AAON's Q2 2026 sales doubled to $627.0M on BASX data-center cooling demand and diluted EPS rose to $0.68, but gross margin fell to 24.3% and a 9.8% tax rate flattered earnings; backlog of $1.97B is up 98% YoY but down 7.4% from March.
Revenue
$627M
+101.2% YoY
Net income
$57M
+265.9% YoY
Diluted EPS
$0.68
+257.9% YoY
Operating margin
11.0%
Sales doubled on data-center cooling, but margins slipped and a tax benefit flattered EPS
AAON, the Tulsa-based maker of commercial HVAC equipment, reported second-quarter 2026 net sales of $627.0 million, up 101.2% from $311.6 million a year earlier, its fourth straight record quarter. The main driver was its BASX brand, which builds custom cooling systems for data centers: BASX-branded sales rose 216.2% to about $345 million, more than half of the company's total. Diluted earnings per share rose from $0.19 to $0.68. The quarter had two weak spots. Gross margin fell as the company paid to ramp up new factory capacity. And an unusually low 9.8% tax rate added several cents to EPS.
At a glance
$627.0M in sales (+101.2%). Revenue doubled because new factory capacity, mainly the Memphis plant, let AAON turn its order book into shipments much faster.
24.3% gross margin vs 26.6%. Revenue grew faster than profit on each dollar sold. Management blames the cost of ramping new capacity, outsourced components and inflation, and it cut its full-year margin guidance.
$1.97B backlog (+98.0% YoY, −7.4% vs March). Backlog means signed orders not yet shipped. It is still about double last year's level, but it fell from the first quarter as shipments ran ahead of new BASX awards.
The numbers
Metric
Q2 2026
Q2 2025
YoY Change
Net sales
$627.0M
$311.6M
+101.2%
Gross margin
24.3%
26.6%
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−2.3 pts
SG&A as % of sales
13.3%
19.0%
−5.7 pts
Operating income
$68.9M
$23.6M
+192.1%
Operating margin
11.0%
7.6%
+3.4 pts
Effective tax rate
9.8%
20.6%
−10.8 pts
Net income
$56.7M
$15.5M
+265.9%
Diluted EPS
$0.68
$0.19
+257.9%
Adjusted (non-GAAP) EPS
$0.69
$0.21
+213.6%
BASX-branded sales
~$345M
~$109M
+216.2%
AAON-branded sales
$282.2M
~$203M
+39.3%
Total backlog (period-end)
$1,970.8M
$995.3M
+98.0%
Gross margin is the share of sales left after the direct cost of making the products. Operating margin is the share left after overhead too (selling, general and administrative costs, or SG&A), before interest and tax. The prior-year brand sales figures are derived from the stated growth rates.
Two brands, three segments
The brand split and the segment split don't line up, and this confuses a first read. AAON sells under two brands: AAON, which makes rooftop units and other HVAC gear for commercial buildings, and BASX, which makes data-center cooling, cleanroom and custom air-handling systems. The company reports results by factory-based segment, though, and BASX-branded products are built in more than one of them.
Segment
Q2 2026 sales
YoY
Gross margin
Prior-year margin
AAON Oklahoma (Tulsa, Memphis, Parkville)
$262.3M
+41.7%
24.3%
28.9%
AAON Coil Products (Longview, TX)
$146.7M
+150.9%
16.0%
17.5%
BASX (Redmond, OR, plus Memphis output)
$218.0M
+220.7%
30.0%
27.9%
BASX segment margin improved to 30.0% on volume. Sales more than tripled, and the 10-Q attributes the growth to "the continued demand for data center solutions and increasing production out of our Memphis facility."
AAON Coil Products grew mainly because of BASX-branded liquid cooling sales of $126.6 million (+208.4%). The 10-Q says this came "for a large liquid cooling data center." Its margin fell to 16.0% because of "higher material costs," plus outsourcing, freight and price-cost timing. Price-cost timing means input costs rose before the price increases took effect.
AAON Oklahoma shows how the accounting shifts costs between segments. The Memphis plant belongs to this segment, but it builds BASX products at cost. The sales and profit from Memphis orders therefore show up in the BASX segment, while the cost of running the plant stays in AAON Oklahoma. Memphis overhead charged here was $18.1 million vs $3.0 million a year ago. Without it, AAON Oklahoma's margin would have been 31.2% vs 30.5%, so the core rooftop business was not getting less profitable. BASX's 30.0% margin looks better than it would if it carried its share of Memphis costs.
The AAON-branded (commercial HVAC) side grew 39.3%. The comparison is easy: a year ago, results were depressed by the industry-wide switch to a new refrigerant and by what the company calls "company-specific operational challenges." Management describes the current commercial HVAC market as "softer," and says the AAON brand is gaining share within it.
