AAON REPORTS FIRST QUARTER OF 2024 RESULTS
AAON, INC. (NASDAQ-AAON) reported its first quarter results for 2024, showcasing a 1.4% decrease in net sales to $262.1 million, driven by declines in specific segments. Gross profit margin expanded to 35.2%, with EPS at $0.46, benefiting from a tax benefit. Despite a slow start, the company foresees improvements in bookings and backlogs, aiming for stronger results throughout the year.
Expansion of gross profit margin to 35.2%, up from 29.0% in 2023.
Earnings per diluted share increased to $0.46, supported by a $4.4 million excess tax benefit.
Strong backlog growth reported, up for a second consecutive quarter to $558.4 million.
Improved cash flow from operations at $92.4 million, up from $4.8 million in the first quarter of 2023.
Net sales decreased by 1.4% to $262.1 million in the first quarter of 2024.
Declines in AAON Coil Products and BASX segments with respective decreases of 27.4% and 9.3% impacting total sales volume.
SG&A expenses as a percent of sales increased to 17.3% from 12.4% in the same quarter of 2023.
Year-over-year backlog down by 6.9% due to supply chain constraints in the previous year.
Insights
The marginal uptick in earnings per diluted share (EPS) from $0.44 to $0.46 is a positive outcome, reflecting an incremental growth in profitability despite facing a sales dip. This contrast suggests efficacy in cost management and pricing strategies, which is further corroborated by the gross margin expansion from 29.0% to 35.2%. The improved gross margin indicates that AAON is effectively navigating the balance between cost pressures and pricing. This kind of margin performance can be a sign of strong operational controls and an ability to pass on costs to consumers, which is particularly valuable in inflationary environments.
However, the increase in SG&A expenses as a percentage of sales, from 12.4% to 17.3%, might raise concerns regarding creeping overhead costs, potentially suppressing future net income if not offset by corresponding revenue growth. Such an upward trend necessitates scrutiny to ensure that the expenses are indeed investments for long-term growth rather than inefficiencies.
The strong cash flow from operations, up significantly from the first quarter of 2023 and a healthy balance sheet, with $28.4 million in cash and no debt on the revolving credit facility, stand out as hallmarks of AAON's financial resilience. These factors provide the company with ample liquidity to pursue growth opportunities and withstand unforeseen market turbulence. Meanwhile, increased capital expenditure signals a commitment to expansion, although it is critical for these investments to translate into higher throughput and sales to justify the higher outlay.
The year-over-year decrease in backlog, from $599.9 million to $558.4 million, could potentially signal a softening in demand or operational challenges limiting AAON's ability to convert backlog into revenue. However, a quarter-over-quarter increase suggests some recovery or adaptation to the aforementioned challenges. The outpacing of bookings over sales is a positive sign of healthy market demand, particularly in the data center market, implying that AAON is well-positioned within this niche. This sector is known for its high-value projects, which can help AAON offset losses in other segments.
It is also noteworthy that AAON is strategically positioning itself ahead of upcoming refrigerant regulations, which could disrupt the market and affect competitors differently. Proactively adapting to regulatory changes can be a competitive advantage and may lead to increased market share as the industry transitions.
The mention of investments in people and technology bodes well for AAON's long-term strategic planning. An emphasis on efficiency and adaptability in the face of robust targeted growth rates suggests a forward-thinking approach that can be appealing to investors looking for companies with a clear vision for the future.
Net sales for the first quarter of 2024 decreased
Gross profit margin in the quarter expanded to
Earnings per diluted share for the three months ended March 31, 2024, was
Financial Highlights: | Three Months Ended | % | |||
2024 | 2023 | Change | |||
(in thousands, except share and per share data) | |||||
GAAP Measures | |||||
Net sales | $ 262,099 | $ 265,953 | (1.4) % | ||
Gross profit | $ 92,242 | $ 77,154 | 19.6 % | ||
Gross profit margin | 35.2 % | 29.0 % | |||
Operating income | $ 46,970 | $ 44,206 | 6.3 % | ||
Operating margin | 17.9 % | 16.6 % | |||
Net income | $ 39,016 | $ 36,814 | 6.0 % | ||
Earnings per diluted share1 | $ 0.46 | $ 0.44 | 4.5 % | ||
Diluted average shares1 | 84,044,670 | 82,860,958 | 1.4 % | ||
1 Reflects three-for-two stock split effective August 16, 2023. | |||||
Non-GAAP Measure | |||||
EBITDA2 | $ 60,484 | $ 54,594 | 10.8 % | ||
2 This is a non-GAAP measure. See "Use of Non-GAAP Financial Measures" below for reconciliation to GAAP measure. | |||||
Backlog
March 31, 2024 | December 31, 2023 | March 31, 2023 | ||
(in thousands) | ||||
$ 558,443 | $ 510,028 | $ 599,912 | ||
The Company finished the first quarter of 2024 with a backlog of
Gary Fields, CEO, stated, "First quarter performance was mixed relative to our expectations. Bookings remain strong across all business segments with quarter-over-quarter increases in backlog. This is especially true for AAON Coil Products and BASX segments which began the quarter with strong backlogs and continued to strengthen backlogs through the end of the first quarter, even as timing of production resulted in a softer than expected first quarter. Even at these lower production levels, total gross margin was better than expected and SG&A was in line with our expectations. We continue to manage pricing and costs well, and while it was not fully reflected in the first quarter results with lower volumes, operations across the facilities are poised to deliver even stronger results as production increases to deliver on our growing backlog."
