AAON(US:AAON)2022-05-07 13:49Financial Data and Key Metrics Changes - Net sales increased by 57.8% to $182.8 million from $115.8 million, driven by organic volume growth of approximately 21.3% and an acquisition contribution of 18.1% [7] - Gross profit rose by 38.9% to $46.1 million, with a gross margin of 25.2%, down from 28.6% in Q1 2021, impacted by higher material costs and wage increases [8][12] - Net income increased to $18.1 million or 9.9% of sales compared to $16.4 million or 14.1% of sales in Q1 2021, with diluted earnings per share rising by 10% to $0.33 [13] Business Line Data and Key Metrics Changes - Selling, general and administrative (SG&A) expenses increased by 56.9% to $23.1 million, but as a percentage of sales, it decreased to 9.7% from 12.7% in the previous year [11] - Capital expenditures for the quarter were $14 million, with expectations for total capital expenditures for the year to be approximately $100.4 million [14] Market Data and Key Metrics Changes - Backlog as of March 31 was $461.4 million, up from $260 million at the end of December and $96.7 million at the end of Q1 2021, representing a 305% organic increase year-over-year [19] - Orders in the quarter were up 150% organically year-over-year, indicating significant market share gains [20] Company Strategy and Development Direction - The company is focused on improving production capacity and operational efficiencies, with record production rates achieved in Q1 [15][21] - New product introductions, such as water source heat pumps, are contributing positively to market demand, alongside strong replacement demand and new construction trends [24][25] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism for the second quarter, anticipating improvements in sales, margins, and earnings throughout the year, particularly in the second half [28] - Supply chain issues are easing, and the company is confident in its ability to manage costs and improve margins sequentially [44][45] Other Important Information - The acquisition of BasX Solutions is progressing well, with strong backlog and order trends, and revenue synergies developing faster than expected [27][54] - The company is transitioning to in-house production of fan wheels to enhance supply chain control and reduce vulnerability [50][51] Q&A Session Summary Question: What are the drivers of organic order growth and which product lines are seeing a surge? - Management noted broad-based product family growth, with significant orders for modular data centers and a 17% year-over-year increase in headcount in the legacy business [29][31] Question: How will the backlog convert into revenue throughout the year? - Management indicated that while the growth rate from Q4 to Q1 is not sustainable, they expect a small double-digit increase in revenue production for Q2, supported by a strong backlog [33][34] Question: Is the company comfortable with the current backlog level? - Management expressed a desire to draw down the backlog for revenue recognition but emphasized that they are not concerned about order intake [37][39] Question: What factors will contribute to achieving target margins by the end of the year? - Management highlighted that stabilizing costs and effective backlog management will lead to sequential margin improvements throughout the year [42][44] Question: Will SG&A expenses see better leverage as sales increase? - Management anticipates some leverage on SG&A expenses as they focus on adding production workers rather than overhead personnel [46]