Q3 2023 Earnings Conference Call November 6, 2023 Forward-Looking Statements and Other References Certain statements and information set forth in this presentation contains “forward-looking statements” and “forward-looking information” within the meaning of the Private Securities Litigation Reform Act of 1995. Except for statements of historical fact, certain information contained herein constitutes forward-looking statements which include management’s assessment of future plans and operations and are based ...

[PART I – FINANCIAL INFORMATION](index=2&type=section&id=PART%20I%20%E2%80%93%20FINANCIAL%20INFORMATION) This section presents the company's unaudited consolidated financial statements, including balance sheets, income statements, statements of stockholders' equity, and cash flows, along with detailed explanatory notes [Consolidated Balance Sheets (Unaudited)](index=2&type=section&id=Consolidated%20Balance%20Sheets%20(Unaudited)) The consolidated balance sheets present the company's financial position as of September 30, 2023, and December 31, 2022, showing an increase in total assets and stockholders' equity Consolidated Balance Sheets (in thousands) | Metric | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :-------------------------- | :-------------------------- | :-------------------------- | | Total current assets | $425,292 | $349,116 | | Property, plant & equipment, net | $356,830 | $304,745 | | Total assets | $944,543 | $813,903 | | Total current liabilities | $140,479 | $145,567 | | Total stockholders' equity | $682,484 | $560,714 | [Consolidated Statements of Income (Unaudited)](index=3&type=section&id=Consolidated%20Statements%20of%20Income%20(Unaudited)) The consolidated statements of income reflect strong financial performance for the three and nine months ended September 30, 2023, with significant increases in net sales, gross profit, and net income compared to the prior year Consolidated Statements of Income (in thousands) | Metric (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net sales | $311,970 | $242,605 | $861,880 | $634,190 | | Gross profit | $116,109 | $65,591 | $287,281 | $159,031 | | Income from operations | $64,664 | $36,700 | $163,610 | $80,163 | | Net income | $48,078 | $27,473 | $130,574 | $61,478 | | Basic EPS | $0.59 | $0.34 | $1.61 | $0.77 | | Diluted EPS | $0.58 | $0.34 | $1.57 | $0.76 | [Consolidated Statements of Stockholders' Equity (Unaudited)](index=4&type=section&id=Consolidated%20Statements%20of%20Stockholders'%20Equity%20(Unaudited)) The consolidated statements of stockholders' equity detail the changes in equity components, including net income, stock option exercises, share-based compensation, stock repurchases, and dividends, reflecting the impact of a three-for-two stock split effective August 16, 2023 Change in Stockholders' Equity (in thousands) | Change in Stockholders' Equity (in thousands) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------------------------------- | :-------------------------- | :-------------------------- | | Balances at December 31, 2022/2021 | $560,714 | $466,170 | | Net income | $130,574 | $61,478 | | Stock options exercised, restricted stock awards granted, and contingent shares issued | $25,251 | $10,990 | | Share-based compensation | $12,102 | $10,229 | | Stock repurchased and retired | $(26,211) | $(8,921) | | Dividends | $(19,946) | $(10,088) | | Balances at September 30, 2023/2022 | $682,484 | $523,858 | - A three-for-two stock split was effective August 16, 2023, and all share and per share information has been retroactively updated to reflect this change[7](index=7&type=chunk) [Consolidated Statements of Cash Flows (Unaudited)](index=5&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows%20(Unaudited)) The consolidated statements of cash flows show a significant increase in cash provided by operating activities and a rise in cash used in investing activities, while financing activities shifted from providing to using cash for the nine months ended September 30, 2023, compared to the prior year Cash Flow Category (in thousands) | Cash Flow Category (in thousands) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------------------- | :-------------------------- | :-------------------------- | | Net cash provided by operating activities | $107,145 | $43,414 | | Net cash used in investing activities | $(82,732) | $(63,782) | | Net cash (used in) provided by financing activities | $(7,827) | $28,149 | | Net increase in cash, cash equivalents and restricted cash | $16,586 | $7,781 | | Cash, cash equivalents and restricted cash, end of period | $22,535 | $11,268 | [Notes to the Consolidated Financial Statements](index=6&type=section&id=Notes%20to%20the%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the consolidated financial statements, covering accounting policies, significant estimates, segment information, and other financial and operational details [1. General](index=6&type=section&id=1.%20General) This note outlines the company's basis of presentation, business operations, use of estimates, impact of inflation and labor market, changes in accounting estimates, product line decisions, fair value measurements, and accounting for intangible assets and goodwill - AAON, Inc. engineers, manufactures, markets, and sells premium air conditioning and heating equipment, including rooftop units, data center cooling solutions, and air handling units, through its wholly-owned subsidiaries AAON, Inc. (Oklahoma), AAON Coil Products, Inc. (Texas), and BasX, Inc. (Oregon)[10](index=10&type=chunk) - The company has experienced increases in raw material and component prices, managing these through product price increases. Supply chain challenges have been addressed through strong vendor relationships and expanding vendor lists[12](index=12&type=chunk) - To combat a tight labor market, the company implemented wage increases (**3.0% in March 2022, 3.5% in October 2022, 3.9% in March 2023**) and enhanced employee benefits, including changes to paid time off, short-term disability, life insurance, and parental/military leave[14](index=14&type=chunk) - A change in estimate in Q1 2022 increased the useful lives of certain sheet metal manufacturing equipment from 10-12 years to **15 years**, decreasing depreciation expense by **$1.8 million** for the nine months ended September 30, 2022[15](index=15&type=chunk) - Management decided in Q3 2022 to discontinue production of small packaged geothermal/water-source heat pump units (WH/WV Series), with backlog completion in Q2 2023[16](index=16&type=chunk) Goodwill (in thousands) | Goodwill (in thousands) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :---------------------- | :-------------------------- | :-------------------------- | | Balance, beginning of period | $81,892 | $85,727 | | Decreases due to business combination revisions | — | $(3,835) | | Balance, end of period | $81,892 | $81,892 | [2. Revenue Recognition](index=9&type=section&id=2.%20Revenue%20Recognition) This note details the company's revenue recognition policies, disaggregated net sales by segment and product type, and policies for sales allowances, customer incentives, product warranties, and representative fees Net Sales by Segment and Product (in thousands) - 3 Months Ended | Net Sales by Segment and Product (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | | :---------------------------------------------- | :-------------------------- | :-------------------------- | | **AAON Oklahoma** | | | | Rooftop units | $221,417 | $154,171 | | Part sales | $17,756 | $15,724 | | Total AAON Oklahoma | $246,454 | $179,169 | | **AAON Coil Products** | | | | Condensing units | $7,636 | $12,720 | | Air handlers | $9,862 | $14,380 | | Total AAON Coil Products | $25,769 | $30,504 | | **BASX** | | | | Cleanroom systems | $5,355 | $15,283 | | Data center cooling solutions | $25,726 | $14,884 | | Total BASX | $39,747 | $32,932 | | **Total Net Sales** | $311,970 | $242,605 | Net Sales by Segment and Product (in thousands) - 9 Months Ended | Net Sales by Segment and Product (in thousands) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :---------------------------------------------- | :-------------------------- | :-------------------------- | | **AAON Oklahoma** | | | | Rooftop units | $597,508 | $414,493 | | Part sales | $47,623 | $39,797 | | Total AAON Oklahoma | $666,670 | $476,517 | | **AAON Coil Products** | | | | Condensing units | $34,243 | $33,645 | | Air handlers | $34,693 | $35,358 | | Total AAON Coil Products | $89,262 | $79,193 | | **BASX** | | | | Cleanroom systems | $35,063 | $31,568 | | Data center cooling solutions | $56,079 | $38,589 | | Total BASX | $105,948 | $78,480 | | **Total Net Sales** | $861,880 | $634,190 | - Revenue for highly customized products is recognized over time as progress is made, while revenue for part sales or standardized units is recognized at the time of shipment when control passes to the customer[28](index=28&type=chunk) - Historically seasonal sales (May-October peak) have become more constant throughout the year due to increased product demand and backlog[30](index=30&type=chunk) - Payments to independent manufacturer representatives for their fees and Third Party Products were **$20.1 million** (Q3 2023) and **$46.4 million** (YTD 2023), up from **$10.8 million** (Q3 2022) and **$28.7 million** (YTD 2022)[32](index=32&type=chunk) [3. Leases](index=11&type=section&id=3.%20Leases) This note provides information on the company's operating lease arrangements for manufacturing, warehousing, and administrative facilities, including recent expansions and new lease agreements Lease Balances (in thousands) | Lease Balances (in thousands) | Sep 30, 2023 | Dec 31, 2022 | | :---------------------------- | :----------- | :----------- | | Right of use assets | $12,252 | $7,123 | | Lease liability, short-term | $1,858 | $1,254 | | Lease liability, long-term | $10,684 | $5,993 | - The Parkville, Missouri lease was amended in October 2022 to expand manufacturing and office space from **51,000 to 86,000 square feet**, extending the term through December 31, 2032[34](index=34&type=chunk) - New lease agreements include **198,000 square feet** in Tulsa, Oklahoma (November 2022, expires October 2025) and **72,000 square feet** in Redmond, Oregon (July 2023, approximately five-year term)[35](index=35&type=chunk) [4. Accounts Receivable](index=12&type=section&id=4.