AAON, Inc. (AAON) | The Buildout — AI Infrastructure
The Verdict
AAON designs and manufactures highly configurable heating, ventilation, air-conditioning and liquid-cooling equipment. Its legacy business sells packaged rooftop units, air handlers and heat pumps to commercial and industrial buildings. Its growth business is BASX, which sells liquid cooling, coolant distribution units, airside cooling units and free-cooling chillers into hyperscale data centers — products that exist because GPU rack densities exceed what air cooling can handle. BASX-branded sales are now roughly half of revenue, and the company renamed the enterprise The Aaon Group in August 2026 to reflect a two-brand organization. On the source material's own criticality assessment, the buildout would not slow materially if AAON could not deliver; customers would shift to other established cooling providers within typical lead times.
| Market Cap | — |
| Revenue (TTM) | $1.9B |
| Revenue Growth | +53.5% |
| EBITDA Margin (TTM) | 16.5% |
| Net Debt | $464M |
| Earnings Beats | 4 of 7 |
| P/E (TTM) | — |
| EV/EBITDA (TTM) | — |
What We Like
- BASX-branded sales reached an estimated $344.6M in Q2 FY2026, about 55% of revenue, on management's disclosure that BASX-branded sales grew 216.2% y/y.
- The BASX segment reached 30.0% gross margin, up 210 bps y/y, while ramping the new Memphis plant.
- Memphis is "performing exceptionally well and ahead of plan" — in one quarter it did roughly half of the full-year 2025 revenue BASX did out of Redmond.
- AAON Oklahoma gross margin excluding Memphis overhead was 31.2%, up about 60 bps y/y, against 24.3% as reported.
- Total backlog of $2.0B is up 98% y/y and covers roughly 1.04x trailing-twelve-month revenue of $1,932.4M.
What We’re Watching
- FY2026 gross margin guidance was cut 200 bps to 25-26% while sales growth guidance rose about 15 points to 55-60%.
- BASX-branded bookings fell below the unusually elevated levels of recent quarters, after four quarters of book-to-bill approaching 3; management calls it "just lumpiness" and gave no order figure.
- AAON Coil Products gross margin fell to 16.0% from 24.1% in Q1 on a pricing lag management conceded; the meaningful rebound is guided to "towards the end of the year."
- Three customers were 10% or more of FY2025 revenue, up from two in FY2024, and they are not named.
The thesis looks intact on demand and mixed on margin. Revenue accelerated to +101% y/y, and underlying margin improved at the two segments the company's own math isolates — Oklahoma excluding Memphis overhead and BASX — while AAON Coil Products' margin fell on a conceded pricing lag. Even so, the full-year gross margin guide was cut 200 bps and BASX orders fell for the first time in the provided record. Management frames the margin dilution as temporary mix from a fast-ramping Memphis plant, with repriced backlog already on the books. The open question is whether the Q4 2026 margin exit rate — the quarter management calls its strongest — actually arrives.
Earnings Beat
Q2 FY2026 net sales were a record $627.0M, up 101% y/y and 26% sequentially — a fourth consecutive quarterly record. Gross margin was 24.3%, down 230 bps from 26.6% a year earlier. Adjusted EBITDA was $94.2M, up 102.3%, at a 15.0% margin. Operating income rose 192.1% to $68.9M while SG&A fell 570 bps to 13.3% of sales, so the operating-margin improvement came from overhead leverage rather than gross margin.
| Metric | Q2 FY2026 | Q1 FY2026 | Q2 FY2025 | YoY |
|---|---|---|---|---|
| Revenue | $627M | $497M | $312M | +101.2% |
| Gross margin | 24.3% | 25.1% | 26.6% | -230bps |
| EBITDA | $114M | $78M | $24M | +381.8% |
| EPS | $0.68 | $0.48 | $0.19 | +262.7% |
| Total backlog | $2.0B | $2,129.5M | n/a | +98% |
| BASX backlog | $1.43B | $1,619.6M | n/a | +185.4% |
To be frank, we were behind on pricing actions to recover those.— Matt Tobolski, President and CEO, 2026-08-10
Management tone: Tone stayed confident and controlled across both calls, but the content rotated: Q1 was about capacity coming online to capture demand, Q2 was about executing and explaining why margin is temporarily lower. "Record" adjectives gave way to "nearly double." Executives answered questions on the gross margin cut, the second-half margin buckets and the ACP pricing lag directly, with the ACP answer a plain admission of a self-inflicted miss. On BASX order weakness they reframed to "lumpiness" and pipeline language, and they declined to give a quarter-to-date bookings figure or a specific order number.
