Miller Industries Inc (MLR) 2005 Q3 法說會逐字稿

At this time, I would like to welcome everyone to the Miller Industries 2005 third-quarter conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (OPERATOR INSTRUCTIONS) Thank you. Ms. Tramont, you may begin your conference.

Thank you and good morning, everyone. This is Alexandra Tramont of Financial Dynamics, and I would like to welcome you to the Miller Industries conference call. We're here to discuss the Company's 2005 third-quarter results which were released after the close of the market yesterday. With us from management today are Bill Miller, Chairman of the Board and Co-CEO; Jeff Badgley, President and Co-CEO; Vince Mish, CFO; Frank Madonia, General Counsel; and Alison Howten (ph), Director of Finance.

Today's call will begin with formal remarks from management, followed by a question-and-answer period. Please note that in this morning's call management may make forward-looking statements. In accordance with the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995, we 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 and welcome to the call. The third quarter continued the strong growth we have seen throughout 2005. Driven by ongoing solid demand from our customer base, we continued to leverage our position as the market's leading manufacturer of towing and recovery equipment, with an increase in revenues of over 40% from the year-ago period. At the same time, our focus on cost containment and the leverage inherent in our operations, combined with the benefits of our recent balance sheet refinancing, drove even larger improvements in profitability.

Gross profit increased over 70% and operating profit more than doubled in the quarter, resulting in net income of $5.4 million or $0.47 per diluted share. Overall, we're very pleased with the quarter's results. I would now like to turn the call over to Vince, who will review the quarter's financials in more detail. After that, I will come back to provide some additional comments regarding the business, after which we will take your questions. Vince?

Thanks, Jeff, and good morning, everyone. Let me just remind everyone that in 2002 the Company made the decision to divest of its towing services segment, as well as the operations of the distribution group. As a result the statement of operations and related disclosures for all periods represents the towing services segment and distribution group as discontinued operations, separate from continuing operations.

With that said, let's review the 2005 third-quarter results, which continued the strong performance we have seen to date this year. Net sales for the third quarter of 2005 rose 41.4% to $89.5 million versus 63.3 million in the third quarter of last year, as a result of continued strong demand for our products.

Primarily as a result the significant increase in sales volume, as well as higher raw material costs relative to year-ago levels, cost of operations rose to 76.1 million in the 2005 third quarter, compared to 55.4 million in the third quarter of '04. Cost of operations declined, though, as a percentage of net sales from 87.6% last year to 85% in the 2005 third quarter. As a result, gross profit rose to $13.4 million or 15% of net sales from $7.9 million or 12.4% of net sales of the third quarter last year.

We also continued to see sequential improvement in gross margins, which came in at 14.5 in the second quarter of 2005.

In the third quarter of 2005, SG&A expenses were 6.2 million compared to 4.5 million a year ago. As in the second quarter, much of this increase was related to higher incentive accruals, increases in personnel expense, including commissions on the higher sales volume that was experienced in the quarter. As a percentage of net sales, however, SG&A declined to 6.9% in the current quarter from 7.1% in the year-ago period.

Operating income, which is defined as income before interest and taxes, for the third quarter of 2005 increased 114% to $7.2 million or 8.1% of net sales, from 3.4 million or 5.3% of net sales in the third quarter of '04.

Total interest expense for continuing operations in the 2005 third quarter decreased 25.7% to 853,000 from $1.1 million in the third quarter of last year, primarily as a result of the refinancing actions we've taken over the past six months, as well as lower debt levels.

For the third quarter of 2005, income from continuing operations was 5.5 million or $0.47 per diluted share compared to $2 million or $0.18 per diluted share in the third quarter of last year. Including an after-tax loss from discontinued operations of $30,000 or $0.00 per diluted share, net income for the third quarter of 2005 totaled $5.4 million or $0.47 per diluted share. This compares with net income of $1.5 million or $0.14 per diluted share in the 2004 third quarter, which includes an after-tax loss from the discontinued operations of $471,000, which is negative $0.04 per diluted share.

