Miller Industries Inc (MLR) 2011 Q4 法說會逐字稿

Hello. This is the Chorus Call operator. Welcome to the Miller Industries fourth-quarter 2011 results conference call. (Operator Instructions). Please note this event is being recorded. At this time, I would like to turn the conference over to Alexandra Tramont.

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 fourth-quarter and full-year 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'd like to call your attention to the risks related to these statements, which are more fully described in the Company's annual report filing 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 fourth-quarter sales of $109.4 million, representing solid year-over-year sales growth of over 37%. The increase in sales reflected the completion of deliveries from our government-related add-on orders and gradually-strengthening demand for our products across our core domestic and European markets.

Overall product sales mix resulted in a decline in our gross margin percentage compared to the prior-year period. Somewhat offsetting these factors were our cost-reduction initiatives, and overall we saw a 36% increase in net income.

During the 2011 fourth quarter, we fulfilled our commitments to deliver our government-related add-on orders. I am extremely pleased that we were able to meet the tight deadlines that were required and delivered high-quality products that met our customers' requirements.

Currently, we do not have any other large follow-on orders in our backlog. As we've mentioned before, while we will continue to pursue these opportunities, their absence will create revenue and margin headwinds going forward as our sales volumes and mix will reflect the current moderate commercial demand levels.

Our sales growth in the quarter was also supported by our European markets, which saw incremental growth despite the ongoing sovereign debt crisis. We continue to actively seek out new distribution channels in Europe as we target future market penetration there.

We remain committed to maximizing value for our shareholders. We paid our regular $0.12 share cash dividend in the quarter and completed our 20 million common stock repurchase plan, buying 1.184 million shares during the year. In addition, we also announced that we have increased the quarterly cash dividend to $0.13 per share beginning this month.

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 more comments, then we'll open the line for questions. Vince?

Thanks, Jeff, and good morning, everyone.

As Jeff mentioned, net sales for the fourth quarter of 2011 were $109.4 million, versus $79.7 million in the 2010 fourth quarter. Sales were up approximately 37% year over year. During the fourth quarter of 2011, 20.1% of our net sales were made to the U.S. federal government through prime contractors, as compared to 17.6% in the prior-year period.

Cost of operations increased by about 40% to $93.1 million in the 2011 fourth quarter, compared to $66.6 million last year as we ramped up operations to complete our government-related orders prior to the close of the year.

Gross profit was $16.3 million, or 14.9% of net sales, in the fourth quarter of 2011, compared to $13.1 million, or 16.4% of net sales, in the fourth quarter of 2010. The decrease in gross margin percentage resulted from the increased level of lower margin chassis sales in the quarter.

SG&A expense increased 15.3% over the prior year to $8.1 million. As a percentage of sales, SG&A decreased to 7.4% from 8.8% over the prior-year period.

Other income, related to foreign currency transactions, was a net gain of $143,000 in the fourth quarter of 2011, compared to a net gain of $56,000 in the fourth quarter of 2010. Interest expense in the 2011 fourth quarter was $194,000, compared to interest expense of $59,000 in the fourth quarter of 2010, reflecting higher interest expense on chassis and distributor floor plan financing.

Net income was $4.9 million, $0.43 per diluted share, compared to $3.6 million, or $0.30 per diluted share, for the 2010 fourth quarter, an increase of 35.9%.

Now let me briefly review our results for the full-year period ended December 31, 2011. Net sales were $412.7 million in 2011, compared to $306.9 million in the prior-year period. Gross profit was $70.1 million, 17.0% of sales in 2011, compared to $46.3 million, or 15.1% of sales, in 2010.

For the 2011 full-year period, the Company reported net income of $23.0 million, $1.92 per share, compared to net income for the 2010 full-year period of $11.7 million, or $0.96 per diluted share.

Turning now to our balance sheet, we continue to operate from a position of financial strength. We had cash and cash equivalents of $50.2 million as of December 31, 2011, compared to $35.7 million as of September 30, 2011, and $46.3 million at December 31, 2010.

Accounts receivable at December 31, 2011, were $61.1 million, compared to $72.5 million as of September 30, 2011, and $60.1 million at December 31, 2010. The decrease in accounts receivable from the third quarter was primarily related to the timing of collections from the government-related orders.

Inventories were $48.2 million at December 31, 2011, compared to $55.1 million at September 30, 2011, and $38.9 million at December 31, 2010. The decrease from the third quarter was primarily related to the production of the government-related orders. Accounts payable at December 31, 2011, were $39.7 million, compared to $39.4 million at September 30, 2011, and $34 million at December 31, 2010.

During the quarter, we extended our loan agreement with the First Tennessee Bank National Association for our unsecured revolving credit facility. The loan, dated December 21, 2011, now has an expiration date of March 31, 2014. Additionally, the unsecured revolving credit facility was increased from $20 million to $25 million. All other terms and conditions of the agreement were substantially unchanged.

