AAON(AAON) - 2024 Q3 - Quarterly Results

Earnings Announcement AAON reported record Q3 2024 sales and earnings, driven by data center demand, while strategically expanding capacity and maintaining a strong financial position Third Quarter 2024 Performance Highlights AAON reported record Q3 2024 net sales of $327.3 million, up 4.9%, with gross margin at 34.9% and backlog growing 32.0% to $647.7 million Financial Highlights: Three Months Ended September 30 | Financial Highlights (GAAP Measures) | 2024 (in thousands, except share and per share data) | 2023 (in thousands, except share and per share data) | % Change | | :----------------------------------- | :--------------------------------------------------- | :--------------------------------------------------- | :------- | | Net sales | $327,252 | $311,970 | 4.9 % | | Gross profit | $114,158 | $116,109 | (1.7)% | | Gross profit margin | 34.9 % | 37.2 % | | | Operating income | $65,520 | $64,664 | 1.3 % | | Operating margin | 20.0 % | 20.7 % | | | Net income | $52,625 | $48,078 | 9.5 % | | Earnings per diluted share | $0.63 | $0.58 | 8.6 % | | Non-GAAP Measures | | | | | Non-GAAP adjusted net income | $52,625 | $53,188 | (1.1)% | | Non-GAAP adjusted earnings per diluted share | $0.63 | $0.64 | (1.6)% | | Adjusted EBITDA | $82,863 | $83,710 | (1.0)% | | Adjusted EBITDA margin | 25.3 % | 26.8 % | | - Net sales for Q3 2024 increased 4.9% to a record $327.3 million, driven by BASX (58.8% growth) and AAON Coil Products (36.7% growth), while AAON Oklahoma segment sales declined 7.1%[2] - Gross profit margin in Q3 2024 was 34.9%, down from 37.2% in Q3 2023, due to lower volumes at AAON Oklahoma and temporary inefficiencies at BASX, partially offset by strong results at AAON Coil Products[3] - Earnings per diluted share for Q3 2024 were $0.63, approximately flat from the adjusted earnings per diluted share in Q3 2023[4] Backlog (in thousands) | September 30, 2024 | June 30, 2024 | September 30, 2023 | | :----------------- | :------------ | :----------------- | | $647,694 | $650,005 | $490,591 | - Backlog at September 30, 2024, was $647.7 million, approximately flat with the previous quarter but up 32.0% year-over-year, primarily driven by the BASX and AAON Coil Products segments and consisting mostly of data center equipment orders for 2025[6] Management Commentary and Strategic Outlook Management highlighted record sales driven by data center demand, with strategic expansions in Texas and Memphis, while maintaining a strong balance sheet and investing in future growth - CEO Gary Fields stated that net sales were a Company record, driven by robust growth at the BASX and AAON Coil Products segments, largely spurred by the data center market[7] - BASX segment is expected to see margin improvement over the next six months as disruptions from capacity expansion dissipate and its shop reaches optimal efficiency[7] - Anticipates a near-term softening in overall rooftop demand due to a slower economic backdrop, but demand for data center equipment is expected to remain strong[7] - Subsequent to the quarter, in October, AAON received approximately $174.5 million of orders for a liquid cooling solution for a data center customer, expected to be produced and shipped in the first half of 2025[7] - The expansion project at the Longview, Texas location is on schedule for completion by year-end 2024, with production commencing in early 2025[7] - AAON entered into a definitive agreement to purchase a new 787,000 square foot facility in Memphis, Tennessee, to accommodate incremental data center market demand and diversify its manufacturing footprint[7] - CFO Rebecca Thompson noted cash, cash equivalents, and restricted cash of $6.7 million and a revolving credit facility balance of $55.7 million as of September 30, 2024[7] - The company paid down $30.2 million on the revolving credit facility during the quarter, reducing its leverage ratio to 0.19x[7] - Capital expenditures totaled $38.4 million in Q3 2024, bringing year-to-date investments to $113.7 million, with expansion projects at BASX completed and ACP on schedule for year-end[7] Detailed Financial Statements This section presents AAON's consolidated statements of income, balance sheets, and cash flows, detailing financial performance and position for the reported periods Consolidated Statements of Income Consolidated statements of income show increased net sales and net income for both three and nine months ended September 30, 2024, despite a slight Q3 gross profit decrease Consolidated Statements of Income (Unaudited, in thousands, except share and per share data) | Metric | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net sales | $327,252 | $311,970 | $902,917 | $861,880 | | Cost of sales | $213,094 | $195,861 | $583,423 | $574,599 | | Gross profit | $114,158 | $116,109 | $319,494 | $287,281 | | Selling, general and administrative expenses | $48,637 | $51,470 | $139,820 | $123,684 | | Income from operations | $65,520 | $64,664 | $179,689 | $163,610 | | Net income | $52,625 | $48,078 | $143,869 | $130,574 | | Earnings per share: Diluted | $0.63 | $0.58 | $1.72 | $1.57 | | Cash dividends declared per common share | $0.08 | $0.08 | $0.24 | $0.24 | Consolidated Balance Sheets AAON's balance sheet as of September 30, 2024, shows increased total assets, driven by property, plant, and equipment and contract assets, alongside higher liabilities and stockholders' equity Consolidated Balance Sheets (Unaudited, in thousands, except share and per share data) | Metric | September 30, 2024 | December 31, 2023 | | :------------------------------------------ | :----------------- | :---------------- | | Cash and cash equivalents | $15 | $287 | | Restricted cash | $6,650 | $8,736 | | Accounts receivable, net | $143,806 | $138,108 | | Inventories, net | $177,731 | $213,532 | | Contract assets | $95,120 | $45,194 | | Total current assets | $427,836 | $408,954 | | Property, plant