Miller Industries Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 10, 2023

There are 5 speakers on the call.

Operator

Good day, ladies and gentlemen, and welcome to Miller Industries' 2nd Quarter 2023 Results Conference Call. Please note this event is being recorded. And now at this time, I would like to turn the call over to Mike Goodrum at FTI Consulting. Please go ahead, sir.

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 Second Quarter Results, which were released yesterday. With us from the management team today are Bill Miller, Chairman of the Board Will Miller, President and CEO Debbie Whitmire, Executive Vice President and CFO and Frank Madonia, Executive Vice President, Secretary and General Counsel. 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 At this time, I'd like I'll turn the call over to Will. Please go ahead, Will.

Speaker 2

Thank you, and good morning, everyone. We are very pleased to report another solid quarter, which demonstrates that our use of capital to reinvest in our facilities over the past decade In connection with our strategic initiatives we've undertaken over the past several quarters are continuing to pay off. This is a testament to our commitment to our shareholders as well as our efforts to invest in our workforce during the pandemic. We generated record revenue of $300,300,000 increasing 49% year over year due to improved supply chain resilience And increased productivity. Gross profit for the 2nd quarter was $39,900,000 an increase of 117.3 Compared to the prior year quarter, while our gross margin of 13.3% improved 4 20 basis points year over year and 2 50 basis points sequentially.

Speaker 2

We are seeing continued benefits from the productivity initiatives and pricing adjustments to offset inflationary pressures and are optimistic about what this means for our profitability moving forward. To give a bit more context, to maximize production output after facing the challenges created by the pandemic, We have been focused on vertical integration to minimize production disruptions. This was a large driver behind our decision to acquire Southern Hydraulic Cylinder in May. The sourcing flexibility this acquisition provides us will continue to improve execution on our delivery of finished goods and consolidate lead times, Particularly since hydraulic component availability has recently constrained our ability to maximize production. And historically, Custom cylinders have longer than normal lead times.

Speaker 2

We are experiencing continued strong demand for our products in all of our end markets and have had no significant customer cancellations in 2023 so far. We've improved our ability to deliver finished goods through our productivity enhancements and supply chain dynamics mentioned earlier. But even despite our ability to ship product, Our backlog remains elevated and near record levels. As a result of our strong financial results In our elevated backlog, we continue to believe it is prudent to increase our inventory levels to service the demand. However, We'd expect inventories to grow at a slower rate than in the prior year.

Speaker 2

In our international business, Which makes up approximately 10% of our sales. We are encouraged by the strong demand levels we continue to see. During the Q2, we experienced improvement and our margins as we finalize the invoicing of orders in our backlog that have not been offered protected pricing. Lastly, before I turn the call over to Debbie, I'd like to make a few comments regarding our workforce. As a reminder, last quarter we announced Changes to our executive compensation plan in order to mirror our peers and align executive compensation to company performance.

Speaker 2

As part of that exercise, we determined that some non executive employees' compensation needed to be modified and have made provisions for these adjustments. It has always been part of our company's culture that we treat our employees with the utmost respect and try our best to retain our incredibly skilled team. These changes will not only benefit their lives, but will benefit Miller Industries as well as their expertise is critical to our company's success. Now I'll turn the call over to Debbie, who will review the Q2 financial results in more detail. Following her remarks, I'll provide some closing comments and update on our outlook.

Speaker 2

Debbie?

Speaker 3

Thanks, Will, and good morning, everyone. Net sales for the Q2 2023 were $300,300,000 versus $201,500,000 for the Q2 of 2022, A 49% increase year over year, driven by increased shipments of finished goods and execution on our strong backlog. Cost of operations increased 42.2 percent to $260,300,000 The Q2 2023 compared to $183,100,000 for the Q2 2022. The increase in our cost of operations is due largely to our higher revenue levels and an increase in deliveries. Cost of operations as a percentage of net sales decreased approximately 4 20 basis points from the prior year period to 86.7 percent.

Speaker 3

Gross profit was $39,900,000 or 13.3 percent of net sales for the Q2 2023 compared to $18,400,000 Our 9.1 percent of net sales for the prior year period. The year over year improvement was driven largely by our productivity improvements Will mentioned earlier, A more reliable supply chain environment and further margin realization from price adjustments we implemented earlier this year. We view our gross margins for 2023 as representative of what the business can achieve in a more normalized environment. That said, as we remind you every quarter, our gross margins are subject to quarter to quarter fluctuations based on product mix. SG and A expenses were $19,500,000 in the Q2 2023 compared to $12,700,000 in the Q2 2022.

Speaker 3

As a percentage of net sales, SG and A was 6.5%, twenty basis points higher than the prior year period. The increase is due largely to our new executive compensation plan as well as legal and consulting costs related to our refreshment of corporate governance in Investor Relations. As Will mentioned earlier, we have also provisioned for a new compensation structure for some non executive employees That contributed to the increase. Moving forward, we would expect quarterly SG and A expenses to be consistent with levels in the second quarter, assuming similar revenue and earnings performance. Interest expense for the Q2 2023 was $1,700,000 Up from $628,000 for the Q2 2022, primarily related to an increase in our debt levels related to our acquisition of Southern Hydraulic Cylinder along with some increase related to our distributor floor plan financing costs, which shifts up and down with revenue.

Speaker 3

Other income for the Q2 was $229,000 compared to an expense of $275,000 For the Q2 2022, attributable largely to currency exchange rate fluctuations. Our effective tax rate for the quarter was 21.4% and slightly lower year over year primarily due to the benefit of various tax credits. Net income for the Q2 2023 was $14,900,000 or $1.29 per diluted share compared to net income of $3,800,000 or $0.33 per diluted share in the Q2 of 2022. Turning to the balance sheet. Cash and cash equivalents as of June 30, 2023 was $30,500,000 compared to $29,700,000 as of March 31, 2023 $40,200,000 as of December 31, 2022.

Speaker 3

Accounts receivable as of June 30, 2023 was $264,500,000 compared to $233,100,000 as of March 31, 2023 $177,700,000 as of December 31, 2022. Inventories were $167,500,000 as of June 30, 2023, compared to $164,400,000 as of March 31, 2023, and 153.7 dollars as of December 31, 2022. To provide a bit more context, we continue to increase inventory levels in the form of raw materials, Finished goods and goods near completion, and we have taken a number of steps over the past year to improve stability and flexibility in our supply chain to maximize our deliveries given our elevated backlog. We will continue to invest in our working capital as necessary to have critical parts available for us to turn Accounts payable as of June 30, 2023 was $188,900,000 compared to $169,500,000 as of March 31, 2023 $125,500,000 as of December 31, 2022. During the quarter, our outstanding balance on our $100,000,000 revolving credit facility increased to $60,000,000 related primarily due to the acquisition of Southern Hydraulic Cylinder.

Speaker 3

As it relates to capital allocation, Our focus over the past few years has been returning capital to shareholders through an industry leading dividend and investing in 3 core areas of the business: Productivity improvements, capacity expansion and the health and safety of our employees. We will continue to return capital to our shareholders in the form of our dividend and are always seeking out opportunities to invest in the company. However, our top priority as it relates to capital allocation at the moment We'll be reducing our debt balance. As we have always said, we are a debt averse company and yet we feel comfortable with our current debt level As we believe that today, the best use of cash is investing in inventory to service our customers and reduce our debt. Lastly, the Board of Directors approved our quarterly cash dividend of $0.18 per share Payable September 11, 2023 to shareholders of record at the close of business on September 1, 2023, marking the 51st Consecutive quarter that the company has paid the dividend.

Speaker 3

Now I'll turn the call back over to Will for some closing remarks.

Speaker 2

Thank you, Debbie. Our second quarter results clearly demonstrate that the strategic steps we've taken in recent quarters are yielding positive results. Our improved product deliveries and enhanced production efficiency are now showing tangible benefits. We are encouraged by the significant increase in our year over year profitability and believe we will be able to sustain these pre pandemic margins bearing any These achievements instill us with strong confidence in our long term potential. Building on this solid performance in the first half of twenty twenty three, we are confident in our ability to generate over $1,000,000,000 in annual We significantly improved year over year profitability.

