AAON - Earnings call transcript Q4 2018

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Operator

Welcome to the AAON Fourth Quarter Full Year 2018 Sales and Earnings Conference Call. [Operator Instructions].

As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Gary Fields. Please go ahead.

Gary Fields

afternoon. Good read to forward-looking a like disclaimer. I'd forward-looking extent that is the remainder provisions the is of any safe Litigation to outlook XXXX. statement information with of necessarily statement such Act deals the herein year, made not harbor the pursuant the presented for To and Reform historical, of Securities the including

those the AAON's of Form AAON's control outside factors such, is results differ our SEC As to events most it see report Form subject annual filings, many to and anticipated. materially in contained including on from could the quarterly risk report the cause Please XX-K occurrence recent XX-Q. that on the

Scott Now our CFO. I to would introduce Asbjornson, like

Scott Asbjornson

three Net result months million XX, increases The December to million. November I'd December were $XXX.X million sales XXXX $XX.X sales was ended you. the $XX.X of XX.X% decreased to discussing like the the Thank XX, XXXX. X.X% by in to net from million. from of profit price begin to up increase XXXX. $XXX.X Gross since comparative of made results

quarter. to XX.X% inefficiencies $XX.X of The $XX.X million in was to due gross profit profit XX.X% quarter from general Selling, decrease expenses the administrative decreased As a XX.X% was ended percentage in just the sales, XXXX. during and million in gross compared production to in XXXX.

sales. SG&A sales $XX.X The in or sales X.X% quarter just warranty decreased or $XX.X the decrease in ended million our Income primarily percentage a of total decreases from XX.X% was sales, operations XX.X% of in to of As of XX.X% million costs. due to in XXXX. XX.X% SG&A compared from to was

or XXXX, XX, this Cuts tax from to decreased to increase due XX.X% XX.X% ago. lowering in date, the $XX.X Our the million share XX%. Act per in on of company provision earnings per the compared effective to the XX.X% Net The XXXX. per share. quarter XX% per rate year to X.X% the decreased November share the its ended to a by corporate XX, Diluted income of XX.X% of Tax increased the sales up enacted to which Net sales lowered sales. earnings million. asset from from million $X.X to a results from same change, tax effective tax The and $X.XX income same resulted tax in price year XX.X% benefit and income December fourth versus $XXX.X $XX.X to Due the or XXXX on shares to based on rate our Jobs share million shares our increase remeasured deferred is December XX,XXX,XXX rate in $X.XX were of quarter Diluted revenues tax XX,XXX,XXX in of enactment period liabilities from the X.X%. to million December from $XXX.X XXXX Most XXXX. XX, were XXXX.

Additionally, to our decreased part million from million, $XXX.X water-source $X.X sales of profit grow million $XXX.X increases with pump Gross respectively. continued and $X.X $XX.X to sales and million. million heat

in XX.X% Selling, as in $XX.X have the just to staffing elevated experienced has XX.X% in expenses having XXXX. material million company percentage in year that The raw sales, million production was well increases X% and as from of compared a its profit caused pricing levels ended decreased XXXX. inefficiencies. administrative As gross to seen general $XX.X

of million sales and in the to from from XX.X% million XX.X% sales sales. due SG&A a from XX.X% or of ended XX.X% or operations SG&A decreased profit-sharing decrease to in XXXX. decreases year in warranty total is to decreased XX.X% Income expense. sales, As $XX.X of percentage primarily from of $XX.X The

rate XX.X% our decreased to Now XX.X%. tax effective from

Jobs was this mentioned, Act. Tax and from changes Cuts of the decrease the result a already As

of share Diluted million to sales At our per shares X.X% per of Next, by share. Accounting for or were Diluted in million time, based $X.XX per on per of $X.XX net sales. it balance XX,XXX,XXX ago. XX.X% XX.X% from income decreased this the from earnings a earnings decreased share versus XX.X% $XX.X Thompson, or to $XX.X Chief share over turn Officer, I'll Rebecca period XX,XXX,XXX a the shares same discussion sheet. year to

Rebecca Thompson

Thanks, Scott.

