Good afternoon, ladies and gentlemen. Welcome to the AAON Incorporated Third Quarter Sales and Earnings Review. There will be a question-and-answer period after management’s brief presentation. This call will last approximately 45 minutes. I would now like to turn the meeting over to Mr. Asbjornson. Please go ahead, Mr. Asbjornson.

Good afternoon. Prior to commencing, I would like 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’d like now to introduce our CFO, Scott Asbjornson.

Welcome to our conference call. I’d like to begin by discussing the comparative results of the three months ended September 30, 2015 to September 30, 2014. Net sales were down 8.3% to $94.4 million from $102.9 million. Sales decreased primarily due to shifts in our product mix. The company sold more of its condensing units, which are part of our split system products and less of our rooftop units. Our gross profit decreased 9.5% to $30.2 million from $33.4 million. As a percentage of sales, gross profit was 32% in the quarter just ended compared to 32.4% in 2014. Selling, general and administrative expenses decreased 27.2% to $10.1 million from $13.8 million in 2014. As a percentage of sales, SG&A decreased to 10.7% of total sales in the quarter just ended from 13.4% in 2014. The decrease is primarily due to the gathering place charitable contribution the company made in 2014, along with a decrease in warranty expense in salaries and benefits. Income from operations increased 3.3% to $20.2 million, or 21.4% of sales from $19.5 million, or 19% of sales. Our effective tax rate decreased to 34.1% from 36.3%. The company’s income tax expense for three months ended September 30, 2015 is lower than expected, due to returns of provision adjustments. Net income increased to $13.3 million, or 14% of sales compared to $11.4 million, or 12.1% of sales in 2014. Diluted earnings per share increased by 9.1% to $0.24 per share from $0.22 per share. Diluted earnings per share were based on 54,580,000 shares versus 55,484,000 shares in the same quarter a year ago. The results of the nine months ended September 30, 2015 compared to September 30, 2014, net sales were down 3.8% to $261.4 million from $271.6 million. The decrease in net sales was a result…

If you look at the balance sheet, you’ll see that we had a working capital balance of $102.7 million versus $88.4 million at December 31, 2014. Cash and investments totaled $62.1 million at September 30, 2015, the investments on maturity ranging from one month to 18 months. Our current ratio is approximately 3.4 to 1. Our capital expenditures were $12.8 million. We expect expenditures for the year to be approximately $22 million. Shareholders’ equity per diluted share is $3.63 at September 30, 2015 compared to $3.14 at December 31, 2014. We also continue to remain debt free. I’d now like to turn the call back over to Norm, who will discuss our results in further detail along with the new products and the outlook for the remainder of the year.

Net sales were down 3.8% for the year. Sales decreased despite increased unit sales. Sales were not in line with regard to expectations, due to a few fundamental things, such as weather delays, the drastic drop in the price of oil, and delayed capital expenditures connected with both of the above, as well as other reasons. New rep firms and changes in rep firms what occurs in that occasion is when you terminate someone, they’re doing something for you, which when you replace them even with an improved person or company, you don’t immediately pickup all the work that they were doing. And therefore, there’s a downswing in the amount of orders that you’ll see from a given geographical portion of the country. We did quite a bit of that this past year with several states in total being changed out. In addition to which we started introducing new products in the second-half of 2015. And so what is occurring in areas of delayed reaction, as you can see part of that by looking at our amount of backlog that we have right now compared to 2014. We have an additional amount of backlog, which a shift would have changed a lot of the previous discussion in this balance sheet and in this income statement. Let’s talk about what the tone of the business is in the various segments now. Replacement market versus new construction, this is a very fundamental one that needs to be understood. We use different benchmarks to determine how the market is doing. On replacement market, there is no such set of the information available of which we are aware. So we have to get there by round in our method. New construction is reported by the census built for every type of building. It’s usually…

[Operator Instructions] Your first question comes from the line of Brent Thielman of Davidson. Your line is open.

Hi. Good afternoon.

Good afternoon.

Norm or Scott, with the sales personnel changes you’ve made, is there a way where we can kind of think about the impact to the business at this stage whether that would be and I’m thinking really more in terms of the number of jobs you’re now out there quoting versus before, or kind of the new territories you’re now addressing that you weren’t before, is there a way we can think about that?

