Miller Industries, Inc. (MLR) Q2 2013 Earnings Report, Transcript and Summary

Matt Steinberg Jeffrey I. Badgley - Vice Chairman and Chief Executive Officer J. Vincent Mish - Chief Financial Officer, Principal Accounting Officer, Executive Vice President, Treasurer and President of Financial Services Group

Hello. This is the Chorus Call operator. Welcome to the Miller Industries Second Quarter 2013 Results Conference Call. [Operator Instructions] Please note, this event is being recorded. At this time, I would like to turn the conference over to Mr. Matt Steinberg. Mr. Steinberg, you may begin.

Thank you, and good morning, everyone. I would like to welcome you to the Miller Industries conference call. We are here to discuss the company's 2013 second quarter results, which were released after the close of the market yesterday. With us from management today are Bill Miller, Chairman of the Board; Jeff Badgley, CEO; Vince Mish, CFO; Frank Madonia, General Counsel; Will Miller, President; Vince Tiano, Vice President; Debbie Whitmire, Corporate Controller; and Allison Houghton, Director of Finance. Today's call will begin with formal remarks from management followed by a question-and-answer period. Please note that 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 would 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 Badgley. Jeff, please go ahead.

Thank you, and good morning. We are pleased with our performance for the quarter, which reflected strong revenue growth on both an annual and sequential basis. Yesterday, we recorded 2013 second quarter sales of $105.8 million, compared to sales of $87.3 million in the prior year period, an increase of more than 21%. Sales and production growth were supported primarily by improving conditions within our domestic commercial markets. We successfully delivered on the uptick in orders because of our decision to increase production levels back in the first quarter. Gross margins in the quarter were impacted by the product mix. With that, we're pleased with the sequential improvement in gross margin from 10.2% in the first quarter to 11.1% for the second quarter. Our efforts to control cost and improve operational efficiencies continued in the quarter as our SG&A as a percentage of sales was significantly lower despite the increase in sales volume. We also implemented a planned price increase in the first quarter, the effect of which began flowing through our backlog late in the second quarter and will contribute to our results in the second half of the year. Overall, we had a quality quarter, as evidenced by the earnings growth, both year-to-year and sequentially. We grew pretax income approximately 40% from the year ago period, excluding the $1 million of foreign currency transaction gains in the prior year period. These results are a reflection of our employees' ability to remain flexible and quickly adapt to a changing environment. Now I'll turn the call over to Vince, who will review the quarter's financial results. After that, I'll be back with some final comments, then we'll go to Q&A. Vince?

Thanks, Jeff, and good morning, everyone. As Jeff mentioned, net sales for the second quarter of 2013 were $105.8 million, versus $87.3 million in the 2012 second quarter. Sales were up approximately 21.2% year-over-year, driven primarily by increased orders from a stronger domestic commercial market, which benefited from our decision to ramp up production levels a quarter earlier. Cost of operations increased by 22.6% to $94.1 million in the 2013 second quarter, compared to $76.8 million last year, primarily driven by the higher sales volumes. Gross profit was $11.7 million or 11.1% of net sales in the second quarter of 2013, compared to $10.6 million or 12.1% of net sales in the second quarter of 2012. The decrease in gross margin resulted from domestic products mix shifts. SG&A expenses were flat at $7.2 million in the second quarter of 2013 and 2012. As a percentage of sales, SG&A decreased to 6.8% from 8.3% over the prior year period, which primarily reflected our cost-containment efforts. Other income related to foreign currency transactions was a net loss of $18,000 in the second quarter 2013, compared to a net gain of $1.0 million in the second quarter 2012. Interest expense in the 2013 second quarter was $84,000, compared to $214,000 in the second quarter of 2012. Income in the second quarter of 2013 included a net loss attributable to noncontrolling interest of $112,000 related to the startup of Delavan Automotive LLC joint venture. Excluding that loss, net income attributable to Miller Industries in the 2013 second quarter was $2.9 million or $0.26 per diluted share, compared to $2.5 million or $0.23 per diluted share in the 2012 second quarter. As I mentioned, the 2012 quarterly results included other income related to foreign currency transaction gains of $1 million. Now let me briefly review our results for the 6 months ended June 30, 2013. Net sales for the first 6 months of 2013 were $190.8 million, compared to $182.3 million in the prior year period, an increase of 4.7%. Gross profit was $20.4 million or 10.7% of sales, compared to $21.4 million or 11.8% of sales for the 6 months of 2012. Income in the first 6 months of 2013 included a net loss attributable to noncontrolling interest of $233,000 related to the startup of Delavan Automotive. Excluding that loss, net income attributable to Miller Industries in the first 6 months of 2013 was $4.2 million or $0.38 per diluted share, compared to net income for the first 6 months of 2012 of $4.6 million or $0.40 per diluted share. Turning now to our balance sheet. Cash and cash equivalents as of June 30, 2013, were $43.4 million, compared to $47.4 million as of March 31, 2013 and $48.6 million as of December 31, 2012. Accounts receivable at June 30, 2013, totaled $79.5 million, compared to $64.1 million at March 31, 2013, and $59.1 million at December 31, 2012. The increase in sales volume drove accounts receivable higher in the quarter. Inventories were $51.4 million as of June 30, 2013, compared to $50 million at March 31, 2013, and $45 million at December 31, 2012. Accounts payable at June 30, 2013 were $48.9 million, compared to $39.7 million at March 31, 2013, and $30.7 million at December 31, 2012. We continue to operate with no borrowings under our $25 million unsecured revolving credit facility. Now I'll turn the call back to Jeff for further remarks.

