What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-08-03 compared with 2023-05-04 · 145 added, 62 removed, 234 unchanged (47% of the section changed)

8 unchanged sentences

We market our products to all 50 states in the United States and certain provinces in Canada.

Foreign sales were approximately $12.6 million of our total net sales for the three months ended March 31, 2023 and $6.0 million of our sales during the same period of 2022.

Foreign sales were approximately $20.3 million of our total net sales for the six months ended June 30, 2023 and $10.2 million of our sales during the same period of 2022.

Our business can be affected by a number of economic factors, including the level of economic activity in the markets in which we operate.

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Sales in the replacement markets are driven by various factors, including general economic growth, the Company’s new product introductions, fluctuations in the average age of existing equipment in the market, government regulations and stimulus, changes in market demand between more customized higher performing HVAC equipment and lower priced standard equipment, as well as many other factors.

When new construction is down, we emphasize the replacement market.

We sell our products to property owners and contractors mainly through a network of independent manufacturers’ Representatives.

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economy and global economy.

At March 31, 2023, the price (year to date average) for copper, stainless steel and aluminum increased 6.1%, 5.3%, and 16.0%, respectively, as compared to the price (year to date average) at March 31, 2022, while the price (year to date average) for galvanized steel decreased 39.83% as compared to the price (year to date average) at March 31, 2022.

At June 30, 2023, the price (year to date average) for copper, stainless steel and aluminum increased 5.8%, 1.8%, and 25.8%, respectively, as compared to the price (year to date average) at June 30, 2022, while the price (year to date average) for galvanized steel decreased 30.8% as compared to the price (year to date average) at June 30, 2022.

We attempt to limit the impact of price fluctuations on these materials by entering into cancellable and non-cancellable contracts with our major suppliers for periods of six to 18 months.

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We occasionally increase the price of our products to help offset any inflationary headwinds.

In 2022, we implemented two significant price increases as well as a recurring 1% monthly price increase effective June 1, 2022.

In 2022, we implemented two significant price increases as well as a recurring 1% monthly price increase effective June 1, 2022 through April 1, 2023.

The following table shows our historical backlog levels:

2023 December 31,

2022 March 31,

2022 June 30,

(in thousands)

$ 526,209 $ 548,022 $ 464,025

Our bookings remain strong in the first quarter of 2023, with an increase in our backlog of 9.5% since December 31, 2022.

While our pricing has been increasing 1% a month since June of 2022 for the legacy business, the growth in the backlog is primarily due to organic volumes as a result of our favorable lead times.

During the three months ended June 30, 2023, our production began to finally outpace bookings, allowing the size of our backlog to begin to normalize relative to production output.

We have made significant investments in facilities, hiring additional workforce and training our workforce which is increasing our capacity and production rates.

This has allowed our lead times to start and come down to more normal levels and put our backlog at a more manageable level.

Results of Operations

Three months ended March 31,

Three months ended June 30, Six months ended June 30,

2023 2022 2023 2022

(in thousands)

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The following are recent highlights and items that impacted our results of operations, cash flows and financial condition:

• We continue to have a record backlog.

Total backlog increased 9.5% from December 31, 2022 and 30.0% from a year ago.

• Sales for the three months ended March 31, 2023 grew 45.5% due to record production rates and price increases realized during the period as compared to the quarter ended March 31, 2022.

• Our gross profit margin for the quarter ended March 31, 2023 of 29.0% increased 380 basis points from the quarter ended March 31, 2022.

• We continue to have a strong backlog despite our record sales for the three and six months ended June 30, 2023.

Total backlog decreased only 4.0% from December 31, 2022 and increased 13.4% from June 30, 2022.

• Sales for the three and six months ended June 30, 2023 grew 36.0% and 40.4%, respectively, due to record production rates and price increases realized during the period as compared to the quarter ended June 30, 2022.

• Our gross profit margin for the quarter ended June 30, 2023 of 33.1% increased 1,040 basis points from the quarter ended June 30, 2022.

We report our financial results based on three reportable segments:

AAON Oklahoma, AAON Coil Products, and BASX, which are further described in "Segments" (Note 19) within our notes to the consolidated financial statements.

The Company's chief decision maker ("CODM"), our CEO, allocates resources and assesses the performance of each operating segment using information about the operating segment's net sales and income from operations.

