AAON Inc.
05/07/2026 | Press release | Distributed by Public on 05/07/2026 05:13
Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)
Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the notes thereto, which are included in this report, and our audited consolidated financial statements and the notes thereto, which are included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025.
This discussion contains or incorporates by reference "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not historical facts, but rather are based on expectations, estimates, assumptions and projections about our industry, business and future financial results, based on information available at the time this report is filed with the SEC or, with respect to any document incorporated by reference, available at the time that such document was prepared. Our actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors, including those identified in the section entitled "Forward-Looking Statements" in this Item 2 of this Quarterly Report on Form 10-Q and in the section entitled "Risk Factors" in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2025. We do not assume any obligation to update or revise any forward-looking statements to reflect changed assumptions, the occurrence of anticipated or unanticipated events, new information or circumstances or otherwise, except as required by law.
Description of the Company
AAON is a leader in HVAC solutions for commercial and industrial indoor environments. The Company's industry-leading approach to designing and manufacturing highly configurable equipment to meet exact needs creates a premier ownership experience with greater efficiency, performance, and long-term value. AAON is headquartered in Tulsa, Oklahoma, where its world-class innovation center and testing capabilities enable continuous advancement toward a cleaner and more sustainable future.
We engineer, manufacture, and sell premium heating, ventilation, and air conditioning equipment consisting of semi-custom and custom rooftop units, data center cooling solutions, cleanroom systems, packaged outdoor mechanical rooms, air handling units, makeup air units, energy recovery units, condensing units, geothermal/water-source heat pumps, coils, and controls. These products are marketed and sold to a variety of vertical markets including retail, manufacturing, educational, lodging, supermarket, data centers, medical and pharmaceutical, industrial, and other commercial markets. 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.
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. After the commercial and industrial new construction markets came to a standstill in 2020-2021, our core nonresidential end-markets entered a period of robust growth, increasing by approximately 50.0% between 2022 and 2024. By late 2024, however, these markets began to contract, and the softening continued through 2025, though at a moderate rate. While leading indicators signal a stabilization in activity, we have not observed clear indications of a significant reacceleration. Furthermore, signals from general economic indicators are mixed regarding the health of the general economy. If the domestic economy were to slow or enter a recession, this could further impact our new construction markets and also weigh on the replacement market, potentially resulting in reduced sales volumes and profitability. Sales in the commercial and industrial new construction markets generally lag behind the housing market, which in turn is influenced by cyclical factors such as interest rates, inflation, consumer spending habits, employment rates, the state of the economy and other macroeconomic factors over which we have no control. Sales in the replacement markets are driven by various factors, including general economic growth, the Company's new product introductions, fluctuations in the average age of existing equipment in the market, government regulations and stimulus, change in market demand between more customized, higher performing HVAC equipment and lower priced standard equipment, as well as many other factors. When new construction is down, we emphasize the replacement market.
Our BASX brand is heavily dependent on the data center market. The growing maturity and adoption of Artificial Intelligence and high-performance compute is driving profound innovation across the data center market, resulting in increased demand for our products and solutions. Between 2022 and 2025, total put-in-place construction spending for data centers expanded by approximately 240.0%, and present indicators suggest continued strength with no meaningful signs of slowing in the foreseeable future. In response, we have made substantial capital investments to expand our capacity and ensure we are fully equipped to support this accelerating growth trajectory.
We sell our products to property owners and contractors mainly through a network of independent manufacturers' Representatives. This go-to-market strategy is unique compared to most of our larger competitors in that most control their sales channel. We value the independent sales channel as we think it is a more effective way of increasing market share. Although we concede full control of the sales process with this strategy, the entrepreneurial aspect of the independent sales channel attracts the most talent and provides greater financial incentives for its salespeople. Further, the independent sales channel sells different types of equipment from various manufacturers, allowing it to operate with more of a solutions-based mindset, as opposed to an internal sales department of a manufacturing company that is incentivized to only sell its equipment regardless if it is the best solution for the end customer. We also have a small internal sales force that supports the relationships between the Company and our sales channel partners. BASX sells highly customized products for unique applications for a more concentrated customer base and an internal sales force is more effective for such products.
The principal components of cost of sales are labor, raw materials, component costs, factory overhead, freight out, and engineering expense. The principal high volume raw materials used in our manufacturing processes are steel, copper, and aluminum, and are obtained from domestic suppliers. We also purchase from domestic manufacturers certain components, including coils, compressors, motors, and electrical controls.
