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Q1 2008 Earnings Call Transcript

May 7, 2008 4:15 pm ET


Norm Asbjornson – Chairman, President and CEO

Kathy Sheffield – VP, CFO and Treasurer


Frank Magdlen – The Robins Group

Joe Mondello – Sidoti & Co.

Jon Braatz – Kansas City Capital

Graeme Rein – Bares Capital

Corey McCullum [ph] – GMP Capital

Robert Marcoin [ph] – Thermometics [ph]



Good day and welcome to today's AAON, Inc. first quarter conference call. As a reminder, today's call is being recorded. At this time, I would like to turn the call over to your host, Norm Asbjornson. Please go ahead sir.

Norm Asbjornson

Good afternoon. Prior to embarking, I would like to read a 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.

Thank you. I would like to introduce Kathy Sheffield, our CFO.

Kathy Sheffield

Good afternoon. Welcome to our conference call. I'd like to begin by discussing the results of the three months that just ended March 31 and those results of which we are quite proud. Revenues were up 11.8% to $65.5 million from $58.6 million. This increase was primarily due to an increase in both market share and pricing. Gross margin stayed constant for the two years at $15.7 million. The gross margin percentage was 23.9% of sales for the first quarter in '08 compared to 26.8% of sales for the same quarter in '07. Although the margin percentage was less this quarter compared to the same quarter a year ago, it was still a very good margin and the margin being at 23.9% is really a better respectable representation of what we would expect our margins to be.

Selling, general, and administrative expenses increased for the first quarter by 3.5% to $5.9 million or 9% of sales from $5.7 million or 9.8% of sales. The increase in SG&A is primarily due to an increase in sales related expenses and then just overall general and administrative expense increases.

Operating income decreased slightly by 2% to $9.8 million or 14.9% of sales from $10 million or 17% of sales. Net income increased by 1.6% to $6.4 million or 9.8% of sales from $6.3 million or 10.8% of sales for the same period last year.

Diluted earnings per share was $0.35 per share this quarter compared to $0.33 per share the same quarter a year ago. EPS was based on 18,311,000 shares compared to 18,902,000 shares for the same quarter in 2007.

Moving to the balance sheet, our current asset ratio increased slightly to approximately 2.3%, primarily due to an increase in current assets. Capital expenditures for the quarter were right at $1 million and those expenditures were related to equipment purchases which would increase our production efficiencies.

Shareholders' equity per share as of March 31 was $5.58 compared to $5.29 last year. During the first quarter in 2008, we paid cash dividends of $2.9 million and also bought back stock from retirement incentive plans and through the open market as well, and paid $1.8 million in total.

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

Norm Asbjornson

Yes, we had record-breaking sales performance, primarily due to having come into the year with a larger backlog than we did in 2007. We had a negative order input in that we did not book quite as much as we did in 2007. Therefore, we pretty much stayed constant with our manpowering. Then coming into the second quarter now, into April this year, there's been an indication that the order is on the upswing. It has been very strong bookings and as a matter of fact, weakness in the first quarter in bookings was in the first two months – January and February, and we had a strong March, stronger than it was a year ago. So it looks like we're gaining strength in the booking department at the present time.

Our second quarter actual shipments is pretty well covered with orders which we presently have in the backlog. We still have a little opening for new orders and that is rapidly being taken up. So our problem in the second quarter is not going to be orders. Our challenge is in producing product. In that respect, we sit with kind of the proverbial good and bad situation. The good part of it is that we've got plenty of work to put out the door. The bad part is we're having a difficult time hiring additional personnel, so we're going to be somewhat limited by personnel and that's due to unemployment rate in our metropolitan area of 3.2%. It doesn't give you very many people to pick from. So, our second quarter results on shipment are not going to be limited by orders, they are going to be limited by our ability to get out the door.

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