Miller Industries, Inc. (MLR) Q1 2015 Earnings Report, Transcript and Summary

Hello, this is the Chorus Call operator. Welcome to the Miller Industries’ First Quarter 2015 Results Conference Call. As a reminder, all participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. Please note this event is being recorded. At this time, I would like to turn the conference over to Daniel Hagan [ph]. Mr. Hagan, please go ahead.

Thank you and good morning everyone. I would like to welcome you to the Miller Industries Inc. conference call. We are here to discuss the company’s 2015 first 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; Jeff Badgley, Co-CEO; Will Miller, President and Co-CEO; Vince Mish, Executive VP 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 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 would like to turn the call over to Jeff Badgley. Jeff, please go ahead.

Thank you. Good morning. We had a strong start to 2015 with solid revenue growth and improved profitability compared to the first quarter of last year. Our results were driven by solid order flow, strong operational execution and continued progress on our strategic initiatives. As we have communicated in recent quarters, we continued to actively increase our production levels in order to deliver on our orders as well as stay ahead of overall demand. During the quarter, we remained focused on improving the business and strengthening our operations. As a result, we reported 2015 first quarter sales of $126.8 million compared to sales of $104.2 million in the prior year period, an increase of nearly 22%. Q1 net income was $3.1 million or $0.27 per diluted share, which represents a 29.5% increase as compared to the $2.4 million or $0.21 per share in net income in the 2014 first quarter. We also remained encouraged by our commercial backlog levels and overall quoting activity. The activity we are seeing in the marketplace, in addition to steadily improving customer sentiment, gives us confidence in the future prospects of the business and in our ability to capitalize on the long-term opportunities that lie ahead. We believe our growth opportunities come from continuing to expand geographically and to advance our product offerings in order to meet the evolving needs of our customer. Now, I will turn the call over to Vince who will review the quarter’s financial results. After that, I will be back with comments on the market environment and some closing remarks. Then we will go to questions and answers. Vince?

Thanks, Jeff and good morning everyone. As Jeff mentioned, net sales for the first quarter of 2015 were $126.8 million versus $104.2 million for the 2014 first quarter. This 21.7% year-over-year increase reflected a strong order flow from improving domestic and international commercial markets. To account for the increased order flow, we further ramped up production levels, which contributed significantly to our revenue growth. Cost of operations increased 23.2% to $114.8 million in the 2015 first quarter compared to $93.2 million last year, driven primarily by the higher sales volumes and costs related to increasing production levels. Gross profit was $12.0 million or 9.4% of net sales in the first quarter of 2015 compared to $10.9 million or 10.5% of net sales in the first quarter of 2014, mainly due to product mix. SG&A expenses were $7.4 million in the first quarter of 2015 compared to $7.2 million in the first quarter of 2014. As a percentage of sales, SG&A decreased to 5.9% from 6.9% over the prior year period. Other expense related to foreign currency transactions was a net loss of $56,000 in the first quarter of 2015 compared to a net loss of $62,000 in the first quarter of 2014. Interest expense in the 2015 first quarter was $163,000 compared to $70,000 in the first quarter of 2014. Additionally, the lower effective tax rate in the first quarter this year was primarily due to the lower corporate tax rates on the earnings of European subsidiaries and the impact of U.S. federal domestic production activity deductions. Net income attributable to Miller Industries in the 2015 first quarter was $3.1 million or $0.27 per diluted share, an increase of 29.5% over Q1 2014. Excluding the net loss attributable to the non-controlling interest of $66,000, net income attributable to Miller Industries in the 2014 first quarter was $2.4 million or $0.21 per diluted share. Turning now to our balance sheet, cash and cash equivalents as of March 31, 2015, were $38.3 million compared to $39.6 million at December 31, 2014 and $40.5 million at March 31, 2014. Accounts receivable at March 31, 2015 totaled $116.1 million compared to $116.5 million at December 31, 2014 and $82.0 million at March 31, 2014. The increase in sales volume drove accounts receivable higher from the year ago levels. Inventories were $61.8 million as of March 31, 2015 compared to $56.5 million at December 31, 2014 and $56.7 million at March 31, 2014. The increase in inventory was attributable to our decision to ramp up production in recent quarters and to a lesser extent the product showcases at April’s Florida Tow Show. Accounts payable at March 31, 2015 were $79.9 million compared to $70.6 million at December 31, 2014 and $47.7 million at March 31, 2014. We continue to operate with no borrowings under our $25 million unsecured revolving credit facility. The company also announced that its Board of Directors has declared a quarterly cash dividend of $0.16 per share payable June 22, 2015 to shareholders of record at the close of business on June 15, 2015. Now I will turn the call back to Jeff for further remarks.

