AAON, INC. (NASDAQ-AAON), today announced its results for the second quarter of 2021.
Financial Highlights: Three Months Ended  June 30,   %       Six Months Ended  June 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 $ 143,876     $ 125,596     14.6 %       $ 259,664     $ 263,079     (1.3 )%
Gross profit 42,107     38,131     10.4 %       75,264     81,078     (7.2 )%
Gross profit % 29.3 %   30.4 %           29.0 %   30.8 %    
Selling, general and admin. expenses $ 16,895     $ 15,939     6.0 %       $ 31,591     $ 31,153     1.4 %
SG&A % 11.7 %   12.7 %           12.2 %   11.8 %    
Net income 20,615     17,804     15.8 %       36,991     39,657     (6.7 )%
Net income % 14.3 %   14.2 %           14.2 %   15.1 %    
Effective Tax Rate 18.3 %   20.0 %           15.4 %   20.8 %    
Earnings per diluted share $ 0.38     $ 0.34     11.8 %       $ 0.69     $ 0.75     (8.0 )%
Diluted average shares 53,603,932     52,750,401     1.6 %       53,736,134     52,885,491     1.6 %
                           
EBITDA, a non-GAAP measure $ 32,777     $ 28,562     14.8 %       $ 58,653     $ 62,332     (5.9 )%
                           
  June 30,   June 30, %                
  2021   2020   Change                
  (in thousands)                    
Backlog $ 138,131     $ 103,508     33.4 %                
Cash & cash equivalents & restricted cash 112,119     70,845     58.3 %                

Net sales for the three months ended June 30, 2021 increased 14.6% to an all time record high of $143.9 million from $125.6 million in the same period in 2020. The year over year increase in net sales was driven by robust replacement demand broadly across the nonresidential building market that increased our volume 24.6%. The return to historical employee attendance levels helped drive our production up year over year which led to an increase in our overall revenues even as our product mix shifted to lower priced units. The Company reported diluted EPS of $0.38, up 11.8% from $0.34 in the prior year period. The increase in EPS was driven by the higher revenue, improved productivity, lower SG&A expenses as a percent of sales and a lower tax rate, partially offset by inflationary cost pressures. The lower tax rate compared to a year ago was associated with lower corporate income tax rates in the state of Oklahoma that were signed into law during the quarter. This resulted in a one-time benefit of $0.8 million, and will also lower our effective rate starting in 2022.

The Company finished the quarter with a backlog of $138.1 million, up from $103.5 million one year ago and up from $96.7 million at the end of the first quarter of 2021. The sequential improvement in backlog reflects the improved demand that we experienced throughout the second quarter. New bookings in the quarter increased approximately 70% compared to the same period one year ago.

Gary Fields, President and CEO, stated, “Our performance in the second quarter was better than we expected. Organic sales growth of 14.6% was particularly noteworthy. Unlike much of the commercial HVAC market that faced a very easy year over year comparison due to the effects the pandemic had on the market in the second quarter of 2020, we did not face such a comparison. Our sales in the second quarter of 2020 were up year over year 5% versus the commercial market being down approximately 20%-25%. We were also pleased with our gross profit performance, especially considering the inflationary challenges of tight labor markets and increased raw material costs. We will continue to improve productivity and increase prices to counteract these cost pressures.”

Mr. Fields continued, “Looking to the second half of the year, we are optimistic sales and earnings growth will accelerate. The backlog at the end of the second quarter was up 33.4% from a year ago and 42.8% from the end of the first quarter, which positions us well. Order trends are robust and we show no sign of slowing. We are particularly optimistic considering the new construction market has yet to recover from the pandemic-related downturn. That said, we are seeing early signs of a strong recovery in new construction project planning. In addition to robust demand, we are optimistic our gross profit will continue to improve. Our disciplined pricing strategy combined with expected productivity improvements should drive higher gross and operating profits. Lastly, we continue to manage the business for the long-term as we maintain a positive outlook on the fundamentals of the company over the next several years.”

As of June 30, 2021, the Company had no debt and unrestricted cash and cash equivalents of $111.4 million, which is up from $79.0 million at the end of 2020. Capital expenditures during the first six months of 2021 were $33.2 million, as compared to $33.5 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 $70.7 million.”

The Company will host a conference call on August 6, 2021 at 9:00 A.M. (Eastern Time) to discuss the second quarter 2021 results. To participate, call 1-888-241-0551 (code 6788945); or, for rebroadcast available through August 13, 2021, call 1-855-859-2056 (code 6788945).

