Earnings Call: Q4 2015

Mar 10, 2016

Please standby. Hello. This is Eli Vit operator. Welcome to the Miller Industries Fourth Quarter and Full Year 2015 Results Conference Call. As a reminder, all participants there'll be an opportunity to ask questions. Please note this event is being recorded. At this time, I'd like to turn the conference over to Max Dutcher of FTI Consulting. Please go ahead. 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 2015 fourth quarter and full year 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 Mich, Executive VP and CFO Frank Medonia, Executive Vice President And Secretary And General Counsel and W 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 that 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 securities and Change 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 with you today 2015 has been a good year for Miller Industries. It was a year in which we grew top line by almost 10% continued to reduce cost, while expanding our capacity to meet demand, increased our profitability and enhanced returns to our shareholders. The strong results were driven by improving order trends both domestically and Internationally and successfully positioned ourselves to take advantage of the expected increasing volume of activity during the year. We remain committed to our efforts to grow We reported 4th quarter sales of $136,400,000, a decrease of 8% compared to 147,800,000 in the prior year period. Net income was 3 point $9,000,000 or $0.34 per share compared to net income of 5,700,000 or $0.50 per share in the 2014 fourth quarter. The decrease in revenues in the fourth quarter of 2015 compared to the fourth quarter a year ago was a result of several one time large government deliveries we had in 2014. As I mentioned last year, Our 4th quarter performance in 2014 was a result of the culmination of a number of deliveries of government related orders that were made in the fourth quarter of 2014. The timing of many of these factors in the fourth quarter of 2014 was unique and was not likely to be repeated. Absent these orders from the fourth quarter of 2015, our performance was still strong having continued our trending momentum throughout 2015 and we maintained our gross margins year over year team as employee related expenses increased in the quarter. We are proud of the work our employees have done particularly with the quick and focused ramped up in productivity, and we compensated them for it. As a result, SG And A as a percentage of net sales was roughly 6.5%, up from 4.5 4.8% in the fourth quarter of 2014. Our order levels remain strong and overall footing activity continues to drive business forward. We are pleased with our backlog and continue to invest in our production capability. Customer language sentiment continues to be positive and our core business is operating in a position of financial strength. We are well positioned to increase our productivity and enhance shareholder value We'll review the fourth quarter and full year financial results. After that, I'll be back with comments on the market environment and some closing remarks. Thanks, Jeff and good morning everyone. Net sales for the fourth quarter of 2015 were 136 point $4,000,000 versus $147,800,000 for the 2014 4th quarter, a 7.7% year over year decrease. As Jeff discussed, we had a tough comparison to the prior year quarter where we had a number of deliveries of government related orders among other factors. As we mentioned last year, the timing of those factors was unique and not likely to be repeated. This year we had continued strong domestic and international order flow and continue the ramp up of production levels from recent quarters. Cost of operations decreased 7.7 percent to $121,100,000 excuse me, in the 2015 fourth quarter compared to 131,200,000 last year, driven primarily by sales volumes as discussed previously and costs related to production levels. Gross profit was 15 15 compared to $16,600,000 or 11.2 percent of net sales in the fourth quarter of 2014. SG and A expenses were $8,900,000 in the fourth quarter of 2015 compared to $7,100,000 in the fourth quarter of 2014. As a percentage of sales, SG Other income expense net for the fourth quarter was a net gain of $113,000 compared to a net gain of $289,000 in the fourth quarter 2014. Interest expense in the 2015 fourth quarter was $220,000 compared to $180,000 in the fourth quarter of 2014. Net income attributable to Miller Industries quarter was $3,900,000 or $0.34 per diluted share. The income attributable to Miller Industries in the 20 14 fourth quarter was $5,700,000 or $0.50 per diluted share. Now let me Net sales in 2015 were $541,000,000 compared to $492,800,000 in the prior year period. An increase of 9.8 percent. Gross profit in 2015 was $57,600,000 or 10.7 percent of net of sales compared to 53,000,000 or 