For the nine months ended September 30, 2005, net sales were $259.3 million versus 169.1 million in the 2004 nine-month period. For the first nine months of 2005, income from continuing operations rose 146.2% to $12.7 million or $1.11 per diluted share, compared to $5.2 million or $0.47 per diluted share in the year-ago period.

Including an after-tax loss from discontinued operations of $110,000, which is $0.01 per diluted share, net income for the first nine months of 2005 was $12.6 million or $1.10 per diluted share. For the 2004 nine-month period net income was 3.9 million or $0.35 per diluted share, which included an after-tax loss from the discontinued operations of $1.3 million or $0.12 per diluted share.

Diluted shares outstanding in the 2005 nine-month period increased 3.8% versus a year ago, primarily as a result of the sale of 480,000 shares of Common Stock in the private placement in the 2004 second quarter, as we had previously announced.

Let's now review some balance sheet highlights. Accounts receivable at September 30, 2005, were 63.7 million compared to 64.6 million at the end of the 2005 second quarter and 49.3 million at year-end. Accounts payable were 44.5 million in September of '05 versus 46.8 million in June of this year and 36.2 million at year-end. Inventories were 36.9 million in September compared to 39.2 million in June and 35 million at year-end.

The total senior and junior debt at September 30, 2005, was 24.7 million, which is down sequentially from 30.8 million at June 30 of this year, as we were able to use our cash flows from operations and reductions in working capital to make substantial paydowns on debt during the period. I will now turn the call back over to Jeff.

Thanks, Vince. Miller Industries continued its strong performance in the third quarter of 2005. As I mentioned earlier, we saw sustained demand from our customer base as the replacement cycles, delayed by difficult market conditions in recent years, continued to drive orders for our products. While raw material pricing remains an issue, we have seen these prices stabilize in recent months, although at a higher level than a year ago. However, our margins, as expected, improved during the quarter as a result of our continued focus on cost control and the effect of past pricing actions.

We continue to see a positive outlook for our business, with strong backlog and order levels as we head into the fourth quarter. We look forward to continued profitability for the remainder of the year. With that, we're ready for your questions.

(OPERATOR INSTRUCTIONS) Jon Evans with Coker and Palmer.

Can you talk a little bit about -- you guys did a nice job sequentially paying down debt. Can you give us any insight? You should generate a lot of free cash flow in the fourth quarter. Can you talk a little bit about the priorities for paying down debt from here?

Sure. Jon, it's Bill. How are you doing? Actually as we have stabilized at this production level, as we said we were going to do earlier, it has now allowed us to start to generate substantial free cash flow. As you can see, we generated -- we paid down the debt almost $6 million in the third quarter. I can tell you that, at the beginning of the year, my target for the senior debt level was to get it down to $10 million; and have that plus the junior be under 20. Based upon what we have seen already in this quarter, we will probably make that target.

So we're seeing substantial cash flow thrown off right now at these levels. And we're going to continue to pay down debt. That is one of the things we have in our plan. We are going to do some plant expansion, and a little modernization later on, probably next year. We're starting it. It will during the next year. We will probably spend $5 million doing that, which will continue to help improve our gross margins and increase our capacity a little bit.

But in general I suspect our major target is to continue to pay down debt. If it continues like this, we will all be very happy as we move forward.

So is the goal, then, you will just continue to pay down the senior secured until it is gone?

Well, one of the criterias on the senior security is I can't pay down the junior -- the Company can't pay down the junior debt until after we have had a March audited financial statement. Once that happens, there is a thing in there where we, based upon criterias, which right now we are making, we could actually -- they create a basket. Wachovia creates a basket, and we can spend 5 million to either pay down the junior debt; we can do acquisitions; or we can actually buy back stock with it. So we have that coming; but it's not available until March, until after we have put out our 10-K.

Can you just remind us now, with the repricing, where is the senior facility? What kind of rate is it at currently?

It is actually -- I think it is just dropped to LIBOR. Did it drop yet, Vince? It is either LIBOR plus 2 or it went down to LIBOR plus 1.75.

It should go down in this quarter to 1.75.

I thought we moved down, because there is a catch mark when we go below -- what is it, 1 times EBITDA? I think 1 times EBITDA; we're down to 1.75; and this is the quarter it kicks in, October.

