Welcome to the Miller Industries first quarter 2016 results conference call. As a reminder, all participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by 0. 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 to Max Dutcher of FTI Consulting. Please go ahead, sir.
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 2016 first quarter results, which were released after close of market yesterday. With us from 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, and Debbie Whitmire, Vice President and Corporate Controller. 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. Good morning. We're pleased to discuss our first quarter performance with you today. It was a strong quarter for Miller Industries, in which we grew top line by over 17% and increased profitability, all while expanding our capacity to meet demand and enhancing returns to our shareholders. The strong results continue to be driven by improving order trends, both domestically and internationally, and by successfully positioning ourselves to take advantage of increases in volume of activity. We remain committed to our efforts to grow our business and increase our capacity in order to meet our increasing demand. We reported 2016 first quarter sales of $148.8 million, an increase of 17% compared to $126.8 million in the prior year period. Net income was $3.4 million, or $0.30 per share, compared to net income of $3.1 million, or $0.27 per share in the 2015 first quarter.
We have a healthy backlog and continue to invest in our production capability. More specifically, we remain on track to complete the consolidation and expansion of our Pennsylvania manufacturing operations. Also, our capital project in Ooltewah, Tennessee plant is underway, and we are moving forward on our plans to improve capacity and operating efficiencies at the Greeneville, Tennessee facility also. Customer sentiment continues to be positive, and our business is operating in a position of financial strength. Now I'll turn the call over to Vince, who will review the first quarter financial results. After that, I'll be back with comments on the market environment and some closing remarks. Vince?
Thanks, Jeff, and good morning, everyone. Net sales for the first quarter of 2016 were $148.8 million versus $126.8 million for the 2015 first quarter, a 17.4% year-over-year increase. Cost of operations increased 18.3% to $135.8 million in the 2016 first quarter, compared to $114.8 million last year, driven primarily by the higher sales volumes and the sales mix. Gross profit was $13.0 million, or 8.7% of net sales in the first quarter of 2016, compared to $12.0 million, or 9.4% of net sales in the first quarter of 2015. This decline in percentage was predominantly due to our product mix. SG&A expenses were $8.0 million in the first quarter of 2016 compared to $7.4 million in the first quarter of 2015. As a percentage of sales, SG&A decreased to 5.4% from 5.9% in the prior year period.
Other income expense net for the first quarter was a net gain of $341,000, compared to a net loss of $56,000 in the first quarter of 2015. Interest expense in the 2016 first quarter was $198,000, compared to $163,000 in the first quarter of 2015. Net income in the 2016 first quarter was $3.4 million, or $0.30 per diluted share, compared to net income in the 2015 first quarter of $3.1 million, or $0.27 per diluted share. Turning now to our balance sheet. Cash and cash equivalents as of March 31st, 2016, were $33.3 million, compared to $38.4 million as of December 31st, 2015, and $38.3 million at March 31st, 2015. Accounts receivable at March 31st, 2016, totaled $128.3 million, compared to $109.2 million as of December 31st, 2015, and $116.1 million at March 31st, 2015.
Inventories were $71.4 million as of March 31st, 2016, compared to $66.2 million as of December 31st, 2015, and $61.8 million at March 31st, 2015. The increase in inventories is attributable to a continued ramp up in production. Accounts payable of March 31st, 2016 were $88.2 million, compared to $73.4 million as of December 31st, 2015, and $79.9 million at March 31st, 2015. As of March 31st, 2016, we had borrowed $10 million under our $30 million unsecured revolving credit facility to help fund our three-plant expansion projects. The company also announced that its board of directors approved our quarterly cash dividend of $0.17 per share, payable June 20, 2016, to shareholders of record at the close of business on June 13th, 2016. Now, I'll turn the call back to Jeff for further remarks.
Thank you, Mr. Mish. This quarter was a very good start to 2016. We continued to experience increased demand for our products and have ramped up production to meet it. The dedication of our employees to increase production levels in line with that demand yielded solid revenue growth. Our order levels and backlogs were driven by a healthy level of quoting activity for our products. The ongoing interest in our offerings was recently featured at the Florida Tow Show, where our industry-leading product line was on full display, and once again, drew very positive reactions and a lot of excitement from the show's participants. Overall, we're very pleased with our Q1 results and activity. We continue to see strong quoting in domestic markets and healthy activity internationally, despite the strength of the dollar. Our balance sheet is healthy and positions us well to operate our business and facilitate growth.
We remain committed to enhance shareholder value through strong cash flow and our quarterly dividend, which we grew to $0.17 per share this year. Our flexibility to further ramp up our operations has positioned us well to capitalize on current opportunities in our marketplace and to continue to aggressively seek out opportunities going forward. 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're ready to take your questions.
Thank you, ladies and gentlemen. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, that is star one to ask a question, and we will pause for just a moment to allow everyone the opportunity to signal. We will take our first question from James Lee with Potrero Capital.
Thanks. Is there any one-time revenue, let's say, from government or military in your quarterly numbers?
I'm sorry, would you repeat that question?
Okay. On the Q1 revenue, were there any one-time orders, say, from government or military that boosted your Q1 revenue?
I'm sure there is some orders flowing through from military or government, but nothing that was substantial. We have the GSA contract, so to say that we didn't build some carriers for GSA or a few units for post office. I think you're asking was there a huge order that flowed through, and the answer to that is no.
Okay. On the CapEx, given that the amount of CapEx you guys are spending this year, how much more capacity are you building versus today? Let's say once you're done with all the CapEx spending by the end of this year, is it 50% more production capacity versus what you have today?
Capacity, I think, is maybe the wrong question, at least as how management here looks at it. Certainly, we are increasing capacity, for instance, in Pennsylvania, where we're doing a plant expansion and consolidation on carriers. I think the overall capacity that we will have in Pennsylvania is on the low end, 50% increase.
Okay.
Our plan, obviously, is to increase our international exposure in the platform business, which to do that, we need to reduce costs, and this expansion helps us do so. More than that, I think our expansion plans in Tennessee and Greenville are to increase flexibility, so that when we see, for instance, high demand in trailers or large wreckers, we can flip our demand to where we have the ability to build that product. Our CapEx projects in both Tennessee and Greenville gives us that capability.
Let me know the way to think about this, that you guys are currently doing about $500 million or $600 million in annual revenue. Once the expansion plan is completed, how much annual revenue do you think you guys can do potentially?
You're right. Yeah.
That depends on the orders.
Yeah, I appreciate the question. As you know, if you are a shareholder or if you follow the company, we're in a cyclical business. We are making the right moves to add capacity so we can grow internationally, add capacity for large military projects if we're successful, domestic trends remain the same. To say, "Hey, how much more will you do?" is a question that I would like to table. Maybe somebody else wants to jump in, but that really depends on the economic trends in the industry. Again, we are cyclical.
Right.
Yeah.
Go ahead. Sorry.
Who is the questioner? This is Bill. I missed your name at the beginning. Who's asking the questions?
This is James Lee from Potrero Capital.
Oh. Hi, James. Well, I just missed your name at the beginning. I didn't hear it. James, the only thing I would say, I think Jeff may have, the other two plants were basically working on bottlenecks. If you ask Will, I would think he would say capacity would increase at the other two plants, Greenville and Chattanooga, basically because we have some bottlenecks, specifically in the areas of paint and installation, because more and more of our customers want us to do the work. We are working on some things that would allow our product to go through quicker and would, by definition, give us more capacity. I will still roll back to Jeff's point. We are trying to have all the capacity necessary to handle our customers' demands, our distributors' demands, and our customers.
Based upon what is happening around the world, we want to also be able to do those projects without interfering with our domestic customers. That's the objective here.
You guys hit on the point that this is a very cyclical industry, you guys are certainly doing very well right now. How would you guys handle a potential slowdown in demand, given that you're now building your capacity? Could you cut back on capacity? Would that inhibit your ability to?
Yeah. James, are you a shareholder? I don't know. I'm just asking.
Yes, we're shareholders.
Okay. Well, I was trying to figure out if you've been around a long time, because over the last 20-plus years, the one thing that we're most proud of is cyclicality. We keep that, and that's why we keep flexibility in our operations. This is probably, and I would knock on wood on this one because you never know, but historically, we have not lost money in a downturn. We make less money, but we don't lose money. We have a pretty good way of handling it.
Would you say that the dividend that you've been paying, that's safe regardless of the demand environment?
Yeah, we have a lot of cash.
Okay. Well, this year you guys are spending a lot of money on CapEx. Do you expect that to ramp down in 2017?
Oh, yeah. This is a historical CapEx project right now. This should take care of us for some time as far as what we see in the future. We haven't really done any substantial CapEx projects for, I don't know, maybe, what has it been, 10 years, guys?
Yeah.
I'm not sure, but it's been quite a while, and they were never like this. This is kind of creating a future for us. The consolidation up in Pennsylvania is allowing us to use robots more and do some things that we think are cost-effective and flexible for the future of the business.
I'm wondering, given the level of CapEx you're going to have this year, and certainly you have the cash right now, but by the end of the year, you'll be depleting the cash. How comfortable are you guys with the balance sheet and your ability to pay dividend given the amount of CapEx you have this year?
I don't believe the board would have increased the dividend if they didn't feel comfortable that they could continue it.
Okay. Last question is, what's your manufacturing or plant utilization level currently?
Our plant utilization.
What'd you guys say, Will? I'd say we're close to 100%.
We're close to our capacity. We don't run three shifts like normal companies. We run two. We'll run most of our plants in the areas where we have extreme bottlenecks or constraints are running 20 hours a day.
All right. Well, great. Well, thank you.
Predominantly the focus of the expansion.
Thank you, James.
The renovations.
Once again, as a reminder, to star one to be placed into the queue at this time. That is star one. There are no further questions at this time. I would like to turn the conference back over to management for closing remarks.
This is Jeff. We'd like to thank you for joining us on our Q1 conference call, and we look forward to talking to you again when we report Q2. Have a nice afternoon. Bye.
Bye.
Ladies and gentlemen.
Bye
This does conclude today's event. Thank you for attending today's presentation. You may now disconnect. Have a great rest of your day.