Miller Industries Inc (MLR) 2014 Q4 法說會逐字稿

Hello. This is the Chorus Call operator. Welcome to the Miller Industries fourth-quarter and full-year 2014 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 [Katie Pyra]. Ms. Pyra?

Thank you. Good morning, everyone. I would like to welcome you to the Miller Industries conference call. We are here to discuss the Company's 2014 fourth-quarter and full-year results, which were released after the close of the market yesterday. With us from the management today are Bill Miller, Chairman of the Board; Jeff Badgley, co-CEO; Will Miller, President and co-CEO; Vince Mish, Executive Vice President and CFO; Frank Madonia, Executive Vice President, Secretary, and General Counsel; Debbie Whitmire, Vice President and Corporate Controller; 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 in this morning's conference call management may make forward-looking statements in accordance with the Safe Harbor provisions 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. Please go ahead, Jeff.

Thank you and good morning. I am very pleased with our performance for the fourth quarter and the 2014 year, which reflected solid year-over-year revenue and EPS growth. The results were driven by improving order trends, both domestically and internationally, as well as a combination of a number of government-related deliveries made in the fourth quarter. By further increasing our production earlier in the year, we successfully positioned ourselves to take advantage of the increasing volume of activity during the quarter.

Overall, we are extremely pleased with the efforts of our employees, all of whom work very hard to meet and exceed our goals. As a result of our efforts, we reported sales of $147.8 million in the fourth quarter compared to $108.3 million in the fourth quarter of 2013, an increase of more than 36%. Additionally, Q4 net income of $5.7 million or $0.50 per share represented a 137.8% increase compared to the $2.4 million net income or $0.21 per share in the fourth quarter of 2013.

Order levels have remained strong, sentiment continues to improve, and our core business is operating in a position of strength. Throughout the year, we have demonstrated our ability to anticipate shifts in the market and capitalize on opportunities as they emerged. This is particularly evident in our fourth-quarter results, which reflected strong revenue and margin expansion and increased overall profitability levels. We continued to return value to our shareholders during the quarter through our quarterly dividend, which the Board of Directors has increased to $0.16 per share beginning this month.

Now, I will turn the call over to Vince who will review the quarter's financial results. After that, I will be back with comments on the market environment and some closing remarks. Vince?

Thanks, Jeff, and good morning everyone. As Jeff mentioned, net sales for the fourth quarter of 2014 were $147.8 million versus $108.3 million for the 2013 fourth quarter. Sales were up 36.5% year over year, reflecting growing order trends from improving domestic and international markets. Much of this revenue growth was driven by our efforts to ramp up production levels earlier in the year.

Cost of operations increased 35.2% to $131.2 million in the 2014 fourth quarter compared to $97.0 million last year driven primarily by the higher sales volumes and sales mix. Gross profit was $16.6 million, or 11.2% of net sales in the fourth quarter 2014, compared to $11.2 million or 10.4% of net sales in the fourth quarter of 2013. The increase in gross margin percentage resulted from the higher delivery volumes in the quarter.

SG&A expenses were $7.1 million in the fourth quarter 2014 compared to $7.7 million in the fourth quarter of 2013. As a percentage of sales, SG&A decreased to 4.8% from 7.1% over the prior-year period, which primarily reflected our cost control efforts and the fixed nature of some of these costs.

Other expense related to foreign currency transactions was a net loss of $289,000 in the fourth quarter 2014 compared to a net gain of $103,000 in the fourth quarter of 2013. Interest expense in the 2014 fourth quarter was $180,000 compared to $116,000 in the fourth quarter of 2013. Net income attributable to Miller Industries in the 2014 fourth quarter was $5.7 million, or $0.50 per diluted share. Excluding the net loss attributable to the noncontrolling interest, net income attributable to Miller Industries in the 2013 fourth quarter was $2.4 million, or $0.21 per diluted share.

Now, let me briefly review our results for the full-year period ended December 31, 2014. Net sales in 2014 were $492.8 million compared to $404.2 million in the prior-year period, an increase of 21.9%. Gross profit in 2014 was $53 million or 10.8% of sales compared to $42.4 million or 10.5% of sales in 2013. Excluding losses attributable to noncontrolling interest, net income attributable to Miller Industries for the full year of 2014 was $14.9 million or $1.31 per diluted share, compared to net income for the full year of 2013 of $9.2 million or $0.82 per diluted share.