Then what is the price of the junior?

The junior is set at a fixed-rate of 9%.

Okay. You sounded like you have paid down a lot of debt already this quarter. Can you give us any insight into that?

Yes, we have -- let's see, when we went in, in June, our revolver was 13.8 million when we did this loan. As you can see, at the end of the third quarter it was 8 million. Today it is 3 million; and we expect, we're chasing, trying to get it to zero by the end (technical difficulty) .

Okay, thank you.

Sean McMahon with Kennedy Capital Management.

I'm actually on the phone for Matt Jermak. But I was hoping you could maybe comment; I missed that. Did you say that your goal is to get the senior debt down to 10 million? Did I hear that?

Yes. By year-end?

By year-end?

Yes, by year-end. The senior, not the junior. The senior at 10; and then so we would have a total of 20.

Okay, so the junior, there is 10 left on that also, and you can't pay that down until March.

We can't start paying that down until we finish an audited annual financial, as part of our loan agreement. Then we can pay down 5 per year maximum on the junior; or use it for something else. That is up to the outside Board members to make that call. I don't have any decisions in that. They make that decision.

But the earliest that could happen would be March of next year?

Yes, in theory it would be March of next year.

Okay. Can you give me what free cash flow was in the quarter?

Vince? Are we allowed to do that?

Yes, we are. If we take -- just talk in terms of the EBITDA, I guess. If you add back depreciation and amortization and the interest, we are right --.

Is it 8 million?

$8 million.

Okay. I was hoping maybe you guys could comment a little bit on -- I know you talk about some of your cost controls that you have put in the manufacturing process. Can you give me any more clarity or add a little color to that? What you guys actually have done, what is kind of driving the gross margins here? (multiple speakers) Volume. I see volume on it.

Volume is there, but the number one thing we have done, as we said at the end of the first quarter, is we were now reaching a level in the second quarter which we were going to stabilize at for a couple more quarters. Which we're staying at that same level again in the fourth quarter because it allows us, as I tried to explain -- it is like when you put your foot down on the gas pedal, your miles per gallon goes way down until you stabilize at the new speed, and then it comes right back up. You ever have one (technical difficulty) meters.

That is what happens to us. We have to spending a lot of money in -- we bring on manpower early; we run a lot of over time; we do some things, and we showed that in the first quarter to move from roughly a $60 million to a $70-something million level on our way to a $90 million level.

So now we have stopped at this level, and we're staying here as we did in the second and the third quarter, and we hope to do it again in the fourth quarter. We would see this stabilized level as allowing us to continue to reduce our growth. It reduces our overtime. We get more efficient. We have some excess people in. We find different ways to put them to work. And we're working on a lot of other issues. Jeff, would you like to comment?

Obviously our corporate purchasing department has stated cost reduction goals on raw materials. There are a lot of different initiatives in the plant to, one, control costs; two, obviously to increase gross margins. As recently as two months ago, we separated one of our main facilities into a platform oriented facility, where we have more focus on products within that platform, both for cost reduction and improvements. So there's a lot of things going on.

Let me ask you. Can you guys give me like a capacity level that you're running some of your plants at?

I don't see any of them running -- let's see, what do we got, Jeff? We're actually doing some new things. Greenville has plenty of capacity. We moved -- completed the Australia order at the end of the third quarter. But we have gotten in -- we had said we have been working on some other international orders. Actually we were able to get orders that will be shipped to the Iraqi military, Afghanistan military, and Vietnamese police which more than replace the Australian order.

If there is room for you guys to increase capacity, I am trying to wonder why you are expanding. You guys talked about maybe next year adding capacity.

That is strictly from a standpoint of -- to get a -- if you saw our flow, this is a very old place that has gone -- that is back in the '50s and '60s. The flow is totally gathered. With the changes we're making, and with this expansion, two things are going to happen. That is going to allow us to do wrecker installations, which is more business for us. But it also, which we don't have room to do right now and we don't have the proper setup, but it also allows us to organize our whole facility in a more modern up to date layout. We're actually purchasing a couple three robots that will do some of the welding. So all of that adds to capacity and it adds to the efficiencies and therefore improves the gross margins.

