AAON, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the AAON Incorporated Second Quarter Sales and Earnings Call. At this time, all participants' lines are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star, then the number one on your telephone keypad. Thank you. I would now like to hand the conference over to your first presenter, Mr. Gary Fields. The floor is yours. You may begin.

Good afternoon. I'd like to begin by reading 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 AON's control that could cause AON's results to differ materially from those anticipated. Please see the risk factors contained in our most recent SEC filings, including the annual report on Form 10-K and the quarterly report on Form 10-Q. So now I'd like to begin with telling you a little bit about our experience with coronavirus and how it's affected our business. First of all, and of utmost importance, is to thank our employees. We've been able to maintain continuous operations. As a result, we have been able to assist with many COVID-19 projects. This is vital to our business as an essential business supplier. I'm very proud of the effort that our employees have gone to to maintain safety in the plant. They are all wearing masks, social distancing. They're doing temperature scans on arrival and at any point in time throughout the day that they feel like that it's necessary. When they clock in in the mornings or in the evenings, whichever at the beginning of their shift, they certify through a wellness reporting system in our clock in. So we did have some absenteeism because of coronavirus. In June, we had about the second week of June, we had a substantial decline in attendance. It bottomed out in mid-June, was mostly restored the second week of July. Very happy to say that we had very good results with our people returning to work healthy, and this was a temporary impact for that period of time I described, and we are mostly recovered on attendance, and these people came back very healthy again. I'd like to turn the call over to Scott Asbjornson, our Chief Financial Officer.

I'd like to begin by discussing the comparative results of the three months under June 30, 2020 versus June 30, 2019. Net sales were up 5.2% to $125.6 million from $119.4 million. Net sales for the quarter are up due primarily to our increased sheet metal production. from the additional Salvinini machines that were placed into operation, as well as our price increases implemented in 2019. Our gross profit increased 26.2% to $38.1 million from $30.2 million. As a percentage of sales, gross profit was 30.4% in the quarter just ended, compared to 25.3% in 2019. We continue to see overall raw material costs decrease, The company has improved its labor and overhead efficiencies through increased production and absorption of fixed costs. Selling general and administrative expenses increased 23.4% to $15.9 million from $12.9 million in 2019. Additionally, as a percentage of sales, SG&A increased to 12.7% of total sales in the quarter, just ended from 10.8% in 2019. SG&A is up due to increases in profit sharing, employee incentives driven by increased earnings, and largely to a $1.25 million contribution to Winifred Montana Public Schools on behalf of Norman Asbjornson in recognition for his transition from CEO to Executive Chairman. This equates to roughly 2.5 cents per share. from operations increased 28.4% to 22.2 million or 17.7% of sales from 17.3 million or 14.5% of sales in 2019. Our effective tax rate decreased to 20.0% from 22.7%. The company's estimated annual 2020 effective tax rate, excluding discrete events, is expected to be approximately 25.1%. Net income increased to $17.8 million or 14.2% of sales compared to $13.4 million or 11.2% of sales in 2019. Diluted earnings per share increased by 36.0% to $0.34 per share from $0.25 per share. Diluted earnings per share were based on 52,750,000 shares versus 52,747,000 shares in the same period a year ago. Now for the comparative results of six months into June 30th, 2020 versus June 30th, 2019. Net sales were up 12.8% to $263.1 million from $233.3 million. Net sales for the quarter are up due primarily to our increased cheap metal production from the additional Salvagnini machines that were placed into operation. Our gross profit increased 45.7% to $81.1 million from $55.6 million. As a percentage of sales, gross profit was 30.8% in the quarter just ended compared to 23.9% in 2019. As already noted, we have experienced decreased material costs and improved overhead absorption. Selling general and administrative expenses increased 17.2% to $31.2 million from $26.6 million in 2019. Additionally, as a percentage of sales, SG&A increased to 11.8% of total sales in the quarter just ended from 11.4% in 2019. Income from operations increased 73.8% to 50.0 million or 19.0% of sales from 28.8 million or 12.3% of sales in 2019. Our effective tax rate decreased to 20.8% from 23.1%. The company's estimated annual 2020 effective tax rate, excluding discrete events, is expected to be approximately 25.1%. Net income increased to 39.7 million or 15.1% of sales compared to 22.1 million or 9.5% of sales in 2019. Diluted earnings per share increased by 78.6%. to 75 cents per share from 42 cents per share. Diluted earnings per share were based on 52,885,000 shares versus 52,589,000 shares in the same period a year ago. At this time, I would like to turn the call over to Rebecca Thompson, Chief Accounting Officer in Treasury.