• AAON Reports Record Sales, Earnings & Backlog for the Third Quarter of 2022

    Source: Nasdaq GlobeNewswire / 07 Nov 2022 15:01:01   America/Chicago

    TULSA, Okla., Nov. 07, 2022 (GLOBE NEWSWIRE) -- AAON, INC. (NASDAQ-AAON), a provider of premier, configurable HVAC solutions that bring long-term value to customers and owners, today announced its results for the third quarter of 2022.

    Net sales for the third quarter of 2022 increased 75.1% to a record $242.6 million from $138.6 million in the third quarter of 2021. Organic volume growth and product mix contributed approximately 26.9% to year over year growth. Volume growth reflected the Company's strong backlog and a third straight quarter of record production. In addition to volume, pricing contributed 24.4% of growth and the acquisition of BasX contributed 23.8% of growth. Similar to the legacy business, BasX performed extremely well in the quarter. BasX realized record sales and EBITDA, while increasing its backlog 33.8% compared to the end of the second quarter of 2022.

    Gross profit margin in the quarter increased to 27.0%, the highest level since the second quarter of 2021. Higher pricing and improved productivity offset increased costs and the adverse effects of supply chain issues. Similar to the trend realized within the second quarter of 2022, gross profit margin improved sequentially throughout the third quarter.

    Earnings per diluted share in the third quarter of 2022 increased 75.9% to a record $0.51 from $0.29 in the third quarter of 2021. The increase in earnings was primarily due to robust volume growth and improved gross profit margin. Furthermore, as a percent of sales, SG&A expenses, excluding BasX, were down 80 basis points from a year ago to 10.7%, the lowest level of any quarter in over two years.

    Financial Highlights:Three Months Ended 
     September 30,
     %   Nine Months Ended 
     September 30,
     %
      2022   2021  Change    2022   2021  Change
     (in thousands, except share and per share data)   (in thousands, except share and per share data)
    GAAP Measures             
    Net sales$242,605  $138,571  75.1%   $634,190  $398,235  59.3%
    Gross profit 65,591   36,019  82.1%   $159,031  $111,283  42.9%
    Gross profit margin 27.0%  26.0%      25.1%  27.9%  
    Operating income$36,700  $20,137  82.3%   $80,163  $63,810  25.6%
    Operating margin 15.1%  14.5%      12.6%  16.0%  
    Net income 27,473   15,581  76.3%   $61,478  $52,572  16.9%
    Earnings per diluted share$0.51  $0.29  75.9%   $1.14  $0.98  16.3%
    Diluted average shares 53,958,715   53,546,513  0.8%    53,921,865   53,664,997  0.5%
                  
    Non-GAAP Measures             
    EBITDA1$46,078  $27,726  66.2%   $106,082  $86,379  22.8%
    EBITDA margin1 19.0%  20.0%      16.7%  21.7%  
    1These are non-GAAP measures. See "Use of Non-GAAP Financial Measures" below for reconciliation to GAAP measures.

    Backlog

    September 30, 2022 June 30, 2022 December 31, 2021 September 30, 2021
    (in thousands)
    $514,735 $464,025 $260,164 $181,813

    The Company finished the third quarter of 2022 with a record backlog of $514.7 million, up 183.1% from $181.8 million a year ago, and up 10.9% from $464.0 million at the end of the second quarter of 2022. Excluding BasX's backlog, organic backlog was up 109.6% from the prior year quarter.

    Gary Fields, President and CEO, stated, “Our performance in the third quarter was excellent. I was particularly pleased to see a material improvement in gross profit margin as a result of our pricing strategy gaining traction.   Furthermore, despite supply chain issues persisting, productivity improved throughout the quarter, a reflection of how well our operations are performing. Better productivity, along with an increase in headcount, helped us realize a third straight quarter of record production. Meanwhile, we continue to grow our backlog. Bookings in the quarter were solid. Total bookings increased 36.7% compared to the second quarter of 2022, almost all of which was driven by volume, with a small amount related to pricing.”

