AAON (NASDAQ: AAON) reported second-quarter 2026 net sales of $627.0 million, up 101.2% from $311.6 million a year earlier, while GAAP diluted EPS rose 257.9% to $0.68 from $0.19. For the quarter ended June 30, 2026, expanded capacity and faster backlog conversion drove the revenue increase, although capacity-ramp and outsourcing costs reduced gross margin. First-half operating cash flow also improved to $55.0 million from a $31.0 million outflow.

Core earnings data

Higher manufacturing throughput and utilization of recently added capacity helped AAON convert more of its backlog into revenue. Demand increased across both the AAON and BASX brands, with data-center activity providing the largest growth contribution.

Gross profit grew more slowly than revenue because of costs associated with ramping new capacity, including the Memphis facility, as well as outsourced components and inflation. However, SG&A declined substantially as a percentage of sales, allowing operating income to grow faster than revenue.

Adjusted EPS and adjusted EBITDA are non-GAAP measures. The adjusted EPS growth rate is the company-reported figure and may not recalculate from the rounded per-share amounts.

Business and segment performance

At the brand level, BASX-branded sales increased 216.2% to $345.0 million, supported by data-center demand, additional production and higher capacity utilization. AAON-branded sales rose 39.3% to $282.2 million as production improvements accelerated conversion of its existing backlog.

The reporting segments showed substantial growth but different margin trends. BASX-branded revenue includes both the BASX segment and BASX-branded liquid-cooling products sold through AAON Coil Products.

AAON Coil Products benefited from $126.6 million of BASX-branded liquid-cooling sales, up 208.4%. Its margin was pressured by inflation, outsourcing, freight and the timing between cost increases and pricing actions. The BASX segment produced the clearest combination of volume and margin growth, as higher production helped gross margin rise to 30.0%.

Total backlog was $1.97 billion at quarter-end, up 98.0% year over year. BASX-branded backlog increased 185.4% to $1.43 billion, while AAON-branded backlog increased 9.4% to $540.5 million.

Backlog declined 7.4% from the first quarter, primarily because production accelerated and converted more orders into revenue, along with normal timing variability for large BASX projects. AAON-branded backlog increased 6.0% sequentially despite a softer commercial HVAC market.

SG&A leverage outweighed the gross-margin cost of scaling

The central profitability issue was the difference between gross margin and operating margin. Gross margin fell 230 basis points as AAON absorbed the near-term cost of new capacity and relied on outsourced components, but SG&A as a percentage of sales declined 570 basis points. As a result, operating margin expanded by approximately 340 basis points to 11.0%.

The segment figures help identify where the margin pressure occurred. AAON Oklahoma incurred $18.1 million of Memphis facility overhead, compared with $3.0 million a year earlier. Excluding those costs, the segment’s adjusted gross margin increased to 31.2% from 30.5%, suggesting that the decline in its reported margin was largely associated with the capacity expansion.

AAON Coil Products faced a different mix of pressures, including inflation, freight, outsourcing and price-cost timing. By contrast, the BASX segment’s higher volume supported both gross profit growth and margin expansion.

Cash flow and balance sheet

Operating cash flow was $55.0 million for the first six months of 2026, an improvement of approximately $86.0 million from the $31.0 million use of cash in the same period of 2025. Higher earnings and working-capital initiatives contributed to the improvement, but first-half capital expenditures of $97.3 million still exceeded operating cash generation.

Inventory increased to $331.3 million from $261.2 million at the end of 2025 as the company supported higher production. As of June 30, AAON had $12.7 million of cash, cash equivalents and restricted cash, while its revolving credit facility balance was $435.0 million, up from total long-term debt of $398.3 million at year-end.

2026 guidance

AAON raised both ends of its full-year sales-growth outlook by 15 percentage points, reflecting higher throughput, backlog conversion and current expectations for project timing. At the same time, it reduced gross-margin guidance by two percentage points, indicating that the near-term cost of scaling is expected to persist longer than previously assumed.

Management expects sequential margin improvement during the second half as production volumes and utilization increase and pricing, sourcing and productivity measures have a larger effect. The revised outlook nevertheless pairs faster expected growth with lower full-year gross profitability.

Recent insider transactions

The supplied six-month summary shows 383,394 shares acquired across 28 transactions and 187,191 shares sold across 17 transactions, producing net acquisitions of 196,203 shares, or 1.40% of total insider holdings. The 10 most recent reported entries consisted of six sales, three derivative exercises or conversions, and one stock gift; transaction types alone do not establish insiders’ views on AAON’s outlook.

Risks investors should watch

• Gross-margin execution: AAON lowered full-year gross-margin guidance as new capacity, outsourcing, inflation and price-cost timing continued to affect results. Improvement depends on utilization, productivity, sourcing and pricing initiatives producing the expected benefits.
• BASX project timing: Large, engineered data-center projects can create quarter-to-quarter variability in bookings and backlog. Total backlog declined sequentially even though it remained nearly double the prior-year level.
• Commercial HVAC softness: The AAON brand continued to grow and gain share, but management described the underlying commercial HVAC market as soft, which could constrain order growth.
• Cash requirements from rapid expansion: First-half operating cash flow improved, but it remained below capital expenditures. Inventory increased and revolving credit borrowings reached $435.0 million, making working-capital efficiency and cash conversion important second-half indicators.

Summary

AAON’s second quarter showed that its capacity investments are converting backlog into substantially higher revenue and earnings, led by BASX and data-center demand. SG&A leverage more than offset the decline in gross margin at the operating-income level, but reduced full-year margin guidance confirms that scaling costs remain the main financial pressure. Investors’ next focus will be whether second-half utilization, pricing and sourcing actions improve margins while stronger earnings translate into cash flow that better supports capital spending and the balance sheet.

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