Thank you, Vince. The 2015 first quarter reflected positive economic activity across our markets and the continued dedication of our employees to increase production levels to drive overall profitability. We are pleased with the growth we are making within our markets. Our order levels, as well as our backlog, were driven by a healthy level of quoting activity for our products. The ongoing interest in our offerings was recently featured at the April Florida Tow Show, where our industry leading product line was on full display and once again drew very positive reactions and a lot of excitement from the show’s participants. Additionally, the conversations with our customers at the show have remained quite positive and general indications are that the marketplace remains very active. During the quarter, we continued to make inroads on our geographic expansion initiatives in various markets including Europe, the Asia Pacific, the Middle East, Latin America and South Africa. As anticipated, we recently delivered the last units for our French and Danish military orders and continue to have high levels of quoting activity in the military arena, both domestically and internationally. Overall, we are pleased with the progress that we are making on a global scale. By the moves we are making in this area, we are further positioning the company for long-term success. Overall, I am pleased with our start to 2015. We continue to make great progress on our strategic and operational initiatives, which are driving solid revenue and profitability growth and strong order intake levels. As Vince detailed earlier, our balance sheet remains solid and we have continued to generate strong cash flow and operate from a position of financial strength. We remain committed to delivering value to our shareholders through our strong cash flow, solid balance sheet and quarterly dividend, which grew to $0.16 per share last quarter. Additionally, our flexibility to further ramp up our operations has positioned us well to capitalize on current opportunities in our marketplace and to continue to aggressively seek out opportunities going forward. To reiterate, both Will and myself are pleased with the performance in the first quarter and anticipate continued operational execution and success. In closing, I would like to thank our employees, our shareholders, our suppliers and our customers for their ongoing support of Miller Industries. With that, we are ready to take your questions. Thank you.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question is from Walter Lang of Avondale. Please go ahead.

Good morning. Congratulations on a very strong quarter guys. Can you comment further or expand upon the activity you are seeing in Europe? There are so many crosscurrents we are hearing in Europe of what you are seeing over there?

Walter, we are seeing – it depends on what part of Europe you are talking about. Our French operation, obviously, in the Eurozone, order intake has slowed down a little bit, because a lot of their volume in dollars has come historically from product built in the U.S. In the England area, we have seen a pickup in order intake. So, it really depends on which part of Europe region you are talking about.

And then it seemed to me just my sense is in your prepared remarks, you have more verbiage devoted to like capitalize on long-term opportunities. Is there more developing there than there has been in the past or is it just that years and years of effort is starting to account for something occurring this year overseas?

For years, we have attempted to enter different military arenas in Europe. And we got successful with MaxxPro here in the U.S., which I think vaulted us into a position of acceptability in European militaries. I wish I could say, well, I got moved to international last year and it’s all been me. But in reality, it’s been historic – the historic performance of our products in various arenas that have given us opportunities to become more involved with European OEMs to enhance our activity on the military side.

Okay. Then you mentioned South Africa, is that new or is that just maybe a new joint venture there or a dealership or...?

Now that’s a distributor that has been around for a few years that has decided – he is also in the towing business. He is also – he recently has decided to put more effort on the sales side and it’s paying off.

Okay. Thank you and again congratulations on a great quarter.

Thanks, Walter.

Our next question is from Rick D'Auteuil of Columbia. Please go ahead.

Also I echo the – Walter’s comments on nice quarter. The gross profit declined year-over-year on significant increase in revenues, is that just a mix of military with and without chassis impact?

Yes. Rick, I appreciate the question because Will, myself and Bill have talked about that. Obviously, we would have liked to have seen a higher gross margin in the first quarter of ‘15. However, after reviewing ‘15 to ‘14 mix is the predominant reason. However, there were other concerns. One was just overall weather as it affected our plants, particularly in the month of February. And our suppliers thereafter are trying to catch up, which forced us to work more overtime than we would have liked to have worked. Additionally, we had some currency impacts from dollars to euros in the final sale at our French operation. And lastly, we introduced a new product in the carrier line, which changed dramatically the operation of that carrier and caused for new fixtures, new processes, which affected not so much the revenue coming out of those plants, but again, the overtime to keep up with the demand.

Okay. That’s a lot of components, but it’s – more than half of it is related to the mix?

Yes, I would say, yes.

Are you up the learning curve on that new product that you just spoke of?

Yes, sir.

As you ramp production, often there are hiring people that need to come up the learning curve, where do you think you are in that process in obtaining maximum efficiencies?

Well, I think given the fact that we have a very, very strong backlog, I think Will and the team here in North America has done a great job anticipating. And I think we have kind of leveled off at this point with new hires unless we see even further increase in demand. But I think we can – obviously, we did have some learning curve in late fourth or – and first quarter, but I think we are beyond that.

Good. So we ought to – but the mix impact on gross margin will continue to be overhanging in the next few quarters, I would think. But other than that, obviously weather should be better and the other elements of margin pressure should be largely behind you...?

Yes. Except for that impact of currency in the Eurozone, but you are correct.

Okay, thank you. Good quarter.

Thank you.

Our next question is from Mike Hughes of SGF. Please go ahead.

Good morning, couple of questions for you. Just first on the overseas sales, down 14% year-over-year, do you have a constant currency number for that?

What do you mean by constant currency, I am sorry.

I would assume that euro was a headwind to the revenue number, the $18.3 million that you reported overseas, do you have kind of a...?

Yes, there was.

Okay. Do you have a rough number of how much of a headwind that was?

In other words, we have to adjust for where our currency rate was last year to this year of the current quarter.

I mean, we had – the biggest impact of that is the fall off of the – with the end of the French and Danish sales, military sales and that’s probably the biggest piece, less so than the currency.

Jeff, this is Bill. What did we have in the Board presentation of how far would the change in your backlog was because of the change in currency, was it...

On a dollar level or year-over-year level?

Well, you would have to do it on a dollar level because we are answering here in dollars, so we have to change...

Your European backlog dropped about 5.6% in – from fourth quarter levels. And so...

Versus last year, we didn’t have it versus last year, but...

Right. But I think when you look at the military in Q1 of ‘14, going back and looking at it you delivered four French military and you delivered three in Q1 of ’15 and so the biggest difference as I look at it in European operations is although the chunks of revenue because what’s built here in the States is large units for European operations. So the dollar has impacted the price of those big chunks of revenue and the European operations are providing to the market more platforms, small records that they build themselves where they don’t have that currency impact. So – but that’s gut, just traveling over there and looking at what is happening.

Okay, that’s good color. Just on the – just hitting on the FX topic for another minute, just the currency impact, negative impact on the bottom line. Just reading your 10-Q, it mentions a $56,000 negative impact to operations. So is it a $56,000 negative impact to operating income, is it that small a number or am I reading that incorrectly?

No, that is correct. We had some wild swings.

Vince, you might as well tell them how that happened because of the krone.

Yes. Well, we had – I mean we had some things going one way with the Danish krone and then coming back on the other side on the U.S. dollar – the krone as well as the euro. And I mean they were – but something in there close to $400,000 or $500,000 going either direction, but the net we kind of got…

We were offset.

A little bit of a natural hedge in there as we had hoped and it netted down just $56,000.

Okay, that’s all I have on FX. I think over the last couple of quarters, you put in place maybe a price increase can you just speak to how that’s been received in the marketplace. And then I know that you honor your backlog typically at the lower price levels, so will we start to see the positive impact from the price increase flowing through over the next few quarters?

We were asked that question on the last call and we believe that we will begin to see a more positive impact on the price increase in Q2 and then finally realizing all of it probably in Q3.

And I am guessing you won’t want to do this, but do you care to quantify the potential positive impact on gross margins from that?

You guessed correctly.

Okay. Thank you very much.

There are no further questions. This concludes the question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

We would like to thank you again for joining our Q1 call and look forward to talking to you to report our Q2 earnings in the near future. Thank you.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.