Earnings Call: Q1 2019

May 9, 2019

And welcome to the Miller Industries First 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 Mr. Brendan Dunlap at FTI Consulting. Please go ahead, sir. Thank you, and good morning, everyone. 2019 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 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 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 discuss our first quarter results with you today. This was another strong quarter for Miller Industries as we achieved strong revenue and profitability growth. And an increase in associated with increased production capacity and efficiency gains. Our commitment to operational excellence continues to pay off, as evidenced by our 22.6 percent increase in gross profit and our 29.8 percent increase in net income as compared to the first quarter strong demand in our domestic and international markets. We reported 2019 first quarter sales of $197,200,000, an increase of 23.9% compared to $159,200,000 in the prior year period. Net income was $8,700,000 or $0.76 per share compared to net income of 6,700,000 or $0.59 per share in the first quarter of 2019. Gross profit as a percentage of total sales contracted slightly to this quarter to 11.5%, down 10 basis points from 11.6% in the first quarter of 2018. However, selling, general and administrative expenses as a percentage of total sales decreased 80 basis points to 5.2% as we continued to focus on cost cutting and realized workflow efficiencies. Our balance sheet remains healthy and we continue to strategically deploy our resources to drive organic growth and profitability to create sustainable shareholder value. And in our financial outlook. Now I'll turn the call to Debbie who will review the first quarter financial results. After that, I'll be back with comments on the market environment and some closing remarks. Then we'll go to Q and Thanks, Jeff, and good morning, everyone. Net sales for the first quarter 2019 were $197,200,000, versus $159,200,000 for the first quarter of 2018, a 23.9% year over year increase. Cost of operations increased 24.1 percent to $174,600,000 for the first quarter 2019, compared to $140,700,000 for the first quarter 2018, reflecting increased costs associated with higher demand. Cost of operations as a percentage of net sales expanded approximately 10 basis points to 88.5 percent from the prior year period as we ramped up production in order to meet higher demand. Gross profit was 22 point 2019 compared to $18,400,000 or 11.6 percent of net sales for the first quarter 2018. SG and A expenses were 2018. As a percentage of sales, SG and A decreased 80 basis points to 5.2% from 6% in the prior year period. Other income expense net for the first quarter 2019 was a net expense of $254,000 compared to a net gain of Interest expense for the first quarter 2019 was $668,000 compared to $420,000 for the first quarter 2018 due to an increase in long term debt outstanding and increased interest on distributor floor planning. Net income for the first quarter 2019 was $8,700,000 or $0.76 per diluted share. Net income for the first quarter 2018 was $6,700,000 or $0.59 per diluted share. Now turning to our balance sheet. Cash and cash equivalents as of March 31, 2019 were $19,000,000 compared to $27,000,000 as of December 31, 2018 and $15,100,000 at March 31, 2018. Accounts receivable at March 31, 2019 totaled $183,800,000 compared to $149,100,000 as of December 31, 2018. And $136,700,000 at March 31, 2018. Inventories were $96,200,000, as of March 31, 2019 compared to $93,800,000 as of December 31, 2018, and $77,700,000 at March 31, 2018. Accounts payable at March 31, 2019 were $107,800,000 compared to $98,200,000 as of December 31, 2018, and $82,700,000 $15,000,000 during the first quarter of 2019 in order to meet working capital needs associated with the increases in production during the period. The company also announced that its Board of Directors approved our quarterly cash dividend of $0.18 per share, payable June 17th 2019 to shareholders of record at the close of business on June 10, 2019. Now, I'll turn the call back to Jeff for further remarks. Thank you, Debbie. Our performance this quarter was very encouraging as the effects of our capital projects and increased production capacity, ultimately increasing our earnings. As always, disciplined Operations, cost reduction, balance sheet management and targeted capital deployment remain central to our strategy. To underscore our continued commitment to returning shareholder value, we As we continue into 2019, our backlog remains strong and underlying activity in all our end markets continues to be positive. Offsetting some of these positive fundamentals are cost pressures related to raw materials. Which we will continue to related to tariffs and the impact as we realize the incremental benefits on the back of our plant consolidation and expansion efforts we will continue allows us to sufficiently meet growing demand In closing, I'd like to thank our employees, our customers, our suppliers and shareholders for their ongoing supportive Miller Industries. Thank you. You. We'll now take our first question from James Zee from Patero Capital. Please go ahead. Your line is open. Hi guys. This is the first time, I think in over a year that your gross margin has not expanded year over year. Could you explain why and the trend going forward? Obviously, I think we've been quite visible and transparent in the fact that raw materials are increasing. But, I would say, Jim, that we instituted a price increase to cover the raw material increase and tariffs Last September, last September, our backlog was large enough that we didn't get full we will work through that increase, I believe, by midthirdquarterofthisyear. So Yes. Jeff, this is Jeff. I think you might let there was a a subtle product mix shift there too. Yes. Certainly, mix. Because of the increased volume we ended up a little and the mix percentages were slightly different. Yes. That sounds like with the price increase you instituted, you should be able to see the positive effect, starting Q3 this year? Gross margin? Well, I think, yes, I think we'll see, depending on what the mix is in Q3, but we'll pick up more percentage of our orders, we'll have new prices versus orders that were in the backlog at old trucks. Correct. And I noticed there's a spike in your accounts receivable, your day sales outstanding. Could you explain that and then the need for working capital going forward? As far as the spike in account receivables, obviously, as volume increases, your receivables are going up, Remember, we sell through a distribution network. That distribution network does have terms with Miller Industries. I would say that, looking at our distributor, network and their payables or our receivables from them, we, we are not concerned at all. They seem to be within term except maybe 3% to 4%. So I think from a capital standpoint, we've probably hit a peak, not because of receivables, but more because of the problem we had with our toolbox supplier that was explained, I think, in the fourth quarter. Their lack of delivery, which clogged up some inventory in plugged up some inventory that wouldn't allow us to deliver product complete. So I think from a cash standpoint, we should be fine going forward. Got it. Thank you. It appears no further participants are queuing for questions at this time. I'd like to turn the call back for any additional or closing remarks. We'd like to thank you for joining our conference call and look forward to speaking to you as we report our next quarter very soon. And with that ladies and gentlemen, that concludes today's conference call. We'd like to thank you again for your participation. You may now disconnect.