Mr. Fields continued, "Despite the slow start to the year, we believe results will continue to improve as we progress through 2024. Our independent sales reps continue to indicate strong levels of activity in the near-term, and while the upcoming refrigerant regulations may continue to cause some volatility on a month-to-month basis, we think order flow will further improve as we approach the point in time later this year in which customers will no longer be able to order equipment with R410A refrigerant. And as we anticipate an acceleration of backlog conversion at the AAON Coil Products and BASX segments, their production will also drive improved results throughout the year."
Mr. Fields concluded, "Long-term, based on real opportunities and a large pipeline of projects, especially with mega projects in the data center market, we remain very positive in our outlook. As such, we continue to invest in more production capacity, both with new production square footage and through ways to increase output with our existing resources. We also continue to invest in people and technology that will help us manage the business more effectively and ensure we are able to efficiently adapt to the robust growth rates we continue to target over the long-term."
As of March 31, 2024, the Company had cash, cash equivalents and restricted cash of
Conference Call
The Company will host a conference call and webcast today at 5:15 P.M. EDT to discuss the first quarter 2024 results and outlook. The conference call will be accessible via dial-in for those who wish to participate in Q&A as well as a listen-only webcast. The dial-in is accessible at 1-800-836-8184. To access the listen-only webcast, please register at https://app.webinar.net/2E7VGLw0vnl. On the next business day following the call, a replay of the call will be available on the Company's website at https://investors.aaon.com.
About AAON
Founded in 1988, AAON is a global 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
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 | |||
2024 | 2023 | ||
(in thousands, except share and per share data) | |||
Net sales | $ 262,099 | $ 265,953 | |
Cost of sales | 169,857 | 188,799 | |
Gross profit | 92,242 | 77,154 | |
Selling, general and administrative expenses | 45,288 | 32,942 | |
(Gain) loss on disposal of assets | (16) | 6 | |
Income from operations | 46,970 | 44,206 | |
Interest expense, net | (239) | (1,150) | |
Other income, net | 77 | 114 | |
Income before taxes | 46,808 | 43,170 | |
Income tax provision | 7,792 | 6,356 | |
Net income | $ 39,016 | $ 36,814 | |
Earnings per share: | |||
Basic1 | $ 0.48 | $ 0.46 | |
Diluted1 | $ 0.46 | $ 0.44 | |
Cash dividends declared per common share1: | $ 0.08 | $ 0.08 | |
Weighted average shares outstanding: | |||
Basic1 | 81,661,972 | 80,460,897 | |
Diluted1 | 84,044,670 | 82,860,958 | |
1 Reflects three-for-two stock split effective August 16, 2023. | |||
AAON, Inc. and Subsidiaries | |||
Consolidated Balance Sheets | |||
(Unaudited) | |||
March 31, 2024 | December 31, 2023 | ||
Assets | (in thousands, except share and per share data) | ||
Current assets: | |||
Cash and cash equivalents | $ 8,385 | $ 287 | |
Restricted cash | 19,982 | 8,736 | |
Accounts receivable, net | 109,662 | 138,108 | |
Inventories, net | 196,252 | 213,532 | |
Contract assets | 50,581 | 45,194 | |
Prepaid expenses and other | 7,365 | 3,097 | |
Total current assets | 392,227 | 408,954 | |
Property, plant and equipment: | |||
Land | 15,918 | 15,438 | |
Buildings | 224,128 | 205,841 | |
Machinery and equipment | 401,637 | 391,366 | |
Furniture and fixtures | 42,861 | 40,787 | |
Total property, plant and equipment | 684,544 | 653,432 | |
Less: Accumulated depreciation | 293,980 | 283,485 | |
Property, plant and equipment, net | 390,564 | 369,947 | |
Intangible assets, net | 70,664 | 68,053 | |
Goodwill | 81,892 | 81,892 | |
Right of use assets | 16,696 | 11,774 | |
Other long-term assets | 878 | 816 | |
Total assets | $ 952,921 | $ 941,436 | |