The price levels of our raw materials fluctuate due to various economic factors within the U.S. 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.
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.
Macroeconomic Conditions
Beginning in January 2025, the current United States ("U.S.") Administration began enacting a series of tariffs affecting nearly all goods imported into the U.S. In retaliation, numerous foreign countries imposed reciprocal tariffs and restricted certain exports to the U.S. The continuous changes and uncertainty in tariff policy could impact our cost of materials, parts, or components imported into the U.S. and could impact the availability of supply from our vendors. We source raw materials domestically, but historically have seen those suppliers increase prices when tariffs are increased. 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.
We make strategic purchases of materials when we see opportunities or potential disruptions in our supply chain. We have experienced supply chain challenges related to specific manufacturing parts, which could be exacerbated by the trade conflict. We manage our supply chain challenges through strong vendor relationships as well as expanding our list of available vendors.
Backlog
| Segment | Brands Produced | Brand Products | ||||||
| AAON Oklahoma | AAON | Rooftop units and aftermarket parts | ||||||
| AAON Coil Products | AAON / BASX | Condensing units, air handling products, data center cooling solutions, and geothermal/water-source heat pumps | ||||||
| BASX | BASX |
Data center cooling solutions, cleanroom products, and air handling products
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The following table shows our historical backlog levels:
|
March 31, 2026 |
December 31, 2025 |
March 31, 2025 |
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| (in thousands) | |||||||||||||||||
| AAON-branded Products | $ | 509,806 | $ | 526,350 | $ | 403,863 | |||||||||||
| BASX-branded Products | 1,619,649 | 1,302,145 | 623,006 | ||||||||||||||
| Total Backlog | $ | 2,129,455 | $ | 1,828,495 | $ | 1,026,869 | |||||||||||
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. Most of these orders were associated with the BASX-branded data center liquid cooling solutions.
Consolidated Results of Operations
| Three Months Ended March 31, | |||||||||||
| 2026 | 2025 | ||||||||||
| (in thousands, except per share data) | |||||||||||
| Net sales | $ | 496,936 | $ | 322,054 | |||||||
| Cost of sales | 371,971 | 235,690 | |||||||||
| Gross profit | 124,965 | 86,364 | |||||||||
| Selling, general and administrative expenses | 67,906 | 51,293 | |||||||||
| Gain on disposal of assets | - | (40) | |||||||||
| Income from operations | 57,059 | 35,111 | |||||||||
| Interest expense | (5,055) | (2,802) | |||||||||
| Other income, net | 77 | 174 | |||||||||
| Income before taxes | 52,081 | 32,483 | |||||||||
| Income tax provision | 12,266 | 3,191 | |||||||||
| Net income | $ | 39,815 | $ | 29,292 | |||||||
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.
•We have a strong balance sheet with a leverage ratio of 1.71 and available borrowings under our Revolver of $173.5 million.
We report our financial results based on three reportable segments: AAON Oklahoma, AAON Coil Products, and BASX, which are further described in "Segments" (Note 21) within our notes to the consolidated financial statements. The Company's chief operating decision maker ("CODM"), our CEO, allocates resources and assesses the performance of each operating segment using information about the operating segment's net sales and gross profit. The CODM does not evaluate operating segments using asset or liability information.
