Earnings Call: Q1 2020

May 7, 2020

Good day, ladies and gentlemen, and welcome to Miller Industries First Quarter 2020 Results Conference Call. Please note this event is being recorded And now at this time, I'd like to turn the call over to Brendan Dunlap, FTI Consulting. Please go ahead, sir. Thank you, and good morning, everyone. I would like to welcome you to Miller Industries conference call. We are here today to discuss the company's 2020 first quarter results, which were released after the close of market yesterday. With us from the management team today are Bill Miller, Chairman of the Board, Will Miller, President and Co CEO Jeff Badgley, Co CEO Debbie Whitmire, Executive Vice President and CFO and Frank Medonia, Executive Vice President, Secretary And General Counsel. 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 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 the company's annual report filed on Form Ten K and other's 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, everyone. Before we discuss our first quarter financial results, let me start by saying that our thoughts are with all loads affected by COVID-nineteen. These are unprecedented and challenging times, and I am deeply appreciative of the hard work and dedication of our employees. During March, we implemented significant actions to protect and customers. Additionally, we took the necessary steps with continued operations to say that we are on the front line dedicated to moving America forward during this difficult time. As the country begins to heal, We remain committed to providing industry leading products to help keep America's roadways clear. Moving onto our financial results, our performance during the quarter was negatively impacted by disruptions in our supply chain as well as production modifications and shutdowns and delayed deliveries associated with the onset of the COVID-nineteen pandemic. Revenue during the first quarter decreased 10.7% to $176,100,000 versus $197,200,000 a year ago as a result of rescheduled delivery of certain components within our supply chain and deferred delivery of units as a result of the cancellation of our largest trade show of the year due to COVID 19. Additionally, we experienced a temporary shutdown in our manufacturing facility at the end of the quarter and so distancing and shoulder in place policies were implemented nationwide. However, I am pleased to say that we were able to quickly adjust business operations in order to resume production effectively and efficiently. Our domestic business was negatively impacted. However, our international business held constant quarter over quarter due to favorable contract delivery timing. Quarterly gross profits decreased by 18% year over year to $18,500,000 and our gross margin contracted approximately 100 basis points year over year to 10.5%, reflecting reduced fixed cost absorption as a result of a decrease in top line sales. Net income was $5,400,000 or $0.48 per share compared to net income of $8,700,000 or $0.76 per share in the first quarter of 2019. Despite the challenging environment, we are confident in our ability to continue meeting the needs of our customers. The safety and well-being of our employees is our primary concern. So as we move into the 2nd quarter, we are maintaining current production levels to balance deliveries on our strong backlog, while following recommended social distancing guidelines and other CDC requirements in our facilities. We're also proactively working with our distribution network to maximize their inventory investment during these challenging times. Further, we drew $25,000,000 on our existing credit facility to strengthen our liquidity position as we manage the business through this crisis Now I'll turn the call over to Debbie, who will review the first quarter financial results. After that, I'll be back with comments about market environment and some closing remarks. Debbie? Thanks, Jeff, and good morning everyone. Net sales for the first quarter of 2020 were $176,100,000 versus $197,200,000 for the first quarter of 2019, a 10.7% year over year decrease, driven by supplier delays used in postpone deliveries resulting from COVID-nineteen. Comps of operations decreased 9.8% to $157,500,000 for the first quarter of 2020 compared to $174,600,000 for the first quarter 2019 due to the decline in our top line sales. Cost of operations as a percentage of net sales expanded approximately 100 basis points to 89.5 percent from the prior year period. Gross profit was $18,500,000 or 10.5 percent of net sales for the first quarter of 2020. Compared to $22,600,000 or 11.5 percent of net sales for the first quarter 2019. Reflecting reduced fixed comp absorption resulting from the decline and top line sales. SG and A expenses or $11,000,000 for the first quarter 2020 compared to $10,200,000 for the first quarter 2019. As a percentage of sales, SG and A increased approximately 100 basis points to 6.2% from 5.2% in the prior year period. Interest expense net for the first quarter of 2020 was $359,000 compared to $668,000 for the first quarter 2019 as interest income from our distributor receivables increase and interest expense from the credit facility and distributor floor plan payments decreased. Other income and expense for the first quarter 2020 was a net expense of $91,000 compared to a net expense of $245,000 for the first quarter of 2019, due to currency exchange rate fluctuations. Net income for the first quarter of 2020 was $5,400,000 or $0.48 per diluted share. Net income for the first quarter of 2019 was $8,700,000, or $0.76 per diluted share. Turning now to our balance sheet. Cash and cash equivalents as of March 31, 2020 was $43,100,000 compared to $26,100,000 as of December 31, 2019, and $19,000,000 at March 31, 2019. Accounts receivable at March 31, 2020, totaled $168,900,000 compared to $168,600,000 as of December 31, 2019 $183,800,000 at March 31, 2019. Inventories were $92,600,000 as of March 31, 2020, compared to $88,000,000 as of March 31, 2019, and $96,200,000 at March 31, 2019. Accounts payable at March 31, 2020 was $96,800,000 compared to $95,800,000 as of December 31, 2019, and $107,800,000 at March 31, 2019. During the quarter, we drew $25,000,000 from our existing credit facility in order to bolster our liquidity position amidst the COVID-nineteen pandemic. Overall, our balance sheet remains strong and we believe we have sufficient financial flexibility to manage our business through this crisis. Lastly, the company also announced as Fortive Directors approved our quarterly cash dividend of $0.18 per share payable June 15, 2020 to shareholders of record of the close of business on June 8, 2020. Now, I'll turn the call back to Jeff for closing remarks. Thank you very much, Debbie. I'm extremely proud of our employees for their hard work and continued dedication during these unprecedented times. Despite the challenging environment, our commitment to operational excellence endured as we successfully maintained production levels to meet the needs of our customers. Further, we remain dedicated to returning capital to our shareholders as evidenced by our declared dividend of $0.18 per share. The strength of our balance sheet and our robust liquidity provide us with financial flexibility needed to preserve through these challenging times. As we transition into the second quarter, we are still feeling the impact of the pandemic on our business. Which we expect will persist at least through the second quarter. And it is unclear how long This will impact economic activity and thus our business. However, we will continue to monitor the ongoing pandemic and adjust our supply chain and operations accordingly. Finally, we are confident that our prior cost reduction initiatives and unwavering commitment to best in class customer service will continue to benefit us as we navigate through this crisis. In closing, I'd like to thank our employees customers, suppliers and shareholders for their ongoing support And we'll apologize for a moment to allow everyone an opportunity to signal for questions. And we have no questions at this time. Thank you again for joining us on the call today and we look forward to speaking with you again on our second quarter results conference call in the future. Stay safe. Stay healthy. And that concludes today's call. Thank you for your participation. You may now disconnect. I