%20Accounts%20Receivable) This note details accounts receivable balances and the allowance for credit losses, including changes in the allowance during the periods presented Accounts Receivable (in thousands) | Accounts Receivable (in thousands) | Sep 30, 2023 | Dec 31, 2022 | | :--------------------------------- | :----------- | :----------- | | Accounts receivable | $160,493 | $127,635 | | Less: Allowance for credit losses | $(385) | $(477) | | Total, net | $160,108 | $127,158 | Allowance for Credit Losses (in thousands) | Allowance for Credit Losses (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :----------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Balance, beginning of period | $306 | $563 | $477 | $549 | | Provisions for (recoveries of) expected credit losses, net of adjustments | $79 | $119 | $(92) | $300 | | Accounts receivable written off, net of recoveries | — | — | — | $(167) | | Balance, end of period | $385 | $682 | $385 | $682 | [5. Inventories](index=12&type=section&id=5.%20Inventories) This note describes inventory valuation methods and provides a breakdown of inventory components and changes in the allowance for excess and obsolete inventories Inventory Components (in thousands) | Inventory Components (in thousands) | Sep 30, 2023 | Dec 31, 2022 | | :---------------------------------- | :----------- | :----------- | | Raw materials | $209,697 | $194,159 | | Work in process | $4,379 | $3,501 | | Finished goods | $5,219 | $5,806 | | Total, gross | $219,295 | $203,466 | | Less: Allowance for excess and obsolete inventories | $(4,788) | $(4,527) | | Total, net | $214,507 | $198,939 | Allowance for Excess and Obsolete Inventories (in thousands) | Allowance for Excess and Obsolete Inventories (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :----------------------------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Balance, beginning of period | $5,281 | $1,871 | $4,527 | $1,787 | | Provision for (recoveries of) excess and obsolete inventories | $1,521 | $1,232 | $2,979 | $1,380 | | Inventories written off | $(2,014) | $(38) | $(2,718) | $(102) | | Balance, end of period | $4,788 | $3,065 | $4,788 | $3,065 | [6. Intangible assets](index=13&type=section&id=6.%20Intangible%20assets) This note presents the company's definite-lived and indefinite-lived intangible assets, their amortization policies, and amortization expense Intangible Assets (in thousands) | Intangible Assets (in thousands) | Sep 30, 2023 | Dec 31, 2022 | | :------------------------------- | :----------- | :----------- | | Intellectual property | $6,295 | $6,295 | | Customer relationships | $47,547 | $47,547 | | Less: Accumulated amortization | $(6,512) | $(3,807) | | Total definite-lived, net | $47,330 | $50,035 | | Trademarks (indefinite-lived) | $14,571 | $14,571 | | Total intangible assets, net | $61,901 | $64,606 | Amortization Expense (in thousands) | Amortization Expense (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :---------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Amortization expense | $902 | $902 | $2,705 | $2,698 | - The company anticipates amortization expense of **$3.6 million** for each of the years ending 2023 through 2027, excluding future acquisitions[41](index=41&type=chunk) [7. Supplemental Cash Flow Information](index=13&type=section&id=7.%20Supplemental%20Cash%20Flow%20Information) This note provides supplemental disclosures for cash paid for interest and income taxes, and non-cash investing and financing activities Supplemental Disclosures (in thousands) | Supplemental Disclosures (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Interest paid | $1,187 | $974 | $3,814 | $1,507 | | Income taxes paid | $12,081 | $3,086 | $45,724 | $14,067 | | Non-cash capital expenditures | $(1,536) | $306 | $35 | $985 | [8. Warranties](index=13&type=section&id=8.%20Warranties) This note details the company's product warranty policies, including terms and the method for accruing estimated warranty costs based on historical trends and management's estimates Warranty Accrual (in thousands) | Warranty Accrual (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Balance, beginning of period | $16,900 | $14,381 | $15,682 | $13,769 | | Payments made | $(3,337) | $(2,196) | $(7,653) | $(5,094) | | Warranty expense | $4,248 | $3,046 | $9,782 | $6,556 | | Balance, end of period | $17,811 | $15,231 | $17,811 | $15,231 | [9. Accrued Liabilities and Other Long-Term Liabilities](index=14&type=section&id=9.%20Accrued%20Liabilities%20and%20Other%20Long-Term%20Liabilities) This note provides a detailed breakdown of accrued liabilities and other long-term liabilities, including warranty accruals, amounts due to representatives, payroll, and lease liabilities Accrued Liabilities (in thousands) | Accrued Liabilities (in thousands) | Sep 30, 2023 | Dec 31, 2022 | | :--------------------------------- | :----------- | :----------- | | Warranty | $17,811 | $15,682 | | Due to representatives | $15,888 | $15,545 | | Payroll | $18,105 | $11,901 | | Profit sharing | $7,349 | $5,451 | | Litigation settlement | $7,500 | — | | Accrued income taxes | $113 | $12,472 | | Employee vacation time | $10,131 | $6,329 | | Lease liability, short-term | $1,858 | $1,254 | | Total | $90,986 | $78,630 | Other Long-Term Liabilities (in thousands) | Other Long-Term Liabilities (in thousands) | Sep 30, 2023 | Dec 31, 2022 | | :----------------------------------------- | :----------- | :----------- | | Lease liability | $10,684 | $5,993 | | Extended warranties | $5,009 | $4,539 | | Total | $16,247 | $11,508 | [10. Revolving Credit Facility](index=14&type=section&id=10.%20Revolving%20Credit%20Facility) This note describes the company's revolving credit facility, including maximum borrowings, outstanding balances, interest rates, and compliance with financial covenants - The revolving credit facility provides for maximum borrowings of **$200.0 million**, with **$78.4 million** outstanding and **$119.3 million** available as of September 30, 2023[48](index=48&type=chunk) - The weighted average interest rate on borrowings outstanding was **6.5%** for the three months and **6.3%** for the nine months ended September 30, 2023, up from **3.5%** and **2.5%** respectively in 2022[48](index=48&type=chunk) - The company was in compliance with its financial covenants at September 30, 2023, with a leverage ratio of **0.33 to 1.0**, well below the required maximum of **3 to 1**[49](index=49&type=chunk) [11. Income Taxes](index=15&type=section&id=11.%20Income%20Taxes) This note presents the income tax provision, reconciliation of the federal statutory rate to the effective tax rate, and details on investment tax credits and carryforwards, including a significant one-time benefit Income Tax Provision (in thousands) | Income Tax Provision (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :---------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Current | $14,892 | $8,763 | $33,364 | $17,849 | | Deferred | $521 | $(436) | $(3,917) | $(563) | | Income tax provision | $15,413 | $8,327 | $29,447 | $17,286 | Effective Tax Rate Reconciliation | Effective Tax Rate Reconciliation | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Federal statutory rate | 21.0 % | 21.0 % | 21.0 % | 21.0 % | | State income taxes, net of Federal benefit | 3.4 % | 5.0 % | 4.0 % | 4.7 % | | Excess tax benefits related to share-based compensation | (0.8) % | (1.5) % | (3.9) % | (1.6) % | | Research and development credits | (0.2) % | (0.7) % | (0.9) % | (1.0) % | | Change in valuation allowance (Oklahoma Investment Credit) | — | — | (2.0) % | — | | Effective tax rate | 24.3 % | 23.3 % | 18.4 % | 21.9 % | - A one-time benefit of **$3.1 million** was recognized in the income tax provision for the nine months ended September 30, 2023, due to the reversal of a valuation allowance related to Oklahoma investment tax credit carryforwards, which total approximately **$3.8 million**[52](index=52&type=chunk) [12. Share-Based Compensation](index=16&type=section&id=12.%20Share-Based%20Compensation) This note discusses the company's Long-Term Incentive Plans, including stock options, restricted stock, PSUs, and Key Employee Awards, along with their valuation assumptions, activity, and unrecognized compensation costs. All share and per share information has been updated to reflect a three-for-two stock split effective August 16, 2023 - A three-for-two stock split was effective August 16, 2023, and all share and per share information has been updated to reflect this change[54](index=54&type=chunk) Stock Option Activity | Stock Option Activity | Shares Outstanding at Dec 31, 2022 | Granted | Exercised | Forfeited or Expired | Shares Outstanding at Sep 30, 2023 | | :-------------------- | :--------------------------------- | :------ | :-------- | :------------------- | :--------------------------------- | | Stock Options | 4,560,520 | 326,506 | (864,524) | (106,291) | 3,916,211 | - Total pre-tax compensation cost related to unvested stock options not yet recognized is **$10.7 million**, expected to be recognized over approximately **1.3 years**[59](index=59&type=chunk) - Unrecognized compensation cost related to unvested restricted stock awards is approximately **$5.7 million**, expected to be recognized over approximately **1.5 years**[60](index=60&type=chunk) - Unrecognized compensation cost related to unvested PSUs is **$5.0 million**, expected to be recognized over approximately **1.7 years**[63](index=63&type=chunk) - Unrecognized compensation cost related to unvested Key Employee Awards is **$0.3 million**, expected to be recognized over approximately **0.3 years**[66](index=66&type=chunk) Share-Based Compensation Expense (in thousands) | Share-Based Compensation Expense (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :---------------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Options | $2,228 | $2,104 | $6,604 | $6,483 | | PSUs | $737 | $188 | $1,820 | $665 | | Restricted stock | $1,053 | $768 | $2,903 | $2,290 | | Key employee awards | $261 | $261 | $775 | $791 | | Total | $4,279 | $3,321 | $12,102 | $10,229 | Income Tax Benefit related to Share-Based Compensation (in thousands) | Income Tax Benefit related to Share-Based Compensation (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------------------------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Options | $478 | $531 | $5,639 | $1,022 | | Restricted stock | $16 | $3 | $680 | $231 | | Total | $494 | $534 | $6,319 | $1,253 | [13. Employee Benefits](index=20&type=section&id=13.