AAON Reports Record Third Quarter Sales and Backlog With a Slight Decrease in Net Income

AAON Reports Record Third Quarter Sales and Backlog With a Slight Decrease in Net Income

TULSA, Okla., Nov. 02, 2017 (GLOBE NEWSWIRE) -- AAON, Inc. (NASDAQ:AAON) today announced its operating results for the third quarter and nine months ended September 30, 2017. 

In the quarter ended September 30, 2017, net sales were $113.7 million, up 8.7% from $104.6 million in 2016. Net income was $14.7 million, a decline of 6.2% from $15.7 million in the same period a year ago. Net sales for the nine months ended September 30, 2017 were $301.1 million, increasing 3.0% from $292.3 million in 2016. Net income for the nine months ended September 30, 2017 was $38.7 million, down 7.7% from $42.0 million in 2016.  Earnings per diluted share in the third quarter of 2017 were $0.28, down 3.4% from $0.29 for the same period in 2016, based upon 53.0 million and 53.4 million shares outstanding at September 30, 2017 and 2016, respectively. Earnings per diluted share for the nine months ended September 30, 2017 were $0.73, a decrease of 6.4% from $0.78 in 2016, based upon 53.1 million and 53.5 million shares outstanding at September 30, 2017 and 2016, respectively.

Our backlog at September 30, 2017 increased 19% to $73.8 million, from $62.2 million for the same period a year ago.

Selling, general and administrative expenses increased $2.6 million or 25.3% to $13.0 million (11.5% of sales) from $10.4 million (9.9% of sales) as compared to the third quarter of 2016.  This increase is primarily due to warranty expense and modifications the Company has made during the year to its warranty policy.  These modifications more clearly define what qualifies as a warranty claim and place a deadline for when claims may be submitted. The Company continues to expect these changes will benefit the Company in the long term with better customer relationships.

We are still awaiting certifications from AHRI on our new water-source heat pump (WSHP) products.  However, we are seeing significant increases in WSHP orders, the bulk of which will be delivered by the end of 2017.  With the approval of certifications, we anticipate WSHP orders will increase substantially in 2018.

Capital expenditures for the nine months ended September 30, 2017 were $26.4 million and for the total year 2017 we estimate we will reach $47-$50 million to complete work on our first automated WSHP line, start work on one of the two additional WSHP lines and the construction of our state of the art laboratory.  For 2018, we currently estimate total capital expenditures in the range of $35-$37 million to finish work on our second WSHP line, start work on our third WSHP line and increase our sheet metal capacity with additional Salvagnini machines.

Norman H. Asbjornson, CEO, said, "We're happy to witness revenue growth and improvement in our production.  We continue to make investments in our research and development and capital expenditures so that revenues accelerate in 2018 and beyond.  We are now less than a year from opening the Norman Asbjornson Innovation Center, our state of the art acoustical and performance measuring laboratory.  The ability to do testing in this facility for ourselves and customers will allow us to introduce new products at a more rapid rate while generating additional revenue."

Mr. Asbjornson concluded, “Our financial condition at September 30, 2017 remains strong with a current ratio of 2.7:1 (including cash and short-term investments totaling $39.9 million) and we continue to operate debt free."

The Company will host a conference call today at 4:15 P.M. Eastern Time to discuss the third quarter results. To participate, call 1-888-241-0551 (code 4098978); or, for rebroadcast, call 1-855-859-2056 (code 4098978).

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 and coils. 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.

Certain statements in this news release may be “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended. 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.

AAON, Inc. and Subsidiaries
Consolidated Statements of Income
(Unaudited)
 
 Three Months Ended
 September 30,		 Nine Months Ended
 September 30,
 2017 2016 2017 2016
 (in thousands, except share and per share data)
Net sales$113,668  $104,568  $301,072  $292,309 
Cost of sales78,010  71,476  208,750  200,739 
Gross profit35,658  33,092  92,322  91,570 
Selling, general and administrative expenses13,034  10,400  35,535  29,874 
Loss (gain) on disposal of assets(1) —  46  (20)
Income from operations22,625  22,692  56,741  61,716 
Interest income, net84  82  215  223 
Other income, net41  (12) 86  115 
Income before taxes22,750  22,762  57,042  62,054 
Income tax provision8,033  7,080  18,314  20,098 
Net income$14,717  $15,682  $38,728  $41,956 
Earnings per share:       
Basic$0.28  $0.30  $0.74  $0.79 
Diluted$0.28  $0.29  $0.73  $0.78 
Cash dividends declared per common share:$—  $—  $0.13  $0.11 
Weighted average shares outstanding:       
Basic52,566,619  52,891,879  52,586,429  52,942,571 
Diluted53,014,269  53,394,331  53,103,408  53,467,023 


