Miller Industries, Inc. (MLR) Q2 2015 Earnings Report, Transcript and Summary

Hello, this is the Chorus Call operator. Welcome to the Miller Industries’ Second 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 Katie Pyra. 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 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; 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. Please go ahead, Jeff.

Thank you, and good morning. We are pleased to report our excellent performance in our second quarter of 2015, growing top and bottom line results on a year-over-year and sequential basis. Our results were driven on the top line by strong domestic order levels paired with strong operational execution, cost discipline and continued progress on our strategic initiatives. We have capitalized on ongoing efforts to ramp up our production levels and keep ahead of demand. We reported 2015 second quarter sales of $151.5 million, approximately 24% higher than sales of $122.4 million in the prior year period. Net income of $5.9 million or $0.52 per share represents a. increase of approximately 73%, compared to net income of $3.4 million or $0.30 per share in the 2014 second quarter. Our operating profitability increased as well. Gross margin for the quarter was 11.6% of net revenues up from 10.2% in the prior year period. SG&A as a percentage of net sales was roughly 5% of net sales, down from 5.7% in the second quarter of 2014. Our order levels and backlog remain strong and overall quoting activity has been encouraging. Customer sentiment continues to improve and our core business is operating in a position of financial strength. We continue to demonstrate our ability to react to shifts in the market and capitalize on opportunities as they emerge. Now I'll turn the call over to Vince, who will review the second quarter and six months' financial results. After than I'll be back with comments on the market environment and some closing remarks. Then we'll go to Q&A. Mr. Mish?

Thanks, Jeff and good morning everyone. As Jeff mentioned, net sales for the second quarter of 2015 were $151.5 million versus $122.4 million for the 2014 second quarter, a 23.8% year-over-year increase. The continued strong order flow from domestic and international markets led to our decisions in previous quarters to ramp up production levels, which resulted in our significant revenue growth in the second quarter. Cost of operations increased 21.9% to $134 million in the 2015 second quarter, compared to $109.9 million last year, driven primarily by the higher sales volumes and costs related to increasing production levels. Gross profit was $17.5 million or 11.6% of net sales in the second quarter of 2015, compared to $12.5 million or 10.2% of net sales in the second quarter of 2014, primarily due to the higher sales volumes. SG&A expenses were $7.6 million in the second quarter of 2015 compared to $7 million in the second quarter of 2014. As a percentage of sales, SG&A decreased to 5% from 5.7% in the prior year period. Other income, expense, net for the second quarter was a loss of $265,000 related to foreign currency transaction losses compared to a net loss of $55,000 in the second quarter of 2014. Interest expense in the 2015 second quarter was $245,000 compared to $126,000 in the second quarter of 2014. Net income attributable to Miller Industries in the 2015 second quarter was $5.9 million, or $0.52 per diluted share. Net income attributable to Miller Industries in the 2014 second quarter was $3.4 million or $0.30 per diluted share. Now let me briefly review our results for the six months ended June 30, 2015. Net sales for the first six months of 2015 were $278.3 million compare to $26.6 million in the prior year period, an increase of 22.8%. Gross profit for the quarter six months ended June 30, 2015 was $29.5 million or 10.6% of sales, compared to $23.4 million or10.4% of sales for the first six months of 2014. Net income attributable to Miller Industries in the first six months of 2015 was $8.9 million or $0.79 per diluted share, which is a 55.2% increase from net income in the first six months of 2014 and $5.7 million or $0.51 per diluted share. Coming now to our balance sheet, cash and cash equivalents as of June 30, 2015 were $36 million, compared to $38.3 million at March 31, 2015 and $39.6 million at December 31, 2014. Accounts receivable at June 30, 2015 totaled $131.3 million compared to $116.1 million at March 31, 2015 and $116.5 million at December 31, 2014. The increase in sales volume drove accounts receivable higher from the year end levels. Inventories were $57.6 million as of June 30, 2015, compared to $61.8 million as of March 31, 2015 and $56.5 million at December 31, 2014. Accounts payable at June 30, 2015 were $81.8 million compared to $79.9 million at March 31, 2015 and $70.6 million at December 31, 2014. On June 11, 2015 we renewed and expanded the maturity date of our unsecured revolving credit facility to March 31, 2018 and increased the amount of the credit line from $25 million to $30 million. We continue to operate with no borrowings under our $30 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 September 21, 2015 to shareholders of record at the close of business on September 14, 2015. Now I will turn the call back to Jeff for further remarks.

