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AAON Reports Sales and Earnings and Backlog for 2021

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AAON, Inc.
AAON, Inc.

TULSA, Okla., Feb. 28, 2022 (GLOBE NEWSWIRE) -- AAON, INC. (NASDAQ-AAON), a leader in innovation and production of premium quality, highly energy efficient HVAC products for nonresidential buildings, today announced its results for the fourth quarter of 2021.

AAON reported record fourth quarter revenue of $136.3 million, up 16.8% from the prior-year quarter. Price increases contributed approximately 10.0% to revenue growth in the quarter. However, gross profit declined 21.7% to $26.5 million, or 19.5% of sales. Gross profit was impacted by supply chain issues, which constrained production, led to operational inefficiencies and unabsorbed fixed costs, and exacerbated the adverse effects of inflation by slowing the turnover of our lower priced backlog and delaying the throughput of orders placed after recent price increases. This resulted in net income of $6.2 million and earnings per diluted share of $0.11, down year over year 68.6%, compared to $0.35 in the prior-year quarter.

Excluding one-time items, including acquisition-related transaction fees of $4.4 million in the fourth quarter of 2021 and $6.4 million of gain on insurance recoveries in the fourth quarter of 2020, non-GAAP adjusted earnings per share was $0.181, down year over year 35.7%, compared to $0.281 in the prior-year quarter.

Financial Highlights:

Three Months Ended
December 31,

%

Years Ending
December 31,

%

2021

2020

Change

2021

2020

Change

(in thousands, except share and per share data)

(in thousands, except share and per share data)

GAAP Measures

Net sales

$

136,282

$

116,700

16.8

%

$

534,517

$

514,551

3.9

%

Gross profit

$

26,547

33,923

(21.7

)%

137,830

155,849

(11.6

)%

Gross profit margin

19.5

%

29.1

%

25.8

%

30.3

%

Operating income

$

5,443

25,718

(78.8

)%

69,253

101,836

(32.0

)%

Operating margin

4.0

%

22.0

%

13.0

%

19.8

%

Net income

$

6,186

$

18,892

(67.3

)%

$

58,758

$

79,009

(25.6

)%

Earnings per diluted share

$

0.11

$

0.35

(68.6

)%

$

1.09

$

1.49

(26.8

)%

Diluted average shares

53,948,763

53,469,759

0.9

%

53,728,989

53,061,169

1.3

%

Non-GAAP Measures

Non-GAAP adjusted net income1

$

9,523

$

14,771

(35.5

)%

$

62,095

$

74,888

(17.1

)%

Non-GAAP earnings per diluted share1

$

0.18

$

0.28

(35.7

)%

$

1.16

$

1.41

(17.7

)%

Adjusted EBITDA1

$

17,208

$

26,637

(35.4

)%

$

103,587

$

121,746

(14.9

)%

Adjusted EBITDA margin1

12.6

%

22.8

%

19.4

%

23.7

%

1These are non-GAAP measures. See "Use of Non-GAAP Financial Measures" below for reconciliation to GAAP measures.

The Company finished the fourth quarter of 2021 with a backlog of $260.2 million, up 249.6% from $74.4 million a year ago, and up 43.1% from $181.8 million at the end of the third quarter of 2021. Excluding BasX's backlog, organic backlog was up 200.7% from the prior year quarter.

Backlog

December 31, 2021

September 31, 2021

June 30, 2021

March 31, 2021

December 31, 2020

Backlog

$

260,164

$

181,813

$

138,131

$

96,733

$

74,417

Year over year change

249.6

%

114.2

%

33.4

%

(19.1

)%

(47.9

)%

On December 10, 2021, AAON completed the acquisition of BasX, LLC (doing business as BasX Solutions, "BasX"), which included an upfront cash payment of $107.8 million, including acquisition-related transaction fees, net of cash acquired. As of December 31, 2021, the Company had liquidity of $61.1 million compared to liquidity of $107.2 million at December 31, 2020. We believe the Company's senior credit facility provides adequate capacity to fund working capital needs and continue our investment in long-term growth.

Rebecca Thompson, CFO, commented, “We are very comfortable with our financial position at the end of 2021. Our balance sheet remains in a very strong position and we will continue to invest in our long-term growth plans. Capital expenditures in 2021 were $55.4 million, compared to $67.8 million in 2020. We anticipate a capital expenditure budget of $100.4 million for 2022.”

Gary Fields, President and CEO, stated, “I am extremely pleased with the growth we have seen in our backlog and new bookings. Backlog is up year over year 249.6% and new bookings have maintained the strong levels we saw in the second and third quarter. Moreover, strong demand trends continued into early 2022. The growth reflects several factors, including solid end-market demand, market share gains, competitive lead times, the strengthening of our independent sales channel and the compelling value proposition AAON equipment offers.”

