Norman Asbjornson - President and CEO Scott Asbjornson - Chief Financial Officer Rebecca Thompson - Chief Accounting Officer.

Joe Mondillo - Sidoti & Company Jon Braatz - Kansas City Capital DeForest Hinman - Walthausen & Co. .

Good afternoon, ladies and gentlemen. Welcome to AAON First Quarter Sales and Earnings [for Q] Conference Call. There will be a question-and-answer period, after management's presentation. This call will last approximately 45 minutes. As a reminder this conference is being recorded. I would now like to turn the meeting over to Mr. Asbjornson.

Please go ahead, sir..

Good afternoon, thank you for attending our first quarter review. Prior to going forward I need to read a forward-looking disclaimer.

To the extent any statement presented herein deals with information that is not historical, including the outlook for the remainder of the year, such statement is necessarily forward-looking and made pursuant to the Safe Harbor provisions of the Securities Litigation Reform Act of 1995.

As such, it is subject to the occurrence of many events outside AAON's control that could cause AAON's results to differ materially from those anticipated. Please see the risk factors contained in our most recent SEC filings, including the Annual Report on Form 10-K and the Quarterly Report on Form 10-Q.

I would like now to turn the conversation over to Scott Asbjornson, our Chief Financial Officer.

Scott?.

Welcome to our call I would like to begin by discussing the comparative financial results of the three months ended March 31, 2014 to March 31, 2013. Net sales were up 14.3% to $76.4 million from $66.8 million.

The increase in net sales was the result of the increase in the number of units sold, our product mix, price increases put in place at the end of the first quarter of 2013. Gross profit increased 42.7% to $21.8 million from $15.3 million. As a percentage of sales, gross profit was 28.6% in the quarter just ended compared to 22.9% in 2013.

The improvement in gross profit can be attributed to decreases in raw material costs increases and prices and manufacturing efficiencies. Selling, general and administrative expenses increased 9.5% to $7.6 million from $7.0 million in 2013. As a percentage of sales however, SG&A decreased to 10.0% of sales in the quarter just ended from 10.4% in 2013.

The increase in dollars of SG&A is primarily due to higher profit sharing expense, as a result of higher operating income before income taxes and increases in headcount as well as compensation changes. In addition warranty expense increased due to higher sales as compared the same period in 2013.

Income from operations increased [70.8%] to $14.2 million, or 18.6% of sales, from $8.3 million or 12.5% of sales. Our effective tax rate increased from 14.6% to 31.3% largely due to benefits related to the R&D credit and the Indian employment credit for tax years 2012 that were recorded in the first quarter of 2013.

We expect our effective tax rate for the full year of 2014 to be 34.0%. Net income increased 37.6% to $9.8 million or 12.9% of sales from $7.1 million or 10.7% of sales. Diluted earnings per share increased by 36.8% to $0.26 per share from $0.19 per share.

Diluted earnings per share were based on 37,075,000 shares versus 36,962,000 shares in the same quarter a year ago. At this time, I’ll turn it over to Rebecca Thompson, our Chief Accounting Officer to discuss our balance sheet..

Looking at the balance sheet, you’ll see that we had a working capital balance of $96.4 million. Cash and investments increased $3 million to $52.9 million during the quarter. The investments have maturities ranging from 1 to 13 months. Our current ratio is approximately 3.3:1. Our capital expenditures for the quarter were $3.6 million.

We expect our budget for 2014 to be approximately $13 million. Shareholders’ equity per diluted share is $4.64 at March 31, 2014, compared to $4.43 at December 31, 2013. We paid no dividends in the first quarter of 2014 or ‘13.

However, the Board of Directors of AAON has approved 30% increase in its semi-annual cash dividend from $0.10 per share to $0.13 per share, starting with the next dividend payable on July 1, 2014 to stockholders of record on June 12, 2014.

I’d now like to turn the call back over to Norm, who will discuss our results in further detail along with the remainder of the outlook for rest of the year..

Thank you. Despite difficult environment some weather delays, our net sales were up 14.3% for the quarter compared to the first quarter of 2013.

If I look at what happened from November 2013 through March 2014 and compare that with March of 2013, I find that even though March-to-March is up a little over 3% in dollars according to government statistics on the building types which we supply equipment to, there was a heavy point that started out in November of 2013 and declined through the month of March 2014.

So what I am saying again is we had a good bulge in the market back in 2013 and it declined a little bit and entered [many] things.

So whether that is a trend line or not or just a normal slowdown, what it does tell me also is that we didn’t suffer as much in the whole building trade, we didn’t suffer as much from weather as what it was reported to be happening and what was seemingly happening to us in January, we were able to in February and March basically overcome that difficulty but there was a little in January from our standpoint but not from the industry as a whole.

