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

TULSA, Okla., Aug. 08, 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 second quarter of 2022.

Net sales for the second quarter of 2022 increased 45.1% to $208.8 million from $143.9 million in the second quarter of 2021. The additional sales from BasX of $24.6 million is the largest contributing factor to our year over year growth. Revenue synergies from this acquisition have materialized faster than expected. Subsequent to quarter end, we have already received an order for $16.2 million of BasX equipment that we plan to build in our Longview, TX facility in order to free up capacity at our Redmond, OR facility for the overwhelming demand BasX is experiencing. The legacy business also had strong organic volume growth of 10.3% during the quarter.

Gross profit margin for the quarter decreased due to increased material, component, labor and freight costs. Similar to the first quarter of 2022, the second quarter was impacted by lower priced orders in our backlog. However, gross profit margin improved materially throughout the second quarter, a trend we expect will continue through the second half of the year as higher priced orders in our backlog hit the production floor.

Earnings per diluted share for the second quarter of 2022 declined 21.1% to $0.30 from $0.38 in the second quarter of 2021. The decline in earnings was primarily due to the contraction in gross profit. As a percent of sales, SG&A expenses, excluding BasX, were down 20 basis points from a year ago.

Financial Highlights:	Three Months Ended   June 30,								%				Six Months Ended   June 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	$	208,814			$	143,876			45.1	%			$	391,585			$	259,664			50.8	%
Gross profit		47,376				42,107			12.5	%			$	93,440			$	75,264			24.1	%
Gross profit margin		22.7	%			29.3	%							23.9	%			29.0	%
Operating income	$	20,453			$	25,212			(18.9	)%			$	43,463			$	43,673			(0.5	)%
Operating margin		9.8	%			17.5	%							11.1	%			16.8	%
Net income		15,946				20,615			(22.6	)%			$	34,005			$	36,991			(8.1	)%
Earnings per diluted share	$	0.30			$	0.38			(21.1	)%			$	0.63			$	0.69			(8.7	)%
Diluted average shares		53,661,876				53,603,932			0.1	%				53,944,616				53,736,134			0.4	%
Non-GAAP Measures
EBITDA1	$	29,897			$	32,777			(8.8	)%			$	60,004			$	58,653			2.3	%
EBITDA margin1		14.3	%			22.8	%							15.3	%			22.6	%
1These are non-GAAP measures. See "Use of Non-GAAP Financial Measures" below for reconciliation to GAAP measures.

Backlog

June 30, 2022			March 31, 2022			December 31, 2021			June 30, 2021
(in thousands)
$	464,025		$	461,400		$	260,164		$	138,131

The Company finished the second quarter of 2022 with a record backlog of $464.0 million, up 235.9% from $138.1 million a year ago, and up 78.4% from $260.2 million at the end of the fourth quarter of 2021. Excluding BasX's backlog, organic backlog was up 163.6% from the prior year quarter.

Gary Fields, President and CEO, stated, “Despite lower second quarter margin and earnings, we are very optimistic on the outlook for the second half of the year. Moreover, the outlook for the next several years has continued to improve since earlier in the year. I am very pleased to report our backlog remains robust. Our total backlog is up 235.9% and organically up 163.6% from prior year, which positions us well as we enter the second half of the year. Most important though, the margin profile of the backlog is improving substantially. The majority of the Company's backlog at the end of June 2022 will ship within the next twelve months. At June 30, 2022, our backlog of $464.0 million mostly relates to our legacy business, which includes both the 8% price increase from January 2022 and 7% price increase from March 2022. Beginning in June, we implemented a 1% per month price increase, which we expect to begin realizing in the fourth quarter of this year. Given this, the pricing of orders within the backlog relative to our cost of inventory and trending prices of raw materials has significantly improved from just three to six months ago. As such, we are positioned to hit our target margins in the second half of the year.”