%20Employee%20Benefits) This note details the company's employee benefit plans, including the 401(k) defined contribution plan, profit sharing bonus plans, and employee medical plan, highlighting contributions and expenses Employee Benefit Contributions/Expenses (in thousands) | Employee Benefit Contributions/Expenses (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :----------------------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Contributions to defined contribution plan | $4,497 | $4,189 | $13,164 | $10,768 | | Profit sharing bonus plan and employee incentive plan expense | $6,954 | $4,137 | $17,772 | $8,952 | | Medical premium payments | $4,455 | $3,429 | $11,255 | $7,418 | | Health saving account contributions | $1,460 | $968 | $3,718 | $2,871 | - The company matches **175%** of employee contributions up to **6%** of eligible compensation for the 401(k) plan[71](index=71&type=chunk) - Profit sharing bonus plans allocate approximately **10%** of pre-tax profit from AAON Oklahoma and AAON Coil Products, and **5%** of BASX's pre-tax profit, to eligible employees[73](index=73&type=chunk) [14. Earnings Per Share](index=21&type=section&id=14.%20Earnings%20Per%20Share) This note provides the calculation of basic and diluted earnings per share, including the weighted average shares outstanding and the effect of dilutive shares, adjusted for the three-for-two stock split Earnings Per Share Data | Earnings Per Share Data | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :---------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net income (in thousands) | $48,078 | $27,473 | $130,574 | $61,478 | | Basic weighted average shares | 81,418,800 | 79,777,987 | 81,140,473 | 79,543,925 | | Effect of dilutive shares related to stock based compensation | 1,974,254 | 1,160,087 | 1,993,664 | 1,135,815 | | Effect of dilutive shares related to contingent consideration | — | — | 141,071 | 203,058 | | Diluted weighted average shares | 83,393,054 | 80,938,074 | 83,275,208 | 80,882,798 | | Basic EPS | $0.59 | $0.34 | $1.61 | $0.77 | | Diluted EPS | $0.58 | $0.34 | $1.57 | $0.76 | - All share and per share information has been updated to reflect the three-for-two stock split effective August 16, 2023[77](index=77&type=chunk) [15. Stockholders' Equity](index=22&type=section&id=15.%20Stockholders'%20Equity) This note covers stock repurchase programs, cash dividend policies, the recent three-for-two stock split, and contingent shares issued as part of the BASX acquisition Stock Repurchase Activity (9 Months Ended Sep 30) | Stock Repurchase Activity (9 Months Ended Sep 30) | 2023 Shares | 2023 Total $ (in thousands) | 2023 $ per share | 2022 Shares | 2022 Total $ (in thousands) | 2022 $ per share | | :------------------------------------------------ | :---------- | :-------------------------- | :--------------- | :---------- | :-------------------------- | :--------------- | | Open market | 402,873 | $25,009 | $62.08 | 53,218 | $2,030 | $38.14 | | 401(k) | — | — | — | 155,904 | $5,913 | $37.93 | | Employees | 20,218 | $1,202 | $59.45 | 24,889 | $978 | $39.29 | | Total | 423,091 | $26,211 | $61.95 | 234,011 | $8,921 | $38.12 | - As of September 30, 2023, approximately **$25.0 million** remained under the current **$50.0 million** stock repurchase program approved on November 3, 2022[80](index=80&type=chunk) Cash Dividends per Share | Cash Dividends per Share | May 18, 2022 | Nov 8, 2022 | Mar 1, 2023 | May 18, 2023 | Aug 18, 2023 | | :----------------------- | :----------- | :---------- | :---------- | :----------- | :----------- | | Dividend per Share | $0.13 | $0.16 | $0.08 | $0.08 | $0.08 | | Annualized Dividend per Share | $0.26 | $0.32 | $0.32 | $0.32 | $0.32 | - Effective March 1, 2023, the company transitioned from semi-annual to quarterly cash dividends[85](index=85&type=chunk) - A three-for-two stock split was declared on July 7, 2023, paid as a stock dividend on August 16, 2023, with cash paid in lieu of fractional shares (approximately **$0.5 million**)[86](index=86&type=chunk) - For the BASX acquisition, **1.56 million shares** of common stock were committed as contingent consideration. As of September 30, 2023, **0.58 million shares** (2022 earn-out) and **0.73 million shares** (2021 earn-out) have been issued[87](index=87&type=chunk) [16. New Markets Tax Credit](index=23&type=section&id=16.%20New%20Markets%20Tax%20Credit) This note describes the 2019 and 2023 New Markets Tax Credit (NMTC) transactions, which provide low-interest financing and potential debt forgiveness for manufacturing expansion, and the company's role as primary beneficiary of related variable interest entities (VIEs) - The 2019 NMTC transaction provided a **$23.0 million** allocation, securing low-interest financing and potential debt forgiveness for the Longview, Texas manufacturing expansion. The company provided a **$15.9 million** loan receivable and received a **$22.5 million** loan to a subsidiary[88](index=88&type=chunk) - The 2023 NMTC transaction also provided a **$23.0 million** allocation for the Longview, Texas expansion. The company provided a **$16.7 million** loan receivable and received a **$23.8 million** loan to a subsidiary, with net proceeds included in restricted cash for the project[90](index=90&type=chunk) - Both NMTC transactions include a put/call feature exercisable at the end of a seven-year compliance period, which could trigger debt forgiveness. The company is the primary beneficiary of the related VIEs[89](index=89&type=chunk)[90](index=90&type=chunk) [17. Commitments and Contingencies](index=24&type=section&id=17.%20Commitments%20and%20Contingencies) This note discusses the settlement of the Havtech litigation for $7.5 million and other routine claims and contractual obligations, including an asset purchase agreement - The Havtech litigation, challenging the termination of a sales representative relationship, was settled for **$7.5 million** on September 28, 2023, and included in accrued liabilities and SG&A expenses[91](index=91&type=chunk) - The company entered a **$6.5 million** purchase agreement to acquire assets for designing and manufacturing fan wheels. As of September 30, 2023, **$3.5 million** has been paid, with the remaining **$3.0 million** paid on October 30, 2023[92](index=92&type=chunk) [18. Related Parties](index=25&type=section&id=18.%20Related%20Parties) This note summarizes transactions and balances with related parties, including sales to and payments to affiliates, and amounts due from and to affiliates - Related party transactions include sales of units to an entity owned by the CEO/President's immediate family, purchases of supplies from entities controlled by board members, and payments to a board member for consulting[93](index=93&type=chunk) Related Party Transactions (in thousands) | Related Party Transactions (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :---------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Sales to affiliates | $1,047 | $450 | $4,811 | $3,529 | | Payments to affiliates | $90 | $30 | $872 | $1,033 | Related Party Balances (in thousands) | Related Party Balances (in thousands) | Sep 30, 2023 | Dec 31, 2022 | | :------------------------------------ | :----------- | :----------- | | Due from affiliates | $190 | $432 | | Due to affiliates | $232 | — | [19. Segments](index=26&type=section&id=19.%20Segments) This note defines the company's three reportable segments (AAON Oklahoma, AAON Coil Products, BASX) and provides financial data for each, including net sales, gross profit, and long-lived assets, which are evaluated by the CEO - The company operates through three reportable segments: AAON Oklahoma (standard, semi-custom, and custom HVAC systems, controls, retail parts), AAON Coil Products (standard, semi-custom, and custom HVAC systems, heating/cooling coils), and BASX (custom engineered air handling systems, data center cooling, cleanroom HVAC)[96](index=96&type=chunk) Segment Financial Data (in thousands) | Segment Financial Data (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | **Net Sales** | | | | | | AAON Oklahoma | $246,454 | $179,169 | $666,670 | $476,517 | | AAON Coil Products | $25,769 | $30,504 | $89,262 | $79,193 | | BASX | $39,747 | $32,932 | $105,948 | $78,480 | | Total Net Sales | $311,970 | | $242,605 | | $861,880 | $634,190 | | **Gross Profit** | | | | | | AAON Oklahoma | $94,174 | $45,643 | $231,403 | $111,216 | | AAON Coil Products | $8,307 | $10,564 | $22,948 | $26,344 | | BASX | $13,628 | $9,384 | $32,930 | $21,471 | | Total Gross Profit | $116,109 | $65,591 | $287,281 | $159,031 | Segment Assets (in thousands) | Segment Assets (in thousands) | Sep 30, 2023 | Dec 31, 2022 | | :---------------------------- | :----------- | :----------- | | **Long-lived assets** | | | | AAON Oklahoma | $251,298 | $213,731 | | AAON Coil Products | $77,434 | $68,013 | | BASX | $45,805 | $35,578 | | Total long-lived assets | $374,537 | $317,322 | | **Intangible assets and goodwill** | | | | AAON Oklahoma | $3,229 | $3,229 | | BASX | $140,564 | $143,269 | | Total intangible assets and goodwill | $143,793 | $146,498 | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.](index=27&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations.) This section provides management's perspective on the company's financial condition, operational results, liquidity, capital resources, and key factors influencing performance [Overview](index=27&type=section&id=Overview) This section provides a general overview of the company's business, products, markets, and economic factors affecting its operations, including cyclicality, foreign sales, and its go-to-market strategy through independent representatives - AAON engineers, manufactures, markets, and sells premium air conditioning and heating equipment, including rooftop units, data center cooling solutions, and cleanroom systems, to various commercial industries across the U.S. and Canada[101](index=101&type=chunk) - Foreign sales were approximately **$29.3 million** for the nine months ended September 30, 2023, compared to **$18.0 million** for the same period in 2022[101](index=101&type=chunk) - The business is affected by economic factors and cyclical new construction and replacement markets. The company utilizes a network of independent manufacturers' Representatives for sales, which is considered a more effective strategy for increasing market share[101](index=101&type=chunk)[103](index=103&type=chunk) - Raw material costs (copper, galvanized steel, stainless steel, aluminum) fluctuate, with price increases implemented in 2022 and 2023 to offset inflationary headwinds[103](index=103&type=chunk) [Backlog](index=28&type=section&id=Backlog) This section presents historical backlog levels and discusses the impact of increased production capacity and operational efficiencies on reducing backlog and improving lead times Backlog (in thousands) | Backlog (in thousands) | Sep 30, 2023 | Dec 31, 2022 | Sep 30, 2022 | | :--------------------- | :----------- | :----------- | :----------- | | Backlog | $490,591 | $548,022 | $514,735 | - Backlog decreased at September 30, 