10.8 percent of sales in 2014. Net income attributable to Miller Industries for the full year of 2015 was $16,000,000 or $1.41 per diluted share compared to net income for the full year excluded from net income in 2014 was a net loss in the first quarter attributed to non controlling interest of $66,000 related to the Delavan joint venture. Turning now to our balance sheet, cash and cash equivalents as of December 31, 2015, were $38,500,000 compared to $41,000,000 as of September 30 2015 and $39,600,000 at December 31, 2014. Accounts receivable at December 31, 2015, totaled $109,200,000, compared to $115,400,000 as of September 30, 2015,116,500,000 at December 31, 2014. Inventories were $66,200,000 as of December 31, 2015, compared to $64,500,000 as of September 30, 2015 $56,500,000 at December 31, 2014. The increase in inventories is accounts payable December 31, 2015 were $73,400,000 compared to 76 point $7,000,000 as of September 30, 2015 $70,600,000 at December 31, 2014. We operated with no borrowings under a $30,000,000 unsecured revolving credit facility as of December 31, 2015. As of February 29, 2016, we have borrowed $10,000,000 under the facility to help fund our 3 plant expansion projects. The company also announced that its Board of Directors has increased our quarterly cash dividend to $0.17 per share payable March 28, 2016 to shareholders of record at the close of business on March 21, 2016. Now, I'll turn the call back to Jeff for further remarks. Thank you, Vince. 2015 was a very good year for Miller Industries. We significantly ramped up our capabilities to meet strong demand. The dedication of our employees to increase production levels in line with that demand yielded solid revenue growth. Also, our work to control cost and improve operating efficiencies over the past several quarters continue to drive increased profitability. The work on consolidation and expansion of our Pennsylvania manufacturing facility continues, and we maintain our commitment to enhance the facilities at our ULTua, Tennessee and Greenville, Tennessee plants over the next year. During the year, we continue to expand our product offerings in our international footprint in markets, including Europe, Asia Pacific, the Middle East, Latin America and South Africa. Our backlog remains strong. Customer sentiment for our product continues to drive new and existing business and we expect demand to remain healthy going into 2016. 4th quarter results were evidence of our commitment to ramp up production and build up our production capabilities, despite the tough comparison to 2014. We continue to see strong quoting in domestic markets and healthy activity internationally, despite the effects of the strength of the dollar. Overall, we are very pleased with our performance in 2015. We look forward to 2016 with the momentum we have developed this year. Strong and positions us well to operate our business and facilitate growth. We remain committed to enhance shareholder value through strong cash flow and increasing our quarterly dividend to $0.17 per share. As we move into the next In closing, I'd like to thank our employees, our shareholders, our suppliers, and certainly our customers for their ongoing support of Miller Industries. You. And we'll pause just a moment to allow everyone an opportunity We'll take our first question from Walter Lang, Avondale. Good morning. Can you hear me? Yes. We can hear you, Walter. We can hear you. Congratulations on a good quarter. Can you know, it just seems to me that over the previous four to quarters, the strength of the dollar has been a pretty strong or at least a mild headwind on international activity. And the dollar, as you know, is stabilized and dependent upon the currencies slightly down over the past quarter. Has your activity in internationally been reflective of that? Is it easier to do business internationally now than had been say over the past year? I think what we're seeing over the last 8 weeks, is an increase in European backlog. So, I think you make a good point, Walter. But, the strength, the overall strength of the dollar, even though as you pointed out, we've seen some minor decrease does have an effect on the price of the product. So It is tougher in some regions of the world than it is in others. I've seen a decrease in our business in Mexico. So it varies based on currency strength country to country. Okay, thanks. Does that make sense? Yes, it does. Thank you. And can you give some, some time frames on the 3 planned expansion projects when you would expect completion? Yes, certainly. Will, do you want to take that? Sure, Walter, it's Will. Currently, we believe that most of the plant expansions will be near completion in the second and third quarter of this year. I don't believe we'll see much of an increase in capacity until after that point, but Chattanooga