Aaon Inc (AAON) 2012 Q3 法說會逐字稿

Good afternoon. Welcome to AAON Inc., Sales and Earnings for the Third Quarter ending September 30th.

Good afternoon; Norman Asbjornson here. Before proceeding, I'd 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, Form 10-K, and the quarterly report on Form 10-Q.

I'd like now to turn it over to our Chief Financial Officer, Scott Asbjornson.

Welcome to our conference call. I'd like to begin by discussing the comparative results of the three months ended September 30, 2012, to September 30, 2011.

Revenues were up 4% to $76.8 million, from $73.8 million. Revenues increased due to gains in market share in the nonresidential and replacement markets, and also as a result of price increases introduced earlier in the year.

Gross profit increased 20.3% to $17.1 million, from $14.2 million. As a percentage of sales, gross margins were 22.3% in the quarter just ended, compared to 19.3% in 2011. The improvement in gross margins can be attributed to changes in commodity costs, increased product prices, improved product mix, and productivity.

Selling, general, and administrative expenses increased 23.8% to $6.7 million, from $5.4 million in 2011. As a percentage of sales, SG&A was 8.8% of total sales in the third quarter of 2012 and 7.4% in 2011. The increase in SG&A from the quarter ended September 30, 2011, was primarily due to higher profit-sharing expense, employee compensation, warranty and bad debt expenses.

Operating income increased 18.1% to $10.4 million, or 13.5%, of sales from $8.8 million, or 11.9%, of sales.

Our effective tax rate increased from 35% to 43% due to adjustments in the quarter. We expect the rate for the full year to be approximately 37%.

Net income increased 6.8% to $6 million, or 7.8% of sales, from $5.6 million, or 7.6% of sales. Diluted earnings per share was $0.24 per share, versus $0.23 per share. Earnings per share were based on 24,667,000 shares, versus 24,844,000 shares in the same quarter a year ago.

The results of the nine months ended September 30. Revenues were up 11% to $225.1 million, from $202.8 million.

Gross profit increased 37.6% to $51.8 million, from $37.6 million. Gross profit as a percent of sales was 23% for the nine months of 2012, compared to 18.6% in 2011.

Selling, general and, administrative expenses increased 17.5%, to $19.6 million, or 8.7% of sales, during 2012 from $16.7 million, or 8.2% of sales.

Operating income increased 53.5% to $32.1 million, or 14.3% of sales, from $20.9 million, or 10.4% of sales.

Net income increased 51.5% to $19.9 million, or 8.8% of sales, from $13.1 million, or 6.5% of sales. Diluted earnings per share was $0.80 per share versus $0.53 per share. Earnings per share were based on 24,722,000 shares versus 24,902,000 shares in the same period a year ago.

Moving to the balance sheet, we see that we had a working capital balance of $54 million. Our current asset ratio was approximately 2.3 to 1.

Our capital expenditures were approximately $13.4 million.

Shareholders' equity per share is $5.58, compared to $5.08. We paid cash dividends of $3 million July 2012. The Board declared the regular semiannual cash dividend of $0.12 per share. In addition, the Board has declared a one-time special cash dividend of $0.12 per share. Both dividends will be paid to stockholders of record as of December 3 and payable December 24.

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.

In spite a difficult environment, sales were up 4% for the quarter and 11% for the nine months. Sales increased due to our ability to gain market share. We had a minimal price increase and we had redesigned products.

Replacement market was very healthy and new construction market was relatively stable compared to a year ago.

Geothermal continues to grow as a type of system. We continue to expand our chiller and air-handler market as well as our split system and floor-by-floor markets. However, the continuation of our basic product line, which is rooftops, continued to dominate our market.

There was no particular physical market which expanded -- physical market, I mean as far as building style. The replacement market continued to dominate, as it did last year, and the continuation appears to be continuing into the fourth quarter, which is a little different than what I had expressed the last time we spoke, at which point in time I thought the replacement market would start falling off in the fourth quarter. That does not appear to be occurring as much as we anticipated.

The types of business that we're in, the commercial and the retail are doing adequately well, not wonderfully. Office building is doing a little better. Medical and healthcare is doing fairly well. Education is pretty much stable. Manufacturing continues to show a little bit of life; however, from a very low level. Lodging, municipalities, and others continue to be pretty stable. However, again, replacement market for all of these is the more healthy part of the business.

The backlog as of September 30 was 55,313,621 compared to 54,084,950 a year ago. Our incoming order rate has surpassed our previous expectations. Although it is not booming, it is going to give us a decent-looking fourth quarter.

The gross margins as a percent of sales are as follows. The quarterly margin was 22%, compared to 19% in 2011. The year-to-date margin is 23%, compared to 19% in 2011, with SG&A expenses of 8.8% for the quarter, versus 7.4% in 2011 and 8.7% for the nine months, compared to the 8.2% for the similar nine months in 2011.

For the quarter and the year, warranty expense was increased because of the increase in sales, profit-sharing, warranty, employee compensation, and higher bad debt.

Net income, which -- was up by 6.8% for the quarter and up 51.5% for the nine months. In this area, I must mention that if you recall, in our first six months of last year we had the roof collapse, which caused us undue hardship last year. So the 51.5% increase is not so much the growth this year as it is the lack of problems that we had last year.

$6.6 million was the income in the third quarter of 2012, compared to $5.6 million in the third quarter of 2011. $19.9 million was our income in the first nine months, compared to 2011 of $13.1 million.

Our balance sheet has gotten substantially improved, our liquidity position is much stronger, and we have, in addition to the regular dividend, a special one-time dividend, which was declared for the fourth quarter to be paid on sales the next (inaudible) on stock of record on December 3 and to be paid on December 24.

The outlook for the remainder of 2012 is that we have a little bit better backlog, as mentioned, than we had a year ago. So the backlog pretty much tells you what the volume is going to be; it's going to be a little better than last year, but it's not going to be booming.

The gross margins are pretty much determined because we have most of what we're going to ship into the backlog already. There's no price increases that are going to occur and there is no great cost increases going to occur. So the gross margins will remain pretty much like the third quarter.

The capital expenditures for 2012 have pretty much been finished, and although we spent a little bit more than we had anticipated, that's primarily due to the amount of small items which we have bought. This is not significant items in the $13 million we spent -- we only have two real significant items, which were anticipated. One was a new sheet metal machine in our Longview facility and the other was for racks and storage devices in our Tech Star Tulsa facility. The balance of the money was for a lot of miscellaneous things associated with the new buildings and other things which we needed to complement and improve our products and our ability to build products.

There will be a minimum amount of additional capital expenditures, probably another million or so, that will be spent during the balance of the year.

The outlook for next year is quite cloudy, as you probably recognize, because of the economic situation and the various problems confronting our economy. So as best we can tell right now, based upon the Architects' Billing Index, which indicates a lot of buildings which were designed in the past few months and are expected to be built for the first six to nine months of next year, those have already been designed. And based upon the Architects' Billing Index, we would anticipate somewhat stable -- neither growing nor declining -- market there.

The other market, which is over 50% of our market, is the replacement market. And as I mentioned earlier, we got a bigger amount of replacement business in the fourth quarter for fourth quarter shipment than what we thought we would get. That could be being pulled forward from next year, but at this point in time we don't believe that it's a significant amount of pull-forward so we would anticipate the replacement market being fairly stable, also.

The net result is that we may get a little bit of growth by taking market share, but we don't anticipate any great amount of growth and we do not foresee, at this point in time, any significant downturn.

I'm now open to do questions, so Carla, would you come on and help us there?

(Operator Instructions) John Braatz, Kansas City Capital.

Norm, just a little bit more detail. Why was the tax rate so high in the third quarter?

I'll let Scott answer that.

Yes, the tax rate in the third quarter was affected by some adjustments that were determined during our filing of our 2011 return, at which point we needed to increase accrual rates. And so the adjustments occurred within the third quarter. As we said, we expect for the full year the effective tax rate on the 12 months will be closer to 37% tax rate and that the 43% that you see in the quarter is an anomaly.

All right, thank you very much.

At this time, there are no further questions in queue.

Well, if there are no further questions, we'd like to thank everybody for attending our third quarter results and look forward to talking to you again in another few months when we talk about the year 2012. Thank you. Goodbye.

This concludes this afternoon's teleconference. You may now disconnect your line.