Management Guidance
Management guided FY2026 to sales growth of 55-60%, gross margin of 25-26%, SG&A of 13-14% of sales, and D&A of $95-100M. Inside that, the AAON brand is assumed at approximately 20% growth and BASX to "again more than double." The stated reason for the margin line is the mix impact of exceptionally strong growth from recently added capacity, continued ramp-up activity and price/cost timing. Management said Q3 should show "modest improvement" and Q4 is "certainly going to be the strongest margin quarter for the overall organization," with AAON Coil Products' meaningful rebound expected "towards the end of the year."
Trajectory
Revenue has risen for four straight quarters, from $384.2M in Q3 FY2025 to $424.2M, $496.9M and $627.0M in Q2 FY2026, with the sequential rate accelerating to +26% in the latest quarter. Gross margin moved the other way over the same four quarters: 27.8%, 25.9%, 25.1% and 24.3%. The driver is mix — the fastest-growing revenue comes through the Memphis plant and the BASX brand, which carry a lower consolidated margin than the legacy Oklahoma business. EBITDA margin expanded to 18.1% in Q2 from 15.2% in Q4 FY2025, because SG&A leverage more than offset the gross margin decline.
The Model
The model projects FY+1 revenue of $2,330M with EBITDA of $377M (16.2%), and FY+2 revenue of $2,980M with EBITDA of $575M (19.3%). The near-term figure sits above the roughly $2.2B-$2.3B that FY2026 guidance implies, so it assumes the current growth rate carries partway into the next year. The FY+2 margin step-up reflects the bridge management describes: repriced backlog converting, higher utilization on capacity already built, and the Memphis ramp maturing.
| Metric | FY2025 | Next FY (E) | Following FY (E) |
|---|---|---|---|
| Revenue | $1.4B | $2.3B | $3.0B |
| YoY Growth | — | +61.6% | +27.9% |
| EBITDA | $206M | $377M | $575M |
| EBITDA Margin | 14.3% | 16.2% | 19.3% |
Projections are the median of 5 independent model runs. The model’s revenue sits 23.4% above analyst consensus.
Management guided FY2026 to sales growth of 55-60%, gross margin of 25-26%, SG&A of 13-14% of sales, and D&A of $95-100M. Inside that, the AAON brand is assumed at approximately 20% growth and BASX to "again more than double." The stated reason for the margin line is the mix impact of exceptionally strong growth from recently added capacity, continued ramp-up activity and price/cost timing. Management said Q3 should show "modest improvement" and Q4 is "certainly going to be the strongest margin quarter for the overall organization," with AAON Coil Products' meaningful rebound expected "towards the end of the year."
What Could Go Right — and Wrong
- Memphis keeps ramping toward its 787,000 square feet of BASX capacity without breaking quality, delivery or price.
- BASX-branded bookings re-accelerate, confirming the Q2 decline was timing; management points to "high-confidence conversions" with existing customers for 2027 and 2028 orders.
- Price/cost realization arrives as the repriced backlog converts, lifting Q4 FY2026 and setting 2027 up from a "much higher" entry point than the annual guide.
- BASX-branded revenue, at $877.8M on a trailing-twelve-month basis, grows into the "at least $2 billion in revenue capacity" the company says it has installed.
- Cash generation keeps improving: 1H FY2026 operating cash flow was +$55M versus -$31M a year earlier, and leverage fell to 1.48x from 1.77x.
- The margin dilution proves structural: ROIC fell from 24.2% (2023) to 9.1% (2025) and gross margin from 34.1% to 26.7% over the same span.
- A second consecutive light BASX bookings quarter, with the company offering no order number or quarter-to-date trend to support the "lumpiness" explanation.
- AAON Coil Products' pricing lag persists past the guided end-of-year rebound; its gross margin fell to 16.0% from 24.1% sequentially.
- Customer concentration in an end market with a short list of buyers; the three 10%+ customers are unnamed and the hyperscaler concentration inside BASX is invisible.
- Competitive capacity arriving into the same 2027-2028 wave compresses the premium pricing and lead-time advantage.