should be online pretty much complete by September. The Pennsylvania facility, the buildings will allow us into the building sometime in the July timeframe, to start setting up plants, new equipment, getting people into the new building. And then lastly, we have our Greenville facility. That is the last one that we started the expansion on and we're looking at some time in the September, October timeframe. Thank you, Walter. We'll take our next question from Brian Raven, Morgan Dempsey Capital Management. Good morning guys. Can you give me a sense with your plant expansions, what kind of a roofline capacity? Obviously, there's efficiencies and how many shifts you run But, you know, how much dollar revenue capacity would that add? You know, let's say if you went, you know, 3 shifts. Well, number 1, going 3 shifts, we're working almost 20 hours a day today in most of our facilities. So, I doubt that we'd ever get to the point where we'd have 3 full year, 3 shifts, 8 hours a day. Due to the complex nature of the process. In terms of in terms of capacities, the expansions themselves The one in Pennsylvania is aimed at both capacity and efficiency. The it will allow us, I believe, if the market remains strong, to reduce our backlog in carriers that is now somewhere in the neighborhood of 22 or 23 weeks from order entry to delivery to about 8 or 9 weeks. So and increase the margin based on process. From a standpoint of true capacity of the in Pennsylvania, although we don't, release the number of units we build on a monthly basis now, I guess what I would tell you is the Pennsylvania expansion will allow us to build in one plant, what we currently build in the Greenville plant, the Pennsylvania plant, and the Chevron plant. So that will allow us to, continue to use Greenville as a swing plant to fill demand, to build a wide variety of products based on market conditions. Okay. Okay. That answered your question. Yeah. No, I appreciate that. From the standpoint, what would you say asked a little differently would from a time horizon. Would these planned expansions give you forward runway for a couple of years or for 5 to 8 years or indefinitely, I'm just getting a sense as to how periodic these are. If you're asking me, are we building enough capacity for what we believe future demand is I believe on the carrier side, depending on what happens, both Internationally And from a military standpoint, we may have to make some adjustments, more adjustments in the ULTWA facility if we're successful in those other endeavors. Yes. Okay. That's fair. Give me the stance we've just initiated some positions in Miller. So we're a little bit infantile here on understanding From the standpoint and when you look at the record side of the business or the carrier, what do you see driving the demand? Is it fleet size obsolescence age? Is it growing capacity and in towing an older car fleet or truck fleet? How do you what drives that demand? I think you just mentioned them all. You answered him. I was just going to say, yes. Yes. All right. Okay. You guys talked to me a little bit about international. Can you give us what is some of maybe the divergences or differences between the U. S. Domestic carrier and record market versus international. The U. S. Domestic market, and I want to go back and understand question completely. Do you, are you asking about, the product configuration? Are you asking about the service providers, and it will. Yeah. I want to be answered in several ways. Yeah. I would say the product first off certainly the difference size, capacity, horsepower? Right. Obviously, the carrier market in Europe utilizes a higher volume of smaller capacity carriers because of smaller vehicles. That being said, the biggest difference between the two markets is the difference in the chassis we put the carriers on. The European chassis, like almost the rest of the world uses a cab over chassis with a lot of noise on the frames. That causes design changes in the installation and the operation process of the carrier versus the domestic chassis here in the UHOPs having a straight frame with, clean rails. Okay. Okay. Okay. From the standpoint of, as you guys look at adding capacity, what's kind of been your labor content from the standpoint of hiring, shortages, you know, engineers, welders, assembly guy, what where do you see bottlenecks or are you getting enough people, you know, to match, you know, your increased productivity? I think our biggest bottleneck would be welders. However, the company, continuously looks at, enhancing robotics. So to answer the question, it's hard to find good welders. There are other methods to get that welding done, but those methods take a long time to incorporate. Okay. Do you guys sponsor anything like community college co op programs or anything, welding programs? Absolutely. Okay. And