Turning now to our balance sheet, cash and cash equivalents as of December 31, 2014, were $39.6 million compared to $36.3 million as of September 30, 2014, and $42.9 million as of December 31, 2013. Accounts receivable at December 31, 2014, totaled $116.5 million compared and $99 million at September 30, 2014, and $80.8 million at December 31, 2013. Inventories were $56.5 million at December 31, 2014, compared to $65.6 million as of September 30, 2014, and $54.2 million at December 31, 2013. Accounts payable at December 31, 2014, were $70.6 million compared to $64.7 million as of September 30, 2014, and $47.4 million at December 31, 2013.

The decrease in cash balances and inventory and the increase in accounts receivable and accounts payable levels are all of reflection of our increased production and sales. We continue to operate with no borrowings under our $25 million unsecured revolving credit facility, the maturity of which has recently been extended by one year to March 2017.

The Company also announced that its Board of Directors has increased the Company's quarterly cash dividend to $0.16 per share payable March 23, 2015, to shareholders of record at the close of business on March 16, 2015. Now, I will turn the call back to Jeff for some closing remarks.

Thanks, Vince. As I mentioned earlier, 2014 represented a very good year for Miller Industries as we saw continued strong demand for our products throughout the year. The results in the fourth quarter were indicative of our commitment to ramp up production throughout 2014 as well as the culmination of a number of deliveries of government-related orders that were made in the quarter. These deliveries combined with the timing of several other factors in the quarter yielded solid revenue and income growth for the fourth quarter. The timing of many of these factors in the fourth quarter was unique and is not likely to be repeated.

We have also continued to broaden our international footprint and have seen healthy quoting activity on both a domestic and international level, which speaks well for our order pipeline. The overall sentiment of our customers has been positive as evidenced by the strength in order levels and our current backlog. The level of activity in the current environment gives us confidence in the future prospects of the business and in our ability to continue to strategically add distribution channels around the world in order to take advantage of the long-term opportunities we see in the industry.

Looking ahead to 2015, we believe our growth opportunity lies in expanding our business geographically while advancing our product offerings, and we see a healthy level of demand to pursue both avenues of growth.

Finally, with our solid balance sheet, strong free cash flows, and dedicated employees, we will look to continue our momentum into the coming year and continue delivering value to our shareholders.

In closing, I would like to thank our employees, our shareholders, our suppliers and are customers for their ongoing support of Miller Industries.

With that, we are ready for your questions. Thank you.

(Operator Instructions). Jon Evans, JWEST LLC.

Can you talk a little bit about pricing, I guess? So in the domestic business, have you guys raised prices at all as you came into 2015?

Well, I think we had a price increase of about 3% back in September of 2014. Right? That is where we are at, Jon.

Got it. So can you just -- can you help us understand? So orders were strong in the domestic business. And what I was hoping to understand better is when will that price increase start to hit the P&L? So it was in a backlog. I assume it didn't hit the fourth quarter, but we saw your gross margins go up a little bit. And I know you're going to talk to me about mix and if it has a chassis and everything. But on a like-for-like basis, what I am really curious is when on the back end pieces in the domestic business you start to see the pricing start to hit through the P&L.

You know, I think certain product segments that we build, we probably got a little piece of that -- little piece of that price increase in the fourth quarter, but I would say a majority of that should hit mid-first to early second.

Great. And then the last question I have for you is: can you just talk about what you are seeing from your domestic customers? We have had a really cold winter, a lot of snow, et cetera. Gas prices are down. Miles driven are up. Kind of what is their sentiment? And then can you give us any insight relative to the backlog or orders or bookings? Do you want to go there?

You know, I have been taking some trips with both Will and Vince because the market is so hot. It is also very nice to get to visit some of our older customers, thank them for their business. And I think what we hear and obviously Will and Vince are out domestically more than me, so if they have got something to add they can jump in, but I think what we hear is business is good, we are making money, and we need to buy product from you or your distributor.

And as far as backlog goes, Jon, we have known each other quite a while. I would say, in my memory, and I am only going by memory, I am not going by -- going back through 20 years of history. I don't think we have had a stronger commercial backlog in the history of Miller Industries.

Okay. Sounds like a good problem to have. I am sorry. Can I ask you one last question? With the stronger dollar, what we have seen is we've seen a lot of input costs come down. We have seen aluminum; we have seen steel. There is talk about them going down in the second and third quarter even more. I guess, have you started to see that yet? And do you expect to get any benefit on input costs?