Thanks, Vince. We've seen increases in our order levels in recent months, which is an indication of improving demand within our domestic commercial space. Additionally, our actions to ramp up production levels, based on our view of the markets in the first quarter, not only enabled us to deliver these orders during the second quarter, but confirms our ability to quickly adapt to the changing economic environment. We were successful in achieving strong sales growth while executing on our cost-containment efforts. We are pleased that we are able to keep SG&A cost flat year-over-year against sales growth of 21%. Our strategy to keep cost down resulted in stronger year-over-year and sequential operating margins. We continue to make progress on geographic expansion strategies. Although general economic conditions remain soft in Europe, we continue to view this region as a good, long-term opportunity. We remain focused on making inroads in Europe by adding distribution, as well as other various international regions to take advantage of the markets when they recover. Towards the end of the quarter, we began to deliver on our order with our prime contractor to provide towing and recovery equipment to the French military. Deliveries under this order will continue through the end of 2014, so they will temporarily be affected by the annual summer holidays in France during August. We also recently received an order from a prime contractor to provide towing and recovery equipment to an additional European military. Deliveries under this order are expected to occur during the last half of 2014 into early 2015. We will continue to build relationships with prime contractors who are bidding for government and military tenders, both domestically and abroad, as this remains an important part of our strategy. Let me provide a brief update on the Delavan joint venture. We continue to progress in transitioning our facility for Delavan production and we expect to be fully operational over the next quarter. From this operational transition, we anticipate ramping up production to a normalized level early in 2014. During our transition, we have been pleased with the response we have received from the industry. We continue to view Delavan as a good opportunity to complement our product offering and take advantage of our production capacities in our facilities. Looking ahead, with the recent improvement in domestic commercial market, we anticipate maintaining existing production levels for the remainder of the year. Keep in mind, we will have the effects of the annual summer holiday period in France, and in the U.S., our annual maintenance shutdown the week of July 4. Beyond the near-term, our visibility remains limited. We continue to face higher raw material prices, and to mitigate this impact on our margins, we announced a price increase during the first quarter and began seeing the effects flow through our backlog late in the second quarter. We expect to see these benefits during the second half of the year, more so in the fourth quarter than the third. Our cost-containment initiatives demonstrated our financial flexibility under uncertain market conditions. This will continue to be a core focus of our strategy going forward as we look to maximize profitability. We also remain committed to building value for our shareholders through our quarterly dividend, strong free cash flows and a solid balance sheet. In closing, I'd like to thank our employees, our shareholders, suppliers and our customers for their ongoing support of Miller Industries. With that, we're ready to take your questions. Thank you.

[Operator Instructions] Showing no questions at this time, I would like to turn the conference back over to management for any closing remarks.

Ladies and gentlemen, we appreciate your attendance on the call, and we look forward to talking to you at the end of next quarter. Thank you.

This concludes today's event. Thank you for attending the presentation and disconnect your lines. Thank you.