then just on what are you guys see from the standpoint of your commodity feedstock, your input costs, you know, steels and paint for 2016. Sitting down with our sourcing department, We don't see any major increases. We work all the time to try to garnish decreases, but also please keep in mind that part of, and I guess you're, you said you were a new shareholder. Part of our strength, part of Miller Industries' ability to have a position of strong market share, especially in the is our constant development of So, you know, we're not cookie cutters here. We're a a strong engineering firm with strong manufacturing capabilities with a strong marketing team and sales team and we continue to lead the industry in product innovation, which of course, delineate some of the volume runs you might get if you were sending their milk in the cow. So, but we believe that's the way we should approach this industry. Okay, okay. You know, from the standpoint of the new plan expansions, what from the standpoint, I guess two questions. 1, What kind of life cycle do you have with your product development? When you look at carriers or records, is something where you design something that is in the market for 3 to 5 years or 8 years or is more of the market custom design and you don't really have prototypes or standard models. I'm just kind of understanding kind of how fast your engineering design turn? Yeah. The basic Engineering design is driven by changes in, 1, what you're mounting your carrier or wrecker 2. And secondly, what you are towing or what you were picking up. So really, the life cycle depends upon the lifecycle of vehicles in the market in terms of design. You know, I can take you back in history rather than talk forward because it may mean more to you. There was a day when cars were steel and not plastic. At that point in time, a towing vehicle used a rubber sling to pick up a car. Once the, once the automobile industry changed to plastics, to conserve fuel based on weight, it forced our industry. And in particular, our company, to invent what was called a wheel lift that actually now picked up a vehicle by its tires versus the bumper of the car. So, luckily we're strong enough in the industry, and well known enough in the that we do get to look at future vehicles and try to stay ahead of the curve. That being said, our product, the main structure of the product is engineered to standards currently that don't change. However, we deal in a mom and pop industry that average fleet size is 7. And although we sell through distributors, when you deal in an industry that our mom and pops, even if you have a basic design for engineering, you are forced to work with some customization on the exterior of the product to be successful. I got you. I got you. When you look at those infield mom and pops, what type of a product life cycle lifespan? Are you talking a record that might last obviously up here we're in Milwaukee, so you have a lot of salt and corrosion stuff. How long can something like that last? And are there rental markets? Are there trade ups? Is there a secondary market? What's kind of the dynamic of the market you're selling into? Yeah. And, starting from the beginning, our distributors which Hey, Jeff, how many questions was that? More than 1, Bill. Our distributors, so you know, our distributors, 90% of them are exclusive to the towing and recovery industry. All they do is market towing and recovery equipment. And in marketing towing and recovery equipment, they do take trades and there are, resales outlets to let's take for instance, Milwaukee. You may find a high volume tower in Milwaukee, working His purchases based on depreciation and tax ramifications, not so much how long the unit will last because it will last the unit will last longer. The back end will last longer. Than the depreciation does. The front end depends totally or the chassis depends totally on the miles driven. Now, that tower will work with our distributor to buy a new truck. He'll trade in his old truck much like an automobile dealer. That used truck normally ends up in a more rural market than Milwaukee. Maybe in a market west of Milwaukee. Certainly not a market, probably not the market between Milwaukee and Chicago, which is a high volume market. So that's number 1. Now Your second part of that question was what? No, I think you guys covered it pretty well. No, I think that that no, I appreciate. Thank you very much. Appreciate the clarity. No problem. Thank you. And at this time, that will conclude today's Q And A session. I'd like to turn it back over to our speakers for any additional or closing remarks. Well, we would like to thank you, for joining the call. Again, I have said this several times in my remarks, We're extremely pleased with our 2015 results. And we are grateful to our customers, This concludes today's event.