AAON Inc. Rides Record Sales Amid Margin Squeeze

Aaon Inc ((AAON)) has held its Q1 earnings call. Read on for the main highlights of the call.

AAON Inc.’s latest earnings call struck a confident tone, as management showcased record revenue, surging bookings and a swelling backlog that underpins a sharply upgraded growth outlook. Executives acknowledged notable margin pressure and a thin cash cushion, but framed these as short-term trade-offs in pursuit of capacity, market share and long-term profitability.

Record Revenue and Strong Top-Line Growth

AAON posted net sales of $496.9 million in the first quarter of 2026, a 54% year-over-year increase and the highest quarterly revenue in the company’s history. Management lifted full-year guidance, now expecting sales growth between 40% and 45%, signaling confidence that current momentum is sustainable.

Earnings and Profitability Expansion (Despite Margin Timing)

Diluted EPS climbed 37% year over year to $0.48, supported by strong volume and operating leverage even as margins compressed. Non-GAAP adjusted EBITDA rose 44% to $78.0 million, though the EBITDA margin slipped to 15.7% from 17.6% as outsourcing, tariffs and inflation weighed on profitability.

Exceptional Bookings, Backlog and Book-to-Bill

Bookings remained robust with a company-wide book-to-bill ratio above one and an even stronger reading above two for the Basics business. Backlog reached $2.1 billion, more than double the prior year and marking the sixth straight quarter of record backlog, giving AAON unusual visibility into future revenue.

Basics Segment Demand and Share Gains

Basics-branded sales surged 72% year over year, while the broader Basics segment more than doubled to $135.4 million, fueled largely by data center thermal demand growing around 30%. Basics backlog climbed 160% from a year ago and 24% sequentially, indicating continued market share gains in this high-growth niche.

AAON Branded Sales Momentum

AAON-branded sales rose 42% year over year and 11% sequentially, showing broad-based strength beyond data center demand. Bookings for the AAON brand increased 9% from a year ago and about 15% on a trailing 12-month basis, while branded backlog rose 26% year over year despite a modest 3% sequential decline.

Operational Throughput and Capacity Ramp

Expanded facilities in Memphis, Longview and Redmond helped drive higher throughput and record Basics sales across all three sites. Management expects this production momentum to continue ramping through the second and third quarters as new capacity is further utilized and efficiencies improve.

Improving Cash Generation and Leverage

Operating cash flow swung to a positive $34 million in the quarter, the strongest showing since the third quarter of 2024, versus a $9.2 million use of cash a year earlier. Leverage improved modestly to 1.71x with debt at $425.2 million, suggesting the balance sheet remains manageable despite elevated investment.

Management and Strategic Execution

The company emphasized that heavy investments in personnel, supply chain and lean manufacturing are shifting from build-out to execution mode. A newly hired CFO is tasked with tightening margin discipline, improving working capital efficiency and enhancing the finance organization as AAON scales.

Near-Term Margin Pressure

Reported gross margin fell to 25.1% from 26.8% a year earlier, a 170 basis point decline tied largely to intentional outsourcing and cost pressures. Management reiterated that these headwinds are temporary and linked to decisions meant to accelerate capacity and protect delivery schedules.

Segment Margin Weakness and Overhead Impact

AAON Oklahoma posted a 26.3% gross margin, but management noted it would have been 29.6% excluding $9.8 million of Memphis-related overhead. Even so, Oklahoma’s margins remain below historical highs in the upper 30s due to outsourcing, tariffs and inflation that the company expects to gradually offset.

Coil Products Margin Decline

The AAON Coil Products segment saw gross margin drop sharply from 31.8% to 24.1% year over year, reflecting both cost pressures and mix. AAON-branded coil output in this segment declined about 12%, highlighting an area where management will need to restore productivity and profitability.

Reduced EBITDA Margin and Higher SG&A Dollars

While adjusted EBITDA dollars grew strongly, the margin declined to 15.7% from 17.6% as cost pressures outpaced pricing and productivity. SG&A spending rose 32% to $67.9 million, yet fell by 220 basis points as a percentage of sales to 13.7%, indicating some scale benefits as revenue grows.

Low Cash Balance at Quarter End

Despite improved operating cash flow, AAON ended the quarter with just $1.1 million in cash, cash equivalents and restricted cash. That low balance, against $425.2 million of debt, underscores the importance of continued cash generation and disciplined capital allocation as the company invests heavily in growth.

Reliance on Temporary Outsourcing and Ramp Inefficiencies

To meet surging demand, AAON is leaning on outsourcing and accepting ramp inefficiencies that are currently diluting margins. Management stressed that the strategy is intended as a bridge until internal capacity is fully online, after which these outsourced costs should be pulled back.

Tariff and Input-Cost Surcharge Effects

Tariff-related surcharges and broader inflation added another layer of margin pressure during the quarter, affecting both materials and components. The company indicated that pricing actions have been implemented and are already embedded in backlog, which should help offset these cost headwinds over time.

Forward Guidance and Margin Path

Looking ahead, management reiterated 2026 guidance for revenue growth of 40% to 45%, with gross margin targeted at 27% to 28% and SG&A running 14% to 15% of sales. Depreciation and amortization are expected between $95 million and $100 million, and executives anticipate margin improvement through the year as internal capacity ramps and outsourcing, tariff and ramp-related pressures ease.

AAON’s earnings call painted the picture of a company trading near-term margin and cash comfort for aggressive growth and share capture, particularly in data center-related cooling. Investors will be watching closely to see if the promised margin recovery materializes as capacity ramps, but for now the combination of record revenue, robust backlog and a confident outlook is setting a decidedly bullish tone.