TULSA, OK, August 3, 2023 - 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 second quarter of 2023.
Net sales for the second quarter of 2023 increased 36.0% to a record $284.0 million from $208.8 million in the second quarter of 2022. Organic volume growth contributed approximately 16.0% to year over year growth. Volume growth reflects the efficiencies gained from developing our workforce and lessening impacts of supply chain disruption. Additionally, pricing comprised 20.0% of growth.
Gross profit margin in the quarter increased to 33.1%, up 1,040 basis points from the comparable quarter in 2022. The primary driver for the higher profit margin was better pricing along with moderating cost inflation.
As a percent of sales, SG&A expenses increased 90 basis points to 13.8%. The slight increase in SG&A expenses as a percent of sales is primarily due to our profit sharing expense that has increased due to our record earnings in the quarter. Earnings per diluted share for the three months ended June 30, 2023, was $0.82, an increase of 173.3% from the second quarter of 2022. The Company recognized a one-time income tax benefit of $3.1 million from the change in our valuation allowance during the current quarter that contributed to the increase to net income for the period.
Financial Highlights:
Three Months Ended June 30,
%
Six Months Ended June 30,
%
2023
2022
Change
2023
2022
Change
(in thousands, except share and per share data)
(in thousands, except share and per share data)
GAAP Measures
Net sales
$
283,957
$
208,814
36.0
%
$
549,910
$
391,585
40.4
%
Gross profit
$
94,018
$
47,376
98.5
%
$
171,172
$
93,440
83.2
%
Gross profit margin
33.1
%
22.7
%
31.1
%
23.9
%
Operating income
$
54,740
$
20,453
167.6
%
$
98,946
$
43,463
127.7
%
Operating margin
19.3
%
9.8
%
18.0
%
11.1
%
Net income
$
45,682
$
15,946
186.5
%
$
82,496
$
34,005
142.6
%
Earnings per diluted share
$
0.82
$
0.30
173.3
%
$
1.48
$
0.63
134.9
%
Diluted average shares
55,646,387
53,661,876
3.7
%
55,652,332
53,944,616
3.2
%
Non-GAAP Measures
EBITDA1
$
65,865
$
29,897
120.3
%
$
120,459
$
60,004
100.8
%
EBITDA margin1
23.2
%
14.3
%
21.9
%
15.3
%
1 These are non-GAAP measures. See "Use of Non-GAAP Financial Measures" below for reconciliation to GAAP measures.
1
Backlog
June 30, 2023
March 31, 2023
June 30, 2022
(in thousands)
$
526,209
$
599,912
$
464,025
The Company finished the second quarter of 2023 with a backlog of $526.2 million, up 13.4% from $464.0 million a year ago, and down from $599.9 million at the end of the first quarter of 2023.
Gary Fields, President and CEO, stated, “After investing in significant amounts of new manufacturing capacity over the previous two years, production output began to outpace bookings in the second quarter, allowing for the size of our backlog and the length of our lead times to start to normalize. At June 30, 2023, backlog was down 12.3% from the end of the first quarter, ending a streak of nine straight quarters of backlog growth. While the backlog size and lead times are still higher than we would like them to be, we are pleased at the progress we are making and anticipate further progress in the second half of the year. This will enable us to be even more competitive with bookings as well as help improve operational efficiencies. In the quarter, we held the grand opening of our new marketing building, in Tulsa, also known as the Exploration Center. This facility will also help further our efforts of taking market share. Overall, while there are pockets of softness amongst some of our end-markets, the pipeline of projects is solid and our sales channel remains positive.”
Mr. Fields continued, “Our sales channel has never been stronger and our new marketing efforts will help continue to strengthen market penetration. In the third quarter of this year, we anticipate the sales and marketing roll out of our industry-leading class of air-source heat pumps, appropriately referred to as ALPHA Class. The AAON ALPHA Class was engineered to help accelerate the widespread adoption of cleaner, more-efficient heat pump technology – and will continue to set the standard for high-performance air-source heat pumps in the commercial and industrial HVAC industry.”
