Norman Asbjornson - President & CEO Scott Asbjornson - CFO Rebecca Thompson - Chief Accounting Officer

Jon Braatz - Kansas City Capital Joe Mondillo - Sidoti and Company Brent Thielman - DA Davidson

Good afternoon, everybody. Before going forward, I'd 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 Scott Asbjornson, our CFO.

Welcome to our conference call. I'd like to begin by discussing the comparative results of the three months ended March 31, 2015 to March 31, 2014.

Net sales were up 0.5% to $76.8 million from $76.4 million. The increase in net sales was the result of the increase of number of units sold offset by a decrease in the average price unit as compared to 2014.

Our gross profit percentage decreased 0.2%. As a percentage of sales, gross profit was 28.4% in the quarter just ended compared to 28.6% in 2014.

Selling, general and administrative expenses increased 9% to $8.3 million from $7.6 million in 2014. As a percentage of sales, SG&A increased to 10.8% of total sales in the quarter just ended from 10.0% in 2014 primarily due to additional sales tax payments.

Income from operations decreased 5.4% to $13.5 million or 17.6% of sales from $14.2 million or 18.6% of sales. Our effective tax rate increased to 37.5% from 31.3%.

The effective tax rate for the first quarter of 2014 was unusually low due to a change in method of accounting for state investment credits. We expect our effective tax rate for the full year of 2015 to be approximately 37.0%.

Net income decreased 14.5% to $8.4 million -- 10.9% of sales from $9.8 million or 12.9% of sales. Diluted earnings per share decreased by 16.7% to $0.15 per share from $0.18 per share.

Diluted earnings per -- were based on 54,640,000 shares versus 55,613,000 shares in the same quarter a year ago. At this time, I’ll turn it over to our Chief Accounting Officer, Rebecca Thompson.

Thank you, Scott. Looking at the balance sheet you will see that we had a working capital balance of $98 million versus $88.4 million at December 31, 2014.

Cash and investments totalled $49.2 million at March 31, 2015. The investments have maturities ranging from 1 month to 16 months.

Our current ratio is approximately 3.5:1. Our capital expenditures were approximately $16 [ph] for the quarter.

We expect our CapEx for the year to be $22 million. Shareholders' equity per diluted share is $3.33 at March 31, 2015, compared to $3.14 at December 31, 2014.

We continue to remain debt free. I'll now like to turn the call back over to Norm, who will discuss our results in further detail, along with new products and the outlook for the remainder of the year.

Thank you. Net sales were up 0.5% for the quarter.

The sales increased due to unit sales not size of units. Unit sales not in line with expectations, all expectations we had indicated we will have more growth than what we experienced.

Our slowdown in growth as far as we can determine was connected in the Northeast and upper Midwest to weather conditions which existed [ph] in first quarter that were unusually harsh. The other portion of effect due to the economy was we have a strong economic basis in the energy states which were negatively affected by a drop in oil prices.

These two areas account for an excess of 50% of our normal sales. We also have had a problem with some slowdown in some segments of orders.

We had a slowdown in many factories and though manufacturing had a good starting condition and they were not releasing the orders for the air conditioning as fast as we had thought. The general nature of the market in there is still looking very bright, it’s just that it just didn’t happen in the first quarter like we thought it should.

We have seen some upswing at the very end of the first quarter as was noted by the fact that we increased our backlog from yoy, and therefore we didn’t get it off the door because the increase in orders only started during March and that was not possible to be shipped during the quarter. We just picked the first, second, third quarter to still be strong and a little stronger than last year but possibly noticed as strong as it looked like earlier in the year.

The various markets that we are seeing, the commercial and retail are appearing to be very solid and appear to be growing. The other one that is growing pretty well is the office market, and office market seems to be coming back pretty strongly.

The [Indiscernible] that are kind of more than the -- down still are healthcare, educational and religious, so it’s kind of a mixed bag in the commercial market. The reports I just indicated from what census bureau says is happening in the building industry.

It would be our expectation that we will be more in tune with what our forecast was a year ago with what our thoughts were a year ago at the beginning of this year as opposed to what happened to us in the first quarter. We think that was somewhat an abnormality and therefore it’s’ not indicative of our ongoing presence.

The other thing that we are already going forward is that our operations have gotten to be very much better than they have been anytime in the past and our problem has more moved over into getting orders. In the past, getting orders was really kind of secondary to our problems because we had more internal problems than we did have getting orders problems.

