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Year-over-year tone shift - average net-tone change across Risk Factors and MD&A vs the prior 10-K. This filing is -0.23pp more bearish than last year's.
Why YoY instead of absolute: the LM lexicon has ~6.6× more negative words than positive (legal/risk-disclosure language is heavy on hedging), so every 10-K reads bearish on raw tone. Year-over-year change strips that bias and surfaces the actual shift in management's framing.
Tone shift by section
The two components the gauge averages: how Risk Factors and MD&A each shifted in net tone versus last year's 10-K. The headline above is their average, so a green needle over a soft section just means the other section carried it.
Real-time Form 4 intelligence. Smarter insider tracking.
Flat
Net-tone change vs last year's 10-K.
MD&A
-0.21pp
Flat
Net-tone change vs last year's 10-K.
Per-snippet highlights
Sentence-level sentiment highlighting with category and subcategory filters is coming once the snippet-scoring pipeline lands. For now, dig into the actual section text on the Sections tab.
Language change vs prior 10-K
Risk Factors (Item 1A) - words with the biggest YoY frequency increase
Negative rising
against+3
unpredictable+3
defer+2
canceling+2
retaliatory+2
Positive rising
leadership+3
improve+3
excellence+3
enhance+2
enable+2
Risk Factors (Item 1A)
10,633 words
Risk Factors.
Unresolved Staff Comments.
Properties.
Legal Proceedings.
Mine Safety Disclosure.
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Reserved.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Quantitative and Qualitative Disclosures About Market Risk.
Financial Statements and Supplementary Data.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Controls and Procedures.
Other Information.
PART III
Directors, Executive Officers and Corporate Governance.
Executive Compensation.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Certain Relationships and Related Transactions, and Director Independence.
Principal Accountant Fees and Services.
PART IV
Exhibits and Financial Statement Schedules.
Signatures
Language change vs prior 10-K
MD&A (Item 7) - words with the biggest YoY frequency increase
Negative rising
disruptions+6
against+3
challenges+3
losses+3
unpredictable+3
Positive rising
leadership+3
excellence+3
enhance+2
enable+2
strong+2
MD&A (Item 7)
21,742 words
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Quantitative and Qualitative Disclosures About Market Risk.
Financial Statements and Supplementary Data.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Controls and Procedures.
Other Information.
PART III
Directors, Executive Officers and Corporate Governance.
Executive Compensation.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Certain Relationships and Related Transactions, and Director Independence.
Principal Accountant Fees and Services.
PART IV
Exhibits and Financial Statement Schedules.
Signatures
Forward-Looking Statements
This Annual Report on Form 10-K (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 Reform Act of 1995. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “,” “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 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:
This Annual Report on Form 10-K (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;
• the impact caused by inflationary cost pressures, national or global health issues, such as the coronavirus pandemic (“COVID-19”), any variants or similar outbreaks (including the response thereto) and their effects on, among other things, demand for our products, supply chain disruptions, our liquidity and financial position, results of operations, stock price, payment of dividends, our ability to secure new orders, our ability to convert backlog to revenue and impacts to the operations status of our facilities;
• 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;
• 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;
• 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 Annual Report on Form 10-K, and as otherwise disclosed from time to time in our other filings with the SEC.
PART I
Item 1. Business.
Overview
AAON, Inc., a Nevada corporation ("AAON Nevada"), was incorporated on August 18, 1987. Our operating subsidiaries include AAON, Inc., an Oklahoma corporation ("AAON Oklahoma"), AAON Coil Products, Inc., a Texas corporation ("AAON Coil Products"), and BASX, Inc., an Oregon corporation ("BASX"). Unless the context otherwise requires, references in this Annual Report to "AAON", the "Company", "we", "us", "our", or "ours" refer to AAON Nevada and our subsidiaries.
AAON is a leader in heating, ventilation, air conditioning, and liquid cooling solutions for commercial and industrial indoor environments. The Company designs and manufactures highly configurable equipment to meet specific customer requirements, delivering reliable performance, efficiency, and long-term value. Through a strong commitment to research and development, advanced engineering capabilities, and decades of industry experience, the Company continues to elevate standards for climate management solutions.
Business Segments
The Company operates through three reportable business segments: AAON Oklahoma, AAON Coil Products, and BASX. These segments are based on differences in products, manufacturing processes, and end markets, and reflect how management evaluates operating performance and allocates resources.
AAON Oklahoma: AAON Oklahoma engineers, manufactures, and sells highly configurable HVAC systems, designs and manufactures controls solutions, and sells aftermarket parts to customers through retail part stores and online. AAON Oklahoma includes operations at the Company’s manufacturing facilities in Tulsa, Oklahoma; Memphis, Tennessee; and Parkville, Missouri, as well as two retail locations, the Norman Asbjornson Innovation Center (“NAIC”), and the Gary D. Fields Customer Exploration Center.
The NAIC is a world-class research and development laboratory accredited by the Air Movement and Control Association International, Inc. ("AMCA"), where our products are continuously tested under extreme environmental conditions to ensure optimal performance, efficiency, and value. The Gary D. Fields Customer Exploration Center showcases the engineering, design attributes, and premium build quality of our equipment alongside market alternatives.
AAON Coil Products: AAON Coil Products engineers and manufactures and sells semi-custom and custom HVAC systems as well as heating and cooling coils for use in HVAC systems, primarily for AAON Oklahoma, AAON Coil Products, and BASX. AAON Coil Products operates from our Longview, Texas manufacturing facilities, which also produce BASX-branded products.
BASX: BASX engineers, manufactures, and sells a wide range of custom, high-performance cooling solutions for the rapidly growing hyperscale data center market; ventilation solutions for cleanroom environments in the biopharmaceutical, semiconductor, medical, and agricultural sectors; and highly customized air handlers and modular solutions for a variety of markets. BASX operates from our manufacturing facilities in Redmond, Oregon, with additional support from facilities in Memphis, Tennessee, and Longview, Texas.
For more information on our business segments’ financial position and results of operations, refer to Note 23, “Segments,” of the Notes to Consolidated Financial Statements.
Business and Marketing Strategy
The Company serves commercial, industrial, data center, and cleanroom markets with a differentiated approach to HVAC manufacturing. Our business strategy centers on mass semi-customization, leveraging flexible, computer-aided manufacturing systems to deliver highly configurable equipment that combines the cost efficiency of scaled production with the precision of individual customization.
Our marketing strategy is guided by the Company’s core priorities:
Customers First: We collaborate closely with our network of independent sales representatives to engineer and manufacture solutions tailored to each customer's specific requirements. Unlike manufacturers of standardized equipment, we build to order, ensuring every system is pre-specified before production begins. Our go-to-market
strategy targets customers and applications that demand exceptional performance, efficiency, and long-term value. We compete on technical excellence and customer outcomes, not price.
Product Leadership: Since our founding, our Company has maintained an unwavering commitment to manufacturing and product leadership through continuous research and development. Our innovation efforts focus on advancing energy performance, equipment durability, system efficiency, and indoor air quality. These pillars define our competitive position and drive our R&D investments. Our commitment to engineering excellence requires rigorous adherence to industry standards and certifications, including those set by Air-Conditioning, Heating, and Refrigeration Institute (“AHRI”); the American National Standards Institute (“ANSI”); American Society of Heating, Refrigeration and Air-Conditioning Engineers (“ASHRAE”); the AMCA and the International Organization for Standardization (“ISO”).
Sales and Representative Support: We invest strategically in our representative network as an extension of our market capability. This includes business planning collaboration, leadership development, technical training, and comprehensive service network development to ensure our representatives and their customers receive exceptional support throughout equipment lifecycles.
People and Culture: Our ability to deliver product leadership and excellent customer experience depends on attracting and retaining top engineering, manufacturing, and commercial talent. We maintain a culture focused on innovation, technical rigor, and operational excellence that enables us to compete against substantially larger manufacturers.
To date, our sales have been primarily derived from the domestic market. Foreign sales accounted for approximately $38.1 million, $30.1 million, and $39.9 million of our net sales in 2025, 2024, and 2023, respectively. As a percentage of net sales, foreign sales accounted for approximately 2.6%, 2.5%, and 3.4% of our net sales in each of those years, respectively.
Aftermarket Support Strategy
We support customers through a comprehensive parts and service network. Parts are available through our representative sales offices and two Tulsa-based retail stores. Factory service organizations operate at each manufacturing facility, supplemented by representatives who maintain their own service capabilities to provide warranty work and ongoing customer support.
We invest strategically in building service capacity across our North American representative network. This includes collaborating with representatives on business planning, leadership development, and technician training for both representatives and select contractors. These efforts create a cohesive service ecosystem designed to meet the operational and maintenance requirements of our customer base throughout equipment lifecycles.
Products - AAON Brand
Market and Application
AAON-branded products serve commercial and industrial buildings of all sizes, installed on rooftops or alongside structures. Our addressable market is driven by new construction activity and replacement demand from existing buildings. The commercial and industrial construction cycle typically lags residential markets, which respond to macroeconomic factors including interest rates, inflation, employment, and overall economic conditions. We balance our business across both new construction and replacement markets depending on economic cycles.
Core Product Architecture
Our flagship products are rooftop units (RTUs), self-contained heating and cooling systems installed on commercial and industrial building rooftops. A typical commercial building installation requires one ton of air conditioning for every 300-400 square feet. A 100,000 square-foot commercial building requires approximately 250 tons of cooling capacity, which we deliver through single or multiple units depending on application requirements.
We manufacture three RTU product lines covering the full commercial spectrum:
• RQ Series: two-five ton cooling capacity
• RN Series: six-140 ton cooling capacity (26 sizes)
• RZ Series: 45-261 ton cooling capacity (15 sizes)
Beyond rooftop units, our product portfolio includes air handling units, condensing units, makeup air units, energy recovery units, geothermal and water-source heat pumps, coils, and factory controls. All products are manufactured by assembling fabricated sheet metal and tubing components with pre-manufactured elements including coils, compressors, fans, and control systems. Every unit undergoes rigorous end-of-line testing and inspection before shipment.
AAON Alpha Class™ Technology
When configured as air-source heat pumps (“ASHP”), our RQ, RN, and CF Series units operate in ambient temperatures as low as negative twenty degrees Fahrenheit. This technology platform, AAON Alpha Class™, addresses accelerating demand for commercial building decarbonization. By combining advanced engineering with leading-edge compressor technology, Alpha Class™ delivers energy-efficient heating and cooling year-round in virtually any climate.
Indoor and Specialized Systems
Our SA, SB, and M2 Series provide indoor packaged solutions with water-cooled or geothermal/water-source heat pump configurations ranging from three-70 tons cooling capacity. Air handling units include the indoor H3 and V3 Series, the modular M2 Series, and air handling configurations of our RQ, RN, RZ, and SA Series units.
Energy recovery options available across multiple product lines support increased fresh air ventilation requirements outlined in ASHRAE Standard 90.1 (Energy Conservation) and Standard 62.1 (Ventilation & Indoor Air Quality). Our H3/V3 Series energy recovery wheel air handling units deliver energy-efficient 100% outside air ventilation by capturing energy that would otherwise be exhausted.
Performance and Efficiency
Our products span cooling capacities from two-261 tons and heating capacities from 24,000 to 4,500,000 British Thermal Units (“BTUs”). Many units substantially exceed DOE minimum efficiency standards and rank among the highestefficiency products available commercially.
Our packaged RTUs with two-stage, digital, or variable-speed compressors are optimized with high-efficiency evaporator and condenser coils and variable-speed fans, achieving AHRI Certified performance up to 18.0 SEER2 and 22.8 IEER.
Controls Integration
We design and manufacture high-performance controls solutions that enhance our equipment’s unique features and capabilities. Our controls division develops factory-tested options for Variable Air Volume, Make-Up Air, Single Zone VAV, Constant Volume, and Zoning systems for both AAON products and other HVAC equipment.
Controls options include the VCCX Controller, factory-installed customer-provided controls, and terminal blocks for field-installed controls. VCCX Controls are Underwriters Laboratories certified to UL 916 or UL 60730 and BACnet Testing Laboratories certified, meeting international standards for safety and traceability. Our economizer function carries California Title 24 certification to support reduced energy consumption.
We continue to invest in advanced controls manufacturing capabilities designed to improve speed, precision, and consistency across production and testing processes. These investments enhanceefficiency, quality assurance, and accountability throughout manufacturing operations and support increased production capacity through the use of automation.
AAON controls are designed to be user-friendly and configurable for a wide range of HVAC applications. In addition, controls can be customized to meet application-specific customer requirements, supporting system flexibility and integration across diverse operating environments.
Certifications and Standards
Our geothermal/water-source heat pumps (RN, RQ, M2, and SB Series) are AHRI certified in accordance with ANSI/AHRI/ASHRAE/ISO 13256. Unitary air conditioners and heat pumps (RQ and RN Series) are certified with AHRI and the U.S. Department of Energy to ANSI/AHRI 210/240 (up to five tons) and ANSI/AHRI 340/360 (five-63 tons). When configured for Dedicated Outdoor Air Systems (DOAS), the RQ, RN, RZ, and CF paired with H3 or V3 products comply with AHRI Standard 920.
Products - BASX Brand
Our BASX-branded products are highly customized to meet the technical and operational requirements of mission-critical environments. BASX focuses on delivering purpose-built thermal management and air handling solutions for data centers, healthcare, cleanroom, and industrial applications, with an emphasis on reliability, efficiency, scalability, and integration flexibility.
Our data center cooling solutions are designed to support increasingly dense and complex computing environments, including AI and high-performance computing (“HPC”) workloads. These solutions include direct evaporative coolers, fan coil walls, computer room air handling (“CRAH”) units, overhead fan coil units, and packaged air handling systems. High-performance air-cooled heat rejection solutions are provided with waterside economizers and optional adiabatic-assisted cooling and are designed to integrate with both air-cooled and liquid-cooled IT architectures.
In 2025, BASX expanded its liquid cooling portfolio with the introduction of its proprietary Coolant Distribution Unit (“CDU”). The BASX CDU serves as the critical interface between facility water systems and technology cooling loops, providing precise flow, temperature, and pressure control to server cold plates. These systems are engineered with fully welded stainless-steel piping and are custom-dimensioned to fit specific facility layouts and hydraulic requirements. The CDU platform supports rack densities exceeding 100 kilowatts and incorporates N+1 redundant, hot-swappable pumps and power supplies, multi-zone active leak detection, and automated isolation capabilities. These features are designed to enhance system reliability, protect IT assets, and enable continuous operation in high-density AI and HPC deployments.
BASX also introduced a water-free Free Cooling Chiller platform designed for large-scale data center heat rejection in diverse and extreme climate conditions. These rooftop-mounted systems operate in three modes: full free cooling, partial free cooling with supplemental direct expansion, and full mechanical cooling. By leveraging ambient air temperatures whenever possible, the system reduces reliance on refrigeration and eliminates water consumption. This platform is optimized for hyperscale and colocation environments seeking to improve energy efficiency, reduce operating costs, and support sustainability objectives while maintaining performance in harsh winter and summer conditions.
Additionally, our perimeter and white space thermal management solutions include direct evaporative coolers, fan coil walls, CRAH units, in-row cooling systems, and overhead fan coil units. Packaged solutions include coupled economizing chillers with integrated air handling and packaged direct expansion (“DX”) systems with airside economizers. These offerings enable close-coupled IT load management and flexible deployment across new construction and retrofit applications.
Our cleanroom products are engineered to provide precise environmental control for critical manufacturing and research processes, including pharmaceutical, biotechnology, and semiconductor applications. Process cooling solutions include recirculation and make-up air handling units, integrated piping systems, and advanced control platforms. Environmental control solutions include modular cleanroom environments, fan filter units, filtered ceiling grids with integrated lighting, pressurized plenums, grid systems, and hospital surgical suites.
BASX-branded custom air handling products serve commercial, industrial, healthcare, and institutional facilities employing chilled water cooling, packaged direct expansion, hydronic heating, indirect gas heating, humidification, dehumidification, advanced filtration, and integrated building controls. BASX also manufactures plenum fans for integration into air handling units and retrofit applications and offers integrated sound performance and vibration control solutions.
Key Customers
Our top customers operate primarily in the data center cooling and commercial air conditioning markets.
Data centers are purpose-built facilities that enable the processing, storage and distribution of data across both traditional workloads and high-density compute, including AI training and inference. Examples of companies in this space include Microsoft, Amazon Web Services, Google Cloud, QTS and Applied Digital.
The commercial air conditioning market includes the design and manufacturing of HVAC systems for non-residential buildings such as offices, hospitals, schools, data centers, warehouses and manufacturing facilities. Our channel partners and customers support the design, construction and service of such facilities including independent sales representatives like Texas AirSystems and related portfolio groups through sole or common ownership like Meriton, Ambient and Air Control Concepts.
For the years ended December 31, 2025, 2024, and 2023, the Company had three, two and three customers, respectively, that were 10 percent or greater concentrations of revenue.
We have earned the trust and business of these significant customers over many years of performing to their needs, which they have supported with long-standing multi-year programs. The remaining majority of our business is comprised of thousands of customers and transactions through our extensive network of independent representatives. This mitigates our concentration risk as we also continue expanding our customer base through targeted growth in adjacent end markets, new customer acquisitions and expanding share with existing customers.
At December 31, 2025 and December 31, 2024, the Company had three customers that were 10 percent or greater concentrations of accounts receivable.
