AAON, INC. - Quarter Report: 2024 June (Form 10-Q)

Accounts receivable, net Income tax receivable Inventories, net Contract assets Prepaid expenses and other Total current assets Property, plant and equipment: Land Buildings Machinery and equipment Furniture and fixtures Total property, plant and equipment Less: Accumulated depreciation Property, plant and equipment, net Intangible assets, net Goodwill Right of use assets Other long-term assets Total assets$ $ Liabilities and Stockholders' Equity Current liabilities: Accounts payable$ $ Accrued liabilities Contract liabilities Total current liabilities Revolving credit facility, long-term Deferred tax liabilities Other long-term liabilities

New markets tax credit obligations1

Commitments and contingencies par value, shares authorized, shares issued

Common stock, $ par value, shares authorized2, and issued and outstanding at June 30, 2024 and December 31, 2023, respectively

Additional paid-in capital Retained earnings Total stockholders' equity Total liabilities and stockholders' equity$ $

2 Effective July 9, 2024, our authorized common shares increased from 100,000,000 to 200,000,000 (Note 15)

The accompanying notes are an integral part of these consolidated financial statements.

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AAON, Inc. and Subsidiaries
Consolidated Statements of Income
(Unaudited)
	Three Months Ended June 30,		Six Months Ended June 30,
	2024	2023	2024	2023
	(in thousands, except share and per share data)
Net sales	$	$	$	$
Cost of sales
Gross profit
Selling, general and administrative expenses
(Gain) loss on disposal of assets			()
Income from operations
Interest expense, net	()	()	()	()
Other income, net
Income before taxes
Income tax provision
Net income	$	$	$	$
Earnings per share:
Basic1	$	$	$	$
Diluted1	$	$	$	$
Cash dividends declared per common share1:	$	$	$	$
Weighted average shares outstanding:
Basic1
Diluted1

The accompanying notes are an integral part of these consolidated financial statements.

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AAON, Inc. and Subsidiaries

Consolidated Statements of Stockholders' Equity

(Unaudited)

Six Months Ended June 30, 2024

Common Stock

Paid-in

Retained

Shares1

Amount1

Capital

Earnings1

Total

(in thousands)

Balance at December 31, 2023

Net income

—

Stock options exercised and restricted

—

stock awards granted

Contingent shares issued (Note 15)

—

Share-based compensation

—

Stock repurchased and retired

()

—

()

Dividends

—

()

Balance at June 30, 2024

Three Months Ended June 30, 2024

Common Stock

Paid-in

Retained

Shares1

Amount1

Capital

Earnings1

Total

(in thousands)

Balances at March 31, 2024

Net income

—

Stock options exercised and restricted

—

stock awards granted

Share-based compensation

—

Stock repurchased and retired

()

—

()

Dividends

—

()

Balance at June 30, 2024

Six Months Ended June 30, 2023

Common Stock

Paid-in

Retained

Shares1

Amount1

Capital

Earnings1

Total

(in thousands)

Balances at December 31, 2022

Net income

—

Stock options exercised and restricted

—

stock awards granted

Share-based compensation

—

Stock repurchased and retired

()

—

()

—

()

Contingent Consideration

—

Dividends

—

()

Balance at June 30, 2023

Three Months Ended June 30, 2023

Common Stock

Paid-in

Retained

Shares1

Amount1

Capital

Earnings1

Total

(in thousands)

Balances at March 31, 2023

Net income

—

Stock options exercised and restricted

—

stock awards granted

Share-based compensation

—

Stock repurchased and retired

()

—

()

—

()

Dividends

—

()

Balance at June 30, 2023

The accompanying notes are an integral part of these consolidated financial statements.

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AAON, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
	Six Months Ended June 30,
	2024	2023
Operating Activities	(in thousands)
Net income	$	$
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Amortization of debt issuance costs
Amortization of right of use assets
Provision for (recoveries of) credit losses on accounts receivable, net of adjustments		()
Provision for excess and obsolete inventories, net of write-offs
Share-based compensation
(Gain) loss on disposition of assets	()
Foreign currency transaction loss (gain)		()
Interest income on note receivable	()	()
Deferred income taxes		()
Changes in assets and liabilities:
Accounts receivable	()	()
Income taxes	()	()
Inventories		()
Contract assets	()	()
Prepaid expenses and other long-term assets	()	()
Accounts payable	()	()
Contract liabilities		()
Extended warranties
Accrued liabilities and other long-term liabilities	()
Net cash provided by operating activities
Investing Activities
Capital expenditures	()	()
Proceeds from sale of property, plant and equipment
Software development expenditures	()
Principal payments from note receivable
Net cash used in investing activities	()	()
Financing Activities
Proceeds from financing obligation, net of issuance costs
Payment related to financing costs	()	()
Borrowings under revolving credit facility
Payments under revolving credit facility	()	()

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$ $ $ Condensing units Air handlers Cleanroom systems Data center cooling solutions Water-source heat pumps Part sales

Other1

$ $ $ $ Three Months Ended June 30, 2023AAON OklahomaAAON Coil ProductsBASXTotal(in thousands)Rooftop units$ $ $ $ Condensing units Air handlers Outdoor mechanical rooms Cleanroom systems Data center cooling solutions Water-source heat pumps Part sales

Other1

() $ $ $ $

1 Other sales include freight, extended warranties and miscellaneous revenue.

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$ $ $ Condensing units Air handlers Cleanroom systems Data center cooling solutions Water-source heat pumps Part sales

Other1

$ $ $ $ Six Months Ended June 30, 2023AAON OklahomaAAON Coil ProductsBASXTotal(in thousands)Rooftop units$ $ $ $ Condensing units Air handlers Outdoor mechanical rooms Cleanroom systems Data center cooling solutions Water-source heat pumps Part sales

Other1

$ $ $ $

1 Other sales include freight, extended warranties and miscellaneous revenue.

Due to the highly customized nature of many of the Company’s products and each product not having an alternative use to the Company without significant costs to the Company, the Company recognizes revenue over time as progress is made toward satisfying the performance obligations of each contract. The Company has formal cancellation policies and generally does not accept returns on these units. As a result, many of the Company’s products do not have an alternative use and therefore, for these products we recognize revenue over the time it takes to produce the unit.

Contract costs include direct materials, direct labor, installation, freight and delivery, commissions and royalties. Other costs not related to contract performance, such as indirect labor and materials, small tools and supplies, operating expenses, field rework and back charges are charged to expense as incurred. Provisions for estimated losses on contracts in progress are made in the period in which such losses are determined. Changes in job performance, job conditions, and estimated profitability, including those arising from contract penalty provisions and final contract settlements, may result in revisions to costs and income, and are estimated and recognized by the Company throughout the life of the contract. The aggregate of costs incurred and income recognized on uncompleted contracts in excess of billings is shown as a contract asset within our consolidated balance sheets, and the aggregate of billings on uncompleted contracts in excess of related costs incurred and income recognized is shown as a contract liability within our consolidated balance sheets.