I have a real hard time, and of course, when you make those changes, you have certain expectations and that’s really what you’re wondering what our expectations are. What we can tell you is that, we wouldn’t make a change unless we were pretty certain, we were going to get more results of the change do no sense for us to do that. The about to change is highly questionable as to how much we’re going to get based upon the history of the people we have put on in these various areas compared to the people who are no longer representing us. They’re substantially larger more capable organizations by and large. And if we get a lot of attention from them, we can have a significant upswing, if, however, that we don’t get that much attention, because all in both cases, these people also sell other products, not necessarily conflicting products, but they’re selling products, which serve the heating and air conditioning market, just like other products do, and most all case are different products than what we manufacture. But they only have so much time to spend selling product, and they don’t where they think they’re getting the best income for the amount of time we put in. We believe we have a very good income creating product, and we will get more of their time. But time is the only thing, which will tell us how well that works out.

Okay.

So, I guess, I would be very being very invasive other than to tell you that we do expect a significant improvement in all those arenas.

Sure. Now, I understand. And, Norm, beyond kind of the internal initiatives you guys have been taking, and thinking about your thoughts on returning the growth in 2016, is there some hope there that the end markets are going to give you a little bit more, whereas you think about it, it’s purely these initiatives that you’ve been taking internally there to kind of get you there?

If you look back at our 28-year history, you’ll find that we consistently been somewhere around 10% per year growth, we’re not getting up this year. So we fully expect that we’re doing things necessary to pushback on the growth curve, whether a 10% is magic number or not, I don’t know, because in the past even though that was the average, we had years in which we got 20% growth and we had other years, where we went backward. So consistently, we have gone over those 28 years by that 10%. We think we are going back into doing, at least, that well again, with what we’ve been putting in place. But I would caution you that we thought we were going to have a growth year this year, it’s not materialized yet. So I don’t know we’re highly subject to what’s happening in the economy and the economy has not performing as most people have predicted it would. And so we don’t know what is going to be going forward. But we are thinking with what we are doing with new products that we have been already introduced, or other new products, which we will be introducing in the next year, we definitely will gain more market share. The question is, what’s going to happen to the market.

Okay. I appreciate that. And then just a clarification on the share repurchase announced today that the 25 million, is that an addition to the prior authorization, I think, you had roughly 3 million shares remaining at June 30, or does this 25 million replace that prior program…?

The prior authorization was on the shares, but we did not have any surplus cash available at that time that we were going to actively go in the market with. We have now got cash built up on our balance sheet, and as what the 25 million is that we will buy back the shares up to that amount that has been authorized.

Got it. Thank you.

The correct answer is, it’s not added to anything else to reduce the amount of money we are going to spend.

Yes. It’s the cash available to purchase underneath the shares authorized.

Okay. Thank you.

Your next question comes from the line of Joe Mondillo of Sidoti & Company. Your line is open.

Good afternoon, guys.

Hi, Joe.

Hi, Joe.

So, I guess, just picking on the cash question, just wondering if there is any other potential strategic way we can use to cash with a better return?. I mean, I know it’s tough in terms of you guys have really done really no acquisitions historically, recently, but the stock buyback just given where the stocks trading at doesn’t provide a huge in return for investors. So I was just wondering if you could give us some insight on how you think about the use of cash?

Well, there is two ways to grow the company. Hence you can buy somebody and you can also do it with internal, and we historically have done it with internal. We do have something, which we’re not ready to announce yet that we’re working toward, and we’ll be spending quite a bit of money on this coming year, which will put us into an entirely new portion of the marketplace that will start happening in the latter half of this coming year. At this point in time, we are not wanting to talk about that. We will be probably talking about it more in the next meeting which we will have again in February then we we will be discussing it. But it’s a significant market that we’re going to enter into.

So this is engineering new types of products that’s going to enter this market, or via acquisitions?

