Miller Industries Inc (MLR) 2010 Q3 法說會逐字稿

Good morning, and welcome to the Miller Industries third quarter 2010 results conference call. All participants will be in a listen only mode. (Operator Instructions) After today's presentation, there will be an opportunity for you to ask questions. Please note that today's event is being recorded. At this time, I'd like to turn the conference Call over to Ms. Alexandra Tramont. Ms. Tramont, you may begin.

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 2010 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, Jeffrey Badgley, President and Co-CEO, Vincent Miche, CFO, Frank Madonia, General Counsel, Alison Houghton, Director of Finance and Debbie Whitmire, Corporate Controller. 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. I would like to call your attention to the risks associated with 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 over the call to Jeff Badgley. Jeff, please go ahead.

Thanks, Alex, and good morning. Yesterday, we reported strong year-over-year revenue and earnings growth reflecting continued demand improvements within our domestic markets as well as the benefits of our cost reduction initiatives which have enhanced our operational efficiency. Net sales for 2010 third quarter were $73.7 million compared to $57.5 million in the prior year period, an increase of 28%. Our sales growth was driven by improvement in demand from our domestic business as well as steady contributions from our government related contracts which we expect will continue to be a driver of revenue into the third quarter of 2011. These factors were partially offset by a decline in our foreign sales.

While we are pleased with the sales growth within our domestic operations year-over-year, our results were softer on a sequential basis because of substantially lower chassis sales due to limited availability from our suppliers of chassis with the new emission engines, as well as lower overall sales levels in our European operations. That said, our gross margin performance grew slightly over the same period last year and the second quarter of 2010 due to our product mix. We also increased our third quarter net income by 72% over year ago levels driven by higher sales volumes combined with our operational improvements. On a sequential basis, net income declined slightly as a result of lower sales levels.

So, demand from our domestic business remained steady. Tight credit markets and lingering weaknesses in the economy continue to affect our customers, especially in Europe, which continues to lag demand trends in the US. While our markets remain mixed, our lean balance sheet and growing profits enable us to operate from a position of financial strength. We remain cautiously optimistic that conditions will improve in the fourth quarter of 2010 and going forward. Now, I'll turn the call over to Vince who will review the quarter financial results in greater detail. After that, I'll be back with some comments, and then we'll open the lines for questions. Vince?

Thanks, Jeff, and good morning, everyone. As Jeff mentioned, net sales for the third quarter of 2010 were $73.7 million versus $57.5 million in the 2009 third quarter, up approximately 28% year-over-year. Cost of operations also increased by about 28% to $62.3 million in the 2010 third quarter compared to $48.7 million in the third quarter of 2009. This resulted in a gross profit -- excuse me. This resulted in a gross profit of $11.4 million, or 15.5% of net sales in the third quarter of 2010 compared to $8.9 million, or 15.4% of net sales in the third quarter of 2009. The slight increase in gross margin level was driven by our efficiency improvements and shifts in our product mix.

SG&A expense increased 9.2% over the prior year to $6.5 million versus $6.0 million in the 2009 third quarter. As a percentage of sales, however, SG&A decreased to 8.8% from 10.3% over the prior year period. Other income related to foreign currency transactions was a net loss of $37,000 in the third quarter of 2010 compared to a net gain of $83,000 in the third quarter of 2009. Total interest expense in the 2010 third quarter was $60,000 compared to $234,000 in the third quarter of 2009, reflecting lower interest expense on distributer floor plan financing and decreased interest on chassis purchases. Net income was $2.9 million, or $0.24 per diluted share compared to $1.7 million, $0.14 per diluted share for the 2009 third quarter, an increase of 72%.

Now, let me briefly review our results for the first nine months ended September 30, 2010. Net sales in the first nine months of 2010 were $227.2 million compared to $170.6 million in the prior year period. Gross profit was $33.3 million, or 14.6% of sales compared to $25.3 million, or 14.8% of sales for the first nine months of 2009. For the first nine months of 2010, the Company reported net income of $8.1 million, or $0.67 per diluted share compared to net income for the first nine months of 2009 of $4 million, or $0.34 per diluted share.

Turning now to our balance sheet. We continued to strengthen our financial position during the quarter. We had cash and cash equivalents of $43.0 million as of September 30, 2010 compared to $38.8 million as of June 30, 2010 and $36.2 million at December 31, 2009. Accounts receivable at September 30, 2010 were $61.7 million compared to $57.5 million as of June 30, 2010, and $44.7 million at December 31, 2009.