Backlog
The backlog consists of products for which a customer purchase order has been received and which has not yet been delivered. Orders may be subject to cancellation or rescheduling by the customer. Orders for the commercial air conditioning market have historically been firm with minimal risk of cancellation, in which case, cancellation charges apply up to the full price of the equipment. Orders for the data center market have more risk and we often see shifts in timing, cancellations and re-issuances of orders, all subject to various cancellation terms and charges.
Lead times to fulfill orders for AAON-branded products is generally around 18 - 26 weeks. Orders for BASX-branded product, including orders built at AAON Coil Products’ Longview location, are typically placed months in advance of requested delivery to secure production for those projects. As a result, portions of the BASX-branded product backlog do not turn over within typical lead times for AAON-branded products. We do not believe that the Company’s backlog estimates as of any date are necessarily indicative of our net sales for any future period. Additionally, our current backlog estimates are subject to a number of risks, as further detailed in Item 1A. Risk Factors, Risks Related to Our Business .
Warranties
Our product warranty policy is the earlier of one year from the date of install first use or 18 months from the date of shipment for parts only, including controls; 18 months for data center cooling solutions and cleanroom systems; five years for compressors; 15 years on aluminized steel gas-fired heat exchangers; 25 years on stainless steel heat exchangers; and ten years on gas-fired heat exchangers in our historical RL products. Our warranty policy for the RQ series covers parts for two years from the date of unit shipment.
The Company also sells extended warranties on parts for various lengths of time ranging from six months to ten years. Revenue for these separately priced warranties is deferred and recognized on a straight-line basis over the separately priced warranty period.
Competition
The Company’s comfort cooling products primarily compete with Lennox (Lennox International, Inc.), Trane (Trane Technologies plc), York Light Commercial (Bosch Home Comfort Group), Johnson Controls (Johnson Controls International PLC), Carrier (Carrier Global Corporation), and Daikin (Daikin Industries). Our thermal management products primarily compete with Vertiv (Vertiv Holdings Co.), STULZ (STULZ Air Technology Systems, Inc.), Munters, Silent Aire (Johnson Controls International PLC), Nortek (Nortek Air Solutions), and Modine (Modine Manufacturing Co.).
The Company competes against larger manufacturers with greater financial and operational resources and offerings ranging into the lower featured products needed for broader market appeal. We compete on total value proposition rather than initial price, emphasizing product quality, performance, efficiency, serviceability, reliability, and lifecycle cost of ownership.
Our market position differs significantly between buyer segments. In replacement markets and owner-controlled purchases, we have consistently gained market share by demonstrating superior total cost of ownership over equipment lifespans. Building owners who control purchase decisions recognize the economic value of premium performance and extended durability.
The new construction market has historically presented greater competitive challenges due to contractor emphasis on initial equipment cost. However, operational efficiencyimprovementsachieved over recent years have narrowed the price gap between our semi-custom equipment and competitors' standardized offerings. This enhanced cost
competitiveness, combined with our quality and performance advantages, has strengthened our position across both new construction and replacement market segments.
Resources
Sources and Availability of Raw Materials
The most important materials we purchase are steel, copper, and aluminum. We also purchase from other manufacturers certain components, including coils, compressors, electric motors, and electrical controls used in our products. We attempt to obtain the lowest possible cost in our purchases of raw materials and components, consistent with meeting specified quality standards. We are not dependent upon any one source for raw materials or the major components of our manufactured products. By having multiple suppliers, we believe that we will have adequate sources of supplies to meet our manufacturing requirements for the foreseeable future.
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.
Working Capital Practices
Given the complexity of our manufacturing operations, working capital is impacted by production cycle times, raw material volatility and customer delivery schedules. We continue to invest in planning systems, plant scheduling and supplier collaboration to improve inventory turnover and reduce cycle time. Our strategy includes aligning production with demand, reducing excess and obsolete inventory and improving procurement lead times.
Additionally, a significant portion of our revenue is recognized over time for contracts as we satisfy performance obligations. As a result, we record contract assets when revenue recognized exceeds amounts billed to customers. Contract assets represent our conditional right to consideration and are primarily driven by the timing of billing milestones relative to project progress. The level of contract assets may fluctuate based on the timing of project execution, milestone billing schedules and customer acceptance provisions. Although contract assets are expected to be billed and collected within the normal operation cycle, changes in project estimates, customer disputes or delays in achieving contractual milestones could impact the timing of cash collections.
We actively monitor contract asset aging, billing milestones and customer credit quality to manage liquidity and mitigate collection risk. We negotiate prepayment terms to help manage credit risk and working capital needs which results in contract liabilities.
Our working capital requirements are generally met by cash flow from operations and a bank revolving credit facility, which currently permits borrowings up to $600.0 million and had a $398.3 million outstanding balance at December 31, 2025. Borrowings available under the revolving credit facility at December 31, 2025, were $201.0 million. We believe that we will have sufficient funds available to meet our working capital needs for the foreseeable future.
Research and Development
Our products are engineered for performance, flexibility, and serviceability. This has become a critical factor in competing in the HVAC equipment industry. We must continually develop new and improved products in order to compete effectively and meet evolving regulatory standards in all of our major product lines.
R&D activities have involved the RQ, RN, and RZ (rooftop units), H3, SA, V3, and M2 (air handling units), CF (condensing units), and the SA and SB (self-contained units), as well as component evaluation and refinement, development of control systems and new product development.
Our NAIC research and development laboratory facility includes many unique capabilities, which, to our knowledge, exist nowhere else in the world. A few features of the NAIC include supply, return, and outside sound testing at actual load conditions, testing of up to a 300 ton air conditioning system, up to a 540 ton chiller system, and 80 million BTU/hr of gas heating test capacity. The NAIC carries accreditation from AMCA for standards AMCA 210 (aerodynamic performance rating) & AMCA 300 (reverberant room sound testing). Environmental application testing capabilities include -20 to 130°F testing conditions, up to eight inches per hour rain testing, up to two inches per hour snow testing, and up to 50 mph wind testing. We believe we have the largest sound-testing chamber in the world for testing heating and air conditioning equipment and are not aware of any similar labs that can conduct this testing while putting the equipment under full environmental load. The unique capabilities of the NAIC will enable us to lead the industry in the development of quiet, energy-efficient commercial and industrial heating and air conditioning equipment.
The NAIC currently houses twelve testing chambers. These testing chambers allow us to meet and maintain AHRI and DOE certification and solidify the Company’s industry position as a technological leader in the manufacturing of HVAC equipment. Current voluntary industry certification programs and government regulations only go up to 63 tons of air conditioning. The NAIC contains both a 100 ton and a 300 ton chamber, allowing us to uniquely prove to customers our capacity and efficiency on these larger units.
The NAIC was designed to test products well beyond the standard AHRI rating points and allows us to offer testing services on our equipment throughout our range of product application. This capability is vital for critical facilities where the units must perform properly and allows our customers to verify the performance of our units in advance, rather than after installation. These same capabilities have allowed AAON to develop low ambient air source heat pump products that are unique in being able to address the growing need for these type of units that address electrification initiatives and commitments.
The R&D activities at the BASX Redmond, Oregon facility is focused on developing and validating high-performance solutions paired to customers’ unique specifications. First-of-kind configuration of HVAC components that are both fabricated within the Company's facilities, as well as outsourced suppliers, are modeled, fabricated, and assembled based upon best engineering practices. Their performance is then validated through testing in a comprehensive simulation environment in conjunction with the customer to assure compliance expectations. This unique and synergistic collaboration is distinctive to the BASX solutions development approach and is a primary driver of customer value. Typical performance testing includes: airflow, consumed power, air-leakage rates, control integration, thermal cooling/heating, fluid flow rates, sound, vibration and recovery rates based on simulated failures.
Our Parkville, Missouri location features our new Electronics Prototyping Lab (“Lab”), which includes a fully functional SMD (“Surface Mount Device”) production line. This production line incorporates automated pick-and-place equipment capable of quickly and accurately placing devices as small as 0.1mm by 0.2mm, utilizing the same technology scale found in cell phones. Additionally, the production line is equipped with a profiled reflow oven to ensure reliability in the finished prototypes. The Lab enables us to speed up our time to market and integrate cutting-edge technology into our control designs. Furthermore, it allows our Controls Engineering team to leverage their hardware and software development skills to outpace our competitors in adapting to market changes and disruptions.
We have also increased our investment in Controls by developing cutting-edge communication systems that enable our products to share information with both internal and external customers. We have partnered with industry leaders to create our Internet of Things (“IoT”) solution and are beginning to utilize artificial intelligence (“AI”) tools to enhanceefficiencies when developing our control algorithms and sequences of operation. Additionally, we are developing new controls that leverage machine learning to continuously provide our customers with the most innovative solutions in the industry.
R&D expenses incurred were approximately $58.2 million, $47.3 million, and $43.7 million in 2025, 2024, and 2023, respectively.
Patents, Trademarks, Licenses, and Concessions
We do not consider any patents, trademarks, licenses, or concessions to be material to our business operations, other than those described below.
We hold several patents that relate to the design and use of our products. We consider these patents important, but no single patent is material to the overall conduct of our business. We proactively obtain patents to further our strategic intellectual property objectives. We own certain trademarks we consider important in the marketing of our products and services, and we protect our marks through national registrations and common law rights. Our patents have legal terms of 20 years with expiration dates ranging from 2032 to 2039.
The Company’s trademarks, certain of which are material to its business, are registered or otherwise legally protected in the U.S.
Seasonality
Historically, sales of our products were moderately seasonal with the peak period being May-October of each year due to timing of construction projects being directly related to warmer weather. However, in recent years, given the increase in demand of our products and increase in our backlog, sales have become more constant throughout the year.
Environmental & Regulatory Matters
Laws concerning the environment that affect or could affect our operations include, among others, the Clean Water Act, the Clean Air Act, the Resource Conservation and Recovery Act, the Occupational Safety and Health Act, the National Environmental Policy Act, the Toxic Substances Control Act, the AIM Act, regulations promulgated under these Acts and any other federal, state or local laws or regulations governing environmental matters. We believe that we are in compliance with these laws and that future compliance will not materially affect our earnings or competitive position.
Since our founding in 1988, we have maintained a commitment to design, develop, manufacture, and deliver heating and cooling products to perform beyond all expectations and to demonstrate our quality and value to our customers. Our equipment is designed with energy efficiency in mind, without sacrificing premium features and options. In addition to our high standard of product performance, is a commitment to sustainability for our employees, our stockholders, and our customers. We strive to conduct our business in a socially responsible and ethical manner with a focus on environmental stewardship, team member safety and community engagement. We comply with industry regulations and requirements while pursuing responsible economic growth and profitability.
In 2025, we published our seventh annual Sustainability report sharing our approach in the material areas of stakeholder engagement, innovation and efficiency, environmental responsibility, climate change, occupational health and safety, talent attraction and retention, diversity and inclusion, community engagement and investment, corporate governance and ethics and compliance. The report also highlights achievements and long-term targets related to greenhouse gas emissions, paint byproduct material recycling, and non-fossil fuel-consuming products. We participate in a sustainability benchmarking initiative, the Sustainability Alliance Scor3card, through which we monitor and report in the material areas of energy, material management, water, community stewardship, transportation, communication, and health. We achieved Platinum level in this program in 2025 and 2024. Our Environmental, Social and Governance (“ESG”) committee provides oversight for ESG and sustainability activities, sustainability report development and an internal grassroots sustainability committee provides education opportunities, communications and recommendations to the Company on a regular basis.
We are committed to environmental responsibility and continue to make progress toward reducing greenhouse gas (“GHG”) emissions, increasing paint byproduct recycling from our facilities and increasing the percentage of non-fossil fuel-powered units we produce. Our approach toward emissions reduction and climate change includes product solutions for our customers and improvements to our own facilities. Approximately 36% of our energy portfolio is currently derived from renewable sources, and the Company’s Scope 1 and 2 emissions (emissions that occur from sources that are controlled or owned by an organization and emissions associated with the purchase of electricity, steam, heat, or cooling) are being tracked. We opted in to additional renewable energy at our Tulsa, Oklahoma, Memphis, Tennessee and Redmond, Oregon facilities in 2025, continued to invest and partner on projects that reduce GHG emissions globally and have transitioned to the lower global warming potential R-454B refrigerant. We continue to develop and manufacture non-fossil fuel-consuming units to provide the most sustainable commercial HVAC equipment in the market.
In the area of energy efficiency and conservation, our Tulsa, Oklahoma and Longview, Texas facilities have transitioned to nearly 100% LED lighting in our facilities leading to considerable cost savings and reduced energy consumption. Our Redmond, Oregon facilities are installing LED lights into any new fixtures in their current facility and working towards retrofitting old fixtures to LED. We participate in an energy demand response program through the public utility provider to reduce demand during peak hours. Energy efficiency has been a priority not only in product development, but also in overall capital investments which include the acquisition of new, energy-efficient equipment for the production floor, new high-speed overhead facility doors, the installation of new HVAC equipment, building control systems, the application of heat and light reflective material to production facilities, along with other behavioral-based energy efficiency changes. We are tracking our energy usage intensity before and after these updates.
In the area of material management, we focus on recycling, reducing, reusing and sourcing more environmentally friendly materials into our processes. At our Tulsa, Oklahoma Redmond, Oregon and Longview, Texas facilities, we recycled over 17,328 tons, 15,715 tons, and 13,678 tons of metal in 2025, 2024, and 2023, respectively. Also, through our partnership with a waste-to-energy facility, we successfullydiverted over 3,960 tons, 3,020 tons, and 694 tons of waste from landfills in 2025, 2024, and 2023, respectively. We have identified paint product recycling partners at both our Tulsa, Oklahoma and Longview, Texas facilities. We also recycle paper, wood, and cardboard where available. We continue to innovate ways to reduce and reuse shipping packaging between facilities and identify new opportunities to reduce or reuse items in our production and administrative areas.
Human Capital Resources
Our employees are not represented by unions or other collective bargaining agreements. Management considers its relations with our employees to be good. As of February 24, 2026, we employed approximately 5,897 employees, compared to 3,856 employees as of February 24, 2025 and 3,666 employees as of February 20, 2024. Our employees have a variety of specialized experience, training and skills that provide the expertise required to service our customers.
Our key human capital measures include employee safety, turnover, absenteeism, and production. We frequently benchmark our compensation practices and benefits programs against those of comparable industries and in the geographic areas where our facilities are located. We believe that our compensation and employee benefits are competitive and allow us to attract and retain skilled and unskilled labor throughout our organization. Some of our notable health, welfare, and retirement benefits include:
• Employee medical plan (with 175% employer health saving plan match)
• 401(k) Plan (with 175% employer match)
• Profit sharing bonus plan
• Tuition assistance program
• Paid time off
• Paid parental leave
• Military pay
• Short-term and long-term disability
• Identity theft protection
• Group life insurance
Available Information
Our Internet website address is http://www.aaon.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, will be available free of charge through our Internet website as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The information on our website is not a part of, or incorporated by reference into, this annual report on Form 10-K.
Copies of any materials we file with the SEC can also be obtained free of charge through the SEC’s website at http://www.sec.gov, at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549, or by calling the SEC at 1-800-732-0330.
Item 1A. Risk Factors.
The following risks and uncertainties may affect our performance and results of operations. The discussion below contains “forward-looking statements” as outlined in the Forward-Looking Statements section above. Our ability to mitigate risks may cause our future results to materially differ from what we currently anticipate. Additionally, the ability of our competitors to react to material risks will affect our future results.
Risks Related to Our Business
Our business, results of operations and financial condition may be disrupted and adversely affected by public health pandemics.
Our business, results of operations and financial condition may be adversely affected if a public health pandemic interferes with the ability of our employees, suppliers, and other business partners to perform their respective responsibilities and obligations relative to the operations of our business.
We monitor the outbreak of any public health pandemic and evaluate the impact on our business as information emerges. The extent to which the impact of a public health pandemic may have on our business, supply chains, and prices of raw materials will depend on future developments, which may be highly uncertain and cannot be predicted.
Our business can be hurt by economic conditions .
Our business is affected by a number of economic factors, including the level of economic activity and uncertainty in the markets in which we operate. Sales in the commercial and industrial new construction markets correlate to the number of new homes and buildings that are built, which in turn is influenced by cyclical factors such as interest rates, inflation, consumer spending habits, employment rates, and other macroeconomic factors over which we have no control. In the HVAC business, a decline in economic activity as a result of these cyclical or other factors typically results in a decline in new construction and replacement purchases which could impact our sales volume and profitability.
Our results of operations and financial condition could be negatively impacted by the loss of one or more major customers.
From time to time we derive a significant portion of our sales from a limited number of customers, and such concentration may continue in the future. The loss of, or significant reduction in sales to significant customers (or a related portfolio group of customers) could have a material adverse effect on our results of operations, financial condition and cash flow. Further, the addition of new major customers in the future could increase our customer concentration risks as described above.
We may not realize all of the sales expected from our backlog of orders and contracts.
Our backlog consists of the value of product and service orders for which a customer purchase order or purchase commitment is received, but has not yet been delivered. As of December 31, 2025 and 2024, the Company’s estimated backlog was approximately $1,828.5 million and $867.1 million, respectively. The majority of our combined backlog is considered firm and expected to be delivered within 12 to 18 months. Our customers have the right in some circumstances, usually with penalties or other termination consequences, to reduce or defer firm orders in backlog. If customers terminate, reduce or defer firm orders, the revenue we expect to generate from our backlog may not be fully realized. Also, due to our large backlog, pricing changes may take longer to be reflected in our financial results.
