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

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