Actually, we have sufficient facilities to handle this product. We’re going to build the product within our existing facilities. So it’s not a major facility, but it will require that we establish manufacturing lines within our existing facility to facilitate this. And it will also require – it also require that we spend some money to setup the manufacture of these products. And because they’re quite different than what we’re manufacturing right now, we’re going to spend quite a bit on the equipments necessary to manufacture the product. We’re going to be very serious when we go into this marketplace, and we will spend it quite a bit on literature and advertising in variety of other products.

Okay. And is that in addition, because in your prepared commentary, you talked a lot of about new products. Is that in addition to the new products that you’re talking about, or is that essentially what you were initially talking about?

It’s in addition to anything we’ve discussed in the past.

Okay.

In other words a totally new product line that we have never had any discussion about.

Right. But in your prepared commentary you were talking about how you have all these new products and that should drive more demand. Is that essentially what you were talking about, or was that not what you were alluding to?

So I was talking about the existing products that we’ve had, the new products within the existing scope, and now I’m adding another new product, which I was not discussing before.

Okay, understand. Could you also just change topics, could you give me your sales growth, excluding any foreign currency headwinds? Is that significant?

We don’t have any real significant foreign sales now denominated in U.S. dollars.

Okay.

But we don’t adjustment for that.

Okay. What’s the tariff you were selling into Canada or anything like that?

It is in U.S. dollars everything is seriously U.S. dollars.

Okay. How about in terms of geographies, any particular areas where you’re seeing significant weakness and/or strength anywhere in the country, or is it just sort of what ways…?

That’s what we embarked upon this past year, we didn’t have the regional managers necessary to clean up the problem there that we saw. So we, as a solution to that, we added 75% more rep regional managers. So we would have the personnel in the field necessary to go forward and change those representatives. And we’ve announced before we’ve changed Alabama, Kentucky, Arkansas significant portions of California, some in Nevada and few others. And so that’s what we’ve been doing is with those additional people, we’ve been trying to make our rep force much more solid and much more productive. And it, of course, have the negative affect as we fired the ones that were no longer representing us, and waited for the new ones to come up to speed and get going. And that’s hurt us this past year and it’s starting now. We believe, as I explained it earlier, we believe that’s starting to produce results now. We haven’t stopped doing that. We are continuing on now. We’re going to strengthen ourselves. And a year ago, we were talking about this place where we needed to strengthen our efforts was in our sales and marketing. And that was part of the thing, which we did to initiate the work to be done in there. We’re not done with the work, we got to seven people. We’re going to continue right on strengthening our sales and marketing groups.

Okay. So [Multiple Speakers] sorry, go ahead.

Yes, thanks. And great to our expectations earlier in the year that we’re seeing significant improvement out of our new West Coast regional sales manager.

Two of the regional mangers went into where we were already doing a fairly reasonable job. One going on the West Coast, we were doing a real good job. And then – and he is fortunately has been producing very good results as far as getting us a stronger position.

Okay. And so obviously the environment has been a lot slower this year. Looking at your peers, it seems like, you’ve underperformed over the last couple of quarters a bit compared to your peers. Would you attribute that to this internal sales issue that seems to be already sort of a fix in place, or would you attribute that maybe something else related to whether it’s – I know you guys don’t do on plan or replacement. So, is that part of the market doing better, so you hear sort of underperforming, or is it, because the environment is so tough that sort of the high-end customizable type stuff that you would do just doesn’t seeing as much demand for maybe some of the more simpler type units, or any idea why that the growth that you’ve seen is sort of underperform some of the peers?

Yes, it’s a mixture of all the above. But let me cover a little bit. First of all, a significant part of that was this change-out, and what I’ve been talking about the fact is you loose market share when you do a change-out in an area, and that was significant to it. Another thing that is significant to it, if you look at what happened when the market went down back in 2008, 2009, 2010, whatever, the part of the market that went down the past years was what we call the developer market, which is people who build speculative buildings and then sell them or do something else with them. The owner part of the marketplace did not go down as fast and we benefited from that. And if we gain market share during that time, because the customer base that we were going after the owner market was not back and down as fast as the developer market. As the market has healed, the reverse is occurring. The developer market is coming up faster than the owner market, and the developer market is what is being handled by our competitors more. And so we have more market share increase in the markets that they were serving than we would in the market we are serving. So those are probably the two major factors. There’s always a host of secondary thing sort of occur during the market share – determining a market share. But those are the two fundamental things, I think, which have occurred in the past few months. The one as far as the developer market healing itself, that’s questionable whether it’s likely to be healing itself faster than the owner part of the market is going forward. I don’t think it is, I think it more back and sink with one another. And so we should be back reclaiming market share going forward. But both of those things did have an effect upon us for the past few months.