Speaker 2

As always, the entire management team and I would like to thank all of our employees, suppliers, Customers and shareholders their continued support of Miller Industries. At this time, we'd like to open the line for any questions.

Operator

Thank you. We will now be conducting a question and answer session. Our first question comes from Mike Schloski with D. A. Davidson.

Operator

Please proceed with your question.

Speaker 4

Yes. Good morning, everyone. Good morning. Hello and thanks for taking my questions. Just a couple of quick ones here.

Speaker 4

Yes. Thanks so much Will. Could you maybe give us an update first on chassis supply for trucks for some of your products? How did it trend throughout the quarter? And maybe how it might look for the back half of the year.

Speaker 4

Maybe if you can maybe in that commentary delineate between some of the larger heavier Class 7, 8 trucks and maybe the Class 5, 6 smaller models that you might be working with?

Speaker 2

Yes. Chassis deliveries in the quarter were probably a little slower than expected. Certainly, the chassis OEMs have been dealing with Similar supply chain issues that we are still to date. We have not been necessarily negatively Impacted at a production level at this point. We believe we have enough chassis on order And based on our conversations with the OEMs, should see appropriate deliveries through the end of the year

Speaker 4

Great. Outstanding. I want to follow-up also on some of the employee compensation changes You made at the company recently. Definitely a hot topic out there in the industrial sector. Have you had any early feedback as to whether there's been any cultural change or any changes in employee behavior for those who were affected by it recently?

Speaker 4

Or Do you feel like that might be still on the coming year that I have with the year?

Speaker 2

Mike, you cut out right there at the very beginning of the Question, I can't I didn't hear the context. I apologize.

Speaker 4

Oh, I apologize. I was just asking about the employee compensation changes that were made recently Among the various employees, I was curious if that had an impact on the culture in the office and on the shop floor recently Or is it too early to tell if the change you made to compensation are going to make any changes in the everyday operation?

Speaker 2

No, I think everything that we've done to date and what we're looking to do in the future will only It'd be beneficial to our employees and how they view the company. We always Take great pride in all of our hourly employees, management employees. And I don't believe that we've seen any negative impacts at this point From any of the compensation changes.

Speaker 4

Excellent. Actually, I was going to ask about positive impact. Have you seen any changes around how people

Speaker 2

Yes, we have overall employee morale at our facilities is positive at this time. Just last quarter, Every time we hit a record quarter, we actually provide a luncheon for all of our employees, Which goes over very well. So they get a little extra time off of work. We do a luncheon where the executive staff feeds lunch to all of the hourly employees And management employees that goes over very well. We also just finished our annual picnic for both Our facilities in Tennessee and Pennsylvania, so we sorry, all three facilities now in Tennessee.

Speaker 2

And To date, we believe that we have very positive morale in all of our facilities.

Speaker 4

Outstanding. Maybe one last one for And that is on the M and A deal to acquire Southern Hydraulic. Anything surprised you once you got the key to the building as to how that And I'm curious, do you can tell us if the company sells to outside Customers besides Justin Miller Industries and will you continue to sell those out to customers or make them more of an in house hydraulic provider?

Speaker 2

So, no unanticipated or unknown issues at this time. Everything has gone very smoothly through the inventory audits and things of that nature. We have already made IT adjustments To upgrade security and things of that nature at the facility to get it up to our standards, but no major issues. With regards to other customers, they do sell to outside suppliers or to outside customers other than Miller Industries And we are evaluating the customer list at this time and working on moving those orders into the new order bank. But we've had no cancellations From current customers either.

Speaker 4

Okay. Outstanding. I appreciate the color. I'll pass it along. Thank you.

Speaker 2

Absolutely. Thank you, sir.

Operator

There are no further questions at this time. I would now like to turn the floor back over to Will Miller for closing comments.

Speaker 2

Thank you. 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 Q3 conference call. If you would like information on how to participate and ask questions on the call, please visit our updated Investor Relations website atmillerind.com/investorsoremailinvestors. Relationsmillerind.com. Thank you all and God bless.

Operator

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

Powered by Quartr
Earnings Conference Call
Miller Industries Q2 2023
00:00 / 00:00