Miller Industries Inc (MLR) 2009 Q3 法說會逐字稿

Welcome to the Miller Industries third quarter 2009 results conference call. (Operator Instructions) At this time, I would like to turn the conference over to Mr. Matt Steinberg. Mr. Steinberg, you may begin.

Thank you, and good morning, everyone. I would like to welcome you to the Miller Industries conference call. We were here to discuss the Company's 2009 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, and Frank Madonia, General Counsel and Allison Houghton, Director of Finance. Today's call will begin with formal remarks from management followed by a Question & Answer period.

Please note 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. 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, Matt and good morning. Yesterday we reported another quarter of solid results in the current economic environment, driven once again by shifts in our product mix and our cost reduction in management efforts. While market conditions are still difficult, we continue to be pleased with our performance within the context of this challenging environment.

Net sales for the 2009 third quarter were $57.5 million compared to $66.7 million in the prior year as our industry continued to feel the impact of the weak economic environment and tight credit markets. However, this sales level still reflects improvement over $54.3 million in the 2009 second quarter. This sequential improvement in net sales was driven by a slight increase in orders from our domestic distributors and by continued orders associated with government related contracts.

To scale our business to the current operating environment during the quarter, we focused on managing our labor and our material costs and aligning production output with current demand levels. We also benefited from changes in product mix. These factors contributed to an 85% increase in profitability over the third quarter of last year.

Additionally we have continued to strengthen our balance sheet and generate strong free cash flow. During the quarter, we are able to reduce our inventory levels and further improve our cash position. We are operating from a position of financial strength and as a result we have the financial flexibility to manage our business as the economy begins to recover.

As we continue to navigate through the current economic environment, we believe that we have the right strategy in place to overcome near term obstacles and position the Company for the longer term. While we were pleased with our results in the quarter, we will continue to closely monitor our cost and take the necessary actions that execute against our long-term growth objectives.

Now, I will turn the call over to Vince who will review the third quarter financial results in greater detail. After that I will be back with some comments and then we will open the lines for questions. Vince?

Thanks, Jeff and good morning everyone. As Jeff mentioned, net sales for the third quarter 2009 were $57.5 million versus $66.7 million in the 2008 quarter. While sales were down approximately 13.8% year-over-year, sales increased 6.1% from the 2009 second quarter, as Jeff mentioned.

Cost of operations decreased by 16.9% to $48.7 million in the 2009 third quarter compared to $58.6 million in the third quarter 2008. This resulted in gross profit of $8.9 million or 15.4% of net sales in the third quarter of 2009. This compares to $8.1 million or 12.2% of net sales in the third quarter of 2008. These stronger gross margins were driven by our cost control initiatives, as well as changes in product mix.

SG&A expenses decreased 6.5% over the prior year to $6 million. Other income related to foreign currency transactions was a gain of $83,000 in the third quarter of 2009, compared to a loss of $36,000 in the third quarter 2008. Total interest expense in the 2009 third quarter was $234,000 compared to $254,000 in the third quarter of 2008, reflecting lower interest expense associated with reduced floor bank debt level's.

Net income was $1.7 million or $0.14 per diluted share, compared to $0.9 million or $0.08 per diluted share for 2008, an increase of 85.4%. For the first nine months ended September 30, 2009, net sales were $170.6 million, compared to $209.1 million in the prior year period. Gross profit was $25.3 million or 14.8% of sales compared to $24.7 million or 11.8% of sales for the first nine months of 2008.

For the first nine months of 2009, the Company reported net income of $4 million, $0.34 per diluted share compared to net income for the first nine months of 2008 of $2.9 million or $0.25 per diluted share.

Turning now our balance sheet we continue to strengthen our financial position during the quarter. We had cash and cash equivalents of $38.2 million as of September 30, 2009, compared to $27.4 million as of June 30, 2009 and $19.4 million at December 31, 2008.

In addition, in June we paid off the remaining balance of the term loan under our credit facility and as of September 30, 2009, we had no bank debt outstanding as compared to total bank debt of $2.1 million at December 31, 2008.

Accounts receivable at September 30, 2009 was $40.5 million compared to $37.6 million at June 30, 2009 and $52.4 million at December 31, 2008. Inventories were $35.7 million at September 30, 2009, compared to $38.2 million at June 30, 2009 and $43.1 million at December 31, 2008, reflecting our efforts to adjust inventory levels to lower levels of production.

Accounts payable was $20.9 million compared to $13.1 million at June 30, 2009 and $26.7 million at December 31, 2008.

Now, I will turn the call back to Jeff for further remarks.

Thanks Vince. When the economic downturn began, we made swift decisions to align our cost structure with demand, while staying focused on positioning the business for an eventual rebound in the economy. In doing so, we have increased profitability over the last year, eliminated our bank debt and increased our cash balances. We believe that our financial strength is a competitive advantage that helps us position the business to deliver growth over the longer term. With our financial strength, we are in a better position to withstand very difficult economic times and have the financial strength to support our financial requirements as the economy begins to recover.

Despite the achievements of the past quarter, we continue to deal with very challenging economic environment and remain as focused as ever on carefully managing our cost and our liquidity. Our domestic markets have shown slight signs of improvements from their lowest levels and we continue to receive add-on orders on government related contracts.