    Mr. Fields continued, “BasX continues to build momentum. In the third quarter, the business realized record revenue and EBITDA. Backlog at BasX at the end of the quarter also finished at a record level, up 33.8% from the end of the second quarter. New bookings in the quarter were by far a record for the business as it benefited from a strong pipeline of projects in the data center and semiconductor markets. Revenue synergies related to the acquisition are being realized and we are making progress integrating BasX production into our Longview facility. We are also starting to recognize cost synergies, which should accelerate over the next 12 months. Overall, we continue to be excited about the growth opportunities that BasX is bringing to AAON."

    Mr. Fields continued, "In the third quarter, we made the decision to terminate our WH and WV series portion of the water-source heat pump business. After careful analysis, we determined this type of product does not allow us to meet our profit margin targets. Additionally, upcoming new refrigerant regulations would require a capital infusion that we determined would not be the best use of capital. This product line generated approximately $10.0 million of revenue in 2021 and was on track for a similar level in 2022. We plan to accept orders through the rest of 2022, at which time we will stop accepting new orders and will work on building the rest of the WH/WV backlog before repurposing personnel and equipment."

    Mr. Fields concluded, “As we approach the end of the year, we remain positive on the business. Production rates and productivity levels continue to increase, the margin profile of the backlog is the best that it has been all year, which suggests gross margin will continue to improve, and order trends remain positive. We are confident that we will finish the year on a high note in the fourth quarter.”

    As of September 30, 2022, the Company had cash and cash equivalents of $10.7 million and total debt of $76.3 million. Rebecca Thompson, CFO, commented, “In the third quarter, we generated $43.4 million of cash flows from operations, the strongest quarter in at least five years. Within the quarter, we paid down $30.0 million on our line of credit. Our balance sheet remains strong. At the end of the third quarter, our leverage ratio decreased to 0.65, from 1.06 at the end of the second quarter. In the fourth quarter, we anticipate another solid quarter of cash flows from operations, allowing us to continue to reduce our borrowings under the line of credit while making necessary capital investments for long-term growth.”

    Conference Call
    The Company will host a conference call and webcast today at 5:15 P.M. ET to discuss the third quarter 2022 results and outlook. The conference call will be accessible via a dial-in for those who wish to participate in Q&A as well as a listen-only webcast. The dial-in is 1-888-440-3307 for domestic callers or 1-646-960-0787 for international callers, both accessible with the conference ID 7249161. To access the listen-only webcast, please register at https://events.q4inc.com/attendee/219209225.

    About AAON
    Founded in 1988, AAON is a world leader in HVAC solutions for commercial and industrial indoor environments. The Company's industry-leading approach to designing and manufacturing highly configurable equipment to meet exact needs creates a premier ownership experience with greater efficiency, performance and long-term value. AAON is headquartered in Tulsa, Oklahoma, where its world-class innovation center and testing lab allows AAON engineers to continuously push boundaries and advance the industry. For more information, please visit www.AAON.com.

    Forward-Looking Statements
    Certain statements in this news release may be “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933. Statements regarding future prospects and developments are based upon current expectations and involve certain risks and uncertainties that could cause actual results and developments to differ materially from the forward-looking statements.

    Contact Information
    Joseph Mondillo
    Director of Investor Relations
    Phone: (617) 877-6346
    Email: joseph.mondillo@aaon.com