Inventories were $29.8 million at September 30, 2010 compared to $33.3 million at June 30, 2010 and $36.1 million at December 31, 2009. Accounts payable at September 30, 2010 were $28.3 million compared to $29.8 million at June 30, 2010 and $19.1 million at December 31, 2009. During the quarter, the Company did not withdraw any funds from its $20 million unsecured revolving credit facility. Now I'll turn the call back to Jeff for further remarks.

Thanks, Vince. Overall, we are pleased with the performance in the 2010 third quarter. We continue to operate from an excellent financial position as we strongly grew net income from 2009 third quarter levels and increased our cash position by approximately 11% from the 2010 second quarter. We will continue to invest in our business to further enhance our operational efficiencies. We believe our strategy will continue to produce solid results, especially as our markets continue to recover.

During the quarter, we continued to deliver our orders associated with our government related contracts, which as I mentioned, will remain a stable contributor to our performance well into 2011. We are focused on securing additional orders in the future. However, we cannot be assured of success. As I said earlier, we remain cautiously optimistic on near and long term market conditions. While visibility remains unclear, we believe demand in our domestic markets have been slowly improving. Looking ahead, we are focused on taking advantage of market opportunities as they present themselves given our strong financial position and will build on our already impressive product offering to include innovative new solutions that meet the needs of our customers. Meanwhile, we will take the same disciplined financial approach to managing our business that has benefited us to date. We firmly believe that these actions will lead to long-term sales and earnings growth.

In closing, I'd like to thank our employees, our shareholders, suppliers and customers for their ongoing support of Miller Industries. And with that, we're ready to take your questions. Thank you.

We will now begin the question-and-answer session.

(Operator Instructions)

And our first question comes from Rick D'Auteuil from Columbia Management. Please go ahead with your question.

Good morning.

Good morning, Rick.

So, on the chassis issue, one, is it resolved now, or how much are you sort of backlogged there? And related to that, do you have a sense of what sales we had to forego for timing purposes that could have been captured in this quarter if not for that shortage?

Well, let's talk about the resolution of the problem today in terms of chassis. Most manufactures' new emission engines are flowing at a rate we would expect at this point. And I say most, minus one, which truly is a good supplier of chassis to Miller Industries, and we would expect them to flow probably in the next two to three weeks. So, that problem should straighten out itself, and the second part of your question, if I understood it, did we go back and look and see how many dollars worth of sales we lost based on them not delivering chassis? Was that the question?

Yes, that's essentially it, yes.

Yes, I did not, and I apologize for that but no, I didn't.

Go ahead.

But again, I think we'll get back what we lost from lack of delivery this quarter, but I didn't go back and pick off chassis that were in the queue. If you remember in the second quarter, we had good order entry for chassis, and I think we had good order entry in the third quarter also. But I didn't go back and calculate a number.

And I think -- this is Bill. I think basically, it just delayed some of those purchases because they didn't go anywhere else.

So, you think the fourth quarter will catch up whatever was missed in the third quarter?

I think the fourth quarter, and understand the scenario here, understand that distributors are limited by the amount of floor plan they have, so it's not just an adder. A distributer, if his chassis were delayed in the third quarter can't double up in the fourth quarter if his credit lines won't allow him to double up. So, I can't sit here and say yes, it's going to completely come back, but yes, over time, it will come back.

We didn't lose the business.

Yes, business didn't go elsewhere. Does that make sense to you?

Yes, yes, that's fine.

Okay.

On the military side, it sounds like you have decent visibility into 2011, right?

Yes.

Yes, sir.

Is there -- I guess I'm a little -- so you're working on a new order there at the same time, right?

Well, we have firm orders in place, as I said, into the third quarter of 2011 at a build rate that we're building currently.

Okay, but is --

And we have constant -- we're constantly working on new initiatives in either the US or in Europe. Well, North America and Europe, and there are several opportunities that are out there. We just can't assure success.

Okay, so that would be incremental, not necessarily an extension of --

That would be incremental, yes.

Okay, I wanted to clarify that point. Is -- so, other than the Europe, Europe was sequentially down. Is that fair?

Yes, it was.

Okay, and still feels pretty soft?

Yes, I just got back last week from one of our European operations, and we're seeing a little pick up in order entry, but it's still rather soft.

Okay, and are there any major shows coming up this quarter?

We have a show this month in Baltimore in the US, which is probably either the number one show or the number two show in the US on a yearly basis.

Alright, I'll let others ask, thank you.

Yes, thank you.

