AAON, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Unaudited consolidated results for AAON Oklahoma, AAON Coil Products, and BASX. Amounts below are in U.S. dollars; financial statement figures are in millions unless noted.
Financial performance
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Net sales | $262.1 | $266.0 | Down 1.4% |
| Gross profit / margin | $92.2 / 35.2% | $77.2 / 29.0% | Up $15.1; margin +6.2 percentage points |
| Operating income | $47.0 | $44.2 | Up 6.3% |
| Net income | $39.0 | $36.8 | Up 6.0% |
| Diluted EPS | $0.46 | $0.44 | Up 4.5% |
| Operating cash flow | $92.4 | $4.8 | Up $87.5 |
| Capital expenditures and software development | $38.7 | $28.9 | Up $9.8 |
Drivers: Management attributed the gross-margin improvement to pricing, product mix and operational efficiency, lower material costs, and improved overhead absorption. Sales volumes declined about 5.7%, partly offset by price increases of about 4.3%. SG&A rose $12.3 million to $45.3 million (17.3% of sales, versus 12.4%), including higher salaries and benefits, professional fees, depreciation and amortization, and other costs. Professional fees increased $3.5 million; salaries and benefits increased $3.1 million.
Segment trends: AAON Oklahoma sales increased 4.0% and gross profit increased 26.8%. AAON Coil Products sales fell 27.4%, while gross profit increased 13.7%. BASX sales fell 9.3% and gross profit fell 30.1%; management cited production timing delays and weaker overhead absorption at BASX and Coil Products.
Cash, liquidity and balance sheet
- Cash and cash equivalents were $8.4 million at quarter-end, compared with $0.3 million at December 31, 2023. Restricted cash was $20.0 million, up from $8.7 million, largely related to New Markets Tax Credit funding for the Longview expansion; management expects most funds to be released by year-end 2024.
- Operating cash flow was $92.4 million, compared with $4.8 million a year earlier. The improvement reflected working-capital movements, notably collections of receivables and lower inventory; it should not be read as a comparable increase in underlying earnings.
- Capital expenditures were $34.7 million, plus $4.1 million of software development expenditures. Management estimates 2024 capital expenditures at approximately $125 million.
- No borrowings were outstanding on the $200 million revolving credit facility at March 31, 2024; $197.7 million was available after letters of credit. The facility expires May 27, 2027. The company reported covenant compliance and a 0.01-to-1.0 leverage ratio, below the 3-to-1 maximum.
- New Markets Tax Credit obligations were $16.0 million on the balance sheet. These arrangements include guarantees and potential tax-credit recapture obligations if program requirements are not met; the company said it does not anticipate recapture.
- Total assets were $952.9 million and stockholders’ equity was $784.8 million at March 31, 2024. The current-period balance sheet reports no revolving-facility debt.
Backlog, outlook and risks
- Backlog was $558.4 million at March 31, 2024, up from $510.0 million at year-end 2023 but below $599.9 million a year earlier. Management said bookings remained strong, production rates were at record levels, and increased capacity and efficiency were reducing lead times and backlog.
- No formal revenue or earnings guidance is provided in the supplied filing text. Management said cash, expected operating cash flows, the committed revolver, and expected capital-market access should meet working-capital, capital-expenditure, and other liquidity needs in 2024 and the foreseeable future.
- Management cited ongoing labor-market constraints, specific-part supply challenges, and component-cost inflation that can lag raw-material price movements by 6–18 months. Raw-material prices were mixed year over year; wage increases and benefit costs remain relevant.
- Key disclosed risks include economic and construction-market cyclicality, customer demand and credit, material and component prices, labor availability, production or delivery disruption, interest rates, cybersecurity and IT interruptions, litigation, regulatory changes, and climate-related weather, water, energy, and refrigerant risks.
- The Havtech dispute was settled for $7.5 million in 2023 and dismissed with prejudice; the settlement was paid. The company reported no belief that other incidental claims and lawsuits would materially adversely affect its financial position, results, or cash flows.
Important facts for investors to verify
- Whether margin gains persist as production timing normalizes at Coil Products and BASX, and whether their segment profitability improves.
- Whether lower sales volumes, component-cost inflation, wage and benefit costs, and higher SG&A affect future operating margins.
- How much of the Q1 operating-cash-flow surge is repeatable versus timing and working-capital effects.
- Execution and returns on the approximately $125 million 2024 capital-expenditure program, and progress converting backlog into sales.
- Use and release timing of restricted cash, and compliance with New Markets Tax Credit terms, including guarantee and potential recapture exposure.
- The effective tax rate: Q1 was 16.6%, while management estimated an approximately 25.6% 2024 rate excluding discrete events; Q1 benefited from excess stock-compensation tax benefits.