Do you care to comment maybe on that opportunity with the wrecker installation, how large that could be for you guys?

Jeff, how would you categorize that?

You know, I (multiple speakers).

(multiple speakers) install all we want.

I think the --

A couple million, a couple million dollars a year possibly?

You know, I don't see it. I mean honestly today, if you're looking for revenue growth in wrecker installations, for instance here in Chattanooga and in our other plants, we sub out installations that our customers are already charged for. What it does allow us to do, by bringing those installations back in house is, one, switch that from a payout to our own money.

Okay, it is more of a margin (multiple speakers).

Two, it also allows us to enhance our quality out to the final end-user. So we see it as a great addition. But really when we talk about our investment in facilities, although it does add more capacity, the investments we're making in our facilities is truly more from a process and production enhancement to increase gross margin and reduce costs issue. That is what we're doing.

We're going to get increased capacity because we will be better organized.

Got you.

And we will improve our gross margins because of that as well. So we get both. Okay? It is not that big of an expansion. We're talking -- I think that building is 30, 40,000 square feet.

That is what I am trying to get at. Do you guys want to give me any kind of number on what possible wrecker installations you guys might add?

Well again, those wrecker installations are currently being done by outside suppliers. I would guesstimate, just in the Chattanooga facility itself, there is somewhere between 30 to 40 a month being done outside the facility. That is just a guesstimate.

All right guys, thank you. Great quarter.

(OPERATOR INSTRUCTIONS) Mike Youth (ph) with Delaware Investments.

Just a couple of questions. Where does the NOL stand at this point?

At the end of last year, they were a little bit below $40 million. With the money, the taxable income we have made this year, they should be somewhere in the $27 million range.

Okay, the modest sequential decline that you saw in revenue was pretty much planned on your part. We should not interpret that as softening demand. I just want to make sure I am clear on that. Is that correct?

Yes, there is no softening in demand.

Absolutely. I mean our backlog is every bit as strong as it has been all year. We have actually -- we are really excited because we were able to replace the Australia order with new orders with better gross margins, other international orders. Now that was basically due to two reasons. Jeff, why don't you explain it? The two holidays and the (multiple speakers).

Well, number one, we stated on the last call, we would like to get revenue in the 90-ish mark for last quarter on the last call. 89.5 is pretty close to the 90-ish mark. Number two, we have some issues due to deliveries of cylinders out of a hurricane-stricken area near New Orleans from a supplier of ours. That slowed down some of our deliveries of large wreckers. So that coupled with some holidays in the quarter --.

We actually had two holidays in the quarter, which we didn't replace with overtime.

And vacations, which we get from everybody.

Okay, you mentioned the Australian military order. I think in the 10-Q it indicated that the business, that order has been completed. That was lower than companywide average gross margins, is that right? So we should see a little bit of an increase in the December quarter, because that order has been finished off. Is that correct?

I hate to look forward, but it was slower than normal margins in the end.

Okay. Any update on the DataPath order? I think it was expanded a couple quarters ago. What is the status of that?

I think on DataPath, we have hard orders through January or February right now. That just comes in by whenever they send us an order. That has to do with when the military improves doing another spiral to their group. So right now we are firm orders partway through February, I think.

Okay, last question. You have instituted a number of price increases over the last year, year and a half. And I know how your business works; you honor your pricing. So I'm trying to get at -- when will the next price increase kind of flow through the income statement?

I think we talked about this on the last call when we said we were hoping that, by the end of this year, we would be able to see our margins, overall consolidated, kind of get to 17. So that would kind of be our margin going forward in the first quarter. Because the last price increase will flow through, which was a 3% price increase, will flow through all of our backlog by the end of the fourth quarter. So you will probably see the benefit of that in the first quarter.

Okay, very good.

So that is what I would expect to see. You may see little bit of it in the fourth quarter because of depending on the balances. But the large wreckers are still out quite far; and the other ones are just probably maybe you might see some of it in December on the smalls and the carriers.

I will say about that price increase, you're right. We have had -- been very careful to protect our gross margins during the year because of cost increases. But we did have that last price increase. It has not affected at all our orders, obviously. We are now 3 or -- which is where we normally are -- 3% to 5% premium to the rest of the market. We're back in that spot now. We haven't seen follow-on yet from any of our competitors, but it certainly has not affected our business.

Great job.

We feel pretty good right where we are.

Thank you.

Matt Giservich (ph) with Okia (ph) Capital.

Nice quarter. Just basically a few follow-ups on questions that have been asked already. In terms of where you are revenue-wise, you did say on your second-quarter call that you were expecting to slow down the growth and to level off for a while.

(multiple speakers) try to get the margins. Get control of the margins.

And we obviously have seen that in the third quarter. It sounds like you are expecting more of the same in the fourth. Will it take until the plant expansion comes on to see you getting to the next level on revenue? Or is that something that could show up before that plant expansion is finished?

Actually, we can make a step up to another level in virtually every aspect of our business. What we did is try to stabilize here, to see how -- we can't -- we have to jump in steps. We can't do like just add something off the shelf, and it -- kind of this -- we jump in steps, as you look at our history, 50, 60s, 75, 90.

The next step probably would be look at our backlog, and we're going to look at it, how it is continuing right now, at the end of the year. Right now, small wreckers and carriers we're handling that pretty well; but large we're still way out. We are -- what is it, Jeff, five, six months?

Depending on which type of large. But I mean, when you look at large deliveries versus the other product types, I think from a standpoint of small and carriers, we have got production at a level where backlog, I don't feel a threat of losing deals based on delivery.

Large, on the other hand, I think our backlog is large enough that we do put ourselves in a position of our distributors losing sales based on our quoted delivery dates. So truly from the standpoint of trying to ratchet up the business some more, we are aimed at ratcheting up large.

Of course, with the Iraqi order, the Afghanistan add-on, and the Vietnamese order, which are all 16-ton and above, we have to address that issue. Because our regular commercial business, in terms of order entry, has not dropped off.

Has continued strong. Our rotators picked up the last month. A lot is going on with this in the big end of the business. And of course we're going into our selling season right now. So we have to see what happens in the fourth quarter to evaluate what we do with small wreckers and carriers. Because this is usually a very busy season. Historically it is the fourth and the first are when we go through the winters, and guys need extra unit.

Order entry.

And order entries. We will see what happens, but right now, we're stay -- we are sitting where we are trying to get our margins up. But no, we don't have to wait for a plant expansion to increase our output. It's just we are trying to be very careful on how we move our business.

So it sounds like in large wreckers, it would be in yours and your customers' best interests to ramp up, the sooner the better.

Like I said, the Australia order was coming out. But then we got these, which we had been working on and hoped they would kind of fall in there. And they did, and they have a lot of potential in the future as well.

To really put color on it, Matt, with the end of the Australian military order, I have prepared the Greenville plant to build large wrecker components, to increase our commercial delivery of large wreckers through Ooltewah's plant. In other words, Greenville will start building certain models of everyday spec commercial vehicles. Within 15 or 20 days of me moving jigs, fixtures, and parts to Greenville, I received quite a few orders, which made me stop on a dime and start another project in Greenville.

So you're right. We do need to address -- we love large. We love all our products. But we do need to address the delivery constraints on large wreckers, and we will do so.

And we were kind of waiting for those orders to really make (inaudible).

Okay, on the gross margin, just to clarify a little bit more, you had said on the last call that you were hopeful by the end of the year, I guess going into next year, you would be at 17% consolidated gross margin. Am I still hearing the same? Do you think by the month of December or by the last few weeks of December, will you be at 17%? Not that we will ever see that on a financial statement.

Right, that is what you have to look at. On the financial statement, it's an average of an entire quarter. Just like 15 is an average of a quarter, 14 was, and you are kind of -- so what we're kind of looking out ahead and seeing, what does the last month of the quarter look like? And saying, geez, that ought to be what the next quarter looks like.

So we would like to be able to see this thing continue to move. At this point, assuming we don't run into any serious cost issues that shoot up here, that we don't have a hand -- that we don't see coming at this moment, as that price increase flows through, we ought to be able another to (technical difficulty) another two points show up.

