AAON

AAON, Inc. (AAON)

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AAON (AAON)

Q4 2012 Earnings Call

March 14, 2013 4:15 pm ET

Executives

Norman H. Asbjornson - Chairman, Chief Executive Officer, President, President of AAON Canada Inc, President of AAON Properties Inc and President of AAON Coil Products Inc

Scott M. Asbjornson - Chief Financial Officer and Vice President of Finance

Analysts

Joseph Mondillo - Sidoti & Company, LLC

Jonathan P. Braatz - Kansas City Capital Associates

Presentation

Norman H. Asbjornson

Good afternoon. Norman Asbjornson here for AAON. Before I go on forward, I'd like to read the forward-looking disclaimer.

To the extent any statement presented herein deals with information that is not historical, including the outlook for the remainder of the year, such statement is necessarily forward-looking and made pursuant to the Safe Harbor provisions of the Securities Litigation Reform Act of 1995.

As such, it is subject to the occurrence of many events outside AAON's control, that could cause AAON's results to differ materially from those anticipated. Please see the risk factors contained in our most recent SEC filings, including the annual report on Form 10-K and the quarterly report on Form 10-Q.

I'd like to introduce Scott Asbjornson now, our CFO, who will take over.

Scott M. Asbjornson

Welcome to our conference call. I'd like to begin by discussing our comparative results of the 3 months ended December 31, 2012, to December 31, 2011. Revenues were up 23% to $78 million from $63.4 million. Revenues increased due to gains in market share in the non-residential and replacement markets, and also as a result of price increases introduced earlier in the year.

Gross profit increased 116.6% to $18.7 million from $8.6 million. As a percentage of sales, gross profit was 24% in the quarter just ended, compared to 13.6% in 2011. The improvement in gross profit can be attributed to changes in commodity costs, increased product prices, improved product mix and productivity.

Selling, general and administrative expenses increased 18.2% to $6.6 million from $5.6 million in 2011. As a percentage of sales, SG&A was 8.5% of total sales in the fourth quarter of 2012 and 8.8% in 2011. The dollar basis increase in SG&A from the quarter ended December 31, 2011, was primarily due to higher profit sharing expense, employee compensation and stock-based compensation.

Operating income increased 889.7% to $12.1 million or 15.5% of sales from $1.2 million or 1.9% of sales. In 2011, the company had a loss of $1.8 million on the trade in of old equipment. Also, the fourth quarter of 2011 included nonrecurring charges such as inefficient sheet metal production due to the changing out of approximately 50% of our capacity in a short period of time, in order to have our new equipment operable by the end of the year. Numerous costs expensed during the change out of the equipment, inefficiencies in production due to lack of sheet metal parts in a timely fashion and costs associated with relocating 3 assembly lines and rearranging 2 other assembly lines.

Our effective tax rate increased from 35% to 37% due to adjustments in the quarter. Net income increased 770% to $7.6 million or 9.7% of sales from $0.8 million or 1.4% of sales. The increase is due to the reasons already discussed in operating income.

Diluted earnings per share was $0.31 per share versus $0.04 per share. Earnings per share were based on 24,630,000 shares versus 24,821,000 shares in the same quarter a year ago. The results of the year ended December 31. Revenues were up 13.9% to $303.1 million from $266.2 million. Gross profit increased 52.3% to $70.5 million from $46.3 million. Gross profit as a percent of sales was 23.3% for the year ended December 31, 2012, compared to 17.4% in 2011.

Selling, general and administrative expenses increased 17.7% to $26.3 million or 8.7% of sales during 2012 from $22.3 million or 8.4% of sales. Operating income increased 99.5% to $44.2 million or 14.6% of sales from $22.2 million or 8.3% of sales.

Net income increased 96.3% to $27.4 million or 9.1% of sales from $14 million or 5.3% of sales. Diluted earnings per share is $1.11 per share versus $0.56 per share. Earnings per share were based on 24,699,000 shares versus 24,881,000 shares in the same period a year ago.

Moving to the balance sheet. We see that we had a working capital balance of $51.9 million. Our current asset ratio was approximately 2.3:1. Our capital expenditures were approximately $14.1 million. At December 31, 2011, the company had $3.8 million of capital expenditures and accounts payable that are included in the cash outflows of $14.1 million for 2012.

Shareholders' equity per diluted share is $5.59, compared to $4.92. We paid cash dividends of $8.8 million in 2012.

I'd now like to turn the call back over to Norm, who will discuss our results in further detail, along with the new products and the outlook for the remainder of the year.

Norman H. Asbjornson

Thank you. Despite a very difficult environment in which sales or opportunities within our industry were approximately flat to slightly down, our sales were up to 23% in the quarter and 14% for the year. All of this was primarily due to the following [indiscernible] things which occurred with us. We increased our market share considerably. We did have some price increases. These were done -- the increase in sales were primarily the result of redesigned products and new, improved sales offices. Our replacement market, versus new construction, continued to be this dominant force. In other words, replacement market was approximately 55% or 56% of our total sales. Geothermal, which has been doing very well recently, continued to do well. However, it has been impacted by the dramatic decrease in the cost of natural gas. So it lends a little bit more questionability to geothermal going forward.

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