That has changed. Now our challenge is getting orders and we have the excess capacity and we are running very well internally.

And so in that light, at the beginning of this year we determined that we made sure they have to put more emphasis on our sales efforts. Therefore we hired, we had four regional managers going into the year.

We hired in January two additional ones and in March we hired third additional ones which basically increased our prices with our sales force by 75%. These people weren’t going to be immediately effective, but we have the individuals that we have great confidence in and so we expect as time goes on and you will certainly have a major impact on our ability to get orders, handle -- customers.

So, how long will that take? It’s already begun to show and the order -- so our production is you know about 8 weeks later so we will start putting it on the bottom line in the second quarter but it will probably in the trailing end of the second quarter when these people detected [Indiscernible].

That does say to us of course that there is possibility that our third and fourth quarter are going to be even stronger than what we anticipate. So we think we made major improvements in our ability to get orders and our ability to handle orders – excellent.

So we’re optimistic going forward that if economy doesn’t show any significant hick up status we should do well. Conrad [ph] you’ll want to come on now with questions and answers.

Good afternoon, Norm.

Good afternoon, Jon.

Regarding the new sales efforts are those three gentlemen, are they moving AAON in to a different and a new geographical territory that maybe the dealers are unfamiliar with AAON or you penetrating existing markets?

Existing markets, what as we have the market place sliced up into four pieces before and in order to really be responsive to the customers and to our sales representatives much more effectively we needed more heads, more people talked into them and that’s why we went up. We could have gone up marginally by dividing it down to 5 or 6, but we decided that our position internally was good enough that there wasn’t anything they could do as far as getting enough orders for us to overwhelm us internally, so we basically went on upto 7 to see if we could really impact the market place in a big way with additional personnel managing fewer sales offices, managing the more tightly and be more responsive to the questions and the help that they could give.

It’s just putting more bodies doing the same thing with the same group of people.

Now in what part of the country I suppose I should know this but what part of the country are you sort of the weakest at, and weakest and would you consider sort of a new entry into that area?

Good question. Our weakest area in the country historically has been the West coast and the reason why that as I said earlier the problems weren’t so much getting orders, our problems were getting the orders shipped.

And now that we are over that, we can go ahead and try and get as many orders as we could. We were handling the west coast, did a tremendous job, coming out of the coast and going out there not all that often.

The individual we hired lives out in Bay area and is has been person out there in the market place for many years and then you know regional managers shift position with other companies on the west coast so his familiarization of the market place is very good and he is very confident in his knowledge base of what we are doing he has to learn a little bit about us of course which is different then what he knew before but that’s a short study and so he’ll do so a lot of West coast stores comes probably our biggest upside there because we probably neglected it the most of any. Next one we probably neglected was for no great reason that was a little weak and should have been versus Southeast, or strong ones were the mid section of the country and the Northeast that was our strong place.

So from Texas, north and then going up into the new England states was historically and still is our strong area. So we put a person down in Florida which we have not done before one person went to Florida.

That was internal to us and was working out of long view and we moved them to Florida. We also hired another person who lives in Eastern Pennsylvania to handle the Northeast.

We were handling the Northeast [Indiscernible] also. And we hired an individual out of Minneapolis to handle the upper middle part of the country.

So we greatly improved our capability of serving our customer base.

One last question, on the fourth quarter call you talked about the pace of orders and December, January being sort of modest the incoming orders and how would you compare the lets say the incoming order rates now relative to maybe where they were earlier on in the year?

Well they started weakening first in November somewhere back in that timeframe. Stayed weak through February, increased remarkably in March and then kind of hesitated again in April and now it look like they are speeding up again for the month of May.

So we got a little bit of a upsurge in March, we didn’t couldn’t carry the upsurge through April and now we think we are possibly back in the upsurge in May. So, and for more everything will be told from the market place by the sales offices, it sounds pretty promising – about half of the market sounds quite promising and part of it sounds kind of flat.

Okay. All right, Norm.

Thank you very much.

Hi, Norm and Scott.

Hi, Joe.

Hi, Joe.

So, first question is a follow-up on Jon’s question regarding the hires in all of these different parts of the country. Just wondering could you talk about the timing of all these hires?

When did you make them? And when do you anticipate to see some results from them?

Okay. We’ve decided to make it in the fall of last year -- made the decision and then we have to find people to be hired.

And so it took us – by the time we found people to be hired and actually got them hired and on board we’ve move the person from our Longview office earlier in the fall moved them to Florida. We got Germany and Eastern Pennsylvania and Minnesota hired who started in January and we did not find and hired a person on the West Coast until March.

So, the decision made and about September, October last year to start strengthening our sales force and it took us that long to do it. Even though these people are experienced and very capable while I believe of doing what we’re looking to have done.

They do have an orientation just like anybody new to his job. They have to learn about us.

They have to learn about the people who are working with and several things like that. It’s my expectation that they are some doing some down force [ph] almost really when they came on.

However, giving value at that level is really doing a lot of preliminary work that has to be done deploying orders actually materialized and deploying them and ship. So as I said most of the – they are just starting to have a real effect on the shipments live at the present time as they are beginning to be effected by the two individuals we’ve hired than the one we sent to Florida.

Now the one in the West Coast really is just starting to going as far as some effect on the order. So by the time we put it to the bottom-line it’s going to be late in the second quarter before we reach this bottom line very much.

Okay. So it sounds like maybe by the second half you’ll have a – second half of they year you’ll have a good idea and progress of these hires and how they’re doing?

No, question. We’ve done a lot thing.

We provide new monitory to all of the sales force and move that I the past. We were doing monthly reports to the regional managers.

We now do weekly reports to the regional manager. So, we have a much more active and timely analysis, basically we’ll analyze this what’s going on a weekly basis right now.

Okay. And then second question regarding gross margin, the 30% gross margins that you put up last year.

I was wondering if could just address that generally your thoughts on that sort of bar for this year. Can you surpass that or how you think about that an if you could just talk about the puts and takes driving the gross margins specifically pricing product mix and raw materials and how that affect it.

How you anticipate those to drive however you’re looking at gross margin this year?

Our industry I think you could say, delicate [ph] to get price increase and the cost structures and all things related [Indiscernible] and so we have not have price increase for two years, but at the same time we’ve had the down swing which have offset it. We’ve had an improvements inefficiency which has offset.

However, we had solid increases which have gone the other way. So it just kind of mix bag as to where it’s going right now.

I don’t see at the present time any major cost increases occurring in the near terms because so much of the market and so much of the commodity is based on what’s happening on the worldwide basis and there’s a lot of softness and lot of in the pricing world, so copper, steel, aluminum which are the basic commodities don’t seem to be going any place, so we up or down significantly as far as we can see at this time, although we have said one up here recently in copper. So, that is going up.

The labor situation is likely read on the national scale, sales is moving up about 2%, maybe they going to go up a little more than that this year, but we’re not running up very fast, so the forces that were justifies price increase to start there. So we’re probably going to be much like we are now.

The only -- the two things that we’re doing that will have significant effect, we are doing a significantly amount of revaluating sheet metal in our product and by that I mean you can always do thing smarter than you did them before and we have a process going on right now of evaluating the way we are doing of our sheet metal throughout the company and its making a major change and how much effort we have to go put into manufacturing sheet metal. So it will have positive effect on these two.

And when will that, have that already started to benefit or is that later this year?

It is in process now as we get some of it done. We’re implementing it and we’re implementing as we speak and we will be probably for pretty well through the third quarter and at the first point the figure will be pretty done with that.

Okay. So, the benefit is most likely third or fourth quarter?

Basically it’s going to benefit us a little in the second but we’ll have in third and fourth.

How significant is that going to be, is that going to be a needle mover for gross margin?

It will be probably move, but its not going to move with great deal, but it will move it little bit.

Okay. And then I guess one of the other aspect of gross margin, I guess lot of the variable seem to be sort of stagnant pricing raw materials, labor costs, how about product mix, do you anticipate any favorable or unfavorable shift in product mix this year compared to last year?

We don’t see any coming on. We are doing a few things with new products which are going to possibly have an effect, but it’s going to happen late in the year.

The things that we’re doing will bring in horizontal. We haven’t basically had much kind on horizontal discharges, postal vertical discharge lift up and we’re bringing in some horizontal rooftops which will in the third quarter be introduced in the third quarter will have a effect on the fourth quarter and going forward.

We’re making some – we want to make some changes in repurchase of circuitry that likewise will start affecting us a little bit and our energy efficiency in the third quarter and going forward in the fourth quarter. So, those things are clear right now.

That will probably also give us a little price reduction, but it will be just a small amount, so it won’t be a great amount.

Okay. In regard to SG&A cost I mean, as a percent of sales those increase year-over-year.

I imagine some of that or most of it maybe more related to the additional sales and personnel that you brought on? Do you anticipate in the next quarter to possibly that would be sort of a headwind because of those additional costs but then later on as you get the benefits from the additional sales hopefully that you’re going to drive that SG&A is a percent of sales will turn down again is that you’re looking at?

This is Scott. SG&A for the quarter was mostly driven by the additional sales tax payment that was a biggest differential in the quarter-versus-quarter issue.

We were going through doing some internal audits and we’re making some corrective payments, sales tax front. And so we have that come up and some of that money potentially could come back in future quarters as we pursue collections effects with our customers.

And how much is that in the quarter?

That was about 600,000.

Okay.

And that something that your – that will sort of one time in nature or you’re not totally serve?

We believe we still have some more to clean up, take us through to possibly the third quarter to finish. But from here going forward we will also have offsetting collections from these customers that we anticipate being able to either proved they had already paid the taxes within their state or that they will then remit those taxes back to us.

Okay. And then just lastly Norm, one of your largest markets and another market that you do serve education and healthcare, those are certainly soft market you pointed out in your prepared commentary, any signs of when these markets start to recover at all?

I haven’t seen the sign of the [Indiscernible] they seem to be pretty stable and not deteriorating greatly, but they do seem to be getting modestly software. And I don’t see anything telling me that they are going to turnaround.

There’s a lot of – of there being a double metal, I think there’s a lot of going on relative to taxes and things of that nature that are affecting it too. They look like fish [ph] tied here to me.

Okay. Okay.

Thanks a lot.

Hi, good afternoon.

Good afternoon Brent.

Norm, the volatility in orders that you see in month-to-month here over the last several months, is that specific to the manufacturing sector of the Dolby market or is it across the board in the terms of the sectors you serve?

Well, the manufacturing market has done a better come back than any other market since 2008. And so it is a little stronger, it’s kind of like I mentioned, however.

the commercial market, the office market and that portion of the business has also started to show some strength, but being to some degree offset. The biggest market we have is the education market which is kind of stagnant.

And so, we’re seeing a slight amount of upward movement in markets, but they are very hesitant to give out worst, in another words they’ve start building, the buildings don’t – the people duly design work, they pay for the design work at the architecture level and its shows up in all the indexes you’ll see there that there is upward swing in it. Then they terribly from all we can determined, some of them at least get hesitant about going to the contract place and actually contracting to build the buildings.

And then after the contractors get it, there doesn’t seem to be great need to get the building done quickly or something, in other words they move along a little more slowly. This I think is kind of reflected and the fact that the cost side increasing and so consequently the builders if they’re not pushed are going to do the way that they know how to best maximize their powerful ability which is using the better people and not doing a lot of over [audio gap] and actually are sort of inefficient.

So they were to be efficient and there’s no inflation pushing them and apparently the owners -- to do the building, so even though the buildings they are doing they don’t move too fast, that’s my feeling of what I’d seen going on.

Okay. And that’s helpful.

And starting to kind of the weather affected regions side that you serve, what states can you kind of point to where you seems kind of this outside? It seems like everything we hear is Texas is till buoyant but curious sort of the energy impacted regions you mentioned in Middle East?

Yes. It hasn’t gone down the – by any means, it’s still a buoyant market.

But it was roaring and going there for long time and the oils drop back didn’t kill it, but it surely slowed it down. The one that really were strongest historical markets that the Northeastern United States, very strongest market we’ve had and it took off an awful bleeding [ph] this past winter and that really hurt us.

But the energy market just trampled down to more to the -- it was moving along must faster than it is today.

Okay. And then kind of help them pieces together, you mean comment in your release sort of suggest kind of cloudy out for the year, but it sounds like you’re seeing Q2 and Q3 working a little better than last year and Q4 should be quite a bit better, am I reading that correctly?

Brent, it looks like we’re seeing it present time.

Okay. Best of luck.

Thank you.

Okay. Thanks everybody for attending our first quarter financial report.

We’ll look forward to seeing you at the end of the second quarter and hopefully pretty much better report that time. I’ll talk with your later or if you wish call us individually we’re welcoming your calls.

Thank you