2023, compared to December 31, 2022, despite strong bookings. Investments in facilities and workforce have significantly improved capacity and operational efficiencies, leading to record production rates and improved lead times[104](index=104&type=chunk) [Results of Operations](index=28&type=section&id=Results%20of%20Operations) This section highlights key financial performance metrics for the three and nine months ended September 30, 2023, including significant sales growth, gross profit margin improvement, and share repurchases, with detailed analysis by segment and expense category Metric (in thousands) | Metric (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net Sales | $311,970 | $242,605 | $861,880 | $634,190 | | Cost of Sales | $195,861 | $177,014 | $574,599 | $475,159 | | Gross Profit | $116,109 | $65,591 | $287,281 | $159,031 | | Selling, general and administrative expenses | $51,470 | $28,891 | $123,684 | $78,880 | | Income from operations | $64,664 | $36,700 | $163,610 | $80,163 | - Sales for the three and nine months ended September 30, 2023, grew **28.6%** and **35.9%** respectively, driven by record production rates and realized price increases[107](index=107&type=chunk) - Gross profit margin for Q3 2023 increased by **1,020 basis points** to **37.2%** from **27.0%** in Q3 2022, due to increased organic volumes, operational efficiencies, and better overhead absorption[107](index=107&type=chunk) - The company completed the repurchase of **$25.0 million** of shares under its current share repurchase authorization[107](index=107&type=chunk) [Segment Operating Results for Three Months Ended September 30, 2023 and Three Months Ended September 30, 2022](index=29&type=section&id=Segment%20Operating%20Results%20for%20Three%20Months%20Ended%20September%2030%2C%202023%20and%20Three%20Months%20Ended%20September%2030%2C%202022) This section analyzes net sales and gross profit performance for each segment during the third quarter, noting the impact of price increases, organic volume growth, and operational efficiencies Segment Performance (in thousands) | Segment Performance (in thousands) | Net Sales (Q3 2023) | % of Sales (Q3 2023) | Net Sales (Q3 2022) | % of Sales (Q3 2022) | $ Change | % Change | | :--------------------------------- | :------------------ | :------------------- | :------------------ | :------------------- | :------- | :------- | | AAON Oklahoma | $246,454 | 79.0 % | $179,169 | 73.9 % | $67,285 | 37.6 % | | AAON Coil Products | $25,769 | 8.3 % | $30,504 | 12.6 % | $(4,735) | (15.5)% | | BASX | $39,747 | 12.7 % | $32,932 | 13.6 % | $6,815 | 20.7 % | | Total Net Sales | $311,970 | | $242,605 | | $69,365 | 28.6 % | | **Gross Profit** | | | | | | | | AAON Oklahoma | $94,174 | 38.2 % | $45,643 | 25.5 % | $48,531 | 106.3 % | | AAON Coil Products | $8,307 | 32.2 % | $10,564 | 34.6 % | $(2,257) | (21.4)% | | BASX | $13,628 | 34.3 % | $9,384 | 28.5 % | $4,244 | 45.2 % | | Total Gross Profit | $116,109 | 37.2 % | $65,591 | 27.0 % | $50,518 | 77.0 % | - Total net sales increased by **$69.4 million (28.6%)**, with **16.7%** from price increases and **11.9%** from organic volume growth[109](index=109&type=chunk) - AAON Coil Products experienced sales decreases due to a smaller backlog and inefficiencies from implementing a new BASX production line[109](index=109&type=chunk) - BASX benefited from larger jobs and higher production rates without increasing personnel, contributing to a **45.2%** increase in gross profit[109](index=109&type=chunk) [Raw Material Costs (Three-month average)](index=30&type=section&id=Raw%20Material%20Costs%20(Three-month%20average)) This section provides a comparison of average raw material costs per pound for key materials for the three months ended September 30, 2023, versus 2022 Raw Material Costs (3-month average per pound) | Raw Material Costs (3-month average per pound) | Sep 30, 2023 | Sep 30, 2022 | % Change | | :--------------------------------------------- | :----------- | :----------- | :------- | | Copper | $5.45 | $5.83 | (6.5)% | | Galvanized steel | $0.59 | $0.82 | (28.0)% | | Stainless steel | $3.31 | $2.94 | 12.6 % | | Aluminum | $2.45 | $2.55 | (3.9)% | [Selling, General and Administrative Expenses (Three-month)](index=30&type=section&id=Selling%2C%20General%20and%20Administrative%20Expenses%20(Three-month)) This section details the changes in SG&A expenses for the three months ended September 30, 2023, highlighting increases in profit sharing, depreciation, professional fees (due to litigation settlement), and other expenses SG&A Expenses (in thousands) | SG&A Expenses (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | % of Sales (2023) | % of Sales (2022) | | :----------------------------- | :-------------------------- | :-------------------------- | :---------------- | :---------------- | | Warranty | $4,248 | $3,046 | 1.4 % | 1.3 % | | Profit sharing | $6,954 | $3,744 | 2.2 % | 1.5 % | | Salaries & benefits | $13,106 | $11,644 | 4.2 % | 4.8 % | | Stock compensation | $2,476 | $1,537 | 0.8 % | 0.6 % | | Depreciation & amortization | $3,943 | $2,015 | 1.3 % | 0.8 % | | Professional fees | $9,914 | $1,304 | 3.2 % | 0.5 % | | Other | $8,554 | $4,092 | 2.7 % | 1.7 % | | Total SG&A | $51,470 | $28,891 | 16.5 % | 11.9 % | - Total SG&A expenses increased by **$22.6 million**, with profit sharing up **85.7%** due to increased operating results. Professional fees increased by **$8.6 million** due to the litigation settlement (Note 17). Other expenses rose by **$4.5 million (109.0%)** primarily from increased travel and consulting[113](index=113&type=chunk) [Income Taxes (Three-month)](index=30&type=section&id=Income%20Taxes%20(Three-month)) This section discusses the income tax provision and effective tax rate for the three months ended September 30, 2023, noting factors influencing the tax rate Income Tax Data (in thousands) | Income Tax Data (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | | :----------------------------- | :-------------------------- | :-------------------------- | | Income tax provision | $15,413 | $8,327 | | Effective Tax Rate | 24.3 % | 23.3 % | - The estimated annual 2023 effective tax rate, excluding discrete events, is approximately **24.1%**. The tax rate increased due to lower federal research and development tax credit, offset by higher estimated income for Oklahoma and increased realization of investment credit[114](index=114&type=chunk)[115](index=115&type=chunk) [Segment Operating Results for Nine Months Ended September 30, 2023 and Nine Months Ended September 30, 2022](index=31&type=section&id=Segment%20Operating%20Results%20for%20Nine%20Months%20Ended%20September%2030%2C%202023%20and%20Nine%20Months%20Ended%20September%2030%2C%202022) This section analyzes net sales and gross profit performance for each segment for the nine months ended September 30, 2023, highlighting overall sales growth, margin improvement, and specific segment performance Segment Performance (in thousands) | Segment Performance (in thousands) | Net Sales (YTD 2023) | % of Sales (YTD 2023) | Net Sales (YTD 2022) | % of Sales (YTD 2022) | $ Change | % Change | | :--------------------------------- | :------------------- | :-------------------- | :------------------- | :-------------------- | :------- | :------- | | AAON Oklahoma | $666,670 | 77.4 % | $476,517 | 75.1 % | $190,153 | 39.9 % | | AAON Coil Products | $89,262 | 10.4 % | $79,193 | 12.5 % | $10,069 | 12.7 % | | BASX | $105,948 | 12.3 % | $78,480 | 12.4 % | $27,468 | 35.0 % | | Total Net Sales | $861,880 | | $634,190 | | $227,690 | 35.9 % | | **Gross Profit** | | | | | | | | AAON Oklahoma | $231,403 | 34.7 % | $111,216 | 23.3 % | $120,187 | 108.1 % | | AAON Coil Products | $22,948 | 25.7 % | $26,344 | 33.3 % | $(3,396) | (12.9)% | | BASX | $32,930 | 31.1 % | $21,471 | 27.4 % | $11,459 | 53.4 % | | Total Gross Profit | $287,281 | 33.3 % | $159,031 | 25.1 % | $128,250 | 80.6 % | - Total net sales increased by **$227.7 million (35.9%)**, with **19.3%** from price increases and **16.6%** from organic volume growth[117](index=117&type=chunk) - Gross profit margin increased to **33.3%** (YTD 2023) from **25.1%** (YTD 2022), primarily due to realized price increases counteracting material and labor costs, and favorable labor/overhead efficiencies from increased unit production[117](index=117&type=chunk) - AAON Coil Products' gross profit margin decreased to **25.7%** due to less optimal overhead absorption and slower-than-anticipated start-up of BASX unit production[117](index=117&type=chunk) [Raw Material Costs (Nine-month average)](index=32&type=section&id=Raw%20Material%20Costs%20(Nine-month%20average)) This section provides a comparison of average raw material costs per pound for key materials for the nine months ended September 30, 2023, versus 2022 Raw Material Costs (9-month average per pound) | Raw Material Costs (9-month average per pound) | Sep 30, 2023 | Sep 30, 2022 | % Change | | :--------------------------------------------- | :----------- | :----------- | :------- | | Copper | $5.68 | $5.61 | 1.2 % | | Galvanized steel | $0.68 | $0.97 | (29.9)% | | Stainless steel | $3.33 | $3.17 | 5.0 % | | Aluminum | $2.44 | $2.09 | 16.7 % | [Selling, General and Administrative Expenses (Nine-month)](index=32&type=section&id=Selling%2C%20General%20and%20Administrative%20Expenses%20(Nine-month)) This section details the changes in SG&A expenses for the nine months ended September 30, 2023, noting significant increases in profit sharing, professional fees (litigation settlement), and other expenses (travel, NMTC closing costs) SG&A Expenses (in thousands) | SG&A Expenses (in thousands) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | % of Sales (2023) | % of Sales (2022) | | :----------------------------- | :-------------------------- | :-------------------------- | :---------------- | :---------------- | | Warranty | $9,782 | $6,556 | 1.1 % | 1.0 % | | Profit sharing | $17,772 | $8,559 | 2.1 % | 1.3 % | | Salaries & benefits | $39,229 | $31,419 | 4.6 % | 5.0 % | | Stock compensation | $6,825 | $5,220 | 0.8 % | 0.8 % | | Depreciation & amortization | $9,812 | $5,768 | 1.1 % | 0.9 % | | Professional fees | $11,895 | $3,686 | 1.4 % | 0.6 % | | Other | $21,250 | $12,632 | 2.5 % | 2.0 % | | Total SG&A | $123,684 | $78,880 | 14.4 % | 12.4 % | - Overall SG&A expenses increased by **$44.8 million**. Profit sharing increased by **$9.2 million (107.6%)** due to improved operating results. Professional fees rose by **$8.2 million** due to the litigation settlement (Note 17). Other expenses increased by **$8.6 million (68.2%)** mainly from increased travel and closing costs related to the 2023 New Market Tax Credit (Note 16)[121](index=121&type=chunk) [Income