The Company's chief operating decision maker ("CODM"), our CEO, allocates resources and assesses the performance of each operating segment using information about the operating segment's net sales and income from operations.

The CODM does not evaluate operating segments using asset or liability information.

Segment Operating Results for Three Months Ended March 31, 2023 and Three Months Ended March 31, 2022

Segment Operating Results for Three Months Ended June 30, 2023 and Three Months Ended June 30, 2022

Three Months Ended

March 31, 2023 Percent of Sales 1

March 31, 2022 Percent of Sales 1

June 30, 2023 Percent of Sales 1

June 30, 2022 Percent of Sales 1

$ Change % Change

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2 Presented after intercompany eliminations.

Total net sales increased $83.2 million or 45.5%, with increases at all three operating segments driven by increased organic volume growth.

Volume growth accounted for 23.5% of the increase in net sales with the remaining 22.0% increase resulting from realization of price increases put in place during 2022.

Gross profit as a percent of sales increased to 29.0% for the three months ended March 31, 2023 as compared to 25.2% for the three months ended March 31, 2022.

Total gross profit increased mostly due to the multiple price increases realized for the three months ended March 31, 2023 counteracting the increasing cost of materials and labor.

For the three months ended June 30, 2023 total net sales increased $75.1 million or 36.0%, with 20.0% of the increase coming from realization of price increases and the remaining 16.0% coming from increases in organic volume.

Revenue synergies and lessening supply chain constraints contributed to the increase in net sales of 45.1% at BASX.

Gross profit as a percent of sales increased to 33.1% for the three months ended June 30, 2023 as compared to 22.7% for the three months ended June 30, 2022.

As noted above, realization of price increases has improved our margin profile along with the slowing of inflation.

AAON Coil Products gross profit as a percent of sales decreased to 24.9% for the three months ended June 30, 2023 as compared to 31.7% for the three months ended June 30, 2022.

The decrease in gross margin at AAON Coil Products is a result of less than optimal overhead absorption from weather related production disruption.

Additionally, AAON Coil Products is more sensitive to changes in the cost of copper, which increased during the quarter.

As shown in the table below, we've experienced year over year increases in the cost of several raw materials.

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Some of the price increases have yet to be realized.

Additionally, in order to retain our existing employees, we continue to award periodic raises in addition to our

annual merit raises to our employees.

In the first quarter of 2023, our gross profit decreased by approximately $3.7 million for changes in our paid time off policies and for payroll taxes and 401(k) matching contributions related to profit sharing payments and stock transactions as our stock reached record highs consistently during the first quarter.

Additionally, in order to retain our existing employees, we continue to award periodic raises in addition to our annual merit raises to our employees.

Raw Material Costs

Three-month average raw material cost per pound as of March 31:

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

2023 2022 % Change

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Three Months Ended Percent of Sales

2023 March 31,

2023 June 30,

(in thousands)

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Total SG&A $ 39,272 $ 26,933 13.8 % 12.9 %

Overall, selling, general and administrative expenses increased $9.9 million from the prior year period, but expenses did decrease overall as a percentage of sales for the three months ended March 31, 2023.

Warranty expense increased consistent with our increase in net sales.

We continue to focus on our commitment to reliability and quality.

Selling, general and administrative expenses increased $12.3 million for the three months ended June 30, 2023 from the prior year period.

Profit sharing increased $3.8 million or 177.4% due to our increased operating results.

Salaries and benefits increased $3.3 million or 35.6% which is primarily attributable to overall increased headcount as well as the the impact of employee pay increases and benefit improvements discussed above.

Salaries and benefits increased $3.0 million or 29.0% which is primarily attributable to overall increased headcount as well as the impact of employee pay increases and benefit improvements made in the first quarter of 2023.

Other expenses increased $2.8 million or 58.6% during the three months ended June 30, 2023 due mostly to increased travel and consulting expenses.

Three Months Ended Effective Tax Rate

2023 March 31,

2023 June 30,

(in thousands)

1 unchanged sentence

The Company’s estimated annual 2023 effective tax rate, excluding discrete events, is expected to be approximately 24.1%.

During the three months ended March 31, 2023, the Company recorded an excess tax benefit of $3.8 million as compared to $0.5 million during the same period in 2022.

The increase was primarily due to timing of stock option exercises as a result of our high stock price during the three months ended March 31, 2023.

