AAON reported Q3 2025 net sales up 17.4% year-over-year to $384.2 million, driven by a 95.8% surge in BASX-branded sales tied to data center demand and initial output from the new Memphis facility, while AAON-branded sales were roughly flat year-over-year (down 1.5%) but rose 28.1% sequentially as Tulsa and Longview production recovered. Gross margin was 27.8%, down from 34.9% a year ago on ERP implementation inefficiencies and unabsorbed fixed costs at Memphis, but up 120 basis points sequentially; non-GAAP adjusted EBITDA margin was 16.5% (down from 25.3% but up 160 bps sequentially) and diluted EPS was $0.37, down 41.3% year-over-year but up 94.7% sequentially. Backlog grew strongly across both brands, with BASX-branded backlog reaching $896.8 million (up 119.5% year-over-year and 43.9% sequentially) and AAON-branded backlog up 77.1% year-over-year. Management called the quarter a decisive inflection point in operational recovery and expects sequential margin improvement to continue through Q4 into early 2026. The Memphis facility adds nearly 800,000 sq ft of BASX capacity with large-scale production expected by year-end, and management guided to full-year 2025 sales growth in the mid-teens at 28%-28.5% gross margin. For Q4, AAON expects double-digit revenue growth and cash flow from operations to turn significantly positive, and it lowered 2025 capex to $180 million from $220 million on project timing. Management also directly rebutted a short report, reaffirming its ASC 606 revenue recognition and that its large liquid cooling order is a well-priced custom-engineered product.
Thank you, operator, and good morning, everyone. The press release announcing our third quarter financial results was issued earlier this morning and can be found on our corporate website, aaon.com. The call today is accompanied by a presentation that you can also find on our website as well as on the listen-only webcast. We begin with our customary forward-looking statement policy. During the call, any statement presented dealing with the information that is not historical is considered forward-looking and made pursuant to the safe harbor provisions of the Securities Litigation Reform Act of 1995, the Securities Act of 1933, and the Securities and Exchange Act of 1934, each as amended. As such, it is subject to the occurrence of many events outside of AAON's control that could cause AAON's results to differ materially from those anticipated.
You are all aware of the inherent difficulties, risks, and uncertainties in making predictive statements. Our press release and Form 10-Q that we filed this morning detail some of the important risk factors that may cause our actual results to differ from those in our predictions. Please note that we do not have a duty to update our forward-looking statements. Our press release and portions of today's call use non-GAAP financial measures as defined in Regulation G. You can find the related reconciliations to GAAP measures in our press release and presentation. Joining me on the call today is Matt Tobolski, CEO and President, and Rebecca Thompson, CFO and Treasurer. Matt will start off with some opening remarks. Rebecca will then follow with a walkthrough of the quarterly results, and Matt will finish with our outlook for the rest of the year and some closing remarks.
With that, I will turn the call over to Matt.
Thanks, Joe, and good morning. The third quarter marked a decisive inflection point in our operational recovery and capacity expansion. We saw substantial improvement in production throughput at both the Tulsa and Longview facilities, which drove meaningful sequential sales growth, while continued strength in bookings contributed to further backlog growth. While margins in the quarter continued to be impacted by operational inefficiencies in Longview and the early ramp-up of the new Memphis facility, we continue to make steady progress and expect sequential margin improvement to continue through the fourth quarter and into early 2026, putting us firmly on track toward our longer-term goals. The BASX brand continues to perform exceptionally well, fueled by strong momentum in the data center market, where favorably priced bookings have risen sharply, and the pipeline of opportunities remains BASX-branded backlog grew to $896.8 million.
Up 119.5% from a year ago and up 43.9% from the prior quarter. Demand for both our airside and liquid cooling products remains strong, reflecting how well our custom solutions align with customer needs. To meet this growing demand, we remain laser-focused on ramping up production capacity at our new Memphis facility. This facility adds nearly 800,000 sq ft of state-of-the-art manufacturing capacity, which provides considerable growth to our BASX production capabilities and positions us well for continued growth. The ramp-up of the facility is progressing as planned, with large-scale production expected by year-end. With a strong backlog and significant increase in capacity, we expect the BASX brand to deliver meaningful growth in 2026. The AAON brand continues to perform well, with sales rising substantially from the prior quarter and bookings remaining strong.
AAON-branded sales grew 28.1% sequentially, driven by over 20% production increases at both the Tulsa and Longview facilities and improved utilization of the ERP system, enabling us to better meet demand. Tulsa production returned to prior-year levels, and Longview, while still about 20% below last year, showed strong progress. Based on September and October exit rates, we expect Longview is nearing full recovery. Enhanced production output of AAON-branded equipment resulted in a book-to-bill ratio for the brand below one, successfully helping bring backlog and lead times of AAON-branded equipment closer to normalized levels. While backlog for the brand remains higher than desired, we are making steady progress in reducing it. We are committed to achieving this in the near term, ensuring we can effectively serve our customers and restore a normal business cadence.
Despite a soft commercial HVAC market and extended lead times, AAON-branded bookings remained strong. While flat year-over-year due to a challenging comparison, bookings were up 15% on a 2-year stack, reflecting continued strength in underlying demand. National account wins were particularly robust, with bookings up 96% in the third quarter and 92% year-to-date, representing 35% of total bookings for the year. Bookings of Alpha-class air source heat pump equipment also continued their strong momentum, up 45% quarter-over-quarter and 46% year-to-date. As I mentioned earlier, Longview's ERP implementation has progressed considerably. While production of AAON-branded equipment at the facility remained about 20% below targets, output improved sequentially throughout the quarter, and by quarter-end, production of AAON-branded equipment was approaching full recovery. Production of the BASX-branded equipment at Longview has performed exceptionally well, with consistent year-to-date improvement.
Despite the improvement in throughput, we continue to work through efficiency challenges that are weighing on facility profitability. We view these as temporary and expect meaningful margin improvement in the coming quarters. In Tulsa, average production levels for the quarter reflected a full recovery, and by quarter-end, we are running ahead of target. We made strong progress in improving coil supply, which supported the higher production volumes. While our supply of coils remains constrained, we are effectively managing through these constraints. With the Longview implementation now well underway, we have gained valuable experience and insight, both operational and technical, that will guide future ERP rollouts and greatly enhance our readiness to efficiently deploy the ERP system across our other facilities.
While we continue to expect some level of operational impact as future sites transition, we are far better prepared to manage these challenges with strengthened internal processes, improved training programs, and a proven framework that positions us to execute future implementations with greater speed, precision, and minimal disruption. We've applied the lessons learned from Longview to the Memphis GO Live, which occurred on November 1st, and we continue to expect Redmond to transition in the first half of 2026, with Tulsa following in the second half. I will now turn the call over to Rebecca, who will walk through the financials in more detail.
Thank you, Matt. Net sales in the quarter increased year-over-year $57 million, or 17.4%, to $384.2 million. The increase was driven by a 95.8% rise in BASX-branded sales due to continued demand for data center solutions and increasing production out of our Memphis facility. AAON-branded sales were roughly in line with the prior year, declining 1.5%, but increased 28.1% sequentially, driven by solid production gains at both Tulsa and Longview facilities. Gross margin was 27.8%, down from 34.9% in the prior year, but up 120 basis points sequentially. The year-over-year contraction was primarily due to operational inefficiencies associated with the ERP system implementation and unabsorbed fixed costs related to the new Memphis facility. Sequentially, the improvements reflect progress made in optimizing the new ERP system and the resulting increases in production throughput at both the Tulsa and Longview facilities. Non-GAAP adjusted EBITDA margin was 16.5%.
Down from 25.3% a year ago, but up 160 basis points in the previous quarter. Diluted EPS was $0.37, down 41.3% from a year ago, but up 94.7% sequentially. Below-the-line pressures included elevated DDNA from Memphis and technology consulting fees related to the ERP implementation. Looking at the segment financials, starting with AAON Oklahoma, net sales grew 4.3% year-over-year and 29% sequentially. The growth was driven by a strong backlog entering the quarter and improved production throughput that enabled higher backlog conversion. Coil supply also improved, allowing us to efficiently scale production of AAON-branded equipment. Segment gross margin was 31.5%, down from 36.8% in the prior-year period, but up sequentially 400 basis points. The year-over-year contraction was primarily due to approximately $4.5 million in unabsorbed fixed costs associated with the new Memphis facility. AAON coil product sales increased $35 million, or 99.4%, from the year-ago period.
The year-over-year increase was driven by $46.5 million in BASX-branded liquid cooling product sales, a category that was not in production during the prior-year period. AAON-branded sales at this segment declined $10.9 million, or 31.6%, due to the ERP implementation disruptions. Sequentially, AAON-branded sales grew 36.2%, reflecting improved utilization of the new ERP system and the resulting increase in production throughput since its GO Live in April. Despite the improved throughput, gross margin declined sequentially, reflecting several discrete items which collectively impacted gross margin by 1,050 basis points in the quarter. We expect these challenges to be resolved with our ERP progress, and over time, we expect this segment will deliver gross margin of around 30% based on the strength of pricing within the backlog.
Sales at the BASX segment grew 19.2%, driven by sustained demand of data center solutions as the market continues to demonstrate strong momentum and the business captures additional market share. Initial production from our new Memphis facility played a key role in driving growth. Gross margin contracted modestly due to higher indirect warehouse personnel costs associated with operating the Redmond facility near full capacity. Optimization efforts at this facility remain a focus and are expected to accelerate as the Memphis facility continues to ramp. Cash, cash equivalents, and restricted cash balances totaled $2.3 million on September 30th, [audio distortion] Debt at the end of the quarter was $360.1 million. Our leverage ratio was 1.73. Year-to-date, we had cash outflows from operations of $18.8 million compared to cash inflows of $191.7 million in the comparable period a year ago.
Capital expenditures for the first three quarters, including expenditures related to software development, increased 22.1% to $138.9 million. We had net borrowings of debt of $205 million over this period, largely to finance investments in working capital, capital expenditures, and $30 million in open market stock buybacks that we executed in the first quarter, all of which we anticipate will generate attractive returns. Overall, our financial position remained strong. We anticipate cash flow from operations will turn significantly positive in the fourth quarter as working capital, including contract assets, become a source of cash, reflecting payments received on a large order that was recently started deliveries. This gives us flexibility and allows us to continue focus on investments that will drive growth and generate attractive returns. We now anticipate 2025 capital expenditures will be $180 million compared to our previous estimate of $220 million.
The reduction primarily reflects project timing and the inability to fully deploy funds this year, with a majority of these expenditures expected to shift into 2026. I will now turn the call over to Matt.
Thank you, Rebecca. As previously mentioned, backlog remains strong across both brands, giving us the confidence and visibility to stay focused on production and execution. The BASX brand remains the key growth driver of the company, fueled by exceptional demand for the data center market and the unique custom-designed solutions that we provide our customers. In the quarter, BASX secured a strong volume of new orders at attractive margins, most of which are scheduled for production at our new Memphis facility in 2026. This sets us up to ramp production efficiently next year, optimize the fixed cost investments made in 2025, and drive robust growth for the BASX brand in 2026. The AAON brand also maintains strong momentum. Backlog at the end of the quarter was up 77.1% year-over-year, reflecting strong demand across our business.
While backlog size and lead times remain extended, we are actively managing this by ramping production. Despite commercial HVAC volumes being down double digits year-to-date, bookings have stayed strong, demonstrating the resilience of our business. For the fourth quarter, we expect double-digit revenue growth driven by continued production recovery and pricing actions implemented earlier this year. This positions us well for 2026 as comparison sees. However, looking to 2026, we also plan to implement the ERP system at our Tulsa facility in the second half of the year. While we expect minimal disruption based on our Longview learnings, there may be some short-term production impact during the transition. Turning to our 2025 outlook, we now anticipate full-year sales growth in the mid-teens at a gross margin of 28%-28.5%. Adjusted SG&A as a percent of sales expected to be 16.5%-17%.
Before I hand it off for Q&A, I just want to finish by saying, while we continue to navigate some near-term challenges, we're making steady progress across all areas of the business. Our operational execution is improving, production is ramping, demand remains robust, and cash flow is trending in the right direction. As we look ahead, we are extremely excited about the opportunities that 2026 will bring. With that, I will now open the call for Q&A.