Now I'll turn the call back to Jeff for further remarks.

Thanks, Vince.

Overall, we are pleased with the results and the progress we've made in the past year. Our results reflected significant year-over-year growth on both the top and bottom lines while operating in a very difficult economic environment.

We successfully completed multiple government-related orders during the 2011 fourth quarter, reflecting our ability to meet the tight production deadlines while still providing high-quality products that our customers have come to expect from us. We are continually researching and developing new products to meet our customers' needs, and many of our innovative products for the commercial market will be on display at next month's annual Florida Tow Show.

Beyond our performance for government-related customers, we have seen modest growth in our commercial backlog from levels at the end of 2010 as the economy continues to slowly recover and the market moves towards stable demand environment.

We also saw some improved demand in Europe in recent months. There continues to be uncertainties surrounding certain of the key economic indicators, such as consumer confidence, the rising cost of petroleum, and the ultimate impact of the sovereign debt crisis in Europe on the global economy, all of which affect the purchasing decisions of our end users around the world.

Outside of our strong operational performance, we further executed on our commitment to enhance shareholder value by initiating a quarterly dividend and fully exercising our common stock repurchase program. We will continue to look for ways to further enhance shareholder value in the future.

With the completion of our most recent U.S. government-related orders, which represented approximately 20% of our net sales in the quarter, we remain focused on growth initiatives, both within our domestic markets and around the world. In the meantime, we will continue to closely monitor our costs and ensure that our operations are as efficient as possible.

We had made inroads in developing relationships with European chassis manufacturers who produce both commercial chassis as well as tactical chassis for military applications. These relationships have led to opportunities to quote tenders in European markets and the Pacific Rim. To date, we have received small orders from governmental authorities in the UK and Scandinavia as a result of our product offering and developing relationships.

We will remain aggressive in bidding for future contracts, including both additional domestic and foreign government-related tenders. But obviously, we cannot predict the success or timing of any such efforts. As I've said before, the bid process on these type of tenders can be very lengthy and uncertain, but we will remain diligent in our pursuit of these opportunities as we see these markets as one of our global growth opportunities.

Another example of our recognized differentiated product offering and production capabilities is the recent award to our French subsidiary for units to be supplied through a prime contractor to the French military. To date, we have delivered test units for testing and acceptance by the prime contractor and end user. Upon completion of the test and acceptance by the French military, we expect to commence production on a 50-unit order, which could increase to a total of 150 units over a three-year delivery period.

We are extremely excited about these opportunities, and we stand to benefit from the ongoing improvement in the demand environment, should it continue, particularly in our core domestic operations. Although visibility remains uncertain across our markets, we remain cautiously optimistic regarding our longer-term outlook. We will continue to monitor the demand environment and ensure that we are prepared to adapt to market conditions and will continue to work to maximize shareholder value.

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

(Operator Instructions). David Cohen, Midwood Capital.

Congrats on a great year. One comment before I ask the question. It's quite a challenge to find the dial-in number for the call. It's something you might want to make a little bit easier in the future.

So my question is, I know you guys are not in the habit of giving guidance. But with, by my math, government orders in excess of $100 million that won't repeat in 2012, can you give us a sense of the potential profitability of this Company going forward relative to the very strong 2011 performance?

This is Vince. First of all, sorry you didn't get the number. I thought there were invites out.

But we have not given guidance. We're seeing domestic -- the domestic markets picking up, and that will have obviously a positive impact overall, and you can sort out the numbers that drop from the military, though we are still trying to pursue more of those opportunities. But beyond that, we really haven't given any guidance.

So relative to what -- I think it was a 17% consolidated gross margin, would military carry higher -- would that have carried higher margins throughout 2011 than your Company average?

This is Jeff. Obviously when you look at the military tender and specifics, there are no chassis in the sale of that on our side, in the sale of that military supply. So it doesn't -- this pure revenue generated doesn't have a downward pressure based on supplying chassis.

But from a standpoint of pure manufactured product, it's pretty similar. When you look at the large wreckers that we supply to the military, the margins are pretty similar to the large wreckers that we supply to our commercial markets.

And I got on the call a little bit late, but with the 14.9% gross margin for the fourth quarter, compared to the prior couple of quarters, what accounted for the downward pressure on that, even though military was still a relatively high portion of the sales?

As Vince mentioned, we had a higher proportion of chassis sales year over year with the increase in domestic demand levels.

And in fact, our proportion of chassis to bodies actually, although we don't disclose that proportion, I will tell you it actually went up in our fourth quarter. And we think that is based on chassis manufacturers who had some supply issues in the second and third quarter pushing to get out -- not pushing, but actually delivering their units towards the end of the year, which gave us more volume of chassis over prior-year period.

Thanks, guys.

Great to talk to you.

(Operator Instructions). Matt Sherwood, Cooper Creek Partners.

