AAON Q1 Earnings Call Highlights

Key Points

• Record sales: AAON reported Q1 net sales of $496.9 million, up 54% year‑over‑year, and a company backlog of $2.1 billion—more than double a year ago—driven by elevated orders and recent capacity investments boosting throughput.
• BASX momentum: BASX (data‑center thermal management) sales rose 72% YoY with a book‑to‑bill >2 and backlog up 160% YoY; management expects roughly $1 billion in BASX revenue for 2026 and sees capacity potential above $2 billion.
• Margins and outlook: Gross margin fell to 25.1% (down 170 bps) due to outsourcing, Memphis ramp costs and tariffs, but management expects sequential margin improvement and reiterated 2026 guidance of 40–45% sales growth and a 27–28% gross‑margin range.

AAON NASDAQ: AAON reported a “strong start to the year” in its first-quarter 2026 earnings call, citing record sales, higher earnings, and a growing backlog as production investments began to translate into higher throughput. President and CEO Matt Tobolski said the quarter was “an important execution quarter” as leadership and capacity initiatives “began to show up more clearly in our results.”

Record sales, higher earnings, and a growing backlog

AAON posted first-quarter net sales of $496.9 million, up 54% year over year, which CFO Andy Cheung called a record. Cheung said growth was driven by both the BASX and AAON brands, supported by “elevated backlog levels and recent capacity investments that enabled higher production rates during the period.”

Tobolski highlighted strong order activity and a book-to-bill ratio “well above one,” which drove total company backlog to $2.1 billion, “more than double from a year ago” and the sixth consecutive quarter at record levels.

BASX growth fueled by data center demand and capacity ramp

Management emphasized that demand remained “exceptionally strong” at BASX, which is tied to the data center market. Tobolski said BASX-branded sales grew 72% year over year, supported by increased production from expanded facilities in Longview and Memphis, and continued output increases from Redmond. He added that all three sites delivered record BASX-branded sales in the quarter.

Bookings also accelerated. Tobolski said BASX posted a book-to-bill ratio “over 2,” pushing BASX-branded backlog up 160% year over year and 24% sequentially. He compared BASX’s growth to a data center thermal management market he estimated is growing “at approximately 30%,” and said BASX’s revenue and order growth supported continued market share gains.

During the Q&A, Tobolski said the company’s updated full-year revenue outlook implies “roughly $1 billion in BASX revenue for the year.” He attributed the faster pace of BASX revenue and bookings to strong underlying data center demand and a decision to “accelerate some of the productivity or production ramp,” including temporary cost actions such as additional outsourcing to capture opportunity.

He also told analysts BASX capacity could extend beyond prior targets. Referencing earlier “rough napkin math” of around $1.5 billion, Tobolski said the investments already made in Longview and Memphis embed more potential than originally estimated and that the company “definitely” sees capacity “above $2 billion for sure,” with mix being an important driver.

AAON brand sales rebound as production improves; heat pumps gain traction

On the AAON brand, Tobolski said the business gained share “even as market conditions remained soft and our extended lead times persisted.” He pointed to improved production rates, which helped lift AAON-branded sales 42% year over year and 11% sequentially, contributing to shorter lead times and a sequential reduction in backlog.

Bookings for AAON-branded equipment increased about 9% year over year, with growth driven by strength in the company’s “traditional transactional business,” while national account bookings were comparable to the prior-year period. Tobolski said the improvement in transactional demand was encouraging after being soft for much of last year.

He also highlighted momentum in Alpha Class equipment—AAON’s fully electric heat pump configurations—saying orders increased 56% during the quarter. AAON-branded backlog declined 3% sequentially but remained up 26% from a year ago, and management said it remains focused on further ramping production to normalize lead times.

Margins pressured by outsourcing, Memphis ramp costs, and tariffs; improvement expected over the year

Gross margin was 25.1% in the first quarter, down 170 basis points from 26.8% in the prior-year period. Cheung attributed the decline to “an increased amount of outsourced components,” “unabsorbed fixed costs at the new Memphis facility,” and “tariff-related and general inflation pressures,” calling the impacts temporary. He said pricing and mix actions have been taken and “are embedded in the backlog.”

SG&A was 13.7% of sales, improving 220 basis points year over year, though total SG&A expense rose 32% to $67.9 million. Cheung said the percentage improvement reflected operating leverage and disciplined cost management. Non-GAAP adjusted EBITDA increased 44% to $78 million, while adjusted EBITDA margin was 15.7% versus 17.6% a year ago. Diluted EPS was $0.48, up 37% year over year.

Segment performance varied:

• AAON Oklahoma: Sales rose 51% to $244 million. Gross margin was 26.3%, up 120 basis points year over year. Cheung said Memphis-related overhead costs reduced segment margin by $9.8 million; excluding those costs, Oklahoma margin was 29.6%.
• AAON Coil Products: Sales increased 25% to $117.6 million, driven by $93.2 million in BASX-branded liquid cooling sales, up 40%. AAON-branded output in the segment declined 12%. Gross margin fell to 24.1% from 31.8% a year ago but improved sequentially from 21.3% in the fourth quarter due to higher throughput and favorable BASX mix.
• BASX segment: Sales grew 104% to $135.4 million. Gross margin was 23.9%, roughly flat year over year, as volume growth was offset by added resources and investments to support future growth. Cheung said he expects BASX sales and margins to expand through the year, with the second half “weighted more favorably as fixed cost absorption improves.”

In discussing Oklahoma margins, Tobolski said the gap versus 2024 highs was driven by three main factors: intentional outsourcing choices to fuel growth, price-cost dynamics, and tariff impacts. He said pricing actions were taken in the back half of last year and are embedded in backlog, with continued monitoring of input costs and pricing discipline.

Looking to the second quarter, Tobolski said the company expects sequential improvement in the Oklahoma segment margins and noted typical seasonality, with improvement expected in Q2 and Q3 and “a little bit of potential pullback in Q4.”

Cash flow, leverage, and 2026 outlook

Cheung said cash, cash equivalents, and restricted cash totaled $1.1 million at March 31, 2026, while quarter-end debt was $425.2 million. The leverage ratio improved to 1.71x from 1.77x at year-end 2025. Operating cash flow was positive $34 million—“the highest level since the third quarter of 2024”—driven by higher earnings and improved working capital efficiency. Capital expenditures were $52.9 million in the quarter.

AAON reiterated its expected full-year capital spending, with management stating its current expectation remains $190 million for the year. Tobolski said the largest concentration is in Memphis, but emphasized that the initial Memphis investments already provide “a tremendous amount of revenue potential,” and that supporting growth does not require “some massive investment” beyond the ongoing buildout and fleet-wide investments made over the last several years.

For 2026, Tobolski provided updated guidance calling for sales growth of 40% to 45% and gross margin of 27% to 28%. SG&A is expected to be 14% to 15% of sales, and depreciation and amortization is projected at $95 million to $100 million. Tobolski said the outlook reflects “higher growth for the year, albeit with more modest margins near term,” driven by intentional ramp and outsourcing decisions that management views as temporary and expected to unwind as internal capacity scales.

Cheung, who joined in April, said his near-term priorities include “margin discipline,” improving “cash generation, particularly on working capital management,” and enhancing the capabilities and visibility of the finance function in partnership with the operating team.

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.

This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to contact@marketbeat.com.