For all other products that are part sales or standardized units, the Company recognizes revenue, presented net of sales tax, when it satisfies the performance obligation in its contracts. As the primary performance obligation in such a contract is delivery of the requested manufactured equipment, we satisfy the performance obligation when the control is passed to the customer, generally at time of shipment. Final sales prices are fixed based on purchase orders.

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Product Warranties

A provision is made for the estimated cost of maintaining product warranties to customers at the time the product is sold based upon historical claims experience by product line. The Company records a liability and an expense for estimated future warranty claims based upon historical experience and management’s estimate of the level of future claims. Changes in the estimated amounts recognized in prior years are recorded as an adjustment to the liability and expense in the current year.

The Company also sells extended warranties on parts for various lengths of time ranging from six months to 10 years. Revenue for these separately priced warranties is deferred and recognized on a straight-line basis over the separately priced warranty period.

Representatives and Third Party Products

We are responsible for billings and collections resulting from all sales transactions, including those initiated by our independent manufacturer representatives (“Representatives”). Representatives are national companies that are in the business of providing HVAC units and other related products and services to customers. The end user customer orders a bundled group of products and services from the Representative and expects the Representative to fulfill the order. These additional products and services may include controls purchased from another manufacturer to operate the unit, start-up services, and curbs for supporting the unit (“Third Party Products”). All are associated with the purchase of a HVAC unit but may be provided by the Representative or another third party. Only after the specifications are agreed to by the Representative and the customer, and the decision is made to use an AAON HVAC unit, will we receive notice of the order. We establish the amount we must receive for our HVAC unit (“minimum sales price”), but do not control the total order price that is negotiated by the Representative with the end user customer. The Representatives submit the total order price to us for invoicing and collection. The total order price includes our minimum sales price and an additional amount which may include both the Representatives’ fee and amounts due for additional products and services required by the customer. The Company is considered the principal for the equipment we design and manufacture and records that revenue. The Company has no control over the Third Party Products to the end customer and the Company is under no obligation related to the Third Party Products. Amounts related to Third Party Products are not recognized as revenue but are recorded as a liability and are included in accrued liabilities on the consolidated balance sheets.

The Representatives’ fee and Third Party Products amounts (“Due to Representatives”) are paid only after all amounts associated with the order are collected from the customer. The amount of payments to our Representatives were $ million and $ million for the three months ended June 30, 2024 and 2023, respectively, and $ million and $ million for the six months ended June 30, 2024 and 2023, respectively.

% to % as of June 30, 2024. Currently, all leases are classified as operating leases. $ Lease liability, short-termAccrued liabilities$ $ Lease liability, long-termOther long-term liabilities$ $

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square feet of manufacturing and office space. The lease expires December 31, 2032.

In November 2022, the Company entered into a lease agreement for land and facilities in Tulsa, Oklahoma which provides an additional square feet to support our operations. In January 2024, we amended the lease for an additional square feet for operations and parts distribution. The amended lease term will expire November 30, 2029.

In July 2023, the Company entered into a lease agreement with a start date of September 1, 2023, for land and approximately square feet of facilities in Redmond, Oregon to support our manufacturing operations. The lease term is approximately with additional renewal options.

We also lease several properties near our Redmond, Oregon location. In the aggregate, these leases contain approximately square feet of additional warehouse space. These leases have expiring terms from February 2025 to November 2033.

2025 2026 2027 2028 Thereafter

$ Less: Allowance for credit losses()()

Total, net

$ $

$ $ $

Provisions for (recoveries of) expected credit

() ()losses, net of adjustments

Accounts receivable written off, net of recoveries

() () Balance, end of period$ $ $ $

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$ Work in process Finished goods

Total, gross

Less: Allowance for excess and obsolete inventories()()

Total, net

$ $ $ $ $ Provision for (recoveries of) excess and obsolete inventoriesInventories written off()()()()Balance, end of period$ $ $ $

$ Customer relationships Capitalized internal-use software Less: Accumulated amortization()() Total, net Indefinite-lived intangible assetsTrademarks Total intangible assets, net$ $ $ $ $

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2025 2026 2027 2028 Thereafter Total future amortization expense Internal-use software projects not in service Total$

$ $ $ Income taxes paid$ $ $ $ Non-cash investing and financing activities: Non-cash capital expenditures$ $ $ $

Contingent shares issued (Note 15)

$ $ $ $

from the date of first use or months for parts, data center cooling solutions, and cleanroom systems to years for certain heat exchangers. The Company has an obligation to replace parts if conditions under the warranty are met. A provision is made for estimated warranty costs at the time the related products are sold based upon the warranty period, historical trends, new products, and any known identifiable warranty issues. $ $ $ Payments made()()()()Warranty expense Balance, end of period$ $ $ $

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$ Due to representatives Payroll Profit sharing Workers' compensation Medical self-insurance Customer prepayments Donations, short-term Accrued income taxes Employee vacation time Extended warranties, short-term Lease liability, short-term Property taxes Other

Total

$ $ $ Extended warranties Donations and other

Total

$ $

10.

million Amended and Restated Loan Agreement dated November 24, 2021 (as amended, “Revolver”), to provide for maximum borrowings of $ million. As of June 30, 2024, and December 31, 2023 we had $ million and $ million outstanding under the Revolver, respectively. We have standby letters of credit totaling $ million as of June 30, 2024. Borrowings available under the Revolver at June 30, 2024 were $ million. The Revolver expires on May 27, 2027. We have amended the Revolver to allow for the occurrence of transactions associated with the New Markets Tax Credit transactions (Note 16).

Any outstanding loans under the Revolver bear interest at the daily compounded secured overnight financing rate ("SOFR") plus the applicable margin. Applicable margin, ranging from % - %, is determined quarterly based on the Company's leverage ratio. The Company is also subject to letter of credit fees, ranging from % - %, and a commitment fee, ranging from % - %. The applicable fee percentage is determined quarterly based on the Company's leverage ratio. The weighted average interest rate on borrowings outstanding on the Revolver was % for both the three and six months ended June 30, 2024, respectively, as compared to % and % for the three and six months ended June 30, 2023, respectively. Fees associated with the unused portion of the committed amount are included in interest expense on our consolidated statements of income for the three and six months ended June 30, 2024 and 2023, respectively.

If SOFR cannot be determined pursuant to the definition, as defined by the Revolver agreement, any outstanding affected loans will be deemed to have been converted into alternative base rate ("ABR") loans. ABR loans would bear interest at a rate per annum equal to the highest of (a) the Prime Rate in effect on such day, (b) the Federal Funds Rate in effect on such day plus %, or (c) daily simple SOFR for a one-month tenor in effect on such day plus %.