Our results of operations and financial condition could be negatively impacted by the loss of a major third-party representative.
We are dependent on our third-party representatives to market and sell our products. If such relationships were terminated or impaired for any reason, it could materially and adversely affect our ability to generate revenues and profits. Certain competitors with greater financial resources than us have targeted some of our third-party representatives for exclusive sales channels. We may not be able to secure additional third-party representatives who will effectively market our products in certain geographical areas. In addition, adding new representatives requires additional administrative efforts and costs. If we are unable to establish new representative relationships or continue
current relationships, or terminate and replace our third-party representatives, our business, financial condition, and results of operations could be materially and adversely affected.
We may incur material costs as a result of warranty and product liability claims that would negatively affect our profitability .
The development, manufacture, sale and use of our products involve a risk of warranty and product liability claims. Our product liability insurance policies have limits that, if exceeded, may result in material costs that would have an adverse effect on our future profitability. An excess of or significant claim(s) could lead to the cancellation of our policies and the loss of and inability to find additional insurance carriers. In addition, warranty claims are not covered by our product liability insurance and there may be types of product liability claims that are also not covered by our product liability insurance.
We depend on our officers and senior leadership team and the loss of one or more key employees or an inability to attract and retain highly skilled employees could adversely affect our business .
Our success depends largely upon the continued services of our officers and senior leadership team. We rely on our officers and senior leadership team in the areas of research and development, marketing, production, sales, and general and administrative functions. While we have a robust succession plan in place for each one of our officers and senior leadership team members, the loss of one or more could have a seriousadverse effect on our business. We do not maintain key-person insurance for officers or any members of our senior leadership team.
To mitigate certain business risks of departing executives upon termination, on July 30, 2024, the Board of Directors of the Company, upon the recommendation of the Compensation Committee of the Board of Directors (the “Committee”) approved the adoption of the AAON, Inc. Executive Severance Plan (the “Executive Severance Plan”) to provide financial and transitional assistance following a termination of employment under certain circumstances to certain executive-level employees. Pursuant to the terms of the Executive Severance Plan, in the event an Eligible Executive’s employment is terminated by us without “cause” or by an Eligible Executive for “good reason” (as each such term is defined in the Executive Severance Plan), subject to the execution of a validly executed, irrevocable release of claims, the Eligible Executive will be eligible to receive the certain benefits defined by the Executive Severance Plan.
Operations may be affected by natural disasters, especially since most of our operations are performed at a single location.
Natural disasters such as tornadoes, ice storms and fires, as well as accidents, acts of terror, infection, and other factors beyond our control could adversely affect our operations. Our facilities are in areas where tornadoes are likely to occur, and the majority of our operations are at our Tulsa, Oklahoma facilities. With the acquisition of BASX in 2021, we now have operations in an area that is historically impacted by wildfires. The effects of natural disasters and other events could damage our facilities and equipment and force a temporary halt to manufacturing and other operations, and such events could consequently cause severedamage to our business. We maintain insurance against these sorts of events; however, this is not guaranteed to cover all the losses and damages incurred. Furthermore, we may experience significant increases in our insurance premium costs in relation to these matters that may have a material adverse effect upon our business, liquidity, financial condition, or results of operations.
If we are unable to hire, develop or retain employees, it could have an adverse effect on our business.
We compete to hire new employees and then seek to train them to develop their skills. We may not be able to successfully recruit, develop, and retain the personnel we need. Unplanned turnover or failure to hire and retain a diverse, skilled workforce, could increase our operating costs and adversely affect our results of operations.
Variability in self-insurance liability estimates could impact our results of operations.
We self-insure for certain employee health insurance and workers’ compensation insurance coverage up to a predetermined level, beyond which we maintain stop-loss insurance from a third-party insurer. Our aggregate exposure varies from year to year based upon the number of participants in our insurance plans. We estimate our self-insurance liabilities using an analysis provided by our claims administrator and our historical claims experience. Our accruals for insurance reserves reflect these estimates and other management judgments, which are subject to a
high degree of variability. If the number or severity of claims for which we self-insure increases, it could cause a material and adverse change to our reserves for self-insurance liabilities, as well as to our earnings.
Risks Related to Our Brand and Product Offerings
We may not be able to compete favorably in the highly competitive HVAC business .
Competition in our various markets could cause us to reduce our prices or lose market share, which could have an adverse effect on our future financial results. Substantially all of the markets in which we participate are highly competitive. The most significant competitive factors we face are product reliability, product performance, service, manufacturing lead times, and price, with the relative importance of these factors varying among our product line. Other factors that affect competition in the HVAC market include the development and application of new technologies and an increasing emphasis on the development of more efficient HVAC products. Moreover, new product introductions are an important factor in the market categories in which our products compete. Several of our competitors have greater financial and other resources than we have, allowing them to invest in more extensive research and development. We may not be able to compete successfullyagainst current and future competition and current and future competitive pressures may materially adversely affect our business and results of operations.
We may not be able to successfully develop and market new products .
Our future success will depend upon our continued investment in research and new product development and our ability to continue to achieve new technological advances in the HVAC industry. Our inability to continue to successfully develop and market new products or our inability to implement technological advances on a pace consistent with that of our competitors could lead to a material adverse effect on our business and results of operations. Furthermore, our continued investment in new product development may render certain legacy products and components obsolete resulting in increased inventory obsolescence expense that may have a material adverse effect upon our financial condition or results of operations.
The length of the sales cycle for certain BASX-branded products and solutions offerings, as well as unpredictable placing or canceling of customer orders, particularly large orders, may cause our revenues and operating results to vary significantly from period-to-period, which could make our future operational results less predictable.
A customer’s decision to purchase certain of our products or solutions, particularly products new to the market or long-term end-to-end solutions, may involve a lengthy contracting, design and qualification process. In particular, customers deciding on the design and implementation of large deployments may have lengthy and unpredictable procurement processes that may delay or impact expected future orders, including customers canceling orders based on unforeseen changes to their businesses. As a result, the order booking and sales recognition process is often uncertain and unpredictable, with some customers placing large orders with short lead times on little advance notice and others requiring lengthy, open-ended processes that may change depending on global or regional economic conditions. This unpredictability may cause our revenues and operating results to vary unexpectedly from quarter-to-quarter and year-to-year, making our future operational results less predictable.
Risks Related to Material Sourcing and Supply
We may be adversely affected by problems in the availability, or increases in the prices, of raw materials and components .
Problems in the availability, or increases in the prices, of raw materials or components could depress our sales or increase the costs of our products. We are dependent upon components purchased from third parties, as well as raw materials such as steel, copper and aluminum. Occasionally, we enter into cancellable and non-cancellable contracts on terms from six to 18 months for raw materials and components. However, if a key supplier is unable or unwilling to meet our supply requirements, we could experience supply interruptions or cost increases, either of which could have an adverse effect on our gross profit.
We risk having losses resulting from the use of non-cancellable contracts.
Historically, we have attempted to limit the impact of price fluctuations on commodities by entering into 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. These contracts are not accounted for using hedge accounting since they meet the normal purchases and sales exemption. The use of such contracts could cause us to forego the economic benefits we would otherwise realize if prices were to change in our favor. Additionally, should there be a downturn in the market, we could be committed to purchase more materials than necessary for our production and carry excess inventory which could result in additional costs to the business.
Risks Related to Electronic Data Processing and Digital Information
Our business is subject to the risks of interruptions by cybersecurity attacks.
We depend upon information technology infrastructure, including network, hardware and software systems to conduct our business. Despite our implementation of network and other cybersecurity measures, our information technology system and networks could be disrupted due to technological problems, a cyber-attack, acts of terrorism, severe weather, a solar event, an electromagnetic event, a natural disaster, the age and condition of information technology assets, human error, or other reasons. To date, we have not experienced a material impact to our business or operations resulting from cyber-security or other similar information attacks, but due to the ever-evolving attack methods, as well as the increased amount and level of sophistication of these attacks, our security measures may not be adequate to protect against highly targeted sophisticated cyber-attacks, or other improper disclosures of confidential and/or sensitive information. Additionally, we may have access to confidential or other sensitive information of our customers, which, despite our efforts to protect, may be vulnerable to security breaches, theft, or other improper disclosure. Any cyber-related attack or other improper disclosure of confidential information could have a material adverse effect on our business, as well as other negative consequences, including significant damage to our reputation, litigation, regulatory actions, and increased cost.
We are reliant on information technology.
We are reliant on information technology in all aspects of our business, operated and maintained by the Company as well as under control of third parties. If we do not invest sufficient capital in a timely manner to acquire, develop, or implement new information technologies or maintain or upgrade current information technologies, we could sufferoutages as well as be at a competitive disadvantage within our industry which could have a material adverse effect upon our financial condition and results of operations.
Artificial intelligence technologies may introduce operational, cybersecurity, reputational, and compliance risks that could adversely affect our business.
Although AI is not a core component of our products or manufacturing operations, the growing use of AI tools presents potential risks to AAON. Any internal or incidental use of AI or machine‑learning technologies—such as in engineering, data analysis, customer support, or administrative processes—may expose the Company to risks involving data privacy, cybersecurity, protection of proprietary information, intellectual property rights, and regulatory compliance. As AI capabilities rapidly evolve, our ability to evaluate, monitor, and govern their use may not keep pace. Employees, contractors, or third‑party partners could unintentionally or improperly use AI tools, which may lead to unauthorized disclosure of sensitive information, inaccurate or biased outputs, or other unintended consequences. These risks could negatively impact operational performance, decision‑making, and interactions with customers or suppliers. AI technologies are also subject to increasing regulatory scrutiny. New or evolving laws, standards, or reporting requirements applicable to AI could impose additional compliance obligations on AAON. If we do not implement appropriate controls and oversight mechanisms governing the use of AI, we could experience operational disruptions, reputational harm, litigation risk, or competitive disadvantage if other companies adopt AI more effectively to improveefficiency or reduce costs.
Complications with the design or implementation of our new enterprise resource planning system could adversely impact our business and operations.
We rely extensively on information systems and technology to manage our business and summarize operating results. We are in the process of implementing a new global enterprise resource planning (“ERP”) system. This ERP system will replace our existing operating and financial systems. The ERP system is designed to accurately maintain the Company’s financial records, enhance operational functionality and provide timely information to the
Company’s management team related to the operation of the business. The ERP system implementation process has required, and will continue to require, the investment of significant personnel and financial resources. We may not be able to successfully implement the ERP system without experiencing delays, increased costs and other difficulties. If we are unable to successfully design and implement the new ERP system as planned, our financial positions, results of operations and cash flows could be negatively impacted. Additionally, if we do not effectively implement the ERP system as planned or the ERP system does not operate as intended, the effectiveness of our internal control over financial reporting could be adversely affected or our ability to assess those controls adequately could be delayed.
Risks Related to Governmental Regulation and Policies
Exposure to environmental liabilities could adversely affect our results of operations .
Our future profitability could be adversely affected by current or future environmental laws. We are subject to extensive and rapidly changing federal, state and local laws and regulations designed to protect the environment in the United States and in other parts of the world. These laws and regulations could impose liability for remediation costs and result in civil or criminalpenalties in case of non-compliance. Compliance with environmental laws increases our costs of doing business. Because these laws are subject to frequent change, we are unable to predict the future costs resulting from environmental compliance.
We are subject to potentially extreme governmental regulations and policies.
We always face the possibility of new or rapidly evolving changes to existing governmental regulations and policies, from the Federal or state levels, which could have a substantial or even extreme negative effect on our operations and profitability. This could affect equipment we currently manufacture and could have an impact on our product design, operations, and profitability. We anticipate more state regulatory activity in the future. Additional state regulatory rules can lead to a patchwork of different compliance regulations that may impact the results of each of our operating segments and our consolidated results.
The Dodd-Frank Wall Street Reform and Consumer Protection Act contains provisions to improvetransparency and accountability concerning the supply of certain minerals, known as “conflict minerals”, originating from the Democratic Republic of Congo and adjoining countries. As a result, in August 2012, the SEC adopted annual disclosure and reporting requirements for those companies that use conflict minerals in their products. Accordingly, we began our reasonable country of origin inquiries in fiscal year 2013, with initial disclosure requirements beginning in May 2014. There are costs associated with complying with these disclosure requirements, including due diligence to determine the sources of conflict minerals used in our products and other potential changes to products, processes or sources of supply as a consequence of such verification activities. The implementation of these rules could adversely affect the sourcing, supply, and pricing of materials used in our products. As there may be only a limited number of suppliers offering “conflict-free” conflict minerals, we cannot be sure that we will be able to obtain necessary conflict minerals from such suppliers in sufficient quantities or at competitive prices. Also, we may face reputational challenges if we determine that certain of our products contain minerals not determined to be conflict-free or if we are unable to sufficiently verify the origins of all conflict minerals used in our products through the procedures we may implement.
Our operations could be negatively impacted by new legislation as well as changes in regulations and trade agreements, including tariffs and taxes. Unfavorable conditions resulting from such changes could have a material adverse effect on our business, financial condition and results of operations.
We are subject to adverse changes in tax laws.
Our tax expense or benefits could be adversely affected by changes in tax provisions, unfavorable findings in tax examinations, or differing interpretations by tax authorities. We are unable to estimate the impact that current and future tax proposals and tax laws could have on our results of operations. We are currently subject to state and local tax examinations for which we do not expect any major assessments.
We are subject to international regulations that could adversely affect our business and results of operations.
Due to our use of Representatives in foreign markets, we are subject to many laws governing international relations, including those that prohibit improper payments to government officials and commercial customers, and restrict where we can do business, what information or products we can supply to certain countries and what information we can provide to a non-U.S. government, including but not limited to the Foreign Corrupt Practices Act, U.K. Bribery Act and the U.S. Export Administration Act. Violations of these laws, which are complex, may result in criminal
penalties or sanctions that could have a material adverse effect on our business, financial condition and results of operations.
Changes in legislation or government regulations or policies could adversely affect our results of operations.
Our sales, gross margins and profitability could be directly impacted by changes in legislation or government regulations or policies. Specifically, changes in environmental and energy efficiency standards and regulations related to global climate change are being implemented to curtail the use of hydrofluorocarbons which are used in refrigerants that are essential to many of our products. Our inability or delay in developing or marketing products that match customer demand while also meeting applicable efficiency and environmental standards may negatively impact our results.
We completely transitioned to a new refrigerant with lower global warming potential for our HVAC systems which was required by the US EPA for any equipment manufactured beginning January 1, 2025. We incurred costs associated with this transition related to the purchase of the new refrigerant as well as additional sensors and detectors on our HVAC systems. In addition, we incurred cost to our facilities, specifically costs to store and use the new refrigerant in production; however, those costs were not significant. Due to the increased flammability of the new refrigerant, the insurance industry may require higher premiums for companies in the future.
New York State released a final rule on December 23, 2024, that requires that we change our products to use refrigerants with a 20-year global warming potential less than 10 beginning January 1, 2034. This will require significant research and development as well as equipment could potentially cost significantly more to build. We expect California and Washington state to release similar rules as well as several other states. Unfortunately, we will likely see a patchwork of different timing and requirements from various states which could increase the options that we will need to offer which could also increase costs.
Additionally, regulations that reduce or eliminate the use of fossil fuels such as natural gas and propane may reduce or eliminate sales of gas-fired equipment for which AAON holds a strong market position. This will result in a shift to more air- and water-cooled heat pump-type units to provide space heating. This shift in product line could affect production productivity, material costs and aftermarket warranty costs.
Future legislation or regulations relating to environmental policies, product certification, product liability, taxes, amount and availability of tax incentives and other matters, may impact the results of each of our operating segments and our consolidated results.
Changes in U.S. or foreign trade policies, including additional tariffs or global trade conflicts, could increase the cost of our products, which could adversely impact the competitiveness of our products.
There is currently significant uncertainty about the future relationship between the U.S. and various other countries with respect to trade policies and tariffs. For example, the current U.S. administration has instituted substantial changes to U.S. foreign trade policy with respect to China and other countries, including a significant increase in tariffs on goods imported into the U.S. and the possibility of imposing further restrictions on international trade. The current administration has taken a different approach to U.S. foreign trade policy than their predecessors, so there remains uncertainty as to whether, and to what degree, trade between the U.S and other countries will be impacted by these policy shifts on an ongoing and/or long-term basis. Additional policy changes or continued uncertainty could depress economic activity and restrict our access to suppliers or customers. Furthermore, counter- or retaliatory tariffs imposed against the U.S. could impact our sales internationally. Tariffs implemented on our products (or on materials, parts or components we use to manufacture our products or to provide service for our products) have in the past increased the cost of our products manufactured in the U.S. and imported into the U.S. The imposition of additional tariffs on our products (or on materials, parts or components we use to manufacture our products or to provide service for our products) by the U.S. or other countries, the cost of our products manufactured in other countries subject to additional tariffs and imported into the U.S. would increase as a result of new tariffs that are implemented, and could increase further to the extent that retaliatory tariffs or similar additional trade restrictions are implemented. In the event we are unable to pass along the increased costs resulting from any tariffs to our customers, it could have a material adverse effect on our business, profitability, and our earnings.
