Miller Industries Inc (MLR) 2015 Q2 法說會逐字稿

Welcome to the Miller Industries second-quarter 2015 results conference call. (Operator Instructions) Please note this event is being recorded.

At this time, I'd like to turn the conference over to Katie Pyra. Please go ahead.

Thank you. Thank you and good morning, everyone. I'd like to welcome you to the Miller Industries conference call. We are here to discuss the Company's 2015 second-quarter results, which were released after the close of 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 VP 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'd 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'd like to turn the call over to Jeff. Please go ahead, Jeff.

Thank you and good morning. We are pleased to report our excellent performance in our second quarter of 2015, growing top- and bottom-line results on a year-over-year and sequential basis. Our results were driven on the top line by strong domestic orders levels paired with strong operational execution, cost discipline and continued progress on our strategic initiatives. We have capitalized on ongoing efforts to ramp up our production levels and keep ahead of demand.

We reported 2015 second-quarter sales of $151.5 million, approximately 24% higher than sales of $122.4 million in the prior year period. Net income of $5.9 million or $0.52 per share represents an increase of approximately 73%, compared to net income of $3.4 million or $0.30 per share in the 2014 second quarter.

Our operating profitability increased as well. Gross margin for the quarter was 11.6% of net revenues, up from 10.2% in the prior year period. SG&A as a percentage of net sales was roughly 5% of net sales, down from 5.7% in the second quarter of 2014.

Our order levels and backlog remained strong, and overall quoting activity has been encouraging. Customer sentiment continues to improve, and our core business is operating in a position of financial strength. We continue to demonstrate our ability to react to shifts in the market and capitalize on opportunities as they emerge.

Now I'll turn the call over to Vince who will review the second-quarter and six-month financial results. After that, I'll be back with comments on the market environment and some closing remarks. Then we'll go to Q&A. Mr. Mish?

Thanks, Jeff, and good morning, everyone. As Jeff mentioned, net sales for the second quarter of 2015 were $151.5 million versus $122.4 million for the 2014 second quarter, a 23.8% year-over-year increase. The continued strong quarter flow from domestic and international markets led to our decision in previous quarters to ramp up production levels, which resulted in our significant revenue growth in the second quarter.

Cost of operations increased 21.9% to $134 million in the 2015 second quarter compared to $109.9 million last year, driven primarily by the higher sales volumes and costs relating to increasing production levels.

Gross profit was $17.5 million or 11.6% of net sales in the second quarter of 2015 compared to $12.5 million or 10.2% of net sales in the second quarter of 2014, primarily due to the higher sales volumes. SG&A expenses were $7.6 million in the second quarter of 2015 compared to $7 million in the second quarter of 2014. As a percentage of sales, SG&A decreased to 5% from 5.7% in the prior year period.

Other income expense net for the second quarter was a loss of $265,000 related to foreign currency transaction losses compared to a net loss of $55,000 in the second quarter of 2014. Interest expense in the 2015 second quarter was $245,000 compared to $126,000 in the second quarter of 2014. Net income attributable to Miller Industries in the 2015 second quarter was $5.9 million or $0.52 per diluted share. Net income attributable to Miller Industries in the 2014 second quarter was $3.4 million or $0.30 per diluted share.

Now let me briefly review our results for the six months ended June 30, 2015.

Net sales for the first six months of 2015 were $278.3 million compared to $226.6 million in the prior year period, an increase of 22.8%. Gross profit for the six months ended June 30, 2015 was $29.5 million or 10.6% of sales compared to $23.4 million or 10.4% of sales for the first six months of 2014.

Net income attributable to Miller Industries in the first six months of 2015 was $8.9 million or $0.79 per diluted share, which is a 55.2% increase from net income in the first six months of 2014, $5.7 million or $0.51 per diluted share.

Turning now to our balance sheet, cash and cash equivalents as of June 30, 2015 were $36 million compared with $38.3 million at March 31, 2015 and $39.6 million at December 31, 2014. Accounts Receivable at June 30, 2015 totaled $131.3 million compared to $116.1 million at March 31, 2015 and $116.5 million at December 31, 2014. The increase in sales volume drove Accounts Receivable higher from the year-end levels.