Looking at what else we had as was mentioned by Scott, we did have a 3% price increase that was in effect for the first quarter of this year that was not in effect for the first quarter of last year. We did have however significant advantage in obtaining orders due to redesigned products which has been going on for several years now.

And as they become more accepted by the marketplace, we are getting a bigger input and bigger market share due to the fact that the qualities that we’ve built into those products is becoming increasingly obvious to more people.

Replacement market and new constructions had a little change in them during the recession when the replacement market took over and became more dominant to new construction. I think however for the past year that has been more or less neutralizing itself and becoming more what you might call normal.

And with that, we think our replacement market as a percent of our total market has not increased and in fact is probably diminished to slight [dip]. But it’s all somewhere around replacement market being slightly over 50% and new construction being slightly under 50%. We did notice a change in our geothermal business, which diminished a little bit.

And I attribute that diminishing in the geothermal business primarily to the less costly natural gas cost. I think there was some geothermal direction going in the commercial world that was reversed when the cost of natural gas came down significantly. And I believe that’s where a fair amount of geothermal occurred.

Chillers and air handlers continued to grow slightly, but still minimally. I would point out at this point that we have just experienced quite a significant introduction of new chillers. So, I would expect over the next few years our chiller business now to become a greater percentage of our business.

It won’t be an immediate thing so it’s not going to have a big disruptive effect, a big positive or heavily negative, but it is going to start affecting in a positive way our chiller business, which is a significant business if we can get bigger part of the action. Split system business continues to grow modestly.

We believe also [adding] there, but we are going to experience some increase in sales of that product line because we did spend a lot of effort redesigning the condenser part of the split system business and the condenser is a larger portion between air handler.

So, as we introduce the split systems, the new split systems which will occur at the very end of the third quarter and into the fourth quarter, we will experience some improvement in that way. On the 4x4 equipment which is typically newest in high rises, I don’t see any noticeable upswing or any noticeable change.

So, the high rise building market doesn’t seem to be moving particularly in one direction or another.

However, looking at the growth of our various commercial businesses and trying to determine where our business is coming from, what I find is that on a year-to-year basis, lodging, which has really had outstanding strong upswing this past year, unfortunately we don’t participate very strongly in the lodging market, but it’s up 29.6% March-to-March.

The office building, of which the high rises are usually a major part is also strong market being up 10.9% March-to-March. We think most of that however is more urban office buildings in other words lower rise anywhere from a couple of stories to maybe 10 stories rather than a 50 story building.

The next category, commercial buildings that we service are healthcare and healthcare has had an increase on March-to-March of about 7.4%. So, we have got three markets there on the upswing and now we’re going to go into those which have gone the other way.

Going into the next one, which is educational, excuse me, the commercial led what I just spoke about was commercial was up 7.4 and that is again just retail and buildings of that nature. The healthcare actually diminished by 5.3% March-to-March.

Next one, which is our largest single market that we serve which is educational largely 1st grade to 12th grade, is down 3.8% year-to-year. And then religious which is a pretty small market, but it’s down 19.4%. Last one that we have that is on an upswing is manufacturing which has experienced 7.3% growth and it’s moderately large market.

So if we take them all together and summarize what really took place, on a March-to-March basis, it’s up by 3.3% in dollars spent when you collect all those various categories together. But as I’ve mentioned earlier, the downtrend in that summarization is in a negative direction right now.

So then we should look over and take a look and see what’s taken place on the after-tax billing index. The after-tax billing index had a [nice story] during the year 2013 than was predominantly over the 50% mark and according to belief of all of those architect billing indexes indicate what’s going to happen in the next 9 month to 12 month.

So we’d have to say that let’s say that year 2014 is probably going to have a reasonably modest improvement in market on new construction.

We are going to have one negative aspect to it because at the very end of the year of 2013 the EBITDA fell off into a negative below 50% and it’s just moved up and down a little bit for next three to four months down around the 50% which does not put any growth with very end of 2014 and the beginning of 2015.

However, this is pretty volatile type of an index that in and of itself it’s nothing to really become terribly concerned about momentary thing on month or two. It’s overall trend that tells us whether or not it’s a healthy situation, but it does through the cautionary flag.

And one more index which was just recently added to the architect billing index is one which they’ve talked about the score for design contracts award and this is before many step and that would give you an indication of what’s happening on the new contracts being signed by the architectural work to be done.

And in March it was 48.2%, not a good sign of things to come down let’s say 14, 15 months down the road, but worrying about primarily this coming year, the thing that comes to our attention is what we talked about for so many years is that we historically have been improving our market share and I don’t see that really changing.

So the biggest thing that we really have to worry about is not so much the trend in buildings because in general I would say we can expect 2014 to add a modest upturn in new construction. Now pretty much [of planned] remodeling. I don’t see anything changing a great deal in the remodeling from 2013 to 2014.

So what we have to compound in our being able to take additional market share which we have done very consistently over the years. The backlog gives us one more indication, but here also this is a very negative sound thing but it really is a poor index at this point in time.

In March of 2014 we had $51,737,440,000 in the backlog versus $71,731,292,000 a year ago, $20 [million] less however there was a major thing that occurred in 2013, which did not occur in 2014; and that is we had that 3% price increase that became effective during the first quarter or at the end of the first quarter of last year.

That always brings in lots of new orders out of the coming quarter, out of the second quarter it pulls the demand through the first quarter.

And I think most, all of that differential between $51 million and $71 million is attributable to what we pulled into the market last year, what we got in orders last year and in the first quarter that didn't happen this year, because we did not have a price increase. So, you can kind of discount it to a certain degree.

It is always an index, but I think it's pretty understandable when we look at why it occurred. To look outlook for the remainder in 2014. We are booking strongly at this point as we would expect to be. And as I said, 2014 does look to have a little positive effect in new construction, nothing major going to change I think in replacement market.

Bulk of whatever we do is going to have to come by taking it from someone of our competitors. I think that's entirely probable. We’ve done it now for 26 years, no reason it shouldn't continue on. The magnitude of our ability being able to take is always is subject of discussion. So, I’m pretty confident that it's going to be quite good.

Our capital expenditures for 2014, I expect to be somewhere in the $12 million, $13 million range. That pretty much concludes what I have got. I’m looking forward to a pretty nice year coming up that we are in now.

So, it’s a little bit undetermined based upon our ability to take market share but other than that the market looks pretty steady, pretty uneventful, doesn’t look like there is any big ups or any big down. So, it comes down to just doing a good job and doing our job. I’m now open to questions..

We’ll turn it over to the operator at this time for questions..

Thank you. (Operator Instructions). The first question comes from Joe Mondillo. Please go ahead, sir..

Good afternoon Norm, Scott..

Good afternoon, Joe..

Hi Joe..

My first question has to do with, I was just wondering if there is any sort of specific geographies that you're seeing any strength within the first quarter or any large customers that came in whether there a national account that you picked up or anything like that?.

No, I don't think that I've seen any geographical change in our marketplace particularly. And we've not picked up any really large customer during that time. It's been pretty much routine number of orders that made all this occur and it’s been pretty uniform across our entire marketplace..

Okay.

And so, I was wondering, how does the month of April look so far and how do you think about the second quarter at least?.

Well, we had very good booking of new orders in the month of April. It was as anticipated in order to make the next few months work for us. And we're continuing to have very good bookings as we speak right now. So that looks on a positive side. On the negative side a bit, we had trucking programs near the end of the month of April.

We had about $2 million worth of goods which we’ve built, were not picked up by the trucking companies for whatever reason, which is an abnormal situation. We usually have a few trucks that don’t show up and therefore we don't ship stuff, but $2 million sitting on the ground at the end of the month was unusual.

Nothing to be excited about, just move it into the month of May is all they’ll do. The net result was April was a good month, about like we expected to make what we expect to do for the quarter..

Okay.

And in terms of your sales reps, has that changed in terms of number of sales reps that you’ve had on board, have you been increasing them, how has that sort of looked?.

The quantity of reps has not changed, maybe it has by one and I might not aware of, but I don’t think so. The quality of people within the rep groups I would say has grown. In other words, individual rep groups have been adding personnel. They’ve been doing well with us. And I think that has caused them to have personnel; it’s my general perception.

We have been adding personnel..

Okay. And I guess one other question I had was you mentioned or you highlighted the fact that you’re coming out with these new chillers.

I was wondering, the margin profile of a chiller, is it any different than sort of the company average gross margins?.

No, it should be in the same ballpark..

Okay. And then just lastly and I’ll hop off, I was wondering that we could get an update on the distribution business, really didn’t comment on that.

How did that turned throughout the quarter and sort of the long-term outlook?.

The long-term outlook looks wonderful for -- it is growing much quicker than what our regular businesses and it is more profitable end of our business. Reason I didn’t mention it is because it’s running just over a $1 million a month and in other words a little over $3 million for the quarter.

And so, it’s not a real big factor in how we are doing, but everything about it is very positive at this point..

Okay, great. Thanks a lot Norm..

Thank you. The next question comes from Jon Braatz. Please go ahead, sir..

Good afternoon; Norm, Scott..

Hi, Jon..

Hi, Jon..

A couple of questions; Norm on the gross margins, obviously they were very nice in the quarter and certainly better than probably most of us were looking for.

