Earnings Call: Q2 2019

Aug 8, 2019

Good day, ladies and gentlemen, and welcome to the Miller Industries Second Quarter 2019 Results Conference Call. Please note this event is being recorded. And now at this time, I would like to turn the call over to Brendan Dunlop at FTI Consulting. Please go ahead, sir. Thank you, and good morning, everyone. I would like to welcome you to the Miller Industries conference call. We are here today to discuss the company's 2019 second 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 provisions of 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 discuss our second quarter results with you today. This was another strong quarter for Miller Industries as our revenue income before income taxes and earnings per share increased double digits on a year over year basis reflecting broad based demand in our domestic and international markets. Our performance during the quarter was driven by strong demand and continued innovation in our to our commitment to operational excellence. Our strong top line sales growth coupled with our continued emphasis on cost savings drove an 18.5 percent increase in gross profit and a 40.6% increase in net income. Overall, we reported 2019 second quarter sales, of $222,300,000, an increase of 25.7 percent compared to $176,900,000 in the prior year period Net income was $10,700,000 or $0.67 per share in the second quarter of 2018. Gross profit as a percentage of total sales contracted modestly this quarter to 11.3%, down approximately 70 basis points from prior year period, due to change in product mix. However, selling, general and administrative expenses as a percentage of total sales decreased approximately 60 basis points to 4.9% as we continued to benefit We remain confident in and we will continue to benefit from Further, our balance sheet remains healthy and we continue to strategically deploy our resources to drive organic growth and profitability to meet the demand of our customers and create sustainable value for our Now I'll turn the call over to Debbie, who will review the second quarter financial results. After that, I'll be back with comments about the market environment and some closing remarks. Then we'll go to Q and Net sales for the second quarter 2019 were $222,300,000 versus $176,900,000 for the second quarter of 2018, a 25.7% year over year increase driven by strong demand in both domestic and international markets. Cost of operations increased 26.7% to $197,100,000 for the second quarter 2019 compared to $155,600,000 for the second quarter 2018, reflecting strong volume 70 basis points to 88.7 percent from the prior year period. Gross profit was $25,200,000, or 11.3 percent of net sales for the second quarter 2019 compared to $21,300,000 or 12% of net sales for the second quarter 2018. The 70 basis point contraction and gross margin was primarily driven by a change in product mix. SG and A expenses were $11,000,000 for the second quarter 2019, compared to 9,700,000 60 basis points to 4.9 percent from 5.5 percent in the prior year period, reflecting our steadfast commitment to cost control and efficient use of our resources. Interest expense net for the second quarter 2019 was $721,000, compared to $484,000 for the second quarter 2018. Other expense for the second quarter 2019 was a net expense of $57,000 compared to a net due to a currency exchange rate fluctuations. Net income for the second quarter 2019 was $10,700,000 or $0.94 per diluted share. Net income for the second quarter 2018 was $7,600,000, or $0.67 per diluted share. Now let me briefly review our results for the 6 months ended June 30, 2019. Net sales for the 1st 6 months of 2019 were $419,600,000 compared to $336,000,000 in the prior year period. An increase of 24.9 percent. Gross profit for the 6 months ended June 30, 2019 was $47,800,000, or 11.8% of sales for the 1st 6 months of 2018. Net income for the 1st 6 months of 2019 was $19,300,000 or $1.70 per diluted share, an increase of 35.6 percent compared to net income for the 1st 6 months of 2018 of $14,300,000 or $1.25 per diluted share. Now turning to our balance sheet. Cash and cash equivalents as of June 30, 2019 was $27,200,000, compared to $19,000,000 as of March 31, 2019, and $27,000,000 at December 31, 2018. Accounts receivable at June 30, 2019 totaled $197,800,000, compared to $183,800,000 as of March 31, 2019 and $149,100,000 at December 31, 2018. Inventories were $91,000,000 as of June 30, 2019, compared to $96,200,000 as of March 31, 2019, and $93,800,000 at December 31, 2018. Accounts payable at June 30, 2019 was $129,400,000, compared to $107,800,000 as of March 31, 2019, and $98,200,000 at December 31, 2018. We reduced our long term debt by approximately $10,000,000 subsequent to the quarter, bringing the balance to approximately $20,000,000 $15,000,000 at June 30, 2019, and July 31, 2019, respectively. This highlights our efficient working capital management and free cash flow generation. The company also announced that its Board of Directors approved our quarterly cash dividend of $0.18 per share, payable September 16, 2019, to shareholders of record at the close of business on September 9, 2019. Now, I'll turn the call back over to Jeff for further remarks. Thank you, Debbie. Our performance this quarter was very encouraging. As we continued to benefit from our strategic capital investments to increase our production capacity and streamline our operations which ultimately led to our flexible production capabilities and targeted capital deployment remains central to our overall strategy as we work to provide To underscore our continued commitment to returning shareholder value, we have declared our quarterly dividend of As we enter the back half of twenty nineteen, we are confident in the strength of our backlog and the underlying positive fundamentals in all our end markets. Finally, we are confident that we will continue to benefit from our strategic capital investments while remaining alert to future value enhancing opportunities to reinvest in In closing, I'd like to thank our employees, our customers, our suppliers and our shareholders for their ongoing support of Miller Industries. With And we will take our first question from DeForest Hinman with Walthausen And Company. Hi. Thank you for letting me be on the call. I'll start off by saying, good job on the results. Very impressive quarter on a revenue basis. I was hoping my first question would be to spend a little bit more time helping people understand the, mix that you called out as it relates to gross margin. Usually, when you see pretty sizable increase in sales, you do see some you know, leverage of some fixed costs, in most businesses. So, you know, I think that's worth spending some time helping people understand what's going on there. So that'll be my first question. So your question is, what was the shift in mix? Is that Yes. What was the shift in mix and why weren't we seeing some fixed cost leverage? On such large increase in sales? Well, the shift in mix was from and although we don't disclose our exact mix because we don't like to lead our competitors to our niches. The shift in mix basically can be explained by looking at our product offering. Both. And then looking at our areas of focus, which include, military and and rental, and seeing a switch from those areas of focus to our more commercial type products year over year. Okay. That's helpful. You talked about capital allocation, generally. Can you be more specific in terms of where we've made investments, in the past and how they're impacting results currently. And on a forward basis, where are we looking to allocate capital? I'll turn that over to Will, who runs, who is co CEO of North America has North American responsibility. Over the last 4 years, we've made, extensive capital investments in all of our North American manufacturing facilities. Expanding capacity as well as improving our quality through robotics paint facilities, things of that nature, that has allowed us to increase maximum revenue potential by meeting our customers' demands as order increases. Our order intake has increased over the past few years. Continue to focus on, streamlining products through not only our investments in the actual facilities, but also in our IT department as well. So, at this point, we've We finished most of our capital projects, for, North America and continue to look for, future opportunities. Is it the same comment for the European operations or is it different? Well, I think the European operations, high level of number of manufacturers in Europe, we won't see the kind of investment we've made in North America. Those operations in general serve their home markets, England and France. Each of them compete with manufacturers not only in their home countries, but also in attempts to export into Other European countries compete with home manufacturers in, in those areas. For instance, Spain may have 3 to 5 manufacturers, Italy may have 7 Germany may have 6. So not the same level, but we certainly are looking at opportunities to enhance our efficiencies. Yes, Jeff. This is Bill. Also the other thing is, Jeff, I mean, part of the improvement of North America is because there are certain parts of your product that you are able to ship, to Europe, to help them without them having to invest in that capital. Absolutely. Okay, that's helpful. I've tried to have a dialogue with your company about, looking to do more investor outreach. Obviously, results are very good. We've you know, we just explained all the investment that we've done and we're starting to reap the the the good results. Is it time to go out and tell the story a little bit better to the the street and increase street engagement. Bill, I would leave that to the Chairman's to answer that question. Well, I, I would basically say we tell our story, on a quarterly basis, We attempt, to answer every question that anybody has about our company, we don't do, individual interviews, calls, trips with individual, shareholders because we wanna make sure everyone has the same information at the same time. Because we believe that's the best way to be fair to all of our shareholders. As far as going out and, doing, investor conferences, etcetera. We really haven't spent a lot of time on that. We're not sure that it's to the best benefit of anyone to go out and, speak about a company in future terms or or in, we just kinda live by our performance and, and we answer questions to everybody on a quarterly basis so that everybody has the same information. Okay. Well, our company is a shareholder. And I think it is in the best interest of shareholders to do some engagement, to talk with the street and educate the investment community about the business that you operate in. Obviously a very unique business, niche end market, very high market share, you know, very good performance, very good free cash flow, you've moved to a net cash position on the balance sheet and probably among, you know, any comparative measure, your stock, even with the big move today, is very low priced versus other industrial Manufacturing companies, you can agree or disagree with that assessment, but if that valuation multiple were to improve, you would see a very meaningful increase in your your share price. So I would strongly encourage you to think about engaging in shareholders more than you have in the past, especially with all the good progress that you've made in terms of improving, performance in driving, revenues higher and doing a lot of innovation in terms of product development. That's more of a statement than a question, but thank you. No. And, let me just say that if if we had invitations, to various conferences or whatever, I'm sure that we would, consider that. But, right now we're just focused on building tow trucks. Okay. Thank you. Our next question is from James Lee with Portrero Capital. I'd like to echo the great results and also the park, callers, sentiment on that. Doing more investor outreach and also doing attending investor conferences. I think that'll help, help yourself greatly in educating the investors. My first question is, you guys implemented a, I think, price increase last year. Looking at this year's results, how much of the growth or the sales bill would you attribute to the price increase that you guys have implemented? Yeah. I would say that the price increase was, at the time, 3 or 4% on, depending on the product. I think some of our products has not reached from the old backlog into a new into new pricing. Is that me? Or or are we already there in terms of, I think it was scheduled to hit in the third quarter for the heavy segment. I haven't done the math being completely honest with you, but I think it's probably insignificant. Do you think the price increase can offset the cost pressure, that's affecting a lot of the industrial companies. I'm sorry. Would you repeat that? Do you think the price increase that you guys have implemented? Would it be able to offset the cost pressure commodity price cost pressure? I think I think it did a good job covering a majority of those of those costs. There are No. I was just gonna say if if you find that it didn't, you'll you'll react accordingly. But so far, our our suppliers have been very helpful to us. Our purchasing department does an outstanding job And, again, we are continuing to increase volume to our suppliers. So I think all of that is allowed us to, to maintain our margins. Okay. Great. And then on the La Quinta results, the method off the group by a lot. And if I look at international, it looks like it's down 9%. Could you talk about why it's down? Is it macro related? And do you expect the trend to persist? No, I think the, the decrease in international is based on just timing of deliveries. So, and I don't see a macro trend at this point. I am somewhat, concerned about Brexit. In the UK, but I think everybody in the UK is concerned about Brexit. Okay. And given your comments about demand environment and your confidence, is it fair as they expect to grow over the next few quarters even with the tough comparison that the sales that you had the last years? We don't. I think you've asked that question in the past. I'm not quite sure, but we We do not, forecast revenue in future upcoming quarters. We'd let you know what our backlog is. We tell you what we've done to, eat through that backlog and, build road trucks every day and try to increase our revenue every quarter. So hope that answers your question good well enough. I want to follow-up on the, the particles question about reinvestment. You guys are about reinvesting in North America. Are you guys thinking about potentially acquiring new product line or is this more like expanding your manufacturing capacity here in North America? Well, I think it's I think our yes. I think that these that our shareholders should realize that, historically, we have grown double digits over the, period of the company. And all of that is generally internal growth rates, new products, new ideas, things that we bring out each year. And, we are really focused on that as our internal growth rate. Thank you. Are you guys looking to expand manufacturing capacity? Is that fair assessment? I think at this time, this is Will. We've made considerable investments in North America. I believe that we have, the capacity that we need today. And as our chairman stated, we're looking to continue, on our innovation efforts through product development. And if at some point we see the need to expand for more capacity than we have today. We always leave that open for discussion. That's great. Thank you. And that does conclude today's question and answer session. I would like to turn the call back to management for any additional or closing remarks. This is Jeff. We'd like to thank you for joining our second quarter conference call and look forward to talking to you again when we report our 3rd quarter results. Thanks again. And with that ladies and gentlemen, that concludes today's conference call. We'd like to thank you again for your participation and you may now