What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-08-10 compared with 2026-05-07 · 125 added, 52 removed, 291 unchanged (38% of the section changed)

12 unchanged sentences

We sell our products to all 50 states in the United States and certain provinces in Canada.

Foreign sales were approximately $11.2 million for the three months ended March 31, 2026, as compared to $11.3 million for the three months ended March 31, 2025.

Foreign sales were approximately $7.6 million and $18.8 million for the three and six months ended June 30, 2026, as compared to $7.5 million and $18.8 million for the three and six months ended June 30, 2025.

Our AAON brand can be affected by a number of economic factors, including the level of economic activity in the markets in which we operate.

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and global economy.

At March 31, 2026, the price for copper and aluminum increased by approximately 7.1% and 18.8%, respectively, while stainless steel and galvanized steel decreased approximately 11.6% and 3.5%, respectively.

At June 30, 2026, the price (year to date average) for copper and aluminum increased by approximately 8.2% and 20.3%, respectively, while stainless steel and galvanized steel decreased approximately 14.1% and 3.4%, respectively.

We attempt to limit the impact of price fluctuations on these materials by entering into cancellable and non-cancellable contracts with our major suppliers for periods of six to 18 months.

We expect to receive delivery of raw materials from our contracts for use in our manufacturing operations.

We occasionally increase the price of our products to help offset any inflationary headwinds.

In recent years, price increases have been more frequent due to the amount of inflation the business has endured.

On January 1, 2025, we implemented a 3.0% price increase for AAON-branded products.

On April 1, 2025, we implemented a 6.0% surcharge on all AAON-branded products as a result of the uncertainty of international tariffs.

BASX-branded products are priced by job and in most cases, provide the ability to increase the price if the order is outside normal lead times.

We periodically adjust product pricing, including implementing targeted price increases, to help offset inflationary pressures, fluctuating input costs, and macroeconomic uncertainties such as international tariffs.

For standard product lines, pricing is evaluated continuously and adjusted based on market conditions.

For custom or job-based engineered products, pricing is generally established on a per-project basis, with contractual terms that allow for price adjustments if order fulfillment or delivery falls outside standard lead times.

Macroeconomic Conditions

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Additionally, while we source most components domestically, our vendors may be impacted by tariffs if they use foreign parts and materials and often pass any additional costs as a result of tariffs through to us.

We expect to continue to pass along some of these costs to our customers, but the increased price of our products could adversely affect the demand, which could have an adverse effect on our business and our earnings.

The third quarter of 2025 is the first period for us to see any significant financial impact from tariffs.

On April 1, 2025 we instituted a 6.0% tariff surcharge on AAON-branded orders which we began to see realization of in the third quarter of 2025.

Early in 2025, the amount of surcharge realized had not covered the additional costs from the tariffs, but had changed by the end of the year as we fully realized our surcharge.

Where appropriate, we attempt to mitigate these cost increases by implementing targeted price adjustments across select product lines.

Although the realization of these surcharges may lag initial cost increases due to production lead times, we expect pricing actions to help offset tariff-related margin impacts over time, subject to market demand and competitive dynamics.

We make strategic purchases of materials when we see opportunities or potential disruptions in our supply chain.

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2026 December 31,

2025 March 31,

2025 June 30,

(in thousands)

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Total Backlog $ 1,970,844 $ 1,828,495 $ 995,320

At March 31, 2026, our consolidated backlog is $2,129.5 million, an increase of 107.4%, or $1,102.6 million, as compared to March 31, 2025.

Backlog was up from a year ago for both AAON-branded products and BASX-branded products with BASX-branded products increasing 160.0%, or $996.6 million, when compared to March 31, 2025.

At June 30, 2026, our consolidated backlog is $1,970.8 million, an increase of 98.0%, or $975.5 million, as compared to June 30, 2025.

Backlog is up from a year ago for both AAON-branded products and BASX-branded products with BASX-branded products increasing 185.4%, or $929.3 million, when compared to June 30, 2025.

Most of these orders were associated with the BASX-branded data center liquid cooling solutions.

Consolidated Results of Operations

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2026 2025 2026 2025

(in thousands, except per share data)

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Interest expense (6,195) (4,009) (11,250) (6,811)

Other income, net 77 174

Other income (expense), net 158 (68) 235 106

Income before taxes 62,847 19,505 114,928 51,988

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The following are highlights of our results of operations, cash flows, and financial condition:

• Net sales for the three months ended March 31, 2026 grew 54.3% to $496.9 million driven by the strong demand and growth of our BASX-branded products.