You had mentioned that raw material prices were, costs were down, how do you see that going forward; do you see it continuing to go down or sort of leveling off at this point?.

Well, that’s a crapshoot of the first magnitude. Basically, it’s going to largely depend upon the rest of the world’s economies because what happened last year was a slowdown from what this commodity people, namely the steel and the copper and aluminum people were thinking was going to happen and it didn’t happen to that degree, primarily in China.

And because China slowed down, that meant all the new facilities and new lines or whether it was they were bringing on board to handle the business, basically didn’t help the business they thought it’d have. And therefore the price got hammered. And that’s still more or less still the situation we find ourselves in today.

If the market -- China is a marketplace that turns around which just all I read would say that there is some indications, it might happen, but not very firm. Then I would expect commodity prices to climb and take away from us what they gave to us last year. At this point, we don’t see -- I haven’t seen it happen again. So, time will tell, I guess..

Norm, what are you seeing in some of your component costs like motors and so on, same thing?.

Same thing; largely, they tie themselves to the commodity….

Okay..

Just like everything else. If copper goes up, then the motor manufacturers will be [unable] to price..

Okay. And then the other thing is you’ve talked about operating efficiencies, I know couple of years ago you spent a lot of money, take advantages of the accelerated depreciation.

Are we sort of reaping what you did a couple of years ago, really taking advantage of those expenditures that we saw in 2011 and so on?.

We didn’t meet as many people running as many sheet metal machines; and what we did run, we ran a more metal off of how we want to look at it. The net result is yes; it is still giving us benefit and will continue to give us a benefit going forward..

Okay. Norm, thank you very much..

Thank you. The next question comes from DeForest Hinman. Please go ahead, sir..

Yes, I had a couple of questions. Could you just give us an update on the conversion over to the aluminum coils, how far along we are with that? And then I had one more question..

We’ve converted so far two of our smallest product lines and one of our very biggest product lines are converted and they are producing units with the microchannel coil now. A major share of our dollars going out of the door however has not converted yet. I would say the part of it has converted represents 20% to 25% of our dollars going out the door.

Between now and the end of the second quarter, we will probably just begin to convert one more of our major dollar products during the month of June and we will convert another one of our major dollar, the first part of July. And then the last one of our major dollar contributors will get converted over during the month of August.

So, by the end of the third quarter, we will basically have all our product line producing with microchannels on it and it will phase in, as I said across there. So it will get the other 70 some percent that are there today completed by the end of the third quarter..

Okay.

And then just to the chillers, the new chillers in the split system, you said they launched in the second half; is that they’re available to be ordered in the second half or are any of those in the backlog currently?.

There are some of them in the backlog currently and we are taking orders on them as we speak, most of them. All the chillers are in that are available for sale. We will be producing them starting this quarter, we’re starting to produce some and that will go forward as we go further into the year.

On the condensing units, the condensing units which are also redesigned in our major dollar, fairly major dollar, not big, make sure I shouldn’t say, product, will start occurring in the third quarter, but not in the second quarter..

Okay. Thank you..

Thank you. (Operator Instructions) And we have a follow-up question from Joe Mondillo. Please go ahead, sir..

Hey guys, I just had one follow-up question related to the gross margins. There is a lot of sort of things that are helping boost those margins; one being that aluminum coil outsourcing but also several other factors. Just wondering how much sort of upside you see I guess going through the rest of this year compared to a year ago.

The margins expanded a ton last year.

Are we going to see another 100, 200 basis points on top of last year or how do you think about that?.

Primarily that goes back to the previous question about the price of copper and aluminum and steel going forward. I think that’s the total thing. We can have an upside, and if those things don’t go up and price, then there will be an improvement in our margin. If they go up and price then it will possibly turn it into a decline in our margin.

So, it’s really a very highly connected to the commodity price level..

And then also, you also have the outsourcing of the aluminum coil that’s going to help too and then also the distribution business is sort of small, but that should help us well too, right?.

Number one is the aluminum coil, microchannel coil, and that’s the number one. The parts business is number two. The only problem with the parts business and microchannel is that they’re both not huge amounts of volume. And so even though they may be significant in percentage, in bottom-line they’re not as good as they are in the other.

And running against that on the other side is the commodity price..

Right. Okay. Thanks a lot..

Okay..

Thank you. There are no additional questions on the phone lines. Please continue..

Okay. Thank you very much for your attendance in our meeting on this first quarter. I look forward to having a very pleasant meeting here in about another three months. Talk to anybody that wants to give me a call, in the meantime, have a good day..

Thank you. Ladies and gentlemen, this concludes the conference call for today. We thank you for your participation. You may now disconnect your line. And have a great day..