Mr. Fields continued, "While we are pleased with demand and the market share gains, sales and earnings results were disappointing. The primary factors that contributed to the lower than anticipated profits were supply chain constraints and material inflation. Supply chain constraints escalated for us in October and November, which led to lower production and less cost absorption. Meanwhile, our cost structure has been rising as we have been increasing headcount due to our rising backlog and in anticipation of the robust growth we foresee in 2022. Furthermore, production constraints magnify the price/cost inflation effect. Lower production means we were not churning through the lower priced backlog fast enough, delaying the recovery in gross profit. In addition to all of this, supply chain constraints created many operational inefficiencies. All in, this led to the underwhelming gross profit and earnings.”

Mr. Fields continued, “On a positive note, we believe the worst of the supply chain constraints are behind us. December was a solid month as far as production and gross profit, and we have seen month-to-month improvement in January and February. Furthermore, the margin profile of our backlog is the highest it has been in about nine months. With less supply chain constraints, higher production capacity, and a large backlog with an improving margin profile, we anticipate production and margins to improve significantly through the first half of 2022."

Mr. Fields concluded, "The challenges we, as well as much of the manufacturing sector, faced in 2021 were truly unprecedented, at least in respect to the last 30 years. In my view, we have navigated the headwinds extremely well and I am very proud of our team. I also believe we are emerging from these challenges as a much stronger Company, which will help us better execute and absorb the robust growth we are anticipating. Despite the recently disappointing results, we remain extremely optimistic on the fundamentals of the business. Our legacy business and the recently acquired BasX both have robust backlogs with paths for significant margin improvement in 2022 and beyond. We continue to believe the Company is best positioned to benefit from an increased focus on decarbonization, electrification, energy efficiency, indoor air quality and cloud-based infrastructure, and we are investing to take advantage of the robust growth we foresee."

Conference Call and Webcast

The Company will host a conference call and webcast to discuss its financial results and outlook on February 28, 2022 at 5:15 P.M. ET. 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. To access either mode, register at https://connect.beacon360.com/ses/JmYFFym2dtuULrRqTsWTlg~~. After registering, participants will receive an email with instructions on how to access the dial-in and webcast. 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

AAON, Inc. engaged in the engineering, manufacturing, marketing, and sale of premium air conditioning and heating equipment consisting of standard, semi-custom, and custom rooftop units, data center cooling solutions, cleanroom systems, chillers, packaged outdoor mechanical rooms, air handling units, makeup air units, energy recovery units, condensing units, geothermal/water-source heat pumps, coils, and controls. Since the founding of AAON in 1988, AAON has maintained a commitment to design, develop, manufacture and deliver heating and cooling products to perform beyond all expectations and demonstrate the value of AAON to our customers. For more information, please visit www.AAON.com.

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


AAON, Inc. and Subsidiaries

Consolidated Statements of Income

(Unaudited)

Three Months Ended
December 31,

Years Ending
December 31,

2021

2020

2021

2020

(in thousands, except share and per share data)

Net sales

$

136,282

$

116,700

$

534,517

$

514,551

Cost of sales

109,735

82,777

396,687

358,702

Gross profit

26,547

33,923

137,830

155,849

Selling, general and administrative expenses

21,110

14,622

68,598

60,491

Gain on disposal of assets and insurance recoveries

(6

)

(6,417

)

(21

)

(6,478

)

Income from operations

5,443

25,718

69,253

101,836

Interest (expense) income, net

(121

)

(2

)

(132

)

88

Other income, net

24

31

61

51

Income before taxes

5,346

25,747

69,182

101,975

Income tax (benefit) provision

(840

)

6,855

10,424

22,966

Net income

$

6,186

$

18,892

$

58,758

$

79,009

Earnings per share:

Basic

$

0.12

$

0.36

$

1.12

$

1.51

Diluted

$

0.11

$

0.35

$

1.09

$

1.49

Cash dividends declared per common share:

$

0.19

$

0.19

$

0.38

$

0.38

Weighted average shares outstanding:

Basic

52,467,696

52,240,829

52,404,199

52,168,679

Diluted

53,948,763

53,469,759

53,728,989

53,061,169


AAON, Inc. and Subsidiaries

Consolidated Balance Sheets

(Unaudited)

December 31, 2021

December 31, 2020

Assets

(in thousands, except share and per share data)

Current assets:

Cash and cash equivalents

$

2,859

$

79,025

Restricted cash

628

3,263

Accounts receivable, net of allowance for credit losses of $549 and $506, respectively

70,780

47,387

Income tax receivable

5,723

4,587

Inventories, net

130,270

82,219

Contract assets

5,749

Prepaid expenses and other

2,071

3,770

Total current assets

218,080

220,251

Property, plant and equipment:

Land

5,016

4,072

Buildings

135,861

122,171

Machinery and equipment

318,259

281,266

Furniture and fixtures

23,072

18,956

Total property, plant and equipment

482,208

426,465

Less: Accumulated depreciation

224,146

203,125

Property, plant and equipment, net

258,062

223,340

Intangible assets, net

70,121

38

Goodwill

85,727

3,229

Right of use assets

16,974

1,571

Other long-term assets

1,216

579

Total assets

$

650,180

$

449,008

Liabilities and Stockholders' Equity

Current liabilities:

Accounts payable

29,020

12,447

Accrued liabilities

50,206

46,586

Contract liabilities

7,542

Total current liabilities

86,768

59,033

Revolving credit facility, long-term

40,000

Deferred tax liabilities

31,993

28,324

Other long-term liabilities

18,843

4,423

New market tax credit obligation

6,406

6,363

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, 52,527,985 and 52,224,767 issued and outstanding at December 31, 2021 and December 31, 2020, respectively

210

209

Additional paid-in capital

81,654

5,161

Retained earnings

384,306

345,495

Total stockholders' equity

466,170

350,865

Total liabilities and stockholders' equity

$

650,180

$

449,008


AAON, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

Years Ending
December 31,

2021

2020

Operating Activities

(in thousands)

Net income

$

58,758

$

79,009

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

30,343

25,634

Amortization of debt issuance cost

43

43

Amortization of right of use assets

73

Provision for credit losses on accounts receivable, net of adjustments

43

153

Provision for excess and obsolete inventories

629

1,108

Share-based compensation

11,812

11,342

Gain on disposition of assets and insurance recoveries

(21

)

(6,478

)

Foreign currency transaction gain

(1

)

(12

)

Interest income on note receivable

(24

)

(24

)

Deferred income taxes

3,669

13,027

Changes in assets and liabilities:

Accounts receivable

(9,737

)

19,859

Income tax receivable

(1,136

)

(3,815

)

Inventories

(45,955

)

(9,726

)

Contract assets

1,886

Prepaid expenses and other

1,374

(2,364

)

Accounts payable

10,899

(2,155

)

Contract liabilities

(229

)

Deferred revenue

447

1,010

Accrued liabilities and donations

(1,690

)

2,203

Net cash provided by operating activities

61,183

128,814

Investing Activities

Capital expenditures

(55,362

)

(67,802

)

Cash paid in business combination, net of cash acquired

(103,430

)

Proceeds from sale of property, plant and equipment

19

60

Insurance proceeds

6,417

Principal payments from note receivable

54

52

Net cash used in investing activities

(158,719

)

(61,273

)

Financing Activities

Borrowings under revolving credit facility

40,000

Stock options exercised

21,148

21,418

Repurchase of stock

(20,876

)

(30,060

)

Employee taxes paid by withholding shares

(1,590

)

(1,169

)

Dividends paid to stockholders

(19,947

)

(19,815

)

Net cash provided by (used in) financing activities

18,735

(29,626

)

Net (decrease) increase in cash, cash equivalents and restricted cash

(78,801

)

37,915

Cash, cash equivalents and restricted cash, beginning of period

82,288

44,373

Cash, cash equivalents and restricted cash, end of period

$

3,487

$

82,288

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 adjusted net income, adjusted net income per diluted share, EBITDA, adjusted EBITDA, and adjusted EBITDA margin are non-GAAP measures and are susceptible to varying calculations, adjusted net income, adjusted net income per diluted share, EBITDA, adjusted EBITDA, and adjusted EBITDA margin, as presented, may not be directly comparable with other similarly titled measures used by other companies.

Non-GAAP Adjusted Net Income

The Company defines non-GAAP adjusted net income as net income adjusted for any one-time events, such as acquisition related costs or insurance proceeds received, net of profit sharing and tax effect, in the periods presented

The following table provides a reconciliation of net income (GAAP) to non-GAAP adjusted net income for the periods indicated:

Three Months Ended
December 31,

Years Ending
December 31,

2021

2020

2021

2020

(in thousands)

Net income, a GAAP disclosure

$

6,186

$

18,892

$

58,758

$

79,009

Acquisition-related fees

4,367

4,367

Insurance recoveries

(6,417

)

(6,417

)

Profit sharing effect

(437

)

642

(437

)

642

Tax effect

(593

)

1,654

(593

)

1,654

Non-GAAP adjusted net income

$

9,523

$

14,771

$

62,095

$

74,888

Non-GAAP adjusted earnings per diluted share

$

0.18

$

0.28

$

1.16

$

1.41

EBITDA and Adjusted 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.

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.

Adjusted EBITDA is calculated as EBITDA adjusted by items in non-GAAP adjusted net income, above, except for taxes, as taxes are already excluded from EBITDA.

The following table provides a reconciliation of net income (GAAP) to EBITDA (non-GAAP) and Adjusted EBITDA (non-GAAP) for the periods indicated:

Three Months Ended
December 31,

Years Ending
December 31,

2021

2020

2021

2020

(in thousands)

Net income, a GAAP measure

$

6,186

$

18,892

$

58,758

$

79,009

Depreciation and amortization

7,811

6,663

30,343

25,634

Interest expense (income), net

121

2

132

(88

)

Income tax expense

(840

)

6,855

10,424

22,966

EBITDA, a non-GAAP measure

13,278

32,412

99,657

127,521

Acquisition-related fees

4,367

4,367

Insurance recoveries

(6,417

)

(6,417

)

Profit sharing effect1

(437

)

642

(437

)

642

Adjusted EBITDA, a non-GAAP measure

$

17,208

$

26,637

$

103,587

$

121,746

Adjusted EBITDA margin

12.6

%

22.8

%

19.4

%

23.7

%

1Profit sharing effect of acquisition-related fees and insurance recoveries in the respective period.