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Edited Transcript of MLR earnings conference call or presentation 8-Aug-19 2:00pm GMT

Q2 2019 Miller Industries Inc Earnings Call

Ooltewah Sep 6, 2019 (Thomson StreetEvents) -- Edited Transcript of Miller Industries Inc earnings conference call or presentation Thursday, August 8, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Deborah L. Whitmire

Miller Industries, Inc. - Executive VP, CFO & Treasurer

* Jeffrey I. Badgley

Miller Industries, Inc. - Co-CEO

* William G. Miller

Miller Industries, Inc. - Founder & Executive Chairman

* William G. Miller

Miller Industries, Inc. - President, Co-CEO & Director

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Conference Call Participants

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* DeForest R. Hinman

Walthausen & Co., LLC - Research Analyst

* James Lee

Potrero Capital Research, LLC - Investment Analyst

* Brendan Dunlap;FTI Consulting;Consultant

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the Miller Industries' Second Quarter 2019 Results Conference Call. Please note, this event is being recorded. And now at this time, I would like to turn the call over to the Brendan Dunlap at FTI Consulting. Please go ahead, sir.

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Brendan Dunlap;FTI Consulting;Consultant, [2]

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Thank you and good morning, everyone. I'd like to welcome you to the Miller Industries conference call. We are here today to discuss the company's 2019 second quarter results which were released after the close of market yesterday. With us from the management team today are Bill Miller, Chairman of the Board; Will Miller, President and co-CEO; Jeff Badgley, co-CEO; Debbie Whitmire, Executive Vice President and CFO; and Frank Madonia, Executive Vice President, Secretary and General Counsel.

Today's call will begin with formal remarks from management, followed by a question-and-answer period. Please note, in this morning's conference call, management may make forward-looking statements in accordance with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. I'd like to call your attention to the risks related to these statements, which are more fully described in the company's annual report filed on Form 10-K and other filings with the Securities and Exchange Commission.

With these formalities out of the way, I'd like to turn the call over to Jeff. Please go ahead, Jeff.

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Jeffrey I. Badgley, Miller Industries, Inc. - Co-CEO [3]

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Thank you and good morning. We are pleased to discuss our second quarter results with you today. This was another strong quarter for Miller Industries, as our revenue, income before income taxes and earnings per share increased double digits on a year-over-year basis, reflecting broad-based demand in our domestic and international markets.

Our performance during the quarter was driven by strong demand and continued innovation in our global product offerings. The strong results are also a testament to our commitment to operational excellence. Our strong top line sales growth, coupled with our continued emphasis on cost savings drove an 18.5% increase in gross profit and a 40.6% increase in net income.

Overall, we reported 2019 second quarter sales of $222.3 million, an increase of 25.7% compared to the $176.9 million in the prior year period. Net income was $10.7 million or $0.94 per share compared to net income of $7.6 million or $0.67 per share in the second quarter of 2018.

Gross profit as a percentage of total sales contracted modestly this quarter to 11.3%, down approximately 70 basis points from prior year period due to change in product mix. However, selling, general and administrative expenses as a percentage of total sales decreased approximately 60 basis points to 4.9% as we continue to benefit from our cost control and further improve our workflow efficiency.

We remain confident in our business as we enter the second half of 2019, as demand for our products remain strong, and we will continue to benefit from capacity increases in recent years and our unwavering focus on efficiency gains. Further, our balance sheet remains healthy, and we continue to strategically deploy our resources to drive organic growth and profitability to meet the demand of our customers and create sustainable value for our shareholders. We remain confident in our competitive position and in our financial outlook.

Now I'll turn the call over to Debbie, who will review the second quarter financial results. After that, I'll be back with comments about the market environment and some closing remarks. Then we'll go to Q&A. Debbie?

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Deborah L. Whitmire, Miller Industries, Inc. - Executive VP, CFO & Treasurer [4]

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Thanks, Jeff, and good morning, everyone. Net sales for the second quarter 2019 were $222.3 million versus $176.9 million for the second quarter of 2018, a 25.7% year-over-year increase driven by strong demand in both domestic and international markets. Cost of operations increased 26.7% to $197.1 million for the second quarter 2019 compared to $155.6 million for the second quarter 2018, reflecting strong volume growth in the quarter. Cost of operations as a percentage of net sales expanded approximately 70 basis points to 88.7% from the prior-year period.

Gross profit was $25.2 million or 11.3% of net sales for the second quarter 2019 compared to $21.3 million or 12% of net sales for the second quarter 2018. The 70 basis point contraction in gross margin was primarily driven by a change in product mix.

SG&A expenses were $11 million for the second quarter 2019 compared to $9.7 million for the second quarter 2018. However, as a percentage of sales, SG&A decreased approximately 60 basis points to 4.9% from 5.5% in the prior-year period, reflecting our steadfast commitment to cost control and efficient use of our resources.

Interest expense net for the second quarter 2019 were $721,000 compared to $484,000 for the second quarter of 2018. Other expense for the second quarter 2019 was a net expense of $57,000 compared to a net expense of $627,000 for the second quarter 2018 due to currency exchange rate fluctuations.

Net income for the second quarter 2019 was $10.7 million or $0.94 per diluted share. Net income for the second quarter 2018 was $7.6 million or $0.67 per diluted share.

Now let me briefly review our results for the 6 months ended June 30, 2019. Net sales for the first 6 months of 2019 were $419.6 million compared to $336 million in the prior year period, an increase of 24.9%. Gross profit for the 6 months ended June 30, 2019 was $47.8 million or 11.4% of sales, compared to $39.7 million or 11.8% of sales for the first 6 months of 2018.

Net income for the first 6 months of 2019 was $19.3 million or $1.70 per diluted share, an increase of 35.6% compared to net income for the first 6 months of 2018 of $14.3 million or $1.25 per diluted share.

Now turning to our balance sheet. Cash and cash equivalents as of June 30, 2019, was $27.2 million compared to $19 million as of March 31, 2019, and $27 million at December 31, 2018. Accounts receivable at June 30, 2019, totaled $197.8 million compared to $183.8 million as of March 31, 2019, and $149.1 million at December 31, 2018.

Inventories were $91 million as of June 30, 2019, compared to $96.2 million as of March 31, 2019, and $93.8 million at December 31, 2018. Accounts payable at June 30, 2019, was $129.4 million compared to $107.8 million as of March 31, 2019, and $98.2 million at December 31, 2018.

We reduced our long-term debt by approximately $10 million during the quarter and by an additional $5 million subsequent to the quarter, bringing to a balance to approximately $20 million and $15 million at June 30, 2019 and July 31, 2019, respectively. This highlights our efficient working capital management and free cash flow generation.

The company also announced that its Board of Directors approved our quarterly cash dividend of $0.18 per share, payable September 16, 2019, to shareholders of record at the close of business on September 9, 2019.

Now I'll turn the call back over to Jeff for further remarks.

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Jeffrey I. Badgley, Miller Industries, Inc. - Co-CEO [5]

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Thank you, Debbie. Our performance this quarter was very encouraging as we continued to benefit from our strategic capital investments to increase our production capacity and streamline our operations, which ultimately led to our strong sales and earnings growth for the quarter. Disciplined operations, flexible production capabilities and targeted capital deployment remains central to our overall strategy as we work to provide best-in-class service to our customers and maximize shareholder value.

To underscore our continued commitment to returning shareholder value, we have declared our quarterly dividend of $0.18 per share. As we enter the back half of 2019, we are confident in the strength of our backlog and the underlying positive fundamentals in all our end markets.

Finally, we are confident that we will continue to benefit from our strategic capital investments while remaining alert to future value enhancing opportunities to reinvest in our business.

In closing, I'd like to thank our employees, our customers, our suppliers and our shareholders for their ongoing support of Miller Industries.

With that, we're ready to take your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And we will take our first question from DeForest Hinman with Walthausen & Co.

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DeForest R. Hinman, Walthausen & Co., LLC - Research Analyst [2]

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I'll start off by saying good job on the results, very impressive quarter on a revenue basis. I was hoping -- my first question would be to spend a little bit more time helping people understand the mix that you called out as it relates to gross margin. Usually, when you see pretty sizable increase in sales, you do see some leverage and some fixed cost in most businesses. So I think that's we're spending some time helping people understand what's going on there. So that'll be my first question.

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Jeffrey I. Badgley, Miller Industries, Inc. - Co-CEO [3]

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So your question is, what was the shift in mix? Is that...

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DeForest R. Hinman, Walthausen & Co., LLC - Research Analyst [4]

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Yes. What was the shift in mix and why weren't we seeing some fixed cost leverage on such large increase in sales?

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Jeffrey I. Badgley, Miller Industries, Inc. - Co-CEO [5]

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Well, the shift in mix was from -- and although we don't disclose our exact mix because we don't like to lead our competitors to our niches, the shift in mix basically can be explained by looking at our product offering, both -- and then looking at our areas of focus, which include military and rental and seeing a switch from those areas of focus to our more commercial-type products year-over-year.

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DeForest R. Hinman, Walthausen & Co., LLC - Research Analyst [6]

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Okay. That's helpful. You talked about capital allocation generally. Can you be more specific in terms of where we've made investments in the past and how they're impacting results currently? And on a forward basis, where are we looking to allocate capital?

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Jeffrey I. Badgley, Miller Industries, Inc. - Co-CEO [7]

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I'll turn that over to Will, who runs -- who is co-CEO of North America -- has North American responsibility.

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William G. Miller, Miller Industries, Inc. - Founder & Executive Chairman [8]

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Over the last 4 years, we've made extensive capital investments in all of our North American manufacturing facilities, expanding capacity as well as improving our quality through robotics, paint facilities, things of that nature, that has allowed us to increase our maximum revenue potential by meeting our customers' demands as order increases -- or order intake has increased over the past few years. Continue to focus on streamlining products through not only our investments in the actual facilities but also in our IT department as well.

So at this point, we've finished most of our capital projects for North America and continue to look for future opportunities.

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DeForest R. Hinman, Walthausen & Co., LLC - Research Analyst [9]

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Is that the same comment for the European operations or is it different?

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Jeffrey I. Badgley, Miller Industries, Inc. - Co-CEO [10]

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Well, I think the European operations, due to the high level of number of manufacturers in Europe, we won't see the kind of investment we've made in North America. Those operations, in general, serve their home markets, England and France. Each of them compete with manufacturers not only in their home countries but also in attempts to export into other European countries, compete with home manufacturers in those areas.

For instance, Spain may have 3 to 5 manufacturers. Italy may have 7. Germany may have 6. So not the same level, but we certainly are looking at opportunities to enhance our efficiencies

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William G. Miller, Miller Industries, Inc. - Founder & Executive Chairman [11]

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Yes. Jeff, this is Bill. Also, the other thing is, Jeff, I mean, part of the improvement of North America is because there are certain parts of your product that you are able to ship to Europe to help them without them having to invest in that capital.

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Jeffrey I. Badgley, Miller Industries, Inc. - Co-CEO [12]

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Absolutely.

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DeForest R. Hinman, Walthausen & Co., LLC - Research Analyst [13]

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Okay, that's helpful. I tried to have a dialogue with your company about looking to do more investor outreach. Obviously, results are very good. We've -- we just explained all the investment that we've done, and we're starting to reap the good results. Is it time to go out and tell the story a little bit better to the street and increase street engagement?

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Jeffrey I. Badgley, Miller Industries, Inc. - Co-CEO [14]

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So I would leave that to the Chairman to answer the question.

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William G. Miller, Miller Industries, Inc. - Founder & Executive Chairman [15]

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Well, I would basically say, we tell our story on a quarterly basis. We attempt to answer every question that anybody has about our company. We don't do individual interviews, calls, trips with individual shareholders because we want to make sure everyone has the same information at the same time, because we believe that's the best way to be fair to all of our shareholders.

As far as going out and doing investor conferences, et cetera, we really haven't spent a lot of time on that. We're not sure that it's to the best benefit of anyone to go out and speak about our company in future terms or -- and we just kind of live by our performance, and we answer questions to everybody on a quarterly basis so that everybody has the same information

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DeForest R. Hinman, Walthausen & Co., LLC - Research Analyst [16]

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Okay. Well, our company is a shareholder. I think it is in the best interest of shareholders to do some engagement to talk with the street and educate the investment community about the business that you operate in. Obviously, very unique business, niche end market, very high market share, very good performance, very good free cash flow. You moved to a net cash position on the balance sheet. And probably among any comparative measure, your stock, even with the big move today, it's very low-priced versus other industrial manufacturing companies. You can agree or disagree with that assessment. But if that valuation multiple were to improve, you would see very meaningful increase in your share price. So I would strongly encourage you to think about engaging shareholders more than you have in the past, especially with all the good progress that you've made in terms of improving performance in driving revenues higher and doing a lot of innovation in terms of product development. Well, more of a statement than a question, but thank you.

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William G. Miller, Miller Industries, Inc. - Founder & Executive Chairman [17]

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No. And let me just say that if we had invitations to various conferences or whatever, I'm sure that we would consider that. But right now, we're just focused on building tow trucks.

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Operator [18]

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Our next question is from James Lee with Potrero Capital.

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James Lee, Potrero Capital Research, LLC - Investment Analyst [19]

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I'd like to echo the great results and also the prior caller's sentiment on that doing more investor outreach and also doing attending investor conferences. I think that'll help yourself greatly in educating investors.

The first question is, you guys implemented a, I think, price increase last year. Looking at this year's results, how much of the growth -- the sales growth would you attribute to the price increase that you guys have implemented?

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Jeffrey I. Badgley, Miller Industries, Inc. - Co-CEO [20]

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Yes. I would say that the price increase was, at that time, 3% or 4%, depending on the product. I think some of our products have not reached from the old backlog into a new -- into new pricing, Debbie? Or are we already there in terms of -- I think it was scheduled to hit in the third quarter for the heavy segment. I haven't done the math, being completely honest with you. But I think it's probably insignificant.

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James Lee, Potrero Capital Research, LLC - Investment Analyst [21]

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Do you think the price increase can offset the cost pressure that is inflicting a lot of the industrial companies?

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Jeffrey I. Badgley, Miller Industries, Inc. - Co-CEO [22]

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I'm sorry, would you repeat that?

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James Lee, Potrero Capital Research, LLC - Investment Analyst [23]

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Do you think the price increase that you guys have implemented, would it be able to offset the cost pressure, commodity price cost pressure?

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Jeffrey I. Badgley, Miller Industries, Inc. - Co-CEO [24]

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I think it did a good job covering a majority of those costs, James. There are certain...

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William G. Miller, Miller Industries, Inc. - Founder & Executive Chairman [25]

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No. I was just going to say, if you find that it didn't, you'll react accordingly.

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Jeffrey I. Badgley, Miller Industries, Inc. - Co-CEO [26]

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Yes.

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William G. Miller, Miller Industries, Inc. - Founder & Executive Chairman [27]

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But so far, our suppliers have been very helpful to us. Our purchasing department does an outstanding job. And again, we are continuing to increase volume to our suppliers. So I think all of that has allowed us to maintain our margins.

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James Lee, Potrero Capital Research, LLC - Investment Analyst [28]

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Okay. Great. And then on the -- looking at your results, domestic obviously grew by a lot. And if I look at international, it seems like it's down 9%. Could you talk about why it's down? Is it macro related? And do you expect the trend to persist?

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Jeffrey I. Badgley, Miller Industries, Inc. - Co-CEO [29]

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No. I think the decrease in international is based on just timing of deliveries. So -- and I don't see a macro trend at this point. I am somewhat concerned about Brexit in the U.K. But I think everybody in the U.K. is concerned about Brexit.

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James Lee, Potrero Capital Research, LLC - Investment Analyst [30]

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Okay. And then given your comments about demand environment and your confidence, is it fair to say to expect to grow over the next 2 quarters even with the tough comparison that the sales that you have from last year's?

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Jeffrey I. Badgley, Miller Industries, Inc. - Co-CEO [31]

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We don't -- I think you've asked that question in the past, I'm not quite sure. But we do not forecast revenue in future upcoming quarters. We'll let you know what our backlog is. We tell you what we've done to eat through that backlog and build tow trucks every day and try to increase our revenue every quarter. So hope that answers your question well enough.

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James Lee, Potrero Capital Research, LLC - Investment Analyst [32]

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I want to follow-up on the prior caller's question about reinvestment. You guys talked about reinvesting in North America. Are you guys thinking about potentially acquiring new product lines or is this more of expanding your manufacturing capacity here in North America?

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Jeffrey I. Badgley, Miller Industries, Inc. - Co-CEO [33]

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Well, I think it's -- I think our...

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William G. Miller, Miller Industries, Inc. - Founder & Executive Chairman [34]

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Jeff?

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Jeffrey I. Badgley, Miller Industries, Inc. - Co-CEO [35]

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Yes?

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William G. Miller, Miller Industries, Inc. - Founder & Executive Chairman [36]

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I think that these -- that our shareholders should realize that historically, we have grown double digits over the period of the company. And all of that is generally internal growth rates, new products, new ideas, things that we bring out each year. And we are really focused on that as our internal growth rate.

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Jeffrey I. Badgley, Miller Industries, Inc. - Co-CEO [37]

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Thank you.

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James Lee, Potrero Capital Research, LLC - Investment Analyst [38]

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Are you guys just looking to expand your manufacturing capacity, is that a fair assessment?

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William G. Miller, Miller Industries, Inc. - Founder & Executive Chairman [39]

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No. I think at this time -- this is Will. We've made considerable investments in North America. I believe that we have the capacity that we need today. And as our Chairman stated, we're looking to continue on our innovation efforts for product development. And if at some point, we see the need to expand for more capacity than we have today, we always leave that open for discussion.

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Operator [40]

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And that does conclude today's question-and-answer session. I would like to turn the call back to management for any additional or closing remarks.

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Jeffrey I. Badgley, Miller Industries, Inc. - Co-CEO [41]

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This is Jeff. We'd like to thank you for joining our second quarter conference call, and we look forward to talking to you again when we report our third quarter results. Thanks again. Bye.

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Operator [42]

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And with that, ladies and gentlemen, that concludes today's conference call. We'd like to thank you again for your participation, and you may now disconnect.