Taxes (Nine-month)](index=32&type=section&id=Income%20Taxes%20(Nine-month)) This section discusses the income tax provision and effective tax rate for the nine months ended September 30, 2023, highlighting the impact of valuation allowance reversal and excess tax benefits from share-based compensation Income Tax Data (in thousands) | Income Tax Data (in thousands) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :----------------------------- | :-------------------------- | :-------------------------- | | Income tax provision | $29,447 | $17,286 | | Effective Tax Rate | 18.4 % | 21.9 % | - The decrease in the effective tax rate was primarily due to a **$3.1 million** benefit from the reversal of a valuation allowance related to Oklahoma's manufacturing property investment program, allowing the company to utilize existing credit carryforwards[123](index=123&type=chunk) - An excess tax benefit of **$6.3 million** was recorded for the nine months ended September 30, 2023, compared to **$1.3 million** in the prior year, mainly due to the timing of stock option exercises at high stock prices[123](index=123&type=chunk) [Liquidity and Capital Resources](index=33&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's liquidity position, working capital management, revolving credit facility, New Markets Tax Credit transactions, stock repurchase programs, and dividend policy, affirming its ability to meet future financial obligations - Working capital and capital expenditure requirements are generally met through net cash from operations and the revolving bank line of credit. Unrestricted cash decreased by **$5.2 million**, while restricted cash increased by **$21.8 million** due to the 2023 New Markets Tax Credit[124](index=124&type=chunk) - The revolving credit facility has a maximum borrowing capacity of **$200.0 million**, with **$78.4 million** outstanding and **$119.3 million** available as of September 30, 2023. The company is in compliance with its leverage ratio covenant (**0.33 to 1.0**)[125](index=125&type=chunk) - The 2019 and 2023 New Markets Tax Credit programs provided **$23.0 million** allocations each, securing low-interest financing and potential debt forgiveness for the Longview, Texas manufacturing expansion[126](index=126&type=chunk)[127](index=127&type=chunk) - The Board approved a **$50.0 million** stock repurchase plan on November 3, 2022, with approximately **$25.0 million** remaining as of September 30, 2023[128](index=128&type=chunk)[129](index=129&type=chunk) - The company transitioned from semi-annual to quarterly cash dividends, with recent dividends of **$0.08 per share**[133](index=133&type=chunk)[134](index=134&type=chunk) - Management believes current cash, projected cash flows, the revolving credit facility, and access to capital markets will satisfy working capital, capital expenditures, and other liquidity requirements for 2023 and the foreseeable future[134](index=134&type=chunk) [Statement of Cash Flows](index=36&type=section&id=Statement%20of%20Cash%20Flows) This section provides a detailed analysis of cash flows from operating, investing, and financing activities for the nine months ended September 30, 2023, compared to 2022, highlighting the drivers of changes in cash Cash Flow Category (in thousands) | Cash Flow Category (in thousands) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------------------- | :-------------------------- | :-------------------------- | | Net cash provided by operating activities | $107,145 | $43,414 | | Net cash used in investing activities | $(82,732) | $(63,782) | | Net cash (used in) provided by financing activities | $(7,827) | $28,149 | [Cash Flows Provided by Operating Activities](index=36&type=section&id=Cash%20Flows%20Provided%20by%20Operating%20Activities) This section explains the drivers of cash provided by operating activities, including working capital management, inventory purchases, customer prepayments, employee bonuses, and income tax payable - Net cash provided by operating activities increased to **$107.1 million** (YTD 2023) from **$43.4 million** (YTD 2022)[137](index=137&type=chunk) - The increase was driven by working capital management, strategic inventory purchases, increased customer prepayments, and higher employee bonuses, partially offset by increased current income tax payable due to R&D capitalization changes[138](index=138&type=chunk)[139](index=139&type=chunk) - The increase in accrued liabilities and other long-term liabilities is partly due to the litigation settlement accrued at September 30, 2023[139](index=139&type=chunk) [Cash Flows Used in Investing Activities](index=37&type=section&id=Cash%20Flows%20Used%20in%20Investing%20Activities) This section details the capital expenditures for the nine months ended September 30, 2023, focusing on investments in production capabilities and expansion projects - Net cash used in investing activities was **$(82.7) million** (YTD 2023), up from **$(63.8) million** (YTD 2022)[137](index=137&type=chunk) - Capital expenditures for the nine months ended September 30, 2023, totaled **$82.9 million**, primarily for additional sheet metal and other machinery, production/warehouse space in Longview, office space and land in Tulsa, and a partial interest in an airplane[140](index=140&type=chunk) - The capital expenditure program for 2023 is estimated to be approximately **$100.0 million**[140](index=140&type=chunk) [Cash Flows Provided by Financing Activities](index=37&type=section&id=Cash%20Flows%20Provided%20by%20Financing%20Activities) This section explains the factors influencing cash flows from financing activities, including revolving credit, stock options, repurchases, and dividends - Net cash used in financing activities was **$(7.8) million** (YTD 2023), a shift from **$28.1 million** provided in YTD 2022[137](index=137&type=chunk) - Changes were primarily related to borrowings under the revolving credit facility for working capital and capital expenditures, offset by repayments. Stock option exercises increased due to a higher stock price[141](index=141&type=chunk) - The company repurchased approximately **402,873 shares** for **$25.0 million** under its current stock repurchase program and transitioned to quarterly cash dividends[141](index=141&type=chunk) [Commitments and Contractual Obligations](index=37&type=section&id=Commitments%20and%20Contractual%20Obligations) This section discusses the company's contractual obligations, including purchase agreements for raw materials and a specific asset purchase - As of September 30, 2023, the company had no material contractual purchase obligations, except for a **$6.5 million** purchase agreement for assets to design and manufacture fan wheels. **$3.5 million** had been paid, with the remaining **$3.0 million** paid on October 30, 2023[142](index=142&type=chunk) [Critical Accounting Policies](index=37&type=section&id=Critical%20Accounting%20Policies) This section states that there have been no material changes in the company's critical accounting policies during the nine months ended September 30, 2023 - There have been no material changes in the Company's critical accounting policies during the nine months ended September 30, 2023[143](index=143&type=chunk) [Recent Accounting Pronouncements](index=37&type=section&id=Recent%20Accounting%20Pronouncements) This section refers to Note 1 of the Notes to the Consolidated Financial Statements for a discussion of recent accounting pronouncements - Refer to Note 1 of the Notes to the Consolidated Financial Statements for a discussion of recent accounting pronouncements[144](index=144&type=chunk) [Forward-Looking Statements](index=38&type=section&id=Forward-Looking%20Statements) This section provides a cautionary statement regarding forward-looking statements, outlining various risks and uncertainties that could cause actual results to differ materially from projections, and clarifies that the company does not undertake to update these statements - The report contains forward-looking statements that involve risks and uncertainties, and actual outcomes may differ materially from forecasts[146](index=146&type=chunk) - Important factors that could cause differences include market conditions, raw material prices, natural events, inflation, supply chain disruptions, labor market tightening, litigation, cybersecurity, and integration of acquired businesses[146](index=146&type=chunk) - Readers are cautioned not to place undue reliance on these statements, and the company undertakes no obligation to update them, except as required by federal securities laws[146](index=146&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk.](index=39&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk.) This section details the company's exposure to market risks, specifically commodity price fluctuations and interest rate changes, and its strategies for managing these risks [Commodity Price Risk](index=39&type=section&id=Commodity%20Price%20Risk) This section discusses the company's exposure to volatility in commodity prices used in its products and its strategy to manage this risk through cancellable and non-cancellable contracts with major suppliers - The company is exposed to volatility in the prices of commodities (e.g., steel, copper, aluminum) used in its products. This exposure is managed through cancellable and non-cancellable contracts with major suppliers for periods of **six to 18 months**[147](index=147&type=chunk) [Interest Rate Risk](index=39&type=section&id=Interest%20Rate%20Risk) This section addresses the company's exposure to changes in interest rates related to its outstanding debt and quantifies the potential impact on income before taxes - As of September 30, 2023, the company had an outstanding debt balance of **$78.4 million**[148](index=148&type=chunk) - For each **one percentage point** increase in the interest rate applicable to outstanding debt, the company's annual income before taxes would decrease by approximately **$0.8 million**[148](index=148&type=chunk) [Item 4. Controls and Procedures.](index=39&type=section&id=Item%204.