Litigation
confident
difficult
• 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;
• the impact caused by inflationary cost pressures, national or global health issues, such as the coronavirus pandemic (“COVID-19”), any variants or similar outbreaks (including the response thereto) and their effects on, among other things, demand for our products, supply chain disruptions, our liquidity and financial position, results of operations, stock price, payment of dividends, our ability to secure new orders, our ability to convert backlog to revenue and impacts to the operations status of our facilities;
• 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;
• 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;
• 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 Annual Report on Form 10-K, and as otherwise disclosed from time to time in our other filings with the SEC.
PART I
Item 1. Business.
Overview
AAON, Inc., a Nevada corporation ("AAON Nevada"), was incorporated on August 18, 1987. Our operating subsidiaries include AAON, Inc., an Oklahoma corporation ("AAON Oklahoma"), AAON Coil Products, Inc., a Texas corporation ("AAON Coil Products"), and BASX, Inc., an Oregon corporation ("BASX"). Unless the context otherwise requires, references in this Annual Report to "AAON", the "Company", "we", "us", "our", or "ours" refer to AAON Nevada and our subsidiaries.
AAON is a leader in heating, ventilation, air conditioning, and liquid cooling solutions for commercial and industrial indoor environments. The Company designs and manufactures highly configurable equipment to meet specific customer requirements, delivering reliable performance, efficiency, and long-term value. Through a strong commitment to research and development, advanced engineering capabilities, and decades of industry experience, the Company continues to elevate standards for climate management solutions.
Business Segments
The Company operates through three reportable business segments: AAON Oklahoma, AAON Coil Products, and BASX. These segments are based on differences in products, manufacturing processes, and end markets, and reflect how management evaluates operating performance and allocates resources.
AAON Oklahoma: AAON Oklahoma engineers, manufactures, and sells highly configurable HVAC systems, designs and manufactures controls solutions, and sells aftermarket parts to customers through retail part stores and online. AAON Oklahoma includes operations at the Company’s manufacturing facilities in Tulsa, Oklahoma; Memphis, Tennessee; and Parkville, Missouri, as well as two retail locations, the Norman Asbjornson Innovation Center (“NAIC”), and the Gary D. Fields Customer Exploration Center.
The NAIC is a world-class research and development laboratory accredited by the Air Movement and Control Association International, Inc. ("AMCA"), where our products are continuously tested under extreme environmental conditions to ensure optimal performance, efficiency, and value. The Gary D. Fields Customer Exploration Center showcases the engineering, design attributes, and premium build quality of our equipment alongside market alternatives.
AAON Coil Products: AAON Coil Products engineers and manufactures and sells semi-custom and custom HVAC systems as well as heating and cooling coils for use in HVAC systems, primarily for AAON Oklahoma, AAON Coil Products, and BASX. AAON Coil Products operates from our Longview, Texas manufacturing facilities, which also produce BASX-branded products.
BASX: BASX engineers, manufactures, and sells a wide range of custom, high-performance cooling solutions for the rapidly growing hyperscale data center market; ventilation solutions for cleanroom environments in the biopharmaceutical, semiconductor, medical, and agricultural sectors; and highly customized air handlers and modular solutions for a variety of markets. BASX operates from our manufacturing facilities in Redmond, Oregon, with additional support from facilities in Memphis, Tennessee, and Longview, Texas.
For more information on our business segments’ financial position and results of operations, refer to Note 23, “Segments,” of the Notes to Consolidated Financial Statements.
Business and Marketing Strategy
The Company serves commercial, industrial, data center, and cleanroom markets with a differentiated approach to HVAC manufacturing. Our business strategy centers on mass semi-customization, leveraging flexible, computer-aided manufacturing systems to deliver highly configurable equipment that combines the cost efficiency of scaled production with the precision of individual customization.
Our marketing strategy is guided by the Company’s core priorities:
Customers First: We collaborate closely with our network of independent sales representatives to engineer and manufacture solutions tailored to each customer's specific requirements. Unlike manufacturers of standardized equipment, we build to order, ensuring every system is pre-specified before production begins. Our go-to-market
strategy targets customers and applications that demand exceptional performance, efficiency, and long-term value. We compete on technical excellence and customer outcomes, not price.
Product Leadership: Since our founding, our Company has maintained an unwavering commitment to manufacturing and product leadership through continuous research and development. Our innovation efforts focus on advancing energy performance, equipment durability, system efficiency, and indoor air quality. These pillars define our competitive position and drive our R&D investments. Our commitment to engineering excellence requires rigorous adherence to industry standards and certifications, including those set by Air-Conditioning, Heating, and Refrigeration Institute (“AHRI”); the American National Standards Institute (“ANSI”); American Society of Heating, Refrigeration and Air-Conditioning Engineers (“ASHRAE”); the AMCA and the International Organization for Standardization (“ISO”).
Sales and Representative Support: We invest strategically in our representative network as an extension of our market capability. This includes business planning collaboration, leadership development, technical training, and comprehensive service network development to ensure our representatives and their customers receive exceptional support throughout equipment lifecycles.
People and Culture: Our ability to deliver product leadership and excellent customer experience depends on attracting and retaining top engineering, manufacturing, and commercial talent. We maintain a culture focused on innovation, technical rigor, and operational excellence that enables us to compete against substantially larger manufacturers.
To date, our sales have been primarily derived from the domestic market. Foreign sales accounted for approximately $38.1 million, $30.1 million, and $39.9 million of our net sales in 2025, 2024, and 2023, respectively. As a percentage of net sales, foreign sales accounted for approximately 2.6%, 2.5%, and 3.4% of our net sales in each of those years, respectively.
Aftermarket Support Strategy
We support customers through a comprehensive parts and service network. Parts are available through our representative sales offices and two Tulsa-based retail stores. Factory service organizations operate at each manufacturing facility, supplemented by representatives who maintain their own service capabilities to provide warranty work and ongoing customer support.
We invest strategically in building service capacity across our North American representative network. This includes collaborating with representatives on business planning, leadership development, and technician training for both representatives and select contractors. These efforts create a cohesive service ecosystem designed to meet the operational and maintenance requirements of our customer base throughout equipment lifecycles.
Products - AAON Brand
Market and Application
AAON-branded products serve commercial and industrial buildings of all sizes, installed on rooftops or alongside structures. Our addressable market is driven by new construction activity and replacement demand from existing buildings. The commercial and industrial construction cycle typically lags residential markets, which respond to macroeconomic factors including interest rates, inflation, employment, and overall economic conditions. We balance our business across both new construction and replacement markets depending on economic cycles.
Core Product Architecture
Our flagship products are rooftop units (RTUs), self-contained heating and cooling systems installed on commercial and industrial building rooftops. A typical commercial building installation requires one ton of air conditioning for every 300-400 square feet. A 100,000 square-foot commercial building requires approximately 250 tons of cooling capacity, which we deliver through single or multiple units depending on application requirements.
We manufacture three RTU product lines covering the full commercial spectrum:
• RQ Series: two-five ton cooling capacity
• RN Series: six-140 ton cooling capacity (26 sizes)
• RZ Series: 45-261 ton cooling capacity (15 sizes)
Beyond rooftop units, our product portfolio includes air handling units, condensing units, makeup air units, energy recovery units, geothermal and water-source heat pumps, coils, and factory controls. All products are manufactured by assembling fabricated sheet metal and tubing components with pre-manufactured elements including coils, compressors, fans, and control systems. Every unit undergoes rigorous end-of-line testing and inspection before shipment.
AAON Alpha Class™ Technology
When configured as air-source heat pumps (“ASHP”), our RQ, RN, and CF Series units operate in ambient temperatures as low as negative twenty degrees Fahrenheit. This technology platform, AAON Alpha Class™, addresses accelerating demand for commercial building decarbonization. By combining advanced engineering with leading-edge compressor technology, Alpha Class™ delivers energy-efficient heating and cooling year-round in virtually any climate.
Indoor and Specialized Systems
Our SA, SB, and M2 Series provide indoor packaged solutions with water-cooled or geothermal/water-source heat pump configurations ranging from three-70 tons cooling capacity. Air handling units include the indoor H3 and V3 Series, the modular M2 Series, and air handling configurations of our RQ, RN, RZ, and SA Series units.
Energy recovery options available across multiple product lines support increased fresh air ventilation requirements outlined in ASHRAE Standard 90.1 (Energy Conservation) and Standard 62.1 (Ventilation & Indoor Air Quality). Our H3/V3 Series energy recovery wheel air handling units deliver energy-efficient 100% outside air ventilation by capturing energy that would otherwise be exhausted.
Performance and Efficiency
Our products span cooling capacities from two-261 tons and heating capacities from 24,000 to 4,500,000 British Thermal Units (“BTUs”). Many units substantially exceed DOE minimum efficiency standards and rank among the highestefficiency products available commercially.
Our packaged RTUs with two-stage, digital, or variable-speed compressors are optimized with high-efficiency evaporator and condenser coils and variable-speed fans, achieving AHRI Certified performance up to 18.0 SEER2 and 22.8 IEER.
Controls Integration
We design and manufacture high-performance controls solutions that enhance our equipment’s unique features and capabilities. Our controls division develops factory-tested options for Variable Air Volume, Make-Up Air, Single Zone VAV, Constant Volume, and Zoning systems for both AAON products and other HVAC equipment.
Controls options include the VCCX Controller, factory-installed customer-provided controls, and terminal blocks for field-installed controls. VCCX Controls are Underwriters Laboratories certified to UL 916 or UL 60730 and BACnet Testing Laboratories certified, meeting international standards for safety and traceability. Our economizer function carries California Title 24 certification to support reduced energy consumption.
We continue to invest in advanced controls manufacturing capabilities designed to improve speed, precision, and consistency across production and testing processes. These investments enhanceefficiency, quality assurance, and accountability throughout manufacturing operations and support increased production capacity through the use of automation.
AAON controls are designed to be user-friendly and configurable for a wide range of HVAC applications. In addition, controls can be customized to meet application-specific customer requirements, supporting system flexibility and integration across diverse operating environments.
Certifications and Standards
Our geothermal/water-source heat pumps (RN, RQ, M2, and SB Series) are AHRI certified in accordance with ANSI/AHRI/ASHRAE/ISO 13256. Unitary air conditioners and heat pumps (RQ and RN Series) are certified with AHRI and the U.S. Department of Energy to ANSI/AHRI 210/240 (up to five tons) and ANSI/AHRI 340/360 (five-63 tons). When configured for Dedicated Outdoor Air Systems (DOAS), the RQ, RN, RZ, and CF paired with H3 or V3 products comply with AHRI Standard 920.
Products - BASX Brand
Our BASX-branded products are highly customized to meet the technical and operational requirements of mission-critical environments. BASX focuses on delivering purpose-built thermal management and air handling solutions for data centers, healthcare, cleanroom, and industrial applications, with an emphasis on reliability, efficiency, scalability, and integration flexibility.
Our data center cooling solutions are designed to support increasingly dense and complex computing environments, including AI and high-performance computing (“HPC”) workloads. These solutions include direct evaporative coolers, fan coil walls, computer room air handling (“CRAH”) units, overhead fan coil units, and packaged air handling systems. High-performance air-cooled heat rejection solutions are provided with waterside economizers and optional adiabatic-assisted cooling and are designed to integrate with both air-cooled and liquid-cooled IT architectures.
In 2025, BASX expanded its liquid cooling portfolio with the introduction of its proprietary Coolant Distribution Unit (“CDU”). The BASX CDU serves as the critical interface between facility water systems and technology cooling loops, providing precise flow, temperature, and pressure control to server cold plates. These systems are engineered with fully welded stainless-steel piping and are custom-dimensioned to fit specific facility layouts and hydraulic requirements. The CDU platform supports rack densities exceeding 100 kilowatts and incorporates N+1 redundant, hot-swappable pumps and power supplies, multi-zone active leak detection, and automated isolation capabilities. These features are designed to enhance system reliability, protect IT assets, and enable continuous operation in high-density AI and HPC deployments.
BASX also introduced a water-free Free Cooling Chiller platform designed for large-scale data center heat rejection in diverse and extreme climate conditions. These rooftop-mounted systems operate in three modes: full free cooling, partial free cooling with supplemental direct expansion, and full mechanical cooling. By leveraging ambient air temperatures whenever possible, the system reduces reliance on refrigeration and eliminates water consumption. This platform is optimized for hyperscale and colocation environments seeking to improve energy efficiency, reduce operating costs, and support sustainability objectives while maintaining performance in harsh winter and summer conditions.
Additionally, our perimeter and white space thermal management solutions include direct evaporative coolers, fan coil walls, CRAH units, in-row cooling systems, and overhead fan coil units. Packaged solutions include coupled economizing chillers with integrated air handling and packaged direct expansion (“DX”) systems with airside economizers. These offerings enable close-coupled IT load management and flexible deployment across new construction and retrofit applications.
Our cleanroom products are engineered to provide precise environmental control for critical manufacturing and research processes, including pharmaceutical, biotechnology, and semiconductor applications. Process cooling solutions include recirculation and make-up air handling units, integrated piping systems, and advanced control platforms. Environmental control solutions include modular cleanroom environments, fan filter units, filtered ceiling grids with integrated lighting, pressurized plenums, grid systems, and hospital surgical suites.
BASX-branded custom air handling products serve commercial, industrial, healthcare, and institutional facilities employing chilled water cooling, packaged direct expansion, hydronic heating, indirect gas heating, humidification, dehumidification, advanced filtration, and integrated building controls. BASX also manufactures plenum fans for integration into air handling units and retrofit applications and offers integrated sound performance and vibration control solutions.
Key Customers
Our top customers operate primarily in the data center cooling and commercial air conditioning markets.
Data centers are purpose-built facilities that enable the processing, storage and distribution of data across both traditional workloads and high-density compute, including AI training and inference. Examples of companies in this space include Microsoft, Amazon Web Services, Google Cloud, QTS and Applied Digital.
The commercial air conditioning market includes the design and manufacturing of HVAC systems for non-residential buildings such as offices, hospitals, schools, data centers, warehouses and manufacturing facilities. Our channel partners and customers support the design, construction and service of such facilities including independent sales representatives like Texas AirSystems and related portfolio groups through sole or common ownership like Meriton, Ambient and Air Control Concepts.
For the years ended December 31, 2025, 2024, and 2023, the Company had three, two and three customers, respectively, that were 10 percent or greater concentrations of revenue.
We have earned the trust and business of these significant customers over many years of performing to their needs, which they have supported with long-standing multi-year programs. The remaining majority of our business is comprised of thousands of customers and transactions through our extensive network of independent representatives. This mitigates our concentration risk as we also continue expanding our customer base through targeted growth in adjacent end markets, new customer acquisitions and expanding share with existing customers.
At December 31, 2025 and December 31, 2024, the Company had three customers that were 10 percent or greater concentrations of accounts receivable.
Backlog
The backlog consists of products for which a customer purchase order has been received and which has not yet been delivered. Orders may be subject to cancellation or rescheduling by the customer. Orders for the commercial air conditioning market have historically been firm with minimal risk of cancellation, in which case, cancellation charges apply up to the full price of the equipment. Orders for the data center market have more risk and we often see shifts in timing, cancellations and re-issuances of orders, all subject to various cancellation terms and charges.
Lead times to fulfill orders for AAON-branded products is generally around 18 - 26 weeks. Orders for BASX-branded product, including orders built at AAON Coil Products’ Longview location, are typically placed months in advance of requested delivery to secure production for those projects. As a result, portions of the BASX-branded product backlog do not turn over within typical lead times for AAON-branded products. We do not believe that the Company’s backlog estimates as of any date are necessarily indicative of our net sales for any future period. Additionally, our current backlog estimates are subject to a number of risks, as further detailed in Item 1A. Risk Factors, Risks Related to Our Business .
Warranties
Our product warranty policy is the earlier of one year from the date of install first use or 18 months from the date of shipment for parts only, including controls; 18 months for data center cooling solutions and cleanroom systems; five years for compressors; 15 years on aluminized steel gas-fired heat exchangers; 25 years on stainless steel heat exchangers; and ten years on gas-fired heat exchangers in our historical RL products. Our warranty policy for the RQ series covers parts for two years from the date of unit shipment.
The Company also sells extended warranties on parts for various lengths of time ranging from six months to ten years. Revenue for these separately priced warranties is deferred and recognized on a straight-line basis over the separately priced warranty period.
Competition
The Company’s comfort cooling products primarily compete with Lennox (Lennox International, Inc.), Trane (Trane Technologies plc), York Light Commercial (Bosch Home Comfort Group), Johnson Controls (Johnson Controls International PLC), Carrier (Carrier Global Corporation), and Daikin (Daikin Industries). Our thermal management products primarily compete with Vertiv (Vertiv Holdings Co.), STULZ (STULZ Air Technology Systems, Inc.), Munters, Silent Aire (Johnson Controls International PLC), Nortek (Nortek Air Solutions), and Modine (Modine Manufacturing Co.).
The Company competes against larger manufacturers with greater financial and operational resources and offerings ranging into the lower featured products needed for broader market appeal. We compete on total value proposition rather than initial price, emphasizing product quality, performance, efficiency, serviceability, reliability, and lifecycle cost of ownership.
Our market position differs significantly between buyer segments. In replacement markets and owner-controlled purchases, we have consistently gained market share by demonstrating superior total cost of ownership over equipment lifespans. Building owners who control purchase decisions recognize the economic value of premium performance and extended durability.