AAON, Inc. and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
 September 30, 2017 December 31, 2016
Assets(in thousands, except share and per share data)
Current assets:   
Cash and cash equivalents$23,515  $24,153 
Certificates of deposit5,040  5,512 
Investments held to maturity at amortized cost11,342  14,083 
Accounts receivable, net57,342  43,001 
Income tax receivable—  6,239 
Note receivable28  25 
Inventories, net66,117  47,352 
Prepaid expenses and other757  616 
Total current assets164,141  140,981 
Property, plant and equipment:   
Land2,233  2,233 
Buildings88,740  78,806 
Machinery and equipment179,712  158,216 
Furniture and fixtures14,136  12,783 
Total property, plant and equipment284,821  252,038 
Less: Accumulated depreciation146,513  137,146 
Property, plant and equipment, net138,308  114,892 
Note receivable689  657 
Total assets$303,138  $256,530 
    
Liabilities and Stockholders' Equity   
Current liabilities:   
Revolving credit facility$—  $— 
Accounts payable18,933  7,102 
Dividends payable—  — 
Accrued liabilities41,682  31,940 
Total current liabilities60,615  39,042 
Deferred revenue1,547  1,498 
Deferred tax liabilities10,678  9,531 
Donations—  561 
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, 52,513,061 and 52,651,448 issued and outstanding at September 30, 2017 and December 31, 2016, respectively210  211 
Additional paid-in capital—  — 
Retained earnings230,088  205,687 
Total stockholders' equity230,298  205,898 
Total liabilities and stockholders' equity$303,138  $256,530 


AAON, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
 Nine Months Ended
 September 30,
 2017 2016
Operating Activities(in thousands)
Net income$38,728  $41,956 
Adjustments to reconcile net income to net cash provided by operating activities:   
Depreciation11,025  9,547 
Amortization of bond premiums39  216 
Provision for losses on accounts receivable, net of adjustments180  30 
Provision for excess and obsolete inventories54  420 
Share-based compensation4,960  3,172 
Loss (gain) on disposition of assets46  (20)
Foreign currency transaction gain(65) (38)
Interest income on note receivable(18) (21)
Deferred income taxes1,147  (1,519)
Changes in assets and liabilities:   
Accounts receivable(14,521) (3,340)
Income taxes6,239  2,230 
Inventories(18,819) (5,322)
Prepaid expenses and other(141) (287)
Accounts payable3,781  949 
Deferred revenue416  334 
Accrued liabilities and donations8,814  (1,300)
Net cash provided by operating activities41,865  47,007 
Investing Activities   
Capital expenditures(26,436) (23,627)
Proceeds from sale of property, plant and equipment8  28 
Investment in certificates of deposits(5,280) (4,112)
Maturities of certificates of deposits5,752  9,840 
Purchases of investments held to maturity(13,241) (10,384)
Maturities of investments15,443  5,622 
Proceeds from called investments500  1,511 
Principal payments from note receivable48  39 
Net cash used in investing activities(23,206) (21,083)
Financing Activities   
Borrowings under revolving credit facility—  761 
Payments under revolving credit facility—  (761)
Stock options exercised1,715  1,681 
Repurchase of stock(12,991) (14,572)
Employee taxes paid by withholding shares(1,193) (559)
Cash dividends paid to stockholders(6,828) (5,820)
Net cash used in financing activities(19,297) (19,270)
Net (decrease) increase in cash and cash equivalents(638) 6,654 
Cash and cash equivalents, beginning of period24,153  7,908 
Cash and cash equivalents, end of period$23,515  $14,562 

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.

EBITDAX

EBITDAX (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 EBITDAX as net income, plus (1) depreciation, (2) amortization of bond premiums, (3) share-based compensation, (4) interest (income) expense and (5) income tax expense. EBITDAX is not a measure of net income or cash flows as determined by GAAP.

The Company’s EBITDAX measure provides additional information which may be used to better understand the Company’s operations. EBITDAX 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 EBITDAX are significant components in understanding and assessing a company's financial performance. EBITDAX, as used by the Company, may not be comparable to similarly titled measures reported by other companies. The Company believes that EBITDAX 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 EBITDAX (non-GAAP) for the periods indicated:

 Three Months Ended
 September 30,		 Nine Months Ended
 September 30,
  
 2017 2016 2017 2016
 (in thousands)
Net Income, a GAAP measure$14,717  $15,682  $38,728  $41,956 
Depreciation3,744  3,201  11,025  9,547 
Amortization of bond premiums10  65  39  216 
Share-based compensation1,431  1,129  4,960  3,172 
Interest income(93) (147) (254) (439)
Income tax expense8,033  7,080  18,314  20,098 
EBITDAX, a non-GAAP measure$27,842  $27,010  $72,812  $74,550 


For Further Information:
Jerry R. Levine
Phone: (914) 244-0292
Fax: (914) 244-0295
Email: [email protected]