The decrease in the overall effective tax rate 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 three months ended June 30, 2023.

Segment Operating Results for Six Months Ended June 30, 2023 and Six Months Ended June 30, 2022

Six Months Ended

June 30, 2023 Percent of Sales 1

June 30, 2022 Percent of Sales 1

$ Change % Change

(in thousands)

AAON Oklahoma $ 420,216 76.4 % $ 297,348 75.9 % $ 122,868 41.3 %

AAON Coil Products 63,493 11.5 % 48,689 12.4 % 14,804 30.4 %

BASX 66,201 12.0 % 45,548 11.6 % 20,653 45.3 %

Net sales $ 549,910 $ 391,585 $ 158,325 40.4 %

Cost of Sales 2

AAON Oklahoma $ 282,987 67.3 % 231,775 77.9 % $ 51,212 22.1 %

AAON Coil Products 48,852 76.9 % 32,909 67.6 % 15,943 48.4 %

BASX 46,899 70.8 % 33,461 73.5 % 13,438 40.2 %

Cost of sales $ 378,738 68.9 % $ 298,145 76.1 % $ 80,593 27.0 %

Gross Profit 2

AAON Oklahoma $ 137,229 32.7 % $ 65,573 22.1 % $ 71,656 109.3 %

AAON Coil Products 14,641 23.1 % 15,780 32.4 % (1,139) (7.2) %

BASX 19,302 29.2 % 12,087 26.5 % 7,215 59.7 %

Gross profit $ 171,172 31.1 % $ 93,440 23.9 % $ 77,732 83.2 %

1 Cost of sales and gross profit for each segment are calculated as a percentage of the respective segment's net sales.

Total cost of sales and total gross profit are calculated as a percentage of total net sales.

2 Presented after intercompany eliminations.

For the six months ended June 30, 2023 total net sales increased $158.3 million or 40.4%, with approximately half of this increase coming from realization of price increase and half coming from increases in volume.

Gross profit as a percent of sales increased to 31.1% for the six months ended June 30, 2023 as compared to 23.9% for the six months ended June 30, 2022.

Total gross profit increased mostly due to the multiple price increases realized for the six months ended June 30, 2023 counteracting the increasing cost of materials and labor.

The increase in overall unit production volume, resulted in favorable labor and overhead efficiencies, improving absorption of fixed costs.

AAON Coil Products' gross profit as a percent of sales decreased to 23.1% for the six months ended June 30, 2023 as compared to 32.4% for the six months ended June 30, 2022 mostly due to less than optimal overhead absorption as discussed above.

Start-up of production related to BASX units being built at AAON Coil Products was slower than anticipated and resulted in lower volumes.

The cost of our material fluctuates month-to-month.

We implemented multiple price increases during 2022 and 2023 to counteract the increased cost of material.

Some of the price increases have yet to be realized.

Additionally, in order to retain our existing employees, we continue to award periodic raises in addition to our annual merit raises to our employees.

During the six months ended June 30, 2023, our gross profit decreased by approximately $3.7 million for changes in our paid time off policies and for payroll taxes and 401(k) matching contributions related to profit sharing payments and stock transactions as our stock reached record highs consistently during the first quarter.

Raw Material Costs

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

2023 2022 % Change

Copper $ 5.82 $ 5.50 5.8 %

Galvanized steel $ 0.72 $ 1.04 (30.8) %

Stainless steel $ 3.34 $ 3.28 1.8 %

Aluminum $ 2.44 $ 1.94 25.8 %

Selling, General and Administrative Expenses

Six Months Ended Percent of Sales

2023 June 30,

(in thousands)

Warranty $ 5,534 $ 3,510 1.0 % 0.9 %

Profit sharing 10,818 4,815 2.0 % 1.2 %

Salaries & benefits 26,123 19,775 4.8 % 5.0 %

Stock compensation 4,349 3,683 0.8 % 0.9 %

Advertising 1,859 1,631 0.3 % 0.4 %

Depreciation & amortization 5,869 3,753 1.1 % 1.0 %

Insurance 2,431 1,575 0.4 % 0.4 %

Professional fees 1,981 2,382 0.4 % 0.6 %

Donations 554 325 0.1 % 0.1 %

Other 12,696 8,540 2.3 % 2.2 %

Total SG&A $ 72,214 $ 49,989 13.1 % 12.8 %

Overall, selling, general and administrative expenses increased $22.2 million for the six months ended June 30, 2023 from the prior year period.

