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AAON Reports Sales and Record Backlog for the Third Quarter of 2021

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TULSA, Okla., Nov. 04, 2021 (GLOBE NEWSWIRE) -- AAON, INC. (NASDAQ-AAON), today announced its results for the third quarter of 2021.

Financial Highlights:

Three Months Ended
September 30,

%

Nine Months Ended
September 30,

%

2021

2020

Change

2021

2020

Change

(in thousands, except share and per share data)

(in thousands, except share and per share data)

Net sales

$

138,571

$

134,772

2.8

%

$

398,235

$

397,851

0.1

%

Gross profit

36,019

40,848

(11.8

)

%

111,283

121,926

(8.7

)

%

Gross profit %

26.0

%

30.3

%

27.9

%

30.6

%

Selling, general and admin. expenses

$

15,897

$

14,716

8.0

%

$

47,488

$

45,869

3.5

%

SG&A %

11.5

%

10.9

%

11.9

%

11.5

%

Net income

15,581

20,460

(23.8

)

%

52,572

60,117

(12.6

)

%

Net income %

11.2

%

15.2

%

13.2

%

15.1

%

Earnings per diluted share

$

0.29

$

0.38

(23.7

)

%

$

0.98

$

1.14

(14.0

)

%

EBITDA, a non-GAAP measure

$

27,726

$

32,777

(15.4

)

%

$

86,379

$

95,109

(9.2

)

%

September 30,

September 30,

%

2021

2020

Change

(in thousands)

Backlog

$

181,813

$

84,885

114.2

%

Cash & cash equivalents & restricted cash

102,473

78,601

30.4

%

Net sales for the three months ended September 30, 2021 increased 2.8% to $138.6 million from $134.8 million in the same period in 2020. The year over year increase in net sales was driven by price increases and a favorable product mix, partially offset by unit volumes which were down approximately 11.2%. The decline in volume was mainly a result of a very tight labor market that restricted the Company's production ramp-up plans. While overall headcount has increased throughout the year, the increase is related to our Longview facility, with our Tulsa facility being slightly down year over year. In addition to labor shortage challenges, raw material inflation weighed on gross profit and earnings. Compared to the third quarter of 2020, gross profit declined 11.8% and as a percent of sales, contracted 430 basis points to 26.0%, both of which were a result of three factors. The first factor is the increase in material costs and wages rising quicker than previously announced price increases could counteract. Second, minor supply chain disruptions caused production to slow and be less efficient. Those inefficiencies together with lower overall production limited the Company's ability to absorb certain fixed costs. Third, the Company's Longview facility suffered from COVID-19 related absenteeism in the quarter which reduced the production of coils that were needed to complete units in Tulsa. SG&A expenses were essentially in line with Company expectations, but with lower sales volumes, they also adversely affected operating profit and earnings.

The Company finished the quarter with a backlog of $181.8 million, up 114% from $84.9 million one year ago and up 32% from $138.1 million at the end of the second quarter of 2021. The sequential increase in backlog reflects robust end-market demand as well as improvements the Company and channel partners have made to gain market share. New bookings in the quarter increased approximately 60% compared to the same period one year ago.

As of September 30, 2021, the Company had no debt and unrestricted cash and cash equivalents of $101.8 million, which is up from $79.0 million at the end of 2020. Capital expenditures during the first nine months of 2021 were $42.6 million, as compared to $49.0 million for the same period a year ago. Rebecca Thompson, CFO, stated “We continue to anticipate our full-year 2021 capital expenditures will total approximately $60.0 million.”

Gary Fields, President and CEO, stated, "I am extremely pleased with the growth we have seen in our backlog and new bookings. Our backlog being up year over year 114% and bookings up 60% is truly extraordinary. Moreover, our bookings were up year over year 19% in the third quarter of 2020, a period of time when our industry was still contracting. Thus, this growth was not a reflection of an easy comparison as the overall market realized. In this latest quarter, the growth reflects several factors, including solid end-market demand, 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 many aspects of the third quarter, the overall results are disappointing. The main factors that contributed to the lower than anticipated profits were raw material inflation and labor shortages, which restricted us from ramping up production as quickly as we would have liked. Immediately prior to the June 1st price increase, we received a surge of orders. The increased backlog created by the order surge along with slightly longer lead times delayed the impact of the price increase hitting the floor so that it had minimal impact on the quarter. We also saw the highest priced materials to date coming out of our inventory and flowing through production. It has become clear that this dynamic has resulted in a temporary squeeze in gross margin."

Mr. Fields continued, “On a positive note, we believe the price/cost issue is largely a timing factor and that it will begin to dissipate as the year closes. We have implemented additional price increases since the two in the first half of the year, bringing the total announced increases for the year to 18%, of which 5% was realized in the third quarter. As for the labor shortage challenges, we are working hard to overcome this issue and expect to make progress in the fourth quarter. That said, this issue could linger into 2022 depending how the overall economy progresses. Even with these labor challenges, our lead times remain very competitive. While lead times have extended modestly, they are not nearly as extended as some of our competition."

Mr. Fields concluded, "Despite the current challenges that resulted in the disappointing third quarter earnings, we remain extremely optimistic on the fundamentals of the business. With a robust backlog that has an improving margin profile, continued strength in bookings and expected increases in headcount and production rates, we believe we are very much on track with our overall growth strategy. Moreover, we continue to believe AAON is best positioned to benefit from an increased focus on decarbonization, electrification, energy efficiency and indoor air quality. Finally, although sustainability has just recently become a primary focus for many, it has been the backbone of our Company for decades. Recently, we published our 2020 Sustainability ESG Report, which can be found at https://www.aaon.com/Sustainability."

Earnings Conference Call Information
The Company will host a conference call on November 4, 2021 at 5:30 P.M. (Eastern Time) to discuss the third quarter 2021 results. To participate, call 1-888-241-0551 (code 2466188); or, for rebroadcast available through November 11, 2021, call 1-855-859-2056 (code 2466188).

About AAON
AAON, Inc. is engaged in the engineering, manufacturing, marketing and sale of air conditioning and heating equipment consisting of standard, semi-custom and custom rooftop units, 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
September 30,

Nine Months Ended
September 30,

2021

2020

2021

2020

(in thousands, except share and per share data)

Net sales

$

138,571

$

134,772

$

398,235

$

397,851

Cost of sales

102,552

93,924

286,952

275,925

Gross profit

36,019

40,848

111,283

121,926

Selling, general and administrative expenses

15,897

14,716

47,488

45,869

(Gain) loss on disposal of assets

(15

)

1

(15

)

(61

)

Income from operations

20,137

26,131

63,810

76,118

Interest (expense) income, net

(10

)

10

(11

)

90

Other (expense) income, net

(19

)

15

37

20

Income before taxes

20,108

26,156

63,836

76,228

Income tax provision

4,527

5,696

11,264

16,111

Net income

$

15,581

$

20,460

$

52,572

$

60,117

Earnings per share:

Basic

$

0.30

$

0.39

$

1.00

$

1.15

Diluted

$

0.29

$

0.38

$

0.98

$

1.14

Cash dividends declared per common share:

$

$

$

0.19

$

0.19

Weighted average shares outstanding:

Basic

52,420,711

52,260,551

52,392,300

52,174,705

Diluted

53,546,513

53,151,295

53,664,997

52,955,049


AAON, Inc. and Subsidiaries

Consolidated Balance Sheets

(Unaudited)

September 30, 2021

December 31, 2020

Assets

(in thousands, except share and per share data)

Current assets:

Cash and cash equivalents

$

101,813

$

79,025

Restricted cash

660

3,263

Accounts receivable, net of allowance for credit losses of $477 and $506, respectively

58,756

47,387

Income tax receivable

1,999

4,587

Note receivable

32

31

Inventories, net

104,553

82,219

Prepaid expenses and other

2,802

3,739

Total current assets

270,615

220,251

Property, plant and equipment:

Land

5,016

4,072

Buildings

131,327

122,171

Machinery and equipment

299,226

281,266

Furniture and fixtures

21,679

18,956

Total property, plant and equipment

457,248

426,465

Less: Accumulated depreciation

216,667

203,125

Property, plant and equipment, net

240,581

223,340

Goodwill and intangible assets, net

3,229

3,267

Right of use assets

1,421

1,571

Note receivable

557

579

Total assets

$

516,403

$

449,008

Liabilities and Stockholders' Equity

Current liabilities:

Accounts payable

$

25,940

$

12,447

Accrued liabilities

48,266

46,586

Total current liabilities

74,206

59,033

Deferred tax liabilities

31,090

28,324

Other long-term liabilities

4,434

4,423

New market tax credit obligation

6,394

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, 52,420,486 and 52,224,767 issued and outstanding at September 30, 2021 and December 31, 2020, respectively

210

209

Additional paid-in capital

11,966

5,161

Retained earnings

388,103

345,495

Total stockholders' equity

400,279

350,865

Total liabilities and stockholders' equity

$

516,403

$

449,008


AAON, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

Nine Months Ended
September 30,

2021

2020

Operating Activities

(in thousands)

Net income

$

52,572

$

60,117

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

Depreciation and amortization

22,532

18,971

Amortization of debt issuance cost

31

31

Provision for credit losses on accounts receivable, net of adjustments

193

Provision for excess and obsolete inventories

378

1,776

Share-based compensation

8,784

8,546

(Gain) loss on disposition of assets

(15

)

(61

)

Foreign currency transaction (gain) loss

(1

)

18

Interest income on note receivable

(19

)

(19

)

Deferred income taxes

2,766

7,676

Changes in assets and liabilities:

Accounts receivable

(11,369

)

5,011

Income taxes

2,588

(3,142

)

Inventories

(22,712

)

(6,994

)

Prepaid expenses and other

937

(598

)

Accounts payable

16,390

3,654

Deferred revenue

316

1,128

Accrued liabilities

1,525

688

Net cash provided by operating activities

74,703

96,995

Investing Activities

Capital expenditures

(42,636

)

(48,955

)

Proceeds from sale of property, plant and equipment

19

61

Principal payments from note receivable

41

38

Net cash used in investing activities

(42,576

)

(48,856

)

Financing Activities

Stock options exercised

14,573

18,519

Repurchase of stock

(15,014

)

(21,390

)

Employee taxes paid by withholding shares

(1,537

)

(1,130

)

Cash dividends paid to stockholders

(9,964

)

(9,910

)

Net cash used in financing activities

(11,942

)

(13,911

)

Net increase in cash, cash equivalents and restricted cash

20,185

34,228

Cash, cash equivalents and restricted cash, beginning of period

82,288

44,373

Cash, cash equivalents and restricted cash, end of period

$

102,473

$

78,601

Use of Non-GAAP Financial Measures
To supplement the Company’s consolidated financial statements presented in accordance with generally accepted accounting principles (“GAAP”), an additional non-GAAP financial measure is provided and reconciled in the following table. The Company believes that this non-GAAP financial measure, when considered together with the GAAP financial measures, provides 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.

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.

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

Three Months Ended
September 30,

Nine Months Ended
September 30,

2021

2020

2021

2020

(in thousands)

Net Income, a GAAP measure

$

15,581

$

20,460

$

52,572

$

60,117

Depreciation and amortization

7,608

6,631

22,532

18,971

Interest expense (income), net

10

(10

)

11

(90

)

Income tax expense

4,527

5,696

11,264

16,111

EBITDA, a non-GAAP measure

$

27,726

$

32,777

$

86,379

$

95,109