Miller Industries Inc (MLR) 2011 Q2 法說會逐字稿

Hello, this is the Chorus Call operator. Welcome to the Miller Industries second-quarter 2011 results conference call. As a reminder, all participants will be in listen-only mode. (Operator Instructions). After today's presentation there will be an opportunity to ask questions. Please note this event is being recorded. At this time I would like to turn the conference over to Alexandra Tramont. Ms Tramont, please go ahead.

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 2011 second-quarter results which were released after the close of the market yesterday. With us from management today are Bill Miller, Chairman of the Board; Jeff Badgley, CEO; Vince Mish, CFO; Frank Madonia, General Counsel; and Allison Houghton, 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. 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 and good morning. Yesterday we reported 2011 second-quarter sales of $97.6 million representing a year-over-year sales growth of over 20%. Obviously we are very pleased with this growth which was a result of returning to our prior government orders as well as solid demand improvement with our core commercial business in both the US and most European markets.

Our gross margins improved on the sales increase and net income nearly doubled compared to the same period last year as a result of the improved operational efficiencies and a shift in product mix. During the quarter we continued to see improved demand from our domestic business and remain hopeful this trend will continue throughout the second half of the year.

Our European sales improved somewhat compared to year-ago period as well as demand for our products increased. While there are still some markets which remain hampered by tight credit and economic weakness, we are pleased to report that order levels in Europe have continued to improve.

Our Government-related business also continues to be a strong and profitable driver of our business and we were pleased to announce in July an add-on order to manufacture 140 recovery units for a prime contractor. These units are scheduled to be delivered through the second half of 2011 with most of the delivery occurring in the fourth quarter. This order again demonstrates the elite quality of our product offering and the flexible production capability we have developed that allows us to meet tight customer deadlines for substantial orders.

As a result of the focus we continue to place on our operations and our expanded production capabilities, we are confident that we will be able to handle customer delivery requirements on this order and any others without disrupting our normal commercial customer production schedule.

At the same time our cash flow generation and balance sheet remain strong and we continue to focus on ways to return additional value to our shareholders. This quarter we paid our second regular quarterly dividend of $0.12 per share under the plan we implemented earlier in the year. We were also pleased to announce our Board of Directors declared our third quarterly cash dividend of $0.12 per share which will be paid this month.

Additionally, we began our $20 million stock repurchase program and bought back 65,800 shares in the quarter. In spite of these actions we were still able to grow our cash balance by more than $15 million from first-quarter levels.

Now I'll turn the call over to Vince who will review the quarter's financial results. After that I'll be back with some comments and then we'll open the line for questions. Vince?

Thanks, Jeff, and good morning, everyone. As Jeff mentioned, net sales for the second quarter 2011 were $97.6 million versus $81.3 million in the 2010 quarter. Sales were up approximately 20% year over year. Cost of operations increased by about 16% to $80.1 million in the 2011 second quarter compared to $69.2 million in the second quarter of 2010. This resulted in a gross profit of $17.5 million or 17.9% of net sales in the second quarter 2011 compared to $12 million or 14.8% of net sales in the second quarter of 2010.

The increase in gross margin was driven by higher sales volumes and sales mix in the quarter. SG&A expense increased 15.3% over the prior year to $7.7 million. As a percentage of sales, however, SG&A decreased to 7.9% from 8.2% over the prior year period.

Other income related to foreign currency transactions was a net gain of $9,000 in the second quarter of 2011 compared to a net loss of $48,000 in the second quarter 2010. Total interest expense in the 2011 second quarter was $214,000 compared to interest expense of $76,000 in the second quarter of 2010 reflecting higher interest expense on chassis and distributor floor plan financing.

Net income was $5.8 million, $0.47 per diluted share, compared to $3.2 million or $0.26 per diluted share for the 2010 second quarter, an increase of 83.0%. Now let me briefly review our results for the first six months ended June 30, 2011.

Net sales in the first six months of '11 were $206.5 million compared to $153.6 million in the prior year period. Gross profit was $38.2 million or 18.5% of sales compared to $21.9 million or 14.2% of sales for the first six months of 2010. For the first six months of 2011 the Company reported net income of $13.2 million, $1.08 per diluted share, compared to net income for the first six months of 2010 of $5.2 million or $0.43 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 $54.9 million as of June 30, 2011 compared to $39.1 million as of March 31, 2011 and $46.3 million at December 31, 2010. Accounts receivable at June 30, 2011 were $67.2 million compared to $84.4 million as of March 31, 2011 and $60.1 million at December 31, 2010.

The increase in cash and decrease in accounts receivable was primarily related to the collections from our first-quarter activity. Inventories were $50.1 million at June 30, 2011 compared to $53.4 million at March 31, 2011 and $38.9 million at December 31, 2010. Accounts Payable at June 30, 2011 were $38.4 million compared to $50.3 million at March 31, 2011 and $34.0 million at December 31, 2010. Now I will turn the call back to you, Jeff, for further remarks.

Thanks, Vince. We are very pleased with our results for the quarter. We're seeing some positive growth trends both domestically and abroad, but our organization remains mindful of the current economic uncertainty. Additionally, the operational efficiencies that we have continuously focused on throughout the years in combination with higher volumes and some impact from sales mix are driving strong profitability for our business.

Looking ahead to the second half of 2011, commercial demand trends appear to be improving across most of our markets and our government customers continue to recognize the strength of our products and manufacturing and we believe we are well positioned for the remainder of the year. We expect to deliver on the recent 140 unit order as well as complete the remaining units under another of our government-related orders over the third and fourth quarters.

We will continue to focus on securing additional orders. And while we cannot predict awards, we believe we are well positioned as opportunities may arise. That said, we all know that economic conditions remain uncertain. Government spending is under intense scrutiny, raw material costs have been increasing and we will continue to carefully monitor these issues to ensure we are prepared to adapt to change and market conditions.

As part of that adaptation, we successfully implemented a price increase in the last quarter and expect this increase to flow through our backlog in the coming periods. Going forward we will continue to carefully monitor the environment and, as we have in the past, take appropriate pricing and cost reduction actions as needed.

In closing, I'd like to thank our employees, our shareholders, suppliers and our customers for their ongoing support of Miller Industries. We believe we are well positioned with the manufacturing and financial strength and experience to meet any challenges we may face. With that we're ready to take your questions.

(Operator Instructions). Walter Lang, Avondale Partners.

Hi, guys, congratulations, that was quite a quarter.

Thank you, Walter.

On your commentary, I suppose everyone on the call would be surprised on the strength in Europe and maybe it's all rearview mirror because it's so topical right now. But you did note that the strength in Europe or the strength abroad you're seeing growth trends, is that correct?

Yes, we are. Our order entry year over year is up. Obviously we're basing that on last quarter look. But we continue to see a strong desire from customers for our innovative products in Europe.

And your comment that it's both domestic and abroad, does that -- I take that as saying you're seeing some demand outside of Europe also?

Oh, certainly, certainly. We -- as you know, we sell all over the world. And obviously the -- I would say the currency situation of the dollar has helped a little bit. But yes, we are seeing some pickup in areas like Japan, etc.

Great. And then just for clarification. So you did not ship any [MAXPro] during the second quarter?

No, we shipped some parts for MAXPro, but we did not deliver, to the best of my recollection, any units in the second quarter. We finished off MAXPro at the end of first quarter due to accelerated delivery demands and then switched back to what we call MR30 production during the second quarter.

And do you expect to ship any MAXPro during the third quarter?

Very (multiple speakers), very -- you know, very limited amount. Most of those deliveries will take place in the fourth quarter.

And Will this be the same situation as during Q1, the MAXPro will take precedent over the MR30?

Actually, yes, we'll have some hangover of MR30's to go back to at the end of the MAXPro project. But we would expect to complete those also by the end of the fourth quarter.

And is there a chance the MR30 order gets extended?

Well, the order has been extended.

Right.

The problem is, again, they can act on ordering more -- who knows. But the order was extended.

Okay, great. Again, congratulations, quite a quarter.

Thanks, Walter.

Thank you.

Rick D'Auteuil, Columbia Management.