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to 1.0, which meets the requirement of not being above to 1.

11.

$ $ $ Deferred () () Income tax provision$ $ $ $

The provision for income taxes differs from the amount computed by applying the Federal statutory income tax rate before the provision for income taxes.

% % % %State income taxes, net of Federal benefit

Excess tax benefits related to share-based compensation (Note 12)

()()()()Return to provision ()()Non-deductible executive compensation Research and development credits()()()()Change in valuation allowance (Oklahoma Investment Credit) () ()Other()()()() Effective tax rate % % % %

We have historically earned investment tax credits from the state of Oklahoma’s manufacturing property investment program. We use the flow-through method to account for investment tax credits earned on eligible tangible asset expenditures. Under this method, the investment tax credits are recognized as a reduction to our Oklahoma income tax expense in the year they are used. As part of our expansion projects in Oklahoma, we identified a separate, more advantageous Oklahoma credit program (not income tax related) which resulted in us discontinuing our accumulation of credits for Oklahoma’s manufacturing property investment program after the 2022 tax year. Because the Company will not generate additional excess credits after our 2022 tax year, we will be able to use our credit carryforwards against future taxable income and the related valuation allowance was reversed resulting in a one-time benefit of $ million to the income tax provision for the three and six months ended June 30, 2023. As of June 30, 2024, we have investment tax credit carryforwards of approximately $ million. These credits have estimated expirations from the year 2039 through 2043.

In accordance with the 2017 Tax Cuts & Jobs Act, under Internal Revenue Code Section 162(m), the tax deduction for covered executives of public companies is limited to $1.0 million per individual. Because of the increase in our stock price and timing of executive stock option exercises this resulted in an increase to the income tax provision of approximately $ million and $ million for the three and six months ended June 30, 2024, respectively.

In accordance with the 2017 Tax Cuts & Jobs Act, under Internal Revenue Code Section 174, research and development expenses incurred after December 31, 2021 are required to be capitalized and amortized over 5 years. The amortization requirements for tax purposes is a mid-year convention, meaning that the tax amortization is 10% in the year of acquisition, 20% in the following 4 years, and 10% in the final year.

The Company's estimated annual 2024 effective tax rate, excluding discrete events, is approximately %. We file income tax returns in the U.S., state and foreign income tax return jurisdictions. We are subject to U.S. income tax examinations for tax years 2020 to present, and to non-U.S. income tax examinations for the tax years 2019 to present. In addition, we are subject to

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12.

million shares that could be granted in the form of stock options, stock appreciation rights, restricted stock awards, performance units and performance awards. Under the LTIP, the exercise price of shares granted could not be less than % of the fair market value at the date of the grant.

On May 24, 2016, our stockholders adopted the 2016 Long-Term Incentive Plan ("2016 Plan") which provides for approximately million shares, comprised of million new shares provided for under the 2016 Plan, approximately million shares that were available for issuance under the previous LTIP that were then authorized for issuance under the 2016 Plan, approximately million shares that were approved by the stockholders on May 15, 2018, and an additional million shares that were approved by the stockholders on May 12, 2020.

On May 21, 2024, our stockholders adopted the 2024 Long-Term Incentive Plan ("2024 Plan") which provides for approximately million new shares and approximately million shares that were issued and outstanding under the 2016 Plan (as of May 21, 2024) that are now authorized for issuance under the 2024 Plan. The million shares issued and outstanding under the 2016 Plan are only eligible for issuance under the 2024 Plan upon forfeiture, expiration, or cancellation.

Under the 2024 Plan and previously under the 2016 Plan (collectively, the "Plans"), shares can be granted in the form of stock options, stock appreciation rights, restricted stock awards, performance awards, dividend equivalent rights, and other awards. Under the Plans, the exercise price of shares granted may not be less than % of the fair market value at the date of the grant. The Plans are administered by the Compensation Committee of the Board of Directors or such other committee of the Board of Directors as is designated by the Board of Directors (the “Committee”). Membership on the Committee is limited to independent directors. The Committee may delegate certain duties to one or more officers of the Company as provided in the Plans. The Committee determines the persons to whom awards are to be made, determines the type, size and terms of awards, interprets the Plans, establishes and revises rules and regulations relating to the Plans and makes any other determinations that it believes necessary for the administration of the Plans.

Options

$Expected volatility%%Risk-free interest rate%%Expected life (in years)Employees:Expected (annual) dividend rate$$Expected volatility%%Risk-free interest rate%%Expected life (in years)

1 SLT consists of officers and key members of management.

The expected term of the options is based on evaluations of historical and expected future employee exercise behavior. The risk-free interest rate is based on the U.S. Treasury rates at the date of grant with maturity dates approximately equal to the expected life at the grant date. Volatility is based on historical volatility of our stock over time periods equal to the expected life at grant date.

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-$ $ $ $ -$ $ -$ Total $ $

Granted

Exercised

()

Forfeited or Expired

()

Outstanding at June 30, 2024

Exercisable at June 30, 2024

The total pre-tax compensation cost related to unvested stock options not yet recognized as of June 30, 2024, is $ million and is expected to be recognized over a weighted average period of approximately years.

The total intrinsic value of options exercised during the six months ended June 30, 2024 and 2023, was $ million and $ million, respectively. The cash received from options exercised during the six months ended June 30, 2024 and 2023, was $ million and $ million, respectively. The impact of these cash receipts is included in financing activities in the accompanying consolidated statements of cash flows.

Restricted Stock

The fair value of restricted stock awards is based on the fair market value of AAON, Inc. common stock on the respective grant dates, reduced for the present value of dividends. At June 30, 2024, unrecognized compensation cost related to unvested restricted stock awards was approximately $ million, which is expected to be recognized over a weighted average period of approximately years.

Granted

Vested

()

Forfeited

()

Unvested at June 30, 2024

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. At the end of the measurement period, each award will be converted into common stock at % to % of the PSUs held, depending on overall TSR as compared to the S&P SmallCap 600 Index benchmark companies.

The total pre-tax compensation cost related to unvested PSUs not yet recognized as of June 30, 2024, is $ million and is expected to be recognized over a weighted average period of approximately years.

$Expected volatility%%Risk-free interest rate%%Expected life (in years)

The expected term of the PSUs is based on their remaining performance period. The risk-free interest rate is based on the U.S. Treasury rates at the date of grant with maturity dates approximately equal to the expected life at the grant date. Volatility is based on historical volatility of our stock over time periods equal to the expected life at grant date.

Granted

Additional target payout1

Vested

()

Forfeited

()

Unvested at June 30, 20242

1 The additional number of PSUs earned based on a 110% achievement at December 31, 2023 for awards vesting in 2024.

2 Consists of PSUs cliff vesting December 31, 2024, PSUs cliff vesting December 31, 2025, and PSUs cliff vesting December 31, 2026.