Takeaway: AAON is now mostly a data-center cooling company by revenue: BASX-branded products were about 55% of Q2 sales and 73% of backlog. That growth is costing margin. Operating income nearly tripled because overhead costs grew much more slowly than sales, even as gross margin fell 2.3 points and management cut its full-year gross margin target. The question for the second half is whether margins recover as promised, not whether demand holds up.
What the headline numbers hide
About 8 cents of EPS came from a lower tax rate. The effective tax rate was 9.8%, compared with 20.6% a year ago and the company's own estimated 2026 rate of about 25% before one-off items. The biggest reason was an $11.6 million "excess tax benefit" from share-based compensation: when employees exercise options or receive shares worth more than their value at grant, the company gets a larger tax deduction. That benefit alone cut the rate by 18.4 points, which is 10.8 points more than the net drop. Taxed at last year's 20.6% rate, net income would have been about $49.9 million, or roughly $0.60 per share rather than $0.68. Pre-tax income still rose 222%, so the underlying improvement is real, just smaller than the EPS headline.
Buybacks did nothing for EPS this time. AAON bought back no stock on the open market in the first half of 2026, compared with $30.0 million a year earlier. Diluted share count actually rose 0.9% to 83.7 million as employees exercised options ($29.1 million of proceeds).
The adjusted-EPS gap is small. Non-GAAP EPS of $0.69 excludes only a $1.4 million incentive fee owed to a real-estate broker over the Memphis plant purchase. A similar $3.4 million fee appeared a year ago. The gap between GAAP and adjusted EPS is small, and neither year's adjustment changes the picture.
Cash conversion is improving but still well below earnings. First-half operating cash flow was $55.0 million, compared with a $31.0 million outflow a year earlier. That is only about 57% of first-half net income of $96.5 million. Capital spending, mostly on the Memphis build-out, was $97.3 million, so free cash flow (operating cash flow minus capex) was about −$42 million, funded by the credit line. Revolver debt rose from $398.3 million at year-end to $435.0 million.
Customer prepayments were used up. Contract liabilities, which are mostly customer down payments received before AAON does the work, fell from $80.7 million to $12.8 million in six months. That $67.9 million reduction drained cash. $76.1 million of first-half revenue came out of that opening balance, meaning revenue from customers who had already paid. Inventory also grew 26.9% in six months to $331.3 million, faster than sales. The 10-Q says the company continues "to make significant purchases of inventory related to data center orders." Rising supplier payables (+$63.9 million) offset much of this.
Warranty costs are rising. Warranty expense in SG&A was up $7.4 million year over year "due to an increase in our historical claims." This deserves watching as new plants and new products scale up.
Guidance: more sales, less margin. Full-year 2026 guidance for sales growth was raised from 40–45% to 55–60%. Guidance for gross margin was cut from 27–28% to 25–26%, and SG&A as a share of sales was lowered from 14–15% to 13–14%. First-half gross margin was 24.7%, so reaching even the low end of the new range requires a better second half.
Backlog: still double last year, down from March
Backlog ($M)
Jun 30, 2026
Mar 31, 2026
Jun 30, 2025
AAON-branded
540.5
509.8
494.2
BASX-branded
1,430.4
1,619.6
501.1
Total
1,970.8
2,129.5
995.3
BASX-branded backlog fell $189 million from March. Shipments ran ahead of new orders in the quarter, and the company points to "the inherent timing variability of large BASX project awards." AAON-branded backlog rose 6.0% from March and 9.4% year over year, a steady result given a soft commercial market. BASX business comes in a small number of very large projects, and the 10-Q notes that BASX sells to "a more concentrated customer base." A decline in backlog from one quarter to the next is normal for that kind of business, but two such quarters in a row would suggest data-center orders are slowing.
Outlook
Management expects "sequential margin improvement in the second half of the year," driven by higher plant utilization, sourcing and productivity work, price increases, and backlog "with improved pricing" converting to revenue. The 10-Q cites data-center construction spending up about 240% from 2022 to 2025 and says indicators show "no meaningful signs of slowing in the foreseeable future."
Our read: demand is not the constraint. A $2.0 billion backlog against first-half sales of $1.12 billion gives the company visibility well into 2027. The new guidance does imply slower growth ahead. Sales grew 77.4% in the first half, so 55–60% for the full year means second-half growth well below that pace. Margins are the swing factor. Of every dollar in added sales this quarter, gross profit kept only about 22 cents, versus 26.6 cents on the prior-year base. Three things to check in the Q3 report:
Whether gross margin moves back above 25%, the level the new full-year range needs.
Whether BASX-branded backlog stabilizes or grows from $1.43 billion after this quarter's decline.
Whether operating cash flow starts to catch up with net income without further drawing on the credit line.