Miller Industries Q1 2023 Earnings Call Transcript

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May 4, 2023

There are 5 speakers on the call.

Operator

Day, ladies and gentlemen, and welcome to the Miller Industries First Quarter Results Conference Call. Please note this event is being recorded. And now at this time, I would like to turn the conference over to Mike Goodrow of AFT Consulting. Please go ahead.

Speaker 1

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 2023 First Quarter Results, which were released after the close of the market yesterday. With us from the management team today are Bill Miller, Chairman of the Board Will Miller, President and CEO Jeff Badgley, President of International and Military Debbie Whitmire, Executive Vice President and CFO Frank Madonia, Executive Vice President, Secretary and General Counsel Vince Tiano, Chief Revenue Officer and Jameson Linden, Today's call will begin with formal remarks from management followed by a question and answer session. 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.

Speaker 1

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 ks and other filings with the Securities and Exchange Commission. At this time, I'd like to turn the call over to Will. Please go ahead, Will.

Speaker 2

Thank you, and good morning, everyone. We had a great start to our 2023, generating record quarterly revenue and significantly improved profitability compared to 2022. Sales in the quarter increased 31% year over year due to improved availability of component parts. Gross profit for the Q1 was $30,400,000 an increase of 98.3% compared to the prior year quarter. While gross margin of 10.8 percent improved 370 basis points year over year.

Speaker 2

We are encouraged by our profitability levels as input costs have begun to stabilize and we are benefiting from our efforts taken to offset inflationary pressures. We are seeing continued signs of supply chain improvement as we move forward in 2023. Demand for our products remains strong and we have not experienced order cancellations despite the challenging macroeconomic environment. We have decided in light of our strong sales and elevated backlog to continue to accumulate inventory in the form of goods near completion and feel that investing in our business in this manner is the best use of our cash in the current environment. That said, we're taking all steps necessary to deliver finished goods as quickly as possible and recognize revenue on our significant backlog.

Speaker 2

Meanwhile, we are continuing to evaluate all opportunities to improve the flexibility of our supply chain to ensure its stability going forward. We continue to diversify our sourcing with new suppliers, focus on utilizing our engineering and redesign capabilities To improve our ability to adapt to supply chain constraints and we'll consider vertical integration where feasible. In our international business, which makes up approximately 10% of our sales, demand remains strong. During the Q1, We experienced a partial benefit from the price increase implemented and we believe that we will recognize the full benefit of these price increases as the year progresses. Lastly, before I turn the call over to Debbie, I'd like to acknowledge the governance changes we made during the Q1.

Speaker 2

As we cleared the challenges of the pandemic And our operating and financial results improved. We were able to turn our attention to approving our governance structure. Our Board refreshment process began in earnest With Lee Walton's appointment to the Board in 2020 and accelerated with her appointment to Chair of the Nomination and Governance Committee in August of 2022. Ms. Walton, a nationally recognized professional in corporate governance is well qualified to lead this effort.

Speaker 2

During the Q1, We added 4 new highly qualified directors to our Board. They have already demonstrated their value as part of Miller Industries' team and we are looking forward to continuing to work with them to maximize shareholder value. We've also based on feedback from shareholders and with input from Pearl Meyer, a leader in executive compensation consulting adopted a new executive compensation plan. Under this plan, management compensation is more closely tied to the profitability and shareholder interest and also more closely aligned with our proxy peer group and relative executive compensation and structure. We believe these changes to our governance will position Miller Industries for long term success.

Speaker 2

Now I'll turn the call over to Debbie, who will review the Q1 financial results in more detail. Following her remarks, I'll provide some closing comments and update on our outlook. Debbie?

Speaker 3

Thanks, Will, and good morning, everyone. Net sales for the Q1 of $282,300,000 versus $215,500,000 for the Q1 of 2022, Cost of operations increased 25.8 percent to $251,900,000 for the Q1 of 'twenty three compared to 200 $2,000,000 for the Q1 of 2022. The increase in our cost of operations is due largely to our higher revenue levels. Cost of operations as a percentage of net sales decreased approximately 370 basis points from the prior year period at 89.2%. Gross profit was $30,400,000 or 10.8 percent of net sales for the Q1 2023 Compared to $15,300,000 or 7.1 percent of net sales for the prior year period.

