Aaon, Inc. · NASDAQ:AAON
Aaon — Investor Day (2023)
108 slides from Aaon's investor day presentation, 2023
Slide 1: Welcome To AAON's 2023 Investor Day
Welcome To AAON’s 2023 Investor Day
Slide 2: In Case of an Emergency
IN CASE OF AN EMERGENCY \ INAAURUAND,..... UUNRRRN
Slide 3: Forward-Looking Statements and Other References
FORWARD-LOOKING STATEMENTS AND OTHER REFERENCES Certain statements and information set forth in this presentation contains future results to differ materially from the Company’s historical experience “forward-looking statements” and “forward-looking information” within the and its present expectatio
Slide 4: Agenda
Agenda 8:30am – Introduction 10:25am – Marketing and Branding Joe Mondillo | Director of Investor Relations Jeremy Cavness | Director of Marketing 8:35am – Company Overview and Strategy 10:40am – Sales Channel Strategy and Market Update Gary Fields | President and CEO Andrew Edmondson | Director of
Slide 5: Experienced Executive Leadership Team
Experienced Executive Leadership Team Stephen Wakefield Rebecca Thompson Doug Wichman Chief Operating Officer Chief Financial Officer President, AAON Coil Products Gary Fields President and Chief Executive Officer Matt Tobolski Rob Teis Casey Kidwell President, BASX VP of Sales and Marketing VP of A
Slide 6: AAON's Road To Success
AAON’s Road To Success Gary Fields | President and CEO 6
Slide 7: AAON at a Glance
AAON at a Glance COMPANY OVERVIEW SALES BREAKOUT Description: AAON is a manufacturer of semi-custom and fully custom HVAC equipment for commercial and industrial 3% buildings in North America U.S. Founded: 1988 Headquarters: Tulsa, OK International Employees: ~3,7852 Manufacturing: 4 facilities 97%
Slide 8: Robust Historic Organic Sales Growth
Robust Historic Organic Sales Growth $1,000 $900 13.8% $800 CAGR $700 $600 (in millions) 6.0% $500 CAGR $400 $300 $200 $100 $- 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 10-Year CAGR 11.4% 8
Slide 9: History
History 2020 Founder Norm Asbjornson steps down as CEO, succeeded by Gary Fields 2012 Annual sales 1992 exceed $300M Annual sales exceed 2021 $500 million Consulting Specifying Engineer Acquires Coils Magazine names AAON’s RZ Rooftop Plus, Inc., which is today known 1998 Series “Product of the Year”
Slide 10: AAON's Foundation Is Based On Two Core Platforms
AAON’s Foundation Is Based On Two Core Platforms Semi-Customization Innovation In 1988, the industry was divided between Thirty-five years ago, standard equipment standard equipment and fully custom made up a vast majority of the industry equipment In many applications within commercial Fully custom
Slide 11: Notable AAON Innovations In History
Notable AAON Innovations In History 1989 1997 2001 Introduced a semi-custom Introduced backward Introduced evaporative- line of rooftop units from curved fans in small cooled condensing for units two to 140 tons with a large commercial units bringing with a de-super heater coil amount of customized
Slide 12: Today, AAON Wins With Premium Equipment
Today, AAON Wins With Premium Equipment For over 20 years, AAON has been known for producing premium HVAC equipment Premium equipment comes with a premium upfront price AAON equipment has a very attractive value proposition even when considering the premium upfront cost In many applications, AAON ha
Slide 13: Current Product Portfolio
Current Product Portfolio1 13
Slide 14: Favorable Secular Market Trends
Favorable Secular Market Trends Decarbonization Electrification Government Regulations Economics From Niche to MAINSTREAM. 14
Slide 15: New Minimum Energy Efficiency Regulations
New Minimum Energy Efficiency Regulations In January, the Department of Energy increased minimum efficiency standards on all HVAC equipment The new regulation did not affect AAON. AAON equipment has met the new standards for years However, it was very disruptive to the industry, requiring most of ou
Slide 16: Pricing Strategy Leading To Margin Expansion
Pricing Strategy Leading To Margin Expansion Managing Pricing to Market Historically, AAON managed pricing exclusively to cost Gross Margin 35% Recent regulations are allowing AAON to now manage 30% 28.6% 29.3% 30.8% 29.0% its pricing more to market 26.0% 27.0% 25.2% 25% 19.5% 22.7% Since AAON’s cos
Slide 17: Further Regulations Will Limit Industry Innovation
Further Regulations Will Limit Industry Innovation Beginning January 1, 2025, the Department of Energy is requiring new HVAC equipment to utilize lower global warming potential (GWP) refrigerants AAON will adopt R454B, which most of the industry intends to adopt. R454B has a GWP of 467, compared to
Slide 18: AAON Continues To Innovate
AAON Continues To Innovate COLD CLIMATE AIR-SOURCED HEAT PUMPS (ASHP) In Q4’21, AAON introduced the first-ever commercial ASHP that is operable down to zero-degree Fahrenheit Up until now, commercial ASHP’s were operable only down to approximately 30 degrees This highly energy efficient technology i
Slide 19: AAON is a Premier ESG Company
AAON is a Premier ESG Company The biggest impact the commercial HVAC industry has on society from an ESG perspective is related to the equipment that is sold Commercial buildings make up 16% of the total carbon emissions in the U.S. and approximately 40% of those emissions are related to building HV
Slide 20: Total Addressable Market
Total Addressable Market The addressable market of AAON’s core Nonresidential HVAC Packaged packaged rooftop product is approximately 11x Rooftop Market the size of the company’s rooftop sales ~$6B Historically, AAON and the customized rooftop market has been a niche of the industry Customized marke
Slide 21: AAON Has Never Been More Aligned With Its Sales Channel
AAON Has Never Been More Aligned With Its Sales Channel… …And Its Sales Channel Has Never Been More Capable. 21
Slide 22: Fundamentals Are Strong…
Fundamentals Are Strong… Decarbonization Electrification Favorable Regulations Total Cost of Ownership Cold Climate Heat Pumps Narrowed Price Premium Large Addressable Market Strengthening Sales Channel Increased Investment in Marketing Exposure to attractive sectors such as data centers and semicon
Slide 23: …Translating To Growth
…Translating To Growth Backlog $600 $500 $400 Backlog as of March 31, 2023 is up 706% (in millions) $300 since the end of 2020. $200 Organically, backlog is up 657% over this $100 time. $0 16 17 18 19 20 21 22 '21 '22 '22 '22 '22 '23 20 20 20 20 20 20 20 Q4 Q1 Q2 Q3 Q4 Q1 23
Slide 24: AAON Oklahoma Segment
AAON Oklahoma Segment Stephen Wakefield | Chief Operating Officer 24
Slide 25: AAON Oklahoma Overview
AAON Oklahoma Overview Facts: Products: Flagship manufacturing location All rooftop units Tulsa, Oklahoma RQ Series (2-6 tons) 1.5M sq. ft. RN Series (6-140 tons) NAIC laboratory and Customer RZ Series (45-261 tons) Exploration Center Parts 73% of 75% of Gross Sales1 Profit1 1 Based on year ended De
Slide 26: The Original AAON
AAON Oklahoma Overview The Original AAON 14 acres 30 acres 26
Slide 27: RN Series, RQ Series Cabinets
RN Series | C Cabinet 16-30 tons RN Series | D Cabinet RQ Series 26-70 tons 2-6 tons 27
Slide 28: Innovation Is Foundational To AAON
Innovation Is Foundational To AAON Mission and Vision: To provide premier HVAC solutions that bring R&D Expenses long-term value to customers and owners By leading the HVAC industry in innovation, we $50 5.5% create tomorrow’s solutions today $40 5.0% $30 4.5% (in millions) AAON has a mindset to inn
Slide 29: AAON's NAIC: World's Most Capable Laboratory
AAON’s NAIC: World’s Most Capable Laboratory Building 134,000 square feet 7.25 Megawatts Timeline Grand Opening 2018 Completely Operational 2019 (5/8 working weeks) Move to 7/12 work weeks in 2020 Staffing 43 Test Technicians 30 Engineers Currently operating 7 days a week and 12 hours per day 29
Slide 30: AAON's NAIC: World's Most Capable Laboratory
AAON’s NAIC: World’s Most Capable Laboratory Sound Largest Reverberation Sound Chamber in the world Chambers Only Sound Chamber in the world capable of capturing all three sound measurements simultaneously (supply, return, and cabinet radiated) for HVAC equipment underload This chamber is also a 300
Slide 31: Top-Tier Engineering Is Key
Top-Tier Engineering Is Key Leading capabilities Experience in creating highly customizable, cost-effective equipment with our standard offerings Flexibility to manage disruptions like supply chain issues Staying ahead of regulations Industry leading product performance that is very difficult to mim
Slide 32: Automated Fabrication: AAON's Secret Sauce
Automated Fabrication: AAON’s Secret Sauce Mastered semi-customization, which is required to meet increased demand for better performing, more efficient HVAC systems Soft-tooling versus hard presses Fully automated fabrication process that is very difficult to mimic The challenges of mimicking AAON’
Slide 33: Managing Through Post-Pandemic Issues
Managing Through Post-Pandemic Issues People Since the end of Q1’21, the segment added AAON Oklahoma Segment Headcount over 750 employees, or 42% 3,000 New V.P. of Administration (external hire) 2,500 2,000 Without disrupting efficiency, how? 1,500 Not going to give away any secrets but… 1,000 Focus
Slide 34: Managing Through The Post-Pandemic Issues
Managing Through The Post-Pandemic Issues Materials and Components Supply-chain issues are still a constant challenge Major issues are worked out with our rep council Vendors treated like business partners, many have come to us for help We’ve held our inventory during historic supply chain challenge
Slide 35: Managing Through The Post-Pandemic Issues
Managing Through The Post-Pandemic Issues Infrastructure and Capacity Increasing our useable space at all locations Major campus expansion in the works, Tulsa Major campus expansion in the works, Longview Major campus expansion in the works, Kansas City Campus expansion in the works, Redmond Improvi
Slide 36: Critical Transition In Leadership, Structure & Culture
Critical Transition In Leadership, Structure & Culture Started in 2018 CEO Much of the heavy lifting is complete Much of the benefits have yet to be realized Infrastructure Leadership AAON has never been better managed Critical and structured than it is today Leadership Transition Structure Process
Slide 37: AAON Oklahoma Financial Performance
AAON Oklahoma Financial Performance Sales Gross Profit $800 $200 18% $700 17% CAGR CAGR $600 $150 $500 (in millions) (in millions) $400 $100 $300 $200 $50 $100 $0 $0 2019 2020 2021 2022 2019 2020 2021 2022 37
Slide 38: AAON Coil Products Segment
AAON Coil Products Segment Doug Wichman | President, AAON Coil Products 38
Slide 39: AAON Coil Products (ACP) Overview
AAON Coil Products (ACP) Overview Facts: Products: Acquired in 1991 Condensers Longview, Texas Air Handlers 0.5M sq. ft. Self-Contained Units Manufactures most of AAON’s coil Coil Components components 14% of 12% of Gross Sales1 Profit1 1 Based on year ended December 31, 2022. 39
Slide 40: Where ACP Has Been And Where It Is Going
Where ACP Has Been And Where It Is Going 1991 – Purchased coil making assets from Coils Plus 1992 – Moved into original facility in Longview, TX 1999 – Significant addition added to the facility for initiation of unit builds in Longview, TX 2019 – Ground breaking on new facility, doubling the manufa
Slide 41: Longview, Texas
Longview, Texas 41
Slide 42: ACP Products Are Complimentary
ACP Products Are Complimentary Feature String Driven Production Unit Production Commercial Split Systems (up to 70 Tons) Self – Contained Units (up to 70 tons) Capitalize location and capacity for collaborative projects Coil shop Internal demand driven Automation where feasible 42
Slide 43: New Leadership, Investments & Culture Change
New Leadership, Investments & Culture Change Capital Investment spurs inclusion Expansion efforts primed seamless collaboration between locations Cross location dynamics accelerate growth and achievements Capitalize on unique resources and knowledge in different locations One AAON Culture evident wi
Slide 44: ACP Establishing BASX Production Lines
ACP Establishing BASX Production Lines Collaboration efforts underway BASX sales and engineering with Longview capacity Multi-million $ initial sales order Geographical win Best practice build standards, design, and process Partnering to meet consumer needs 44
Slide 45: ACP Financial Performance
ACP Financial Performance The Future is bright, the time is now. Current footprint running at ~60% utilization Capital investments for further expansion are underway 40% increase in square footage Centralize unit production Allow growth for coil manufacturing Capitalize future collaborative opportun
Slide 46: BASX Segment
BASX Segment Matt Tobolski | President, BASX 46
Slide 47: BASX Redmond, OR
Poy (oy > BASX Redmond
Slide 48: BASX
BASX bas·ics A manufacturer of custom air handling products and environmental control solutions A solutions provider with a focus on innovation, vertical integration and delivering energy efficient products A customer service driven organization delivering long-term value to data center, cleanroom a
Slide 49: BASX has built a team and new facilities to support continued growth
BASX has built a team and new facilities to support continued growth Redmond, OR 13% of total sales Approx. 260,000 sf 500+ team members Recent purpose-built facility Automation drives custom manufacturing efficiently 49
Slide 50: BASX is a trusted provider of innovative solutions
BASX is a trusted provider of innovative solutions with a proven track record of delivery Innovation Relationships Vertical Integration At Scale Innovation is in the DNA Experienced team with Strong focus on vertical Expanded manufacturing of the BASX team with a strong relationships in the integrat
Slide 51: Data Center Market continues exceptional expansion
DATA CENTER MARKET continues exceptional expansion with solid visibility for sustained market investment 10%+ CAGR expected through 2030 Consistent market share gains by BASX year-to-year Supply chain risk reduced with in-house fan manufacturing Long-term contracts provide visibility and stability C
Slide 52: BASX comprehensive data center product offering
BASX has a comprehensive data center product offering, focused on energy Fan Coil Wall Direct Evaporative Large Capacity Cooler CRAH efficiency and long-term value Solutions are deployed at scale for enterprise, colocation and edge data Indirect Free Cooling AHU Free Cooling Chiller Packaged Rooftop
Slide 53: BASX positioned to capitalize on cleanroom market growth
BASX is well positioned to capitalize on the cleanroom market’s strong growth Exceptional U.S. Strong Industry Limited Innovation to Investment Relationships Competition Delivery at Scale Heavy focus on the BASX team has decades of Manufacturing HVAC for BASX team has a history onshore manufacturing
Slide 54: BASX broad product offering for clean environments
BASX has a broad product offering to condition, filter and deliver air to clean Plenum and Grid Modular Cleanrooms environments Air Handling Units Integrated ORs 54
Slide 55: Positive bottom-line results through post-acquisition synergies
Positive bottom-line results have materialized through post-acquisition synergies Revenue Synergies Cost Synergies Leveraged AAON’s scale to grow orders Extensive collaboration between sites with existing customers enhancing manufacturing efficiency Cross-selling of products to increase Consolidatio
Slide 56: Demand for BASX product and capacity continues to increase
Demand for BASX product and manufacturing capacity continues to increase, supporting strong growth trends 47% 5-Year 143% YoY 55% YoY CAPEX to CAGR Backlog Team Support Growth Growth Growth 56
Slide 57: Marketing Strategy
Marketing Strategy Jeremy Cavness | Director of Marketing 57
Slide 58: History of Marketing at AAON
History of Marketing at AAON Marketing decisions often made by the founder Marketing often viewed as a cost center / ROI hard to measure Bandwidth was extremely limited: Overwhelming prioritization of product documentation, technical writing, and engineering content Primary focus has been on feature
Slide 59: History of Marketing at AAON
History of Marketing at AAON 2021 $535M ate gy r tin g St arke No M 1988 59
Slide 60: Evolving Consumer Behavior
Evolving Consumer Behavior People are busy Multiple channels = harder to reach Inundated with messaging Low to zero tolerance for advertising Brands competing for a small percentage of available mindshare Customers are doing research Learning. Connecting. Experiencing. Brands need to be less concern
Slide 61: Reps have been largely responsible for marketing AAON's products
Reps have been largely responsible for marketing AAON’s products with limited support from corporate 61
Slide 62: When Reps Do Marketing Alone
When Reps Do Marketing Alone The AAON narrative can become construed, diluted, incomplete, or is missing altogether Every rep is selling a different version of AAON Marketing assets are often underdeveloped, inconsistent, and disparate from one another Opportunities are missed Sales are missed GROWT
Slide 63: Things are changing
Things are changing 63
Slide 64: The objective of a marketing program is to dominate a category
The objective of a marketing program is not only to build a brand, but to dominate a category 64
Slide 65: The Big Strategy
The Big Strategy Strong Foundation Humanize the AAON Brand Own the Narrative – Tell the AAON Story Create Deeper Relationships with Reps 68 65
Slide 66: Strong Foundation
Strong Foundation 66
Slide 67: Strong Foundation
DRIVE RESULTS NEW IDEAS PROCESSES TACTICS PROJECTS CREATIVE GTM TIMELINES CREATE VALUE STRONG FOUNDATION PEOPLE CULTURE TOOLS 67
Slide 68: Human Capital & Strong Partners
Human Capital & Strong Partners Add more talent to the mix Right people in the right seats – Be intentional Strong agency partnerships: 68
Slide 69: Better Tools
Better Tools Enterprise Tech Stack Websites CRM Automation Project Management DAM Digital Advertising 69
Slide 70: Humanize
Humanize 70
Slide 71: Breaking
BREAKING ‘QNTH
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Slide 73: Own the Narrative
Own the Narrative 73
Slide 74: Own the Narrative
Own the Narrative Clarify our basis to compete: Long-term value Premier Ownership Experience Form a messaging strategy “We cannot offer real value until our customers understand the value that we offer.” Dominate the airwaves: Focused channel strategies Increased spend Iterate, Iterate, Iterate 74
Slide 75: Create deeper engagements with our reps and customers
Create deeper engagements with our reps and customers 75
Slide 76: Customer Engagement
Customer Engagement Training Programs Webinars Customer Visits AAON Experience 76
Slide 77: The AAON Experience
The AAON Experience NAIC Exploration Center Mobile Experience 77
Slide 78: AAON Exploration Center
AAON Exploration Center Building 28,000 sq. ft. 10,000+ sq. ft. of Exhibits and AAON Products 2 Premium Conference Rooms 6 Interactive Engineering Exhibits Net Zero Over nine miles of geothermal well system piping for 49 well, each that are 500’ in depth One of the largest solar farms installations
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Slide 80: Sales Channel Strategy & Market Update
Sales Channel Strategy & Market Update Andrew Edmondson | Director of Sales 80
Slide 81: Go-to-Market Strategies in the Industry
Go-to-Market Strategies in the Industry Hybrid Independent Rep Factory Direct Multi-Channel Direct & Reps Network Description • Salespeople are employees • Direct salespeople in some • Direct salespeople in some/all • Reps are exclusive in of manufacturer markets, rep firms in other markets with fac
Slide 82: Strengthening our Rep Network
Strengthening our Rep Network Gary Fields Gary Fields Rob Teis Gary Fields Rob Teis Andrew Edmondson RSM Role Consultant President Dir of Sales CEO VP Sales & Marketing Director of Sales Empowerment AAON is Scaling Leadership to Build Stronger Foundational Elements within our Reps Business Plans Par
Slide 83: Engaging & Supporting our Reps
Engaging & Supporting our Reps Rep Council & Task Forces Product Market Manager Market/Reps/Customers Engineers/R&D Training Customer Visits 83
Slide 84: Smaller Price Premium Makes For An Easier Sell
Smaller Price Premium Makes For An Easier Sell Generally, a sales channel can be divided into a pyramid of capabilities: Superior, Good and Opportunity For Improvement At AAON’s historical 15%-20% price premium, it required Superior superior salespeople to successfully sell Now, with a price premium
Slide 85: Current Market Environment Remains Positive
Current Market Environment Remains Positive Positive Sentiment Amongst Sales Channel Resilient Macroeconomic Indicators 85
Slide 86: Current Nonresidential Construction Market
Current Nonresidential Construction Market Nonresidential Construction Spending - AAON Sectors 30.0% 610,000 25.0% 20.0% 560,000 (in $ millions) 15.0% 510,000 10.0% 5.0% 460,000 0.0% -5.0% 410,000 -10.0% -15.0% 360,000 Jun-18 Dec-18 Jun-19 Jun-20 Jun-21 Jun-22 Mar-18 Mar-19 Mar-20 Mar-21 Mar-22 Mar-
Slide 87: Nonresidential Construction Leading Indicators
Nonresidential Construction Leading Indicators Dodge Momentum Index Architectural Billings Index Nonresidential Construction 225 Index Y/Y Growth 50% 65 200 40% 60 58.5 58.0 175 30% Planning Indicators 55 53.4 50.4 150 50 20% 125 45 10% 100 40 0% 35 75 50 -10% 30 25 29.5 25 -20% 20 0 -30% Mar-18 Mar
Slide 88: AAON Taking Market Share
AAON Taking Market Share AAON Units Shipped1 Industry Units 5+ Tons Shipped2 30,000 320,000 11% -3% 25,000 300,000 CAGR CAGR 20,000 280,000 15,000 260,000 10,000 5,000 240,000 - 220,000 2019 2020 2021 2022 2019 2020 2021 2022 1 AAON units shipped excludes BASX units and discontinued water-source hea
Slide 89: Investing in Sustainable Growth
Investing in Sustainable Growth Matt Tobolski | President, BASX 89
Slide 90: Demand fueling the need for strategic infrastructure investment
SALES $266.0M Organic growth +45.5% Y/Y • Volume growth 23.5% Y/Y Demand fueling the need for BACKLOG $599.9M strategic infrastructure +30.0% Y/Y • +9.5% Q/Q investment with focus on driving shareholder returns GROSS PROFIT MARGIN 29.0% +380 bps Y/Y • -180 bps Q/Q CAPEX BUDGET $135.0M +149.9% Y/Y In
Slide 91: Headroom within existing infrastructure footprint
Headroom within existing infrastructure footprint Fleetwide excess capacity is between 30-40% AAON Oklahoma has greatest headroom BASX has the lowest headroom 91
Slide 92: Comprehensive approach to capacity planning
Comprehensive approach to capacity planning has been in place for years Grow Our #1 Asset Existing Space Drive Efficiency Build Smartly The team at AAON is our Space Force has been a Logistics Team has been Operations Team has a best asset and we are driver in reimagining the driving manufacturing c
Slide 93: AAON Oklahoma
AAON Oklahoma Tulsa, Oklahoma Broad-based investment with immediate impact on staffing and capacity along with foundation for long-term investment Acquisition of adjacent properties to increase office space, enhance employee experience, add parking capacity Build out of coil manufacturing capacity A
Slide 94: AAON Coil Products
AAON Coil Products Longview, TX Doubling down on previous build, providing substantial headroom and efficiency gains Building out second half of the building that was constructed a few years back Shifting of unit production into new building allowing for additional coil manufacturing capacity Additi
Slide 95: BASX Solutions
BASX Solutions Redmond, Oregon Maximizing utilization of recent expansion by increasing capacity in constraining areas Constructing purpose-built weld shop to increase capacity and scale of units Installing additional fabrication equipment to increase capacity and redundancy on site Increasing devel
Slide 96: AAON Controls
AAON Controls Kansas City, Missouri Improving production process through purpose- built new manufacturing facility, automation and vertical integration Constructing new manufacturing facility with improved production efficiency Investing in manufacturing automation and vertically integrating more pr
Slide 97: Strategic deployment of capital for long-term shareholder returns
Strategic deployment of capital with a focus on delivering long-term shareholder returns Optimize Geographic Expand Product Vertical Facilities Diversification Offering Integration Process Market Enhance Sales Product Automation Diversification Rep Experience Innovation 97
Slide 98: Financial Overview
Financial Overview Rebecca Thompson | Chief Financial Officer and Treasurer 98
Slide 99: Historical Financial Performance
Historical Financial Performance Gross Margin Three Distinguishable Periods Since 2017 30.5% 30.3% 23.9% 25.4% 25.8% 26.7% 2017 – Pre-Leadership Transition 30%+ gross margin Slow organic growth 2018-2020 – Transition 2017 2018 2019 2020 2021 2022 Improving from sub-par gross margin back to 30%+ Net
Slide 100: Where Are We Now
Where Are We Now Net Sales ($M) Gross Margin Diluted EPS $1,100 29.5% $3.00 $1,050 29.0% $2.50 28.5% $1,000 28.0% $2.00 $950 27.5% $1.50 27.0% $1.00 $900 26.5% $850 26.0% $0.50 $800 25.5% $0.00 2022 Q1'23 Q1'23 2022 Q1'23 Q1'23 2022 Q1'23 Q1'23 (TTM) (annualized) (TTM) (TTM) (annualized) 100
Slide 101: 2023 Strategic Objectives
2023 Strategic Objectives Proactively Drive Results Improve our margin management process for business decision making Use of product management to evaluate product line results and move towards market pricing Culture One AAON Reorganization Integration of BASX Ability to hire Systems Improving our
Slide 102: 2023 Outlook And Long-Term Targets
2023 Outlook And Long-Term Targets Managing Price To Market Continued Gross Margin Improvement Price will contribute low-double digits to Gross margin improvement sales growth throughout 2023 Solid Volume Growth Improved profitability within backlog 23.5% in Q1 Improving productivity Strong backlog
Slide 103: Historical Use Of Cash Flow & Debt
Historical Use Of Cash Flow &Debt (in $ millions) 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Operating Cash Flow $54.4 $53.5 $55.4 $63.9 $58.0 $54.9 $97.9 $128.8 $61.2 $61.3 Capital Expenditures $9.0 $16.1 $21.0 $26.6 $41.7 $37.3 $37.2 $67.8 $55.4 $54.0 Dividends Paid $7.4 $9.7 $11.9 $12.7 $1
Slide 104: Current Capital Allocation
Current Capital Allocation • Invest in Organic Growth • Production capacity • Working capital • Mergers & Acquisitions (M&A) • Evolving M&A strategy, but do not expect AAON to become an aggressive acquirer • Debt • Anticipate full pay down of debt over next 12 months • Dividends • Regular quarterly
Slide 105: Compelling Returns On Invested Capital
1 Compelling Returns On Invested Capital 35% 30% 25% 20% 15% 10% 5% 0% 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Q1'232 Q1’23 ROIC 10-year average ROIC 1 See Appendix for non-GAAP Reconciliation 105
Slide 106: Stockholder Returns
Stockholder Returns Dividends have increased 231% in the last 10 years Annual Dividend We increased the annual $0.43 dividend per share from $0.38 to $0.38 $0.38 $0.48 in November 2022 $0.32 $0.32 $0.26 Starting in 2023, we now pay our $0.24 $0.22 dividend quarterly $0.18 $0.13 Dividend yield is 0.5
Slide 107: This is how we seize the opportunity
This is how we seize the opportunity Results Culture Systems Talent Proactively manage Cultivating “One AAON” Modernize business Strengthen the breadth business to drive culture including BASX through focus on digital and depth of our team increased profitability transformation 107
Slide 108: Appendix: Return On Invested Capital
Appendix Return On Invested Capital ($ in 000s) Annualized Q1 2023 2022 2021 2020 2019 2018 2017 2016 2015 2014 2013 Net Income 147,256 100,376 58,758 79,009 53,711 42,329 53,830 53,376 45,728 44,158 37,547 Total Assets 867,914 813,903 650,180 449,008 371,424 307,994 296,780 256,530 232,854 226,974