AAON, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This filing reports full-year results; it does not provide a standalone fourth-quarter income statement. AAON designs and manufactures commercial and industrial HVAC equipment, including rooftop units, data-center cooling and cleanroom systems. The three reportable segments are AAON Oklahoma, AAON Coil Products and BASX.
Financial performance and position
| Metric | FY2022 | FY2021 |
|---|---|---|
| Net sales | $888.8 million | $534.5 million |
| Gross profit / margin | $237.6 million / 26.7% | $137.8 million / 25.8% |
| Income from operations | $126.8 million | $69.3 million |
| Net income | $100.4 million | $58.8 million |
| Diluted EPS | $1.86 | $1.09 |
| Cash from operations | $61.3 million | $61.2 million |
| Capital expenditures | $54.0 million | $55.4 million |
Sales increased 66.3%; management attributed growth to BASX, price increases and organic volume/product mix. BASX contributed $117.7 million of 2022 sales, versus $4.1 million in 2021, when it was consolidated only from December 11. Gross margin rose 0.9 percentage point as price increases and operating efficiencies offset higher input and labor costs. Operating margin was approximately 14.3% versus 13.0% and net margin approximately 11.3% versus 11.0% (calculated from reported figures).
Cash and restricted cash totaled $5.9 million at year-end. The revolving facility had $71.0 million outstanding, $128.2 million available and a May 2027 maturity; its weighted-average interest rate was 3.0%, up from 1.3%. The company reported a 0.46:1 leverage ratio and compliance with its covenants. The balance sheet also included a $6.4 million New Markets Tax Credit obligation. Operating cash flow was nearly unchanged year over year, while receivables and inventory increased materially, reflecting higher sales, strategic inventory purchases and supply-chain precautions.
Outlook, material developments and risks
- Demand and backlog: Management described demand and backlog as strong. Backlog was $548.0 million at December 31, 2022, compared with $260.2 million a year earlier; the February 1, 2023 backlog was approximately $547.3 million, versus $347.6 million a year earlier. Management cited historically high architectural billings and construction starts and expected a strong nonresidential market over the following 9–12 months, while warning that markets are cyclical and economic slowdown could reduce sales and profitability.
- Investment: The company reported $54.0 million of 2022 capital expenditures and a $22.0 million purchase of the BASX facility. Planned 2023 capital expenditures were approximately $135 million, subject to management/Board review and cancellation.
- Costs and operations: 2022 average raw-material costs rose year over year: copper 13.4%, galvanized steel 14.5%, stainless steel 61.0% and aluminum 14.0%. AAON implemented price increases, including recurring monthly 1% increases beginning June 2022. Tight labor availability and supply-chain constraints remained risks.
- Product and accounting items: AAON discontinued production of the WH/WV small geothermal/water-source heat pump lines, recording about $1.2 million of additional obsolete-inventory provision. A useful-life estimate change for certain Longview equipment reduced 2022 depreciation expense by $1.8 million. The auditor identified manual inventory valuation adjustments as a critical audit matter; the financial-statement opinion was unqualified.
- Litigation: Former representative Havtech seeks damages alleged to be at least $48.6 million, plus fees and costs, over termination of the business relationship. AAON disputes the claims and intends to defend itself. The filing does not state a clear estimate of potential loss or outcome.
- Other risks: Customer concentration (Texas AirSystems exceeded 10% of sales in 2022, 2021 and 2020), reliance on independent representatives, commodity and interest-rate exposure, competition, weather-related interruption, warranty/product liability, cybersecurity, and regulatory transition to lower-global-warming-potential refrigerants. Management said it expected sufficient liquidity for foreseeable needs and planned to continue dividends; no specific earnings or revenue guidance was provided.
Most important facts for investors to verify
- How much of 2022 growth and margin improvement is sustainable organic volume versus BASX consolidation and price increases, and how 2023 pricing compares with input-cost trends.
- Whether the record backlog converts to revenue on schedule and how cancellation terms, customer concentration and project execution affect conversion.
- Whether higher inventory and receivables convert into cash, given operating cash flow was broadly flat despite sharply higher net income.
- The timing, funding and expected returns of the approximately $135 million 2023 capital-spending plan, and the effect of higher variable interest rates on debt costs.
- Updates on the Havtech litigation, potential exposure, and any material changes to warranty, inventory-reserve or BASX contingent-consideration estimates.