About AAONAAON, 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 StatementsThis 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 InformationJoseph MondilloDirector of Investor RelationsPhone: (617) 877-6346Email: joseph.mondillo@aaon.com

AAON, Inc. and Subsidiaries
Consolidated Statements of Income
(Unaudited)
  Three Months Ended  June 30,   Six Months Ended  June 30,
  2021   2020   2021   2020
  (in thousands, except share and per share data)
Net sales $ 143,876     $ 125,596     $ 259,664     $ 263,079  
Cost of sales 101,769     87,465     184,400     182,001  
Gross profit 42,107     38,131     75,264     81,078  
Selling, general and administrative expenses 16,895     15,939     31,591     31,153  
(Gain) loss on disposal of assets —     —     —     (62 )
Income from operations 25,212     22,192     43,673     49,987  
Interest (expense), income, net (4 )   19     (1 )   80  
Other income (expense), net 39     32     56     5  
Income before taxes 25,247     22,243     43,728     50,072  
Income tax provision 4,632     4,439     6,737     10,415  
Net income $ 20,615     $ 17,804     $ 36,991     $ 39,657  
Earnings per share:              
Basic $ 0.39     $ 0.34     $ 0.71     $ 0.76  
Diluted $ 0.38     $ 0.34     $ 0.69     $ 0.75  
Cash dividends declared per common share: $ 0.19     $ 0.19     $ 0.19     $ 0.19  
Weighted average shares outstanding:              
Basic 52,432,822     52,099,694     52,389,989     52,160,348  
Diluted 53,603,932     52,750,401     53,736,134     52,885,491  
AAON, Inc. and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
  June 30, 2021   December 31, 2020
Assets (in thousands, except share and per share data)
Current assets:      
Cash and cash equivalents $ 111,427     $ 79,025  
Restricted cash 692     3,263  
Accounts receivable, net of allowance for credit losses of $518 and $506, respectively 53,311     47,387  
Income tax receivable 3,339     4,587  
Note receivable 32     31  
Inventories, net 87,399     82,219  
Prepaid expenses and other 2,940     3,739  
Total current assets 259,140     220,251  
Property, plant and equipment:      
Land 5,016     4,072  
Buildings 129,607     122,171  
Machinery and equipment 301,964     281,266  
Furniture and fixtures 20,726     18,956  
Total property, plant and equipment 457,313     426,465  
Less: Accumulated depreciation 217,549     203,125  
Property, plant and equipment, net 239,764     223,340  
Goodwill and intangible assets, net 3,229     3,267  
Right of use assets 1,472     1,571  
Note receivable 579     579  
Total assets $ 504,184     $ 449,008  
       
Liabilities and Stockholders’ Equity      
Current liabilities:      
Accounts payable $ 21,250     $ 12,447  
Dividends payable 9,970     —  
Accrued liabilities 47,291     46,586  
Total current liabilities 78,511     59,033  
Deferred tax liabilities 31,071     28,324  
Other long-term liabilities 4,493     4,423  
New market tax credit obligation 6,383     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, 52,416,014 and 52,224,767 issued and outstanding at June 30, 2021 and December 31, 2020, respectively 210     209  
Additional paid-in capital 10,998     5,161  
Retained earnings 372,518     345,495  
Total stockholders’ equity 383,726     350,865  
Total liabilities and stockholders’ equity $ 504,184     $ 449,008  
AAON, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
  Six Months Ended  June 30,
  2021   2020
Operating Activities (in thousands)
Net income $ 36,991     $ 39,657  
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation and amortization 14,924     12,340  
Amortization of debt issuance cost 20     20  
Provision for credit losses on accounts receivable, net of adjustments 12     76  
Provision (recoveries) for excess and obsolete inventories 292     (193 )
Share-based compensation 5,793     5,694  
(Gain) loss on disposition of assets —     (62 )
Foreign currency transaction (gain) loss (11 )   30  
Interest income on note receivable (19 )   (12 )
Deferred income taxes 2,747     5,061  
Changes in assets and liabilities:      
Accounts receivable (5,936 )   10,929  
Income taxes 1,248     (4,382 )
Inventories (5,472 )   (11,617 )
Prepaid expenses and other 799     (568 )
Accounts payable 10,650     2,893  
Deferred revenue 574     473  
Accrued liabilities 300     2,423  
Net cash provided by operating activities 62,912     62,762  
Investing Activities      
Capital expenditures (33,157 )   (33,510 )
Proceeds from sale of property, plant and equipment 2     61  
Principal payments from note receivable 29     25  
Net cash used in investing activities (33,126 )   (33,424 )
Financing Activities      
Stock options exercised 11,848     14,173  
Repurchase of stock (10,271 )   (15,937 )
Employee taxes paid by withholding shares (1,532 )   (1,102 )
Net cash provided by (used in) financing activities 45     (2,866 )
Net increase in cash, cash equivalents and restricted cash 29,831     26,472  
Cash, cash equivalents and restricted cash, beginning of period 82,288     44,373  
Cash, cash equivalents and restricted cash, end of period $ 112,119     $ 70,845  

Use of Non-GAAP Financial MeasuresTo 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.

EBITDAEBITDA (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  June 30,   Six Months Ended  June 30,
  2021   2020   2021   2020
  (in thousands)
Net Income, a GAAP measure $ 20,615     $ 17,804     $ 36,991     $ 39,657  
Depreciation and amortization 7,526     6,338     14,924     12,340  
Interest expense (income), net   4     (19 )     1     (80 )
Income tax expense 4,632     4,439     6,737     10,415  
EBITDA, a non-GAAP measure $ 32,777     $ 28,562     $ 58,653     $ 62,332  
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