The 2023 Annual Report: 35 Years of Industry-Defining Innovation


Last year was a special year for AAON in that it was the Company’s 35th anniversary since being founded in 1988. Moreover, it was the first year that the Company surpassed $1.0 billion in sales. Surpassing this milestone required one of the strongest years of performance in AAON’s history. Organic sales grew 31.5%, including an increase in volume of 14.5%. The Company’s core packaged rooftop business, which made up 68.8% of total sales in 2023, realized a 19% increase in unit volume. This compared to the U.S. market which realized a 6.0% increase in units five tons and greater, the comparable tonnage category of our rooftop portfolio. The Company clearly continued to gain market share, a reflection of successful planning and execution of strategy. Last year also marked a strong year of profitability. Gross margin expanded 740 basis points to 34.1% and net income grew 77.0% to a record level for the second straight year.

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Thirty-five years ago, our founder, Norm Asbjornson, created AAON with one mission, manufacturing the best HVAC equipment in the world for the best value. This mission remains true today. Through a unique semi-custom design and manufacturing process that evolved over decades, AAON is providing the highest performing, most energy-efficient equipment there is on the market. There is not a single player in our market that offers a solutions-based configurable portfolio of rooftop equipment that helps contractors and building owners maximize performance and efficiency as does AAON. Furthermore, continuous improvements in operational efficiencies have led to AAON products being the most cost-competitive in Company history. We made great strides in this over the past two years. The price premium of AAON equipment versus alternative equipment in the market has never been smaller than it is today. This has made the value proposition of the total cost of ownership immensely more compelling, allowing the Company to continue to gain share. Incremental investments made in 2023, including product development, sales & marketing, information technology, and leadership, position us to accelerate share gains in the next several years.



Since 2017, AAON has undergone significant changes in leadership, both structurally and personnel-wise. Prior to this time, the Company was managed by just a handful of people who lacked succession plans and were approaching the end of tenure. Today, we view the organization as an enterprise managed by executive and senior leadership teams with layers of leaders below that have goals, responsibilities, and succession planning. In order to position the Company for long-term sustainable growth, this change was fundamental. In 2023, we took the next step in this evolution when we announced in November several changes in management. Along with promoting Matt Tobolski to President and COO of AAON, we established several new global roles with the intent of helping manage our four geographical locations more efficiently, both in respect to productivity and growth. These changes, which took effect on January 1, 2024, will help leverage AAON’s foundational principles in the most efficient way.



The commercial HVAC market that AAON competes in is currently undergoing significant change driven by secular demand shifts and increased regulations. These changes create challenges in the way most of the industry operates, particularly for companies focused on mass production of basic equipment. Since AAON has a unique design and manufacturing process and focused on performance and energy efficiency, secular shifts in the market related to energy efficiency, decarbonization and electrification as well as regulations focused on environmentally friendly equipment are beneficial to AAON. Leading up to the higher minimum energy efficiency standards that the Department of Energy put into effect starting January 1, 2023, AAON’s product portfolio fully met those standards years in advance.

Similarly, well ahead of the EPA’s new regulation that requires manufacturers to ship products with a lower Global Warming Potential (GWP) refrigerant, AAON began accepting orders of equipment with lower GWP refrigerant on January 1, 2024. Most of the industry did not fully meet the minimum efficiency standards until the second half of 2022 and we are the only manufacturer today accepting orders for equipment with lower GWP refrigerant. At the same time, AAON continues to innovate. In 2023, AAON introduced its newly branded heat pump rooftop units called Alpha Class. Alpha Class is a fully electric heat pump operable down to zero degrees Fahrenheit. This product is significant in that it is the first viable climate solution to fulfilling electrification demands in the commercial rooftop market. Today, no other competitor has a heat pump on the market that is operable much lower than 25-30 degrees. These are examples of how AAON is leading the market with climate solutions and innovation. The Company has always led in this regard and maintains it will continue to push boundaries into the future.



Historically, AAON excelled in developing the most advanced HVAC equipment for the best value. While it always valued its independently owned sales channel, it did not invest in additional resources to help channel partners penetrate the market. We see this as a big opportunity and are now making such investments. In 2023, we began building out a marketing department capable with the resources to educate our sales channel and end-users of AAON’s value proposition. At the same time, we finished construction of our Exploration Center last year. This is a facility that showcases our equipment alongside market alternative equipment, a valuable resource in the marketing of our equipment. We are also investing in more capacity to train our sales representatives and additional resources to help build out our channel partners’ parts and services businesses. All of these investments are made with the intent of leveraging a premier product that has a superior value.



AAON has a superior product offering and world class sales channel. This positions the Company with a strong foundation. Leveraging this with certain investments and strategies will result in further share gains in 2024 and beyond. Given the advancements we are making relative to the market, we will accomplish this while also being a leading contributor in reducing the carbon footprint of commercial buildings. The company has never been more well managed than it is currently and we have never been more optimistic of the future than we are today.

To our stockholders, we cannot achieve these results without your support and commitment. We continue to benefit from the total cooperation and dedicated service of our employees and independent sales representatives.

To our shareholders, we are honored to have each of you with us and look forward to delivering the returns that will justify your ownership.

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