Segment Operating Results for the Three Months Ended March 31, 2026 and 2025
| Three Months Ended | |||||||||||||||||||||||||||||||||||
| March 31, 2026 |
Percent of Sales1
|
March 31, 2025 |
Percent of Sales1
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$ Change | % Change | ||||||||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||||||||
|
Net Sales2
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| AAON Oklahoma | $ | 243,967 | 49.1 | % | $ | 161,838 | 50.3 | % | $ | 82,129 | 50.7 | % | |||||||||||||||||||||||
| AAON Coil Products | 117,611 | 23.7 | % | 94,023 | 29.2 | % | 23,588 | 25.1 | % | ||||||||||||||||||||||||||
| BASX | 135,358 | 27.2 | % | 66,193 | 20.6 | % | 69,165 | 104.5 | % | ||||||||||||||||||||||||||
| Net sales | $ | 496,936 | $ | 322,054 | $ | 174,882 | 54.3 | % | |||||||||||||||||||||||||||
|
Cost of Sales2
|
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| AAON Oklahoma | $ | 179,695 | 73.7 | % | 121,238 | 74.9 | % | $ | 58,457 | 48.2 | % | ||||||||||||||||||||||||
| AAON Coil Products | 89,309 | 75.9 | % | 64,165 | 68.2 | % | 25,144 | 39.2 | % | ||||||||||||||||||||||||||
| BASX | 102,967 | 76.1 | % | 50,287 | 76.0 | % | 52,680 | 104.8 | % | ||||||||||||||||||||||||||
| Cost of sales | $ | 371,971 | 74.9 | % | $ | 235,690 | 73.2 | % | $ | 136,281 | 57.8 | % | |||||||||||||||||||||||
|
Gross Profit2
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| AAON Oklahoma | $ | 64,272 | 26.3 | % | $ | 40,600 | 25.1 | % | $ | 23,672 | 58.3 | % | |||||||||||||||||||||||
| AAON Coil Products | 28,302 | 24.1 | % | 29,858 | 31.8 | % | (1,556) | (5.2) | % | ||||||||||||||||||||||||||
| BASX | 32,391 | 23.9 | % | 15,906 | 24.0 | % | 16,485 | 103.6 | % | ||||||||||||||||||||||||||
| Gross profit | $ | 124,965 | 25.1 | % | $ | 86,364 | 26.8 | % | $ | 38,601 | 44.7 | % | |||||||||||||||||||||||
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 $174.9 million, or 54.3% driven by growth across all segments. AAON Oklahoma saw significant improvement with an increase of $82.1 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. The $23.6 million increase in net sales for AAON Coil Products is due to sales of BASX-branded products for liquid cooling data center orders. BASX net sales are up $69.2 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. The approximate overhead related to the Memphis plant is $9.8 million. 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:
| 2026 | 2025 | % Change | |||||||||||||||
| Copper | $ | 6.34 | $ | 5.92 | 7.1 | % | |||||||||||
| Galvanized steel | $ | 0.55 | $ | 0.57 | (3.5) | % | |||||||||||
| Stainless steel | $ | 1.67 | $ | 1.89 | (11.6) | % | |||||||||||
| Aluminum | $ | 2.85 | $ | 2.40 | 18.8 | % | |||||||||||
Selling, General and Administrative Expenses
| Three Months Ended March 31, | Percent of Sales | ||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Warranty | $ | 5,913 | $ | 3,211 | 1.2 | % | 1.0 | % | |||||||||||||||
| Profit sharing | 5,680 | 3,297 | 1.1 | % | 1.0 | % | |||||||||||||||||
| Salaries & benefits | 22,622 | 16,429 | 4.6 | % | 5.1 | % | |||||||||||||||||
| Stock compensation | 3,950 | 2,614 | 0.8 | % | 0.8 | % | |||||||||||||||||
| Advertising | 727 | 551 | 0.1 | % | 0.2 | % | |||||||||||||||||
| Depreciation & amortization | 6,706 | 6,886 | 1.3 | % | 2.1 | % | |||||||||||||||||
| Insurance | 2,695 | 2,056 | 0.5 | % | 0.6 | % | |||||||||||||||||
| Professional fees | 2,412 | 1,487 | 0.5 | % | 0.5 | % | |||||||||||||||||
| Memphis incentive fee | - | 2,700 | - | % | 0.8 | % | |||||||||||||||||
| Donations | 347 | 174 | 0.1 | % | 0.1 | % | |||||||||||||||||
| Other | 16,854 | 11,888 | 3.4 | % | 3.7 | % | |||||||||||||||||
| Total SG&A | $ | 67,906 | $ | 51,293 | 13.7 | % | 15.9 | % | |||||||||||||||
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. The dollar increase of $16.6 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.
Income Taxes
| Three Months Ended March 31, | Effective Tax Rate | |||||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||
| Income tax provision | $ | 12,266 | $ | 3,191 | 23.6 | % | 9.8 | % | ||||||||||||||||||
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%.
Liquidity and Capital Resources
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.
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"). The agreement provided for a $200.0 million revolving credit facility and an option to increase the maximum borrowings to $300.0 million. In April 2025, we increased our available Revolver to $230.0 million, an increase of $30.0 million, to fund our additional working capital needs.
On May 29, 2025, we entered into the Fifth Amendment to the Amended and Restated Loan Agreement dated November 24, 2021 (as amended, "Amended Loan Agreement") whereby the remaining balance of the Term Loan, approximately $72.0 million, was rolled into the amended Revolving Loan ("Amended Revolver"), the capacity of which was increased from $230.0 million to $500.0 million. The Amended Revolver is prepayable without penalty.