%20Controls%20and%20Procedures.) This section reports on the effectiveness of the company's disclosure controls and procedures and any changes in internal control over financial reporting [(a) Evaluation of Disclosure Controls and Procedures](index=39&type=section&id=(a)%20Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) Management, including the Chief Executive Officer and Chief Financial Officer, concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of September 30, 2023[149](index=149&type=chunk) [(c) Changes in Internal Control over Financial Reporting](index=39&type=section&id=(c)%20Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) There have been no material changes in internal control over financial reporting that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting - There have been no material changes in internal control over financial reporting during the last fiscal quarter[149](index=149&type=chunk) [PART II – OTHER INFORMATION](index=39&type=section&id=PART%20II%20%E2%80%93%20OTHER%20INFORMATION) This section covers legal proceedings, risk factors, equity sales, defaults, mine safety, security holder votes, other information, and exhibits [Item 1. Legal Proceedings.](index=39&type=section&id=Item%201.%20Legal%20Proceedings.) This section refers to Note 17 of the Notes to the Consolidated Financial Statements for information on legal proceedings - Refer to Note 17 of the Notes to the Consolidated Financial Statements for details on legal proceedings[150](index=150&type=chunk) [Item 1A. Risk Factors.](index=39&type=section&id=Item%201A.%20Risk%20Factors.) This section states that there have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2022 - There have been no material changes to the risk factors included in the 2022 Annual Report on Form 10-K[151](index=151&type=chunk) [Item 2. Unregistered Sales of Equity and Securities and Use of Proceeds.](index=39&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20and%20Securities%20and%20Use%20of%20Proceeds.) This section provides details on stock repurchases, including open market, 401(k), and employee repurchases, and the issuance of contingent shares related to the BASX acquisition - From inception through September 30, 2023, the company repurchased approximately **6.9 million shares** for **$106.6 million** under open market programs, **3.1 million shares** for **$24.6 million** from employees, and **12.5 million shares** for **$171.8 million** through a discontinued 401(k) arrangement[152](index=152&type=chunk)[153](index=153&type=chunk) - A new **$50.0 million** stock repurchase plan was approved on November 3, 2022, with the expiration date at the Board's discretion[152](index=152&type=chunk) - For the BASX acquisition, **1.56 million shares** were committed as contingent consideration. As of September 30, 2023, **0.58 million shares** (2022 earn-out) and **0.73 million shares** (2021 earn-out) have been issued[155](index=155&type=chunk)[156](index=156&type=chunk) [Stock Repurchases](index=39&type=section&id=Stock%20Repurchases) This section details the company's stock repurchase activities, including open market, 401(k), and employee repurchases, and the current repurchase program Repurchases (Q3 2023) | Repurchases (Q3 2023) | Total Number of Shares Purchased | Average Price Paid Per Share | | :-------------------- | :------------------------------- | :--------------------------- | | July 2023 | 177 | $67.30 | | August 2023 | 403,187 | $62.07 | | September 2023 | 258 | $61.49 | | Total | 403,622 | $61.95 | [Contingent Shares Issued in BASX Acquisition](index=40&type=section&id=Contingent%20Shares%20Issued%20in%20BASX%20Acquisition) This section explains the contingent consideration in the BASX acquisition, payable in common stock based on earn-out milestones - The December 2021 acquisition of BASX included a commitment of **$78.0 million** in contingent consideration, payable in approximately **1.56 million shares** of common stock, contingent on BASX meeting post-closing earn-out milestones for 2021, 2022, and 2023[155](index=155&type=chunk)[156](index=156&type=chunk) - As of September 30, 2023, **0.58 million shares** and **0.73 million shares** related to the 2022 and 2021 earn-out milestones, respectively, have been issued to the former owners of BASX[156](index=156&type=chunk) [Item 3. Defaults Upon Senior Securities.](index=40&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities.) This section states that there are no defaults upon senior securities - There are no defaults upon senior securities[157](index=157&type=chunk) [Item 4. Mine Safety Disclosures.](index=40&type=section&id=Item%204.%20Mine%20Safety%20Disclosures.) This section states that the item regarding mine safety disclosures is not applicable to the company - This item is not applicable[157](index=157&type=chunk) [Item 4A. Submission of Matters to a Vote of Security Holders.](index=40&type=section&id=Item%204A.%20Submission%20of%20Matters%20to%20a%20Vote%20of%20Security%20Holders.) This section states that there were no matters submitted to a vote of security holders during the period - No matters were submitted to a vote of security holders[157](index=157&type=chunk) [Item 5. Other Information.](index=41&type=section&id=Item%205.%20Other%20Information.) This section provides information on Rule 10b5-1 trading arrangements for directors and officers Rule 10b5-1 Trading Arrangements | Rule 10b5-1 Trading Arrangements | Date of Adoption | Duration of Arrangement | Aggregate Number of Securities to be Purchased or Sold | | :------------------------------- | :--------------- | :---------------------- | :----------------------------------------------------- | | Stephen E. Wakefield (VP and COO) | Nov 23, 2022 | Terminated May 17, 2023 | 95,788 | | Stephen E. Wakefield (VP and COO) | Sep 13, 2023 | Expires Aug 30, 2024 | 181,000 | [Item 6. Exhibits.](index=41&type=section&id=Item%206.%20Exhibits.) This section lists the exhibits filed with the Form 10-Q, including certifications, bylaws, and interactive data files - Exhibits include Amended and Restated Bylaws, CEO and CFO certifications (pursuant to Rule 13a-14(a) and 18 U.S.C. Section 1350), and Interactive Data Files (iXBRL) for financial statements and notes[161](index=161&type=chunk) [SIGNATURES](index=41&type=section&id=SIGNATURES) This section contains the signatures of the Chief Executive Officer and Chief Financial Officer, certifying the report - The report was signed by Gary D. Fields, Chief Executive Officer, and Rebecca A. Thompson, Chief Financial Officer, on November 06, 2023[162](index=162&type=chunk)

Q2 2023 Earnings Conference Call August 3, 2023 Forward-Looking Statements and Other References Certain statements and information set forth in this presentation (some of which are beyond the Company’s control) and assumptions contains “forward-looking statements” and “forward-looking that could cause actual future results to differ materially from the information” within the meaning of the Private Securities Litigation Company’s historical experience and its present expectations or Reform Act of 1995. Exce ...

AAON, Inc. (NASDAQ:AAON) Q2 2023 Earnings Conference Call August 4, 2023 5:00 PM ET Company Participants Joseph Mondillo - Director, Investor Relations Gary Fields - President & CEO Rebecca Thompson - Chief Financial Officer & Treasurer Conference Call Participants Julio Romero - Sidoti & Company Chris Moore - CJS Securities Brent Thielman - DA Davidson Jon Braatz - Oppenheimer Operator Welcome to the AAON Inc. Second Quarter 2023 Earnings Conference Call. Our host for today's call is Joseph Mondillo, Direc ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2023 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________________ to ____________________ Commission file number: 0-18953 AAON, INC. (Exact name of registrant as specified in its charter) Nevada 87-0448736 (State or ...

Financial Data and Key Metrics Changes - Net sales increased by 45.5% to $266 million from $182.8 million, driven by organic volume growth of 23.5% and pricing contributing 22% [10] - Gross profit rose by 67.5% to $77.2 million, with a gross profit margin of 29% compared to 25.2% in Q1 2022 [10] - Income from operations increased by 92.1% to $44.2 million, with an operating margin expanding to 16.6% from 12.6% [11] - Diluted earnings per share increased by 103% to $0.67 from $0.33 [12] Business Line Data and Key Metrics Changes - Parts sales grew by 38.5% in the quarter, with a two-year stack increase of 88.6%, although it declined to 5.3% of total sales due to robust equipment sales growth [20] - The backlog continued to grow, marking the seventh consecutive quarter of record backlog, up 30% year-over-year and 9.5% sequentially [17] Market Data and Key Metrics Changes - Demand remains strong across various markets, including data centers, semiconductor markets, K-12 education, healthcare, and manufacturing [19] - Construction spending is now well beyond pre-pandemic levels, with construction starts at their strongest levels in years [20] Company Strategy and Development Direction - The company is focused on increasing production capacity and productivity, with capital expenditures expected to be approximately $135 million, representing over 150% year-over-year growth [13][22] - The company opened a new exploration center to support sales channel partners, enhancing customer understanding of AAON products [15] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the operating environment, noting that bookings trends are still on the rise and channel partners remain positive [7][19] - Supply chain issues are gradually improving, but challenges still exist, impacting productivity and output [14][56] - The company anticipates sales and earnings will improve sequentially through at least Q3, with gross margin expected to improve throughout the year [21] Other Important Information - The company reported a strong balance sheet with unrestricted cash of $2.5 million and total debt of $83.7 million [12] - Working capital increased to $246.3 million, up from $203.5 million at the end of 2022 [12] Q&A Session Summary Question: Can you discuss the underlying demand for both business lines and the strongest end market drivers? - Management noted brisk demand in both business lines, with strong bookings and a backlog that continues to accumulate [25] Question: Can AAON sustain market share gains as industry lead times normalize? - Management believes that the value of AAON equipment will sustain customer loyalty, even as lead times normalize [28] Question: What is the outlook for pricing for the remainder of the year? - The company paused price increases in May, believing that current pricing will support continued gross margin improvement [33] Question: How has the operating environment changed since the last call? - Management indicated that supply chain issues have begun to ease, with expectations for continued improvement throughout 2023 [56]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2023 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________________ to ____________________ Commission file number: 0-18953 AAON, INC. (Exact name of registrant as specified in its charter) Nevada 87-0448736 (State o ...

