AAON, Inc.

Hello. Welcome to the Aon, Inc. Fourth Quarter 2021 Earnings Conference Call. At this time, all lines are in a listen-only mode. Later, we will conduct a question-and-answer session. At that time, if you have a question, you will be asked to press the star 1 on your touch-tone phone. If you are listening to the live event via the web and would like to ask a question on the telephone, please dial in using the instructions provided to you and then press star 1. As a reminder, this event is being recorded. I would now like to turn the event over to our host, Mr. Joseph Mondillo, Director of Investor Relations. Mr. Mondillo, please go ahead.

Thank you, Andrea. Good afternoon, everyone. The press release announcing our fourth quarter financial results was issued after the market closed today and can be found on our corporate website, aeon.com. On the call with me today are Gary Fields, President and CEO of and Rebecca Thompson, CFO and Treasurer. Just kind of begin with our customary forward-looking disclaimer. To that extent, 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 Security Litigation Reform Act of 1995. the Securities Act of 1933 and the Securities and Exchange Act of 1934, each as amended. As such, it is subject to the occurrence of many events outside AON's control that could cause AON's results to differ material 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. With that, I'll turn over the call to Rebecca.

Thank you, Joe. I'd like to begin by discussing the comparative results of the three months ended December 31st, 2021 versus December 31st, 2020. Net sales were up 16.8% to $136.3 million from $116.7 million. Net sales for the quarter were primarily due to price increases The acquisition of Basic Solutions, which closed on December 10th, contributed about 3%. Our gross profit decreased 21.7% to $26.5 million from $33.9 million. As a percentage of sales, gross profit was 19.5% in the quarter just ended compared to 29.1% in 2020. The decline in gross profit was mainly related to supply chain issues that resulted in production constraints and operational inefficiencies. Another contributing factor was material costs and wages rising quicker than our price increases could counteract. Selling, general, and administrative expenses increased 44.4% to $21.1 million from $14.6 million in 2020. Including 4.4 million of acquisition-related transaction fees, SG&A expenses increased year-over-year 14.4%. As a percent of sales, SG&A excluding these fees decreased to 12.3% of total sales compared to 12.5% in the same period in 2020. SG&A as a percent of sales decreased mainly due to lower profit-sharing expenses which was a result of our lower pre-tax earnings compared to the year-ago period. We had an income tax benefit of 0.8 million due to our lower earnings in the quarter and our excess tax benefit from stock awards of 1.6 million. Adjusted net income, which is a non-GAAP measure, decreased 35.5% to 9.5 million or 7% of sales compared to 14.8 million or 12.7% of sales in the prior year period. Adjusted diluted earnings per share, which is a non-GAAP measure, decreased 35.7% to 18 cents per share from 28 cents per share. Now for the comparative results of the year ended December 31st, 2021 versus December 31st, 2020. Net sales in 2021 were up 3.9% to $534.5 million from $514.6 million in 2020. Net sales were up primarily due to price increases, which contributed approximately 5% for the year. Volumes were down due to our plant shutdown in January for planned maintenance, weather-related shutdown in February, and various supply chain issues in the later half of the year. The acquisition of basic solutions contributed about 1%. Our gross profit decreased 11.6% to $137.8 million from $155.8 million. As a percentage of sales, gross profit was 25.8 in the year just ended compared to 30.3% in 2020. Gross profit was down because of a handful of factors. Production constraints due to supply chain issues, and material inflation being the primary two. Selling general and administrative expenses increased 13.4% to $68.6 million from $60.5 million in 2020. Excluding $4.4 million of acquisition-related transaction fees, SG&A expenses increased year-over-year 6.1%. As a percentage of sales, SG&A excluding these fees increased to 12% of total sales compared to 11.8 in 2020. Our effective tax rate decreased to 15.1% from 22.5%. The decrease is the result of a lower income tax rate in Oklahoma along with increased excess tax benefits on stock awards compared to 2020. Adjusted net income in 2021 decreased 17.1% to 62.1 million or 11.6% of sales compared to $74.9 million or 14.6% of sales in 2020. Adjusted diluted earnings per share decreased by 17.7% to $1.16 per share from $1.41 per share. Now looking at the balance sheet, you'll see that we had a working capital balance of $131.3 million versus $161.2 million at December 31, 2020. Unrestricted cash totaled $2.9 million at December 31, 2021, and total debt was $40 million. During the quarter, we used $103.4 million of cash to finance the acquisition of Basic Solutions, and we drew down $40 million on our revolving line of credit to finance working capital needs. In the first quarter, we will be closing on the real estate related to the Basics deal, which will cost us $22 million. Early in the year, working capital will also be a use of cash before reversing in the second half of the year. I anticipate net debt will climb a little more at the end of the first quarter before beginning to come back down. Our current ratio is approximately 2.5 to 1. Capital expenditures in 2021 were $55.4 million, down 18.3% from a year ago. Capital investments were down and were less than we expected at the beginning of the year due primarily to delayed projects which were a result of supply chain issues and other economic factors. We have not slowed our growth-related investments at all. In fact, we continue to be aggressive with our investment planning to help facilitate the real best organic growth we anticipate over the next several years. In 2022, we expect capital expenditures to be $100.4 million. The company has stock repurchases of $22.5 million during the year ended December 31, 2021. Shareholders' equity per diluted share is $8.68 at December 31, 2021, compared to $6.61 at December 31, 2020. I'd now like to turn the call over to our CEO and President, Gary Fields.