BASX-branded products increased 72.4%, or $96.0 million when compared to the three months ended March 31, 2025.

• Income from operations as a percent of sales increased to 11.5% compared to 10.9% a year ago, reflecting higher production volumes and improving execution.

• Net sales for the three months ended June 30, 2026 grew 101.2% to $627 million driven by the strong demand and growth of our BASX-branded products.

BASX-branded products increased 216.2%, or $235.7 million when compared to the three months ended June 30, 2025.

Net sales of AAON-branded products also increased 39.3%, to $79.7 million for the three months ended June 30, 2026.

This growth is driven by the robust backlog and increased production throughput from our capacity investment and operational improvements.

• As a percent of sales, SG&A has declined from 19.0% for the three months ended June 30, 2025 to 13.3% for the three months ended June 30, 2026, demonstrating strong operating leverage and disciplined cost management.

• We have a strong balance sheet with a leverage ratio of 1.46 and available borrowings under our Revolver of $163.7 million.

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The CODM does not evaluate operating segments using asset or liability information.

Segment Operating Results for the Three Months Ended March 31, 2026 and 2025

Segment Operating Results for Three Months Ended June 30, 2026 and Three Months Ended June 30, 2025

Three Months Ended

March 31, 2026 Percent of Sales 1

March 31, 2025 Percent of Sales 1

June 30, 2026 Percent of Sales 1

June 30, 2025 Percent of Sales 1

$ Change % Change

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2 Presented after intercompany eliminations.

Total net sales increased $315.4 million, or 101.2%.

AAON Oklahoma had net sales of $262.3 million, an increase of 41.7% compared to the same period in the prior year.

This increase was driven by the strong backlog entering the quarter and a successful ramp up of production.

Sales were up 150.9% at AAON Coil Products, primarily driven by growth in BASX-branded products of $85.6 million for a large liquid cooling data center.

BASX net sales were up 220.7% to $218.0 million due to the continued demand for data center solutions and increasing production out of our Memphis facility.

Gross profit margin decreased to 24.3% of sales from 26.6%.

AAON Oklahoma’s decrease in gross profit margin is driven by the additional overhead from our Memphis plant.

Memphis is part of AAON Oklahoma, building intercompany sales for the BASX segment at cost.

As such, the sales and gross profit from orders completed in Memphis are reflected in the BASX segment, but the additional overhead cost of running the plant is reflected in the AAON Oklahoma segment.

Memphis contributed $18.1 million and $3.0 million in cost of sales to the AAON Oklahoma segment for the three months ended June 30, 2026 and 2025, respectively.

AAON Coil Products gross profit margin decreased to 16.0% from 17.5% as a result of higher material costs.

As shown in the table below, we have experienced fluctuations in the cost of several raw materials.

Raw Material Costs

Three-month average raw material cost per pound as of June 30:

2026 2025 % Change

Copper $ 7.61 $ 6.04 26.0 %

Galvanized steel $ 0.57 $ 0.59 (3.4) %

Stainless steel $ 1.61 $ 1.94 (17.0) %

Aluminum $ 2.57 $ 2.34 9.8 %

Selling, General and Administrative Expenses

Three Months Ended June 30, Percent of Sales

2026 2025 2026 2025

(in thousands)

Warranty $ 10,986 $ 3,599 1.8 % 1.2 %

Profit sharing 6,923 2,038 1.1 % 0.7 %

Salaries & benefits 30,352 17,125 4.8 % 5.5 %

Stock compensation 3,129 3,133 0.5 % 1.0 %

Advertising 915 2,120 0.1 % 0.7 %

Depreciation & amortization 9,235 7,342 1.5 % 2.4 %

Insurance 2,659 2,111 0.4 % 0.7 %

Professional fees 423 1,775 0.1 % 0.6 %

Memphis incentive fee 1,448 3,405 0.2 % 1.1 %

Travel 2,400 3,649 0.4 % 1.2 %

Consulting 4,855 6,412 0.8 % 2.1 %

Other 10,282 6,438 1.6 % 2.1 %

Total SG&A $ 83,607 $ 59,147 13.3 % 19.0 %

Selling, general and administrative expenses increased $24.5 million for the three months ended June 30, 2026, from the prior year period.

Salaries and benefits have increased as we add additional headcount to help build out our organizational capacity for future growth along with additional bonuses and employee incentives due to better earnings.

Warranty is up $7.4 million due to an increase in our historical claims.

Profit sharing is up reflecting improved earnings versus the comparative quarter.

Three Months Ended June 30, Effective Tax Rate

2026 2025 2026 2025

(in thousands)

Income tax provision $ 6,188 $ 4,018 9.8 % 20.6 %

The Company’s estimated annual 2026 effective tax rate, excluding discrete events, is expected to be approximately 25.0%.

Discrete events such as excess tax benefits related to stock compensation and various tax credits consistently provide a benefit, keeping our actual effective rate lower than the stated 25.0%.

Segment Operating Results for the Six Months Ended June 30, 2026 and 2025

Six Months Ended

June 30, 2026 Percent of Sales 1

June 30, 2025 Percent of Sales 1

$ Change % Change

(in thousands)

AAON Oklahoma $ 506,243 45.0 % $ 346,958 54.8 % $ 159,285 45.9 %

AAON Coil Products 264,291 23.5 % 152,488 24.1 % 111,803 73.3 %

BASX 353,378 31.4 % 134,175 21.2 % 219,203 163.4 %

Net sales $ 1,123,912 $ 633,621 $ 490,291 77.4 %

Cost of Sales 2

AAON Oklahoma $ 378,354 74.7 % 252,841 72.9 % $ 125,513 49.6 %

AAON Coil Products 212,451 80.4 % 112,401 73.7 % 100,050 89.0 %

BASX 255,651 72.3 % 99,286 74.0 % 156,365 157.5 %

Cost of sales $ 846,456 75.3 % $ 464,528 73.3 % $ 381,928 82.2 %

Gross Profit 2

AAON Oklahoma $ 127,889 25.3 % $ 94,117 27.1 % $ 33,772 35.9 %

AAON Coil Products 51,840 19.6 % 40,087 26.3 % 11,753 29.3 %

BASX 97,727 27.7 % 34,889 26.0 % 62,838 180.1 %

Gross profit $ 277,456 24.7 % $ 169,093 26.7 % $ 108,363 64.1 %

1 Cost of sales and gross profit for each segment are calculated as a percentage of the respective segment’s net sales.

Total cost of sales and total gross profit are calculated as a percentage of total net sales.

2 Presented after intercompany eliminations.

Total net sales increased $490.3 million, or 77.4% driven by growth across all segments.

AAON Oklahoma saw significant improvement with an increase of $159.3 million in net sales driven by increased production out of the Tulsa facility and a stronger backlog heading into 2026.

AAON-branded products struggled in the first quarter of 2025 due to the change in refrigerant.

AAON-branded products were impacted in the first quarter of 2025 due to the change in refrigerant and then in the second quarter due to a lack of coils from AAON Coil Products.

The $111.8 million increase in net sales for AAON Coil Products is due to sales of BASX-branded products for liquid cooling data center orders.

Additionally, AAON Coil Products was impacted in 2025 by disruption caused by the transition to a new Enterprise Resource Planning (“ERP”) on April 1st.

BASX net sales are up $219.2 million due to the production of BASX-branded products from our Memphis facility.

Gross profit as a percentage of sales is stable at 25.1% compared to 26.8% in the same period a year ago.

AAON Oklahoma gross profit margin is up slightly to 26.3% due to realization of price increases and increased volume out of the Tulsa facility.

However, AAON Oklahoma also carries the overhead related to the Memphis plant as all Memphis sales are intercompany transactions done at cost and are reflected within the BASX segment.

Gross profit as a percentage of sales is down at 24.7% compared to 26.7% in the same period a year ago.

AAON Oklahoma gross profit margin is down to 25.3% due to overhead costs from our ramping Memphis facility.

The approximate overhead related to the Memphis plant is $28.0 million .

and $5.3 million for the six months ended June 30, 2026 and 2025, respectively.

BASX gross profit margin remained flat year-over-year with additional costs related to outsourcing which limited the benefits realized by the additional volume.

Raw Material Costs

Three-month average raw material cost per pound as of March 31:

Six-month average raw material cost per pound as of June 30:

2026 2025 % Change

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Selling, General and Administrative Expenses

Three Months Ended March 31, Percent of Sales

Six Months Ended June 30, Percent of Sales

2026 2025 2026 2025

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Memphis incentive fee 1,448 6,105 0.1 % 1.0 %

Donations 347 174 0.1 % 0.1 %

Travel 5,286 6,030 0.5 % 1.0 %

Consulting 8,629 10,100 0.8 % 1.6 %

Other 20,823 12,431 1.9 % 2.0 %

Total SG&A $ 151,513 $ 110,440 13.5 % 17.4 %

Selling, general and administrative expenses as a percentage of sales are down year-over-year from 15.9% in 2025 to 13.7% in 2026.

Selling, general and administrative expenses as a percentage of sales are down year-over-year to 13.5% from 17.4% in 2025.

The dollar increase of $41.1 million is primarily driven by higher salaries and benefits, including profit sharing and stock compensation.

Profit sharing is up as a result of our higher earnings in the period.

Salaries and benefits have increased as we add additional headcount to help build out our organizational capacity for future growth.

Three Months Ended March 31, Effective Tax Rate

Salaries and benefits have increased due to increased headcount as well as due to additional employee bonuses and incentives.

Warranty has increased due to increases in sales and higher historical claims.

Six Months Ended June 30, Effective Tax Rate

2026 2025 2026 2025

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Our working capital and capital expenditure requirements are generally met through net cash provided by operations and the use of the revolving bank line of credit based on our current liquidity at the time.

Working Capital - Our unrestricted cash and cash equivalents remained stable from December 31, 2025 to March 31, 2026.

Working Capital - Our unrestricted cash and cash equivalents increased $11.5 million from December 31, 2025 to June 30, 2026.

Outstanding Debt - On December 16, 2024, we entered into the Third Amendment and Restated Loan Agreement dated November 24, 2021, to include an $80.0 million term loan payable in equal monthly installments, plus interest, over 60 months, expiring December 16, 2029 (“Term Loan”).

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The Revolver expires on May 27, 2030.

As of March 31, 2026, and December 31, 2025, we had an outstanding balance under the Revolver of $425.2 million and $398.3 million, respectively.

We had two standby letters of credit totaling $1.3 million and one standby letter of credit totaling $0.7 million as of March 31, 2026, and December 31, 2025, respectively.

Borrowings available under the Revolver at March 31, 2026, were $173.5 million.

As of June 30, 2026, and December 31, 2025, we had an outstanding balance under the Revolver of $435.0 million and $398.3 million, respectively.

We had two standby letters of credit totaling $1.3 million and one standby letter of credit totaling $0.7 million as of June 30, 2026, and December 31, 2025, respectively.

Borrowings available under the Revolver at June 30, 2026, were $163.7 million.

Any outstanding loans under the Revolver bear interest at the daily compounded secured overnight financing rate (“SOFR”) plus the applicable margin, with a 10 basis point credit spread adjustment.

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The applicable fee percentage is determined quarterly based on the Company’s leverage ratio.

Fees associated with the unused portion of the committed amount are included in interest expense on our consolidated statements of income for the three and three months ended March 31, 2026 and 2025.

Fees associated with the unused portion of the committed amount are included in interest expense on our consolidated statements of income for the three and six months ended June 30, 2026 and 2025.

Weighted average interest rate of our borrowings outstanding are as follows:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2026 2025 2026 2025

Revolver 5.2% 5.6% 5.3% 5.6%

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As of December 16, 2024, as defined by the Amended Loan Agreement, if the SOFR cannot be determined any outstanding balance will bear interest at the Prime Rate in effect on such day.

At March 31, 2026, we were in compliance with our financial covenants, as defined by the Revolver.

At June 30, 2026, we were in compliance with our financial covenants, as defined by the Revolver.

These covenants require that we meet certain parameters related to our leverage ratio.

At March 31, 2026, our leverage ratio was 1.71 to 1.0, which meets the requirement of not being above 3 to 1.

At June 30, 2026, our leverage ratio was 1.46 to 1.0, which meets the requirement of not being above 3 to 1.

2019 New Markets Tax Credit - On October 24, 2019, the Company entered into a transaction with a subsidiary of an unrelated third-party financial institution (the “2019 Investor”) and a certified Community Development Entity under a qualified New Markets Tax Credit (“2019 NMTC”) program pursuant to Section 45D of the Internal Revenue Code of 1986, as amended, related to an investment in plant and equipment to facilitate the expansion of our Longview, Texas manufacturing operations (the “2019 Project”).

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This $15.9 million in proceeds plus capital contributed from the 2019 Investor was used to make an aggregate $22.5 million loan to a subsidiary of the Company.

This financing arrangement is secured by equipment at the Company’s Longview, Texas facilities and a guarantee from the Company, including an unconditional guarantee of

This financing arrangement is secured by equipment at the Company’s Longview, Texas facilities and a guarantee from the Company, including an unconditional guarantee of the NMTCs.

The Company’s seven-year compliance period ends in 2026, at which time the Company expects the put/call feature of the transaction to be exercised, forgiving a portion of the debt.

2023 New Markets Tax Credit - On April 25, 2023, the Company entered into a transaction with a subsidiary of an unrelated third-party financial institution (the “2023 Investor”) and a certified Community Development Entity under a qualified New Markets Tax Credit (“2023 NMTC”) program pursuant to Section 45D of the Internal Revenue Code of 1986, as amended, related to an investment in plant and equipment to facilitate the expansion of our Longview, Texas manufacturing operations (the “2023 Project”).

In connection with the 2023 NMTC transaction, the Company received a $23.0 million NMTC allocation for the 2023 Project and secured low-interest financing and the potential for future debt forgiveness related to the expansion of its Longview, Texas facilities.

In connection with the 2023 NMTC

transaction, the Company received a $23.0 million NMTC allocation for the 2023 Project and secured low-interest financing and the potential for future debt forgiveness related to the expansion of its Longview, Texas facilities.

Upon closing of the 2023 NMTC transaction, the Company provided an aggregate of approximately $16.7 million to the 2023 Investor, in the form of a loan receivable, with a term of 25 years, bearing an interest rate of 1.0%.

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The Company is authorized to effectuate repurchases of the Company's common stock on terms and conditions approved in advance by the Board.

As of March 31, 2026, approximately $30 million of shares have been repurchased, and approximately $70.0 million remains under the current board authorization.

As of June 30, 2026, approximately $30 million of shares have been repurchased, and approximately $70.0 million remains under the current board authorization.

The Company also repurchases shares of AAON, Inc.

1 unchanged sentence

Our repurchase activity is as follows:

Three Months Ended March 31,

Six Months Ended June 30,

(in thousands, except share and per share data)

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Declaration Date Record Date Payment Date per Share

March 5, 2025 March 18, 2025 March 28, 2025 $0.10 $0.40

May 13, 2025 June 6, 2025 June 27, 2025 $0.10 $0.40

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March 5, 2026 March 18, 2026 March 30, 2026 $0.10 $0.40

May 12, 2026 June 5, 2026 June 26, 2026 $0.10 $0.40

Based on historical performance and current expectations, we believe our cash and cash equivalents balance, the projected cash flows generated from our operations, our existing committed revolving credit facility (or comparable financing), and our expected ability to access capital markets will satisfy our working capital needs, capital expenditures and other liquidity requirements associated with our operations in 2027 and the foreseeable future.

1 unchanged sentence

Statement of Cash Flows

The following table reflects the major categories of cash flows for the three months ended March 31, 2026 and 2025.

The following table reflects the major categories of cash flows for the six months ended June 30, 2026 and 2025.

For additional details, see the consolidated financial statements.

Three Months Ended March 31,

Six Months Ended June 30,

(in thousands)

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Cash Flows from Investing Activities

Capital expenditures during the three months ended March 31, 2026, relate to continued build out of our Memphis, Tennessee facility and maintenance of our Tulsa facility.

Capital expenditures during the six months ended June 30, 2026, relate to the continued build out of our Memphis, Tennessee facility and maintenance of our Tulsa facility.

We continue to make investments to purchase and develop software for internal use in anticipation of future Company growth.

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These contracts are not accounted for as derivative instruments because they meet the normal purchase and normal sales exemption.

We had no material contractual purchase obligations as of March 31, 2026, except as described below.

We had no material contractual purchase obligations as of June 30, 2026, except as described below.

In 2023, the Company executed a five-year purchase commitment for refrigerants.

For the three months ended March 31, 2026 and 2025, the Company made payments of $3.2 million and $0.6 million on this contract, respectively.

For the three months ended June 30, 2026 and 2025, the Company made payments of $4.7 million and $2.1 million on this contract, respectively.

Estimated minimum future payments are $5.8 million, and $11.2 million for 2026 and 2027, respectively.

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Estimated minimum future payments are $18.8 million for 2026.

We had no other material contractual purchase obligations as of March 31, 2026.

We had no other material contractual purchase obligations as of June 30, 2026.

Critical Accounting Estimates

There have been no material changes in the Company’s critical accounting policies during the three months ended March 31, 2026.

There have been no material changes in the Company’s critical accounting policies during the six months ended June 30, 2026.

Recent Accounting Pronouncements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis