Miller Industries, Inc. (MLR) Q4 2014 Earnings Report, Transcript and Summary

Hello. This is the Chorus Call operator. Welcome to the Miller Industries Fourth Quarter and Full Year 2014 Results Conference Call. As a reminder, all participants will be in listen-only mode. [Operator Instructions]. Please note this event is being recorded. At this time, I would like to turn the conference over to Ms. Katie Pyra. Ms. Pyra.

Hi, thank you. Good morning, everyone. I would like to welcome you to the Miller Industries conference call. We are here to discuss the company's 2014 fourth quarter and full year results, which were released after the close of the market yesterday. With us from the management today are Bill Miller, Chairman of the Board; Jeff Badgley, Co-CEO; Will Miller, President and Co-CEO; Vince Mish, Executive Vice President and CFO; Frank Madonia, Executive Vice President, Secretary and General Counsel; Debbie Whitmire, Vice President and 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 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.

Thank you, and good morning. I am very pleased with our performance for the fourth quarter and 2014 year, which reflected solid year-over-year revenue and EPS growth. The results were driven by improving order trends both domestically and internationally as well as the combination of a number of government related deliveries made in the fourth quarter. By further increasing our production earlier in the year, we successfully positioned ourselves to take advantage of the increasing volume of activity during the quarter. Overall, we are extremely pleased with the efforts of our employees, all of them worked very hard to meet and exceed our goals. As a result of our efforts, we reported sales over $147.8 million in the fourth quarter compared to $108.3 million in the fourth quarter of 2013, an increase of more than 36%. Additionally, Q4 net income of $5.7 million or $0.50 per share represented a 137.8% increase compared to the $2.4 million net income or $0.21 per share in the fourth quarter of 2013. Order levels have remained strong, sentiment continues to improve, and our core business is operating in a position of strength. Throughout the year, we demonstrated our ability to anticipate shifts in the market and capitalize on opportunities as they emerge. This is particularly evident in our fourth quarter results, which reflected strong revenue and margin expansion and increased overall profitability levels. We continue to return value to our shareholders during the quarter through our quarterly dividend, which the Board of Directors has increased to $0.16 per share beginning this month. Now I’ll turn the call over to Vince, who will review the quarter’s financial results. After that, I’ll be back with comments on the market environment and some closing remarks. Vince?

Thanks Jeff and good morning everyone. As Jeff mentioned, net sales for the fourth quarter of 2014 were $147.8 million versus $108.3 million for the 2013 fourth quarter. Sales were up 36.5% year-over-year reflecting growing order trends from improving domestic and international markets. Much of this revenue growth was driven by our efforts to ramp up production levels earlier in the year. Cost of operations increased 35.2% to $131.2 million in the 2014 fourth quarter compared to $97.0 million last year, driven primarily by the higher sales volumes and sales mix. Gross profit was $16.6 million or 11.2% of net sales in the fourth quarter of 2014, compared to $11.2 million or 10.4% in net sales in the fourth quarter of 2013. The increase in gross margin percentage resulted from the higher delivery volumes in the quarter. SG&A expenses were $7.1 million in the fourth quarter of 2014 compared to $7.7 million in the fourth quarter of 2013. As a percentage of sales SG&A decreased to 4.8% from 7.1% over the prior year period, which primarily reflected our cost control efforts and the fixed nature of some of these costs. Other expense related to foreign currency transactions was a net loss of $289,000 in the fourth quarter of 2014 compared to a net gain of a $103,000 in the fourth quarter of 2013. Interest expense in the 2014 fourth quarter was a $180,000 compared to $116,000 in the fourth quarter of 2013. Net income attributable to Miller Industries in the 2014 fourth quarter was $5.7 million or $0.50 per diluted share, excluding the net loss attributable to the non-controlling interest net income attributable to Miller Industries in the 2013 fourth quarter was $2.4 million or $0.21 per diluted share. Now let me briefly review our results for the full year period ended December 31, 2014. Net sales in 2014 was $492.8 million compared to $404.2 million in the prior year period, an increase of 21.9%. Gross profit in 2014 was $53 million or 10.8% of sales compared to $42.4 million or 10.5% of sales in 2013. Excluding losses attributable to non-controlling interest, net income attributable to Miller Industries for the full year of 2014 was $14.9 million or $1.31 per diluted share, compared to net income for the full year of 2013 of $9.2 million or $0.82 per diluted share. Turning now to our balance sheet, cash and cash equivalents as of December 31, 2014 was $39.6 million compared to $36.3 million as of September 30, 2014 and $42.9 million as of December 31, 2013. Accounts receivable at December 31, 2014 totaled $116.5 million compared to $99 million at September 30, 2014 and $80.8 million at December 31, 2013. Inventories were $56.5 million at December 31, 2014 compared to $65.6 million as of September 30, 2014 and $54.2 million at December 31, 2013. Accounts payable at December 31, 2014 was $70.6 million compared to $64.7 million as of September 30, 2014 and $47.4 million at December 31, 2013. The decrease in cash balances and inventory, and the increase in accounts receivable and accounts payable levels are all a reflection of our increased production and sales. We continue to operate with no borrowings under our $25 million unsecured revolving credit facility, the maturity of which is recently being extended by one year to March 2017. The company also announced that its Board of Directors has increased the company’s quarterly cash dividend to $0.16 per share payable March 23, 2015 to shareholders of record at the close of business on March 16, 2015. Now I would turn the call back to Jeff for some closing remarks.

Thanks Vince. As I mentioned earlier 2014 represented a very good year for Miller Industries as we saw continued strong demand for our products throughout the year. The results in the fourth quarter were indicative of our commitment to ramp up production throughout 2014, as well as the combination of the number of deliveries of government related orders that were made in the quarter. These deliveries combined with the timing of several other factors in the quarter yielded solid revenue and income growth for the fourth quarter. The timing of many of these factors in the fourth quarter was unique and is not likely to be repeated. We have also continued to broaden our international footprint and have seen healthy quoting activity on both a domestic and international level, which speaks well for our order pipeline. The overall settlement of our customers has been positive as evidenced by the strength in our order levels and our current backlog. The level of activity in the current environment gives us confidence in the future prospects of the business and in our ability to continue to strategically add distribution channels around the world in order to take advantage of the long-term opportunities we see in the industry. Looking ahead to 2015, we believe our growth opportunity lies in expanding our business geographically, while advancing our product offerings and we see healthy level of demand to pursue both avenues of growth. Finally with our solid balance sheet, strong free cash flows and dedicated employees, we will look to continue our momentum into the coming year and continue delivering value to our shareholders. In closing, I’d like to thank our employees, our shareholders, our suppliers and our customers for their ongoing support of Miller Industries. With that, we’re ready for your questions. Thank you.

Thank you, sir. [Operator Instructions] And our first question comes from Jon Evans of JWEST LLC. Please go ahead.

Can you talk a little bit about pricing I guess, so in the domestic business, have you guys raised prices at all, as you came into 2015?

Well, I think we have a price increase of about 3% back in September of 2014, right. That’s where we’re at Jon.

Got it. So, can you just – yes, can you help us understand so orders were strong and in the domestic business and what I was hoping to understand better is when will that price increase start to hit the P&L, so it wasn’t a backlog, I assume it didn’t hit the fourth quarter. But we saw your gross margins go up a little bit, and I know you’re going to talk to me about mix and if that has a chassis and everything. But, on a like-for-like basis what I’m really curious to understand is win on the back-end pieces in the domestic business, you start to see the pricing start to hit through the P&L?

I think certain product segments that we build we probably got a little piece of that price increase in the fourth quarter. But I would say, a majority of that should hit mid - first to early second.

Great, and then the last question I have for you is, can you just talk about your - what you are seeing from your domestic customers, we’ve had a really cold winter, a lot of snow, et cetera, gas prices are down miles driven are up, kind of what’s their sentiment and then can you give us any insight relative to kind of the backlog or orders of bookings, do you want to go there?

I have been taking some trips with both Will and Vince, because the market is so hot, it’s also very nice to get to visit some of our older customers thanking for their business. And I think what we hear and obviously Will and Vince are out domestically more than me, so if they get something there, they can jump in, but I think what we hear is business is good, we’re making money and we need to buy product from you or your distributor. And as far as backlog goes Jon, we’ve known each other quite a while, I would say in my memory and I’m only going by memory, I’m not going by, going back through 20 years of history. I don’t think we’ve had a stronger commercial backlog in the history of Miller Industries.

Okay sounds like a good problem to have. I’m sorry, can I ask you one last question, with the stronger dollar what we’ve done - we’ve seen is, we’ve seen a lot of input cost come down. We’ve seen aluminum, we’ve seen steel, there is talk about them going down in the second and third quarter even more. I guess have you started to see that yet and do you expect to get any benefit on input cost?

I would say, we haven’t seen it yet, but I would also say that our sourcing department is fairly good and if it’s available we should get it. So, I would think Jon that, we should get some of that, but keep in mind please, when you think about our business, again we’re not, we’re not an automobile manufacturer as you know. We build a lot of customized product, so our flow of material usually goes to a machine shop or a fab shop prior to getting here. So, it’s not like we’re buying loads of steel and aluminum ourselves and putting it on the floor. So, we have to hammer each of those vendors for their cost savings. So it’s not just - it’s not just automatic, do you understand what I’m saying.

Yes. No I get it. I get it, okay. But it’s not like you’re seeing any real headwinds, correct. I mean they should potentially be tailwinds?

Yes, yes.

Great, thank you for your time.

Thank you, Jon. I appreciate it.

[Operator Instructions]. Our next question comes from Walter Lang of Avondale Partners. Please go ahead.

Could you hear me?

Yes.

Hi, great quarter, congratulations. I asked because I’m calling in from cell phone, because my flight last night from Chicago to Nashville was cancelled due to weather. I rented a car and I’m pulled over here, and what struck me is two things, is that one the weather continues to be very severe which, and I have seen some towers on 65 coming down here from Chicago through, so I have to think that puts more money in the hands of your towers, and secondarily when I pulled over and refueled my rental car, fuel prices are down and you read continually that miles driven is picking up as well. So, I had - when I think about your commentary on sentiment and domestic backlog, I have to think this is all part of it, do you agree?

Yes, I would agree. Yes, obviously fuel cost going down has an impact on their profitability, I would like to say Walter that gets tempered a little bit by if you remember, it gets tempered a little bit, because normally when fuel goes down another source of income for towers besides just towing is scrap and normally scrap comes down. So, it’s not pure margin expansion for a tower the way normal people will think of it. There is an offset, but yes, it’s great.

And Jeff the more cars driving, just accidents occurs [indiscernible] volume getting up?

Yes, for sure, yes.

And then if the tower is benefiting back-to-back severe winters, I just think it pushes again more cash in your pockets and then more likely to upgrade your fleet, is that accurate?

I think that’s very accurate and that’s I mean as I don’t know if you could hear me earlier with the previous question that, again in my memory I don’t remember a stronger commercial backlog in the history of Miller Industries.

Okay. Again congratulations, thanks for taking my questions.

Thank you, Walter.

Thanks.

And our next question comes from Mike Hughes of SGF Capital. Please go ahead.

Good morning. Just on the wage front, we’ve seen some headlines weather seems to be a little bit more wage pressure in the economy. Can you just talk about it if you’re seeing that and is there a normal kind of wage increase in the - at the first of the year how that works with?

We give annual increases to wages to our employees, and it’s somewhat complicated, because they are in, what we call tiers, an assembler that make us much as a welder and a welder doesn’t make us much as, excuse me a stock guide and make us much as an assembler. But sitting here I would say the average kind of wage increase was approximately 3%. I think what everyone in our organization is concerned about obviously is timing the type of people that want to view the kind of work we do in our factories, getting the right people in, people that are trained. So, but I think increase was probably 3% Mike.

Okay, and then on the overseas business, I think it increased by about $15.5 million sequentially is that just a combination of the military orders and it just kind of normalized to $20 million a quarter for 2015 is that kind of good number?

Yes, we don’t give guidance, but I would say that that big, well it’s a combination of both in the majority of both France and Denmark, yes.

Okay. What is the status, I think in the last few calls you talked about the potential for additional military orders, anything in the pipeline?

As I said several times, there is a quite few projects that we are working on and quoting, we have lot of activity, we are in the midst of we’ve been given a purchase order to design some product for a government in Europe, smaller country. And we’ve also been given a purchase order to build some prototypes in another area of the world. So, at the end of the day, when you get an order for prototypes, obviously you have to be compliant with that prototype and you just get, I mean the fact that we’ve gotten a prototype orders puts us obviously in a very good position to get few order, if our prototypes are being compliant by the military user.

Okay, thank you very much.

Yes.

This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

Well, I certainly would like to thank you all for joining our call today. And obviously through my remarks I talked about factors that affected the dramatic drives, revenue in the fourth quarter and I would like to mentioned that again that was, there were unique factors that are probably not repeatable and we should resume back to ranges of revenue that resemble Q2 and Q3 of last year. So with that, I’d like to thank you again and we look forward to talking to you in the next couple of months. Have a good day. Thank you.

This concludes today’s event. We thank you all for attending today’s presentation. You may now disconnect your lines.