Inventories were $57.6 million as of June 30, 2015 compared to $61.8 million as of March 31, 2015 and $56.5 million at December 31, 2014. Accounts Payable at June 30, 2015 were $81.8 million compared to $79.9 million at March 31, 2015 and $70.6 million at December 31, 2014.

On June 11, 2015, we renewed and extended the maturity date of our unsecured revolving credit facility to March 31, 2018 and increased the amount of the credit line from $25 million to $30 million. We continue to operate with no borrowings under our $30 million unsecured revolving credit facility.

The Company also announced its Board of Directors has declared a quarterly cash dividend of $0.16 per share payable September 21, 2015 to shareholders of record at the close of business on September 14, 2015.

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

Thank you, Vince. The second quarter of 2015 was an excellent quarter for Miller Industries as we continued to see high levels of quoting activity, particularly in domestic markets and healthy activity internationally, despite the effects of the strength of the dollar. The dedication of our employees who increased production levels in line with demand yielded solid revenue and income growth for the second quarter. Our work to control costs and improve operating efficiencies over the past several quarters further enhanced our results. Customer sentiment for our products remains positive, and we expect demand to remain healthy throughout the remainder of 2015.

During the quarter, we continue to expand our product offerings in existing markets, as well as broaden our international footprint. We rolled out new products this year that have been well received by our customers, controlled costs and operational efficiency to scale with our business and maintained a strong backlog.

Overall we were very pleased with our performance in the second quarter of 2015. We continued to build upon the momentum and strength of our business and achieve solid revenue and profitability growth. Our balance sheet remains strong, and we continue to operate from a position of financial strength. We remain committed to enhancing shareholder value through strong cash flow and our quarterly dividend of $0.16 per share. As we move into the third quarter, we are well-positioned to take advantage of the opportunities that we see in our marketplace.

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

(Operator Instructions). Rick D'Auteuil, Columbia.

Good morning. Great quarter.

Thanks, Rick. Thank you.

Just if you could just generally comment on the manufacturing efficiencies? I know a quarter ago you were using some overtime. As you've ramped up production, have you mitigated that some, or how do you feel about it? It looks like from the margin standpoint, it looks like that things are improving, but in general how would you characterize it?

Rick, this is Jeff. We are certainly still using overtime. We probably decreased that overtime amount a little bit in the third quarter, but demand -- our customers, our distributors are dependent upon our deliveries. So it's really market-driven that we continue to utilize overtime somewhat and continue to drive it down, but it hasn't gone away yet, that's for sure.

Okay. Also, you talked about the impact of a price increase helping Q2, but it would be fully impacting Q3. Is that still the thought process? How much incremental health are you going to get in Q3 on price versus Q2?

You know, Rick, I wish I was smart enough to go back and see what kind of cost increases we've seen from our suppliers over the last couple of quarters. I don't think there's been any major, but I think there's probably been some incremental. So I'm really not in a position to honest you answerly -- honestly without doing some studying. I think we'll see some, but to quantify it would be -- I'm not in a position to do that today.

You had talked about progress on adding worldwide distribution. Do you have any things that you'd like to speak to specifically on that?

Well, we've added distribution in South America. We continue to add distribution in the Middle East. We have not had much success in adding distribution in the European markets with American product due to the strength of the dollar. But yes, it's ongoing.

Okay. And then also you talked about, on the Q4 calls, you spoke to some purchase orders for design work in a small European country and then another prototype design in another country. Have they lead to -- I don't know what the duration is between design and prototype work and commercial orders. Are those opportunities progressing?

Yes, they are, and we feel very good about those opportunities. But as of today, the prototypes are still being built, not tested. So the firmness of the orders for the production run won't take place until we have the units tested in the field.

So we believe that the progress is very strong, but I certainly to not want to mislead anybody because things can go wrong. So we feel good about it. Whether or not you want to count it at this point is questionable until we have that firm, firm order.

So to the extent they are in Europe, I would think -- again, you've got currency disadvantages, right?

Well, we certainly have currency disadvantages, but in our tenders we attempt to take away a little bit of that currency disadvantage. We do buy some of those supplies we need for European -- European fill of contracts and kind of split currency in the bid -- dollars and euros. So we do our best to mitigate that disadvantage knowing we are going to pay some of our suppliers in euros, not dollars.