Okay, Bill, but I (multiple speakers) -- but I want to caution you and Matt again that if we do our job on the chassis side, it makes it harder to reach.

It's a mix issue. Because again, chassis have very low margins. If we get very -- if you see volume kick way up because chassis went up, then that would affect the overall. But as we're looking at it, that is kind of where we are on target towards.

So the only way you would miss, let's say, 17%, with other unforeseens not coming into play, would be if chassis really kicked up, in which case revenues would kick up significantly.

If the mix changed would be one way. The other way would be -- is if some cost thing grabbed us. Like I mean, to be honest, we grabbed -- what was it, $40,000 in extra freight, Jeff?

Yes, this quarter --.

Because of the fuel surcharges we're grabbing off a freight piece.

Right, so obviously, we are --

They want it back, but I mean, and we (multiple speakers).

They are affected. We are affected by fuel surcharges that were for parts deliveries into our plants. So we continue to hammer at it.

That is clearly our objective and that is our target, but there are no guarantees. We will get there sooner or later.

Right. Let me also come at the CapEx question from another perspective. The 5 to 7 million that you talk about for the expansion and modernization in the Q, can you talk about what the expected payback is on that CapEx? Or the rate of return you are expecting on it?

I think, didn't we just -- did we finally run that number after the Board meetings, Vince? What was it? Was it 25?

It is north of 25.

Over 25 (multiple speakers).

North of 25%; so it is less than a four-year payback. So it should be 1 to $2 million of incremental profit, something like that.

Boy, you're really good at that. It seemed to us a little more work (multiple speakers).

It was something above 1; okay.

Those models work wonders.

These guys are a lot better at that than we are.

That's right; nothing beats an education.

I think the last thing I had, although I may come back in queue, is SG&A. I appreciate that you guys have grown in leaps and bounds over the last year. But if there was one thing that sort of surprised, and to some extent disappointed me, in the numbers was that there really wasn't much leverage in the SG&A line, from last year's Q3 to this year's Q3. I realize SG&A as a percentage of revenues came down, but it didn't really come down by much.

I thought that Q2 would seasonally be the biggest SG&A number for the year, because of the big show in April. But seeing it stay at 6.2 million surprised me. Is that something that is likely to stay around that level? Or can it come down from there? Are there some onetime things that are going to go away?

It's, I think, more likely -- just like we talked about last quarter -- with the increased sales we had more commissions and that is a factor of the sales. We also have been picking up, we have added some people for a variety of reasons, including some of the orders that we are getting in or things we are working on.

We have also had those incentive accruals. As well as we have got some reserves that we set up, and they are based on volume, so those are up as well. We did have some additional insurance costs in the quarter having to do with medical insurance. All those things added up got us to that number. Kind of like it was last quarter, it is commissions and primarily additional incentive accruals.

I would think that as you look at the numbers, Matt, I would say as far back as even a year ago, when you're doing the year-ago comparisons, Jeff had done a great job and everybody had done a great job of skinnying us down in the overhead numbers, as you know. There's times like that when you get a little light. So we were probably starting from a little underwater position.

We have filled those spots, and there's upturn we're taking advantage of. We have added some new young engineers and some people there that will have a big impact on some of these products that you're seeing coming out. So there is a little bit of that associated with it. So some of it is that personnel trying to replace, get back.

Yes, the commissions are clearly higher. The bonus accrual is higher. Vince is right, there was a -- there may be, and I hate to say it, there might be a few hundred thousand dollars in there that maybe is a nonrepeatable kind of thing. But this is kind of where we are.

Now going forward, I think it has a lot more leverage. But I think going backwards, you kind of get to a spot where we kind of cut a little deep into the bone. That is just the (technical difficulty) price of where you run a manufacturing plant business like this.

And Bill, I appreciate your comments about our past performance. We are in a different arena. We are focused on different things. And today, Matt, these projects like Australian military, like our new orders.

Like DataPath.

Like DataPath, they don't come without some investment in engineering. I can tell you that from a personnel expense in terms of additions to Miller Industries, the strongest growth department is engineering, because we are focused on those kind of opportunities.