Warranty expense increased consistent with our increase in net sales as we continue to focus on our commitment to reliability and quality.

Profit sharing increased $6.0 million or 124.7% due to our increased operating results.

Salaries and benefits increased $6.3 million or 32.1% which is primarily attributable to overall increases in our workforce as well as the the impact of employee pay increases and benefit improvements.

Other expenses increased $4.2 million or 48.7% during the six months ended June 30, 2023 due mostly to increased travel and closing costs related to the 2023 New Market Tax Credit (Note 16).

Six months ended Effective Tax Rate

2023 June 30,

(in thousands)

Income tax provision $ 14,034 $ 8,959 14.5 % 20.9 %

The Company’s estimated annual 2023 effective tax rate, excluding discrete events, is expected to be approximately 24.1%.

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 three months ended June 30, 2023.

Additionally during the six months ended June 30, 2023, the Company recorded an excess tax benefit of $5.8 million as compared to $0.7 million during the same period in 2022.

The increase was primarily due to timing of stock option exercises as a result of our high stock price during the six months ended June 30, 2023.

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 $2.9 million from December 31, 2022 to March 31, 2023 and totaled $2.5 million at March 31, 2023.

Working Capital - Our unrestricted cash decreased $0.2 million from December 31, 2022 to June 30, 2023 and totaled $5.2 million at June 30, 2023.

Our restricted cash increased $21.9 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 2023 and used to pay down our revolving line of credit.

We have also seen increases in our current income tax payable due to the tax law changes surrounding the capitalization of research and development costs.

This has increased our cash paid for income taxes.

Revolving Line of Credit - Our revolving credit facility (as amended, "Revolver"), provides for maximum borrowings of $200.0 million.

As of March 31, 2023 and December 31, 2022, we had $83.7 million and $71.0 million, respectively, outstanding under the Revolver.

We had one standby letter of credit totaling $0.3 million as of March 31, 2023.

At March 31, 2023, we have $116.0 million of borrowings available under the Revolver.

As of June 30, 2023 and December 31, 2022, we had $78.5 million and $71.0 million, respectively, outstanding under the Revolver.

We had one standby letter of credit totaling $0.3 million as of June 30, 2023.

At June 30, 2023, we have $121.2 million of borrowings available under the Revolver.

The Revolver expires May 27, 2027.

On April 20, 2023 we amended the Revolver to allow for the occurrence of transactions associated with the New Markets Tax Credit executed on April 25, 2023 (Note 16).

Any outstanding loans under the Revolver bear interest at the daily compounded secured overnight financing rate ("SOFR") plus the applicable margin.

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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 6.0% and 1.3% for the three months ended March 31, 2023 and 2022.

Fees associated with the unused portion of the committed amount are included in interest expense on our consolidated statements of income and were not material for the three months ended March 31, 2023 and 2022.

The weighted average interest rate on borrowings outstanding on the Revolver was 6.3% and 6.2% for the three and six months ended June 30, 2023.

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, 2023 and 2022.

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 March 31, 2023, we were in compliance with our financial covenants, as defined by the Revolver.

At June 30, 2023, 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 March 31, 2023, our leverage ratio was 0.47 to 1.0, which meets the requirement of not being above 3 to 1.

On April 20, 2023 we amended the Revolver to allow for the occurrence of transactions associated with the New Markets Tax Credit executed on April 25, 2023 (Note 16).

At June 30, 2023, our leverage ratio was 0.37 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”).

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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 NMTCs.

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 “Project”).

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 NMTCs.

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.

Stock Repurchases - The Board has authorized one active stock repurchase program for the Company.

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Our repurchase activity is as follows:

Three Months Ended

March 31, 2023 March 31, 2022

Six Months Ended

June 30, 2023 June 30, 2022

(in thousands, except share and per share data)

2 unchanged sentences

401(k) — — — 103,936 5,913 56.89

Directors and employees 11,673 1,030 88.24 13,358 804 60.19

Employees 13,083 1,162 88.82 16,183 953 58.89

13,083 $ 1,162 $ 88.82 120,119 $ 6,866 $ 57.16

Our repurchase activity since Company inception, including our current authorized stock repurchase programs, are as follows:

Inception to March 31, 2023

Inception to June 30, 2023

(in thousands, except share and per share data)

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March 1, 2023 March 13, 2023 March 31, 2023 $0.12 $0.48

May 18, 2023 June 9, 2023 June 30, 2023 $0.12 $0.48

1 Effective with the cash dividend declared on March 1, 2023 (paid on March 31, 2023), the Company moved from semi-annual cash dividends to quarterly cash dividends.