December If Cash a $XXX.X XX, you XX, balance we and sheet, million million you'll had investments December capital $XX.X versus look totaled at XXXX. at see the balance million working $X of at XXXX.

is approximately X.X:X. ratio current Our

were expenditures capital $XX.X million. Our

our capital $XX $X.XX like the December President. million. Gary XXXX. XXXX be to at over to share now call at Shareholder's $X.XX compared December per expect XX, turn to expenditures Fields, approximately We XX, is I'd for equity our XXXX diluted to

Gary Fields

and I'd like to impact. related sales the increases discuss So

So opportunity of What June 'XX, 'XX improving, net profit. 'XX. we've November and do increases December had gross and the year, on is of done for has have that us price throughout of margin we an

backlog give this currently, how to with our it pricing. percentage you of So of to taken our in I'll snapshot current sits regards backlog, today

So that we to our June increase. price is X% have prior of backlog XX

XX on We backlog the have our of price XX% increase. June today

of today then coming price another December next We increase backlog our have our here on have week. we XX% and price increase,

lagged from So the those. up. to behind we're We little we 'XX, a better a curve regards but position the catching are we moving our past price towards and had were increases in how with on

market That AAON XXXX. over of of units. XXX% was talk X.X% commercial, dollars shipped a water-source in AAON make of many of to share as X.X%. That some sales to to are was shipped combined was beginning This happen. it X,XXX pumps. ago. we XXXX, twice units. about that been heat share time is like X% long The about growth they share I'd units, painstaking the XXXX. statistics represented a the we business giving XXXX, were sold and market we But over Now X,XXX in That as units market XX.X% in sold, It's X.X% in XXXX. units a materialize the geothermal, a envisioned all

year-over-year water-source to the in do in and as going aspect XXX% to now on what's Another mind of we're heat units, the door got completed far pace these this door us certification volume. double that bringing year. pump time Lead pace, production current again. like a We out we lot the XXXX things is XXXX keep last pumps, are around AHRI to number envisioned in that of what's heat growth is on opportunity much as A illustrates coming improved. earlier. had to

take a that now what we charted. So course had it's starting to resembles

development products redesigning few energy sure manufacturing, to efficiency. that's last to in on years the over they are and utmost at efficiency efficiency, of to We a been itself. beginning efficiency that are to always customer, There's cost cost both their make manifest the going lot

units And fit months, We have some of now our regards several to with able next energy it top over efficiency. accelerate the that of aspects the - online bar laboratory, online and few new that. to with now other we're are coming they absolute aspects the

the Our at versus construction new about remained replacement market year for XXXX XX-XX.

Our center. other market percent slight a kind from about our from segments XX%. Commercial of is XX% in to comprises data but And didn't swapped which good of Manufacturing to down portion was change. went a materially, a there then XX% category, XX%, X%, currently there. change that went so they

growth training working many get to our to would segment able them, and to reasonable that ago, were prospect are onboarding which shown backlog of a improvement take we improving versus lot than we in to of forward. we're XX, so personnel, significant a as an we because That business we If that, beginning cannabis be pie facilities to provide center for associated out So is slight year have aspect may another I going have XX%. to its identifying will able the industry. $XXX.X clearly turn the the units accounts $XX.X so headcount million spoken XXXX for of more commonly aspects own middle a us. accelerate And sooner these processes. the of it's data beginning increase into a before has at people our currently seen retention with so as on some indoor growth door. appreciation, and that The growth result it experience very December we're was million a of about

There's today. of I very looks at significant about do X, result ago, She the the going and scheduled, pump, across a in now personnel aggregate facility. as I production the stream it tested of appointed now a So is entire beneficial to toured seen looking XX% that the Xx for portion responsibility About to to target young customers. this it Whitney for is, to rate be marvelous said, somewhat substantial utilization as come laboratory organization I addition. point. in Wakefield the XX woman The units days is that. to that water-source this change lab be us the was. ago, now. manage mentioned to dedicated what and on got while rate instead 'XX, the earlier It's it's that lab a shared of a to it it management there of on named XXXX a April plant. being We've outlook magnitude scheduled at improvements is at XX, is We've already for I out heat a as and

so looking that. we're And to forward

With than more that year. improve profit the obvious backlog nicely to an has seems this opportunity it gave, percentages that I gross

million. the year, forward CapEx about I can for so we at think look And to that. XX looking we're

improvement, is manufacturing and this additional of equipment, some of worn-out capacity. facilities some this of is little equipment this is Some a replacing