Looking Ahead
The next twelve months turn on three things: whether the Q4 FY2026 margin exit rate validates management's temporary-dilution framing, whether BASX bookings recover toward the 2027 and 2028 pipeline management describes, and how fast Memphis converts from about 20% of its stated BASX capacity. Management has also committed to providing "greater clarity" on Memphis economics, though no date is given. Supply chain — specifically fans — is flagged as a live risk with "potential for those to create some noise in the coming quarters."
- Q3 FY2026Next earnings print — Guided to show "modest improvement" in gross margin.
- Q4 FY2026Strongest margin quarter — Management's promised inflection point for consolidated margin.
- End of 2026ACP margin rebound — Meaningful recovery guided as repriced orders ship.
- Into 2027Margin entry rate — Company says it enters 2027 above the 25-26% annual guide.
- Q4 2027Oklahoma margin target — Mid-to-high-30s gross margin; transcript reads ambiguously as 2026 or 2027.
- By 2028Data center mix shift — Thermal mix projected at 60% liquid / 40% air (company estimate).
Financials
Annual Summary
| Metric | FY2024 | FY2025 | TTM | YoY |
|---|---|---|---|---|
| Revenue | $1.2B | $1.4B | $1.9B | +20.1% |
| Gross Margin | 33.1% | 26.8% | 25.6% | 630bps |
| EBITDA | $254M | $206M | $320M | -19.1% |
| EBITDA Margin | 21.2% | 14.3% | 16.5% | 692bps |
| Net Income | $168M | $108M | $159M | -36.1% |
| Free Cash Flow | $1M | −$190M | −$119M | — |
| Net Cash | — | — | — | — |
Key Ratios (Trailing)
- P/E TTM—
- EV/EBITDA TTM—
- EV/Revenue TTM—
- Price/FCF TTM—
- Gross Margin (TTM)25.6%
- EBITDA Margin (TTM)16.5%
- Net Margin (TTM)8.2%
- ROIC11.4%
- FCF Conversion-37.2%
- SBC / Revenue0.8%
The Company
AAON designs and manufactures highly configurable heating, ventilation, air-conditioning and liquid-cooling equipment for commercial, industrial and data center environments. The FY2025 10-K describes it as "a leader in heating, ventilation, air conditioning, and liquid cooling solutions for commercial and industrial indoor environments." The company was founded in 1988. Its AI-relevant business is the BASX brand, which sells liquid cooling including coolant distribution units, airside data center cooling units, and water-free free-cooling chillers the company says are "intentionally designed to operate at optimized levels within higher fluid temps supporting AI workloads."
The company runs three reporting segments across five named plants: Tulsa, Oklahoma; Memphis, Tennessee; Parkville, Missouri (a leased controls facility); Longview, Texas; and Redmond, Oregon. It reports 4.1 million square feet of manufacturing. BASX-branded product is made in two places — the BASX segment at Redmond and Memphis, and the AAON Coil Products segment at Longview — which is why the reported segment tables understate the data center business. AAON has added more than 1 million square feet of manufacturing capacity since 2024, described as a nearly 6x increase in BASX capacity. It also makes its own fans: BASX has manufactured fans since inception, and AAON in-sourced fan manufacturing "a couple of years ago."
Business Segments
Competitive Landscape
The 10-K names two competitor sets. For comfort cooling products it lists Lennox, Trane, York Light Commercial (Bosch), Johnson Controls, Carrier and Daikin. For thermal management products — the more relevant set for the growth engine — it lists Vertiv, STULZ, Munters, Silent Aire (Johnson Controls), Nortek and Modine. Management describes the company as an "entrepreneurial disruptor" and pegs the overall data center thermal market as growing about 30%, with BASX growing 4-7x that.
- VertivNamed in the 10-K thermal management competitor set; not discussed.
- Johnson ControlsNamed in both the comfort cooling set and the thermal management set (via Silent Aire); not discussed.
- CarrierNamed in the 10-K comfort cooling competitor set; not discussed.
- TraneNamed in the 10-K comfort cooling competitor set; not discussed.
- ModineNamed in the 10-K thermal management competitor set; not discussed.
Supply Chain
AAON is a component integrator and equipment OEM — downstream of metals, motors, compressors and controls, upstream of the hyperscalers and contractors who install its equipment. No neighbor named AAON directly on its latest call.
More on AAON: Earnings recap