    AAON, Inc. and Subsidiaries
    Consolidated Statements of Income
    (Unaudited)
     Three Months Ended 
     September 30,
     Nine Months Ended 
     September 30,
      2022   2021   2022   2021 
     (in thousands, except share and per share data)
    Net sales$242,605  $138,571  $634,190  $398,235 
    Cost of sales 177,014   102,552   475,159   286,952 
    Gross profit 65,591   36,019   159,031   111,283 
    Selling, general and administrative expenses 28,891   15,897   78,880   47,488 
    Gain on disposal of assets    (15)  (12)  (15)
    Income from operations 36,700   20,137   80,163   63,810 
    Interest expense, net (954)  (10)  (1,694)  (11)
    Other income (expense), net 54   (19)  295   37 
    Income before taxes 35,800   20,108   78,764   63,836 
    Income tax provision 8,327   4,527   17,286   11,264 
    Net income$27,473  $15,581  $61,478  $52,572 
    Earnings per share:       
    Basic$0.52  $0.30  $1.16  $1.00 
    Diluted$0.51  $0.29  $1.14  $0.98 
    Cash dividends declared per common share:$  $  $0.19  $0.19 
    Weighted average shares outstanding:       
    Basic 53,185,324   52,420,711   53,029,284   52,392,300 
    Diluted 53,958,715   53,546,513   53,921,865   53,664,997 


    AAON, Inc. and Subsidiaries
    Consolidated Balance Sheets
    (Unaudited)
     September 30, 2022 December 31, 2021
    Assets(in thousands, except share and per share data)
    Current assets:   
    Cash and cash equivalents$10,738  $2,859
    Restricted cash 530   628
    Accounts receivable, net of allowance for credit losses of $682 and $549, respectively 134,073   70,780
    Income tax receivable 1,941   5,723
    Inventories, net 176,888   130,270
    Contract assets 9,592   5,749
    Prepaid expenses and other 2,302   2,071
    Total current assets 336,064   218,080
    Property, plant and equipment:   
    Land 8,537   5,016
    Buildings 166,193   135,861
    Machinery and equipment 336,123   318,259
    Furniture and fixtures 27,814   23,072
    Total property, plant and equipment 538,667   482,208
    Less:  Accumulated depreciation 242,213   224,146
    Property, plant and equipment, net 296,454   258,062
    Intangible assets, net 65,507   70,121
    Goodwill 81,892   85,727
    Right of use assets 1,684   16,974
    Other long-term assets 4,242   1,216
    Total assets$785,843  $650,180
        
    Liabilities and Stockholders' Equity   
    Current liabilities:   
    Accounts payable$48,613  $29,020
    Accrued liabilities 61,780   50,206
    Contract liabilities 31,791   7,542
    Total current liabilities 142,184   86,768
    Revolving credit facility, long-term 76,291   40,000
    Deferred tax liabilities 31,430   31,993
    Other long-term liabilities 5,642   18,843
    New market tax credit obligation 6,438   6,406
    Commitments and contingencies   
    Stockholders' equity:   
    Preferred stock, $.001 par value, 5,000,000 shares authorized, no shares issued    
    Common stock, $.004 par value, 100,000,000 shares authorized, 53,214,971 and 52,527,985 issued and outstanding at September 30, 2022 and December 31, 2021, respectively 213   210
    Additional paid-in capital 87,949   81,654
    Retained earnings 435,696   384,306
    Total stockholders' equity 523,858   466,170
    Total liabilities and stockholders' equity$785,843  $650,180