I would say we haven't seen it yet, but I would also say that our servicing department is fairly good and if it's available, we should get it. So, I would think, Jon, that we should get some of that. But keep in mind, please, when you think about our business, again, we are not an automobile manufacturer, as you know. We build a lot of customized product, so our flow of material usually goes to a machine shop or a fab shop prior to getting here. So it's not like we are buying loads of steel and aluminum ourselves and putting it on the floor. So we have to hammer each of those vendors for their cost savings, so it is not just automatic. Do you understand what I am saying?

Yes, no I get it. But it is not like you're seeing any real headwinds, correct? I mean they should potentially be tailwinds?

Yes, yes.

Great. Thanks for your time.

Thank you, Jon. Appreciate you.

(Operator Instructions). Walter Lang, Avondale Partners.

Can you hear me? Great quarter, congratulations. I ask because I am calling in from a cell phone because my flight last night from Chicago to Nashville was canceled due to weather. I rented a car and I'm pulled over here. What struck me is two things, is that one, the weather continues to be very severe, and I've seen some tows on 65 coming down here from Chicago through, so I have to think that puts some more money in the hands of your towers. And secondarily when I pull over and refuel my Rent-A-Car, fuel prices are down and you read continually that miles driven is ticking up as well. So when I think about your commentary on sentiment, and domestic backlog, I have to think this is all part of it. Do you agree?

Yes, I would agree. Yes. Obviously, fuel costs going down has an impact on their profitability. I would like to say, Walter, that gets tempered a little bit by, if you remember, it gets tempered a little bit because normally when fuel goes down, another source of income for towers besides just towing is scrap, and normally scrap comes down. So it is not pure margin expansion for a tower the way normal people think of it. There is an offset. But yes, it is great. It is great.

With just more cars driving, accidents occur as a matter of volume, do they not?

Yes, for sure. Yes.

And then if the tower is benefiting back-to-back severe winters, I just think it pushes, again, more cash in your pockets and they are more likely to upgrade their fleet. Is that accurate?

I think that is very accurate -- and that's -- I mean I don't know if you could hear me earlier with the previous question, but again in my memory, I don't remember a stronger commercial backlog in the history of Miller Industries.

Okay. Again, congratulations. Thanks for taking my questions.

Mike Hughes, SGF Capital.

Good morning. Just on the wage front, we have seen some headlines where there seems to be a little bit more wage pressure in the economy. Can you just talk about if you are seeing that? And is there a normal kind of wage increase at the first of the year, how that worked for you?

We give annual increases to our wages -- to our employees, I'm sorry. And it is somewhat complicated because they are in what we call tiers. And assembler doesn't make as much as a welder. A welder doesn't make as much as -- or excuse me, a stock guy doesn't make as much as an assembler. But sitting here, I would say the average wage increase was approximately 3%. I think what everyone in our organization is concerned about, obviously, is finding the type of people that want to do the kind of work we do in our factories, getting the right people in, people that are trained. But I think increase was probably 3%.

Okay. And then on the overseas business, I think it increased by about $15 million, $15.5 million sequentially. Is that just the culmination of the military orders and it should kind of normalized to $20 million or quarter for 2015? Is that kind of a good number to use?

We don't give guidance, but I would say that big bump was a culmination of both -- in the majority of both France and Denmark, yes.

What is the status -- I think over the last few calls, you have talked about the potential for additional military orders. Anything in the pipeline?

You know, as I said several times, there's quite a few projects that we are working on and quoting. We have a lot of activity. We are in the midst of -- we have been given a purchase order to design some products for a government in Europe, a small country, and we have also been given a purchase order to build some prototypes in another area of the world. So at the end of the day, when you get an order for prototypes, obviously you have to be compliant with the prototype and you just get -- I mean the fact that we have gotten the prototype orders puts us, obviously, in a very good position to get the order if our prototypes are deemed compliant by the military user.

Okay. Thank you very much.

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

Well, I certainly would like to thank you all for joining our call today. Obviously, through my remarks, I talked about factors that affected the dramatic rise in revenue in the fourth quarter. And I would like to mention that, again, they were unique factors that are probably not repeatable, and we should resume back to ranges of revenue that resemble Q2 and Q3 of last year.

So with that, I would like to thank you again, and we look forward to talking to you in the next couple of months. Have a good day. Thank you.

This concludes today's event. We thank you all for attending today's presentation. You may now disconnect your lines.