Okay. And is part of the sort of change in sales strategy or additional personnel, is part of that related to trying to attack the developing market and taking share from that side of the market or…?

Yes, not only that, but for instance, we haven’t had a price increase since March of 2013. By now having a price increase that obviously puts us more competitive with that market. So we are slowly, but surely encroaching hopefully more and more into the developer portion of market by making ourselves most cost competitive into that market. And that has not harmed us, because it’s been offset by productivity increases and stable commodity prices. So we’ve been able to maintain our profitability even while not raising prices. And that we believe can go on for a while, yet, we think, we still have some productivity capability and we think that the commodity market is still going to remain stable. Now, of course, because of commodity market is stable, our competitors have not been raising their price significantly over that time period either. But they have nevertheless in general raised their price more than the zero than we’ve raised ours.

Okay.

So we’re becoming more and more competitive into the cost-driven market than we have been in the past.

Okay. And within the quarter from July through October the last four months, how have orders trended throughout the last four months? Have they sort of gone better or how does that go?

So every quarter I was talking about the increase in our backlog. That backlog didn’t occur, because we didn’t want to build the product. The backlog occurred because of the increase in orders was largely happening in the last part of the third quarter. And therefore we just – the owners – the people giving us the orders they want them to ship, or we were unable to build them, because there wasn’t enough time in the quarter to build them, therefore, they’re sitting in our backlog. And that, if all things have been equal, if they had not – if they had come in equally all the way through the quarter, the backlog would have been virtually the same or even maybe possibly less than what it was a year ago.

Okay. Just one or two other questions, in terms of SG&A as a percent of sales, you held that sort of flattish despite the revenue being down so much. Is there anything changing within the SG&A components that if sales start to improve, is that going to start to fall pretty nicely, or will it just sort of a one-off time?

Two largest components that we have are the reserves for warranty and the reserves for bad debts. And they’re directly tied to our amount of orders that we get that we have to put the reserves in for those two things as we’re growing the business or the dollars are growing. And the third one, of course, is all the other miscellaneous cost, not the least of which was the fact that we went from four regional managers who are fairly costly for most reasons, they’re pretty highly paid individuals. They also, by the nature of their jobs spend quite a bit of money. And so those – we went from having four people in that condition to having seven people in that condition in it, it definitely had impact on SG&A expenses.

Yes. I was actually saying that it’s – so it’s the warranty in the bad debt reserve expenses, would that decline in the quarter, or because you held as a percent of the sales, if you exclude that charitable donation a year ago, you’re – as a percent of sales was held actually sort of flattish, it didn’t increase. So with revenue falling, I would have thought it would have actually increased as a percent of sales sort of flattish. So is the reserve expenses related to warranty in bad debt, did that decline, and if so, is that going to continue to remain low over the next couple of quarters or?

Well the biggest ones that came down were warranty and our salaries and benefits from this year versus last year. We had a large reduction in salaries and benefits and a sizable reduction in the warranty reserve, it’s in the 10-Q on page 17, for the quarter. We anticipate that those numbers that you see this quarter are consistent with what you’ll see going forward. We don’t anticipate any major change in our warranty rate, in fact, it’s been improving fairly consistently. So if anything we hope that it will continue it to improve going forward. We have spent a lot of time and effort in the past few years in the – and particularly in this year and trying to make the company run smoother and improving our quality and things, which cost us in the SG&A arena. And we’ve been probably successful in doing so we don’t intend to stop doing that, because we’ve organized ourselves and we got very effective programs and are continuing that effort. And whether they will be able to get this bigger percentages they have in the past year is questionable. But there’s not going to be lack of effort on our part to continue to improve productivity and more warranty cost and bad debt cost as well.

But here original the question of would that tend to remain relatively flat going forward on a straight dollar term I would anticipate it would be relatively flat certainly as a percentage of sales as sales are increasing.

Okay. And then just lastly, I know earlier in the year product mix was somewhat of initial with the gross margins I think just given the sort of the slower environment seem like demand for higher tonnage, more customizable type units might have been a little lower as a percent of the total as, compared to the past. How is – over the last four months in terms of orders are you seeing orders for higher margin type products come in, or is it still sort of light in terms of those higher tonnage customized all the units?

A goodly portion of our recent order input has been a part of bigger tonnage. It’s noticeably increasing more than the forward tonnage. So, yes, we are getting higher margin where this problem starting to come in and more of them.

Okay. Okay, thanks a lot.

You’re welcome.

Thank you, Joe.

[Operator Instructions] Your next question comes from the line of DeForest Hinman of Walthausen and Company. Your line is open.

Hi. I think, you covered a lot of the – my questions. Can you talk about the – give us an update on the parts business, how that has been performing versus expectations, and your thoughts on how that business fits in going forward? Is it something that look to continue to grow, or is this kind of an optimal size?

Well, as I say, the low-hanging fruit has been plucked. And what I mean by that is by the improvements we made in being able to deliver parts quickly and effectively, we generated business from the people who are already doing some and needed some help in order to doing it faster and better than we were doing it. So that occurred rather quickly and gave us quite an upswing. That has tapered down, however, it has not stopped. What is where are now in the process is the representatives who work serious parts houses or having to put themselves into the parts business. So they’re busily hiring people who are parts specialists. They are building outlets to have more of a retail outlet store front on the operations, and they’re stocking up with parts to get into it. So it’s going to be a much more broad-based customer base that we’ve gotten out before we were handling the parts for our own product in an area, say, for instance, where we didn’t have a real serious parts house. They were still selling the parts for our own product. What they weren’t selling product for were other people’s products. In other words becoming more of a full-fledged parts outlet, they were just servicing the AAON part. And what we were setting up to do is servicing not just AAON’s products, but other manufacturer’s products when they do set up for a real retail outlet or wholesale outlet store, how we wish to look at it primarily serving the contracting trade. And that’s ongoing right now and it’s broadening our outlet, but it’s not as fast happening as what it happened when we simply solved the problem of getting parts off and time and gave us a big boost. But the growth is still outgrowing our regular business by quite a bit, and I expect it to continue…

Okay, great.

…it has an upper point to it, but we’re always from that upper point.

Okay, great. And I apologize this was asked again on the call a little bit late. But I think you mentioned some of your new construction expansion getting delayed a little bit. I think, you said, you’re going to get it spent this year based on your initial range. Do you have any thoughts right now on capital spending next year?

Yes, we think there’s again a $20 million some again, the low-20s again next year, and we’re very close. We’ve done all the planning for the laboratory that we’ve been talking about for sometime. The floorings are done. The architectural work is pretty well done. We’re talking finalized pricing. We’re just about to move forward on it. The contractor that we’ll be a doing a building itself still, again, question, but there’s a lot of building going on in those areas. So when we do initiated with the contractor, we don’t expect that he is going to move terribly fast, because as I said, there’s quite a bit of work going on in Telson [ph]. Therefore, we are [must be] [ph] is the only job or even maybe one of few of these jobs. Consequently, the building itself won’t give us much attention as to we had originally hoped and realized, so it might take a little longer to get built. But we’re about to start breaking ground and putting that building up this coming year. And then as I mentioned earlier, if we don’t spend money on the building as fast as we were we’re going to be spending money on new equipment for this new product we’re going to go into it that we hadn’t originally anticipated spending money for. So we’re shifting the money spend expenditure a little bit way from possibly so much in the building and a little bit more into equipment for this new product.

Okay, and then building on that I know you spend a lot of time in the past calls talking about your metal presses and things like that. Any not to be specific, but in terms of long lead time equipment anything like that we’re waiting on and that’s already being built or is it stuff that’s more readily available to buy and there shouldn’t be any issues getting it evolved?