Thank you, Vince. The second quarter of 2015 was an excellent quarter for Miller Industries as we continued to see high levels of quoting activity, particularly in domestic markets and healthy activity internationally despite the effects of the strength of the dollar. The dedication of our employees to increase production levels in line with demand year yielded solid revenue and income growth for the second quarter. Our work to control cost and improve operating efficiencies over the past several quarters further enhanced our results. Customer sentiment for our products remains positive and we expect demand to remain healthy throughout the remainder of 2015. During the quarter we continue to expand our product offerings in existing markets as well as broaden our international footprint. We rolled out new products this year that have been well received by our customers, controlled cost and operational efficiency to stay with our business and maintain a strong backlog. Overall we are very pleased with our performance in the second quarter of 2015. We continued to build upon the momentum and strength of our business and achieve solid revenue and profitability growth. Our balance sheet remains strong and we continue to operate from a position of financial strength. We remain committed to enhancing shareholder value through a strong cash flow and our quarterly dividend of $0.16 per share. As we move into the third quarter, we are well positioned to take advantage of the opportunities that we see in our marketplace. In closing I'd like to thank our employees, our shareholders, our suppliers and certainly our customers for their ongoing support with Miller Industries. With that, we're ready to take your questions.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Rick D'Auteuil of Columbia. Please go ahead.

Just if you could just generally comment on the manufacturing efficiencies? I know you a quarter ago you were using some over time. As you've ramped up production, have you mitigated debts? How do you feel about it? Looks like -- from the margin standpoint it looks like your things are improving but in general how would you characterize it.'

Rick. This is Jeff. We're certainly still using overtime. We probably decreased that overtime amount a little bit in the third quarter, but demand our customers, our distributors are dependent upon our deliveries. So it's really market driven that we continue to utilize overtime somewhat and continue to drive it down. But it hasn't gone away yet. That's for sure.

Also, you talked about the impact of the price increase helping Q2, but it would be fully impacting Q3. Is that still the thought process? How much incremental help are you going to get in Q3 on price versus Q2?

Rick, I wish I was smart enough to go back and see what kind of cost increases we've seen from our suppliers over the last couple of quarters. I don't think there's been any major, but I think there's probably been some incremental. So I don't see -- I'm really not in a position to answer honestly without doing some study. I think we'll see some, but to quantify it would be -- I'm not in a position to do that today.

You had talked about progress on adding worldwide distribution. Do you have any things that you'd like to speak to specifically on that?

Well, we've added distribution in South America. We continue to add distribution in the Middle East. We have not had much success in adding distribution in the European markets with American product due to the strength of the dollar. But yes, it's ongoing.

And then also you talked about on the Q4 calls, you spoke to -- some purchase orders for design work in a small European country and then other prototype design in another country as have they led to -- I don't know what the duration is between design and prototype work and commercial waters is -- are those opportunities progressing?

Yes, they are and we feel very good about those opportunities. But as of today the prototypes are still being built, from the firmness of the orders or the production run won't take place until we have the units tested in the field. So we believe that the progress is very strong but I certainly do not want to mislead anybody, because things can go wrong. So, we feel good about it. Whether or not you want to count it at this point is questionable until we have that firm-firm order.

So, to the extent in Europe I would think again you got currency disadvantages, right?

We certainly have currency disadvantages but in our tenders as we attempt to take away a little bit of that currency disadvantage. We do buy some of those suppliers we need for European fill of contracts and kind of split currency in a bit, dollars and Euros. So we do our best to mitigate that disadvantage and then we're going to pay some of our suppliers in Euros, not dollars.