I'll echo Walter's comments, a very impressive quarter. Just on the government business, you've had some nice success lately. Would you attribute that to more activity or do you feel like you're gaining share? I don't know what the competitive field looks like in that sector. But maybe you can comment on that.

Approximately, in a strategic planning session maybe four years ago one of the -- one of our goals was to increase our visibility on the military side. So if you've been on our calls for a while, Rick, and I think you have, we've always talked about the fact that even during the down sales levels during the deepest part of the recession that we were not going to cut our organization to the bone and give up on strategic initiatives, which meant we protected our engineering department to the utmost.

Our R&D efforts -- we built demos for several prime contractors. We attended shows side-by-side with those people. And I think just the fact that we have been successful throughout this period meeting delivery requirements and of course the product success in the field has just given us more opportunities.

Yes, Jeff, this is -- I would say also that your products are new and innovative.

Yes, absolutely.

And that's the real difference. So we've been building them and taking them to their shows and using them with our prime contractors to show them new products that maybe perform better.

There is some element of gaining share then. I don't know who the incumbents were before you began to focus, but --.

Well, I believe our relationship with our prime has obviously increased our share in the US military because that was almost nonexistent before this round. We have always had fairly good share with GSA purchases. I think really what we're focused on today, Rick, is expanding those opportunities to militaries abroad. And although I don't want to talk in specifics, we are on several tenders today.

And, Jeff, you also have a couple of new products still out touring the military that may have an impact.

Yes.

Okay. I missed -- Vince, I missed the cash at the -- I know you said it, but the ending cash level. And I know it was mostly driven by increased collections on last quarter's receivables. But what was the ending number on cash?

We had $54.9 million at the end of June.

$54.9 million, okay. You bought back a modest amount of stock in the quarter and that was -- I guess the quarter was probably a relatively good quarter for your stock. But -- and it's actually held up much better than a lot of stocks here recently. But it still seems like there's some terrific value. I assume you intend to continue to employ that repurchase agreement?

Yes, we did. And obviously we didn't stop at the -- well, we didn't stop at the end of June. That was what we reported through June 30.

Okay. So you weren't -- there wasn't any blackout period you continued to buy during the month of July or --?

Well, there's a blackout (multiple speakers).

We had a little blackout in the last couple days. We had a 10b5 working.

Okay, okay. Okay, appreciate it. Good results, thanks.

Carter Newbold, Rutabaga Capital.

Morning, guys.

Good morning, Carter.

How are you.

I'm well, thank you. I was a little tardy getting on the call, I apologize. But did you give you the actual share repurchase number? If you did I missed it.

It was 65,800 in the second quarter.

Okay. And then did you also give the government mix in the second quarter as a percentage of sales?

Yes, the -- well, it's -- the biggest customer was 22.3% of sales in the second quarter. The Q was filed last night, that's in there too.

Sorry.

No problem.

And then lastly -- I think I've asked this before and I apologize, I don't recall how you've chosen to talk about this. But how do we think about capacity utilization particularly over the first half of this year when you've obviously had a huge ramp up in sales? Is there a way to kind of thumbnail where you are against your notional capacity on the number of shifts you're currently running?

Are you asking, do we have additional capacity? Or are you asking are we maxed out? I don't --.

I think I know that you have additional capacity, but I guess I'm interested to know what you would have to do to access this. Is it just adding labor or is there anything on the capital side that you need to do?

Oh, I believe obviously that we could add labor. But what I think -- Carter, what we've learned through investments in our plants over the last few years, that some investment in some of our other plants may yield more capacity with less labor. So, it's a little bit of both.

Okay.

We can certainly just stack in labor and increase our capacity. I'm not quite sure that's the right strategy. We're examining other plants now and trying to see what we can replicate in those plants versus what we've done here in Chattanooga and Greenville.

Okay. And have you taken a shot publicly at what you think your steady-state current manufacturing capacity would be? I know it depends on mix and so forth, but --?

No, we really haven't, we really haven't.

Okay.

Carter, this -- if you're asking the question are we going to have to add bricks and mortar or major capital expenditure dollars -- is that kind of your question?

Yes.