Great quarter. Just had a quick question on the -- just the demand environment. You guys obviously had a pretty strong back half in terms of revenues. Was there any pull forward with the accelerated depreciation or some of the supply issues that you just mentioned with the chassis manufacturers?

I can't -- that's a good question, and the accelerated depreciation, I think, had some impact in fourth-quarter deliveries of some of our units, but the amount of pull forward, I'm not sure.

We did end 2011 with a much stronger backlog than 2010. So as far as the word pull forward, if it was pull forward we didn't get everything delivered in 2010 for our customers. So, sure, it had some impact. But remember that we're dealing our customer -- the average fleet size is six units. We're on the commercial side in a mom-and-pop industry.

And then, just with regard to the commentary, then, with the moderate demand environment, just -- what is moderate relative to what? How should we look at that?

If you look at our peak periods, we're tracking well below from a percentage standpoint of those peak periods, so, in terms of number of units manufactured and delivered.

So we believe that that demand is going to come back over time, but we don't believe that that demand is just going to dump down upon us in a single year. We think it will be a slow, steady climb.

And then, last question, just on the gross margins, I know you were talking about it. But if the fourth quarter had some military sales in it, which it did, should we expect margin -- gross margin down sequentially from the fourth quarter, or was there just a disproportionate mix of chassis relative to what commercial would usually have?

I think our sales mix, when you look forward, will have a strong -- because we're out of the military business, will obviously -- in terms of large orders, still -- out of is not the right word.

But we don't have these large government orders flowing through, which means if our volume -- if that volume is out of the mix and the volume settles with commercial application, that will indicate and should indicate to our shareholders that there will be a stronger percentage of chassis in that volume, which of course means that margins will come down

As a percentage.

As a percentage.

Right. Including from -- but the fourth-quarter margins were just somewhat lower than the other margins earlier in the year, so I was just wondering if they finally reflected a normalization or whether they should -- they had military in them, too, so I'm just trying to understand.

Obviously, fourth-quarter margins over margins throughout the year are down, and I think Vince explained that we had a stronger percentage of chassis sales in the fourth quarter than we did in the previous quarters, which obviously had an impact on margins.

As a shareholder, I understand your concern about the margin. As the CEO of the Company, as I see a stronger percentage of chassis sales in our mix, I actually get excited because that tells me commercial demand is coming back. So it's, I guess, a two-headed coin. And you as a shareholder, I certainly understand your concern. When I see chassis sales go up, it's an indicator to me that demand is coming back.

Great, thanks a lot. I appreciate it.

Rick D'Auteuil, Columbia Management.

I'll echo the good quarter and year.

Thank you.

Just a quick question. So I don't know if there are statistics on this, but is there data out there that measures the average age of the equipment that's in use out there, and how does that compare to the historical averages?

There is no data, Rich, but the data we can generate internally, based on units sold over the last seven or eight years versus units sold -- I mean, there is plenty of runway. I don't know how else -- I think that's what you're trying to get to, is (multiple speakers)

Well, we see that data on the Class (multiple speakers) trucks, we see that data on the trailers, and they're -- after multiple years of under normal demand, we are starting to see those markets start to spend again, and maybe not above average, but at least back to sort of average levels. And I would think that the same would hold true in your market, too.

Obviously, the average age of the fleet, in our estimation, over the last years has gone up.

It had to go up, Jeff.

Yes. I mean, obviously, Rick, we think those units will have to be replaced. It's just the outside environmental factors that affect purchase decisions, which would affect the timing of replacement.

Again, we deal in our industry with moms-and-pops. And we don't deal directly with them; we deal through our distributors. But we are very close to the final end-user. And bad news, economically, rising fuel costs, have an impact on the timing of when they are going to pull the trigger on buying that new carrier or that new heavy duty.

Versus trying to keep it in repair.

Right.

Okay. And then, the last question is, what's the status for that mom-and-pop, their ability to get financing? Has that returned to normal levels or is that still (multiple speakers)

I don't think it's returned to normal levels, but it has gotten better. I mean, I don't know that it will -- well, we need to define what's normal first. Was it normal that a guy could get into a truck with no money down and sign a piece of paper and he's driving a new truck? I don't know that that was normal.

But it is getting back to where credit is getting approved. Now, we have a retail finance relationship with a bank, and we continuously see that their fundings are growing. So at the end of the day, it's getting better.

Thank you.

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

Thank you for your questions and thank you for listening to our call. We obviously appreciate your support, and as we've stated in our call, we'll continue to do everything we can to enhance shareholder value.

I would like to make one final comment. We at Miller Industries are extremely proud of our performance of last year. In fact, it's probably the best year we've ever had. So as we enter into this year, you can be guaranteed that our people will look to be aggressive in replacing military contracts.

So with that, I want to say thank you, and we'll talk to you with first-quarter results. Appreciate your support.

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