AAON Q2 Earnings Call Highlights

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AAON (NASDAQ:AAON) reported record second-quarter sales as higher production throughput across its facilities accelerated backlog conversion and supported strong growth in both its AAON-branded commercial HVAC products and BASX data center cooling business.

Second-quarter net sales rose 101% year over year to $627 million, marking the company’s fourth consecutive quarterly revenue record. Adjusted EBITDA increased 102.3% to $94.2 million, while adjusted diluted earnings per share grew 213.6% to $0.69. President and CEO Matt Tobolski said the results reflected investments in supply chain management, manufacturing capacity, lean operations and organizational development.

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“Higher throughput across all four of our major facilities resulted in substantial volume growth,” Tobolski said. “These efforts translated into our fourth consecutive quarterly revenue record.”

BASX Growth Fueled by Data Center Demand

BASX-branded sales increased 216.2% from a year earlier during the quarter, supported by data center cooling demand, higher production output and increased use of recently added manufacturing capacity. BASX segment sales rose 221% to $218 million, while gross profit increased 244.2% to $65.3 million. Segment gross margin expanded to 30.0% from 27.9% a year earlier.

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AAON Coil Products also benefited from BASX liquid-cooling demand. Sales in that segment rose 151% to $146.7 million, including $126.6 million of BASX-branded liquid cooling product sales, which increased 208% year over year.

Management said BASX bookings were below the unusually high levels seen in recent quarters, but Tobolski characterized the result as normal variability associated with large projects rather than a weakening in demand. He told analysts that there was no specific major order delay or pushout during the quarter.

“It is just lumpiness,” Tobolski said. “There is no specific order push out or movement.”

He added that the company’s data center pipeline was at its strongest level to date, including opportunities with existing and prospective customers across its liquid-cooling, airside and chiller product portfolio. Management said many discussions involve deliveries planned for 2027 and 2028.

AAON Brand Gains Share in Soft HVAC Market

AAON-branded sales increased 39.3% year over year in the second quarter, with management citing improved production throughput, healthy demand and faster backlog conversion at its Tulsa and Longview facilities. The company said bookings for AAON-branded equipment increased about 16% year over year, driven primarily by its traditional transactional business.

Orders for the company’s Alpha Class fully electric heat pump platform rose 50% during the quarter and 54% year to date. Tobolski said customer adoption of the platform continued to increase as customers focus on electrification, sustainability and energy efficiency.

AAON Oklahoma segment sales increased 42% to $262.3 million. Gross margin in the segment declined to 24.3% from 28.9% a year earlier, largely because $18.1 million of Memphis facility overhead was allocated to the segment, compared with $3 million in the prior-year quarter. Excluding Memphis overhead, management said Oklahoma segment margins expanded about 60 basis points to 31.2%.

Margins Pressured by Capacity Ramp and Costs

Despite sharply higher revenue and profit, consolidated gross margin declined to 24.3% from 26.6% in the second quarter of 2025. CFO Andy Cheung said the decline reflected the ramp of recently added capacity, including the Memphis facility, increased use of outsourcing and inflationary cost pressures.

AAON Coil Products’ gross margin fell to 16.0% from 17.5%, which management attributed primarily to inflation in raw materials and freight costs, as well as delayed pricing actions. Tobolski said the company has implemented pricing measures but expects a more meaningful margin recovery in the segment toward the end of the year as higher-priced backlog moves into production.

Management expects modest sequential margin improvement in the third quarter, with more pronounced gains in the fourth quarter. Tobolski said price-cost recovery is expected to be the largest contributor to second-half margin improvement, supplemented by productivity gains, higher utilization and better fixed-cost absorption.

The Memphis facility, which is expanding production capacity for BASX, is operating ahead of the company’s internal plan, according to management. Cheung said production and revenue have outpaced expectations and margins at the facility have expanded for two consecutive quarters. However, the facility’s rapid ramp has also pressured consolidated margins because its current margin level is below that of the more established Oklahoma operations.

Company Raises 2026 Sales Outlook

AAON raised its 2026 outlook, now expecting sales growth of 55% to 60%, gross margin of 25% to 26%, SG expenses equal to 13% to 14% of sales, and depreciation and amortization expense of $95 million to $100 million.

Management said the sales outlook assumes approximately 20% annual growth for the AAON brand and more than a doubling of BASX sales. Tobolski said the company’s guidance reflects stronger-than-expected production, backlog conversion and operating execution, while accounting for potential supply-chain and operational constraints associated with the pace of growth.

SG expenses declined by 570 basis points as a percentage of sales to 13.3%, although dollar-based spending increased by $24.5 million to $83.6 million as the company continued investing in its organization. Management said it expects more significant SG leverage to emerge in 2027 after near-term investments are absorbed.

For the first half of 2026, cash flow from operations was $55 million, compared with a $31 million cash use in the prior-year period. Capital expenditures totaled $102.6 million year to date. Cash, cash equivalents and restricted cash totaled $12.7 million as of June 30, while debt was $435 million. The company’s leverage ratio improved to 1.48 from 1.71 at the end of the first quarter.

Looking beyond 2026, Tobolski said AAON expects higher capacity utilization, productivity improvements, sourcing initiatives, pricing actions and improving working-capital efficiency to support stronger margins and cash generation.

About AAON (NASDAQ:AAON)

AAON, Inc (NASDAQ: AAON) is a U.S.-based designer and manufacturer of heating, ventilation and air conditioning (HVAC) equipment for commercial and industrial applications. The company's product portfolio focuses on rooftop packaged units, water-source heat pumps, chillers and custom-engineered solutions that cater to a wide array of building types, from office complexes and schools to data centers and healthcare facilities.

AAON's core offerings include rooftop units available in gas, electric and dual-fuel configurations, precision air-conditioning systems for temperature- and humidity-sensitive environments, and modular chillers suited for both indoor and outdoor installations.

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