We probably see ourselves running I would say from the budget standpoint probably no greater than our depreciation kind of thing because we've done a lot. But there are some projects out there -- and it's mostly equipment, it's not bricks and mortar -- that can improve again our gross margins and our efficiencies and, like Jeff said, in the other plants off our prototypes.

Okay. I said that was my last question, but how about one more? I think you guys have talked about international acquisition activity on an opportunistic basis that would either grow your product offering or your geographic touch. I obviously don't expect you to get into specifics, but is that still an active focal area for you and do you see opportunities from time to time?

It's still an active initiative. Obviously we're a very careful company when it comes to acquisitions. But there are some opportunities that arise from time to time for us to look at for sure.

Okay. Good, thanks a lot, guys. Great quarter.

Thank you.

Thank you.

(Operator Instructions). David Cohen, Midwood Capital.

Hey, guys, thanks for taking my call. As you look at -- you mentioned, Jeff, having thought about in terms of strategic planning a few years ago wanting to increase your presence in the military segment of the market. As you think about that and we've seen almost 400 of the MAXPro and I don't know what the unit counts are on the MR30. But as you think about kind of the needs and how long term or the duration of those needs, how do you size that opportunity as you look out over the next few years, especially given the wind down of our operating tempo?

Obviously I believe the size, I mean, domestically decreases. I think that with the efforts we've put in internationally I think that size increases. I think probably over the last two years, looking forward two years, my estimation is it's going to be net less. But I don't think -- but I would hate to comment based on the tenders that are out there how much less because I'm not sure how many we'll get and how many will go through based on budget. It's a pretty tough question to come up with a firm number.

So, in other words I guess given the activity you see and the orders you've got, you don't feel -- would it be fair to say that it's not like the military has just now satisfied its needs for the next three to five years with what they've already placed? There's probably more to come.

You know, I'm not privy completely to that information. Certainly there is scrutiny on government spending in the US. I would say that we continue to build either prototypes or test units for international military people. So I think as we switch out of domestic military business we'll see some pickup on the international side.

Okay, great. A couple of other questions. Just doing some simple math, looking at your total revenue and excluding that one large customer for this year and last year's second quarter, you grew about 12% -- you grew about 16% in your foreign sales.

As you think about the degree to which the markets -- (inaudible) effectively kind of isolating commercial opportunities as opposed to taking government opportunities by doing that? Is that a -- do you feel like we are recovering consistent with your expectations or it's actually you might even imagine even further strength to the recovery than what we've seen recently from a -- for purely commercial markets?

Yes, I would say, David, that historically our industry, as we enter a recession, is probably first in and we have seen dips as much as 40% off volume levels. Obviously we've seen some pickup from that low on the commercial side domestically.

But certainly there's runway ahead. I think it all depends, and I think we've talked before, our customer -- our end customer is probably closely associated in their purchase decisions with consumer confidence. And I think plenty of runway, the timing of the runway is very, very hard to predict at this point, very hard.

Okay. And one last question, if I may, about the repurchase activity. Obviously you have a not terribly liquid stock and you have volume restrictions. Without indicating kind of what parameters you have around the limit prices or anything like that, but I guess what sort of delta between where you're willing to buy -- at least on a percentage basis -- where you're willing to buy and what you think the stock is worth are you looking for?

In other words, if you said, okay, I'm looking for X rate of return on (inaudible) intrinsic value, buying my own stock versus investing in a piece of machinery, what kind of return is that? I mean, for example, not to put any words in your mouth, but if this is a $17 stock, it's really worth $25, wow. Wouldn't you be really aggressive buying today because that's a 50% -- that's 50% return embedded in that purchase today. Do you think about something like that?

Yes, this is Bill. Yes, we actually do think about that. But you guys have a better feel for what you believe the intrinsic value to our stock is. We needn't have, let's say -- we had some outside professionals come to the Board and tell us before we started what they believed it was based upon market studies and whatever. And yes, we feel like we have a -- we think we're doing a great thing for the shareholders at this price.

Okay. Thanks, Bill.

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

This is Jeff and I'd really like to thank you for joining our conference call and look forward to talking to you at the end of the third quarter. Thank you very much.

This concludes today's event. Thank you for attending today's presentation. You may now disconnect.