EX-99.1 2 aaon20181231pressreleaseex.htm EXHIBIT 99.1 Exhibit


Exhibit 99.1                        

aaona01.jpg

AAON REPORTS SALES AND EARNINGS FOR THE FOURTH QUARTER AND YEAR 2018

TULSA, OK, February 28, 2019 - AAON, INC. (NASDAQ-AAON), today announced its results for the fourth quarter and year 2018. Sales in the fourth quarter were $112.3 million, up 7.9% from $104.2 million in 2017. Net income for the fourth quarter was $12.5 million, a decrease of 20.5% from $15.8 million in the same period a year ago. The fourth quarter of 2017 had a benefit of $4.4 million related to the enactment of the Tax Cuts and Jobs Act (the "Act") discussed below. Sales for the year 2018 reached a record level, $433.9 million, representing a gain of 7.1% compared to $405.2 million in 2017. Net income for 2018 was $42.6 million, a decrease of 21.9% compared to $54.5 million in 2017.

Our backlog at December 31, 2018 increased 86.8% to $151.8 million, from $81.2 million for the same period a year ago.

Earnings for the fourth quarter of 2018 were $0.24 per diluted share, down 19.7% from $0.30 per diluted share in 2017, based upon 52.4 million and 52.9 million diluted shares outstanding, respectively. Earnings per diluted share for the year 2018 were $0.81, decrease of 21.4% from $1.03 for the year 2017 based upon 52.7 million and 53.1 million diluted shares outstanding, respectively.

For the three months ended December 31, 2018, gross profit as a percent of sales was 24.7% compared to 29.8% for the three months ended December 31, 2017. For the year ended December 31, 2018, gross profit was a percent of sales was 23.9% compared to 30.5% in the same period a year ago. Norman H. Asbjornson, CEO, said "Our gross profit has been negatively impacted in 2018 mainly due to labor issues and increased costs in raw materials. The Company elevated staffing levels going into 2018 when orders were slower in anticipation of increased order volume and also struggled to hire qualified labor during our peak season. Our fourth quarter was negatively impacted by production inefficiencies and we have modified our onboarding and new-hire training practices to address these issues. We believe our gross profit percentage will continue to improve to normal levels as our production increases in the coming year."

Selling, general and administrative expenses for the quarter decreased $2.5 million to $11.3 million (10.0% of sales) from $13.7 million (13.2% of sales) as compared to the fourth quarter of 2017. For the year, SG&A expenses decreased $1.5 million to $47.8 million (11.0% of sales) from $49.2 million (12.2% of sales) as compared to 2017. The Company's warranty costs continue to improve with claims paid in 2018 down 9.4% from 2017.

For the three months ended December 31, 2018, our effective tax rate was 24.0% compared to 9.6% for the three months ended December 31, 2017. For the year ended December 31, 2018, effective tax rate was 23.9% compared to 26.8% in the same period a year ago. As a result of the changes provided under the Act, the Company adjusted its deferred tax assets and liabilities existing at the date of enactment using the newly enacted rates for the periods when they are expected to be realized. This remeasurement resulted in a benefit to income taxes of $4.4 million for the three months and year ended December 31, 2017.

Gary Fields, President, added "We are starting to see the benefits of the price increases put in place at the end of 2017 and expect continuation of these benefits as a result of the additional price increases during 2018. With our backlog at record levels, we expect to witness significant improvements in both our sales and earnings in 2019."

Norman H. Asbjornson, CEO, concluded "Our financial condition at December 31, 2018 remained quite strong with a current ratio of 2.9:1 and we continue to operate debt free. "

The Company will host a conference call today at 4:15 P.M. (Eastern Time) to discuss the fourth quarter and year 2018 results. To participate, call 1-888-241-0551 (code 1296698); or, for rebroadcast, call 1-855-859-2056 (code 1296698).




1


About AAON
AAON, Inc. is engaged in the engineering, manufacturing, marketing and sale of air conditioning and heating equipment consisting of standard, semi-custom and custom rooftop units, chillers, packaged outdoor mechanical rooms, air handling units, makeup air units, energy recovery units, condensing units, geothermal/water-source heat pumps, coils and controls. Since the founding of AAON in 1988, AAON has maintained a commitment to design, develop, manufacture and deliver heating and cooling products to perform beyond all expectations and demonstrate the value of AAON to our customers. For more information, please visit www.AAON.com.

Certain statements in this news release may be “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933. Statements regarding future prospects and developments are based upon current expectations and involve certain risks and uncertainties that could cause actual results and developments to differ materially from the forward-looking statements.

Contact Information
Jerry R. Levine
Phone: (914) 244-0292
Fax: (914) 244-0295
Email: jrladvisor@yahoo.com


2


AAON, Inc. and Subsidiaries
Unaudited Consolidated Statements of Income
 
Three Months Ended 
 December 31,
 
Years Ending
December 31,
 
2018
 
2017
 
2018
 
2017
 
(in thousands, except share and per share data)
Net sales
$
112,340

 
$
104,160

 
$
433,947

 
$
405,232

Cost of sales
84,545

 
73,085

 
330,414

 
281,835

Gross profit
27,795

 
31,075

 
103,533

 
123,397

Selling, general and administrative expenses
11,260

 
13,714

 
47,755

 
49,249

(Gain) loss on disposal of assets
(3
)
 
(1
)
 
(12
)
 
45

Income from operations
16,538

 
17,362

 
55,790

 
74,103

Interest income, net
25

 
83

 
196

 
298

Other (expense) income, net
(58
)
 
5

 
(47
)
 
91

Income before taxes
16,505

 
17,450

 
55,939

 
74,492

Income tax provision
3,969

 
1,680

 
13,367

 
19,994

Net income
$
12,536

 
$
15,770

 
$
42,572

 
$
54,498

Earnings per share:
 

 
 

 
 

 
 

Basic
$
0.24

 
$
0.30

 
$
0.81

 
$
1.04

Diluted
$
0.24

 
$
0.30

 
$
0.81

 
$
1.03

Cash dividends declared per common share:
$
0.16

 
$
0.13

 
$
0.32

 
$
0.26

Weighted average shares outstanding:
 
 
 
 
 

 
 

Basic
52,086,247

 
52,457,780

 
52,284,616

 
52,572,496

Diluted
52,420,529

 
52,931,796

 
52,667,939

 
53,078,734





3


AAON, Inc. and Subsidiaries
Unaudited Consolidated Balance Sheets
 
December 31,
 
2018
 
2017
Assets
(in thousands, except share and per share data)
Current assets:
 
 
 
Cash and cash equivalents
$
1,994

 
$
21,457

Certificates of deposit
—

 
2,880

Investments held to maturity at amortized cost
—

 
6,077

Accounts receivable, net
54,078

 
50,338

Income tax receivable
6,104

 
1,643

Note receivable
27

 
28

Inventories, net
77,612

 
70,786

Prepaid expenses and other
1,046

 
518

Total current assets
140,861

 
153,727

Property, plant and equipment:
 

 
 

Land
3,114

 
2,233

Buildings
97,393

 
92,075

Machinery and equipment
212,779

 
184,316

Furniture and fixtures
16,597

 
13,714

Total property, plant and equipment
329,883

 
292,338

Less:  Accumulated depreciation
166,880

 
149,963

Property, plant and equipment, net
163,003

 
142,375

Intangible assets, net
506

 
—

Goodwill
3,229

 
—

Note receivable
598

 
678

Total assets
$
308,197

 
$
296,780

 
 
 
 
Liabilities and Stockholders' Equity
 

 
 

Current liabilities:
 

 
 

Revolving credit facility
$
—

 
$
—

Accounts payable
10,616

 
10,967

Accrued liabilities
37,455

 
39,098

Total current liabilities
48,071

 
50,065

Deferred revenue
1,655

 
1,512

Deferred tax liabilities
10,826

 
7,977

Donations
146

 
—

Commitments and contingencies
 
 
 
Stockholders' equity:
 

 
 

Preferred stock, $.001 par value, 5,000,000 shares authorized, no shares issued
—

 
—

Common stock, $.004 par value, 100,000,000 shares authorized, 51,991,242 and 52,422,801 issued and outstanding at December 31, 2018 and 2017, respectively
208

 
210

Additional paid-in capital
—

 
—

Retained earnings
247,291

 
237,016

Total stockholders' equity
247,499

 
237,226

Total liabilities and stockholders' equity
$
308,197

 
$
296,780




4


AAON, Inc. and Subsidiaries
Unaudited Consolidated Statements of Cash Flows
 
Years Ending December 31,
 
2018
 
2017
 
2016
Operating Activities
(in thousands)
Net income
$
42,572

 
$
54,498

 
$
53,376

Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 

 
 

Depreciation and amortization
17,655

 
15,007

 
13,035

Amortization of bond premiums
13

 
47

 
249

Provision for losses on accounts receivable, net of adjustments
174

 
179

 
(25
)
Provision for excess and obsolete inventories
152

 
264

 
625

Share-based compensation
7,374

 
6,458

 
4,357

(Gain) loss on disposition of assets
(12
)
 
45

 
(20
)
Foreign currency transaction loss (gain)
55

 
(59
)
 
(22
)
Interest income on note receivable
(27
)
 
(25
)
 
(28
)
Deferred income taxes
2,849

 
(1,554
)
 
825

Changes in assets and liabilities:
 

 
 

 
 
Accounts receivable
(2,832
)
 
(7,516
)
 
7,048

Income tax receivable
(4,461
)
 
4,596

 
(1,537
)
Inventories
(5,598
)
 
(23,698
)
 
(9,478
)
Prepaid expenses and other
(528
)
 
98

 
(83
)
Accounts payable
(1,176
)
 
3,043

 
654

Deferred revenue
412

 
258

 
417

Accrued liabilities and donations
(1,766
)
 
6,353

 
(5,470
)
Net cash provided by operating activities
54,856

 
57,994

 
63,923

Investing Activities
 

 
 

 
 
Capital expenditures
(37,268
)
 
(41,713
)
 
(26,604
)
Cash paid in business combination
(6,377
)
 
—

 
—

Proceeds from sale of property, plant and equipment
13

 
10

 
28

Investment in certificates of deposits
(7,200
)
 
(5,280
)
 
(4,112
)
Maturities of certificates of deposits
10,080

 
7,912

 
10,560

Purchases of investments held to maturity
(9,001
)
 
(13,241
)
 
(10,384
)
Maturities of investments
14,570

 
19,700

 
10,021

Proceeds from called investments
495

 
1,500

 
3,514

Principal payments from note receivable
53

 
60

 
52

Net cash used in investing activities
(34,635
)
 
(31,052
)
 
(16,925
)
Financing Activities
 

 
 

 
 
Borrowings under revolving credit facility
—

 
—

 
761

Payments under revolving credit facility
—

 
—

 
(761
)
Stock options exercised
4,987

 
2,259

 
2,063

Repurchase of stock
(26,846
)
 
(16,620
)
 
(19,317
)
Employee taxes paid by withholding shares
(1,097
)
 
(1,614
)
 
(823
)
Cash dividends paid to stockholders
(16,728
)
 
(13,663
)
 
(12,676
)
Net cash used in financing activities
(39,684
)
 
(29,638
)
 
(30,753
)
Net (decrease) increase in cash and cash equivalents
(19,463
)
 
(2,696
)
 
16,245

Cash and cash equivalents, beginning of period
21,457

 
24,153

 
7,908

Cash and cash equivalents, end of period
$
1,994

 
$
21,457

 
$
24,153



5


Use of Non-GAAP Financial Measure
To supplement the Company’s consolidated financial statements presented in accordance with generally accepted accounting principles (“GAAP”), an additional non-GAAP financial measure is provided and reconciled in the following table. The Company believes that this non-GAAP financial measure, when considered together with the GAAP financial measures, provide information that is useful to investors in understanding period-over-period operating results. The Company believes that this non-GAAP financial measure enhances the ability of investors to analyze the Company’s business trends and operating performance.
EBITDAX
EBITDAX (as defined below) is presented herein and reconciled from the GAAP measure of net income because of its wide acceptance by the investment community as a financial indicator of a company's ability to internally fund operations.
The Company defines EBITDAX as net income, plus (1) depreciation, (2) amortization of bond premiums, (3) share-based compensation, (4) interest (income) expense and (5) income tax expense. EBITDAX is not a measure of net income or cash flows as determined by GAAP.
The Company’s EBITDAX measure provides additional information which may be used to better understand the Company’s operations. EBITDAX is one of several metrics that the Company uses as a supplemental financial measurement in the evaluation of its business and should not be considered as an alternative to, or more meaningful than, net income, as an indicator of operating performance. Certain items excluded from EBITDAX are significant components in understanding and assessing a company's financial performance. EBITDAX, as used by the Company, may not be comparable to similarly titled measures reported by other companies. The Company believes that EBITDAX is a widely followed measure of operating performance and is one of many metrics used by the Company’s management team, and by other users of the Company’s consolidated financial statements.
The following table provides a reconciliation of net income (GAAP) to EBITDAX (non-GAAP) for the periods indicated:
 
Three Months Ended 
 December 31,
 
Years Ending
December 31,
 
 
 
2018
 
2017
 
2018
 
2017
 
(in thousands)
Net Income, a GAAP measure
$
12,536

 
$
15,770

 
$
42,572

 
$
54,498

Depreciation and amortization
4,790

 
3,982

 
17,655

 
15,007

Amortization of bond premiums
2

 
8

 
13

 
47

Share-based compensation
1,760

 
1,498

 
7,374

 
6,458

Interest income, net
(30
)
 
(91
)
 
(209
)
 
(345
)
Income tax expense
3,969

 
1,680

 
13,367

 
19,994

EBITDAX, a non-GAAP measure
$
23,027

 
$
22,847

 
$
80,772

 
$
95,659






6