The new construction market has historically presented greater competitive challenges due to contractor emphasis on initial equipment cost. However, operational efficiencyimprovementsachieved over recent years have narrowed the price gap between our semi-custom equipment and competitors' standardized offerings. This enhanced cost
competitiveness, combined with our quality and performance advantages, has strengthened our position across both new construction and replacement market segments.
Resources
Sources and Availability of Raw Materials
The most important materials we purchase are steel, copper, and aluminum. We also purchase from other manufacturers certain components, including coils, compressors, electric motors, and electrical controls used in our products. We attempt to obtain the lowest possible cost in our purchases of raw materials and components, consistent with meeting specified quality standards. We are not dependent upon any one source for raw materials or the major components of our manufactured products. By having multiple suppliers, we believe that we will have adequate sources of supplies to meet our manufacturing requirements for the foreseeable future.
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.
Working Capital Practices
Given the complexity of our manufacturing operations, working capital is impacted by production cycle times, raw material volatility and customer delivery schedules. We continue to invest in planning systems, plant scheduling and supplier collaboration to improve inventory turnover and reduce cycle time. Our strategy includes aligning production with demand, reducing excess and obsolete inventory and improving procurement lead times.
Additionally, a significant portion of our revenue is recognized over time for contracts as we satisfy performance obligations. As a result, we record contract assets when revenue recognized exceeds amounts billed to customers. Contract assets represent our conditional right to consideration and are primarily driven by the timing of billing milestones relative to project progress. The level of contract assets may fluctuate based on the timing of project execution, milestone billing schedules and customer acceptance provisions. Although contract assets are expected to be billed and collected within the normal operation cycle, changes in project estimates, customer disputes or delays in achieving contractual milestones could impact the timing of cash collections.
We actively monitor contract asset aging, billing milestones and customer credit quality to manage liquidity and mitigate collection risk. We negotiate prepayment terms to help manage credit risk and working capital needs which results in contract liabilities.
Our working capital requirements are generally met by cash flow from operations and a bank revolving credit facility, which currently permits borrowings up to $600.0 million and had a $398.3 million outstanding balance at December 31, 2025. Borrowings available under the revolving credit facility at December 31, 2025, were $201.0 million. We believe that we will have sufficient funds available to meet our working capital needs for the foreseeable future.
Research and Development
Our products are engineered for performance, flexibility, and serviceability. This has become a critical factor in competing in the HVAC equipment industry. We must continually develop new and improved products in order to compete effectively and meet evolving regulatory standards in all of our major product lines.
R&D activities have involved the RQ, RN, and RZ (rooftop units), H3, SA, V3, and M2 (air handling units), CF (condensing units), and the SA and SB (self-contained units), as well as component evaluation and refinement, development of control systems and new product development.
Our NAIC research and development laboratory facility includes many unique capabilities, which, to our knowledge, exist nowhere else in the world. A few features of the NAIC include supply, return, and outside sound testing at actual load conditions, testing of up to a 300 ton air conditioning system, up to a 540 ton chiller system, and 80 million BTU/hr of gas heating test capacity. The NAIC carries accreditation from AMCA for standards AMCA 210 (aerodynamic performance rating) & AMCA 300 (reverberant room sound testing). Environmental application testing capabilities include -20 to 130°F testing conditions, up to eight inches per hour rain testing, up to two inches per hour snow testing, and up to 50 mph wind testing. We believe we have the largest sound-testing chamber in the world for testing heating and air conditioning equipment and are not aware of any similar labs that can conduct this testing while putting the equipment under full environmental load. The unique capabilities of the NAIC will enable us to lead the industry in the development of quiet, energy-efficient commercial and industrial heating and air conditioning equipment.
The NAIC currently houses twelve testing chambers. These testing chambers allow us to meet and maintain AHRI and DOE certification and solidify the Company’s industry position as a technological leader in the manufacturing of HVAC equipment. Current voluntary industry certification programs and government regulations only go up to 63 tons of air conditioning. The NAIC contains both a 100 ton and a 300 ton chamber, allowing us to uniquely prove to customers our capacity and efficiency on these larger units.
The NAIC was designed to test products well beyond the standard AHRI rating points and allows us to offer testing services on our equipment throughout our range of product application. This capability is vital for critical facilities where the units must perform properly and allows our customers to verify the performance of our units in advance, rather than after installation. These same capabilities have allowed AAON to develop low ambient air source heat pump products that are unique in being able to address the growing need for these type of units that address electrification initiatives and commitments.
The R&D activities at the BASX Redmond, Oregon facility is focused on developing and validating high-performance solutions paired to customers’ unique specifications. First-of-kind configuration of HVAC components that are both fabricated within the Company's facilities, as well as outsourced suppliers, are modeled, fabricated, and assembled based upon best engineering practices. Their performance is then validated through testing in a comprehensive simulation environment in conjunction with the customer to assure compliance expectations. This unique and synergistic collaboration is distinctive to the BASX solutions development approach and is a primary driver of customer value. Typical performance testing includes: airflow, consumed power, air-leakage rates, control integration, thermal cooling/heating, fluid flow rates, sound, vibration and recovery rates based on simulated failures.
Our Parkville, Missouri location features our new Electronics Prototyping Lab (“Lab”), which includes a fully functional SMD (“Surface Mount Device”) production line. This production line incorporates automated pick-and-place equipment capable of quickly and accurately placing devices as small as 0.1mm by 0.2mm, utilizing the same technology scale found in cell phones. Additionally, the production line is equipped with a profiled reflow oven to ensure reliability in the finished prototypes. The Lab enables us to speed up our time to market and integrate cutting-edge technology into our control designs. Furthermore, it allows our Controls Engineering team to leverage their hardware and software development skills to outpace our competitors in adapting to market changes and disruptions.
We have also increased our investment in Controls by developing cutting-edge communication systems that enable our products to share information with both internal and external customers. We have partnered with industry leaders to create our Internet of Things (“IoT”) solution and are beginning to utilize artificial intelligence (“AI”) tools to enhanceefficiencies when developing our control algorithms and sequences of operation. Additionally, we are developing new controls that leverage machine learning to continuously provide our customers with the most innovative solutions in the industry.
R&D expenses incurred were approximately $58.2 million, $47.3 million, and $43.7 million in 2025, 2024, and 2023, respectively.
Patents, Trademarks, Licenses, and Concessions
We do not consider any patents, trademarks, licenses, or concessions to be material to our business operations, other than those described below.
We hold several patents that relate to the design and use of our products. We consider these patents important, but no single patent is material to the overall conduct of our business. We proactively obtain patents to further our strategic intellectual property objectives. We own certain trademarks we consider important in the marketing of our products and services, and we protect our marks through national registrations and common law rights. Our patents have legal terms of 20 years with expiration dates ranging from 2032 to 2039.
The Company’s trademarks, certain of which are material to its business, are registered or otherwise legally protected in the U.S.
Seasonality
Historically, sales of our products were moderately seasonal with the peak period being May-October of each year due to timing of construction projects being directly related to warmer weather. However, in recent years, given the increase in demand of our products and increase in our backlog, sales have become more constant throughout the year.
Environmental & Regulatory Matters
Laws concerning the environment that affect or could affect our operations include, among others, the Clean Water Act, the Clean Air Act, the Resource Conservation and Recovery Act, the Occupational Safety and Health Act, the National Environmental Policy Act, the Toxic Substances Control Act, the AIM Act, regulations promulgated under these Acts and any other federal, state or local laws or regulations governing environmental matters. We believe that we are in compliance with these laws and that future compliance will not materially affect our earnings or competitive position.
Since our founding in 1988, we have maintained a commitment to design, develop, manufacture, and deliver heating and cooling products to perform beyond all expectations and to demonstrate our quality and value to our customers. Our equipment is designed with energy efficiency in mind, without sacrificing premium features and options. In addition to our high standard of product performance, is a commitment to sustainability for our employees, our stockholders, and our customers. We strive to conduct our business in a socially responsible and ethical manner with a focus on environmental stewardship, team member safety and community engagement. We comply with industry regulations and requirements while pursuing responsible economic growth and profitability.
In 2025, we published our seventh annual Sustainability report sharing our approach in the material areas of stakeholder engagement, innovation and efficiency, environmental responsibility, climate change, occupational health and safety, talent attraction and retention, diversity and inclusion, community engagement and investment, corporate governance and ethics and compliance. The report also highlights achievements and long-term targets related to greenhouse gas emissions, paint byproduct material recycling, and non-fossil fuel-consuming products. We participate in a sustainability benchmarking initiative, the Sustainability Alliance Scor3card, through which we monitor and report in the material areas of energy, material management, water, community stewardship, transportation, communication, and health. We achieved Platinum level in this program in 2025 and 2024. Our Environmental, Social and Governance (“ESG”) committee provides oversight for ESG and sustainability activities, sustainability report development and an internal grassroots sustainability committee provides education opportunities, communications and recommendations to the Company on a regular basis.
We are committed to environmental responsibility and continue to make progress toward reducing greenhouse gas (“GHG”) emissions, increasing paint byproduct recycling from our facilities and increasing the percentage of non-fossil fuel-powered units we produce. Our approach toward emissions reduction and climate change includes product solutions for our customers and improvements to our own facilities. Approximately 36% of our energy portfolio is currently derived from renewable sources, and the Company’s Scope 1 and 2 emissions (emissions that occur from sources that are controlled or owned by an organization and emissions associated with the purchase of electricity, steam, heat, or cooling) are being tracked. We opted in to additional renewable energy at our Tulsa, Oklahoma, Memphis, Tennessee and Redmond, Oregon facilities in 2025, continued to invest and partner on projects that reduce GHG emissions globally and have transitioned to the lower global warming potential R-454B refrigerant. We continue to develop and manufacture non-fossil fuel-consuming units to provide the most sustainable commercial HVAC equipment in the market.
In the area of energy efficiency and conservation, our Tulsa, Oklahoma and Longview, Texas facilities have transitioned to nearly 100% LED lighting in our facilities leading to considerable cost savings and reduced energy consumption. Our Redmond, Oregon facilities are installing LED lights into any new fixtures in their current facility and working towards retrofitting old fixtures to LED. We participate in an energy demand response program through the public utility provider to reduce demand during peak hours. Energy efficiency has been a priority not only in product development, but also in overall capital investments which include the acquisition of new, energy-efficient equipment for the production floor, new high-speed overhead facility doors, the installation of new HVAC equipment, building control systems, the application of heat and light reflective material to production facilities, along with other behavioral-based energy efficiency changes. We are tracking our energy usage intensity before and after these updates.
In the area of material management, we focus on recycling, reducing, reusing and sourcing more environmentally friendly materials into our processes. At our Tulsa, Oklahoma Redmond, Oregon and Longview, Texas facilities, we recycled over 17,328 tons, 15,715 tons, and 13,678 tons of metal in 2025, 2024, and 2023, respectively. Also, through our partnership with a waste-to-energy facility, we successfullydiverted over 3,960 tons, 3,020 tons, and 694 tons of waste from landfills in 2025, 2024, and 2023, respectively. We have identified paint product recycling partners at both our Tulsa, Oklahoma and Longview, Texas facilities. We also recycle paper, wood, and cardboard where available. We continue to innovate ways to reduce and reuse shipping packaging between facilities and identify new opportunities to reduce or reuse items in our production and administrative areas.
Human Capital Resources
Our employees are not represented by unions or other collective bargaining agreements. Management considers its relations with our employees to be good. As of February 24, 2026, we employed approximately 5,897 employees, compared to 3,856 employees as of February 24, 2025 and 3,666 employees as of February 20, 2024. Our employees have a variety of specialized experience, training and skills that provide the expertise required to service our customers.
Our key human capital measures include employee safety, turnover, absenteeism, and production. We frequently benchmark our compensation practices and benefits programs against those of comparable industries and in the geographic areas where our facilities are located. We believe that our compensation and employee benefits are competitive and allow us to attract and retain skilled and unskilled labor throughout our organization. Some of our notable health, welfare, and retirement benefits include:
• Employee medical plan (with 175% employer health saving plan match)
• 401(k) Plan (with 175% employer match)
• Profit sharing bonus plan
• Tuition assistance program
• Paid time off
• Paid parental leave
• Military pay
• Short-term and long-term disability
• Identity theft protection
• Group life insurance
Available Information
Our Internet website address is http://www.aaon.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, will be available free of charge through our Internet website as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The information on our website is not a part of, or incorporated by reference into, this annual report on Form 10-K.
Copies of any materials we file with the SEC can also be obtained free of charge through the SEC’s website at http://www.sec.gov, at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549, or by calling the SEC at 1-800-732-0330.
Item 1A. Risk Factors.
The following risks and uncertainties may affect our performance and results of operations. The discussion below contains “forward-looking statements” as outlined in the Forward-Looking Statements section above. Our ability to mitigate risks may cause our future results to materially differ from what we currently anticipate. Additionally, the ability of our competitors to react to material risks will affect our future results.
Risks Related to Our Business
Our business, results of operations and financial condition may be disrupted and adversely affected by public health pandemics.
Our business, results of operations and financial condition may be adversely affected if a public health pandemic interferes with the ability of our employees, suppliers, and other business partners to perform their respective responsibilities and obligations relative to the operations of our business.
We monitor the outbreak of any public health pandemic and evaluate the impact on our business as information emerges. The extent to which the impact of a public health pandemic may have on our business, supply chains, and prices of raw materials will depend on future developments, which may be highly uncertain and cannot be predicted.
Our business can be hurt by economic conditions .
Our business is affected by a number of economic factors, including the level of economic activity and uncertainty in the markets in which we operate. Sales in the commercial and industrial new construction markets correlate to the number of new homes and buildings that are built, which in turn is influenced by cyclical factors such as interest rates, inflation, consumer spending habits, employment rates, and other macroeconomic factors over which we have no control. In the HVAC business, a decline in economic activity as a result of these cyclical or other factors typically results in a decline in new construction and replacement purchases which could impact our sales volume and profitability.
Our results of operations and financial condition could be negatively impacted by the loss of one or more major customers.
From time to time we derive a significant portion of our sales from a limited number of customers, and such concentration may continue in the future. The loss of, or significant reduction in sales to significant customers (or a related portfolio group of customers) could have a material adverse effect on our results of operations, financial condition and cash flow. Further, the addition of new major customers in the future could increase our customer concentration risks as described above.
We may not realize all of the sales expected from our backlog of orders and contracts.
Our backlog consists of the value of product and service orders for which a customer purchase order or purchase commitment is received, but has not yet been delivered. As of December 31, 2025 and 2024, the Company’s estimated backlog was approximately $1,828.5 million and $867.1 million, respectively. The majority of our combined backlog is considered firm and expected to be delivered within 12 to 18 months. Our customers have the right in some circumstances, usually with penalties or other termination consequences, to reduce or defer firm orders in backlog. If customers terminate, reduce or defer firm orders, the revenue we expect to generate from our backlog may not be fully realized. Also, due to our large backlog, pricing changes may take longer to be reflected in our financial results.
Our results of operations and financial condition could be negatively impacted by the loss of a major third-party representative.
We are dependent on our third-party representatives to market and sell our products. If such relationships were terminated or impaired for any reason, it could materially and adversely affect our ability to generate revenues and profits. Certain competitors with greater financial resources than us have targeted some of our third-party representatives for exclusive sales channels. We may not be able to secure additional third-party representatives who will effectively market our products in certain geographical areas. In addition, adding new representatives requires additional administrative efforts and costs. If we are unable to establish new representative relationships or continue
current relationships, or terminate and replace our third-party representatives, our business, financial condition, and results of operations could be materially and adversely affected.
We may incur material costs as a result of warranty and product liability claims that would negatively affect our profitability .
The development, manufacture, sale and use of our products involve a risk of warranty and product liability claims. Our product liability insurance policies have limits that, if exceeded, may result in material costs that would have an adverse effect on our future profitability. An excess of or significant claim(s) could lead to the cancellation of our policies and the loss of and inability to find additional insurance carriers. In addition, warranty claims are not covered by our product liability insurance and there may be types of product liability claims that are also not covered by our product liability insurance.
We depend on our officers and senior leadership team and the loss of one or more key employees or an inability to attract and retain highly skilled employees could adversely affect our business .
Our success depends largely upon the continued services of our officers and senior leadership team. We rely on our officers and senior leadership team in the areas of research and development, marketing, production, sales, and general and administrative functions. While we have a robust succession plan in place for each one of our officers and senior leadership team members, the loss of one or more could have a seriousadverse effect on our business. We do not maintain key-person insurance for officers or any members of our senior leadership team.
To mitigate certain business risks of departing executives upon termination, on July 30, 2024, the Board of Directors of the Company, upon the recommendation of the Compensation Committee of the Board of Directors (the “Committee”) approved the adoption of the AAON, Inc. Executive Severance Plan (the “Executive Severance Plan”) to provide financial and transitional assistance following a termination of employment under certain circumstances to certain executive-level employees. Pursuant to the terms of the Executive Severance Plan, in the event an Eligible Executive’s employment is terminated by us without “cause” or by an Eligible Executive for “good reason” (as each such term is defined in the Executive Severance Plan), subject to the execution of a validly executed, irrevocable release of claims, the Eligible Executive will be eligible to receive the certain benefits defined by the Executive Severance Plan.
Operations may be affected by natural disasters, especially since most of our operations are performed at a single location.