And then I know on this call you talked about continued strong quoting, commercial quoting activity. A quarter ago you also talked about worldwide military quoting being strong. Won any wins there? And then was there any military business in this quarter that you just reported?

Let's take the last question first. The quasi military which could be defined either civil defense or military, there was a minor contract delivered to Oman in this quarter. Other than that, it was commercial business so to speak. And as far as quoting activity in other areas of military opportunities, they continue. Have we been awarded anything in the quarter as in did we get anything awarded during the quarter, the answer is no.

The way you phrased that, did that imply you want something in July or

I didn't mean to insinuate that. I'm saying that I just tripped over words I guess.

Not a problem. I just wanted to make sure I ask the right question. Alright that's it for me. Thank you.

Our next question is from Walter Lang, Avondale Partners. Please go ahead.

I read in May that U.S. motors drove a record amount of miles according to the FHA and I can only assume that's being topped in June, and that topped a previous record set back in 2007. And I know your demand side of picking up steadily over a year ago, but is this enhancing U.S. demand for your products and then secondarily on the capital commitment you are allocating towards production on the carrier product lines; do you have a specific return in invested capital goal on that money and is it measurable?

[Indiscernible] Are you getting coached in the background on it? Let's talk above miles driven and then I'll turn over the call on return on investment and the expansion in Pennsylvania to other people who were in. Miles driven obviously plays on demand in all markets. Obviously as you cited, that continues to rise. Now our demand is extremely strong. I'm not too sure we're not seeing some pent up demand from past years, and filling that pent up demand along with what's happening with the miles driven model. So does it help? Absolutely. It makes the tour [ph] obviously feel busy because they are busy and puts us on in a position the desire and all the need to buy trucks. Second question, Bill you want to take over what we're doing in PA and ROI?

So the goal for the Pennsylvania expansion is to truly create the largest, most efficient, state of art care manufacturing facility in the world. We are focusing a lot of our time and effort in the design process of the new plant into automation in robotics. So our plan is to have the capabilities from a total carrier production of approximately 700 carriers a month when we're completed in the first quarter or second quarter of next year. With regards to the ROI, I will let Vince to handle most of that question but there is absolutely some measurable items when we look into automation and robotics as far as the ROI.

And some of the things that our people are finding equipment wise look like -- we are still sorting out with the return is going to be but it's spectacular. Though internally we try to get out at least 20% ROI and then maybe better than that and we're done sorting it all out. That's our internal goal, at least that.

And is the throughput of 700 a month, is that a material increase from some impression levels?

Yes.

That's a yes.

That is the yes.

The answer of that one is it's probably close to double.

Yes, and Walter, obviously the production rate is twice with the new facility, and probably a bit tough competition in terms of worldwide competition. You find the platform you use or the carrier used throughout the world and to compete in that arena we have to increase our efficiency and take some cost out of the process, because you are normally competing with a smaller local manufacture. You are building a better product and you are competing with some people that are price driven.

And a local manufacture has -- they are competitive from pricing standpoint?

Well they don’t -- when you talk about a local manufacturer -- I have to compete in -- let's call it Brazil. I've got plate. So I've got some expenses that they don’t have obviously. So we're trying to drive our efficiencies and costs down to expand our world footprint.

So a big part of your goal here is driven by the intension to expand globally?

No a big part of -- I'm adding that from an international flavor. Our goal here is to obviously improve our efficiencies, improve our profitability and increase our production capabilities, the quality and there's lots of goals.

Walter this is Bill. Obviously the objective is to reduce the cost, improve the quality, but most importantly we have to meet the demand, and there's no way our volume is jumping to what you guys see it unless we're taking business somewhere, and we have to increase our production. They will stay with that, because we've been very successful with a lot of new products, with lot of new customers and that's due to our great team.

[Operator Instructions] And now there's no questions, this concludes the question-and-answer session/ I'd like to turn the conference back over to Jeff Badgley for any closing remarks.

But we certainly are excited with our performance of our last quarter and we look forward to joining you again with our results of our -- third quarter results. Thank you very much for joining the call. Goodbye.

This concludes today's event. Thank you for attending today’s presentation. You may now disconnect.