AAON, Inc. (NASDAQ:AAON) Q4 2022 Earnings Conference Call February 27, 2023 5:15 PM ET Company Participants Joseph Mondillo - Director, Investor Relations Matt Tobolski - President & Co-Founder, BasX Solutions Rebecca Thompson - Chief Financial Officer & Treasurer Conference Call Participants Julio Romero - Sidoti & Company Jean Ramirez - D.A. Davidson Chris Moore - CJS Securities Jon Braatz - Kansas City Capital Operator Good day, and welcome to the AAON Incorporated Fourth Quarter 2022 Earnings Conference ...

[Part I - Business and Risk Factors](index=6&type=section&id=Part%20I) This section details AAON's HVAC business, operational risks, property holdings, and ongoing legal challenges [Business Overview](index=6&type=section&id=Item%201.%20Business) AAON designs, manufactures, and sells premium HVAC equipment across three segments, focusing on mass customization, energy efficiency, and indoor air quality for commercial and industrial markets [Overview and Business Segments](index=6&type=section&id=1.1%20Overview%20and%20Business%20Segments) AAON engineers and manufactures premium HVAC equipment, operating through its AAON Oklahoma, AAON Coil Products, and BASX segments - The company is engaged in the engineering, manufacturing, marketing, and sale of premium air conditioning and heating equipment, including rooftop units, data center cooling solutions, and cleanroom systems[9](index=9&type=chunk) - AAON operates through three business segments: - **AAON Oklahoma:** Designs and manufactures a wide range of HVAC systems and controls - **AAON Coil Products:** Focuses on HVAC systems and manufacturing heating/cooling coils - **BASX:** Specializes in custom-engineered air handling systems for data centers, cleanrooms, and other industrial applications[10](index=10&type=chunk)[11](index=11&type=chunk) [Business Strategy, Products, and Marketing](index=6&type=section&id=1.2%20Business%20Strategy,%20Products,%20and%20Marketing) The company's strategy emphasizes mass customization, energy efficiency, and indoor air quality for its diverse HVAC product lines, primarily serving domestic markets - The company's business strategy is centered on "mass customization," using flexible manufacturing to produce standard, semi-custom, and custom equipment that emphasizes high performance, energy efficiency, and superior indoor air quality[13](index=13&type=chunk)[14](index=14&type=chunk) - Sales are primarily domestic, with foreign sales accounting for only **3.1% of net sales in 2022**[15](index=15&type=chunk) - Product offerings include rooftop units with cooling capacities from **2 to 261 tons**, Zero Degree Cold Climate Air-Source Heat Pumps, and specialized data center and cleanroom solutions from the BASX segment[18](index=18&type=chunk)[19](index=19&type=chunk)[24](index=24&type=chunk)[25](index=25&type=chunk) - The company is well-positioned to meet heightened demand for indoor air quality features, offering solutions for humidity control, MERV 13 filtration, increased outdoor air ventilation, and air disinfection to mitigate virus transmission[27](index=27&type=chunk)[28](index=28&type=chunk)[29](index=29&type=chunk) [Sales, Customers, and Competition](index=9&type=section&id=1.3%20Sales,%20Customers,%20and%20Competition) AAON markets products through independent representatives, faces customer concentration, and competes with larger industry players despite significant backlog growth - The company utilizes approximately **64 independent manufacturer representative organizations** with **127 offices** to market its products, primarily in the U.S. and Canada[30](index=30&type=chunk) - A single customer, Texas AirSystems LLC, accounted for **10% or more of sales** in 2022, 2021, and 2020, representing a significant customer concentration[35](index=35&type=chunk) Order Backlog Growth | Date | Backlog (approx.) | | :--- | :--- | | February 1, 2023 | $547.3 million | | February 1, 2022 | $347.6 million | - Key competitors include larger, well-resourced companies such as Lennox, Trane, Carrier, and Johnson Controls, with Vertiv and STULZ competing in the BASX segment[37](index=37&type=chunk) [Resources, R&D, and ESG](index=11&type=section&id=1.4%20Resources,%20R%26D,%20and%20ESG) The company manages raw material costs, significantly increased R&D investments, and actively pursues environmental, social, and governance initiatives - The most important raw materials are steel, copper, and aluminum, with the company using contracts to limit price fluctuation impacts[40](index=40&type=chunk) Research & Development Expenses (2020-2022) | Year | R&D Expense (approx.) | | :--- | :--- | | 2022 | $46.8 million | | 2021 | $16.6 million | | 2020 | $17.4 million | - The significant increase in 2022 R&D spending was driven by the inclusion of a full year of BASX operations and a continued commitment to innovation, supported by the advanced Norman Asbjornson Innovation Center (NAIC) laboratory[43](index=43&type=chunk)[44](index=44&type=chunk) - The company is focused on ESG initiatives, including reducing greenhouse gas emissions, increasing hazardous waste recycling (over **14,928 tons of metal in 2022**), and developing non-fossil fuel consuming products[55](index=55&type=chunk)[57](index=57&type=chunk) [Human Capital](index=13&type=section&id=1.5%20Human%20Capital) AAON has experienced significant employee headcount growth, maintains positive employee relations, and offers competitive benefits without union representation Employee Headcount Growth | Date | Total Employees | | :--- | :--- | | Feb 22, 2023 | 3,666 | | Feb 22, 2022 | 2,881 | | Feb 23, 2021 | 2,268 | - The company's employees are not represented by unions, and management considers employee relations to be good, offering competitive benefits including a **401(k) with a 175% employer match** and a profit-sharing bonus plan[58](index=58&type=chunk)[61](index=61&type=chunk) [Risk Factors](index=14&type=section&id=Item%201A.%20Risk%20Factors) AAON faces risks from economic downturns, customer concentration, supply chain disruptions, cybersecurity threats, and evolving environmental regulations, particularly refrigerant transition costs - **Pandemic & Economic Risks:** Business can be adversely affected by public health emergencies like COVID-19 and is sensitive to economic conditions that influence the new construction and replacement markets[64](index=64&type=chunk)[67](index=67&type=chunk) - **Customer & Channel Risks:** The company has a significant customer concentration, with one customer accounting for over **10% of sales**, and is dependent on its network of third-party representatives to market and sell products[68](index=68&type=chunk)[69](index=69&type=chunk) - **Operational & Supply Chain Risks:** The company may be adversely affected by the availability and price of raw materials (steel, copper, aluminum) and components, with a majority of operations concentrated in Tulsa, OK, posing a risk from natural disasters[74](index=74&type=chunk)[80](index=80&type=chunk) - **Technology & Cybersecurity Risks:** The business is subject to risks from cybersecurity attacks and is reliant on its information technology infrastructure[82](index=82&type=chunk)[84](index=84&type=chunk) - **Regulatory Risks:** The company is subject to extensive environmental regulations, with a key challenge being the mandated transition to a new, lower global warming potential refrigerant by **2025**, which is expected to incur costs for product redesign, facility updates, and materials[85](index=85&type=chunk)[91](index=91&type=chunk)[92](index=92&type=chunk) [Properties](index=19&type=section&id=Item%202.%20Properties) AAON owns and leases substantial manufacturing and R&D facilities in Oklahoma, Texas, and Oregon, with ongoing expansion efforts across its operational footprint - **AAON Oklahoma:** Owns multiple facilities in Tulsa, OK, including a **940,000 sq. ft. manufacturing building** and the **134,000 sq. ft. NAIC R&D laboratory**, and also leases a **51,000 sq. ft. plant** in Parkville, MO, which is being expanded[95](index=95&type=chunk)[97](index=97&type=chunk)[99](index=99&type=chunk) - **AAON Coil Products:** Owns two main buildings in Longview, TX, totaling **485,000 sq. ft. of manufacturing/warehouse space**, and purchased an additional **64,000 sq. ft. warehouse** in January 2023[100](index=100&type=chunk) - **BASX:** Operates in a **194,000 sq. ft. plant/office** in Redmond, OR, and leases smaller additional spaces[101](index=101&type=chunk) [Legal Proceedings](index=20&type=section&id=Item%203.%20Legal%20Proceedings.) AAON is defending against a lawsuit from a former sales representative, Havtech, LLC, seeking at least $48.6 million in damages following a business relationship termination - A former sales representative, Havtech, LLC, filed a complaint challenging the termination of its business relationship and is seeking damages of at least **$48.6 million**, which the company believes are without merit[340](index=340&type=chunk) [Part II - Market, Financials, and Controls](index=21&type=section&id=Part%20II) This section details AAON's stock market activity, management's financial analysis, market risk exposures, consolidated financial statements, and internal controls [Stock Market, Dividends, and Share Repurchases](index=21&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity,%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities.) AAON's common stock trades on NASDAQ, with the company increasing cash dividends and conducting share repurchases while maintaining equity compensation plans Cash Dividends Declared per Share (2020-2022) | Declaration Date | Dividend per Share | | :--- | :--- | | May 15, 2020 | $0.19 | | Nov 10, 2020 | $0.19 | | May 17, 2021 | $0.19 | | Nov 9, 2021 | $0.19 | | May 18, 2022 | $0.19 | | Nov 8, 2022 | $0.24 | Share Repurchases (Q4 2022) | Period | Total Shares Purchased | Average Price Paid | | :--- | :--- | :--- | | Oct 2022 | 87,049 | $55.33 | | Nov 2022 | 23 | $65.00 | | Dec 2022 | 196 | $76.66 | | **Total** | **87,268** | **$55.38** | - As of December 31, 2022, there were **3,599,896 securities** remaining available for future issuance under the 2016 Long-Term Incentive Plan[105](index=105&type=chunk) [Management's Discussion and Analysis (MD&A)](index=22&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations.) AAON achieved record 2022 results with strong sales growth and improved margins, driven by acquisitions and pricing, while managing liquidity and planning significant capital