Natural disasters such as tornadoes, ice storms and fires, as well as accidents, acts of terror, infection, and other factors beyond our control could adversely affect our operations. Our facilities are in areas where tornadoes are likely to occur, and the majority of our operations are at our Tulsa, Oklahoma facilities. With the acquisition of BASX in 2021, we now have operations in an area that is historically impacted by wildfires. The effects of natural disasters and other events could damage our facilities and equipment and force a temporary halt to manufacturing and other operations, and such events could consequently cause severedamage to our business. We maintain insurance against these sorts of events; however, this is not guaranteed to cover all the losses and damages incurred. Furthermore, we may experience significant increases in our insurance premium costs in relation to these matters that may have a material adverse effect upon our business, liquidity, financial condition, or results of operations.
If we are unable to hire, develop or retain employees, it could have an adverse effect on our business.
We compete to hire new employees and then seek to train them to develop their skills. We may not be able to successfully recruit, develop, and retain the personnel we need. Unplanned turnover or failure to hire and retain a diverse, skilled workforce, could increase our operating costs and adversely affect our results of operations.
Variability in self-insurance liability estimates could impact our results of operations.
We self-insure for certain employee health insurance and workers’ compensation insurance coverage up to a predetermined level, beyond which we maintain stop-loss insurance from a third-party insurer. Our aggregate exposure varies from year to year based upon the number of participants in our insurance plans. We estimate our self-insurance liabilities using an analysis provided by our claims administrator and our historical claims experience. Our accruals for insurance reserves reflect these estimates and other management judgments, which are subject to a
high degree of variability. If the number or severity of claims for which we self-insure increases, it could cause a material and adverse change to our reserves for self-insurance liabilities, as well as to our earnings.
Risks Related to Our Brand and Product Offerings
We may not be able to compete favorably in the highly competitive HVAC business .
Competition in our various markets could cause us to reduce our prices or lose market share, which could have an adverse effect on our future financial results. Substantially all of the markets in which we participate are highly competitive. The most significant competitive factors we face are product reliability, product performance, service, manufacturing lead times, and price, with the relative importance of these factors varying among our product line. Other factors that affect competition in the HVAC market include the development and application of new technologies and an increasing emphasis on the development of more efficient HVAC products. Moreover, new product introductions are an important factor in the market categories in which our products compete. Several of our competitors have greater financial and other resources than we have, allowing them to invest in more extensive research and development. We may not be able to compete successfullyagainst current and future competition and current and future competitive pressures may materially adversely affect our business and results of operations.
We may not be able to successfully develop and market new products .
Our future success will depend upon our continued investment in research and new product development and our ability to continue to achieve new technological advances in the HVAC industry. Our inability to continue to successfully develop and market new products or our inability to implement technological advances on a pace consistent with that of our competitors could lead to a material adverse effect on our business and results of operations. Furthermore, our continued investment in new product development may render certain legacy products and components obsolete resulting in increased inventory obsolescence expense that may have a material adverse effect upon our financial condition or results of operations.
The length of the sales cycle for certain BASX-branded products and solutions offerings, as well as unpredictable placing or canceling of customer orders, particularly large orders, may cause our revenues and operating results to vary significantly from period-to-period, which could make our future operational results less predictable.
A customer’s decision to purchase certain of our products or solutions, particularly products new to the market or long-term end-to-end solutions, may involve a lengthy contracting, design and qualification process. In particular, customers deciding on the design and implementation of large deployments may have lengthy and unpredictable procurement processes that may delay or impact expected future orders, including customers canceling orders based on unforeseen changes to their businesses. As a result, the order booking and sales recognition process is often uncertain and unpredictable, with some customers placing large orders with short lead times on little advance notice and others requiring lengthy, open-ended processes that may change depending on global or regional economic conditions. This unpredictability may cause our revenues and operating results to vary unexpectedly from quarter-to-quarter and year-to-year, making our future operational results less predictable.
Risks Related to Material Sourcing and Supply
We may be adversely affected by problems in the availability, or increases in the prices, of raw materials and components .
Problems in the availability, or increases in the prices, of raw materials or components could depress our sales or increase the costs of our products. We are dependent upon components purchased from third parties, as well as raw materials such as steel, copper and aluminum. Occasionally, we enter into cancellable and non-cancellable contracts on terms from six to 18 months for raw materials and components. However, if a key supplier is unable or unwilling to meet our supply requirements, we could experience supply interruptions or cost increases, either of which could have an adverse effect on our gross profit.
We risk having losses resulting from the use of non-cancellable contracts.
Historically, we have attempted to limit the impact of price fluctuations on commodities by entering into 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. These contracts are not accounted for using hedge accounting since they meet the normal purchases and sales exemption. The use of such contracts could cause us to forego the economic benefits we would otherwise realize if prices were to change in our favor. Additionally, should there be a downturn in the market, we could be committed to purchase more materials than necessary for our production and carry excess inventory which could result in additional costs to the business.
Risks Related to Electronic Data Processing and Digital Information
Our business is subject to the risks of interruptions by cybersecurity attacks.
We depend upon information technology infrastructure, including network, hardware and software systems to conduct our business. Despite our implementation of network and other cybersecurity measures, our information technology system and networks could be disrupted due to technological problems, a cyber-attack, acts of terrorism, severe weather, a solar event, an electromagnetic event, a natural disaster, the age and condition of information technology assets, human error, or other reasons. To date, we have not experienced a material impact to our business or operations resulting from cyber-security or other similar information attacks, but due to the ever-evolving attack methods, as well as the increased amount and level of sophistication of these attacks, our security measures may not be adequate to protect against highly targeted sophisticated cyber-attacks, or other improper disclosures of confidential and/or sensitive information. Additionally, we may have access to confidential or other sensitive information of our customers, which, despite our efforts to protect, may be vulnerable to security breaches, theft, or other improper disclosure. Any cyber-related attack or other improper disclosure of confidential information could have a material adverse effect on our business, as well as other negative consequences, including significant damage to our reputation, litigation, regulatory actions, and increased cost.
We are reliant on information technology.
We are reliant on information technology in all aspects of our business, operated and maintained by the Company as well as under control of third parties. If we do not invest sufficient capital in a timely manner to acquire, develop, or implement new information technologies or maintain or upgrade current information technologies, we could sufferoutages as well as be at a competitive disadvantage within our industry which could have a material adverse effect upon our financial condition and results of operations.
Artificial intelligence technologies may introduce operational, cybersecurity, reputational, and compliance risks that could adversely affect our business.
Although AI is not a core component of our products or manufacturing operations, the growing use of AI tools presents potential risks to AAON. Any internal or incidental use of AI or machine‑learning technologies—such as in engineering, data analysis, customer support, or administrative processes—may expose the Company to risks involving data privacy, cybersecurity, protection of proprietary information, intellectual property rights, and regulatory compliance. As AI capabilities rapidly evolve, our ability to evaluate, monitor, and govern their use may not keep pace. Employees, contractors, or third‑party partners could unintentionally or improperly use AI tools, which may lead to unauthorized disclosure of sensitive information, inaccurate or biased outputs, or other unintended consequences. These risks could negatively impact operational performance, decision‑making, and interactions with customers or suppliers. AI technologies are also subject to increasing regulatory scrutiny. New or evolving laws, standards, or reporting requirements applicable to AI could impose additional compliance obligations on AAON. If we do not implement appropriate controls and oversight mechanisms governing the use of AI, we could experience operational disruptions, reputational harm, litigation risk, or competitive disadvantage if other companies adopt AI more effectively to improveefficiency or reduce costs.
Complications with the design or implementation of our new enterprise resource planning system could adversely impact our business and operations.
We rely extensively on information systems and technology to manage our business and summarize operating results. We are in the process of implementing a new global enterprise resource planning (“ERP”) system. This ERP system will replace our existing operating and financial systems. The ERP system is designed to accurately maintain the Company’s financial records, enhance operational functionality and provide timely information to the
Company’s management team related to the operation of the business. The ERP system implementation process has required, and will continue to require, the investment of significant personnel and financial resources. We may not be able to successfully implement the ERP system without experiencing delays, increased costs and other difficulties. If we are unable to successfully design and implement the new ERP system as planned, our financial positions, results of operations and cash flows could be negatively impacted. Additionally, if we do not effectively implement the ERP system as planned or the ERP system does not operate as intended, the effectiveness of our internal control over financial reporting could be adversely affected or our ability to assess those controls adequately could be delayed.
Risks Related to Governmental Regulation and Policies
Exposure to environmental liabilities could adversely affect our results of operations .
Our future profitability could be adversely affected by current or future environmental laws. We are subject to extensive and rapidly changing federal, state and local laws and regulations designed to protect the environment in the United States and in other parts of the world. These laws and regulations could impose liability for remediation costs and result in civil or criminalpenalties in case of non-compliance. Compliance with environmental laws increases our costs of doing business. Because these laws are subject to frequent change, we are unable to predict the future costs resulting from environmental compliance.
We are subject to potentially extreme governmental regulations and policies.
We always face the possibility of new or rapidly evolving changes to existing governmental regulations and policies, from the Federal or state levels, which could have a substantial or even extreme negative effect on our operations and profitability. This could affect equipment we currently manufacture and could have an impact on our product design, operations, and profitability. We anticipate more state regulatory activity in the future. Additional state regulatory rules can lead to a patchwork of different compliance regulations that may impact the results of each of our operating segments and our consolidated results.
The Dodd-Frank Wall Street Reform and Consumer Protection Act contains provisions to improvetransparency and accountability concerning the supply of certain minerals, known as “conflict minerals”, originating from the Democratic Republic of Congo and adjoining countries. As a result, in August 2012, the SEC adopted annual disclosure and reporting requirements for those companies that use conflict minerals in their products. Accordingly, we began our reasonable country of origin inquiries in fiscal year 2013, with initial disclosure requirements beginning in May 2014. There are costs associated with complying with these disclosure requirements, including due diligence to determine the sources of conflict minerals used in our products and other potential changes to products, processes or sources of supply as a consequence of such verification activities. The implementation of these rules could adversely affect the sourcing, supply, and pricing of materials used in our products. As there may be only a limited number of suppliers offering “conflict-free” conflict minerals, we cannot be sure that we will be able to obtain necessary conflict minerals from such suppliers in sufficient quantities or at competitive prices. Also, we may face reputational challenges if we determine that certain of our products contain minerals not determined to be conflict-free or if we are unable to sufficiently verify the origins of all conflict minerals used in our products through the procedures we may implement.
Our operations could be negatively impacted by new legislation as well as changes in regulations and trade agreements, including tariffs and taxes. Unfavorable conditions resulting from such changes could have a material adverse effect on our business, financial condition and results of operations.
We are subject to adverse changes in tax laws.
Our tax expense or benefits could be adversely affected by changes in tax provisions, unfavorable findings in tax examinations, or differing interpretations by tax authorities. We are unable to estimate the impact that current and future tax proposals and tax laws could have on our results of operations. We are currently subject to state and local tax examinations for which we do not expect any major assessments.
We are subject to international regulations that could adversely affect our business and results of operations.
Due to our use of Representatives in foreign markets, we are subject to many laws governing international relations, including those that prohibit improper payments to government officials and commercial customers, and restrict where we can do business, what information or products we can supply to certain countries and what information we can provide to a non-U.S. government, including but not limited to the Foreign Corrupt Practices Act, U.K. Bribery Act and the U.S. Export Administration Act. Violations of these laws, which are complex, may result in criminal
penalties or sanctions that could have a material adverse effect on our business, financial condition and results of operations.
Changes in legislation or government regulations or policies could adversely affect our results of operations.
Our sales, gross margins and profitability could be directly impacted by changes in legislation or government regulations or policies. Specifically, changes in environmental and energy efficiency standards and regulations related to global climate change are being implemented to curtail the use of hydrofluorocarbons which are used in refrigerants that are essential to many of our products. Our inability or delay in developing or marketing products that match customer demand while also meeting applicable efficiency and environmental standards may negatively impact our results.
We completely transitioned to a new refrigerant with lower global warming potential for our HVAC systems which was required by the US EPA for any equipment manufactured beginning January 1, 2025. We incurred costs associated with this transition related to the purchase of the new refrigerant as well as additional sensors and detectors on our HVAC systems. In addition, we incurred cost to our facilities, specifically costs to store and use the new refrigerant in production; however, those costs were not significant. Due to the increased flammability of the new refrigerant, the insurance industry may require higher premiums for companies in the future.
New York State released a final rule on December 23, 2024, that requires that we change our products to use refrigerants with a 20-year global warming potential less than 10 beginning January 1, 2034. This will require significant research and development as well as equipment could potentially cost significantly more to build. We expect California and Washington state to release similar rules as well as several other states. Unfortunately, we will likely see a patchwork of different timing and requirements from various states which could increase the options that we will need to offer which could also increase costs.
Additionally, regulations that reduce or eliminate the use of fossil fuels such as natural gas and propane may reduce or eliminate sales of gas-fired equipment for which AAON holds a strong market position. This will result in a shift to more air- and water-cooled heat pump-type units to provide space heating. This shift in product line could affect production productivity, material costs and aftermarket warranty costs.
Future legislation or regulations relating to environmental policies, product certification, product liability, taxes, amount and availability of tax incentives and other matters, may impact the results of each of our operating segments and our consolidated results.
Changes in U.S. or foreign trade policies, including additional tariffs or global trade conflicts, could increase the cost of our products, which could adversely impact the competitiveness of our products.
There is currently significant uncertainty about the future relationship between the U.S. and various other countries with respect to trade policies and tariffs. For example, the current U.S. administration has instituted substantial changes to U.S. foreign trade policy with respect to China and other countries, including a significant increase in tariffs on goods imported into the U.S. and the possibility of imposing further restrictions on international trade. The current administration has taken a different approach to U.S. foreign trade policy than their predecessors, so there remains uncertainty as to whether, and to what degree, trade between the U.S and other countries will be impacted by these policy shifts on an ongoing and/or long-term basis. Additional policy changes or continued uncertainty could depress economic activity and restrict our access to suppliers or customers. Furthermore, counter- or retaliatory tariffs imposed against the U.S. could impact our sales internationally. Tariffs implemented on our products (or on materials, parts or components we use to manufacture our products or to provide service for our products) have in the past increased the cost of our products manufactured in the U.S. and imported into the U.S. The imposition of additional tariffs on our products (or on materials, parts or components we use to manufacture our products or to provide service for our products) by the U.S. or other countries, the cost of our products manufactured in other countries subject to additional tariffs and imported into the U.S. would increase as a result of new tariffs that are implemented, and could increase further to the extent that retaliatory tariffs or similar additional trade restrictions are implemented. In the event we are unable to pass along the increased costs resulting from any tariffs to our customers, it could have a material adverse effect on our business, profitability, and our earnings.
Item 1B. Unresolved Staff Comments.
None.
ITEM 1C. Cybersecurity
Cybersecurity risk management and strategy
We maintain various information security processes designed to identify and manage material risks from cybersecurity threats to our computer networks, third-party hosted services, communications systems, hardware and software, and data, including personal data, intellectual property and confidential information that is proprietary, strategic or competitive in nature. Our cybersecurity function includes representatives from information technology, engineering, information security, legal, impacted business units or products and other departments as applicable and help identify, assess and manage the Company’s cybersecurity threats and risks.
The management team is responsible for identifying, assessing and managing cybersecurity risks by monitoring and evaluating potential threats using various methods including, for example, manual and automated tools such as vulnerability scans, penetration tests and system configuration reviews; conducting risk assessments and internal and external audits; and conducting tabletop incident response exercises. We implement and maintain various technical, physical, and organizational measures, processes, standards and policies designed to manage risks from cybersecurity threats to our systems, including, for example: (1) having an information security incident response plan; (2) maintaining a disaster recovery plan, business continuity program, vulnerability management process and vendor risk management process; (3) conducting periodic risk assessments and employee training on cybersecurity; (4) maintaining security controls in alignment with industry standard security frameworks like National Institute of Standards and Technology (“NIST”) and Center for Internet Security (“CIS”); (5) encrypting and segregating data, having network security controls, access controls, monitoring systems, managing assets and conducting penetration testing; and (6) maintaining cybersecurity insurance.
Our assessment and management of risks from cybersecurity threats are integrated into the Company’s overall risk management processes. For example, (1) cybersecurity risk is addressed as a component of the Company’s enterprise risk management program in concert with the audit committee and board of directors; (2) our information security team works with our management team in an effort to prioritize our risk management processes and mitigate cybersecurity threats that are more likely to lead to a material impact to our business; (3) our information security and management team evaluates material risks from cybersecurity threatsagainst our overall business objectives and reports to the audit committee for further communication as required, to evaluate our overall enterprise risk. We use third-party service providers to assist us in identifying potential risks from cybersecurity threats. For example, these service providers include professional services firms, managed cybersecurity service providers, penetration testing firms and forensic investigators. We have a vendor management process designed to manage cybersecurity risks associated with our use of these providers. This process includes risk assessments, security questionnaires, review of vendor security programs, review of available security assessments, reports, and audits.
For more information about cybersecurity risks, see the Risk factors discussion in Item 1A of this Form 10-K.
Governance of cybersecurity risk management
The Board of Directors has oversight responsibility for our strategic and operational risks. The audit committee assists the board of directors with this responsibility by reviewing and discussing our risk assessment and risk management practices, including cybersecurity risks, with members of management. The audit committee, in turn, periodically reports on its review with the board of directors.
The Chief Information Officer is responsible for day-to-day assessment and management of cybersecurity risks and any material risks from cybersecurity threats with oversight by the Chief Financial Officer. In March 2025, our new Chief Information Officer assumed responsibilities for IT leveraging over twenty-five years of experience aligning Information Technology organizations to businesses' strategic and operation needs in multiple industries, including construction, engineering, pipeline services, energy, manufacturing, healthcare, insurance, and financial services.
Management assesses our cybersecurity readiness through internal assessment tools as well as third-party control tests, vulnerability assessments, audits and evaluation against industry standards. We have governance and compliance structures that are designed to elevate issues relating to cybersecurity to Management, such as potential threats or vulnerabilities. We also employ various defensive and continuous monitoring techniques using recognized industry frameworks and cybersecurity standards.
Our information security incident response plan is designed to escalate certain cybersecurity incidents to members of management depending on the circumstances. The incident response team works with the Company’s management team to help mitigate and remediate cybersecurity incidents of which they are notified. In addition, the Company’s
information security incident response plan includes reporting to the board of directors for certain cybersecurity incidents.
Management meets with the audit committee periodically to review our information technology systems and discuss key cybersecurity risks. In addition, the Chief Financial Officer reviews with the audit committee at least annually our risk management program, which includes cybersecurity risks and is also reported to the board .
Item 2. Properties.
Our manufacturing areas are heavy industrial-type buildings, with some coverage by overhead cranes, containing manufacturing equipment designed for sheet metal fabrication, metal stamping and tube forming. The manufacturing equipment contained in the facilities consists primarily of automated sheet metal fabrication equipment, supplemented by presses and tube bending equipment. Assembly lines consist of cart-type and roller-type conveyor lines with variable line speed adjustment. Subassembly areas and production line manning are based upon line rates set by production management.
We own or lease our properties and facilities, as further described below. We believe that all of our facilities are well maintained and are in good condition and suitable for the conduct of our business.
AAON Oklahoma
The following table summarizes our plant and office facilities that support our AAON Oklahoma segment:
City & State
of Buildings
Manufacturing
/ Warehouse
Office
Total
Owned facilities
(in square feet)
West Plant & Offices
Tulsa, OK
NAIC
Tulsa, OK
Exploration Center
Tulsa, OK
Buckaloo Warehouse
Tulsa, OK
East Plant & Offices
Tulsa, OK
Flint Warehouse
Tulsa, OK
Administration Facilities
Tulsa, OK
Parts Retail Store
Tulsa, OK
Memphis Plant
Memphis, TN
Total
Leased facilities
Controls Facility
Parkville, MO
Parts Distribution
Tulsa, OK
Total
Our West Plant and Office facilities, NAIC, Exploration Center, and Buckaloo Warehouse sit on an approximately 87.3-acre tract of land and are located at 2440 South Yukon Ave., Tulsa, OK 74107. Our East Plant and Office facilities sit on an approximate 32.7-acre tract of land and are located at 2425 South Yukon Ave., Tulsa, OK 74107.
Our Tulsa location is also home to our engineering research and development laboratory, the NAIC. The three-story, stand-alone facility is both an acoustical and a performance measuring laboratory. This facility currently consists of twelve test chambers, allowing AAON to meet and maintain industry certifications. This facility is located west of our West Plant and Office Facilities.
The Gary D. Fields Exploration Center is located adjacent to the NAIC. The three-story Gary D. Fields Exploration Center provides an immersive and educational experience of our products, solutions, and our people and also serves as an event hub for our stakeholders, including our customers, employees, representatives, and investors. The Gary D. Fields Exploration Center adds a dimension of customer engagement that showcases our products and our competitors’ products and allows our customers to interact with our products and employees.
We also own two additional warehouses. Our Buckaloo Warehouse is west of our West Plant and Offices. Our Flint Warehouse is located approximately 3/4 of a mile east of our West and East Plant locations at 2020 South Union Ave., Tulsa, OK 74107 and sits on approximately 5.5 acres.
Our Administration Facilities are located approximately 3/4 of a mile east of our West and East Plant locations at 1624 - 1625 West 21st St., Tulsa, OK 74107. These facilities sit on approximately 3.6 acres. The facilities include additional office and meeting space utilized for company-wide administrative, human resource, and training functions. Our new Human Resources building, which opened in January 2025, enhances our engagement with current and future employees. We also have an 11,000 SF technical training facility named the “AAON Academy”. This space has a combination of classrooms, offices, and a hands-on HVAC training lab.
In addition to a retail parts store location at our West Plant & Offices, we also own a stand-alone building at 9528 East 51st St., Tulsa, OK 74145 which is utilized as an additional retail parts store to provide our customers more accessibility to our products.
In December 2024, we purchased a facility in Memphis, Tennessee located at 5106 Tradeport Drive, Memphis, TN 38141. This facility, which sits on 35.7 acres, will primarily facilitate the growing demand for BASX products in the data center market as well as AAON products and will also add geographic diversification to AAON's current manufacturing footprint, mitigating certain operational risks and better serving our data center customers.
Our operations in Parkville, Missouri, are conducted in a leased plant/office at 8500 NW River Park Drive, Parkville, MO 64152. This location is home to our Controls design and manufacturing facilities.
We also lease a facility primarily used for parts distribution and additional warehouse space. This facility is located at 13445 E. 59th St., Tulsa, OK 74134.
AAON Coil Products
The following table summarizes our plant and office facilities that support our AAON Coil Products segment:
City & State
of Buildings
Manufacturing
/ Warehouse
Office
Total
Owned facilities
(in square feet)
West Plant & Offices
Longview, TX
East Plant & Offices
Longview, TX
Parts Store
Longview, TX
Kodak Facility
Longview, TX
Total
Both our East and West Plant and Office facilities are located at 203 Gum Springs Road, Longview, TX 75602. Our East Plant and Offices sit on approximately 12.9 acres and our West Plant and Offices sit on approximately 22.6 acres. In January 2025, we completed our new expansion of the West Plant which added 225,500 square feet of manufacturing/warehouse space and 12,000 of office space. The new expansion is included in the table amounts above.
Our retail parts store, which is leased to a Representative of the Company, is located north of our West Plant and Offices at 203 Ford Lane, Longview, TX 75602. Our Kodak Facility is primarily used for additional warehouse space and is located at 115 Kodak Blvd, Longview, TX 75603.
BASX
The following table summarizes our plant and office facilities that support our BASX segment:
City & State
of Buildings
Manufacturing
/ Warehouse
Office
Total
Owned Facilities
(in square feet)
Redmond Plant & Offices
Redmond, OR
Leased Facilities
Antler Warehouse
Redmond, OR
Sisters Warehouse
Sisters, OR
Marshall Warehouse
Redmond, OR
East Empire Warehouse
Bend, OR
Various leased facilities
Various
Total
Our main operations in Redmond, Oregon, are conducted in a plant and office facility at 3500 SW 21st Pl, Redmond, OR 97756. This facility sits on an approximately 13.8-acre tract of land and is the location of our new 36,000 square foot weld-shop that opened in September 2024.
In addition, we lease facilities for additional warehouse storage located at 601 NE Antler Ave., Redmond, OR 97756 ( “ Antler ” ), 2895 S.W. 13th Street, Redmond, OR 97756 ( “ Marshall ” ) and 63085 NE 18th Street, Suite 105, Bend, OR 97701 (“East Empire”) . Our leased facility at 690 W Three Peaks Drive, Sisters, OR, 97759 ( “ Sisters ” ) is used for additional clean room assembly.
We lease several other properties near our main Redmond, Oregon location. In the aggregate, these properties contain approximately 4,000 square feet of warehouse space, 4,000 square feet of office space, and approximately 1.0 acres of land for outdoor storage.
Item 3. Legal Proceedings.
See Note 20 of the Consolidated Financial Statements.
Item 4. Mine Safety Disclosure.
Not applicable.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
Our common stock is quoted on the NASDAQ Global Select Market under the symbol “AAON.” As of the close of business on February 26, 2026, there were 1,748 holders of record of our common stock.
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 cash dividends for the three years ended December 31, 2025 are as follows:
Dividend
Annualized Dividend
Declaration Date
Record Date
Payment Date
per Share
per Share
March 1, 2023
March 13, 2023
March 31, 2023
May 18, 2023
June 9, 2023
June 30, 2023
August 18, 2023
September 8, 2023
September 29, 2023
November 10, 2023
November 29, 2023
December 18, 2023
March 5, 2024
March 18, 2024
March 29, 2024
May 24, 2024
June 7, 2024
June 28, 2024
August 15, 2024
September 6, 2024
September 27, 2024
November 13, 2024
November 29, 2024
December 19, 2024
March 5, 2025
March 18, 2025
March 28, 2025
May 13, 2025
June 6, 2025
June 27, 2025
August 14, 2025
September 5, 2025
September 26, 2025
November 10, 2025
November 26, 2025
December 18, 2025
Share-Based Compensation Plans
The following is a summary of our share-based compensation plans as of December 31, 2025:
EQUITY COMPENSATION PLAN INFORMATION
Plan category
Number of securities to be issued upon exercise of outstanding options, warrants and rights
Weighted-average exercise price of outstanding options, warrants and rights
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
The 2007 Long-Term Incentive Plan
The 2016 Long-Term Incentive Plan
The 2024 Long-Term Incentive Plan
Stock Repurchases
The Company may repurchase AAON, Inc. stock on the open market from time to time. For the year ended December 31, 2025, we have repurchased a total of approximately 469.3 thousand shares (at current market prices) under the current $100 million open market stock buyback program, approved by the Board of Directors on February 27, 2025, for an aggregate price of $30.0 million, or an average price of $80.81 per share. 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.
The Company also repurchases shares of AAON, Inc. stock from employees for payment of statutory tax withholdings on stock transactions and/or stock repurchased to cover the strike price of stock options. For the year ended December 31, 2025, we repurchased approximately 98.1 thousand shares (at current market prices) for an aggregate price of $9.7 million, or an average price of $99.15 per share.
Repurchases during the fourth quarter of 2025 were as follows:
ISSUER PURCHASES OF EQUITY SECURITIES
Period
Total Number
of Shares
(or Units)
Purchased
Average Price
Paid
Per Share
(or Unit)
Total Number
of Shares (or
Units) Purchased
as part of
Publicly Announced
Plans or Programs
Maximum Number (or
Approximate Dollar
Value) of Shares (or
Units) that may yet be
Purchased under the
Plans or Programs
October 2025
November 2025
December 2025
Total
Contingent Shares Issued in BASX Acquisition
In December 2021, we closed on the acquisition of BASX. Under the MIPA Agreement, we committed to $78.0 million in the aggregate of contingent consideration to the former owners of BASX, which is payable in approximately 1.6 million shares of the Company's common stock, par value $0.004 per share. The shares do not accrue dividends.
Under the MIPA Agreement, the issuance of shares to the former owners of BASX was contingent upon BASX meeting certain post-closing earn-out milestones during each of the years ended 2021, 2022, and 2023. In March 2024, we issued the remaining 0.2 million shares related to the earn-out milestone for the year ended 2023. As a result of the shares issued in March 2024, the tax basis exceeded the book basis for consideration paid resulting in a deferred tax asset and an increase to additional paid-in capital of $6.4 million, respectively, on our consolidated balance sheet. The deferred tax asset is expected to be amortized over 15 years. We previously issued 0.6 million shares in March 2023, related to the earn-out milestone for the year ended 2022. All shares have been issued as private placements exempt from registration with the SEC under Rule 506(b) and are included in common stock on the consolidated statements of stockholders' equity.
Rule 10b5-1 Trading Arrangements
The following table describes contracts, instructions, or written plans for the purchase or sale of our securities intended to satisfy the affirmative defense conditions of Rule 10b5-1(c).
Name and Title of Director or Officer
Date of Adoption of Arrangement
Duration of the Arrangement
Aggregate Number of Securities to be Purchased or Sold Pursuant to the Arrangement
Rebecca A. Thompson
December 13, 2024
Terminated December 31, 2025
Chief Financial Officer & Treasurer
December 16, 2025
March 16, 2027
Insider Trading Arrangements and Policies
We have adopted an Insider Trading Policy, applicable to our directors, officers, employees and certain other persons, as well as the Company itself, that governs transactions in securities issued by the Company and we believe is reasonably designed to promote compliance with insider trading laws, rules and regulations, and applicable NASDAQ listing standards.
The foregoing summary of our Insider Trading Policy is not complete and is qualified in its entirety by reference to the full text of the Insider Trading Policy attached hereto as Exhibit 19.
Comparative Stock Performance Graph
The following performance graph compares our cumulative total shareholder return for the Company’s common stock for the five-year period ending on December 31, 2025, compared to an overall stock market index (the NASDAQ Composite Index) and the Company’s peer group index (S&P 600 Capital Goods Industry Group Index). We believe the S&P 600 Capital Goods Industry Group Index best represents our relative peer group based on our current business and market capitalization. The graph assumes that $100 was invested at the close of trading December 31, 2020, with the reinvestment of dividends since that date. This table is not intended to forecast future performance of our Common Stock.
Company / Index
AAON, Inc.
NASDAQ Composite Index
S&P 600 Capital Goods Industry Group Index
This stock performance graph is not deemed to be “soliciting material” or otherwise be considered to be “filed” with the SEC or subject to Regulation 14A or 14C under the Securities Exchange Act of 1934 (Exchange Act) or to the liabilities of Section 18 of the Exchange Act, and should not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act, except to the extent the Company specifically incorporates it by reference into such a filing.
Item 6. Reserved.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Overview
The following discussion summarizes the significant factors affecting the consolidated operating results, financial condition, and liquidity of the Company for the year ended December 31, 2025. This discussion should be read in conjunction with the other sections of this Annual Report on Form 10-K, including the consolidated financial statements and related notes contained in Item 8, Financial Statements and Supplementary Data . A detailed discussion of the year-to-year changes for the years ended December 31, 2024, and 2023 is not included herein and can be found in Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations section of the Company’s Annual Report on Form 10-K for the year ended December 31, 2024.
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 greaterefficiency, 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.
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 December 31, 2025, the price for copper increased by approximately 11.1%, while stainless steel and galvanized steel decreased approximately 13.0% and 3.4%, respectively. The price for aluminum remained relatively flat, as compared to the price at December 31, 2024.
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. We implemented a recurring 1.0% monthly price increase on October 1, 2023, and carried that through February 1, 2024, for AAON-branded products. On January 1, 2025, we implemented a one-time 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.
Additionally, we continue to experience challenges in a tight labor market, especially the hiring of production labor. We continue to implement human resource initiatives to retain and attract labor to further increase production capacity. We have implemented the following wage increases to remain competitive and to attract and retain employees:
• In March 2024, we awarded annual merit raises for an overall 3.3% increase to wages.
• In March 2025, we awarded annual merit raises for an overall 4.0% increase to wages.
Despite efforts to mitigate the potential business impacts of trade conflict, supply chain challenges, and a tight labor market, future increases in the cost of materials, parts, components, or labor, in addition to supply chain disruptions, while temporary, could negatively impact our consolidated financial position, results of operations, and cash flows.
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
The following table shows our historical backlog levels:
December 31,
December 31,
(in thousands)
AAON-branded Products
BASX-branded Products
Total Backlog
At December 31, 2025, our consolidated backlog is $1,828.5 million, an increase of 110.9%, or $961.4 million, as compared to December 31, 2024. Backlog was up from a year ago for both AAON-branded products and BASX-branded products with BASX-branded products increasing 141.3%, or $762.4 million, when compared to December 31, 2024. Most of these orders were associated with the BASX-branded data center liquid cooling solutions.
Consolidated Results of Operations
Years Ended December 31,
(in thousands, except per share data)
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Gain on disposal of assets
Income from operations
Interest expense
Other income, net
Income before taxes
Income tax provision
Net income
The following are highlights of our results of operations, cash flows, and financial condition:
• Net sales for 2025 grew 20.1% to $1,442.1 million driven by the strong demand and growth of our BASX-branded products. BASX-branded products increased 143.5%, or $322.8 million when compared to 2024.
• Net sales of AAON-branded products decreased 8.3%, or $81.4 million when compared to 2024. The AAON brand experienced a softer market in 2025 due to macroeconomic factors like higher interest rates
and slowing construction starts. Supply chain issues were also a constraint in 2025 due to the refrigerant change that went into effect January 1, 2025 and more recently due to coils.
• The Company went live with its new Enterprise Resource Planning (“ERP”) system on April 1, 2025 at its Longview, Texas facility. The adoption of this new system caused some disruptions due to changes in processes for the AAON Coil Products segment. To a lesser extent, the impact to the coil production at AAON Coil Products also impacted AAON Oklahoma’s ability to ramp up production, which contributed to lower net sales and gross profit margins for that segment. The Company also went live with its ERP at its Memphis, Tennessee facility on November 1, 2025 with minimal disruption.
• We have a strong balance sheet with a leverage ratio of 1.77 and available borrowings under our Revolver of $201.0 million.
• We continue to invest in the future growth of the Company as evidenced by our $204.9 million in capital expenditures, including the acquisition of intangible assets in 2025.
• We completed the repurchase of $39.7 million of shares for the year ended December 31, 2025.
We report our financial results based on three reportable segments: AAON Oklahoma, AAON Coil Products, and BASX, which are further described in “Segments” (Note 23) 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 Years Ended December 31, 2025 and 2024
Years Ended
December 31, 2025
Percent of Sales 1
December 31, 2024
Percent of Sales 1
$ Change
% Change
(in thousands)
Net Sales 2
AAON Oklahoma
AAON Coil Products
BASX
Net sales
Cost of Sales 2
AAON Oklahoma
AAON Coil Products
BASX
Cost of sales
Gross Profit 2
AAON Oklahoma
AAON Coil Products
BASX
Gross profit
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 $241.4 million, or 20.1%. AAON Oklahoma had net sales of $801.2 million, a decrease of 6.7% compared to the same period in the prior year. This decrease was driven by supply chain issues from the refrigerant transition at the beginning of the year and coil supply shortages in the second quarter due to our ERP implementation at our Longview, Texas facility which slowed production of coils made for our Tulsa plant. Sales were up 126.1% for AAON Coil Products primarily driven by growth in BASX-branded products of $202.3 million for liquid cooling data centers. AAON-branded products at AAON Coil Products declined $20.9 million due to disruptions caused by our ERP implementation. BASX net sales were up 59.3% to $315.5 million due to the continued demand for data center solutions and increasing production out of our Memphis facility.
Gross profit decreased $11.4 million or 2.9% and from 33.1% of sales to 26.7% of sales. AAON Oklahoma’s decrease in gross profit is primarily driven by the lower volumes discussed above from the first half of the year that resulted in sub optimal overhead absorption. Additionally, our new plant in 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 $16.1 million in cost to the AAON Oklahoma segment. AAON Coil Products gross profit margin increased slightly from 19.2% in 2024 to 21.4% in 2025. AAON Coil Products had disruptions caused by our ERP system implementation at the beginning of the second quarter. Progress was made during the remainder of the year and the higher volume data center work help to offset the negative impacts of these disruptions. The increase in BASX gross profit is due to better overhead absorption from the increased sales volumes coming from our Memphis facility.
Raw Material Costs
Twelve-month average raw material cost per pound as of December 31:
% Change
Copper
Galvanized steel
Stainless steel
Aluminum
Selling, General and Administrative Expenses
Years Ended December 31,
Percent of Sales
(in thousands)
Warranty
Profit sharing
Salaries & benefits
Stock compensation
Advertising
Depreciation & amortization
Insurance
Professional fees
Memphis incentive fee
Donations
Other
Total SG&A
Selling, general and administrative expenses increased $51.5 million for the year ended December 31, 2025, from the prior year period. Profit sharing is down as a result of our lower earnings in the period. Salaries and benefits have increased as we add additional headcount to help build out our organizational capacity for future growth. Depreciation and amortization increased $7.2 million during the period due to increased investments from our ERP implementation. We incurred approximately $6.1 million in incentive fees due to our real estate broker associated with the acquisition of our Memphis, Tennessee plant for a percentage of the incentives awarded to us by various entities. Other includes an increase in expense of $17.4 million for technology related consulting fees along with increased expenses related to travel and other consulting expenses.
Income Taxes
Years Ended December 31,
Effective Tax Rate
(in thousands)
Income tax provision
The Company’s estimated annual 2025 effective tax rate, excluding discrete events, is expected to be approximately 22.5 %. 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 22.5 %.
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, 2024, to December 31, 2025. Our restricted cash decreased $5.3 million due to funding requirements related to our Longview, Texas expansion.
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 December 31, 2025, and December 31, 2024, we had an outstanding balance under the Revolver of $398.3 million and $76.5 million, respectively. We had one standby letter of credit totaling $0.7 million and $0.3 million as of December 31, 2025, and December 31, 2024, respectively. Borrowings available under the Revolver at December 31, 2025, were $201.0 million.
The Term Loan had no outstanding balance as of December 31, 2025 and a balance of $78.4 million as of December 31, 2024 respectively.
Any outstanding loans under the Revolver bear interest at the daily compounded secured overnight financing rate (“SOFR”) plus the applicable margin. The Term Loan bears interest at the SOFR plus a credit spread adjustment of 0.10% per annum plus the Applicable Margin.
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 years ended December 31, 2025, 2024, 2023.
Weighted average interest rate of our borrowings outstanding are as follows:
Years Ended December 31,
Revolver
Term loan
1 Funds were borrowed on December 16, 2024. No borrowings outstanding during the year ended December 31, 2025.
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 December 31, 2025, 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 December 31, 2025, our leverage ratio was 1.77 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.
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
November 3, 2022
$50 million 1
February 27, 2024
February 27, 2024
$50 million 1
June 4, 2024
June 4, 2024
$50 million 2
June 14, 2024
February 25, 2025
$100 million
1 Repurchases made in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended.
2 Repurchases made in accordance with Rule 10b-18 of the Securities Exchange Act of 1934, as amended.
3 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 December 31, 2025, 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. stock related to our LTIP plans (Note 15) at current market prices.
Our repurchase activity is as follows:
(in thousands, except share and per share data)
Program
Shares
Total $
$ per share
Shares
Total $
$ per share
Shares
Total $
$ per share
Open market
LTIP Shares
Total
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 1, 2023
March 13, 2023
March 31, 2023
May 18, 2023
June 9, 2023
June 30, 2023
August 18, 2023
September 8, 2023
September 29, 2023
November 10, 2023
November 29, 2023
December 18, 2023
March 5, 2024
March 18, 2024
March 29, 2024
May 24, 2024
June 7, 2024
June 28, 2024
August 15, 2024
September 6, 2024
September 27, 2024
November 13, 2024
November 29, 2024
December 19, 2024
March 5, 2025
March 18, 2025
March 28, 2025
May 13, 2025
June 6, 2025
June 27, 2025
August 14, 2025
September 5, 2025
September 26, 2025
November 10, 2025
November 26, 2025
December 18, 2025
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 2026 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 year ended December 31, 2025 and 2024. For additional details, see the consolidated financial statements.
Years Ended December 31,
(in thousands)
Operating Activities
Net income
Income statement adjustments, net
Changes in assets and liabilities:
Accounts receivable
Income taxes
Inventories
Contract assets
Prepaid expenses and other long-term assets
Accounts payable
Contract liabilities
Extended warranties
Accrued liabilities & other long-term liabilities
Net cash provided by operating activities
Investing Activities
Capital expenditures
Acquisition of intangible assets
Proceeds from government incentive grant
Other
Net cash used in investing activities
Financing Activities
Proceeds from financing obligations, net of issuance costs
Payment related to financing costs
Borrowings of debt
Payments of debt
Stock options exercised
Repurchase of stock
Employee taxes paid by withholding shares
Cash dividends paid to stockholders
Net cash provided by financing activities
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. 2025 saw significant increases in accounts receivable in the back half of the year with customers that have longer terms than the typical 30 day AAON-branded terms. 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 year ended December 31, 2025, relate to additional infrastructure and machinery for both replacement and production growth, finalizing our new production space in our Redmond, Oregon and Longview, Texas locations, additional equipment and production capacity in Parkville, Missouri, and new equipment for our Memphis, Tennessee facility. We have also made investments to purchase or 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 2025 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.
During the year ended December 31, 2025, we repurchased $30.0 million under our open market share repurchase programs. Furthermore, cash flows from financing activities is historically affected by the timing of stock options exercised by our employees.
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 December 31, 2025, except as described below.
In 2023, the Company executed a five-year purchase commitment for refrigerants. In 2025 and 2024, the Company made payments of $ 5.6 million and $ 11.7 million on this contract, respectively. Estimated minimum future payments are $ 10.5 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 $ 27.4 million for 2025. We had no other material contractual purchase obligations as of December 31, 2025.
Contingencies
We are subject to various claims and legal actions that arise in the ordinary course of business. We closely monitor these claims and legal actions and frequently consult with our legal counsel to determine whether they may, when resolved, have a material adverse effect on our financial position, results of operations or cash flows and we accrue and/or discloseloss contingencies as appropriate. See Note 20 of the Consolidated Financial Statements for additional information with respect to specific legal proceedings.
Critical Accounting Estimates
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) and the Company’s discussion and analysis of its financial condition and operating results require management to make estimates and assumptions about future events, and apply judgments that affect the reported amounts of assets, liabilities, revenue, and expenses in our consolidated financial statements and related notes. We base our estimates, assumptions, and judgments on historical experience, current trends, and other factors believed to be relevant at the time our consolidated financial statements are prepared. However, because future events and their effects cannot be determined with certainty, actual results could differ from our estimates and assumptions, and such differences could be material. We believe the following critical accounting policies affect our more significant estimates, assumptions and judgments used in the preparation of our consolidated financial statements. We discuss these estimates with the Audit Committee of the Board of Directors periodically.
Revenue - Due to the highly customized nature of many of the Company’s products and each product not having an alternative use to the Company without incurring significant costs to the Company and the agreements containing an enforceable right to payment including a reasonable profit margin, the Company recognizes revenue over time as progress is made toward satisfying the performance obligations of each contract. The measurement and recognition of revenue requires us to make judgments and estimates, including the determination of whether we should recognize revenue as we perform or upon the completion of our performance obligation, as these determinations impact the timing and amount of our reported revenue. Costs used in estimating revenue can include direct materials, direct labor, installation, freight and delivery, commissions and royalties depending on the individual performance obligation. Other costs not related to the performance obligation, such as indirect labor and materials, small tools and supplies, operating expenses, field rework and back charges are charged to expense as incurred.
Inventor y - Raw material or component inventory typically transfers from one stage of manufacturing to another where it accumulates additional costs directly incurred with the production of finished goods, including estimated standard labor and overhead costs. Labor and overhead costs associated with the manufacturing of our products are capitalized into inventory on an estimated standard basis. These include certain direct and indirect costs such as compensation, manufacturing, and facility costs associated with manufacturing support functions. We continually monitor our labor and overhead standard costs to ensure that standard costs reasonably reflect our actual costs and make manual adjusts the value of inventory accordingly. Our manual adjustments from standard to actual labor and overhead costs contain uncertainties that require management to make assumptions and apply judgment regarding a number of factors, including inventory turns, supply usage, manufacturing efficiencies, and historical production costs.
Inventory Reserves – We establish a reserve for inventories based on the change in inventory requirements due to product line changes, the feasibility of using obsolete parts for upgraded part substitutions, the required parts needed for part supply sales and replacement parts, and for estimated shrinkage. Assumptions used to estimate inventory reserves include future manufacturing requirements and industry trends. Evolving technology and changes in product mix or customer demand can significantly affect the outcome of this analysis.
Warranty Accrual – A provision is made for estimated warranty costs at the time the product is shipped and revenue is recognized. Our product warranty policy is the earlier of one year from the date of first use or 18 months from the date of shipment for parts only; 18 months for data center cooling solutions and cleanroom systems; an additional four years for compressors; 15 years on aluminized steel gas-fired heat exchangers; 25 years on stainless steel heat exchangers; and ten years on gas-fired heat exchangers in our historical RL products. Our warranty policy for the RQ series covers parts for two years from the date of unit shipment. Our warranty policy for the WH and WV Series geothermal/water-source heat pumps covers parts for five years from the date of installation. Warranty expense is estimated based on the warranty period, historical warranty trends and associated costs, and any known identifiable warranty issue.
Due to the absence of warranty history on new products, an additional provision may be made for such products. Our estimated future warranty cost is subject to adjustment from time to time depending on changes in actual warranty trends and cost experience. Should actual claim rates differ from our estimates, revisions to the estimated product warranty liability would be required.
Share-Based Compensation – We measure and recognize compensation expense for all share-based payment awards made to our employees and directors, including stock options, restricted stock awards, performance stock units (“PSUs”), and key employee awards (“Key Employee Awards”) based on their fair values at the time of grant. Compensation expense is recognized on a straight-line basis over the service period of stock options, restricted stock awards, and PSUs. Compensation expense is recognized for the Key Employee Awards on a straight-line basis over the service period when the performance condition is determined to be probable. Forfeitures are accounted for as they occur. The fair value of each option award is estimated on the date of grant using the Black-Scholes-Merton option pricing model. The fair value of the PSUs is estimated on the date of grant using the Monte Carlo Model. The use of the Black-Scholes-Merton option valuation model and the Monte Carlo Model requires the input of subjective assumptions such as: the expected volatility, the expected term of the grant, forward-looking market conditions, risk-free rate, and expected dividend yield for stock options. The fair value of restricted stock awards and Key Employee Awards is based on the fair market value of AAON common stock on the respective grant dates. The fair value of restricted stock awards is reduced for the present value of dividends.
Goodwill and Indefinite-Lived Intangible Assets – Goodwill represents the excess of the consideration paid for the acquired businesses over the fair value of the individual assets acquired, net of liabilities assumed. Indefinite-lived intangible assets consist of trademarks and trade names.
Goodwill and indefinite-lived intangible assets are not amortized, but instead are evaluated for impairment at least annually. We perform our annual assessment of impairment during the fourth quarter of our fiscal year, and more frequently if circumstances warrant.
To perform this assessment, we first consider qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit and indefinite-lived intangible assets exceeds their carrying amount. If we conclude that it is more likely than not that the fair value of a reporting unit and indefinite-lived assets does not exceed their carrying amount, we calculate the fair value for the reporting unit and indefinite-lived assets and compare the amount to their carrying amount. If the fair value of a reporting unit and indefinite-lived asset exceeds their carrying amount, the reporting unit and indefinite-lived assets are not considered impaired. If the carrying amount of the reporting unit and indefinite-lived assets exceeds their fair value, the reporting unit and indefinite-lived assets are considered to be impaired and the balance is reduced by the difference between the fair value and carrying amount of the reporting unit and indefinite-lived assets.
We performed a qualitative assessment as of December 31, 2025, to determine whether it was more likely than not that the fair value of the reporting unit and indefinite-lived assets was greater than the carrying value of the reporting unit and indefinite-lived assets. Based on these qualitative assessments, we determined that the fair value of the reporting unit and indefinite-lived assets was more likely than not greater than the carrying value of the reporting unit and indefinite-lived assets.
Estimates and assumptions used to perform the impairment evaluation are inherently uncertain and can significantly affect the outcome of the analysis. The estimates and assumptions we use in the annual impairment assessment included macro-industry trends, market participant considerations, historical profitability, including free cash flows, and forecasted multi-year operating results. Changes in operating results and other assumptions could materially affect these estimates. A considerable amount of management judgment and assumptions are required in performing the impairment tests.
Recent Accounting Pronouncements
Changes to U.S. GAAP are established by the Financial Accounting Standards Board (“FASB”) in the form of accounting standards updates (“ASUs”) to the FASB’s Accounting Standards Codification.
We consider the applicability and impact of all ASUs. ASUs not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on our consolidated financial statements and notes thereto.
Newly Adopted Accounting Standards
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740). The new guidance is intended to enhance the transparency and decision usefulness of income tax disclosures. We adopted this standard in the fourth quarter of 2025. Upon adoption, this ASU did not have a material impact on the Company’s consolidated financial statements.
Recently Issued Accounting Standards
In November 2024, the FASB issued ASU No. 2024-03, Disaggregation of Income Statement Expenses (Subtopic 220-40). The new guidance requires the disaggregated disclosure of specific expense categories, including purchases of inventory, employee compensation, depreciation, and amortization, within relevant income statement captions. This ASU also requires disclosure of the total amount of selling expenses along with the definition of selling expenses. This ASU is effective for annual periods beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. Upon adoption, this ASU is not expected to have a material impact on the Company's financial statements and related disclosures.
In July 2025, the FASB issued ASU 2025‑05, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets. The new guidance provides a practical expedient that allows entities, when estimating expected credit losses on current accounts receivable and current contract assets, to assume that economic conditions as of the balance sheet date will not change over the remaining life of those assets. The amendments in this ASU are effective for annual reporting periods beginning after December 15, 2025, including interim periods within those annual periods, with early adoption permitted, and are required to be applied prospectively. Upon adoption, this ASU is not expected to have a material impact on the Company's financial statements and related disclosures.
In September 2025, the FASB issued ASU 2025‑06, Intangibles – Goodwill and Other – Internal‑Use Software (Subtopic 350‑40): Targeted Improvements to the Accounting for Internal‑Use Software. The new guidance modernizes and simplifies the accounting for internal‑use software, including eliminating the existing three‑stage (preliminary project, application development, and post‑implementation/operation) model, and introduces revised criteria for capitalization that better reflect current agile and iterative software development practices, including considerations for software with significant development uncertainty. The amendments in this ASU are effective for annual reporting periods beginning after December 15, 2026, including interim periods within those annual periods, with various transition alternatives and early adoption permitted. We are currently evaluating the impact of this ASU on the Company’s financial statements and related disclosures and do not expect it to have a material impact.
In December 2025, the FASB issued ASU 2025‑10, Government Grants (Topic 832): Accounting for Government Grants Received by Business Entities. The new guidance provides authoritative recognition, measurement, presentation, and disclosure requirements for government grants to business entities in the form of monetary assets or tangible nonmonetary assets, largely leveraging the recognition and measurement framework in IAS 20, and reduces diversity in practice that had arisen from analogies to other GAAP. For public business entities, the amendments in this ASU are effective for annual reporting periods beginning after December 15, 2028, including interim periods within those annual periods; for all other entities, the guidance is effective for annual periods beginning after December 15, 2029, including interim periods within those annual periods, with early adoption permitted. We are currently evaluating the impact of this ASU on the Company’s financial statements and related disclosures and do not expect it to have a material impact.
