Earnings Call: Q1 2016

May 5, 2016

Ladies and gentlemen, please standby. We're about to begin. This is the Vivid operator. Welcome to the Miller Industries First Quarter 2016 Results Conference Call. As a reminder, all participants will be in a listen only mode. 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 and 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 result 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 Mysch, Executive VP and CFO Frank Badonia, Executive Vice President, secretary and general counsel and Debbie Whitmire, vice president and corporate controller. Today's call will begin with formal 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'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 value of activity. We remain committed to our efforts capacity in order to meet our increasing demand. We reported 2016 first quarter sales of $148,800,000, an increase of 7 18% compared to $126,800,000 in the prior year period. Net income was 3,400,000 or $0.30 per share compared to net income of $3,100,000 or $0.27 per share in the 2015 first quarter. Our production capability. More specifically, of our Pennsylvania Manufacturing operations. Also, our capital project in Northwell, Tennessee plant is underway, and we are moving forward on our plans to improve capacity and operating efficiencies at the Greenville, Tennessee facility also. Customer sentiment continues to be positive and 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 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 $148,800,000 versus $126,800,000, but 2015 first quarter, a 17.4% year over year increase. Cost of operations increased 18.3% to $135,800,000 in the 2016 first quarter compared to 100 and 14,800,000 year, due to primarily by the higher sales volumes and the sales mix. Gross profit was $13,000,000 or 8 point 7% of net sales in the first quarter of 2016 compared to $12,000,000 or 9.4 percent of net sales in the first quarter of 2015. This decline in percentage was predominantly due to our product mix. SG and A expenses were $8,000,000 in the first quarter of 20 18 compared to $7,400,000 in the first quarter of 2015. As a percentage of sales, SG and A decreased to 5.4% from 5.9% in the prior year period. Other income expense net for the 1st quarter was a net gain of $341,000 compared to a net loss of $56,000 in the first quarter of 2050. 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 $3,400,000 or $0.30 per diluted share compared to net income in the 2015 first quarter of $3,100,000 or $0.27 per diluted share Turning now to our balance sheet, cash and cash equivalents as of March 31, 2016 were $33,300,000 compared to $38,400,000 as of December 31st, 2015, and $38,300,000 at March 31st, 2015. The accounts receivable at March 31 2016 totaled $128,300,000 compared to 109,200,000 as of December 31, 2015,116,100,000 at March 30 1, 2015. Inventories were $71,400,000 as of March 31 2016 compared to 66 point $2,000,000 as of December 31, 2015, and $61,800,000 at March 31, 2015. The increase in inventories is attributable to our continued ramp up in production. Accounts payable at March 31 2016 were $88,200,000 compared to $73,400,000 as of December 31 2015. And $79,900,000 at March 31 2015. 18, we had borrowed $10,000,000 under our $30,000,000 unsecured revolving credit facility to help fund our 3 plant expansion projects. The company also announced that its Board of Directors approved our quarterly cash dividend of $0.17 per share payable June 22,016 to shareholders of record at the close of business on June 13 2016. Now, I'll call the turn the call back to Jeff for for their remarks. Thank you, Mr. Mesh. This quarter was a very good start to 2016. We continue to experience production levels in line with 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 to 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 our quarterly dividend, which we grew to $0.17 per share this year. Additionally, 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 in Miller Industries. With that, we're ready to take your questions. Thank you. We will pause for just a moment. Allow everyone the opportunity to signal. And we will take our question from James Lee with Petrobras Capital. Thanks. Is there any one time revenue, let's say, from governmental military in your your quarterly number? I'm sorry. Would you repeat that question? Okay. So on the, for Q1 revenue, were there any one time time orders, like, from government or military that boosted the, 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 a post office. But I think you're asking Was there a huge order that flowed through and the answer to that is no? Okay. And on the CapEx, given that the amount of CapEx you guys are spending this year, wondering what is the, how much capacity, how much more capacity are you building versus today? I'd say once you're done with all the CapEx spending by the end of this year, Is your 50% more production capacity versus what you have today? Now it's it it really, capacity, I think, is maybe the wrong question at least is how management here looks at it. Certainly we are increasing capacity and, and 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 Our, 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. But more than that, I think our, our expansion plans, in Tennessee and Greenville are to increase flexibility. So that when we see, for instance, high demand in trailers or large records, we can flip, we can flip our, our demand to where we have the ability to build that product and Our CapEx projects in both Tennessee and Greenville gives us that capability. The way to think about this is that you guys are currently doing about, you know, 500,000,000 to $600,000,000 in annual revenue. Once the, expansion plan is completed, how much rev end of revenue do you get getting you guys can do potentially? No, you're right. Yeah. Yeah. It's on the orders. Yeah, I appreciate I appreciate the question. I appreciate the question, but as you know, if if you are a shareholder or if you've followed 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 and domestic trends remain the same, but to say, Hey, how much more will you do, is a question that I would like to say, well, maybe somebody else wants to jump in, but that depends on the economic trends, in the industry. And again, we are cyclical. Right. So I guess Go ahead. Go ahead. Sorry. Well, who's who is the questionnaire? This is Bill. I missed your name at the beginning. Who's asking the questions? This is James Lee from Frutaro Capital. Hi, James. Well, I just missed your name at the beginning. I didn't hear it. James, the only thing I would say that I think Jeff may have, Jeff, the other two plants were basically working on bottleneck I guess that's what, if you ask Will, I would think he would say capacity would 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. So we are working on some things that would allow our partners to go through quicker and would, by definition, give us more capacity. But I will still roll back to Jeff's point we are trying to have all the capacity necessary to, handle our customer's demands, our distributors' demands, and our customers and based upon what is happening around the world, we are we wanna also be able to do those projects without interfering with our domestic, customers. So that's the objective here. And starting and and you guys said that I'm, you know, point that this this is a very cyclical industry and and you guys are certainly doing very well right now, but how would you guys handle a potential slowdown demand? You're now building your capacity. Could you cut back in capacity? Would that inhibit your ability to, Yeah. Obviously, James, are are you a shareholder? I I don't know. I'm just asking. 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 that we're most proud of is cyclicality, we keep that, and that's why we keep flexibility in our operations. This is probably one of the and I would knock on wood on this one because you never know, but historically, we have we have not lost money in a downturn. We make less money, but we don't lose money. So we have a pretty good way of handling it. So would you say that the the dividend that you guys have been paying, that's that's safe regardless of, the demand environment? Yeah, we have, we have a lot of cash. Okay. Well, at this stage, you guys are spending a lot of money on on CapEx. Do you back to that to ramp down in 2017? Oh, yeah. This is a this is a historical CapEx 6 project right now. We 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 Was it been 10 years, guys? I'm not sure for the state. 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 of the business. And I'm wondering on the, given the the level of CapEx you're gonna have this year and and certainly you have the cash right now, but by the end of the year, you'll be depleting the cash. How come do you guys with, the balance sheet and your ability to pay dividend given the the amount of CapEx you have this year? I, you know, I'm as a I don't believe the board would have increased the dividend if they did feel comfortable that they could continue. Last question is what's your manufacturing, plant utilization level currently? Our plant utilization. We're we're we're pretty we're we're we're getting very I'd say we are. What are you gonna say? Will? You're I'd say we're close to a 100%. We're close to our max capacity. We don't run 3 shifts like normal companies. We run 2. So we'll run most of our plants in the areas where we have extreme bottlenecks or our constraints are running 20 hours a day. Alright. Well, great. Well, thank you for dialing up to the folks of the, the expansion and the James renovations. 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. Ladies and gentlemen, this does conclude today's event. Thank you for attending today's presentation. You may now disconnect. Have a great rest of your day.