Liabilities and Stockholders' Equity | |||
Current liabilities: | |||
Accounts payable | $ 15,438 | $ 27,484 | |
Accrued liabilities | 93,198 | 85,508 | |
Contract liabilities | 16,527 | 13,757 | |
Total current liabilities | 125,163 | 126,749 | |
Revolving credit facility, long-term | — | 38,328 | |
Deferred tax liabilities | 5,030 | 12,134 | |
Other long-term liabilities | 21,926 | 16,807 | |
New market tax credit obligation | 15,994 | 12,194 | |
Commitments and contingencies | |||
Stockholders' equity: | |||
Preferred stock, | — | — | |
Common stock, | 329 | 326 | |
Additional paid-in capital | 139,184 | 122,063 | |
Retained earnings1 | 645,295 | 612,835 | |
Total stockholders' equity | 784,808 | 735,224 | |
Total liabilities and stockholders' equity | $ 952,921 | $ 941,436 | |
1 Reflects three-for-two stock split effective August 16, 2023. | |||
AAON, Inc. and Subsidiaries | |||
Consolidated Statements of Cash Flows | |||
(Unaudited) | |||
Three Months Ended | |||
2024 | 2023 | ||
Operating Activities | (in thousands) | ||
Net income | $ 39,016 | $ 36,814 | |
Adjustments to reconcile net income to net cash provided by operating activities: | |||
Depreciation and amortization | 13,437 | 10,274 | |
Amortization of debt issuance costs | 31 | 11 | |
Amortization of right of use assets | 12 | 29 | |
Provision for (recoveries of) credit losses on accounts receivable, net of adjustments | 112 | (56) | |
Provision for excess and obsolete inventories, net of write-offs | 581 | 221 | |
Share-based compensation | 3,957 | 3,519 | |
(Gain) loss on disposition of assets | (16) | 6 | |
Foreign currency transaction loss (gain) | 11 | (2) | |
Interest income on note receivable | (5) | (6) | |
Deferred income taxes | (740) | 921 | |
Changes in assets and liabilities: | |||
Accounts receivable | 28,334 | (33,740) | |
Income taxes | 8,221 | 5,262 | |
Inventories | 16,699 | (861) | |
Contract assets | (5,387) | 25 | |
Prepaid expenses and other long-term assets | (4,349) | (3,613) | |
Accounts payable | (9,968) | (16,318) | |
Contract liabilities | 2,770 | 713 | |
Extended warranties | 698 | 777 | |
Accrued liabilities and other long-term liabilities | (1,044) | 847 | |
Net cash provided by operating activities | 92,370 | 4,823 | |
Investing Activities | |||
Capital expenditures | (34,688) | (28,935) | |
Proceeds from sale of property, plant and equipment | 16 | 102 | |
Software development expenditures | (4,055) | — | |
Principal payments from note receivable | 13 | 14 | |
Net cash used in investing activities | (38,714) | (28,819) | |
Financing Activities | |||
Proceeds from financing obligation, net of issuance costs | 4,186 | — | |
Payment related to financing costs | (417) | — | |
Borrowings under revolving credit facility | 115,130 | 105,172 | |
Payments under revolving credit facility | (153,458) | (92,512) | |
Stock options exercised | 9,844 | 15,856 | |
Employee taxes paid by withholding shares | (3,041) | (1,030) | |
Cash dividends paid to stockholders | (6,556) | (6,459) | |
Net cash (used in) provided by financing activities | (34,312) | 21,027 | |
Net increase (decrease) in cash, cash equivalents and restricted cash | 19,344 | (2,969) | |
Cash, cash equivalents and restricted cash, beginning of period | 9,023 | 5,949 | |
Cash, cash equivalents and restricted cash, end of period | $ 28,367 | $ 2,980 | |
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 is a non-GAAP measure and is susceptible to varying calculations, EBITDA, 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) for the periods indicated:
Three Months Ended | |||
2024 | 2023 | ||
(in thousands) | |||
Net income, a GAAP measure | $ 39,016 | $ 36,814 | |
Depreciation and amortization | 13,437 | 10,274 | |
Interest expense, net | 239 | 1,150 | |
Income tax expense | 7,792 | 6,356 | |
EBITDA, a non-GAAP measure | $ 60,484 | $ 54,594 | |
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SOURCE AAON
FAQ
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