Speaker 3

The Gross margin declined 50 basis points sequentially due to a shift in sales mix, which fluctuates quarter to quarter. Additionally, our 4th quarter has historically been a higher margin quarter than our first quarter. We continue to expect strong year over year gross margin SG and A expenses were $17,900,000 in the Q1 2023 compared to $12,400,000 in the Q1 2022. The increase is due largely to approximately $1,100,000 of non recurring costs associated with legal and professional fees as well as bonus accruals associated with our new executive compensation plan. As a percentage of sales, SG and A was 6.3%, 60 basis points higher than the prior year period.

Speaker 3

Moving forward, we would expect quarterly SG and A expenses to be consistent with levels in the Q1 excluding these non recurring costs. Interest expense for the Q1 2023 was $1,000,000 up from $418,000 for the Q1 of 2022 Related to higher debt levels, increased interest rates and increases in our distributor floor plan financing costs, which as a reminder, flex up and down with revenue. Other income for the Q1 was $318,000 compared to an expense of $52,000 for the Q1 of 20 attributed largely to currency exchange fluctuation rates of the euro and British pound. Our effective tax rate for the quarter was 21.9% increase compared to increased Great and is similar to what we would expect moving forward. Net income for the Q1 of 2023 was $9,200,000 Our $0.81 per diluted share compared to net income of $2,100,000 or 0 point one $8 per diluted share in Turning to the balance sheet.

Speaker 3

Cash and cash equivalents as of March 31, 2023 Was $29,700,000 compared to $40,200,000 as of December 31, 2022 And $29,300,000 as of March 31, 2022. Accounts receivable as of March 31, 2023, $233,100,000 compared to $177,700,000 as of December 31, 2022 and $193,900,000 as of March 31, 2022. Inventories were $164,400,000 as of March 31, 2023 compared to $153,700,000 as of December 31, 2022 $124,400,000 as of March 31, 2022. As Will mentioned earlier, we are making the concerted effort We are starting to see more meaningful improvement in the delivery of finished goods and the match up of purchase component parts. However, given the demand environment, we feel it is still prudent to invest in inventory.

Speaker 3

Accounts payable as of March 31, 2023 was $169,500,000 compared to 125 $5,000,000 as of December 31, 2022 $139,300,000 as of March 31, 2022. During the quarter, our outstanding balance on our $100,000,000 revolving credit line remained at $45,000,000 However, we paid the balance down by $5,000,000 in April with a current balance of $40,000,000 As it relates to capital allocation, we remain focused on returning capital to shareholders through our dividend. We are also continuing to invest in And we'll now turn the call over to Mr. We are also looking at potentially in sourcing some aspects of our supply chain. In addition to these investments in the business and returning capital to shareholders, We are also striving to further reduce our debt balance and the associated interest expense, especially as our accounts receivables convert to cash.

Speaker 3

As we have stated in the past, we are a debt averse company. However, when making capital allocation decisions, we are always focused on the long term return On investment for our shareholders. Lastly, the Board of Directors approved our quarterly cash dividend of $0.18 per share Sales June 12, 2023 to shareholders of Brainerd at the close of business on June 5, 2023, marking the 50th consecutive quarter that the company has paid the dividend. Now I'll turn the call back over to Will for some closing remarks.

Speaker 2

Thank you, Debbie. 2023 is off to a strong start and we remain confident in our strategy. Given our strong backlog and the demand for our products in the marketplace, we are well positioned to deliver on this backlog As we continue to accumulate inventory in the form of near finished goods and we would expect further cash availability as deliveries improve And inventories come down. We are encouraged by the significant increase in year over year profitability and believe we will be able to sustain improved margins. Based on our strong start and current market dynamics, we are confident in our ability to generate over $1,000,000,000 in annual revenue As always, the entire management team and I would like to thank all of our employees, suppliers,

Operator

We will now begin the question and answer session. At this time, we will pause momentarily to assemble our roster. The first question comes Arnaud Oksander from Oksander Family Office. Please go ahead.