On July 7, 2023, the Board of Directors declared a three-for-two stock split of the Company's common stock to be paid in the form of a stock dividend.

Stockholders of record at the close of business on July 28, 2023 will receive one additional share for every two shares they hold as of that date on August 16, 2023 (ex-dividend date August 17, 2023).

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 2023 and the foreseeable future.

Statement of Cash Flows

The following table reflects the major categories of cash flows for the three months ended March 31, 2023 and 2022.

The following table reflects the major categories of cash flows for the six months ended June 30, 2023 and 2022.

For additional details, see the consolidated financial statements.

Three Months Ended

2023 March 31,

Six Months Ended

2023 June 30,

(in thousands)

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Capital expenditures (60,629) (27,227)

Cash paid for building (Note 18)

Cash paid in business combination, net of cash acquired — (249)

1 unchanged sentence

Financing Activities

Proceeds from financing obligations, net of issuance costs 6,061 —

Payment related to financing costs (398) —

Borrowings under revolving credit facility 279,961 94,900

Payments under revolving credit facility (272,429) (28,651)

Principal payments on financing lease — (28)

Stock options exercised 23,244 6,385

7 unchanged sentences

In early 2022, the Company began increasing 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.

Increases in the 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.

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.

Cash Flows Used in Investing Activities

The capital expenditures for the three months ended March 31, 2023 relate to our continued investment in our production capabilities.

Purchases for the first quarter relate to a partial interest in an airplane, additional warehouse space in Longview, Texas and additional sheetmetal machinery for both replacement and growth.

The capital expenditures for the six months ended June 30, 2023 relate to our continued investment in our production capabilities.

Purchases during the six months ended June 30, 2023 relate to additional sheetmetal and other machinery for both replacement and growth, additional warehouse space in Longview, Texas, additional office space in Tulsa, Oklahoma, additional land in Tulsa, Oklahoma for future growth, and a partial interest in an airplane.

The capital expenditure program for 2023 is estimated to be approximately $135.0 million.

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Furthermore, cash flows from financing activities is historically affected by the timing of stock options exercised by our employees.

Stock options exercised increased due to the increase in the number of employee options exercised and increase in our average stock price during the three months ended March 31, 2023 compared to the three months ended March 31, 2022.

Stock options exercised increased due to the increase in the number of employee options exercised and increase in our average stock price during the six months ended June 30, 2023 compared to the six months ended June 30, 2022.

Effective with the cash dividend declared on March 1, 2023 (paid on March 31, 2023), the Company moved from semi-annual cash dividends to quarterly cash dividends.

The second quarter dividend was paid on June 30, 2023.

Commitments and Contractual Obligations

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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 March 31, 2023 except as described below.

We had no material contractual purchase obligations as of June 30, 2023 except as described below.

On April 27, 2022, the Company entered into a purchase and sale agreement with a third-party manufacturer to purchase certain assets to design and manufacture fan wheels for the purchase price of $6.5 million.

As of March 31, 2023, we have paid approximately $3.5 million related to this agreement, which is included in other long-term assets and property, plant and equipment, with the remaining $3.0 million included in accounts payable and other long-term assets on our consolidated balance sheets.

As of June 30, 2023, we have paid approximately $3.5 million related to this agreement, which is included in other long-term assets and property, plant and equipment, with the remaining $3.0 million included in accounts payable and other long-term assets on our consolidated balance sheets.

The final payment will be made in 2023.

In April 2023, we purchased several properties near our Tulsa, OK location, including four buildings which will add approximately 47,000 square feet of office space and approximately 53,000 square feet of additional warehouse space.

Additionally, we purchased approximately 14.26 acres immediately adjacent to our Tulsa, OK facilities.

Total amount paid for these properties was approximately $10.4 million.

Critical Accounting Policies

There have been no material changes in the Company’s critical accounting policies during the three months ended March 31, 2023.

There have been no material changes in the Company’s critical accounting policies during the six months ended June 30, 2023.

Recent Accounting Pronouncements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis