented.

Economic and market conditions · Economic recession and downturns

Sales in the commercial and industrial new construction markets correlate to the number of new homes and buildings that are built, which in turn is influenced by cyclical factors such as interest rates, inflation, consumer spending habits, employment rates, and other macroeconomic factors over which we have no control. In the HVAC business, a decline in economic activity as a result of these cyclical or other factors typically results in a decline in new construction and replacement purchases which could impact our sales volume and profitability.

Geopolitical and trade · Regulatory and policy uncertainty

Due to our use of Representatives in foreign markets, we are subject to many laws governing international relations, including those that prohibit improper payments to government officials and commercial customers, and restrict where we can do business, what information or products we can supply to certain countries.

Natural and catastrophic events · Natural disasters and extreme weather

Natural disasters such as tornadoes, ice storms and fires, as well as accidents, acts of terror, infection, and other factors beyond our control could adversely affect our operations. Our facilities are in areas where tornadoes are likely to occur, and the majority of our operations are at our Tulsa, Oklahoma facilities. With the acquisition of BASX in 2021, we now have operations in an area that is historically impacted by wildfires.

Industry regulation · Regulatory compliance and changes

We always face the possibility of new or rapidly evolving changes to existing governmental regulations and policies, from the Federal or state levels, which could have a substantial or even extreme negative effect on our operations and profitability. This could affect equipment we currently manufacture and could have an impact on our product design, operations, and profitability.

Tax and financial reporting · Tax compliance and changes in tax law

Our tax expense or benefits could be adversely affected by changes in tax provisions, unfavorable findings in tax examinations, or differing interpretations by tax authorities. We are unable to estimate the impact that current and future tax proposals and tax laws could have on our results of operations.

Industry regulation · Safety and environmental regulations

Our future profitability could be adversely affected by current or future environmental laws. We are subject to extensive and rapidly changing federal, state and local laws and regulations designed to protect the environment in the United States and in other parts of the world. These laws and regulations could impose liability for remediation costs and result in civil or criminal penalties in case of non-compliance.

Human capital and workforce · Key personnel dependence and succession

Our success depends largely upon the continued services of our officers and senior leadership team. We rely on our officers and senior leadership team in the areas of research and development, marketing, production, sales, and general and administrative functions. While we have a robust succession plan in place for each one of our officers and senior leadership team members, the loss of one or more could have a serious adverse effect on our business.

Core operations · Safety incidents and operational accidents

Variability in self-insurance liability estimates could impact our results of operations. We self-insure for certain employee health insurance and workers' compensation insurance coverage up to a predetermined level, beyond which we maintain stop-loss insurance from a third-party insurer.

Human capital and workforce · Talent acquisition and retention

We compete to hire new employees and then seek to train them to develop their skills. We may not be able to successfully recruit, develop, and retain the personnel we need. Unplanned turnover or failure to hire and retain a diverse, skilled workforce, could increase our operating costs and adversely affect our results of operations.

Supply chain and procurement · Supplier operation and dependance

If a key supplier is unable or unwilling to meet our supply requirements, we could experience supply interruptions or cost increases, either of which could have an adverse effect on our gross profit.

Innovation and product development · Product development and randd investment risks

Our future success will depend upon our continued investment in research and new product development and our ability to continue to achieve new technological advances in the HVAC industry. Our inability to continue to successfully develop and market new products or our inability to implement technological advances on a pace consistent with that of our competitors could lead to a material adverse effect on our business and results of operations.

Customer and revenue · Customer retention and subscription renewal

Our customers have the right in some circumstances, usually with penalties or other termination consequences, to reduce or defer firm orders in backlog. If customers terminate, reduce or defer firm orders, the revenue we expect to generate from our backlog may not be fully realized.

Customer and revenue · Customer concentration and key customer dependence

From time to time we derive a significant portion of our sales from a limited number of customers, and such concentration may continue in the future. The loss of, or significant reduction in sales to significant customers (or a related portfolio group of customers) could have a material adverse effect on our results of operations, financial condition and cash flow.

Market position and competition · Market cyclicality and demand volatility

The length of the sales cycle for certain BASX-branded products and solutions offerings, as well as unpredictable placing or canceling of customer orders, particularly large orders, may cause our revenues and operating results to vary significantly from period-to-period. Customers deciding on the design and implementation of large deployments may have lengthy and unpredictable procurement processes that may delay or impact expected future orders, including customers canceling orders based on unforeseen changes to their businesses.

Cybersecurity and data protection · Data breaches and cyber attacks

Despite our implementation of network and other cybersecurity measures, our information technology system and networks could be disrupted due to technological problems, a cyber-attack, acts of terrorism, severe weather, a solar event, an electromagnetic event, a natural disaster, the age and condition of information technology assets, human error, or other reasons. Any cyber-related attack or other improper disclosure of confidential information could have a material adverse effect on our business.

Digital transformation and innovation · Technology implementation and upgrades

We are in the process of implementing a new global enterprise resource planning (ERP) system. The ERP system implementation process has required, and will continue to require, the investment of significant personnel and financial resources. We may not be able to successfully implement the ERP system without experiencing delays, increased costs and other difficulties.

Technology infrastructure · Technology systems and infrastructure failure

We are reliant on information technology in all aspects of our business, operated and maintained by the Company as well as under control of third parties. If we do not invest sufficient capital in a timely manner to acquire, develop, or implement new information technologies or maintain or upgrade current information technologies, we could suffer outages as well as be at a competitive disadvantage within our industry.

Stakeholder relations · Supplier and vendor relationships

We are dependent on our third-party representatives to market and sell our products. If such relationships were terminated or impaired for any reason, it could materially and adversely affect our ability to generate revenues and profits. Certain competitors with greater financial resources than us have targeted some of our third-party representatives for exclusive sales channels.