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Q2 2013 Earnings Call

August 08, 2013 4:15 pm ET


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


Jonathan P. Braatz - Kansas City Capital Associates

Joseph Mondillo - Sidoti & Company, LLC



Good day, ladies and gentlemen. Welcome to the AAON Second Quarter Sales and Earnings Conference Call. This call is being recorded. I would now like to turn the meeting over to Mr. Norman Asbjornson. Please go ahead, sir.

Norman H. Asbjornson

Well, thank you, and thanks to all of you listening in to our second quarter report. Prior to embarking on it, I want to read the forward-looking disclaimer. To 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 of 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 10-Q.

Thank you. I would like now to turn the mic over to the financial department. I want you to be aware, we have Rebecca Thompson, our Chief Accounting Officer; and Scott Asbjornson, our Chief Financial Officer, here. At the present time, I'll turn it over to Scott.

Scott M. Asbjornson

Welcome to our conference call. I'd like to begin by discussing the comparative results of the 3 months ended June 30, 2013 to June 30, 2012.

Revenues were up 9.5% to $91.2 million from $83.3 million. Revenues increased due to gains in market share in the new commercial, industrial, construction and replacement markets and the result of price increases introduced in May 2012 and April 2013.

Gross profit increased 31.1% to $27.7 million from $21.1 million. As a percentage of sales, gross profit was 30.3% in the quarter just ended compared to 25.3% in Q2 2012. The improvement in gross margins can be attributed to decreases in raw material costs and increased product prices.

Selling, general and administrative expenses increased 31.7% to $9.1 million from $6.9 million in 2012. As a percentage of sales, SG&A was 10.0% of total sales in the second quarter of 2013 and 8.3% in 2012. The increase in SG&A from the quarter ended June 30, 2012 was primarily due to higher profit sharing expense, warranty, sales taxes and employee compensation.

Income from operations increased 31.4% to $18.6 million or 20.4% of sales from $14.2 million or 17% of sales. Our effective tax rate increased to 36.12% from 34.2% in the second quarter of 2012. We expect the rate for the balance of the year to be approximately 34.5%.

Net income increased 30.4% to $12.1 million or 13.3% of sales from $9.3 million or 11.2% of sales. Diluted earnings per share was $0.33 per share versus $0.25 per share. Diluted earnings per share were based on 37,150,000 shares versus 37,092,000 shares in the same quarter a year ago.

The results of the 6 months ended June 30. Revenues were up 6.6% to $158.1 million from $148.3 million. Gross profit increased 24.2% to $43 million from $34.6 million. Gross profit as a percent of sales was 72% -- sorry, 27.2% for the 6 months of 2013 compared to 23.3% in 2012.

Selling, general and administrative expenses increased 24.7% to $16.1 million or 10.2% of sales during 2013 from $12.9 million or 8.7% of sales, primarily due to increases in profit sharing, warranty, stock-based compensation, employee benefits, professional fees, advertising and sales taxes.

Income from operations increased 24.0% to $27 million or 17.1% of sales from $21.8 million or 14.7% of sales.

Our effective tax rate was 29.5% compared with 36.2% in the second quarter of 2012 due to discrete benefits related to the research and development credit and the Indian employment credit. These federal credits were retroactively reinstated on January 2, 2013. No research and development credit or Indian employment credit benefits were recorded in the 6 months ended June 30, 2012.

Net income increased 38.9% to $19.3 million or 12.2% of sales from $13.9 million or 9.3% of sales.

Diluted earnings per share was $0.52 per share versus $0.37 per share. Diluted earnings per share were based on 37,056,000 shares versus 37,125,000 shares in the same period a year ago.

Moving to the balance sheet. We see that we have a working capital balance of $67.8 million. Our current asset ratio was approximately 2.3:1. Our capital expenditures were approximately $1.9 million. Shareholder equity per diluted share is $4.11 at June 30, 2013 versus $3.73 at December 31, 2012. We paid cash dividends of $3.7 million on July 2, 2013.

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.

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