(Operator Instructions)

And we have a question from Walter Lang from Avondale Partners.

Hi, guys, good quarter. Rick asked some of the questions I had, but just on the domestic business, in Jeff's commentary in the queue, I could see some more positive commentary on domestic orders. And then in the queue, you noted that production hours at all facilities had been restored and reduced work weeks and furloughs had been eliminated. So domestically, the tone is improving; correct?

Yes, good morning, Walter. Nice to hear your voice. Yes, I would say domestically that it has improved. Order entry in the third quarter was above levels in the second quarter, yes.

And what do you attribute that to?

Well, we can attribute it to I think a couple of things. One, of course, is -- I can't guarantee that it's just market driven. Our Company, over the last six months, has been successful in attracting new distribution into our distributer ranks. That distribution came from one of our competitors. So, we did see probably some pick up in order entry from them, but I also attribute it to the fact that the towers themselves are feeling better about their business. So, the traveling I've done and the traveling our sales force has done tells us that the towers, A, feel a little more secure and B, know they have to replace some of their equipment.

The replacement cycle is catching up to them, so.

Does the average age of a car on the highway, now being at over 10 years, is that impacted at all? Is it still more mileage driven?

Well, I think all those factors -- those drivers are still in place. I don't think the business model itself has changed, which is age of vehicles, miles driven, number of vehicles in the fleet. So yes, I think age of vehicle does have a little --

Okay.

-- in the game.

And just a question on sequential revenues, in -- you've gained a little market share domestically, and that picked up, and then Europe is soft, but I would think that also, just the fact that in the third quarter you have less -- you just have less manufacturing days versus 2Q. That probably had some impact in the sequential drop in top line, would it not?

Well, if I analyze, really -- the US number is up over second quarter, Walter. So, in terms of units, equipment manufactured and delivered, it really was a substantial loss of chassis sales that took the numbers down as far as they did on the revenue side.

But obviously had very little impact on margins.

Yes, which is if you look at the margin from quarter to quarter, and you remember our past calls where we talk about, we don't make much on chassis.

Right. So -- and to Rick's question, that business is just deferred. A competitor didn't have access to any more chassis either, correct?

Yes, but let's say -- no. It is just deferred, but again, I want to caution people listening to the call that it's not all just going to come back in one big lump in this quarter because you've got credit limits on distributors. You also have flow through time when they do get the chassis to mount, paint, install, get it out of there, get it out of their inventory so another one can come in. So, you might see it bump a little, and then first quarter of next year bump again a little, but it won't all come back roaring like you might expect.

They are getting a little bit of backlog. We're getting a little bit of backlog, but the throughput isn't just going to jump out.

It's not just going to change.

Okay, great. Thank you for your answers. Appreciate it. Good quarter.

Thank you, Walter.

And we have a follow-up question from Rick D'Auteuil from Columbia Management.

Just a little -- a couple little things. At one point, I think financing was an issue for the towers domestically. Is -- are they seeing some relief on that front?

I would say, Rick, yes, they are seeing a little bit of a relief. I think -- we have an arrangement with -- we have what we call Miller Finance, and our agreement is with a bank that retail finances for our distributors. And I think we're seeing down payment requirements easing up just a little, and we're seeing a little more movement in credit forgiveness. Not a bunch, but a little, so I guess I'd answer, I am cautiously optimistic that it is easing.

The bigger and the better your finances that you are, the easier it's getting for them.

It was to the point where even the best of our guys couldn't -- didn't want to be in business. They were on money.

Yes.

Okay, and then just, -- I should probably know this. Remind me about the seasonality. Is it seasonal around some of your major shows? Your business I'm referring to, obviously I know --

Really, we have always talked about the fact that third quarter may be a little seasonal. But as we are spread out across the -- especially domestically across the US, we've taken a lot of seasonality out of the business. In the summer, it's extremely warm in the southern states, and heat causes the use of tow trucks just as much as cold does in the winter months in the North. So, I think we negate seasonality a little bit.

Some of them still wait for that model year change in chassis which -- but the manufactures have been changing those around.

Yes, which it used to be somewhat driven by model year changes of chassis, but I think in January, somebody, one of the chassis manufacturers January of 2011, or several of them are introducing their 2012 model year trucks, so --

It's not the same.

It's not the same as it used to be.

Okay, thank you for that.

Yes.

And gentlemen, at this time, I'm showing no further questions and would like to turn the conference call back over for any closing remarks.

We would again like to thank you all for your support, and we look forward to reporting our fourth quarter and full year earnings in the future. Thanks.