Okay. And then I know on this call, you talked about continued strong commercial quoting activity. A quarter ago you also talked about worldwide military quoting being strong. One, any wins there, and then was there any military business in this quarter that you just reported?

Let's take the last question first. The quasi-military which in turn -- which could be defined either civil defense or military, there was a minor contract delivered to Oman in this quarter. Other than that, it was commercial business, so to speak.

As far as quoting activity in other areas of military opportunities, they continue. Have we been awarded anything in the quarter, as in did we get anything awarded during the quarter? The answer is no.

Okay. The way you phrased that, does that imply you won something in July?

I'm sorry. I didn't mean to insinuate that. I'm saying that I just tripped over words I guess is a good enough --

Okay. Not a problem. I just wanted to make sure I asked the right question. All right. That's it for me. Thank you.

(multiple speakers)

Walter Lang, Avondale Partners.

Good morning. Congratulations on a great quarter.

Thank you, Walter.

I read in May that US motorists drove a record amount of miles according to the FHA. I can only assume that's being topped in June, and that topped the previous record set back in 2007. I know your demands that are picking up steadily over a year ago, but is this enhancing the US demand for your products?

And then secondarily, on the capital commitment that you are allocating towards production on the carrier product lines, do you have a specific return on invested capital goal on that money, and is it measurable?

(multiple speakers) Let's talk about miles driven, and I'll turn the call on return on investment and the expansion in Pennsylvania to other people in the room.

Miles driven obviously plays on demand in all markets. Obviously, as you cited, that continues to rise. Now our demand is extremely strong. I'm not too sure we are not seeing some pent-up demand from past years and filling that pent-up demand along with what's happening with miles driven, Walter.

So does it help? Absolutely. Absolutely. It makes the tour obviously feel busy because they are busy, and it puts them in a position of the desire and/or the need to buy trucks.

So second question -- Will, do you want to take over with what we are doing in PA and ROI?

Sure. So the goal for the Pennsylvania expansion is to truly create the largest, most efficient, state-of-the-art carrier manufacturing facility in the world. We are focusing a lot of our time and effort in the design process of the new plant into automation and robotics. So our plan is to have the capabilities from a total carrier production of approximately 700 carriers a month when we are completed in the first and second quarter of next year.

With regard to the ROI, I will let Vince handle most of that question, but there is absolutely some measurable items when we look into automation and robotics as far as the ROI.

And some of the things that our people are finding equipment wise look like -- we are still sorting out what the returns are going to be, but it's pretty spectacular stuff. But internally we tried to get at least a 20% ROI and maybe even better than that by the time we are done sorting it all out. That's our internal goal -- at least that.

And is the throughput of [700] a month, is that a material increase from (inaudible) production levels?

Yes.

That's a yes?

That is a yes.

The answer to that one is it's probably close to double.

And you know, Walter, obviously the production rate is twice with the new facility and probably the toughest competition in terms of worldwide competition. You've find the platform used or the carrier used throughout the world. And to compete in that arena, we have to increase our efficiency and take some costs out of the process because you're normally competing with smaller local manufacturers. You are building a better product, but you are competing with some people that are price driven.

And a local manufacturer has -- are they competitive from a pricing standpoint?

Well, when you talk about a local manufacturer, I have to compete in, let's call it Brazil. I've got freight, so I've got some expenses that they don't have, obviously. So we're trying to drive our efficiencies and costs down to expand our world footprint.

So a big part of your goal here is driven by the intention to expand globally?

No, I mean I'm adding that from an international flavor. Our goal here is to obviously improve our efficiencies, improve our profitability and increase our production capabilities -- quality. There's lots of goals.

Walter, this is Bill. Walter, this is Bill. Obviously the objective is to reduce the cost, improve the quality, but most importantly we have to meet the demand. And there's no way our volume is jumping the way you guys see it, unless we are taking business somewhere, and we have to increase our production to be able to stay with that. Because we've been very successful with a lot of new products with a lot of new customers, and that's due to a great team.

Okay. I appreciate it. Again, great quarter.

(Operator Instructions). I have no additional questions. This concludes the question and answer session. I'd like to turn the conference back over to Jeff Badgley for any closing remarks.

Well, we certainly are excited with our performance our last quarter, and we look forward to joining you again with the results of our third-quarter results.

Thank you very much for joining the call. Goodbye.

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