expenditures [Results of Operations](index=24&type=section&id=7.1%20Results%20of%20Operations) AAON's 2022 operations saw significant net sales growth and improved gross margins, driven by acquisitions and pricing, despite rising raw material costs and SG&A expenses Consolidated Results of Operations (2021-2022) | Metric | 2022 (in millions) | 2021 (in millions) | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $888.8 | $534.5 | 66.3% | | Gross Profit | $237.6 | $137.8 | 72.4% | | *Gross Margin* | *26.7%* | *25.8%* | *+90 bps* | | Income from Operations | $126.8 | $69.3 | 83.0% | - Net sales growth of **$354.3 million** was driven by the BASX acquisition (**19.5% of growth**), price increases (**$100.0 million**), and organic sales volume/mix (**$149.8 million**)[127](index=127&type=chunk) - AAON Coil Products segment gross margin increased significantly to **31.0%** from **15.1% in 2021**, primarily due to faster realization of price increases and increased operational efficiencies from its new manufacturing building[127](index=127&type=chunk) Raw Material Cost Increases (2022 vs 2021 Avg.) | Material | % Change | | :--- | :--- | | Copper | +13.4% | | Galvanized Steel | +14.5% | | Stainless Steel | +61.0% | | Aluminum | +14.0% | - SG&A expenses increased by **$42.2 million** to **$110.8 million**, largely due to a full year of BASX operations, increased salaries and benefits from headcount growth and wage hikes, and higher profit-sharing expenses[130](index=130&type=chunk)[131](index=131&type=chunk) [Liquidity and Capital Resources](index=27&type=section&id=7.2%20Liquidity%20and%20Capital%20Resources) The company manages liquidity through a revolving credit facility, adjusted share repurchase activity, and plans substantial capital expenditures for 2023 - The company maintains a **$200.0 million revolving credit facility**, which had an outstanding balance of **$71.0 million** and available borrowings of **$128.2 million** as of December 31, 2022[135](index=135&type=chunk) Stock Repurchase Activity | Year | Total Repurchase (in millions) | | :--- | :--- | | 2022 | $13.8 | | 2021 | $22.5 | - The decrease in stock repurchases in 2022 was primarily due to the discontinuation of the 401(k) buyback program in June 2022[152](index=152&type=chunk) - The capital expenditure program for 2023 is estimated to be approximately **$135.0 million**[151](index=151&type=chunk) [Cash Flow Analysis](index=30&type=section&id=7.3%20Cash%20Flow%20Analysis) Cash flow analysis reveals stable operating cash, reduced investing outflows due to the prior year's BASX acquisition, and impacts from inventory and accounts receivable growth Summary of Cash Flows (2021-2022) | Activity | 2022 (in millions) | 2021 (in millions) | | :--- | :--- | :--- | | Net cash from operating activities | $61.3 | $61.2 | | Net cash used in investing activities | ($76.2) | ($158.7) | | Net cash from financing activities | $17.4 | $18.7 | - Cash used in investing activities decreased significantly in 2022 because 2021 included the **$103.4 million cash payment** for the BASX acquisition[150](index=150&type=chunk) - Operating cash flow was impacted by a **$71.4 million increase in inventories** to mitigate supply chain disruptions and a **$56.3 million increase in accounts receivable** due to higher sales volume[147](index=147&type=chunk)[149](index=149&type=chunk) [Critical Accounting Estimates](index=32&type=section&id=7.4%20Critical%20Accounting%20Estimates) Management's critical accounting estimates involve significant judgment for inventory valuation, warranty accruals, share-based compensation, and goodwill impairment assessments - Management identifies several critical accounting estimates requiring significant judgment, including: - **Inventory:** Valued at lower of cost or net realizable value, with reserves for obsolescence and shrinkage - **Warranty Accrual:** Estimated based on historical trends and known issues - **Share-Based Compensation:** Fair value is estimated using Black-Scholes-Merton and Monte Carlo models, which require subjective assumptions - **Goodwill and Intangible Assets:** Assessed for impairment annually (in Q4) or when triggering events occur, with the 2022 qualitative assessment indicating no impairment[157](index=157&type=chunk)[160](index=160&type=chunk)[163](index=163&type=chunk)[165](index=165&type=chunk) [Market Risk Disclosures](index=34&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk.) AAON faces market risks from commodity price volatility and interest rate fluctuations on its variable-rate debt, with a 1% rate increase impacting pre-tax income by $0.7 million - The company is exposed to price volatility in commodities such as steel, copper, and aluminum[172](index=172&type=chunk) - The company is exposed to interest rate risk on its **$71.0 million of outstanding variable-rate debt**, where a **1% increase** in the interest rate would reduce annual income before taxes by about **$0.7 million**[173](index=173&type=chunk) [Financial Statements and Supplementary Data](index=35&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data.) This section presents the audited consolidated financial statements, including balance sheets, income statements, and cash flows, with notes detailing key accounting policies and transactions [Independent Auditor's Report](index=36&type=section&id=8.1%20Independent%20Auditor's%20Report) Grant Thornton LLP issued an unqualified audit opinion, highlighting manual inventory adjustments as a critical audit matter due to valuation complexities - The independent auditor, Grant Thornton LLP, issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting as of December 31, 2022[179](index=179&type=chunk)[180](index=180&type=chunk) - The auditor identified "manual inventory adjustments" as a critical audit matter due to the substantial management judgment and estimation uncertainty involved in inventory valuation, particularly given recent raw material price changes and supply chain challenges[184](index=184&type=chunk)[185](index=185&type=chunk) [Consolidated Financial Statements](index=38&type=section&id=8.2%20Consolidated%20Financial%20Statements) This section provides key consolidated financial statements, including balance sheet accounts and income statement performance metrics for recent fiscal years Key Balance Sheet Data (as of Dec 31) | Account | 2022 (in millions) | 2021 (in millions) | | :--- | :--- | :--- | | Total Current Assets | $349.1 | $218.1 | | Total Assets | $813.9 | $650.2 | | Total Current Liabilities | $145.6 | $86.8 | | Total Stockholders' Equity | $560.7 | $466.2 | Key Income Statement Data (Year Ended Dec 31) | Account | 2022 (in millions) | 2021 (in millions) | 2020 (in millions) | | :--- | :--- | :--- | :--- | | Net Sales | $888.8 | $534.5 | $514.6 | | Gross Profit | $237.6 | $137.8 | $155.8 | | Net Income | $100.4 | $58.8 | $79.0 | | Diluted EPS | $1.86 | $1.09 | $1.49 | [Notes to Financial Statements](index=42&type=section&id=8.3%20Notes%20to%20Financial%20Statements) The notes detail significant accounting policies, including the BASX acquisition's financial impact, share-based compensation, and segment-level performance data - **Note 4 (Business Combination):** The acquisition of BASX closed on Dec 10, 2021, with the final allocation of the **$103.7 million consideration** resulting in **$78.7 million of goodwill** and **$68.4 million of intangible assets** (customer relationships, intellectual property, trademarks)[254](index=254&type=chunk)[259](index=259&type=chunk)[260](index=260&type=chunk) - **Note 14 (Share-Based Compensation):** Total share-based compensation expense was **$13.7 million in 2022**, compared to **$11.8 million in 2021**, including costs for stock options, restricted stock, PSUs, and special awards for key BASX employees[315](index=315&type=chunk) - **Note 22 (Segments):** Provides a detailed breakdown of external sales, inter-segment sales, and gross profit for the three reportable segments, with AAON Oklahoma having external sales of **$663.8 million**, AAON Coil Products **$107.3 million**, and BASX **$117.7 million** in 2022[356](index=356&type=chunk) [Controls and Procedures](index=74&type=section&id=Item%209A.%20Controls%20and%20Procedures.) Management and the independent auditor concluded that AAON's disclosure controls and internal control over financial reporting were effective as of December 31, 2022 - Management concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report (December 31, 2022)[358](index=358&type=chunk) - Management's annual report on internal control over financial reporting concluded that the company maintained effective internal control as of December 31, 2022[359](index=359&type=chunk)[360](index=360&type=chunk) - The independent registered public accounting firm, Grant Thornton LLP, audited and issued an unqualified opinion on the effectiveness of the Company's internal control over financial reporting as of December 31, 2022[361](index=361&type=chunk)[363](index=363&type=chunk) [Part III - Corporate Governance and Executive Compensation](index=76&type=section&id=Part%20III) This section's content on corporate governance, executive compensation, and related matters is incorporated by reference from the company's 2023 Proxy Statement - Information required by Items 10, 11, 12, 13, and 14 of Form 10-K is incorporated by reference from the company's definitive Proxy Statement to be filed for the 2023 Annual Meeting of Stockholders[370](index=370&type=chunk)[372](index=372&type=chunk)[373](index=373&type=chunk)[374](index=374&type=chunk) [Part IV - Exhibits and Schedules](index=77&type=section&id=Part%20IV) This section provides a comprehensive list of all financial statements, schedules, and exhibits filed as part of the Form 10-K report - This part lists all exhibits filed with the Form 10-K, including the Amended and Restated Loan Agreement, various long-term incentive plans, a list of subsidiaries, and CEO/CFO certifications[375](index=375&type=chunk)

AAON, Inc. (NASDAQ:AAON) Q3 2022 Results Conference Call November 7, 2022 5:15 PM ET Company Participants Joe Mondillo - Director, IR Gary Fields - President and CEO Rebecca Thompson - CFO and Treasurer Conference Call Participants Chris Moore - CJS Securities Brent Thielman - D.A. Davidson Julio Romero - Sidoti Jon Braatz - Kansas City Capital Operator Ladies and gentlemen, thank you for standing by and welcome to AAON’s Third Quarter 2022 Earnings Conference Call. All lines have been placed on mute to pre ...