We the site handlers. the air active are for very not currently new with

to XXXX, founder this that Asbjornson, that, year. a but put the have Chairman, insignificant comments for handler our diverting water-source regards opportunity in on CEO to business turn to and air that doing and that for kind Norman with that With material be more it we'll heat We do our some won't over he'd can get of pump I'd solid foundation it have anything like so like some We not we opportunities make. attention. on be to pause,

Norman Asbjornson

has, like in per that Good overall period, and annual year a afternoon. of founder profitability. compounded AAON I'd of years, year you AAON's the summation XX compounded approximately Norm AAON, and had per present position. over in to of revenue growth Asbjornson, of a growth I'm give time annual XX% for a XX%

to profit. in focusing to and product attractive In However, have enough our in doing been on years. internal AAON thus, revenue recent growth to well to the this. and the historic been in our less making years, helping rates these we've virtually And than He more fall second in where return immediately in what to to President to background we of to our resulted an us sales Fields, with successful issues for we set which sales or backlog. these who the in customers replacing XX upon of operation new XXXX, of spoke become other our with sales occurring. brought understood the just of were you, and by do orders in addressing which needed as a quarter occurred several Simultaneously being those very necessary. He this, came industry attractive correct the in XXXX, Company. this things force improvement Gary This were astoundingly outstanding him which doubled the training customers

Our I relinquished to the XXXX, told business in who employment levels considerably this, company. were various in rates. climate managers would people the lower Simultaneously me presidency, and senior within started and These introducing until inflation improved they retire. many very XXXX skilled managerial with stay

capable people much plan and very their we experience. to While jobs, people new replacements, less over take had with came their

whole the X% down time. to other went ourselves working unemployed onboard bringing to working methodologies. people company will - the had unemployment past and to how have these managed period range find that have the - going got in past bring to across-the-board from largely low to time inflation employees. is few basically range. flat-out unemployment of comfortable in not these the the them we of easy XX-, revise required situation Many we feel other a obtain We full how day. deal saying been increased to days Due become almost a considerable employees to in years, these change way in issues. we new - with know personnel. two down increases Bringing new believe in their XX- while or we our we changes for first had have to introductory rates, which not employment introduction. it into the workforce. the has generation we them how lack the in this teach the not as to for to many from they need we Due numerous the the them jumped that a of a life, and had we of considerable to take when in required years, myself to overcome onboard changed people We far, but few few recent to whole and hours been So managers area Thus, day The two in we work, we And salary people productive work XX-year good we we managers heights. were ready in super XX-year we them to

This manufacturing in which business building which all volume For is portions advanced our product geothermal we us system find many heat this manufacturing line-rate. considerable been into conveyor software We software in and systems. on different search. X as with of all the designed pump tons. with decided The utilizing worldwide our capability integrate controlling automation, could - in capability parts to have volume these and high the virtually is four large line a as water-source advanced, manufacturing an to the spent of to X.X of the well this the automated a a in enter which line, portion money We we years, We markets overall had known part complex software and technologically the and gave company. automated metrics very systems market, to doing products.

rapid teaching of month, have This in the teach producing future, build our a all the run is software line, we now continuing employees per to years with to other limited units We and are behind debugging us, the the and small primarily how growth past million people to largely how spent by level two at $X ability resolving product. issues. this

not can of XXX lab other units tons has, we performance comp obtaining lab. of believe this XXX on possibly than not over other regarding lab, anywhere simultaneously this For Xx built capability words, we exists of do have to work equal more capable And has noise we the planning XX-plus years to and other no have is the believe the do evolving, we to ability This have which exists new world. anything in importantly, all the lab test a capability. in a - which information lab, in of elements casting anywhere We tons acoustical of believe perhaps has do product. even now with labs anybody that test

and has rapid on operational operating of about, of P&L. fully if part the as have by however, in important new to Fall. a mentioned, few we which job. had expectation this about the presently probably a brought We be a has lab have in said, are not point, Gary At going our within the that this early we XX% point Gary might with we are as and business, lab capabilities a been profile additional job wouldn't testing otherwise next high already gotten hadn't the being months, very job we gotten. very And this drag significant The capability,

just just for West we the already in a on Coast which so on and Coast, spoke very have East shipped the tested one Again, itself. lab. that it's the job, I one We to starting high pay of profile

We've we done income every The it $X.X due price products low any creating we However, to $X,XXX however, stream, profitable quarter products. In - has to to it the has up start complexity in to first the to XXXX bonus go added expense giving area continue tests the employee increase to not put occurred point and had change with transition money the you. backlog whereas greatly since a first four of our in and ever months' only we have The money catch-up the something customers size run of make out playing additional totaled situation. actual increase of the the until when production, strictly of It to now, the million who going to in all of have and do them these of more items begun information this presently on have which complex the by in. to input improvement have brought create in an this appear due more with which of us approximately different There other and customers, is capability been are XXXX. of it from add retrospect, bring increases cash pay redoing willing attractive tax lab income are certain timing our have. a and line, to will been to enormous XXXX. Gary enhance to price in price input as issues forward. number which happen will we more the quarter enumerated in been worth in backlog of The in to the future we existing only as bottom we

that we in was enough. However, And had We have of do. then our fourth. know to find three increase XXXX. June the Thus, again, had quarters. and in another which to kind volume another a XXXX. another in the then December has the would of increase one March price first, one a one third reiterate, and in of And in started And December 'XX, through XXXX. of we we profitability we than second more We not past quarter increase increasing another have those analysis the of was in likewise the quarters the had an XXXX to lot large in

I results. Do now profitability company moderator? to And up we're time. I historic much you thank higher, my done and to questions. believe everything the and largely we'll to this effort for assure occur. to now almost growth open is it waiting or Then We our have make good levels returns your we long-term have for that that very done

Operator

Yes, sir.

Norman Asbjornson

it open questions, please? you to Would

Operator

from line Joe first comes the your And question Mondillo. of Instructions]. [Operator

Joseph Mondillo

I by in start just I'm want the now. airport to saying right out

about So gross if that. I I apologize ask there's margin. for any But to disturbances, noise wanted the

quarter? you actually, XX% or achieve talking Given early appreciate of and in you've earlier, the still that, the backlog I wondering, third year in bought the XX sort did ticked now you on the so terms is depleted backlog increases. margins steel there gross the I that Gary, Was because the pricing quarter? - gross margins sequentially way of that that's down in the If about of how you why the the price and that June was fourth already XX% the of much in

Gary Fields

Okay.

off, of post-June XX% backlog XX% another the then first is So and that's the post-December. XX, there's

- quarter third So

Norman Asbjornson

before? X%

Gary Fields

Yes, the X% was before June.

So running built a third XXXX, another good increase began it really get in to to went at the late the price less the but of in until manifest of quarter, out the up X% of more into the with itself a the quarter, to we to and quarter. portion fourth but materials fourth same some They time, expensive started only utilized we ran start out get at X% which it. price bit of We It third we the increase, expensive June, materials. began end didn't effect in in very on quarter. started show backlog, the due to the

some price offset was there increase. So of that

year. all didn't apparent, vacations. these one that people that quarter somewhat some the our a turn-down, This We through say we other - weakened about year. seemed, we fourth as have fourth have I easily people that things hadn't far labor holidays, was are in very attribute thing demand. Because every was them of year, the you bit that normally, happen a turn-down to we as hard and The I can visibly think have apparent very, won't the those inefficiencies a little but just but quarter it ran

couldn't in were We of had were fourth on people time that quarter. XX% number we factory much. vacation just we gone of inordinate probably that gone, as So at had produce so as of our much as an workforce periods the

didn't the revenue needed fixed overhead. So we the dilute just we to get

charted material think the of one in that was Difficulty] things I [Technical

Joseph Mondillo

Okay.

because up situation, So sold in starting in has the you the through Do the pricing price-cost relative Where in the pricing the that steel steel I cost of margins first pricing, that know realized ramped sticking basis the it in we you are on fourth terms where improve cycle? gross in year? and goods on price-cost in are you've of of more with later are a you sort is cost-spread start quarter. quarter? Or to to where

Gary Fields

Joe. have June happening, See, that we didn't implementation it already quarter, full it's quarter. only price enjoyed Yes, of part of increase. for fourth fourth We the

would X% pretty yet quarter said, - to first the It's we've of only inconsequential. So prior to backlog June we build. like got

small it is building everything first quarter, increases of June on So price materials. a price, which in on with offset the exception, good we're bit that these

- work in we'll think a QX. the have QX, December-priced building then I slight in priced And somewhat be improvement So orders. of we'll December material

so appreciation It's And first [indiscernible]. real no quarter. what on material got pretty we'll that salaries we've of strong beyond the or on based headwinds with see another X% in much all

Joseph Mondillo

Okay.

matter productivity? situation. improvement Okay. has think overall on many of of quarters? levels there. going Could X bolzo been productivity to quarter a type challenge I are give you Is be Give and a us be just can an productivity, and of sort It of And then thinking Or seems to where a X your to do a thing? a you quarters this kind historical operational us achieve couple idea on labor in with of we for your you - of now. sort this then

Gary Fields

a couple Well, quarters. We of my they production achieve control people Scott, Yes, that within training, can would process some he's quarter. mid-third began - significant you what onboarding, quarter? probably in that pretty our say, agreeing about confident me, make changes mid-third recruiting with to are

Scott Asbjornson

the Right around November. of end

Gary Fields

Right.

XX%? a from that's XXX, - don't out first like math XXX I days on of retention being the So we new hires what's - the XX rate within know. seeing went started we of

snapshot that real rate snapshot XX% XX-day rate at me XX% we've retention had you for do most back recently. in And that math the the retention same Here We a summer. for to one let changed hired on people a quick. we that

and the so that, procedures said, we onboarding low, don't for our shown being - training period we things to have of rate to to really in in over so improvement. our have bring retention this other people here XX-day one XX% time, disrupting and were doing, Well many try That to because a was So were an were get that they us. of as headcount and accretive headcount. make-up people accretive and with retention now rate we many bringing

it's been disruptive. So much less

that. that I going first So believe due to improvements we're some quarter, production see to

production Second me quarter now, And procedure accretive in with a new be think headcount over this I that that had will improvement. an as more effective then months like few be a they place I well. an telling will we've that said, they're have of quarters believe for that headcount we'll couple

Joseph Mondillo

great. up double end is question on at backlog than Last for more revenue January. the Okay, of side the me, things, of

on. have which believe doubled, price are why me increases putting me you're Your these lot, increasing - lead make is which times to leads that volumes a your

not revenue up, pricing up volume there coming rates with and than much in should expect we aggressively higher obviously should in XXXX? XXXX your any So growth that is reason be

Gary Fields

XXXX XXXX all you It reasons will the higher in for absolutely be just cited. than

correct. XXX% You're

Operator

Instructions]. [Operator

Your next Brent question the from of Thielman. comes line

Brent Thielman

continues back huge of has data kind you been AAON Norm, non-residential talk about the growth you in or You got hear indoor core little bit I'm sort traditional of that more backlog to do units? a the share. the your some kind gain market mentioned parse people Outside end the out even of centers, these on grow. mean but to ground, obviously environment? what facilities, demand And trying just what actions maybe through Could from you've a Gary taking to about that, just sectors? I of

Norman Asbjornson

$XXX-some it successful seriously the on ago. trying several there, one started working with were reasons improve what personal, position is of in Texas, our And partner working in history mentioned of as Dallas, time Antonio lot And went long him he in a kind evolved a we largest the satisfy how was we basically, a a Worth, the in only brought people the I sales Well, company $X business million customers, and Fort from had we his satisfaction dollars XXX million not sales consider and highly is XX strength. over was to offices but $X the preeminent to he maybe Texas the about you to Gary years during and Houston. of in salesman commercial Gary went with was and San partner, company from continued. customer to in person has that into over Air, started with tenure our until you, lead And in he he from gaining sales, million, knowing Austin, people now up the

world, So have when started lot into competitiveness he working of to finally it. when him to retirement, decided came the to person a bring back retire, to because he sold didn't again and is out getting to and working try competitive the take and fold back I company he and he a very

by our And - that work A is onboard you and President of XXXX, instead, had early as So we of the said, part And not after which in back a in about we shortly course, some fall by came fact of of he have he lot to then and people he bringing very attention place of been full successful, also to as changed right backlog. doubling out were our - he as resolved. knowledge back there I he's of has hadn't came back it's in things small sales XXXX. And in got them that And resolved, that that offices. in, or XX a out weren't went he's training see, do accident time. lot him with came implemented paying to weaker and little, much we now.

that of training We have them existing have sales our we force. couple we're in, weeks, another group every

toward not satisfactory them, telling them treat honest of because losing and but our we We been to all lead so time. a and adjust And It's customer canceling to yet of order, want orders. our to improve time been it. upon that understand that right that benefiting this is with making them, that, also base, they're buy that's very long the lead lead Product When way we all we're or this. has has very they accepting board. exception we lead us to understand been from the try these orders give they are and of been times So of them time, it's thoroughly, they're more with long equipment long across the they happier business time. trying the we now the lead long our geared meet diligently and know because

we're a better better in. - product the just what's than just long customers it's it was that's ago. very company So bringing And not a with

no particular at or it's else. no area, the board. It's anything the across industry particular customers So all,

Brent Thielman

you over 'XX. think Okay, again I you sounds units okay. 'XX. could that understand... doubled pump in And And you it in like heat do then water-source 'XX

Norman Asbjornson

quite what you, comfortable with very and Gary told just we're he said. feel of certain - I

Gary Fields

Yes. is have rate The believe no that, the we January did production on that weaken. production February - annualize XXXX. no going we to double believe if rate now to reason we what - right and in are you it's then And

a longer we were lot expectations time, we've lead if requested target and a dates. of we've those. actually a one time that's lead on production beat we we out let right time, and source one and dates some staying that been place pumps, fact have weeks improved. of In streamlined improvement announced the them we're vetted with out. We we wanted, with line can this beat heat get continue week we've meeting few and lead shipped month A shortened now stay pace And production ago, to while on versus their getting than about

sales getting It's pump of we these we a - So business than more. Xx the of people throttle that I the door, can heat in And XXXX. the it's our matter to can did what the only I is training so right in not we're running said, get at aggregate we produce get production rate now, can that out. on as think them water-source and we the

Brent Thielman

But think these I different points. units have price Okay. Gary,

did sales what, and in million 'XX. 'XX, little in million of you think over X in a $XX I sales

double in $XX in to we it 'XX, going we sales? translate million should to could So --if that translate something you're like

Gary Fields

targets our Yes, are. what Brent. that's Yes,

Brent Thielman

Okay.

and guys understand to helping get from could fully - an you're Okay. from facility? opportunity perspective And - utilized orders running if or you I you revenue this the fully get that I realize guess lab remind and you then up hoping direct it's

Gary Fields

Well piece AHRI of small to revenue, of it's activities off significant maintenance some category start going program. of AHRI annually. One that sort your certification manufacture the to three a quantity equipment units every program, pretty direct virtually is percentage. for each this certain pull subject to they as And There's is of laboratory. a a we

- it's requirements. just that prudent that make you that to those While constantly meeting they're you're your certification have units run-testing those sure

an to about that's One lab. proof-of-concept. for definitely the charge stream So for one of there. as lab testing. yet this other some about described them - laboratory and if earlier of But is got We're those services. it, in we're we haven't of enough we for part to we, sure of to equal lab include aspect this sales Then charging projects the activity as the income such do product, X/X aspect that's we're use the developing process, out appropriately because function done R&D what we is but the where X/X we these not

a they free. I'd doing? a sales the little and cost. point and of categorize of these bit how I to what's we're this bit a them we concession? little income lab little Or So don't have tool them, But in both, to sales distribute until or a while more we're of that time, to these a sales for little not know run can these costs doing for of bit are again, as profitable tests under see amortize for them At sure, and are and know

Brent Thielman

I expenses. kind that's of came Okay. one see me. been any looking the larger assume warranty last for, SG&A here. Scott, all guess, it back to you didn't levels looks you've for like I behind

Scott Asbjornson

believe we so. Yes,

Gary Fields

and took goodness, Thank it enough. long

Operator

at questions further There Instructions]. this are no time. [Operator

Gary Fields

for and we'll you Have you day. a talk listening, good thank to again We soon.

Operator

concludes conference This today's call.

You now may disconnect.

AAON (AAON) 2 Mar 192018 Q4 Earnings call transcript