Mr. Fields concluded, “The second quarter of 2023 was another excellent quarter for AAON as both sales and earnings were company records. Volume growth of 16.0% was impressive considering the year ago comparable quarter also realized volume growth in the double digits. As we've discussed for some time now, AAON has been very successful in hiring and retaining employees. We've added the additional employees needed to increase our run rate and as more time goes by, we anticipate continued margin improvement created from a fully trained, more experienced workforce as well as better overhead absorption from additional production volume.”
As of June 30, 2023, the Company had cash, cash equivalents and restricted cash of $27.7 million and a balance of $78.5 million on the revolving credit facility. Rebecca Thompson, CFO, commented, “Higher earnings and collection of customer prepayments increased our cash provided by operating activities in the quarter to $55.1 million compared to $5.2 million in the second quarter of 2022. The closing of our New Markets Tax Credit during the quarter generated cash of $6.1 million and we expect to release funds from restricted cash in the fourth quarter, which will accelerate the payments on our revolving credit facility. Capital expenditures in the quarter were $31.7 million due to our continuous investment at all locations. Our balance sheet remains strong with a current ratio of 2.8 and a leverage ratio of 0.37, creating a strong foundation for our future growth.”
Conference Call
The Company will host a conference call and webcast today at 5:15 P.M. ET to discuss the second quarter 2023 results and outlook. The conference call will be accessible via dial-in for those who wish to participate in Q&A as well as a listen-only webcast. The dial-in is accessible at 1-877-550-1858 with the conference ID 1754341. To access the listen-only webcast, please register at https://app.webinar.net/q12AjXYVoQ8. On the next business day following the call, a replay of the call will be available on the Company’s website at https://AAON.com/Investors.
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.
2
Forward-Looking Statements
This press release includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “expects”, “anticipates”, “intends”, “plans”, “believes”, “seeks”, “estimates”, “should”, “will”, and variations of such words and 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. 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. We undertake no obligations to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Important factors that could cause results to differ materially from those in the forward-looking statements include (1) the timing and extent of changes in raw material and component prices, (2) the effects of fluctuations in the commercial/industrial new construction market, (3) the timing and extent of changes in interest rates, as well as other competitive factors during the year, and (4) general economic, market or business conditions.
Contact Information
Joseph Mondillo
Director of Investor Relations
Phone: (617) 877-6346
Email: joseph.mondillo@aaon.com
3
AAON, Inc. and Subsidiaries
Consolidated Statements of Income
(Unaudited)
Three Months Ended June 30,
Six Months Ended June 30,
2023
2022
2023
2022
(in thousands, except share and per share data)
Net sales
$
283,957
$
208,814
$
549,910
$
391,585
Cost of sales
189,939
161,438
378,738
298,145
Gross profit
94,018
47,376
171,172
93,440
Selling, general and administrative expenses
39,272
26,933
72,214
49,989
Loss (gain) on disposal of assets
6
(10)
12
(12)
Income from operations
54,740
20,453
98,946
43,463
Interest expense, net
(1,543)
(550)
(2,693)
(740)
Other income, net
163
220
277
241
Income before taxes
53,360
20,123
96,530
42,964
Income tax provision
7,678
4,177
14,034
8,959
Net income
$
45,682
$
15,946
$
82,496
$
34,005
Earnings per share:
Basic
$
0.84
$
0.30
$
1.52
$
0.64
Diluted
$
0.82
$
0.30
$
1.48
$
0.63
Cash dividends declared per common share:
$
0.12
$
0.19
$
0.24
$
0.19
Weighted average shares outstanding:
Basic
54,293,127
53,095,286
54,175,682
52,992,439
Diluted
55,646,387
53,661,876
55,652,332
53,944,616
4
AAON, Inc. and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
June 30, 2023
December 31, 2022
Assets
(in thousands, except share and per share data)
Current assets:
Cash and cash equivalents
$
5,237
$
5,451
Restricted cash
22,428
498
Accounts receivable, net of allowance for credit losses of $306 and $477, respectively
154,111
127,158
Income tax receivable
2,699
—
Inventories, net
215,408
198,939
Contract assets
19,862
15,151
Prepaid expenses and other
4,466
1,919
Total current assets
424,211
349,116
Property, plant and equipment:
Land
15,291
8,537
Buildings
187,237
169,156
Machinery and equipment
370,414
342,045
Furniture and fixtures
38,344
30,033
Total property, plant and equipment
611,286
549,771
Less: Accumulated depreciation
263,890
245,026
Property, plant and equipment, net
347,396
304,745
Intangible assets, net
62,803
64,606
Goodwill
81,892
81,892
Right of use assets
7,378
7,123
Other long-term assets
6,371
6,421
Total assets
$
930,051
$
813,903
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable
$
32,210
$
45,513
Accrued liabilities
101,201
78,630
Contract liabilities
20,262
21,424
Total current liabilities
153,673
145,567
Revolving credit facility, long-term
78,536
71,004
Deferred tax liabilities
14,223
18,661
Other long-term liabilities
11,364
11,508
New market tax credit obligation
12,144
6,449
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, 54,379,324 and 53,425,184 issued and outstanding at June 30, 2023 and December 31, 2022, respectively
218
214
Additional paid-in capital
128,636
98,735
Retained earnings
531,257
461,765
Total stockholders' equity
660,111
560,714
Total liabilities and stockholders' equity
$
930,051
$
813,903
5
AAON, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended June 30,
2023
2022
Operating Activities
(in thousands)
Net income
$
82,496
$
34,005
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
21,236
16,300
Amortization of debt issuance cost
32
21
Amortization of right of use assets
67
143
(Recoveries of) provision for credit losses on accounts receivable, net of adjustments
(171)
181
Provision for excess and obsolete inventories, net of write-offs
1,458
148
Share-based compensation
7,823
6,908
Loss (gain) on disposition of assets
12
(12)
Foreign currency transaction (gain) loss
(13)
9
Interest income on note receivable
(10)
(11)
Deferred income taxes
(4,438)
(127)
Changes in assets and liabilities:
Accounts receivable
(26,782)
(53,736)
Income tax receivable
(15,171)
(1,895)
Inventories
(17,927)
(33,879)
Contract assets
(4,711)
(2,820)
Prepaid expenses and other long-term assets
(2,502)
(3,066)
Accounts payable
(14,874)
6,490
Contract liabilities
(1,162)
22,217
Extended warranties
1,526
421
Accrued liabilities and other long-term liabilities
33,051
7,123
Net cash provided by (used in) operating activities
59,940
(1,580)
Investing Activities
Capital expenditures
(60,629)
(27,227)
Cash paid for building
—
(22,000)
Cash paid in business combination, net of cash acquired
—
(249)
Proceeds from sale of property, plant and equipment
104
12
Principal payments from note receivable
28
27
Net cash used in investing activities
(60,497)
(49,437)
Financing Activities
Proceeds from financing obligation, net of issuance costs
6,061
—
Payment related to financing costs
(398)
—
Borrowings under revolving credit facility
279,961
94,900
Payments under revolving credit facility
(272,429)
(28,651)
Principal payments on financing lease
—
(28)
Stock options exercised
23,244
6,385
Repurchase of stock
—
(5,912)
Employee taxes paid by withholding shares
(1,162)
(954)
Cash dividends paid to stockholders
(13,004)
—
Net cash provided by financing activities
22,273
65,740
Net increase in cash, cash equivalents and restricted cash
21,716
14,723
Cash, cash equivalents and restricted cash, beginning of period
5,949
3,487
Cash, cash equivalents and restricted cash, end of period
$
27,665
$
18,210
6
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:
