Asked why the gross margin outlook was cut by 200 bps compared to May, specifically if it was due to accelerating throughput at higher cost.

The gross margin cut is primarily due to the mix impact of accelerated backlog conversion at the Memphis facility (BASX), which is currently operating at a lower margin during its ramp-up phase. Operational margins in the Oklahoma and BASX Redmond segments are actually improving. “what is driving that conversation is the accelerated backlog conversion that we have within our Memphis site. And so from a mix perspective, the increasing revenue volume that we're driving through Memphis, while ramping that facility is at a lower margin point than the Oklahoma segment.”

Asked for key drivers of H2 gross margin improvement, particularly between absorption and price/cost, and progression between Q3 and Q4.

The biggest driver for H2 margin improvement is price/cost, as the current backlog carries a substantially more favorable margin profile due to recent pricing actions. Productivity gains at Memphis will also contribute. Modest improvement is expected in Q3, with more noticeable improvement weighted towards Q4. “the biggest driver of margin improvement in the back half is price cost. That certainly is the biggest driver... the backlog that we have today is at a substantially different price point than the backlog that we executed in Q1 and Q2.”

Asked to understand sequentially lower margins in ACP, especially with liquid cooling being >85% of the segment, and what's embedded for improvement.

The margin contraction in ACP was primarily due to price/cost issues driven by inflation in raw materials and freight, where the company was behind on pricing actions. Actions have since been taken, and a meaningful rebound is expected towards the end of the year. “The biggest driver in the ACP segment... was really on price cost, driven by inflation... we were behind on pricing actions to recover those.”

AAON

AAON (AAON) Q2 FY26 earnings call: guidance and Q&A

Earnings call· Jun 2026 (Q2 FY26)· Industrials· Aug 10, 2026

Source: earnings call transcript

Executive summary

AAON Q2 FY26 — Record Revenue & Strong Backlog Conversion Driven by Data Center Demand

AAON delivered record Q2 FY26 results, driven by substantial volume growth and accelerated backlog conversion across its facilities, particularly in the BASX data center segment. While consolidated gross margins faced pressure from new capacity ramp-up and mix, operational improvements and pricing actions are expected to drive significant margin expansion in Q4 and into 2027. The company continues to invest in infrastructure and talent to support future growth and enhance cash generation.

Highlights

Record quarterly revenue of $627 million, up 101% year-over-year.
BASX branded sales increased 216% year-over-year, reflecting sustained data center demand.
Adjusted diluted EPS grew 213.6% to $0.69.
Operating cash flow was positive $55 million in H1 2026, a significant improvement from a $31 million use of cash in H1 2025.
AAON branded bookings increased approximately 16% year-over-year, leading to a 6% sequential increase in AAON branded backlog.

Concerns

Consolidated gross margin declined to 24.3% from 26.6% year-over-year, impacted by ramp-up costs at new facilities and mix shift.
BASX branded bookings were below unusually elevated levels of recent quarters, though pipeline remains strong.
AAON Coil Products gross margin declined to 16.0% from 17.5% year-over-year due to inflationary pressures and freight costs.

Guidance & targets

Category	Target	Timeline	Confidence
Sales growth	55% to 60% high materiality	FY26	High
Gross margin	25% to 26% high materiality	FY26	High
SG&A expense as percent of sales	13% to 14% medium materiality	FY26	High
Depreciation and amortization expense	$95 million to $100 million medium materiality	FY26	High
AAON brand sales growth	approximately 20% medium materiality	FY26	Medium
BASX brand sales growth	more than double high materiality	FY26	High
Gross margin improvement	modest improvement in Q3, more noticeable improvement in Q4 high materiality	Q3, Q4 · FY26	High
BASX sales	more flattish medium materiality	Q3, Q4 · FY26	Medium

Segment performance

Segment	Revenue	YoY	QoQ	Margin
AAON Oklahoma Driven by strong execution against a robust beginning backlog and accelerated conversion. Results benefited from favorable price realization and beneficial comparison to prior year. Gross margin impacted by $18.1 million in Memphis overhead allocation (vs $3 million prior year). Excluding these costs, gross margins expanded approximately 60 basis points to 31.2% compared to 30.5% last year, largely due to increased production rates, partially offset by elevated outsourcing and inflationary pressures.	$262.3 million	42%	—	24.3% (gross margin), 31.2% (gross margin ex-Memphis overhead)
AAON Coil Products Growth driven by BASX branded liquid cooling product sales. Gross margin was 16.0%, down from 17.5% in the prior year period, reflecting temporary inflationary pressures expected to moderate in Q3 and Q4. The segment continues to deliver strong profit growth supported by higher sales volumes. BASX branded liquid cooling product sales: $126.6 million (up 208%)AAON branded output within segment: up 15.1%	$146.7 million	151%	—	16.0% (gross margin)
BASX Segment Outsized growth driven by sustained demand for data center solutions and a robust backlog. Increased utilization at the Memphis facility contributed meaningfully. Gross margin was 30.0%, up from 27.9% in the prior year period, reflecting strong volume growth partially offset by incremental resources and investments to support future growth.	$218 million	221%	—	30.0% (gross margin)

Orderbook & backlog

Total backlog nearly double prior year levels Q2 FY26

declined sequentially

Accelerated conversion due to increased production and shipments, which was the intended outcome.