Mr. Fields continued, “We continue to successfully add incremental headcount, which is helping drive record production rates. Total headcount for the legacy business at the end of the second quarter was up approximately 20% from a year ago. Supply chain constraints remain a week-to-week issue, resulting in inefficiencies and larger than normal inventory. However, the combination of our unique configurable manufacturing operations and flexible engineering team allows us to cope better than most of our competitors. This, along with the incremental headcount additions, is helping us maintain competitive lead times, which is allowing us to continue to take market share.”

Mr. Fields continued, “The BasX acquisition, which we closed on in December, has progressed very well. While supply chain issues and inflation have caused similar issues that our legacy business is realizing, I am pleased with how BasX has been so flexible to adapt to challenges. I cannot say enough about how the revenue synergies related to the acquisition are being realized and am pleased with the integration progress. At the end of the second quarter, the backlog at BasX was nearly triple from what it was at the end of 2021. Along with the orders for a new data center project received subsequent to the end of the second quarter, the pipeline of construction projects for BasX's data center and clean room end-markets is robust. Overall, we are excited about the growth opportunities that BasX is bringing to AAON."

Mr. Fields concluded, “While the market dynamics over the past year proved to be a challenge, they forced us to make certain changes to our organization, helping us emerge as a much stronger company. Near-term, our robust backlog with an improving margin profile and increased production headcount positions us for improved financial results in the second half of the year. Long-term, we remain very optimistic with the Company’s outlook. The innovations of our premier product offering combined with our advanced manufacturing process and strong independent sales channel positions us to fully take advantage of the secular market trends related to decarbonization and indoor air quality. Leveraging BasX as well as many other initiatives and changes we are making to the AAON organization adds to the opportunities. Overall, we continue to believe the fundamentals of the Company have never been better.”

As of June 30, 2022, the Company had cash and cash equivalents of $17.6 million and total debt of $106.2 million. Rebecca Thompson, CFO, commented, “Within the quarter, we had net borrowings of $41.2 million from our line of credit to finance the purchase of the BasX building and meet our working capital needs. We are investing in working capital to facilitate the robust growth we are experiencing, while overcoming supply chain issues.”

Ms. Thompson continued, “Our balance sheet remains strong. At the end of the second quarter, our leverage ratio increased to 1.06, from 0.63 at the end of the first quarter. We continue to anticipate cash flow will improve significantly in the second half of the year, allowing us to start reducing net debt by year-end. Overall, we are very comfortable with our financial position and liquidity, and we will continue to invest in our long-term growth plans.”

Conference Call
The Company will host a conference call and webcast today at 5:15 P.M. ET to discuss the second 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 accessible dial-in is 1-833-630-1956 for domestic callers or 1-412-317-1837 for international callers. To access the listen-only webcast, please register at https://edge.media-server.com/mmc/p/vppmz7k5.

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. AAON's culture of 360° innovation empowers its team to deliver solutions that lead to a cleaner and more sustainable future. 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   June 30,								Six Months Ended   June 30,
		2022				2021				2022				2021
	(in thousands, except share and per share data)
Net sales	$	208,814			$	143,876			$	391,585			$	259,664
Cost of sales		161,438				101,769				298,145				184,400
Gross profit		47,376				42,107				93,440				75,264
Selling, general and administrative expenses		26,933				16,895				49,989				31,591
Gain on disposal of assets		(10	)			—				(12	)			—
Income from operations		20,453				25,212				43,463				43,673
Interest expense, net		(550	)			(4	)			(740	)			(1	)
Other income, net		220				39				241				56
Income before taxes		20,123				25,247				42,964				43,728
Income tax provision		4,177				4,632				8,959				6,737
Net income	$	15,946			$	20,615			$	34,005			$	36,991
Earnings per share:
Basic	$	0.30			$	0.39			$	0.64			$	0.71
Diluted	$	0.30			$	0.38			$	0.63			$	0.69
Cash dividends declared per common share:	$	0.19			$	0.19			$	0.19			$	0.19
Weighted average shares outstanding:
Basic		53,095,286				52,432,822				52,992,439				52,389,989
Diluted		53,661,876				53,603,932				53,944,616				53,736,134

AAON, Inc. and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
	June 30, 2022				December 31, 2021
Assets	(in thousands, except share and per share data)
Current assets:
Cash and cash equivalents	$	17,647			$	2,859
Restricted cash		563				628
Accounts receivable, net of allowance for credit losses of $563 and $549, respectively		124,335				70,780
Income tax receivable		7,618				5,723
Inventories, net		164,001				130,270
Contract assets		8,569				5,749
Prepaid expenses and other		4,679				2,071
Total current assets		327,412				218,080
Property, plant and equipment:
Land		7,916				5,016
Buildings		162,962				135,861
Machinery and equipment		332,178				318,259
Furniture and fixtures		24,571				23,072
Total property, plant and equipment		527,627				482,208
Less:  Accumulated depreciation		235,163				224,146
Property, plant and equipment, net		292,464				258,062
Intangible assets, net		66,409				70,121
Goodwill		81,892				85,727
Right of use assets		5,886				16,974
Other long-term assets		2,649				1,216
Total assets	$	776,712			$	650,180
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	36,189			$	29,020
Dividends payable		10,096				—
Accrued liabilities		60,125				50,206
Contract liabilities		29,759				7,542
Total current liabilities		136,169				86,768
Revolving credit facility, long-term		106,249				40,000
Deferred tax liabilities		31,866				31,993
Other long-term liabilities		5,495				18,843
New market tax credit obligation		6,427				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, 53,127,055 and 52,527,985 issued and outstanding at June 30, 2022 and December 31, 2021, respectively		213				210
Additional paid-in capital		82,078				81,654
Retained earnings		408,215				384,306
Total stockholders' equity		490,506				466,170
Total liabilities and stockholders' equity	$	776,712			$	650,180

AAON, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
	Six Months Ended   June 30,
		2022				2021
Operating Activities	(in thousands)
Net income	$	34,005			$	36,991
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization		16,300				14,924
Amortization of debt issuance cost		21				20
Amortization of right of use assets		143				—
Provision for credit losses on accounts receivable, net of adjustments		181				12
Provision for excess and obsolete inventories		148				292
Share-based compensation		6,908				5,793
Gain on disposition of assets		(12	)			—
Foreign currency transaction (gain) loss		9				(11	)
Interest income on note receivable		(11	)			(19	)
Deferred income taxes		(127	)			2,747
Changes in assets and liabilities:
Accounts receivable		(53,736	)			(5,936	)
Income tax receivable		(1,895	)			1,248
Inventories		(33,879	)			(5,472	)
Contract assets		(2,820	)			—
Prepaid expenses and other long-term assets		(3,066	)			799
Accounts payable		6,490				10,650
Contract liabilities		22,217				—
Deferred revenue		421				574
Accrued liabilities and other long-term liabilities		7,123				300
Net cash (used in) provided by operating activities		(1,580	)			62,912
Investing Activities
Capital expenditures		(27,227	)			(33,157	)
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				2
Principal payments from note receivable		27				29
Net cash used in investing activities		(49,437	)			(33,126	)
Financing Activities
Borrowings under revolving credit facility		94,900				—
Payments under revolving credit facility		(28,651	)			—
Principal payments on financing lease		(28	)			—
Stock options exercised		6,385				11,848
Repurchase of stock		(5,912	)			(10,271	)
Employee taxes paid by withholding shares		(954	)			(1,532	)
Net cash provided by financing activities		65,740				45
Net increase in cash, cash equivalents and restricted cash		14,723				29,831
Cash, cash equivalents and restricted cash, beginning of period		3,487				82,288
Cash, cash equivalents and restricted cash, end of period	$	18,210			$	112,119

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   June 30,								Six Months Ended   June 30,
		2022				2021				2022				2021
	(in thousands)
Net income, a GAAP measure	$	15,946			$	20,615			$	34,005			$	36,991
Depreciation and amortization		9,224				7,526				16,300				14,924
Interest expense, net		550				4				740				1
Income tax expense		4,177				4,632				8,959				6,737
EBITDA, a non-GAAP measure	$	29,897			$	32,777			$	60,004			$	58,653
EBITDA margin		14.3	%			22.8	%			15.3	%			22.6	%