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Revenue Recognition
 3 Months Ended
Mar. 31, 2023
Revenue from Contract with Customer [Abstract]  
Revenue Recognition Revenue Recognition
 
The following tables show disaggregated net sales by reportable segment (Note 19) by major source, net of intercompany sales eliminations.

Three Months Ended March 31, 2023
AAON OklahomaAAON Coil ProductsBASXTotal
(in thousands)
Rooftop Units$180,026 $— $— $180,026 
Condensing Units— 15,278 — 15,278 
Air Handlers— 12,221 3,038 15,259 
Outdoor Mechanical Rooms208 151 — 359 
Cleanroom Systems— — 12,622 12,622 
Data Center Cooling Solutions— 1,446 14,476 15,922 
Water-Source Heat Pumps2,730 3,080 — 5,810 
Part Sales13,904 1 248 14,153 
Other1
5,134 1,235 155 6,524 
$202,002 $33,412 $30,539 $265,953 
Three Months Ended March 31, 2022
AAON OklahomaAAON Coil ProductsBASXTotal
(in thousands)
Rooftop Units$121,706 $— $— $121,706 
Condensing Units242 8,976 — 9,218 
Air Handlers— 9,438 1,339 10,777 
Outdoor Mechanical Rooms554 110 — 664 
Cleanroom Systems— — 8,039 8,039 
Data Center Cooling Solutions— — 10,868 10,868 
Water-Source Heat Pumps2,986 2,353 — 5,339 
Part Sales10,216 — — 10,216 
Other1
4,163 1,058 723 5,944 
$139,867 $21,935 $20,969 $182,771 
1 Other sales include freight, extended warranties and miscellaneous 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 significant costs to the Company, the Company recognizes revenue over time as progress is made toward satisfying the performance obligations of each contract. The Company has formal cancellation policies and generally does not accept returns on these units. As a result, many of the Company’s products do not have an alternative use and therefore, for these products we recognize revenue over the time it takes to produce the unit.

Contract costs include direct materials, direct labor, installation, freight and delivery, commissions and royalties. Other costs not related to contract performance, such as indirect labor and materials, small tools and supplies, operating expenses, field rework and back charges are charged to expense as incurred. Provisions for estimated losses on contracts in progress are made in the period in which such losses are determined. Changes in job performance, job conditions, and estimated profitability, including those arising from contract penalty provisions and final contract settlements, may result in revisions to costs and income, and are estimated and recognized by the Company throughout the life of the contract. The aggregate of costs incurred and income recognized on uncompleted contracts in excess of billings is shown as a contract asset within our consolidated
balance sheets, and the aggregate of billings on uncompleted contracts in excess of related costs incurred and income recognized is shown as a contract liability within our consolidated balance sheets.

For all other products that are part sales or standardized units, the Company recognizes revenue, presented net of sales tax, when it satisfies the performance obligation in its contracts. As the primary performance obligation in such a contract is delivery of the requested manufactured equipment, we satisfy the performance obligation when the control is passed to the customer, generally at time of shipment. Final sales prices are fixed based on purchase orders.

Sales allowances and customer incentives are treated as reductions to sales and are provided for based on historical experiences and current estimates.

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 increases in demand of our product and increases in our backlog, sales have become more constant throughout the year.

Product Warranties

A provision is made for the estimated cost of maintaining product warranties to customers at the time the product is sold based upon historical claims experience by product line. The Company records a liability and an expense for estimated future warranty claims based upon historical experience and management’s estimate of the level of future claims. Changes in the estimated amounts recognized in prior years are recorded as an adjustment to the liability and expense in the current year.

The Company also sells extended warranties on parts for various lengths of time ranging from six months to 10 years. Revenue for these separately priced warranties is deferred and recognized on a straight-line basis over the separately priced warranty period.

Representatives and Third Party Products

We are responsible for billings and collections resulting from all sales transactions, including those initiated by our independent manufacturer representatives (“Representatives”). Representatives are national companies that are in the business of providing HVAC units and other related products and services to customers. The end user customer orders a bundled group of products and services from the Representative and expects the Representative to fulfill the order. These additional products and services may include controls purchased from another manufacturer to operate the unit, start-up services, and curbs for supporting the unit (“Third Party Products”). All are associated with the purchase of a HVAC unit but may be provided by the Representative or another third party. Only after the specifications are agreed to by the Representative and the customer, and the decision is made to use an AAON HVAC unit, will we receive notice of the order. We establish the amount we must receive for our HVAC unit (“minimum sales price”), but do not control the total order price that is negotiated by the Representative with the end user customer. The Representatives submit the total order price to us for invoicing and collection. The total order price includes our minimum sales price and an additional amount which may include both the Representatives’ fee and amounts due for additional products and services required by the customer. The Company is considered the principal for the equipment we design and manufacture and records that revenue. The Company has no control over the Third Party Products to the end customer and the Company is under no obligation related to the Third Party Products. Amounts related to Third Party Products are not recognized as revenue but are recorded as a liability and are included in accrued liabilities on the consolidated balance sheets.

The Representatives’ fee and Third Party Products amounts (“Due to Representatives”) are paid only after all amounts associated with the order are collected from the customer. The amount of payments to our Representatives were $13.3 million and $6.5 million for the three months ended March 31, 2023 and 2022, respectively.