BASX branded bookings book-to-bill approaching 3 Prior four quarters

Reflects exceptionally strong bookings during ramp-up of capacity.

AAON branded backlog increased 6% Q2 FY26

sequential increase

Despite significantly higher production rates.

Risks & headwinds

Consolidated margin pressure Q2 FY26

Gross margin 24.3% (down from 26.6% YoY)

Mitigation:Higher facility utilization, productivity gains, sourcing initiatives, improved price/cost realization, maturation of recently added capacity.

BASX branded bookings variability Q2 FY26

Below unusually elevated levels of recent quarters

Mitigation:Pipeline remains healthy, customer engagement strong, improving ability to support customers with increased throughput and capacity.

AAON Coil Products margin contraction Q2 FY26

Gross margin 16.0% (down from 17.5% YoY)

Mitigation:Temporary inflationary pressures (raw materials, freight) expected to moderate in Q3/Q4; pricing actions taken.

Supply chain constraints Ongoing

Discussed as a general market challenge

Mitigation:Active and proactive management, multi-sourcing strategies, alternate vendor selections, vertical integration of fans.

What to watch in Q3 FY26

Gross margin trajectory

Q3 FY26, Q4 FY26

Current 24.3% (Q2 FY26 consolidated)

Target Modest improvement in Q3, more noticeable improvement in Q4

Why it matters

Margin expansion is a key focus, driven by price/cost and productivity, essential for overall profitability.

You'll see modest improvement in Q3, but really Q4 is going to be where the more noticeable improvement is going to be weighted.

Find out whether AAON delivers this. Inve re-checks your case every morning.

Q&A highlights

Analyst noted data center orders were weaker than expected; asked for clarification on lumpiness vs. specific order pushout and Q3 outlook.

Management confirmed the weaker bookings were due to lumpiness in large-scale projects, not specific order pushouts. The pipeline remains the strongest ever, with expanding customer diversification and accelerating activity, suggesting no change in the long-term opportunity.

“it's just lumpiness. There's no specific order pushout or movement. There's -- again, it's just really lining up the overall bookings in a given quarter.”

asked by Ryan Merkel · answered by Matthew Tobolski

2 min read 6 chapters

Detailed narrative

Operational Excellence & Capacity Investments

AAON's record revenue and volume growth are attributed to strategic investments in supply chain management, lean manufacturing, operational excellence, expanded capacity, and leadership development. These efforts have enabled faster backlog conversion and improved throughput across all four major facilities, demonstrating the value of recent investments and translating into measurable operating progress.

BASX Segment Performance

The BASX brand achieved record sales, increasing 216% year-over-year and 501% on a 2-year stack, driven by sustained data center infrastructure investment and differentiated solutions. Despite BASX branded bookings being below unusually elevated levels of recent quarters due to project lumpiness, the long-term market opportunity and pipeline remain robust, with improving capacity and lead times.

AAON Brand Strength

The AAON brand demonstrated strong performance with 40% year-over-year sales growth and 16% year-over-year bookings growth, indicating market share gains in a relatively soft commercial HVAC market. The Alpha Class fully electric heat pump platform saw 50% order growth during the quarter and 54% year-to-date, highlighting strong customer adoption and momentum in electrification.

Margin Dynamics & Outlook

Consolidated margins were pressured by the mix impact of exceptionally strong BASX growth, ramp-up costs at new facilities (especially Memphis), and price/cost timing dynamics. However, management expects significant improvement in Q4 and into 2027 due to higher utilization, productivity gains, sourcing initiatives, and favorable pricing embedded in the backlog, with operational margins improving in core segments.

Cash Flow & Balance Sheet Improvement

Operating cash flow improved significantly to a positive $55 million in the first half of 2026, a substantial turnaround from a $31 million use of cash in the prior year period. This improvement was driven by higher earnings and enhanced working capital efficiency. The company's leverage ratio also improved to 1.48x, providing a solid foundation for sustained long-term growth and increased cash generation.

Long-Term Strategic Vision

AAON is undergoing a significant transformation, building a stronger operating company with enhanced scale, infrastructure, systems, and discipline to support higher revenues, improved margins, and durable earnings growth over time. The investments made over the past several years are increasingly showing up in results, with a clear direction towards further margin improvement and cash generation.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.