People were talking once about the equipment I’m speaking up for the new product tell us from today we ordered until the day it’s in and running it will be about six months. So we’re just we’re probably in the month and where we’re going to order during November we’re hoping to have everything resolved in getting the order in November. So that means we’re going to get it for the later part of the second quarter next year have that even operation getting set up to start producing the product who is going to build and start selling that product in the last half of next year.

Okay and last question and maybe it’s too much in the weeds if you don’t want to answer, but you guys mentioned that your warranty because also it’s actually been better than your accruals, it sounds like you’re taking that down a little bit thinking back I think and some of the newer products maybe a year or two ago we had some elevated warranty issues on those. There’s another new product launch do you have any comments about where you would be placing that initial warranty accrual will be at a corporate average level or would it be at the higher level built into maybe some of the issues we have with the last new product launch?

We don’t think that this new product is going to have very high warranty cost to it. And therefore it shouldn’t driver warranty cost up as per dollar sales and should be say somewhere in the same general area and that’s where we’re now. Where we’re right now, compared to the industry what is generally considered industry expectations for warranty cost were running quite a bit below those normally expected warranty cost. We’re not looking at any unusual cost at this point in time that we’re aware off and so Scott, mentioned the thought it would continue to decline and that this reflection of what we believe will happen we’re doing a lot more to get the warranty cost down even lower. But there’s a limit how well you can get it. And we’re probably approaching that limit.

Okay, great. Thank you everyone.

Your next question comes from the line of Joe Mondillo of Sidoti & Company. Your line is open.

Hi, guys I just had a couple of follow-up questions. First of in terms of like large national accounts. How much does that make up of your total sales?

Well I have a quick one it has very much validity so we got to be kind of hip shooting here.

No single customer is material at this point is totality of our sales.

Well, the only reason I asked is because some of your peers have talked about how sort of about sort of larger commercial based national account type customer has been fairly weak and I was just wondering if you that that you have clients like that and I think you do I’m pretty sure I was just wondering how big that is of your total sales and are you seeing the weakness in that sort of part of your business as well?

I would conclude if that’s probably and accurate statement as national the big national accounts probably are little weaker than the market in general. And we’re probably seeing that. But ours is split out over many of those people. And in some case we’re gaining market shares so we see no decline from a particular national account. Other cases we probably are seeing it. But the other business that we’re seeing is that’s what we think it’s going to carry us forward. We’re focused as much on national accounts as some of our competition is.

Okay and then just lastly out of curiosity I was wondering I know it’s a very small part of your business. But the geothermal what are you hearing in that market and demand is that fairly like as I know it’s a higher cost price points. And so what do you seeing in that part of your business?

Well we think it’s a good business however, there’s a big question market about geothermal, because geothermal was tied to governmental tax breaks and they have two tax breaks they have a tax break for residential. And they have a tax break for commercial part of it. If that tax break is not renewed at the end of 2016, which it expires out there it will definitely have an affect on geothermal. How much it would have I don’t know I would say that from our standpoint, because we’re not too heavily in geothermal. And because we’re gaining strength in that any downswing in geothermal, because of the tax if it is not renewed we probably just about to offset in growth we got actually probably which kind of neutralizes for a period of time. But geothermal was going to whether the tax is there or not and how fast it grows since what we’re talking about maybe it does have enough going forward. The other thing that also affected geothermal is the price reduction in natural gas, because of course geothermal is a cheap way of getting energy, but if the energy itself has gone down in price, which it has from natural gas that’s probably had a more adverse effect on geothermal than a tax breaker maybe as much as the tax break I don’t know both of things are running against geothermal, but it hasn’t been a big part of our activity is now and will probably become more so going forward, but it’s not going to have a big swing effect on us one way or another.

Okay. Thanks

And there are no further questions at this time. I’ll turn the call back over to the presenters.

Okay. Thank you for listening to our third quarter discussion. We’re going to be looking forward to talking with you in February and as we said we’ll have a lot of more discussion about new products and the new market, which we’re entering. We also expect to have good market with the products we have today. The upswing, which we’re experiencing right now to best of our knowledge should continue. Thank you.

This concludes today’s conference call. You may now disconnect.