Speaker 4

Hi, good morning. Thank you for taking my questions.

Speaker 1

I had a

Speaker 4

couple. My first one relates to the Q4 to Q1 gross margin. In your prepared remarks, Debbie, you mentioned a mix was an issue. But I guess one question I have is the number of days your plants are closed in Q4 versus Q1, I would have thought just from seasonality, You would have much better gross margin, especially coupled with the price increases you put in, in January. So could you comment a little on The factors impacting gross margin, but more importantly, how we should think about it on the balance of the year?

Speaker 2

Well, I think if you look historically and certainly this year, there were year end favorable adjustments in Q4. And if you look historically at the company Over the past 10 to 12 years, generally Q1 is a lower margin quarter than Q4.

Speaker 4

Okay. Except this year you put in pretty dramatic price increases that should have had a direct impact on gross margin.

Speaker 2

Those price increases as we mentioned in previous conference calls in previous quarters, They were implemented, but did not take effect until March of Q1. So we did see some benefit of those price increases, but only for March.

Speaker 4

Okay. So that's different than your previous calls where you said they were going 8% was going in effective January 1. So that's a change. Is that correct?

Speaker 2

Originally we stated that and then I think in a Further statement, we said that we delayed them until March. So originally, we anticipated a January 1 price increase And then we later delayed that to March for customers.

Speaker 4

Okay. Will, since you answered that call, I may ask one of you. You've in public statements have said you hope to enhance shareholder engagement In the upcoming year and obviously the Board refresh is a step in that direction. Could you speak to Likely investor conferences you're planning to attend or how you plan to actually get in front of investors in the next several months? Thanks.

Speaker 2

Yes. We are currently working with our Board of Directors to pick out some conferences to attend. We have not pinpointed those at this time, but I'm certainly looking forward to the input that they have on what they believe is the best Conferences for this company to attend with the best audience. And We're also we've refreshed our Investor Relations website. So trying to make it easier for Investors that are interested in joining the call, we've added the they can visit millerind.com/investorsoremailinvestorrelationsmillerind.com To request access to the call as well.

Speaker 4

Another kind of important question for investors. You mentioned You might in source more products internally. Could you comment a little more in detail on whether you do this through Investment engineering, which you mentioned or would it be just as easy or more likely you might add some of that through acquisition of specific product areas?

Speaker 2

Well, we continue to work diligently on our engineering side. We're still evaluating potentials for this at this time. But I believe that at this time, we're clearly focused on doing everything that we can to Increased supply of raw materials or component parts more importantly to all of our facilities.

Speaker 4

Question for Deb, if I may. On your SG and A, you commented in your prepared remarks that ex one time items, We should expect similar levels for the remaining quarters of the year. I'm not sure I understand the accounting treatment of the April Compensation changes, obviously, there had to be some retroactively into Q1. So can you separate out the one time items and maybe give us a run rate SG and A we should expect for the next several quarters? Thanks.

Speaker 3

Yes. The one time expenses were around $1,100,000 that we don't expect to recur, but the additional increase was a retroactive Accrual for those compensation changes. So the run rate going forward for the year Would be similar to Q1 ex those non recurring items of $1,100,000 Okay.

Speaker 4

And the new Sensation plan though has quite significant cliffs at various levels and is retroactive. So will you be accruing At the higher levels through all of 2023 based on your April 11 press release?

Speaker 3

We'll be annualizing results That's what the approval will be based on each quarter.

Speaker 4

Okay. That's it for me. So I'll let others in. Thank you. Thank you.

Speaker 4

Thank you.

Operator

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

Speaker 2

I'd like to thank you all again for joining us on the call today, and we look forward to speaking with you on our Q2 conference call. As I previously stated, we appreciate and value input from our shareholders and we welcome our investors to join the quarterly earnings call. If you would like information on how to participate and ask questions on this call, please visit our updated Investor Relations website, millerind.com/investors

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Earnings Conference Call
Miller Industries Q1 2023
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