Key Employee Awards

As part of the December 2021 acquisition of BASX, the Company granted awards to key employees of BASX ("Key Employee Awards"). Unlike our restricted stock awards under the 2016 Plan, the Key Employee Awards are not considered legally outstanding and do not accrue dividends during the vesting period. The issuance of the Key Employee Awards was contingent upon BASX meeting certain post-closing earn-out milestones during each of the years ending 2021, 2022 and 2023 as defined by the BASX acquisition membership interest purchase agreement ("MIPA Agreement") and continued employment with the Company. At the end of the earn-out period, ending December 31, 2023, each eligible Key Employee Award vested and was converted into common stock. The fair value of Key Employee Awards is based on the fair market value of AAON common stock on the grant date. All pre-tax compensation cost has been recognized as of December 31, 2023, and all awards vested in March 2024.

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Granted

Vested

()

Forfeited

Unvested at June 30, 2024

Share-Based Compensation

$ $ $ PSUs Restricted stock Total$ $ $ $ Share-based compensation expense:Options$ $ $ $ PSUs Restricted stock Key Employee Awards Total$ $ $ $ Income tax benefit (deficiency) related to share-based compensation:Options$ $ $ $ PSUs— — Restricted stock Key Employee Awards— — Total$ $ $ $

Share-based compensation expense is recognized on a straight-line basis over the service period of the related share-based compensation award. Historically, stock options and restricted stock awards, granted to employees, vested at a rate of % per year. Restricted stock awards granted to directors historically vested one-third each year or, if granted on or after May 2019, vest over the shorter of directors' remaining elected term or one-third each year. As of March 2021, all new grants of stock options and restricted stock awards, granted to employees, vest at a rate of % per year. Forfeitures are accounted for as they occur.

Historically, if the employee or director is retirement eligible (as defined by the applicable LTIP, 2016 Plan or 2024 Plan) or becomes retirement eligible during the service period of the related share-based compensation award, the service period (and compensation expense recognition) is the lesser of 1) the grant date, if retirement eligible on grant date, or 2) the period between grant date and retirement eligible date. All stock options and restricted stock awards granted on or after March 1, 2020 to retirement eligible employees or directors contain a employment requirement (minimum service period) or the entire award is forfeited. Forfeitures are accounted for as they occur.

The PSUs cliff vest on December 31, at the end of the third year from the date of grant. Share-based compensation expense is recognized on a straight-line basis over the service period of PSUs. The PSUs are subject to several service and market conditions, as defined by the PSU agreement, which allows the holder to retain a pro-rata amount of awards as a result of certain termination conditions, retirement, change in common control, or death. Forfeitures are accounted for as they occur.

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13.

% deferral rate and currently contributing employees deferral rates will be increased to % unless their current rate is at or above % or the employee elects to decline the automatic enrollment or increase. Administrative expenses are paid for by Plan participants. The Company paid administrative expenses during the six months ended June 30, 2024 and 2023.% up to % of employee contributions of eligible compensation. Additionally, Plan participant forfeitures are used to reduce the cost of the Company contributions.

Three Months Ended

Six Months Ended

June 30,
2024

June 30,
2023

June 30,
2024

June 30,
2023

(in thousands)

Contributions, net of forfeitures, made to the defined contribution plan

Profit Sharing Bonus Plans

% of pre-tax profit (10% prior to January 1, 2024) from the Company is paid to eligible employees on a quarterly basis in order to reward employee productivity. Eligible employees are regular full-time non-exempt employees of the Company who are actively employed and working on the first and last day of the calendar quarter. BASX employees are eligible to participate in the discretionary profit sharing bonus plan on January 1, 2024.

Prior to January 1, 2024, BASX had a separate employee incentive program (EIP) under which % of BASX's pre-tax profit, plus certain add backs, is paid ratably to eligible employees based on days-of-pay during the fiscal year. Eligible employees are regular full-time and part-time employees who have worked during the year and are still employed when the EIP payment is made following the end of the fiscal year, excluding members of BASX's senior leadership team and any employee paid commissions or royalties. This incentive program ended December 31, 2023.

Three Months Ended

Six Months Ended

June 30,
2024

June 30,
2023

June 30,
2024

June 30,
2023

(in thousands)

Profit sharing bonus plan and employee incentive plan expense

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% of a participating employee's allowed contributions to a qualified health saving account to assist employees with health insurance plan deductibles. BASX employees joined the Company's medical plan and benefits on January 1, 2024. $ $ $ Health saving account contributions

14.

$ $ $ Denominator:

Basic weighted average shares3

Effect of dilutive shares related to stock based compensation1,3

Effect of dilutive shares related to contingent consideration2 ,3

Diluted weighted average shares3

Earnings per share:

Basic3

$ $ $ $

Dilutive3

$ $ $ $ Anti-dilutive shares:

Shares3

1 Dilutive shares related to stock options, restricted stock, PSUs and Key Employee Awards (Note 12)

2 Dilutive shares related to contingent shares issued to the former owners of BASX (Note 15)

3 Reflects three-for-two stock split effective August 16, 2023.

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15.

million1February 27, 2024February 27, 2024

$ million1

June 4, 2024June 4, 2024

$ million2

June 14, 2024

1 Repurchases made in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended.

2 Repurchases made in accordance with Rule 10b-18 of the Securities Exchange Act of 1934, as amended.

$ $ $ $

For the three months ended June 30, 2024, total net sales increased $29.6 million or 10.4%, due to a increase in volumes of approximately 4.7% and price increases of approximately 5.7%. For the three months ended June 30, 2024, our BASX segment increased by 58.3% primarily related to data center cooling solutions.

Gross profit as a percent of sales increased to 36.1% for the three months ended June 30, 2024, as compared to 33.1% for the three months ended June 30, 2023. As noted above, realization of price increases has improved our margin profile along with the slowing of inflation for raw materials, especially in our AAON Oklahoma and AAON Coil Products segments, improving overall consolidated margin performance. BASX saw a decrease in gross profit improvement as a percent of sales due to expansion related disruptions within the quarter.

As shown in the table below, the cost of raw materials has started to come down but we still have seen inflation in our component parts that typically lag raw materials by six to 18 months. Additionally, in order to retain our existing employees, we have increased our starting wage rate considerably in recent years and continue to award periodic wage increases to our employees. These additional costs have been offset by the various price increases we have put in place in the past two years and increases in our production efficiency that has led to increased overhead absorption.