    AAON, Inc. and Subsidiaries
    Consolidated Statements of Cash Flows
    (Unaudited)
     Nine Months Ended 
     September 30,
      2022  2021 
    Operating Activities(in thousands)
    Net income$61,478 $52,572 
    Adjustments to reconcile net income to net cash provided by operating activities:  
    Depreciation and amortization 25,624  22,532 
    Amortization of debt issuance cost 32  31 
    Amortization of right of use assets 191   
    Provision for credit losses on accounts receivable, net of adjustments 300   
    Provision for excess and obsolete inventories 1,380  378 
    Share-based compensation 10,229  8,784 
    Gain on disposition of assets (12) (15)
    Foreign currency transaction loss (gain) 42  (1)
    Interest income on note receivable (17) (19)
    Deferred income taxes (563) 2,766 
    Changes in assets and liabilities:  
    Accounts receivable (63,593) (11,369)
    Income tax receivable 3,782  2,588 
    Inventories (47,998) (22,712)
    Contract assets (3,843)  
    Prepaid expenses and other long-term assets (70) 937 
    Accounts payable 18,616  16,390 
    Contract liabilities 24,249   
    Deferred revenue 730  316 
    Accrued liabilities and other long-term liabilities 12,857  1,525 
    Net cash provided by operating activities 43,414  74,703 
    Investing Activities  
    Capital expenditures (41,586) (42,636)
    Cash paid for building (22,000)  
    Cash paid in business combination, net of cash acquired (249)  
    Proceeds from sale of property, plant and equipment 12  19 
    Principal payments from note receivable 41  41 
    Net cash used in investing activities (63,782) (42,576)
    Financing Activities  
    Borrowings under revolving credit facility 151,103   
    Payments under revolving credit facility (114,812)  
    Principal payments on financing lease (115)  
    Stock options exercised 10,990  14,573 
    Repurchase of stock (7,943) (15,014)
    Employee taxes paid by withholding shares (978) (1,537)
    Cash dividends paid to stockholders (10,096) (9,964)
    Net cash provided by (used in) financing activities 28,149  (11,942)
    Net increase in cash, cash equivalents and restricted cash 7,781  20,185 
    Cash, cash equivalents and restricted cash, beginning of period 3,487  82,288 
    Cash, cash equivalents and restricted cash, end of period$11,268 $102,473 

    Use of Non-GAAP Financial Measures

    To supplement the Company’s consolidated financial statements presented in accordance with generally accepted accounting principles (“GAAP”), additional non-GAAP financial measures are provided and reconciled in the following tables. The Company believes that these non-GAAP financial measures, when considered together with the GAAP financial measures, provide information that is useful to investors in understanding period-over-period operating results. The Company believes that this non-GAAP financial measure enhances the ability of investors to analyze the Company’s business trends and operating performance as they are used by management to better understand operating performance. Since EBITDA and EBITDA margin are non-GAAP measures and are susceptible to varying calculations, EBITDA and EBITDA margin, as presented, may not be directly comparable with other similarly titled measures used by other companies.

    EBITDA

    EBITDA (as defined below) is presented herein and reconciled from the GAAP measure of net income because of its wide acceptance by the investment community as a financial indicator of a company's ability to internally fund operations. The Company defines EBITDA as net income, plus (1) depreciation and amortization, (2) interest expense (income), net and (3) income tax expense. EBITDA is not a measure of net income or cash flows as determined by GAAP. EBITDA margin is defined as EBITDA as a percentage of net sales.

    The Company’s EBITDA measure provides additional information which may be used to better understand the Company’s operations. EBITDA is one of several metrics that the Company uses as a supplemental financial measurement in the evaluation of its business and should not be considered as an alternative to, or more meaningful than, net income, as an indicator of operating performance. Certain items excluded from EBITDA are significant components in understanding and assessing a company's financial performance. EBITDA, as used by the Company, may not be comparable to similarly titled measures reported by other companies. The Company believes that EBITDA is a widely followed measure of operating performance and is one of many metrics used by the Company’s management team and by other users of the Company’s consolidated financial statements.

    The following table provides a reconciliation of net income (GAAP) to EBITDA (non-GAAP) and for the periods indicated:

     Three Months Ended 
     September 30,
     Nine Months Ended 
     September 30,
      2022   2021   2022   2021 
     (in thousands)
    Net income, a GAAP measure$27,473  $15,581  $61,478  $52,572 
    Depreciation and amortization 9,324   7,608   25,624   22,532 
    Interest expense, net 954   10   1,694   11 
    Income tax expense 8,327   4,527   17,286   11,264 
    EBITDA, a non-GAAP measure$46,078  $27,726  $106,082  $86,379 
    EBITDA margin 19.0%  20.0%  16.7%  21.7%

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