On December 29, 2025, we entered into the Sixth Amendment to the Amended and Restated Loan Agreement. The terms of the Amendment increased the amount of the borrowing capacity on the Revolver from $500.0 million to $600.0 million by exercising the $100.0 million accordion feature. The Amended Revolver is prepayable without penalty. 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.
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.
Applicable margin, ranging from 1.25% - 1.75%, is determined quarterly based on the Company's leverage ratio. The Company is also subject to letter of credit fees, ranging from 1.25% - 1.75%, and a commitment fee, ranging from 0.10% - 0.20%. 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.
Weighted average interest rate of our borrowings outstanding are as follows:
| Three Months Ended March 31, | |||||||||||
| 2026 | 2025 | ||||||||||
| Revolver | 5.3% | 5.6% | |||||||||
If SOFR cannot be determined pursuant to the definition, as defined by the Amended Loan Agreement, any outstanding effected loans will be deemed to have been converted into alternative base rate ("ABR") loans. ABR loans would bear interest at a rate per annum equal to the highest of (a) the Prime Rate in effect on such day, (b) the Federal Funds Rate in effect on such day plus 0.50%, or (c) daily simple SOFR for a one-month tenor in effect on such day plus 1.00%. 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. 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.
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"). In connection with the 2019 NMTC transaction, the Company received a $23.0 million NMTC allocation for the Project and secured low-interest financing and the potential for future debt forgiveness related to the 2019 Project.
Upon closing of the 2019 NMTC transaction, the Company provided an aggregate of approximately $15.9 million to the 2019 Investor, in the form of a loan receivable, with a term of 25 years, bearing an interest rate of 1.0%. 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
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.
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%. This $16.7 million in proceeds plus capital contributed from the 2023 Investor was used to make an aggregate $23.8 million loan to a subsidiary of the Company. This financing arrangement is secured by a guarantee from the Company, including an unconditional guarantee of the NMTCs. The net proceeds from the closing of the 2023 NMTC are included in restricted cash on our consolidated balance sheets required to be used for the 2023 Project.
2024 New Markets Tax Credit - On February 27, 2024, the Company entered into a transaction with a subsidiary of an unrelated third-party financial institution (the "2024 Investor") and a certified Community Development Entity under a qualified New Markets Tax Credit ("2024 NMTC") program pursuant to Section 45D of the Internal Revenue Code of 1986, as amended, related to an investment in real estate to facilitate the current expansion of our Longview, Texas manufacturing operations (the "2024 Project"). In connection with the 2024 NMTC transaction, the Company received a $15.5 million NMTC allocation for the 2024 Project and secured low-interest financing and the potential for future debt forgiveness related to the expansion of its Longview, Texas facilities.
Upon closing the 2024 NMTC transaction, the Company provided an aggregate of approximately $11.0 million to the 2024 Investor, in the form of a loan receivable, with a term of 25 years, bearing an interest rate of 1.0%. This $11.0 million in proceeds plus capital contributed from the 2024 Investor was used to make an aggregate $16.0 million loan to a subsidiary of the Company. This financing arrangement is secured by a guarantee from the Company, including an unconditional guarantee of NMTCs. The net proceeds from the closing of the 2024 NMTC are included in restricted cash on our consolidated balance sheets required to be used for the 2024 Project.
2026 New Markets Tax Credit - On April 16, 2026 the Company entered into a transaction with a subsidiary of an unrelated third-party financial institution (the "2026 Investor") and a certified Community Development Entity under a qualified New Markets Tax Credit ("2026 NMTC") program pursuant to Section 45D of the Internal Revenue Code of 1986, as amended, related to an investment in our Memphis, TN facility. In connection with the 2026 NMTC transaction, the Company received a $50.5 million NMTC allocation for the 2026 Project and secured low interest financing and the potential for future debt forgiveness related to the 2026 Project.
Upon closing of the 2026 NMTC transaction, the Company provided an aggregate of approximately $35.2 million to the 2026 Investor, in the form of a loan receivable, with a term of 27 years, bearing an interest rate of 1.2%. This $35.2 million in proceeds plus capital contributed from the 2026 Investor was used to make an aggregate $48.2 million loan to a subsidiary of the Company. This financing arrangement is secured by a guarantee from the Company, including an unconditional guarantee of the NMTCs. The net proceeds from the closing of the 2026 NMTC were $12.9 million.
