EX-99.1 2 aaonq32022pressreleaseexs.htm EX-99.1 Document

Exhibit 99.1                        
aaona05a.jpg

AAON REPORTS RECORD SALES, EARNINGS & BACKLOG
FOR THE THIRD QUARTER OF 2022

TULSA, OK, November 7, 2022 - 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,		%
20222021Change20222021Change
(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 profit65,591 36,019 82.1 %$159,031 $111,283 42.9 %
Gross profit margin27.0 %26.0 %25.1 %27.9 %
Operating income$36,700 $20,137 82.3 %$80,163 $63,810 25.6 %
Operating margin15.1 %14.5 %12.6 %16.0 %
Net income27,473 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 shares53,958,71553,546,5130.8 %53,921,86553,664,9970.5 %
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.


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Backlog

September 30, 2022June 30, 2022December 31, 2021September 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
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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

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AAON, Inc. and Subsidiaries
Consolidated Statements of Income
(Unaudited)
 Three Months Ended 
 September 30,		Nine Months Ended 
 September 30,
 2022202120222021
(in thousands, except share and per share data)
Net sales$242,605 $138,571 $634,190 $398,235 
Cost of sales177,014 102,552 475,159 286,952 
Gross profit65,591 36,019 159,031 111,283 
Selling, general and administrative expenses28,891 15,897 78,880 47,488 
Gain on disposal of assets— (15)(12)(15)
Income from operations36,700 20,137 80,163 63,810 
Interest expense, net(954)(10)(1,694)(11)
Other income (expense), net54 (19)295 37 
Income before taxes35,800 20,108 78,764 63,836 
Income tax provision8,327 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:  
Basic53,185,324 52,420,711 53,029,284 52,392,300 
Diluted53,958,715 53,546,513 53,921,865 53,664,997 



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AAON, Inc. and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
 September 30, 2022December 31, 2021
Assets(in thousands, except share and per share data)
Current assets:  
Cash and cash equivalents$10,738 $2,859 
Restricted cash530 628 
Accounts receivable, net of allowance for credit losses of $682 and $549, respectively
134,073 70,780 
Income tax receivable1,941 5,723 
Inventories, net176,888 130,270 
Contract assets9,592 5,749 
Prepaid expenses and other2,302 2,071 
Total current assets336,064 218,080 
Property, plant and equipment:  
Land8,537 5,016 
Buildings166,193 135,861 
Machinery and equipment336,123 318,259 
Furniture and fixtures27,814 23,072 
Total property, plant and equipment538,667 482,208 
Less:  Accumulated depreciation242,213 224,146 
Property, plant and equipment, net296,454 258,062 
Intangible assets, net65,507 70,121 
Goodwill81,892 85,727 
Right of use assets1,684 16,974 
Other long-term assets4,242 1,216 
Total assets$785,843 $650,180 
Liabilities and Stockholders' Equity  
Current liabilities:  
Accounts payable$48,613 $29,020 
Accrued liabilities61,780 50,206 
Contract liabilities31,791 7,542 
Total current liabilities142,184 86,768 
Revolving credit facility, long-term76,291 40,000 
Deferred tax liabilities31,430 31,993 
Other long-term liabilities5,642 18,843 
New market tax credit obligation6,438 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 capital87,949 81,654 
Retained earnings435,696 384,306 
Total stockholders' equity523,858 466,170 
Total liabilities and stockholders' equity$785,843 $650,180 
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AAON, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
 Nine Months Ended 
 September 30,
 20222021
Operating Activities(in thousands)
Net income$61,478 $52,572 
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation and amortization25,624 22,532 
Amortization of debt issuance cost32 31 
Amortization of right of use assets191 — 
Provision for credit losses on accounts receivable, net of adjustments300 — 
Provision for excess and obsolete inventories1,380 378 
Share-based compensation10,229 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 receivable3,782 2,588 
Inventories(47,998)(22,712)
Contract assets(3,843)— 
Prepaid expenses and other long-term assets(70)937 
Accounts payable18,616 16,390 
Contract liabilities24,249 — 
Deferred revenue730 316 
Accrued liabilities and other long-term liabilities12,857 1,525 
Net cash provided by operating activities43,414 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 equipment12 19 
Principal payments from note receivable41 41 
Net cash used in investing activities(63,782)(42,576)
Financing Activities  
Borrowings under revolving credit facility151,103 — 
Payments under revolving credit facility(114,812)— 
Principal payments on financing lease(115)— 
Stock options exercised10,990 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 activities28,149 (11,942)
Net increase in cash, cash equivalents and restricted cash7,781 20,185 
Cash, cash equivalents and restricted cash, beginning of period3,487 82,288 
Cash, cash equivalents and restricted cash, end of period$11,268 $102,473 
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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,
2022202120222021
(in thousands)
Net income, a GAAP measure$27,473 $15,581 $61,478 $52,572 
Depreciation and amortization9,324 7,608 25,624 22,532 
Interest expense, net954 10 1,694 11 
Income tax expense8,327 4,527 17,286 11,264 
EBITDA, a non-GAAP measure$46,078 $27,726 $106,082 $86,379 
EBITDA margin19.0 %20.0 %16.7 %21.7 %
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