and equipment, net | $427,652 | $369,947 | | Total assets | $1,030,625 | $941,436 | | Accounts payable | $27,199 | $27,484 | | Accrued liabilities | $96,243 | $85,508 | | Contract liabilities | $16,391 | $13,757 | | Total current liabilities | $139,833 | $126,749 | | Revolving credit facility, long-term | $55,677 | $38,328 | | Total stockholders' equity | $796,856 | $735,224 | | Total liabilities and stockholders' equity | $1,030,625 | $941,436 | Consolidated Statements of Cash Flows For the nine months ended September 30, 2024, AAON reported increased operating cash flow, higher capital and software expenditures, and a net cash outflow from financing activities Consolidated Statements of Cash Flows (Unaudited, in thousands) | Metric | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :---------------------------------------------------------- | :----------------------------- | :----------------------------- | | Net income | $143,869 | $130,574 | | Depreciation and amortization | $45,185 | $33,439 | | Net cash provided by operating activities | $191,687 | $107,145 | | Capital expenditures | $(99,371) | $(82,900) | | Software development expenditures | $(14,436) | — | | Net cash used in investing activities | $(113,748) | $(82,732) | | Borrowings under revolving credit facility | $410,503 | $444,072 | | Payments under revolving credit facility | $(393,154) | $(436,656) | | Repurchase of stock | $(100,034) | $(25,009) | | Cash dividends paid to stockholders | $(19,571) | $(19,946) | | Net cash used in financing activities | $(80,297) | $(7,827) | | Net (decrease) increase in cash, cash equivalents and restricted cash | $(2,358) | $16,586 | | Cash, cash equivalents and restricted cash, end of period | $6,665 | $22,535 | Non-GAAP Financial Measures This section provides reconciliations of non-GAAP financial measures, including adjusted net income and EBITDA, to their most directly comparable GAAP measures Non-GAAP Adjusted Net Income Reconciliation AAON reconciles non-GAAP adjusted net income to GAAP net income, adjusting for one-time events like the $7.5 million litigation settlement in 2023 to provide clearer operational insights Non-GAAP Adjusted Net Income Reconciliation (in thousands) | Metric | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net income, a GAAP measure | $52,625 | $48,078 | $143,869 | $130,574 | | Litigation settlement | — | $7,500 | — | $7,500 | | Profit sharing effect | — | $(750) | — | $(750) | | Tax effect | — | $(1,640) | — | $(1,242) | | Non-GAAP adjusted net income | $52,625 | $53,188 | $143,869 | $136,082 | | Non-GAAP adjusted earnings per diluted share | $0.63 | $0.64 | $1.72 | $1.63 | - Non-GAAP adjusted net income is defined as net income adjusted for one-time events, such as litigation settlements, net of profit sharing and tax effect[20] EBITDA and Adjusted EBITDA Reconciliation AAON presents EBITDA and Adjusted EBITDA as non-GAAP measures, derived from net income and adjusted for items like depreciation, interest, taxes, and one-time events, to show operational performance EBITDA and Adjusted EBITDA Reconciliation (in thousands) | Metric | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net income, a GAAP measure | $52,625 | $48,078 | $143,869 | $130,574 | | Depreciation and amortization | $17,262 | $12,203 | $45,185 | $33,439 | | Interest expense, net | $1,091 | $1,266 | $1,697 | $3,959 | | Income tax expense | $11,885 | $15,413 | $34,456 | $29,447 | | EBITDA, a non-GAAP measure | $82,863 | $76,960 | $225,207 | $197,419 | | Litigation settlement | — | $7,500 | — | $7,500 | | Profit sharing effect | — | $(750) | — | $(750) | | Adjusted EBITDA, a non-GAAP measure | $82,863 | $83,710 | $225,207 | $204,169 | | Adjusted EBITDA margin | 25.3 % | 26.8 % | 24.9 % | 23.7 % | - EBITDA is defined as net income, plus depreciation and amortization, interest expense (income), net, and income tax expense[21] - Adjusted EBITDA is calculated as EBITDA adjusted by items in non-GAAP adjusted net income, except for taxes, as taxes are already excluded from EBITDA[23] Corporate Information This section provides an overview of AAON, its forward-looking statements, and investor relations contact details About AAON AAON, founded in 1988 and headquartered in Tulsa, Oklahoma, is a global leader in designing and manufacturing energy-efficient HVAC solutions for commercial and industrial environments - AAON, founded in 1988, is a global leader in HVAC solutions for commercial and industrial indoor environments[10] - The company is headquartered in Tulsa, Oklahoma, and is known for designing and manufacturing highly configurable, energy-efficient equipment[10] Forward-Looking Statements This section contains cautionary forward-looking statements, subject to risks and uncertainties, where actual results may differ materially, and the company disclaims any obligation to update them - The press release includes forward-looking statements subject to risks, uncertainties, and assumptions, and actual outcomes may differ materially from forecasts[11] - AAON undertakes no obligation to update publicly any forward-looking statements[11] - Important factors that could cause results to differ include changes in raw material and component prices, fluctuations in the commercial/industrial new construction market, changes in interest rates, and general economic conditions[11] Investor Relations AAON held a conference call and webcast on November 7, 2024, to discuss Q3 2024 results, with a replay available online, and Joseph Mondillo as the Director of Investor Relations - A conference call and webcast were held on November 7, 2024, at 5:15 P.M. EDT to discuss Q3 2024 results and outlook[8] - A replay of the call is available on the Company's website at https://investors.aaon.com[8](index=8&type=chunk) - Contact for Investor Relations: Joseph Mondillo, Director of Investor Relations, Phone: (617) 877-6346, Email: joseph.mondillo@aaon.com[12]