Stock Repurchase - The Board has authorized stock repurchase programs for the Company. The Company may purchase shares on the open market from time to time. The Board must authorize the timing and amount of these purchases and all repurchases are in accordance with the rules and regulations of the SEC allowing the Company to repurchase shares from the open market.
Our open market repurchase programs are as follows:
| Agreement Execution Date | Authorized Repurchase $ | Expiration Date | ||||||||||||
| February 25, 2025 | $100 million |
**1
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1 Expiration Date is at Board's discretion. 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.
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The Company also repurchases shares of AAON, Inc. stock related to our LTIP plans (Note 14) at current market prices.
Our repurchase activity is as follows:
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2026 | 2025 | ||||||||||||||||||||||
| (in thousands, except share and per share data) | |||||||||||||||||||||||
| Program | Shares | Total $ | $ per share | Shares | Total $ | $ per share | |||||||||||||||||
| Open market | - | $ | - | $ | - | 371,139 | $ | 29,992 | $ | 80.81 | |||||||||||||
| LTIP Shares | 34,568 | 3,203 | 92.66 | 82,664 | 8,312 | 100.55 | |||||||||||||||||
| Total | 34,568 | $ | 3,203 | $ | 92.66 | 453,803 | $ | 38,304 | $ | 84.41 | |||||||||||||
Dividends - At the discretion of the Board of Directors, we pay cash dividends. Board approval is required to determine the date of declaration and amount for each cash dividend payment.
Our recent dividends are as follows:
| Dividend | Annualized Dividend | |||||||||||||
| Declaration Date | Record Date | Payment Date |
per Share
|
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 | ||||||||||
| August 14, 2025 | September 5, 2025 | September 26, 2025 | $0.10 | $0.40 | ||||||||||
| November 10, 2025 | November 26, 2025 | December 18, 2025 | $0.10 | $0.40 | ||||||||||
| March 5, 2026 | March 18, 2026 | March 30, 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.
Off-Balance Sheet Arrangements - We are not party to any off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues, expenses, results of operations, liquidity, capital expenditures, or capital resources.
Statement of Cash Flows
The following table reflects the major categories of cash flows for the three months ended March 31, 2026 and 2025. For additional details, see the consolidated financial statements.
| Three Months Ended March 31, | |||||||||||
| 2026 | 2025 | ||||||||||
| (in thousands) | |||||||||||
| Operating Activities | |||||||||||
| Net income | $ | 39,815 | $ | 29,292 | |||||||
| Income statement adjustments, net | 33,846 | 29,117 | |||||||||
| Changes in assets and liabilities: | |||||||||||
| Accounts receivable | 24,346 | (17,631) | |||||||||
| Income taxes | 7,754 | (3,323) | |||||||||
| Inventories | (52,753) | (11,489) | |||||||||
| Contract assets | (51,331) | (53,235) | |||||||||
| Prepaid expenses and other long-term assets | (1,487) | (2,703) | |||||||||
| Accounts payable | 50,375 | 21,625 | |||||||||
| Contract liabilities | (25,441) | 1,508 | |||||||||
| Extended warranties | 4,387 | 37 | |||||||||
| Accrued liabilities & other long-term liabilities | 4,483 | (2,412) | |||||||||
| Net cash provided by (used in) operating activities | 33,994 | (9,214) | |||||||||
| Investing Activities | |||||||||||
| Capital expenditures | (45,127) | (46,723) | |||||||||
| Acquisition of intangible assets | (7,808) | (3,717) | |||||||||
| Grant proceeds received | 1,650 | - | |||||||||
| Other | - | 52 | |||||||||
| Net cash used in investing activities | (51,285) | (50,388) | |||||||||
| Financing Activities | |||||||||||
| Proceeds from financing obligations, net of issuance costs | - | - | |||||||||
| Payment related to financing costs | (1,395) | - | |||||||||
| Borrowings of debt | 252,867 | 235,925 | |||||||||
| Payments of debt | (226,033) | (138,411) | |||||||||
| Stock options exercised | 3,062 | 4,356 | |||||||||
| Repurchase of stock | - | (31,536) | |||||||||
| Employee taxes paid by withholding shares | (3,203) | (6,768) | |||||||||
| Cash dividends paid to stockholders | (8,146) | (8,095) | |||||||||
| Net cash provided by financing activities | $ | 17,152 | $ | 55,471 | |||||||
Cash Flows from Operating Activities
The Company currently manages cash needs through working capital as well as drawing on its line of credit. Collections and payments cycles are on a normal pattern and fluctuate due to timing of receipts and payments. Historically, the Company increases the purchase of inventory to take advantage of favorable pricing opportunities and also to mitigate the impact of future supply chain disruptions on our operations. Additionally, we continue to make significant purchases of inventory related to data center orders. These purchases are allocated to customer jobs and show as increases to our contract assets.