However, demand in our European operations remain soft, credit markets remain tight and difficult overall economic conditions continue to impact our visibility. We expect these trends to persist in the coming months, but we remain focused on ensuring the business is well positioned in the current environment.

Based on our limited visibility in our market, we continue to be cautious in our outlook. To offset as much of the effects of the economic downturn as possible, we will continue to take the same disciplined approach to managing our business by monitoring our cost structure and reducing working capital and inventory levels when necessary. In closing, I would thank our employees, our shareholders, suppliers and customers for their continued support of our Company. We are now ready for your questions.

(Operator Instructions) Our first question comes from Walter Lang from Avondale Partners.

Great quarter given the background. Can you expand upon your comments that results were driven by product shifts?

Well, this is Vince, product shifts --it's really product mix. The more chassis we sell, the greater the sales, but the margins on chassis that we set are lower. So, if we don't sell as many chassis, the overall margins are lower and we had more -- I'm sorry, higher.

The other way around, right?

Right. So, the manufactured items and the margins on those are more clearly reflected in the overall results. We like selling chassis, but with the economy down we just aren't selling as many.

So, is that deliberate or just a reaction to the economy on both?

It's really the economy and a reflection of that economy.

And if credit markets improved, do you think you would have immediate reaction on the part of your customers.

I think there is a willingness of customers to buy at this point if there is some pent-up demand and I think credit remains an issue.

Okay. And it appears from the queue that you have visibility on the military orders into the second half of 2010, is that accurate?

Yes, it is.

Yes, it is, Walter.

Thank you.

(Operator Instructions) Our next question comes from Greg Hillman from First Wilshire Securities.

Good morning. Can you talk about government RFPs that are coming up? Are there any meaningful ones that you are going to be bidding on that could affect you in years ahead?

I won't talk in specifics, but we certainly have a fair share of projects that we are currently working on and they range in size quite a bit, but I don't think I want to get into the specifics of each individual one.

Are there any -- like bits coming up that could affect your Company materially? If you won them?

We don't make direct bids to the government.

We are not the main bidder in those contract efforts. There certainly are some efforts going on worldwide that would have a significant impact if we were successful, but I don't want to come on our probability of success.

No. I think that what you ought to say, Jeff, is this has been an area over the last three or four years that we have really concentrated on as a growth opportunity within our Company, an internal growth opportunity because the militaries around the world have realized that if the tower doesn't break our product they have a heck of a time breaking it in the military. So, our history of being successful with the towers is starting to get some recognition with the military as a back end, but again, we are not a chassis guy. We generally do not quote directly.

Okay. Then for the quarter, what percentage of your sales were government?

With the order that we had --

We don't do government.

Well, it's not government, but the largest customer in the quarter as in the queue was posted 20%, something like that.

And you didn't say whether -- so, I guess that would be a government related-type customer?

Yes, it's a government related, but again we aren't the prime contractor.

Okay. What percentage was that, 20%?

19%.

Let me grab my footnote again, but it's close to 20%.

And compared to a year ago or five years ago? What would have been government work?

It's all over. It's really all over. Never had --

It certainly would have been lower than it is today. I don't have those numbers in front of me.

For example in 2008, we didn't have a customer that wasn't over 10%. That's just a reflection of the economy.

Okay. And do some of these towers, do they go to foreign militaries too or just the United States military?

It's quoting them all over the world.

Yes, all over the world.

Okay. Thank you. And also in terms of your general strategy, I know that you mentioned some of the towers are used for other purposes other than towing, such as construction and whatnot and other purposes. Have you developed other products for non-towing type purposes?

We have not. We have supplied other products for non-towing purposes throughout the years, but we have not and when you say towing, I guess that kind of narrows the range, but if you use the word transport, we have not entered any segment outside the area of transport of products. But, the commercial side, now at this point, we have been strictly transport-oriented.

Okay and if this is about the dollar versus other currencies, does a weaker dollar help your Company.

Well, it certainly makes our products cheaper to the rest of the world and helps us with our European operations to the extent we make products here and export them to those operations.

And I would say we also source worldwide, so it has some negative effects also.

Right. Good point.

Okay. And then just finally in Germany in terms of developing a dealer network in Germany, how are you coming along in that country?

It's been a slow go. We do have two distributors in Germany. We have identified really what we think is the largest market segment in Germany. And we have also identified the major players and a strategy to compete against those major players. Next is augmenting our distribution.

Okay, but that could potentially become a much more important market for you in Europe at some point?

Yes, certainly, yes, but it's not a huge, huge market and I wouldn't think we could replicate the same kind of market share we have in the US.

European sales were how much in the quarter?

We don't break that out as such, but the total foreign sales from the US including our European operations was $12.5 million of our $57.5 million.

Okay. And in terms of -- does that get included in things that get shipped through sub -- as a subcontractor or is that just shipments coming from you directly?

That would be things coming from us directly, as well as what our European operations sold.

Okay. Fine, thank you.

Thanks Greg.

And gentlemen, at this time, I'm showing no questions. Would you like to make final comments?

I would like to thank you for joining our conference call and look forward to reporting our fourth quarter and year-end results in the future. Thank you.

Thank you, al,l very much, for participating in the Miller Industries results conference call. This concludes today's event. You may now disconnect your telephone lines.