Okay, that makes a lot of sense.

We're thinking about the future. We're looking at trying to continue to grow and new products, and it costs a little money.

No, it makes sense.

No, I understand. I know what you're looking for, for the leverage. I would say we're in great position leveraging forward. But where we were behind -- I think we were behind before, and so you couldn't expect all of that leverage. Some of the stuff is variable and some of it we were just a little -- cut a little too tight, and we had passed up opportunities to bring in any bright, young, smart people to help us grow this. And new engineering, we have put a lot of talent into the engineering.

It is a very helpful explanation, and it makes sense. The main thing I just wanted to get comfort on is, as you move from 90 per quarter to 100 or 110 or wherever you end up going, that you start getting some leverage on that line.

Yes, I don't see any reason that that wouldn't occur. From here, I don't see a real need to move higher.

Right. That sounds great. Again, nice quarter, and I'm looking forward to the next few quarters.

Thanks.

Yes, thank you very much.

Jon Evans with Coker and Palmer.

Can you talk a little bit about this share count that jumped up a little bit sequentially? I assume that is because of the stock price. Can you give us any insight into that?

Yes. Vince, you can have (ph) that.

Obviously we did the -- with the stock price we are showing more diluted shares. We also had --.

And that is because of the options flowing.

Had the equity with the options that are out there. That is probably the biggest part. That, and there have been a number of people.

Oh, that's right; there's been some options exercised. (multiple speakers) forgot about that.

(multiple speakers) actually exercised that we (multiple speakers) some of the staff we got.

People who have been exercising and holding their options.

Can you give us a sense of like, let's say, if the stock goes 25, how much more comes into the share count? Or can you give me any sense about every dollar you bring in, so much of the share count?

I would have to run the calculation.

We can get back to you on that, Matt. We haven't really looked at it that way.

This is Jon, but yes.

Jon, I'm sorry. It's Jon. Sorry, Jon.

That's okay. Can you also talk a little bit about the tax rate expectations for next year? It sounded like your answer to Mike, that tax rate doesn't go up next year. Is that right?

Yes, we still have say 27 million left; and there could be additional things that we write-off as we have gotten rid of discontinued operations as well. But the rate ought to be low, but that is something we're looking at. Eventually we will get back at this rate to a full tax.

We feel pretty good about next year.

Okay, can you talk a little about, I assume that (multiple speakers)

That was a great hedge, Vince.

I like to plan hedges.

I know.

I assume that the bigger margins or I'm assuming that the bigger wreckers have better margins. Is that true?

They have --.

Jeffrey?

I think overall they have better margins.

That is a good assumption.

Yes, that is an assumption.

We don't like to talk about margins, but that would be a good assumption.

That is a good assumption. I would say that we're not the only company in the industry that builds large wreckers. You know, although in my estimation, and I guess in the estimation of the towing public that has bought our wreckers more often than other people's wreckers, we build the best wrecker. We do have price pressure from other products in certain segments. So you really have to look at each large wrecker individually.

But I guess the point of the question is, if you are able to increase your production of large wreckers and bring down your kind of lead-time, that should have positive ramifications for gross margin. Is that a fair (multiple speakers)?

Yes, don't give away all of our extras here that we are kind of protecting ourselves.

Yes. That would work.

Okay, then one last question. I don't think you will answer it, but you talk about kind of months. Can you give us an idea of how you exited September in the gross margins?

No.

Okay. Thanks.

I guess you were right with your assumption.

Well, just use the logic. We started at one number; we ended with an average; and we got somewhere along there; and you might be able to get somewhere in the ballpark.

Okay, thanks a lot.

At this time, there are no further questions. Gentlemen, are there any closing remarks?

This is Jeff. I would again like to thank you for joining our call. We are extremely happy with our performance in the third quarter, and look forward to continued profitability throughout the rest of the year. Thank you very much. Bill, do you have anything to add?

No, it's just fun talking to everybody.

Yes. Have a good day. Thank you.

This concludes today's Miller Industries 2005 third-quarter conference call. You may now disconnect.