AAON (NASDAQ:AAON) raised its 2026 sales growth outlook after reporting record third-quarter revenue, as increased production and strong data center cooling demand helped it convert more of its backlog into sales.
The company also disclosed that it had restated its first- and second-quarter results after identifying accounting errors and concluded that a material weakness existed in its internal control over financial reporting.
AAON now expects full-year sales growth of 72% to 75%, up from its previous forecast of 55% to 60%. It also expects gross margin of approximately 26% and selling, general and administrative expenses of approximately 13% of sales. The company did not provide formal 2027 guidance.
Accounting corrections and controls
President and CEO Matt Tobolski said the company identified errors during its third-quarter reporting process that understated revenue in the first half of 2026. The corrections increased previously reported first-half revenue by $10.7 million and diluted EPS by $0.09.
EVP and CFO Andy Cheung said the revisions primarily involved revenue recognition and accounting for software subscriptions. The errors were largely related to timing and did not affect the economics of the underlying contracts, he said.
Cheung said remediation efforts include strengthening existing controls, adding a control over the revenue process and looking for ways to reduce reliance on manual controls. Tobolski said the company’s financial processes and controls had not kept pace with its growth in some areas. “We take responsibility for that,” he said.
Data center demand and backlog
BASX-branded sales increased 218% year over year to a record $397 million, while order activity rose 116% sequentially. BASX backlog ended the quarter at approximately $1.4 billion, up 51% from a year earlier, despite faster conversion into revenue.
Tobolski said customer engagement and the opportunity pipeline remain strong, and the company has not seen a meaningful change in demand or customers’ longer-term plans. He said AAON expects fourth-quarter BASX bookings to be at or above the level of the same quarter in 2025.
Responding to an analyst’s question about data center project exposure, Tobolski said less than a third of backlog was in states facing any level of pressure around data centers. He described the projects as already permitted and said well over 80% of backlog was with customers with strong balance sheets.
The company’s Memphis facility was approaching one-third utilization, Cheung said. Tobolski said AAON plans to bring additional capacity online deliberately, over quarters and years, to maintain quality and meet delivery commitments.
Commercial HVAC and margins
AAON-branded revenue rose 20% to a record $310 million, while orders increased 10%. Brand backlog was $499 million, approximately 18% above a year earlier. Tobolski said the business was taking market share despite a soft commercial construction market.
Consolidated gross margin was 26.7%, up 60 basis points from the second quarter but down 110 basis points from a year earlier. Cheung attributed the year-over-year decline to a brand mix headwind of more than 300 basis points, partly offset by improved price-cost trends and volume leverage.
Gross margin in the AAON Coil Products segment rose to 25.8% from 19.1% in the second quarter. Tobolski said pricing accounted for most of the sequential improvement, alongside productivity gains. He said the margin did not include catch-up revenue and reflected products manufactured and shipped during the quarter.
Asked about the slight sequential decline in fourth-quarter gross margin implied by guidance, Tobolski pointed to fewer production days because of holidays, production schedules and year-end inventory counts, rather than inflation.
Cash flow and capital spending
Operating cash flow for the first nine months of 2026 was $147 million, compared with a $19 million use of cash a year earlier. Cheung said the third quarter was AAON’s first free-cash-flow-positive quarter in two years, supported by earnings growth and improved working capital management.
Capital expenditures totaled $147 million through the first nine months. Cheung said spending is expected to decline meaningfully next year as the company approaches the end of its multiyear capacity expansion program.
Cheung also said AAON still plans to present results under a two-brand segment structure on its fourth-quarter earnings call. The company expects to provide recast historical figures shortly beforehand, including the restated first- and second-quarter results.
About AAON (NASDAQ:AAON)
AAON, Inc designs and manufactures heating, ventilation and air-conditioning (HVAC) equipment for commercial and industrial buildings. Founded in 1988, the company is headquartered in Tulsa, Oklahoma, and sells products under the AAON and BASX brands.
Its products include rooftop units, chillers, air-handling units, heat pumps and other custom HVAC systems. BASX specializes in equipment for data centers and other demanding applications, while AAON also offers controls and related services.
AAON serves customers primarily in North America, with products also reaching international markets through its sales and distribution network.