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Raw Material Costs

Three-month average raw material cost per pound as of June 30:


	2024		2023		% Change

Copper	$	5.28	$	5.91	(10.7)	%
Galvanized steel	$	0.57	$	0.64	(10.9)	%
Stainless steel	$	2.56	$	3.34	(23.4)	%
Aluminum	$	2.40	$	2.58	(7.0)	%

Selling, General and Administrative Expenses


	Three Months Ended				Percent of Sales
	June 30, 2024		June 30, 2023
					2024		2023
	(in thousands)
Warranty	$	3,320	$	3,126	1.1	%	1.1	%
Profit sharing	6,477		5,952		2.1	%	2.1	%
Salaries & benefits	14,089		13,390		4.5	%	4.7	%
Stock compensation	2,841		2,476		0.9	%	0.9	%
Advertising	1,005		1,013		0.3	%	0.4	%
Depreciation & amortization	4,266		3,224		1.4	%	1.1	%
Insurance	2,037		1,198		0.6	%	0.4	%
Professional fees	1,241		876		0.4	%	0.3	%
Donations	755		429		0.2	%	0.2	%

For the six months ended June 30, 2024, total net sales increased $25.8 million or 4.7%, due primarily to increases in price. AAON Coil Products segment experienced some production timing delays in early 2024 which contributed to the overall decrease in sales. BASX continues to see increased demand for data cooling solutions, increasing their sales year-over-year.

Gross profit as a percent of sales increased to 35.7% for the six months ended June 30, 2024, as compared to 31.1% for the six months ended June 30, 2023. As noted above, realization of price increases has improved our margin profile along with the slowing of inflation for raw materials, especially in our AAON Oklahoma and AAON Coil Products segments, improving overall consolidated margin performance. Production timing delays at our BASX location during the first quarter of 2024 contributed to less overhead absorption and margin performance, which resulted in a period over period decline in gross margin for our BASX segment.

Raw Material Costs

Six-month average raw material cost per pound as of June 30:


	2024		2023		% Change

Copper	$	5.43	$	5.82	(6.7)	%
Galvanized steel	$	0.58	$	0.72	(19.4)	%
Stainless steel	$	2.65	$	3.34	(20.7)	%
Aluminum	$	2.36	$	2.44	(3.3)	%

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Selling, General and Administrative Expenses


	Six Months Ended				Percent of Sales
	June 30, 2024		June 30, 2023
					2024		2023
	(in thousands)
Warranty	$	6,718	$	5,534	1.2	%	1.0	%
Profit sharing	11,077		10,818		1.9	%	2.0	%
Salaries & benefits	29,899		26,123		5.2	%	4.8	%
Stock compensation	5,085		4,349		0.9	%	0.8	%
Advertising	1,604		1,859		0.3	%	0.3	%
Depreciation & amortization	8,136		5,869		1.4	%	1.1	%
Insurance	4,008		2,431		0.7	%	0.4	%
Professional fees	5,861		1,981		1.0	%	0.4	%
Donations	925		554		0.2	%	0.1	%


Other	17,870		12,696		3.1	%	2.3	%
Total SG&A	$	91,183	$	72,214	15.8	%	13.1	%

Selling, general and administrative expenses increased $19.0 million for the six months ended June 30, 2024, from the prior year period. Salaries and benefits increased $3.8 million or 14.5%, which is primarily attributable to overall increased headcount as well as the the impact of employee pay increases and benefit improvements discussed above. Included in the benefit improvements was a one-time charge of $0.8 million related to integration of BASX benefits. Depreciation and amortization has increased $2.3 million due to investments in back office technology and automation. Professional fees increased $3.9 million during the six months ended June 30, 2024, due to various professional, regulatory, and legal corporate requirements. Other expenses increased $5.2 million or 40.8% during the six months ended June 30, 2024, due to increased travel, bad debts, the closing of our New Markets Tax Credit transaction and consulting expenses.

Income Taxes


	Six Months Ended				Effective Tax Rate
	June 30, 2024		June 30, 2023
					2024		2023
	(in thousands)
Income tax provision	$	22,571	$	14,034	19.8	%	14.5	%

The Company’s estimated annual 2024 effective tax rate, excluding discrete events, is expected to be approximately 25.2%.

The 14.5% overall effective tax rate for the six months ended June 30, 2023, was primarily due to the change in our valuation allowance from the discontinuation of our participation in the state of Oklahoma’s manufacturing property investment program. This change will allow the Company to utilize existing credit carryforwards in future tax years, eliminating the need for a valuation allowance against this deferred tax asset. The related valuation allowance was reversed resulting in a one-time benefit of $3.1 million to the estimated income tax provision for the six months ended June 30, 2023.

During the six months ended June 30, 2024, the Company recorded an excess tax benefit of $6.7 million as compared to $5.8 million during the same period in 2023. The excess tax benefit is related to the timing of stock option exercises as a result of our high stock price during the six months ended June 30, 2024 and 2023, respectively.

Liquidity and Capital Resources

Our working capital and capital expenditure requirements are generally met through net cash provided by operations and the use of the revolving bank line of credit based on our current liquidity at the time.

Working Capital - Our unrestricted cash decreased $0.3 million from December 31, 2023 to June 30, 2024. Our restricted cash increased $3.3 million from the closing of our recent New Markets Tax Credit related to our Longview, Texas expansion. We expect most funds will be released from this account by the end of 2024.

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Revolving Line of Credit - Our revolving credit facility (as amended, "Revolver"), provides for maximum borrowings of $200.0 million. As of June 30, 2024 and December 31, 2023, we had $85.9 million and $38.3 million outstanding under the Revolver, respectively. We had two standby letters of credit totaling $2.3 million as of June 30, 2024. At June 30, 2024, we have $111.8 million of borrowings available under the Revolver. The Revolver expires May 27, 2027. We have amended the Revolver to allow for the occurrence of transactions associated with the New Markets Tax Credit transactions (Note 16).

Any outstanding loans under the Revolver bear interest at the daily compounded secured overnight financing rate ("SOFR") plus the applicable margin. Applicable margin, ranging from 1.25% - 1.75%, is determined quarterly based on the Company's leverage ratio. The Company is also subject to letter of credit fees, ranging from 1.25% - 1.75%, and a commitment fee, ranging from 0.10% - 0.20%. The applicable fee percentage is determined quarterly based on the Company's leverage ratio. The weighted average interest rate on borrowings outstanding on the Revolver was 6.6% for both the three and six months ended June 30, 2024, respectively, as compared to 6.3% and 6.2% for the three and six months ended June 30, 2023, respectively. Fees associated with the unused portion of the committed amount are included in interest expense on our consolidated statements of income for the three and six months ended June 30, 2024 and 2023.

If SOFR cannot be determined pursuant to the definition, as defined by the Revolver agreement, any outstanding effected loans will be deemed to have been converted into alternative base rate ("ABR") loans. ABR loans would bear interest at a rate per annum equal to the highest of (a) the Prime Rate in effect on such day, (b) the Federal Funds Rate in effect on such day plus 0.50%, or (c) daily simple SOFR for a one-month tenor in effect on such day plus 1.00%.

At June 30, 2024, we were in compliance with our financial covenants, as defined by the Revolver. These covenants require that we meet certain parameters related to our leverage ratio. At June 30, 2024, our leverage ratio was 0.3 to 1.0, which meets the requirement of not being above 3 to 1.

2019 New Markets Tax Credit - On October 24, 2019, the Company entered into a transaction with a subsidiary of an unrelated third-party financial institution (the “2019 Investor”) and a certified Community Development Entity under a qualified New Markets Tax Credit (“2019 NMTC”) program pursuant to Section 45D of the Internal Revenue Code of 1986, as amended, related to an investment in plant and equipment to facilitate the expansion of our Longview, Texas manufacturing operations (the “2019 Project”). In connection with the NMTC transaction, the Company received a $23.0 million NMTC allocation for the 2019 Project and secured low interest financing and the potential for future debt forgiveness related to the expansion of its Longview, Texas facilities.

Upon closing of the 2019 NMTC transaction, the Company provided an aggregate of approximately $15.9 million to the Investor, in the form of a loan receivable, with a term of twenty-five years, bearing an interest rate of 1.0%. This $15.9 million in proceeds plus capital contributed from the Investor was used to make an aggregate $22.5 million loan to a subsidiary of the Company. This financing arrangement is secured by equipment at the Company's Longview, Texas facilities, and a guarantee from the Company, including an unconditional guarantee of the NMTCs.

2023 New Markets Tax Credit - On April 25, 2023, the Company entered into a transaction with a subsidiary of an unrelated third-party financial institution (the “2023 Investor”) and a certified Community Development Entity under a qualified New Markets Tax Credit (“2023 NMTC”) program pursuant to Section 45D of the Internal Revenue Code of 1986, as amended, related to an investment in plant and equipment to facilitate the expansion of our Longview, Texas manufacturing operations (the “2023 Project”). In connection with the 2023 NMTC transaction, the Company received a $23.0 million NMTC allocation for the 2023 Project and secured low interest financing and the potential for future debt forgiveness related to the expansion of its Longview, Texas facilities.

Upon closing of the 2023 NMTC transaction, the Company provided an aggregate of approximately $16.7 million to the Investor, in the form of a loan receivable, with a term of twenty-five years, bearing an interest rate of 1.0%. This $16.7 million in proceeds plus capital contributed from the Investor was used to make an aggregate $23.8 million loan to a subsidiary of the Company. This financing arrangement is secured by a guarantee from the Company, including an unconditional guarantee of the NMTCs. The unused net proceeds from the closing of the 2023 NMTC are included in restricted cash on our consolidated balance sheets required to be used for the 2023 Project.

2024 New Markets Tax Credit

On February 27, 2024, the Company entered into a transaction with a subsidiary of an unrelated third-party financial institution (the “2024 Investor”) and a certified Community Development Entity under a qualified New Markets Tax Credit (“2024 NMTC”) program pursuant to Section 45D of the Internal Revenue Code of 1986, as amended, related to an investment in real estate to facilitate 2023 Project. In connection with the 2024 NMTC transaction, the Company received a $15.5 million NMTC allocation for the 2023 Project and secured low interest financing and the potential for future debt forgiveness related to the expansion of its Longview, Texas facilities.

Upon closing of the 2024 NMTC transaction, the Company provided an aggregate of approximately $11.0 million to the Investor, in the form of a loan receivable, with a term of twenty-five years, bearing an interest rate of 1.0%. This $11.0 million

- 34 -

in proceeds plus capital contributed from the Investor was used to make an aggregate $16.0 million loan to a subsidiary of the Company. This financing arrangement is secured by a guarantee from the Company, including an unconditional guarantee of the NMTCs. The unused net proceeds from the closing of the 2024 NMTC are included in restricted cash on our consolidated balance sheets required to be used for the 2023 Project.

Stock Repurchases - The Board must authorize the timing and amount of these purchases and all repurchases are in accordance with the rules and regulations of the SEC allowing the Company to repurchase shares from the open market.

Our open market repurchase programs are as follows:

Effective Date

Authorized Repurchase $

Expiration Date

November 3, 2022

$50 million1

February 27, 2024

$50 million1

June 4, 2024

$50 million2

June 14, 2024

1 Repurchases made in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended.

2 Repurchases made in accordance with Rule 10b-18 of the Securities Exchange Act of 1934, as amended.

Our repurchase activity is as follows:


	Six Months Ended
	June 30, 2024					June 30, 2023
	(in thousands, except share and per share data)
Program	Shares1	Total $		$ per share1		Shares1	Total $		$ per share1
Open market	1,353,564	$	100,034	$	73.90	—	$	—	$	—

Employees	42,573	3,493		82.05		19,624	1,162		59.21
Total	1,396,137	$	103,527	$	74.15	19,624	$	1,162	$	59.21
1 Reflects three-for-two stock split effective August 16, 2023.

Dividends - At the discretion of the Board, we pay cash dividends. Board approval is required to determine the date of declaration and amount for each cash dividend payment.

Our recent cash dividends are as follows:

Declaration Date

Record Date

Payment Date

Dividend

per Share1

Annualized Dividend

per Share1

March 1, 2023

March 13, 2023

March 31, 2023

$0.08

$0.32

May 18, 2023

June 9, 2023

June 30, 2023

$0.08

$0.32

August 18, 2023

September 8, 2023

September 29, 2023

$0.08

$0.32

November 10, 2023

November 29, 2023

December 18, 2023

$0.08

$0.32

March 5, 2024

March 18, 2024

March 29, 2024

$0.08

$0.32

May 24, 2024

June 7, 2024

June 28, 2024

$0.08

$0.32

1 Reflects three-for-two stock split effective August 16, 2023.

On July 7, 2023, the Board of Directors declared a three-for-two stock split of the Company's common stock that was paid in the form of a stock dividend. Stockholders of record at the close of business on July 28, 2023 received one additional share for every two shares they held as of that date on August 16, 2023 (ex-dividend date August 17, 2023). All share and per share information has been updated to reflect the effects of this stock split.

Based on historical performance and current expectations, we believe our cash and cash equivalents balance, the projected cash flows generated from our operations, our existing committed revolving credit facility (or comparable financing) and our expected ability to access capital markets will satisfy our working capital needs, capital expenditures, and other liquidity requirements associated with our operations in 2024 and the foreseeable future.

- 35 -

Statement of Cash Flows

The following table reflects the major categories of cash flows for the six months ended June 30, 2024 and 2023. For additional details, see the consolidated financial statements.


	Six Months Ended
	June 30, 2024		June 30, 2023
	(in thousands)
Operating Activities
Net Income	$	91,244	$	82,496
Income statement adjustments, net	38,359		25,996
Changes in assets and liabilities:
Accounts receivable	(12,210)		(26,782)
Income taxes	(6,139)		(15,171)
Inventories	29,903		(17,927)
Contract assets	(22,977)		(4,711)
Prepaid expenses and other long-term assets	(2,708)		(2,502)
Accounts payable	(1,804)		(14,874)
Contract liabilities	13,105		(1,162)
Extended warranties	1,195		1,526
Accrued liabilities & other long-term liabilities	(56)		33,051
Net cash provided by operating activities	127,912		59,940
Investing Activities
Capital expenditures	(65,381)		(60,629)
Software development expenditures	(10,058)		—
Other	42		132
Net cash used in investing activities	(75,397)		(60,497)
Financing Activities
Proceeds from financing obligations, net of issuance costs	4,186		6,061
Payment related to financing costs	(417)		(398)
Borrowings under revolving credit facility	272,526		279,961
Payments under revolving credit facility	(224,970)		(272,429)
Stock options exercised	15,821		23,244
Repurchase of stock	(100,034)		—
Employee taxes paid by withholding shares	(3,493)		(1,162)
Cash dividends paid to stockholders	(13,079)		(13,004)
Net cash (used in) provided by financing activities	$	(49,460)	$	22,273

Cash Flows Provided by Operating Activities

The Company currently manages cash needs through working capital as well as drawing on its line of credit. Collections and payments cycles are on a normal pattern and fluctuate due to timing of receipts and payments.

Historically, the Company increased the purchase of inventory to take advantage of favorable pricing opportunities and also to mitigate the impact of future supply chain disruptions on our operations, however, as inflationary and supply chain disruptions have decreased, the Company has been able to reduce inventory levels. Additionally, timing of our customer prepayment as well as increases in our employee bonuses pools and benefits (as a result of our positive operating results) increased our cash provided by accrued liabilities during the six months ended June 30, 2023.

Payment terms for BASX jobs typically require upfront cash to fund the job resulting in cash inflows related to our contract liabilities and cash inflows fluctuate due to job timing and scheduling.

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Cash Flows Used in Investing Activities

The capital expenditures for the six months ended June 30, 2024, relate to our continued investment in our production capabilities. Purchases during the six months ended June 30, 2024, relate to additional infrastructure and machinery for both replacement and growth, additional production space in our Redmond, Oregon and Longview, Texas locations, additional equipment and production capacity in Parkville, Missouri, and additional land in Tulsa, Oklahoma for future growth. We have also made investments to purchase or develop software for internal use in anticipation of future Company growth. The capital expenditure program for 2024 is estimated to be approximately $125.0 million. Many of these projects are subject to review and cancellation at the discretion of our CEO and Board of Directors without incurring substantial charges.

Cash Flows Provided by Financing Activities

The change in cash from financing activities in 2024 is primarily related to borrowings under our revolving credit facility to manage our working capital needs, especially strategic purchases of inventory to avoid supply chain delays and the funding of certain capital expenditures, offset by repayments we were able to make due to our increased operating results and financial condition.

During the six months ended June 30, 2024, we repurchased $100.0 million under our open market share repurchase programs. Furthermore, cash flows from financing activities is historically affected by the timing of stock options exercised by our employees. Stock options exercises decreased during the six months ended June 30, 2024, compared to the six months ended June 30, 2023.

Commitments and Contractual Obligations

We are occasionally party to short-term and long-term, cancellable and occasionally non-cancellable, contracts with suppliers for the purchase of raw material and component parts. We expect to receive delivery of raw material and component parts for use in our manufacturing operations. These contracts are not accounted for as derivative instruments because they meet the normal purchase and normal sales exemption. We had no material contractual purchase obligations as of June 30, 2024, except as described below.

In 2023, the Company executed a five-year purchase commitment for refrigerants. Payments made in satisfaction of the purchase commitment were approximately $3.0 million and $6.6 million the three and six months ended June 30, 2024, respectively, as compared to$2.7 million and $5.1 million for the three and six months ended June 30, 2023, respectively. Estimated minimum future payments are $5.3 million, $9.1 million, $10.5 million, and $11.2 million for 2024, 2025, 2026, and 2027, respectively. We had no other material contractual purchase obligations as of June 30, 2024.

Critical Accounting Policies

There have been no material changes in the Company’s critical accounting policies during the six months ended June 30, 2024.

Recent Accounting Pronouncements

See Note 1 of the Notes to the Consolidated Financial Statements for a discussion of recent accounting pronouncements.

Forward-Looking Statements

This Quarterly Report on Form 10-Q (or statements otherwise made by the Company or on the Company’s behalf from time to time in other reports, filings with the Securities and Exchange Commission (“SEC”), news releases, conferences, website postings, presentations or otherwise) includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements contained herein that are not historical facts are forward-looking statements and involve risks and uncertainties. For all of these forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the U.S. Private Securities Litigation Reform Act of 1995. Words such as “expects”, “anticipates”, “intends”, “plans”, “believes”, “seeks”, “estimates”, “confident”, “outlook”, “project”, “should”, “will”, and variations of such words and other words of similar meaning or similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions, which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. Important factors that could cause results to differ materially from those in the forward-looking statements include, among others:

•market conditions and customer demand for our products;

•the timing and extent of changes in raw material and component prices;

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•naturally-occurring events, pandemics, and other disasters causing disruption to our manufacturing operations, product deliveries and production capacity;

•the impact caused by inflationary cost pressures, national or global health issues, such as the coronavirus pandemic (“COVID-19”), any variants or similar outbreaks (including the response thereto) and their effects on, among other things, demand for our products, supply chain disruptions, our liquidity and financial position, results of operations, stock price, payment of dividends, our ability to secure new orders, our ability to convert backlog to revenue and impacts to the operations status of our facilities;

•natural disasters and extreme weather conditions, including, without limitation, their effects on locations where our products are manufactured;

•the effects of fluctuations in the commercial/industrial new construction market;

•the timing of introduction and market acceptance of new products;

•the timing and extent of changes in interest rates, as well as other competitive factors during the year;

•general economic, market or business conditions;

•tightening of labor markets and the ability to hire employees for continued growth

•creditworthiness of our customers and their access to capital;

•changing technologies;

•the material failure, interruption of service, compromised data or information technology security, phishing emails, cybersecurity breaches or other impacts to our information technology and related systems and networks (including any of the foregoing of third-party vendors and other contractors who provide information technology or other services);

•costs and results of litigation, including trial and appellate costs;

•economic, market or business conditions in the specific industry and market in which our businesses operate;

•future levels of capital expenditures, research and development and indebtedness, including, without limitation, our ability to reduce indebtedness and risks associated with the same;

•legal, regulatory, and environmental issues, including, without limitation, compliance of our products with mandated standards and specifications; and

•integration of acquired businesses and our ability to realize synergies and cost savings.

Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. Except as required by federal securities laws, we undertake no obligation to update any forward-looking statement to reflect events, occurrences or developments after the date on which such statement is made. For a discussion of risks and uncertainties which could cause actual results to differ from those contained in the forward-looking statements, please see Item 1A “Risk Factors” included in our Annual Report on Form 10-K, and as otherwise disclosed from time to time in our other filings with the SEC.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Commodity Price Risk

We are exposed to volatility in the prices of commodities used in some of our products and we may use cancellable and non-cancellable contracts with our major suppliers for periods of six to 18 months to manage this exposure.

Interest Rate Risk

We are exposed to changes in interest rates related to our outstanding debt. As of June 30, 2024, we had an outstanding balance of $85.9 million on our Revolver. For each one percentage point increase in the interest rate applicable to our outstanding debt, our annual income before taxes would decrease by approximately $0.9 million.

- 38 -

Item 4. Controls and Procedures.

(a) Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer with the oversight of the Audit Committee, regarding the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded, as of the end of the period covered by this Quarterly Report, that our disclosure controls and procedures were effective.

There have been no changes in internal control over financial reporting that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

See Note 17 of the Notes to the Consolidated Financial Statements.

Item 1A. Risk Factors.

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023. The risk factors described in our Annual Report could materially adversely affect our business, financial condition or future results. There have been no material changes to the risk factors included in our 2023 Annual Report except as follows:

Risks Related to Governmental Regulation and Policies

We are subject to climate-related risks.

As climate change continues to be a challenge across the globe, AAON recognizes there are risks specifically related to climate. As mentioned before, there could be stricter regulations on refrigerants, energy efficiency, and the use of fossil fuels. The price of electricity could increase, or the Company’s operations could be affected by climate-change related weather events or water shortages. These risks could impact the Company on a short-term or long-term basis.

Item 2. Unregistered Sales of Equity and Securities and Use of Proceeds.

Stock Repurchases

The Company may repurchase AAON, Inc. stock on the open market from time to time. For six months ended June 30, 2024, we have repurchased a total of approximately $1.4 million (at current market prices) under the various open market stock buyback programs for an aggregate price of $100.0 million, or an average price of $73.90 per share. The Board must authorize the timing and amount of these purchases and all repurchases are in accordance with the rules and regulations of the SEC allowing the Company to repurchase shares from the open market.

The Company also repurchases shares of AAON, Inc. stock from employees for payment of statutory tax withholdings on stock transactions. All other repurchases from directors or employees are contingent upon Board approval and are repurchased at current market prices. For six months ended June 30, 2024, we repurchased approximately 42.6 thousand shares (at current market prices) for an aggregate price of $3.5 million, or an average price of $82.05 per share.

- 39 -

Repurchases during the second quarter of 2024 were as follows:


	ISSUER PURCHASES OF EQUITY SECURITIES
Period	(a) Total Number of Shares (or Units) Purchased1	(b) Average Price Paid Per Share (or Unit)1		(c) Total Number of Shares (or Units) Purchased as part of Publicly Announced Plans or Programs1	(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that may yet be Purchased under the Plans or Programs
April 2024	2,652	$	80.67	2,652	—
May 2024	540,409	74.73		540,409	—
June 2024	816,216	73.37		816,216	—
Total	1,359,277	$	74.15	1,359,277	—
1 Reflects three-for-two stock split effective August 16, 2023.

Contingent Shares Issued in BASX Acquisition

As discussed in Note 15, the Company declared a three-for-two stock split effective August 16, 2023. All share and per share information has been updated to reflect the effect of this stock split.

In December 2021, we closed on the acquisition of BASX. Under the MIPA Agreement, we committed to $ million in the aggregate of contingent consideration to the former owners of BASX, which is payable in approximately million shares of the Company's common stock, par value $ per share. The shares do not accrue dividends.

Under the MIPA Agreement, the issuance of shares to the former owners of BASX was contingent upon BASX meeting certain post-closing earn-out milestones during each of the years ended 2021, 2022, and 2023. In March 2024, we issued the remaining million shares related to the earn-out milestone for the year ended 2023. As a result of the shares issued in March 2024, the tax basis exceeded the book basis for consideration paid resulting in a deferred tax asset and an increase to additional paid-in capital of $ million, respectively, on our consolidated balance sheet. The deferred tax asset is expected to be amortized over 15 years. We previously issued million shares in March 2023, related to the earn-out milestone for the year ended 2022. All shares have been issued as private placements exempt from registration with the SEC under Rule 506(b) and are included in common stock on the consolidated statements of stockholders' equity.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 4A. Submission of Matters to a Vote of Security Holders.

None.

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Item 5. Other Information.

Rule 10b5-1

Name and Title of Director or Officer

Date of Adoption of Arrangement

Duration of the Arrangement

Aggregate Number of Securities to be Purchased or Sold Pursuant to the Arrangement

Stephen E. Wakefield

November 23, 2022

Terminated May 17, 2023

95,788

Vice President

Stephen E. Wakefield

September 13, 2023

Terminated December 27, 2023

181,000

Vice President

March 14, 2024

Item 6. Exhibits.


Exhibit #			Description
3.1			Amended and Restated Articles of Incorporation
3.2			Amended and Restated Bylaws of AAON, Inc. effective March 9, 20231
4.16			Description of Securities
31.1			Certification by Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2			Certification by Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1			Certification by Chief Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2			Certification by Chief Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101			Interactive data files pursuant to Rule 405 of Regulation S-T formatted in iXBRL (Inline Extensible Business Reporting Language): (i) our Consolidated Balance Sheets as of June 30, 2024, and December 31, 2023; (ii) our Consolidated Statements of Income for the six months ended June 30, 2024 and 2023; (iii) our Consolidated Statements of Stockholders’ Equity for the six months ended June 30, 2024 and 2023; (iv) our Consolidated Statements of Cash Flows for the six months ended June 30, 2024 and 2023; and (vi) the notes to our Consolidated Financial Statements.
104			Cover Page Interactive Data File pursuant to Rule 406 of Regulation S-T formatted in iXBRL (Inline Extensible Business Reporting Language) and contained in Exhibit 101.

			1 Incorporated herein by reference to the exhibit to our Form 8-K dated March 9, 2023.

- 41 -

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	AAON, INC.


Dated: August 01, 2024	By:	/s/ Gary D. Fields
		Gary D. Fields Chief Executive Officer


Dated: August 01, 2024	By:	/s/ Rebecca A. Thompson
		Rebecca A. Thompson Chief Financial Officer

- 42 -

AAON, INC. - Quarter Report: 2024 June (Form 10-Q)

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