Current payment terms for some BASX-branded jobs primarily require the Company to fund the upfront working capital resulting in cash outflows related to our contract assets. Similarly, some BASX-branded jobs require down payments, resulting in cash inflows related to our contract liabilities. The Company experienced carrying working capital for extended periods of time during this period of growth and expansion at our Longview and Memphis plants.
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. We continue to make investments to purchase and develop software for internal use in anticipation of future Company growth.
Our capital expenditure program for 2026 is estimated to be approximately $190.0 million. Many of these projects are subject to review and cancellation at the discretion of our CEO and Board of Directors without incurring substantial charges.
Cash Flows from Financing Activities
The change in cash from financing activities in 2026 is primarily related to borrowings under our revolving credit facility to manage our working capital needs, especially strategic purchases of inventory to avoid supply chain delays and the funding of certain capital expenditures, offset by repayments we were able to make due to our operating results and financial condition.
Furthermore, cash flows from financing activities is historically affected by the timing of stock options exercised by our employees and our regular quarterly dividend.
Commitments and Contractual Agreements
We are occasionally party to short-term and long-term, cancellable and occasionally non-cancellable, contracts with suppliers for the purchase of raw material and component parts. We expect to receive delivery of raw material and component parts for use in our manufacturing operations. 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.
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. Estimated minimum future payments are $7.3 million, and $11.2 million for 2026 and 2027, respectively.
In 2025, the Company executed three one-year purchase commitments for raw materials. Estimated minimum future payments are $23.3 million for 2026. We had no other material contractual purchase obligations as of March 31, 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.
Recent Accounting Pronouncements
See Note 1 of the Notes to the Consolidated Financial Statements for a discussion of recent accounting pronouncements.
Forward-Looking Statements
This Quarterly Report on Form 10-Q (or statements otherwise made by the Company or on the Company's behalf from time to time in other reports, filings with the Securities and Exchange Commission ("SEC"), news releases, conferences, website postings, presentations or otherwise) includes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements contained herein that are not historical facts are forward-looking statements and involve risks and uncertainties. For all of these forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the U.S. Private Securities Litigation Reform Act of 1995. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," "confident," "outlook," "project," "should," "will," and variations of such words and other words of similar meaning or similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions, which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. Important factors that could cause results to differ materially from those in the forward-looking statements include, among others:
•market conditions and customer demand for our products;
•the timing and extent of changes in raw material and component prices;
•naturally-occurring events, pandemics, and other disasters causing disruption to our manufacturing operations, product deliveries and production capacity;
•natural disasters and extreme weather conditions, including, without limitation, their effects on locations where our products are manufactured;
•the effects of fluctuations in the commercial/industrial new construction market;
•the timing of introduction and market acceptance of new products;
•the timing and extent of changes in interest rates, as well as other competitive factors during the year;
•general economic, market or business conditions;
•creditworthiness of our customers and their access to capital;
•changing technologies; including, without limitation, our ability to effectively integrate artificial intelligence (AI) in our business:
•the material failure, interruption of service, compromised data or information technology security, phishing emails, cybersecurity breaches or other impacts to our information technology and related systems and networks (including any of the foregoing of third-party vendors and other contractors who provide information technology or other services);
•costs and results of litigation, including trial and appellate costs;
•economic, market or business conditions in the specific industry and market in which our businesses operate;
•geopolitical events, including armed conflicts, and their impact on market conditions, including supply chain disruption, pricing and the global economy
•future levels of capital expenditures, research and development and indebtedness, including, without limitation, our ability to reduce indebtedness and risks associated with the same;
•legal, regulatory, and environmental issues, including, without limitation, compliance of our products with mandated standards and specifications; and
•integration of acquired businesses and our ability to realize synergies and cost savings.
Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. Except as required by federal securities laws, we undertake no obligation to update any forward-looking statement to reflect events, occurrences or developments after the date on which such statement is made. For a discussion of risks and uncertainties which could cause actual results to differ from those contained in the forward-looking statements, please see Item 1A "Risk Factors" included in this Quarterly Report on Form 10-Q, and as otherwise disclosed from time to time in our other filings with the SEC.
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